.

Zimmer Reports Fourth Quarter and 2003 Financial Results

Feb 09, 2004

WARSAW, Ind., Feb 09, 2004 /PRNewswire-FirstCall via Comtex/ --

Fourth Quarter Highlights

  • Net Sales increased 90% reported, and 19% combined* (13% constant currency*) to $702 million
  • Worldwide Reconstructive Sales (including Dental) increased 97% reported, and 20% combined* (14% constant currency*)
  • Diluted EPS were $0.15 reported, and $0.51 adjusted*, an increase of 38% over prior year
  • Over $250 million of acquisition-related borrowings paid down in the quarter
  • Increasing 2004 Diluted EPS guidance to a range from $1.61 to $1.64 reported and $2.07 to $2.10 adjusted* Full-Year Highlights
  • Net Sales increased 39% reported, and 20% combined* (15% constant currency*) to $1.9 billion
  • Worldwide Reconstructive Sales (including Dental) increased 43% reported, and 22% combined* (17% constant currency*)
  • Diluted EPS (before the cumulative effect of change in accounting principle for instruments) were $1.38 reported, were $1.80 adjusted*, an increase of 37% over prior year
  • Operating cash flow of nearly $500 million
  • $3.4 billion Centerpulse AG and InCentive Capital AG acquisitions completed
  • Zimmer Institute opened and nearly 500 surgeons trained on MIS(TM) 2-Incision(TM) Hip Procedure

      Zimmer Holdings, Inc. (NYSE: ZMH; SWX: ZMH) today reported net sales and earnings for the fourth quarter and year ended December 31, 2003, exceeding First Call consensus estimates.

      The company's reported results reflect its acquisitions of both Centerpulse AG and InCentive Capital AG, which closed on October 2, 2003. The company is also providing a comparison of sales to prior year on a combined* basis, incorporating sales for Centerpulse in the fourth quarter 2002. Reported results include acquisition and integration expenses, in-process R&D write-offs, inventory step-up and the cumulative effect of a change in accounting principle, as applicable.

      "Zimmer continues to deliver on the expectations communicated when we became a public company in 2001 -- our financial performance is at the top of the medical device industry, we have greatly expanded our market presence in Europe, we have entered the rapidly growing spinal market and, in our first quarter of consolidated results, we grew combined* reconstructive sales by 20%," said Ray Elliott, Zimmer Chairman, President and CEO. "As a result of continued strong operating cash flow, cash acquired as part of the Centerpulse AG and InCentive Capital AG transactions, and the initial monetization of Centerpulse tax loss carryforwards, we paid down nearly 20% of our acquisition-related borrowings in the first quarter of consolidated operations. Our momentum is strong."

      A significant initiative for Zimmer has been its program for Minimally Invasive Solutions(TM) (MIS(TM)) Procedures and Technologies. During the year, the company opened its Zimmer Institute and the number of surgeons trained to perform the Zimmer MIS(TM) 2-Incision Hip procedure and the Zimmer MIS(TM) Quad-Sparing(TM) (Q-S(TM)) Total Knee Replacement procedure totaled nearly 600. The Zimmer MIS Quad-Sparing Knee procedure will be formally launched in March at the annual American Academy of Orthopaedic Surgeons meeting. More recently, the company was granted a method and apparatus patent for its unique MIS 2-Incision Hip procedure by the U.S. Patent and Trademark Office.

      "Our integration of the Centerpulse acquisition remains ahead of schedule with the strategic value becoming a reality, including both the anticipated synergies and dis-synergies," said Elliott. "We have over 100 full-time integration team members actively executing on more than 250 discrete integration projects, and we are on our way to functioning as a unified, global orthopaedic powerhouse."

      Due to the acquisition of Centerpulse, net sales for geographic segments and product categories are presented in tabular format as follows for comparison of both reported and combined* results.

