Stryker Reports Fourth Quarter and Full Year 2012 Results

Wed Jan 23, 2013 4:01pm EST

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Kalamazoo, Michigan - January 23, 2013 - Stryker Corporation (NYSE:SYK) reported operating results
for the fourth quarter and full year 2012:

Quarter Highlights

*Net sales growth of 5.5% to $2.3 billion 
*(1)Adjusted net earnings increased 11.8% to $436 million 
*(2)Adjusted diluted net earnings per share increased 11.8% to $1.14 
*Reported net earnings decreased 32.7% to $270 million 
*Reported diluted net earnings per share decreased 32.4% to $0.71 

Full Year Highlights

*Net sales growth of 4.2% to $8.7 billion Reconstructive increased 3.1% as reported, 4.4% constant
currency MedSurg increased 3.3% as reported, 4.2% constant currency Neurotechnology and Spine
increased 9.2% as reported, 10.5% constant currency 

*(1)Adjusted net earnings increased 7.7% to $1,560 million 
*(2)Adjusted diluted net earnings per share increased 9.4% to $4.07 
*Reported net earnings decreased 3.5% to $1,298 million 

*Reported diluted net earnings per share decreased 1.7% to $3.39 

"We are pleased with our fourth quarter results and look to build on this momentum in 2013,"
commented Kevin A. Lobo, President and Chief Executive Officer.

Sales Analysis

Consolidated net sales of $2.3 billion and $8.7 billion increased 5.5% and 4.2% in the quarter and
full year over the prior year, respectively.  Net sales in the quarter grew by 7.5% due to
increased unit volume and changes in product mix. Net sales in the quarter were unfavorably
impacted by 1.4% due to changes in price and 0.6% due to the unfavorable impact of foreign
currency exchange rates on net sales. 

Reconstructive net sales of $1,046 million increased 6.7% in the quarter over the prior year, as
reported, and 7.4% in constant currency. Net sales in the quarter grew by 9.8% due to increased
unit volume and changes in product mix. Net sales in the quarter were unfavorably impacted by 2.4%
due to changes in price and 0.7% due to the unfavorable impact of foreign currency exchange rates
on net sales.

MedSurg net sales of $877 million increased 2.4% in the quarter over the prior year, as reported,
and 2.7% in constant currency. Net sales in the quarter grew by 2.2% due to increased unit volume
and changes in product mix and a favorable impact of 0.5% due to changes in price. Net sales in
the quarter were unfavorably impacted by 0.3% due to the unfavorable impact of foreign currency
exchange rates on net sales. 

Neurotechnology and Spine net sales of $414 million increased 9.7% in the quarter over the prior
year, as reported, and 10.8% in constant currency. Net sales in the quarter grew by 13.5% due to
increased unit volume and changes in product mix and 0.1% as a result of acquisitions. Net sales
in the quarter were unfavorably impacted by 2.8% due to changes in price and 1.1% due to the
unfavorable impact of foreign currency exchange rates on net sales.

Earnings Analysis

Reported net earnings in the quarter and full year include a charge of $133 million (net of taxes)
related to the previously disclosed voluntary recall of the Company's Rejuvenate and ABG II
modular-neck hip stems.  Reported net earnings in the quarter and full year also include
restructuring and related charges of $24 million (net of taxes) and $59 million (net of taxes),
respectively, and acquisition and integration related charges of $9 million (net of taxes) and $37
million (net of taxes), respectively, related to acquisitions completed in 2011 and 2012. Reported
net earnings in the full year include a $33 million non-tax deductible charge related to the
previously disclosed OtisKnee matter.  These charges reduced reported gross profit margin in the
fourth quarter from 68.3% to 68.2% and reported operating income margin from 25.3% to 15.8%.

Excluding the charges described above, adjusted net earnings(1) of $436 million and $1,560
increased 11.8% and 7.7% in the quarter and full year over the prior year, respectively. Adjusted
diluted net earnings per share(2) of $1.14 and $4.07 increased 11.8% and 9.4% in the quarter and
full year over the prior year, respectively.

Net earnings of $270 million and $1,298 million decreased 32.7% and 3.5% in the quarter and full
year over the prior year, respectively. Diluted net earnings per share of $0.71 and $3.39
decreased 32.4% and 1.7% in the quarter and full year over the prior year, respectively.

