Table of Contents

Rpt. 12355697 ZIMMER HOLDINGS INC 2 - 11

15-Jun-2007 PIPER JAFFRAY
- MULLIKIN, M.J.

Rpt. 12345240 THOMAS WHITE INTERNATIONAL - ZIMMER HOLDINGS INC 12 - 15

10-Jun-2007 BEST INDEPENDENT RESEARCH LLC
- THOMAS WHITE INTERNATIONAL

Rpt. 12286379 ZIMMER HOLDINGS INC 16 - 23

17-May-2007 WACHOVIA SECURITIES
- MATSON, M., ET AL

Rpt. 12286117 ZIMMER HOLDINGS INC - INITIATING COVERAGE 24 - 55

17-May-2007 CANACCORD ADAMS
- PLOVANIC, W.J., ET AL

These reports were compiled using a product of Thomson Financial. www.thomson.com/financial

1
 Company Note
June 15, 2007
Mark J. Mullikin, Sr Research Analyst
612 303-6902, mark.j.mullikin@pjc.com
Zimmer Holdings (ZMH - $85.85)
Piper Jaffray & Co.
Outperform Volatility: Low
Reason for Report: The Orthopedic ATM: Upgrading and Transferring
Change in Recommendation
with Outperform
Changes Previous Current
Rating MarketPerform Outperform KEY POINTS:
Price Tgt $91.00 $100.00 • We are transferring coverage of Zimmer Holdings with an Outperform
FY07E Rev (mil) $3,884.0 $3,869.7 rating and $100 price target. Our price target is based on 22x our $4.57 CY08
FY08E Rev (mil) $4,234.3 $4,218.1 EPS estimate. We believe shares are attractively valued in view of stable growth
FY07E EPS $4.02 $4.00 prospects coupled with strong cash flow generation.
FY08E EPS $4.54 $4.57 • Pricing stable to improving. Of the "big four" publicly traded large cap
Price: $85.85 orthopedic players, Zimmer has the most exposure to price cuts in Japan, which
52 Week High: $94.38 are expected to be 3.5% over 2007. We note that Japan accounts for less than
52 Week Low: $52.20 15% of Zimmer's total revenue. With positive price trends in other geographic
12-Month Price Target: $100.00 regions, overall pricing is expected to be slightly positive and stable in 2007.
22x CY08E EPS of $4.57 • Gender solutions gaining traction. Gender Knees have gained fast traction
Shares Out (mil): 239.2 since their introduction last year. In 1Q07, approximately 12,000 Gender Knees
Market Cap. (mil): $20,535.3 were implanted, representing 25% sequential growth. The company is currently
Avg Daily Vol (000): 1,405 developing its direct to patient communication programs to support adoption,
Book Value/Share: $21.39 investing $5.5 million in a 23 city campaign during 1H07. In late 2007 – 2008,
Cash Per Share: $1.37 we anticipate Zimmer to introduce its Gender Hip system. Gender Hips will
Debt to Total Capital: 20% incorporate technologies facilitating adjustment to lower necks in women's hips
Est LT EPS Growth: 15% and more flexibility than traditional implants.
P/E to LT EPS Growth (FY07): 1.4x • Strong product pipeline primed for late 2007/early 2008. We look forward to
Est Next Rep Date: 07/25/2007 the US launches of mobile bearing knees, a novel knee cartilage replacement, and
Fiscal Year End: Dec a computer-assisted navigation system around the end of the year.
• Cash flow provides additional fuel for earnings growth. We expect to
Rev (mil) 2006A 2007E 2008E company to generate over $800 million in free cash flow in 2007, as it continues
Mar $860.4A $950.2A NA to use acquisitions as part of its growth strategy. The company is targeting
Jun $881.6A $969.9E NA acquisitions in the $100 – 400 million range, with focus on technologies in spine,
Sep $819.8A $905.4E NA soft tissue, and dental. The Endius acquisition, which is expected to close in
Dec $933.6A $1,044.3E NA 2Q07, provides a portfolio of minimally invasive spinal products that should see
FY $3,495.4A $3,869.7E $4,218.1E accelerated adoption through Zimmer's Spine sales force. We view Zimmer as a
CY $3,495.4A $3,869.7E $4,218.1E disciplined acquirer borne out by its willingness to use cash flow to repurchase
shares if it does not find targets at reasonable valuations.
FY RM 5.9x 5.3x 4.9x
CY RM 5.9x 5.3x 4.9x INVESTMENT RECOMMENDATION:
We rate Zimmer shares Outperform with a 12-month price target of $100. Our $100
EPS 2006A 2007E 2008E
price target represents 22x our 2008 EPS estimate of $4.57.
Mar $0.82A $0.98A NA
Jun $0.83A $0.97E NA RISKS TO ACHIEVEMENT OF TARGET PRICE:
Sep $0.77A $0.90E NA (1) International price cuts; (2) Foreign exchange; (3) Competition.
Dec $1.02A $1.15E NA COMPANY DESCRIPTION:
FY $3.44A $4.00E $4.57E Zimmer Holdings is the world's largest reconstructive orthopedic company.
CY $3.44A $4.00E $4.57E
FY P/E 25.0x 21.5x 18.8x
CY P/E 25.0x 21.5x 18.8x
EPS estimates are fully diluted and include
equity-based compensation

Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be
aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment decisions. This report should be read in conjunction with
important disclosure information, including an attestation under Regulation Analyst certification, found on pages 8 - 10 of
this report or at the following site: http://www.piperjaffray.com/researchdisclosures.

Customers of Piper Jaffray in the United States can receive independent, third-party research on the company or companies
covered in this report, at no cost to them, where such research is available. Customers can access this independent research
by visiting piperjaffray.com or can call 800 747-5128 to request a copy of this research.
Zimmer Holdings, Inc. Page 1 of 10
2
 Company Note
June 15, 2007
VALUATION

We are transferring coverage of Zimmer with an Outperform rating and 12-month price target of $100. Our $100 price target
is based on 22x our 2008 EPS estimate of $4.57, up from the prior multiple of 20x but in line with where the stock currently
trades relative to our 2007 estimate and at a 13% discount to the peer group average. Additionally, with upcoming product
launches of Gender Hips, DeNovo NT Natural Tissue Graft, NexGen LPS High-Flex Mobile Bearing Knee, and BRIGIT
Bone Resection Instrument Guide scheduled for late 2007 – 2008, we believe there may be some upside that has not yet been
factored into our 2008 estimates.

Exhibit: Zimmer Valuation Table

Market Data Estimates Multiples
Current Mkt Cap EV EPS Sales EV/Sales
Price ($MM) ($MM) 2006A 2007E 2008E 2006A 2007E 2008E 2006A 2007E 2008E 2007E 2008E
Smith & Nephew 60.79 $11,312.3 $11,107.3 2.29 2.62 3.09 2,779.0 3,251.0 3,745.0 26.5 23.2 19.7 3.4 3.0
Stryker 64.90 $26,549.2 $25,098.2 2.02 2.42 2.92 5,405.6 6,069.9 6,731.2 32.1 26.8 22.2 4.1 3.7
average: 29.3 25.0 20.9 3.8 3.3

Zimmer 85.98 $20,358.0 $20,132.0 3.44 4.00 4.57 3,495.4 3,869.7 4,218.1 25.0 21.5 18.8 5.2 4.8
Source: Thomson Financial Network, Piper Jaffray estimates

INVESTMENT THESIS

Favorable market dynamics in orthopedics. The current worldwide market for orthopedic implants and accessory devices
is estimated to be well over $25 billion. With the aging of baby boomers, the population in the U.S. aged 65 and older is
expected to increase from 13% today to 18% by 2025. The aging population brings with it increased incidences of
degenerative bone disease, accidents, and trauma, as well as other conditions such as osteoarthritis and osteoporosis.
Additionally, the rising incidence of obesity carries with it increasing complications of joint failure and subsequent need for
joint replacement. Given these trends in the population demographics, we estimate that the market for orthopedic implants
will grow at an 8 – 12% rate over the next 10 years.

Highest operating leverage and free cash flow amongst competitors. We believe Zimmer represents one of the safest
plays in the medical device sector. The company generates the highest operating leverage and free cash flow amongst the
“big four” publicly traded large cap orthopedic players. The company consistently has used share buybacks as an instrument
to enhance shareholder value.

Leading the fast-growing gender-specific implant movement. Gender Knees have gained fast traction since their
introduction last year. The product is specifically designed to address anatomical differences based on gender, as women’s
knees are narrower and thicker from top to bottom, with a different tilt than men’s knees. In 4Q06, the company sold 9,584 of
its premium priced gender specific implants, ahead of the 7,500 they had expected. In 1Q07, approximately 12,000 Gender
Knees were implanted, representing 25% sequential growth. The product has become a media darling, with an abundance of
positive news flow and mainstream awareness being generated. The company is currently developing its direct to patient
communication programs to support adoption, investing $5.5 million in a 23 city campaign during 1H07. In late 2007 –
2008, we anticipate Zimmer to introduce its Gender Hip system. Gender Hips will incorporate two key proprietary
technologies: (1) Kinectiv Technology, allowing adjustments to the neck, providing variability to the surgeon to address
differences in women's anatomy. Because women tend to have lower necks in their hips, they tend to dislocate more; (2)
Epoch Composite Hip technology, addressing femoral canal size and shape differences. Stems utilizing Epoch technology are
made from medical grade PEEK, allowing for more flexibility than traditional implants.

Endius acquisition to help growth in Spine. The Endius acquisition, which is expected to close in 2Q07, provides a
portfolio of minimally invasive spinal products that should see accelerated adoption through Zimmer’s Spine sales force,
including: (1) Atavi Atraumatic Spine Surgery System – Minimally invasive system for lumbar and posterior cervical spine
that enables surgeons them to perform a full range of spine fusion procedures through one access portal; (2) TiTLE 2 –
Lumbar pedicle screw with 60 degree angulation; (3) NorthStar – Cannulated lumbar pedicle screw system for lumbar rod
fixation procedures; (4) Minit – The first posterior cervical and upper thoracic pedicle system for both open and minimally
invasive surgery; (5) Quantum – PEEK spacers. We believe the Endius acquisition could be accretive as early as 2008.

Entering the underpenetrated mobile bearing knee market in U.S. FDA approval of the NexGen LPS and LPS-Flex
Mobile Bearing Knee for the U.S. market is expected in late 2007. Mobile bearing knees are designed for patients with high-

Zimmer Holdings, Inc. Page 2 of 10

3
 Company Note
June 15, 2007
flexion and demanding lifestyles and habits. This will allow Zimmer to challenge DePuy, which has a monopoly in the U.S.
While in Europe, mobile bearing knees account for approximately 30% of all knee implants, they account for approximately
10% of all implants in the U.S. We believe that within 5 years of the introduction of the Zimmer product, mobile bearing
knees could potentially reach 30% penetration in the U.S. Additionally, mobile bearing knees should help drive margins as
they are priced at higher ASPs than traditional knees.

BRIGIT – not a girl, but a surgeon’s best friend. We anticipate the launch of the BRIGIT SmartTool in late 2007. BRIGIT
is a computer assisted navigation system that holds a position that’s been predetermined by a surgeon. This allows for dead
accurate precision of cuts, and also reduces the amount of instrumentation used in a procedure. BRIGIT could potentially
help hospitals perform more surgeries and increase savings and productivity in operating rooms. The company is targeting
over 200 units in the market by the end of 2008. At an ASP of $10,000 per instrument set, this represents $2 million in
incremental revenue.

Clinical data on DeNovo NT could be a catalyst. We are awaiting clinical data on the DeNovo NT Natural Tissue Graft, a
cartilage repair product developed in conjunction with ISTO, which is expected to obtain FDA approval in late 2007. We
have tempered expectations for DeNovo NT due to the high regulatory and adoption hurdles for natural tissue products.
DeNovo NT consists of juvenile chondrocytes in the form of minced cartilage tissue. The company has exclusive distribution
rights for genetically engineered xenogeneic porcine tissues for orthopedic applications from Revivicor. If DeNovo NT is
successful in opening up the orthobiologics market for Zimmer, it would help integrate Zimmer solutions earlier in the
patient care cycle.

Effect of Japanese price cuts can be absorbed. Of the “big four” publicly traded large cap orthopedic players, Zimmer has
the most exposure to price cuts in Japan, which are expected to be 3.5% over 2007. We note that Japan accounts for less than
15% of Zimmer’s total revenue. With positive price trends in other geographic regions, overall pricing is expected to be
slightly positive and stable in 2007.

Actively seeking acquisitions of technologies in growth markets. We expect to company to generate over $800 million in
free cash flow in 2007, as it continues to use acquisitions as part of its growth strategy. The company is targeting acquisitions
in the $100 – 400 million range, with focus on technologies in spine, soft tissue, and dental. Acquisitions could be used to:
(1) Increase scale in an existing business, such as spine or dental; (2) Acquire a next-generation technology that sells at a
higher price; (3) Increase economies of scope by acquiring a product, such as soft tissue, that can be cross-sold through
existing channels; (4) Enter a new product area that leverages the company’s orthopedic experience.

Zimmer Holdings, Inc. Page 3 of 10

4
 ZIMMER HOLDINGS
Quarterly Model
FYE: Dec 2004 2005 2005 2006 2006 2007E 2007E 2008E
Year Mar A Jun A Sep A Dec A Year Mar A Jun A Sep A Dec A Year Mar A Jun E Sep E Dec E YearE YearE
Reconstructive Implants 2,456.9 689.4 704.9 624.4 702.3 2,721.0 717.9 733.4 676.0 780.2 2,907.5 797.5 807.8 748.4 873.4 3,227.1 3,513.1
Trauma 172.4 45.4 44.4 44.3 45.7 179.8 46.7 49.1 48.4 50.5 194.7 50.1 53.5 53.2 56.6 213.5 234.3
Spine 134.2 38.3 41.1 38.4 42.6 160.4 43.1 46.0 42.2 46.1 177.4 46.7 52.8 48.2 54.4 202.1 232.4
Other 217.4 55.4 56.4 55.4 57.7 224.9 52.7 53.1 53.2 56.8 215.8 55.9 55.8 55.5 59.9 227.0 238.3
Total Revenue 2,980.9 828.5 846.8 762.5 848.3 3,286.1 860.4 881.6 819.8 933.6 3,495.4 950.2 969.9 905.4 1,044.3 3,869.7 4,218.1
Yr/Yr Change 56.8% 11.6% 14.8% 8.9% 5.9% 10.2% 3.9% 4.1% 7.5% 10.1% 6.4% 10.4% 10.0% 10.4% 11.9% 10.7% 9.0%
Cost of Sales 720.5 188.3 186.7 174.0 185.4 734.4 189.4 200.0 183.2 207.5 780.1 206.4 219.2 201.9 228.7 856.2 930.5
% of sales 24.2% 22.7% 22.0% 22.8% 21.9% 22.3% 22.0% 22.7% 22.3% 22.2% 22.3% 21.7% 22.6% 22.3% 21.9% 22.1% 22.1%
Gross Profit 2,260.4 640.2 660.1 588.5 662.9 2,551.7 671.0 681.6 636.6 726.1 2,715.3 743.8 750.7 703.5 815.6 3,013.5 3,287.6
Gross Margin 75.8% 77.3% 78.0% 77.2% 78.1% 77.7% 78.0% 77.3% 77.7% 77.8% 77.7% 78.3% 77.4% 77.7% 78.1% 77.9% 77.9%
SG&A 1,190.0 321.6 328.5 295.8 313.7 1,259.6 334.9 344.8 330.4 345.6 1,355.7 361.6 378.3 360.3 386.4 1,486.6 1,636.6
% of sales 39.9% 38.8% 38.8% 38.8% 37.0% 38.3% 38.9% 39.1% 40.3% 37.0% 38.8% 38.1% 39.0% 39.8% 37.0% 38.4% 38.8%
R&D 166.7 42.1 43.6 43.9 45.9 175.5 47.4 48.6 46.7 45.6 188.3 52.3 52.4 50.7 57.4 212.8 227.8
% of sales 5.6% 5.1% 5.1% 5.8% 5.4% 5.3% 5.5% 6.0% 6.0% 4.9% 5.4% 5.5% 5.4% 5.6% 5.5% 5.5% 5.4%
Operating Income 903.7 276.5 288.0 248.8 303.3 1,116.6 288.7 288.2 259.5 334.9 1,171.3 329.9 320.1 292.4 371.8 1,314.2 1,423.2
Oper Margin 30.3% 33.4% 34.0% 32.6% 35.8% 34.0% 33.6% 32.7% 31.7% 35.9% 33.5% 34.7% 33.0% 32.3% 35.6% 34.0% 33.7%
Yr/Yr Change 55.1% 28.0% 31.7% 18.5% 17.1% 23.6% 4.4% 0.1% 4.3% 10.4% 4.9% 14.3% 11.1% 12.7% 11.0% 12.2% 8.3%
Interest expense (income), net 31.7 7.2 4.2 2.1 0.8 14.3 (0.5) (1.2) (0.6) (1.5) (3.8) 0.2 (1.2) (1.0) (1.7) (3.7) (10.0)
Interest Rate 6.0% 12.5% 19.9% (8.6%) (1.0%) (47.5%) 0.4% 0.2% 0.1% 0.4% 0.9% (0.2%) 0.9% 0.6% 0.9% 0.6% 1.0%
Pretax Income 872.0 269.3 283.8 246.7 302.5 1,102.3 289.2 289.4 260.1 336.4 1,175.1 329.7 321.3 293.4 373.5 1,317.9 1,433.2
Yr/Yr Change 53.1% 30.5% 35.0% 21.9% 19.5% 26.4% 7.4% 2.0% 5.4% 11.2% 6.6% 14.0% 11.0% 12.8% 11.0% 12.1% 8.8%
Tax Expense 274.3 82.2 84.4 72.4 87.6 326.6 83.9 83.1 73.6 90.9 331.5 94.0 90.6 82.7 105.3 372.7 404.2
Tax Rate 31.5% 30.5% 29.7% 29.3% 29.0% 29.6% 29.0% 28.7% 28.3% 27.0% 28.2% 28.5% 28.2% 28.2% 28.2% 28.3% 28.2%
Net Income before minority int. 597.7 187.1 199.4 174.3 214.9 775.7 205.3 206.3 186.5 245.5 843.6 235.7 230.7 210.7 268.1 945.2 1,029.0
Minority Interest 0.2 0.2 0.2 0.3 0.9 0.3 0.2 0.1 0.1 0.5 0.3 0.2 0.2 0.2 0.9 0.8
Net Income 571.7 172.1 188.6 164.4 204.5 729.6 205.1 206.2 186.5 245.4 843.1 235.4 230.7 210.7 268.1 944.9 1,029.0
Net Margin 19.2% 20.8% 22.3% 21.6% 24.1% 22.2% 23.8% 23.4% 22.7% 26.3% 24.1% 24.8% 23.8% 23.3% 25.7% 24.4% 24.4%
Yr/Yr Change 56.6% 30.2% 36.4% 24.7% 20.7% 27.6% 19.1% 9.3% 13.4% 20.0% 15.6% 14.8% 11.9% 13.0% 9.3% 12.1% 8.9%
EPS $2.31 $0.69 $0.75 $0.66 $0.82 $2.92 $0.82 $0.83 $0.77 $1.02 $3.44 $0.98 $0.97 $0.90 $1.15 $4.00 $4.57
Yr/Yr Change 28.4% 28.7% 35.3% 23.7% 20.0% 26.6% 18.9% 10.4% 17.0% 24.4% 17.8% 20.0% 16.7% 16.5% 12.9% 16.3% 14.3%
Equity-based Compensation after Tax 26.0 15.0 10.8 9.9 10.4 46.1 12.9 13.9 12.2 14.4 53.4 20.9 13.9 12.2 14.4 61.4 53.4
Net Income excl. Equity-based Comp 597.7 187.1 199.4 174.3 214.9 775.7 218.0 220.1 198.7 259.8 896.5 256.3 244.6 222.9 282.5 1,006.3 1,082.4
EPS excl. Equity-based Comp $2.41 $0.75 $0.80 $0.70 $0.86 $3.11 $0.87 $0.89 $0.82 $1.08 $3.65 $1.07 $1.03 $0.95 $1.21 $4.26 $4.81
Yr/Yr Change 34.4% 34.4% 37.7% 23.7% 20.9% 28.7% 16.1% 11.3% 17.5% 25.3% 17.6% 22.9% 16.0% 15.7% 12.4% 16.6% 12.9%
Diluted Shares (MM) 247.7 249.2 249.9 250.2 249.8 249.8 250.1 247.7 242.6 241.0 245.4 239.2 237.2 235.2 233.2 236.1 225.0

EBITDA 1,085.0 321.6 333.3 294.4 353.0 1,302.3 353.1 356.3 327.8 407.5 1,444.7 412.5 392.5 363.1 446.0 1,614.1 1,721.9
EBITDA Margin 36.4% 38.8% 39.4% 38.6% 41.6% 39.6% 41.0% 40.4% 40.0% 43.6% 41.3% 43.4% 40.5% 40.1% 42.7% 41.7% 40.8%
per share $4.38 $1.29 $1.33 $1.18 $1.41 $5.21 $1.41 $1.44 $1.35 $1.69 $5.89 $1.72 $1.65 $1.54 $1.91 $6.84 $7.65
Free Cash Flow 473.9 82.3 171.3 169.3 144.2 567.1 165.0 230.8 223.1 134.8 753.7 154.1 371.5 247.6 173.9 953.0 1,269.2
per share $1.91 $0.33 $0.69 $0.68 $0.58 $2.27 $0.66 $0.93 $0.92 $0.56 $3.07 $0.64 $1.57 $1.05 $0.75 $4.04 $5.64

Revenue Growth
FYE: Dec 2004 2005 2005 2006 2006 2007E 2007E 2008E
Year Mar A Jun A Sep A Dec A Year Mar A Jun A Sep A Dec A Year Mar E Jun E Sep E Dec E YearE YearE
Reconstructive Implants 61.5% 12.8% 16.0% 8.8% 5.8% 10.7% 4.1% 4.0% 8.3% 11.1% 6.9% 11.1% 10.1% 10.7% 11.9% 11.0% 8.9%
Trauma 13.8% 0.9% 2.3% 10.8% 3.9% 4.3% 2.9% 10.6% 9.3% 10.5% 8.3% 7.3% 9.0% 10.0% 12.1% 9.7% 9.7%
Spine 291.3% 14.3% 21.6% 18.9% 23.1% 19.5% 12.5% 11.9% 9.9% 8.2% 10.6% 8.4% 14.9% 14.3% 17.9% 13.9% 15.0%
Other 12.1% 5.7% 7.6% 2.8% (1.7%) 3.4% (4.9%) (5.9%) (4.0%) (1.6%) (4.0%) 6.1% 5.0% 4.3% 5.4% 5.2% 5.0%
Total 56.8% 11.6% 14.8% 8.9% 5.9% 10.2% 3.9% 4.1% 7.5% 10.1% 6.4% 10.4% 10.0% 10.4% 11.9% 10.7% 9.0%

Mark Mullikin (612) 303-6902

Piper Jaffray & Co.
6/14/2007 11:40 PM

Zimmer Holdings, Inc. Page 4 of 10

 ZIMMER HOLDINGS
Revenue Model
2004 2005 2005 2006 2006 2007E 2007E 2008E

Year Mar Jun Sep Dec Year Mar Jun Sep Dec Year Mar JunE SepE DecE YearE YearE
Americas 501 132 138 130 138 538 142 146 141 150 579 157 159 154 167 637 687
Asia/Pacific 181 48 50 45 49 192 47 47 47 50 191 47 49 50 53 198 210
Europe 398 112 106 85 107 410 104 106 90 119 419 115 115 98 131 459 491
Hips Total 1,079 292 294 260 294 1,140 293 299 278 319 1,189 318 323 302 350 1,294 1,388

Americas 763 223 226 212 220 881 240 236 225 241 942 265 263 253 277 1,058 1,164
Asia/Pacific 140 37 43 38 41 159 38 42 41 46 167 44 45 45 51 185 202
Europe 292 89 85 64 90 327 88 90 72 102 352 100 98 79 114 392 427
Knees Total 1,195 349 354 314 351 1,368 366 368 338 389 1,461 409 407 377 442 1,635 1,793

