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Zimmer Holdings, Inc. Reports Second Quarter 2011 Financial Results

-- Net Sales of $1,137 million for the second quarter represent an increase of 7.5% reported (2.1% constant currency) over the prior year period
-- Diluted EPS for the second quarter were $1.06 reported, an increase of 29.3% over the prior year period, and $1.21 adjusted, an increase of 11% over the prior year period
-- Company updates full-year sales and EPS guidance

WARSAW, Ind., July 27, 2011 /PRNewswire/ -- Zimmer Holdings, Inc. (NYSE: ZMH; SIX: ZMH) today reported financial results for the quarter ended June 30, 2011.  The Company reported second quarter net sales of $1,137 million, an increase of 7.5% reported and 2.1% constant currency over the second quarter of 2010.  Diluted earnings per share for the quarter were $1.06 reported and $1.21 adjusted, an increase of 11% adjusted over the prior year period.

"Zimmer again generated solid results in the second quarter, amid ongoing challenging global economic conditions," said David Dvorak, Zimmer President and CEO.  "Our results reflect improved sales execution in support of new product introductions across our diverse geographic channels, as well as the positive impact of operational improvement initiatives and continued disciplined capital deployment."  

Net earnings for the second quarter were $203.8 million on a reported basis and $232.5 million on an adjusted basis, an increase of 5.1% adjusted over the prior year period.  Operating cash flow for the second quarter was $251.0 million.  

In the second quarter, the Company recorded an additional $50 million provision for known and anticipated worldwide claims related to the previously announced voluntary suspension of marketing and distribution of the Durom® Acetabular Component in the United States.  Adjusted 2011 figures in this release exclude the impact of this provision.

During the quarter, the Company utilized $121 million of cash to acquire 1.8 million shares.  At the end of the second quarter, $848.6 million of share repurchase authorization remained available under the current program, which expires on December 31, 2013.

Guidance

The Company updated its full-year revenue and adjusted EPS guidance for 2011.  Full-year revenues for 2011 are now expected to increase between 2.5% and 3.5% on a constant currency basis from 2010.  The Company estimates that foreign currency translation will increase revenues by approximately 3% for the full year 2011, resulting in reported revenue growth between 5.5% and 6.5%.  This compares with prior revenue guidance of 2.0% to 4.0% constant currency and 5.0% to 7.0% reported growth over prior year.  Full-year 2011 diluted earnings per share are now projected to be in a range of $4.25 to $4.35 on a reported basis and $4.70 to $4.80 on an adjusted basis, which represents a narrowing toward the top end of prior adjusted earnings guidance.

Conference Call

The Company will conduct its second quarter 2011 investor conference call today, July 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) 878-3901.  International callers should dial (706) 634-9520.  A digital recording will be available two hours after the completion of the conference call from July 27, 2011, to August 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 76248595.

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 six months on both a reported and constant currency basis.

NET SALES - THREE MONTHS ENDED JUNE 30, 2011

(in millions, unaudited)




















Constant




Net


Reported


Currency




Sales


% Growth


% Growth

Geographic Segments











  Americas

$

608



-

%


-

%


  Europe


325



17



5



  Asia Pacific


204



19



6



      Total


1,137



8



2


Product Categories











Reconstructive











  Americas


449



(2)



(2)



  Europe


257



16



4



  Asia Pacific


151



17



4



      Total


857



6



-
















Knees












  Americas


266



(5)



(5)




  Europe


128



21



9




  Asia Pacific


77



14



2




      Total


471



4



(1)
















Hips












  Americas


151



2



2




  Europe


122



12



(1)




  Asia Pacific


72



20



7




      Total


345



9



2
















Extremities


41



7



4















Dental


67



20



16















Trauma


69



20



14















Spine


56



(3)



(6)















Surgical and other


88



13



8
















NET SALES - SIX MONTHS ENDED JUNE 30, 2011

(in millions, unaudited)























Constant




Net


Reported


Currency




Sales


% Growth


% Growth

Geographic Segments











  Americas

$

1,238



1

%


1

%


  Europe


624



11



5



  Asia Pacific


391



17



7



      Total


2,253



6



3


Product Categories











Reconstructive











  Americas


915



(1)



(1)



  Europe


495



9



3



  Asia Pacific


289



16



5



      Total


1,699



5



1
















Knees












  Americas


544



(4)



(4)




  Europe


245



12



6




  Asia Pacific


144



13



2




      Total


933



2



(1)
















Hips












  Americas


306



4



3




  Europe


236



7



-




  Asia Pacific


140



20



9




      Total


682



8



3
















Extremities


84



9



7















Dental


130



20



18















Trauma


139



18



14















Spine


113



(4)



(6)















Surgical and other


172



12



7
















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, special items and certain tax adjustments.  Included in special items are acquisition and integration costs as well as employee termination benefits, certain contract terminations 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.

