Zimmer Biomet(ZBH) - 2025 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Zimmer Biomet Holdings, Inc. and its subsidiaries, covering earnings, comprehensive income, balance sheets, stockholders' equity, and cash flows, with detailed explanatory notes Condensed Consolidated Statements of Earnings This section provides the condensed consolidated statements of earnings, detailing revenue, net earnings, and earnings per share for the periods presented | Period | 2025 (millions) | 2024 (millions) | YoY Change (3M) | YoY Change (6M) | | :------------------- | :-------------- | :-------------- | :-------------- | :-------------- | | Three Months Ended Jun 30 | $2,077.3 | $1,942.0 | +7.0% | N/A | | Six Months Ended Jun 30 | $3,986.4 | $3,831.2 | N/A | +4.0% | | Period | 2025 (millions) | 2024 (millions) | YoY Change (3M) | YoY Change (6M) | | :------------------- | :-------------- | :-------------- | :-------------- | :-------------- | | Three Months Ended Jun 30 | $152.8 | $242.8 | -37.1% | N/A | | Six Months Ended Jun 30 | $334.9 | $415.2 | N/A | -19.4% | | Period | 2025 (dollars) | 2024 (dollars) | YoY Change (3M) | YoY Change (6M) | | :------------------- | :--- | :--- | :-------------- | :-------------- | | Three Months Ended Jun 30 | $0.77 | $1.18 | -34.7% | N/A | | Six Months Ended Jun 30 | $1.68 | $2.01 | N/A | -16.4% | Condensed Consolidated Statements of Comprehensive Income This section presents the condensed consolidated statements of comprehensive income, including net earnings and other comprehensive income components | Period | 2025 (millions) | 2024 (millions) | YoY Change (3M) | YoY Change (6M) | | :------------------- | :-------------- | :-------------- | :-------------- | :-------------- | | Three Months Ended Jun 30 | $155.5 | $258.9 | -40.0% | N/A | | Six Months Ended Jun 30 | $313.2 | $411.0 | N/A | -23.8% | | Period | 2025 (millions) | 2024 (millions) | YoY Change (3M) | YoY Change (6M) | | :------------------- | :-------------- | :-------------- | :-------------- | :-------------- | | Three Months Ended Jun 30 | $2.7 | $16.1 | -83.2% | N/A | | Six Months Ended Jun 30 | $(21.7) | $(4.2) | N/A | -416.7% | Condensed Consolidated Balance Sheets This section provides the condensed consolidated balance sheets, detailing assets, liabilities, and equity at specific reporting dates | Date | Amount (millions) | Change from Dec 31, 2024 (millions) | | :------------------- | :---------------- | :----------------------- | | June 30, 2025 | $22,865.1 | +$1,499.8 (+7.0%) | | December 31, 2024 | $21,365.3 | N/A | | Date | Amount (millions) | Change from Dec 31, 2024 (millions) | | :------------------- | :---------------- | :----------------------- | | June 30, 2025 | $10,330.8 | +$1,441.7 (+16.2%) | | December 31, 2024 | $8,889.1 | N/A | | Date | Amount (millions) | Change from Dec 31, 2024 (millions) | | :------------------- | :---------------- | :----------------------- | | June 30, 2025 | $12,534.3 | +$58.1 (+0.5%) | | December 31, 2024 | $12,476.2 | N/A | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity, including net earnings, other comprehensive income, dividends, and share repurchases | Period | June 30, 2025 (millions) | June 30, 2024 (millions) | Change (YoY) | | :------------------- | :----------------------- | :----------------------- | :----------- | | Balance | $12,534.3 | $12,749.4 | -1.7% | - Key changes in Stockholders' Equity (Six Months Ended June 30, 2025) include net earnings of +$334.9 million, other comprehensive loss of -$21.7 million, cash dividends declared of -$95.0 million, and share repurchases of -$231.9 million[15] Condensed Consolidated Statements of Cash Flows This section details the condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities | Period | 2025 (millions) | 2024 (millions) | YoY Change | | :------------------- | :-------------- | :-------------- | :--------- | | Six Months Ended Jun 30 | $761.0 | $597.4 | +27.4% | | Period | 2025 (millions) | 2024 (millions) | YoY Change | | :------------------- | :-------------- | :-------------- | :--------- | | Six Months Ended Jun 30 | $(1,490.4) | $(442.0) | +237.2% (increased outflow) | | Period | 2025 (millions) | 2024 (millions) | YoY Change | | :------------------- | :-------------- | :-------------- | :--------- | | Six Months Ended Jun 30 | $739.2 | $(142.0) | Shift from outflow to inflow | | Date | Amount (millions) | Change from Dec 