史賽克 (SYK) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Stryker Corp, third quarter operating results conference call. During the presentation all participants will be in a listen-only mode. Afterwards we'll conducts question-and-answer session. At that time if you have a question please press the one followed by the four on your telephone. As a reminder this conference is being recorded Thursday, October 14, 2004.

Certain statements made in today's conference call may constitute forward-looking statements. They are based upon management's current expectations and are 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, the factors that may be discussed in this conference call such factors include but are not limited to regulatory actions including cost containment measures that could adversely affect the price of or demand for the company's products, changes in reimbursement levels from third-party payers, a significant increase in product liability claims, changes in economic conditions that adversely effect the level of demand for the company's products, changes in foreign exchange markets, changes in financial markets, and changes in the competitive environment. Additional information concerning these factors is contained in the company's filings with the Securities and Exchange Commission. Including in company's annual report on form 10-K and quarterly reports on form 10-Q. Today's conference call will also include a discussion of adjusted net earnings excluding the impact of the three months and nine months ended September 30 of a charge to write-off purchased in process research and development in third quarter of 2004. Further discussion of this nonGAAP financial measure including a GAAP reconciliation appears in the company's form 8-K, filed today with the Securities and Exchange Commission, which may be accessed from the foreign investments page on the company's website at WWW.striker.com.

I'd like to turn the conference over to Mr. John Brown, Chairman and CEO of Stryker Corp, please go ahead, sir.

Thanks. And welcome everybody to Stryker's third quarter earnings report for 2004. With me today are Steve McMullin, President and Chief Operating Officer, and Dean Bergy, Vice President and Chief Financial Officer and secretary.

We're pleased to report that Stryker had an excellent third quarter and first nine months. For the third quarter net sales were $1,029 million, an increase of 16% over the prior year. Including the impact of foreign currency sales were 13% higher than last year. Net earnings for the quarter decreased 87% to $14 million and diluted net earnings per share decreased 85% to 4 cents per share. Excluding the impact of the purchased and processed Research & Development charge, associated with a SpineCore acquisition, adjusted net earnings for the quarter increased 25% and adjusted diluted net earnings per share increased 27%. The first nine months net sales were $3,107 million, an increase of 18% over the prior year. Excluding the impact of foreign currency sales were 15% higher than last year. Net earnings for the first nine months decreased 5% to $303 million and diluted net earnings-per-share decreased 6% to 74 cents per share. Excluding the SpineCore in process Research & Development charge, adjusted net earnings for the first nine months increased 33% and adjusted diluted net earnings per share increased 30%.

Strong third quarter cash flow allowed us to fund the entire $120 million up front amount paid for SpineCore in the quarter. Year-to-date, cash flow has also been excellent with the company generating $317 million in free cash flow through the first nine months. Domestic sales were $680 million for the third quarter and $2,016 million for the first nine months representing increases of 16% and 19% over the prior year. U.S. divisions are having an excellent year. Orthopedics was up 14% for the quarter and 19% for the first nine months with outstanding growth in trauma and good growth in the reconstructive implant area. Hip growth was slower as we faced more difficult comparables we made in the prior year, launch of our Trident Ceramic hip.

Spine sales increased 21% in the quarter, and 19% for the first nine months led by strong sales of cervical lumbar products. [inaudible] micro implant sales were up 13% in the quarter, and 17% in the first nine months led by sales of the Cranio-Maxillofacial implants systems. Instrument sales increased 14% in the quarter and 17% for the first nine months to a good growth and power of instruments, pain management, and excellent growth in net operating room waste systems, cervical navigation systems and interventional pain. Endoscopy sales increased 22% in both the quarter and first nine months with exceptional growth in video and solid growth in arthroscopy and general surgery. Medical was up 26% in the quarter and 19% for the first nine months with excellent growth across all the divisions of product lines. Physiotherapy, our service business was up 7% in the quarter and 11% for the first nine months with same-store sales growth and new clinics arising from start-ups and acquisitions contributing about equally to the growth.

International sales were 349 million for the third quarter and 1,092 million for the first nine months representing increases of 16% and 18% over the prior year. Foreign currency comparisons added $25 million to sales in the third quarter and $95 million for the first nine months. Excluding the impact of foreign currency international sales increased 7% in the third quarter and 8% in the first nine months. Our international sales growth experienced a slight negative impact from the continuing reorganization of some of our less profitable distributor-based businesses. The reorganization impact is now pretty much behind us. On a local currency basis most of our international direct business are having a good year. Europe grew 10% for the quarter and is up 7% year-to-date. The growth in direct business was up 11% in both the quarter and the first nine months. Strongest performances were in the U.K., Spain, [inaudible] and Germany. [Inaudible] was up 2% both the quarter and through the nine months. Price reductions instituted by the government at beginning of the second quarter reduced third quarter sales by 4% and sales for the first nine months by 3%.

Pacific was up 7% for the quarter and 6% for the first nine months. Strongest performances for the first nine months were in southern Asia and Taiwan. Australia, China, and Hong Kong were also stronger this the third quarter. Canada and Latin America were up 10% for the quarter and 25% for the first nine months with the strongest performance in Canada. Worldwide, orthopedic implants sales was $613 million for the third quarter, and $1,877 million for the first nine months. Representing increases of 15% and 18% respectively, based on strong shipments of reconstructive trauma, spine and micro implants systems, bone growth, [inaudible] protein one and bone cement. Excluding impact of foreign currencies sales of Orthopaedic Implants increased 12% in the third quarter and 13% for the first nine months. Worldwide, MedSurg sales were $355 million for the third quarter and $1,047 million for the first nine months representing increases of 19% and 21% respectively based on higher shipments of power surgical instruments, endoscopic products, patient handling and emergency medical equipment and surgical navigational systems. Excluding the impact of foreign currency sales of MedSurg Equipment increased 17% in the third quarter and 18% for the first nine months.

Now some comments on physiotherapy and biotech. At physiotherapy we really don't have anything new to report on the investigation of the physiotherapy associate's billing and coding practices by the U.S. attorney general's office out of Boston. We are aggressively cooperating with the Department of Justice and are striving to resolve this matter as timely a manner as possible. We're also pleased with our new leader that we have here that was put in charge of this business, I believe he is charting a good course for the future. Biotech had a strong quarter with solid shipments of our OP-1 product for trial indications. Divisions performance was boosted by shipments of our OP-1 putty [phonetic] product for use in revision spine surgery under the recently granted U.S. humanitarian device exemption approval. Biotech also benefited from easier comparables in third quarter attributable to the product released testings issues we faced in last year's second half, but we're limit -- with limited shipments. We still expect that capacity constraints in limited U.S. approval of OP-1 sales at modest levels for the next couple years, through 2006.

