Good morning, my name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Zimmer First Quarter 2009 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions). Thank you. Mr. Paul Blair, you may begin your conference.

Good morning, I am Paul Blair, Vice President of Investor Relations for Zimmer. Joining me today to host this call are David Dvorak, President and Chief Executive Officer and Jim Crines, Executive Vice President of Finance and Chief Financial Officer. This morning, we will review our performance for the first quarter of 2009, provide you with an update on certain key matters, present an update on our outlook for 2009 and conclude our discussion with a question-and-answer session. We have shortened our prepared remarks in order to take your questions and complete the call within an hour. 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 orthopedics 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 May 7th, 2009 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. We appreciate you joining us on the call today to talk about Zimmer’s first quarter results and how we are positioning the company to deliver value to healthcare providers, their patients, and our stockholders. I’ll start by briefly reviewing the first quarter results, which Jim will discuss in more detail in a few moments. Then we’ll take a look at the expectations for the year. As a quick preview of this part of my remarks, we are reaffirming the full-year outlook that was provided on our last conference call. I’ll complete my prepared remarks with an overview of some of the areas we are focused on in 2009 and why we are confident that Zimmer is well positioned to deliver solid returns and achieve long-term success. Consolidated sales for the first quarter of $993 million were down 1.5% in constant currency from the prior year first quarter and down 6.3% reported. Consistent with prior quarter trends, the U.S. dollar remains strong throughout the first quarter, which led to a currency translation effect of negative 4.8% on sales in the quarter. As we’ve discussed before, the top line impact of currency fluctuations is largely neutralized on the bottom line due to our hedging program. In constant currency, Knee revenues were essentially flat in the first quarter, while Hip revenues declined 3.7%. Among our other product franchises, extremities revenue were up 7.8%, trauma sales increased 5.5%, Spine was up 23.7% inclusive of the Abbott Spine revenues and Dental was down 10.6%. Finally, our orthopedic surgical product sales were down 19% in the first quarter due in large part to the continuing impact of the 2008 suspension of product distribution. Turning to our bottom line results, adjusted diluted earnings per share for the first quarter were…

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 $993 million for the quarter reflects a decrease of 1.5% in constant currency and 6.3% reported as David indicated. These results reflect anticipated headwinds from 2008 customer losses and the impact of a stronger U.S. dollar on translated foreign currency revenues, as well as lower Dental and OSP sales compared to the same quarter last year, partially offset by increased sales in Spine as a result of the Abbot Spine acquisition. As a consequence of the stronger U.S. dollar compared with the prior year, foreign currency translation again decreased revenue by 4.8% or $51 million in the quarter. Consolidated pricing was down 0.7% for the quarter, in the Americas price was negative 0.3% for the quarter, while Europe average selling prices were flat compared to the prior year. Asia-Pacific results include negative price of 3.4%, in line with the last three quarters following reimbursement price cuts in Japan, which took effect in April of 2008 and to a lesser degree, cuts in Australia beginning from July of 2008. Turning to our first quarter revenue growth by major product category, worldwide reconstructive sales, which now exclude Dental, decreased 1.4% in constant currency and 6.6% reported. Knee sales in the first quarter declined 0.3% in constant currency, reflecting negative price of 1.2%, offset by positive volume and mix of 0.9%. As we reported on our fourth quarter call, during the second half of 2008, we had lost an estimated 1.5 points of market share in Knee as a result of various factors including the implementation of our enhanced global compliance program. During the first quarter of this year, based on competitive results reported to date and independent…

Thank you, Jim. And with the steps we took last year to strengthen our company, we have the foundation for musculoskeletal leadership. Our near-term priority is to use our considerable strengths to continue to rebuild momentum in our business. We’re confident that our commitment to meeting our own high standards day after day will translate into long-term success. Now, I would like to open the call to your questions.

(Operator instructions). Your first question comes from Tao Levy with Deutsche Bank. Tao Levy – Deutsche Bank: Hi, good morning.

Good morning, Tao.

Hi Tao. Tao Levy – Deutsche Bank: So just simply if you look at the overall market and thanks for all the data you guys have provided. If you look at the volumes mid-single digits and again when you look at pricing for you guys, it seems like maybe it was down a little bit more than what we heard from competitors. Given that backdrop, what are you looking for pricing going forward and also with the volume specifically in the second quarter, are you seeing any trends now that make you feel better about where that 5% was in Q1 or maybe a little bit worse and then you’re thinking more that recovery into the 6% takes place in the second half of the year? Thanks.