Americas 39 10 9 10 10 39 10 11 9 12 42 11 12 10 14 47 52
Asia/Pacific 6 2 4 1 1 8 4 4 2 1 11 4 4 2 2 12 13
Europe 16 3 4 4 6 17 5 5 6 8 25 6 6 7 9 28 30
Extremities 60 15 17 15 17 64 19 20 17 22 79 21 23 19 24 87 95

Dental Total 123 33 40 35 40 148 40 47 43 50 180 49 55 50 57 212 236

Total Recon
Americas 1,380 386 398 376 394 1,554 418 423 405 434 1,680 465 471 453 493 1,882 2,061
Asia/Pacific 339 89 101 89 96 375 92 98 96 105 391 100 104 103 113 421 453
Europe 738 214 206 159 212 791 208 213 175 241 837 232 233 192 267 924 999
Recon Total 2,457 689 705 624 702 2,720 718 734 676 780 2,908 797 808 748 873 3,227 3,513

Trauma Total 172 45 44 44 46 180 47 49 49 51 196 50 54 53 57 214 234

Spine Total 136 38 41 39 43 161 43 46 42 46 177 47 53 48 54 202 232

Orthopaedic Surgical Prod 215 55 56 56 58 226 52 53 53 57 215 56 56 55 60 227 238

Total Revenue
Americas 1,741 480 495 473 493 1,940 516 521 502 538 2,078 567 579 560 609 2,315 2,538
Asia/Pacific 431 114 124 112 122 472 115 122 121 129 487 126 130 130 139 525 566
Europe 808 235 228 178 234 874 229 239 197 267 931 257 261 216 296 1,029 1,114
Total 2,980 828 847 763 848 3,286 860 882 820 934 3,496 950 970 905 1,044 3,870 4,218

FX gain/loss 99 8 15 0 (24) (1) (25) (10) 5 17 (13) 20 5 6 2 32 16

Estimated 57 14 11 (1) (30) (7) (32) (8) 3 19 (18) 17 7 4 4 31 11

FX Rates
Euro 1.2438 1.3124 1.2606 1.2205 1.1897 1.2458 1.2026 1.2565 1.2751 1.2896 1.2559 1.3069 1.3122 1.3122 1.3122 1.3109 1.3122
Yen 0.0093 0.0096 0.0093 0.0090 0.0085 0.0091 0.0086 0.0087 0.0086 0.0085 0.0086 0.0084 0.0085 0.0085 0.0085 0.0084 0.0085

GROWTH
2004 2005 2005 2006E 2006E 2007E 2007E 2008E

Year Mar Jun Sep Dec Year Mar Jun Sep Dec Year Mar Jun Sep Dec Year Year

Americas 37% 8% 9% 5% 8% 7% 8% 6% 8% 9% 8% 10% 9% 9% 11% 10% 8%

Asia/Pacific 41% 7% 11% 7% 1% 6% (2%) (6%) 4% 2% (0%) (1%) 4% 5% 6% 4% 6%
Europe 162% 3% 11% 1% (2%) 3% (7%) (1%) 6% 11% 2% 10% 9% 9% 10% 10% 7%
Hips Total 68% 6% 10% 4% 3% 6% 0% 2% 7% 9% 4% 8% 8% 9% 10% 9% 7%

Americas 46% 22% 22% 12% 8% 15% 8% 4% 6% 9% 7% 10% 12% 12% 15% 12% 10%
Asia/Pacific 23% 12% 19% 12% 11% 14% 3% (2%) 8% 12% 5% 16% 8% 10% 10% 11% 9%
Europe 79% 16% 18% 12% 4% 12% (1%) 7% 13% 14% 8% 13% 9% 10% 12% 11% 9%
Knees Total 49% 19% 20% 12% 7% 14% 5% 4% 8% 11% 7% 12% 11% 12% 13% 12% 10%

Americas 7% 11% (11%) 11% (5%) 1% 0% 24% (10%) 23% 9% 13% 12% 10% 10% 11% 11%
Asia/Pacific 22% 50% 310% (23%) (37%) 45% 167% (2%) 75% 4% 40% 9% 8% 6% 6% 8% 7%
Europe 204% (23%) (14%) 14% 57% 6% 61% 23% 61% 50% 48% 12% 11% 9% 9% 10% 10%
Extremities 31% 4% 8% 9% 4% 6% 30% 17% 15% 30% 23% 12% 11% 9% 9% 10% 10%

Dental Total 313% 19% 34% 18% 13% 21% 20% 18% 24% 24% 21% 22% 18% 17% 15% 18% 12%

Total Recon
Americas 46% 16% 16% 10% 8% 13% 8% 6% 8% 10% 8% 11% 11% 12% 14% 12% 9%
Asia/Pacific 36% 9% 18% 10% 6% 11% 3% (3%) 8% 9% 4% 9% 6% 8% 8% 8% 8%
Europe 124% 9% 14% 5% 1% 7% (3%) 3% 10% 14% 6% 12% 9% 10% 11% 10% 8%
Recon Total 62% 13% 16% 9% 6% 11% 4% 4% 8% 11% 7% 11% 10% 11% 12% 11% 9%

Trauma Total 14% 0% 3% 10% 4% 4% 4% 11% 11% 12% 9% 7% 8% 9% 11% 9% 10%

Spine Total 303% 12% 19% 21% 23% 19% 12% 12% 8% 8% 10% 8% 15% 15% 18% 14% 15%

Orthopaedic Surgical Prod 11% 7% 10% 4% 0% 5% (6%) (6%) (5%) (1%) (5%) 7% 5% 5% 5% 6% 5%

Total Revenue
Americas 44% 13% 15% 10% 8% 11% 8% 5% 6% 9% 7% 10% 11% 11% 13% 11% 10%
Asia/Pacific 32% 9% 16% 9% 4% 9% 1% (1%) 8% 6% 3% 10% 6% 7% 8% 8% 8%
Europe 121% 9% 15% 7% 3% 8% (2%) 5% 11% 14% 7% 12% 9% 10% 11% 11% 8%
Total 57% 12% 15% 9% 6% 10% 4% 4% 8% 10% 6% 10% 10% 10% 12% 11% 9%

Constant Currency 52% 10% 13% 9% 9% 10% 7% 5% 7% 8% 7% 8% 9% 10% 11% 10% 9%

Mark Mullikin (612) 303-6902

Piper Jaffray & Co.
6/14/2007 11:40 PM

Zimmer Holdings, Inc. Page 5 of 10

 ZIMMER HOLDINGS
Balance Sheet
2004 2005 2005 2006 2006 2007 2007 2008
Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Dec

Cash $154.6 $57.0 $78.8 $91.8 $233.2 $403.8 $335.8 $275.6 $265.7 $326.0 $527.5 $605.0 $614.9 $1,204.1
Short-Term Investments 18.9 18.0 16.6 12.5 12.1 12.1 2.4 2.3 2.4 2.4 0.0 0.0 0.0 0.0
Receivables 524.8 570.6 573.4 541.1 524.2 592.1 639.2 589.4 625.5 692.5 637.7 625.1 709.5 600.9
Inventories 536.0 551.9 568.0 586.6 583.7 599.5 606.1 630.9 638.3 658.8 576.5 575.3 576.4 586.3
Other 326.6 281.0 255.4 268.5 222.4 218.9 208.9 208.1 214.3 206.9 206.9 206.9 206.9 206.9
Total Current Assets 1,560.9 1,478.5 1,492.2 1,500.5 1,575.6 1,826.4 1,792.4 1,706.3 1,746.2 1,886.6 1,948.6 2,012.3 2,107.7 2,598.3

Fixed Assets, Net 628.5 643.1 676.6 703.7 708.8 701.0 725.0 751.1 807.1 820.6 831.1 841.0 877.7 934.8
Goodwill 2,528.9 2,494.5 2,434.2 2,466.7 2,428.8 2,447.0 2,523.1 2,532.6 2,515.6 2,466.2 2,466.2 2,466.2 2,466.2 2,466.2
Intangible Assets 794.8 789.6 779.1 770.0 756.6 747.3 739.3 731.1 712.6 708.9 698.5 688.2 677.8 636.3
Investments + Other 182.4 185.7 169.4 180.7 252.1 195.5 183.8 187.4 192.9 215.6 215.6 215.6 215.6 215.6
Total Assets 5,695.5 5,591.4 5,551.5 5,621.6 5,721.9 5,917.2 5,963.6 5,908.5 5,974.4 6,097.9 6,160.0 6,223.3 6,345.0 6,851.2

Short-Term Debt 27.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Accounts Payable 131.6 122.9 141.8 109.2 123.6 178.8 121.4 126.4 122.0 197.7 156.7 134.3 140.0 145.5
Other 541.9 485.1 472.1 546.3 483.3 391.0 510.1 552.4 447.8 401.2 401.2 401.2 401.2 401.2
Total Current Liab. 701.0 608.0 613.9 655.5 606.9 569.8 631.5 678.8 569.8 598.9 557.9 535.5 541.2 546.7

Long-Term Debt 624.0 426.3 268.1 85.8 81.6 81.5 82.6 100.9 99.6 100.0 100.0 100.0 100.0 100.0
Other Long-Term Liabilities 420.9 402.0 363.1 371.9 348.3 339.3 351.0 322.2 323.4 280.0 280.0 280.0 280.0 280.0
Minority Interest 7.1 1.6 1.8 2.0 2.3 2.5 2.7 2.6 2.7 2.4 2.4 2.4 2.4 2.4
Shareholders' Equity 3,942.5 4,153.5 4,304.6 4,506.4 4,682.8 4,924.1 4,895.8 4,804.0 4,920.5 5,116.6 5,219.8 5,305.4 5,421.4 5,922.1
Total Liabilities and Equity 5,695.5 5,591.4 5,551.5 5,621.6 5,721.9 5,917.2 5,963.6 5,908.5 5,916.0 6,097.9 6,160.0 6,223.3 6,345.0 6,851.2

Balance Sheet Analysis

Receivable Turnover (x) 5.83x 6.25x 5.92x 5.47x 6.37x 6.07x 5.73x 5.34x 6.15x 5.93x 6.08x 5.79x 5.89x 7.02x
# Days Outstanding 63 58 62 67 57 60 64 68 59 62 60 63 62 52
Inventory Turnover (x) 1.40x 1.42x 1.33x 1.21x 1.27x 1.28x 1.33x 1.18x 1.31x 1.28x 1.52x 1.40x 1.59x 1.59x
# Days on Hand 258 256 274 303 288 286 275 308 279 285 240 260 230 230
A/P Turnover 17.97x 16.89x 16.37x 18.73x 15.88x 15.81x 18.09x 19.28x 15.31x 16.59x 18.25x 19.21x 19.21x
# Days Outstanding 20 22 22 19 23 23 20 19 24 22 20 19 19

Gross Debt 651.5 426.3 268.1 85.8 81.6 81.5 82.6 100.9 99.6 100.0 100.0 100.0 100.0 100.0
Net Debt 295.6 165.6 3.3 (199.2) (415.8) (529.9) (439.4) (364.4) (361.4) (444.0) (643.1) (720.6) (730.5) (1,319.7)
Debt/Total Capital 14.2% 9.3% 5.9% 1.9% 1.7% 1.6% 1.7% 2.1% 2.0% 1.9% 1.9% 1.9% 1.8% 1.7%
Book Value Per Share $15.91 $16.67 $17.23 $18.01 $18.75 $19.69 $19.77 $19.80 $20.42 $21.39 $22.00 $22.55 $23.24 $26.32

NOPAT 619.4 192.1 202.4 175.8 785.8 204.9 205.4 186.1 840.9 235.8 229.8 210.0 942.5 1,021.8
Invested Capital 4,848.5 4,908.4 4,842.2 4,861.8 4,869.7 4,931.5 4,993.9 4,951.8 5,136.5 5,170.6 5,074.7 5,082.7 5,188.9 5,100.4
ROIC 13.3% 13.3% 14.4% 14.8% 16.1% 19.1% 19.3% 18.8% 16.8% 19.8% 20.3% 20.3% 18.4% 19.9%
ROE 16.9% 16.5% 16.9% 16.9% 16.9% 16.9% 16.7% 16.8% 17.4% 15.5% 18.0% 18.2% 18.2% 19.1%
ROA 11.2% 11.3% 12.0% 12.5% 12.9% 13.4% 13.6% 13.8% 14.3% 12.8% 14.9% 15.2% 15.3% 16.2%

Mark Mullikin (612) 303-6902

Piper Jaffray & Co.
6/14/2007 11:40 PM

Zimmer Holdings, Inc. Page 6 of 10

 ZIMMER HOLDINGS
Cash Flow
2004 2005 2005 2006 2006 2006 2007 2008
Year Mar Jun Sep Dec Year Mar Jun Sep Dec Year Mar Jun Sep Dec Year Year
Operating Requirements
Net Income $541.8 $173.6 $190.7 $168.6 $199.6 $732.5 $205.6 $200.9 $183.3 $244.7 $834.5 $233.4 $230.7 $210.7 $270.1 $944.9 $1,029.0
Depreciation & Amortization 181.3 45.1 45.3 45.6 49.7 185.7 46.2 47.3 51.3 52.6 197.4 53.4 53.1 53.6 54.1 214.2 224.4
Inventory Step-up 59.4 2.0 2.1 0.5 0.4 5.0 18.2 20.8 17.0 20.0 76.0 0.9 0.0 0.0 0.0 0.9 0.0
Cumulative effect of change in accounting principle 0.0 0.0 0.0 0.0 34.3 34.3 0.0 0.0 0.0 0.0 0.0 27.9 27.9 27.9 0.0 83.7 83.7
Changes in operating assets and liabilities
Income Taxes 139.2 29.2 50.7 31.6 (26.5) 85.0 26.3 46.8 (3.4) 2.6 72.3 18.6 17.0 17.0 17.0 69.6 68.0
Accounts Receivable (10.6) (53.1) (13.5) 27.8 3.5 (35.3) (65.9) (34.6) 52.6 (29.0) (76.9) (43.2) 54.8 12.7 (108.7) (84.4) 108.6
Inventories (44.7) (24.4) (34.2) (17.0) (3.6) (79.2) (13.0) 2.0 (23.5) (4.7) (39.2) (19.6) 82.3 1.2 (65.1) (1.2) (9.9)
Accounts Payable and Accrued Liabs (3.1) (20.1) 19.0 (29.8) (9.2) (40.1) (22.2) 6.2 38.7 (52.6) (29.9) (17.8) (41.0) (22.3) 86.8 5.7 5.5
Other Assets and Liabs (1.1) 0.2 (16.5) 4.3 2.3 (9.7) 7.5 15.8 (30.3) 13.5 6.5 (40.4) 0.0 0.0 0.0 (40.4) 0.0
Operating Cash Flow 862.2 152.5 243.6 231.6 250.5 878.2 202.7 305.2 285.7 247.1 1,040.7 213.2 424.7 300.8 254.3 1,193.0 1,509.2

Investing Activities
Additions to Instruments (139.6) (42.6) (48.0) (39.0) (20.4) (150.0) (32.4) (30.1) (30.5) (33.2) (126.2) (34.5) (34.5) (34.5) (16.5) (120.0) (120.0)
Capital Spending (100.8) (18.4) (23.8) (23.3) (39.8) (105.3) (5.3) (30.8) (32.1) (57.7) (125.9) (18.7) (18.7) (18.7) (63.9) (120.0) (120.0)
Acquisitions (171.3) 0.0 0.0 0.0 (44.1) (44.1) 0.0 (8.5) 0.0 (19.6) (28.1) 0.0 0.0 0.0 0.0 0.0 0.0
Investments in Other Assets 23.4 (9.2) (0.5) 0.0 (2.0) (11.7) 0.0 (5.0) 0.0 (1.8) (6.8) (5.9) 0.0 0.0 0.0 0.0 0.0
Investing Cash Flow (388.3) (70.2) (72.3) (62.3) (106.3) (311.1) (37.7) (74.4) (62.6) (112.3) (287.0) (59.1) (53.2) (53.2) (80.4) (240.0) (240.0)

Financing
Debt Issuance (461.4) (221.0) (154.3) (180.0) 0.0 (555.3) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Cash Received (Transferred) from BMY 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Stock Issuance 65.0 44.4 7.7 23.0 1.6 76.7 11.1 5.1 9.2 15.9 41.3 58.8 0.0 0.0 0.0 58.8 0.0
Share Repurchase 0.0 0.0 0.0 0.0 (4.1) (4.1) (7.1) (309.3) (314.5) (167.9) (798.8) (173.4) (170.0) (170.0) (170.0) (683.4) (680.0)
Other (5.6) (1.9) 0.0 0.0 (0.0) (1.9) 1.8 0.7 20.0 4.3 26.8 20.0 0.0 0.0 0.0 20.0 0.0
Financing Cash Flow (402.0) (178.5) (146.6) (157.0) (2.5) (484.6) 5.8 (303.5) (285.3) (147.7) (730.7) (94.6) (170.0) (170.0) (170.0) (604.6) (680.0)

Effect of FX 5.2 (1.4) (2.9) 0.7 (0.3) (3.9) (0.2) 4.7 2.0 3.0 9.5 0.8 0.0 0.0 0.0 0.8 0.0
Beginning Cash Balance 77.5 154.6 57.0 78.8 91.8 154.6 233.2 403.8 335.8 275.6 233.2 265.7 326.0 527.5 605.0 265.7 614.9
Net Change in Cash 71.9 (96.2) 24.7 12.3 141.7 82.5 170.8 (72.7) (62.2) (12.9) 23.0 59.5 201.5 77.6 3.9 348.4 589.2
Ending Cash Balance 154.6 57.0 78.8 91.8 233.2 233.2 403.8 335.8 275.6 265.7 265.7 326.0 527.5 605.0 609.0 614.9 1,204.1

Mark Mullikin (612) 303-6902

Piper Jaffray & Co.
6/14/2007 11:40 PM

Zimmer Holdings, Inc. Page 7 of 10

 Company Note
June 15, 2007

Important Research Disclosures

Rating and Price Target History for: Zimmer Holdings, Inc. as of 06-14-2007

07/30/04 08/10/04 04/26/05 07/28/05 09/14/05 10/27/05 01/31/06 04/27/06 10/26/06 12/14/06 04/26/07
OP:$85 T:OP:$89 OP:$90 OP:$100 OP:$85 OP:$73 OP:$84 OP:$74 OP:$83 MP:$83 MP:$91

105

90

75

60

45

30
Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1
2005 2006 2007

Created by BlueMatrix

Notes: The boxes on the Rating and Price Target History chart above indicate the date of the Research Note, the rating, and the price target. Each box
represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first Note written during
the past three years.

Legend:
I: Initiating Coverage
D: Discontinuing Coverage
S: Suspending Coverage
R: Resuming Coverage
T: Transferring Coverage
SB: Strong Buy (effective 01/12/04, Equity Research eliminated the SB rating)
OP: Outperform
MP: Market Perform
UP: Underperform
NA: Not Available
UR: Under Review
GP On: Listed on one of the Guided Portfolios maintained by Piper Jaffray
GP Off: Removed from the Guided Portfolios maintained by Piper Jaffray

Distribution of Ratings/IB Services

Piper Jaffray

IB Serv./Past 12 Mos.
Rating Count Percent Count Percent

BUY [OP] 350 57.47 98 28.00

HOLD [MP] 239 39.24 24 10.04
SELL [UP] 20 3.28 0 0.00

Note: Distribution of Ratings/IB Services shows the number of companies in each rating category from which Piper Jaffray and its affiliates received
compensation for investment banking services within the past 12 months. NASD and NYSE rules require disclosure of which ratings most closely correspond
with "buy," "hold," and "sell" recommendations. Accordingly, Outperform corresponds most closely with buy, Market Perform with hold, and Underperform
with sell. Outperform, Market Perform and Underperform, however, are not the equivalent of buy, hold or sell, but instead represent indications of relative
performance. See Rating Definitions below. An investor's decision to buy or sell a security must depend on individual circumstances.

Zimmer Holdings, Inc. Page 8 of 10

9
 Company Note
June 15, 2007
Important Research Disclosures
Analyst Certification — Mark J. Mullikin, Sr Research Analyst
The views expressed in this report accurately reflect my personal views about the subject company and the subject security. In addition, no part of my
compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.

Research Disclosures
Piper Jaffray was making a market in the securities of Zimmer Holdings, Inc. at the time this research report was published. Piper Jaffray will buy and sell
Zimmer Holdings, Inc. securities on a principal basis.

Affiliate Disclosures: This report has been prepared by Piper Jaffray & Co. or its affiliate Piper Jaffray Ltd., both of which are subsidiaries of Piper
Jaffray Companies (collectively Piper Jaffray). Piper Jaffray & Co. is regulated by the NYSE, NASD and the United States Securities and Exchange
Commission, and its headquarters is located at 800 Nicollet Mall, Minneapolis, MN 55402. Piper Jaffray Ltd. is registered in England, no. 3846990, and
its registered office is 7 Pilgrim St., London, EC4V 6LB. Piper Jaffray Ltd. is authorised and regulated by the UK Financial Services Authority, entered on
the FSA's register, no. 191657 and is a member of the London Stock Exchange, and its headquarters is located at One South Place, London, EC2M
2RB. Disclosures in this section and in the Other Important Information section referencing Piper Jaffray include all affiliated entities unless
otherwise specified.

Piper Jaffray research analysts receive compensation that is based, in part, on overall firm revenues, which include investment banking revenues.

Rating Definitions
Investment Opinion: Investment opinions are based on each stock's return potential relative to broader market indices, not on an absolute
return. The relevant market indices are the S&P 500 and Russell 2000 for U.S. Companies and the FTSE Techmark Mediscience index for
European companies.

• Outperform (OP): Expected to outperform the relevant broader market index over the next 12 months.
• Market Perform (MP): Expected to perform in line with the relevant broader market index over the next 12 months.
• Underperform (UP): Expected to underperform the relevant broader market index over the next 12 months.
• Suspended (SUS): No active analyst opinion or no active analyst coverage; however, an analyst investment opinion or analyst coverage
is expected to resume.

• Volatility Rating: Our focus on growth companies implies that the stocks we recommend are typically more volatile than the overall stock
market. We are not recommending the "suitability" of a particular stock for an individual investor. Rather, it identifies the volatility of a
particular stock.
• Low: The stock price has moved up or down by more than 10% in a month in fewer than 8 of the past 24 months.
• Medium: The stock price has moved up or down by more than 20% in a month in fewer than 8 of the past 24 months.
• High: The stock price has moved up or down by more than 20% in a month in at least 8 of the past 24 months. All IPO stocks
automatically get this volatility rating for the first 12 months of trading.

Zimmer Holdings, Inc. Page 9 of 10

10
 Company Note
June 15, 2007

Other Important Information

The material regarding the subject company is based on data obtained from sources we deem to be reliable; it is not guaranteed as to accuracy and
does not purport to be complete. This report is solely for informational purposes and is not intended to be used as the primary basis of investment
decisions. Because of individual client requirements, it is not, and it should not be construed as, advice designed to meet the particular investment needs
of any investor. This report is not an offer or the solicitation of an offer to sell or buy any security. Unless otherwise noted, the price of a security
mentioned in this report is the market closing price as of the end of the prior business day. Piper Jaffray does not maintain a predetermined schedule for
publication of research and will not necessarily update this report. Piper Jaffray policy generally prohibits research analysts from sending draft research
reports to subject companies; however, it should be presumed that the analyst(s) who authored this report has had discussions with the subject company
to ensure factual accuracy prior to publication, and has had assistance from the company in conducting diligence, including visits to company sites and
meetings with company management and other representatives.

This report is published in accordance with a conflicts management policy, which is available at http://www.piperjaffray.com/researchdisclosures.

Notice to customers in Europe: This material is for the use of intended recipients only and only for distribution to professional and institutional
investors, i.e. persons who are authorised persons or exempted persons within the meaning of the Financial Services and Markets Act 2000 of the
United Kingdom, or persons who have been categorised by Piper Jaffray Ltd. as intermediate customers under the rules of the Financial Services
Authority.

Notice to customers in the United States:This report is distributed in the United States by Piper Jaffray & Co., member SIPC and NYSE, Inc., which
accepts responsibility for its contents. The securities described in this report may not have been registered under the U.S. Securities Act of 1933 and, in
such case, may not be offered or sold in the United States or to U.S. persons unless they have been so registered, or an exemption from the registration
requirements is available. Customers in the United States who wish to effect a transaction in the securities discussed in this report should contact their
Piper Jaffray & Co. sales representative.

This material is not directed to, or intended for distribution to or use by, any person or entity if Piper Jaffray is prohibited or restricted by any legislation or
regulation in any jurisdiction from making it available to such person or entity.

