Zimmer Biomet(US:ZBH)2022-08-01 16:00Financial Performance - Net sales increased by 1.0% and 2.4% for the three and six-month periods ended June 30, 2022, compared to the same prior year periods [121]. - Net earnings were $153.7 million and $167.9 million for the three and six-month periods ended June 30, 2022, respectively, compared to $141.9 million and $340.0 million in the same prior year periods [121]. - The U.S. net sales growth was 1.3% and 3.5% for the three and six-month periods ended June 30, 2022, driven by recovery in surgical procedures [131]. - International net sales grew by 0.7% and 1.0% during the three and six-month periods ended June 30, 2022, despite a negative impact of 11.5% and 9.2% from foreign currency exchange rates [131]. - Knees product category net sales increased by 5.9% and 6.9% for the three and six-month periods ended June 30, 2022, respectively [132]. - Hips product category net sales grew by 2.7% and 1.8% for the three and six-month periods ended June 30, 2022, respectively [132]. Expenses and Costs - Research and development expenses decreased as a percentage of net sales to 5.6% for the three-month period ended June 30, 2022, compared to 9.4% in the prior year [133]. - Cost of products sold as a percentage of net sales increased to 28.7% for the three-month period ended June 30, 2022, due to inflationary pressures [133]. - Selling, general and administrative (SG&A) expenses decreased slightly in the three-month period ended June 30, 2022, and increased in the six-month period ended June 30, 2022, primarily due to higher litigation-related charges of $35.7 million compared to $10.7 million in the prior year [137]. - The company recognized restructuring expenses of $57.0 million and $100.9 million in the three and six-month periods ended June 30, 2022, respectively, primarily related to employee termination benefits and consulting expenses [140]. Cash Flow and Liquidity - Cash flows provided by operating activities from continuing operations were $661.2 million in the six-month period ended June 30, 2022, compared to $642.5 million in the same prior year period, driven by lower investments in inventory [148]. - Cash flows used in investing activities from continuing operations were $324.3 million in the six-month period ended June 30, 2022, reflecting ongoing investments in product portfolio and acquisitions [149]. - As of June 30, 2022, the company had $386.4 million in cash and cash equivalents and $1.0 billion available to borrow under its 2021 364-Day Credit Agreement [146]. Tax and Other Income - The effective tax rate (ETR) for the three and six-month periods ended June 30, 2022, was 22.8 percent and 24.5 percent, respectively, compared to 18.7 percent and 13.9 percent in the prior year periods, primarily due to losses on investments [144]. - The company incurred a loss of $42.6 million in other (expense) income, net for the three-month period ended June 30, 2022, primarily due to a $33.3 million loss on its investment in ZimVie [142]. Restructuring Plans - The 2021 Restructuring Plan is expected to incur total pre-tax restructuring charges of approximately $230 million, with $100 million incurred through June 30, 2022, aiming to reduce gross annual pre-tax operating expenses by approximately $210 million by the end of 2024 [158]. - The 2019 Restructuring Plan is projected to incur total pre-tax restructuring charges of approximately $335 million to $385 million, with $230 million incurred through June 30, 2022, targeting a reduction in gross annual pre-tax operating expenses of approximately $180 million to $280 million by the end of 2023 [158]. Legal and Regulatory Matters - Total liabilities for litigation matters were estimated at $395.8 million as of June 30, 2022, with potential future payments related to development and distribution contracts ranging from $0 to approximately $370 million [161]. - The IRS has proposed adjustments reallocating profits for years 2010 through 2015, which may significantly impact future operating cash flows [159]. - The company is involved in various litigation matters that may result in charges exceeding current estimates upon resolution [161]. Operational Challenges - The company anticipates that COVID-19 and staffing shortages will continue to negatively affect net sales, but to a lesser degree than in 2021 [122]. - The company is facing uncertainties related to the successful execution of its restructuring plans and the potential impact of the COVID-19 pandemic on operations and cash flows [165]. - The company has not recognized estimated future payments related to contractual arrangements on its balance sheets due to uncertainty regarding timing and occurrence [161]. - The company cautions that forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially [164]. - The company emphasizes the importance of attracting and retaining skilled employees to support its business operations [165].