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10-K
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

OR

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-41242

 

ZIMVIE INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

87-2007795

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

10225 Westmoor Drive

Westminster, CO

80021

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (303) 443-7500

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

ZIMV

 

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

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, 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.

 

Large accelerated filer

 

☐

 

Accelerated filer

 

☐

 

 

 

 

Non-accelerated filer

 

☒

 

Smaller reporting company

 

☐

 

 

 

 

 

 

 

Emerging growth company

 

☐

 

 

 

 

 

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of the Registrant's common stock on The Nasdaq Global Select Market on June 30, 2022, was $334,918,922.

The number of shares of the Registrant’s Common Stock outstanding as of February 24, 2023 was 26,236,053.

DOCUMENTS INCORPORATED BY REFERENCE

Document

 

Form 10-K

Portions of the Proxy Statement with respect to the 2023 Annual Meeting of Stockholders

 

Part III

 

 

 

 

 

 

ZIMVIE INC.

ANNUAL REPORT

 

Cautionary Note Regarding Forward-Looking Statements

 

This Annual Report contains forward-looking statements within the meaning of federal securities laws, including, among others, any statements about our expectations, plans, intentions, strategies or prospects. We generally use the words “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “assumes,” “guides,” “targets,” “forecasts,” “sees,” “seeks,” “should,” “could,” “would,” “predicts,” “potential,” “strategy,” “future,” “opportunity,” “work toward,” “intends,” “guidance,” “confidence,” “positioned,” “design,” “strive,” “continue,” “track,” “look forward to” and similar expressions to identify forward-looking statements. All statements other than statements of historical or current fact are, or may be deemed to be, forward-looking statements. Such statements are based upon the current beliefs, expectations and assumptions of management and are subject to significant risks, uncertainties and changes in circumstances that could cause actual outcomes and results to differ materially from the forward-looking statements. These risks, uncertainties and changes in circumstances include, but are not limited to: the effects of the COVID-19 global pandemic and other adverse public health developments on the global economy, our business and operations and the business and operations of our suppliers and customers, including the deferral of elective procedures and our ability to collect accounts receivable; dependence on new product development, technological advances and innovation; shifts in the product category or regional sales mix of our products and services; supply and prices of raw materials and products; pricing pressures from competitors, customers, dental practices and insurance providers; changes in customer demand for our products and services caused by demographic changes or other factors; challenges relating to changes in and compliance with governmental laws and regulations affecting our United States (“U.S.”) and international businesses, including regulations of the U.S. Food and Drug Administration (“FDA”) and foreign government regulators, such as more stringent requirements for regulatory clearance of products; competition; the impact of healthcare reform measures; reductions in reimbursement levels by third-party payors; cost containment efforts sponsored by government agencies, legislative bodies, the private sector and healthcare group purchasing organizations, including the volume-based procurement process in China; control of costs and expenses; dependence on a limited number of suppliers for key raw materials and outsourced activities; the ability to obtain and maintain adequate intellectual property protection; breaches or failures of our information technology systems or products, including by cyberattack, unauthorized access or theft; the ability to retain the independent agents and distributors who market our products; our ability to attract, retain and develop the highly skilled employees we need to support our business; the effect of mergers and acquisitions on our relationships with customers, suppliers and lenders and on our operating results and businesses generally; a determination by the Internal Revenue Service that the distribution or certain related transactions should be treated as taxable transactions; financing transactions undertaken in connection with the separation and risks associated with additional indebtedness; the impact of the separation on our businesses and the risk that the separation and the results thereof may be more difficult, time consuming and/or costly than expected, which could impact our relationships with customers, suppliers, employees and other business counterparties; restrictions on activities following the distribution in order to preserve the tax-free treatment of the distribution; the ability to form and implement alliances; changes in tax obligations arising from tax reform measures, including European Union (“EU”) rules on state aid, or examinations by tax authorities; product liability, intellectual property and commercial litigation losses; changes in general industry and market conditions, including domestic and international growth rates; changes in general domestic and international economic conditions, including inflation and interest rate and currency exchange rate fluctuations; and the impact of the ongoing financial and political uncertainty on countries in the Euro zone on the ability to collect accounts receivable in affected countries.

 

See also Part I, Item 1A, “Risk Factors” for further discussion of certain risks and uncertainties that could cause actual results and events to differ materially from the forward-looking statements. 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. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

For additional information concerning factors that may cause actual results to vary materially from those stated in the forward-looking statements, see our reports on Form 10-K, 10-Q and 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) from time to time.

 

 

 

 

RISK FACTORS SUMMARY

 

Our business, financial condition, and operating results may be affected by a number of factors, whether currently known or unknown. Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations, and stock price. We have provided a summary of some of these risks below, with a more detailed explanation of the risks applicable to us in Part I, Item 1A, “Risk Factors” and elsewhere in this report:

 

Risks Related to Our Business, Operations and Strategy

 

•
The COVID-19 pandemic has adversely impacted, and continues to pose risks to, our business, results of operations and financial condition, the nature and extent of which are highly uncertain and unpredictable.
•
Interruption of our manufacturing operations could adversely affect our business, financial condition and results of operations.
•
Disruptions in the supply of the materials and components used in manufacturing our products or the sterilization of our products by third-party suppliers could adversely affect our business, financial condition and results of operations.
•
Our success depends on our ability to effectively develop and market our products against those of our competitors.
•
To be commercially successful, we must effectively demonstrate to surgeons, dentists and hospitals the value proposition of our products and procedural solutions compared to those of our competitors.
•
If we fail to retain the employees and the independent agents and distributors upon whom we rely to market our products, customers may not buy our products and our revenue and profitability may decline.
•
If we do not introduce new products in a timely manner, our products may become obsolete over time, customers may not buy our products and our revenue and profitability may decline.
•
If third-party payors decline to reimburse our customers for our products or reduce reimbursement levels, the demand for our products may decline and our ability to sell our products profitably may be harmed.
•
We are subject to cost containment measures in the U.S. and other countries, resulting in pricing pressures.
•
Disruptions to our business from implementation of our new enterprise resource planning systems adversely impacted our operating results in 2022, and similar disruptions in 2023 or later years could have a material adverse impact on our business, results of operations, financial condition, or cash flows.

 

Financial, Liquidity and Tax Risks

 

•
In connection with our separation from Zimmer Biomet, we incurred substantial floating rate indebtedness that exposes us to increased costs of servicing our indebtedness as interest rates rise, and we may not be able to generate sufficient cash flows to meet all of our debt obligations, which could materially adversely affect our business, financial condition and results of operations.
•
Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on the performance of, and distributions from, our subsidiaries.
•
We are exposed to risks of excess and obsolete inventory and we may not realize the expected benefits of our working capital management strategies, which may adversely impact our cash flow and liquidity.
•
We are subject to risks arising from currency exchange rate fluctuations, which can increase our costs, cause our profitability to decline and expose us to counterparty risks.
•
We may be adversely affected by inflation.
•
We may have additional tax liabilities.
•
Future material impairments in the carrying value of our intangible assets, including goodwill, would negatively affect our operating results.

 

Global Operational Risks

 

•
We conduct a significant amount of our sales activity outside of the U.S., which subjects us to additional business risks and may cause our profitability to decline due to increased costs.
•
Conditions in the global economy, the particular markets we serve and financial markets may adversely affect our business, results of operations and financial condition.

 

 

 

Legal, Regulatory and Compliance Risks

 

•
If we fail to obtain, or experience significant delays in obtaining, FDA clearances or approvals for our future products or product enhancements, our ability to commercially distribute and market our products could suffer.
•
We are subject to costly and complex laws and governmental regulations relating to the development, design, product standards, packaging, advertising, promotion, post-market surveillance, manufacturing, labeling and marketing of our products, non-compliance with which could adversely affect our business, financial condition and results of operations.
•
If we fail to comply with healthcare fraud and abuse laws and regulations or anticorruption regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
•
If we fail to comply with data privacy and security laws and regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
•
We are increasingly dependent on sophisticated information technology and if we fail to effectively maintain or protect our information systems or data, including from data breaches, our business could be adversely affected.
•
Pending and future product liability claims and litigation could adversely impact our financial condition and results of operations and impair our reputation.
•
We bear the risk of warranty claims on our products.
•
The industries that we serve have undergone, and are in the process of undergoing, significant changes in an effort to reduce costs, which could adversely affect our business, results of operations and financial condition.
•
We are substantially dependent on patent and other proprietary rights, and failing to protect such rights or to be successful in litigation related to our rights or the rights of others may result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future products, or prohibit us from enforcing our patent and other proprietary rights against others.
•
We are involved in legal proceedings that may result in adverse outcomes.
•
Our business involves the use of hazardous materials, and we and our third-party manufacturers must comply with environmental laws and regulations, which may be expensive and restrict how we do business.
•
Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and business operations.

 

Risks Related to the Separation and Distribution

 

•
The financial information included in this Annual Report from prior to the separation is not necessarily representative of the results we would have achieved as a standalone, publicly traded company and may not be a reliable indicator of our future results.
•
If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we, Zimmer Biomet, and Zimmer Biomet stockholders could be subject to significant tax liabilities and, in certain circumstances, we could be required to indemnify Zimmer Biomet for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.
•
U.S. federal income tax consequences may restrict our ability to engage in certain desirable strategic or capital-raising transactions.
•
Zimmer Biomet or we may fail to perform under various transaction agreements that were executed as part of the separation, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.
•
As an independent, publicly traded company, we may not enjoy the same benefits that we did as part of Zimmer Biomet.
•
If we are required to pay under our indemnification obligations to Zimmer Biomet, our financial results could be negatively impacted. The Zimmer Biomet indemnity may not be sufficient to hold us harmless from the full amount of liabilities for which Zimmer Biomet is allocated responsibility, and Zimmer Biomet may not be able to satisfy its indemnification obligations in the future.
•
The allocation of intellectual property rights among us and Zimmer Biomet as part of the separation could adversely impact our competitive position and our ability to develop and commercialize certain future products and services.

 

Risks Related to Our Common Stock

 

•
If securities or industry analysts do not publish research or publish inaccurate, misleading or unfavorable research about our business, our stock price and trading volume could decline.
•
If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
•
The market price of shares of our common stock may be volatile, which could cause the value of your investment to decline.
•
Anti-takeover provisions in our certificate of incorporation and bylaws and of Delaware law could enable our board of directors to resist a takeover attempt by a third party and limit the power of our stockholders.

 

 

 

 

 

Table of Contents

 

 

 

Page

PART I

 

 

Item 1.

Business

1

Item 1A.

Risk Factors

13

Item 1B.

Unresolved Staff Comments

33

Item 2.

Properties

33

Item 3.

Legal Proceedings

34

Item 4.

Mine Safety Disclosures

34

 

 

 

PART II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

35

Item 6.

[Reserved]

36

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

45

Item 8.

Financial Statements and Supplementary Data

46

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

77

Item 9A.

Controls and Procedures

77

Item 9B.

Other Information

77

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

77

 

 

 

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

78

Item 11.

Executive Compensation

78

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

78

Item 13.

Certain Relationships and Related Transactions, and Director Independence

78

Item 14.

Principal Accountant Fees and Services

78

 

 

 

PART IV

 

 

Item 15.

Exhibits and Financial Statement Schedules

79

Item 16.

Form 10-K Summary

81

 

i

 

PART I

 

ITEM 1. BUSINESS.

 

Overview

 

ZimVie Inc. (“ZimVie,” “we,” “us,” “our” or the “Company”) was incorporated in the State of Delaware on July 30, 2021 as a wholly owned subsidiary of Zimmer Biomet Holdings, Inc. (“Zimmer Biomet” or “Parent”). We were formed solely for the purpose of effecting the distribution of our outstanding shares of common stock on a pro rata basis to holders of Zimmer Biomet common stock and to hold directly or indirectly the assets and liabilities associated with the spine and dental businesses of Zimmer Biomet prior to the distribution. The distribution was completed on March 1, 2022, and resulted in ZimVie becoming a standalone, publicly traded company. Prior to March 1, 2022, ZimVie’s financial statements were prepared on a carve-out basis and were derived from Zimmer Biomet’s consolidated financial statements and accounting records.

 

Our Company

 

ZimVie is a leading medical technology company dedicated to enhancing the quality of life for spine and dental patients worldwide. We develop, manufacture, and market a comprehensive portfolio of products and solutions designed to treat a wide range of spine pathologies and support dental tooth replacement and restoration procedures. Our broad portfolio addresses all areas of spine with market leadership in cervical disc replacement ("CDR") and vertebral body tethering to treat pediatric scoliosis, and we are well-positioned in the growing global dental implant, biomaterials and digital dentistry market with a strong presence in the tooth replacement market with market leading positions in certain geographies. Our operations are principally managed on a products basis and include two operating segments, 1) the spine products segment, and 2) the dental products segment. In 2022, we generated total third-party net sales of $909.5 million.

 

ZimVie was built through the acquisition and integration of over a dozen leading spine and dental businesses and brands over the course of more than 30 years. ZimVie today is the result of the combination of Zimmer, Inc.’s (“Zimmer”) and Biomet Inc.’s (“Biomet”) spine and dental portfolios in 2015, and the subsequent development of new products and technologies, as well as business development activities. As a result of our rich history and comprehensive portfolio, we are well-positioned to expand our presence in the spine surgery and tooth replacement markets we serve.

 

We estimate the global spine surgery market generated approximately $12 billion in sales in 2022. Within spine surgery, we believe that minimally invasive surgery (“MIS”) and motion preservation solutions represent the highest growth categories. We estimate the global tooth replacement market generated approximately $8 billion in sales in 2022. Within tooth replacement, our focus is on growing the dental implant, biomaterials and digital dentistry categories.

 

We have leading positions in a number of attractive submarkets of the broader global markets for spine and dental that we serve. Our established commercial infrastructure and large sales force support our meaningful presence in both established and emerging markets.

 

We operate on a global scale and utilize a network of directly-employed sales representatives, independent sales agents, and exclusive distributors to market our products in 70 countries in North America, Europe, Latin America and Asia. We have approximately 2,700 employees globally, with approximately 1,100 employees focusing on sales, marketing and key commercialization activities and approximately 150 employees focusing on research and development ("R&D"). Additionally, we operate six manufacturing sites and devote significant resources to training and educating surgeons and clinicians regarding the proper use, safety, and reproducibility of clinical outcomes for our products. Our education and training programs are led by our medical education team and field experts, and integrate training with professional development, enabling us to introduce our innovative products and procedures.

 

Our operations are principally managed in two product markets, spine and dental, which are also our two operating segments.

 

Spine

 

In the spine products market, our core services include designing, manufacturing and distributing a full suite of spinal surgery solutions to treat patients with back or neck pain caused by degenerative conditions, deformities, tumors or traumatic injury of the spine. Our comprehensive portfolio includes implants, instrumentation, biologics and bone healing technologies. We also offer differentiated, motion preserving products in our spine portfolio, including Mobi-C® Cervical Disc and The Tether™ device. Our products and services are utilized in hospitals and surgery centers for open and minimally invasive surgical procedures for the cervical, thoracic and lumbar spine. We sell our spine products through a combination of direct sales channels and distributors. Our global net sales from our spine business was $449.8 million for the year ended December 31, 2022, as compared to $540.3 million for the year ended December 31, 2021.

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Dental

 

In the dental products market, our core services include designing, manufacturing and distributing a comprehensive portfolio of dental implant solutions, biomaterials and digital dentistry solutions. Dental reconstructive implants are for individuals who are totally without teeth or are missing one or more teeth, dental prosthetic products are aimed at providing aesthetic and functional restoration to resemble the original teeth, and dental regenerative products are for soft tissue and bone rehabilitation. Our products and solutions are utilized in oral surgery centers, dental service organizations (“DSOs”) and dental offices by oral surgeons and dental clinicians to provide patients with aesthetic and functional restoration to resemble the original teeth. We also service the clinician community by offering a variety of solutions to the dental laboratories they partner with. Our implant portfolio is complemented by our robust line of biomaterial solutions that are used for soft tissue and bone rehabilitation, and can help build sufficient bone necessary for dental implant surgery utilizing bone grafting techniques. Digital dentistry is a growing category of the dental market, and we offer a full suite of digital dentistry solutions and workflows that are designed to work together with our dental implant systems to deliver fully integrated, end-to-end implant-based tooth replacement solutions. We sell the majority of our dental products through direct sales channels, utilizing distribution partners only in smaller geographic areas. In 2022, our total dental net sales were primarily from our direct sales efforts. Our global net sales from our dental business were $459.7 million for the year ended December 31, 2022, as compared to $468.5 million for the year ended December 31, 2021.

 

Our Company History

 

Our proud heritage began inside Biomet in 1988 through the acquisition of EBI Medical Systems, Inc., a leader in bone-growth electrical stimulation and external bone fixation markets. In 1999, Biomet entered the dental implant market through its acquisition of Implant Innovations, Inc., and further enhanced its spine portfolio through its acquisition of Lanx, Inc. in 2013, gaining access to two spinal fusion product lines. Zimmer entered the spine and dental markets in 2003 through its acquisition of Centerpulse AG, a pure-play orthopedics company with a leading spine and dental platform.

 

Following Zimmer’s combination with Biomet, Zimmer Biomet acquired LDR Holding Corporation and Medtech SA in 2016 to accelerate the spine business into a leading position in CDR and enter the surgical robotics market. Between 2019 and 2020, the dental business was reshaped through multiple tuck-in acquisitions that expanded digital dentistry capabilities to include guided surgery services with the acquisition of Implant Concierge, LLC, as well as computer aided-design ("CAD")/computer aided-manufacturing ("CAM") software and surgery guide production capabilities with the 3DIEMME srl acquisition. In 2021, Zimmer Biomet announced the planned distribution of the spine and dental businesses into “ZimVie Inc.”, and we became a standalone, publicly-traded company on March 1, 2022.

 

Our Products

 

We have a long history of developing innovative spine and dental products with extensive input from surgeons and clinicians. Today, our portfolio includes a full range of products designed to treat a wide range of spinal pathologies and tooth replacement and restoration procedures. Our products and technologies facilitate less-invasive applications across both spine and dental surgery procedures to enable better outcomes.

 

Our Spine Products

 

We offer a broad product portfolio of surgical spine solutions designed to improve clinical outcomes for patients. Our products are utilized in an open and MIS setting and our portfolio is organized into three primary product categories: (1) core and complex solutions; (2) MIS solutions; and (3) motion preservation solutions. Our global net sales from our spine business were $449.8 million for the year ended December 31, 2022, as compared to $540.3 million for the year ended December 31, 2021.

 

Core and complex solutions. Our comprehensive suite of market-leading products supports surgeon efforts to treat a spectrum of spinal pathologies including degeneration and deformity. The portfolio includes spinal fusion implants and instrumentation for various spinal procedures, biologics and bone healing technologies. The key products in our core and complex spine portfolio consist of the following:

 

•
ROI-C®
•
MaxAn®
•
Virage®
•
Vital™
•
Cervical and Lumbar Interbody Devices
•
Bone Healing Technologies
•
PrimaGen Advanced™ Allograft

2

 

•
Puros Allograft System

 

MIS solutions. Our MIS solutions portfolio delivers implant and instrumentation systems specifically designed to support MIS approaches. These procedural solutions are intended to optimize surgeon workflows and provide patients the clinical benefits that may be associated with shorter and less-invasive procedures. The key products in our MIS solutions portfolio consist of the following:

 

•
Vital MIS
•
Timberline®

 

Motion preservation solutions. Our motion preservation portfolio offers non-fusion alternatives where either mobility for cervical disc replacement or growth modulation for AVBT are important objectives with clinically established patient benefits. The key products in our motion preservation solutions portfolio consist of the following:

 

•
Mobi-C
•
The Tether

 

Our Dental Products

 

We offer a broad product portfolio of surgical, biomaterial and digital hardware and software solutions designed to serve the needs of oral surgeons, clinicians and their patients. Our product portfolio is organized into three primary categories: (1) dental implant solutions; (2) biomaterial solutions; and (3) digital dentistry solutions. These categories are highly complementary and essential to providing complete end-to-end implant-based tooth replacement solutions. Our global net sales from our dental business were $459.7 million for the year ended December 31, 2022, as compared to $468.5 million for the year ended December 31, 2021.

 

Dental implant solutions. We offer a comprehensive line of dental implant systems, prosthetic and abutment products, and surgical instrumentation and kits to address a wide range of clinical needs and indications. Our implant system portfolio encompasses tissue-level and bone-level implants, in a variety of surfaces, shapes, sizes and widths, to provide a full range of solutions for restoring the tooth’s natural appearance and function. The key products in our dental implant solutions portfolio consist of the following:

 

•
Tapered Screw-Vent® (TSV®) Implant System
•
T3® Implant System
•
OSSEOTITE®
•
Trabecular Metal®
•
3.1mmD Eztetic®
•
Spline®
•
SwissPlus®

 

Biomaterial solutions. We offer a comprehensive line of biologic products for soft tissue and bone rehabilitation. Our portfolio includes bone grafts, barrier membranes and collagen wound care products. The key products in our biomaterial solutions portfolio consist of the following:

 

•
Puros Allografts
•
RegenerOss Allografts
•
Xenograft Substitutes
•
Synthetic Bone Graft Substitutes
•
Barrier Membranes
•
Collagen Wound Care

 

Digital dentistry. We offer a full suite of digital dentistry technologies that provide fully integrated, end-to-end implant-based tooth replacement and full-arch restoration solutions for oral surgeons, clinicians and dental laboratories. Our comprehensive range of solutions includes virtual treatment planning services, guided surgery solutions, CAD/CAM workflow systems and patient-specific restorative components and intra-oral scanners. These products and solutions were designed to work together with our dental implant systems to deliver long-term esthetic and physical integrity that patients demand.

 

As mentioned above, we offer advanced, patient-specific restorative solutions such as patient-specific components and surgical guides. We design and market our patient-specific abutments, bars, implant bridges and hybrid restorations under the BellaTek® brand. Our BellaTek abutments are precisely fabricated and exclusively designed to match each patient’s tooth anatomy and produce a natural

3

 

emergence profile through the soft tissue. Our BellaTek-related workflows leverage our Encode® Impression System, which reduces the need for implant level impressions and simplifies the treatment process for patients, surgeons and restorative clinicians.

 

Additionally, we also offer web-based treatment planning and surgery guide design through our Implant Concierge® service. Implant Concierge provides dental specialists, general practitioners, DSOs and dental laboratories with high quality implant planning, 3D-printed surgical guides and surgery-ready products for all major competitive implant systems. For cases that specify one of our implant systems, we offer SmileZ Today™, a just-in-time personalized supply chain solution delivering all the components necessary for a surgical case. Our key patient-specific restorative solutions consist of the following:

 

•
BellaTek System
•
GenTek™ System
•
Encode Healing Abutment / Impression System
•
SmileZ Today

 

Hardware and software solutions. We offer a comprehensive portfolio of intraoral scanners that enables multiple digital workflows and efficient collaboration between dental professionals. The key products in our hardware and software solutions consist of the following:

 

•
Intraoral Scanners
•
RealGUIDE

 

Sales and Distribution

 

We utilize a global network of directly-employed sales representatives, independent sales agents and exclusive distributors to market our products in 70 countries in North America, Europe, Latin America and Asia. As of December 31, 2022, we had approximately 1,100 employees focusing on sales, marketing and key commercialization activities.

 

Spine – We sell our spine implants, instruments, devices and services primarily through independent sales agents in the U.S., and a combination of directly-employed sales representatives, independent sales agents and exclusive distributors internationally. In the U.S., each member of our sales team is responsible for a defined territory, and independent sales agents act as our sole representative in their respective territories. The determination of whether to engage an independent sales agent is made on a territory-by-territory basis, with a focus on aligning the sales team’s objectives with local surgeons’ needs. Our customers include spine surgeons and hospital and ASC administrators.

 

Dental – We sell dental implant systems, biomaterials, and digital dentistry solutions primarily through direct sales, though we utilize third-party distributor partners in smaller geographies. Our typical customers and end-users of our products include oral surgeons, dental specialists, general dentists, dental laboratories and other dental organizations, including DSOs, as well as educational, medical and governmental entities and third-party distributors.

 

In addition to our sales and marketing efforts noted above, we devote significant resources to training and educating surgeons and clinicians regarding the proper use, safety and reproducibility of clinical outcomes for our products. Our education and training programs are led by our medical education team and field experts, and integrate training with professional development, enabling us to introduce our innovative products and procedures. We provide science-based education, hands-on product training, clinical instruction and practice management training, both in person and virtually to participants around the world.

 

Research and Development

 

We engage in significant R&D activities across both our spine and dental businesses for the purpose of developing new product offerings to meet customer needs, as well as to improve upon our existing portfolio.

 

Our development efforts focus on high growth submarkets that we believe will help augment our existing portfolio and drive future growth. In our spine segment, we seek to introduce enabling technologies as the market shifts to MIS and surgeons and providers seek additional offerings for workflow enhancement. Similarly, within our dental business, we focus on developing new implant technologies, biomaterials and digital dentistry solutions to improve surgeon and clinician efficiency and patient outcomes. Our R&D organization maintains an extensive network of relationships with surgeons, clinicians, key opinion leaders and other leading healthcare professionals in spine and dental. The purpose of these collaborative interactions is to assist us in delivering meaningful clinical and economic benefits across all of our new offerings. By partnering with these field experts, we develop products that specifically address unmet surgeon, oral surgeon and dental clinician and patient needs. The efficient development and commercialization of new products and technologies remains key to our core strategy and continues to be an important growth driver for the business.

 

4

 

We leverage our research activities to identify innovative technologies in both the spine and dental markets. In addition to our internal development efforts, we may at times seek to expand our portfolio of offerings through inorganic means, such as acquiring complementary products or businesses, establishing technology licensing arrangements or forming strategic alliances. We intend to further broaden our offerings in select product categories, and with the help of key partners, we are exploring the potential of advanced technologies, including mixed-reality, artificial intelligence and machine learning, all of which have possible applications in multiple areas of our business.

 

Our primary R&D facilities are located in the U.S., in Florida and Colorado. We have additional R&D personnel based in France and other international locations. As of December 31, 2022, we employed approximately 150 R&D individuals worldwide. For the years ended December 31, 2022 and 2021, we incurred R&D expenses of $62.7 million and $61.3 million, respectively.

 

Intellectual Property

 

Patents and other proprietary rights are important to the continued success of our business. We also rely upon trade secrets, know-how, continuing technological innovation and licensing opportunities to develop and maintain our competitive position. We protect our proprietary rights through a variety of methods, including confidentiality agreements and proprietary information agreements with suppliers, employees, consultants and others who may have access to proprietary information. Although in aggregate our intellectual property is important to our operations, we do not consider any single patent, trademark, copyright, trade secret or license to be of material importance to any segment or to the business as a whole. We own or control through licensing arrangements over 2,100 issued patents and patent applications throughout the world that relate to aspects of the technology incorporated in many of our products. See Part I, Item 1A, "Risk Factors” of this report for a discussion of risks related to our intellectual property.

 

Materials, Manufacturing and Supply

 

Our manufacturing operations employ a wide variety of raw materials that we purchase from a large number of independent sources around the world. No single supplier is material, although for some components that require particular specifications or qualifications, there may be a single supplier or a limited number of suppliers that can readily provide such components. We utilize a number of techniques to address potential disruption in and other risks relating to our supply chain, including in certain cases the use of safety stock, alternative materials and qualification of multiple supply sources.

 

In order to sell our products, we must be able to reliably produce and ship our products in sufficient quantities. Many of our products involve complex manufacturing processes and are produced at one or a limited number of manufacturing sites, including at third-party manufacturing sites.

 

Minor deviations in our manufacturing or logistical processes, unpredictability of a product’s regulatory or commercial success or failure, the lead time necessary to construct highly technical and complex manufacturing sites and shifting customer demand increase the potential for capacity imbalances. See Part I, Item 1A, “Risk Factors” of this report for a further discussion of risks relating to the materials used in our operations and our manufacturing process and supply chain.

 

Competition

 

The spine and dental markets in which we conduct our business, and the medical technology industry in general, are highly competitive and subject to change. The industry is affected by the introduction of new products and technologies and other market activities of industry participants. Our competitors include other global medical technology companies and pure-play spine and dental companies, as well as academic institutions and other public and private research organizations that conduct research, seek patent protection and establish arrangements for commercializing products that will compete with our products. Our spine segment competes primarily with the spinal and biologic businesses of Medtronic plc, the DePuy Synthes Companies (part of the Johnson & Johnson Medical Devices group), Stryker Corporation, NuVasive, Inc. and Globus Medical, Inc. Our dental segment’s primary competition includes The Straumann Group, Dentsply Sirona Inc., Nobel Biocare Services AG (part of Envista Holdings Corporation), Henry Schein, Inc. and Geistlich Pharma AG.

 

The primary competitive factors we face include technological innovation and technical capability, clinical results, price, breadth of product line, scale of operations, distribution capabilities, brand reputation, medical education capabilities and customer service. In order to remain competitive in the future, we must seek to continually enhance our business. Our ability to compete is affected by our ability to accomplish the following:

 

•
Develop new products and innovative technologies;
•
Improve upon our existing portfolio of offerings;
•
Improve efficiency and clinical outcomes for surgeons, clinicians and their patients;

5

 

•
Obtain and maintain regulatory clearances or approvals and reimbursement for our products;
•
Manufacture and sell our products cost-effectively;
•
Meet all relevant quality standards for our products and their markets;
•
Protect the proprietary technology of our products and manufacturing processes;
•
Effectively market and promote our products;
•
Continue to provide effective medical education for surgeons and clinicians on our products;
•
Attract and retain qualified scientific, management and sales employees and focused sales representatives;
•
Maintain our strategic partnerships; and
•
Support our technology with clinically relevant studies.

 

Human Capital

 

Workforce Composition

 

As of December 31, 2022, we had approximately 2,700 employees worldwide. Approximately 1,400 employees were located within the U.S. and 1,300 employees were located outside of the U.S., primarily throughout Europe and Asia. Employees of our wholly-owned subsidiaries based in Spain, France, Germany, Switzerland, Austria and the Netherlands are covered by Works Councils. In addition to our employees, we partner with independent sales representatives and independent distributors who sell our products in the U.S. and internationally.

 

Our sales force consists of directly-employed sales representatives, independent sales representatives and independent territory-based distributors who are responsible for particular geographic regions. We operate in a highly competitive industry and it is essential that we attract and retain qualified personnel through competitive compensation and benefits and a rewarding work environment in order to achieve our strategic business objectives. In particular, competition for sales talent in our industry is significant. Our sales force provides delivery and consultative services to our surgeon, clinician and hospital customers, and our sales representatives often develop long-lasting relationships with the customers they serve. Accordingly, recruiting sales representatives with appropriate expertise, retaining our talent and incentivizing our sales force is important to our success. We also believe we will attract and retain sales talent based on the breadth of our product and service offerings, our commitment to investing in R&D and our new product innovation pipeline, as well as our medical training and education program.

 

Compensation and Benefits

 

We offer competitive compensation and benefit packages, supporting our employees as they help to drive our mission. At ZimVie, we believe everyone deserves to feel better, healthier, and stronger. We create solutions to help people to enjoy and experience life, and we know that starts with the health and well-being of our employees. Our compensation and benefits packages may include competitive base or hourly pay, overtime pay, annual incentive and bonus opportunities, long-term incentive opportunities, healthcare and retirement benefits, paid time off and sick leave, paid family care and parental leave, company holidays and well-being breaks, flexible work schedules, remote working opportunities, tuition reimbursement, and an employee assistance program.

 

Talent Development

 

We believe that success comes from investing in our people and ensuring our workforce is aligned with our mission and values. To achieve this goal, we devote time and resources to ensure that throughout our organization, employees are familiar with our business, industry and product offerings, and our sales representatives receive additional comprehensive training on our various product offerings. In addition, a key driver of our future growth is our ability to develop leaders. We are committed to identifying and developing talent to help those employees accelerate their growth and achieve their career goals.

 

Employee Communication and Engagement

 

We value open and direct communication with our employees about their experiences. We use a variety of channels to obtain employee feedback, including employee surveys, open forums with leadership and employee resource groups. The input received through these mechanisms is used to help evolve our working environment and strengthen our culture.

 

Diversity and Inclusion

 

We recognize the value associated with fostering a work environment that is culturally diverse and inclusive. Our goal is to cultivate a respectful and professional environment where all voices are heard and valued. We have established employee resource groups that aim to highlight the value of diversity, inclusion and engagement, while providing professional development opportunities for employees of

6

 

all genders, experience levels and locations. We also review performance data and promotion and compensation information to ensure fair and objective decision-making.

 

Community

 

Our employees and sales representatives have a long history of providing support and care to our communities, donating time, resources and funds to local causes. In addition, we support medical research and education, charitable and philanthropic endeavors. We believe in giving back, and we also believe it is important to operate in a socially responsible manner.

 

Health, Safety and Wellness

 

We are committed to the protection of our employees, customers, communities and the environment. Our operations require the use of hazardous materials that subject us to various federal, state and local environmental and safety laws and regulations. Our key areas of focus include corporate compliance with responsible hazardous waste management, recycling and emergency preparedness, as well as various initiatives to improve our health and safety programs with the goal of reducing and ultimately eliminating serious injuries.

 

Human Capital Governance

 

Our Board of Directors, or the Compensation Committee of the Board at the direction of the Board, is responsible for the periodic review and monitoring of our policies and strategies related to human capital management, including employment practices, compensation practices, benefit programs, employee development and retention programs, organizational culture matters, and diversity, equity and inclusion programs. Management also works closely with the Compensation Committee of our Board of Directors to establish goals and objectives and metrics in connection with the design and funding of the annual bonus opportunity for our employees.

 

Seasonality

 

Our business is seasonal in nature to some extent, as many of our products are used in elective procedures, which typically decline during the early months of the year and can increase at the end of the year once annual deductibles have been met on health insurance plans. Additionally, with sales to customers where title to product passes upon shipment, these customers may purchase items in large quantities if incentives are offered or if there are new product offerings in a market, which could cause period-to-period differences in sales. Due to the COVID-19 global pandemic, the typical seasonal patterns did not occur in 2021 or 2020.

 

Government Regulation and Compliance

 

Our operations, products and customers are subject to extensive government regulation by numerous government agencies, both within and outside the U.S. Our global regulatory environment is increasingly stringent, unpredictable and complex. There is a global trend toward increased regulatory activity related to medical products.

 

In the U.S., numerous laws and regulations govern all the processes by which our products are brought to market. These include, among others, the Federal Food, Drug and Cosmetic Act (“FDCA”) and regulations issued or promulgated thereunder. The FDA has enacted regulations that control all aspects of the development, manufacture, advertising, promotion and postmarket surveillance of medical products, including medical devices. In addition, the FDA controls the access of products to market through processes designed to ensure that only products that are safe and effective are made available to the public.

 

Most of our new products fall into an FDA medical device classification that requires the submission of a premarket notification (510(k)) to the FDA. This process requires us to demonstrate that the device to be marketed is at least as safe and effective as, that is, substantially equivalent to, a legally marketed device. We must submit information that supports our substantial equivalency claims. Before we can market the new device, we must receive an order from the FDA finding substantial equivalence and clearing the new device for commercial distribution in the U.S.

 

Other devices we develop and market are in a category (class) for which the FDA has implemented stringent clinical investigation and PMA requirements. The PMA process requires us to provide clinical and laboratory data that establishes that the new medical device is safe and effective. The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA application constitute valid scientific evidence and there is reasonable assurance that the device is safe and effective for its intended use(s).

 

Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations. The FDA reviews design and manufacturing practices, labeling and record keeping, and manufacturers’ required reports of adverse experiences and other

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information to identify potential problems with marketed medical devices. We are also subject to periodic inspection by the FDA for compliance with its quality system regulations (“QSR”), among other FDA requirements, such as requirements for advertising and promotion of our devices. Our manufacturing operations, and those of our third-party manufacturers, are required to comply with the QSR, which addresses a company’s responsibility for product design, testing and manufacturing quality assurance and the maintenance of records and documentation. The QSR requires that each manufacturer establish a quality system by which the manufacturer monitors the manufacturing process and maintains records that show compliance with FDA regulations and the manufacturer’s written specifications and procedures relating to the devices. QSR compliance is necessary to receive and maintain FDA clearance or approval to market new and existing products and is also necessary for distributing in the U.S. certain devices exempt from FDA clearance and approval requirements. The FDA conducts announced and unannounced periodic and on-going inspections of medical device manufacturers to determine compliance with the QSR. If in connection with these inspections the FDA believes the manufacturer has failed to comply with applicable regulations and/or procedures, it may issue inspectional observations on Form 483 ("Form 483") that would necessitate prompt corrective action. If FDA inspectional observations are not addressed and/or corrective action is not taken in a timely manner and to the FDA’s satisfaction, the FDA may issue a warning letter (which would similarly necessitate prompt corrective action) and/or proceed directly to other forms of enforcement action, including the imposition of operating restrictions, such as a ceasing of operations, of one or more facilities, enjoining and restraining certain violations of applicable law pertaining to products, seizure of products and assessing civil or criminal penalties against our officers, employees or us. The FDA could also issue a corporate warning letter or a recidivist warning letter or negotiate the entry of a consent decree of permanent injunction with us. The FDA may also recommend prosecution to the U.S. Department of Justice (“DOJ”). Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and selling our products and could have a material adverse effect on our business, financial condition and results of operations.

 

The FDA, in cooperation with U.S. Customs and Border Protection (“CBP”), administers controls over the import of medical devices into the U.S. and can prevent the importation of products the FDA deems to violate the FDCA or its implementing regulations. The CBP imposes its own regulatory requirements on the import of our products, including inspection and possible sanctions for noncompliance. We are also subject to foreign trade controls administered by certain U.S. government agencies, including the Bureau of Industry and Security within the Commerce Department and the Office of Foreign Assets Control within the Treasury Department. In addition, exported medical products are subject to the regulatory requirements of each country to which the medical product is exported.

 

There are also requirements of state and local governments that we must comply with in the manufacture and marketing of our products.

 

In many of the countries in which our products are sold, we are subject to supranational, national, regional and local regulations affecting, among other things, the development, design, manufacturing, product standards, packaging, advertising, promotion, labeling, marketing and postmarket surveillance of medical products, including medical devices. In the EU, a single regulatory approval process exists, and conformity with the legal requirements is represented by the CE (an acronym for the French “Conformité Européene”) Mark. To obtain a CE Mark, defined products must meet minimum standards of performance, safety, and quality (i.e., the essential requirements), and then, according to their classification, comply with one or more of a selection of conformity assessment routes. The authorities of the EU countries separately regulate the clinical research for medical devices and the market surveillance of products once they are placed on the market. A new Medical Device Regulation was published by the EU in 2017 that imposes significant additional premarket and postmarket requirements (“EU MDR”). The regulation provided an implementation period and became effective on May 26, 2021. Medical devices marketed in the EU will require certification according to these new requirements, except those devices with valid CE marks, issued pursuant to the EU Medical Device Directive before May 2020, can be placed on the market until May 2024. We are aware that the European Commission and European Parliament have approved extensions until 2027 and 2028 depending on device classification, for compliance with EU MDR and will manage our implementations with our focused brands until this transition is complete.

 

Our quality management system is based upon the requirements of ISO 13485, the QSR, the EU MDR and other applicable regulations for the markets in which we sell. Our principal manufacturing sites are certified to ISO 13485 and MDSAP (the Medical Device Single Audit Program) and audited at regular intervals.