This report may not be reproduced, re-distributed or passed to any other person or published in whole or in part for any purpose without the prior consent
of Piper Jaffray & Co.
Additional information is available upon request.

Copyright 2007 Piper Jaffray & Co. and/or Piper Jaffray Ltd. All rights reserved.

Zimmer Holdings, Inc. Page 10 of 10

11
 A BIR Research Provider Report
June 8, 2007 Page 1 of 4

Lasting Impression Fuels Growth Opportunities

Zimmer Holdings Inc BUY The orthopedics devices market is characterized by
NYSE: ZMH, $85.14 Upgraded 6/9/07 high entry barriers, insulating the current industry
United States
players from outside competition. Further, aging
Thomas White’s Investment Conclusion baby boomers account for a growing number of
The healthcare team at Thomas White projects that over the next 12 months an investment in Zimmer will return orthopedic procedures. The firm also boasts of
over 15%. These results should outperform the market and outperform 90% of the stocks in its industry. We excellent relationships with physicians, which is
recommend taxable investors buy Zimmer and hold it for long-term capital gain unless we suggest selling in the
interim. important considering the fact that the outcome of
orthopedic procedures is largely dependent on a
surgeon’s expertise in using the devices. As a result,
Buy
Most Favorable Apr. 26, 2007 -- Best Independent Research -- the brand loyalty remains high. Moreover, the
Favorable Zimmer Holdings, Inc. (ZMH) designs, develops,
Hold Neutral firm’s gender-specific implants could increase the
manufactures and markets innovative surgical demand for reconstructive procedures in the
Unfavorable
Sell devices for the orthopedics segment. These include
Most Unfavorable future. Competition comes from players like
Current Recommendation (6/9/07) Most Favorable reconstructive implants for the spine, knee, DePuy Inc., Stryker Corporation and Biomet, Inc.,
Previous Recommendation (3/10/07) Favorable shoulder, elbow and hip. The firm also develops as Zimmer’s rivals are slated to introduce new
trauma management products such as plates, orthopedic products.
BIR Stock Classifications screws, pins, nails and wires that align broken
Region North American bones and foster the tissue-healing process. Marketing Strategies to Promote Brand Image
Sector Healthcare Further, Zimmer markets surgical products used in Innovation is the keyword for Zimmer to retain its
Industry Medical Supplies orthopedic and general surgery procedures, market position and to bolster revenues. In June
Asset Class Large-Cap including tourniquets, blood management systems, 2006, the company rolled out knee a replacement
Investment Style Growth traction devices and other orthopedic goods. The procedure specifically tailored for women. The firm
Risk Profile Rank Low Risk is pinning its hopes on the success of the planned
company sells its products in 24 countries apart
Financial Quality High Quality
from the U.S., catering primarily to surgeons, direct-to-home advertising campaign for its gender-
hospitals and healthcare organizations. Revenues specific implants. Its initiatives to educate
Company Fundamentals for fiscal year 2005 stood at $3.3 billion. physicians worldwide about the benefits of
Market Capitalization (Billions) $20.2 minimally invasive procedures are aimed at
Price/Earnings Ratio (TTM) 23.9x Profits Soar on Lower Expenses boosting its fortunes in the long run. Zimmer also
Price/Cash Flow Ratio (TTM) 18.9x Beating Street expectations, the firm's net income intends to improve its manufacturing practices
Price/Book Ratio (MRQ) 3.94x for the first quarter of fiscal year 2007, ended even further. In July 2006, the firm entered into a
Dividend Yield (Indicated) Nil March, rose to $233.4 million or 98 cents per share five-year pact with Brasseler USA which allows
Net Profit Margin (TTM) 24.1% from $205.6 million or 82 cents per share in the Zimmer to distribute Brasseler-made powered
Return on Equity (TTM) 17.2% year-ago period. The number of diluted shares fell surgical instruments and consumables in the U.S.
Debt/Equity (MRQ) 2% 4.4% to 239.2 million. The top line shot up 10.4%
Beta 0.15 to $950.2 million, thanks to a 9% increase in sales New Product in the Wings
of reconstructive and knee products, respectively. The company plans to launch the DeNovo® NT
Revenues ($ in Millions) Also, gross margins crept up 29 basis points to Natural Tissue Graft in the fourth quarter. It
FY Ends: 2004 2005 2006 2007 2008 78.28% on account of lower cost of sales as a projects revenues of $975 million and $3.89 billion
Mar. 31 742.2 828.5 860.4 950.2 -- percentage of the top line. In addition, operating for the second quarter and for fiscal year 2007,
Jun. 30 737.4 846.8 881.6 975.0 -- margins inched up 67 basis points to 34.43%, owing respectively.
Sep. 30 700.2 762.5 819.8 908.6 -- to a slight decrease in operating expenses, as a
Dec. 31 801.1 848.3 933.6 1,043.4 -- percentage of the top line. Despite a rise in
Full FY 2,980.9 3,286.1 3,495.4 3,878.1 4,247.8 provision for income taxes, higher operating
GAAP revenues; BIR consensus estimates in italics. The fiscal year income propelled the bottom line.
consensus BIR estimates are not the sum of individual quarters.

Earnings Per Share ($ diluted)

5-Year Monthly Price Range and 52-Week Moving Average logarithmic scale December FY
FY Ends: 2004 2005 2006 2007 2008 $100

Mar. 31 0.40 0.70 0.82 0.98 --

Jun. 30 0.47 0.76 0.81 0.98 --
Sep. 30 0.52 0.67 0.76 0.91 --
Dec. 31 0.81 0.80 1.02 1.16 -- $50
Full FY 2.19 2.93 3.40 4.03 4.60
GAAP EPS; BIR consensus estimates in italics. The fiscal year
consensus BIR estimates are not the sum of individual quarters.
52-Week Moving Average

Prices: CY, Financials: FY 2002 2003 2004 2005 2006 2007

Price Range$20 28 - 43 38 - 72 64 - 89 60 - 89 52 - 79 77 - 94
Revenues (M) 1,372.4 1,901.0 2,980.9 3,286.1 3,495.4 3,878.1
EPS (Diluted) 1.31 1.38 2.19 2.93 3.40 4.03
Dividend Declared Nil Nil Nil Nil Nil --
Book Value/Share 1.26 3.54 14.52 17.80 20.14 21.62
BIR consensus estimates in italics

Best Independent Research LLC • A consortium of five top-performing independent research providers. • www.bestindependentresearch.com
©2007 Best Independent Research LLC PLEASE SEE PAGE 4 FOR IMPORTANT DISCLAIMER INFORMATION AND DEFINITIONS OF TERMS USED IN THIS REPORT.

12

Zimmer Holdings Inc
NYSE: ZMH
TWI Recommendation
Most Favorable
Buy Favorable
Hold Neutral
Unfavorable
Sell
Most Unfavorable
Current Recommendation (6/9/07) Most Favorable
Previous Recommendation (3/10/07) Favorable
Investment Philosophy
Thomas White believes that original research is the
surest path to superior stock recommendations. Since
most investors are shortsighted, they overvalue a
company when its short-term outlook is rosy and
undervalue it when times are discouraging. This cycle
of exaggeration creates wide stock swings around a
company’s actual business value. This behavior
produces a never-ending series of investment
opportunities.
Research Process
Our success comes from using industry specific
valuation research developed over the last thirty
years. The valuations we use are not just a simple list
of financial and market metrics. In fact, they represent
a perfectly fitted glove that guides our analysts in the
adjustments they make for the distinctive accounting,
business, regulatory, legal and investor behavior
attributes that are particular to this industry.
Best Independent Research LLC • A consortium of five top-performing independent research providers.
©2007 Best Independent Research LLC PLEASE SEE PAGE 4 FOR IMPORTANT DISCLAIMER INFORMATION AND DEFINITIONS OF TERMS USED IN THIS REPORT.
Expected Strong Performance
Zimmer is in TWI’s large medical supplies
valuation group. Our analysts examine the large-
cap and small-cap segments of this industry using
different valuation frameworks. The factors
explained below incorporate this group’s historical
valuation pattern, its accounting conventions, and
the unique behavior of its investor population.
When using this structured framework, the
preliminary appraisal reflects the weighted sum of
its individual factor scores. This discipline serves
as an anchor allowing a consistent investment
perspective. Since some factors are more
important than others, the analyst
recommendation may occasionally appear
inconsistent with the average of the factor scores.
Recommendation Decision: Buy
Our team of analysts decided to make Zimmer a
Buy after addressing the factors below that they
feel are important within this particular industry.
Conclusions in each of the areas are shown to
document the firm’s decision-making process.
Valuation: Gross Income - Negative
Wide gross margins and undervaluation are a
distinct advantage in this group. Companies with
lower price to gross income (P/GI) ratios have
higher return probabilities. Zimmer has a P/GI
ratio of 7.48 with the group’s median being 5.87.
Valuation: Net Income - Positive
Undervaluation indicates the potential for long-
term outperformance, although it does not
suggest when it will occur. A company’s share
price to its net earnings per share (EPS) is the
most common ratio used to detect
undervaluation. Because there are many versions
of earnings, there also are many versions of PE’s.
This PE uses the trailing four-quarter EPS.
Zimmer’s P/E ratio is 24.75 versus the group’s
median of 26.22.
Relative Strength Rank (RS Rank): ZMH & the BIR Medical Supplies Industry
ZMH RS Rank in BIR USETS Universe
Top Quartile
BIR Medical Supplies Industry: Average RS Rank
Average
Bottom Quartile
ZMH is a Large-Cap
Stock, A rising line means large-cap stocks are outperforming small-cap stocks.
with a Growth
investment style. A rising line means value stocks are outperforming growth stocks.
2003
A BIR Research Provider Report
June 8, 2007 Page 2 of 4
Valuation: Analyst Adjustments - Very Positive
Certain aspects of a company’s value cannot be
measured by traditional financial ratios. Our
analysts attempt to be as objective as possible in
their evaluations of these more subjective areas.
Business Model: Gross Income to Total Assets -
Neutral
High gross margins usually indicate products that
are the result of intellectual capital as opposed to
manufacturing. Gross income to total assets
measures asset efficiency in terms of this
particular earnings gauge. In this group, a high
gross income to total assets ratio implies shares
will outperform. Zimmer has a gross income to
total assets ratio of 45.72% compared to the
group’s median of 41.62%.
Profitability: Gross Margin - Very Positive
A high gross margin usually indicates the
company's product is a result of intellectual
capital as opposed to manufacturing. This
condition suggests a company can control its
prices because of some sort of proprietary
product. In this industry, high gross margins with
undervaluation usually lead to share
outperformance. Zimmer’s gross margin is
77.77% versus the group’s median of 53.50%.
Business Momentum: Change in Outlook - Very
Positive
Analysts covering a company immediately adjust
their earnings estimates when events occur that
suggest it is appropriate to do so. Because of this,
changes in consensus estimates may provide
valuable information regarding the progress of
the company. Within this industry, upward shifts
in consensus estimates suggest superior future
performance.
2004 2005 2006 2007
• www.bestindependentresearch.com
13
 A BIR Research Provider Report
June 8, 2007 Page 3 of 4

Zimmer Holdings Inc has hit the product sales at Medtronics and Boston
NYSE: ZMH Scientific. Also a series of product recalls by the
former unit of Guidant, subsequently acquired by
Boston Scientific was widely covered in the media
BIR Stock Classifications Medical Supplies Industry and caused a sharp fall in those product sales.
Region North American Besides facing the prospective of future revenue falls
Sector Healthcare Apr. 20, 2007 -- Best Independent Research -- The of the problem products, companies will also incur
Industry Medical Supplies Medical Supplies industry includes makers of the regulatory cost brought upon by having to solve
Sub-Industry Medical Products surgical, cardiac, and diagnostic instruments, as well those issues. However on the bright side, an aging
as orthopedic and medical devices. Drug and population offers good growth avenues for the
medical equipment distributors are also components industry.
52-Week Sector Performance Order
of the industry. The cardiac devices segment, which
Past Order Median includes drug-eluting stents, defibrillators, and Buyout Frenzy Continues
(Mos. Ago) Price Rel. St. After Biomet, Inc., a maker of hip and knee
Current 3 6 12 BIR Sector Return Rank pacemakers, is dominated by the likes of Boston
Scientific Corp. and Medtronic, Inc. The replacement products, agreed to be acquired by
1 1 3 13 Telecom 39% 22
orthopedics segment is led by Stryker Corp. and private equity for $10.9 billion in January 2007.
2 4 4 5 Aerospace 34% 27
Zimmer Holdings. Stent maker Conor Medsystems, Inc. was taken over
3 7 1 1 Metals 26% 36
by Johnson & Johnson. In March, Beckman Coulter
4 2 6 19 Utilities 24% 39 Oozing With Optimism made an $85 cash tender offer to acquire Biosite.
5 3 7 9 Chemicals 22% 41 Reflecting positive market trends and changing The merger has since gained regulatory approval
6 15 9 2 Energy 19% 45 demographics, the medical supplies industry posted and expects to be completed by the end of April.
7 14 15 7 Insurance 19% 46 good first quarter results in fiscal year 2007. Interestingly, in early April, Inverness Medical
8 11 8 6 Industrial 19% 46 Bolstered by higher products sales, the top line rose Innovations has stepped in and offered $90 per
9 6 10 20 Consumer Staples 18% 47 in the high single digits. However, profits only grew share to buy Biosite. The talk is on between the two
10 5 5 10 Finance 18% 47 in the mid-single digits since the gains were partially firms while the deal between Biosite and Beckman
11 8 2 3 Capital Goods 18% 48 offset by increased tax rates and interest expenses. Coulter is still intact. Meanwhile, investors have
12 12 11 18 Retail 17% 49 Operating margins too slipped in the low single been trading the shares of Biosite above $90
13 9 16 16 Forest Products 17% 49 digits. Driven by new clients and price-inflation of indicating their belief that a bidding war will end
13 13 12 Services 15% 51
branded drugs, pharmacy benefit manager Medco with a higher offer.
14
Health Solutions’ net income soared to $274.8
15 10 12 4 Transport 15% 51 Innovations Drive Growth
million from $44.8 million in the year-ago quarter,
16 19 18 15 Healthcare 12% 55 Investment in R&D by companies in the industry
while lower costs propelled competitor Express
17 17 14 8 Technology 10% 58
Scripts’ profits. Also, Alcon, the maker of eye care has led to new and improved products. As they
18 16 19 17 Consumer Durables 10% 59
products recorded 17% jump in profits aided by become widely accepted by the market place, the
19 20 20 14 Building 1% 71 higher sales of pharmaceutical and surgical offerings. companies behind them will benefit financially. It is
20 18 17 11 Banking 0% 73 On the downside, litigation charges related to the case for Arrow International whose new
accounting irregularities slashed profits of medical AutoCat2 WAVE intra aortic balloon pumps, used in
products supplier Cardinal Health. Besides, cardiac care, are expected to be the key driver for
pharmacy services provider Omnicare took a beating sales in the near future. Other company like
due to unfavorable contract terms. Genomic Health has already seen their revenues
skyrocketing since its newly developed device called
Product Safety Causes for Concern Oncotype DX, which can detect the breast cancer
Despite rising revenues, industry players are plagued reoccurrence, was launched. The growth will likely
by different problems. Evidences have shown that to continue as more and more large insurers start to
the drug-eluting stents, originally designed to cover the use of it.
replace the regular stents, have not lived up to their
promises and could cause serious blood clots. That

Comparing Zimmer to its Sub-Industry Peers Sources: BIR consensus estimates; Reuters
(Medians) BIR USETS Universe: Over 3,000 52-Week Price Estimated PE Ratios Estimated EPS Growth EPS Revisions (3 mos) Estimated P/Sales Ratios
Market Price U.S. exchange-traded stocks, both Return & Rel. & Relative Rankings & Relative Rankings & Relative Rankings & Relative Rankings
Cap. ($) ($) domestic & international Strength Rank Cur. Year Next Year Cur. Year Next Year Cur. Year Next Year Cur. Year Next Year
1.72B BIR USETS UNIVERSE 17% 51 19.2 51 16.5 51 14% 51 16% 51 0% 51 0% 51 1.9 51 1.7 51
1.36B BIR Medical Supplies 16% 52 27.0 77 21.7 76 15% 48 24% 34 0% 50 0% 51 2.9 67 2.6 67
11.17B Peer Group 27% 37 21.5 61 18.5 63 15% 48 17% 50 0% 50 0% 51 2.9 67 2.7 68
20.16B 85.14 ZMH Zimmer Holdings Inc 33% 30 21.1 60 18.5 63 17% 44 14% 59 2% 31 3% 29 5.2 85 4.7 86
36.81B 56.50 BAX Baxter International Inc 49% 17 21.5 61 19.2 67 18% 43 12% 67 5% 20 4% 21 3.4 72 3.2 74
26.70B 65.27 SYK Stryker Corp 49% 18 27.2 77 22.7 79 19% 42 20% 42 0% 48 0% 47 4.4 81 3.9 82
18.47B 75.38 BDX Becton Dickinson and Co 27% 37 19.9 54 17.9 59 15% 48 12% 69 1% 41 0% 49 2.9 67 2.7 68
11.17B 45.49 BMET Biomet Inc 30% 34 25.3 72 22.6 78 6% 66 12% 69 -1% 58 -3% 71 5.2 85 4.8 86
5.20B 40.76 VAR Varian Medical Systems Inc -12% 87 22.8 66 19.4 68 -3% 76 17% 48 -4% 70 -4% 76 2.9 67 2.6 67
4.70B 52.94 HSIC Henry Schein Inc 16% 53 20.8 59 17.9 60 25% 34 17% 50 0% 50 0% 51 0.8 20 0.7 19
2.38B 53.30 COO Cooper Companies 13% 55 22.4 65 17.6 58 -3% 76 27% 30 -1% 57 -2% 68 2.6 62 2.3 62
577.49M 18.06 IVC Invacare Corp -35% 96 18.6 48 14.6 35 -18% 87 28% 29 -3% 69 -3% 69 0.4 6 0.4 7

Best Independent Research LLC • A consortium of five top-performing independent research providers. • www.bestindependentresearch.com
©2007 Best Independent Research LLC PLEASE SEE PAGE 4 FOR IMPORTANT DISCLAIMER INFORMATION AND DEFINITIONS OF TERMS USED IN THIS REPORT.

14

Zimmer Holdings Inc
NYSE: ZMH
Thomas White presents its stock
recommendations in the BIR Research
Report Format.
Thomas White International Ltd. delivers its
investment advice using an efficient research report
designed and maintained by Best Independent
Research. This innovative environment enables TWI’s
analysts to support their recommendations with clear
explanations of decisions made throughout the firm’s
investment process. BIR has no influence on its
recommendations.
Best Independent Research LLC
This BIR report format is a joint effort of five veteran
equity research firms to create a state-of-the-art
research report. Each firm uses this report format
when issuing their individual research
recommendations.
BIR is a support organization; it does not make
research recommendations. Its role is to present the
research firm’s message in a interesting report that is
brief, easy to understand and pleasant to read. BIR is
responsible for the report’s risk ranks, financial quality
ratings, company and industry descriptions and the
consensus sales and earnings estimates. None of the
five research firms use this data when making their
recommendation decisions.
Thomas White International, Ltd.
TWI professionals use industry-specific valuation
frameworks developed over the last twenty-five years
to maintain the accuracy of their stock
recommendations. Analysts calculate a company's
relative worth versus its peers using historical industry
and asset class parameters. A stock is recommended
as a buy when it is priced at a deep discount from its
normal peer group valuation and as a sell when
trading at a significant premium.
Best Independent Research LLC
©2007 Best Independent Research LLC
Glossary
Glossary
BIR Stock Coverage and Market Indices The
BIR USETS© (US exchange-traded stocks)
universe and indexes include over 3000 of the
largest domestic and international stocks that
trade in the United States. BIR’s stock
classifications (BIR’s GIC) reflect their
membership in the firm’s industry and country
indices.
BIR Asset Class and Investment Style large-caps
are the largest 1000 US stocks by capitalization;
the remainder are small-caps. Non-US stocks are
separated using the same breakpoint. Value,
blend and growth styles are set using a blend of
valuation ratios and growth rates.
BIR Risk Profile Rank This rank reflects the
stability of the company’s business and its stock’s
price volatility. Risk ranks do not project price
direction.
BIR Financial Quality This measure of a
company’s creditworthiness reflects BIR’s
assessment of its working capital, debt ratios,
business risk and potential legal liabilities.
BIR Consensus Sales & Earnings Estimates
These are complied by BIR weekly using fresh
estimates from a select number of Wall Street
security analysts.
Chart pg 2: Relative Strength Rank A stock’s RS
Rank is its 52-week return ranked from 1 (best) to
99 within the BIR USETS universe. This chart
shows that a stock’s price may be influenced by
the popularity of its industry, asset class or
investment style. An industry RS Rank is the
average RS Rank of the stocks in that industry.
Large vs. Small and Value vs. Growth
performance is presented to enable observation
of their influence.
Disclaimer
Past performance is not a guarantee of future results. The material is based upon information TWI and BIR considers reliable, but neither warrant its
completeness or accuracy, and it should not be relied upon as such. Assumptions, opinions, and estimates constitute our judgment as of the date of
this report, and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of securities
mentioned herein. The material does not take into account your particular financial situations, objectives, or needs, and is not intended as a personal
recommendation. Before acting on recommendations in this material, you should consider whether it is appropriate for your particular situation, and, if
necessary, seek professional advice.
©2005 Best Independent Research LLC Certain additional market and financial data is provided by Ford Equity
Research, San Diego, CA and Reuters.
• A consortium of five top-performing independent research providers.
A BIR Research Provider Report
June 8, 2007 Page 4 of 4
Disclosures
This report offers equity recommendations and
related return estimates from Thomas White
International, Ltd. to investors and their advisors.
It uses a three-class Buy-Hold-Sell rating system.
This is a consolidated version of the firm’s five-
class rating system: most favorable and favorable
ratings are buys; neutral ratings are holds and the
categories unfavorable and most unfavorable are
sells.
Stock Ratings
The terms below are used to rate a stock’s 12-
month performance:
Buy: Expected to outperform the S&P 500
producing above average returns.
Hold: Expected to perform in line with the S&P
500 with average returns.
Sell: Expected to underperform the S&P 500
producing below-average returns.
As of March 31, 2007, the research analysts at
Thomas White International, Ltd. had Buy ratings
on 30.5% of their recommendations, Hold ratings
on 45.3% and Sell ratings on 24.2%.
All investment conclusions and the discussions
explaining these decisions are from Thomas
White International Ltd. They accurately reflect
the responsible research professional’s personal
views regarding any and all the subject securities
or issuers. No part of analyst compensation was,
is, or will be directly or indirectly, related to the
specific recommendations or views expressed in
this research report.
TWI and BIR prohibit their employees from
buying equity securities and from being officers
or directors of listed companies. The investment
companies and investment advisory accounts TWI
advises own less than 1% of this company.
Neither Thomas White nor BIR offer brokerage
or investment banking services. They both adhere
to professional standards and abide by formal
codes of ethics that put the interests of clients
ahead of their own. Their compliance officers
monitor adherence to these standards.
• www.bestindependentresearch.com
15
 A publication of
WACHOVIA CAPITAL MARKETS, LLC

Equity Research Outperform

Sector: Orthopedics, Overweight
Zimmer Holdings, Inc. May 17, 2007
ZMH: Shares Remain Attractive--Increasing Estimates
Earnings Estimates Revised Up
• WE EXPECT ZMH'S MOMENTUM TO CARRY INTO 2008: ZMH is benefiting 2006A 2007E 2008E
from a resurgent orthopedics market and new product launches. We expect its EPS Curr. Prior Curr. Prior
product cycle to carry over into 2008 given multiple new product launches in late Q1 (Mar.) $0.82 $0.98 A NC $1.13 1.05
2007. The most meaningful of these, in our view, are the Gender Solutions Natural Q2 (June) 0.83 0.98 0.96 1.13 1.08
Knee, the Gender Solutions hip products (the M/L Taper Stem with Kinectiv Q3 (Sep.) 0.77 0.91 0.89 1.05 1.01
Technology and the Epoch Composite stem), and the NexGen LPS high flex mobile Q4 (Dec.) 1.02 1.17 1.15 1.33 1.29
FY $3.44 $4.04 3.98 $4.65 4.43
bearing knee.
CY $3.44 $4.04 $4.65
• RECON MARKET GROWTH REMAINED STRONG IN Q1 2007: We estimate FY P/E 26.1x 22.3x 19.3x
that the global recon market grew by 9% constant currency (cc). Hips grew by Rev.(MM) $3,495.2 $3,889.0 $4,259.4
Source: Company Data, Wachovia Capital Markets, LLC estimates, and Reuters
about 9% cc (12% in the U.S., 7% cc outside the U.S.) and knees grew by about NA = Not Available, NC = No Change, NE = No Estimate, NM = Not Meaningful
10% cc (10% in the U.S., 10% cc outside the U.S). We expect the recon market to
continue to grow by 9-10% cc during 2007 and 2008.
• MODEL HOUSEKEEPING--INCREASING ESTIMATES: We are increasing our
estimates to reflect ZMH's latest guidance (issued when it reported its Q1 2007
results). Guidance calls for 2007 revenue of $3.885B and EPS of $4.02. We have
increased our 2007 EPS estimate by $0.06 to $4.04 and our 2008 EPS estimate by
$0.12 to $4.65 (representing 15% growth over 2007). Ticker ZMH
• REITERATE OUTPERFORM RATING ON ZMH SHARES: Despite the $0.05 of Price (05/17/2007) $89.90
EPS upside in Q1 2007, we continue to see potential for further upside during 2007 52-Week Range: $52-95
and 2008. ZMH (19.3x our new 2008 EPS estimate) remains at a discount to peers Shares Outstanding: (MM) 250.1
SNN (21.4x our 2008 EPS estimate) and SYK (23.0x our 2008 EPS estimate). We Market Cap.: (MM) $22,484.0
S&P 500: 1,515.67
expect share price outperformance driven by potential EPS upside and multiple
Dividend/Yield: $0.00/0.0%
expansion.
LT Debt: (MM) $100.0
LT Debt/Total Cap.: 2.0%
ROE: 17.0%
Valuation Range: $102 to $112 3-5 Yr. Est. Growth Rate: 14.0%
Our 6-12 month valuation range is 22-24x our 2008 EPS estimate. This is between CY 2007 Est. P/E-to-Growth: 1.6x
large-cap med tech and large-cap orthopedics peers which trade at 22x and 25x 2007 Last Reporting Date: 04/25/2007
EPS estimates, respectively. Risks include the CEO transition during 2007 and share After Close
losses to hip resurfacing. Source: Company Data, Wachovia Capital Markets, LLC estimates, and Reuters

Investment Thesis:
ZMH is an aggressively and effectively run leader in a rebounding industry, in our
view. We believe implant growth is sustainable at ~10%, supported by healthy
volume growth. Pricing and mix appear to have stabilized at near 0-1% and may
increase to 2-3% in 2007. Share repurchases and continuing leverage should allow Medical Technology/Devices
ZMH to leverage its ~10% sales growth into mid-teens EPS growth for next few years.
Michael Matson, Senior Analyst
( 2 1 2 ) 2 1 4 - 8 0 1 7 / mi c h a e l . m a t s o n @ w a c h o v i a . c o m
Vincent Ricci, Associate Analyst
(212) 214-8016 / vincent.ricci@wachovia.com

Please see page 5 for rating definitions, important disclosures and required analyst certifications.
WCM does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest
that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.

