Zimmer Reports Third Quarter 2005 Financial Results

WARSAW, Ind., Oct. 26 /PRNewswire-FirstCall/ --

Quarter Highlights - Net Sales of $763 million represents an increase of 9%

- Worldwide Reconstructive Sales increased 9% with Worldwide Knee Sales increasing 12%

- Spine and Dental both increased sales 19%

- Continued strong profit margins -- 77% gross, 32% operating and 22% net reported; 77% gross, 33% operating and 23% net adjusted*

- Diluted EPS were $0.67 reported, and $0.70 adjusted*, an increase of 25% adjusted* over prior year

- Operating cash flow of $232 million and cash exceeded total debt by $18 million

- Company reaffirms EPS guidance of $2.93 reported and $3.07 adjusted* for 2005 and provides guidance of $3.54 to $3.61 reported and $3.58 to $3.65 adjusted* for 2006 (excluding the effect of adopting new accounting standard for share compensation)

Zimmer Holdings, Inc. today reported financial results for the quarter ended September 30, 2005. For the quarter, the Company announced net sales of $763 million, an increase of 9%, with negligible contribution from foreign exchange. Diluted earnings per share for the quarter were $0.67 reported and $0.70 adjusted*, exceeding First Call earnings estimates of $0.67 adjusted*. Reported results include acquisition and integration expenses and inventory step-up, as applicable.

"Similar to the market overall, sales results were mixed, with hip and knee sales delivering slower growth, offset by solid performances in Spine, Dental and Trauma," said Ray Elliott, Zimmer Chairman, President and CEO. "Gross profit margins continued to be strong and in excess of 77% for the third consecutive quarter. Global and U.S. pricing throughout the industry has moderated from 2004, but for Zimmer still contributed positive 1% or better for the third consecutive quarter. With over $230 million of operating cash flow in the quarter, we became net debt* free less than two years after the acquisition of Centerpulse. Our highly leveraged earnings performance demonstrates the strength of Zimmer's business model, which is designed to capitalize on our position as the low-cost producer and distributor while delivering quality earnings on every new sales Dollar under a variety of market conditions."

While the Company's Centerpulse integration plan is based on a three-year schedule, approximately 90% of all milestones are expected to be completed by year-end, including the closure of the acquired manufacturing plant in Austin, Texas. The Company reaffirmed its belief that annual synergy expense savings will exceed $100 million in 2006.

The Company noted that during the quarter it continued its leadership in Minimally Invasive Solutions(TM) (MIS(TM)) Procedures and Technologies. The first commercial uses of the iNav(TM) Portable Navigation System, a low-cost, portable version of its electromagnetic surgical navigation system, took place in multiple U.S. locations. Rush Medical College in Chicago published peer- reviewed results of 50 consecutive outpatient total knee replacements using the Zimmer MIS(TM) Quad-Sparing(TM) Technique. A total of 48 patients (96%) went home not within 24 hours of surgery, but on the same day. The Company also announced it will release data on more than 2,500 Zimmer MIS 2- Incision(TM) Hip Replacement cases in four clinical studies with more than 250 surgeons participating. Overall complication rates were comparable to those reported for traditional procedures. Many surgeons participating in the studies have also reported that offering the MIS 2-Incision procedure has resulted in dramatic increases in procedure growth within their practices.

"We are pleased that our Spine and Dental businesses, year-to-date, have both exceeded $100 million in sales, and our Trauma business has returned to double-digit sales growth," said Elliott. "We are investing in all three businesses. We are also pursuing future orthobiological solutions as evidenced by our exclusive development and distribution agreement with Revivicor, Inc. for tissue replacement materials and our increased equity position in ISTO Technologies, Inc."

The following tables provide sales results by geographic segment and product category, as well as the percent change compared to the prior year quarter and nine months and the impact of changes in foreign exchange rates.