 

Further, we are subject to other supranational, national, regional, federal, state and local laws concerning healthcare fraud and abuse, including false claims and anti-kickback laws, as well as the U.S. Physician Payments Sunshine Act and similar state and foreign healthcare professional payment transparency laws. These laws are administered by, among others, the DOJ, the Office of Inspector General of the U.S. Department of Health and Human Services (“HHS”), state attorneys general and various foreign government agencies. Many of these agencies have increased their enforcement activities with respect to medical products manufacturers in recent years. Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, fines, imprisonment and, within the U.S., exclusion from participation in government healthcare programs, including Medicare, Medicaid and Veterans Administration health programs.

 

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Our operations in foreign countries are subject to the extraterritorial application of the U.S. Foreign Corrupt Practices Act (“FCPA”). Our global operations are also subject to foreign anti-corruption laws, such as the United Kingdom (“U.K.”) Bribery Act, among others. As part of our global compliance program, we seek to address anti-corruption risks proactively.

 

Our facilities and operations are also subject to complex federal, state, local and foreign environmental and occupational safety laws and regulations, including those relating to discharges of substances in the air, water and land, the handling, storage and disposal of wastes and the clean-up of properties contaminated by pollutants. We do not expect that the ongoing costs of compliance with these environmental requirements will have a material impact on our consolidated earnings, capital expenditures or competitive position.

 

In addition, we are subject to federal, state and international data privacy and security laws and regulations that govern the processing, collection, use, disclosure, transfer, storage, disposal and protection of health-related and other personal information. The FDA issued draft guidance in April 2022 to which we may be subject concerning data security for medical devices. The FDA has also recently issued safety communications and alerts regarding cybersecurity vulnerabilities of certain medical devices.

 

In addition, certain of our affiliates are subject to privacy, security and breach notification regulations promulgated under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). HIPAA governs the use, disclosure and security of protected health information by HIPAA “covered entities” and their “business associates.” Covered entities are health plans, healthcare clearinghouses and healthcare providers that engage in specific types of electronic transactions. A business associate is any person or entity (other than members of a covered entity’s workforce) that performs a service on behalf of a covered entity involving the use or disclosure of protected health information. HHS (through the Office for Civil Rights) has direct enforcement authority against covered entities and business associates with regard to compliance with HIPAA regulations. On December 10, 2020, HHS issued a Notice of Proposed Rulemaking (“NPR”) to modify the HIPAA privacy rule. The proposed modifications would remove communication barriers between providers and health plans, allow individuals more access to their health information and impose new requirements on entities that receive patient data requests. The comment period for the NPR expired on May 6, 2021, and HHS has not yet issued a Notice of Final Rulemaking. Separately, HHS (through the National Coordinator for Health Information Technology) issued a new rule that became effective on April 5, 2021 and seeks to limit “blocking” of electronic health information by imposing data access, software licensing and inter-operability requirements on healthcare providers and information technology vendors. We continue to monitor both the NPR and the “information blocking” rule and continue to assess their impact on the use of data in our business.

 

In addition to the FDA guidance and HIPAA regulations described above, a number of U.S. states have also enacted data privacy and security laws and regulations that govern the processing, collection, use, disclosure, transfer, storage, disposal and protection of personal information, such as social security numbers, medical and financial information and other personal information. These laws and regulations may be more restrictive and not preempted by U.S. federal laws. For example, several U.S. territories and all 50 states now have data breach laws that require timely notification to individuals, and at times regulators, the media or credit reporting agencies, if a company has experienced unauthorized access or acquisition of personal information. Other state laws include the California Consumer Privacy Act (“CCPA”), which, among other things, contains disclosure obligations for businesses that collect personal information about California residents and affords those individuals numerous rights relating to their personal information that may affect our ability to use personal information or disclose it to our business partners. Further, the California Privacy Rights Act (“CPRA”), substantially amended the CCPA and established a new California Privacy Protection Agency ("CPPA") to enforce the CCPA (as amended by the CPRA) and issue regulations. The CPRA amendments to the CCPA took effect on January 1, 2023. Prior carve-outs to the CCPA for job applicants, employees, and business contacts also expired on January 1, 2023, meaning that the CCPA (as amended by the CPRA) now applies to those categories of California residents. Further, the CPPA has proposed draft regulations implementing the CCPA (as amended by the CPRA).

 

Other states have also recently enacted consumer data protection legislation. The Virginia Consumer Data Protection Act ("VCDPA"), which is somewhat similar to the CCPA, took effect on January 1, 2023. Under the VCDPA, it is unlawful for persons subject to the law to process what is termed “sensitive data” without the affirmative, unambiguous consent of the consumer, subject to some exceptions. “Sensitive data” includes, but is not limited to, personal health diagnosis data. The Virginia Attorney General has sole authority to enforce the VCDPA, and regulated entities that violate the VCDPA may be subject to maximum civil penalties of $7,500 for each violation. Colorado, Connecticut, and Utah also recently enacted legislation similar to the VCDPA, with some minor variations. Colorado’s and Connecticut’s statutes will take effect on July 1, 2023, and Utah’s statute will take effect on December 31, 2023. All three statutes are similar to the VCDPA. Unlike the CCPA, the new data protection statutes in Virginia, Colorado, Connecticut, and Utah do not give consumers a private right of action. Other states are considering enacting similar privacy laws. The 2022 federal legislative session also raised speculation regarding the prospect of federal data protection legislation, but such legislation has not yet gained sufficient congressional support to pass. We will continue to monitor and assess the impact of these emerging laws, which may impose substantial penalties for violations, impose significant costs for investigations and compliance, allow private class-action litigation and carry significant potential liability for our business.

 

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Outside of the U.S., data protection laws, including the General Data Protection Regulation (“GDPR”) in Europe and the Lei Geral de Proteção de Dados in Brazil, also apply to our operations in those countries in which we provide services to customers. Legal requirements in these countries relating to the processing, collection, storage and transfer of personal data continue to evolve. The GDPR imposes, among other things, data protection requirements that include strict obligations and restrictions on the ability to collect, analyze and transfer personal data regarding persons in the EU, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater of €20.0 million or 4% of total worldwide annual turnover of the preceding financial year). Governmental authorities around the world have enacted similar types of legislative and regulatory requirements concerning data protection, and additional governments are considering similar legal frameworks.

 

The interpretation and enforcement of the laws and regulations described above are uncertain and subject to change and may require substantial costs to monitor and implement compliance with any additional requirements. Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity and could have a material adverse impact on our business, financial condition or results of operations.

 

Third-Party Reimbursement

 

We expect that sales volumes and prices of our products and services will continue to be largely dependent on the availability of reimbursement from third-party payors, such as governmental programs, for example, Medicare and Medicaid, private insurance plans, accountable care organizations and managed care programs. Reimbursement is contingent on established coding for a given procedure, favorable coverage of the codes by the third-party payors, and adequate payment for the resources used.

 

Physician coding for procedures is established by the American Medical Association (“AMA”). For coding related to spine surgery, the North American Spine Society (“NASS”) is the primary liaison to the AMA. Hospital coding is established by the Centers for Medicare & Medicaid Services. All physician and hospital coding is subject to changes that could impact reimbursement and physician practice behavior.

 

Independent of the coding status, third-party payors may deny coverage based on their own criteria, including if they believe that a device or procedure does not positively impact patient outcomes, is not the most cost-effective treatment available, or is used for an unapproved indication that is not supported by published clinical literature. At various times in the past, certain insurance providers have adopted policies of not providing reimbursement for multi-level cervical arthroplasty. We have worked with our surgeon customers and NASS who, in turn, have worked with these insurance providers to supply the information, explanation and clinical data they require to categorize cervical arthroplasty as a procedure that meets the reimbursement requirements defined by their policies. At present, most major health insurance companies in the U.S. provide reimbursement for cervical arthroplasty.

 

However, certain carriers, large and small, may have policies significantly limiting coverage of AVBT, intervertebral biomechanical devices, certain morselized allografts, and/or other procedures, products or services that we offer. We will continue to provide resources to patients, surgeons, hospitals and insurers in order to ensure patient access to care and clarity regarding reimbursement and will work to reverse non-coverage policies. National and regional coverage policy decisions are subject to unforeseeable change and have the potential to impact physician behavior and reimbursement for physician services. We cannot offer definitive time frames or final outcomes regarding reversal of the coverage-limiting policies, as the process is dictated by the third-party insurance providers. For a discussion of these risks, please see Part I, Item 1A, “Risk Factors” of this report.

 

Payment amounts are established by government and private payor programs and are subject to yearly updates based on Medicare published fee schedules and contract renegotiations, which could impact physician practice behavior. Third-party payors are increasingly challenging the prices charged for a wide range of medical products and services, including those in areas where we participate.

 

In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific product lines. There can be no assurance that our products will be accepted by third-party payors, that reimbursement will be available, and/or that the third-party payors’ reimbursement policies (if available) will not adversely affect our ability to sell our products profitably.

 

In the U.S., as a result of healthcare reform, third-party payors are increasingly required to demonstrate they can improve quality and reduce costs; we accordingly see an increase in pre-approval/prior authorizations and non-coverage policies citing higher levels of published clinical evidence required for medical therapies and technologies. Even fee-for-service Medicare began requiring prior authorization of anterior cervical fusion with decompression cases starting on July 1, 2021. In addition, insured individuals are facing increased premiums and higher out-of-pocket costs for medical coverage, including higher deductibles and coinsurance percentages, which can lead a patient to delay medical treatment. An increasing number of insured individuals receive their medical care through

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managed care programs, which monitor and often require pre-approval of the services that a member will receive. The percentage of individuals covered by managed care programs is expected to grow in the U.S. over the next decade.

 

Overall escalating costs of medical products and services has led to, and is expected to continue to lead to, increased pressures on the healthcare industry to reduce the costs of products and services. There can be no assurance that third-party reimbursement and coverage will be available or adequate, or that future legislation, regulation, or reimbursement policies of third-party payors will not adversely affect the demand for our products and services or our ability to sell these products and services on a profitable basis. The unavailability or inadequacy of third-party payor coverage or reimbursement could have a material adverse effect on our business, operating results and financial condition. For a discussion of these risks, please see Part I, Item 1A, “Risk Factors” of this report.

 

Information About Our Executive Officers

 

The following table sets forth certain information with respect to our executive officers as of February 28, 2023.

 

 

 

 

 

 

Name

 

Age

 

Position

Vafa Jamali

 

53

 

President, Chief Executive Officer and Director

Richard Heppenstall

 

52

 

Executive Vice President, Chief Financial Officer and Treasurer

Rebecca Whitney

 

46

 

Senior Vice President and President, Global Spine

Indraneel Kanaglekar

 

45

 

Senior Vice President and President, Global Dental

Heather Kidwell

 

54

 

Senior Vice President, Chief Legal, Compliance and Human Resources Officer
and Corporate Secretary

 

Mr. Jamali was appointed Chief Executive Officer of ZimVie in February 2021. He was further appointed President of ZimVie in December 2021. Previously, Mr. Jamali served as the Chief Commercial Officer of Rockley Photonics, where he led commercial strategic planning for the early-stage company from October 2020 until joining ZimVie. Prior to that, Mr. Jamali served as Senior Vice President and President, Respiratory, Gastrointestinal and Informatics (“RGI”) of Medtronic plc from May 2017 until October 2020. Before leading the RGI business, he served as Senior Vice President and President, Early Technologies of Medtronic plc from January 2016 until May 2017 and prior to that he served as Vice President and General Manager, GI Solutions of Medtronic plc from January 2015 until January 2016. Before joining Medtronic, Mr. Jamali held leadership positions with Covidien plc, Cardinal Health, Inc. and Baxter International Inc. He received his Bachelor of Commerce degree with distinction from the University of Alberta in Edmonton, Canada and has completed a number of executive leadership programs, including the Harvard Executive Leadership Program in 2020.

 

Mr. Heppenstall was appointed Executive Vice President and Chief Financial Officer of ZimVie in September 2021. He was further appointed Treasurer of ZimVie in January 2022. Previously, Mr. Heppenstall served as Chief Financial Officer of Breg, Inc., a global manufacturer and solutions provider of orthopedic braces, cold therapy and other medical equipment, from April 2019 to September 2021. Before joining Breg, Inc., he served as Senior Vice President, Finance and Treasury of Orthofix Medical Inc., a global medical device company focused on musculoskeletal products and therapies, from May 2015 to April 2019. Prior to that, Mr. Heppenstall held senior leadership roles at Solera Holdings, Inc., Flowserve Corporation and CooperVision, Inc. He holds a Bachelor of Arts in Economics from University of California, Irvine and an MBA from Santa Clara University.

 

Ms. Whitney was appointed Senior Vice President and President, Global Spine of ZimVie in April 2021. Previously, Ms. Whitney served as Vice President, ASC/Outpatient Solutions and Efficient Care of Zimmer Biomet from July 2019 until April 2021. She joined Zimmer Biomet in June 2014 as Senior Director of Global Marketing for the Spine organization. In December 2015, she was promoted to Vice President of Global Marketing for Spine and in April 2018 she was promoted to General Manager, Global Spine, a position she held until July 2019. Ms. Whitney began her career as a product manager with BD Medical Systems. She then led the sales and marketing efforts for a small start-up before selling the company to CR Bard. After working for Galen Partners, a private equity firm, she joined Covidien plc as a Global Director of Marketing. Following another start-up venture that was sold to GE HealthCare, Ms. Whitney joined Zimmer Biomet. She holds a Bachelor of Science in Organizational Communications and an MBA from the University of Utah.

 

Mr. Kanaglekar was appointed Senior Vice President and President, Global Dental of ZimVie in June 2021. Previously, Mr. Kanaglekar served as Vice President and General Manager of Zimmer Biomet Dental from July 2017 until April 2021. Mr. Kanaglekar joined Zimmer Biomet’s Dental organization in June 2012 as Director, Business Development. In June 2015, he was promoted to Vice President, Business Development and PMO and in January 2017, he was promoted to General Manager, Asia Pacific of Zimmer Biomet Dental. Prior to joining Zimmer Biomet, Mr. Kanaglekar worked in the life sciences industry in R&D, sales and marketing consulting, and business development with Agilent Technologies, ZS Associates and Beckman Coulter (a Danaher operating company), respectively. He holds a Bachelor of Technology in Materials Science from the Indian Institute of Technology Bombay, a Master of

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Science in Materials Science from the University of Wisconsin-Madison and an MBA from the University of Chicago Booth School of Business.

 

Ms. Kidwell was appointed Senior Vice President, Chief Legal and Compliance Officer and Corporate Secretary of ZimVie in June 2021. She was further appointed Chief Human Resources Officer of ZimVie in January 2023. Previously, Ms. Kidwell served as Vice President, Associate General Counsel and Assistant Secretary of Zimmer Biomet from July 2017 until June 2021. Ms. Kidwell joined Zimmer Biomet in December 2009 as Senior Corporate Counsel and Assistant Secretary and was promoted to Vice President, Senior Corporate Counsel and Assistant Secretary in November 2012. Before joining Zimmer Biomet, Ms. Kidwell was a Partner with the law firm now known as Faegre Drinker Biddle & Reath LLP. Ms. Kidwell holds a Bachelor of Science in Accounting from Indiana State University and a Juris Doctor from Indiana University Maurer School of Law.

 

Available Information

 

Our Internet address is www.zimvie.com. We routinely post important information for investors on our website in the “Investor Relations” section, which may be accessed at https://investor.zimvie.com. We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, filings with the SEC, public conference calls, presentations and webcasts. Our goal is to maintain the Investor Relations website as a portal through which investors can easily find or navigate to pertinent information about us, free of charge, including:

 

•
our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file that material with or furnish it to the SEC;
•
announcements of investor conferences and events at which our executives talk about our products and competitive strategies, as well as archives of these events;
•
press releases on quarterly earnings, product announcements, legal developments and other material news that we may post from time to time;
•
corporate governance information, including our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of Ethics for Chief Executive Officer and Senior Financial Officers, information concerning our Board of Directors and its committees, including the charters of the Audit Committee, Compensation Committee, Corporate Governance Committee and Quality, Regulatory and Technology Committee, and other governance-related policies;
•
stockholder services information, including ways to contact our transfer agent; and
•
opportunities to sign up for email alerts and RSS feeds to have information provided in real time.

 

The information available on our website is not incorporated by reference in, or a part of, this or any other report we file with or furnish to the SEC.

 

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ITEM 1A. RISK FACTORS.

 

We operate in a rapidly changing economic and technological environment that presents numerous risks, many of which are driven by factors that we cannot control or predict. Our business, financial condition and results of operations may be impacted by a number of factors. In addition to the factors discussed elsewhere in this report, the following risks and uncertainties could materially harm our business, financial condition or results of operations, including causing our actual results to differ materially from those projected in any forward-looking statements. The following list of significant risk factors is not all-inclusive or necessarily in order of importance. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, also may materially adversely affect us in future periods. You should carefully consider these risks and uncertainties before investing in our securities.

 

Risks Related to Our Business, Operations and Strategy

 

The COVID-19 pandemic has adversely impacted, and continues to pose risks to, our business, results of operations and financial condition, the nature and extent of which are highly uncertain and unpredictable.

 

Our global operations and interactions with healthcare systems, providers, dental offices, and patients around the world expose us to risks associated with public health crises, including epidemics and pandemics such as COVID-19. In particular, the continuing preventative and precautionary measures that we and other businesses, communities, and governments have taken to mitigate the spread of the disease has led to restrictions on, disruptions in, and other related impacts on business and personal activities, including deferrals of elective surgical procedures that use certain of our products, and has resulted in many of our employees working remotely. We expect medical and dental procedure rates to continue to vary by therapy and country, and could be impacted by regional COVID-19 case volumes, healthcare system and dental office staffing shortages, patients’ willingness to schedule deferrable procedures, travel restrictions, transportation limitations, quarantine restrictions, vaccine and booster immunization rates, and new COVID-19 variants. While COVID-19 case volumes appear to be decreasing in the U.S and certain other countries as a result of higher vaccination rates, the global COVID-19 outlook remains uncertain as new variants emerge.

 

Together with the preventative and precautionary measures being taken, COVID-19 is having, and may continue to have, an adverse impact on certain aspects of our Company and business, including the demand for and supply of certain of our products, operations, supply chains and distribution systems, impacts or delays to product development milestones or regulatory clearances and approval timing, and our ability to generate cash flow, and may have an adverse impact on our ability to access capital. Some of our products are more sensitive to reductions in deferrable and emergent medical procedures, and, as hospital systems prioritize treatment of COVID-19 patients and otherwise comply with government guidelines, certain medical procedures have been and may continue to be suspended or postponed. It is not possible to predict the timing of deferrable medical procedures and, to the extent individuals and hospital systems de-prioritize, delay or cancel these procedures, or if unemployment or loss of insurance coverage adversely impacts an individual’s ability to pay for our products and services, our business, results of operations, financial condition, and cash flows could continue to be negatively affected. Further, the COVID-19 pandemic has strained hospital systems and dental offices around the world, resulting in adverse financial impacts to those hospital systems and dental offices that could result in reduced future expenditures for certain products and services we provide.

 

A number of our global suppliers, vendors, and distributors have been adversely affected by the COVID-19 pandemic, including employee absenteeism. These impacts could impair our ability to move our products through distribution channels to end customers, and any such delay or shortage in the supply of components or materials may result in our inability to satisfy customer demand for certain of our products in a timely manner or at all, which could harm our reputation, future sales and profitability.

 

COVID-19 has impacted and may further impact the global economy and capital markets, including by negatively impacting demand for a number of our products, access to capital markets, foreign currency exchange rates, and interest rates, each of which may adversely impact our business and liquidity. We could experience loss of sales and profits due to delayed payments or insolvency of healthcare professionals, hospitals, dental offices, and other customers, suppliers and vendors facing liquidity issues. As a result, we may be compelled to take additional measures to preserve our cash flow.

 

While the impact of COVID-19 has had, and may continue to have, an adverse effect on our business, results of operations, financial condition and cash flows, the nature and extent of such impact is highly uncertain and unpredictable, as we cannot predict with confidence the full scope and duration of the pandemic.

 

Interruption of our manufacturing operations could adversely affect our business, financial condition and results of operations.

 

We and our third-party manufacturers have manufacturing sites in multiple countries around the world. In some instances, however, the manufacturing of certain of our product lines is concentrated in one or more plants. Damage to one or more of these facilities from weather or natural disaster-related events, vulnerabilities in technology, cyber-attacks against our information systems or the information

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systems of our business partners (such as ransomware attacks), or issues in manufacturing arising from a failure to follow specific protocols and procedures, compliance concerns relating to the FDA QSR (21 CFR Part 820) and Good Manufacturing Practice requirements, equipment breakdown or malfunction, reductions in operations and/or worker absences due to the COVID-19 pandemic or other health epidemics, or other factors could adversely affect the ability to manufacture our products. In the event of an interruption in manufacturing, we may be unable to move quickly to alternate means of producing affected products or to meet customer demand. In the event of a significant interruption, for example, as a result of a failure to follow regulatory protocols and procedures, we may experience lengthy delays in resuming production of affected products due primarily to the need for regulatory approvals. As a result, we may experience loss of market share, which we may be unable to recapture, and harm to our reputation, which could adversely affect our business, financial condition and results of operations.

 

Disruptions in the supply of the materials and components used in manufacturing our products or the sterilization of our products by third-party suppliers could adversely affect our business, financial condition and results of operations.

 

We purchase many of the materials and components used in manufacturing our products from third-party suppliers, and we outsource some key manufacturing activities. Certain of these materials and components and outsourced activities can only be obtained from a single source or a limited number of sources due to quality considerations, expertise, costs or constraints resulting from regulatory requirements. In certain cases, we may not be able to establish additional or replacement suppliers for such materials or components or outsourced activities in a timely or cost effective manner, largely as a result of FDA and other worldwide regulations that require validation of materials and components prior to their use in our products, the complex nature of many of our suppliers’ manufacturing processes, and the need for clearance or approval of significant changes by worldwide regulatory bodies prior to implementation. A reduction or interruption in the supply of materials or components used in manufacturing our products, an inability to timely develop and validate alternative sources if required, or a significant increase in the price of such materials or components could adversely affect our business, financial condition and results of operations. For example, certain of our products require titanium, which is sourced from third-party suppliers. While the titanium required for such products is not directly sourced from Russia, the current geopolitical events involving Russia and Ukraine are negatively impacting the wider titanium supply chain and such geopolitical events and factors relating thereto or resulting therefrom, including related sanctions, may negatively impact the ability of our third-party supply sources to timely supply titanium to us and may increase or result in additional costs to us.

 

In addition, many of our products require sterilization prior to sale, and we utilize a mix of internal resources and contract sterilizers to perform this service. To the extent we or our contract sterilizers are unable to sterilize our products, whether due to capacity, availability of materials for sterilization, regulatory or other constraints, including federal and state regulations on the use of ethylene oxide, we may be unable to transition to other contract sterilizers, sterilizer locations or sterilization methods in a timely or cost effective manner or at all, which could have a material impact on our results of operations and financial condition.

 

Our success depends on our ability to effectively develop and market our products against those of our competitors.

 

We operate in a highly competitive environment. Our present or future products could be rendered obsolete or uneconomical by technological advances by one or more of our present or future competitors or by other therapies, including biological therapies. To remain competitive, we must continue to develop and acquire new products and technologies and improve existing products and technologies. Competition is primarily on the basis of:

 

•
technology;
•
innovation;
•
quality;
•
reputation;
•
customer service; and
•
pricing.

 

In markets outside of the U.S., other factors influence competition as well, including:

 

•
local distribution systems;
•
complex regulatory environments; and
•
differing medical philosophies and product preferences.

 

Our competitors may:

 

•
have greater financial, marketing and other resources than us;
•
respond more quickly to new or emerging technologies;

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•
undertake more extensive marketing campaigns;
•
adopt more aggressive pricing policies; or
•
be more successful in attracting potential customers, employees and strategic partners.

 

Any of these factors, alone or in combination, could cause us to have difficulty maintaining or increasing sales of our products and could materially adversely affect our results of operations and financial condition.

 

To be commercially successful, we must effectively demonstrate to surgeons, dentists and hospitals the value proposition of our products and procedural solutions compared to those of our competitors.

 

We focus on marketing our products and procedural solutions to surgeons and dentists because of the role that they play in determining the course of patient treatment. However, hospitals are also becoming increasingly involved in the evaluation and acceptance of our products and solutions. Surgeons, dentists and hospitals may not widely adopt our products and solutions unless we are able to effectively educate them as to the distinctive characteristics, perceived benefits, safety and cost-effectiveness of our offerings as compared to those of our competitors. We believe that the most effective way to introduce and build market demand for our products and solutions is by directly training surgeons and dentists in their use. If surgeons and dentists are not properly trained, they may misuse or ineffectively use our products and solutions. This may also result in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits against us, any of which could have a significant adverse effect on our business, financial condition and results of operations.

 

Surgeons, dentists and hospitals may be hesitant to use and accept our products and solutions for the following reasons, among others:

 

•
lack of experience with newer less invasive surgical products and procedures;
•
lack or perceived lack of evidence supporting additional patient benefits;
•
perceived liability risks generally associated with the use of new products and procedures;
•
existing relationships with competitors;
•
limited or lack of availability of coverage and reimbursement within healthcare payment systems;
•
higher pricing associated with new products and procedures;
•
increased competition in procedural offerings and solutions;
•
lack or perceived lack of differentiation among procedures;
•
costs associated with the purchase of new products and equipment; and
•
the time commitment that may be required for training.

 

If we are not able to effectively demonstrate to surgeons, dentists and hospitals the value proposition of our products and procedural solutions, or if surgeons, dentists and hospitals adopt competing products, our sales could significantly decrease or fail to increase, which could adversely impact our profitability and cash flow. In addition, we believe recommendations and support of our offerings by influential surgeons, dentists and other key opinion leaders are essential for market acceptance and adoption. If we are not successful in obtaining such support, surgeons, dentists and hospitals may not use our products and solutions, and we may not achieve expected sales or profitability.

 

If we fail to retain the employees and the independent agents and distributors upon whom we rely to market our products, customers may not buy our products and our revenue and profitability may decline.

 

Our marketing success in the U.S. and abroad depends significantly upon our employees’, agents’ and distributors’ sales and service expertise in the marketplace. Many of these agents have developed professional relationships with existing and potential customers because of the agents’ detailed knowledge of products and instruments. A loss of a significant number of our agents could have a material adverse effect on our business and results of operations.

 

If we do not introduce new products in a timely manner, our products may become obsolete over time, customers may not buy our products and our revenue and profitability may decline.

 

Demand for our products may change, in certain cases, in ways we may not anticipate because of:

 

•
evolving customer needs;
•
changing demographics;
•
slowing industry growth rates;
•
declines in the spine and dental implant markets;
•
the introduction of new products and technologies;
•
evolving surgical philosophies; and

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•
evolving industry standards.

 

Without the timely introduction of new products and enhancements, our products may become obsolete over time. If that happens, our revenue and operating results would suffer. The success of our new product offerings will depend on several factors, including our ability to:

 

•
properly identify and anticipate customer needs;
•
commercialize new products in a timely manner;
•
manufacture and deliver instruments and products in sufficient volumes on time;
•
differentiate our offerings from competitors’ offerings;
•
achieve positive clinical outcomes for new products;
•
satisfy the increased demands by healthcare payors, providers and patients for shorter hospital stays, faster post-operative recovery and lower-cost procedures;
•
innovate and develop new materials, product designs and surgical techniques; and
•
provide adequate medical education relating to new products.

 

In addition, new materials, product designs and surgical techniques that we develop may not be accepted quickly, in some or all markets, because of, among other factors:

 

•
entrenched patterns of clinical practice;
•
the need for regulatory clearance; and
•
uncertainty with respect to third-party reimbursement.

 

Moreover, innovations generally require a substantial investment in R&D before we can determine their commercial viability, and we may not have the financial resources necessary to fund the production. In addition, even if we can successfully develop enhancements or new generations of our products, these enhancements or new generations of products may not produce revenue in excess of the costs of development and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of products embodying new technologies or features.

 

If third-party payors decline to reimburse our customers for our products or reduce reimbursement levels, the demand for our products may decline and our ability to sell our products profitably may be harmed.

 

We sell our products and services to hospitals, surgeons, dentists and other healthcare providers, which may receive reimbursement for the healthcare services provided to their patients from third-party payors, such as domestic and international government programs, private insurance plans and managed care programs. These third-party payors may deny reimbursement if they determine that a product or service used in a procedure was not in accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication. Third-party payors may also decline to reimburse for experimental procedures and products.

 

In addition, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for medical products and services. If third-party payors reduce reimbursement levels or change reimbursement models for hospitals and other healthcare providers for our products, demand for our products may decline, or we may experience increased pressure to reduce the prices of our products, which could have a material adverse effect on our sales and results of operations.

 

We have also experienced downward pressure on product pricing and other effects of healthcare reform in our international markets. For example, China has implemented a volume-based procurement ("VBP") program designed to decrease prices for medical devices and other products, and we were not successful in our related bid. For more information about the impact of China VBP, please see Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this report.

 

If key participants in government healthcare systems reduce the reimbursement levels for our products, including through political changes or transitions, our business, financial condition, results of operations and cash flows may be adversely affected.

 

We are subject to cost containment measures in the U.S. and other countries, resulting in pricing pressures.

 

Initiatives to limit the growth of general healthcare expenses and hospital costs are ongoing in the markets in which we do business. These initiatives are sponsored by government agencies, legislative bodies and the private sector and include price regulation and competitive pricing, such as the VBP program in China. Pricing pressure has also increased due to continued consolidation among

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healthcare providers, trends toward managed care, the shift toward governments becoming the primary payors of healthcare expenses, reductions in reimbursement levels and government laws and regulations relating to reimbursement and pricing generally.

 

In addition, many customers for our products have formed group purchasing organizations in an effort to contain costs. Group purchasing organizations negotiate pricing arrangements with medical supply manufacturers and distributors, and these negotiated prices are made available to a group purchasing organization’s affiliated hospitals and other members. If we are not one of the providers selected by a group purchasing organization, affiliated hospitals and other members may be less likely to purchase our products, and, if the group purchasing organization has negotiated a strict compliance contract for another manufacturer’s products, we may be precluded from making sales to members of the group purchasing organization for the duration of the contractual arrangement.

 

Such increased pricing pressure and cost-containment efforts could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

Disruptions to our business from implementation of our new enterprise resource planning systems adversely impacted our operating results in 2022, and similar disruptions in 2023 or later years could have a material adverse impact on our business, results of operations, financial condition, or cash flows.

 

In connection with our separation from Zimmer Biomet, we have had to implement separate information systems and applications, and these information systems and applications require an ongoing commitment of significant resources to maintain, protect, enhance and upgrade existing systems and develop and implement new systems to keep pace with changing technology and our business needs. In 2022, we implemented new enterprise resource planning (“ERP”) software systems in several countries outside the United States that replaced certain existing business, operational, and financial processes and systems, and we have plans to continue to implement new ERP systems globally in 2023 and 2024. These ERP implementation projects and other IT systems projects have required, and we expect them to continue to require, investment of capital and human resources, the re-engineering of business processes, and the attention of many employees who would otherwise be focused on other areas of our business. As a result of these ERP implementation projects and other IT systems projects, we have experienced difficulties with changes in business processes that have disrupted our operations, and we may continue to experience such disruptions. Delays in integration and/or disruptions to our business from implementation of new or upgraded systems adversely impacted our operating results in 2022 and similar delays and/or disruptions could have a material adverse impact on our financial condition, operating results, and our ability to accurately report our financial condition, operating results or cash flows.

 

If the information we rely upon to run our businesses were to be found to be inaccurate or unreliable, if we fail to maintain or protect our IT systems and data integrity effectively, if we fail to develop and implement new or upgraded systems to meet our business needs in a timely manner, or if we fail to anticipate, plan for or manage significant disruptions to these systems, our competitive position could be harmed, we could have operational disruptions, lose existing customers, have difficulty preventing, detecting, and controlling fraud, have disputes with customers, have regulatory sanctions or penalties imposed or other legal problems, incur increased operating and administrative expenses, lose revenues or suffer other adverse consequences, any of which could have a material adverse effect on our business, results of operations, financial condition or cash flows.

 

Our success largely depends on key personnel, including our senior management, and having adequate succession plans in place. We may not be able to attract, retain and develop the highly skilled employees we need to support our business, which could harm our business.

 

Our future performance depends, in large part, on the continued services of our senior management and other key personnel, including our ability to attract, retain and motivate key personnel. Competition for key personnel in the various localities and business segments in which we operate is intense. Our ability to attract and retain key personnel, in particular senior management, depends on a number of factors, including prevailing market conditions and compensation packages offered by companies competing for the same talent. There is no guarantee that we will have the continued service of key employees whom we rely upon to execute our business strategy and identify and pursue strategic opportunities and initiatives. The loss of the services of any of our senior management or other key personnel, or our inability to attract highly qualified senior management and other key personnel, could harm our business. In particular, we may have to incur costs to replace senior officers or other key employees who leave, and our ability to execute our business strategy could be impaired if we are unable to replace such persons in a timely manner.

 

Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. Further, changes in our management team may be disruptive to our business, and any failure to successfully integrate key new hires or promoted employees could adversely affect our business and results of operations.

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We may not be able to effectively integrate acquired businesses into our operations or achieve expected cost savings or profitability from our acquisitions.

 

Acquisitions we may pursue would involve numerous risks, including:

 

•
unforeseen difficulties in integrating personnel and sales forces, operations, manufacturing, logistics, R&D, information technology, compliance, vendor management, communications, purchasing, accounting, marketing, administration and other systems and processes;
•
difficulties harmonizing and optimizing quality systems and operations;
•
diversion of financial and management resources from existing operations;
•
unforeseen difficulties related to entering geographic regions where we do not have prior experience;
•
potential loss of key employees;
•
unforeseen risks and liabilities associated with businesses acquired, including any unknown vulnerabilities in acquired technology or compromises of acquired data; and
•
inability to generate sufficient revenue or realize sufficient cost savings to offset acquisition or investment costs.

 

As a result, if we fail to evaluate and execute acquisitions properly, we might not achieve the anticipated benefits of such acquisitions, and we may incur costs in excess of what we anticipate. These risks would likely be greater in the case of larger acquisitions.

 

Financial, Liquidity and Tax Risks

 

In connection with our separation from Zimmer Biomet, we incurred substantial floating rate indebtedness that exposes us to increased costs of servicing our indebtedness as interest rates rise, and we may not be able to generate sufficient cash flows to meet all of our debt obligations, which could materially adversely affect our business, financial condition and results of operations.

 

In connection with our separation from Zimmer Biomet, we entered into and borrowed $595.0 million under a term loan facility and entered into a $175.0 million revolving credit facility. As of December 31, 2022, $536.5 million was outstanding on the term loan, and there were no outstanding borrowings under the revolving credit facility. The term loan bears interest at the adjusted term secured overnight financing rate (“SOFR”) plus an applicable margin of 1.50% to 1.75% based on our consolidated total net leverage ratio. We may also incur additional indebtedness in the future.

 

This significant amount of floating rate debt could potentially have important consequences to us and our debt and equity investors, including:

 

•
exposing us to increased costs of servicing our indebtedness as interest rates rise;
•
requiring a substantial portion of our cash flow from operations to make interest payments on this debt;
•
making it more difficult to satisfy debt service and other obligations;
•
increasing future debt costs and limiting the future availability of debt financing;
•
increasing our vulnerability to general adverse economic and industry conditions;
•
reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business;
•
limiting our flexibility in planning for, or reacting to, changes in our business and the industry;
•
placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and
•
limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase shares of our common stock.

 

To the extent that we incur additional indebtedness, the foregoing risks could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.

 

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness.

 

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If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures, or to dispose of material assets or operations, alter our dividend policy (if we pay dividends), seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect or obtain any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The instruments that govern our indebtedness may restrict our ability to dispose of assets and may restrict the use of proceeds from those dispositions. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due.

 

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, may materially adversely affect our business, financial condition and results of operations and our ability to satisfy our obligations under our indebtedness or pay dividends on our common stock.

 

Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on the performance of, and distributions from, our subsidiaries.

 

We are a holding company, and as such have no material operations or assets other than ownership of equity interests in our subsidiaries. We depend on our subsidiaries to distribute funds to us so that we may pay obligations and expenses, including satisfying obligations with respect to our indebtedness. Our ability to make scheduled payments on, or to refinance our obligations under, our indebtedness depends on the financial and operating performance of our subsidiaries, and their ability to make distributions and dividends to us, which, in turn, depends on their results of operations, cash flows, cash requirements, financial position and general business conditions and any legal and regulatory restrictions on the payment of dividends to which they may be subject, many of which may be beyond our control. The terms of our current and future indebtedness may restrict the payment of dividends and the ability of subsidiaries to transfer funds to us. If we cannot receive sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general corporate expenses or service our debt obligations.

 

We are exposed to risks of excess and obsolete inventory and we may not realize the expected benefits of our working capital management strategies, which may adversely impact our cash flow and liquidity.

 

Maintaining optimal inventory levels and working capital is important to our business. In the years ended December 31, 2022, 2021 and 2020, we incurred charges for excess and obsolete inventory, including certain product lines we intend to discontinue, of $21.3 million, $37.5 million and $30.8 million, respectively. Additionally, during 2021, we completed a brand rationalization resulting in expense of $40.3 million. We are implementing working capital management strategies designed to, among other things, improve forecast accuracy, optimize inventory levels, and reduce days sales outstanding, which may result in additional charges for excess and obsolete inventory. Further, our inventory optimization efforts involve estimates and assumptions of various matters, including future demand, and our projections related to inventory levels may prove inaccurate. If we do not realize the expected benefits of our working capital management strategies, or if we are unable to accurately forecast demand and manage our inventory, our cash flow and liquidity may be adversely impacted.

 

We are subject to risks arising from currency exchange rate fluctuations, which can increase our costs, cause our profitability to decline and expose us to counterparty risks.

 

A substantial portion of our foreign revenues is generated in Europe and Japan. The U.S. Dollar value of our foreign-generated revenues varies with currency exchange rate fluctuations. Significant increases in the value of the U.S. Dollar relative to the Euro, the Japanese Yen or other currencies could have a material adverse effect on our results of operations.

 

We may be adversely affected by inflation.

 

Inflation has the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall cost structure. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, supply shortages, increased costs of labor, components, manufacturing and shipping, as well as weakening exchange rates and other similar effects. As a result of inflation, we have experienced and may continue to experience cost increases. If any measures we take to try to mitigate the effects of inflation are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation is incurred.

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We may have additional tax liabilities.

 

We are subject to income taxes in the U.S. and in many foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on our financial statements in the period or periods for which that determination is made.

 

Changes in the tax laws of the jurisdictions where we do business, including an increase in tax rates or an adverse change in the treatment of an item of income or expense, could result in a material increase in our tax expense. For example, changes in the tax laws of foreign jurisdictions could arise as a result of the “base erosion and profit shifting” project undertaken by the Organization for Economic Co-operation and Development (“OECD”). The OECD, which represents a coalition of member countries, has recommended changes to numerous long-standing tax principles. These changes, as adopted by countries, could increase tax uncertainty and may have a material adverse impact on our business, financial condition or results of operations.

 

Future material impairments in the carrying value of our intangible assets, including goodwill, would negatively affect our operating results.

 

Goodwill and intangible assets represent a significant portion of our assets. As of December 31, 2022, we had $260.0 million in goodwill and $655.0 million of intangible assets. The goodwill results from our acquisition activity and represents the excess of the consideration transferred over the fair value of the net assets acquired. Currently, only our Dental reporting unit has goodwill. We assess at least annually whether events or changes in circumstances indicate that the carrying value of our intangible assets may not be recoverable. As discussed further in Note 4 to our consolidated financial statements, in the first quarter of 2020, we recorded goodwill impairment charges of $142.0 million in our Dental reporting unit as a result of the adverse impacts from the COVID-19 pandemic. If the operating performance of our reporting units and asset groups fall significantly below current levels, if competing or alternative technologies emerge, or if market conditions or future cash flow estimates for our reporting units decline, we could be required to record additional impairment charges for goodwill and intangible assets. Any write-off of a material portion of our goodwill or unamortized intangible assets would negatively affect our results of operations.

