Good day ladies and gentlemen, and welcome to the ThirdQuarter 2007 Stryker Earnings Call. My name is Katrina, and I will be yourcoordinator for today. At this time, all participants are in listen-only mode.We will conduct a question-and-answer session towards the end of thisconference. (Operator Instructions) As a reminder, this conference is beingrecorded for replay purposes. The company will like you to know that certain statementsmade in today's conference call may constitute forward-looking statements. Theywill be based upon the management's current expectations and will be subject tovarious risks and uncertainties that could cause the company's actual resultsto differ materially from those expressed or implied in such statements. In addition to the factors that may be discussed in thiscall, such factors include, but are not limited to, general pricing pressures,including cost containment measures that could adversely affect the price of ordemand for the company's products, regulatory actions, unanticipated issuesarising in connection with clinical studies and eventual United States Food andDrug Administration approval of new products, changes in reimbursement levelsfrom a third party payer, a significant increase in product liability claims,changes in economic conditions that adversely affect the level of demand forthe companies product, changes in foreign exchange markets, changes infinancial markets and changes in competitive environment. Additionalinformation concerning these and others are contained in the Company's filingswith the Securities and Exchange Commission, including the Company's annualreports on Form 10-K and quarterly reports on Form 10-Q. Today's conferencecall will also include a discussion of adjusted net earnings from thecontinuing operations for the comparative nine month period, ending September30 of 2007 and 2006. Furtherdiscussion of this non-GAAP financial measure, including a GAAP reconciliationappears in the Company's form 8-K filed today with the Securities and Exchange Commissions,which may be accessed from the 'For Investors' page on the Company's website atwww.stryker.com. Iwould now like to turn the presentation over to your host for today's call, Mr.Steve MacMillan, President and Chief Executive Officer. Please proceed.

Thankyou, Katrina. Good afternoon everyone, and welcome to Stryker's third quarter2007 earnings report. With me today are Dean Bergy, our Vice President andChief Financial Officer, and Katherine Owen, Vice President of CorporateStrategy and Investor Relations. From start to finish our results this quarter were fundamentallyvery strong, while additionally benefiting from currency, as well as one extraselling day in the United States. Net sales of $1.45 billion were up 18% and up15.7% operationally, while net earnings also grew over 20%. We stated at the start of the year that our primary focuswas on executing against what we felt were strong organic growth opportunities.As we began to realize the impact of our R&D and sales force investmentsfrom the last couple of years, we believe this quarter's results, on top of twoalready strong quarters, demonstrate that this exceptional focus is serving uswell. Overall, the 15.7% operational growth was our strongest inthe last several years and represented another sequential up tick from lastquarter, as the breadth and depth of our unique set of businesses, once again, contributed to strong growth. A few highlights, which includes an acceleration ofinternational sales from single-digit growth last quarter to low double-digitlevels this quarter. This growth was widespread with hips, knees, trauma andour endoscopy franchises all showing accelerating international growth in thequarter. Our growth was again broadly based and balanced. On areported basis, growth rates for U.S. and international were both18%, with the international growth up 11% operationally. In the U.S.,Orthopaedic Implants were up 16% while MedSurg reached 20%. Globally, OrthopaedicImplants were up 13% operationally, and MedSurg was up a strong 20%. Our U.S. spine and trauma businesses continue to performexceptionally, both growing around 30% in the quarter. Seven of our eightglobal franchises again generated global double-digit operational growth. We also know that a number of you often wonder…

Thanks, Steve. I'll begin with the impact of the foreigncurrency and sales. Our foreign currency was again favorable this quarter,adding $29 million to international sales and boosting the company's overallsales growth by 2.3%. In the third quarter, the dollar weekend approximately 8%against the Euro and strengthened about 2% against the Yen compared to theprior year. If currency rates hold near current levels, we expect the impact offoreign currency will increase fourth quarter 2007 sales by about 2.5% to 3%when compared to the prior year, which would bring the projected favorableimpact on the total year of 2007 sales to just over 2%. And now looking at price volume in the quarter, its prettysimple here. Foreign currency, as you have seen in the press release,contributed 2 points of growth in the quarter and the remaining growth all camefrom volume and mix, so there was 16% volume mix growth or 18% total growth. Selling prices were flat in the quarter, domestic priceswere up modestly, but this was offset by a hit to our international sales volumefrom the price declines in Japan.Japanese pricing was down 7% in the third quarter, reflecting the impact of theJanuary 1 and April 1, 2007 MHLW reimbursement cuts. Volume mix growth, as I said, was 16% in the third quarter,a 2 point acceleration from the second quarter. Domestic volume mix came in at17% and did benefit one extra selling day in the quarter compared to the prioryear. International volume mix growth of 12% accelerated from 9% in each of thefirst two quarters. And now turning to our business segments. Orthopaedic Implants,which represents 60% of our sales, saw increased of 15% in the third quarter ona reported basis and 13% operationally. The sales growth reach by product linesare included in our press release and I'll reference those rates, as I…

