# ZIMMER BIOMET HOLDINGS, INC. (ZBH) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ZIMMER BIOMET HOLDINGS, INC.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1136869/000095017023004264/zbh-20221231.htm
Accession: 0000950170-23-004264
Filing date: 2023-02-24
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/ZBH/
All MD&A years: /company/ZBH/mda/
Previous year: /company/ZBH/mda/fy2021/ (FY 2021)
Next year: /company/ZBH/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

On March 1, 2022, we completed the spinoff of our spine and dental businesses into ZimVie. The historical results of our spine and dental businesses have been reflected as discontinued operations in our consolidated financial statements in our 2022 results through the date of the spinoff and in the prior year periods. In addition, as of December 31, 2021, the assets and liabilities associated with these businesses are classified as assets and liabilities of discontinued operations in our consolidated balance sheet. See Note 3 to our consolidated financial statements for additional information. The following discussion and analysis is presented on a continuing operations basis unless otherwise noted. 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, analysis and comparisons generally focus on the operating results for the years ended December 31, 2022 and 2021. Discussion, analysis and comparisons of the years ended December 31, 2021 and 2020 that are not included in this Form 10-K can be found in (i) “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) prior to the spinoff of ZimVie; and (ii) “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of Exhibit 99.1 filed with our Form 8-K on June 22, 2022, which Form 8-K was filed to recast certain items of the 2021 Form 10-K, including Part II, Item 7, to reflect the historical results of our spine and dental businesses as discontinued operations following the ZimVie spinoff.

EXECUTIVE LEVEL OVERVIEW

Impact of the COVID-19 Global Pandemic

Our results continue to be impacted by the COVID-19 global pandemic. The vast majority of our net sales are derived from products used in elective surgical procedures that have typically declined during surges of the virus as governments and healthcare systems take actions in an effort to prevent the spread and provide sufficient hospital beds and other resources for COVID-19 patients. Additionally, we believe that staffing shortages at hospitals have contributed to the deferral of elective surgical procedures. In the year ended December 31, 2022, the Omicron variant resulted in fewer elective surgical procedures earlier in the year with recovery in procedures as the surge began to subside later in the first quarter and through the second quarter. In the second half of 2022, procedural volumes continued to improve across most markets relative to the first half of the year. However, in the fourth quarter we did experience more acute deferrals of elective surgical procedures in some markets, such as China, due to surges of the virus.

2022 Financial Highlights

In 2022, our net sales increased by 1.6 percent compared to 2021. Our net sales in 2022 were tempered by a negative 5.0 percent effect from changes in foreign currency exchange rates. We continued to see the return of elective surgical procedures across most markets when compared to the prior year, which was negatively affected by a surge of the COVID-19 virus in early 2021 before vaccines were widely available and later in the year by the Delta variant.

Our net earnings, including discontinued operations, were $231.4 million in 2022 compared to $401.6 million in 2021. In 2022, we recognized a goodwill impairment charge of $289.8 million, which was the primary driver for lower net earnings in 2022 when compared to 2021. Other significant unfavorable items in 2022 when compared to 2021 include an unrealized investment loss of $116.6 million due to a decline in the value of our investment in ZimVie, higher restructuring-related costs as we continued to execute on our 2019 and 2021 Restructuring Plans, and higher spending on travel and other activities which started to return to pre-pandemic levels. These unfavorable factors to net earnings were partially offset by higher net sales, hedge gains recognized from our hedging program, the favorable effects of our restructuring programs, lower litigation-related expenses, and the fact the 2021 period included a $165.1 million charge for the early extinguishment of debt and $65.0 million of charges related to certain agreements we entered into to gain access to or acquire third-party in-process research and development (“IPR&D”) projects.

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2023 Outlook

We expect revenue growth in 2023 to be driven by a combination of market growth, procedure volume recovery from COVID-19 and new product introductions. We believe there will continue to be some deferrals of elective surgical procedures caused by COVID-19 surges and staffing shortages, but to a lesser extent in 2023 than in 2022. In addition, based on foreign currency exchange rates at the end of 2022 we expect foreign currency to negatively affect net sales growth in 2023, but at a lower level than experienced in 2022. We expect that supply chain and inflation pressures will continue into 2023, but with supply chain pressure easing in the second half of the year and with inflation stable to the level experienced at the end of 2022. We estimate our operating expenses in 2023 will be impacted by the expected non-reoccurrence of goodwill impairment charges, lower quality remediation expenses due to the completion of our remediation milestones, and lower restructuring-related expenses related to our 2019 and 2021 Restructuring Plans. We expect our interest expense, net, will increase primarily due to higher interest rates. We also expect our non-operating other (expense) income, net, will decline in 2023 since the 2022 expense was primarily driven by an investment loss in the shares of ZimVie that we held following the spinoff, which shares we disposed of in February 2023.

