Health News & Tips: Stryker Corporation's CEO Hosts Annual Meeting of Shareholders (Transcript)

Monday, 9 September 2013

Stryker Corporation's CEO Hosts Annual Meeting of Shareholders (Transcript)

Executives

Kevin Lobo - President and CEO

David Floyd - Group President - Orthopedics

Tim Scannell - Group President - MedSurg and Spine

Ramesh Subrahmanian - Group President - International

Lonny Carpenter - Group President - Global Quality and Operations

Bill Jellison - CFO and VP

Scott Bruder - CSMO

Analysts

Chris Hammond - Goldman Sachs

Bob Hopkins - Bank of America Merrill Lynch

Rick Wise - Stifel Nicolaus & Company

Derrick Sung - Sanford C. Bernstein & Co.

Joanne Wuensch - BMO Capital Markets

Richard Newitter - Leerink Swann

Matt Dodds - Citi Investment Research

Kristen Stewart - Deutsche Bank

Glenn Novarro - RBC

Bruce Nudell - Credit Suisse

Mike Matson - Needham & Company, LLC

Rajbir Denhoy - Jefferies & Company, Inc.

Stryker Corporation (SYK) Annual Meeting of Shareholders September 5, 2013 9:00 AM ET

Kevin Lobo

Good morning and welcome to Stryker's 2013 Analyst Day Presentation. I trust that all of you who attended the Neuro Products Fair last night really enjoyed that and got a chance to have a full appreciation for the breadth of our neuro technology offering. The materials from the neuro fair are actually in your binder and have been posted online. Also included in your binder is a business overview which gives in information about our new products as well as standard financial information.

The presentation that you are going to see today is going to be projected on the screen behind me as well as on the webcast slide by slide. Those presentation materials are not included in your binder. Before I begin I would like to make a few comments as I approach the one year mark as the CEO of Stryker.

First we have been continuing to deliver quarter-after-quarter strong operational results.

Second we have a strong and talented executive leadership team with a nice mix of tenure at Stryker.

And third we have a clear road map for success both in driving growth and delivering leverage. And you are going to be hearing all about that later today.

Starting with the executive leadership team, if you look at the top row all of these members were members of Stryker's executive leadership team one year ago. If you look at the first three Curtis, Lonny and Tim they are all Stryker veterans, each of which have over 20 years of experience at Stryker. Tim Scannell's job changed at the beginning of this year where we added the Neuro Technology portfolio to his responsibilities and we shifted spine out of his responsibility to orthopedics.

At the top there you can see Katherine Owen who you all know very well; Katherine is going on seven years at Stryker. And Ramesh is approaching the two year mark at Stryker. Moving to the bottom row the first two members are Stryker veterans Yin and Steve, they both joined the executive leadership teams through promotions. The last three members are all new to Stryker. David Floyd Group President of Orthopedics joined Stryker last November; Scott Bruder our VP Chief Medical and Scientific Officer joined Stryker in January; and Bill Jellison our CFO joined Stryker in April. While all these three are new to Stryker they all have deep healthcare experience and are providing fresh perspectives to our management team.

So this the slide that you have all seen through the course of the year, but it's very useful as a reminder of the breadth of Stryker, where no one single business represents more than 16% of total company sales. And this broad diversification is really helpful to deliver consistent performance and also positions us very well in very attractive segments of Medtech as you saw last night at the Neuro Technology Products Fair.

There are four key themes that we have been driving and placing emphasis on since the beginning of the year, starting with globalization we have a significant opportunity to grow in the premium segment of markets outside the United States as well as in the lower price segment which you see illustrated with our Trauson acquisition.

Next is innovation; innovation has long been a market success at Stryker, but it's been primarily focused on product innovation, our traditional strength. We're not looking to broaden our lens on innovation, to look at the entire procedure beyond the product and also expanding out into other areas, like customer education which you see illustrated with our get around knee campaign. On the bottom you see collaboration, Stryker's history was fiercely centralization and over the past few years we have been changing our internal structures and motivations to encourage our divisions to work together and leverage the breadth of our offering with our customers, we had some very nice early success primarily in the neuro space as you saw that last night with the way the neuro technology business has actually worked together and you will be hearing more about that from Tim and we're encouraging that across all of Stryker. It takes time, we’re still in the early days but it's a significant opportunity that we see in front of us.

And lastly cost optimization, so you are going to hear from Lonny his progress with the global quality and operations organization and you see the 3% to 5% reduction in annual cost of goods as one metric that we have already shared with you. But you are also going to hear today about cost reductions across balance of the organization with many, many initiatives beyond Lonny's initiatives.

So here was our agenda for today, you see the line up here of all of our speakers. Today’s presentation is going to be different. We’re trying to enhance the value and so we’re not going to show you just standard financial information which you can read a reminder we’re really going to be focused on two things: driving growth and delivering leverage, that’s the main focus of our presentation each presenters going to come up and talk about their plans to drive growth and deliver leverage. And then we’re going to have significant time for question and answer and then we have shores of our manufacturing facility for those of you who are interested two of our sites.

I would like to emphasize although you’re going to see a number of initiatives from each presenter, we’re not going assign numbers to each initiative. And what you can expect in each January when we set our financial guidance what you should see is a growth number, organic growth at the high end of Medtech and meaningful operational leverage. So the accumulation of all of these initiatives will help drive that growth at the high end and significant operational leverage.

So with that I’ll turn it over to David Floyd, Group President of Orthopedic.

David Floyd

Thank you, Kevin. Good morning, everyone. I have had an opportunity to meet many and perhaps most of you over my 26 years in the orthopedic industry and I am absolutely thrilled to be here today as a part of Stryker’s management teams approaching my one year anniversary with Stryker where I lead orthopedics group. It was consist of a reconstructive, our trauma and extremities, our foot and ankle, our spine and joint preservation, our orthobiologics and our performance solutions businesses. I want to talk about driving growth and delivering leverage across these businesses as we move into the future.

Driving strong top line growth has been a hallmark of Stryker, it’s what you come to expect from us year-after-year is absolutely what we expect of ourselves. I want to talk about some reasons why we’re confident that in the environment on a go forward basis we’ll be able to continue deliver strong top line growth. I want to start with our selling organizations, always been one of the great things about Stryker’s performance. Our sales models are designed to meet the increasingly complex needs of the surgeries and the surgeons we serve across the segments that we’re in to meet the clinical needs of patients and the clinicians that treat them.

We believe that increasing technical sophistication and technical expertise on the part of selling [indiscernible] is required as our portfolios become larger, become more broad and they become more sophisticated and as the surgeons we serve become more sub-specialized. The sub-specialized surgeon in shoulder surgery expects someone calling on them who know shoulder surgeries, who can really do it, a foot and ankle surgeon wants a foot and ankle expert working with them. So we’ve been driving increasing sales specialization throughout the U.S.