Thanks Dean. With three quarters down 2007 is headingtowards the finish, even a little better than we planned at the outset of theyear. We are in great shape to deliver our seventh straight year ofdouble-digit sales growth. As it relates to fourth quarter, many of you willrecall that we are facing difficult year-over-year comparisons, given theexceptional growth achieved by several of our franchises in last year's fourthquarter. However, with a bit stronger than expected third quarter onthe Board, we have raised our sales guidance for the year and believe we willhit constant currency top line growth of 13% to 13.5%. On the bottom line, we continue to forecast 20% adjustedearnings growth, with $2.40 as the projected target for the year. We've also continued to invest in R&D and sales forceexpansions this year, while every project doesn't always develop exactly asplanned, we believe we benefit from broad approaches in these areas. Similarly, our business has been built as a unique footprintover time, with measured acquisitions and R&D investments. We would expectthis methodology to continue to serve us well, as we evaluate potential usesfor our growing cash balances. We'll now open it up for questions. We will hand it back toyou, Katrina.

(Operator Instructions). Your first question comes from theline of Mike Weinstein representing JP Morgan. Please proceed.

Thanks a lot. Hey, it's actually Taylor Harris here forMike. So, my question is obviously the top line growth was very, very strongthis quarter, and perhaps surprisingly so, and not just MedSurg, but some ofthe orthopaedic businesses outside of hips and knees. So, just to focus ontrauma, spine, CMF, was there anything there that is surprising you this yearin terms of how strong those businesses are performing? And then secondly, I know you made a lot of sales forceinvestments in those areas, is any of the strength you think one time in naturethis year due to the sales force investments you are making?

Taylor, I think if you lookat particular trauma and spine businesses, historically we probably beenunderdeveloped from a market share standpoint in the United States. And a few years agowe made a strategic commitment to really strengthen those businesses and it’shappened through both the sales forces expansions, as well as frankly a muchstronger focus on R&D and just focused leadership. And the same frankly forour craniomaxillofacial business. And I think we are seeing the impact of the leaders thatwe’ve put in place there and really having great impact and while we don’texpect those numbers to continue, certainly trauma and spine at 30%. We thinkwe can be growing significantly faster than the market here still for manyquarters ahead, again we would not expect it to continue up close to 30, butcertainly can they be better than the market, we certainly think so. And candidly outside the U.S. we still have someopportunities. Our Spine business in Europewas pretty soft this quarter and so are always looking at the opportunitieswhere we can do better. But it is important to note that those businessescollectively will be well over a $1 billion this year and have probably beenkind of quietly overlooked in the aftermath of hips and knees they have becomessizeable and very profitable and high growth businesses for us and clearlyplaying a bigger part of our overall growth.

Okay, great. And then one additional question. Youreferenced the tough comp you have in the fourth quarter. You are guiding, Ithink organically the growth of 10.5% to 12.5%, which is it’s certainly lowerthan what you have done in the past two quarters. Is that really just acomparison issue or should we read anything into that as you look forward to2008 and what type of growth we should expect next year?

Purely a comparison issue, do not worry about a slowdown.Here is, as a remainder, the number is probably on closed deal, Last year inthe fourth quarter four of our five implant businesses grew 20% or greater.Knees, trauma, spin and CMF globally were all up over 20 and endo justabsolutely blew it our with 27% growth. .:

Sure. So as we think about 2008 should we expect performanceroughly inline with '07 other areas where you expect to do better or worse andthen I will drop.

Well hips will better. I think what we'll give guidance for'08 in January. Let us finish this year first, but I would say on a high levelbasis what you should probably expect is, things like trauma and spin areprobably going to slow down a little bit. Hips will probably accelerate alittle bit. And all in hopefully, Japan won't be quite a drag, thatit has been this year, but it may not be a star next year and we'll give youguidance. But I would clearly -- we feel pretty good, there is alwayschallenges, we are always nervous, but we feel pretty good about what you willable to expect in '08.

Great. Well congrats on a very good quarter.

Great. Thanks, Taylor.

The next question comes from the line of Bob Hopkinsrepresenting Lehman Brothers. Please proceed.

Hi good afternoon, thanks for taking the call.

Hi Bob.

Hey guys, just a couple of quick question here. First, Steveyou mentioned in your prepared comments that how did MedSurg above long-termexpected growth. I think we've probably asked this before, but would you tellus what you think expected growth rate is longer term for this group of businessesas you look out the next two or three years?

Sure Bob. I think we continue to think about medical as alow teens growth business. If you look at the medical marketplace, candidlyit’s probably a high single-digit growth market. But we continue to seeopportunities to grow at least a factor above that, that which puts us in tothe low double-digits. For instruments I think we think about that as roughly a midteens growth business. Again that market is probably growing in 10 to 12ish, butwe continue to kind of broaden our product line and move out. Plus again, as we remind you is, our both our endo andinstruments businesses have been under developed outside the U.S. and part ofthe sales force expansions have been investing in those businesses outside theU.S., which should allow instruments to grow really we think in the mid teenslevel. And endoscopy, longer terms we think of it as a mid to highteens growth businesses. So I think the 20% are typically going to be theoutliers, but we are going to throw a few twenties on the board from time totime, but I think those are probably the best longer term expectations.

That’s very helpful, now in the endo part mid to high teens,is that for you or for the market or both?