RESULTS OF OPERATIONS

We review sales by two geographies, the United States and International, and by the following product categories: Knees; Hips; S.E.T. (Sports Medicine, Extremities, Trauma, Craniomaxillofacial and Thoracic); and Other. This sales analysis differs from our reportable operating segments, which are based upon our senior management organizational structure and how we allocate resources toward achieving operating profit goals. We review sales by these geographies because the underlying market trends in any particular geography tend to be similar across product categories, because we primarily sell the same products in all geographies and many of our competitors publicly report in this manner. Our business is seasonal in nature to some extent, as many of our products are used in elective surgical procedures, which typically decline during the summer months 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 2020 or 2021, but started to return in 2022.

Net Sales by Geography

The following table presents net sales by geography and the percentage changes (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","2021","","","2020","","","2022 vs. 2021 % Inc/(Dec)","","","2021 vs. 2020 % Inc"],["United States","","$","4,012.4","","","$","3,853.9","","","$","3,507.7","","","","4.1","","%","","9.9","","%"],["International","","","2,927.5","","","","2,973.4","","","","2,619.8","","","","(1.5",")","","","13.5"],["Total","","$","6,939.9","","","$","6,827.3","","","$","6,127.5","","","","1.6","","","","11.4"]]
[[/GREPCENT_TABLE]]

Net Sales by Product Category

The following table presents net sales by product category and the percentage changes (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","2021","","","2020","","","2022 vs. 2021 % Inc/(Dec)","","","2021 vs. 2020 % Inc"],["Knees","","$","2,778.3","","","$","2,647.9","","","$","2,378.3","","","","4.9","","%","","11.3","","%"],["Hips","","","1,894.9","","","","1,856.1","","","","1,750.5","","","","2.1","","","","6.0"],["S.E.T.","","","1,696.7","","","","1,727.8","","","","1,525.6","","","","(1.8",")","","","13.3"],["Other","","","570.0","","","","595.5","","","","473.1","","","","(4.3",")","","","25.9"],["Total","","$","6,939.9","","","$","6,827.3","","","$","6,127.5","","","","1.6","","","","11.4"]]
[[/GREPCENT_TABLE]]

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The following table presents net sales by product category by geography for our Knees and Hips product categories, which represent our most significant product categories (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","2021","","","2020","","","2022 vs. 2021 % Inc/(Dec)","","","2021 vs. 2020 % Inc"],["Knees"],["United States","","$","1,615.0","","","$","1,487.6","","","$","1,382.5","","","","8.6","","%","","7.6","","%"],["International","","","1,163.3","","","","1,160.3","","","","995.8","","","","0.3","","","","16.5"],["Total","","$","2,778.3","","","$","2,647.9","","","$","2,378.3","","","","4.9","","","","11.3"],["Hips"],["United States","","$","960.9","","","$","921.5","","","$","881.1","","","","4.3","","%","","4.6","","%"],["International","","","934.0","","","","934.6","","","","869.4","","","","(0.1",")","","","7.5"],["Total","","$","1,894.9","","","$","1,856.1","","","$","1,750.5","","","","2.1","","","","6.0"]]
[[/GREPCENT_TABLE]]

Demand (Volume/Mix) Trends

Changes in volume and mix of product sales had a positive effect of 7.6 percent and 12.3 percent on year-over-year sales during the years ended December 31, 2022 and 2021, respectively. Volume trends were positive in 2022 as we saw recovery of elective surgical procedures, most notably in international markets, driving volume growth in tandem with new product introductions. In 2022, sales were negatively impacted by limitations due to global supply chain challenges.

