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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 the fiscal year ended December
31, 2009
For year ended December 31, 2009
Commission file number
001-16407
ZIMMER HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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13-4151777
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(State of
Incorporation)
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(IRS Employer Identification
No.)
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345 East Main Street Warsaw, Indiana
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46580
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(Address of principal executive
offices)
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(Zip Code)
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Registrants telephone
number, including area code:
(574) 267-6131
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $.01 par value
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New York Stock Exchange
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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 þ No o
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 o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined Exchange Act
Rule 12b-2). Yes o No þ
The aggregate market value of shares held by non-affiliates was
$9,120,369,894 (based on the closing price of these shares on
the New York Stock Exchange on June 30, 2009 and assuming
solely for the purpose of this calculation that all directors
and executive officers of the registrant are
affiliates). As of February 12, 2010,
202,790,978 shares of the registrants $.01 par
value common stock were outstanding.
Documents
Incorporated by Reference
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Document
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Form 10-K
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Portions of the Proxy Statement with respect to the 2010 Annual
Meeting of Stockholders
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Part III
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ZIMMER
HOLDINGS, INC.
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2009
FORM 10-K
ANNUAL REPORT
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This annual report contains certain statements that are
forward-looking statements within the meaning of federal
securities laws. When used in this report, the words
may, will, should,
anticipate, estimate,
expect, plan, believe,
predict, potential, project,
target, forecast, intend and
similar expressions are intended to identify forward-looking
statements. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ
materially from those projected. These risks and uncertainties
include the important risks and uncertainties that may affect
our future operations that we describe in Part I,
Item 1A Risk Factors of this report. We may
update that discussion in Part II, Item 1A
Risk Factors in a Quarterly Report on
Form 10-Q
we file hereafter. Readers of this report are cautioned not to
place undue reliance on these forward-looking statements. While
we believe the assumptions on which the forward-looking
statements are based are reasonable, there can be no assurance
that these forward-looking statements will prove to be accurate.
This cautionary statement is applicable to all forward-looking
statements contained in this report.
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ZIMMER
HOLDINGS, INC.
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2009
FORM 10-K
ANNUAL REPORT
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OVERVIEW
We are a global leader in the design, development, manufacture
and marketing of orthopaedic reconstructive implants, dental
implants, spinal implants, trauma products and related surgical
products. We also provide other healthcare related services. In
this report, Zimmer, we, us,
our and similar words refer collectively to Zimmer
Holdings, Inc. and its subsidiaries. Zimmer Holdings refers to
the parent company only.
Zimmer 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, Zimmer Holdings was spun off from its former parent and
became an independent public company.
CUSTOMERS, SALES
AND MARKETING
Our primary customers include orthopaedic surgeons,
neurosurgeons, oral surgeons, 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 surgeons.
We have operations in more than 25 countries and market products
in more than 100 countries, with corporate headquarters in
Warsaw, Indiana, and more than 100 manufacturing, distribution
and warehousing
and/or
office facilities worldwide. We manage our operations through
three major geographic segments the Americas, which
is comprised principally of the United States and includes other
North, Central and South American markets; Europe, which is
comprised principally of Europe and includes the Middle East and
Africa; and Asia Pacific, which is comprised primarily of Japan
and Australia and includes other Asian and Pacific markets.
We market and sell products through three principal channels:
1) direct to healthcare institutions, such as hospitals or
direct channel accounts; 2) through stocking distributors
and healthcare dealers; and 3) directly to dental practices
and dental laboratories. With direct channel accounts, inventory
is generally consigned to sales agents or customers. With sales
to stocking distributors, healthcare dealers, dental practices
and dental laboratories, title to product passes generally upon
shipment. Direct channel accounts represented approximately
80 percent of our net sales in 2009. No individual direct
channel account, stocking distributor, healthcare dealer, dental
practice or dental laboratory accounted for more than
1 percent of our net sales for 2009.
We stock inventory in our warehouse facilities and retain title
to consigned inventory in sufficient quantities so that products
are available when needed for surgical procedures. Safety stock
levels are determined based on a number of factors, including
demand, manufacturing lead times and quantities required to
maintain service levels. We also carry trade accounts receivable
balances based on credit terms that are generally consistent
with local market practices.
We utilize a network of sales associates, sales managers and
support personnel, most of whom are employed or contracted by
independent distributors and sales agencies. We invest a
significant amount of time and expense in training sales
associates in how to use specific products and how to best
inform surgeons of product features and uses. Sales force
representatives must have strong technical selling skills and
medical education to provide technical support for surgeons.
In response to the different healthcare systems throughout the
world, our sales and marketing strategies and organizational
structures differ by region. We utilize a global approach to
sales force training, marketing and medical education to provide
consistent, high quality service. Additionally, we keep current
with key surgical developments and other issues related to
orthopaedic surgeons, neurosurgeons, dentists and oral surgeons
and the medical procedures they perform.
Americas. The Americas is our largest
geographic segment, accounting for $2,372.4 million, or
58 percent, of 2009 net sales, with the United States
accounting for 94 percent of net sales in this region. The
United States sales force primarily consists of independent
sales agents, most of whom sell products exclusively for Zimmer.
Sales agents in the United States receive a commission on
product sales and are responsible for many operating decisions
and costs. Sales commissions are accrued at the time of sale.
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.
A majority of hospitals in the United States belong to at least
one group purchasing organization. In 2009, individual hospital
orders purchased through contractual arrangements with our two
largest group purchasing organizations accounted for
approximately 34 percent of our net sales in the United
States. Contractual sales were highest through Novation, LLC and
Premier Purchasing Partners, L.P. No individual end-user,
however, accounted for over 1 percent of our net sales, and
the top ten end-users accounted for approximately 4 percent
of our aggregate net sales in the United States.
In the Americas, we monitor and rank independent sales agents
across a range of performance metrics including the achievement
of certain sales targets and maintenance of efficient levels of
working capital.
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Europe. The European geographic segment
accounted for $1,119.2 million, or 27 percent, of
2009 net sales, with France, Germany, Italy, Spain,
Switzerland and the United Kingdom collectively accounting for
over 75 percent of net sales in the region. This segment
also includes other key markets, including Benelux, Nordic,
Central and Eastern Europe, the Middle East and Africa. Our
sales force in this region is comprised of direct sales
associates, commissioned agents, independent distributors and
sales support personnel. In Europe, we emphasize the advantages
of our clinically proven, established designs and innovative
solutions, such as minimally invasive surgical procedures and
technologies and new and enhanced materials and surfaces.
Asia Pacific. The Asia Pacific geographic
segment accounted for $603.8 million, or 15 percent,
of 2009 net sales, with Japan being the largest market
within this segment, accounting for approximately
58 percent of the regions sales. This segment also
includes key markets such as Australia, New Zealand, Korea,
China, Taiwan, India, Thailand, Singapore, Hong Kong and
Malaysia. In Japan and most countries in the Asia Pacific
region, we maintain a network of dealers, who act as order
agents on behalf of hospitals in the region, and sales
associates, who build and maintain relationships with
orthopaedic surgeons, neurosurgeons and dental surgeons in their
markets. These sales associates cover over 7,000 hospitals in
the region. The knowledge and skills of our sales associates
play a critical role in providing service, product information
and support to surgeons.
SEASONALITY
Our business is somewhat seasonal in nature, as many of our
products are used in elective procedures, which typically
decline during the summer months and holiday seasons.
DISTRIBUTION
We operate distribution facilities domestically in Warsaw,
Indiana; Dover, Ohio; Statesville, North Carolina; Memphis,
Tennessee; Carlsbad, California; and Austin, Texas and
internationally, in Australia, Austria, Belgium, Canada, the
Czech Republic, China, Finland, France, Germany, Hong Kong,
India, Italy, Japan, Korea, Malaysia, the Netherlands, New
Zealand, Portugal, Russia, Singapore, South Africa, Spain,
Sweden, Switzerland, Taiwan, Thailand and the United Kingdom. In
2009, we completed construction of our highly automated,
state-of-the-art
distribution facility in Eschbach, Germany. This new facility
supports direct to customer, country and dealer shipments for
the European region and global shipments for products sourced
from certain European-based supply chain sites.
We generally ship our orders via expedited courier. We do not
consider our backlog of firm orders to be material to an
understanding of our business.
PRODUCTS
Our products include orthopaedic reconstructive implants, dental
implants, spinal implants, trauma products and related surgical
products.
We utilize our exclusive Trabecular
Metaltm
Technology across various product categories. Trabecular
Metal material is a structural biomaterial with a cellular
architecture that resembles bone and approximates its physical
and mechanical properties more closely than other prosthetic
materials. The highly porous trabecular configuration is
conducive to more normal bone formation and bone in-growth.
Trabecular Metal implants are fabricated using elemental
tantalum metal and a patented vapor deposition technique that
creates a metallic strut configuration resembling cancellous
bone with nano-textured surface features.
Orthopaedic
Reconstructive Implants
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. Knee
implants are designed to accommodate different levels of
ligament stabilization of the joint. While some knee implant
designs, called cruciate retaining (CR) designs, require the
retention of the posterior cruciate ligament, other designs,
called posterior stabilized (PS) and ultracongruent (UC)
designs, provide joint stability without the posterior cruciate
ligament. There are also procedures for partial reconstruction
of the knee, which treat limited knee degeneration and involve
the replacement of only one side, or compartment, of the knee
with a unicompartmental knee prosthesis.
Our portfolio of Minimally Invasive
Solutionstm
Procedures (MIS) includes the MIS Mini-Incision Total Knee
Procedure. The MIS Mini-Incision Procedure utilizes specialized
MIS Instruments which feature smaller, ergonomic and highly
precise instruments which accommodate and facilitate a smaller
incision and less disruption of the surrounding soft tissues.
We offer a wide range of products for specialized knee
procedures, including the following:
NexGen®
Complete Knee Solution. The number one selling knee
brand in the world, the NexGen Knee product line is a
comprehensive system for knee replacement surgery which has
significant application across the continuum of care in all
things related to primary and revision knee arthroplasty,
including CR, PS and revision procedures. The NexGen Knee
System offers joint stability, sizing and performance options
that can be tailored to individual patient needs while providing
surgeons with a unified system of interchangeable components.
The NexGen Knee System provides surgeons with complete
and versatile knee instrument options spanning multiple surgeon
and treatment
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HOLDINGS, INC.
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2009
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ANNUAL REPORT
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philosophies, including soft tissue balancing and measured
resection MIS Mini-Incision Instruments, and multiple
traditional instrument systems. The breadth and versatility of
the NexGen Knee System allows surgeons to transition from
one type of implant to another during surgery, according to the
respective needs of the patient, and to support current surgical
philosophies.
The NexGen CR product line is designed to be used in
conjunction with a functioning posterior cruciate ligament.
Similar to the posterior stabilized design, the NexGen
CR-Flex
Fixed Bearing Knee is designed to provide a greater range of
motion for patients who require deep bending in their activities
of daily living. The NexGen CR-Flex Femoral Components
offer a tissue balancing (flexion balancing) solution which
allows the surgeon to adjust component sizing and balance and
stabilize the implant without removing additional bone or
wasting critical procedure time.
The NexGen Complete Knee Solution
Legacy®
Knee-Posterior Stabilized product line provides stability in the
absence of the posterior cruciate ligament. The PS capabilities
can be augmented via the use of a NexGen Legacy Posterior
Stabilized Flex Knee (LPS-Flex Knee), a high-flexion implant
that has the potential to accommodate knee flexion up to
155-degrees
range of motion for patients whose lifestyle and body type
demand and can accommodate this performance standard. With the
2008 rollout of the NexGen LPS-Flex Mobile Knee in the
U.S., we are now one of only two companies that can offer a
mobile-bearing total knee treatment option in the
U.S. market for surgeons and patients that may be best
suited for this high performance implant design.
NexGen Knee Gender
Solutionstm
femorals represent the first knee implants specifically shaped
to offer fit and function optimized for the unique anatomical
considerations more commonly seen in female patients. Gender
implants are an important strategic focus, as more than half of
total knee arthroplasty patients are female. Gender Solutions
femorals are available in both NexGen
CR-Flex
and LPS-Flex configurations. The concept of advancing implant
design through customization based on anatomy or other patient
characteristics has manifested in rapidly expanding gender
technologies across the continuum of our products and into other
important brands in our growing portfolio.
The NexGen Revision Knee product line consists of several
different products that are designed to provide clinical
solutions to surgeons for various revision situations, including
multiple constraint levels for ligament and soft tissue
inefficiencies and a bone augmentation implant system made from
our Trabecular Metal Technology material. These augments
are designed to address significant bone loss in revision
surgery while allowing natural bone to reconstruct within the
implant construct.
We offer improved polyethylene performance in the NexGen
Knee System with our conventional polyethylene and
Prolong®
Highly Crosslinked Polyethylene, which offers reduced wear
and resistance to oxidation, pitting and cracking. Prolong
Highly Crosslinked Polyethylene is available in designs
compatible with both NexGen CR-Flex and
LPS-Flex
femoral components.
Natural-Knee®
II System. The Natural-Knee II System
consists of a range of interchangeable, anatomically designed
implants which include a proprietary Cancellous-Structured
Titaniumtm
(CSTitm)
Porous Coating option for stable fixation in active patients.
Gender Solutions Natural-Knee Flex System. The
Gender Solutions Natural-Knee Flex System adds our High
Flex and Gender Solutions design concepts to the
Natural-Knee System. The Gender Solutions Natural-Knee
Flex System recognizes that two distinct populations exist
in total knee arthroplasty (female and male) and offers two
distinct implant shapes for enhanced fit. The system is
compatible with muscle sparing MIS procedures and accommodates
high flexion capacity up to 155 degrees. The system features the
proven clinical success of our asymmetric tibial plate,
CSTi porous coating, Prolong Highly Crosslinked
Polyethylene and the ultracongruent articular surface.
Innex®
Total Knee System. The Innex Knee System
offers fixed bearing and mobile bearing knee components all
designed within the same system philosophy. While the Innex
Knee System is best known for its mobile bearing knee
offering, the availability of differing levels of articular
constraint, the Innex Revision Knee and Innex Gender
Solutions components make this offering a comprehensive
mobile and fixed bearing knee system. The Innex Knee
System is distributed in Europe and Asia Pacific and is not
currently available for commercial distribution in the United
States.
Zimmer Unicompartmental Knee Systems. The
Zimmer®
Unicompartmental Knee System offers a high flexion design
for unicompartmental knee surgery. This high flex product was
designed specifically for MIS Procedures and Technologies. The
system offers the surgeon the ability to conserve bone by
replacing only the compartment of the knee that has had
degenerative changes. A Gender Solutions Patello-Femoral
Joint System is also available which incorporates key gender
specific design features and a proprietary guided milling
surgical technique for use in patello-femoral joint replacement.
Zimmer Patient Specific Instruments. In late
2009, a 510(k) Application for the Zimmer Patient
Specific Instruments was approved by the U.S. Food and Drug
Administration (FDA). The Zimmer Patient Specific
Instruments simplify a total knee procedure and help enhance
appropriate placement of the final implant based on a
surgeons preoperative surgical plan. Based on a
patients MRI scan, a computer generated, custom guide is
produced to conform to a patients unique knee anatomy.
This guide is then utilized intraoperatively to aid in the
surgical correction of the patients knee.
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Zimmer Segmental System. Adding to our broad
portfolio of revision options, the Zimmer Segmental
System is a comprehensive system designed to address patients
with severe bone loss associated with disease, trauma or
revision. This important addition realizes our strategic goal of
expanding our product solutions across the continuum of care
and, with the incorporation of Trabecular Metal
Technology, expands the possibilities for treatment, short
and long term fixation and stability.
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. Approximately
30 percent of hip implant procedures involve the use of
bone cement to attach or affix the prosthetic components to the
surrounding bone. The remaining are press-fit into bone, which
means that they have a surface that bone affixes to through
either ongrowth or ingrowth technologies.
Our portfolio of MIS Techniques includes the Zimmer MIS
Anterior Supine Technique, the MIS Posterior Procedure, the
Zimmer MIS Anterolateral Technique and MIS
2-Incisiontm
Hip Replacement Procedure. The MIS Techniques are designed to be
less invasive to soft tissues and to shorten recovery time.
Our key hip replacement products include:
Zimmer M/L Taper Hip Prosthesis with
Kinectiv®
Technology. The Zimmer M/L Taper Hip Prosthesis
offers a proximally porous-coated wedge-shaped design based on
long term clinically proven concepts. The M/L Taper has become
widely used in MIS Procedures due to several key design
features. The Zimmer M/L Taper Hip Prosthesis with
Kinectiv Technology is a system of modular stem and neck
components designed to help the surgeon restore the natural hip
joint center intraoperatively by addressing the key variables of
leg length, offset and version independently.
Alloclassic®
(Zweymüller®)
Hip System. The Alloclassic (Zweymüller)
Hip System has become one of the most used, primary,
cementless hip systems in the world. This is one of the few
stems available today that is practically unchanged since its
introduction in 1979. A new offset design was added in 2004 and
offers the surgeon increased capability to restore the
patients anatomical joint movement.
CLS®
Spotorno®
Hip System. The CLS Spotorno Stem is one
of our largest selling hip prostheses, especially in the
European markets. Additions to the product line provide the
capability for restoration of the physiological center of
rotation. The CLS Spotorno Stem has excellent clinical
results, confirmed by the 2006 Swedish Hip Registry.
Fitmore®
Hip Stem. The Fitmore Hip Stem was released in
2008 and offers the surgeon a short, bone preserving stem.
Maintaining bone stock is particularly important for patients
who may undergo a later revision procedure. Its unique shape
facilitates MIS procedures, especially the MIS Anterior Supine
approach which is gaining in popularity.
VerSys®
Hip System. The VerSys Hip System is supported
by a common instrumentation set and is an integrated family of
hip products with design-specific options to meet varying
surgical philosophies and patient needs. A unique offering
within the VerSys Hip System, the VerSys
Epoch®
Fullcoat Hip System is the first reduced-stiffness stem
specifically designed to address varying patient femoral
anatomies and minimize implant-related complications such as
thigh pain, bone resorption and leg lengthening.
Continuumtm
Acetabular System,
Trilogy®
IT Acetabular System and
Allofit®
IT
Alloclassic®
Acetabular System. These systems were released in
2009 and each acetabular system offers the surgeon a choice of
advanced bearing options to meet the clinical and lifestyle
needs of each patient. Bearing options include
Longevity®
Highly Crosslinked Polyethylene,
Metasul®
Metal-on-Metal
Technology and a
BIOLOX®1
delta
ceramic-on-ceramic
(where Zimmer has regulatory clearances). The acetabular systems
also provide surgeons a choice of fixation method that
accommodates their surgical philosophy.
Zimmer
MMCtm
Cup. The Zimmer MMC Cup is an acetabular
implant featuring Metasul
Metal-on-Metal
Technology and a hemispherical design that offers familiar
handling for surgeons. This system was released in 2009. It is
used with Metasul Large Diameter Heads, which are
designed to provide increased range of motion and reduced
probability of dislocation, making this implant an option for
active patients.
Trilogy®
Acetabular System. The Trilogy Acetabular
System, with its titanium alloy shell, fiber metal mesh ingrowth
surface and Longevity Highly Crosslinked Polyethylene
Liners, is our most widely sold acetabular cup system.
We offer the Trabecular Metal Modular Acetabular System,
which incorporates design features from the Trilogy
family of acetabular shells augmented with the advanced
fixation surface of Trabecular Metal material. In
addition to the Trabecular Metal Acetabular System, we
also offer a Trabecular Metal Acetabular Revision System
that provides the surgeon with a variety of
off-the-shelf
options to address a wide range of bone deficiencies encountered
during acetabular revisions and to achieve a stable construct.
1 Registered
trademark of CeramTec AG
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Our extremity portfolio, primarily shoulder and elbow products,
is designed to treat arthritic conditions, soft tissue injuries
and fractures, as well as to enhance the outcome of primary or
revision surgery.
Our key products include:
Bigliani/Flatow®
Complete Shoulder Solution Family. The
Bigliani/Flatow product line combined with the
Trabecular Metal Humeral Stem gives us a significant
presence in the global shoulder implant market.
Trabecular Metal Glenoid. The Trabecular
Metal Glenoid offers surgeons a glenoid component designed
to improve fixation. Trabecular Metals material
properties allow for more normal bone formation and maintenance.
Trabecular Metal Reverse Shoulder System. The
Trabecular Metal Reverse Shoulder System incorporates
advanced materials and design to offer improved biological
ingrowth potential through the utilization of Trabecular
Metal Technology, while addressing significant loss of
rotator cuff function. The reverse shoulder system is designed
to restore function to patients who, because of debilitating
rotator cuff tears, are not candidates for traditional shoulder
surgery and have exhausted other means of repair.
Anatomical
Shouldertm
System. The Anatomical Shoulder System can be
adjusted to each patients individual anatomy. This
portfolio of products was further expanded to include the
Anatomical Shoulder Inverse/Reverse System, designed to
address significant loss of rotator cuff function, and the
Anatomical Shoulder Fracture System. Both the primary and
fracture shoulder implants can be converted to a reverse
shoulder without removal of the initial implant.
Coonrad/Morrey Total Elbow. The Coonrad/Morrey Total Elbow
product line is a family of elbow replacement implant products
to address patients with conditions of severe arthritis or
trauma. It remains the largest elbow franchise in the world.
Our dental products division manufactures and distributes:
(1) dental reconstructive implants for
individuals who are totally without teeth or are missing one or
more teeth; (2) dental restorative products
aimed at providing a more natural restoration to mimic the
original teeth; and (3) dental regenerative
products for soft tissue and bone rehabilitation.
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Dental
Reconstructive Implants
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Our dental reconstructive implant products and surgical and
restorative techniques include:
Tapered
Screw-Vent®
Implant System. Our highest selling dental
product line provides the clinician a tapered geometry which
mimics the natural shape of a tooth root. The Tapered
Screw-Vent System, with its two-stage design, was developed
to minimize valuable chair time for restorations. Featuring a
proprietary internal hex connection, multiple lead threads for
reduced insertion time and selective surface coatings, the
Tapered Screw-Vent Product is a technologically advanced
dental implant offering features designed to allow the clinician
to meet the needs of patients. The Zimmer One-Piece
Implant System, designed to complement the success of the
Tapered Screw-Vent System, enhances this product line by
offering clinicians a fast, convenient restorative option.
AdVent®
Implant System. Utilizing many features of the
Tapered Screw-Vent System, the AdVent Product is a
transgingival, one stage design that utilizes the same surgical
system as the Tapered Screw-Vent System, allowing the
clinician to use both design concepts without incurring the
added cost of a second surgical system.
Tapered
SwissPlus®
Implant System. Designed to meet the needs of
clinicians who prefer a transgingival, one stage, dental
implant, the Tapered SwissPlus System incorporates
multiple lead threads for faster insertion time and a tapered
body to allow it to be placed in tight interdental spaces. The
Tapered SwissPlus System also incorporates an internal
connection.
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Dental
Restorative Products
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We commercialize products for the aesthetic market aimed at
providing a more natural restoration. We offer a full line of
prosthetic devices for each of the above dental implant systems
as well as a custom solution, as follows:
Zimmer
Hex-Lock®
Contour Abutment and Restorative Products. Designed to be used
with our Tapered Screw-Vent and One-Piece Implant
Systems, our contour lines are a solution for addressing the
diversity of patients needs. Featuring prepared margins,
titanium and ceramic options and snap-on impression caps, our
abutments are designed to simplify the restoration process, save
time for clinicians and technicians and offer versatility.
During 2009, we released our new Hex-Lock Short Abutment
and Restorative System, an all-inclusive system that promotes
posterior restorations, as well as the Zimmer Contour
Angled Zirconia Abutment engineered for use with the Tapered
Screw-Vent implants to provide clinicians with a restorative
solution for patients esthetic needs.
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Dental
Regenerative Products
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We market the following product lines for use in regenerative
techniques in oral surgery:
Puros®
Allograft Products. The Puros Material is
an allograft material which in the case of mineralized bone and
dermal tissues utilizes the
Tutoplast®2
Tissue Processing Technique that provides exceptional bone and
soft tissue grafting material for use in oral surgery. Zimmer
Dental
2 Registered
trademark of RTI Biologics, Inc.
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offers seven distinct Puros Allograft products to use
together or separately for various bone and soft tissue grafting
needs: Puros Cancellous Particulate, Puros
Cortical Particulate, Puros Block Allografts,
Puros Pericardium Membranes, Puros Dermis
Membranes and, in 2009, we extended our Puros portfolio
by adding Puros Demineralized Bone Matrix (DBM) and
Puros DBM Putty with Chips. We market the Puros
Allograft Products through an agreement with RTI Biologics,
Inc.
Through this same agreement with RTI Biologics, Inc., we provide
CopiOs®
Pericardium Membrane in the United States. Sourced from bovine
pericardial tissue, CopiOs Pericardium Membrane provides
the characteristics of natural tissue and can be used as a
direct substitute for Puros Pericardium Membranes.
In addition, we extended our regenerative portfolio further in
wound management by adding the
HemCon®3
Dental Dressing, an advanced wound dressing material that
utilizes a propriety chitosan-based technology to effectively
seal the wound and minimize pain in various surgical procedures.
The HemCon Dental Dressing is exclusively distributed by
Zimmer Dental. In 2009, we also introduced our Zimmer
Sinus Lift Balloon, created to simplify the delicate sinus
lift procedure under an agreement with Osseous Technologies of
America (OTA).
Our Spine products division designs, manufactures and
distributes medical devices and surgical instruments to deliver
comprehensive solutions for those with back or neck pain caused
by degenerative conditions, deformities or traumatic injury of
the spine. We provide surgeons a broad range of technologies for
posterior and anterior procedures in the cervical, thoracic and
lumbar regions of the spine.
Zimmer Spines portfolio of spinal solutions includes:
Dynesys®
Dynamic Stabilization System. The Dynesys
family of implants was designed to facilitate a more
physiologic approach to low back spinal stabilization. The
system threads flexible components, instead of traditional rigid
titanium rods, through pedicle screws in order to stabilize
affected spinal segments in a more natural anatomic position and
to alleviate pain. The Dynesys Dynamic Stabilization
System is currently indicated for use as an adjunct to fusion in
the U.S.
PathFinder®
Minimally Invasive Pedicle Screw System. A pioneering
technology in MIS, the PathFinder System is a posterior
stabilization system used in fusion procedures of the lumbar and
thoracic spine. The system easily facilitates single or
multi-level procedures while featuring reduction, compression
and distraction capabilities.
Universal
Clamp®
Spinal Fixation System. The innovative design of the
Universal Clamp implant allows it to be used alongside
traditional hooks, screws and wires to treat scoliotic
deformities and correct complex spinal pathologies.
Sequoia®
Pedicle Screw System. The Sequoia System was
developed to simplify surgical flow, reduce implantation time
and improve ergonomic tool design. This advanced pedicle screw
system combines ergonomic instrumentation with an effective
design that reduces implant metal volume.
Ardis®
Interbody System. The Ardis implant features a
self-distracting nose, convex geometry and wide range of sizes.
This versatile
PEEK-OPTIMA®4
device incorporates a large space for graft placement, plus an
advanced tooth design to effectively resist migration and
expulsion during procedures. Ardis instrumentation was also
designed to streamline the surgical procedure and improve
surgeon comfort.
Trinica®
Select Anterior Cervical Plating System. The
Trinica Select System is designed to simplify the
surgical procedure with the
Secure-Twist®
anti-migration system, which provides visual confirmation of
screw capture, as well as a wide variety of screw options to
customize the construct depending on patient need.
Biological Products. Zimmer Spine offers a
full line of bone void filler products to accommodate most
surgical procedures.
Puros®
Demineralized Bone Matrix is available in Putty and Putty with
Chips formulations, and the
CopiOs®
Bone Void Filler family of products includes synthetic bone
graft material in the form of sponges or pastes that are used to
fill bone voids during spine surgery.
Wallis®
Posterior Dynamic Stabilization System (available outside the
U.S. only). The Wallis system is an
innovative spinal implant that was designed to stabilize the
lumbar spine while preserving the anatomy and minimizing the
need for bony resection. The Wallis system combines a
PEEK-OPTIMA spacer linked to the vertebrae via a
polyester band that permits an even distribution of stresses on
bone.
Trauma products include devices used to stabilize damaged or
broken bones and their surrounding tissues to support the
bodys natural healing processes. Fractures are most often
stabilized using internal fixation devices such as plates,
screws, nails, wires and pins, but may also be stabilized using
external fixation devices. Orthobiologics are used in
conjunction with traditional trauma devices to encourage healing
and replace bone lost during an injury. We are focused on
providing exceptional options to treat a broad range of
traumatic injuries, addressing unmet clinical needs
3 Registered
trademark of HemCon Medical Technologies, Inc.
4 Registered
trademark of Victrex PLC Corporation, United Kingdom
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and implementing next-generation technologies into our portfolio
of trauma solutions.
Zimmer Trauma offers a comprehensive line of products, including:
Zimmer Natural
Nailtm
System. The Zimmer Natural Nail System
includes a series of intramedullary nails designed to address a
broad range of long bone fractures. The nails are anatomically
shaped and incorporate an innovative feature that allows the
screws to be linked to the nails, creating a robust construct
even in poor quality bone. Instrumentation for nail placement is
designed to make it easy for surgeons to utilize the implants as
well as to address growing concerns with obesity and
osteoporosis.
NCB®
Polyaxial Locking Plate System. NCB Polyaxial
Locking Plates provide surgeons with the ability to place screws
with polyaxial freedom and utilize both conventional and locking
technology in the treatment of complex fractures of the distal
femur, proximal humerus and proximal tibia. We continue to
invest in additional applications of this exciting technology.
Zimmer Periarticular Locking Plate System. The
Zimmer Periarticular Locking Plate System combines
advanced, anatomic designs with locking screw technology to
create constructs for use in comminuted fractures or where
deficient bone stock or poor bone quality is encountered. By
combining locking screw holes with compression slots, the plates
can be used as both locking devices and fracture compression
devices.
Zimmer Universal Locking System. The Zimmer
Universal Locking System is a comprehensive system of mini
and small fragment plates, screws and instruments for fracture
fixation. The Universal Locking System plates resemble standard
plates, but have figure-8 shaped holes which allow the plates to
be used as compression plates, locked internal fixators or as an
internal fixation system combining both techniques.
Zimmer
Cable-Ready®
System. The Zimmer Cable-Ready System includes
a series of instruments, cables and other implants that help a
surgeon treat several different fracture types, including those
that occur around a previously implanted device
(periprosthetic). The cables are wrapped around the bone and
then secured, either to themselves or to plates, to provide
fixation for fractured limbs.
Orthopaedic
Surgical Products
We develop, manufacture and market products that support our
reconstructive, trauma, spine and dental implant procedures in
the peri-operative environment, with a focus on Bone Cements,
Surgical Wound Site Management and Blood Management. Orthopaedic
Surgical Products include:
PALACOS®5
Bone Cement. We have exclusive United States
distribution rights for the PALACOS line of bone cement
products manufactured by Heraeus Kulzer GmbH. Included in these
brands are PALACOS R and PALACOS R+G Bone Cements,
as well as PALACOS LV and PALACOS LV+G Bone
Cements. The PALACOS R+G and PALACOS LV+G products
are bone cements with the antibiotic gentamiacin pre-mixed in
the formulation; both are used by orthopaedic surgeons to reduce
the risk of postoperative infection in second stage revisions.