NET SALES - THREE MONTHS ENDED SEPTEMBER 30, 2005 (in millions, unaudited) Net % FX Sales Growth Impact** Geographic Segments Americas $473 10% 0% Europe 178 6 (1) Asia Pacific 112 8 2 Total 763 9 0 Product Categories Reconstructive Americas 376 10 0% Europe 159 6 0 Asia Pacific 89 10 2 Total 624 9 0 Knees Americas 212 12 0% Europe 64 12 0 Asia Pacific 38 11 3 Total 314 12 0 Hips Americas 130 6 1% Europe 85 1 0 Asia Pacific 45 7 2 Total 260 4 0 Extremities 15 12 0 Dental 35 19 1% Trauma 44 10 1% Spine 39 19 0% Orthopaedic Surgical Products 56 2 0% ** Effect of changes in foreign exchange rates on growth

Net earnings for the quarter were $169 million on a reported basis, and were $174 million adjusted*, an increase of 25% adjusted* over the prior year period. Diluted earnings per share for the quarter were $0.67 reported and were $0.70 adjusted*, an increase of 25% adjusted* over the prior year period.

NET SALES - NINE MONTHS ENDED SEPTEMBER 30, 2005 (in millions, unaudited) Net % FX Sales Growth Impact** Geographic Segments Americas $1,448 13% 1% Europe 641 10 3 Asia Pacific 349 11 3 Total 2,438 12 2 Product Categories Reconstructive Americas 1,159 14 0% Europe 580 10 4 Asia Pacific 280 12 4 Total 2,019 13 2 Knees Americas 660 18 0% Europe 237 15 3 Asia Pacific 118 14 4 Total 1,015 17 1 Hips Americas 400 8 1% Europe 303 5 3 Asia Pacific 144 8 3 Total 847 7 2 Extremities 49 13 1 Dental 108 22 1% Trauma 134 4 1% Spine 118 18 0% Orthopaedic Surgical Products 167 5 1% ** Effect of changes in foreign exchange rates on growth

Net earnings for the nine months were $533 million on a reported basis, and were $560 million adjusted*, an increase of 33% adjusted* over the prior year period. Diluted earnings per share for the nine months were $2.13 reported and were $2.24 adjusted*, an increase of 32% adjusted* over the prior year period. Included in the nine months is approximately $6.5 million of pre-tax income, which was recorded and reported for the second quarter, related primarily to the favorable resolution of certain legal and other matters. These items contributed a little less than $0.02 to diluted earnings per share and are not expected to occur in the future.

Guidance

The Company is updating its guidance for the balance of 2005 to incorporate the results of the third quarter and providing guidance for full year 2006.

Fourth quarter 2005 sales are expected to be in a range of $845 to $850 million. The updated guidance includes the negative contribution of approximately $10 to $11 million from reduced surgical procedures due to Hurricanes Katrina and Rita, which affected several key markets where the Company enjoys an average of more than 50% market share, $21 million of negative foreign currency assuming current foreign currency rates remain consistent through the balance of 2005 and one less billing day compared to the fourth quarter of 2004. The Company has not incorporated any potential effects of Hurricane Wilma into fourth quarter 2005 guidance. Full year 2005 sales expectations of $3,283 to $3,288 million represent approximately 10% growth over prior year. Sales for 2006 are expected to increase in a range of 8% to 9% over 2005. This assumes a 1% reduction due to foreign currency, a 1% reduction due to the loss of the Company's OrthoPAT Blood Management System distribution agreement and a 1% reduction in global pricing. If the Company is successful at replacing its OrthoPAT sales with another product, it will notify investors with expected release dates and incremental sales that can be modeled into 2006.

