Rr

Table of Contents

Rpt. 12355697 15-Jun-2007

ZIMMER HOLDINGS INC PIPER JAFFRAY - MULLIKIN, M.J.

2 - 11

Rpt. 12345240 10-Jun-2007

THOMAS WHITE INTERNATIONAL - ZIMMER HOLDINGS INC BEST INDEPENDENT RESEARCH LLC - THOMAS WHITE INTERNATIONAL

12 - 15

Rpt. 12286379 17-May-2007

ZIMMER HOLDINGS INC WACHOVIA SECURITIES - MATSON, M., ET AL

16 - 23

Rpt. 12286117 17-May-2007

ZIMMER HOLDINGS INC - INITIATING COVERAGE CANACCORD ADAMS - PLOVANIC, W.J., ET AL

24 - 55

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, [email protected]

Zimmer Holdings Outperform

Piper Jaffray & Co.

Previous

Current

Rating MarketPerform Price Tgt $91.00 FY07E Rev (mil) $3,884.0 FY08E Rev (mil) $4,234.3 FY07E EPS $4.02 FY08E EPS $4.54

Outperform $100.00 $3,869.7 $4,218.1 $4.00 $4.57

Price: 52 Week High: 52 Week Low: 12-Month Price Target:

$85.85 $94.38 $52.20 $100.00

22x CY08E EPS of $4.57

Shares Out (mil): Market Cap. (mil): Avg Daily Vol (000): Book Value/Share: Cash Per Share: Debt to Total Capital: Est LT EPS Growth: P/E to LT EPS Growth (FY07): Est Next Rep Date: Fiscal Year End: Rev (mil)

Mar Jun Sep Dec FY CY FY RM CY RM EPS

Mar Jun Sep Dec FY CY FY P/E CY P/E

Volatility: Low

The Orthopedic ATM: Upgrading and Transferring with Outperform

Reason for Report: Change in Recommendation Changes

(ZMH - $85.85)

239.2 $20,535.3 1,405 $21.39 $1.37 20% 15% 1.4x 07/25/2007 Dec

2006A 2007E 2008E $860.4A $950.2A NA $881.6A $969.9E NA $819.8A $905.4E NA $933.6A $1,044.3E NA $3,495.4A $3,869.7E $4,218.1E $3,495.4A $3,869.7E $4,218.1E 5.9x 5.9x

5.3x 5.3x

4.9x 4.9x

2006A $0.82A $0.83A $0.77A $1.02A $3.44A $3.44A

2007E $0.98A $0.97E $0.90E $1.15E $4.00E $4.00E

2008E NA NA NA NA $4.57E $4.57E

25.0x 25.0x

21.5x 21.5x

18.8x 18.8x

KEY POINTS: • We are transferring coverage of Zimmer Holdings with an Outperform rating and $100 price target. Our price target is based on 22x our $4.57 CY08 EPS estimate. We believe shares are attractively valued in view of stable growth prospects coupled with strong cash flow generation. • Pricing stable to improving. 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. • Gender solutions gaining traction. Gender Knees have gained fast traction since their introduction last year. In 1Q07, approximately 12,000 Gender Knees were implanted, representing 25% sequential growth. 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 technologies facilitating adjustment to lower necks in women's hips and more flexibility than traditional implants. • Strong product pipeline primed for late 2007/early 2008. We look forward to the US launches of mobile bearing knees, a novel knee cartilage replacement, and a computer-assisted navigation system around the end of the year. • Cash flow provides additional fuel for earnings growth. 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. 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. We view Zimmer as a disciplined acquirer borne out by its willingness to use cash flow to repurchase shares if it does not find targets at reasonable valuations. INVESTMENT RECOMMENDATION: We rate Zimmer shares Outperform with a 12-month price target of $100. Our $100 price target represents 22x our 2008 EPS estimate of $4.57. RISKS TO ACHIEVEMENT OF TARGET PRICE: (1) International price cuts; (2) Foreign exchange; (3) Competition. COMPANY DESCRIPTION: Zimmer Holdings is the world's largest reconstructive orthopedic company.

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

Current Price 60.79

Mkt Cap ($MM) $11,312.3

EV ($MM) $11,107.3

Stryker

64.90

$26,549.2

Zimmer

85.98

$20,358.0

Smith & Nephew

Multiples

2006A 2.29

EPS 2007E 2.62

2008E 3.09

2006A 2,779.0

Sales 2007E 3,251.0

$25,098.2

2.02

2.42

2.92

5,405.6

6,069.9

$20,132.0

3.44

4.00

4.57

3,495.4

3,869.7

2008E 3,745.0

EV/Sales 2007E 2008E 3.4 3.0

2006A 26.5

2007E 23.2

2008E 19.7

6,731.2 average:

32.1 29.3

26.8 25.0

22.2 20.9

4.1 3.8

3.7 3.3

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

720.5 24.2%

2,260.4 75.8%

1,190.0 39.9%

Reconstructive Implants Trauma Spine Other Total Revenue Yr/Yr Change

Cost of Sales % of sales

Gross Profit Gross Margin

SG&A

247.7

1,085.0 36.4% $4.38 473.9 $1.91

EPS excl. Equity-based Comp Yr/Yr Change

Diluted Shares (MM)

EBITDA EBITDA Margin per share Free Cash Flow per share

Zimmer Holdings, Inc.

Reconstructive Implants Trauma Spine Other Total

FYE: Dec

2004 Year 61.5% 13.8% 291.3% 12.1% 56.8%

$2.41 34.4%

Net Income excl. Equity-based Comp

Revenue Growth

26.0

597.7

Equity-based Compensation after Tax

Mar A 12.8% 0.9% 14.3% 5.7% 11.6%

321.6 38.8% $1.29 82.3 $0.33

249.2

$0.75 34.4%

187.1

15.0

$0.69 28.7%

$2.31 28.4%

187.1

EPS Yr/Yr Change

597.7

Net Income before minority int.

82.2 30.5%

172.1 20.8% 30.2%

274.3 31.5%

Tax Expense Tax Rate

269.3 30.5%

571.7 19.2% 56.6%

872.0 53.1%

Pretax Income Yr/Yr Change

7.2 12.5%

Net Income Net Margin Yr/Yr Change

31.7 6.0%

Interest expense (income), net Interest Rate

276.5 33.4% 28.0%

0.2

903.7 30.3% 55.1%

Operating Income Oper Margin Yr/Yr Change

42.1 5.1%

321.6 38.8%

640.2 77.3%

188.3 22.7%

Mar A 689.4 45.4 38.3 55.4 828.5 11.6%

Minority Interest

166.7 5.6%

% of sales

R&D

% of sales

2004 Year 2,456.9 172.4 134.2 217.4 2,980.9 56.8%

Quarterly Model FYE: Dec

Jun A 16.0% 2.3% 21.6% 7.6% 14.8%

333.3 39.4% $1.33 171.3 $0.69

249.9

$0.80 37.7%

199.4

10.8

$0.75 35.3%

188.6 22.3% 36.4%

0.2

199.4

84.4 29.7%

283.8 35.0%

4.2 19.9%

288.0 34.0% 31.7%

43.6 5.1%

328.5 38.8%

660.1 78.0%

186.7 22.0%

Jun A 704.9 44.4 41.1 56.4 846.8 14.8%

2005

2005

Sep A 8.8% 10.8% 18.9% 2.8% 8.9%

294.4 38.6% $1.18 169.3 $0.68

250.2

$0.70 23.7%

174.3

9.9

$0.66 23.7%

164.4 21.6% 24.7%

0.2

174.3

72.4 29.3%

246.7 21.9%

2.1 (8.6%)

248.8 32.6% 18.5%

43.9 5.8%

295.8 38.8%

588.5 77.2%

174.0 22.8%

Sep A 624.4 44.3 38.4 55.4 762.5 8.9%

Dec A 5.8% 3.9% 23.1% (1.7%) 5.9%

353.0 41.6% $1.41 144.2 $0.58

249.8

$0.86 20.9%

214.9

10.4

$0.82 20.0%

204.5 24.1% 20.7%

0.3

214.9

87.6 29.0%

302.5 19.5%

0.8 (1.0%)

303.3 35.8% 17.1%

45.9 5.4%

313.7 37.0%

662.9 78.1%

185.4 21.9%

Dec A 702.3 45.7 42.6 57.7 848.3 5.9%

2005 Year 10.7% 4.3% 19.5% 3.4% 10.2%

1,302.3 39.6% $5.21 567.1 $2.27

249.8

$3.11 28.7%

775.7

46.1

$2.92 26.6%

729.6 22.2% 27.6%

0.9

775.7

326.6 29.6%

1,102.3 26.4%

14.3 (47.5%)

1,116.6 34.0% 23.6%

175.5 5.3%

1,259.6 38.3%

2,551.7 77.7%

734.4 22.3%

2005 Year 2,721.0 179.8 160.4 224.9 3,286.1 10.2%

Mar A 4.1% 2.9% 12.5% (4.9%) 3.9%

353.1 41.0% $1.41 165.0 $0.66

250.1

$0.87 16.1%

218.0

12.9

$0.82 18.9%

205.1 23.8% 19.1%

0.3

205.3

83.9 29.0%

289.2 7.4%

(0.5) 0.4%

288.7 33.6% 4.4%

47.4 5.5%

334.9 38.9%

671.0 78.0%

189.4 22.0%

Mar A 717.9 46.7 43.1 52.7 860.4 3.9%

Jun A 4.0% 10.6% 11.9% (5.9%) 4.1%

356.3 40.4% $1.44 230.8 $0.93

247.7

$0.89 11.3%

220.1

13.9

$0.83 10.4%

206.2 23.4% 9.3%

0.2

206.3

83.1 28.7%

289.4 2.0%

(1.2) 0.2%

288.2 32.7% 0.1%

48.6 6.0%

344.8 39.1%

681.6 77.3%

200.0 22.7%

Jun A 733.4 49.1 46.0 53.1 881.6 4.1%

2006

2006

Sep A 8.3% 9.3% 9.9% (4.0%) 7.5%

327.8 40.0% $1.35 223.1 $0.92

242.6

$0.82 17.5%

198.7

12.2

$0.77 17.0%

186.5 22.7% 13.4%

0.1

186.5

73.6 28.3%

260.1 5.4%

(0.6) 0.1%

259.5 31.7% 4.3%

46.7 6.0%

330.4 40.3%

636.6 77.7%

183.2 22.3%

Sep A 676.0 48.4 42.2 53.2 819.8 7.5%

Dec A 11.1% 10.5% 8.2% (1.6%) 10.1%

407.5 43.6% $1.69 134.8 $0.56

241.0

$1.08 25.3%

259.8

14.4

$1.02 24.4%

245.4 26.3% 20.0%

0.1

245.5

90.9 27.0%

336.4 11.2%

(1.5) 0.4%

334.9 35.9% 10.4%

45.6 4.9%

345.6 37.0%

726.1 77.8%

207.5 22.2%

Dec A 780.2 50.5 46.1 56.8 933.6 10.1%

2006 Year 6.9% 8.3% 10.6% (4.0%) 6.4%

1,444.7 41.3% $5.89 753.7 $3.07

245.4

$3.65 17.6%

896.5

53.4

$3.44 17.8%

843.1 24.1% 15.6%

0.5

843.6

331.5 28.2%

1,175.1 6.6%

(3.8) 0.9%

1,171.3 33.5% 4.9%

188.3 5.4%

1,355.7 38.8%

2,715.3 77.7%

780.1 22.3%

2006 Year 2,907.5 194.7 177.4 215.8 3,495.4 6.4%

Mar E 11.1% 7.3% 8.4% 6.1% 10.4%

412.5 43.4% $1.72 154.1 $0.64

239.2

$1.07 22.9%

256.3

20.9

$0.98 20.0%

235.4 24.8% 14.8%

0.3

235.7

94.0 28.5%

329.7 14.0%

0.2 (0.2%)

