Good morning, I am Paul Blair, Vice President of Investor Relations for Zimmer. I would like to welcome you to the Zimmer second quarter 2008 earnings conference call. Joining me today to host this call are David Dvorak, President and Chief Executive Officer; Jim Crines, Executive Vice President, Finance and Chief Financial Officer; and Dr. Cheryl Blanchard, Senior Vice President, Research and Development and Chief Scientific Officer, who is joining us today to assist in responding to your questions with regard to Durom. This morning, we’ll review our performance for the second quarter; provide you with an update on certain key issues to include those which involve our Durom product; present an update to our outlook for 2008, and conclude our discussion with a question-and-answer session. Before we get started, I would like to point out that this presentation contains forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, based on current expectations, estimates, forecasts, and projections about the orthopedic industry, management’s beliefs, and assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from those in the forward-looking statements. For a list and description of the risks and uncertainties, see the disclosure materials filed by Zimmer with the Securities and Exchange Commission. Zimmer disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. This presentation also contains certain non-GAAP financial measures. A reconciliation of such information to the most directly comparable GAAP financial measures, along with other financial and statistical information for the periods to be presented on this conference call, was included in the press release announcing our earnings, which may be accessed from the Zimmer website at www.zimmer.com under the section entitled Investor Relations. A rebroadcast of this call will be available from approximately two hours following the conclusion of today’s call through the end of the day on August 6, 2008 and can also be accessed from the Investor Relations section of the Zimmer website. At this time, I would like to introduce David Dvorak, President and Chief Executive Officer of Zimmer.

Thank you, Paul, and good morning everyone. As we begin, I want to first thank you all for making the scheduling adjustment to join us this morning. I hope that you can appreciate the priority we recognized in announcing the results of our Durom Cup investigation and in initiating the steps required to communicate to surgeons. Our first concern is patient safety and we could not delay our Durom announcement. Of course, our voluntary action with respect to the Durom Cup will have financial consequences. Therefore, accelerating the timing of our earnings release was necessary. We wanted to make that information available to you and the investment community and answer questions as soon as we could. So that brings us together here today one day earlier than we originally planned. This morning, as Paul stated, in addition to reviewing our overall results for the quarter, we’ll provide you with additional detail on the Durom matter; update guidance for the year, and report on the progress we’re making in furtherance of the strategic priorities we previously outlined. Throughout these discussions, I hope you’ll recognize the pattern in the way we face difficult issues. We’ve made decisions that we believe will best prepare Zimmer to compete effectively in the expanding markets of the future. Where we need to make improvements, we want the changes to be long-lasting and sustainable. We’re absolutely committed to positioning Zimmer to thrive for years to come. With that as context, I’d like to review our second quarter results. Consolidated sales for the quarter of $1.080 billion were up 11.2% over the prior year’s second quarter and 5.5% in constant currency, and we generated 5% growth in adjusted earnings per share. Our sales results, acknowledging an additional billing day in the quarter, were led by strong underlying growth…

Thanks, David. I will review our performance in the quarter in more detail and then provide some additional information related to our guidance. Sales of $1.080 billion for the quarter represent an increase of 11.2% reported and 5.5% constant currency. These results among other things reflect the benefit of one additional selling day in the quarter compared to same period in the prior year; strong underlying unit growth in Knees in all three of operating segments; and lower OSP, Durom, and dental product sales. A weaker U.S. dollar persisted during the quarter and as compared with the prior year added 6% or $56 million in revenue in the quarter. As expected, consolidated pricing was essentially flat for the quarter. In the Americas, as was the case in the first quarter, price contributed 0.6 point to growth. In Europe, price was 0.2 point negative versus 0.5 point negative during the first quarter, with Germany and Italy reporting low single digit reductions in average selling prices, while other markets in Europe were flat or slightly positive. Asia-Pacific results include negative price of 3.3%, driven by negative 5.2% in Japan. Turning to our revenue growth by major product category, worldwide reconstructive sales increased 13.8% reported; 7.6% constant currency. Knee sales in the quarter improved 9.9% constant currency and were up from 6.7% in the first quarter of 2008. With billing day differences neutralizing our first half results, Knee sales growth averaged out at 8.3% constant currency over the six-month period ended June 30. Knee pricing on a global basis was down 0.6 of a point in the quarter. Flex Knees accounted for 51% of our Knee unit sales on a global basis in the second quarter, accounting for more than half of our Knee sales units for the first time. We are still…

Thank you, Jim. We continue to make meaningful progress in preparing Zimmer to expand its leadership position in the markets we serve. While we’ve encountered some challenges that arose during the first half of the year, our responses have been focused on long-term results and sustainable improvements. We’re committed to building on Zimmer’s 80-year history of success, and we are excited about the ability of the 8,000 plus dedicated men and women of Zimmer to keep us moving boldly into the future. And now, I’d like to open the call to your questions.

Your first question will be from Tao Levy - Deutsche Bank.

You did mention as you move into 2009, some of the headwinds you’re facing in 2008 start to disappear. I was wondering if you could quantify the three main areas and the impact that you’re seeing this year and what percentage of that could disappear in 2009? I would love it if you could hit Durom, OSP, and the compliance monitors.