The Company is reaffirming its full year 2005 earnings per share guidance of $2.93 reported and $3.07 adjusted* previously communicated at the end of the second quarter. Full year 2006 earnings per share are expected to be in a range of $3.54 to $3.61 reported and $3.58 to $3.65 adjusted*, representing growth over 2005 of 17% to 19% adjusted*. As a result of the first half of 2005 being stronger than the second half, and considering that the negative effects on sales growth of foreign currency will be greater in the first half of 2006, the Company's sales and earnings growth are expected to be greater in the second half. The Company will provide quarterly guidance for 2006 when it reports fourth quarter 2005.

Conference Call

The Company will conduct its third quarter 2005 investor conference call on Thursday, October 27, 2005, at 8:00 a.m. Eastern Time. The live audio webcast can be accessed via Zimmer's Investor Relations website at http://investor.zimmer.com/ . It will be archived for replay following the conference. 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 call from October 27, 2005 to November 1, 2005. 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, 1067203. A copy of this press release and other financial and statistical information about the periods to be presented in the conference call will be accessible through the Zimmer website at http://investor.zimmer.com/ .

About the Company

Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer is the worldwide #1 pure-play orthopaedic leader in designing, developing, manufacturing and marketing reconstructive and spinal implants, trauma and related orthopaedic surgical products. Zimmer has operations in more than 24 countries around the world and sells products in more than 100 countries. Zimmer's 2004 sales were approximately $3 billion. The Company is supported by the efforts of more than 6,500 employees worldwide.

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

As used in this press release, the term "adjusted" refers to operating performance measures that exclude acquisition and integration expenses and inventory step-up. The term "net debt" refers to short-term and long-term debt obligations minus the Company's cash and equivalents and restricted cash. Reconciliations of non-GAAP measures to the most directly comparable GAAP measure are included in this press release.