329.9 34.7% 14.3%

52.3 5.5%

361.6 38.1%

743.8 78.3%

206.4 21.7%

Mar A 797.5 50.1 46.7 55.9 950.2 10.4%

Jun E 10.1% 9.0% 14.9% 5.0% 10.0%

392.5 40.5% $1.65 371.5 $1.57

237.2

$1.03 16.0%

244.6

13.9

$0.97 16.7%

230.7 23.8% 11.9%

0.2

230.7

90.6 28.2%

321.3 11.0%

(1.2) 0.9%

320.1 33.0% 11.1%

52.4 5.4%

378.3 39.0%

750.7 77.4%

219.2 22.6%

Jun E 807.8 53.5 52.8 55.8 969.9 10.0%

2007E

2007E

Sep E 10.7% 10.0% 14.3% 4.3% 10.4%

363.1 40.1% $1.54 247.6 $1.05

235.2

$0.95 15.7%

222.9

12.2

$0.90 16.5%

210.7 23.3% 13.0%

0.2

210.7

82.7 28.2%

293.4 12.8%

(1.0) 0.6%

292.4 32.3% 12.7%

50.7 5.6%

360.3 39.8%

703.5 77.7%

201.9 22.3%

Sep E 748.4 53.2 48.2 55.5 905.4 10.4%

Dec E 11.9% 12.1% 17.9% 5.4% 11.9%

446.0 42.7% $1.91 173.9 $0.75

233.2

$1.21 12.4%

282.5

14.4

$1.15 12.9%

268.1 25.7% 9.3%

0.2

268.1

105.3 28.2%

373.5 11.0%

(1.7) 0.9%

371.8 35.6% 11.0%

57.4 5.5%

386.4 37.0%

815.6 78.1%

228.7 21.9%

Dec E 873.4 56.6 54.4 59.9 1,044.3 11.9%

2008E YearE 8.9% 9.7% 15.0% 5.0% 9.0%

1,721.9 40.8% $7.65 1,269.2 $5.64

225.0

$4.81 12.9%

1,082.4

53.4

$4.57 14.3%

1,029.0 24.4% 8.9%

0.8

1,029.0

404.2 28.2%

1,433.2 8.8%

(10.0) 1.0%

1,423.2 33.7% 8.3%

227.8 5.4%

1,636.6 38.8%

3,287.6 77.9%

930.5 22.1%

2008E YearE 3,513.1 234.3 232.4 238.3 4,218.1 9.0%

Page 4 of 10

Mark Mullikin (612) 303-6902 Piper Jaffray & Co. 6/14/2007 11:40 PM

2007E YearE 11.0% 9.7% 13.9% 5.2% 10.7%

1,614.1 41.7% $6.84 953.0 $4.04

236.1

$4.26 16.6%

1,006.3

61.4

$4.00 16.3%

944.9 24.4% 12.1%

0.9

945.2

372.7 28.3%

1,317.9 12.1%

(3.7) 0.6%

1,314.2 34.0% 12.2%

212.8 5.5%

1,486.6 38.4%

3,013.5 77.9%

856.2 22.1%

2007E YearE 3,227.1 213.5 202.1 227.0 3,869.7 10.7%

39 6 16 60

123

1,380 339 738 2,457

172

136

215

1,741 431 808 2,980

99 57

Americas Asia/Pacific Europe Extremities

Dental Total

Total Recon Americas Asia/Pacific Europe Recon Total

Trauma Total

Spine Total

Orthopaedic Surgical Prod

Total Revenue Americas Asia/Pacific Europe Total

FX gain/loss Estimated

44% 32% 121% 57%

52%

Total Revenue Americas Asia/Pacific Europe Total

Constant Currency

Zimmer Holdings, Inc.

11%

Orthopaedic Surgical Prod

46% 36% 124% 62%

Total Recon Americas Asia/Pacific Europe Recon Total

14%

313%

Dental Total

303%

7% 22% 204% 31%

Americas Asia/Pacific Europe Extremities

Spine Total

46% 23% 79% 49%

Americas Asia/Pacific Europe Knees Total

Trauma Total

37% 41% 162% 68%

Year

2004

Americas Asia/Pacific Europe Hips Total

GROWTH

1.2438 0.0093

763 140 292 1,195

Americas Asia/Pacific Europe Knees Total

FX Rates Euro Yen

501 181 398 1,079

Americas Asia/Pacific Europe Hips Total

Year

2004

ZIMMER HOLDINGS

Revenue Model

226 43 85 354

223 37 89 349

10%

13% 9% 9% 12%

7%

12%

0%

16% 9% 9% 13%

19%

11% 50% (23%) 4%

22% 12% 16% 19%

8% 7% 3% 6%

Mar

1.3124 0.0096

8 14

480 114 235 828

55

38

45

386 89 214 689

33

13%

15% 16% 15% 15%

10%

19%

3%

16% 18% 14% 16%

34%

(11%) 310% (14%) 8%

22% 19% 18% 20%

9% 11% 11% 10%

Jun

1.2606 0.0093

15 11

495 124 228 847

56

41

44

398 101 206 705

40

9 4 4 17

138 50 106 294

132 48 112 292

10 2 3 15

Jun

Mar

2005

2005

9%

10% 9% 7% 9%

4%

21%

10%

10% 10% 5% 9%

18%

11% (23%) 14% 9%

12% 12% 12% 12%

5% 7% 1% 4%

Sep

1.2205 0.0090

0 (1)

473 112 178 763

56

39

44

376 89 159 624

35

10 1 4 15

212 38 64 314

130 45 85 260

Sep

9%

8% 4% 3% 6%

0%

23%

4%

8% 6% 1% 6%

13%

(5%) (37%) 57% 4%

8% 11% 4% 7%

8% 1% (2%) 3%

Dec

1.1897 0.0085

(24) (30)

493 122 234 848

58

43

46

394 96 212 702

40

10 1 6 17

220 41 90 351

138 49 107 294

Dec

10%

11% 9% 8% 10%

5%

19%

4%

13% 11% 7% 11%

21%

1% 45% 6% 6%

15% 14% 12% 14%

7% 6% 3% 6%

Year

2005

1.2458 0.0091

(1) (7)

1,940 472 874 3,286

226

161

180

1,554 375 791 2,720

148

39 8 17 64

881 159 327 1,368

538 192 410 1,140

Year

2005

7%

8% 1% (2%) 4%

(6%)

12%

4%

8% 3% (3%) 4%

20%

0% 167% 61% 30%

8% 3% (1%) 5%

8% (2%) (7%) 0%

Mar

1.2026 0.0086

(25) (32)

516 115 229 860

52

43

47

418 92 208 718

40

10 4 5 19

240 38 88 366

142 47 104 293

Mar

5%

5% (1%) 5% 4%

(6%)

12%

11%

6% (3%) 3% 4%

18%

24% (2%) 23% 17%

4% (2%) 7% 4%

6% (6%) (1%) 2%

Jun

1.2565 0.0087

(10) (8)

521 122 239 882

53

46

49

423 98 213 734

47

11 4 5 20

236 42 90 368

146 47 106 299

Jun

2006E

2006

7%

6% 8% 11% 8%

(5%)

8%

11%

8% 8% 10% 8%

24%

(10%) 75% 61% 15%

6% 8% 13% 8%

8% 4% 6% 7%

Sep

1.2751 0.0086

5 3

502 121 197 820

53

42

49

405 96 175 676

43

9 2 6 17

225 41 72 338

141 47 90 278

Sep

8%

9% 6% 14% 10%

(1%)

8%

12%

10% 9% 14% 11%

24%

23% 4% 50% 30%

9% 12% 14% 11%

9% 2% 11% 9%

Dec

1.2896 0.0085

17 19

538 129 267 934

57

46

51

434 105 241 780

50

12 1 8 22

241 46 102 389

150 50 119 319

Dec

7%

7% 3% 7% 6%

(5%)

10%

9%

8% 4% 6% 7%

21%

9% 40% 48% 23%

7% 5% 8% 7%

8% (0%) 2% 4%

Year

2006E

1.2559 0.0086

(13) (18)

2,078 487 931 3,496

215

177

196

1,680 391 837 2,908

180

42 11 25 79

942 167 352 1,461

579 191 419 1,189

Year

2006

8%

10% 10% 12% 10%

7%

8%

7%

11% 9% 12% 11%

22%

13% 9% 12% 12%

10% 16% 13% 12%

10% (1%) 10% 8%

Mar

1.3069 0.0084

20 17

567 126 257 950

56

47

50

465 100 232 797

49

11 4 6 21

265 44 100 409

157 47 115 318

Mar

9%

11% 6% 9% 10%

5%

15%

8%

11% 6% 9% 10%

18%

12% 8% 11% 11%

12% 8% 9% 11%

9% 4% 9% 8%

Jun

1.3122 0.0085

5 7

579 130 261 970

56

53

54

471 104 233 808

55

12 4 6 23

263 45 98 407

159 49 115 323

JunE

2007E

2007E

10%

11% 7% 10% 10%

5%

15%

9%

12% 8% 10% 11%

17%

10% 6% 9% 9%

12% 10% 10% 12%

9% 5% 9% 9%

Sep

1.3122 0.0085

6 4

560 130 216 905

55

48

53

453 103 192 748

50

10 2 7 19

253 45 79 377

154 50 98 302

SepE

11%

13% 8% 11% 12%

5%

18%

11%

14% 8% 11% 12%

15%

10% 6% 9% 9%

15% 10% 12% 13%

11% 6% 10% 10%

Dec

1.3122 0.0085

2 4

609 139 296 1,044

60

54

57

493 113 267 873

57

14 2 9 24

277 51 114 442

167 53 131 350

DecE

10%

11% 8% 11% 11%

6%

14%

9%

12% 8% 10% 11%

18%

11% 8% 10% 10%

12% 11% 11% 12%

10% 4% 10% 9%

Year

2007E

1.3109 0.0084

32 31

2,315 525 1,029 3,870

227

202

214

1,882 421 924 3,227

212

47 12 28 87

1,058 185 392 1,635

637 198 459 1,294

YearE

2007E

9%

10% 8% 8% 9%

5%

15%

10%

9% 8% 8% 9%

12%

11% 7% 10% 10%

10% 9% 9% 10%

8% 6% 7% 7%

Year

2008E

1.3122 0.0085

16 11

2,538 566 1,114 4,218

238

232

234

2,061 453 999 3,513

236

52 13 30 95

1,164 202 427 1,793

687 210 491 1,388

YearE

2008E

Page 5 of 10

Mark Mullikin (612) 303-6902 Piper Jaffray & Co. 6/14/2007 11:40 PM

628.5 2,528.9 794.8 182.4 5,695.5 27.5 131.6 541.9 701.0

624.0 420.9 7.1 3,942.5 5,695.5

Fixed Assets, Net Goodwill Intangible Assets Investments + Other Total Assets

Short-Term Debt Accounts Payable Other Total Current Liab.

Long-Term Debt Other Long-Term Liabilities Minority Interest Shareholders' Equity Total Liabilities and Equity

Zimmer Holdings, Inc.

619.4 4,848.5 13.3% 16.9% 11.2%

NOPAT Invested Capital ROIC ROE ROA

192.1 4,908.4 13.3% 16.5% 11.3%

426.3 165.6 9.3% $16.67

651.5 295.6 14.2% $15.91

Gross Debt Net Debt Debt/Total Capital Book Value Per Share

1.42x 256 17.97x 20

1.40x 258

Inventory Turnover (x) # Days on Hand

6.25x 58

426.3 402.0 1.6 4,153.5 5,591.4

0.0 122.9 485.1 608.0

643.1 2,494.5 789.6 185.7 5,591.4

$57.0 18.0 570.6 551.9 281.0 1,478.5

Mar

A/P Turnover # Days Outstanding

5.83x 63

Receivable Turnover (x) # Days Outstanding

Balance Sheet Analysis

$154.6 18.9 524.8 536.0 326.6 1,560.9

2004 Dec

Cash Short-Term Investments Receivables Inventories Other Total Current Assets

Balance Sheet

ZIMMER HOLDINGS

202.4 4,842.2 14.4% 16.9% 12.0%

268.1 3.3 5.9% $17.23

16.89x 22

1.33x 274

5.92x 62

268.1 363.1 1.8 4,304.6 5,551.5

0.0 141.8 472.1 613.9

676.6 2,434.2 779.1 169.4 5,551.5

$78.8 16.6 573.4 568.0 255.4 1,492.2

2005 Jun

175.8 4,861.8 14.8% 16.9% 12.5%

85.8 (199.2) 1.9% $18.01

16.37x 22

1.21x 303

5.47x 67

85.8 371.9 2.0 4,506.4 5,621.6

0.0 109.2 546.3 655.5

703.7 2,466.7 770.0 180.7 5,621.6

$91.8 12.5 541.1 586.6 268.5 1,500.5

Sep

785.8 4,869.7 16.1% 16.9% 12.9%

81.6 (415.8) 1.7% $18.75

18.73x 19

1.27x 288

6.37x 57

81.6 348.3 2.3 4,682.8 5,721.9

0.0 123.6 483.3 606.9

708.8 2,428.8 756.6 252.1 5,721.9

$233.2 12.1 524.2 583.7 222.4 1,575.6

2005 Dec

204.9 4,931.5 19.1% 16.9% 13.4%

81.5 (529.9) 1.6% $19.69

15.88x 23

1.28x 286

6.07x 60

81.5 339.3 2.5 4,924.1 5,917.2

0.0 178.8 391.0 569.8

701.0 2,447.0 747.3 195.5 5,917.2

$403.8 12.1 592.1 599.5 218.9 1,826.4

Mar

205.4 4,993.9 19.3% 16.7% 13.6%

82.6 (439.4) 1.7% $19.77

15.81x 23

1.33x 275

5.73x 64

82.6 351.0 2.7 4,895.8 5,963.6

0.0 121.4 510.1 631.5

725.0 2,523.1 739.3 183.8 5,963.6

$335.8 2.4 639.2 606.1 208.9 1,792.4

2006 Jun

186.1 4,951.8 18.8% 16.8% 13.8%

100.9 (364.4) 2.1% $19.80

18.09x 20

1.18x 308

5.34x 68

100.9 322.2 2.6 4,804.0 5,908.5

0.0 126.4 552.4 678.8

751.1 2,532.6 731.1 187.4 5,908.5

$275.6 2.3 589.4 630.9 208.1 1,706.3

Sep

840.9 5,136.5 16.8% 17.4% 14.3%

99.6 (361.4) 2.0% $20.42

19.28x 19

1.31x 279

6.15x 59

99.6 323.4 2.7 4,920.5 5,916.0

0.0 122.0 447.8 569.8

807.1 2,515.6 712.6 192.9 5,974.4

$265.7 2.4 625.5 638.3 214.3 1,746.2

2006 Dec

235.8 5,170.6 19.8% 15.5% 12.8%

100.0 (444.0) 1.9% $21.39

15.31x 24

1.28x 285

5.93x 62

100.0 280.0 2.4 5,116.6 6,097.9

0.0 197.7 401.2 598.9

820.6 2,466.2 708.9 215.6 6,097.9

$326.0 2.4 692.5 658.8 206.9 1,886.6

Mar

229.8 5,074.7 20.3% 18.0% 14.9%

100.0 (643.1) 1.9% $22.00

16.59x 22

1.52x 240

6.08x 60

100.0 280.0 2.4 5,219.8 6,160.0

0.0 156.7 401.2 557.9

831.1 2,466.2 698.5 215.6 6,160.0

$527.5 0.0 637.7 576.5 206.9 1,948.6

2007 Jun

210.0 5,082.7 20.3% 18.2% 15.2%

100.0 (720.6) 1.9% $22.55

18.25x 20

1.40x 260

5.79x 63

100.0 280.0 2.4 5,305.4 6,223.3

0.0 134.3 401.2 535.5

841.0 2,466.2 688.2 215.6 6,223.3

$605.0 0.0 625.1 575.3 206.9 2,012.3

Sep

1,021.8 5,100.4 19.9% 19.1% 16.2%

100.0 (1,319.7) 1.7% $26.32

19.21x 19

1.59x 230

7.02x 52

100.0 280.0 2.4 5,922.1 6,851.2

0.0 145.5 401.2 546.7

934.8 2,466.2 636.3 215.6 6,851.2

$1,204.1 0.0 600.9 586.3 206.9 2,598.3

2008 Dec

Page 6 of 10

Mark Mullikin (612) 303-6902 Piper Jaffray & Co. 6/14/2007 11:40 PM

942.5 5,188.9 18.4% 18.2% 15.3%

100.0 (730.5) 1.8% $23.24

19.21x 19

1.59x 230

5.89x 62

100.0 280.0 2.4 5,421.4 6,345.0

0.0 140.0 401.2 541.2

877.7 2,466.2 677.8 215.6 6,345.0

$614.9 0.0 709.5 576.4 206.9 2,107.7

2007 Dec

ZIMMER HOLDINGS

(139.6) (100.8) (171.3) 23.4 (388.3)