16
 WACHOVIA CAPITAL MARKETS, LLC
Medical Technology/Devices EQUITY RESEARCH DEPARTMENT

Company Description:
Following its Q4 2003 acquisition of Centerpulse, Zimmer is now the world's No. 1 orthopedic company. It
enjoys a market-leading share of 27% of the $8.7 billion reconstructive orthopedic implant business. Hip and
knee implants account for nearly 76% of Zimmer's revenue. Other businesses include trauma, spine, dental,
and surgical products.

Zimmer Holdings, Inc. (ZMH)

Valuation Table

Valuation Range: ZMH Earning And Cash Flow Statistics Valuation Method(s):
$102 to $112 Calendar Year Wachovia Estimates P/E
21.9x 24.1x NTM 2007E 2008E Rating: Outperform
5/17 EPS $4.04 $4.04 $4.65
Price $89.90 EBITDA/Share $6.49 $6.49 $7.30
FCF/Share $3.66 $3.66 $4.46

Peer P/E And PEG Metrics

NTM P/E PEG 5-Yr E
P/E Rel S&P 2007E 2008E 2007E 2008E Growth
ZMH(1) 22.2x 1.42x 22.3x 19.3x 1.6x 1.4x 14%
LC Med. Device Peers 21.6x 1.38x 22.7x 19.5x 1.8x 1.5x 13%
Premium/(Discount) (%) 3.1% 3.1% (1.8%) (0.9%) (11.6%) (10.2%) NA
LC Ortho. Peers 22.8x 1.45x 24.9x 21.4x 1.6x 1.4x 16%
(1)
Based on Wachovia Capital Markets, LLC estimates
Historical P/E Metrics
1 Year 5 Years 10 Years
NTM P/E Rel S&P NTM P/E Rel S&P NTM P/E Rel S&P
Min 14.5x 1.01x 14.5x 1.01x 14.5x 1.01x
Avg 18.6x 1.24x 25.4x 1.53x 25.7x 1.50x
Max 21.5x 1.44x 37.1x 2.13x 37.1x 2.13x

Cash Flow Metrics

FCF Yield EV/EBITDA
LTM 2007E 2008E 2007E 2008E Div. Yld
ZMH 3.6% 4.1% 5.0% 13.6x 12.1x 0.00%
LC Med. Device Peers 3.7% NA NA 13.6x 12.3x 0.93%
LC Ortho. Peers 2.7% NA NA 15.5x 13.7x 0.47%

ZMH Large Cap Medical Device Comparables(2)

Mkt. Cap Calendar EPS P/E 5-Yr E PEG EV/EBITDA 2007E Debt/
Ticker Price ($ In Millions) 2007E 2008E 2007E 2008E Growth 2007E 2008E 2007E 2008E EV/Rev. Cap
ABT $58.90 $90,727 $2.82 $3.23 20.9x 18.3x 11% 1.9x 1.6x 14.3x 13.2x 4.5x 47%
ACL $135.39 $40,927 $5.21 $5.97 26.0x 22.7x 16% 1.6x 1.4x 19.9x 17.8x 7.4x 24%
BCR $82.17 $8,509 $3.81 $4.38 21.6x 18.8x 15% 1.5x 1.3x 12.8x 11.4x 3.6x 8%
BAX $57.00 $37,105 $2.62 $2.93 21.8x 19.4x 13% 1.7x 1.5x 13.7x 12.6x 3.4x 29%
BDX $77.44 $18,941 $3.89 $4.34 19.9x 17.9x 12% 1.6x 1.4x 11.2x 10.2x 3.0x 23%
BMET $43.45 $10,642 $1.93 $2.17 22.5x 20.0x 14% 1.6x 1.4x 13.8x 12.3x 4.7x 5%
BSX $15.45 $22,784 $0.47 $0.67 32.6x 23.2x 10% 3.4x 2.4x 10.5x 9.8x 3.6x 36%
JNJ $62.74 $181,521 $4.03 $4.29 15.6x 14.6x 8% 1.9x 1.8x 9.9x 8.9x 3.0x 14%
MDT $51.46 $59,259 $2.55 $2.91 20.2x 17.7x 14% 1.5x 1.3x 14.6x 12.9x 4.7x 36%
SNN $62.62 $11,804 $2.56 $2.99 24.5x 20.9x 14% 1.8x 1.5x 14.1x 12.4x 3.7x 6%
STJ $42.67 $15,102 $1.75 $2.01 24.3x 21.2x 17% 1.4x 1.2x 15.3x 13.5x 4.5x 37%
SYK $66.90 $27,367 $2.42 $2.88 27.6x 23.2x 19% 1.4x 1.2x 16.1x 13.9x 4.3x 0%
Mean $62.66 $45,211 $2.88 $3.26 22.7x 19.5x 13% 1.8x 1.5x 13.6x 12.3x 4.2x 24%
Median $58.90 $22,784 $2.62 $2.99 21.8x 19.4x 14% 1.6x 1.4x 13.8x 12.4x 3.7x 24%
Large Cap Orthopedics Comparables(2)
BMET $43.45 $10,642 $1.93 $2.17 22.5x 20.0x 14% 1.6x 1.4x 13.8x 12.3x 4.7x 5%
SNN $62.62 $11,804 $2.56 $2.99 24.5x 20.9x 14% 1.8x 1.5x 16.4x 14.9x 3.7x 6%
SYK $66.90 $27,367 $2.42 $2.88 27.6x 23.2x 19% 1.4x 1.2x 16.1x 13.9x 4.3x 0%
Mean $57.66 $16,604 $2.30 $2.68 24.9x 21.4x 16% 1.6x 1.4x 15.5x 13.7x 4.2x 4%
Median $62.62 $11,804 $2.42 $2.88 24.5x 20.9x 14% 1.6x 1.4x 16.1x 13.9x 4.3x 5%
SPX $1,512.8 $93.40 $100.77 16.2x 15.0x
(2)
Uses First Call consensus EPS estimates.
Source: FactSet, First Call, Company reports, and Wachovia Capital Markets, LLC estimates

2
17
 WACHOVIA CAPITAL MARKETS, LLC
Zimmer Holdings, Inc. EQUITY RESEARCH DEPARTMENT

Zimmer Holdings, Inc. Wachovia Capital Markets, LLC Medical Technology Team
Quarterly Income Statement Michael Matson ● (212) 214-8017
($ In Millions Except Per Share Data) Vincent J. Ricci ● (212) 214-8016

2002A 2003A 2004A 2005A Mar-06 Jun-06 Sep-06 Dec-06 2006A Mar-07 Jun-07 Sep-07 Dec-07 2007E 2008E
Annual Annual Annual Annual Q106A Q206A Q306A Q406A Annual Q107A Q207E Q307E Q407E Annual Annual
Implant 1,503.0 1,910.0 2,457.9 2,720.6 717.9 733.4 676.0 780.0 2,907.3 798.0 806.6 747.1 870.1 3,221.8 3,534.2
Trauma 133.7 152.3 172.0 179.5 46.7 49.0 49.0 51.0 195.7 50.0 52.9 52.9 54.6 210.4 225.1
Spine - 33.8 135.0 160.5 43.1 46.0 42.0 46.0 177.1 47.0 62.1 56.7 62.1 227.9 256.2
Surgical Products 176.7 193.4 216.0 225.5 52.7 53.0 52.8 56.6 215.1 55.2 56.7 56.5 60.6 229.0 243.8
Total Revenue 1,813.4 2,289.5 2,980.9 3,286.1 860.4 881.4 819.8 933.6 3,495.2 950.2 978.3 913.2 1,047.4 3,889.0 4,259.4
COGS 344.8 473.5 727.0 734.4 189.4 200.0 183.2 207.5 780.1 206.4 222.1 208.2 226.2 862.9 929.0
Gross Profit 1,468.6 1,816.0 2,253.9 2,551.7 671.0 681.4 636.6 726.1 2,715.1 743.8 756.2 705.0 821.1 3,026.1 3,330.4
R&D 80.7 105.7 166.7 175.5 47.4 48.6 46.7 45.6 188.3 52.3 53.8 50.2 52.4 208.7 223.2
SG&A 546.0 739.0 1,190.0 1,259.6 334.9 344.8 330.4 342.2 1,352.3 361.6 379.6 355.2 387.5 1,483.9 1,604.4
Total Operating Expense 626.7 844.7 1,356.7 1,435.1 382.3 393.4 377.1 387.8 1,540.6 413.9 433.4 405.5 439.9 1,692.6 1,827.5
Operating Income 841.9 971.4 897.2 1,116.6 288.7 288.0 259.5 338.3 1,174.5 329.9 322.8 299.5 381.2 1,333.5 1,502.9

Interest Expense (Net) 12.0 13.2 31.7 14.3 (0.5) (1.2) (0.6) (1.5) (3.8) 0.2 (1.4) (2.9) (4.4) (8.5) (34.7)
Pretax Income 829.9 958.2 865.5 1,102.3 289.2 289.2 260.1 339.8 1,178.3 329.7 324.3 302.4 385.6 1,342.0 1,537.6
Provision For Income Tax 131.1 189.6 268.2 326.6 83.9 81.3 73.2 95.0 333.4 94.0 90.8 84.7 108.0 377.4 430.5
(Tax Rate) 15.8% 19.8% 31.0% 29.6% 29.0% 28.1% 28.1% 28.0% 28.3% 28.5% 28.0% 28.0% 28.0% 28.1% 28.0%
Earnings Before Min. Int. 698.8 768.7 597.3 775.7 205.3 207.9 186.9 244.8 844.9 235.7 233.5 217.7 277.7 964.6 1,107.1
Minority Interest - 0.5 (0.1) (0.9) (0.3) (2.0) (0.3) (0.1) (2.7) (0.3) (0.3) (0.3) (0.3) (1.2) (1.2)
Net Income 698.8 769.2 597.2 774.8 205.0 205.9 186.6 244.7 842.2 235.4 233.2 217.4 277.4 963.4 1,105.9
Diluted Shares 196.8 210.5 247.5 249.8 250.1 247.7 242.6 241.0 245.4 239.2 238.7 238.2 237.7 238.5 238.0
EPS excluding stock-based comp $3.56 $3.75 $2.41 $3.10 $0.87 $0.89 $0.82 $1.08 $3.66 $1.05 $1.04 $0.97 $1.24 $4.30 $4.95
EPS including stock-based comp $3.49 $3.32 $2.09 $2.75 $0.82 $0.83 $0.77 $1.02 $3.44 $0.98 $0.98 $0.91 $1.17 $4.04 $4.65

EBITDA 867.2 1,074.7 1,106.9 1,307.3 334.9 335.3 310.8 390.9 1,371.9 383.3 376.2 352.9 434.6 1,547.1 1,737.8
EBITDA Per Share $4.41 $5.10 $4.47 $5.23 $1.34 $1.35 $1.28 $1.62 $5.59 $1.60 $1.58 $1.48 $1.83 $6.49 $7.30
% Of Revenue
Implant 82.9% 83.4% 82.5% 82.8% 83.4% 83.2% 82.5% 83.5% 83.2% 84.0% 82.4% 81.8% 83.1% 82.8% 83.0%
Trauma 7.4% 6.7% 5.8% 5.5% 5.4% 5.6% 6.0% 5.5% 5.6% 5.3% 5.4% 5.8% 5.2% 5.4% 5.3%
Spine 0.0% 1.5% 4.5% 4.9% 5.0% 5.2% 5.1% 4.9% 5.1% 4.9% 6.3% 6.2% 5.9% 5.9% 6.0%
Surgical Products 9.7% 8.4% 7.2% 6.9% 6.1% 6.0% 6.4% 6.1% 6.2% 5.8% 5.8% 6.2% 5.8% 5.9% 5.7%
Total Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
COGS 19.0% 20.7% 24.4% 22.3% 22.0% 22.7% 22.3% 22.2% 22.3% 21.7% 22.7% 22.8% 21.6% 22.2% 21.8%
Gross Profit 81.0% 79.3% 75.6% 77.7% 78.0% 77.3% 77.7% 77.8% 77.7% 78.3% 77.3% 77.2% 78.4% 77.8% 78.2%
R&D 4.5% 4.6% 5.6% 5.3% 5.5% 5.5% 5.7% 4.9% 5.4% 5.5% 5.5% 5.5% 5.0% 5.4% 5.2%
SG&A 30.1% 32.3% 39.9% 38.3% 38.9% 39.1% 40.3% 36.7% 38.7% 38.1% 38.8% 38.9% 37.0% 38.2% 37.7%
Total Operating Expense 34.6% 36.9% 45.5% 43.7% 44.4% 44.6% 46.0% 41.5% 44.1% 43.6% 44.3% 44.4% 42.0% 43.5% 42.9%
Operating Income 46.4% 42.4% 30.1% 34.0% 33.6% 32.7% 31.7% 36.2% 33.6% 34.7% 33.0% 32.8% 36.4% 34.3% 35.3%
EBITDA Margin 47.8% 46.9% 37.1% 39.8% 38.9% 38.0% 37.9% 41.9% 39.3% 40.3% 38.5% 38.6% 41.5% 39.8% 40.8%
Net Income 38.5% 33.6% 20.0% 23.6% 23.8% 23.4% 22.8% 26.2% 24.1% 24.8% 23.8% 23.8% 26.5% 24.8% 26.0%
Yr/Yr Changes
Implant 69.5% 27.1% 28.7% 10.7% 4.1% 4.0% 8.3% 11.1% 6.9% 11.2% 10.0% 10.5% 11.6% 10.8% 9.7%
Trauma 4.2% 13.9% 12.9% 4.4% 2.9% 10.4% 11.4% 11.6% 9.0% 7.1% 8.0% 8.0% 7.0% 7.5% 7.0%
Spine 18.9% 12.5% 11.9% 9.1% 8.0% 10.3% 9.0% 35.0% 35.0% 35.0% 28.7% 12.4%
Surgical Products 7.9% 9.5% 11.7% 4.4% (4.9%) (6.0%) (5.7%) (1.9%) (4.6%) 4.7% 7.0% 7.0% 7.0% 6.4% 6.5%
Total Revenue 53.9% 26.3% 30.2% 10.2% 3.9% 4.1% 7.5% 10.1% 6.4% 10.4% 11.0% 11.4% 12.2% 11.3% 9.5%
Constant Currency Tot. Rev. 23.0% 26.1% 10.1% 6.9% 4.8% 7.0% 8.5% 6.7% 8.3% 9.7% 10.3% 11.3% 9.9% 9.4%
Gross Profit 23.7% 24.1% 13.2% 4.8% 3.2% 8.2% 9.5% 6.4% 10.8% 11.0% 10.7% 13.1% 11.5% 10.1%
R&D 12.7% 30.9% 57.8% 5.3% 12.6% 11.5% 6.4% (0.7%) 7.3% 10.3% 10.7% 7.5% 14.8% 10.8% 6.9%
SG&A 1.7% 35.3% 61.0% 5.8% 4.1% 5.0% 11.7% 9.1% 7.4% 8.0% 10.1% 7.5% 13.2% 9.7% 8.1%
Operating Income 239.1% 15.4% (7.6%) 24.5% 4.4% 0.0% 4.3% 11.5% 5.2% 14.3% 12.1% 15.4% 12.7% 13.5% 12.7%
EBITDA 219.2% 23.9% 3.0% 18.1% 3.5% (0.0%) 5.4% 10.6% 4.9% 14.5% 12.2% 13.6% 11.2% 12.8% 12.3%
Net Income 366.5% 10.1% (22.4%) 29.7% 9.7% 3.4% 7.2% 14.0% 8.7% 14.8% 13.3% 16.5% 13.3% 14.4% 14.8%
EPS 361.4% 5.4% (35.7%) 28.6% 16.0% 11.3% 17.8% 25.8% 17.9% 20.1% 17.5% 18.7% 14.9% 17.6% 15.0%

Revenue Seasonality 24.6% 25.2% 23.5% 26.7% 24.4% 25.2% 23.5% 26.9%
Earnings Seasonality 23.9% 24.2% 22.4% 29.6% 24.4% 24.2% 22.6% 28.9%
Source: Company reports and Wachovia Capital Markets, LLC estimates

3
18
 WACHOVIA CAPITAL MARKETS, LLC
Medical Technology/Devices EQUITY RESEARCH DEPARTMENT

Zimmer Holdings, Inc. Wachovia Capital Markets, LLC Medical Technology Team
Quarterly Revenue Model Michael Matson ● (212) 214-8017
($ In Millions) Vincent J. Ricci ● (212) 214-8016

2002A 2003A 2004A 2005A Mar-06 Jun-06 Sep-06 Dec-06 2006A Mar-07 Jun-07 Sep-07 Dec-07 2007E 2008E
Annual Annual Annual Annual Q106A Q206A Q306A Q406A Annual Q107A Q207E Q307E Q407E Annual Annual
Knees - US 396.6 524.2 763.0 881.0 240.0 236.0 225.0 241.0 942.0 263.0 262.2 252.0 273.5 1,050.7 1,156.2
Knees - Europe 94.8 162.8 292.0 328.0 88.0 90.0 72.0 102.0 352.0 102.0 97.5 78.6 112.7 390.7 424.0
Knees - Asia Pacific 93.9 113.8 140.0 159.0 38.0 42.0 41.0 46.0 167.0 43.0 44.6 43.5 49.0 180.1 190.0
Knees - Total 586.0 800.8 1,195.0 1,368.0 366.0 368.0 338.0 389.0 1,461.0 408.0 404.2 374.1 435.2 1,621.5 1,770.2
Hips - US 287.3 365.9 501.0 538.0 142.0 146.0 141.0 150.0 579.0 157.0 161.5 156.4 166.8 641.6 715.4
Hips - Europe 51.3 152.1 398.0 410.0 104.0 106.0 90.0 119.0 419.0 113.0 115.2 98.1 131.0 457.3 503.5
Hips - Asia Pacific 102.5 127.5 181.0 192.0 47.0 47.0 47.0 50.0 191.0 47.0 48.0 48.4 52.9 196.2 207.0
Hips - Total 441.0 645.4 1,080.0 1,140.0 293.0 299.0 278.0 319.0 1,189.0 317.0 324.7 302.9 350.7 1,295.2 1,426.0
Dental NA NA 36.0 148.0 40.0 47.0 42.0 50.0 179.0 49.0 55.5 49.6 59.1 213.2 239.3
Extremities NA NA 15.1 64.6 18.9 19.4 18.0 22.0 78.3 24.0 22.1 20.5 25.2 91.9 98.8
Total Implant 1,503.0 1,910.0 2,457.9 2,720.6 717.9 733.4 676.0 780.0 2,907.3 798.0 806.6 747.1 870.1 3,221.8 3,534.2
Trauma 133.7 152.3 172.0 179.5 46.7 49.0 49.0 51.0 195.7 50.0 52.9 52.9 54.6 210.4 225.1
Spinal - 33.8 135.0 160.5 43.1 46.0 42.0 46.0 177.1 47.0 62.1 56.7 62.1 227.9 256.2
Surgical Products 176.7 193.4 216.0 225.5 52.7 53.0 52.8 56.6 215.1 55.2 56.7 56.5 60.6 229.0 243.8
Total Revenue 1,813.4 2,289.5 2,980.9 3,286.1 860.4 881.4 819.8 933.6 3,495.2 950.2 978.3 913.2 1,047.4 3,889.0 4,259.4

Yr/Yr Changes
Knees - US 32.2% 45.6% 15.5% 7.6% 4.4% 6.1% 9.5% 6.9% 9.6% 11.1% 12.0% 13.5% 11.5% 10.0%
Knees - Europe 71.8% 79.3% 12.3% (1.1%) 5.9% 12.5% 13.3% 7.3% 15.9% 8.3% 9.1% 10.5% 11.0% 8.5%
Knees - Asia Pacific 21.2% 23.0% 13.6% 2.7% (2.3%) 7.9% 12.2% 5.0% 13.2% 6.1% 6.1% 6.5% 7.8% 5.5%
Knees - Total 36.7% 49.2% 14.5% 4.9% 4.0% 7.6% 10.8% 6.8% 11.5% 9.8% 10.7% 11.9% 11.0% 9.2%
Hips - US 27.4% 36.9% 7.4% 7.6% 5.8% 8.5% 8.7% 7.6% 10.6% 10.6% 10.9% 11.2% 10.8% 11.5%
Hips - Europe 196.6% 161.7% 3.0% (7.1%) 0.0% 5.9% 11.2% 2.2% 8.7% 8.7% 9.0% 10.1% 9.2% 10.1%
Hips - Asia Pacific 24.5% 41.9% 6.1% (2.1%) (6.0%) 4.4% 2.0% -0.5% 0.0% 2.1% 3.0% 5.7% 2.7% 5.5%
Hips - Total 46.3% 67.3% 5.6% 0.3% 1.7% 6.9% 8.5% 4.3% 8.2% 8.6% 8.9% 9.9% 8.9% 10.1%
Dental NA NA 21.2% 17.5% 20.0% 25.0% 20.9% 22.5% 18.1% 18.1% 18.1% 19.1% 12.3%
Extremities NA NA 22.7% 14.8% 20.0% 27.2% 21.2% 27.0% 14.1% 14.1% 14.5% 17.3% 7.5%
Total Implant 69.5% 27.1% 28.7% 10.7% 4.1% 4.0% 8.3% 11.1% 6.9% 11.2% 10.0% 10.5% 11.6% 10.8% 9.7%
Trauma 4.2% 13.9% 12.9% 4.4% 2.9% 10.4% 11.4% 11.6% 9.0% 7.1% 8.0% 8.0% 7.0% 7.5% 7.0%
Spinal - - 299.4% 18.9% 12.5% 11.9% 9.1% 8.0% 10.3% 9.0% 35.0% 35.0% 35.0% 28.7% 12.4%
Surgical Products 7.9% 9.5% 11.7% 4.4% (4.9%) (6.0%) (5.7%) (1.9%) (4.6%) 4.7% 7.0% 7.0% 7.0% 6.4% 6.5%
Total Revenue 53.9% 26.3% 30.2% 10.2% 3.9% 4.1% 7.5% 10.1% 6.4% 10.4% 11.0% 11.4% 12.2% 11.3% 9.5%

