Good day, ladies and gentlemen, and welcome to the first quarter 2009 Stryker earnings conference call. (Operator instructions) 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: further weakening of economic conditions that could adversely affect the level of demand for the company's products, pricing pressures generally including cost containment measures that could adversely affect the price of or demand for the company's products, changes in foreign exchange market, regulatory actions, unanticipated issues arising in connection with clinical studies and otherwise that affect 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, unfavorable resolution of income tax audits, changes in financial markets, and changes in the competitive environment. Additional information concerning these and other factors are contained in the company's filing with the United States Securities and Exchange Commission, including the company's Annual Report on Form-10-K and Quarterly Reports on Form 10-Q. Today's conference call will also include a discussion of constant currency sales performance and adjusted diluted net earnings per share for the year ended December 31, 2008. Further, discussion of these non-GAAP financial measures including GAAP reconciliations that appears in the company's Form 8-K filed today with the United States Securities and Exchange Commission, which may be accessed from the For Investors page on the company's website at www.stryker.com. I would now like to turn the presentation over to your host for today's call, Mr. Stephen MacMillan, President and CEO of Stryker.

Good afternoon everyone and welcome to Stryker's first quarter 2009 earnings report. With me today are Curt Hartman, our Vice President and Chief Financial Officer, and Katherine Owen, Vice President of Strategy and Investor Relations. As many of you are aware, Curt assumed the role of CFO effective April 1, 2009, although he has been working closely with both Dean Bergy and our finance team since the latter part of 2008. Certainly some fun times for Curt to join in that role. Turning to the review of our quarterly results, 2009 has thus far presented us with some challenges but we’ve also achieved a few noteworthy successes. We believe these achievements are particularly impressive in light of the current economic environment. Looking at the quarter we note the following highlights: Despite the unprecedented global economic slowdown six of our eight key product franchises delivered mid-single to low-double-digit constant currency revenue growth, demonstrating the strength of our diversified business model; Strong cost controls throughout the organization, as evidenced by the 1.5% reduction in SG&A as a percent of sales, despite ongoing selective investments in our sales forces; Ongoing benefit from our geographic footprint as evidenced by the fact that although in the U.S. our endoscopy and medical franchises were under pressure in the quarter, both posted solid mid-teens growth internationally; Continued strength of our balance sheet with our total cash and marketable securities balance totaling $2.2 billion; The successful launch of a number of important new products, including the Q1 roll out of our endoscopy 1288 camera, wireless monitor, and light source; Expansion of our medical division’s footprint with our latest entry into the U.S. surfaces market via the launch of our Impression offering; and The successful completion of the Department of Justice’s 18-month monitoring period, which was completed on March…

I would like to provide an update and some perspective on three topics that have been the focus of a number of questions from the investor community, specifically: one, reconstructive implant pricing and elective procedure trend; two, hospital capital budgets; and thirdly, the outlook for OP-1. First, with respect to recon implant practice, there has been some speculation that the current economic environment will drive greater downward pressure on implant prices. We have actually seen similar concerns in the past with various factors serving as the catalyst for the core “imminent” collapse implant pricing, including gain sharing, national account contracting, the DOJ investigation, the DOJ settlement, and more recently, the economic environment. However, despite these events, reconstructive ASPs have been relatively stable since 2004, decreasing at roughly 1% to 2% annually, although this has been largely offset by more favorable pricing for spine and trauma. Part of the lack of meaningful downward pressure on recon implants is tied to the favorable reimbursement trends in recent years, including the severity of adjusted index that allows for higher reimbursement for more challenging patients such as those often seen at teaching hospitals. Admittedly there are pockets where we have seen greater pressure of late and we expect that trend will continue. However, we continue to see solid up ticks for premium-priced products such as our X3 poly and the recently launch titanium hip cuff, indicating physician preference for products that provide a value-add to patients. As we have discussed throughout the quarter we have seen some pockets in the U.S. where there has been a delay in elective procedures, primarily with non-Medicare patients owing to the economic environment. Given that it’s typically the debilitating pain that drives a patient to undergo reconstructive surgery, we suspect a deferral of surgery will last months and…

I will start this afternoon with the discussion of the considerable impact that foreign currency had on our first quarter sales. The strengthening of the U.S. dollar in the majority of our overseas markets reduced international sales by $87.0 million in the quarter and reduced the company’s overall sales growth by 5.3%. Trying to the score the magnitude of the note that this dollar amount is approximately equivalent to the entire gain recognized in 2008 from currency and is approximately $20.0 million greater than the adverse impact noted in the fourth quarter. Unfavorable currency movements in the quarter versus last year included the dollar strengthening approximately 15% against the Euro, 38% against the British pound, and 36% against the Australian dollar. The dollar did weaken approximately 11% against the yen when compared to prior-year rates. If currency rates hold near current levels we expect foreign currency will decrease second quarter sales by approximately 5.5% to 6% when compared to 2008. At these rates the full-year impact will be in a range of 3.5% to 4.5% when compared to 2008. Next I will spend a moment on the impact of price and volume on the top line. In the quarter, selling prices across the company were essentially flat on a worldwide basis despite a 7% pricing decline in Japan. As a reminder, the Japan pricing decline is tied primarily to the reimbursement cuts introduce in April of 2008. On the volume mix side, growth was 4% in first quarter, which had one less selling day compared to the prior year. Volume mix was generally as expected for our orthopaedic implant products but volumes were off considerably for endoscopy and medical businesses, particularly in the U.S. market. Overall, our domestic volume mix growth was 1% in the quarter and international volume mix…

