Welcome to the 2009 Stryker earnings conference call. (Operator Instructions). 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 further weakening of economic conditions that could adversely affect the level of demand for the company's product; pricing pressures generally, including cost-containment measures that could adversely affect the price of or demand for the company's products; changes in foreign exchange markets, legislative and regulatory actions; unanticipated issues arising in connection with clinical studies and otherwise that affect 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; unfavorable resolution of income tax audits; 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 United States 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 constant currency sales performance and diluted net earnings per share for the year ended December 31, 2008. Further discussion of this non-GAAP financial measure, including GAAP reconciliation, appears in the company's Form 8-K filed today with the United States Securities and Exchange Commission, which may be accessed from the full investors' page on the company's website at www.stryker.com. I would now like to turn the call over to Mr. Steve MacMillan, President and CEO. Please proceed, sir.

Thank you, Louisa. Good afternoon everyone and welcome to Stryker's second quarter 2009 earnings report. With me today are Curt Hartman, our Vice-President and Chief Financial Officer and Katherine Owen, Vice President of Strategy and Investor Relations. Before I hit on some of the highlights from the quarter, it's probably worth providing all of you with some perspective as to how the first half of the year has unfolded. Clearly 2009 has thus far presented us with some considerable challenges, the magnitude of which turned out to be far greater than our expectations coming into the year. This includes a dramatic contraction in the world economy, a significant pull-back in hospital capital spending, which has a direct impact on roughly a quarter of our business, and a sizable currency headwind. After resetting our commitments in April, we are pleased with our Q2 performance, which demonstrates the strength of our diversified footprint and our continued focus on tight cost controls. It also serves to underscore the merits of our strategy that we employed starting back in the latter part of 2008, when the first signs of economic weakness began to emerge. Given both the volatility and uncertainty that we were facing at that time, we made the decision to focus on controlling the controllables. This meant taking a very aggressive stance on our operating costs which has enabled us to preserve earnings despite significantly higher spending on quality and compliance and the myriad other headwinds we have been facing. As we look toward the remainder of the year, we expect our organization will increasingly realize opportunities to leverage its infrastructure. This will allow us to maintain the necessary investments in our sales forces, R&D and quality systems in order to capitalize on the eventual rebound in the economy and our markets…

Thanks, Steve. My comments today will focus on several topics where we will try and give some greater perspective including pricing, procedure deferrals and hospital capital budgets. Starting with pricing, for the company overall, pricing was once again flat in the quarter reinforcing the benefit of our diversified sales base. And although total price for Stryker has been essentially unchanged since 2005, the components driving price vary from quarter-to-quarter given our mix of businesses that span across multiple segments of the medical technology industry. As such, we believe the best way to gauge the overall impact price is having on our organization is by focusing on the total company. We also continue to realize a mixed benefit which has helped offset pricing pressure. Turning to some specifics, as we stated on our prior call, our U.S. reconstructive implant pricing had been seeing low, single digit annual year-over-year decreases for roughly the past five years. We experienced a largely similar trend in the second quarter, with respect to both hips and knees. It's important to recognize that the reconstructive pricing pressure was mostly offset by modest price increases in our other implant business, such as trauma and spine. Outside the U.S., with the exception of Japan, pricing has been more favorable, with low single digit increases throughout most geographies, a fact that really underscores a key aspect of our business. As we have discussed previously, the current economic environment has caused some deferrals of some elective procedures in certain markets throughout the U.S. We believe this trend continued during Q2, although the magnitude of deferrals does not appear to have meaningfully changed but rather remained relatively stable. We fully expect these patients will eventually return to the surgery schedule, given the pain and discomfort associated with osteoarthritis, although the exact timing remains uncertain. And as supported by our Recon implant results, the impact from these deferrals has been very manageable and has not significantly impacted our ability to deliver solid year-over-over revenue growth. Lastly, some brief comments as it relates to hospital capital budgets; although the backdrop remains tough, we have seen relative stability over the last few months with respect to the number of hospitals that are either operating under capital freezes or somewhat less restrictive frost. This contrasts sharply to the period from late '08 through March where we experienced a steep acceleration in the percentage of hospital customers pulling back on capital spending. We believe this trend supports our expectations that the cycle is bottoming. With that, I'll turn the call over to Curt.

Thank, Katherine. Moving to the second quarter, I'll begin today with a review of the impact that foreign currency had on our sales results. In the quarter, international sales were reduced by $77 million and the company's overall sales growth was impacted by 4.5%. Unfavorable currency movements in the second quarter versus last year included the dollar strengthening approximately 15% against the euro, 27% against the British pound and 24% against the Aussie dollar. The dollar did weaken approximately 7% against the yen when compared to prior year. For the first half, company sales have been reduced by $164 million which has reduced our growth by 4.9%. If currency rates hold near current levels, we expect foreign currency will decrease third quarter sales by approximately 1.5% to 2.5% when compared to 2008. At these rates, the full year impact would be in a range of 2% to 3%, when compared to 2008. Next I'll spend a moment on the impact of price and volume mix on the top line. In the quarter, selling prices consistent with previous quarters were essentially flat on a worldwide basis. This broke down into an international price gain of approximately 1%, which was offset by a domestic price loss of approximately 1%. Volume and mix was generally as expected for our orthopedic implant products, but volumes were off across the MedSurg franchise categories. In the quarter, selling days were down one when compared to prior year. Now I'll turn to the product categories. Product growth detail has been provided in our press release and I'll reference those rates, as I provide more detail on our key segment performance metrics. For this discussion, I'll start with our orthopedic implants, which represented 62% of our sales in the quarter. Sales of orthopedic implants were flat in the…

Thanks, Curt. Before we open up the call to questions and answers it is worth taking a step back for a moment to think about where we stand. Twelve months ago we could not have imagined a quarter where we would lose $77 million to currency and our U. S. MedSurg businesses would decline by $54 million in the quarter versus a year ago while also dramatically boosting our quality and compliance spending. We don't think there are too many people, perhaps even ourselves included, who would have thought that we could absorb all three of these major blows and still report flat earnings. And make no mistake about it, we never, ever want to get comfortable feeling good about a flat EPS performance. Importantly, we remain confident that the underlying strength of our organization and the significant investments we are making to get even stronger are positioning us to accelerate growth as market fundamentals stabilize and gradually strengthen. With that we'll now open it up for questions and answers. Louisa, we'll hand it back to you.

