Quarter Highlights
- Net Sales of $882 million represent an increase of 4% reported (5% constantcurrency) and a sequential quarter increase of $22 million
- Americas Reconstructive sales increased 6% reported (6% constant currency)
- Americas recorded positive price increase of 1.3%
- Double-digit Worldwide sales growth in Dental, Spine and Trauma
- Continued margin strength—77% gross, 32% operating and 23% net reported; 77% gross, 33% operating and 23% net adjusted; and 78% gross, 35% operating and 25% net adjusted excluding the effect of share-based payment
- Diluted EPS were $0.81 reported, $0.83 adjusted, and $0.89 adjusted excluding the effect of share-based payment, an increase of 11%
- Record operating cash flow of $305 million, a 25% increase over prior year
- Repurchased almost 5,000,000 common shares
(WARSAW, IN) July 26, 2006 -- Zimmer Holdings, Inc. (NYSE and SWX: ZMH) today reported financial results for the quarter ended June 30, 2006. For the quarter, the Company announced net sales of $882 million, an increase of 4% reported and 5% constant currency. Diluted earnings per share for the quarter were $0.81 reported and $0.83 adjusted, exceeding First Call earnings estimates of $0.82 adjusted.
Reported and adjusted diluted earnings per share for the second quarter of 2006 include a $0.06 per diluted share impact related to SFAS 123(R), Share-Based Payment. Effective January 1, 2006, the Company adopted this new accounting standard using the modified-prospective method. In accordance with this adoption method, the Company is not adjusting its historical financial statements to reflect the impact of share-based payment. Excluding the impact of SFAS 123(R), adjusted diluted earnings per share for the second quarter were $0.89, representing an 11% increase over adjusted diluted earnings per share for the second quarter of 2005.
“Our sales results were consistent with what the overall orthopaedic market has seen, and as expected, for us, similar to the first quarter,” said Ray Elliott, Zimmer Chairman, President and CEO. “We have made substantial progress in key strategic areas, including important additions to our joint reconstruction offering with two new alternate bearing options and the world’s first knee replacement designed for the unique characteristics of a woman’s anatomy—the Zimmer® Gender Solutions™ Knee Implant. We also achieved a significant biologics milestone with the approval of the U.S. IND application for Neocartilage and launched our entry into hospital profitability consulting with the acquisition of the Human Motion InstituteSM brand.”
The Company introduced its Gender Solutions knee implant in May. Initial implantations were limited to the system’s surgeon developers, but the product will be released to a wider surgeon audience in the fall. Media efforts have already resulted in approximately 500 articles and stories, which have generated more than 80 million exposures. “As we roll out the Gender Solutions product more broadly to additional surgeons, we will be launching targeted nationwide publicity campaigns to increase women’s awareness of this therapeutic option,” said Elliott.
In June, the Company launched the Durom® Acetabular Cup with Metasul® LDH™ Large Diameter Heads, filling an important offering in the metal-on-metal hip replacement category. The Company also gained regulatory approval to market the Trilogy AB® Ceramic-on-Ceramic Acetabular System, which was launched last week.
During the quarter, the Company finalized its acquisition of Musculoskeletal Management Systems, LLC (MMS). MMS, which is better known as the Human Motion Institute (HMI), has established several long-term service agreements with various hospitals throughout the United States. HMI provides focused consulting services which help its member institutions not only design but implement and manage successful orthopaedic programs of distinction. “Our overall goal, which HMI will support in the field, is to identify opportunities to create long-term, permanent cost savings that extend beyond the historic cost-shifting that goes with year-to-year implant pricing negotiations,” said Elliott. “Savings solutions are available and we intend to be the leader in making them a reality.”
In the second quarter, Zimmer Holdings invested $309 million to repurchase almost five million common shares as part of an authorized $1 billion program. “Our primary use of excess cash will continue to be strategic acquisitions in the areas of Biologics, Dental and Spine,” said Elliott. “However, until we finalize such acquisitions, we expect to use the share buyback program to deploy cash opportunistically to build shareholder value.”
