2003 FORM 10-K ZIMMER HOLDINGS, INC. AND SUBSIDIARIES Cash flows used in investing activities were $1,102.7 million in 2003 compared with $35.7 million in 2002. The increase was principally due to the Centerpulse and InCentive acquisitions, which included cash payments to former Centerpulse and InCentive shareholders of $1,187.1 million and cash payments for direct acquisition costs of $37.2 million, offset by cash acquired of $296.6 million. During June 2003, the Company acquired the TransFx  External Fixation System product line from Immedica, Inc. for $14.8 million. In addition, the January 1, 2003 change in accounting principle for instruments resulted in the Company classifying instrument purchases as capital expenditures during 2003 versus being expensed in 2002. Cash payments for instruments were $113.6 million during 2003. Instrument purchases increased to support sales growth, new product launches and  MIS  procedure growth. Cash flows provided by financing activities during 2003 were impacted by the Company’s $1,357 million borrowing on October 2, 2003 to finance the Centerpulse and InCentive acquisitions, refinance existing Company debt and debt assumed from Centerpulse, and pay certain acquisition closing costs. This initial borrowing was reduced by fourth quarter operating cash flows, including the collection of $20.0 million of cash related to Centerpulse tax loss carryforwards, cash received from the exercise of Company stock options and cash acquired from Centerpulse and InCentive. In connection with the Centerpulse and InCentive acquisitions, the Company entered into the following committed financing arrangements: (i) $400 million 364-day revolving credit facility, (ii) $800 million three-year revolving credit facility and (iii) $550 million five-year term loan facility, (collectively, the ‘‘Senior Credit Facility’’). Available borrowings under the Senior Credit Facility at December 31, 2003, were approximately $548 million. Effective on the closing date of the acquisitions, the Company terminated its $600 million, committed, multi-currency revolving senior credit facility. The Company and certain of its wholly owned foreign and domestic subsidiaries are the borrowers and its wholly owned domestic subsidiaries are the guarantors of the Senior Credit Facility. Borrowings may bear interest at the appropriate LIBOR-based rate, or an alternative base rate, plus an applicable margin determined by reference to the Company’s senior unsecured long-term debt rating and the amounts drawn under the Senior Credit Facility. The Senior Credit Facility contains customary affirmative and negative covenants and events of default for an unsecured financing arrangement. Financial covenants include a maximum leverage ratio and a minimum interest coverage ratio. The Management believes that cash flows from operations, together with available borrowings under the Senior Credit Facility, will be sufficient to meet the Company’s working capital, capital expenditure and debt service needs. should investment opportunities arise, the Company believes that its earnings, balance sheet and cash flows will allow the Company to obtain additional capital, if necessary. The Company had $77.5 million in cash and equivalents, $14.5 million in restricted cash and outstanding borrowings of $1,109.1 million as of December 31, 2003. The Company expects to pay off the remaining debt balance by the end of 2006 with cash provided from operations absent any cash requirements for significant acquisitions. The Company intends to maintain a capital structure that is consistent with an investment grade credit rating. As a result of the Centerpulse acquisition, on September 29, 2003, Standard & Poor’s Ratings Services raised its corporate credit and senior unsecured ratings on the Company to ‘‘BBB’’ from ‘‘BBB–’’. At December 31, 2003, Moody’s corporate credit and senior unsecured ratings on the Company were ‘‘Baa3’’. On March 2, 2004, the Company entered into an Amended and Restated Merger Agreement relating to the acquisition of Implex, a privately held orthopaedics company based in New Jersey, for cash. Each share of Implex stock will be converted into the right to receive cash having an aggregate value of approximately $108 million at closing and additional cash earn-out payments that are contingent on the growth of Implex product sales through 2006. The net value transferred at closing will be approximately $89 million, which includes adjustments for debt repayment, certain payments previously made by Zimmer to Implex pursuant to their existing alliance arrangement, escrow and other items. The Company expects to finance the initial cash payment with borrowings available under its Senior Credit Facility. The Company expects to pay the contingent payments, if any, with cash flows from operations and borrowings available under its Senior Credit Facility. The Company expects to incur Centerpulse integration expenses during 2004 of approximately $128.0 million. These expenses are expected to be paid out principally during 2004 with cash flows from operations and borrowings available under the Senior Credit Facility. The Company also has available uncommitted credit facilities totaling $35 million. Company is in compliance with all covenants under the Senior Credit Facility as of December 31, 2003. Commitments under the $400 million 364-day revolving credit facility and the $800 million three-year revolving credit facility are subject to certain fees, including a facility and a utilization fee. 27