WARSAW, Ind., July 28 /PRNewswire-FirstCall/ --
Second Quarter Highlights - Net Sales increased 79% reported, and 14% combined* (3% increase due to changes in foreign exchange rates) to $737 million - Worldwide Recon sales increased 86% reported, and 16% combined* (4% increase due to changes in foreign exchange rates) - Americas Recon sales increased 59% reported, 20% combined* and U.S. hips grew 21% combined* - Continued margin expansion -- 73% gross, 24% operating and 16% net reported; 75% gross, 30% operating and 20% net adjusted* - Diluted EPS were $0.47 reported, and $0.58 adjusted*, an increase of 29% over prior year - Strong operating cash flow of $204 million, total debt reduced to $869 million and cash on hand is $87 million - Projected 2006 integration net synergies increased to over $100 million pre-tax - Increasing 2004 Diluted EPS guidance to a range of $1.86 to $1.90 reported and $2.26 to $2.30 adjusted*, an increase of $0.06 over previous guidance
Zimmer Holdings, Inc. today reported net sales of $737 million and diluted EPS of $0.47 reported and $0.58 adjusted* for the quarter ended June 30, 2004. The Company’s sales and diluted earnings per share results, on a reported and adjusted* basis, exceeded both the high end of the Company’s previous sales guidance of $730 million and earnings per share guidance of $0.42 reported and $0.55 adjusted*, and First Call estimates of $733 million and $0.55 adjusted*.
The Company’s reported results reflect its acquisition of Centerpulse AG on October 2, 2003, and Implex Corp., on April 23, 2004. Reported results include acquisition and integration expenses, inventory step-up and the prior year cumulative effect of a change in accounting principle for instrumentation, as applicable.
“The marketing and financial benefits of the Centerpulse acquisition continue to exceed our expectations,” said Ray Elliott, Zimmer Chairman, President and CEO. “Our earnings growth and the integration execution are a tribute to our team. We began this year with adjusted* EPS guidance of $2.04 to $2.07 and projected 2006 net synergies of $70 to $90 million. With today’s communication, we will have increased our 2004 EPS guidance by more than $0.20 from the beginning of this year and raised projected 2006 pre-tax net synergies to more than $100 million.”
On April 23, 2004, the Company completed its acquisition of Implex Corp., a privately held New Jersey company. In 2000, Zimmer entered into an exclusive, worldwide strategic alliance for commercialization of Implex’s innovative Hedrocel(R) biomaterial, which Zimmer marketed as Trabecular Metal(TM) Technology. Implex, which is now referred to as Zimmer Trabecular Metal Technology, Inc., operates as a wholly owned subsidiary of the Company. Zimmer has more than a dozen development projects involving Trabecular Metal Technology in the reconstructive, trauma and spinal product areas. Trabecular Metal Technology sales for 2005 for all product categories are expected to exceed $100 million.
“During the quarter, we continued to expand our leadership in Minimally Invasive Solutions(TM) (MIS(TM)) Procedures and Technologies with a record 125 surgeons trained in the month of June alone on Zimmer’s MIS 2-Incision(TM) Hip Procedure and the MIS QS(TM) Quad-Sparing(TM) Knee Procedure,” said Elliott. “We are particularly pleased with our U.S. hip sales growth of 21%. In our case, the message is clear: MIS leadership brings in new business. Zimmer MIS Procedures accounted for nearly 48% of our U.S. hip sales this quarter and the trend is upward. Surgeon demand for MIS surgical skills training is outstripping our capacity, with more than 600 surgeons in the U.S. alone awaiting Zimmer’s surgeon-to-surgeon visits and consultations.”
The Company is providing a comparison of sales to prior year on a combined* basis in the tables that follow, which includes sales of Centerpulse for the second quarter and the first six months of 2003.