These products have handling characteristics that make them
well-suited for minimally invasive procedures.
Hi-Fatiguetm6
Bone Cement. We have exclusive European and Asian
distribution rights for the Hi-Fatigue line of bone
cement products manufactured by aap Biomaterials GmbH. Included
in these brands are Hi-Fatigue and Hi-Fatigue G
Bone Cements. The Hi-Fatigue G bone cement utilizes the
antibiotic gentamiacin pre-mixed in the formulation and is used
by orthopaedic surgeons to reduce the risk of postoperative
infection.
A.T.S.®
Automatic Tourniquet Systems. The
A.T.S. Tourniquet Systems Product Line is a
family of tourniquet machines and cuffs designed to safely
create a bloodless surgical field. The portfolio includes the
A.T.S. 3000 Tourniquet System, which utilizes proprietary
technology to determine a patients proper Limb
Occlusion Pressure (LOP) based on the patients
specific physiology. A decrease in LOP may reduce tissue or
nerve damage. The range of cuffs which complement the machines
provides the flexibility to occlude blood flow safely with
convenience and accuracy for limbs of virtually every size and
shape.
Pulsavac®
Plus, Pulsavac Plus AC and Pulsavac Plus LP Wound
Debridement System. These Pulsavac Systems are
used for cleaning and debridement of contaminants and foreign
matter from wounds using simultaneous irrigation and suction.
All three Pulsavac Systems are completely disposable to
reduce the risk of cross contamination. While Pulsavac
Plus and Pulsavac Plus LP Wound Debridement Systems
are both battery-powered, the Pulsavac Plus AC Wound
Debridement System is a disposable system that is powered by a
reusable AC power source to address battery disposal concerns.
Zimmer Blood Reinfusion System (ZBRS) and
Hemovac®
Blood Management Systems. These two blood management
systems are part of a larger family that supports the clinician
in managing patient blood loss after the surgical procedure. The
ZBRS product is a closed-loop postoperative system that
effectively salvages and filters the patients own blood,
which can help reduce the dependency on banked blood
and/or
preoperative autologous donation.
HEALTHCARE
CONSULTING
Our healthcare consulting services subsidiary, Accelero Health
Partners, LLC (Accelero), is based in Canonsburg,
5 Registered
trademark of Heraeus Kulzer GmbH
6 Registered
trademark of aap Biomaterials GmbH & Co. KG
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Pennsylvania. Accelero consultants work to design a customized
program for each client that promotes the active participation
and collaboration of the physicians and the hospital-based
departments with the goal of consistently producing a superior
outcome in the form of a growing, efficient, and effective care
delivery network. Currently, revenue related to Accelero
represents less than 1 percent of our total net sales.
ORTHOBIOLOGICS
Our research and development efforts include an Orthobiologics
group based in Austin, Texas, with its own full-time staff and
dedicated projects centralizing on the development of a variety
of biologic technologies for musculoskeletal applications. This
group works on biological solutions to repair and regenerate
damaged or degenerated musculoskeletal tissues using
biomaterials/cell therapies which offer the possibility of
treating damaged joints by biological repair rather than
replacing them. A sampling of some of our key projects in the
Orthobiologics area is set forth below.
We are collaborating with ISTO Technologies, Inc. (ISTO) to
develop chondral and osteochondral grafts for cartilage repair.
ISTO creates cell-based therapies for cartilage regeneration
using cells from juvenile donor cartilage. DeNovo ET Engineered
Tissue Graft is a living tissue-engineered cartilage graft under
clinical investigation for the restoration of cartilage defects,
reestablishment of joint function and relief of pain in the
knee. The Phase I/II clinical trial for DeNovo ET has been
completed and the data has been supplied to the FDA with a
request to allow Zimmer/ISTO to proceed with enrollment with the
pivotal Phase III clinical trial. In addition, we completed
the full launch of our first cartilage repair product, DeNovo NT
Natural Tissue Graft, in 2009. This product provides
particulated juvenile cartilage tissue for repair of articular
cartilage defects of the knee, ankle, shoulder, hip, elbow and
toe joints. More than 700 patients have undergone this
innovative cartilage repair procedure.
Many musculoskeletal surgical procedures use bone grafts to help
regenerate lost or damaged bone. Our Spine, Dental and Trauma
divisions have introduced a technologically advanced all-human
demineralized bone matrix, Puros DBM Putty and Putty with
bone chips. This bone-derived allograft material is used to fill
bone voids or defects. It is placed into the bone void where it
is then completely replaced by natural bone during the healing
process.
RESEARCH AND
DEVELOPMENT
We have extensive research and development activities to develop
new surgical techniques, materials, orthobiologics and product
designs. The research and development functions work closely
with our strategic brand marketing function. The rapid
commercialization of innovative new materials, orthobiologics
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 product offerings in each of the product
categories and exploring new technologies with possible
applications in multiple areas. For the years ended
December 31, 2009, 2008 and 2007, we spent
$205.4 million, $192.3 million and
$182.6 million, respectively, on research and development.
Our primary research and development facility is located in
Warsaw, Indiana. We have other research and development
personnel based in, among other places, Winterthur, Switzerland;
Austin, Texas; Minneapolis, Minnesota; Carlsbad, California;
Dover, Ohio; and Parsippany, New Jersey. As of December 31,
2009, we employed more than 800 research and development
employees worldwide.
We expect to continue to identify innovative technologies and
consider acquiring complementary products or businesses, or
establishing technology licensing arrangements or strategic
alliances.
GOVERNMENT
REGULATION AND COMPLIANCE
We are subject to government regulation in the countries in
which we conduct business. In the U.S., numerous laws and
regulations govern all the processes by which medical devices
are brought to market. These include, among others, the Federal
Food, Drug and Cosmetic Act and regulations issued or
promulgated thereunder. The FDA has enacted regulations that
control all aspects of the development, manufacture,
advertising, promotion and postmarket surveillance of medical
products, including medical devices. In addition, the FDA
controls the access of products to market through processes
designed to ensure that only products that are safe and
effective are made available to the public.
Most of our new products fall into FDA classifications that
require 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 United States.
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
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 United
States have been cleared or approved by the FDA, with the
exception of certain
pre-amendment
devices which were in commercial distribution prior to
May 28, 1976. The FDA has grandfathered these devices, so
new FDA submissions are not required. The FDA has the authority
to: halt the distribution of certain medical devices; detain or
seize adulterated or
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misbranded medical devices; or order the repair, replacement or
refund of the costs of such devices. There are also certain
requirements of state, local and foreign governments that we
must comply with in the manufacture and marketing of our
products.
In many of the foreign countries in which we market our
products, we are subject to local regulations affecting, among
other things, design and product standards, packaging
requirements and labeling requirements. Many of the regulations
applicable to our devices and products in these countries are
similar to those of the FDA. The member countries of the
European Union have adopted the European Medical Device
Directive, which creates a single set of medical device
regulations for products marketed in all member countries.
Compliance with the Medical Device Directive and certification
to a quality system 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
manufacturers quality systems and the products
conformity to the requirements of the Medical Device Directive.
We are subject to inspection by the Notified Bodies for
compliance with these requirements.
Further, we are subject to various federal and state laws
concerning healthcare fraud and abuse, including false claims
laws and anti-kickback laws. These laws are administered by,
among others, the U.S. Department of Justice, the Office of
Inspector General of the Department of Health and Human Services
and state attorneys general. Many of these agencies have
increased their enforcement activities with respect to medical
device manufacturers in recent years. Violations of these laws
are punishable by criminal
and/or civil
sanctions, including, in some instances, fines, imprisonment
and, within the United States, exclusion from participation in
government healthcare programs, including Medicare, Medicaid and
Veterans Administration (VA) health programs.
Our operations in foreign countries are subject to the
extraterritorial application of the U.S. Foreign Corrupt
Practices Act (FCPA). As part of our global compliance program,
we seek to address FCPA risks proactively.
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 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.
COMPETITION
The orthopaedics industry is highly competitive. In the global
markets for reconstructive implants, trauma and related surgical
products, our major competitors include: DePuy Orthopaedics,
Inc. (a subsidiary of Johnson & Johnson), Stryker
Corporation, Biomet, Inc., Smith & Nephew plc, Wright
Medical Group, Inc., Synthes, Inc. and Tornier, Inc.
In the Americas geographic segment, we and DePuy Orthopaedics,
Inc., Stryker Corporation, Biomet, Inc., Smith &
Nephew, Inc. (a subsidiary of Smith & Nephew plc),
Wright Medical Group, Inc. and Synthes, Inc. account for a large
majority of the total reconstructive and trauma implant sales.
In the Asia Pacific market for reconstructive implant and trauma
products, we compete primarily with DePuy Orthopaedics, Inc.,
Stryker Corporation, Synthes, Inc. and Smith & Nephew
plc, as well as regional companies, including Japan Medical
Materials Corporation and Japan Medical Dynamic Marketing, Inc.
Factors, such as the dealer system and complex regulatory
environments, make it difficult for smaller companies,
particularly those that are non-regional, to compete effectively
with the market leaders in the Asia Pacific region.
The European reconstructive implant and trauma product markets
are more fragmented than the Americas or the Asia Pacific
segments. The variety of philosophies held by European surgeons
regarding hip reconstruction, for example, has fostered the
existence of many regional European companies, including
Aesculap AG (a subsidiary of B. Braun), Waldemar LINK
GmbH & Co., KG and Mathys AG which, in addition to the
global competitors, compete with us. Today most hip implants
sold in Europe are products developed specifically for the
European market, although global products are gaining
acceptance. We will continue to develop and produce specially
tailored products to meet specific European needs.
In the spinal implant category, we compete globally primarily
with the spinal and biologic business of Medtronic, Inc., DePuy
Spine (a subsidiary of Johnson & Johnson), Synthes,
Inc., Stryker Corporation, Biomet Trauma and Biomet Spine
(subsidiaries of Biomet, Inc.) and NuVasive, Inc.
In the dental implant category, we compete primarily with Nobel
Biocare Holding AG, Straumann Holding AG, Astra Tech Dental and
Biomet 3i (a subsidiary of Biomet, Inc.).
Competition within the industry is primarily based on
technology, innovation, quality, reputation and customer
service. A key factor in our continuing success in the future
will be our ability to develop new products and improve existing
products and technologies.
MANUFACTURING AND
RAW MATERIALS
We manufacture substantially all of our products at nine sites
including Warsaw, Indiana; Winterthur, Switzerland; Ponce,
Puerto Rico; Dover, Ohio; Statesville, North Carolina; Carlsbad,
California; Parsippany, New Jersey; Shannon, Ireland; and
Etupes, France.
We believe that our manufacturing facilities are among the best
in our industry in terms of automation and productivity and have
the flexibility to accommodate future growth. The manufacturing
operations at these facilities are designed to incorporate the
cellular concept for production and to implement tenets of a
manufacturing philosophy focused on continuous operational
improvement and optimization. Our continuous improvement efforts
are driven by Lean and Six Sigma methodologies. In addition, at
certain
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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
levels up to 90 percent of total capacity. We continually
evaluate the potential to in-source products currently purchased
from outside vendors to
on-site
production.
We have improved our manufacturing processes 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, such as castings and
forgings; and negotiated reductions in third party supplier
costs.
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 vendors, employees, consultants and
others who may have access to proprietary information. We own or
control through licensing arrangements more than 4,000 issued
patents and patent applications throughout the world that relate
to aspects of the technology incorporated in many of our
products.
EMPLOYEES
We employ more than 8,200 employees worldwide, including
more than 800 employees dedicated to research and
development. Approximately 4,900 employees are located
within the United States and approximately 3,300 employees
are located outside of the United States, primarily throughout
Europe and in Japan. We have over 3,500 employees dedicated
to manufacturing our products worldwide. The Warsaw, Indiana
production facility employs more than 1,600 employees.
Fewer than 200 North American employees are members of a trade
union covered by a collective bargaining agreement.
We have a collective bargaining agreement with the United Steel,
Paper and Forestry, Rubber Manufacturing, Energy, Allied
Industrial and Service Workers International Union for and on
behalf of Local
2737-15
covering employees at the Dover, Ohio facility, which continues
in effect until May 15, 2012.
EXECUTIVE
OFFICERS
The following table sets forth certain information with respect
to our executive officers as of February 15, 2010.
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Name
|
|
Age
|
|
Position
|
|
David C. Dvorak
|
|
46
|
|
President and Chief Executive Officer
|
Cheryl R. Blanchard, Ph.D.
|
|
45
|
|
Senior Vice President and Chief Scientific Officer
|
James T. Crines
|
|
50
|
|
Executive Vice President, Finance and Chief Financial Officer
|
Derek M. Davis
|
|
40
|
|
Vice President, Finance and Corporate Controller and Chief
Accounting Officer
|
Jeffery A. McCaulley
|
|
44
|
|
President, Zimmer Reconstructive
|
Bruno A. Melzi
|
|
62
|
|
Chairman, Europe, Middle East and Africa
|
Stephen H.L. Ooi
|
|
56
|
|
President, Asia Pacific
|
Jeffrey B. Paulsen
|
|
48
|
|
Group President, Global Businesses
|
Chad F. Phipps
|
|
38
|
|
Senior Vice President, General Counsel and Secretary
|
|
Mr. Dvorak
was appointed President, Chief Executive Officer and
a member of the Board of Directors of Zimmer Holdings on
May 1, 2007. From December 2005 to April 2007,
Mr. Dvorak served as Group President, Global Businesses and
Chief Legal Officer. From October 2003 to December 2005,
Mr. Dvorak served as Executive Vice President, Corporate
Services, Chief Counsel and Secretary, as well as Chief
Compliance Officer. Mr. Dvorak was appointed Corporate
Secretary in February 2003. He joined Zimmer Holdings in
December 2001 as Senior Vice President, Corporate Affairs and
General Counsel.
Dr. Blanchard
was appointed Senior Vice President and Chief
Scientific Officer of Zimmer Holdings in December 2005. She
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is responsible for Corporate Research, Global Quality and
Regulatory Affairs, Global Medical Affairs, Biologics Research
and Development and Biologics Marketing. From October 2003 to
December 2005, Dr. Blanchard served as Vice President,
Corporate Research and Clinical Affairs and from August 2002 to
October 2003, she served as Vice President, Research and
Biologics.
Mr. Crines
was appointed Executive Vice President, Finance and
Chief Financial Officer of Zimmer Holdings on May 1, 2007.
From December 2005 to April 2007, Mr. Crines served as
Senior Vice President, Finance, Operations and Corporate
Controller and Chief Accounting Officer. From October 2003 to
December 2005, Mr. Crines served as Senior Vice President,
Finance/Controller and Information Technology and from July 2001
to October 2003, he served as Vice President, Finance/Controller.
Mr. Davis
was appointed Vice President, Finance and Corporate
Controller and Chief Accounting Officer of Zimmer Holdings in
May 2007. He has responsibility for internal and external
reporting, planning and analysis, and corporate and business
unit accounting. From March 2006 to May 2007, Mr. Davis
served as Director, Financial Planning and Accounting. From
December 2003 to March 2006, Mr. Davis served as Director,
Finance, Operations and Logistics and from April 2003 to
December 2003, he served as Associate Director, Finance.
Mr. McCaulley
was appointed President, Zimmer Reconstructive in
November 2008. He has overall responsibility for the Global
Reconstructive Business, including direct responsibility for
Global Brand Management, Product Development and Medical
Training and Education, as well as Americas Marketing and Sales.
Prior to joining Zimmer, he served as President and Chief
Executive Officer of the Health Division of Wolters Kluwer from
2005 and Vice President and General Manager of the Diabetes
Division of Medtronic, Inc. from 2002.
Mr. Melzi
was appointed Chairman, Europe, Middle East and
Africa of Zimmer Holdings in October 2003. He is responsible for
the sales, marketing and distribution of products in the
European, Middle Eastern and African regions. From March 2000 to
October 2003, Mr. Melzi served as President, Europe/MEA.
Mr. Ooi
was appointed President, Asia Pacific of Zimmer
Holdings in December 2005. He is responsible for the sales,
marketing and distribution of products in the Asia Pacific
region, including responsibility for Japan. From September 2003
to December 2005, Mr. Ooi served as President, Australasia,
where he was responsible for operations in Asia Pacific,
excluding Japan. From September 2002 to September 2003,
Mr. Ooi served as President, Asia Pacific region.
Mr. Paulsen
was appointed Group President, Global Businesses of
Zimmer Holdings in December 2009. He has responsibility for
Zimmer Spine, Zimmer Dental, Zimmer Trauma and Zimmer
Orthopaedic Surgical Products. Prior to joining us,
Mr. Paulsen served as Chief Operating Officer of MPS Group,
Inc., a privately held environmental services and facility
management firm, from September 2008 to December 2009. Prior to
that, he served as Group President of TriMas Corporation, a
specialty manufacturing company, from January 2007 to June 2008.
Before joining TriMas Corporation, Mr. Paulsen held a
number of increasingly responsible executive roles at Stryker
Corporation from 1996 to December 2006, including President,
Orthopaedic Reconstructive Division.
Mr. Phipps
was appointed Senior Vice President, General Counsel
and Secretary of Zimmer Holdings in May 2007. He has global
responsibility for our legal affairs and he serves as Secretary
to the Board of Directors. Mr. Phipps also oversees our
Government Affairs, Corporate Communications and Public
Relations activities. From December 2005 to May 2007,
Mr. Phipps served as Associate General Counsel and
Corporate Secretary and from September 2003 to December 2005, he
served as Associate Counsel and Assistant Secretary.
AVAILABLE
INFORMATION
Our Internet website address is www.zimmer.com. 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 Exchange Act are available or
may be accessed free of charge through the Investor Relations
section of our Internet website as soon as reasonably
practicable after we electronically file such material with, or
furnish it to, the SEC. Our Internet website and the information
contained therein or connected thereto are not intended to be
incorporated by reference into this Annual Report on
Form 10-K.
The following corporate governance and related documents, among
others, are available through our website: Corporate Governance
Guidelines, Code of Business Conduct, Code of Ethics for Chief
Executive Officer and Senior Financial Officers, Audit Committee
Charter, Compensation and Management Development Committee
Charter, Corporate Governance Committee Charter and Science and
Technology Committee Charter.
We will post on our Internet website any substantive amendment
to, or waiver from, our Code of Ethics for Chief Executive
Officer and Senior Financial Officers or a provision of our Code
of Business Conduct that applies to any of our directors or
executive officers.
Risk factors which could cause actual results to differ from
our expectations and which could negatively impact our financial
condition and results of operations are discussed below and
elsewhere in this report. The risks and uncertainties described
below are not the only ones we face. Additional risks and
uncertainties not presently known to us or that are currently
not believed to be significant to our business may also affect
our actual results and could harm our business, financial
condition and results of operations. If any of the risks or
uncertainties described below or any additional risks and
uncertainties actually occur, our business, results of
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operations and financial condition could be materially and
adversely affected.
RISKS RELATED TO
OUR BUSINESS
If we fail to comply with the terms of the Corporate
Integrity Agreement we entered into in September 2007, we may be
subject to exclusion from federal healthcare programs.
As previously reported, in September 2007 we settled an
investigation conducted by the United States Attorneys
Office for the District of New Jersey (U.S. Attorney) into
financial relationships between major orthopaedic manufacturers
and consulting orthopaedic surgeons. As part of that settlement,
we entered into a Corporate Integrity Agreement (CIA) with the
Office of Inspector General of the Department of Health and
Human Services (OIG-HHS). A copy of the CIA is filed as an
exhibit to this report. If we do not comply with the terms of
the CIA, we could be subject to exclusion by OIG-HHS from
participation in federal healthcare programs, including Medicaid
and Medicare.
We could be subject to further governmental investigations or
actions by other third parties based on allegations of
wrongdoing similar to those made by the U.S. Attorney.
Our settlement with the U.S. government does not preclude
other governmental agencies or state authorities from conducting
investigations or instituting proceedings based on allegations
of wrongdoing similar to those made by the U.S. Attorney.
As previously disclosed, we are cooperating with the
U.S. Securities and Exchange Commission and the
U.S. Department of Justice with regard to an ongoing
investigation into potential violations of the Foreign Corrupt
Practices Act in the sale of medical devices in a number of
foreign countries by companies in the medical device industry.
We are also cooperating with investigative demands made by two
state attorneys general. While we believe that the pending state
investigations are not likely to have a material adverse effect
on our business or financial condition, similar investigations
by other states or governmental agencies are possible. We cannot
assure that the costs of defending or resolving those
investigations or proceedings would not have a material adverse
effect on our financial condition, results of operations and
cash flows.
Our temporary suspension of the U.S. marketing and
distribution of one of our hip products has adversely affected
sales growth, resulted in claims and may adversely affect our
ability to compete in the hip resurfacing market in the U.S.
As previously reported, we temporarily suspended the marketing
and distribution of our Durom Acetabular Component
(Durom Cup) in the U.S. in July 2008. Although we
resumed U.S. marketing and distribution in August 2008, we
believe the effects of this action had a negative impact on our
hip product sales growth through 2009 and may continue to have a
negative impact in 2010.
Following our action, product liability lawsuits and other
claims were asserted against us and additional similar claims
may be asserted. In addition, our entry into the U.S. hip
resurfacing market has been delayed as the Durom Cup had
been integral to our plans for entry into that market.
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 United States 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 these agents could have a material adverse effect on
our business and results of operations.
If we do not introduce new products in a timely manner, our
products may become obsolete over time, customers may not buy
our products and our revenue and profitability may decline.
Demand for our products may change, in certain cases, in ways we
may not anticipate because of:
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evolving customer needs;
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changing demographics;
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slowing industry growth rates;
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declines in the reconstructive implant market;
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the introduction of new products and technologies;
|
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evolving surgical philosophies; and
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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:
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properly identify and anticipate customer needs;
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commercialize new products in a timely manner;
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manufacture and deliver instruments and products in sufficient
volumes on time;
|
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differentiate our offerings from competitors offerings;
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achieve positive clinical outcomes for new products;
|
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satisfy the increased demands by healthcare payors, providers
and patients for shorter hospital stays, faster post-operative
recovery and lower-cost procedures;
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innovate and develop new materials, product designs and surgical
techniques; and
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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:
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entrenched patterns of clinical practice;
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the need for regulatory clearance; and
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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
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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.
We conduct a significant amount of our sales activity outside
of the United States, 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 derive more
than 40 percent of our net sales from outside the United
States. We intend to continue to pursue growth opportunities in
sales internationally, 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:
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changes in foreign medical reimbursement policies and programs;
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unexpected changes in foreign regulatory requirements;
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differing local product preferences and product requirements;
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fluctuations in foreign currency exchange rates;
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diminished protection of intellectual property in some countries
outside of the United States;
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trade protection measures and import or export requirements that
may prevent us from shipping products to a particular market and
may increase our operating costs;
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foreign exchange controls that might prevent us from
repatriating cash earned in countries outside the United States;
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complex data privacy requirements and labor relations laws;
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extraterritorial effects of U.S. laws such as the Foreign
Corrupt Practices Act;
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difficulty in staffing and managing foreign operations;
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labor force instability;
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potentially negative consequences from changes in tax
laws; and
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political and economic instability.
|
Violations of foreign laws or regulations could result in fines,
criminal sanctions against us, our officers or our employees,
prohibitions on the conduct of our business and damage to our
reputation.
We are subject to risks arising from currency exchange rate
fluctuations, which can increase our costs, cause our
profitability to decline and expose us to counterparty risks.
A substantial portion of our foreign revenues are generated in
Europe and Japan. The United States dollar value of our
foreign-generated revenues varies with currency exchange rate
fluctuations. Significant increases in the value of the United
States dollar relative to the Euro or the Japanese Yen, as well
as other currencies, could have a material adverse effect on our
results of operations. Although we address currency risk
management through regular operating and financing activities,
and, on a limited basis, through the use of derivative financial
instruments, those actions may not prove to be fully effective.
We may fail to adequately protect our proprietary technology
and other intellectual property, which would allow competitors
or others to take advantage of our research and development
efforts.
Our long-term success largely depends on our ability to market
technologically competitive products. If we fail to obtain or
maintain adequate intellectual property protection, we may not
be able to prevent third parties from using our proprietary
technologies. Also, our currently pending or future patent
applications may not result in issued patents, and issued
patents are subject to claims concerning priority, scope and
other issues.
The United States Patent and Trademark Office and the courts
have not consistently treated the breadth of claims allowed or
interpreted in orthopaedic reconstructive implant and
biotechnology patents. Future changes in, or unexpected
interpretations of, the patent laws may adversely affect our
ability to enforce our patent position.
In addition, intellectual property rights may be unavailable or
of limited effect in some foreign countries. If we do not obtain
sufficient international protection for our intellectual
property, our competitiveness in international markets could be
impaired, which could limit our growth and revenue.
We also attempt to protect our trade secrets, proprietary
know-how and continuing technological innovation with security
measures, including the use of confidentiality agreements with
our employees, consultants and collaborators. These measures may
prove to be ineffective and any remedies available to us may be
insufficient to compensate our damages.
We may be subject to intellectual property litigation and
infringement claims, which could cause us to incur significant
expenses or prevent us from selling our products.
A successful claim of patent or other intellectual property
infringement against us could adversely affect our growth and
profitability, in some cases materially. From time to time, we
receive notices from third parties of potential infringement and
receive claims of potential infringement. We may be unaware of
intellectual property rights of others that may cover some of
our technology. If someone claims that our products infringed
their intellectual property rights, any resulting litigation
could be costly and time consuming and would divert the
attention of management and key personnel from other business
issues. If we were to lose such litigation involving material
intellectual property rights, we may be unable to manufacture,
sell or use some of our products.
We may make additional acquisitions or enter into strategic
alliances that could increase our costs or liabilities or be
disruptive.
We intend to continue to look for additional strategic
acquisitions of other businesses that are complementary to our
businesses and other companies with whom we could form strategic
alliances or enter into other arrangements to develop or exploit
intellectual property rights. These activities involve risks,
including the following:
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we may need to divert more management resources to integration
than we planned, which may adversely affect our ability to
pursue other more profitable activities;
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the difficulties of integrating acquired businesses may be
increased if we need to integrate geographically separated
organizations, personnel with disparate business backgrounds and
companies with different corporate cultures;
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we may not recognize expected cost savings or the anticipated
benefits of acquisitions or strategic alliances;
|
|
our acquisition candidates or strategic partners may have
unexpected liabilities or prove unable to meet their obligations
to us or the joint venture; and
|
|
the priorities of our strategic partners may prove incompatible
with ours.
|
We depend on a limited number of suppliers for some key raw
materials and outsourced activities.
We use a number of suppliers for raw materials that we need to
manufacture our products and to outsource some key manufacturing
activities. These suppliers must provide the materials and
perform the activities to our standards for us to meet our
quality and regulatory requirements. Some key raw materials and
outsourced activities can only be obtained from a single source
or a limited number of sources. A prolonged disruption or other
inability to obtain these materials or outsource key
manufacturing activities could materially and adversely affect
our ability to satisfy demand for our products.
We are subject to putative stockholder class action lawsuits
that could be costly to defend and distracting to management.
We and a number of our related parties are defending putative
stockholder class action lawsuits alleging violations of the
securities laws or violations of the federal Employee Retirement
Income Security Act of 1974 arising out of trading or ownership
of our common stock. We believe these lawsuits are without
merit, and we intend to defend them vigorously. We may incur
significant expenses associated with the defense of these
lawsuits, however, and the necessary participation of our
executive officers could detract from their ability to devote
their full time and attention to our business operations.
RISKS RELATED TO
OUR INDUSTRY
The ongoing investigation by the U.S. Securities and
Exchange Commission and the U.S. Department of Justice
regarding potential violations of the Foreign Corrupt Practices
Act in the sale of medical devices in a number of foreign
countries by companies in the medical device industry could have
a material adverse effect on our business, financial condition
and cash flows.
We are cooperating fully with the U.S. Securities and
Exchange Commission and the U.S. Department of Justice with
regard to an ongoing investigation of potential violations of
the Foreign Corrupt Practices Act in the sale of medical devices
in a number of foreign countries by companies in the medical
device industry. Although we have adopted policies and
procedures designed to prevent improper payments and we train
our employees, distributors and others concerning these issues,
we cannot assure that violations of these requirements will not
occur. If we are found to have violated the Foreign Corrupt
Practices Act, we may face sanctions including fines, criminal
penalties, disgorgement of profits and suspension or debarment
of our ability to contract with governmental agencies or receive
export licenses.
The impact of healthcare reform in the U.S. on us is
uncertain.
There is increasing emphasis within the federal government to
reform healthcare in the U.S., though it is uncertain whether
new legislation will be enacted. To the extent that the number
of uninsured or underinsured patients is reduced, demand for our
products could marginally increase. However, efforts to pay for
healthcare reform through a proposed new tax on medical device
companies and efforts to contain healthcare costs, directly
through pricing or reimbursement controls or indirectly by
government-sponsored healthcare insurance, could have a material
adverse effect on our sales and results of operations.
Accordingly, the impact of healthcare reform on the medical
device industry in general or us in particular remains uncertain.
We are subject to healthcare fraud and abuse regulations on
an ongoing basis that could require us to change our business
practices and restrict our operations in the future.
Our industry is subject to various federal and state laws
pertaining to healthcare fraud and abuse, including false claims
laws, the federal Anti-Kickback Statute, similar state laws and
physician self-referral laws. Violations of these laws are
punishable by criminal
and/or civil
sanctions, including, in some instances, fines, imprisonment
and, within the United States, exclusion from participation in
government healthcare programs, including Medicare, Medicaid and
Veterans Administration (VA) health programs. The interpretation
and enforcement of these laws and regulations are uncertain and
subject to rapid change.
If third-party payors decline to reimburse our customers for
our products or reduce reimbursement levels, the demand for our
products may decline and our ability to sell our products
profitably may be harmed.
We sell our products and services to hospitals, doctors,
dentists and other healthcare providers, all of which receive
reimbursement for the healthcare services provided to their
patients from third-party payors, such as domestic and
international government programs, private insurance plans and
managed care programs. These third-party payors may deny
reimbursement if they determine that a device used in a
procedure was not in accordance with cost-effective treatment
methods, as determined by the third-party payor, or was used for
an unapproved indication. Third-party payors may also decline to
reimburse for experimental procedures and devices. If our
products are not considered cost-effective by third-party
payors, our customers may not be reimbursed for our 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 pressure to
16
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ANNUAL REPORT
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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 organizations
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
manufacturers 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.
Our success depends on our ability to effectively develop and
market our products against those of our competitors.
