10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

Commission File Number 001-16407

ZIMMER HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 13-4151777
(IRS Employer
Identification No.)

345 East Main Street, Warsaw, IN 46580

(Address of principal executive offices)

Telephone: (574) 267-6131

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No  þ

As of July 22, 2010, 200,961,162 shares of the registrant’s $.01 par value common stock were outstanding.

ZIMMER HOLDINGS, INC.

INDEX TO FORM 10-Q

June 30, 2010

			Page
Part I — Financial Information
	Item 1.	Financial Statements
		Consolidated Statements of Earnings for the Three and Six Months Ended June 30, 2010 and 2009		3
		Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009		4
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009		5
		Notes to Interim Consolidated Financial Statements		6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25
	Item 4.	Controls and Procedures		25
Part II — Other Information
		There is no information required to be reported under any items except those indicated below.
	Item 1.	Legal Proceedings		26
	Item 1A.	Risk Factors		26
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26
	Item 5.	Other Information		26
	Item 6.	Exhibits		27
Signatures				28
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

Part I — Financial Information

Item 1.   Financial Statements

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(In millions, except per share amounts, unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Net Sales	$	1,057.7		$	1,019.9		$	2,120.5		$	2,012.5
Cost of products sold		250.6			236.8			519.0			467.0
Gross Profit		807.1			783.1			1,601.5			1,545.5
Research and development		55.1			49.9			106.1			101.8
Selling, general and administrative		437.4			432.3			884.1			856.0
Certain claims (Note 13)		75.0			—			75.0			—
Net curtailment and settlement (Note 10)		—			(32.1	)		—			(32.1	)
Acquisition, integration, realignment and other (Note 2)		11.5			36.5			14.1			43.5
Operating expenses		579.0			486.6			1,079.3			969.2
Operating Profit		228.1			296.5			522.2			576.3
Interest and other, net		(14.3	)		(4.0	)		(28.9	)		(7.7	)
Earnings before income taxes		213.8			292.5			493.3			568.6
Provision for income taxes		48.3			82.4			122.4			156.3
Net Earnings of Zimmer Holdings, Inc.	$	165.5		$	210.1		$	370.9		$	412.3
Earnings Per Common Share
Basic	$	0.82		$	0.98		$	1.83		$	1.89
Diluted	$	0.82		$	0.98		$	1.82		$	1.88
Weighted Average Common Shares Outstanding
Basic		201.9			214.7			202.4			218.1
Diluted		203.0			215.5			203.6			218.8

The accompanying notes are an integral part of these consolidated financial statements.

3

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts)

	June 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	953.7		$	691.7
Short-term investments		33.0			66.4
Accounts receivable, less allowance for doubtful accounts		765.1			751.4
Inventories, net		885.8			913.2
Prepaid expenses and other current assets		127.6			105.4
Deferred income taxes		217.6			209.9
Total current assets		2,982.8			2,738.0
Property, plant and equipment, net		1,170.6			1,221.7
Goodwill		2,637.6			2,783.5
Intangible assets, net		818.5			858.0
Other assets		217.8			184.3
Total Assets	$	7,827.3		$	7,785.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	115.0		$	134.6
Income taxes		25.4			57.5
Other current liabilities		461.4			498.6
Total current liabilities		601.8			690.7
Other long-term liabilities		360.4			328.5
Long-term debt		1,130.6			1,127.6
Total Liabilities		2,092.8			2,146.8
Commitments and Contingencies (Note 13)
Stockholders’ Equity:
Common stock, $0.01 par value, one billion shares authorized, 254.3 million shares issued in 2010 (254.1 million in 2009)		2.5			2.5
Paid-in capital		3,252.9			3,214.6
Retained earnings		5,473.4			5,102.5
Accumulated other comprehensive income		224.1			358.6
Treasury stock, 52.8 million shares in 2010 (49.9 million in 2009)		(3,218.4	)		(3,039.5	)
Total Stockholders’ Equity		5,734.5			5,638.7
Total Liabilities and Stockholders’ Equity	$	7,827.3		$	7,785.5

The accompanying notes are an integral part of these consolidated financial statements.

4

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions, unaudited)

	For the Six Months
	Ended June 30,
	2010			2009
Cash flows provided by (used in) operating activities:
Net earnings of Zimmer Holdings, Inc.	$	370.9		$	412.3
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization		165.8			161.4
Net curtailment and settlement		—			(32.1	)
Share-based compensation		30.6			40.1
Income tax benefit from stock option exercises		2.9			0.2
Excess income tax benefit from stock option exercises		(1.0	)		—
Inventory step-up		1.3			7.0
Changes in operating assets and liabilities, net of effect of acquisitions:
Income taxes		(70.5	)		4.8
Receivables		(51.3	)		(29.8	)
Inventories		27.5			(51.8	)
Accounts payable and accrued expenses		(37.4	)		(119.4	)
Other assets and liabilities		93.4			(13.0	)
Net cash provided by operating activities		532.2			379.7
Cash flows provided by (used in) investing activities:
Additions to instruments		(83.1	)		(75.9	)
Additions to other property, plant and equipment		(26.7	)		(54.7	)
Purchases of short-term investments		(4.0	)		—
Sales of short-term investments		37.0			—
Acquisition of intellectual property rights		(8.2	)		(25.9	)
Investments in other assets		(6.9	)		(17.8	)
Net cash used in investing activities		(91.9	)		(174.3	)
Cash flows provided by (used in) financing activities:
Net borrowing under credit facilities		—			200.0
Proceeds from employee stock compensation plans		8.1			3.6
Excess income tax benefit from stock option exercises		1.0			—
Acquisition of noncontrolling interest		—			(7.8	)
Repurchase of common stock		(178.9	)		(337.8	)
Net cash used in financing activities		(169.8	)		(142.0	)
Effect of exchange rates on cash and cash equivalents		(8.5	)		1.5
Increase in cash and cash equivalents		262.0			64.9
Cash and cash equivalents, beginning of year		691.7			212.6
Cash and cash equivalents, end of period	$	953.7		$	277.5

The accompanying notes are an integral part of these consolidated financial statements.

5

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1.   Basis of Presentation

The financial data presented herein is unaudited and should be read in conjunction with the consolidated financial statements and accompanying notes included in the 2009 Annual Report on Form 10-K filed by Zimmer Holdings, Inc. In our opinion, the accompanying unaudited consolidated financial statements include all adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the interim periods presented. The December 31, 2009 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Results for interim periods should not be considered indicative of results for the full year. Certain amounts in the 2009 consolidated financial statements have been reclassified to conform to the 2010 presentation.

The words “we,” “us,” “our” and similar words refer to Zimmer Holdings, Inc. and its subsidiaries. Zimmer Holdings refers to the parent company only.

2.   Significant Accounting Policies

Acquisition, Integration, Realignment and Other — We recognize expenses resulting directly from our business combinations and other items as “Acquisition, integration, realignment and other” expenses. Acquisition, integration, realignment and other expenses for the three and six month periods ended June 30, 2010 and 2009 included (in millions):

	Three Months					Six Months
	Ended					Ended
	June 30,					June 30,
	2010			2009		2010			2009
Impairment/loss on disposal of assets	$	7.7		$	1.3	$	8.1		$	1.3
Consulting and professional fees		0.9			0.8		1.9			2.6
Employee severance and retention, including share-based compensation acceleration		2.3			16.6		2.2			16.8
Information technology integration		—			0.1		0.1			0.2
Facility and employee relocation		0.5			0.9		0.5			1.8
Vacated facilities		—			1.4		—			1.4
Distributor acquisitions		—			1.8		—			3.1
Certain litigation matters		(0.5	)		4.8		(1.3	)		4.8
Contract terminations		0.6			6.9		2.6			7.9
Other		—			1.9		—			3.6
Acquisition, integration, realignment and other	$	11.5		$	36.5	$	14.1		$	43.5

Recent Accounting Pronouncements — There are no recently issued accounting pronouncements that we have yet to adopt that are expected to have a material effect on our financial position, results of operations or cash flows.