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.

ZIMMER HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE THREE MONTHS ENDED JUNE 30, 2011 and 2010

(in millions, except per share amounts, unaudited)









2011


2010


% Inc/(Dec)

Net Sales

$ 1,137.4


$ 1,057.7


8

%

Cost of products sold

287.9


250.6


15


Gross Profit

849.5


807.1


5









Research and development

57.0


54.2


5


Selling, general and administrative

469.9


438.3


7


Certain claims

50.0


75.0


(33)


Special items

13.5


11.5


17


     Operating expenses

590.4


579.0


2









Operating Profit

259.1


228.1


14


Interest expense, net

9.8


14.3


(31)


Earnings before income taxes  

249.3


213.8


17


Provision for income taxes

45.5


48.3


(6)


Net Earnings of Zimmer Holdings, Inc.

$    203.8


$    165.5


23









Earnings Per Common Share







    Basic

$      1.06


$      0.82


29


    Diluted

$      1.06


$      0.82


29









Weighted Average Common Shares Outstanding







    Basic

191.5


201.9




    Diluted

192.7


203.0


















Certain amounts in the 2010 consolidated statement of earnings have been reclassified to conform

to the 2011 presentation.









ZIMMER HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE SIX MONTHS ENDED JUNE 30, 2011 and 2010

(in millions, except per share amounts, unaudited)









2011


2010


% Inc/(Dec)

Net Sales

$ 2,253.0


$ 2,120.5


6

%

Cost of products sold

566.9


519.0


9


Gross Profit

1,686.1


1,601.5


5









Research and development

112.6


104.7


8


Selling, general and administrative

928.2


885.5


5


Certain claims

50.0


75.0


(33)


Special items

39.0


14.1


176


     Operating expenses

1,129.8


1,079.3


5









Operating Profit

556.3


522.2


7


Interest expense, net

20.8


28.9


(28)


Earnings before income taxes  

535.5


493.3


9


Provision for income taxes

122.8


122.4


0


Net Earnings of Zimmer Holdings, Inc.

$    412.7


$    370.9


11









Earnings Per Common Share







      Basic

$      2.15


$      1.83


17


      Diluted

$      2.14


$      1.82


18









Weighted Average Common Shares Outstanding







    Basic

192.1


202.4




    Diluted

193.3


203.6


















Certain amounts in the 2010 consolidated statement of earnings have been reclassified to conform

to the 2011 presentation.









ZIMMER HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, unaudited)



June 30,

December 31,


2011

2010

Assets



Current Assets:



  Cash and cash equivalents

$    624.1

$    668.9

  Short-term investments

321.4

265.1

  Receivables, net

888.4

775.9

  Inventories, net

975.1

936.4

  Other current assets

299.3

363.4

      Total current assets

3,108.3

3,009.7




Property, plant and equipment, net

1,213.0

1,213.8

Goodwill

2,694.0

2,580.8

Intangible assets, net

811.5

827.1

Other assets

422.4

368.5

Total Assets

$ 8,249.2

$ 7,999.9




Liabilities and Shareholders' Equity






Current liabilities

$    679.0

$    702.5

Other long-term liabilities

407.1

384.0

Long-term debt

1,147.3

1,142.1

Shareholders' equity

6,015.8

5,771.3

Total Liabilities and Shareholders' Equity

$ 8,249.2

$ 7,999.9



ZIMMER HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2011 and 2010

(in millions, unaudited)







2011

2010





Cash flows provided by (used in) operating activities




Net earnings of Zimmer Holdings, Inc.