% Of Revenue
Knees - US 21.9% 22.9% 25.6% 26.8% 27.9% 26.8% 27.4% 25.8% 27.0% 27.7% 26.8% 27.6% 26.1% 27.0% 27.1%
Knees - Europe 5.2% 7.1% 9.8% 10.0% 10.2% 10.2% 8.8% 10.9% 10.1% 10.7% 10.0% 8.6% 10.8% 10.0% 10.0%
Knees - Asia Pacific 5.2% 5.0% 4.7% 4.8% 4.4% 4.8% 5.0% 4.9% 4.8% 4.5% 4.6% 4.8% 4.7% 4.6% 4.5%
Knees - Total 32.3% 35.0% 40.1% 41.6% 42.5% 41.8% 41.2% 41.7% 41.8% 42.9% 41.3% 41.0% 41.6% 41.7% 41.6%
Hips - US 15.8% 16.0% 16.8% 16.4% 16.5% 16.6% 17.2% 16.1% 16.6% 16.5% 16.5% 17.1% 15.9% 16.5% 16.8%
Hips - Europe 2.8% 6.6% 13.4% 12.5% 12.1% 12.0% 11.0% 12.7% 12.0% 11.9% 11.8% 10.7% 12.5% 11.8% 11.8%
Hips - Asia Pacific 5.6% 5.6% 6.1% 5.8% 5.5% 5.3% 5.7% 5.4% 5.5% 4.9% 4.9% 5.3% 5.0% 5.0% 4.9%
Hips - Total 24.3% 28.2% 36.2% 34.7% 34.1% 33.9% 33.9% 34.2% 34.0% 33.4% 33.2% 33.2% 33.5% 33.3% 33.5%
Dental NA NA 1.2% 4.5% 4.6% 5.3% 5.1% 5.4% 5.1% 5.2% 5.7% 5.4% 5.6% 5.5% 5.6%
Extremities NA NA 0.5% 2.0% 2.2% 2.2% 2.2% 2.4% 2.2% 2.5% 2.3% 2.2% 2.4% 2.4% 2.3%
Total Implant 82.9% 83.4% 82.5% 82.8% 83.4% 83.2% 82.5% 83.5% 83.2% 84.0% 82.4% 81.8% 83.1% 82.8% 83.0%
Trauma 7.4% 6.7% 5.8% 5.5% 5.4% 5.6% 6.0% 5.5% 5.6% 5.3% 5.4% 5.8% 5.2% 5.4% 5.3%
Spinal 0.0% 1.5% 4.5% 4.9% 5.0% 5.2% 5.1% 4.9% 5.1% 4.9% 6.3% 6.2% 5.9% 5.9% 6.0%
Surgical Products 9.7% 8.4% 7.2% 6.9% 6.1% 6.0% 6.4% 6.1% 6.2% 5.8% 5.8% 6.2% 5.8% 5.9% 5.7%
Total Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Worldwide Currency 0.0% 3.2% 4.1% 0.2% (3.0%) (0.8%) 0.6% 1.6% (0.4%) 2.2% 1.3% 1.1% 0.9% 1.4% 0.2%
Constant Currency 53.8% 23.0% 26.1% 10.1% 6.9% 4.8% 7.0% 8.5% 6.7% 8.3% 9.7% 10.3% 11.3% 9.9% 9.4%
Source: Company reports and Wachovia Capital Markets, LLC estimates

4
19
 WACHOVIA CAPITAL MARKETS, LLC
Zimmer Holdings, Inc. EQUITY RESEARCH DEPARTMENT

Required Disclosures
Z im m e r H o ld in g s , In c . (ZM
(Z M H ) 3 -y r. P ric e P e rfo rm a n c e
$104.00
$101.00
$98.00
$95.00
$92.00
$89.00
$86.00
$83.00
$80.00
$77.00
$74.00
$71.00
Security Price

$68.00
$65.00
$62.00
$59.00
$56.00
$53.00
$50.00
$47.00
5/12/04

6/9/04

7/7/04

8/4/04

9/1/04

9/29/04

10/27/04

11/24/04

1/19/05

2/16/05

3/16/05

4/13/05

5/11/05

6/8/05

8/3/05

8/31/05

9/28/05

11/23/05

12/21/05

2/15/06

3/15/06

4/12/06

6/7/06

7/5/06

8/2/06

8/30/06

9/27/06

10/25/06

11/22/06

12/20/06

1/17/07

2/14/07

3/14/07

5/9/07
12/22/04

7/6/05

10/26/05

1/18/06

5/10/06

4/11/07
Da t e

D a te C lo s e P ric e ($ ) R a tin g C o d e V a l. R n g . L o w V a l. R n g . H ig h
5 /1 2 /2 0 0 4 H uber
5 /1 2 /2 0 0 4 7 9 .7 5 2 8 3 .0 0 8 9 .0 0
z 7 /3 0 /2 0 0 4 7 3 .3 2 2 7 8 .0 0 8 4 .0 0
z 1 0 /2 6 /2 0 0 4 6 7 .9 0 2 7 6 .0 0 8 4 .0 0
cz 1 0 /2 7 /2 0 0 4 7 2 .0 7 1 8 5 .0 0 9 3 .0 0
z 2 /2 /2 0 0 5 8 7 .4 0 1 9 7 .0 0 1 0 4 .0 0
z 3 /3 1 /2 0 0 5 8 2 .6 1 1 9 0 .0 0 9 8 .0 0
z 8 /1 /2 0 0 5 8 2 .3 6 1 9 4 .0 0 9 8 .0 0
z 9 /1 5 /2 0 0 5 7 2 .1 9 1 8 7 .0 0 9 1 .0 0
„ 1 0 /3 /2 0 0 5 M a ts o n
z 1 0 /2 7 /2 0 0 5 6 3 .7 7 1 7 2 .0 0 7 7 .0 0
dz 1 1 /1 7 /2 0 0 5 6 4 .7 0 2 6 4 .0 0 7 0 .0 0
z 2 /1 /2 0 0 6 6 8 .2 9 2 6 8 .0 0 7 3 .0 0
z 4 /2 7 /2 0 0 6 6 2 .1 0 2 6 4 .0 0 6 8 .0 0
z 4 /2 8 /2 0 0 6 6 2 .9 0 2 6 2 .0 0 6 6 .0 0
z 7 /6 /2 0 0 6 5 7 .3 2 2 5 6 .0 0 6 4 .0 0
dz 8 /3 /2 0 0 6 6 5 .0 8 3 5 5 .0 0 5 9 .0 0
cz 1 1 /3 /2 0 0 6 7 2 .8 2 2 7 0 .0 0 7 7 .0 0
z 1 2 /1 4 /2 0 0 6 7 6 .9 9 2 7 2 .0 0 8 0 .0 0
cz 1 /4 /2 0 0 7 7 8 .8 2 1 8 8 .0 0 9 7 .0 0
z 2 /1 2 /2 0 0 7 8 3 .2 5 1 9 3 .0 0 1 0 3 .0 0
z 4 /2 /2 0 0 7 8 5 .7 0 1 9 8 .0 0 1 0 8 .0 0

S o u rc e : W a c h o v ia C a p ita l M a rk e ts , L L C e s tim a te s a n d R e u te rs d a ta

Sym bol Key R a tin g C o d e K e y

d R a tin g D o w n g ra d e ‹ In itia tio n , R e s u m p tio n , D ro p o r S u s p e n d 1 O u tp e rfo rm SR Suspended
c R a tin g U p g ra d e „ A n a ly s t C h a n g e 2 M a rk e t P e rfo rm NR N o t R a te d
z V a lu a tio n R a n g e C h a n g e ˆ S p lit A d ju s tm e n t 3 U n d e rp e rfo rm NE N o E s tim a te

Additional Information Available Upon Request

I certify that:
1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed;
and
2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this
research report.

5
20
 WACHOVIA CAPITAL MARKETS, LLC
Medical Technology/Devices EQUITY RESEARCH DEPARTMENT

Risks include the CEO transition during 2007 and share losses to hip resurfacing.

Wachovia Capital Markets, LLC does not compensate its research analysts based on specific investment banking transactions. WCM’s research
analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm, which includes, but is not
limited to investment banking revenue.

STOCK RATING
1 = Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the next 12
months. BUY
2 = Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next
12 months. HOLD
3 = Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12 months.
SELL
SECTOR RATING
O = Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
M = Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
U = Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.
VOLATILITY RATING
V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the analyst expects
significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.

As of: May 17, 2007

42% of companies covered by Wachovia Capital Markets, LLC
Equity Research are rated Outperform.
55% of companies covered by Wachovia Capital Markets, LLC
Equity Research are rated Market Perform.
3% of companies covered by Wachovia Capital Markets, LLC
Equity Research are rated Underperform.
Wachovia Capital Markets, LLC has provided investment banking services
for 38% of its Equity Research Outperform-rated companies.
Wachovia Capital Markets, LLC has provided investment banking services
for 33% of its Equity Research Market Perform-rated companies.
Wachovia Capital Markets, LLC has provided investment banking services
for 23% of its Equity Research Underperform-rated companies.

Additional Disclosures For International Clients

For additional disclosure information please go to: www.wachoviaresearch.com
The securities and related financial instruments described herein may not be eligible for sale in all jurisdictions or to certain
categories of investors. For certain non-U.S. institutional readers (including readers in the EEA), this report is distributed by
Wachovia Securities International Limited. For the purposes of Section 21 of the U.K. Financial Services and Markets Act 2000,
this report has been approved by Wachovia Securities International Limited. This research is not intended for, and should not be
relied on by, private customers. Please consult your Financial Advisor or the Wachovia Securities office in your area for additional
information. U.S. residents are directed to wachovia.com for investment and related services.
For Wachovia Securities International Limited's policy for managing conflicts of interest in connection with research, please go to:
www.wachoviaresearch.com/conflicts

6
21
 WACHOVIA CAPITAL MARKETS, LLC
Zimmer Holdings, Inc. EQUITY RESEARCH DEPARTMENT

Important Information for Australian Recipients

Wachovia Capital Markets, LLC ("WCM”) is exempt from the requirements to hold an Australian financial services license in
respect of the financial services it provides to wholesale clients in Australia. WCM is a registered broker-dealer registered with the
U.S. Securities and Exchange Commission, and a member of the New York Stock Exchange, the National Association of
Securities Dealers, Inc. and the Securities Investor Protection Corp. WCM is regulated under U.S. laws which differ from
Australian laws. Any offer or documentation provided to you by WCM in the course of providing the financial services will be
prepared in accordance with the laws of the United States and not Australian laws.

Additional Disclosures
WCM is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the New York Stock
Exchange, the National Association of Securities Dealers, Inc., and the Securities Investor Protection Corp. Wachovia Securities
International Limited is a U.K. incorporated investment firm authorized and regulated by the Financial Services Authority.
This report is for your information only and is not an offer to sell, or a solicitation of an offer to buy, the securities or instruments
named or described in this report. Interested parties are advised to contact the entity with which they deal, or the entity that
provided this report to them, if they desire further information. The information in this report has been obtained or derived from
sources believed by Wachovia Capital Markets, LLC, to be reliable, but Wachovia Capital Markets, LLC, does not represent that
this information is accurate or complete. Any opinions or estimates contained in this report represent the judgement of Wachovia
Capital Markets, LLC, at this time, and are subject to change without notice. Wachovia Capital Markets, LLC, and its affiliates
may from time to time provide advice with respect to, acquire, hold, or sell a position in, the securities or instruments named or
described in this report. For the purposes of the U.K. Financial Services Authority's rules, this report constitutes impartial
investment research. Each of Wachovia Capital Markets, LLC, and Wachovia Securities International Limited is a separate legal
entity and distinct from affiliated banks. Copyright © 2007 Wachovia Capital Markets, LLC.

SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

7
22
23
 Daily Letter | 1
17 May 2007

Zimmer Holdings
William J. Plovanic, CFA 1.312.674.4836
BUY william.plovanic@canaccordadams.com
ZMH : NYSE : US$90.59
Target: US$113.00 Anup Mehta 1.312.674.4989
anup.mehta@canaccordadams.com

COMPANY STATISTICS:
52-week Range: 52.20-94.38 Life Sciences -- Biomedical Devices and Services
Avg. Daily Vol. (000):
Market Capitalization (M):
1,410
21,669.1
TOTAL JOINTS ARE HIP AND EXCITING
EARNINGS SUMMARY:
AGAIN
FYE Dec 2006A 2007E 2008E Initiating coverage on Zimmer with a BUY rating and $113 price target.
Revenue (M): Q1 860.4 950.2A -
Q2 881.6 975.3 - Gender-specific products expected to bolster revenue growth through
Q3 819.8 910.6 - 2008. Zimmer is the innovator of gender-specific offerings with its knee
Q4 933.6 1,050.1 -
Total 3,495.4 3,886.3 4,286.7 product in 2006 and expected hip product in 2007. The idea seems to
have taken hold, and with pricing at a premium to standard implants, it
EPS: Q1 0.82 0.98A - is driving domestic results with OUS expected to benefit in 2008-2009.
Q2 0.81 0.97 -
Q3 0.76 0.91 - New product introductions in alternative bearing surfaces help Zimmer
Q4 1.02 1.16 -
catch up with the Joneses. CoC and MoM hips were introduced in late
Total 3.40 4.02 4.60
2006/early 2007, bringing Zimmer in line with the competition in terms
SHARE PRICE PERFORMANCE: of product breadth. We expect the introduction of alternative bearing
products will contribute to revenue growth for the next few years.

Positive operating profit drop-through at higher end of target range

implies upside to our current expectations. Management has a goal of
bringing 40-50% of every incremental dollar to the operating line (and a
track record to prove it). We are modeling for only 45% in 2007 and
44% in 2008, which leaves potential upside to current expectations.

Foreign exchange and pricing likely to be a tailwind rather than a

COMPANY SUMMARY:
Zimmer Holdings is a global leader in designing,
developing, manufacturing and marketing reconstructive
and spinal implants, trauma and related orthopedic
surgical products. Zimmer has operations in more than
24 countries around the world selling products in more
than 100 countries, and maintains close to 7,000
employees worldwide.
All amounts in US$ unless otherwise noted.
headwind for the near future. FX and pricing were drivers of the
orthopedic space in 2003 and 2004 and the bane of the industry in 2005
and 2006. Stabilizing price increases and a favorable contribution from
FX make us believe the industry is well positioned for the near term.
Where could we be wrong? We could be wrong if gender-specific ends
up showing sub-par clinical results and therefore adoption wanes. This
would result in a shortfall to top-line projections.
Valuation: Our 12-month price target of $113.00 is based on a PE of
24.5x applied to our 2008 EPS estimate of $4.60.

Canaccord Adams is the global capital markets group of Canaccord Capital Inc. (CCI : TSX|AIM)
The recommendations and opinions expressed in this Investment Research accurately reflect the Investment Analyst’s personal,
independent and objective views about any and all the Designated Investments and Relevant Issuers discussed herein. For important
information, please see the Important Disclosures section in the appendix of this document or visit
http://www.canaccordadams.com/research/Disclosure.htm.
24
 Daily Letter | 2
17 May 2007

WHO IS ZIMMER HOLDINGS?

Zimmer is a worldwide leader in designing, developing, manufacturing and marketing
reconstructive and spinal implants, trauma and related orthopedic surgical products.
Zimmer has operations in more than 24 countries around the world selling products in
more than 100 countries, and maintains close to 7,000 employees worldwide.

Zimmer was introduced to the public as a spin-off of Bristol-Myer Squibb in August 2001,
trading under the ticker ZMH on the New York Stock Exchange. Zimmer was selling in the
range of $28.00-29.00 and the business at the time was generating $1.2 billion in annual
revenues and just under $1.00 in EPS. Since the spin-off, Zimmer acquired Centerpulse to
become the market leader it is today in total joints. Currently, Zimmer is the purest-play
large cap orthopedic company, as it has remained focused on profitable organic growth.
Zimmer has grown to posting $3.5 billion in revenues and pro forma EPS of $3.40 in just
five years, with a 2001-2006 CAGR of 24% for revenues and 28% in EPS. Management
maintains its goal of positive drop-through, bringing 40-50% of every incremental revenue
dollar to the operating line.

The company continues to innovate in its market leadership role, first with a focus on
Minimally Invasive Surgery (MIS) for both hips and knees and now with gender-specific
solutions for first the knee, and secondly the hip.

Most recently, a change in top management occurred with both the CEO and CFO stepping
down after a successful run. However, new CEO David Dvorak and CFO Jim Crines are
both tenured executives of Zimmer that we feel are well positioned to carry on the torch
passed on by Ray Elliot (past CEO) and Sam Leno (past CFO).

WHY DO WE BELIEVE ZIMMER IS A BUY?

Investment overview
Gender Specific products expected to bolster revenue growth through 2008.

Zimmer was first to market with a gender-specific knee. At the American Academy of
Orthopedic Surgeons (AAOS) in 2006 Zimmer introduced its gender-specific knee (GSK) to
the market. GSKs are implants that are sized appropriately for different anatomies,
overcoming limitations of current standard sizes. Effectively Zimmer increased the number
of SKUs, but it also provided a better fit for the patient and more options for the surgeon.
At first many saw GSKs as a marketing ploy to mask an aging product line. However, GSK
products are quickly becoming the status quo in the industry with several players
immediately claiming similar elements of design built into existing products (Stryker with
Triathlon and Biomet with Vanguard) and/or developing GSK products of their own
(Wright Medical is launching the Stature Specific Knee). As of Q1/07, GSKs and high flex
composed 37% of US femoral components, with approximately 14,427 implants worldwide
(most GSK implants are in the US.) GSK continues to be introduced to the US market with
full release expected H207 (meeting full demand of existing Zimmer customers). Also of
note is the expected approval of Zimmer’s mobile bearing knee by Q4/07. While this
product is not gender-specific, it is differentiated in that J&J/DePuy is currently the only
company with an approved mobile bearing knee in the US. The rollout OUS of the GSK has
begun (to designing surgeons), with intensity expected to accelerate in H2/08. It is
important to note that GSK femoral components are garnering prices at or slightly above

25
 Daily Letter | 3
17 May 2007

high flex and that high flex femorals carry list prices that are 42% higher. Including all
knee components, a flex knee is priced approximately 30% higher than a standard knee.

Zimmer is now talking about a gender-specific hip. At AAOS in 2007, Zimmer unveiled two
femoral implants designed for the gender-specific market: ML Taper and Epoch Gender.
The ML Taper, which was designed to address neck length issues, is slated to be released
in Q4/07 with full introduction in the US markets in 2008. The Epoch gender stem, which
addresses stress shielding and osteoporotic bone, should be released in Q1/08 with full
introduction beginning mid-2008. International introductions are scheduled to begin one to
two quarters behind US introductions. While pricing has not yet been announced, we
would expect both the ML Taper and Epoch Gender femoral stems to carry price premiums
to current product offerings.

New product introductions in alternative bearing surfaces helps Zimmer catch up with the
Joneses.

Until late 2007, Zimmer was lacking in alternative bearing surface products for the US
marketplace. In late 2006 and Q1/07, Zimmer introduced its MetaSul Large Diameter Head
(LDH) metal-on-metal (MoM) hip implant and a ceramic-on-ceramic (CoC) hip implant. The
introduction of these two major products brought Zimmer into the 21st century, allowing
the company to effectively compete in the marketplace.

CoC, MoM & XLPE – Zimmer enters the 21st century. : In 2003 and 2004 Wright Medical,
Stryker and Encore Medical all received FDA approval to market ceramic-on-ceramic hip
implants. Other market participants followed suit with Zimmer being the last large cap
competitor (#2 market player with 27% of the market) to introduce a CoC implant in Q4/06.
Alternatively, players like Wright Medical and Biomet pushed MoM, with Wright being the
more aggressive company. Concurrently, most of the major players were introducing
highly cross-linked polyethylene liners. All of the alternative bearing surface products offer
the surgeon and patient more choices of lower wear, and therefore theoretically longer-
lasting implants. It is also important to note that all of these alternative bearing surface
technologies add a hefty premium to the list price (typically between 15% and 50% for a
single component, which results in total pricing increasing as high as 30% for a whole
system).

Hip resurfacing – entering through the back door: The newest hip product being
introduced is hip resurfacing. At the present time, Smith & Nephew is the only company
with a fully approved US product. Stryker is expected to be second to market with Corin’s
Cormet Hip Resurfacing System. Wright Medical is expected to follow Stryker (Wright
submitted its PMA three years ago and is still waiting for approval). Zimmer is far behind
the pack, having recently received approval to begin a clinical study. However, one must
understand that while all hip resurfacing systems must be approved via the PMA process,
there is a flaw in the approval system and therefore companies are able to gain separate
510(k) approvals for the two components that make up the system. The net impact of
separate 510(k) approvals is that a company is not able to market its product as a system,
but can market the components separately. Currently Biomet and Wright have such
separate approvals. Zimmer expects FDA approval of its femoral component (augmenting
the existing approved acetabular component) by Q3/07.

Positive operating profit drop-through at the higher end of management’s goal range
implies upside to our current expectations. We are currently expecting revenues of $4.287
billion in 2008 (versus consensus revenue of $4.236 billion excluding our estimate) and

26
 Daily Letter | 4
17 May 2007

EPS of $4.60. Our EPS estimate is $4.60 versus consensus of $4.58 and assumes 44%
positive drop-through. While management has not given 2008 guidance, they have
continually stated the goal of bringing 40-50% of every incremental revenue dollar to the
operating line, and therefore we are slightly below the mid-point of management’s stated
range. Given the higher expected revenue growth rate and potential mix shift to the US
(which is a higher margin business for Zimmer), we expect the positive contribution could
be closer to the 50% level. Keeping our revenue estimate unchanged and assuming 50%
positive drop through would result in EPS of $4.68, which is $0.08 higher than our current
estimate and $0.10 higher than current Street estimates. Furthermore, we believe there
could be further upside should the introduction of the gender-specific knee and hip line
outperform current expectations.

Small tuck-in acquisitions likely to bolster growth without breaking the bank. Zimmer
currently has a solid balance sheet with $228 million in net cash and is generating $160
million free cash flow per quarter. Previous management had stated (and continued to
state right to the end) that acquisitions in the future would be between $100 million and
$400 million (purchase price) and would likely be small, complementary product-line tuck-
in deals (aka Endius) in either spine, dental, biologics or hospital productivity consulting. It
is important to note that deals of this size pose minimal risk to management as cash
balances are currently earning low returns meaning a $100 million acquisition price would
only have to return about 5% pre-tax. Good examples of this strategy were the recent
acquisitions of Endius, a spinal implant company, and IP related to a new anterior cervical
plate.

Foreign exchange and pricing are likely to be a tailwind rather than a headwind for the
near future. In 2003 and 2004 (the recent golden years for orthopedics) pricing was
responsible for +2% to +3% to top-line growth while foreign exchange was responsible for
another 4% each year. In 2005, the tailwinds shifted to headwinds, with pricing increases
dropping to 1% and 0% worldwide and foreign exchange turning to flat and then to a
negative contribution. Reduced pricing increases were driven by price reductions in Japan
and Germany as well as contract pricing in the US. Specifically, in the US, discounts with
payors was exchanged for promised increases in volume; however, this ended up resulting
in discounts for the payors, but not increased volume for the manufacturers. It seems the
tougher times may at least be behind us for now, with YoY pricing increases stabilized at a
flat-ish pace. Foreign exchange rates are another story, however, as consistent forecasting
is not possible even by the professionals. That being said, foreign exchange is something
that can easily be watched and at current rates should be favorable through year-end
2007.