And now I'm delighted to turn the microphone over to Steve MacMillan for his observations on the third quarter. Steve.

Thanks, John.

We would like to emphasize a couple of key take aways in the quarter. First despite impacts from the hurricanes and the southeast U.S., and the fading of the international currency gains we've all benefited from over the last few years. The fundamentals in the orthopaedic industry remain strong as underlying procedural volume growth continues to be healthy. Second, our uniquely broad base of orthopaedic businesses continues to generate strong bottom line results at or above our long held 20% earnings growth target. To summarize the third quarter our MedSurg businesses showed very strong growth. Recon going against tough comps was more modest while spine and trauma showed great acceleration.

We also achieved several key milestones in the quarter which will provide major new growth platforms later in the decade. First we completed the SpineCore acquisition providing valuable entries into both the lumbar and cervical artificial disc markets. We felt good when we signed this deal and frankly feel even better today based on reaction from the surgeon community. Second, we launched OP-1 putty, a new formulation for use in spinal applications in the U.S. Initial surgeon reaction has been outstanding. Suggesting a bright future once we ultimately secure a broader spinal indication for OP-1. All these developments are clearly favorable for the future of our spine business. We were also pleased with the current quarter's results.

As you may recall, we made significant structural and leadership changes in our spine franchise late last year including the establishment of the dedicated U.S. sales force at the start of this year. Driven by these changes and a series of new product launches, we are pleased with the early results as global sales growth doubled from 9% operational growth last quarter to 18% this quarter and 21% on a reported basis. And as John mentioned, our U.S. business grew 21% and is now up 20% through the first nine months.

International performance is also strengthening as European growth exceeded 15% and Canada and Japan each exceeded 30% in spine. The only soft spot was Pacific where a significant distributor change and reimbursement reductions in Korea resulted in year-over-year declines. We clearly see our spine business emerging as another major growth platform in the years ahead and are encouraged with our progress.

Another area of enhanced focus is trauma. We have a strong business in Japan and Europe but are somewhat under developed in the U.S. At the start of this quarter, we initiated some structural and leadership changes within our domestic business and while it is early, we are pleased to see our global trauma operational sales rate more than double to 12% from second quarter's 5% rate. Particularly encouraging is that our U.S. business grew 23% while Japan continued its strong performance with another double-digit growth quarter. There is still a great deal of work to be done here. But we anticipate our trauma business becoming a bigger growth driver going forward.

Turning to recon our U.S. hit franchise was up 11% in the quarter, about in line with the market. Europe saw strong 9% operational growth while Japan was down as we recover from this year's MHLW price reductions. Our U.S. hip business is likely to experience market growth rates over the next few quarters as we index against strong comps from last year's ceramic launch. Growth will be driven by the continued roll out of the modular restoration revision system and newly developed MIS instrumentation.

And now a few additional words on MIS. In order to bring meaningful and clinical supported improvements to MIS hip surgery we have been partnering with a number of surgeons and carefully assigning different techniques. These efforts have helped us refine a single incision anterior muscle sparing approach. This approach capitalizes on current techniques rather than any revolutionary approach, and, therefore, should have minimal complication and enhanced patient outcomes. You'll hear more about this approach in the coming months as we're in the early stages of a measured roll out here.

Knees were up 12% operationally, 15% reported behind solid 15% growth in the U.S. and strong 13% growth in Europe. Encouragingly we are now on track to begin rolling out the Triathlon Cruciate Retaining Knee beginning the week of October 25th while the launch of the posterior stabilized version is planned for the first half of 2005. Feedback from our early users has been outstanding and we anticipate Triathlon being a significant growth driver throughout 2005.

Finally, we have also implemented some sales leadership changes within our U.S. orthopaedics business during the last two quarters. These changes are designed to enhance focus on both trauma and recon and we believe strongly in the principal of focus believing this team is now increasingly poised for stronger results going forward. Wrapping up Orthopaedic Implants, Wildner [phonetic] had it's fourth straight quarter of double digit growth globally up 12% in local currency and 13% in the U.S. Our MedSurg businesses which account for over one-third of our total sales continue to do very well. Our endoscopy and medical businesses each exceeded 20% growth in the quarter and are both up 20% for the year. While instruments posted solid 15% growth in the quarter. These businesses continue to benefit from growth and surgical volume and a track record of outstanding innovation.

Before we get to Dean, we would like to address the area of potential acquisitions. With the paydown of the Halmetica [phonetic] debt complete and the wrap-up of our recent SpineCore acquisition we sense there may be some speculation that we are preparing for a buying spree. While the balance sheet is clearly in the position to give us greater latitude, we want to reiterate that our primary focus is on complementary products or technologies with meaningful points of difference and you should expect ust to continue applying the same rigor in evaluating deals we have always applied. Just because we are now building cash does not mean we feel compelled to spend it. Oftentimes, the best value creating decision in reviewing acquisitions is no, and we are still comfortable making that choice. Meanwhile, we are looking to boost investment on internal R&D programs as appropriate as these projects often create greater shareholder value and we've identified several clear opportunities in this area.

In summary, great spine and trauma performances, modest recon, strong MedSurg, and key investments in the future categorize our quarter. We leave the quarter stronger than we entered it and feel good about where we are headed.

Now we'll turn it over to Dean for more details.

Thanks, Steve.

I'd like to start by talking about foreign currency in the quarter as you know, foreign currency comparisons were again favorable in the third quarter, increasing international sales by $25 million or 8%. If currency rates hold at currents levels, we expect we'll see small positive impacts on sales of right around $10 million in the fourth quarter of this year.

Turning to price volume, price in the quarter was, the total company gave us about two points of growth, U.S. implants prices were up about 3% in the third quarter and 4% in the first nine months. Prices in Japan were as John said down about 4% in the quarter and 3% in the first nine months as as a result of the MHLW price reductions which took effect on April 1st of this year. Prices in Europe were up slightly. As you know foreign currency contributed 3% to price -- or to volume, I'm sorry, to our sales growth in the quarter, and volume mix contributed a lot percent for the total 16% sales growth in the quarter. Volume mix was up about 15% in the U.S. and 8% overseas.

Now turning to the segments of our business and the product lives therein, Orthopaedic Implants represents about 60% of our sales and those sales increased 15% in the quarter at 18% out of the first nine months on an as a reported basis and 12% and 13% respectively on a constant currency basis. Now I will take you through the product lines broken down by domestic and international growth. Starting on an as reported basis, our domestic hip growth was 11% in the quarter, international was 13% and total hip growth was 11%. Knees were up 15% domestically, 14 internationally, and 15% in total. Trauma was up 23% in the U.S., 15% in the international markets, and 18% in total. Spine was up 21 domestically, 22 international, 21 in total, [inaudible] 13 domestic, up 21 international and up 16 in total. And the total Orthopaedics Implants line was up 16 in the U.S., 15 internationally and 15 in total. I am now giving you the constant currency numbers I'll give you the international line item, obviously domestic are the same, and then the total. So for hips, international up four, total up eight, knees international up six, total up 12, trauma, international up six, total up 12. Spine international up 14, total up 18, [inaudible] up 12, internationally and 12 in total, and for total Orthopaedic Implants international up six on a constant currency basis and 12 in total.