Before we open up the call to Q&A I would like to make just a few brief closing comments. As our revised guidance reflects, we are considerably more cautious regarding the outlook for the remainder of 2009 versus our expectation at the start of the year, given lingering uncertainties relating to elective procedures and hospital capital budgets that at this point have been well vetted. Although we have seen evidence that the downturn in hospital capital purchases is bottoming and we have adjusted for the impact on elective procedures, we are opting to set the low end of our sales and earnings range at a level that we believe reflects any reasonable downside risk to the assumptions in our outlook that Curt discussed in detail. And quite frankly, given our own disappointment that we failed to accurately forecast our sales and earnings outlook to investors at the start of the year, we believe it is critical that we set expectations at a level that removes as much doubt as possible regarding our ability to deliver. It’s worth underscoring that our conviction and our ability to deliver low-single to low-double-digit earnings growth, even in the fact of a difficult economic backdrop, in large part reflects the impact from the myriad actions we proactively initiated in the fourth quarter to leverage our cost structure. The moves were company-wide and have unlocked meaningful earnings power despite a challenging to line and underscore the importance of these actions. Beyond allowing for solid earnings growth in 2009, our efforts on the cost front should position us well to drive greater P&L leverage as we exit the current recession. Finally, our results once again speak to the unique competitive advantage of our diversified revenue base and underscore the significant opportunities we have to drive continued growth across numerous geographies. There is another point I would like to make here. It is clear we are facing some short-term challenges but we would be remiss is we did not remind you that we remain very excited about our longer-term growth prospects. With the investments we’ve made in previous years to build a more diverse orthopaedic implant franchise, as well as our initial expansion of our MedSurg businesses outside the U.S., we continue to see great growth opportunities for all of our franchises in the years ahead and our balance sheet remains a source of strength, which should also serve us well going forward. We look forward to providing you all with a more detailed update regarding our key franchises and new product launches at our upcoming analysts meeting which will be held May 20 in New York City. Lastly, the conference call for our second quarter 2009 operating results will be held on July 21, 2009. And with that, we will now open it up for Q&A.

(Operator Instructions) Your first question comes from Bob Hopkins - Banc of America Securities.

The first question I have has to do with the guidance, on the top line. Because if you look at the midpoint of your guidance, would suggest that basically for the rest of this year you expect your results to be somewhat in line with the growth that you put up in the first quarter. In other words, you expect things will basically stay the same for the rest of the year relative to that 3.3% growth that you had in the first quarter. But then you also went on to say that you think hips and knees and may decelerate a little bit and spine may be a little bit tougher and you hope that the MedSurg stuff holds in. So I’m just wondering if you can kind of reconcile those two things and talk a little bit more specifically about the encouraging signs that you mentioned within the MedSurg business.

I just want to jump in with one point of clarification. In our comments regarding elective procedures and our assumptions regarding spine and trauma were really intended to give a little bit more color to what was baked into our assumptions than we have historically done and really aimed at helping people understand how the year is going to progress. We have seen a lot of that in the first quarter. We’ve talked throughout the first quarter about some of the impact on elective procedures, both for hips and knees, as well as on our spine business. But I would not view that as something that is changing meaningfully, from the first quarter into the rest of the year, that’s somehow going to result in a meaningful deterioration in those businesses as the rest of the year unfolds.

But still the basic premise here is that things are going to stay the same with what you saw in the first quarter and I’m just wondering if we can put a little more color around that, especially as it relates to specifically what you’re seeing with MedSurg.

I think from an overall implant standpoint, I think we feel pretty good about being able to deliver consistent results with what we had in the first quarter. As you look to the balance of the year on the MedSurg side, instruments will probably slow a bit, I think particularly as Curt referenced, the second quarter is a really funny comparable, but hopefully endo and medical, over the course of the year, should certainly not slow any worse. And if anything, by the time we start coming to the fourth quarter those comparables get better.

As a follow-up then, just to clarify, could you talk—you mentioned some encouraging signs within MedSurg. Could you just talk a bit more specifically about what you’re seeing. Is this anecdotal evidence of people saying they’re going to place orders or are these actual orders happening? Just a little more color around that would be really helpful.

It’s anecdotal in both fronts. I would say it’s certainly some of it feeling, some of our team feeling that they’re a little closer to getting some orders. I would also tell you that I think our sales force is learning that they’ve got to go deeper in figuring out to penetrate the accounts to shake some of the capital free. But I think we also again, we’re trying to be cautious here and while we’re saying we’re some pockets, we are not declaring the bottom. And I think that’s why we want to still be cautious there.

I think one additional comment there is, as we have indicated over the first quarter, we do have a pretty high degree of contact with the large, integrated delivery networks across the U.S. market and we’ve tried to put labels on their spending patterns, be they frozen, be they, on the other extreme, very fluid. And I would tell you over the last six to seven weeks we’ve not seen a meaningful in those rates, and by that I mean they have not continued to be a higher number of accounts freezing capital spending. We have actually seen them moderate and stay stable, which we think indicates, bodes well, versus the dramatic swings we saw in the first six weeks of the quarter.

Yes, it’s stopped getting worse. It hasn’t yet turned up but we’re viewing that as hopefully some pockets of hitting bottom. But again, I think we all, in this environment, and particularly given our over-aggressive approach coming into the year, we certainly don’t want to declare we’re at the bottom yet.

Just one additional follow-up because it’s probably a point that’s worth covering in some detail, and you probably are well aware of this fact, but it is important to recognize when we talk about capital purchases, hospitals do not view all capital equally. There is a very big difference between capital purchases they need to facilitate procedures, which is a lot of what we offer, versus some of the really big-ticket items. So some of the trends that we are seeing right now are prospective incoming order patterns and some of the feedback we’re getting from our sales force, may be different for different companies that offer higher-ticket items.

Your next question comes from Rick Wise - Leerink Swann.

