Zimmer Biomet Holdings Inc (ZBH) 2004 Q4 法說會逐字稿

Welcome, everyone, to the Zimmer fourth-quarter and full year 2004 financial results conference call.

I would now like to turn the conference over to Mr. Ray Elliott.

Mr. Elliott, please begin.

Good morning, everyone, and welcome to the Zimmer fourth-quarter and full year 2004 conference call.

We're pleased to be hosting this call to discuss the strong fourth quarter and year.

This quarter also marks our third full calendar year as a public company, but more important our first quarterly apples-to-apples comparison with Centerpulse as part of our family.

We continue to make excellent progress and we continue to love what the numbers say about the deal.

Joining me on the call today are Sam Leno, are Executive Vice President and Chief Financial Officer, and Jim Crines, our Senior Vice President and Corporate Controller.

I hope you received a copy of last night's earnings release, if not you can obtain a copy from our website at www.Zimmer.com.

Alternatively please feel free to call Sam, Mark Osterman (ph) or myself.

We'll begin today's call with comments related to our fourth quarter and full year 2004, including an update on operations followed by a Q&A session.

All results discussions are based upon the asset method of accounting for instruments and all comments and comparisons are on an adjusted basis.

Further, all discussion, unless otherwise noted, excludes acquisition and integration expenses, certain tax benefits and inventory setup.

We will include our usual sequential analysis on a combined basis where they can provide insight.

We'll only communicate references in the quarter or year to Legacy, Zimmer or Centerpulse stand-alone performances where they provide useful or unique insights.

Unlike previous quarters in 2004, there will be more significant commentary below the sales line on a detailed P&L basis consistent with our pre-acquisition format.

We will try to maximize the use of your time in the busy earnings season while maintaining high-quality disclosure.

As always, I wish to thank our new Zimmer team, both Legacy, Centerpulse and Zimmer employees, for the exceptional work.

No one would have realistically expected completeness of integration or the spirit with which it has been carried out.

It's not easy, but 6,617 people were here on December 31, 2004 making both the Centerpulse and Implex acquisitions work.

At this point we couldn’t be more pleased with the results, but more on integration later.

As our press release indicated, we take very seriously our commitment to deliver on expectations.

We indicated that we would hope to deliver a minimum of 10 percent growth on the top line for the first 2 full year's, 2004 and 2005, and 20 percent or more growth in EPS for 2004; 20 to 25 percent for 2005; and the potential to exceed 25 percent for 2006.

So far we've kept our pledge and we plan to do so in the future years.

In fact, two points worth noting -- one, this is our third full year completed as a public company and our third year in a row with a 30 percent plus EPS growth; and secondly, 2004's $2.41 EPS is 50 cents over the $1.91 stand-alone Street estimate at the time of the deal was announced.

That's 50 cents over an EPS -- also includes the dilutive effect of almost 50 million new shares issued.

Let's take a look at the fundamentals of our fourth-quarter and full year P&L and balance sheet performance.

Consolidated sales for the fourth quarter were 801 million, an increase on a combined basis of 14.2 percent to prior year and a 90 basis point increase sequentially over the prior quarter.

The 801 million was 18 million or better than 2 percent above First Call consensus expectations, although about half of the overachievement was related to a somewhat weaker dollar.

On a constant currency basis sales to prior year grew 11 percent.

Excluding distributor restructurings, global constant currency total sales grew faster on a day rate basis in the fourth quarter than they did in the third quarter and faster in the third quarter than they did in the second.

In reconstructive products combined reported sales grew 16 percent in the fourth quarter, exactly the same rate of growth as the third quarter and the second quarter.

More important though, combined reconstructive sales for total Zimmer in constant currency averaged 13 percent growth in the first, second and third quarters of 2004 and 13 percent again in the fourth quarter, despite accelerating and primarily recon related sales to synergies and distributor realignments over the course of most of the year.

In fact, if we adjust the quarters for distributor restructuring then the second quarter outgrew the first, the third quarter outgrew the second and the fourth quarter outgrew both of them on a day rate basis.

We certainly are sensitive to both German and Japanese price weakness that was planned and forecasted, but material underlying recon business declined for Zimmer and volume and mix is simply not there.

We do see less hip revenue and more knee revenue growth, but we can find no underlying hip surgery decline and mix has remained solid.

A careful analysis for Zimmer indicates that the same German and Japanese price decline and distribution structure changes globally accounted for a good part of the sequential decline in hips, not less patients or less mix.

In fact, it's interesting to note with all the major competitors having reported it appears that on both a worldwide and U.S. basis knee market growth has gone up exactly 2 percent and hip market growth gone down exactly 2 percent in two product categories of comparable size.

Other than individual company product cycles, this may have more to do with surgical capacity shifting than anything else.

These implications are temporal but not unexplainable long-term demographic changes.

I can assure you in Zimmer's case, and I suspect the industries', that we are vibrant and alive.

For example, if there was underlying decline in the bellwether U.S. reconstructive business we would see it in the combined Zimmer sales but also without a doubt in the large Legacy/Zimmer numbers.

The new Zimmer U.S. reconstructive numbers grew 21 percent in the quarter with hips up 15 percent against tough comps.

Legacy Zimmer reconstructive sales increased 24 percent in the first quarter, 25 percent in the second quarter, 26 percent in the third quarter and a very strong 25 percent in the fourth quarter with knees up 32 percent and hips up a solid and, I might add, comforting 17 percent.

As has happened so often in the last 2 years, rumors of either Zimmer's demise or the industries' are simply premature.

No analysis to this date can get you there.

Another data point, even if you completely ignore Legacy U.S.

Zimmer, Legacy's Centerpulse reconstructive products improved from +3 percent in the third quarter to a 7 percent growth in the fourth quarter versus a prior year that had no sales to synergies at all.

I think that's enough on domestic data points, let's return to looking at the quarter in total.

The 14 percent combined sales increase globally was composed of volume mix growth of 9.4 percent in the quarter.

This number is important; it's almost 100 basis points higher than either the third quarter or the previous three quarter combined average.

It also suggests that in the quarter and for the year Zimmer has held fundamental volume mix share despite the risks and pressures of the acquisition.

To my earlier comments an important point -- for Zimmer global reconstructive underlying volume and mix grew 11.2 percent or a 70 percent basis point improvement sequentially in the fourth quarter versus 10.5 percent in the third quarter and 10.4 percent in the first two quarters of 2004.

In fact, in the fourth quarter of 2003 when he had no sales to synergies or distributor returns at all, global recon volume and mix grew 11 percent or 20 basis points less than today.

Our real combined global recon procedure and mix growth has been sequentially solid and growing despite some shift in knees versus hip surgeries and despite more than $50 million in the combined total of both sales to synergies and distributor returns over the same period.

That's why we feel good about our quarter, our year, our deal and the industry.

Worldwide price improvement for the quarter for Zimmer remained firm at 2 percent, the same as prior quarter; a weak 2 percent with Japan as reported or a strong 2 percent with Japan annualized and within our forecasted range of 2 to 3 percent.

The Americas was steady at positive 4.2 percent, although we believe still a little higher than the 3 to 3.5 percent we ultimately have forecasted.

The 4.2 percent positive price in the Americas this quarter is approximately the same as the last four quarters prior to this one, averaging 4.3 percent.

Global price of +2 percent now includes the full impact of Japan at -4 percent, Germany at -6 percent and, due to the government's distribution of price reductions, hips more negatively impacted than knees.

But in the end for Zimmer we are where we guided and planned our business to be.

Although we don't normally disclose sub categories of price and really make no promise to do so in the future, for the year price for total global Zimmer was +2 percent with knees at 3 percent; hips at 1 percent, 2 points less than knees as already described; other joints at 5 percent; trauma at +3 percent; dental at +4 percent; and surgical products at +2 percent.

But if you annualize Japan, obviously it's closer to +3 percent for 2004.

As a reminder on an important contractual note, we have completed most of our large hospital buying agreements for hips and knees with pricing conditions consistent with prior years but technology upgraded and carveouts improved along with compliance.

These agreements are not price increase speculation, but are completed negotiations for several hundred institutions for the next 2 to 3 years.

Our ability to carve out unique Zimmer products and techniques such as Trabecular Metal and MIS as well as a reduction in the number of suppliers will be long-term beneficial.

Our efforts to quantify MIS economic benefits into improved hospital per patient profits, an increased market share gain for those hospitals participating, should help create an ongoing, balanced and more mutually beneficial relationship.

For the fourth quarter, as with the third, Europe operated with negative price of a little above -1 percent, as expected, and Asia-Pacific improved to -2.6 percent from -3.8 percent last quarter with Japan's predicted changes settling in at -3.6 percent for Zimmer.

If you correctly analyzed the effect of Japan, include the U.S. environment as we know it, add the negative implications of Germany and later date France, our pricing should be and is approximately 2 percent positive with hips more negatively affected than knees and Europe and Asia more negatively affected than the Americas.

While our Zimmer price data is pretty refined in detail there simply is nothing new here relative to our ongoing guidance.

For the full year 2004 sales were 2.98 billion, up 15 percent combined and 11 percent constant currency.

As mentioned earlier, our plan when we announced the Centerpulse deal was try to remain at approximately 10 percent sales growth for the first 2 years despite sales of synergies, distributor realignments and a larger, slower growth Centerpulse Europe.

On a year-to-date basis we are currently ahead of that pace on both a U.S. dollar and constant currency basis.

Our combined Americas business delivered excellent growth in the quarter at 16 percent, up 100 basis points sequentially from the previous quarter and with Legacy Zimmer remaining consistent at more than 20 percent growth while Legacy Centerpulse improved from -1 percent last quarter to +4 percent this quarter.

For the year, as with last quarter, the Americas growth -- 16 percent.

Combined Europe delivered at 14 percent reported and 5 percent constant currency.

That's a meaningful 5 full points above the prior quarter.

Adjusted for onetime distributor realignments, our Europe business remained solid in the face of considerable change and we believe in the aggregate equal to or slightly above local currency growth rates.

On a year-to-date basis combined Europe sales increased 14 percent reported and 5 percent constant currency.

For your reference we did construct the final changes in our European distribution network related to Scandinavia.

In Asia-Pacific sales grew by 7 percent reported and 3 percent constant currency with the geographic mix being the story.

Japan grew at only 2 percent with a combination of -4 percent price due to the government reductions and an additional -2 percent negative due to a key distributor change already included in our forecasted sales to synergies.

The anticipated Japan changes were offset by strong growth in the balance of Asia +17 percent led by Greater China, Australia and Korea all at 19 percent growth.

For the year Asia-Pacific grew 13 percent reported and 5 percent constant currency or at market excluding distributor realignments into synergies.

On a worldwide basis for the total Company we expected to lag both geographic and product markets for the first 2 years post the Centerpulse deal.

At 15 percent reported growth for the year overall and 11 percent constant currency, this has not turned out to be the case.

At 17 percent combined reported growth in recon for the year and 13 percent constant currency, we still could be actually taking very small amount of share despite integration to synergies and primarily recon oriented distributor changes.

We anticipate losing $50 million in sales to synergies and we finished the year between 40 and 45 million in the quarter including both realized or future anticipated.

We are planning modest recovery of sales from cross training benefits, distribution changes and other strategies that should accrue to our favor mostly beginning late in 2005 and extending through 2006 and 2007.

I'll return to some detailed geographic and product sales analysis in a few moments, but the heart of the Centerpulse deal, at least for the first 2 years, is devoted to early accretive earnings per share.

On that note, as with our underlying sales, we continue to both reap the current benefits while being simultaneously excited about the future possibilities.

In our first real apples-to-apples comparative quarter with the Centerpulse acquisition, adjusted diluted earnings per share for the fourth quarter were very strong at 71 cents on 248.4 million outstanding diluted shares or an expansion of approximately 3 million shares in the deal closing.

For the quarter we delivered a diluted EPS increase of 39 percent over prior year and 7 cents better than the First Call consensus EPS estimate of 64 cents.

The story remains clear -- the acquisition of Centerpulse was not only accretive on an adjusted basis the very first day after closing, but, as we commented earlier, has helped contribute to final 2004 EPS results that are 50 cents greater than the stand-alone Street 2004 estimate of $1.91 at the time of the deal announcement and that's despite issuance of almost 50 million new shares.

Based on our current number of diluted shares outstanding and final results for the year, we have delivered more than a $100 million increase in adjusted net earnings in 2004 versus the original Zimmer standalone expectations.

For the year diluted EPS on an adjusted basis was $2.41 and up a very strong 34 percent on 247.8 million average outstanding diluted shares; marking our third consecutive full year as a public company with compound diluted EPS growth rates at 30 percent or better.