(Operator instructions). Your first question comes from Doug Schenkel – Cowen and Company. Doug Schenkel – Cowen and Company: Hi, good afternoon and thanks for taking the questions. You just touched on this a little bit at the end of your prepared remarks, but you said earlier in your remarks that the $1.6 billion in Q2 sales was generally in line with your expectations and you also said, I believe you said that hospital capital spending budgets weren't deteriorating further, yet you lowered the growth rate guidance for year, as you said, from 2% to 5% to 1% to 3%. Can you just provide a little bit of color on what's changed relative to your earlier guidance and can you also help us understand the impact of the beneficial currency moves since your Q1 quality ETF line?

Sure, Doug, this is Curt. I'll start it out and Katherine is not in the room but she can obviously add some color here. I think what we're trying to discuss here is the continued performance or suppressed performance of our medical business which we have more clarity on now half way through the year, as well as some of the slowdown in the international markets relative to some of the implant procedure volumes. We had talked briefly about that at the end of our first quarter; did not want to be dismissive of a potential slowdown in the international markets around hips and knees. Some of that did materialize in the second quarter and we wanted to ensure that we referenced that here in our second quarter call as well. Katherine, do you have any other comments on this?

Yes, I would just add that remember back in April we were still in a period of fairly significant uncertainty as it related to the economy. You couple that with a pretty diverse business that we have with eight major franchises, it could be tough to accurately calibrate all the moving parts that early in the year. And although it is a downward revision going from 2 to 5 to 1 to 3, it doesn’t seem like a really substantial move relative to all the moving parts, particularly in a year like this. Doug Schenkel – Cowen and Company: And then in terms of the impact of the ETF line of currency?

Yes, Doug, I think last time we talked, we had put that range somewhere in the 11 to 14, 10 to 15 range. You have to understand that this has got a lot of moving parts. When you look at our operations around the global and the currency basket that we operate in, right now we still see that number somewhere in the 11 to 15 range, 12 to 16 range, given the way inventory flows through our systems and the fact that some of that inventory is moving at slower rates that is clearly going to have an impact on our EPS overall calculations. Doug Schenkel – Cowen and Company: Then if I could just ask one more follow-up and I'll get back in the queue. There were a few high volume Recon centers that we spoke with in April that suggested volumes were pretty tough in February, March and even into early April. Then when we circled back to those centers later in the quarter, we heard things had got a bit better. Recognizing that it can be a bit of a fool's errand to try to track trends monthly, would you be willing to comment as to whether there was anything different than normal that you saw in terms of the pacing of sales this quarter, which maybe made you feel a little bit more or less encouraged coming into the second half?

Doug, we're not going to get into monthly calls because there is always so many variances based on the days and calendars. We felt good about the whole quarter. And make no mistake about it, our U.S. implant business, we felt really, really good about this quarter.

Your next question comes from Mike Weinstein – JP Morgan. Mike Weinstein – JP Morgan: Let me start with the OUS business. The production and guidance for the back half of the year, some of that would seem to be – obviously MedSurg took another step down this quarter versus what we saw in the first quarter. That certainly surprised people, but probably what incrementally surprised people was the international ortho business which held up very well in the first quarter and then meaningfully dropped off this quarter, I think with 6% comps and currency in the first quarter and then 0% this quarter. If you have some insights there, it would be greatly appreciated, and if you could talk about any geographies that might have in particularly dropped off, that would be helpful.

I'll tell you it was largely our European business and best we can tell for the [UKAMED] data, we think the European hip market was probably negative in the quarter and hips was probably very low, single digit growth. Having said that, we probably had a few executional issues ourselves; we're in the midst of making a couple of changes over in Europe as we always do to kind of keep making things better. We're probably just in the small midst of that transition, but yes, we might have lost a touch of share. I wouldn't freak out about whether the European market is slowing down. Overall, I think we've got just some executional issues that we can do a little bit better with. Mike Weinstein – JP Morgan: The comments here you guys made on MedSurg, the same as Jeff, that sequentially things were relatively stable, but the numbers seem to suggest that things got a little bit worse during the quarter, from one quarter to the next quarter, particularly for the instrument business. Do you just want to add any commentary to what you said earlier?

I'd just remind folks that at the end of the first quarter we noted the second quarter comparable for instruments was going to be the difficult comparable of the year. We certainly face that both in the U.S. and internationally. On an absolute dollar basis and therefore on the reported growth rate, medical was stable in terms of quarter-over-quarter dollars, but would remind people that in the third quarter the medical comparable was 30% growth last year. So we do see that the dollar levels are fairly stable, but we're not going to come out of this at a blistering pace and so we're trying to guide a little bit to that point. Katherine, I don't know if you have any additional comments here.

No, I think we've just tried to call out that the normal quarterly patterns of growth rates kind of fall apart this year just given some of the comps and obviously the impact on the capital businesses. That’s part of what may be skewing a little bit, the reported performance. Mike Weinstein – JP Morgan: Steve, any FDA updates? Anything new relative to the warning letters, any new inspections that you can tell us about?

