zbh-10q_20190930.htm

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2019, 205,684,362 shares of the registrant’s $.01 par value common stock were outstanding.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Net Sales	$	1,892.4		$	1,836.7		$	5,856.5		$	5,861.9
Cost of products sold, excluding intangible asset amortization		535.7			529.0			1,670.4			1,688.5
Intangible asset amortization		146.6			147.6			436.9			447.9
Research and development		114.4			95.7			328.2			290.5
Selling, general and administrative		830.1			787.7			2,466.8			2,380.7
Intangible asset impairment		-			3.8			70.1			3.8
Acquisition, integration and related		(0.9	)		17.4			20.3			113.9
Quality remediation		20.7			32.2			63.1			112.3
Operating expenses		1,646.6			1,613.4			5,055.8			5,037.6
Operating Profit		245.8			223.3			800.7			824.3
Other expense, net		(4.4	)		(2.2	)		(9.6	)		(8.7	)
Interest expense, net		(56.8	)		(67.5	)		(174.5	)		(220.8	)
Earnings before income taxes		184.6			153.6			616.6			594.8
(Benefit) provision for income taxes		(247.4	)		(8.5	)		(193.5	)		71.6
Net Earnings		432.0			162.1			810.1			523.2
Less: Net earnings (loss) attributable to noncontrolling interest		0.9			(0.1	)		(0.8	)		1.3
Net Earnings of Zimmer Biomet Holdings, Inc.	$	431.1		$	162.2		$	810.9		$	521.9
Earnings Per Common Share
Basic	$	2.10		$	0.80		$	3.96		$	2.57
Diluted	$	2.08		$	0.79		$	3.93		$	2.55
Weighted Average Common Shares Outstanding
Basic		205.3			203.7			204.8			203.3
Diluted		207.0			205.4			206.3			204.9

The accompanying notes are an integral part of these condensed consolidated financial statements.

	September 30,			December 31,
	2019			2018
ASSETS
Current Assets:
Cash and cash equivalents	$	512.5		$	542.8
Accounts receivable, less allowance for doubtful accounts		1,150.8			1,275.8
Inventories		2,362.3			2,256.5
Prepaid expenses and other current assets		375.9			352.3
Total Current Assets		4,401.5			4,427.4
Property, plant and equipment, net		2,055.3			2,015.4
Goodwill		9,544.9			9,594.4
Intangible assets, net		7,339.9			7,684.6
Other assets		973.6			405.0
Total Assets	$	24,315.2		$	24,126.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	355.2		$	362.6
Income taxes payable		100.1			142.4
Other current liabilities		1,318.6			1,391.3
Current portion of long-term debt		2,000.0			525.0
Total Current Liabilities		3,773.9			2,421.3
Deferred income taxes, net		912.2			999.5
Long-term income tax payable		680.9			666.2
Other long-term liabilities		516.8			350.0
Long-term debt		6,345.9			8,413.7
Total Liabilities		12,229.7			12,850.7
Commitments and Contingencies (Note 17)
Stockholders' Equity:
Zimmer Biomet Holdings, Inc. Stockholders' Equity:
Common stock, $0.01 par value, one billion shares authorized, 309.5 million shares in 2019 (307.9 million in 2018) issued		3.1			3.1
Paid-in capital		8,867.2			8,686.1
Retained earnings		10,155.3			9,491.2
Accumulated other comprehensive loss		(223.2	)		(187.4	)
Treasury stock, 103.9 million shares in 2019 (103.9 million shares in 2018)		(6,720.9	)		(6,721.7	)
Total Zimmer Biomet Holdings, Inc. stockholders' equity		12,081.5			11,271.3
Noncontrolling interest		4.0			4.8
Total Stockholders' Equity		12,085.5			11,276.1
Total Liabilities and Stockholders' Equity	$	24,315.2		$	24,126.8

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Zimmer Biomet Holdings, Inc. Stockholders
										Accumulated
										Other												Total
	Common Shares				Paid-in		Retained			Comprehensive			Treasury Shares						Noncontrolling			Stockholders'
	Number		Amount		Capital		Earnings			Loss			Number			Amount			Interest			Equity
Balance July 1, 2019		308.8	$	3.1	$	8,776.5	$	9,772.7		$	(171.8	)		(103.9	)	$	(6,721.4	)	$	3.1		$	11,662.2
Net earnings		-		-		-		431.1			-			-			-			0.9			432.0
Other comprehensive loss		-		-		-		-			(51.4	)		-			-			-			(51.4	)
Cash dividends declared ($0.24 per share)		-		-		-		(49.4	)		-			-			-			-			(49.4	)
Stock compensation plans		0.7		-		90.7		0.9			-			-			0.5			-			92.1
Balance September 30, 2019		309.5	$	3.1	$	8,867.2	$	10,155.3		$	(223.2	)		(103.9	)	$	(6,720.9	)	$	4.0		$	12,085.5

Balance July 1, 2018		307.2	$	3.1	$	8,596.8	$	10,327.9		$	(163.0	)		(103.8	)	$	(6,721.7	)	$	1.1		$	12,044.2
Net earnings		-		-		-		162.2			-			-			-			(0.1	)		162.1
Other comprehensive loss		-		-		-		-			(5.1	)		-			-			-			(5.1	)
Cash dividends declared ($0.24 per share)		-		-		-		(49.0	)		-			-			-			-			(49.0	)
Sale of shares in a subsidiary without loss of control		-		-		-		-			-			-			-			5.2			5.2
Stock compensation plans		0.6		-		65.5		0.1			-			-			-			-			65.6
Balance September 30, 2018		307.8	$	3.1	$	8,662.3	$	10,441.2		$	(168.1	)		(103.8	)	$	(6,721.7	)	$	6.2		$	12,223.0

Balance January 1, 2019		307.9	$	3.1	$	8,686.1	$	9,491.2		$	(187.4	)		(103.9	)	$	(6,721.7	)	$	4.8		$	11,276.1
Net earnings		-		-		-		810.9			-			-			-			(0.8	)		810.1
Other comprehensive loss		-		-		-		-			(35.8	)		-			-			-			(35.8	)
Cash dividends declared ($0.72 per share)		-		-		-		(147.7	)		-			-			-			-			(147.7	)
Stock compensation plans		1.6		-		181.1		0.9			-			-			0.8			-			182.8
Balance September 30, 2019		309.5	$	3.1	$	8,867.2	$	10,155.3		$	(223.2	)		(103.9	)	$	(6,720.9	)	$	4.0		$	12,085.5

Balance January 1, 2018		306.5	$	3.1	$	8,514.9	$	10,022.8		$	(83.2	)		(103.9	)	$	(6,721.8	)	$	(0.3	)	$	11,735.5
Net earnings		-		-		-		521.9			-			-			-			1.3			523.2
Other comprehensive loss		-		-		-		-			(42.0	)		-			-			-			(42.0	)
Cash dividends declared ($0.72 per share)		-		-		-		(146.5	)		-			-			-			-			(146.5	)
Adoption of ASU 2018-02		-		-		-		42.9			(42.9	)		-			-			-			-
Sale of shares in a subsidiary without loss of control		-		-		-		-			-			-			-			5.2			5.2
Stock compensation plans		1.3		-		147.4		0.1			-			0.1			0.1			-			147.6
Balance September 30, 2018		307.8	$	3.1	$	8,662.3	$	10,441.2		$	(168.1	)		(103.8	)	$	(6,721.7	)	$	6.2		$	12,223.0

The accompanying notes are an integral part of these condensed consolidated financial statements.