You talked about the one adjacent market for the bed business, track of opportunity, and I’m sure you’re looking around for others. Are there some significant other opportunities you might want to highlight, that you are thinking about, that we could hear more about as the year unfolds?

I think we are probably going to defer that a little bit until we go to May. We thought at the May 20 analyst meeting we are going to dive into a lot of that across our franchises. We thought it was worth mentioning the medical one for two reasons: one they did just launch the Impression offering and it’s a fairly meaningful market that we’re not really in right now so we thought it was worth highlighting. And as you know, we tend to talk about products after they’re launched. And secondly, it’s one of our businesses that has been under the most pressure. It is the most exposed to capital so it’s a way to explain where some of our conviction comes from that they business is stabilizing. We thought it was worth pointing out that there are folks expanding into new markets. But we will address you area of question more fully at the analyst meeting.

The spine market, you highlighted as going high-single digits instead of low-double digits. Could you give us a little more color on your perspective? Is this people deferring procedures in your view, just what’s going on? And last, maybe you could give us an update on the FDA inspection issues. You had said in the fourth quarter we have two times as many FDA inspections going on as compared to the prior year, i.e. suggesting progress. Again, any comments there would be helpful.

Let me tackle the second part of your question first as it relates to the FDA inspection. At this point not a whole lot of color to add. We have obviously remained extremely focused on addressing the issues raised in the warning letters to lead to a successful re-inspection while also continuing to make the investment in our compliance initiative across the company because we are going to continue to have FDA inspections. Beyond that there is not a whole lot of new updates from our last call. But as those updates become more meaningful we will certainly circle back in with everybody. As it relates to spine, I think it is exactly what you said, it is similar to hips and knees in that we are seeing deferrals. A little tough to know how long they will be and it’s certainly not something we’re seeing across the board, but rather pockets where some physicians are seeing some slowdown.

Your next question comes from Mike Weinstein – J.P. Morgan. Mike Weinstein – J.P. Morgan: Let me start with a couple of areas that were obviously notable in the quarter. You talked about the medical business, and that business certainly, within the company, is feeling the biggest impact from what’s happening at the hospital level. You said you thought the sales levels had stabilized, which is maybe good and bad, because the first quarter is usually your lightest quarter of the year. How do you get visibility around that? How do you get visibility around the idea that sales maybe stabilizing at their current level and how far out can you see?

I think what we would look at in our medical business at the dollar reported level in the U.S. market, our comment there is we believe it’s stabilized or effectively we don’t expect it to go any lower. Our visibility is that typically in the medical franchise, those orders are well in advance and they are scheduled shipments because if you think of the size of the bed frames that are coming in, these come in in large trucks. It’s a very much scheduled-in-advance event. You may have patients on beds that have to be moved onto new frames, so these things are pretty far out into the future and as we look at our incoming, or expected, order flow, we still see news of favorable outcomes in the future. We don’t—I refer back to the summary of customer calls that we make—we don’t see things continuing to degrade out into the future. Mike Weinstein – J.P. Morgan: Let me touch on another item. You had a real slowdown in the fourth quarter and first quarter, and that was your knee business, where you’ve had sustained double-digit growth in your core knee franchise for several years now but it seems the economy is starting to have an impact on the knee market, and that’s what the other players have reported thus far. Can you talk a little about knee volumes and the backlog at your customer base, what you’re hearing from the neurosurgeon, maybe just compare it to what we’ve heard about backlogs coming in and what visibility you might have on that portion of the market which seems most successful to the economy, that portion bottoming over some point in the balance of the year.

The knee market right now, it was a little surprise to us. It did feel like the market itself was certainly a little bit slower here in the first quarter, and particularly in the United States but a little bit outside. We are hearing just a range of stories right now. From some of the docs at some of the leading big institutions, not affected at all, and then other both geographic or institutional folks who have gone from six-to-eight-week waiting lists down to very little waiting lists. And it just really seems very pocketed and no clear trend other than there are certainly some people pulling back. And I think, again, that’s part of the reason for our conservatism here as we go. The simple thing would be to say, hey, we’re going to bounce back into the double-digit knee growth range that we’ve had certainly over a number of years, but I think, again, we’re just a little more cautious and you know, hearing some of those pockets, it looks like you’re probably picking up as well. Mike Weinstein – J.P. Morgan: Steve, with what’s happened to your markets over the course of the last six months and the changes in your business plan for 2009, are you doing anything with your compensation structure for sales reps to help people through this tough period and improve retention, not that retention has ever been an issue for Stryker. But are you doing anything with your comp structure that we should we be aware of? And on the tax issue that you raised today, the press release, can you give us any sense of range of potential impact there?

On the comp structure piece we are paying very close attention to it. We have not modified or making significant modifications at this point in time, partially because we want to see how things continue to play out. But obviously our sales people are very important to us and we do pay close attention to that.

On the tax issue that was raised in the press release, as we indicated, we are not going to go into great detail there. What I will tell you is that this a multi-year process. The company is constantly being evaluated for its tax positions. That’s just part of the normal process. We are in receipt of a letter that is very specific in nature of what they’re looking at in terms of cost-sharing arrangements with various of our foreign manufacturing entities and we feel these positions are very well justified and we will defend them vigorously and as such we expect this process to play out over many years. We’re not going to get into any amounts here. Suffice it to say we feel good in the position we established long ago on these cost-sharing arrangements. Mike Weinstein – J.P. Morgan: Do you know of any other companies that received a similar letter and will you be releasing a copy of the letter in the 8-K.

We are aware of other companies that have received this letter, some in med tech, some outside of med tech.

Your next question comes from Joanne Wuensch - BMO Capital.

Looking a little bit longer term here, you have hospitals that are delaying purchases. Do you have a feel for how long they can delay these products? Is this more when the money is available they will purchase it? How do we think about return to growth?

