selling prices at 4 percent in its most recent quarter in the Americas, the Company’s largest operating segment. Although the industry has experienced steady growth in price in the last few years, the Company expects price growth to moderate in the near term and settle in at rates of 2-3 percent for 2004. Pressure from healthcare cost containment efforts may affect prices in markets where health care spending grows at a rate higher than the local economy. Even though the clinical benefits of joint replacement products and fixation devices are well documented, the orthopaedic industry could be subject to such efforts by various consumers of healthcare in different parts of the world. In Japan, as an example, where hospital reimbursement prices for medical devices are set by the Ministry of Health, Labor and Welfare, the Company expects pricing to decline 4-6 percent in mid to late 2004 as compared with the more traditional 2-4 percent decline experienced in prior bi-annual price adjustments. Another important factor affecting the industry is global demand for orthopaedic devices. Orthopaedic procedure volume on a worldwide basis continues to rise at mid to high single digit rates driven by an aging global population, proven clinical benefits, new material technologies, advances in surgical techniques (such as our MIS Procedures and Technologies) and more active lifestyles, among other factors. 

Adoption rates for new technologies are another key indicator of industry performance. In the Company’s business, revenue has grown with the introduction of new products such as Longevity  Highly Crosslinked Polyethylene Liners which accounted for 11 percent of the Company’s total Liner sales in its first year of introduction and now comprises over 90 percent of the Company’s Liner sales. The Centerpulse companion product Durasul ˛  Highly Crosslinked Polyethylene was up 47 percent in the fourth quarter. Crosslinked polyethylene products generally demand a higher price than standard Liners due to anticipated improvement in wear characteristics, as demonstrated in laboratory tests. In 2002, the Company introduced Prolong Crosslinked Polyethylene for the knee, which is also sold at a premium to standard articulating surfaces. In the fourth quarter, Prolong represented approximately 42 percent of all cruciate retaining articulating surface product sales and 14 percent of all articulating surfaces. While the price premium is significant on this product, the Company believes its ultimate impact of resistance to delamination has potentially far ranging medical and economic benefits. Adoption rates for the Company’s new products associated with Crosslinked Polyethylene, MIS Procedures and Technologies, Trabecular Metal,  Knee and Hip Revision products, Interpositional Knee devices, and new trauma, spine and dental devices will continue to affect the Company’s operating performance. 

In recognition of the importance of the successful introduction of new technologies, Zimmer has developed a full time department called – ‘‘Health Technology Assessment and Reimbursement.’’ This department has supported the collection and analysis of clinical data to determine the economic effects of certain surgical procedures and the use of the Company’s products. 

Another important factor affecting operating performance is foreign currency fluctuations. With a significant portion of the Company’s revenue derived from sales of its products outside of the United States, revenues and operating results are affected by currency exchange rate fluctuations. A weakening U.S. dollar throughout 2003 contributed to the growth in revenue reported in the year ended December 31, 2003, adding four percent of the 20 percent reported revenue growth, excluding Centerpulse product revenue. The Company addresses currency risk management through regular operating and financing activities, and under appropriate circumstances and subject to proper authorization, through the use of derivative financial instruments solely for hedging purposes. The use of derivative financial instruments for trading or speculative purposes is prohibited. 

An evolving trend which may affect the industry and the Company’s operating performance in the future is connected with how the industry markets its products. Industry players have recently turned to direct-to-consumer (DTC) advertising and promotion as a means of promoting new products and technologies. As this development is in its beginning stages, it is not possible to predict how this may affect operating performance, if at all, in the future. The Company has engaged in relatively low-cost DTC campaigns in connection with the launch of its NexGen LPS-Flex Knee and to publicly reach out to patients while working with surgeons to introduce MIS Technologies and Procedures. The Company has made use of the Zimmer-owned web site, PaceWithLife.com, which in 2003 resulted in 38,000 ‘‘Find a Doc’’ requests and almost 10,000 marketing packets mailed. And the Company’s MIS ‘‘Adword’’ campaigns had more than 30,000 ‘‘click-thru’s’’ on nearly one million impressions. The Company’s six month national public relations campaign in 2003 completed the year with almost 170 placements and reached audiences of close to 15 million people. While certain competitors are now engaged in more expensive national advertising, the Company is currently satisfied with the returns it has experienced with its low-cost DTC campaigns. 

Lastly, among the many factors that affect operating performance within the industry is the development and protection of intellectual property. In 2003, the Company was granted a patent by the U.S. Patent and Trademark Office for the Zimmer MIS 2-Incision Hip Replacement Procedure. The patent includes 17 approved claims. In addition to the issued patent, five more Zimmer MIS 2-Incision Hip Procedure patents are pending with a total of 122 additional claims identified relating to the surgical technique and instrumentation. Similarly, and equally important, the U.S. Patent and Trademark Office has issued patents for the Company’s Transformational Technology MIS Hip Fracture Fixation System with 22 product and procedure claims approved and five patents and 239 claims outstanding. Furthermore, the Company has seven patents pending related to its unique MIS ‘‘Quad-Sparing’’ or ‘‘QS’’ Total Knee Procedure with a total of 395 claims covering novel aspects of the procedure and instrumentation, as well as new implant designs. The Company believes there is significant potential 