6

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.   Comprehensive Income

The reconciliation of net earnings to comprehensive income is as follows:

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2010			2009			2010			2009
	(In millions)						(In millions)
Net earnings of Zimmer Holdings, Inc.	$	165.5		$	210.1		$	370.9		$	412.3
Other Comprehensive Income:
Foreign currency cumulative translation adjustments		(97.0	)		88.9			(179.4	)		47.2
Unrealized foreign currency hedge gains/(losses), net of tax		24.3			(34.7	)		53.0			(12.4	)
Reclassification adjustments on foreign currency hedges, net of tax		(8.3	)		(6.2	)		(9.2	)		(12.3	)
Unrealized losses on securities, net of tax		—			(0.1	)		—			(0.5	)
Adjustments to prior service cost and unrecognized actuarial assumptions, net of tax		0.2			5.8			1.1			20.4
Total Other Comprehensive Income		(80.8	)		53.7			(134.5	)		42.4
Comprehensive Income Attributable to Zimmer Holdings, Inc.	$	84.7		$	263.8		$	236.4		$	454.7

4.   Inventories

	June 30,		December 31,
	2010		2009
	(In millions)
Finished goods	$	707.1	$	718.6
Work in progress		58.0		48.0
Raw materials		120.7		146.6
Inventories, net	$	885.8	$	913.2

5.   Property, Plant and Equipment

	June 30,			December 31,
	2010			2009
	(In millions)
Land	$	21.5		$	21.8
Buildings and equipment		1,120.5			1,147.7
Capitalized software costs		161.6			158.8
Instruments		1,255.8			1,210.2
Construction in progress		60.5			62.0
		2,619.9			2,600.5
Accumulated depreciation		(1,449.3	)		(1,378.8	)
Property, plant and equipment, net	$	1,170.6		$	1,221.7

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ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.   Debt

Long-term debt as of June 30, 2010 consisted of our unsecured senior notes (Senior Notes) and borrowings under our $1,350 million senior credit agreement (Senior Credit Facility). Outstanding long-term debt as of June 30, 2010 was $1,130.6 million, comprised of $998.8 million from our Senior Notes and $131.8 million from our Senior Credit Facility. There was no short-term debt outstanding. The estimated fair value of our Senior Notes as of June 30, 2010, based on quoted prices for the specific securities from transactions in active markets, was $1,064.2 million. The carrying value of the Senior Credit Facility approximates fair value, as the underlying instruments have variable interest rates at market value.

7.   Fair Value Measurement of Assets and Liabilities

The following assets and liabilities are recorded at fair value on a recurring basis as of June 30, 2010 (in millions):

			Fair Value Measurements at Reporting Date Using:
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Recorded		Assets		Inputs		Inputs
	Balance		(Level 1)		(Level 2)		(Level 3)
Assets
Derivatives, current and long-term	$	51.0	$	—	$	51.0	$	—
	$	51.0	$	—	$	51.0	$	—
Liabilities
Derivatives, current and long-term	$	16.8	$	—	$	16.8	$	—
	$	16.8	$	—	$	16.8	$	—

The following assets and liabilities were recorded at fair value on a recurring basis as of December 31, 2009 (in millions):

			Fair Value Measurements at Reporting Date Using:
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Recorded		Assets		Inputs		Inputs
	Balance		(Level 1)		(Level 2)		(Level 3)
Assets
Derivatives, current and long-term	$	12.4	$	—	$	12.4	$	—
	$	12.4	$	—	$	12.4	$	—
Liabilities
Derivatives, current and long-term	$	32.7	$	—	$	32.7	$	—
	$	32.7	$	—	$	32.7	$	—

Derivatives relate to foreign currency exchange forward contracts entered into with various third parties. We value these instruments using a market approach based on foreign currency exchange rates obtained from active markets and perform ongoing assessments of counterparty credit risk.

8

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.   Derivative Instruments and Hedging Activities

We are exposed to certain market risks relating to our ongoing business operations, including foreign currency risk, commodity price risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through regular operating and financing activities. Currently, the only risk that we manage through the use of derivative instruments is foreign currency risk.

We operate on a global basis and are exposed to the risk that our financial condition, results of operations and cash flows could be adversely affected by changes in foreign currency exchange rates. To reduce the potential effects of foreign currency exchange rate movements on net earnings, we enter into derivative financial instruments in the form of foreign currency exchange forward contracts and options with major financial institutions. We are primarily exposed to foreign currency exchange rate risk with respect to transactions and net assets denominated in Euros, Swiss Francs, Japanese Yen, British Pounds, Canadian Dollars, Australian Dollars, Korean Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan Dollars, South African Rand, Russian Rubles and Indian Rupees. We do not use derivative financial instruments for trading or speculative purposes.

We report all derivative instruments as assets or liabilities on the balance sheet at fair value.

Derivatives Designated as Hedging Instruments

Our revenues are generated in various currencies throughout the world. However, a significant amount of our inventory is produced in U.S. Dollars. Therefore, movements in foreign currency exchange rates may have different proportional effects on our revenues compared to our cost of products sold. To minimize the effects of foreign currency exchange rate movements on cash flows, we hedge intercompany sales of inventory expected to occur within the next 30 months with foreign currency exchange forward contracts and options. We designate these derivative instruments as cash flow hedges. We have not entered into any derivative instruments designated as fair value or net investment in foreign operation hedges.

We perform quarterly assessments of hedge effectiveness by verifying and documenting the critical terms of the hedge instrument and that forecasted transactions have not changed significantly. We also assess on a quarterly basis whether there have been adverse developments regarding the risk of a counterparty default. For derivatives which qualify as hedges of future cash flows, the effective portion of changes in fair value is temporarily recorded in other comprehensive income and then recognized in cost of products sold when the hedged item affects net earnings. The ineffective portion of a derivative’s change in fair value, if any, is reported in cost of products sold immediately. The net amount recognized in earnings during the three and six month periods ended June 30, 2010 and 2009 due to ineffectiveness and amounts excluded from the assessment of hedge effectiveness was not significant.

For forward contracts and options outstanding at June 30, 2010, we have obligations to purchase U.S. Dollars and sell Euros, Japanese Yen, British Pounds, Canadian Dollars, Australian Dollars, Korean Won, Swedish Krona, Czech Koruna, Thai Baht, Taiwan Dollars, South African Rand, Russian Rubles and Indian Rupees and purchase Swiss Francs and sell U.S. Dollars at set maturity dates ranging from July 2010 through December 2012. The notional amounts of outstanding forward contracts and options entered into with third parties to purchase U.S. Dollars at June 30, 2010 were $1.1 billion. The notional amounts of outstanding forward contracts entered into with third parties to purchase Swiss Francs at June 30, 2010 were $197.2 million.

As of June 30, 2010 and December 31, 2009, all derivative instruments designated as cash flow hedges are recorded at fair value on the balance sheet. On our consolidated balance sheet, we recognize individual forward contracts and options with the same counterparty on a net asset/liability basis if we have a master netting agreement

9

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

with the counterparty. The fair value of derivative instruments on a gross basis as of June 30, 2010 and December 31, 2009 is as follows (in millions):

	June 30, 2010			December 31, 2009
	Balance			Balance
	Sheet	Fair		Sheet	Fair
	Location	Value		Location	Value
Asset Derivatives
Foreign exchange forward contracts	Other current assets	$	40.9	Other current assets	$23.3
Foreign exchange forward contracts	Other assets		20.0	Other assets	6.3
Total asset derivatives		$	60.9		$29.6
Liability Derivatives
Foreign exchange forward contracts	Other current liabilities	$	19.7	Other current liabilities	$35.4
Foreign exchange forward contracts	Other long-term liabilities		7.0	Other long-term liabilities	14.5
Total liability derivatives		$	26.7		$49.9

The fair value of outstanding derivative instruments recorded on the balance sheet at June 30, 2010, together with settled derivatives where the hedged item has not yet affected earnings, was a net unrealized gain of $24.8 million, or $29.8 million after taxes, which is deferred in other comprehensive income, of which $19.7 million, or $22.1 million after taxes, is expected to be reclassified to earnings over the next twelve months.

