Zimmer Holdings, Inc. Reports Third Quarter 2011 Financial Results

WARSAW, Ind., Oct. 27, 2011 /PRNewswire/ — Zimmer Holdings, Inc. (NYSE and SIX:
ZMH) today reported financial results for the quarter ended September 30, 2011.
The Company reported third quarter net sales of $1,031 million, an increase of
6.9% reported and 2.4% constant currency over the third quarter of 2010. Diluted
earnings per share for the quarter were $1.01 reported and $1.04 adjusted, an
increase of 8.3% adjusted over the prior year period.

“Zimmer delivered against our financial commitments in the third quarter with
consistent results in both revenues and earnings,” said David Dvorak, Zimmer
President and CEO. “Progress in the commercialization of new products supported
a strong performance in many international markets. Through this progress and
ongoing financial discipline, we continue to deliver value to stockholders.”

Net earnings for the third quarter were $191.5 million on a reported basis and
$197.2 million on an adjusted basis, an increase of 2.4% adjusted over the prior
year period. Operating cash flow for the third quarter was $350.6 million.

During the quarter, the Company utilized $549 million of cash, supported by $375
million of borrowings, to acquire 10.1 million shares. At the end of the third
quarter, $299 million of share repurchase authorization remained available under
the current program, which expires on December 31, 2013.

Guidance

The Company updated its full-year revenue and adjusted earnings per share
guidance for 2011. Full-year revenues for 2011 are now expected to increase
between 2.3% and 2.7% on a constant currency basis from 2010. The Company
estimates that foreign currency translation will increase revenues by
approximately 2.5% for the full year 2011, resulting in reported revenue growth
between 4.8% and 5.2%. This compares with prior revenue guidance of 2.5% to 3.5%
constant currency and 5.5% to 6.5% reported growth over prior year. Full-year
2011 diluted earnings per share are now projected to be in a range of $4.40 to
$4.45 on a reported basis and $4.75 to $4.80 on an adjusted basis, which
represents a narrowing toward the top end of prior adjusted earnings guidance.

Conference Call

The Company will conduct its third quarter 2011 investor conference call today,
October 27, 2011, 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 (888)
878-3901. International callers should dial (706) 634-9520. A digital recording
will be available two hours after the completion of the conference call from
October 27, 2011, to November 10, 2011. 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 12302169.

Sales Tables

The following tables provide sales results by geographic segment and product
category, as well as the percentage change compared to the prior year quarter
and nine months on both a reported and constant currency basis.

NET SALES -THREE MONTHS ENDED SEPTEMBER 30,
2011
(in millions, unaudited)

Constant
Net Reported Currency
%
Sales Growth % Growth
—– ——- ——–
Geographic Segments
Americas $582 – % (1)%
Europe 252 17 7
Asia Pacific 197 19 7
—
Total 1,031 7 2
Product Categories
Reconstructive
Americas 422 (2) (2)
Europe 199 17 7
Asia Pacific 147 21 8
—
Total 768 6 1

Knees
Americas 253 (4) (4)
Europe 90 16 7
Asia Pacific 74 19 7
—
Total 417 3 -

Hips
Americas 142 – -
Europe 103 18 6
Asia Pacific 70 23 11
—
Total 315 10 4

Extremities 36 7 4

Dental 55 12 9

Trauma 69 19 14

Spine 55 (2) (5)

Surgical and other 84 8 4

NET SALES -NINE MONTHS ENDED SEPTEMBER 30,
2011
(in millions, unaudited)

Constant
Net Reported Currency
%
Sales Growth % Growth
—– ——- ——–
Geographic Segments
Americas $1,820 1% – %
Europe 876 13 5
Asia Pacific 588 18 7
—
Total 3,284 6 3
Product Categories
Reconstructive
Americas 1,337 (1) (1)
Europe 694 11 4
Asia Pacific 436 18 6
—
Total 2,467 5 1

