Document and Company Informatio
Document and Company Information (USD $) | |||
9 Months Ended
Sep. 30, 2009 | Oct. 20, 2009
| Jun. 30, 2008
| |
Document and Company Information [Abstract] | |||
Entity Registrant Name | ZIMMER HOLDINGS INC | ||
Entity Central Index Key | 0001136869 | ||
Document Type | 10-Q | ||
Document Period End Date | 2009-09-30 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $15,309,609,246 | ||
Entity Common Stock, Shares Outstanding | 212,979,017 |
Consolidated Statements of Earn
Consolidated Statements of Earnings (Unaudited) (USD $) | ||||
In Millions, except Per Share data | 3 Months Ended
Sep. 30, 2009 | 3 Months Ended
Sep. 30, 2008 | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Net Sales | 975.6 | 952.2 | 2988.1 | 3090.9 |
Cost of products sold | 249.3 | 237.2 | 716.4 | 754.2 |
Gross Profit | 726.3 | 715 | 2271.7 | 2336.7 |
Research and development | 52.1 | 47.9 | 153.8 | 144 |
Selling, general and administrative | 413 | 403.7 | 1,269 | 1269.5 |
Certain claims | 35 | 47.5 | 35 | 47.5 |
Acquisition, integration, realignment and other | 22.2 | 5.6 | 65.7 | 25.4 |
Net curtailment and settlement | 0 | 0 | -32.1 | 0 |
Operating expenses | 522.3 | 504.7 | 1491.4 | 1486.4 |
Operating Profit | 204 | 210.3 | 780.3 | 850.3 |
Interest and other income (expense), net | -4.2 | 28.2 | -11.9 | 36 |
Earnings before income taxes | 199.8 | 238.5 | 768.4 | 886.3 |
Provision for income taxes | 49.9 | 23.5 | 206.2 | 204.4 |
Net earnings | 149.9 | 215 | 562.2 | 681.9 |
Less: Net earnings attributable to noncontrolling interest | 0 | -0.3 | 0 | -0.8 |
Net Earnings of Zimmer Holdings, Inc. | 149.9 | 214.7 | 562.2 | 681.1 |
Earnings Per Common Share | ||||
Basic | 0.7 | 0.96 | 2.6 | 2.98 |
Diluted | 0.7 | 0.95 | 2.59 | 2.97 |
Weighted Average Common Shares Outstanding | ||||
Basic | 213.6 | 224.7 | 216.6 | 228.5 |
Diluted | 214.5 | 225.6 | 217.4 | 229.7 |
Consolidated Balance Sheets (Un
Consolidated Balance Sheets (Unaudited) (USD $) | ||
In Millions | Sep. 30, 2009
| Dec. 31, 2008
|
Current Assets: | ||
Cash and cash equivalents | 439.7 | 212.6 |
Restricted cash | 2.8 | 2.7 |
Accounts receivable, less allowance for doubtful accounts | 743.2 | 732.8 |
Inventories, net | 972.1 | 928.3 |
Prepaid expenses and other current assets | 65.5 | 103.9 |
Deferred income taxes | 225.5 | 198.3 |
Total current assets | 2448.8 | 2178.6 |
Property, plant and equipment, net | 1239.7 | 1264.1 |
Goodwill | 2883.2 | 2774.8 |
Intangible assets, net | 873.9 | 872.1 |
Other assets | 202.5 | 149.4 |
Total Assets | 7648.1 | 7,239 |
Current Liabilities: | ||
Accounts payable | 121 | 186.4 |
Income taxes payable | 15.6 | 6.6 |
Other current liabilities | 540.1 | 578.1 |
Total current liabilities | 676.7 | 771.1 |
Other long-term liabilities | 392.5 | 353.9 |
Long-term debt | 600.2 | 460.1 |
Total Liabilities | 1669.4 | 1585.1 |
Zimmer Holdings, Inc. Stockholders' Equity: | ||
Common stock, $0.01 par value, one billion shares authorized, 253.9 million shares issued in 2009 (253.7 million in 2008) | 2.5 | 2.5 |
Paid-in capital | 3197.9 | 3138.5 |
Retained earnings | 4947.7 | 4385.5 |
Accumulated other comprehensive income | 351.2 | 240 |
Treasury stock, 40.9 million shares in 2009 (30.1 million in 2008) | -2520.6 | -2116.2 |
Total Zimmer Holdings, Inc. stockholders' equity | 5978.7 | 5650.3 |
Noncontrolling interest | 0 | 3.6 |
Total Stockholders' Equity | 5978.7 | 5653.9 |
Total Liabilities and Stockholders' Equity | 7648.1 | $7,239 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) (Unaudited) (USD $) | ||
Sep. 30, 2009
| Dec. 31, 2008
| |
Zimmer Holdings, Inc. Stockholders' Equity: | ||
Common stock, par value | 0.01 | 0.01 |
Common stock, share authorized | 1,000,000,000 | 1,000,000,000 |
Common stock, issued | 253,900,000 | 253,700,000 |
Treasury stock, shares | 40,900,000 | 30,100,000 |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders Equity (Unaudited) (USD $) | |||||||
In Millions | Paid-in Capital
| Retained Earnings
| Accumulated Other Comprehensive Income
| Noncontrolling Interest
| Total
| ||
Beginning Balance, Shares at Dec. 31, 2008 | 253.7 | -30.1 | |||||
