Zimmer Holdings, Inc. (NYSE and SIX: ZMH) today reported financial results for the quarter and year ended December 31, 2010. The Company reported fourth quarter net sales of $1.13 billion, an increase of 2.5% reported and 3.0% constant currency over the fourth quarter of 2009. Diluted earnings per share for the quarter were $0.18 reported and $1.27 adjusted, an increase of 13.4% adjusted over the prior year period. Full-year net sales were $4.22 billion, an increase of 3.0% reported and an increase of 2.3% constant currency over the prior year. Diluted earnings per share for the year were $2.97 reported and $4.33 adjusted, an increase of 9.9% adjusted over the prior year.
"In the quarter, Zimmer's performance was characterized by sequential top-line growth in all geographic segments, successful product introductions and operational discipline, resulting in improved operating margins and strong cash flow," said David Dvorak, Zimmer President and CEO. "Moving into 2011, we expect to continue to strengthen our leadership position in joint reconstruction and to enhance our market share in emerging businesses and geographic markets."
Net earnings for the fourth quarter were $34.9 million on a reported basis and $250.6 million on an adjusted basis, an increase of 6.1% adjusted over the prior year period. Operating cash flow for the fourth quarter was $341.0 million. Net earnings for the full year 2010 were $596.9 million on a reported basis and $871.6 million on an adjusted basis, an increase of 2.6% adjusted over the prior year period. Operating cash flow for the full year was $1,193.5 million.
During the quarter, the Company utilized $100.9 million of cash to acquire 2.0 million shares. Consequently, for the full year 2010, the Company utilized $505.5 million of cash to acquire 9.1 million shares. At the end of the fourth quarter, $1.2 billion of share repurchase authorization remained available under this program, which expires on December 31, 2013.
Substantially all of the difference between net earnings and net earnings per share on a reported basis as compared to an adjusted basis was attributable to a non-cash charge for goodwill impairment of $204.0 million net of tax or $1.03 per diluted share related to the Company's U.S. Spine reporting unit made during the fourth quarter. The Company conducts annual impairment tests during the fourth quarter. A change in the outlook for the spine market in the U.S., along with decreased projected revenues related to the Dynesys® Dynamic Stabilization System, as well as products that have been affected as the Company works through the integration of the U.S. sales channel following the Abbott Spine acquisition, contributed to the decrease in the implied fair value of the U.S. Spine reporting unit compared with prior year.
As previously announced, the Company completed acquisitions of Beijing Montagne Medical Device Co., Ltd., a China-based manufacturer of orthopaedic implants, and Sodem Diffusion S.A., the manufacturer of SoPlus Orthopaedic Surgical Power Equipment, in the fourth quarter of 2010.
Guidance
The Company expects full-year revenues for 2011 to increase between 2% and 4% on a constant currency basis. The Company estimates that foreign currency translation will increase revenues by approximately 1% for the full year 2011, resulting in reported revenue growth between 3% and 5%. Full-year 2011 diluted earnings per share are projected to be in a range of $4.25 to $4.45 on a reported basis and $4.60 to $4.80 on an adjusted basis. The difference between projected diluted earnings per share on a reported basis and on an adjusted basis is explained below.
In 2011, the Company expects to continue and expand global restructuring and transformation initiatives designed to streamline business operations and back office support functions. Savings from these initiatives will enable the Company to accelerate investments in innovation and commercialization of new products and technologies, and to drive sustained growth in earnings and cash flow. The programs to be completed in 2011 are expected to generate annualized pre-tax savings of more than $100 million, including $40-$50 million in direct 2011 benefits. These savings will be achieved in part by reducing management layers and consolidating global sourcing to drive vendor cost reductions.
The Company expects to record 2011 pre-tax charges of $75-$80 million as details of the various programs are finalized and implemented. The Company also expects to incur an additional $15-$20 million for certain acquisition and integration costs connected with the recently completed acquisitions of Beijing Montagne Medical Device Co., Ltd. and Sodem Diffusion S.A., as well as certain third party distributor acquisitions.
University of Arizona receives $1.7 million for spina bifida research