Yes, Tao, this is Jim. Just on pricing, I’d say where we are on pricing is really pretty consistent with what we saw in the back half of last year. And as I indicated in my comments, we see that the opportunity for that to improve for us certainly going into the balance of the year given the – that we anniversary out of the reimbursement price cuts in the Asia-Pacific region that took place in April of 2008. So we understand and we would acknowledge that it’s certainly a challenging environment on the pricing front, but it has been for the past couple of years, those conversations really haven’t changed and you’re seeing the effect of what’s happening in the field and what we are reporting over the past several quarters. And then I would tell you with respect to the overall growth in the market, it’s pretty much in line what we anticipated coming into the year notwithstanding the fact that maybe a bit more deceleration in Knee procedure growth in the fourth – in the first quarter. But as we look at mix and volume opportunities over the balance of the year as we said – as I said in my comments, we do believe that the – the market is likely to grow in 2009 at that sort of 6% level as the procedure comps get a little easier in the back of the year and those price comps get easier in the balance of the year. Mixed opportunities we think in our particular case improve as we go into the balance of the year and we’ll have these medical education programs up and running at full tilt.

Tao, Just – I know that you asked questions that were framed out with a shorter-term interest in volumes, but every time we talk about the procedures we ought to come back to reiterating that if anything this is short term, these are deferrals, the need for these Knees and Hips is not going away. These patients are going to find other solutions in that interim and if anything it could lead to a bolus of procedures on the back end as the economy begins to recover. So there is no long-term change in our view of the prospects of this market. Tao Levy – Deutsche Bank: And in terms of – in Q4 you talked about losses of some of your surgeons, how is that transition from Q4 into Q1 and kind of what you’re looking for in terms of the balance of ’09?

Yes it’s very much in line with what we had reflected in our guidance, actually it’s better than what we had balance reflected to the extent. We talked about our guidance incorporating risk of up to an additional 50 basis point of share loss in both Hips and Knees. But in Knees, as we look at the first quarter results at this point, I would tell you we – our estimate is that we’ve lost no more than an additional 10 basis points of market share in the quarter on top of the 1.5 points loss of market share that we experienced in the back half of last year. Tao Levy – Deutsche Bank: Actually I was talking referring more to actual surgeon defections that you commented in Q4 about surgeons who were had left the Zimmer family and I was just wondering if you can comment on how that trend has looked?

Yes and that trend is stabilizing is the answer. And I think Jim is quantifying that, but – Tao Levy – Deutsche Bank: Market share?

Yes. In any of the subjective measures, I would tell you that that trend is stabilizing as well. And on the things that we pointed out last year Tao are the right things for us to have been focused on. We brought in enhanced leadership in that area, our communications are much, much more proactive. We’re cleaning up some of the past issues with respect to deferred payments that were owed to those surgeons as well programs are back up and running. So, the general telling and I mentioned it in my comments as well as evidenced by the activity at the AAOS Event in Las Vegas was very positive. So, I think all those trends are positive for us. Tao Levy – Deutsche Bank: Great, thanks a lot.

You’re welcome.

Your next question comes from Mike Weinstein with JPMorgan.

Good morning, Mike. Mike Weinstein – JPMorgan: Can you hear me okay?

We can. Mike Weinstein – JPMorgan: Perfect. Thanks for taking my question. Couple of comments or questions here. So – if you could just spend some time on the inventory build you have over years, what’s the inventory on hand now, if you could help us understand the time period you think it will take to work that down and what should be the appropriate level at the company? And then on the pricing dynamics, which Tao touched on, but it looks like your pricing in the Americas got a little bit more challenging. Can you give us your thoughts on price and not mix as we go forward? Thanks.

Okay. On the inventory build Mike, the focus there on the one hand will continue to be to fully support any new product launches that we have planned for 2009, some of what you’re seeing in the first quarter as an example is – there is an investment in the inventory of – associated with the new Natural Nails, the new line of Intramedullary Nails that are going to be launched within that trauma franchise. We have an opportunity over the balance of the year to reduce inventory days on our standard volume products after having made some significant investment in 2008, and putting more inventory out in the field as we were working our way through this transition to put our distributors in a position to ease some of the burden, some of the pain they were experiencing in managing, getting the inventory in and out of hospitals on a day-to-day basis. We have targets in mind here in terms of what we are looking for and be able to provide updates on a quarterly basis on these calls as to where we stand relative to those targets.

Yes, and with respect to pricing Mike, I don’t know the general dynamics in those discussions and negotiations have changed much over the last couple of operating periods. It is true that within the U.S. that trend has turned a bit and I don’t think that there’s anything that we expect to become more profound in the go-forward periods and one has to also keep in mind that on the other hand, the European pricing environment has stabilized relative to where it’s been for the last operating period or two and the Asia-Pacific difficulties begin to anniversary out this quarter in Japan and then next quarter in Australia for us. So again, our overall assumptions in the guidance that we provided embed those expectations in and I think that we are seeing to date is consistent with what we assumed in the model. Mike Weinstein – JPMorgan: Okay. And the last question is just relative to Dave, what you’re thinking about market. Our math with you guys reported this morning shows market growth constant currency in Hips and Knees, pretty equivalent in the first quarter, both in the range of 4%, 4.5%. So is your thinking that market growth improves from here to get to that 6% for the year or share with us your thoughts, I think it will come out a bit lower than you are?

