Good day, ladies and gentlemen, and welcome to the Q1 2008 Stryker Earnings Conference Call. My name is Denise and I will be your coordinator for today. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. Before we begin, the company would like everyone to know that certain statements made in today's conference call may constitute forward-looking statements. They will be based upon management's current expectations and will be subject to various risks and uncertainties that could cause the company's actual results to differ materially from those expressed or implied in such statements. In addition to factors that may be discussed in this call, such factors include, but are not limited to: pricing pressures generally, including cost-containment measures that could adversely affect the price of or demand for the company's products; regulatory actions; unanticipated issues arising in connection with the clinical studies and otherwise that affect the United States Food and Drug Administration approval of new products; changes in reimbursement levels from third-party payors; a significant increase in product liability claims; change in economic conditions that adversely affect the level of demand for the company's products; changes in foreign exchange markets; change in financial markets; and changes in the competitive environment. Additional information concerning these and other factors are contained in the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q. I will now turn the call over to your host for today's call, Mr. Stephen MacMillan, President and Chief Executive Officer. Please proceed sir. Stephen P. MacMillan – President and Chief Executive Officer: Thank you, Denise. Good afternoon, everyone, and welcome to Stryker's first quarter 2008 earnings report. With me today are Dean…

[Operator Instructions] From JP Morgan, your first question comes from the line of Mike Weinstein. Please proceed sir.

Thank you, Steve. Thank you, Dean, for taking the questions. A couple of areas that I would like to touch on, I want to cover the FDA issues that that you guys had been addressing and then maybe talk about some of the recent discussion generated by other companies by GE and J&J and so forth. Maybe we start with your FDA relationship and the update there that you can provide today. And I guess there is two things that I would like to know. One, do you have an update on the timing of the Cork and Mahwah anticipated inspection? And two, since we talked to you last publicly in January, have you had inspections, normal course GMP inspections at other facilities where you have gotten either A, a clean bill, or B, have gotten some poor degree?

Sure, Mike. The -- let’s start on the overall part. I would tell you as we think about our relationship with the FDA right now, we feel like our tone… the tone of communication has improved certainly over the last 90 days. But I would tell you, we have a lot of work to do and I think we've hopefully very adequately communicated to the agency that we know we have the work to do and we are very focused on it and that when we as an organization get focused on it, we deliver. But ultimately it comes down to... they will be looking for the results. As it relates to specific follow-ups with Mahwah and Cork, I would tell you, we are probably more focused at this point on making sure that when they come back in, we are in great shape and we are probably not pushing for it quite as quickly, we think we are ready, but frankly everyday that goes by we think, gives us a little bit more time and we are more focused on getting it right. Then on... it’d be nice to get that lifted certainly and get that little cloud over us, we really want... just want to make sure we are doing it right and not just rushing it. On the final part, we don't really disclose the specifics on that, but I'd probably go back to feeling that... we feel we are definitely showing some progress, but again still some work to be done.

And your next question comes from Lehman Brothers from the line of Bob Hopkins. Please proceed.

Okay, thank you. I have a question on hips and then a question on knees. First question on hips, I was wondering if you guys could quantify the impact of the hip recall. By our math, we are thinking that it may be impacted you maybe $15 million to $20 million in the quarter and I’m wondering how much of that would bleed over into the second quarter?

Your math is remarkably good, Bob. That's the exact number that Dean and I have, and I don’t know maybe half of that into the second quarter probably. Dean H. Bergy – Vice President and Chief Financial Officer: Second quarter, yeah.

Okay.

Probably in that range.

Great, that's very helpful. Thank you. And then on the knee side and I ask this about knees just because knees are relatively clean versus hips. Did Easter have any impact... was there a couple of points of growth, just curious there? Dean H. Bergy – Vice President and Chief Financial Officer: Sure. Couple of comments, we think Easter did. We'd continue to say as we said in our first quarter call, the first quarter this year was going to be a little funny because of the Easter last year being in April and this year in March. We still generated 12% in the US, our real bugaboo was probably Europe, where frankly we saw technically it’s only one day less, but we saw a lot of vacations and everything else in that. So, I think the overall comment we probably make to everybody is there seems to be a lot of obsession about looking at specific quarters and everybody is looking at fourth quarter versus first quarter. I would say we ought to continue to just keep looking at the overall trends of several quarters together. Because I think that gives you a better overall read. So, thanks, Bob. By the way it just occurred to me that, I think Mike had asked kind of a second question and let me try to cover that, and I am sure somebody else may ask it. Mike, I recall you asked question by GE and J&J, and I would assume that's related to particularly the CapEx expenditures of GE. We would tell you that, we haven't really seen anything different within our MedSurg businesses that we’re always watching very closely there.

Joanne Wuensch is on the line with your next question.