In 2012 Stryker repurchased 2.1 million shares at a cost of $108 million with no share repurchase
activity in the fourth quarter.

2013 Outlook 

For the full year 2013, Stryker is projecting constant currency sales growth in a range of 3.0% to
5.5%.  If foreign currency exchange rates hold near current levels, the Company anticipates net
sales will be negatively impacted by approximately 0% to 1% in both the first quarter and full
year of 2013.  

As previously communicated, the Company projects 2013 adjusted diluted net earnings per
share(2),including the estimated $100 million (pre-tax) annual impact from the medical device
excise tax, to be in a range of $4.25 to $4.40. 

With respect to 2013 quarterly sales and earnings, the Company is highlighting several factors
that are expected to impact the year-over-year growth rates, including:

1the first quarter of 2013 having one to two fewer selling days in key markets compared to 2012,  
2the continued negative impact in the first quarter of 2013 of the previously disclosed Japanese
price reductions that took effect in April of 2012, 
3the continued impact of the recall of the Neptune waste management system that occurred during
the third quarter of 2012, and 
4the adverse year-over-year net earnings comparison in the third quarter as a result of favorable
income tax adjustments in 2012. 

As a result of these factors, the Company projects 2013 adjusted diluted net earnings per share to
be distributed across the year by approximately:

*23% in the first quarter,  
*24% in each of the second and third quarters, and 
*29% in the fourth quarter. 

1A reconciliation of reported net earnings to adjusted net earnings, a non-GAAP financial measure,
and other important information, appears below. 
2A reconciliation of reported diluted net earnings per share to adjusted diluted net earnings per
share, a non-GAAP financial measure, and other important information, appears below. 


Conference Call on Wednesday, January 23, 2013

As previously announced, the Company will host a conference call on Wednesday, January 23, 2013 at
4:30 p.m., Eastern Time, to discuss the Company's operating results for the quarter and year ended
December 31, 2012.

To participate in the conference call dial 800-446-2782 (domestic) or 847-413-3235 (international)
and be prepared to provide confirmation number 34031905 to the operator.

A simultaneous webcast of the call will be accessible via the Company's website at
www.stryker.com. The call will be archived on this site for 90 days.

A recording of the call will also be available from 7:30 p.m., Eastern Time, on Wednesday, January
23, 2013, until 11:59 p.m., Eastern Time, on Wednesday, January 30, 2013. To hear this recording
you may dial 888-843-7419 (domestic) or 630-652-3042 (international) and enter the passcode
34031905#.



Forward-Looking Statements 

This press release contains information that includes or is based on forward-looking statements
within the meaning of the federal securities law that are subject to various risks and
uncertainties that could cause our actual results to differ materially from those expressed or
implied in such statements. Such factors include, but are not limited to: weakening of economic
conditions that could adversely affect the level of demand for our products; pricing pressures
generally, including cost-containment measures that could adversely affect the price of or demand
for our products; changes in foreign exchange markets; legislative and regulatory actions;
unanticipated issues arising in connection with clinical studies and otherwise that affect U.S.
Food and Drug Administration approval of new products; changes in reimbursement levels from
third-party payors; a significant increase in product liability claims; the ultimate total cost
with respect to the Rejuvenate and ABG II matter; the impact of investigative and legal
proceedings and compliance risks; resolution of tax audits; the impact of the federal legislation
to reform the United States healthcare system and the 2.3 percent medical device excise tax;
changes in financial markets; changes in the competitive environment; our ability to integrate
acquisitions, including the acquisition of Trauson Holdings Company Limited; and our ability to
realize anticipated cost savings as a result of workforce reductions and other restructuring
activities. Additional information concerning these and other factors are contained in our filings
with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q.

Stryker is one of the world's leading medical technology companies and is dedicated to helping
healthcare professionals perform their jobs more efficiently while enhancing patient care. We
offer a diverse array of innovative medical technologies, including reconstructive, medical and
surgical, and neurotechnology and spine products to help people lead more active and more
satisfying lives. For more information about Stryker, please visit www.stryker.com. 