	For the Nine Months Ended September 30,
	2019			2018
Cash flows provided by (used in) operating activities:
Net earnings	$	810.1		$	523.2
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization		752.2			785.7
Share-based compensation		61.6			45.3
Intangible asset impairment		70.1			3.8
Changes in operating assets and liabilities, net of acquired assets and liabilities
Income taxes		(356.3	)		(58.3	)
Receivables		109.5			237.4
Inventories		(106.0	)		(165.2	)
Accounts payable and accrued liabilities		(162.7	)		23.6
Other assets and liabilities		(16.0	)		(27.6	)
Net cash provided by operating activities		1,162.5			1,367.9
Cash flows provided by (used in) investing activities:
Additions to instruments		(239.5	)		(203.7	)
Additions to other property, plant and equipment		(155.3	)		(115.2	)
Net investment hedge settlements		37.5			-
Acquisition of intellectual property rights		(197.6	)		-
Investments in other assets		(36.4	)		(15.3	)
Net cash used in investing activities		(591.3	)		(334.2	)
Cash flows provided by (used in) financing activities:
Proceeds from senior notes		-			749.5
Redemption of senior notes		-			(1,150.0	)
Proceeds from multicurrency revolving facility		-			400.0
Payments on multicurrency revolving facility		-			(400.0	)
Proceeds from term loans		200.0			-
Payments on term loans		(750.0	)		(500.0	)
Net payments on other debt		(5.0	)		(3.9	)
Dividends paid to stockholders		(147.3	)		(146.2	)
Proceeds from employee stock compensation plans		125.9			103.4
Net cash flows from unremitted collections from factoring programs		(15.4	)		(54.6	)
Business combination contingent consideration payments		-			(16.7	)
Other financing activities		(5.4	)		(8.2	)
Net cash used in financing activities		(597.2	)		(1,026.7	)
Effect of exchange rates on cash and cash equivalents		(4.3	)		(6.8	)
(Decrease) increase in cash and cash equivalents		(30.3	)		0.2
Cash and cash equivalents, beginning of year		542.8			524.4
Cash and cash equivalents, end of period	$	512.5		$	524.6

The accompanying notes are an integral part of these condensed consolidated financial statements.

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.

Net sales increased by 3.0 percent and decreased by 0.1 percent in the three and nine month periods ended September 30, 2019, compared to the same prior year periods. The increase in the three month period was driven by strong volume/mix in our Knees, Hips and S.E.T (Surgical, Sports Medicine, Extremities and Trauma) product categories partially offset by declines in pricing and the negative impacts from changes in foreign currency exchange rates. The slight decline in the nine month period was due to similar market dynamics, but the percentage increases in volume/mix in those product categories were not as large and the negative effect of changes in foreign currency exchange rates was greater.

Our net earnings increased in the three and nine month periods ended September 30, 2019 when compared to the same prior year periods. The increases were driven primarily by Switzerland tax reform that resulted in us recognizing a provisional net tax benefit of $263.8 million in the third quarter of 2019. Additionally, we recognized lower quality remediation expenses, acquisition, integration and related expenses and interest expense, net, when compared to the same prior year periods, along with a $23.5 million gain related to a litigation settlement in the first quarter of 2019. These favorable items were partially offset by higher litigation-related expenses for certain product liability and commercial litigation matters, a $70.1 million IPR&D intangible asset impairment in the second quarter of 2019 on certain IPR&D projects that we terminated and a $20.8 million charge in the second quarter of 2019 related to the termination of a raw material supply agreement.

2019 marks the second year of our two-year turnaround effort since the appointment of a new Chief Executive Officer in December 2017. In late 2018 and early 2019, we had various product launches in our Knees product category, which have driven improved commercial execution. We estimate the change in sales in 2019 compared to 2018 will be in a range of flat to positive 0.5 percent. This range includes estimated negative effects of changes in foreign currency exchange rates of 1.25 percent to 1.75 percent. We estimate the negative effects of foreign currency exchange rates will decline in the fourth quarter of 2019 compared to the first nine months of the year.

A public referendum held in Switzerland passed the TRAF, effective January 1, 2020. Certain provisions of the TRAF were enacted in the third quarter of 2019 resulting in us recognizing a provisional net tax benefit of $263.8 million. Enactment of the TRAF provisions subsequent to our third quarter of 2019 is expected to result in adjustments to our financial statements and related disclosures in future periods. The amounts recorded in the third quarter do not include the impact of cantonal law changes, including the transitional provisions which were enacted during the fourth quarter of 2019. These enactments may result in a material impact to our future results due to the recording of a deferred tax asset that will reduce our Switzerland cash taxes in the future. However, we anticipate that TRAF will have a minimal impact to our ongoing consolidated effective tax rate. The recording of the deferred tax asset for the cantonal impact of TRAF cannot currently be reasonably estimated. We will continue to monitor and assess the impact the TRAF may have on our business and financial results.

In 2019, we expect our net earnings to increase significantly compared to the net loss recognized in 2018. In 2018, we incurred a net loss due to significant goodwill and intangible asset impairments and litigation charges. At this point in time based upon information known or knowable by us, we do not expect to incur similar significant charges in 2019. We expect our costs of products sold will continue to reflect costs associated with our quality remediation efforts. We anticipate continuing to make investments in operating expenses for research and development, salesforce specialization, and to support our new product launches. However, we expect expenses related to our acquisition and integration activities and quality remediation will continue to decline as we complete these projects during 2019. We believe that our interest expense, net, will continue to decline through the remainder of the year when compared to the same prior year period due to lower anticipated debt levels.

We analyze sales by three geographies, the Americas, EMEA and Asia Pacific, and by the following product categories: Knees, Hips, S.E.T., Spine & CMF, Dental 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 towards 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 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.