We're obviously very pleased with the new Company's efforts to drive the P&L, attack integration synergy targets early and create cash while simultaneously finding new opportunities for the future.

We will always emphasize our trademark focus on gross profit margins, incremental earnings contribution from new sales and cash flow.

We have certainly surpassed in only a little more than 1 year a meaningful Legacy Zimmer metric, the 75 percent gross, 30 percent operating and 20 percent net margin results combination.

Combined gross profit margin in the quarter exceeded our own expectations again and matched an all-time record of 76.8 percent, up a whopping 270 basis points from the fourth quarter 2003 directly related to price improvement, geographic mix, product mix, manufacturing management and continued vertical integration in the U.S., Switzerland and Puerto Rico.

On our first real comparison basis gross profit dollars grew by 18 percent in the quarter on a 14 percent sales increase.

Despite the Legacy Zimmer Centerpulse content we believe that at almost 77 percent our gross margin is certainly the best in the industry.

The highest recorded gross profit for the Legacy Zimmer prior to Centerpulse was 76.1.

Finally after a full year we can provide some real quarterly apples-to-apples individual line comparisons on the P&L and particularly in operating expenses.

SG&A expenses and total operating expenses for the quarter as a ratio to sales were excellent at 38.5 and 44.4 respectively.

At 38.5 percent SG&A costs increased only 8 percent versus prior year despite a 14 percent sales increase.

The 38.5 percent SG&A ratio is a significant 240 basis point sequential improvement over the 40.9 percent ratio recorded in both the third quarter 2004 and the fourth quarter 2003.

The actual increase in SG&A absolute dollars from the fourth quarter 2003, excluding the Implex acquisition, was $20 million on a sales improvement of about $100 million indicating a fully loaded expense cost of only 20 cents to acquire each new sales dollar.

This makes growth at these cost rates an attractive proposition and easily supports our belief that while we are passionate about our innovation and marketing leadership, we are also the low-cost producer, the low-cost distributor and the low-cost acquirer of new sales.

It also gives us confidence that if price did contract at some unknown future date, Zimmer is in the best position to capitalize on share growth profitably.

Over the next 2 years starting from year end 2003 we continue to forecast being able to reduce SG&A by at least 200 basis points with this quarter's performance being a nice installment towards that goal.

We expect with the management of 146 projects and a number of external relationships that our R&D ratio to sales this quarter at 5.9 percent again will remain in the 5.5 to 6 percent range.

In the quarter R&D represented a 27 percent increase in spending over prior year quarter, almost double the current rate of sales growth and an absolute (indiscernible) sequential increase of approximately $6 million from third quarter 2004 and almost exactly $10 million from prior year fourth quarter.

These investments in R&D will prove to be essential if we are to continue the current pattern of delivering more than $500 million per year in new product sales.

Total operating expenses for the quarter at 356 million represent a real growth of only 9.7 percent to prior year quarter, despite a 14 percent sales growth and including the addition of almost $3 million in quarterly Implex expenses not present in the prior year quarter.

For reference in the fourth quarter actual acquisition and integration costs were $14 million and finished the year at 81 million.

We are pleased and encouraged by the fundamental structural design that we have put in place for Zimmer.

And specifically our ability to create significant and ongoing leverage, not just acquisition related for 1 or 2 years but for several years.

Combined operating profit in the quarter reached 259 million, an all-time record by more than 40 million and the first time we have ever produced more than a quarter of $1 billion in operating profit for any 3-month period.

We were very pleased to reach a 32 percent adjusted operating profit ratio of sales in the fourth quarter, up sequentially by 230 basis points from the third quarter 2004, but most importantly up 440 basis points from the 27.9 percent recorded in the fourth quarter of 2003.

As previously mentioned, Zimmer was redesigned long before Centerpulse to produce approximately 50 cents of operating profit for each new sales dollar.

In our first quarter of apples-to-apples comparison we delivered 63.2 million more operating profit dollars on 99.5 million more in sales or 64 cents of operating profit on every new sales dollar.

That is a period-to-period incremental profit creation that we believe is unmatched anywhere else in major medical devices.

Operating profit for the year has reached 904 million, well ahead of our expectations, and now with a full year 2004 ratio to sales of 30.3 percent.

Zimmer has been a very limited user of EBITDA as a comparator due to its non U.S.

GAAP designation.

However, with the Centerpulse and Implex acquisitions and the relative implications of interest, depreciation and amortization it should continue to be useful for our shareholders during 2004/2005.

EBITDA in the fourth quarter improved to 38 percent as a ratio of sales on an adjusted basis.

A significant improvement of 150 basis points sequentially from the third quarter 2004 and a 440 basis point improvement from the fourth quarter of 2003.

EBITDA is already providing more than 50 times interest coverage after only 15 months of debt pay down from the deal closing.

Adjusted net earnings in the period were very strong at 176 million and also an all-time Zimmer record in ratio to sales of 22.0 percent.

This represents a strong 200 basis point sequential improvement from third quarter 2004 and a 430 basis point improvement from the 17.7 percent recorded in the fourth quarter of 2003.

Our fourth quarter tax rate improved by 70 basis points to 30.2, bringing the year's ETR to 31.5 percent versus the 33.4 percent recorded in 2003 or an improvement already of almost 200 basis points year-to-year and some 500 basis points since becoming a public company.

It's a good beginning when you consider that over the next few years we expect to reduce our sustainable tax rate to under 30 percent.

Net earnings for the year 2004 were 598 million producing, as previously mentioned, a diluted EPS of $2.41.

We're pleased with these 2004 results from the progress of the Zimmer Centerpulse Implex integration.

We like the trend and we are comfortable with our public 2005 commitments both low double-digit sales growth and the 20 to 25 percent adjusted diluted EPS growth targets.

At this point I'll provide some brief introductory fourth-quarter cash flow and balance sheet highlights.

Cash flow generated from earnings creation and combined with focused working capital management has always been our story.

It is perhaps even more important as the primary source of rapid debt pay down and, where appropriate, acquisition capital.

Combined operating cash flow for the fourth quarter was at the extreme favorable end of our expectations and an all-time record registering 258 million; our third consecutive quarter over 200 million.

For any company records come and go, but this one beat the previous Zimmer record by $50 million in a single quarter.

With 174 million of cash and equivalents on hand, up 111 million from prior quarter, we have a new net debt position of only $478 million.

The new net debt position is inclusive of both the 2004 Implex cash purchase price and our note payment which together total a little over $150 million.

In the 15 months of combined operations with Centerpulse we have delivered a whopping 1.03 billion in cumulative operating cash flow.

Shareholders equity has increased from 745 million at the time of the Centerpulse acquisition to just under $4 billion today and therefore net debt as a ratio to equity has already been reduced as of 2004 year end to only 12 percent.

For your reference net debt to total cap is bordering on single digits.

Our fourth-quarter combined working capital statistics continue to perform well.

Combined inventory days performance is within Zimmer's normal range and particularly strong for this point in the acquisition.

Our combined inventory days on an apples-to-apples basis -- i.e., excluding any inventory step up -- are 258 days, down 19 days from the normally higher summer period in the prior quarter.

Our industry-leading receivables collection will continue to provide support for strong cash flow production in the new Zimmer.

In the fourth quarter we delivered global receivables at a very respectable 59 days, a nice improvement of 4 days from prior quarter, 3 days better than prior year, and our first time back below 60 days globally since the acquisition.

With hospitals as our customer and a very large European business, the improvement to under 60 days is notable.

Combined America's receivables results also improved to 38 days, again a notable performance.

Perhaps equally interesting, we have already been able to reduce the combined Zimmer/Centerpulse U.S. restrictive receivables in the quarter to 34 days.

Payable days were well managed at 64 days, 1 day better than prior year, and, as always, where they belong, above receivable days.

Let's review the quarter sales in a little more detail.

Reconstructive sales for Zimmer is a revenue recognition of hips, knees, shoulders, elbow and dental implanted into patients during the reporting period.

For the fourth quarter worldwide reconstructive sales on a combined basis increased to 664 million, a 16 percent increase over prior year, a sequential increase of $90 million from the prior quarter and the same reported increase as both the second and third quarters.

As mentioned earlier, an important and consistent constant currency growth of 13 percent.

Although we make no promises to continue to disclose beyond this quarter, it may be helpful for you to know that the worldwide Legacy Zimmer had another solid 20 percent plus reported recon growth while worldwide Legacy/Centerpulse recon growth improved from 3 percent last quarter to 9 percent this quarter.

Globally knees grew 21 percent reported in the quarter and hips 11 percent.

At this point inside hips are a good market, but knees are a great one.

Although as discussed earlier for Zimmer, Japan/Germany pricing on the Japan distributor change are more negatively hip affected.

For the year combined recon growth was 17 percent.

We're pleased with the progress contained in these results versus both the total market and the three primary competitors who have already completed their public reports.

Zimmer America's recon growth of 21 percent should beat the primary competitors particularly given the tough comps.

The combined Centerpulse/Zimmer effort remains cumulative ahead of schedule and ahead of plan.

Let's take a look at each global product category and geographic segment a little more closely -- first in products.

In the knee category on a worldwide combined basis in the quarter knee sales for Zimmer increased by 21 percent versus prior year to 327 million and 18 percent constant currency; an important 4 percent acceleration versus the third quarter and that's despite the impact of Europe's final distributor changes, Japan's bi-annual pricing decrease and declines in the former Centerpulse's unit spacer.

For the year combined knees grew 19 percent reported and 15 percent constant currency, very solid results.

We can report that for the quarter all femorals increased 21 percent versus prior year, all articulating surfaces 17, all tibulas grew 20 percent, all patellas grew 23 percent.

From a brand point of view, Zimmer's NexGen LPS-Flex is certainly the right place to start.

The world's top selling high-flex knee continued its 2-year long run trend again with an explosive 74 percent increase to prior year in the quarter.

That's versus last quarter at 71 percent growth, an average growth of 65 percent for the year and 50 percent growth most of last year.

It's no coincidence that the LPS-Flex is the knee of choice for our new MIS Mini and Quad-Sparing total knees.

We're also very pleased to announce the January release of the LPS Prolong cross linked poly articulating surfaces with the first surgeries completed in December.

CR Prolong is already trending to annual sales of 25 million and Zimmer sells twice as much PS as we do CR.

The new Zimmer CR-Flex knee is also a special story.

With $4 million in total sales after 3 months of introduction in the fourth quarter last year, CR-Flex femorals alone delivered sales of more than $12 million in the fourth quarter this year, a 32 percent sequential growth to the previous quarter and a 203 percent increase to prior year.

The patented minus sized femoral components in the CR-Flex system have been utilized in 35 percent of surgeries as a unique soft tissue balancing process that completely avoids, amongst other issues, the inventory doubling associated with some other systems that are seeking finer increments in the surgical sizing process.

The new CR-Flex mobile bearing is now in full development.

We believe that in cruciate retaining units we are still growing at least 5 percentage points faster than the market, and with PS and CR combined Zimmer high-flex femoral components alone have annualized sales of over 125 million despite still being less than 20 percent of our own Zimmer primary knee mix.

A few more highlights.

Legacy Centerpulse Innex knees were up a strong 28 percent in the quarter.

We will be marketing the Innex as a key MIS quad-spring offering in Europe.

Historical Zimmer brand UNIs are up 22 percent in the quarter and have returned to life with the new Zimmer high-flex UNI just released.

The new Zimmer UNI is the industry's first high-flexion single compartment knee with intermedulary, extramedulary, and new spacer block options for resection.

Mobile bearing and Trabecular Metal versions will follow.

Annual sales for all Zimmer unit products continue to be well over $50 million.

The patented Zimmer RHK rotating hinge continues to take share with increased sales of 28 percent in the quarter and our new most segmental MST (ph) segmental oncology system from the Legacy Centerpulse business increased by 64 percent in the quarter versus only 40 percent last quarter.

Trabecular Metal mono-block tibial trays have continued to take off as surgeons non only recognize the value of the material, but the inherent lack of micro motion and therefore reduced probability of tibial osteolisis and revision.

Trabecular Metal tibial trays increased by 54 percent in the quarter versus prior year and, along with TM patellar implants and TM knee augments, delivered an annualized Trabecular Metal run rate in knees of 44 million.

This could easily be 50 million on the tibial alone if we could keep up with demand.

As we mentioned last quarter, we have approved and initiated expansion of our New Jersey-based Zimmer Trabecular Metal Technologies manufacturing capacity to 30 reactor units from the current 18 by June.

We expect to comfortably exceed $100 million in total Trabecular Metal sales for 2005.

