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OFFON

ZIMMER BIOMET HOLDINGS, INC.

(ZBH)
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ZIMMER BIOMET : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/04/2021 | 04:20pm EDT
The following discussion and analysis should be read in conjunction with the
interim condensed consolidated financial statements and corresponding notes
included elsewhere in this Form 10-Q. Certain percentages presented in this
discussion and analysis are calculated from the underlying whole-dollar amounts
and, therefore, may not recalculate from the rounded numbers used for disclosure
purposes.

On February 5, 2021, we announced our intention to pursue a plan to spin off our
Spine and Dental businesses to form NewCo. We are targeting completion of the
spin-off in mid-2022, subject to the satisfaction of certain conditions,
including, among others, final approval of our Board of Directors, receipt of a
favorable opinion and IRS ruling with respect to the tax-free nature of the
transaction, and the effectiveness of a Form 10 registration statement with the
SEC. The following discussion and analysis includes these businesses in our
discussion of financial condition and results of operations.

Executive Level Overview

Impact of the COVID-19 Global Pandemic


Our results have been significantly impacted by the COVID-19 global
pandemic. The vast majority of our net sales are derived from products used in
elective surgical procedures. As COVID-19 rapidly started to spread throughout
the world in early 2020, our net sales decreased dramatically as countries took
precautions to prevent the spread of the virus with lockdowns and stay-at-home
measures and as hospitals deferred elective surgical procedures. Although
challenges related to COVID-19 continued in the first quarter of 2021, we saw
signs of the pandemic beginning to subside across many regions toward the end of
the quarter with the acceleration of the vaccine rollout worldwide.  These
factors contributed to a year-over-year net sales increase of 3.6 percent in the
three-month period ended March 31, 2021 when compared to the same prior year
period.

Results for the Three-Month Period ended March 31, 2021


Our net sales increased by 3.6 percent in the three-month period ended March 31,
2021 compared to the same prior year period. We saw a recovery in elective
surgical procedures toward the end of the quarter, especially in Asia Pacific
and the U.S. Our net earnings were $198.1 million in the three-month period
ended March 31, 2021 compared to a net loss of $508.5 million in the same prior
year period. In the 2020 period, we recognized goodwill impairment charges of
$612.0 million, which was primarily due to the estimated impact of COVID-19 on
our operating results at that time. Additionally, we recognized
litigation-related charges of $79.8 million in the 2020 period. In the 2021
period we returned to profitability due to the recovery in elective surgical
procedures as well as a reduction in operating expenses including litigation,
goodwill impairment charges and reduced discretionary spending due to COVID-19.

2021 Outlook


At this time, we are optimistic the continued rollout of vaccines around the
world may allow elective surgical procedures to return to pre-pandemic levels in
some regions during 2021. Additionally, since the clinical need for many of our
products does not go away, it is possible once patients and hospitals have
confidence to return to elective surgical procedures that the patient backlog
from deferred procedures may have a positive effect on the underlying market
growth. However, the consequences of COVID-19 continue to be fluid, and it is
difficult to predict its ongoing impact to our business and broader economic and
market environments.

If the negative impact of COVID-19 on our net sales subside, we believe we can
improve our operating profit margin, since our fixed costs would not increase
proportionally to net sales.



Results of Operations

We analyze sales by three geographies, the Americas, EMEA and Asia Pacific, and
by the following product categories: Knees; Hips; S.E.T.; Dental & Spine; and
Other. This sales analysis differs from our reportable operating segments, which
are based upon our senior management organizational structure and how we
allocate resources toward achieving operating profit goals. We analyze sales by
geography because the underlying market trends in any particular geography tend
to be similar across product categories and because we primarily sell the same
products in all geographies. Our business is seasonal in nature to some extent,
as many of our products are used in elective surgical procedures, which
typically decline during the summer months and can increase at the end of the
year once annual deductibles have been met on health insurance plans. In 2021,
it is uncertain if this seasonal pattern will be similar to years prior to 2020,
due to COVID-19 and its continued impacts.