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

	Three Months Ended
	September 30,								Volume /							Foreign
	2019		2018		% Inc				Mix			Price				Exchange
Americas	$	1,179.2	$	1,153.6		2.2		%		5.7	%		(3.4	)	%		(0.1	)	%
EMEA		374.6		372.1		0.7				6.7			(1.9	)			(4.1	)
Asia Pacific		338.6		311.0		8.9				11.2			(2.4	)			0.1
Total	$	1,892.4	$	1,836.7		3.0				6.8			(2.9	)			(0.9	)


	Nine Months Ended
	September 30,				% Inc /				Volume /							Foreign
	2019		2018		(Dec)				Mix			Price				Exchange
Americas	$	3,587.6	$	3,578.0		0.3		%		3.6	%		(3.1	)	%		(0.2	)	%
EMEA		1,276.5		1,326.3		(3.8	)			4.6			(2.1	)			(6.3	)
Asia Pacific		992.4		957.6		3.6				8.5			(2.2	)			(2.7	)
Total	$	5,856.5	$	5,861.9		(0.1	)			4.6			(2.7	)			(2.0	)

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

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

	Three Months Ended
	September 30,				% Inc /				Volume /								Foreign
	2019		2018		(Dec)				Mix				Price				Exchange
Knees	$	651.9	$	627.9		3.8		%		7.5		%		(2.6	)	%		(1.1	)	%
Hips		460.2		444.8		3.5				6.9				(2.6	)			(0.8	)
S.E.T.		437.7		414.6		5.6				8.2				(2.0	)			(0.6	)
Spine & CMF		181.3		184.9		(1.9	)			1.3				(2.6	)			(0.6	)
Dental		94.2		92.3		2.1				3.9				(0.9	)			(0.9	)
Other		67.1		72.2		(7.0	)			10.3				(16.4	)			(0.9	)
Total	$	1,892.4	$	1,836.7		3.0				6.8				(2.9	)			(0.9	)



	Nine Months Ended
	September 30,				% Inc /				Volume /								Foreign
	2019		2018		(Dec)				Mix				Price				Exchange
Knees	$	2,049.5	$	2,044.2		0.3		%		5.5		%		(3.0	)	%		(2.2	)	%
Hips		1,423.8		1,423.7		-				5.3				(3.0	)			(2.3	)
S.E.T.		1,322.0		1,290.7		2.4				5.5				(1.5	)			(1.6	)
Spine & CMF		550.0		566.2		(2.8	)			1.0				(2.6	)			(1.2	)
Dental		305.2		306.8		(0.5	)			2.7				(1.3	)			(1.9	)
Other		206.0		230.3		(10.6	)			(1.2	)			(7.7	)			(1.7	)
Total	$	5,856.5	$	5,861.9		(0.1	)			4.6				(2.7	)			(2.0	)

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 September 30,							Nine Months Ended September 30,				% Inc /
	2019		2018		% Inc			2019		2018		(Dec)
Knees
Americas	$	399.2	$	384.6		3.8	%	$	1,222.9	$	1,209.9		1.1		%
EMEA		135.3		134.3		0.7			474.4		494.0		(4.0	)
Asia Pacific		117.4		109.0		7.8			352.2		340.3		3.5
Total	$	651.9	$	627.9		3.8		$	2,049.5	$	2,044.2		0.3
Hips
Americas	$	249.0	$	240.0		3.7	%	$	749.4	$	737.8		1.6		%
EMEA		108.8		107.6		1.1			367.8		383.6		(4.1	)
Asia Pacific		102.4		97.2		5.4			306.6		302.3		1.4
Total	$	460.2	$	444.8		3.5		$	1,423.8	$	1,423.7		-

Increased volume and changes in the mix of product sales had a positive effect of 6.8 percent and 4.6 percent on year-over-year sales during the three and nine month periods ended September 30, 2019, respectively. Volume/mix growth was driven by recent product introductions, sales in key emerging markets and market growth. Additionally, in the third quarter we sold certain inventory at a discounted price in our Other product category, which improved our volume/mix benefit in that category.

Global selling prices had a negative effect of 2.9 percent and 2.7 percent on year-over-year sales during the three and nine month periods ended September 30, 2019, respectively. 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. Additionally, in the third quarter we sold certain inventory at a discounted price in our Other product category, which negatively affected pricing in that category.

For the three and nine month periods ended September 30, 2019, changes in foreign currency exchange rates had a negative effect of 0.9 percent and 2.0 percent, respectively, on year-over-year sales. If foreign currency exchange rates remain at levels consistent with recent rates, we estimate full-year 2019 sales will be negatively affected by 1.25 percent to 1.75 percent.

Knee sales increased in the three and nine month periods ended September 30, 2019 when compared to the same prior year periods. Various product launches resulted in improved volume/mix growth in the knee product category in all of our geographic operating segments, but were partially offset by price declines and changes in foreign currency exchange rates. Knee sales volume/mix growth was led by Persona^®The Personalized Knee System, the Oxford^® Partial Knee and the ROSA^® Knee System.

Hip sales increased in the three and nine month periods ended September 30, 2019 when compared to the same prior year periods. Volume/mix growth in this product category in all of our geographic operating segments positively impacted sales, which were partially offset by price declines and changes in foreign currency exchange rates. Hip sales volume/mix growth was led by our Taperloc^® Complete Hip System and G7^® Acetabular System.

Our S.E.T. product category sales increased in the three and nine month periods ended September 30, 2019 when compared to the same prior year periods, primarily due to supply stability, salesforce specialization and new product launches, partially offset by price declines and changes in foreign currency exchange rates.

Spine and CMF sales declined in the three and nine month periods ended September 30, 2019 when compared to the same prior year periods, primarily due to price declines, changes in foreign currency exchange rates, and ongoing sales channel consolidation, partially offset by continued growth of our Thoracic products.

Dental sales increased in the three month period and declined in the nine month period ended September 30, 2019 when compared to the same prior year periods. Volume/mix growth in our Dental product category has improved from recent years due to investing resources in priority areas and other operational improvements. The decline in the nine month period was mostly due to changes in foreign currency exchange rates and price declines.

	Three Months Ended										Nine Months Ended
	September 30,						% Inc /				September 30,						% Inc /
	2019			2018			(Dec)				2019			2018			(Dec)
Cost of products sold, excluding intangible asset amortization		28.3	%		28.8	%		(0.5	)	%		28.5	%		28.8	%		(0.3	)	%
Intangible asset amortization		7.7			8.0			(0.3	)			7.5			7.6			(0.1	)
Research and development		6.0			5.2			0.8				5.6			5.0			0.6
Selling, general and administrative		43.9			42.9			1.0				42.1			40.6			1.5
Intangible asset impairment		-			0.2			(0.2	)			1.2			0.1			1.1
Acquisition, integration and related		-			0.9			(0.9	)			0.3			1.9			(1.6	)
Quality remediation		1.1			1.8			(0.7	)			1.1			1.9			(0.8	)
Operating profit		13.0			12.2			0.8				13.7			14.1			(0.4	)

The decrease in cost of products sold as a percentage of net sales for the three month period ended September 30, 2019 compared to the same prior year period was primarily due to a refund for U.S. medical device excise taxes, the effects of our hedging program and lower royalty expense. The refund of a portion of the U.S. medical device excise tax was the result of a change in the methodology we used to calculate the constructive sales price upon which the taxes were paid. On July 1, 2019 the IRS approved and agreed to our change in methodology. We recognized hedge gains of $11.3 million in the three month period ended September 30, 2019 compared to hedge losses of $4.9 million in the same prior year period. For derivatives which qualify as hedges of future cash flows, the effective portion of changes in fair value is temporarily recorded in other comprehensive income and then recognized in cost of products sold when the hedged items affect earnings. The reduction in royalty expense was the result of an agreement we entered into on April 1, 2019. Under the agreement, we paid $192.5 million to buy out certain licensing arrangements from an unrelated third party. This new agreement and the related payment replace the variable royalty payments that otherwise would have been due under the terms of previous licensing arrangements through 2029. The payment was recorded as an intangible asset and will be amortized through 2029. These favorable items were partially offset by increased excess and obsolete inventory charges, lower average selling prices and higher manufacturing costs.