Thank you. Could you please give us the status of Cormet Hip Resurfacing product? I know that you’ve delayed the launch of that and the training of that given what happened in the quarter, but some commentary on that would be helpful? Stephen P. MacMillan – President and Chief Executive Officer: Sure, Joanne. Yeah, Smith & Nephew is in a great spot, because of the whole monitoring situation, which is clearly pushed out our training by about six months. We are pleased to say we actually held a training course this month finally. And all of the training that we had scheduled for the first quarter on resurfacing got cancelled because of the monitors and the needs assessments and the reviews. We are now, finally, we got those approved by the monitors and just had our first legitimate course earlier this month. So we think obviously it's clearly delayed our ramp-up on that. We continued to be hopeful about it, but it will start to ramp here we think in the second quarter.

And as a follow-up, do you see any impacts and changes in either cobalt chromium pricing or other materials pricing on your expenses on a go-forward basis? Thank you.

Great question. Yeah, cobalt chromium, we are absorbing a big, big absolute price increase on that over the course of over the course of the company. Again it's one of those, we would call one of those little body blows that we absorb. But it's a meaningful increase, but we don't see a deterring our ability to deliver our overall numbers.

Your next question comes from the line of Mack Miksic from Morgan Stanley. Please proceed.

Hi, thanks for taking the questions. I did have one follow-up on the MedSurg business that was asked earlier, the capital equipment or GE-related business and then I had a follow-up on recon. So, I just wanted to make sure I understand what has been driving, we’ve gone through this ad nauseum in the past, but the bed and stretcher business in Medical, is this hospitals making new bed purchases, is it tied to new hospital construction, is there some seasonality in this business around capital budgets, any color you can give us at least what's driving it?

On the Medical front, Mack, it really is combinations, but I would say it's both hospital, new… it's new hospital openings. It's also that we have been broadening out our bed line. You think about it, again you go back five, six, seven years, we were largely a stretcher company and as we have gotten stronger and stronger in the beds, we keep finding new niches to expand into. And so we are getting in the game of as hospitals are either adding or replacing their previous ones. We are just in more and more deals than we ever were and it's why I think we continue to feel pretty good about this. Another point I’d point out as it relates it to our medical and just in general our MedSurg business. Most of our orders are relatively small by standard, we are not selling the kind of capital that a GE is, and I think that clearly keeps us probably at a different level.

Okay and then also as we look at recon and knees and hips, in Q1, I mean you showed another pretty strong quarter in knees against pretty strong 17% growth comps, I think in the US last year. Do you see… did you see any sort of knees picking up some of the slack maybe for hips and as we go into Q2, do you think we’ll see any reversal of that?

Well, I’d love to tell you that we did. I would almost tell you it may have been more the office, and I think our hope was exactly as you surmised but I will say that the hip recall took more energy and time out of our sales reps having to really do a lot of explaining. We have realized we are in a new world now when these warning letters go out, immediately on to the Internet and there is all kinds of misinformation out there. Our reps had to do a lot of handholding and a lot of blocking and tackling to get things explained and everything. I think it actually hurt or at least it didn't help our knee business either, so I think we just continued to feel very good about Triathlon, and as Dean mentioned the revision product is off to a very nice to start there.

And from Bear Stearns, your next question comes from the line of Raj Denhoy. Please proceed.

Hi, good afternoon. I was curious if I could ask a little about the hip recall. I think when we talked back in January you mentioned that you thought that could be result in a matter of weeks, you know, now here we are three months later and you are talking about extending even further now into the next quarter or here in the second quarter, what's behind this having much longer tail than you originally thought?

Sure, Raj. Fair question. I would tell you when, when we are with you in January, the whole thing was just coming down and we were able to get back into production very quickly, certainly within a matter of weeks. It was actually, we were able to get new stuff back into production in a matter of days. But when you actually go through that the global distribution chain and you start to think about all the different sizes and everything else we certainly underestimated the complexity that is here, pull stuff out of every market in the world, get it back in with the right size in the right fits, in the right number of sets. It's been a much more challenging logistical piece than what we hit, we clearly underestimated the complexity.

So is it fair to say then your [inaudible] mostly are primarily on logistics and really there's not much competitive action happening?

Well, it's… I would tell you our competitors are clearly taking advantage of our that the time that it will take to get us back into the fray. So have we lost some surgeries and two competitors absolutely in the quarter, we certainly hope to get those back over time.

Your next question comes from the line of Mark Mullikin from Piper Jaffray. Please proceed.

Good afternoon. Steve, can you expand on your comments on M&A a little bit more, you had mentioned looking at ROI as opposed to just EPS accretion and I was just wondering if there is anything more to read into that if you have changed how you look at deals at this point versus in the past?