For those of you following the FDA down classification of mobile bearing knees, in June 2004 you may recall the panel made a positive recommendation, but in October the FDA turned down OSMA's petition indicating that they will accept an amended petition to include some special controls.

This work as begun.

With Zimmer's LPS-Flex mobile IDE complete we expect to be on the market in 2007 regardless or much sooner if the FDA approves the amended petition.

Zimmer plans to have the world's largest mobile bearing offering including the UNI-Flex mobile, the LPS-Flex mobile, the CR-Flex mobile, the NX mobile and the natural knee mobile, all supported by advanced prolong crosslink polys, Trabecular Metal and fast low-cost MIS navigation techniques.

There continues to be excellent progress in new data points on the Zimmer minimally invasive knee front, particularly in training, utilization, computer-assisted developments, new products and instrument deployment.

And I'll update those activities a little later.

Let's switch to hips.

There has been continued background noise on potentially reducing (indiscernible) hip demand over the last two quarters, but we continue to only mostly observe specific government pricing formats, product cycles by competitors, and a surgical capacity limit that appears, on the surface at least, to be increasing knees at a corresponding rate to the industry reduction in hips.

While foreign exchange, price and mix will always be variables, we have not seen underlying patient demand decline.

On a worldwide basis in the fourth quarter hip sales increased 11 percent to 286 million and 7 percent in constant currency.

The 11 percent growth this quarter compares to 14 percent last quarter, but was up against the toughest Zimmer prior comp in 3 years at 22 percent in fourth quarter 2003.

Legacy Zimmer hips grew a solid 13 percent including an important 17 percent growth in the Americas while Legacy Centerpulse improved to 8 percent growth after two quarters in a row at 4 percent growth.

In Zimmer's case Germany and Japan pricing and distributor restructurings represent a part of the entire change along with a little stronger than historical growth in poly-cemented and European stems.

We continue to be very encouraged with hips with our new company after our first year together.

Our enthusiasm is based on the potential breadth of MIS, hip resurfacing, Trabecular Metal, advanced polys, the positive outcomes for compatibility testing between the legacies brands and the potential for per patient profit improvement we believe we can help deliver to hospitals.

Zimmer fiber metal tapers, along with the new ML taper, are the stems of choice for Zimmer MIS Mini and two-incision hip surgery.

In the fourth quarter, these two stem families grew a gain by more than 30 percent, bringing the combination of fiber metal ML silver $100 million per year annualized.

The entire porous stem market is not growing at 30 percent this quarter.

As we have noted so many times in our press releases, for Zimmer, MIS brings in new business.

Centerpulse's Alloclassic taper with nearly a $50 million per year sales base grew exceptionally well at 20 percent in the quarter, and this is without MIS instrumentation that we plan to release over the next few months post AA OS.

A clinical paper was published by Dr. Kevin Lester in the JBJS British comparing our original 25-year-old Alloclassic (indiscernible) with the SL-PLUS from Endoplus.

The original Alloclassic had material better clinical outcomes, and that's a marketable story.

The CLS Spotorno, up in the quarter 14 percent to almost $10 million in sales, has just been honored with the best cementless results in the latest publishing of the highly-regarded Swedish tip registry; the results were 100 percent survival rate after 10 years.

Our VerSys beaded 6, 8 and 10 inch stems grew at more than 22 percent in the quarter, continuing to take market share from the beaded stem leader.

At current rates of growth the Zimmer porous primary hip stems will exceed an annual run rate of more than $330 million.

As mentioned, Zimmer primary acetabular shells increased from prior year with a growth of 16 percent.

Porous cups increased 17 percent with strong showings from the legacy Centerpulse Allofit shell up 19 percent.

Trabecular Metal cups continue to thrill us, with sales of more than $10 million in the quarter, an increase of more than 120 percent.

Needless to say, we are very happy with the purchase of Implex in April.

During 2004, Trilogy brand cups including standard, HA, ceramic and Trabecular Metal, have grown 18 percent in units to more than 100,000 units implanted.

The Duron (ph) cup, including our hip resurfacing option available only ex-U.S. grew an amazing 427 percent to quickly become a new $10 million product line early in its life.

Here is one of our favorites, of course.

Despite extremely tough comps for more than 4 years, significant internal penetration and U.S. ceramic and ceramic competition, good old premium price longevity, highly cross linked polyethylene liners, increased by yet another 20 percent.

Not only is the growth rate higher than other (indiscernible) alternate bearings, but the base of sale is very different.

Our longevity product line will combine with Durasul and other Zimmer alternate bearing surfaces annualized at more than $100 million per year.

As noted in an earlier press release, we do believer ceramic and ceramic (ph) can be a good niche product alternative for the young active patient.

Using our own analysis we would expect that current prices for ceramic and ceramic to assume about 6 to 7 percent of the market.

Based upon our desire to provide a full-service (indiscernible) on alternatives, we completed our agreements with CeramTec AG and on December 13, 2004 filed a 2000 page PMA.

Our PMA has been accepted as fileable by the FDA and we have received a list of compliance questions for response.

The time clock has started.

We rarely talk much about bone cement; it's approximately a $100 million domestic market, but for Zimmer we have forever had a disproportionately low 7 to 8 percent of the market compared to some 30 percent in actual recon market share.

More recently antibiotic cements have made a strong showing a the U.S. after years of success in Europe and elsewhere.

We are pleased to announce the signing of a 2005 U.S. co-exclusive and a 2006 forward U.S. exclusive on Palacos bone cement products including antibiotics.

The agreement with Zimmer was reached on December 17, 2004 with Heraeus Kulzer GMBH after Kulzer had made the decision earlier to provide notes (ph) to its previous U.S. distributor.

As with prior quarters, there is much new activity with MIS hip, and I'll cover these exciting additions to our story under a separate section.

In upper extremity joints Zimmer's Bigliani/Flatow shoulders continue to grow worldwide with more than 19 percent increase in the fourth quarter despite an array of competitive new products.

During November we released the Elgenics (ph) finger implant system in Europe and delivered the Trabecular Metal glenolate (ph) for developing surgeon technical review.

Current combined extremity sales exceed $60 million on an annual basis.

To close out reconstructive, our dental business finished the fourth quarter with sales of 36 million, up 21 percent reported and 18 percent constant currency.

In the quarter prosthetic implants and surgical implants increased 18 percent and 20 percent respectively led by the Swiss plus and internal hexes at 70 percent and 35 percent growth respectively.

Biological sales of dental collagen, graph and membrane grew by more than 40 percent and Puros block allograft was successfully launched domestically during November.

For the year our dental business performed extremely well with sales in 2004 of almost 125 million, up 25 percent reported and 22 percent constant currency.

While the rebranding to Zimmer continues within the dental group, major marketing initiatives for UNI body implants, a California-based Zimmer dental institute, soft tissue graft strategies, assessment of our potential to use Trabecular Metal and minimally invasive surgery supported by (indiscernible) construction are underway.

These strategies, this time for dental, all sound vaguely familiar.

On a worldwide basis in the fourth quarter trauma sales grew as expected, only 2 percent.

Given some competitive high teens or better gross for the quarter, we should continue to lose share until we deliver new products for mid 2005.

With only a limited field release of our unique Vuller (ph) radial and (indiscernible) femoral perilocking plates, some other new products have been carrying the load.

The ITST (ph) nail went from modest sales to more than 12 million plus annualized but grew in the quarter by 52 percent.

For reference ITST type nails continue to be reimbursed in the U.S. at higher rates than compression hip screws adding to their attractiveness.

However, our total offering of Zimmer brand IM was relatively flat in the quarter versus prior year.

The former Centerpulse Osiris titanium lateral starting point femoral nail is a great addition to our lineup and should be well received in the U.S.

Compression hip screws remain weak at -9 percent growth while particular plates at +17 percent and cable products at +19 percent help offset the loss.

Our new Trabecular Metal osteonecrosis intervention implant, better known as the AVN-Rod, showed excellent growth in the quarter at 93 percent.

We expect to have the previously mentioned perilocking plates, restore our new resfixitor (ph) super condular (ph) femoral nailing and our new rotator cup patch all ready to go from post AA OS to mid 2005.

Until then we can expect growth to be mostly flat, global Dynesys sales for the year were 173 million, an increase of 7 percent reported, 4 percent constant currency.

Our Zimmer spine division sales increased by 2 percent reported in the quarter to 35 million, a sequential increase of $3 million over the slower summer period and 1 percent constant currency growth as we continue to anticipate essentially flat to prior year sales.

Cape (ph) sales remain firm at 9 million as with prior quarter and now represent only 25 percent of spine deals (ph) versus 50 to 70 percent in recent years.

The new Trinica Select, our anterior low-profile cervical plate system, delivered a 25 percent increase in the quarter.

Dynesys, our dynamic stabilization system, only provided a 15 percent increase as the actual clinical program comes to an end in anticipation of a limited commercial release initiated on January 9th.

We expect 100 or so cases before a fuller launch following the AA OS.

With the approval of our TM-500 and VBR-11 Trabecular Metal vertebral body replacements we registered well over $1 million in sales in the quarter and are quickly, only after a couple of months, straight lining the 6 million annually.

For the year spine sales were 134 million, up 3 percent reported and 1 percent constant currency.

As we've noted several times, until we combine Trabecular Metal and MIS with the new spine pipeline and a few small technology acquisitions, we expect spine to remain roughly flat due to the predominance of declining cage (ph) sales in our mix exacerbated by the strength of Medtronic's INFUSE product offering.

In the absence of acquisitions we hope to reach 10 percent spine growth run rates during the fourth quarter of 2005.

In our orthopedic surgical products division sales increased a very solid 11 percent reported and 9 percent constant currency for the quarter to 58 million.

OrthoPAT, our perioperative autotransfusion system, increased sales by 39 percent in the quarter and will annualize at almost $30 million.

Winn (ph) draining and Winn management both showed excellent performance with 15 percent growth.

Our Limbetec (ph) arthroscopy businesses along with Hall (ph) Power Tools in Japan improved to a combined 18 percent growth.

Our OSP division during 2004 reached 214 million in sales with growth of 9 percent reported and 7 percent constant currency.

Let's switch to only a quick look at new product developments.

We've redesigned the new combined Zimmer pipeline to 146 projects with over $1 million of development each and some 163 projects in total.

Of the 146 projects, 38 our in hips, 35 are in knees, 7 in extremities, 22 in trauma, 4 in ortho guidance, 6 in OSP, 18 in spine, 9 in dental and 6 in biologics.

Of these projects more than two-thirds involve new innovations, new platforms or new technology.

During 2004 we launched 40 new projects including the CR-Flex fixed with HATCP (ph), LPS Trabecular Metal tibials, the Epselon (ph) constrained liner, Trabecular Metal femoral augments (ph), UNI-6 precoat, and since September along TM tibial augments, natural knee patella femoral joints, the Elgenics finger implants, LPS Prolong, restore and distal (ph) radial volar (ph) perital locking plates.

During 2005 we expect to launch a new Trabecular Metal acetabular system, 40 mm trilogy longetivey, compatible metasol (ph) heads with trilogy, an inverse shoulder, a new natural hip for Japan, Alloclassic and CLS MIS hip instruments, the Zimmer patch, the new Revitan (ph) porous system, the remaining perilocking plates and the CR-Flex mobile outside the U.S. just to name a few.

In biologics we've initiated the pivotal neocartilage large animal study that will be the basis for the definitive data utilized to support moving into Phase I clinical safety trials.

As agreed with the FDA, a 12-month follow-up study will be carried out before the application for a biological license or BLA.

New product projects are expected to consistently deliver 15 to 20 percent of Zimmer's sales each year from a rolling 36-month list of new products.

That's 500 to 600 million of sales organically each and every year.

New product sales for the fourth quarter totaled $144 million and represented 18.0 percent of sales, up almost 80 basis points from 2003.

For the year new products contributed $541 million or 18.1 percent of sales.

Let's look briefly at the geographic segments, first in the Americas.

The combined Zimmer Americas had another strong showing in the fourth quarter.

Revenue for the quarter was 456 million, up 16 percent over prior year and 1 percent greater than the 15 percent growth delivered in the third quarter. 12 percent of our growth in the Americas was driven by increases in unit volume and mix and 4 percent growth was derived from price.

Our combined Americas reconstructive growth in the quarter was up 21 percent from the prior quarter's 20 percent growth and delivered 364 million in sales.

This would imply that in the Americas during the quarter Zimmer had 16 percent growth in pure reconstructive surgical procedure units and mix.

In our 21 percent Americas reconstructive growth knees delivered excellent results with a 26 percent increase to 204 million or a sequential growth of 14 million from the third quarter.