That’s for us. Again I we think we – we think we aresignificantly outgrowing the market and its probably marginally in the U.S. or modestly in the U.S. And again, significantopportunities outside the United States,again those two businesses endo and instruments had been focused really just onthe U.S.market for a long, long time and we are seeing that opportunity.

Okay. And then on Japan,if pricing were flat, where would, and I am sure I could do this math, but ifyou have it, if pricing were flat this year where would have you have grown in Japan?

Well, we're down about 7%, so off in pricing.

In pricing.

Yeah.

So, what I mean that be. In other words, I am just trying toget a sense for once pricing anniversaries, what kind of growth out of Japan we canexpect?

We will see where it plays out. Keep in mind, there is yetanother round of price cuts coming. This was sort of a biannual thing thatusually just hit any even numbers years. This year because they or the pastbiannual one because it was so draconian and they spread into three pieces overtwo years. So, unfortunately, we are going right back into another onenext, but we hope that it will not be as significant as what we've beenthrough. We also have been probably getting better about trying to get someproducts registered and some other things to ultimately do a better jobourselves in Japangoing forward. So, I don't think there is going to be a dramatic turnaroundbut we feel a little bit better about where we are heading, but there will bestill more price cuts on the horizon in a more likelihood.

And then just really quickly on the spine, do you think youhave the critical mass to really take on the top three share players?

Yes.

Okay.

Yeah, we feel very good about where we are there.

Great, thanks for your time.

Thanks, Bob.

Yeah.

The next question comes from the line of Marc Mullikinrepresenting Piper Jaffray. Please proceed.

Good afternoon.

Hi, Marc.

Hi, Marc.

Hey, just to start off on actually the bed's business, yousigned the agreement with Universal Hospital Services a few months ago, andjust wanted to find out how that agreement is structured and what sort ofimpact you would expect it to have?

Sure, I don't think we will give any details on how itstructured. We would tell you that overtime, we think it opens up a very niceplay into the rental market, where we've never historically played. We wouldalso tell you we are probably still in the top of the first inning in terms ofany real impact as that goes out. It's a new business for us. It's a little bitnew for them in terms of being partnered with us. We feel very good about all the initial feedback, but theimpact really hasn't yet been felt and we think that's one of the reasons thatwe will be able to grow our medical business again faster than the overallmarket, because we are entering a market that we are not in today.

What portion of the bed's business is rental of the marketoverall?

Mark, I don't think it’s a big portion today. A lot of whatyou see in rentals really have to do with surfaces. This is a little bit of anew avenue. So I think we’ll have to see how it develops. But we like ourrelationship and we think it will be a broad perspective to allow us along withUHS to talk about a broader offering to products with the ability to rentproducts as well as volumes.

Okay, fair enough. And then on the hip resurfacing businessin Europe with the MITCH product, can you just give us an idea of what sort oftraction you are getting with that and maybe any lessons learned for the launchof format in the U.S.?

Sure, where it is going, it's going reasonably well. I thinkthe challenge candidly and the differences in the U.S. were number two to market andwe come from a strong position. And mostly in the European and foreign markets,we've been sixth or seventh player and so it's doing okay for us. It's been anice round up, but probably hasn't had the impact that we would hope and expectthat it will in the U.S.

Okay. And then just one final one and I’ll hop off. It lookslike the instrument sales in the U.S. jumped quite a bitsequentially. I don't know if that's just artifact in my model or not, but ifthat's correct, is there anything a product launch or anything that's drivingthat?

System 6 heavy duty power tools are really driving thebusiness right now.

And how long does that been out on the market?

We initially launched it in the third quarter of last year,but I would say it's really hitting its traction, it's kind of I would tail endthe third, it was probably September. It's really hitting our traction and wesee it usually hit the traction a few quarters after it's been out and I thinkthat's right the sweet spot that we just hit this last quarter.

So you would expect it to continue for another couple ofquarters then?

Probably whether it's a quite that level, we never want toplan that is quite that level, 20% plus growth in our instruments business isclearly a little more stratospheric, but I think we do see it being healthycertainly coming forward here for a few quarters.

Hey, very good. Thank you. Nice quarter.

Thanks Marc.

The next question comes from the line of Tao Levyrepresenting Deutsche Bank. Please proceed.

Good afternoon.

Hi Tao.

Hey, two couple of quick questions, first maybe you couldshare about that on the U.S.side on the orthopaedic implants looks specially in knees you guys areperforming very well. Can you comment how you think you guys are doing relativeto the market growth and if you taking share who is most vulnerable out of yourcompetitors?

We'll answer the first part, not to say this. The firstpart, I think we continue to be very pleased with Triathlon, particularly goingagainst multiple years now a very difficult comparables. And at a stage in the life cycle when typically a productwould have slowed much more significantly than where we are and I think thatspeaks to the overall traction in interest that Triathlon has had. So, I think again, we preferred just to really talk aboutprobably how we are doing relative to the market. We know there has been a lotof buzz and a lot of talk about a lot of other knee systems, but we continue tofeel very, very good about Triathlon.

You can get that share in that in the quarter?

Probably not much. I think we probably grew ever so modestlyfaster than the market, as we have here, I think for a number of quarters, butits just on the margin.

Got you, okay. And maybe you could comment a bit on thepipeline product, is that, I recall that’s supposed to be a Q4 launch, if wascorrect and what are the expectations that we should be thinking about forthat?