(461.4) 0.0 65.0 0.0 (5.6) (402.0) 5.2 77.5 71.9 154.6

Investing Activities Additions to Instruments Capital Spending Acquisitions Investments in Other Assets Investing Cash Flow

Financing Debt Issuance Cash Received (Transferred) from BMY Stock Issuance Share Repurchase Other Financing Cash Flow

Effect of FX Beginning Cash Balance Net Change in Cash Ending Cash Balance

Zimmer Holdings, Inc.

29.2 (53.1) (24.4) (20.1) 0.2 152.5

139.2 (10.6) (44.7) (3.1) (1.1) 862.2

(1.4) 154.6 (96.2) 57.0

(221.0) 0.0 44.4 0.0 (1.9) (178.5)

(42.6) (18.4) 0.0 (9.2) (70.2)

$173.6 45.1 2.0 0.0

Mar

$541.8 181.3 59.4 0.0

2004 Year

Operating Requirements Net Income Depreciation & Amortization Inventory Step-up Cumulative effect of change in accounting principle Changes in operating assets and liabilities Income Taxes Accounts Receivable Inventories Accounts Payable and Accrued Liabs Other Assets and Liabs Operating Cash Flow

Cash Flow

(2.9) 57.0 24.7 78.8

(154.3) 0.0 7.7 0.0 0.0 (146.6)

(48.0) (23.8) 0.0 (0.5) (72.3)

50.7 (13.5) (34.2) 19.0 (16.5) 243.6

$190.7 45.3 2.1 0.0

Jun

2005

0.7 78.8 12.3 91.8

(180.0) 0.0 23.0 0.0 0.0 (157.0)

(39.0) (23.3) 0.0 0.0 (62.3)

31.6 27.8 (17.0) (29.8) 4.3 231.6

$168.6 45.6 0.5 0.0

Sep

(0.3) 91.8 141.7 233.2

0.0 0.0 1.6 (4.1) (0.0) (2.5)

(20.4) (39.8) (44.1) (2.0) (106.3)

(26.5) 3.5 (3.6) (9.2) 2.3 250.5

$199.6 49.7 0.4 34.3

Dec

(3.9) 154.6 82.5 233.2

(555.3) 0.0 76.7 (4.1) (1.9) (484.6)

(150.0) (105.3) (44.1) (11.7) (311.1)

85.0 (35.3) (79.2) (40.1) (9.7) 878.2

$732.5 185.7 5.0 34.3

2005 Year

(0.2) 233.2 170.8 403.8

0.0 0.0 11.1 (7.1) 1.8 5.8

(32.4) (5.3) 0.0 0.0 (37.7)

26.3 (65.9) (13.0) (22.2) 7.5 202.7

$205.6 46.2 18.2 0.0

Mar

4.7 403.8 (72.7) 335.8

0.0 0.0 5.1 (309.3) 0.7 (303.5)

(30.1) (30.8) (8.5) (5.0) (74.4)

46.8 (34.6) 2.0 6.2 15.8 305.2

$200.9 47.3 20.8 0.0

Jun

2006

2.0 335.8 (62.2) 275.6

0.0 0.0 9.2 (314.5) 20.0 (285.3)

(30.5) (32.1) 0.0 0.0 (62.6)

(3.4) 52.6 (23.5) 38.7 (30.3) 285.7

$183.3 51.3 17.0 0.0

Sep

3.0 275.6 (12.9) 265.7

0.0 0.0 15.9 (167.9) 4.3 (147.7)

(33.2) (57.7) (19.6) (1.8) (112.3)

2.6 (29.0) (4.7) (52.6) 13.5 247.1

$244.7 52.6 20.0 0.0

Dec

9.5 233.2 23.0 265.7

0.0 0.0 41.3 (798.8) 26.8 (730.7)

(126.2) (125.9) (28.1) (6.8) (287.0)

72.3 (76.9) (39.2) (29.9) 6.5 1,040.7

$834.5 197.4 76.0 0.0

2006 Year

0.8 265.7 59.5 326.0

0.0 0.0 58.8 (173.4) 20.0 (94.6)

(34.5) (18.7) 0.0 (5.9) (59.1)

18.6 (43.2) (19.6) (17.8) (40.4) 213.2

$233.4 53.4 0.9 27.9

Mar

0.0 326.0 201.5 527.5

0.0 0.0 0.0 (170.0) 0.0 (170.0)

(34.5) (18.7) 0.0 0.0 (53.2)

17.0 54.8 82.3 (41.0) 0.0 424.7

$230.7 53.1 0.0 27.9

Jun

2006

0.0 527.5 77.6 605.0

0.0 0.0 0.0 (170.0) 0.0 (170.0)

(34.5) (18.7) 0.0 0.0 (53.2)

17.0 12.7 1.2 (22.3) 0.0 300.8

$210.7 53.6 0.0 27.9

Sep

0.0 605.0 3.9 609.0

0.0 0.0 0.0 (170.0) 0.0 (170.0)

(16.5) (63.9) 0.0 0.0 (80.4)

17.0 (108.7) (65.1) 86.8 0.0 254.3

$270.1 54.1 0.0 0.0

Dec

0.0 614.9 589.2 1,204.1

0.0 0.0 0.0 (680.0) 0.0 (680.0)

(120.0) (120.0) 0.0 0.0 (240.0)

68.0 108.6 (9.9) 5.5 0.0 1,509.2

$1,029.0 224.4 0.0 83.7

2008 Year

Page 7 of 10

Mark Mullikin (612) 303-6902 Piper Jaffray & Co. 6/14/2007 11:40 PM

0.8 265.7 348.4 614.9

0.0 0.0 58.8 (683.4) 20.0 (604.6)

(120.0) (120.0) 0.0 0.0 (240.0)

69.6 (84.4) (1.2) 5.7 (40.4) 1,193.0

$944.9 214.2 0.9 83.7

2007 Year

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 OP:$85

08/10/04 T:OP:$89

04/26/05 OP:$90

07/28/05 OP:$100

09/14/05 OP:$85

10/27/05 OP:$73

01/31/06 OP:$84

04/27/06 OP:$74

10/26/06 OP:$83

12/14/06 MP:$83

04/26/07 MP:$91 105 90 75 60 45

Q2

Q3

Q1

Q2

Q3

Q1

2005

Q2

2006

Q3

30

Q1 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

BUY [OP] HOLD [MP] SELL [UP]

Count

350 239 20

Percent

57.47 39.24 3.28

Count

98 24 0

Percent

28.00 10.04 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

Zimmer Holdings Inc

BUY

NYSE: ZMH, $85.14 United States

Upgraded 6/9/07

Thomas White’s Investment Conclusion The healthcare team at Thomas White projects that over the next 12 months an investment in Zimmer will return over 15%. These results should outperform the market and outperform 90% of the stocks in its industry. We recommend taxable investors buy Zimmer and hold it for long-term capital gain unless we suggest selling in the interim.

Most Favorable Favorable Neutral Unfavorable Most Unfavorable

Buy Hold Sell Current Recommendation (6/9/07) Previous Recommendation (3/10/07)

Most Favorable Favorable

BIR Stock Classifications North American Healthcare Medical Supplies Large-Cap Growth Low Risk High Quality

Region Sector Industry Asset Class Investment Style Risk Profile Rank Financial Quality

Company Fundamentals $20.2 23.9x 18.9x 3.94x Nil 24.1% 17.2% 2% 0.15

Market Capitalization (Billions) Price/Earnings Ratio (TTM) Price/Cash Flow Ratio (TTM) Price/Book Ratio (MRQ) Dividend Yield (Indicated) Net Profit Margin (TTM) Return on Equity (TTM) Debt/Equity (MRQ) Beta

Revenues ($ in Millions) FY Ends:

2004

2005

2006

2007

2008

Mar. 31

742.2

828.5

860.4

950.2

--

Jun. 30

737.4

846.8

881.6

975.0

--

Sep. 30

700.2

762.5

819.8

908.6

--

Dec. 31

801.1

848.3

933.6

1,043.4

--

2,980.9 3,286.1 3,495.4 3,878.1 4,247.8 GAAP revenues; BIR consensus estimates in italics. The fiscal year consensus BIR estimates are not the sum of individual quarters.

Full FY

Earnings Per Share ($ diluted) FY Ends:

2004

2005

2006

2007

2008

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

--

Apr. 26, 2007 -- Best Independent Research -Zimmer Holdings, Inc. (ZMH) designs, develops, manufactures and markets innovative surgical devices for the orthopedics segment. These include reconstructive implants for the spine, knee, shoulder, elbow and hip. The firm also develops trauma management products such as plates, screws, pins, nails and wires that align broken bones and foster the tissue-healing process. Further, Zimmer markets surgical products used in orthopedic and general surgery procedures, including tourniquets, blood management systems, traction devices and other orthopedic goods. The company sells its products in 24 countries apart from the U.S., catering primarily to surgeons, hospitals and healthcare organizations. Revenues for fiscal year 2005 stood at $3.3 billion.

Profits Soar on Lower Expenses Beating Street expectations, the firm's net income for the first quarter of fiscal year 2007, ended March, rose to $233.4 million or 98 cents per share from $205.6 million or 82 cents per share in the year-ago period. The number of diluted shares fell 4.4% to 239.2 million. The top line shot up 10.4% to $950.2 million, thanks to a 9% increase in sales of reconstructive and knee products, respectively. Also, gross margins crept up 29 basis points to 78.28% on account of lower cost of sales as a percentage of the top line. In addition, operating margins inched up 67 basis points to 34.43%, owing to a slight decrease in operating expenses, as a percentage of the top line. Despite a rise in provision for income taxes, higher operating income propelled the bottom line.

Lasting Impression Fuels Growth Opportunities The orthopedics devices market is characterized by high entry barriers, insulating the current industry players from outside competition. Further, aging baby boomers account for a growing number of orthopedic procedures. The firm also boasts of excellent relationships with physicians, which is 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, the brand loyalty remains high. Moreover, the firm’s gender-specific implants could increase the demand for reconstructive procedures in the future. Competition comes from players like DePuy Inc., Stryker Corporation and Biomet, Inc., as Zimmer’s rivals are slated to introduce new orthopedic products. Marketing Strategies to Promote Brand Image Innovation is the keyword for Zimmer to retain its market position and to bolster revenues. In June 2006, the company rolled out knee a replacement procedure specifically tailored for women. The firm is pinning its hopes on the success of the planned direct-to-home advertising campaign for its genderspecific implants. Its initiatives to educate physicians worldwide about the benefits of minimally invasive procedures are aimed at boosting its fortunes in the long run. Zimmer also intends to improve its manufacturing practices even further. In July 2006, the firm entered into a five-year pact with Brasseler USA which allows Zimmer to distribute Brasseler-made powered surgical instruments and consumables in the U.S. New Product in the Wings The company plans to launch the DeNovo® NT Natural Tissue Graft in the fourth quarter. It projects revenues of $975 million and $3.89 billion for the second quarter and for fiscal year 2007, respectively.

5-Year Monthly Price Range and 52-Week Moving Average logarithmic scale

December FY

$100

$50

4.03 4.60 GAAP EPS; BIR consensus estimates in italics. The fiscal year consensus BIR estimates are not the sum of individual quarters. Full FY

2.19

2.93

3.40

52-Week Moving Average Prices: CY, Financials: FY 2002 28 - 43 Price Range$20

Revenues (M) EPS (Diluted) Dividend Declared Book Value/Share

Best Independent Research LLC

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1,372.4 1.31 Nil 1.26

2003 38 - 72 1,901.0 1.38 Nil 3.54

2004 64 - 89 2,980.9 2.19 Nil 14.52

A consortium of five top-performing independent research providers.