STOCK PERFORMANCE
Since July 2006, Zimmer’s stock has been in a strong upward trend, increasing over 70%
from a low of $52.20 to its current price of $89.30. In July, Zimmer’s stock reached a low
not seen since September 2003. On a valuation basis, Zimmer was trading at historical
lows in terms of PE and PEG not experienced since the early 1990s for large cap ortho
companies. The downdraft in the stock in 2005 and 2006 was caused by slowing top- and
bottom-line performance, a result of lower YoY pricing gains, a slowdown in elective
surgeries, and negative currency headwinds. These negative factors were augmented by a
subpoena in 2005 from the US Department of Justice (DOJ) for documents related to
consulting contracts, professional service agreements and other agreements between

27
 Daily Letter | 5
17 May 2007

companies and orthopedic surgeons. In 2006, the DOJ subpoenaed Zimmer to supply
documents pertaining to an antitrust investigation relative to pricing (a result of a
competitor’s email relative to potential price fixing). The net effect of the subpoena in 2006
was the oversold situation in July 2006 and subsequent rebound. Since Q2/06, Zimmer’s
financial performance and outlook has improved, which has driven the stock up over 70%.

Figure 1 ZMH recent stock performance

Source: StockCharts.com

COMPARATIVE VALUATION
According to our analysis, large cap orthopedic companies on average trade at a PEG of
1.5x (see Figure 23). At times of distress the group has traded down to a PEG of 1.0x, and
at times of optimism, the group has traded up to a PEG of 2.5x. Currently the group is
recovering from a time of distress (summer 2006) and moving closer to long-term
averages.

We believe Zimmer is in a cycle of outperformance with new products expected to drive

solid top-line growth and stable pricing and a favorable foreign exchange environment.
Despite this rosy outlook, we are applying only the average PEG multiple to our forward
numbers and not a premium for the sake of conservatism.

We are using the average PEG of 1.5x on 2006-2008 projected EPS growth of 16.3% to
generate a PE multiple of 24.5x. We are multiplying our 2008 EPS estimate of $4.60 by
24.5x to derive our 12-month price target of $113.

28
 Daily Letter | 6
17 May 2007

Figure 2: Matrix of discount rates and implied share price target

Comp Group
Trough Mean Peak
Target P/E/G multiple for ZMH common 1.0 1.5 2.5
Implied P/E Multiple on ZMH common 16.3 24.5 40.8
Implied Price Target on ZMH common $74.98 $112.47 $187.45

Financial Metrics Used in P/E Valuation Analysis

Broad large-cap Orthopedic Mean PEG Over Time 1.5x
Extimated three-year forward EPS CAGR for ZMH 16.3%
ZMH C2008E GAAP EPS $4.60

Source: Canaccord Adams, Capital IQ

Figure 3: Zimmer (ZMH) five-year PE ratio

ZMH 5 Year P/E
50

P/E/G: 0.90
45 AVG P/E: 28.37

40

35

30

25

20

15
6/28/2002

8/28/2002

2/28/2003

4/28/2003

6/28/2003

8/28/2003

2/28/2004

4/28/2004

6/28/2004

8/28/2004

2/28/2005

4/28/2005

6/28/2005

8/28/2005

2/28/2006

4/28/2006

6/28/2006

8/28/2006

2/28/2007
10/28/2002

12/28/2002

10/28/2003

12/28/2003

10/28/2004

12/28/2004

10/28/2005

12/28/2005

10/28/2006

12/28/2006
Source: Thomson ONE, company documents and Canaccord Adams estimates

RISKS
New management has difficulty maintaining business focus
In May 2007, Ray Elliot and Sam Leno officially retired from their positions of CEO and
CFO, respectively. They are being succeeded by David Dvorak (former group president,
global business and CLO) and James Crines (former senior vice president, finance,
operations and corporate controller and CAO). Though both have been within the Zimmer
organization since 2001, their ability to maintain a seamless transition will be put to the
test in the coming quarters as the company is trending toward marked improved
performance in 2007 following a disappointing 2006.

New products fail to gain traction

Zimmer will be launching 20 new products in 2007 across its business units. Along with
the continued expansion of its Trabecular Metal and Gender Solutions platforms, the
company will be introducing a large head metal-on-metal hip, and the DeNovo MT

29
 Daily Letter | 7
17 May 2007

cartilage repair graft. Each of these products is expected to contribute to top-line growth in
H2/07 and F2008. Poor clinical results or unsuccessful marketing that limits unit sales will
impact the company’s ability to maintain future guidance.

Zimmer pipeline products subject to FDA regulations

The company has an expansive product pipeline that includes over 100 research and
development projects. Zimmer is looking to expand its Gender Solutions product and is
expecting to be enrolling patients in its IDE for the Durom resurfacing product.
Additionally, there are a number of products that have been submitted to the FDA for
approval, including mobile bearing knee implants. With the large number of products
under the discretion of the FDA, the company is forced to abide by FDA’s timeline.

Zimmer is involved in two investigations by the Department of Justice (as are the other
major orthopedic companies).
In March 2005, Zimmer (and the rest of the major orthopedic companies) were
subpoenaed to supply documents relative to consulting contracts, professional service
agreements and other financial arrangements between physicians and the company. No
update has been given on the status of the investigation expect that Zimmer is cooperating
fully with the federal authorities on this matter. In 2006, Zimmer received another
subpoena for documents related to possible antitrust violations (think price fixing). This
request was the result of a competitor’s sales rep (Smith & Nephew) sending an email to
competitors to share bidding information on an upcoming contract. According to
management, no response was sent to the sales rep and no such collusion took place.

Risks to our thesis

· Gender-specific products are not adopted.

· New management does not at least maintain the status quo.

· Reimbursement for Dynesys evaporates as payors wise up to off-label use of the

product.

30
 Daily Letter | 8
17 May 2007

COMPANY OVERVIEW
Products
Zimmer competes in a number of orthopedic and non-orthopedic markets. The company’s
product catalog spans the needs of surgeons, from surgical tools to devices. Though the
company is not the market share leader in any particular product vertical, its expansive
sales force and distribution network place the firm in the top 1 or 2 in knees and hips and
between 3 and 5 in most other categories.

Zimmer’s current position focuses on orthopedics, having significant market share in the
reconstructive hip and knee markets. In the last year, the company has launched products
on two major technology platforms:

1. Trabecular Metal and

2. Gender Solutions.

Reconstructive products

1. Trabecular metal is a porous titanium material that resembles natural bone’s physical
and mechanical properties. The structural integrity of the material withstands
physiologic loading, necessary for implants in major joints like the hip and knee.
Trabecular metal data shows 2-3x improved bone ingrowth over comparable porous
material implants as well as greater bone-implant friction, yielding greater implant
stability upon placement. The bone ingrowth in facilitated by the pore size and high
volume porosity, which creates the necessary foundation for vascularization and soft
tissue ingrowth. The company has launched a number of Trabecular Metal implants
worldwide for hip, knee, shoulder and spine. We believe Zimmer will continue to
expand its offerings on this platform, and we estimate that implants based on the
technology demand higher ASPs. For the Q1/07, trabecular metal products generated
$51 million in revenues for the company.

2. The Gender Solutions platform is based on the concept that implants must be designed
to better fit the physiological demands of patients based on their gender. The company
first introduced this product with its knee replacement system. Implementing MIS
surgical techniques, the Gender Solutions knee has a unique shape and design based
on the physiological differences in the shape and motion of the knee joint in men and
women. The company plans to expand the concepts and technology into its other
orthopedic implant categories, with a hip product currently in development. The
concept of implants redesigned for female patients was not expected to generate the
revenues and industry recognition that occurred during 2006. However since
Zimmer’s launch of Gender Solutions, Stryker has followed suit with its Triathlon
system (claiming it was developed with gender-specific sizing in mind) and Wright
Medical launched its Stature Specific in Q1/07. We believe this is a novel idea that will
continue to drive top-line growth for Zimmer’s knee franchise in 2007.

31
 Daily Letter | 9
17 May 2007

Figure 4: Zimmer Holdings reconstructive products

Hip
Cemented Stems Implants of varying material and design, affixed to femur using bone cement
Fracture Stems Various implants designed to treat femoral neck fractures
Acetabular Implants Designed for mobility and bone ingrowth. Metal-on-metal and metal-on-poly options
MIS Hip Hip revision or replacement with modified techniques and instrumentation
Porous Stems Implants of varying material and design which yields fixation and bone ingrowth without cement
Alternative Bearing Polyethylene acetabular cup liners designed to resist wear
Trabecular Metal Hip stem & acetabular cup implants made of porous titanium with 2-3x improved bone ingrowth
Total RevisionAbility System of instrumentation and implants designed for use in hip revision surgery
Knee
Gender Solutions Implants designed for better fit and durability based on patient gender
HTO™ System High tibial osteotomy system to realign damaged knee
Cruciate Retaining Knee implants that allow surgeon to retain cruciate ligament
Tibial/Patella Implants Implants to replace tibial plane or patella
Patella-Femoral Implant for osteoarthritis of anterior knee or for total knee arthroplasty
MIS Knee Knee revision or replacement with modified techniques and instrumentation
Unicompartmental Devices for replacement of single femoral condyle
Revision Implants and instrumentation for knee which requires additional stabilization

Source: Company reports

Spine products

Zimmer is a moderately small player in the spine market, with products focused in the
area of lumbar and cervical fusion. The recent addition to Zimmer’s spine product portfolio
is the Dynesys, which is a posterior dynamic stabilization system that allows for
preservation of motion rather than fusion. Though the motion is minimal and limited, the
potential benefit to patient outcomes is significant, and revision to a basic fusion system is
very easy. Outside of the US, Zimmer markets the Dynardi lumbar total disc replacement
device. The company currently does not have any plans to bring the product to the US
market. The noteworthy addition to the Zimmer Spine business is the acquisition of
Endius, a company focused on MIS solutions for spinal procedures. The products acquired
in the acquisition should give Zimmer some fuel to drive spinal implant sales in 2007 and
2008.

Figure 5: Zimmer Holdings spine products

Spine
Cervical Fusion devices for the cervical spine
Lumbar Fusion devices for the lumbar spine
Dynesys Screw and rod system designed to preserve motion

Source: Company reports

Trauma products

Zimmer offers an array of trauma products for the upper and lower extremities, including
external fixation systems. The company also has a line of knotless suture anchors in both
titanium and resorbable forms.

32
 Daily Letter | 10
17 May 2007

Figure 6: Zimmer Holdings trauma products

Trauma
Osteonecrosis Intervention Implant Implant used to manage osteonecrosis of the femoral head
Intrameduallary Nail System Implant systems designed to treat femoral and tibial long bone fractures
Femoral Fixation System Implants for femoral long bone fractures
Plates Various plates and screws for small to reconstructive fractures
Locking Plates Plates with locking screw technology for fractures in the tibia and femur
External Fixation Systems External fixation for the upper and lower extremities
Soft Tissue Attachment Titanium and resorbable suture anchors to effectively reattach soft tissue to bone
Cannulated Screws Various cannulated screws for small bone fixation

Source: Company reports

Extremities products

Zimmer is a market leader in shoulder implants and continues to improve its share with
new and innovative product offerings. The company has a broad range of shoulder
implants as well as an elbow implant and a limited line of soft tissue repair products.

Figure 7: Zimmer Holdings extremity products

Shoulder
Anatomical Shoulder™ Modular shoulder implant can be tailored to patient anatomy
Anatomical Shoulder™ Inverse/Reverse System Allows surgeon to convert hemi- or total shoulder arthroplasty into inverse/reverse shoulder
Bigliani/Flatow® Total shoulder replacement system
Select® Shoulder Total shoulder replacement system
Trabecular Metal Stem Humeral stem designed with trabecular metal material for improved bone ingrowth
Trabecular Metal Reverse Shoulder System Reverse shoulder system designed with trabecular metal material for improved bone ingrowth
Elbow
Coonrad/Moorey Total elbow replacement system

Source: Company reports

Orthobiologics products

Zimmer’s orthobiologics products are not major revenue generators, but rather
complement the company’s spine and dental products. In spinal and dental procedures,
the need for allograft or bone void fillers is common, and with these products Zimmer is
able to address the full needs of spinal and dental surgeons utilizing Zimmer systems.

Figure 8: Zimmer Holdings orthobiologics products

Orthobiologics
Puros Accugraft Cortical and cancellous bone allograft used in ALIF
Puros Allograft Allograft bone products for applications in the spine
Puros Symmetry PLIF Single donor allograft spacer for use in PLIF
CopiOs™ Calcium phosphate bone void filler. Porous collagen scaffold for bone healing.

Source: Company reports

Dental products

Zimmer has a broad product offering in the dental market with implants, prosthetic, and
regenerative products.

33
 Daily Letter | 11
17 May 2007

Figure 9: Zimmer Holdings dental products

Dental
Implants Implants and instruments to ensure efficacy and optimum esthetics
Prosthetics Temporary and permanent prosthetics for optimum esthetics
Regenerative Full line of collagen membranes and bone grafts for bone and tissue healing

Source: Company reports

Market
We estimate that the orthopedic device industry generated $24.0 billion in worldwide
revenues during 2006. The revenues being generated by devices specialized for use in the
spine are growing at a staggering 21% pace, according to our estimates, while the rest of
the industry is growing closer to a 10% pace. The entire orthopedic device industry grew
an estimated 10% from $22.0 billion in 2005.

Figure 10: 2006E worldwide orthopedics market

2006 WW Orthopedics Market

Est. Value of $24B, Growing 10%

Bone Stimulation
1.9%
Orthobiologics Bone Cement
Arthroscopy
6.1% 0.5%
13.2%
Other Spine Bracing
1.9% 5.0%
Spine - Metal
18.4%

Total Joint Market

Trauma 41.1%
11.9%

Source: Company reports and Canaccord Adams estimates

Reconstructive implants

We estimate the reconstructive implant market generated sales of $9.7 billion in 2006, and
continues to grow at an 8% pace. Within the reconstructive segment, we believe hips
totaled $4.4 billion, growing at 6%; knees were $4.9 billion, growing at 9%; and the
remaining extremities (shoulder, elbows, ankles, small extremities) were $452 million,
growing at 17%.

For 2006, the top three players in the hip market were Johnson & Johnson, Zimmer
Holdings and Stryker. There has been little change in the market landscape since 2005,
and we do not expect any significant changes to the landscape in 2007. The primary

34
 Daily Letter | 12
17 May 2007

growth opportunity in the segment will be the introduction of hip resurfacing to the
continuum of care. Hip resurfacing is approximately 10% of the OUS market, and in 2006
Smith & Nephew became the first company to have an approved resurfacing product in the
US. Stryker (through Corin) and Wright Medical have both submitted hip resurfacing
products to the FDA for approval, and we believe Stryker is likely well positioned to gain
approval and launch their product during 2007 while Wright’s approval remains
uncertain.

Figure 11: 2006E worldwide hip market

2006 WW Hip Market

Est. Value of $4.4B, Growing 6%

ENMC
0.5%
EXAC JNJ
0.4% 30.3%
WMGI
2.8%
SNN
8.4%

SYK
BMET 20.9%
9.6%

ZMH
27.1%

Source: Company reports and Canaccord Adams estimates

The top three players in the knee space in 2006 were Zimmer Holdings, Johnson &
Johnson and Stryker. The major product introduction for 2006 was the modified knee
design to account for the physical variance in patients based on size and gender. Stryker
and Zimmer were the first to introduce the concept to the market, and many companies
will likely follow suit in 2007. We believe the gender/stature specific knee product
offerings, along with improvements to MIS knee arthroplasty, will drive implant sales in
2007.

35
 Daily Letter | 13
17 May 2007

Figure 12: 2006E worldwide knee market

2006 WW Knee Market

Est. Value of $4.9B, Growing 9%

WMGI
1.9%
BMET SNN EXAC
11.7% 10.5% 1.1%
ENMC
0.5%

ZMH JNJ
30.0% 24.2%

SYK
20.1%

Source: Company reports and Canaccord Adams estimates

Spinal market

Medtronic, Johnson & Johnson and Synthes continued their dominance of the spinal
implant market in 2006, capturing an estimated 68.7% of the segment’s revenues. There
are a growing number of smaller companies in the space that are racing to market motion
preservation spinal implants. There is a great deal of IP that is involved in clinical trials,
with a number of products positioned to reach the market within the next 12-36 months.
Larger companies have been acquiring the smaller firms that show strong revenue
potential, with the most notable acquisition in 2006 being Kyphon’s purchase of St. Francis
Medical. Though spinal fusion remains the gold standard of care, we believe that motion
preservation devices are poised to redefine the current algorithm for spinal care. More
importantly, we believe that companies looking to remain competitive in the spinal implant
market will need a product portfolio that offers motion preserving products.

36
 Daily Letter | 14
17 May 2007

Figure 13: 2006E worldwide spine market

2006 WW Spine Market

Est. Value of $4.8B, Growing 21%
ZMH
3.8%
BMET
2.1%
KYPH ENMC
Synthes SYK
8.5% 0.2%
14.3% 7.2%
Others
5.8%
ARTC
0.6%

ATEC
JNJ 1.4%
19.2%
OFIX
1.8%
MDT
35.2%

Source: Company reports and Canaccord Adams estimates

Figure 14: 2006E US spinal implant market

2006 U.S. Spinal Implant Market

Est. Value of $3.8B, Growing 15%
Nuvasive
Alphatec
Biomet 2.4% Orthofix (Blackstone) Globus 1.4% St. Francis/Kyphon
2.1% 2.0% 2.2% 1.1%
Abbot
Others
2.8%
Zimmer 7.3%
4.0%
Stryker
6.5%

Synthes
12.4%

MDT
DePuy/JNJ
42.6%
15.7%

Source: Company reports and Canaccord Adams estimates

37
 Daily Letter | 15
17 May 2007

Trauma market

In 2006, Synthes remained the leader in the trauma market, generating 46.8% of the
estimated $2.8 billion in worldwide sales. Stryker and Smith & Nephew were a distant
second and third, respectively. The segment is growing at an estimated 8%.

Figure 15: 2006E worldwide trauma market

2006 WW Trauma Market

Est. Value of $2.8B, Growing 8%

ZMH BMET
4.8% SNN
6.9% 11.9% Others
2.5%
SYK
18.2%

JNJ
6.4%
Synthes
OFIX 46.8%
2.5%

Source: Company reports and Canaccord Adams estimates

Orthobiologics market

The biologics market continues to be dominated by Medtronic, with Synthes and Johnson
& Johnson a distant second and third, respectively. Medtronic’s biologics revenues are
primarily from their bone morphogenic protein (BMP) product called INFUSE. Stryker’s
OP-1 is the only other product in the BMP market. Based on our estimates, Stryker held
only13% of the $654 million BMP market in 2006. Precision-machined bone and allograft
products are the next highest grossing segment of the orthobiologics market with total
sales of approximately $370 million. Zimmer has a very small orthobiologics position in
the market, consisting primarily of bone allograft implants. These offerings are
complements to its extensive spine and trauma product portfolio.

38
 Daily Letter | 16
17 May 2007

Figure 16: 2006E worldwide orthobiologics market

2006 WW Orthobiologics Market

Est. Value of $1.4B, Growing 22%

Osteotech RTIX
6.7% 0.2%
Tutogen Wright Medical
1.9% 2.5%
Synthes/MTF
Stryker 15.2% IsoTis
6.7% 2.5%
Alphatec/Cortek DePuy
0.4% 8.5%

Others
3.6%
Biomet
2.1%
Medtronic/RTI
46.5% OrthoVita
3.3%

Source: Company reports and Canaccord Adams estimates

Extremities market

Zimmer was the market share leader in the total extremities market during 2006,
generating 19% of the estimated $452 million in extremity sales. The market is growing at
an estimated 17% annually, and we believe that several companies are beginning to
recognize this segment of orthopedics to be a relatively untapped source of revenues.

39
 Daily Letter | 17
17 May 2007

Figure 17: 2006E worldwide extremities market

2006 WW Extremities Market Share

Est. Value of $452M, Growing 17%

EXAC
1%
BMET SNN WMGI
2% Encore Medical
16% 11% 1%
IART
ZMH 6%
19%

Other
SYK 22%
5% JNJ
17%

Source: Company reports and Canaccord Adams estimates

Figure 18: 2006E worldwide extremities product mix

2006 WW Extremities Market Products

Elbow Finger
7% 8%

Other
36%
Shoulder
49%

Source: Company reports and Canaccord Adams estimates

40
 Daily Letter | 18
17 May 2007

Dental market

The dental market reached $1.9 billion in 2006 and grew 19% from 2005. The dental
market is similar to orthopedics in that metal implants are placed into bone. Bone must
grow onto and or into the metal for the implant to stabilize. In addition, orthobiologics are
used to regenerate both hard and soft tissue. In addition, an aging population drives
growth of the dental industry for obvious reasons. One major difference between the dental
market and orthopedics is reimbursement. Orthopedics is third-party reimbursed while
dental is typically private pay. In orthopedics, implants are typically paid for by the
hospital, but the hospital is receiving payment from insurance carriers or the government.
In terms of the dental market, it is the physician that is paying for the implants, but that
physician is typically being reimbursed directly from the patient.

Figure 19: 2006E worldwide dental market

2006 Worldwide Dental Market

Est. Value of $1.9B, Growing 19%

Others
Nobel Biocare
2%
39%
BioHorizons
1%
LifeCcore
2%

Dentsply
8% Straumann
25%
Zimmer
9% Biomet (3i)
14%

Source: Company reports and Canaccord Adams estimates

Reimbursement
Below are the current approved DRG codes relevant to Zimmer’s business for 2007, along
with the estimated cash reimbursement per procedure. Between 2006 and 2007,
reimbursements for orthopedic procedures saw an average increase close to 4%.
Reimbursements are based on a large amount of demographic data, including average
incomes within geographies and the typical procedures performed at a given hospital. The
data presented below is an estimation of average payouts nationwide. It is important to
note that Zimmer’s orthopedic devices are not typically reimbursed individually, but are
covered under the general DRG code for the whole procedure. Furthermore, Zimmer’s
products cost only a fraction of what a hospital is reimbursed, and as a result pricing does
not tend to be an issue.

41
 Daily Letter | 19
17 May 2007

Figure 20: 2007 CMS reimbursement

2007
Description Reimbursement
Arthroscopy Soft tissue procedures with complications and comorbidities $8,430.86
Soft tissue procedures without complications and comorbidities $4,454.58
Arthroscopy $5,026.46
Spine Spinal disorders & injuries $7,042.01
Combined anterior/posterior spinal fusion $32,925.61
Spinal fusion except cervical with complications or comorbidities $19,737.17
Spinal fusion except cervical without complications or comorbidities $15,450.12
Back and neck procedures except spinal fusion with complications or
comorbidities $7,168.17
Back and neck procedures except spinal fusion without complications
or comorbidities $4,762.24
Cervical spinal fusion with complications or comorbidities $13,144.49
Cervical spinal fusion without complications or comorbidities $9,083.93
Spinal fusion excluding cervical with curvature of the spine or
malignancy $27,828.83
Total Joint Bilateral or multiple major joint procs of lower extremity $15,706.59
Limb reattachment, hip and femur proc for multiple significant trauma $18,124.93
Knee procedures with principle diagnosis of infection with complications
or comorbidities $13,649.67
Knee procedures with principle diagnosis of infection without
complications or comorbidities $7,384.31
Knee procedures without principle diagnosis of infection $6,432.38
Major joint replacement or reattachment of lower extremity $10,275.78
Revision of hip or knee replacement $13,085.03
Trauma Hand procedures for injuries $5,146.94
Other OR procedures for injuries with complications or comorbidities $13,193.10

Other OR procedures for injuries without complications or comorbidities $5,428.22

Traumatic injury age>17 with complications or comorbidities $4,020.75
Traumatic injury age>17 without complications or comorbidities $2,738.41
Traumatic injury age 0-17 $1,570.35
Lower extrem & humer proc except hip, foot, femur age>17 with
Extremities complications or comorbidities $8,819.70
Lower extrem & humer proc except hip, foot, femur age>17 without
complications or comorbidities $5,705.38
Lower extrem & humer proc except hip, foot, femur age 0-17 $3,096.23
Major shoulder/elbow proc, or other upper extremity proc with
complications or comorbidities $6,063.71
Shoulder, elbow or forearm proc, excluding major joint proc, without
complications or comorbidities $4,437.51
Foot procedures $6,605.60
Major thumb or joint proc, or other hand or wrist proc with
complications or comorbidities $5,965.98
Hand or wrist proc, excpect major joint proc, without complications or
comorbidities $3,731.71
Local excision and removal of internal fixation devices of hip & femur $6,915.84
Fractures of femur $4,247.23
Fractures of hip & pelvis $3,973.70
Local excision and removal of internal fixation devices of hip & femur
without complications or comorbidities $5,317.57

Source: Centers for Medicare and Medicaid Services & Canaccord Adams

42
 Daily Letter | 20
17 May 2007

Management team
Zimmer recently announced two major management changes with the appointment of
David Dvorak as president and CEO, and James Crines as CFO. It is important to note that
the changes were not a surprise as Ray Elliot, past CEO, announced his retirement last
year and Sam Leno, past CFO, had worked with Mr. Elliot since the Zimmer spin-out from
Bristol-Myers Squibb. While the new management team has not yet built a track record of
their own, it is also important to note that both Mr. Dvorak and Mr. Crines have been with
the company for at least five years. We believe time will tell the quality of the new
members of management, but it is our belief that the table has been set for the next 12-24
months, giving them enough time to plan the company’s next strategic moves.