If you look at our field sales force and the orthopedics group in the U.S., we’re about 2,500 strong, only 75% of those people are specialized either in recon or in trauma or in foot and ankle or in joint preservation or in spine and are dedicated to understanding those product portfolios and driving superior growth, the strong technical expertise in the operating room with clinicians. We still have some full line reps, we’re going to increase specialization even more, we will always have full line reps in some geographies where it makes sense, we’re absolutely committed specialization.

At the same time what we don’t want to do is create a lot of redundant infrastructure out there behind each and every one of the selling channels. So we have been and planning to continue to leverage our strong primarily direct branches, branch management and sales and logistic infrastructure around the country consolidated behind these diversified sales people. And what the customer sees is the highly specialized sales rep who can meet the customer’s needs at the point of surgery but behind that we have a consolidated operation now consolidated across our trauma and our reconstructive branches under a single branch general manager for the region and a single sales support network, so we think that drives both growth and leverage.

Second of all our product portfolio, as this really continues to be about products and we continue to expand and diversify our product portfolio, some of the ways we’re doing that if you look across all of our product portfolios, all across our divisions, two things we’re focusing in on and first of all simplification, second of all differentiation. When I talk about simplification, I’m talking about simplification as seen by the customer and in particular seen by the hospital and by the surgeon. How do we make the procedures easier to do, how do we make the procedures more efficient, how do we make them less costly for the customer delivery. Can we do fewer instruments, can we eliminate procedural steps, can we make the surgery easier, can we make it less invasive, can we reduce sterilization cost. So those are areas that really focused in on in terms of simplification.

In addition is diversification -- differentiation across our product portfolio, always looking for new segments that we can develop or are developing where we can bring new products to the markets that are substantially differentiated from competitors’ products so that we can drive meaningful growth? In addition to this across all of these portfolios, some of our segments are not very price sensitive and also in segments where a product lifecycle turnover is shorter and where meaningful innovation is rewarded earlier and faster. So we look at trauma, if we look at extremities, particularly in foot and ankle, if we look at the minimal invasive sub segment of spine and we look at joint preservation, we see opportunities to really expand our portfolio substantially there and drive growth.

And turning now to biologics, broadening our biologics’ capabilities we think is a key growth driver for us in the future. We acquired Orthovita, which gave us a substantial amount of expertise, research and development, clinical and regulatory, manufacturing and marketing expertise and proprietary collagen processing technology along with substantial products in Vitagel and Vita. We are and we will continue to build on those. We have a good pipeline of products and development as well as targets we have out in the market that we acquire. We can take advantage of this expertise sometime this clinical regulatory expertise that needs to be taken advantage of, sometime its R&D expertise, sometimes its product we think is ready for market; we need to be able to manufacture it. In addition, we have opportunities to use our manufacturing capabilities to bring things in-house.

And finally cross divisional product portfolio collaboration, we think there is great power in the breadth and depth of our portfolio across all of our divisions, and we’re beginning to see some meaningful results whereat the customer level we can bring that breadth to portfolio and win. Couple of examples of what we’re focusing in on that now first of all in Joint Preservation, we have a small but very rapidly growing Joint Preservation business, which sells implants and related instruments in the space for sports medicine procedures in the knee and the shoulder.

We have a great position through Stryker endoscopy in the arthroscopy market with visualization and cameras and shavers, finding ways to bring those together at the account level particularly in the Ambulatory Surgery Center where the clinician also tends to be an owner in ways that are meaningful on a platform allowing us to drive share in ways that we otherwise wouldn’t.

We are also having some interesting experiences in Spine. We can come together at the hospital with surgeons to offer combinations not only for our spinal implants with navigation from a navigation business unit powered surgical instruments and Stryker instruments, surgical suite technologies and Stryker communications come and put together an overall package that hospitals and surgeons are finding compelling, allowing us to win in accounts that we might otherwise not be able to win in. So those are some examples of how we intend to drive growth and reasons why we’re confident we’ll continue to drive superior growth on into future.

We will turn now to delivering leverage, why are we confident that we’ll be able to in an environment that we face drive our operating income growth faster than the rate that we drive sales growth, particularly as we drive sales growth rapidly. First of all as a focus on key power brands, I will specifically talk now about our recon division, our hip and knee business; we really are focused on driving key power brands. Last year, we launched the Accolade 2 building on the decade-plus heritage of the original Accolade hip.

A well accepted hip, excellent clinical track record but we had opportunities we believe with our SOMA database to make some changes to the dimensions of the hip, improve some sizing for all call better fit and feel, and modernize it based on that heritage. We launched that hip and you’ve seen the results in our hip sales over the past few quarters, it has been hugely successfully for us. We are following that on this year with a launch of Secur-Fit Advanced. Secur-Fit Advanced like Accolade, there is a femoral hip stem, it actually has two decades of clinical heritage over 20 years ago we launched the Secur-Fit platform, it is a smaller segment but a meaningful segment of the Hip Market that proximal fit and feel segment.

We are launching Secur-Fit Advanced, and there's a tag line that we have used with that Proven Designs Refined and quite frankly can apply broadly across our portfolio including our Triathlon platform, so we have singular knee platform virtually everything that we sell in the United States is Triathlon increasingly what we sell outside the United States is Triathlon which we built a strong consumer brand around Triathlon that get around knee.

So Triathlon is coming up on its 10-year anniversary, it is performed very well in the marketplace, you’ve seen the way we have been able to drive growth and capture share with Triathlon. The clinical results have been outstanding. Surgeons are very happy with it. Quite frankly, we do not think investing in a brand new product platform introducing an expensive new unproven knee in the marketplace today makes a lot of sense. We like Triathlon, we think Triathlon is very competitive but there are ways to expand on Triathlon, so this year we’ve launched a new all-polyethylene tibial components for Triathlon. We have launched a new of course the titanium base plate. We will continue to expand on the Triathlon platform and leverage it. One of the most interesting opportunities we think with Triathlon is instrumentation. When we ask surgeons what do you want that you don’t have, none of them were telling us we need different implants, they’re telling us better instruments, we need better procedure floor, more efficiency in the operating room.

The second thing in terms of driving leverage is increasing the amount that we get out of our biologics capabilities. One of the opportunities we have is we look out there and there are products that we distribute that are biologic products where we can actually bring those products in-house, many facture them ourselves with our capabilities and capture that margin.

Third, is improving inventory management. These are inventory intensive businesses as you know. There is not only a lot of cost tied up in the physical inventory itself that all instruments required to support that inventory, but there is a lot of labor cost in moving those products around and keeping track of them, so we’re looking for ways to increase that efficiency. We have improved year-over-year and we will continue to improve year-over-year in terms of our inventory management to get those overall cost down.