31, 2024 (millions) | | :------------------- | :---------------- | :----------------------- | | June 30, 2025 | $556.9 | +$31.4 (+6.0%) | | December 31, 2024 | $525.5 | N/A | Notes to Interim Condensed Consolidated Financial Statements This section provides detailed explanatory notes supporting the interim condensed consolidated financial statements, covering various accounting policies and financial details Note 1. Basis of Presentation This note clarifies the basis for preparing the unaudited interim financial statements and their relation to the annual report - The financial data presented is unaudited and should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2024[20] - The unaudited condensed consolidated financial statements include all necessary normal recurring adjustments for a fair statement of financial position, results of operations, and cash flows[21] - Results for interim periods should not be considered indicative of results for the full year[21] Note 2. Significant Accounting Policies This note outlines the significant accounting policies and recent accounting pronouncements impacting the financial statements - The financial statements are prepared in conformity with GAAP, requiring estimates and assumptions that affect reported amounts[25] - ASU 2023-09 (Improvements to Income Tax Disclosures): Effective for fiscal years beginning after December 15, 2024; the company will adopt for the fiscal year ending December 31, 2025[26] - ASU 2024-03 (Disaggregation of Income Statement Expenses): Effective for fiscal years beginning after December 15, 2026; the company is currently evaluating its impact on disclosures[27] Note 3. Revenue This note provides a disaggregation of net sales by geographic region and product category for the three months ended June 30 | Geography | 2025 (millions) | 2024 (millions) | % Change | | :---------- | :-------------- | :-------------- | :------- | | United States | $1,173.8 | $1,106.2 | 6.1% | | International | $903.5 | $835.8 | 8.1% | | Total | $2,077.3 | $1,942.0 | 7.0% | | Product Category | 2025 (millions) | 2024 (millions) | % Change | | :--------------- | :-------------- | :-------------- | :------- | | Knees | $826.0 | $801.1 | 3.1% | | Hips | $536.1 | $506.5 | 5.8% | | S.E.T. | $550.6 | $469.5 | 17.3% | | Technology & Data, Bone Cement and Surgical | $164.6 | $164.9 | (0.2)% | | Total | $2,077.3 | $1,942.0 | 7.0% | Note 4. Restructuring This note details the company's restructuring plans, including the 2025, 2023, and 2019 initiatives, and their associated pre-tax charges - 2025 Restructuring Plan: Approved in February 2025 to reduce costs and transform operations, with expected total pre-tax charges of approximately $85 million by the end of 2027; $29.8 million incurred through June 30, 2025[31] - 2023 Restructuring Plan: Concluded in the first quarter of 2025, resulting in total pre-tax restructuring charges of approximately $117 million[32] - 2019 Restructuring Plan: Initiated in December 2019, expected to result in total pre-tax restructuring charges of approximately $400 million; $384.6 million incurred through June 30, 2025, with remaining costs related to a manufacturing facility closure expected in 2025[32][34] Note 5. Inventories This note provides a breakdown of inventory balances by category as of June 30, 2025, and December 31, 2024 | Category | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :--------------- | :----------------------- | :--------------------------- | :----- | | Finished goods | $1,967.7 | $1,771.7 | +11.1% | | Work in progress | $208.3 | $175.1 | +18.9% | | Raw materials | $278.2 | $288.5 | -3.5% | | Total Inventories | $2,454.2 | $2,235.3 | +9.8% | Note 6. Property, Plant and Equipment This note details the composition of property, plant, and equipment, net of accumulated depreciation, at specific reporting dates | Category | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :------------------------- | :----------------------- | :--------------------------- | :----- | | Land | $22.6 | $18.5 | +22.2% | | Buildings and equipment | $2,411.2 | $2,273.1 | +6.1% | | Capitalized software costs | $606.1 | $575.1 | +5.4% | | Instruments | $3,834.0 | $3,589.6 | +6.8% | | Construction in progress | $271.6 | $233.9 | +16.1% | | Accumulated depreciation | $(4,969.8) | $(4,641.4) | +7.1% (increase in accumulated depreciation) | | Total, net | $2,175.7 | $2,048.8 | +6.2% | Note 7. Acquisitions This note provides details on significant acquisitions, including the Paragon 28 acquisition and other strategic purchases, and their financial impact - Paragon 28 Acquisition (April 21, 2025): Acquired all outstanding shares for $13.00 cash per share plus a non-tradeable contingent value right (CVR) up to $1.00 per share; initial consideration was $1,241.5 million, with a fair value of contingent consideration of $36.8 million; goodwill recognized was $643.1 million[37][38][39] - 2024 Acquisitions: Completed four acquisitions with initial consideration of $294.8 million and additional contingent consideration up to $111.6 million (fair value $61.0 million); goodwill recognized was $201.4 million[43][44][45][46][47][49] - In the six-month period ended June 30, 2024, the company recognized $101.6 million in intangible assets related to agreements to acquire ownership rights or access to various technologies[51] Note 8. Debt This note details the company's debt structure, including current and long-term debt, recent issuances, and revolving credit facilities | Category | June 30, 2025 (millions) | December 31, 2024 (millions) | Change (millions) | | :------------------- | :----------------------- | :--------------------------- | :----- | | Current portion of long-term debt | $820.0 | $863.0 | -4.9% | | Long-term debt | $6,752.5 | $5,341.6 | +26.4% | | Total Debt | $7,572.5 | $6,204.6 | +22.0% | - In the six-month period ended June 30, 2025, the company redeemed $863.0 million of 3.550% Senior Notes due 2025 and issued new senior notes totaling $1,750.0 million (4.700% due 2027, 5.050% due 2030, and 5.500% due 2035)[52][53] - New revolving credit agreements were entered into on June 27, 2025: a $1.5 billion five-year facility (with $50.0 million outstanding) and a $1.0 billion 364-day facility (with no outstanding borrowings); an uncommitted credit facility has $170.0 million outstanding[54][55][60][61][63][64] Note 9. Accumulated Other Comprehensive Income This note explains the components and changes in accumulated other comprehensive income (loss), including foreign currency adjustments and hedge gains/losses - Accumulated other comprehensive income (loss) (AOCI) was $(284.5) million at June 30, 2025, compared to $(262.8) million at December 31, 2024[69] - AOCI is comprised of foreign currency translation adjustments, unrealized gains and losses on cash flow hedges, and unrecognized prior service costs and actuarial assumptions related to defined benefit plans[68] - Reclassification adjustments from AOCI to statements of earnings for the six months ended June 30, 2025, included a $30.0 million gain (net of tax) from cash flow hedges and a $1.7 million gain (net of tax) from defined benefit plans[69] Note 10. Fair Value Measurement of Assets and Liabilities This note details the fair value measurements of assets and liabilities, categorized by valuation input levels, including derivatives and contingent payments | Description | Recorded Balance (millions) | Level 1 (millions) | Level 2 (millions) | Level 3 (millions) | | :-------------------------------------- | :-------------------------- | :----------------- | :----------------- | :----------------- | | Assets: | | | | | | Derivatives designated as hedges | $32.0 | $- | $32.0 | $- | | Liabilities: | | | | | | Derivatives designated as hedges | $168.5 | $- | $168.5 | $- | | Derivatives not designated as hedges | $11.1 | $- | $11.1 | $- | | Contingent payments related to acquisitions | $166.7 | $- | $- | $166.7 | | Total Liabilities | $346.3 | $- | $179.6 | $166.7 | - Contingent payments related to acquisitions (Level 3 liabilities) are valued using discounted cash flow techniques based on probability-weighted future revenue estimates and regulatory milestones[74] | Item | Amount (millions) | | :------------------------------------------ | :---------------- | | Beginning balance December 31, 2024 | $180.7 | | New contingent consideration (Paragon 28) | $36.8 | | Change in estimates | $(7.7) | | Settlements | $(45.2) | | Foreign currency impact | $2.1 | | Ending balance June 30, 2025 | $166.7 | Note 11. Derivative Instruments and Hedging Activities This note describes the company's use of derivative instruments, including interest rate swaps and foreign currency contracts, to manage market risks - The company uses fixed-to-variable interest rate swaps to manage