2003 FORM 10-K ZIMMER HOLDINGS, INC. AND SUBSIDIARIES shipment. Products are marketed and sold to all types of Company customers via both direct channel accounts and stocking distributors and healthcare dealers. No individual direct channel account or stocking distributor or healthcare dealer accounted for more than 10 percent of the Company’s net revenues for 2003. The Company carries inventory in warehouse facilities and retains title to consigned inventory in sufficient quantities so that products are available when needed for surgical procedures. Safety stock levels are determined based on a number of factors including demand, manufacturing lead times and optimal quantities required to maintain the highest possible service levels. The Company also carries trade accounts receivable balances based on credit terms that are generally consistent with local market practices. The Company utilizes more than 2,000 sales associates, sales managers and support personnel, some of whom are employed by independent distributors and sales agencies. The Company invests a significant amount of time and expense in providing training in such areas as product features and benefits, how to use specific products and how to best inform surgeons of such features and uses. The presence of sales representatives is deemed by surgeons and hospitals to be desirable in a high number of procedures and the extensive sales training provided by the Company enables representatives, when requested, to be a useful and valuable resource for surgeons during surgeries. Sales force representatives rely heavily on strong technical selling skills, medical education and the ability to provide staff technical support for surgeons. In response to the different healthcare systems throughout the world, the Company’s sales and marketing strategies and organizational structures differ by region. The Company has, however, carefully integrated a global approach to sales force training, marketing and medical education into each locality to provide consistent, high quality service. Additionally, the Company keeps current with key surgical developments and other issues related to musculoskeletal surgeons and the medical procedures they perform, in part through sponsorship of medical education events. In 2003, the Company sponsored more than 500 medical education events and meetings with and among musculoskeletal surgeons around the world. Americas.  The Americas is the largest geographic segment, accounting for 63.6 percent of 2003 net sales, with the United States accounting for $1,152 million of sales in this region. The United States sales force consists of independent sales agents, together with sales associates, sales managers and sales support personnel, the majority of which sell Company products exclusively for orthopaedics. The sales force in the spinal area is generally permitted to sell other non-competitive products. Sales agents in the United States receive a commission on product sales and are responsible for many operating decisions and costs. Sales commissions are accrued at the time of sale. In this region, the Company has also concentrated on negotiating contracts with buying groups and managed care accounts and has increased unit growth by linking the level Asia Pacific.  The Asia Pacific geographic segment accounted for 17.2 percent of 2003 net sales, with Japan being the largest market within this segment, accounting for the majority of sales in this region. In Japan and most countries in the Asia Pacific region, the Company maintains a network of dealers who act principally as order agents on behalf of hospitals in the region, together with sales associates and sales support personnel who build and maintain strong relationships with musculoskeletal surgeons in their markets. The knowledge and skills of the Company’s sales associates play a critical role in Japan because many surgeons perform orthopaedic surgeries infrequently and must rely on orthopaedic sales personnel for product support Europe.  The European geographic segment accounted for 19.2 percent of 2003 net sales, with France, Germany, Italy, Spain, Switzerland and the United Kingdom collectively accounting for more than 80 percent of net sales in the region. In addition, the Company also operates in other key markets such as the Benelux, Nordic, and Central and Eastern Europe. The Company’s sales force in this region is also comprised of independent distributors, commissioned agents, direct sales associates and sales support personnel. With the acquisition of Centerpulse, the Company has substantially increased its presence in the European orthopaedic reconstructive implant market. In the Americas, the Company maintains an extensive monitoring and incentive system ranking sales agents across a range of performance metrics. The Company evaluates and rewards sales agents based on achieving certain sales targets and on maintaining efficient levels of working capital. The Company sets expectations for efficient management of inventory and provides sales agents a strong motivation to aid in the collection of receivables because the Company does not pay them the full amount of their sales commission until the Company receives payment. of discount received to volume of purchases by customer health care institutions within a specified group. At negotiated thresholds within a contract buying period, price discounts increase. For these buying groups and managed care accounts, the Company tracks sales volume by contract and as contractual volume thresholds are achieved, the higher discounts are applied at an item level on customer invoices. Under these buying contracts, the Company is generally designated as one of several identified preferred purchasing sources for the members of the buying group for specified products, although the members are not obligated to purchase the Company’s products. The Company has become increasingly diligent with regard to all contracted sales accounts, ensuring that pricing targets are competitive in the industry. These buying contracts generally have a term of three years with extensions as warranted. The Company’s current arrangements with Novation and Health Trust Purchasing Group expire in 2007. The Company has extended its contract with Premier until August 2004 and is currently negotiating a new contract with Premier which is expected to expire in 2007. The Company contemplates entering into future additional national contracts with other managed care accounts and buying groups. 4