Derivative instruments had the following effects on other comprehensive income (OCI) on our consolidated balance sheet and our consolidated statement of earnings on a gross basis for the three and six month periods ended June 30, 2010 and 2009 (in millions):

	Amount of Gain/(Loss) Recognized
	in OCI										Amount of Gain/(Loss) Reclassified from OCI to Cost of Products Sold
	Three Months					Six Months					Three Months				Six Months
	Ended June 30,					Ended June 30,					Ended June 30,				Ended June 30,
Derivative Instrument	2010		2009			2010		2009			2010		2009		2010		2009
Foreign exchange forward contracts	$	28.3	$	(42.8	)	$	58.9	$	(11.7	)	$	8.0	$	6.4	$	7.6	$	10.7
Foreign exchange options		—		(1.1	)		—		(0.9	)		—		0.3		—		0.9
Total	$	28.3	$	(43.9	)	$	58.9	$	(12.6	)	$	8.0	$	6.7	$	7.6	$	11.6

Derivatives Not Designated as Hedging Instruments

We enter into foreign currency forward exchange contracts with terms of one month to manage currency exposures for monetary assets and liabilities denominated in a currency other than an entity’s functional currency. As a result, any foreign currency remeasurement gains/losses recognized in earnings are generally offset with gains/losses on the foreign currency forward exchange contracts in the same reporting period. These offsetting gains/losses are recorded in cost of products sold as the underlying assets and liabilities exposed to remeasurement include inventory-related transactions. These contracts are settled on the last day of each reporting period. Therefore, there is no outstanding balance related to these contracts recorded on the balance sheet as of the end of the reporting period. The notional amounts of these contracts are typically in a range of $1.1 billion to $1.4 billion per quarter.

10

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following gains/(losses) from these derivative instruments were recognized in cost of products sold on our consolidated statement of earnings (in millions):

	Three Months Ended June 30,					Six Months Ended June 30,
Derivative Instrument	2010		2009			2010		2009
Foreign exchange forward contracts	$	11.1	$	(5.9	)	$	18.3	$	(3.3	)
Total	$	11.1	$	(5.9	)	$	18.3	$	(3.3	)

This impact does not include any offsetting gains/losses recognized in earnings as a result of foreign currency remeasurement of monetary assets and liabilities denominated in a currency other than an entity’s functional currency.

9.   Income Taxes

We are currently under audit in numerous federal, state and foreign jurisdictions. We expect that the net amount of tax liability for unrecognized tax benefits will change in the next twelve months due to changes in audit status, expiration of statutes of limitations and other events which could impact our determination of unrecognized tax benefits. Currently, we cannot reasonably estimate the amount or the periods in which the expected changes in the unrecognized tax benefits will occur.

10.   Retirement Benefit Plans

We have defined benefit pension plans covering certain U.S. and Puerto Rico employees. The employees who are not participating in the defined benefit plans receive additional benefits under our defined contribution plans. Plan benefits are primarily based on years of credited service and the participant’s compensation. In addition to the U.S. and Puerto Rico defined benefit pension plans, we sponsor various non-U.S. pension arrangements, including retirement and termination benefit plans required by local law or coordinated with government sponsored plans.

The components of net pension expense for the three and six month periods ended June 30, 2010 and 2009, for our U.S. and non-U.S. defined benefit retirement plans are as follows (in millions):

	Three Months						Six Months
	Ended						Ended
	June 30,						June 30,
	2010			2009			2010			2009
Service cost	$	6.2		$	5.9		$	12.5		$	12.8
Interest cost		4.4			3.7			9.0			8.6
Expected return on plan assets		(6.4	)		(5.3	)		(12.9	)		(12.2	)
Amortization of unrecognized prior service cost		(0.3	)		—			(0.4	)		—
Amortization of unrecognized actuarial loss		0.8			1.3			1.7			3.0
Curtailment		—			0.4			—			0.4
Net periodic benefit cost	$	4.7		$	6.0		$	9.9		$	12.6

We contributed $23.0 million during the six month period ended June 30, 2010 to our U.S. and Puerto Rico defined benefit plans and do not expect to contribute additional funds to these plans during the remainder of 2010. We contributed $6.8 million to our foreign-based defined benefit plans in the six month period ended June 30, 2010 and expect to contribute approximately $7 million to these foreign-based plans during the remainder of 2010.

During the three month period ended June 30, 2009, we amended the postretirement healthcare benefit plans for certain U.S. and Puerto Rico employees. Participants in the plans between the ages of 55 and 65 who were previously receiving benefits will continue to receive benefits until reaching the age of 65. For all other participants

11

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in the plans, no benefits will be paid after January 1, 2010. Additionally, we contributed approximately $7 million to a Voluntary Employees’ Beneficiary Association (VEBA) trust to settle any future obligations. We recognized a curtailment gain and settlement loss related to these actions.

The components of net periodic benefit expense for the three and six month periods ended June 30, 2010 and 2009, for our U.S. and Puerto Rico postretirement benefit plans are as follows (in millions):

	Three Months					Six Months
	Ended					Ended
	June 30,					June 30,
	2010		2009			2010		2009
Service cost	$	—	$	0.4		$	—	$	0.8
Interest cost		—		0.7			—		1.3
Amortization of unrecognized prior service cost		—		(0.1	)		—		(0.2	)
Amortization of unrecognized actuarial loss		—		0.1			—		0.3
Settlement		—		3.2			—		3.2
Curtailment		—		(35.3	)		—		(35.3	)
Net periodic benefit cost	$	—	$	(31.0	)	$	—	$	(29.9	)

11.   Earnings Per Share

The following is a reconciliation of weighted average shares for the basic and diluted shares computations (in millions):

	Three Months				Six Months
	Ended				Ended
	June 30,				June 30,
	2010		2009		2010		2009
Weighted average shares outstanding for basic net earnings per share		201.9		214.7		202.4		218.1
Effect of dilutive stock options and other equity awards		1.1		0.8		1.2		0.7
Weighted average shares outstanding for diluted net earnings per share		203.0		215.5		203.6		218.8

During the three and six month periods ended June 30, 2010, an average of 13.3 million options and 13.1 million options, respectively, to purchase shares of common stock were not included in the computation of diluted earnings per share as the exercise prices of these options were greater than the average market price of the common stock. During the three and six month periods ended June 30, 2009, an average of 14.0 million options and 15.2 million options, respectively, were not included in the computation.

In the three month period ended June 30, 2010, we repurchased 1.4 million shares of our common stock at an average price of $61.32 per share for a total cash outlay of $85.4 million, including commissions. In the six month period ended June 30, 2010, we repurchased 2.9 million shares of our common stock at an average price of $60.95 per share for a total cash outlay of $178.9 million, including commissions, under the $1.25 billion share repurchase program previously authorized by our Board of Directors that expires on December 31, 2010. As of June 30, 2010, $32.2 million remains authorized for future repurchases under this program. In July 2010, the Board of Directors approved an additional $1.5 billion share repurchase program which will expire on December 31, 2013.

