Stryker Corp SYK
Q1 2013 Earnings Call Transcript
Transcript Call Date 04/24/2013

Operator: Welcome to the Stryker's First Quarter 2013 Earnings Conference Call. My name is Vanessa and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Following the conference, we will conduct a question-and-answer session. During that time participants will have the opportunity to ask one question and one follow-up question. This conference call is being recorded for replay purposes.

Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the Company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is in the Exhibit to Stryker's current report on Form 8-K filed today with SEC.

I would now like to turn the call over to Mr. Kevin Lobo, President and Chief Executive Officer. You may proceed, sir.

Kevin A. Lobo - President and CEO: Good afternoon, everyone, and welcome to Stryker's first quarter 2013 earnings call. Joining me is Dean Bergy, our Interim CFO; and Katherine Owen, Vice President of Strategy and Investor Relations. Also on the call today is Bill Jellison who joined Stryker as our Chief Financial Officer.

Dean will help to support Bill during a transition period through Q2 and will continue in his capacity as our Corporate Secretary. I'd like to both welcome Bill to our team and also thank Dean for his support during this period. My executive leadership team is now fully staffed. Also you may recall David Floyd joined as Group President of Orthopedics last November and Scott Bruder was added as Chief Scientific and Medical Officer in January.

With respect to today's call, I will provide opening comments and then turn the call over to Katherine for additional details and then Dean will cover the financials. We will then open the call to your questions.

Looking at our Q1 results, we achieved revenue and earnings growth in line with the targets we set out at the start of the year. On a reported basis, our first quarter sales increased 1.3% and excluding foreign exchange and acquisitions posted a gain of 2.5%. However, adjusting for less selling days in the quarter, which reduced sales by approximately 2.5%, topline growth was 5%, with all three of our franchises; Reconstructive, MedSurg and Neurotec and Spine achieving year-over-year gains. The U.S. had another strong showing with sales up 4% on a reported basis.

As anticipated, our international results were negatively impacted by year-over-year declines in Europe, which was partly offset by solid gains in emerging markets. We continue to anticipate improving trends in our European business as 2013 unfolds, reflecting the impact of a number of initiatives underway to better drive sales momentum.

Turning to our three franchises in more detail. On a global basis, Reconstructive sales were up roughly 1% on a reported basis, reflecting another strong showing in the U.S., which was up 6.5% reported. And encouragingly adjusting for the selling days in currency growth for our international Reconstructive business was positive for all of the key businesses, including hips, knees and trauma and extremities.

In the U.S. while knee momentum slowed modestly, hips were strong and trauma and extremities at 26%. Within extremities foot and ankle continue to roll growing at 50%. And our joint preservation business, which includes sports medicine, implants and biologics grew over 50% behind its new All Suture Anchor.

Worldwide MedSurg sales increased less than 1% on a reported basis, but when adjusted for currency and selling days, posted gains in both the U.S. and international despite continued challenges related to the previously disclosed Neptune recall.

Lastly our Neurotech and Spine franchise continue to demonstrate strong momentum with global sales up 4% reported and 8% excluding currency and the impact of selling days, with a relatively balanced growth geographically and powered by double-digit gains in neurovascular, craniomaxillofacial, and neuro powered instruments.

Moving down the P&L, a few highlights to note. Gross margin, excluding acquisition and restructuring charges, declined 30 basis points year-over-year to 67.5%. However, this included a 100 basis point impact from the medical device excise tax, which totaled $23 million in Q1 and is captured in our cost of goods sold. Importantly, we continue to make significant investments in innovation, as evidenced by the 15% increase in R&D spending versus the prior year. All told, these results, combined with the previously disclosed benefit from the tax extenders, resulted in an adjusted diluted EPS of $1.03, up 4% year-over-year.

Looking ahead to the remainder of 2013, we remain focused on delivering on our financial targets, which includes top line growth of 3% to 5.5%, excluding foreign exchange and acquisitions and adjusted EPS of $4.25 to $4.40. As in any year, we are navigating challenges such as the timing of getting Neptune back on the market and more recently the impact of the rapidly weakened yen. With respect to the latter, compared to the start of the year when we set out guidance. Based on current exchange rates, the total impact from foregin exchange is expected to adversely affect our per share earnings for 2013 by roughly $0.15. If exchange rates remain at current levels, we would anticipate our full year EPS at the lower end of our targeted range.

With that, I'll turn the call over to Katherine.

Katherine A. Owen - VP, Strategy and IR: Thanks Kevin. My comments on today call will focus on providing our view as it relates to the reconstructive and capital markets. With respect to the reconstructive market, we continue to believe we are seeing an overall stabilization in the U.S. hip and knee market and anticipate normalized revenue growth for the market to approximate to low to mid-single digit range. As have occurred in prior years we believe Q4 recon growth benefited modestly as more patients opted to use our flexible spending accounts prior to year end expiration of those benefits.

Consequently electric procedures are somewhat stronger in Q4 versus Q1 and we suspect this trend continued in 2013 particularly as it relates to knees which tend to be a more deferrable procedure versus hips. We continue to anticipate stable U.S. recon market growth for the remainder of 2013 and believe we are well positioned given our product portfolio. We continue to anticipate filing a 510(k) for our ShapeMatch Custom Cutting Guides in the second quarter.

While there has been some impact on the knee sales post the recall of the guides in mid Q4 we do not believe it's been significant. We also continue to invest in our GetAroundKnee campaign, which has proven to be effective in communicating to patients and doctors the unique aspect of our Triathlon knee, which remains the only single radius knee on the market and with five-years of peer reviewed clinical data demonstrating the knee designed efficacy we believe the Triathlon knee platform is well positioned in the market.

Turning to hospital capital expenditures, the trend improved in Q1 although we are cognizant that these businesses are inherently more volatile and therefore we continue to anticipate greater quarter-to-quarter fluctuations in our more capital intensive franchises. Nonetheless, we're encouraged by the solid performance for medical, which is the highest component of capital sales.

Looking at our Endoscopy business, we achieved double-digit camera growth in the quarter, reflecting the impact from the continued ramp up of our next-generation 1488 camera. However, this was partially offset by softness in communication sales as this business is 100% capital and as such the timing of orders can vary quarter-to-quarter.

Finally, as we've discussed previously, we do not anticipate at this time a meaningful impact on either elective procedures or our capital businesses from the (ACA), although we will continue to monitor closely going forward.

And with that I'll turn the call over to Dean.

Dean H. Bergy - VP, Corporate Secretary: Thanks Katherine. Sales in the quarter were in line with our expectations, which reflected a lower number of selling days compared to the prior year. Sales grew 1.3% on a reported basis and 2.6% on constant currency, with U.S. sales growth leading the way.

With respect to earnings we delivered adjusted diluted net earnings per share of $1.03 representing growth of 4% when compared to the first quarter of 2012. On a GAAP basis diluted net earnings per share were $0.79 down 13.2% versus the prior year as a result of charges in the quarter to increased reserves related to Rejuvenate and ABGII product recalls, and certain regulatory matters as well as the cost of continued acquisition and restructuring related activities.