interest rate risk (fair value hedges) and foreign currency exchange forward contracts (cash flow hedges) and Euro notes (net investment hedges) to manage foreign currency exchange rate risk[79][82][83] - As of June 30, 2025, notional amounts of outstanding forward contracts to purchase U.S. Dollars were $1,511.9 million, and to purchase Swiss Francs were $450.6 million[88] - A gain of $23.8 million (or $18.7 million after taxes) is expected to be reclassified to earnings in cost of products sold, and a loss of $0.8 million (or $0.6 million after taxes) in interest expense, net, over the next twelve months from cash flow hedges[90] Note 12. Income Taxes This note discusses the effective tax rate, factors influencing it, ongoing IRS disputes, and the evaluation of new tax legislation | Period | 2025 (percent) | 2024 (percent) | Change (pp) | | :------------------- | :----- | :----- | :---------- | | Three Months Ended Jun 30 | 31.7% | 19.6% | +12.1 | | Six Months Ended Jun 30 | 25.9% | 19.6% | +6.3 | - The increase in ETR for 2025 was primarily driven by the mix of earnings between U.S. and foreign locations and a change in assertion regarding the indefinite reinvestment of earnings of certain foreign subsidiaries[101] - The company is vigorously contesting IRS proposed adjustments for tax years 2013-2015 (transfer pricing) and 2016-2019 (U.S. taxation of foreign earnings, potentially $312 million additional tax expense)[98][99][100] - The company is evaluating the impact of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, on its financial statements[102] Note 13. Earnings Per Share This note presents the basic and diluted earnings per share calculations and details the weighted-average shares outstanding | Period | 2025 (Basic, millions) | 2024 (Basic, millions) | 2025 (Diluted, millions) | 2024 (Diluted, millions) | | :------------------- | :----------- | :----------- | :------------- | :------------- | | Three Months Ended Jun 30 | 197.9 | 205.7 | 198.3 | 206.4 | | Six Months Ended Jun 30 | 198.4 | 205.4 | 199.0 | 206.3 | - An average of 4.8 million options (for both 3M and 6M 2025) and 2.9 million/2.3 million options (for 3M/6M 2024, respectively) were excluded from diluted EPS computation due to their antidilutive effect[103] Note 14. Segment Information This note provides financial information by reportable segment, including net sales, segment profit, and total assets - The company operates through three reportable segments: Americas, EMEA, and Asia Pacific[104] - Segment operating profit is evaluated exclusive of 'Corporate items' such as intangible asset amortization, restructuring costs, and corporate functions[105] | Segment | Net Sales 2025 (millions) | Net Sales 2024 (millions) | Segment Profit 2025 (millions) | Segment Profit 2024 (millions) | | :---------- | :------------------------ | :------------------------ | :----------------------------- | :----------------------------- | | Americas | $1,273.8 | $1,199.3 | $652.8 | $636.8 | | EMEA | $467.5 | $432.4 | $158.5 | $151.6 | | Asia Pacific | $336.1 | $310.3 | $122.9 | $122.2 | | Total | $2,077.3 | $1,942.0 | $934.2 | $910.6 | | Segment | June 30, 2025 (millions) | December 31, 2024 (millions) | | :---------- | :----------------------- | :--------------------------- | | Americas | $1,351.0 | $1,344.0 | | EMEA | $748.0 | $655.0 | | Asia Pacific | $362.0 | $311.0 | | Corporate items | $1,604.5 | $1,406.0 | | Total | $4,065.5 | $3,716.0 | Note 15. Commitments and Contingencies This note outlines the company's legal proceedings, litigation liabilities, and other contractual obligations that may require future payments - The company is involved in various legal proceedings, including product liability and intellectual property matters; net litigation-related charges were $5.3 million (3M 2025) and $7.3 million (6M 2025)[110][113] - Accrued litigation liabilities were $156.8 million as of June 30, 2025, and $156.4 million as of December 31, 2024[113] - Other contractual obligations, dependent on R&D or sales milestones, could result in future payments ranging from $0 to approximately $325 million[114] Note 16. Subsequent Event This note discloses the definitive agreement to acquire Monogram Technologies Inc., an orthopedic robotics company, after the reporting period - Monogram Technologies Inc. Acquisition (July 11, 2025): The company entered into a definitive agreement to acquire