                               Fourth Quarter Net Sales Results
      
               ($ MM)                               Reported          Combined*
      
                                                  Net      %          % Growth
                                                 Sales   Growth   Combined*  Ex FX*
      
           Geographic Segments
                  Americas                         $393      61 %     17 %     16 %
                  Europe                            200     292       24        9
                  Asia Pacific                      109      45       20        8
               Total                                702      90       19       13
           Product Categories
               Reconstructive
                  Americas                         $302      61 %     19 %     19 %
                  Europe                            184     305       23        9
                  Asia Pacific                       86      52       20        7
               Total                                572      97       20       14
      
               Hips
                  Americas                         $111      46 %     19 %     18 %
                  Europe                            101     575       27       12
                  Asia Pacific                       45      55       19        7
               Total                                257     114       22       14
      
               Knees
                  Americas                         $162      55 %     21 %     20 %
                  Europe                             72     147       18        4
                  Asia Pacific                       36      35       18        5
               Total                                270      68       20       14
      
               Trauma                               $44      28 %     17 %     11 %
      
               Spine                                $34      N/A      12 %     10 %
      
               Orthopaedic Surgical Products        $52      13 %     13 %      8 %
      
      
      

      Net earnings for the quarter were $37 million on a reported basis, and were $125 million adjusted*, an increase of 72% over the prior year. Diluted earnings per share for the quarter were $0.15 reported, and were $0.51 adjusted*, an increase of 38% over the prior year.

      
                                     Full-Year Net Sales Results
      
                       ($ MM)                      Reported         Combined*
      
                                                  Net      %        % Growth
                                                 Sales  Growth  Combined*  Ex FX*
                    Geographic Segments
                          Americas               $1,208     30 %    18 %    18 %
                          Europe                    366    115      30      15
                          Asia Pacific              327     21      15       5
                       Total                      1,901     39      20      15
                    Product Categories
                       Reconstructive
                          Americas                 $941     33 %    21 %    21 %
                          Europe                    330    119      30      14
                          Asia Pacific              250     25      16       6
                       Total                      1,521     43      22      17
      
                       Hips
                          Americas                 $366     27 %    20 %    20 %
                          Europe                    152    196      31      16
                          Asia Pacific              128     25      15       6
                       Total                        646     46      21      16
      
                       Knees
                          Americas                 $524     32 %    23 %    23 %
                          Europe                    163     72      29      12
                          Asia Pacific              114     21      16       7
                       Total                        801     37      23      18
      
                       Trauma                      $152     13 %    11 %     7 %
      
                       Spine                        $34     N/A     12 %    10 %
      
                       Orthopaedic Surgical
                        Products                   $194     10 %    10 %     7 %
      
      
      

      Net earnings for the year were $346 million on a reported basis, and were $381 million adjusted*, an increase of 48% over the prior year. Diluted earnings per share for the year were $1.38 reported (before the cumulative effect of the change in accounting principle for instruments), and were $1.80 adjusted*, an increase of 37% over the prior year.

      Guidance

      The company announced that it was increasing its sales and earnings guidance for the full year 2004. Full-year sales are projected to be in a range of $2,850 to $2,900 million. Reported diluted earnings per share are expected to be in the range of $1.61 to $1.64, reflecting estimated acquisition and integration expenses of $79 million and inventory step-up of $35 million, net of tax, and adjusted* diluted earnings per share are projected to be in a range of $2.07 to $2.10.

      First quarter 2004 sales are expected to be in a range of $690 to $705 million. Diluted earnings per share for the first quarter 2004 are expected to be $0.26 to $0.27 on a reported basis and $0.47 to $0.48 adjusted*, excluding inventory step-up expenses and acquisition and integration expenses of $33 million and $18 million, respectively, after tax.

      The company also said it was reaffirming its forecast of 2005 adjusted* diluted earnings per share growth in the range of 20 to 25%, with the potential to exceed 25% adjusted* diluted earnings per share growth in 2006.

      The company will conduct its fourth quarter and full-year 2003 investor conference call, which will be broadcast live over the Internet, on Tuesday, February 10, 2004, at 8am (EST). The live audio webcast of Zimmer's conference call, as well as a copy of this press release and any other financial and statistical information about the periods to be presented in the conference call, will be accessible through the Zimmer website at www.zimmer.com (Investor Relations section). The webcast will be archived for future replay. Individuals who wish to dial into the conference call may do so at (800) 406-1106. International callers should dial (706) 634-7075. A digital recording will be available two hours after the completion of the conference from February 10, 2004 to February 24, 2004. To access the recording, US/Canada callers should dial (800) 642-1687, or for International callers, dial (706) 645-9291, and enter the Conference ID, 4998295.