A reconciliation of non-GAAP to GAAP net earnings per share is provided in the tables accompanying today's press release. In reviewing the quarter I will start with the discussion of the components of our revenue growth. In the first quarter, volume and mix contributed 3.8% to our topline growth and acquisitions added 0.2%. Price change has reduced sales by 1.3%.

The price decline is in line with the decreases experienced in 2012. Currency, driven primarily by a significant weakening of the Japanese yen versus the U.S. dollar, negatively impacted our top line by approximately $28 million and decreased our overall report sales growth by 1.3%. We also had one or two fewer comparative selling days in the first quarter, depending on geography. This reduced sales by approximately 2.5% in the quarter.

Looking at our reporting segments, I will start with Reconstructive products, which represented 44% of our sales in the quarter. Reconstructive products include our hip, knee, trauma and other reconstructive lines. Sales in the Reconstructive segment were up 1.2% as reported and 2.8% on a constant currency basis. U.S. reconstructive sales grew 6.5% in the quarter.

Trauma and extremities had another excellent quarter in the U.S. posting 26% growth, led by new products, strong sales force execution, and nice growth in foot and ankle. Domestic hips grew at a solid mid-single digit levels in the quarter, while knee growth softened as we saw some impact from the absence of our ShapeMatch Cutting Guides from the market. Our international reconstructive business was down 1.9% in constant currency, but was also impacted by the lesser number of selling days. (indiscernible) performance overseas was in the emerging markets.

Next I will turn to the MedSurg product segment, which represented approximately 38% of sales in the quarter. For reporting purposes MedSurg is comprised of instruments, endoscopy, medical and sustainability solutions business. Total MedSurg sales increased 0.3% as reported and 1% on a constant currency basis. These results were led by growth from our medical and sustainability solutions businesses. Both medical and sustainability grew by mid-single digits in the U.S., with medical benefiting from a soft comparable.

Instruments and endoscopy both posted mid-single digit growth in constant currency international. Instrument sales in the U.S. were hindered by the impact of the Neptune Waste Management System recall which reduced sales by approximately $20 million in the quarter. As a reminder, we believe this recall will negatively impact sales by about $17 million to $20 million per quarter until we obtain regulatory clearance. As we work with FDA to address the requirements for the Neptune 510(k), we don't think this regulatory clearance is likely to be achieved until late this year.

Our final segment, Neurotechnology and Spine, which represented 18% of company sales in a very good quarter; sales increased 4% as reported and 5.7% on a constant currency basis. Growth in this segment was led by our neuro-powered instruments platform NFC which posted a growth above 20% and our Neurovascular and Craniomaxillofacial franchises both of which generated high-single digit constant currency growth. Core spinal implant sales were flat in the U.S. and down slightly overseas.

I'll now turn to the income statement beginning with our gross margin performance. On a reported basis, gross margins in the first quarter finished with 67.4%, while adjusted gross margin finished at 67.5%. These amounts include the impact of the medical device excise tax in 2013 which reduced gross margin by 100 basis points. The prior year adjusted gross margin for the first quarter was 67.8%. Current year gross margin was favorably impacted by lower inventory charges, favorable mix and the continued benefit from cost reduction efforts being driven by our global quality and operations group.

Research and development spending finished at 5.9% of sales compared to 5.2% in the prior year first quarter and up from 5.5%, sequentially. The 15% increase in R&D spending over last year was primarily the result of increased investment in additional R&D projects and innovation activities.

Selling, general and administrative costs represented 41.8% of sales. This cost includes a $40 million pretax charge to increase the reserve related to the voluntary recall of our Rejuvenate and the ABGII modular-neck hip stems. A $40 million pretax charge to increase reserves associated with the U.S. Department of Justice subpoena related to the OtisKnee device in an SEC inquiry regarding possible violations of the Foreign Corrupt Practices Act.

The Rejuvenate, recall is still in early stage and we continue to be evaluated on a quarterly basis, based on information we receive related to the status of the recall. Adjustment for these charges as well as restructuring and acquisition related charges, SG&A spending in the quarter finished at 37.2% of sales this compares to adjusted SG&A at 37.5% of sales in the prior year, which included approximately $8 million of CEO severance cost.

Reported operating income for the first quarter declined 18.9% compared to 2012 and was 17.6% of sales. Adjusted first quarter operating income decreased 2.1% versus the prior year. And the adjusted operating margin finished at 22.9%, 80 basis points decline from the prior year, primarily as a result of the added cost from the medical device tax and the increase in R&D spending partially offset by the other factors that we previously described as providing additional gross margin.

Other income and expense reduced pretax income by $11 million in the quarter, compared to an $8 million reduction in 2012. Components of the current year's other income and expense included investment and interest income of $5 million, offset by interest expense of $16 million. The Company's effective income tax rate was 18.9% for the first quarter of 2013, compared to 25.2% in the prior year. The effective rate on earnings before adjustments approximated 20%.

The current year effective tax rate reflects the benefit of the adoption in January by the U.S. Congress or a law to extend certain tax benefits applicable to the Company for both 2012 and 2013. The timing of the adoption required the entire amount of 2012 tax year benefit to be recognized in the first quarter of 2013 for financial reporting purposes. As a result, this year's first quarter includes five quarters of tax benefit related to the extenders and had a positive impact on net earnings per share of approximately $0.04. The total year tax benefit of the extenders is expected to be approximately $0.07 per share.

Turning to the balance sheet, we ended the quarter with $4.5 billion of cash and marketable securities, an increase of approximately $200 million compared to the year-end 2012. This includes additional borrowing of $1 billion added under the public debt offering we concluded in March, with $600 million of five-year borrowing and $400 million of 30-year debt. We also used cash in the quarter for the acquisition of Trauson Holdings Limited which was successfully closed late in the first quarter. We now have $2.77 billion of long-term debt on our balance sheet.

From an asset management standpoint, accounts receivable days ended the quarter at 58, which was up three days from year-end but down three versus the prior-year quarter. Days in inventory finished the quarter at 167 which was up 14 days sequentially and down 2 days measured against the prior year quarter and the growth since year-end partially reflects inventory added in the Trauson acquisition.

Turning to cash flow, we had an excellent quarter generating cash from operations of $236 million compared to $35 million in the prior year. With this start we expect 2013 to be another strong year for operating cash flow.

Finally, regarding share repurchases we announced $250 million accelerated share repurchase program on March 1 of this year. Under this program we immediately reduced the Company's outstanding share count by 3.6 million shares the minimum number of shares that would be repurchased the ASR program was completed in April and the final number of shares repurchased totals 3.8 million, which will be fully effective in the second quarter. Implementation of the program reduced the amount of open share repurchase authorizations to 750 million from $1 billion.

Turning to our outlook for the rest of the year, we're projecting constant currency sales growth excluding acquisitions in the range of 3% to 5.5%. The foreign currency exchange rates here hold near current levels, we anticipate that sales will be negatively impacted by approximately 1% to 2% in both the second quarter and for the full year of 2013.

As Kevin indicated previously while we have not changed our projection that 2013 adjusted diluted net earnings per share will be a range of 425 to 440, we thought that it was important to provide greater clarity regarding the potential impact of currency on the year which based our current FX rates we estimate to be approximately 15% -- $0.15 per share.

