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Press Release: Zimmer Biomet Announces Fourth -6-

· 02/05/2021 06:30
in our portfolio and we have plans to discontinue one of the product lines, or from decisions not to spend additional funds to keep certain products up-to-date on the latest quality standards, such as the European Union Medical Device Regulation. (2) We exclude intangible asset amortization from our non-GAAP financial measures because we internally assess our performance against our peers without this amortization. Due to various levels of acquisitions among our peers, intangible asset amortization can vary significantly from company to company. (3) In the first quarter of 2020, we recognized goodwill impairment charges of $470.0 million and $142.0 million related to our EMEA and Dental reporting units, respectively. In the second quarters of 2020 and 2019, we recognized $33.0 million and $70.1 million, respectively, of in-process research and development ("IPR&D") intangible asset impairments on certain IPR&D projects. (4) In December 2019, our Board of Directors approved, and we initiated, a new global restructuring program that includes a reorganization of key businesses and an overall effort to reduce costs in order to accelerate decision-making and focus the organization on priorities to drive growth. Restructuring and other cost reduction initiatives also include other cost reduction initiatives that have the goal of reducing costs across the organization. (5) We are addressing inspectional observations on Form 483 and a Warning Letter issued by the U.S. Food and Drug Administration ("FDA") following its previous inspections of our Warsaw North Campus facility, among other matters. This quality remediation has required us to devote significant financial resources and is for a discrete period of time. The majority of the expenses are related to consultants who are helping us to update previous documents and redesign certain processes. (6) We exclude certain acquisition and integration related gains and expenses from our non-GAAP results. (7) We are involved in routine patent litigation, product liability litigation, commercial litigation and other various litigation matters. We review litigation matters from both a qualitative and quantitative perspective to determine if excluding the losses or gains will provide our investors with useful incremental information. Litigation matters can vary in their characteristics, frequency and significance to our operating results. The litigation charges and gains excluded from our non-GAAP financial measures in the periods presented relate to product liability matters where we have received numerous claims on specific products, patent litigation and commercial litigation related to a common matter in multiple jurisdictions. In regards to the product liability matters, due to the complexities involved and claims filed in multiple districts, the expenses associated with these matters are significant to our operating results. Once the litigation matter has been excluded from our non-GAAP financial measures in a particular period, any additional expenses or gains from changes in estimates are also excluded, even if they are not significant, to ensure consistency in our non-GAAP financial measures from period-to-period. (8) The European Union Medical Device Regulation imposes significant additional premarket and postmarket requirements. The new regulations provide a transition period until May 2021 for currently-approved medical devices to meet the additional requirements. For certain devices, this transition period can be extended until May 2024. We are excluding from our non-GAAP financial measures the incremental costs incurred to establish initial compliance with the regulations related to our currently-approved medical devices. The incremental costs primarily include third-party consulting necessary to supplement our internal resources. (9) We have incurred other various expenses from specific events or projects that we consider highly variable or that have a significant impact to our operating results that we have excluded from our non-GAAP measures. These include costs related to legal entity, distribution and manufacturing optimization, including contract terminations, gains and losses from changes in fair value on our equity investments, as well as our costs of complying with our Deferred Prosecution Agreement ("DPA") with the U.S. government related to certain Foreign Corrupt Practices Act matters involving Biomet and certain of its subsidiaries. Under the DPA, we were subject to oversight by an independent compliance monitor, which monitorship concluded in August 2020. We expect the one-count criminal information filed against us in 2017 to be dismissed with prejudice in February 2021 and the DPA to conclude at that time. The excluded costs include the fees paid to the independent compliance monitor and to external legal counsel assisting in the matter. (10) Switzerland passed the Federal Act on Tax Reform and AHV Financing (TRAF), effective January 1, 2020. Certain provisions of the TRAF were enacted in the third quarter of 2019, resulting in provisional adjustments to our deferred taxes, generating a net tax benefit. Also included are ongoing tax adjustments relating to the impacts of tax only amortization resulting from Swiss Tax Reform as well as certain restructuring transactions in Switzerland. (11) Other certain tax adjustments relate to various discrete tax period adjustments. In the 2020 periods, the adjustments are primarily related to the resolution of or changes in estimates of significant uncertain tax positions as a result of settlements or favorable rulings. In the 2019 periods, the adjustments are primarily changes in tax rates on deferred tax liabilities recorded on intangible assets recognized in acquisition-related accounting and adjustments from internal restructuring transactions that provide us access to offshore funds in a tax efficient manner. (12) Due to the reported net loss for this period, the effect of dilutive shares assuming net earnings is shown as an adjustment. Diluted share count used in Adjusted Diluted EPS is: Year Ended December 31, 2020 Diluted shares 207.0 Dilutive shares assuming net earnings 1.4 Adjusted diluted shares 208.4 (13) In the first quarter of 2019, we settled a patent infringement lawsuit out of court, and the other party agreed to pay us an upfront, lump-sum amount for a non-exclusive license to the patent. ZIMMER BIOMET HOLDINGS, INC. RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2020 and 2019 (in millions, unaudited) Three Months Ended Years Ended December 31, December 31, 2020 2019 2020 2019 Net cash provided by operating activities $ 425.1 $423.3 $1,204.5 $1,585.8 Additions to instruments (68.9) (76.4) (291.7) (315.9) Additions to other property, plant and equipment (27.7) (51.8) (117.5) (207.1) Free cash flow $ 328.5 $295.1 $795.3 $1,062.8 ZIMMER BIOMET HOLDINGS, INC. RECONCILIATION OF GROSS PROFIT & MARGIN TO ADJUSTED GROSS PROFIT & MARGIN FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2020 and 2019 (in millions, unaudited) Three Months Ended Years Ended December 31, December 31, 2020 2019 2020 2019 Net Sales $2,085.3 $2,125.7 $7,024.5 $7,982.2 Cost of products sold, excluding intangible asset amortization 647.3 582.2 2,128.3 2,252.6 Intangible asset amortization 152.6 147.4 597.6 584.3 Gross Profit $1,285.4 $1,396.1 $4,298.6 $5,145.3 Inventory and manufacturing-related charges 49.9 6.2 54.2 53.9 Quality remediation (1.0) 3.7 (1.1) 5.2 Intangible asset amortization 152.6 147.4 597.6 584.3 Adjusted gross profit $1,486.9 $1,553.4 $4,949.3 $5,788.7 Gross margin 61.6 % 65.7 % 61.2 % 64.5 % Inventory and manufacturing-related charges 2.4 0.3 0.8 0.7 Quality remediation - 0.2 - - Intangible asset amortization 7.3 6.9 8.5 7.3 Adjusted gross margin 71.3 % 73.1 % 70.5 % 72.5 % ZIMMER BIOMET HOLDINGS, INC. RECONCILIATION OF OPERATING PROFIT (LOSS) & MARGIN TO ADJUSTED OPERATING PROFIT & MARGIN FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2020 and 2019 (in millions, unaudited) Three Months Ended Years Ended December 31, December 31, 2020 2019 2020 2019 Operating profit (loss) $240.7 $336.8 $(87.8) $1,137.5 Inventory and manufacturing-related charges 49.9 6.2 54.2 53.9 Intangible asset

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February 05, 2021 06:30 ET (11:30 GMT)