 

If our independent agents and distributors are characterized as employees, we would be subject to additional tax and other liabilities.

 

We structure our relationships with independent agents and distributors in a manner that we believe results in an independent contractor relationship, not an employee relationship. Although we believe that our independent agents and distributors are properly characterized as independent contractors, tax or other regulatory authorities may in the future challenge our characterization of these relationships. Changes in classification from independent contractor to employee can result in a change to various requirements associated with the payment of wages, tax withholding, and the provision of unemployment, health and other traditional employer-employee related benefits. If regulatory authorities or state, federal or foreign courts were to determine that our independent agents or distributors are employees, and not independent contractors, we would be required to withhold income taxes, to withhold and pay social security, Medicare and similar taxes and to pay unemployment and other related payroll taxes. We would also be liable for unpaid past taxes and subject to penalties. As a result, any determination that our independent agents and distributors are our employees could have a material adverse effect on our business, financial condition and results of operations.

 

Global Operational Risks

 

We conduct a significant amount of our sales activity outside of the U.S., which subjects us to additional business risks and may cause our profitability to decline due to increased costs.

 

We sell our products in 70 countries and derived approximately 30% of our net sales in 2022 from outside the U.S. We intend to continue to pursue growth opportunities in sales internationally, including in emerging markets, which could expose us to additional risks associated with international sales and operations. Our international operations are, and will continue to be, subject to risks and potential costs, including:

 

•
changes in foreign medical reimbursement policies and programs;
•
changes in foreign regulatory requirements, such as more stringent requirements for regulatory clearance of products;
•
differing local product preferences and product requirements;

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•
fluctuations in foreign currency exchange rates;
•
diminished protection of intellectual property in some countries outside of the U.S.;
•
trade protection measures, import or export requirements, new or increased tariffs, trade embargoes and sanctions and other trade barriers, which may prevent us from shipping products to a particular market and may increase our operating costs;
•
foreign exchange controls that might prevent us from repatriating cash earned in countries outside the U.S.;
•
complex data privacy and cybersecurity requirements and labor relations laws;
•
extraterritorial effects of U.S. laws such as the FCPA;
•
effects of foreign anti-corruption laws, such as the U.K. Bribery Act;
•
difficulty in staffing and managing foreign operations;
•
labor force instability;
•
potentially negative consequences from changes in tax laws; and
•
political, social and economic instability and uncertainty, including sovereign debt issues.

 

Violations of foreign laws or regulations could result in fines, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business and damage to our reputation.

 

Conditions in the global economy, the particular markets we serve and financial markets may adversely affect our business, results of operations and financial condition.

 

Our business is sensitive to general economic conditions. Slower global economic growth, actual or anticipated default on sovereign debt, changes in global trade policies, volatility in the currency and credit markets, high levels of unemployment or underemployment, reduced levels of capital expenditures, changes in government fiscal and monetary policies, government deficit reduction and budget negotiation dynamics, sequestration, other austerity measures, political and social instability, natural disasters, terrorist attacks and other challenges that affect the global economy may adversely affect us and our distributors, customers and suppliers, including having the effect of:

 

•
reducing demand for our products and services, limiting the financing available to our customers and suppliers and increasing order cancellations;
•
increasing the difficulty in collecting accounts receivable and the risk of excess and obsolete inventories;
•
increasing price competition in our served markets;
•
supply interruptions, which could disrupt our ability to produce our products;
•
increasing the risk of impairment of goodwill and other long-lived assets, and the risk that we may not be able to fully recover the value of other assets such as real estate and tax assets; and
•
increasing the risk that counterparties to our contractual arrangements will become insolvent or otherwise unable to fulfill their contractual obligations which, in addition to increasing the risks identified above, could result in preference actions against us.

 

In addition, adverse general economic conditions have led to instability in U.S. and global capital and credit markets, including market disruptions, limited liquidity, inflation and interest rate volatility. If we are unable to access capital and credit markets on terms that are acceptable to us or our lenders are unable to provide financing in accordance with their contractual obligations, we may not be able to make certain investments or acquisitions or fully execute our business plans and strategies. Furthermore, our suppliers and customers are also dependent upon the capital and credit markets. Limitations on the ability of customers, suppliers or financial counterparties to access credit at interest rates and on terms that are acceptable to them could lead to insolvencies of key suppliers and customers, limit or prevent customers from obtaining credit to finance purchases of our products and services and cause delays in the delivery of key products from suppliers.

 

If growth in the global economy or in any of the markets we serve slows for a significant period, if there is significant deterioration in the global economy or such markets, if there is instability in global capital and credit markets or if improvements in the global economy do not benefit the markets we serve, our business, results of operations and financial condition could be adversely affected.

 

Legal, Regulatory and Compliance Risks

 

If we fail to obtain, or experience significant delays in obtaining, FDA clearances or approvals for our future products or product enhancements, our ability to commercially distribute and market our products could suffer.

 

The process of obtaining regulatory clearances or approvals to market a medical device, particularly from the FDA, can be costly and time consuming, and there can be no assurance that such clearances or approvals will be granted on a timely basis, if at all. In particular,

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the FDA permits commercial distribution of a new, non-exempt, non-Class I medical device only after the device has received clearance under Section 510(k) of the FDCA, or receives approval under the PMA process. If clinical trials of our current or future product candidates do not produce results necessary to support regulatory approval, we will be unable to commercialize these products, which could have a material adverse effect on our financial results.

 

The FDA will clear marketing of a medical device through the 510(k) process if it is demonstrated that the new product is substantially equivalent to other 510(k)-cleared products. The PMA process is more costly, lengthy and uncertain than the 510(k) clearance process. Additionally, any modification to a 510(k)-cleared device that could significantly affect its safety or efficacy, or that would constitute a major change in its intended use, requires a new 510(k) clearance or, possibly, a PMA. The FDA requires each manufacturer to make the determination of whether a modification requires a new 510(k) notification or PMA application in the first instance, but the FDA can review any such decision. If the FDA disagrees with our decisions regarding whether new clearances or approvals are necessary, the FDA may retroactively require us to seek 510(k) clearance or PMA approval. For device modifications that we conclude do not require a new regulatory clearance or approval, we may be required to recall and to stop marketing the modified devices if the FDA or another agency disagrees with our conclusion and requires new clearances or approvals for the modifications. Our failure to comply with such regulations could lead to the imposition of injunctions, suspensions or loss of regulatory approvals, product recalls, termination of distribution or product seizures. In the most egregious cases, criminal sanctions or closure of our manufacturing facilities are possible.

 

We are subject to costly and complex laws and governmental regulations relating to the development, design, product standards, packaging, advertising, promotion, post-market surveillance, manufacturing, labeling and marketing of our products, non-compliance with which could adversely affect our business, financial condition and results of operations.

 

Our global regulatory environment is increasingly stringent, unpredictable and complex. The products we design, develop, manufacture and market are subject to rigorous regulation by the FDA and numerous other supranational, national, federal, regional, state and local governmental authorities. The process of obtaining regulatory approvals and clearances to market these products can be costly and time consuming and approvals might not be granted for future products on a timely basis, if at all. Delays in receipt of, or failure to obtain, approvals for future products could result in delayed realization of product revenues or in substantial additional costs.

 

Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations and other supranational, national, federal, regional, state and local requirements globally. Compliance with these requirements, including the QSR, recordkeeping regulations, labeling and promotional requirements and adverse event reporting regulations, is subject to continual review and is monitored rigorously through periodic inspections by the FDA and other regulators, which may result in observations (such as on Form FDA-483), and in some cases warning letters, that require corrective action, or other forms of enforcement. If the FDA or another regulator were to conclude that we are not in compliance with applicable laws or regulations, or that any of our products are ineffective or pose an unreasonable health risk, they could ban such products, detain or seize adulterated or misbranded products, order a recall, repair, replacement or refund of payment of such products, refuse to grant pending PMA applications, refuse to provide certificates for exports and/or require us to notify healthcare professionals and others that the products present unreasonable risks of substantial harm to the public health. Furthermore, the FDA strictly regulates the promotional claims that we may make about approved or cleared products. If the FDA determines that we have marketed or promoted a product for off-label use—uses other than those indicated on the labeling cleared by the FDA—we could be subject to fines, injunctions or other penalties. The FDA may also impose operating restrictions, including a ceasing of operations at one or more facilities, enjoin and restrain certain violations of applicable law pertaining to our products, seize products and assess civil or criminal penalties against our officers, employees or us. The FDA could also issue a corporate warning letter or a recidivist warning letter or negotiate the entry of a consent decree of permanent injunction with us, and/or recommend prosecution. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and selling our products and could have a material adverse effect on our business, financial condition and results of operations.

 

Governmental regulations outside the U.S. continue to become increasingly stringent and complex, and our products may become subject to more rigorous regulation by non-U.S. governmental authorities in the future. In the EU, for example, the EU MDR went into effect in May 2021 and includes significant additional premarket and post-market requirements. Complying with the requirements of this regulation requires us to incur significant expense. Additionally, the availability of EU notified body services certified to the new requirements is limited, which may delay the marketing approval for some of our products under the EU MDR. Any such delays, or any failure to meet the requirements of the new regulation, could adversely impact our business in the EU and other regions that tie their product registrations to the EU requirements.

 

Our products and operations are also often subject to the rules of industrial standards bodies, such as the International Standards Organization. If we fail to adequately address any of these rules, our business could be harmed.

 

Furthermore, if we fail to receive or maintain necessary approvals or certifications to commercialize our products in foreign jurisdictions, our business, results of operations and financial condition could be adversely affected.

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If we fail to comply with healthcare fraud and abuse laws and regulations or anticorruption regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

 

The sales, marketing and pricing of products and relationships that medical products companies have with healthcare providers are under increased scrutiny around the world. Our industry is subject to various laws and regulations pertaining to healthcare fraud and abuse, including the False Claims Act, the Anti-Kickback Statute, the Stark law, the Physician Payments Sunshine Act, the FDCA and similar laws and regulations in the U.S. and around the world. In addition, we are subject to various laws concerning anti-corruption and anti-bribery matters (including the FCPA), sales to countries or persons subject to economic sanctions and other matters affecting our international operations. The FCPA prohibits, among other things, improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business. While we have safeguards in place to discourage improper payments or offers of payments by our employees, consultants, sales agents or distributors, these safeguards may be ineffective. In the past, Zimmer Biomet (including a former subsidiary of Zimmer Biomet that is now a subsidiary of ZimVie) has been subject to SEC and DOJ investigation with respect to an FCPA matter, resulting in an SEC administrative cease and desist order, a deferred prosecution agreement and a plea agreement, as well as oversight for a period of time through August 2020 by an independent compliance monitor. Any violations of the FCPA and similar laws may result in severe criminal or civil sanctions, and could result in substantial costs to respond to any such violations and to comply with any such sanctions, or could lead to other liabilities or proceedings against us, and would likely harm our reputation, business, financial condition and result of operations.

 

Healthcare fraud and abuse laws are broad in scope and are subject to evolving interpretation, which could require us to incur substantial costs to monitor compliance or to alter our practices if they are found to be noncompliant. Violations of these laws may be punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion from participation in governmental healthcare programs. Despite implementation of a comprehensive global healthcare compliance program, we cannot provide assurance that any of the healthcare fraud and abuse laws will not change or be interpreted in the future in a manner that restricts or adversely affects our business activities or relationships with healthcare professionals, nor can we make any assurances that authorities will not challenge or investigate our current or future activities under these laws.

 

Responding to government requests and investigations requires considerable resources, including the time and attention of management. If we were to become the subject of an enforcement action, it could result in negative publicity, penalties, fines, the exclusion of our products from reimbursement under federally-funded programs and/or prohibitions on our ability to sell our products, which could have a material adverse effect on our results of operations, financial condition and liquidity.

 

If we fail to comply with data privacy and security laws and regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

 

We are subject to federal, state and foreign data privacy and security laws and regulations that govern the processing, collection, use, disclosure, transfer, storage, disposal and protection of health-related and other personal information. The FDA issued draft guidance in April 2022 to which we may be subject concerning data security for medical devices, including information and documentation that should be contained in premarket submissions regarding cybersecurity and post-market management and reporting of cybersecurity risks. In addition, the QSR requires device manufacturers to address cybersecurity risks, including those posed by off-the-shelf software used in their devices. The FDA has also recently issued safety communications and alerts regarding cybersecurity vulnerabilities of certain medical devices, which vulnerabilities may apply to some of our current or future devices.

 

In addition, certain of our affiliates are subject to privacy, security and breach notification regulations promulgated under HIPAA. HIPAA governs the use, disclosure and security of protected health information by HIPAA “covered entities” and their “business associates.” HHS (through the Office for Civil Rights) has direct enforcement authority over covered entities and business associates with regard to compliance with HIPAA regulations, and has recently issued new rules and has proposed rule modifications.

 

In addition a number of U.S. states have also enacted data privacy and security laws and regulations that govern the processing, collection, use, disclosure, transfer, storage, disposal and protection of personal information, such as social security numbers, medical and financial information and other personal information. These laws and regulations may be more restrictive and not preempted by U.S. federal laws. For example, several U.S. territories and all 50 states now have data breach laws that require timely notification to individuals, and at times regulators, the media or credit reporting agencies, if a company has experienced unauthorized access or acquisition of personal information. Other states, including California, Virginia, Colorado, Connecticut, and Utah have in place, or have passed soon to be effective, laws that include disclosure obligations for businesses that collect personal information about that state’s residents, affords those individuals numerous rights relating to their personal information that may affect our ability to use personal information or disclose it to our business partners, and/or makes it unlawful for persons subject to the law to process what is termed

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“sensitive data” without the affirmative, unambiguous consent of the consumer. Other states are considering enacting similar privacy laws. The 2022 federal legislative session also raised speculation regarding the prospect of federal data protection legislation, but such legislation has not yet gained sufficient congressional support to pass. We will continue to monitor and assess the impact of these emerging laws, which may impose substantial penalties for violations, impose significant costs for investigations and compliance, allow private class-action litigation and carry significant potential liability for our business.

 

Outside of the U.S., data protection laws, including the EU GDPR in Europe and the Lei Geral de Proteção de Dados in Brazil, also apply to our operations in those countries in which we provide services to our customers. Legal requirements in these countries relating to the collection, storage, processing and transfer of personal data continue to evolve. The GDPR imposes, among other things, data protection requirements that include strict obligations and restrictions on the ability to collect, analyze and transfer personal data regarding persons in the EU, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater of €20.0 million or 4% of total worldwide annual turnover of the preceding financial year). Governmental authorities around the world have enacted similar types of legislative and regulatory requirements concerning data protection, and additional governments are considering similar legal frameworks.

 

For additional information about these laws and regulations, see Part I, Item 1. “Business – Government Regulation and Compliance.”

 

The interpretation and enforcement of the laws and regulations described above are uncertain and subject to change and may require substantial costs to monitor and implement compliance with any additional requirements. Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity and could have a material adverse impact on our business, financial condition or results of operations.

 

We are increasingly dependent on sophisticated information technology and if we fail to effectively maintain or protect our information systems or data, including from data breaches, our business could be adversely affected.

 

We are increasingly dependent on sophisticated information technology for our products, services and infrastructure. As a result of technology initiatives, expanding privacy and cybersecurity laws, changes in our system platforms and integration of new business acquisitions, we have been consolidating and integrating the number of systems we operate and have upgraded and expanded our information systems capabilities. In addition, some of our products and services incorporate software or information technology that collects data regarding patients and patient therapy, and some products or software we provide to customers connect to our systems for maintenance and other purposes. We also have outsourced elements of our operations to third parties, and, as a result, we manage a number of third-party business partners and third-party suppliers who may or could have access to our confidential information, including, but not limited to, intellectual property, proprietary business information and personal information of patients, employees and customers (collectively “Confidential Information”). In addition, we are dependent on our arrangements with Zimmer Biomet under the Transition Services Agreement to provide us with various information technology services.

 

Our information systems, and those of third-party business partners and third-party suppliers with whom we contract, require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information technology, evolving systems and regulatory standards, changing threats and vulnerabilities, and the increasing need to protect patient, customer and other personal or confidential information. In addition, given their size and complexity, these systems could be vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees, third-party vendors and/or business partners or from cyber-attacks by malicious third parties attempting to gain unauthorized access to our products, systems or Confidential Information.

 

Like other multinational corporations, we have experienced a few successful phishing attempts via email that were detected and quickly mitigated. We expect to experience similar phishing campaigns in the future. We and our third-party business partners, along with other corporations, could be subjected to other cyber-threats, including state-sponsored cyber-attacks, industrial espionage, insider threats, computer denial-of-service attacks, computer viruses, ransomware and other malware, payment fraud or other cyber incidents. Our incident response efforts, business continuity procedures and disaster recovery planning may not be sufficient for all eventualities. If we or our third-party business partners fail to maintain or protect our information systems and data integrity effectively, we could:

 

•
lose existing customers, vendors and business partners;
•
have difficulty attracting new customers;
•
have problems in determining product cost estimates and establishing appropriate pricing;
•
suffer outages or disruptions in our operations or supply chain;

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•
have difficulty preventing, detecting and controlling fraud;
•
have disputes with customers, physicians and other healthcare professionals;
•
have regulatory sanctions or penalties imposed;
•
incur increased operating expenses;
•
be subject to issues with product functionality that may result in a loss of data, risk to patient safety, field actions and/or product recalls;
•
incur expenses or lose revenues as a result of a data privacy breach; or
•
suffer other adverse consequences.

 

Cyber-attacks attempts are becoming more frequent and sophisticated. Therefore, despite our efforts, we cannot assure that cyber-attacks or data breaches will not occur or that systems issues will not arise in the future. Any significant breakdown, intrusion, breach, interruption, corruption or destruction of these systems could have a material adverse effect on our business and reputation and could materially adversely affect our results of operations and financial condition.

 

Pending and future product liability claims and litigation could adversely impact our financial condition and results of operations and impair our reputation.

 

Our business exposes us to potential product liability risks that are inherent in the design, manufacture and marketing of medical devices. In the ordinary course of business, we are the subject of product liability lawsuits alleging that component failures, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information resulted in an unsafe condition or injury to patients. We are currently defending a number of product liability lawsuits and claims related to various products.

 

Product liability claims are expensive to defend, divert our management’s attention and, if we are not successful in defending the claim, can result in substantial monetary awards against us or costly settlements. Further, successful product liability claims made against one or more of our competitors could cause claims to be made against us or expose us to a perception that we are vulnerable to similar claims. Any product liability claim brought against us, with or without merit and regardless of the outcome or whether it is fully pursued, may result in: decreased demand for our products; injury to our reputation; significant litigation costs; product recalls; loss of revenue; the inability to commercialize new products or product candidates; and adverse publicity regarding our products. Any of these may have a material and adverse effect on our reputation with existing and potential customers and on our business, financial condition and results of operations. In addition, a recall of some of our products, whether or not the result of a product liability claim, could result in significant costs and loss of customers.

 

We bear the risk of warranty claims on our products.

 

We bear the risk of express and implied warranty claims on products we supply, including equipment and component parts manufactured by third parties. We may not be successful in claiming recovery under any warranty or indemnity provided to us by our suppliers or vendors in the event of a successful warranty claim against us by a customer or that any recovery from such vendor or supplier would be adequate. In addition, warranty claims brought by our customers related to third-party components may arise after our ability to bring corresponding warranty claims against such suppliers expire, which could result in additional costs to us. There is a risk that warranty claims made against us will exceed our warranty reserve and our business, financial condition and results of operations could be harmed.

 

The industries that we serve have undergone, and are in the process of undergoing, significant changes in an effort to reduce costs, which could adversely affect our business, results of operations and financial condition.

 

The industries that we serve have undergone, and are in the process of undergoing, significant changes in an effort to reduce costs, including the following:

 

•
Governmental and private healthcare providers and payors around the world are increasingly utilizing managed care for the delivery of healthcare services, centralizing purchasing, limiting the number of vendors that may participate in purchasing programs, forming group purchasing organizations and integrated health delivery networks and pursuing consolidation to improve their purchasing leverage and using competitive bid processes to procure healthcare products and services.
•
Certain of our customers, and the end-users to whom our customers supply products, rely on government funding of and reimbursement for healthcare products and services and research activities. Healthcare reform changes and government austerity measures have reduced and may further reduce the amount of government funding or reimbursement available to customers or end-users of our products and services and/or the volume of medical procedures using our products and services. Other countries, as well as some private payors, also control the price of healthcare products, directly or indirectly, through reimbursement, payment, pricing or coverage limitations, tying reimbursement to outcomes or (in the case of governmental

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entities) compulsory licensing. Global economic uncertainty or deterioration can also adversely impact government funding and reimbursement.

 

These changes, as well as other impacts from market demand, government regulations, third-party coverage and reimbursement policies and societal pressures, have started changing the way healthcare is delivered, reimbursed and funded and may cause participants in the healthcare industry and related industries that we serve to purchase fewer of our products and services, reduce the prices they are willing to pay for our products and services, reduce the amounts of reimbursement and funding available for our products and services from governmental agencies or third-party payors, heighten clinical data requirements, reduce the volume of medical procedures that use our products and services, affect the acceptance rate of new technologies and products and increase our compliance and other costs. In addition, we may be excluded from important market segments or unable to enter into contracts with group purchasing organizations and integrated health networks on terms acceptable to us, and even if we do enter into such contracts, they may be on terms that negatively affect our current or future profitability. All of the factors described above could adversely affect our business, results of operations and financial condition.

 

We are substantially dependent on patent and other proprietary rights, and failing to protect such rights or to be successful in litigation related to our rights or the rights of others may result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future products, or prohibit us from enforcing our patent and other proprietary rights against others.

 

Claims of intellectual property infringement and litigation regarding patent and other intellectual property rights are commonplace in our industry and are frequently time consuming and costly. At any given time, we may be involved as either plaintiff or defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time. While it is not possible to predict the outcome of patent and other intellectual property litigation, such litigation could result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future products or prohibit us from enforcing our patent and proprietary rights against others, which could have a material adverse effect on our business and results of operations.

 

Our success depends in part on our proprietary technology, processes, methodologies and information. We rely on a combination of patent, copyright, trademark, trade secret and other intellectual property laws and nondisclosure, license, assignment and confidentiality arrangements to establish, maintain and protect our proprietary rights, as well as the intellectual property rights of third parties whose assets we license. However, the steps we have taken to protect our intellectual property rights, and the rights of those from whom we license intellectual property, may not be adequate to prevent unauthorized use, misappropriation or theft of our intellectual property. Further, our currently pending or future patent applications may not result in patents being issued to us, patents issued to or licensed by us in the past or in the future may be challenged or circumvented by competitors, and such patents may be found to be invalid, unenforceable or insufficiently broad to protect our technology or to provide us with any competitive advantage. Third parties could obtain patents that may require us to negotiate licenses to conduct our business, and the required licenses may not be available on reasonable terms or at all. We also cannot be certain that others will not independently develop substantially equivalent proprietary information.

 

In addition, intellectual property laws differ in various jurisdictions in which we operate and are subject to change at any time, which could further restrict our ability to protect our intellectual property and proprietary rights. In particular, a portion of our revenues is derived from jurisdictions where adequately protecting intellectual property rights may prove more challenging or impossible. We may also not be able to detect unauthorized uses or take timely and effective steps to remedy unauthorized conduct. To prevent or respond to unauthorized uses of our intellectual property, we might be required to engage in costly and time-consuming litigation or other proceedings, and we may not ultimately prevail. Any failure to establish, maintain or protect our intellectual property or proprietary rights could have a material adverse effect on our business, financial condition or results of operations.

 

We are involved in legal proceedings that may result in adverse outcomes.

 

In addition to intellectual property and product liability claims and lawsuits, we are involved in various commercial litigation and claims and other legal proceedings that arise from time to time in the ordinary course of our business. Given the uncertain nature of legal proceedings generally, we are not able in all cases to estimate the amount or range of losses that could result from an unfavorable outcome. We could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on our results of operations in any particular period.

 

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Our business involves the use of hazardous materials, and we and our third-party manufacturers must comply with environmental laws and regulations, which may be expensive and restrict how we do business.

 

Our third-party manufacturers’ activities and our own activities involve the controlled storage, use and disposal of hazardous materials or materials that can become hazardous as a result of the manufacturing process. We and our manufacturers are subject to federal, state, local and foreign laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these hazardous materials. We cannot eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of an accident, state, federal or other applicable authorities may curtail our use of these materials and interrupt our business operations. In addition, if an accident or environmental discharge occurs, or if we discover contamination caused by prior operations, including by prior owners and operators of properties we acquire, we could be liable for cleanup obligations, damages and fines. If such unexpected costs are substantial, this could significantly harm our financial condition and results of operations.

 

Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and business operations.

 

Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere presents risks to our current and future operations from natural disasters and extreme weather conditions, such as hurricanes, tornadoes, earthquakes, wildfires, or flooding. Such extreme weather conditions and other conditions caused by or related to climate change could increase our operational costs, pose physical risks to our facilities, and adversely impact our supply chain, including: manufacturing and distribution networks, the availability and cost of raw materials and components, energy supply, transportation, or other inputs necessary for the operation of our business. The impacts of climate change on global water resources may result in water scarcity, which could impact our ability to access sufficient quantities of water in certain locations and result in increased costs. Concerns over climate change could have an impact on customer demand for our products and result in new legal or regulatory requirements designed to mitigate the effects of climate change on the environment. Although it is difficult to predict and adequately prepare to meet the challenges to our business posed by climate change, if new laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance burdens and costs to meet our regulatory obligations as well as adverse impacts on raw material sourcing, manufacturing operations, and the distribution of our products.

 

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Risks Related to the Separation and the Distribution

 

The financial information included in this Annual Report from prior to the separation is not necessarily representative of the results we would have achieved as a standalone, publicly traded company and may not be a reliable indicator of our future results.

 

We began operating as a standalone, publicly traded company on March 1, 2022. All of our financial information for periods prior to March 1, 2022 reflects historical financial information of our business as a wholly owned subsidiary of Zimmer Biomet and does not necessarily reflect the financial condition, results of operations or cash flows we would have achieved as a standalone, publicly traded company during those periods or that we may achieve in the future. For example, historical combined financial information reflects allocations of expenses for services historically provided by Zimmer Biomet, and those allocations may be different than the comparable expenses we would have incurred as a standalone company. Additionally, the historical combined financial information does not reflect the changes that have occurred in our cost structure, management, financing arrangements and business operations related to being an independent, publicly traded company.

 

If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we, Zimmer Biomet, and Zimmer Biomet stockholders could be subject to significant tax liabilities and, in certain circumstances, we could be required to indemnify Zimmer Biomet for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.

 

In connection with the separation and distribution, Zimmer Biomet obtained a private letter ruling from the Internal Revenue Service (the "IRS") regarding certain U.S. federal income tax matters relating to the separation and distribution and received an opinion from its tax advisors. The IRS private letter ruling and the opinion were based upon and rely on, among other things, the continuing validity of such private letter ruling, various facts and assumptions, as well as certain representations, statements and undertakings of Zimmer Biomet and us, including those relating to the past and future conduct of Zimmer Biomet and us. If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if Zimmer Biomet or we breach any of the representations or covenants contained in any of the separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion(s) of tax advisors, the IRS private letter ruling and/or the opinion may be invalid and the conclusions reached therein could be jeopardized.

 

Notwithstanding receipt of the IRS private letter ruling and the opinion of tax advisors, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions, or undertakings upon which the IRS private letter ruling or the opinion were based are false or have been violated. In addition, neither the IRS private letter ruling nor the opinion address all of the issues that are relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes. Further, the opinion of tax advisors represent the judgment of such tax advisors and is not binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in the opinion. Accordingly, notwithstanding receipt by Zimmer Biomet of the IRS private letter ruling and the opinion of tax advisors, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail in such challenge, Zimmer Biomet, we and Zimmer Biomet stockholders could be subject to significant U.S. federal income tax liability.

 

If the distribution, together with related transactions, fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986 (the “Code”), in general, for U.S. federal income tax purposes, Zimmer Biomet would recognize taxable gain as if it had sold ZimVie common stock in a taxable sale for its fair market value (unless Zimmer Biomet and we jointly make an election under Section 336(e) of the Code with respect to the distribution, in which case, in general, (a) the Zimmer Biomet group would recognize taxable gain as if we had sold all of our assets in a taxable sale in exchange for an amount equal to the fair market value of ZimVie common stock and the assumption of all of our liabilities and (b) we would obtain a related step-up in the basis of our assets) and, if the distribution fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Section 355, in general, for U.S. federal income tax purposes, Zimmer Biomet stockholders who receive our shares in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.

 

Under the tax matters agreement that Zimmer Biomet has entered into with us, we may be required to indemnify Zimmer Biomet against any additional taxes and related amounts resulting from (a) an acquisition of all or a portion of our equity securities or assets, whether by merger or otherwise (and regardless of whether we participated in or otherwise facilitated the acquisition), (b) other actions or failures to act by us or (c) any inaccuracy or breach of our representations, covenants or undertakings contained in any of the separation-related agreements and documents or in any documents relating to the IRS private letter ruling and/or the opinion of tax advisors. Any such

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indemnity obligations, including the obligation to indemnify Zimmer Biomet for taxes resulting from the distribution and certain related transactions not qualifying as tax-free, could be material.

 

U.S. federal income tax consequences may restrict our ability to engage in certain desirable strategic or capital-raising transactions.

 

Under current law, a separation can be rendered taxable to Zimmer Biomet and its stockholders as a result of certain post-separation acquisitions of shares or assets of ZimVie. For example, a separation may result in taxable gain to Zimmer Biomet under Section 355(e) of the Code if the separation were later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50 percent or greater interest (by vote or value) in us. To preserve the U.S. federal income tax treatment of the separation and distribution, and in addition to our indemnity obligation described above, the tax matters agreement restricts us, for the two-year period following the distribution, except in specific circumstances, from:

 

•
entering into any transaction pursuant to which all or a portion of our common stock or assets would be acquired, whether by merger or otherwise;
•
issuing equity securities beyond certain thresholds;
•
repurchasing shares of our capital stock other than in certain open-market transactions;
•
ceasing to actively conduct certain aspects of our business; and/or
•
taking or failing to take any other action that would jeopardize the expected U.S. federal income tax treatment of the distribution and certain related transactions.

 

These restrictions may limit our ability to pursue certain strategic transactions or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business.

 

We may not achieve some or all of the expected benefits of the separation, and the separation may materially and adversely affect our financial position, results of operations and cash flows.

 

We may be unable to achieve the full strategic and financial benefits expected from the separation, or such benefits may be delayed or not occur at all for a variety of reasons, including, among others, that: (a) we may be more susceptible to market fluctuations and other adverse events than if we were still a part of Zimmer Biomet; (b) our business is less diversified than Zimmer Biomet’s business prior to the separation and distribution; and (c) the other actions required to separate Zimmer Biomet’s and our respective businesses could disrupt our operations. If we fail to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, it could have a material adverse effect on our financial position, results of operations and cash flows.

 

Zimmer Biomet or we may fail to perform under various transaction agreements that were executed as part of the separation, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.

 

In connection with the separation and prior to the distribution, we and Zimmer Biomet entered into a separation agreement and various other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, a transitional trademark license agreement, a transition manufacturing and supply agreement and a reverse transition manufacturing and supply agreement. The separation agreement, the tax matters agreement, the employee matters agreement, the intellectual property matters agreement and the transitional trademark license agreement determine the allocation of assets, rights and liabilities between the companies following the separation for those respective areas and include any necessary indemnifications related to liabilities and obligations. The transition services agreement provides for the performance of certain services by Zimmer Biomet for the benefit of us for a limited period of time after the separation. Additionally, we are manufacturing certain products for Zimmer Biomet on a transitional basis and Zimmer Biomet is manufacturing certain products for us. We will rely on Zimmer Biomet to satisfy its obligations under these agreements. If Zimmer Biomet is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses. Upon expiration of the transition services agreement, the transition manufacturing and supply agreement and the reverse transition manufacturing and supply agreement, each of the services that are covered in such agreements will have to be provided internally or by third parties. If we do not have agreements with other providers of these services once certain transaction agreements expire or terminate, we may not be able to operate our business effectively, which may have a material adverse effect on our financial position, results of operations and cash flows.

 

Certain members of management, directors and stockholders may hold stock in both Zimmer Biomet and ZimVie, and as a result, may face actual or potential conflicts of interest.

 

The management and directors of each of Zimmer Biomet and ZimVie may own both Zimmer Biomet common stock and ZimVie common stock. This ownership overlap could create, or appear to create, potential conflicts of interest when our management and directors and Zimmer Biomet’s management and directors face decisions that could have different implications for us and Zimmer

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Biomet. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between Zimmer Biomet and us regarding the terms of the agreements governing the distribution and our relationship with Zimmer Biomet thereafter. Potential conflicts of interest may also arise out of any commercial arrangements that we or Zimmer Biomet may enter into in the future.

 

As an independent, publicly traded company, we may not enjoy the same benefits that we did as part of Zimmer Biomet.

 

Historically, our businesses were operated as business segments of Zimmer Biomet, and Zimmer Biomet performed substantially all the corporate functions for our operations, including managing financial and human resources systems, internal auditing, investor relations, treasury services, accounting functions, finance and tax administration, benefits administration, legal, regulatory and corporate branding functions.

 

Following the distribution, Zimmer Biomet is providing support to us with respect to certain of these functions on a transitional basis, but have had to replicate certain facilities, systems, infrastructure and personnel to which we no longer have access after the distribution. We have incurred capital and other costs associated with developing and implementing our own support functions in these areas, and we likely will continue to incur such costs, which could be material.

 

As an independent, publicly traded company, we may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of Zimmer Biomet. As part of Zimmer Biomet, we were able to enjoy certain benefits from Zimmer Biomet’s operating diversity and available capital for investments. As an independent, publicly traded company, we do not have similar operating diversity and may not have similar access to capital markets, which could have a material adverse effect on our financial position, results of operations and cash flows.

 

If we are required to pay under our indemnification obligations to Zimmer Biomet, our financial results could be negatively impacted. The Zimmer Biomet indemnity may not be sufficient to hold us harmless from the full amount of liabilities for which Zimmer Biomet is allocated responsibility, and Zimmer Biomet may not be able to satisfy its indemnification obligations in the future.

 

Pursuant to the separation agreement and certain other agreements with Zimmer Biomet, Zimmer Biomet agreed to indemnify us for certain liabilities, and we agreed to indemnify Zimmer Biomet for certain liabilities, in certain cases for uncapped amounts. Indemnities that we may be required to provide Zimmer Biomet may not be subject to any cap, may be significant and could negatively impact our business, particularly with respect to indemnities provided in the tax matters agreement. Third parties could also seek to hold us responsible for any of the liabilities that Zimmer Biomet has agreed to retain. Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used operating our business. Further, the indemnity from Zimmer Biomet may not be sufficient to protect us against the full amount of such liabilities, and Zimmer Biomet may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Zimmer Biomet any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could have a material adverse effect on our financial position, results of operations and cash flows.

 

The allocation of intellectual property rights among us and Zimmer Biomet as part of the separation could adversely impact our competitive position and our ability to develop and commercialize certain future products and services.

 

In connection with the separation, we entered into an intellectual property matters agreement with Zimmer Biomet governing, among other things, the allocation of intellectual property rights related to our respective businesses. As a result of the separation and such allocation, we no longer have an ownership interest in certain intellectual property rights, but are a non-exclusive licensee of such rights. This loss of the ownership of certain intellectual property rights could adversely affect our ability to maintain our competitive position through the enforcement of these rights against third parties that infringe these rights. In addition, we may lose our ability to license these rights to third parties in exchange for a license to such third parties’ rights we may need to operate our business.

 

The terms of the intellectual property matters agreement also include cross-licenses among the parties of certain intellectual property rights owned by ZimVie and Zimmer Biomet and needed for the continuation of the operations of the ZimVie businesses and the Zimmer Biomet core orthopedic businesses, respectively. The licenses granted to us by Zimmer Biomet are nonexclusive and, accordingly, Zimmer Biomet could license such licensed intellectual property rights to our competitors, which could adversely affect our competitive position in the industry. Moreover, our use of the intellectual property rights licensed to us by Zimmer Biomet is restricted to existing products (and derivative products) in certain fields of use related to our business. The limited nature of such licenses, and the other rights granted to us pursuant to the intellectual property matters agreement, may not provide us with all the intellectual property rights that we held or may need as our business changes in the future. Accordingly, if we were to expand our business to include new products and services outside of our current fields of use, we will not have the benefit of such licenses for such new products or services. As a result,

30

 

it may be necessary for us to develop our technology independently of such licensed rights, which could make it more difficult, time consuming and/or expensive for us to develop and commercialize certain new products and services.

 

Potential liabilities may arise due to fraudulent transfer considerations, which would adversely affect our financial condition and results of operations.

 

In connection with the separation (including the internal reorganization), Zimmer Biomet undertook several corporate reorganization transactions involving its subsidiaries which, along with the distribution, may be subject to various fraudulent conveyance and transfer laws. If, under these laws, a court were to determine that, at the time of the separation, any entity involved in these reorganization transactions or the separation:

 

•
(1) was insolvent, was rendered insolvent by reason of the separation, or had remaining assets constituting unreasonably small capital, and (2) received less than fair consideration in exchange for the distribution; or
•
intended to incur, or believed it would incur, debts beyond its ability to pay those debts as they matured,

 

then the court could void the separation and distribution, in whole or in part, as a fraudulent conveyance or transfer. The court could then require our stockholders to return to Zimmer Biomet some or all of the shares of ZimVie common stock issued in the distribution, or require Zimmer Biomet or ZimVie, as the case may be, to fund liabilities of the other company for the benefit of creditors. The measure of insolvency will vary depending upon the jurisdiction and the applicable law. Generally, however, an entity would be considered insolvent if the fair value of its assets was less than the amount of its liabilities (including the probable amount of contingent liabilities), or if it incurred debt beyond its ability to repay the debt as it matures. No assurance can be given as to what standard a court would apply to determine insolvency or that a court would determine that we or any of our subsidiaries were solvent at the time of or after giving effect to the distribution.

 

Risks Related to Our Common Stock

 

If securities or industry analysts do not publish research or publish inaccurate, misleading or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. We do not control these analysts, or the content, opinions or financial models included in their reports. If one or more of the analysts downgrades our stock or publishes inaccurate, misleading or unfavorable research about our business, our stock price would likely decline. If one or more of the analysts ceases coverage of our common stock or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause the stock price or trading volume of our common stock to decline.

 

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

 

As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. In addition, beginning with this Annual Report on Form 10-K, we are required to furnish a report by management on the effectiveness of our internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act ("SOX"). Our independent registered public accounting firm will be required to express an opinion as to the effectiveness of our internal control over financial reporting beginning with the first Form 10-K when we become an accelerated filer or large accelerated filer. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating.

 

The process of designing, implementing and testing the internal control over financial reporting required to comply with this obligation is time consuming, costly and complicated. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 of SOX in a timely manner or to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

 

31

 

The market price of shares of our common stock may be volatile, which could cause the value of your investment to decline.

 

The market price of our common stock may be highly volatile and could be subject to wide fluctuations. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our common stock regardless of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly operating results or dividends, if any, to stockholders, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industries we participate in or individual scandals, and in response the market price of shares of our common stock could decrease significantly.

