In the three-month periods ended March 31, 2026 and 2025, we did not enter into any material agreements to acquire the ownership rights or gain access to various technologies. However, we did make $37.5 million of payments in the three-month period ended March 31, 2026, primarily related to contractual obligations from similar agreements which were accrued for as of December 31, 2025. The contractual payments under these agreements are included in "Acquisition of intangible assets" in our condensed consolidated statements of cash flows.
8. Goodwill
The following table summarizes the changes in the carrying amount of goodwill by reportable segment, including the effects of changes to our reportable segments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
EMEA |
|
|
Asia Pacific |
|
|
Total |
|
Balance at December 31, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
9,256.4 |
|
|
$ |
1,405.4 |
|
|
$ |
619.8 |
|
|
$ |
11,281.6 |
|
Accumulated impairment losses |
|
|
(7.7 |
) |
|
|
(1,326.8 |
) |
|
|
- |
|
|
|
(1,334.5 |
) |
|
|
$ |
9,248.7 |
|
|
$ |
78.6 |
|
|
$ |
619.8 |
|
|
$ |
9,947.1 |
|
Goodwill reportable segment change |
|
|
19.9 |
|
|
|
(2.0 |
) |
|
|
(17.9 |
) |
|
|
- |
|
Purchase accounting adjustments related to Paragon 28 acquisition |
|
|
(0.5 |
) |
|
|
- |
|
|
|
- |
|
|
|
(0.5 |
) |
Currency translation |
|
|
(16.5 |
) |
|
|
(0.8 |
) |
|
|
2.5 |
|
|
|
(14.8 |
) |
Balance at March 31, 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
9,259.3 |
|
|
$ |
1,402.6 |
|
|
$ |
604.4 |
|
|
$ |
11,266.3 |
|
Accumulated impairment losses |
|
|
(7.7 |
) |
|
|
(1,326.8 |
) |
|
|
- |
|
|
|
(1,334.5 |
) |
|
|
$ |
9,251.6 |
|
|
$ |
75.8 |
|
|
$ |
604.4 |
|
|
$ |
9,931.8 |
|
As discussed further in Note 15, the composition of our operating segments and reportable segments have changed. Goodwill has been reallocated from our previous reportable segments to reflect the new structure. We now have five reporting units with goodwill assigned to them as follows: 1) Americas excluding CMFT and Foot and Ankle, 2) Americas CMFT, 3) Europe, Middle East and Africa ("EMEA") excluding Foot and Ankle, 4) Asia Pacific excluding Foot and Ankle, and 5) Global Foot and Ankle.
As of January 31, 2026, we estimated the fair value of all of our reporting units, except for Americas CMFT, in order to reallocate goodwill amongst our reportable segments and to test for impairment due to the change. The Americas CMFT reporting unit was not tested for impairment as it was not impacted by the reportable segment change and therefore will be tested as part of our annual goodwill impairment test in the fourth quarter of 2026. Goodwill was reallocated amongst the new reporting units using the relative fair method. The relative fair method reallocates the goodwill that existed prior to the change by comparing the fair value of the reporting unit prior to the change versus the fair value of the components that have changed.
We estimated the fair value of these reporting units 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 units and considers differences between our reporting unit and the comparable companies. We also estimated the future cash flows of the reporting units utilizing risk-adjusted discount rates, which we also consider a significant assumption.
In estimating the future cash flows of the reporting units, we utilized a combination of market and company-specific inputs that a market participant would use in assessing the fair value of the reporting units. The primary market input was revenue growth rates. These rates were based upon historical trends and estimated future growth drivers such as an aging global population, obesity and more active lifestyles. Significant company specific inputs included assumptions regarding how the reporting units could leverage operating expenses as revenue grows and the impact any of our differentiated products or new products will have on revenues.
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.
No impairment charges were required as a result of this testing. However, our Global Foot and Ankle reporting unit's estimated fair value only exceeded its carrying value by approximately 5 percent. The cash flows and assets for our Global Foot and Ankle reporting unit are practically all from our acquisition of Paragon 28 in April 2025. Since the assets of the Global Foot and Ankle reporting unit were recorded at fair value on the acquisition date, this narrow margin is expected. The other three reporting units we
On June 27, 2025, we entered into a new five-year revolving credit agreement (the “2025 Five-Year Credit Agreement”) and a new 364-day revolving credit agreement (the “2025 364-Day Revolving Credit Agreement”), as described below. Borrowings under these credit agreements will be used for general corporate purposes.
The 2025 Five-Year Credit Agreement contains a five-year unsecured revolving facility of $1.5 billion (the “2025 Five-Year Revolving Facility”). The 2025 Five-Year Credit Agreement replaced the previous revolving credit agreement entered into on June 28, 2024 (the “2024 Five-Year Credit Agreement”), which contained a five-year unsecured revolving facility of $1.5 billion (the “2024 Five-Year Revolving Facility”).
The 2025 Five-Year Credit Agreement will mature on June 27, 2030, with two one-year extensions exercisable at our discretion and subject to required lender consent. The 2025 Five-Year Credit Agreement also includes an uncommitted incremental feature allowing us to request an increase of the facility by an aggregate amount of up to $500.0 million.
Borrowings under the 2025 Five-Year Credit Agreement bear interest at floating rates, based upon either an adjusted term secured overnight financing rate (“Term SOFR”) for the applicable interest period or an alternate base rate, in each case, plus an applicable margin determined by reference to our senior unsecured long-term debt credit rating. We pay a facility fee on the aggregate amount of the 2025 Five-Year Revolving Facility at a rate determined by reference to our senior unsecured long-term debt credit rating.
The 2025 Five-Year Credit Agreement contains customary affirmative and negative covenants and events of default for unsecured financing arrangements, including, among other things, limitations on consolidations, mergers, and sales of assets. The 2025 Five-Year Credit Agreement also requires us to maintain a consolidated indebtedness to consolidated EBITDA ratio of no greater than 4.5 to 1.0 as of the last day of any period of four consecutive fiscal quarters (with such ratio subject to increase to 5.0 to 1.0 for a period of time in connection with a qualified material acquisition and certain other restrictions). We were in compliance with all covenants under the 2025 Five-Year Credit Agreement as of March 31, 2026. As of March 31, 2026, there were no outstanding borrowings under the 2025 Five-Year Credit Agreement.