Cost of products sold as a percentage of net sales decreased in the nine month period ended September 30, 2019 compared to the same prior year period. The decrease was primarily due to the U.S. medical device excise taxes refund described above, the effects of our hedging program and lower royalty expense. These favorable items were partially offset by a $20.8 million charge in the second quarter of 2019 incurred to terminate a long-term raw material supply agreement, lower average selling prices and higher manufacturing costs.

Intangible asset amortization expense declined in the three and nine month periods ended September 30, 2019 when compared to the same prior year periods due to certain intangible assets from past acquisitions being fully amortized, partially offset by additional amortization from the agreement to buy out certain licensing arrangements we entered into on April 1, 2019.

Research and development (“R&D”) expenses and R&D expenses as a percentage of net sales increased in the three and nine month periods ended September 30, 2019 compared to the same prior year periods, primarily due to increased investment in our Knee product pipeline, costs associated with the European Union Medical Device Regulation and a patent license we acquired to be used in R&D activities that was expensed immediately.

Selling, general and administrative (“SG&A”) expenses and SG&A expenses as a percentage of net sales increased in the three and nine month periods ended September 30, 2019 when compared to the same prior year periods. The primary drivers of the increased expense were investments in preparation for new product launches, higher expenses related to legal entity, distribution and manufacturing restructuring, and higher litigation-related charges from commercial and product liability matters. In the nine month period, these increases were partially offset by a $23.5 million gain recognized in the first quarter of 2019 related to a litigation settlement.

In the second quarter of 2019, we recognized a $70.1 million IPR&D intangible asset impairment on certain IPR&D projects that we terminated.

Acquisition, integration and related expenses declined in the three and nine month periods ended September 30, 2019 compared to the same prior year periods due to the natural regression of integration activities related to the 2015 Biomet merger and other various acquisitions. Similarly, our quality remediation expenses have declined as projects related to those efforts are completed.

In the three and nine month periods ended September 30, 2019 and 2018, other expense, net, was primarily related to certain components of pension expense, changes to the fair value of our equity investments and remeasuring monetary assets and liabilities denominated in a foreign currency other than an entity’s functional currency, partially offset by foreign currency forward exchange contracts we entered into to mitigate any gain or loss related to remeasurement.

Interest expense, net, decreased in the three and nine month periods ended September 30, 2019, compared to the same prior year periods, primarily due to hedging strategies that have lowered our effective interest rate and lower average outstanding debt balances during the 2019 periods resulting from debt repayments throughout 2018 and year-to-date 2019.

We recognized net tax benefits in the three and nine month periods ended September 30, 2019 primarily due to Switzerland tax reform that resulted in us recognizing a provisional net tax benefit of $263.8 million. In the prior year periods, we recognized tax benefits resulting from return to provision adjustments related to changes in estimated tax rates on deferred tax liabilities recorded on acquisition-related intangible assets. The change in estimates from these adjustments resulted in tax benefits of $16.9 million in the three and nine month periods ended September 30, 2018. Absent discrete tax events, we expect our future effective tax rate (“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, including the European Union rules on state aid; 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.

									Operating Profit as a
	Net Sales				Operating Profit				Percentage of Net Sales
	Three Months Ended				Three Months Ended				Three Months Ended
	September 30,				September 30,				September 30,
(dollars in millions)	2019		2018		2019		2018		2019			2018
Americas	$	961.2	$	934.5	$	517.3	$	493.7		53.8	%		52.8	%
EMEA		330.9		326.8		91.8		84.7		27.7			25.9
Asia Pacific		322.6		295.9		106.3		93.3		33.0			31.5


									Operating Profit as a
	Net Sales				Operating Profit				Percentage of Net Sales
	Nine Months Ended				Nine Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,
(dollars in millions)	2019		2018		2019		2018		2019			2018
Americas	$	2,925.7	$	2,904.9	$	1,563.2	$	1,556.0		53.4	%		53.6	%
EMEA		1,120.0		1,159.4		335.1		341.4		29.9			29.4
Asia Pacific		948.2		914.0		325.1		305.1		34.3			33.4

In the Americas, operating profit as a percentage of net sales increased in the three month period ended September 30, 2019, but decreased in the nine month period ended September 30, 2019, in each case compared to the same prior year period. The increase in the three month period was primarily due to improved sales volume/mix and controlled spending. In the nine month period, the decline was primarily due to price declines and higher excess and obsolete inventory charges. In EMEA, operating profit as a percentage of net sales increased in the three and nine month periods ended September 30, 2019 compared to the same prior year periods. The increases were primarily due to higher sales volume/mix and gains recognized related to our hedging program. In Asia Pacific, operating profit as a percentage of net sales increased in the three and nine month periods ended September 30, 2019 primarily due to volume/mix net sales growth and gains recognized related to our hedging program.

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 the impact of certain inventory and manufacturing-related charges including charges to terminate a long-term raw material supply agreement and discontinue certain product lines; intangible asset amortization; intangible asset impairment; acquisition, integration and related gains and expenses; quality remediation expenses; certain litigation gains and charges; expenses to comply with the new European Union Medical Device Regulation; other charges; any related effects on our income tax provision associated with these items; the effect of Switzerland tax reform; and other certain tax adjustments. 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 and diluted earnings per share to our non-GAAP adjusted net earnings and non-GAAP adjusted diluted earnings per share used for internal management purposes (in millions, except per share amounts):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Net Earnings of Zimmer Biomet Holdings, Inc.	$	431.1		$	162.2		$	810.9		$	521.9
Inventory and manufacturing-related charges⁽¹⁾		11.6			5.0			47.7			24.7
Intangible asset amortization⁽²⁾		146.6			147.6			436.9			447.9
Intangible asset impairment⁽³⁾		-			3.8			70.1			3.8
Acquisition, integration and related⁽⁴⁾		(0.9	)		17.4			20.3			113.9
Quality remediation⁽⁵⁾		21.5			34.2			64.6			125.8
Litigation⁽⁶⁾		42.8			14.0			48.0			15.5
Litigation settlement gain⁽⁷⁾		-			-			(23.5	)		-
European Union Medical Device Regulation⁽⁸⁾		11.4			0.8			18.1			1.6
Other charges⁽⁹⁾		22.1			24.2			87.0			46.1
Taxes on above items⁽¹⁰⁾		(54.8	)		(54.1	)		(155.4	)		(149.5	)
Switzerland tax reform⁽¹¹⁾		(263.8	)		-			(263.8	)		-
Other certain tax adjustments⁽¹²⁾		(1.2	)		(20.5	)		(12.6	)		(34.2	)
Adjusted Net Earnings	$	366.4		$	334.6		$	1,148.3		$	1,117.5