Based upon country dynamics, volume changes varied by region in 2022. The volume increases in 2022 were largely a product of how much the COVID-19 pandemic negatively affected the various regions in 2021. In EMEA and Asia Pacific, deferral of elective surgical procedures were more prevalent than in the Americas in 2021. Additionally, in Asia Pacific in 2021, China sales were negatively impacted from a combination of variables related to the implementation of a nationwide volume-based procurement (“VBP”) process. The China VBP had a negative effect on volume due to inventory reductions by distributors and short-term deferral of procedures as patients waited to have a surgical procedure performed until after VBP pricing was effective in 2022.

Pricing Trends

Global selling prices had negative effects of 1.0 percent and 2.1 percent on year-over-year sales during 2022 and 2021, respectively. In the majority of countries in which we operate, we continue to experience pricing pressure from governmental healthcare cost containment efforts and from local hospitals and health systems. However, we have had some success in reducing the negative effects of pricing in 2022 due to internal initiatives and being able to pass some inflationary impacts on to customers.

Foreign Currency Exchange Rates

In 2022 and 2021, changes in foreign currency exchange rates had a negative effect of 5.0 percent and a positive effect of 1.2 percent, respectively, on year-over-year sales.

Geography

The 4.1 percent and 9.9 percent net sales growth in the U.S. in 2022 and 2021, respectively, when compared to the prior year in each case was primarily driven by recovery in surgical procedures as COVID-19 cases subsided, especially in the Knees and Hips categories. Internationally, net sales declined by 1.5 percent in 2022 when compared to 2021 and increased 13.5 percent in 2021 when compared to 2020. The decline in 2022 was driven by the negative impacts on International sales of 11.2 percent due to changes in foreign currency exchange rates. Absent the effect of changes in foreign currency exchange rates, most of our markets internationally experienced demand (volume and mix) growth from recovery in surgical procedures. In 2021, our International markets experienced net sales growth from recovery in elective surgical procedures.

Product Categories

In 2022, our Knees and Hips net sales increased by 4.9 percent and 2.1 percent, respectively, when compared to 2021 due to the recovery in elective surgical procedures and new product introductions. The increase was despite the impact of changes in foreign currency exchange rates having a negative effect of 5.0 percent and 5.9 percent on

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Knees and Hips net sales, respectively. S.E.T. net sales decreased by 1.8 percent in 2022 when compared to 2021 due to the negative effects of changes in foreign currency exchange rates, lower trauma product net sales partially due to VBP implementation and unfavorable changes in reimbursement for certain restorative therapy products. Other product category net sales decreased by 4.3 percent in 2022 when compared to 2021 due to the negative effects of changes in foreign currency exchange rates and lower unit sales of our ROSA robots as some customers shifted to operating lease arrangements for our robots instead of purchasing them. In 2021, all our product categories experienced net sales growth when compared to 2020 due to the recovery of elective surgical procedures.

Expenses as a Percent of Net Sales

[[GREPCENT_TABLE]]
[["","","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","","29.1","%","28.7","%","29.8","%","0.4","%","(1.1)","%"],["Intangible asset amortization","","7.6","","7.8","","8.4","","(0.2)","","(0.6)"],["Research and development","","5.9","","6.4","","5.3","","(0.5)","","1.1"],["Selling, general and administrative","","39.8","","41.6","","44.3","","(1.8)","","(2.7)"],["Goodwill and intangible asset impairment","","4.2","","0.2","","8.2","","4.0","","(8.0)"],["Restructuring and other cost reduction initiatives","","2.8","","1.8","","1.7","","1.0","","0.1"],["Quality remediation","","0.5","","0.8","","0.8","","(0.3)","","-"],["Acquisition, integration, divestiture and related","","0.2","","-","","0.2","","0.2","","(0.2)"],["Operating Profit","","10.0","","12.6","","1.4","","(2.6)","","11.2"]]
[[/GREPCENT_TABLE]]

Cost of Products Sold and Intangible Asset Amortization

We calculate gross profit as net sales minus cost of products sold and intangible asset amortization. Our gross margin percentage is gross profit divided by net sales. The following table sets forth the factors that contributed to the gross margin changes in each of 2022 and 2021 compared to the prior year:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","","2021"],["Prior year gross margin","","","63.5","%","","","61.9","%"],["Lower average selling prices","","","(0.3",")","","","(0.6",")"],["Manufacturing costs","","","(0.9",")","","","0.5"],["Impact of volume, product mix and other","","","0.6","","","","(0.5",")"],["Inventory charges","","","(0.1",")","","","2.1"],["Impact from changes in foreign currency exchange rates","","","0.3","","","","(0.5",")"],["Intangible asset amortization","","","0.2","","","","0.6"],["Current year gross margin","","","63.3","%","","","63.5","%"]]
[[/GREPCENT_TABLE]]