It’s really a very big range, not only for our businesses but for all companies offering hospital capital purchases. If you look at certain products like power tools for example, those are key in facilitating surgeries that are necessary for hospitals to make money. They do have a very specific life cycle and they do need to be upgraded. Other products like beds and structures where you have seen greater impact, those can be delayed for a longer period of time. So it really is all over the map. What we have tried to do, accept the expectations based on what we have been able to glean from recent weeks on order trends across all of these businesses, appropriately risk assess it, which is really what’s at the bottom end of the range as opposed to what we’re expecting to put out this year, and recognizing there is going to be variability between endo, medical, and instruments given that they vary with respective to capital exposure.

In your guidance, what are you assuming for a share count?

For the full year 2009?

That would be helpful, yes.

Give us one sec.

And while you’re looking for that, you spoke about cost controls. Could you give us an idea, or flush out, what kind of cost controls you’ve been able to put in place?

It started with headcount control. We typically dramatically expand our sales forces at the start of every year and do a lot of hiring very early in the year. One of the things of certainly sensed was it might be a little more difficult so it started with headcount control. And we’re doing all the usual, you know, certainly at this point looking at our travel budgets and a lot of the standard stuff. Longer term there are also a lot of opportunities, frankly, on the supply side, the manufacturing side, the sourcing side, that we are also getting into, that frankly we think we think will yield more benefits probably in 2010 and beyond. So we’ve got short-term stuff but also we’re using this as an opportunity to look deeper at our cost structure to wrestle out more costs in the 2010 and beyond period as well.

On the share count assumption you should use approximately 399.0 million shares.

Your next question comes from Matt Miksic - Piper Jaffray.

First question, on beds. Business came off here in the U.S. more than we were expecting and it sounds like more than you were expecting. OUS was kind in line but just looking at the second quarter comps it looks like you’re heading into some tougher comps beginning in the second quarter. And then also I was wondering how confident you are that you won’t see the same kind of freeze-up on the international markets, say, later in the year that you have seen here in the first quarter.

The second and third quarter, we are clearly going into two additional tough comp quarters on the medical business, in the U.S. and even a little bit internationally. And that’s going to make it a challenge. Having said that, again, I think we feel that we’re probably at an absolute level, an absolute run rate that we probably won’t go much below based on what the order trends have been for say four months or so running. As we think about the international piece, the growth rate looked pretty nice in the quarter but we remind you, our international business is tiny and so we think even is the capital starts to freeze up a little bit more internationally we still have so much opportunity and runway because we’re just getting started there.

Just one quick follow-up. I would also just call you back to the comments we made in the beginning about some of our new product launches, like Impression that’s going into a $400.0 million market that we’re not really in. So our ability to expand that footprint is part of what also helps going forward.

Yes, I got that. What sort of share do you think you could conceivable get in that market over time?

Well, we’re starting close to zero, so higher than that. I don’t want to throw out share numbers, it’s really just intended to help you guys understand that strategy of continuing to expand medical’s footprint.

In beds, I’m just trying to understand is that a market that is sort of split like two or two-and-a-half ways like some of the other bed markets you’re in or is there a different dynamic there?

Are you talking about the number of competitors?

Yes, or in other words, like if we think about that $400.0 million add, is that something that you have one large competitor, two larges competitors that are in it and then now is your chance to play, or is it a more complicated adjacent market?

It’s fairly concentrated with just two, three key players and then there’s some much smaller players on the periphery. And again, we’ll go through a lot of this in a lot more detail at the analyst meeting next month.

And one follow-up here on spine. I think you mentioned that the comps were getting a little tougher, maybe some increase in deferrals there. But I know there were tough comps last year, too, and it just seemed like the drop was pretty significant and primarily in the U.S. Like 6 points or 7 points constant currency, sort of sequential drop, is more significant than we’ve seen in that business probably for the last two years or so. Is there anything else going on there competitively? Is there anything else going on in terms of your distribution or geographically that has impacted that business.

First off, the base obviously is getting harder and harder as we go into—I think we’ve had 8 straight years right now of 20% growth so we probably are starting to bump against that. I would also tell you, there’s a couple of little self-inflicted things. We made a couple of changes in sales force stuff and a couple of key geographies that we think will strengthen us for the future that probably set us back a touch in the quarter. And that business is still of a size one or two of those can actually affect a couple of points of growth. So I think over time that team has shown us they know what they’re doing and they’ll be back.

Your next question comes from Tao Levy - Deutsche Bank.

I have a quick question on the clarification. When you talked about the hips and knee markets earlier on, how has that changed from what you were saying at the beginning of the year? Has it gotten a lot worse or has that been about the same. I feel like some of your commentary throughout the prepared remarks was a little bit all over the place.

I would say the 6% operational growth on hips and knees in the quarter, I would just back to our comments that it’s been a relatively modest impact and we still expect the market to grow 1 to 2 points shy of that 7% to 9% secular growth rate. So I wouldn’t say it’s a dramatic impact. Probably the biggest change is when we were entering into the year we were talking about the potential for this to happen and what we’re seeing now and what we’ve alluded to throughout the quarter actually, is that we are seeing it, in reality, in certain pockets. But clearly, with us looking for the market to grow mid-single digits and with similar growth rate that we put up in the quarter I wouldn’t say it’s a major impact.

And the price cuts in Japan, so what happens as we move into April. Are there new price cuts or we’ve fully anniversaried them so we should see pricing and rationaling improve a little bit.

I think the price cuts in Japan as it relates to hip and knees are two year movements, so these cuts were put in place of April 2008, we would not expect anything additional on the hip and knee side until sometime in 2010. However, in the calendar year 2009 there are other categories that have been looked at and price cuts proposed. They are on smaller franchises like CMF and in our trauma business and we’re not ready to talk about what those numbers may be at this point in time but we are expecting some price cuts in 2009. It is possible then again in 2010 that they could revisit the hip and knee market and look at additional price cuts there but again, it would be very early for us to speculate on that.