The 2025 364-Day Revolving Credit Agreement is an unsecured revolving credit facility in the principal amount of $1.0 billion (the “2025 364-Day Revolving Facility”). The 2025 364-Day Revolving Credit Agreement replaced a credit agreement entered into on June 28, 2024, which was also a 364-day unsecured revolving credit facility of $1.0 billion (the “2024 364-Day Revolving Facility”). There were no borrowings outstanding under the 2024 364-Day Revolving Facility when it was terminated.
The 2025 364-Day Revolving Facility will mature on June 26, 2026. Borrowings under the 2025 364-Day Revolving Credit Agreement bear interest at floating rates based upon either an adjusted Term SOFR for the applicable interest period or an alternate base rate, in each case, plus an applicable margin determined by reference to our senior unsecured long-term debt credit rating. We pay a facility fee on the aggregate amount of the 2025 364-Day Revolving Facility at a rate determined by reference to our senior unsecured long-term debt credit rating.
The 2025 364-Day Revolving Credit Agreement contains customary affirmative and negative covenants and events of default for an unsecured financing arrangement including, among other things, limitations on consolidations, mergers, and sales of assets. The 2025 364-Day Revolving Credit Agreement also requires us to maintain a consolidated indebtedness to consolidated EBITDA ratio of no greater than 4.5 to 1.0 as of the last day of any period of four consecutive fiscal quarters (with such ratio subject to increase to 5.0 to 1.0 in connection with a qualified material acquisition and certain other restrictions). We were in compliance with all covenants under the 2025 364-Day Revolving Credit Agreement as of March 31, 2026. As of March 31, 2026, there were no outstanding borrowings under the 2025 364-Day Revolving Credit Agreement.
On August 28, 2023, we entered into an uncommitted revolving facility letter (the "Uncommitted Credit Facility"), which provides that from time to time, we may request, and the lender in its absolute and sole discretion may provide, short-term loans. Borrowings under the Uncommitted Credit Facility may be used only for general corporate and working capital purposes. The Uncommitted Credit Facility provides that the aggregate principal amount of outstanding borrowings at any time shall not exceed $300.0 million. Each borrowing under the Uncommitted Credit Facility will mature on the maturity date specified by the lender at the time of the advance, which will be no more than 90 days following the date of the advance. The Uncommitted Credit Facility and borrowings thereunder are unsecured. Borrowings under the Uncommitted Credit Facility bear interest at floating rates, based upon either Term SOFR for the applicable interest period, the prime rate, or lender’s cost of funds, in each case, plus an applicable margin determined at the time of each borrowing. The Uncommitted Credit Facility includes customary affirmative and negative covenants and events of default for unsecured uncommitted financing arrangements. We were in compliance with all covenants under the Uncommitted Credit Facility as of March 31, 2026. As of March 31, 2026, there were no outstanding borrowings under the Uncommitted Credit Facility.
Borrowings under our revolving credit facilities have been executed with underlying notes that have maturities of three months or less. At maturity of the underlying note, we elect to either repay the note, borrow the same amount, or some combination thereof. On
|
|
|
|
|
|
|
|
|
Level 3 - Liabilities |
|
March 31, 2026 |
|
|
March 31, 2025 |
|
Contingent payments related to acquisitions |
|
|
|
|
|
|
Beginning balance |
|
$ |
299.2 |
|
|
$ |
180.7 |
|
Change in estimates |
|
|
8.1 |
|
|
|
1.7 |
|
Settlements |
|
|
(73.9 |
) |
|
|
(45.2 |
) |
Foreign currency impact |
|
|
- |
|
|
|
0.6 |
|
Ending balance |
|
$ |
233.4 |
|
|
$ |
137.7 |
|
Changes in estimates for contingent payments related to acquisitions are recognized in the "Acquisition, integration, divestiture and related" line item on our condensed consolidated statements of earnings.
12. Derivative Instruments and Hedging Activities
We are exposed to certain market risks relating to our ongoing business operations, including foreign currency exchange rate risk, commodity price risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through regular operating and financing activities. Currently, the only risks that we manage through the use of derivative instruments are interest rate risk and foreign currency exchange rate risk.
Interest Rate Risk
Derivatives Designated as Fair Value Hedges
We currently use fixed-to-variable interest rate swaps to manage our exposure to interest rate risk from our cash investments and debt portfolio. These derivative instruments are designated as fair value hedges under GAAP. Changes in the fair value of the derivative instrument are recorded in current earnings and are offset by gains or losses on the underlying debt instrument.
As of March 31, 2026 and December 31, 2025, the following amounts were recorded on our condensed consolidated balance sheets related to cumulative basis adjustments for fair value hedges (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount of the Hedged Liabilities |
|
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liabilities |
|
Balance Sheet Line Item |
|
March 31, 2026 |
|
|
December 31, 2025 |
|
|
|
March 31, 2026 |
|
|
December 31, 2025 |
|
Long-term debt |
|
$ |
882.4 |
|
|
$ |
884.0 |
|
|
|
$ |
(114.1 |
) |
|
$ |
(112.4 |
) |
Derivatives Designated as Cash Flow Hedges
In 2014, we entered into forward starting interest rate swaps that were designated as cash flow hedges of our thirty-year tranche of senior notes due 2045 we expected to issue in 2015. The forward starting interest rate swaps mitigated the risk of changes in interest rates prior to the completion of the notes offering. The interest rate swaps were settled, and the remaining loss to be recognized at March 31, 2026, was $22.3 million, which will be recognized using the effective interest rate method over the remaining maturity period of the hedged notes.
Foreign Currency Exchange Rate 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. To reduce the potential effects of foreign currency exchange rate movements on net earnings, we enter into derivative financial instruments in the form of foreign currency exchange forward contracts with major financial institutions. We also designated our Euro notes and Swiss notes as net investment hedges of investments in foreign subsidiaries. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Swiss Francs, Japanese Yen, British Pounds, Chinese Renminbi, Canadian Dollars, Australian Dollars, Korean Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan Dollars, South African Rand, Russian Rubles, Indian Rupees, Turkish Lira, Polish Zloty, Danish Krone, and Norwegian Krone. We do not use derivative financial instruments for trading or speculative purposes.