Sure. We are still working through some finalcommercialization issues on that and it may or may not be fourth quarter, I'dsay candidly its probably going to shift in to next year, and the great part isthat business is strong enough, healthy enough that we have the patience. I think the key here is because we are going in to a newmarket we want to make sure, and we are going against a very formidablecompetitor, we want to make sure that we really had everything buttoned up froma complete manufacturing, product execution, as well as the customer trials andfrankly have the sales force and everything geared up. And I think in all likelihood it's probably shifting lateenough end of the year, that will probably move in to next year to be moreeffective.

So like a second quarter '08?

Probably a reasonably, we are still sorting out, that’sprobably a fair.

Yes, I think sometime in the first half is fair.

Okay. And then for Dean, in the third quarter you talkedabout the interest expense that you had on, I guess you tax accrual. Is thatsomething that’s going to continue going forward or do you pay that down, youjust every quarter other line have been progressing increasing, this quarter itsdown about $6 million. I am just trying to think going forward you obviouslyhave a larger cash balance, how should we be modeling that?

Yes, again it does relate to our tax reserves and itprobably was a little heavier this quarter than I would anticipated being, butit is a more specific calculation than it used to be under the new accountingsrules that we adapted at the outset of the year under the FIN 48 pronouncement.So, its probably going to be more volatile than its been in the past, but Iwould expect that this quarter is probably a little heavier on the margin inthat category, than you might normally see.

Great. Thanks a lot. Good quarter.

Thanks Tao.

The next question comes from line of Raj Denhoy representingBear Sterns. Please proceed.

Good evening, guys.

Hey, Raj.

Hi, Raj.

I wonder if I could ask little bit on the strategy behindthe spending. You guys put up a really good quarter again, on the top-line. Andyou increased spending sort of across the board in selling and marketing aswell R&D, and your returned just 20% again on the bottom, which I say just(inaudible).

Just 20, come on.

Where I get, when it comes right down to it, if you guyskeep doing this well on the top-line we come a point where, you start allowingmore to fall through in the sense, because you are really not to get out of thepark in the top-line here?

Yeah, Raj, our goal is to keep this going for as long ashumanly possible. And I think what we’re seeing is, we continue to find moreideas on the R&D front to be able to spend and little pockets of sales forceshere and there. And when times are good, I think we want to continue fuel this,so that we've got more and more things to carry us into '08, carry us into '09in the 2010. And so, I probably would expect more of it to continue to bereinvested, given that we've already set such an aggressive earnings goal. Ithink relative to most same companies. And we’re thinking about just trying tokeep it going for as long as possible.

Fair enough. Then if I could just ask one on the resurfacingside. You mentioned your training surgeons this quarter, is there any matrixyou can give us around that, how many surgeons you have trained and if we canexpect these guys to start ordering implants here in the fourth quarter?

Yeah, the numbers so far are very small, and we tend to notgive specific numbers. But I’d remind you that the product was cleared in July,by the time we got our final labeling and all of that and then prepared to dothe sales training, it really didn’t start until the end of August. And we’redoing a lot of fairly detailed training so that, it was almost insignificant inthe quarter. I think here over the fourth quarter we will certainly start tosee a little bit more. And, Raj if I go back to just elaborate on your previousquestion too. Again, what we probably remind is this healthier than usual topline growth that you are seeing right now is really the reflect of some of theadditional investments we’ve made over the last couple of years. Again, well, timeswere good so that we could keep investing and that’s what our hope really ishere.

Right, well, fair enough it does seem to be working. I guessjust lastly another kind of product question on MedSurg, when I think whatthings are sort of distinguishes you guys is your very broad offering in thatsegment and we are hearing some rumblings in hospitals signing exclusivecontracts and things that you guys sort of outfit hospitals and in those sortof things. Is there anything to that, the fact that you guys are able to offersuch a broad product sweep and so that’s allowing you kind of really outpacethe market here?

We think that is a key part of our success. I mean it’sstart’s product by product but when you collectively put together our variousbusinesses we do think it’s helping us.

Great, fair enough, thanks.

Great. Thanks Raj.

The next question comes from the line of Jason Wittesrepresenting Leerink Swann. Please proceed.

Hi, thank you very much.

Hi, Jason.

Just wondering first of the general question, I know we allyou gave the general impressions on pricing for the reason that I know wealways pick on hips and knees, but clearly your are coming out as morediversified company especially this quarter. Can you give us an indication ofwere pricing actually be strong quickly in your implant business and yourMedSurg business. I'd love to get sort of landscape in terms of where you thinkyou have some decent pricing and all that stuff?

Jason, it's really not that distinguished, it's in areasonably tight range. So I don't -- obviously we wanted to be a little morecircumspect with our comments on pricing and I think it's in a tight enoughrace that it's not even really fair to distinguish.

So, I mean, are you implying that there is not a bigdifference between the hip and knee business and say spine or trauma businessat this point?

Not a real significance. Obviously, the one thing that we docall out is Japanand that's the one area where we are seeing significant price decline, as youall know, but the rest of our businesses are in a reasonably tight ranges.

