Zimmer Biomet(ZBH) - 2023 Q4 - Annual Report

Financial Performance - In 2023, the company's net sales increased by 6.5% to $7,394.2 million compared to 2022, with a negative impact of 1.0$1,024.0 million in 2023, up from $290.2 million in 2022, driven by higher net sales and lower operating expenses [170]. - The company expects mid-single digit revenue growth in 2024, with a projected negative impact of approximately 0.5$4,288.8 million in 2023, while international sales increased by 6.1% to $3,105.4 million [174][179]. - The company's Knees product category saw a 9.4$3,038.4 million, while Hips increased by 3.8% to $1,967.2 million in 2023 [175][180]. - Demand trends contributed positively with an 8.1$151.9 million related to restructuring plans in 2023, down from $191.6 million in 2022 [189]. Cash Flow and Liquidity - Cash flows provided by operating activities from continuing operations were$1,581.6 million in 2023, an increase from $1,356.2 million in 2022 [204]. - Cash flows used in investing activities from continuing operations were$778.9 million in 2023, compared to $522.0 million in 2022, including$134.9 million related to acquisitions [205]. - As of December 31, 2023, the company had $415.8 million in cash and cash equivalents and$1.0 billion available to borrow under a 364-day revolving credit agreement [202]. Tax and Restructuring - The effective tax rate (ETR) on earnings from continuing operations was 4.0% in 2023, down from 27.9% in 2022, primarily due to unrecognized tax benefits [194]. - The company expects to reduce gross annual pre-tax operating expenses by $175 million to$200 million relative to the 2023 baseline expenses by the end of 2025 as part of the 2023 Restructuring Plan [213]. Regional Performance - Operating profit in the Americas increased in 2023, driven by higher net sales from the recovery of elective surgical procedures and new product introductions [198]. - In EMEA, operating profit and operating profit as a percentage of net sales increased in 2023 due to higher net sales and improved pricing [199]. - In Asia Pacific, operating profit increased despite a decline in net sales due to foreign currency exchange rates, offset by higher hedge gains [201]. Legal and Compliance - Total liabilities for litigation matters estimated at $244.1 million as of December 31, 2023, expected to be paid over the next few years [216]. - Future payments from development and distribution agreements could range from$0 to 440 million depending on product R&D and sales milestones [217]. - The company had net assets in legal entities with non-U.S. Dollar functional currencies amounting to 1,854.5 million as of December 31, 2023 [234]. - The company is involved in various ongoing legal proceedings and establishes liabilities for loss contingencies when probable losses can be reasonably estimated [224]. Risk Management - A sensitivity analysis indicated that a 10% change in foreign currency exchange rates could affect earnings by approximately $114 million to$105 million before income taxes through June 2026 [232]. - The majority of the company's debt is fixed-rate, and a 10% change in interest rates would not materially affect interest expense [240]. - The company is exposed to credit risk primarily from cash and cash equivalents, derivative instruments, and accounts receivable, but believes reserves for losses are adequate [241]. - The company evaluates the carrying value of goodwill and intangible assets annually, with two reporting units exceeding their carrying values by more than 50% during the latest testing [227]. - The company enters into supply contracts for raw materials with terms of 12 to 24 months to mitigate commodity price risks [237]. - Management regularly assesses the need for changes to the net realizable values of inventory based on market conditions and demand patterns [219].