Derivatives Designated as Net Investment Hedges
We are exposed to the impact of foreign exchange rate fluctuations in the investments in our wholly-owned foreign subsidiaries that are denominated in currencies other than the U.S. Dollar. In order to mitigate the volatility in foreign exchange rates, we issued Euro notes in December 2016, November 2019 and November 2024 and designated 100 percent of the Euro notes to hedge our net investment in certain wholly-owned foreign subsidiaries that have a functional currency of the Euro. In September 2025, we issued
Swiss Franc notes and designated 100 percent of the Swiss Franc notes to hedge our net investment in certain wholly-owned foreign subsidiaries that have a functional currency of the Swiss Franc. All changes in the fair value of a hedging instrument designated as a net investment hedge are recorded as a component of AOCI in the condensed consolidated balance sheets.
At March 31, 2026, we had receive-fixed-rate, pay-fixed-rate cross-currency interest swaps with notional amounts outstanding of Japanese Yen 54.1 billion and Swiss Franc 290 million. These transactions further hedge our net investment in certain wholly-owned foreign subsidiaries that have a functional currency of Japanese Yen and Swiss Franc. All changes in the fair value of a derivative instrument designated as a net investment hedge are recorded as a component of AOCI in the condensed consolidated balance sheets. The portion of this change related to the excluded component will be amortized into earnings over the life of the derivative while the remainder will be recorded in AOCI until the hedged net investment is sold or substantially liquidated. We recognize the excluded component in interest expense, net on our condensed consolidated statements of earnings. The net cash received or paid related to the receive-fixed-rate, pay-fixed-rate component of the cross-currency interest rate swaps is reflected in investing cash flows in our condensed consolidated statements of cash flows. In the three-month period ended March 31, 2025, Euro 225 million of our cross-currency interest rate swaps matured at a loss of $8.0 million. The settlement of this loss with the counterparties is reflected in investing cash flows in our condensed consolidated statements of cash flows and will remain in AOCI on our condensed consolidated balance sheet until the hedged net investment is sold or substantially liquidated. No cross-currency interest rate swaps matured in the three-month period ended March 31, 2026.
Derivatives Designated as Cash Flow Hedges
Our revenues are generated in various currencies throughout the world. However, a significant amount of our inventory is produced in U.S. Dollars. Therefore, movements in foreign currency exchange rates may have different proportional effects on our revenues compared to our cost of products sold. To minimize the effects of foreign currency exchange rate movements on cash flows, we hedge intercompany sales of inventory expected to occur within the next 30 months with foreign currency exchange forward contracts. We designate these derivative instruments as cash flow hedges.
We perform quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and confirming that forecasted transactions have not changed significantly. We also assess on a quarterly basis whether there have been adverse developments regarding the risk of a counterparty default. For derivatives which qualify as hedges of future cash flows, the gains and losses are temporarily recorded in AOCI and then recognized in cost of products sold when the hedged item affects net earnings. On our condensed consolidated statements of cash flows, the settlements of these cash flow hedges are recognized in operating cash flows.
For foreign currency exchange forward contracts and options outstanding at March 31, 2026, we had obligations to purchase U.S. Dollars and sell Euros, Japanese Yen, British Pounds, Canadian Dollars, Australian Dollars, Korean Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan Dollars, South African Rand, Indian Rupees, Polish Zloty, Danish Krone, and Norwegian Krone and obligations to purchase Swiss Francs and sell U.S. Dollars. These derivatives mature at dates ranging from April 2026 through August 2028. As of March 31, 2026, the notional amounts of outstanding forward contracts and options entered into with third parties to purchase U.S. Dollars were $1,667.4 million. As of March 31, 2026, the notional amounts of outstanding forward contracts and options entered into with third parties to purchase Swiss Francs were $427.7 million.
Derivatives Not Designated as Hedging Instruments
We enter into foreign currency forward exchange contracts with terms of one to three months to manage currency exposures for monetary assets and liabilities denominated in a currency other than an entity’s functional currency. As a result, any foreign currency remeasurement gains/losses recognized in earnings are generally offset with gains/losses on the foreign currency forward exchange contracts in the same reporting period. The net amount of these offsetting gains/losses is recorded in other income, net. Any outstanding contracts are recorded on the balance sheet at fair value as of the end of the reporting period. The notional amounts of these contracts are generally in a range of $1.25 billion to $1.75 billion per quarter.
15. Segment Information
We design, manufacture and market orthopedic reconstructive products; sports medicine, biologics, extremities and trauma products; CMFT; surgical products; and a suite of integrated digital and robotic technologies that leverage data, data analytics and artificial intelligence. Our chief operating decision maker (“CODM”) is our Chairman, President and Chief Executive Officer. Our CODM allocates resources to achieve our operating profit goals through three operating segments. These operating segments, which also constitute our reportable segments, are Americas; EMEA; and Asia Pacific.
In the three-month period ended March 31, 2026, the responsibilities of certain senior leaders who report to the CODM and the related operating profit information these leaders present to the CODM has changed. The changes were primarily: 1) results related to our Foot and Ankle business in EMEA and Asia Pacific are now included in the results of the Americas, and 2) certain product category expenses, such as centralized R&D and global marketing, are included in the results of the Americas. Prior period reportable segment financial information has been recast to conform to the current period presentation.
Our CODM evaluates performance based upon segment operating profit exclusive of operating expenses and income pertaining to certain inventory and manufacturing-related charges, intangible asset amortization, goodwill and intangible asset impairment, restructuring and other cost reduction initiatives, acquisition, integration, divestiture and related, certain litigation, certain European Union Medical Device Regulation expenses, other charges and corporate functions (collectively referred to as “Corporate items”). Corporate functions include corporate legal, finance, information technology, human resources and other corporate departments as well as stock-based compensation and certain operations, distribution and quality assurance. Intercompany transactions have been eliminated from segment operating profit. In addition to evaluating performance on a monthly basis, the CODM uses sales and operating profit information to manage the business, including identifying areas of focus and growth, reviewing operating trends and allocating resources. Starting in 2026, our CODM no longer reviews segment asset information.
Our Americas operating segment is comprised principally of the U.S. and includes other North, Central and South American markets. Our Americas operating segment also includes the results of our Foot and Ankle business in EMEA and Asia Pacific and certain product category expenses, such as centralized R&D and global marketing. Our EMEA operating segment is comprised principally of the commercial operations in Europe and includes the Middle East and African markets. Our Asia Pacific operating segment is comprised principally of the commercial operations in Japan, China and Australia and includes other Asian and Pacific markets. Since the Americas includes additional costs related to many centralized global product category expenses, profitability metrics in this operating segment are not comparable to the EMEA and Asia Pacific operating segments.
