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Zimmer Holdings, Inc. Reports Second Quarter 2008 Financial Results

WARSAW, Ind., July 22, 2008 /PRNewswire-FirstCall via COMTEX News Network/ --


    -- Net Sales of $1.08 billion represents an increase of 11% reported (5%
       constant currency)

    -- Worldwide Reconstructive Sales increased 14% reported (8% constant
       currency)

    -- Worldwide Knee Sales increased 15% reported (10% constant currency)

    -- Diluted EPS were $0.99 reported and $1.03 adjusted, an increase of 5%
       adjusted over the prior year period

    -- Zimmer voluntarily suspends U.S. marketing and distribution of Durom(R)
       Acetabular Component while it updates labeling and implements surgical
       technique training

    -- Full-year Sales and EPS guidance revised


Zimmer Holdings, Inc. (NYSE: ZMH; SWX: ZMH) today reported financial results for the quarter ended June 30, 2008. The Company reported second quarter net sales of $1.08 billion, an increase of 11% reported and 5% constant currency over the second quarter of 2007. Diluted earnings per share for the quarter were $0.99 reported and $1.03 adjusted, an increase of 5% adjusted over the prior year period.

"During the quarter, our worldwide knee sales grew by 10% constant currency as we continue to expand our industry-leading knee business by offering surgeons a comprehensive portfolio of proven designs and innovative new treatment options," said David Dvorak, Zimmer President and CEO. "We are making substantial progress on our operating and infrastructure initiatives, in a manner designed to position Zimmer for sustainable growth in an expanding health care market. We have also been executing plans under our enhanced compliance model, including holding numerous productive meetings with surgeons to discuss how we will continue to collaborate to improve patient care."

The Company resumed Zimmer Institute training activities, which will support the ongoing launches of several key products, including the Zimmer(R) NexGen(R) LPS-Flex Mobile Knee, the Gender Solutions(TM) Natural-Knee(R) Flex and the Gender Solutions(TM) Patello-Femoral Joint System in knees. Hip products include the VerSys(R) M/L Taper Hip with Kinectiv(TM) Technology and the Fitmore(TM) Hip stem. Absent any unforeseen events, the Company anticipates FDA clearance to market the EPOCH(R) Gender Solutions Hip during the second half of the year.

During the quarter, the Company utilized $276 million of cash and $220 million in borrowings to acquire 6.9 million shares. The Company completed its $1 billion stock repurchase program, which was scheduled to expire on December 31, 2008, and initiated the $1.25 billion repurchase program announced earlier in the year. Since its first repurchase program in 2006, Zimmer has used nearly $2 billion in internally generated funds to acquire more than 10% of its shares that were outstanding as of the end of 2005.

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 six months on both a reported and constant currency basis.



                 NET SALES - THREE MONTHS ENDED JUNE 30, 2008
                           (in millions, unaudited)
                                                                     Constant
                                                 Net     Reported    Currency
                                                Sales    % Growth    % Growth
    Geographic Segments
          Americas                               $595         5 %         4 %
          Europe                                  326        22           8
          Asia Pacific                            159        18           6
              Total                             1,080        11           5
    Product Categories
       Reconstructive
          Americas                                480         7           6
          Europe                                  294        23           9
          Asia Pacific                            130        21          10
              Total                               904        14           8

         Knees
            Americas                              280         9           9
            Europe                                125        24          10
            Asia Pacific                           62        25          14
                Total                             467        15          10

         Hips
            Americas                              149         4           3
            Europe                                138        21           7
            Asia Pacific                           56        15           3
                Total                             343        12           4

         Extremities                               31        18          14

         Dental                                    63        12           6

       Trauma                                      55         9           3

       Spine                                       55        11           9

       OSP and other                               66       (14)        (18)



                  NET SALES - SIX MONTHS ENDED JUNE 30, 2008
                           (in millions, unaudited)
                                                                     Constant
                                                 Net     Reported    Currency
                                                Sales    % Growth   % Growth
    Geographic Segments
          Americas                              $1,202        6 %        5 %
          Europe                                   631       20          7
          Asia Pacific                             306       18          7
              Total                              2,139       11          6
    Product Categories
       Reconstructive
          Americas                                 962        7          6
          Europe                                   569       21          7
          Asia Pacific                             245       20          9
              Total                              1,776       13          7