We operate in a highly competitive environment. Our present or
future products could be rendered obsolete or uneconomical by
technological advances by one or more of our present or future
competitors or by other therapies, including biological
therapies. To remain competitive, we must continue to develop
and acquire new products and technologies. Competition is
primarily on the basis of:
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technology;
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innovation;
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quality;
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reputation; and
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customer service.
|
In markets outside of the United States, other factors influence
competition as well, including:
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local distribution systems;
|
|
complex regulatory environments; and
|
|
differing medical philosophies and product preferences.
|
Our competitors may:
|
|
|
have greater financial, marketing and other resources than us;
|
|
respond more quickly to new or emerging technologies;
|
|
undertake more extensive marketing campaigns;
|
|
adopt more aggressive pricing policies; or
|
|
be more successful in attracting potential customers, employees
and strategic partners.
|
Any of these factors, alone or in combination, could cause us to
have difficulty maintaining or increasing sales of our products.
We and our customers are subject to various governmental
regulations relating to the manufacturing, labeling and
marketing of our products, and we may incur significant expenses
to comply with these regulations and develop products compatible
with these regulations.
The medical devices we design, develop, manufacture and market
are subject to rigorous regulation by the FDA and numerous other
federal, state and foreign governmental authorities. The process
of obtaining regulatory approvals to market a medical device can
be costly and time consuming and approvals might not be granted
for future products on a timely basis, if at all. Delays in
receipt of, or failure to obtain, approvals for future products
could result in delayed realization of product revenues or in
substantial additional costs.
In addition, if we fail to comply with applicable material
regulatory requirements, including, for example, the Quality
System Regulation, recordkeeping regulations, labeling
requirements and adverse event reporting regulations, we may be
subject to a range of sanctions including:
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warning letters;
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|
fines or civil penalties;
|
|
injunctions;
|
|
repairs, replacements or refunds;
|
|
recalls or seizures of products;
|
|
total or partial suspension of production;
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|
the FDAs refusal to grant future premarket clearances or
approvals;
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withdrawals or suspensions of current product
applications; and
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criminal prosecution.
|
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 will be harmed.
We may incur product liability losses, and insurance coverage
may be inadequate or unavailable to cover these losses.
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. Product liability
lawsuits and claims, safety alerts or product recalls,
regardless of their ultimate outcome, could have a material
adverse effect on our business and reputation and on our ability
to attract and retain customers.
Although we maintain third-party product liability insurance
coverage, it is possible that claims against us may exceed the
coverage limits of our insurance policies or cause us to record
a self-insured loss. Even if any product liability loss is
covered by an insurance policy, these policies typically have
substantial retentions or deductibles that we are responsible
for. Product liability claims in excess of applicable
17
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|
insurance could have a material adverse effect on our business,
financial condition and results of operations.
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ITEM 1B.
|
|
Unresolved Staff Comments
|
Not Applicable.
18
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We have the following properties:
|
|
|
|
|
|
|
|
|
Location
|
|
Use
|
|
Owned/Leased
|
|
|
Square Feet
|
|
Warsaw, Indiana
|
|
Research & Development, Manufacturing, Warehousing,
Marketing & Administration
|
|
|
Owned
|
|
|
1,400,000
|
Warsaw, Indiana
|
|
Corporate Headquarters and The Zimmer Institute
|
|
|
Owned
|
|
|
117,000
|
Warsaw, Indiana
|
|
Offices, Manufacturing & Warehousing
|
|
|
Leased
|
|
|
90,000
|
Carlsbad, California
|
|
Offices, Research & Development &
Manufacturing
|
|
|
Leased
|
|
|
118,000
|
Minneapolis, Minnesota
|
|
Offices & Research & Development
|
|
|
Owned
|
|
|
51,000
|
Statesville, North Carolina
|
|
Manufacturing & Warehousing
|
|
|
Owned
|
|
|
156,000
|
Dover, Ohio
|
|
Offices, Research & Development &
Manufacturing
|
|
|
Owned
|
|
|
140,000
|
Dover, Ohio
|
|
Warehousing
|
|
|
Leased
|
|
|
61,000
|
Parsippany, New Jersey
|
|
Office, Research & Development, Manufacturing,
|
|
|
Leased
|
|
|
115,000
|
Memphis, Tennessee
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
30,000
|
Austin, Texas
|
|
Offices, Administration, Research & Development
|
|
|
Leased
|
|
|
97,000
|
Sydney, Australia
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
36,000
|
Mödling, Austria
|
|
Offices & Warehousing
|
|
|
Owned
|
|
|
14,000
|
Wemmel, Belgium
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
15,000
|
Mississauga, Canada
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
52,000
|
Shanghai, China
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
18,000
|
Etupes, France
|
|
Offices, Manufacturing & Warehousing
|
|
|
Owned
|
|
|
90,000
|
Eschbach, Germany
|
|
Distribution Center
|
|
|
Owned
|
|
|
94,000
|
Freiburg, Germany
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
51,000
|
Kiel, Germany
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
21,000
|
Shannon, Ireland
|
|
Offices & Manufacturing
|
|
|
Owned
|
|
|
125,000
|
Milan, Italy
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
47,000
|
Gotemba, Japan
|
|
Offices, Service Center & Warehousing
|
|
|
Owned
|
|
|
87,000
|
Tokyo, Japan
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
24,000
|
Seoul, Korea
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
22,000
|
Utrecht, Netherlands
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
16,000
|
Ponce, Puerto Rico
|
|
Offices, Manufacturing & Warehousing
|
|
|
Owned
|
|
|
213,000
|
Singapore
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
19,000
|
Barcelona, Spain
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
16,000
|
Winterthur, Switzerland
|
|
Offices, Research & Development &
Manufacturing
|
|
|
Leased
|
|
|
374,000
|
Münsingen, Switzerland
|
|
Offices & Warehousing
|
|
|
Owned
|
|
|
76,000
|
Swindon, United Kingdom
|
|
Offices & Warehousing
|
|
|
Leased
|
|
|
70,000
|
During 2009 we commenced manufacturing operations in our new
125,000 square feet Shannon, Ireland facility and began
utilizing our new 94,000 square feet warehouse facility in
Eschbach, Germany in an effort to expand our global distribution
network. We believe the current facilities, including
manufacturing, warehousing, research and development and office
space provide sufficient capacity to meet ongoing demands. Once
a facility reaches 85 percent utilization, we examine
alternatives for either expanding that facility or acquiring new
facilities to meet our ongoing demands.
In addition to the above, we maintain more than 100 other
offices and warehouse facilities in more than 25 countries
around the world, including the United States, Japan, Australia,
France, Russia, India, Germany, Italy, Switzerland and China. We
believe that all of the facilities and equipment are in good
condition, well maintained and able to operate at present levels.
|
|
|
ITEM 3.
|
|
Legal Proceedings
|
Information pertaining to legal proceedings can be found in
Note 17 to the Consolidated Financial Statements, which are
included in this report under Item 8.
|
|
|
ITEM 4.
|
|
Submission of Matters to a Vote of
Security Holders
|
Not Applicable.
19
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
ITEM 5.
|
|
Market for the Registrants
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 ZMH. The
high and low sales prices for our common stock on the New York
Stock Exchange for the calendar quarters of fiscal years 2009
and 2008 are set forth as follows:
|
|
|
|
|
|
|
|
|
Quarterly
High-Low Share Prices
|
|
High
|
|
|
Low
|
|
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
44.36
|
|
|
$
|
30.67
|
|
Second Quarter
|
|
$
|
47.41
|
|
|
$
|
35.36
|
|
Third Quarter
|
|
$
|
55.25
|
|
|
$
|
38.55
|
|
Fourth Quarter
|
|
$
|
60.64
|
|
|
$
|
49.14
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
79.78
|
|
|
$
|
63.80
|
|
Second Quarter
|
|
$
|
80.92
|
|
|
$
|
66.12
|
|
Third Quarter
|
|
$
|
74.55
|
|
|
$
|
60.41
|
|
Fourth Quarter
|
|
$
|
66.42
|
|
|
$
|
34.10
|
|
We have not declared or paid dividends on our common stock since
becoming a public company in 2001. Currently, we do not
anticipate paying any cash dividends on the common stock in the
foreseeable future. Our credit facility also restricts the
payment of dividends under certain circumstances.
The number of holders of our common stock on February 12,
2010 was approximately 350,200. On February 12, 2010, the
closing price of the common stock, as reported on the New York
Stock Exchange, was $57.24 per share.
The information required by this Item concerning equity
compensation plans is incorporated by reference to Item 12
of this report.
The following table summarizes repurchases of common stock
settled during the three months ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
Shares
|
|
|
Approximate Dollar
Value of
|
|
|
|
|
|
|
|
|
|
Purchased as Part
of
|
|
|
Shares that May Yet
Be
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Publicly Announced
Plans
|
|
|
Purchased Under
Plans
|
|
|
|
Shares Purchased
|
|
|
Paid per Share
|
|
|
or
Programs(1)
|
|
|
or Programs
|
|
|
|
October 2009
|
|
|
|
|
|
$
|
|
|
|
|
40,940,867
|
|
|
$
|
730,190,146
|
|
November 2009
|
|
|
3,892,800
|
|
|
|
56.88
|
|
|
|
44,833,667
|
|
|
|
508,750,284
|
|
December 2009
|
|
|
5,059,981
|
|
|
|
58.82
|
|
|
|
49,893,648
|
|
|
|
211,110,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,952,781
|
|
|
$
|
57.98
|
|
|
|
49,893,648
|
|
|
$
|
211,110,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes repurchases made under expired programs as well as the
program announced in April 2008 authorizing $1.25 billion
of repurchases through December 31, 2010.
|
20
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
ITEM 6.
|
|
Selected Financial Data
|
The financial information for each of the past five years ended
December 31 is set forth below (in millions, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary
of Operations
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Net sales
|
|
$
|
4,095.4
|
|
|
$
|
4,121.1
|
|
|
$
|
3,897.5
|
|
|
$
|
3,495.4
|
|
|
$
|
3,286.1
|
|
Net earnings of Zimmer Holdings, Inc.
|
|
|
717.4
|
|
|
|
848.6
|
|
|
|
773.2
|
|
|
|
834.5
|
|
|
|
732.5
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.34
|
|
|
$
|
3.73
|
|
|
$
|
3.28
|
|
|
$
|
3.43
|
|
|
$
|
2.96
|
|
Diluted
|
|
|
3.32
|
|
|
|
3.72
|
|
|
|
3.26
|
|
|
|
3.40
|
|
|
|
2.93
|
|
Average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
215.0
|
|
|
|
227.3
|
|
|
|
235.5
|
|
|
|
243.0
|
|
|
|
247.1
|
|
Diluted
|
|
|
215.8
|
|
|
|
228.3
|
|
|
|
237.5
|
|
|
|
245.4
|
|
|
|
249.8
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,785.5
|
|
|
$
|
7,239.0
|
|
|
$
|
6,633.7
|
|
|
$
|
5,974.4
|
|
|
$
|
5,721.9
|
|
Long-term debt
|
|
|
1,127.6
|
|
|
|
460.1
|
|
|
|
104.3
|
|
|
|
99.6
|
|
|
|
81.6
|
|
Other long-term obligations
|
|
|
328.5
|
|
|
|
353.9
|
|
|
|
328.4
|
|
|
|
323.4
|
|
|
|
348.3
|
|
Stockholders equity
|
|
|
5,638.7
|
|
|
|
5,653.9
|
|
|
|
5,452.4
|
|
|
|
4,923.2
|
|
|
|
4,685.1
|
|
|
|
21
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
ITEM 7.
|
|
Managements 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
Form 10-K.
OVERVIEW
We are a global leader in the design, development, manufacture
and marketing of orthopaedic reconstructive implants, dental
implants, spinal implants, trauma products and related surgical
products (sometimes referred to in this report as OSP). We also
provide other healthcare related services. We have operations in
more than 25 countries and market products in more than 100
countries. We manage operations through three reportable
geographic segments the Americas, Europe and Asia
Pacific.
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 2008 and 2007
consolidated financial statements have been reclassified to
conform to the 2009 presentation.
Beginning in 2009, we no longer include our Dental product
category sales within our Reconstructive products category.
Amounts in the years ended December 31, 2008 and 2007
related to sales of Dental products have been reclassified to
conform to the 2009 presentation.
We believe the following developments or trends are important in
understanding our financial condition, results of operations and
cash flows for the year ended December 31, 2009.
Demand (Volume
and Mix) Trends
Increased volume and changes in the mix of product sales
contributed 2 percentage points of 2009 sales growth, which
is 1 percentage point below the rate of growth from 2008
compared to 2007.
We believe the market for orthopaedic procedure volume
temporarily decelerated from mid single digit growth rates to
low single digit growth rates on a global basis due to the
weakened global economy. We believe long-term market growth
rates will be driven by an aging global population, obesity,
proven clinical benefits, new material technologies, advances in
surgical techniques and more active lifestyles, among other
factors. In addition, the ongoing shift in demand to premium
products, such as Longevity and Prolong Highly
Crosslinked Polyethylenes, Trabecular Metal Technology
products, hip stems with Kinectiv Technology, high-flex
knees, knee revision products, porous hip stems and the
introduction of patient specific devices continues to positively
affect sales growth. Our 2 percentage points of sales
growth in 2009 from volume and changes in mix decreased from
2008 and was lower than market growth due to the impact of the
disruptive events discussed below.
Pricing
Trends
Global selling prices decreased 1 percent during 2009
compared to flat pricing in 2008. Selling prices in the Americas
decreased 1 percent during the year ended December 31,
2009, compared to flat pricing in the same 2008 period. Europe
selling prices were flat for the year ended December 31,
2009, which is similar to the 2008 period. Asia Pacific selling
prices decreased 1 percent for the year ended
December 31, 2009, compared to a 3 percent decrease in
the same 2008 period, as we anniversaried out of scheduled
reductions in reimbursement prices in Japan. With the effect of
governmental healthcare cost containment efforts and continuing
pressure from local hospitals and health systems, we expect
selling prices to decrease approximately 1 to 2 percent on
a global basis for 2010.
Foreign Currency
Exchange Rates
For 2009, foreign currency exchange rates resulted in a
2 percent decline in sales. If foreign currency exchange
rates remain consistent with 2009 year end rates, we
estimate that a weaker dollar versus foreign currency exchange
rates will have a positive effect in 2010 of approximately
1 percent on sales. We address currency risk through
regular operating and financing activities, and, under
appropriate circumstances and subject to proper authorization,
through the use of forward contracts and options solely for
managing foreign currency volatility and risk. Changes to
foreign currency exchange rates affect sales growth, but due to
offsetting gains/losses on hedge contracts and options, which
are recorded in cost of products sold, the effect on net
earnings in the near term is expected to be minimal.
Disruptive Events
We suffered customer losses as a result of disruptive factors
experienced during 2008, including the implementation of our
enhanced global compliance initiatives, our temporary suspension
of U.S. marketing and distribution of the Durom Cup
and our voluntary recall and suspension of production of certain
OSP patient care products. We estimate that these customer
losses reduced our global knee market share by approximately
1.5 percent and hip market share by approximately
2 percent on a cumulative basis through the end of 2008.
These share losses affected sales growth in 2009, especially in
the first six to nine months of the year, but stabilized as we
concluded the year.
Global Economic
Conditions
We believe adverse conditions in the broader economy have
resulted in a slowdown in elective hospital procedures. We saw
evidence of recovery in 2009, although the large developed
countries in Europe appear to be lagging the U.S. and
Japan. Although many of our products are used in elective
procedures, we believe our core knee and hip franchises remain
more insulated than many medical product categories from swings
in the broader economy because the need for these procedures
does not diminish, even if the
22
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
timing is affected. In particular, our dental revenues have
experienced pressure due to the weak economic environment as
many of those procedures are not reimbursed by third-party
payors.
2010 Outlook
In the second half of 2009, we saw encouraging signs that
orthopaedic procedure volumes in certain markets were
recovering. Our market assumptions are that in 2010 knee and hip
procedures will grow in mid single digits within the Americas
and Asia Pacific markets, and remain flat to slightly positive
in the large developed markets in Europe. Given the expected
pacing of our new product launches, such as the Zimmer MMC
Cup, Continuum Acetabular System and Zimmer
Patient Specific Instruments, we anticipate our sales growth
in 2010 to be greater in the second half of the year.
We expect to continue making investments in R&D in the
range of 5 to 6 percent of sales. Assuming currency rates
remain at year end 2009 levels, we expect our gross margin to be
approximately 75 percent of sales in 2010. This takes into
account the higher cost inventory we carry into 2010 as well as
projected foreign currency hedge losses partially offset by
lower anticipated excess and obsolete inventory charges in 2010.
We expect the gross margin ratio to be slightly lower in the
first half of 2010 as compared to the second half of the year.
SG&A as a percent of sales is expected to decrease for the
full year as we restore leverage from revenue growth offset, in
part, by sales and marketing investments in support of new
product launches. We have completed the infrastructure
investment projects in Eschbach, Germany, our automated,
centralized distribution facility for the Europe, Middle East
and Africa region, and in Shannon, Ireland, our new implant
manufacturing facility. Both facilities are now operational and
should provide economic benefits for the full year 2010.
We expect interest expense will be unfavorable
year-over-year
due to the $1 billion senior notes offering we completed in
the fourth quarter of 2009. The impact of this expense on our
diluted earnings per share should be more than offset by the
additional shares we repurchased with a portion of the proceeds
from the notes offering.
RESULTS OF
OPERATIONS
Year Ended
December 31, 2009 Compared to Year Ended December 31,
2008
|
|
|
Net Sales
by Reportable Segment
|
The following table presents net sales by reportable segment and
the components of the percentage changes (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
Volume/
|
|
|
|
|
|
Foreign
|
|
|
|
2009
|
|
|
2008
|
|
|
% Inc/(Dec)
|
|
|
Mix
|
|
|
Price
|
|
|
Exchange
|
|
|
|
|
Americas
|
|
$
|
2,372.4
|
|
|
$
|
2,353.9
|
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
(1
|
)%
|
|
|
|
%
|
Europe
|
|
|
1,119.2
|
|
|
|
1,179.1
|
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(6
|
)
|
Asia Pacific
|
|
|
603.8
|
|
|
|
588.1
|
|
|
|
3
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,095.4
|
|
|
$
|
4,121.1
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange as used in the tables in this
report represents the effect of changes in foreign currency
exchange rates on sales growth.
|
|
|
Net Sales
by Product Category
|
The following table presents net sales by product category and
the components of the percentage changes (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
Volume/
|
|
|
|
|
|
Foreign
|
|
|
|
2009
|
|
|
2008
|
|
|
% Inc (Dec)
|
|
|
Mix
|
|
|
Price
|
|
|
Exchange
|
|
|
|
|
Reconstructive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Knees
|
|
$
|
1,760.6
|
|
|
$
|
1,763.1
|
|
|
|
|
%
|
|
|
3
|
%
|
|
|
(1
|
)%
|
|
|
(2
|
)%
|
Hips
|
|
|
1,228.5
|
|
|
|
1,279.4
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Extremities
|
|
|
135.6
|
|
|
|
121.0
|
|
|
|
12
|
|
|
|
14
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,124.7
|
|
|
|
3,163.5
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
|
|
|
204.7
|
|
|
|
227.5
|
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
1
|
|
|
|
(2
|
)
|
Trauma
|
|
|
234.8
|
|
|
|
222.3
|
|
|
|
6
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
Spine
|
|
|
253.6
|
|
|
|
229.7
|
|
|
|
10
|
|
|
|
12
|
|
|
|
|
|
|
|
(2
|
)
|
OSP and other
|
|
|
277.6
|
|
|
|
278.1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,095.4
|
|
|
$
|
4,121.1
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
The following table presents net sales by product category by
region (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
% Inc (Dec)
|
|
|
|
|
Reconstructive
|
|
|
|
|
|
|
|
|
|
|
|
|
Knees
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,101.9
|
|
|
$
|
1,089.8
|
|
|
|
1
|
|
Europe
|
|
|
429.2
|
|
|
|
452.6
|
|
|
|
(5
|
)
|
Asia Pacific
|
|
|
229.5
|
|
|
|
220.7
|
|
|
|
4
|
|
Hips
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
565.9
|
|
|
|
576.1
|
|
|
|
(2
|
)
|
Europe
|
|
|
448.6
|
|
|
|
493.9
|
|
|
|
(9
|
)
|
Asia Pacific
|
|
|
214.0
|
|
|
|
209.4
|
|
|
|
2
|
|
Extremities
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
103.7
|
|
|
|
88.1
|
|
|
|
18
|
|
Europe
|
|
|
23.9
|
|
|
|
25.8
|
|
|
|
(7
|
)
|
Asia Pacific
|
|
|
8.0
|
|
|
|
7.1
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,124.7
|
|
|
|
3,163.5
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
102.8
|
|
|
|
114.9
|
|
|
|
(11
|
)
|
Europe
|
|
|
78.2
|
|
|
|
82.2
|
|
|
|
(5
|
)
|
Asia Pacific
|
|
|
23.7
|
|
|
|
30.4
|
|
|
|
(22
|
)
|
Trauma
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
125.9
|
|
|
|
126.7
|
|
|
|
(1
|
)
|
Europe
|
|
|
52.7
|
|
|
|
47.4
|
|
|
|
11
|
|
Asia Pacific
|
|
|
56.2
|
|
|
|
48.2
|
|
|
|
17
|
|
Spine
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
192.6
|
|
|
|
180.4
|
|
|
|
7
|
|
Europe
|
|
|
46.9
|
|
|
|
40.1
|
|
|
|
17
|
|
Asia Pacific
|
|
|
14.1
|
|
|
|
9.2
|
|
|
|
54
|
|
OSP and other
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
179.6
|
|
|
|
177.9
|
|
|
|
1
|
|
Europe
|
|
|
39.7
|
|
|
|
37.1
|
|
|
|
7
|
|
Asia Pacific
|
|
|
58.3
|
|
|
|
63.1
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,095.4
|
|
|
$
|
4,121.1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The NexGen Complete Knee Solution product line, including
Gender Solutions Knee Femoral Implants, the NexGen
LPS-Flex Knee, the NexGen CR-Flex Knee and the
NexGen LCCK Revision Knee, led knee sales. In addition,
the Gender Solutions Natural-Knee Flex System made a
strong contribution. In Europe, changes in foreign currency
exchange rates negatively affected knee sales by 6 percent.
The continued conversion to porous stems, including the
Zimmer M/L Taper Stem, the Zimmer M/L Taper Stem
with Kinectiv Technology, the CLS Spotorno Stem
from the CLS Hip System and the Alloclassic
Zweymüller Hip Stem, led hip stem sales, but those
sales were partially offset by weaker sales of cemented stems.
Trabecular Metal Acetabular Cups and Longevity
Highly Crosslinked Polyethylene Liners also made strong
contributions. In the U.S. hip market, we had some product
gaps related to our acetabular cups which have affected sales
growth. This was most noticeable in the area of
metal-on-metal
articulation. In November 2009, the Continuum Acetabular
System and the Zimmer MMC Cup were cleared for sale in
the U.S. These systems give surgeons a comprehensive array
of acetabular cup solutions that, in concert with our
comprehensive stem portfolio, provide additional patient
matching options. These cups have also received approval in
various countries outside the U.S. and will help complete
our product portfolios in those countries as well. In Europe,
changes in foreign currency exchange rates negatively affected
hip sales by 6 percent. In Asia Pacific, changes in foreign
currency exchange rates positively affected hip sales by
4 percent.
The Bigliani/Flatow Complete Shoulder Solution and the
Zimmer Trabecular Metal Reverse Shoulder System led
extremities sales. Trabecular Metal Technology is playing
a critical role in addressing previously unmet clinical needs in
the expanding extremities market.
The Tapered Screw-Vent Implant System led dental sales.
Negative sales growth for our dental business reflects overall
weakness in the global economy. We continue to believe the
dental market will rebound as the global economy recovers and
look forward to new opportunities as our product line is
expanded through internal and external development efforts.
Zimmer Periarticular Locking Plates and the ITST
Intertrochanteric/Subtrochanteric Fixation System led trauma
sales but were partially offset by declining sales of
compression hip screws. Femoral and tibial nails within the new
Zimmer Natural Nail system also made a contribution
during the year.
In the fourth quarter of 2008, we acquired Abbott Spine. As a
result of the acquisition, spine sales have increased but the
increase is offset in part by sales losses associated with the
integration of the business. Solid sales of acquired fusion
devices as well as legacy interbody devices and bone graft
substitutes partly offset a significant decline in sales of the
Dynesys Dynamic Stabilization System during the year. We
expect our spinal business will continue to experience
reimbursement challenges related to the Dynesys system.
Following the November 2009 non-approvable recommendation by the
FDA advisory panel of our request for additional approved uses
for the Dynesys system, we are exploring our options,
which are presently uncertain. We believe that we generally have
a solid portfolio of spine products as well as broad global
distribution capabilities that should lead to improved
performance over time.
OSP sales were led by PALACOS Bone Cement. OSP
product sales growth improved in the second half of 2009 due to
the effect of anniversarying out of the voluntary suspension and
recall of certain products during 2008 and by the reintroduction
of wound debridement products in 2009.
24
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
The following table presents estimated* 2009 global market size
and market share information (dollars in billions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
|
|
|
Zimmer
|
|
|
Zimmer
|
|
|
|
Market
|
|
|
Global Market
|
|
|
Market
|
|
|
Market
|
|
|
|
Size
|
|
|
% Growth**
|
|
|
Share
|
|
|
Position
|
|
|
|
|
Reconstructive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Knees
|
|
$
|
6.4
|
|
|
|
5
|
%
|
|
|
27
|
%
|
|
|
1
|
|
Hips
|
|
|
5.8
|
|
|
|
4
|
|
|
|
21
|
|
|
|
2
|
|
Extremities
|
|
|
1.0
|
|
|
|
15
|
|
|
|
13
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13.2
|
|
|
|
5
|
|
|
|
24
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
|
|
$
|
3.3
|
|
|
|
(5
|
)
|
|
|
6
|
|
|
|
5
|
|
Trauma
|
|
$
|
4.4
|
|
|
|
6
|
|
|
|
5
|
|
|
|
5
|
|
Spine***
|
|
$
|
8.7
|
|
|
|
10
|
|
|
|
3
|
|
|
|
6
|
|
|
|
* |
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
|
|
|
*** |
Spine includes related orthobiologics
|
|
|
|
Expenses
as a Percent of Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Inc (Dec)
|
|
|
|
|
Cost of products sold
|
|
|
24.2
|
%
|
|
|
24.2
|
%
|
|
|
|
|
Research and development
|
|
|
5.0
|
|
|
|
4.7
|
|
|
|
0.3
|
|
Selling, general and administrative
|
|
|
42.2
|
|
|
|
41.3
|
|
|
|
0.9
|
|
Certain claims
|
|
|
0.9
|
|
|
|
1.7
|
|
|
|
(0.8
|
)
|
Goodwill impairment
|
|
|
1.8
|
|
|
|
|
|
|
|
1.8
|
|
Acquisition, integration, realignment and other
|
|
|
1.8
|
|
|
|
1.6
|
|
|
|
0.2
|
|
Net curtailment and settlement
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
50.9
|
|
|
|
49.3
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
24.9
|
|
|
|
26.5
|
|
|
|
(1.6
|
)
|
Interest and other income (expense), net
|
|
|
(0.5
|
)
|
|
|
0.8
|
|
|
|
1.3
|
|
Gross margin in 2009 was unchanged compared to 2008.
Manufacturing costs per unit increased in 2009 due to lower
production levels. Excess inventory and obsolescence charges
increased in 2009 as a result of certain product-specific
matters and new product launches. These costs were offset by
foreign currency hedge gains recognized in the 2009 period
compared to hedge losses recognized in 2008.
Under our hedging program, for derivatives which qualify as
hedges of future cash flows, the effective portion of changes in
fair value is temporarily recorded in other comprehensive income
and then recognized in cost of products sold when the hedged
item affects earnings.
The following table reconciles the gross margin for 2008 to 2009:
|
|
|
|
|
Year ended December 31, 2008 gross margin
|
|
|
75.8
|
%
|
Increased unit manufacturing costs
|
|
|
(1.7
|
)
|
Excess and obsolete inventory
|
|
|
(0.4
|
)
|
Foreign currency exchange impact, net
|
|
|
2.0
|
|
Other
|
|
|
0.1
|
|
|
|
Year ended December 31, 2009 gross margin
|
|
|
75.8
|
%
|
|
|
Research and development expense, or R&D, increased to
$205.4 million in 2009 from $192.3 million in 2008.
This increase reflects additional spending on certain
development, clinical and external research activities
throughout 2009 in contrast to the delay in activities
experienced in 2008 as we implemented our enhanced compliance
program.
Selling, general and administrative expense, or SG&A,
increased to $1,729.2 million in 2009, from
$1,704.0 million in 2008. This is an increase of
approximately 90 basis points compared to the prior year.
SG&A expense in the 2008 period included approximately
$60 million of incremental costs, such as monitor fees and
consulting and legal fees associated with the global roll-out of
our enhanced compliance program. The savings from these costs in
2009 have been offset by increased spending to fund enhanced
medical education programs, Abbott Spine costs and increased
product liability claims. In this challenging economic
environment, we are carefully managing our SG&A spend,
reducing expenses in certain areas in order to fund growth and
productivity initiatives. Areas of investment include marketing
and promotion and medical education and training. The
acquisition of Abbott Spine increased SG&A costs for items
such as selling expenses, increased instrument depreciation and
amortization of the acquired intangible assets. Additionally,
SG&A as a percentage of net sales is negatively impacted by
the decrease in revenues caused by changes in foreign currency
rates. A majority of our SG&A spend is incurred in the
U.S., primarily from our corporate headquarters and similar
functions at our various businesses such as Dental, Trauma,
Spine and OSP. Therefore, SG&A expense does not respond to
changes in foreign currency rates proportionally to our revenue,
which has caused SG&A as a percentage of net sales to
increase.
Certain claims expense is a provision for estimated Durom
Cup patients undergoing revision surgeries within specified
times. A provision of $69.0 million was originally recorded
during 2008 with an additional $35.0 million recorded
during 2009, bringing the total provision to $104.0 million
for these claims. For more information regarding these claims,
see Note 17 to the consolidated financial statements.
In connection with our annual goodwill impairment test performed
in the fourth quarter of 2009, we noted that the carrying value
of the assets of our U.S. Spine reporting unit was in
excess of its estimated fair value. As a result, we recorded a
related goodwill impairment charge of $73.0 million during
the year ended December 31, 2009. For more information
regarding goodwill impairment and the factors that led to the
impairment, see Note 8 to the consolidated financial
statements. We have five other reporting units with goodwill
assigned to them. We estimate the fair value of those reporting
units using the income approach by discounting to present value
the estimated future cash flows of the reporting unit. For each
of those five reporting units, the estimated fair value
substantially exceeds its carrying value.