Beginning Balance at Dec. 31, 2008 | 2.5 | 3138.5 | -2116.2 | 4385.5 | $240 | 3.6 | 5653.9 |
Net earnings | 562.2 | 562.2 | |||||
Other comprehensive income | 111.2 | 111.2 | |||||
Purchase of noncontrolling interest | (5) | -3.6 | -8.6 | ||||
Stock compensation plans, including tax benefits, shares | 0.2 | ||||||
Stock compensation plans, including tax benefits, value | 64.4 | 64.4 | |||||
Share repurchases, shares | -10.8 | ||||||
Share repurchases, value | -404.4 | -404.4 | |||||
Ending Balance at Sep. 30, 2009 | 2.5 | 3197.9 | -2520.6 | 4947.7 | 351.2 | $0 | 5978.7 |
Ending Balance, Shares at Sep. 30, 2009 | 253.9 | -40.9 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) (USD $) | ||
In Millions | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Cash flows provided by (used in) operating activities: | ||
Net earnings of Zimmer Holdings, Inc. | 562.2 | 681.1 |
Adjustments to reconcile net earnings to cash provided by operating activities: | ||
Depreciation and amortization | 249.6 | 196 |
Net curtailment and settlement | -32.1 | 0 |
Gain on sale of investments | 0 | -38.8 |
Share-based compensation | 57.7 | 50.4 |
Inventory step-up | 9.9 | 3.2 |
Income tax benefit from stock option exercises | 0.7 | 10.6 |
Excess income tax benefit from stock option exercises | -0.1 | -6.5 |
Changes in operating assets and liabilities, net of effect of acquisitions: | ||
Income taxes | -4.9 | -66.2 |
Receivables | 10.9 | -11.9 |
Inventories | -22.3 | -106.5 |
Accounts payable and accrued expenses | -133.6 | 141.3 |
Other assets and liabilities | 34 | -21.5 |
Net cash provided by operating activities | 732 | 831.2 |
Cash flows provided by (used in) investing activities: | ||
Additions to instruments | -102.7 | -186.5 |
Additions to other property, plant and equipment | -76.8 | -189.2 |
Proceeds from sale of investments | 0 | 54.9 |
Acquisition of intellectual property rights | -32.9 | 0 |
Investments in other assets | -35.5 | -18.6 |
Net cash used in investing activities | -247.9 | -339.4 |
Cash flows provided by (used in) financing activities: | ||
Net borrowing under credit facilities | 141 | 220 |
Proceeds from employee stock compensation plans | 7.6 | 54.2 |
Excess income tax benefit from stock option exercises | 0.1 | 6.5 |
Repurchase of common stock | -404.4 | -688.9 |
Acquisition of noncontrolling interest | -8.6 | 0 |
Net cash used in financing activities | -264.3 | -408.2 |
Effect of exchange rates on cash and cash equivalents | 7.3 | -5.1 |
Increase in cash and cash equivalents | 227.1 | 78.5 |
Cash and cash equivalents, beginning of year | 212.6 | 463.9 |
Cash and cash equivalents, end of period | 439.7 | 542.4 |
Basis of Presentation
Basis of Presentation | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Basis of Presentation [Abstract] | |
Basis of Presentation | 1. Basis of Presentation The financial data presented herein is unaudited and should be read in conjunction with the consolidated financial statements and accompanying notes included in the 2008 Annual Report on Form10-K filed by Zimmer Holdings, Inc. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The December31, 2008 condensed balance sheet data was derived from audited financial statements (other than as it relates to the adjustments for the adoption of the Financial Accounting Standards Boards (FASB) new guidance related to noncontrolling interests as described below), but does not include all disclosures required by accounting principles generally accepted in the United States of America. Results for interim periods should not be considered indicative of results for the full year. Certain amounts in the three and nine month periods ended September30, 2008 have been reclassified to conform to the current year presentation. The words we, us, our and similar words refer to Zimmer Holdings, Inc. and its subsidiaries. Zimmer Holdings refers to the parent company only. |
Significant Accounting Policies
Significant Accounting Policies | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Significant Accounting Policies [Abstract] | |