Yes, I don’t think that we are going to see a greater decline in the procedure rate. I think that that will stabilize and improve as the year progresses. And then I think also when you roll up those numbers in their entirety if it’s just on dollars and as Jim referenced in his comments, we start to see the anniversary out of some of that pricing. Mike Weinstein – JPMorgan: Okay. I will let someone else jump in here. Thanks.

Thanks Mike.

Your next question comes from Bruce Nudell with UBS. Bruce Nudell – UBS: Thank you. Yes, our calculations similar to Mike’s show about a 4.5% market. And so that’s like a 2.5% or 3.5% shortfall depending upon whether you think the market would be have been 7% or 8%. How much of that do you think is volume shortfall as opposed to the inability to improve ASPs at standard 2% to 3% levels? So, of the 2.5% to 3.5%, how much do you think was basically volume in terms of shortfall?

Bruce, this is Jim. We can’t speak for obviously what’s reflected in our competitors’ numbers. We – I can tell you with respect to our own performance, the difference really is in procedure demand. What we are seeing in terms of mixed benefit is consistent with what we saw coming out of the fourth quarter of last year, pricing is consistent with what we saw coming out of the first – there in the fourth quarter of last year. And so the difference really is in procedure demand, at least with respect to our numbers. And again, I can’t speak to whether or not that’s also the case obviously with respect to competitor results. Bruce Nudell – UBS: Okay. So, you think that it’s not inconceivable to you that volumes across the market could be down 2.5% let’s say?

Yes.

I’m not sure why our experience would be different than the broader market with the market share that we have. And I will tell you that our intelligence and field checks on this are relatively consistent with that. So, I don’t think that there is a material difference between what we are experiencing and what the others are experiencing in that regard. Bruce Nudell – UBS: And with regard to that, we haven’t really hit peak unemployment yet. Kind of what gives you the confidence that we’ve kind of seen the worst of the slowdown?

Well, I don’t – I just think that when you have sort of behavior modification incentives that cut in different directions, there are people that want to accelerate these procedures because they’re afraid that they’re going to lose their employment opportunities and potentially their insurance coverage, right? And then you have others that want to defer it, because they’re afraid to being out of work at this point in time is not a good idea and that their job security and stability isn’t what they would like it to be. So, I just think that it’s tough to use that unemployment rate necessarily as a leading indicator for what these procedures will do. But the trends that we saw in the fourth quarter and that we saw in the first quarter would indicate that we are going to be stabilizing this as the year progresses. And if we are off by a bit in that regard, I would tell you that our own guidance that we provided would assume a bit of a margin of error in that number and of course would be countered by other things that are assumed into those models. So, irrespective of that, we are comfortable with our guidance at this point. Bruce Nudell – UBS: Terrific. And my final question is, it looks like sequentially you may – I know there is seasonality in your share in the various geographies, but it looks like in Hips and Knees in the U.S., you actually may have stepped up slightly sequentially with a little bit of erosion ex-U.S. Is that correct? And in aggregate, how much more share globally do you expect to see this year?

Well, I think that you saw greater stability in our European business than you did in the U.S. business, but the beginnings of stability on the U.S. business show positive trend in that regard. Bruce Nudell – UBS: Thank you.

Thank you, Bruce.

Your next question comes from Matthew Dodds with Citigroup. Matthew Dodds – Citigroup: Thanks and good morning. Couple of questions.

Good morning. Matthew Dodds – Citigroup: First on the surgeon defections, have you seen any comeback potentially a buyer’s remorsement went somewhere else and have since come back to you? That’s one. And then two, on the manufacturing, just to Tao and Mike’s question, so this was really a one-quarter phenomenon where you knew that the volumes would be – come in lower, but you wanted to build the inventory and now we’re ratcheting down the manufacturing for the rest of the year at a relatively steady clip the next three quarters?

Yes, with respect to the surgeons, I think that what we’ve seen there have rather been anything significant in the way of surgeons returning is just a stabilization on that side, Matthew. And there have been instances where some business has returned, but at this point in time, I wouldn’t describe that as at all material to the overall trend. I think that there have been more instances where conversations have opened back up and so that’s a good sign and there is potential for some of that business to come back. But our assumption is that those returns in this year are going to be relatively modest.

