ZIMMER HOLDINGS, INC. AND SUBSIDIARIES 2003 FORM 10-K The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Closing Date. Notes to Consolidated Financial Statements (Continued) of the integration liability, as of December 31, 2003, is as follow (in millions): As of the Closing Date, the Company recorded a $75.7 million integration liability consisting of $49.7 million of employee termination benefits, $22.6 million of sales agent and lease contract termination costs and $3.4 million of employee relocation costs. In accordance with EITF 95-3 ‘‘Recognition of Liabilities Assumed in a Purchase Business Combination’’, these liabilities have been included in the allocation of the purchase price. The Company’s integration plan covers all functional business areas, including sales force, research and development, manufacturing and administrative. Approximately 800 Centerpulse employees will be involuntarily terminated through the Company’s integration plan. The Company expects to phase-out production at its Austin, Texas manufacturing facility beginning in August 2004. The phase-out will result in the involuntary termination of approximately 550 employees, including 340 employees involved in manufacturing. Products previously manufactured at the Austin facility will be sourced from the Company’s other manufacturing facilities. The Company expects to hire additional manufacturing employees at its other manufacturing facilities to handle increased production schedules. The phase-out is expected to be completed by the end of 2005. As of December 31, 2003, approximately forty Centerpulse employees had been involuntarily terminated. The Company’s integration plan is expected to be completed by the end of 2005. Reconciliation These unaudited pro forma results have been prepared for comparative purposes only and include adjustments such as amortization of acquired intangible assets and interest expense on debt incurred to finance the Exchange Offers. The unaudited pro forma results for 2003 exclude $11.2 million of in-process research and development write- offs, $170.0 million ($121.3 million net of tax) of investment banking fees, legal and accounting fees, break-up fee, compensation expense related to the accelerated vesting of certain Centerpulse stock options, distributor terminations, integration related consulting and professional fees, severance and other acquisition and integration related expenses, and inventory step-up of $95.3 million ($62.1 million net of tax). The following sets forth unaudited pro forma financial information (i) derived from the financial statements of the Company for the years ended December 31, 2003 and 2002 and (ii) derived from the financial statements of Centerpulse for the year ended December 31, 2002 and the nine month period ended September 30, 2003. The unaudited pro forma financial information is based on the financial statements of the Company and the financial statements of Centerpulse and has been adjusted to give effect to the Exchange Offers as if they had occurred on January 1 of the respective years: The $11.2 million assigned to in-process research and development was written off as of the Closing Date in accordance with FASB Interpretation No. 4, ‘‘Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method’’. The fair value of acquired in- process research and development was determined in accordance with the AICPA practice aid entitled ‘‘Assets Acquired in a Purchase Business Combination to be used in Research and Development Activities’’. Goodwill of $1,263.6 million, $836.3 million and $104.8 million was assigned to the Americas, Europe and Asia Pacific geographic segments, respectively. None of the goodwill is expected to be deductible for tax purposes. See Note 7 for more information related to goodwill and acquired intangible assets. Closing Cash December 31, Date Payments 2003 Employee termination benefits $49.7 $20.7 $29.0 Contract terminations 22.6 0.2 22.4 Employee relocation 3.4 – 3.4 $75.7 $20.9 $54.8 43 (in millions) (Unaudited; in millions, except per share amounts) 2003 2002 Net Sales $2,588.6 $2,167.9 Earnings before cumulative effect of change in accounting principle 453.5 312.6 Net Earnings 508.6 312.6 Earnings Per Share, before cumulative effect of change in accounting principle – Diluted $ 1.85 $ 1.30 Earnings Per Share – Diluted $ 2.08 $ 1.30 As of October 2, 2003 Current assets $ 796.8 Property, plant and equipment 169.9 Intangible assets not subject to amortization: Trademarks and trade names 243.0 Intangible assets subject to amortization: Core technology 116.0 Developed technology 309.0 Trademarks and trade names 31.0 Customer relationships 34.0 In-process research and development 11.2 Deferred taxes 537.4 Other assets 83.9 Goodwill 2,204.7 Total assets acquired 4,536.9 Short-term debt 306.3 Deferred taxes 250.3 Other current liabilities 274.6 Integration liability 75.7 Long-term liabilities 176.6 Total liabilities assumed 1,083.5 Net assets acquired $3,453.4