NexGen LPS and CR-Flex, UNIs, Trabecular Metal tibial components, Prolong articulating surfaces, Legacy Centerpulse's natural knee, and NexGen LC (indiscernible) revision knees all made substantial contributions to the Americas knee performance.

Hips in the Americas increased 15 percent to 128 million and well above market figures.

We are very pleased with the combined Centerpulse and Zimmer hip growth in the quarter of 15 percent.

Hip performance in the Americas benefited from across the board solid growth in primary porous stems utilized in various MIS procedures; beaded stems;

Trabecular Metal cups; highly cross linked poly, both Longevity and Durasul, augmented by multiple new product releases.

Our dental business in the Americas grew a solid 19 percent in the quarter to 22 million and also above the market.

Based upon our results in the already released public reports of our three major competitors -- Biomet, J&J DePuy and Stryker as well as the remaining market players -- we believe that the reported market growth in the domestic reconstructive products for the quarter should be approximately 15 to 16 percent.

Zimmer's combined Americas reconstructive would appear to be outpacing the domestic hip market and knee market increases by about 4 points each.

Our recon growth has been broad based.

In the quarter for the new Zimmer distributor group, including the addition of our friends from Centerpulse, 20 of 30 distributors grew hips at market or better and 7 of 30 grew hips at twice the market growth rate or better. 22 of 30 distributors grew knees at 20 percent or better and 8 of 30 grew knees at 30 percent plus growth.

Here's a statistic we continue to be proud of, the new combined Americas operating profit margin in the fourth quarter came in at 51 percent or $233 million.

For the year the Americas generated 1.74 billion in sales, 893 million in operating profit or a 51 percent ratio to sales, 50 percent plus earnings ratios are the real payoff for new products, market share gains and efficient operations.

Zimmer Americas group has consistently delivered 50 percent plus operating profits.

Let's look in Europe.

In the quarter European revenues were 228 million, up 14 percent reported and 5 percent constant currency, a solid 5 point sequential gain to the prior quarter's flat growth.

The 228 million in sales was a $60 million sequential gain on sales versus the third quarter.

In the quarter prices for Germany and Austria declined by 6.4 percent and 2.3 percent respectively.

This correlates to our forecasted near-term -1 percent price for Europe in total.

While we do not expect it to improve neither do we expect it to materially affect our entire business.

We have for a long time anticipated German DRG and buying groups as well as modified French tariffs in our forecast of global 2 to 3 percent price.

Reconstructive implants delivered sales of $209 million in the quarter, up 14 percent reported and 5 percent constant currency with hips by far the most negatively affected by German pricing changes and to synergies.

Legacy Centerpulse improved from -4 percent constant currency growth last quarter to +3 percent this quarter.

With the quarter's competitive constant currency reconstructive numbers for Europe already reported in the aggregate at mid to high single digits, it's clear that excluding the most recent distributor reorganizations we are not lagging the European reconstructive market at all.

Positive gains in the quarter reflect a continuing Durasul and Longevity highly cross linked polys, some increased impact to minimally invasive hips in Europe as yet with that Alloclassic and CLS instrument availability, and ongoing market share gains for the NexGen knee brand.

To round out recon, about 30 percent of the dental division sales are contributed from Europe and fourth-quarter reported sales increased by 23 percent and 17 percent constant currency, excellent results.

If we look at the combined Zimmer Europe for the quarter, several of the country businesses performed well on a sales growth basis versus the competition.

In constant currency the UK at 17 percent growth and Belgium, Netherlands, Austria and Switzerland all in the mid double digits, were very strong.

Three of our largest countries -- Germany, France and Spain -- all remain solidly in positive growth territory despite tougher pricing environments.

For the quarter the combined Europe improved operating profits to $86 million, a sequential increase of 34 million and up 31 percent from fourth quarter 2003 with a record operating profit to sales ratio of 38 percent.

Of note, European gross profit margins have increased significantly from fourth quarter 2003 resulting in an improvement to 73.4 percent.

This ratio still has the opportunity to expand even further as marketing strategies and margin related synergies are implemented over the next year or two and provided that price reductions remain relatively contained.

For the year Europe generated $808 million in sales, 279 million in operating profit and a 34.6 percent operating profit to sales ratio.

In Asia-Pacific revenues in the fourth quarter were 117 million, an increase of 7 percent reported and 3 percent constant currency.

These results are respectable since they're inclusive of Japan price cuts, the distributor reorganization of our Southeast Asia business in Thailand and the partial effects of the previously mentioned change in a former Centerpulse Japan distributor.

Asia-Pacific at flat to 1 percent positive price historically and we informed you last quarter that Japan pricing was operating a -3 to 4 percent driving Asia-Pacific pricing to -2.6 percent in the quarter.

This continues to be a manageable outcome.

We believe that the Asia-Pacific market is growing at mid to high single digits in local currencies.

And as a result, net of the synergies and the distributor reorganizations, we appear to be holding our own during the first year of integration.

In the fourth quarter as with the prior quarter our combined Asia-Pacific business was led by reconstructive growth of 6 percent and our Japan Lembetic arthroscopy and Hall Power Tool business grew 17 percent.

We expect Trabecular Metal tibial components, the recently released NexGen CR-Flex knee and the strength of the Centerpulse natural knee for cruciate retaining procedures to continue to improve knee contribution.

The addition of the Centerpulse brands, including a new Japanese natural hip and MIS driven expansion, will help to escalate hip growth.

While our dental business is small in Asia-Pacific, it did deliver another very strong 24 percent sales increase.

Austral-Asia, Korea and Greater China again delivered solid performances with mid double digit constant currency overall growth for all Zimmer product categories combined.

Greater China achieved almost $30 million in sales this year, a nice accomplishment.

Displaying a strong earnings drop (indiscernible) sales, the Zimmer Asia-Pacific businesses delivered $51 million in fourth-quarter operating earnings or a 44.1 percent operating profit to sales ratio and an increase of 4 full points from the prior quarter.

For the year Asia-Pacific achieved sales of 431 million led by Japan at nearly 300 million and total operating profit of $182 million or a 42.3 percent operating profit to sales ratio.

Let's move from products and geographies to hot topics.

Given time constraints I'd like to narrow that discussion down to only three topics -- an integration update, minimally invasive activities for the quarter, and thirdly, what to look for in the Zimmer booth at the AA OS.

Here's a brief update on integration.

Of the 3,364 scheduled milestones required to execute the entire integration, that's up from last month's 3,314, we have accomplished 2,041.

Net sales to synergies have settled and fluctuate between 40 to 45 million annualized incurred or future anticipated.

We believe annualized positive cost synergy will reach or slightly exceed our latest indication of $100 million.

We have changed distribution models in 11 countries with conclusions reached on Scandinavia and Southeast Asia during this quarter.

We have merged all medical education training in Zimmer institute organizations.

We have physically broken ground and completed about 75 percent of the Warsaw and Puerto Rico plant distribution expansions with Winterthur expansion plans initiated.

North American distribution and customer service is consolidated; a new reduced cost master agreement for all air and ground shipments has been negotiated and signed to our satisfaction with FedEx.

Sample forgings and castings for Warsaw and Winterthur have already been built with all 10 NexGen forgings for Winterthur completed for testing in January.

Our new 3-year global tax strategy has already contributed to a nicely improved ETR.

Now let's turn to Minimally Invasive Solutions.

We are always excited about the progress and expansion in our 6-year-old program.

The Zimmer Institute continues to be very busy as we met our goal to train 1,400 surgeons with our key OR staff.

For the year 2004 we trained 1,477 at 18 locations including 5 private contractors.

Final training for the fourth quarter wet labs included 504 individuals with close to 2,000 surgeons trained since inception in March of 2003.

Increased momentum on Zimmer QS quad-sparing training with a total of 716 individuals trained in 2004 led to our success.

MIS 2-incision hip reached a record 540 surgeons and staff trained in 2004 including the inaugural MIS 2-incision with navigation sessions on November 19th and 20th.

During the quarter we added the University of Nebraska and the Alabama Orthopedic Institute to the prestigious list of Zimmer institutes.

We hope to announce another U.S. addition or two and perhaps a famous new European partner in the first half of 2005.

The University of Nebraska will also act as a training sight for electromagnetic computer-assisted MIS quad-sparing knees.

During the quarter live surgery events from Rush Hospital in Chicago, Sunrise Hospital in Las Vegas, the Par (ph) Krankenhaus in Leipzig, Germany and the Schulthess Clinic in Zürich, Switzerland all attracted 100 or more surgeon and OR room log ons while our live MIS orthopedic surgery update from Boca Raton simultaneously broadcast in Florida and Rio de Janeiro, Brazil attracted a onetime off-site audience of over 600 surgeons.

Our surgeon-to-surgeon visitation program for the year reached 651 by our hard-working U.S. surgeon consulting group including 368 visits for MIS hip and 113 for quad-sparing knee which started somewhat later in the year.

We still have 397 visits to be scheduled an executed against.

On a worldwide basis through medical education events live surgery interactive learning tools and the Zimmer Institute, more than 7,500 surgeons have been exposed to our innovative techniques and designs.

Some 100,000 patients and medical staff have been visitors to our Big Blue 18 Wheeler, the Zimmer Mobile Learning Center, in more than 150 stops across the USA just this year.

Call center traffic increased by almost double this year to more than 7,000 conversation with a real focus on MIS.

But it was the Internet that really took off.

Zimmer's own MIS site, pacewithlife.com, in 2004 recorded increased visits to 420,000 hits from 168,000 in 2003.

Find a doc searches for the Zimmer MIS surgeon locator system reached almost 100,000 from only 38,000 in 2003. 13 cities have been targeted for low-cost, high coverage MIS quad-sparing knee DTC exposure including a pro bono CBS television interview expected this quarter.

The Zimmer Institute program is not ultimately just designed for reconstructive surgeons and nurses seeking MIS training.

During December the first MIS course for anesthesiologists, crucial to both clinical pathways and future economic value added productivity marketing, was held under the leadership of Dr. Jacques Chelly.

Dr. Chelly is the Professor of Anesthesiology and Orthopedic Surgery and Vice Chairman of Clinical Research at the renowned University of Pittsburgh School of Medicine.

Dr. Chelly and Zimmer planned 40 mini fellowships during 2005 with a focus on early discharge techniques for the MIS quad-sparing 2-incision and anterior lateral procedures within anesthesiology.

Let's switch now to a specific review of Zimmer MIS hips and knees, first hips.

Efforts are underway for the second half launch of common antero-lateral and post-heolateral (ph) mini hip instruments from what was once duplicated Zimmer and Centerpulse components.

In short, there will be one simple set.

Our MIS hip offerings will be expanded to include 2-incision, both supine and lateral; anterior supine mini; anterior lateral; supine and lateral; and the posterior mini.

If you're doing MIS hips we have you covered with techniques and systems that remain focused on maximizing patient quality of life.

Speaking of patient quality of life, the new Zimmer single-incision antero-lateral, potentially with many of the same recovery characteristics of the 2-incision, will be launched at the 2005 AA OS in Washington.

The technique was pioneered for Zimmer by Dr. Heinz-Rudiger of Munich, Germany and has already received rave reviews in surgery by some of Zimmer's key American hip developers.

Another new technique, the anterior supine, will also be launched in the second half 2005 and no longer requiring the expensive use of a special surgical table making this approach more likely to succeed in the European markets.

On the procedure utilization side in the fourth quarter 2004 the MIS 2-incision increased in the U.S. from 7 percent of procedures to 8 percent and represents about 2 percent of procedures for Asia-Pacific and Europe although with limited instrumentation at this time.

Zimmer mini hip procedures increased in the U.S. from 40 to 42 percent making MIS mini plus 2-incision 50 percent of all Zimmer U.S. hip procedures but only 12 percent and 4 percent in Asia-Pacific and Europe.

To put that in perspective, Zimmer products are involved in more than 200,000 Asian and European hip procedures per year by management's estimates.

What a nice growth opportunity.

Not only are we releasing a patient outcomes oriented anterior lateral at the AA OS, but late in 2005 we'll introduce the very first Trabecular Metal primary hip stem.

What a combination, the potential of TM and MIS together.

On the economic value added aspects of Zimmer MIS hips, we anticipate a first-quarter manuscript submission for publishing and review titled "cost-effectiveness analysis of minimally invasive total hip arthroplasty".

This manuscript will demonstrate significantly higher profit per patient when using Zimmer's MIS 2-incision implants and clinical pathway techniques.

The findings were based on treatment cost data and return to function outcomes for more than 400 patients who received 2-incision, mini, and traditional surgery at 20 different hospitals.

Zimmer 2-incision MIS delivered 20 percent plus improvements in per patient profitability including demonstrated lower hospital and rehabilitative care utilization as well as significantly improved patient outcomes.