Nothing we can talk about yet, Mike. I would tell you we probably – we continue work very diligently on our three-year plan to get obviously major investments. And I think we continue to show the FDA our deep level of commitment. We think we're showing significant progress really around a number of our facilities and yet still have some work to do. I would think, Mike, that probably before the year is out, we'll have a little more concrete data to share with you.

(Operator Instructions). Your next question comes from David Lewis – Morgan Stanley. David Lewis – Morgan Stanley: Curt, just a quick question on earnings, it looks like given the midpoint of your top line guidance, the bottom line doesn’t imply the back half of the year acceleration. I wonder if you could talk about – does that imply to us that cost payment strategies are going to change materially in the back half of the year? Is this a comparable issue? Maybe talk to some sustainability in some of these cost containments if the back year EPS is to accelerate.

There's a couple of questions in there, David. The cost containment strategies will continue here. And they'll continue both through SG&A as we've demonstrated really going back to the fourth quarter of last year. The organization has rallied around this and it's not just containment. It's elimination of cost. These are not grand announcements. These are very tactical elimination of costs, really evaluating our business and saying how can we be more efficient across the board, big and little categories? That strategy is accelerating as we go into the back half of the year. On the other side, we do have some expectations relative to revenue both as it applies to the third quarter and the fourth quarter, somewhat consistent with prior years, revenue delivery but also being very mindful of what we see in the current environment. So probably not as large of expectations we've historically had in the fourth quarter but nonetheless, we feel good specifically about the implant trends here in the U.S. and what we're seeing in those markets. That’s how it somewhat comes together for us. David Lewis – Morgan Stanley: Curt, you talked about third quarter spending dynamics that are a little heavier than consensus. Can you talk about maybe one or two things that specifically have changed as it relates whether those instruments are falling here in the back half of the year that wasn’t the case maybe 6 months ago?

I think some of it is the full annualization of some compliance [bend]. Then keep in mind that this is largely a people-driven event. Also keep in mind that as we get further into this journey, there's more outside resources that are being brought to bear on these as we validate the work that we have done with outside consultancies, which certainly bring a higher cost to the table. And that’s going to clearly show up in the gross margin, that contribution overall calculation. The biggest driver within SG&A is going the selling expense as it relates to any ramp up in sales. That’s just the ratio that works that way as we're on a commission basis here.

Your next question comes from Matt Miksic – Piper Jaffray. Matt Miksic – Piper Jaffray: I have one clarification here and then I'd like to ask a couple of questions, but first just, Steve, to clarify on Mike's question earlier about OUS and orthopedics and a little bit about the slowdown there in the second quarter. Did I understand it that you don't believe you're seeing any share pressure from competitors whether global or local in Europe?

We don't think in the major markets that there's significant share going on. You know we would tell you part of what we've focused on also is exiting some of the peripheral markets. So there's just little things going on there that I just don't think people should over read. Matt Miksic – Piper Jaffray: So one question just on U.S. hips is I looked at your numbers this quarter actually looked I thought pretty healthy in the U.S. relative to what we've seen so far. One of the things we've seen in the past, I think you benefited from this in the past, but also maybe in the last couple of years, have been under pressure as the market rotates into or penetrates one sort of new bearing surface versus another. And obviously you benefited from ceramic, have not participated all that much, if at all, in metal. So is that – as I look at your numbers and I think about what has been a pretty steep ramp in metal-on-metal penetration over the past couple of years, are you seeing that slow down? Are you benefiting from a slowdown? Any dynamic there on how you feel you're doing with your metal-on-poly against that backdrop would be helpful.

Let's frame it in. Clearly [Waldo] was the big growth over the last few years in metal-on-metal and we were completely not involved in that sector. And watching our own ceramic-on-ceramic go down, that clearly was a big headwind. And probably one of the best jobs we've done as a company is actually having our hip business and the number of customers actually stay with us while that onslaught happened. I mean despite it being our slowest performing franchise over the last few years, on a pure unit basis it's probably done reasonably well given the market dynamics. Now having said that, we've got the beauty of being honest, lower comparables, particularly this quarter last year, but the good thing is as that metal-on-metal probably peaks or clearly slows down and it gets back to a steady state, we're back to winning business. And then on the Tritanium, which we've launched, we feel good about that being off to a pretty good start. So we've got our own little nuggets in there that we feel reasonably good about. Matt Miksic – Piper Jaffray: And then one follow-up just broadly about any thoughts you have on sort of the strategic landscape. I think you mentioned you're pretty optimistic about gearing up and being prepared for the turn or return of growth in some of these markets. Do you see the opportunities increasing for strategic activity? Do you see any change to your view or anything that you'd like to share on how you're thinking about that?

I think the way we ought to think about it overall is what we're doing during this time is focusing first on not losing any customers. And I think when you look at our MedSurg business, I think we feel pretty good that despite the horrific numbers we're throwing up right now, it's matching the market. We don't think we're losing orders. We don't think we're losing customers. In the meantime, we have really focused ourselves on controlling our costs so that as we come out of this thing, frankly, we think we're going to be even fitter and stronger than we've ever been. And continuing to build out our implant lines, not just Recon, but spine and trauma which continue to do really well for us. So in a way we're – we talk a lot internally this year about playing defense and offense. That there's an element of defense we just have to play in this time, especially with our MedSurg footprint. And by the same token, thinking about what can we be doing to come out healthier? And some of those things as it relates to instruments and Endo and even medical it's getting a little more in the way of disposables businesses. It's continuing to look at how we can strengthen our implant businesses. And I think we keep looking at every franchise and say there are opportunities to grow out every single one of them in the U.S. and probably even more so outside the U.S. and we'll do it with probably even a greater focus on our SG&A lines that will make us even healthier going forward. Meanwhile, the investments in quality we think will be paying off in the years ahead because for all that we've been roughed up a little bit in terms of looking into our systems, it's pointed out a lot of opportunities for us to get a lot better, that while we're investing today will probably come back to us in the years ahead. So again, we don't want to over promise what that would look like but for all the pain, we've seen a lot of opportunity that it's pointed out to us.