For investor inquiries please contact:
Katherine A. Owen, Stryker Corporation, 269-385-2600 or katherine.owen@stryker.com

                                                                 STRYKER CORPORATION                                                                  
                                             (Unaudited - Millions of Dollars, Except Per Share Amounts)                                              
                                                           CONDENSED STATEMENTS OF EARNINGS                                                           
                                                            Fourth Quarter                                   Year Ended December 31                   
                                                     2012             2011          % Change             2012               2011          % Change    
 Net sales                                     $     2,337      $     2,215          5.5          $      8,657       $      8,307          4.2        
 Cost of sales                                         744              740          0.5                 2,781              2,811         (1.1 )      
 GROSS PROFIT                                        1,593            1,475          8.0                 5,876              5,496          6.9        
 % of sales                                           68.2 %           66.6 %                             67.9 %             66.2 %                   
 Research, development & engineering expenses          129              115         12.2                   471                462          1.9        
 Selling general & administrative expenses           1,033              834         23.9                 3,466              3,150         10.0        
 Intangibles amortization                               31               32         (3.1 )                 123                122          0.8        
 Restructuring charges                                  30               76        (60.5 )                  75                 76         (1.3 )      
                                                     1,223            1,057         15.7                 4,135              3,810          8.5        
 OPERATING INCOME                                      370              418        (11.5 )               1,741              1,686          3.3        
 % of sales                                           15.8 %           18.9 %                             20.1 %             20.3 %                   
 Other income (expense)                                (12 )             15       (180.0 )                 (36 )                -            -        
 EARNINGS BEFORE INCOME TAXES                          358              433        (17.3 )               1,705              1,686          1.1        
 Income Taxes                                           88               32        175.0                   407                341         19.4        
 NET EARNINGS                                  $       270      $       401        (32.7 )        $      1,298       $      1,345         (3.5 )      
 Net earnings per share                                                                                                                               
 Basic                                                0.71             1.05        (32.4 )                3.41               3.48         (2.0 )      
 Diluted                                              0.71             1.05        (32.4 )                3.39               3.45         (1.7 )      
 Average shares outstanding                                                                                                                           
 Basic                                               380.3            381.7                              380.6              386.5                     
 Diluted                                             382.7            383.3                              383.0              389.5                     


                            CONDENSED BALANCE SHEETS                             
                                                 December          December      
                                                   2012              2011        
 ASSETS                                                                          
 Cash and cash equivalents                   $      1,395      $        905      
 Marketable securities                              2,890             2,513      
 Accounts receivable (net)                          1,430             1,417      
 Inventories                                        1,265             1,283      
 Other current assets                               1,138             1,093      
 TOTAL CURRENT ASSETS                               8,118             7,211      
 Property, plant and equipment (net)                  948               888      
 Goodwill and other intangibles (net)               3,566             3,514      
 Other assets                                         835               792      
 TOTAL ASSETS                                $     13,467      $     12,405      
 LIABILITIES AND SHAREHOLDERS' EQUITY                                            
 Current liabilities                         $      1,837      $      1,828      
 Other liabilities                                  1,287             1,143      
 Long-term debt                                     1,746             1,751      
 Shareholders' equity                               8,597             7,683      
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $     13,467      $     12,405      


                                                   CONDENSED STATEMENTS OF CASH FLOWS                                                    
                                                                          Fourth Quarter                  Year Ended December 31         
                                                                        2012           2011               2012               2011        
 OPERATING ACTIVITIES                                                                                                                    
 Net earnings                                                      $     270      $     401        $      1,298       $      1,345       
 Depreciation                                                             39             41                 154                160       
 Amortization                                                             83             81                 332                321       
 Restructuring charges                                                    30             76                  75                 76       
 Changes in operating assets and liabilities and other, net              174             28                (202 )             (468 )     
 NET CASH PROVIDED BY OPERATING ACTIVITIES                               596            627               1,657              1,434       
 INVESTING ACTIVITIES                                                                                                                    
 Acquisitions, net of cash acquired                                     (107 )         (144 )              (154 )           (2,066 )     
 Proceeds from sales of property, plant and equipment                      -              -                   -                 67       
 Proceeds from sales of (purchases of) marketable securities, net       (413 )         (172 )              (372 )               90       
 Purchases of property, plant and equipment                              (49 )          (64 )              (210 )             (226 )     
 NET CASH USED IN INVESTING ACTIVITIES                                  (569 )         (380 )              (736 )           (2,135 )     
 FINANCING ACTIVITIES                                                                                                                    
 Borrowings (repayments) of debt, net                                     (6 )          (10 )                (4 )              737       
 Dividends paid                                                          (81 )          (69 )              (324 )             (279 )     
 Repurchase and retirement of common stock                                 -            (83 )              (108 )             (622 )     
 Other                                                                    24             23                 (13 )                3       
 NET CASH USED IN FINANCING ACTIVITIES                                   (63 )         (139 )              (449 )             (161 )     
 Effect of exchange rate changes on cash and cash equivalents              8            (13 )                18                  9       
 CHANGE IN CASH AND CASH EQUIVALENTS                               $     (28 )    $      95        $        490       $       (853 )     