Segment operating profit measures by segment are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
EMEA |
|
|
Asia Pacific |
|
|
Total |
|
|
|
Three Months Ended March 31, |
|
|
Three Months Ended March 31, |
|
|
Three Months Ended March 31, |
|
|
Three Months Ended March 31, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
1,324.5 |
|
|
$ |
1,206.9 |
|
|
$ |
489.9 |
|
|
$ |
441.7 |
|
|
$ |
272.3 |
|
|
$ |
260.5 |
|
|
$ |
2,086.7 |
|
|
$ |
1,909.1 |
|
Cost of products sold, excluding intangible asset amortization |
|
|
297.8 |
|
|
|
267.6 |
|
|
|
186.4 |
|
|
|
165.8 |
|
|
|
88.0 |
|
|
|
83.3 |
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
425.6 |
|
|
|
359.6 |
|
|
|
149.5 |
|
|
|
123.3 |
|
|
|
88.0 |
|
|
|
85.1 |
|
|
|
|
|
|
|
Research and development |
|
|
71.9 |
|
|
|
71.1 |
|
|
|
1.7 |
|
|
|
2.1 |
|
|
|
3.3 |
|
|
|
3.3 |
|
|
|
|
|
|
|
Segment profit |
|
$ |
529.3 |
|
|
$ |
508.5 |
|
|
$ |
152.2 |
|
|
$ |
150.5 |
|
|
$ |
93.0 |
|
|
$ |
88.8 |
|
|
$ |
774.5 |
|
|
$ |
747.8 |
|
Corporate items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239.3 |
|
|
|
304.5 |
|
Intangible asset amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162.1 |
|
|
|
151.0 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0 |
|
|
|
(2.9 |
) |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68.8 |
|
|
|
66.2 |
|
Earnings before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
301.3 |
|
|
$ |
229.0 |
|
Depreciation and amortization included in segment profit is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
2026 |
|
|
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
$ |
44.9 |
|
|
$ |
40.7 |
|
|
EMEA |
|
|
|
16.5 |
|
|
|
15.6 |
|
|
Asia Pacific |
|
|
|
15.3 |
|
|
|
15.2 |
|
|
Corporate items |
|
|
|
31.2 |
|
|
|
31.9 |
|
|
Intangible asset amortization |
|
|
|
162.1 |
|
|
|
151.0 |
|
|
Total |
|
|
$ |
270.0 |
|
|
$ |
254.4 |
|
|
16. Commitments and Contingencies
Litigation
From time to time, we are involved in various legal proceedings, including product liability, intellectual property, stockholder matters, tax disputes, commercial disputes, employment matters, whistleblower and qui tam claims and investigations, governmental proceedings and investigations, and other legal matters that arise in the normal course of our 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 establish liabilities for loss contingencies on an undiscounted basis when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. For matters where a loss is believed to be reasonably possible, but not probable, or if no reasonable estimate of known or probable loss is available, no accrual has been made.
When determining the estimated loss or range of loss, significant judgment is required. Estimates of probable losses resulting from litigation and other contingencies are inherently difficult to predict, particularly when the matters are in early procedural stages with incomplete facts or legal discovery, involve unsubstantiated or indeterminate claims for damages, involve multidistrict litigation, involve multiple foreign jurisdictions and/or potentially involve penalties, fines or punitive damages. In addition to the matters described herein, we remain subject to the risk of future governmental, regulatory and legal actions. Governmental and regulatory actions may lead to product recalls, injunctions and other restrictions on our operations and monetary sanctions, which may include substantial civil or criminal penalties. Actions involving intellectual property could result in a loss of patent protection or the ability to market products, which could lead to significant sales reductions or cost increases, or otherwise materially affect the results of our operations.
We recognize litigation-related charges and gains in Selling, general and administrative expense on our condensed consolidated statement of earnings. During the three-month periods ended March 31, 2026 and 2025, we recognized $5.0 million and $2.1 million, respectively, of net litigation-related charges. At March 31, 2026 and December 31, 2025, accrued litigation liabilities were $133.1 million and $136.2 million, respectively. These litigation-related charges and accrued liabilities reflect all of our litigation-related contingencies and not just the claims discussed below. We have also succeeded to Paragon 28’s existing litigation matters as a result of the Paragon 28 acquisition. We have evaluated these litigation matters and have recognized immaterial related liabilities as part of the assets and liabilities acquired on the acquisition date. The ultimate cost of litigation could be materially different than the amount of the current estimates and accruals and could have a material adverse impact on our financial condition and results of operations.
In connection with our ongoing efforts to transform our sales and distribution strategies and go-to-market model in China, including making significant changes across our independent distributor network, some of the displaced or impacted distributors in China have formally and informally raised legal claims against us. Additional claims may come from these and other parties in the future. Based on currently known information and our legal assessment of these lawsuits and other claims in China, we cannot reasonably estimate the possible loss or range of loss that may result from these claims in excess of the losses we have accrued. The changes in go-to-market model and commercial strategies in China, the outcome of existing litigation and the potential for additional litigation could have a material adverse impact on our results of operations in China.
Other Contingencies
Contractual obligations: We have entered into development, distribution, investment and other contractual arrangements, such as the one described below, not accounted for as business combinations that may result in future payments dependent upon various events such as a capital call, the achievement of certain product R&D milestones, sales milestones, or, at our discretion, maintenance of exclusive rights to distribute a product. Since there is uncertainty on the timing or whether such payments will have to be made, they have not been recognized on our condensed consolidated balance sheets. These estimated payments could range from $0 to approximately $525 million.
In the three-month period ended March 31, 2026, we executed a commitment letter to invest in an investment fund with a capital commitment of up to $300 million, which is expected to become callable over a four-year period. The investment fund intends to invest in healthcare companies and assets, with a primary focus on transformative healthcare innovations that address musculoskeletal and rheumatologic conditions, enabling improved human mobility and performance, primarily through privately negotiated investments in healthcare enterprises and assets. We expect that the investment fund will commence in the second half of 2026, at which time we will begin making investments.