Your next question comes from Bob Hopkins – Banc of America Bob Hopkins – Banc of America: First, for Katherine, you were kind enough to give us U.S. Recon and OUS and I'm sorry if I missed it, but did you mention Japan specifically, and then worldwide total for Recon?

We didn't, so you didn't miss it. And we don't have that breakout for the call but maybe we can follow up with some color, but where we really tried to focus is on the U.S. since a lot of the attention seems to be there. And our comments about Japan pricing was really in reference to overall Japan pricing as well as seeing some modest price increases, again, not specific to Recon, but to the overall markets in most of the geographies outside the U.S. Bob Hopkins – Banc of America: Do you have any earlier in Japan, in April?

In terms of the Japanese Ministry year-over-year? I'm going to defer to Curt. Do you have any color there?

You're talking about next year, Bob? Bob Hopkins – Banc of America: I'm talking about, yes, April 2010 pricing outlook for Japan in Recon.

We don’t have a great handle yet. By the way, I would tell you, we had single digit growth in both hips and knees in Japan in the quarter. So reasonable performance there and we're assuming it's back into the slog as we go back in and deal with MHLW and next year's price cuts, but that will become clearer really I think towards the end of this year. Bob Hopkins – Banc of America: And then Steve, just to follow-up on MedSurg, I understand your comments about comparables and seeing signs of stability in that business despite the year-over-year decline. It was a little bit worse than the first quarter, but I was wondering if you could kind of look forward a little bit for us into 2010 and I know you said you're optimistic about a rebound in that business but I just was wondering like what gives you that confidence? Couldn’t this be a situation that we're in more of a secular downturn in terms of capital spending and that instead of rebounding, we just kind of sort of turn out sort of flattish results going forward given maybe a secular change in the way the hospitals are purchasing?

Yes, take it in a few buckets, Bob. And first off, it is a reminder, we would tell you. We are assuming lower growth rates going forward than what we certainly had over the last couple of years. It's actually miraculous to think about last year in the third quarter. Think about this, third quarter last year our medical business grew 31% on a global basis. We've been on fire with that business for a while. What are we picturing now? Clearly a sharp contraction, but then we see it starting to grow again but clearly at much lower rates of growth than what we had in those previous years. But as you take our franchises, take Endo for example. There's only so long hospitals are going to be able to go with the current arthroscopic cameras and things like that. You might be able to extend that out for six months, maybe nine months. You're not going to be able to extend those out for two years, the same on a lot of our power tools and stuff that we make at Instruments. Medical beds and stretchers, a little bit more. Having said that, we are also bringing some advantages as hospitals are focusing on never events and frankly we're finding ways to be able to sell hospital beds and stretchers that we're having to get better at to realize there's actually a lot of cost avoidance that can come with a lot of the newer technology that we're making. Now that's a more difficult sale, it's a more complicated sale, but the benefits are clearly there. So we don't want you to assume that we're going to assume this is a one-year hit and we just immediately go back to the explosive growth rates of the '06,'07 time period. But we absolutely do see growth versus an absolute flat environment. Bob Hopkins – Banc of America: So just to be specific on MedSurg, what you see right now are signs of stability, but at this point do you see signs of what you are talking about? Do you actually see signs of acceleration at this point, or is the evidence that you have the most you are willing to say right now is stability for now and hope it –

Stability for now. Bob Hopkins – Banc of America: Hoping, okay.

Stability for now. Let's just keep it there. Until – we just don't want to be out front of declaring bottom. But if you do look, basically Endomedic, medical and instruments were very close sequentially to what they were in the first quarter, down ever so slightly. But we think about it bottom and Endo actually ticked up ever so slightly. So collectively, MedSurg was a percent worse in term of total sales in the quarter than it was in the first. Year-over-year looks bad but sequentially we think hopefully bottoming out. But we're not counting for the big bang return rebound yet.

Your next question comes from Raj Denhoy – Thomas Weisel Partners Raj Denhoy – Thomas Weisel Partners: I wonder if I could ask a little bit, we talked a little bit about the international markets as far as the orthopedic side of the business, but on MedSurg you also saw a pretty big deterioration in the overseas markets and I'm curious, are we starting to see what could be a repeat of what we saw in the U.S. here where you might be going into a long period of slower hospital purchasing or is there something else there?

We don't think it's as much that as, we will tell you, we just had such a blowout international performance last year in this particular quarter on MedSurg. I mean, we actually had a number of geographies that had 30% growth rates. So I think this particular quarter was probably more of an anomaly outside the U.S. We're still making some nice progress outside the U.S. Having said that, definitely a little slower, but we'd remind you, we're still a pretty low-share player in most of the markets outside the U.S. and therefore we think we still view significant growth opportunities ahead of us there. Raj Denhoy – Thomas Weisel Partners: And then maybe I can ask a longer-term question. I think at the analyst meeting here a month or so ago, you wouldn't endorse any sort of longer-term targets for the company and you kind of laid out some thoughts around what MedSurg might look like as we get through this whole. But do you have any thoughts on what the overall company might look like on a more sustainable basis. The caveat or the second piece of that also is that what the levered structure looks like. I mean you guys are taking a lot out of the business this year and as we move into next year and the top line resumes a little bit. Is there still margin to be had in a sense?