This year for example, we have implemented RFID technology using RFID tracking chips on sets of implants, so we know where they’re when they go out of our branch in the hospital to comeback in, it not only allows us to track that inventory better but greatly reduces the amount of labor and time involved in processing those in and out; allows us to grow volume without adding a whole lot of people as we have in the past.

And finally as I mentioned before leveraging our large sales infrastructures, so we’re predominately direct not exclusively. We will always have a mix I believe with direct and indirect sales approaches, but leveraging the infrastructure there to drive increase sales without building additional infrastructure out in the field. So that’s a part of our story in terms of driving growth and delivering leverage in the orthopedics group, I would now like to turn it over to my colleague, Tim.

Tim Scannell

Thank you, good morning everyone, it's great to be here with you today and along the same lines as David here I'll share with you I'll talk about our plans to drive sales growth and operating leverage within the areas I'm responsible for. Our efforts to drive sales growth have always begun with great sales representatives in the street, we’ve been known for having hard hitting aggressive passionate service minded sales reps who are very concerned with delivering the numbers but taking great care of their customers and patients.

As we think about growth we've been dedicated to sales force expansion each and every year within all of our growing businesses, that commitment remains and we drive territory expansion in each of our growing businesses. We also cautiously add technical selling resources as we seek to maximize the productivity of our sales organizations. These technical sales reps could be essentially associate sales reps or pure service technicians, but the whole approach is to have essentially a less expensive asset in the field, taking care of the customers, allowing the senior sales representative to spend more time selling. These approaches have been very effective for us.

Another opportunity is cross divisional collaboration and those of you who were here last night saw our six neurotech business units or franchises. And we have begun to pull them together and ask them to collaborate in the sales marketing and business development areas and begin approaching our customers in a holistic fashion. We've had some early wins, particularly within academic institutions where we can approach a chairman of neurosurgery and basically say look at all the solutions we have to offer you; they have been very receptive to that. In similar vein historically our endoinstruments and medical divisions have worked very well together and have laid the sustainability solutions division in concert with endo and instruments has had a very productive collaborative approach.

Another area I'll touch on with briefly where it’s early days but we do see opportunity, particularly in our electromechanical devices, you add technologies and features across divisions, so as an example we could see embedding activity tools that could track and monitor our devices to maximize our asset management uptime and eventually communicate other equipment or other information from this equipment. So early days but we have these assets deployed and own a lot of real estate in the operating room with our electronic devices which we'll seek the leverage and drive growth in the days ahead.

We continue to focus on buying groups and IDNs, IDNs is integrated delivery networks, chains of hospitals that are connected and have joint ownership generally and we have historically been very-very strong within that surge in terms of these relationships, we have virtually all of the GPO agreements we want to have and increasingly you have the IDN agreements that are necessary. We've dedicated corporate account managers focused on the top 80 IDNs in the country and we continue to work with them on new opportunities, renegotiations in maximizing the potential of these contracts. This is a very important space in this category and again we see growing importance of the IDNs, we are well positioned to drive growth with this relationship.

Additionally we do work to drive customer compliance, at one point we used to view these things essentially as a license to hunt, you just need to be on the contract to get into the count, over time they become, had more teeth to them, we adhere to them better, we strive to force our customers who hear them too and this ends up having a positive effect on price and the ability to execute the business in disciplined fashion.

And last we work to create new capital acquisition vehicles, within the medsearch group we have a unit called Stryker Finance, provides leasing and other capital acquisition options to our customers and we increasingly work to match our options to their procedural volumes through such tools as fee for use, fee for disposable, fee for implant or some type of agreement where there's a service charge with a capital payment attached to that. So we have a wide range of solutions which allow our customers to acquire our products.

So we have an outstanding history of driving growth within the group and I go back to the beginning and tell you that begins with sales force and dedication to sales force expansion. You'll hear from Lonny in a bit about his efforts to drive leverage through certain parts of the P&L and the areas we control obviously our biggest line is selling expense, and so we work very hard at selling expense control and obviously as we gain scale there is some natural leverage in that selling expense line but we work hard at being disciplined and continuing to ensure we have efficient market based sales compensations, by that we want we want to be at the top end of the market, attract the very best talent, but we also want to keep our sales rep compin check overt time. Within the group the divisions have done a nice job overtime of decreasing commission rates as the top-line grows we can still push to our reps the fact that you can make more money each and every year as our sales grow, but we want to share in our joint obligations to deliver profits of the company.

Also have been very pleased off late with commission structures that have encouraged discipline pricing practices. And by this I simply mean that historically we wanted the simplest approach. You sell x dollars, you make y percentage and we weren't any more sophisticated than that because we wanted a very simplistic approach. Increasingly over time our divisions have employed structures where we say the higher your discounts the lower your commission rate is, the lower your discount the higher your commission rate is. Very simple concept, but also very effective and it's proven to be very productive for us.

Looking at the bottom of the page in terms of cross divisional joint marketing initiatives we're working hard at synchronizing our messaging across all our divisions, we've have a marketing counsel across the company looking at branding, we have marketing counsels amongst our Neurotech group working at (inaudible) messaging and that group together. And collaborating on this messaging and bringing it all together will save money and drive the effectiveness of these efforts.

Additionally we're working at resource sharing and best practices again an example of our fierce decentralization historically within our small MedSurg group we had a different pro-care our service brand was called pro-care and we had a different approach within instruments in medical. We brought all that together under a common marketing director and now they have collaborative messaging going out for the customers at a very much more effective message.

We're working to collaborate on that med-ed medical education across our Neurotech business that you saw last night and very simply stated each of these divisions has often different focuses, some maybe focused on Neurotech residence, some were on (inaudible) some on attendings, we may be sponsoring forces put on by one of the professional societies or putting our own Stryker courses. And again by bringing our groups together we're gaining more efficient utilization of these customer touches by having more divisions represented at these areas.

The last point I would like to make and I touched on in dialog with a few of you over the years is simply that we're delighted to have the neuro bachelor division in the group and within Stryker. And you are probably aware that over the first few years it was kind of off on its own and reported up to Curt Hartman and this year we brought it into the MedSurg and Neurotech Group. So we have been able to tap into the expertise at the Neuro bachelor division and two areas I would sight is the global business unit and as a result of that they have a very disciplined product launch and product lifecycle management system, disciplined ways that they launched products around the world. We're benefiting from that expertise in striving to export it.

Additionally their clinical resources are far more expensive, they have multiple PMA devices, they have multiple ongoing studies and they are a big strong solid clinical group. So overtime as we need more evidence and discipline and we have committees at the hospitals that want evidence and are more simple old line divisions such as (inaudible) in medical, we can bring that expertise and leverage that within these other areas.

So overall again in this category we see the biggest, we have continued discipline in that selling expense line and we're optimistic at our ability to deliver our fair share of the operating leverage required in the days ahead. So with that I will pass the mic over here to Ramesh.

