3.	Business Combinations

Biomet Merger

We completed our merger with LVB, the parent company of Biomet, on June 24, 2015. 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 year ended December 31, 2016, which related to the year ended December 31, 2015 on a retrospective basis. With respect to inventory fair value, an adjustment was made which decreased cost of products sold, excluding intangible asset amortization, by $4.6 million in the year ended December 31, 2016, which 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 $52.7 million in the year ended December 31, 2016, which related to the year ended December 31, 2015 on a retrospective basis.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the closing date of the Biomet merger (in millions):


	Final Values
Cash	$	494.8
Accounts receivable, net		527.9
Inventory		1,224.1
Other current assets		25.4
Property, plant and equipment		775.3
Intangible assets not subject to amortization:
Trademarks and trade names		479.0
In-process research and development (IPR&D)		209.0
Intangible assets subject to amortization:
Technology		2,332.1
Customer relationships		4,961.0
Trademarks and trade names		360.0
Other assets		42.6
Goodwill		7,433.2

Total assets acquired		18,864.4

Current liabilities		584.0
Long-term debt		2,740.0
Deferred taxes		3,497.6
Other long-term liabilities		102.9

Total liabilities assumed		6,924.5

Net assets acquired	$	11,939.9

This table does not reflect $139.9 million of net adjustments to the assets acquired and liabilities assumed that were recognized after the measurement period. We have evaluated the effect of these out-of-period adjustments and concluded for both quantitative and qualitative reasons that these adjustments were not material to any of the periods affected.

The following table sets forth unaudited pro forma financial information derived from (i) the audited financial statements of Zimmer for the years ended December 31, 2015 and 2014; and (ii) the unaudited financial statements of LVB for the period January 1, 2015 to June 23, 2015 and for the year ended December 31, 2014. The pro forma financial information has been adjusted to give effect to the merger as if it had occurred on January 1, 2014.

Pro Forma Financial Information

(Unaudited)


	Year Ended December 31,
	2015		2014
	(in millions)
Net Sales	$	7,517.7	$	7,965.2
Net Earnings	$	330.2	$	320.3

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 merger. Material, nonrecurring pro forma adjustments directly attributable to the Biomet merger include:

•

The $90.4 million of merger compensation expense for unvested LVB stock options and LVB stock-based awards was removed from net earnings for the year ended December 31, 2015 and recognized as an expense in the year ended December 31, 2014.

•

The $73.0 million of retention plan expense was removed from net earnings for the year ended December 31, 2015 and recognized as an expense in the year ended December 31, 2014.

•

Transaction costs of $17.7 million were removed from net earnings for the year ended December 31, 2015 and recognized as an expense in the year ended December 31, 2014.

LDR Merger

On July 13, 2016, we completed our merger with LDR. We paid cash of $1,138.0 million. The total amount of merger consideration utilized for the acquisition method of accounting, as reduced by the merger consideration paid to holders of unvested LDR stock options and LDR stock-based awards of $24.1 million, was $1,113.9 million.

The addition of LDR provides us with an immediate position in the growing cervical disc replacement (“CDR”) market. The combination positions us to accelerate the growth of our Spine business through the incremental revenues associated with entry into the CDR market and cross-portfolio selling opportunities to both Zimmer Biomet and LDR customer bases. The goodwill is generated from the operational synergies and cross-selling opportunities we expect to achieve from our combined operations. None of the goodwill is expected to be deductible for tax purposes.

The purchase price allocation as of December 31, 2016 is preliminary. The primary tasks to be completed related to our purchase price accounting are finalizing tax accounts, including, but not limited to, the allocation of acquired intangible assets and goodwill on a jurisdictional basis. There may be differences between the preliminary estimates of fair value and the final acquisition accounting, which differences could be material. The final estimates of fair value are expected to be completed as soon as possible, but no later than July 13, 2017.

The following table summarizes the preliminary estimates of fair value of the assets acquired and liabilities assumed in the LDR merger (in millions):


	July 13, 2016 (initial)		Adjustments			July 13, 2016 (as adjusted)
Cash	$	92.8	$	–		$	92.8
Accounts receivable, net		31.2		–			31.2
Inventory		86.5		13.1			99.6
Other current assets		5.6		–			5.6
Property, plant and equipment		24.7		–			24.7
Intangible assets not subject to amortization:
In-process research and development (IPR&D)		2.0		–			2.0
Intangible assets subject to amortization:
Technology		431.0		21.0			452.0
Customer relationships		132.0		(14.0	)		118.0
Trademarks and trade names		77.0		(6.0	)		71.0
Other assets		17.4		59.4			76.8
Goodwill		527.1		(44.7	)		482.4

Total assets acquired		1,427.3		28.8			1,456.1

Current liabilities		53.3		22.6			75.9
Long-term debt		0.5		–			0.5
Deferred taxes		259.1		6.4			265.5
Other long-term liabilities		0.5		(0.2	)		0.3

Total liabilities assumed		313.4		28.8			342.2

Net assets acquired	$	1,113.9	$	–		$	1,113.9

The weighted average amortization period selected for trademarks and trade names, technology and customer relationship intangible assets was 18 years, 18 years and 20 years, respectively.

We have not included pro forma information and certain other information under GAAP for the LDR merger because it did not have a material impact on our financial position or results of operations.

Other 2016 Acquisitions

In 2016, we made a number of individually immaterial acquisitions of companies including Cayenne Medical, Inc. (“Cayenne Medical”), a sports medicine company, Compression Therapy Concepts, Inc. (“CTC”), a provider of non-invasive products for the prevention of deep vein thrombosis, CD Diagnostics, Inc. (“CD Diagnostics”), a medical diagnostic testing company, and MedTech SA (“MedTech”), a designer and manufacturer of robotic equipment for brain and spine surgeries. The total aggregate cash consideration was $441.7 million. These acquisitions were completed primarily to expand our product offerings. We have assigned a preliminary fair value of $61.6 million for settlement of preexisting relationships and additional payments related to these acquisitions that are contingent on the respective acquired companies’ product sales, commercial milestones 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, cost savings and commercial milestones and discounting to present value the estimated payments. The goodwill is generated from the operational synergies and cross-selling opportunities we expect to achieve from the technologies acquired. None of the goodwill related to these acquisitions is expected to be deductible for tax purposes.

The purchase price allocations as of December 31, 2016 are preliminary. The primary tasks to be completed related to our purchase price accounting are refinements to certain intangible assets, finalizing tax accounts, including, but not limited to, the allocation of acquired intangible assets and goodwill on a jurisdictional basis, and finalizing the estimated fair values of contingent liabilities. There may be differences between the preliminary estimates of fair value and the final acquisition accounting. The final estimates of fair value are expected to be completed as soon as possible, but no later than one year after the respective acquisition dates.

The following table summarizes the aggregate preliminary estimates of fair value of the assets acquired and liabilities assumed related to the Cayenne Medical, CTC, CD Diagnostics, MedTech, and other immaterial acquisitions that occurred during 2016 (in millions):


Current assets	$	64.2
Property, plant and equipment		3.9
Intangible assets		211.3
Goodwill		340.0
Other assets		7.9

Total assets acquired		627.3

Current liabilities		13.6
Long-term liabilities		110.4

Total liabilities assumed		124.0

Net assets acquired	$	503.3

The weighted average amortization period selected for the intangible assets is 9.9 years.

We have not included pro forma information and certain other information under GAAP for these acquisitions because they did not have a material impact on our financial position or results of operations.