25
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Acquisition, integration, realignment and other expenses for
2009 were $75.3 million compared to $68.5 million in
2008. During 2009, we initiated a workforce realignment, which
included the elimination of positions in some areas and
increases in others to support long-term growth. As a result of
this realignment and headcount reductions from acquisitions, we
incurred approximately $19.0 million of severance and
termination-related expenses. Other items in acquisition,
integration, realignment and other expenses in 2009 included
approximately $9.4 million of expenses related to contract
termination costs, $23.4 million of certain litigation
matters that were recognized during the period and various costs
incurred to integrate the Abbott Spine business acquired in the
fourth quarter of 2008. Included in acquisition, integration,
realignment and other expenses in 2008 was $38.5 million of
in-process research and development related to the Abbott Spine
acquisition and other costs related to the integration of Abbott
Spine. See Note 2 to the consolidated financial statements
for a more complete description of these charges.
We recognized a net curtailment and settlement gain of
$32.1 million during 2009 related to amending our
U.S. and Puerto Rico postretirement benefit plans. For more
information regarding the net curtailment and settlement gain,
see Note 12 to the consolidated financial statements.
|
|
|
Operating
Profit, Income Taxes and Net Earnings
|
Operating profit for 2009 decreased 7 percent to
$1,018.8 million from $1,090.0 million in 2008. The
decrease in operating profit is due to higher operating
expenses, most notably the goodwill impairment charge.
Interest and other expense for 2009 increased to
$20.6 million compared to income of $31.8 million in
2008. Interest and other income in 2008 included a realized gain
of $38.8 million related to the sale of certain marketable
securities. Interest expense increased in the 2009 period as the
result of increased long-term debt used to partially fund the
Abbott Spine acquisition and the $1.0 billion senior notes
offering during 2009.
The effective tax rate on earnings before income taxes increased
to 28.1 percent for 2009, up from 24.3 percent in
2008. The effective tax rate for 2009 is negatively impacted by
the goodwill impairment charge of $73.0 million recorded
during 2009 for which no tax benefit was recorded. The effective
tax rate for 2008 includes the impact of a current tax benefit
of $31.7 million related to the 2007 settlement expense,
resulting in a decrease of approximately 3 percent in the
2008 effective tax rate. This impact on the 2008 effective tax
rate was partially offset by Abbott Spine acquisition-related
in-process research and development charges recorded during 2008
for which no tax benefit was recorded. These discrete items
account for the majority of the change in our effective tax rate
year-over-year.
Net earnings decreased 15 percent to $717.4 million
for 2009, compared to $848.6 million in 2008, as a result
of decreased operating profit, increased interest expense and an
increased effective tax rate. Basic earnings per share in 2009
decreased 10 percent to $3.34 from $3.73 in 2008. Diluted
earnings per share decreased 11 percent to $3.32 from $3.72
in 2008. The disproportional change in earnings per share as
compared to net earnings is attributed to the effect of 2009 and
2008 share repurchases.
Year Ended
December 31, 2008 Compared to Year Ended December 31,
2007
|
|
|
Net Sales
by Reportable Segment
|
The following table presents net sales by reportable segment and
the components of the percentage changes (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
Volume/
|
|
|
|
|
|
Foreign
|
|
|
|
2008
|
|
|
2007
|
|
|
% Inc
|
|
|
Mix
|
|
|
Price
|
|
|
Exchange
|
|
|
|
|
Americas
|
|
$
|
2,353.9
|
|
|
$
|
2,277.0
|
|
|
|
3
|
%
|
|
|
3
|
%
|
|
|
|
%
|
|
|
|
%
|
Europe
|
|
|
1,179.1
|
|
|
|
1,081.0
|
|
|
|
9
|
|
|
|
4
|
|
|
|
|
|
|
|
5
|
|
Asia Pacific
|
|
|
588.1
|
|
|
|
539.5
|
|
|
|
9
|
|
|
|
5
|
|
|
|
(3
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,121.1
|
|
|
$
|
3,897.5
|
|
|
|
6
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
Net Sales
by Product Category
|
The following table presents net sales by product category and
the components of the percentage changes (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
Volume/
|
|
|
|
|
|
Foreign
|
|
|
|
2008
|
|
|
2007
|
|
|
% Inc (Dec)
|
|
|
Mix
|
|
|
Price
|
|
|
Exchange
|
|
|
|
|
Reconstructive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Knees
|
|
$
|
1,763.1
|
|
|
$
|
1,634.6
|
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
(1
|
)%
|
|
|
2
|
%
|
Hips
|
|
|
1,279.4
|
|
|
|
1,221.4
|
|
|
|
5
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
4
|
|
Extremities
|
|
|
121.0
|
|
|
|
104.0
|
|
|
|
16
|
|
|
|
14
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,163.5
|
|
|
|
2,960.0
|
|
|
|
7
|
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
|
|
|
227.5
|
|
|
|
221.0
|
|
|
|
3
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
Trauma
|
|
|
222.3
|
|
|
|
205.8
|
|
|
|
8
|
|
|
|
4
|
|
|
|
1
|
|
|
|
3
|
|
Spine
|
|
|
229.7
|
|
|
|
197.0
|
|
|
|
17
|
|
|
|
14
|
|
|
|
2
|
|
|
|
1
|
|
OSP and other
|
|
|
278.1
|
|
|
|
313.7
|
|
|
|
(11
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,121.1
|
|
|
$
|
3,897.5
|
|
|
|
6
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents net sales by product category by
region (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
% Inc (Dec)
|
|
|
|
|
Reconstructive
|
|
|
|
|
|
|
|
|
|
|
|
|
Knees
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,089.8
|
|
|
$
|
1,029.8
|
|
|
|
6
|
%
|
Europe
|
|
|
452.6
|
|
|
|
407.8
|
|
|
|
11
|
|
Asia Pacific
|
|
|
220.7
|
|
|
|
197.0
|
|
|
|
12
|
|
Hips
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
576.1
|
|
|
|
568.3
|
|
|
|
1
|
|
Europe
|
|
|
493.9
|
|
|
|
459.9
|
|
|
|
7
|
|
Asia Pacific
|
|
|
209.4
|
|
|
|
193.2
|
|
|
|
8
|
|
Extremities
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
88.1
|
|
|
|
73.9
|
|
|
|
19
|
|
Europe
|
|
|
25.8
|
|
|
|
23.2
|
|
|
|
11
|
|
Asia Pacific
|
|
|
7.1
|
|
|
|
6.9
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,163.5
|
|
|
|
2,960.0
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
114.9
|
|
|
|
118.9
|
|
|
|
(3
|
)
|
Europe
|
|
|
82.2
|
|
|
|
71.3
|
|
|
|
15
|
|
Asia Pacific
|
|
|
30.4
|
|
|
|
30.8
|
|
|
|
(1
|
)
|
Trauma
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
126.7
|
|
|
|
122.9
|
|
|
|
2
|
|
Europe
|
|
|
47.4
|
|
|
|
41.1
|
|
|
|
16
|
|
Asia Pacific
|
|
|
48.2
|
|
|
|
41.8
|
|
|
|
15
|
|
Spine
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
180.4
|
|
|
|
160.3
|
|
|
|
13
|
|
Europe
|
|
|
40.1
|
|
|
|
31.2
|
|
|
|
29
|
|
Asia Pacific
|
|
|
9.2
|
|
|
|
5.5
|
|
|
|
65
|
|
OSP and other
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
177.9
|
|
|
|
202.9
|
|
|
|
(12
|
)
|
Europe
|
|
|
37.1
|
|
|
|
46.5
|
|
|
|
(20
|
)
|
Asia Pacific
|
|
|
63.1
|
|
|
|
64.3
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,121.1
|
|
|
$
|
3,897.5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The NexGen Complete Knee Solution product line, including
Gender Solutions Knee Femoral Implants, the NexGen
LPS-Flex Knee, the NexGen CR-Flex Knee and the
NexGen LCCK Revision Knee, led knee sales. In addition,
the Zimmer Unicompartmental High-Flex Knee and the
Gender Solutions Natural-Knee Flex System exhibited
strong growth. Changes in foreign currency exchange rates
positively affected knee sales by 5 percent in Europe and
by 6 percent in Asia Pacific.
The continued conversion to porous stems, including the
Zimmer M/L Taper Stem, the Zimmer M/L Taper Stem
with Kinectiv Technology, the CLS Spotorno Stem
from the CLS Hip System and the Alloclassic
Zweymüller Hip Stem, led hip stem sales, but those
sales were partially offset by weaker sales of cemented stems.
Trabecular Metal Acetabular Cups and Longevity
Highly Crosslinked Polyethylene Liners also had strong
growth. The temporary suspension of marketing and distribution
of the Durom Cup in the U.S. negatively impacted hip
sales growth. Changes in foreign currency exchange rates
positively affected hip sales by 5 percent in Europe and by
8 percent in Asia Pacific.
The Bigliani/Flatow Complete Shoulder Solution and the
Zimmer Trabecular Metal Reverse Shoulder System led
extremities sales.
Orthobiologicals and prosthetic implants, including strong
growth of the Tapered Screw-Vent Implant System, led
dental sales.
Zimmer Periarticular Locking Plates and the
ITST Intertrochanteric/Subtrochanteric
Fixation System led trauma sales.
The Dynesys Dynamic Stabilization System and the
Trinica Select Anterior Cervical Plate System led spine
sales, which also reflect an increase as a result of the Abbott
Spine acquisition.
OSP sales were negatively affected by the patient care product
recalls and related voluntary suspension of production of
certain products, but these negative factors
27
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
were partially offset by strong growth in PALACOS Bone
Cement.
|
|
|
Expenses
as a Percent of Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Inc (Dec)
|
|
|
|
|
Cost of products sold
|
|
|
24.2
|
%
|
|
|
22.5
|
%
|
|
|
1.7
|
|
Research and development
|
|
|
4.7
|
|
|
|
4.7
|
|
|
|
|
|
Selling, general and administrative
|
|
|
41.3
|
|
|
|
38.9
|
|
|
|
2.4
|
|
Settlement
|
|
|
|
|
|
|
4.4
|
|
|
|
(4.4
|
)
|
Certain claims
|
|
|
1.7
|
|
|
|
|
|
|
|
1.7
|
|
Acquisition, integration, realignment and other
|
|
|
1.6
|
|
|
|
0.6
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
49.3
|
|
|
|
48.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
26.5
|
|
|
|
28.9
|
|
|
|
(2.4
|
)
|
Interest and other income, net
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
0.7
|
|
Gross margin decreased in 2008 primarily due to the unfavorable
effect of
year-over-year
changes in foreign currency hedge gains and losses as well as an
increase in excess inventory and obsolescence charges due to
write-offs related to the OSP patient care product recalls and
increased inventory levels as a result of lower than forecasted
sales. Inventory
step-up
related to the completion of the Abbott Spine acquisition during
2008 also had an unfavorable impact on gross margin.
The following table reconciles the gross margin for 2007 to 2008:
|
|
|
|
|
Year ended December 31, 2007 gross margin
|
|
|
77.5
|
%
|
Foreign currency exchange impact, net
|
|
|
(0.8
|
)
|
Excess and obsolete inventory
|
|
|
(0.6
|
)
|
Inventory
step-up
|
|
|
(0.2
|
)
|
Other
|
|
|
(0.1
|
)
|
|
|
Year ended December 31, 2008 gross margin
|
|
|
75.8
|
%
|
|
|
R&D increased to $192.3 million for 2008 from
$182.6 million in 2007 but remained unchanged as a percent
of total sales. The
year-over-year
increase represents our continued investment in R&D to grow
at or above sales growth.
SG&A expense increased to $1,704.0 million for 2008
from $1,516.7 million in 2007. Increased SG&A costs
include monitor fees paid as part of our 2007 civil settlement
with the U.S. government regarding financial relationships
with consulting orthopaedic surgeons, as well as consulting and
legal fees associated with the global implementation of our
enhanced compliance initiatives. Expenses related to other
operating initiatives also caused an increase in SG&A as a
percentage of net sales. Such operating initiatives include the
planned implementation of a global IT system and improving
quality systems at our Dover facility. Additionally, selling
costs increased as a result of the ORTHOsoft acquisition, an
increase in the headcount of our sales force in certain
locations, increased commission incentives to sell certain key
products and a change in the mix of commissions earned as a
result of lower OSP sales.
Settlement expense of $169.5 million for 2007 relates to
the payment we made as part of the 2007 civil settlement.
Certain claims expense of $69.0 million is a provision for
estimated claims from Durom Cup patients undergoing
revision surgeries within specified periods. For more
information regarding these claims, see Note 17 to the
consolidated financial statements.
Acquisition, integration and other expenses increased to
$68.5 million for 2008, compared to $25.2 million in
2007. The acquisition, integration and other expenses recorded
during 2008 include $38.5 million for in-process research
and development related to the Abbott Spine acquisition, costs
related to the integration of Abbott Spine, facility
consolidation costs, legal fees and retention and termination
payments, partially offset by favorable adjustments to certain
liabilities of acquired companies. The acquisition, integration
and other expenses recorded during 2007 reflect in-process
research and development write-offs related to acquisitions,
costs related to the integration of acquired
U.S. distributors, estimated settlements for certain
pre-acquisition product liability claims, integration consulting
fees and costs for integrating information technology systems.
See Note 2 to the consolidated financial statements for a
more complete description of these charges.
|
|
|
Operating
Profit, Income Taxes and Net Earnings
|
Operating profit for 2008 decreased 3 percent to
$1,090.0 million from $1,127.6 million in 2007.
Operating profit for 2007 included the effect of the
non-recurring settlement expense of $169.5 million.
Excluding the impact of the settlement expense in 2007,
operating profit for 2008 would still have been unfavorable
compared to 2007 as a result of lower gross margins, increases
in SG&A costs attributable to the implementation of our
enhanced compliance initiatives and certain claims expense of
$69.0 million.
Interest and other income for 2008 increased to
$31.8 million from $4.0 million in 2007. Interest and
other income for 2008 includes a realized gain of
$38.8 million related to the sale of certain marketable
securities, partially offset by increased interest expense as a
result of an increase in outstanding long-term debt.
The effective tax rate on earnings before income taxes decreased
to 24.3 percent for 2008, down from 31.6 percent in
2007. The effective tax rate for the 2007 period reflects the
effect of the $169.5 million settlement expense for which
no tax benefit had previously been recognized. During 2008, we
recorded a current tax benefit of $31.7 million related to
the settlement expense, resulting in a decrease of approximately
3 percent to the current period effective tax rate. The
effective tax rate for 2008 was further reduced as a result of
increased profits in lower tax jurisdictions. These decreases in
the effective tax rate were partially offset by Abbott Spine
acquisition-related in-process research and development
28
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
charges recorded during 2008 for which no tax benefit was
recorded.
Net earnings increased 10 percent to $848.6 million
for 2008 compared to $773.2 million in 2007, as the
decrease in operating profit was more than offset by favorable
items in interest and other income and a lower effective tax
rate. Basic and diluted earnings per share increased
14 percent to $3.73 and $3.72, respectively, from $3.28 and
$3.26 in 2007. The higher growth rate in earnings per share as
compared to net earnings is attributed to the effect of 2008 and
2007 share repurchases.
LIQUIDITY AND
CAPITAL RESOURCES
Cash flows provided by operating activities were
$1,117.5 million in 2009 compared to $1,038.1 million
in 2008. The principal source of cash from operating activities
in 2009 was net earnings. Non-cash charges included in net
earnings accounted for another $446.4 million of operating
cash. All other items of operating cash flows in 2009 reflect a
use of $46.3 million of cash. The resolution of outstanding
payments to healthcare professionals and institutions resulted
in increased cash outflows during the 2009 period compared to
the delay in similar payments during the 2008 period as we
implemented our enhanced global compliance program. The
resolution of these outstanding payments, along with a change in
the timing of employee bonus payments compared to the 2008
period and product liability payments, contributed to increased
outflows from accrued expenses in 2009. These outflows were
partially offset by improved accounts receivable collections and
better inventory management.
At December 31, 2009, we had 56 days of sales
outstanding in trade accounts receivable, a decrease of
3 days when compared to December 31, 2008, reflecting
improved collections across all geographic segments. At
December 31, 2009, we had 302 days of inventory on
hand, a decrease of 42 days compared to December 31,
2008. Over the past two years we have made significant
investments in inventory, including investments in response to
growing demand for systems that provide more versatility and
better fit for patients. In 2009 we made progress rationalizing
these investments through reductions in field-based consignments
and through the use of new inventory management tools to speed
returns and redeployments. The continued build out of pipeline
inventory for planned product launches should partially offset
these reductions in field consignments in 2010.
Cash flows used in investing activities were $381.2 million
in 2009 compared to $924.2 million in 2008. Additions to
instruments decreased in 2009 compared to the 2008 period, as
year-over-year
spending on instruments declined compared to the significant
investments made in 2008. In 2010, we expect to spend
approximately $170 $180 million on instruments
to support new products and sales growth. Spending on other
property, plant and equipment decreased to $105.1 million
during 2009 compared to $250.0 million in the same 2008
period. Spending on property, plant and equipment decreased
compared to 2008 levels, as certain planned infrastructure
initiatives from 2008 were completed and as we adjusted spending
to lower production volumes. During 2010, we expect to purchase
approximately $150 $160 million in other
property, plant and equipment, reflecting the cash outlays
necessary to complete new product-related investments and normal
replacement of older machinery and equipment. Acquired
intellectual property rights were $35.8 million in 2009
compared to $109.4 million in 2008. These items relate to
lump-sum payments made to certain healthcare professionals and
institutions in place of future royalty payments that otherwise
would have been due under the terms of existing contractual
arrangements. These lump-sum payments were based upon a third
party fair market valuation of the current net present value of
the contractual arrangements. During 2009 we invested excess
cash of approximately $66.4 million in certificates of
deposit that have original maturities greater than 90 days.
Investments in other assets in both 2009 and 2008 primarily
relate to payments to acquire certain foreign-based
distributors. Investments in other assets in 2007 primarily
related to payments to acquire Endius and ORTHOsoft. Included in
investing cash flows in 2008 were $363.0 million paid to
acquire Abbott Spine and $54.9 million of proceeds we
received from the sale of certain equity securities.
Cash flows used in financing activities were $262.1 million
for 2009 compared to $343.5 million in 2008. In November
2009, we sold $1.0 billion aggregate principal amount of
senior unsecured notes (Senior Notes) in a public offering. We
received net proceeds of approximately $998.8 million, net
of an offering discount of $1.2 million. We also paid an
additional $8.5 million of debt issuance costs related to
the sale of the Senior Notes. The proceeds of the offering were
used to repay amounts outstanding under our senior credit
facility, to finance our stock repurchase program and for
general corporate purposes. We repurchased $923.7 million
of our common stock in 2009 as compared with $737.0 million
in 2008 under our stock repurchase programs.
The Senior Notes include two tranches: $500 million
aggregate principal amount of 4.625% Senior Notes due
November 30, 2019, and $500 million aggregate
principal amount of 5.75% Senior Notes due
November 30, 2039. Interest on the Senior Notes is payable
on May 30 and November 30 of each year beginning on May 30,
2010 until maturity. The Senior Notes are rated A- by
Standard & Poors Ratings Services and are rated
Baa1 by Moodys Investors Service, Inc.
We may redeem the Senior Notes at our election in whole or in
part at any time prior to maturity at a redemption price equal
to the greater of 1) 100 percent of the principal
amount of the notes being redeemed; or 2) the sum of the
present values of the remaining scheduled payments of principal
and interest (not including any portion of such payments of
interest accrued as of the date of redemption), discounted to
the date of redemption on a semi-annual basis at the Treasury
Rate (as defined in the debt agreement), plus 20 basis
points, in the case of the 2019 notes, and 25 basis points,
in the case of the 2039 notes. We will also pay the accrued and
unpaid interest on the Senior Notes to the redemption date.
29
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
We have a five year $1,350 million revolving,
multi-currency, senior unsecured credit facility maturing
November 30, 2012 (Senior Credit Facility). We had
$128.8 million outstanding under the Senior Credit Facility
at December 31, 2009, and an availability of
$1,221.2 million. The Senior Credit Facility contains
provisions by which we can increase the line to
$1,750 million.
We also have available uncommitted credit facilities totaling
$84.1 million.
We may use excess cash or further borrow against our Senior
Credit Facility, subject to limits set by our Board of
Directors, to repurchase additional common stock under the
$1.25 billion program which expires December 31, 2010.
Approximately $211.1 million remains authorized for future
repurchases under this plan.
Management believes that cash flows from operations and
available borrowings under the Senior Credit Facility are
sufficient to meet our expected working capital, capital
expenditure and debt service needs. Should investment
opportunities arise, we believe that our earnings, balance sheet
and cash flows will allow us to obtain additional capital, if
necessary.
CONTRACTUAL
OBLIGATIONS
We have entered into contracts with various third parties in the
normal course of business which will require future payments.
The following table illustrates our contractual obligations (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2013
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
and
|
|
Contractual
Obligations
|
|
Total
|
|
|
2010
|
|
|
2012
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
|
Long-term debt
|
|
$
|
1,127.6
|
|
|
$
|
|
|
|
$
|
128.8
|
|
|
$
|
|
|
|
$
|
998.8
|
|
Interest payments
|
|
|
1,095.6
|
|
|
|
53.7
|
|
|
|
103.8
|
|
|
|
103.8
|
|
|
|
834.3
|
|
Operating leases
|
|
|
134.6
|
|
|
|
37.3
|
|
|
|
47.6
|
|
|
|
26.6
|
|
|
|
23.1
|
|
Purchase obligations
|
|
|
33.0
|
|
|
|
27.8
|
|
|
|
5.1
|
|
|
|
0.1
|
|
|
|
|
|
Long-term income taxes payable
|
|
|
94.3
|
|
|
|
|
|
|
|
56.5
|
|
|
|
15.3
|
|
|
|
22.5
|
|
Other long-term liabilities
|
|
|
234.2
|
|
|
|
|
|
|
|
81.7
|
|
|
|
26.2
|
|
|
|
126.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
2,719.3
|
|
|
$
|
118.8
|
|
|
$
|
423.5
|
|
|
$
|
172.0
|
|
|
$
|
2,005.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRITICAL
ACCOUNTING ESTIMATES
Our financial results are affected by the selection and
application of accounting policies and methods. Significant
accounting policies which require managements 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. Reserves are
established to effectively adjust inventory and instruments to
net realizable value. To determine the appropriate level of
reserves, 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-progress
inventory, which is recorded at cost. Obsolete or discontinued
items are generally destroyed and completely written off.
Management evaluates the need for changes to valuation reserves
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 managements best assessment of estimated
future taxes to be paid. We are subject to income taxes in both
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 if it is determined to be
more likely than not that the deferred tax benefit
will not be realized. Federal income taxes are provided on the
portion of the income of foreign subsidiaries that is expected
to be remitted to the U.S.
The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax laws and
regulations in a multitude of jurisdictions across our global
operations. We are subject to regulatory review or audit in
virtually all of those jurisdictions and those reviews and
audits may require extended periods of time to resolve. We
record our income tax provisions based on our knowledge of all
relevant facts and circumstances, including existing tax laws,
our experience with previous settlement agreements, the status
of current examinations and our understanding of how the tax
authorities view certain relevant industry and commercial
matters.
We recognize tax liabilities in accordance with the Financial
Accounting Standards Boards (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
30
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
over time are statistically analyzed to arrive at factors which
are then applied to loss estimates in the actuarial model.
During 2009, in addition to our general product liability
estimates and the $69.0 million provision recorded in 2008
related to the Durom Cup, we recorded an additional
provision for certain claims of $35.0 million representing
managements updated estimate of liability to Durom
Cup patients undergoing revisions associated with surgeries
occurring before July 2008 and within two years of the original
surgery date. These parameters are consistent with our data
which indicates that cup loosenings associated with surgical
technique are most likely to occur within that time period. We
expect to pay the majority of these claims within the next three
years. Any claims received outside of these defined parameters
will be managed in the normal course and reflected in our
standard product liability accruals.
Goodwill and Intangible Assets We evaluate
the carrying value of goodwill and indefinite life intangible
assets annually, or whenever events or circumstances indicate
the carrying value may not be recoverable. We evaluate the
carrying value of finite life intangible assets whenever events
or circumstances indicate the carrying value may not be
recoverable. Significant assumptions are required to estimate
the fair value of goodwill and intangible assets, most notably
estimated future cash flows generated by these assets. As such,
these fair valuation measurements use significant unobservable
inputs. Changes to these assumptions could require us to record
impairment charges on these assets.
In the fourth quarter of 2009, we determined our U.S. Spine
reporting units carrying value was in excess of its
estimated fair value. Fair value was determined using an equal
weighting of income and market approaches. Fair value under the
income approach was determined by discounting to present value
the estimated future cash flows of the reporting unit. Fair
value under the market approach utilized the comparable
transaction methodology, which uses valuation indicators
determined from sales of other businesses that are similar to
our U.S. Spine reporting unit. Factors that contributed to
the estimated fair value of the reporting unit being below its
carrying value included a decrease in projected revenues related
to the Dynesys Dynamic Stabilization System. This product
line experienced increased competition and insurance
reimbursement issues in 2009. We have been seeking approval from
the FDA to market this product differently in the U.S., which
would enhance its position in the market. However, in November
2009 an FDA advisory panel issued a non-approvable
recommendation, increasing the uncertainty of the estimated
future cash flows. In addition to the Dynesys product,
revenues from other products have been affected as we work
through the integration of the sales channel following the
Abbott Spine acquisition.
As a result, we recorded a related goodwill impairment charge of
$73.0 million during the year ended December 31, 2009.
We have five other reporting units with goodwill assigned to
them. We estimate the fair value of those reporting units using
the income approach by discounting to present value the
estimated future cash flows of the reporting unit. For each of
those five reporting units, the estimated fair value
substantially exceeds its carrying value.
Share-based Payment We measure share-based
payment expense at the grant date based on the fair value of the
award and recognize expense over the requisite service period.
Determining the fair value of share-based awards at the grant
date requires judgment, including estimating the expected life
of stock options and the expected volatility of our stock.
Additionally, we must estimate the amount of share-based awards
that are expected to be forfeited. We estimate expected
volatility based upon the implied volatility of our actively
traded options. The expected life of stock options and estimated
forfeitures are based upon our employees historical
exercise and forfeiture behaviors. The assumptions used in
determining the grant date fair value and the expected
forfeitures represent managements best estimates.
RECENT ACCOUNTING
PRONOUNCEMENTS
Information about recent accounting pronouncements is included
in Note 2 to the Consolidated Financial Statements, which
are included in this report under Item 8.
31
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
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 and
Swedish Krona. We manage the foreign currency exposure
centrally, on a combined basis, which allows us to net exposures
and to take advantage of any natural offsets. To reduce the
uncertainty of foreign currency exchange rate movements on
transactions denominated in foreign currencies, we enter into
derivative financial instruments in the form of foreign currency
exchange forward contracts and options with major financial
institutions. These forward contracts and options are designed
to hedge anticipated foreign currency transactions, primarily
intercompany sale and purchase transactions, for periods
consistent with commitments. Realized and unrealized gains and
losses on these contracts and options that qualify as cash flow
hedges are temporarily recorded in other comprehensive income,
then recognized in cost of products sold when the hedged item
affects net earnings.
For contracts outstanding at December 31, 2009, we had
obligations to purchase U.S. Dollars and sell Euros,
Japanese Yen, British Pounds, Canadian Dollars, Australian
Dollars, Korean Won and Swedish Krona and purchase Swiss Francs
and sell U.S. Dollars at set maturity dates ranging from
January 2010 through June 2012. The notional amounts of
outstanding forward contracts entered into with third parties to
purchase U.S. Dollars at December 31, 2009 and 2008
were $1.1 billion and $1.3 billion, respectively. The
notional amounts of outstanding forward contracts entered into
with third parties to purchase Swiss Francs at December 31,
2009 and 2008 were $202.4 million and $207.5 million,
respectively. The weighted average contract rates outstanding
are Euro:USD 1.40, USD:Swiss Franc 1.10, USD:Japanese Yen 94,
British Pound:USD 1.66, USD:Canadian Dollar 1.11, Australian
Dollar:USD 0.75, USD:Korean Won 1,208 and USD:Swedish Krona 7.52.
We maintain written policies and procedures governing our risk
management activities. Our policy requires that critical terms
of hedging instruments are the same as hedged forecasted
transactions. On this basis, with respect to cash flow hedges,
changes in cash flows attributable to hedged transactions are
generally expected to be completely offset by changes in the
fair value of hedge instruments. As part of our risk management
program, we also perform sensitivity analyses to assess
potential changes in revenue, operating results, cash flows and
financial position relating to hypothetical movements in
currency exchange rates. A sensitivity analysis of changes in
the fair value of foreign currency exchange forward contracts
outstanding at December 31, 2009 indicated that, if the
U.S. Dollar uniformly changed in value by 10 percent
relative to the Euro, Swiss Franc, Japanese Yen, British Pound,
Canadian Dollar, Australian Dollar, Korean Won and Swedish
Krona, with no change in the interest differentials, the fair
value of those contracts would increase or decrease earnings
before income taxes in periods through 2012, depending on the
direction of the change, by an average approximate amount of
$54.9 million, $20.5 million, $25.0 million,
$10.2 million, $4.7 million, $9.9 million,
$2.9 million and $1.8 million for the Euro, Swiss
Franc, Japanese Yen, British Pound, Canadian Dollar, Australian
Dollar, Korean Won and Swedish Krona contracts, respectively.
Any change in the fair value of foreign currency exchange
forward contracts as a result of a fluctuation in a currency
exchange rate is expected to be largely offset by a change in
the value of the hedged transaction. Consequently, foreign
currency exchange contracts would not subject us to material
risk due to exchange rate movements because gains and losses on
these contracts offset gains and losses on the assets,
liabilities and transactions being hedged.
We had net investment exposures to net foreign currency
denominated assets and liabilities of approximately
$2,346 million at December 31, 2009, primarily in
Swiss Francs, Japanese Yen and Euros. Approximately
$1,309 million of the net asset exposure at
December 31, 2009 relates to goodwill recorded in the
Europe and Asia Pacific geographic segments.
We enter into foreign currency forward exchange contracts with
terms of one month to manage currency exposures for assets and
liabilities denominated in a currency other than an
entitys 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.
COMMODITY PRICE
RISK
We purchase raw material commodities such as cobalt chrome,
titanium, tantalum, polymer and sterile packaging. We enter into
supply contracts generally with terms of 12 to 24 months,
where available, on these commodities to alleviate the effect of
market fluctuation in prices. As part of our risk management
program, we perform sensitivity analyses related to potential
commodity price changes. A 10 percent price change across
all these commodities would not have a
32
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
material effect on our consolidated financial position, results
of operations or cash flows.
INTEREST RATE
RISK
In the normal course of business, we are exposed to market risk
from changes in interest rates that could affect our results of
operations and financial condition. We manage our exposure to
interest rate risks through our regular operations and financing
activities.
Presently, we invest our cash and cash equivalents primarily in
U.S. government treasury funds and bank deposits. The
primary investment objective is to ensure capital preservation
of our invested principal funds by limiting default and market
risk. Currently, we do not use derivative financial instruments
in our investment portfolio.
Our principal exposure to interest rate risk arises from the
variable rates associated with our credit facilities. Our Senior
Notes have fixed interest rates and are not exposed to any risk
from movement in interest rates. We are subject to interest rate
risk through movements in interest rates on the committed Senior
Credit Facility and our uncommitted credit facilities.