         Knees
            Americas                               560        8          8
            Europe                                 245       21          8
            Asia Pacific                           116       25         13
                Total                              921       13          8

         Hips
            Americas                               298        4          3
            Europe                                 266       18          5
            Asia Pacific                           109       17          4
                Total                              673       11          4

         Extremities                                63       25         21

         Dental                                    119       13          8

       Trauma                                      110       10          4

       Spine                                       109       14         11

       OSP and other                               144       (4)        (9)


Net earnings for the second quarter were $227 million on a reported basis and $237 million on an adjusted basis, an increase of 1% adjusted over the prior year period. Operating cash flow for the second quarter was $281 million. Net earnings for the first six months of 2008 were $466 million on a reported basis and were $481 million on an adjusted basis, an increase of 2% adjusted over the prior year period.

Durom Acetabular Component

Zimmer is temporarily suspending marketing and distribution of the Durom(R) Acetabular Component (Durom Cup) in the U.S. on a voluntary basis, while the Company updates labeling to provide more detailed surgical technique instructions to surgeons and implements its surgical training program in the U.S. The Durom Cup will continue to be marketed without interruption outside the U.S.

While many surgeons have had success implanting the Durom Cup since it was launched in the U.S. in 2006, a subset have reported cup loosenings and revisions of the acetabular component used in total hip replacement procedures. These results contrast with product experience in Europe, where post-marketing data continue to show excellent clinical outcomes since the product launched in 2003. Following a comprehensive review of clinical experience and product conformance to specifications in the U.S. and Europe, Zimmer has found no evidence of a defect in the materials, manufacture, or design of the implant. The Company has identified that surgeons who regularly achieve the desired outcome with the Durom Cup consistently execute crucial technique steps and place the cup in a specific manner. Following its review, Zimmer has determined that revised surgical technique instructions and a surgical training program are required to more consistently achieve desired clinical results in the U.S. The Company has shared its review and conclusions with the U.S. Food and Drug Administration and will continue to update the Agency.

While the Company believes the likelihood of currently implanted patients requiring revision is low, Zimmer has sent a letter to U.S. surgeons advising them to stop implanting the Durom Cup, until the updated labeling is issued providing more detailed surgical technique instructions and they receive training. Additional information is being made available at www.zimmer.com .

Guidance

The Company is revising its guidance and expects full-year 2008 sales growth to be in a range of 8.5% to 9.0% over the prior year, which reflects constant currency growth of 4.5% to 5.0%. This compares with prior guidance of 10% to 11% reported and 6% to 7% constant currency growth over prior year. The adjustment to sales guidance includes a projected loss of $20 to $30 million in hip product sales pertaining to the Durom Cup in the U.S., weakness in U.S. Dental revenues and slower than anticipated uptake on certain new products. Adjusted diluted earnings per share for the full year are expected to be in a range of $4.05 to $4.10, as compared to prior guidance of $4.20 to $4.25. Revised earnings guidance gives effect to the reduction in sales from prior guidance as well as an increase in operating expenses associated with the global implementation of the Company's enhanced compliance program. Further details regarding the revised guidance will be discussed during tomorrow's investor conference call.

Conference Call

The Company will conduct its second quarter 2008 investor conference call tomorrow, July 23, 2008, 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) 881-6248. International callers should dial (706) 634-6422. A digital recording will be available two hours after the completion of the conference call from July 23, 2008 to August 6, 2008. 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, 54192735. 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 a worldwide leader in designing, developing, manufacturing and marketing orthopaedic reconstructive, spinal and trauma devices, dental implants, and related orthopaedic surgical products. Zimmer has operations in more than 25 countries around the world and sells products in more than 100 countries. Zimmer's 2007 sales were approximately $3.9 billion. The Company is supported by the efforts of more than 8,000 employees worldwide.