$ 412.7

$ 370.9


Depreciation and amortization

174.7

165.8


Share-based compensation

31.7

30.6


Income tax benefits from employee stock compensation plans

9.5

2.9


Excess income tax benefits from employee stock compensation plans

(3.6)

(1.0)


Inventory step-up

7.8

1.3


Changes in operating assets and liabilities, net of acquired assets and liabilities




    Income taxes

(11.5)

(70.5)


    Receivables

(76.0)

(51.3)


    Inventories

(21.8)

27.5


    Accounts payable and accrued expenses

(42.2)

(37.4)


    Other assets and liabilities

(48.1)

93.4


Net cash provided by operating activities

433.2

532.2





Cash flows provided by (used in) investing activities




Additions to instruments

(85.2)

(83.1)


Additions to other property, plant and equipment

(34.0)

(26.7)


Purchases of investments

(186.7)

(4.0)


Sales of investments

169.8

37.0


Investments in other assets

(26.4)

(15.1)


Net cash used in investing activities

(162.5)

(91.9)





Cash flows provided by (used in) financing activities




Net proceeds under revolving credit facilities

0.2

-


Proceeds from employee stock compensation plans

29.1

8.1


Excess income tax benefits from employee stock compensation plans

3.6

1.0


Repurchase of common stock

(357.2)

(178.9)


Net cash used in financing activities

(324.3)

(169.8)





Effect of exchange rates on cash and cash equivalents

8.8

(8.5)






Increase (decrease) in cash and cash equivalents

(44.8)

262.0

Cash and cash equivalents, beginning of period

668.9

691.7

Cash and cash equivalents, end of period

$ 624.1

$ 953.7



ZIMMER HOLDINGS, INC.

NET SALES BY GEOGRAPHIC SEGMENT

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 and 2010

(in millions, unaudited)



Three Months Ended June 30,


Six Months Ended June 30,














2011

2010

% Inc


2011

2010

% Inc












Americas

$          608.6

$          609.3

-

%

$       1,238.3

$       1,225.0

1

%

Europe

324.7

276.5

17


623.9

562.6

11


Asia Pacific

204.1

171.9

19


390.8

332.9

17


Total

$       1,137.4

$       1,057.7

8


$       2,253.0

$       2,120.5

6


































ZIMMER HOLDINGS, INC.

NET SALES BY PRODUCT CATEGORY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 and 2010

(in millions, unaudited)



Three Months Ended June 30,


Six Months Ended June 30,














2011

2010

% Inc/
(Dec)


2011

2010

% Inc/
(Dec)












Reconstructive










Knees

$          470.9

$          452.9

4

%

$          933.1

$          913.3

2

%


Hips

345.0

317.1

9


682.3

632.8

8



Extremities

40.7

38.2

7


83.6

76.6

9




856.6

808.2

6


1,699.0

1,622.7

5












Dental

67.1

55.9

20


129.5

107.6

20


Trauma

69.1

57.8

20


139.2

118.2

18


Spine

56.4

57.9

(3)


113.3

117.9

(4)


Surgical and other

88.2

77.9

13


172.0

154.1

12


Total

$       1,137.4

$       1,057.7

8


$       2,253.0

$       2,120.5

6




ZIMMER HOLDINGS, INC.

RECONCILIATION OF REPORTED % GROWTH TO

CONSTANT CURRENCY % GROWTH

(unaudited)



















For the Three Months Ended




June 30, 2011







Foreign


Constant




Reported


Exchange


Currency




% Growth


Impact


% Growth

Geographic Segments










  Americas

-

%


-

%


-

%


  Europe

17



12



5



  Asia Pacific

19



13



6



      Total

8



6



2


Product Categories










Reconstructive










  Americas

(2)



-



(2)



  Europe

16



12



4



  Asia Pacific

17



13



4



      Total

6



6



-















Knees











  Americas

(5)



-



(5)




  Europe

21



12



9




  Asia Pacific

14



12



2




      Total

4



5



(1)















Hips











  Americas

2



-



2




  Europe

12



13



(1)




  Asia Pacific

20



13



7




      Total

9



7



2















Extremities

7



3



4














Dental

20



4



16














Trauma

20



6



14














Spine

(3)



3



(6)














Surgical and other

13



5



8




ZIMMER HOLDINGS, INC.