 

In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

 

We do not expect to pay any cash dividends for the foreseeable future.

 

We currently intend to retain any future earnings to finance the operation and expansion of our business. As a result, we do not expect to pay cash dividends on our common stock for the foreseeable future. Investors may need to sell all or part of their holdings of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Any payment of future cash dividends on our common stock will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions imposed by lenders, if any. Therefore, you should not expect to receive dividend income from shares of our common stock.

 

Our certificate of incorporation designates a state or federal court located in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against us and our directors and officers.

 

Our certificate of incorporation provides that, unless we consent in writing to an alternative forum, a state or federal court located in the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of ours to us or our stockholders, (iii) any action asserting a claim against us or any director, officer or other employee arising pursuant to any provision of the Delaware General Corporation Law, as amended (the “DGCL”), or our certificate of incorporation or bylaws (as either may be amended from time to time), or (iv) any action asserting a claim against us or any director, officer or other employee of ours governed by the internal affairs doctrine. This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors and officers. Alternatively, if a court outside of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.

 

Section 22 of the Securities Act of 1933, as amended (the "Securities Act"), creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our certificate of incorporation provides that the federal district courts of the U.S. will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. However, since Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty of liability created by the Exchange Act or the rules and regulations thereunder, our certificate of incorporation further provides that the exclusive forum provision does not apply to actions arising under the Exchange Act or the rules and regulations thereunder.

 

32

 

This exclusive forum provision may limit the ability of a stockholder to commence litigation in a forum that the stockholder prefers, or may require a stockholder to incur additional costs in order to commence litigation in Delaware or U.S. federal district courts, each of which may discourage such lawsuits against us or our directors or officers.

 

Anti-takeover provisions in our certificate of incorporation and bylaws and of Delaware law could enable our board of directors to resist a takeover attempt by a third party and limit the power of our stockholders.

 

Our certificate of incorporation and bylaws, and Delaware law, contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids more expensive to the acquiror and to encourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings and the right of our board of directors to issue preferred stock without stockholder approval. Delaware law also imposes some restrictions on mergers and other business combinations between any holder of 15% or more of our outstanding common stock and us.

 

We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of ZimVie and our stockholders. Accordingly, in the event that our board of directors determines that a potential business combination transaction is not in the best interests of us and our stockholders but certain stockholders believe that such a transaction would be beneficial to us and our stockholders, such stockholders may elect to sell their shares in ZimVie and the trading price of our common stock could decrease.

 

These and other provisions of our certificate of incorporation, bylaws and the DGCL could have the effect of delaying, deferring or preventing a proxy contest, tender offer, merger or other change in control, which may have a material adverse effect on our business, financial condition and results of operations.

 

Furthermore, an acquisition or further issuance of our stock could trigger the application of Section 355(e) of the Code, causing the distribution to be taxable to Zimmer Biomet. Under the tax matters agreement, and as described in more detail above, we would be required to indemnify Zimmer Biomet for the resulting taxes and related amount, and this indemnity obligation might discourage, delay or prevent a change of control that investors may consider favorable.

 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

Not Applicable

 

ITEM 2. PROPERTIES.

 

We own or lease more than 40 facilities around the world, approximately one-third of which are in the U.S. Our corporate headquarters and our Spine headquarters are in Westminster, Colorado. Our Dental headquarters is in Palm Beach Gardens, Florida, which is also home to significant manufacturing operations and R&D activities.

 

We have six principal manufacturing site locations, described below, and a physical presence in approximately 25 countries.

 

Location

 

How Held

 

Primary Use

 

Sq. Ft.

Palm Beach Gardens, FL

 

Owned

 

Dental Executive Offices Dental Manufacturing

 

190,000

Westminster, CO

 

Leased

 

Corporate Headquarters
Spine Executive Offices
Spine Manufacturing

 

104,000

Troyes, France

 

Leased

 

Spine Manufacturing

 

83,000

Valencia, Spain

 

Owned

 

Dental Manufacturing

 

70,000

Guaynabo, Puerto Rico

 

Owned

 

Spine Manufacturing

 

55,000

Memphis, TN

 

Leased

 

Spine Manufacturing

 

30,000

 

We maintain sales and administrative offices and warehouse and distribution facilities in countries around the world. These local market facilities are primarily leased due to common business practices and to allow us to be more adaptable to changing needs in the market.

33

 

 

We distribute our products both through large, centralized warehouses and through smaller, market specific facilities, depending on the needs of the market.

 

We believe that all of the facilities and equipment are in good condition, well maintained and able to operate at present levels. We believe the current facilities, including manufacturing, warehousing, R&D and office space, provide sufficient capacity to meet ongoing demands.

 

 

We are subject to various claims, legal proceedings and investigations regarding product liability, intellectual property, commercial and other matters that arise in the normal course of business. We currently do not expect the outcome of these matters to have a material adverse impact on our results of operations, cash flows or financial position. However, the outcome of such matters is unpredictable, our assessment of them may change, and resolution of them could have a material adverse effect on our financial position, results of operations or cash flows.

 

For additional information related to our contingencies, see Note 17 to our consolidated financial statements included in Part II, Item 8 of this Annual Report, which is incorporated herein by reference.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not Applicable.

34

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Common Stock Market Information

 

Our common shares began "when issued" trading on the Nasdaq Global Select Market on February 14, 2022. "Regular way" trading on the Nasdaq Global Select Market began on March 1, 2022.

 

Our common stock is traded on the Nasdaq Stock Market under the symbol “ZIMV.” As of February 24, 2023, there were approximately 11,300 holders of record of our common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers and other financial institutions.

 

Recent Sales of Unregistered Securities

 

There were no unregistered sales of equity securities that have not been previously disclosed in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K during the year ended December 31, 2022.

 

Dividend Policy

 

We do not expect to pay dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the operation and expansion of our business, and, therefore, we do not expect to pay cash dividends on our common stock in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, outstanding indebtedness and plans for expansion and restrictions imposed by lenders, if any.

 

Performance Graph

 

The following graph compares the cumulative total stockholder return data on our common stock from March 1, 2022 to December 31, 2022 with the cumulative return of (i) the Nasdaq Composite Index, and (ii) the S&P 600 Health Care index. The graph assumes that $100 was invested on March 1, 2022 in our common stock and in each of the comparative indices, and the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

 

The following graph and related information shall not be deemed “soliciting material” or be deemed to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing, except to the extent that we specifically incorporate it by reference into such filing.

35

 

 

COMPARISON OF CUMULATIVE TOTAL RETURN*

AMONG ZIMVIE, INC.,

THE NASDAQ COMPOSITE INDEX

AND THE S&P 600 HEALTH CARE INDEX

 

https://cdn.kscope.io/132604d838e87f9369a287c465485f6d-img249528146_0.jpg 

 

* $100 invested on March 1, 2022 in stock or index, including reinvestment of dividends.

 

The information required by this Item concerning equity compensation plans is incorporated herein by reference to Item 12 of this report.

 

ITEM 6. [RESERVED].

 

 

36

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following information should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. 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.

 

The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Annual Report, particularly in “Cautionary Note Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors.”

 

OVERVIEW

 

On March 1, 2022, ZimVie Inc. ("ZimVie," "we," "us" and "our") and Zimmer Biomet Holdings Inc. ("Zimmer Biomet") entered into a Separation and Distribution Agreement, pursuant to which Zimmer Biomet agreed to spin off its spine and dental businesses into ZimVie, a new, publicly traded company. ZimVie is now a standalone publicly traded company and, on March 1, 2022, regular-way trading of our common stock commenced on the Nasdaq Stock Market under the symbol "ZIMV." The distribution was completed pursuant to the Separation and Distribution Agreement and other agreements with Zimmer Biomet related to the distribution, including, but not limited to a tax matters agreement, an employee matters agreement, a transition services agreement and transition manufacturing agreements. The accompanying consolidated financial statements are prepared on a standalone basis and, for periods prior to March 1, 2022, were prepared on a carve-out basis from Zimmer Biomet’s consolidated financial statements and accounting records, and accordingly, may not be indicative of our financial position, results of operations or cash flows had we operated as a standalone company during those periods, or comparable to our financial position subsequent to March 1, 2022.

 

ZimVie is a leading medical technology company dedicated to enhancing the quality of life for spine and dental patients worldwide. We develop, manufacture and market a comprehensive portfolio of products and solutions designed to treat a wide range of spine pathologies and support dental tooth replacement and restoration procedures. Our broad portfolio addresses all areas of spine with market leadership in cervical disc replacement ("CDR") and vertebral body tethering to treat pediatric scoliosis, and we are well-positioned in the growing global dental implant, biomaterials and digital dentistry market with a strong presence in the tooth replacement market with market leading positions in certain geographies. Our operations are principally managed on a products basis and include two operating segments, 1) the spine products segment, and 2) the dental products segment.

 

In the spine products market, our core services include designing, manufacturing and distributing a full suite of spinal surgery solutions to treat patients with back or neck pain caused by degenerative conditions, deformities, tumors or traumatic injury of the spine. We also provide devices that promote bone healing.

 

In the dental products market, our core services include designing, manufacturing and distributing a comprehensive portfolio of dental implant solutions, biomaterials and digital dentistry solutions. Dental reconstructive implants are for individuals who are totally without teeth or are missing one or more teeth, dental prosthetic products are aimed at providing aesthetic and functional restoration to resemble the original teeth, and dental regenerative products are for soft tissue and bone rehabilitation.

 

We have a broad geographic revenue base, with meaningful exposure to both established and emerging markets. We have six manufacturing site locations, and a physical presence in approximately 25 countries.

 

Impact of the COVID-19 Global Pandemic

 

Our results have been impacted by the COVID-19 global pandemic. The vast majority of our net sales are derived from products used in elective surgical procedures. As COVID-19 rapidly started to spread throughout the world in early 2020, our net sales decreased as countries took precautions to prevent the spread of the virus with lockdowns and stay-at-home measures and as hospitals deferred elective surgical procedures. Although we began to see some recovery of elective surgical procedures as various lockdowns and stay-at-home measures were lifted during 2021, resurgences, highly-transmissible variants and intermittent staffing shortages resulted in further deferrals of elective surgical procedures in the second half of 2021 and in 2022.

 

Our business is seasonal in nature to some extent, as many of our products are used in elective procedures, which typically decline during the early months of the year and can increase at the end of the year once annual deductibles have been met on health insurance plans in the U.S. However, typical seasonal patterns have been, and could continue to be, different as a result of COVID-19.

 

37

 

With the deferral of elective surgical procedures, we have taken prudent measures in an effort to maintain an adequate financial profile to have access to capital to fund the business during these unprecedented times. In continued response to the COVID-19 pandemic, we have taken a cautious approach to discretionary spending such as travel, meetings and other project spend that can be delayed with limited long-term detriment to the business. To date we have not experienced significant disruptions in our supply chain, or in our ability to meet our customer demands.

 

Impact of China Volume-Based Procurement ("VBP")

 

The national VBP program for spine products in China took place in late September 2022, and we were not successful in our bid. As a result, after evaluating our alternatives, in the fourth quarter of 2022 we approved a plan to exit our spine products activities in China. During the fourth quarter of 2022, we recorded charges of $4.9 million related to severance of terminated employees, legal charges, inventory write-downs and accelerated depreciation of fixed assets as we wind down our spine products operations in China. Annual spine product sales in China represented less than 1% of our consolidated annual sales.

 

The national VBP program for dental products in China took place in January 2023, and we were not successful in our bid. We are evaluating the impact of this result on our dental products business in China and reviewing our strategic alternatives. Annual dental product sales in China represent less than 1% of our consolidated annual sales.

 

2023 Outlook

 

In our dental product category we expect continued growth from our implants, digital dentistry and biomaterials product offerings, including new product launches; however, such growth may be limited in 2023 by headwinds in foreign currency exchange risk, especially from the Euro, and potential risk to net sales due to China VBP. In our spine product category, we expect continued competitive pressures, as well as a decline in net sales from 2022 due to the wind down of our spine products operations in China as a result of our unsuccessful VBP bid. We are focused on growing our differentiated technologies, regaining competitive share and supplementing our product portfolio with relevant enabling technologies.

 

Although we expect to face continued macro-economic and inflationary pressures on our cost structure, we are focused on driving operational improvements to optimize our business to expand margins. In early 2023, we initiated an evaluation of our global operations with the intention of reducing costs to help mitigate financial pressures due to net sales declines and continued foreign exchange risk and inflationary costs. We will focus on our disciplined financial framework and post-spin operational improvement initiatives to support the health of our income statement and balance sheet. We believe this will allow us more financial flexibility to manage cash flow and invest in higher growth opportunities. However, we do expect an increase in interest expense due to the higher interest rate environment.

 

RESULTS OF OPERATIONS

 

Fiscal Years Ended December 31, 2022, 2021 and 2020

 

Net Sales by Product Category

 

The following tables present net sales by product category and the components of the percentage changes ($ in thousands):

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

2022

 

 

2021

 

 

% Inc/(Dec)

 

 

Volume/Mix

 

 

Price

 

 

Exchange

 

Spine

 

$

449,806

 

 

$

540,348

 

 

 

(16.8

)%

 

 

(15.1

)%

 

 

0.2

%

 

 

(1.9

)%

Dental

 

 

459,681

 

 

 

468,482

 

 

 

(1.9

)

 

 

0.9

 

 

 

1.7

 

 

 

(4.5

)

Third Party Sales

 

 

909,487

 

 

 

1,008,830

 

 

 

(9.8

)

 

 

(7.7

)

 

 

0.9

 

 

 

(3.0

)

Related Party

 

 

4,375

 

 

 

5,819

 

 

 

(24.8

)

 

N/A

 

 

N/A

 

 

N/A

 

Total

 

$

913,862

 

 

$

1,014,649

 

 

 

(9.9

)

 

N/A

 

 

N/A

 

 

N/A

 

 

38

 

 

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

2021

 

 

2020

 

 

% Inc/(Dec)

 

 

Volume/Mix

 

 

Price

 

 

Exchange

 

Spine

 

$

540,348

 

 

$

529,077

 

 

 

2.1

%

 

 

3.4

%

 

 

(1.9

)%

 

 

0.6

%

Dental

 

 

468,482

 

 

 

367,872

 

 

 

27.4

 

 

 

23.8

 

 

 

2.1

 

 

 

1.5

 

Third Party Sales

 

 

1,008,830

 

 

 

896,949

 

 

 

12.5

 

 

 

11.8

 

 

 

(0.3

)

 

 

1.0

 

Related Party

 

 

5,819

 

 

 

15,478

 

 

 

(62.6

)

 

N/A

 

 

N/A

 

 

N/A

 

Total

 

$

1,014,649

 

 

$

912,427

 

 

 

11.2

 

 

N/A

 

 

N/A

 

 

N/A

 

 

Demand (Volume/Mix) Trends

 

Demand in the spine product category was negatively impacted in 2022 compared to 2021 by the exit of a number of unprofitable markets in late 2021, the discontinuation of certain products and brands, the impact of the third party net sales retained by Zimmer Biomet until we completed our separation activities in certain markets at the end of the third quarter of 2022, a slowdown of customer purchases in China in anticipation of VBP, operational disruptions resulting from ERP implementation and other IT systems projects and continued competitive pressures in the spine market. The spine product category was also negatively impacted by distributor bulk orders in the first quarter of 2021 that did not recur and the surge in COVID-19 cases in the first half of 2022 related to the Omicron variant.

 

In 2021, our business experienced growth over 2020 due to COVID-19 recovery. However, despite recovery from COVID-19, the spine product category continued to experience increased competition as observed in recent years.

 

There was increased demand in the dental product category for all product types in 2022, with the strongest growth in implants. Within the dental product category, the positive volume/mix for 2022 reflected higher demand for tooth replacement procedures combined with a growing market of digital dentistry and biomaterials.

 

In 2021, the dental product category experienced increased demand for our digital dentistry and biomaterials products as compared with 2020, due in part to lower sales in 2020 resulting from COVID-19 lockdowns, stay-at-home measures and deferred elective surgical procedures.

 

Pricing Trends

 

In 2022, the spine product category continued to experience governmental healthcare cost pricing pressure efforts and similar efforts at local hospitals and health systems. The dental product category experienced price improvement in 2022 in certain geographic regions, including North America and Europe.

 

In 2021, the spine product category decline resulted from governmental healthcare cost containment efforts and similar efforts at local hospitals and health systems. In 2021, the dental product category experienced price declines in certain, geographic regions. Europe and Asia Pacific experienced larger price erosion due to premium implant competition, while pricing in North America was more favorable.

 

Foreign Currency Exchange Rates

 

In countries where we have a subsidiary, we sell to customers in their local currencies. Accordingly, our net sales as reported in U.S. Dollars are affected by changes in foreign currency exchange rates. We are primarily exposed to foreign currency exchange rate risk with respect to net sales denominated in Euros, Chinese Renminbi, Israeli Shekel, New Zealand Dollar, Japanese Yen, Canadian Dollar and Swedish Krona. For 2022, foreign exchange fluctuations had a negative effect on year-over-year sales, mainly due to the strengthening of the U.S. Dollar against the Euro. In 2021, there were no individually material changes year-over-year related to foreign exchange fluctuations.

 

39

 

Expenses as a Percent of Net Sales

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

 

2022 vs. 2021
Inc/(Dec)

 

 

2021 vs. 2020
Inc/(Dec)

 

Cost of products sold, excluding intangible asset
   amortization

 

 

32.5

%

 

 

37.6

%

 

 

33.2

%

 

 

(5.1

)%

 

 

4.4

%

Related party cost of products sold, excluding intangible
   asset amortization

 

 

0.4

 

 

 

0.4

 

 

 

1.1

 

 

 

0.0

 

 

 

(0.7

)

Intangible asset amortization

 

 

8.8

 

 

 

8.5

 

 

 

9.4

 

 

 

0.4

 

 

 

(0.9

)

Research and development

 

 

6.9

 

 

 

6.0

 

 

 

5.4

 

 

 

0.8

 

 

 

0.6

 

Selling, general and administrative

 

 

57.3

 

 

 

54.6

 

 

 

58.5

 

 

 

2.7

 

 

 

(3.9

)

Goodwill impairment

 

 

—

 

 

 

—

 

 

 

15.6

 

 

 

—

 

 

 

(15.6

)

Restructuring

 

 

1.2

 

 

 

0.3

 

 

 

1.1

 

 

 

0.9

 

 

 

(0.8

)

Acquisition, integration, divestiture and related

 

 

3.2

 

 

 

2.4

 

 

 

0.2

 

 

 

0.8

 

 

 

2.2

 

Operating Loss

 

 

(10.4

)

 

 

(9.9

)

 

 

(24.4

)

 

 

(0.5

)

 

 

14.5

 

 

Cost of Products Sold and Intangible Asset Amortization

 

The decrease in cost of products sold in dollars and as a percentage of net sales in 2022 compared to 2021 was primarily due to $40.3 million of brand rationalization charges in the prior year that did not recur and a net reduction in inventory charges, both in the spine product category, as well as a favorable mix impact in 2022 from higher dental implant net sales. This decrease was partially offset by a $2.0 million inventory charge in China as a result of our decision to exit our spine products activities and an incremental expense of $1.8 million in share-based compensation expense due to converted Zimmer Biomet awards (for more information, see Note 5 to our consolidated financial statements).

 

The increase in cost of products sold as a percentage of sales in 2021 compared to 2020 was primarily due to expense of $40.3 million from excess and obsolete inventory, primarily related to certain product lines we discontinued related to a brand rationalization initiated in second half of 2021, as well as product mix.

 

Intangible asset amortization as a percentage of net sales increased slightly in 2022 as compared to 2021 due to amortization expense not decreasing ratably with the decrease in our net sales. Intangible asset amortization as a percentage of net sales decreased in 2021 compared to 2020 due to amortization expense not increasing ratably with the significant increase in our net sales.

 

Operating Expenses

 

Research and development ("R&D") expenses as a percentage of net sales increased in 2022 compared to 2021, primarily as a result of a decrease in net sales and an incremental $2.1 million in share-based compensation expense due to converted Zimmer Biomet awards (for more information, see Note 5 to our consolidated financial statements).

 

R&D expenses as a percentage of net sales increased from 2020 to 2021. R&D expenses increased in terms of dollars in 2021 compared to 2020, as we continued to focus on innovation of key product segments. Our R&D investments are focused on implant innovation and the next generation of flagship implant products of T3 and Tapered Screw Vent in the dental product category and Mobi-C and The Tether device in the spine product category.

 

Selling, general and administrative ("SG&A") expenses increased as a percentage of sales in 2022 as compared to 2021, primarily as a result of an incremental $10.8 million in share-based compensation expense due to converted Zimmer Biomet awards (for more information, see Note 5 to our consolidated financial statements), increased general and administrative costs due to us being a standalone public company in 2022 and the decrease in net sales, partially offset by decreases in variable selling expenses. SG&A expenses in terms of dollars decreased in 2022 compared to 2021, primarily due to cost containments and the sales volume decrease.

 

SG&A expenses increased in 2021 compared to 2020, but decreased as a percentage of net sales. SG&A expenses increased primarily due to higher variable selling and distribution expenses from the increase in our net sales, travel increases and other projects. The decrease in SG&A expenses as a percentage of net sales was due to various fixed expenses that did not increase ratably with the significant increase in our net sales in 2021.

 

In 2020, we recognized a goodwill impairment charge of $142.0 million related to our Dental reporting unit. For more information regarding this charge, see Note 4 to our consolidated financial statements.

40

 

 

Restructuring expense is related to our exit of our spine products business in China, our restructuring plan initiated in June 2022 with the objective of reducing costs and optimizing our global footprint, primarily within our spine segment, and Zimmer Biomet's restructuring plans initiated in the fourth quarters of 2019 and 2021 to reduce costs and to allow investment in higher priority growth opportunities. We recognized expenses of $11.4 million (which includes charges of $0.7 million related to the exit of distributor relationships in China), $3.3 million and $9.7 million in 2022, 2021 and 2020, respectively, related to these restructuring plans. The restructuring costs primarily related to employee termination benefits, inventory write-downs, contract terminations and retention period compensation and benefits. For more information regarding these plans and expenses, see Note 19 to our consolidated financial statements.

 

Acquisition, integration, divestiture and related expenses increased in 2022 as compared to 2021, primarily due to the increased costs related to the March 1, 2022 distribution and costs incurred in connection with building out capabilities necessary to becoming a standalone, public company, as well as a change to expected contingent payments (for more information, see Note 3 to our consolidated financial statements). Acquisition, integration, divestiture and related expenses increased in 2021 due to the increased costs related to the March 1, 2022 distribution.

 

Other Income (Expense), net, Interest Expense, net, and Income Taxes

 

Our non-operating other income (expense), net, primarily relates to the remeasurement of monetary assets and liabilities that are denominated in a currency other than the subsidiary’s functional currency. Therefore, the income or expense varies from year-to-year based upon the volatility of foreign currency exchange rates.

 

Our interest expense, net, in 2022 was related to our Credit Agreement (for more information, see Note 10 to our consolidated financial statements). In 2020 and 2021 our interest expense, net, was related to debt due to Parent and was insignificant in the periods presented.

 

Our effective tax rate (“ETR”) on loss before income taxes was 41.9%, 6.0% and 19.1% for the years ended December 31, 2022, 2021 and 2020, respectively. In 2022, the additional income tax benefit compared to the 21% statutory rate was primarily driven by profit in inventory recorded prior to the distribution, which is non-taxable because the inventory is sold post-separation to third parties. The benefit was further driven by the recognition of a Puerto Rico withholding tax receivable available to offset income taxes, state tax benefits, and tax credits. In 2021, the reduction in income tax benefit compared to the 21% statutory rate was driven by an increase in valuation allowances against current year net operating losses and foreign tax credits. In 2020, the income tax benefit was driven by reduced uncertain tax positions related to expiration of statutes of limitations, offset by a non-deductible goodwill impairment charge which resulted in a loss before taxes, but had no corresponding tax benefit.

 

During 2022, income tax balances were adjusted to reflect the income tax positions after distribution, including those related to tax loss and credit carryforwards, other deferred tax assets and liabilities and valuation allowances. These separation-related adjustments resulted in a $3.9 million increase to the net deferred tax liability, primarily due to inventory and intangible assets transferred in the separation, tax rate changes and changes to the permanent reinvestment assertion in the post-separation environment. The increase in the net deferred tax liability was offset by a corresponding decrease in net parent investment.

 

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; 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.

 

Segment Operating Profit

 

 

 

Net Sales

 

 

Operating Profit

 

 

Operating Profit as a
Percentage of Net Sales

 

 

 

Year Ended December 31,

 

 

Year Ended December 31,

 

 

Year Ended December 31,

 

(dollars in thousands)

 

2022

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2020

 

Spine

 

$

449,806

 

 

$

540,348

 

 

$

529,077

 

 

$

42,480

 

 

$

54,766

 

 

$

56,262

 

 

 

9.4

%

 

 

10.1

%

 

 

10.6

%

Dental

 

 

459,681

 

 

 

468,482

 

 

 

367,872

 

 

 

93,643

 

 

 

88,045

 

 

 

39,759

 

 

 

20.4

 

 

 

18.8

 

 

 

10.8

 

 

In 2022, our spine segment's net sales declined compared to 2021 due to markets exited, the discontinuation of products and brands rationalized in late 2021, increased competition, the impact of the third party net sales retained by Zimmer Biomet until we completed our separation activities in certain markets at the end of the third quarter of 2022, distributor bulk orders in the first quarter of 2021 that did not recur, the surge in COVID-19 cases in the first half of 2022 related to the Omicron variant, a slowdown of customer purchases in China in anticipation of VBP, operational disruptions resulting from ERP implementation and other IT systems projects and changes

41

 

in foreign currency exchange rates. In 2022, our dental segment's net sales decreased compared to 2021, due to the negative impact of changes in foreign currency exchange rates, which exceeded the impact of increases in both volume and price.

 

In 2021, both our segments' net sales grew from 2020 primarily due to increased procedure volumes as a result of fewer COVID-19 restrictions.

 

Operating profit in our spine segment decreased in 2022 compared to 2021, driven by the decline in sales, partially offset by lower cost of products sold. In our dental segment, operating profit increased in 2022 compared to 2021, primarily due to increased demand and a favorable product mix, as well as a decrease in SG&A expenses.

 

In 2021, operating profit in our spine segment was impacted by increased pricing pressure on our cost of products sold and continued to be impacted by COVID-19 causing deferrals of elective surgical procedures. Operating profit in our dental segment in 2021 increased compared to 2020 due primarily to increases in sales resulting from investments in our commercial organization.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of December 31, 2022 and December 31, 2021, we had $89.6 million and $100.4 million, respectively, in cash and cash equivalents. We had historically participated in Zimmer Biomet's centralized approach to treasury, including financing and cash management activities. Under this centralized approach, cash management was performed through cash pooling arrangements. Certain of our entities had standalone cash accounts that were not included in the centralized cash pooling arrangement. All cash balances specifically identifiable to us were included in the consolidated balance sheets and statements of cash flows for prior periods. Cash flows presented in the 2021 and 2020 consolidated statements of cash flows may not be indicative of the cash flows we would have recognized had we operated as an independent, publicly traded company.

 

Cash Flows

 

Cash flows provided by operating activities were $24.6 million in 2022 compared to $64.3 million and $86.0 million in 2021 and 2020, respectively. Excluding the impact of non-cash adjustments, cash flows from assets and liabilities used in operations decreased in 2022 as compared to 2021 due to reductions in cash flows provided by accounts receivable, inventories and other assets and liabilities, partially offset by increases in cash flows provided by accounts payable and accrued liabilities, related party payables and income taxes. Excluding the impact of non-cash adjustments, cash flows from assets and liabilities used in operations increased in 2021 as compared to 2020 due to increases in cash flows provided by accounts receivable and inventory, partially offset by reductions in cash flows provided by and other assets and liabilities, income taxes and accounts payable and accrued liabilities.

 

Cash flows used in investing activities were $28.7 million in 2022 compared to $60.3 million and $49.5 million in 2021 and 2020, respectively. The decrease in cash used in investing activities in 2022 was related to the decrease in expenditures for instruments due to optimization of our product portfolio and manufacturing and logistics network, and a reduction in additions to other property, plant and equipment. In 2020, in order to preserve cash due to the significant effects COVID-19 had on our business, we prioritized certain investments that resulted in lower overall investments. As further discussed in Note 3 to our consolidated financial statements, we made various small acquisitions in 2020 that resulted in cash outflows from investing activities.

 

Cash flows used in financing activities were $1.3 million in 2022, compared to cash flows provided by and used in financing activities of $72.3 million and $46.5 million in 2021 and 2020, respectively. In 2022, borrowings under our term loan (as discussed in Note 10 to our consolidated financial statements) were used primarily for a dividend to Zimmer Biomet at the time of the distribution. Additionally, we made principal repayments on the term loan in the aggregate amount of $58.5 million. As further discussed in Note 18 to our consolidated financial statements, prior to the distribution, the primary use of cash from financing activities was related to transactions with Zimmer Biomet.

 

Post-Distribution Liquidity and Capital Resources

 

Subsequent to the distribution, we no longer participate in the centralized treasury management of Zimmer Biomet. Our ability to fund our operations and capital needs depends upon our ability to generate ongoing cash from operations and to access the capital markets. Our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures, repayment of borrowings and strategic business development transactions.

 

On February 28, 2022 we borrowed $595.0 million of available term loan borrowings and on March 1, 2022, we repaid $34.0 million of the term loan borrowing. Approximately $540.6 million of the proceeds from such borrowing was transferred to Zimmer Biomet. We will make principal and interest payments on the term loan borrowings quarterly, and we commenced quarterly principal payments on June 30, 2022. In addition, on December 30, 2022, we made a principal payment of $14.0 million to cover all of the 2023 mandatory

42

 

scheduled principal payments on the term loan. For additional information regarding our current debt arrangements, including the term loan amortization schedule, see Note 10 to our consolidated financial statements. We believe that available cash and cash equivalents, cash flows generated through operations and cash available under our revolving credit facility will be sufficient to meet our liquidity needs, including capital expenditures, for at least the next 12 months.

 

MATERIAL CASH REQUIREMENTS

 

We have entered into contracts with various third parties in the normal course of business that will require future payments. The following table illustrates our contractual obligations and certain other commitments as of December 31, 2022 (in thousands):

 

Contractual Obligations

 

Short-Term (Within 12 months)

 

 

Long-Term (Beyond 12 months)

 

 

Total

 

Long-term debt(1)

 

$

—

 

 

$

536,456

 

 

$

536,456

 

Interest payments(2)

 

 

36,876

 

 

 

101,716

 

 

 

138,592

 

Purchase obligations

 

 

47,715

 

 

 

21,740

 

 

 

69,455

 

Leases

 

 

10,314

 

 

 

23,242

 

 

 

33,556

 

Total

 

$

94,905

 

 

$

683,154

 

 

$

778,059

 
(1)
See Note 10 to our consolidated financial statements for additional information on our debt arrangements.
(2)
Future interest payments are calculated using the six month interest rate in effect at December 31, 2022. See Note 10 to our consolidated financial statements for additional information on the adjusted term secured overnight financing rate.

 

CRITICAL ACCOUNTING ESTIMATES

 

The preparation of our financial statements is affected by the selection and application of accounting policies and methods, and also requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations. We believe that the accounting estimates and assumptions described below involve significant subjectivity and judgment, and changes to such estimates or assumptions could have a material impact on our financial condition or operating results.

 

Excess Inventory

 

We must determine as of each balance sheet date how much, if any, of our inventory may ultimately prove to be unsaleable or unsaleable at our carrying cost. Accordingly, inventory is written down to its net realizable value. To determine the appropriate net realizable value, we evaluate current stock levels in relation to historical and expected patterns of demand for all of our products and components. The basis for the determination is generally the same for all inventory items and categories except for work-in-process inventory, which is recorded at cost. Obsolete or discontinued items are generally destroyed and completely written off. Management evaluates the need for changes to the net realizable values of inventory based on market conditions, competitive offerings and other factors on a regular basis.

 

Income Taxes

 

Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid. We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining income tax expense.

 

We estimate income tax expense and income tax liabilities and assets by taxable jurisdiction. Realization of deferred tax assets in each taxable jurisdiction is dependent on our ability to generate future taxable income sufficient to realize the benefits. We evaluate deferred tax assets on an ongoing basis and provide valuation allowances unless we determine it is “more likely than not” that the deferred tax benefit will be realized.

 

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. We are subject to regulatory review or audit in virtually all of those jurisdictions and those reviews and audits may require extended periods of time to resolve. We record our income tax provisions based on our knowledge of all relevant facts and circumstances, including existing tax laws, our experience with previous settlement agreements, the status of current examinations and our understanding of how the tax authorities view certain relevant industry and commercial matters.

43

 

 

We recognize tax liabilities in accordance with the Financial Accounting Standards Board guidance on income taxes, and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences are reflected as increases or decreases to income tax expense in the period in which they are determined.

 

Commitments and Contingencies

 

We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of doing business, including litigation related to products, labor and intellectual property. We establish liabilities for loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Accruals for product liability and other claims are established with the assistance of internal and external legal counsel based on current information and historical settlement information for claims, related legal fees and for claims incurred but not reported.

 

Goodwill and Intangible Assets

 

We evaluate goodwill for impairment annually, or whenever events or changes in circumstances indicate that the fair value of the reporting unit is more likely than not below its carrying amount. We evaluate the carrying value of finite life intangible assets whenever events or circumstances indicate that the carrying value may not be recoverable. Significant assumptions are required to estimate the fair value of goodwill and intangible assets, most notably estimated future cash flows generated by these assets and risk-adjusted discount rates. As such, these fair value measurements use significant unobservable inputs. Changes to these assumptions could require us to record impairment charges on these assets.

 

Fair value of the goodwill is determined using income and market approaches. Fair value under the income approach was determined by discounting to present value the estimated future cash flows of the reporting unit. Significant assumptions are incorporated into the income approach, such as estimated revenue growth rates, forecasted gross margins, forecasted operating expenses and a risk-adjusted discount rate. Fair value under the market approach utilized the guideline public company methodology, which uses valuation indicators determined from other businesses that are similar to our reporting unit.

 

In our annual impairment test in the fourth quarter of each of 2022 and 2021, the Dental reporting unit exceeded its carrying value by more than 20 percent. We recognized a goodwill impairment charge of $142.0 million related to the Dental reporting unit in the year ended December 31, 2020.

 

Future impairment in the Dental reporting unit 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. Additionally, changes in the broader economic environment could cause changes to our estimated discount rate and comparable company valuation indicators, which may impact the estimated fair value. Further, changes in foreign currency exchange rates could increase the cost of procuring inventory and services from foreign suppliers, which could reduce reporting unit profitability.

 

Corporate Allocations

 

We historically operated as part of Zimmer Biomet and not as a separate, publicly traded company. Prior to the distribution, certain shared costs were allocated to us and are reflected as expenses in the accompanying consolidated statements of operations. Management considers the expense methodology and resulting allocation to be reasonable for all periods presented; however, the allocations may not be indicative of actual expenses that would have been incurred had we operated as an independent, publicly traded company for the periods presented. Actual costs that we may have incurred had we been a standalone company would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by our employees and strategic decisions made in areas such as manufacturing, selling and marketing, R&D, information technology and infrastructure.

 

ACCOUNTING DEVELOPMENTS

 

See Note 2 to our consolidated financial statements for information on how recent accounting pronouncements have affected or may affect our financial position, results of operations or cash flows.

44

 

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Market Risk

 

We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in foreign currency exchange rates, interest rates and commodity prices that could affect our financial condition, results of operations and cash flows.

 

Foreign Currency Exchange Risk

 

We operate on a global basis and are exposed to the risk that our financial condition, results of operations and cash flows could be adversely affected by changes in foreign currency exchange rates. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Chinese Renminbi, Israeli Shekel, New Zealand Dollar, Japanese Yen, Canadian Dollar and Swedish Krona. We manage our foreign currency exposure centrally, on a combined basis, which allows us to net exposures and to take advantage of any natural offsets. To reduce the uncertainty of foreign currency exchange rate movements on transactions denominated in foreign currencies, we enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions. These forward contracts are designed to reduce the foreign exchange impact monetary assets and liabilities in non-functional currencies have on our financial results. Realized and unrealized gains and losses on these contracts are recognized in other income (expense), net.

 

Commodity Price Risk

 

We purchase raw material commodities such as cobalt chrome, titanium, tantalum, polymer and sterile packaging. We enter into supply contracts generally with terms of 12 to 24 months, where available, on these commodities to alleviate the effect of market fluctuations in prices. As part of our risk management program, we perform sensitivity analyses related to potential commodity price changes. A 10% price change across all these commodities would not have a material effect on our consolidated financial position, results of operations or cash flows.

 

Interest Rate Risk

 

Our interest expense and related risks as reported in our consolidated statements of operations have increased due to borrowings under our credit agreement. As of December 31, 2022 we had $532.2 million of floating rate debt potentially subject to SOFR. A hypothetical increase of 100 basis points in SOFR to our floating rate debt would, among other things, decrease our annual pre-tax earnings by approximately $5.3 million.

 

Credit Risk

 

Financial instruments, which potentially subject us to concentrations of credit risk, are primarily cash and cash equivalents, derivative instruments and accounts receivable.

 

We place our cash and cash equivalents with highly rated financial institutions and limit the amount of credit exposure to any one entity. We believe we do not have any significant credit risk on our cash and cash equivalents.

 

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 dental practices in the 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. Our ability to collect accounts receivable in some countries depends in part upon the financial stability of these hospital and healthcare sectors and the respective countries’ national economic and healthcare systems. Most notably, in Europe healthcare is typically sponsored by the government. Since we sell products to public hospitals in those countries, we are indirectly exposed to government budget constraints. To the extent the respective governments’ ability to fund their public hospital programs deteriorates, we may have to record significant bad debt expenses in the future.

 

While we are exposed to risks from the broader healthcare industry in Europe and around the world, there is no significant net exposure due to any individual customer. Exposure to credit risk is controlled through credit approvals, credit limits and monitoring procedures, and we believe that reserves for losses are adequate.

 

 

45

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

ZimVie Inc.

Index to Consolidated Financial Statements

 

Financial Statements:

 

 

 

Report of Independent Registered Public Accounting Firm (PCAOB ID: 238)

 

 

 

Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2022, 2021 and 2020

 

 

 

Consolidated Balance Sheets as of December 31, 2022 and 2021

 

 

 

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2022, 2021 and 2020

 

 

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020

 

 

 

Notes to Consolidated Financial Statements

 

 

 

 

46

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of ZimVie Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of ZimVie Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Goodwill Impairment Assessment – Dental Reporting Unit

 

As described in Notes 2 and 4 to the consolidated financial statements, the Company’s goodwill balance was $260.0 million as of December 31, 2022 and was associated with the Dental reporting unit. Management performs an impairment test in the fourth quarter of the year or whenever events or changes in circumstances indicate that the fair value of the reporting unit is more likely than not below its carrying amount. Potential impairment of a reporting unit is identified by comparing the reporting unit’s estimated fair value to its carrying amount. Management estimated the fair value of the Dental reporting unit based on income and market approaches. Fair value under the income approach was determined by discounting to present value the estimated future cash flows of the reporting unit. Fair value under the market approach utilized the guideline public company methodology, which uses valuation indicators from other businesses that are similar to the Dental reporting unit. Significant assumptions are incorporated into the discounted cash flow analysis such as revenue growth rates, forecasted gross margins, forecasted operating expenses, and a risk-adjusted discount rate.