The manuscript mirrors the outcomes of another 400 patient cohort already presented by Massachusetts General Hospital at a recent Harvard course.

The side-by-side outcomes will be in a white paper form at the AA OS and will be summarized as part of Zimmer's investment analyst meeting.

Let's shift our attention to MIS knees.

We estimate that 36 percent of total knees performed using Zimmer Legacy knee implants in the U.S. during the quarter used an MIS procedure.

In 2004 over 700 surgeons have been trained on the Zimmer quad-sparing technique at one of more than 60 surgeon training programs held in the state-of-the-art Zimmer Institute facilities.

We estimate that 6 percent of Zimmer Legacy total knees performed in the U.S. in the quarter utilized the quad-sparing procedure; that's a very fast start and more than double the prior quarter.

MIS mini incision total knee initiatives are underway which address market demands for high patient quality small incision techniques.

These initiatives include many incision instruments for Legacy Centerpulse Natural Knee II system and the Innex knee system.

We estimate that 30 percent of Zimmer Legacy total knees performed in the U.S. in the quarter utilized the mini incision procedure.

A multicenter IRB MIS knee study was initiated and patient enrollment is continuing. 300 patients will be enrolled with data collection focused on immediate post op pain, quality of life activities and the impact of MIS total knee procedure on hospital economics.

Additional outcome studies are underway at other sites.

Additionally in 2005 the Zimmer Institute education training programs are being expanded to include Zimmer sub-vastus (ph) and mid-vastus (ph) MIS (indiscernible).

Continuing with technology, electromagnetic kneecap navigation tools were placed on limited release to several leading surgeons in December, 2 months early.

Zimmer electromagnetics will have a preliminary launch at the AA OS.

Our platform campaign is straightforward;

Zimmer should be the first to the market with a real landscape change computer-assist technology.

Zimmer and Medtronics together have made it easy-to-use, portable in both EM (ph) and optical formats and a potentially important part of a cost-effective economic value added system for hospitals.

Lastly on niche (ph), we can't do surgeries, provide innovation or change the patient's world if you don't have instruments.

During 2004 Zimmer placed into the field 2,166 sets of MIS knee instruments composed of 1,297 mini sets and 869 quad-sparing sets.

According to public data, analyst reports and management estimates for MIS knees, our top three competitors, if they were combined together, placed far less.

Our cumulative gross inventory value of minimally invasive instruments placed in the field by year-end will exceed more than $60 million.

Competitive catch-up of this magnitude is, of course, possible but it's tough, it's expensive and it's time-consuming in an orthopedic world that we have absolutely no intention of letting stand still.

Let's switch to a quick look at what to look for in the Zimmer booth at the AA OS.

Our nearly 20,000 square foot two-story booth will be all about patients center solutions through advancing surgeon skill sets and knowledge, building collaborative relationships and supporting innovative and continuous development.

We've built a new and larger Zimmer Institute amphitheater with 10 shows daily Wednesday through Friday.

The theater programs are focused on MIS, electromagnetics, economic value added, high flexion, clinical pathways, Trabecular Metal, and even a little dynamic stabilization for the spine folks.

Our off-site Zimmer Technology suite will do more detailed science projects like poster approach to the same topics on Wednesday and Thursday nights.

What to look for?

A complete suite on the convention floor of MIS and computer solutions including the new antero-lateral 1-incision; the new MIS instruments for Alloclassic and CLS stems; and Quad-Sparing sub-vastus, mid-vastus and medial parapatellar in knees, not to mention new MIS instruments for the natural knee.

Look for the introduction of mobile electromagnetic computer solution support.

Look for Trabecular Metal not just in primary hip cups, but in total irision (ph), spine, extremities and in knees with metal cones, augments, patellar and tibial components.

Look for other fixations -- CSCI (ph) porous, fiber metal, beaded and HATCP.

Look for all three bearing surface and Duron's hip resurfacing for improved international markets.

Look for the natural knee's patella femoral system; flexion will be there too, not just LPS-Flex but CR-Flex and the new Zimmer Flex-UNI; the first two with Prolong poly and the UNI with Trabecular Metal and Prolong yet to come.

We've got new locking science for pari-locking plates, new MIS nailing techniques, a new resfixitor, collagen repair patch.

Look for MIS pain management and potentially a multi-million dollar new cement.

Look for professional education, patient education, practice promotion, practice management, hospital economic value-added propositions.

And don't forget to look for us; we'll all be there, too.

Sam, let me turn it over to you for some additional color on some of the key financial areas.

As you heard from Ray and as you saw in our press release last night, we ended the year with another record-breaking quarter capping off a terrific year of improving margins, increasing cash flow and completing the first and most important year following the acquisition of Centerpulse with the execution of our integration plans well in hand.

I'll do my best not to repeat what Ray has already highlighted; instead I'll address some additional detail in several key areas including foreign currency, gross profit and operating expenses, interest expense and debt levels, acquisition and integration cost, our effective tax rate, cash flow, capital expenditures and, finally, guidance.

The Centerpulse acquisition closed on October 2, 2003.

As a result the fourth quarter of 2004 is the first quarter that we can make comparisons to prior year including Centerpulse without compiling prior year pro forma sales.

The inclusion of Centerpulse in our financial results this year makes reported comparisons to full year 2003 difficult to understand.

As a result I will attempt to clarify both year-to-year and sequential quarter comparisons by describing both reported and adjusted results.

References to earnings for this year and last year will exclude acquisition and integration cost, will also exclude inventory step-up expenses, a tax benefit from revaluing deferred taxes of acquired Centerpulse operations that resulted from a reduction in the Swiss tax rate, and the prior year accumulative effect of the change in accounting principle for instruments.

Several factors contributed to our excellent fourth-quarter financial results, including the underlying sales growth for both Zimmer and Centerpulse legacy products was better than expected.

We continue to overachieve the timing of real-life synergies associated with the integration of Centerpulse into Zimmer.

Careful expense management resulted in our continued ability to improve operating margins while leveraging sales growth.

And finally, sales dis-synergies materialized, but in total were less than expected.

For the full-year 2004, sales increased 57 percent over prior year on a reported basis and 15.1 percent on a combined basis, incorporating Centerpulse stand-alone sales for the first 9 months of 2003.

Contributing to this growth were 2 percent from pricing, 4 percent from foreign exchange, and 9.1 percent from volume and mix combined.

In the area of foreign currency, the U.S. dollar on average continued to weaken against most other currencies.

If foreign currency exchange rates remain unchanged from current levels, foreign currency movement would contribute approximately 2 percent or $68 million to our 2005 sales growth.

As I mentioned during our third-quarter earnings call, we began to implement our new hedging strategies for Swiss-based intercompany transactions in the third quarter.

We now have over 80 percent of our forecasted Eurodollar intercompany transactions hedged for 2005.

We also have over 70 percent of our forecasted Swiss franc dollar intercompany and third-party transactions hedged for 2005.

Using simple forward contracts to manage foreign currency exchange rate volatility, we have a 24-month horizon on our hedging strategies, and we have begun to hedge a portion of our forecasted 2006 transactions.

These hedge contracts are an effective tool to minimize the short-term impact on earnings of rapid movement in foreign currency exchange rate fluctuations.

We utilize our hedging strategies to manage the short-term financial risks associated with these fluctuations, and this in turn provides the opportunity to incorporate these changes into our annual planning process.

Reported gross profit margin for the quarter was 76.4 percent.

U.S.

GAAP purchase accounting requires that the inventory acquired with the Centerpulse and Implex acquisitions be stepped up to market value as of the acquisition date.

Stated differently, the normal manufacturing margin associated with the acquired inventory is not recorded to the P&L.

This step-up expense is then expensed as a non-cash charge to the P&L as the inventory to which it is associated is sold.

After the step-up has been fully expensed, the reported gross profits will return to normal manufacturing margins.

The total Centerpulse inventory step-up recorded as of October 2nd of last year when the acquisition was completed was $95 million, and the Implex inventory step-up recorded in April of 2004 was $7 million.

In the fourth quarter, $1.7 million of Centerpulse and $1.6 million of the Implex inventory step-ups were expensed to cost of goods sold and had a negative impact on gross profit margin of 40 basis points.

This $3.3 million pretax expense or $2.2 million net of taxes equates to an earnings per share reduction of 1 cent in the fourth quarter.

Excluding the effective inventory step-up expense, the adjusted gross profit for the fourth quarter was 76.8 percent, which we believe is the highest among our direct competitors.

It also matches Zimmer's record- high gross profit margin set last quarter.

The growth and mix of new products continued to contribute positively to our gross profit margins.

New products represented 18 percent of our total sales in the quarter.

Also because the growth of our Americas business with its higher GP margins is faster than our European business, we continued to see a favorable contribution from geographic mix.

Continuing improvements in the manufacturing operations were also expected to contribute to future gross profit improvement.

The final $1.7 million of Centerpulse related inventory step-up was recorded to the P&L as a non-cash expense in the fourth quarter.

And going forward, therefore, we have no additional effect on reported gross profit margins in 2005 and beyond for Centerpulse.

The remaining $3.3 million of Implex inventory step-up will be expensed over the next two quarters.

For the full-year 2004, reported gross profit margin was 73.8 percent.

In the 12 months ended December 31, 2004, $59.4 million of inventory step-up was expensed and had a negative impact on gross profit margin of 200 basis points.

This $59.4 million pretax expense or $38.3 million net of taxes equates to an earnings per share reduction of 15 cents for the full year.

Excluding the effective inventory step-up expense, the adjusted gross profit margin for the full year was 75.8 percent.

Reported operating expenses for the fourth quarter were 46.2 percent of sales.

Included in reported operating expenses for the quarter were acquisition and integration expenses totaling $14.1 million pretax or $8.7 million net of tax, 3 cents per share in earnings per share.

These expenses include distributor termination costs, integration-related consulting and professional fees, severance and other integration-related expenses.

Excluding the impact of the acquisition and integration expenses, the adjusted operating expenses as a percentage of sales were 44.4 percent, which represents 240 basis points better than Q3 and 180 basis points better than Q4 of 2003.

For the full-year 2004, reported operating expenses were 48.2 percent of sales.

Included in reported operating expenses for the full year were acquisition and integration expenses totaling $81.8 million pretax or $52 million net of tax, 21 cents per share in earnings per share.

Excluding the impact of these acquisition and integration expenses, the adjusted operating expenses for the full year as a percentage of sales were 45.5 percent.

Reported operating profit margin was 30.2 percent for the quarter.

Excluding the impact of the inventory step-up and acquisition and integration expenses, adjusted operating profit margin was 32.3 percent.

It represents 230 basis points better than the third quarter and 440 basis points better than the fourth quarter of 2003.

For the full-year 2004, reported operating profit margins were 25.6 percent, while adjusted operating profit margins were 30.3 percent.

With our continued strong operating and free cash flow, we reduced net debt, that is total debt less cash, by $140 million in the fourth quarter to $478 million, and reduced interest expense for the quarter to $5.9 million, down $1.8 million from the 7.7 million expensed in the third quarter of 2004.

Since our acquisition of Centerpulse 15 months ago, and including payments of $153 million related to the acquisition and earnout of Implex, we have reduced net debt by $875 million which represents about 65 percent of the Centerpulse acquisition related debt.

Since the acquisition we have spent $259 million on integration and acquisition costs. $161 million of this cost have been expensed to the P&L, with $14 million being expensed in the fourth quarter and $81 million expensed for the full year.

We expect to expense $45 million during 2005, as the majority of the remaining integration activities are completed next year.

For the full year, we have achieved an effective tax rate of 31.5 percent on our adjusted P&L, which is the middle on our guidance range of 31 percent to 32 percent.

For the first 9 months, our year-to-date effective tax rate was 32 percent.

With the completion of the remaining European restructuring activities in the fourth quarter, including obtaining a 10-year Swiss tax holiday for 50 percent of the taxes on increased Swiss manufactured products, our effective tax rate for the fourth quarter was 30.2 percent.

This rate incorporates a true-up to the 9-month effective tax rate in order to realize the 31.5 percent for the full year.

In addition to the effective tax rate from normal operations that is recorded on the adjusted P&L, we are required under U.S.

GAAP to adjust for the effect of the change in the Swiss tax rate on deferred taxes.

This resulted in revaluing the deferred taxes of the Centerpulse operations to the new lower Swiss tax rate.

Consequently, there is a favorable primarily non-cash effect of our reported effective tax rate of $34.5 million or 14 cents per share on the reported P&L.

This event also lowered the reported ETR (ph) by 15 points in the quarter and 5 points for the full year.