With that, we'll now open the call to your questions and joining us for the Q&A period will be our Vice President and Chief Accounting Officer, Tony McKinney.

Transcript Call Date 04/24/2013

Operator: Matthew O'Brien, William Blair.

Matthew O'Brien - William Blair: We could just start on the – within the large joint market. Generally speaking just what are you seeing on the volume side of things, it seems like the quarter was solid but somewhat uninspiring with respective volumes. Are you seeing anything different than we have seen in the past several quarters?

Katherine A. Owen - VP, Strategy and IR: I'll just go back to some of the formal comments on the call. In the quarter nothing significantly out of expectations getting back to that normalized what we think is going to be low to mid-single-digit market growth. As we mentioned we think there was some modest seasonality as we have seen in prior year probably a little bit more so as it's been accelerating each year and which made the fourth quarter little bit stronger. And that’s very consistent with what we have commented previously and that’s probably a little bit more so in the case of knee it is a more deferrable procedure versus hips and that’s far so why we think we saw a little bit stronger hip growth versus knee growth. I'd call that just kind of a normal Q4 to Q1 pattern versus any real deviation from what we believe to be normalized growth.

Matthew O'Brien - William Blair: And then with respect to AAOS and I know it's still fairly early, but there is a lot of noise made by couple of your competitors on the knee side. What have you heard so far back from the field as far as what they are thinking within their customer base in terms of some potential trialing of these new knee products versus just sticking with Triathlon.

Katherine A. Owen - VP, Strategy and IR: I think it was just similar to (AOS comments). It's not going to be that different. We are still early on, and as you know, when companies roll out new hip and knee systems, there's a period of time of trialing, getting their own sales force comfortable with it, and then typically focusing on their existing customer base. So I'm sure there'll be some impact out there. We feel really well positioned with Triathlon. That's the only single radius knee on the market. That said we're obviously going to be cognizant of what the competitors are doing, but it's probably Q3 to Q4 before we would really start to see any impact to the degree it occurs.

Matthew O'Brien - William Blair: Okay. If I can just sneak in one more quick on Neptune….

Operator: Matthew Dodds, Citigroup.

Matthew Dodds - Citi Investment Research: A couple quick questions. The R&D I know you said it was up 15% on new plants. It seemed higher than I thought for the start of the year. Can you say if this run rate – is this more of the new run rate for the year and is there any particular area where the spend is higher or whether it's (say neutral)?

Katherine A. Owen - VP, Strategy and IR: I wouldn’t say there's any significant change. We talked about R&D runnings between 5% to 6% of sales. That continues to be our expectations. It may be higher or lower in any given quarter and the year-over-year growth rates obviously can fluctuate, just the timing of investments and trials and the like. But there's variability among all the different business, but that said, all of them are seeing increases in R&D spending. So for modeling I would continue to assume it's going to be somewhere between 5% and 6% of sales.

Kevin A. Lobo - President and CEO: This is Kevin. What I'll just add is, I've had a chance to visit a number of the divisions and I can tell you we have exciting pipelines across multiple divisions. I was at a neurovascular, endoscopy and just recently at instruments and we have really, really exciting pipelines across the portfolio. It's fair to say that as neuro becomes a bigger part of Stryker that clearly carries a little bit more R&D, but as Katherine said, between 5% to 6% is what you should be looking for.

Matthew Dodds - Citi Investment Research: Then one quick follow-up for ShapeMatch how bigger the market do you think today in the U.S. is custom cutting guys, I thought it was still pretty small. So the impact wouldn't be that bad why you're off the market?

Katherine A. Owen - VP, Strategy and IR: Yeah, I think that's a fair comment, Matt. We've been off the market since the mid of Q4 and obviously we had pretty solid fourth quarter in knees. Cleary we are not selling ShapeMatch so there is some revenue impact but it really is immaterial certainly to total Stryker, but also to our knee business. We estimate it's hard to get really good data but it's probably about 10% of knee procedure to use some type of custom cutting guys.

Operator: Rick Wise, Stifel Nicolaus.

Rick Wise - Stifel Nicolaus: I'm sorry I'm obsessed with the improving EU trend Kevin. Can you give us a little more color on of where you are now and your continuing – what's making you continue to feel encouraged there?

Kevin A. Lobo - President and CEO: Yeah, so the first thing I would say is the message I have delivered since the fourth quarter of last year is still the same. It's going to take multiple quarters before we start to see significant improvement. We'll start to see that improvement in the second half of this year. I believe and I'm feeling more confident because I'm doing monthly reviews with our European business, they put all the new leaders in place at the country level. We just had our former Vice President of Knees just take a new assignment in Europe leading the orthopedic franchise within Europe. So, our leadership team is very solid. I've looked at detailed action plans country by country. I'm feeling very, very good about the plans in place. Certainly we're seeing good results in the U.K. and France and some of the northern Europe countries. Certainly Southern Europe seven your pistol very challenging and will take time, but I can see the momentum in terms of how the physicians are reengage with us, how our employees are reengaged. So, this is something that we have seen happen in other parts of the world. It takes a little bit of time, but we are on a very good trajectory and I'd anticipate improvement in the second half of the year.

Rick Wise - Stifel Nicolaus: And just as a follow-up in terms of getting Neptune back on the market, can you give us anymore sense of what has to be done the process of making it happen or again anymore color there and detail?

Katherine A. Owen - VP, Strategy and IR: Yes, really we need to file the 510-K so that process is underway and that’s the key milestone over the next few months to file that. And as Dean commented based on that our expectation is it's going to be late this year when we anticipate getting 510-K clearance. We anniversary the impact after the second quarter since the recall occurred early in the third quarter at exact timing beyond that, just too difficult to predict, but the key is obviously getting the 510-K filed.

Operator: Matthew Miksic, Piper Jaffray.

Matthew Miksic - Piper Jaffray & Co.: So, one follow-up Katherine for you on the comments you made on the Recon market. I think the selling day impact is pretty well understood but the seasonality you mentioned was deeper here in the first quarter, at least it looked that way from your business. I appreciate the color for the full-year growth rate, but with couple of quarters away from the third quarter last year it was a pretty big seasonal dip. Should we be thinking about just sort of like a little bit more of an stronger Q2 down stronger Q3 up stronger Q4 kind of volatility given what you have seen in the last few quarters. And then I have one follow-up.

Katherine A. Owen - VP, Strategy and IR: I don't think we could be that specific, Matt, we obviously saw difference in selling days, we had an extra selling day in the fourth quarter of roughly 1 to 2 fewer selling days this quarter, trying to tease out exactly how many basis point seasonality was is difficult. But what I can tell you is as we've seen in the last two years with deductibles increasing with unemployment, etc. it does seem there has been a modestly – and I would really stress modestly stronger seasonality impact in the fourth quarter and a corresponding modestly slower one in the first quarter. Overall, everything that we see points to a recon market that is stabilizing around that low-to-mid single-digit growth for the market.

Matthew Miksic - Piper Jaffray & Co.: And then on the capital side, understanding also the impact of Neptune, I guess we saw a little bit of a reversal here in the first quarter where I think most folks were expecting beds to be down a little more and they were actually up and most folks were expecting endoscopy and instruments to be up maybe a little more and they were actually kind of flat or down. Can you talk at all about any of the dynamics in the quarter that you are seeing there and maybe your expectations for those trends going forward?