 

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Dental reporting unit is a critical audit matter are (i) the significant judgment by management related to the discounted cash flow

47

 

analysis when developing the fair value measurement of the reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating management’s significant assumptions related to revenue growth rates, forecasted gross margins, forecasted operating expenses and the risk-adjusted discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) testing management’s process for developing the fair value estimate; (ii) evaluating the appropriateness of management’s fair value approaches; (iii) testing the completeness and accuracy of the underlying data used in the discounted cash flow analysis, and (iv) evaluating the reasonableness of the significant assumptions used by management in the discounted cash flow analysis related to the revenue growth rates, forecasted gross margins, forecasted operating expenses, and the risk-adjusted discount rate. Evaluating management’s assumptions related to revenue growth rates, forecasted gross margins and forecasted operating expenses involved evaluating whether the assumptions used by management were reasonable considering (i) the past performance of the reporting unit; (ii) the consistency with external data from market and industry sources; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow analysis and the risk-adjusted discount rate assumption.

 

 

/s/ PricewaterhouseCoopers LLP

Denver, Colorado

March 1, 2023

We have served as the Company’s auditor since 2021.

48

 

ZIMVIE INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Net Sales

 

 

 

 

 

 

 

 

 

Third party, net

 

$

909,487

 

 

$

1,008,830

 

 

$

896,949

 

Related party, net

 

 

4,375

 

 

 

5,819

 

 

 

15,478

 

Total Net Sales

 

 

913,862

 

 

 

1,014,649

 

 

 

912,427

 

Cost of products sold, excluding intangible asset amortization

 

 

(296,679

)

 

 

(381,569

)

 

 

(302,749

)

Related party cost of products sold, excluding intangible asset amortization

 

 

(4,107

)

 

 

(4,248

)

 

 

(10,159

)

Intangible asset amortization

 

 

(80,867

)

 

 

(86,219

)

 

 

(85,493

)

Research and development

 

 

(62,691

)

 

 

(61,328

)

 

 

(49,249

)

Selling, general and administrative

 

 

(523,970

)

 

 

(554,377

)

 

 

(533,536

)

Goodwill impairment

 

 

—

 

 

 

—

 

 

 

(142,000

)

Restructuring

 

 

(11,354

)

 

 

(3,344

)

 

 

(9,651

)

Acquisition, integration, divestiture and related

 

 

(29,437

)

 

 

(24,064

)

 

 

(2,203

)

Operating expenses

 

 

(1,009,105

)

 

 

(1,115,149

)

 

 

(1,135,040

)

Operating Loss

 

 

(95,243

)

 

 

(100,500

)

 

 

(222,613

)

Other income (expense), net

 

 

3,603

 

 

 

(465

)

 

 

1,567

 

Interest expense, net

 

 

(18,279

)

 

 

(292

)

 

 

(302

)

Loss before income taxes

 

 

(109,919

)

 

 

(101,257

)

 

 

(221,348

)

Benefit for income taxes

 

 

46,038

 

 

 

6,003

 

 

 

42,349

 

Net Loss

 

 

(63,881

)

 

 

(95,254

)

 

 

(178,999

)

Less: Net loss attributable to noncontrolling interest

 

 

—

 

 

 

—

 

 

 

(89

)

Net Loss

 

$

(63,881

)

 

$

(95,254

)

 

$

(179,088

)

Loss Per Common Share - Basic

 

$

(2.45

)

 

$

(3.66

)

 

$

(6.87

)

Loss Per Common Share - Diluted

 

 

(2.45

)

 

 

(3.66

)

 

 

(6.87

)

 

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

 

ZIMVIE INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Net Loss

 

$

(63,881

)

 

$

(95,254

)

 

$

(178,999

)

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

Foreign currency cumulative translation adjustments, net of tax

 

 

(48,374

)

 

 

(47,357

)

 

 

44,828

 

Total Other Comprehensive (Loss) Income

 

 

(48,374

)

 

 

(47,357

)

 

 

44,828

 

Comprehensive Loss

 

 

(112,255

)

 

 

(142,611

)

 

 

(134,171

)

Comprehensive Income Attributable to Noncontrolling Interest

 

 

—

 

 

 

—

 

 

 

89

 

Comprehensive Loss

 

$

(112,255

)

 

$

(142,611

)

 

$

(134,260

)

 

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

49

 

ZIMVIE INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

89,601

 

 

$

100,399

 

Accounts receivable, less allowance for credit losses

 

 

168,961

 

 

 

164,241

 

Related party receivable

 

 

8,483

 

 

 

—

 

Inventories

 

 

233,854

 

 

 

246,832

 

Prepaid expenses and other current assets

 

 

36,964

 

 

 

25,380

 

Total Current Assets

 

 

537,863

 

 

 

536,852

 

Property, plant and equipment, net

 

 

148,439

 

 

 

180,243

 

Goodwill

 

 

259,999

 

 

 

267,810

 

Intangible assets, net

 

 

654,965

 

 

 

766,175

 

Other assets

 

 

40,790

 

 

 

75,656

 

Total Assets

 

$

1,642,056

 

 

$

1,826,736

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

43,998

 

 

$

45,026

 

Related party payable

 

 

13,176

 

 

 

—

 

Income taxes payable

 

 

14,356

 

 

 

6,278

 

Other current liabilities

 

 

145,779

 

 

 

133,280

 

Total Current Liabilities

 

 

217,309

 

 

 

184,584

 

Deferred income taxes

 

 

98,062

 

 

 

129,475

 

Lease liability

 

 

22,287

 

 

 

45,317

 

Other long-term liabilities

 

 

13,561

 

 

 

15,983

 

Non-current portion of debt

 

 

532,233

 

 

 

—

 

Total Liabilities

 

 

883,452

 

 

 

375,359

 

Commitments and Contingencies (Note 17)

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

Common stock, $0.01 par value, 150,000 shares authorized
  Shares, issued and outstanding, of 26,222 and 0, respectively

 

 

262

 

 

 

—

 

Preferred stock, $0.01 par value, 15,000 shares authorized, 0 shares issued and outstanding

 

 

—

 

 

 

—

 

Additional paid in capital

 

 

897,028

 

 

 

—

 

Accumulated deficit

 

 

(47,532

)

 

 

—

 

Net parent company investment

 

 

—

 

 

 

1,494,157

 

Accumulated other comprehensive loss

 

 

(91,154

)

 

 

(42,780

)

Total Stockholders' Equity

 

 

758,604

 

 

 

1,451,377

 

Total Liabilities and Stockholders' Equity

 

$

1,642,056

 

 

$

1,826,736

 

 

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

50

 

ZIMVIE INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

 

.

Common Stock

 

 

Additional Paid-In Capital

 

 

Accumulated Deficit

 

 

Net Parent
Company
Investment

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Noncontrolling
Interest

 

 

Total
Equity

 

Balance December 31, 2019

$

—

 

 

$

—

 

 

$

—

 

 

$

1,707,467

 

 

$

(40,251

)

 

$

849

 

 

$

1,668,065

 

Net loss

 

—

 

 

 

—

 

 

 

—

 

 

 

(179,088

)

 

 

—

 

 

 

89

 

 

 

(178,999

)

Adoption of new accounting standard

 

—

 

 

 

—

 

 

 

—

 

 

 

(971

)

 

 

—

 

 

 

—

 

 

 

(971

)

Net transactions with Zimmer Biomet Holdings, Inc.

 

—

 

 

 

—

 

 

 

—

 

 

 

(41,430

)

 

 

—

 

 

 

—

 

 

 

(41,430

)

Acquisition of noncontrolling interests

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(938

)

 

 

(938

)

Other comprehensive income

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

44,828

 

 

 

—

 

 

 

44,828

 

Balance December 31, 2020

$

—

 

 

$

—

 

 

$

—

 

 

$

1,485,978

 

 

$

4,577

 

 

$

—

 

 

$

1,490,555

 

Net loss

 

—

 

 

 

—

 

 

 

—

 

 

 

(95,254

)

 

 

—

 

 

 

—

 

 

 

(95,254

)

Net transactions with Zimmer Biomet Holdings, Inc.

 

—

 

 

 

—

 

 

 

—

 

 

 

103,433

 

 

 

—

 

 

 

—

 

 

 

103,433

 

Other comprehensive loss

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(47,357

)

 

 

—

 

 

 

(47,357

)

Balance December 31, 2021

$

—

 

 

$

—

 

 

$

—

 

 

$

1,494,157

 

 

$

(42,780

)

 

$

—

 

 

$

1,451,377

 

Net loss

 

—

 

 

 

—

 

 

 

(47,532

)

 

 

(16,349

)

 

 

—

 

 

 

—

 

 

 

(63,881

)

Net transactions with Zimmer Biomet Holdings, Inc., including separation adjustments

 

—

 

 

 

—

 

 

 

—

 

 

 

(70,430

)

 

 

—

 

 

 

—

 

 

 

(70,430

)

Net consideration paid to Zimmer Biomet Holdings, Inc. in connection with distribution

 

—

 

 

 

—

 

 

 

—

 

 

 

(540,567

)

 

 

—

 

 

 

—

 

 

 

(540,567

)

Reclassification of net parent company investment to additional paid-in capital

 

261

 

 

 

866,550

 

 

 

—

 

 

 

(866,811

)

 

 

—

 

 

 

—

 

 

 

—

 

Stock plan activity

 

1

 

 

 

30,478

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

30,479

 

Other comprehensive loss

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(48,374

)

 

 

—

 

 

 

(48,374

)

Balance December 31, 2022

$

262

 

 

$

897,028

 

 

$

(47,532

)

 

$

—

 

 

$

(91,154

)

 

$

—

 

 

$

758,604

 

 

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

51

 

ZIMVIE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Cash flows provided by operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(63,881

)

 

$

(95,254

)

 

$

(178,999

)

Adjustments to reconcile net loss to net cash provided by operating
   activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

122,789

 

 

 

129,719

 

 

 

134,331

 

Goodwill impairment

 

 

—

 

 

 

—

 

 

 

142,000

 

Share-based compensation

 

 

30,289

 

 

 

7,309

 

 

 

5,945

 

Deferred income tax provision

 

 

(70,422

)

 

 

(22,089

)

 

 

(22,806

)

Loss on disposal of fixed assets

 

 

3,358

 

 

 

—

 

 

 

—

 

Other non-cash items

 

 

1,172

 

 

 

—

 

 

 

—

 

Changes in operating assets and liabilities, net of acquired assets
    and liabilities

 

 

 

 

 

 

 

 

 

Income taxes

 

 

5,485

 

 

 

(3,201

)

 

 

904

 

Accounts receivable

 

 

(26,156

)

 

 

27,172

 

 

 

(1,072

)

Related party receivables

 

 

(8,483

)

 

 

—

 

 

 

—

 

Inventories

 

 

10,210

 

 

 

33,062

 

 

 

(6,141

)

Accounts payable and accrued liabilities

 

 

21,842

 

 

 

(6,591

)

 

 

(3,030

)

Related party payables

 

 

13,176

 

 

 

—

 

 

 

—

 

Other assets and liabilities

 

 

(14,751

)

 

 

(5,842

)

 

 

14,848

 

Net cash provided by operating activities

 

 

24,628

 

 

 

64,285

 

 

 

85,980

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

 

 

Additions to instruments

 

 

(10,089

)

 

 

(28,244

)

 

 

(32,699

)

Additions to other property, plant and equipment

 

 

(16,457

)

 

 

(28,405

)

 

 

(5,568

)

Business combination investments, net of acquired cash

 

 

—

 

 

 

—

 

 

 

(8,415

)

Other investing activities

 

 

(2,117

)

 

 

(3,700

)

 

 

(2,832

)

Net cash used in investing activities

 

 

(28,663

)

 

 

(60,349

)

 

 

(49,514

)

Cash flows provided by (used in) financing activities:

 

 

 

 

 

 

 

 

 

Net transactions with Zimmer Biomet Holdings, Inc

 

 

6,920

 

 

 

90,006

 

 

 

(43,830

)

Dividend paid to Zimmer Biomet Holdings, Inc

 

 

(540,567

)

 

 

—

 

 

 

—

 

Proceeds from term loans

 

 

595,000

 

 

 

—

 

 

 

—

 

Payments on term loans

 

 

(58,544

)

 

 

—

 

 

 

—

 

Debt issuance costs

 

 

(5,170

)

 

 

—

 

 

 

—

 

Net cash flows from unremitted collections from factoring programs

 

 

—

 

 

 

—

 

 

 

(1,626

)

Repayments of debt due to Zimmer Biomet Holdings, Inc

 

 

—

 

 

 

(16,905

)

 

 

(668

)

Net activity under employee stock compensation plans

 

 

1,059

 

 

 

—

 

 

 

—

 

Other financing activities

 

 

(5

)

 

 

(752

)

 

 

(359

)

Net cash (used in) provided by financing activities

 

 

(1,307

)

 

 

72,349

 

 

 

(46,483

)

Effect of exchange rates on cash and cash equivalents

 

 

(5,456

)

 

 

(3,305

)

 

 

435

 

(Decrease) increase in cash and cash equivalents

 

 

(10,798

)

 

 

72,980

 

 

 

(9,582

)

Cash and cash equivalents, beginning of year

 

 

100,399

 

 

 

27,419

 

 

 

37,001

 

Cash and cash equivalents, end of period

 

$

89,601

 

 

 

100,399

 

 

 

27,419

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

Income taxes paid, net

 

$

25,730

 

 

$

12,089

 

 

$

4,654

 

Interest paid

 

 

17,283

 

 

 

—

 

 

 

—

 

Non-cash settlement of debt due to parent

 

 

—

 

 

 

4,939

 

 

 

—

 

Supplemental schedule of noncash investing and financing activities:

 

 

 

 

 

 

 

 

 

Derecognition of right-of-use assets

 

$

(14,174

)

 

$

—

 

 

$

—

 

Derecognition of lease liabilities

 

 

15,303

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

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

52

 

ZIMVIE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. Background, Nature of Business and Basis of Presentation

 

Background

 

On March 1, 2022, ZimVie Inc. ("ZimVie," "we," "us" and "our") and Zimmer Biomet Holdings, Inc. ("Zimmer Biomet") entered into a Separation and Distribution Agreement, pursuant to which Zimmer Biomet agreed to spin off its spine and dental businesses into ZimVie, a new, publicly traded company. Zimmer Biomet effected the separation through a pro rata distribution of 80.3% of the outstanding shares of common stock of ZimVie. Following the distribution on March 1, 2022, Zimmer Biomet stockholders as of the record date for the distribution owned 80.3% of the outstanding shares of ZimVie common stock; Zimmer Biomet retained 19.7% of the outstanding shares of ZimVie common stock. The distribution is intended to qualify as generally tax-free to Zimmer Biomet stockholders for United States ("U.S.") federal income tax purposes, except for any cash received by stockholders in lieu of fractional shares. The distribution on March 1, 2022 resulted in ZimVie becoming a standalone, publicly traded company, and it was completed pursuant to the Separation and Distribution Agreement and other agreements with Zimmer Biomet related to the distribution, including, but not limited to a tax matters agreement, an employee matters agreement, a transition services agreement and transition manufacturing agreements. See Note 18 for further description of the impact of the distribution and post-spin activities with Zimmer Biomet. As of February 1, 2023, Zimmer Biomet had sold all of its 19.7% ownership in ZimVie and is no longer considered a related party.

 

Nature of Business

 

ZimVie is a leading medical technology company dedicated to enhancing the quality of life for spine and dental patients worldwide. We develop, manufacture and market a comprehensive portfolio of products and solutions designed to treat a wide range of spine pathologies and support dental tooth replacement and restoration procedures. Our broad portfolio addresses all areas of spine with market leadership in cervical disc replacement and vertebral body tethering to treat pediatric scoliosis, and we are well-positioned in the growing global dental implant, biomaterials and digital dentistry market with a strong presence in the tooth replacement market with market leading positions in certain geographies. Our operations are principally managed on a products basis and include two operating segments, 1) the spine products segment, and 2) the dental products segment.

 

In the spine products market, our core services include designing, manufacturing and distributing medical devices and surgical instruments to deliver comprehensive solutions for individuals with back or neck pain caused by degenerative conditions, deformities or traumatic injury of the spine. We also provide devices that promote bone healing. Other differentiated products in our spine portfolio include Mobi-C® Cervical Disc, a motion-preserving alternative to fusion for patients with cervical disc disease, and The Tether™, a novel non-fusion device for treatment of pediatric scoliosis.

 

In the dental products market, our core services include designing, manufacturing and distributing dental implant solutions. Dental reconstructive implants are for individuals who are totally without teeth or are missing one or more teeth, dental prosthetic products are aimed at providing a more natural restoration to resemble the original teeth, and dental regenerative products are for soft tissue and bone rehabilitation. Our key products include the T3® Implant, Tapered Screw-Vent Implant System, Trabecular Metal™ Dental Implant, BellaTek Encode Impression System, and Puros Allograft Particulate.

 

Basis of Presentation

 

We have historically existed and functioned as part of the consolidated business of Zimmer Biomet. The accompanying consolidated financial statements are prepared on a standalone basis and, for periods prior to March 1, 2022, were prepared on a carveout basis from Zimmer Biomet’s consolidated financial statements and accounting records, and, accordingly, may not be indicative of the financial position, results of operations or cash flows had we operated as a standalone company during those periods, or comparable to our financial position subsequent to March 1, 2022.

 

On March 1, 2022, ZimVie became a standalone publicly traded company, and our financial statements are now presented on a consolidated basis. The consolidated financial statements for all periods presented, including our historical results prior to March 1, 2022, are now referred to as "Consolidated Financial Statements," and have been prepared pursuant to the rules and regulations for reporting on Form 10-K.

 

Prior to the distribution, our equity balance in these consolidated financial statements represented the excess of total assets over liabilities including the due to/from balances between us and Zimmer Biomet (referred to as "net parent investment" or "NPI") and accumulated other comprehensive income (loss). NPI was primarily impacted by contributions from Zimmer Biomet which were the result of treasury activities and net funding provided by or distributed to Zimmer Biomet.

53

 

 

Following the distribution, certain functions that Zimmer Biomet provided to us prior to the distribution either continue to be provided to us by Zimmer Biomet under a transition services agreement or are being performed using our own resources or third-party service providers. Additionally, under manufacturing and supply agreements, we manufacture certain products for Zimmer Biomet and Zimmer Biomet manufactures certain products for us. We have incurred, and expect to continue to incur, certain costs to establish ourselves as a standalone public company, as well as ongoing additional costs associated with operating as an independent, publicly traded company.

 

2. Significant Accounting Policies

 

Use of Estimates - The consolidated financial statements are prepared in conformity with generally accepted accounting principles in the United States ("GAAP"), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, including allocations from Zimmer Biomet. We have made our best estimates, as appropriate under GAAP, in the recognition of our assets and liabilities. These estimates have considered the impact the COVID-19 pandemic may have on our financial position, results of operations and cash flows. Such estimates included, but were not limited to, determining the allocations of costs and expenses from Zimmer Biomet, variable consideration to our customers, our allowance for doubtful accounts for expected credit losses, the net realizable value of our inventory, the fair value of our goodwill and the recoverability of other long-lived assets, the realizability of deferred tax assets, and reserves for unrecognized tax benefits. The estimates and associated assumptions are based on historical experience, complex judgements and various other factors that are believed to be reasonable under the circumstances. Actual results could differ materially from these estimates.

 

Foreign Currency Translation - The financial statements of our foreign subsidiaries are translated into U.S. Dollars using period-end exchange rates for assets and liabilities and average exchange rates for operating results. Unrealized translation gains and losses are included in accumulated other comprehensive income (loss) ("AOCI") in equity. When a transaction is denominated in a currency other than the subsidiary’s functional currency, we remeasure the transaction into the functional currency and recognize any transactional gains or losses in earnings. Foreign currency remeasurement gains recognized in our consolidated statements of operations in other income (expense), net were $4.0 million, $0.5 million and $1.6 million in the years ended December 31, 2022, 2021 and 2020, respectively.

 

Shipping and Handling - Amounts billed to customers for shipping and handling of products are reflected in net sales and are not significant. Expenses incurred related to shipping and handling of products are reflected in selling, general and administrative (“SG&A”) expenses and were $43.9 million, $42.0 million and $37.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

 

Research and Development - We expense all R&D costs as incurred except when there is an alternative future use for the R&D. R&D costs include salaries, prototypes, depreciation of equipment used in R&D, consultant fees and service fees paid to collaborative partners.

 

Commitments and Contingencies - We are subject to contingencies, such as various claims, legal proceedings and investigations regarding product liability, intellectual property, commercial and other matters that arise in the normal course of business. On a quarterly and annual basis, we review relevant information with respect to loss contingencies and update our accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews. We record liabilities for loss contingencies when it is probable that a loss has been incurred and the amount can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.

 

Restructuring - A restructuring is defined as a program that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity, or the manner in which that business is conducted. Restructuring charges include (i) employee termination benefits, (ii) contract termination costs and (iii) other related costs associated with exit or disposal activities. See Note 19 for further discussion on restructuring programs.

 

Acquisition, integration, divestiture and related - We use the financial statement line item, “Acquisition, integration, divestiture and related” to recognize expenses resulting from the consummation of business mergers and acquisitions and the related integration of those businesses, and expenses related to divestitures and related expenses including becoming a standalone entity. The expenses recognized in 2020 primarily related to integration-related consulting, distributor terminations, severance and retention period compensation and benefits to employees that were terminated. The 2021 expenses were primarily related to the distribution that was completed on March 1, 2022. The expenses in 2022 primarily related to costs related to the March 1, 2022 distribution and costs incurred in connection with building out capabilities necessary to becoming a standalone, public company. In addition, changes in estimates of contingent payments are also included in acquisition, integration, divestiture and related expenses. Contingent payments related to acquisitions consist of

54

 

sales-based payments and are valued using discounted cash flow techniques. The fair value of sales-based payments is based upon probability-weighted future revenue estimates and increases as revenue estimates increase. See Note 3 for additional information regarding a change to expected contingent payments in 2022.

 

We have also incurred other various, less significant costs on projects that are similar to integration focusing on reducing costs that have been recognized in this financial statement line item.

 

Cash and Cash Equivalents - We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents are valued at cost, which approximates their fair value. The cash presented on the consolidated balance sheet as of December 31, 2021 represents cash that was not subject to the Zimmer Biomet centralized cash management process. During the fourth quarter of 2021, Zimmer Biomet transitioned the ownership structure of all notional accounts to us resulting in additional cash balances. As of December 31, 2022 and 2021, we had $1.5 million and $0, respectively, in restricted cash. The restriction as of December 31, 2022 is on cash held in China and is a result of ongoing litigation with a spine products distributor in China because of our decision to exit our spine products business in China (see Note 19 for further information).

 

Accounts Receivable - Accounts receivable consists of trade and other miscellaneous receivables. We grant credit to customers in the normal course of business and maintain an allowance for expected credit losses. We determine the allowance for credit losses by geographic market and take into consideration historical credit experience, creditworthiness of the customer and other pertinent information. We make concerted efforts to collect all accounts receivable, but sometimes we have to write-off the account against the allowance when we determine the account is uncollectible.

 

Zimmer Biomet had receivables purchase arrangements with unrelated third parties to transfer portions of our trade accounts receivable balance. Our spine business historically participated in these arrangements. The purchase arrangements in the U.S. and Japan were terminated during the year ended December 31, 2020, and the arrangements in Europe applicable to our trade accounts receivable ended as a result of the distribution. Funds received from the transfers were recorded as an increase to cash and a reduction to accounts receivable outstanding in our consolidated balance sheets. The cash flows attributable to the sale of receivables to third parties were reported in cash flows from operating activities in our consolidated statements of cash flows. Net expenses resulting from the sales of receivables were recognized in SG&A expense. Net expenses included any resulting gains or losses from the sales of receivables, credit insurance and factoring fees. Under the previous arrangements in the U.S. and Japan, any collections that we made that were unremitted to the third parties were recognized on our consolidated balance sheets under other current liabilities and in our consolidated statements of cash flows in financing activities.

 

Inventories - Inventories are stated at the lower of cost and net realizable value, with cost determined on a first-in first-out basis or on an average cost basis, depending on the jurisdiction.

 

Property, Plant and Equipment - Property, plant and equipment is carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of ten to forty years for buildings and improvements and three to eight years for machinery and equipment. Maintenance and repairs are expensed as incurred. We review property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of an asset group may not be recoverable. An impairment loss would be recognized when estimated future undiscounted cash flows relating to the asset group are less than its carrying amount. An impairment loss is measured as the amount by which the carrying amount of an asset exceeds its fair value.

 

Instruments - Instruments are hand-held devices used by surgeons during surgical procedures. Instruments are recognized as long-lived assets and are included in property, plant and equipment. Instruments are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives, determined principally in reference to associated product life cycles, primarily five years. We review instruments for impairment whenever events or changes in circumstances indicate that the carrying value of an asset group may not be recoverable. Depreciation of instruments is recognized in SG&A expense.

 

Software Costs - We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use when both the preliminary project stage is completed and it is probable that the software will be used as intended. Capitalized software costs generally include external direct costs of materials and services utilized in developing or obtaining computer software and compensation and related benefits for employees who are directly associated with the software project. Capitalized software costs are included in property, plant and equipment on our consolidated balance sheet and amortized on a straight-line or weighted average estimated user basis when the software is ready for its intended use over the estimated useful lives of the software, which approximate three to fifteen years.

 

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For cloud computing arrangements that are considered a service contract, our capitalization of implementation costs is aligned with the internal use software requirements. However, on our consolidated balance sheet these implementation costs are recognized in other non-current assets. On our consolidated statements of cash flows, these implementation costs are recognized in operating cash flows. The implementation costs are recognized on a straight-line basis over the expected term of the related service contract.

 

Goodwill - Goodwill is not amortized but is subject to annual impairment tests. Goodwill has been assigned to reporting units. Potential impairment of a reporting unit is identified by either comparing a reporting unit’s estimated fair value to its carrying amount or doing a qualitative assessment of a reporting unit’s fair value from the last quantitative assessment to determine if there is potential impairment. We may do a qualitative assessment when the results of the previous quantitative test indicated the reporting unit’s estimated fair value was significantly in excess of the carrying value of its net assets, and we do not believe there have been significant changes in the reporting unit’s operations that would significantly decrease its estimated fair value or significantly increase its net assets. If a quantitative assessment is performed, the fair value of the reporting unit and the fair value of goodwill are determined based upon a discounted cash flow analysis and/or use of a market approach by looking at market values of comparable companies. Significant assumptions are incorporated into our discounted cash flow analysis such as estimated revenue growth rates, forecasted gross margins, forecasted operating expenses and a risk-adjusted discount rate. Factors that could result in cash flows being lower than our current estimates include: 1) additional recurrence of the COVID-19 virus, including variants, causing deferrals of elective surgical procedures, 2) decreased revenues caused by unforeseen changes in the healthcare market, or our inability to generate new product revenue from our research and development activities, and 3) our inability to achieve the estimated operating margins in our forecasts from our restructuring programs, cost saving initiatives, and other unforeseen factors. Additionally, changes in the broader economic environment could cause changes to our estimated discount rate and comparable company valuation indicators, which may impact our estimated fair value. We perform this test in the fourth quarter of the year or whenever events or changes in circumstances indicate that the fair value of the reporting unit is more likely than not below its carrying amount. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded in the amount that the carrying value of the business unit exceeds the fair value. See Note 4 for more information regarding goodwill.

 

Intangible Assets - Intangible assets are initially measured at their fair value. We have determined the fair value of our intangible assets either by the fair value of the consideration exchanged for the intangible asset or the estimated after-tax discounted cash flows expected to be generated from the intangible asset. Intangible assets with a finite life, including technology, certain trademarks and trade names, customer-related intangibles, intellectual property rights and patents and licenses, are amortized on a straight-line basis over their estimated useful life or contractual life, which may range from less than one year to twenty years. Intangible assets with a finite life are tested for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable.

 

In determining the useful lives of intangible assets, we consider the expected use of the assets and the effects of obsolescence, demand, competition, anticipated technological advances, changes in surgical techniques, market influences and other economic factors. For technology-based intangible assets, we consider the expected life cycles of products, absent unforeseen technological advances, which incorporate the corresponding technology. Trademarks and trade names that are related to products expected to be phased out are assigned lives consistent with the period in which the products bearing each brand are expected to be sold. For customer relationship intangible assets, we assign useful lives based upon historical levels of customer attrition. Intellectual property rights are assigned useful lives that approximate the contractual life of any related patent or the period for which we maintain exclusivity over the intellectual property.

 

Revenue Recognition - We recognize revenue when our performance obligations under the terms of a contract with our customer are satisfied. This happens when we transfer control of our products to the customer, which generally occurs upon implantation or when title passes upon shipment. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring our product. Taxes collected from customers and remitted to governmental authorities are excluded from revenues.

 

We sell products through three principal channels: 1) direct to healthcare institutions, referred to as direct channel accounts; 2) through stocking distributors and healthcare dealers; and 3) directly to dental practices and dental laboratories. In direct channel accounts and with some healthcare dealers, inventory is generally consigned to sales agents or customers so that products are available when needed for surgical procedures. No revenue is recognized upon the placement of inventory into consignment, as we retain the ability to control the inventory. Upon implantation, we issue an invoice and revenue is recognized. Our spine sales are predominantly recognized under the consignment revenue model. Pricing for products is generally predetermined by contracts with customers, agents acting on behalf of customer groups or by government regulatory bodies, depending on the market. Price discounts under group purchasing contracts are generally linked to volume of implant purchases by customer healthcare institutions within a specified group. At negotiated thresholds within a contract buying period, price discounts may increase. Payment terms vary by customer but are typically less than 90 days.

 

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With sales to stocking distributors, some healthcare dealers and hospitals, dental practices and dental laboratories, revenue is generally recognized when control of our product passes to the customer, which is typically upon shipment of the product. Our dental business predominantly recognizes revenue related to product sales at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment, or delivery depending on the terms of the underlying contracts. These customers may purchase items in large quantities if incentives are offered or if there are new product offerings in a market, which could cause period-to-period differences in sales. It is our accounting policy to account for shipping and handling activities as a fulfillment cost rather than as an additional promised service. We have contracts with these customers or orders may be placed from available price lists. Payment terms vary by customer but are typically less than 90 days.

 

We offer standard warranties to our customers that our products are not defective. These standard warranties are not considered separate performance obligations. In limited circumstances, we offer extended warranties that are separate performance obligations. We have very few contracts that have multiple performance obligations. Since we do not have significant multiple element arrangements and essentially all of our sales are recognized upon implantation of a product or when title passes, very little judgment is required to allocate the transaction price of a contract or determine when control has passed to a customer. Our costs to obtain contracts consist primarily of sales commissions to employees or third-party agents that are earned when control of our product passes to the customer. Therefore, sales commissions are expensed as part of SG&A expenses at the same time revenue is recognized. Accordingly, we do not have significant contract assets, liabilities or future performance obligations.

 

We offer volume-based discounts, rebates, prompt pay discounts, right of return and other various incentives that we account for under the variable consideration model. If sales incentives may be earned by a customer for purchasing a specified amount of our product, we estimate whether such incentives will be achieved and recognize these incentives as a reduction in revenue in the same period the underlying revenue transaction is recognized. We primarily use the expected value method to estimate incentives. Under the expected value method, we consider the historical experience of similar programs, as well as review sales trends on a customer-by-customer basis, to estimate what levels of incentives will be earned. Occasionally, products are returned and, accordingly, we maintain an estimated refund liability based upon the expected value method that is recorded as a reduction in revenue.

 

Leases - We lease most of our manufacturing facilities, various office space, vehicles and other less significant assets throughout the world. Our contracts contain a lease if they convey a right to control the use of an identified asset, either explicitly or implicitly, in exchange for consideration. As allowed by GAAP, we have elected not to recognize a right-of-use asset nor a lease liability for leases with an initial term of twelve months or less. Additionally, we have elected not to separate non-lease components from the leased components in the valuation of our right-of-use asset and lease liability for all asset classes. Our lease contracts are a necessary part of our business, but we do not believe they are significant to our overall operations. We do not have any significant finance leases. Additionally, we do not have significant leases: where we are considered a lessor; where we sublease our assets; with an initial term of twelve months or less; with related parties; with residual value guarantees; that impose restrictions or covenants on us; or that have not yet commenced, but create significant rights and obligations against us.

 

Our real estate leases generally have terms of between five to ten years and contain lease extension options that can vary from month-to-month extensions to up to five-year extensions. We include extension options in our lease term if we are reasonably certain to exercise that option. In determining whether an extension is reasonably certain, we consider the uniqueness of the property for our needs, the availability of similar properties, whether the extension period payments remain the same or may change due to market rates or fixed price increases in the contract, and other economic factors. Our vehicle leases generally have terms of between three to five years and contain lease extension options on a month-to-month basis. Our vehicle leases are generally not reasonably certain to be extended.

 

Under GAAP, we are required to discount our lease liabilities to present value using the rate implicit in the lease, or our incremental borrowing rate for a similar term as the lease term if the implicit rate is not readily available. We generally do not have adequate information to know the implicit rate in a lease and therefore use our incremental borrowing rate. Under GAAP, the incremental borrowing rate must be on a collateralized basis. As our current term loan is secured we are able to use our debt interest rate for the implicit rate on our leases.

 

Income Taxes - Deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the new tax rate is enacted.

 

We reduce our deferred tax assets by a valuation allowance if it is more likely than not that we will not realize some portion or all of the deferred tax assets. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the

57

 

event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance that would reduce the provision for income taxes.

 

We operate on a global basis and are subject to numerous and complex tax laws and regulations. Income tax audits may require an extended period of time to reach resolution and may result in significant income tax adjustments when interpretation of tax laws or allocation of company profits is disputed. Because income tax adjustments in certain jurisdictions can be significant, we record accruals representing management’s best estimate of the probable resolution of these matters. To the extent additional information becomes available, such accruals are adjusted to reflect the revised estimated probable outcome. We record Global Intangible Low-Taxed Income (“GILTI”) tax as a period cost. We report tax-related interest and penalties as a component of income tax expense.

 

Prior to the distribution, we were included in the consolidated U.S. federal, foreign, and certain state income tax returns of Zimmer Biomet, where applicable. Accordingly, the tax provision and current and deferred tax balances for the years ended December 31, 2021 and 2020 have been prepared on a separate-return basis as if we were a separate filer.

 

As a result of applying the separate filer approach for the periods prior to the distribution, actual tax transactions included in the consolidated financial statements of Zimmer Biomet may not be included in our consolidated financial statements. Similarly, the tax treatment of certain items reflected in the consolidated financial statements may not be reflected in the consolidated financial statements and tax returns of Zimmer Biomet. Therefore, portions of items such as net operating losses (“NOLs”), credit carryforwards, other deferred taxes and valuation allowances may exist in the consolidated financial statements that may or may not exist in Zimmer Biomet’s consolidated financial statements and vice versa. In addition, although deferred tax assets have been recognized for NOLs and tax credits in accordance with the separate return method, certain NOLs and credits did not carry over with ZimVie in connection with the distribution. The income taxes as presented in the consolidated financial statements may not be indicative of the income taxes that we will incur in the future. Any differences between actual amounts paid or received by ZimVie have been reflected in net parent company investment.

 

Derivative Financial Instruments - Our foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase the product. Our transactions in our foreign operations are denominated primarily in the following currencies: Euros, Chinese Renminbi, British Pound, Japanese Yen and Canadian Dollar. We enter into foreign exchange forward or swap contracts (collectively, the “foreign exchange contracts”) to facilitate the hedging of foreign currency exposures resulting from inventory purchases and sales and mitigate the impact of changes in foreign currency exchange rates related to these transactions. Foreign exchange contracts generally have terms of no more than six months. We do not enter into foreign exchange contracts for speculative trading purposes. The risk of loss on a foreign exchange contract is the risk of nonperformance by the counterparties, which we attempt to minimize by limiting our counterparties to major financial institutions. The fair value of the foreign exchange contracts are estimated using foreign currency spot rates and forward rates quotes by third party financial institutions. The notional amount of the foreign exchange contracts at December 31, 2022 and 2021 was $69.1 million and $0, respectively.

 

Gains and losses related to foreign currency exchange contracts are recorded in “Other Income” in our consolidated statements of operations.

 

Accumulated Other Comprehensive Income (Loss) - AOCI refers to gains and losses that under GAAP are included in comprehensive income but are excluded from net earnings as these amounts are recorded directly as an adjustment to equity. Our AOCI is comprised of foreign currency translation adjustments. There are no reclassifications from AOCI to net earnings for the periods presented herein. Further, there are no tax effects related to AOCI for the periods presented.

 

Noncontrolling Interest - We had an investment in a company in which we had a controlling financial interest, but not 100% of the equity. In the year ended December 31, 2020, we acquired the remaining equity from the minority shareholder. The acquisition of the remaining equity interest was recognized as an equity transaction. Further information related to the noncontrolling interest of this investment has not been provided as it is not significant to our consolidated financial statements.

 

Net Parent Company Investment - NPI in the consolidated balance sheets represents Zimmer Biomet’s historical investment in ZimVie, the accumulated net earnings after taxes and the net effect of the transactions with and allocations from Zimmer Biomet.

 

Accounting Pronouncements Recently Adopted

 

In July 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2021-05 Lessors – Certain Leases with Variable Lease Payments which is an amendment to Accounting Standards Codification Topic 842 – Leases (“ASC 842”). Under the prior ASC 842 guidance, variable payments are excluded from the measurement of the initial net investment in the

58

 

lease if the payments do not depend on an index or a rate. For sales-type or direct financing leases, this could result in the recognition of a day-one loss for leases with entire or partial variable payments. ASU 2021-05 requires lessors to classify leases with entire or partial variable payments as operating leases if otherwise a day-one loss would be recognized. We adopted this standard on a prospective basis as of January 1, 2022. We have not entered into leases that are comprised entirely of variable lease payments and therefore the adoption of this ASU did not have an impact on our financial statements.

 

Accounting Pronouncements Recently Issued

 

There are no recently issued accounting pronouncements that we have not yet adopted that are expected to have a material effect on our financial position, results of operations or cash flows.

 

3. Acquisitions

 

In the fourth quarter of 2020, we acquired all of the issued and outstanding shares of 3DIEMME S.r.l. (“3DIEMME”), a dental treatment planning and dental computer aided-design/computer aided-manufacturing design software provider based in Italy. The 3DIEMME acquisition was completed primarily to expand treatment planning and design software offerings in our digital dentistry portfolio.

 

The total cash consideration paid for this acquisition was $9.2 million. Additionally, we assigned a fair value of $8.3 million at the acquisition date for potential payments that are contingent on future product sales. The estimated fair value of the aggregate contingent payment liabilities was calculated based on the probability of achieving the specified sales growth and discounting to present value the estimated payments. Due to actual product sales, we have increased the estimated fair value of these contingent payment liabilities to $11.0 million as of December 31, 2022.

 

We recognized goodwill of $12.7 million for this acquisition. The goodwill related to the acquisition represents the excess of the consideration transferred over the fair value of the net assets acquired. The goodwill related to the acquisition is generated from the operational synergies and cross-selling opportunities we expect to achieve from the technologies acquired. None of the goodwill related to this acquisition is deductible for tax purposes.