The fourth quarter reported earnings per share as 81 cents and includes 4 cents negative impact of inventory step-up expenses and acquisition and integration costs, and also includes 14 cents favorable effect of the lower Swiss tax rate.

The fourth quarter adjusted earnings per share is 71 cents.

The full year reported earnings per share is $2.19 and includes the 36 cent negative impact of inventory step-up expenses and acquisition and integration costs, and the 14 cent favorable effect of the lower Swiss tax rate.

Full year adjusted earnings per share is $2.41, as 50 cents over the First Call consensus estimate of $1.91 that was expected of Zimmer as a stand-alone company when we announced our intention to acquire Centerpulse in May of 2003.

Included in the quarter was approximately 1 cent of dilution from the Implex acquisition.

And the EPS effect of recording a 30.2 percent effective tax rate in the fourth quarter compared to the year-to-date rate of 31.5 percent was approximately $3.3 million or 1 cent per share.

This added tax benefit offset the short-term dilution from Implex.

Operating cash flow was a record $258 million for the quarter, an increase of $89 million over the fourth quarter of 2003.

For the full year we have generated $862 million of operating cash flow, and since the acquisition of Centerpulse 5 quarters ago, we have generated a little over $1 billion of cumulative operating cash flow.

Free cash flow which is operating cash flow less capital expenditures was $184 million for the quarter, $622 million for the full year, and $739 million for the five quarters since the Centerpulse acquisition.

Major contributors to our strong cash flow were better-than-expected earnings driven by improved profit margins, as well as excellent working capital results.

Capital expenditures for the quarter were $74 million, consisting of $33 million for instruments and $41 million for all other property, plant, and equipment fixed-asset additions.

For the full year, capital expenditures were $240 million, consisting of $130 million for instruments and $101 million for all other fixed-asset additions.

The fixed-asset additions for the year were higher than originally contemplated coming into 2004, as a result of completing the acquisition of Implex in April of 2004, as well as our subsequent decision to close the Austin manufacturing facility acquired as part of Centerpulse.

As we have disclosed previously, we are tripling the manufacturing capacity of our New Jersey-based Trabecular Metal technologies division in an attempt to get out in front of rapidly increasing demand for this product.

We are also increasing the manufacturing and distribution capacity in Warsaw and Winterther (ph) and doubling the manufacturing facility footprint of our Puerto Rico facility to accommodate the closure of Austin.

Since the closure of Austin was not included in our original 2004 capital plans, these incremental projects will also increase our previous expectations through capital expenditures in both 2006 and 2007.

As a result of the Centerpulse and Implex acquisitions and a related $608 million of amortizable intangibles recorded, amortization expense was $9.6 million and $39.1 million for the fourth quarter and full year respectively.

Depreciation expense was $37.1 million and $142.2 million for the fourth quarter and full year respectively.

Turning to guidance, as we mentioned in our press release last night, we have updated our guidance including adding additional detail on expectations for several of the interim periods of 2005.

First, let me provide some insight on sales for 2005.

As all of you know, foreign currency exchange rate fluctuations have been highly volatile for the past few years and especially during the last 12 months.

Predicting whether the U.S. dollar will strengthen or weaken over the next 12 months is not possible.

Also the second-quarter 2004 pricing reduction of about 5 percent in Japan together with the changing reimbursement systems in Germany are major factors that we have incorporated into our sales guidance for 2005.

As a result we are maintaining our previous full year 2005 sale guidance within a range of $3,325,000,000 and $3,345,000,000.

This represents sales growth of 11.5 percent to 12.2 percent over the full year of 2004.

Due to the differences in the number of billing days in the first and second quarters compared to last year, two fewer billing days in the first quarter and one additional billing day in the second quarter, and also considering the effects of the anticipated new product introductions planned for rollout throughout 2005, we have provided specific sales growth guidance for both the first 6 months and the last 6 months as well as the first and second quarters of 2005.

Sales growth for the last 6 months of 2005 should be slightly above the full year growth range of 11.5 to 12.2 percent and the sales for the first 6 months should be slightly below this range.

Consequently sales growth in the first quarter 2005 should be approximately 9 percent while sales growth in the second quarter should be approximately 15 percent.

On a per billing day basis growth in both the first and second quarter is consistent at about 12 to 13 percent over prior year.

We achieved a record operating profit margin in the fourth quarter and tied our record gross profit margin that we set in the third quarter.

As a result we are increasing the top end of our previous full year earnings per share guidance by 6 cents to approximately $2.91 for the full year.

This represents an increase over prior year of approximately 21 percent on an adjusted basis.

We estimated that earnings per share will grow approximately 10 to 12 percentage points faster than sales in each of the first two quarters.

This implies earnings per share of 66 to 67 cents in the first quarter and approximately 74 cents in the second quarter.

This updated 2005 guidance falls within our previous expectations for the combination of Zimmer and Centerpulse to deliver a minimum of 10 percent sales growth in 2005, a 20 to 25 percent diluted earnings per share adjusted growth in 2005 as well as the potential to exceed a 25 percent diluted earnings per share growth on an adjusted basis in 2006.

Earnings per share guidance for 2005 and 2006 also excludes the impact of changes in U.S.

GAAP related to accounting for equity-based compensation.

We're still assessing the most effective way to implement this new accounting standard including the timing of when to make this effective change, either January 1st or midyear; whether or not to restate prior years and what method to use to value equity-based compensation.

Using our historic methods of determining the effect of equity-based compensation on earnings per share, the effect on 2004, which will be disclosed in the footnotes to our financial statements when we file our 10-K, is approximately 10 cents per share.

Our tax rate for the full year 2004 was 31.5 percent.

In 2005 you should expect Zimmer to improve upon this rate by about 50 to 100 basis points and by an additional 50 basis points in each of the next few years absent any further change in tax legislation.

As a result of our acquisition of Implex, the expansion of our manufacturing and distribution capacity in Warsaw and Winterthur driven by the decision to shut down the former Centerpulse manufacturing facility in Austin, Texas and the systems integrations within our three major geographic regions we are increasing our capital expenditure expectations for the next 2 years.

Our expectations for property, plant and equipment capital expenditures have increased to approximately $125 to $135 million for 2005.

Our first quarter 2005 earnings call will be held at 8 AM Eastern Daylight Time on Tuesday, April 26, 2005.

Now we'd be happy to take your questions.

Mitch, we'll turn the call back to you.

(OPERATOR INSTRUCTIONS) Katherine Martinelli, Merrill Lynch.

A couple questions.

Ray, I wonder if you guys could just spend a little time on gross margin.

I'm just trying to get a better sense of the sequential gross margin being flat in the third quarter and specifically was there something unusual or onetime related in the third quarter since we've historically looked at that as the seasonally weakest gross margin?

No, I don't think there was anything particularly unusual.

I think you've got two offsetting factors -- well, there's a number of offsetting factors, but here I think are the two primary ones.

Knee margins are higher than hip margins for us and I suspect for most of the industry.

So when you have this kind of mix compared with a higher, if you will, U.S. mix and then offset by the full impact of Germany and in Austria pricing and other things -- I think when you look at those as offsetting factors it ended up being dead even and it was actually dead even to about 3 decimal places strangely enough.

So I think there's a bunch of offsetting factors there relative to geographic mix, price and product mix.

There's nothing unusual in manufacturing or royalties or any of these other areas that are combined; hedges are in there as well.

I don't think there's anything -- Sam, is there anything?

Speaking of hedges, Katharine, because of the way the dollar moved in the quarter, we settle contracts -- foreign exchange contracts in cost of sales and that tends to have a diluting effect on gross profit margins.

It all washes out by the time you get to operating profit.

Because of where we settle those contracts it sort of counterbalances other things that naturally would be improving the gross profit margin.

Okay, great.

That's very helpful.

And you made a comment about test runs or something for the casting and forging.

Are you expecting to see some of the manufacturing synergies tied to Centerpulse in '05 and is that what is partly contributing to the upward revision or is that still more of an '06 story?

We'll start seeing some of that achieve improved performance very late in 2005.

I know those transfers are underway, but we need to sell off what we have first and that's about 250 to 260 days of inventory.

But the bigger issue by far -- in a way the bigger issue will be same as manufacturing benefits occur in 2006.

Okay.

And then one last question if I may.

And Ray, I'm not sure if you're going to want to approach this, but you did make a comment early in the call regarding seeing some of the benefits tied to Centerpulse in '06 and then going into '07 which was the first time I had heard you make any comments about '07.

Can we take that to mean -- expecting to see continued better than normal leverage in the '07 time frame or just any thoughts that you might want to share with respect to how the earnings may look going into '07?

I don't want to get into '07 guidance, but I guess I set myself up with (inaudible).

I think what we're seeing, Katherine, is new things coming about.

The more you get into it the more you learn.

It's not a shifting in other words -- as you can tell from our guidance, nothing has changed in the percent gross we've committed to despite the fact we're bringing in higher earnings.

I think what's happening is as we get into the business and get into it and get more involved we're seeing more opportunities than you can see superficially from the outside or during due diligence or during the first 3 months of setting up the playbook to execute the integration.

It's future opportunities coming out of more knowledge.

There's nothing more magical to it than that.

So could we maybe conclude from that that it shouldn't be a reversion back to your normal goal of midteens type earnings growth on a secular basis, that that -- not necessarily what we would expect in '07?

I don't think we'll ever go back home there.

Great, thank you.

Milton Hsu, Bear Stearns.

A couple of questions, Ray.

Can you just talk a little more about the carve outs you're negotiating with hospitals and how the -- although you have premium pricing on a small percentage of your differentiated products, how that can offset maybe a discount being given on the bulk of primary knee and hip implants?

It depends on the mix, Milton.

What we've been able to do is -- not at list price, but at (indiscernible) less much smaller discounts.

If you take things like Trabecular Metal, if you take MIS which is essentially porous stems and high flex knees and so on, the ability to have really excellent margins and leave that in the hands of the hospital and surgeon for utilization is such a difference from the standard knee and hip pricing you get in many of these agreements that the offset when you mix the dollars together -- and let's assume it's 80/20 -- and it varies by hospital agreement so I can't even give you a relevant mix number.

We do have a target overall in our major agreements to try and get those carve outs up from what has historically been 4 or 5 percent to up in the mid to higher teens if we could actually do that, so close to 20 percent.

And when you run the numbers what you end up with is maintenance of margins -- price kind of consistent with prior years; longer agreements; better technology mix; better story, we hope, to the hospital; and we hope higher compliance ultimately coming out of that.

That's the strategy.

So far it's working very well and we document it pretty heavily.

So, is that higher compliance are hard and fast number, say 15 to 20 percent or is that something you're driving to as you become one of the preferred vendors?

It varies by hospital, so again I can't answer that.

We have compliance targets that range anywhere from 50 to 90 percent that we try to get to.

It depends on the institution, it depends on their policy, it depends on their relationship of the surgeons to administration, it depends on whether the surgeons are employees.

But there are so many variables and compliance as well as loyalty -- surgeon loyalty not only to us but obviously to competitors.

So it's complicated to give you really good generic answers.

Okay.

And just the last question on the gross margin side.

Can you give us a sense of how much gross margin I guess contribution came from vertically integrating the casting and the forging at Warsaw and can we apply that to perhaps the type of improvement we could see on the gross margin line for Europe and Winterthur?

At this point it's a plan, so there's zero because we are still selling old inventory and the first article layout -- state that we're at right now doesn't have any production associated with it so there is no absorption from new production and there is no increase in margin at this point in time.

The increased margin for the future I don't think we'd disclose on a line-item basis.

So there's nothing really I can answer for you there.

The vast majority of the synergies that we were able to record in 2004, Milton, were SG&A and R&D expenses.

Non manufacturing.

Sure.

But I guess when you look back at your Warsaw plant and as you guys vertically integrated casting and forging in-house and brought that in-house, what was the impact there?

And just to get a sense of what this could look like in the future?

The impact was good.

Alright, I guess you're not going to answer that.

Thanks.

Joanne Wuensch, Harris Nesbitt.

I'm going to try the gross margin question a slightly different direction -- if you're functioning at 77 percent in the highest of the industry how high can it go?

100 (indiscernible) percent.

I mean realistically, though.

I think it depends on -- if we continue with this trend, which I think we will, of knees versus hips -- knees have higher margins at least in our business by a couple of points and, as I said, I suspect that's probably true in the industry.

If we can get spine rolling and get it up and selling -- spine actually has higher margins than knees -- if we get all the synergies and vertical integrations in place, if the U.S. mix continues where it is and price doesn't change we have the opportunity to move significant basis points.

How high it can ultimately go depends on the combination of all those factors offset by any potential negatives.

There's not a magic number that we're trying to get to.