Significant Accounting Policies | 2. Significant Accounting Policies Noncontrolling Interests On January1, 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 nine month period ended September30, 2009, we acquired 100percent ownership of our only outstanding noncontrolling interest for approximately $8.6million. 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 $3.6million was eliminated and the remaining $5.0million, 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 effect on equity attributable to Zimmer Holdings, Inc.: Three Months Nine Months Ended September30, Ended September30, 2009 2008 2009 2008 (In millions) (In millions) Net earnings of Zimmer Holdings, Inc. $ 149.9 $ 214.7 $ 562.2 $ 681.1 Transfers to noncontrolling interests: Decrease in equity related to the purchase of noncontrolling interests (0.8 ) (5.0 ) Change from net earnings of Zimmer Holdings, Inc. and transfers to noncontrolling interests $ 149.1 $ 214.7 $ 557.2 $ 681.1 Acquisition, Integration, Realignment and Other We recognize incremental expenses resulting directly from our business combinations and significant nonrecurring and unusual items as Acquisition, integration, realignment and other expenses. Acquisition, integration, realignment and other expenses for the three and nine month periods ended September30, 2009 and 2008 included (in millions): Three Months Ended September30, Nine Months Ended September30, 2009 2008 2009 2008 Impairment of assets $ 0.9 $ $ 2.2 $ 1.6 Consulting and professional fees 0.6 2.0 3.2 5.4 Employee severance and retention, including share-based compensation acceleration 1.6 18.4 Information technology integration 0.5 0.7 0.4 Facility and employee relocation 2.9 1.4 4.7 5.8 Vacated facilities |
Comprehensive Income
Comprehensive Income | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Comprehensive Income [Abstract] | |
Comprehensive Income | 3. Comprehensive Income The reconciliation of net earnings to comprehensive income is as follows: Three Months Nine Months Ended Ended September30, September30, 2009 2008 2009 2008 (In millions) (In millions) Net Earnings $ 149.9 $ 215.0 $ 562.2 $ 681.9 Other Comprehensive Income: Foreign currency cumulative translation adjustments 98.0 (102.9 ) 145.2 27.0 Unrealized foreign currency hedge gains/(losses), net of tax (25.5 ) 43.4 (37.9 ) (10.6 ) Reclassification adjustments on foreign currency hedges, net of tax (4.6 ) 10.3 (16.9 ) 45.5 Unrealized gains/(losses) on securities, net of tax 0.2 (1.5 ) (0.3 ) 24.0 Reclassification adjustments on securities, net of tax (18.4 ) (23.8 ) Prior service cost and unrecognized gains/(losses) in actuarial assumptions, net of tax 0.7 0.6 21.1 2.3 Total Other Comprehensive Income / (Loss) 68.8 (68.5 ) 111.2 64.4 Comprehensive (Loss) Attributable to Noncontrolling Interest (0.3 ) (0.8 ) Comprehensive Income Attributable to Zimmer Holdings, Inc. $ 218.7 $ 146.2 $ 673.4 $ 745.5 |
Abbott Spine Acquisition
Abbott Spine Acquisition | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Abbott Spine Acquisition [Abstract] | |
Abbott Spine Acquisition | 4. Abbott Spine Acquisition In October 2008, we acquired Abbott Spine, a former subsidiary of Abbott Laboratories, for an aggregate value of approximately $363.0million, including a $358.0million cash purchase price after certain working capital adjustments and $5.0million of direct acquisition costs. The acquisition was funded by approximately $253million of cash on-hand and $110million from new borrowings under our Senior Credit Facility. In the three month period ended June30, 2009, we completed the final purchase price allocation, which reflects additional contract termination liabilities and changes to the preliminary fair values assigned to acquired inventory. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the Abbott Spine acquisition (in millions): As of October16, 2008 Current assets $ 61.4 Property, plant and equipment 6.5 Instruments 17.5 Intangible assets subject to amortization: Customer relationships (10year useful life) 8.6 Developed technology (10year useful life) 64.3 In-process research and development 38.5 Other assets 10.0 Goodwill 205.1 Total assets acquired 411.9 Current liabilities 19.5 Deferred taxes 29.4 Total liabilities assumed 48.9 Net assets acquired $ 363.0 Goodwill of $132.5million, $69.9million and $2.7million was assigned to the Americas, Europe and Asia Pacific reporting segments, respectively. None of the goodwill is deductible for tax purposes. |