 

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

 

4. Goodwill and Other Intangible Assets

 

The following table summarizes the changes in the carrying amount of goodwill by historical reportable segment (in thousands):

 

 

 

Spine

 

 

Dental

 

 

Total

 

Balance at December 31, 2020

 

 

 

 

 

 

 

 

 

Goodwill, Gross

 

$

1,089,400

 

 

$

415,666

 

 

$

1,505,066

 

Accumulated impairment losses

 

 

(1,089,400

)

 

 

(142,000

)

 

 

(1,231,400

)

Goodwill, Net

 

 

—

 

 

 

273,666

 

 

 

273,666

 

Currency translation

 

 

—

 

 

 

(5,856

)

 

 

(5,856

)

Balance at December 31, 2021

 

 

 

 

 

 

 

 

 

Goodwill, Gross

 

 

1,089,400

 

 

 

409,810

 

 

 

1,499,210

 

Accumulated impairment losses

 

 

(1,089,400

)

 

 

(142,000

)

 

 

(1,231,400

)

Goodwill, Net

 

 

—

 

 

 

267,810

 

 

 

267,810

 

Currency translation

 

 

—

 

 

 

(7,811

)

 

 

(7,811

)

Balance at December 31, 2022

 

 

 

 

 

 

 

 

 

Goodwill, Gross

 

 

1,089,400

 

 

 

401,999

 

 

 

1,491,399

 

Accumulated impairment losses

 

 

(1,089,400

)

 

 

(142,000

)

 

 

(1,231,400

)

Goodwill, Net

 

$

—

 

 

$

259,999

 

 

$

259,999

 

 

 

In connection with the annual goodwill impairment test in the fourth quarters of 2022 and 2021, we estimated the fair value of our Dental reporting unit, our only reporting unit with goodwill remaining, using the income and market approaches. In the annual tests for both 2022 and 2021, the Dental reporting unit exceeded its carrying value by more than 20%.

 

The impairment charge of $142.0 million in our Dental reporting unit in 2020 was primarily driven by the COVID-19 pandemic. Changes in the market caused an increase to the risk-adjusted discount rate utilized to discount our future estimated cash flows to present

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value, and we expected that the deferral of elective dental procedures would have an adverse effect on our cash flows. We estimated the cash flows from our Dental reporting unit might recover more slowly because many dental procedures are not covered by insurance. Therefore, we estimated that economic uncertainty would likely result in patients deferring dental procedures for a longer period of time than procedures involving our other products.

 

For each goodwill impairment test, we estimated the fair value of the Dental reporting unit based on income and market approaches. Fair value under the income approach was determined by discounting to present value the estimated future cash flows of the reporting unit. Fair value under the market approach utilized the guideline public company methodology, which uses valuation indicators from publicly-traded companies that are similar to our reporting unit and considers differences between our reporting unit and the comparable companies.

 

In estimating the future cash flows of the Dental reporting unit, we utilized a combination of market and company-specific inputs that a market participant would use in assessing the fair value of its reporting units. The primary market input was revenue growth rate. These rates were based upon historical trends and estimated future growth drivers such as an aging global population, innovative new product offerings and increased demand for cosmetic dentistry procedures. Under the guideline public company methodology, we took into consideration specific risk differences between our reporting unit and the comparable companies, such as recent financial performance, size risks and product portfolios, among other considerations.

 

We will continue to monitor the fair value of our reporting unit in our interim and annual reporting periods. If our estimated cash flows decrease, we may have to record further impairment charges in the future.

 

The components of identifiable intangible assets were as follows (in thousands):

 

 

 

Technology

 

 

Trademarks
and Trade
Names

 

 

Customer Relationships

 

 

Other

 

 

Total

 

As of December 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount

 

$

873,913

 

 

$

143,187

 

 

$

379,967

 

 

$

56,839

 

 

$

1,453,906

 

Accumulated amortization

 

 

(409,839

)

 

 

(56,233

)

 

 

(171,576

)

 

 

(50,083

)

 

 

(687,731

)

Total identifiable intangible assets

 

$

464,074

 

 

$

86,954

 

 

$

208,391

 

 

$

6,756

 

 

$

766,175

 

As of December 31, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross carrying amount

 

$

844,730

 

 

$

137,785

 

 

$

364,917

 

 

$

53,955

 

 

$

1,401,387

 

Accumulated amortization

 

 

(444,603

)

 

 

(63,012

)

 

 

(188,913

)

 

 

(49,894

)

 

 

(746,422

)

Total identifiable intangible assets

 

$

400,127

 

 

$

74,773

 

 

$

176,004

 

 

$

4,061

 

 

$

654,965

 

 

Estimated annual amortization expense based upon intangible assets recognized as of December 31, 2022 for the years ending December 31, 2023 through 2027 is (in millions):

 

For the Years Ending December 31,

 

 

 

2023

 

$

75.9

 

2024

 

 

72.4

 

2025

 

 

70.6

 

2026

 

 

68.9

 

2027

 

 

63.6

 

 

5. Share-Based Compensation

 

Conversion Awards

 

Zimmer Biomet has share-based compensation plans under which it granted stock options, restricted stock units ("RSUs") and performance-based RSUs. In connection with the distribution, ZimVie employees with outstanding Zimmer Biomet share-based awards received replacement share-based awards. The ratio used to convert the Zimmer Biomet share-based awards was designed to preserve the aggregate intrinsic value of the award immediately after the distribution when compared to the aggregate intrinsic value of the award immediately prior to the distribution. Outstanding RSUs and performance-based RSUs were converted into 0.3 million ZimVie RSUs at a weighted average fair value of $31.55, and outstanding stock options were converted into 2.1 million ZimVie stock options at a weighted average fair value of $14.76. Due to the conversion, ZimVie incurred $21.3 million of incremental share-based compensation expense. Of this amount, $10.3 million was related to unvested and/or unexercised share-based awards and was recognized at the

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distribution date. The remaining $11.0 million is being recognized over the remainder of the share-based awards' weighted average vesting period of 2.5 years from the date of the distribution.

 

New Awards

 

Effective March 1, 2022, ZimVie established the ZimVie Inc. 2022 Stock Incentive Plan (the "2022 Plan"). A total of 3.0 million shares of common stock are authorized for future grants and awards under the 2022 Plan. Shares issued pursuant to converted Zimmer Biomet share-based awards do not count against this limit. At December 31, 2022, 1.6 million shares were available for future grants and awards under the 2022 Plan. The 2022 Plan provides for the grant of various types of awards including stock options, stock appreciation rights, performance shares, performance units, restricted stock and RSUs. Generally, awards have a three-year vesting period and stock options have a term of ten years. Vesting may accelerate upon retirement after the first anniversary date of the award if certain criteria are met. We recognize expense on a straight-line basis over the requisite service period, less awards expected to be forfeited using estimated forfeiture rates. Stock options are granted with an exercise price equal to the market price of our common stock on the date of grant, except in limited circumstances where local law may dictate otherwise.

 

For periods prior to the distribution, we specifically identified employees who were associated with our historical operations and calculated expense based upon the awards received under the Zimmer Biomet plans, as well as expense related to corporate or shared employees allocated to us on a proportional cost allocation method, primarily based on revenue.

 

Share-based compensation expense was as follows (in thousands):

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Share-based compensation expense recognized in:

 

 

 

 

 

 

 

 

 

Cost of products sold, excluding intangible asset amortization

 

$

2,437

 

 

$

539

 

 

$

506

 

Research and development

 

 

3,441

 

 

 

812

 

 

 

1,194

 

Selling, general and administrative

 

 

24,411

 

 

 

5,958

 

 

 

4,245

 

 

 

 

30,289

 

 

 

7,309

 

 

 

5,945

 

Tax benefit related to awards

 

 

(7,254

)

 

 

(1,550

)

 

 

(1,346

)

Total expense, net of tax

 

$

23,035

 

 

$

5,759

 

 

$

4,599

 

 

 

 

 

 

 

 

 

 

 

We use a Black-Scholes option-pricing model to determine the fair value of our stock options. For new awards granted after the distribution: expected volatility of 52.29% was derived from a peer group's combined historical volatility that was de-levered and re-levered for ZimVie as ZimVie does not have sufficient historical volatility based on the expected term of the underlying options; the expected term of the stock options of 6.0 years was determined using the simplified method; and the risk-free interest rate of 1.94% was determined using the implied yield available as of the grant date for zero-coupon U.S. government issues with a remaining term approximating the expected life of the options. The dividend yield was zero as ZimVie has no plans to pay a dividend for the foreseeable future.

 

Stock option activity was as follows:

 

 

 

Period Ended December 31, 2022

 

 

 

 

 

 

Weighted

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Stock Options

 

 

Price

 

 

Life (Years)

 

 

Value (in Millions)

 

Outstanding at March 1, 2022

 

 

2,125,548

 

 

$

27.32

 

 

 

 

 

 

 

Granted

 

 

484,650

 

 

 

23.87

 

 

 

 

 

 

 

Exercised

 

 

(12,949

)

 

 

17.28

 

 

 

 

 

 

 

Forfeited

 

 

(193,614

)

 

 

26.56

 

 

 

 

 

 

 

Outstanding at December 31, 2022

 

 

2,403,635

 

 

$

26.74

 

 

 

7.0

 

 

$

-

 

Exercisable at December 31, 2022

 

 

1,206,487

 

 

$

25.37

 

 

 

5.6

 

 

$

-

 

 

Aggregate intrinsic value was negligible at December 31, 2022. At December 31, 2022, we had unrecognized share-based compensation cost related to unvested stock options of $11.3 million, which is expected to be amortized over the remaining weighted average vesting period of approximately 2.0 years.

 

61

 

RSU activity was as follows:

 

 

 

Period Ended December 31, 2022

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Average

 

 

 

Number of

 

 

Grant Date

 

 

 

RSUs

 

 

Fair Value

 

Outstanding at March 1, 2022

 

 

264,420

 

 

$

31.55

 

Granted

 

 

1,288,465

 

 

 

23.44

 

Vested

 

 

(39,446

)

 

 

31.55

 

Forfeited

 

 

(130,939

)

 

 

24.75

 

Outstanding at December 31, 2022

 

 

1,382,500

 

 

$

24.64

 

 

At December 31, 2022, we had unrecognized share-based compensation cost related to unvested RSUs of $20.6 million, which is expected to be amortized into net income over the remaining weighted average vesting period of approximately 2.1 years. The total fair value of RSUs that vested during the period ended December 31, 2022 was $1.2 million.

 

6. Earnings Per Share

 

On March 1, 2022, 26.1 million ZimVie common shares were distributed in connection with the distribution. For comparative purposes, and to provide a more meaningful calculation for weighted average shares, this amount was assumed to be outstanding throughout all periods presented up to and including March 1, 2022 in the calculation of basic weighted average shares. For periods prior to the distribution, it was assumed that there were no dilutive equity instruments, as there were no equity awards of ZimVie outstanding prior to the distribution.

 

The calculation of weighted average shares for the basic and diluted earnings per common share is as follows (in thousands, except per share data):

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Net loss

 

$

(63,881

)

 

$

(95,254

)

 

$

(178,999

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for basic net loss per share

 

 

26,083

 

 

 

26,050

 

 

 

26,050

 

Effect of dilutive stock options and other equity awards (1)

 

 

—

 

 

 

—

 

 

 

—

 

Weighted average shares outstanding for dilutive net loss per share

 

 

26,083

 

 

 

26,050

 

 

 

26,050

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per common share

 

$

(2.45

)

 

$

(3.66

)

 

$

(6.87

)

Diluted net loss per common share

 

 

(2.45

)

 

 

(3.66

)

 

 

(6.87

)

 

 

(1) Since we incurred a net loss in each of the years ended December 31, 2022, 2021 and 2020, no dilutive stock options or other equity awards were included as diluted shares in those periods.

 

For the year ended December 31, 2022, a weighted average of 3.4 million options to purchase shares of common stock would have been excluded from the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of the common stock.

 

7. Balance Sheet Details

 

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Prepaid expenses and other current assets:

 

 

 

 

 

 

Prepaid expenses

 

$

28,359

 

 

$

9,252

 

Income tax receivable

 

 

7,311

 

 

 

13,675

 

Other assets

 

 

1,294

 

 

 

2,453

 

Total prepaid expenses and other current assets

 

$

36,964

 

 

$

25,380

 

 

62

 

 

Inventories consisted of the following (in thousands):

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Finished goods

 

$

200,098

 

 

$

199,553

 

Work in progress

 

 

21,199

 

 

 

26,700

 

Raw materials

 

 

12,557

 

 

 

20,579

 

Inventories

 

$

233,854

 

 

$

246,832

 

 

Amounts charged to the consolidated statements of operations for excess and obsolete inventory, including certain product lines we intend to discontinue, in the years ended December 31, 2022, 2021 and 2020 were $21.3 million, $37.5 million and $30.8 million, respectively. Additionally, during 2021, we completed a brand rationalization resulting in expense of $40.3 million.

 

Property, plant and equipment consisted of the following (in thousands):

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Land

 

$

7,235

 

 

$

7,248

 

Building and equipment

 

 

210,305

 

 

 

226,447

 

Capitalized software costs

 

 

36,881

 

 

 

41,876

 

Instruments

 

 

270,041

 

 

 

315,136

 

Construction in progress

 

 

16,865

 

 

 

7,727

 

Property, plant and equipment, gross

 

 

541,327

 

 

 

598,434

 

Accumulated depreciation

 

 

(392,888

)

 

 

(418,191

)

Property, plant and equipment, net

 

$

148,439

 

 

$

180,243

 

 

Depreciation expense was $41.9 million, $43.5 million and $48.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

 

We had $1.3 million, $1.3 million and $2.4 million of property, plant and equipment included in accounts payable as of December 31, 2022, 2021 and 2020, respectively.

 

Other current liabilities consisted of the following (in thousands):

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Other current liabilities:

 

 

 

 

 

 

License and service agreements

 

$

25,337

 

 

$

31,154

 

Salaries, wages and benefits

 

 

47,812

 

 

 

40,986

 

Lease liabilities

 

 

9,617

 

 

 

12,628

 

Accrued liabilities

 

 

63,013

 

 

 

48,512

 

Total other current liabilities

 

$

145,779

 

 

$

133,280

 

 

8. Transfers of Financial Assets

 

Zimmer Biomet had receivables purchase arrangements with unrelated third parties to liquidate portions of its trade accounts receivable balance, including receivables related to our spine business. The receivables related to products sold to customers and were short-term in nature. The factorings were treated as sales of the accounts receivable. Proceeds from the transfers reflect either the face value of the accounts receivable or the face value less factoring fees.

 

The programs were executed on a revolving basis with a maximum funding limit for Zimmer Biomet of $450.0 million combined before termination. The Parent acted as the collection agent on behalf of the third-party but had no significant retained interests or servicing liabilities related to the accounts receivable sold. The Parent terminated the programs in the U.S. and Japan in the fourth quarter of 2020. As of December 31, 2020, all factored receivables related to our spine business had been collected and remitted in conjunction with the termination of those programs in 2020. As such, there was no activity related to these programs subsequent to December 31, 2020.

 

63

 

In Europe, the Parent sold to a third party and there was no continuing involvement or significant risk with the factored accounts receivable.

 

Funds received from the transfers are recorded as an increase to cash and a reduction of accounts receivable outstanding in the consolidated balance sheets. We report the cash flows attributable to the sale of the receivables to third parties in cash flows from operating activities in our consolidated statements of cash flows. Net expenses resulting from the sales of receivables are recognized in SG&A expense. Net expenses included any resulting gains or losses from the sales of receivables, credit insurance and factoring fees.

 

For the year ended December 31, 2020, receivables related to our spine business were sold having an aggregate face value of $53.8 million to third parties in exchange for cash proceeds of $53.7 million. Expenses recognized on these sales were not significant. For the year ended December 31, 2020 under the U.S. and Japan programs, receivables related to our spine business of $50.1 million were collected from our customers and these amounts were remitted to the third party, and we effectively repurchased $7.0 million of our previously sold accounts receivable due to the programs’ revolving nature. We had no unremitted amounts at December 31, 2022 and 2021 due to the termination of those arrangements in 2020. The initial collection of cash from customers and its remittance to the third party is reflected in net cash (used in) provided by financing activities in our consolidated statements of cash flows.

 

9. Fair Value Measurements of Assets and Liabilities

 

The following financial assets and liabilities are recorded at fair value on a recurring basis (in thousands):

 

 

 

As of December 31, 2022

 

 

 

 

 

 

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)

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Contingent payments related to acquisitions

 

$

13,250

 

 

$

—

 

 

$

—

 

 

$

13,250

 

Total Liabilities

 

$

13,250

 

 

$

—

 

 

$

—

 

 

$

13,250

 

 

 

 

As of December 31, 2021

 

 

 

 

 

 

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)

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Contingent payments related to acquisitions

 

$

10,181

 

 

$

—

 

 

$

—

 

 

$

10,181

 

Total Liabilities

 

$

10,181

 

 

$

—

 

 

$

—

 

 

$

10,181

 

 

The carrying value of our debt (discussed in Note 10) approximates fair value as it bears interest at variable rates and is categorized as a Level 2 instrument. Contingent payments related to acquisitions consist of sales-based payments, and are valued using discounted cash

64

 

flow techniques. The fair value of sales-based payments is based upon probability-weighted future revenue estimates, and increases as revenue estimates increase. See Note 3 for additional information regarding contingent payments related to acquisitions.

 

The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis in the tables above that used significant unobservable inputs (Level 3) (in thousands):

 

 

 

Level 3 - Liabilities

 

Contingent payments related to acquisitions

 

 

 

Balance December 31, 2020

 

$

10,033

 

Change in estimate

 

 

1,500

 

Settlements

 

 

(750

)

Foreign currency impact

 

 

(602

)

Balance December 31, 2021

 

$

10,181

 

Change in estimate

 

 

2,750

 

Foreign currency impact

 

 

319

 

Balance December 31, 2022

 

$

13,250

 

 

10. Debt

 

Our debt consisted of the following (in thousands):

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Term loan

 

$

536,456

 

 

$

—

 

Debt issuance costs

 

 

(4,223

)

 

 

—

 

Total debt

 

 

532,233

 

 

 

—

 

Less: current portion

 

 

—

 

 

 

—

 

Total debt due after one year

 

$

532,233

 

 

$

—

 

 

Below is the aggregate principal amount of maturities of our long-term debt payment requirements as of December 31, 2022 for the years ending December 31, 2023 through 2027 (excluding unamortized debt issuance costs), and reflecting the payment on December 30, 2022 to cover all scheduled principal payments in 2023 (in millions):

 

For the Years Ending December 31,

 

 

 

2023

 

$

—

 

2024

 

 

24.5

 

2025

 

 

49.1

 

2026

 

 

56.1

 

2027

 

 

406.8

 

 

We entered into a Credit Agreement, dated as of December 17, 2021 (the “Credit Agreement”), with JP Morgan Chase Bank, N.A., as administrative agent and syndication agent, and the lenders and issuing banks named therein. The Credit Agreement provides for revolving loans of up to $175.0 million (the “Revolver”) and term loan borrowings of up to $595.0 million.

 

On February 28, 2022 we borrowed the entire $595.0 million of available term loan borrowings (the “Original Term Loan Borrowing”) and on March 1, 2022, we prepaid $34.0 million of the Original Term Loan Borrowing (the $561.0 million of term borrowings following such prepayment being referred to as the “Term Loan” and, together with the Revolver, the “Credit Facility”). The Credit Facility has an initial term of five years. On each of June 30, 2022, September 30, 2022 and December 30, 2022, we made a $3.5 million scheduled principal payment on the Term Loan. In addition on December 30, 2022, we made a principal payment of $14.0 million to cover all of the 2023 mandatory scheduled principal payments on the Term Loan. As of December 31, 2022, $536.5 million was outstanding on the Term Loan following such payments, and there were no outstanding borrowings under the Revolver.

 

Following the reduction as a result of the $34.0 million prepayment of the Original Term Loan Borrowing on March 1, 2022, the Term Loan amortizes in equal quarterly installments in an aggregate amount equal to (i) 2.5% per annum of the original principal amount of the Original Term Loan Borrowing for the first two years of the facility, commencing at the end of the fiscal quarter ended June 30, 2022, (ii) 5.0% per annum of the original principal amount of the Original Term Loan Borrowing for the following year of the facility and (iii) 10.0% per annum of the original principal amount of the Original Term Loan Borrowing for the last two years of the facility,

65

 

with the unpaid balance due in full on the maturity date. We are permitted to voluntarily prepay the loans under the Credit Facility at any time without premium or penalty, other than breakage fees. We may request, subject to obtaining commitments from any participating lenders and certain other conditions, incremental commitments to increase the amount of the Revolver or the Term Loan available under the Credit Facility in an aggregate principal amount equal to $70.0 million, plus additional amounts, subject to the terms and conditions of the Credit Facility.

 

Borrowings under the Revolver and the Term Loan bear interest, in the case of each term benchmark borrowing, at the adjusted term secured overnight financing rate (“SOFR”) for the interest period in effect for such borrowing, plus an applicable margin, which will range from 1.50% to 1.75%, based on ZimVie's consolidated total net leverage ratio. Borrowings under the Credit Facility that are not term benchmark borrowings bear interest at a per annum rate equal to (a) the greatest of (i) the prime rate in effect on such day, (ii) the Federal Reserve Bank of New York rate in effect on such day plus 1⁄2 of 1% and (iii) the adjusted term SOFR for a one month interest period as published two U.S. government securities business days prior to such day (or if such day is not a business day, the immediately preceding business day) plus 1%, plus (b) an applicable margin, which may range from 0.50% to 0.75%, based on ZimVie's consolidated total net leverage ratio. As of December 31, 2022, the applicable margin was 1.75% for term benchmark borrowings and 0.75% for benchmark borrowings. Commitments under the Revolver are subject to a commitment fee on the unused portion of the Revolver of 25 basis points.

 

Borrowings under the Credit Facility are collateralized by substantially all of our personal property, including intellectual property, and certain real property and we, along with our subsidiaries party to the Credit Facility, pledged our equity interests in our subsidiaries, subject to materiality thresholds and certain limitations with respect to foreign subsidiaries. The Credit Facility contains various covenants that restrict our ability to take certain actions, including incurrence of indebtedness, creation of liens, mergers or consolidations, dispositions of assets, making certain investments, prepayments or redemptions of subordinated debt, or making certain restricted payments. In addition, the Credit Facility contains financial covenants that require us to maintain at the end of any of our fiscal quarters commencing with the fiscal quarter ending June 30, 2022, a maximum consolidated total net leverage ratio of 6.00 to 1.00. We were in compliance with all covenants as of December 31, 2022.

 

11. Derivatives

 

We enter into foreign currency exchange forward contracts with terms of one to three months in order to manage currency exposures related to monetary assets and liabilities denominated in a currency other than an entity’s functional currency. Any foreign currency remeasurement gains or losses recognized in earnings are generally offset with gains or losses on the foreign currency exchange forward contracts in the same reporting period. The amount of these gains (losses) is recorded in Other income (expense), net. Outstanding contracts are recorded on the consolidated balance sheet at fair value as of the end of the reporting period. The notional amounts of these contracts were $69.1 million as of December 31, 2022.

 

Current derivative assets of $0.6 million as of December 31, 2022 are included in Prepaid expenses and other current assets on our consolidated balance sheets. Current derivative liabilities of $0.3 million as of December 31, 2022 are included in Other current liabilities in our consolidated balance sheets. Losses from these derivative instruments recognized on our consolidated statements of operations in Other income (expense), net was $1.2 million for the year ended December 31, 2022.

 

We had no outstanding derivatives as of December 31, 2021 and no activity for the years ended December 31, 2021 or 2020.

 

12. Leases

 

In our consolidated financial statements, we have recognized the right-of-use assets and lease liabilities and related expense of leases that were transferred to ZimVie at the closing of the distribution. For leases that we shared with Zimmer Biomet prior to the distribution and remained the responsibility of Zimmer Biomet following the distribution, no assets nor liabilities have been recognized on our consolidated balance sheets and any lease expense has been included in allocated costs from Zimmer Biomet.

 

Information on our leases is as follows ($ in thousands):

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Lease cost

 

$

11,709

 

 

$

14,677

 

 

$

14,928

 

Cash paid for leases recognized in operating cash
   flows

 

 

13,248

 

 

 

15,854

 

 

 

14,332

 

Right-of-use assets obtained in exchange for new
   lease liabilities

 

 

3,208

 

 

 

7,550

 

 

 

9,227

 

 

66

 

 

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Right-of-use assets recognized in Other assets

 

$

24,816

 

 

$

49,347

 

Lease liabilities recognized in Other current
   liabilities

 

 

9,617

 

 

 

12,628

 

Long-term lease liabilities

 

 

22,287

 

 

 

45,317

 

Weighted-average remaining lease term

 

3.9 years

 

 

5.3 years

 

Weighted-average discount rate

 

 

2.7

%

 

 

2.8

%

 

Our future minimum lease payments as of December 31, 2022 were (in millions):

 

For the Years Ending December 31,

 

 

 

2023

 

$

10.3

 

2024

 

 

9.1

 

2025

 

 

6.2

 

2026

 

 

4.7

 

2027

 

 

1.6

 

Thereafter

 

 

1.7

 

Total

 

 

33.6

 

Less imputed interest

 

 

(1.7

)

Total

 

$

31.9

 

 

13. Allowance for Credit Losses

 

The following table presents the activity of our allowance for credit losses for the years ended December 31, 2022, 2021 and 2020: (in thousands):

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Balance at Beginning of Period

 

$

16,545

 

 

$

18,931

 

 

$

19,520

 

Additions Charged to Expense

 

 

4,446

 

 

 

2,645

 

 

 

2,677

 

Deductions / Other Additions to Reserve (1)

 

 

(5,743

)

 

 

(4,683

)

 

 

(3,552

)

Effects of Foreign Currency

 

 

(222

)

 

 

(348

)

 

 

286

 

Balance at End of Period

 

$

15,026

 

 

$

16,545

 

 

$

18,931

 

 

(1) 2020 includes the $1.0 million cumulative-effect adjustment related to the adoption of ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326)."

 

14. Income Taxes

 

The tax provisions for the years ended December 31, 2021 and 2020 were prepared on a separate return basis as if we were a separate group of companies under common ownership prior to the distribution. The operations were combined as if we were filing on a combined basis for U.S. federal, U.S. state and non-U.S. income tax purposes, where allowable by law. As discussed in Note 2, certain NOLs, tax credit carryforwards and unrecognized tax benefits were recognized during the tax years ended December 31, 2021 and 2020 in accordance with the separate return method but did not carry over with ZimVie in connection with the distribution.

 

The components of loss before income taxes consisted of the following (in thousands):

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

U.S. operations

 

$

(98,803

)

 

$

(18,963

)

 

$

(137,552

)

Foreign operations

 

 

(11,116

)

 

 

(82,294

)

 

 

(83,796

)

Total

 

$

(109,919

)

 

$

(101,257

)

 

$

(221,348

)

 

67

 

The benefit for income taxes and the income taxes paid consisted of the following (in thousands):

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

3,986

 

 

$

3,515

 

 

$

(29,999

)

State

 

 

6,696

 

 

 

1,608

 

 

 

2,950

 

Foreign

 

 

7,340

 

 

 

10,807

 

 

 

6,976

 

Total current taxes

 

 

18,022

 

 

 

15,930

 

 

 

(20,073

)

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

 

(27,900

)

 

 

(4,222

)

 

 

(2,857

)

State

 

 

(12,912

)

 

 

(1,521

)

 

 

(1,205

)

Foreign

 

 

(23,248

)

 

 

(16,190

)

 

 

(18,214

)

Total deferred taxes

 

 

(64,060

)

 

 

(21,933

)

 

 

(22,276

)

Benefit for income taxes

 

$

(46,038

)

 

$

(6,003

)

 

$

(42,349

)

Net income taxes paid

 

$

25,730

 

 

$

12,089

 

 

$

4,654

 

 

A reconciliation of the income tax benefit at the U.S. statutory income tax rate to our income tax benefit is as follows (in thousands):

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Income tax benefit at the U.S. statutory rate

 

$

(23,083

)

 

$

(21,265

)

 

$

(46,490

)

Tax impact of foreign operations, including U.S. taxes on international income and foreign tax credits

 

 

(13,111

)

 

 

2,283

 

 

 

(822

)

Puerto Rico royalty tax receivable and other payable true-up

 

 

(5,757

)

 

 

—

 

 

 

—

 

State taxes, net of federal deduction

 

 

(2,789

)

 

 

180

 

 

 

1,657

 

R&D tax credit

 

 

(1,750

)

 

 

(906

)

 

 

(586

)

Pre-spin tax expense

 

 

(999

)

 

 

—

 

 

 

—

 

Non-deductible expenses

 

 

(413

)

 

 

1,241

 

 

 

407

 

Change in valuation allowance

 

 

2,402

 

 

 

13,184

 

 

 

7,431

 

Section 162m excess compensation

 

 

1,324

 

 

 

416

 

 

 

444

 

Goodwill impairment

 

 

—

 

 

 

—

 

 

 

29,820

 

Share-based compensation

 

 

714

 

 

 

20

 

 

 

36

 

Net uncertain tax positions, including interest and penalties

 

 

105

 

 

 

1,257

 

 

 

(26,205

)

Tax rate change

 

 

33

 

 

 

(2,734

)

 

 

(6,539

)

Other

 

 

(2,714

)

 

 

321

 

 

 

(1,502

)

Income tax benefit

 

$

(46,038

)

 

$

(6,003

)

 

$

(42,349

)

 

68

 

The components of deferred taxes consisted of the following (in thousands):

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryover

 

$

37,774

 

 

$

38,605

 

Inventory

 

 

23,939

 

 

 

67,607

 

Section 174 capitalized cost

 

 

15,151

 

 

 

—

 

Section 263A

 

 

9,610

 

 

 

1,423

 

Leases - right of use liability

 

 

7,612

 

 

 

—

 

Share-based compensation

 

 

7,025

 

 

 

2,419

 

Accrued liabilities

 

 

4,845

 

 

 

3,110

 

Accounts receivable

 

 

3,295

 

 

 

5,060

 

Product liability and litigation

 

 

1,429

 

 

 

1,327

 

Tax credit carryover

 

 

—

 

 

 

3,072

 

Other

 

 

288

 

 

 

84

 

Total deferred tax assets

 

 

110,968

 

 

 

122,707

 

Less: Valuation allowances

 

 

(37,155

)

 

 

(38,339

)

Total deferred tax assets after valuation allowances

 

 

73,813

 

 

 

84,368

 

Deferred tax liabilities:

 

 

 

 

 

 

Intangible assets

 

 

149,448

 

 

 

179,414

 

Fixed assets

 

 

9,347

 

 

 

15,559

 

Leases - right of use asset

 

 

6,295

 

 

 

—

 

Other

 

 

3,469

 

 

 

370

 

Total deferred tax liabilities

 

 

168,559

 

 

 

195,343

 

Total net deferred income taxes

 

$

(94,746

)

 

$

(110,975

)

 

We establish valuation allowances when necessary to reduce the deferred tax assets to amounts we expect to realize. As of December 31, 2022 and 2021, we had a valuation allowance of $37.2 million and $38.3 million, respectively, related to net operating loss carryforwards and other deferred tax assets that are not anticipated to be realized prior to expiration.

 

During 2022, as part of the distribution, $30.2 million of valuation allowances were released related to NOL and credit carryforwards which did not transfer to the ZimVie group. The subsequent increase to the valuation allowance of $28.8 million during 2022 was primarily driven by the recognition of the NOL carryforward in Puerto Rico. The increase to the valuation allowance of $8.6 million during 2021 was primarily driven by additional losses generated, partially offset by changes in tax rates.

 

At December 31, 2022, net operating loss and tax credit carryovers available to reduce future federal, state and foreign taxable earnings consisted of the following (in millions):

 

Expiration Period

 

Net operating
loss carryover

 

 

Tax credit
carryover

 

2023-2027

 

$

2.3

 

 

$

—

 

2028-2032

 

9.1

 

 

 

—

 

2033-2042

 

13.2

 

 

 

—

 

Indefinite

 

 

13.2

 

 

 

—

 

Total

 

$

37.8

 

 

$

—

 

Valuation allowances

 

$

33.1

 

 

$

—

 

 

We intend to repatriate cash when the additional tax related to remitting earnings is deemed immaterial as a portion of these earnings has already been taxed as toll tax or GILTI and is not subject to further U.S. federal tax. Portions of the additional tax would also be offset by allowable foreign tax credits. No deferred tax liability has been recorded on earnings overseas that are expected to be permanently reinvested outside of the U.S. If we decide at a later date to repatriate these earnings to the U.S., we would be required to provide for the net tax effects on these amounts. We expect the majority of these unremitted earnings would be subject to federal tax and state tax, in addition to withholding tax in many jurisdictions. The exact amount of the tax cost to remit these earnings is not determinable.

69

 

 

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Balance at January 1

 

$

46,921

 

 

$

46,911

 

 

$

69,212

 

Decreases related to prior periods

 

 

(46,921

)

 

 

—

 

 

 

—

 

Increases related to current period

 

 

105

 

 

 

97

 

 

 

70

 

Decrease related to settlements with taxing authorities

 

 

—

 

 

 

(87

)

 

 

—

 

Decreases related to lapse of statute of limitations

 

 

—

 

 

 

—

 

 

 

(22,371

)

Balance at December 31

 

$

105

 

 

$

46,921

 

 

$

46,911

 

Amounts impacting effective tax rate, if balance at December 31 recognized

 

$

105

 

 

$

46,268

 

 

$

46,256

 

Interest and penalty expense related to unrecognized tax benefits

 

$

—

 

 

$

1,597

 

 

$

(5,486

)

Total accrued interest and penalties balance at December 31

 

 

—

 

 

 

8,973

 

 

 

7,376

 

 

As part of the distribution, uncertain tax reserves related to the Zimmer Biomet consolidated return filing groups in prior periods were removed from the ZimVie books as there would be no financial liability related to those positions.

 

We operate on a global basis and are subject to numerous and complex tax laws and regulations. Our income tax filings are subject to examinations by taxing authorities throughout the world. Currently, we are not under any material tax audits or have any pending tax litigations. We do not expect a material change in unrecognized tax benefits over the next twelve months based on the current examination status.

 

The ZimVie U.S. group will file its first U.S. federal tax return in 2023; therefore, there are no open years subject to Internal Revenue Service (“IRS”) audit. However, our entities historically filed consolidated under the Zimmer Biomet U.S. group, which is under continuous audit by the IRS and other taxing authorities. During the course of these audits, Zimmer Biomet receives proposed adjustments from taxing authorities that may be material. ZimVie does not bear any financial liability with regards to these U.S. federal consolidated returns; however, certain states require amended returns as a result of federal audit changes and ZimVie would be responsible for any liabilities arising in ZimVie company separate liability states. We do not anticipate any material adverse outcomes in these audits that would have a material effect on our results of operation or financial condition. The Zimmer Biomet U.S. federal income tax returns have been audited through 2015 and are currently under audit for years 2016-2019.

 

State income tax returns are generally subject to examination for a period of 3 to 5 years after filing of the respective return. The state impact of any federal changes generally remains subject to examination by various states for a period of up to one year after formal notification to the states. We do not currently have any state income tax return positions in the process of examination, administrative appeals or litigation.

 

In other major jurisdictions, open years are generally 2015 or later.

 

15. Retirement Benefit Plans

 

We sponsor defined contribution plans for substantially all of the employees in the U.S. and Puerto Rico, and certain employees in other countries. The benefits offered under these plans are reflective of local customs and practices in the countries concerned. We expensed $7.0 million, $6.1 million and $6.1 million related to these plans for the years ended December 31, 2022, 2021 and 2020, respectively.

 

16. Segment Data

 

Our Chief Executive Officer is our chief operating decision maker ("CODM"). He allocates resources to achieve our operating profit goals and reviews business performance through two operating segments, 1) the spine products segment, and 2) the dental products segment. Our two operating segments also constitute our reportable segments.

 

Our CODM evaluates performance based upon segment operating profit exclusive of certain expenses or gains that our CODM does not include when evaluating segment performance. These expenses and gains include related party transactions; expenses incurred by us related to Zimmer Biomet's products and operating expenses pertaining to intangible asset amortization: goodwill impairment; restructuring expenses; acquisition, integration, divestiture and related expenses; and other various charges. Other various charges include share-based compensation, third-party costs incurred to establish initial compliance for previously-approved products with the European Union Medical Device Regulation, third-party costs related to compliance with a deferred prosecution agreement between Zimmer Biomet and the Department of Justice, allocation of costs from the 2019 Restructuring Plan, allocation of costs related to

70

 

Zimmer Biomet’s integration activities of acquired businesses, and the impact from excess and obsolete inventory on certain product lines we intend to discontinue, as well as other expenses. Intercompany transactions have been eliminated from segment operating profit. The information presented in all of the years below is in accordance with this reportable segment operating profit structure.

 

Our CODM does not review asset information by operating segment.

 

Net sales and other information by segment are as follows (in thousands):

 

 

 

Net Sales

 

 

Operating (Loss) Profit

 

 

Depreciation and Amortization

 

 

 

Year Ended December 31,

 

 

Year Ended December 31,

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

2020

 

Spine

 

$

449,806

 

 

$

540,348

 

 

$

529,077

 

 

$

42,480

 

 

$

54,766

 

 

$

56,262

 

 

$

32,161

 

 

$

32,667

 

 

$

39,916

 

Dental

 

 

459,681

 

 

 

468,482

 

 

 

367,872

 

 

 

93,643

 

 

 

88,045

 

 

 

39,759

 

 

 

5,723

 

 

 

3,595

 

 

 

4,210

 

Segment Total

 

 

909,487

 

 

 

1,008,830

 

 

 

896,949

 

 

 

136,123

 

 

 

142,811

 

 

 

96,021

 

 

 

37,884

 

 

 

36,262

 

 

 

44,126

 

Related party transactions

 

 

4,375

 

 

 

5,819

 

 

 

15,478

 

 

 

(11,751

)

 

 

(63,761

)

 

 

(54,641

)

 

 

—

 

 

 

—

 

 

 

—

 

Expenses related to Parent
   products

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(891

)

 

 

(1,147

)

 

 

(8,240

)

 

 

—

 

 

 

—

 

 

 

—

 

Intangible asset amortization

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(80,867

)

 

 

(86,219

)

 

 

(85,493

)

 

 

80,867

 

 

 

86,219

 

 

 

85,493

 

Goodwill impairment

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(142,000

)

 

 

—

 

 

 

—

 

 

 

—

 

Restructuring

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(11,354

)

 

 

(3,344

)

 

 

(9,651

)

 

 

—

 

 

 

—

 

 

 

—

 

Acquisition, integration,
   divestiture and related

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(29,437

)

 

 

(24,064

)

 

 

(2,203

)

 

 

—

 

 

 

—

 

 

 

—

 

Other

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(97,066

)

 

 

(64,776

)

 

 

(16,406

)

 

 

4,038

 

 

 

7,238

 

 

 

4,712

 

Total

 

$

913,862

 

 

$

1,014,649

 

 

$

912,427

 

 

$

(95,243

)

 

$

(100,500

)

 

$

(222,613

)

 

$

122,789

 

 

$

129,719

 

 

$

134,331

 

 

We conduct business in the following countries that hold 10% or more of our total combined property, plant and equipment, net (in thousands):

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

U.S.

 

$

102,681

 

 

$

128,394

 

Other countries

 

 

45,758

 

 

 

51,849

 

Property, plant and equipment, net

 

$

148,439

 

 

$

180,243

 

 

U.S. and foreign sales are as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

U.S.

 

$

630,142

 

 

$

675,572

 

 

$

615,732

 

Other countries

 

 

279,345

 

 

 

333,258

 

 

 

281,217

 

Third party sales

 

$

909,487

 

 

$

1,008,830

 

 

$

896,949

 

 

Sales within any other individual country were less than 10% of our combined sales in each of those years. No single customer accounted for 10% or more of our sales in the years ended December 31, 2022, 2021 and 2020.

