Document and Entity Information
Document and Entity Information (USD $) | |||
3 Months Ended
Mar. 31, 2010 | Apr. 23, 2010
| Jun. 30, 2009
| |
Document and Entity Information [Abstract] | |||
Entity Registrant Name | ZIMMER HOLDINGS INC | ||
Entity Central Index Key | 0001136869 | ||
Document Type | 10-Q | ||
Document Period End Date | 2010-03-31 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2,010 | ||
Document Fiscal Period Focus | Q1 | ||
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 | $9,120,369,894 | ||
Entity Common Stock, Shares Outstanding | 202,807,605 |
Consolidated Statements of Earn
Consolidated Statements of Earnings (Unaudited) (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Consolidated Statements of Earnings [Abstract] | ||
Net Sales | 1062.8 | 992.6 |
Cost of products sold | 268.4 | 230.2 |
Gross Profit | 794.4 | 762.4 |
Research and development | 51 | 51.9 |
Selling, general and administrative | 446.7 | 423.7 |
Acquisition, integration, realignment and other (Note 2) | 2.6 | 7 |
Operating expenses | 500.3 | 482.6 |
Operating Profit | 294.1 | 279.8 |
Interest and other, net | -14.6 | -3.7 |
Earnings before income taxes | 279.5 | 276.1 |
Provision for income taxes | 74.1 | 73.9 |
Net Earnings of Zimmer Holdings, Inc. | 205.4 | 202.2 |
Earnings Per Common Share | ||
Basic | 1.01 | 0.91 |
Diluted | 1.01 | 0.91 |
Weighted Average Common Shares Outstanding | ||
Basic | 203 | 221.5 |
Diluted | 204.2 | 222.1 |
Consolidated Balance Sheets
Consolidated Balance Sheets (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
Current Assets: | ||
Cash and cash equivalents | 821.2 | 691.7 |
Certificates of deposit | 50.2 | 66.4 |
Accounts receivable, less allowance for doubtful accounts | 767.1 | 751.4 |
Inventories, net | 896.5 | 913.2 |
Prepaid expenses and other current assets | 118 | 105.4 |
Deferred income taxes | 220.8 | 209.9 |
Total current assets | 2873.8 | 2,738 |
Property, plant and equipment, net | 1190.5 | 1221.7 |
Goodwill | 2712.3 | 2783.5 |
Intangible assets, net | 834 | 858 |
Other assets | 211.4 | 184.3 |
Total Assets | 7,822 | 7785.5 |
Current Liabilities: | ||
Accounts payable | 136 | 134.6 |
Income taxes | 67.9 | 57.5 |
Other current liabilities | 451.3 | 498.6 |
Total current liabilities | 655.2 | 690.7 |
Other long-term liabilities | 325.9 | 328.5 |
Long-term debt | 1,127 | 1127.6 |
Total Liabilities | 2108.1 | 2146.8 |
Commitments and Contingencies (Note 14) | ||
Stockholders' Equity: | ||
Common stock, $0.01 par value, one billion shares authorized, 254.2 million shares issued in 2010 (254.1 million in 2009) | 2.5 | 2.5 |
Paid-in capital | 3231.6 | 3214.6 |
Retained earnings | 5307.9 | 5102.5 |
Accumulated other comprehensive income | 304.9 | 358.6 |
Treasury stock, 51.4 million shares in 2010 (49.9 million in 2009) | (3,133) | -3039.5 |
Total Stockholders' Equity | 5713.9 | 5638.7 |
Total Liabilities and Stockholders' Equity | $7,822 | 7785.5 |
1_Consolidated Balance Sheets
Consolidated Balance Sheets (Parenthetical) | ||
Mar. 31, 2010
| Dec. 31, 2009
| |
Stockholders' Equity: | ||
Common stock, par value | 0.01 | 0.01 |
Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
Common stock, issued | 254,200,000 | 254,100,000 |
Treasury stock, shares | 51,400,000 | 49,900,000 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash flows provided by (used in) operating activities: | ||
Net earnings of Zimmer Holdings, Inc. | 205.4 | 202.2 |
Adjustments to reconcile net earnings to cash provided by operating activities: | ||
Depreciation and amortization | 84.9 | 79.6 |
Share-based compensation | 12.7 | 17.1 |
Income tax benefit from stock option exercises | 1.7 | 0.1 |
Excess income tax benefit from stock option exercises | -0.7 | |
Inventory step-up | 1.3 | 4.2 |
Changes in operating assets and liabilities, net of effect of acquisitions: | ||
Income taxes | 2.3 | 44.9 |
Receivables | -32.5 | -6.3 |
Inventories | 17.2 | -32.2 |
Accounts payable and accrued expenses | -37.1 | -111.5 |
Other assets and liabilities | 4.3 | -13.5 |
Net cash provided by operating activities | 259.5 | 184.6 |
Cash flows provided by (used in) investing activities: | ||
Additions to instruments | -39.3 | -45.3 |