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Diluted Earnings Per Share	$	2.08		$	0.79		$	3.93		$	2.55
Inventory and manufacturing-related charges⁽¹⁾		0.06			0.02			0.23			0.12
Intangible asset amortization⁽²⁾		0.71			0.72			2.11			2.19
Intangible asset impairment⁽³⁾		-			0.02			0.34			0.02
Acquisition, integration and related⁽⁴⁾		-			0.08			0.10			0.56
Quality remediation⁽⁵⁾		0.10			0.17			0.31			0.61
Litigation⁽⁶⁾		0.21			0.07			0.23			0.08
Litigation settlement gain⁽⁷⁾		-			-			(0.11	)		-
European Union Medical Device Regulation⁽⁸⁾		0.05			-			0.09			0.01
Other charges⁽⁹⁾		0.11			0.12			0.42			0.22
Taxes on above items⁽¹⁰⁾		(0.27	)		(0.26	)		(0.75	)		(0.74	)
Switzerland tax reform⁽¹¹⁾		(1.27	)		-			(1.27	)		-
Other certain tax adjustments⁽¹²⁾		(0.01	)		(0.10	)		(0.06	)		(0.17	)
Adjusted Diluted Earnings Per Share	$	1.77		$	1.63		$	5.57		$	5.45

Cash flows provided by operating activities were $1,162.5 million in the nine month period ended September 30, 2019, compared to $1,367.9 million in the same prior year period. The decrease was primarily due to a payment of approximately $168 million on a patent infringement lawsuit as well as other product liability-related payments we made in the 2019 period. Additionally, in the prior year period, we continued to expand our sale of accounts receivable in certain countries which provided additional cash inflows, compared to the 2019 period where our sales of accounts receivable have not expanded significantly and therefore the incremental benefits to the period are less.

Cash flows used in investing activities were $591.3 million in the nine month period ended September 30, 2019, compared to $334.2 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. Additionally, we paid $197.6 million in the 2019 period to buy out certain licensing arrangements from unrelated third parties.

Cash flows used in financing activities were $597.2 million in the nine month period ended September 30, 2019, compared to $1,026.7 million in the same prior year period. In the 2019 period, we borrowed $200.0 million on U.S. Term Loan C and used those proceeds, along with cash on hand, to pay the remaining balance of $225.0 million on U.S. Term Loan B. Additionally, we repaid $525.0 million on U.S. Term Loan C in the 2019 period with cash generated from operations. In the 2018 period, we received net proceeds of $749.5 million from the issuance of additional senior notes and borrowed $400.0 million from our 2016 Multicurrency Revolving Facility to repay $1,150.0 million of senior notes that became due on April 2, 2018. We repaid the $400.0 million of 2016

Multicurrency Revolving Facility borrowings and also repaid $500.0 million on term loans in the 2018 period. In the 2019 period, we had net cash outflows of $15.4 million related to our factoring programs caused by the timing differences of collections from customers and repayments to the financial institution to which we sold the collected receivables. The 2019 outflow was lower than the prior year based upon the timing of when receivable sales occurred in December of 2018 compared to December of 2017.

In February, May and September 2019, 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. Additionally, our debt facilities restrict the payment of dividends in certain circumstances.

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 September 30, 2019, all $1.0 billion remained authorized.

We will continue to exercise disciplined capital allocation designed to drive stockholder value creation. We intend to use available cash for debt repayment, reinvestment in the business and dividends. If the right opportunities arise, we may also use available cash to pursue business development opportunities.

As discussed in Note 13 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report, the IRS has issued proposed adjustments for years 2005 through 2012, 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.

Also, as discussed in Note 17 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report, as of September 30, 2019, we have an estimated liability of $63.8 million related to Durom Cup product liability claims on our condensed consolidated balance sheet. We expect to continue paying these claims over the next few years. As of September 30, 2019, we also had a liability of $65.7 million related to Biomet metal-on-metal hip implant claims.

At September 30, 2019, our outstanding debt consisted of senior notes and term loans as follows (principal shown in U.S. Dollars in millions):

We have a $1.5 billion 2019 Multicurrency Revolving Facility that will mature on November 1, 2024. The 2019 Multicurrency Revolving Facility replaced the $1.5 billion 2016 Multicurrency Revolving Facility, effective November 1, 2019. There were no outstanding borrowings under the 2016 Multicurrency Revolving Facility as of September 30, 2019, nor have we borrowed under the 2019 Multicurrency Revolving Facility since it became effective. We also had other available uncommitted credit facilities totaling $51.2 million as of September 30, 2019.

We plan to use cash generated from operations to continue servicing our debt obligations through at least the remainder of this year. We have $500.0 million principal amount of notes due November 30, 2019 and $1.5 billion principal amount of notes due April

1, 2020. We believe we can satisfy these debt obligations with cash generated from our operations, by issuing new debt, or by borrowing on our 2019 Multicurrency Revolving Facility. We believe that our earnings, balance sheet and cash flows will allow us to obtain additional capital, if necessary, to satisfy these debt obligations.

For additional information on our debt, see Note 9 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 September 30, 2019, $307.7 million of our cash and cash equivalents were held in jurisdictions outside of the U.S. Of this amount, $72.7 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 $5.1 billion of unremitted earnings in future years.

Our concentrations of credit risks with respect to trade accounts receivable is 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.

Management believes that cash flows from operations and available borrowings under the 2019 Multicurrency Revolving Facility are sufficient to meet our working capital, capital expenditure and debt service needs, as well as return cash to stockholders in the form of dividends and share repurchases. Should additional investment opportunities arise, we believe that our earnings, balance sheet and cash flows will allow us to obtain additional capital, if necessary.

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.

Our financial results are affected by the selection and application of accounting policies and methods. There were no changes in the three or nine month periods ended September 30, 2019 to the application of critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2018.

In the fourth quarter of 2018, we recognized a $567.0 million goodwill impairment charge related to our EMEA reporting unit. The impairment charge represented the amount by which the reporting unit’s carrying value exceeded its estimated fair value. We estimated the fair value of the reporting unit based on income and market approaches. Since the carrying value of this reporting unit was written down to its estimated fair value, future impairment could occur if the estimates used in the income and market approaches change. If our estimates of profitability in the reporting unit decline, the fair value estimate under the income approach will decline. If there are negative outlooks of the broader economic environment, comparable company valuation indicators may decline, which would cause our fair value estimate under the market approach to decline. The goodwill balance of our EMEA reporting unit was $732.0 million at September 30, 2019.

Additionally, in our annual impairment test in the fourth quarter of 2018, our Dental reporting unit’s fair value exceeded its carrying value by less than 5 percent. If our future operating results are below the estimations used for our impairment assessment, or there are negative impacts from the broader economic environment, then we may have to recognize goodwill impairment charges on this reporting unit in the future. The goodwill balance of our Dental reporting unit was $387.2 million at September 30, 2019.

We have three other reporting units that have goodwill assigned to them. As of the date of our last goodwill impairment test, each of the three reporting unit’s estimated fair value exceeded its carrying value by more than 25 percent.

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:

Our Annual Report on Form 10-K for the year ended December 31, 2018, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 and this report contain 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.

There have been no material changes from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2018.