Knees
Americas 797 (4) (4)
Europe 335 13 6
Asia Pacific 218 15 3
—
Total 1,350 3 (1)

Hips
Americas 448 2 2
Europe 340 10 2
Asia Pacific 210 21 9
—
Total 998 8 3

Extremities 119 9 6

Dental 185 18 15

Trauma 208 18 14

Spine 168 (3) (6)

Surgical and other 256 10 6

About the Company

Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer designs, develops,
manufactures and markets orthopaedic reconstructive, spinal and trauma devices,
dental implants, and related surgical products. Zimmer has operations in more
than 25 countries around the world and sells products in more than 100
countries. Zimmer’s 2010 sales were approximately $4.2 billion. The Company is
supported by the efforts of more than 8,000 employees worldwide.

Website Information

We routinely post important information for investors on our website,
www.zimmer.com, in the “Investor Relations” section. We intend to use this
website as a means of disclosing material, non-public information and for
complying with our disclosure obligations under Regulation FD. Accordingly,
investors should monitor the Investor Relations section of our website, in
addition to following our press releases, SEC filings, public conference calls,
presentations and webcasts. The information contained on, or that may be
accessed through, our website is not incorporated by reference into, and is not
a part of, this document.

Note on Non-GAAP Financial Measures

As used in this press release, the term “adjusted” refers to operating
performance measures that exclude inventory step-up, the provision for certain
Durom® Acetabular Component product claims, special items and certain tax
adjustments. Included in special items are acquisition and integration costs as
well as employee termination benefits, certain contract terminations and asset
impairment charges connected with global restructuring and transformation
initiatives. The term “constant currency” refers to any financial measure that
excludes the effect of changes in foreign currency exchange rates.
Reconciliations of these 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.
Forward-looking statements may be 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 compliance with the Corporate Integrity
Agreement through 2012; the success of our quality and operational improvement
initiatives; the outcome of the investigation by the U.S. government into
Foreign Corrupt Practices Act matters announced in October 2007; price and
product competition; changes in customer demand for our products and services
caused by demographic changes or other factors; dependence on new product
development, technological advances and innovation; shifts in the product
category or regional sales mix of our products and services; supply and prices
of raw materials and products; control of costs and expenses; our ability to
obtain and maintain adequate intellectual property protection; our ability to
successfully integrate acquired businesses; our ability to form and implement
alliances; 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 and foreign government
regulators; changes in tax obligations arising from tax reform measures or
examinations by tax authorities; product liability and intellectual property
litigation losses; the impact of health care reform measures in the U.S.
including the impact of the new excise tax on medical devices, reductions in
reimbursement levels from third-party payors and cost-containment efforts of
health care purchasing organizations; our ability to retain the independent
agents and distributors who market our products; and changes in general industry
and market conditions, including domestic and international 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 our periodic reports filed with the U.S.
Securities and Exchange Commission. We disclaim any intention or obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be set forth in our
periodic reports. 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, 2011 and 2010
(in millions, except per share amounts, unaudited)

% Inc/
2011 2010 (Dec)
—- —- ——-
Net Sales $1,031.5 $965.0 7%
Cost of products sold 251.9 219.1 15
—– —–
Gross Profit 779.6 745.9 5
—– —–

Research and development 61.0 57.3 7
Selling, general and
administrative 444.0 412.0 8
Certain claims – – -
Special items 8.0 5.0 63
— —
Operating expenses 513.0 474.3 8
—– —–

Operating Profit 266.6 271.6 (2)
Interest expense, net 11.7 14.2 (17)
—- —-
Earnings before income taxes 254.9 257.4 (1)
Provision for income taxes 63.7 66.3 (4)
—- —-
Net earnings 191.2 191.1 -
Less: Net loss attributable to
noncontrolling interest (0.3) – 100
—- —
Net Earnings of Zimmer Holdings,
Inc. $191.5 $191.1 -
====== ======

Earnings Per Common Share
Basic $1.02 $0.96 6
Diluted $1.01 $0.96 5

Weighted Average Common Shares Outstanding
Basic 187.7 198.7
Diluted 188.8 199.7

Certain amounts in the 2010 consolidated statement of
earnings have been reclassified to conform
to the 2011 presentation.