Yes. Matt, this is Jim. The manufacturing slowdown really started to take effect in the back half of last year as we experienced the share loss that we’ve reported out. So it is something that has been reflected in our plans coming into 2009, it’s something that is reflected in the guidance that we provided for 2009, and because we are not providing quarterly guidance, it’s just not something that we had spiked out. It does nonetheless cause some sort of volatility in those quarterly gross profit margins because if you slowdown those production facilities, put less volume through them, you have higher unit cost, that inventory is getting put to the shelf and then it gets sold through in subsequent quarters. And that’s what’s causing the margin to begin to step down in the second quarter of this year and as I indicated that’s the trend that will continue through the balance of the year. Matthew Dodds – Citigroup: Right. But Jim, the gross margin guidance you gave beginning of the year, that range still is okay?

Yes. Matthew Dodds – Citigroup: All right. Thanks Jim. Thanks David.

Thank you.

Your next question comes from Matt Miksic with Piper Jaffray. Matt Miksic – Piper Jaffray: Yes, thanks for taking the question. Can you hear me okay?

We can Matt. Good morning. Matt Miksic – Piper Jaffray: Good morning. So, not to beat the dead horse here in the market and in your (inaudible) so far, I guess I’m looking at this since we are kind of going quarter-to-quarter on trends and then procedure trends and demand and the consumer environment and how it might be affecting this business. Looking at sort of quarter-to-quarter deceleration that we’ve seen across the rest of the group, it’s been about 2% to – as you’ve talked about, I think 2% to 3% from the other major players and you guys actually came in a little bit better than that in terms of maybe only about a percentage point worldwide recon deceleration, is that – I guess is it fair to think about not only stabilization in the U.S. in terms of the share losses, but are there any geographies where you’re actually picking up share?

I guess the way we would characterize it Matt, is clearly stable as – we see the share situation stabilizing, particularly in the Knee franchise in the U.S. and Europe for sure. Talked about very challenging comps we had in Asia-Pacific indicated the volume mix growth in Asia-Pacific for Knees for us, came in around 3% for the quarter. It maybe the case, can’t say for sure that the market in Asia-Pacific for Knees, they’ve grown a little bit higher than 3% if it did, our results would reflect maybe some modest additional share loss in Asia-Pacific region within the quarter. That’s something that we’re addressing with substantial amount of effort that’s going into getting the training and education programs back up and running in that part of the world. Again, the way that we think about it that things have really – our results for the first quarter indicates that things have really stabilized with respect to share. Matt Miksic – Piper Jaffray: Okay. And then just a follow-on, I have a couple here on your smaller businesses, but on your training programs, interactions with surgeons, and your global compliance program, I guess I was a little concerned heading into the beginning of the year outside the U.S. as you rolled out the global compliance that that might start to have follow-on share impacts like we’ve seen in the U.S. It doesn’t seem like it was as bad as we were expecting and do you think we are on the other side of that now or is that still in front of us, do we still have more risk in front of us in global compliance or is it sort of stable and upside from here in terms of the impact of that program?

I think that it will stabilize from where we are. Frankly, our training and education programs are staying up at a rate that causes – you could be correct in your characterization if there is a bit of a lag outside the U.S. I would also tell you that I think that the deficit in backlog of meeting those needs wasn’t as profound overseas as it has become in the United States. So we’re really at what I would characterize to be a fairly full clip now in the U.S. and I would suspect that as the second quarter progresses, I would be able to characterize the OUS training and education similarly, but I just think that they’re working out at a little bit less of a whole than what we have in the U.S. in that regard. Matt Miksic – Piper Jaffray: Okay. Quick one here on Spine and Dental. Spine, by my math looked like excluding the Abbott impact you did something like a mid-teens number in Spine, which is nicely above where the market is and just wondering if you could add any color on kind of whether it’s products or geographies or synergies of the Abbott or what might be – what might be helping that business to do better than it has in the last year or so?

Yes, that – the – if you look at the pro forma numbers Matt, Spine actually went the other way in that quarter. And I will tell you that the legacy Zimmer business has seen more competitive pressures in certain product lines, as well as the fact that we’re going to go through and face some de-synergies on both sides of the equation, the Abbott and the legacy Zimmer side, until those distribution channels are fully cross-trained on the products. So, what you see there is all positive growth by virtue of the acquired revenue. Going forward, as that distribution channel comes together and our training efforts on the sales force side begin to find some traction, we should see some accelerated growth rates as the year progresses. Matt Miksic – Piper Jaffray: Okay. So, it’s still slower than the market in Spine.

That’s right. Matt Miksic – Piper Jaffray: And then last one here on Dental. You mentioned you continue to look at that as an important strategic business for Zimmer. Any – given your financial wherewithal and the environment that we are in, any interest strategically in adding to your franchise in that business – in that market?