I’ll start with OSP. As David indicated and I indicated in my comments, we’re on schedule with our remediation efforts; expect to be back in production of those patient care products between now and the end of the year, and have the opportunity to go back into the market as those products come back online. Going into 2009, we would look to get back as much of that 70 to $80 million that we lost as we possibly can. We wouldn’t expect to get it all back, but we’ll certainly be back in the market with those products and pursuing opportunities to regain share in that segment. Concerning the fees and expenses, we are looking now at a total in 2008 of 50 to $60 million in fees associated with the global rollout of our enhanced compliance program. As I indicated in my comments, we will have the opportunity as we develop our plans for 2009 as we put the work that is being done this year behind us, to either reinvest that 50 to $60 million in training and development activities or deliver savings to the bottom line. I think to some degree, we certainly understand what the target is going into the operating plan, as David referenced the fact that we are targeting at least low double digit growth in earnings in 2009. Again, as we work through the plans for 2009, that will dictate how much of that gets reinvested as opposed to how much gets delivered to the bottom line.

And finally, Tao, on Durom, certainly as we go into 2009, we are going to have our full training courses up and running, and we will have passed the point where we’d be able to allow surgeons to use that product again within the United States market. I think that in this quarter that activity will be ramping up. We will start with reissuing the surgical technique instructions and then taking people through the training courses that are being developed currently. As we get into the fourth quarter, I’d expect those courses to be fully up and running and so we’d have greater visibility as to what that revenue stream in the metal-on-metal area is going to look like as we march into 2009 probably and be able to provide you with a more meaningful update on the next quarter call. Also, I think it is going to be important to note even though it wasn’t one of the three items that you mentioned, that our training courses are going to be up and running in full by the time we exit 2008, and that is going to help our revenue streams in some of these other business units. We obviously made Hips and Knees the priority; got those courses back up and running on the surgical skill side during the second quarter beginning in May. We have about I think 40 courses already scheduled on the surgical skill side between now and the end of the year in that area. But these activities are going to ramp up in the other business units, most importantly on the Dental side as well as Spine. We will see the benefits of the re-initiation of those activities too as we go into 2009.

Great, thank you very much. That was really helpful.

Your next question will be from Bruce Nudell - UBS.

I have two questions. The first pertains to Durom itself. In your background, you mentioned 1.5% failure rate for people who knew what they were doing and around 6% for groups that really weren’t following the protocol exactly. What is the anticipated aggregate early revision rate with the product given the disparities in training? How much reputational damage could that cause given the 13,000 implants that have taken place to date?

I am going to let Cheryl respond to that question, Bruce.

I think the best way to answer that question is first of all to understand that what our analysis tells us to date is that the likelihood of currently implanted patients requiring revision is going to be low. In our detailed analysis of the clinical aspects of those investigations, you did see in the background piece that in the group that had success with the device that they had about a 1.5% revision rate while the other groups were at 5.7%. It’s very difficult for us to project out where we think those numbers are going to go eventually. What I can tell you is that we were able to discern that there were some specific elements of surgical technique and cup placement that are the items that really make the difference in terms of those clinical outcomes. I think it’s difficult to comment on the last part of your question, which is reputational damage. I think that that will frankly be determined by the actions that we’ve taken today and our level of being proactive as we move forward, trying to work with surgeons to help them get through this difficult situation with their patients. We absolutely recognize that for those patients that are involved that there will be some items that we will need to help them with and we are going to be proactive about that.

Let me add, Bruce, that the initial responses that we’ve received from surgeons have been understanding of the decision and appreciative of the way that we’re conducting ourselves to put them in the best position to take care of their patients. I think that the early results are that people see this as being the prudent thing to do under the circumstances, and that always is going to be the best thing for the company’s reputation.

My follow-up question would be pertaining to the big fear that investors have about the stock is that the new DOJ rules exacerbated by Durom, let’s say, are likely to result in a more fluid marketplace and share loss. In the quarter, it looks as though Knees U.S., ex-U.S., and ex-U.S. Hips were in line with the market and it sounds like most of what happened in U.S. Hips was Durom. Could you comment with regards to scale of the anticipated shortfall this year in revenues, which looks like $60 million plus or so, $30 million of which are Durom? How much of that is anticipating share loss, and do you really feel that that’s a major risk at this point in time in your key Hip and Knee business?

I would agree with the way you characterize our performance in the quarter. We have not seen share loss, absent what we may be losing with respect to large diameter head metal-on-metal offering within the Hip segment, and we’re obviously not participating in the resurfacing in the U.S.. But outside of that, we’re not seeing share loss in our core franchise. I will run through for you in a bit more detail the adjustment to our expectations relative to what they were coming into the year in the update that we provided on the first quarter call. It’s an adjustment, as you pointed out, of 60 to $80 million in total, including the 25 to $30 million in Hips, related principally to Durom, but acknowledging as well the slower uptake on new products in the Hip franchise. For us, that would include the Kinective technology, the Fitmore stem, a bone conserving stem that we’re just in the process of launching, and even the Epic stem that we’re looking to get cleared for commercial sale in the U.S. within the back half for the year. About a $10 million adjustment to our expectations on Knees, representing really some lost opportunity for above market growth, and that is associated with again new products, in this case our Mobile Bearing knee, the Gender Solutions N-K Flex, and our Patello-femoral joint. In Extremities, about a $5 million adjustment, and there again related to some disruption in training associated with our new TM Inverse/Reverse shoulder system. In Dental, about a $15 million adjustment to our expectations; clearly this business and you can see it in the results reported for the quarter in the U.S., has perhaps been most affected by this transition to this enhanced compliance program and we’re working through that with the Dental organization. In Trauma, about a 5 to $10 million adjustment in our expectations. Trauma admittedly is not so much associated with new products. There is knowledge there that we continue to see competitor pressure on our Nail system, and we’ll really not be able to effectively address that until we come out with a new Nail, which I indicated we expect to have in limited release in 2009. Finally Spine, about a 5 to $10 million adjustment; that related to the disruption we have been talking about in surgical skills training and associated in this case with Dynesys, Atavi, and TiTLE 2 principally.