Making some additional comments on those product lines, hips were up 11% in the quarter and 16% year-to-date. On a recorded basis, we'd say we had a solid quarter of hips, our Trident Ceramic Hips system continues to lead our growing in the United States. On a [inaudible] basis ceramic insert sales represented approximately 32% of our total insert sales in the quarters. The mix shift to [inaudible] stems also continued in the third quarter with a strong growth experienced in both our accolade and secure fit product lines. Revision hip business picked up a bit in the quarter as we began rolling out our new restoration modular revision hip system in the United States. We expect restoration hips to be almost 40 deployed to the field by the end of this year. In Europe, hip revenue growth was led by Trident and Excidor [phonetic] and we experienced solid local currency growth in direct markets. We're also benefiting from the recent SyMex [phonetic] hip launch. In Japan hip sales declined in the quarter as we experienced the impact of the MHLW price cuts and saw continuation of the mix shift away from bipolar hips to trauma hip fracture products.

Knees were up 15% in the quarter and then up 20% year-to-date and we had another very good quarter in knees. Our primary knee business was strong and revision products were solid in the United States. Scorpio products continued to lead U.S. knee growth and Duracon [phonetic] products also did well. In Europe, our Scorpio knee had an extremely strong quarter and knees recorded double digit local currency growth. Knees were soft in the Japan impacts and the transition to our new Scorpio NRG product continuing. The Scorpio flex knee had another excellent quarter in the Pacific region.

In trauma, we were up 18% in the quarter and 15% year-to-date, U.S. trauma business accelerated 23% growth in the quarter, with the increase dropping slightly to 22% of military sales are excluded. Intramedullary nails had an outstanding quarter with a T-2 nailing system continuing to lead our trauma sales growth. Our hip fracture products also experienced strong sales in the U.S. International trauma sales rebounded in the quarter, Japan had another excellent quarter despite the price reduction impact and Europe was solid. Hip fracture products led the overseas growth helped again by the launch of our new Gamma-3 product.

Spine had an outstanding quarter up 21% in the quarter and 18% year-to-date. Spine sales growth in the U.S. was very strong, led by cervical products including the recently launched oasis posterior cervical plate and the reflux anterior cervical plate. Sales of our Z-2 and SR-90 thoracolumbar products also contributed nicely to U.S. performance. International spine numbers were negatively impacted by the Pacific distributor reorganization initiated in the second quarter. Japan had a great quarter in spine and European spine sales were also strong. Lidinger [phonetic] the last of our products in the Orthopaedic Implant segment were up 16% in the quarter and 17% year-to-date and that business had another nice quarter led by sales of Cranio-Maxillofacial products, and I'd say that this business continues to benefit through a main stream of new product introductions.

Turning now to our MedSurg business, I remind you that that represents about 34% of our sales and comprised of three operating divisions. Instruments making up about 44% of the MedSurg sales, endoscopy 34% and medical 22%. MedSurg group sales were up 19% for the quarter and 21% for the first nine months as reported and 17% for the quarter, 18% for the first nine months on a constant currency basis. Turning to our divisions here, instruments increased 15% in the quarter, and 17% for the first nine months as reported, and 13% for the quarter and 15% for the first nine months on a constant currency basis. Looking at the product lines there, powered instruments was up 12% domestically, 24% in international markets and 15% in total. And other OR equipment was up 16% domestically, 14 internationally and 16% in total so the total business domestic was up 14, international 19 and total 15.

The instruments division had a great quarter, based on strong growth in both powered instrument systems and other OR equipment. Domestic and international sales both registered mid-teen growth in constant dollars. Heavy-duty power tools had another great quarter and sales of micro powered tool systems were very solid growth. Neptune Operating Waste Management system and interventional pain and pain management products also sold well in the quarter. In addition our navigation products which were added to the instruments back at the beginning of this year had another excellent quarter domestically.

Now turning to our endoscopy business they were up 20% in the quarter and 22% year-to-date as reported. 18% for the quarter and 20% for the first nine months on a constant currency basis. Looking at the product lines there, arthroscopy was up 11% domestically, 10% internationally, and 11% in total. General surgery was up 11 domestically, 2% internationally and 9% in total. And video was up 31% domestically, 19% internationally and 29% in total bringing the totals for endoscopy to 22% domestic growth, 13% international growth and 20% total. Endoscopy had an excellent quarter led by video sales where our communications business helped by this year's induction of Stryker boons and lights continues to post phenomenal results. We also continue to be pleased by the initial reception of our 1088 high definition camera which was launched earlier this year.

And last but certainly not least, our medical line was up 27% in the quarter, and 26% for the first nine months as reported, and on a constant currency basis up 26% in the quarter, and then 24% for the first nine months. Our domestic business was up 26% and international was up 32. Leading to that 27% total growth. Medical division had an obviously excellent quarter with great growth in the U.S. and another quarter of extremely strong sales growth in Canada. Our stretcher business led the way in the quarter with beds and EMS also putting up gold standard growth. In addition, we were going against an easier prior year comparable which saw the timing of certain shipments pushed from 2003 third quarter into the fourth quarter. As a result of this, and an anticipated slow down in Canada, we expect this year's fourth quarter to yield low double digit to mid-teens growth for medical.

And physiotherapy, which represents about 6% of our sales recorded 7% growth in the quarter bringing the first nine months revenue growth to 11%. Same-store sales are up 5% year-to-date. That represents about half the physiotherapy's growth this year with start-ups and acquisitions accounting for the remainder. I will tell you that we ended the third quarter with 418 centers that's from you up from 407 at the end of the prior quarter.

Turning to look at the P&L and make some comments on the categories there. Gross profit margins in the quarter as you see were up compared to last year but down a little bit sequentially. Compared to the prior year we benefited from increased manufacturing efficiencies at several locations. Absorption also is high as we continue to run the plants at a fast-pace. On a sequential basis we saw a bit of a decline as a result of the normal third quarter slow down in Orthopaedic Implants sales. R&D spending as you see is up 17% year-to-date, but spending and the quarter increased 24% in the R&D ratio jumped 5.3% of sales as we continue to put increased focus on our development efforts. We also add spending in the quarter for development of SpineCore products.

