Good day, ladies and gentlemen. And welcome to the Second Quarter 2007 Stryker Earnings Call. My name is Annie and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. Certain statements made in today's conference call may constitute forward-looking statements. They will be based upon management's current expectations and will be subject to various risks and uncertainties that could cause the Company's actual results to differ materially from those expressed or implied in such statements. In addition to factors that may be discussed in this call. Such factors include, but are not limited to: pricing pressures generally, including cost-containment measures that could adversely affect the price of or demand for the Company's products, regulatory actions, unanticipated issues arising in connection with clinical studies and eventual United States Food and Drug Administration approval of new products, changes in reimbursement levels from third-party payers, a significant increase in product liability claims, changes in economic conditions that adversely affect the level of demand for the Company's products, changes in foreign exchange markets, changes in financial markets, and changes in the competitive environment. Additional information concerning these and other factors are contained in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Today’s conference call will also include a discussion of adjusted net earnings from continuing operations from the comparative quarter and six month period ended June 30th, 2007 and 2006. For the discussion of this non-GAAP financial measure including a GAAP reconciliation appears in the Company’s Form 8-K filed today with the Securities and Exchange Commission, which maybe accessed from the full Investors page on the Company’s website at www.stryker.com. I would now like to turn the presentation over to your host for today’s call Mr. Steve MacMillan, President and Chief Executive Officer. Please proceed, sir.

Thank you, Annie and good afternoon everyone and welcome to Stryker's second quarter 2006 earnings report. With me today are Dean Bergy, our Vice President and Chief Financial Officer and Katherine Owen, Vice President of Corporate Strategy and Investor Relations. Simply put, we are very pleased with our second quarter results and about our prospects going forward. We emphasized, coming into this year, that we were focused on executional excellence and should also begin to see the results of increased commitment we made to R&D a few years back. We think these results show that we are meeting these goals. Specifically, net sales in the quarter of $1.464 billion were up 16% as reported and up a strong 14.2% operationally; our best growth rate in the last eight quarters. We were particularly encouraged because both our Orthopaedic Implants and MedSurg franchises delivered accelerating growth rates over last quarter in both the U.S. and globally. In the U.S., our growth was broad and quite balanced, with Orthopaedic Implants up 17%, MedSurg up 18% and total growth of 17%. Internationally, our operational growth of 9% was up modestly versus last quarter, as accelerations in hips, knees and trauma all led to slightly stronger orthopedic implant growth of 7%, while MedSurg again posted mid-teen growth rates. While Dean will give additional details, I'd like to highlight the particular success of our U.S. spine and trauma businesses, each of which achieved growth rates of 30% or better in the quarter, and drove total sales growth above our expectations. In the case of trauma, this is the second straight quarter at 30% or higher and 6th straight quarter at over 20%. And, while we do not expect these franchises to perform at such high levels on a sustaining basis, we are certainly pleased with the…

Thanks, Steve. I will begin with the impact of foreign currency and sales. International sales in the second quarter were favorably impacted by $23 million boosting the company's overall sales growth by 1.8%. In the second quarter, the dollar weakened approximately 7% against the Euro and strengthened about 5% against the Yen, compared to the prior year. And if currency rates hold near current levels, we expect the impact of foreign currency will increase third quarter 2007 sales by about 1% to 1.5%, when compared to the prior year. And next I’ll turn to the price volume analysis in the quarter and I will tell you there are just two things making up our 16% total growth: the foreign currency translation impact that I just talked about at 2%, and then the volume mix growth of 14%, which means that price was flat in the quarter. Prices in Japan were negatively impacted by the January 1, 2007 and April 1, 2007 MHLW reimbursement cuts with prices in that geographic market, up by about 5% in the second quarter. Slight increases in various other markets contributed to negate this impact for the company as a whole. The second quarter sales increase was nearby growth in overall volume mix of 14% as I said with the domestic volume mix up 17%, and the international growing at a 9% equal. Now taking a look at sales in our various categories. Orthopaedic Implants sales, which make up 60% of our sales, increased to 15% in the second quarter on a reported basis and 12% of constant currency basis. The sales growth rates by product line are included in our press release and I’ll reference those rates as I provide more detail on performance in the category of these products. So within implants, starting with…

Thanks, Dean, and now just a few additional comments on our 2007 outlook. Halfway through the year, we feel good about delivering on our sales and income commitments. On the sales front, we are clearly on track to deliver a seventh straight year of double-digit sales growth. With the divestiture of Physiotherapy, our full year sales are likely to be towards the higher end of the 11% to 13% operational guidance that we initially established for the year. With $1.19 per share, in first half adjusted earnings, we are also on plan to deliver 20% EPS growth of $2.40 a share for the year. And we are doing this, we might add, with a slightly higher tax rate and share count than we had planned. With strong cash generation and the sale of our Physiotherapy division, our cash balance is now about $1.8 billion and becoming a source of more questions and speculation about the potential for acquisitions and/or stock buybacks. Simply put, we are biding our time. With the strong underlying performance of our business, we are in a position of strength and can afford to be patient, a trait which has served us well over the years. We will now open it up for questions.

