In 2008, six of our eight main franchises achieved industry-leading growth rates, our best-ever performances across many businesses. Our commitment to globalization and innovation has been driving our knee, spine, trauma, CMF, instruments and medical franchises to industry-leading levels. And we are achieving this growth in different ways. For example, much of our growth in our spine, trauma and CMF franchises over the last few years occurred by strengthening our resources in the United States—where these franchises were historically weaker. Conversely, our important instruments and endoscopy franchises achieved significant growth outside the United States during this time, where these franchises have great upside opportunities. As we look to the future, we are pleased by our progress, yet also encouraged that we have meaningful opportunities for continued expansion.

Our Evolution

As many of our long-term shareholders know, we have been a strong Company generating superior results over a long period of time. However, in recent years, our industry and our Company have been increasingly facing new challenges. In addition to new accounting regulations for all businesses, the medical technology industry has also experienced enhanced scrutiny, as demonstrated by increased actions of government agencies in both the U.S. and abroad. In response, we have redirected numerous resources—people and financial—to address investigations by the Department of Justice and the Securities and Exchange Commission into our industry. We have spent a great deal of time on these matters and have made significant changes in how we do business as a result of our own heightened awareness in these areas. While we are involved in fiercely competitive markets with difficult challenges, we want to ensure that we deliver our numbers the right way.

As part of our own evolution, you have read over the last few years about the four imperatives driving our continued growth: globalization, innovation, people development and leveraging across divisions. We developed these imperatives to be long-term and enduring, to provide consistency and clarity to guide our evolution. Events of the past few years, however, also demonstrated a need for us to significantly dial up our commitment to compliance throughout the organization.

As a result of Food and Drug Administration (FDA) inspections in 2006 and through 2007, we received three regulatory Warning Letters citing deficiencies in our quality systems, a clear signal that we could do better. In reflecting on the situation, two observations become apparent to us. Two of the tenets of our success—an intense focus on customer service levels and our decentralized structure—have resulted in different approaches to quality and compliance systems across different divisions. Now it is time for us to evolve in these areas. As with all of our evolutions, our goals are to retain the strengths we established while adapting to the new and energizing challenges.