RECONCILIATION OF REPORTED % GROWTH TO

CONSTANT CURRENCY % GROWTH

(unaudited)



















For the Six Months Ended




June 30, 2011







Foreign


Constant




Reported


Exchange


Currency




% Growth


Impact


% Growth

Geographic Segments










  Americas

1

%


-

%


1

%


  Europe

11



6



5



  Asia Pacific

17



10



7



      Total

6



3



3


Product Categories










Reconstructive










  Americas

(1)



-



(1)



  Europe

9



6



3



  Asia Pacific

16



11



5



      Total

5



4



1















Knees











  Americas

(4)



-



(4)




  Europe

12



6



6




  Asia Pacific

13



11



2




      Total

2



3



(1)















Hips











  Americas

4



1



3




  Europe

7



7



-




  Asia Pacific

20



11



9




      Total

8



5



3















Extremities

9



2



7














Dental

20



2



18














Trauma

18



4



14














Spine

(4)



2



(6)














Surgical and other

12



5



7




ZIMMER HOLDINGS, INC.

Reconciliation of Net Earnings and Adjusted Net Earnings

For the Three Months Ended June 30, 2011 and 2010

(in millions, unaudited)








Three Months



Ended June 30,



2011


2010






Net Earnings of Zimmer Holdings, Inc.

$              203.8


$              165.5

Inventory step-up

3.4


-

Certain claims


50.0


75.0

Special items


13.5


11.5

Taxes on inventory step-up, certain claims and special items




   and tax adjustments related to resolution of certain tax matters*

(38.2)


(30.8)

Adjusted Net Earnings

$              232.5


$              221.2






* The tax effect is calculated based upon the statutory rates for the jurisdictions where the items



   were incurred.

















ZIMMER HOLDINGS, INC.

Reconciliation of Net Earnings and Adjusted Net Earnings

For the Six Months Ended June 30, 2011 and 2010

(in millions, unaudited)








Six Months



Ended June 30,



2011


2010






Net Earnings of Zimmer Holdings, Inc.

$              412.7


$              370.9

Inventory step-up

7.8


1.3

Certain claims


50.0


75.0

Special items


39.0


14.1

Taxes on inventory step-up, certain claims and special items




   and tax adjustments related to resolution of certain tax matters*

(46.1)


(32.7)

Adjusted Net Earnings

$              463.4


$              428.6






* The tax effect is calculated based upon the statutory rates for the jurisdictions where the items were incurred.










ZIMMER HOLDINGS, INC.

Reconciliation of Diluted EPS and Adjusted Diluted EPS

For the Three Months Ended June 30, 2011 and 2010

(unaudited)






Three Months


Ended June 30,  


2011


2010





Diluted EPS

$                 1.06


$                 0.82

Inventory step-up

0.02


-

Certain claims

0.26


0.37

Special items

0.07


0.05

Taxes on inventory step-up, certain claims and special items




   and tax adjustments related to resolution of certain tax matters*

(0.20)


(0.15)

Adjusted Diluted EPS

$                 1.21


$                 1.09





* The tax effect is calculated based upon the statutory rates for the jurisdictions where the items were incurred.













ZIMMER HOLDINGS, INC.

Reconciliation of Diluted EPS and Adjusted Diluted EPS

For the Six Months Ended June 30, 2011 and 2010

(unaudited)






Six Months


Ended June 30,  


2011


2010





Diluted EPS

$                 2.14


$                 1.82

Inventory step-up

0.04


0.01

Certain claims

0.26


0.37

Special items

0.20


0.06

Taxes on inventory step-up, certain claims and special items




   and tax adjustments related to resolution of certain tax matters*

(0.24)


(0.16)

Adjusted Diluted EPS

$                 2.40


$                 2.10





* The tax effect is calculated based upon the statutory rates for the jurisdictions where the items were incurred.









ZIMMER HOLDINGS, INC.

Reconciliation of 2011 Projected Diluted EPS  

and Projected Adjusted Diluted EPS

(unaudited)









Projected Year Ended December 31, 2011:

Low


High





Diluted EPS

4.25


4.35

Inventory step-up

0.05


0.05

Special items

0.44


0.44

Certain claims

0.26


0.26

Taxes on inventory step-up, certain claims and special items and




   tax adjustments related to resolution of certain tax matters*

(0.30)


(0.30)

Adjusted Diluted EPS

$                   4.70


$                    4.80









* The tax effect is calculated based upon the statutory rates for the jurisdictions where the items



   have or are projected to be incurred.






SOURCE Zimmer Holdings, Inc.

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