(Operator Instructions). And your first question comes from the line of Mike Weinstein with JP Morgan. Please proceed, sir.

Thank you. Good evening and congratulations on a fantastic quarter.

Thanks, Mike.

And happy birthday, Steve

Thank you very much; it had to be a good quarter, right?

It had to be, you know it. Couple of things I think I would like to focus on, one is both the Instruments and Endoscopy pieces are so strong in the U.S. and obviously we are all aware of the products you have launched over the last six to 12 months. Can you just talk a little bit about the uptake of the few product, that you have launched and where you think those launches are in their adoption cycles, for those two businesses. And then I think the other question I would focus on would be on the spending side and it's mainly the amount that you increased your SG&A and R&D lines was pretty remarkable. I would just like to hear a little bit more about where you are spending those incremental dollars, because I would think it's hard to spend that much money definitely and would love to hear where the R&D dollars are going and where are those extra dollars from the SG&A are going? Thanks.

Sure. Thanks, Mike. Let’s start with the Instruments and Endo. We clearly saw the 1188 camera and System Six, both generating growth for those segment well north of probably 20-25% in the quarter. And we are probably in about the fourth inning Dean would you say.

That’s right, sir.

In terms of where we are in those launches, in other words a lot of trialing going on certainly in the first quarter and we started to see clearly the order started to come through in the second quarter and think there is still a lot of life that both products are being very well received. In terms of the R&D and SG&A lines. I would tell you on the SG&A front we are continuing to build out sales forces really around the world and I think you are seeing some of the impact on that, some of that in our trauma business in the U.S., other parts is the MedSurg business outside the United States and so we will probably continue to invest where things are coming in well. We are still putting additional bodies on to the street and that will continue to payback here in the future. On the R&D front, I think as Dean mentioned also we would tell you we feel pretty good about the pipelines across every division, and the spending really is very broad-based, almost division-by-division to keep the product flow coming in. And I think we probably feel better about our continued ability to generate product flow coming in over the next few years on a broad basis than probably we have felt in sometime. Now, again, the proof is going to be in the pudding, we're going to have to deliver it in the quarters ahead, with things like hip resurfacing just starting to come through. Certainly, the System 6 precision, 1188, we're already working on next generations of those and things like that.

And Steve, just an update, but maybe at some point you could give us a breakdown of how you allocate your R&D spending between different programs, not how the men are talking across the businesses but within businesses between innovative projects and new technologies and so forth. I think that given the increase in R&D dollars the company has allocated over the last few years and I think that would be helpful and if you can give us that today that would be great. And then just coming back to last question, on the incremental fees, the people you are adding on the SG&A side. Anything you can give us there to give us a sense of how meaningful that is?

Sure. Let me take the R&D piece first and it probably a deeper discussion maybe at a future analyst meeting where we can give you a little bit more, but I'd say again on probably a high level basis for R&D, we are continuing all the blocking and tackling, what we call the incremental innovation within each division and most of the divisions have taken on what we would call is probably one or two double or triples in the pipeline, some of which make, hopefully all of which will come to fruition, some of which may or may not. But we're really looking at each R&D budget division-by-division: Can that division handle it? Can the company handle it? as well as do they have the people in place to try to bring those things through? I think to your point, we will try to give a little more elucidation around that, maybe at next year's analyst meeting. Regarding the additional feed on the street, I think it's been again probably incremental, both geographically and franchise vice. It's not like we've gone and heaved up a dramatic huge impact in any one geography or any one business, but it's back to just like our product flow, adding a lot of singles here around the world seems to be paying off for us.

Okay. That’s great and thanks, Steve, Dean and Katherine there congratulations.

Great, I'll thank you Mike.

Your next question comes from the line of Bob Hopkins of Lehman Brothers, please proceed sir.

Thanks very much and again congratulations on a great quarter.

Thanks Bob.