The decline in gross margin percentage in 2022 compared to 2021 was primarily due to inflationary cost pressures, lower average selling prices and inventory charges related to products we plan to discontinue. These unfavorable items were partially offset by hedge gains recognized in 2022 as part of our hedging program compared to hedge losses in 2021, operating leverage from volume increases, a mix shift to higher margin product sales, as well as the fact that the 2021 period experienced lower than normal production at certain facilities which resulted in fixed overhead costs being expensed immediately.

Intangible asset amortization expense was similar in both amount and as a percentage of net sales in 2022 when compared to 2021.

Operating Expenses

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Research & development (“R&D”) expenses decreased in both amount and as a percentage of net sales in 2022 compared to 2021, primarily due to the fact that in 2021 we entered into certain agreements to gain access to or acquire third-party IPR&D projects that resulted in charges of $65.0 million. We did not enter into any significant, similar agreements in 2022. That favorability was partially offset by higher personnel-related costs and higher spending on our initial compliance with the EU MDR in 2022.

Selling, general & administrative (“SG&A”) expenses decreased in both amount and as a percentage of net sales in 2022 compared to 2021 primarily due to litigation-related expenses declining by $135.1 million and savings from our restructuring plans. These favorable items were partially offset by higher bad debt charges partially related to the Russia/Ukraine conflict and higher expenses for travel and other activities as we started to return to pre-pandemic levels in 2022.

As a result of the invasion of Ukraine by Russia, economic sanctions and export controls were imposed by much of the world on Russian financial institutions and businesses. Our operations in Russia consist primarily of local commercial activities, including sales and customer support. We do not have direct operations in Ukraine. Our net sales in Russia and Ukraine in 2022 were less than 1 percent of our consolidated net sales. Therefore, the ongoing conflict and economic sanctions are not expected to have a significant effect on our results of operations or financial position. The bad debt charges for expected credit losses in Russia resulted in a significant portion of our accounts receivable from customers in this country being impaired. In addition to accounts receivable, we also have inventory and instruments that could require impairment if our business in Russia deteriorates more than our current expectations; however, any such amounts are not expected to be material. See Part I, Item 1A “Risk Factors” for additional risks related to this conflict.

In 2022, we recognized a goodwill impairment charge of $289.8 million related to our EMEA reporting unit. In 2022 and 2021, we recognized intangible asset impairment charges of $3.0 million and $16.3 million, respectively, related to IPR&D projects that we discontinued. For more information regarding these charges, see Note 11 to our consolidated financial statements.

In December of 2021 and 2019, we initiated restructuring programs. The 2021 Restructuring Plan is intended to further reduce costs and to reorganize our global operations in preparation for the spinoff of ZimVie. The 2019 Restructuring Plan has an objective of reducing costs to allow us to invest in higher priority growth opportunities. We also have other cost reduction and optimization initiatives that have the goal of reducing costs across the organization. We recognized expenses of $191.6 million and $125.7 million in 2022 and 2021, respectively, primarily related to employee termination benefits, sales agent contract terminations, and consulting and project management expenses associated with these programs. The expenses were higher in 2022 primarily due to additional expenses related to the 2021 Restructuring Plan that had just been initiated at the end of 2021. For more information regarding these expenses, see Note 5 to our consolidated financial statements.

We incurred quality remediation expenses of $33.8 million and $52.8 million in 2022 and 2021, respectively. We incurred these quality remediation expenses to complete our remediation milestones that address inspectional observations on Form 483 and a warning letter issued by the FDA at our Warsaw North Campus facility, among other matters. The decline in expenses in 2022 when compared to 2021 was due to the natural regression as various remediation milestones were completed. We do not expect to incur any significant quality remediation expenses related to these inspectional observations in 2023.

Acquisition, integration, divestiture and related expenses related to acquisitions made in 2022 and 2020 as well as costs related to our separation with ZimVie.