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Net Sales by Geography

The following table presents our net sales by geography and the components of the percentage changes (dollars in millions):



                 Three Months Ended
                      March 31,                                 Volume /                  Foreign
                 2021          2020         % Inc / (Dec)         Mix         Price      Exchange
Americas       $ 1,115.0$ 1,101.3                 1.2   %        3.3   %   (2.3 ) %       0.2   %
EMEA               384.2         398.1                (3.5 )        (10.0 )     (0.3 )         6.8
Asia Pacific       348.2         284.4                22.4           16.5       (1.0 )         6.9
Total          $ 1,847.4$ 1,783.8                 3.6            2.5       (1.7 )         2.8




"Foreign Exchange," as used in the tables in this report, represents the effect of changes in foreign currency exchange rates on sales.

Net Sales by Product Category

The following table presents our net sales by product category and the components of the percentage changes (dollars in millions):



                   Three Months Ended
                        March 31,                                 Volume /                  Foreign
                   2021          2020         % Inc / (Dec)         Mix         Price      Exchange
Knees            $   614.3$   628.7                (2.3 ) %       (2.9 ) %   (2.3 ) %       2.9   %
Hips                 447.0         432.6                 3.3            3.0       (2.7 )         3.0
S.E.T.               417.6         380.9                 9.6            7.2          -           2.4
Dental & Spine       246.0         219.5                12.1           10.8       (1.2 )         2.5
Other                122.5         122.1                 0.3           (1.5 )     (1.0 )         2.8
Total            $ 1,847.4$ 1,783.8                 3.6            2.5       (1.7 )         2.8




The following table presents our net sales by geography for our Knees and Hips product categories, which represent our most significant product categories (dollars in millions):



                 Three Months Ended March 31,
                   2021                2020           % Inc / (Dec)
Knees
Americas       $       358.8$       378.1                (5.1 ) %
EMEA                   131.3               152.7               (14.0 )
Asia Pacific           124.2                97.9                26.9
Total          $       614.3$       628.7                (2.3 )
Hips
Americas       $       235.2$       232.5                 1.1   %
EMEA                   107.7               111.4                (3.2 )
Asia Pacific           104.1                88.7                17.3
Total          $       447.0$       432.6                 3.3




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Demand (Volume and Mix) Trends


Changes in volume and mix of product sales had a positive effect of 2.5 percent
on year-over-year sales during the three-month period ended March 31, 2021. With
the vaccine rollout and adoption, we saw improved levels of recovery in elective
surgical procedures toward the end of the first quarter.

Based upon country dynamics, volume changes varied by region. In the Americas,
U.S. net sales increased in the first quarter driven by recovery in several
states and regions, but this growth was tempered by declines in Latin
America. In EMEA, COVID-19 surges resulted in corresponding government policy
actions and lockdowns causing a net sales decline. Asia Pacific net sales growth
in the first quarter of 2021 was primarily due to strong recovery in China
compared to the same prior year period, when China was the first country to be
significantly affected by the pandemic.

Pricing Trends


Global selling prices had a negative effect of 1.7 percent on year-over-year
sales during the three-month period ended March 31, 2021. The majority of
countries in which we operate continue to experience pricing pressure from
governmental healthcare cost containment efforts and from local hospitals and
health systems.

Foreign Currency Exchange Rates


For the three-month period ended March 31, 2021, changes in foreign currency
exchange rates had a positive effect of 2.8 percent on year-over-year sales. If
foreign currency exchange rates remain at levels consistent with recent rates,
we estimate there will be a positive impact of 1 to 2 percent on full-year 2021
sales.

Expenses as a Percentage of Net Sales



                                                    Three Months Ended
                                                         March 31,                   % Inc /
                                                  2021               2020             (Dec)
Cost of products sold, excluding intangible
asset amortization                                    28.0    %         27.3   %           0.7   %
Intangible asset amortization                          8.4               8.3               0.1
Research and development                               5.1               5.5              (0.4 )
Selling, general and administrative                   41.7              46.5              (4.8 )
Goodwill impairment                                      -              34.3             (34.3 )
Restructuring and other cost reduction
initiatives                                            1.2               2.5              (1.3 )
Quality remediation                                    0.6               0.9              (0.3 )
Acquisition, integration, divestiture and
related                                                0.7               0.2               0.5
Operating profit (loss)                               14.4             (25.6 )            40.0




The increase in cost of products sold as a percentage of net sales for the
three-month period ended March 31, 2021 compared to the same prior year period
was primarily due to lower hedge gains recognized as part of our hedging
program, higher manufacturing costs and lower average selling prices. These
unfavorable items were partially offset by lower excess and obsolete charges on
inventory.