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As previously reported, on January 1, 2019 we adopted ASU 2016-02 – Leases (Topic 842). This ASU requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet. As a result, we added additional internal controls to comply with the new standard in the first quarter of 2019.

Information pertaining to legal proceedings can be found in Note 17 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report and is incorporated herein by reference.

Except as set forth below, there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018. The risk factor set forth below replaces in its entirety the risk factor with the title “We incurred substantial additional indebtedness in connection with previous mergers and acquisitions and may not be able to meet all of our debt obligations”:

We incurred substantial additional indebtedness in connection with previous mergers and acquisitions and may not be able to meet all of our debt obligations, and the phase-out, replacement or unavailability of LIBOR and/or other interest rate benchmarks could adversely affect our indebtedness.

We incurred substantial additional indebtedness in connection with previous mergers and acquisitions. At September 30, 2019, our total indebtedness was $8.3 billion, as compared to $1.4 billion at December 31, 2014. As of September 30, 2019, our debt service obligations, comprised of principal and interest (excluding leases and equipment notes), during the next 12 months are expected to be $2.2 billion. As a result of the increase in our debt, demands on our cash resources have increased. The increased level of debt could, among other things:

In addition, the interest rates applicable to certain of our debt obligations are based on a fluctuating rate of interest determined by reference to the London Interbank Offered Rate (“LIBOR”), Euro Interbank Offered Rate (“EURIBOR”) and/or Tokyo Interbank Offered Rate (“TIBOR”). Any increase in interest rates applicable to our debt obligations would increase our cost of borrowing and could adversely affect our financial position, results of operations or cash flows. Further, in July 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. In response to concerns regarding the future of LIBOR, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (“ARRC”) to identify alternatives to LIBOR. The ARRC has recommended a benchmark replacement waterfall to assist issuers in continued capital market entry while safeguarding against LIBOR’s discontinuation. The initial steps in the ARRC’s recommended provision reference variations of the Secured Overnight Financing Rate (“SOFR”). At this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement. Additionally, it is uncertain if LIBOR will cease to exist after calendar year 2021, or whether additional reforms to LIBOR may be enacted, or whether alternative reference rates will gain market acceptance as a replacement for LIBOR. Further, other central banks have convened working groups to determine replacements or reforms of other interest rate benchmarks, such as EURIBOR, and it is expected, although not known, that a transition away from the use of certain of these other interest rate benchmarks will occur over the course of the next few years and alternative reference rates will be established.

Certain of our debt obligations that are based on LIBOR will mature before the end of 2021. However, our 2019 Credit Agreement entered into on November 1, 2019 has an initial maturity date of November 1, 2024. In anticipation of LIBOR’s phase out, the 2019 Credit Agreement provides for alternative base rates as well as a transition mechanism for selecting a benchmark replacement rate for LIBOR, with such benchmark replacement rate to be mutually agreed with the general administrative agent and our lenders. There can be no assurance that we will be able to reach an agreement with our lenders on any such replacement benchmark before experiencing adverse effects due to changes in interest rates, if at all. We will continue to monitor the situation and address the potential reference rate changes in future debt obligations that we may incur. Accordingly, the potential effect of the phase-out, replacement or unavailability of LIBOR, or the unavailability of any other interest rate benchmark such as EURIBOR or

TIBOR, on our cost of capital cannot yet be determined. Further, the use of an alternative base rate or a benchmark replacement rate as a basis for calculating interest with respect to any outstanding variable rate indebtedness could lead to an increase in the interest we pay and a corresponding increase in our costs of capital or otherwise have a material adverse impact on our business, financial condition or results of operations.

During the three month period ended September 30, 2019, the Audit Committee of our Board of Directors approved the engagement of PricewaterhouseCoopers LLP, our independent registered public accounting firm, to perform certain non-audit services. This disclosure is made pursuant to Section 10A(i)(2) of the Exchange Act, as added by Section 202 of the Sarbanes-Oxley Act of 2002.

Because we are filing this Quarterly Report on Form 10-Q within four business days after the triggering event, we are making the following disclosure under this Item 5 instead of filing a Current Report on Form 8-K under Item 1.01, Entry into a Material Definitive Agreement, Item 1.02, Termination of a Material Definitive Agreement and Item 2.03, Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant:

On November 1, 2019, we and certain of our subsidiaries entered into a revolving credit loan agreement, as described below.

The 2019 Credit Agreement, dated as of November 1, 2019, is a five-year unsecured 2019 Multicurrency Revolving Facility for us and certain of our subsidiaries in the principal amount of $1.5 billion, among Zimmer Biomet Holdings, Zimmer Biomet G.K., Zimmer Luxembourg II S.À.R.L., the borrowing subsidiaries referred to therein, JPMorgan Chase Bank, N.A., as General Administrative Agent, JPMorgan Chase Bank, N.A., Tokyo Branch, as Japanese Administrative Agent, J.P. Morgan Europe Limited, as European Administrative Agent, and the lenders party thereto.

The 2019 Credit Agreement replaced our 2016 Credit Agreement, dated as of September 30, 2016, among Zimmer Biomet Holdings, Zimmer Biomet G.K, Zimmer Luxembourg II S.À.R.L., the borrowing subsidiaries from time to time party thereto, JPMorgan Chase Bank, N.A., as General Administrative Agent, JPMorgan Chase Bank, N.A., Tokyo Branch, as Japanese Administrative Agent, J.P. Morgan Europe Limited, as European Administrative Agent, and the lenders from time to time party thereto. As of the date we entered into the 2019 Credit Agreement, there were no borrowings outstanding under the 2016 Multicurrency Revolving Facility.

Effective with the entry into the 2019 Credit Agreement, the 2016 Credit Agreement and all related loan documents were terminated and are of no further force and effect (except with respect to any obligations and provisions that survive the termination thereof).

The 2019 Credit Agreement will mature on November 1, 2024, with two one-year extensions exercisable at our discretion, subject to required lender consent. Borrowings under the 2019 Credit Agreement will be used for general corporate purposes.

Borrowings under the 2019 Credit Agreement will bear interest at floating rates based upon indices determined by the currency of the borrowing, or at an alternate base rate, in each case, plus an applicable margin determined by reference to our senior unsecured long-term credit rating, or at a fixed rate determined through a competitive bid process.

We will pay a facility fee on the aggregate amount of the 2019 Multicurrency Revolving Facility at a rate determined by reference to our senior unsecured long-term credit rating.

The 2019 Credit Agreement contains customary affirmative and negative covenants and events of default for an unsecured financing arrangement, including, among other things, limitations on consolidations, mergers and sales of assets. The 2019 Credit

Agreement also requires that we maintain a consolidated indebtedness to consolidated EBITDA ratio of no greater than 4.5 to 1.0 as of the last day of any period of four consecutive fiscal quarters (with such ratio subject to increase to 5.0 to 1.0 in connection with a qualified material acquisition and certain other restrictions).

The obligations of the borrowers (other than Zimmer Biomet Holdings) under the 2019 Credit Agreement are guaranteed by Zimmer Biomet Holdings.

The foregoing description of the 2019 Credit Agreement is qualified in its entirety by reference to the full text of the 2019 Credit Agreement, which is filed as Exhibit 10.1 hereto and incorporated herein by reference.