 

17. Commitments and Contingencies

 

We are subject to contingencies, such as various claims, legal proceedings and investigations regarding product liability, intellectual property, commercial and other matters that arise in the normal course of business. The recorded accrual balance for net loss

71

 

contingencies was $9.5 million and $5.9 million as of December 31, 2022 and December 31, 2021, respectively. Initiation of new legal proceedings or a change in the status of existing proceedings may result in a change in the estimated loss accrued.

 

Subject to certain exceptions specified in the Separation and Distribution Agreement (the "Separation Agreement"), we assumed the liability for, and control of, all pending and threatened legal matters related to our business, including liabilities for any claims or legal proceedings related to products that had been part of our business, but were discontinued prior to the distribution, as well as assumed or retained liabilities, and will indemnify Zimmer Biomet for any liability arising out of or resulting from such assumed legal matters.

 

18. Related Party Transactions

 

Prior to the distribution, we did not operate as a standalone business and had various relationships with Zimmer Biomet whereby Zimmer Biomet provided services to us. Following the distribution, certain functions that Zimmer Biomet provided to us prior to the distribution either continue to be provided to us by Zimmer Biomet under a transition services agreement or are being performed using our own resources or third-party service providers. The following disclosures summarize activity between us and Zimmer Biomet that are included in our consolidated financial statements.

 

Prior to Distribution

 

Corporate Overhead and Other Allocations from Zimmer Biomet

 

Zimmer Biomet provided certain services, which included, but were not limited to, executive oversight, treasury, finance, legal, human resources, tax planning, internal audit, financial reporting, information technology and other corporate departments. The expenses related to these services have been allocated based on direct usage or benefit where specifically identifiable, with the remainder allocated on a proportional cost allocation method based primarily on net trade sales, as applicable. When specific identification is not practicable, a proportional cost method was used primarily based on sales.

 

Corporate allocations reflected in the consolidated statements of operations are as follows (in thousands):

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Cost of products sold

 

$

(78

)

 

$

1,210

 

 

$

3,145

 

Selling, general & administrative

 

 

13,914

 

 

 

76,170

 

 

 

69,865

 

Acquisition, integration, divestiture and related

 

 

—

 

 

 

6,966

 

 

 

—

 

 

Management believes that the methods used to allocate expenses to ZimVie are a reasonable reflection of the utilization of services provided to, or the benefit derived by, ZimVie during the periods presented. However, the allocations may not necessarily reflect the consolidated financial position, results of operations and cash flows in the future or what they would have been had ZimVie been a separate, standalone entity during the periods presented.

 

Share-Based Compensation

 

As discussed in Note 5, our employees participated in Zimmer Biomet’s share-based compensation plans, the costs of which have been allocated and recorded in cost of products sold, R&D and selling, general and administrative expenses in the consolidated statements of operations. Share-based compensation benefit related to our employees prior to the distribution were $1.0 million, $7.3 million and $5.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

 

Centralized Cash Management

 

Zimmer Biomet used a centralized approach to cash management and financing of operations. The majority of our subsidiaries were party to Zimmer Biomet’s cash pooling arrangements with several financial institutions to maximize the availability of cash for general operating and investing purposes. Under these cash pooling arrangements, cash balances were swept regularly from our accounts. Cash transfers to and from Zimmer Biomet’s cash concentration accounts and the resulting balances at the end of each reporting period were reflected in NPI and net transactions with Zimmer Biomet in the consolidated balance sheets and statements of cash flows, respectively.

 

Prior to the distribution, we borrowed $595.0 million under our Credit Agreement (see Note 10) and subsequently distributed $561.0 million of the proceeds to Zimmer Biomet. After this distribution and the impact of various transactions between the parties related to the separation, we had approximately $100.0 million of cash at distribution to operate as a standalone company. This includes

72

 

approximately $10.0 million that will be payable to Zimmer Biomet upon the termination of certain interim operating model agreements as described below.

 

Manufacturing Services to Zimmer Biomet

 

We have certain manufacturing facilities that also produce orthopedic products that continue to be sold by Zimmer Biomet after the separation. The consolidated statements of operations reflect the sales of these orthopedic products with Zimmer Biomet (in thousands):

 

 

 

For the Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Related party net sales

 

$

4,375

 

 

$

5,819

 

 

$

15,478

 

Related party cost of products sold, excluding
   intangible asset amortization

 

 

4,107

 

 

 

4,248

 

 

 

10,159

 

 

We will continue to sell these products to Zimmer Biomet in future periods pursuant to a transition manufacturing and supply agreement as described below.

 

Net Parent Company Investment

 

As discussed in Note 1, NPI is primarily impacted by contributions from Zimmer Biomet, which are the result of treasury activity and net funding provided by or distributed to Zimmer Biomet. For the years ended December 31, 2022 and 2021, net transactions with Zimmer Biomet reflected in the cash flows pre-distribution were $6.9 million and $1.3 million, respectively. Activities that impacted the net transfers from Zimmer Biomet include corporate overhead, stock based compensation, debt agreements between the parties and other allocations and centralized cash management. For the years ended December 31, 2022 and 2021, the total impact on NPI from these transactions were $70.4 million and $19.7 million, respectively.

 

For all periods prior to the distribution, transfers between ZimVie and Zimmer Biomet affiliates were recognized in Net transactions with Zimmer Biomet. In connection with the distribution, certain net assets of approximately $79.0 million that were included in our pre-distribution balance sheet were retained by Zimmer Biomet, with the offset of the non-cash transaction reflected as a distribution within NPI. Separation-related adjustments were also recognized in Net transactions with Zimmer Biomet.

 

On September 30, 2021, we legally entered into a $24.4 million debt agreement with Zimmer Biomet. This debt was subsequently terminated in October 2021 without any cash being exchanged between a ZimVie subsidiary and Zimmer Biomet.

 

After Distribution

 

In connection with the distribution, ZimVie entered into various agreements that govern activity between the parties, including, but not limited to, the Separation and Distribution Agreement (the “Separation Agreement”), the Transition Services Agreement, interim operating model ("IOM") agreements, the Tax Matters Agreement, the Employee Matters Agreement and transition manufacturing and supply agreements.

 

The amount due from and to Zimmer Biomet under the various agreements described below are included in related party receivable or payable, as applicable, in our consolidated balance sheets as follows (in thousands):

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Related party receivable

 

$

8,483

 

 

$

—

 

Related party payable

 

 

13,176

 

 

 

—

 

 

The Separation Agreement sets forth our agreements with Zimmer Biomet regarding the principal actions taken in connection with the separation and the distribution. It also sets forth other agreements that govern aspects of our relationship with Zimmer Biomet following the separation and the distribution. The Separation Agreement provides for, among other things, (i) the assets transferred, the liabilities assumed and the contracts assigned to each of us and Zimmer Biomet as part of the separation, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of the ZimVie businesses with us and financial responsibility for the obligations and liabilities of Zimmer Biomet’s remaining businesses with Zimmer Biomet, (iii) procedures with respect to claims subject to indemnification and related matters and governing our and Zimmer Biomet’s obligations and allocations of liabilities with respect to ongoing litigation matters and (iv) the allocation between us and Zimmer Biomet of rights and obligations under existing insurance policies with respect to occurrences prior to completion of the distribution.

 

73

 

The Separation Agreement also provides that, in order to obtain certain requisite governmental approvals, or for other business reasons, following the distribution date, Zimmer Biomet and certain of its affiliates will continue to operate certain activities relating to the ZimVie businesses in certain jurisdictions until the requisite approvals have been received or the occurrence of all other actions permitting the legal transfer of such activities, and we will receive, to the greatest extent possible, all of the economic benefits and burdens of such activities.

 

The agreements that we entered into with Zimmer Biomet that govern aspects of ZimVie's relationship with Zimmer Biomet following the distribution include:

 

Transition Services Agreement

 

Pursuant to the Transition Services Agreement, we and Zimmer Biomet provide certain services to one another, on an interim, transitional basis following the separation and the distribution. The services provided include certain regulatory services, commercial services, operational services, tax services, clinical affairs services, information technology services, finance and accounting services and human resource and employee benefits services. The agreed-upon charges for such services are generally intended to allow the providing company to recover all costs and expenses of providing such services and are included in Selling, general and administrative expenses in our consolidated statements of operations. The Transition Services Agreement terminates on the expiration of the term of the last service provided thereunder, which will generally be no later than March 31, 2025. Subject to certain exceptions in the case of willful misconduct or fraud, the liability of each of Zimmer Biomet and us under the Transition Services Agreement for the services it provides will be limited to the aggregate service fees paid to it in the immediately preceding one-year period.

 

Interim Operating Agreements

 

Zimmer Biomet and ZimVie entered into a series of IOM agreements pursuant to which Zimmer Biomet and certain of its affiliates that held licenses, permits and other rights in connection with marketing, import and/or distribution of ZimVie products in various jurisdictions prior to the distribution continue to market, import and distribute such products until such time as the relevant licenses and permits are transferred to ZimVie or its affiliates, while permitting ZimVie (or Zimmer Biomet, as applicable) to recognize revenue relating to the sale of its respective products, to the extent practicable. Under such IOM agreements and in accordance with the Separation Agreement, the relevant Zimmer Biomet entity will continue operations in the affected market on behalf of ZimVie, with ZimVie receiving all of the economic benefits and burdens of such activities. ZimVie began receiving these economic benefits as of March 1, 2022. Based on the terms of the IOM agreements, ZimVie determined it is the principal under this arrangement when: ZimVie holds all risks and rewards of ownership inclusive of risk of loss, market risk and benefits related to the inventory; ZimVie has latitude in pricing; ZimVie has the ability to direct Zimmer Biomet regarding decisions over inventory; and ZimVie is responsible for all credit and collections risks and losses associated with the related receivables. ZimVie is the principal in the majority of the IOM agreements and recognizes those sales on a gross basis. In limited jurisdictions, ZimVie is not the principal and recognizes revenue on a net basis. Upon exit of certain IOM agreements, we initially expected to pay approximately $10 million for the purchase of accounts receivable and inventory from Zimmer Biomet. Through December 31, 2022, we have paid Zimmer Biomet $7.8 million related to the exit of certain IOM agreements, and there are no additional payments expected.

 

Tax Matters Agreement

 

The Tax Matters Agreement governs the respective rights, responsibilities and obligations of us and Zimmer Biomet after the distribution with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the distribution and certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, tax elections, the control of audits and other tax proceedings and assistance and cooperation in respect of tax matters.

 

The Tax Matters Agreement also imposes certain restrictions on us and our subsidiaries (including, among others, restrictions on share issuances, business combinations, sales of assets and similar transactions) designed to preserve the tax-free status of the distribution and certain related transactions. The Tax Matters Agreement provides special rules that allocate tax liabilities in the event the distribution, together with certain related transactions, does not qualify as tax-free. In general, under the Tax Matters Agreement, each party is expected to be responsible for any taxes imposed on Zimmer Biomet or us, as the case may be, that arise from the failure of the distribution, together with certain related transactions, to qualify as a transaction that is generally tax-free under Sections 355 and 368(a)(1)(D) and certain other relevant provisions of the Internal Revenue Code of 1986, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the Tax Matters Agreement. However, if such failure was the result of any acquisition of our shares or assets, or of any of our representations, statements or undertakings being incorrect, incomplete or breached, we generally will be responsible for all taxes imposed as a result of such acquisition or breach.

 

74

 

Employee Matters Agreement

 

The Employee Matters Agreement allocates liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs and other related matters. The Employee Matters Agreement governs certain compensation and employee benefits obligations with respect to the current and former employees and non-employee directors of each party. The Employee Matters Agreement provides that, except as otherwise specified, Zimmer Biomet is generally responsible for liabilities associated with employees who will remain employed by Zimmer Biomet and former employees whose last employment was with Zimmer Biomet’s businesses, and we are generally responsible for liabilities associated with employees who are or will be employed by us and former employees whose last employment was with the ZimVie businesses. The Employee Matters Agreement provided for the conversion of the outstanding awards granted under Zimmer Biomet’s equity compensation programs into adjusted awards relating to shares of Zimmer Biomet and/or ZimVie common stock in a manner intended to preserve the aggregate intrinsic value of the original awards. The adjusted awards are subject to substantially similar terms, vesting conditions, post-termination exercise rules and other restrictions that applied to the original Zimmer Biomet awards immediately before the separation.

 

Transition Manufacturing and Supply Agreement and Reverse Transition Manufacturing and Supply Agreement

 

Pursuant to the Transition Manufacturing and Supply Agreement and the Reverse Transition Manufacturing and Supply Agreement, we or Zimmer Inc., a wholly-owned subsidiary of Zimmer Biomet, as the case may be, will manufacture or cause to be manufactured certain products for the other party, on an interim, transitional basis. Pursuant to such agreements, we or Zimmer, Inc., as the case may be, will be required to purchase certain minimum amounts of products from the other party. The Transition Manufacturing and Supply Agreement and the Reverse Transition Manufacturing and Supply Agreement will terminate on the expiration of the term of the last product manufactured by us or Zimmer, Inc., as the case may be, pursuant to such agreements, which will generally be no later than March 1, 2027.

 

Other agreements include the Intellectual Property Matters Agreement and the Transitional Trademark License Agreement.

 

Subsequent Event

 

As of February 1, 2023, Zimmer Biomet had sold all of its 19.7% ownership in ZimVie and is no longer considered a related party.

 

19. Restructuring

 

In June 2022, we initiated a restructuring plan with the objective of reducing costs and optimizing our global footprint. The national volume-based procurement ("VBP") program for spine products in China took place in late September of 2022, and we were not successful in our bid. After evaluating our alternatives, in the fourth quarter of 2022, we approved a plan to exit our spine products activities in China. We anticipate total charges related to both of these programs of approximately $10-11 million, including projects in process or under final evaluation. Pre-tax restructuring charges of $9.0 million incurred in 2022 under these plans were primarily related to employee termination benefits, inventory write-downs (non-cash) and accelerated depreciation of fixed assets (non-cash). All charges are included in the Restructuring line item in our consolidated statements of operations, except for inventory write-downs ($2.0 million), which are included in Cost of products sold, excluding intangible asset amortization. We anticipate incurring the remaining charges during 2023.

 

In December 2019 and December 2021, Zimmer Biomet initiated restructuring plans (the "ZB Restructuring Plans") with an objective of reducing costs to allow further investment in higher priority growth opportunities. We incurred pre-tax restructuring charges related to the ZB Restructuring Plans of $4.4 million, $3.3 million and $9.7 million in 2022, 2021 and 2020, respectively. The restructuring charges incurred under these plans primarily related to employee termination benefits, contract terminations, long-lived asset impairments (non-cash), accelerated depreciation of fixed assets (non-cash) and retention period compensation and benefits. All charges are included in the Restructuring line item in our consolidated statements of operations. We have not incurred material expenses from the ZB Restructuring Plans after June 30, 2022, and do not expect to in the future.

 

The following table summarizes the liabilities directly attributable to us that were recognized under the plans discussed above and excludes non-cash charges (in thousands):

75

 

 

 

 

Employee
Termination
Benefits

 

 

Other

 

 

Total

 

Balance, December 31, 2020

 

$

1,960

 

 

$

—

 

 

$

1,960

 

Additions

 

 

149

 

 

 

3,135

 

 

 

3,284

 

Cash payments

 

 

(1,010

)

 

 

(1,985

)

 

 

(2,995

)

Balance, December 31, 2021

 

 

1,099

 

 

 

1,150

 

 

 

2,249

 

Additions

 

 

5,098

 

 

 

3,553

 

 

 

8,651

 

Non-cash adjustments

 

 

—

 

 

 

(320

)

 

 

(320

)

Cash payments

 

 

(4,304

)

 

 

(2,210

)

 

 

(6,514

)

Balance, December 31, 2022

 

$

1,893

 

 

$

2,173

 

 

$

4,066

 

 

We do not include restructuring charges in the operating profit of our reportable segments.

76

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022 to provide reasonable assurance that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC 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 disclosure.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our Chief Executive Officer and our Chief Financial Officer, with assistance from other members of management, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the framework and criteria established in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2022.

 

Because we are a non-accelerated filer, this Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm on our internal control over financial reporting.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2022 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION.

 

None.

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

 

Not applicable.

77

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Information required by this item is incorporated by reference from our definitive Proxy Statement for the annual meeting of stockholders to be held on May 12, 2023 (the “2023 Proxy Statement”).

 

Information regarding our executive officers is included in Part I, Item 1 of this Annual Report on Form 10-K under the caption "Information About Our Executive Officers."

 

We have adopted the ZimVie Code of Ethics for Chief Executive Officer and Senior Financial Officers (the “finance code of ethics”), a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and other finance organization senior employees. The finance code of ethics is publicly available in the Investor Relations section of our website, which may be accessed from our homepage at www.zimvie.com or directly at https://investor.zimvie.com. If we make any substantive amendments to the finance code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer, we will disclose the nature of that amendment in the Investor Relations section of our website.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

Information required by this item is incorporated by reference from our 2023 Proxy Statement.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

Information required by this item is incorporated by reference from our 2023 Proxy Statement.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Information required by this item is incorporated by reference from our 2023 Proxy Statement.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Information required by this item is incorporated by reference from our 2023 Proxy Statement.

78

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

(a) 1. Financial Statements

The following consolidated financial statements of ZimVie Inc. are set forth in Part II, Item 8.

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020

Notes to Consolidated Financial Statements

 

2. Financial Statement Schedule

All schedules are omitted because they are not applicable or not required, or because the required information is included either in the consolidated financial statements or in the notes thereto.

 

3. Exhibits

 

Exhibit

Number

 

Description

2.1

 

Separation and Distribution Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022).

3.1

 

Amended and Restated Certificate of Incorporation of ZimVie Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022).

3.2*

 

Amended and Restated Bylaws of ZimVie Inc., effective as of February 17, 2023.

4.1

 

Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K filed with the SEC on March 31, 2022).

10.1

 

Tax Matters Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc.(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022).

10.2

 

Employee Matters Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022).

10.3

 

Transition Services Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022).

10.4

 

Intellectual Property Matters Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022).

10.5

 

Stockholder and Registration Rights Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022).

10.6

 

Transition Manufacturing and Supply Agreement, dated as of March 1, 2022, by and between Zimmer, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022).

10.7

 

Reverse Transition Manufacturing and Supply Agreement, dated as of March 1, 2022, by and between Zimmer, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022).

10.8

 

Transitional Trademark License Agreement, dated as of March 1, 2022, by and between Zimmer Biomet Holdings, Inc. and ZimVie Inc. (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on March 1, 2022).

10.9

 

Credit Agreement, dated as of December 17, 2021, by and among ZimVie Inc., as borrower, JPMorgan Chase Bank, N.A., as administrative agent and syndication agent, and the lenders and issuing banks named therein (incorporated by reference to Exhibit 10.18 of the Company’s Amendment No. 1 to Form 10 Registration Statement filed with the SEC on February 2, 2022).

79

 

10.10+

 

ZimVie Inc. Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 4.5 of the Company’s Form S-8 Registration Statement (Registration No. 333-263069) filed with the SEC on February 28, 2022).

10.11+

 

ZimVie Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2022.

10.12+

 

ZimVie Inc. Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.13+

 

ZimVie Inc. Change in Control Severance Agreement with Vafa Jamali, dated as of March 1, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.14+

 

Form of ZimVie Inc. Change in Control Severance Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.15+

 

ZimVie Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.16+

 

ZimVie Inc. Executive Annual Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.17+

 

Form of ZimVie Inc. Corporate Executive Confidentiality, Non-Competition and Non-Solicitation Agreement (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.18+

 

ZimVie Inc. Supplemental Individual Disability Insurance Plan (incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.19+

 

Form of ZimVie Inc. Indemnification Agreement with Directors and Executive Officers (incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.20+

 

ZimVie Inc. 2022 Stock Incentive Plan (incorporated by reference to Exhibit 4.3 of the Company’s Form S-8 Registration Statement (Registration No. 333-263069) filed with the SEC on February 28, 2022).

10.21+

 

Form of ZimVie Inc. Three-Year Vesting Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.22+

 

Form of ZimVie Inc. Three-Year Cliff Vesting Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.23*+

 

Form of ZimVie Inc. Three-Year Performance-Based Restricted Stock Unit Agreement

10.24+

 

Form of ZimVie Inc. Three-Year Vesting Nonqualified Stock Option Award Agreement (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.25+

 

ZimVie Inc. Stock Plan for Non-Employee Directors (incorporated by reference to Exhibit 4.4 of the Company’s Form S-8 Registration Statement (Registration No. 333-263069) filed with the SEC on February 28, 2022).

10.26+

 

Form of ZimVie Inc. Restricted Stock Unit Award Agreement under the Stock Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2022).

10.27+

 

Revised Offer Letter, dated as of January 31, 2021, by and between Zimmer Biomet Holdings, Inc. and Vafa Jamali (incorporated by reference to Exhibit 10.9 of the Company’s Form 10 Registration Statement filed with the SEC on January 21, 2022).

10.28+

 

Offer Letter, dated as of August 13, 2021, by and between Zimmer Biomet Holdings, Inc. and Richard J. Heppenstall (incorporated by reference to Exhibit 10.10 of the Company’s Form 10 Registration Statement filed with the SEC on January 21, 2022).

10.29+

 

Offer Letter, dated as of April 12, 2021, by and between Zimmer Biomet Holdings, Inc. and Rebecca Whitney (incorporated by reference to Exhibit 10.11 of the Company’s Form 10 Registration Statement filed with the SEC on January 21, 2022).

10.30+

 

Offer Letter, dated as of May 19, 2021, by and between Zimmer Biomet Holdings, Inc. and Indraneel Kanaglekar (incorporated by reference to Exhibit 10.12 of the Company’s Form 10 Registration Statement filed with the SEC on January 21, 2022).

10.31+

 

Offer Letter, dated as of June 15, 2021, by and between Zimmer Biomet Holdings, Inc. and Heather Kidwell (incorporated by reference to Exhibit 10.13 of the Company’s Form 10 Registration Statement filed with the SEC on January 21, 2022).

10.32+

 

Offer Letter, dated as of July 29, 2021, by and between Zimmer Biomet Holdings, Inc. and David Harmon (incorporated by reference to Exhibit 10.14 of the Company’s Form 10 Registration Statement filed with the SEC on January 21, 2022).

21.1*

 

List of Subsidiaries.

23.1*

 

Consent of PricewaterhouseCoopers LLP.

80

 

31.1*

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

 

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.

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

 

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

 

* Filed herewith.

+ Management contract or compensatory plan or arrangement.

 

ITEM 16. FORM 10-K SUMMARY

 

None.

81

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

ZimVie Inc.

 

 

 

 

Date: March 1, 2023

 

By:

/s/ Vafa Jamali

 

 

 

Vafa Jamali

 

 

 

President and Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name

 

Title

 

Date

 

 

 

 

 

/s/ Vafa Jamali

 

President, Chief Executive Officer and Director

 

March 1, 2023

Vafa Jamali

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ Richard Heppenstall

 

 Executive Vice President, Chief Financial Officer and Treasurer

 

 March 1, 2023

Richard Heppenstall

 

(Principal Financial Officer)

 

 

 

 

 

 

 

/s/ Sandra Schneider

 

Chief Accounting Officer

 

 March 1, 2023

Sandra Schneider

 

(Principal Accounting Officer)

 

 

 

 

 

 

 

/s/ Vinit Asar

 

 Director

 

 March 1, 2023

Vinit Asar

 

 

 

 

 

 

 

 

 

/s/ Sally Crawford

 

Director

 

 March 1, 2023

Sally Crawford

 

 

 

 

 

 

 

 

 

/s/ David King

 

Director

 

 March 1, 2023

David King

 

 

 

 

 

 

 

 

 

/s/ Richard Kuntz, M.D.

 

Director

 

 March 1, 2023

Richard Kuntz, M.D.

 

 

 

 

 

 

 

 

 

/s/ Karen Matusinec

 

Director

 

 March 1, 2023

Karen Matusinec

 

 

 

 

 

82
EX-3

 

Exhibit 3.2

AMENDED AND RESTATED BYLAWS

OF

ZIMVIE INC.

(hereinafter called the “Corporation”)

Effective: February 17, 2023

Article I


Offices and Records
Section 1.01.
Registered Office. The Corporation shall maintain a registered office and registered agent within the State of Delaware as are designated from time to time by the Board of Directors of the Corporation.
Section 1.02.
Other Offices. The Corporation may have such other offices, either within or without the State of Delaware, as the board of directors of the Corporation (the “Board of Directors”, and each member thereof, a “Director”) may designate or as the business of the Corporation may from time to time require.
Section 1.03.
Books and Records. The books and records of the Corporation may be kept outside the State of Delaware at such place or places as may from time to time be designated by the Board of Directors.
Article II


Stockholders
Section 2.01.
Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held on such date and at such time as shall be designated by the Board of Directors and stated in the notice of the meeting.
Section 2.02.
Special Meeting. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the common stock, par value $0.01 per share, of the Corporation (the “Common Stock”) as to dividends or upon liquidation, dissolution or winding up, special meetings of the stockholders of the Corporation shall be called only by the Board of Directors pursuant to a resolution stating the purpose or purposes thereof approved by a majority of the total number of Directors which the Corporation would have if there were no vacancies or unfilled newly-created directorships (the “Whole Board”). Any power of stockholders to call a special meeting is specifically denied. A special meeting shall be held on such date and at such time as shall be designated by the Board of Directors and stated in the notice of the meeting.
Section 2.03.
Place of Meeting. The Board of Directors may designate the place, if any, of meeting for any annual meeting or for any special meeting of the stockholders. If no designation is so made, the place of meeting shall be the principal office of the Corporation. The Board of Directors may, in its sole discretion, determine that any annual meeting or any special meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by the General Corporation Law of the State of Delaware (the “DGCL”). The Board of Directors may postpone, reschedule or cancel any previously scheduled annual meeting or special meeting of stockholders.

 

 

 

 

 

 

Section 2.04.
Notice of Meetings. The Secretary or Assistant Secretary shall cause written notice of the date, time and place, if any, of each meeting of the stockholders to be given, at least ten (10) calendar days but not more than sixty (60) calendar days prior to the date of the meeting, to each stockholder of record entitled to vote at such meeting as of the record date for determining stockholders entitled to notice of the meeting. Such notice shall be given either personally, by mail or other means of written communication, or by electronic transmission in accordance with Section 232 of the DGCL. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder of record at such stockholder’s address as it appears on the records of the Corporation. Such further notice shall be given as may be required by law. Notice shall be deemed to have been given to all stockholders of record who share an address if notice is given in accordance with the “householding” rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 233 of the DGCL. Notice of any meeting of stockholders of the Corporation need not be given to any stockholder who shall sign a waiver of such notice in writing or who shall waive such notice by electronic transmission, whether before or after the time of such meeting. Notice of any adjourned meeting of the stockholders of the Corporation need not be given unless the adjournment is for more than thirty (30) days or is otherwise required by law.
Section 2.05.
Quorum; Required Stockholder Vote. Except as otherwise required by law or by the Amended and Restated Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”), the presence at any stockholders meeting, in person or by proxy, of the holders of a majority of the voting power of all outstanding shares of the Corporation entitled to vote generally in the election of Directors (the “Voting Stock”) shall be necessary and sufficient to constitute a quorum for the transaction of business, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the voting power of the outstanding shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. The chairman of the meeting may adjourn the meeting from time to time, whether or not there is such a quorum. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
(a)
In all matters other than the election of Directors and the matters addressed in paragraph (c) of this Section 2.05, unless otherwise provided by the Certificate of Incorporation, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law or pursuant to any regulation applicable to the Corporation or its securities, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. The required vote in the election of Directors is set forth in Section 2.08.
(b)
Notwithstanding anything to the contrary set forth in these Bylaws, the non-binding advisory votes pursuant to Sections 14A(a)(1) and 14A(a)(2) of the Exchange Act, and the rules and regulations promulgated thereunder, shall require the affirmative vote of a majority of the votes cast thereon; provided that for purposes of any such vote, neither abstentions nor broker non-votes shall count as votes cast.
Section 2.06.
Notice of Stockholder Business and Nominations.
(a)
Annual Meetings of Stockholders.
(i)
Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders only (A) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (B) by or at the direction of the Board of Directors or any committee thereof, or (C) by any stockholder of the Corporation who was a stockholder of record of the Corporation at the time the notice provided for in this

 

 

2

 

 

 

Section 2.06 is delivered to the Secretary of the Corporation and at the time of the annual meeting, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.06.
(ii)
For any nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of paragraph (a)(i) of this Section 2.06, the stockholder must have given timely notice thereof in writing to the Secretary and any such proposed business must constitute a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) calendar day nor earlier than the close of business on the one hundred twentieth (120th) calendar day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) calendar days before or more than sixty (60) calendar days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) calendar day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) calendar day prior to such annual meeting or the tenth (10th) calendar day following the calendar day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. For purposes of this Section 2.06, the 2022 annual meeting of stockholders shall be deemed to have been held on May 16, 2022. Such stockholder’s notice shall set forth: (A) as to each person whom the stockholder proposes to nominate for election or reelection as a Director (1) all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, and (2) such person’s written consent to being named in any proxy materials as a nominee and to serving as a Director if elected; (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws of the Corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and/or the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and/or the beneficial owner, if any, on whose behalf the nomination or proposal is made (1) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (2) the class or series and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and/or such beneficial owner, (3) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder and/or such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, including in the case of a nomination, the nominee, (4) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder’s notice by, or on behalf of, such stockholder and/or such beneficial owners, whether or not such instrument or right shall be subject to settlement in an underlying class or series of stock of the Corporation, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to shares of stock of the Corporation, or relates to the acquisition or disposition of any shares of stock of the Corporation, (5) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting, intends to appear in person or by proxy at the meeting to propose such business or nomination and agrees to continue to own such shares of stock of the Corporation through the date of the meeting, (6) as to any business, other than nominations of persons for election to the Board of Directors, a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (a) to deliver a proxy statement

 

 

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and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal and/or (b) otherwise to solicit proxies or votes from stockholders in support of such proposal, and (7) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of Directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder. The foregoing notice requirements of this Section 2.06 shall be deemed satisfied by a stockholder with respect to business other than a nomination if the stockholder has notified the Corporation of his, her or its intention to present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a Director.
(iii)
A stockholder who intends to solicit proxies in support of nominations of persons, other than the Corporation’s Director nominees, for election to the Board of Directors and who has delivered a notice of nomination pursuant to this Section 2.06 shall promptly certify to the Corporation, and notify the Corporation in writing, that it has complied with or will comply with the requirements of Rule 14a-19 under the Exchange Act, and shall, not later than five business days prior to the date of the applicable meeting of stockholders, deliver to the Corporation reasonable evidence of such compliance.
(iv)
Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Section 2.06 to the contrary, in the event that the number of Directors to be elected to the Board of Directors at an annual meeting is to be increased effective after the time period for which nominations would otherwise be due under paragraph (a)(ii) of this Section 2.06 and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) calendar days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 2.06 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) calendar day following the day on which such public announcement is first made by the Corporation.
(b)
Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders of the Corporation as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting under Section 2.04. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders of the Corporation at which Directors are to be elected pursuant to the Corporation’s notice of meeting (A) by or at the direction of the Board of Directors or any committee thereof, or (B) if the Board of Directors has determined that Directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section 2.06 is delivered to the Secretary of the Corporation and at the time of the special meeting, who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set forth in this Section 2.06. In the event the Corporation calls a special meeting of stockholders of the Corporation for the purpose of electing one or more Directors to the Board of Directors, any such stockholder may, pursuant to clause (B) of the immediately preceding sentence, nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by clauses (A) and (C) of Section 2.06(a)(ii) shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) calendar day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) calendar day prior to such special meeting or the tenth (10th) calendar day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting

 

 

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commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(c)
General.
(i)
Only such persons who are nominated in accordance with the relevant procedures set forth in Section 2.06 shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as Directors and only such business shall be conducted at a meeting of stockholders of the Corporation as shall have been brought before the meeting in accordance with the relevant procedures set forth in Section 2.06. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty (A) to determine whether the relevant procedures set forth in Section 2.06 have been complied with and (B) if the relevant procedures set forth in Section 2.06 have not been complied with, to declare that the applicable nomination shall be disregarded or that the applicable proposed business shall not be transacted. Notwithstanding the provisions of Section 2.06, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business or the stockholder otherwise has not complied with the relevant provisions set forth in Section 2.06, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of Section 2.06, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders of the Corporation and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at such meeting of stockholders. Unless otherwise required by law, if any stockholder (i) provides notice pursuant to Rule 14a-19 under the Exchange Act and (ii) subsequently (x) notifies the Corporation that such stockholder no longer intends to solicit proxies in support of Director nominees other than the Corporation’s Director nominees in accordance with Rule 14a-19, (y) fails to comply with the requirements of Rule 14a-19, or (z) fails to provide reasonable evidence sufficient to satisfy the Corporation that the requirements of Rule 14a-19 have been met, then such stockholder’s nominations shall be deemed null and void and the Corporation shall disregard any proxies or votes solicited for any nominee proposed by such stockholder.
(ii)
For purposes of Section 2.06, “public announcement” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission (the “SEC”) pursuant to Sections 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.
(iii)
Notwithstanding the provisions of Section 2.06, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder (including Rule 14a-19) with respect to the matters set forth in such Section; provided however, that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to Section 2.06 (including paragraphs (a)(i)(C) and (b) of Section 2.06), and compliance with paragraphs (a)(i)(C) and (b) of Section 2.06 shall be the exclusive means for a stockholder to make nominations or submit other business (other than, as provided in the penultimate sentence of clause (a)(ii) of Section 2.06, matters brought properly under and in compliance with Rule 14a-8 of the Exchange Act, as it may be amended from time to time). Nothing in Section 2.06 shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 of the Exchange Act or (ii) of the holders of any series of preferred stock of the Corporation (“Preferred Stock”) to elect Directors pursuant to any applicable provisions of the

 

 

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Certificate of Incorporation, including any Preferred Stock Designation (as defined in the Certificate of Incorporation).
Section 2.07.
Proxies. At all meetings of stockholders, a stockholder may vote by proxy in accordance with the DGCL or by such person’s duly authorized attorney in fact. Any stockholder directly or indirectly soliciting proxies from other stockholders must use a form of proxy color other than white, which shall be reserved for the exclusive use by the Board of Directors.
Section 2.08.
Procedure for Election of Directors; Required Vote.
(a)
Election of Directors. Election of Directors at all meetings of the stockholders at which Directors are to be elected shall be by ballot. Subject to the rights of the holders of any series of Preferred Stock to elect Directors under an applicable Preferred Stock Designation, and except as provided in this Section 2.08(a), each Director shall be elected by the vote of the majority of the votes cast with respect to that Director’s election at any meeting for the election of Directors at which a quorum is present; provided, however, that if the number of nominees exceeds the number of Directors to be elected, the Directors shall be elected by the vote of a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of Directors. For purposes of this Section 2.08(a), a majority of votes cast shall mean that the number of shares voted “for” a Director’s election exceeds the number of votes cast “against” that Director’s election. If a nominee for Director is not elected and the nominee is an incumbent Director, the Director shall promptly tender his or her resignation to the Board of Directors, subject to acceptance by the Board of Directors. The Corporate Governance Committee will make a recommendation to the Board of Directors as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of Directors will act on the tendered resignation, taking into account the Corporate Governance Committee’s recommendation, and publicly disclose (by a press release, a filing with the SEC or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. The Corporate Governance Committee in making its recommendation and the Board of Directors in making its decision may each consider any factors or other information that they consider appropriate and relevant. The Director who tenders his or her resignation will not participate in the recommendation of the Corporate Governance Committee or the decision of the Board of Directors with respect to his or her resignation. If such incumbent Director’s resignation is not accepted by the Board of Directors, such Director shall continue to serve until the next annual meeting and until his or her successor is duly elected, or his or her earlier resignation or removal. If a Director’s resignation is accepted by the Board of Directors pursuant to this Section 2.08(a), or if a nominee for Director is not elected and the nominee is not an incumbent Director, then the Board of Directors may fill the resulting vacancy pursuant to the provisions of Section 7.04 of the Certificate of Incorporation or may decrease the size of the Board of Directors pursuant to the provisions of Section 7.01 of the Certificate of Incorporation.
(b)
Other Matters. Except as otherwise provided by law, the Certificate of Incorporation, a Preferred Stock Designation, applicable stock exchange rules or other rules and regulations applicable to the Corporation or these Bylaws, in all matters other than the election of Directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders.
Section 2.09.
Inspectors of Elections; Opening and Closing the Polls.
(a)
The Board of Directors by resolution shall appoint, or shall authorize an officer of the Corporation to appoint, one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspector(s) to replace any inspector who fails to act. If no inspector

 

 

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or alternate has been appointed to act or is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging such person’s duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such person’s ability. The inspector(s) shall have the duties prescribed by law.
(b)
The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the person presiding over any meeting of stockholders shall have the right and authority to convene and to adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding officer, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding officer of the meeting, may include, without limitation, the following: (i) an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding officer at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding officer should so determine, such person shall so declare to the meeting that any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
Article III


Board of Directors
Section 3.01.
General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders.
Section 3.02.
Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this Bylaw in conjunction with the annual meeting of stockholders. The Board of Directors may, by resolution, provide the time and place for the holding of additional regular meetings without other notice than such resolution.
Section 3.03.
Special Meetings. Special meetings of the Board of Directors shall be called at the request of the President and Chief Executive Officer or by three or more Directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix the place and time of the meetings.
Section 3.04.
Notice. Notice of any special meeting of Directors shall be given to each Director orally by telephone, in writing by hand delivery, first-class mail, overnight mail, courier service, telegram or electronic transmission, or by any other lawful means. Any such notice shall be sent or transmitted to such post office address, electronic mail address, facsimile number or other number or location as each

 

 

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Director has provided to the Corporation. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mail so addressed, with postage thereon prepaid, at least 5 calendar days before such meeting. If sent by telegram, overnight mail or courier service, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph company or the notice is delivered to the overnight mail or courier service company at least 24 hours before such meeting. If sent by electronic transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least 12 hours before such meeting. If given by telephone, by hand delivery or by other lawful means, the notice shall be given at least 12 hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting. A meeting may be held at any time without notice if all the Directors are present (except when Directors attend for the express purpose of objecting, at the beginning of the meeting, because it is not lawfully called or conveyed) or if those not present waive notice of the meeting either before or after such meeting.
Section 3.05.
Action by Consent of Board of Directors. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in accordance with applicable law.
Section 3.06.
Conference Telephone Meetings. Members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
Section 3.07.
Quorum. Subject to Article VII of the Certificate of Incorporation, a whole number of Directors equal to at least a majority of the Whole Board shall constitute a quorum for the transaction of business, but if at any meeting of the Board of Directors there shall be less than a quorum present, a majority of the Directors present may adjourn the meeting from time to time without further notice. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
Section 3.08.
Committees of the Board of Directors.
(a)
The Board of Directors may from time to time designate committees, which shall consist of one or more Directors. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee may, to the extent permitted by law, exercise such powers and shall have such responsibilities as shall be specified in the designating resolution. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Each committee shall keep written minutes of its proceedings and shall report such proceedings to the Board of Directors when required.
(b)
A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Section 3.04. The Board of Directors shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board of Directors from appointing one or more committees consisting in whole or in part of persons who are not Directors; provided, however, that no such committee shall have or may exercise any authority of the Board of Directors.