For more information about Zimmer, visit 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 inventory step-up and acquisition, integration and other expenses. 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 Deferred Prosecution Agreement through March 2009 and the Corporate Integrity Agreement through 2012, the impact of our enhanced healthcare compliance global initiatives and business practices on our relationships with customers and consultants, our market share and our overall financial performance, the success of our quality initiatives, the outcome of the informal investigation by the U.S. Securities and Exchange Commission into Foreign Corrupt Practices Act matters announced in October 2007, 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 obtain and maintain adequate intellectual property protection, our ability to successfully integrate acquired businesses, our ability to form and implement alliances, international growth, our 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 and tax obligations and risks, the impact of suspending U.S. distribution of one of our key hip replacement products, product liability and intellectual property litigation losses, reimbursement levels from third-party payors, cost-containment efforts of healthcare purchasing organizations, our ability to retain the independent agents and distributors who market our products, 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 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 JUNE 30, 2008 and 2007
              (in millions, except per share amounts, unaudited)

                                                2008       2007    % Inc/(Dec)
     Net Sales                               $1,079.5     $970.6       11  %
     Cost of products sold                      262.3      216.4       21
     Gross Profit                               817.2      754.2        8

     Research and development                    50.1       53.5       (6)
     Selling, general and administrative        446.2      374.3       19
     Acquisition, integration and other
      expense                                    12.5        3.9      220
          Operating expenses                    508.8      431.7       18

     Operating Profit                           308.4      322.5       (4)
     Interest and other                           6.8        1.3      433
     Earnings before income taxes and
      minority interest                         315.2      323.8       (3)
     Provision for income taxes                  87.8       92.2       (5)
     Minority interest                           (0.3)      (0.1)      33

     Net Earnings                              $227.1     $231.5       (2)

     Earnings Per Common Share
           Basic                                $0.99      $0.98        1
           Diluted                              $0.99      $0.97        2

     Weighted Average Common Shares
      Outstanding
         Basic                                  228.4      236.9
         Diluted                                229.5      239.2



                            ZIMMER HOLDINGS, INC.
                     CONSOLIDATED STATEMENTS OF EARNINGS
               FOR THE SIX MONTHS ENDED JUNE 30, 2008 and 2007
              (in millions, except per share amounts, unaudited)

                                                2008       2007    % Inc/(Dec)
     Net Sales                               $2,138.7   $1,920.8       11  %
     Cost of products sold                      517.0      422.8       22
     Gross Profit                             1,621.7    1,498.0        8

     Research and development                   100.1      105.8       (5)
     Selling, general and administrative        861.8      735.9       17
     Acquisition, integration and other
      expense                                    19.8        6.6      202
          Operating expenses                    981.7      848.3       16

     Operating Profit                           640.0      649.7       (2)
     Interest and other                           7.8        1.1      642
     Earnings before income taxes and
      minority interest                         647.8      650.8        0
     Provision for income taxes                 180.9      185.5       (2)
     Minority interest                           (0.5)      (0.4)      25

     Net Earnings                              $466.4     $464.9        0

     Earnings Per Common Share
           Basic                                $2.02      $1.96        3
           Diluted                              $2.01      $1.94        3

     Weighted Average Common Shares Outstanding
         Basic                                  230.5      236.9
         Diluted                                231.7      239.2



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

                                                   June 30,      December 31,
                                                     2008              2007
                                                 (unaudited)
     Assets
     Current Assets:
       Cash and equivalents                         $388.1            $463.9
       Restricted cash                                 2.8               2.5
       Receivables, net                              782.5             674.3
       Inventories, net                              800.7             727.8
       Other current assets                          234.0             214.2
           Total current assets                    2,208.1           2,082.7

     Property, plant and equipment, net            1,113.7             971.9
     Goodwill                                      2,721.3           2,621.4
     Intangible assets, net                          721.9             743.8
     Other assets                                    177.4             213.9
     Total Assets                                 $6,942.4          $6,633.7

     Liabilities and Shareholders' Equity

     Current liabilities                            $807.9            $748.6
     Other long-term liabilities                     296.9             328.4
     Long-term debt                                  329.3             104.3
     Minority interest                                 3.3               2.8
     Shareholders' equity                          5,505.0           5,449.6
     Total Liabilities and Shareholders' Equity   $6,942.4          $6,633.7