2005 60 - 89 3,286.1 2.93 Nil 17.80

2006 52 - 79 3,495.4 3.40 Nil 20.14

2007 77 - 94

3,878.1 4.03 -21.62 BIR consensus estimates in italics

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12

A BIR Research Provider Report June 8, 2007 Page 2 of 4

Zimmer Holdings Inc NYSE: ZMH

TWI Recommendation Buy Hold Sell Current Recommendation (6/9/07) Previous Recommendation (3/10/07)

Expected Strong Performance

Most Favorable Favorable Neutral Unfavorable Most Unfavorable Most Favorable 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.

Zimmer is in TWI’s large medical supplies valuation group. Our analysts examine the largecap 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 longterm 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.

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.

Relative Strength Rank (RS Rank): ZMH & the BIR Medical Supplies Industry Top Quartile

ZMH RS Rank in BIR USETS Universe 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 A rising line means value stocks are outperforming growth stocks. investment style. 2003 2004 2005

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2006

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13

A BIR Research Provider Report June 8, 2007 Page 3 of 4

Zimmer Holdings Inc NYSE: ZMH

Medical Supplies Industry

BIR Stock Classifications Region Sector Industry Sub-Industry

North American Healthcare Medical Supplies Medical Products

1

1

3

13 Telecom

39%

2

4

4

5

Aerospace

34%

27

3

7

1

1

Metals

26%

36

Apr. 20, 2007 -- Best Independent Research -- The Medical Supplies industry includes makers of surgical, cardiac, and diagnostic instruments, as well as orthopedic and medical devices. Drug and medical equipment distributors are also components of the industry. The cardiac devices segment, which includes drug-eluting stents, defibrillators, and pacemakers, is dominated by the likes of Boston Scientific Corp. and Medtronic, Inc. The orthopedics segment is led by Stryker Corp. and Zimmer Holdings.

52-Week Sector Performance Order Past Order Median (Mos. Ago) Price Rel. St. Current 3 6 12 BIR Sector Return Rank 22

4

2

6

19 Utilities

24%

39

Oozing With Optimism

5

3

7

9

Chemicals

22%

41

6

15

9

2

Energy

19%

45

7

14 15

7

Insurance

19%

46

8

11

8

6

Industrial

19%

46

9

6

10 20 Consumer Staples 18%

47

10

5

5

10 Finance

18%

47

11

8

2

3

Capital Goods 18%

48

12

12 11 18 Retail

13

9

14

13 13 12 Services

Reflecting positive market trends and changing demographics, the medical supplies industry posted good first quarter results in fiscal year 2007. Bolstered by higher products sales, the top line rose in the high single digits. However, profits only grew in the mid-single digits since the gains were partially offset by increased tax rates and interest expenses. Operating margins too slipped in the low single digits. Driven by new clients and price-inflation of branded drugs, pharmacy benefit manager Medco Health Solutions’ net income soared to $274.8 million from $44.8 million in the year-ago quarter, while lower costs propelled competitor Express Scripts’ profits. Also, Alcon, the maker of eye care products recorded 17% jump in profits aided by higher sales of pharmaceutical and surgical offerings. On the downside, litigation charges related to accounting irregularities slashed profits of medical products supplier Cardinal Health. Besides, pharmacy services provider Omnicare took a beating due to unfavorable contract terms.

17%

49

16 16 Forest Products 17% 4

49

15%

51

15

10 12

15%

51

16

19 18 15 Healthcare

12%

55

17

17 14

10%

58

18

16 19 17 Consumer Durables 10%

59

19

20 20 14 Building

1%

71

20

18 17 11 Banking

0%

73

8

Transport Technology

Product Safety Causes for Concern Despite rising revenues, industry players are plagued by different problems. Evidences have shown that the drug-eluting stents, originally designed to replace the regular stents, have not lived up to their promises and could cause serious blood clots. That

has hit the product sales at Medtronics and Boston Scientific. Also a series of product recalls by the former unit of Guidant, subsequently acquired by Boston Scientific was widely covered in the media and caused a sharp fall in those product sales. Besides facing the prospective of future revenue falls of the problem products, companies will also incur the regulatory cost brought upon by having to solve those issues. However on the bright side, an aging population offers good growth avenues for the industry.

Buyout Frenzy Continues After Biomet, Inc., a maker of hip and knee replacement products, agreed to be acquired by private equity for $10.9 billion in January 2007. Stent maker Conor Medsystems, Inc. was taken over by Johnson & Johnson. In March, Beckman Coulter made an $85 cash tender offer to acquire Biosite. The merger has since gained regulatory approval and expects to be completed by the end of April. Interestingly, in early April, Inverness Medical Innovations has stepped in and offered $90 per share to buy Biosite. The talk is on between the two firms while the deal between Biosite and Beckman Coulter is still intact. Meanwhile, investors have been trading the shares of Biosite above $90 indicating their belief that a bidding war will end with a higher offer.

Innovations Drive Growth Investment in R&D by companies in the industry has led to new and improved products. As they become widely accepted by the market place, the companies behind them will benefit financially. It is the case for Arrow International whose new AutoCat2 WAVE intra aortic balloon pumps, used in cardiac care, are expected to be the key driver for sales in the near future. Other company like Genomic Health has already seen their revenues skyrocketing since its newly developed device called Oncotype DX, which can detect the breast cancer reoccurrence, was launched. The growth will likely to continue as more and more large insurers start to cover the use of it.

Comparing Zimmer to its Sub-Industry Peers (Medians)

Market Cap. ($) 1.72B 1.36B 11.17B 20.16B 36.81B 26.70B 18.47B 11.17B 5.20B 4.70B 2.38B 577.49M

Price ($)

BIR USETS Universe: Over 3,000 U.S. exchange-traded stocks, both domestic & international

85.14 56.50 65.27 75.38 45.49 40.76 52.94 53.30 18.06

BIR USETS UNIVERSE BIR Medical Supplies Peer Group Zimmer Holdings Inc Baxter International Inc Stryker Corp Becton Dickinson and Co Biomet Inc Varian Medical Systems Inc Henry Schein Inc Cooper Companies Invacare Corp

ZMH BAX SYK BDX BMET VAR HSIC COO IVC

Best Independent Research LLC

•

Sources: BIR consensus estimates; Reuters

52-Week Price Return & Rel. Strength Rank 17% 16% 27% 33% 49% 49% 27% 30% -12% 16% 13% -35%

51 52 37 30 17 18 37 34 87 53 55 96

Estimated PE Ratios & Relative Rankings Cur. Year Next Year 19.2 27.0 21.5 21.1 21.5 27.2 19.9 25.3 22.8 20.8 22.4 18.6

51 77 61 60 61 77 54 72 66 59 65 48

16.5 21.7 18.5 18.5 19.2 22.7 17.9 22.6 19.4 17.9 17.6 14.6

51 76 63 63 67 79 59 78 68 60 58 35

Estimated EPS Growth & Relative Rankings Cur. Year Next Year 14% 15% 15% 17% 18% 19% 15% 6% -3% 25% -3% -18%

51 48 48 44 43 42 48 66 76 34 76 87

16% 24% 17% 14% 12% 20% 12% 12% 17% 17% 27% 28%

51 34 50 59 67 42 69 69 48 50 30 29

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EPS Revisions (3 mos) & Relative Rankings Cur. Year Next Year 0% 0% 0% 2% 5% 0% 1% -1% -4% 0% -1% -3%

•

51 50 50 31 20 48 41 58 70 50 57 69

0% 0% 0% 3% 4% 0% 0% -3% -4% 0% -2% -3%

51 51 51 29 21 47 49 71 76 51 68 69

Estimated P/Sales Ratios & Relative Rankings Cur. Year Next Year 1.9 2.9 2.9 5.2 3.4 4.4 2.9 5.2 2.9 0.8 2.6 0.4

51 67 67 85 72 81 67 85 67 20 62 6

1.7 2.6 2.7 4.7 3.2 3.9 2.7 4.8 2.6 0.7 2.3 0.4

51 67 68 86 74 82 68 86 67 19 62 7

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

Zimmer Holdings Inc

Disclosures

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.

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.

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 fiveclass 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 12month 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.

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.

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A publication of

WACHOVIA CAPITAL MARKETS, LLC

Equity Research Zimmer Holdings, Inc. ZMH: Shares Remain Attractive--Increasing Estimates • WE EXPECT ZMH'S MOMENTUM TO CARRY INTO 2008: ZMH is benefiting from a resurgent orthopedics market and new product launches. We expect its product cycle to carry over into 2008 given multiple new product launches in late 2007. The most meaningful of these, in our view, are the Gender Solutions Natural Knee, the Gender Solutions hip products (the M/L Taper Stem with Kinectiv Technology and the Epoch Composite stem), and the NexGen LPS high flex mobile bearing knee. • RECON MARKET GROWTH REMAINED STRONG IN Q1 2007: We estimate that the global recon market grew by 9% constant currency (cc). Hips grew by about 9% cc (12% in the U.S., 7% cc outside the U.S.) and knees grew by about 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). • REITERATE OUTPERFORM RATING ON ZMH SHARES: Despite the $0.05 of EPS upside in Q1 2007, we continue to see potential for further upside during 2007 and 2008. ZMH (19.3x our new 2008 EPS estimate) remains at a discount to peers SNN (21.4x our 2008 EPS estimate) and SYK (23.0x our 2008 EPS estimate). We expect share price outperformance driven by potential EPS upside and multiple expansion.

Valuation Range: $102 to $112 Our 6-12 month valuation range is 22-24x our 2008 EPS estimate. This is between large-cap med tech and large-cap orthopedics peers which trade at 22x and 25x 2007 EPS estimates, respectively. Risks include the CEO transition during 2007 and share losses to hip resurfacing. 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 ZMH to leverage its ~10% sales growth into mid-teens EPS growth for next few years.

Outperform Sector: Orthopedics, Overweight May 17, 2007 Earnings Estimates Revised Up 2006A EPS Q1 (Mar.) Q2 (June) Q3 (Sep.) Q4 (Dec.) FY CY FY P/E Rev.(MM)

$0.82 0.83 0.77 1.02 $3.44 $3.44 26.1x $3,495.2

2007E Curr. Prior $0.98 A NC 0.98 0.96 0.91 0.89 1.17 1.15 $4.04 3.98 $4.04 22.3x $3,889.0

2008E Curr. Prior $1.13 1.05 1.13 1.08 1.05 1.01 1.33 1.29 $4.65 4.43 $4.65 19.3x $4,259.4

Source: Company Data, Wachovia Capital Markets, LLC estimates, and Reuters NA = Not Available, NC = No Change, NE = No Estimate, NM = Not Meaningful

Ticker Price (05/17/2007) 52-Week Range: Shares Outstanding: (MM) Market Cap.: (MM) S&P 500: Dividend/Yield: LT Debt: (MM) LT Debt/Total Cap.: ROE: 3-5 Yr. Est. Growth Rate: CY 2007 Est. P/E-to-Growth: Last Reporting Date:

ZMH $89.90 $52-95 250.1 $22,484.0 1,515.67 $0.00/0.0% $100.0 2.0% 17.0% 14.0% 1.6x 04/25/2007 After Close

Source: Company Data, Wachovia Capital Markets, LLC estimates, and Reuters

Medical Technology/Devices 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 / [email protected]

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 EQUITY RESEARCH DEPARTMENT

Medical Technology/Devices

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: $102 to $112 21.9x 24.1x 5/17 Price $89.90

ZMH Earning And Cash Flow Statistics Calendar Year Wachovia Estimates NTM 2007E EPS $4.04 $4.04 EBITDA/Share $6.49 $6.49 FCF/Share $3.66 $3.66

ZMH(1) LC Med. Device Peers Premium/(Discount) (%) LC Ortho. Peers (1) Based on Wachovia Capital Markets, LLC estimates

Min Avg Max

2008E $4.65 $7.30 $4.46

Peer P/E And PEG Metrics P/E NTM Rel S&P 2007E 2008E 1.42x 22.3x 19.3x 1.38x 22.7x 19.5x 3.1% (1.8%) (0.9%) 1.45x 24.9x 21.4x

P/E 22.2x 21.6x 3.1% 22.8x

Historical P/E Metrics 1 Year NTM P/E Rel S&P 14.5x 1.01x 18.6x 1.24x 21.5x 1.44x

Cash Flow Metrics FCF Yield LTM 2007E ZMH 3.6% 4.1% LC Med. Device Peers 3.7% NA LC Ortho. Peers 2.7% NA

Ticker ABT ACL BCR BAX BDX BMET BSX JNJ MDT SNN STJ SYK Mean Median

Price $58.90 $135.39 $82.17 $57.00 $77.44 $43.45 $15.45 $62.74 $51.46 $62.62 $42.67 $66.90 $62.66 $58.90

Mkt. Cap ($ In Millions) $90,727 $40,927 $8,509 $37,105 $18,941 $10,642 $22,784 $181,521 $59,259 $11,804 $15,102 $27,367 $45,211 $22,784

Calendar EPS 2007E 2008E $2.82 $3.23 $5.21 $5.97 $3.81 $4.38 $2.62 $2.93 $3.89 $4.34 $1.93 $2.17 $0.47 $0.67 $4.03 $4.29 $2.55 $2.91 $2.56 $2.99 $1.75 $2.01 $2.42 $2.88 $2.88 $3.26 $2.62 $2.99