Katherine A. Owen - VP, Strategy and IR: Yeah, I think with medical well over 90% of that business is capital, so it is inherently probably the most volatile and just given the timing of orders, regardless of the market, it can vary quarter to quarter. So it's not surprising that we could be better or worse than expectations and I think that's just the reality of that business. With respect to endoscopy, as I mentioned, double-digit camera growth, that's obviously being powered - and that's the US number - by the launch of 1488 camera and we're pleased as continues to ramp. But the communication business, which is dominated by our Endosuites, is a 100% capital and that business is also volatile. So it can be stronger or weaker in any given quarter. There's nothing there that alarms us. That's just the nature of having a business that's got a significant capital component. In terms of the outlook for the full year, we haven’t given granularity around the three key segments, but with the growth that we saw this quarter, particularly on adjusted basis, we feel very good about being able to deliver that underlying growth of 3% to 5.5% for the year.

Operator: David Turkaly, JMP.

David Turkaly - JMP: Just quickly I was wondering on the ShapeMatch if you could give us some of the same color you did for Neptune, exactly what led to that recall and did you say you already submitted the 510(k) for that?

Katherine A. Owen - VP, Strategy and IR: I've said we anticipate filing the 510(k) in the coming months hopefully sometime around the second quarter and we're looking to potentially receive 510(k) clearance late this year.

David Turkaly - JMP: Then just quickly we saw a recent NIC guideline and I know spine is a little flat for you in the quarter and maybe it decelerated a bit, but would you be willing to give us any color on Cortoss from Orthovita, how that's been? Is that a growth driver for you, or is it really just the Vitoss side?

Kevin A. Lobo - President and CEO: So, Cortoss is obviously the smallest of the products that we acquired with the Orthovita acquisition and it's being sold today by our IVS business. It had kind of a slow year last year but had actually a very strong first quarter and we report our IVS business as part of our Neurotechnology and Spine. It was a very, very strong double-digit growth and I think that's a product that is just gaining steam within the sales force. It's clearly not on the scale of the Vitoss, but it's something that we feel very good about, it's excellent product and we had terrific results in the first quarter but it's very, very small in the big scheme of things.

Operator: Bob Hopkins, Bank of America.

Robert Hopkins - Bank of America: So, first question I just want to come back to be the EPS guidance for 2013 that you talked about and I was wondering if Dean or Katherine you could walk through the mouth on Japan and the currency hit if there and just how that math worked, because again I thought you had some natural hedges that might mean little bit less than this, so the first question is just walk through the math on Japan. And also is there anything else that’s causing you to suggest you will be at the bottom end of the range or is this really all currency?

Dean H. Bergy - VP, Corporate Secretary: We have talked in the past about kind of our FX situation, relative to Japan it is the one place where we don't have as many natural hedges. The natural hedges really come from being able to manufacture any jurisdiction. So in Europe we obviously have a lot of manufacturing, we really don't have any manufacturing in Japan. So, for that reason what we are seeing here is kind of an unprecedented change in this currency whether it being devaluated 20% or so at the start of the year, that we are really seeing a more significant impact from that. And there is state translation impact as well as impacts on our cost of goods sold as they come across to Japan and to some other jurisdiction. So, under normal times, we will be able to manage pretty well, and lot of currency changes, but Japan is one area where we get hit a little bit harder. And there is nothing else that’s really impacting when we are talking about relative to the guidance here. It's just really unprecedented change with yen that's caused us to call us on to suggest that right now we will be towards the lower end of the range if this continues.

Robert Hopkins - Bank of America: And then as a follow-up, obviously you guys have done really well in trauma, some of that because of your own launches, some of that because of others being excluded from the market for a while. I was wondering given the really high growth rates you are experiencing right now, if you could give us any sense as we move forward which you think a sustainable growth rate in trauma might look like as we get to kind of more normalized growth rate if you will over the course of the rest of this year?

Katherine A. Owen - VP, Strategy and IR: It is clear, our trauma business is seeing a lot of momentum. Similar to the fourth quarter, some of that was the impact of a competitive recall and Q4 I think we talked about, about a third of the growth was the result of that. This quarter it was less than that, although we did still see some benefit. If you exclude that, we did see an acceleration in our trauma growth, and we feel really good about the momentum we're seeing there. Part of that is just having the opportunity to present the customers the breadth of our product as it's evolved over the last few years, and that's really helping us gain that competitive share. I wouldn't want to predict the growth going forward. We're seeing very strong momentum. I'm not sure I would extrapolate that in the models. That said, right now there's a lot of momentum in that division and that group is really performing very, very well. And I'd highlight things like foot and ankle. I mean that 50% growth for that segment is impressive and that's been investment there and the product launches we've had and putting in place a dedicated selling effort.

Kevin A. Lobo - President and CEO: It's Kevin. I'll just add two other comments. The trauma growth, if you look back over the past few years, has been really performing well, so even last year, the entire year of last year we had terrific results and that was absent competitor recall. So this has been sustained strong performance really over a number of years in the trauma business. And on the foot and ankle you could expect certainly the second quarter will continue to be very robust and then we'll start to run against some comparatives that are a little strong given the robust performance we had in Q3 and Q4 of last year, but certainly we feel very bullish. It's a market expansion opportunity that's enormous. Plenty of room for growth.

Operator: Joanne Wuensch, BMO Capital Markets.

Joanne Wuensch - BMO Capital Markets: Could you please give us an update on what percentage of your revenue is in emerging markets and how some of the most recent acquisition and integration has gone in that market? And then also given the ASR, what is your guidance for average share count for the year?

Katherine A. Owen - VP, Strategy and IR: Dean, can follow-up on the share count question. In terms of emerging markets it's (bumped) up by about 1% with the acquisitions of Trauson. It's still well below 10% around that 6% or so vicinity of our revenue comes from emerging markets. We did close the Trauson acquisition during the quarter. It's early but today we're pleased with the integration progress so far. But again we're early on. It's an exciting opportunity for us and to get into the value segment of the market and we expected to help via drive by expanding our presence in emerging markets.

Dean H. Bergy - VP, Corporate Secretary: Joanne with the ASR in place right now, we would expect the share count to be right in the range of 383 million.

Operator: Mike Weinstein, JPMorgan.

Michael Weinstein - JPMorgan: Just to clarify what Dean said assumes no additional share buyback over the balance of the year?

Katherine A. Owen - VP, Strategy and IR: Yes.

Dean H. Bergy - VP, Corporate Secretary: That assumes we don't do any additional buyback in those numbers, so that's our guidance assuming we stay where we're. Obviously we still have 750 million outstanding.

Michael Weinstein - JPMorgan: Let me just ask and maybe two follow-ups. So, one if I look at the performance across your specialized sales forces, if I look at the foot and ankle performance, if I look at sports medicine performance, if I look at the CMF performance, all very, very strong and a lot of what particularly this quarter is driving the company. Can you just talk about how you think about that strategy in the context of your other businesses and whether there is an evolving distribution strategy here at Stryker that you potentially want to take advantage of, because obviously the growth in all those businesses is above market, it's been aided by what you've done on the distribution side, what is that – how do you run with that to make that make a bigger opportunity for the company. And then second, I just want to clarify the Endoscopy business which was in line and probably versus the street expectations. Do you – was there a timing issue with any of that and do you recapture some of that potentially in the second quarter over the next couple of quarters?

