Zimmer Holdings, Inc. Business Information, Profile, and History

Company Perspectives:

Our strategic objective is to become the leader in the design, development, manufacturing and marketing of orthopedic reconstructive implants and fracture management products. Our goals are to: increase market share in our product categories by offering innovative new products and striving to provide comprehensive solutions in these product categories; target strategically important geographic regions and develop products that correspond to the surgical philosophies common to those regions; expand our product and service offerings to cover high-growth categories in our industry on which we do not currently focus; and continue our efforts to offer alternative therapies for patients with arthritis, including co-marketing drug therapies and developing and marketing biological therapies and minimally invasive surgical procedures.

History of Zimmer Holdings, Inc.

Zimmer Holdings, Inc. is a global leader in orthopedic implants and fracture management devices and is a publicly traded company listed on the S&P 500. In 2001, Zimmer was spun off as an independent company from Bristol-Myers Squibb. Fully 40 percent of its sales originate outside the United States. Zimmer's headquarters are in Warsaw, Indiana, with manufacturing facilities in Warsaw, as well as Dover, Ohio, and Statesville, North Carolina.

Justin Zimmer--From Sales Manager to Entrepreneur: 1920s

Justin Zimmer was a national sales manager for DePuy, a splint company located in Warsaw, Indiana. He sold splints for the DePuy Company for 20 years and knew the market and the product. In 1926, he came up with a new product idea for aluminum splints; however, his employer was not interested in pursuing the idea or Zimmer's request to purchase an interest in the company. In fact, the widow of the company's founder told him, "You know, Justin, you are just small potatoes."

Justin Zimmer saw no choice but to start his own company, and in 1927 Zimmer Manufacturing Company was born. He found two investors, William Felkner and William Rogers, and recruited two of his coworkers to join him in the new venture. J.J. Ettinger was the factory manager, and Donna Belle Harmon Cox, who had been his secretary at DePuy, was secretary and bookkeeper at the new company. The Zimmers' basement provided the first manufacturing site for the company; by May 1927, the company had products available for display.

Mrs. DePuy may have regretted her hasty words to Justin Zimmer. In just one year, Zimmer Manufacturing was outselling DePuy and the new aluminum splints were in high demand. The company soon moved to a building on North Detroit Street in Warsaw, Indiana. In the first seven months, Zimmer had sales of $160,000. During the boom years of the 1920s, Zimmer grew quickly. In 1928, the company developed a fracture bed with a system to support patients while hospital sheets were changed, and the company embraced the international market early in its history with the first order coming from a surgeon in Scotland.

1930s and 1940s: Steady Growth Through Depression and War Years

While most of the businesses in the United States were experiencing major problems and downturns due to the Depression in the 1930s, Zimmer's sales and business continued to grow. Despite a high unemployment rate and mass layoffs across other industries, Zimmer had no layoffs during the difficult decade. In fact, during the Bank Holiday in 1933, the employees at Zimmer worked overtime to finish manufacturing a large shipment of splints for hospitals in New York City.

In 1930, sales topped $200,000. Zimmer was a key player during the polio epidemic in the late 1930s and developed custom fabricating braces that could be fitted to each patient's specific measurements. In that same time period, the company also introduced Dr. Vernon Luck's bone saw, complete with a motor and cord that could be sterilized. By 1942, Zimmer's sales exceeded $1 million.

New Developments: 1950s-60s

In 1951, Justin Zimmer died while on vacation in Florida, but he left behind a successful company that would continue to bear his name. Zimmer's sales topped $2 million, and the company made several significant developments. The first hip prosthesis, developed with Dr. Palmer Eicher, was marketed by Zimmer in the 1950s, and the company released the Harrington Spinal Instrument, used to treat scoliosis, in 1958. The company worked closely with the American Medical Association to develop products that would benefit medicine and health.

By 1960, Zimmer's annual sales were $4 million, and its foreign sales increased with the opening of an Export Department within the company. The company continued to grow and, in 1968, an expansion was planned for the manufacturing facility in Warsaw. In 1969, Zimmer purchased Little Manufacturing Company in North Carolina.

Part of Bristol-Myers: 1970s-2000

In 1970, total employment at Zimmer reached 522 people and sales were $27.2 million. The company's growth had been steady throughout the years and thus attracted the attention of an interested buyer. Zimmer became a subsidiary of Bristol-Myers, a New York-based medical company, in 1972. While operating as a subsidiary, Zimmer continued to grow and develop new products. The development of new tools allowed that innovation to accelerate with the availability of CAD/CAM systems by the end of the 1970s. The new technology helped Zimmer race ahead with the development of such products as a hip prosthesis and the total knee system, a fully integrated modular system to replace artificial knees, in the 1980s.

The company helped fuel progress within the industry as well. Zimmer sponsored the first arthroscopy telesession that allowed 1,000 surgeons in 27 cities to view an arthroscopy surgery in real time. Zimmer's parent company, Bristol-Myers, began offering research grants under the Orthopedic Research and Education Foundation in 1983.