Intangible asset amortization expense increased in the three-month period ended March 31, 2021 compared to the same prior year period due to additional amortization from acquisitions made in the fourth quarter of 2020.


Research and development ("R&D") expenses decreased in both amount and as a
percentage of net sales in the three-month period ended March 31, 2021 compared
to the same prior year period. The decrease in expenses was primarily due to
lower spending on our EU MDR implementation and lower spending on travel costs
due to COVID-19. We expect R&D expenses will be higher for the remainder of 2021
when compared to the same prior year period due to anticipated purchased
in-process R&D projects.

Selling, general and administrative ("SG&A") expenses and SG&A expenses as a
percentage of net sales decreased in the three-month period ended March 31, 2021
compared to the same prior year period primarily due to lower litigation-related
charges of $6.1 million in the 2021 period compared to $79.8 million in the 2020
period. Additionally, we also recognized lower travel expenses due to
COVID-19. These favorable items were partially offset by higher
performance-based compensation in the 2021 period compared to the 2020
period. The significant impact COVID-19 was expected to have on our results in
2020 resulted in us lowering our estimated performance-based compensation in the
three-month period ended March 31, 2020.

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In the three-month period ended March 31, 2020, we recognized goodwill
impairment charges of $612.0 million, including charges of $470.0 million and
$142.0 million related to our EMEA and Dental reporting units, respectively. For
more information regarding these charges, see Note 8 to our interim condensed
consolidated financial statements included in Part I, Item 1 of this report.

In December 2019, our Board of Directors approved, and we initiated, the 2019
Restructuring Plan with an overall objective of reducing costs to allow us to
invest in higher priority growth opportunities. We recognized expenses of $21.8
million and $45.0 million in the three-month periods ended March 31, 2021 and
2020, respectively, attributable to restructuring and other cost reduction
initiatives, primarily related to employee termination benefits, distributor
contract terminations, consulting and project management expenses associated
with the 2019 Restructuring Plan. For more information regarding these charges,
see Note 4 to our interim condensed consolidated financial statements included
in Part I, Item 1 of this report.

Our quality remediation expenses declined in the three-month period ended March
31, 2021 compared to the same prior year period, due to the natural regression
of completing our remediation milestones. Acquisition, integration, divestiture
and related expenses increased in the three-month period ended March 31, 2021
compared to the same prior year period due to consulting and other professional
service expenses related to the planned spin-off of our Spine and Dental
businesses and the acquisitions made in 2020.

Other Income (Expense), Net, Interest Expense, Net, and Income Taxes


In the three-month period ended March 31, 2021 our other income, net was higher
than in the same prior year period due to gains recognized from changes to the
fair value of our equity investments.

Interest expense, net, increased in the three-month period ended March 31, 2021,
compared to the same prior year period, due to higher interest expense from debt
transactions in 2020, including amortization of the facility fees related to the
September 2020 Revolving Facility.

In the three-month periods ended March 31, 2021 and 2020 our ETR was 10.4
percent and negative 1.0 percent, respectively. The 10.4 percent ETR in the
three-month period ended March 31, 2021 was the result of favorable discrete
adjustments from the filing of Swiss tax returns and an excess tax benefit
related to stock-based compensation. The negative 1.0 percent ETR in the
three-month period ended March 31, 2020 was primarily due to the $612.0 million
goodwill impairment charge, which resulted in a loss before taxes, but had no
corresponding tax benefit. Absent discrete tax events, we expect our future ETR
will be lower than the U.S. corporate income tax rate of 21.0 percent due to our
mix of earnings between U.S. and foreign locations, which have lower corporate
income tax rates. Our ETR in future periods could also potentially be impacted
by: changes in our mix of pre-tax earnings; changes in tax rates, tax laws or
their interpretation; the outcome of various federal, state and foreign audits;
and the expiration of certain statutes of limitations. Currently, we cannot
reasonably estimate the impact of these items on our financial results.