12.   Segment Information

We design, develop, manufacture and market orthopaedic reconstructive implants, dental implants, spinal implants, trauma products and related surgical products which include surgical supplies and instruments designed to

12

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

aid in surgical procedures and post-operation rehabilitation. We also provide other healthcare related services. Revenue related to these other healthcare related services currently represents less than 1 percent of our total net sales. We manage 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. This structure is the basis for our reportable segment information discussed below. Management evaluates operating segment performance based upon segment operating profit exclusive of operating expenses pertaining to global operations and corporate expenses, share-based compensation, certain claims, acquisition, integration, realignment and other, net curtailment and settlement, inventory step-up and intangible asset amortization expense. Global operations include research, development engineering, medical education, brand management, corporate legal, finance, and human resource functions, and U.S. and Puerto Rico based manufacturing operations and logistics. Intercompany transactions have been eliminated from segment operating profit. Net sales and segment operating profit are as follows (in millions):

	Net Sales				Operating Profit
	Three Months				Three Months
	Ended				Ended
	June 30,				June 30,
	2010		2009		2010			2009
Americas	$	609.3	$	589.6	$	306.5		$	296.0
Europe		276.5		280.4		101.8			108.2
Asia Pacific		171.9		149.9		65.7			69.7
Total	$	1,057.7	$	1,019.9
Share-based compensation						(17.9	)		(23.0	)
Inventory step-up						—			(2.8	)
Acquisition, integration, realignment and other						(11.5	)		(36.5	)
Certain claims						(75.0	)		—
Net curtailment and settlement						—			32.1
Global operations and corporate functions						(141.5	)		(147.2	)
Operating profit					$	228.1		$	296.5

	Net Sales				Operating Profit
	Six Months				Six Months
	Ended				Ended
	June 30,				June 30,
	2010		2009		2010			2009
Americas	$	1,225.0	$	1,184.2	$	613.1		$	585.7
Europe		562.6		545.5		206.6			224.9
Asia Pacific		332.9		282.8		126.8			119.7
Total	$	2,120.5	$	2,012.5
Share-based compensation						(30.6	)		(40.1	)
Inventory step-up						(1.3	)		(7.0	)
Acquisition, integration, realignment and other						(14.1	)		(43.5	)
Certain claims						(75.0	)		—
Net curtailment and settlement						—			32.1
Global operations and corporate functions						(303.3	)		(295.5	)
Operating profit					$	522.2		$	576.3

13

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Net sales by product category are as follows (in millions):

	Three Months				Six Months
	Ended				Ended
	June 30,				June 30,
	2010		2009		2010		2009
Reconstructive implants	$	808.2	$	779.2	$	1,622.7	$	1,540.3
Dental		55.9		52.7		107.6		100.1
Trauma		57.8		56.7		118.2		113.6
Spine		57.9		64.2		117.9		128.8
OSP and other		77.9		67.1		154.1		129.7
Total	$	1,057.7	$	1,019.9	$	2,120.5	$	2,012.5

13.   Commitments and Contingencies

Product Liability-Related Claims

We are subject to product liability claims and lawsuits arising in the ordinary course of our business. We establish standard accruals for product liability and other claims in conjunction with outside counsel based on current information and historical settlement information for open claims, related legal fees and claims incurred but not reported. These standard product liability accruals are recognized in selling, general and administrative expense. We may also establish provisions for certain product liability claims outside of the standard accruals that are recorded separately on our statement of earnings, such as the provision for the Durom^® Acetabular Component (Durom Cup)-related claims discussed below. We maintain insurance, subject to self-insured retention requirements, for losses from these and other claims.

On July 22, 2008, we temporarily suspended marketing and distribution of the Durom Cup in the U.S. Subsequently, a number of product liability lawsuits and other claims have been asserted against us. We have settled some of these claims and the others are still pending. Additional claims may be asserted in the future.

We recorded a provision of $69.0 million in 2008 as “Certain Claims” on our statement of earnings representing our estimate of the Durom Cup-related claims we expected to be made for revision surgeries occurring within two years of the original surgery. In the third quarter of 2009, based on claims information received after our initial estimate, we increased our estimate of the number of claims for revision surgeries occurring within two years of the original surgery and, accordingly, increased the “Certain Claims” provision by $35.0 million. In the second quarter of 2010, based on more recent claims information available and after consultation with an independent actuary, we revised our estimate to include all claims for revisions of original surgeries performed before July 22, 2008 on a worldwide basis, regardless of the amount of time between the revision surgery and the original surgery. As a result, we increased the “Certain Claims” provision by $75.0 million, for a total of $179.0 million.

From 2008 through March 31, 2010, we recorded $42.7 million as part of our standard product liability accruals for worldwide claims relating to revisions of Durom Cup cases where the revisions had occurred, or were estimated to occur, more than two years after the original surgery. Of this amount, $0.9 million was recorded in the first quarter of 2009, $6.0 million in the second quarter of 2009 and $10.9 million in the first quarter of 2010. Beginning with the second quarter of 2010, any provisions for such claims are recorded as part of the “Certain Claims” accrual, as described above. We will continue to record any provisions for claims relating to Durom Cup cases where the original surgery was performed after July 22, 2008 as part of our standard product liability accruals. As of June 30, 2010, we have recorded provisions totaling $2.6 million for such post-suspension claims.

Our estimate as of June 30, 2010 of the remaining liability for all Durom Cup-related claims relating to original surgeries performed before July 22, 2008 is $156.8 million, of which $42.5 million is classified as short-term in “Other

14

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

current liabilities” and $114.3 million is classified as long-term in “Other long-term liabilities” on our consolidated balance sheet. We expect to pay the majority of the Durom Cup-related claims within the next three years.

There are significant estimates involved in determining the provisions for Durom Cup-related claims, including estimates of the number of claims that we may eventually receive. The actual number of claims that we receive may differ from our estimates, which could result in further changes to the provision.

Intellectual Property-Related Claims

We are subject to claims of patent infringement and other intellectual property-related claims and lawsuits in the ordinary course of our business. We maintain insurance, subject to self-insured retention requirements, for losses from these and other claims.

On February 15, 2005, Howmedica Osteonics Corp. filed an action against us and an unrelated party in the United States District Court for the District of New Jersey alleging infringement of U.S. Patent Nos. 6,174,934; 6,372,814; 6,664,308; and 6,818,020. On June 13, 2007, the Court granted our motion for summary judgment on the invalidity of the asserted claims of U.S. Patent Nos. 6,174,934; 6,372,814; and 6,664,308 by ruling that all of the asserted claims are invalid for indefiniteness. On August 19, 2008, the Court granted our motion for summary judgment of non-infringement of certain claims of U.S. Patent No. 6,818,020, reducing the number of claims at issue in the suit to five. On April 9, 2009, in response to our earlier petition, the U.S. Patent and Trademark Office (USPTO) instituted re-examination proceedings against U.S. Patent No. 6,818,020. The USPTO rejected all previously issued claims of U.S. Patent No. 6,818,020 as being unpatentable in light of one or more prior art references. On September 30, 2009, the Court issued an order staying proceedings in the litigation pending the outcome of the re-examination process. Subsequent to that stay order, Howmedica filed a motion seeking to certify an appeal of the summary judgment ruling on the ’934, ’814 and ’308 patents. That motion was granted on January 13, 2010. We expect that the U.S. Court of Appeals for the Federal Circuit will hear the appeal of that ruling in 2010. We continue to believe that our defenses against infringement are valid and meritorious, and we intend to continue to defend this lawsuit vigorously.

While it is not possible to predict the outcome of these lawsuits and claims with any certainty, we believe that the liability, if any, resulting from these claims will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Government Investigations

In September 2007, we and other orthopaedic companies settled a U.S. government investigation pertaining to consulting contracts, professional services agreements and other agreements by which remuneration is provided to orthopaedic surgeons. As part of the settlement, we entered into a Corporate Integrity Agreement (CIA) with the Office of Inspector General of the Department of Health and Human Services (OIG-HHS). Under the CIA, which has a term expiring in 2012, we agreed, among other provisions, to continue the operation of our enhanced Corporate Compliance Program, designed to promote compliance with federal healthcare program requirements. We also agreed to retain an independent review organization to perform annual reviews to assist us in assessing our compliance with the obligations set forth in the CIA to ensure that arrangements we enter into do not violate the Anti-Kickback Statute (42 U.S.C. § 1320a-7b). A material breach of the CIA may subject us to exclusion by OIG-HHS from participation in all federal healthcare programs, which would have a material adverse effect on our financial position, results of operations and cash flows.

15

ZIMMER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In November 2007, we received a civil investigative demand from the Massachusetts Attorney General’s office seeking additional information regarding our financial relationships with a number of Massachusetts healthcare providers. We received a similar inquiry from the Oregon Attorney General’s office in October 2008. We are cooperating fully with the investigators with regard to these matters.