Ramesh Subrahmanian

So good morning everybody and I'd like to add my welcome and thanks to all of you for joining us today. Over the next few minutes I will share with you the progress that we're making to deliver growth and drive operational leverage across the international market for Stryker.

One year ago I shared with you our basis for an approach to building and strengthening our international presence. So I'll start with a little snapshot of how we're set up. 18 months ago we moved to a geographic alignment. What you see for example on the left hand side of this chart in orange is our Americas division, which has Canada and the Latin American business. Under it we have Western Europe; we have Eastern Europe, Middle East, Africa which has the two priority emerging markets of Russia and Turkey within that fold. In green we have Asia Pacific which includes Australia but also the key priority markets of China and India.

Last but not least, Japan is a standalone division; we all know that Japan is the world's second largest market and a very significant and important market for Stryker as well. We have circled; on the right hand side you will those circles for Australia, Japan, Western Europe and Canada, which is what we count as our developed market. As we shared with you our strategy last year, there are different things we need to do for our presence in the developed market versus the ones in the emerging market.

Last year we talked about the developed markets and we called out a special mention our situation in Europe. You all are well aware that over the last few years the European market has been both challenging and challenged in the healthcare space in particular. On top of that, we had some of our own internal challenges around focus and execution which we called out last year. So improving market share and margins in Europe was a critical driver and is a critical driver for our long term growth for Stryker.

We did many things over the last 12 to 15 months. 15 months ago, we appointed a new leader for Europe. In turn, we have strengthened through other appointments, some of the critical leadership roles in e-markets like Germany, like Southern Europe. We’ve also installed from our U.S. teams some really experienced talented people to run the franchise strategies for Europe. We’ve done a lot of work to strengthen the team.

Another very critical thing that we did was to rebalance the country franchise focus in Europe. Overtime, we had become a much more centralized set-up in Europe where we had resources and decision and customer engagement run much more centrally than at a country level. And over time we lost the touch with the customers, we lost the execution focus. So what we’ve done is we’ve rebalanced it. We put the centralized marketing resources for example back in the country. The country managers have the resources to engage with their customers and to tactically execute with their customers the strategies that are defined for Europe. This also means that not only from a clinical perspective but also from an emerging payer perspective. So if you look at the buying groups in Germany, the Tennessee and France for procurement organizations to crop up, the countries are much better able to deal with, understand and deliver the needs of the customers in those markets.

What we don’t want to do however is loose the power of the Stryker portfolio and the franchise strength that we traditionally had. So what we are doing now is with these two franchise leaders, one for orthopedics, one for med surge get at the leadership table on the European team. So they have full accountability for the P&L across Europe and what they’re doing is driving franchise strategies, working very closely with Tim and David’s team on R&D, product launches, marketing strategies et cetera but are equal partners at the table with the country teams who have to turn around and execute those strategies.

I also talked to you last year about we see Europe as almost a tail of two half. The Southern European markets, Italy and Spain in particular, continue to be very challenging and operate with very different dynamics than the markets in Northern Europe. So what we’ve been doing over the last 12 to 15 months is really revamping our position and presence in these markets. So it’s partly a matter of redeploying some of the resources that we had in these markets to other markets, it’s revising our infrastructure but much more importantly it’s also looking at our channel and distribution management in those markets. We had a big mix of reps, distributors, agents very often there is not much clarity on what they’re doing, all the relationships they had. So we’re cleaning that up in optimizing these channels. There is a lot of work still to do but early signs are very positive and first thing I think all of you (heard) was that in the second quarter of 2013 we saw positive growth in Europe for the first time in many quarter.

What is much more encouraging for me is the fact that we’re seeing real evidence of customer conversions and competitive wins. There are many accounts that over the course of the last five years I’ve not really done any business with Stryker we’ve been kind of shot out of those. But with this new focus the ability for country teams to engage with these customers, we’re starting to see some significant wins. Still early days, but we’re seeing that. In Southern Europe for example as we revamp our distribution channels, we’re seeing distribution partners who’ve been traditionally for 10, 20, in some cases 40 years, partnered with our competitors are moving to us and want to do business with us.

So early signs and what’s important to recognize from our perspective that employee engagement and customer engagement has started to increase quite dramatically and obviously we’ll see that in the results. Lot more work to do, particularly in Italy and also in Germany but we’re optimistic that the work that has begun was going into sustained momentum and we should be able to see that at the end of the year, you’ll see that we’ve really made significant progress there.

In the other developed markets, Japan, Australia and Canada, over the years, we’ve been actually quite successful in establishing a very solid Stryker presence and market share and I shared that with you last year. In Japan, Australia, we have really very strong positions there. So these markets are also challenge with the same healthcare dynamics that are going on in Europe and other developed markets. In Australia (inaudible) and strengthen on pricing, involvement of buying groups and other people, the buying process that we have to get used to.

So we’re adapting our go to market models and some of the examples that you heard from both Tim and David. So in Japan, in Australia, in Europe, we have now put in dedicated head in next sales force for example. So the specialization team you heard from David, we're also learning from that partnering to see how effective we can be, that’s one important aspect of what we’re trying to do.

The other thing we’re doing is similar to what Tim talked about as well, we’re starting to see the proliferation of buying groups and our ability to interact and bring the best of the Stryker portfolio to these accounts is much more critical that used to be in the past and provides us leverage that we perhaps haven’t appreciated before. But the example that Tim gave you about a sales model that also looks at differentiating between pure technical support and sales, we’ve been doing that in Australia with some good success for the last few years and now we’ve got some of the Australian team working in Europe to help the European teams understand what that means, how does it work in although the different healthcare systems, how we can leverage that. I think that’s, something that’s really important.

Since January, we have a new leader in Japan, and as I said this is a big and important market for us and what we’re looking there that is we’ve got -- Japanese hospital markets incredibly fragmented, lots and lots and lots of small hospitals and we’re trying to figure out how best we deploy our resources with much more sophisticated segmentation to bring the power of the Stryker portfolio there.

Switching to emerging markets; we’ve talked to you last year about the need for us to scale up our presence in the emerging markets with the premium portfolio and that high technology that Stryker already has. We have lot of work to do there just to expand our footprint. One of the things we did was we shared with you last year, we first said we need a prioritize which markets we must win in and no surprises I guess for guessing is China, India, Brazil, Russia and Turkey.

Those are the markets in which we are putting our priority focus in terms of investment. Its basic blocking and tackling that we’ve done successfully elsewhere in the world expanding our geographic footprints. So, we’re adding reps in China for example, in Turkey we’re optimizing our distribution models to make sure we’ve got the right distribution partner. In Russia we’ve added significant amount of distribution capacity to reach broadly into Russia. We continue to invest significantly in ramp up the training and education because a lot of these markets as I said last year require market development, it’s not an established market we are going to gain share, you’ve got to create these markets and invest in building those capabilities both within the Stryker organization but also in the marketplace.