We have absolutely not changed, that's probably one reason we have been very disciplined acquirers. Let me just give you a real world example. It’s something like a Kyphon. We look at Kyphon, that could have been EPS accretive to us in a fairly quick form, but we couldn't justify that kind of a purchase price. And so as we look at everything, it's [inaudible] we’ve looked a lot of things over the last year, two years and end up passing on them, because we really don't think they hit our capital hurdles, but it’s just a probably a little more clarity around that and probably the other reason we are saying that is we know there's been a lot of speculation more recently. We just got a lot of calls about in ‘80s, this company is for sale, this one is for sale and a lot of rumblings that we're the obvious buyer for so many of these things, and again you are saying don't worry folks, we're not to going to lose our heads just get some things for sale, doesn't mean we are going to jumping and grab it.

Okay. Fair enough and then one follow-up on the knee business, BioMed put up an extremely strong number and had a DTC ad campaign, going on during the quarter and I was just wondering with the DOJ monitors in place now, etcetera, do you think the ETC will start to play a bigger role in driving share shift within the industry? Stephen P. MacMillan – President and Chief Executive Officer: Yes, we are not so sure about that. Keep in mind their quarter didn't line up with the rest of us and I think it’s why these focuses on that quarter, March was probably a very bumpy month, and I… if I recall their quarter ended in February. Having said they had a great recon quarter. I’ve sent Jeff Weiner a note saying, you guys obviously had a heck of a quarter. Whether it’s the DTC or not, I think we continue to dabble and see what's going on there, but continue to try to focus on the surgeon as well. So, I think it's too early to speculate too much on that.

Your next question comes from the line of Kristen Stewart from Credit Suisse. Please proceed.

Hi. I was wondering if you could expand a little bit more on the R&D side, as to the reason why… you mentioned some of the issues with the monitor and [inaudible] you could just explain that a little bit much [inaudible] going forward? Stephen P. MacMillan – President and Chief Executive Officer: Sure, I think to a large degree, Kristen, we’ve filled a fair amount of the R&D pipeline, we have got… just about every division has a fair amount going on. Having said that some of our R&D resources are devoted a little bit right now to working on some of the quality. I’d say the quality we have and the other part is that with the needs assessment down there are certain projects that are kind of put on a hold, and I think you will probably see this what we’re temporarily put on hold ones that are involving designing surgeons and things like that because some of the meetings could not occur at our Orthopaedics division as Dean referenced probably a little bit less activity there, and that's something that obviously will affect us probably more in the 2009, 2010 time period. But we are guessing it's probably at least a little bit more of a level playing field that my hunch is a number of us may have had a few projects just sort of the slowdown during this time.

And so it sounds like as the percentage of sales we should expect a similar number that what we are seeing in the first quarter or a little bit higher or--? Dean H. Bergy – Vice President and Chief Financial Officer: I think it is fair to say it will come up a little bit, Kristen. We… some of these things that got deferred will come back in some format, I think. You will see some of that spending come back in subsequent quarters, but still for the year and we had indicated at the outset we do expect our R&D spending to slow down. Keep in mind we have been [inaudible] with R&D growing at or above the rate of sales for the last four years, as well. Stephen P. MacMillan – President and Chief Executive Officer: Yes, this year they’re probably back under the current growth of sales. Dean H. Bergy – Vice President and Chief Financial Officer: Right.

From Leerink Swann, your next question comes from Jason Wittes. Please proceed sir. Jason Wittes – Leerink Swann Llc: Hi. Just wanted to ask about the FDA issues, can we... could you give us a time frame to think about when the FDA will actually be coming back in to look at everything? Stephen P. MacMillan – President and Chief Executive Officer: The truth is we really don't know. It could be… it could probably be as early as May or June. And it might be longer; they've got so many things on their plate as well right now. And again, I know it’s a little bit of an overhanging concern for you guys. In terms of affecting our business, it’s got farer less day-to-day impact on our business. Again, our focus is ultimately when they do come back and getting it clean build health whether that's May or whether it's October, probably doesn't have a huge impact on the actual operational performance of the company. Jason Wittes – Leerink Swann Llc: Okay. And just a quick follow-up on R&D, it sounds to me like you are saying that R&D will be now slightly below sales growth this year, which is sort of a slowdown from what we've seen in the past years, is that due to the monitor or is that just… what those goes along with what you are saying that you’ve kind of over-invested somewhat in R&D and now it's time to bring it back a bit, how should we be thinking about that?

The latter, which is exactly if you recall what we said at the start of the year, this is not a change, it was what was in our plan this year. We've invested a lot over the last four years, as Dean said. And now it's time to really bring some of those things that were heavier investments start to see some of those come through.

Michael Matson from Wachovia Capital Markets is on the line with your next question.

Hi. Thanks for taking my question. Your organic or underlying revenue growth was I guess about 10.3% in the first quarter, and I understand you had your issues with the hip recall and everything that may have added another percent or percent and a half to that, but you’re already kind of at the lower end of your full year guidance range, and yet you've got some kind of tougher comps or the comps get progressively tougher through the year, what gives you the confidence that you can continue to stay in that 11% to 13% range, particularly as we get into the second half of the year?

