Stryker 2009 Annual Review

We generated net sales of $6.72 billion, up 0.1% from 2008. While this growth rate is anemic by our usual standards, the sheer fact of generating any growth in 2009 was a notable victory. Importantly, it preserves our long-term track record of growing every year. Our adjusted diluted net earnings per share increased 4% to $2.95 in 2009. A focus on cash flow was also a major priority in 2009, and we were pleased to deliver operating cash flow of over $1 billion for the third consecutive year, and up a strong 24% over 2008.

Clearly, this is not the kind of revenue and earnings growth our shareholders have historically expected from us, and we will never be satisfied with delivering results like these. But we are proud of how agile and resilient our company proved to be in 2009. Throughout our history, we have demonstrated the ability to weather economic downturns and uncertainty, emerging a stronger and more capable enterprise. Last year was no exception. Our quarterly performance demonstrated sequential improvement in our key operating and financial measurements, as our people and teams around the world responded with urgency to manage costs in the face of economic headwinds and marketplace turbulence. As our focus on operating costs paid off throughout the year, a broader economic recovery also appeared on the horizon. This has given us further resolve to go back on offense and deliver stronger results in 2010, hopefully closer to our own expectations. Time will tell. But as we combine our sense of urgency and greater operating efficiency with renewed economic growth, we like our prospects.

While our diverse product offering—which generated superior growth for most of the decade—did create some unique challenges for us in 2009, we continue to believe our footprint possesses significant opportunities for strong growth in 2010 and beyond. Our portfolio of businesses spans numerous medical technology markets, helping to drive sales opportunities and generally providing stability. In 2009, our worldwide MedSurg sales took the hardest hit, with revenue decreasing 5% versus 2008, as hospitals and clinics grew conservative with capital equipment purchases. Based on the steady uptick in sales that we saw as 2009 progressed, we expect that this business will return to growth in 2010 and continue to be a key driver in the coming decade. Meanwhile, we were pleased that all of our significant orthopaedic implant franchises posted solid worldwide growth.

Last year in this letter, we reported on the status of three Warning Letters from the Food and Drug Administration (FDA) citing deficiencies in our quality systems. We are pleased that one of these letters, regarding our Biotech division, has been lifted. Regrettably, we received an additional Warning Letter in May related to compliance issues for one of our CMF products. We are working diligently to resolve each of these remaining Warning Letters. Foremost among our ongoing efforts is a three-year investment of approximately $200 million in the redesign and execution of our quality system improvement plan. While we are seeking to exceed the FDA’s expectations through this plan, we also believe it will fundamentally make us a stronger company in the years ahead.