So, those are things that we know we have to do, we’ve been doing them quite well, they are absolutely on track and Bill will share with you little bit later the track record over the last five years of the emerging market growth for Stryker. I’m pleased to tell you that that growth is accelerating and what we’re seeing is that in those five markets in particular which are our focus markets, we’re seeing much higher growth in the average around emerging market which already is very strong. So, we are pleased with the progress we’re making and we are confident that we’re putting in place all the mechanisms to drive that growth.

What we also said to you last year was it won’t be enough for us to win in the premium segment. It is something we have to do but in the end it won’t be sufficient for us to achieve our aspiration of being true global Medtech leader.

So for that we identify that there was lower price segment which was not only very big but also fast growing and we didn’t really have a presence nor a any real capabilities to enter that market.

So, as you all know in March earlier this year we actually closed on the acquisition of Trauson and the first three points that I just tell you or remind you what our logic and rational strategically was to do this. Trauson is a leading player in spin and trauma in China. They had a strong existing portfolio in those two areas but they also have both R&D capacities in pipeline and over the last six months we’ve actually been more impressed than we were when we -- before we bought them.

Obviously they have the manufacturing expertise and the capacity to make sure that these products are made properly with the high quality but also at the cost point. And here again, we’ve benefited from the fact that over many years we actually had an OEM relationship with Trauson and (inaudible) and this organization actually knew them very well. So, as we go in there the relationships with the people existed and we’ve had a very good understanding over their capabilities work. Obviously, they had an extensive distribution network in China. But really for us our thinking was, it wasn’t just enough to try and figure out the solution for China. We need a platform to be able to go global with this.

So, what we’re working on right now is a plan of more robust plan to say, okay now that we’ve got this platform and over the last six months the integration has gone pretty well, we’ve put in place a Stryker veteran, a business leader from our Orthopedics business in the U.S. to go to China and he’s actually running that business there, he has an extensive R&D background. So, he knows how to access the R&D capabilities in pipeline there as well.

So the integration is being going very well, we’ve been very careful to make sure that we preserve the value of what we’ve bought and make sure that we understand and maintain the differences that they bring to us. But now we’re saying we need to get this across the world, how do we think about that, what channels will be used and how do we make the plan to take this portfolio global.

The other thing is that you all know that we have a big investment and a big setup in India with a technical center and with the R&D capabilities of Trauson as a technical center in India and the links that they have with the U.S. R&D organization, how do we leverage this to continue to develop more products that are appropriate for these markets and for this segment in particular.

I think I mentioned last year, we already have about four projects that our U.S. divisions have been working on to develop products that are appropriate for this segment. So, we’re very excited about where we are with Trauson, its early days in terms of making sure we can create the value that we acquired it for. We very feeling very good about what we’ve seen since we’ve acquired it and actually frankly we've been more impressed than going in around their R&D and manufacturing capabilities.

That’s about driving growth but we’re also conscious of the fact that as we build this business we’ve got to deliver operating leverage, we’ve got to create value. Our first couple of bullets on the top I think I’ve mentioned some of it; it’s really about optimizing in commercial models. Some other terms of things that Tim talked about looking at our channels and also our resources, where do we have tech support, where do we have resources and how do we optimize that, how do we work with distributors so that we either develop a much better win-win relationship and get the customer intimacy there. Japan obviously a complex market with the fragmentation how do we improve that.

But more than that, we’re also looking at as we build scale how do we drag efficient leverage. So we don’t create infrastructure that we’re going to exit a few years from now saying now we’re going to clean that up. So working very, very closely with Lonny and he’ll talk about it some more optimizing supply lane. When you look at a market any one country that’s going to source product from multiple manufacturing sites across Stryker, how do we make that more efficient, how do we think about central distribution centers one of which we already have in Europe. How do we leverage that, how do we look at product distribution and hit management. David talked about inventory management so we have an initiative in Europe for example what we call sleeping kit. Kits that we’ve deployed into the marketplace but have kind of lost fact about what’s the rate at which that are being used and where can we redeploy them.

Particularly for the emerging market these are significant investments we have to make. In inventory you’re deploying those markets and we got to be really good at making sure that we’re getting the utilization of that quickly.

Finance, we were doing some shared service roll outs in Europe and also in Asia-Pacific and now having Bill on board with his ease and experience, hopefully we can drive that even faster. And a few other things that are on distribution optimization in China. We’re putting in a big investment in Japan to put an ERP so we can actually get our distribution in Japan much better. So from bunch of initiatives in every single market but what we’re doing is we’re starting to get much better as a team that Kevin talks about which is collaboration, whether it’s collaboration across the international businesses so that we can leverage, for example, the expertise in Australia for China or India. So we had our orthopedics leader in Australia, for example, go to India several times to we make sure we are hiring the right people developing it, so lots of examples across collaboration within international but also much more visibility and collaboration with David’s team, Tim’s team in marketing and R&D and of course with Lonny’s team. So we’re very pleased with where that’s going.

So in summary, I’ll just say we have a very clearly, that we are very focused, we have a very aligned strategy to drive international growth, both on the top line but create value for Stryker and I’m confident and optimistic that we put the things in place that we can execute like we started to do now that we can see us get significant value for Stryker on the international market.

Thank you, and with that, I’m going to turn it over to Lonny Carpenter.

Lonny Carpenter

Thanks Ramesh. Good morning, everyone. As always, it’s great to be with you here today and talk to you about Global Quality and Operations for Stryker Corporation. Similar to my past presentation to this Group, I really have a couple of common themes that I want to walk you through: first is our ongoing drive to enhance quality and compliance through our quality of first journey; and second, it’s really around our focus and optimizing our operations through our plant and supply chain network, both of these multiyear journeys we feel very, very good about and that we’ve made pretty significant progress.

So on a progress front; I thought I'd give you an update on where we are with the transition of moving our structure. So as a reminder if you look back at our decentralized model, the picture on the left hand side of the chart, historically, our manufacturing and supply chain functions would have reported into the commercial selling divisions. In over the course of the past 12 to roughly 18 months, we’ve transitioned into our new global manufacturing network, picture on the right hand side.

So today we’re organized into eight geographic campuses around the world. These campuses are focused on driving leverage from our core manufacturing competency process systems and expertise. This is also a scalable structure and really has allowed us to support our aggressive acquisition pace that we’ve been on and in fact we’ve brought in 15 new facilities over the course of the past couple of years into this network. Most notable has been as you’ve heard the neurovascular business coming over.

Just the last couple of months ago we finished the transition of the third and final manufacturing facility into our network, roughly about 1,000 employees with the three facilities that we brought over. In addition to supporting neurovascular business on the Boston transfer, we also have been supporting the integration of the Surpass acquisition and the Concentric acquisition where we’re been in a couple more facilities to support that. And I would submit absent this deal structure change and not share we would have been able to this complex integration with the success that we’ve been able to achieve in the last couple of years. As you’ll see evidence in the next couple of slides this global structure is now starting to drive greater operating leverage within our company while also driving top line growth.