David Dvorak – President and Chief Executive Officer

Mr. Dvorak assumed his position as president and CEO in May 2007, succeeding Ray Elliot
who held the role for 10 years. Mr. Dvorak joined Zimmer in December 2001 shortly
following the spin-off from Bristol-Myers Squibb. Prior to joining Zimmer, he was senior
vice president, general counsel and secretary for STERIS Corporation, an Ohio-based
leader in medical products sterilization and contamination prevention products and
services.

Cheryl Blanchard, Ph.D. – Senior VP, Research & Development and Chief Scientific Officer

Dr. Blanchard joined Zimmer in October 2000 as director, research, and was subsequently
promoted to vice president, research and biologics, and more recently vice president,
corporate research and clinical affairs. Prior to joining Zimmer, she served in manager,
professor and fellow roles at the Southwest Research Institute, the University of Texas
Health Science Center and Oak Ridge National Laboratory, respectively.

Sheryl Conley – Group President, Americas and Global Marketing, Chief Marketing Officer

From October 2003 to December 2005, Ms. Conley served as president of the Global
Products Group. From September 2002 to October 2003, Ms. Conley served as president of
Zimmer Reconstructive and from May 2000 to September 2002, she served as vice
president, global brand management and commercialization, where she was responsible
for Zimmer's worldwide branding, marketing and new product development efforts.

James Crines – Executive VP, Finance, Chief Financial Officer

Mr. Crines assumed his position as executive vice president, finance, and CFO in May
2007. Since May 1999, Mr. Crines has served in a variety of senior roles within the
Zimmer organization, ranging from director of finance and logistics, Japan, to his most
recent position as senior vice president, finance, operations and corporate controller and
chief accounting officer. Prior to joining Zimmer from its former parent, Mr. Crines served
in financial management roles at American Cyanamid and as a senior auditor with
PricewaterhouseCoopers.

Jon Kramer – President, US Sales

Jon E. Kramer joined Zimmer in 2001 as area vice president for the southeast region and
was promoted to vice president, U.S. sales, in October of 2003. Mr. Kramer has nearly 20
years experience in orthopedics, including positions as vice president of sales with Implex
and vice president of sales and marketing with Osteonics.

43
 Daily Letter | 21
17 May 2007

Distribution strategy
Zimmer Holdings maintains operations in over 24 countries and markets its products in
over 100 countries. Marketing efforts are focused on targeted audiences, which include
musculoskeletal surgeons, neurosurgeons, oral surgeons, dentists, hospitals, distributors,
healthcare dealers and, in their capacity as agents, healthcare purchasing organizations or
buying groups. Zimmer operations are divided into three major geographic areas: the
Americas, Europe and Asia Pacific.

The company markets and distributes its products through three principal channels:

1. direct to surgeons or health care institutions such as hospitals.

2. stocking distributors (healthcare dealers in the Asia Pacific market).

3. direct to dental practices and dental labs.

Direct channel sales represented 80% of revenues, or $2.8 billion in 2007. It is important
to note that Zimmer considers its independent agents/reps as direct channel sales.

FINANCIAL OVERVIEW
Recent results
For Q1/07, Zimmer Holdings reported revenues of $950.2 million and EPS of $0.98,
exceeding consensus estimates of $934 million and $0.93. Sales were driven by strong
growth across product categories, as the company's reconstructive business continues to
reaccelerate with the help of Gender Solutions Knees, which placed over 14,000 units.
Sales in the quarter were up 10% from $860.4 million in the year ago quarter. Foreign
currency contributed $20 million in the quarter, or a 2% contribution, and on a constant
currency basis global growth was 8.1%. Volume and mix contributed 8.3% to growth,
which was offset by a 0.2% reduction in price. The negative pricing is a result of
reimbursement changes in Japan that have affected the entire orthopedics industry. The
company had a disappointing C2006, which was influenced by an overall slowdown in the
orthopedics industry. With industry sales rebounding, an array of new products set to
reach market over the next 24 months, and easy comparisons from 2006, we believe
Zimmer is well positioned to outperform its peers in 2007.

· Reconstructive: sales grew 11% (+9% xFx) to $798 million from $718 million in the
year-ago quarter. Performance was driven by the continued success of the company's
Gender Solutions Knee, which was implanted in over 14,000 patients during the
Q1/07, surpassing management's previous guidance of 12,000 units being placed. For
the quarter, knee sales were up 11% (+9% xFx) to $408 million from $366 million in
Q1/06. Domestic knee sales improved by 10% while Europe and Asia grew by 7% and
11% xFx, respectively. The company is making 180 Gender sets per month and
continues to be short of demand for the product. Looking to the future of the Zimmer
Knee line, the company hopes to launch its DeNovo NT cartilage tissue repair product
by year end 2007and has filed a PMA with the FDA for its LPS and LPS-Flex mobile
bearing knee and expects to receive product approval by year end 2007. Timing for
the mobile bearing products should allow the company to see maintained growth in its
knee business as Gender Solutions Knee growth begins to plateau in 2008. Hip sales
grew 8% (+5% xFx) in the quarter to $317 million from $293 million in the year-ago
quarter. Hip volume was strong with the Trabecular Metal products yielding 10%

44
 Daily Letter | 22
17 May 2007

domestic growth; however, global growth was offset by the negative 8.5% pricing
change driven by Japan's reimbursement changes. The company has a strong line of
hip offerings and a robust pipeline, which we believe will maintain strong growth
through 2007 and 2008. The company's Trabecular Metal stems and revision system
along with the recently launched MIS hip systems have been very well received in the
surgeon community, and Zimmer has received 510(k) clearance for its large diameter
head metal-on-metal device, which should give the line additional strength. The
company is moving ahead with its IDE trials for the Durom hip resurfacing product.
Hip resurfacing is fairly new to the US market, with Smith & Nephew having the only
approved product, but we believe the technology is the most significant innovation for
hips in recent memory, as it is already amounting to a $75 million run rate product for
Smith & Nephew in 2007. Lastly, we would anticipate a launch of a Gender Solutions
Hip system in 2008.

· Extremities: sales grew by 32% (+30% xFx) to $25 million from $19 million in Q1/06.
Strong sales were driven by Trabecular Metal Shoulder implants as well as sales of the
reverse shoulder.

· Dental: Sales improved by 22% (+21% xFx) to $49 million from $40 million in the
year-ago quarter. The solid performance in the quarter was provided by the success of
dental implants as well as sales of dental grafts.

· Trauma: growth of 7% (+6% xFx) pushed sales to $50 million from $47 million in the
year ago quarter. The company is seeing strong sales for its new locking plates and
screws, but was disappointed by revenues from trauma nail products.

· Spine: sales of $47 million represent 8% (+7%) growth from $43 million in the Q1/06.
Though the Dynesys dynamic stabilization system is performing well, sales in this
business unit are decelerating. We do however expect the February acquisition of
Endius to provide some additional revenue growth for 2007 as it both fills in product
gaps and contributes new surgeons to the mix.

Gross margin in the quarter improved to 78.3% of sales from 78.0% in Q1/06. The
company continues to improve its control over the COGS line, and we would expect GM to
improve to 78.2% for F2007, up from the 77.7% level in F2006. Gross margins are likely to
benefit from both a geographical and product mix shift.

Operating profit for the quarter was $330 million or 35% of sales versus $288.7 million or
34% of sales in Q1/06. Major integration costs associated with the Centerpulse and Implex
acquisitions are completed with minor charges expected going forward.

· R&D: Costs totaled $52.3 million or 5.5% of sales, flat as a percentage of sales from the
year-ago quarter. The company has over 100 development projects in its pipeline,
including: 23 hip, 19 knee, 21 trauma, and 18 spine (excluding projects acquired
through Endius). We expect spending to remain near 5.5% of sales going forward.

· SG&A: Expenses totaled $361.6 million or 38.1% of sales, an 80 bps improvement

from the year ago quarter. We are seeing that Zimmer is gaining operating leverage
both from economies of scale as well as effective cost controls.

In February 2007 Zimmer announced its acquisition of Endius, a leading manufacturer of

MIS spine solutions. The cash outlay for the acquisition was not disclosed; however,
management believes it will be dilutive to F2007 EPS by $0.01. Industry sources lead us to

45
 Daily Letter | 23
17 May 2007

believe that Zimmer paid close to $75 million for the company. We believe this is an
incremental positive for the company's spine business, which continues to be a small
presence in a fast-growing segment of the orthopedic industry. By our estimates, Zimmer
currently has a 3.8% share in the global spine market and a 4.0% share in the US spine
metal implant market. Based on the acquisition, it seems as though the company believes
offering MIS solutions is the most immediate opportunity to improve sales growth for its
spine business.

Cash and equivalents for Q1/07 were $328.4, and the company continues to maintain its
$100 million in Japanese debt due to favorable interest rates. Operating cash flow in the
quarter was $213 million and free cash flow was $160 million. During the quarter, the firm
repurchased 2.1 million shares of stock for an average price of $83.18, and $1.024 billion
remains in the budget for share repurchases through the end of 2008.

Significant events from 2006

Q1/06

· For the quarter, Zimmer reported revenues of $860.4 million and pro forma EPS of
$0.82. Revenues for the quarter improved by 3.9% (+7.3% xFx) from $828.5 million in
Q1/05 but were below consensus expectations for $875.2 million. Pro forma EPS grew
9.6% from $0.75, and were slightly ahead of consensus expectations of $0.81. The
company’s growth was fueled by dental and spine sales, which were offset by the
negative impact of foreign exchange.

· The company announced its contract with HCA stipulating that Zimmer will provide
implants to HCA member hospitals through 2011. The contract requires HCA to
maintain revenue levels to attain product discounts and also creates a base for Zimmer
to release future products and instrumentation.

· In March, Zimmer launched its Gender Specific knee system, which offers a redesigned
implant to better meet the varying physical requirements between male and female
patients. This is the first major development in the company’s aging knee portfolio and
is expected to drive sales growth in the segment through 2006.

Q2/06

· The company reported revenues of $881.6 million and pro forma EPS of $0.81 during
Q2/06, improving from $846.8 million and $0.80 in the year ago quarter. Year over
year revenue growth was 4.1% (+5% xFx). Reported revenue was below Street
expectations of $890.3 million, and pro forma EPS fell short of the $0.82 consensus
estimate. Growth in the company’s trauma, spine and dental units was offset by weak
growth in the reconstructive business.

Q3/06

· A DOJ investigation was announced regarding potential price collusion. It later was
found out that a Smith & Nephew rep was the source of an email requesting price
collusion. Management states that no steps were taken to act on the sales rep’s email.

· Zimmer Holdings reported revenues of $819.8 million, growing 8% (+7% xFx) from
$762.5 million in Q3/05. Revenues were well below the consensus estimate of $829.6
million. Pro forma diluted EPS were $0.76, growing 13% from the previous year, and
were above the consensus estimate of $0.75. The quarter showed a rebound in

46
 Daily Letter | 24
17 May 2007

reconstructive sales growth with double-digit growth in dental and extremities sales.
Foreign currency had a positive effect of $5 million for the quarter.

Q4/06

· Zimmer Holdings reported revenues of $933.6 million, growing 10% (+8% xFx) from
$848.3 million last year, and exceeded the consensus estimate of $925.8 million.
Diluted EPS were $1.02, growing 18% from the previous year's EPS of $0.86, and
were above consensus estimate of $0.99. The quarter showed a resurgence in knee
sales, with significant double-digit growth in dental and extremities sales. Foreign
currency had a positive effect of $21 million, or 2.4%, for the quarter. Price had a
small positive effect of 0.4%, with volume and mix contributing 7.2%, excluding foreign
exchange effects.

· Management provided F2007 guidance for revenues of $3.85 billion (+10% YoY) and
EPS of $3.95 (+15% YoY).

Q1/07

· For Q1/07, Zimmer Holdings reported revenues of $950.2 million and EPS of $0.98,
exceeding consensus estimates of $934 million and $0.93. Sales were driven by strong
growth across product categories, including the continued reacceleration of the
reconstructive business. Sales in the quarter were up 10% from $860.4 million in the
year-ago quarter. Foreign currency contributed $20 million in the quarter, and on a
constant currency basis global growth was 8.1%. Volume and mix contributed 8.3% to
growth, which was offset by a 0.2% reduction in price.

· Zimmer announced the acquisition of Endius, Inc., a private company that develops
MIS products and techniques for the treatment of the spine. Products acquired through
the purchase include the Atavi, TiTLE and Minit systems.

Q2/07

· David Dvorak was named as the company’s new president and CEO, and James Crines
was named the new CFO. Ray Elliot had announced his pending departure from the
company during 2006, having served as president for approximately 10 years. Mr.
Dvorak was formerly the group president of global businesses and chief legal officer.
James Crines was the former controller.

Outlook for 2007

Management guidance

Management raised its F2007 guidance to revenues of $3.89 billion from $3.85 billion,
which we believe is associated with the +$16 million outperformance in Q1/07 coupled
with a strong business plan for 2007 and the acquisition of Endius in February 2007. EPS
guidance was also increased to $4.02 from $3.95, of which $0.05 was earned in the Q1/07.
Endius was expected to be $0.01 dilutive in Q2/07 and neutral for H2/07.

Our estimates

2007 projections: We are projecting revenue growth of 11% to $3.89 billion and EPS of
$4.02. Our revenue estimate is predicated on strong uptake of GSK for knees and GSH and
MoM for hips in 2007. Despite strong growth expected in high margin US sales, we are
projecting operating margins to decrease somewhat in Q2/07 and Q3/07 (due to the

47
 Daily Letter | 25
17 May 2007

addition of Endius infrastructure), but to improve again in Q4/07. We believe it is

important to note that our current EPS estimate assumes positive drop-through of 45%,
which is at the mid-point of management’s stated goal of 40-50%.

· Q2/07 revenue estimate of $975.3 million and pro forma EPS of $0.97.

· Q3/07 revenue estimate of $910.6 million and pro forma EPS of $0.91.

· Q4/07 revenue estimate of $1,050.1 million and pro forma EPS of $1.16.

2008 projections: For 2008, we are projecting revenues of $4.29 billion and EPS of $4.60.
Our 2008 revenue and EPS estimates are driven by the continued adoption of GSK for
knees and GSH and MoM for hips. In addition, we would expect US knee sales to benefit
from the approval of Zimmer’s mobile bearing product. We are projecting positive drop
through of 44%, once again at the mid-point of management’s stated goal.

48
 Daily Letter | 26
17 May 2007

Figure 21: Zimmer Holdings income statement

Zimmer Holdings Pro Forma Income Statement Canaccord Adams - William J. Plovanic, CFA - 312-674-4836
FY 2005 FY 2006 FY 2007 E FY 2008 E
(US$MLN, except per share data) 2005 1Q06 2Q06 3Q06 4Q06 2006 1Q07 2Q07e 3Q07e 4Q07e 2007e 2008e

Net Sales 3,286.1 860.4 881.6 819.8 933.6 3,495.4 950.2 975.3 910.6 1,050.1 3,886.3 4,286.7
Sequential growth 1% 2% -7% 14% 2% 3% -7% 15%
Yr-to-Yr % change 10% 4% 4% 8% 10% 6% 10% 11% 11% 12% 11% 10%

Cost of Goods Sold 734.4 189.4 200.0 183.2 207.5 780.1 206.4 211.5 199.8 229.4 847.0 923.8
Gross Profit 2,551.7 671.0 681.6 636.6 726.1 2,715.3 743.8 763.9 710.8 820.7 3,039.2 3,362.8
As % of revenues 77% 78% 77% 78% 78% 78% 78% 78% 78% 78% 78% 78%

Selling, General & Administrative 1,259.6 334.9 344.8 330.4 345.6 1,355.7 361.6 386.3 360.0 378.5 1,486.4 1,611.5
Selling 641.0 163.0 168.0 155.4 172.0 658.4 180.5 185.3 173.0 199.5 738.4 814.5
Marketing, Promotion & Distr. 442.0 108.9 112.0 109.0 109.0 438.9 115.1 130.0 117.0 109.0 471.1 507.0
Research & Development 175.5 47.4 48.6 46.7 45.6 188.3 52.3 53.6 50.1 57.8 213.8 232.0
Proforma Op Profit (Ex One-time Chgs Only) 1,116.6 290.5 281.9 254.5 338.3 1,165.2 332.6 323.9 300.7 384.4 1,341.7 1,519.4
As % of revenues 32% 34% 32% 31% 36% 33% 35% 33% 33% 37% 34% 35%
GAAP Operating Profit 1,055.0 288.7 288.2 259.5 334.9 1,171.3 329.9 323.9 300.7 384.4 1,339.0 1,519.4
As % of revenues 32% 34% 33% 32% 36% 34% 35% 33% 33% 37% 34% 35%

EBITDA 1,302.3 354.9 350.0 322.8 410.9 1,438.6 406.9 400.5 375.7 465.4 1,648.6 1,859.4
As % of revenues 40% 41% 40% 39% 44% 41% 43% 41% 41% 44% 42% 43%

Excluded Restructuring Charges (61.2) 1.8 (6.3) (5.0) 3.4 (6.1) 2.7 0.0 0.0 0.0 0.0 0.0
Interest Inc/(Exp) (14.3) 0.5 1.2 0.6 1.5 3.8 (0.2) 3.0 5.0 7.0 14.8 50.0

Income Before Taxes 1,101.9 291.0 283.1 255.1 339.8 1,169.0 327.0 326.9 305.7 391.4 1,353.8 1,569.4
Income Taxes 326.6 85.1 82.0 71.9 95.0 334.0 94.0 93.2 87.1 111.6 385.2 447.3
Net Income Before Minority Int. 775.3 205.9 201.1 183.2 244.8 835.1 233.0 233.7 218.6 279.9 968.7 1,122.1
As % of revenues 22% 24% 23% 22% 26% 24% 25% 24% 24% 27% 25% 26%

Minority Interest (0.9) (0.3) (0.2) 0.1 (0.1) (0.5) (0.3) (0.1) (0.1) (0.1) (0.6) 0.0
Net Income to Shareholders 774.4 205.6 200.9 183.3 244.7 834.6 232.7 233.6 218.5 279.8 968.1 1,122.1
As % of revenues 24% 24% 23% 22% 26% 24% 24% 24% 24% 27% 25% 26%

GAAP EPS $2.93 $0.82 $0.81 $0.76 $1.02 $3.40 $0.98 $0.97 $0.91 $1.16 $4.02 $4.60
ProForma EPS (Ex One-time ChgsOnly) $3.10 $0.82 $0.81 $0.76 $1.02 $3.40 $0.98 $0.97 $0.91 $1.16 $4.02 $4.60
CASH EPS
Diluted Shares 249.8 250.1 247.7 242.6 241.0 245.4 239.2 240.0 241.0 242.0 240.6 243.0
Yr-to-Yr % change Proforma EPS 29% 10% 2% 9% 18% 10% 19% 20% 20% 14% 18% 14%

Impact of FAS 123 R pre-tax 18.2 19.6 17.0 20.0 74.8 20.9 25.0 25.0 26.0 96.9 100
Pre-tax Excluding FAS 123 R 309.2 302.7 272.1 359.8 1,243.8 347.9 351.9 330.7 417.4 1,450.7 1,669
Tax Rate 90.4 88.7 76.6 100.0 355.7 99.2 100.3 94.3 119.0 412.7 476
Net Excluding FAS 123 R 218.5 213.8 195.6 259.7 887.7 248.5 251.5 236.4 298.4 1,038.0 1,194

ProForma EPS Excluding FAS 123 R $0.87 $0.86 $0.81 $1.08 $3.62 $1.04 $1.05 $0.98 $1.23 $4.32 $4.91
16% 8% 16% 26% 17% 19% 21% 12% 14% 19% 14%
Margins
Gross 77.7% 78.0% 77.3% 77.7% 77.8% 77.7% 78.3% 78.3% 78.1% 78.2% 78.2% 78.4%
Selling, General & Administrative 38.3% 38.9% 39.1% 40.3% 37.0% 38.8% 38.1% 39.6% 39.5% 36.0% 38.2% 37.6%
Research & Development 5.3% 5.5% 5.5% 5.7% 4.9% 5.4% 5.5% 5.5% 5.5% 5.5% 5.5% 5.4%
Proforma Operating 34.0% 33.8% 32.0% 31.0% 36.2% 33.3% 35.0% 33.2% 33.0% 36.6% 34.5% 35.4%
Tax Rate 29.6% 29.2% 29.0% 28.2% 28.0% 28.6% 28.7% 28.5% 28.5% 28.5% 28.4% 28.5%
Net 23.6% 23.9% 22.8% 22.4% 26.2% 23.9% 24.5% 24.0% 24.0% 26.7% 24.9% 26.2%

Seq. Growth Rates

Revenues --- 1.4% 2.5% -7.0% 13.9% --- 1.8% 2.6% -6.6% 15.3% --- ---
EBITDA --- 0.5% -1.4% -7.8% 27.3% --- -1.0% -1.6% -6.2% 23.9% --- ---
Pretax --- -3.7% -2.7% -9.9% 33.2% --- -3.8% 0.0% -6.5% 28.0% --- ---
EPS --- -4.1% -1.3% -6.8% 34.4% --- -3.4% -0.8% -6.9% 27.5% --- ---

YoY Growth Rates

Revenues 10.2% 3.9% 4.1% 7.5% 10.1% 6.4% 10.4% 10.6% 11.1% 12.5% 11.2% 10.3%
EBITDA 20.0% 10.3% 5.0% 9.7% 16.4% 10.5% 14.7% 14.4% 16.4% 13.3% 14.6% 12.8%
Pretax 26.4% 8.0% -0.2% 3.4% 12.5% 6.1% 12.4% 15.5% 19.8% 15.2% 15.8% 15.9%
EPS 28.6% 9.6% 1.7% 8.6% 18.4% 9.8% 19.4% 20.0% 20.0% 13.9% 18.2% 14.2%

May 15, 2007

Source: Company reports and Canaccord Adams estimates

49
 Daily Letter | 27
17 May 2007

Figure 22: Zimmer Holdings revenue mix

Zimmer Holdings Revenue Mix Canaccord Adams - William J. Plovanic - CFA 1-312-674-4836
FY 2005 FY2006 FY 2007E FY 2008 E
(US$MLN) 2003 2004 1Q05 2Q05 3Q05 4Q05 2005 1Q06 2Q06 3Q06 4Q06 2006 1Q07 2Q07e 3Q07e 4Q07e 2007e 2008e
Worldwide
Knees 801 1,195.1 348 354 314 351 1,366 366 368 338 389 1,462 408 414 381 440 1,643 1,817
Hips 646 1,079.5 292 294 260 294 1,140 293 299 278 319 1,189 317 320 299 349 1,285 1,381
Dental 30 125.6 33 40 35 40 148 40 47 42 50 180 49 55 50 59 213 250
Extremities 45 56.8 17 17 15 17 65 19 20 18 22 78 25 24 21 27 96 111

