| Balance Sheet and Cash Flow
Operating cash flow was $389 million, and after subtracting $49 million in capital expenditures ($21 million for instruments/$28 million for PP&E), free cash flow was $340 million versus $303 million in 3Q09. Higher net income and effective working capital management (inventory levels fell approximately $59 million sequentially) were key drivers. Zimmer ended the quarter with $691.8 million in cash and equivalents and $1,127.6 million in debt.
Inventory days in 4Q09 were 302 days, down from 353 in 3Q09.
In 4Q09, the company utilized the proceeds from a $1.0 billion offering of senior unsecured notes to pay off its US dollar senior credit facility debt of $471.0 million and acquired 9.0 million shares of its common stock for an aggregate purchase price of $519.1 million. In FY09, the company purchased 19.8 million shares for a total of $923.2 million. At the end of FY09, $211.1 million of authorization remained under the company's $1.25 billion repurchase program, which expires on December 31, 2010.
During 4Q09, the Company recorded a goodwill impairment charge of $73.0 million net of tax or $0.35 per diluted share related to its US Spine reporting unit. A combination of factors has contributed to a decrease in the implied fair value of the US Spine reporting unit compared with the prior year.
Outlook: ZMH expects total capital expenditures for FY10 to be in the range of $320-$340 million, including Instrument capital in the range of $170-$180 million and traditional PP&A of $150-$160 million. ZMH specified that that it will first use free cash to develop externally if an opportunity exists. Another priority would be the continued repurchase of shares as the company noted that it has $211 million under its share repurchase authorization, which expires in 2010. ZMH also noted that depreciation and amortization is expected to be between $350 million-$360 million.
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