Monogram, an orthopedic robotics company; initial consideration is approximately $180 million, with potential additional contingent consideration up to $570 million based on milestones through 2030[115] - The transaction is expected to close in the second half of 2025, subject to regulatory and stockholder approvals[115] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition and results of operations, covering sales growth, expense trends, liquidity, and forward-looking statements Executive Level Overview This overview highlights key financial performance, including net sales growth, net earnings changes, and the company's full-year 2025 outlook - Net Sales Growth (YoY): Increased by 7.0% for the three months and 4.0% for the six months ended June 30, 2025, driven by the Paragon 28 acquisition, market growth, new product introductions, and positive foreign currency exchange rates[117] - Net Earnings (YoY Decrease): Decreased to $152.8 million (3M) and $334.9 million (6M) in 2025, primarily due to Paragon 28 acquisition costs, higher interest expense, increased cost of products sold (inflation), and investments in marketing/IT, partially offset by lower restructuring costs[118] - 2025 Outlook: Expected full year revenue growth of 6.7% to 7.7%, with Paragon 28 contributing 2.7% and foreign currency a positive 0.5%; net earnings are projected to decrease due to higher acquisition/integration costs, operating expenses, intangible asset amortization, manufacturing costs (including $40 million in tariffs), increased net interest expense, and a higher effective tax rate[119][120] Results of Operations This section provides a detailed analysis of the company's operational performance, including net sales by geography and product category, and expense trends Net Sales by Geography This section details net sales performance across different geographic regions for the three and six months ended June 30 | Geography | 2025 (millions) | 2024 (millions) | % Inc | | :---------- | :-------------- | :-------------- | :---- | | United States | $1,173.8 | $1,106.2 | 6.1% | | International | $903.5 | $835.8 | 8.1% | | Total (3M) | $2,077.3 | $1,942.0 | 7.0% | | Geography | 2025 (millions) | 2024 (millions) | % Inc | | :---------- | :-------------- | :-------------- | :---- | | United States | $2,287.4 | $2,205.4 | 3.7% | | International | $1,699.0 | $1,625.8 | 4.5% | | Total (6M) | $3,986.4 | $3,831.2 | 4.0% | Net Sales by Product Category This section presents net sales performance broken down by key product categories for the three and six months ended June 30 | Product Category | 2025 (millions) | 2024 (millions) | % Inc / (Dec) | | :--------------- | :-------------- | :-------------- | :------------ | | Knees | $826.0 | $801.1 | 3.1% | | Hips | $536.1 | $506.5 | 5.8% | | S.E.T. | $550.6 | $469.5 | 17.3% | | Technology & Data, Bone Cement and Surgical | $164.6 | $164.9 | (0.2)% | | Total (3M) | $2,077.3 | $1,942.0 | 7.0% | | Product Category | 2025 (millions) | 2024 (millions) | % Inc / (Dec) | | :--------------- | :-------------- | :-------------- | :------------ | | Knees | $1,618.9 | $1,589.3 | 1.9% | | Hips | $1,031.9 | $997.6 | 3.4% | | S.E.T. | $1,021.1 | $922.1 | 10.7% | | Other | $314.5 | $322.2 | (2.4)% | | Total (6M) | $3,986.4 | $3,831.2 | 4.0% | Demand (Volume and Mix) Trends This section analyzes the impact of changes in product sales volume and mix on overall year-over-year sales growth - Changes in volume and mix of product sales had a positive effect of 5.2% (3M 2025) and 3.7% (6M 2025) on year-over-year sales[125] - The Paragon 28 acquisition contributed 2.6% (3M 2025) and 1.4% (6M 2025) to volume growth[125] Pricing Trends This section discusses the impact of global selling prices on year-over-year sales and strategies to offset negative pricing pressures - Global selling prices had a positive effect of 0.2% on year-over-year sales for both the three and six-month periods ended June 30, 2025[126] - The company successfully offset negative pricing pressure through internal initiatives and by passing some inflationary impacts on to customers[126] Foreign Currency Exchange Rates This section examines the effect of foreign currency exchange rate fluctuations on year-over-year sales and future estimates - Changes in foreign currency exchange rates had a positive effect of 1.6% (3M 2025) and 0.1% (6M 2025) on year-over-year sales[127] - A positive