Other (Expense) Income, net, Interest Expense, net, Loss on Early Extinguishment of Debt and Income Taxes

In 2022, we incurred a loss of $128.0 million in our other (expense) income, net compared to a gain of $12.2 million in 2021. The expense in 2022 was primarily due to a $116.6 million loss on our investment in ZimVie.

Interest expense, net, decreased in 2022 when compared to 2021 primarily from using debt that we issued in the fourth quarter of 2021, along with cash on hand, to repurchase portions of outstanding notes with higher interest rates. Additionally, interest expense, net was lower due to additional debt paydown.

In 2021, we recognized a $165.1 million loss on the early extinguishment of debt. See Note 13 to our consolidated financial statements for additional information on this loss.

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Our effective tax rate (“ETR”) on earnings from continuing operations before income taxes was 27.9 percent and 10.7 percent for the years ended December 31, 2022 and 2021, respectively. In 2022, the ETR was primarily driven by the $289.8 million goodwill impairment charge and the $116.6 million loss on our investment in ZimVie, which have no corresponding tax benefits, partially offset by favorable tax audit settlements and finalization of Switzerland's Federal Act on Tax Reform and AHV Financing (“TRAF”) step-up. In 2021, the ETR was primarily driven by the foreign rate differential as our foreign locations have lower tax rates and favorable return-to-provision changes in estimate offset by unfavorable tax rate changes.

Absent discrete tax events, we expect our future ETR will be lower than the U.S. corporate income tax rate of 21.0 percent due to our mix of earnings between U.S. and foreign locations, which have lower corporate income tax rates. 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, including the European Union adoption of Pillar 2 proposals; 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.

See Note 17 to our consolidated financial statements for additional information on our income taxes.

Segment Operating Profit

[[GREPCENT_TABLE]]
[["","","","","","","","","","","","","","","","","","","","","Operating Profit as a"],["","","Net Sales","","","Operating Profit","","","Percentage of Net Sales"],["","","Year Ended December 31,","","","Year Ended December 31,","","","Year Ended December 31,"],["(dollars in millions)","","2022","","","2021","","","2020","","","2022","","","2021","","","2020","","","2022","","","2021","","","2020"],["Americas","","$","4,295.5","","","$","4,102.1","","","$","3,699.5","","","$","1,811.9","","","$","1,709.3","","","$","1,528.2","","","","42.2","","%","","41.7","","%","","41.3","","%"],["EMEA","","","1,456.6","","","","1,477.2","","","","1,237.3","","","","380.8","","","","380.3","","","","303.0","","","","26.1","","","","25.7","","","","24.5"],["Asia Pacific","","","1,187.8","","","","1,248.0","","","","1,190.7","","","","407.0","","","","401.3","","","","395.4","","","","34.3","","","","32.2","","","","33.2"]]
[[/GREPCENT_TABLE]]

Americas

In the Americas, operating profit and operating profit as a percentage of net sales increased in 2022 when compared to 2021 due to higher net sales driven by continued recovery of elective surgical procedures, lower excess and obsolete inventory charges and savings from our restructuring programs. These favorable items were partially offset by higher R&D costs.

EMEA

In EMEA, operating profit and operating profit as a percentage of net sales increased in 2022 when compared to 2021. Our net sales declined in EMEA due to the negative effects of changes in foreign currency exchange rates. However, our operating profit increased slightly due to our hedging program as we recognized hedge gains, which minimized the negative effects from net sales, and we realized savings from our restructuring programs. These favorable items were partially offset by higher bad debt, travel and medical training and education expenses.

Asia Pacific

In Asia Pacific, operating profit and operating profit as a percentage of net sales increased in 2022 when compared to 2021. Our net sales declined in Asia Pacific due to the negative effects of changes in foreign currency exchange rates and by the China government implementing a nationwide volume-based procurement process that became effective in 2022. However, our operating profit increased slightly due to our hedging program as we recognized hedge gains, which minimized these negative effects from net sales, and we realized savings from our restructuring programs.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2022, we had $375.7 million in cash and cash equivalents. In addition, we had $1.0 billion available to borrow under a 364-day revolving credit agreement that matures on August 18, 2023, and $1.1 billion available under a five-year revolving facility that matures on August 19, 2027. The terms of the 364-day revolving credit agreement and the five-year revolving facility are described further in Note 13 to our consolidated financial statements.