Segment Operating Profit

                                                                                    Operating Profit as a
                              Net Sales                Operating Profit            Percentage of Net Sales
                         Three Months Ended           Three Months Ended              Three Months Ended
                              March 31,                    March 31,                      March 31,
(dollars in
millions)                2021          2020           2021           2020           2021              2020
Americas and Global
Businesses             $ 1,161.4$ 1,136.6$     371.6$   363.0            32.0    %        31.9   %
EMEA                       349.1         371.3            86.3         108.8            24.7             29.3
Asia Pacific               336.9         275.9           120.3          92.6            35.7             33.6




In the three-month period ended March 31, 2021, the Americas and Global
Businesses and Asia Pacific operating profit as a percentage of net sales
increased compared to the same prior year period due to increased net sales from
the recovery of elective surgical procedures combined with cost reductions
resulting from actions taken due to COVID-19, such as lower travel expenses. In
EMEA, the COVID-19 recovery has been slower than in other regions, resulting in
lower net sales in the three-month period ended March 31, 2021 compared to the
same prior year period. Due to fixed operating expenses that did not decline
proportionally with the decrease in net sales, EMEA's operating profit as a
percentage of net sales declined in the three-month period ended March 31, 2021
compared to the same prior year period.



                                       33

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Non-GAAP Operating Performance Measures




We use financial measures that differ from financial measures determined in
accordance with GAAP to evaluate our operating performance. These non-GAAP
financial measures exclude, as applicable, certain inventory and
manufacturing-related charges including charges to discontinue certain product
lines; intangible asset amortization; goodwill and intangible asset impairment;
restructuring and other cost reduction initiative expenses; quality remediation
expenses; acquisition, integration, divestiture and related expenses; certain
litigation gains and charges; expenses to establish initial compliance with the
EU MDR; other charges; any related effects on our income tax provision
associated with these items; the effect of Switzerland tax reform; other certain
tax adjustments; and, with respect to earnings per share information, provide
for the effect of dilutive shares assuming net earnings in a period of a
reported net loss. We use these non-GAAP financial measures internally to
evaluate the performance of the business. Additionally, we believe these
non-GAAP measures provide meaningful incremental information to investors to
consider when evaluating our performance. We believe these measures offer the
ability to make period-to-period comparisons that are not impacted by certain
items that can cause dramatic changes in reported income but that do not impact
the fundamentals of our operations. The non-GAAP measures enable the evaluation
of operating results and trend analysis by allowing a reader to better identify
operating trends that may otherwise be masked or distorted by these types of
items that are excluded from the non-GAAP measures. In addition, adjusted
diluted earnings per share is used as a performance metric in our incentive
compensation programs.

The following are reconciliations from our GAAP net earnings (loss) and diluted
earnings (loss) per share to our non-GAAP adjusted net earnings and non-GAAP
adjusted diluted earnings per share (in millions, except per share amounts):



                                                          Three Months Ended
                                                               March 31,
                                                          2021           2020

Net Earnings (Loss) of Zimmer Biomet Holdings, Inc.$ 198.1$ (508.5 ) Inventory and manufacturing-related charges(1)

               (5.9 )         

0.6

Intangible asset amortization(2)                            155.5         

147.6

Goodwill impairment(3)                                          -         

612.0

Restructuring and other cost reduction initiatives(4) 21.9 45.0 Quality remediation(5)

                                       10.2          

15.9

Acquisition, integration, divestiture and related(6) 13.4 4.4 Litigation(7)

                                                 6.1          

79.8

European Union Medical Device Regulation(8)                   6.9          11.0
Other charges(9)                                             (1.5 )         6.6
Taxes on above items(10)                                    (47.0 )       (70.2 )
Swiss Tax Reform(11)                                          3.4          16.9
Other certain tax adjustments(12)                            (2.0 )        (7.2 )
Adjusted Net Earnings                                   $   359.1$  353.9