Our old number was 75/30/20, as you know, that combination.

But there are a lot of -- to be fair to Milton when he was asking the question -- there are a lot of manufacturing margin opportunities that we haven't seen yet -- executed as yet.

So the opportunities are quite broad.

Whether that gets to 78 or 80 or 77.5 I mean at this point I don't know and I'm not going to share our strategic plan -- margin line with you obviously publicly, but we have potential to expand if we execute well.

That's very helpful.

On a slightly different note, your European sales are still being impacted by Germany and Japan and changes in the distribution sales force.

Over what kind of time frame could we see that solidifying?

I think what we've always said is I think the combination of getting those -- we changed 11 countries in total, many of which were in Europe, as you know, and we've listed them.

The cross training from a documented teaching point of view is pretty much done, but we have to take it into the surgical operating room and a lot of that's in MIS.

And we don't have the MIS instruments ready yet for many of the Centerpulse products, although we're getting there.

If you add all those factors together and then trying to recover the synergies on a by surgeon basis, what we've said, Joanne, is that we don't honestly expect to see much benefit from that until we get into the fourth quarter of this year and really more into '06 because of just the sheer amount of time it takes to produce instruments, to train people, to let organizations settle down, to go back and hopefully recover some surgeons.

You can't do it in a month or two, it's just not possible.

Thank you very much.

Michael Weinstein, J.P.

Morgan in.

It's actually Kim here for Mike, thanks for taking the question.

Just a couple -- actually I just wanted to follow up on Europe before we get off of that topic.

It does seem like we should be poised for a little bit of a growth inflection towards the end of the year.

And I'm wondering just in your internal planning what you think that growth on a more normalized basis can look like maybe with the distributor changes complete and then kind of what MIS can add for Zimmer versus the market in Europe?

Let me understand this.

In addition to our public guidance you'd like our internal guidance?

I guess just more if we look at it as what is a normalized European growth rate and then what do you think that MIS can add -- where you think MIS can go as a percent of the mix in Europe?

Let me try and answer something as opposed to giving you nothing on it.

I really think the growth rate in Europe right now on a local currency basis is somewhere in the mid to high single digits -- get exchange and everything out of there completely just so we're looking at clean numbers.

If you assume that Zimmer traditionally internally on a by country by division basis has not been very happy to look at plans that don't have 1 to 2 points of market share growth on a by country or groups of country basis and then you add a point or so to it for MIS you get yourself up somewhere probably close to double-digit growth over a 1 to 2 year period.

And I think if we could do that I'd be very happy.

Given the fact that when we inherited Centerpulse side of the business over there, which is about twice the size of the Zimmer business, it was flat.

So if you can get it up to anywhere near those kind of numbers we would obviously outperform our global guidance that we've already provided.

Okay, that's helpful, thanks.

And then actually just one on the spine, too, as we move closer to looking at growth in the spine towards the end of '05 and '06, can you talk a little but about what your expectations are for dynamic stabilization and then maybe the timing of the movement of Trabecular Metal into the spine?

And then the last part of that question would be looking at year-over-year R&D increases, what percent -- or kind of how great is the focus on spine R&D within Zimmer?

I'll answer the last part first.

The R&D focus is going to be a higher percentage and probably towards double-digit.

But I don't know if that's particularly meaningful because it depends on what projects we elect to do inside versus making small external technology acquisitions.

So if you were to include somehow the value of the acquisitions into an R&D number it would obviously be a much, much larger number.

In terms of (indiscernible) and Trabecular Metal I'm not going to provide line item goals.

The Trabecular Metal is already at $6 million and I mean we can hardly get any goods out to them and really keep up and we've only got a few products approved.

So Trabecular Metal is endless and, Kim, I don't know if you've been around, but certainly Mike knows this, that when we bought Implex, we've done so well with it and have the means, we actually thought spine was the most interesting area and we haven't even really got there.

Dynesys depends upon an awful lot of IP and marketing issues and positioning issues.

It depends upon positioning versus disc and right now it's indication approve levels are very limited.

So that one -- I mean I don't have a good answer for you.

We like the technology, we think it's a better place to be with degenerative disc disease, but on a line item basis I can't help you.

All of those with contribute to getting the business to 10 percent at the end of the year I hope.

Okay, great.

That's helpful.

Congratulations on the quarter.

Ben Andrew, William Blair.

Just wanted to ask two questions this morning, Ray.

First, on the international side can you talk a little but about some of the initiatives that you're undertaking over there, particularly in Asia, to try to expand your markets -- say China and Korea and some of the outside Japan markets?

But also, second question is on the bone cement deal, if you could talk a little bit more about that, that was kind of intriguing.

I'm kind of limited on the bone cement in terms of confidentiality, but I'll do the best I can on it.

In Asia -- in pure Asia if you will -- the operations now have significantly expanded because, as with our original story on the perfect fit, Asia is no less true than the other places -- relatively small Centerpulse in Japan, big Zimmer.

Both have good operations in China.

We've now merged -- obviously not politically but in a marketing context we've now merged Hong Kong, historic China and Taiwan into what is now greater China and we now have a $30 million operation.

We're expanding distributors, we have operations in multiple cities.

We have in excess of I think it's up to around 70 employees and I'd have to check the employee number but it's quite significant.

We've inherited a large Indian operation and Zimmer was never really present in India at all and that's the reverse side of the perfect fit where obviously Centerpulse is bringing upside.

We like India.

We like China's market a lot better and, in fact, I don't know if you saw it the other day, but there was a great article on what it takes to be in the middle class in China and what that might mean in terms of benefits.

And healthcare is in there end our kinds of products are mentioned in they believe there will 200 million people in middle-class.

So rapid expansion in China is a big part.

And then we're into smaller countries now, but we've got the chance to go in with our export group into, as an example, Vietnam which is a good small market.

So we're doing a lot.

We've got a huge team over there now investing in the future.

Bones cement, just quickly on that.

It's one of the few areas where we just have incredibly small market share and it's been that way for years and years.

It goes back, I believe if I'm not mistaken, to the mid '80s.

It's never changed much between 6 and 8 percent.

Heraeus Kulzer made the decision some months ago to change their operations in the U.S. and to eliminate their existing distributor and came to talk with us.

We were able to reach agreement with them on December the 17th.

We think it's a huge opportunity.

They've got great looking product.

It gets us into not only a truly competitive -- bone cement beyond what we have, but it gives us the advantage of immediate access to antibiotics and starting in '06 it's on an exclusive basis.

So that makes it even more exciting.

If you think of our recon market share plus as the target -- and let's call that 30 for the sake of argument -- we're sitting there right now with I think it's a 7 percent share in bones cement.

So we're pretty excited about this deal.

Thank you.

Suey Wong, Robert Baird.

Could you please give an update on reimbursement for MIS procedures, any changes there?

And also a second question. (indiscernible) the doctor being trained for, (indiscernible) I ask, what percentage of these are new docs for Zimmer?

Last one first.

I think it's tending to be up to about 25 percent now.

I think we were settled in for a long time at 20 -- I believe it's about 25 percent, but I'd have to look it up.

I haven't looked at it recently to get you an exact number.

Reimbursement is going on a lot of fronts.

Nothing on a national negotiation because you want to be careful.

From a reimbursement strategy point of view, sometimes that's not always the best thing to do because if you get turned down it's a real clobbering.

So we've tended to go -- and I guess I should update it.

Maybe I'll do that in the next call or at the AA OS.

But we've tended to go on the individual company, individual HMO, individual surgeon request basis where we go in with a group of people and with the strategies and we help execute that locally for that surgeon or for that group of surgeons and we've been -- it's like anything else, I guess it's mixed success.

We've had some really neat successes where we actually have been able to negotiate higher rates of paper for the surgeon and we've had other ones where it's been turned down because it's considered -- or not turned down but where it's been declined temporarily because it's considered experimental.

So the results are mixed but the opportunity is significant.

I think what's going to make a real difference is we publish these papers; a lot of the institutions, a lot of the insurance companies want published papers, I think that's fair.

As we start to publish these 17 papers we're working on and we start to come out with economic value added data that's publishable, which obviously if you listened to the call you know we intend to, I think that's going to really accelerate that process.

Great, thanks.

Ray, of the 25 percent new docs, are you seeing much in the coat tail effects of docs transitioning from MIS to traditional operational (indiscernible)?

We do but we see something else, too.

Sometimes people come in and maybe it's a 2-incision which is a little tougher to do.

They may go away and say that's not for me, thanks for the help teaching me on the Mini, thanks for this, thanks for that and we find people going away and saying things like "boy, I never knew about this Trabecular Metal stuff like I know about it now".

So it's not only picking up MIS, which we do and which we can prove, but we sometimes pick up some traditional business.

That's tougher to do because people aren't loyal to many of their traditional teachings and where they came from and our competitors.

What we do pick up, though, as I mentioned, is some of the things like Trabecular Metal and other product areas, some revision product lines and so on that ordinarily we probably wouldn't have got the chance to sell them on had we not brought them into the institute and spent the time with them.

So there are peripheral benefits, there's no question about that.

Great.

Thank you, Ray.

Mark Landy, Susquehanna Financial.

Just a couple questions on the European salesforce.

I think last quarter you had mentioned that I think about 15 percent of the salesforce had been cross trained.

Just wondering what that percentage is today and if you could comment on the incremental sales that you're seeing for that sales rep and how the mix of sales reps changed?

The cross training, I don't know if I have the up to date percentages, but it's up around 70 or 75 percent.

But it doesn't include almost no MIS at all because the instruments are not quite ready yet.

They'll be rolled out at the AA OS and thereafter on the stem side on Alloclassic and CLS which is very important in Europe to our folks.

And on the Innex side which is very important on the knee side.

So while they've been training the MIS effect of that is not there end that's extremely important.

Most of what we've seen early -- I won't quote you real numbers because I don't want that level of disclosure -- but most of what we've seen is the ability to put together packages within institutions where we were strong in one product and -- we meaning the Legacy Zimmer -- and Legacy Centerpulse was strong in another, and we've been able to package them together into groups of hospitals.

We've seen some early uptake on OSP products because they're easier to sell generally speaking than hips and knees.

Beyond that we haven't seen much at this point, but then I don't think at this point we've given people enough tools.

We're still 3, 4, 5, 6 months away in terms of giving people everything they need to operate and to cross train.

You also have to remember, you have to cross train on new products as well and new products tend to represent almost 20 percent of our sales each year.

So that requires constant attention.

We're still looking at -- nothing has changed in our original plans or in our disclosure.

We're still looking at seeing the benefit sort of late '05 and then through '06 and forward.

Ray, just to follow up -- I think some people have commented that they've seen the stickiness of the relationship being more sticky than they had thought.

What are you seeing with your Legacy Centerpulse folks?

How are they adopting the Zimmer product and the new Zimmer product?

Or are they still traditional Centerpulse people as they were and what are you going to do with that if those guys tend to want to go down the Centerpulse pipeline?

I think the industry is pretty sticky.

I think there are some things that can move people.

We've certainly seen that MIS and Trabecular Metal can move people.

It may not move them permanently on everything they do over to Zimmer, I think that's a stretch for most people, but certainly certain technologies -- I think computer-assist given the right technology has some of that potential.

We've seen that, we've seen people pick up portions of the opposing line, but we're not trying to convert Centerpulse surgeons to Zimmer or vice versa.

What we're trying to do is position and market the products to the needs across a broader line of surgeons.

So a natural knee has a different marketing story to it than a NexGen knee.

And we go through and what we're looking for is we don't care whether the surgeon buys ex Centerpulse or ex Zimmer as long as he buys from us.

So we try and assess the customers' needs based on their skill sets, background, training and get that as close as we can within our market line to what they're using today.

So this is all about targeting and assessing surgeons.

Once we get to that stage we pick what's best from within the line and that's a strategy we employ.

And then we use our extra edges if you will -- high flexion, Trabecular Metal, MIS -- across the entire product line.

We want Prolongs and Trabecular Metal and MIS and high flexion in all the Legacy products where appropriate so that those become our leverage across multiple product lines.

So that's the strategy, not to convert one versus the other.

And just lastly a question for Sam.

Sam, we've seen R&D probably step up close to the 6 percent range; should we think around 6 percent in our going forward or should we see it fall back maybe into the 5.5 percent range?

I think we'll be looking both in the short and long-term to always stay within the 5.5 to 6 percent range.

Any given quarter it could fluctuate as a ratio of sales based on the sales themselves.

There may be times when we have to invest a bit more for a certain project at a certain point in time.

But I think if you think in terms of 5.5 to 6 is a pretty good number for your model.

Thanks, guys.

Bill Plovanic, First Albany Capital.