Just want to follow-up Stephen your comments about M&A and buyback. Because it seems to me there is a little bit of shift from the way you have been communicating earlier. I mean earlier in the year at a conference for example, you were talking about potentially adding a division. You had also, I think on a last conference call mentioned that, towards the year end this year, you would communicate further about, what you might be dealing with in terms of cash that’s a piling up on the balance sheet. So just wondering, should we read comments that M&A is kind of off the table this year and that the cash is just going to accumulate on the balance sheet. I just wondered if you could clarify those comments about bidding your time?

Sure, Bob. I think probably the best way to say is, may be as people keep pressing me for particular time frames, may be I haven’t been as good at clarifying. We are working at stuff, but as you M&A, we are not going to be held with time table, and not going to do a deal this year, just to try to do one. So, I think, with the underlying strength of our business we are certainly looking, and I think that the broad comment that we would love to add a division is a great one. Whether that is going to materialize this year or next year or the following year, probably not as clear, so I probably want to make sure that I am indicating, there is nothing imminent, we are clearly looking in with Katherine on board, stepping up our game in that area. But I probably do want to temper expectations and we are more comfortable, we are very comfortable, continuing to build even though people want better answers and want more specific time tables for what we might do in this area.

Okay. Thanks and then two other little ones. On the hip resurfacing side, when do you think you will be in full launch mode after you got a critical mass trained and when should be kind of think about that?

Sure. It's probably helpful to put in perspective the way we are going to go about the training. First off, we think the FDA put a lot of trust and confidence in us to make sure that we do the training right here. And we are really going about doing the training the first program actually starts tomorrow, where we are training 14 surgeons. And we are going to have a series of lots of programs around the country, training 15 or 20. This is not the kind of thing you bring 200 people in for a weekend and send them off the next week. We are very committed to wanting to make sure that surgeons are properly trained because as will know the placement and particularly the angulations in getting these things right are critical for the long-term success of hip resurfacing. So we are going to be really focused over the next three months particularly on training and even beyond that. In terms of meaningful impact, therefore certainly would not expect much this quarter in the U.S., probably starting to see some impact in the fourth quarter. And I would tell you for a purely commercial basis, the demand is there. We could drive sales faster and given our performance in hips over the last couple years, I would tell you its pretty tempting, but having said that, we are really thinking about the long-term here.

Okay. And then just lastly quickly I’d like you know what you are feeding your spine sales force? Very strong numbers out of you guys and just curious if you could provide a little more detail on what’s going on there? Do you think you are dealing with the healthy market? Do you think this is primarily share gains, just any other color that would be great?

Sure. I would tell you we are really, really proud of the leadership we have of our spine division and of that sale force and have a great people. I think if you take out a 50,000 foot level, think about it from four years ago. Four years ago we were nothing in spine, we were a Recon company that dabbled in spine. And so the thought leaders didn’t really view Stryker as a serious player in spine. And I think when our leadership of our Spinal division, combined with dramatically expanding our product flow, this has been one of the areas we have been over investing in R&D and we have dramatically broadened our product line in spine over the last few years from really being a just a thoracolumbar business to having now a good presence and surgical presence in the interbody spacers and everything else. So we have been filling out the bag and getting a lot of confidence and frankly a lot of surgeons who really are seeing Stryker I think as a company that really is starting to be on the leading edge in Spine and it's all sort of feeding on itself, creating a lot of confidence and support and belief that we want to continue to certainly feed that beast.

Okay. Thanks so much guys.

Thanks Bob.

Your next question comes from the line of Marc Mullikin with Piper Jaffray. Please proceed sir.

Good afternoon. Nice quarter.

Thank you, Marc.

I guess I would like to push a little bit more on the plans for the Cormet here in the U.S. Can you give us an idea of how many surgeons you would expect to train in total maybe in the first year?

Marc, as you may know we tend to not get into the specifics of numbers because we are going to focus on quality, and we don't like to play the game as saying, we are going to train 300 and then come back and say, we beat our expectation and trained 400. We are really still developing those plans and probably I'll just let the result, the sales results ultimately speak for themselves.

Okay. And I guess, with respect to the protocol for training here. Is it substantially different from the protocol being followed by your competitors?

I am not aware of it being significantly different.

One thing I would say Marc, as Steve I think alluded to, we do feel like our instrumentation should help to set us apart here in this category. I don't know that the protocol of that is different necessarily. But the instrumentation we think has been very reactive to the information that came out of the clinical study that was done in the U.S. and should help to really focus U.S. surgeons as they get involved here. And what needs to be done and we have taken that really in to account in terms of how we design the instruments and that carries over obviously into how the procedure is done.