Okay. I guess I won't push further on that, but I guess youimplied that you think you have enough critical mass to go after the spinemarket in a big way and certainly that seems to be the case looking at thenumbers. For trauma, it's been the last couple of quarters you really took off,and is that also a situation of critical mass, or is it largely because youhired, I would say quite a few sales people about a year ago and they arestarting to finally pay the dividend?

Its pieces above, I think we really had six great quartersover 20% now.

That's right. I'll correct myself.

Over the last two, we had a couple of 30 there, so you arein good [shape]. I think it's seven straight quarters right at 20. I think weprobably moved into the number two position we think in the U.S.marketplace and have a pretty good offering and yet we still have some gaps inour product line that we are working to fill here in the coming years.

Okay.

So I think we feel good both about where we are come fromand still feel like there is one way ahead of us.

In terms R&D, can we assume that the focus of yourR&D projects over the next year are certainly need to be still in thoseareas that are really growing fast right now, spine, trauma, and (inaudible),is that the way we should think about the focus or?

It's everywhere. It's all going to be in hips and additionalthings in knees and across our endo and instruments businesses. We really arereinvesting in everyone of our franchises right now. And again we remind peopleconstantly that a lot of our success is build on singles, not home runs and alot of this is just quietly introducing another product, whether it's acervical plate in spine or different spacer for the interbody space or a handplate, a Distal Radius plate for example and trauma. One of these things are, this incredible breakthrough that'sworth highlighting, but collectively across the business, they really add upand they start to load the basis and constantly bring some runs in for us.

Okay. And in terms of next year, I guess for more guidancewe're going to wait till January, but I suppose we can assume that you arestill sticking to the 20% role on the bottom line?

Yes, I think it's probably a reasonable assumption.

Fair enough. Thank you.

Great, thanks Jason.

Thank you.

The next question comes from Joanne Wuensch representing BMOCapital Markets. Please proceed.

I am still lost again the 20% being reasonable.

Thank you, Joanne.

Anyway, your spine business in the U.S is quite strong andoutside United Statesin the single digits. What do you need to do to get your OUS business sort ofpumped up?

Get better. It's I think greater focus and we've been, weprobably shifted the balance a little bit towards the U.S. and I think it'sbeen a little bit quicker to launch products in the U.S. Candidly, we probablyhave some opportunities to strengthen our sales team dedicated to spine,particularly outside the U.S. I think we still had not as dedicated resources in outsidethe U.S. in lot of cases the spine people being carrying some other productsand we're probably where we're in the U.S. several years ago when we Recon peopleand spine, Recon and spine under the same rep. And so, there is probably someopportunities there to do what we do pretty well which is better focused.

Okay. So, it's fair to say we should see U.S. salesgrowth temper close to the markets, mid-teens growth rate and OUS growth may bestrengthened over the next period?

Probably though, I would say international may take a littlebit of time. I wouldn't expect that in the fourth quarter. I also wouldn'texpect us to revert to the mean to the market in the U.S. quite as quickly either.

Okay. And someone has asked, how are you feeling aboutacquisitions these days?

We continue to be looking and frankly since Katherine hasjoined us, she is surfacing a lot of good ideas, and I would tell you we'vebeen fairly active poking around and yet we're in such a position of strengththat we feel very patient and comfortable not to overpay. We still think there is a lot assets out on the market thatcandidly are premium priced or priced to perfection at this point in time. Andwe are going to buy out our time and still look at to broaden our footprintovertime and we will see where it plays out. But we don't feel any burningurgency to have to deal with deal this year or whenever.

Okay. And the last, when might we see some clinical data onyour artificial disc program?

On the artificial disc, we have filed the FlexiCore, thelumbar disk. So that is…

And probably cervical, sorry.

Yeah, the cervical, we are close to wrapping up that study.

Okay.

And that hopefully the enrollment on that certainly shouldbe completed this quarter. So then we’ll be in a position start to analyze.That was also the two year follow-up as you well know. So, we are still alittle bit away from that, but all the initial anecdotal feedback we arehearing is positive.

Okay, thank you.

.:

The next question comes from the line of Brian Wongrepresenting Broadpoint Capital. Please proceed

Thanks for taking my question. Most of my questions havebeen taken, but I just wanted to ask, now that we are closer to the 2008, if youmight be willing to give us any sort of progress on your OP-1 product?

I think what we continue to say with this Brian is justtaking out your models. It may be quite a while. And as we’ve given that mostof what we have said over the last 10 years is probably not been -- probablybeen rosier than what we expected. This could be a while and we just continueto say take it out and we’ll be back to get some points.

Okay, fair enough.

Thanks.

And then in terms of, you mentioned what you might bethinking about for acquisitions, any other uses of cash such as the buybackthat might be in store?

We would – we continue to look more on the acquisitionfront. And we don’t mind building up the cash position at this point to beready to pounce when the time comes, but obviously, if that would have continueto build we'll certainly be thinking about possibly both dividend, buybackthose kinds of things.

Okay. And then given the fact that you guys have settledwith the department of justice on the hip and knees side, I was wondering ifyou would heard any rumblings in terms of the similar source of investigationson spine across the industry?

Not that I am aware of.

No

Okay, fair enough.

We know there was one a few years back with one of the othercompanies.

Right.

But have not heard, we are not aware of anything now.