It’s an area that we would consider on the business development front and we stated that in the past I think that that area would be more geographic footprint oriented as far as our interest goes than anything else. But it continues to be a business and a market that we think is strategically sound and consistent with our mission as a company. Matt Miksic – Piper Jaffray: Great. Well, thanks for taking the questions.

Thank you.

Thanks Matt.

Thanks Matt.

Your next question comes from Bob Hopkins with Banc of America-Merrill Lynch. Bob Hopkins – Banc of America-Merrill Lynch: All right, thanks. Can you hear me okay?

We can Bob, good morning. Bob Hopkins – Banc of America-Merrill Lynch: Great, good morning. There are a couple of quick ones and then one big picture one. What was it in the Spine pro forma growth in the quarter by your math?

It was down about mid-teen. Bob Hopkins – Banc of America-Merrill Lynch: Down mid-teens pro forma for the deal? Okay. And then, Jim, you mentioned that you thought you lost roughly 10 basis points incrementally in Knees and I didn’t catch what that same number was for Hips.

About two-tenths of a point. Bob Hopkins – Banc of America-Merrill Lynch: Two-tenths of a point? Okay. And then next little one is again you are forecasting 6% growth for the overall market. Just from a stress test perspective if you will, how low can that market rate grow before your earnings projections become at risk in your view?

Well, Bob as David pointed out, we’re very comfortable with the guidance, particularly given where we are in the share issue. We talked about our guidance incorporating risk on Hips and Knees, additional share loss of up to 50 basis points for the year and clearly looking at the first quarter, we are well below that. So with that and with – and particularly with the comps getting a bit easier, the – I mean, as we get into the back half of the year, the training and education programs getting back up and running and having opportunity to increase penetration with these new products. Bob Hopkins – Banc of America-Merrill Lynch: Right. No, I –?

That growth rate could decelerate, could remain – I guess the best way to answer the question, it could remain at the first quarter levels and we would still be comfortable with our guidance. Bob Hopkins – Banc of America-Merrill Lynch:

I would agree with that. Bob Hopkins – Banc of America-Merrill Lynch: Okay. And then lastly, just to play devil’s advocate a little bit on the pricing questions that have been asked, I’m just curious David, if you can talk to why shouldn’t we see pricing get worse in Hips and Knees? You’ve got sort of an unprecedented economy and pressure on hospitals, you’ve got physician relationships that have been altered as a result of the DOJ relationships, you’ve got other markets in cardiovascular where pricing is down anywhere from 3% to 10% depending on the categories. I’m just curious I hear your comments about we’re not seeing any change right now, but I’m just curious as to what sort of gives you the confidence that we won’t see incremental pricing pressure as we go forward.

Well, I think that some of those dynamics have existed, they maybe more profound now, Bob, than what they were in prior periods, but the discussions and telling that those discussions take and the relative positions of the players in those discussions, I don’t has to change that profoundly at this point in time. If you’re asking if there is something more significant that comes from healthcare reform that could change those dynamics, sure, that’s always a possibility and the proposals that are out there now are so bit that is so big that it’s difficult to even speculate about that. But even in that environment, we have different pricing environments throughout the globe and our go-to-market strategies are different throughout the globe as a consequence of that. Notwithstanding those environmental factors we have very profitable businesses as well. Bob Hopkins – Banc of America-Merrill Lynch: Okay. So, I’ll talk about it further offline, I guess. So just lastly on OSP, when do you expect a more pronounced rebound there?

Well, you should see a more pronounced rebound beginning in the second quarter, because obviously we have anniversaried out of that suspension at this point in time. By the end of this quarter, we would expect to have most all of those products back in the marketplace. Now, recovering those sales is going to take time, but the positive trend should really begin in the second quarter. A little bit of an offset exists obviously because we do have a bit of a capital equipment component, not all that much, probably mid-teens as a percentage within that business and so, obviously that’s a little bit that dragged on through the economic period that we are in right now, but the answer is in the second quarter, Bob.

Your next question comes from Raj Denhoy with Thomas Weisel. Raj Denhoy – Thomas Weisel: Thanks. I wonder if could ask a little bit more on the Spine business. I mean, if we do the math I think much like you guys, it was down roughly 17% to core business in the quarter and I think even the Abbott Spine business, given your comments from last quarter, deteriorated from I think $22 million to just below $20 million this quarter. I think your comments sounded like you expected some resumption of growth at least for some stability and I’m curious why you think that’s going to happen, we are only two quarters into this acquisition. Are we looking at another couple of quarters of the synergies here before we see it turn or do you have plans for a faster turn than that?