Just a little more clarification on the bone cement.

When do you expect to start selling that product and when you do launch it would it be loaded with the antibiotic right off the bat?

I don't know the exact start date because I think that's still being worked out with (indiscernible).

It will include antibiotics and it will be on a co-exclusive.

I believe it's late in the first quarter, but I'd have to check it, Bill.

But it will be co-exclusive now in the U.S., though, for 2005.

Just -- I want to make sure I make that clear.

It becomes exclusive on a go forward basis from the end of '05 on.

And I'll check the date for you.

I think it's first quarter sort of AA OS, but I'd like to double check that before I commit to it.

Would you obviously include all of the mixing equipment involved with that?

Mixing equipment is a place where we've probably not been as strong as we'd like to be as well.

And we've looked at a number of projects over time and canceled half of them and not really done as good a job as we should have.

So we have some major new projects and some very interesting technology underway on bone mix and delivery systems that we're looking at right now.

We'll in the short-term probably have the cement before we have the systems, but we feel the cement is so strong and from where we are today that that's certainly an uplift.

If we get the new technology out and it's as good as it looks at this point in terms of being unique then obviously that could accelerate sales further.

And then lastly for Sam.

Would that be included in the hip and knee line -- has it sold with those implants or does that go into OSP?

It will go into OSP.

Thank you very much.

Congratulations.

Matt Miksic, Morgan Stanley.

Thanks for taking the question.

Just one housekeeping question on spine and trauma.

I was wondering if you could provide the breakout for U.S. and Europe.

I think that's in the commentary.

Do you mind -- so I don't have to dig through the pages -- can you pull it out of the script?

Sure, I'll go back.

I didn't hear it in the commentary.

There's so much detail there.

If it's not -- I usually include it.

I'm pretty sure it's in there.

If it's not, that's information we normally provide so we can get that for you.

Then a question on the porous and beaded or I guess just uncemented penetration on the hip and knee side?

You mean the market?

Where you guys are I guess and where maybe you see it going to or where you see the market at?

Okay.

I still think I heard some numbers more recently that it was 55 or 60 percent.

I can't follow those numbers.

I think it's up more 65 percent plus as a market, somewhere between 65 and 70.

Zimmer was lagging that by about 10 points, but of course we're coming out with more and more beaded in the MIS sale of porous products accelerating our effort.

So I think we're probably where we've closed the gap on that to maybe 5 points.

So I'm thinking the high 60s market, maybe 70 and we're 5 or 6 points under that now.

Okay.

And you're including Trabecular in that or no?

It depends where Trabecular is used.

In the case -- if you're asking porous stems then we don't use it on stems at this point so the answer is no.

If you're talking porous versus cemented cups then I would include it.

But the response I generally give -- we generally use knee femorals as the guideline for knees and stems for the hips side.

So what I'm giving you is stems as opposed to collective hips.

So stems in that 5 or 6 percent -- we're talking about hips, right?

Yes.

Okay.

And then on the knee side, is there any --?

On the knee side there's not a -- it's not relevant at this point (multiple speakers).

Very well.

And then, in terms of FX contribution, what was the -- have you been able to quantify or do you quantify the benefit that you saw in the quarter to the bottom line just (multiple speakers) hedges?

No, we don't.

But let me just repeat what I've said many times in past calls.

Because of the way that we hedge and we average in over time, our hedging contracts tend to counterbalance the impact of the translation.

So when translation is positive as the dollar weakens the hedge contracts are negative and vice versa.

When it was just Zimmer stand-alone, the effect of hedge contracts came very close to washing out any benefit or worsening of translation.

With Centerpulse, however, there is a bit of a different impact.

There's a modest, modest benefit.

But still, because of the way we hedge, it minimizes any affect that translation would have on our financial statements.

And operating profit.

Okay.

That's helpful.

Thanks.

Philip Lagandy (ph), Prudential Equity Group.

A quick question on knees in Europe.

We saw a pretty dramatic step up in the quarter and I was just wondering if there was any further detail to provide there, specifically whether there had been an impact at all from the distributor restructuring?

Yes, I read your note quickly this morning.

No, we need don't -- there's nothing to do with reselling new distributors or anything like that because, if you recall, the changes -- most of the changes we're making ultimately go direct and we haven't seen the benefit of that yet because we're just in the midst of changing the system.

So there's no uptick in these either by capturing distributor margins or by reselling a new distributor because neither of those things really occur.

What there is is there's enough uptick in higher priced knees despite that fact that there's price pressure over there.

There's a very strong growth in some of the new product areas including Quad-Sparing and including Innex from Centerpulse which has like a 28 percent growth in the quarter.

What you're seeing is market growth in knees, nice mix opportunity for us but there's nothing peculiar relative to structural change in there that's sort of helping the numbers for the quarter if you will.

Great, thanks a lot.

(OPERATOR INSTRUCTIONS) Stephen Lichtman, Banc of America Securities.

Just a couple quick ones, Ray, on trauma.

Do you think with the new product flow coming midyear that as we exit the year that business can start reaching market type of growth rates?

And then also, in terms of the salesforce, are you happy in terms of the levels now on the trauma side, and spine for that matter, or do you anticipate making some investments in the salesforce numbers as well in '05?

It may be more a case of specializing more people.

Spine -- we have independent distributors and we have some crossover with our own.

I think very clearly if we can get all the products and technology squared away we'd like to grow spine salesforce from where it is today and make sure we have better coverage.

In the case of trauma it's more likely to go the specialist route as opposed to necessarily absolute additions, it's more specialization.

I'd like to get both those businesses at 10 percent or better run rate.

I don't know that the 10 percent in -- neither of those would get you to market.

Although spine with our mix of product -- in other words, no infuse (ph) and what not -- that 10 is probably a lot closer than people think.

On trauma 10 percent wouldn't be market based on what I've seen lately.

The big question is can we get it at run rate there at the end of the year to provide a ramp into '06?

I hope so.

Secondly, I think trauma is highly dependent upon the -- not just the reps but on the quality and on the story and on the success we're able to have with specifically a couple of the new products, particularly the perilocking if we can get them out.

They've been somewhat late coming out.

If we can get them out and get them operating and sell our story against -- particularly against (indiscernible), then we can do that.

But at this point we're not talking about or looking at anything more than 10 percent in the fourth quarter for both of those product areas.

And frankly we'd be pretty happy with that from where we're starting.

Great, thanks.

And then just a couple of clarifications on guidance.

On the sales guidance for '05, just want to confirm that that does not include FX potential impact and what does it include in terms of expected just synergies and/or synergies from Centerpulse on the sales line?

It does include FX to the extent we can understand the (indiscernible) movement back and forth, but it also includes the other things we mentioned which are the negative pricing situations in Germany and a few other parts in Japan -- other parts of the world.

Keep in mind, Steve, what we've always said is if we can get to 10 percent growth the first couple years we're happy with that and we hope everybody else is because we're driving 20 to 25 percent earnings.

Then we'll grow the sales as we go through the pattern of cross training and all that.

So by guiding to where we've guided to -- 12, 12.5, in some cases 13 percent -- that's a lot of growth over what we ever committed to relative to the initial conversations.

I missed the front end of your --.

There's about 2 points of FX roughly in that guidance.

And then the other part was just on did synergies build into that in '05 as well as do you build in any expectations, if you can, on the synergies on the top line?

So how do you factor that into '05?

We've completed all our operating plans, obviously, with all our businesses and the synergies are planned at zero.

Okay.

And then just lastly, just to clarify on the tax rate.

The 50 to 100 basis point, is that off of the full year '04 tax rate bringing that down to '05 or is that from the fourth-quarter tax rate?

That's off the full year rate.

The full year rate of 31.5.

Got it.

Thanks.

Ted Huber, Wachovia.

Sam, just back to the revenue guidance in '05.

If I've got the math right you did about 11 percent constant currency organic in '04 and that included some dis-synergies from Centerpulse, but 40 million.

You don't expect those dis-synergies in '05, but the constant currency forecast is about 10.

Let me know if that math is not right, but if it is how would you summarize and say where the deceleration, if you will, comes from?

I'll take the first part of that and Sam can do the rest.

The guidance is, as we've shown today, is upwards of over 12.

We don't know what exchange is going to be, so if it's 2 points then you've got 10.5 or 11 percent best case and that's over what we've guided to obviously with the 10 that we've told people from the beginning.

So we feel in terms of that situation we're fine.

In terms of deceleration, I don't think there's any deceleration.

I think it's just simply trying to figure out what the mix of Japan is for one quarter, Germany, Austria, the French tariffs coming in in June, a bunch of price mix layered against the offsetting gains of hopefully not having any dis-synergies.

And when you do the math and try and come up with all of that you sort of end up with a saw in trying to get to about a point in local currencies or half a point to a point over what we've committed to.

So if we can get 10.5 or 11 percent local -- and we don't know what the dollar is going to be but just presuming for conversation purposes -- and all those other things wash out we're going to be pretty pleased.

The other thing you have to remember is that the -- Ted, is the dis-synergies did not occur Jan. 1, 2003.

They elevated over the year and they added $10 to $11 million.

They weren't perfectly even.

So when you get into an '05 you're starting to match yourself up at least in the first three quarters against an accelerating set of dis-synergies, not a full set from prior year.

If you put all that together and you run the numbers you're not going to end up very far different than we did.

That's helpful color.

Just following up then on price, Ray.

As you lap these tough situations in Japan and Europe mid '05 I guess that's part of your forecasted deceleration in the back end of '05.

What kind of pricing are we looking at globally then?

If it's been 2 percent the last couple quarters with these decelerations, would we expect price as we exit '05 and into '06 to be better than that and can you quantify it?

I don't think it's going to be better overall because I think two things are going to happen.

One, assuming Germany stays where it is and it's a big country, it's a big system, it's a big country for us because of Centerpulse -- but if you assume it stays where it is and it doesn't go any further -- same with Austria -- the French tariffs coming in -- at this point they're now scheduled for July 1, not April 1, so that's changed a bit from the French government.

They're going to be in the 2 to 4 percent range.

Again France is a big country and it's big for us.

That's 2 to 4 percent negative, right?

2 to 4 percent negative, correct.

Japan, of course, anniversaries out, and unassuming they don't do anything unusual that anniversaries out at the end.

So you would think with those going away -- what I think is going to offset that is I still think the U.S. in general is going to be 3 to 3.5 percent.

So I think what we're going to end up with is a tightening of the range -- still in the 2 to 3 percent, but a tightening of it because the U.S. will come down but the other ones will improve on an anniversary basis slightly.

When we run the numbers -- I don't want to sound boring about it -- but when we run the numbers we end up right back in the weak to strong to anywhere from 1.8 to 2.2 to 2.3.

And is it fair to say that you're perhaps a little more insulated from any U.S. pricing because of these hospital contracts you put in place in the last couple quarters?

Slightly more insulated I would say is a fair comment, but I don't know everybody else's mix particularly well.

I know who's on that contract with us and I know what their pricing is because the pricing is visible to the players who are on.

I think probably a little more insulated is a fair comment, yes.

And then last question.

You've talked a lot about revisions in the past as a driver for the business and they were missing from your comments today.

I know you can't talk about everything, but is that slowing as a driver of the business or not?

No, the other way around.

The only reason I took out the comparisons is because we already have such brutal timing as you can tell from the (indiscernible).

So there's no magic to taking it out.

In fact, revisions for us are going the other way.

They are growing at very fast rates and that's in part because of Trabecular Metal and that does not even include the new Trabecular Metal acetabular system that's coming out at the AA OS.

No, it's quite the opposite.

It's all to do with trying to shave things out of trying to get this down to a reasonable time which we never do anyway.

Thanks, that's it for me.

Ted, I want to go back to just one more question related to the sales guidance.

We had a chance to read a lot of the reports that came out before the call started this morning.

I just want to clarify the guidance for sales in the first two quarters as opposed to the first half, second half.

First quarter is 9 percent given the billing days, the second quarter is 15 percent.

If you look through both of those quarters and look at the billing day growth in each of those two quarters, it's pretty consistent -- 11, 12, 12.5 percent as opposed to first half, second half.

Thanks.

Mitch, I believe you said that was our last call.

So my only final comments on behalf of Sam, Jim and I are (indiscernible) we can try and seek your forgiveness again.

It's incomprehensible to us, too, for what it's worth, how it can take longer to review a Zimmer quarter than it does to run a marathon, but it seems to.

We'll see you next time.

Thanks.

If you're at the AA OS look us up.

Thanks.

Ladies and gentlemen, this concludes today's Zimmer fourth-quarter and full year 2004 financial results conference.

Thank you for your participation.

You may now disconnect.