                                                          Three Months Ended
                                                               March 31,
                                                           2021          2020
Diluted Earnings (Loss) Per Share                       $     0.94$ (2.46 )
Inventory and manufacturing-related charges(1)               (0.03 )        

-

Intangible asset amortization(2)                              0.74         

0.71

Goodwill impairment(3)                                           -         

2.96

Restructuring and other cost reduction initiatives(4) 0.10 0.22 Quality remediation(5)

                                        0.05         

0.08

Acquisition, integration, divestiture and related(6) 0.06 0.02 Litigation(7)

                                                 0.03         

0.39

European Union Medical Device Regulation(8)                   0.04         0.05
Other charges(9)                                             (0.01 )       0.03
Taxes on above items(10)                                     (0.22 )      (0.34 )
Swiss Tax Reform(11)                                          0.02         0.08
Other certain tax adjustments(12)                            (0.01 )      (0.03 )
Effect of dilutive shares assuming net earnings(13)              -        (0.01 )
Adjusted Diluted Earnings Per Share                     $     1.71$  1.70


                                       34
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(1) Inventory and manufacturing-related charges include excess and obsolete

inventory charges on certain product lines we intend to discontinue,

incremental cost of products sold from stepping up inventory to its fair

value from its manufactured cost in business combination accounting and other

    inventory and manufacturing-related charges or gains.



(2) We exclude intangible asset amortization from our non-GAAP financial measures

because we internally assess our performance against our peers without this

amortization. Due to various levels of acquisitions among our peers,

intangible asset amortization can vary significantly from company to company.

(3) In the first quarter of 2020, we recognized goodwill impairment charges of

$470.0 million and $142.0 million related to our EMEA and Dental reporting

    units, respectively.



(4) In December 2019, our Board of Directors approved, and we initiated, a new

global restructuring program that includes a reorganization of key businesses

and an overall effort to reduce costs in order to accelerate decision-making

and focus the organization on priorities to drive growth. Restructuring and

other cost reduction initiatives also include other cost reduction

initiatives that have the goal of reducing costs across the organization.

(5) We are addressing inspectional observations on Form 483 and a Warning Letter

issued by the FDA following its previous inspections of our Warsaw North

Campus facility, among other matters. This quality remediation has required

us to devote significant financial resources and is for a discrete period of

time. The majority of the expenses are related to consultants who are helping

    us to update previous documents and redesign certain processes.



(6) The acquisition, integration, divestiture and related gains and expenses we

have excluded from our non-GAAP financial measures resulted from various

    acquisitions and the planned spin off of NewCo.



(7) We are involved in routine patent litigation, product liability litigation,

commercial litigation and other various litigation matters. We review

litigation matters from both a qualitative and quantitative perspective to

determine if excluding the losses or gains will provide our investors with

useful incremental information. Litigation matters can vary in their

characteristics, frequency and significance to our operating results. The

litigation charges and gains excluded from our non-GAAP financial measures in

    the periods presented relate to product liability matters where we have
    received numerous claims on specific products, patent litigation and
    commercial litigation related to a common matter in multiple
    jurisdictions. In regards to the product liability matters, due to the

complexities involved and claims filed in multiple districts, the expenses

associated with these matters are significant to our operating results. Once

the litigation matter has been excluded from our non-GAAP financial measures

in a particular period, any additional expenses or gains from changes in

estimates are also excluded, even if they are not significant, to ensure

    consistency in our non-GAAP financial measures from period-to-period.



(8) The European Union Medical Device Regulation imposes significant additional

premarket and postmarket requirements. The new regulations provide a

transition period until May 2021 for currently-approved medical devices to

meet the additional requirements. For certain devices, this transition period

can be extended until May 2024. We are excluding from our non-GAAP financial

measures the incremental costs incurred to establish initial compliance with

    the regulations related to our currently-approved medical devices. The
    incremental costs primarily include third-party consulting necessary to
    supplement our internal resources.