Okay. And do you expect this to maybe reinvigorate your total hip business or what do you need to do to really reinvigorate the total hip side of the business here?

Sure Marc, we would call it a step in the reinvigoration and we think frankly a very importantly step that probably more than anything psychologically is a huge boost to our sales force. We've been very enamored with the success we had on Triathlon and for the last really a year or two its been a lot easier if your Stryker sales reps to just focus on knees because Triathlon has been going so well. This gives them a great avenue to get back and to start talking about hips again. And I would say you should expect that we also know that there will be additional products coming in our hip portfolio here over the coming years. Probably nothing else this year, but as we go into next year, hopefully starting that to also reinvigorate the primary hip line.

Is the total metal-on-metal replacement in the pipeline?

We prefer not to talk about the specifics of what's in the pipeline. We are looking at it at a number of different things.

Okay, fair enough. And then just finally, on the U.S. trauma growth, to me that’s even more phenomenal than the spine. And I was wondering if you could provide some color, maybe in terms of price volume mix or any color you can provide as to what's really driving growth north of 30%?

It is mostly volume mix. There is a little bit of positive pricing in there, but its tremendous volume and mix games, a chunk of that is volume.

Do you have a sense of where you are getting the market share, because clearly the market is not growing at that rate?

We prefer not to take steps that way. I think we just feel good that we're obviously growing faster than the market.

Okay. Very good, thank you.

Great, thanks Marc.

Your next question comes from the line of Jared Holz of Bear Stearns. Please proceed sir.

Good afternoon. Nice Job, guys.

Thanks, Jared.

Just want to add to the first question on hip resurfacing. You see, in Europe and Australia, the penetration rates of hip resurfacing, compared to total hip procedures is roughly 15% to 20%, high teens, and that’s being generated by two, much smaller, companies. So with your presence in here, do you think you can get that penetration rate to over 20 and what's your thought and what you have been hearing on that?

We think over time that would be a very aggressive number. I think we are probably planning in the 10 to 15 range and we would say though that we do think most of that is incremental. Because you are largely appealing to patients today, that aren’t going to necessarily go in and have a total hip, and ultimately I think where we will be and we are now, it ultimately settles out, we are not sure. Could it be as high as 20 or 25 down the road if there is lot of success? Maybe, but I think that is going take certainly a long, long time. So our mindset is really more in the 10 to 25 range for the market.

Okay, great. And then just gross margins, meaningfully higher than they have been obviously because of the divestiture, but going forward, ending the year at roughly 68%. Is that where you guys think you can be?

We think we will reach up a touch over last year, probably not as strongly ahead to second half of the year has been than the first half. As Dean mentioned, the third quarter we have slightly tougher comparables from last year. But we feel good about continuing to try to make again what we would very much call as incremental progress here. Dean, do you want to add to that?

No, I think that’s good information, Steve.

Okay

Okay, great. Thank you.

Great, thanks Jared.

And your next question comes from the line of Jason Wittes with Leerink Swann. Please proceed sir.

Hi. Thank you very much. Just have some more follow ups on the hip resurfacing product. Can you explain with that in terms of profitability? Is this a more profitable product in your traditional hip line or do the royalties and manufacturing cost eat up some of that profitability?

Yeah, Jason, the gross margins on this product are going to be lower, we have talked about that and that’s solely from the standpoint that it’s a license product. We do have an agreement to buy it at a transfer price but as Steve said because it’s incremental market opportunity, we view the total gain as being incrementally targeted overtime as we start to get into it.

So basically we should be thinking, you are thinking that's sort of is potentially 10 to 15% of the market that could board over to hip resurfacing, that’s largely incremental or I mean I assume there would be some cannibalization from the traditional markets.

We think that would be more incremental than what people are factoring. I think the way we first look at it, there will be a lower gross margin on this thing but on a penny profit basis it should grow our total profitability.

Okay. And then the trauma growth was certainly impressive and if I recall, my memory is not being 100%here, about a year ago you started hiring somewhat aggressively in that division. Can we assume that this has taken about a year but now you are getting some pay offs there? And then secondly, it sounds like you are going to continue to invest in that sales force still. Is that the way to think about trauma from an ongoing basis?

We think your memory serves you very well Jason and you are dead on. Its clearly paid off for us and therefore we think there is additional opportunity to continue to expand somewhat and that’s’ what we have been doing and again our SG&A is running pretty hot, we would expect to see that starts to slow down as we really do start to realize some of the gains from the investments we have been making there.