Zimmer 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. The forward-looking statements include sales and diluted earnings per share guidance and other statements identified by the use of forward- looking terms such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "assumes," "guides," "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 and Implex Corp., the outcome of the Department of Justice investigation announced in March 2005 and 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, governmental laws and regulations affecting our U.S. and international businesses, including tax obligations and risks, 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 SEPTEMBER 30, 2005 and 2004 (in millions, except per share amounts, unaudited) 2005 2004 % Inc/(Dec) Net Sales $762.5 $700.2 9% Cost of products sold 174.5 169.1 3 Gross Profit 588.0 531.1 11 Research and development 43.9 41.4 6 Selling, general and administrative 295.8 286.2 3 Acquisition and integration 7.7 11.5 (34) Operating expenses 347.4 339.1 2 Operating Profit 240.6 192.0 25 Interest expense 2.1 7.7 (73) Earnings before income taxes and minority interest 238.5 184.3 30 Provision for income taxes 69.7 56.4 24 Minority interest (0.2) - N/A Net Earnings $168.6 $127.9 32 Earnings Per Common Share Basic $0.68 $0.52 31 Diluted $0.67 $0.52 29 Weighted Average Common Shares Outstanding Basic 247.4 245.0 Diluted 250.2 248.2 ZIMMER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004 (in millions, except per share amounts, unaudited) 2005 2004 % Inc/(Dec) Net Sales $2,437.8 $2,179.8 12% Cost of products sold 553.6 590.5 (6) Gross Profit 1,884.2 1,589.3 19 Research and development 129.6 119.4 9 Selling, general and administrative 945.9 881.3 7 Acquisition and integration 34.7 67.0 (48) Operating expenses 1,110.2 1,067.7 4 Operating Profit 774.0 521.6 48 Interest expense 13.5 25.8 (48) Earnings before income taxes and minority interest 760.5 495.8 53 Provision for income taxes 227.0 154.2 47 Minority interest (0.6) 0.2 N/A Net Earnings $532.9 $341.8 56 Earnings Per Common Share Basic $2.16 $1.40 54 Diluted $2.13 $1.38 54 Weighted Average Common Shares Outstanding Basic 246.8 244.1 Diluted 249.7 247.3 ZIMMER HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004 (in millions) September 30, December 31, 2005 2004 (unaudited) Assets Current Assets: Cash and equivalents $91.8 $154.6 Restricted cash 12.5 18.9 Receivables, net 541.1 524.8 Inventories, net 586.6 536.0 Other current assets 268.5 326.6 Total current assets 1,500.5 1,560.9 Property, plant and equipment, net 703.7 628.5 Goodwill 2,466.7 2,528.9 Intangible assets, net 770.0 794.8 Other assets 180.7 182.4 Total Assets $5,621.6 $5,695.5 Liabilities and Shareholders' Equity Current liabilities $655.5 $673.5 Short-term debt - 27.5 Other long-term liabilities 371.9 420.9 Long-term debt 85.8 624.0 Minority interest 2.0 7.1 Shareholders' equity 4,506.4 3,942.5 Total Liabilities and Shareholders' Equity $5,621.6 $5,695.5 ZIMMER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004 (in millions, unaudited) 2005 2004 Cash flows provided by (used in) operating activities Net earnings $532.9 $341.8 Depreciation and amortization 136.0 134.6 Inventory step-up 4.6 56.1 Changes in operating assets and liabilities, net of acquired assets and liabilities Income taxes 111.5 122.1 Receivables (38.8) (4.2) Inventories (75.6) (32.0) Accounts payable and accrued expenses (30.9) (26.0) Other assets and liabilities (12.0) 11.9 Net cash provided by operating activities 627.7 604.3 Cash flows provided by (used in) investing activities Additions to instruments (129.6) (106.7) Additions to other property, plant and equipment (65.5) (59.6) Centerpulse and InCentive acquisitions, net of acquired cash - (18.2) Implex acquisition, net of acquired cash - (103.7) Proceeds from note receivable - 25.0 Investments in other assets (9.7) (1.1) Net cash used in investing activities (204.8) (264.3) Cash flows provided