SG&A costs are up 18% year-to-date and were up 17% in the quarter with sales commissions driving a reasonable portion of the increase. The third quarter increase included higher insurance and amortization costs compared to the prior year. For the year we have higher sales cost and higher insurance cost compared to 2003. Intangibles amortization increased 16% in the third quarter, primarily as a result of higher cost from the acceleration of the [inaudible] trade name amortization. Then the new item you see this quarter the purchased in process Research & Development charge, the $120.8 million relates to the SpineCore acquisition. We made $120 million up front payment to complete the acquisition of SpineCore stock in the third quarter and we also paid certain transaction costs. Since we acquired no significant tangible assets and the potential products are still under development, substantially all the amounts paid were written off as in-process development costs. Operating income adjusted to remove the purchased end process Research & Development charge from 2004 increased 23% in the quarter is up 28% year-to-date and then margins are up nicely from last year on an adjusted basis. Interest expense is really getting to be extremely small here. But it's down to over 70% compared to the prior year.

Other income is primarily interest income on a year-to-date basis but the quarter saw other expense due to small foreign currency transaction losses. Giving you the breakdown of the quarter here the makeup of other expense, interest income was $200,000, we'd out backs loss of $500,000 and minority interest. I'm sorry those are prior year numbers. I'll give the 2004 numbers. Interest income was $300,000, we had FX loss of $600,000 and minority interest was $200,000 leading to the $500,000 other expense that we incurred in the quarter. The reported being effective income tax rate for the third quarter was 80.1% bringing the reported rate for first nine months of 2004 to 37.5%. The reported income tax rates reflect the nondeductability of substantially all of the $120 million up front payment made to acquire SpineCore which was written off as purchased processed R&D in the third quarter. The underlying tax rate if we exclude that charge from consideration continues to be 30% through the first nine months of 2004. If we examine 2003, the effective income tax rate for the year-to-date period was lowered from 31% through the first six months to 30.5% through nine months with a result and the third quarter 2003 income tax rate of 29.5%. Increase manufacturing activity in lower tax jurisdictions was then key to accompanied success in achieving lower effective income tax rates in recent years and with this continuing we would expect the fourth quarter income tax rate not to exceed 30%.

Turning quickly to the balance sheet, you know that, we extinguished, we had extinguished all the amounts outstanding in the AR securitization program at the end of the second quarter and this held true in the third quarter as well. It was $196 million outstanding at the end program at the end of last year's third quarter, about $150 million at December 31, 2003 date that you see presented comparatively in our press release. Accounts receivable days in the quarter are down three days, 61 days when compared to the prior year, and we're pretty happy with our progress there. Inventory days are, on the other hand are up nine days from the prior year to 136 days as we continue run the plants, staff and build inventory to accommodate new product introductions. In September 30, 2004, we have no amounts outstanding in our credit facility, and we continue to have about $16 million in remaining [inaudible] debt which we expect to pay off as it matures.

Then a brief comment on cash flow. We had an excellent cash flow in the third quarter, and the first nine months. If you exclude the impact of the proceeds or payments related to accounts receivables securitization from both years and we view that more as a financing type activity operating cash flow in the first nine months increased 16% from $380 million in 2003 to $439 million this year and with that I'd like to turn it back over to John.

Thanks, Dean, and thanks, Steve, for your comments.

Just some general comments about the overall outlook for 2004. We had an excellent first nine months and continue to believe that the Orthopaedic Industry is very good business to be in. We're uniquely positioned as a company to meet the needs of our industry's customers given our breadth and depth in our organization and our product offerings. As we entered this fourth quarter we expect sales for 2004 to finish somewhere close to $4.25 billion and that translates into growth of about 18% for the year. This would put local currency sales growth in the fourth quarter in the same range as that of the second, third quarter at about 13, 14%. Adjusted diluted net earnings per share up 30% through nine months to $1.03 per share. We continue to expect higher fourth quarter spending on R&D, SG&A and anticipate in moderation a positive impact currencies has had on operating earnings. If you recall what Dean said, the currency rate really moderated a little bit in the third quarter and we really think it's pretty much going to disappear here in the fourth quarter. We are increasing our 2004 adjusted net earnings guidance from $1.42 to $1.43 per diluted share which will be 29% increase over 2003, and this equates to $1.14 per diluted share on a reported basis. So for the year we're looking for $1.43 versus $1.11 for an increase of 29%. And 2005 we expect the Stryker tradition to continue with 20% earnings growth. So the adjusted net earnings will be expected to be $1.72. I think, your consensus estimates right now is $1.71 so we'd raise that a penny. And with that, we would be happy to open it up for questions.

Thank you. Ladies and gentlemen, if you'd like to register a question please press the 1 followed by the 4 on your telephone. You'll hear a three-tone prompt to acknowledge your request. If your question has been answered and you'd like to withdraw your registration, please press the 1 followed by 3. If you are using a speaker phone, please lift your handset before entering your request. One moment please for the first question. Our first question comes from the line of Robert Faulkner with Prudential Equity Group. Please go ahead.

Thank you. And good evening. As we look forward to the fourth quarter, or into 2005, we will be seeing the potential entry of a couple other competitors into the ceramic business. I wonder if you'd comments on the potential impact, you have stated in the past that you would have like to have gained more share with the ceramic implying that most of your ceramic volume came from your own customers indicating potentially a very minor impact there and others might just convert their own. Is that a fair assumption going forward?

Rob, this is Steve. Yeah, I think that is largely what we expect. The other companies were posting good numbers that they trade their customers up. We have not seen significant share shift nor do we anticipate it.

And continuing on the ceramic, you mentioned the last quarter or I think you implied that prices came down a little bit at the beginning of last quarter. Have you seen any impact on that and ability to gain share or it doesn't sound like your own penetration increased. But is it helping in terms of customer reaction to ceramic, et cetera?

In terms of the pricing?

Right.

You know, we came down just a little bit but for the most part we've been able to hold our pricing, and, you know, just continued to drive the business forward. Our ceramic sales over the last year were still up significantly but in terms of percentage penetration did not change.

Uh-huh. Great. And finally, your spine growth is very impressive. And it sounds like it's mostly happening in the cervical area which you talked about. Can you give us an update on the cage sales and where what where you think the market dynamics are there.

Sure. The cage sales continue to be down though the rate of decline moderated a little bit in this quarter. We did launch in September some peak spacers that really, and we frankly see that really becoming a replacement for the cages. We see the market really shifting from the cages to the spacers and we launched a couple of them really just in the last few weeks of September and saw them off to a very good start in the U.S. and we've got a few more of those really rolling out both this quarter and next quarter. So largely over time, frankly, we're probably going to see our cage business not doing very much but in the interbody space in total we'll start to get some growth now with the spacers.