      Zimmer had previously announced that it will conduct a meeting for investment analysts on March 10, 2004, during the American Academy of Orthopaedic Surgeons meeting. The investment analyst meeting will be held at the San Francisco Hilton, beginning at 5pm (PST), in the Imperial A Ballroom. The meeting will be hosted by Ray Elliott, Chairman, President and CEO, and Sam Leno, Executive Vice President, Corporate Finance and Operations and Chief Financial Officer. The meeting will include a company presentation, which will be available on the company website at www.zimmer.com , followed by a question-and-answer period. A technology exhibit featuring products from Zimmer as well as products acquired through the Centerpulse transaction will also be open to investment analysts on Thursday, March 11, 2004, from 4:30pm to 6pm. These include Minimally Invasive Solutions(TM) (MIS(TM)) Procedures and Technologies, advanced bearing surfaces, orthobiologics, and Trabecular Metal(TM) Technology, among others. Admittance procedures and the location of the technology exhibit will be announced at the investment analyst meeting. Investment analysts who wish to register for the meeting and the technology exhibit should contact Michele Picillo at 574-372-4474 or by e-mail [email protected] .

      About the Company

      Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer is the worldwide #1 pure-play orthopaedic leader in the design, development, manufacture and marketing of reconstructive and spinal implants, trauma and related orthopaedic surgical products. In October, 2003, the company finalized its acquisition of Centerpulse AG, a Switzerland-based orthopaedics company and the leader in the European reconstructive market. Zimmer now has operations in more than 24 countries around the world and sells products in more than 80 countries. As a result of the acquisition of Centerpulse on October 2, 2003, reported 2003 sales were $1.9 billion. Full-year 2003 pro forma worldwide sales of Zimmer and Centerpulse were approximately $2.6 billion. The new Zimmer is supported by the efforts of nearly 7,000 employees.

          Visit Zimmer on the worldwide web at www.zimmer.com
      
          *Note on Non-GAAP Financial Measures
      

      As used in this press release, the term "combined" sales includes Centerpulse for the fourth quarter of 2002 in order to provide more meaningful year-to-year comparisons. The terms "Ex FX" and "constant currency" as used herein refer to sales growth measurements computed by eliminating the effect of changes in foreign currency exchange rates between periods. The term "adjusted" refers to operating performance measures that exclude acquisition and integration expenses, in-process research and development write-offs, inventory step-up and the cumulative effect of the change in accounting principle for instruments for the fourth quarter and full-year 2003. Reconciliations of non-GAAP measures to the most directly comparable GAAP measure are included in this press release, a Form 8-K filed February 9, 2004, and through the company's website at www.zimmer.com .

      Safe Harbor Statement

      This press release contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 based on current expectations, estimates, forecasts and projections about the orthopaedics industry, management's beliefs and assumptions made by management. Forward-looking statements may be identified by the use of forward-looking terms such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "targets," "forecasts," and "seeks" or the negative of such terms or other variations on such terms or comparable terminology. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to, our ability to successfully integrate Centerpulse AG, the outcome of the pending informal SEC investigation of Centerpulse accounting, price and product competition, rapid technological development, demographic changes, dependence on new product development, the mix of our products and services, supply and prices of raw materials and products, customer demand for our products and services, control of costs and expenses, our ability to form and implement alliances, international growth, U.S. and foreign government regulation, product liability and intellectual property litigation losses, reimbursement levels from third-party payors, general industry and market conditions and growth rates and general domestic and international economic conditions including interest rate and currency exchange rate fluctuations. For a further list and description of such risks and uncertainties, see the disclosure materials filed by Zimmer with the U.S. Securities and Exchange Commission. Zimmer disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers of this document are cautioned not to place undue reliance on these forward-looking statements, since, while we believe the assumptions on which the forward-looking statements are based are reasonable, 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 document.