(9) We have incurred other various expenses from specific events or projects that

we consider highly variable or that have a significant impact to our

operating results that we have excluded from our non-GAAP measures. These

include costs related to legal entity, distribution and manufacturing

optimization, including contract terminations, gains and losses from changes

in fair value on our equity investments, as well as, in the 2020 period, our

costs of complying with a Deferred Prosecution Agreement ("DPA") with the

U.S. government related to certain Foreign Corrupt Practices Act matters

    involving Biomet and certain of its subsidiaries, which DPA concluded in
    February 2021.



(10) Represents the tax effects on the previously specified items. The tax effect

for the U.S. jurisdiction is calculated based on an effective rate

considering federal and state taxes, as well as permanent items. For

jurisdictions outside the U.S., the tax effect is calculated based upon the

     statutory rates where the items were incurred.



(11) We recognized a tax benefit related to TRAF in addition to an impact from

certain restructuring transactions in Switzerland. Also included are tax

     adjustments relating to the ongoing impacts of tax only amortization
     resulting from TRAF as well as certain restructuring transactions in
     Switzerland.




                                       35
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(12) Other certain tax adjustments relate to various discrete tax period

     adjustments.



(13) Diluted share count used in Adjusted Diluted EPS:




                                      Three Months Ended
                                        March 31, 2020
Diluted shares                                      206.5
Dilutive shares assuming net earnings                 1.7
Adjusted diluted shares                             208.2



Liquidity and Capital Resources




The COVID-19 pandemic has had an adverse effect on our liquidity and capital
resource needs, primarily driven by the reduction in net sales due to elective
surgical procedure deferrals. We have taken prudent measures in an effort to
maintain an adequate financial profile and to have access to capital to fund the
business during these unprecedented times. These measures included reductions in
discretionary spending such as travel, meetings and other project spend that can
be delayed with limited long-term detriment to the business.



As of March 31, 2021, we had $724.3 million in cash and cash equivalents. In
addition, we had $1.0 billion available to borrow under our September 2020
Revolving Facility that matures on September 17, 2021, and $1.5 billion
available under our 2019 Multicurrency Revolving Facility that matures on
November 1, 2024. The terms of the 2019 Multicurrency Revolving Facility and the
September 2020 Revolving Facility are described further in Note 10 to our
interim condensed consolidated financial statements included in Part I, Item 1
of this report.



We believe that cash flows from operations, our cash and cash equivalents on
hand, and available borrowings under our revolving credit facilities will be
sufficient to meet our ongoing liquidity requirements for at least the next
twelve months. At this time, we do not anticipate needing to borrow against our
revolving credit facilities to fund our operations. However, due to the
significant uncertainties of the COVID-19 pandemic, it is possible our needs may
change. Further, there can be no assurance that, if needed, we will be able to
secure additional financing on terms favorable to us, if at all.



Sources of Liquidity


Cash flows provided by operating activities were $246.5 million in the
three-month period ended March 31, 2021, compared to $450.9 million in the same
prior year period. The decline in cash flows from operating activities was
primarily the result of terminating our accounts receivable purchase programs in
the U.S. and Japan in the fourth quarter of 2020.

Cash flows used in investing activities were $122.3 million in the three-month
period ended March 31, 2021, compared to $121.2 million in the same prior year
period. Instrument and property, plant and equipment additions reflected ongoing
investments in our product portfolio and optimization of our manufacturing and
logistics network.

Cash flows used in financing activities were $195.8 million in the three-month
period ended March 31, 2021, compared to cash flows provided by financing
activities of $1,492.8 million in the same prior year period. In the 2021
period, we paid the remaining $200.0 million on our Floating Rate Notes due 2021
which matured in the period. In the 2020 period, we issued senior notes and
received $1,497.1 million in proceeds, which were used to pay our $1,500.0
million senior notes at maturity on April 1, 2020.

                                       36

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At March 31, 2021, we had outstanding debt of $7,838.7 million, of which $300.0
million was classified as current debt. The current debt consists of our $300.0
million senior notes due November 30, 2021. We believe we can satisfy this debt
obligation with cash generated from our operations, by issuing new debt, and/or
by borrowing on our revolving credit facilities.

For additional information on our debt, including types of debt, maturity dates,
interest rates, debt covenants and available revolving credit facilities, see
Note 10 to our interim condensed consolidated financial statements included in
Part I, Item 1 of this report.