Okay. Great and one final, if I may. What is your press fit or noncemented hip stem percentage at this point, what do you think it is for the industry?

The cementless versus cemented?

Yes.

I'd say it's about 60% cementless.

Great, thank you.

Yeah.

Our next question comes from the line of Milton Hsu with Bear Stearns. Please go ahead sir.

Hi, good evening everyone. I have two questions, the first one is on trauma, you posted some very good strong sales growth this quarter. Was any of that due to J&J's recall a few quarters ago on their endotrocheal nail.

You know, Milton, it probably is a little bit. I think that's clearly effected them around the world and we probably benefited somewhat from that.

So going forward they anniversary that and possibly get another product on the market, do you think that your trauma -- I mean, what do you anticipate the rate of growth is for the market at this point? It seems like it has accelerated a bit from the high single digit rate but is maybe 11, 12% sustainable.

The trauma business is probably in the low teens and the way we look at trauma right now is we've got significant opportunities in the U.S. As we mentioned we've been very underdeveloped there and are taking a series of actions to get stronger in the U.S. While we continue to build on very strong position in western Europe and Japan so we probably our growth rates in Japan moderating a little bit as J&J gets back into the market and putting a little bit but we've got high expectations for ourselves here in the U.S.

Okay, thanks. And then just a second question on hips. Can you give us a little sense of what you anticipate your new product to technologies to be in, I mean is hip resurfacing or maybe oxidize zirconia hips a possibility that you're working on or are those sort of acquisitioned sort of areas you would inquire into? Thank you.

As it controls resurfacing, that's an area we're looking at. Likely we will not be first there, and we're evaluating. As we do with all new technologies. We're not always first. Trying to figure out where the marketplace is going and as you know, there's a lot of products that are metal on metal and resurfacing. We as a company have generally stayed away from metal on metal particularly in the hip and knee, or certainly the hip space. As we look going forward we really see the restoration modular revision system that we really just started to roll out of the candidly we got it rolled out a little later in the quarter than we had hoped in the third quarter. It really started to roll out in September. We'd probably been hoping to get that thing rolling out in July and if you look at that, that's really a system that will continue to roll out over the course of really the course of this quarter and in the next. I would say we're about 2/7 of the way through our roll out on the restoration modular so we see significant growth coming as we get that product on to the market and up and rolling. And our MIS approach and really finally starting to get some MIS instruments out the door really should be some of the nearer term drivers as we also continue to push ceramics. You know, we are not done on ceramics yet. We've just plateaued for a little while here but we see continued growth going forward.

Okay. Thank you.

Our next question comes from the line of Bill Simi with SG Cowan. Please go ahead.

Good evening. Dean, I guess this one's for you to start with. I always find the price volume mix analysis very helpful. Couldn't help but notice that you mentioned 15% volume mix in the U.S. I was wondering if you could shed some clarity on that and maybe a little visibility on where that's coming from. And for John or Steve, as we look ahead to 2005, if you are still targeting somewhere in the neighborhood of $5 billion in sales, we're looking at somewhere north of 15% top-line growth. Would you give us just some general sense as you do company wide of your price volume mix assumptions there and is there an acquisition component to reach that?

Okay. Well, I think on U.S. volume mix that's in line, that's pretty much in line with where it has been. If you look at our volume mix in total, it's been running, you know, for the last three years, really in total somewhere between you know around 11 to 13% range in total and, you know, the U.S. has traditionally had a stronger component there so it's right in line with where it's been running. And, you know, we talked about semellist [phonetic] mixed shift in ceramic, and mean, thouse are parts of that, and as we buy out higher technology products, that is part of the mix shift, but, you know, volume is also very strong across all our businesses.

Should we -- I'm sorry. Should we be assuming that of that 15, it's volume is more than 10 percentage points?

I don't have that breakdown. But it's got to be, yeah, I'm sure it's double digits.

Okay.

Okay. Nice to hear from you.

Nice to hear from you too.

Thank you. The question about our goal for next year, probably would he help if I explain to everybody that Steve is preparing a budget, Steve and Dean, and I'm really not involved in that. But if as both of them know I will yell and scream if they don't come in pretty close to $5 billion on the top line so my suspicion is they're still going for that, and as far as the earnings are concerned, I think we nailed that for you. We told you we're shooting for 20% plus next year so I'm sure they'll be doing that. I don't think that we have any acquisitions in the plans here to make up any shortfall so this will come from internal growth. I'll let Steve comments further.

Volume mix, you would probably expect to see it be pretty similar to where we've been in the last couple years and the same from a pricing standpoint. Really as a company we've been getting 2 to 3% price per year so it should be something to that end. We're stretching and pushing ourselves to get to the five. We will not do an acquisition just for the sake of doing an acquisition to get the number. What we will do is we'll deliver our 20% earnings growths, and we'll push ourselves as aggressively as we can on that top line as well.

Okay. And then just one more if I may. Looking ahead to 2005, again, on the gross profit line, if we're expecting less FX benefit, and let's call it two to three percentage points of growth from price so that doesn't really change, we're modeling your gross margin essentially flat to up modestly and then I think I heard you say that R&D and SG&A spends goes up, you're not actually suggesting or what are -- what are you suggesting regarding the operating margin. Is there enough room in manufacturing efficiencies maybe on the MedSurg side to offset the increased spending?

This is Dean. You know, I think, you know, it's certainly fair to expect a little bit more gross margin expansion. We feel like we have room to manage that as Steve said. We think we'll get some price. We also, you know, always push our manufacturers for cost reductions and, you know, we put in some new plants, we've got some additional ones coming online but I think all and all, we should continue get some efficiencies there, so I think we will have room for some gross margin expansion. We definitely expect to spend more on R&D but I do think that we have got room to leverage SG&A a little bit more as we need to. Again, as Steve said our goal is to grow the bottom line 20% and we think the top line will be reasonably healthy next year as well.

Very good. Thank you.

Thanks.

Our next question comes from the line of Katherine Martinelli with Merrill Lynch. Please go ahead.

Great, thank you. Good evening, everyone. I wanted to touch base on one of the comment, John, I think you made about the backdrop in Europe and I think you singled out one of the countries that had be a growth driver had been Germany and I am just trying to reconcile that with some of the comments that have been made over recent quarters for members of the industry overall in terms of the pricing back backdrop in that country in particular being challenging. Was there something one off or have things improved there or is it just a separate segments of the market that was helping that?

That you think for that question. We dropped one of our best young executives into Germany about two, three years ago I guess now. And he was the individual, Mike Muller [phonetic], who had done such a wonderful job with the [inaudible] integration here in the U.S. We dropped him into Germany and frankly it was in a mess and it has taken a good while for us to get that put back together around get it growing again. Mike has done a super job there, and we're just now starting to see the benefits from it. So it's not necessarily the market. It's really the fact that Stryker is coming into its own in Germany and my prediction is that we're going to hear more good things about Germany coming from Stryker in the quarters to come.