Yes, there is margin still to be had and frankly we're just going to stay away from the longer term commitments right now. This year there's just been so many things that were unanticipated and there are so many things we can't anticipate. I can't tell you what the U.S. tax policies are going to be going forward. We can't tell you the full impact of health care reform. And I think we're just going to be wise to sit out a little bit. We still feel very good about the underlying ability to grow this business and be a top tier medical technology company in terms of growth rates. I think when we come back and announce guidance for next year, early next year, once we've finished this year, we'll talk a little more about that.

Your next question comes from Matthew Dodds – Citigroup. Matthew Dodds – Citigroup: A couple of questions, first Katherine, on the ASPs when you said overall flattish with three times down lower, are you saying that the rest of the implants offset that or does that include MedSurg?

The overall comments were related to total company so price for total Stryker was essentially flat in the quarter, and then the low single digit pricing pressure we saw in the U.S. Recon business, which is very consistent with what we've in prior periods, was partly offset by some price increases we're seeing in other implant businesses. The couple that we cited was trauma and spine. Matthew Dodds – Citigroup: Can you say anything about what's going on MedSurg in pricing? Are prices holding there as this market gets really tough for you or the industry?

If you look at the total company obviously there's a lot of moving parts in any given quarter with price but for the total company to come out flat, I think that’s a pretty good referendum on what we're seeing for price overall. Matthew Dodds – Citigroup: One follow-up on the manufacturing, you slowed it down I think more this quarter than the last quarter, is that also having a big influence on Q3 versus Q4 with the increase earnings in Q4 and between the two of MedSurg and Recon is one taking more of an impact on that than the other on the P&L. Or are they pretty even?

The first part of your question, Matt, is certainly we're going to continue to run the plants at a level commensurate with the external sales growth that we're seeing. So you should infer from that that they are going to remain in a slower mode in the third quarter, and that will in fact have an impact on the P&L. Are we seeing a split here between MedSurg and the implant facilities? No, they're both incurring substantial compliance costs. So you could call that one about even. On the business slowdown, I think from the implied growth rates, you can assume that our medical business is probably experiencing the worst slowdown and that everything else is somewhere in between with perhaps our spine business, which had a fantastic second quarter, experiencing the least amount of slowdown, and therefore P&L pressure from the plants.

Your next question comes from Rick Wise – Leerink Swann. Rick Wise – Leerink Swann: Let me start with Europe again. You were suggesting that – at least one of the factors there were some self-inflicted issues with internal transition efforts going on. Can you give us some more color? Are you changing distributors? When do you work through that? Was this a small part of some of the softness we saw or was this one of the major issues? If you could give us a little more detail there, thank you.

It’s a little bit of distributor. It's also, frankly, we've been making some reorganizations within a key of the countries. We're actually involved in focusing a little more on some of our key franchises across Europe as opposed to just by country by country, and there's always some natural growing pains that shake out of that. So I think you may feel it for another quarter or so but hopefully not much more than that. Rick Wise – Leerink Swann: Well maybe by the fourth quarter or that part of it is worked through.

I think we hope so. We've put a little bit of a new team in place over there and feel really good about that team but it always takes a little bit of time for them to get their full wheels under them. Rick Wise – Leerink Swann: You had said on OP1 at the analyst meeting that you're looking a wide range of options. Can you maybe share with us one or two of those options that you're weighing and/or give us some sense when we might hear?

You know what, we will – we're actually going to be discussing that, including with our board over the coming – basically during this quarter. As we continue to have discussions both with FDA and plotting our long-term plan. I would commit to you that I think towards the end of this year, we'll give you a lot more clarity on that as well. Rick Wise – Leerink Swann: Last and briefly, Curt you called out about the consensus, third quarter consensus numbers being too high. I just want to make sure, my understanding is $0.71 is the third quarter consensus number. So you're saying third quarter will be – EPS will be below first quarter levels, obviously less than second. And the major factor, just to make sure I'm understanding, is gross margin because it sounds like we're still getting some SG&A leverage here, right?

I think you summed it up pretty well, Rick, the full impact of compliance, our desire to have a little bit better handle on our inventory, some of the seasonality that we historically experience in the third quarter in the international markets. If you look back over time, the third quarter gross margin as well as op income as a percent, are historically our lowest. We still think that maybe to a lesser extent but we still think people are going to take vacations in those international markets. So when we put all that together we're predicting a little bit tougher third quarter and those are the things that lead us to that.

(Operator Instructions). Your next question comes from Derrick Sung – Sanford Bernstein. Derrick Sung – Sanford Bernstein: I wanted to ask you about this spine market. You posted some pretty strong numbers in spine both U.S. and international and I was wondering how much of that is the underlying spine market and how of that is share gains and if you could just comment on the underlying spine market and if you're seeing any procedure deferrals or the health of that?

We have felt good about the underlying spine market really for the last five or six years and I think –continue to feel good about it. I think when the numbers shake out we've probably gradually been growing share in that marketplace over time and think that’s probably continuing. Derrick Sung – Sanford Bernstein: Then on the compliance program that you’ve been dedicating a lot of time and spend to, to what extent might that lead to or might that impact your R&D and ability to get new products out from perhaps shifting R&D engineers away from their core R&D tasks and into quality type issues? Then also to what extent might this compliance program sort of inhibit your ability to do some M&A or acquisitions as you previously mentioned was for your preferred use of cash?

I think the first part of the question is certainly in the short term, we may be redeploying some of the R&D folks into compliance initiatives, but long term that is not the strategy nor is that a sound strategy. The operational side of the business has to grasp the full realm of compliance and drive that through every facility. Good quality however does start with R&D design and supplier selection. So they're clearly a part of the process. Do I think that any of the compliance initiatives inhibit our ability to do M&A? I think the answer is no. And you see that because we're adding a tremendous amount of spending up in the manufacturing side of the P&L to address the compliance initiatives.

