Synthes Reports Strong First Half 2007 Financial Results with Sales up 14.1%, Net Earnings up 16.0%

Solothurn/Switzerland, August 9, 2007

Second Quarter 2007

Consolidated sales of US$ 674.5 million represent an increase of 14.1% (11.9% in local currencies) over prior year (same total growth rate as first half 2007)

First Half Year 2007

Consolidated sales increased by 14.1% (11.9% in local currencies) over prior year to US$ 1,332.5 million
Gross margin remained stable at 81.7%
Operating margin slightly increased to 32.3%
Net earnings of US$ 282.1 million represent an increase of 16.0% (14.9% in local currencies) over prior year and once again exceeded sales growth
Continued growth in all product lines and regions was primarily due to enhanced product offerings, sales force expansion and a strong dedication to customer service

Sales Figures (unaudited)

Financials

Gross profit margins were strong at 81.7% and were flat versus first half 2006.

Operating expense improved vs. 2006 as a result of lower royalty payments to the AO and productivity improvements resulting from various programs. This resulted in improved operating income and net earnings.

Synthes continues to invest heavily in its future growth as evidenced by first half 2007 capital expenditures of US$ 103.0 million. First half 2007 capital expenditures include US$ 61.4 million investments into sales support equipment.
Synthes' cash generated from operating activities increased 61% to US$ 343.9 million versus prior year, resulting in a free cash flow of US$ 231.8 million.

During the first half year 2007 Synthes has increased its headcount by more than 300 employees. The group currently employs 8,770 staff worldwide.

Product Highlights

All divisions contributed to the group's performance thanks to the continued success of wellestablished implant systems and the steady flow of innovative additions to the entire portfolio.

In Trauma, TFN and PFNA (nail-systems) as well as small and large fragment locking screws were major growth contributors, reinforcing Synthes' leadership position and enabling continued market share gains.
Important new products include the continued global expansion of the LCP product line with a new modular Mini Fragment LCP System and the LCP Olecranon Plate and LCP Anterolateral Distal Tibia Plate, as well as the DHS Blade used with the LCP DHS and standard DHS implants for the fixation of proximal femur (upper leg) fractures. Another notable introduction was the anatomically specific PFN-A (Asia), a femoral nail that has unique sizes and design features for the Asian population.

Significant growth contributors to the Spine business were recent launches of SynFix-LR (anterior – lumbar stand-alone device for degenerative disc disease), Pangea Deformity and Degenerative (comprehensive next generation pedicle screw systems) as well as Vectra-T (unique anterior translational cervical plate).
New product introductions in Spine include a new Occiput Fixation System, compatible with all existing cervical systems. Furthermore the Luminary PLIF was launched: this is an Inter-Vertebral Body Fusion Device with a large central lumen to accommodate osteobiologic material packing for fusion through the implant.
The global Spine business continued to grow in line with the overall market.

In Cranio-Maxillofacial (CMF), revenue in neurosurgery reconstruction products, particularly the new MatrixNEURO system as well as in products for distraction osteogenesis and sternal fixation contributed to a growth rate in excess of the market.

MatrixNEURO is the new plating platform for internal fixation and is a streamlined, comprehensive system, comprised of a full selection of titanium plates and self-drilling screws for fast closure of bone flaps and rapid fixation of cranial fractures. The system offers flexibility, ease of use, and the highest quality implants and instruments.

CMF’s growth was particularly strong in Europe and Latin America. Synthes CMF continues to support surgeon-focused educational programs with new initiatives in neurosurgery and chest wall reconstruction.

Regional Highlights

North America

The growth in North America was primarily due to Trauma, which continues to reflect a higher than market growth rate, resulting from the company's success with its LCP (Locking Compression Plate) systems and the innovation in the nailing segment (Expert-Nail-Systems). Other contributing factors include the dedicated, focused sales force offering a wide array of outstanding service to surgeons and operating room personnel differentiating Synthes in the market.

Europe

In Europe, Trauma and CMF grew faster than the market while Spine grew in line with the market. Similar to North America growth in Trauma is primarily generated through the continued introduction of additional LCP systems and the successful roll-out of the Expert Nails supported by service offered by an expanded sales force.

Asia Pacific

Growth in Asia Pacific has been achieved mostly in the Spine division by the introduction of products into under-penetrated markets. Synthes' Spine business has especially improved its market share in countries such as Japan, China, Korea, India, New Zealand and Taiwan.
An important launch at the end of first half 2007 has been the Asian version of the PFN-A. This product, adapted to the anatomy of the femur of the Asians, is starting to be very well received by surgeons.

Rest of the World

Synthes has experienced especially strong growth in Latin America, but also in Middle East and Africa. The potential of these markets remains important for the long term future.

Other income/expenses and taxes

Foreign exchange gains of US$ 11.9 million for the first half 2007 versus first half 2006 foreign exchange losses of US$ 3.1 million were primarily driven by the weakening of the Swiss Franc versus most currencies. Additionally, foreign exchange gains were partially offset by a higher tax rate in first half 2007.

Synthes adopted the new U.S. GAAP requirements of Financial Accounting Standards Board (FASB) No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), on January 1, 2007. FIN 48 lowers the threshold with respect to recognition of income tax liabilities.

Upon adoption, Synthes recognized a US$ 31.8 million increase in the net liability for unresolved income tax positions. This net liability increase resulted in a corresponding decrease to the January 1, 2007 retained earnings balance. The amount of unresolved income tax positions at January 1, 2007 is US$ 64.0 million all of which would impact Synthes’ effective tax rate upon favorable resolution of these unresolved income tax positions.

Outlook

For the full year 2007 Synthes expects to maintain low double-digit sales growth.

Synthes: A leading medical device company

Synthes is a leading global medical device company. We develop, produce and market instruments, implants and biomaterials for the surgical fixation, correction and regeneration of the human skeleton and its soft tissues.

For further information please contact

Peter Fehlmann, Investor Relations, Synthes, Inc.

Phone: +41 32 720 48 10 , Fax: +41 32 720 48 11

e-mail: ir.infonoSpam@noSpamsynthes.com


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