Here is way I think about it, Mike, is we just delivered 10.3% local currency growth with a negative hip number. And clearly as that hip number starts to ramp up over the course of the year, that alone should be good. The other thing we’d remind you is think about it this way, five of our eight franchises grew over 15%. And while some of those may moderate a little bit and they are going against tough comps, we are used to going up against tough comps. Our US Trauma business, as Dean mentioned, has been up 20% for nine straight quarters now and we hate to say it, but I think we think we can continue that run, Spine has been up, I think, six quarters in a row, CMF seven quarters in a row, all over 20. So they've been going against some tough comps, obviously keeps getting harder, but we... as part of setting the bar high and continuing to go over it. So I think we continue to feel hips have got to start to contribute for us, and hopefully, that will be the key while the others may moderate a little bit. But we feel pretty good about our product flow, about a lot of our fundamentals.

Okay. And then with regard to the Triathlon revision rollout, where do you think you stand with that and in terms of the instruments getting them into the field, getting surgeons trained and what is the kind of timeline there? Stephen P. MacMillan – President and Chief Executive Officer: We are still pretty early. We just launched that at our January sales meeting, really started to get in... stuff out to the field in the beginning of February. So... and we are not exactly... as we've said in the past, we are not exactly the fastest launchers, having said that the uptick has been... Stephen P. MacMillan – President and Chief Executive Officer: Yeah, and I would say... one thing we are targeting and doing a little bit better, Mike, is making sure that we have got instruments that's ready to go. So I think we are in reasonable stead and the sales force uptick has been very, very good. So I think... but it is early, but it was a good first quarter.

Your next question comes from the line of Bruce Nudell from UBS. Please proceed.

Thanks so much. If worse comes worse and you guys receive a corporate warning letter, could you kind of ballpark the incremental spend, if any, as a percent of sales relative to where you are now? Stephen P. MacMillan – President and Chief Executive Officer: Bruce, probably not a lot different, because I would tell you we are essentially... we’ve basically developed an in-house program that is modeled after what effect did happen and what would it take to get where we want to get. So I would tell you if we are investing a significant amount here, having said that, we never know until you never know. But we've looked at what we want to do to get there and we think it's in that range. I mean, again we're absorbing... it's clearly tens of millions of additional dollars in investment this year. And as a reminder we've not changed our guidance.

Okay. And my follow-up is at the end of '06, you were very gracious and kind of volunteered that hip and knee unit growth in the US was below the trend line and we calculate somewhere between 3% and 4% or so. In '07, what sort of year do you think the market had for unit growth in the United States for hips and knees? Stephen P. MacMillan – President and Chief Executive Officer: The market... you guys are probably better [inaudible] knees were what high single-digit? Dean H. Bergy – Vice President and Chief Financial Officer: Yes. Stephen P. MacMillan – President and Chief Executive Officer: Probably, and hips probably in the mid single-digit, it's probably our best estimate.

Your next question comes the line of Doug Schenkel from Cowen and Company. Doug Schenkel - Cowen & Company: Hi, good afternoon, and thanks for taking my questions. Stephen P. MacMillan – President and Chief Executive Officer: Good afternoon. Doug Schenkel - Cowen & Company: First, another question on Trident, any chance you would be willing to provide more specific details on the current supply status of PSL and Hemi in different geographies? Dean H. Bergy – Vice President and Chief Financial Officer: I don't know. We don't want to get overly specific. I think what's fair to say is that it's starting to come back. And obviously, I think we would feel kind by the end of this month, we should be in really good shape in the United States and probably another month and we should be back to where we want to be overseas. But suffice it to say the way that we are looking at this is to trying to look at surgical needs on a very detailed basis in all of the markets everyday and try to hit the markets often as we can. And we are starting to do a lot better job than that. So I think we do feel like we are going to have it in very good shape by the end of the quarter. Doug Schenkel - Cowen & Company: Okay. And specific to the incremental cost that you are incurring to improve quality controls, longer term, is it right to think of these costs as being higher in the near term and subsiding sometime in the future... several quarters from now, because what I am trying to get out is in a year from now, is there some leverage potential as these costs potentially subside a bit? Stephen P. MacMillan – President and Chief Executive Officer: We think certainly over the longer term, this is a invest now to be healthier later. It's probably more... I'd probably say in some ways it may be more of a two year-ish, it's going to vary depending on where we are in our certain plants. But I think again we feel good about the nearer term and ultimately figure that there will be some leverage there going forward whether it’s a year from now, whether it’s 18 months, whether it’s 24 months, probably a little premature to fully say, but certainly the... once we invest, get everything right, there ought to be some efficiencies.

Your next question comes from line of Michael Jungling from Merrill Lynch. Please go ahead.