We place our cash and cash equivalents in highly-rated financial institutions
and limit the amount of credit exposure to any one entity. We invest only in
high-quality financial instruments in accordance with our internal investment
policy.

As of March 31, 2021, $300.6 million of our cash and cash equivalents were held
in jurisdictions outside of the U.S. Of this amount, $60.4 million is
denominated in U.S. Dollars and, therefore, bears no foreign currency
translation risk. The balance of these assets is denominated in currencies of
the various countries where we operate. We intend to repatriate at least $5.5
billion of unremitted earnings in future years.

Our concentrations of credit risks with respect to trade accounts receivable are
limited due to the large number of customers and their dispersion across a
number of geographic areas and by frequent monitoring of the creditworthiness of
the customers to whom credit is granted in the normal course of
business. Substantially all of our trade receivables are concentrated in the
public and private hospital and healthcare industry in the U.S. and
internationally or with distributors or dealers who operate in international
markets and, accordingly, are exposed to their respective business, economic and
country-specific variables. We have continued to collect on outstanding
receivables despite the measures hospitals have put in place to address
COVID-19. However, we are closely monitoring the financial stability of our
customers and the country-specific risks, including those customers in markets
with hospitals sponsored by the government.

In February 2021, our Board of Directors declared a quarterly cash dividend of $0.24 per share. We expect to continue paying cash dividends on a quarterly basis; however, future dividends are subject to approval of the Board of Directors and may be adjusted as business needs or market conditions change.


In February 2016, our Board of Directors authorized a new $1.0 billion share
repurchase program effective March 1, 2016, with no expiration date. The
previous program expired on February 29, 2016. As of March 31, 2021, all $1.0
billion remained authorized.

As discussed in Note 4 to our interim condensed consolidated financial
statements in Part I, Item 1 of this report, in December 2019, our Board of
Directors approved, and we initiated, the 2019 Restructuring Plan with an
objective of reducing costs to allow us to further invest in higher priority
growth opportunities. The 2019 Restructuring Plan is expected to result in total
pre-tax restructuring charges of approximately $350 million to $400 million,
with approximately $155 million of that total expected to be incurred by the end
of 2021. We expect to reduce gross annual pre-tax operating expenses by
approximately $200 million to $300 million by the end of 2023 as program
benefits under the 2019 Restructuring Plan are realized.

As discussed in Note 7 to our interim condensed consolidated financial
statements in Part I, Item 1 of this report, we completed the acquisitions of
A&E Medical Corporation and Relign Corp. in 2020. These acquisitions included
guaranteed deferred payments totaling $145.0 million that we are obligated to
make in 2021.

As discussed in Note 14 to our interim condensed consolidated financial
statements included in Part I, Item 1 of this report, the IRS has issued
proposed adjustments for years 2010 through 2012, as well as proposed
adjustments for years 2013 through 2015, reallocating profits between certain of
our U.S. and foreign subsidiaries. We have disputed these proposed adjustments
and intend to continue to vigorously defend our positions. Although the ultimate
timing for resolution of the disputed tax issues is uncertain, future payments
may be significant to our operating cash flows.

As discussed in Note 17 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report, we are involved in various litigation matters with respect to which we expect to continue paying settlements over the next few years.

                                       37

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Recent Accounting Pronouncements


Information pertaining to recent accounting pronouncements can be found in Note
2 to our interim condensed consolidated financial statements included in Part I,
Item 1 of this report.

Critical Accounting Estimates

Our financial results are affected by the selection and application of accounting policies and methods. There were no changes in the three-month period ended March 31, 2021 to the application of critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2020.