Okay. Great well, nice quarter, thanks guys.

Great thank you, Brian

The next question comes from the line of Michael Matsonrepresenting Wachovia. Please proceed.

Hi thanks for taking my question. It looks like you hadobviously really strong growth in your more capital intensive part of yourbusiness. I am just wondering given what we've seen in the credit market overthe summer, the late summer here, if there is any risk that hospitals may havea more difficult time in financing their capital budgets over the next 6 to 12months?

We've asked ourselves a question Mike and frankly we thinkthat our stuff is enough under the radar screen that lot of our stuff is as youknow smaller relative to major, major expansion. And we think we are inreasonable shape there, but it’s a great question one that we've been kind of wonderinga little bit ourselves, but we think that the fundamentals of our MedSurgbusinesses are still in good shape.

Okay. And then just in your spine business, I was wonderingif you've seen any kind of an impact from or if you are concerned about anykind of impact from Medtronic's cervical disk products, because it seems likethey have – the numbers they put out for their training program seem prettyaggressive, it seems like they've trained a lot of surgeons in a short amountof time and there may be some risk of cannibalizing some of the cervicalproducts?

Yeah. They are obviously the 800 pound gorilla in this spaceand a company we have tremendous admiration and respect for in the spinal role.I think we still see enough opportunities. We are obviously little concerned byit and I think its probably why our, we are probably not going to be posting abunch more 30% growth quarters. But I think we continue to feel good about ourunderlying strength and where we are going with our own portfolio, to be ableto grow at greater than market rates.

All right. And then in the knee area are there any plans topursue an approval for a mobile bearing knee. And then just any updates onwhere are the reclasiification of mobile bearing knee stands at this point?

Mike, we do have a trial that’s underway with our mobilebearing knee, it's actually our mobile bearing knee which is called a ScorpioPlus, does extremely well overseas and we have a trail that’s underway in the U.S.So we are not completely enrolled at this point in time. Relative to down classification, I haven’t heard anythingmore recently and I think we are assuming that may not happen, so we are goingto continue along the path that we have been on. But, obviously there isreasonable follow-up here so reasonable it will be some reasonable period oftime before we would have that product on the market in the U.S.

And we also don’t feel a need to have every offering thatevery competitor has. We feel very good about Triathlon and the benefits andthe patient satisfactions frankly with Triathlon.

All right, that’s all I have got, thanks a lot.

Great, thanks Mike.

The next question comes from the line of Matt Miksic representingMorgan Stanley. Please proceed.

Thanks for taking the questions.

Hi, Matt.

So we are getting around to the bottom of the barrel here,but a lot of great questions and I appreciate the time, but couple on may besome of the product lines, Triathlon. You talked about improving your growthand penetration trend on overseas in Europe and Japan. Can you give us an idea, may be what has been the dynamicsthere, what you changed, if anything, and over the long run, is there anything,what's the penetration look like, is there anything different about that marketthat, what kind of legs does that have? No pun intended?

Probably nothing dramatic Matt, I think to be candid wethink the international markets probably were little healthier this quarter andI am not sure we did anything really and we are seeing some uptick certainlyfrom Triathlon as people shift over. We've also got a lot of very loyal Scorpiousers.

I think just as a point of clarification, the product is notapproved in Japan.So, the main results in Japanare coming Scorpio energy product.

Got it.

So, I think its -- but I think we will continue to seecertainly uptick from Triathlon, more surgeons would see it, the acceptance iscertainly very good. But I wouldn't say we did anything magical this quarter byany stretch.

So, in terms of your innings analysis, I mean where are youin terms of innings in Europe and then does this get approved and when in Japan?

Obviously, the product has been well received in the marketwhere it's launched, but I think we're still probably in earlier innings inEurope Matt. In Japan,I think we would certainly see approval there although. The energy product, which was designed specifically for theJapanese market and the Japanese anatomy, is doing very, very there. So, Ithink we're very comfortable with our offering in the market today.

Okay. And just on Japan, follow-up to some of the questionsearlier on pricing, did you mention what exactly the cuts going to be, is itcome again in January, or does it come again in April and we just don't know?

We think it will be in April, but we don't know who they areyet. They have not been resolved yet and that's really a lot of chewing andthrowing that will happen over the next few months.

Okay. And if I remember correctly, if this is the typicalbiannual cycle, it's like we start to hear noises in like January, February andMay be a final number at the end of February and March something like that?

Yes, and so it usually kicks in April 1st.

Got it. A follow-up on spine, you talked about havingcritical mass and it's certainly looks like the investments in the line and everythingelse is paying off. Is there anything in particular that's really stands out,that's driving the business, and then maybe also is there anything in your bagof products in spine, that you feel like you don't have gap that seem like youdon't have much, the way you are performing, but what else do you think youneed to have a full bag in spine?