Let me answer that answer sort of on two different fronts, Raj. I think that talking about the legacy Zimmer business, there are some competitive pressures, our Dynesys System is one of the areas obviously with competitive offerings being introduced. There is some pressure on that business. Trying to work through some of the reimbursement issues that relate to that product present other challenges and so, that some of what you’re seeing. But also on the second front while combining these independent distributor networks and choosing the strongest distributor in each of those geographies and as a consequence of that process, you are going to lose some historic revenues on both sides of that equation. So, that’s happening, you really are at a point where those decisions have been made, our distribution channel within United States has been fully formed. So, all of the disadvantages of going through that selection process are embedded in the first quarter results. None of the advantages of that stronger channel and a broader product offering are being seen. So, from here we should start to see a very natural progression towards improved performance. How profound that will be in the second quarter, we are not going to give that kind of specific guidance, but we ought to be able to methodically work towards improved performance from where we are now. Raj Denhoy – Thomas Weisel: So the $65 million in the first quarter was kind of a low watermark then?

I believe that’s the case, obviously subject to the seasonality within each of the quarters for any of these businesses. Raj Denhoy – Thomas Weisel: Okay. And then just one broader question on leverage. I think in your comments you mentioned that we should start to see it return in the fourth quarter. And I’m curious, what are the sources of that and what are the expenses we are looking at that you’ve incurred over the last several years that really start to weigh in the fourth quarter or is it really being driven by better top line performance? How do we start to drive that earnings number?

Yes. Raj, this is Jim. I think as we get into the fourth quarter, one of the more significant drivers is clearly going to be the effect of the share repurchases over the past several quarters and from what we did as well in terms of – kind of accelerated what we getting out ahead of a little bit of what we had in our original plans this year by drawing on a credit facility is buying back 8 million shares in the quarter. So, clearly that’s probably one of the more significant drivers. You talked about the investments we are making that are going to be showing up in SG&A over the balance of this year as we continue to focus on the training and education programs and having those running away with our meeting, pent-up demands in the marketplace, we intend to maintain investments at or above current levels on R&D and indicated what our expectations were with respect to or what are our expectations are with respect to the gross margin. So, you look at all of that and I think clearly the principal driver is going to be down below the line in the fourth quarter at this point.

And Raj, just sequentially too if you think about the revenues improving in the second half of the year and the point that Jim made in his comments about the third quarter event of the last year, obviously you get improved top line performance and then the third quarter one-time events in the – from last year. So, as you get into the fourth quarter, all those things start working towards your advantage on bottom line performance as well. Raj Denhoy – Thomas Weisel: Okay. But just if I think back to several quarters, maybe even a year when you first started laying out your spending plans, you talked about $100 million in incremental spending. That was pumped up to $120 million. The thought with that at some point half of that spending could be leveraged in the sense I think things around quality IT, those sorts of spending programs could start to come off and could start to flow to the bottom line. From your comments though, it sounds like that’s not expected to happen here in 2009 that most of the leverage is maybe coming from other below-the-line items like you said. I mean, is this something that maybe we are pushing out into 2010 when we really start to see kind of the operational leverage flow through?

Yes, I think that’s fair because remember, we also talked last year about the significant disruption in things like the medical training and education, we talked about disruption in product development and so, we had a step-down in spending in those areas in 2008 and it – we talked about how the focus we are putting back on those areas to get that spending and then that spending as a result is coming back into the P&L and it’s offsetting maybe some of the savings in those areas that you referenced. So, I think you are right. There – we are not obviously giving guidance beyond 2009, but clearly as we get into the back end of the year and begin developing plans for 2010, we’d be looking for opportunities to return operating leverage above the line. Raj Denhoy – Thomas Weisel: Sure. So, I guess – again, so I guess that your point about a lot of that savings that we had expected was – is getting powered back in now as you try and correct some of the share losses. But in your mind though, then just to be clear on this for 2010, some of that start to maybe get leveraged and we could really see that the bottom line start to show some benefit?

Particularly in SG&A. Raj Denhoy – Thomas Weisel: Okay.

Yes. Raj Denhoy – Thomas Weisel: Great, thanks.

Okay.

Your next question comes from Kristen Stewart with Credit Suisse. Kristen Stewart – Credit Suisse: Hi, thanks for taking my question. One of your competitors had noted that they received an IRS notification on transfer pricing. I was just wondering if you can comment if you’ve been notified of any similar thing.

We have not received a notice of proposed adjustment with respect to cost sharing arrangements. Kristen Stewart – Credit Suisse: Okay. And then –?

Yes, go ahead. Kristen Stewart – Credit Suisse: You can finish. Sorry.

So – and again, any material issues with respect to positions that we’ve taken on our tax returns that have been filed would be described on our periodic filings. Kristen Stewart – Credit Suisse: What would those material issues be that you have disclosed on the position side?