Bruce, let me come back to your core theme there and I think it is a really important one for us. We have made decisions that we weren’t going to incrementalize this change with respect to the surgeon collaborative relationships. As we previously announced, we went beyond the four corners of the DPA and the CI that we entered into last September. The point of that from the company’s strategy and with respect to our future is that we want make sure that we are able to collaborate with surgeons in all the essential ways that are most important, from the patient’s perspective especially. That includes collaborating to develop the next generation of great products that address unmet clinical meets. It also includes having the very best training and education program out there. Those are areas that we are very focused on. We don’t want to see disruption to these business units going forward. We are biting the bullet now to make that change and it will be a permanent change. But we believe that we are going to be operating in the market that everyone else is going to ultimately come to operate in, whether they do that voluntarily or involuntarily. So it’s disruptive in the short term, but we firmly believe that it’s the right long-term strategy for the business. We really are confident that that’s going to prove out.

I appreciate that. Just to clarify, are the new product issues in Hips, Knees, Extremities, Dental, and Spine, are those principally related to training, other than Durom?

It is. Particularly when you look at what it takes in the case of some of these new products that surgeons are unfamiliar with and we look to able to get into a either cadaver-based surgical skills training program or live surgery before they would be willing to use the device.

You can think of that too, Bruce, in the context of something like Kinectiv technology or our Inverse/Reverse shoulders, and even Dynesys within the spine field. Those are products that surgeons aren’t going to be comfortable adopting until they have had that training. Frankly, we wouldn’t want them to. So that is the point that Jim has referenced in his prepared remarks about the uptake on those new products and it was also noted in our earnings release that went out last night.

That’s very helpful, thank you.

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

I was curious if I could just clarify; did you mention it was 25 to $30 million this year in other income?

I did.

I think you said there was some sale of products or assets in that. Can you maybe give us a little more detail on that?

I am not going to go into specific details on that, Raj. That’s why I gave guidance on that line item. I have pointed out that it includes both interest expense on our borrowings including the $220 million drawdown on our credit facility as well as gains, both the $8.7 million gain on sale of certain other assets, as well as additional anticipated one-time gains related to further sales of other assets we would look to accomplish in the back half of the year.

Okay, but no detail of what those assets are?

No.

Okay, if I could just ask a couple of clarification questions as well on the surgeon training program. Are you requiring that surgeons attend a hands-on training course before they can resume implantation of Durom in the U.S.?

Some form of training will be required; that’s right.

Okay, and those courses, as you mentioned, they will come online towards the end of the year. So until that time, there should be no expectation for any sales of that product at all in the U.S.?

We expect to have those courses up and running over the course of the next several weeks, Raj. We would expect revenues to come back online in advance of the end of the year. But obviously we’ll have to see how things go on the uptake of those products as they’re reintroduced after the training, and we’ll provide you with a more full update as we enter in the third quarter call.

Okay, and then just one broad one. I think you have mentioned several times you’re holding the company to a higher standard I think than maybe it had been previously in other companies were holding themselves to, with the voluntary recall in USB product, the voluntary withdrawal of Durom, your reworking of the surgeon relationships. You mention that you expect this over time to be something that provides you with an advantage. Maybe I’m putting words in your mouth, but over time this will work in your favor. I’m curious how you imagine that to play out. Is it that other companies over time will have to come up to where you are; whether it will be perceived in the marketplace that you are a company that people want to do business with, or really how does that advantage actually work to your favor over time?

Obviously, trust is absolutely essential within this business. Whether it comes up in the context of these collaborative relationships; in the public’s view; in the enforcement agency’s view of how those relationships are structured and managed, that’s critical. I think that the same theme applies in the context of making responsible decisions with respect to the products that we introduce and the benefits that those products provide to patients and how we take care of the relationships that we have with surgeons. Our reputation and the trust that people place in us is going to be key to the future success of the company. We treat that matter very, very carefully and with a lot of protective steps in place to ensure that that trust is in no respect impaired. I think on the collaborative relationship side, over the course of the next 5, 8, 10 years, what you’re going to see is that companies within medical devices that believe that collaborative relationships with physicians are key to their future; are going to have to implement systems that are not all that dissimilar to the quality systems that have been implemented in these medical device companies over the last many years to protect the ability to be able to collaborate with surgeons on a go-forward basis. The enforcement agencies are going to expect those programs to be in place, and I suspect that they are going to allocate their enforcement resources in a way where obviously it’s going to be risk based analysis, and they will comment and evaluate the compliance programs and it will be very disruptive to a company that doesn’t have the right program in place. I think that as the surgeon community becomes better informed as to those risks, they’re going to want to collaborate with the companies that have those protective systems in place. I think it’s going to rig down to our benefit in that regard as well.

Great, thank you very much.

Your next question will be from Michael Jungling - Merrill Lynch.

I have three questions. Firstly on the royalty payment that you delayed; are you in the breach of contract with physicians and have doctors taken legal action against you from selling products that have got their technology? Secondly on Durom, the 20 to $30 million worth of sales, can you indicate how much that is in terms of annual sales? I think it’s pretty much the entire amount. Thirdly on Dental, if you exclude bone augmentation products, what was the dental implant growth rate and how much competition did you see in Dental from generic competition or low cost providers? Thank you.