I think we are there now. I think it's really what's drivingthe growth. When you think about what's happened in spine, again we've gone fromfour years ago having a spine division is essentially sold alongside our Reconfolks. We have some dedicated spine reps. We had some multi-baggers and we basically had athoracolumbar business. And so a lot of our success over the last few years hadbeen dedicated sales people. And then filling out the line and I think thereare now a lot more spine surgeons who feel comfortable being able to walk intothe OR, knowing that Stryker can serve all of their needs and instead of justbeing a specialist, therefore just a scoliosis surgery. So now as we have gotten much more of a cervical line, muchmore of an interbody line, we've put ourselves I think in a much betterposition and there are no gaping holes. There are still products improvementsand ideas obviously ultimately the disks will be there, but most of the holeswe feel we've done a pretty good job of filling or have plans to continue tofill in and round it up. But I call it now there is no gaping holes, now it's amatter of icing on the cake.

Okay. So waiting for sort of the total disk replacementsmotion, dynamic stabilization might be another area that we could expectsomething from you?

Yeah, that will be one of the obvious ones. Again that's anarea that was incredibly hyped a couple of years ago. It's there and it'll bewill certainly and should be there with a lot of other folks.

I have been waiting for this for a while, but do you thinkwe'll see anything new in that area at last, are you going to keep us waitinguntil the very last minute?

Probably not much this year, I wouldn't expect anything frommuch this year.

Okay, that's good to know. Just couple of follow-ups onhips, you talked about the resurfacing having an impact sometime next year. Inbetween, now and then, do we get domestic hip growth up to market, or is thathappened in concert with resurfacing like second quarter say next year?

Probably it happens in conjunction with resurfacing. But welike it to happen a little faster. Yes, will it actually happen, I wouldn'tcommit to it until we have resurfacing.

Okay, fair enough. And then on trauma just last question,you obviously doing great there as everyone has noted and it's an area where Ithink we have a industry meeting this weekend. A similar question to spine, Imean is there any place there that we can expect a new push in products or gapthat you are filling or is it just you feel its like execution, you are justgoing to keep hitting with the bag you have got?

Well its going to be a lot like spine, which is continuingto introducing singles in terms of product lines and continuing to fill out thebag, to also be able to serve the trauma surgeon as we are now serving thespine surgeon, which is them having the confidence that they can go in to anytrauma case. And we have the products there for them. And we are close to beingin that situation, but I wouldn’t say we are a 100% there yet.

Okay. Great, well thank you for taking the questions.

Oh, great thanks Matt.

You bet.

The next question comes from the line of Bruce Nudellrepresenting UBS. Please proceed.

Hi, thanks for taking the question. I just, about two of theMedSurg markets. I had a question about trauma. We've actually countedprocedures where we actually blend in kind of codes. And there has beenvirtually no unit growth for the last five or six years across the states wemeasured. Could you explain, is there enough mix shift left in thatcategory to keep the underlying market growing at 10%? And the second questionI have is about the instrument business. It would seem to be fundamentally areplacement business where you have never won market share, is it just sodominated by surgeon preference that you come up with a better drill or otherpower tool and the surgeon has the wherewithal to basically purchase off,basically guarantee mix up shift every year? Thanks a lot.

Sure. I want to take the second one first, I think thesurgeon still is very critical in the instruments precision. Now these are the productsthat are in their hands, while they are cutting into people and everything elseand it really does matter, they are the ones who need to make those decisions. On the trauma side, I think we continue to see some mix,opportunity is clearly with introduction of lot compression place and all thatstuff over the last few years, probably drove it, that mix piece higher thanmaybe long-term sustainable growth rate. So, we might be even thinking about itas certainly high single-digits maybe right around 10. But that’s probablywhere our general thinking is.

Thanks so much.

Yeah, Bru, if I could add just a little bit to that. Ontrauma, I would that, at least relative to the mix up shift and unlike plentywe haven’t a lot of that in our business specifically, because it is not goingto be a -- as bigger part of our offering. And then on instruments just one follow-up point there, Iwould remind you that a reasonable proportion of that business is a disposablebusiness that’s blades and attachments that go on to the capital equipment thatsome its used in the procedures everyday. So, that part of the business isreally based on procedural growth and is very repeatable.

So in terms of the disposable component, what is the unitgrowth? The underlying surgical unit growth, is it the mid single-digit?

Its very comparable to what you are seeing in hip and kneesurgeries because its primarily used there and in other procedures.

Thanks a lot.

You are welcome. Thanks, Bruce. Yet a few more, it lookslike Katrina?

Yes, sir. Your next question will come from the line of JeffJohnson representing Robert W. Baird. Please proceed.

Thanks for taking the question guys. Couple of things here,MHLW reps what, two weeks ago seem to be stepping up the radar a little bit onpricing in Japan next year in that. Do you have any feeling that those commentswere directed specifically at orthopaedics and other parts of devices? I guessthat’s the first part of the question. Then second, any insight into, are these price cutssomething that are just going to continue to go on over the next decade, orthey are going to continue to reduce the overall percentages at lower pricemarkets for the market basket or, is it something where we finally could reachan end at some point in a year, in two years, in three years?

Sure Jeff. Regarding their comments I think they are directedmore broadly at all medical device companies. And regarding the price cuts, Ithink we are assuming for our strategic planning purposes that they pretty wellgo on in perpetuity. And we'd hope that it will be just another year or two,but I wouldn’t plan on it.

So, they just always find a way to meet those percentagesdown or add more countries to the market, basket or something?

We think they do and frankly we continue to feel that theyare not really dealing with some of the underlying issues in their healthcaresystem. For example, the average sick patient is spending 20 to 25 days in thehospital.