Cautionary Note Regarding Forward-Looking Statements and Factors That May Affect Future Results


This quarterly report contains certain statements that are forward-looking
statements within the meaning of federal securities laws. Forward-looking
statements can be identified by the fact that they do not relate strictly to
historical or current facts. When used in this report, the words "may," "will,"
"can," "should," "would," "could," "anticipate," "expect," "plan," "seek,"
"believe," "are confident that," "predict," "estimate," "potential," "project,"
"target," "forecast," "intend," "strategy," "future," "opportunity," "assume,"
"guide," "position," "continue" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are based on current
beliefs, expectations and assumptions that are subject to significant risks,
uncertainties and changes in circumstances that could cause actual results to
differ materially from such forward-looking statements. These risks,
uncertainties and changes in circumstances include, but are not limited to:

• the effects of the COVID-19 global pandemic and other adverse public

health developments on the global economy, our business and operations and

the business and operations of our suppliers and customers, including the

deferral of elective surgical procedures and our ability to collect

accounts receivable, the failure of vaccine rollouts and other strategies

to mitigate or reverse the impacts of the COVID-19 pandemic, and the

failure of elective surgical procedures to recover at the levels or on the

timeline anticipated;

• the risks and uncertainties related to our ability to successfully execute

our restructuring plans;

• our ability to attract, retain and develop the highly skilled employees we

need to support our business;

• the success of our quality and operational excellence initiatives,

including ongoing quality remediation efforts at our Warsaw North Campus

facility;

• the ability to remediate matters identified in inspectional observations

        or warning letters issued by the FDA, while continuing to satisfy the
        demand for our products;

• the risks and uncertainties associated with the proposed spin-off of our

Spine and Dental businesses, including, without limitation, the

significant expenses, time and efforts related to implementing such

transaction, the ability to complete the transaction on our expected

timeline or at all, the tax-free nature of the transaction, possible

disruptions in our relationships with customers, suppliers and other

business partners, and the possibility that the anticipated benefits and

synergies of the transaction, strategic and competitive advantages of each

        company, and future growth and other opportunities for each company will
        not be realized within the expected time periods or at all;

• the impact of substantial indebtedness on our ability to service our debt

        obligations and/or refinance amounts outstanding under our debt
        obligations at maturity on terms favorable to us, or at all;

• the ability to retain the independent agents and distributors who market

our products;

• dependence on a limited number of suppliers for key raw materials and

outsourced activities;

• the possibility that the anticipated synergies and other benefits from

mergers and acquisitions will not be realized, or will not be realized

within the expected time periods;

• the risks and uncertainties related to our ability to successfully

integrate the operations, products, employees and distributors of acquired

companies;

• the effect of the potential disruption of management's attention from

ongoing business operations due to integration matters related to mergers

        and acquisitions;


    •   the effect of mergers and acquisitions on our relationships with
        customers, suppliers and lenders and on our operating results and
        businesses generally;

• challenges relating to changes in and compliance with governmental laws

and regulations affecting our U.S. and international businesses, including

        regulations of the FDA and foreign government regulators, such as more
        stringent requirements for regulatory clearance of products;


  • the outcome of government investigations;


                                       38
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  • competition;


  • pricing pressures;


    •   changes in customer demand for our products and services caused by
        demographic changes or other factors;


  • the impact of healthcare reform measures;


    •   reductions in reimbursement levels by third-party payors and cost
        containment efforts of healthcare purchasing organizations;

• 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;

• the ability to obtain and maintain adequate intellectual property protection;

• breaches or failures of our information technology systems or products,

        including by cyber-attack, unauthorized access or theft;


  • the ability to form and implement alliances;

• changes in tax obligations arising from tax reform measures, including

European Union rules on state aid, or examinations by tax authorities;

• product liability, intellectual property and commercial litigation losses;

• changes in general industry and market conditions, including domestic and

international growth rates;

• changes in general domestic and international economic conditions,

including interest rate and currency exchange rate fluctuations; and

• the impact of the ongoing financial and political uncertainty on countries

in the Euro zone on the ability to collect accounts receivable in affected

countries.



Our Annual Report on Form 10-K for the year ended December 31, 2020 contains
detailed discussions of these and other important factors under the heading
"Risk Factors." You should understand that it is not possible to predict or
identify all factors that could cause actual results to differ materially from
forward-looking statements. Consequently, you should not consider any list or
discussion of such factors to be a complete set of all potential risks or
uncertainties.

Forward-looking statements speak only as of the date they are made and we expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Readers of this report are cautioned not to rely on these forward-looking statements since there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this report.

© Edgar Online, source Glimpses

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