Presently, all of our debt outstanding under the Senior Credit
Facility bears interest at short-term rates. We currently do not
hedge our interest rate exposure, but we may do so in the
future. Based upon our overall interest rate exposure as of
December 31, 2009, a change of 10 percent in interest
rates, assuming the amount outstanding remains constant, would
not have a material effect on interest expense. Further, this
analysis does not consider the effect of the change in the level
of overall economic activity that could exist in such an
environment.
CREDIT
RISK
Financial instruments, which potentially subject us to
concentrations of credit risk, are primarily cash, cash
equivalents, counterparty transactions and accounts receivable.
We place our investments in highly rated financial institutions
and money market instruments 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 and
investments.
We are exposed to credit loss if the financial institutions with
which we conduct business fail to perform. However, this loss is
limited to the amounts, if any, by which the obligations of the
counterparty to the financial instrument contract exceed our
obligation. We also minimize exposure to credit risk by dealing
with a diversified group of major financial institutions. We
manage credit risk by monitoring the financial condition of our
counterparties using standard credit guidelines. We do not
anticipate any nonperformance by any of the counterparties.
Concentration of credit risk 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.
However, essentially 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. Repayment is dependent
upon the financial stability of these industry sectors and the
respective countries national economic and healthcare
systems. Exposure to credit risk is controlled through credit
approvals, credit limits and monitoring procedures, and we
believe that reserves for losses are adequate. There is no
significant net exposure due to any individual customer or other
major concentration of credit risk.
33
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Managements Report on
Internal Control Over Financial Reporting
The management of Zimmer 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)
or 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers and effected by the companys Board of Directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting
principles and includes those policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, the companys 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 companys management assessed the effectiveness of the
companys internal control over financial reporting as of
December 31, 2009. In making this assessment, the
companys management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
Based on that assessment, management has concluded that, as of
December 31, 2009, the companys internal control over
financial reporting is effective based on those criteria.
The companys independent registered public accounting firm
has audited the effectiveness of the companys internal
control over financial reporting as of December 31, 2009,
as stated in its report which appears in Item 8 of this
Annual Report on
Form 10-K.
34
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
ITEM 8.
|
|
Financial Statements and
Supplementary Data
|
|
|
Index
to Consolidated Financial Statements
|
Page
|
|
|
|
|
|
Financial
Statements:
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
42
|
|
35
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
To The Stockholders and Board
of Directors of Zimmer Holdings, Inc.:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of Zimmer
Holdings, Inc. and its subsidiaries at December 31, 2009
and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
accompanying index appearing under Item 15(a)(2) presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these 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 the
accompanying Report of Management on Internal Control over
Financial Reporting. Our responsibility is to express opinions
on these financial statements and on the Companys internal
control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 2 to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain tax positions in 2007.
A companys 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 companys
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
companys 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.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 24, 2010
36
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except
per share amounts)
|
|
For the Years Ended
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Net Sales
|
|
$
|
4,095.4
|
|
|
$
|
4,121.1
|
|
|
$
|
3,897.5
|
|
Cost of products sold
|
|
|
990.8
|
|
|
|
997.3
|
|
|
|
875.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
3,104.6
|
|
|
|
3,123.8
|
|
|
|
3,021.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
205.4
|
|
|
|
192.3
|
|
|
|
182.6
|
|
Selling, general and administrative
|
|
|
1,729.2
|
|
|
|
1,704.0
|
|
|
|
1,516.7
|
|
Settlement (Note 17)
|
|
|
|
|
|
|
|
|
|
|
169.5
|
|
Certain claims (Note 17)
|
|
|
35.0
|
|
|
|
69.0
|
|
|
|
|
|
Goodwill impairment (Note 8)
|
|
|
73.0
|
|
|
|
|
|
|
|
|
|
Acquisition, integration, realignment and other (Note 2)
|
|
|
75.3
|
|
|
|
68.5
|
|
|
|
25.2
|
|
Net curtailment and settlement (Note 12)
|
|
|
(32.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2,085.8
|
|
|
|
2,033.8
|
|
|
|
1,894.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit
|
|
|
1,018.8
|
|
|
|
1,090.0
|
|
|
|
1,127.6
|
|
Interest and other income (expense), net
|
|
|
(20.6
|
)
|
|
|
31.8
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
998.2
|
|
|
|
1,121.8
|
|
|
|
1,131.6
|
|
Provision for income taxes
|
|
|
280.8
|
|
|
|
272.3
|
|
|
|
357.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
717.4
|
|
|
|
849.5
|
|
|
|
773.7
|
|
Less: Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings of Zimmer Holdings, Inc.
|
|
$
|
717.4
|
|
|
$
|
848.6
|
|
|
$
|
773.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share Basic
|
|
$
|
3.34
|
|
|
$
|
3.73
|
|
|
$
|
3.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share Diluted
|
|
$
|
3.32
|
|
|
$
|
3.72
|
|
|
$
|
3.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
215.0
|
|
|
|
227.3
|
|
|
|
235.5
|
|
Diluted
|
|
|
215.8
|
|
|
|
228.3
|
|
|
|
237.5
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
37
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$691.7
|
|
|
$
|
212.6
|
|
Restricted cash
|
|
|
0.1
|
|
|
|
2.7
|
|
Certificates of deposit
|
|
|
66.4
|
|
|
|
|
|
Accounts receivable, less allowance for doubtful accounts
|
|
|
751.4
|
|
|
|
732.8
|
|
Inventories, net
|
|
|
913.2
|
|
|
|
928.3
|
|
Prepaid expenses and other current assets
|
|
|
105.3
|
|
|
|
103.9
|
|
Deferred income taxes
|
|
|
209.9
|
|
|
|
198.3
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
2,738.0
|
|
|
|
2,178.6
|
|
Property, plant and equipment, net
|
|
|
1,221.7
|
|
|
|
1,264.1
|
|
Goodwill
|
|
|
2,783.5
|
|
|
|
2,774.8
|
|
Intangible assets, net
|
|
|
858.0
|
|
|
|
872.1
|
|
Other assets
|
|
|
184.3
|
|
|
|
149.4
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$7,785.5
|
|
|
$
|
7,239.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
$134.6
|
|
|
$
|
186.4
|
|
Income taxes
|
|
|
57.5
|
|
|
|
26.6
|
|
Other current liabilities
|
|
|
498.6
|
|
|
|
558.1
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
690.7
|
|
|
|
771.1
|
|
Other long-term liabilities
|
|
|
328.5
|
|
|
|
353.9
|
|
Long-term debt
|
|
|
1,127.6
|
|
|
|
460.1
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
2,146.8
|
|
|
|
1,585.1
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 17)
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Zimmer Holdings, Inc. Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, one billion shares
authorized,
254.1 million (253.7 million in 2008) issued
|
|
|
2.5
|
|
|
|
2.5
|
|
Paid-in capital
|
|
|
3,214.6
|
|
|
|
3,138.5
|
|
Retained earnings
|
|
|
5,102.5
|
|
|
|
4,385.5
|
|
Accumulated other comprehensive income
|
|
|
358.6
|
|
|
|
240.0
|
|
Treasury stock, 49.9 million shares (30.1 million
shares in 2008)
|
|
|
(3,039.5
|
)
|
|
|
(2,116.2
|
)
|
|
|
|
|
|
|
|
|
|
|
Total Zimmer Holdings, Inc. stockholders equity
|
|
|
5,638.7
|
|
|
|
5,650.3
|
|
Noncontrolling interest
|
|
|
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
5,638.7
|
|
|
|
5,653.9
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
|
$7,785.5
|
|
|
$
|
7,239.0
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
38
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Zimmer Holdings,
Inc. Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Shares
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury Shares
|
|
|
Noncontrolling
|
|
|
Stockholders
|
|
|
|
Number
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Number
|
|
|
Amount
|
|
|
Interest
|
|
|
Equity
|
|
|
|
Balance January 1, 2007
|
|
|
248.9
|
|
|
$
|
2.5
|
|
|
$
|
2,743.2
|
|
|
$
|
2,768.5
|
|
|
$
|
209.2
|
|
|
|
(12.1
|
)
|
|
$
|
(802.9
|
)
|
|
$
|
2.7
|
|
|
$
|
4,923.2
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
773.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
773.7
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81.1
|
|
Adoption of FASBs uncertain tax position guidance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.8
|
)
|
Stock compensation plans, including tax benefits
|
|
|
3.3
|
|
|
|
|
|
|
|
255.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255.9
|
|
Share repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.2
|
)
|
|
|
(576.3
|
)
|
|
|
|
|
|
|
(576.3
|
)
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
252.2
|
|
|
|
2.5
|
|
|
|
2,999.1
|
|
|
|
3,536.9
|
|
|
|
290.3
|
|
|
|
(19.3
|
)
|
|
|
(1,379.2
|
)
|
|
|
2.8
|
|
|
|
5,452.4
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
848.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
849.5
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50.3
|
)
|
Stock compensation plans, including tax benefits
|
|
|
1.5
|
|
|
|
|
|
|
|
139.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139.4
|
|
Share repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.8
|
)
|
|
|
(737.0
|
)
|
|
|
|
|
|
|
(737.0
|
)
|
Currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
253.7
|
|
|
|
2.5
|
|
|
|
3,138.5
|
|
|
|
4,385.5
|
|
|
|
240.0
|
|
|
|
(30.1
|
)
|
|
|
(2,116.2
|
)
|
|
|
3.6
|
|
|
|
5,653.9
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
717.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
717.4
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118.6
|
|
Purchase of noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
(8.6
|
)
|
Stock compensation plans, including tax benefits
|
|
|
0.4
|
|
|
|
|
|
|
|
81.1
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
81.1
|
|
Share repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19.8
|
)
|
|
|
(923.7
|
)
|
|
|
|
|
|
|
(923.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
|
254.1
|
|
|
$
|
2.5
|
|
|
$
|
3,214.6
|
|
|
$
|
5,102.5
|
|
|
$
|
358.6
|
|
|
|
(49.9
|
)
|
|
$
|
(3,039.5
|
)
|
|
$
|
|
|
|
$
|
5,638.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
39
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
For the Years Ended
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Cash flows provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings of Zimmer Holdings, Inc.
|
|
$
|
717.4
|
|
|
$
|
848.6
|
|
|
$
|
773.2
|
|
Adjustments to reconcile net earnings to net cash provided
|
|
|
|
|
|
|
|
|
|
|
|
|
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
337.4
|
|
|
|
275.1
|
|
|
|
230.0
|
|
Goodwill impairment
|
|
|
73.0
|
|
|
|
|
|
|
|
|
|
Gain on sale of investments
|
|
|
|
|
|
|
(38.8
|
)
|
|
|
|
|
In-process research and development
|
|
|
|
|
|
|
38.5
|
|
|
|
6.5
|
|
Net curtailment and settlement
|
|
|
(32.1
|
)
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
75.3
|
|
|
|
69.9
|
|
|
|
70.1
|
|
Inventory
step-up
|
|
|
12.5
|
|
|
|
7.0
|
|
|
|
0.5
|
|
Deferred income tax provision
|
|
|
(19.7
|
)
|
|
|
2.0
|
|
|
|
63.9
|
|
Income tax benefit from stock option exercises
|
|
|
3.5
|
|
|
|
12.5
|
|
|
|
40.8
|
|
Excess income tax benefit from stock option exercises
|
|
|
(0.4
|
)
|
|
|
(6.5
|
)
|
|
|
(27.0
|
)
|
Changes in operating assets and liabilities, net of acquired
assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes payable
|
|
|
7.0
|
|
|
|
(77.3
|
)
|
|
|
6.1
|
|
Receivables
|
|
|
(4.6
|
)
|
|
|
(44.4
|
)
|
|
|
(12.5
|
)
|
Inventories
|
|
|
36.2
|
|
|
|
(148.1
|
)
|
|
|
(58.0
|
)
|
Accounts payable and accrued liabilities
|
|
|
(132.6
|
)
|
|
|
119.3
|
|
|
|
61.9
|
|
Other assets and liabilities
|
|
|
44.6
|
|
|
|
(19.7
|
)
|
|
|
(71.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,117.5
|
|
|
|
1,038.1
|
|
|
|
1,084.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to instruments
|
|
|
(123.7
|
)
|
|
|
(237.9
|
)
|
|
|
(138.5
|
)
|
Additions to other property, plant and equipment
|
|
|
(105.1
|
)
|
|
|
(250.0
|
)
|
|
|
(192.7
|
)
|
Acquisition of intellectual property rights
|
|
|
(35.8
|
)
|
|
|
(109.4
|
)
|
|
|
|
|
Purchases of certificates of deposit
|
|
|
(66.4
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of investments
|
|
|
|
|
|
|
54.9
|
|
|
|
|
|
Abbott Spine acquisition, net of acquired cash
|
|
|
|
|
|
|
(363.0
|
)
|
|
|
|
|
Investments in other assets
|
|
|
(50.2
|
)
|
|
|
(18.8
|
)
|
|
|
(160.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(381.2
|
)
|
|
|
(924.2
|
)
|
|
|
(491.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds (payments) under revolving credit facility
|
|
|
(330.0
|
)
|
|
|
330.0
|
|
|
|
|
|
Debt issuance costs
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
|
|
Proceeds from employee stock compensation plans
|
|
|
9.5
|
|
|
|
57.0
|
|
|
|
149.8
|
|
Excess income tax benefit from stock option exercises
|
|
|
0.4
|
|
|
|
6.5
|
|
|
|
27.0
|
|
Repurchase of common stock
|
|
|
(923.7
|
)
|
|
|
(737.0
|
)
|
|
|
(576.3
|
)
|
Proceeds from issuance of notes
|
|
|
998.8
|
|
|
|
|
|
|
|
|
|
Acquisition of noncontrolling interest
|
|
|
(8.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(262.1
|
)
|
|
|
(343.5
|
)
|
|
|
(399.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
4.9
|
|
|
|
(21.7
|
)
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
479.1
|
|
|
|
(251.3
|
)
|
|
|
198.2
|
|
Cash and cash equivalents, beginning of year
|
|
|
212.6
|
|
|
|
463.9
|
|
|
|
265.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
691.7
|
|
|
$
|
212.6
|
|
|
$
|
463.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
40
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
For the Years Ended
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Net Earnings
|
|
$
|
717.4
|
|
|
$
|
849.5
|
|
|
|
$773.7
|
|
Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency cumulative translation adjustments
|
|
|
114.0
|
|
|
|
(49.4
|
)
|
|
|
101.1
|
|
Unrealized foreign currency hedge gains/(losses), net of tax
effects of
$8.9 in 2009, $0.7 in 2008 and $11.5 in 2007
|
|
|
(28.9
|
)
|
|
|
35.0
|
|
|
|
(49.8
|
)
|
Reclassification adjustments on foreign currency hedges, net of
tax effects of
$(0.1) in 2009, $(9.2) in 2008 and $(1.3) in 2007
|
|
|
(18.1
|
)
|
|
|
43.4
|
|
|
|
27.0
|
|
Unrealized gains/(losses) on securities, net of tax effects of
$0.1 in 2009,
$(15.2) in 2008 and $0.9 in 2007
|
|
|
(0.3
|
)
|
|
|
24.4
|
|
|
|
(1.4
|
)
|
Reclassification adjustments on securities, net of tax effects
of $15.0 in 2008
|
|
|
|
|
|
|
(23.8
|
)
|
|
|
|
|
Prior service cost and unrecognized gain/(loss) in actuarial
assumptions,
net of tax effects of $(1.4) in 2009, $14.1 in 2008 and $(0.4)
in 2007
|
|
|
51.9
|
|
|
|
(79.9
|
)
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Comprehensive Income (Loss)
|
|
|
118.6
|
|
|
|
(50.3
|
)
|
|
|
81.1
|
|
Comprehensive (Loss) Attributable to Noncontrolling Interest
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income Attributable to Zimmer Holdings, Inc.
|
|
$
|
836.0
|
|
|
$
|
798.3
|
|
|
|
$854.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
41
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
We design, develop, manufacture and market orthopaedic
reconstructive implants, dental implants, spinal implants,
trauma products and related surgical products. We also provide
other healthcare related services. Orthopaedic reconstructive
implants restore function lost due to disease or trauma in
joints such as knees, hips, shoulders and elbows. Dental
reconstructive implants restore function and aesthetics in
patients who have lost teeth due to trauma or disease. Spinal
implants are utilized by orthopaedic surgeons and neurosurgeons
in the treatment of degenerative diseases, deformities and
trauma in all regions of the spine. Trauma products are devices
used primarily to reattach or stabilize damaged bone and tissue
to support the bodys natural healing process. Our related
surgical products include surgical supplies and instruments
designed to aid in orthopaedic surgical procedures and
post-operation rehabilitation. We have operations in more than
25 countries and market our products in more than 100 countries.
We operate in a single industry but have three reportable
geographic segments, the Americas, Europe and Asia Pacific.
The words we, us, our and
similar words refer to Zimmer Holdings, Inc. and its
subsidiaries. Zimmer Holdings refers to the parent company only.
|
|
|
2. |
|
SIGNIFICANT
ACCOUNTING POLICIES |
Basis of Presentation The consolidated
financial statements include the accounts of Zimmer Holdings and
its subsidiaries in which it holds a controlling equity
position. Investments in companies in which we exercise
significant influence over the operating and financial affairs,
but do not control, are accounted for under the equity method.
Under the equity method, we record the investment at cost and
adjust the carrying amount of the investment by our
proportionate share of the investees net earnings or
losses. All significant intercompany accounts and transactions
are eliminated. Certain amounts in the 2008 and 2007
consolidated financial statements have been reclassified to
conform to the 2009 presentation.
Use of Estimates The consolidated financial
statements are prepared in conformity with accounting principles
generally accepted in the United States which require us to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Foreign Currency Translation The financial
statements of our foreign subsidiaries are translated into
U.S. dollars using period-end exchange rates for assets and
liabilities and average exchange rates for operating results.
Unrealized translation gains and losses are included in
accumulated other comprehensive income in stockholders
equity. When a transaction is denominated in a currency other
than the subsidiarys functional currency, we recognize a
transaction gain or loss when the transaction is settled.
Foreign currency transaction gains and losses included in net
earnings for the years ended December 31, 2009, 2008 and
2007 were not significant.
Revenue Recognition We sell product through
three principal channels: 1) direct to healthcare
institutions, referred to as direct channel accounts;
2) through stocking distributors and healthcare dealers;
and 3) directly to dental practices and dental
laboratories. The direct channel accounts represent
approximately 80 percent of our net sales. Through this
channel, inventory is generally consigned to sales agents or
customers so that products are available when needed for
surgical procedures. No revenue is recognized upon the placement
of inventory into consignment as we retain title and maintain
the inventory on our balance sheet. Upon implantation, we issue
an invoice and revenue is recognized. Pricing for products is
generally predetermined by contracts with customers, agents
acting on behalf of customer groups or by government regulatory
bodies, depending on the market. Price discounts under group
purchasing contracts are generally linked to volume of implant
purchases by customer healthcare institutions within a specified
group. At negotiated thresholds within a contract buying period,
price discounts may increase. Sales to stocking distributors,
healthcare dealers, dental practices and dental laboratories
account for approximately 20 percent of our net sales. With
these types of sales, revenue is recognized when title to
product passes, either upon shipment of the product or in some
cases upon implantation of the product. Product is generally
sold at contractually fixed prices for specified periods.
Payment terms vary by customer, but are typically less than
90 days. In some cases 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, if so,
recognize these incentives as a reduction in revenue in the same
period the underlying revenue transaction is recognized.
Occasionally products are returned, and, accordingly, we
maintain an estimated sales return reserve that is recorded as a
reduction in revenue. Product returns were not significant for
the years ended December 31, 2009, 2008 and 2007.
The reserves for doubtful accounts were $18.8 million and
$20.0 million as of December 31, 2009 and 2008,
respectively.
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 and were $121.8 million,
$117.3 million and $104.1 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Acquisition, Integration, Realignment and
Other We recognize expenses resulting directly
from our business combinations and other items as
Acquisition, integration,
42
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
realignment and other expenses. Acquisition, integration,
realignment and other expenses for the years ended
December 31, 2009, 2008 and 2007, included (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Adjustment or impairment of acquired assets and obligations, net
|
|
$
|
(1.5
|
)
|
|
$
|
(10.4
|
)
|
|
$
|
(1.2
|
)
|
Consulting and professional fees
|
|
|
11.7
|
|
|
|
13.2
|
|
|
|
1.0
|
|
Employee severance and retention, including share-based
compensation acceleration
|
|
|
19.0
|
|
|
|
0.2
|
|
|
|
1.6
|
|
Information technology integration
|
|
|
1.1
|
|
|
|
0.7
|
|
|
|
2.6
|
|
In-process research & development
|
|
|
|
|
|
|
38.5
|
|
|
|
6.5
|
|
Vacated facilities
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
Facility and employee relocation
|
|
|
5.4
|
|
|
|
7.5
|
|
|
|
|
|
Distributor acquisitions
|
|
|
1.1
|
|
|
|
6.9
|
|
|
|
4.1
|
|
Certain litigation matters
|
|
|
23.4
|
|
|
|
|
|
|
|
|
|
Contract terminations
|
|
|
9.4
|
|
|
|
5.7
|
|
|
|
5.4
|
|
Other
|
|
|
4.3
|
|
|
|
6.2
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition, integration, realignment and other
|
|
$
|
75.3
|
|
|
$
|
68.5
|
|
|
$
|
25.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment or impairment of acquired assets and obligations
relates to impairment on assets that were acquired in business
combinations or adjustments to certain liabilities of acquired
companies due to changes in circumstances surrounding those
liabilities subsequent to the related measurement period.
Consulting and professional fees relate to third-party
integration consulting performed in a variety of areas such as
tax, compliance, logistics and human resources and include
third-party fees related to severance and termination benefits
matters. These fees also include legal fees related to
litigation matters involving acquired businesses that existed
prior to our acquisition or resulted from our acquisition.
During 2009, we commenced a global realignment initiative to
focus on business opportunities that best support our strategic
priorities. As part of this realignment, we initiated changes in
our work force, eliminating positions in some areas and
increasing others. Approximately 300 employees from across
the globe were affected by these actions. As a result of these
changes in our work force and headcount reductions from
acquisitions, we recorded expense of $19.0 million related
to severance and other employee termination-related costs. These
termination benefits were provided in accordance with our
existing or local government policies and are considered ongoing
benefits. These costs were accrued when they became probable and
estimable and were recorded as part of other current
liabilities. The majority of these costs were paid during 2009.
Information technology integration relates to the
non-capitalizable costs associated with integrating the
information systems of acquired businesses.
In-process research and development charges for 2008 relate to
the acquisition of Abbott Spine. In-process research and
development charges for 2007 relate to the acquisitions of
Endius and ORTHOsoft.
In 2009, we ceased using certain leased facilities and,
accordingly, recorded expense for the remaining lease payments,
less estimated sublease recoveries, and wrote-off any assets
being used in those facilities.
Facility and employee relocation relates to costs associated
with relocating certain facilities. Most notably, we
consolidated our legacy European distribution centers into a new
distribution center in Eschbach, Germany.
Over the past three years we have acquired a number of
U.S. and foreign-based distributors. We have incurred
various costs related to the acquisition and integration of
those businesses.
Certain litigation matters relate to costs recognized during the
year for the estimated or actual settlement of various legal
matters, including patent litigation matters, commercial
litigation matters and matters arising from our acquisitions of
certain competitive distributorships in prior years. We
recognize expense for the potential settlement of a legal matter
when we believe it is probable that a loss has been incurred and
we can reasonably estimate the loss. In 2009, we made a
concerted effort to settle many of these matters to avoid
further litigation costs.
Contract termination costs relate to terminated agreements in
connection with the integration of acquired companies. The
terminated contracts primarily relate to sales agents and
distribution agreements.
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.
Certificates of Deposit We invest in cash
deposits with original maturities greater than three months and
classify these investments as certificates of deposit on our
consolidated balance sheet. The carrying amounts reported in the
balance sheet for certificates of deposit are valued at cost,
which approximates their fair value.
Inventories Inventories, net of allowances
for obsolete and slow-moving goods, are stated at the lower of
cost or market, with cost determined on a
first-in
first-out basis.
Property, Plant and Equipment Property, plant
and equipment is carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based on
estimated useful lives of ten to forty years for buildings and
improvements and three to eight years for machinery and
equipment. Maintenance and repairs are expensed as incurred. We
review property, plant and equipment for impairment whenever
events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. An impairment loss
would be recognized when estimated future undiscounted cash
flows relating to the asset are less than its carrying amount.
An impairment loss is measured as the amount by which the
carrying amount of an asset exceeds its fair value.
43
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
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
basis when the software is ready for its intended use over the
estimated useful lives of the software, which approximate three
to ten 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, net of allowances
for excess and obsolete instruments. Instruments in the field
are carried at cost less accumulated depreciation. Depreciation
is computed using the straight-line method based on average
estimated useful lives, determined principally in reference to
associated product life cycles, primarily five years. We review
instruments for impairment whenever events or changes in
circumstances indicate that the carrying value of an instrument
may not be recoverable. Depreciation of instruments is
recognized as selling, general and administrative expense.
Goodwill Goodwill is not amortized but is
subject to annual impairment tests. Goodwill has been assigned
to reporting units. We perform annual impairment tests by
comparing each reporting units fair value to its carrying
amount to determine if there is potential impairment. The fair
value of the reporting unit and the implied fair value of
goodwill are determined based upon a discounted cash flow
analysis. Significant assumptions are incorporated into these
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
units assets may not be recoverable. If the fair value of
the reporting unit is less than its carrying value, an
impairment loss is recorded to the extent that the implied fair
value of the reporting unit goodwill is less than the carrying
value of the reporting unit goodwill. During the year ended
December 31, 2009, we recorded a goodwill impairment charge
of $73.0 million related to our U.S. Spine reporting
unit. See Note 8 for more information regarding goodwill
and goodwill impairment.
Intangible Assets Intangible assets are
initially measured at their fair value. We have determined the
fair value of our intangible assets either by the fair value of
the consideration exchanged for the intangible asset or the
estimated after-tax discounted cash flows expected to be
generated from the intangible asset. Intangible assets with an
indefinite life, including certain trademarks and trade names,
are not amortized. Indefinite life intangible assets are
assessed annually to determine whether events and circumstances
continue to support an indefinite life. Intangible assets with a
finite life, including core and developed technology, certain
trademarks and trade names, customer-related intangibles,
intellectual property rights and patents and licenses are
amortized on a straight-line basis over their estimated useful
life, ranging from less than one year to 40 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 assets 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. 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.
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.
Research and Development We expense all
research and development costs as incurred. Research and
development costs include salaries, prototypes, depreciation of
equipment used in research and development, consultant fees and
service fees paid to collaborative partners.
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
44
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
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 that includes the enactment date.
We record net deferred tax assets to the extent we believe these
assets will more likely than not be realized. In making such
determination, we consider all available positive and negative
evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax
planning strategies and recent financial operations. In the
event we were to determine that we would be able to realize our
deferred income tax assets in the future in excess of their net
recorded amount, we would make an adjustment to the valuation
allowance which would reduce the provision for income taxes.
Federal income taxes are provided on the portion of the income
of foreign subsidiaries that is expected to be remitted to the
U.S.
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 hedging purposes.
The use of derivative financial instruments for trading or
speculative purposes is prohibited by our policy. See
Note 11 for more information regarding our derivative and
hedging activities.
Other Comprehensive Income Other
comprehensive income 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. Other comprehensive income is
comprised of foreign currency translation adjustments,
unrealized foreign currency hedge gains and losses, unrealized
gains and losses on
available-for-sale
securities and amortization of prior service costs and
unrecognized gains and losses in actuarial assumptions.
The components of accumulated other comprehensive income are as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Other
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
Comprehensive
|
|
|
December 31,
|
|
|
|
2008
|
|
|
Income (Loss)
|
|
|
2009
|
|
|
|
|
Foreign currency translation
|
|
$
|
319.4
|
|
|
$
|
114.0
|
|
|
$
|
433.4
|
|
Foreign currency hedges
|
|
|
33.0
|
|
|
|
(47.0
|
)
|
|
|
(14.0
|
)
|
Unrealized gain/(loss) on securities
|
|
|
(1.3
|
)
|
|
|
(0.3
|
)
|
|
|
(1.6
|
)
|
Unrecognized prior service cost and
|
|
|
|
|
|
|
|
|
|
|
|
|
unrecognized gain/(loss) in actuarial assumptions
|
|
|
(111.1
|
)
|
|
|
51.9
|
|
|
|
(59.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
240.0
|
|
|
$
|
118.6
|
|
|
$
|
358.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2008, we reclassified an investment previously accounted
for under the equity method to an
available-for-sale
investment as we no longer exercised significant influence over
the third-party investee. The investment was
marked-to-market
in accordance with the FASBs guidance on accounting for
certain investments in debt and equity securities, resulting in
a net unrealized gain of $23.8 million recorded in other
comprehensive income for 2008. This unrealized gain was
reclassified to the income statement when we sold this
investment in 2008 for total proceeds of $54.9 million and
a gross realized gain of $38.8 million included in interest
and other income. The basis of these securities was determined
based on the consideration paid at the time of acquisition.
Treasury Stock We account for repurchases of
common stock under the cost method and present treasury stock as
a reduction of shareholders equity. We reissue common stock held
in treasury only for limited purposes.
Noncontrolling Interest On January 1,
2009, we adopted the FASBs newly issued guidance related
to noncontrolling interests. This new guidance changes the
accounting and reporting for minority interests, which are now
recharacterized as noncontrolling interests and classified as a
component of equity. This new guidance requires retroactive
adoption of the presentation and disclosure requirements for
existing noncontrolling interests. This adoption did not have a
material impact on our consolidated financial statements or
results of operations. During the year ended December 31,
2009, we acquired 100 percent ownership of our only
outstanding noncontrolling interest for approximately
$8.6 million. This purchase was recorded as an equity
transaction and is reflected as a financing activity in our
consolidated statement of cash flows. As a result, the carrying
balance of the noncontrolling interests of $3.6 million was
eliminated, and the remaining $5.0 million, representing
the difference between the purchase price and carrying balance,
was recorded as a reduction in paid-in capital. Transactions
with noncontrolling interests had the following
45
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
effect on equity attributable to Zimmer Holdings, Inc. (in
millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Net earnings of Zimmer Holdings, Inc.
|
|
$
|
717.4
|
|
|
$
|
848.6
|
|
Transfers to noncontrolling interests:
|
|
|
|
|
|
|
|
|
Decrease in equity related to the purchase of noncontrolling
interests
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from net earnings of Zimmer Holdings, Inc. and transfers
to noncontrolling interests
|
|
$
|
712.4
|
|
|
$
|
848.6
|
|
|
|
|
|
|
|
|
|
|
|
Accounting Pronouncements In September 2006,
the FASB issued guidance related to fair value measurements,
which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and
expands disclosures about fair value measurements. This guidance
did not require any new fair value measurements, but provided
guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. In
February 2008, the FASB delayed the effective date of certain
provisions of this fair value guidance relating to non-financial
assets and liabilities measured at fair value on a non-recurring
basis until fiscal years beginning after November 15, 2008.