That's very helpful.

It's been a slow and steady build. There's no -- if you look at the moving annual total graphs for that market it's not like they suddenly spiked up.

The market's --

It's been a lot of hard work.

No, that's a very fair comment. The other one I wanted to follow up on was the comment about you do expect a reacceleration in ceramic on ceramic. Is that tied to some of the direct to consumer initiatives that I know you restarted? Are those continuing and it's something like a three to four months lag before you start to see the benefit. Is that what you're assuming starts to help reaccelerate.

We do. We start it had again late summer, early fall here and would hope to feel a little bit that have impact in the fourth quarter.

In the fourth quarter, okay. And one last question. I'm just trying to reconcile the comfort level that you are guys are able to get with SpineCore's metal on metal artificial disc recognizing that you guys have not traditionally been a fan of metal on metal in reconstructive implants. Does that at all signal that you would would revisit it on the recon side or are you just viewing it as totally separate segments and you can't really draw any comparisons?

Sure. Let me finish on the ceramic hip, by the way. We also made a fair amount of management changes in our U.S. selling organization through the second and third quarter and we think that's really going to start to drive the ceramic business, also that we think we are going plateau while we are going through a few of those changes.

Is that adding people or a big increase in the total number or is that just --

You know what, it was really a lot of leadership changes and frankly we reduced one layer of management in our sales chain so, frankly, we can get a little closer to our people in the field and have that communication improved. So just to kind of finish that we think that'll kind of help ceramic. To go back to your real question here on the metal on metal. We've done a lot of looking and really a lot of scientific studies to assess the wear rates on metal on metal and it's so different in the spine [inaudible] that the wear rates are so different relative to a hip that we're very comfortable with metal on metal in the spine. Particularly also as you know, these are going to be patients that may have these implants in for 30, 40, you know, 30 or 40 years plus.

Uh-huh.

And the wear rates in the spine are so different than in hips, so we really -- that was just a decision on spine, it was not a broader decision.

That's very helpful.

Thank you.

Our next question comes from Jason Witts with Laranex One. Please go ahead.

Hi, thank you. First to piggy-back off Katherine's question. Your assumption for hips does not incorporate any new product induction. It's really direct to consumer sort of impacting customer interest. Is that a correct way to think about it?

Well, you know we're probably slightly over playing the DTC components here. It really is better sales force execution.

Uh-huh.

Either roll out of the restoration modular system, and getting a clearer direction on MIS and with our MIS instruments also finally rolling out. What you will see over the next probably couple of quarters and then when we come to the academy next year we've got some other things that we'll start to talk about that drive the growth really in second quarter and beyond next year.

But we can start to I guess along that note, we can start to expect to see you start rolling out your own MIS hip systems shortly. Is that what you're implying at this point?

Yes, but I'll tell you. Largely we've got a great system in the accolade. Our accolade system as great MIS stem. We're focused a little more frankly on the instrumentation just to help put that in, so we're emphasizing the instrumentation to help the surgeons put in what we think are pretty good implants as opposed to developing an entirely new MIS line. You'll see some modifications as we go forward. But don't expect a full line.

Okay. And also switching gears to knees, could you just go over the timing of your Triathlon knee launches and explain to us what sort of differentiates Triathlon from your previous generation.

Sure. You know, at the end of the day our Triathlon products certainly from the early user groups, probably the biggest benefit we're hearing as great flexion. That the surgeons who put this in are saying that their patients at, you know, four weeks, six weeks are coming back with just greater ranges of motion than anything they've seen before. So we think we've got a great product. It has taken little while longer to get this thing out the door than what we'd like and it will really be, we should clarify it is coming in two pieces. The first will be the cruciate retaining portion which is really, you know, currently accounts for probably about 55% of the market. That will be rolling out at the end of this month. So we've got instrument sets going out the week of October 25 and then our first implants start shipping out that week. So that will start to effect fourth quarter for all intensive purposes. A little bit November and December. Not always the easiest time of the year to be launching these things and the posterior stabilized will really come out, at this point what we're saying is first half. Logistically it's been a lot more difficult to make this product, and we're doing some different things so we just want to make sure we've got it totally buttoned up before we bring that to market. We would have hoped to have it out this year, but pragmatically it's going to be first half of next year.

So the delay's related to manufacturing you're saying.

Yes.

Thank you.

Thanks, Jason.

Our next question comes from the line of Bill Plavanic with First Albany Capital. Please go ahead.

Thank you,.

Hi, Bill.

Good evening. Hello, can you hear me?

Yes.

Oh, great, thank you. Two questions. First of all, you have a lot of cash. You've talked about acquisitions. I was wondering if there's a share buy-back in the near future and then secondly, on the second-quarter conference call, you know, we saw very light SG&A line. You had mentioned that you weren't adding a lot of sales people. I was just trying to get your feel for, you know, are you accelerating those adds through the end of the year and into 05 as we've seen that SG&A line kick back up.

As far as share buy-back, I don't think it's anticipated at this point,, and I'll have Dean or Steve comments on the other?

On the salespeople, we are kind of what I'd call reaccelerating hiring. You know, particularly some of our divisions. In the spine division which is in the midst of the SpineCore acquisition had really not done much and they started to add a few more people this quarter so we're reaccelerating the growth particularly in the few of the divisions.

Let me just make an additional comment there. Bill, I would remind you that the second quarter SG&A was taken do you know little bit by, you know, a patents infringement gain that we had that brought that number down a little bit offsets some of the spending there. And then the other thing I would make that relative to the sales force is we're probably not quite on target with where we wanted to be in terms of our year end goals but as Steve said we're reaccelerating through the end of the year and probe through the first quarter with sales force adds.

If I could ask a couple more questions. Thoughts on mobil bearing knee and when we may see that get approval for the market and then OP-1, you know, you've basically said that we're starting to see some more traction that's beneficial to the top line. I was wondering if you could quantify that in anyway on an annual run rate or what you have. Thank you very much.

Sure on the mobile bearing knees, you know, we're continuing to see where things will stand in terms of down classification but also doing our own studies anticipating really that's probably at least 18 months and beyond at this point for the U.S. market. On OP-1, we continue to not want to break out those numbers. At some point in the future, we'll be reevaluate that I think, not for a while.

Okay. Great, thank you.

Thanks, Bill.

Our next question comes from the line of Larry Keusch with Goldman Sachs. Please go ahead.

Hi, good afternoon.

Hi, Larry.