impact of 0.5% on full-year 2025 sales is estimated if foreign currency exchange rates remain consistent with recent levels[127] Geography (Detailed) This section provides a detailed breakdown of net sales growth in the U.S. and International markets, highlighting key drivers - U.S. Net Sales Growth: 6.1% (3M 2025) and 3.7% (6M 2025), driven by the Paragon 28 acquisition (3.8% for 3M, 1.9% for 6M) and market growth in Knees, Hips, and S.E.T. product categories[128] - International Net Sales Growth: 8.1% (3M 2025) and 4.5% (6M 2025), driven by the Paragon 28 acquisition (1.2% for 3M, 0.6% for 6M), market growth, reduced estimated liabilities to public healthcare agencies, and positive foreign currency effects (3.5% for 3M, 0.4% for 6M)[128] Product Categories (Detailed) This section offers a detailed analysis of net sales performance across specific product categories, including Knees, Hips, S.E.T., and Technology & Data - Knees and Hips: Net sales benefited from market growth and new product introductions, with positive foreign currency effects of 1.3% (3M) and 0.1% (6M) on Knees, and 1.8% (3M) and 0.2% (6M) on Hips[129] - S.E.T.: Net sales increases were primarily due to the Paragon 28 acquisition (11.1% for 3M, 5.7% for 6M) and growth in sports medicine, upper extremities, and craniomaxillofacial and thoracic products[129] - Technology & Data, Bone Cement and Surgical: Net sales declined due to lower sales of the ROSA® Robot[130] Expenses as a Percentage of Net Sales This section analyzes key expense categories as a percentage of net sales, highlighting changes and underlying drivers for the six months ended June 30 | Expense Category | 2025 (6M, percent) | 2024 (6M, percent) | Change (pp) | | :------------------------------------------ | :-------- | :-------- | :---------- | | Cost of products sold, excluding intangible asset amortization | 28.6% | 27.8% | +0.8 | | Intangible asset amortization | 7.8% | 7.5% | +0.3 | | Research and development | 5.6% | 5.7% | -0.1 | | Selling, general and administrative | 39.5% | 38.5% | +1.0 | | Restructuring and other cost reduction initiatives | 1.3% | 4.3% | -3.0 | | Acquisition, integration, divestiture and related | 2.2% | 0.1% | +2.1 | | Operating profit | 14.9% | 16.1% | -1.2 | - Cost of products sold: Increased as a percentage of net sales (6M) due to higher manufacturing costs (inflation) and selling Paragon 28 inventory at its stepped-up fair value[131] - SG&A expenses: Increased due to Paragon 28 expenses, direct-to-patient marketing, IT, medical education, and higher performance-related compensation, partially offset by lower bad debt and share-based payment expenses[134] - Restructuring costs: Decreased significantly due to the timing of programs, with the 2023 plan being larger in scope than the 2025 plan and the completion of U.S. and Canada ERP implementation[135] Other Income, Net, Interest Expense, Net, and Income Taxes This section analyzes trends in other income, net interest expense, and the effective tax rate, explaining key drivers for changes - Other Income, Net: Increased to $3.9 million (3M 2025) and $6.9 million (6M 2025) from $2.0 million and $1.9 million (2024 periods), primarily due to the non-recurrence of prior year investment losses[138] - Interest Expense, Net: Increased due to higher average debt balances from the Paragon 28 acquisition and new borrowings in 2024 that replaced debt with lower interest rates[139] - Effective Tax Rate (ETR): Increased to 31.7% (3M 2025) and 25.9% (6M 2025) from 19.6% in both prior year periods, driven by the mix of earnings between U.S. and foreign locations and a change in assertion regarding indefinite reinvestment of foreign subsidiary earnings[140] Segment Operating Profit This section examines segment operating profit and its percentage of net sales for the Americas, EMEA, and Asia Pacific regions | Segment | 2025 (6M, percent) | 2024 (6M, percent) | Change (pp) | | :---------- | :-------- | :-------- | :---------- | | Americas | 51.5% | 53.5% | -2.0 | | EMEA | 33.7% | 34.9% | -1.2 | | Asia Pacific | 35.5% | 38.1% | -2.6 | - Americas: Operating profit increased, but as a percentage of net sales decreased due to the Paragon 28 acquisition (lower operating profit margin) and higher manufacturing costs, partially offset by lower bad debt expense[142] - EMEA: Operating profit increased, but as a percentage of net sales decreased due to