In January 2009, we adopted these additional provisions of the
FASBs fair value guidance. This adoption did not have a
material impact on our consolidated financial statements or
results of operations. See Note 7 for more information on
fair value measurements of assets and liabilities.
On January 1, 2009, we adopted the FASBs newly issued
guidance related to business combinations. This guidance
introduces new purchase accounting concepts, expands the use of
fair value accounting related to business combinations and
changes the subsequent period accounting for certain acquired
assets and liabilities. Additionally, it changes the accounting
for deferred tax assets and income tax reserves recorded as part
of a business combination. If a remeasurement of these assets or
liabilities is warranted after January 1, 2009, it will
affect income tax expense as opposed to the previous accounting
guidance which would have required goodwill to be adjusted. We
have applied this guidance to business combinations with
acquisition dates occurring in 2009. This adoption did not have
a material impact on our consolidated financial statements or
results of operations.
On January 1, 2009, we adopted the FASBs newly issued
guidance related to disclosures about derivative instruments and
hedging activities. This guidance requires increased disclosure
of our derivative and hedging activities, including how
derivative and hedging activities affect our consolidated
statement of earnings, balance sheet and cash flows, but does
not impact our financial position or results of operations. See
Note 11 for more information on our derivative instruments
and hedging activities.
In May 2009, the FASB issued new guidance related to the
accounting for and disclosure of subsequent events, which is
effective for interim and annual periods ending after
June 15, 2009. This new guidance establishes general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued or are available to be issued. This guidance introduces
new terminology but is based on the same principles that
previously existed in the auditing standards. Under this new
guidance we are required to provide disclosure of the date
through which we have evaluated subsequent events and whether
that date represents the date the financial statements were
issued or the date the financial statements were available to be
issued. For the financial statements related to the years ended
December 31, 2009, 2008 and 2007 contained herein, we have
evaluated subsequent events through February 25, 2010
representing the date these financial statements were issued.
In July 2006, the FASB issued guidance which clarifies the
accounting for uncertainty in income taxes recognized in the
financial statements. This guidance provides that a tax benefit
from an uncertain tax position may be recognized when it is more
likely than not that the position will be sustained upon
examination, including resolutions of any related appeals or
litigation processes, based on the technical merits. Income tax
positions must meet a more likely than not recognition threshold
at the effective date and in subsequent periods to be
recognized. The FASB also provided guidance on measurement,
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. We
adopted the FASB guidance effective January 1, 2007.
|
|
|
3. |
|
SHARE-BASED
COMPENSATION |
Our share-based payments primarily consist of stock options,
restricted stock, restricted stock units (RSUs), performance
shares and an employee stock purchase plan. For the year ended
December 31, 2009, share-based payment expense was
$75.3 million or $54.4 million net of the related tax
benefits. For the year ended December 31, 2008, share-based
payment expense was $69.9 million or $49.5 million net
of the related tax benefits. For the year ended
December 31, 2007, share-based payment expense was
$70.1 million or $48.1 million net of the related tax
benefits.
Stock
Options
We had two equity compensation plans in effect at
December 31, 2009: the 2009 Stock Incentive Plan (2009
Plan) and the Stock Plan for Non-Employee Directors. The 2009
Plan succeeds the 2006 Stock Incentive Plan (the 2006
Plan) and the TeamShare Stock Option Plan (TeamShare
Plan). Following stockholder approval of the 2009 Plan in May
2009, no further awards were granted under the 2006 Plan or
under the TeamShare Plan, and shares remaining available for
46
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
grant under those plans are expected to be merged into the 2009
Plan. Vested and unvested stock options and unvested restricted
stock and RSUs previously granted under the 2006 Plan, the
TeamShare Plan and another prior plan, the 2001 Stock Incentive
Plan, remained outstanding as of December 31, 2009. We have
reserved the maximum number of shares of common stock available
for award under the terms of each of these plans. We have
registered 52.9 million shares of common stock and expect
to register an additional 5 million shares under the
Securities Act of 1933, as amended. 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. 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, 2009, an aggregate of
14.2 million shares were available for future grants and
awards under these plans.
Stock options granted to date under our plans generally vest
over four years and generally 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. In the
past, certain options have had price thresholds, which affect
exercisability. All such price thresholds have been satisfied.
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 stock option plans is
limited to control dilution.
A summary of stock option activity for the year ended
December 31, 2009 is as follows (options in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Stock Options
|
|
|
Exercise Price
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
15,900
|
|
|
$
|
71.25
|
|
Options granted
|
|
|
2,567
|
|
|
|
40.12
|
|
Options exercised
|
|
|
(176
|
)
|
|
|
30.32
|
|
Options cancelled
|
|
|
(799
|
)
|
|
|
63.61
|
|
Options expired
|
|
|
(580
|
)
|
|
|
75.56
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
16,912
|
|
|
|
67.17
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding at December 31, 2009 (options in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Range of Exercise
Prices
|
|
Options
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
|
|
$22.00 $27.50
|
|
|
137
|
|
|
|
1.11
|
|
|
$
|
25.73
|
|
|
|
137
|
|
|
$
|
25.73
|
|
$27.51 $37.50
|
|
|
858
|
|
|
|
2.10
|
|
|
|
30.84
|
|
|
|
814
|
|
|
|
30.55
|
|
$37.51 $51.00
|
|
|
2,928
|
|
|
|
7.69
|
|
|
|
41.08
|
|
|
|
715
|
|
|
|
44.01
|
|
$51.01 $70.50
|
|
|
2,813
|
|
|
|
4.98
|
|
|
|
68.67
|
|
|
|
2,522
|
|
|
|
68.97
|
|
$70.51 $91.00
|
|
|
10,176
|
|
|
|
6.92
|
|
|
|
77.88
|
|
|
|
5,993
|
|
|
|
77.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,912
|
|
|
|
6.44
|
|
|
|
67.17
|
|
|
|
10,181
|
|
|
|
68.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We use a Black-Scholes option-pricing model to determine the
fair value of our stock options. Expected volatility was derived
from the implied volatility of our traded options that were
actively traded around the grant date of the stock options with
exercise prices similar to the stock options and 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 is determined using the implied yield
currently available for zero-coupon U.S. government issues
with a remaining term equal to the expected life of the options.
A dividend yield of zero percent has been used as we have not
paid a dividend since becoming a public company in 2001 and we
do not expect to pay a dividend in the foreseeable future.
47
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
The weighted average fair value of the options granted in the
years ended December 31, 2009, 2008 and 2007 were
determined using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Dividend Yield
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Volatility
|
|
|
41.6
|
%
|
|
|
27.4
|
%
|
|
|
23.8
|
%
|
Risk-free interest rate
|
|
|
1.7
|
%
|
|
|
2.9
|
%
|
|
|
4.4
|
%
|
Expected life (years)
|
|
|
5.4
|
|
|
|
5.4
|
|
|
|
5.1
|
|
The weighted average fair value for stock options granted during
2009, 2008 and 2007 was $16.02, $23.32 and $22.60, respectively.
The total intrinsic value of stock options exercised during the
years ended December 31, 2009, 2008 and 2007 was
$3.3 million, $31.9 million and $124.5 million,
respectively. For the years ended December 31, 2009, 2008
and 2007, share-based payment expense related to stock options
was $61.9 million, $65.4 million and
$73.4 million, respectively, or $44.7 million,
$46.3 million and $50.4 million net of the related tax
benefits, respectively.
Summarized information about outstanding stock options as of
December 31, 2009 that are already vested and that we
expect to vest, as well as stock options that are currently
exercisable, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Outstanding Stock
|
|
|
|
|
|
|
Options Already
|
|
|
Options
|
|
|
|
Vested and
Expected
|
|
|
that are
|
|
|
|
to Vest*
|
|
|
Exercisable
|
|
|
|
|
Number of outstanding options (in thousands)
|
|
|
16,008
|
|
|
|
10,181
|
|
Weighted average remaining contractual life
|
|
|
6.3 years
|
|
|
|
5.3 years
|
|
Weighted average exercise price per share
|
|
|
$67.37
|
|
|
|
$68.85
|
|
Intrinsic value (in millions)
|
|
|
$75.3
|
|
|
|
$38.6
|
|
|
|
*
|
Includes effects of estimated
forfeitures
|
As of December 31, 2009, there was $85.1 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
2.3 years.
Performance
Shares and RSUs
We have utilized both performance shares and RSUs as share-based
payments to our employees. Some of these awards have had service
conditions while others have had performance conditions. The
terms of the service condition awards have been either two or
four years with vesting occurring ratably on the anniversary
date of the award. However, based upon meeting certain criteria,
as established under our equity compensation plans, these awards
may accelerate upon retirement after the first anniversary date
of the award. Accordingly, the requisite service period used for
share-based payment expense ranges from one to four years.
The vesting of the awards with performance conditions was based
upon the achievement of objective performance targets over
multiple year periods. For these performance-based awards, it
was determined in 2008 that the performance targets would not be
achieved. Accordingly, as of December 31, 2009 and 2008, no
performance-based awards were outstanding.
A summary of nonvested RSU activity for the year ended
December 31, 2009 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
RSUs
|
|
|
Value
|
|
|
|
|
Outstanding at January 1, 2009
|
|
|
169
|
|
|
$
|
64.93
|
|
Granted
|
|
|
573
|
|
|
|
40.33
|
|
Vested
|
|
|
(118
|
)
|
|
|
68.27
|
|
Forfeited
|
|
|
(189
|
)
|
|
|
41.28
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
435
|
|
|
|
42.09
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the awards was determined based upon the fair
market value of our common stock on the date of grant. 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, 2009,
we estimate that approximately 404,000 outstanding RSUs will
vest. If our estimate were to change in the future, the
cumulative effect of the change in estimate will be recorded in
that period. Based upon the number of RSUs that we expect to
vest, the unrecognized share-based payment expense as of
December 31, 2009 was $13.2 million and is expected to
be recognized over a weighted-average period of 3.1 years.
For the years ended December 31, 2009, 2008 and 2007,
pre-tax expense (income) related to these awards was
$13.4 million, $4.5 million and $(3.3) million,
respectively, or $9.7 million, $3.2 million and
$(2.3) million net of the related tax benefits,
respectively.
Inventories at December 31, 2009 and 2008 consist of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Finished goods
|
|
$
|
718.6
|
|
|
$
|
731.2
|
|
Work in progress
|
|
|
48.0
|
|
|
|
52.6
|
|
Raw materials
|
|
|
146.6
|
|
|
|
144.5
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
913.2
|
|
|
$
|
928.3
|
|
|
|
|
|
|
|
|
|
|
|
Reserves for excess and obsolete inventory were
$255.1 million and $199.6 million at December 31,
2009 and 2008, respectively. Included in finished goods
inventory at December 31, 2009 is approximately
$1.3 million of inventory
step-up
resulting from the Abbott Spine acquisition. Inventory
step-up
values are based upon estimated sales prices less distribution
costs and a profit allowance. Included in finished goods
inventory at December 31, 2009 and 2008 is approximately
$9.4 million and $11.3 of capitalized share-based payment
expense, respectively.
48
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
|
|
|
5. |
|
PROPERTY, PLANT
AND EQUIPMENT |
Property, plant and equipment at December 31, 2009 and 2008
was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Land
|
|
$
|
21.8
|
|
|
$
|
21.7
|
|
Building and equipment
|
|
|
1,147.7
|
|
|
|
992.7
|
|
Capitalized software costs
|
|
|
158.8
|
|
|
|
136.7
|
|
Instruments
|
|
|
1,210.2
|
|
|
|
1,161.7
|
|
Construction in progress
|
|
|
62.0
|
|
|
|
149.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,600.5
|
|
|
|
2,461.8
|
|
Accumulated depreciation
|
|
|
(1,378.8
|
)
|
|
|
(1,197.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
1,221.7
|
|
|
$
|
1,264.1
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $244.2 million,
$215.8 million and $182.6 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
We made acquisitions during the years 2009, 2008 and 2007, the
most significant of which was our acquisition of Abbott Spine in
2008, which is described below. The results of operations of the
acquired companies have been included in our consolidated
results of operations subsequent to the transaction dates, and
the respective assets and liabilities of the acquired companies
have been recorded at their estimated fair values in our
consolidated statement of financial position as of the
transaction dates, with any excess purchase price being
allocated to goodwill. Pro forma financial information and other
information required by the FASBs guidance on business
combinations have not been included as the acquisitions did not
have a material impact upon our financial position or results of
operations.
Abbott
Spine
In October 2008, we acquired Abbott Spine, a former subsidiary
of Abbott Laboratories, for an aggregate value of approximately
$363.0 million, including a $358.0 million cash
purchase price after certain working capital adjustments and
$5.0 million of direct acquisition costs.
In 2009 we completed the final purchase price allocation, which
reflects additional contract termination liabilities, changes to
the preliminary fair values assigned to acquired inventory and
changes to deferred taxes.
The following table summarizes the estimates of fair value of
the assets acquired and liabilities assumed at the date of the
Abbott Spine acquisition (in millions):
|
|
|
|
|
|
|
As of
October 16,
|
|
|
|
2008
|
|
|
|
|
Current assets
|
|
$
|
61.4
|
|
Property, plant and equipment
|
|
|
6.5
|
|
Instruments
|
|
|
17.5
|
|
Intangible assets subject to amortization:
|
|
|
|
|
Customer relationships (10 year useful life)
|
|
|
8.6
|
|
Developed technology (10 year useful life)
|
|
|
64.3
|
|
In-process research and development
|
|
|
38.5
|
|
Other assets
|
|
|
10.0
|
|
Goodwill
|
|
|
203.2
|
|
|
|
Total assets acquired
|
|
|
410.0
|
|
|
|
Current liabilities
|
|
|
19.5
|
|
Deferred taxes
|
|
|
27.5
|
|
|
|
Total liabilities assumed
|
|
|
47.0
|
|
|
|
Net assets acquired
|
|
$
|
363.0
|
|
|
|
Goodwill of $130.6 million, $69.9 million and
$2.7 million was assigned to the Americas, Europe and Asia
Pacific reporting segments, respectively. None of the goodwill
is deductible for tax purposes.
|
|
|
7. |
|
FAIR VALUE
MEASUREMENTS OF ASSETS AND LIABILITIES |
The following financial assets and liabilities are recorded at
fair value on a recurring basis as of December 31, 2009 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Measurements at Reporting Date Using:
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
in Active
|
|
|
|
|
|
|
|
|
Markets for
|
|
Significant Other
|
|
Significant
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
Recorded
|
|
Assets
|
|
Inputs
|
|
Inputs
|
Description
|
|
Balance
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
0.9
|
|
$
|
0.9
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives, current and non-current
|
|
|
12.4
|
|
|
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13.3
|
|
$
|
0.9
|
|
$
|
12.4
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives, current and non-current
|
|
$
|
32.7
|
|
$
|
|
|
$
|
32.7
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32.7
|
|
$
|
|
|
$
|
32.7
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities are valued using a market approach, based on quoted
prices for the specific security from transactions in active
exchange markets. Derivatives relate to foreign currency
exchange forward contracts and foreign currency options entered
into with various third parties. We value these instruments
using a market approach based on foreign currency exchange rates
obtained from active markets and perform an assessment of
counterparty credit risk.
49
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
The following nonfinancial assets were measured at fair value on
a nonrecurring basis during the year ended December 31,
2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Measurements Using:
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
Significant Other
|
|
Significant
|
|
|
|
|
Year Ended
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
December 31,
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Total
|
Description
|
|
2009
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
342.9
|
|
$
|
|
|
$
|
|
|
$
|
342.9
|
|
$
|
73.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
342.9
|
|
$
|
|
|
$
|
|
|
$
|
342.9
|
|
$
|
73.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009, goodwill relating to our U.S. Spine reporting unit
with a carrying amount of $415.9 million was written down
to its implied fair value of $342.9 million, resulting in
an impairment charge of $73.0 million. The implied fair
value of goodwill equals the estimated fair value of a reporting
unit minus the fair value of the reporting units net
assets. Accordingly, in determining the implied fair value of
the U.S. Spine reporting unit goodwill, we used
unobservable inputs to estimate the fair value of the reporting
unit and its assets and liabilities. Fair value was determined
using an equal weighting of income and market approaches. Fair
value under the income approach was determined by discounting to
present value the estimated future cash flows of the reporting
unit. Fair value under the market approach utilized the
comparable transaction methodology, which uses valuation
indicators determined from sales of other businesses that are
similar to our U.S. Spine reporting unit. In estimating the
future cash flows of the reporting unit, we utilized a
combination of market and company specific inputs that a market
participant would use in assessing the fair value of the
reporting unit. The primary market input was revenue growth
rates. These rates were based upon historical trends and
estimated future growth drivers such as an aging global
population, obesity and more active lifestyles. Significant
company specific inputs included assumptions regarding how the
reporting unit could leverage operating expenses as revenue
grows and the impact any new products will have on revenues.
Under the comparable transaction methodology, we took into
consideration when the comparable transaction occurred and the
differences that may exist due to changes in the economic
environment. We also took into consideration differences between
the comparable companies and our U.S. Spine reporting unit
that could affect fair value, such as cash and debt levels.
The fair value of the reporting units assets and
liabilities were determined by using the same methods that are
used in business combination purchase accounting. See
Note 8 for further information regarding this goodwill
impairment.
There were no other significant nonfinancial assets that were
measured at fair value in the year ending December 31, 2009.
|
|
|
8. |
|
GOODWILL AND
OTHER INTANGIBLE ASSETS |
The following table summarizes the changes in the carrying
amount of goodwill for the years ended December 31, 2009
and 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
Europe
|
|
|
Asia Pacific
|
|
|
Total
|
|
|
|
|
Balance at January 1, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
1,443.5
|
|
|
$
|
1,066.3
|
|
|
$
|
111.6
|
|
|
$
|
2,621.4
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,443.5
|
|
|
|
1,066.3
|
|
|
|
111.6
|
|
|
|
2,621.4
|
|
Change in fair value estimates of Centerpulse related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration liability
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
Income taxes
|
|
|
(22.7
|
)
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
(23.6
|
)
|
Change in fair value estimates of Endius related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration liability
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Income taxes
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(4.0
|
)
|
Change in fair value estimates of ORTHOsoft related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
Income taxes
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.0
|
)
|
Other
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Purchase of Abbott Spine
|
|
|
129.3
|
|
|
|
65.7
|
|
|
|
2.4
|
|
|
|
197.4
|
|
Other
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(0.5
|
)
|
Currency translation
|
|
|
(5.9
|
)
|
|
|
(20.4
|
)
|
|
|
10.4
|
|
|
|
(15.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,540.3
|
|
|
|
1,110.1
|
|
|
|
124.4
|
|
|
|
2,774.8
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,540.3
|
|
|
|
1,110.1
|
|
|
|
124.4
|
|
|
|
2,774.8
|
|
Change in fair value estimates of Abbott Spine related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration liability
|
|
|
1.0
|
|
|
|
4.2
|
|
|
|
0.3
|
|
|
|
5.5
|
|
Inventory
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
Income taxes
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
U.S. Spine reporting unit impairment
|
|
|
(73.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(73.0
|
)
|
Other acquisitions
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
5.0
|
|
Currency translation
|
|
|
6.3
|
|
|
|
53.8
|
|
|
|
10.8
|
|
|
|
70.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
1,547.9
|
|
|
|
1,173.1
|
|
|
|
135.5
|
|
|
|
2,856.5
|
|
Accumulated impairment losses
|
|
|
(73.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(73.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,474.9
|
|
|
$
|
1,173.1
|
|
|
$
|
135.5
|
|
|
$
|
2,783.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We conduct our annual impairment test in the fourth quarter of
every year or whenever events occur or circumstances change that
would more likely than not reduce the fair value of a reporting
unit below its carrying amount. In the fourth quarter of 2009,
we determined our U.S. Spine reporting units carrying
value was in excess of its estimated fair value. Fair value was
determined using an equal weighting of income and market
approaches. Factors that contributed to the estimated fair value
of the reporting unit to be below its carrying value included a
decrease in projected revenues related to the Dynesys
Dynamic Stabilization System. This product line experienced
increased competition and insurance reimbursement issues in
2009. We have been seeking approval from the FDA to market this
product differently in the U.S., which would enhance its
position in the market. However, in November 2009 an FDA
advisory panel issued a non-approvable recommendation,
increasing the uncertainty of the
50
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
estimated future cash flows. In addition to the Dynesys
product, revenues from other products have been affected as
we work through the integration of the sales channel following
the Abbott Spine acquisition.
As a result, we recorded a related goodwill impairment charge of
approximately $73.0 million during the year ended
December 31, 2009. Before the impairment charge, goodwill
assigned to this reporting unit was approximately
$416 million, of which approximately two-thirds arose from
the Centerpulse acquisition in 2003 and the remaining from the
Abbott Spine acquisition in 2008.
We have five other reporting units with goodwill assigned to
them. We estimate the fair value of those reporting units using
the income approach by discounting to present value the
estimated future cash flows of the reporting unit. For each of
those five reporting units, the estimated fair value
substantially exceeds its carrying value.
We will continue to monitor the fair value of our
U.S. Spine reporting until as well as our other five
reporting units in our interim and annual reporting periods. If
our estimated cash flows for these reporting units decrease, we
may have to record further impairment charges in the future.
Factors that could result in our cash flows being lower than our
current estimates include: 1) decreased revenues caused by
changes in the healthcare market, or our inability to generate
new product revenue from our research and development
activities, and 2) if we are not able 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
which will impact our estimated fair values.
The components of identifiable intangible assets are as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual
|
|
|
Trademarks
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
|
Developed
|
|
|
Property
|
|
|
and Trade
|
|
|
Customer
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
Technology
|
|
|
Rights
|
|
|
Names
|
|
|
Relationships
|
|
|
Other
|
|
|
Total
|
|
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
144.1
|
|
|
$
|
499.1
|
|
|
$
|
145.2
|
|
|
$
|
34.7
|
|
|
$
|
129.2
|
|
|
$
|
51.5
|
|
|
$
|
1,003.8
|
|
Accumulated amortization
|
|
|
(44.0
|
)
|
|
|
(183.5
|
)
|
|
|
(40.3
|
)
|
|
|
(20.0
|
)
|
|
|
(23.4
|
)
|
|
|
(31.1
|
)
|
|
|
(342.3
|
)
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196.5
|
|
|
|
|
|
|
|
|
|
|
|
196.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
$
|
100.1
|
|
|
$
|
315.6
|
|
|
$
|
104.9
|
|
|
$
|
211.2
|
|
|
$
|
105.8
|
|
|
$
|
20.4
|
|
|
$
|
858.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
144.1
|
|
|
$
|
498.8
|
|
|
$
|
109.4
|
|
|
$
|
35.6
|
|
|
$
|
93.6
|
|
|
$
|
42.9
|
|
|
$
|
924.4
|
|
Accumulated amortization
|
|
|
(36.0
|
)
|
|
|
(147.5
|
)
|
|
|
(6.7
|
)
|
|
|
(16.6
|
)
|
|
|
(15.6
|
)
|
|
|
(26.9
|
)
|
|
|
(249.3
|
)
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197.0
|
|
|
|
|
|
|
|
|
|
|
|
197.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
$
|
108.1
|
|
|
$
|
351.3
|
|
|
$
|
102.7
|
|
|
$
|
216.0
|
|
|
$
|
78.0
|
|
|
$
|
16.0
|
|
|
$
|
872.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, we made lump-sum payments of $35.8 million to
certain healthcare professionals and institutions in place of
future royalty payments that otherwise would have been due under
the terms of existing contractual arrangements. Such payments
were based upon a third party fair market valuation of the
current net present value of the contractual arrangements. Under
the terms of these resolutions, we acquired the exclusive rights
to any intellectual property, patented and unpatented, provided
by the healthcare professional or institution during the course
of the original contractual arrangements. The weighted average
useful life for these assets is 5.6 years, which represents
the life of any related patent or the period for which we
maintain exclusivity to the intellectual property. Amortization
expense for these assets is reported as part of cost of goods
sold.
Total amortization expense for finite-lived intangible assets
was $93.2 million, $59.3 million and
$47.4 million for the years ended December 31, 2009,
2008 and 2007, respectively. For 2009, $33.6 million of
amortization expense was recorded as part of cost of goods sold,
with the remaining $59.6 million recorded as part of
selling, general and administrative expenses. For 2008,
$6.7 million of amortization expense was recorded as part
of cost of goods sold, with the remaining $52.6 million
recorded as part of selling, general and administrative
expenses. For 2007, all amortization expense was recorded as
part of selling, general and administrative expenses. Estimated
annual amortization expense for the years ending
December 31, 2010 through 2014 is $89.7 million,
$80.9 million, $73.4 million, $66.8 million and
$62.6 million, respectively.
51
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
|
|
|
9. |
|
OTHER CURRENT AND
LONG-TERM LIABILITIES |
Other current and long-term liabilities at December 31,
2009 and 2008 consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
License and service agreements
|
|
$
|
108.0
|
|
|
$
|
169.6
|
|
Certain claims accrual (Note 17)
|
|
|
42.5
|
|
|
|
62.8
|
|
Salaries, wages and benefits
|
|
|
95.7
|
|
|
|
91.5
|
|
Accrued liabilities
|
|
|
252.4
|
|
|
|
234.2
|
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
498.6
|
|
|
$
|
558.1
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term income tax payable
|
|
$
|
94.3
|
|
|
$
|
116.9
|
|
Accrued retirement and postretirement benefit plans
|
|
|
32.9
|
|
|
|
129.9
|
|
Certain claims accrual (Note 17)
|
|
|
29.4
|
|
|
|
|
|
Other long-term liabilities
|
|
|
171.9
|
|
|
|
107.1
|
|
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities
|
|
$
|
328.5
|
|
|
$
|
353.9
|
|
|
|
|
|
|
|
|
|
|
|
In November 2009, we sold $500 million aggregate principal
amount of our 4.625% Senior Notes due November 30,
2019 and $500 million aggregate principal amount of our
5.75% Senior Notes due November 30, 2039 (Senior
Notes) in a public offering. Interest is payable on May 30 and
November 30 of each year beginning on May 30, 2010 until
maturity. We received net proceeds of approximately
$998.8 million, net of an offering discount of
$1.2 million. The Senior Notes carry an effective interest
rate of 4.634% and 5.762%, respectively. We used the proceeds to
repay amounts outstanding under our senior credit facility, to
finance our stock repurchase program and for general corporate
purposes.
We may redeem the Senior Notes at our election in whole or in
part at any time prior to maturity at a redemption price equal
to the greater of 1) 100 percent of the principal
amount of the notes being redeemed; or 2) the sum of the
present values of the remaining scheduled payments of principal
and interest (not including any portion of such payments of
interest accrued as of the date of redemption), discounted to
the date of redemption on a semi-annual basis at the Treasury
Rate (as defined in the debt agreement), plus 20 basis
points, in the case of the 2019 notes, and 25 basis points,
in the case of the 2039 notes. We will also pay the accrued and
unpaid interest on the Senior Notes to the redemption date.
We have a five year $1,350 million senior credit agreement
(Senior Credit Facility). The Senior Credit Facility is a
revolving, multi-currency, senior unsecured credit facility
maturing November 30, 2012. Available borrowings under the
Senior Credit Facility at December 31, 2009 were
$1,221.2 million. The Senior Credit Facility contains
provisions whereby borrowings may be increased to
$1,750 million.
We and certain of our wholly owned foreign subsidiaries are the
borrowers under the Senior Credit Facility. Borrowings under the
Senior Credit Facility bear interest at a LIBOR-based rate plus
an applicable margin determined by reference to our senior
unsecured long-term credit rating and the amounts drawn under
the Senior Credit Facility, at an alternate base rate, or at a
fixed rate determined through a competitive bid process. The
Senior Credit Facility contains customary affirmative and
negative covenants and events of default for an unsecured
financing arrangement, including, among other things,
limitations on consolidations, mergers and sales of assets.
Financial covenants include a maximum leverage ratio of 3.0 to
1.0 and a minimum interest coverage ratio of 3.5 to 1.0. If we
fall below an investment grade credit rating, additional
restrictions would result, including restrictions on
investments, payment of dividends and stock repurchases. We were
in compliance with all covenants under the Senior Credit
Facility as of December 31, 2009. Commitments under the
Senior Credit Facility are subject to certain fees, including a
facility and a utilization fee. Borrowings under the Senior
Credit Facility were Japanese Yen-based borrowings at
December 31, 2009 and U.S. Dollar and Japanese
Yen-based borrowings at December 31, 2008.
Outstanding long-term debt as of December 31, 2009 was
$1,127.6 million, comprised of $998.8 million from our
Senior Notes and $128.8 from our Senior Credit Facility. As of
December 31, 2008, $460.1 million was outstanding from
our Senior Credit Facility. We had no short-term debt as of
December 31, 2009 or 2008. The estimated fair value of our
Senior Notes as of December 31, 2009 was
$992.1 million. The carrying value of the Senior Credit
Facility approximates fair value, as the underlying instruments
have variable interest rates at market value.
We also have available uncommitted credit facilities totaling
$84.1 million.
The weighted average interest rate for all borrowings was
4.7 percent at December 31, 2009. We paid
$17.0 million, $14.0 million and $8.5 million in
interest during 2009, 2008 and 2007, respectively.
Debt issuance costs of $22.8 million were incurred to
obtain the Senior Credit Facility and debt issuance costs of
$8.5 million were incurred during the sale of our Senior
Notes. These costs were capitalized and are amortized to
interest expense over the lives of the related facility and the
Senior Notes. At December 31, 2009, total unamortized debt
issuance costs were $11.7 million.
|
|
|
11. |
|
DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES |
We are exposed to certain market risks relating to our ongoing
business operations, including foreign currency 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 risk
that we manage through the use of derivative instruments is
foreign currency risk.
52
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
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 and options with major financial
institutions. 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 and
Swedish Krona. We do not use derivative financial instruments
for trading or speculative purposes.
We report all derivative instruments as assets or liabilities on
the balance sheet at fair value.
Derivatives
Designated as Hedging Instruments
Our revenues are generated in various currencies throughout the
world. However, a significant amount of our inventory is
produced in U.S. Dollars. Therefore, movements in foreign
currency exchange rates may have different proportional effects
on our revenues compared to our cost of products sold. To
minimize the effects of foreign currency exchange rate movements
on cash flows, we hedge intercompany sales of inventory expected
to occur within the next 30 months with foreign currency
exchange forward contracts and options. We designate these
derivative instruments as cash flow hedges. We have not entered
into any derivative instruments designated as fair value or net
investment in foreign operation hedges.