 

 

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Section 3.09.
Records. The Board of Directors shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Board of Directors and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation.
Section 3.10.
Chairman of the Board. The Chairman of the Board, who may be an officer of the Corporation or may be a non-executive Chairman of the Board as determined by the Board of Directors, shall preside at all meetings of stockholders and of the Board of Directors at which he or she is present. The Chairman of the Board shall have such other powers and perform such other duties as may be assigned to him or her from time to time by these Bylaws or the Board of Directors. The Board of Directors also may elect a Vice-Chairman to act in the place of the Chairman of the Board upon his or her absence or inability to act.
Section 3.11.
Emergency Provisions. In the event of a disaster of sufficient severity to prevent the business and affairs of the Corporation from being managed and its corporate powers from being exercised by the Board of Directors in accordance with these Bylaws, whether by reason of multiple deaths or incapacity of Directors and officers, destruction of property, failure of communications or other catastrophe, then, notwithstanding any other provision of these Bylaws, the following provisions shall apply:
(a)
An emergency meeting or meetings of the Board of Directors or the surviving members thereof shall be called by the Chairman of the Board of Directors or the Chief Executive Officer, if available, and otherwise by one or more Directors; such meetings to be held at such times and places and upon such notice, if any, as the person or persons calling the meeting shall deem proper. The Board of Directors may take any action at such meetings which it deems necessary and appropriate to meet the emergency.
(b)
The presence of the smallest number of Directors permitted by law to constitute a quorum, but not less than two, shall be sufficient for the transaction of business at emergency meetings of the Board of Directors, except that if there be less than two surviving Directors, the surviving Director, although less than a quorum, may fill vacancies in the Board of Directors. Vacancies in the Board of Directors shall be filled as soon as reasonably practicable following the emergency in the manner specified in Article VII of the Certificate of Incorporation.
(c)
Without limiting the generality of the foregoing, the Board of Directors is authorized in connection with an emergency to make all necessary determinations of fact regarding the nature, extent and severity of the emergency and the availability of Directors to participate in meetings, to designate and replace officers, agents and employees of the Corporation and otherwise provide for continuity of management.
(d)
The emergency powers provided in this Section 3.11 shall be in addition to any powers provided by law.
Article IV


Officers
Section 4.01.
Elected Officers. The elected officers of the Corporation shall be a President and Chief Executive Officer, a Secretary, a Treasurer, and such other officers (including, without limitation, Executive Vice Presidents, Senior Vice Presidents and Vice Presidents) as the Board of Directors from time to time may deem proper. All officers elected by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. The Board of Directors or any committee thereof may from time to time elect, or the President and Chief Executive Officer may appoint, such other officers (including one

 

 

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or more Vice Presidents, Controllers, Assistant Secretaries and Assistant Treasurers), as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these Bylaws or as may be prescribed by the Board of Directors or such committee or by the President and Chief Executive Officer, as the case may be.
Section 4.02.
Election and Term of Office. The elected officers of the Corporation shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors held in conjunction with the annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. Each officer shall hold office until such person’s successor shall have been duly elected and shall have qualified or until such person’s death or until he shall resign or be removed pursuant to Section 4.07.
Section 4.03.
President, Chief Executive Officer. The President shall be the Chief Executive Officer of the Corporation, shall act in a general executive capacity, shall, subject to the oversight of the Board of Directors, be responsible for the general management of the policies and affairs of the Corporation and the administration and operation of the Corporation’s business, and shall perform all duties incidental to such person’s office which may be required by law and all such other duties as are properly required of him or her by the Board of Directors. The President and Chief Executive Officer shall make reports to the Board of Directors and the stockholders, and shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect. The President and Chief Executive Officer, if he or she is also a Director, shall, in the absence of or because of the inability to act of the Chairman of the Board and the Vice-Chairman, if any, act as chairman of all meetings of stockholders and of the Board of Directors.
Section 4.04.
Vice Presidents. Each Executive Vice President, Senior Vice President and Vice President shall have such powers and shall perform such duties as shall be assigned to such person by the Board of Directors or by the President and Chief Executive Officer.
Section 4.05.
Treasurer.
(a)
The Treasurer shall exercise general supervision over the receipt, custody and disbursement of corporate funds. The Treasurer shall cause the funds of the Corporation to be deposited in such banks as may be authorized by the Board of Directors, or in such banks as may be designated as depositories in the manner provided by resolution of the Board of Directors. The Treasurer shall have such further powers and duties and shall be subject to such directions as may be granted or imposed from time to time by the Board of Directors or the President and Chief Executive Officer.
(b)
The Board of Directors or the President and Chief Executive Officer may designate one or more Assistant Treasurers who shall have such of the authority and perform such of the duties of the Treasurer as may be assigned to them by the Board of Directors or the President and Chief Executive Officer. During the Treasurer’s absence or inability, the Treasurer’s authority and duties shall be possessed by such Assistant Treasurer(s) as the Board of Directors or the President and Chief Executive Officer may designate.
Section 4.06.
Secretary.
(a)
The Secretary shall keep or cause to be kept in one or more books provided for that purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders; shall see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; shall be custodian of the records and the seal of the Corporation and affix and attest the seal to all instruments and documents to be executed on behalf of the Corporation under its seal and shall see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and in general, shall perform all the duties incident to the office

 

 

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of Secretary and such other duties as from time to time may be assigned to the Secretary by the Board of Directors or the President and Chief Executive Officer.
(b)
The Board of Directors or the President and Chief Executive Officer may designate one or more Assistant Secretaries who shall have such of the authority and perform such of the duties of the Secretary as may be provided in these Bylaws or assigned to them by the Board of Directors or the President and Chief Executive Officer. During the Secretary’s absence or inability, the Secretary’s authority and duties shall be possessed by such Assistant Secretary or Assistant Secretaries as the Board of Directors or the President and Chief Executive Officer may designate.
Section 4.07.
Removal. Any officer or agent of the Corporation may be removed by the affirmative vote of a majority of the Board of Directors whenever, in their judgment, the best interests of the Corporation would be served thereby. Any officer or agent appointed by the President and Chief Executive Officer may be removed by him or her whenever, in such person’s judgment, the best interests of the Corporation would be served thereby. No elected officer shall have any contractual rights against the Corporation for compensation by virtue of such election beyond the date of the election of such person’s successor, such person’s death, such person’s resignation or such person’s removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee benefit plan.
Section 4.08.
Vacancies. A newly created elected office and a vacancy in any elected office because of death, resignation, or removal may be filled by the Board of Directors for the unexpired portion of the term at any meeting of the Board of Directors. Any vacancy in an office appointed by the President and Chief Executive Officer because of death, resignation, or removal may be filled by the President and Chief Executive Officer.
Article V


Stock Certificates and Transfers
Section 5.01.
Stock Certificates and Transfers. The interest of each stockholder of the Corporation shall be evidenced by certificates for shares of stock in such form as the Corporation may from time to time prescribe, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that, subject to the rights of stockholders under applicable law, some or all of any or all classes or series of the Corporation’s common or any preferred shares may be uncertificated shares. Notwithstanding the adoption of any such resolution providing for uncertificated shares, every holder of capital stock of the Corporation theretofore represented by certificates shall be entitled to have a certificate signed, countersigned and registered in such manner as the Board of Directors may by resolution prescribe or as may otherwise be permitted by applicable law. Any signature required to be on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The shares of the stock of the Corporation shall be transferred on the books of the Corporation by the holder thereof in person or by such person’s attorney, upon surrender for cancellation of certificates for at least the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed (or, with respect to uncertificated shares, by delivery of duly executed instructions or in any other manner permitted by applicable law), with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. Except as otherwise provided by law or these Bylaws, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.

 

 

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Section 5.02.
Lost, Stolen or Destroyed Certificates. No certificate for shares of stock or uncertificated shares in the Corporation shall be issued in place of any stock certificate or uncertificated shares alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors or any financial officer may in its or such person’s discretion require.
Article VI


Miscellaneous Provisions
Section 6.01.
Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January and end on the last day of December of each year.
Section 6.02.
Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Certificate of Incorporation.
Section 6.03.
Seal. The corporate seal shall have inscribed thereon the words “Corporate Seal,” the year of incorporation and the word “Delaware.”
Section 6.04.
Waiver of Notice. Whenever any notice is required to be given to any stockholder or Director under the provisions of the DGCL or these Bylaws, a waiver thereof given in accordance with applicable law shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any waiver of notice of such meeting.
Section 6.05.
Audits. The accounts, books and records of the Corporation shall be audited upon the conclusion of each fiscal year by an independent certified public accountant selected by the Board of Directors, and it shall be the duty of the Board of Directors to cause such audit to be done annually.
Section 6.06.
Resignations. Any Director or any officer, whether elected or appointed, may resign at any time by giving written notice of such resignation to the President and Chief Executive Officer or the Secretary, and such resignation shall be deemed to be effective as of the close of business on the date said notice is received by the President and Chief Executive Officer or the Secretary, or at such later time as is specified therein. No formal action shall be required of the Board of Directors or the stockholders to make any such resignation effective.
Article VII


Contracts, Proxies, Etc.
Section 7.01.
Contracts. Except as otherwise required by law, the Certificate of Incorporation, a Preferred Stock Designation, or these Bylaws, any contracts or other instruments may be executed and delivered in the name and on the behalf of the Corporation by such officer or officers of the Corporation as the Board of Directors may from time to time direct. Such authority may be general or confined to specific instances as the Board of Directors may determine. The President and Chief Executive Officer, any Senior Vice President, Executive Vice President or Vice President may execute bonds, contracts, deeds, leases and other instruments to be made or executed or for or on behalf of the Corporation. Subject to any restrictions imposed by the Board of Directors or the President and Chief Executive Officer, any Senior Vice President, Executive Vice President or Vice President of the Corporation may delegate contractual powers to others under such person’s jurisdiction, it being understood, however, that any such delegation of power shall not relieve such officer of responsibility with respect to the exercise of such delegated power.

 

 

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Section 7.02.
Proxies. Unless otherwise provided by resolution adopted by the Board of Directors, the President and Chief Executive Officer, any Senior Vice President, Executive Vice President or Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as the holders of stock or other securities in any other entity, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other entity, or to consent in accordance with applicable law, in the name of the Corporation as such holder, to any action by such other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such proxies, consents or other instruments as such person may deem necessary or proper in the premises.
Article VIII


Amendments
Section 8.01.
Amendments. The Bylaws may be altered or repealed and new Bylaws may be adopted (a) at any annual or special meeting of stockholders by the affirmative vote of the holders of a majority of the voting power of the Voting Stock then outstanding, voting as a single class, provided, however, that, in the case of any such stockholder action at a special meeting of stockholders, notice of the proposed alteration, repeal or adoption of the new Bylaw or Bylaws must be contained in the notice of such special meeting; or (b) by the affirmative vote of a majority of the Whole Board.

 

 

 

 

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EX-10

 

Exhibit 10.23

 

ZimVie Inc.

2022 STOCK INCENTIVE PLAN

THREE-YEAR PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD GRANT NOTICE

 

ZimVie Inc. (the “Company”) granted you this restricted stock unit (“RSU”) award (“Award”) pursuant to the Company’s 2022 Stock Incentive Plan (“Plan”). Each RSU represents an unfunded, unsecured promise by the Company to deliver one share of Common Stock (“Share”) to you in accordance with the Three-Year Performance-Based Restricted Stock Unit Award Agreement, including any additional provisions for your country of residence, if any, set forth in the Addendum (the “Addendum,” and collectively the “Agreement”). This Award is subject to the fulfillment of the vesting requirements and all other restrictions, terms and conditions contained in the Agreement and the Plan, each of which are incorporated herein by reference. Except as may be required by law, you are not required to make any payment (other than payments for Tax-Related Items pursuant to Section 7 of the Agreement) or provide any consideration other than the satisfaction of the vesting requirements. Capitalized terms that are not defined in this Three-Year Performance-Based Restricted Stock Unit Award Grant Notice (the “Grant Notice”) have the same defined meanings given to them in the Agreement and in the Plan.

 

Participant:

[__________________________]

Grant Date:

[__________________________]

Performance Period:

Period as set forth in the Agreement.

Target Number of RSUs:

[__________________________]

 

If the fields in this Grant Notice are blank or the information is otherwise provided in a different format electronically, such as in your ZimVie - Fidelity account, the blank fields and other information will be deemed to come from the ZimVie - Fidelity Account and is considered part of this Grant Notice.

 

IMPORTANT NOTICE. If you do not wish to receive the RSUs and/or do not consent and agree to the terms and conditions on which the RSUs are offered, as set forth in this Agreement and the Plan, then you must reject the RSUs no later than 60 days following the Grant Date specified in Section 1 of the Agreement. If you reject the Award, any right to the underlying RSUs will be cancelled. Your failure to reject the Award within this 60-day period will constitute your acceptance of the RSUs and your agreement with all terms and conditions of the Award, as set forth in the Agreement and the Plan.

 

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ZimVie Inc.

2022 STOCK INCENTIVE PLAN

THREE-YEAR PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT

 

 

Pursuant to the Three-Year Performance-Based Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Three-Year Performance-Based Restricted Stock Unit Award Agreement is attached, including any additional terms and conditions set forth in the Addendum, if any, attached hereto (the “Agreement”), ZimVie Inc. (the “Company”) grants you this restricted stock unit (“RSU”) award (“Award”) pursuant to the Company’s 2022 Stock Incentive Plan, as amended and restated (“Plan”). Capitalized terms that are not defined in this Agreement have the meanings given to them in the Plan.

1. Grant Date set forth in the Grant Notice (the “Grant Date”).

2. Number of RSUs Subject to this Award The target number of RSUs set forth in the Grant Notice.

3. Vesting Schedule This Award is based on a three-year performance period from January 1, 20__ to December 31, 20__ (the “Performance Period”). No RSUs will be earned unless and until the Committee determines the extent to which the performance criteria set forth in Annex A have been met with respect to the Performance Period. As soon as practicable following the availability of audited results of the Company for the year ended December 31, 20__, the Committee will determine whether and the extent to which the performance criteria in Annex A have been satisfied and the number of RSUs earned (“Earned RSUs”). Except as otherwise set forth in Sections 6, 15 and 16 below, provided that you have been continuously employed by the Company or its Affiliates since the Grant Date, the Earned RSUs, if any, shall vest and become nonforfeitable on the third anniversary of the Grant Date (or, if later, the date the Committee makes its determination) (the “Scheduled Vest Date”). The period from the Grant Date until the Scheduled Vest Date is referred to in this Agreement as the “Restriction Period”.

4. Stockholder Rights You will have none of the rights of a holder of Common Stock (including any voting rights, rights with respect to cash dividends paid by the Company on its Common Stock or any other rights whatsoever) until the Award is settled by the issuance of Shares to you.

5. Conversion of Earned RSUs and Issuance of Shares Subject to the terms and conditions of this Agreement and the Plan, the Company will issue and deliver Shares to you within 60 days after the Scheduled Vest Date for Earned RSUs. No fractional Shares will be issued under this Agreement. The Company will not be required to issue or deliver any Shares prior to (a) the admission of such Shares to listing on any stock exchange on which the stock may then be listed, (b) the completion of any registration or other qualification of such Shares under any state or federal law or rulings or regulations of any governmental regulatory body, or (c) the obtaining of any consent or approval or other clearance from any governmental agency, which the Company shall, in its sole discretion, determine to be necessary or advisable. The Company reserves the right to determine the manner in which the Shares are delivered to you, including but not limited to delivery by direct registration with the Company’s transfer agent.

6. Termination of Service

(a) For all purposes of this Agreement, the term “Service Termination Date” shall mean the earlier of (i) the date, as determined by the Company, that you are no longer actively providing Service to the Company or, if different, an Affiliate that employs or otherwise contracts with you (the “Service Recipient”), and in the case of an involuntary termination of Service, such date shall not be extended by any notice period mandated under local law (e.g., active Service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment or other laws in the jurisdiction where you are providing Service or the terms of your employment or service agreement, if any); or (ii) the date, as determined by the Company, that the Service Recipient is no longer an Affiliate of the Company.

(b) (i) A transfer of your Service from the Company to an Affiliate, or vice versa, or from one Affiliate to another, (ii) a leave of absence, duly authorized in writing by the Company, for military service or sickness or for any other purpose approved by the Company if the period of such leave does not exceed ninety (90) days, and (iii) a leave of absence in excess of ninety (90) days, duly authorized in writing by the Company, provided your right to reemployment is guaranteed either by a statute or by contract, shall not be deemed a termination of Service. However, your failure to return to the Service of the Company or the Service Recipient at the end of an approved leave of absence

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shall be deemed a termination of Service. During a leave of absence as defined in (ii) or (iii), you will be considered to have been continuously providing Service.

(c) Except as set forth below, if your Service Termination Date occurs before all of the RSUs have become vested, the RSUs, that are not already vested as of your Service Termination Date shall be forfeited and immediately cancelled.

(d) If, after you have been continuously providing Service to the Company or one of its Affiliates for one year or more from the Grant Date, you terminate Service on account of Retirement or death, the time-based restrictions imposed under this Award will lapse as of your Service Termination Date, but this Award will continue to be subject to the satisfaction of the performance criteria set forth in Annex A; the number of Earned RSUs, if any, as determined by the Committee, will vest and become nonforfeitable on the Scheduled Vest Date (subject to any applicable requirements described in the definition of “Retirement” in the Plan).

(e) In the event of your death prior to the delivery of Shares issuable pursuant to Earned RSUs under this Agreement, such Shares shall be delivered to the duly appointed legal representative of your estate or to the proper legatees or distributees thereof, upon presentation of documentation satisfactory to the Committee.

7. Responsibility for Taxes

(a) You acknowledge that, regardless of any action taken by the Company or, if different, the Service Recipient, the ultimate liability for all income tax (including federal, state and local taxes), social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to your participation in the Plan and legally applicable to you or deemed by the Company or the Service Recipient to be an appropriate charge to you even if legally applicable to the Company or the Service Recipient (“Tax-Related Items”) is and remains your responsibility and may exceed the amount, if any, actually withheld by the Company or the Service Recipient. You further acknowledge that the Company and/or the Service Recipient (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including the grant of the Award, the vesting or settlement of the RSUs, the conversion of the RSUs into Shares, the subsequent sale of any Shares acquired at vesting or the receipt of any dividends; and (ii) do not commit to, and are under no obligation to, structure the terms or any aspect of the Award to reduce or eliminate your liability for Tax-Related Items or achieve any particular result. Further, if you are subject to Tax-Related Items in more than one jurisdiction, you acknowledge that the Company or the Service Recipient (or former service recipient, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

(b) Prior to any relevant taxable or tax withholding event, as applicable, you agree to pay, or make adequate arrangements satisfactory to the Company or to the Service Recipient (in their sole discretion) to satisfy all Tax-Related Items. In this regard and, if permissible under local law, you authorize the Company and/or the Service Recipient, at their discretion, to satisfy any applicable obligations with respect to all Tax-Related Items in one or a combination of the following: (i) requiring you to pay an amount necessary to pay the Tax-Related Items directly to the Company (or the Service Recipient) in the form of cash, check or other cash equivalent; (ii) withholding such amount from wages or other cash compensation payable to you by the Company and/or the Service Recipient; (iii) withholding from proceeds of the sale of Shares acquired upon settlement of the RSUs either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization or such other authorization, without further consent, as you may be required to provide to the Company or Fidelity Stock Plan Services, LLC (“Fidelity”) (or any other designated broker)); or (iv) withholding in Shares to be issued upon settlement of the RSUs. If you are a Section 16 officer of the Company under the Exchange Act (“Section 16 officer”) who is primarily providing services in the U.S., withholding obligations for Tax-Related Items shall be satisfied by the mandatory withholding in Shares. If you are a Section 16 officer who is primarily providing services outside the U.S., any withholding in Shares to satisfy applicable withholding obligations shall be determined by the Committee prior to the applicable withholding event.

(c) Depending on the withholding method, the Company and/or the Service Recipient may withhold or account for Tax-Related Items by considering statutory or other applicable withholding rates, including maximum rates applicable in your jurisdiction. In the event of over-withholding, you may receive a refund of any over-withheld amount in cash (without any entitlement to the Shares) or, if not refunded, you may seek a refund from the local tax authorities. In the event of under-withholding, you may be required to pay additional Tax-Related Items directly to the applicable tax authorities. You agree that the amount withheld may exceed your actual liability. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, you are deemed to have been issued the full number of Shares subject to the vested RSUs, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.

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(d) Finally, you agree to pay to the Company or the Service Recipient any amount of Tax-Related Items that the Company or the Service Recipient may be required to withhold or account for as a result of your participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares, if you fail to comply with your obligations in connection with the Tax-Related Items.

8. Nature of Grant In accepting the RSUs, you acknowledge, understand and agree that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, consistent with the Plan’s terms;

(b) the Award is exceptional, discretionary, voluntary and occasional and does not create any contractual or other right to receive future awards of RSUs, or benefits in lieu of RSUs even if RSUs have been awarded in the past;

(c) all decisions with respect to future RSU or other awards, if any, will be at the sole discretion of the Company;

(d) the Award and your participation in the Plan shall not create a right to employment or be interpreted as forming or amending an employment or service contract with the Company, the Service Recipient or any Affiliate of the Company and shall not interfere with the ability of the Company, the Service Recipient or any Affiliate of the Company, as applicable to terminate your employment or service relationship (if any);

(e) your participation in the Plan is voluntary;

(f) the Award, the Shares subject to the RSUs, and the income from and value of same are not intended to replace any pension rights or compensation provided by the Service Recipient or required under applicable law;

(g) the Award and the Shares subject to the RSUs, and the income from and value of same are not part of normal or expected compensation for purposes of calculation of any severance, resignation, termination, redundancy, dismissal, end-of-service payments, holiday pay, bonuses, long-service awards, pension or retirement benefits or similar mandatory payments;

(h) the future value of the Shares underlying the RSUs is unknown, indeterminable and cannot be predicted with certainty;

(i) no claim or entitlement to compensation arises from forfeiture of RSUs or the recoupment of any Shares acquired under the Plan resulting from (a) termination of your Service with the Company or the Service Recipient (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment or other laws in the jurisdiction where you are providing Service or the terms of your employment or service agreement, if any), (b) a breach or violation as described in Section 15 or Section 16 below, and/or (c) the application of any recoupment policy or any recovery or clawback policy otherwise required by law;

(j) unless otherwise provided in the Plan or by the Company in its discretion, the RSUs and the benefits evidenced by this Agreement do not create any entitlement to have the RSUs or any such benefits transferred to, or assumed by, another company, nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and

(k) the following provisions apply only if you are providing services outside the United States: (i) the Award and the Shares subject to the RSUs are not part of normal or expected compensation or salary for any purpose; and (ii) you acknowledge and agree that neither the Company, the Service Recipient nor any other Affiliate shall be liable for any foreign exchange rate fluctuation between your local currency and the United States Dollar that may affect the value of the RSUs or of any amounts due to you pursuant to the settlement of the RSUs or the subsequent sale of any Shares acquired upon settlement.

9. No Advice Regarding Grant The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying Shares. You should consult with your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Plan.

10. Data Privacy You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Agreement and any other RSU Award materials (“Data”) by and among, as applicable, the Company, the Service Recipient and any other Affiliates for the exclusive purpose of implementing, administering and managing your participation in the Plan.

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You understand that the Company and the Service Recipient may hold certain personal data about you, including, but not limited to, your name, home address, telephone number, email address, date of birth, social insurance, passport or other identification number (e.g., resident registration number), salary, nationality, job title, any Shares or directorships held in the Company, details of all RSUs or any other stock-based awards, canceled, exercised, vested, unvested or outstanding in your favor, for the exclusive purpose of implementing, administering and managing the Plan.

You understand that Data may be transferred to Fidelity or such other stock plan service provider as may be selected by the Company to assist the Company with the implementation, administration and management of the Plan. You understand that the recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections than your country. You understand that if you reside outside the United States, you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the Company, Fidelity and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing your participation in the Plan. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that if you reside outside the United States, you may, at any time, view Data, request information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative.

Further, you understand that you are providing the consents herein on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, your employment status or service with the Service Recipient will not be affected. The only consequence of refusing or withdrawing your consent is that the Company would not be able to grant RSUs or any other equity awards to you or administer or maintain such awards. Therefore, you understand that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

Finally, upon the request of the Company or the Service Recipient, you agree to provide an executed data privacy consent form (or any other agreements or consents) that the Company and/or the Service Recipient may deem necessary to obtain from you for the purpose of administering your participation in the Plan in compliance with the data privacy laws in your country, either now or in the future. You understand and agree that you will not be able to participate in the Plan if you fail to provide any such consent or agreement requested by the Company and/or the Employer.

11. Change in Control Under certain circumstances, if your Service with the Company or its Affiliates terminates during the three year period following a Change in Control of the Company, this Award may be deemed vested. Please refer to the Plan for more information.

12. Changes in Capitalization If prior to the expiration of the Restriction Period changes occur in the outstanding Common Stock by reason of stock dividends, recapitalization, mergers, consolidations, stock splits, combinations or exchanges of Shares and the like, the number and class of Shares subject to this Award will be appropriately adjusted by the Committee, whose determination will be conclusive. If as a result of any adjustment under this paragraph you should become entitled to a fractional Share of stock, you will have the right only to the adjusted number of full Shares and no payment or other adjustment will be made with respect to the fractional Share so disregarded.

13. Notice Until you are advised otherwise by the Committee, all notices and other correspondence with respect to this Award will be effective upon receipt at the following address: ZimVie Inc., ATTN: Employee Stock Services, 10225 Westmoor Drive, Westminster, Colorado 80021.

14. No Additional Rights Except as explicitly provided in this Agreement, this Agreement will not confer any rights upon you, including any right with respect to continuation of employment by the Company or any of its Affiliates or any right to future awards under the Plan. In no event shall the value, at any time, of this Agreement, the Shares covered by this Agreement or any other benefit provided under this Agreement be included as compensation or earnings for purposes of any other compensation, retirement, or benefit plan offered to employees of the Company or its Affiliates unless otherwise specifically provided for in such plan.

15. Breach of Restrictive Covenants As a condition of receiving this Award, you have entered into a non-disclosure, non-solicitation and/or non-competition agreement with the Company or its Affiliates. The Company may, at its discretion, require execution of a restated non-disclosure, non-solicitation and/or non-competition agreement as a condition of receiving the Award. Should you decline to sign such a restated agreement as required by the Company

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and, therefore, forego receiving the Award, your most recently signed non-disclosure, non-solicitation and/or non-competition agreement shall remain in full force and effect. You understand and agree that if you violate any provision of any such agreement that remains in effect at the time of the violation, the Committee may require you to forfeit your right to any unvested portion of the Award and, to the extent that any portion of the Award has previously vested, the Committee may require you to return to the Company the Shares covered by the Award or any cash proceeds you received upon the sale of such Shares.

16. Violation of Policies Notwithstanding any other provisions of this Agreement, you understand and agree that if you engage in conduct (which may include a failure to act) in connection with, or that results in, a violation of any of the Company’s policies, procedures or standards, a violation of the Company’s Code of Business Conduct and Ethics, or that is deemed detrimental to the business or reputation of the Company, the Committee may, in its discretion, require you to forfeit your right to any unvested portion of the Award and, to the extent that any portion of the Award has previously vested, the Committee may require you to return to the Company the Shares covered by the Award or any cash proceeds you received upon the sale of such Shares. The Committee may exercise this discretion at any time that you are employed by the Company or any Affiliate of the Company, and at any time during the 18-month period following the termination of your employment with the Company or any Affiliate of the Company for any reason, including, without limitation, on account of Retirement or death.

17. Consent to Electronic Delivery The Company may, in its sole discretion, deliver any documents related to current or future participation in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

18. Code Section 409A Compliance To the extent applicable, it is intended that the Plan and this Agreement comply with the requirements of Section 409A of the U.S. Internal Revenue Code of 1986, as amended, and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. The RSUs granted in this Award are intended to be short-term deferrals exempt from Section 409A, but in the event that any portion of this Award constitutes deferred compensation within the meaning of Section 409A, then the issuance of Shares covered by an RSU award shall conform to the Section 409A standards, including, without limitation, the requirement that no payment on account of separation from service will be made to any specified employee (within the meaning of Section 409A) until six months after the separation from service occurs, and the prohibition against acceleration of payment, which means that the Committee does not have the authority to accelerate settlement of this Award in the event that any portion of it constitutes deferred compensation within the meaning of Section 409A. Any provision of the Plan or this Agreement that would cause this Award to fail to satisfy any applicable requirement of Section 409A shall have no force or effect until amended to comply with Section 409A, which amendment may be retroactive to the extent permitted by Section 409A.

19. Construction and Interpretation The Board of Directors of the Company (the “Board”) and the Committee shall have full authority and discretion, subject only to the express terms of the Plan, to decide all matters relating to the administration and interpretation of the Plan and this Agreement and all such Board and Committee determinations shall be final, conclusive, and binding upon you and all interested parties. The terms and conditions set forth in this Agreement are subject in all respects to the terms and conditions of the Plan, as amended from time to time, which shall be controlling. This Agreement and the Plan contain the entire understanding of the parties and this Agreement may not be modified or amended except in writing duly signed by the parties. You acknowledge that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by you or any other party to this Agreement. The various provisions of this Agreement are severable and in the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provision had not been included. This Agreement will be binding upon and inure to the benefit of the successors, assigns, and heirs of the respective parties.

The validity and construction of this Agreement shall be governed by the laws of the State of Colorado, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction. For purposes of litigating any dispute arising under this Agreement, the parties hereby submit and consent to the jurisdiction of the State of Colorado, agree that such litigation shall be conducted in state or local courts in Denver, Colorado or the United States District Court for the District of Colorado, where this grant is made and/or to be performed.

You acknowledge that you are proficient in the English language, or have consulted with an advisor who is proficient in English, so as to enable you to understand the provisions of this Agreement and the Plan. If you have received this Agreement or any other document related to the Plan translated into a language other than English and if meaning of

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the translated version is different from the English version, the English version will control, unless otherwise required by applicable laws.

20. Insider Trading/Market Abuse Laws Depending on your country, Fidelity’s country or the country in which Shares are listed, you may be subject to insider trading restrictions and/or market abuse laws in applicable jurisdictions, including the United States; your country or the country of the applicable stock plan service provider, which may affect your ability to accept, acquire, sell, attempt to sell or otherwise dispose of Shares, rights to Shares (e.g., RSUs) or rights linked to the value of Shares during such times as you are considered to have “inside information” regarding the Company (as defined by the laws or regulations in applicable jurisdictions). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders you placed before you possessed inside information. Furthermore, you could be prohibited from (i) disclosing the inside information to any third party, including fellow employees (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them otherwise to buy or sell securities. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable insider trading policy of the Company. You acknowledge that it is your responsibility to comply with any applicable restrictions, and you should speak to your personal advisor on this matter.

21. Foreign Asset/Account Reporting Please be aware that your country may have certain foreign asset and/or account reporting requirements which may affect your ability to acquire or hold Shares under the Plan or cash received from participating in the Plan (including from any dividends received or sale proceeds arising from the sale of Shares) in a brokerage or bank account outside your country. You may be required to report such accounts, assets or transactions to the tax or other authorities in your country. You acknowledge that it is your responsibility to be compliant with such regulations, and you should speak to your personal advisor on this matter.

22. Compliance with Laws and Regulations Notwithstanding any other provisions of this Agreement, you understand that the Company will not be obligated to issue any Shares pursuant to the vesting of the RSUs if the issuance of such Shares shall constitute a violation by you or the Company of any provision of law or regulation of any governmental authority. Any determination by the Company in this regard shall be final, binding and conclusive.

23. Addendum Your Award shall be subject to any additional provisions set forth in the Addendum to this Agreement for your country, if any. If you relocate to one of the countries included in the Addendum during the Restriction Period, the special provisions for such country shall apply to you, to the extent the Company determines that the application of such provisions is necessary or advisable for legal or administrative reasons. The Addendum, if any, constitutes part of this Agreement.

24. Imposition of Other Requirements The Company reserves the right to impose other requirements on your participation in the Plan, on the Award and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

25. Recoupment Any benefits you may receive hereunder shall be subject to repayment or forfeiture as may be required to comply with (i) any applicable listing standards of a national securities exchange adopted in accordance with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any implementing rules and regulations of the U.S. Securities and Exchange Commission adopted thereunder; (ii) similar rules under the laws of any other jurisdiction; and (iii) any policies adopted by the Company to implement such requirements, all to the extent determined by the Company in its discretion to be applicable to you.

 

 

ZIMVIE

 

By:

Heather Kidwell

Senior Vice President,

Chief Legal, Compliance, and Human Resources Officer and Corporate Secretary

 

PERFORMANCE CRITERIA

 

3-Year Performance-Based RSU Award (2023)

7

 

The determination of the number of Earned RSUs that will vest as of the Scheduled Vest Date, as provided in Section 3 of the Agreement, will be based on the Company’s performance during the Performance Period, as measured by the following metrics: (a) Cumulative Revenue, weighted 60%, and (b) Cumulative Adjusted EBITDA Margin, weighted 40%.

 

The Cumulative Revenue and Cumulative Adjusted EBITDA Margin component payouts will be determined independently based on achievement of the targets set forth in the respective tables below, and the number of Earned RSUs will be calculated based on the sum of the payout percentages achieved, taking into account the weighting of each metric and using straight-line linear interpolation to determine the payout if performance falls between two of the performance levels set forth in the applicable table.

 

3-Year Cumulative Revenues (Weighted 60%)

 

2023 - 2025

Performance Level

Performance against Cumulative Revenue Target

Payout

<$______

Below Threshold

< XX%

0%

$______

Threshold

  XX%

50%

$______

 

 XX%

75%

$______

Target

100%

100%

$______

 

XXX%

125%

$______

Maximum

XXX%

150%

 

 

3-Year Cumulative Adjusted EBITDA Margin (Weighted 40%)

 

2023 - 2025

Performance Level

Performance against Cumulative Adjusted EBITDA Margin Target

Payout

<XX%

Below Threshold

< XX%

0%

XX%

Threshold

  XX%

50%

XX%

 

 XX%

75%

XX%

Target

100%

100%

XX%

 

XXX%

125%

XX%

Maximum

XXX%

150%

 

 

Illustrative Example: To compute the number of Earned RSUs eligible to vest on the Scheduled Vest Date, assume the following facts: (i) the target number of RSUs subject to the Award is 500; (ii) the Company’s Cumulative Revenue is at target (100%); and (iii) the Company’s Cumulative Adjusted EBITDA Margin is at threshold (__%). Under these facts, the number of Earned RSUs eligible to vest on the Scheduled Vest Date would be:

 

Cumulative Revenue Adjusted EBITDA Margin Earned RSUs

((500 x 100%) x 60%) + ((500 x 50%) x 40%) = 400 Units

 

3-Year Performance-Based RSU Award (2023)

8

EX-21

Exhibit 21.1

Subsidiaries of ZimVie Inc.

As of December 31, 2022

 

Name of Subsidiary

Jurisdiction of Formation

Domestic subsidiaries:

 

 

Biomet 3i, LLC

Florida

 

dba Zimmer Biomet Dental

 

 

dba ZimVie Dental

 

 

EBI Holdings, LLC

Delaware

 

EBI Medical Systems, LLC

Delaware

 

EBI, LLC

Indiana

 

dba Biomet Healing Technologies (Forced)

 

 

dba Biomet Spine (Forced)

 

 

dba Biomet Spine & Bone Healing Technologies, LLC (Forced)

 

 

dba Biomet Spine & Bone Healing Technologies, Biomet Bracing and Biomet Osteobiologics, LLC (Forced)

 

dba Biomet Trauma, Biomet Spine (Forced)

 

 

dba Biomet Trauma, Biomet Spine, Biomet Bracing and Biomet Osteobiologics, LLC (Forced)

 

dba EBI, LLC (IN) (Forced)

 

 

dba EBI, LLC of Indiana (Forced)

 

 

dba ZimVie

 

 

Electro-Biology, LLC

Delaware

 

Implant Concierge, LLC

Texas

 

Zimmer Biomet Spine, Inc.

Delaware

 

dba Lanx

 

 

dba Zimmer Spine

 

 

dba ZimVie

 

 

dba ZimVie Spine

 

 

Zimmer Dental Inc.

Delaware

 

dba ZimVie Dental

 

 

ZimVie Holdings US 1 LLC

Delaware

 

ZimVie Holdings US 2 LLC

Delaware

 

 

 

Foreign subsidiaries:

 

 

Biomet 3i Australia Pty. Ltd.

Australia

 

ZimVie Austria GmbH

Austria

 

Biomet 3i Belgium N.V.

Belgium

 

ZimVie Brasil Comercio, Importacao e Exportacao de Produtos Medicos Ltda.

Brazil

 

Zimmer Biomet Dental Canada Inc.

Canada

 

Zimmer Dental Chile Spa

Chile

 

Zimmer Dental (Shanghai) Medical Device Co. Ltd.

China

 

IC Guided Surgery, SRL

Costa Rica

 

LDR Médical S.A.S.

France

 

Zimmer Dental SAS

France

 

Zimmer Spine SAS

France

 

Zfx GmbH

Germany

 

Zimmer Dental GmbH

Germany

 

ZB Dental India Private Limited

India

 

Zimmer Dental Ltd.

Israel

 

3DIEMME Srl

Italy

 

Zfx Innovation GmbH

Italy

 

Zimmer Dental Italy Srl

Italy

 

ZimVie Japan G.K.

Japan

 

Name of Subsidiary

Jurisdiction of Formation

 

ZimVie Korea Co Ltd.

Korea

 

JERDS Luxembourg Holding S.ar.l

Luxembourg

 

Biomet 3i Mexico S.A. de C.V.

Mexico

 

Biomet 3i Netherlands B.V.

Netherlands

 

ZimVie Netherlands Global Holding B.V.

Netherlands

 

ZimVie Netherlands Holding B.V.

Netherlands

 

Biomet 3i Portugal

(Representaçoes de Produtos Dentarios Sociedade Unipessoal, Lda.)

Portugal

 

EBI Patient Care, Inc.

Puerto Rico

 

ZimVie Singapore Pte. Ltd.

Singapore

 

Biomet 3i Dental Iberica SLU

Spain

 

Biomet 3i Nordic AB

Sweden

 

Biomet 3i Switzerland GmbH

(Biomet 3i Schweiz GmbH)

Switzerland

 

ZimVie Taiwan Co Ltd.

Taiwan

 

Biomet 3i Turkey

(Biomet 3i Diş Sağlığı Ürünleri Pazarlama, İthalat, İhracat ve Dış Ticaret Limited Şirketi)

Turkey

 

Biomet 3i UK Ltd.

United Kingdom

 

EX-23

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-266740 and 333-263069) of ZimVie Inc. of our report dated March 1, 2023 relating to the financial statements which appears in this Form 10-K.

 

/s/ PricewaterhouseCoopers LLP
Denver, Colorado

March 1, 2023

EX-31

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Vafa Jamali, certify that:

(1)
I have reviewed this Annual Report on Form 10-K of ZimVie Inc.;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(5)
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: March 1, 2023

 

By:

/s/ Vafa Jamali

 

 

 

Vafa Jamali

 

 

 

Chief Executive Officer

 

EX-31

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Richard Heppenstall, certify that:

(1)
I have reviewed this Annual Report on Form 10-K of ZimVie Inc.;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(5)
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: March 1, 2023

 

By:

/s/ Richard Heppenstall

 

 

 

Richard Heppenstall

 

 

 

Chief Financial Officer

 

EX-32

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of ZimVie Inc. (“ZimVie”) on Form 10-K for the period ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ZimVie.

 

Date: March 1, 2023

 

By:

/s/ Vafa Jamali

 

 

 

Vafa Jamali

 

 

 

Chief Executive Officer

 

EX-32

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of ZimVie Inc. (“ZimVie”) on Form 10-K for the period ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ZimVie.

 

Date: March 1, 2023

 

By:

/s/ Richard Heppenstall

 

 

 

Richard Heppenstall

 

 

 

Chief Financial Officer