Additions to other property, plant and equipment | -11.6 | -30.9 |
Purchases of certificates of deposit | (4) | |
Sales of certificates of deposit | 20 | |
Acquisition of intellectual property rights | -7.6 | |
Investments in other assets | -2.9 | -0.6 |
Net cash used in investing activities | -37.8 | -84.4 |
Cash flows provided by (used in) financing activities: | ||
Net borrowing under credit facilities | 210 | |
Proceeds from employee stock compensation plans | 4.9 | 3.3 |
Excess income tax benefit from stock option exercises | 0.7 | |
Repurchase of common stock | -93.5 | -301.4 |
Acquisition of noncontrolling interest | -7.8 | |
Net cash used in financing activities | -87.9 | -95.9 |
Effect of exchange rates on cash and cash equivalents | -4.3 | -4.1 |
Increase in cash and cash equivalents | 129.5 | 0.2 |
Cash and cash equivalents, beginning of year | 691.7 | 212.6 |
Cash and cash equivalents, end of period | 821.2 | 212.8 |
Basis of Presentation
Basis of Presentation | |
3 Months Ended
Mar. 31, 2010 | |
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 2009 Annual Report on Form10-K filed by Zimmer Holdings, Inc. In our opinion, 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, 2009 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the UnitedStates of America. Results for interim periods should not be considered indicative of results for the full year. Certain amounts in the three month period ended March31, 2009 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 | |
3 Months Ended
Mar. 31, 2010 | |
Significant Accounting Policies [Abstract] | |
Significant Accounting Policies | 2. Significant Accounting Policies Acquisition, Integration, Realignment and Other We recognize expenses resulting directly from our business combinations and other items as Acquisition, integration, realignment and other expenses. Acquisition, integration, realignment and other expenses for the three month periods ended March31, 2010 and 2009 included (in millions): Three Months Ended March31, 2010 2009 Impairment of assets $ 0.4 $ Consulting and professional fees 1.0 3.1 Employee severance and retention (0.1 ) 0.2 Information technology integration 0.1 0.1 Facility and employee relocation 0.8 Distributor acquisitions 0.3 Certain litigation matters (0.8 ) Contract terminations 2.0 1.0 Other 1.5 Acquisition, integration, realignment and other $ 2.6 $ 7.0 Recent Accounting Pronouncements There are no recently issued accounting pronouncements that we have yet to adopt that are expected to have a material effect on our financial position, results of operations, or cash flows. |
Comprehensive Income
Comprehensive Income | |
3 Months Ended
Mar. 31, 2010 | |
Comprehensive Income [Abstract] | |
Comprehensive Income | 3. Comprehensive Income The reconciliation of net earnings to comprehensive income is as follows: Three Months Ended March31, 2010 2009 (In millions) Net earnings of Zimmer Holdings, Inc. $ 205.4 $ 202.2 Other Comprehensive Income: Foreign currency cumulative translation adjustments (82.4 ) (41.6 ) Unrealized foreign currency hedge gains, net of tax 28.7 22.3 Reclassification adjustments on foreign currency hedges, net of tax (0.9 ) (6.1 ) Unrealized losses on securities, net of tax (0.5 ) Adjustments to prior service cost and unrecognized actuarial assumptions, net of tax 0.9 14.6 Total Other Comprehensive Loss (53.7 ) (11.3 ) Comprehensive Income Attributable to Zimmer Holdings, Inc. $ 151.7 $ 190.9 |
Inventories
Inventories | |
3 Months Ended
Mar. 31, 2010 | |
Inventories [Abstract] | |
Inventories | 4. Inventories March31, December31, 2010 2009 (In millions) Finished goods $ 708.7 $ 718.6 Work in progress 57.1 48.0 Raw materials 130.7 146.6 Inventories, net $ 896.5 $ 913.2 |
Property, Plant and Equipment
Property, Plant and Equipment | |
3 Months Ended
Mar. 31, 2010 | |
Property, Plant and Equipment [Abstract] | |
Property, Plant and Equipment | 5. Property, Plant and Equipment March31, December31, 2010 2009 (In millions) Land $ 21.6 $ 21.8 Buildings and equipment 1,144.4 1,147.7 Capitalized software costs 162.2 158.8 Instruments 1,221.5 1,210.2 Construction in progress 61.0 62.0 2,610.7 2,600.5 Accumulated depreciation (1,420.2 ) (1,378.8 ) Property, plant and equipment, net $ 1,190.5 $ 1,221.7 |