Your next question comes from Raj Denhoy - Thomas Weisel Partners.

I wonder if I could ask a little bit on some of the expense lines, particularly gross margin and then some of the other operating expenses. You mentioned that on the gross margin line you are seeing some compliance costs run through there as well as some just slowing in the manufacturing volumes. Now are these trends I imagine we should see continue for the rest of the year so we really shouldn’t expect much expansion in that margin?

I think those are fair comments and I just point to the first quarter of 2008, there really was not a sizeable number from a compliance standpoint running through there. That’s fully anniversaried and we are running at a full pace across our manufacturing with the compliance spend. In addition, as you look at the external market and the revenue growth for guiding, you should expect that we will continue to slow some of the manufacturing sites most impacted by the economy and I think what we would guide you to is a gross margin in line somewhere between we recorded in the first quarter and perhaps 20 basis point or 30 basis point lower over the course of the year.

So actually ticking down over the course of the year.

Potentially, and again, guessing a little bit here on what happens with procedure volumes, as we don’t 100% have clarity, as well as guessing a little bit on what goes on with the capital outlook through the second half of the year. While we feel optimistic giving some anecdotal information we just frankly won’t know until we get there. And as I stated in my inventory comments, we are very focused on driving and managing inventory levels so there is a second impact on gross margins from that.

And on the other expenses, SG&A and R&D, obviously R&D was quite low this quarter and you mentioned the timing of some expenses. I mean, on a dollar basis should we look for that to start ramping again as you move through the year or is your sort of cost containment mind set going to kick in here and kind of keep the number relatively low?

I think our comments on R&D—and I need to give you a little bit of perhaps a longer-term perspective. As you recall, back in the mid-2000s we ramped R&D up substantially and some of this downward trend in R&D as a percentage of sales is a reflection of some of that spending migrating over the generally 2- to 4-year life cycles of product development within our company. As we look at the remainder of 2009 we do expect R&D as a percentage of sales to move forward, on an absolute dollar basis. It will be within the range of what you saw in the first quarter, perhaps a little bit higher.

And on the last line on SG&A, is that the line we should really expect to see the cost containment kind of play through and expect that number to maintain relatively where it is or should we see it expand as we typically do over the course of the year?

We’re very focused on SG&A right now and have been, really going back to the early part of the fourth quarter and the organization is rallying this as an area of savings to leverage our future earnings. So I think the number that we’re showing for the first quarter is a relatively safe assumption that we’re going to try to maintain that or lower levels.

On an absolute dollar basis?

On an absolute dollar basis I think you should see it perhaps moving lower.

I think you said we should expect the tax rate to be the same as it was in 2008, was that correct for the full year?

Substantially in line with the reported full-year 2008 tax rate, yes.

So slightly higher than we saw here in the first quarter?

Yes, it may move back and forth a little bit. It’s a little bit hard to predict, especially as business volumes have changed, the manufacturing source of those items is going to move our tax rate around a little bit up or down. So right now our best estimate is that it will be in line with the 2008 rate.

Your next question comes from Bruce Nudell - UBS Securities.

Steve, I have a question for you. You know, most of the things we’re talking about today are transitory in nature. Capex should come back. Surgical volume should come back, certainly. The question I have, and this is something that longer-term investors are fearful of, is that there has been a period in the past—‘92 to ‘99—when commercial insurance payments to cost ratios depressed and that had an adverse impact on the price environment, a significant adverse effect on the industry. Is there anything that you see, either in the healthcare reform packages that are circulating through Congress, or just the economic pressures on employers that could result in that payment to cost ratio going from around 1.3 back down to the historical nadir of 1.15 or so?

You know, there’s nothing specifically that we’ve seen to that effect. Having said that, I think we’re continuing to assume that certainly the days of the early 2000s of very positive pricing are long gone and we’ve got to figure out to make money in a basically a flat pricing environment to even, you know, as it’s been the last few year, trickling recon modestly down. Having said that, we also continue to look at every market we’re in and from a patient standpoint knowing there are opportunities for more and more surgeries. You know, if you still look at it there are a lot of people that still are great candidates for joint replacement that don’t have them. The younger population is going to continue to demand and want products. And ultimately I think will be willing to pay up if there’s more co-pays and things like that. So I think we certainly see some payor pressure but we also continue to feel that one of the pieces that I think is getting missed in all the current pressures are, you know, people are going to need their joints replaced and need spine surgery and everything else is still going to be there for us. And we think the companies that are there are still going to do very well.

So to put a finer point on that, that period—‘92 to ‘99—looked like it was ASPs net of price and mix were minus 5% per year. Do you see that as likely? And my second question is really pertaining to—I noticed in I think it was a Wall Street Journal report, they said that the FDA has been encourage to revisit class III devices that have been 510-k’d and that there will be a grace period in which perhaps PMA-like data sets will be submitted to retain the label on those devices. Is that likely and would that complicate your life immensely if in fact a corporate warning letter issues?

First, I’ll answer three questions even though you should have only asked two. We don’t see it going that negative, back to your comment about the 5% of the ‘92 to ‘99 period. The specific class II piece, obviously—as it turns out, our particular businesses are relatively unaffected by that label [inaudible] FDA will overall be working on and looking at probably more data rather than less data over time. On the third part, just as it relates to a corporate warning letter, we remind you, we continue to invest a lot in—you know, we have a lot work to do. I think that’s become more painfully clear to everybody. I’m very proud of a lot of the work we’ve done, we’ve still got work to do. We’ve been investing very heavily, as you see in the margin side, but each month that goes by, it’s a month we’re closer to the other end, and yet again there’s probably still many, many months before we’re completely where we want to be, but each month goes by feeling better.