Inventories
Inventories | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Inventories [Abstract] | |
Inventories | 5. Inventories September30, December31, 2009 2008 (In millions) Finished goods $ 762.9 $ 731.2 Work in progress 47.2 52.6 Raw materials 162.0 144.5 Inventories, net $ 972.1 $ 928.3 |
Property Plant and Equipment
Property Plant and Equipment | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Property, Plant and Equipment [Abstract] | |
Property, Plant and Equipment | 6. Property, Plant and Equipment September30, December31, 2009 2008 (In millions) Land $ 21.8 $ 21.7 Buildings and equipment 1,114.3 992.7 Capitalized software costs 156.5 136.7 Instruments 1,204.1 1,161.7 Construction in progress 76.0 149.0 2,572.7 2,461.8 Accumulated depreciation (1,333.0 ) (1,197.7 ) Property, plant and equipment, net $ 1,239.7 $ 1,264.1 |
Other Current and Long Term Lia
Other Current and Long Term Liabilities | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Other Current and Long-Term Liabilities [Abstract] | |
Other Current and Long-Term Liabilities | 7. Other Current and Long-Term Liabilities September30, December31, 2009 2008 (In millions) Other current liabilities: License and service agreements $ 127.3 $ 169.6 Accrued liabilities 412.8 408.5 Total other current liabilities $ 540.1 $ 578.1 Other long-term liabilities: Accrued retirement and postretirement benefit plans $ 46.0 $ 129.9 Other long-term liabilities 346.5 224.0 Total other long-term liabilities $ 392.5 $ 353.9 |
Fair Value Measurement of Asset
Fair Value Measurement of Assets and Liabilities | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Fair Value Measurement of Assets and Liabilities [Abstract] | |
Fair Value Measurement of Assets and Liabilities | 8. Fair Value Measurement of Assets and Liabilities In September 2006, the FASB issued new guidance on fair value measurements. The new guidance defines fair value, establishes a framework for measuring fair value under U.S.GAAP, and expands disclosures about fair value measurements. On January1, 2008, we adopted the FASBs guidance on fair value measurements for certain financial assets and liabilities. On January1, 2009, we adopted the FASBs guidance on fair value as it relates to nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. For the three and nine month periods ended September30, 2009, there were no significant nonrecurring fair value measurements made subsequent to initial recognition. The following assets and liabilities are recorded at fair value on a recurring basis as of September30, 2009 (in millions): Fair Value Measurements at Reporting Date Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Recorded Assets Inputs Inputs Balance (Level 1) (Level 2) (Level 3) Assets Available-for-sale securities $ 0.9 $ 0.9 $ $ Derivatives, current and long-term 13.0 13.0 $ 13.9 $ 0.9 $ 13.0 $ Liabilities Derivatives, current and long-term $ 46.3 $ $ 46.3 $ $ 46.3 $ $ 46.3 $ 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 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. |
Derivative Instruments and Hedg
Derivative Instruments and Hedging Activities | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Derivative Instruments and Hedging Activities [Abstract] | |