I’ll pick up with the royalty question to begin with. Let me tell you that, we have done a lot of work and are making a lot of progress to bring those payments back on line. It is the case that we are in arrears with those payments. We have communicated very actively with the involved third parties. We have a lot of resources committed to this, including some of those third-party resources that Jim referenced earlier in the call. At this point in time, I do not see that our licensing rights are at significant risk. But we obviously have obligations that we need to make good on within the context of those contracts. I think that the progress that we are making will allow us to arrive at an appropriate resolution and be able to make those payments. So those communications have really expanded over the last quarter, as have our progress steps in that regard. I think that we are doing the right things and we look to make significant progress between now and the end of the year with respect to making those payments.

With regard to Durom, as we indicated in earlier comments, it represents about 5 to 10% of our Hip revenues in the U.S. It happens to be the case as well outside the U.S. If you look at how and we look at how that product was growing coming into the year, coming out of the first quarter before reports of loosenings and revisions, we were trending clearly to the high end of that range. The 20 to $30 million, again, principally associated with Durom, does get you two-thirds to the full amount. But as I indicated, with regard to the Hip franchise, there is also the impact that some disruption in training is having on the new products that we have introduced in the Hip portfolio, namely the M/L Taper with Kinectiv. There is a bit more in the Epic devices that we’re focused on in the second half of the year as well.

Let me pick up on your Dental question as well, Michael. I think that you rattled off several factors that could be impacting the business. At this stage prior to the other companies reporting out on their second quarter performance, it’s a little bit difficult for us to disaggregate those factors. As we’ve already mentioned, our training efforts on the physician training and education/clinician training and education side were impaired. We obviously had to prioritize our larger business units. But we’re making good progress in that regard now. We do think that that had a negative impact on our business. I think that there probably has been a continuation of the threat of some of the other providers, say the low-cost providers and low value providers within that marketplace. But I don’t think that that has accelerated and justifies our poor performance within the U.S. marketplace. Anecdotally, it is true that we’ve received some reports from the field that in certain large procedures where there are multiple implants, in instances people are moving from using four implants to two implants and then connecting the gaps with bridgework or more traditional dentistry, so that could be impacting it as well. But I think that we’ll need to carefully review the other companies’ performances and we’ll all learn more in the coming weeks on what’s happening within the U.S. marketplace. There is no doubt that that marketplace is a bit more sensitive to the general economy because of the private pay basis for that business within the U.S. market, and so that has had an impact on the business as well. But like I said, we’ll gain greater visibility as the other companies report and be able to disaggregate those factors and think more intelligently about our actions going forward.

A quick follow-up question for you, Dave. I’m still confused why you suspended the sale of Durom because if you look at all the registries around the world, the actual failure rate is roughly in line with best practice or in line with competing products. You’ll always have one- two- or three people who have higher failure rates because they haven’t followed the procedure. Why recall it when all you would need to do is perhaps train 2-3-4-5 physicians that are having issues and not make it the problem of 500 physicians who are getting very, very good results?

Again, we did not recall the product. The action that we’re taking here is to step back, make sure that we can properly revise and add greater clarity to the surgical technique and the instructions for use on that product, and then make sure that everyone is trained. We think that it’s the responsible thing to do. One could deem it to be a conservative action, but when it comes to patient safety, we’re going to make decisions on the conservative side of the continuum.

Thank you.

Your next question comes from Michael Weinstein - JPMorgan.

Let me just pick up on a couple of the items that have been discussed thus far. On Durom, probably two questions. One, how much do you think you will spend on surgeon training with the re-launch of the product in the United States? Is it necessarily worth the expense and the distraction on your other products to re-launch this product in the U.S.? And then how many surgeons do you think you’ll need to train in order to get the product fully back out there?

The spending is not going to be anything that’s really out of the normal course for us. We incur a great deal of expense every year on surgeon training and education. It’s a very important aspect of our business. I wouldn’t look for anything that is significant and conspicuous to come out the expenses that we incur in that regard. It will just be part of our overall effort on that side of our business. As far as the number of surgeons, there are several hundred within the U.S. I think that our records would indicate that there have been some 900 surgeons or approaching 1,000 surgeons. We would want to train several hundred surgeons. This will be an ongoing effort, not just in the coming quarter or two, but thereafter. We do think that the product offers great patient benefits as evidenced by the clinical success that have obtained by many U.S. surgeons and the tens of thousands of patients that have had great results with this product overseas. We believe that the metallurgy is superior to the competitive products that are out there, so it clearly is worth the investment, but we’ve going to do this in a very responsible way, both to the surgeon customers and to the patients that receive these implants.

Just as a point of clarification, the implants will be made available to the surgeons as they receive training. So there won’t be a threshold that we train a certain number and then the implants became available. They will become available to individual surgeons as they receive their training.

They have to go through the training first in order to start doing implants again?

They do.

Okay. David, one of my concerns here is that I see all that has happened, particularly in the last nine months between yourselves and surgeons and the way the relationship is evolving. This is true for Zimmer, but it’s probably broadly true for the industry as well. Part of what you are talking about here is that the disruption on training and some of the other disruptions are having an impact on the uptake of the new technologies. My question is, part of what we are seeing is that in the post-DTA world, that with changing relationships; less ability to influence surgeons; maybe less interest in surgeons on new technologies; fewer surgeons on your product development teams, why is it going forward, the uptake of new technology is going to be slower than we what we saw in the past?