But Derrick, I'd probably just add one little twist to that. I will tell you in our due diligence we're spending a lot more time focusing on what companies that we might looking to acquire might have in terms of their full supply chain. So I'd say it's probably affecting our ability to do due diligence. We do it in a very different way with much more rigor knowing how much the FDA is concern about third party suppliers and everything else.

Your next question comes from the line of Bruce Nudell – UBS. Bruce Nudell – UBS Securities: I had a question, first about implants. You showed 9% and 11% growth in the United States. Was that all units? And I guess more broadly, barring a major change in insurance, do you think that the industry's past the day where they could get net ASP across price and mix?

It was volume and mix but a good chunk of volume. Bruce Nudell – UBS Securities: And generally speaking, though, you still think that with new products, with a balanced portfolio that you could still get a little bit of net ASP across price and mix in the U.S.?

For meaningful innovations, yes, we absolutely do. Bruce Nudell – UBS Securities: And then my other question for you is regarding MedSurg, and I know that these businesses, the purchases are on the smaller end of capital equipment, but they're still in the capital equipment budget. Could you just talk us through the process by which hospitals could kind of re-engage in the process? In other words, if they don't commit to – if the capital budget, on December 31 looking into the following year, is not meaningfully raised does that shut you out or are there opportunities along the year where those decisions could be revisited?

What you had on a macro basis is say we used to get stuff approved by a purchasing manager or somebody. What happened in about October of last year is all those decisions got delegated up, so people within the hospital that used to have the signing or ordering authority in many cases lost them. Having said that, as things evolved here we both figured out how to go higher up in the food chain; higher up in the food chain is also still being very restrictive, but there are also opportunities that we will find where we can still get smaller orders here and there, when it's products that are really needed. So even if the hospital budget doesn't fully change much, there are still pockets of opportunity to be had, but not the wholesale open kimono, in terms of getting the orders. Bruce Nudell – UBS Securities: So when you're looking at 2010, for instance, will you know what the story – will you largely know what the story's going to be on December 31 of 2009 or –

No, probably not. I'd love to tell you that, but – unless, Curt, do you have a different feel on that?

I think we'll have a sense. We routinely get requests for budget proposals. Whether those materialize or not is the big variable that probably didn't exist 12 to 18 months ago. I think the quote request activity is still out there in anticipation of capital dollars freeing up, but does that necessarily materialize into a sudden increase in capital sales? I don't think we can claim that right now.

Your next question comes from Joanne Wuensch – BMO Capital Markets. Joanne Wuensch – BMO Capital Markets: When you were talking about products, you mentioned that you have a couple of quote/unquote "nuggets" in your product portfolio and you mentioned titanium. What other nuggets would you like us to be focused on over the coming 12 to 18 months?

I think our Triathlon business which continues to do really well with both the Triathlon Revision System, as well as the partial knee resurfacing, those have really breathed some new life into Triathlon at a period in life where I'd think you'd be clearly expecting it to have been way long in the tooth, but it continues to perform really well with that. I think the Tritanium, which is our porous cup, certainly continuing to do very well. And then within spine, we just kind of continue with little stuff. Another what should be a huge nugget this year would be our 1288 camera out of Endo. We'd probably go back to reminding you we launched a great new camera early this year. Any other year, our Endo business would be up 20, instead our video business is down in double digit rates, but that's still a product that we feel great about. So I'd say those are probably three highlights. Joanne Wuensch – BMO Capital Markets: The general, I can't just call it consensus, but when I talk with people it seems to me that people are overwhelmingly concerned about orthopedic pricing and that there is a thought process that of all the segments in medical devices, orthopedic pricing is the most vulnerable to healthcare reform. Is this the right way or the wrong way to be looking at things?

Sure, Joanne, it's a great question. We read everything that's written as well. It's not our biggest concern. You know what? Our big focal points right now are getting our MedSurg businesses, which, as you know, have been enormous generators of growth over the last decade, really the last two decades, getting those things going again and continuing to drive our implant innovation and our implant businesses. We just accept there's going to be steady pricing pressure. We see it all the time, but we also believe there's going to be continued opportunities on mix and other ways to continue to fight through it. So we think it's a little overblown.

Your next question comes from Ben Andrew – William Blair. Benjamin Andrew – William Blair & Company: Just briefly following up on MedSurg, the trends internationally have been materially better than the U.S., Steve. Have you seen any kind of trends of soften there, over the course of the last couple of quarters? And as you think about the plan for the back half, are you assuming that that gets materially worse or is kind of steady?

We think that'll stay fairly steady. Again, we saw this particular quarter was a little bit funky in terms of just exceptional growth last year in a few of the franchises, but we still feel pretty good. And again, it links more to the fact that we're still a very low share player, so our teams see significant opportunity for growth. Benjamin Andrew – William Blair & Company: And when you do get business in MedSurg has it tended to be at a lower mix point on the product line?

Not really. Benjamin Andrew – William Blair & Company: You talked about R&D being down 9%. It's about $5 million below my plan. Maybe if you can say anything about where you've had to reprioritize in those programs?

Sure, actually glad you asked that, Ben, because there's two pieces. One is a year ago we were spending a reasonable amount on Sightline which was the disposable endoscopy business, and the other part is that a good chunk of our R&D is also done outside the United States. And what's interesting is, while we reported 9% down in the quarter in R&D, if you take out Sightline and you take out FX, it actually was down, at most, a couple of percentage points. So it's not down nearly as much as it looked, and I'd tell you that most of the divisions are still adequately resourcing both the compliance activities, as well as key new product activity. Benjamin Andrew – William Blair & Company: Have you had to reprioritize and maybe get rid of some marginal projects? Have you gone through that process already?