                                                                           STRYKER CORPORATION                                                                            
                                                           For the Three Month and Year Ended December 31, 2012                                                           
                                                                    (Unaudited - Millions of Dollars)                                                                     
                                                                        
CONDENSED SALES ANALYSIS                                                                         
                                                 Fourth Quarter                                                      Year Ended December 31                               
                                                                   % Change                                                                  % Change                     
                                 2012           2011        As Reported     Constant Currency           2012             2011         As Reported     Constant Currency   
 Geographic sales                                                                                                                                                         
 United States              $    1,529     $    1,407         8.7                8.7              $     5,658      $     5,269          7.4                7.4            
 International                     808            808         0.1                1.7                    2,999            3,038         (1.3 )              1.9            
 NET SALES                  $    2,337     $    2,215         5.5                6.1              $     8,657      $     8,307          4.2                5.4            
 Worldwide sales                                                                                                                                                          
 Reconstructive             $    1,046     $      981         6.7                7.4              $     3,823      $     3,710          3.1                4.4            
 MedSurg                           877            857         2.4                2.7                    3,265            3,160          3.3                4.2            
 Neurotechnology and Spine         414            377         9.7               10.8                    1,569            1,437          9.2               10.5            
 NET SALES                  $    2,337     $    2,215         5.5                6.1              $     8,657      $     8,307          4.2                5.4            


 SUPPLEMENTAL SALES GROWTH ANALYSIS                                                                                                                      
                                                                                Fourth Quarter                                                           
                                                                               % Change                                                                  
                                                                                                        U.S.             International                   
                                      2012          2011       As Reported     Constant Currency     As Reported     As Reported     Constant Currency   
 Reconstructive                                                                                                                                          
 Hips                             $     325     $    314         3.6                4.1                7.4            (0.4 )              0.7            
 Knees                                  360          341         5.4                5.7                9.2            (1.5 )             (0.6 )          
 Trauma and Extremities                 278          253        10.2               11.7               26.4            (3.3 )             (0.4 )          
 TOTAL RECONSTRUCTIVE                 1,046          981         6.7                7.4               13.9            (2.2 )             (0.7 )          
 MedSurg                                                                                                                                                 
 Instruments                            330          319         3.5                4.0                5.1               -                1.6            
 Endoscopy                              309          292         6.0                6.3                6.9             4.0                5.0            
 Medical                                185          200        (7.4 )             (7.4 )             (8.6 )          (2.0 )             (2.2 )          
 TOTAL MEDSURG                          877          857         2.4                2.7                2.8             1.2                2.3            
 Neurotechnology and Spine                                                                                                                               
 Spine                                  190          178         6.4                7.2               10.1            (1.2 )              1.1            
 Neurotechnology                        224          199        12.7               14.0               14.6            10.0               13.0            
 TOTAL NEUROTECHNOLOGY AND SPINE        414          377         9.7               10.8               12.3             5.4                8.2            


                                                                               Year Ended December 31                                                         
                                                                                    % Change                                                                  
                                                                                                             U.S.             International                   
                                       2012            2011         As Reported     Constant Currency     As Reported     As Reported     Constant Currency   
 Reconstructive                                                                                                                                               
 Hips                             $     1,233     $     1,228         0.4                1.5                5.2            (4.5 )             (2.3 )          
 Knees                                  1,356           1,316         3.0                4.0                6.0            (2.4 )              0.4            
 Trauma and Extremities                   989             931         6.2                8.4               18.0            (3.5 )              0.4            
 TOTAL RECONSTRUCTIVE                   3,823           3,710         3.1                4.4                9.2            (4.3 )             (1.4 )          
 MedSurg                                                                                                                                                      
 Instruments                            1,261           1,187         6.2                7.3                9.1            (0.4 )              3.1            
 Endoscopy                              1,111           1,080         2.9                3.9                2.6             3.7                7.1            
 Medical                                  691             722        (4.3 )             (3.7 )             (7.8 )          11.1               14.8            
 TOTAL MEDSURG                          3,265           3,160         3.3                4.2                3.4             3.0                6.5            
 Neurotechnology and Spine                                                                                                                                    
 Spine                                    727             687         5.8                6.9                9.2            (1.7 )              1.7            
 Neurotechnology                          842             750        12.3               13.9               19.0             3.9                7.6            
 TOTAL NEUROTECHNOLOGY AND SPINE        1,569           1,437         9.2               10.5               13.8             1.7                5.3            