Mike, I don’t think that the uptake of new technologies will be slower. I will tell you that I think that what we’re going to right now is transitional in its nature and you’re seeing this with not only our company but the competitors out in the field, either to a greater or lesser extent. But I do think that what will be the case is that because of the strains placed upon the governmental systems and third-party payors to provide healthcare with a growing population of folks that need this care that the necessity of proving out the clinical benefits to new products, if you are going to expect to get mix benefit or price benefit more generally, is going to be more rigorous. I think that what you are seeing on the uptake right now is probably a temporary transition as people work through the compliance with these resolution agreements. But I think that the long-term dynamic is going to dictate that you do have to prove out in a more rigorous way with empirical evidence that if you want to get a premium on a product, it has to prove out to provide greater patient benefits. You see this in the discussions that are taking place within the U.S. on the reimbursement side and notions of comparative effectiveness. In some form for sure, you’re going to see those types of principles be embedded in that decision-making. What we want to be as an organization is a very innovative organization that addresses unmet clinical needs and have appropriate clinical data to be able to prove that out. And that’s just what we are doing in allocating our R&D efforts. We believe that we’re going to able to continue to compete very effectively and introduce innovative products going forward.

Let me close with one final question for Jim. On the other income line, you’re selling off some investments and some assets to help contribute/support 2008 earnings. Should I assume that in 2009 that other income line comes back to a more normalized level?

Until such time as we prepare an operating plan for 2009, I’d like to stay away from providing any specific guidance on 2009, Mike. But we have in what we disclosed been careful to make it very clear that what’s running through that is one-time in nature.

Okay, perfect, thank you.

Your next question comes from Ben Andrew - William Blair.

I just wanted to follow up with a couple of quick things. Is there any plan to accumulate clinical data related to Durom in the United States? You talked about the need for clinical evidence maybe with the registry or a broader study.

What I can tell you is with respect to the ongoing experience and the experience that we will move forward with post-training that we will be continuing to very closely monitor the clinical experience with this device.

Okay, and then just more broadly speaking back to the training issue, clearly the disruptions and delays in being able to train and work with surgeons more closely is in basically every business. Where is the confidence coming from that you’re going to be able to see a quick restoration of the scope of relationship that you’ve had surgeons historically as you’ve been delaying that and disrupting those relationships as you get those pieces back in place; what timeframe should that be happening in?

I think that we’re going to make significant progress in the coming weeks and months, and I would expect that we will have fully transitioned and be up and running at a full clip before we exit this year. With respect to the relationships that we have with the surgeons, there is a high desire among them to get back at these activities. As I mentioned, we’ve had in-person meetings with over 100 surgeons just in the second quarter. The common theme among all of them is they want to ensure that patients’ interests are protected. They’re very passionate about these activities; they’re very passionate about the collaborative relationships and the benefits that they think are derived for their patients through those relationships. I don’t anticipate that we’re going to have any trouble at all at getting first-rate people signed back up to help us teach these courses and participate.

Okay, thanks.

Your next question will be from Joanne Wuensch - BMO Capital Markets.

There are two questions. The first has to do with your communication with the FDA regarding Durom, and if you think that they will take some action towards this. The second question has to do with hip resurfacing. It’s my understanding that the Durom hip cup is used as part of your resurfacing program. Does this delay introduction of that? Thank you.

I’ll take both of those questions. Thanks, Joanne. First of all with respect to the communications with the FDA, we have shared our review and conclusions with the agency, and we will continue to update them. In terms of future interactions, it would be difficult for me to predict. They will be necessary and appropriate, certainly. In terms of our ongoing U.S. IDE study on the resurfacing system, in response to the actions that we are taking today with respect to the Durom Acetabular component, which is the acetabular component in that system, we are suspending enrollment until further notice.

Thank you.

Your next question will be from Matt Miksic - Piper Jaffray.

I just had one clarification here. I just want to make sure I understood you and then I have a couple of questions if that’s okay. The clarification was on this comment you made on SG&A. I think you talked about 175 basis points of increase due to legal and compliance expense. Is that right, Jim?

That’s right.

And in 175, that’s growth or is that as a percentage of sales?

Maybe I will make it easier for you, Matt. It’s close to $20 million in expenses in the quarter.

That’s the number I was coming up with and that sounded a little higher than I was thinking of in terms of a run rate. Is that about right?

I think that’s fair because I talk also about 50 to $60 million for the year. So clearly, the second quarter was the high water mark.

Okay. And then the other clarification item you talked about this first half growth and I didn’t hear whether you had attributed some percentage growth number to the selling days and the Easter effect for the quarter?

No, I think what you ought to do is look at the growth rate for the first six months because those billing day differences get neutralized between the two quarters.

Okay, so that 8% number or whatever you gave us was the normalized run rate first half?

That’s right.

Okay, there have been a lot of questions about this. But I just want to understand how we should think about it playing out over the next – granted this is going into next year, but I hope you can help us think about it. It sounds like this rollout of the enhanced compliance program as you go into other divisions and layer in the same kind of rigor that you’re putting into orthopedics; that is slowing things down. You have more training. Do you have an implementation timeline for that? I’d love to hear when you think it will be done. But is the right way to think about this at the end of that, assuming that you don’t lose a lot of share, that you are going to be able to reaccelerate some of the growth in those businesses as that becomes part of more normal operations, or you get people trained up or get through this implementation process?