Valuation Method(s): P/E Rating: Outperform

5 Years NTM P/E Rel S&P 14.5x 1.01x 25.4x 1.53x 37.1x 2.13x

2008E 5.0% NA NA

ZMH Large Cap Medical Device Comparables(2) P/E PEG 5-Yr E 2007E 2008E Growth 2007E 2008E 20.9x 18.3x 11% 1.9x 1.6x 26.0x 22.7x 16% 1.6x 1.4x 21.6x 18.8x 15% 1.5x 1.3x 21.8x 19.4x 13% 1.7x 1.5x 19.9x 17.9x 12% 1.6x 1.4x 22.5x 20.0x 14% 1.6x 1.4x 32.6x 23.2x 10% 3.4x 2.4x 15.6x 14.6x 8% 1.9x 1.8x 20.2x 17.7x 14% 1.5x 1.3x 24.5x 20.9x 14% 1.8x 1.5x 24.3x 21.2x 17% 1.4x 1.2x 27.6x 23.2x 19% 1.4x 1.2x 22.7x 19.5x 13% 1.8x 1.5x 21.8x 19.4x 14% 1.6x 1.4x Large Cap Orthopedics Comparables(2) 22.5x 20.0x 14% 1.6x 1.4x 24.5x 20.9x 14% 1.8x 1.5x 27.6x 23.2x 19% 1.4x 1.2x 24.9x 21.4x 16% 1.6x 1.4x 24.5x 20.9x 14% 1.6x 1.4x 16.2x 15.0x

BMET $43.45 $10,642 $1.93 $2.17 SNN $62.62 $11,804 $2.56 $2.99 SYK $66.90 $27,367 $2.42 $2.88 Mean $57.66 $16,604 $2.30 $2.68 Median $62.62 $11,804 $2.42 $2.88 SPX $1,512.8 $93.40 $100.77 (2) Uses First Call consensus EPS estimates. Source: FactSet, First Call, Company reports, and Wachovia Capital Markets, LLC estimates

PEG 2007E 1.6x 1.8x (11.6%) 1.6x

2008E 1.4x 1.5x (10.2%) 1.4x

5-Yr E Growth 14% 13% NA 16%

10 Years NTM P/E Rel S&P 14.5x 1.01x 25.7x 1.50x 37.1x 2.13x

EV/EBITDA 2007E 2008E 13.6x 12.1x 13.6x 12.3x 15.5x 13.7x

Div. Yld 0.00% 0.93% 0.47%

EV/EBITDA 2007E 2008E 14.3x 13.2x 19.9x 17.8x 12.8x 11.4x 13.7x 12.6x 11.2x 10.2x 13.8x 12.3x 10.5x 9.8x 9.9x 8.9x 14.6x 12.9x 14.1x 12.4x 15.3x 13.5x 16.1x 13.9x 13.6x 12.3x 13.8x 12.4x

2007E EV/Rev. 4.5x 7.4x 3.6x 3.4x 3.0x 4.7x 3.6x 3.0x 4.7x 3.7x 4.5x 4.3x 4.2x 3.7x

Debt/ Cap 47% 24% 8% 29% 23% 5% 36% 14% 36% 6% 37% 0% 24% 24%

4.7x 3.7x 4.3x 4.2x 4.3x

5% 6% 0% 4% 5%

13.8x 16.4x 16.1x 15.5x 16.1x

12.3x 14.9x 13.9x 13.7x 13.9x

2

17

WACHOVIA CAPITAL MARKETS, LLC EQUITY RESEARCH DEPARTMENT

Zimmer Holdings, Inc.

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

Implant Trauma Spine Surgical Products Total Revenue

2002A 2003A 2004A Annual Annual Annual 1,503.0 1,910.0 2,457.9 133.7 152.3 172.0 33.8 135.0 176.7 193.4 216.0 1,813.4 2,289.5 2,980.9

2005A Annual 2,720.6 179.5 160.5 225.5 3,286.1

Mar-06 Q106A 717.9 46.7 43.1 52.7 860.4

Jun-06 Q206A 733.4 49.0 46.0 53.0 881.4

Sep-06 Q306A 676.0 49.0 42.0 52.8 819.8

COGS Gross Profit R&D SG&A Total Operating Expense Operating Income

344.8 1,468.6 80.7 546.0 626.7 841.9

473.5 1,816.0 105.7 739.0 844.7 971.4

727.0 2,253.9 166.7 1,190.0 1,356.7 897.2

734.4 2,551.7 175.5 1,259.6 1,435.1 1,116.6

189.4 671.0 47.4 334.9 382.3 288.7

200.0 681.4 48.6 344.8 393.4 288.0

183.2 636.6 46.7 330.4 377.1 259.5

207.5 726.1 45.6 342.2 387.8 338.3

Interest Expense (Net) Pretax Income

12.0 829.9

13.2 958.2

31.7 865.5

14.3 1,102.3

(0.5) 289.2

(1.2) 289.2

(0.6) 260.1

Provision For Income Tax (Tax Rate)

131.1 15.8%

189.6 19.8%

268.2 31.0%

326.6 29.6%

83.9 29.0%

81.3 28.1%

Earnings Before Min. Int. Minority Interest

698.8 -

768.7 0.5

597.3 (0.1)

775.7 (0.9)

205.3 (0.3)

Net Income

698.8

769.2

597.2

774.8

Diluted Shares EPS excluding stock-based comp EPS including stock-based comp

196.8 $3.56 $3.49

210.5 $3.75 $3.32

247.5 $2.41 $2.09

249.8 $3.10 $2.75

EBITDA EBITDA Per Share

867.2 $4.41

1,074.7 $5.10

1,106.9 $4.47

1,307.3 $5.23

% Of Revenue Implant Trauma Spine Surgical Products Total Revenue

82.9% 7.4% 0.0% 9.7% 100.0%

83.4% 6.7% 1.5% 8.4% 100.0%

82.5% 5.8% 4.5% 7.2% 100.0%

19.0% 81.0% 4.5% 30.1% 34.6% 46.4% 47.8% 38.5%

20.7% 79.3% 4.6% 32.3% 36.9% 42.4% 46.9% 33.6%

69.5% 4.2% 7.9% 53.9%

COGS Gross Profit R&D SG&A Total Operating Expense Operating Income EBITDA Margin Net Income Yr/Yr Changes Implant Trauma Spine Surgical Products Total Revenue Constant Currency Tot. Rev. Gross Profit R&D SG&A Operating Income EBITDA Net Income EPS

12.7% 1.7% 239.1% 219.2% 366.5% 361.4%

Mar-07 Q107A 798.0 50.0 47.0 55.2 950.2

Jun-07 Q207E 806.6 52.9 62.1 56.7 978.3

Sep-07 Q307E 747.1 52.9 56.7 56.5 913.2

Dec-07 Q407E 870.1 54.6 62.1 60.6 1,047.4

2007E Annual 3,221.8 210.4 227.9 229.0 3,889.0

2008E Annual 3,534.2 225.1 256.2 243.8 4,259.4

206.4 743.8 52.3 361.6 413.9 329.9

222.1 756.2 53.8 379.6 433.4 322.8

208.2 705.0 50.2 355.2 405.5 299.5

226.2 821.1 52.4 387.5 439.9 381.2

862.9 3,026.1 208.7 1,483.9 1,692.6 1,333.5

929.0 3,330.4 223.2 1,604.4 1,827.5 1,502.9

(1.5) (3.8) 339.8 1,178.3

0.2 329.7

(1.4) 324.3

(2.9) 302.4

(4.4) 385.6

(8.5) 1,342.0

(34.7) 1,537.6

73.2 28.1%

95.0 28.0%

333.4 28.3%

94.0 28.5%

90.8 28.0%

84.7 28.0%

108.0 28.0%

377.4 28.1%

430.5 28.0%

207.9 (2.0)

186.9 (0.3)

244.8 (0.1)

844.9 (2.7)

235.7 (0.3)

233.5 (0.3)

217.7 (0.3)

277.7 (0.3)

964.6 (1.2)

1,107.1 (1.2)

205.0

205.9

186.6

244.7

842.2

235.4

233.2

217.4

277.4

963.4

1,105.9

250.1 $0.87 $0.82

247.7 $0.89 $0.83

242.6 $0.82 $0.77

241.0 $1.08 $1.02

245.4 $3.66 $3.44

239.2 $1.05 $0.98

238.7 $1.04 $0.98

238.2 $0.97 $0.91

237.7 $1.24 $1.17

238.5 $4.30 $4.04

238.0 $4.95 $4.65

334.9 $1.34

335.3 $1.35

310.8 $1.28

390.9 $1.62

1,371.9 $5.59

383.3 $1.60

376.2 $1.58

352.9 $1.48

434.6 $1.83

1,547.1 $6.49

1,737.8 $7.30

82.8% 5.5% 4.9% 6.9% 100.0%

83.4% 5.4% 5.0% 6.1% 100.0%

83.2% 5.6% 5.2% 6.0% 100.0%

82.5% 6.0% 5.1% 6.4% 100.0%

83.5% 5.5% 4.9% 6.1% 100.0%

83.2% 5.6% 5.1% 6.2% 100.0%

84.0% 5.3% 4.9% 5.8% 100.0%

82.4% 5.4% 6.3% 5.8% 100.0%

81.8% 5.8% 6.2% 6.2% 100.0%

83.1% 5.2% 5.9% 5.8% 100.0%

82.8% 5.4% 5.9% 5.9% 100.0%

83.0% 5.3% 6.0% 5.7% 100.0%

24.4% 75.6% 5.6% 39.9% 45.5% 30.1% 37.1% 20.0%

22.3% 77.7% 5.3% 38.3% 43.7% 34.0% 39.8% 23.6%

22.0% 78.0% 5.5% 38.9% 44.4% 33.6% 38.9% 23.8%

22.7% 77.3% 5.5% 39.1% 44.6% 32.7% 38.0% 23.4%

22.3% 77.7% 5.7% 40.3% 46.0% 31.7% 37.9% 22.8%

22.2% 77.8% 4.9% 36.7% 41.5% 36.2% 41.9% 26.2%

22.3% 77.7% 5.4% 38.7% 44.1% 33.6% 39.3% 24.1%

21.7% 78.3% 5.5% 38.1% 43.6% 34.7% 40.3% 24.8%

22.7% 77.3% 5.5% 38.8% 44.3% 33.0% 38.5% 23.8%

22.8% 77.2% 5.5% 38.9% 44.4% 32.8% 38.6% 23.8%

21.6% 78.4% 5.0% 37.0% 42.0% 36.4% 41.5% 26.5%

22.2% 77.8% 5.4% 38.2% 43.5% 34.3% 39.8% 24.8%

21.8% 78.2% 5.2% 37.7% 42.9% 35.3% 40.8% 26.0%

27.1% 13.9%

28.7% 12.9%

9.5% 26.3% 23.0%

11.7% 30.2% 26.1%

10.7% 4.4% 18.9% 4.4% 10.2% 10.1%

4.1% 2.9% 12.5% (4.9%) 3.9% 6.9%

4.0% 10.4% 11.9% (6.0%) 4.1% 4.8%

8.3% 11.4% 9.1% (5.7%) 7.5% 7.0%

11.1% 11.6% 8.0% (1.9%) 10.1% 8.5%

6.9% 9.0% 10.3% (4.6%) 6.4% 6.7%

11.2% 7.1% 9.0% 4.7% 10.4% 8.3%

10.0% 8.0% 35.0% 7.0% 11.0% 9.7%

10.5% 8.0% 35.0% 7.0% 11.4% 10.3%

11.6% 7.0% 35.0% 7.0% 12.2% 11.3%

10.8% 7.5% 28.7% 6.4% 11.3% 9.9%

9.7% 7.0% 12.4% 6.5% 9.5% 9.4%

23.7% 30.9% 35.3% 15.4% 23.9% 10.1% 5.4%

24.1% 57.8% 61.0% (7.6%) 3.0% (22.4%) (35.7%)

13.2% 5.3% 5.8% 24.5% 18.1% 29.7% 28.6%

4.8% 12.6% 4.1% 4.4% 3.5% 9.7% 16.0%

3.2% 11.5% 5.0% 0.0% (0.0%) 3.4% 11.3%

8.2% 6.4% 11.7% 4.3% 5.4% 7.2% 17.8%

9.5% (0.7%) 9.1% 11.5% 10.6% 14.0% 25.8%

6.4% 7.3% 7.4% 5.2% 4.9% 8.7% 17.9%

10.8% 10.3% 8.0% 14.3% 14.5% 14.8% 20.1%

11.0% 10.7% 10.1% 12.1% 12.2% 13.3% 17.5%

10.7% 7.5% 7.5% 15.4% 13.6% 16.5% 18.7%

13.1% 14.8% 13.2% 12.7% 11.2% 13.3% 14.9%

11.5% 10.8% 9.7% 13.5% 12.8% 14.4% 17.6%

10.1% 6.9% 8.1% 12.7% 12.3% 14.8% 15.0%

24.6% 23.9%

25.2% 24.2%

23.5% 22.4%

26.7% 29.6%

24.4% 24.4%

25.2% 24.2%

23.5% 22.6%

26.9% 28.9%

Revenue Seasonality Earnings Seasonality Source: Company reports and Wachovia Capital Markets, LLC estimates

Dec-06 2006A Q406A Annual 780.0 2,907.3 51.0 195.7 46.0 177.1 56.6 215.1 933.6 3,495.2 780.1 2,715.1 188.3 1,352.3 1,540.6 1,174.5