the Paragon 28 acquisition (lower operating profit margin) and higher manufacturing costs, partially offset by savings from restructuring plans[143] - Asia Pacific: Operating profit increased (3M) but decreased (6M), and as a percentage of net sales decreased due to net sales increases being largely offset by higher manufacturing costs[144] Liquidity and Capital Resources This section discusses the company's sources of liquidity, cash flow activities, and material cash requirements from contractual obligations - As of June 30, 2025, the company had $556.9 million in cash and cash equivalents, along with $1.0 billion available under its 2025 364-Day Credit Agreement and $1.45 billion under its 2025 Five-Year Revolving Facility[145] - Management believes that current cash flows from operations, cash on hand, and available borrowings will be sufficient to meet liquidity requirements for at least the next twelve months[146] Sources of Liquidity This section analyzes cash flows from operating, investing, and financing activities, and the composition of cash and cash equivalents - Operating Activities: Net cash provided increased to $761.0 million (6M 2025) from $597.4 million (6M 2024), driven by lower bonus payments and favorable timing of accounts payable, partially offset by Paragon 28 acquisition costs and higher tax payments[147] - Investing Activities: Net cash used increased significantly to $1,490.4 million (6M 2025) from $442.0 million (6M 2024), primarily due to $1,226.3 million for the Paragon 28 acquisition and $32.4 million for intangible asset acquisition[148] - Financing Activities: Shifted to net cash provided of $739.2 million (6M 2025) from net cash used of $142.0 million (6M 2024), driven by $1,748.1 million from senior notes issuance and $220.0 million net borrowings on revolving facilities, used for Paragon 28, debt redemption, and stock repurchases[149] - As of June 30, 2025, $484.6 million of cash and cash equivalents were held in jurisdictions outside the U.S., with $55.9 million denominated in U.S. Dollars[151] Material Cash Requirements from Known Contractual and Other Obligations This section details significant future cash outflows related to outstanding debt, restructuring plans, IRS disputes, litigation, and acquisition commitments - Outstanding Debt: Total outstanding debt was $7,572.5 million as of June 30, 2025, with $820.0 million classified as current debt, expected to be satisfied by cash from operations, new debt, or revolving credit facilities[153] - Restructuring Plans: The 2025 Restructuring Plan expects $85 million in pre-tax charges by 2027 ($30 million incurred), aiming for $95 million in annual operating expense reductions; the 2023 plan concluded with $117 million in charges, targeting $175-$200 million in annual savings; the 2019 plan expects $400 million in charges ($385 million incurred), targeting $180-$280 million in annual savings[156] - IRS Disputes: Potential significant future payments related to disputed tax adjustments for years 2013-2015 and 2016-2019, which the company intends to vigorously defend[157] - Litigation & Contractual Obligations: Estimated total litigation liabilities of $156.8 million as of June 30, 2025; other contractual arrangements may result in future payments ranging from $0 to approximately $325 million[158] - Monogram Acquisition: Initial consideration of approximately $180 million and potential contingent consideration up to $570 million, expected to be funded by cash on hand and available debt financing[159] Recent Accounting Pronouncements This section refers to Note 2 for details on recent accounting pronouncements, including ASU 2023-09 and ASU 2024-03 - Information pertaining to recent accounting pronouncements, including ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Disaggregation of Income Statement Expenses), can be found in Note 2 to the interim condensed consolidated financial statements[161] Critical Accounting Estimates This section confirms no changes in critical accounting estimates during the three-month period ended June 30, 2025 - There were no changes in critical accounting estimates during the three-month period ended June 30, 2025, from those described in the Annual Report on Form 10-K for the year ended December 31, 2024[162] Cautionary Note Regarding Forward-Looking Statements and Factors That May Affect Future Results This note advises