Katherine A. Owen - VP, Strategy and IR: Why don't I take the second part and then Kevin can address the first part of your question. There was some timing impact, so yes, we would expect momentum in Endoscopy to improve as the year goes on. The timing is related to that communication segment of our business, again that’s primarily composed of products such as the Endosuite. It's a 100% capital. Some quarters can be stronger, weaker, just on the timing of orders. So, yes we would expect to recaputure that. Camera growth we are very pleased to mention the double-digit momentum there, so really it's primarily related to that comm segment.

Kevin A. Lobo - President and CEO: And with respect to your first question Mike, I think it's a great observation. We absolutely believe in dedicated sales forces where you have specialized surgeons and in some cases we call it specialist serving specialist. And it's definitely paid off for us and it's paid off for us with focus and I'm really truly understanding the customer the podiatric surgeon is an example which largely is neglected by large device manufacturers, and they feel really embraced by us. And Stryker foot and ankle is actually now a strong brand. I can say the same for sports medicine. CMF was really the first pioneer for us in this area an what we've also found is these specialized sales forces actually operate with much lower inventory. So, they are actually profitable because they don't have the same requirements of large joints which is a huge instrumentations sets and the accompanying instruments, so they can actually hold their inventory in what we call a trunk stock model. So, it's a very efficient model, it's a model that works very, very well. Certainly, we are looking at expanding this and in fact in Europe we are exploring some specialized sales forces. I know it's a market that not everybody is excited about, but if you have the right products and you have the right surgeons, you can certainly pursue growth. So, the answer is yes, we are looking. But the product and the surgeon type really have to line up well, and we took the learnings from CMF, applied those learnings to our sports medicine business and to foot and ankle, and obviously we're enjoying very good success thus far.

Operator: Richard Newitter, Leerink Swann.

Richard Newitter - Leerink Swann: Maybe just on foot and ankle. Can you guys talk about your growth relative to the market and what the components are there? I mean is this mostly your ability to capture price and mix, or is there anything underlying in the market that's driving that?

Kevin A. Lobo - President and CEO: So the market estimates are a little challenging to come by here, but we estimate it's around 15%. Certainly Wright Medical has historically been the largest company in foot and ankle and with our explosive growth over the last few quarters, we're certainly close behind them. But it's really more about market expansion. The sheer number of procedures, if you look at hammertoe procedures, bunions, implants weren't really used historically. So this is really more of a market expansion story than a market share story and I think what we'll see is market growths are going to continue to climb. But if you go by the latest estimates from both our company and their company, it was kind of in the 15% sort of range. Our 50% clearly we had a bit of a softer comparable in the prior year, and as I mentioned, as the year unfolds I think we'll see that growth rate start to moderate a little bit, but still a very, very significant room to expand with the procedural growth.

Richard Newitter - Leerink Swann: And then just one follow up on your knee business, can you just explain, does the (OtisKnee) being off the markets, does that create any disadvantages for you while these competitive products begin to gain steam as you expect in the back half, and do you think you're going to offset that with enhanced or stepped up DTC efforts in Triathlon?

Katherine A. Owen - VP, Strategy and IR: So, we do plan to continue the DTC campaign, but that's really not being driven in anyway by whether or not is OtisMed is on the market. The revenue impact was immaterial in the quarter. Obviously we did lose some ShapeMatch but given the relatively low penetration rates we don't think that's going to be a major challenge. Obviously we want to get it back on the market and anticipate that happening, but I don't think that's going to be a major rational for customers in large numbers switching to competitive products.

Operator: Michael Matson, Mizuho Securities.

Michael Matson - Mizuho Securities: My first question is just on Triathlon, I was wondering if you could tell us what sort of growth that business saw in the first quarter and then what your expectations are for Triathlon in the Chinese orthopedic market? Then I have a follow-up question.

Katherine A. Owen - VP, Strategy and IR: The revenue contribution given the timing of when we closed was really minimal in the quarter I and just given the size of that division I don't think we're going to start to breakout the growth rates for that. Obviously we did comment on seeing double-digit growth for our emerging markets business overall, but I don't think we're going to get down to the level of providing segment growth for that business.

Michael Matson - Mizuho Securities: Then in your neurovascular business on the Trevo product, just wondering obviously there's a huge market opportunity there, but some the clinical data that's come out recently on the endovascular treatment hasn't looked so good in comparison to just the regular IV TPA and it actually sounds like there could be some reimbursement pressure. So I was just wondering what your outlook is for that product right now.

Katherine A. Owen - VP, Strategy and IR: I think the studies you're referring to are really focused on the prior generation or first generation product and given this is the space we see a lot of technological advancement in fairly short period of time. But that study with similar product that was originally launched a number of years ago. This is early on and these product development, there is going to be work to do to develop the market, but overall we continue to be very excited both for the prospects within hemorrhagic as well as our ischemic business in total for the Neuro segment. That’s been a great addition to our portfolio, getting into that space and expanding our presence there. I think it is a fair comment about reimbursement, we are going to have work to do as we would in any new space, when you are developing a new treatment modality, but I don't think that study changes, the prospects we see for that market development.

Kevin A. Lobo - President and CEO: And certainly our customers don't listen phased at all by the study given very, very small sample sizes and it was really almost three generations ago. It was a very, very old product and it's involved very significantly since then. So, the promise for ischemic stroke is still very significant.

Operator: David Roman, Goldman Sachs.

David Roman - Goldman Sachs & Company, Inc.: On the gross margin side, excluding the medical device tax, it sounds like there was a fairly decent underlying improvement year-over-year. Can you maybe just help us taken the components of that, it sounded like I don't know if I misheard you did on the call, there were some maybe one-time-ish items in there that will benefit. But can you may be able to understand the underlying gross margin trend and the factors influencing that?

Dean H. Bergy - VP, Corporate Secretary: As we talked about the underlying, we talk about adjusted gross margin. So, for the current year it's 67.5%, but that includes 100 basis point for a reduction for the medical device tax, but prior year adjusted gross margin was 67.8%. So, the benefit that we got in the underlying really come from three places. We are managing our inventory better and that's resulted in lower inventory charges for things like excess and obsolete inventories. We did get some favorable product mix in the quarter, so that's the second component; and then the third component which we've continued to talk about is this five-year plan that we have or continuing plan to continue to take cost out with our global quality and operations group. So that's really the third element. So, again, if you go through that math and take into account the fact that we did absorb the medical device excise tax this quarter, you're right, we did have those underlying factors that improved our margin year-over-year.

David Roman - Goldman Sachs & Company, Inc.: And then maybe just a follow up on the questions on Trauson. I think the last time I met with them they had quoted sort of that Chinese orthopedic market grow in the 30% range, which at the time was sort of dominated by local players. Can you maybe just talk about your view of that market and then what impact you and Medtronic owning some of the larger players might have on competitive position for multinationals versus locals?