Absolutely, Matt; we are very optimistic based upon the feedback that we’ve received from surgeons that this is a transitional period. They’re enthusiastic about the fact that we’re back out and communicating with them in a very proactive way. There are a lot of elements of this obviously and we’re prioritizing our execution plans in accordance with the import of that business unit. There are aspects that first and foremost are essential on the communication front to get the training and education programs up and running across all these business units. With respect to U.S. Hips and Knees, obviously the payments are another area of prioritization for us and we’re making good progress on that front. I think that you can see that most of the other competitors have slowed down their payments over the course of the 9-month term of these resolution agreements as well. But I anticipate us making very significant progress in the third quarter and working with an eye towards marching into next year and certainly by the end of first quarter of next year to have all of that stuff behind us. I would expect just in a macro sense to have the training and education events all up and running and that process to be very smoothed out before we exit this year. And that remaining U.S. Hip and Knee payment stuff may pend over until the first quarter of next year, but largely be resolved by the first quarter of next year as well.

Okay, and with respect to the other businesses and the global compliance, is it first or second quarter of next year that you feel like you get that behind you as well?

I think no later than that, and I’m more optimistic on that front, we’ll probably have most of that behind us before this year is out.

I see. And then the other thing about this is as you mentioned what other companies are doing, I think I understand. You talked about what you’re trying to do in terms of settling up with the surgeons that you have these royalty-based relationships with and then redrafting new agreements to go forward. Are you concerned at all that that’s cutting these folks loose to some degree as free agents at the end of the year once that agreement is signed, whereas if I look at other manufacturers, not to sound too mercenary here, but the folks with relationships with other manufacturers clearly have a reason to maintain and concentrate on that relationship because they do have these ongoing payments.

Obviously, there is no nexus in our minds between the product choice that the surgeon makes and who we’re engaging to provide services whether it’s on the training and education side or providing intellectual property and input into the design of our products. But our initiatives in that regard, Matt, are just to make sure that these existing contracts are treated in an appropriate way and that we’re going back through and doing whatever work we need to, to make sure that the payments that go out are consistent with our current compliance program and our fair market value principles. I don’t want to describe that as a settle-up process. Our initiative in that regard is very rigorous and comprehensive. But the objective there is to make sure that everyone that we’ve collaborated with is treated in a fair way and they are provided with full and fair value as supported by third-party valuations if necessary of those contracts. So that’s the initiative that’s underway in that context.

Okay. I think that’s fair. The last question here was on some of the new products. The training it sounds like is part of the impact. Just to put this in perspective, we think about Natural Knee and Mobile Bearing, even when training gets going again, those are maybe a segment of your Knee business. Is any of the sluggishness around some of these new products driven by concern over the cost of the technology or the complexity of the technology? I’m thinking of the Gender Hip with Kinectiv technology, is that something that you’re confident is going to pick back up again? Or, to your point earlier about making a connection between new products, the premium of the product, and the clinical outcomes, is that something that you feel like you have a strong case there, or has there been pushback on the price of that product?

I think that it just is in the early stages, Matt. And so we’ve seen enough disruption in the training efforts there to where we’ve lost some time to be sure but we still believe in that technology and the receptivity that we’ve received to what that technology represents and the patient benefits are still very positive. So we’re optimistic about any of these launches that we have underway right now. We just think that we lost a bit of time.

Okay, that’s fair. Thanks again for taking the questions.

Your next question will be from David Roman - Morgan Stanley.

First of all, I wanted to spend a couple of seconds on the guidance. You went through all the details on the lowering of sales estimates. Given that in every case, you’re saying that that is related to training and the implementation of your own compliance standards, what surprised you during the quarter compared to Q1 that caused such a dramatic change?

I don’t know that anyone anticipated the amount of work that was going to go into complying with the resolution agreements at the outset. It’s difficult to forecast out because that’s not a normal business cycle that we are going through or process that we are working through, and we probably lost some time on the front end that we didn’t fully project out or appreciate going into, even the first quarter, let alone the second quarter, and so some of it was just that dynamic.

So if you look at Mobile Bearing for example, and the number of physicians you’ve been able to train compared to let’s say a more rapid product launch, can you give us a sense as to how that compares six months out?

I think that the difference is pretty dramatic is the way we’d characterize it as opposed to what you would normally do at the point of launching those types of products or new technology along the lines of Kinectiv would fall into that same category. But Kinectiv and Mobile Bearing Knees, a lot of training and education is necessary prior to a physician picking up that product and feeling comfortable with it. So any disruption in that regard is going to be seen directly in the commercialization side.

Okay. And then on the margin front, gross margins are down, a little light relative to I think what people were looking for. Can you give us a sense as to where you think that will shake out for the full year?

Maybe the best way to focus on that is to look at the change this quarter relative to second quarter prior year; a reduction of 190 basis points. About 160 basis points of that is related to the foreign currency hedge losses and the balance to both idle plant expense that we were experiencing at that Dover facility as well as inventory obsolescence charges. I think if you look at where we landed for the quarter, slightly better is where we would expect to, when we consider that and the other charges had gone through there in the first quarter related to that OSP issue is where we would expect to be for the year.

And are you dialing anything for higher raw material cost? Are you seeing anything on that front?

We have. That’s reflected and we had some visibility to that coming into the year and had that reflected in the guidance coming into the year. But to the extent we have seen further increases, we are now looking at what is roughly about 10 to $15 million of purchase price variances, some of which will get carried over into next year.