Great. Thank you. I have a question on acquisitions, you've indicated in the past that there are several areas that you found very attractive, but they were too expensive. Many of these areas have now sort of being de-rated by 50% or more, and I am just wondering whether this puts acquisitions on the full front compared to where you were last year. So [inaudible] building type going on here at Merrill Lynch? And secondly on the recall costs, can you quantify what the total costs whether you've incurred as a result of the recall in the first quarter? Thank you. Stephen P. MacMillan – President and Chief Executive Officer: Sure, Michael. We are not going to buy Merrill Lynch by the way, just... certainly some things have come down. And that... it's why we are probably more actively looking at a number of things right now and... but again in terms of what we can really get them for and how they fit into our business, we continue to just kind of sort it out, but it's probably a better buying time today than it was 12 months ago. On the second one, Dean, do you want to kind of quantify? The second question was the costs of the recall, obviously we shared with you probably that $15 million to $20 million we have lost revenue in the quarter and we would tell you there has been underneath it, there are number of costs on... Dean H. Bergy – Vice President and Chief Financial Officer: Yeah, it's fair to say that obviously one of the… in the margin line, I referenced excess and obsolete cost, you can assume that there is a reasonable cost to the product that's come back that's hitting our gross margin as a result of this as well. Stephen P. MacMillan – President and Chief Executive Officer: All of which has us frankly feel pretty good about delivering $0.70 of share in a quarter where we absorbed the lot.

Your next question comes from Bill Plovanic from Canaccord Adams. Please proceed.

Great, thanks. Good evening. I am going to ask just a couple of simple P&L questions here. Just, is it in point in time the interest rate on your cash balances, if you could give us some guidance there and then would you be able to quantify the monitoring cost per quarter or for the year just ballpark until this is done? And then any kind of guidance on or color on what acquisitions added to the top line in the quarter? Thank you. Dean H. Bergy – Vice President and Chief Financial Officer: Well, sure, Bill, on the interest rate, it's probably I would say, fair to say it's around 4%, but it is going to be dropping obviously as we replenish and have to replace investments that are in the portfolio today. Relative to acquisition impact on the top line vary insignificant in fact, obviously that would be one of the we would have if that were significant enough to be included in the analysis of our price volume and so on and so forth in terms of the make up of the top line. And the... what was the third question?

The monitoring cost--? Dean H. Bergy – Vice President and Chief Financial Officer: Yeah, I don't know that we want to go into a lot of real specifics there as I said in SG&A, our SG&A is riding up higher than we would like. Obviously, we’ve indicated we think it will be down for the year as a percentage of sales. I still believe that, but this was a tough quarter and as I said more than $6 million, so that gives you some sense of what we are up against there. Stephen P. MacMillan – President and Chief Executive Officer: You gain nothing. Probably jumped in and reiterate with that huge increase in legal fees that is something that hopefully over time we’ll also moderate and again hopefully give us a chance in terms of additional growth in the years ahead.

Great. Thank you.

Your next question comes from the line of Tao Levy from Deutsche Bank. Please proceed.

Hi, guys. This is Sas [ph] for Tao. Thanks for taking the question. Stephen P. MacMillan – President and Chief Executive Officer: Sure, Sas.

First, the remediation plan, your quality remediation plan, is it all inclusive over all your plans, and will it be fully rolled out by the end of 2009? Stephen P. MacMillan – President and Chief Executive Officer: Yes. We... essentially, what we are doing is recognizing… when you got two warning letters, they were looking at both issues specific to those plants, but also across the division. But we are treating it as an opportunity to say, hey, wait a minute, let’s go and apply that same thinking across our entire network, and that's why we want to be out in front of this given that we were probably behind it. Now we want to go to the other extreme and get out in front across our whole network.

And the timing, would -- Stephen P. MacMillan – President and Chief Executive Officer: We would certainly hope by the end of the 2009 that we are in great shape. Will there still be little pockets by that point? Probably, but I’d say our organization is incredibly focused putting a lot of time and energy into this. We hope to be certainly in a much better state even by the end of this year.

And just one follow up. Do you have any update on the launch of Sightline or still the same Q4 expectations? Stephen P. MacMillan – President and Chief Executive Officer: Q4 probably still the best and that one may slip into next year. We are still working through it and given that we’ve kind of missed a little bit on timing on some of those, we’re probably going to not over --- want to still temper the expectations there.

And from Banc of America Securities, your next question comes from Steve Lichtman. Please proceed.

Hi, guys. Thanks. Just a couple of follow ups here. On cash flow, what should we think about in terms of CapEx this year, and as we exist the year, where would you target inventory days getting to? Dean H. Bergy – Vice President and Chief Financial Officer: On CapEx, Steve, I would say probably somewhere in the 190 to 215 range is probably a good estimate. And DSO, I think we have finished last year at 137. We will probably be a little bit higher this year, so I would hope to get it into the low 140s. Stephen P. MacMillan – President and Chief Executive Officer: On DII Dean H. Bergy – Vice President and Chief Financial Officer: On DII, yes.