Let’s talk about growth for just a second. Really from a global quality and operations role to drive growth is really to make sure our global customers around the world have access to the highest quality products and services and there we’re doing a good job of consistently delivering them to them at the right place at the right time. So if you start in the left hand side in terms of enabling relative to really around making sure that quality is a competitive advantage for the company and we focus right now in four main areas from a quality standpoint: first on making sure that we launch very successful new products. And as you spend time with us in the last 24 hours is seeing our products there as you looked into Tim and David and Ramesh talked about their new product launches you can get a sense that we feel very confident and a lot more I guess overall positive about the quality of our products as we launch in terms of the reliability and performance out of the gate. And it’s really a reinforcing message and encouraging that the investments that we have made over the years from a quality standpoint are really showing through in our product launches.

Second with our new structure, it really gives us a chance to leverage some of the best practices we have from a manufacturing standpoint across our network. And it’s really looking at things like automation; we have some manufacturing locations that have superior automation setup within our network. It’s a chance for us to look at one common way across all manufacturing now that drives that approach to automation to enhance quality at the same time taking across the process.

And third is about continuing on to expand our quality systems and our expectations to our supplier partners, to our key contract manufacturers and to our OEM partners to make sure from an expectation standpoint that quality whether itself Stryker as a manufacturer and one of our key partners it has the same expectation and frankly that continues to be a challenge for us as we work through those relationships.

And fourth with the integration of the acquisitions it’s really from day one to make sure we are studying in expectation and a standard from a quality standpoint that we are continuing to make a step forward, we are not going to take a step backwards from a quality standpoint, there is a same expectation. We have good plans in place to integrate and move forward in our quality assets.

And lastly on the quality and really the regulatory side as a Company more aggressively peruses globalization; our role is to make sure that we are enabling the commercialization of our products around the world with improved regulatory and registration processes.

And so giving example of again using the neurovascular business we bought that business over they sell their products in 70 different countries we had to go through and reregister and get regulatory approval for about 2,000 submissions to be able to support that business around the world. And the better we can at those processes again the quicker we can get products from market and drive growth for our business.

Moving to the left hand side, my left hand side of the supply chain optimization piece to really have a couple key initiatives going on across the Company. first is an effort around integrated business planning? You may have been familiar with what we refer to as sales and operations planning, we call it integrated business planning but it’s really around balancing our supply and demand signals and functions to make sure that we are doing a good job of managing our inventory at the same time managing our lifecycle management.

And then second, I'll just issue in logistics network, Ramesh talked about this a little bit. It’s really about setting up a global network from a logistics standpoint that is efficient customer focused and really cost effective and we have regional locations now that we are setting up around the world that will also at some point allow us to add value added services for our customers.

And third it’s about really a company wide effort and improving our inventory management and you heard David talk about this and in terms of the effort that [indiscernible] has going on same thing with Ramesh and Tim and its really this company wide focus around improving the entire management that is helping to drive some of the success that you see up here on the chart. To give you that chart in 2007 to 2011 our inventory was growing 1.5 times faster than our sales, which is a great formula for success. But you can see in the last couple of years with this increased focus on and across the company we have actually been able to keep our inventory levels flat while acquiring businesses and taking on that inventory at the same time supporting the level of sales growth you see on the chart, which is all as to reduce our days in inventory as you will hear from (inaudible) a little bit later and then also contributing to the success of the cash increase for the company.

So turning over to driving leverage and what are we doing to help contribute to that from the global quality and operations standpoint well as I have mentioned with our new structure we are really starting to see some of that come through the P&L with a number of contributing factors, one of which was the inventory chart I just showed as we get better managing our inventory a plus charges we have to take from excess are not (inaudible) standpoint. But for our network optimization focus it’s really about with those campus structures reducing our fixed overheads that we need to support those facilities. Looking at productivity improvements whether it’s lean or automation to drive labor settings throughout our network.

Looking at our sourcing opportunities again opportunities for us to look at consolidating the key vendors across the network that are going to support Stryker Corporation as opposed to one specific division and using those volumes to leverage increased savings for their suppliers and also looking at a percentage of purchases that we had as a Company in low cost areas and trying to drive that upwards which is contributing to this nice material savings for us.

Then in the warehouse and distribution cost it’s really about trying to optimize this network that we are putting in place. Looking at how we move products around the world and as Ramesh mentioned it’s not the most efficient manner of opportunities for us to look at how do we movement, it’s also opportunities to save on freight. And again looking at our international business as an example we had 30 different contracts, 30 different carriers where we were using from a freight standpoint now consolidated that don to just a few providing better service and providing some nice freight savings for us.

And lastly we are just in the process of delivering our third consecutive year of favorable standard cost rule on the cost of goods side and all these factors are really contributing to help us drive the nice expansion in gross margin if you lifted up here on the page.

And with that what does all this mean well the bottom line as we continue to be on track to achieve our previously stated cost improvement and working capital goals. We are encouraged by our progress and the quality first side and equally excited about the opportunities to drive greater operating leverage and cash flow going forward. We also know that there continues to be many headwinds facing our company and our industry that is outlined on the previous slides I believe that our structural changes that we have made are strategic directions to enable to deliver on our commitments and also prepare us and position us for the future.

With that I will now turn it over to Bill Jellison.

Bill Jellison

I would like to just on our first talking with you a little bit about kind of the overall five year performance where we have really been and keep in mind during this slide your period we actually went through obviously the worst recession in any of our lifetimes right. So when you look at the sales side of the equation throughout that five year period we still grew at a compounded annualized growth rate of 8 percentage points if you look at kind of what our core underlying growth was we grew literally around just over 5 percentage points during that same period with a couple of points each year really coming from acquisitions. When you get down to kind of what we are talking about today is not only obviously the growth side of the equation but also the leverage piece when you go into the operating margin end of the equation you can see that our compounded annualized growth rate really through that entire five year period again ended up at around 9%.

But that came from a mix of a couple of different things on a gross profit margin area we actually had some struggles we ultimately had negative product mix some acquisition mix that was negative and obviously as you are well aware some of the pricing issues within the broader base industry that we do overcome. When you look at kind of the overhead leverage that ended up during within this period we continue to actually have some positive overhead related mix within that category but we also had a lot of different cost initiatives to help drive down those costs in this period and at the end of 2012 we actually had an operating margin on an adjusted basis of 24.1%.