In the ordinary course of business, certain of the lenders under the 2019 Credit Agreement and their affiliates have provided, and may in the future provide, investment banking, commercial banking, cash management, foreign exchange or other financial services to us for which they have received, and may in the future receive, compensation.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	ZBH	New York Stock Exchange
1.414% Notes due 2022	ZBH 22A	New York Stock Exchange
2.425% Notes due 2026	ZBH 26	New York Stock Exchange

		Page

Part I - Financial Information

Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2019 and 2018	3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018	4
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	7
	Notes to Interim Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	40

Part II - Other Information

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	44

Signatures		45

	September 30,		December 31,
	2019		2018
	(in millions)
Finished goods	$	1,868.4	$	1,797.7
Work in progress		257.6		230.4
Raw materials		236.3		228.4
Inventories	$	2,362.3	$	2,256.5

	September 30,			December 31,
	2019			2018
	(in millions)
Land	$	27.5		$	28.0
Buildings and equipment		1,959.5			1,885.6
Capitalized software costs		468.1			425.8
Instruments		3,214.2			2,950.5
Construction in progress		148.0			147.2
		5,817.3			5,437.1
Accumulated depreciation		(3,762.0	)		(3,421.7	)
Property, plant and equipment, net	$	2,055.3		$	2,015.4

	As of
	September 30, 2019
Right-of-use assets recognized in Other assets	$	259.3
Lease liabilities recognized in Other current liabilities	$	61.8
Lease liabilities recognized in Other long-term liabilities	$	209.1
Weighted-average remaining lease term	6.3 years
Weighted-average discount rate		2.8	%

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

For the Years Ending December 31,
2019 (October 1, 2019 to December 31, 2019)	$	18.1
2020		64.6
2021		51.9
2022		37.6
2023		31.3
Thereafter		94.8
Total		298.3
Less imputed interest		27.4
Total	$	270.9

	Foreign			Cash			Defined
	Currency			Flow			Benefit			Total
	Translation			Hedges			Plan Items			AOCI
Balance at December 31, 2018	$	(31.3	)	$	20.9		$	(177.0	)	$	(187.4	)
AOCI before reclassifications		(60.1	)		41.0			-			(19.1	)
Reclassifications to statement of earnings		-			(24.1	)		7.4			(16.7	)
Balance at September 30, 2019	$	(91.4	)	$	37.8		$	(169.6	)	$	(223.2	)

	Amount of Gain (Loss)
	Reclassified from AOCI
	Three Months Ended						Nine Months Ended
	September 30,						September 30,						Location on
Component of AOCI	2019			2018			2019			2018			Statements of Earnings
Cash flow hedges
Foreign exchange forward contracts	$	11.3		$	(4.9	)	$	25.8		$	(26.5	)	Cost of products sold
Interest rate swaps		-			-			2.8			-		Interest expense, net
Forward starting interest rate swaps		(0.1	)		(0.1	)		(0.4	)		(0.4	)	Interest expense, net
		11.2			(5.0	)		28.2			(26.9	)	Total before tax
		1.5			(0.9	)		4.1			(3.9	)	Provision for income taxes
	$	9.7		$	(4.1	)	$	24.1		$	(23.0	)	Net of tax
Defined benefit plans
Prior service cost	$	1.8		$	2.4		$	5.5		$	7.4		Other expense, net
Unrecognized actuarial loss		(5.5	)		(6.7	)		(16.3	)		(19.5	)	Other expense, net
		(3.7	)		(4.3	)		(10.8	)		(12.1	)	Total before tax
		(0.7	)		(1.0	)		(3.4	)		(3.0	)	Provision for income taxes
	$	(3.0	)	$	(3.3	)	$	(7.4	)	$	(9.1	)	Net of tax
Total reclassifications	$	6.7		$	(7.4	)	$	16.7		$	(32.1	)	Net of tax

	Three Months Ended September 30, 2019									Nine Months Ended September 30, 2019
	Before Tax			Tax			Net of Tax			Before Tax			Tax			Net of Tax
Foreign currency cumulative translation adjustments	$	(41.6	)	$	29.2		$	(70.8	)	$	(25.6	)	$	34.5		$	(60.1	)
Unrealized cash flow hedge gains		33.6			7.5			26.1			46.4			5.4			41.0
Reclassification adjustments on cash flow hedges		(11.2	)		(1.5	)		(9.7	)		(28.2	)		(4.1	)		(24.1	)
Adjustments to prior service cost and unrecognized actuarial assumptions		3.7			0.7			3.0			10.8			3.4			7.4
Total Other Comprehensive (Loss) Income	$	(15.5	)	$	35.9		$	(51.4	)	$	3.4		$	39.2		$	(35.8	)

	Three Months Ended September 30, 2018									Nine Months Ended September 30, 2018
	Before Tax			Tax			Net of Tax			Before Tax			Tax			Net of Tax
Foreign currency cumulative translation adjustments	$	(45.4	)	$	(1.4	)	$	(44.0	)	$	(136.0	)	$	(9.0	)	$	(127.0	)
Unrealized cash flow hedge gains		38.1			5.3			32.8			67.7			9.7			58.0
Reclassification adjustments on cash flow hedges		5.0			0.9			4.1			26.9			3.9			23.0
Adjustments to prior service cost and unrecognized actuarial assumptions		1.0			(1.0	)		2.0			1.0			(3.0	)		4.0
Total Other Comprehensive Loss	$	(1.3	)	$	3.8		$	(5.1	)	$	(40.4	)	$	1.6		$	(42.0	)

	As of September 30, 2019
			Fair Value Measurements at Reporting Date Using:
Description	Recorded Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Derivatives, current and long-term
Foreign currency forward contracts	$	64.1	$	-	$	64.1	$	-
Interest rate swaps		107.4		-		107.4		-
Total Assets	$	171.5	$	-	$	171.5	$	-

Liabilities
Derivatives, current and long-term
Foreign currency forward contracts	$	0.1	$	-	$	0.1	$	-
Total Liabilities	$	0.1	$	-	$	0.1	$	-

	As of December 31, 2018
			Fair Value Measurements at Reporting Date Using:
Description	Recorded Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Derivatives, current and long-term
Foreign currency forward contracts	$	45.7	$	-	$	45.7	$	-
Interest rate swaps		17.9		-		17.9		-
Total Assets	$	63.6	$	-	$	63.6	$	-

Liabilities
Derivatives, current and long-term
Foreign currency forward contracts	$	0.5	$	-	$	0.5	$	-
Interest rate swaps		2.5		-		2.5		-
Total Liabilities	$	3.0	$	-	$	3.0	$	-

	Carrying Amount of the Hedged Liabilities				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities
Balance Sheet Line Item	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Long-term debt	$	558.3	$	564.4	$	8.4	$	14.6