But it does sound like for the rest of the year you are going to keep it hot or is this sort of key quarter for you in terms of SG&A?

I think it could slow down a little bit, Jason. I mean the thing it goes hand in hand with is the gross margin debt related to the shift and mix of business and the next quarter is a little bit lower in SG&A percentage usually too. But I think we'll also take advantages of opportunities to invest in the business where we can get them too, if the price comes down a little bit on a percentage of sales basis.

A final housekeeping question. Could you provide the impact of acquisitions for this quarter, if you are on it?

On sales growth?

Yes.

It's zero.

Okay. That's easy. Thank you very much.

Great. Thanks, Jason.

Your next question comes from the line of Joanne Wuensch of, BMO Capital Markets. Please proceed Ma'am.

Good afternoon. In regards to acquisition I can't seem not talk to an investor that doesn't think you are buying almost everything in orthopedics. Could you narrow down the scope a little bit for the way for what you maybe looking at? I am not going to ask when, but what you maybe looking at and what criteria in regards to dilution etcetera you may consider?

Sure, Joanne. We continue to look really at product based acquisitions. I mean, I think the Cormet hip which is a licensing deal. We continue to look for products that might fill voids and we would look at other subcategories and things are revolving, so we continue to look. Also, frankly, out of a lot of that looking, we often are seeing ideas that are opening our eyes. And I'll give you a very real example of that. We looked at hand innovations a couple of years ago and our team said, we have a great Distal Radius product, what we need to do is invest in a sales force because we have the product and we chose to pass on that acquisition and make an internal investment in our selling organization, which is part of our trauma business, and built up a little bit of a dedicated force there. So, part of what we look at also makes us smart to realize there are other things that we can do organically and that’s why it's kind of a back and forth process.

Okay. Is there anything you can update us on the department of justice investigations?

Nothing at this point, we continue to cooperate with the Department of Justice.

And then one last question, how tight are you feeling these days to that 20%.

We continue to feel, that certainly over the short and medium term, that it’s something we can clearly deliver and we take a lot of pride in that. As you know we set the bar high, we don’t play the game of, set the bar low and jump over it. We set the bar high and then try to hit it and feel pretty good about our ability to do that. And we're constantly focused. It very much focuses us to not get complacent, after a quarter like this it will be pretty easy to sit there and pat ourselves on the back I think, and we're already nervous about how we keep it going and that’s part of magic of the 20% for us.

Well, happy birthday and congratulations, Katherine.

Thank you, Johanna. I am sure Katherine, see that.

Many thanks.

And your next question comes from the line Michael Matson with Wachovia Securities, please proceed sir.

Yes, I was wondering if you could give us your perspective now that we've got Medtronic coming into the spine market with Cervical Disk product. Are there any concerns there that, that might steal a little market share from your spine business in terms of the cervical plating area.

Sure great question. Obviously Medtronic is such a strong force in the spinal marketplace and we are still a small player relative to them, we have tremendous respect for them and we are sure that those discs, they will do a good job with. Having said that, our Spinal business is still really only a small portion, and is in cervical. It has been part of the business we have been building and developing and I think the good part for us is, it's not like we have a huge cervical business that will get beaten up. Will it get dented and I would say, with growth rate slow, probably a bit, but we still see opportunities for us there.

Okay. And then, I know that you have been making a push in Europe with some of the MedSurg businesses and we have seen some very strong hospital capital expenditure in the U.S. I was just wondering, how things look in Europe in the hospital capital budgets, and trends there?

I think we continue to see pretty good trends in Europe in the CapEx side. If anything we see some tightening on the implant side, in this and that, but there is still some reasonable upgrading going on in the hospital spending there.

And I think, like if you look at it, a category like i-Suites - which who knows if the potential will be in Europe as it would be the U.S, but certainly in relative penetration terms - we are seeing a little of that and even some of our navigation equipment. I think there are some opportunities that we are seeing start to take hold in some of those markets.

Okay, and then one question. You mentioned, the overall pricing was roughly flat for the Company. I was just wondering if you could comment on U.S. pricing specifically with regard to the hip and knee or the Recon portion of the market. I am assuming it was probably roughly flat, but I mean if that’s wrong?

No, that’s a fair assumption, it’s in line pretty much.

And you kind of expect that trend to continue in the near-term?

Yeah, I would say so.

Okay, that’s all I’ve got, thanks.

Clearly, thanks Mike.