Katherine A. Owen - VP, Strategy and IR: I would say if you're referring to the value segment of the market, we do think it's probably growing somewhere in the 20% to 30% vicinity in China. We do believe it's going to be the fastest-growing segment of that market and then will become a larger component going forward for us, and I can't speak for Medtronic. We really viewed the acquisition of Trauson was a way to get some brand recognition. (It's been on the) market for over two decades. Obviously, if we invested starting now, we're not going to have that. They've got a presence there and capability in terms of their manufacturing expertise that was targeted at that value segment. We like Medtronic and other multinationals tended to be more focused on the premium segment. So for us it was a way to balance out our offering and expand into both premium and more importantly (longer term the) value segment of the market.

Kevin A. Lobo - President and CEO: I'll just add, I had a chance to visit Trauson last month and I'm very excited with the management team that's in place. We have Aiguo Wang who is a longtime Stryker veteran who is a General Manager of that business and he is on the ground in China integration team is well underway and so far everything is going very, very well. So it's an acquisition we feel very excited about. Again it's early in the process but certainly the kind of current growth numbers you suggested are still in play and we feel that it's going to be very significant over time. The last point I would make is we are running Trauson very separately. So we have the premium segment in China and Trauson the two General Managers are reporting up separately, they don't report to each other. So they are very, very separate businesses. Now that we've completed the acquisition we're able to look at all of the dealers and the distribution network is actually completely separate. There really is no overlap because they are calling on different hospitals. So again a very additive acquisition.

Operator: David Lewis, Morgan Stanley.

David Lewis - Morgan Stanley: Dean just maybe a quick margin question if I look at the SGA leverage this particular quarter it was particularly strong as it was last quarter as well and you obviously talked about currency being a headwind obviously the SG&A leverage or improvement there is probably one of the factors that's offsetting the hit from currency. So what is driving that underlying improvement in the last couple of quarters and now for a year and a half we've talked about shared services and optimization, are we ahead of plan as it relate to that and typically you see improvements at Stryker across the quarters, if you start off strong and is that the type of trauma should be expecting?

Dean H. Bergy - VP, Corporate Secretary: Well, I think we did a pretty good job with G&A spending this quarter vis-a-vis the prior year, but I would tell you that we've got a long ways to go, still a lot of opportunity in G&A specifically relative to some of the things you mentioned shared services, I mean frankly we are just at the nub of what we can do there. And obviously Bill Jellison is here. I think, third day on the job here, but I know he has done these kinds of things in the past and I think it's something that obviously he is going to be attacking us as he comes on-board here. So, I appreciate the compliment but I think there is a lot of work to be done and I think the organization is committed to getting that.

David Lewis - Morgan Stanley: So, it's something onetime in nature that explains the levers. So, we can assume this is good old fashioned organic improvement?

Kevin A. Lobo - President and CEO: I don't think there is anything that specifically. We did have the prior year CEO severance cost which I mentioned there of $8 million. So, year-on-year that’s obviously a factor in what you see here too.

David Lewis - Morgan Stanley: A quick follow-up for Katherine. I know you talked about the strength in trauma. Just I didn't hear specifically, what do you think is driving that strength. Are we still seeing benefits from the (NEO) recall, competitors now recall or we starting to see more strength in (in-core trauma)?

Katherine A. Owen - VP, Strategy and IR: I'd say yes and yes. So, there was some benefit from the competitive recall, it was about a third in the fourth quarter, it was somewhat less than that in the first quarter, it gets increasingly difficult to get really specific. I'd say underlying growth probably did accelerate for our trauma business heading into the first quarter. I wouldn't point to any specific product, I think we have the opportunity to really get in front of customers and as Kevin has mentioned previously really show on how much we have expanded our product offering not just this year but over the last few years as we have invested and we are much more capable of going toe-to-toe with anybody in the market given the breadth of the bag. So, it was an opportunity that allowed us to really leverage that product offering. So, I don't think all of that business that we picked up will stick, (less of it) stuck in the first quarter, but at the same time our core business is accelerating from the fourth quarter and candidly we'd rather see the growth that way.

Kevin A. Lobo - President and CEO: Yeah, what we're really seeing is full account conversion, something that we were incapable of doing three or four years ago. That started really last year. So if you look at our growth, 26% is a pretty impressive growth given that the first quarter of last year we grew at about 13%. So this is really been steady solid improvement, a very stable management team, and launching really a slew of products over the past four or five years that (filled on) our bag that enable us to do full account conversions. And that's where we're getting big chunks of growth and these are accounts – obviously, all across United States we still have room to improve outside the U.S., but in the U.S. this has been a four or five-year process, and we still have ways to go.

Operator: Derrick Sung, Sanford Bernstein.

Derrick Sung - Sanford Bernstein: So your instrument sales growth decelerated in the quarter versus Q4, and I understand that the Neptune recall impacted it, but that was seen in both quarters. And so my question was if you could give some color as to that deceleration? Would selling days have that much of an impact? I would have thought not so much. So any help there would be appreciated.

Katherine A. Owen - VP, Strategy and IR: You will see the selling day impact. We had one extra in the fourth quarter, two fewer in the first quarter. The straight math is 2.5%. It probably impacts our capital businesses a little less so, but that's tough to tease out with specificity. So I wouldn’t highlight anything in particular that we would view as issues. We continue with the launch of our power tool but obviously we're getting further into that launch now. The biggest challenge right now that that that division is facing is obviously the Neptune recall.

Derrick Sung - Sanford Bernstein: Okay. And then if I contrast the CapEx spending in (beds) which came in pretty strong I think with expectations versus endoscopy where you called out kind of the communication side. What's driving kind of the difference there, are you seeing stronger spend in one category than the other or can you kind of help contract those two dynamics that we're seeing?

Katherine A. Owen - VP, Strategy and IR: Yeah I mean it's not like every capital business all goes in the same direction in any given quarter. For example medical had tougher comparisons – excuse me had easier comparisons versus a year ago and that's not necessarily true for our capital businesses. I'd simply point to the fact that any of our capital businesses are going to be variable from quarter-to-quarter regardless of stability of the markets. In general it's going to more so for medical. It just happened that this quarter they were benefiting more so from a comparison whereas endoscopy the timing of some of the communication sales were such that it offset some very good growth that we saw with that double-digit gains to the camera segment, which obviously speaks to the receptivity of hospital customers for capital purchases.

Kevin A. Lobo - President and CEO: Yeah, so you kind of sort of have to look at over a series of quarters and really over a series of quarter you'll see that the endoscopy business will pick up, we anticipate that through the course of this year.

Operator: Matt Taylor, Barclays.

Matthew Taylor - Barclays: So just a clarification on your prior comments. Katherine you were talking about the normalized the hip and knee growth. I just wanted to confirm you're talking about volumes and not dollars?

Katherine A. Owen - VP, Strategy and IR: When we talked about the low to mid-single digit growth that's – for us that's what we've kind of walking around what the market growth is for hips and knees.

Matthew Taylor - Barclays: And last quarter you had a pretty nice uptick in American (hip and knee) sales and you attributed some of that to your DTC advertising. I was just curious we saw that again if you are continuing that program and any feedback on the success you are having there?

