2003 FORM 10-K ZIMMER HOLDINGS, INC. AND SUBSIDIARIES Part I ITEM 1. Business  GENERAL CUSTOMERS, SALES AND MARKETING 3 Zimmer Holdings, Inc., a Delaware corporation, is a global leader in the design, development, manufacture and marketing of reconstructive orthopaedic implants, including joint and dental, spinal implants, and trauma products and related orthopaedic surgical products. The Company is headquartered in Warsaw, Indiana. Unless the context requires otherwise, the term ‘‘Zimmer’’ and ‘‘Company’’ refer to Zimmer Holdings, Inc. and all of its subsidiaries. On October 2, 2003, the Company announced the closing of its exchange offer for Centerpulse AG (‘‘Centerpulse’’), a leading global orthopaedic medical device company headquartered in Switzerland that services the reconstructive joint, spine and dental implant markets. The Centerpulse acquisition provided the Company with a leading position in the European orthopaedic reconstructive implant market and a platform in the fast growing spinal market. The aggregate consideration paid by the Company for Centerpulse and InCentive Capital AG, a company that beneficially owned 18.3 percent of the issued Centerpulse shares (‘‘InCentive’’), excluding direct acquisition costs, was approximately $3.4 billion, consisting of approximately 44.5 million shares of Company common stock (valued at approximately $2.2 billion) and approximately $1.2 billion in cash. The Company used its $1.75 billion senior credit facility to finance the cash component. On March 2, 2004, the Company entered into an Amended and Restated Agreement and Plan of Merger (the ‘‘Merger Agreement’’) relating to the acquisition of Implex Corp. (‘‘Implex’’). Pursuant to the terms of the Merger Agreement, the shareholders of Implex will receive an initial cash payment and deferred, contingent earn-out payments, also payable in cash. In 2000, the Company entered into an exclusive, worldwide strategic alliance for commercialization of Implex’s innovative  Hedrocel ˛ $^{1}$ biomaterial, which the Company has marketed as  Trabecular Metal $^{TM}$ Technology. The proposed merger is an anticipated outcome of the Company’s alliance relationship with Implex. The acquisition is expected to close in April of 2004. Zimmer was incorporated on January 12, 2001 as a wholly-owned subsidiary of Bristol-Myers Squibb Company (‘‘Bristol-Myers’’). Zimmer, Inc., a predecessor founded in 1927, was acquired by Bristol-Myers in 1972 and along with its wholly-owned subsidiaries and certain other of Bristol- Myers’ operations comprised the orthopaedics business of Bristol-Myers. On August 6, 2001, the Company was spun off from Bristol-Myers and became an independent public company. The Company’s primary customers include musculoskeletal surgeons, neuro-surgeons, oral surgeons, dentists, hospitals, distributors, healthcare dealers and, in their capacity as agents, healthcare purchasing organizations or buying groups. These customers range from large multinational enterprises to independent surgeons. A majority of hospitals in the United States belong to at least one group purchasing organization. In 2003, individual hospital orders purchased through contractual arrangements with such purchasing organizations or buying groups accounted for approximately 45 percent of the Company’s net sales, excluding Centerpulse, in the United States. Contractual sales were highest through Novation, LLC (‘‘Novation’’), Premier Purchasing Partners, L.P. (‘‘Premier’’), and Health Trust Purchasing Group, representing 15 percent, 13 percent and 7 percent, respectively, of net sales, excluding Centerpulse, in the United States. No individual end-user, however, accounted for over 1 percent of the Company’s net sales and the top ten end-users accounted for approximately 5 percent of the Company’s aggregate net sales in the United States. Historically, annual variations in contractual purchases by individual end-users affiliated with buying groups have equaled in the aggregate, and the Company expects will continue to equal in the aggregate, no more than 15 to 20 percent per buying group. Please see the  ‘‘Americas’’ below for more detail regarding the Company’s contractual arrangements with buying groups. After the acquisition of Centerpulse, the Company now has operations in more than 24 countries and markets products in more than 80 countries, with corporate headquarters in Warsaw, Indiana, and manufacturing, distribution and warehousing and/or office facilities in more than 60 locations worldwide. The Company manages its operations through three major geographic segments – the Americas, which is comprised principally of the United States and includes other North, Central and South American markets; Europe, which is comprised principally of Europe and includes the Middle East and Africa; and Asia Pacific, which is comprised primarily of Japan and includes other Asian and Pacific markets. Information about geographic segments can be found in Note 17 to the Consolidated Financial Statements, which are included herein under Item 8. The Company sells product through two principal channels: 1) direct to health care institutions, such as hospitals, which is referred to as a direct channel account, and 2) through stocking distributors and, in the Asia Pacific region, healthcare dealers. Through the direct channel accounts, inventory is generally consigned to sales agents or customers so that products are available when needed for surgical procedures. With the sales to stocking distributors and healthcare dealers, title to product passes generally upon 1 Trademark of Implex Corp.