U.S. Tariffs: On February 20, 2026, the U.S. Supreme Court ruled the International Emergency Economic Powers Act ("IEEPA") does not authorize the President to impose tariffs, effectively invalidating IEEPA-based tariffs that had been in effect since February 2025. However, the ruling did not invalidate any other tariffs. In addition, immediately following the IEEPA decision, the U.S. government initiated new tariffs under alternative authorities. Following the Supreme Court ruling, on March 4, 2026, the Court of International Trade issued an order directing Customs and Border Protection ("CBP") to begin paying refunds immediately. The CBP has begun developing a new system to process the unprecedented volume of IEEPA tariff refunds. Prior to the Supreme Court ruling, we had paid IEEPA tariffs of approximately $77 million. We believe it is probable that we will recover the full amount of the IEEPA tariffs paid and therefore have recognized a receivable under the loss recovery accounting model. As a result, during the three-month period ended March 31, 2026, we reduced cost of products sold by approximately $30 million, representing the amount of inventory we previously sold to customers upon which we had recognized expense for tariffs. In addition, during the three-month period ended March 31, 2026, we reduced inventory and property, plant and equipment by $39 million and $8 million, respectively, for tariffs that had been capitalized as part of the cost of inventory and instruments.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the interim condensed consolidated financial statements and corresponding notes included elsewhere in this Form 10-Q. Amounts reported in millions within this Quarterly Report on Form 10-Q are computed based on the actual amounts. As a result, the sum of the components may not equal the total amount reported in millions due to rounding. In addition, certain columns and rows within tables may not sum to the totals due to the use of rounded numbers. Percentages presented are calculated from the underlying unrounded amounts.
Executive Level Overview
Results for the Three-Month Period ended March 31, 2026
In the three-month period ended March 31, 2026, our net sales increased 9.3 percent when compared to the same prior year period. Net sales growth was driven by a combination of our Paragon 28 acquisition, positive effects of changes in foreign currency exchange rates, opportunistic end-of-quarter customer purchases, timing of ROSA® Robot and bone cement sales, market growth and new product introductions. Paragon 28 had a positive impact on our net sales of 3.9 percent in the three-month period ended March 31, 2026. Additionally, our net sales experienced a positive effect of 2.5 percent from changes in foreign currency exchange rates in the three-month period ended March 31, 2026.
Our net earnings were $238.1 million in the three-month period ended March 31, 2026, compared to $182.0 million in the same prior year period. The increase in net earnings was primarily due to increased net sales, a favorable adjustment of approximately $30 million related to probable U.S. tariff refunds, lower restructuring charges, lower spending on R&D projects and savings from our restructuring programs.
2026 Outlook
We expect year-over-year net sales growth of 2.5 percent to 4.5 percent in 2026 to be driven by a combination of market growth, new product introductions, the Paragon 28 acquisition and positive effects of changes in foreign currency exchange rates, partially offset by the expected impact from changes to our go-to-market strategy and execution in the U.S. and certain other international markets, as well as price declines. These expected impacts, combined with the uncertain timing of incentivized stocking orders and capital sales, could cause fluctuations in our quarterly results. We estimate that the Paragon 28 acquisition will contribute an additional 1.0 percent to the year-over-year net sales growth for the period up until the one-year anniversary of the deal closing in April 2026. Based on foreign currency exchange rates at the end of 2025, we expect foreign currency to have a 0.5 percent positive impact on year-over-year net sales growth. We estimate operating profit will increase in 2026 when compared to 2025 due to higher net sales, leverage from fixed operating expenses, the expected refund from U.S. tariffs paid in 2025, ongoing savings from our restructuring plans, non-recurrence of inventory and instrument charges related to certain product lines we expect to discontinue and lower employee termination and other charges from our restructuring plans. However, we expect that these favorable items may be partially offset by the impact from inflation, investments in our U.S. commercial sales channel, higher net interest expense and a higher estimated effective tax rate due to favorable 2025 adjustments that are not expected to recur.
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, Upper Extremities, Foot and Ankle; Trauma, Craniomaxillofacial and Thoracic); and Technology & Data, Bone Cement and Surgical. 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.
Net Sales by Geography
The following table presents our net sales by geography and the percentage changes (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
2026 |
|
|
2025 |
|
|
% Inc |
|
|
United States |
|
$ |
1,209.4 |
|
|
$ |
1,113.6 |
|
|
|
8.6 |
|
% |
International |
|
|
877.4 |
|
|
|
795.5 |
|
|
|
10.3 |
|
|
Total |
|
$ |
2,086.7 |
|
|
$ |
1,909.1 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales by Product Category
The following table presents our net sales by product category and the percentage changes (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
2026 |
|
|
2025 |
|
|
% Inc |
|
|
Knees |
|
$ |
828.6 |
|
|
$ |
792.9 |
|
|
|
4.5 |
|
% |
Hips |
|
|
524.1 |
|
|
|
495.8 |
|
|
|
5.7 |
|
|
S.E.T. |
|
|
562.2 |
|
|
|
470.5 |
|
|
|
19.5 |
|
|
Technology & Data, Bone Cement and Surgical |
|
|
171.8 |
|
|
|
149.9 |
|
|
|
14.6 |
|
|
Total |
|
$ |
2,086.7 |
|
|
$ |
1,909.1 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents our net sales by geography for our Knees and Hips product categories (dollars in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
2026 |
|
|
2025 |
|
|
% Inc |
|
|
Knees |
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
469.2 |
|
|
$ |
459.0 |
|
|
|
2.2 |
|
% |
International |
|
|
359.4 |
|
|
|
333.9 |
|
|
|
7.6 |
|
|
Total |
|
$ |
828.6 |
|
|
$ |
792.9 |
|
|
|
4.5 |
|
|
Hips |
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
277.5 |
|
|
$ |
264.3 |
|
|
|
5.0 |
|
% |
International |
|
|
246.6 |
|
|
|
231.5 |
|
|
|
6.5 |
|
|
Total |
|
$ |
524.1 |
|
|
$ |
495.8 |
|
|
|
5.7 |
|
|
Demand (Volume and Mix) Trends
Changes in volume and mix of product sales had a positive effect of 7.2 percent on year-over-year sales during the three-month period ended March 31, 2026. The Paragon 28 acquisition contributed 3.9 percent to volume growth in the three-month period ended March 31, 2026. In addition, opportunistic end-of-quarter customer purchases, timing of ROSA® Robot and bone cement sales, market growth and new product introductions contributed positively to volume and mix trends.