by (used in) financing activities Proceeds from exercise of stock options 75.1 58.7 Net payments on lines of credit (5.3) (425.1) Payments on term loan (550.0) - Debt issuance costs (1.9) (0.6) Equity issuance costs - (5.0) Net cash used in financing activities (482.1) (372.0) Effect of exchange rates on cash and equivalents (3.6) (0.2) Decrease in cash and equivalents (62.8) (32.2) Cash and equivalents, beginning of period 154.6 77.5 Cash and equivalents, end of period $91.8 $45.3 ZIMMER HOLDINGS, INC. NET SALES BY GEOGRAPHIC SEGMENT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004 (in millions, unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 % Increase 2005 2004 % Increase Americas $473.3 $430.1 10% $1,448.4 $1,285.0 13% Europe 178.0 167.3 6 640.7 580.1 10 Asia Pacific 111.2 102.8 8 348.7 314.7 11 Total $762.5 $700.2 9 $2,437.8 $2,179.8 12 ZIMMER HOLDINGS, INC. NET SALES BY PRODUCT CATEGORY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004 (in millions, unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 % Increase 2005 2004 % Increase Reconstructive $624.4 $573.4 9% $2,018.7 $1,792.5 13% Trauma 44.3 40.5 10 134.1 128.9 4 Spine 38.4 32.3 19 117.8 99.6 18 OSP 55.4 54.0 2 167.2 158.8 5 Total $762.5 $700.2 9 $2,437.8 $2,179.8 12 ZIMMER HOLDINGS, INC. RECONCILIATION OF NET EARNINGS AND ADJUSTED* NET EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 and 2004 (in millions, unaudited) Three Months Ended September 30, 2005 2004 Net Earnings $168.6 $127.9 Acquisition and integration 7.7 11.5 Inventory step-up 0.5 6.5 Tax benefit of acquisition and integration and inventory step-up (2.7) (6.1) Adjusted Net Earnings $174.1 $139.8 ZIMMER HOLDINGS, INC. RECONCILIATION OF NET EARNINGS AND ADJUSTED* NET EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004 (in millions, unaudited) Nine Months Ended September 30, 2005 2004 Net Earnings $532.9 $341.8 Acquisition and integration 34.7 67.0 Inventory step-up 4.6 56.1 Tax benefit of acquisition and integration and inventory step-up (12.0) (43.7) Adjusted Net Earnings $560.2 $421.2 ZIMMER HOLDINGS, INC. RECONCILIATION OF DILUTED EPS AND ADJUSTED* DILUTED EPS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 and 2004 (unaudited) Three Months Ended September 30, 2005 2004 Diluted EPS $0.67 $0.52 Acquisition and integration 0.03 0.04 Inventory step-up - 0.03 Tax benefit of acquisition and integration and inventory step-up - (0.03) Adjusted* Diluted EPS $0.70 $0.56 ZIMMER HOLDINGS, INC. RECONCILIATION OF DILUTED EPS AND ADJUSTED* DILUTED EPS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 and 2004 (unaudited) Nine Months Ended September 30, 2005 2004 Diluted EPS $2.13 $1.38 Acquisition and integration 0.14 0.27 Inventory step-up 0.02 0.23 Tax benefit of acquisition and integration and inventory step-up (0.05) (0.18) Adjusted* Diluted EPS $2.24 $1.70 ZIMMER HOLDINGS, INC. RECONCILIATION OF REPORTED AND ADJUSTED* STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 (in millions, except per share amounts, unaudited) Reported Adjusted* 2005 Adjustments 2005 Net Sales $762.5 $- $762.5 Cost of products sold 174.5 (0.5) 174.0 Gross Profit 588.0 0.5 588.5 Research and development 43.9 - 43.9 Selling, general and administrative 295.8 - 295.8 Acquisition and integration 7.7 (7.7) - Operating expenses 347.4 (7.7) 339.7 Operating Profit 240.6 8.2 248.8 Interest expense 2.1 - 2.1 Earnings before income taxes and minority interest 238.5 8.2 246.7 Provision for income taxes 69.7 2.7 72.4 Minority interest (0.2) - (0.2) Net Earnings $168.6 $5.5 $174.1 Earnings Per Common Share Basic $0.68 $0.02 $0.70 Diluted $0.67 $0.03 $0.70 Weighted Average Common Shares Outstanding Basic 247.4 247.4 Diluted 250.2 250.2 ZIMMER HOLDINGS, INC. RECONCILIATION OF REPORTED AND ADJUSTED* STATEMENTS OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 (in millions, except per share amounts, unaudited) Reported Adjusted* 2005 Adjustments 2005 Net Sales $2,437.8 $- $2,437.8 Cost of products sold 553.6 (4.6) 549.0 Gross Profit 1,884.2 4.6 1,888.8 Research and development 129.6 - 129.6 Selling, general and administrative 945.9 - 945.9 Acquisition and integration 34.7 (34.7) - Operating expenses 1,110.2 (34.7) 1,075.5 Operating Profit 774.0 39.3 813.3 Interest expense 13.5 - 13.5 Earnings before income taxes and minority interest 760.5 39.3 799.8 Provision for income taxes 227.0 12.0 239.0 Minority interest (0.6) - (0.6) Net Earnings $532.9 $27.3 $560.2 Earnings Per Common Share Basic $2.16 $0.11 $2.27 Diluted $2.13 $0.11 $2.24 Weighted Average Common Shares Outstanding Basic 246.8 246.8 Diluted 249.7 249.7 ZIMMER HOLDINGS, INC. RECONCILIATION OF REPORTED AND ADJUSTED* STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 (in millions, except per share amounts, unaudited) Reported Adjusted* 2004 Adjustments 2004 Net Sales $700.2 $- $700.2 Cost of products sold 169.1 (6.5) 162.6 Gross Profit 531.1 6.5 537.6 Research and development 41.4 - 41.4 Selling, general and administrative 286.2 - 286.2 Acquisition and integration 11.5 (11.5) - Operating expenses 339.1 (11.5) 327.6 Operating Profit 192.0 18.0 210.0 Interest expense 7.7 - 7.7 Earnings before income taxes 184.3 18.0 202.3 Provision for income taxes 56.4 6.1 62.5 Net Earnings $127.9 $11.9 $139.8 Earnings Per Common Share Basic $0.52 $0.05 $0.57 Diluted $0.52 $0.04 $0.56 Weighted Average Common Shares Outstanding Basic 245.0 245.0 Diluted 248.2 248.2 ZIMMER HOLDINGS, INC. RECONCILIATION OF REPORTED AND ADJUSTED* STATEMENTS OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (in millions, except per share amounts, unaudited) Reported Adjusted* 2004 Adjustments 2004 Net Sales $2,179.8 $- $2,179.8 Cost of products sold 590.5 (56.1) 534.4 Gross Profit 1,589.3 56.1 1,645.4 Research and development 119.4 - 119.4 Selling, general and administrative 881.3 - 881.3 Acquisition and integration 67.0 (67.0) - Operating expenses 1,067.7 (67.0) 1,000.7 Operating Profit 521.6 123.1 644.7 Interest expense 25.8 - 25.8 Earnings before income taxes 495.8 123.1 618.9 Provision for income taxes 154.2 43.7 197.9 Minority Interest 0.2 - 0.2 Net Earnings $341.8 $79.4 $421.2 Earnings Per Common Share Basic $1.40 $0.33 $1.73 Diluted $1.38 $0.32 $1.70 Weighted Average Common Shares Outstanding Basic 244.1 244.1 Diluted 247.3 247.3 ZIMMER HOLDINGS, INC. RECONCILIATION OF NET MARGIN AND ADJUSTED* NET MARGIN FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2005 Net Margin 22.1% 21.9% Acquisition and integration 0.9 1.5 Inventory step-up 0.1 0.2 Tax benefit of acquisition and integration and inventory step-up (0.3) (0.6) Adjusted* Net Margin 22.8% 23.0% ZIMMER HOLDINGS, INC. RECONCILIATION OF OPERATING MARGIN AND ADJUSTED* OPERATING MARGIN FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2005 Operating Margin 31.6% 31.7% Acquisition and integration 0.9 1.5 Inventory step-up 0.1 0.2 Adjusted* Operating Margin 32.6% 33.4% ZIMMER HOLDINGS, INC. RECONCILIATION OF GROSS MARGIN AND ADJUSTED* GROSS MARGIN FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2005 2005 Gross Margin 77.1% 77.3% Inventory step-up 0.1 0.2 Adjusted* Gross Margin 77.2% 77.5% ZIMMER HOLDINGS, INC. RECONCILIATION OF DEBT AND NET CASH/(DEBT)* AS OF SEPTEMBER 30, 2005 and DECEMBER 31, 2004 (in millions, unaudited) September 30, December 31, 2005 2004 Short-term debt $- $27.5 Long-term debt 85.8 624.0 Total debt 85.8 651.5 Cash and equivalents 91.8 154.6 Restricted cash 12.5 18.9 Total cash 104.3 173.5 Net cash/(debt)* $18.5 $(478.0) ZIMMER HOLDINGS, INC. RECONCILIATION OF PROJECTED DILUTED EPS AND PROJECTED ADJUSTED* DILUTED EPS (unaudited) Projected Year Ended December 31, 2005: Diluted EPS $2.93 Acquisition and Integration, net of tax 0.12 Inventory Step-up, net of tax 0.02 Adjusted* Diluted EPS $3.07 Projected Year Ended December 31, 2006: Low High Diluted EPS $3.54 $3.61 Acquisition and Integration, net of tax 0.04 0.04 Adjusted* Diluted EPS $3.58 $3.65