And your next question comes from the line of Ed Shenkan with Needham & Company. Please proceed sir. Ed Shenkan - Needham & Company: Thanks, Steve. Regarding the cage devices, tell us when you come out with your cage devices? Is that more an add-on for the strength of your spine business or is it really a differentiated product that we are looking at here that's in its own is going to really drive revenues?

Ed, as it relates to cages, the cages really were an acquisition we made of SDI in 2002 that candidly have not materialized all that well. We've really moved that business more towards in interbody spacer part of our business and we are seeing great growth in the interbody space that really has largely supplanted a lot of the cage stuff for, so we wouldn't expect any additional cage volume going forward. Ed Shenkan - Needham & Company: Thanks for clarifying. Thanks, Steve.

Great, Thanks, Ed.

Your next question comes from the line of Matt Miksic with Morgan Stanley.

Hi, thanks for taking the question.

Sure, Hi Matt.

So I think we have sort of turned over all the rocks and I just had a couple of follow up questions on couple of areas, one was spine again very strong and kudos to you and team. In terms of productivity I am wondering, you obviously have some strong product cycles driving that business but are you still coming up the curve in terms of the productivity of your sales force, and kind of think as when do you get there?

Sure, we have made a lot of progress on the productivity and sales force still some opportunities. We've still been hiring, we still had some younger folks that are coming up that curve but I would say we are a lot further up that curve today than we were 12 months ago.

Okay. So, I mean, through the end of the year or is this something that continues until next year where you still see this?

It will probably, continue. I would say the rate at which we're improving productivity is clearly that which will be a slower rate.

Okay. And then, quick just follow-up on DOJ everyone continues to work with the DOJ, but there was some specific announcements from some of your competitors and I am sure you saw the article a couple of months ago that seems to just indicate that things were more active now say than they were six-months or nine-months ago in terms of a dialogue. Is that consistent with what you are seeing or is this something that visibility is sort of starting to maybe improve?

It's hard for us to really comment on that. The DOJ they are obviously working with five different companies and we only know what is going on with us and we are continuing to work with them, and the rest is all hearsay also but again, I think because it's across an industry, its harder for us to comment and then it would be probably the U.S. Attorney. Sorry, we can't give you more on that.

It's okay. And then, just one final follow-up on trauma, I mean, it kicked-off quite a bit earlier and faster than we were expecting. Is this the rate we are looking at sort of service sustainable high-teens, double-digit kind of rate or is this something we should expect to moderate in the next couple of quarters?

Clearly, we don't expect our U.S. business to continue. The 31% in the first quarter shocked us. I would tell you that as we were seeing the second quarter unfold to 35%, it shocked us even more, and where obviously just the sheer size and magnitude of that business, have gotten very big, very quickly. So, we would clearly expect those growth rates to come down. Having said that, we would hope to continue to grow our trauma business at above market rates going forward. But that clearly would come down into the, call it, mid to high teens as opposed to up where we are now. I think in the U.S., we're not going to be in the 30's again. We all wouldn’t expect it to be.

And then one final follow up on the hip re-servicing, is that something that where Smith & Nephew obviously have seen pretty generous price premium over a standard hip system. I mean is this, we've seen in the past when new technology hits the market, two or three other players join that leader and then price starts to kind of come in. Is that kind of phenomena we should expect here or is there something like revisions are obviously paid at a higher level and have sustained a higher price over time. How should we think about resurfacing?

Our hope would be that it could sustain the higher price. There is a lot in this between the training, the product, the instrumentation that’s all new and unique. So, I think we would expect it to be there for a while hopefully.

Okay, great. That’s helpful.

Great. Thank you, Matt.

Thank you.

And your next question comes from the line of Robert Faulkner with Thomas Weisel Partners, please proceed sir.

Thanks, good evening gentlemen.

Hi Rob.

I wanted to know if we could focus on mention the macro drivers of about the orthopedic business in hips and knees. I even heard you comment recently on the pricing environment for hips and knees from a hospital perspective. Obviously, the numbers speak for themselves, but I feel like it is getting better, getting worse, stable. Do you see any warning flags on the horizon, on the MedSurg side, or you can both side of the way here. What do you track to see, what demand might be if anything, is it hospital construction, how far out do you look, that kind of thing?