In September 2007, the Staff of the U.S. Securities and Exchange Commission (SEC) informed us that it was conducting an investigation regarding potential violations of the Foreign Corrupt Practices Act (FCPA) in the sale of medical devices in a number of foreign countries by companies in the medical device industry. In November 2007, we received a letter from the U.S. Department of Justice (DOJ) requesting that any information provided to the SEC also be provided to the DOJ on a voluntary basis. We are continuing to provide information and cooperate fully with the SEC and the DOJ. In the course of continuing dialogues with the agencies, we have voluntarily disclosed information relating to sales of our products by independent distributors in two South American countries to the SEC and the DOJ. We cannot currently predict the outcome of the investigation or the impact of our voluntary disclosures to the authorities.

Putative Class Actions

On August 5, 2008, a complaint was filed in the U.S. District Court for the Southern District of Indiana, Plumbers and Pipefitters Local Union 719 Pension Fund v. Zimmer Holdings, Inc., et al., naming us and two of our executive officers as defendants. The complaint related to a putative class action on behalf of persons who purchased our common stock between January 29, 2008 and July 22, 2008. The complaint alleged that the defendants violated the federal securities law by allegedly failing to disclose developments relating to our orthopaedic surgical products manufacturing operations in Dover, Ohio and the Durom Cup. The plaintiff sought unspecified damages and interest, attorneys’ fees, costs and other relief. On December 24, 2008, the lead plaintiff filed a consolidated complaint that alleged the same claims and related to the same time period. The defendants filed a motion to dismiss the consolidated complaint on February 23, 2009. On December 1, 2009, the Court granted defendants’ motion to dismiss, without prejudice. On January 15, 2010, the plaintiff filed a motion for leave to amend the consolidated complaint. That motion is pending. We believe this lawsuit is without merit, and we and the individual defendants intend to defend it vigorously.

On November 20, 2008, a complaint was filed in the U.S. District Court for the Northern District of Indiana, Dewald v. Zimmer Holdings, Inc., et al., naming us and certain of our current and former directors and employees as defendants. The complaint relates to a putative class action on behalf of all persons who were participants in or beneficiaries of our U.S. or Puerto Rico Savings and Investment Programs (plans) between October 5, 2007 and the date of filing and whose accounts included investments in our common stock. The complaint alleges, among other things, that the defendants breached their fiduciary duties in violation of the Employee Retirement Income Security Act of 1974, as amended, by continuing to offer Zimmer stock as an investment option in the plans when the stock purportedly was no longer a prudent investment and that defendants failed to provide plan participants with complete and accurate information sufficient to advise them of the risks of investing their retirement savings in Zimmer stock. The plaintiff seeks an unspecified monetary payment to the plans, injunctive and equitable relief, attorneys’ fees, costs and other relief. On January 23, 2009, the plaintiff filed an amended complaint that alleges the same claims and clarifies that the class period is October 5, 2007 through September 2, 2008. The defendants filed a motion to dismiss the amended complaint on March 23, 2009. The motion to dismiss is pending with the court. On June 12, 2009, the U.S. Judicial Panel on Multidistrict Litigation entered an order transferring the Dewald case to the U.S. District Court for the Southern District of Indiana for coordinated or consolidated pretrial proceedings with the Plumbers & Pipefitters Local Union 719 Pension Fund case referenced above. We believe this lawsuit is without merit, and we and the individual defendants intend to defend it vigorously.

14.   Subsequent Event

In July 2010 we entered into a definitive agreement to acquire Beijing Montagne Medical Device Co., Ltd., a leader in the rapidly growing Chinese orthopaedic implant market. Subject to regulatory approvals and certain other conditions, the acquisition is expected to close in late 2010 or early 2011. The acquisition is not expected to have a material impact on our financial position, results of operations or cash flows.

16

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a global leader in the design, development, manufacture and marketing of orthopaedic reconstructive implants, dental implants, spinal implants, trauma products and related surgical products (sometimes referred to in this report as “OSP”). We also provide other healthcare related services. We have operations in more than 25 countries and market products in more than 100 countries. We manage operations through three reportable geographic segments — the Americas, Europe and Asia Pacific.

Certain percentages presented in Management’s Discussion and Analysis are calculated from the underlying whole-dollar amounts and therefore may not recalculate from the rounded numbers used for disclosure purposes. In addition, certain amounts in the 2009 consolidated financial statements have been reclassified to conform to the 2010 presentation.

We believe the following developments or trends are important in understanding our financial condition, results of operations and cash flows for the three and six month periods ended June 30, 2010 and our expected results for the remainder of 2010.

Demand (Volume and Mix) Trends

Increased volume and changes in the mix of product sales contributed 4 percentage points of sales growth during the three month period ended June 30, 2010, compared to flat volume and mix in the same 2009 period.

We believe long-term market growth rates will be driven by an aging global population, obesity, proven clinical benefits, new material technologies, advances in surgical techniques and more active lifestyles, among other factors. In addition, the ongoing shift in demand to premium products, such as Longevity^® and Prolong^® Highly Crosslinked Polyethylenes, Trabecular Metal^TM Technology products, hip stems with Kinectiv^® Technology, high-flex knees, knee revision products, porous hip stems and the introduction of patient specific devices are expected to continue to positively affect sales growth.

Pricing Trends

Global selling prices decreased 1 percent during the three month periods ended June 30, 2010 and 2009. Selling prices in the Americas decreased 1 percent during the three month periods ended June 30, 2010 and 2009. Europe selling prices increased 1 percent during the three month period ended June 30, 2010 compared to flat pricing in the same 2009 period. Primarily due to the bi-annual pricing adjustments in Japan that went into effect on April 1, 2010, Asia Pacific selling prices decreased 3 percent during the three month period ended June 30, 2010, compared to a 1 percent decrease in the same 2009 period. We continue to expect selling prices will be down approximately 1 to 2 percent on a global basis for 2010 largely due to governmental healthcare cost containment efforts and continuing pricing pressure from local hospitals and health systems.

Foreign Currency Exchange Rates

A strengthening of the Australian Dollar, Canadian Dollar and Japanese Yen versus the U.S. Dollar offset a decline in the Euro resulting in a 1 percent increase in sales from foreign currency exchange rate fluctuations in the three month period ended June 30, 2010. For the year ending December 31, 2010, we estimate that an overall stronger U.S. Dollar versus foreign currency exchange rates will have a negative effect of approximately 0-1 percent on sales. We address currency risk through regular operating and financing activities, and, under appropriate circumstances and subject to proper authorization, through the use of forward contracts and foreign currency options solely for managing foreign currency volatility and risk. Changes to foreign currency exchange rates affect sales growth, but due to offsetting gains/losses on hedge contracts, which are recorded in cost of products sold, the effect on net earnings in the near term is expected to be minimal.

17

Global Economic Conditions

Although certain markets for our products have been impacted by the global economic downturn, particularly in our Europe segment, we have experienced some level of stabilization. For the third straight quarter, volume/mix for our core reconstructive business contributed 4 to 5 percentage points of growth, which are the largest contributions since the third quarter of 2008 when volume/mix trends were in the mid to high single digits. Dental sales volume/mix was positive for the second straight quarter after more than a year of negative growth, as that category had been more affected by the recession than our other categories.

Second Quarter and Year-To-Date Results of Operations

Net Sales by Operating Segment

The following tables present net sales by operating segment and the components of the percentage changes (dollars in millions):

	Three Months Ended June 30,				% Inc /			Volume/						Foreign
	2010		2009		(Dec)			Mix			Price			Exchange
Americas	$	609.3	$	589.6		3	%		4	%		(1	)%		—	%
Europe		276.5		280.4		(1	)		2			1			(4	)
Asia Pacific		171.9		149.9		15			9			(3	)		9
Total	$	1,057.7	$	1,019.9		4			4			(1	)		1

	Six Months Ended June 30,							Volume/					Foreign
	2010		2009		% Inc			Mix		Price			Exchange
Americas	$	1,225.0	$	1,184.2		3	%		4		(1	)%		—	%
Europe		562.6		545.5		3			2		—			1
Asia Pacific		332.9		282.8		18			10		(1	)		9
Total	$	2,120.5	$	2,012.5		5			4		(1	)		2

“Foreign Exchange” as used in the tables in this report represents the effect of changes in foreign currency exchange rates on sales growth.