Kevin A. Lobo - President and CEO: Yes, we feel really excited about the DTC program, and we played around with the mix a little bit in terms of how much television we have done versus how much print and how much internet. In January we were little bit quite on television, we resumed television in February and have seen the same kind of metrics in terms of surgeon locator searches, clicks to the website and obviously after you have the TV ad it takes couple of month, two, three, four months before the patient actually will present for surgery, we will see revenue. But all of the indicators are still very, very strong. And we have a compelling concept. It's working and certainly we had a terrific year in the knee business last year as you saw. Obviously, slightly moderate in the first quarter, but it's nothing that causes us any alarm, and we are going to continue to invest. We are going to continue to play with the mix in order to really maximize the return on investment. And you will see us sort of coming on and off, but TV will remain part of our media mix throughout the year.

Operator: Glenn Novarro, RBC Capital Markets.

Glenn Novarro - RBC Capital Markets: Can you give us some color behind your spine numbers in the quarter, they did come a little bit below our expectations and I know you did have a very strong 4Q. So, is it possible that 4Q stole some sales. Is there any slowdown in the market, any color would be helpful?

Katherine A. Owen - VP, Strategy and IR: I think it's fair that the seasonality comments we made to Recon for any of our implant businesses that have an elective component and certainly spine falls in that category. First quarter it is in the U.S. up against tougher comps versus a year ago. There's nothing that we would call out. That business is still finding its feet in terms of what the underlying market growth is going to be, and candidly what our growth is going to be. We've got a good team in place. They are continuing to round out the bag and the product offering and I think you will see some movement quarter to quarter, but there is nothing in the first quarter that we would call out as a significant change in that outlook.

Glenn Novarro - RBC Capital Markets: Just as a follow-up, pricing, most companies are commenting about US pricing being down mid-single digits. Is that still a fair assumption and have you seen any change in payor pushback this quarter? Most companies are saying there's no change year-over-year.

Dean H. Bergy - VP, Corporate Secretary: I would say our pricing mirrors the comments of the others.

Operator: Larry Biegelsen, Wells Fargo.

Lawrence Biegelsen - Wells Fargo: Katherine on sustainability solutions, did I hear correctly that it grew mid-single digits this quarter? And if so, it's a little bit below trend. Could you talk a little bit about what's going on there and the outlook please?

Katherine A. Owen - VP, Strategy and IR: Yeah, your comments are correct. I would say what we saw in the quarter was partly due to competitive product launch and we're going to be filing a 510(k) for it. That's a phenomenon that you're going to see in this business. We've launched a product that we have clearance to reprocess, a competitor will launch a next-generation version of it. You can imagine we don’t really get a heads up on that. There's typically a little bit of a lag time as we get the product and get the clearance for that. So that was one of the key components that impacted that growth year-over-year. We continue to feel really good about the momentum in that business though.

Kevin A. Lobo - President and CEO: And adjusted for days, it was actually high-single digit growth, so Dean's commentary was all kind of on as reported basis. And obviously with the selling days adjustment, it was high-single digit. A slight deceleration from where it's been in the past couple of quarters, but again nothing that causes us any concern. We still very bullish about that business.

Lawrence Biegelsen - Wells Fargo: Then your foot and ankle business is obviously doing very well, but you haven't talked about another area of extremities that's also growing nicely, the shoulder market. Could you Kevin maybe give us a little bit of an update on what you're doing there, what you're seeing in your business, we've heard anecdotally that Stryker is putting up more of an emphasis on the shoulder market?

Kevin A. Lobo - President and CEO: So as you probably know last year we launched our total -- New Total Shoulder, but we have not yet launched our Reverse Shoulder, that's going to be launched a little bit later this year probably the middle -- around the middle point of this year. Once we have the Reverse Shoulder out in the market then we can really go after significant growth. So shoulder actually and if you look at joint reconstruction is actually not a very, very big part of our portfolio, something that will be a big growth driver in the future, but thus far until we have the Reverse on the market will not be a huge growth driver. On the other hand if you look at the sports medicine implants, the All Suture Anchor certainly used for rotator cuff it's also used for hip FAI procedures but certainly the huge growth in the shoulder in our sports medicine business which I indicated grew over 50%. So, shoulder will be more and more important than as you know there are more and more specialist surgeons, upper extremities or shoulder specialists. We'll be calling on those much more aggressively after we have the Reverse Shoulder on the market.

Operator: Kristen Stewart, Deutsche Bank.

Kristen Stewart - Deutsche Bank: I was wondering if we could just take a step back I know Bill you've just joined for couple of days now but maybe if you can just share your perspectives on what attracted you to join the Stryker management team and any preliminary thoughts that you might have just in terms of company strategy, your approach to capital allocation, and just kind of what will be your priority here over the next 100 days or so outside of obviously just kind of ramping up on orthopedic and MedSurg businesses?

Dean H. Bergy - VP, Corporate Secretary: Our reason for joining I think it's there is a number of different ones that obviously came up and hit on a number of fronts. Stryker is obviously one of the top 10 med tech companies in the world. It has got a culture and a management team. I think that seems to be a great fit. Stryker also has a stellar kind of reputation for the growth over a long period of time. It's well positioned within some I think very attractive markets with the vast portfolio of products. As you mentioned the balance sheet is already extremely strong. They have got fantastic cash flow and obviously that cash flow should be able to be used for additional growth opportunities, both inside and outside of the organization. And I think that it's pretty clear that there will also be a component of that. That allows for additional return of capital to shareholders. On top of all of that, I'm actually originally our family is originally from Michigan, so this is kind of a return home from that perspective. So, I think it's a real great fit overall and we are looking forward to it.

Kristen Stewart - Deutsche Bank: And then just one other question I guess just kind of relating to the Boston Scientific reform or Boston Scientific Neurovascular business. Can you just remind us where you are in terms of transitioning that business from manufacturing perspective and are we now separated from Boston and are there any sort of restrictions that are out there that are in place that maybe lifted over the next year or so, that would allow you to get little bit broader into area of within peripheral vascular or anything kind of below the neck?

Kevin A. Lobo - President and CEO: Let me take the first part of that. We still have one piece to go in terms of the manufacturing transition and that will happen this quarter. We've got some (Irish) manufacturing to move over. The other moves have gone smoothly. We anticipate we're well prepared for this, and it will go smoothly as well, so that's the one remaining piece, and we anticipate that will be done this quarter.

Katherine A. Owen - VP, Strategy and IR: And with respect to your question about limitation, there's nothing that I'm aware of that would prohibit us from going into other segments.

Operator: Bruce Nudell, Credit Suisse.

Bruce Nudell - Credit Suisse: Kevin, in Katherine's comments she stated that the (Asia) is unlikely to influence implant rates next year very much. We kind of looked at it and it's clear that Medicaid reimbursed patients consume less than commercial patients, but there is likely to be a step up among the people who are uninsured, so just some clarity on that as to why you're pretty certain that you won't even see 0.5% or 1% implant rate improvement? And secondly, just comment generally on the growth rate in the Neurovascular segment this quarter.