Okay, and the last question, just to follow up on SG&A, you said that the 270 basis point year-over-year increase; 175 basis points related to compliance, what’s the rest of that?

The rest of that would be the step up we talked about coming into the year related to the operating and infrastructure initiatives. It’s opportunity for U.S. distributor organizations to earn higher compensation on Trauma product lines; pushing out more instruments into the U.S. distributor organization; the cost associated with that. They are in a better position to deal with the demands that are being made with surgery schedules getting pushed towards the front of the week. It’s those other initiatives that are contributing to that increase.

And you think that those efforts will be complete in 2008?

They are, but as we have said before, those are things that carry over as well in to future periods to some degree.

Got it. Okay, thank you.

Your next question will be from Doug Schenkel - Cowen & Co. Doug Schenkel - Cowen & Co.: I believe you mentioned that Q2 R&D spend was lower than expected in part because of royalty renegotiations. And you guided us to expect R&D on the low end of the guidance range. Can you talk about how ongoing changes in your R&D practices may be affecting development timelines and how that compares to your assumptions coming into the year?

First of all, just a point of clarification. There have not been any royalty renegotiations. It has really been a decrease in spend just related to straight fee-for-service consulting activity, so just a point of clarification on that note. In terms of how it has impacted development timelines, there certainly has been an impact. I think it’s fairly well understood that during the initial phases of the monitor period that we were not holding development meetings. So there certainly will be some delays. Overall, the projects that were in their later phases are continuing to move along and we are continuing to drive towards those timelines currently. Doug Schenkel - Cowen & Co.: Okay, that’s helpful; maybe a follow-up to the R&D question then. Is it fair to assume that the decision to suspend, retrain, and essentially re-launch Durom in the U.S. rather than to just discontinue the product might have been different if you had a follow-on metal-on-metal product planned for launch in the U.S. either in 2009 or 2010?

Again, we believe in the technology and the clinical benefits of that product. The issue is not with respect to the product but rather to the surgical technique and the specificity of that technique and the training that accompanies it. So, that is the basis for the decision. Doug Schenkel - Cowen & Co.: Okay, so maybe a more direct follow-up, could you give us any color on when you think you might have a follow-on metal-on- metal product in the U.S.?

That obviously is a very important part of our pipeline and it will continue to be a priority and has been a priority, not just metal-on-metal, but the cup side of our Hip business in general going into 2009. We would anticipate making progress and working towards launching one or more cup products within that time period. Doug Schenkel - Cowen & Co.: Okay, and one more question. You talked about the need to see other earnings reports from some of your competitors before arriving at any firm conclusions on market dynamics. But I think at this point, it’s fair to conclude that recon volumes were decent at Biomet, DePuy, and Stryker during the quarter. Given you said your moderation in the second half outlook goes really across your different businesses, can you help us understand why we shouldn’t conclude that some of these enhanced compliance approaches that you are implementing either aren’t going to drive you specifically to lose share if others aren’t following the same approaches or that in general, if others are taking similar approaches, that volumes in general will pull back a little bit?

We understand what’s happening in the markets, Doug. In the context of Michael’s question on the dental market, I think that we do have great visibility and a clear understanding of the core recon business and what has happened in the second quarter market-wise. That was dental specific just to start off with, but I don’t believe that this enhanced compliance model is going to negatively impact our future business. I think that it’s the right thing to do. It’s a longer term strategy. I think that the likely impact is in the short term, but I think what you’re going to see is continued scrutiny of these relationships, and we’re making the decisions now that will allow us to continue to collaborate with surgeons in all the essential ways. I think we are making the hard decisions out in front. For anyone who decides that they are going to be dragged through this transition process by an outside entity as opposed to internally driving a cultural change and a rigorous program in this context, what they are likely to see is future disruption to their ability to collaborate with surgeons. So that’s what we are going to avoid with the process that we’re going through now. Doug Schenkel - Cowen & Co.: Great, thanks for taking my questions.

Your next question will be from Kristen Stewart - Credit Suisse.

I have a couple. In the quarter, it looks like from your cash flows, obviously you talked about selling a business and you also bought something. Can you give us any color since those are obviously closed deals on what those were?

I am not going to give on the sale of the other assets specific detail. I think there is the fair amount of information out in the public domain that people are able to get a fair idea of what contributed to that gain in the quarter. Then with respect to the very small acquisition that we did in the quarter, that was an acquisition of our independent recon distributor based in Finland.

Okay, and I know this has been asked several times, but your other income including the gain on the sale of the assets, I am curious on your philosophy with adjusted net earnings since it looks like you are excluding all of the costs associated with acquisitions but now including gains for divestitures. Should we really be looking at it as $1.03 less what looks like $0.03 in the quarter as more of an ongoing run rate basis?

Kristen, our philosophy with respect to how we report our financial results is to be very clear and transparent, and I think we’ve accomplished that. That gain, you can see it is in the interest in other income line. It’s below operating profit, as it should be. And we’ve been very clear about how much and any impact that it is having on earnings.

What did you say the guidance was for the full year on that line?

25 to $30 million.

And that’s all gains?

No, that’s a net number, so that includes both interest expense on our borrowings as well as anticipated one-time gains.