Yes, yes, we did a lot of that, frankly, in fourth quarter last year. That was part of what led to the decision to close down Sightline, and we did the same thing on other projects that in good times you kind of let go and see if they're going to amount to something. And when things got a little tighter, we have shed a few things on the margins to make sure we're focusing on the core.

Your next question comes from Tao Levy – Deutsche Bank. Tao Levy – Deutsche Bank: A question on pricing again, based on what – your comments and a couple of your competitors have indicated their expectations or signs of worsening, you know Recon pricing here domestically, but based on your comments, it doesn't seem like you're really expecting the same changes that they are. Is that a correct view?

We feel constant pressure and constant push-back. We don't see that. Our results in the quarter were not materially different than first quarter and not materially different than last year, and we don't expect it to have this incredible inflection point that some might think. And I don't think our competitors talk about inflection points either, frankly. Tao Levy – Deutsche Bank: And on the SG&A side, specifically what have you been able to cut out and how long can that continue and, obviously, probably like as with R&D, there's some effect trends there, but is there more room on the SG&A side?

I think there's a couple of answers to that question and part of it or the first part I would highlight would be the category called headcount, which is clearly a big driver. And usually we start a year with a big expansion in headcount. We did not start this year with that same approach, so we're getting benefit out of that, through the SG&A categories. The other side, the more discretionary items, I think it's just our divisional approach, doing a little bit better job prioritizing and focusing on the activities that we pursue versus trying to be all things to all people. We've really narrowed our focus here. Marketing, G&A, just really trying to leverage some of the opportunities that we all know have existed and just getting on after them. Those are the things that are coming through and we think there's still more opportunities there.

And Tao, Curt won't say this because he's been the good guy leading it but he's brought a lot more visibility to a lot of the areas where we're been spending a lot of money as you roll it up across the company and frankly in our old divisional P&Ls. We continue to run divisional P&Ls, but he helped our leadership team realize that there's some big money that we we're spending that frankly was not always the value add driving the business. Some of that, the things like travel and some of that stuff, he can get at quickly. There's other pieces that we'll still probably continue to get over time and Curt's been really helping drive that a lot.

Our next question comes from Glenn Novarro – RBC Capital Markets. Glenn Novarro – RBC Capital Markets: Most of my questions had been answered but I do have one quick one just on – if you could give us any update on where some of the government, the DOJ investigations are, any timing on any resolution, if there is any? Thanks.

We are working feverishly towards resolutions but we don't control the timetables and realistically we'll tell you once – we will let you know once we've solved or settled anything. So sorry we don't have more to report. It just gets hard when we're in the discussions.

Your next question comes from Michael Matson – Wells Fargo Securities. Michael Matson – Wells Fargo Securities: I guess my first question would be for Curt on the currency hit that you're taking on EPS. I think you were saying it's roughly $0.11 to $0.16 this year. How much of that have we seen in the first half and if currency has a positive impact on your revenue in the fourth quarter, can we assume it will also have a positive impact on your EPS in the fourth quarter?

The two-part question here, the answer of how much we have seen in the first half, I think roughly half of that has probably materialized in the first half. I'm not going to get into exact percentages here. And if we get favorable news in the second half or the fourth quarter relative to currency influencing sales, some of that obviously will materialize. The other part of this though is the inventory that we have in place and the various baskets of currency. So if you're in Great Britain and you're buying inventory from a European implant manufacturer, it's far more complicated than the dollar to the euro. It involves all the currency baskets moving and with inventory moving slower because of the slowdown in the overall environment, it is having a bigger impact through the P&L through the net contribution. So there should be some uptick. I don't want to put a number on it. We'll just have to wait and see really. Michael Matson – Wells Fargo Securities: And then my second question would just be on the pricing topic. I guess just with pricing down slightly in the hip and knee area, I'm just wondering what the real sort of mechanism there is that’s causing that. Is that just simply the result of all the pressures that are out there on hospitals? Is it because the surgeons have become a little more cooperative? Has there been an increase in contracts with GPOs and hospital systems sort of big volume contracts? Any commentary there would be helpful.

It's really bits of all, Mike. Everything you’ve said. There's on the margin pieces of that happening.

Your next question comes from Bill Plovanic – Canaccord Adams. Bill Plovanic – Canaccord Adams: I'm just going to ask one question here. So Curt, actually where are you on the compliance spend and when does that peak and what is it right now, roughly how much? That’s all I have.

I think if you go back and look, our comments relative to 2009 that it would be $10 million to $40 million above our baseline, again, 2008 being our baseline. So I think the implied rate of spending this year was between $60 and $90 million. I would tell you a rough estimate here is that you should pick the midpoint of that for your guidance and you should assume that our spending this year is probably a little more back-end loaded on that midpoint. Bill Plovanic – Canaccord Adams: Is that the peak and then it starts to go down going forward or how do we think about it?

In a perfect journey, this would be the peak; however, our journey is highly dependent on successful outcomes in our interactions with the FDA. So while our journey would say it's three years and it should start the downslide next year, it's all dependent on how well the FDA views the work that we've completed and whether we have to go back and have a redo in certain areas or if they give us the go ahead and the green light to move forward. So I guess I would say yes, it should be the highpoint but I would caution that by we're only as good as our last inspection.

Your next question comes from Jeff Johnson – Robert W. Baird. Jeff Johnson – Robert W. Baird: Steve, I was wondering, or Curt I guess, going back to that last comment there on the compliance spending. In the past I think you’ve quantified that at about $200 million or so in the three years. Is that still a safe number for the three years?

That’s still a safe number. Jeff Johnson – Robert W. Baird: Then Steve, just trying to piece together a couple of the comments you’ve made so far on Europe on the cost control side, on the revenue side. Now is it fair to say in some markets, Europe, or I guess other international markets, maybe you exited some geographic locations that maybe were adding to the revenue line but at the same time were cost neutral or not – profit neutral at best?

