To our Shareholders:

Charles Darwin said that it is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change. This quote may be 150 years old, but it seems remarkably fitting at this time. Few of us could have fully envisioned many of the events that unfolded in 2008: a global economic meltdown, unprecedented commodity price increases followed by rapid decreases, similar effects in the global currency markets, the failure of centuries-old financial institutions, and further unprecedented bailout packages in country after country around the world—from the United States to Europe to Asia and South America. These events created enormous challenges for companies in all industries. We at Stryker were not immune, as many of our hospital customers and government payors around the world cut back on spending, especially capital purchases, late in the year. Combined with a heightened regulatory environment within the healthcare industry, the events of 2008 clearly brought a unique set of challenges to your Company as well, which resulted in a disappointing decline in our stock price during the year.

Nevertheless, we are pleased to report that revenue grew a very healthy 12%, and adjusted diluted net earnings per share from continuing operations were up 18%.

In a year where liquidity and cash flow were vital, our free cash flow grew a healthy 22%, and exceeded $1.0 billion for the first time ever. While our earnings growth fell short of the 20% we were aiming for at the start of the year, our sales and earnings performance still ranked at the very top despite these challenging times.

For perspective, we invested over $50 million more than budgeted in quality and compliance initiatives. Importantly, we could have delivered the original 20% goal by taking an action that many companies took in 2008—by eliminating the Company’s discretionary contribution to our 401(k) plans, which provide retirement benefits to our U.S. employees. In an era where many big companies risk undermining employee loyalty for short-term gain, and at a time when the hard working middle class in America is facing greater challenges, we are confident this decision will pay off in the years ahead through the continued loyalty and hard work of our teams. While we certainly feel the pressures to deliver in the short term, we also continue to manage the Company for the long term, and hope you support us in this decision.

We are also very proud of achieving an eighth straight year of double-digit revenue growth. To put this accomplishment into perspective, it appears that only around a dozen companies in the Fortune 500 have achieved this goal for eight consecutive years—putting us in a very select group. Furthermore, we are one of only two manufacturing companies on this list, and the only healthcare manufacturer. In a period when many manufacturing industries face great challenges, we think this accomplishment reflects the hard work of our teams around the world.

A Position of Strength

While we face both the internal hurdles mentioned above, as well as the external forces of the global economy and heightened regulatory scrutiny, we are pleased to be able to tackle these matters from a position of strength. In these turbulent times, our financial position and our people have never been stronger.

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