Net Sales - Three Months Ended June 30, 2004 ($ MM) Reported Combined* Net % % Growth Sales Growth Combined* FX Impact*** Geographic Segments Americas $432 58% 16% 0% Europe 198 222 10 7 Asia Pacific 107 41 13 9 Total 737 79 14 3 Product Categories Reconstructive Americas $342 59% 20% 0% Europe 180 229 9 6 Asia Pacific 86 50 13 8 Total 608 86 16 4 Hips Americas $127 49% 20% 0% Europe 96 406 8 6 Asia Pacific 45 57 14 9 Total 268 102 15 4 Knees Americas $186 54% 21% 0% Europe 72 111 9 7 Asia Pacific 36 29 9 8 Total 294 61 16 3 Trauma $43 23% 11% 3% Spine $34 N/A** 2% 2% Orthopaedic Surgical Products $52 7% 4% 3% ** Prior year Spine sales were minimal for Zimmer standalone *** Effect of changes in foreign exchange rates on growth
Net earnings for the quarter were $116 million on a reported basis, and $144 million adjusted*, an increase of 60% over the prior year. Diluted earnings per share for the quarter were $0.47 reported, and $0.58 adjusted*, an increase of 29% over the prior year.
Net Sales - Six Months Ended June 30, 2004 ($ MM) Reported Combined* Net % % Growth Sales Growth Combined* FX Impact*** Geographic Segments Americas $855 58% 17% 1% Europe 413 258 17 11 Asia Pacific 212 45 16 11 Total 1,480 85 17 5 Product Categories Reconstructive Americas $673 59% 20% 1% Europe 377 267 17 11 Asia Pacific 169 53 16 11 Total 1,219 92 18 5 Hips Americas $248 48% 20% 1% Europe 205 484 17 11 Asia Pacific 90 59 15 11 Total 543 109 18 7 Knees Americas $369 54% 20% 0% Europe 149 130 16 12 Asia Pacific 69 34 14 10 Total 587 65 18 4 Trauma $89 25% 13% 4% Spine $67 N/A** 6% 2% Orthopaedic Surgical Products $105 12% 9% 3% ** Prior year Spine sales were minimal for Zimmer standalone *** Effect of changes in foreign exchange rates on growth
Net earnings for the six months were $214 million on a reported basis, and $281 million adjusted*, an increase of 65% over the prior year. Diluted earnings per share for the six months were $0.87 reported, and $1.14 adjusted*, an increase of 33% over the prior year.
Guidance
The Company’s second quarter sales guidance of $725 to $730 million included in the first quarter results press release, assumed a foreign exchange growth contribution of $29 million. Due to the strengthening of the U.S. dollar against most currencies throughout the second quarter, the foreign exchange contribution to sales growth was only $21 million. With an $8 million reduced contribution from foreign exchange, our reported sales of $737 million for the second quarter represented an even greater contribution from the Company’s underlying businesses.
As a result of the strong quarter and increased confidence in both short- and long-term integration synergies, the Company announced that it is increasing its previous sales and earnings guidance for the full year 2004. Several factors have been incorporated into the Company’s sales and earnings expectations. Foreign currency exchange rate fluctuations contributed 7% to the Company’s sales growth in the first quarter, but declined to a 3% contribution in the second quarter. If foreign currency exchange rates remain at June 30, 2004 levels, the Company expects the favorable foreign currency effect on the first six months’ sales growth will lessen throughout the balance of this year. Due to the weakening of the U.S. dollar throughout all of 2003, the favorable effect of foreign currency movement on sales growth will only be 2% in the third quarter and will result in a slightly negative contribution to sales growth in the fourth quarter. This diminishing contribution to sales growth from foreign currency exchange rate fluctuations is expected to be offset by a strengthening of the Company’s underlying sales growth. The $50 million of projected 2004 sales dis-synergies related to the Centerpulse integration have been materializing throughout the first six months, and as the Company nears completion of its non-U.S. distributor integration plans, are anticipated to be fully realized by the end of this year.