Then just going back to your going into the field and looking at the experience with Durom. I know that this product has been used off-label in hip resurfacing. Are you seeing any higher incidents of revisions when it’s used in that condition versus any use in a more traditional hip arthroplasty procedure, and what may be the implications for resurfacing? I know you said you’re suspending enrollment, but how do you look at the going forward? I think the last update you gave would be at best 2011. How do you feel positioned to compete against your competitors that will likely have a system, especially in light of some of your commentary last fall on how concerned you were with hip resurfacing?

Let me take first of all your question on its potential use in off-label applications. I will tell you that in our very in-depth investigation where we reviewed individually 1,300 cases that we did not see one example of where the Durom Cup was used in any other instance other than a large diameter head application in a total hip arthroplasty. I find myself not in a position to comment on its use in off-label application because I’m not seeing it. I’m not saying that it’s not out there. Certainly surgeons had the opportunity to direct their own use for the best care of their patients. But I will tell you that we have not seen it. In terms of your question related to the IDE study, because that cup is the acetabular component in that resurfacing study and because we’ve taken the action that we have, we find it only appropriate to suspend enrollment on that study until further notice. Then in terms of our ability to compete in that product line going forward, I’m going to turn that one over to Jim.

You hit it, Kristen, for rightly pointing out that hip work clearly is going to be the focused on competing in the 90% to 92%, depending on where hip resurfacing levels out in the U.S. market, whether it’s the 10%. With everything else that we have in our portfolio including Trabecular Metal, which is unique and proprietary; the new products, the M/L Taper with Kinectiv technology; David referenced some work that we have underway in development to bring out what will be a new acetabular component system, there with the suspension, I would suspect, although this is something that still obviously has to be evaluated, there will be some delay beyond that 2011 period that we earlier referenced.

Okay, and Cheryl, just going back to your comments on reviewing, I think you said 1,300 patients?

In the United States, yes.

Is that just 10% of all U.S. procedures and are you very comfortable that that’s a good sample to project on what the total experience that they...

Yes, that does represent about 10% of the cases that are currently available in the United States. The tack that we took was to go to among the highest volume sites in United States because there was a certain sense of urgency related to our ability to come to conclusion on the issues that were raised by our knowledge of loosenings and revisions that were occurring. Do we think that it’s a statistically significant representative sample that allows us to draw the conclusions that we did and take the actions that we did? The answer is absolutely yes.

Operator, in the interest of everyone’s time, let’s take two more questions.

Your next question will be from Robert Hopkins - Banc of America.

I have got just two questions. The first question is on the stability of the sales organization. Can you comment on the stability of the sales organization? And specifically, have you lost any distributors? Then when it comes down to individual reps, what is a normal rate of turnover that you might see in a quarter and what’s the current rate of turnover that you saw in this quarter? Thank you.

We won’t go into turnover but we’ve had extraordinary stability among the U.S. distributor sales force. Furthermore, I think that our distributor group has really answered the call and addressed the challenges that we’ve gone through in an admirable way. They are clearly very on board with what we are doing as an organization. We think that we have the best distribution channel on the industry. Their reaction and how they conducted themselves through this period evidences that. So I have absolute confidence in our ability to execute with that group and we’re proud to be affiliated with them.

So you haven’t lost any?

We have lost no distributors.

And you’re basically comfortable saying that you’ve got no abnormal level of turnover with the sales organization?

That’s right. The single exception to that has been we’ve had some turnover on the Dental side within the U.S. But I have seen nothing abnormal at all outside of that.

Okay, and then the second question is, would you rule out M&A as an option to bolster your metal-on-metal offerings and by extension hip resurfacing?

We would never rule out any external opportunities. Obviously we are constantly evaluating external opportunities and those are getting evaluated in the context of our internal development plans at all time. So if there was technology that we thought was unique or that could accelerate, addressing any aspect of our offering that we thought was going to provide significant clinical benefits to patients, we would be interested in that.

Are those deals less likely now in giving the incremental expenses that you’re incurring in 2008 and early part of 2009 or not necessarily?

No, they are less likely.

Thank you for your time.

Your last question will be from Jeff Johnson - Robert W. Baird.

Just a few clarifications here at the end. One, do you need any regulatory sign-off on the labeling changes for Durom? And if so, could that be the rate limiting step here as opposed to the training courses? Number two, just a clarification on the P&L treatment of the royalty agreements that are in arrears at this point. Have you been running these presumed payments at all through the P&L or have they been left out of the P&L the last two quarters? Then the third question/clarification, Jim, obviously some sensitivity around talking about the asset sales. But is it fair to assume the stock sales in the quarter that did add to the non-recurring gain would be the same sales going forward, and there would be no other type of non-strategic asset sales, they would just be similar ones we saw here in this quarter?

I’m happy to take your first question regarding regulatory sign-offs. There will certainly be appropriate communication with the FDA on that aspect of the sealed action. We will submit to them the labeling change, which is the regulatory action that’s occurring as the result of this. I do not believe that that will be a rate limiting step. I think that will happen in the normal course of our business. That will not be anything that would be causing us to slow down anything on the training and education side at all.

The response to the question about royalty expense, we have continued to reflect that in the income statement, and we’ve talked as well about the fact that it has contributed as well, to the extent that we are not making those payments, so it’s getting reported in terms of free cash flow. And it’s in the order of 20 to $25 million on a quarterly basis. And then finally on the asset sales, I’m not going to answer that directly other than to say with whatever asset sales we undertake in the balance of the year, we’ll do that in an organized and orderly fashion to ensure that we get good value for any assets that we sell.

Fair enough. Thanks.

This concludes today’s conference call. Thank you for your participation, you may now disconnect.