Sure. On the Recon pricing, we continue to see it being fairly flattish, which is what it's been all the last probably five, six quarters and I think, consistent with about what we expected, as it relates to MedSurg. We really look at two things, one is procedure by procedure, what are the opportunities for us in our MedSurg business. And some of that business goes frankly with orthopedic surgeries such as our heavy duty power tools, in the case of our Arthroscopic Equipment, it clearly goes along the lines of some of the minimal invasive surgery and sports medicine procedures. So there is both the procedural component and then clearly as it relates to the hospital beds, stretchers, or the Endo Suites, which are the big capital items. That tends to near a little bit more, both new construction of hospitals as well as refurbishments. So really, each of our MedSurg business’s tracks a little differently. If you line up our medical business, our instruments business and our Endo business, each have different components, related to both, what we call base and capital. So we are really tracking both across franchises and across geographies.

Great, and finally, maybe you said this before, what do you think the ultimate penetration potential for hip resurfacing is in the U.S? Do you think it’s higher or lower than Europe?

I think we are figuring at ultimately it will probably near what we probably call some of the other Anglo countries, if you look at Australia, the U.K. and Canada, which is where its to figure and its probably in that 10% to 15% range. I would tell you we also want to make sure it happens right. I think our big theory is it could take off really quickly and potentially you could have some complications down the road. We will want to limit that and that’s why we really want to emphasize the training, so we get it right.

Great, and I know you don’t normally break this out, Dean but do you have any sense of for Stryker profitability, I mean do you have any sense how much mix is contributing to the market overall in the U.S. and hips and knees?

In wide specific part in U.S?

Hips and knees? Or you don’t…?

Yeah, I don’t have those numbers at the top of my fingertips, but it’s no more than just 1% to 2% somewhere in that range.

Great, thanks.

Great, thanks a lot.

Hey, guys, good evening. Thanks for taking the question.

Sure, Jeff.

Just a couple of small things here left for me, I apologize if these are repeated, I don’t think they are. But on the sideline product that we are still shooting for a late 2007 launch there and if you can just kind of maybe remind us about the challenges and the opportunities and going into the flexible endoscopy market?

Sure, we are still shooting for late 2007. I will tell you we are in that stage now of really trying to make sure that the commercialization is there. So it's fine tuning the product and making sure that it’s scalable to produce and running into our usual issues there along the way that we continue to work through the knock off one by one as we proceed close to the market.

Great, any challenges there, I would assume that this is just kind of dropping to your current sales force bags if you will?

We actually will probably have a more dedicated sales force focused on the GI audience, and I think that the product should be well received once we know full how to make it, we want to make sure we've got the quality of that product since its a new category for us. We want to make sure that we've got that totally nailed before we come to market. So the challenge is probably more internal at this point and then the next challenge will be external once we take it out there.

Great. And the last question then, is any update at all on your conversations with the FDA regarding OP-1 and where that might be going in spine fusion?

I think our comment on OP-1 overall, as we continue to be very committed to the product and are continuing to spend behind it, but frankly just because we don't want to disappoint, we'd encourage everybody to take that in your models and we will be back to you at a future point.

All right. That's all I got. Thanks guys.

Great. Thanks Jeff.

Your next question comes from the line of Steven Lichtman with Banc of America. Please proceed sir.

Thanks. Hi, guys.

Hi, Steve.

Just a couple of follow-ups. In MedSurg, can you give us maybe a little bit more detail on the new product that you acquired in instruments and the opportunity there. And then also little bit more on the new product launch you mentioned in medical, I guess from the second quarter?

Sure, Steve. The products we acquired at instruments, one is essentially a tourniquet system. We think it's a competitive and potentially a better tourniquet system that will be sold really via our instrument sales force. And then also we acquired a level of consciousness monitor, which we think is going to be one of those categories that will become much more prominent to and take-off more in the years ahead. There is a company out there today. You may know that Aspect Medical, they are by far the leader in that space. We think we have a product that may have some advantages and we will be going into that really with the anesthesiologist and bringing that product to market here. So, they will be both built overtime. But we think that the kind of things that just like Neptune and other things. We will look back in four or five years and have some very nice franchises out of those. And your other question. And the bed, we basically just want to take critical care bed at medical which are bed franchises much slower in the second quarter, we see that will be probably bouncing back. The initial reviews on this critical care bed is called the in touch, its got a lot of software, really makes the nurses life easier, allows for some remote patient monitoring, other things. We think it will be a very nice product in the marketplace.

Great, thanks. Steven and just quickly, you mentioned on the tax rate may be coming in a little bit higher this year than you expected. Dean, what should we be looking for the tax rate looking forward here?