ZIMMER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 and 2010
(in millions, except per share amounts, unaudited)

% Inc/
2011 2010 (Dec)
—- —- ——-
Net Sales $3,284.5 $3,085.5 6%
Cost of products sold 818.8 738.1 11
—– —–
Gross Profit 2,465.7 2,347.4 5
——- ——-

Research and development 173.6 162.0 7
Selling, general and
administrative 1,372.2 1,297.5 6
Certain claims 50.0 75.0 (33)
Special items 47.0 19.1 147
—- —-
Operating expenses 1,642.8 1,553.6 6
——- ——-

Operating Profit 822.9 793.8 4
Interest expense, net 32.5 43.1 (24)
—- —-
Earnings before income taxes 790.4 750.7 5
Provision for income taxes 186.5 188.7 (1)
—– —–
Net earnings 603.9 562.0 7
Less: Net loss attributable to
noncontrolling interest (0.3) – 100
—- —
Net Earnings of Zimmer Holdings,
Inc. $604.2 $562.0 8
====== ======

Earnings Per Common Share
Basic $3.17 $2.79 14
Diluted $3.15 $2.78 13

Weighted Average Common Shares
Outstanding
Basic 190.6 201.2
Diluted 191.8 202.3

Certain amounts in the 2010 consolidated statement of
earnings have been reclassified to conform
to the 2011 presentation.

ZIMMER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)

September
30, December 31,
2011 2010
—- —-
Assets
Current Assets:
Cash and cash equivalents $553.0 $668.9
Short-term investments 424.9 265.1
Receivables, net 827.9 775.9
Inventories, net 968.4 936.4
Other current assets 299.1 363.4
—– —–
Total current assets 3,073.3 3,009.7

Property, plant and equipment, net 1,210.3 1,213.8
Goodwill 2,634.3 2,580.8
Intangible assets, net 794.7 827.1
Other assets 486.2 368.5
—– —–
Total Assets $8,198.8 $7,999.9
======== ========

Liabilities and Shareholders’
Equity

Current liabilities $674.6 $702.5
Other long-term liabilities 372.0 384.0
Long-term debt 1,543.5 1,142.1
Shareholders’ equity 5,608.7 5,771.3
——- ——-
Total Liabilities and
Shareholders’ Equity $8,198.8 $7,999.9
======== ========

ZIMMER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 and 2010
(in millions, unaudited)

2011 2010
— —

Cash flows provided by (used in) operating
activities
Net earnings $603.9 $562.0
Depreciation and amortization 265.6 249.5
Share-based compensation 46.1 45.4
Income tax benefits from employee stock compensation
plans 10.6 3.4
Excess income tax benefits from employee stock
compensation plans (4.0) (1.1)
Inventory step-up 9.6 1.3
Changes in operating assets and liabilities, net of
acquired assets and liabilities
Income taxes 6.8 (69.3)
Receivables (39.7) (13.1)
Inventories (27.7) 6.9
Accounts payable and accrued expenses (41.3) (9.1)
Other assets and liabilities (46.1) 76.6
—– —-
Net cash provided by operating activities 783.8 852.5
—– —–

Cash flows provided by (used in) investing
activities
Additions to instruments (128.9) (133.1)
Additions to other property, plant and equipment (67.8) (40.6)
Purchases of investments (403.8) (100.6)
Sales of investments 225.0 56.5
Investments in other assets (35.6) (17.6)
—– —–
Net cash used in investing activities (411.1) (235.4)
—— ——