3

18

WACHOVIA CAPITAL MARKETS, LLC EQUITY RESEARCH DEPARTMENT

Medical Technology/Devices 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 2003A Annual 524.2 162.8 113.8 800.8 365.9 152.1 127.5 645.4 NA NA 1,910.0 152.3 33.8 193.4 2,289.5

2004A Annual 763.0 292.0 140.0 1,195.0 501.0 398.0 181.0 1,080.0 36.0 15.1 2,457.9 172.0 135.0 216.0 2,980.9

2005A Annual 881.0 328.0 159.0 1,368.0 538.0 410.0 192.0 1,140.0 148.0 64.6 2,720.6 179.5 160.5 225.5 3,286.1

Mar-06 Q106A

Jun-06 Q206A

Sep-06 Q306A

Dec-06 Q406A

240.0 88.0 38.0 366.0 142.0 104.0 47.0 293.0 40.0 18.9 717.9 46.7 43.1 52.7 860.4

236.0 90.0 42.0 368.0 146.0 106.0 47.0 299.0 47.0 19.4 733.4 49.0 46.0 53.0 881.4

225.0 72.0 41.0 338.0 141.0 90.0 47.0 278.0 42.0 18.0 676.0 49.0 42.0 52.8 819.8

241.0 102.0 46.0 389.0 150.0 119.0 50.0 319.0 50.0 22.0 780.0 51.0 46.0 56.6 933.6

32.2% 71.8% 21.2% 36.7% 27.4% 196.6% 24.5% 46.3%

15.5% 12.3% 13.6% 14.5% 7.4% 3.0% 6.1% 5.6% NA NA 10.7% 4.4% 18.9% 4.4% 10.2%

7.6% (1.1%) 2.7% 4.9% 7.6% (7.1%) (2.1%) 0.3% 21.2% 22.7% 4.1% 2.9% 12.5% (4.9%) 3.9%

4.4% 5.9% (2.3%) 4.0% 5.8% 0.0% (6.0%) 1.7% 17.5% 14.8% 4.0% 10.4% 11.9% (6.0%) 4.1%

6.1% 12.5% 7.9% 7.6% 8.5% 5.9% 4.4% 6.9% 20.0% 20.0% 8.3% 11.4% 9.1% (5.7%) 7.5%

26.8% 10.0% 4.8% 41.6% 16.4% 12.5% 5.8% 34.7% 4.5% 2.0% 82.8% 5.5% 4.9% 6.9% 100.0%

27.9% 10.2% 4.4% 42.5% 16.5% 12.1% 5.5% 34.1% 4.6% 2.2% 83.4% 5.4% 5.0% 6.1% 100.0%

26.8% 10.2% 4.8% 41.8% 16.6% 12.0% 5.3% 33.9% 5.3% 2.2% 83.2% 5.6% 5.2% 6.0% 100.0%

Worldwide Currency 0.0% 3.2% 4.1% 0.2% Constant Currency 53.8% 23.0% 26.1% 10.1% Source: Company reports and Wachovia Capital Markets, LLC estimates

(3.0%) 6.9%

(0.8%) 4.8%

Knees - US Knees - Europe Knees - Asia Pacific Knees - Total Hips - US Hips - Europe Hips - Asia Pacific Hips - Total Dental Extremities Total Implant Trauma Spinal Surgical Products Total Revenue

2002A Annual 396.6 94.8 93.9 586.0 287.3 51.3 102.5 441.0 NA NA 1,503.0 133.7 176.7 1,813.4

2006A Annual 942.0 352.0 167.0 1,461.0 579.0 419.0 191.0 1,189.0 179.0 78.3 2,907.3 195.7 177.1 215.1 3,495.2

Mar-07 Q107A

Jun-07 Q207E

Sep-07 Q307E

Dec-07 Q407E

263.0 102.0 43.0 408.0 157.0 113.0 47.0 317.0 49.0 24.0 798.0 50.0 47.0 55.2 950.2

262.2 97.5 44.6 404.2 161.5 115.2 48.0 324.7 55.5 22.1 806.6 52.9 62.1 56.7 978.3

252.0 78.6 43.5 374.1 156.4 98.1 48.4 302.9 49.6 20.5 747.1 52.9 56.7 56.5 913.2

273.5 112.7 49.0 435.2 166.8 131.0 52.9 350.7 59.1 25.2 870.1 54.6 62.1 60.6 1,047.4

9.5% 13.3% 12.2% 10.8% 8.7% 11.2% 2.0% 8.5% 25.0% 27.2% 11.1% 11.6% 8.0% (1.9%) 10.1%

6.9% 7.3% 5.0% 6.8% 7.6% 2.2% -0.5% 4.3% 20.9% 21.2% 6.9% 9.0% 10.3% (4.6%) 6.4%

9.6% 15.9% 13.2% 11.5% 10.6% 8.7% 0.0% 8.2% 22.5% 27.0% 11.2% 7.1% 9.0% 4.7% 10.4%

11.1% 8.3% 6.1% 9.8% 10.6% 8.7% 2.1% 8.6% 18.1% 14.1% 10.0% 8.0% 35.0% 7.0% 11.0%

12.0% 9.1% 6.1% 10.7% 10.9% 9.0% 3.0% 8.9% 18.1% 14.1% 10.5% 8.0% 35.0% 7.0% 11.4%

27.4% 8.8% 5.0% 41.2% 17.2% 11.0% 5.7% 33.9% 5.1% 2.2% 82.5% 6.0% 5.1% 6.4% 100.0%

25.8% 10.9% 4.9% 41.7% 16.1% 12.7% 5.4% 34.2% 5.4% 2.4% 83.5% 5.5% 4.9% 6.1% 100.0%

27.0% 10.1% 4.8% 41.8% 16.6% 12.0% 5.5% 34.0% 5.1% 2.2% 83.2% 5.6% 5.1% 6.2% 100.0%

27.7% 10.7% 4.5% 42.9% 16.5% 11.9% 4.9% 33.4% 5.2% 2.5% 84.0% 5.3% 4.9% 5.8% 100.0%

26.8% 10.0% 4.6% 41.3% 16.5% 11.8% 4.9% 33.2% 5.7% 2.3% 82.4% 5.4% 6.3% 5.8% 100.0%

0.6% 7.0%

1.6% 8.5%

(0.4%) 6.7%

2.2% 8.3%

1.3% 9.7%

2007E Annual 1,050.7 390.7 180.1 1,621.5 641.6 457.3 196.2 1,295.2 213.2 91.9 3,221.8 210.4 227.9 229.0 3,889.0

2008E Annual 1,156.2 424.0 190.0 1,770.2 715.4 503.5 207.0 1,426.0 239.3 98.8 3,534.2 225.1 256.2 243.8 4,259.4

13.5% 10.5% 6.5% 11.9% 11.2% 10.1% 5.7% 9.9% 18.1% 14.5% 11.6% 7.0% 35.0% 7.0% 12.2%

11.5% 11.0% 7.8% 11.0% 10.8% 9.2% 2.7% 8.9% 19.1% 17.3% 10.8% 7.5% 28.7% 6.4% 11.3%

10.0% 8.5% 5.5% 9.2% 11.5% 10.1% 5.5% 10.1% 12.3% 7.5% 9.7% 7.0% 12.4% 6.5% 9.5%

27.6% 8.6% 4.8% 41.0% 17.1% 10.7% 5.3% 33.2% 5.4% 2.2% 81.8% 5.8% 6.2% 6.2% 100.0%

26.1% 10.8% 4.7% 41.6% 15.9% 12.5% 5.0% 33.5% 5.6% 2.4% 83.1% 5.2% 5.9% 5.8% 100.0%

27.0% 10.0% 4.6% 41.7% 16.5% 11.8% 5.0% 33.3% 5.5% 2.4% 82.8% 5.4% 5.9% 5.9% 100.0%

27.1% 10.0% 4.5% 41.6% 16.8% 11.8% 4.9% 33.5% 5.6% 2.3% 83.0% 5.3% 6.0% 5.7% 100.0%

1.1% 10.3%

0.9% 11.3%

1.4% 9.9%

0.2% 9.4%

Yr/Yr Changes Knees - US Knees - Europe Knees - Asia Pacific Knees - Total Hips - US Hips - Europe Hips - Asia Pacific Hips - Total Dental Extremities Total Implant Trauma Spinal Surgical Products Total Revenue

69.5% 4.2% 7.9% 53.9%

27.1% 13.9% 9.5% 26.3%

45.6% 79.3% 23.0% 49.2% 36.9% 161.7% 41.9% 67.3% NA NA 28.7% 12.9% 299.4% 11.7% 30.2%

21.9% 5.2% 5.2% 32.3% 15.8% 2.8% 5.6% 24.3% NA NA 82.9% 7.4% 0.0% 9.7% 100.0%

22.9% 7.1% 5.0% 35.0% 16.0% 6.6% 5.6% 28.2% NA NA 83.4% 6.7% 1.5% 8.4% 100.0%

25.6% 9.8% 4.7% 40.1% 16.8% 13.4% 6.1% 36.2% 1.2% 0.5% 82.5% 5.8% 4.5% 7.2% 100.0%

% Of Revenue Knees - US Knees - Europe Knees - Asia Pacific Knees - Total Hips - US Hips - Europe Hips - Asia Pacific Hips - Total Dental Extremities Total Implant Trauma Spinal Surgical Products Total Revenue

4

19

WACHOVIA CAPITAL MARKETS, LLC EQUITY RESEARCH DEPARTMENT

Zimmer Holdings, Inc.

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

Security Price

$71.00 $68.00 $65.00 $62.00 $59.00 $56.00 $53.00 $50.00 5/9/07

4/11/07

3/14/07

2/14/07

1/17/07

12/20/06

11/22/06

9/27/06

10/25/06

8/30/06

7/5/06

8/2/06

6/7/06

5/10/06

4/12/06

3/15/06

2/15/06

1/18/06

12/21/05

11/23/05

9/28/05

10/26/05

8/3/05

8/31/05

7/6/05

6/8/05

5/11/05

4/13/05

3/16/05

2/16/05

1/19/05

12/22/04

11/24/04

10/27/04

9/1/04

9/29/04

8/4/04

6/9/04

7/7/04

5/12/04

$47.00

Da t e

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Suspended N o t R a te d 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 EQUITY RESEARCH DEPARTMENT

Medical Technology/Devices

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.

Wachovia Capital Markets, LLC has provided investment banking services for 38% of its Equity Research Outperform-rated companies.

55% of companies covered by Wachovia Capital Markets, LLC Equity Research are rated Market Perform.

Wachovia Capital Markets, LLC has provided investment banking services for 33% of its Equity Research Market Perform-rated companies.

3% of companies covered by Wachovia Capital Markets, LLC Equity Research are rated Underperform.

Wachovia Capital Markets, LLC has provided investment banking services for 23% of its Equity Research Underperform-rated companies.

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21

WACHOVIA CAPITAL MARKETS, LLC EQUITY RESEARCH DEPARTMENT

Zimmer Holdings, Inc.

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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

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23

Daily Letter | 1 17 May 2007

Zimmer Holdings BUY ZMH : NYSE : US$90.59

Target: US$113.00

COMPANY STATISTICS: 52-week Range: Avg. Daily Vol. (000): Market Capitalization (M):

52.20-94.38 1,410 21,669.1

EARNINGS SUMMARY: FYE Dec Revenue (M):

Q1 Q2 Q3 Q4

Total EPS:

Q1 Q2 Q3 Q4

Total

2006A 860.4 881.6 819.8 933.6 3,495.4

2007E 950.2A 975.3 910.6 1,050.1 3,886.3

2008E 4,286.7

0.82 0.81 0.76 1.02 3.40

0.98A 0.97 0.91 1.16 4.02

4.60

SHARE PRICE PERFORMANCE:

William J. Plovanic, CFA 1.312.674.4836 [email protected] Anup Mehta 1.312.674.4989 [email protected]

Life Sciences -- Biomedical Devices and Services

TOTAL JOINTS ARE HIP AND EXCITING AGAIN Initiating coverage on Zimmer with a BUY rating and $113 price target. Gender-specific products expected to bolster revenue growth through 2008. Zimmer is the innovator of gender-specific offerings with its knee 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 is driving domestic results with OUS expected to benefit in 2008-2009. New product introductions in alternative bearing surfaces help Zimmer catch up with the Joneses. CoC and MoM hips were introduced in late 2006/early 2007, bringing Zimmer in line with the competition in terms 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.

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.

Foreign exchange and pricing likely to be a tailwind rather than a 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 longerlasting 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 tuckin 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 Mean 1.5 24.5 $112.47

Trough 1.0 16.3 $74.98

Target P/E/G multiple for ZMH common Implied P/E Multiple on ZMH common Implied Price Target on ZMH common

Financial Metrics Used in P/E Valuation Analysis Broad large-cap Orthopedic Mean PEG Over Time Extimated three-year forward EPS CAGR for ZMH ZMH C2008E GAAP EPS

Peak 2.5 40.8 $187.45

1.5x 16.3% $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 AVG P/E: 28.37

45

40

35

30

25

20

2/28/2007

12/28/2006

8/28/2006

10/28/2006

6/28/2006

4/28/2006

2/28/2006

12/28/2005

8/28/2005

10/28/2005

6/28/2005

4/28/2005

2/28/2005

12/28/2004

8/28/2004

10/28/2004

6/28/2004

4/28/2004

2/28/2004

12/28/2003

8/28/2003

10/28/2003

6/28/2003

4/28/2003

2/28/2003

12/28/2002

8/28/2002

10/28/2002

6/28/2002

15

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.