I have one additional comment here in terms of long-term EPS guidance, both for pharmaceutical and med tech companies, and that’s the debate that’s going on right now relative to corporate tax rate on foreign earnings and depending on where that shakes out and what potential number shakes out, you could see the industry, med tech and pharmaceuticals, with much different earnings outlook.

And how vulnerable is Stryker on the [inaudible] of companies?

It all comes down to what that rate, if that law advance and what that rate winds up being. So it would be premature to speculate because it all based on how that law, if there is a law, is set up, what rate it is, and what kind of reciprocal tax rate alignments are with the international markets that companies like Stryker have foreign operations in.

Your next question comes from Ben Andrew – William Blair. Ben Andrew – William Blair: Looking at the mix dynamic, given the relative lack of kind of cost benefit analysis and higher mix products, at least from randomized trials, is there more exposure there longer term as we see pressure on reimbursement structurally?

I think that one is a little bit tough to answer. I think we are clearly seeing an FDA that is looking for more data and some the commentary that’s come out of some of the proposals from the administration about wanting to see more clinical data. How it plays out with different price products, we’re really in a period of absence of any real details to put some parameters around that. Ben Andrew – William Blair: As you think about the MedSurg or the capital equipment portion of that, has the softness you’ve seen, can you characterize as a mix of either orders not coming in our actual deferrals of existing orders or outright cancellations? And what sort of policies do you have on that sort of behavior pattern because that seems to me—I guess the main question is, is it a mix of those things?

I think the principal outcome right now in slower or lower MedSurg revenue is the deferral of orders. We’re not seeing big trends in cancellation of existing orders or complete elimination of orders and I do think deferrals are the biggest majority. And on that, as we look across the segment, we don’t see any share losses, either. So it’s just an overall deferral or delay in the order trends, which I would assign to the majority of the revenue decrease.

The only additional comment I would add on to that, if you think about the products that we have within MedSurg, whether they be power tools or the endoscopy products like the video cameras, those are all necessary to performing surgery so in essence they have to be deferrals, you cannot just stop making those purchases. It’s not like there’s an option to you if you don’t have a power tool to develop on doing a hip or a knee replacement, or at least not an option you would really want to consider. And on the bed side, even though there is probably a greater ability to defer some of the medical products, as capital budgets start to come back and hospitals resume building, those purchases will have to be made just simply to meet the volume demand.

Your next question comes from Matthew Dodds - Citigroup

When you look at your sort of general recon forecast for Stryker what are assuming in shares? Should we assume it’s flat or up for 2009?

I think you could probably assume the share trends are relatively consistent with what you’ve seen. If ever there was a period where we’ve gone through potential upheaval, it’s over the last 18 months with the monitors even then, you saw shares relatively stable. We have tended to do better on knees and not as well on hips. Probably more of a migration to the mean between the two of them. But in general you really have never seen a dynamic play out in the recon market where you’ve seen dramatic change in the share shift and we would expect that trend to continue.

One follow-up on the recon market, internationally, other than Japan where you’re seeing the impact of price, are there any other decent-sized markets that are seeing an economic impact or is it pretty consistently stable across the board?

It’s relatively stable outside the U.S. Remember, as it relates to the orthopaedic business a lot more of that comes under nationalized health care so you don’t see the same out-of-pocket pressure that some of the individuals in the U.S. have seen. When we talk about elective procedure deferrals that’s much more of a U.S.-based comment. And again, on a selective basis because it’s not a wide-spread trend we’re seeing uniformly across all of our accounts. On the MedSurg business probably partly because our shares are so low and we are in the very early stages of that expansion, we haven’t seen the same impact. Certainly can’t rule that out. Quite frankly, it’s part of what’s dialed in to the low end of our forecast as we talked about trying to address any reasonable downside risks, one of those would be much greater pressure on the OUS businesses.

So when you give the 1% to 2% decline in volumes, you’re really only seeing that in the U.S. at this point.

On the reconstructive?

Recon only, right.

Yes, that was much more of a U.S.-based comment.

Your next question comes from Ed Shenkan - Needham & Company. Ed Shenkan - Needham & Company: I just wanted to follow-up on the pockets of weakness in the U.S. We heard about that, at the orthopaedic surgeons meeting in February. Are there more pockets now and have the pockets of weakness, have they gotten weaker since then?

I wouldn’t say there’s any real change from the comments that we made back at the academy where we talked about seeing some pockets of elective procedure. It’s very much the same trend that we were noticing back earlier in the quarter. It hasn’t worsened, it hasn’t gotten better. Ed Shenkan - Needham & Company: And on the international side for capital equipment, I just wanted to follow up on the earlier questions that people had. Has that slowed off as much as the U.S. already? Have you seen the impact as profoundly already on the international side?

I think what we were pointing to is certainly you see it in the number given medical and end over growing in the mid-teens outside the U.S. but we’re down domestically. Our international MedSurg businesses have fared much better and as we commented early, part of that is the nature of that market. It isn’t seeing the same capital pressure, but part of it’s also we have much smaller bases in those markets so we are in much more of a growth mode. And again, the low end of our range is designed to reflect some of the worst-case scenarios that could play out, such as greater downward pressure on the international businesses going forward.

Your next question comes from Michael Matson - Wachovia Capital Markets.

I guess I will ask the obligatory use of cash question. By my math a share repurchase would be pretty accretive. Just wondering what your plans are there and then I guess the second part of that question would be how much of your cash is overseas and would there be tax issues with repatriating some of this and is that why you’re not going to necessarily use that cash for buy backs?