We perform quarterly assessments of hedge effectiveness by
verifying and documenting the critical terms of the hedge
instrument and that forecasted transactions have not changed
significantly. We also assess on a quarterly basis whether there
have been adverse developments regarding the risk of a
counterparty default. For derivatives which qualify as hedges of
future cash flows, the effective portion of changes in fair
value is temporarily recorded in other comprehensive income and
then recognized in cost of products sold when the hedged item
affects net earnings. The ineffective portion of a
derivatives change in fair value, if any, is reported in
cost of products sold immediately. The net amount recognized in
earnings during 2009 and 2008 due to ineffectiveness and amounts
excluded from the assessment of hedge effectiveness was not
significant.
For forward contracts and options outstanding at
December 31, 2009, we have obligations to purchase
U.S. Dollars and sell Euros, Japanese Yen, British Pounds,
Canadian Dollars, Australian Dollars, Korean Won and Swedish
Krona and purchase Swiss Francs and sell U.S. Dollars at
set maturity dates ranging from January 2010 through June 2012.
The notional amounts of outstanding forward contracts and
options entered into with third parties to purchase
U.S. Dollars at December 31, 2009 were
$1.1 billion. The notional amounts of outstanding forward
contracts entered into with third parties to purchase Swiss
Francs at December 31, 2009 were $202 million.
As of December 31, 2009 and 2008, all derivative
instruments designated as cash flow hedges are recorded at fair
value on the balance sheet. On our consolidated balance sheet,
we recognize individual forward contracts and options with the
same counterparty on a net asset/liability basis if we have a
master netting agreement with the counterparty. The fair value
of derivative instruments on a gross basis as of
December 31, 2009 and 2008 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Balance Sheet
|
|
Fair
|
|
|
Balance Sheet
|
|
|
Fair
|
|
|
|
Location
|
|
Value
|
|
|
Location
|
|
|
Value
|
|
|
|
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other current assets
|
|
$
|
23.3
|
|
|
|
Other current assets
|
|
|
$
|
53.7
|
|
Foreign exchange options
|
|
Other current assets
|
|
|
|
|
|
|
Other current assets
|
|
|
|
4.6
|
|
Foreign exchange forward contracts
|
|
Other assets
|
|
|
6.3
|
|
|
|
Other assets
|
|
|
|
30.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives
|
|
|
|
$
|
29.6
|
|
|
|
|
|
|
$
|
88.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other current liabilities
|
|
$
|
35.4
|
|
|
|
Other current liabilities
|
|
|
$
|
34.4
|
|
Foreign exchange forward contracts
|
|
Other long-term liabilities
|
|
|
14.5
|
|
|
|
Other long-term liabilities
|
|
|
|
17.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability derivatives
|
|
|
|
$
|
49.9
|
|
|
|
|
|
|
$
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of outstanding derivative instruments recorded on
the balance sheet at December 31, 2009, together with
settled derivatives where the hedged item has not yet affected
earnings, was a net unrealized loss of $24.9 million, or
$14.1 million net of taxes, which is deferred in other
comprehensive income, of which $11.0 million, or
$5.3 million net of taxes, is expected to be reclassified
to earnings over the next twelve months.
Derivative instruments had the following effects on other
comprehensive income on our consolidated balance sheet and
53
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
our consolidated statement of earnings on a gross basis for the
years ended December 31, 2009 and 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
Amount of
|
|
|
|
Gain/(Loss)
|
|
|
Gain/(Loss)
|
|
|
|
Recognized
|
|
|
Reclassified From
OCI
|
|
|
|
in OCI
|
|
|
to Cost of Products
Sold
|
|
|
|
|
|
|
Derivative Instrument
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
(35.8)
|
|
|
$
|
33.1
|
|
|
$
|
16.8
|
|
|
$
|
(52.6)
|
|
Foreign exchange options
|
|
|
(2.0)
|
|
|
|
1.2
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(37.8)
|
|
|
$
|
34.3
|
|
|
$
|
18.0
|
|
|
$
|
(52.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
entitys functional currency. As a result, any 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. These
offsetting gains/losses are recorded in cost of products sold as
the underlying assets and liabilities exposed to remeasurement
include inventory-related transactions. 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 $1.2 billion to $1.4 billion per quarter.
The following gains/(losses) from these derivative instruments
were recognized in cost of products sold on our consolidated
statement of earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
Derivative Instrument
|
|
2009
|
|
|
2008
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
(10.3
|
)
|
|
$
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(10.3
|
)
|
|
$
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
This impact does not include any offsetting gains/losses
recognized in earnings as a result of foreign currency
remeasurement of monetary assets and liabilities denominated in
a currency other than an entitys functional currency.
|
|
|
12. |
|
RETIREMENT
BENEFIT PLANS |
We have defined benefit pension plans covering certain
U.S. and Puerto Rico employees. The employees who are not
participating in the defined benefit plans receive additional
benefits under our defined contribution plans. Plan benefits are
primarily based on years of credited service and the
participants average eligible compensation. In addition to
the U.S. and Puerto Rico defined benefit pension plans, we
sponsor various
non-U.S. 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 the years ended
December 31, 2009, 2008 and 2007 for our defined benefit
retirement plans are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Puerto Rico
|
|
|
Non-U.S.
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Service cost
|
|
$
|
12.3
|
|
|
$
|
11.7
|
|
|
$
|
13.0
|
|
|
$
|
13.7
|
|
|
$
|
12.1
|
|
|
$
|
10.8
|
|
Interest cost
|
|
|
10.6
|
|
|
|
9.7
|
|
|
|
8.8
|
|
|
|
6.8
|
|
|
|
7.3
|
|
|
|
5.7
|
|
Expected return on plan assets
|
|
|
(16.4
|
)
|
|
|
(13.5
|
)
|
|
|
(10.9
|
)
|
|
|
(8.2
|
)
|
|
|
(9.3
|
)
|
|
|
(8.0
|
)
|
Curtailment
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
Amortization of unrecognized actuarial loss
|
|
|
4.1
|
|
|
|
2.2
|
|
|
|
2.9
|
|
|
|
1.9
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
11.1
|
|
|
$
|
13.6
|
|
|
$
|
13.8
|
|
|
$
|
13.5
|
|
|
$
|
10.2
|
|
|
$
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average actuarial assumptions used to determine net
pension expense for our defined benefit retirement plans were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Puerto Rico
|
|
|
Non-U.S.
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Discount rate
|
|
|
5.79
|
%
|
|
|
6.16
|
%
|
|
|
6.14
|
%
|
|
|
3.40
|
%
|
|
|
3.60
|
%
|
|
|
3.64
|
%
|
Rate of compensation increase
|
|
|
3.84
|
%
|
|
|
3.84
|
%
|
|
|
3.84
|
%
|
|
|
2.39
|
%
|
|
|
3.06
|
%
|
|
|
3.12
|
%
|
Expected long-term rate of return on plan assets
|
|
|
7.75
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
4.16
|
%
|
|
|
4.64
|
%
|
|
|
4.73
|
%
|
54
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
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.
Changes in projected benefit obligations and plan assets, for
the years ended December 31, 2009 and 2008 for our defined
benefit retirement plans, were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Puerto Rico
|
|
|
Non-U.S.
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Projected benefit obligation beginning of year
|
|
$
|
188.4
|
|
|
$
|
166.0
|
|
|
$
|
192.1
|
|
|
$
|
181.6
|
|
Service cost
|
|
|
12.3
|
|
|
|
11.7
|
|
|
|
13.7
|
|
|
|
12.1
|
|
Interest cost
|
|
|
10.6
|
|
|
|
9.7
|
|
|
|
6.8
|
|
|
|
7.3
|
|
Employee contributions
|
|
|
|
|
|
|
|
|
|
|
12.0
|
|
|
|
14.5
|
|
Benefits paid
|
|
|
(2.6
|
)
|
|
|
(9.7
|
)
|
|
|
(27.0
|
)
|
|
|
(22.5
|
)
|
Actuarial (gain) loss
|
|
|
(21.0
|
)
|
|
|
11.8
|
|
|
|
(3.0
|
)
|
|
|
(8.5
|
)
|
Prior service cost
|
|
|
|
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
Curtailment
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
Translation loss
|
|
|
|
|
|
|
|
|
|
|
7.7
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation end of year
|
|
$
|
187.6
|
|
|
$
|
188.4
|
|
|
$
|
197.3
|
|
|
$
|
192.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair market value beginning of year
|
|
$
|
138.5
|
|
|
$
|
147.2
|
|
|
$
|
163.7
|
|
|
$
|
180.4
|
|
Actual return on plan assets
|
|
|
25.8
|
|
|
|
(39.3
|
)
|
|
|
11.0
|
|
|
|
(31.4
|
)
|
Employer contributions
|
|
|
40.4
|
|
|
|
40.3
|
|
|
|
12.2
|
|
|
|
15.2
|
|
Employee contributions
|
|
|
|
|
|
|
|
|
|
|
12.0
|
|
|
|
14.5
|
|
Benefits paid
|
|
|
(2.6
|
)
|
|
|
(9.7
|
)
|
|
|
(27.0
|
)
|
|
|
(22.5
|
)
|
Translation gain
|
|
|
|
|
|
|
|
|
|
|
7.1
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at fair market value end of year
|
|
$
|
202.1
|
|
|
$
|
138.5
|
|
|
$
|
179.0
|
|
|
$
|
163.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
14.5
|
|
|
$
|
(49.9
|
)
|
|
$
|
(18.3
|
)
|
|
$
|
(28.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid pension
|
|
$
|
21.4
|
|
|
$
|
|
|
|
$
|
1.8
|
|
|
$
|
2.5
|
|
Short-term accrued benefit liability
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
Long-term accrued benefit liability
|
|
|
(6.6
|
)
|
|
|
(49.4
|
)
|
|
|
(20.1
|
)
|
|
|
(30.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
14.5
|
|
|
$
|
(49.9
|
)
|
|
$
|
(18.3
|
)
|
|
$
|
(28.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized prior service cost
|
|
$
|
0.5
|
|
|
$
|
0.9
|
|
|
$
|
(5.8
|
)
|
|
$
|
(1.3
|
)
|
Unrecognized actuarial loss
|
|
|
66.2
|
|
|
|
101.0
|
|
|
|
30.8
|
|
|
|
31.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized
|
|
$
|
66.7
|
|
|
$
|
101.9
|
|
|
$
|
25.0
|
|
|
$
|
29.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
We estimate the following amounts recorded as part of
accumulated other comprehensive income will be recognized as
part of our net pension expense during 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
U.S. and
|
|
|
|
|
|
|
Puerto Rico
|
|
|
Non-U.S.
|
|
|
|
|
Unrecognized prior service cost
|
|
$
|
0.1
|
|
|
$
|
(0.6
|
)
|
Unrecognized actuarial loss
|
|
|
2.6
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.7
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average actuarial assumptions used to determine the
projected benefit obligation for our defined benefit retirement
plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Puerto Rico
|
|
|
Non-U.S.
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Discount rate
|
|
|
6.26
|
%
|
|
|
5.79
|
%
|
|
|
6.16
|
%
|
|
|
3.25
|
%
|
|
|
3.34
|
%
|
|
|
3.71
|
%
|
Rate of compensation increase
|
|
|
3.80
|
%
|
|
|
3.84
|
%
|
|
|
3.84
|
%
|
|
|
2.46
|
%
|
|
|
3.03
|
%
|
|
|
3.15
|
%
|
Plans with projected benefit obligations in excess of plan
assets as of December 31, 2009 and 2008 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Puerto Rico
|
|
|
Non-U.S.
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Projected benefit obligation
|
|
$
|
6.9
|
|
|
$
|
188.4
|
|
|
$
|
157.5
|
|
|
$
|
178.3
|
|
Plan assets at fair market value
|
|
|
|
|
|
|
138.5
|
|
|
|
137.7
|
|
|
|
147.8
|
|
Plans with accumulated benefit obligations in excess of plan
assets as of December 31, 2009 and 2008 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Puerto Rico
|
|
|
Non-U.S.
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
5.0
|
|
|
$
|
15.5
|
|
|
$
|
145.9
|
|
|
$
|
140.4
|
|
Plan assets at fair market value
|
|
|
|
|
|
|
7.4
|
|
|
|
133.8
|
|
|
|
120.1
|
|
The accumulated benefit obligation for U.S. and Puerto Rico
defined benefit retirement pension plans was $148.3 million
and $140.6 million as of December 31, 2009 and 2008,
respectively. The accumulated benefit obligation for
non-U.S. defined
benefit retirement plans was $186.6 million and
$178.7 million as of December 31, 2009 and 2008,
respectively.
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):
|
|
|
|
|
|
|
|
|
|
|
U.S. and
|
|
|
|
|
For the Years Ending
December 31,
|
|
Puerto Rico
|
|
|
Non-U.S.
|
|
|
|
|
2010
|
|
$
|
3.7
|
|
|
$
|
16.1
|
|
2011
|
|
|
5.1
|
|
|
|
15.4
|
|
2012
|
|
|
6.5
|
|
|
|
15.2
|
|
2013
|
|
|
7.2
|
|
|
|
14.9
|
|
2014
|
|
|
8.5
|
|
|
|
15.0
|
|
2015-2019
|
|
|
64.0
|
|
|
|
78.2
|
|
The U.S. and Puerto Rico defined benefit retirement
plans overall investment strategy is to maximize total
returns by emphasizing long-term growth of capital while
avoiding risk. We have established target ranges of assets held
by the plans of 50 to 75 percent for equity securities and
25 to 50 percent for debt securities. 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. The investments in
the plans may be rebalanced quarterly based upon the target
asset allocation of the plans.
In the U.S. and Puerto Rico, 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. We have a benefits
committee to manage the general philosophy, objectives and
process of the plans. The benefits committee meets quarterly to
review performance and to ensure that the current investment
allocation is within the guidelines set forth in the investment
policy statement.
The investment strategies of
non-U.S. based
plans vary according to the plan provisions and local laws. The
majority of the assets in
non-U.S. 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
56
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
securities, 15 to 24 percent in real estate, 3 to
15 percent in cash funds and 0 to 12 percent in other
funds.
The fair value of our U.S. and Puerto Rico pension plan
assets as of December 31, 2009, by asset category are as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Measurements at Reporting Date Using:
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
Asset Category
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12.1
|
|
$
|
12.1
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. large-cap
|
|
|
67.6
|
|
|
|
|
|
67.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. small-cap
|
|
|
20.8
|
|
|
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
22.5
|
|
|
|
|
|
22.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermediate fixed income securities
|
|
|
79.1
|
|
|
|
|
|
79.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
202.1
|
|
$
|
12.1
|
|
$
|
190.0
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of our
non-U.S. pension
plan assets as of December 31, 2009, by asset category are
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Measurements at Reporting Date Using:
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
Asset Category
|
|
Total
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7.4
|
|
$
|
7.4
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
1.6
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials
|
|
|
1.3
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrials
|
|
|
3.0
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer discretionary
|
|
|
2.2
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer staples
|
|
|
3.5
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
6.3
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financials
|
|
|
5.7
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information technology
|
|
|
2.7
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecommunication services
|
|
|
1.0
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
1.4
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equities
|
|
|
23.2
|
|
|
20.5
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government bonds
|
|
|
29.5
|
|
|
|
|
|
29.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
36.9
|
|
|
|
|
|
36.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
|
8.6
|
|
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt
|
|
|
0.9
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other types of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
5.0
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance contracts
|
|
|
5.1
|
|
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
|
5.8
|
|
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
27.9
|
|
|
|
|
|
|
|
|
27.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
179.0
|
|
$
|
56.6
|
|
$
|
94.5
|
|
$
|
27.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, our defined benefit
pension plans assets did not hold any direct investment in
Zimmer 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
funds 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.
Some fixed income securities are in funds with a net asset value
per unit which is determined using similar techniques for the
underlying securities in the funds portfolio. Real estate
is valued by discounting to present value the cash flows
expected to be generated by the specific properties.
The value of Level 3 assets has not changed significantly
from the prior year. Further information related to Level 3
assets has not been provided as we do not consider the
Level 3 assets significant to the consolidated financial
statements.
We expect that we will have no minimum funding requirements by
law in 2010 for the qualified U.S. and Puerto Rico defined
benefit retirement plans, however, subsequent Congressional
action may impact the minimum funding requirement for 2010. We
expect to voluntarily contribute between $20 million to
$30 million to these plans during 2010. Contributions to
non-U.S. defined
benefit plans are estimated to be approximately $14 million
in 2010. We do not expect the plan assets in any of our plans to
be returned to us in the next year.
Defined
Contribution Plans
We also sponsor defined contribution plans for substantially all
of the U.S. and Puerto Rico employees and certain employees
in other countries. The benefits of these plans relate to local
customs and practices in the countries concerned. We expensed
$21.6 million, $17.1 million and $14.0 million
related to these plans for the years ended December 31,
2009, 2008 and 2007, respectively.
Postretirement
Benefit Plans
During 2009 we amended the postretirement benefit plans for
certain U.S. and Puerto Rico employees. Participants in the
plan between the ages of 55 and 65 that were previously
receiving benefits will continue to receive benefits until
reaching the age of 65. For all other participants in the plan,
no benefits will be paid after January 1, 2010.
Additionally, we funded approximately $7 million to a
Voluntary Employees Beneficiary Association (VEBA) trust
to settle any future obligations. We recognized a curtailment
gain and settlement loss related to these actions.
57
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
The components of net periodic expense for the year ended
December 31, 2009, 2008 and 2007 for our unfunded
postretirement benefit plans are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Service cost
|
|
$
|
0.8
|
|
|
$
|
1.5
|
|
|
$
|
1.6
|
|
Interest cost
|
|
|
1.3
|
|
|
|
2.5
|
|
|
|
2.2
|
|
Amortization of prior service cost
|
|
|
(0.2
|
)
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
Amortization of unrecognized actuarial loss
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
0.5
|
|
Settlement
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
Curtailment
|
|
|
(35.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(29.9
|
)
|
|
$
|
4.1
|
|
|
$
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have not provided further disclosures related to these
postretirement benefit plans as other than the curtailment gain
and settlement loss in 2009 discussed above, these plans are not
significant to our results of operations or financial position.
The components of earnings before taxes consist of the following
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ending
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
United States operations
|
|
$
|
489.7
|
|
|
$
|
618.8
|
|
|
$
|
597.0
|
|
Foreign operations
|
|
|
508.5
|
|
|
|
503.0
|
|
|
|
534.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
998.2
|
|
|
$
|
1,121.8
|
|
|
$
|
1,131.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consists of (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
204.9
|
|
|
$
|
136.0
|
|
|
$
|
173.0
|
|
State
|
|
|
23.3
|
|
|
|
27.3
|
|
|
|
25.0
|
|
Foreign
|
|
|
72.3
|
|
|
|
107.0
|
|
|
|
96.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300.5
|
|
|
|
270.3
|
|
|
|
294.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(17.4
|
)
|
|
|
31.6
|
|
|
|
39.0
|
|
State
|
|
|
(3.1
|
)
|
|
|
(2.0
|
)
|
|
|
19.0
|
|
Foreign
|
|
|
0.8
|
|
|
|
(27.6
|
)
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19.7
|
)
|
|
|
2.0
|
|
|
|
63.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
280.8
|
|
|
$
|
272.3
|
|
|
$
|
357.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid during 2009, 2008 and 2007 were
$268.5 million, $332.9 million and
$255.9 million, respectively.
A reconciliation of the U.S. statutory income tax rate to
our effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
U.S. statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal deduction
|
|
|
1.4
|
|
|
|
1.6
|
|
|
|
2.7
|
|
Foreign income taxes at rates different from the U.S. statutory
rate, net of foreign tax credits
|
|
|
(9.9
|
)
|
|
|
(9.8
|
)
|
|
|
(10.1
|
)
|
Tax benefit relating to U.S. manufacturers deduction and
export sales
|
|
|
(1.5
|
)
|
|
|
(1.3
|
)
|
|
|
(1.2
|
)
|
R&D credit
|
|
|
(0.3
|
)
|
|
|
(0.1
|
)
|
|
|
(0.4
|
)
|
2007 settlement (tax benefit)
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
5.2
|
|
In-process research and development charges
|
|
|
|
|
|
|
1.2
|
|
|
|
0.2
|
|
Goodwill impairment
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.8
|
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
28.1
|
%
|
|
|
24.3
|
%
|
|
|
31.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operations in Puerto Rico, Switzerland and the State of
Indiana benefit from various tax incentive grants. Unless these
grants are extended, they will expire between fiscal years 2016
and 2019.
In September 2007, we reached a settlement with the
U.S. government concerning our financial relationships with
consulting orthopaedic surgeons. Under the terms of the
settlement, we paid a civil settlement amount of
$169.5 million, and we recorded an expense in that amount.
At the time, no tax benefit was recorded related to the
settlement expense due to the uncertainty as to the tax
treatment. During the third quarter of 2008, we reached an
agreement with the U.S. Internal Revenue Service (IRS)
confirming the deductibility of a portion of the settlement
payment. As a result, during 2008 we recorded a current tax
benefit of $31.7 million.
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. We have established valuation
allowances for deferred tax assets when the amount of expected
future taxable income is not likely to support the use of the
deduction or credit.
58
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
The components of deferred taxes consisted of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
204.1
|
|
|
$
|
165.9
|
|
Net operating loss carryover
|
|
|
37.5
|
|
|
|
64.8
|
|
Tax credit carryover
|
|
|
20.7
|
|
|
|
23.7
|
|
Accrued liabilities
|
|
|
78.3
|
|
|
|
105.4
|
|
Share-based compensation
|
|
|
71.1
|
|
|
|
49.4
|
|
Unremitted earnings of foreign subsidiaries
|
|
|
105.5
|
|
|
|
95.5
|
|
Other
|
|
|
49.9
|
|
|
|
38.4
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
567.1
|
|
|
|
543.1
|
|
Less: Valuation allowances
|
|
|
(37.3
|
)
|
|
|
(37.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets after valuation
|
|
|
529.8
|
|
|
|
506.0
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
$
|
(105.0
|
)
|
|
$
|
(79.1
|
)
|
Intangible assets
|
|
|
(162.7
|
)
|
|
|
(188.1
|
)
|
Accrued liabilities
|
|
|
(2.4
|
)
|
|
|
(0.4
|
)
|
Other
|
|
|
(1.5
|
)
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(271.6
|
)
|
|
|
(272.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
258.2
|
|
|
$
|
234.0
|
|
|
|
|
|
|
|
|
|
|
|
The net operating loss carryovers are available to reduce future
federal, state and foreign taxable earnings. At
December 31, 2009, these net operating loss carryovers
generally expire within a period of 1 to 20 years.
Valuation allowances for net operating loss carryovers have been
established in the amount of $13.2 million and
$18.9 million at December 31, 2009 and 2008,
respectively. The tax credit carryovers are available to offset
future federal, state and foreign tax liabilities. At
December 31, 2009, these tax credit carryovers generally
expire within a period of 1 to 15 years. We have
established valuation allowances for certain tax credit
carryovers in the amount of $17.9 million and
$12.9 million at December 31, 2009 and 2008,
respectively. The remaining valuation allowances of
$6.2 million and $5.3 million at December 31,
2009 and 2008, respectively, relate primarily to potential
capital losses. We have established valuation allowances related
to certain business combination transactions through goodwill.
These allowances were approximately $14.5 million and
$19.3 million at December 31, 2009 and 2008,
respectively.
At December 31, 2009, we had an aggregate of approximately
$1,835 million of unremitted earnings of foreign
subsidiaries that have been, or are intended to be, indefinitely
reinvested for continued use in foreign operations. If the total
undistributed earnings of foreign subsidiaries were remitted, a
significant amount of the additional tax would be offset by the
allowable foreign tax credits. It is not practical for us to
determine the additional tax of remitting these earnings.
The following is a tabular reconciliation of the total amounts
of unrecognized tax benefits (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Balance at January 1
|
|
$
|
129.5
|
|
|
$
|
135.2
|
|
|
$
|
95.7
|
|
Increases related to prior periods
|
|
|
32.9
|
|
|
|
12.1
|
|
|
|
27.4
|
|
Decreases related to prior periods
|
|
|
(26.7
|
)
|
|
|
(32.0
|
)
|
|
|
(5.5
|
)
|
Increases related to current period
|
|
|
17.4
|
|
|
|
15.8
|
|
|
|
21.9
|
|
Decreases related to settlements with taxing authorities
|
|
|
(1.1
|
)
|
|
|
(1.3
|
)
|
|
|
(1.3
|
)
|
Decreases related to lapse of statute of limitations
|
|
|
(1.6
|
)
|
|
|
(0.3
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
150.4
|
|
|
$
|
129.5
|
|
|
$
|
135.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the balance of unrecognized tax benefits at
December 31, 2009 are $100.4 million of tax benefits
that, if recognized, would affect the effective tax rate.
We recognize accrued interest and penalties related to
unrecognized tax benefits as income tax expense and accrued
interest and penalties of $5.7 million during 2009, and as
of December 31, 2009, had recognized a liability for
interest and penalties of $28.6 million. During 2008, we
accrued interest and penalties of $3.3 million, and as of
December 31, 2008, had recognized a liability for interest
and penalties of $22.9 million. During 2007, we accrued
interest and penalties of $10.0 million, and as of
December 31, 2007, had recognized a liability for interest
and penalties of $19.6 million.
We expect that the net amount of tax liability for unrecognized
tax benefits will change in the next twelve months. We are
currently under audit in numerous federal, state and foreign
jurisdictions. While it is possible that such matters will be
resolved in the next twelve months, we cannot reasonably
estimate the amount or the periods in which changes in the
unrecognized tax benefits will occur.
During the third quarter of 2009, we settled various tax matters
with the IRS for all years prior to 2005. Our U.S. federal
returns for years 2005 through 2007 are currently under IRS
examination.
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 returns in the process of examination,
administrative appeals or litigation.
Our tax returns are currently under examination in various
foreign jurisdictions. Foreign jurisdictions have statutes of
limitations generally ranging from 3 to 5 years. Years
still open to examination by foreign tax authorities in major
jurisdictions include: Australia (2004 onward), Canada (2003
onward), France (2007 onward), Germany (2005 onward), Italy
(2005 onward), Japan (2003 onward), Korea (2004 onward), Puerto
Rico (2005 onward), Singapore (2003 onward), Switzerland (2006
onward) and the United Kingdom (2008 onward).
59
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
|
|
|
14. |
|
CAPITAL STOCK AND
EARNINGS PER SHARE |
We are authorized to issue 250 million shares of preferred
stock, none of which were issued or outstanding as of
December 31, 2009.
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 for the years ending December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Weighted average shares outstanding for basic net earnings per
share
|
|
|
215.0
|
|
|
|
227.3
|
|
|
|
235.5
|
|
Effect of dilutive stock options and other equity awards
|
|
|
0.8
|
|
|
|
1.0
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for diluted net earnings per
share
|
|
|
215.8
|
|
|
|
228.3
|
|
|
|
237.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, an average of
14.3 million options 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. For the years
ended December 31, 2008 and 2007, an average of
11.2 million and 3.1 million options, respectively,
were not included.
During 2009, we repurchased approximately 19.8 million
shares of our common stock at an average price of $46.56 per
share for a total cash outlay of $923.7 million, including
commissions. In April 2008, we announced that our Board of
Directors authorized a $1.25 billion share repurchase
program which was originally set to expire on December 31,
2009. In September 2009, the Board of Directors extended this
program to December 31, 2010. Approximately
$211.1 million remains authorized for future repurchases
under this plan.
We design, develop, manufacture and market orthopaedic
reconstructive implants, dental implants, spinal implants,
trauma products and related surgical products which include
surgical supplies and instruments designed to aid in surgical
procedures and post-operation rehabilitation. We also provide
other healthcare-related services. Revenue related to these
services currently represents less than 1 percent of our
total net sales. We manage operations through three major
geographic segments the Americas, which is comprised
principally of the United States and includes other North,
Central and South American markets; Europe, which is comprised
principally of Europe and includes the Middle East and Africa;
and Asia Pacific, which is comprised primarily of Japan and
includes other Asian and Pacific markets. This structure is the
basis for our reportable segment information discussed below.
Management evaluates reportable segment performance based upon
segment operating profit exclusive of operating expenses
pertaining to global operations and corporate expenses,
share-based compensation expense, settlement, certain claims,
acquisition, integration, realignment and other expenses, net
curtailment and settlement, inventory
step-up,
in-process research and development write-offs and intangible
asset amortization expense. Global operations include research,
development engineering, medical education, brand management,
corporate legal, finance, and human resource functions and
U.S. and Puerto Rico-based manufacturing operations and
logistics. Intercompany transactions have been eliminated from
segment operating profit. Management reviews accounts
receivable, inventory, property, plant and equipment, goodwill
and intangible assets by reportable segment exclusive of U.S.
and Puerto Rico-based manufacturing operations and logistics and
corporate assets.
60
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
Net sales, segment operating profit and year-end assets are as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
Operating Profit
|
|
|
Year-End Assets
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Americas
|
|
$
|
2,372.4
|
|
|
$
|
2,353.9
|
|
|
$
|
2,277.0
|
|
|
$
|
1,168.7
|
|
|
$
|
1,209.4
|
|
|
$
|
1,184.2
|
|
|
$
|
3,022.4
|
|
|
$
|
2,845.6
|
|
Europe
|
|
|
1,119.2
|
|
|
|
1,179.1
|
|
|
|
1,081.0
|
|
|
|
436.8
|
|
|
|
470.2
|
|
|
|
429.6
|
|
|
|
2,273.6
|
|
|
|
2,200.0
|
|
Asia Pacific
|
|
|
603.8
|
|
|
|
588.1
|
|
|
|
539.5
|
|
|
|
257.4
|
|
|
|
257.1
|
|
|
|
259.5
|
|
|
|
443.6
|
|
|
|
395.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
4,095.4
|
|
|
$
|
4,121.1
|
|
|
$
|
3,897.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73.8
|
)
|
|
|
(69.9
|
)
|
|
|
(70.1
|
)
|
|
|
|
|
|
|
|
|
Inventory
step-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.5
|
)
|
|
|
(7.0
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
Settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(169.5
|
)
|
|
|
|
|
|
|
|
|
Certain claims
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35.0
|
)
|
|
|
(69.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition, integration,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
realignment and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75.3
|
)
|
|
|
(68.5
|
)
|
|
|
(25.2
|
)
|
|
|
|
|
|
|
|
|
Net curtailment and settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global operations and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
corporate functions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(606.6
|
)
|
|
|
(632.3
|
)
|
|
|
(480.4
|
)
|
|
|
2,045.9
|
|
|
|
1,798.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,018.8
|
|
|
$
|
1,090.0
|
|
|
$
|
1,127.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,785.5
|
|
|
$
|
7,239.0
|
|
|
|
|
|
|
|
|
|
|
|
U.S. sales were $2,237.5 million,
$2,212.3 million and $2,142.2 million for the years
ended December 31, 2009, 2008 and 2007, respectively. Sales
within any other individual country were less than
10 percent of our consolidated sales. Sales are
attributable to a country based upon the customers country
of domicile.
Beginning in 2009, we no longer include our Dental product
category sales within our Reconstructive products category.
Prior year amounts related to Dental product category sales have
been reclassified to conform to the current year presentation.