Cash flows provided by (used in) financing
activities
Net proceeds under revolving credit facilities 375.2 -
Proceeds from employee stock compensation plans 34.0 12.9
Excess income tax benefits from employee stock
compensation plans 4.0 1.1
Repurchase of common stock (906.5) (404.6)
—— ——
Net cash used in financing activities (493.3) (390.6)
—— ——

Effect of exchange rates on cash and cash
equivalents 4.7 0.4
— —

Increase (decrease) in cash and cash equivalents (115.9) 226.9
Cash and cash equivalents, beginning of period 668.9 691.7
—– —–
Cash and cash equivalents, end of period $553.0 $918.6
====== ======

ZIMMER HOLDINGS, INC.
NET SALES BY GEOGRAPHIC SEGMENT
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 and
2010
(in millions, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
—————— —————–

2011 2010 % Inc 2011 2010 % Inc
—- —- —– —- —- —–

Americas $582.1 $583.2 – % $1,820.4 $1,808.2 1%
Europe 252.5 215.8 17 876.4 778.4 13
Asia Pacific 196.9 166.0 19 587.7 498.9 18
—– —– —– —–
Total $1,031.5 $965.0 7 $3,284.5 $3,085.5 6
======== ====== ======== ========

ZIMMER HOLDINGS, INC.
NET SALES BY PRODUCT CATEGORY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 and
2010
(in millions, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
—————— —————–

% Inc/
2011 2010 % Inc/(Dec) 2011 2010 (Dec)
—- —- ———– —- —- ——-

Reconstructive
Knees $416.7 $402.9 3% $1,349.8 $1,316.2 3%
Hips 315.6 287.3 10 997.9 920.1 8
Extremities 36.0 33.6 7 119.6 110.2 9
—- —- —– —–
768.3 723.8 6 2,467.3 2,346.5 5
—– —– ——- ——-

Dental 55.1 49.0 12 184.6 156.6 18
Trauma 69.3 58.1 19 208.5 176.3 18
Spine 55.2 56.5 (2) 168.5 174.4 (3)
Surgical and
other 83.6 77.6 8 255.6 231.7 10
—- —- —– —–
Total $1,031.5 $965.0 7 $3,284.5 $3,085.5 6
======== ====== ======== ========

ZIMMER HOLDINGS, INC.
RECONCILIATION OF REPORTED % GROWTH TO
CONSTANT CURRENCY % GROWTH
(unaudited)

For the Three Months Ended
September 30, 2011
——————
Foreign Constant
Reported Exchange Currency
% Growth Impact % Growth
——– —— ——–
Geographic Segments
Americas – % 1% (1)%
Europe 17 10 7
Asia Pacific 19 12 7
Total 7 5 2
Product Categories
Reconstructive
Americas (2) – (2)
Europe 17 10 7
Asia Pacific 21 13 8
Total 6 5 1

Knees
Americas (4) – (4)
Europe 16 9 7
Asia Pacific 19 12 7
Total 3 3 -

Hips
Americas – – -
Europe 18 12 6
Asia Pacific 23 12 11
Total 10 6 4

Extremities 7 3 4

Dental 12 3 9

Trauma 19 5 14

Spine (2) 3 (5)

Surgical and other 8 4 4

ZIMMER HOLDINGS, INC.
RECONCILIATION OF REPORTED % GROWTH TO
CONSTANT CURRENCY % GROWTH
(unaudited)

For the Nine Months Ended
September 30, 2011
——————
Foreign Constant
Reported Exchange Currency
% Growth Impact % Growth
——– —— ——–
Geographic Segments
Americas 1% 1% – %
Europe 13 8 5
Asia Pacific 18 11 7
Total 6 3 3
Product Categories
Reconstructive
Americas (1) – (1)
Europe 11 7 4
Asia Pacific 18 12 6
Total 5 4 1

Knees
Americas (4) – (4)
Europe 13 7 6
Asia Pacific 15 12 3
Total 3 4 (1)