Net Sales by Product Category

The following tables present net sales by product category and the components of the percentage changes (dollars in millions):

	Three Months Ended June 30,				% Inc /			Volume/						Foreign
	2010		2009		(Dec)			Mix			Price			Exchange
Reconstructive
Knees	$	452.9	$	437.4		4	%		5	%		(2	)%		1	%
Hips		317.1		308.1		3			4			(1	)		—
Extremities		38.2		33.7		13			13			—			—
Total		808.2		779.2		4			5			(2	)		1
Dental		55.9		52.7		6			5			3			(2	)
Trauma		57.8		56.7		2			—			1			1
Spine		57.9		64.2		(10	)		(9	)		—			(1	)
OSP and other		77.9		67.1		16			14			—			2
Total	$	1,057.7	$	1,019.9		4			4			(1	)		1

18

	Six Months Ended June 30,				% Inc/			Volume/						Foreign
	2010		2009		(Dec)			Mix			Price			Exchange
Reconstructive
Knees	$	913.3	$	865.9		5	%		5	%		(2	)%		2	%
Hips		632.8		607.7		4			3			(1	)		2
Extremities		76.6		66.7		15			13			—			2
Total		1,622.7		1,540.3		5			4			(1	)		2
Dental		107.6		100.1		7			4			3			—
Trauma		118.2		113.6		4			—			2			2
Spine		117.9		128.8		(8	)		(9	)		—			1
OSP and other		154.1		129.7		19			17			(1	)		3
Total	$	2,120.5	$	2,012.5		5			4			(1	)		2

The following tables present net sales by product category by region (dollars in millions):

	Three Months Ended June 30,				% Inc/			Six Months Ended June 30,				% Inc/
	2010		2009		(Dec)			2010		2009		(Dec)
Reconstructive
Knees
Americas	$	279.8	$	271.1		3	%	$	566.0	$	546.9		3	%
Europe		106.1		107.8		(1	)		219.7		212.6		3
Asia Pacific		67.0		58.5		15			127.6		106.4		20
Hips
Americas		148.4		143.3		4			295.2		284.9		4
Europe		109.2		111.5		(2	)		221.0		219.4		1
Asia Pacific		59.5		53.3		12			116.6		103.4		13
Extremities
Americas		29.6		25.8		14			59.2		51.4		15
Europe		6.2		6.0		5			12.7		11.7		9
Asia Pacific		2.4		1.9		26			4.7		3.6		30
Total		808.2		779.2		4			1,622.7		1,540.3		5
Dental
Americas		28.5		26.0		10			55.7		52.1		7
Europe		21.4		20.4		5			40.2		37.1		8
Asia Pacific		6.0		6.3		(6	)		11.7		10.9		7
Trauma
Americas		31.3		31.2		1			63.9		63.6		1
Europe		11.2		12.7		(12	)		23.0		23.3		(2	)
Asia Pacific		15.3		12.8		19			31.3		26.7		17
Spine
Americas		41.7		48.5		(14	)		85.7		100.0		(14	)
Europe		12.6		12.0		5			25.5		22.5		13
Asia Pacific		3.6		3.7		(2	)		6.7		6.3		7
OSP and other
Americas		50.0		43.7		14			99.3		85.3		16
Europe		9.8		10.0		(2	)		20.5		18.9		8
Asia Pacific		18.1		13.4		34			34.3		25.5		34
Total	$	1,057.7	$	1,019.9		4		$	2,120.5	$	2,012.5		5

19

Knees

The NexGen^® Complete Knee Solution product line, including Gender Solutions^TM Knee Femoral Implants, the NexGen LPS-Flex Knee and the NexGen CR-Flex Knee, together with the Gender Solutions Natural-Knee^® Flex System led knee sales. In addition, sales of partial knee devices, including the Zimmer^® Uni Knee and the recently released Gender Solutions Patello Femoral Joint, contributed to knee growth. We also continue to see growth in our new line of Patient Specific Instruments. In Europe, changes in foreign currency exchange rates negatively affected knee sales in the three month period ended June 30, 2010 by 4 percent and positively affected knee sales in the six month period ended June 30, 2010 by 1 percent. In Asia Pacific, changes in foreign currency exchange rates positively affected knee sales in the three and six month periods ended June 30, 2010 by 10 percent and 12 percent, respectively.

Hips

The Zimmer M/L Taper Stem, the Zimmer M/L Taper Stem with Kinectiv Technology, the CLS^® Spotorno^® Stem from the CLS Hip System and the Alloclassic^® Zweymüller^® Hip Stem led hip stem sales. In addition, sales of revision Hip products such as the ZMR^® Hip System and the Trabecular Metal Revision Shell and Augment Cups were strong when compared to the prior year period, as were sales of BIOLOX^®1 delta Heads and Fitmore^® Hip Stems. Sales of our recently launched Continuum^TM Acetabular System also contributed to growth in the three month period ended June 30, 2010. In Europe, changes in foreign currency exchange rates negatively affected hip sales in the three month period ended June 30, 2010 by 4 percent and positively affected hip sales in the six month period ended June 30, 2010 by 2 percent. In Asia Pacific, changes in foreign currency exchange rates positively affected hip sales in the three and six month periods ended June 30, 2010 by 8 percent and 9 percent, respectively.

Extremities

Extremities sales growth was strong across all regions as these types of procedures have become more widely accepted. The Bigliani/Flatow^® Complete Shoulder Solution and the Zimmer Trabecular Metal Reverse Shoulder System led extremities sales.

Dental

Dental sales improved for the second straight quarter following a year of weaker demand caused by the global economic downturn in 2009, reflecting a stabilizing trend in this market. Sales were led by the Tapered Screw-Vent^® Implant System. Regenerative product sales exhibited strong growth.

Trauma

Zimmer Periarticular Locking Plates and the ITST ^® Intertrochanteric/Subtrochanteric Fixation System led trauma sales, while sales of cable products also made a strong contribution in the quarter. Tibial nail and interlocking screw sales within the Zimmer Natural Nail ^TM system increased as we continued the launch of this product line.

Spine

Our spine business in the Americas continued to experience operational challenges, a difficult reimbursement landscape and challenges related to the Dynesys^® Dynamic Stabilization System. Growth in spine sales in Europe and Asia Pacific for the six month period ended June 30, 2010 was driven by the stabilization of our distribution channels, which followed the Abbott Spine integration activity of 2009. Solid sales of the PathFinder^® and Sequoia^® Pedicle Screw Systems, our Universal Clamp^® System and our Trinica^® Anterior Cervical Plate System partly offset a decline in sales of the Dynesys system in the three and six month periods ended June 30, 2010.

¹ Registered trademark of CeramTec AG

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OSP and other

OSP sales were led by PALACOS^®2 Bone Cement and powered instruments. Our wound debridement products also made a strong contribution as we continue to make progress recovering market share after a voluntary recall and temporary suspension of production.

Expenses as a Percent of Net Sales

	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2010			2009			Inc (Dec)			2010			2009			Inc (Dec)
Cost of products sold		23.7	%		23.2	%		0.5			24.5	%		23.2	%		1.3
Research and development		5.2			4.9			0.3			5.0			5.1			(0.1	)
Selling, general and administrative		41.4			42.4			(1.0	)		41.7			42.5			(0.8	)
Acquisition, integration, realignment and other		1.1			3.6			(2.5	)		0.7			2.2			(1.5	)
Certain claims		7.1			—			7.1			3.5			—			3.5
Net curtailment and settlement		—			(3.2	)		3.2			—			(1.6	)		1.6
Operating profit		21.6			29.1			(7.5	)		24.6			28.6			(4.0	)
Interest and other, net		(1.4	)		(0.4	)		1.0			(1.4	)		(0.4	)		1.0

Cost of Products Sold

The increase in cost of products sold as a percentage of net sales for the three and six month periods ended June 30, 2010 compared to the same 2009 periods was driven by higher manufacturing costs per unit due to lower production levels in late 2009 into 2010. Additionally, foreign currency hedge gains recognized in the six month period ended June 30, 2010 were less significant than foreign currency hedge gains recognized in the same 2009 period.