Other Current Liabilities
Other Current Liabilities | |
3 Months Ended
Mar. 31, 2010 | |
Other Current Liabilities [Abstract] | |
Other Current Liabilities | 6. Other Current Liabilities March31, December31, 2010 2009 (In millions) Other current liabilities: Salaries, wages and benefits $ 75.7 $ 95.7 Accrued liabilities 375.6 402.9 Total other current liabilities $ 451.3 $ 498.6 |
Debt
Debt | |
3 Months Ended
Mar. 31, 2010 | |
Debt [Abstract] | |
Debt | 7. Debt Long-term debt as of March31, 2010 consisted of our unsecured senior notes (Senior Notes) and borrowings under our $1,350million senior credit agreement (Senior Credit Facility). Outstanding long-term debt as of March31, 2010 was $1,127.0million, comprised of $998.8million from our Senior Notes and $128.2million from our Senior Credit Facility. There was no short-term debt outstanding. The estimated fair value of our Senior Notes as of March31, 2010, based on quoted prices for the specific securities from transactions in active markets, was $990.9million. The carrying value of the Senior Credit Facility approximates fair value, as the underlying instruments have variable interest rates at market value. |
Fair Value Measurements of Asse
Fair Value Measurements of Assets and Liabilities | |
3 Months Ended
Mar. 31, 2010 | |
Fair Value Measurement of Assets and Liabilities [Abstract] | |
Fair Value Measurement of Assets and Liabilities | 8. Fair Value Measurement of Assets and Liabilities The following assets and liabilities are recorded at fair value on a recurring basis as of March31, 2010 (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 33.9 33.9 $ 34.8 $ 0.9 $ 33.9 $ Liabilities Derivatives, current and long-term $ 22.5 $ $ 22.5 $ $ 22.5 $ $ 22.5 $ The following assets and liabilities were recorded at fair value on a recurring basis as of December31, 2009 (in millions): Fair Value Measurements at Reporting Date Using: Quoted Prices in Significant Active Markets Other Significant for 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 12.4 12.4 $ 13.3 $ 0.9 $ 12.4 $ Liabilities Derivatives, current and long-term $ 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. There were no significant nonrecurring fair value measurements made in the three month peri |
Derivative Instruments and Hedg
Derivative Instruments and Hedging Activities | |
3 Months Ended
Mar. 31, 2010 | |
Derivative Instruments and Hedging Activities [Abstract] | |
Derivative Instruments and Hedging Activities | 9. 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. 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, Swedish Krona, Czech Koruna, Thai Baht, Taiwan Dollars, South African Rand, Russian Rubles and Indian Rupees. 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 30months 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 the three month periods ended March31, 2010 and 2009 due to ineffectiveness and amounts excluded from the assessment of hedge effectiveness was not significant. For forward contracts and options outstanding at March31, 2010, we have obligations to purchas |
Income Taxes
Income Taxes | |
3 Months Ended
Mar. 31, 2010 | |
Income Taxes [Abstract] | |
Income Taxes | 10. Income Taxes 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. |
Retirement Benefit Plans
Retirement Benefit Plans | |
3 Months Ended
Mar. 31, 2010 | |
Retirement Benefit Plans [Abstract] | |
Retirement Benefit Plans | 11. 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 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 month periods ended March31, 2010 and 2009, for our U.S.and non-U.S.defined benefit retirement plans are as follows (in millions): Three Months Ended March31, 2010 2009 Service cost $ 6.3 $ 6.9 Interest cost 4.6 4.9 Expected return on plan assets (6.5 ) (6.9 ) Amortization of unrecognized prior service cost and actuarial loss 0.8 1.7 Net periodic benefit cost $ 5.2 $ 6.6 We contributed $23.0million during the three month period ended March31, 2010 to our U.S.and Puerto Rico defined benefit plans and do not expect to contribute additional funds to these plans during the remainder of 2010. We contributed $3.4million to our foreign-based defined benefit plans in the three month period ended March31, 2010 and expect to contribute approximately $10million to these foreign-based plans during the remainder of 2010. |