Hips
Americas 2 – 2
Europe 10 8 2
Asia Pacific 21 12 9
Total 8 5 3

Extremities 9 3 6

Dental 18 3 15

Trauma 18 4 14

Spine (3) 3 (6)

Surgical and other 10 4 6

ZIMMER HOLDINGS, INC.
Reconciliation of Net Earnings and Adjusted Net Earnings
For the Three Months Ended September 30, 2011 and 2010
(in millions, unaudited)

Three Months
Ended September
30,
—————
2011 2010
— —

Net Earnings of Zimmer Holdings, Inc. $191.5 $191.1
Inventory step-up 1.8 -
Special items 8.0 5.0
Taxes on inventory step-up and special items
and tax
adjustments related to resolution of
certain tax matters* (4.1) (3.7)
—- —-
Adjusted Net Earnings $197.2 $192.4
====== ======

* The tax effect is calculated based upon the statutory
rates for the jurisdictions where the items
were incurred.

ZIMMER HOLDINGS, INC.
Reconciliation of Net Earnings and Adjusted Net Earnings
For the Nine Months Ended September 30, 2011 and 2010
(in millions, unaudited)

Nine Months
Ended September
30,
—————
2011 2010
—- —-

Net Earnings of Zimmer Holdings, Inc. $604.2 $562.0
Inventory step-up 9.6 1.3
Certain claims 50.0 75.0
Special items 47.0 19.1
Taxes on inventory step-up, certain claims and
special items
and tax adjustments related to resolution
of certain tax matters* (50.2) (36.4)
—– —–
Adjusted Net Earnings $660.6 $621.0
====== ======

* The tax effect is calculated based upon the statutory
rates for the jurisdictions where the items
were incurred.

ZIMMER HOLDINGS, INC.
Reconciliation of Diluted EPS and Adjusted Diluted EPS
For the Three Months Ended September 30, 2011 and 2010
(unaudited)

Three Months
Ended September
30,
—————
2011 2010
—- —-

Diluted EPS $1.01 $0.96
Inventory step-up 0.01 -
Special items 0.04 0.02
Taxes on inventory step-up and special items and
tax
adjustments related to resolution of certain
tax matters* (0.02) (0.02)
—– —–
Adjusted Diluted EPS $1.04 $0.96
===== =====

* The tax effect is calculated based upon the statutory rates
for the jurisdictions where the items
were incurred.

ZIMMER HOLDINGS, INC.
Reconciliation of Diluted EPS and Adjusted Diluted EPS
For the Nine Months Ended September 30, 2011 and 2010
(unaudited)

Nine Months
Ended September
30,
—————
2011 2010
—- —-

Diluted EPS $3.15 $2.78
Inventory step-up 0.05 0.01
Certain claims 0.26 0.37
Special items 0.24 0.09
Taxes on inventory step-up, certain claims and
special items
and tax adjustments related to resolution
of certain tax matters* (0.26) (0.18)
—– —–
Adjusted Diluted EPS $3.44 $3.07
===== =====

* The tax effect is calculated based upon the statutory
rates for the jurisdictions where the items
were incurred.

ZIMMER HOLDINGS, INC.
Reconciliation of 2011 Projected Diluted EPS
and Projected Adjusted Diluted EPS
(unaudited)

Projected Year Ended December 31, 2011: Low High
— —-

Diluted EPS 4.40 4.45
Inventory step-up 0.05 0.05
Special items 0.30 0.30
Certain claims 0.26 0.26
Taxes on inventory step-up, certain claims and special
items and
tax adjustments related to resolution of certain
tax matters* (0.26) (0.26)
—– —–
Adjusted Diluted EPS $4.75 $4.80
===== =====

* The tax effect is calculated based upon the statutory rates
for the jurisdictions where the items
have or are projected to be incurred.

SOURCE Zimmer Holdings, Inc.