And when you go to the next level you are looking at obviously then the bottom-line impact, both to EPS and also cash flow into the equation and both of those categories we grew double-digit throughout this entire five-year period time up to 11% on the EPS side and still generated about 10 percentage points of compounded annualized growth throughout this entire period. The ROIC is with there as well too obviously we are well north of kind of the 20% so when we are investing our funds in our business we have great opportunities and you just heard from a number of our business leaders talking about each of their areas that they are driving both the growth and leverage on with the new organization and I think we have got plenty of very good opportunities inside the Company. So you realize that we have got an extremely strong balance sheet that we want to make sure that we are putting use as well too along with some extremely strong cash flow that we generate year in and year out a large portion of which we are still focused on investing in acquisitions.

So when you look at kind of our broader base global opportunity and our footprints here I think that this chart shows a couple of different things, one it shows that we are well positioned on a global basis. But it also shows that we have plenty of opportunity I mean we actually only have 35% of our total business on a worldwide basis outside of the U.S. and only 6% currently in the emerging market areas. And over the last five years you can see some of the growth levels there that took place on a total growth for both the United States and the international developed regions but also in the emerging market areas. So we know those markets are key to our growth and the opportunities that they provide for us and we are making investments both internally in those areas and more strategically in some of the categories where we believe that the markets over a long-term period will obviously provide us more with additional growth. That growth and the focus that we have got within those areas come from both the branding of our premium products but also making sure that we have kind of a dual branding perspective with some of the other brands that we’re picking up, most recently with the Charleston Group that we just acquired at the first quarter of this year.

When you take a look at kind of how we want to make sure that we are really optimizing our broader base shareholder return that really gets into what are we really doing at the end of the day with the cash flow that we are generating and we generate obviously a significant amount of cash flow along with an extremely strong balance sheet which I will show you some of the details on in a minute as well too. But our first and foremost priority on the utilization of that cash is on acquisitions. I mean it’s a key part of our overall growth story and we know that that’s going to be a certain portion of our growth year-over-year and we want to make sure that we're looking at a number of different opportunities throughout each and, everyone really of our broader based market segment categories to look for ways to expand. And we're looking for ways to expand both on the debt of the product offerings that we're providing as well as the debt within market related areas of those products but also to expand the broader breadth of product opportunities that we have, that are complementary for the products that we’re already in and that allows us to continue to penetrate into the Medtech area.

When you look at kind of we're driving for from an overall financial guideline on the acquisitions and again these are broad based guidelines of different acquisitions have different measurable that we look at. When you look at kind of what we're really driving for, we're looking to make sure we're at least returning kind of or looking to meet or exceed kind of the overall cost of capital that we have at least within three years of that acquisition.

And we generally want to have kind of internal rate of return targeted for those investments for at least 12.5%. And I say that typically our real targets are probably north of that, probably 15% plus. And I think as you look to level that we make an initial investment in from an acquisition. That initial investment may expect to provide us a certain level of return of what we're ultimately driving for is how do we then use the cash flow that we generate year-end and year-out within that business to reinvest in that area, to expand the sales, expand the product related opportunities for us to expand investments in R&D in those categories that ultimately at the end of the day then have we much greater return on it and have allowed us in the past to achieve these ROICs that are well north of 10% to 20%.

We also obviously as part of that three pronged approach as far as how we're optimized the shareholder return. I know you have seen kind of what we have been doing on the dividend side, we expect that we want to be growing in the future as well, our dividends at least at or slightly above our overall earnings growth year-in and year-out. And share repurchases are also obviously at least active portion of our overall utilization of the cash flow that we have as an organization. Especially when we're sitting with the amount of cash flow that we have on our balance sheet today along with the strength of the cash flow that we really deliver year in and year out in good times and in bad.

So from a year-to-date overview of highlights on kind of what's really taken place this year. I think you all have seen that our top-line sales growth has been about 3.2% in total. We have had core growth of around 4.2 percentage points year-to-date. And again if you look at kind of an adjusted growth basis, because again there is some different base kind of in the first half relative to kind of what took place, or we'll be about 4.6% we believe, on a forward basis during that first six months period of time.

Also keep in mind that within that same six months period we were still going up against some pretty hefty headwinds from our Neptune recall that we did, that actually anniversaries itself in this quarter and we would expect that reduction of that drag even though we don't have the product back in the market yet, at least on a year over year comparable basis. It's at least more comparable for us as we kind of move forward through kind of the back end of the third quarter and also into the fourth quarter of the year.

So I think what that's of really saying is that with the internal growth rates that we had in the first part of the year, we talked about kind of how the business is running, we have updated kind of the range that we have had out there associated with our sales growth. And I think that we’re confident in messages that you just heard a lot of our business units talk about today on how we can ultimately optimize our growth position within the market places, specially relative to the competitors.

When you look at kind of some of the other key highlights here, driving expansion in emerging markets obviously let by some of the activity that we just did within China, but we know the emerging market area, it's a key growth area for us. You saw the growth rates that we have had over the last five years within that category, we still are only 6% of our overall business and we should obviously be bigger than that. As an organization I think we definitely know that we want additional focus within those regions and I think we’re continually going after that.

You talked about kind of what our overall brands are outside of the U.S. Our brand and market share position are relative to kind of what they are in U.S., while we have some product categories that are very similar to kind the market share positions that we have here in States, we also have many, many different brands or products that have much lower market share positions in those markets, and we think that we can utilize the strength of those brand names along with the resources that we have to ultimately continue to grow and grow at a faster rate in many of those regions.

Europe as Ramesh mentioned obviously we actually turned the corner in more positive, at least in Q2 and one quarter doesn't necessarily make a trend. But I think that we're hearing at least some general less negative and maybe even slightly positive news from broader industries out of Europe. I think we're still in for a long haul of (inaudible) related economic issues both in U.S. as well as internationally. But I think that shows that we have right products, we're getting kind of a better baseline foundation to establish off of and we would expect those regions to be showing growth in the future.

Adjusted operating margins, again we’ve obviously been hit hard by the Medtech device tax this year. That’s obviously impacted us I think in the first half by maybe just under a 4 percentage point at our -- obviously both our gross margin area as well as our operating margin area and about maybe just over 90 basis points. If you exclude that impact for this year, we’d actually be up about 50 basis points on our operating margin this year, so we feel really good about that business or that activity despite the fact that we’ve obviously had to deal with the med tax area. Obviously if you exclude or include that, we would have actually been having a drag of about 40 basis points negative year-over-year. So we absolutely need to be making sure that we’re focused on how to make sure that we’re driving that, minimizing the impact of the tax, which I think we’ve done a good job on already. But we’re still trying to make sure that we’re making some efforts on that front and then making sure as well that we’re utilizing some of the leverage in other parts of our business to help offset it.