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Daily Letter | 9 17 May 2007

Figure 4: Zimmer Holdings reconstructive products Hip Cemented Stems Fracture Stems Acetabular Implants MIS Hip Porous Stems Alternative Bearing Trabecular Metal Total RevisionAbility Knee Gender Solutions HTO™ System Cruciate Retaining Tibial/Patella Implants Patella-Femoral MIS Knee Unicompartmental Revision

Implants of varying material and design, affixed to femur using bone cement Various implants designed to treat femoral neck fractures Designed for mobility and bone ingrowth. Metal-on-metal and metal-on-poly options Hip revision or replacement with modified techniques and instrumentation Implants of varying material and design which yields fixation and bone ingrowth without cement Polyethylene acetabular cup liners designed to resist wear Hip stem & acetabular cup implants made of porous titanium with 2-3x improved bone ingrowth System of instrumentation and implants designed for use in hip revision surgery Implants designed for better fit and durability based on patient gender High tibial osteotomy system to realign damaged knee Knee implants that allow surgeon to retain cruciate ligament Implants to replace tibial plane or patella Implant for osteoarthritis of anterior knee or for total knee arthroplasty Knee revision or replacement with modified techniques and instrumentation Devices for replacement of single femoral condyle 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 Lumbar Dynesys

Fusion devices for the cervical spine Fusion devices for the lumbar spine 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 Intrameduallary Nail System Femoral Fixation System Plates Locking Plates External Fixation Systems Soft Tissue Attachment Cannulated Screws

Implant used to manage osteonecrosis of the femoral head Implant systems designed to treat femoral and tibial long bone fractures Implants for femoral long bone fractures Various plates and screws for small to reconstructive fractures Plates with locking screw technology for fractures in the tibia and femur External fixation for the upper and lower extremities Titanium and resorbable suture anchors to effectively reattach soft tissue to bone 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™ Anatomical Shoulder™ Inverse/Reverse System Bigliani/Flatow® Select® Shoulder Trabecular Metal Stem Trabecular Metal Reverse Shoulder System Elbow Coonrad/Moorey

Modular shoulder implant can be tailored to patient anatomy Allows surgeon to convert hemi- or total shoulder arthroplasty into inverse/reverse shoulder Total shoulder replacement system Total shoulder replacement system Humeral stem designed with trabecular metal material for improved bone ingrowth Reverse shoulder system designed with trabecular metal material for improved bone ingrowth 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 Puros Allograft Puros Symmetry PLIF CopiOs™

Cortical and cancellous bone allograft used in ALIF Allograft bone products for applications in the spine Single donor allograft spacer for use in PLIF 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.

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Daily Letter | 11 17 May 2007

Figure 9: Zimmer Holdings dental products Dental Implants Prosthetics Regenerative

Implants and instruments to ensure efficacy and optimum esthetics Temporary and permanent prosthetics for optimum esthetics 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 6.1% Other Spine 1.9%

Arthroscopy 13.2%

Bone Cement 0.5% Bracing 5.0%

Spine - Metal 18.4%

Trauma 11.9%

Total Joint Market 41.1%

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 0.4%

JNJ 30.3%

WMGI 2.8% SNN 8.4%

SYK 20.9%

BMET 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.

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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% SNN 10.5%

BMET 11.7%

EXAC 1.1% ENMC 0.5%

JNJ 24.2%

ZMH 30.0%

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.

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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 8.5%

Synthes 14.3%

ENMC 0.2%

SYK 7.2%

Others 5.8% ARTC 0.6%

ATEC 1.4%

JNJ 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 2.4%

Biomet 2.1%

Orthofix (Blackstone) Globus 2.2% 2.0%

Alphatec 1.4%

Abbot 2.8%

St. Francis/Kyphon 1.1% Others 7.3%

Zimmer 4.0% Stryker 6.5%

Synthes 12.4%

DePuy/JNJ 15.7%

MDT 42.6%

Source: Company reports and Canaccord Adams estimates

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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 6.9%

BMET 4.8%

SNN 11.9%

SYK 18.2%

Others 2.5%

JNJ 6.4% OFIX 2.5%

Synthes 46.8%

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.

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Daily Letter | 16 17 May 2007

Figure 16: 2006E worldwide orthobiologics market

2006 WW Orthobiologics Market Est. Value of $1.4B, Growing 22% Osteotech 6.7% Tutogen 1.9% Stryker 6.7% Alphatec/Cortek 0.4%

RTIX 0.2% Synthes/MTF 15.2%

Wright Medical 2.5% IsoTis 2.5% DePuy 8.5%

Others 3.6%

Medtronic/RTI 46.5%

Biomet 2.1% 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.

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Daily Letter | 17 17 May 2007

Figure 17: 2006E worldwide extremities market

2006 WW Extremities Market Share Est. Value of $452M, Growing 17%

SNN 2%

BMET 16%

EXAC 1% WMGI 11%

Encore Medical 1% IART 6%

ZMH 19%

SYK 5%

Other 22% JNJ 17%

Source: Company reports and Canaccord Adams estimates

Figure 18: 2006E worldwide extremities product mix

2006 WW Extremities Market Products

Elbow 7%

Shoulder 49%

Finger 8%

Other 36%

Source: Company reports and Canaccord Adams estimates

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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 2%

Nobel Biocare 39%

BioHorizons 1% LifeCcore 2%

Dentsply 8% Zimmer 9%

Straumann 25% 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.

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Daily Letter | 19 17 May 2007

Figure 20: 2007 CMS reimbursement

Arthroscopy

Spine

Total Joint

Trauma

Extremities

2007 Description Reimbursement Soft tissue procedures with complications and comorbidities $8,430.86 Soft tissue procedures without complications and comorbidities $4,454.58 Arthroscopy $5,026.46 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 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 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 Traumatic injury age>17 with complications or comorbidities Traumatic injury age>17 without complications or comorbidities Traumatic injury age 0-17 Lower extrem & humer proc except hip, foot, femur age>17 with complications or comorbidities Lower extrem & humer proc except hip, foot, femur age>17 without complications or comorbidities Lower extrem & humer proc except hip, foot, femur age 0-17 Major shoulder/elbow proc, or other upper extremity proc with complications or comorbidities Shoulder, elbow or forearm proc, excluding major joint proc, without complications or comorbidities Foot procedures Major thumb or joint proc, or other hand or wrist proc with complications or comorbidities Hand or wrist proc, excpect major joint proc, without complications or comorbidities Local excision and removal of internal fixation devices of hip & femur Fractures of femur Fractures of hip & pelvis Local excision and removal of internal fixation devices of hip & femur without complications or comorbidities

$5,428.22 $4,020.75 $2,738.41 $1,570.35 $8,819.70 $5,705.38 $3,096.23 $6,063.71 $4,437.51 $6,605.60 $5,965.98 $3,731.71 $6,915.84 $4,247.23 $3,973.70 $5,317.57

Source: Centers for Medicare and Medicaid Services & Canaccord Adams

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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.

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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%

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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

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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

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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

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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.

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Daily Letter | 26 17 May 2007

Figure 21: Zimmer Holdings income statement Zimmer Holdings Pro Forma Income Statement (US$MLN, except per share data)

1Q06

2Q06

Net Sales

3,286.1

860.4

881.6

819.8

933.6

3,495.4

950.2

975.3

910.6

10%

1% 4%

2% 4%

-7% 8%

14% 10%

6%

2% 10%

3% 11%

-7% 11%

734.4 2,551.7

189.4 671.0

200.0 681.6

183.2 636.6

207.5 726.1

780.1 2,715.3

206.4 743.8

211.5 763.9

199.8 710.8

As % of revenues

77%

78%

77%

78%

78%

78%

78%

78%

78%

Selling, General & Administrative Selling Marketing, Promotion & Distr. Research & Development Proforma Op Profit (Ex One-time Chgs Only)

1,259.6 641.0 442.0 175.5 1,116.6

334.9 163.0 108.9 47.4 290.5

344.8 168.0 112.0 48.6 281.9

330.4 155.4 109.0 46.7 254.5

345.6 172.0 109.0 45.6 338.3

1,355.7 658.4 438.9 188.3 1,165.2

361.6 180.5 115.1 52.3 332.6

386.3 185.3 130.0 53.6 323.9

360.0 173.0 117.0 50.1 300.7

Sequential growth Yr-to-Yr % change

Cost of Goods Sold Gross Profit

As % of revenues

GAAP Operating Profit As % of revenues

EBITDA As % of revenues

Excluded Restructuring Charges Interest Inc/(Exp) Income Before Taxes Income Taxes Net Income Before Minority Int. As % of revenues

Minority Interest Net Income to Shareholders

FY 2006 3Q06 4Q06

Canaccord Adams - William J. Plovanic, CFA - 312-674-4836 FY 2007 E FY 2008 E 2006 1Q07 2Q07e 3Q07e 4Q07e 2007e 2008e

FY 2005 2005

32%

34%

32%

31%

36%

33%

35%

33%

33%

1,055.0

288.7

288.2

259.5

334.9

1,171.3

329.9

323.9

300.7

32%

34%

33%

32%

36%

34%

35%

33%

33%

1,302.3

354.9

350.0

322.8

410.9

1,438.6

406.9

400.5

375.7

40%

41%

40%

39%

44%

41%

43%

41%

41%

(61.2) (14.3)

1.8 0.5

(6.3) 1.2

(5.0) 0.6

3.4 1.5

(6.1) 3.8

2.7 (0.2)

0.0 3.0

0.0 5.0

1,101.9 326.6 775.3

291.0 85.1 205.9

283.1 82.0 201.1

255.1 71.9 183.2

339.8 95.0 244.8

1,169.0 334.0 835.1

327.0 94.0 233.0

326.9 93.2 233.7

305.7 87.1 218.6

22%

24%

23%

22%

26%

24%

25%

24%

24%

(0.3) (0.2) 205.6 200.9

0.1 183.3

(0.1) 244.7

(0.5) 834.6

(0.3) (0.1) (0.1) 232.7 233.6 218.5

(0.9) 774.4

1,050.1 3,886.3 15% 12%

4,286.7

11%

10%

229.4 847.0 820.7 3,039.2

923.8 3,362.8

78%

78%

378.5 1,486.4 199.5 738.4 109.0 471.1 57.8 213.8 384.4 1,341.7

1,611.5 814.5 507.0 232.0 1,519.4

78%

34%

35%

384.4 1,339.0

1,519.4

37% 37%

34%

35%

465.4 1,648.6

1,859.4

44%

42%

43%

0.0 7.0

0.0 14.8

0.0 50.0

391.4 1,353.8 111.6 385.2 279.9 968.7

1,569.4 447.3 1,122.1

27%

25%

26%

(0.1) 279.8

(0.6) 968.1

0.0 1,122.1

24%

24%

23%

22%

26%

24%

24%

24%

24%

27%

25%

26%

$2.93 $3.10

$0.82 $0.82

$0.81 $0.81

$0.76 $0.76

$1.02 $1.02

$3.40 $3.40

$0.98 $0.98

$0.97 $0.97

$0.91 $0.91

$1.16 $1.16

$4.02 $4.02

$4.60 $4.60

249.8 29%

250.1 247.7 10% 2%

242.6 9%

241.0 18%

245.4 10%

239.2 19%

240.0 20%

241.0 20%

242.0 14%

240.6 18%

243.0 14%

Impact of FAS 123 R pre-tax Pre-tax Excluding FAS 123 R Tax Rate Net Excluding FAS 123 R

18.2 309.2 90.4 218.5

19.6 302.7 88.7 213.8

17.0 272.1 76.6 195.6

20.0 359.8 100.0 259.7

74.8 1,243.8 355.7 887.7

20.9 347.9 99.2 248.5

25.0 351.9 100.3 251.5

25.0 330.7 94.3 236.4

26.0 96.9 417.4 1,450.7 119.0 412.7 298.4 1,038.0

100 1,669 476 1,194

ProForma EPS Excluding FAS 123 R

$0.87 $0.86 16% 8%

$0.81 16%

$1.08 26%

$3.62 17%

$1.04 19%

$1.05 21%

$0.98 12%

$1.23 14%

$4.32 19%

$4.91 14%

78.2% 38.2% 5.5% 34.5% 28.4% 24.9%

78.4% 37.6% 5.4% 35.4% 28.5% 26.2%

As % of revenues

GAAP EPS ProForma EPS (Ex One-time ChgsOnly) CASH EPS Diluted Shares Yr-to-Yr % change Proforma EPS

Margins Gross Selling, General & Administrative Research & Development Proforma Operating Tax Rate Net