Full year sales for 2004 are projected to be in a range of $2,940 to $2,965 million, a net increase of approximately $15 million over the range in the Company’s previous guidance. When considering the $40 million reduced contribution to the Company’s full year sales growth resulting from the strengthening of the U.S. dollar against most foreign currencies during the second quarter, this really represents a $55 million guidance increase from the Company’s underlying businesses. Reported diluted earnings per share for 2004 are expected to be in the range of $1.86 to $1.90, reflecting estimated acquisition and integration expenses of $65 million and inventory step-up of $35 million, net of tax. Adjusted* diluted earnings per share are projected to be in a range of $2.26 to $2.30, an increase of $0.06 over previous guidance and an increase of more than $0.20 from the beginning of the year.
The Company believes First Call estimates for earnings are high in the third quarter, but low for the fourth quarter, with the net effect being an increase in guidance for the second half of the year. Third and fourth quarter sales for 2004 are expected to be in a range of $685 to $695 million and $775 to $790 million, respectively. Reported diluted earnings per share for the third quarter are expected to be in a range of $0.43 to $0.45, reflecting estimated acquisition and integration expenses of $18 million, inventory step-up of $3 million, net of tax, and $0.01 of dilution per share from the Implex acquisition, resulting in adjusted* diluted earnings per share in a range of $0.51 to $0.53, slightly below current First Call estimates. Reported diluted earnings per share for the fourth quarter are expected to be in the range of $0.56 to $0.58, reflecting estimated acquisition and integration expenses of $11 million and inventory step-up of $2 million, net of tax, and adjusted* diluted earnings per share in a range of $0.61 to $0.63, above current First Call estimates.
Conference Call
The Company will conduct its second quarter sales and earnings conference call, which will be broadcast live over the Internet, on Thursday, July 29, 2004, at 8:00 a.m. Eastern Time. The live audio webcast of Zimmer’s conference call will be accessible through the Zimmer website at http://investor.zimmer.com/ . 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 July 29, 2004 to August 4, 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, 8534247. 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 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 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. The new Zimmer 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, 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 more than 6,500 employees.
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 “combined” sales includes Centerpulse for the first and second quarters of 2003 in order to provide more meaningful year-to-year comparisons. The term “adjusted” refers to operating performance measures that exclude acquisition and integration expenses, inventory step-up and the cumulative effect of the change in accounting principle for instruments. 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. 