Under our hedging program, for derivatives which qualify as hedges of future cash flows, the effective portion of changes in fair value is temporarily recorded in other comprehensive income, and then recognized in cost of products sold when the hedged item affects earnings.

The increases in cost of products sold were partially offset by lower excess inventory and obsolescence charges recognized in the three and six month periods ended June 30, 2010 as compared to the same 2009 periods due to improved inventory management.

Operating Expenses

Research and development expense, or R&D, increased to $55.1 million and $106.1 million for the three and six month periods ended June 30, 2010, respectively, from $49.9 million and $101.8 million in the same 2009 periods. This increase reflects higher spending on new product development across nearly all of our product categories as well as spending on external research, clinical, regulatory and quality initiatives. We continue to expect R&D spending in 2010 to be between 5 to 6 percent of sales for the full year.

Selling, general and administrative expense, or SG&A, increased to $437.4 million and $884.1 million for the three and six month periods ended June 30, 2010, respectively, from $432.3 million and $856.0 million in the same 2009 periods. This is an improvement in SG&A as a percentage of sales by 100 basis points in the three month period ended June 30, 2010 and an 80 basis point improvement in the six month period ended June 30, 2010. This improvement represents controlled spending during a time of increasing sales.

The overall dollar increase in spending was driven by medical education and training activities and incremental costs associated with certain operational excellence and growth initiatives.

² Registered trademark of Heraeus Kulzer GmbH

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Acquisition, integration, realignment and other expenses for the three and six month periods ended June 30, 2010 decreased to $11.5 million and $14.1 million, respectively, from $36.5 million and $43.5 million in the same 2009 periods. The 2010 expenses primarily relate to a transformation of our information technology infrastructure. This included outsourcing our data center to a third party and severance and retention costs for employees in various information technology areas. As a result of the data center outsourcing, we sold certain assets at a loss. Acquisition, integration, realignment and other expenses were higher in the 2009 periods due to severance and termination-related expenses that we incurred as a result of the initiation of our global workforce realignment in the second quarter of 2009. The decrease in acquisition, integration, realignment and other expenses is also due to a reduction in contract termination costs and lower legal fees due to the settlement of certain litigation matters.

“Certain Claims” expense is a provision for estimated liabilities to Durom Cup patients undergoing revision surgeries. A provision of $104.0 million was originally recorded during 2008 and 2009 with an additional $75.0 million recorded during the three month period ended June 30, 2010, bringing the total provision to $179.0 million for these claims. For more information regarding these claims, see Note 13 to the consolidated financial statements.

We recognized a net curtailment and settlement gain of $32.1 million during the three month period ended June 30, 2009 related to amending our U.S. and Puerto Rico postretirement benefit plans.

Operating Profit, Interest and Other Expense, Income Taxes and Net Earnings

Operating profit for the three and six month periods ended June 30, 2010 decreased to $228.1 million and $522.2 million, respectively, from $296.5 million and $576.3 million in the same 2009 periods. The decrease in operating profit is due to higher operating expenses, most notably the “Certain Claims” provision recorded on our statement of earnings.

Interest and other, net for the three and six month periods ended June 30, 2010, increased to $14.3 million and $28.9 million, respectively, compared to $4.0 million and $7.7 million in the same 2009 periods. The increase in interest expense is a result of the senior unsecured notes that we issued in November 2009.

The effective tax rate on earnings before income taxes for the three month period ended June 30, 2010 decreased to 22.6 percent, from 28.2 percent in the same 2009 period. The effective tax rate on earnings before income taxes for the six month period ended June 30, 2010 decreased to 24.8 percent, from 27.5 percent in the same 2009 period. The decrease in the effective tax rate in the 2010 periods is primarily due to the tax effect of the “Certain Claims” provision as well as the favorable resolution of certain tax positions.

Net earnings decreased 21 percent to $165.5 million for the three month period ended June 30, 2010, compared to $210.1 million in the same 2009 period. Net earnings decreased 10 percent to $370.9 million for the six month period ended June 30, 2010, compared to $412.3 million in the same 2009 period. For the three month 2010 period, basic and diluted earnings per share both decreased 16 percent to $0.82, from $0.98 in the same 2009 period. For the six month 2010 period, basic and diluted earnings per share both decreased 3 percent to $1.83 and $1.82, respectively, from $1.89 and $1.88 in the same 2009 period. The disproportional change in earnings per share as compared with net earnings is attributed to the effect of 2010 and 2009 share repurchases.

Liquidity and Capital Resources

Cash flows provided by operating activities were $532.2 million for the six month period ended June 30, 2010, compared to $379.7 million in the same 2009 period. The principal source of cash from operating activities was net earnings. Non-cash items included in net earnings accounted for another $197.7 million of operating cash. All other items of operating cash flows reflect a use of $36.4 million of cash, compared to a use of $209.0 million in the same 2009 period. In the 2009 period we resolved outstanding payments to healthcare professionals and institutions, resulting in substantial cash outflows. A reduction in inventory levels during the 2010 period compared to an increase in inventory levels during the 2009 period also contributed to the improvement in cash flows from operating activities, partially offset by higher tax payments in the 2010 period.

At June 30, 2010, we had 61 days of sales outstanding in trade accounts receivable, which represents an increase of 1 day compared to March 31, 2010 and a decrease of 2 days compared to June 30, 2009. At June 30,

22

2010, we had 318 days of inventory on hand, which is an increase of 16 days compared to March 31, 2010 and an improvement of 57 days from June 30, 2009.

Cash flows used in investing activities were $91.9 million for the three month period ended June 30, 2010, compared to $174.3 million in the same 2009 period. Additions to instruments increased by $7.2 million during the six month period ended June 30, 2010 compared to the same 2009 period. Spending on other property, plant and equipment decreased by $28.0 million during the six month period ended June 30, 2010 compared to the same 2009 period. We expect to increase spending on property, plant and equipment and instruments over the remainder of 2010 as we replace machinery and equipment in the normal course of business and invest in instruments to support our new product launches. During the first two quarters of 2010, we purchased and sold approximately $4.0 million and $37.0 million, respectively, in short-term investments that have original maturities greater than 90 days. Acquired intellectual property rights of $8.2 million in the six month period ended June 30, 2010 and $25.9 million in the same 2009 period relate to lump-sum payments made to certain healthcare professionals and institutions in place of future royalty payments that otherwise would have been due under the terms of an existing contractual arrangement. Investments in other assets in both 2010 and 2009 primarily relate to payments to acquire certain foreign-based distributors.

Cash flows used in financing activities were $169.8 million for the six month period ended June 30, 2010, compared to $142.0 million in the same 2009 period. For the six months ended June 30, 2010, we repurchased 2.9 million common shares for a total of $178.9 million, including commissions, under our share repurchase program authorized by our Board of Directors, compared to $337.8 million in the same 2009 period. In the 2009 period, we borrowed against our senior credit facility, in part, to fund these share repurchases. Proceeds from our stock compensation plans increased in the six month period ended June 30, 2010, compared to the same 2009 period, due to an increase in employee stock option exercises.

We have two outstanding tranches of unsecured senior notes (Senior Notes): $500 million aggregate principal amount of 4.625% Senior Notes due November 30, 2019 and $500 million aggregate principal amount of 5.75% Senior Notes due November 30, 2039. Interest on the Senior Notes is payable on May 30 and November 30 of each year until maturity. We may redeem the Senior Notes at our election in whole or in part at any time prior to maturity at the applicable redemption prices.

We have a five year $1,350 million revolving, multi-currency, senior unsecured credit facility maturing November 30, 2012 (Senior Credit Facility). We had $131.8 million in outstanding borrowings under the Senior Credit Facility at June 30, 2010, and an availability of $1,218.2 million.

We also have available uncommitted credit facilities totaling $80.4 million.