Total Reconstructive Implants 1,521 2,457.0 689 705 624 701 2,720 719 734 676 780 2,909 799 812 751 875 3,237 3,558
Spinal 35 134.4 38 41 38 43 160 43 46 42 46 178 47 54 50 55 205 240
Trauma 150 172.7 45 44 44 46 180 47 49 48 51 195 50 52 52 56 210 231
Other Surgical Products 195 217.9 55 57 55 57 225 51 53 53 57 214 55 57 58 64 234 257
Total Worldwide 1,901 2,982.0 829 847 763 848 3,285 860 882 820 934 3,496 950 975 911 1,050 3,886 4,287
YoY Change 39% 57% 12% 15% 9% 6% 10% 4% 4% 8% 10% 6% 10% 11% 11% 12% 11% 10%
Americas
Knees 524 761 222 226 212 220 880 240 236 225 241 942 263 268 257 275 1,062 1,190
Hips 366 499 132 138 131 138 539 142 146 141 150 579 157 161 155 169 641 706
Dental 18 78 19 24 22 24 89 24 27 27 30 108 29 31 30 35 125 144
Extremities 34 40 12 11 11 12 46 12 14 12 14 53 17 18 16 18 68 78

Total Reconstructive Implants 941 1,378 385 399 376 394 1,553 418 423 405 435 1,681 465 477 458 496 1,897 2,117
Spinal 30 112 32 34 33 35 133 36 38 36 37 147 40 45 43 45 173 203
Trauma 100 106 26 25 28 28 107 28 27 30 32 117 30 30 33 35 128 140
Other Surgical Products 137 146 37 38 37 36 148 33 32 31 34 131 33 35 34 38 140 154
Total Americas 1,208 1,742 480 495 473 493 1,942 516 521 502 538 2,076 568 587 568 614 2,337 2,614
YoY Change 29% 44% 14% 15% 10% 8% 11% 7% 5% 6% 9% 7% 10% 13% 13% 14% 13% 12%
Asia Pacific
Knees 114 142 37 43 38 42 159 38 42 41 46 168 43 44 42 48 177 194
Hips 128 182 48 50 45 49 192 47 47 47 50 191 47 47 48 52 194 204
Dental 3 14 4 5 5 5 19 4 7 5 6 22 6 8 7 9 30 40
Extremities 4 5 2 2 1 1 6 3 3 3 2 10 3 3 3 3 12 14

Total Reconstructive Implants 250 342 90 101 89 96 376 92 98 96 105 391 99 102 100 112 412 452
Spinal 1 3 1 2 1 2 6 2 2 2 3 9 2 2 2 3 8 10
Trauma 33 39 11 10 9 10 39 10 10 9 10 39 10 10 10 11 41 46
Other Surgical Products 43 47 11 12 12 13 48 12 13 14 12 50 13 13 15 15 56 62
Total Asia Pacific 327 432 114 124 111 121 469 116 123 121 129 489 124 127 126 140 517 570
YoY Change 21% 32% 9% 15% 8% 3% 9% 2% 0% 8% 7% 4% 7% 3% 4% 8% 6% 10%
Europe
Knees 163 292 89 85 64 90 327 88 90 72 102 353 102 102 83 118 405 433
Hips 152 399 112 106 85 107 410 104 106 90 119 419 114 112 95 128 449 472
Dental 8 33 10 11 8 11 40 12 14 11 14 50 14 16 12 16 57 66
Extremities 7 12 3 3 3 4 13 4 3 3 6 15 5 3.3 3 6 17 19

Total Reconstructive Implants 330 737 214 206 159 212 790 208 213 175 241 837 234 233 194 267 928 989
Spinal 5 19 5 5 5 6 21 5 6 4 7 22 5 7 5 7 24 28
Trauma 16 28 9 9 8 8 34 9 12 9 10 39 10 12 10 10 42 45
Other Surgical Products 15 24 7 8 6 8 29 6 9 8 10 33 9 9 9 11 38 40
Total Europe 366 808 235 228 178 234 874 228 239 197 267 931 259 261 217 296 1,032 1,102
YoY Change 114% 121% 9% 15% 6% 3% 8% -3% 5% 11% 14% 7% 13% 9% 10% 11% 11% 7%

Canaccord Adams - William J. Plovanic - CFA 1-312-674-4836

Zimmer Holdings FY 2005 FY2006 FY 2007 E FY 2008 E
YoY Growth of Revenues 2003 2004 1Q05 2Q05 3Q05 4Q05 2005 1Q06 2Q06 3Q06 4Q06 2006 1Q07 2Q07e 3Q07e 4Q07e 2007e 2008e
Worldwide
Knees 37% 49% 19% 20% 12% 7% 14% 5% 4% 8% 11% 7% 11% 12% 13% 13% 12% 11%
Hips 46% 67% 6% 10% 4% 3% 6% 0% 2% 7% 9% 4% 8% 7% 8% 9% 8% 7%
Dental 18% 28% 19% 7% 17% 21% 19% 20% 27% 22% 22% 16% 18% 18% 18% 18%
Extremities 31% 26% 11% 15% 12% 23% 15% 17% 16% 17% 26% 19% 30% 22% 19% 23% 24% 15%

Total Reconstructive Implants 43% 62% 13% 16% 9% 6% 11% 4% 4% 8% 11% 7% 11% 11% 11% 12% 11% 10%
Spinal 14% 23% 19% 22% 19% 12% 14% 10% 8% 11% 8% 16% 18% 19% 15% 17%
Trauma 12% 15% 1% 1% 9% 6% 4% 4% 10% 9% 11% 8% 5% 7% 9% 10% 8% 10%
Other Surgical Products 10% 12% 6% 8% 3% -3% 3% -8% -7% -4% -1% -5% 8% 8% 8% 12% 9% 10%
Total Worldwide 39% 57% 12% 15% 9% 6% 10% 4% 4% 8% 10% 6% 10% 11% 11% 12% 11% 10%

Americas
Knees 33% 45% 22% 21% 12% 8% 16% 8% 5% 6% 9% 7% 10% 14% 14% 14% 13% 12%
Hips 27% 36% 9% 9% 6% 9% 8% 7% 6% 8% 9% 7% 10% 10% 10% 13% 11% 10%
Dental NM 17% 24% 18% -2% 13% 26% 16% 19% 27% 22% 19% 15% 15% 15% 16% 15%
Extremities 36% 16% 10% 14% 12% 30% 16% 7% 23% 13% 17% 15% 40% 25% 25% 25% 28% 15%

Total Reconstructive Implants 33% 46% 16% 17% 10% 8% 13% 9% 6% 8% 10% 8% 11% 13% 13% 14% 13% 12%
Spinal NM 11% 21% 24% 22% 19% 15% 12% 10% 6% 11% 10% 18% 19% 22% 17% 17%
Trauma 7% 5% -6% -2% 11% 4% 2% 8% 8% 8% 14% 9% 5% 10% 10% 10% 9% 10%
Other Surgical Products 3% 7% 5% 3% -1% -3% 1% -12% -15% -15% -5% -12% -1% 10% 10% 10% 7% 10%
Total Americas 29% 44% 14% 15% 10% 8% 11% 7% 5% 6% 9% 7% 10% 13% 13% 14% 13% 12%

Asia Pacific
Knees 20% 24% 10% 21% 11% 9% 13% 3% -3% 10% 12% 5% 13% 5% 1% 3% 5% 10%
Hips 24% 42% 7% 12% 7% -2% 6% -2% -7% 3% 3% -1% -1% 0% 3% 4% 2% 5%
Dental NM 24% 57% 25% 33% 34% 6% 38% 2% 22% 18% 63% 23% 37% 39% 38% 33%
Extremities NM 114% 125% 127% 100% 18% 188% 125% 179% 200% 67% 108% 120% 100% 150% 18% 20%

Total Reconstructive Implants 26% 37% 9% 17% 10% 4% 10% 2% -2% 7% 9% 4% 8% 4% 4% 6% 6% 10%
Spinal NM 140% 113% 9% 94% 77% 33% 41% 67% 66% 52% -6% -17% 0% -14% -10% 20%
Trauma 6% 17% 8% 4% 1% -9% 1% -7% 2% 5% -5% -1% -4% 0% 8% 16% 5% 14%
Other Surgical Products 7% 12% 5% 3% 3% -4% 1% 7% 9% 14% -8% 5% 7% 4% 5% 25% 10% 12%
Total Asia Pacific 21% 32% 9% 15% 8% 3% 9% 2% 0% 8% 7% 4% 7% 3% 4% 8% 6% 10%

Europe
Knees 69% 79% 16% 18% 12% 4% 12% 0% 6% 13% 14% 8% 16% 13% 15% 15% 15% 7%
Hips 200% 163% 3% 10% 1% -3% 3% -7% 0% 6% 11% 2% 10% 6% 6% 7% 7% 5%
Dental NM 19% 27% 16% 20% 21% 18% 18% 35% 27% 24% 14% 15% 15% 15% 15% 15%
Other Reconstructive 3% 72% 10% 13% 4% 11% 10% 18% -12% 2% 38% 13% 16% 10% 10% 10% 12% 10%

Total Reconstructive Implants 115% 123% 8% 14% 6% 1% 7% -3% 3% 10% 14% 6% 13% 10% 10% 11% 11% 7%
Spinal NM 23% 18% -6% 11% 11% -7% 13% -6% 5% 2% 3% 15% 15% 15% 12% 15%
Trauma 100% 73% 18% 8% 14% 45% 20% 5% 25% 15% 21% 17% 14% 5% 5% 5% 7% 6%
Other Surgical Products 68% 58% 10% 56% 25% 0% 20% -15% 9% 32% 30% 14% 58% 6% 6% 6% 15% 6%
Total Europe 114% 121% 9% 15% 6% 3% 8% -3% 5% 11% 14% 7% 13% 9% 10% 11% 11% 7%

May 15, 2007

Source: Company reports and Canaccord Adams estimates

50
 Da

Figure 23: Comparative valuation of large-cap medical technology companies (market cap > $5B)
5/16/07 52-Week % of Market CY EPS 2-Year P/E Ratio P/E/G
CAGR
Company Name Ticker Price High Low High Cap 06 07E 08E 08/06 06 07E 08E 06 07E

ABBOTT LABORATORIES ABT $ 58.68 59.40 41.13 98.8% 90,388 $ 2.52 $ 2.81 $ 3.22 13.1% 23.3x 20.9x 18.2x n/m 1.

ALCON INC. ACL $ 133.40 144.39 90.85 92.4% 39,906 $ 4.37 $ 5.22 $ 6.00 17.2% 30.5x 25.6x 22.2x 0.7x 1.

ALLERGAN INC. AGN $ 121.78 124.48 92.57 97.8% 18,724 $ 2.29 $ 4.33 $ 5.05 0.0% 53.1x 28.1x 24.1x n/m 0.

CR BARD INC. BCR $ 82.65 86.17 67.36 95.9% 8,554 $ 2.55 $ 3.82 $ 4.39 31.3% 32.5x 21.7x 18.8x n/m 0.

BAXTER INTERNATIONAL INC. BAX $ 57.35 58.29 36.04 98.4% 37,364 $ 2.13 $ 2.63 $ 2.95 17.7% 26.9x 21.8x 19.4x 0.7x 0.

BECTON DICKINSON & CO. BDX $ 78.05 81.08 58.08 96.3% 19,121 $ 3.78 $ 3.87 $ 4.34 7.2% 20.6x 20.2x 18.0x 1.4x 8.

BIOMET INC. BMET $ 43.51 43.62 30.22 99.7% 10,685 $ 1.67 $ 1.94 $ 2.18 14.3% 26.1x 22.4x 20.0x 5.8x 1.

BOSTON SCIENTIFIC CORP. BSX $ 15.59 21.01 13.88 74.2% 23,123 $ (2.07) $ 0.80 $ 0.96 0.0% n/m 19.4x 16.2x n/m n

JOHNSON & JOHNSON JNJ $ 61.82 69.41 58.84 89.1% 179,065 $ 3.73 $ 4.05 $ 4.31 7.5% 16.6x 15.3x 14.3x 1.5x 1.

LABORATORY CORP. OF AMERICA HOLDINGS

LH $ 77.58 81.00 58.05 95.8% 9,123 $ 3.24 $ 4.21 $ 4.77 21.2% 23.9x 18.4x 16.3x 1.2x 0.

MEDTRONIC INC. MDT $ 52.91 54.86 42.37 96.4% 60,795 $2.33 $2.54 $2.92 12.0% 22.7x 20.8x 18.1x 0.5x 2.

QUEST DIAGNOSTICS INC. DGX $ 49.14 64.69 48.07 76.0% 9,469 $ 3.14 $ 2.81 $ 3.24 1.7% 15.7x 17.5x 15.2x 1.3x n

SMITH & NEPHEW PLC LSE:SN. $ 6.36 6.67 3.98 95.3% 5,996 $ 0.42 $ 0.51 $ 0.60 19.9% 15.2x 12.4x 10.6x 0.8x 0.

ST. JUDE MEDICAL INC. STJ $ 43.57 44.91 31.20 97.0% 14,741 $ 2.58 $ 1.75 $ 2.02 -11.4% 16.9x 24.9x 21.5x 0.6x n

STRYKER CORP. SYK $ 64.44 70.26 39.77 91.7% 26,807 $ 2.02 $ 2.42 $ 2.90 19.8% 31.9x 26.6x 22.2x 1.5x 1.

VARIAN MEDICAL SYSTEMS INC. VAR $ 41.22 56.00 40.92 73.6% 5,254 $ 1.87 $ 1.85 $ 2.17 7.8% 22.0x 22.3x 19.0x 0.9x n

ZIMMER HOLDINGS INC. ZMH $ 89.43 94.38 52.20 94.8% 21,392 $ 4.13 $ 4.02 $ 4.60 5.5% 21.6x 22.2x 19.4x 1.6x n
Mean 91.9% 10.9% 25.0x 21.2x 18.5x 1.4x 1.
Min 73.6% -11.4% 15.2x 12.4x 10.6x 0.5x 0.
Max 99.7% 31.3% 53.1x 28.1x 24.1x 5.8x 8.
Count 17 1700.0% 16 17 17 13 1
Sum 1563.1% 184.7% 399.6x 360.4x 313.7x 18.5x 21.
Mean excluding high/low 92.7% 11.0% 23.7x 21.3x 18.6x 1.1x 1.
Median 95.8% 12.0% 23.0x 21.7x 18.8x 1.2x

Source: Company reports, Canaccord Adams and Capital IQ

 Daily Letter | 29
17 May 2007

APPENDIX: IMPORTANT DISCLOSURES

Analyst Certification: Each authoring analyst of Canaccord Adams whose name appears on the front page of this investment
research hereby certifies that (i) the recommendations and opinions expressed in this investment research
accurately reflect the authoring analyst’s personal, independent and objective views about any and all of the
designated investments or relevant issuers discussed herein that are within such authoring analyst’s coverage
universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly,
related to the specific recommendations or views expressed by the authoring analyst in the investment
research.

Site Visit: An analyst has visited the issuer's material operations in Warsaw, Indiana. No payment or reimbursement
was received from the issuer for the related travel costs.

Distribution of Ratings: Coverage Universe IB Clients

Global Stock Ratings Rating # % %
(as of 1 May 2007) Buy 310 58.5% 41.9%
Speculative Buy 64 12.1% 71.9%
Hold 132 24.9% 34.1%
Sell 24 4.5% 4.2%
530 100.0%

Canaccord Ratings BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.
System: HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.
SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.
NOT RATED: Canaccord Adams does not provide research coverage of the relevant issuer.

“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the
designated investment or the relevant issuer.

Risk Qualifier: SPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental
criteria. Investments in the stock may result in material loss.

Canaccord Adams Research Disclosures as of 17 May 2007

Company Disclosure
Zimmer Holdings 7

1 The relevant issuer currently is, or in the past 12 months was, a client of Canaccord Adams or its affiliated
companies. During this period, Canaccord Adams or its affiliated companies provided the following services
to the relevant issuer:
A. investment banking services.
B. non-investment banking securities-related services.
C. non-securities related services.
2 In the past 12 months, Canaccord Adams or its affiliated companies have received compensation for
Corporate Finance/Investment Banking services from the relevant issuer.
3 In the past 12 months, Canaccord Adams or any of its affiliated companies have been lead manager, co-lead
manager or co-manager of a public offering of securities of the relevant issuer or any publicly disclosed offer
of securities of the relevant issuer or in any related derivatives.
4 Canaccord Adams acts as corporate broker for the relevant issuer and/or Canaccord Adams or any of its
affiliated companies may have an agreement with the relevant issuer relating to the provision of Corporate
Finance/Investment Banking services.
5 Canaccord Adams or any of its affiliated companies is a market maker or liquidity provider in the securities of
the relevant issuer or in any related derivatives.
6 In the past 12 months, Canaccord Adams, its partners, affiliated companies, officers or directors, or any
authoring analyst involved in the preparation of this investment research has provided services to the
relevant issuer for remuneration, other than normal course investment advisory or trade execution services.
7 Canaccord Adams intends to seek or expects to receive compensation for Corporate Finance/Investment
Banking services from the relevant issuer in the next six months.
8 The authoring analyst, a member of the authoring analyst’s household, or any individual directly involved in
the preparation of this investment research, has a long position in the shares or derivatives, or has any other
financial interest in the relevant issuer, the value of which increases as the value of the underlying equity
increases.

52
 Daily Letter | 30
17 May 2007

9 The authoring analyst, a member of the authoring analyst’s household, or any individual directly involved in
the preparation of this investment research, has a short position in the shares or derivatives, or has any
other financial interest in the relevant issuer, the value of which increases as the value of the underlying
equity decreases.
10 Those persons identified as the author(s) of this investment research, or any individual involved in the
preparation of this investment research, have purchased/received shares in the relevant issuer prior to a
public offering of those shares, and such person’s name and details are disclosed above.
11 A partner, director, officer, employee or agent of Canaccord Adams and its affiliated companies, or a member
of his/her household, is an officer, or director, or serves as an advisor or board member of the relevant issuer
and/or one of its subsidiaries, and such person’s name is disclosed above.
12 As of the month end immediately preceding the date of publication of this investment research, or the prior
month end if publication is within 10 days following a month end, Canaccord Adams or its affiliate
companies, in the aggregate, beneficially owned 1% or more of any class of the total issued share capital or
other common equity securities of the relevant issuer or held any other financial interests in the relevant
issuer which are significant in relation to the investment research (as disclosed above).
13 As of the month end immediately preceding the date of publication of this investment research, or the prior
month end if publication is within 10 days following a month end, the relevant issuer owned 1% or more of
any class of the total issued share capital in Canaccord Adams or any of its affiliated companies.
14 Other specific disclosures as described above.

Canaccord Adams is the business name used by certain subsidiaries of Canaccord Capital Inc., including
Canaccord Adams Inc., Canaccord Adams Limited, and Canaccord Adams, a division of Canaccord Capital
Corporation. Clients of Canaccord Adams, in the past 12 months, may have been clients of Canaccord Capital
Corporation, Canaccord Capital (Europe) Limited, Canaccord Capital Corporation USA Inc., and/or Adams
Harkness Financial Group Ltd.
The authoring analysts who are responsible for the preparation of this investment research are employed by
Canaccord Adams, a securities broker-dealer with principal offices located in Vancouver, Calgary, Toronto,
Montreal (all Canada), Boston, New York, San Francisco (all US) and London (UK).
In the event that this is compendium investment research (covering six or more relevant issuers), Canaccord
Adams and its affiliated companies may choose to provide specific disclosures of the subject companies by
reference, as well as its policies and procedures regarding the dissemination of investment research. To
access this material or for more information, please send a request to Canaccord Adams Research, Attn:
Disclosures, P.O. Box 10337 Pacific Centre, 2200-609 Granville Street, Vancouver, BC, Canada V7Y 1H2 or
disclosures@canaccordadams.com.
The authoring analysts who are responsible for the preparation of this investment research have received (or
will receive) compensation based upon (among other factors) the Corporate Finance/Investment Banking
revenues and general profits of Canaccord Adams. However, such authoring analysts have not received, and
will not receive, compensation that is directly based upon or linked to one or more specific Corporate
Finance/Investment Banking activities, or to recommendations contained in the investment research.
Canaccord Adams and its affiliated companies may have a Corporate Finance/Investment Banking or other
relationship with the company that is the subject of this investment research and may trade in any of the
designated investments mentioned herein either for their own account or the accounts of their customers, in
good faith or in the normal course of market making. Accordingly, Canaccord Adams or their affiliated
companies, principals or employees (other than the authoring analyst(s) who prepared this investment
research) may at any time have a long or short position in any such designated investments, Related
designated investments or in options, futures or other derivative instruments based thereon.
Some regulators require that a firm must establish, implement and make available a policy for managing
conflicts of interest arising as a result of publication or distribution of investment research. This investment
research has been prepared in accordance with Canaccord Adams’ policy on managing conflicts of interest,
and information barriers or firewalls have been used where appropriate. Canaccord Adams’ policy is
available upon request.
The information contained in this investment research has been compiled by Canaccord Adams from sources
believed to be reliable, but (with the exception of the information about Canaccord Adams) no representation
or warranty, express or implied, is made by Canaccord Adams, its affiliated companies or any other person
as to its fairness, accuracy, completeness or correctness. Canaccord Adams has not independently verified
the facts, assumptions, and estimates contained herein. All estimates, opinions and other information
contained in this investment research constitute Canaccord Adams’ judgement as of the date of this
investment research, are subject to change without notice and are provided in good faith but without legal
responsibility or liability.
Canaccord Adams salespeople, traders, and other professionals may provide oral or written market
commentary or trading strategies to our clients and our proprietary trading desk that reflect opinions that are
contrary to the opinions expressed in this investment research. Canaccord Adams’ affiliates, proprietary
trading desk, and investing businesses may make investment decisions that are inconsistent with the
recommendations or views expressed in this investment research.

53
 Daily Letter | 31
17 May 2007

recommendations or views expressed in this investment research.

This investment research is provided for information purposes only and does not constitute an offer or
solicitation to buy or sell any designated investments discussed herein in any jurisdiction where such offer or
solicitation would be prohibited. As a result, the designated investments discussed in this investment
research may not be eligible for sale in some jurisdictions. This investment research is not, and under no
circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction
by any person or company that is not legally permitted to carry on the business of a securities broker or
dealer in that jurisdiction. This material is prepared for general circulation to clients and does not have
regard to the investment objectives, financial situation or particular needs of any particular person. Investors
should obtain advice based on their own individual circumstances before making an investment decision. To
the fullest extent permitted by law, none of Canaccord Adams, its affiliated companies or any other person
accepts any liability whatsoever for any direct or consequential loss arising from or relating to any use of the
information contained in this investment research.

For Canadian Residents: This Investment Research has been approved by Canaccord Adams, a division of Canaccord Capital
Corporation, which accepts responsibility for this Investment Research and its dissemination in Canada.
Canadian clients wishing to effect transactions in any Designated Investment discussed should do so through
a qualified salesperson of Canaccord Adams, a division of Canaccord Capital Corporation in their particular
jurisdiction.

For United Kingdom This Investment Research complies with of the Financial Services Authority's Handbook's chapter on Conduct
Residents: of Business and is approved by Canaccord Adams Limited, which is regulated and authorized by the
Financial Services Authority, in connection with its distribution in the United Kingdom. This material is not
for distribution in the United Kingdom to private customers, as defined under the rules of the Financial
Services Authority. Canaccord Adams Limited accepts responsibility for this Investment Research and its
dissemination in the United Kingdom. The information contained in this Investment Research is only
intended for distribution in the UK to persons who qualify as intermediate customers or market
counterparties, as defined under the rules of the Financial Services Authority.

For United States Canaccord Adams Inc., a US registered broker-dealer, accepts responsibility for this Investment Research and
Residents: its dissemination in the United States. This Investment Research is intended for distribution in the United
States only to certain US institutional investors. US clients wishing to effect transactions in any Designated
Investment discussed should do so through a qualified salesperson of Canaccord Adams Inc..

For European Residents: If this Investment Research is intended for disclosure in any jurisdiction other than the United Kingdom, the
US or Canada, then the relevant rules and regulatory requirements of that jurisdiction will apply.

Additional information is available on request.

Copyright © Canaccord Adams, a division of Canaccord Capital Corporation 2007. – Member IDA/CIPF
Copyright © Canaccord Adams Limited 2007. – Member LSE, regulated and authorized by the Financial
Services Authority.
Copyright © Canaccord Adams Inc. 2007. – Member NASD/SIPC
All rights reserved. All material presented in this document, unless specifically indicated otherwise, is under
copyright to Canaccord Adams, a division of Canaccord Capital Corporation, Canaccord Adams Limited, and
Canaccord Adams Inc. None of the material, nor its content, nor any copy of it, may be altered in any way, or
transmitted to or distributed to any other party, without the prior express written permission of the entities
listed above.

54
55