Kevin A. Lobo - President and CEO: So the first question, I would say we're not saying we're not going to have a slight uptick. It's either neutral or a modest positive is how I characterize it, very difficult to predict. Today we see certainly in the orthopedic market if someone wants to get their drug replaced, they tend to get replacement. We, as you know, have a high Medicare Medicaid population as it is. So for the vast majority of our businesses we don't see a big swelling of patients as you would in, let's say, if we were in chronic care or other parts of the healthcare system. That said, we think the medical business could be a beneficiary since patient satisfaction will become a much more important component and given that it helps preserve their Medicare reimbursement and a bed is a key component of the patient satisfaction. But for planning purposes, because it's so difficult to predict we're really assuming that it's not going to be a positive. It may turn out to be a positive but if it is, we believe it will be modest in nature. The second part of your question was neurovascular; we continue to have double-digit growth in neurovascular and are very excited about the leadership there. As I mentioned earlier on the call, I had a chance to visit with the team recently. Just a fantastic management team that came over from Boston Scientific that stayed intact and certainly they're extremely excited because Stryker is investing significant. As you saw, we had two follow-on acquisitions following the initial acquisition of Boston Scientific, they have an unbelievable R&D team and getting a chance to look at their pipeline was absolutely exciting for me. So, it's a business that we feel very, very good about.

Operator: Jeff Johnson, Robert W. Baird

Jeffrey Johnson - Robert W. Baird: Kevin, I apologize I've been jumping between calls, if I ask something that's already been asked; just tell me, I'll go back to the transcript. But I wanted to start with one bigger picture question. Just with Trauson now in the fold, wondered how you feel about maybe dual-branding strategy in some markets, would you ever think about taking some of those trauma products into some of your core markets and looking at a dual-branded strategy?

Kevin A. Lobo - President and CEO: Yes, so I did mention earlier on the call that, today, we have a separate management team for Trauson that's distinct from the premium brands. Obviously within China, we're going to maintain the Trauson brand. Our intent is to export those products to other markets. We have significant room to continue to grow within China, and we also have significant room to grow in other emerging markets. So our initial expansion will be to places like India, the public sector in Brazil, certain countries where they already have a robust value segment. Whether these kinds of products will then one day make themselves to more developed countries remains to be seen, it's certainly not our first priority given the vast amount of growth that we can achieve first in China, and then in another emerging market countries. But our intent will be to maintain the Trauson brand with these products.

Jeffrey Johnson - Robert W. Baird: And then just a housekeeping question. Katherine or could we just hear the selling days for the rest of the year, and then maybe on pricing, as the Japanese price cut anniversary here in the second quarter, do we get an improvement in pricing next quarter, or is that just a little cushion in case Europe gets worse and things like that?

Dean H. Bergy - VP, Corporate Secretary: So Jeff, this is Dean. Right now there is one additional selling day in the second quarter and then pretty comparable year-over-year in the third and the fourth quarter. Relative to the Japan pricing, we do anniversary that in this quarter and incrementally that should help us although obviously the sales in that market are going down by virtue of the currency impacts. So on the pricing front, it should help us incrementally, we don't anticipate – that won't being assessed.

Operator: Bill Plovanic, Canaccord.

William Plovanic - Canaccord Genuity: Just a follow up on the spine and then a question on the hip. Just on the spine, I think last year and just correct me if I'm wrong, the biologics was driving a lot of the growth. So I'd wonder if you would be willing to cut the spread between the growth of the biologics in the metal as we went into the first quarter and then any pricing impact there? And then on the hip, I think Accolade's been out about 18 months now roughly. Just how long does the product cycle kind of last in this environment in contributing a little extra to growth?

Kevin A. Lobo - President and CEO: So regarding the first question, we're not really going to get into spiking out all the different components of spine. What I would tell you that in our first quarter orthobiologics was not a disproportionate contributor to growth. We actually did quite well in the metal business. It's really starting to normalize, but we're not going to really get that granular, certainly not on this call. Then what was the second question?

Dean H. Bergy - VP, Corporate Secretary: Relative to Accolade and…

Kevin A. Lobo - President and CEO: Yeah, so Accolade actually - Accolade too was launched only in the second quarter of last year. So it’s still fairly early in its launch. It's been wildly successful and that's really the biggest contributor to our growth within our hip franchise. We've also launched a new hip (at academy), a version of Secur-Fit Plus, which is for fit and fill, surgeons that prefer that type of a hip stem. So the hip franchise frankly over the last two years, as you've seen, has been a very, very strong performer, and really on the back of terrific products with hip stems as well as the dual mobility cups. We've had strong growth all through last year and that continued in the first quarter of this year.

Operator: Steven Lichtman, Oppenheimer.

Steven Lichtman - Oppenheimer & Co. Inc.: Most of my questions have been answered. But Kevin in terms – just going back to Spine again, obviously you had bounced around here…

Operator: Joshua Jennings, Cowen & Co.

Joshua Jennings - Cowen & Co: Just quickly on the MedSurg business. Just now you have a quarter under your belt of results and four months of interacting with customers, can you give an updated view on expectations for U.S. hospital cap equipment spending this year? Then potentially whether or not you're seeing any benefit from any allocation away from IT and any benefit there for Stryker in Q1 or any expectations throughout the rest of the year? I have one follow-up.

Katherine A. Owen - VP, Strategy and IR: As it relates to capital, I would go back to some of our prepared comments where the market seems to be somewhat stable. We're not seeing any significant departure. We saw some of that IT impact during 2012. But other than the normal variability you see quarter-to-quarter, right now the market seems relatively stable.

Joshua Jennings - Cowen & Co: So, will that include an expectation some modest improvement or growth in capital spending in the U.S.?

Katherine A. Owen - VP, Strategy and IR: There may be a slight increase, but overall we're not assuming big growth rates or big changes in capital spending.

Kevin A. Lobo - President and CEO: So, just going back to our comments on the Endoscopy business, certainly the capital component of that business we anticipate, that's our own business where we sort of have a bit of a bit of a softer quarter this quarter and we anticipate that that will improve, but that's not a reflection of the market. The market's pretty stable and our business obviously has some volatility from quarter-to-quarter, but I wouldn't call out any kind of change in the market.

Joshua Jennings - Cowen & Co: Then secondarily in Europe; Medtronic called out that they were seeing some weakness specifically in January and I know Stryker has their own company-specific headwinds in play, but can you just comment on outside of those headwinds whether or not you saw any changes in Europe in Q1 and then into April?

Katherine A. Owen - VP, Strategy and IR: No, there's really no change to any of the commentary we've been making, both in the first quarter and before that about Europe. Nothing specific country versus what we've talked about previously.

Kevin A. Lobo - President and CEO: I think Medtronic clearly has a bit of different business profile than we do and I believe that they followed up on their comment, really talking about the impact being enormous on the cardiovascular space, in specific countries where we currently don't compete. So for us Europe is more of the same, challenging market, it hasn't changed at all in the first quarter versus last year.

Operator: Thank you, there are no further questions. At this time I will now turn the conference over to Mr. Kevin Lobo, for any closing remarks.

Kevin A. Lobo - President and CEO: So, thank you all for joining our call. Our conference call for the second quarter 2013 results will be held on July 18th. Thank you.

Operator: Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.