There really hasn’t been any change for our overall strategy as it relates to cash. We view it as multi-pronged meaning that whether that is looking at M&A opportunities, potential for share buy-backs, which we did last year, as well as the dividend which we have continued to increase in recent years. M&A remains our preferred use of cash. Clearly in this environment we’ve had an opportunity to revisit certain areas, given where evaluations are. But I would also remind you I wouldn’t interpret the lack of seeing deals close as a lack of activity. We have very high hurdle bars that relates to due diligence and also where we think about valuation, we think that has served us well in the past as we look at different opportunities and we will continue to do. Share buy-backs remain a potential use of cash. We do not currently have one in place. That could change going forward but nothing to announce at this time.

And I would reinforce Katherine’s earlier comment that acquisitions are definitely the preferred use of our cash at this point in time. And your second question relative to our cash position, U.S. versus OUS, we historically have not broken that out but it’s safe to assume that over time we’ve built a large cash position outside the U.S. and certainly any time you repatriate those funds you are going to pay a tax penalty over the rates that are applied in those respective international markets.

I know that you don’t want to say a lot about the tax issues and the letter that you received from the IRS but you did note it in the press release and I guess if you have gotten these in the past you haven’t, as far as I’m aware, notified us about them. So you say that’s it’s material; what is your threshold for what you would consider to be material.

I would answer that question two ways. It’s noted in the press release because it’s a very specific letter related to a very specific issue called cost-sharing arrangements. And cost-sharing arrangements, if you were to dive inside the IRS, they note it as a tier-1 agency issue and by that the IRS defines a tier-1 agency issue as an issue that they intend to investigate across various industry segments, if not the industry in its entirety. And as such they have taken a very aggressive position and from an internal standpoint we felt it was best to disclose it. I’m not going to get into the level that we define as material relative to Stryker overall.

Your next question comes from Doug Schenkel - Cowen and Company.

OUS knees were a bit light of our forecast while OUS hips were a bit better than I expected, reversing trends from at least the last few quarters, if not years. Can you provide some color on the reversal? Is this largely a function of comps, reverse into the mean, change in strategy or something else, and is this dynamic expected to continue over the next few quarters.

I do think on international hips we are thrilled with the 9% operational growth in the first quarter. I would tell you if you delve back into the first quarter of 2008 you would see that the comparable was relatively soft. We are encouraged, however, about our European hip results and there has been some additional focus in that market on the recon product offering. Over on knees, internationally the comparable from the first quarter of 2008 was in the mid-single digits so year-over-year the 4% is not going up against what I would call an arguable tough comp. And overall I don’t have any good rational reason why the number dropped to the 4% range that we reported. Outside of the selling day impact that we experienced in the first quarter and a few what I would call minimal issues related to product supply as we continue to work through our remediation efforts on various aspects of the knee systems.

And my follow-up is a bit of a high-level question. I think back in January you indicated that you expected double-digit sales growth and at least 15% EPS growth in 2010 and beyond. Independent of what you described regarding an uncertain outlook for the tax treatments, is there any reason to believe that there’s been change in your thinking on longer-term goals?

No. You know, clearly the short-term environment is worse than what we anticipated but I think it gets back to we continue to feel great. Now think about it this way. Each franchise we’re in, we can look at every single one of them and say, you know what? We can grow each of these businesses a lot, both in the U.S. and internationally. And there’s not one business we’re in right now that I would say we would get out of. What’s really interesting if you actually dig a little deeper and look into some of the numbers, almost everyone of our franchises had double-digit local-currency growth in either the U.S. or international in the quarter. Hips and knees were the only two that didn’t. So I think we continue to feel very good about the longer term and we are in a little bit more short-term challenging but still feel good about the ability to be a top line, double-digit-growth company and solid EPS growth north of that as we go forward.

The one follow-on comment I would make is there have been some positives that have come out of what has clearly been a challenging, not just for us but the markets overall. It has prompted us, as we talked about, to really take a very hard look at a lot of our spending. Some of that is short-term in nature to deal with the environment, but as Steve alluded to earlier, a lot of that is taking a look at some of the inefficiencies that have come out our decentralized structure. Certainly don’t want to lose the decentralization. It’s a big part of what drives this organization but when you look at our vendors, our suppliers, the benefits that come out of the investments and the remediation, there’s going to be some longer-term leverage driven out of this P&L that doesn’t go away simply because the market environment starts to get better.

If you look over the 8 years or so, we feel like we’ve built a great footprint. That footprint has been working beautifully for us. Right now in the very short term it’s probably working a little bit against us but as soon as the fundamentals, you know, we get through this short-term period, we continue to feel that the long-term fundamentals of the footprint that we have plus the cash position we have, the culture we have, are going to continue to distinguish us as market share gainers and growing faster than most of our competition.

Your next question comes from Kristen Stewart - Credit Suisse

I wanted to go back to the guidance, but kind of the recalibration from 6 to 9 to 2 to 5, is that just solely due to MedSurg expectations or you also recalibrating a little bit what to expect in orthopaedics?

We really tried to walk through a lot of the assumptions back in Curt’s earlier comments. I will just reiterate them briefly. We talked about expecting to see the pressure on the elective procedure markets as it relates primarily to hips and knees and spine, trimming a couple of points off the overall market growth for those businesses. That’s what we saw in the first quarter and that’s what we are assuming continues to play out throughout 2009. The bigger changes relative to our prior thinking really goes back to our MedSurg businesses. We talked about, to give you specifics that help in modeling, Curt referenced that we expect medical to be relatively stable on a dollar basis, on a quarterly basis, going forward, based on incoming order trends, based on some of the intelligence we’ve been able to gather from our sales force as well as from some our customers that we track on a weekly basis. Recognizing tough third quarter comps for that business and tougher comps for the instruments business in the second quarter. So the bigger change relates to those two franchises within that search. And with some residual, or more modest impact on the ortho businesses.