A touch of that, yes. I'd say both in dealing with say specific product lines, even within a particular country, or looking at some of the smaller countries. We've looked at literally franchise by franchise, distributor by distributor and little pieces of that. That’s a good observation. Jeff Johnson – Robert W. Baird: Is there a chance then or how do you think about that longer term? Is that if the markets are temporarily slowed, you'll get out of them and then kind of go back in over the next couple years or this was something you tried, it didn’t seem to work so now you'll look elsewhere?

No, we're never going to make decisions like that on short-term market dynamics. We like all the markets we're in. Oftentimes it's really around can we attack this market better with either maybe going direct, or with a different distributor? We had done a similar in Korea a few years back. It was choppy for a few quarters and then Korea got right back on path. We've done it with export here and there and we continue to trim it and part of it is also kind of looking at compliance activities in some of those small markets. I will tell you, as a U.S. multinational operating if you're in a country that’s not making a lot of money right now, that’s got a high corruption index or other stuff like that, we've really thought twice about how much we want to be in some of those markets. And yet the strategic ones, we're going to stay in and find ways to do business with, but some on the periphery, you kind of wonder about it. Jeff Johnson – Robert W. Baird: Last question for Curt, last quarter I think, Curt, you qualified guidance as reflecting any reasonable downside risk. Do you still feel with the back half of the guidance here that maybe five to mid-teens type EPS growth that that captures kind of any reasonable downside risks?

Yes, I think we feel pretty good that the 290 captures the risks that we can see right now. I don’t think we're changing our view on that after the second quarter or anything that we saw in the second quarter.

Your next question comes from Kristen Stewart – Credit Suisse. Kristen Stewart – Credit Suisse: Curt I was just wondering if you could maybe walk us through just kind of year-to-year change in gross margins. How much of it was related to some of these compliance initiatives relative to maybe some other factors like FX, or just probably general costs and things like that?

You probably hit all the big buckets right there. We have not historically broken out the detail between the three categories. I think probably the one category that may not be as much in everybody's model would be the slowdown in the plants. We made some strong comments on the first quarter about inventory levels and our desire to have a better handle on our inventory levels. I think that message is working its way through our plant network. People are slowing down to get more in line with the market realities and I would argue that those slowdowns are a big change that probably was not resident in most people’s models. I probably put the compliance spending right up there as a key driver as well. We have to be compliant. We have to meet the FDA requirements. We are spending a significant amount of money, but it’s nothing compared to the actions that could be taken if we fail to achieve the goals set out by both our internal journey and the FDA expectations. So I am not going to get into the specific details on the three categories, but you hit the categories right on the head. Kristen Stewart – Credit Suisse: And just with respect to the U.S. growth rate, obviously you guys did pretty well there on a sequential basis, do you feel, do you address that this is more market or more share, and if it is share what do you think some of the key things in the quarter were that were behind that?

It's always hard to say if it’s market when we're kind of earlier up in the reporting cycle. We tend to view that if we did well then it probably was more market and if we did badly we usually think it was more share, i.e. we lost share or we rode market. Having said that, I think we feel like we are actually doing reasonably well in our U.S .implant businesses right now competitively. I’d say that all of our businesses, on an overall basis, we don’t really feel that we are losing any market share right now in our core franchise, other than maybe a little bit of the shifting of Europe. But even that I wouldn’t say is customer related as external. So I think we feel pretty good. Kristen Stewart – Credit Suisse: Okay. And in the Europe business, I had missed it before, but I think you said hips was low single digit growth. Was it the market overall that was the negative or were you seeing knees that were negative in Europe?

We saw knees negative as well and we thought – our understanding was the knee market was probably marginally negative in Europe and we were marginally that negative or slightly more than what we think the margin might have been. Kristen Stewart – Credit Suisse: And to what degree do you think that trend may continue going forward, or what’s really driving that in what otherwise would be a pretty consistent market?

I think it is as we said, we had a couple of short term things and I don’t think it is anything to freak out about on a longer term basis. Kristen Stewart – Credit Suisse: So were those comments to the market or your numbers, because your numbers reflect some of the moving parts with some of your initiatives, but you don’t think that there's anything in the market numbers that are concerning?

Not particularly

I think one more?

Your last question comes from Mike Weinstein – JP Morgan. Mike Weinstein – JP Morgan: Thanks. I didn’t think that I was actually going to get back in. Have there been any additional with the FDA problems with the relative to the recent warning letter you had early this year and last year? Have there been any additional warning letters? Have there been any additional warnings?

There have not been any additional warning letters that we have not reported. Mike Weinstein – JP Morgan: Okay

Was that that question? Great. We didn’t hear you quite as well coming through at first. We have effectively adopted a policy that if we get additional warning letters we will let people know about it. We won’t wait for a call just so that you know that. Mike Weinstein – JP Morgan: And Steve, just to clarify that, the expectation right now on when you could get resolution on Cork and Mahwah is that still year-end or do you think more likely we are getting an update before around year-end?

We are hoping that we will have some things to report before the end of the year. But again, we don’t control the time tables. You have been around this business long enough to know our friends that we are not in complete control of that. We’re doing everything we can and we will let you know, and we have said we will let you know when we’ve got tangible news out of Cork and Mahwah. Mike Weinstein – JP Morgan: Understood. Thanks for taking my question Steve.

Thanks Mike. Thanks for hanging back in there. All right, I think that it is, so with that, Louise, thank you. Overall I think we feel pretty good. We are obviously going through very difficult and challenging times, but we would tell you we continue to think we're making the right investments for the long term of the business. Our conference call for our third quarter 2009 operating results will be held October 20th of this year. So thank you, everyone. Bye-bye.

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