Two questions. I guess just going over the second quarter call, my notes, it sounded like I think and Steve you were talking about this -- that you alluded to relative to Triathlon that you were making some manufacturing tweaks and maybe that was part of, you know, the project take a bit longer and so I was just wondering if you could, A., help me understand if that is corrects, and B., if you feel that's behind you and you really will have the capacity to supply docks, because this product sounds like it could be a very good one. Second question is any thoughts or anything in the works of a let me just call it a highly, highly, highly cross linked polly ethylene that might have wear characteristics more similar to ceramic, and then I guess the third and final question for Dean would be repatriation of cash, I guess you have about $661 million of unremitted earnings and just if you could give us some thoughts on what you would anticipate doing that assuming this gets signed into law on Monday?

Why do I start with the Triathlon. Your recollection is right. I would tell you we were looking at using an external manufacturer for part of the process that they didn't fully come through for us and we've taken everything in house which put us back because of capacity. We will have capacity to launch the cruciate retaining, that he is one reason we've kind of phased these launches now instead of coming with both the CR and the PS. So, we'll come with the CR, we'll be able to meet demand on that as well as the instrumentation sets, we'll tell you there's a whole new range of instruments and, you know, all the surgeons feedback on our instrument sets has been this has been outstanding. We kind of went back to ground zero and really have some just very neat instruments so it's taken while to pull all that together and that's really what's coming together now. On the highly, highly cross linked. We continue to look to figure out if there are better ways to even improve on our current polly and there probably are some ways and some point in the future should you expect that we might be able to improve that, I think that answer would be yes. With that, Dean can take the repatriation.

Larry, congratulations on doing your homework on the limitations in terms of the number. I would remind you that $660 million, that the, that is the amount of unremitted earnings we have. That does not equate to cash that we have overseas. I think we've got a fair amount of analysis to do to determine what we would do here because, you know, again, you know, presuming we would want to bring cash back, there could be a borrowing cost to get that. So we have to look at the net cost, plus we have to being look at the tax jurisdictions the money would come from and how that might impact our overall tax rate and just the economics of trying to reach in there and go get cash and bring it back. So, you know, I can't give you the definitive answer right now. We've got more to do to determine how this might benefit, and we'll be looking at this hard.

And Dean, I don't want to get into a long accounting discussion here, I'm sure you don't either, but is it your I understanding that -- I know your cash is substantially less than the unremitted earnings but you might be able to borrow against those earnings in essence, there's an arbitrage in terms of the tax rates versus the five and quarter toll tax versus, you know, what it would cost to borrow or do something in the U.S.?

That's exactly correct. As that's what I was alluding to. We've got to consider those potential net borrowing costs as well as whatever the rate arbitrage depending on the jurisdictions that those earnings have been built up in and those are all factors in doing this and obviously I don't have that at my fingertips right now because we're a couple days into doing that analysis.

Understood. Thank you very much.

Our next question comes from the line of Steven Likeman with Banc of America Securities. Please go ahead.

Thanks guys. Quick question on minimal invasive knees, if you give us a sense of what the reception has been on the knee instrument side for minimally invasive, and if you have any metrics on how many sets have rolled out and perhaps any plans going forward in the near term.

We've been very pleased with our MIS knee product, and frankly, we've been far out in front on the MIS knee program relative to our hip program. Doctor's Binuti's [phonetic] technique that has actually has been picked up in a lot of different cases. CNN did a whole story about a couple of patients that were operated on by Ian, by Dr. Harwyn [phonetic] out in New York. We don't have the total number of instrument sets. That's something we'd have to look in, but that's ban big part that's been driving our knee business through the first part of the year with frankly what we have had not a lot of new news and while doctors have waited for triathlon to come there's been a lot of pick up on our MIS knee program.

Thanks, Steve. And quick question for Dean. For the fourth quarter and the 2005 EPS projections that you put out earlier, what is the assumed tax rate that's built into that?

Well, as I said, Steve, you know, obviously we do heavy analysis on this every quarter, right now, we certainly don't expect it to be higher than 30% and, you know, I will tell you that, you know, even for the fourth quarter and longer term, there's downward bias on that rate potentially, but, you know, right now I'm comfortable with the 30% rate.

So for the numbers for 43 and $1.72, 30% is okay?

Certainly for the fourth quarter of this year, we're still pulling our budget together for next year.

Got it. Thanks, Dean. Thanks, guys.

Thank you,.

Thanks, Steve.

Our next question comes from the line of Wade King with Wells Fargo Securities. Please go ahead.

Good afternoon.

Hi, ahead.

A couple follow-ups please. You've given some very clear objectives overall of the top line of 05. Could you comment a little more specifically on your expectations of the implants side of the business overall? You don't have to break out hips, knees, et cetera, and given the expectations that currency will be less of a factor going ahead and you've indicated pricing, you would expect possibly continuation of same up a couple percentage points, does that suggest an acceleration on the volume mix side? Could you just add a little bit more insight into your expectations for '05 on the implants side of the business?

Wade, to be candid we're just going through the budget process now and getting the rollups of the various divisions over the next couple of weeks so we really don't have a clear handle on those numbers and how those splits are going to break out.

Okay. Very good. All move to the second question. There's been some commentary out there in the market overall as relates to increasing customer pushback on price changes. Obviously we've heard this intermittently for several years yet you continue to see favorable impact pricing on an annualized basis between 3 to 5% in recent years. Is there in reality from what you see in the field an increasing pushback on price increases based on the health of the hospital business? And what do you think that has in terms of its impact for the company going forward? Are you changing any assumptions going forward base odd what you hear in the field?

You know, we are hearing from our field force more and more pushback. What we'd say is, you know, we've been pretty modest in our price increases. That's not like we've been taking 10 and 12% price increases. So we expect some continued pushback but should be able to manage through that and not a significant change relative to where we've been just the last couple of years in terms of the 2 to 3% range.

Okay. And do you expect any significant change in the percentage of your implant business coming through large group purchase agreements. We all remember back in the late '90s when there was a bunch of agreements merely focused on price and the service component was really not factored in and to a large degree those did not work, because the rep would know if he wasn't compensated appropriately would be across town potentially in another case and so with that experience in particular, as backdrop do you foresee any change in the group purchasing agreement part of your business, any major changes on your pricing power in those agreements going forward?

In the foreseeable future, we do not see any major shift there. You know, as you point out, the service component is such a big part of this business, you know, it's not just the incline, it really is the service component as well and we think that'll continue to prevail at least for a while.

Okay. And last question, briefly. We have just seen in the past week, some significant activity on the litigation front and these cases involving Medtronic, first it's, you know, punitive damage award of $400 million and then secondly an injunction related to some polyaxial screws. Given that backdrop, I realize these things may be dealt with on a one-time basis for write-off purposes in terms of charges but does Stryker have any significant litigation exposure that's current or has there been an acceleration in the activity in that regard that would, you know, change the risk profile for the company? My impression is that that is not the case, but could you clarify that for us please given the recent backdrop of litigation and very large awards in the courts?