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 and Implex Corp., 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, 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 JUNE 30, 2004 and 2003 (in millions, except per share amounts, unaudited) 2004 2003 % Inc Net Sales $737.4 $411.1 79% Cost of products sold 201.9 98.4 105 Gross Profit 535.5 312.7 71 Research and development 38.2 22.7 68 Selling, general and administrative 297.3 153.8 93 Acquisition and integration 24.2 1.5 N/A Operating expenses 359.7 178.0 102 Operating Profit 175.8 134.7 31 Interest expense 8.3 0.9 N/A Earnings before income taxes and minority interest 167.5 133.8 25 Provision for income taxes 51.4 44.8 15 Minority interest 0.2 - N/A Net Earnings $116.3 $89.0 31 Earnings Per Common Share Basic $0.48 $0.45 7 Diluted $0.47 $0.45 4 Weighted Average Common Shares Outstanding Basic 244.3 196.5 Diluted 247.9 199.1 ZIMMER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 2004 and 2003 (in millions, except per share amounts, unaudited) 2004 2003 % Inc/(Dec) Net Sales $1,479.6 $801.2 85% Cost of products sold 421.4 195.3 116 Gross Profit 1,058.2 605.9 75 Research and development 78.0 44.1 77 Selling, general and administrative 595.1 303.6 96 Acquisition and integration 55.5 1.5 N/A Operating expenses 728.6 349.2 109 Operating Profit 329.6 256.7 28 Interest expense 18.1 2.3 N/A Earnings before income taxes, cumulative effect of change in accounting principle and minority interest 311.5 254.4 22 Provision for income taxes 97.8 85.2 15 Minority interest 0.2 - Earnings before cumulative effect of change in accounting principle 213.9 169.2 26 Cumulative effect of change in accounting principle, net of tax - 55.1 N/A Net Earnings $213.9 $224.3 (5) Earnings Per Common Share - Basic Earnings before cumulative effect of change in accounting principle $0.88 $0.86 2 Cumulative effect of change in accounting principle, net of tax - 0.28 Earnings Per Common Share - Basic $0.88 $1.14 (23) Earnings Per Common Share - Diluted Earnings before cumulative effect of change in accounting principle $0.87 $0.85 2 Cumulative effect of change in accounting principle, net of tax - 0.28 Earnings Per Common Share - Diluted $0.87 $1.13 (23) Weighted Average Common Shares Outstanding Basic 243.6 196.1 Diluted 247.2 198.7 ZIMMER HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 AND DECEMBER 31, 2003 (in millions) June 30, December 31, 2004 2003 (unaudited) Assets Current Assets: Cash and equivalents $76.9 $77.5 Restricted cash 10.4 14.5 Receivables, net 531.1 486.4 Inventories, net 504.0 527.7 Other current assets 205.7 232.6 Total Current Assets 1,328.1 1,338.7 Property, Plant and Equipment, net 561.0 525.2 Intangible assets 887.6 760.5 Goodwill 2,320.1 2,291.8 Other Assets 210.5 239.8 Total Assets $5,307.3 $5,156.0 Liabilities and Shareholders’ Equity Current Liabilities $540.4 $544.0 Short-term Debt - 101.3 Other Long-term Liabilities 403.0 352.6 Long-term Debt 868.9 1,007.8 Minority Interest 6.8 7.0 Shareholders’ Equity 3,488.2 3,143.3 Total Liabilities and Shareholders’ Equity $5,307.3 $5,156.0 ZIMMER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2004 and 2003 (in millions, unaudited) 2004 2003 Cash flows provided by (used in) operating activities Net earnings $213.9 $224.3 Depreciation and amortization 87.3 41.4 Inventory step-up 49.6 - Cumulative effect of change in accounting principle - (89.1) Changes in operating assets and liabilities Income taxes 93.6 80.5 Receivables (44.2) (38.5) Inventories (14.3) (18.1) Accounts payable and accrued expenses (27.0) 27.6 Other assets and liabilities 39.4 (1.2) Net cash provided by operating activities 398.3 226.9 Cash flows provided by (used) in investing activities Additions to instruments (74.9) (51.2) Additions to other property, plant and equipment (30.6) (13.5) Centerpulse acquisition costs (18.2) - Implex acquisition, net of acquired cash (103.7) - Proceeds from note receivable 25.0 - Investments in other assets (1.1) (14.8) Net cash used in investing activities (203.5) (79.5) Cash flows provided by (used in) financing activities Proceeds from exercise of stock options 49.7 33.4 Net payments on lines of credit (239.4) (82.3) Equity issuance costs (5.0) - Net cash used in financing activities (194.7) (48.9) Effect of exchange rates on cash and equivalents (0.7) 0.8 Increase (decrease) in cash and equivalents (0.6) 99.3 Cash and equivalents, beginning of period 77.5 15.7 Cash and equivalents, end of period $76.9 $115.0 ZIMMER HOLDINGS, INC. NET SALES BY GEOGRAPHIC REGION FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 and 2003 (in millions, unaudited) Three Months Ended June 30, Six Months Ended June 30, % % 2004 2003 Increase 2004 2003 Increase Americas $432.2 $273.7 58% $854.9 $539.8 58% Europe 197.7 61.4 222 412.8 115.4 258 Asia Pacific 107.5 76.0 41 211.9 146.0 45 Total $737.4 $411.1 79 $1,479.6 $801.2 85 ZIMMER HOLDINGS, INC. NET SALES BY PRODUCT CATEGORY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 and 2003 (in millions, unaudited) Three Months Ended June 30, Six Months Ended June 30, % % 2004 2003 Increase 2004 2003 Increase Reconstructive $607.8 $326.6 86% $1,219.1 $636.5 92% Trauma 43.4 35.3 23 88.4 70.7 25 Spine 33.8 0.4 N/A 67.3 0.8 N/A OSP 52.4 48.8 7 104.8 93.2 12 Total $737.4 $411.1 79 $1,479.6 $801.2 85 ZIMMER HOLDINGS, INC. COMBINED* SALES GROWTH FOR THE THREE MONTHS ENDED JUNE 30, 2004 (in millions, unaudited) Three Months Ended Combined* Net Sales June 30, 2004 Three Months Ended Reported June 30, 2003 Net Combined* Zimmer Centerpulse Combined* Sales % Growth Geographic Segments Americas $274 $99 $373 $432 16% Europe 61 119 180 198 10 Asia Pacific 76 19 95 107 13 Total $411 $237 $648 $737 14 Product Categories Reconstructive Americas $214 $71 $285 $342 20% Europe 55 110 165 180 9 Asia Pacific 58 18 76 86 13 Total $327 $199 $526 $608 16 Hips Americas $85 $21 $106 $127 20% Europe 19 70 89 96 8 Asia Pacific 29 10 39 45 14 Total $133 $101 $234 $268 15 Knees Americas $121 $33 $154 $186 21% Europe 34 32 66 72 9 Asia Pacific 28 5 33 36 9 Total $183 $70 $253 $294 16 Trauma $35 $4 $39 $43 11% Spine - $33 $33 $34 2% OSP $49 $1 $50 $52 4% ZIMMER HOLDINGS, INC. COMBINED* SALES GROWTH FOR THE SIX MONTHS ENDED JUNE 30, 2004 (in millions, unaudited) Six Months Ended Combined* Net Sales June 30, 2004 Six Months Ended Reported June 30, 2003 Net Combined* Zimmer Centerpulse Combined* Sales % Growth Geographic Segments Americas $540 $194 $734 $855 17% Europe 115 238 353 413 17 Asia Pacific 146 37 183 212 16 Total $801 $469 $1,270 $1,480 17 Product Categories Reconstructive Americas $423 $140 $563 $673 20% Europe 103 220 323 377 17 Asia Pacific 111 35 146 169 16 Total $637 $395 $1,032 $1,219 18 Hips Americas $168 $39 $207 $248 20% Europe 35 140 175 205 17 Asia Pacific 57 21 78 90 15 Total $260 $200 $460 $543 18 Knees Americas $240 $68 $308 $369 20% Europe 65 64 129 149 16 Asia Pacific 52 9 61 69 14 Total $357 $141 $498 $587 18 Trauma $71 $8 $79 $89 13% Spine - $63 $63 $67 6% OSP $93 $3 $96 $105 9% ZIMMER HOLDINGS, INC. RECONCILIATION OF NET EARNINGS TO ADJUSTED NET EARNINGS FOR THE THREE MONTHS ENDED JUNE 30, 2004 and 2003 (in millions, unaudited) Three Months Ended June 30, 2004 2003 Net Earnings $116.3 $89.0 