Yes. Okay, thanks. And then just on the analyst day coming up in a few weeks, maybe you can talk broadly what we should expect, is it just similar to what we have seen today or last prior years? Stephen P. MacMillan – President and Chief Executive Officer: Yeah, it will be similar, will probably be a little bit… we are going to leave a little bit more time, so hopefully we can get a little bit deeper but we are, as you know, there is only so deep we are going to go about pipeline things, but I think we hope to give little better understanding about certainly part of the business. I know you’ve dug into more over time, which is our MedSurg business. That is a big part of our business, and continues to probably raise some questions, so if I give a little more... a little more there.

From Goldman Sachs, your next question comes from Larry Keusch. Please proceed.

Hi, everybody. It's Charlie Chan [ph] for Larry. How is it going? Stephen P. MacMillan – President and Chief Executive Officer: Hi, Charlie. Great, yeah.

Dean, first of all, I was wondering if I could start with you. Could you help us better understand how the positive impact from foreign currency on the top line may have flowed to the P&L to the bottom line, and if in particular you could just touch on how gross margin may have benefit there just because the benefit was a lot... or gross margin came in better than what we had been expecting despite the higher cost inputs and absorbing the return products, so if you could just speak to that, that’d be really helpful. And also just a quick follow up to a question that was posed earlier, I just to want to confirm, are you suggesting that you will have the hemi cut [ph] back in the US in the next few weeks?

Yeah. The FX impacts, I would say that it does not have that much of an impact. We’ve touched on this before, but when the dollar weakens, we get probably a little bit of positive impact to the bottom line, but we have so many natural hedges in place in terms of where we manufacture. So, as an example, our Spine and Trauma products, which as you know are doing extremely well in the US, those are manufactured in Europe, and as a result of that, we’re taking some pretty significant hits on currency impacts as those products come back to the US to be sold. And some portion of our recon products also have the same characteristics. So when we net everything out, because of our natural hedging, it really does not have that big of an impact, and that's one of the reasons I did not mention it as one of the... as much of an impact really on gross margin specifically.

Harp on EPS, would it be fair to assume that the impact there would be negligible as well?

Exactly. And that’s what I was saying, all the way down to the bottom line.

Okay. And just a quick follow-up on the gross margin, would it be a fair to think that gross margins should trend at these levels throughout the reminder of the year, or should we start to see some of that customary seasonality or as your plans run less hot, could we see gross margins come in?

Yes. So, I think you're going to see at least kind of three factors. And as I said, we expect them to be… I would expect them to be flattish if not a little bit down when we get to the end of the year. And the reasons are, we will run the factories, we traditionally run the factories slower in the second half. We do have a seasonality impact in the third quarter with our MedSurg businesses being a bigger piece of the business for the elective [ph] surgery schedules down in the summer months. And then the other thing as I eluded to is, we do expect, starting in this next quarter, to see a little bit further ramp up on some of our cost of quality, which I would expect to hit probably second and third quarters a little bit harder on the gross margin line.

Greg Halter from The Great Lakes Review is on the line with your next question.

Good afternoon, guys. Congratulations on a good quarter, again. Stephen P. MacMillan – President and Chief Executive Officer: Thanks, Greg.

Dean, quick one on your debt, is it still around $17 million or $20 million on a total basis? Dean H. Bergy – Vice President and Chief Financial Officer: Yes, it's right around $18 million, Greg.

And then one last one, on the critical care bed, I think it's called InTouch, can you give us any feedback on how that's being received by the market? Dean H. Bergy – Vice President and Chief Financial Officer: Two straight quarters of medical growth over 20%, we think it's off to a pretty good start.

Okay. Dean H. Bergy – Vice President and Chief Financial Officer: Thanks, Greg.

[Operator Instructions]. Your next question comes on line of Kristen Stewart from Credit Suisse. Please proceed.

Hi. Thanks for taking my follow up. I was just wondering if you could talk a little about mix trends, specifically maybe for knee. I know Triathlon is now a big part of it, where do you see mix trends kind of going in the hip and knee side as we look ahead? Dean H. Bergy – Vice President and Chief Financial Officer: Yes Kristen, I think mix kind of moves around always over history, if you will, and probably in terms of some of the products we have had introduced. It’s probably a little slower today than it was in the last couple years, but I think as always, we believe we will have new products coming in, and certainly we’ll try up on PKR and try up on TS, those are products that probably contribute to mix. So, I would always tell people that we would expect mix to kind of always be 1% to 3% of our sales, and it's 5 not 3 very often, but I think it will always be in that range, and it's only yesterday, and I think it will move around but be in that range.

You said that pricing was down overall in the quarter -- Dean H. Bergy – Vice President and Chief Financial Officer: No, I said actually pricing was rounded up to being up 1% and there is no offset in there with the Japan pricing. So, prices in the rest of the world and that's pretty normalized. The cost at our businesses are up a little bit, but slightly.

Okay. Last one of the tax rate, should we expect 28% going forward? Dean H. Bergy – Vice President and Chief Financial Officer: No, as I said there, again, we are comfortable with that rate today, but I think as we go through the remainder of the year, we would expect it to come down as much as 50 basis points, which could get it as low as 27.6 for the year.