Right.

Whereas as in the U.S. that’s two to three days, butthere are certain parts of their healthcare system they are not yet wrestlingwith the fundamental realities. There’s only so much we are going to be able tochange that. We certainly are trying as an industry and, but I can’t promisethat we’ve got nail and having corrected quite as well as we like to yet.

All right thanks. And then just qualitatively I guess, onvolumes for large joints in the U.S.hips and knees specifically. Obviously, some questions on where volumes were in’06 and it seems like in the early part of ’07 you were talking about volumesseem to have picked up. Do we still see volume trends stable or improving inthe U.S.this year?

I think modestly.

Yeah.

Nothing breakthrough, but seems to be a reasonable year.

Okay, great. And last question just on spine with the[exploit] product over in Europe, is there any opportunity to bring somethinglike that in the U.S.,is that kind of stay European product?

Jeff, I can't comment specifically on that, it's obviouslyvery, very new to Europe and something we're exploring, no comment on what itmight look like in the U.S.at this point.

All right, fair enough. Thanks guys. I appreciate it.

Great, thanks Jeff.

The next question comes from the line of Steven Lichtmanrepresenting Banc of America Securities. Please proceed.

Hey guys. Just a few quick ones here. First, just in termsof the level of investment, obviously you mentioned continuing to plow back,but is it fair to say that the level of investment on the SG&A and R&Dside may be a little wider here looking forward than it has been over lastcouple in that, so we think about the P&L, the leverage will be more thereand may be on the gross margin side a little flatter in terms of that leverage?

Great observation, yes I think that's how we probably seeit.

Okay, great. And then in terms of the couple of acquisitionsyou made in MedSurg to turn a consistent level of consciousness, I mean wouldyou characterize those as single opportunities and will they begin tocontribute next year, just trying to get a scale for those acquisitions?

Yes, they are again singles and I think the tourniquet probablybe a little bit more meaningful next year than necessary level ofconsciousness. I think we think the level of consciousness monitor will be aslightly longer ramp, but I think it's those kind of things that probablyallows us to have our instruments business growing a couple of points fasterthan the market, and again probably get us into that mid-teens range instead ofcall it 8 to 12ish or whatever that the market might be growing.

Okay, great. And then last one Dean on the tax rate, is thisa good tax rate to use for the fourth quarter, do we see a still downward biasmaybe into next year?

I think we would see downward bias for the longer term, butprobably it is fair to say at this point in time in the year, the rate will bevery close to where it is year-to-date at 28.1.

Fair enough. Thanks guys.

Great, thanks Steve.

Our final question comes from the line of Larry Keuschrepresenting Goldman Sachs. Please proceed.

Hey guys.

Hi, Larry.

Just want to ask one sort of big picture question, and thisis sort of thinking over the next several years. This industry obviously hasbeen characterized a lot a by service levels among sales organizations andclose ties to physicians and who's going to get up in the middle of the nightto deliver the product et cetera. But I want to explore a little bit about how you guys arethinking about the importance of innovation. And what makes this challenging isobviously the long timelines that physicians major outcomes in this space, I amtalking primary large joint Recon. So maybe you could just talk a little bit about howimportant innovation in that space is going to be over the next several years,and just an update on how you are thinking about whether we are going torevisit types of cost reduction modalities, maybe not gain sharingspecifically, but where is that ultimately going to, to go to that resurface aswell?

Sure Larry, I think we continue to see the service componentas a very important part of this business and really ultimately, we think thekey to success is a combination of clinically relevant innovation and greatservice levels. There will be innovations and as you know with us, we arenot always going to be first with the innovations and orthopaedic surgery,particularly total joints are very successful. So, we are trying to do is to becareful that anything we bring really is enhancing the surgical experience andthe patient experience. But I think there will continue to be opportunity foradditional innovation as we get better design, better materials. But there isalso going to be candidly probably some marketing stuff out there and, we probablywon't be on the leading edge of that kind of stuff. But again, its going to bea combination of both service and innovation and we think we’re pretty wellpoised to cross all of our businesses to deliver against that model. Regarding pricing, we just assume its going to be long-termpricing pressure. The unit growth is going to be there. There will be pricingpressures, certain meaningful innovations. We will probably continue to be ableto garner mix upgrades and some of that.

Okay. That’s terrific. Thanks very much guys.

Great, thanks Larry. And I think that wrapped it up therefor questions, Katrina?

Yes, sir.

All right, we will just make a couple of final comments. Ourconference call for our fourth quarter 2007 operating results will be held onJanuary 23rd, 2008. And at that point, we will discuss our outlook for 2008sales and earnings. We also wanted to make you aware that we are planning achange of timing and venue for our annual analyst meeting, which istraditionally being held in conjunction with the American Academyof Orthopaedic Surgeons meeting. We now plan to hold our 2008 analyst meetingon May 8, in New York City,and hope that you will be able to join us at that time. And again, we feel good about where we are and we are very,very focused on delivering a solid fourth quarter and wrapping up the year andmoving into 2008. So, thanks everyone.

Ladies and Gentlemen, thank you for your participation intoday’s conference. This concludes your presentation. You may now disconnect.Good day.