Pricing Trends
Global selling prices had a negative effect of 0.4 percent on year-over-year sales during the three-month period ended March 31, 2026. The majority of countries in which we operate continue to experience pricing pressure from local hospitals, health systems, and governmental healthcare cost containment efforts. However, we have had success in offsetting negative effects of pricing pressure due to internal initiatives and being able to pass some inflationary impacts on to customers.
Foreign Currency Exchange Rates
For the three-month period ended March 31, 2026, changes in foreign currency exchange rates had a positive effect of 2.5 percent on year-over-year sales. If foreign currency exchange rates remain at levels consistent with recent rates, we estimate there will be a positive impact of approximately 0.5 percent on full-year 2026 sales.
Geography
The 8.6 percent net sales growth in the U.S. in the three-month period ended March 31, 2026 was driven by the Paragon 28 acquisition, opportunistic end-of-quarter customer purchases, timing of ROSA® Robot sales and market growth in our Hips and S.E.T. product categories. The Paragon 28 acquisition contributed 5.4 percent to U.S. net sales growth in the three-month period ended March 31, 2026. Internationally, net sales increased by 10.3 percent during the three-month period ended March 31, 2026 when compared to the same prior year period. This increase was driven by the Paragon 28 acquisition, timing of bone cement sales, market growth in most of our international markets and changes in foreign currency exchange rates. The Paragon 28 acquisition contributed 1.9 percent to International net sales growth in the three-month period ended March 31, 2026. Our International sales were positively affected by 6.1 percent due to changes in foreign currency exchange rates in the three-month period ended March 31, 2026.
Product Categories
Knees and Hips net sales benefited from opportunistic end-of-quarter customer purchases, market growth and new product introductions in the three-month period ended March 31, 2026. Changes in foreign currency exchange rates had positive effects of 2.7 percent and 2.5 percent on Knees and Hips net sales, respectively, in the three-month period ended March 31, 2026. The S.E.T. net sales increase in the three-month period ended March 31, 2026, was primarily the result of the Paragon 28 acquisition and growth in our upper extremities and craniomaxillofacial and thoracic products. The Paragon 28 acquisition contributed 16.0 percent to S.E.T. net sales growth in the three-month period ended March 31, 2026. Technology & Data, Bone Cement and Surgical net sales increased 14.6 percent in the three-month period ended March 31, 2026, primarily due to strong net sales of our ROSA® Robot and bone cement products.
Expenses as a Percentage of Net Sales
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|
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|
|
Three Months Ended |
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|
|
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|
|
March 31, |
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|
|
% Inc / |
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|
|
|
2026 |
|
|
|
2025 |
|
|
|
(Dec) |
|
|
Cost of products sold, excluding intangible asset amortization |
|
|
27.6 |
|
% |
|
|
28.8 |
|
% |
|
|
(1.2 |
) |
% |
Intangible asset amortization |
|
|
7.8 |
|
|
|
|
7.9 |
|
|
|
|
(0.1 |
) |
|
Research and development |
|
|
5.0 |
|
|
|
|
5.8 |
|
|
|
|
(0.8 |
) |
|
Selling, general and administrative |
|
|
40.7 |
|
|
|
|
39.7 |
|
|
|
|
1.0 |
|
|
Restructuring and other cost reduction initiatives |
|
|
0.3 |
|
|
|
|
1.9 |
|
|
|
|
(1.6 |
) |
|
Acquisition, integration, divestiture and related |
|
|
0.7 |
|
|
|
|
0.6 |
|
|
|
|
0.1 |
|
|
Operating profit |
|
|
17.9 |
|
|
|
|
15.3 |
|
|
|
|
2.6 |
|
|
Cost of products sold, excluding intangible asset amortization, increased in amount but decreased as a percentage of net sales in the three-month period ended March 31, 2026, when compared to the same prior year period. A favorable adjustment of approximately $30 million related to probable U.S. tariff refunds, lower excess and obsolete inventory charges due to more efficient use of our inventory and a favorable mix of products being sold contributed to the decline as a percentage of net sales. However, this was partially offset by incremental expense of approximately $12 million related to Paragon 28 inventory sold being stepped-up to fair value on the acquisition date.
Intangible asset amortization expense increased in amount but decreased as a percentage of net sales in the three-month period ended March 31, 2026 compared to the same prior year period due to the Paragon 28 acquisition.
R&D expenses decreased in amount and as a percentage of net sales in the three-month period ended March 31, 2026, when compared to the same prior year period. The decreases were driven by completion of our spending on our initial compliance with the European Union Medical Device Regulation at the end of 2025, decreases in spending on certain projects and savings from our 2025 Restructuring Plan. These favorable items were partially offset by Paragon 28 and Monogram-related R&D expenses.
Selling, general and administrative (“SG&A”) expenses increased in amount and as a percentage of net sales in the three-month period ended March 31, 2026, when compared to the same prior year period. The increases were driven by variable selling expenses from higher net sales, Paragon 28-related expenses and investments made in our sales force and other areas.
In February 2025 and then as further expanded in December 2025, and in December of each of 2023, 2021 and 2019, we initiated global restructuring programs. We also have other cost reduction and optimization initiatives that have the goal of reducing costs across the organization. We recognized expenses of $6.3 million in the three-month period ended March 31, 2026 compared to $36.0 million in the same prior year period related to these programs and initiatives. These expenses were primarily related to employee termination benefits, sales agent contract terminations, and consulting and project management expenses associated with these programs, as well as expenses related to other optimization initiatives. The expenses were lower in the 2026 period when compared to the 2025 period due to the completion of the 2023, 2021 and 2019 plans by the end of 2025 as well as a majority of expense related to the 2025 Restructuring Plan having already been incurred by the end of 2025. For more information regarding these expenses, see Note 4 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.
Acquisition, integration, divestiture and related expenses increased in amount and as a percentage of net sales in the three-month period ended March 31, 2026, when compared to the same prior year period. The increase was primarily driven by Paragon 28 and Monogram-related integration costs.
Other (Expense) Income, Net, Interest Expense, Net, and Income Taxes
In the three-month period ended March 31, 2026, we recognized $3.0 million of expense in our other (expense) income, net financial statement line item compared to $2.9 million of income in the same prior year period. Our other (expense) income, net financial statement line item is primarily composed of pension-related gains, changes in the value of our investments, and foreign currency exchange rate-related gains and losses and can vary based upon market conditions.