Strong inventory improvements over the last year if you look at kind of the second quarter to second quarter year-over-year anyways, we’re down about eight days and I think a lot of the programs that Lonny and his team as well as some of the broader based groups are working on are helping to drive those numbers down. I think it’s not just a kind of a one year plan I think that they’ve got a good outlook for a number of years still into the future on activities for us to continue to focus in that area and to improve our overall efficiencies and minimize our overall E&O that we have and are generating in the company. And then when you look at kind of what took place from an overall perspective in some of the groups, we’ve had actually double digit constant currency growth in a couple of different areas, Trauma and Extremities, Neurovascular, neuro powered instruments they’ve all performed in the double digit category in the first half of the year.

So looking at cash flow, we talked a little bit about cash flow but I think that this is really as a key slide. Again, in keep in mind that during this five year period we went through worse economic recession in any of our led times and yet if you go back to the 2008-2009 period you’ll see that our cash flow during that period actually increased in that year. We delivered 1.5 billion of positive cash flow. And so when you look at kind of industry that we’re in and the company and the diversification that we have both on a global basis but also in our product portfolio that allows us to deliver extremely strong cash flows and we obviously want to make sure that we’re efficiently using that cash flow as we move forward.

And then in the first half of the year you can see that we’re at least up about $100 million roughly in comparison to where we’re at in the first half of last year, that’s about 20% increase. And so we’re continuing to make I think some good progress on the cash flow, whether it’s up kind of that much for the full year not a different question but I think that the overall underlying team here is that year-over-year in good economic periods and in bad economic period generate a lot of cash and we’re looking to utilize that cash by investing it in areas of our business both internally and outside the organization.

From a dividend perspective, I mean, we’ve obviously jumped our dividends overall in the last few years. We’ve increased it on a compounded basis of about 38% during this period, both because of the earnings that we wanted to be returning but also a realization that we’ve got an extremely strong balance sheet. We wanted to make sure that we had a bigger component at least of our dividend that was being paid out from an overall yield on our stock and I think we positioned it relatively well. And as I mentioned earlier, you should expect that it’s still our plans to at least grow that dividend at or slightly faster than our overall growth rate and our earnings per share.

From a capitalization perspective, it’s not just the cash flow that we generate but we also obviously have an extremely strong balance sheet to work with already. We have $4.5 billion of cash sitting on our books. Our net debt or our net cash position is actually just under $2 billion. And when you look at our net cash to shareholders equity net debt equity, you’re seeing that it’s still 22% of our total equity is sitting out here in cash right now.

So we generate 1.5 billion roughly of cash per year, that means we have to not only put kind of that cash to work but potentially even more to utilize any of the cash that we’re got sitting on this balance sheet right now. So we’re in extremely good, strong financial position at this point. We are constantly obviously looking for the right opportunities and try to make good decisions associated with each one of those in a disciplined method. But as you can see that’s obviously a category that we have the capacity for and we also have the appetite for as we move forward.

Our financial targets for 2013, we’ve talked about our sales growth that we tightened the range on that towards the higher end. I think we’re very comfortable at this point a 4% to 5.5% overall core growth rates increase for us for this year. On an EPS perspective we recently gave guidance at our -- guidance at the end of the second quarter of $4.20 to $4.26, that’s actually 3.5% increase over the prior year. But again keep in mind that we’ve got a hefty drag really not just from the Medtech type device and if you just exclude that we’d be growing about 7% to 8% this year but we’ve also had obviously a fairly heavy drag from our FX related exposures this year and that’s also had a negative impact on that and we’re still delivering 7% to 8 % on bottom line return.

So, when you kind of think about (inaudible) and take a step back of what’s Stryker really is and whether you are an employee or whether you are investor, kind of investing in the company and each rolls down I think in all a half a dozen or so items of things that you would want to make sure that you’re, the company that you’re either investing in or spending a clear and has I think Stryker it goes to a team, I mean we’re absolutely a leader and a very attractive broad-based Medtech market, we’re well positioned from our geographic reach perspective with 35% of our business on an international or U.S. basis, we have extremely strong brand not just at the premium level but we’re also creating those brands at a next or mid tier level. We have products left with literally tens or thousands of different products in our portfolio, literally in kind of each one of the different areas that we kind of comparably compete in. We’re focused on innovation, we bring out new products within each one of not just a different segments for the groups that we have but also each of the different divisions that we have and that’s what really ultimately driving the growth that we’re putting on the table and saying that we believe we can grow faster than broad based competition.

We’re not sure in any specific environment what the economic market growth maybe, we’re driving for growth above our competition and I think that we’ve got capabilities on the number of fronts to be able to do that.

Strong cash flow on balance sheet, again I think that that’s unquestionable. I think that the cash flow that we generate is extremely high and even if we’re investing and getting a certain amount of growth out of acquisition every year, you can run your own multiples on what’s that needs to be to get us a certain level of return and you know that we’d have pretty solid growth on acquisitions just utilizing the cash flow that we generate every year that alone using any of the strength of our balance sheet.

Then when you look at strong returns on invested capital, obviously we’ve got great overall returns there and when we invest in our own business in R&D and kind of certain resources sales marketing related activities, those paybacks for this type of the company have great returns for us and we’re looking in a number of different areas to continue to make that. And I think we obviously are synergistic acquire on a number of different fronts, we have broad breath of portfolio, a broad geographic reach and generally if we acquire a company that’s anywhere within the mix of the products that we have, we believe we can continue to deliver synergistic benefits after that acquisition and not just benefit the acquisition that we pick up but also benefit many of the other companies that we’re linked up with.

So with that, thank you very much for coming and joining us today. I think that those were hopefully some good presentations on both the growth and the leverage aspects of our business as well as where we are financially. And we’d obviously as team like to open it up for some broader base Q&A. I’ll turn it over to Kevin first.

Question-and-Answer Session

Kevin Lobo

Thank you, Bill. So for the Q&A, I’ve invited down a number of the executive leadership teams that are seated in these chairs. And I’ll be acting as a moderator. So, if you have questions please raise your hands, we have mics that we’ll bring around to you. I’d just ask that you identify yourself and which company you’re with prior to asking the question.

Chris Hammond - Goldman Sachs

I’ve got one question for Tim and then follow up for other for Bill or Kevin whoever feels like taking it. Tim, first you talked about dedication to expanding the sales force but at the same time meaning to be able to control selling expense. I was wondering if maybe you could elaborate a little bit about some of these in the metrics or internal targets that you guys are looking to measure so that we can better understand how you’re managing those two different goals and maybe there is any type of an example how things are being, how you’re tracking performance and metrics, that will be helpful.

Tim Scannell

Well, I wouldn’t share beyond to say the numbers go up every year (on the street) and sudden sales goes down as for a selling expense and I’d be perhaps exaggerating if I gave you metrics beyond that.

Kevin Lobo

What I would say is Stryker has been known for its sales forces that is absolutely a key strength of the organization and we see that across frankly all of our different divisions each one of them has different hurdle rates, different metrics in terms of when they decide to increase territory size as it is not something we really want to get into today but it’s been a hallmark of success and it’s something that we absolutely plan to continue.