We believe that cash flows from operations, our cash and cash equivalents on hand, and available borrowings under our revolving credit facilities will be sufficient to meet our ongoing liquidity requirements for at least the next

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twelve months. However, due to the continued uncertainties related to the COVID-19 pandemic, it is possible our needs may change. Further, there can be no assurance that, if needed, we will be able to secure additional financing on terms favorable to us, if at all.

Sources of Liquidity

Cash flows provided by operating activities from continuing operations were $1,356.2 million in 2022 compared to $1,404.3 million in 2021. The decrease in cash flows from operating activities in 2022 when compared to 2021 was primarily the result of higher tax payments and increased payments under our restructuring programs. These unfavorable items were partially offset by lower interest payments and lower investments in inventory, as well as the fact that the 2021 period included payments related to certain IPR&D agreements.

Cash flows used in investing activities from continuing operations were $522.0 million in 2022 compared to $443.3 million in 2021. Instrument and property, plant and equipment additions reflected ongoing investments in our product portfolio, optimization of our manufacturing and logistics network and investments in enterprise resource planning software. The 2022 period also reflects investments for an acquisition as well as other investments for acquiring intellectual property related to products that have been commercialized. These cash outflows were partially offset by favorable settlements of our net investment hedges as they matured.

Cash flows used in financing activities from continuing operations were $775.7 million in 2022 compared to $1,306.0 million in 2021. At the ZimVie spinoff date, we received $540.6 million as partial consideration for the contribution of assets in connection with the separation. We used these proceeds, together with borrowings on our five-year revolving facility and cash on hand to redeem the full $750.0 million senior notes that were due April 1, 2022. We also repaid $242.9 million outstanding on our Japanese term loans and $525.8 million outstanding on our 1.414% Euro senior notes at their maturity date of December 13, 2022. In order to help fund the payment on these Euro senior notes, we borrowed $375.0 million under our five-year revolving facility and $83.0 million under a short-term term loan in connection with our plans to dispose of our ZimVie shares. In addition, in 2022 we expended $126.4 million to repurchase shares of our common stock.

In 2021, we issued senior notes and received $1,599.8 million in proceeds, which, along with cash on hand, were used to extinguish $1,993.2 million aggregate outstanding principal amount of our senior notes pursuant to cash tender offers for certain outstanding series of our senior notes, at a total reacquisition price of $2,154.8 million. Additionally, we used cash on hand to redeem $500.0 million of other senior notes that matured in 2021. We also had deferred business combination payments of $145.0 million that were paid in 2021 under the terms of the purchase agreements.

We place our cash and cash equivalents in highly-rated financial institutions and limit the amount of credit exposure to any one entity. We invest only in high-quality financial instruments in accordance with our internal investment policy.

As of December 31, 2022, $328.2 million of our cash and cash equivalents were held in jurisdictions outside of the U.S. Of this amount, $43.2 million is denominated in U.S. Dollars and, therefore, bears no foreign currency translation risk. The balance of these assets is denominated in currencies of the various countries where we operate. We generally intend to limit distributions from foreign subsidiaries to earnings previously taxed in the U.S., primarily as a result of the transition tax or tax on Global Intangible Low-Taxed Income (“GILTI”), as we would not be subject to further U.S. federal tax. In addition to the previously taxed earnings, we have intercompany notes available to repatriate.

Material Cash Requirements from Known Contractual and Other Obligations

At December 31, 2022, we had outstanding debt of $5,696.5 million, of which $544.3 million was classified as current debt. Of our current debt, we settled the full amount of our $83.0 million of our short-term term loan in February 2023 using $33.9 million in cash and the transfer of all the ZimVie shares that we owned, $86.3 million of senior notes mature on March 19, 2023 and the remaining $375.0 million is outstanding under our five-year revolving facility which we expect to repay during 2023. We believe we can satisfy these debt obligations with cash generated from our operations.

For additional information on our debt, including types of debt, maturity dates, interest rates, debt covenants and available revolving credit facilities, see Note 13 to our consolidated financial statements.

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In February, May, August and December 2022, our Board of Directors declared cash dividends of $0.24 per share. We expect to continue paying cash dividends on a quarterly basis; however, future dividends are subject to approval of the Board of Directors and may be adjusted as business needs or market conditions change.

