Zimmer Reports Fourth Quarter and 2010 Financial Results

WARSAW, Ind., Jan. 27, 2011 /PRNewswire/ -- Zimmer Holdings, Inc. (NYSE and SIX: ZMH) today reported financial results for the quarter and year ended December 31, 2010.  The Company reported fourth quarter net sales of $1.13 billion, an increase of 2.5% reported and 3.0% constant currency over the fourth quarter of 2009.  Diluted earnings per share for the quarter were $0.18 reported and $1.27 adjusted, an increase of 13.4% adjusted over the prior year period.  Full-year net sales were $4.22 billion, an increase of 3.0% reported and an increase of 2.3% constant currency over the prior year.  Diluted earnings per share for the year were $2.97 reported and $4.33 adjusted, an increase of 9.9% adjusted over the prior year.  

"In the quarter, Zimmer's performance was characterized by sequential top-line growth in all geographic segments, successful product introductions and operational discipline, resulting in improved operating margins and strong cash flow," said David Dvorak, Zimmer President and CEO.  "Moving into 2011, we expect to continue to strengthen our leadership position in joint reconstruction and to enhance our market share in emerging businesses and geographic markets." 

Net earnings for the fourth quarter were $34.9 million on a reported basis and $250.6 million on an adjusted basis, an increase of 6.1% adjusted over the prior year period.  Operating cash flow for the fourth quarter was $341.0 million.  Net earnings for the full year 2010 were $596.9 million on a reported basis and $871.6 million on an adjusted basis, an increase of 2.6% adjusted over the prior year period.  Operating cash flow for the full year was $1,193.5 million.

During the quarter, the Company utilized $100.9 million of cash to acquire 2.0 million shares.  Consequently, for the full year 2010, the Company utilized $505.5 million of cash to acquire 9.1 million shares.  At the end of the fourth quarter, $1.2 billion of share repurchase authorization remained available under this program, which expires on December 31, 2013.  

Substantially all of the difference between net earnings and net earnings per share on a reported basis as compared to an adjusted basis was attributable to a non-cash charge for goodwill impairment of $204.0 million net of tax or $1.03 per diluted share related to the Company's U.S. Spine reporting unit made during the fourth quarter.  The Company conducts annual impairment tests during the fourth quarter.  A change in the outlook for the spine market in the U.S., along with decreased projected revenues related to the Dynesys® Dynamic Stabilization System, as well as products that have been affected as the Company works through the integration of the U.S. sales channel following the Abbott Spine acquisition, contributed to the decrease in the implied fair value of the U.S. Spine reporting unit compared with prior year.

As previously announced, the Company completed acquisitions of Beijing Montagne Medical Device Co., Ltd., a China-based manufacturer of orthopaedic implants, and Sodem Diffusion S.A., the manufacturer of SoPlus Orthopaedic Surgical Power Equipment, in the fourth quarter of 2010.

Guidance

The Company expects full-year revenues for 2011 to increase between 2% and 4% on a constant currency basis.  The Company estimates that foreign currency translation will increase revenues by approximately 1% for the full year 2011, resulting in reported revenue growth between 3% and 5%.  Full-year 2011 diluted earnings per share are projected to be in a range of $4.25 to $4.45 on a reported basis and $4.60 to $4.80 on an adjusted basis.  The difference between projected diluted earnings per share on a reported basis and on an adjusted basis is explained below.

In 2011, the Company expects to continue and expand global restructuring and transformation initiatives designed to streamline business operations and back office support functions.  Savings from these initiatives will enable the Company to accelerate investments in innovation and commercialization of new products and technologies, and to drive sustained growth in earnings and cash flow.  The programs to be completed in 2011 are expected to generate annualized pre-tax savings of more than $100 million, including $40-$50 million in direct 2011 benefits.   These savings will be achieved in part by reducing management layers and consolidating global sourcing to drive vendor cost reductions.  

The Company expects to record 2011 pre-tax charges of $75-$80 million as details of the various programs are finalized and implemented.  The Company also expects to incur an additional $15-$20 million for certain acquisition and integration costs connected with the recently completed acquisitions of Beijing Montagne Medical Device Co., Ltd. and Sodem Diffusion S.A., as well as certain third party distributor acquisitions.