                            ZIMMER HOLDINGS, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE SIX MONTHS ENDED JUNE 30, 2008 and 2007
                           (in millions, unaudited)

                                                     2008              2007

     Cash flows provided by (used in)
      operating activities
     Net earnings                                   $466.4            $464.9
     Depreciation and amortization                   129.2             109.4
     Non-cash gain on sale of assets                  (8.7)                -
     Share-based compensation                         39.4              41.1
     Income tax benefits from stock
      option exercises                                10.0              37.9
     Excess income tax benefits from
      stock option exercises                          (6.0)            (25.6)
     Changes in operating assets and liabilities
         Income taxes                                (35.7)              4.1
         Receivables                                 (81.9)            (54.2)
         Inventories                                 (53.8)            (36.8)
         Accounts payable and accrued expenses        87.6               2.4
         Other assets and liabilities                (23.2)            (47.5)
     Net cash provided by operating activities       523.3             495.7

     Cash flows provided by (used in)
      investing activities
     Additions to instruments                       (119.5)            (72.9)
     Additions to other property, plant
      and equipment                                 (121.5)            (70.3)
     Proceeds from sale of assets                     12.0                 -
     Acquisitions, net of acquired cash               (7.5)           (112.1)
     Net cash used in investing activities          (236.5)           (255.3)

     Cash flows provided by (used in)
      financing activities
     Net borrowings under credit
      facilities                                     220.0                 -
     Proceeds from employee stock
      compensation plans                              45.2             132.1
     Excess income tax benefits from
      stock option exercises                           6.0              25.6
     Repurchase of common stock                     (640.2)           (305.2)
     Net cash used in financing activities          (369.0)           (147.5)

     Effect of exchange rates on cash and
      equivalents                                      6.4               0.1

     Increase (decrease) in cash and equivalents     (75.8)             93.0
     Cash and equivalents, beginning of period       463.9             265.7
     Cash and equivalents, end of period            $388.1            $358.7



                            ZIMMER HOLDINGS, INC.
                       NET SALES BY GEOGRAPHIC SEGMENT
          FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 and 2007
                           (in millions, unaudited)

                    Three Months Ended June 30,      Six Months Ended June 30,
                                          %                             %
                        2008     2007  Inc/(Dec)     2008      2007  Inc/(Dec)

     Americas          $594.5   $568.1    5 %     $1,201.6  $1,135.9    6 %
     Europe            $325.8    267.2   22          631.3     526.0   20
     Asia Pacific      $159.2    135.3   18          305.8     258.9   18

     Total           $1,079.5   $970.6   11       $2,138.7  $1,920.8   11



                            ZIMMER HOLDINGS, INC.
                        NET SALES BY PRODUCT CATEGORY
          FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 and 2007
                           (in millions, unaudited)

                    Three Months Ended June 30,      Six Months Ended June 30,

                                          %                             %
                        2008     2007  Inc/(Dec)     2008      2007  Inc/(Dec)

     Reconstructive    $904.1  $794.7    14 %     $1,775.6  $1,574.2   13 %
     Trauma              54.7    50.3     9          110.2     100.4   10
     Spine               54.5    49.0    11          108.8      95.7   14
     OSP and other       66.2    76.6   (14)         144.1     150.5   (4)
     Total           $1,079.5  $970.6    11       $2,138.7  $1,920.8   11



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

                                           For the Three Months Ended
                                                 June 30, 2008

                                                    Foreign   Constant
                                          Reported  Exchange  Currency
                                          % Growth   Impact   % Growth
    Geographic Segments
          Americas                             5 %       1 %       4  %
          Europe                              22        14         8
          Asia Pacific                        18        12         6
              Total                           11         6         5
    Product Categories
       Reconstructive
          Americas                             7         1         6
          Europe                              23        14         9
          Asia Pacific                        21        11        10
              Total                           14         6         8

          Knees
             Americas                          9         0         9
             Europe                           24        14        10
             Asia Pacific                     25        11        14
                 Total                        15         5        10

          Hips
             Americas                          4         1         3
             Europe                           21        14         7
             Asia Pacific                     15        12         3
                 Total                        12         8         4