Derivative Instruments and Hedging Activities | 9. Derivative Instruments and Hedging Activities On January1, 2009, we adopted the FASBs new guidance related to the disclosure of derivative and hedging activities. The adoption of this guidance did not have a material impact on our consolidated financial statements or results of operations. The new guidance impacts disclosures only and requires additional qualitative and quantitative information on the use of derivatives and their impact on financial position, results of operations and cash flows. These disclosures are provided below. 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. 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 exchange rate movements on net earnings, we enter into derivative financial instruments in the form of foreign 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 exchange rates may have different proportional effects on our revenues compared to our cost of products sold. To minimize the effects of foreign exchange rate movements on cash flows, we hedge intercompany sales of inventory expected to occur within the next 30months with foreign 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, i |
Income Taxes
Income Taxes | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Income Taxes [Abstract] | |
Income Taxes | 10. Income Taxes During the third quarter of 2009, we settled various tax matters with the Internal Revenue Service (IRS) for all years prior to 2005. Our U.S.federal returns for years 2005 through 2007 are currently under IRS examination. We expect that the amount of tax liability for unrecognized tax benefits will change in the next twelve months; however, we do not expect these changes will have a significant impact on our results of operations or financial position. 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 a 2007 civil settlement. As a result, we recorded an estimated current tax benefit of $30.8million. The effective tax rate for the three and nine month periods ended September30, 2008 reflect this benefit. |
Retirement and Postretirement B
Retirement and Postretirement Benefit Plans | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Retirement and Postretirement Benefit Plans [Abstract] | |
Retirement and Postretirement Benefit Plans | 11. Retirement and Postretirement Benefit Plans Defined 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 do receive additional benefits under our defined contribution plans. Plan benefits are primarily based on years of credited service and the participants 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. The components of net pension expense for the three and nine month periods ended September30, 2009 and 2008, for our U.S.and non-U.S.defined benefit retirement plans are as follows (in millions): Three Months Ended September30, Nine Months Ended September30, 2009 2008 2009 2008 Service cost $ 6.7 $ 6.3 $ 19.5 $ 18.9 Interest cost 4.4 4.5 13.0 13.5 Expected return on plan assets (6.3 ) (5.9 ) (18.5 ) (17.5 ) Amortization of unrecognized prior service cost and actuarial loss 1.6 0.6 4.6 2.1 Curtailment 0.4 Settlement 0.1 2.7 Net periodic benefit cost $ 6.4 $ 5.6 $ 19.0 $ 19.7 We contributed approximately $40million during the nine month period ended September30, 2009 to our U.S.and Puerto Rico defined benefit plans and do not expect to make any additional contributions to these plans during the remainder of 2009. We contributed approximately $9million to our foreign-based defined benefit plans in the nine month period ended September30, 2009 and expect to contribute an additional $5million to these foreign-based plans during the remainder of 2009. Postretirement Benefit Plans During the nine month period ended September30, 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 January1, 2010. Additionally, we funded approximately $7million 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. The components of net periodic benefit expense for the three and nine month periods ended September30, 2009 and 2008, for our U.S.and Puerto Rico postretirement benefit plans are as follows (in millions): Three Months Ended September 30, Nine Months Ended September30, |
Earnings Per Share
Earnings Per Share | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Earnings Per Share [Abstract] | |