In 1990, the company built a new corporate headquarters in Warsaw, Indiana, and in 1997, Ray Elliott joined the Zimmer team as its president. Elliott had previously been vice-president of Bristol-Myers Squibb and had 20 years of experience in the orthopedic industry. He had formerly worked for Baxter International, Southam, Inc., and Cablecom, Inc.

The company experienced rapid sales growth in the 1990s due to new developments and the aging of the Baby Boomer population. In the 1990s, this generation began turning 50 and reaching the age when they might need the orthopedic products and services of Zimmer. In 1998, sales were $861 million, and by 1999, that number had increased to $939 million. With more than 3,200 employees and $1 billion in sales, Zimmer's results for 2000 showed continued growth for the company and its products.

A New Future As Zimmer Holdings, Inc.: 2001 and Beyond

August 7, 2001 was a pivotal date for Zimmer Holdings, Inc. On that date, the company spun off from its parent company, Bristol-Myers Squibb, and began trading on the New York Stock Exchange as an independent company. For nearly 30 years, Zimmer had operated as a subsidiary, and now, it was again its own entity. "We are excited about the opportunity to operate Zimmer as an independent public company and to continue to strengthen Zimmer's position as a global leader in orthopedics," said President and CEO Ray Elliot in a company press release. "Zimmer's recent financial performance has been excellent, and we plan to continue to pursue opportunities to leverage our brand and sales force in high-growth adjacent orthopedic product categories."

The company was selected by Standard & Poor's to be a part of the S&P 500 Index. In an interview with CNNfn on August 7, 2001, Elliot commented that he heard about the S&P 500 selection while on the road at a trade show. "We were hopeful of that, but it's an opportunity. We're actually the--I'm told; at least--we're the largest healthcare spinoff or IPO in the history of the business. So at a market cap of ... more than $5 billion, it's pretty exciting times," he said.

The company received Frost & Sullivan's Market Engineering Award for Sales Strategy Leadership in September 2001. Zimmer's sales force received the award due to the company's unique strategy of technical expertise and cooperation with the physician community. The company continued its close relationship within the medical community and announced the formation of a business team to further develop minimally invasive surgery options for hip surgery replacement.

The newly spun off company also experienced challenges in 2001. The Japanese Fair Trade Commission brought unfair pricing practice allegations against the company and three other orthopedic companies. A major share of Zimmer's international business was located in Japan, and the company announced that its pricing practices did comply with the Japanese government regulations and that it was in full cooperation during the investigation. The commission alleged that Zimmer and the other companies had formed a cartel to fix prices in the country.

In the third quarter of 2001, Zimmer's first quarter as an independent publicly traded company, the company increased sales by 14 percent worldwide and 22 percent in North and South America. As other segments of the economy were sluggish during a late 2001 recession, Zimmer's sales continued to increase and the company was on track to achieve its 13 percent sales increase for the year. The company's products by 2001 included knee implants, hip implants, and fracture management products, as well as other surgical products, including tourniquets, blood management systems, and orthopedic soft goods.

Just as Zimmer embraced CAD/CAM technology in the 1970s, it embraced the technology of the new millennium by working in conjunction with Alteer Office to market Internet-based management systems to orthopedic surgeons. The software provided a solution to paperwork and administration challenges, giving the surgeon more time to focus on medical advances. The company's close relationship with the surgical community allowed it to provide the surgeons with tools to increase productivity both in and out of the operating room. "A key Zimmer strategy is to focus on solutions that improve the entire system of care for patients, physicians, providers and payers," said President and CEO Ray Elliott. "We've demonstrated that through our leadership in minimally invasive orthopedic surgery, and by partnering with Alteer, we're extending our ability to provide solutions beyond the operating room."

With aggressive product development and a history of growth, Zimmer Holdings, Inc. looked ahead to even greater goals. An aging population was one positive indicator for the company's future. The U.S. Census Bureau estimated that the number of people over 65 would increase to 39.7 billion by 2010. Better alternatives for orthopedic surgery and less invasive options were expected to increase the number of people who participated in the surgeries. Population and technological advances were just two of the many factors that translated into future success for the company--an innovator in the orthopedics industry since Justin Zimmer and his aluminum splints in 1927.

Principal Competitors: Biomet, Inc.; Smith & Nephew plc; Stryker Corporation.

Chronology

• Key Dates:
• 1927: Company is founded by Justin Zimmer.
• 1928: Zimmer lands its first international customer.
• 1942: Sales reach $1 million.
• 1951: Founder Justin Zimmer dies.
• 1972: Zimmer becomes a subsidiary of Bristol-Myers.
• 1997: Ray Elliot joins Zimmer as president and CEO.
• 2001: Zimmer spins off to become Zimmer Holdings, Inc.