77.7% 38.3% 5.3% 34.0% 29.6% 23.6%

78.0% 38.9% 5.5% 33.8% 29.2% 23.9%

77.3% 39.1% 5.5% 32.0% 29.0% 22.8%

77.7% 40.3% 5.7% 31.0% 28.2% 22.4%

77.8% 37.0% 4.9% 36.2% 28.0% 26.2%

77.7% 38.8% 5.4% 33.3% 28.6% 23.9%

78.3% 38.1% 5.5% 35.0% 28.7% 24.5%

78.3% 39.6% 5.5% 33.2% 28.5% 24.0%

78.1% 39.5% 5.5% 33.0% 28.5% 24.0%

78.2% 36.0% 5.5% 36.6% 28.5% 26.7%

Seq. Growth Rates Revenues EBITDA Pretax EPS

---------

1.4% 2.5% 0.5% -1.4% -3.7% -2.7% -4.1% -1.3%

-7.0% -7.8% -9.9% -6.8%

13.9% 27.3% 33.2% 34.4%

---------

1.8% -1.0% -3.8% -3.4%

2.6% -1.6% 0.0% -0.8%

-6.6% -6.2% -6.5% -6.9%

15.3% 23.9% 28.0% 27.5%

YoY Growth Rates Revenues EBITDA Pretax EPS

10.2% 20.0% 26.4% 28.6%

3.9% 4.1% 10.3% 5.0% 8.0% -0.2% 9.6% 1.7%

7.5% 9.7% 3.4% 8.6%

10.1% 16.4% 12.5% 18.4%

6.4% 10.5% 6.1% 9.8%

10.4% 14.7% 12.4% 19.4%

10.6% 14.4% 15.5% 20.0%

11.1% 16.4% 19.8% 20.0%

12.5% 13.3% 15.2% 13.9%

---------

11.2% 14.6% 15.8% 18.2%

---------

10.3% 12.8% 15.9% 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 (US$MLN) Worldwide Knees Hips Dental Extremities

2003

2004

1Q05

2Q05

FY 2005 3Q05 4Q05

2005

1Q06

2Q06

FY2006 3Q06

4Q06

2006

Canaccord Adams - William J. Plovanic - CFA 1-312-674-4836 FY 2007E FY 2008 E 1Q07 2Q07e 3Q07e 4Q07e 2007e 2008e

801 646 30 45

1,195.1 1,079.5 125.6 56.8

348 292 33 17

354 294 40 17

314 260 35 15

351 294 40 17

1,366 1,140 148 65

366 293 40 19

368 299 47 20

338 278 42 18

389 319 50 22

1,462 1,189 180 78

408 317 49 25

414 320 55 24

381 299 50 21

440 349 59 27

1,643 1,285 213 96

1,817 1,381 250 111

Total Reconstructive Implants Spinal Trauma Other Surgical Products Total Worldwide YoY Change Americas Knees Hips Dental Extremities

1,521 35 150 195 1,901 39%

2,457.0 134.4 172.7 217.9 2,982.0 57%

689 38 45 55 829 12%

705 41 44 57 847 15%

624 38 44 55 763 9%

701 43 46 57 848 6%

2,720 160 180 225 3,285 10%

719 43 47 51 860 4%

734 46 49 53 882 4%

676 42 48 53 820 8%

780 46 51 57 934 10%

2,909 178 195 214 3,496 6%

799 47 50 55 950 10%

812 54 52 57 975 11%

751 50 52 58 911 11%

875 55 56 64 1,050 12%

3,237 205 210 234 3,886 11%

3,558 240 231 257 4,287 10%

524 366 18 34

761 499 78 40

222 132 19 12

226 138 24 11

212 131 22 11

220 138 24 12

880 539 89 46

240 142 24 12

236 146 27 14

225 141 27 12

241 150 30 14

942 579 108 53

263 157 29 17

268 161 31 18

257 155 30 16

275 169 35 18

1,062 641 125 68

1,190 706 144 78

Total Reconstructive Implants Spinal Trauma Other Surgical Products Total Americas YoY Change Asia Pacific Knees Hips Dental Extremities

941 30 100 137 1,208 29%

1,378 112 106 146 1,742 44%

385 32 26 37 480 14%

399 34 25 38 495 15%

376 33 28 37 473 10%

394 35 28 36 493 8%

1,553 133 107 148 1,942 11%

418 36 28 33 516 7%

423 38 27 32 521 5%

405 36 30 31 502 6%

435 37 32 34 538 9%

1,681 147 117 131 2,076 7%

465 40 30 33 568 10%

477 45 30 35 587 13%

458 43 33 34 568 13%

496 45 35 38 614 14%

1,897 173 128 140 2,337 13%

2,117 203 140 154 2,614 12%

114 128 3 4

142 182 14 5

37 48 4 2

43 50 5 2

38 45 5 1

42 49 5 1

159 192 19 6

38 47 4 3

42 47 7 3

41 47 5 3

46 50 6 2

168 191 22 10

43 47 6 3

44 47 8 3

42 48 7 3

48 52 9 3

177 194 30 12

194 204 40 14

Total Reconstructive Implants Spinal Trauma Other Surgical Products Total Asia Pacific YoY Change Europe Knees Hips Dental Extremities

250 1 33 43 327 21%

342 3 39 47 432 32%

90 1 11 11 114 9%

101 2 10 12 124 15%

89 1 9 12 111 8%

96 2 10 13 121 3%

376 6 39 48 469 9%

92 2 10 12 116 2%

98 2 10 13 123 0%

96 2 9 14 121 8%

105 3 10 12 129 7%

391 9 39 50 489 4%

99 2 10 13 124 7%

102 2 10 13 127 3%

100 2 10 15 126 4%

112 3 11 15 140 8%

412 8 41 56 517 6%

452 10 46 62 570 10%

163 152 8 7

292 399 33 12

89 112 10 3

85 106 11 3

64 85 8 3

90 107 11 4

327 410 40 13

88 104 12 4

90 106 14 3

72 90 11 3

102 119 14 6

353 419 50 15

102 114 14 5

102 112 16 3.3

83 95 12 3

118 128 16 6

405 449 57 17

433 472 66 19

Total Reconstructive Implants Spinal Trauma Other Surgical Products Total Europe YoY Change

330 5 16 15 366 114%

737 19 28 24 808 121%

214 5 9 7 235 9%

206 5 9 8 228 15%

159 5 8 6 178 6%

212 6 8 8 234 3%

790 21 34 29 874 8%

208 5 9 6 228 -3%

213 6 12 9 239 5%

175 4 9 8 197 11%

241 7 10 10 267 14%

837 22 39 33 931 7%

234 5 10 9 259 13%

233 7 12 9 261 9%

194 5 10 9 217 10%

267 7 10 11 296 11%

928 24 42 38 1,032 11%

989 28 45 40 1,102 7%

Zimmer Holdings YoY Growth of Revenues Worldwide Knees Hips Dental Extremities Total Reconstructive Implants Spinal Trauma Other Surgical Products Total Worldwide Americas Knees Hips Dental Extremities Total Reconstructive Implants Spinal Trauma Other Surgical Products Total Americas Asia Pacific Knees Hips Dental Extremities Total Reconstructive Implants Spinal Trauma Other Surgical Products Total Asia Pacific Europe Knees Hips Dental Other Reconstructive Total Reconstructive Implants Spinal Trauma Other Surgical Products Total Europe

2003

2004

1Q05

37% 46%

49% 67%

31%

26%

43%

62%

12% 10% 39%

33% 27%

2Q05

FY 2005 3Q05 4Q05

2005

1Q06

2Q06

FY2006 3Q06

4Q06

2006

Canaccord Adams - William J. Plovanic - CFA 1-312-674-4836 FY 2007 E FY 2008 E 1Q07 2Q07e 3Q07e 4Q07e 2007e 2008e

19% 6% 18% 11%

20% 10% 28% 15%

12% 4% 19% 12%

7% 3% 7% 23%

14% 6% 17% 15%

5% 0% 21% 17%

4% 2% 19% 16%

8% 7% 20% 17%

11% 9% 27% 26%

7% 4% 22% 19%

11% 8% 22% 30%

12% 7% 16% 22%

13% 8% 18% 19%

13% 9% 18% 23%

12% 8% 18% 24%

11% 7% 18% 15%

15% 12% 57%

13% 14% 1% 6% 12%

16% 23% 1% 8% 15%

9% 19% 9% 3% 9%

6% 22% 6% -3% 6%

11% 19% 4% 3% 10%

4% 12% 4% -8% 4%

4% 14% 10% -7% 4%

8% 10% 9% -4% 8%

11% 8% 11% -1% 10%

7% 11% 8% -5% 6%

11% 8% 5% 8% 10%

11% 16% 7% 8% 11%

11% 18% 9% 8% 11%

12% 19% 10% 12% 12%

11% 15% 8% 9% 11%

10% 17% 10% 10% 10%

45% 36% NM 16%

22% 9% 17% 10%

21% 9% 24% 14%

12% 6% 18% 12%

8% 9% -2% 30%

16% 8% 13% 16%

8% 7% 26% 7%

5% 6% 16% 23%

6% 8% 19% 13%

9% 9% 27% 17%

7% 7% 22% 15%

10% 10% 19% 40%

14% 10% 15% 25%

14% 10% 15% 25%

14% 13% 15% 25%

13% 11% 16% 28%

12% 10% 15% 15%

46% NM 5% 7% 44%

16% 11% -6% 5% 14%

17% 21% -2% 3% 15%

10% 24% 11% -1% 10%

8% 22% 4% -3% 8%

13% 19% 2% 1% 11%

9% 15% 8% -12% 7%

6% 12% 8% -15% 5%

8% 10% 8% -15% 6%

10% 6% 14% -5% 9%

8% 11% 9% -12% 7%

11% 10% 5% -1% 10%

13% 18% 10% 10% 13%

13% 19% 10% 10% 13%

14% 22% 10% 10% 14%

13% 17% 9% 7% 13%

12% 17% 10% 10% 12%

20% 24%

24% 42% NM NM

10% 7% 24% 114%

21% 12% 57% 125%

11% 7% 25% 127%

9% -2% 33% 100%

13% 6% 34% 18%

3% -2% 6% 188%

-3% -7% 38% 125%

10% 3% 2% 179%

12% 3% 22% 200%

5% -1% 18% 67%

13% -1% 63% 108%

5% 0% 23% 120%

1% 3% 37% 100%

3% 4% 39% 150%

5% 2% 38% 18%

10% 5% 33% 20%

26%

37% NM 17% 12% 32%

9% 140% 8% 5% 9%

17% 113% 4% 3% 15%

10% 9% 1% 3% 8%

4% 94% -9% -4% 3%

10% 77% 1% 1% 9%

2% 33% -7% 7% 2%

-2% 41% 2% 9% 0%

7% 67% 5% 14% 8%

9% 66% -5% -8% 7%

4% 52% -1% 5% 4%

8% -6% -4% 7% 7%

4% -17% 0% 4% 3%

4% 0% 8% 5% 4%

6% -14% 16% 25% 8%

6% -10% 5% 10% 6%

10% 20% 14% 12% 10%

79% 163% NM 72%

16% 3% 19% 10%

18% 10% 27% 13%

12% 1% 16% 4%

4% -3% 20% 11%

12% 3% 21% 10%

0% -7% 18% 18%

6% 0% 18% -12%

13% 6% 35% 2%

14% 11% 27% 38%

8% 2% 24% 13%

16% 10% 14% 16%

13% 6% 15% 10%

15% 6% 15% 10%

15% 7% 15% 10%

15% 7% 15% 12%

7% 5% 15% 10%

123% NM 73% 58% 121%

8% 23% 18% 10% 9%

14% 18% 8% 56% 15%

6% -6% 14% 25% 6%

1% 11% 45% 0% 3%

7% 11% 20% 20% 8%

-3% -7% 5% -15% -3%

3% 13% 25% 9% 5%

10% -6% 15% 32% 11%

14% 5% 21% 30% 14%

6% 2% 17% 14% 7%

13% 3% 14% 58% 13%

10% 15% 5% 6% 9%

10% 15% 5% 6% 10%

11% 15% 5% 6% 11%

11% 12% 7% 15% 11%

7% 15% 6% 6% 7%

36% 33% 7% 3% 29%

6% 7% 21%

69% 200% 3% 115% 100% 68% 114%

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 Company Name

Ticker

Price

52-Week High

Low

% of

Market

High

Cap

CY EPS 06

07E

08E

2-Year CAGR 08/06

P/E Ratio 06

07E

P/E/G 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.

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%

JOHNSON & JOHNSON

JNJ

$

61.82

69.41

58.84

89.1%

LABORATORY CORP. OF AMERICA HOLDINGS LH $ MEDTRONIC INC.

BIOMET INC.

QUEST DIAGNOSTICS INC. SMITH & NEPHEW PLC

$ (2.07) $ 0.80 $ 0.96

0.0%

n/m

19.4x

16.2x

n/m

n

179,065 $ 3.73 $ 4.05 $ 4.31

23,123

7.5%

16.6x

15.3x

14.3x

1.5x

1.

9,123 $ 3.24 $ 4.21 $ 4.77

21.2%

23.9x

18.4x

16.3x

1.2x

0.

12.0%

22.7x

20.8x

18.1x

0.5x

2.

77.58

81.00

58.05

95.8%

MDT

$

52.91

54.86

42.37

96.4%

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

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.

60,795

$2.33

$2.54

$2.92

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 Sum

17

1700.0%

16

17

17

13

1

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 Each authoring analyst of Canaccord Adams whose name appears on the front page of this investment Analyst Certification: 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: Global Stock Ratings (as of 1 May 2007)

Rating Buy Speculative Buy Hold Sell

Canaccord Ratings System:

Coverage Universe # % 310 58.5% 64 12.1% 132 24.9% 24 4.5% 530 100.0%

IB Clients % 41.9% 71.9% 34.1% 4.2%

BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months. 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 Zimmer Holdings

Disclosure 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.

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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. 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. 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. 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.

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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 [email protected]. 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.

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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 Residents:

This Investment Research complies with of the Financial Services Authority's Handbook's chapter on Conduct 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 Residents:

Canaccord Adams Inc., a US registered broker-dealer, accepts responsibility for this Investment Research and 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.

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