In February 2016, our Board of Directors authorized a $1.0 billion share repurchase program effective March 1, 2016, with no expiration date. We had not repurchased any shares under this program until the fourth quarter of 2022, when we entered into transactions to repurchase $150.0 million in shares of our common stock. Our third-party broker executed the full $150.0 million of repurchases as of December 31, 2022 for which paid them $126.4 million by December 31, 2022, with the remaining balance we owed settled at the beginning of January 2023. As of December 31, 2022, $850.0 million remained authorized under this program.

As discussed in Note 5 to our consolidated financial statements, we have a 2021 Restructuring Plan and a 2019 Restructuring Plan. The 2021 Restructuring Plan is expected to result in total pre-tax restructuring charges of approximately $220 million, of which approximately $130 million was incurred through December 31, 2022. We expect to reduce gross annual pre-tax operating expenses by approximately $190 million relative to the 2021 baseline expenses by the end of 2024 as program benefits under the 2021 Restructuring Plan are realized. The 2019 Restructuring Plan is expected to result in total pre-tax restructuring charges of approximately $350 million to $400 million, of which approximately $280 million was incurred through December 31, 2022. In our original estimates, we expected to reduce gross annual pre-tax operating expenses by approximately $180 million to $280 million relative to the 2019 baseline expenses by the end of 2023 as program benefits under the 2019 Restructuring Plan are realized. Our latest estimates indicate that we will be near the low end of that range.

As discussed in Note 17 to our consolidated financial statements, the IRS has issued proposed adjustments for years 2010 through 2012, and for years 2013 through 2015, reallocating profits between certain of U.S. and foreign subsidiaries. We have disputed these proposed adjustments and intend to continue to vigorously defend our positions. Although the ultimate timing for resolution of the disputed tax issues is uncertain, future payments may be significant to our operating cash flows.

Under the Tax Cuts and Jobs Act of 2017, we have a $187.8 million liability remaining from a one-time tax on the mandatory deemed repatriation of post-1986 untaxed foreign earnings and profits (“toll charge”) for the deemed repatriation of unremitted foreign earnings. This amount was recorded in non-current income tax liabilities on our consolidated balance sheet as of December 31, 2022.

As discussed in Note 21 to our consolidated financial statements, we are involved in various litigation matters. We estimate the total liabilities for all litigation matters was $349.2 million as of December 31, 2022. We expect to pay these liabilities over the next few years.

In the normal course of business, we enter into purchase commitments, primarily related to raw materials. However, we do not believe these purchase commitments are material to the overall standing of our business or our liquidity.

We have entered into various agreements that may result in future payments dependent upon various events such as the achievement of certain product R&D milestones, sales milestones, or, at our discretion, maintenance of exclusive rights to distribute a product. These estimated payments related to these agreements could range from $0 to $415 million.

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.

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Excess Inventory and Instruments - 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. Similarly, we must also determine if instruments on hand will be put to productive use or remain undeployed as a result of excess supply. Accordingly, inventory and instruments are written down to their 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 instrument systems and components. The basis for the determination is generally the same for all inventory and instrument 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 and instruments 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 the consolidated 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.

We recognize tax liabilities in accordance with the Financial Accounting Standards Board (“FASB”) 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 will be 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 product, 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 the carrying value of goodwill and indefinite life intangible assets annually, or whenever events or circumstances indicate that the fair value is below its carrying amount. We evaluate the carrying value of finite life intangible assets whenever events or circumstances indicate 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.

In our annual impairment test in the fourth quarter of 2022, we determined our EMEA reporting unit's carrying value was in excess of its estimated fair value. Fair value was 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. 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 EMEA reporting unit. As a result of its carrying value being in excess of its estimated fair value, we recorded a goodwill impairment charge of $289.8 million. No goodwill balance remains for the EMEA reporting unit.

See Note 11 to our consolidated financial statements for further discussion and the factors that contributed to this impairment charge.

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We have three other reporting units with goodwill assigned to them. For two of these reporting units, their estimated fair values exceeded their carrying values by more than 35 percent. We estimated the fair value of these reporting units using the income and market approaches. We performed a qualitative test on the other reporting unit and concluded it was more likely than not the fair value of this reporting unit exceeded its carrying value.

Future impairment in our reporting units 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 rates and comparable company valuation indicators, which may impact our estimated fair values. 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.

RECENT ACCOUNTING PRONOUNCEMENTS

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.