      
                                  ZIMMER HOLDINGS, INC.
                            CONSOLIDATED STATEMENTS OF EARNINGS
                   FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 and 2002
                     (in millions, except per share amounts - unaudited)
      
                                                     2003        2002    % Inc/(Dec)
           Net Sales                                $701.6      $370.2        90  %
           Cost of products sold                     224.1        93.7       139
           Gross Profit                              477.5       276.5        73
      
           Research and development                   37.3        21.8        71
           Selling, general and administrative       287.1       143.6       100
           In-process research & development          11.2           -
           Acquisition and integration                76.4           -
                Operating expenses                   412.0       165.4       149
      
           Operating Profit                           65.5       111.1       (41)
           Interest expense                           10.2         2.1       386
           Earnings before income taxes and
            minority interest                         55.3       109.0       (49)
           Provision for income taxes                 18.8        36.8       (49)
           Earnings before minority interest          36.5        72.2       (49)
           Minority interest                           0.5           -
      
           Net Earnings                              $37.0       $72.2       (49)
      
           Earnings Per Common Share
              Basic                                  $0.15       $0.37       (59)
              Diluted                                $0.15       $0.37       (59)
      
           Weighted Average Common
             Shares Outstanding
             Basic                                   242.0       195.1
             Diluted                                 245.4       197.4
      
      
      
                                   ZIMMER HOLDINGS, INC.
                            CONSOLIDATED STATEMENTS OF EARNINGS
                      FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002
                     (in millions, except per share amounts - unaudited)
      
                                                    2003         2002   % Inc/(Dec)
           Net Sales                             $1,901.0     $1,372.4      39  %
           Cost of products sold                    516.2        344.8      50
      
           Gross Profit                           1,384.8      1,027.6      35
      
           Research and development                 105.8         80.7      31
           Selling, general and administrative      737.5        546.0      35
           In-process research & development         11.2            -
           Acquisition and integration               79.6            -
            Operating expenses                      934.1        626.7      49
      
           Operating Profit                         450.7        400.9      12
           Interest expense                          13.2         12.0      10
           Earnings before income taxes,
            cumulative effect of change in
            accounting principle and minority
            interest                                437.5        388.9      12
           Provision for income taxes               146.8        131.1      12
      
           Earnings before cumulative effect of
            a change in accounting principle and
            minority interest                       290.7        257.8      13
      
           Cumulative effect of change in
            accounting principle, net of tax         55.1            -
      
           Earnings before minority interest        345.8        257.8      34
      
           Minority interest                          0.5            -
      
           Net Earnings                            $346.3       $257.8      34
      
           Earnings Per Common Share - Basic
            Earnings before cumulative
             effect of change in accounting
             principle                              $1.40        $1.33       5
            Cumulative effect of change in
             accounting principle, net of tax        0.27            -
            Earnings Per Common Share -
             Basic                                  $1.67        $1.33      26
      
            Earnings Per Common Share - Diluted
             Earnings before cumulative
              effect of change in accounting
              principle                             $1.38        $1.31       5
             Cumulative effect of change in
              accounting principle, net of tax       0.26            -
             Earnings Per Common Share -
              Diluted                               $1.64        $1.31      25
      
           Pro Forma Amounts Assuming the New
            Accounting Principle is Applied
            Retroactively
             Net Earnings                          $291.2       $260.8      12
             Earnings Per Common Share -
              Basic                                 $1.40        $1.34       4
             Earnings Per Common Share -
              Diluted                               $1.38        $1.33       4
      
           Weighted Average Common
            Shares Outstanding
            Basic                                   207.7        194.5
            Diluted                                 211.2        196.8
      
      
      
                                   ZIMMER HOLDINGS, INC.
                      ADJUSTED CONSOLIDATED STATEMENTS OF EARNINGS **
                   FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 and 2002
                     (in millions, except per share amounts - unaudited)
      
                                                     2003        2002    % Inc/(Dec)
           Net Sales                                $701.6      $370.2        90  %
           Cost of products sold                     181.4        93.7        94
           Gross Profit                              520.2       276.5        88
      
           Research and development                   37.3        21.8        71
           Selling, general and administrative       287.1       143.6       100
                Operating expenses                   324.4       165.4        96
      
           Operating Profit                          195.8       111.1        76
           Interest expense                           10.2         2.1       386
      
           Earnings before income taxes
                & minority interest                  185.6       109.0        70
           Provision for income taxes                 61.6        36.8        67
           Earnings before minority interest         124.0        72.2        72
      
           Minority interest                           0.5           -
      
           Net Earnings                             $124.5       $72.2        72
      
           Earnings Per Common Share
              Basic                                  $0.51       $0.37        38
              Diluted                                $0.51       $0.37        38
      
           Weighted Average Common
             Shares Outstanding
             Basic                                   242.0       195.1
             Diluted                                 245.4       197.4
      

      ** 2003 excludes the effects of acquisition and integration expenses ($76.4), in-process research and development write-offs ($11.2), inventory step-up ($42.7) and related income tax benefits ($42.8).