Absolutely, wade. This is John. In general, we are fierce defenders of our intellectual property, and as some of our competitors learn the hard way over the years, we will fight you tooth and nail if we think you're infringing on our products. In turn we are very, very reluctant to do anything that would move us over into a battle with somebody else where we can be accused of copying their intellectual properties so the lines are pretty well drawn and we don't have any area where we have any real exposure here.

Thanks, gentlemen. Thanks very much.

Thanks, Wade.

Thanks, Wade.

Our next question from the line of Mike Winefe with JP Morgan.

Taylor Harris here for Mike. Just one question. On your revision business, to help us frame the restoration modular opportunity, can you just update us on where revision is as a percentage of your overall hip mix, and how it's been growing over the last year or so, and how you expect that to change potentially in the coming quarters? Thanks.

You know, I would say, Taylor, you know, it's around 10 to, probably 10 to 12% in that range. I don't have an exact number. You know, we certainly think very highly of our restoration modular product and we really it's a lot slower product line than we've had in a revision product before. So we think it has a lot of positive upside as we get fully rolled out and we do need to get it fully out there but we think it's going to be a nice contribute or as we get there. Take more market share there.

And that part of our business has been dead flat this year, so as we see getting that into growth.

Is the Euro growth in revision this year?

Yeah.

Okay. Thanks a lot.

Thanks, Taylor.

Our next question comes from the line of Rag Denuline from Piper Jaffrey.

Good afternoon, thanks for taking the call. The question is. I am just kind of doing the math I'm looking at the 5 billion that you have put up at the target. When you constant currency which was about 13% to get from the 4.25 or so billion that you are looking for this year that requires something on the order of 17.5% growth. In the absence of the product ceramic on ceramic or some sort of break out type product, you know, what can we look to kind of give us comfort on that number?

We've got to execute very well. It's a very aggressive top line number, which again, we reiterate our clear commitment on the bottom line, that top line number is something we're going for. We like to set ourselves aggressive goals. But it's going to take a lot of execution, frankly, across every division, and we're going to do a better job than probably we've done within the last quarter or two in our Orthopaedics business.

Okay, but it's something you guys are putting out there as sort of your public goal for next goal?

Yes.

Okay. Thank you.

Thanks, Rag.

Our next question comes from the line of Ben Andrew with William Blair. Please go ahead.

Good afternoon. Could you just spends a moment talking about some of the R&D projects funds some of the extra dollars you're putting in. It sounds like there might be opportunities there for some newer products obviously.

We're not getting into too many specifics, what we say is clearly the SpineCore acquisition. You know, there's some great artificial disc technology that we're dramatically boosting our R&D investment in. We also see OP-1, frankly, which continues to be a very small product for us now but with potential varying treatment indications going forward. Those are two and then really the broader theme that we're trying to do is drive each division to be thinking about how they can dial up their own innovation. You know, it gets back to how do we accelerate our growth rate on the top line. We've got to probably invest and develop even more products in more categories here as we go forward so we're really trying trying to ask division by division for them to be looking for more ideas.

Anything kind of breakthrough in terms on the hip or knee side or is there more incremental type of progress on those products?

In recon it will probably be more incremental.

The triathlon is expect to be a significant contributor.

Triathlon, we don't want to get the expectations too high for Triathlon but we think it's probably one of the best knee products that's come along in quite some time.

All right. Thank you.

I are next question comes from the line of Bob Hopkins with Lehman Brothers, please go ahead.

Thanks, and good afternoon. Just two quick ones ones here because it's late. First of all, I was wondering, Dean, if you could quantify the impact of the hurricanes this quarter and then secondly for Steve, if you can just give us a little bit more detail on what drove the increase in spine growth this quarter and specifically one was that new cervical plate launched? That would be very helpful. Thanks.

Okay Bob. Hurricanes it's really difficult to tell when you talk about what would have beens. It's maybe 2 to $3 million on the top line for us.

Great, thanks.

And spine, it really is the cervical area of we've had a strong presence in the thoracolumbar but with the launch of oasis and some of the reflex cervical anterior plate we're really seeing some growth there. Both in the U.S. and products off to a great start in Japan and it mean Europe.

Just remind me, when that was launched?

You know what, the oasis was really in early second quarter I want to say and reflex not exactly sure.

All right, thank you very much. Have a good evening.

Thank you.

Great.

Our next question comes from the line of Matt Mixik with Morgan Stanley. Please go ahead.

Hi. Thanks for taking the question. Couple quick questions. One on trauma and wondering if you could talk a little bit about any products that are coming, we can expect to see over the next 6 to 12 months in that line, that might drive, help out that business?

You know, we really don't wants to talk about additional products. We typically save that for the academy. We've got a couple products rolling out right now that really line extensions to the existing Gamma line for the Gamma 3 product that is rolling out nicely and real some other line extensions going through that business right now. And, frankly, it's going to be a better sales force execution.

Okay. So anything else that you might be planning we might be hearing more about at the academy?

Yes.

And also on the MIS side, I'm wondering with the new single incision approach that you mentioned for hips. Is there anything that you are doing when you put together a procedure like that, is there anything that you are going to [inaudible], any kind of evidence or clinical data to help support the roll out of that?

Very good question. We've got a few studies going on both in Europe and are looking to initiate a few in the U.S. over the coming months. So we've got some reports that will -- should be presented potentially by late this year.

Great and that would be late this year ahead of a major medical meeting.

Potentially.

Okay. Great, thanks.

There are no further audio questions at this time.

Okay. We want to thank everybody. Out there and for you managing this for us and everybody that's been on the call. We appreciate your patience with the Q&A period. I guess just a couple of general comments.

One that is this third quarter was a good quarter was a good quarter. We realized it wasn't fantastic from some people's viewpoint but we remind you that if you lay a price increases against -- decreases against the foreign exchange and everything, we came out pretty good on the top line here. This business is moving along pretty nicely. Secondly that there's there's been some significant changes in improving the sales management, country management around the world. And my expectations are that this business is going to probably click up a little bit going into the fourth quarter. I just in general I feel good about it. We would hope that you would too. Steve and these guys working very hard to lay their plans out for 05. From everything I can see, they're doing a good job at that and I think you're going to see good things happening from Stryker here in the next few quarters and I think in general you're going to be pleased with what you see. Finally, our next call will be the fourth quarter in year end, be at 5:00 eastern time on Thursday, January 27. And we're hoping that all of you will participate in that call, and we are expecting to have good news for you, and with that and with that, we wish you the very best. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.