. : Kristen Stewart – Credit Suisse: Okay. And then, just on the overall market growth, a year ago you were all talking about Easter having a negative impact on the growth rates. That would kind of infer that this quarter would have easier comparisons. Would you generally agree with that kind of looking at selling days and physician holidays and everything else that we had talked about last year as being a contributor to some of the more depressed comps a year ago?

Yes, we would agree with that. I think last year we talked about that impact in growth rates in Hips and Knees by about a point. So, we would have lost a point in the first quarter of last year and picked that up in the second quarter and that is what leads us to comment on the comps with respect to Hips and Knees being a bit tougher as we move into the second quarter of 2009 and as a consequence, as we indicated, expect some softening in Hip and Knee growth rate in the second quarter of ’09 as a result. Kristen Stewart – Credit Suisse: So, your 5% growth that you had estimated within the market I think you had said, is that really effectively more like 4% if you take out that 1 percentage point impact on Easter?

Well the 5% is for the full year, well for the first quarter and then 6% for the full year. Kristen Stewart – Credit Suisse: Is it 5%? It’s probably a little closer to 4% effectively?

It’s for the market. I would talk about our own results and how that impacted us. I can’t speak for the competitors, so I don’t know if it’s a point or something less than a point. Kristen Stewart – Credit Suisse: Okay. And then last question is just, if you could comment on your GPO contracting, how much of that comes up kind of annual basis and what sort of the price levels are you seeing on new contracts?

Yes, we talked in the past about how those GPO arrangements have turns of anywhere from one to five years. They anniversary out periodically and the pricing that we end up with on those contracts is reflected in what we are reporting out on a quarterly basis. So, if you look at the sort of modest erosion in average selling prices we are reporting out for the Americas that provides you with some indication of what’s getting reflected in those arrangements. Kristen Stewart – Credit Suisse: Is it fair to say that the newer contracts have less favorable pricing terms than the older ones?

Not necessarily. There is quite a few significant number of individual pricing agreements in place as well. So, it – I wouldn’t necessarily generalize. Kristen Stewart – Credit Suisse: Okay. Thank you.

Okay.

Your next question comes from Ben Andrew with William Blair. Ben Andrew – William Blair: Hi, good morning gentlemen. Just maybe a bigger picture question as you’ve been through I’m sure a very comprehensive analysis of your sales process and model. If you think qualitatively and I guess if we could quantitatively about the percentage of the company’s revenues in the orthopedic implant business that goes back to surgeons whether in the form of royalties or consulting agreements, can you characterize that before the DPA process and after and how much it may have changed?

Yes, I think the most that we have out in that regard would probably be the website disclosures that were mandated by the DPA and so you can get a sense as to with respect to the U.S. Hip and Knee business, what those numbers look like over the course of that time period, Ben, but as a general answer to your question, I don’t think that there is material change in that regard. Ben Andrew – William Blair: So, as you think about kind of 2010, 2011, you would anticipate maintaining similar types of spending as opposed to rethinking that model more broadly?

I don’t think that the fair market value justifications that were put in place with the oversight of the monitor materially alters the way those arrangements are structured where the compensation that is generated by those structures. So, it’s all activity and needs based, but assuming that we are going to continue to do what we plan to do on the training and education side and there are obviously healthcare professionals that are a very important part of those efforts, as well as on the product development side, I don’t see that there is going to be a material adjustment to the trends in that area. Ben Andrew – William Blair: Okay. Thank you very much.

Thank you.

Your next question comes from Joanne Wuensch with BMO Capital Markets. Joanne Wuensch – BMO Capital Markets: Thanks very much for taking my question. I’d like to go back to gross margin. I mean, you’ve implied that there is a step-down coming in the second, third, and fourth quarter, but could you help me understand are we going back down of the 76, 77 type level, how much of step-down are we looking for here?

We are not going to get to that level of details, Joanne. I – you have the guidance that we provided in – on earnings per share, we provided some very specific comments with respect to what our expectations are on R&D spend and on SG&A. I think you’ll be able to get to a pretty reasonable estimate of what that margin is going to look like that gets you within the range of $3.85 to $4 a share on the top line guidance that we provided along with the additional color that we provided on SG&A and R&D. Joanne Wuensch – BMO Capital Markets: Okay. Can you give us an update on where you are in Hip Resurfacing?

On the Hip Resurfacing side, our status has not changed since the last quarterly call there. There was a question that was posed in the last quarterly call about what that product would look like and our response was it’s likely a next-generation product. So, provided that the solution within the United States market is internally developed, that’s a longer time horizon than what it would have been prior to what occurred last year with respect to the Durom Cup. Joanne Wuensch – BMO Capital Markets: Thanks. Could you give us an update on your sales force? I know you probably had some adjustments last year, where are you on revamping that force?