	Amount of Gain (Loss)											Amount of Gain (Loss)
	Recognized in AOCI											Reclassified from AOCI
	Three Months Ended					Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,					September 30,					Location on	September 30,						September 30,
Derivative Instrument	2019		2018			2019		2018			Statements of Earnings	2019			2018			2019			2018
Foreign exchange forward contracts	$	33.6	$	38.8		$	46.4	$	68.3		Cost of products sold	$	11.3		$	(4.9	)	$	25.8		$	(26.5	)
Interest rate swaps		-		(0.7	)		-		(0.6	)	Interest expense, net		-			-			2.8			-
Forward starting interest rate swaps		-		-			-		-		Interest expense, net		(0.1	)		(0.1	)		(0.4	)		(0.4	)
	$	33.6	$	38.1		$	46.4	$	67.7			$	11.2		$	(5.0	)	$	28.2		$	(26.9	)

	Location and Amount of Gain/(Loss) Recognized in Income on Fair Value, Cash Flow and Net Investment Hedging Relationships for the Period Ended:
	Three Months Ended					Three Months Ended						Nine Months Ended					Nine Months Ended
	September 30, 2019					September 30, 2018						September 30, 2019					September 30, 2018
	Cost of		Interest			Cost of			Interest			Cost of		Interest			Cost of			Interest
	Products		Expense,			Products			Expense,			Products		Expense,			Products			Expense,
	Sold		Net			Sold			Net			Sold		Net			Sold			Net
Total amounts of income and expense line items presented in the statements of earnings in which the effects of fair value or cash flow hedges are recorded	$	535.7	$	(56.8	)	$	529.0		$	(67.5	)	$	1,670.4	$	(174.5	)	$	1,688.5		$	(220.8	)
The effects of fair value, cash flow and net investment hedging:
Gain on fair value hedging relationships
Discontinued interest rate swaps		-		2.0			-			2.1			-		6.2			-			6.3
Gain (loss) on cash flow hedging relationships
Foreign exchange forward contracts		11.3		-			(4.9	)		-			25.8		-			(26.5	)		-
Interest rate swaps		-		-			-			-			-		2.8			-			-
Forward starting interest rate swaps		-		(0.1	)		-			(0.1	)		-		(0.4	)		-			(0.4	)
Gain on net investment hedging relationships
Cross-currency interest rate swaps		-		13.4			-			9.5			-		38.8			-			14.7

	As of September 30, 2019			As of December 31, 2018
	Balance			Balance
	Sheet	Fair		Sheet	Fair
	Location	Value		Location	Value
Asset Derivatives
Foreign exchange forward contracts	Other current assets	$	59.1	Other current assets	$	37.9
Foreign exchange forward contracts	Other assets		18.2	Other assets		20.9
Interest rate swaps	Other assets		-	Other assets		2.8
Cross-currency interest rate swaps	Other assets		107.4	Other assets		15.1
Total asset derivatives		$	184.7		$	76.7
Liability Derivatives
Foreign exchange forward contracts	Other current liabilities	$	10.2	Other current liabilities	$	9.9
Foreign exchange forward contracts	Other long-term liabilities		3.1	Other long-term liabilities		3.7
Cross-currency interest rate swaps	Other long-term liabilities		-	Other long-term liabilities		2.5
Total liability derivatives		$	13.3		$	16.1

3.1		Restated Certificate of Incorporation of Zimmer Biomet Holdings, Inc., dated June 24, 2015 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed June 26, 2015)

3.2		Restated By-Laws of Zimmer Biomet Holdings, Inc., effective October 11, 2019 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed October 11, 2019)

10.1		Credit Agreement, dated as of November 1, 2019, among Zimmer Biomet Holdings, Inc., Zimmer Biomet G.K., Zimmer Luxembourg II S.À.R.L., the other borrowing subsidiaries referred to therein, JPMorgan Chase Bank, N.A., as General Administrative Agent, JPMorgan Chase Bank, N.A., Tokyo Branch, as Japanese Administrative Agent, J.P. Morgan Europe Limited, as European Administrative Agent, and the lenders party thereto
10.2		Form of Change in Control Severance Agreement with Carrie Nichol (incorporated by reference to Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K filed February 26, 2019)

10.3		Form of Confidentiality, Non-Competition and Non-Solicitation Agreement with Carrie Nichol (incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K filed February 26, 2019)

21		List of Subsidiaries of Zimmer Biomet Holdings, Inc.

31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 of the Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 of the Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. Inline XBRL Taxonomy Extension Schema Document Inline XBRL Taxonomy Extension Calculation Linkbase Document Inline XBRL Taxonomy Extension Definition Linkbase Document Inline XBRL Taxonomy Extension Label Linkbase Document Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

	ZIMMER BIOMET HOLDINGS, INC.
	(Registrant)

Date: November 5, 2019	By:	/s/ Suketu Upadhyay
		Suketu Upadhyay
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date: November 5, 2019	By:	/s/ Carrie Nichol
		Carrie Nichol
		Vice President, Controller and Chief Accounting Officer
		(Principal Accounting Officer)


Name of Lender: BANK OF AMERICA, N.A.

	by	/s/ Darren Merten
		Name: Darren Merten
		Title: Vice President


Name of Lender: Wells Fargo Bank, National Association

	by	/s/ Andrea S Chen
		Name: Andrea S Chen
		Title: Managing Director


BNP PARIBAS, as a lender

	by	/s/ Brendan Heneghan
		Name: Brendan Heneghan
		Title: Director


by		/s/ Ade Adedeji
		Name: Ade Adedeji
		Title: Director


Name of Lender: Citibank, N.A.

	by	/s/ Eugene Yermash
		Name: Eugene Yermash
		Title: Vice President


Name of Lender: Credit Suisse AG, Cayman Islands Branch

	by	/s/ Judith E. Smith
		Name: Judith E. Smith
		Title: Authorized Signatory


by	/s/ Brady Bingham
		Name: Brady Bingham
		Title: Authorized Signatory


Name of Lender: Credit Suisse (Switzerland) Ltd.

	by	/s/ Christophe Muller
		Name: Christophe Muller
		Title: Managing Director


by	/s/ Bettina Fahrni
		Name: Bettina Fahrni
		Title: Assistant Vice President


Name of Lender: DNB CAPITAL LLC

	by	/s/ Kristie Li
		Name: Kristie Li
		Title: Senior Vice President


by	/s/ Cathleen Buckley
		Name: Cathleen Buckley
		Title: Senior Vice President


Name of Lender: HSBC BANK USA, N.A

	by	/s/ Iain Stewart
		Name: Iain Stewart
		Title: Managing Director


Name of Lender: MIZUHO BANK, LTD.

	by	/s/ Tracy Rahn
		Name: Tracy Rahn
		Title: Authorized Signatory


Name of Lender: MUFG Bank, Ltd.

	by	/s/ David Meisner
		Name: David Meisner
		Title: Vice President


Name of Lender: Royal Bank of Canada

	by	/s/ Scott MacVicar
		Name: Scott MacVicar
		Title: Authorized Signatory


SUMITOMO MITSUI BANKING CORPORATION

	by	/s/ Michael Maguire
		Name: Michael Maguire
		Title: Executive Director


Name of Lender: Bank of Montreal

	by	/s/ Betsy Phillips
		Name: Betsy Phillips
		Title: Director, Commercial & Corporate Banking