Okay, because I thought last time there was some haircut in the numbers already for ortho so it sound like maybe a little bit more this time around.

Yes. We changed the range down so I think that’s a fair statement.

And then just thinking about the orthopaedics, you were saying that there was an extra selling day this quarter but last quarter a year ago you had obviously talked about Easter having a negative impact. So is it kind of net-net, kind of equivalent effective selling days? And I know in the hip business you had the recall a year ago as well, so have you looked at what the growth rates may be kind of excluding that Easter effect and excluding the hip recall a year ago.

We have looked at all of that and a little bit more. If you looked at the first quarter of 2008 there is actually a day in there for Leap Year and you lose a day because of Easter. If you look at the first quarter of 2009 and you look at the Stryker vacation calendar, we use a day for New Year. So when I normalize everything and look at the average day sales rate and I reconstructed implants, it’s a little higher than our reported rates because of those various day changes year-over-year. So I really didn’t want to get into all that detail because it sounds like excuses and I would rather just report a really good strong recon number. And we did talk that the Trident, really the impact of that recall was felt in the March through June timeframe, when you look at supply disruptions and refielding of that product.

Your next question comes from Glenn Navarro - RBC Capital Markets.

I have a question on marketing spend behind knees and hips. Your top competitor, Zimmer, is out talking about spending more to educate physicians and then hopefully rebuild market share. I understand that you’re looking to slow down SG&A spend but can you comment about the spend that you’re going to put forward in 2009 behind knees and hips to maintain, if not continue to gain, share. And as a follow-up, let’s just assume that Zimmer is successful later this year in regaining market share. Is there some wiggle room in the Stryker numbers that will allow you to spend more in the back-end of the year if you need to preserve market share?

I think on the spending categories, we have not historically delved into the various divisions respective marketing plans. I think on those two categories you identified, our orthopaedics division both in the U.S. and internationally, under the plans that were outlined and approved through the federal monitor, have weighed out training programs as it relates to hips and knees. This would also apply to our spine and other orthopaedic implant franchises. And there has been no reduction in those plans. The targeted spending that we are looking at really relates to items that are on the periphery that as an organization that’s decentralized like Stryker has grown, have crept up into other areas of the business. And those are the ones we are really focused on. And so I don’t think you should assume that things that are germane to growing the business are first on the radar screen to be cut and remove from our plans. I think you should assume that those things on the edges are the things we are going after aggressively and working to remove out of the plan. And as it relates to the second half of the year, if we thought that there was a great marketing plan that would drive our revenue in any of our product segments, we would probably by targeting that, especially considering the external forces at work in the market. And I think fundamentally what we have seen over time drive product growth, is a combination of highly innovative products and great sales people. And we’re going to stick to that model for the time being.

Your next question comes from Jeff Johnson - Robert Baird.

Spending rate on OP-1, can you put any color around what you’re spending currently in that area? And also, any change at all in the quality investments. Is 2009 still be planned to be the peak year of spending that incremental $5.0 million to $40.0 million I think you talked about last quarter? Or should we still expect to see that tick down in 2010?

We’re not going to get into the detail on OP-1. Once we sort that out we’ll talk more about that. In terms of the quality, I do think this is probably the peak year. We will continue to be making major investments beyond that but the delta, in terms of the increases, this should be the peak year for that. And then ultimately, ideally, some of what we’ll be learning at is getting better and more efficient in the years ahead.

The percentage level on SG&A, you talked about that maybe staying at this level but the absolute dollar coming down. As I look at your revenue line that’s just I think being reversed. Am I thinking about something incorrectly there?

You have it right. It will be up modestly on an absolute basis.

So the correct part of your statement, Curt, was that the percentage stays around this level?

Yes.

Your next question comes from Bill Plovanic – Canaccord Adams. Bill Plovanic – Canaccord Adams: Just one follow-up on OP-1, does the panel of recommendation have any impact on the HDE that you currently have in place, or could it have an impact on that approval?

No, Bill. Hey, by the way, congratulations. I think you nailed our sales forecast, I think to the exact penny, from what I recall. But now, it does not affect HDE status.

Your final question comes from Greg Halter - Great Lakes Review.

Last call you had mentioned some raw material costs and challenges and so forth in cobalt chromium and so forth. Just wondered if you could provide some color around that specifically and others generally. And what you’re seeing there.

Right now we would not be calling out any specific raw material issue from a cost standpoint that are having meaningful impact on our overall business. And I think we’re going to leave it with that comment. The diversified nature of our business, we’re going to have pluses and minuses across any one of these raw materials, be it resins, be it cobalt chrome, be it shipping rates and fuel surcharges. These things are going to move up and down over the course of the year, across the various businesses and right now there is nothing of substance impacting our ability to deliver our P&Ls.

And I believe you had anticipated capital spending for 2009 to be $150.0 million to $190.0 million. Any thoughts that that has changed at this point?

I think that’s in the safe to high-end of the range right now. Obviously as we build an annualized capital plan some of those expenses are targeted our geared toward what I would refer to as plants, capacity expansions, or operational efficiency improvements, and to the extent that any of these plants have seen meaningful slowdowns we’re probably going to hold back on those spending. Conversely there may be other categories that are targeted at a special market that we now have an opportunity to go after. So I think the range is still appropriate, if not perhaps a little bit lower.

Can I presume the Impression product is somewhere in a facility where you don’t need to spend?

It’s pretty minimal.

I think you can assume that’s pretty well taken care of at this point.

Just as a quick reminder to everybody, May 20th will be our analysts meeting so we’ll give a little more light into a lot of what’s going on at that point in time. And then a reminder, July 21st will be when we report our second quarter. And thank you all very much.

This concludes today’s conference call.