Interest expense, net, increased in the three-month period March 31, 2026, when compared to the same prior year period. The increased interest expense was due to higher average debt balances outstanding related to the Paragon 28 acquisition.
In the three-month period ended March 31, 2026, our effective tax rate (“ETR”) was 20.9 percent, compared to 20.3 percent in the three-month period ended March 31, 2025. The 20.9 percent and the 20.3 percent ETR in the three-month period ended March 31, 2026 and 2025, respectively, were primarily driven by our mix of earnings between U.S. and foreign locations.
Segment Operating Profit
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|
Operating Profit as a |
|
|
|
|
Net Sales |
|
|
Operating Profit |
|
|
Percentage of Net Sales |
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
(dollars in millions) |
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
Americas |
|
$ |
1,324.5 |
|
|
$ |
1,206.9 |
|
|
$ |
529.3 |
|
|
$ |
508.5 |
|
|
|
40.0 |
|
% |
|
42.1 |
|
% |
EMEA |
|
|
489.9 |
|
|
$ |
441.7 |
|
|
|
152.2 |
|
|
|
150.5 |
|
|
|
31.1 |
|
|
|
34.1 |
|
|
Asia Pacific |
|
|
272.3 |
|
|
$ |
260.5 |
|
|
|
93.0 |
|
|
|
88.8 |
|
|
|
34.2 |
|
|
|
34.1 |
|
|
|
|
|
|
|
|
|
|
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|
Americas
In the Americas, operating profit increased while operating profit as a percentage of net sales decreased in the three-month period ended March 31, 2026, when compared to the same prior year period. Operating profit increased primarily due to the acquisition of Paragon 28. Operating profit as a percentage of net sales decreased due to the fact that the operating profit contributed by Paragon 28 is at a lower operating profit margin as well as investments we have made in our sales force.
EMEA
In EMEA, operating profit increased while operating profit as a percentage of net sales decreased in the three-month period ended March 31, 2026, when compared to the same prior year period. The increase in operating profit was primarily due to higher sales. The decrease in operating profit as a percentage of sales was primarily due to investments in our sales force as well as higher bad debt charges.
Asia Pacific
In Asia Pacific, operating profit and operating profit as a percentage of net sales increased in the three-month period ended March 31, 2026, when compared to the same prior year period. The increases were due to higher net sales, savings from our 2025 Restructuring Plan and lower bad debt charges.
Liquidity and Capital Resources
As of March 31, 2026, we had $424.2 million in cash and cash equivalents. In addition, we had $1.0 billion available to borrow under our 2025 364-Day Credit Agreement, and $1.5 billion available under our 2025 Five-Year Revolving Facility. The terms of the 2025 364-Day Credit Agreement and the 2025 Five-Year Revolving Facility are described further in Note 9 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.
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 twelve months. However, 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 were $359.4 million in the three-month period ended March 31, 2026, compared to $382.8 million in the same prior year period. The decline in operating cash flows was due to higher bonus payments and unfavorable timing of accounts payable payments relative to the 2025 period.
Cash flows used in investing activities were $159.0 million in the three-month period ended March 31, 2026, compared to $106.0 million in the same prior year period. Instrument and property, plant and equipment additions reflected ongoing investments in our product portfolio, including new product introductions and optimization of our manufacturing and logistics networks. In the three-month period ended March 31, 2026, we paid $39.0 million related to the ownership rights or to gain access to various technologies that were recognized as intangible assets.
Cash flows used in financing activities were $369.2 million in the three-month period ended March 31, 2026, compared to cash flows provided by financing activities of $575.4 million in the same prior year period. In the 2026 period, we repurchased $250.1 million of our common stock using cash on hand. In the 2025 period, we issued senior notes for proceeds of $1,748.1 million and used the proceeds, along with cash on hand, to redeem $863.0 million of senior notes that were to mature on April 1, 2025, and to repurchase $229.8 million of our common stock.
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 March 31, 2026, $326.2 million of our cash and cash equivalents were held in jurisdictions outside of the U.S. Of this amount, $69.2 million is denominated in U.S. Dollars and, therefore, bears no foreign currency translation risk. The remaining amount is denominated in currencies of the various countries where we operate. We generally intend to limit distributions from foreign subsidiaries earnings that were previously taxed in the U.S. These previously taxed earnings would not be subject to further U.S. federal tax.
Our concentrations of credit risks with respect to trade accounts receivable are 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 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.
Material Cash Requirements from Known Contractual and Other Obligations
At March 31, 2026, we had outstanding debt of $7,471.0 million, of which $1,175.9 million was classified as current debt. Our current debt consists of $575.9 million of senior notes that mature on December 13, 2026 and $600.0 million of senior notes that mature on February 19, 2027. We believe we can satisfy these debt obligations with cash on hand, cash generated from our operations, by issuing new debt and/or by borrowing on our committed revolving credit facilities.
For additional information on our debt, including types of debt, maturity dates, interest rates, debt covenants and available revolving credit facilities, see Note 9 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.
In February 2026, our Board of Directors declared a quarterly cash dividend 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.
On February 9, 2026, our Board of Directors authorized a $1.5 billion share repurchase program effective immediately, with no expiration date. As of March 31, 2026, $1,250.0 million remained authorized under the program.
As discussed in Note 4 to our interim condensed consolidated financial statements in Part I, Item 1 of this report, we are executing on a 2025 Restructuring Plan. The 2025 Restructuring Plan is expected to result in total pre-tax charges of approximately $155 million by the end of 2027, of which approximately $143 million was incurred through March 31, 2026. We expect to reduce gross annual pre-tax operating expenses by approximately $175 million relative to the 2024 baseline expenses by the end of 2027 as program benefits under the 2025 Restructuring Plan are realized.
As discussed in Note 13 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report, the IRS has issued proposed adjustments for years 2013 through 2015 and for years 2016 through 2019. 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.