That force – I mean, the question that’s come up consistently in that regard is concerns about turnover and I would tell you that the trends there have not changed. The stability of our organization continues, any turnover is well within any kind of industry standards and our past experience in that regard. The biggest adjustments that have been made is we’ve augmented our sales management team at the senior level of the organization with Jeff McCaulley’s addition and I think that that transition has gone very well. There has been continuity with the prior leadership as well. So, we feel good about what’s happening in that regard on the U.S. Hip and Knee side. Joanne Wuensch – BMO Capital Markets: But have you started adding people?

Sure, and those adds really take place within the U.S. market at the independent distributor level. And then outside of the United States, we have many markets that are direct. And so, we are always strategically adding sales force within those markets. Joanne Wuensch – BMO Capital Markets: All right. what I'm trying to get at and is what I'm hearing is a more stable environment and more stable relationship with the physician, a stable sales force, and I’m looking for that inflection with new products for you to be adding to the sales force and I’m not hearing you say that kind of stuffs.

Yes, in those – again, those sales force adds are really in conjunction with the areas that we are emphasizing, but the employee additions take place at the independent distributor level within the U.S. structure. Joanne Wuensch – BMO Capital Markets: Okay. Just a final question. You talked about coming back in the OSP area, could you flush that out a little bit on the timing of a product and what it may look like? Thank you.

Sure. Thanks for the question. We have most of the patient care products back up and running and then, bone cement accessories are a priority both for the first quarter and the second quarter. And so, we would expect to have most all of those products back in the marketplace and so, blood management would be the remaining set of products that would come out and it’s our expectation that as this quarter progresses, we will make some significant progress in that regard. All of that, obviously gets us to the point where we can go back and start to compete for that business and we’ll keep providing quarterly reports as to what the success rates look like in those different components of the OSP business going forward.

Regina, in the interest of everyone’s time, let’s take one more question.

Your last question comes from Rick Wise with Leerink Swann. Rick Wise – Leerink Swann: Thanks for (inaudible). Couple of quick ones, just on the gross margin, I don’t know whether you would be willing to quantify the amount of the hedging gain in the quarter so we can sort of see what the underlying margin is?

Rick, I would just look at the improvement in the margin from year-over-year. That largely is a consequence, the hedge gain – well the hedge gains this year relative to the losses that we had last year. Rick Wise – Leerink Swann: Okay. Two bigger, final bigger picture questions. Always appreciating it’s dangerous to extrapolate from individual conversations, just a bunch of recent checks on hospitals and docs suggest that just more interest it seems to us than usual and pushing vendor consolidation more, aggressive contract renegotiations, I mean that’s what that these folks are saying to us. Does all that equal even greater upcoming pressure on price? Is that something that you are seeing or should be – we should be incrementally concerned about?

Well, I think that’s been in play for some time and I would agree that over the – certainly over the course of last year, we saw that pressure intensify a bit and as a consequence, you saw our ASP – some erosion in ASPs in the back half of the year, but negative price go from where it was maybe flat in the Americas to between half-a-point and a point negative in the back half of the year. And again, that’s what we saw as well in the first quarter. So, it has intensified a bit, but again it’s at this point that’s what you are seeing reflected in the price erosion that’s being reported. Rick Wise – Leerink Swann: Okay. So, it’s not getting incrementally worse at this point anyway?

They are tough conversations without a doubt and our independent distributors working together with our contract management people are working hard through those negotiations. We are providing as much support, try to get those conversations focused on clearly the benefits that these products offer to patients and with respect to the new technology, which is sometimes where those conservations are focused, the clinical benefits that these technologies offer. Rick Wise – Leerink Swann: Okay. Last, just appreciating this is – during this transition period, you are using this time to just aggressively in the future, any updated thoughts on those strategic funds to acquisitions, are there acquisitions of technologies or products that are on your front-burner or are you basically done for the moment? Thanks so much.

Thanks for the question, Rick. Our strategic direction on the external development side hasn’t changed from prior conversations that we’ve had. There are particular areas that we are looking at and we are not going to be exclusive about those, we are always looking to license technologies that we think can augment our existing product portfolio or address unmet clinical needs on a go-forward time period and then of course with respect to the smaller business units, there are some specific things that we would like to achieve on the external development side to augment their growth rates and be able to execute our strategic plans to develop critical mass in those areas. And so, that story has not changed and our area of focus hasn’t changed and I wouldn’t describe our activities as anything, but continuing to be active in that regard. Rick Wise – Leerink Swann: Thanks so much.

You are welcome. Well, thanks again everyone for joining us today and for your continued interest in Zimmer. We look forward to speaking you on our second quarter conference call at 8 AM on July 23rd. So, I’ll now turn the call back to you, Regina.

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