Earnings Per Share
Earnings Per Share | |
3 Months Ended
Mar. 31, 2010 | |
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 March31, 2010 2009 Weighted average shares outstanding for basic net earnings per share 203.0 221.5 Effect of dilutive stock options and other equity awards 1.2 0.6 Weighted average shares outstanding for diluted net earnings per share 204.2 222.1 During the three month period ended March31, 2010, an average of 12.8million 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. During the three month period ended March31, 2009, an average of 16.3million options were not included. In the three month period ended March31, 2010, we repurchased 1.5million shares of our common stock at an average price of $60.62 per share for a total cash outlay of $93.5million, including commissions. Our Board of Directors previously authorized a $1.25billion share repurchase program which was set to expire on December31, 2009. In September 2009, the Board of Directors extended this program to December31, 2010. $117.6million remains authorized for future repurchases under this program. |
Segment Information
Segment Information | |
3 Months Ended
Mar. 31, 2010 | |
Segment Information [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 March31, March31, 2010 2009 2010 2009 Americas $ 615.7 $ 594.6 $ 306.6 $ 289.7 Europe 286.1 265.1 104.8 116.6 Asia Pacific 161.0 132.9 61.1 49.9 Total $ 1,062.8 $ 992.6 Share-based compensation (12.7 ) (17.1 ) Inventory step-up (1.3 ) (4.2 ) Acquisition, integration, realignment and other (2.6 ) (7.0 ) Global operations and corporate functions (161.8 ) (148.1 ) Operating profit $ 294.1 $ 279.8 Net sales by product category are as follows (in millions): Three Months Ended March31, 2010 2009 Reconstructive implants $ 814.5 $ 761.1 Dental 51.7 47.4 Trauma 60.4 56.9 Spine |
Commitments and Contingencies
Commitments and Contingencies | |
3 Months Ended
Mar. 31, 2010 | |
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 additional claims may be submitted. We recorded a provision of $69.0million in 2008, representing managements estimate of the Durom Cup-related claims that would be made in association with revisions occurring within two years of the original surgery. 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 for revisions within two years of the original surgery and increased the provision by $35.0million, for a total of $104.0million related to such claims. We have not recorded any adjustments to the provisions since the third quarter of 2009. These provisions were recorded as Certain Claims in our statement of earnings. The liability outstanding as of March31, 2010 is $64.8million, which we believe will be adequate to settle the remaining of these Certain Claims. Our standard product liability accruals are recognized in selling, general and administrative expense. We have recorded provisions as part of our standard product liability accruals for claims relating to revisions of Durom Cup cases in the U.S.that have occurred, or are estimated to occur, more than two years after the original surgery. We recorded a provision of $9.8million in the three month period ended March31, 2010 for such claims, as compared with a provision of $0.9million in the same 2009 period. The total provisions we have recorded for such claims as part of our standard product liability accruals from 2008 through March31, 2010 amount to $42.2million. The estimated liability outstanding relating to these claims as of March31, 2010 is $29.0million. It is difficult to estimate the number of claims we may eventually receive related to revisions that occur more than two years after the original surgery, so it is reasonably possible that our estimated liability may change in the near term. We will continue to evaluate the adequacy of this liability as more information becomes available. We expect to pay the majority of the claims related to the Durom Cup within the next three years. 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 s |