      
                                  ZIMMER HOLDINGS, INC.
                      ADJUSTED CONSOLIDATED STATEMENTS OF EARNINGS**
                      FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002
                     (in millions, except per share amounts - unaudited)
      
                                                   2003         2002    % Inc/(Dec)
           Net Sales                             $1,901.0     $1,372.4      39  %
           Cost of products sold                    473.5        344.8      37
           Gross Profit                           1,427.5      1,027.6      39
      
           Research and development                 105.8         80.7      31
           Selling, general and administrative      737.5        546.0      35
                Operating expenses                  843.3        626.7      35
      
           Operating Profit                         584.2        400.9      46
           Interest expense                          13.2         12.0      10
      
           Earnings before income taxes and
            minority interest                       571.0        388.9      47
           Provision for income taxes               190.7        131.1      45
      
           Earnings before minority interest        380.3        257.8      48
      
           Minority interest                          0.5            -
      
           Net Earnings                            $380.8       $257.8      48
           Earnings Per Common Share
      
               Basic                                $1.83        $1.33      38
               Diluted                              $1.80        $1.31      37
      
           Weighted Average Common
             Shares Outstanding
             Basic                                  207.7        194.5
             Diluted                                211.2        196.8
      

      ** 2003 excludes the effects of acquisition and integration expenses ($79.6), in-process research and development write-offs ($11.2), inventory step-up ($42.7), and related income tax benefits ($43.9), and cumulative effect of change in accounting principle, net of tax ($55.1).

      
                                    ZIMMER HOLDINGS, INC.
                            CONDENSED CONSOLIDATED BALANCE SHEETS
                         AS OF DECEMBER 31, 2003 AND DECEMBER 31, 2002
                                        (in millions)
                                         (unaudited)
      
                                                     December 31,      December 31,
                                                         2003              2002
      
           Assets
             Current Assets:
               Cash and equivalents                      $92.0             $15.7
               Receivables, net                          486.4             214.8
               Inventories, net                          527.7             257.6
               Other current assets                      232.6             124.3
                   Total Current Assets                1,338.7             612.4
             Property, Plant and Equipment,
              net                                        525.2             157.8
             Intangible assets                           760.5                 -
             Goodwill                                  2,291.8                 -
             Other Assets                                239.8              88.7
             Total Assets                             $5,156.0            $858.9
      
           Liabilities and Shareholders' Equity
      
           Current Liabilities                          $672.9            $244.1
           Short-term Debt                               101.3             156.7
           Other Long-term Liabilities                   223.7              91.8
           Long-term Debt                              1,007.8                 -
           Minority Interest                               7.0                 -
           Shareholders' Equity                        3,143.3             366.3
           Total Liabilities and Shareholders'
            Equity                                    $5,156.0            $858.9
      
      
      
                                    ZIMMER HOLDINGS, INC.
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                       FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002
                                        (in millions)
                                         (unaudited)
      
                                                           2003              2002
           Cash flows provided by (used in)
            operating activities
           Net earnings                                   $346.3            $257.8
           Depreciation and amortization                   103.3              25.3
           Inventory step-up                                42.7                 -
           Write-off of in-process research
            and development                                 11.2                 -
           Cumulative effect of change in
            accounting principle                           (89.1)                -
           Changes in operating assets and
            liabilities, net of acquired assets
            and liabilities
               Income taxes                                117.8              29.9
               Receivables                                 (39.0)            (25.0)
               Inventories                                (105.6)            (59.7)
               Accounts payable and accrued expenses        75.9             (12.2)
               Other assets and liabilities                 31.3               4.1
           Net cash provided by operating activities       494.8             220.2
      
           Cash flows used in investing activities
           Additions to instruments                       (113.6)               -
           Additions to other property, plant
            and equipment                                  (44.9)            (33.7)
           Centerpulse and InCentive
            acquisitions, net of acquired cash            (913.2)                -
           Investments in other assets                     (16.5)             (2.0)
           Net cash used in investing activities        (1,088.2)            (35.7)
      
