Business Combinations

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Business Combinations

3. Business Combinations

Biomet Merger

On the Closing Date, we completed our merger with LVB, the parent company of Biomet. We paid $12,030.3 million in cash and stock and assumed Biomet’s senior notes. The total amount of merger consideration utilized for the acquisition method of accounting, as reduced by the merger consideration paid to holders of unvested LVB stock options and LVB stock-based awards of $90.4 million, was $11,939.9 million.

In the three month period ended June 30, 2016, we finalized our valuation of the assets acquired and liabilities assumed in the Biomet merger. The measurement period adjustments in 2016 primarily related to refinements to intangible assets for certain less significant brands, the finalization of tax accounts, including the allocation of acquired intangible assets and goodwill on a jurisdictional basis, and finalizing the estimation of certain contingent liabilities. All other adjustments were not significant. Under GAAP, measurement period adjustments are recognized on a prospective basis in the period of change, instead of restating prior periods. With respect to intangible asset amortization expense, the adjustments resulted in a decrease of $6.7 million in the six month period ended June 30, 2016, which related to the year ended December 31, 2015 on a retrospective basis. With respect to inventory fair value, in the three month period ended June 30, 2016, an adjustment was made which decreased cost of products sold, excluding intangible asset amortization, by $6.9 million, of which $2.3 million related to the three month period ended March 31, 2016 and $4.6 million related to the year ended December 31, 2015 on a retrospective basis. Through the finalization of tax accounts, we recognized an increase in our provision for income taxes of $73.2 million and $52.7 million in the three and six month periods ended June 30, 2016, respectively, of which $20.5 million related to the three month period ended March 31, 2016 and $52.7 million related to the year ended December 31, 2015 on a retrospective basis.

The following table summarizes the updated and final fair values of the assets acquired and liabilities assumed at the Closing Date (in millions):

	Closing Date
	(as adjusted as of March 31, 2016)		Adjustments			Final Values
Cash	$	494.8	$	—		$	494.8
Accounts receivable, net		528.1		(0.2	)		527.9
Inventory		1,237.5		(13.4	)		1,224.1
Other current assets		26.4		(1.0	)		25.4
Property, plant and equipment		783.3		(8.0	)		775.3
Intangible assets not subject to amortization:
Trademarks and trade names		479.0		—			479.0
In-process research and development (IPR&D)		246.0		(37.0	)		209.0
Intangible assets subject to amortization:
Technology		2,332.1		—			2,332.1
Customer relationships		4,946.0		15.0			4,961.0
Trademarks and trade names		360.0		—			360.0
Other assets		50.6		(8.0	)		42.6
Goodwill		7,717.2		(284.0	)		7,433.2
Total assets acquired		19,201.0		(336.6	)		18,864.4
Current liabilities		615.0		(31.0	)		584.0
Long-term debt		2,740.0		—			2,740.0
Deferred taxes		3,849.6		(352.0	)		3,497.6
Other long-term liabilities		56.5		46.4			102.9
Total liabilities assumed		7,261.1		(336.6	)		6,924.5
Net assets acquired	$	11,939.9	$	—		$	11,939.9

The following sets forth unaudited pro forma financial information derived from (i) the unaudited financial statements of Zimmer for the three and six month periods ended June 30, 2015; and (ii) the unaudited financial statements of LVB for the periods April 1, 2015 to June 23, 2015 and January 1, 2015 to June 23, 2015. The pro forma financial information has been adjusted to give effect to the merger as if it had occurred on January 1, 2014.

	Three Months Ended June 30, 2015		Six Months Ended June 30, 2015
	(in millions)
Net Sales	$	1,880.2	$	3,822.0
Net Earnings	$	19.0	$	226.2

These unaudited pro forma results have been prepared for comparative purposes only and include adjustments such as inventory step-up, amortization of acquired intangible assets and interest expense on debt incurred to finance the Biomet merger. Material, nonrecurring pro forma adjustments directly attributable to the Biomet merger include:

• The $164.1 million of merger consideration compensation expense for unvested LVB stock options and LVB stock-based awards was removed from net earnings for the three and six month periods ended June 30, 2015.

• The $73.0 million of retention plan expense was removed from net earnings for the three and six month periods ended June 30, 2015.

Other acquisitions

During the three months ended June 30, 2016, we completed individually immaterial acquisitions of companies including Cayenne Medical, Inc. (“Cayenne Medical”), a sports medicine company, and Compression Therapy Concepts, Inc. (“CTC”), a provider of non-invasive products for the prevention of deep vein thrombosis. The total aggregate cash consideration was $189.0 million. These acquisitions were completed primarily to expand our product offerings. We have assigned a preliminary fair value of $32.5 million for additional payments related to these acquisitions that are contingent on the respective acquired companies’ product sales and certain cost savings. The estimated fair value of the aggregate contingent payment liabilities was calculated based on the probability of achieving the specified sales growth and cost savings and discounting to present value the estimated payments. None of the goodwill related to these acquisitions is expected to be deductible for tax purposes.

The following table summarizes the aggregate preliminary fair values of the assets acquired and liabilities assumed related to the Cayenne Medical, CTC and other immaterial acquisitions during the three months ended June 30, 2016 (in millions):

Current assets	$	26.9
Intangible assets		118.6
Goodwill		139.6
Other assets		2.9
Total assets acquired		288.0
Current liabilities		4.3
Long-term liabilities		62.2
Total liabilities assumed		66.5
Net assets acquired	$	221.5

We have not included pro forma information and other information required by GAAP for the Cayenne Medical or CTC acquisitions because, individually and in aggregate, they did not have a material impact on our financial position or results of operations.

The following table summarizes the changes in the carrying amount of our goodwill (in millions):

	Americas			EMEA			Asia Pacific			Product Category Operating Segments			Total
Balance at December 31, 2015
Goodwill	$	7,328.0		$	1,291.0		$	548.9		$	1,139.3		$	10,307.2
Accumulated impairment loss		—			—			—			(373.0	)		(373.0	)
		7,328.0			1,291.0			548.9			766.3			9,934.2
Biomet purchase accounting adjustments		(51.4	)		(10.4	)		(61.3	)		(17.6	)		(140.7	)
Other acquisitions		136.7			2.9			—			—			139.6
Currency translation		21.1			4.7			16.0			1.7			43.5
Balance at June 30, 2016
Goodwill		7,434.4			1,288.2			503.6			1,123.4			10,349.6
Accumulated impairment loss		—			—			—			(373.0	)		(373.0	)
	$	7,434.4		$	1,288.2		$	503.6		$	750.4		$	9,976.6