Net sales by product category are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Reconstructive
|
|
|
|
|
|
|
|
|
|
|
|
|
Knees
|
|
$
|
1,760.6
|
|
|
$
|
1,763.1
|
|
|
$
|
1,634.6
|
|
Hips
|
|
|
1,228.5
|
|
|
|
1,279.4
|
|
|
|
1,221.4
|
|
Extremities
|
|
|
135.6
|
|
|
|
121.0
|
|
|
|
104.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,124.7
|
|
|
|
3,163.5
|
|
|
|
2,960.0
|
|
Dental
|
|
|
204.7
|
|
|
|
227.5
|
|
|
|
221.0
|
|
Trauma
|
|
|
234.8
|
|
|
|
222.3
|
|
|
|
205.8
|
|
Spine
|
|
|
253.6
|
|
|
|
229.7
|
|
|
|
197.0
|
|
OSP and other
|
|
|
277.6
|
|
|
|
278.1
|
|
|
|
313.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,095.4
|
|
|
$
|
4,121.1
|
|
|
$
|
3,897.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived tangible assets as of December 31, 2009 and 2008
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Americas
|
|
$
|
851.0
|
|
|
$
|
918.3
|
|
Europe
|
|
|
285.0
|
|
|
|
272.5
|
|
Asia Pacific
|
|
|
85.7
|
|
|
|
73.3
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,221.7
|
|
|
$
|
1,264.1
|
|
|
|
|
|
|
|
|
|
|
|
The Americas long-lived tangible assets are located primarily in
the U.S. Approximately $232.9 million of Europe
long-lived tangible assets as of December 31, 2009 are
located in Switzerland.
Capital expenditures by reportable segment for the years ended
December 31, 2009, 2008 and 2007 were as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to other property, plant and equipment
|
|
$
|
0.6
|
|
|
$
|
1.5
|
|
|
$
|
0.7
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to instruments
|
|
|
17.0
|
|
|
|
25.3
|
|
|
|
25.4
|
|
Additions to other property, plant and equipment
|
|
|
28.8
|
|
|
|
59.6
|
|
|
|
24.6
|
|
Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to instruments
|
|
|
5.3
|
|
|
|
2.2
|
|
|
|
1.2
|
|
Additions to other property, plant and equipment
|
|
|
5.1
|
|
|
|
9.4
|
|
|
|
2.4
|
|
Global operations and corporate functions
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to instruments
|
|
|
101.4
|
|
|
|
210.4
|
|
|
|
111.9
|
|
Additions to other property, plant and equipment
|
|
|
70.6
|
|
|
|
179.5
|
|
|
|
165.0
|
|
For segment reporting purposes, deployed instruments are
included in the measurement of reportable segment assets while
undeployed instruments at U.S. and Puerto Rico-based
manufacturing operations and logistics are included in global
operations and corporate functions. The majority of instruments
are purchased by U.S. and Puerto Rico-based manufacturing
operations and logistics and are deployed to the reportable
segments as needed for the business.
61
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
Depreciation and amortization included in reportable segment
profit for the years ended December 31, 2009, 2008 and 2007
was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Americas
|
|
$
|
86.4
|
|
|
$
|
78.5
|
|
|
$
|
66.9
|
|
Europe
|
|
|
64.8
|
|
|
|
57.0
|
|
|
|
60.7
|
|
Asia Pacific
|
|
|
26.7
|
|
|
|
25.6
|
|
|
|
22.7
|
|
Global operations and corporate functions
|
|
|
159.5
|
|
|
|
114.0
|
|
|
|
79.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
337.4
|
|
|
$
|
275.1
|
|
|
$
|
230.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum rental commitments under non-cancelable operating
leases in effect as of December 31, 2009 were
$37.3 million for 2010, $26.7 million for 2011,
$20.9 million for 2012, $15.8 million for 2013,
$10.8 million for 2014 and $23.1 million thereafter.
Total rent expense for the years ended December 31, 2009,
2008 and 2007 aggregated $43.5 million, $41.4 million
and $37.1 million, respectively.
|
|
|
17. |
|
COMMITMENTS AND
CONTINGENCIES |
Intellectual
Property and Product Liability-Related Litigation
In July 2008, we temporarily suspended marketing and
distribution of the
Durom®
Acetabular Component (Durom Cup) in the
U.S. Following our announcement, product liability lawsuits
and other claims have been asserted against us, some of which we
have settled. There are a number of claims still pending, and
additional claims may be submitted. We recorded a provision of
$69.0 million in 2008, representing managements
estimate of these Durom Cup-related claims. In the third
quarter of 2009, based on claims information we received after
we made our initial estimate, we increased our estimate of the
number of claims we may receive and increased the provision by
$35.0 million. The current reserve is $71.9 million as
of December 31, 2009. We expect to pay the majority of
these claims within the next three years. The provision is
limited to revisions within two years of an original surgery
that occurred prior to July 2008. Any claims received outside of
these defined parameters will be managed in the normal course
and reflected in our standard product liability accruals.
On February 15, 2005, Howmedica Osteonics Corp. filed an
action against us and an unrelated party in the United States
District Court for the District of New Jersey alleging
infringement of U.S. Patent Nos. 6,174,934; 6,372,814;
6,664,308; and 6,818,020. On June 13, 2007, the Court
granted our motion for summary judgment on the invalidity of the
asserted claims of U.S. Patent Nos. 6,174,934; 6,372,814;
and 6,664,308 by ruling that all of the asserted claims are
invalid for indefiniteness. On August 19, 2008, the Court
granted our motion for summary judgment of non-infringement of
certain claims of U.S. Patent No. 6,818,020, reducing
the number of claims at issue in the suit to five. On
April 9, 2009, in response to our earlier petition, the
U.S. Patent and Trademark Office instituted re-examination
proceedings against U.S. Patent No. 6,818,020. The
U.S. Patent and Trademark Office rejected all previously
issued claims of U.S. Patent No. 6,818,020 as being
unpatentable in light of one or more prior art references. On
September 30, 2009, the Court issued an order staying
proceedings in the litigation pending the outcome of the
re-examination process. Subsequent to that stay order, Howmedica
filed a motion seeking to certify an appeal of the summary
judgment ruling on the 934, 814 and 308
patents. That motion was granted on January 13, 2010. We
expect that the U.S. Court of Appeals for the Federal
Circuit will hear the appeal of that ruling in 2010. We continue
to believe that our defenses against infringement are valid and
meritorious, and we intend to continue to defend this lawsuit
vigorously.
In addition to certain claims related to the Durom Cup
within the parameters discussed above, we are also subject to
product liability and other claims and lawsuits arising in the
ordinary course of business, for which we maintain insurance,
subject to self-insured retention limits. We establish accruals
for product liability and other claims in conjunction with
outside counsel based on current information and historical
settlement information for open claims, related legal fees and
claims incurred but not reported. While it is not possible to
predict with certainty the outcome of these cases, it is the
opinion of management that, upon ultimate resolution,
liabilities from these cases in excess of those recorded, if
any, will not have a material adverse effect on our consolidated
financial position, results of operations or cash flows.
Government
Investigations
In September 2007, we and other orthopaedic companies settled a
U.S. government investigation pertaining to consulting
contracts, professional services agreements and other agreements
by which remuneration is provided to orthopaedic surgeons. As
part of the settlement, we entered into a Corporate Integrity
Agreement (CIA) with the Office of Inspector General of the
Department of Health and Human Services (OIG-HHS). Under the
CIA, which has a term expiring in 2012, we agreed, among other
provisions, to continue the operation of our enhanced Corporate
Compliance Program, designed to promote compliance with federal
healthcare program requirements, in accordance with the terms
set forth in the CIA. We also agreed to retain an independent
review organization to perform annual reviews to assist us in
assessing our compliance with the obligations set forth in the
CIA to ensure that arrangements we enter into do not violate the
Anti-Kickback Statute (42 U.S.C.
§ 1320a-7b).
A material breach of the CIA may subject us to exclusion by
OIG-HHS from participation in all federal healthcare programs,
which would have a material adverse effect on our financial
position, results of operations and cash flows.
In November 2007, we received a civil investigative demand from
the Massachusetts Attorney Generals office
62
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
seeking additional information regarding our financial
relationships with a number of Massachusetts healthcare
providers. We received a similar inquiry from the Oregon
Attorney Generals office in October 2008. We are
cooperating fully with the investigators with regard to these
matters.
In September 2007, the Staff of the U.S. Securities and
Exchange Commission (SEC) informed us that it was conducting an
investigation regarding potential violations of the Foreign
Corrupt Practices Act (FCPA) in the sale of medical devices in a
number of foreign countries by companies in the medical device
industry. In November 2007, we received a letter from the
U.S. Department of Justice (DOJ) requesting that any
information provided to the SEC also be provided to the DOJ on a
voluntary basis. We are continuing to provide information and
cooperate fully with the SEC and the DOJ with regard to this
pending investigation. In addition, as part of our global
compliance program, we have been conducting our own proactive
reviews regarding FCPA compliance in jurisdictions that have not
been involved in the pending investigation. These reviews have
yielded information indicating that certain third-party,
independent distributors of our products in two South American
countries made certain payments that may have potential FCPA
implications. In the course of continuing dialogues with the
agencies, we voluntarily disclosed information relating to these
matters to the SEC and the DOJ, and the reviews are ongoing. We
cannot currently predict the outcome of the investigation or the
impact of our voluntary disclosures to the authorities.
Putative
Class Actions
On August 5, 2008, a complaint was filed in the
U.S. District Court for the Southern District of Indiana,
Plumbers and Pipefitters Local Union 719 Pension Fund v.
Zimmer Holdings, Inc., et al., naming us and two of our
executive officers as defendants. The complaint related to a
putative class action on behalf of persons who purchased our
common stock between January 29, 2008 and July 22,
2008. The complaint alleged that the defendants violated the
federal securities law by allegedly failing to disclose
developments relating to our orthopaedic surgical products
manufacturing operations in Dover, Ohio and the Durom
Cup. The plaintiff sought unspecified damages and interest,
attorneys fees, costs and other relief. On
December 24, 2008, the lead plaintiff filed a consolidated
complaint that alleged the same claims and related to the same
time period. The defendants filed a motion to dismiss the
consolidated complaint on February 23, 2009. On
December 1, 2009, the Court granted defendants motion
to dismiss, without prejudice. On January 15, 2010, the
plaintiff filed a motion for leave to amend the consolidated
complaint. That motion is pending. We believe this lawsuit is
without merit, and we and the individual defendants intend to
defend it vigorously.
On November 20, 2008, a complaint was filed in the
U.S. District Court for the Northern District of Indiana,
Dewald v. Zimmer Holdings, Inc., et al., naming us and
certain of our current and former directors and employees as
defendants. The complaint relates to a putative class action on
behalf of all persons who were participants in or beneficiaries
of our U.S. or Puerto Rico Savings and Investment Programs
(plans) between October 5, 2007 and the date of filing and
whose accounts included investments in our common stock. The
complaint alleges, among other things, that the defendants
breached their fiduciary duties in violation of the Employee
Retirement Income Security Act of 1974, as amended, by
continuing to offer Zimmer stock as an investment option in the
plans when the stock purportedly was no longer a prudent
investment and that defendants failed to provide plan
participants with complete and accurate information sufficient
to advise them of the risks of investing their retirement
savings in Zimmer stock. The plaintiff seeks an unspecified
monetary payment to the plans, injunctive and equitable relief,
attorneys fees, costs and other relief. On
January 23, 2009, the plaintiff filed an amended complaint
that alleges the same claims and clarifies that the class period
is October 5, 2007 through September 2, 2008. The
defendants filed a motion to dismiss the amended complaint on
March 23, 2009. The motion to dismiss is pending with the
court. On June 12, 2009, the U.S. Judicial Panel on
Multidistrict Litigation entered an order transferring the
Dewald case to the U.S. District Court for the Southern
District of Indiana for coordinated or consolidated pretrial
proceedings with the Plumbers & Pipefitters Local
Union 719 Pension Fund case referenced above. We believe this
lawsuit is without merit, and we and the individual defendants
intend to defend it vigorously.
63
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Notes to
Consolidated Financial Statements
(Continued)
|
|
|
18. |
|
QUARTERLY
FINANCIAL INFORMATION (UNAUDITED) |
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended
|
|
|
2008 Quarter Ended
|
|
|
|
Mar
|
|
|
Jun
|
|
|
Sep
|
|
|
Dec
|
|
|
Mar
|
|
|
Jun
|
|
|
Sep
|
|
|
Dec
|
|
|
|
|
Net sales
|
|
$
|
992.6
|
|
|
$
|
1,019.9
|
|
|
$
|
975.6
|
|
|
$
|
1,107.3
|
|
|
$
|
1,059.2
|
|
|
$
|
1,079.5
|
|
|
$
|
952.2
|
|
|
$
|
1,030.2
|
|
Gross profit
|
|
|
762.3
|
|
|
|
783.1
|
|
|
|
726.3
|
|
|
|
832.9
|
|
|
|
804.5
|
|
|
|
817.2
|
|
|
|
715.0
|
|
|
|
787.1
|
|
Net earnings of Zimmer Holdings, Inc.
|
|
|
202.2
|
|
|
|
210.1
|
|
|
|
149.9
|
|
|
|
155.2
|
|
|
|
239.3
|
|
|
|
227.1
|
|
|
|
214.7
|
|
|
|
167.5
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.91
|
|
|
|
0.98
|
|
|
|
0.70
|
|
|
|
0.74
|
|
|
|
1.03
|
|
|
|
0.99
|
|
|
|
0.96
|
|
|
|
0.75
|
|
Diluted
|
|
|
0.91
|
|
|
|
0.98
|
|
|
|
0.70
|
|
|
|
0.74
|
|
|
|
1.02
|
|
|
|
0.99
|
|
|
|
0.95
|
|
|
|
0.75
|
|
64
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
ITEM 9.
|
|
Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure
|
None
|
|
|
ITEM 9A.
|
|
Controls and Procedures
|
We have established disclosure controls and procedures and
internal controls over financial reporting to provide reasonable
assurance that material information relating to us, including
our consolidated subsidiaries, is made known on a timely basis
to management and the Board of Directors. However, no control
system, no matter how well designed and operated, can provide
absolute assurance that the objectives of the control system are
met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if
any, within a company have been detected.
Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of our disclosure controls and
procedures (as defined in
Rule 13a-15(e)
of the Securities Exchange Act of 1934). Based upon that
evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures as
of the end of the period covered by this report are effective.
There was no change in our internal control over financial
reporting (as defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934) that occurred
during the quarter ended December 31, 2009 that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Managements report on internal control over financial
reporting appears in this report at the conclusion of
Part II, Item 7A.
|
|
|
ITEM 9B.
|
|
Other Information
|
During the fourth quarter of 2009, the Audit Committee of the
Board of Directors was not asked to and did not approve the
engagement of PricewaterhouseCoopers LLP, our independent
registered public accounting firm, to perform any non-audit
services. This disclosure is made pursuant to
Section 10A(i)(2) of the Securities Exchange Act of 1934,
as added by Section 202 of the Sarbanes-Oxley Act of 2002.
65
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
ITEM 10.
|
|
Directors, Executive Officers and
Corporate Governance
|
The information required by this Item concerning our directors
and executive officers is incorporated herein by reference from
our definitive Proxy Statement for our 2010 Annual Meeting of
Stockholders which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the end of our
most recent fiscal year and the information included under the
caption Executive Officers in Part I of this
report.
|
|
|
ITEM 11.
|
|
Executive Compensation
|
The information required by this Item concerning remuneration of
our officers and directors and information concerning material
transactions involving such officers and directors is
incorporated herein by reference from our definitive Proxy
Statement for our 2010 Annual Meeting of Stockholders which will
be filed with the Commission pursuant to Regulation 14A
within 120 days after the end of our most recent fiscal
year.
|
|
|
ITEM 12.
|
|
Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters
|
The information required by this Item concerning the stock
ownership of management and five percent beneficial owners and
related stockholder matters, including equity compensation plan
information, is incorporated herein by reference from our
definitive Proxy Statement for our 2010 Annual Meeting of
Stockholders which will be filed with the Commission pursuant to
Regulation 14A within 120 days after the end of our
most recent fiscal year.
|
|
|
ITEM 13.
|
|
Certain Relationships and Related
Transactions and Director Independence
|
The information required by this Item concerning certain
relationships and related transactions and director independence
is incorporated herein by reference from our definitive Proxy
Statement for our 2010 Annual Meeting of Stockholders which will
be filed with the Commission pursuant to Regulation 14A
within 120 days after the end of our most recent fiscal
year.
|
|
|
ITEM 14.
|
|
Principal Accounting Fees and
Services
|
The information required by this Item concerning principal
accounting fees and services is incorporated herein by reference
from our definitive Proxy Statement for our 2010 Annual Meeting
of Stockholders which will be filed with the Commission pursuant
to Regulation 14A within 120 days after the end of our
most recent fiscal year.
66
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
|
|
|
ITEM 15.
|
|
Exhibits, Financial Statement
Schedules
|
(a) 1. Financial Statements
The following consolidated financial statements of Zimmer
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, 2009, 2008 and 2007
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Stockholders Equity for the
Years Ended December 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009, 2008 and 2007
Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II. Valuation and Qualifying Accounts
Other financial statement schedules are omitted because they are
not applicable or the required information is shown in the
financial statements or the notes thereto.
3. Exhibits
A list of exhibits required to be filed as part of this report
is set forth in the Index to Exhibits, which immediately
precedes such exhibits and is incorporated herein by reference.
67
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
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 Holdings, Inc.
David C. Dvorak
President and Chief Executive Officer
Dated: February 25, 2010
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/ David
C. Dvorak
David
C. Dvorak
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
February 25, 2010
|
|
|
|
|
|
/s/ James
T. Crines
James
T. Crines
|
|
Executive Vice President, Finance
and Chief Financial Officer
(Principal Financial Officer)
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Derek
M. Davis
Derek
M. Davis
|
|
Vice President, Finance, and Corporate Controller
and Chief Accounting Officer
(Principal Accounting Officer)
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Betsy
J. Bernard
Betsy
J. Bernard
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Marc
N. Casper
Marc
N. Casper
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Larry
C. Glasscock
Larry
C. Glasscock
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Robert
A. Hagemann
Robert
A. Hagemann
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Arthur
J. Higgins
Arthur
J. Higgins
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ John
L. McGoldrick
John
L. McGoldrick
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Cecil
B. Pickett, Ph.D.
Cecil
B. Pickett, Ph.D.
|
|
Director
|
|
February 25, 2010
|
|
|
|
|
|
/s/ Augustus
A. White, III, M.D., Ph.D.
Augustus
A. White, III, M.D., Ph.D.
|
|
Director
|
|
February 25, 2010
|
68
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Index to Exhibits
|
|
|
|
|
Exhibit No
|
|
Description
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of Zimmer Holdings, Inc.
dated May 13, 2008 (incorporated by reference to Exhibit 3.1 to
the Registrants Quarterly Report on Form 10-Q filed August
5, 2008)
|
|
3
|
.2
|
|
Restated By-Laws of Zimmer Holdings, Inc. effective May 6, 2008
(incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K filed May 9, 2008)
|
|
4
|
.1
|
|
Specimen Common Stock certificate (incorporated by reference to
Exhibit 4.3 to the Registrants Registration Statement on
Form S-8 filed January 20, 2006)
|
|
4
|
.2
|
|
Indenture dated as of November 17, 2009 between Zimmer Holdings,
Inc. and Wells Fargo Bank, National Association, as Trustee
(incorporated by reference to the form filed as Exhibit 4.8 to
the Registrants Registration Statement on Form S-3 filed
November 12, 2009)
|
|
4
|
.3
|
|
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 Registrants Current Report
on Form 8-K filed November 17, 2009)
|
|
4
|
.4
|
|
Form of 4.625% Note due 2019 (incorporated by reference to
Exhibit 4.3 above)
|
|
4
|
.5
|
|
Form of 5.750% Note due 2039 (incorporated by reference to
Exhibit 4.3 above)
|
|
10
|
.1*
|
|
Zimmer Holdings, Inc. 2001 Stock Incentive Plan (incorporated by
reference to Appendix B to the Registrants definitive
Proxy Statement on Schedule 14A filed March 24, 2003)
|
|
10
|
.2*
|
|
First Amendment to the Zimmer Holdings, Inc. 2001 Stock
Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed December 15,
2005)
|
|
10
|
.3*
|
|
Zimmer Holdings, Inc. 2006 Stock Incentive Plan, as amended
(incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed December 13,
2006)
|
|
10
|
.4*
|
|
Zimmer Holdings, Inc. Executive Performance Incentive Plan, as
amended (incorporated by reference to Appendix B to the
Registrants definitive Proxy Statement on Schedule 14A
filed March 20, 2008)
|
|
10
|
.5*
|
|
Restated Zimmer, Inc. Long-Term Disability Income Plan for
Highly Compensated Employees (incorporated by reference to
Exhibit 10.9 to the Registrants Annual Report on Form 10-K
filed February 28, 2007)
|
|
10
|
.6*
|
|
Change in Control Severance Agreement with David C. Dvorak
(incorporated by reference to Exhibit 10.10 to the
Registrants Annual Report on Form 10-K filed February 27,
2009)
|
|
10
|
.7*
|
|
Form of Change in Control Severance Agreement with Bruno A.
Melzi (incorporated by reference to Exhibit 10.3 to the
Registrants Quarterly Report on Form 10-Q filed May 8,
2002)
|
|
10
|
.8*
|
|
Form of Change in Control Severance Agreement with James T.
Crines and Cheryl R. Blanchard (incorporated by reference to
Exhibit 10.12 to the Registrants Annual Report on Form
10-K filed February 27, 2009)
|
|
10
|
.9*
|
|
Form of Change in Control Severance Agreement with Jeffery A.
McCaulley and Chad F. Phipps (incorporated by reference to
Exhibit 10.13 to the Registrants Annual Report on Form
10-K filed February 27, 2009)
|
|
10
|
.10*
|
|
Change in Control Severance Agreement with Derek M. Davis
(incorporated by reference to Exhibit 10.14 to the
Registrants Annual Report on Form 10-K filed February 27,
2009)
|
|
10
|
.11*
|
|
Change in Control Severance Agreement with Stephen Hong Liang,
Ooi (incorporated by reference to Exhibit 10.21 to the
Registrants Annual Report on Form 10-K filed March 12,
2003)
|
|
10
|
.12*
|
|
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
Registrants Annual Report on Form 10-K filed February 27,
2009)
|
|
10
|
.13*
|
|
Restated Benefit Equalization Plan of Zimmer Holdings, Inc. and
Its Subsidiary or Affiliated Corporations Participating in the
Zimmer Holdings, Inc. Retirement Income Plan or the Zimmer
Puerto Rico Retirement Income Plan (incorporated by reference to
Exhibit 10.17 to the Registrants Annual Report on Form
10-K filed February 27, 2009)
|
|
10
|
.14*
|
|
Form of Confidentiality, Non-Competition and Non-Solicitation
Employment Agreement with U.S.-Based Executive Officers
(incorporated by reference to Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q filed August 7,
2009)
|
|
10
|
.15*
|
|
Non-Disclosure, Non-Competition and Non-Solicitation Employment
Agreement with Stephen Hong Liang, Ooi (incorporated by
reference to Exhibit 10.2 to the Registrants Current
Report on Form 8-K filed March 27, 2006)
|
|
10
|
.16*
|
|
Confidentiality, Non-Competition and Non-Solicitation Agreement
with Bruno A. Melzi (incorporated by reference to Exhibit 10.3
to the Registrants Current Report on Form 8-K filed March
27, 2006)
|
69
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Index to Exhibits
(Continued)
|
|
|
|
|
Exhibit No
|
|
Description
|
|
|
10
|
.17*
|
|
Form of Nonqualified Stock Option Award Letter under the Zimmer
Holdings, Inc. 2001 Stock Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Registrants Current
Report on Form 8-K filed January 11, 2006)
|
|
10
|
.18*
|
|
Form of Nonqualified Performance-Conditioned Stock Option Grant
Award Letter under the Zimmer Holdings, Inc. 2001 Stock
Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed January 21,
2005)
|
|
10
|
.19*
|
|
Zimmer Holdings, Inc. Stock Plan for Non-Employee Directors, as
amended (incorporated by reference to Appendix C to the
Registrants Definitive Proxy Statement filed on March 20,
2009)
|
|
10
|
.20*
|
|
Form of Nonqualified Stock Option Award Letter under the Zimmer
Holdings, Inc. Stock Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K filed April 5, 2005)
|
|
10
|
.21*
|
|
Form of Restricted Stock Unit Award Letter under the Zimmer
Holdings, Inc. Stock Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed February 21,
2006)
|
|
10
|
.22*
|
|
Form of Nonqualified Stock Option Award Letter under the Zimmer
Holdings, Inc. 2006 Stock Incentive Plan (incorporated by
reference to Exhibit 10.2 to the Registrants Current
Report on Form 8-K filed December 13, 2006)
|
|
10
|
.23*
|
|
Form of Nonqualified Stock Option Award Letter for Non-U.S.
Employees under the Zimmer Holdings, Inc. 2006 Stock Incentive
Plan (incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K filed December 13,
2006)
|
|
10
|
.24*
|
|
Form of Restricted Stock Award Letter under the Zimmer Holdings,
Inc. 2006 Stock Incentive Plan (five-year vesting) (incorporated
by reference to Exhibit 10.4 to the Registrants Current
Report on Form 8-K filed December 13, 2006)
|
|
10
|
.25*
|
|
Form of Performance-Based Restricted Stock Unit Award Letter
under the Zimmer Holdings, Inc. 2006 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed February 17,
2009)
|
|
10
|
.26*
|
|
Restated Zimmer Holdings, Inc. Deferred Compensation Plan for
Non-Employee Directors (incorporated by reference to Appendix D
to the Registrants Definitive Proxy Statement filed on
March 20, 2009)
|
|
10
|
.27*
|
|
Zimmer Holdings, Inc. 2009 Stock Incentive Plan (incorporated by
reference to Appendix B to the Registrants Definitive
Proxy Statement filed on March 20, 2009)
|
|
10
|
.28*
|
|
Form of Nonqualified Stock Option Award Letter under the Zimmer
Holdings, Inc. 2009 Stock Incentive Plan
|
|
10
|
.29*
|
|
Form of Nonqualified Stock Option Award Letter for Non-U.S.
Employees under the Zimmer Holdings, Inc. 2009 Stock Incentive
Plan
|
|
10
|
.30*
|
|
Form of Performance-Based Restricted Stock Unit Award Letter
under the Zimmer Holdings, Inc. 2009 Stock Incentive Plan
|
|
10
|
.31*
|
|
Form of Performance-Based Restricted Stock Unit Award Letter for
Non-U.S. Employees under the Zimmer Holdings, Inc. 2009 Stock
Incentive Plan
|
|
10
|
.32*
|
|
Form of Restricted Stock Unit Award Letter (five-year vesting)
under the Zimmer Holdings, Inc. 2009 Stock Incentive Plan
|
|
10
|
.33*
|
|
Summary Compensation Sheet
|
|
10
|
.34
|
|
$1,350,000,000 Amended and Restated Credit Agreement dated as of
November 30, 2007 (incorporated by reference to Exhibit 10.1 to
the Registrants Current Report on Form 8-K filed December
6, 2007)
|
|
10
|
.35
|
|
Corporate Integrity Agreement dated September 27, 2007, among
Zimmer Holdings, Inc., Zimmer, Inc. and the Office of Inspector
General of the Department of Health and Human Services
(incorporated by reference to Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-Q filed November
9, 2007)
|
|
10
|
.36
|
|
Form of Indemnification Agreement with Non-Employee Directors
and Officers (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K filed July 31, 2008)
|
|
21
|
|
|
List of Subsidiaries of Zimmer Holdings, Inc.
|
|
23
|
|
|
Consent of PricewaterhouseCoopers LLP
|
|
31
|
.1
|
|
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
|
|
31
|
.2
|
|
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
|
70
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Index to Exhibits
(Continued)
|
|
|
|
|
Exhibit No
|
|
Description
|
|
|
32
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101
|
|
|
The following materials from Zimmer Holdings, Inc.s Annual
Report on Form 10-K for the year ended December 31, 2009,
formatted in XBRL (Extensible Business Reporting Language): (1)
the Consolidated Statements of Earnings, (2) the Consolidated
Balance Sheets, (3) the Consolidated Statements of
Stockholders Equity, (4) the Consolidated Statements of
Cash Flows, (5) the Consolidated Statements of Comprehensive
Income and (6) Notes to Consolidated Financial Statements,
tagged as blocks of text.
|
|
|
* |
indicates management contracts or compensatory plans or
arrangements
|
71
|
|
ZIMMER
HOLDINGS, INC.
|
2009
FORM 10-K
ANNUAL REPORT
|
Schedule of valuation and qualifying accounts disclosure
|
|
Valuation
and Qualifying Accounts
|
Schedule II
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged
|
|
|
|
|
|
Effects of
|
|
|
Acquired
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
(Credited)
|
|
|
Deductions
|
|
|
Foreign
|
|
|
Abbott Spine
|
|
|
End of
|
|
Description
|
|
of Period
|
|
|
to Expense
|
|
|
to Reserve
|
|
|
Currency
|
|
|
Allowances
|
|
|
Period
|
|
|
|
Doubtful Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
$
|
20.4
|
|
|
$
|
1.4
|
|
|
$
|
(1.2
|
)
|
|
$
|
1.1
|
|
|
$
|
|
|
|
$
|
21.7
|
|
Year Ended December 31, 2008
|
|
|
21.7
|
|
|
|
(0.5
|
)
|
|
|
(1.9
|
)
|
|
|
(1.2
|
)
|
|
|
1.9
|
|
|
|
20.0
|
|
Year Ended December 31, 2009
|
|
|
20.0
|
|
|
|
0.1
|
|
|
|
(1.8
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess and Obsolete Inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
$
|
129.5
|
|
|
$
|
38.6
|
|
|
$
|
(26.9
|
)
|
|
$
|
2.5
|
|
|
$
|
|
|
|
$
|
143.7
|
|
Year Ended December 31, 2008
|
|
|
143.7
|
|
|
|
66.5
|
|
|
|
(23.1
|
)
|
|
|
(2.6
|
)
|
|
|
15.1
|
|
|
|
199.6
|
|
Year Ended December 31, 2009
|
|
|
199.6
|
|
|
|
81.7
|
|
|
|
(33.5
|
)
|
|
|
7.3
|
|
|
|
|
|
|
|
255.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess and Obsolete Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
$
|
40.7
|
|
|
$
|
3.1
|
|
|
$
|
(12.5
|
)
|
|
$
|
0.4
|
|
|
$
|
|
|
|
$
|
31.7
|
|
Year Ended December 31, 2008
|
|
|
31.7
|
|
|
|
5.6
|
|
|
|
(2.9
|
)
|
|
|
0.3
|
|
|
|
2.4
|
|
|
|
37.1
|
|
Year Ended December 31, 2009
|
|
|
37.1
|
|
|
|
22.7
|
|
|
|
(6.5
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
53.8
|
|
72