          Extremities                         18         4        14

          Dental                              12         6         6

       Trauma                                  9         6         3

       Spine                                  11         2         9

       OSP and other                         (14)        4       (18)



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

                                            For the Six Months Ended
                                                 June 30, 2008

                                                    Foreign   Constant
                                          Reported  Exchange  Currency
                                          % Growth   Impact   % Growth
    Geographic Segments
          Americas                             6 %       1 %       5 %
          Europe                              20        13         7
          Asia Pacific                        18        11         7
              Total                           11         5         6
    Product Categories
       Reconstructive
          Americas                             7         1         6
          Europe                              21        14         7
          Asia Pacific                        20        11         9
              Total                           13         6         7

          Knees
             Americas                          8         0         8
             Europe                           21        13         8
             Asia Pacific                     25        12        13
                 Total                        13         5         8

          Hips
             Americas                          4         1         3
             Europe                           18        13         5
             Asia Pacific                     17        13         4
                 Total                        11         7         4

          Extremities                         25         4        21

          Dental                              13         5         8

       Trauma                                 10         6         4

       Spine                                  14         3        11

       OSP and other                          (4)        5        (9)



                            ZIMMER HOLDINGS, INC.
           Reconciliation of Net Earnings and Adjusted Net Earnings
              For the Three Months Ended June 30, 2008 and 2007
                           (in millions, unaudited)

                                                         Three Months
                                                         Ended June 30,
                                                     2008              2007

     Net Earnings                                   $227.1            $231.5
     Inventory step-up                                 1.5               0.3
     Acquisition, integration and other               12.5               3.9
     Taxes on acquisition, integration
      and other and inventory step-up                 (4.2)             (1.0)
     Adjusted Net Earnings                          $236.9            $234.7



                            ZIMMER HOLDINGS, INC.
           Reconciliation of Net Earnings and Adjusted Net Earnings
               For the Six Months Ended June 30, 2008 and 2007
                           (in millions, unaudited)

                                                          Six Months
                                                         Ended June 30,
                                                     2008              2007

     Net Earnings                                   $466.4            $464.9
     Inventory step-up                                 1.8               0.3
     Acquisition, integration and other               19.8               6.6
     Taxes on acquisition, integration
      and other and inventory step-up                 (6.8)             (1.7)
     Adjusted Net Earnings                          $481.2            $470.1



                            ZIMMER HOLDINGS, INC.
            Reconciliation of Diluted EPS and Adjusted Diluted EPS
              For the Three Months Ended June 30, 2008 and 2007
                                 (unaudited)

                                                         Three Months
                                                         Ended June 30,
                                                     2008              2007

     Diluted EPS                                     $0.99             $0.97
     Inventory step-up                                0.01               -
     Acquisition, integration and other               0.05              0.02
     Taxes on acquisition, integration
      and other and inventory step-up                (0.02)            (0.01)
     Adjusted Diluted EPS                            $1.03             $0.98



                              ZIMMER HOLDINGS, INC.
             Reconciliation of Diluted EPS and Adjusted Diluted EPS
                 For the Six Months Ended June 30, 2008 and 2007
                                   (unaudited)

                                                          Six Months
                                                         Ended June 30,
                                                     2008              2007

     Diluted EPS                                     $2.01             $1.94
     Inventory step-up                                0.01               -
     Acquisition, integration and other               0.09              0.03
     Taxes on acquisition, integration
      and other and inventory step-up                (0.03)              -
     Adjusted Diluted EPS                            $2.08             $1.97




                            ZIMMER HOLDINGS, INC.
                 Reconciliation of 2008 Projected Diluted EPS
                      and Projected Adjusted Diluted EPS
                                 (unaudited)

     Projected Twelve Months Ended
      December 31, 2008:                              Low               High

     Diluted EPS                                     $3.97             $4.02
     Inventory step-up                                0.01              0.01
     Acquisition, integration and other,
      net of tax                                      0.07              0.07
     Adjusted Diluted EPS                            $4.05             $4.10


SOURCE Zimmer Holdings, Inc.

http://www.zimmer.com

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