Acquisition and Integration 24.2 1.5 Inventory Step-up 18.6 - Tax Benefit of Acquisition and Integration and Inventory Step-up (15.3) (0.5) Adjusted Net Earnings $143.8 $90.0 ZIMMER HOLDINGS, INC. RECONCILIATION OF NET EARNINGS TO ADJUSTED NET EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 2004 and 2003 (in millions, unaudited) Six Months Ended June 30, 2004 2003 Net Earnings $213.9 $224.3 Acquisition and Integration 55.5 1.5 Inventory Step-up 49.6 - Tax Benefit of Acquisition and Integration and Inventory Step-up (37.6) (0.5) Cumulative Effect of Change in Accounting Principle, net of tax - (55.1) Adjusted Net Earnings $281.4 $170.2 ZIMMER HOLDINGS, INC. RECONCILIATION OF DILUTED EPS TO ADJUSTED DILUTED EPS FOR THE THREE MONTHS ENDED JUNE 30, 2004 and 2003 (unaudited) Three Months Ended June 30, 2004 2003 Diluted EPS $0.47 $0.45 Acquisition and Integration 0.10 - Inventory Step-up 0.07 - Tax Benefit of Acquisition and Integration and Inventory Step-up (0.06) - Adjusted Diluted EPS $0.58 $0.45 ZIMMER HOLDINGS, INC. RECONCILIATION OF DILUTED EPS TO ADJUSTED DILUTED EPS FOR THE SIX MONTHS ENDED JUNE 30, 2004 and 2003 (unaudited) Six Months Ended June 30, 2004 2003 Diluted EPS $0.87 $1.13 Acquisition and Integration 0.22 0.01 Inventory Step-up 0.20 - Tax Benefit of Acquisition and Integration and Inventory Step-up (0.15) - Cumulative Effect of Change in Accounting Principle, net of tax - (0.28) Adjusted Diluted EPS $1.14 $0.86 ZIMMER HOLDINGS, INC. RECONCILIATION OF REPORTED AND ADJUSTED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED JUNE 30, 2004 (in millions, except per share amounts, unaudited) Reported Adjusted 2004 Adjustments 2004 Net Sales $737.4 $ - $737.4 Cost of products sold 201.9 (18.6) 183.3 Gross Profit 535.5 18.6 554.1 Research and development 38.2 - 38.2 Selling, general and administrative 297.3 - 297.3 Acquisition and integration 24.2 (24.2) - Operating expenses 359.7 (24.2) 335.5 Operating Profit 175.8 42.8 218.6 Interest expense 8.3 - 8.3 Earnings before income taxes and minority interest 167.5 42.8 210.3 Provision for income taxes 51.4 15.3 66.7 Minority interest 0.2 - 0.2 Net Earnings $116.3 $27.5 $143.8 Earnings Per Common Share Basic $0.48 $0.11 $0.59 Diluted $0.47 $0.11 $0.58 Weighted Average Common Shares Outstanding Basic 244.3 244.3 Diluted 247.9 247.9 ZIMMER HOLDINGS, INC. RECONCILIATION OF REPORTED AND ADJUSTED STATEMENTS OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 2004 (in millions, except per share amounts, unaudited) Reported Adjusted 2004 Adjustments 2004 Net Sales $1,479.6 $ - $1,479.6 Cost of products sold 421.4 (49.6) 371.8 Gross Profit 1,058.2 49.6 1,107.8 Research and development 78.0 - 78.0 Selling, general and administrative 595.1 - 595.1 Acquisition and integration 55.5 (55.5) - Operating expenses 728.6 (55.5) 673.1 Operating Profit 329.6 105.1 434.7 Interest expense 18.1 - 18.1 Earnings before income taxes and minority interest 311.5 105.1 416.6 Provision for income taxes 97.8 37.6 135.4 Minority interest 0.2 - 0.2 Net Earnings $213.9 $67.5 $281.4 Earnings Per Common Share Basic $0.88 $0.28 $1.16 Diluted $0.87 $0.27 $1.14 Weighted Average Common Shares Outstanding Basic 243.6 243.6 Diluted 247.2 247.2 ZIMMER HOLDINGS, INC. RECONCILIATION OF REPORTED AND ADJUSTED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED JUNE 30, 2003 (in millions, except per share amounts, unaudited) Reported Adjusted 2003 Adjustments 2003 Net Sales $411.1 $ - $411.1 Cost of products sold 98.4 - 