We have a follow-up question from the line of Mike Weinstein from J.P. Morgan.

Thank you. I appreciate you taking the follow-up. You know we are still in queue here, that's great. Stephen P. MacMillan – President and Chief Executive Officer: So am I.

Sorry, we got lost earlier, Steve. I did want to make sure we understood a couple of items from your earlier comment. One is that in the course of GMP inspections, the FDA going through the facilities that there hadn't been any issues. To me, that's really is as important as anything here, and just on this overhang, if you would, of the FDA's relationship with you guys. And then second, just going up a second to the operating with a different company off, and then second, the commentary about all the activity in March. So, in March, we've seen this... in particular... sorry in March, we saw this… we've seen this activity increase at not-for-profit hospitals, at community hospitals, that GE ascribed some of their issues to, and from your vantage point, just to be clear... and you guys have very limited exposure here. I'd assume some maybe in your iSuite and in your beds business, but from your exposure, you are not seeing that at all at this point in April in your business? Thanks. Stephen P. MacMillan – President and Chief Executive Officer: Sure, Mike. Let me take your second one first. We are not... I'd tell you we've got our ear to the – our ears very closely focused. And as you point out, within our broader MedSurg business, there’s probably only two pieces of capital that would rise to that level. One would be the iSuite,. and the other would be major bed orders. We are not seeing it at this point. We always... when you see a company as great as GE get surprised and everything else, it always makes you a little bit nervous, and we're kind of trying to watch and stay close to it. But we don't really see it affecting our business at this point. Back on the FDA inspections, I know, you're probably wishing us to review a little bit more detail than we want to get into. We are not getting to get into reporting on individual site inspection. We will tell you certainly if we got another warning letter or something else really bad, we will disclose it, I would tell you pretty promptly. But in the meantime, I want to avoid getting into a situation where we start to report on every single FDA inspection, both from our standpoint, but also I want to be careful as we think about our relationship with the FDA as well there. So. Hopefully, you will understand that.

We have another follow-up question your line of Bob Hopkins from Lehman Brothers.

Thanks very much. I just wanted to follow-up on your comments on cobalt chromium. Could you let us know what percentage of your implant costs are made up by cobalt, and give us any senses to how much the price has gone… price has increased? Dean H. Bergy – Vice President and Chief Financial Officer: Oh, yikes, there you are. Bob, that’s a little more granular than I think we want to get at this point in time. It's...the price increases are pretty substantial on a percentage basis. If you look at the overall business and the margins involved, it's a reasonable proportion than that, but it's not overwhelming, something we can't handle, but obviously something we’d prefer not to. Stephen P. MacMillan – President and Chief Executive Officer: It's also where, Bob, back to the fact that our business is much more diversified. No one franchise remembers more than 20% of our business.

Right. Stephen P. MacMillan – President and Chief Executive Officer: And so any of those, while they can be meaningful and very significant for a certain franchise, we tend to find abilities across the broader corporation to balance those things.

And then just to follow upon Mike’s question, which is more capital related, the other thing that’s come out of the earnings season so far is, J&J’s comments about procedure volumes in general surgery, and I know again you don't necessarily touch on this in a significant way, but I am just curious, you talked a little bit about capital? Are you seeing anything on the surgical procedure volume side that's noteworthy at this point? Stephen P. MacMillan – President and Chief Executive Officer: Yeah, not dramatically. And again I just... I think sometimes there is so much read into quarterly variations where couple of days can matter frankly whether depending on how many Fridays are in a quarter versus how many Mondays and Tuesdays. When we start to look so much at specific quarters, how many days were in the quarter, you are going to see some variation. I would want to see how everybody’s second quarter goes before you can really conclude anything upon that. I do think they made a distinction, which, I think you are referring to as well, that their DuPuy business was different than their Ethicon business, and we continue to try to stay close. We are probably not nearly as involved in the general surgery businesses they are to have necessarily picked it up, but they might be closer to it than we are. So, we will stay close to it.

Your next follow up question comes from the line of Michael Jungling from Merrill Lynch.

Great, thank you. I wanted to ask a question on, if you look your excellent four months volume growth, I am just curious I am not just driven by being very price focused, and the reason I ask is because a major competitor is surprised about your pricing policy basically in trauma and spine, so a comment on that would be very helpful. Thank you? Stephen P. MacMillan – President and Chief Executive Officer: We are not deep discounters on pricing, Michael, pure and simple. I think you look at our… people throw around different excuses here or there. We do not compete on price.

Okay, thank you.

Your next follow up questions comes from the line of Matt Miksic from Morgan Stanley.

Hi, again. Thanks for taking the follow up. Just that, Dean, you had mentioned an increase, $6 million increase in legal related to some of these compliance spending requirements that you have, and I am assuming, I just want to confirm that's around FCPA and the FDA letters, is that right? Dean H. Bergy – Vice President and Chief Financial Officer: And the DOJ.