           Cash flows provided by (used in)
            financing activities
           Proceeds from exercise of stock options          70.5              23.9
           Net proceeds/(payments) on lines of credit      170.6            (212.8)
           Proceeds from term loans                        550.0                 -
           Payments on term loans                         (100.0)                -
           Debt issuance costs                             (19.4)                -
           Equity issuance costs                            (6.9)                -
           Net cash provided by (used in)
            financing activities                           664.8            (188.9)
      
           Effect of exchange rates on cash
            and cash equivalents                             4.9               1.7
      
           Increase in cash and cash equivalents            76.3              (2.7)
           Cash and cash equivalents,
            beginning of year                               15.7              18.4
           Cash and cash equivalents, end of year          $92.0             $15.7
      
      
      
                                  ZIMMER HOLDINGS, INC.
                             NET SALES BY GEOGRAPHIC SEGMENT
                 FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2003
                                      (in millions)
                                       (unaudited)
      
                                                   Three Months Ended December 31,
                                                     2003        2002   % Increase
      
           Americas                                 $392.4      $244.0        61 %
           Europe                                    200.1        51.1       292
           Asia Pacific                              109.1        75.1        45
           Total                                    $701.6      $370.2        90
      
                                                   Twelve Months Ended December 31,
                                                     2003        2002   % Increase
      
           Americas                               $1,208.3      $932.9        30 %
           Europe                                    366.0       169.9       115
           Asia Pacific                              326.7       269.6        21
           Total                                  $1,901.0    $1,372.4        39
      
      
      
                                  ZIMMER HOLDINGS, INC.
                              NET SALES BY PRODUCT CATEGORY
                 FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2003
                                      (in millions)
                                       (unaudited)
      
                                                  Three Months Ended December 31,
                                                     2003        2002   % Increase
           Reconstructive                           $571.6      $290.0       97 %
           Trauma                                     43.6        34.1       28
           Spine                                      33.6           -
           OSP                                        52.8        46.1       15
           Total                                    $701.6      $370.2       90
      
                                                  Twelve Months Ended December 31,
                                                     2003        2002   % Increase
           Reconstructive                         $1,521.0    $1,061.7       43 %
           Trauma                                    151.6       133.8       13
           Spine                                      33.6           -
           OSP                                       194.8       176.9       10
           Total                                  $1,901.0    $1,372.4       39
      
      
      
                                   ZIMMER HOLDINGS, INC.
                  RECONCILIATION OF NET EARNINGS TO ADJUSTED NET EARNINGS
                  FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2003
                                       (in millions)
                                        (unaudited)
      
                                                            Three Months
                                                          Ended December 31,
                                                  2003         2002           % Inc
                                                                               (Dec)
           Net Earnings                          $37.0        $72.2            (49)%
           Acquisition and Integration            76.4            -
           Inventory Step-up                      42.7            -
           In-process Research and Development    11.2            -
           Tax Benefit of Acquisition
            and Integration, Inventory Step-up
            and IPR&D                            (42.8)           -
           Cumulative Effect of Change
            in Accounting Principle,
            net of tax                               -            -
           Adjusted Net Earnings                $124.5        $72.2             72%
      
                                                            Twelve Months
                                                          Ended December 31,
                                                  2003         2002           % Inc
      
           Net Earnings                         $346.3       $257.8             34%
           Acquisition and Integration            79.6            -
           Inventory Step-up                      42.7            -
           In-process Research and Development    11.2            -
           Tax Benefit of Acquisition and
            Integration, Inventory Step-up
            and IPR&D                            (43.9)           -
           Cumulative Effect of Change in
            Accounting Principle, net of tax     (55.1)           -
           Adjusted Net Earnings                $380.8       $257.8             48%
      
      
      
                                  ZIMMER HOLDINGS, INC.
                    RECONCILIATION OF DILUTED EPS TO ADJUSTED DILUTED EPS
                   FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2003
                                        (in millions)
                                         (unaudited)
      
                                             Three Months Ended  Twelve Months Ended
                                                December 31,          December 31,
                                                   2003                  2003
      