Well, we are comfortable, with where it is right now, though we've continued to say that there is downward bias and if that could happen this year it could push into next year. But we certainly think overtime there is continued downward bias. And I have said kind of up to 50 basis points is the way to think about it in the near to mid term.

But for now in terms of second half keeping basically, where we are at?

You know it could drop down, but we could also, I think we can also deliver with where its at.

Okay, great. Thanks guys.

Great, thanks Steve.

(Operator Instructions) And your next question comes from the line of Bill Plovanic with Canaccord Adams, please proceed sir.

Great, thank you, good evening.

Hi, Bill.

Hi, Bill.

Real quick, can you give us the names of either the companies or the products that you acquired in the MedSurg with the tourniquet system and the consciousness monitor.

Sure, the tourniquet was instrument and the level of conscious monitor was a company called Everest.

Everest, okay. And then, I know I am beating a dead horse here now I apologize ahead of time, but how important to you is the level of dilution in regards to potential acquisitions.

That still is a good question. I think the way we think about dilution is we would be willing to tolerate some dilution in the shorter term. I don’t think we would want to sign up for two or three years of dilution, but clearly dilution in a year that was going to accretive in the out years, even diluted year one, breakeven year two, accretive year three, we would think about that. I think probably the biggest issue for us, as it relates to acquisitions, everybody keeps asking us is, we are going to continue to be patient, we are absolutely looking at acquisitions, but we are in a real great position right now, and I think we can afford to be picky and selective.

Okay. And how hard is it to get one of your division managers or presidents, group presidents to sign off on a dilutive deal on their division now?

They are all primed and ready, they do. I mean frankly, the sideline deal is a dilutive deal. We have actually done several over the last couple of years that we have actually been able to cover and then the next ones could be, if we go buy a company that could become it's own division, that would probably have a higher degree of dilution and that would be something we handle more at the corporate level and probably would be able to cover. So we would take that dilution short-term. But we also recognize, we don’t want to do anything that is going to spook people. But we are also going to continue to run the business well and continue to be on the prowl. But hopefully, what people are used to and comfortable with is, knowing we are not going to something stupid.

Okay. And then two and then just on the TDR's, where are you with the CerviCore program at this point in time and then on Flexicore, I believe the endpoint was a non inferiority end point considering Medtronics push on their lumber disc for a superiority end point. Do you think it might be disadvantage considering that and if you surely have. Thanks.

Sure, first on your CerviCore question, we are probably in the 8th depending on the terms of enrollments on our CerviCore trial and on FlexiCore it is non-inferiority. We think the product itself will ultimately have some meaningful points of difference and then some of the other stuff we will be able do around. It should still provide for a meaningful advantage.

Okay, great. Thanks.

Great, thanks, Bill. I think we have one more question, do we?

Hi, it’s Bruce but from UBS. Guys I had a few questions, one was concerning U.S. hip and knee unit growth. `06 was sluggish to us about 2% to 3% unit growth and prior five years, before that it was 7%, 8%. This `06 or `07 rather showing return to the ago more robust 7%, 8% unit growth. The second question in terms of Flexible endoscope opportunity, isn’t it fact you’re your looking for such flexible endoscopic market is on the order of $2 billion, looking at five years, what’s the scale of that from Stryker’s point of view. Could it be $200 million business or $500 million business? Any help there would be great. And the third question really pertains to in BioMed’s press release regarding the DOJ settlement Steve kind of spoke about the risk of a fundamental change in business practices, selling practices. Do you see from Stryker`s point of view, do you seen any fundamental sea change in how business is conducted in relationship with doctors? Thank so much.

Sure. Thanks Bruce. I'll take those in order. I think on the hip growth, we probably see '07 being a little bit better than the trough year, probably not quite as strong as it was in, called as golden age years of '03,'04. On Sightline, I think we see the category very close to $1 billion in terms of the flexible world and I think we'd be quite happy to get to a $100 millionish business over time in terms of expectations and we will see where that goes. It's obviously, going to be a tough and new market for us, but I think we would be taking more along that line than certainly the 500 million number that you mentioned. And finally, on the DOJ, I think we just feel a lot better, better position right now as to just work with the DOJ and stay quite externally.

Thanks so much.

Great. Thanks, Bruce.

At this time there are no further questions in queue. I would like to turn the call back over to Mr. Steve MacMillan for closing remarks.

Great. Thank you, Annie. Once again, hopefully you have a good handle for what we've done in the quarter and where we are headed. We appreciate all of your questions and we'll mentioned that in our conference call for our third quarter 2007 operating results will be held on October 17 of this year. Thank you all very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.