caution regarding forward-looking statements, highlighting significant risks and uncertainties that could impact future results - This report contains forward-looking statements that are subject to significant risks, uncertainties, and changes in circumstances that could cause actual results to differ materially[163] - Key risk factors include competition, pricing pressures, dependence on new product development, integration risks of the Paragon 28 acquisition, business disruptions, IT system failures, government investigations, healthcare reform, substantial indebtedness, tax obligations, tariffs, and litigation[163][166] - Readers are cautioned not to rely on these forward-looking statements, as it is not possible to predict or identify all factors that could cause actual results to differ materially[167] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes to market risk disclosures from the Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes from the information provided in the Annual Report on Form 10-K for the year ended December 31, 2024[168] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section reports on management's evaluation of the effectiveness of disclosure controls and procedures as of June 30, 2025 - Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025[170] - Based on the evaluation, disclosure controls and procedures were concluded to be effective at a reasonable assurance level[170] Changes in Internal Control Over Financial Reporting This section addresses changes in internal control over financial reporting, including the integration of Paragon 28's controls - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control during the quarter ended June 30, 2025[171] - As part of the integration process of Paragon 28, its internal controls are being enhanced to align with the company's framework of internal controls over financial reporting[171] Part II - Other Information Item 1. Legal Proceedings This section refers to Note 15 of the interim condensed consolidated financial statements for detailed information on legal proceedings - Information pertaining to legal proceedings can be found in Note 15 to the interim condensed consolidated financial statements[172] Item 1A. Risk Factors This section advises considering risk factors from the Annual Report on Form 10-K, as they could materially affect business and financial results - Readers should carefully consider the factors discussed in Part I, Item 1A "Risk Factors" of the Annual Report on Form 10-K for the year ended December 31, 2024, as they could materially affect the business, financial condition, and results of operations[173] - Additional risks and uncertainties not currently known or deemed immaterial may also materially adversely affect the business[173] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or use of proceeds during the period - None[174] Item 3. Defaults Upon Senior Securities This section reports no defaults upon senior securities during the period - None[174] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company's operations - Not applicable[174] Item 5. Other Information This section reports no Rule 10b5-1 trading arrangement adoptions, amendments, or terminations by directors or officers - No members of the Board of Directors or officers adopted, amended, or terminated any contract, instruction, or written plan for the purchase or sale of securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act during the three-month period ended June 30, 2025[174] Item 6. Exhibits This section lists all exhibits filed or furnished as part of the report, including merger agreements, corporate governance, and credit agreements - The report includes various exhibits such as the Agreement and Plan of Merger for Paragon 28, Restated Certificate of Incorporation and Bylaws, Offer Letter for Kevin Thornal, 2009 Stock Incentive Plan, Five-Year Revolving Credit Agreement, 364-Day Revolving Credit Agreement, List of Subsidiaries, and Certifications (302 and 906)[178] Signatures This section contains the required signatures for the Form 10-Q report, affirming its submission pursuant to the Securities Exchange Act of 1934 - The report is signed by Suketu Upadhyay (Chief Financial Officer and Executive Vice President - Finance, Operations and Supply Chain) and Paul Stellato (Vice President, Controller and Chief Accounting Officer) on August 7, 2025[180]