           Diluted EPS                            $0.15                 $1.64
           Acquisition and Integration             0.31                  0.38
           Inventory Step-up                       0.18                  0.20
           In-process Research and Development     0.05                  0.05
           Tax Benefit of Acquisition and
            Integration,
               Inventory Step-up and IPR&D        (0.18)                (0.21)
           Cumulative Effect of Change in
               Accounting Principle, net of tax       -                 (0.26)
           Adjusted Diluted EPS                   $0.51                 $1.80
      
      
      
                                  ZIMMER HOLDINGS, INC.
           RECONCILIATION OF REPORTED AND ADJUSTED STATEMENTS OF EARNINGS
                        FOR THE THREE MONTHS ENDED DECEMBER 31, 2003
                    (in millions, except per share amounts - unaudited)
      
                                         Reported 2003   Adjustments   Adjusted 2003
      
           Net Sales                         $701.6       $   -            $701.6
           Cost of products sold              224.1       (42.7)            181.4
           Gross Profit                       477.5        42.7             520.2
      
           Research and development            37.3           -              37.3
           Selling, general and
            administrative                    287.1           -             287.1
           In-process research & development   11.2       (11.2)                -
           Acquisition and integration         76.4       (76.4)                -
                Operating expenses            412.0       (87.6)            324.4
      
           Operating Profit                    65.5       130.3             195.8
           Interest expense                    10.2           -              10.2
           Earnings before income taxes and
            minority interest                  55.3       130.3             185.6
           Provision for income taxes          18.8        42.8              61.6
           Earnings before minority interest   36.5        87.5             124.0
           Minority interest                    0.5           -               0.5
      
           Net Earnings                       $37.0       $87.5            $124.5
      
           Earnings Per Common Share
              Basic                           $0.15       $0.36             $0.51
              Diluted                         $0.15       $0.36             $0.51
      
           Weighted Average Common
             Shares Outstanding
             Basic                            242.0                         242.0
             Diluted                          245.4                         245.4
      
      
      
                                     ZIMMER HOLDINGS, INC.
               RECONCILIATION OF REPORTED AND ADJUSTED STATEMENTS OF EARNINGS
                            FOR THE YEAR ENDED DECEMBER 31, 2003
                     (in millions, except per share amounts - unaudited)
      
                                       Reported 2003    Adjustments    Adjusted 2003
           Net Sales                      $1,901.0       $    -           $1,901.0
           Cost of products sold             516.2        (42.7)             473.5
           Gross Profit                    1,384.8         42.7            1,427.5
           Research and development          105.8            -             105.8
           Selling, general and
            administrative                   737.5                          737.5
           In-process research &
            development                       11.2        (11.2)                -
           Acquisition and integration        79.6        (79.6)                -
                Operating expenses           934.1        (90.8)            843.3
           Operating Profit                  450.7        133.5             584.2
           Interest expense                   13.2            -              13.2
           Earnings before income taxes,
            cumulative effect of change
            in accounting principle and
            minority interest                437.5        133.5             571.0
           Provision for income taxes        146.8         43.9             190.7
           Earnings before cumulative
            effect of a change in
            accounting principle and
            minority interest                290.7         89.6             380.3
           Cumulative effect of change in
            accounting principle, net of
            tax                               55.1        (55.1)                -
           Earnings before minority
            interest                         345.8         34.5             380.3
           Minority interest                   0.5            -               0.5
           Net Earnings                     $346.3        $34.5            $380.8
           Earnings Per Common Share
            - Basic
              Earnings before cumulative
               effect of change in
               accounting principle          $1.40        $0.43             $1.83
              Cumulative effect of change
               in accounting principle,
               net of tax                     0.27        (0.27)                -
              Earnings Per Common Share
               - Basic                       $1.67        $0.16             $1.83
           Earnings Per Common Share
            - Diluted
              Earnings before cumulative
               effect of change in
               accounting principle          $1.38        $0.42             $1.80
              Cumulative effect of change
               in accounting principle,
               net of tax                     0.26        (0.26)                -
              Earnings Per Common Share
               - Diluted                     $1.64        $0.16             $1.80
      
           Weighted Average Common
             Shares Outstanding
             Basic                           207.7                          207.7
             Diluted                         211.2                          211.2
      
      
      

      SOURCE Zimmer Holdings, Inc.

      Media: Brad Bishop, +1-574-372-4291,
      [email protected] , or Investors: Sam Leno, +1-574-372-4790,
      [email protected] , both of Zimmer Holdings, Inc.
      
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