As discussed in Note 16 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report, we are involved in various litigation matters. We estimate the total liabilities for all litigation matters was $133.1 million as of March 31, 2026. However, litigation is inherently uncertain, and upon resolution of any of these uncertainties, we may incur charges in excess of these estimates, and may in the future incur other material judgments or enter into other material settlements of claims. We expect to pay these liabilities over the next few years. Additionally, we have entered into development, distribution, investment and other contractual arrangements that may result in future payments dependent upon various events such as a capital call, the achievement of certain product R&D milestones, sales milestones, or, at our discretion, maintenance of exclusive rights to distribute a product. Since there is uncertainty on the timing or whether such payments will have to be made, they have not been recognized on our condensed consolidated balance sheets. These estimated payments could range from $0 to approximately $525 million. Included in that estimate is the amount under a commitment letter we executed in the three-month period ended March 31, 2026, to invest in an investment fund with a capital commitment of up to $300 million, which is expected to become callable over a four year period. The investment fund intends to invest in healthcare companies and assets, with a primary focus on transformative healthcare innovations that address musculoskeletal and rheumatologic conditions, enabling improved human mobility and performance, primarily through privately negotiated investments in healthcare enterprises and assets. We estimate the investment fund will commence in the second half of 2026, at which time we will begin making investments.
For each of our acquisitions that include contingent consideration, there is a maximum payout. Accordingly, the range of our potential contingent consideration payments are $0 to $720 million as of March 31, 2026, that may be paid out through 2031.
Recent Accounting Pronouncements
Information pertaining to recent accounting pronouncements can be found in Note 2 to our interim condensed consolidated financial statements included in Part I, Item 1 of this report.
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. There were no changes in the three-month period ended March 31, 2026 to our critical accounting estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2025.
Cautionary Note Regarding Forward-Looking Statements and Factors That May Affect Future Results
This quarterly report contains certain statements that are forward-looking statements within the meaning of federal securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this report, the words “may,” “will,” “can,” “should,” “would,” “could,” “anticipate,” “expect,” “plan,” “seek,” “believe,” “are confident that,” “look forward to,” “predict,” “estimate,” “potential,” “project,” “target,” “forecast,” “see,” “intend,” “design,” “strive,” “strategy,” “future,” “opportunity,” “assume,” “guide,” “position,” “continue” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on current beliefs, expectations and assumptions of management and are subject to significant risks, uncertainties and changes in circumstances that could cause actual results to differ materially from such forward-looking statements. These risks, uncertainties and changes in circumstances include, but are not limited to:
•dependence on new product development, technological advances and innovation;
•changes in customer demand for our products and services caused by demographic changes, obsolescence, development of different therapies or other factors;
•our ability to attract, retain, develop and maintain adequate succession plans for the highly skilled employees, senior management, independent agents and distributors we need to support our business;
•the transformation of our sales and distribution network in the U.S. and other markets;
•shifts in the product category or regional sales mix of our products and services;
•the risks and uncertainties related to our ability to successfully execute our restructuring plans;
•risks and uncertainties relating to our ability to successfully execute on our product portfolio rationalization plans;
•control of costs and expenses;
•risks related to the ability to realize the anticipated benefits of our acquisitions, including the possibility that the expected benefits from such transactions will not be realized or will not be realized within the expected time period;
•the risk that acquired businesses will not be integrated successfully;
•the effects of business disruptions affecting us, our suppliers, customers or payors, either alone or in combination with other risks on our business and operations;
•the risks and uncertainties related to our ability to successfully integrate the operations, products, service providers, agents, employees, sales representatives and distributors of acquired companies;
•the effect of the potential disruption of management’s attention from ongoing business operations due to integration matters related to mergers and acquisitions;
•the effect of mergers and acquisitions on our relationships with customers, suppliers and lenders and on our operating results and businesses generally;
•unplanned delays, disruptions and expenses attributable to our enterprise resource planning and other system updates;
•the ability to form and implement alliances;
•dependence on a limited number of suppliers for key raw materials and other inputs and for outsourced activities;
•the risk of disruptions in the supply of materials and components used in manufacturing or sterilizing our products;
•breaches or failures of our (or of our business partners’ or other third parties’) information technology systems or products, including by cyber attack, unauthorized access or theft;
•the outcome of government investigations;
•the impact of healthcare reform and cost containment measures, including efforts sponsored by government agencies, legislative bodies, the private sector and healthcare purchasing organizations, through reductions in reimbursement levels, repayment demands and otherwise;
•the effects of natural disasters, or of legal, regulatory or market measures to address natural disasters;
•the effects of our commitments, goals and disclosures relating to corporate responsibility matters;
•the impact of substantial indebtedness on our ability to service our debt obligations and/or refinance amounts outstanding under our debt obligations at maturity on terms favorable to us, or at all;
•changes in tax obligations arising from examinations by tax authorities and from changes in tax laws in jurisdictions where we do business, including as a result of the “base erosion and profit shifting” project undertaken by the Organisation for Economic Co-operation and Development and otherwise;
•challenges to the tax-free nature of the ZimVie Inc. spinoff transaction and the subsequent liquidation of our retained interest in ZimVie Inc.;
•the risk of additional tax liability due to the recategorization of our independent agents and distributors to employees;
•changes in tariffs relating to imports to the U.S. and other countries;
•the risk that material impairment of the carrying value of our intangible assets, including goodwill, could negatively affect our operating results;
•changes in general domestic and international economic conditions, including interest rate and currency exchange rate fluctuations;
•changes in general industry and market conditions, including domestic and international growth, inflation and currency exchange rates;
•the domestic and international business impact of political, social and economic instability, tariffs, trade restrictions and embargoes, sanctions, wars, disputes and other conflicts, including on our ability to operate in, export from or collect accounts receivable in affected countries;
•challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international businesses, including regulations of the U.S. Food and Drug Administration ("FDA") and other government regulators relating to medical products, healthcare fraud and abuse laws and data privacy and cybersecurity laws;
•the success of our quality and operational excellence initiatives;
•the ability to remediate matters identified in inspectional observations issued by the FDA and other regulators, while continuing to satisfy the demand for our products;
•product liability, intellectual property and commercial litigation losses; and
•the ability to obtain and maintain adequate intellectual property protection.
Our Annual Report on Form 10-K for the year ended December 31, 2025 contains detailed discussions of these and other important factors under the heading “Risk Factors.” You should understand that it is not possible to predict or identify all factors that could cause actual results to differ materially from forward-looking statements. Consequently, you should not consider any list or discussion of such factors to be a complete set of all potential risks or uncertainties.
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. You are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
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. This cautionary statement is applicable to all forward-looking statements contained in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2025.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("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 disclosures. Because of inherent
limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.