Conference Call

The Company will conduct its fourth quarter 2010 investor conference call today, January 27, 2011, at 8:00 a.m. Eastern Time.  The live audio webcast can be accessed via Zimmer's Investor Relations website at http://investor.zimmer.com.  It will be archived for replay following the conference.

Individuals who wish to dial into the conference call may do so at (888) 881-6248.  International callers should dial (706) 634-6422.  A digital recording will be available two hours after the completion of the conference call from January 27, 2011, to February 10, 2011.  To access the recording, US/Canada callers should dial (800) 642-1687, or for International callers, dial (706) 645-9291, and enter the conference ID 36589711.  A copy of this press release and other financial and statistical information about the periods to be presented in the conference call will be accessible through the Zimmer website at http://investor.zimmer.com.

Sales Tables

The following tables provide sales results by geographic segment and product category, as well as the percentage change compared to the prior year quarter and full year on both a reported and constant currency basis.

About the Company

Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer designs, develops, manufactures and markets orthopaedic reconstructive, spinal and trauma devices, dental implants, and related surgical products. Zimmer has operations in more than 25 countries around the world and sells products in more than 100 countries. Zimmer's 2010 sales were approximately $4.2 billion. The Company is supported by the efforts of more than 8,000 employees worldwide.

Website Information

We routinely post important information for investors on our website, www.zimmer.com, in the "Investor Relations" section. We intend to use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.

Note on Non-GAAP Financial Measures

As used in this press release, the term "adjusted" refers to operating performance measures that exclude inventory step-up, the provision for certain Durom® Acetabular Component product claims, goodwill impairment, net curtailment and settlement and special items. Included in special items are acquisition and integration costs, as well as employee termination benefits and asset impairment charges connected with global restructuring and transformation initiatives.  The term "constant currency" refers to any financial measure that excludes the effect of changes in foreign currency exchange rates.  Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure are included in this press release. Management uses this non-GAAP information internally to evaluate the performance of the business and believes that it provides useful information to investors by offering the ability to make more meaningful period-to-period comparisons of the Company's on-going operating results, the ability to better identify operating trends that may otherwise be masked or distorted by these types of items and to perform related trend analysis, and a higher degree of transparency of certain items.

Zimmer Safe Harbor Statement

This press release contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 based on current expectations, estimates, forecasts and projections about the orthopaedics industry, management's beliefs and assumptions made by management. Forward-looking statements may be identified by the use of forward-looking terms such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "assumes," "guides," "targets," "forecasts," and "seeks" or the negative of such terms or other variations on such terms or comparable terminology. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to, our compliance with the Corporate Integrity Agreement through 2012; the success of our quality and operational improvement initiatives; the outcome of the investigation by the U.S. government into Foreign Corrupt Practices Act matters announced in October 2007; price and product competition; changes in customer demand for our products and services caused by demographic changes or other factors; dependence on new product development, technological advances and innovation; shifts in the product category or regional sales mix of our products and services; supply and prices of raw materials and products; control of costs and expenses; our ability to obtain and maintain adequate intellectual property protection; our ability to successfully integrate acquired businesses; our ability to form and implement alliances; challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international businesses, including regulations of the U.S. Food and Drug Administration and foreign government regulators; changes in tax obligations arising from tax reform measures or examinations by tax authorities; product liability and intellectual property litigation losses; the impact of health care reform measures in the U.S. including the impact of the new excise tax on medical devices, reductions in reimbursement levels from third-party payors and cost-containment efforts of health care purchasing organizations; our ability to retain the independent agents and distributors who market our products; and changes in general industry and market conditions, including domestic and international growth rates and general domestic and international economic conditions, including interest rate and currency exchange rate fluctuations. For a further list and description of such risks and uncertainties, see our periodic reports filed with the U.S. Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be set forth in our periodic reports. Readers of this document are cautioned not to place undue reliance on these forward-looking statements, since, 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 document.

SOURCE Zimmer Holdings, Inc.