We may use excess cash to repurchase additional common stock under our share repurchase programs. We had $32.2 million available at June 30, 2010 under our $1.25 billion share repurchase program which expires December 31, 2010. In July 2010, the Board of Directors approved an additional $1.5 billion share repurchase program which will expire on December 31, 2013.

Management believes that cash flows from operations and available borrowings under the Senior Credit Facility are sufficient to meet our working capital, capital expenditure and debt service needs. Should investment opportunities arise, we believe that our earnings, balance sheet and cash flows will allow us to obtain additional capital, if necessary.

Recent Accounting Pronouncements

There are no recently issued accounting pronouncements that we have yet to adopt that are expected to have a material effect on our financial position, results of operations or cash flows.

Critical Accounting Estimates

There were no changes in the six month period ended June 30, 2010 to the application of critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2009. The information below provides an update on how certain of those critical accounting policies were applied in the current year.

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Commitments and Contingencies — During the three month period ended June 30, 2010, we recorded an additional provision for certain claims of $75.0 million, and we revised the definition of “Certain Claims” recorded in our statement of earnings to include worldwide claims relating to all revisions of Durom Cup cases where the original surgery was performed before our July 22, 2008 suspension of marketing and distribution, regardless of the time period elapsed between the original surgery and the revision surgery. This additional provision represents management’s updated estimate of liability to Durom Cup patients undergoing revisions associated with original surgeries occurring before July 22, 2008.

Goodwill and Intangible Assets — In the fourth quarter of 2009 we incurred a goodwill impairment charge of $73.0 million related to our U.S. Spine reporting unit. Although there were signs of improvement in the three month period ended March 31, 2010, such as growth in sales of acquired Abbott Spine products, our U.S. Spine reporting unit continued to experience challenges, so we performed another impairment test in the first quarter of 2010.

Using methodology similar to that used in the fourth quarter of 2009, we determined the estimated fair value of the reporting unit using an equal weighting of income and market approaches. The estimated fair value of the reporting unit was greater (although not substantially greater) than the carrying value of the net assets, so we did not record a goodwill impairment charge.

Although revenues of the U.S. Spine reporting unit decreased in the three month period ended June 30, 2010, the revenue and underlying cash flows were in line with our estimates. Therefore, no impairment test was performed on this reporting unit in the second quarter of 2010.

If the estimated cash flows of the U.S. Spine reporting unit decrease relative to our current estimates, we may have to record impairment charges in the future. Factors that could result in our cash flows being lower than our current estimates include: 1) decreased revenues caused by changes in the healthcare market, poor execution of our operating plans, or our inability to generate new product revenue from our research and development activities, and 2) our inability to achieve the estimated operating margins in our forecasts due to unforeseen factors. Additionally, changes in the broader economic environment could cause changes to our estimated discount rates which will impact our estimated fair values, or may cause changes to the comparable transaction methodology we employed under the market approach of estimating fair value.

We have five other reporting units subject to goodwill impairment testing, but no interim impairment testing was performed on these reporting units as there were no events or circumstances that would warrant an interim test. For each of those five reporting units, the estimated fair value substantially exceeded its carrying value at the last annual impairment test.

Forward-Looking Statements

This quarterly report contains certain statements that are forward-looking statements within the meaning of federal securities laws. When used in this report, the words “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “target,” “forecast,” “intend,” “assume,” “guide,” “seek” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to:

•  competition;

•  pricing pressures;

•  dependence on new product development, technological advances and innovation;

•  the impact of the recently enacted federal healthcare reform legislation, including the new excise tax on medical devices;

•  reductions in reimbursement levels by third-party payors and cost containment efforts of healthcare purchasing organizations;

•  the costs of defending or resolving putative class action litigation arising out of trading or ownership of our stock;

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•  our compliance through 2012 with the Corporate Integrity Agreement we entered into as part of the September 2007 settlement with the United States government;

•  the success of our quality initiatives;

•  the outcome of the investigation by the U.S. government into Foreign Corrupt Practices Act matters announced in October 2007;

•  challenges relating to changes in and compliance with governmental laws and regulations affecting our U.S. and international businesses, including regulations of the U.S. Food and Drug Administration and foreign government regulators, such as more stringent requirements for regulatory clearance of our products;

•  tax reform measures, tax authority examinations and associated tax risks and potential obligations;

•  retention of our independent agents and distributors;

•  changes in customer demand for our products and services caused by demographic changes or other factors;

•  changes in general domestic and international economic conditions, including interest rate and currency exchange rate fluctuations;

•  our ability to protect proprietary technology and other intellectual property and claims for infringement of the intellectual property rights of third parties;

•  product liability claims;

•  the possible disruptive effect of additional strategic acquisitions and our ability to successfully integrate acquired companies;

•  our ability to form and implement strategic alliances;

•  changes in prices of raw materials and products and our ability to control costs and expenses;

•  changes in general industry and market conditions, including domestic and international growth rates;

•  our dependence on a limited number of suppliers for key raw materials and outsourced activities; and

•  shifts in our product category sales mix or our regional sales mix away from products or geographic regions that generate higher operating margins.

Readers of this report are cautioned not to place undue reliance on these forward-looking statements. While we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this report.

We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be set forth in our periodic reports and our other filings with the Securities and Exchange Commission.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 4.   Controls and Procedures

We have established disclosure controls and procedures and internal controls over financial reporting to provide reasonable assurance that material information relating to us, including our consolidated subsidiaries, is made known on a timely basis to management and the Board of Directors. However, no control system, no matter how well designed and operated, can provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

25

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective.

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II — Other Information

Item 1.   Legal Proceedings

Information pertaining to legal proceedings can be found in Note 13 to the interim consolidated financial statements included in Part I of this report.

Item 1A.   Risk Factors

Except as set forth in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, there have been no material changes from the risk factors disclosed in Part I — Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes repurchases of common stock settled during the three month period ended June 30, 2010:

					Total Number of		Approximate
					Shares Purchased		Dollar Value of
					as Part of		Shares that May
	Total Number				Publicly		Yet Be Purchased
	of Shares		Average Price		Announced Plans		Under Plans
	Purchased		Paid per Share		or Programs*		or Programs
April 2010		989,600	$	61.26		52,372,848	$	56,981,767
May 2010		403,300		61.47		52,776,148		32,191,360
June 2010		—		—		52,776,148		32,191,360
Total		1,392,900	$	61.32		52,776,148	$	32,191,360

* Includes repurchases made under expired programs as well as the current program authorizing $1.25 billion of repurchases through December 31, 2010. We have also announced that our Board of Directors has authorized an additional share repurchase program authorizing $1.5 billion of repurchases through December 31, 2013.

Item 5.   Other Information

During the period covered by this report, the Audit Committee of our Board of Directors was not asked to, and did not, approve the engagement of PricewaterhouseCoopers LLP, our independent registered public accounting firm, to perform any non-audit services. This disclosure is made pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002.

26

Item 6.   Exhibits

The following exhibits are filed or furnished as part of this report:

31	.1	Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 of the Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31	.2	Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 of the Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	.INS	XBRL Instance Document*
101	.SCH	XBRL Taxonomy Extension Schema Document*
101	.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101	.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101	.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*
101	.DEF	XBRL Taxonomy Extension Definition Linkbase Document*

* Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ZIMMER HOLDINGS, INC. (Registrant)
Date: August 5, 2010		By:	/s/  James T. Crines
			James T. Crines
			Executive Vice President, Finance and
			Chief Financial Officer
Date: August 5, 2010		By:	/s/  Derek M. Davis
			Derek M. Davis
			Vice President, Finance and Corporate
			Controller and Chief Accounting Officer

28

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David C. Dvorak, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Zimmer Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  David C. Dvorak

David C. Dvorak

President and Chief Executive Officer

Date: August 5, 2010

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James T. Crines, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Zimmer Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  James T. Crines

James T. Crines

Executive Vice President, Finance
and Chief Financial Officer

Date: August 5, 2010

EX-32.1

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Zimmer Holdings, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/  David C. Dvorak

David C. Dvorak

President and Chief Executive Officer

August 5, 2010

/s/  James T. Crines

James T. Crines

Executive Vice President, Finance
and Chief Financial Officer

August 5, 2010