98.4 Gross Profit 312.7 - 312.7 Research and development 22.7 - 22.7 Selling, general and administrative 153.8 - 153.8 Acquisition and integration 1.5 (1.5) - Operating expenses 178.0 (1.5) 176.5 Operating Profit 134.7 1.5 136.2 Interest expense 0.9 - 0.9 Earnings before income taxes 133.8 1.5 135.3 Provision for income taxes 44.8 0.5 45.3 Net Earnings $89.0 $1.0 $90.0 Earnings Per Common Share Basic $0.45 $0.01 $0.46 Diluted $0.45 $ - $0.45 Weighted Average Common Shares Outstanding Basic 196.5 196.5 Diluted 199.1 199.1 ZIMMER HOLDINGS, INC. RECONCILIATION OF REPORTED AND ADJUSTED STATEMENTS OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 2003 (in millions, except per share amounts, unaudited) Reported Adjusted 2003 Adjustments 2003 Net Sales $801.2 $ - $801.2 Cost of products sold 195.3 - 195.3 Gross Profit 605.9 - 605.9 Research and development 44.1 - 44.1 Selling, general and administrative 303.6 - 303.6 Acquisition and integration 1.5 (1.5) - Operating expenses 349.2 (1.5) 347.7 Operating Profit 256.7 1.5 258.2 Interest expense 2.3 - 2.3 Earnings before income taxes and cumulative effect of change in accounting principle 254.4 1.5 255.9 Provision for income taxes 85.2 0.5 85.7 Earnings before cumulative effect of change in accounting principle 169.2 1.0 170.2 Cumulative effect of change in accounting principle, net of tax 55.1 (55.1) - Net Earnings $224.3 $(54.1) $170.2 Earnings Per Common Share Basic $1.14 $(0.27) $0.87 Diluted $1.13 $(0.27) $0.86 Weighted Average Common Shares Outstanding Basic 196.1 196.1 Diluted 198.7 198.7 ZIMMER HOLDINGS, INC. RECONCILIATION OF NET MARGIN TO ADJUSTED NET MARGIN FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 (unaudited) Three Months Six Months Ended June 30, Ended June 30, 2004 2004 Net Margin 15.8% 14.5% Acquisition and Integration 3.3 3.7 Inventory Step-up 2.5 3.4 Tax Benefit of Acquisition and Integration and Inventory Step-up (2.1) (2.6) Adjusted Net Margin 19.5% 19.0% ZIMMER HOLDINGS, INC. RECONCILIATION OF OPERATING MARGIN TO ADJUSTED OPERATING MARGIN FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 (unaudited) Three Months Six Months Ended June 30, Ended June 30, 2004 2004 Operating Margin 23.8% 22.3% Acquisition and Integration 3.3 3.7 Inventory Step-up 2.5 3.4 Adjusted Operating Margin 29.6% 29.4% ZIMMER HOLDINGS, INC. RECONCILIATION OF GROSS MARGIN TO ADJUSTED GROSS MARGIN FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 (unaudited) Three Months Six Months Ended June 30, Ended June 30, 2004 2004 Gross Margin 72.6% 71.5% Inventory Step-up 2.5 3.4 Adjusted Gross Margin 75.1% 74.9% ZIMMER HOLDINGS, INC. RECONCILIATION OF PROJECTED DILUTED EPS TO PROJECTED ADJUSTED DILUTED EPS (unaudited) Projected Three Months Ended September 30, 2004 Low High Diluted EPS $0.43 $0.45 Acquisition and Integration, net of tax 0.01 0.01 Inventory Step-up, net of tax 0.07 0.07 Adjusted Diluted EPS $0.51 $0.53 Projected Three Months Ended December 31, 2004 Low High Diluted EPS $0.56 $0.58 Acquisition and Integration, net of tax 0.01 0.01 Inventory Step-up, net of tax 0.04 0.04 Adjusted Diluted EPS $0.61 $0.63 Projected Year Ended December 31, 2004 Low High Diluted EPS $1.86 $1.90 Acquisition and Integration, net of tax 0.26 0.26 Inventory Step-up, net of tax 0.14 0.14 Adjusted Diluted EPS $2.26 $2.30
Zimmer Holdings, Inc.
CONTACT: Media: Brad Bishop, +1-574-372-4291, bradley.bishop@zimmer.com ,or Investors: Sam Leno, +1-574-372-4790, sam.leno@zimmer.com , both of ZimmerHoldings, Inc.