Earnings Per Share | 12. Earnings Per Share The following is a reconciliation of weighted average shares for the basic and diluted shares computations (in millions): Three Months Ended September30, Nine Months Ended September 30, 2009 2008 2009 2008 Weighted average shares outstanding for basic net earnings per share 213.6 224.7 216.6 228.5 Effect of dilutive stock options and other equity awards 0.9 0.9 0.8 1.2 Weighted average shares outstanding for diluted net earnings per share 214.5 225.6 217.4 229.7 During the three and nine month periods ended September30, 2009, an average of 13.6million options and 14.7million options, respectively, to purchase shares of common stock were not included in the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of the common stock. During the three and nine month periods ended September30, 2008, an average of 11.4million options and 10.0million options, respectively, were not included. In the three month period ended September30, 2009, we repurchased approximately 1.5million shares of our common stock at an average price of $45.89 per share for a total cash outlay of $66.6million, including commissions. In the nine month period ended September30, 2009, we repurchased approximately 10.8million shares of our common stock at an average price of $37.17 per share for a total cash outlay of $404.4million, including commissions. In April 2008, we announced that our Board of Directors authorized a $1.25billion share repurchase program which was originally set to expire on December31, 2009. In September 2009, the Board of Directors extended this program to December31, 2010. Approximately $730.2million remains authorized for future repurchases under this plan. |
Segment Information
Segment Information | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Segment Reporting [Abstract] | |
Segment Information | 13. Segment Information 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 other healthcare related services currently represents less than 1percent 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 operating segment performance based upon segment operating profit exclusive of operating expenses pertaining to global operations and corporate expenses, share-based compensation, certain claims, acquisition, integration, realignment and other, net curtailment and settlement, inventory step-up 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. Net sales and segment operating profit are as follows (in millions): Net Sales Operating Profit Three Months Three Months Ended Ended September30, September30, 2009 2008 2009 2008 Americas $ 584.5 $ 563.3 $ 291.1 $ 291.2 Europe 242.4 251.0 75.8 89.1 Asia Pacific 148.7 137.9 62.7 55.5 Total $ 975.6 $ 952.2 Share-based compensation (17.6 ) (11.0 ) Inventory step-up (2.9 ) (1.4 ) Certain claims (35.0 ) (47.5 ) Acquisition, integration, realignment and other (22.2 ) (5.6 ) Global operations and corporate functions (147.9 ) (160.0 ) Operating profit $ 204.0 $ 210.3 Net Sales Operating Profit Nine Months Nine Months Ended Ended September30, September30, 2009 2008 2009 |
Commitments and Contingencies
Commitments and Contingencies | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Commitments and Contingencies [Abstract] | |
Commitments and Contingencies | 14. 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 we expect additional claims will be submitted. We recorded a provision of $69.0million in 2008, representing managements estimate of these Durom Cup-related claims. Based on claims information we received since we made our initial estimate in 2008, we have increased our estimate of the number of claims we expect to receive. Accordingly, we increased the provision by $35.0million in the third quarter of 2009. The current reserve is $77.5million as of September30, 2009. The provision is limited to revisions within two years of an original surgery that occurred prior to July 2008. 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. Any claims received outside of these defined parameters will be managed in the normal course and reflected in our standard product liability accruals. On February15, 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 June13, 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 August19, 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 April9, 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 September30, 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 is pending. 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 o |