And the DOJ. And is that sort of… I mean if you were to look at when that started, I guess, in that third quarter, a lot of this started second and third quarter of last year, maybe the third or fourth quarter, but what... in total what's... how do we think about that block of spending, is that a $10 million requirement that you are facing now for all those things together or is it a bit more, bit less? Stephen P. MacMillan – President and Chief Executive Officer: Whenever it is, it's too much. Dean H. Bergy – Vice President and Chief Financial Officer: Yeah. Stephen P. MacMillan – President and Chief Executive Officer: I’ll say. Let me –: Dean H. Bergy – Vice President and Chief Financial Officer: I’d say it's fair to say it’s a bit more than that, and I guess I will leave it at that.

Okay. I won't push you on that. But… and one follow up of on the R&D comment that you made about getting the benefits this year, next year, the year after I guess driven by a lot of the investments you’ve made over the past few years. Can give us a sense of where you see some of those benefits concentrating across your businesses? What types of areas you expect to see new product launches this year and next, for example, which we look? Stephen P. MacMillan – President and Chief Executive Officer: No, we will probably touch on that a little bit more at the meeting on the eighth. I would just continue to tell you, it's across all divisions. We don't get the growth rates above market in basically seven of our eighty franchises without steady product flow across the board, and again it's a lot of singles and doubles, it's not the grand slam home runs that the one key eureka product that people are usually looking for.

From UBS, your next hour comes from the line of Bruce Nudell. Mr. Nudell your line is open. You may proceed with your question.

Oh, yes, thanks. Steve, the way you described it, most of the recall related impact on the market was due to logistics. Are there any hangovers with regards to the product per se, in another words the ceramic on ceramic squeaking issue and Strykewear [ph] and fracture were mentioned in one of the warning letters, do you feel that once a product is fully available, you will go back to your kind of baseline share as it were? Stephen P. MacMillan – President and Chief Executive Officer: We certainly hope so, Bruce. But there have been a few doctors that may have used this as an opportunity to try some competitive products, and we are going to have to work to get them back. We clearly dug ourselves in a little bit of a hole, but once again, we will get back out there and fight for that.

But I guess my question is, do you feel that the people who tended to use ceramic-on-ceramic will go back to that product type? Stephen P. MacMillan – President and Chief Executive Officer: Yeah, we do. And keep in mind at this point, our ceramic-on-ceramic penetration is down about 10%, with our X3 which has done so well, ceramic-on-ceramic can really become a much smaller piece of our business, and It’s really found that niche for the younger patients and the surgeons who had a lot of very good experiences with it.

Your next follow-up comes from the line of Jason Wittes from Leerink Swann.

Hi. I just wanted to follow-up on your comments on the Cormet Hip Resurfacing product, and that is my impression was that you did start some training last... some time early last year, and I guess you were saying that you just started at the end of this quarter. My first question is, A, is that timing sequence correct? B, can you give an indication of how many doctors you've trained and, C, are you going to have to get approvals for each time you want to set up a training session from the monitor? Stephen P. MacMillan – President and Chief Executive Officer: Let me try to take those in pieces. We held like... just a couple of very small courses I think in December --

Okay. Stephen P. MacMillan – President and Chief Executive Officer: -- that had been set up. Then we held nothing in the first quarter where we had a lot of them scheduled. Recall the product was first cleared in July of last year. We then had to get some additional clearance from FDA around the initial training, which is why the first courses didn't happen until very late last year with a limited number of surgeons. Then we planned for it in the first quarter, that's also been now pushed out to the second quarter. We are not going to clarify specific numbers of surgeons trained. We just generally stay away from that. And the third part of the question was... Dean H. Bergy – Vice President and Chief Financial Officer: Based on the DoJ monitor clearance, I mean the knees assessment that's been done is for the full year. So, that would encompass our training needs for the full year, and as... what we think we need to do those has been built in. But we always do have the ability for, if we think we need to deviate from that plan to go back to the monitor and get his clearance to do that, but we think we got what we need in the plan.

So, at this point, we can assume that you are... this quarter we'll see a much larger training progression? Stephen P. MacMillan – President and Chief Executive Officer: The training progression, yes.

Okay. Stephen P. MacMillan – President and Chief Executive Officer: Finally, is that it, operator?

Yes, sir. There are no more further questions in queue. I will turn the call back over to Mr. Stephen MacMillan for closing remarks. Stephen P. MacMillan – President and Chief Executive Officer: Great. Well, thank you, Denise. We appreciate that. Just a couple of final comments again. Despite a few challenges, our broad based model came through once again. We feel pretty good, we delivered $0.70 a share and another overall solid quarter and a lot of good things going on around the company. Our conference call for our second quarter 2008 operating results will be held on July 17. And again as a reminder, we will be having our Analyst Day in New York on May 8. So, thank you, everybody.

Thank you for your participation in today's conference. This call concludes the presentation. You may now disconnect. Have a great day.