SUPPLEMENTAL INFORMATION -  CONDENSED STATEMENTS OF EARNINGS RECONCILIATION OF GAAP TO NON-GAAP
FINANCIAL MEASURES

We supplement the reporting of our financial information determined under GAAP with certain
non-GAAP financial measures, including percentage sales growth in constant currency, adjusted net
earnings and adjusted diluted net earnings per share. We believe that these non-GAAP measures
provide meaningful information to assist investors and shareholders in understanding our financial
results and assessing our prospects for future performance. Management believes percentage sales
growth in constant currency, adjusted net earnings and adjusted net earnings per diluted share are
important indicators of our operations because they exclude items that may not be indicative of or
are unrelated to our core operating results and provide a baseline for analyzing trends in our
underlying businesses. Management uses these non-GAAP financial measures for reviewing the
operating results of reportable business segments, and for analyzing potential future business
trends in connection with our budget process and bases certain annual bonus plans on these
non-GAAP financial measures. To measure percentage sales growth in constant currency, we remove
the impact of changes in foreign currency exchange rates that affect the comparability and trend
of sales. Percentage sales growth in constant currency is calculated by translating current year
results at prior year average foreign currency exchange rates. To measure earnings performance on
a consistent and comparable basis, we exclude certain items that affect the comparability of
operating results and the trend of earnings. Because non-GAAP financial measures are not
standardized, it may not be possible to compare these financial measures with other companies'
non-GAAP financial measures having the same or similar names. These adjusted financial measures
should not be considered in isolation or as a substitute for reported sales growth, net earnings
and diluted net earnings per share, the most directly comparable GAAP financial measures. These
non-GAAP financial measures are an additional way of viewing aspects of our operations that, when
viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures
below, provide a more complete understanding of our business. We strongly encourage investors and
shareholders to review our financial statements and publicly-filed reports in their entirety and
not to rely on any single financial measure.

The following reconciles the non-GAAP financial measures, adjusted net earnings and adjusted
diluted net earnings per share, with the most directly comparable GAAP financial measures,
reported net earnings and diluted net earnings per share:

                                                                          STRYKER CORPORATION                                                                          
                                                         For the Three Month and Year Ended December 31, 2012                                                          
                                                      (Unaudited - Millions of Dollars, Except Per Share Amounts)                                                      
                                                       
RECONCILIATION OF NET EARNINGS TO ADJUSTED NET EARNINGS                                                        
                                                                              Fourth Quarter                                 Year Ended December 31                    
                                                          Notes         2012           2011         % Change             2012               2011           % Change    
 NET EARNINGS                                                      $     270      $     401        (32.7 )        $      1,298       $      1,345          (3.5 )      
 Acquisition and integration related charges, net of tax   (a)                                                                                                         
 Inventory "step up" to fair value                                         2             12        (83.3 )                  13                 97         (86.6 )      
 Acquisition and integration related                                       7             16        (56.3 )                  24                 45         (46.7 )      
 Restructuring and related charges                         (b)            24             60        (60.0 )                  59                 60          (1.7 )      
 Uncertain income tax position adjustments                 (c)             -            (99 )     (100.0 )                   -                (99 )      (100.0 )      
 OtisKnee matter                                           (d)             -              -            -                    33                  -             -        
 Rejuvenate and ABGII recall                               (e)           133              -            -                   133                  -             -        
 ADJUSTED NET EARNINGS                                             $     436      $     390         11.8          $      1,560       $      1,448           7.7        


 RECONCILIATION OF DILUTED NET EARNINGS PER SHARE TO ADJUSTED DILUTED NET EARNINGS PER SHARE                                                                           
                                                                               Fourth Quarter                                 Year Ended December 31                   
                                                          Notes         2012            2011          % Change            2012              2011           % Change    
 DILUTED NET EARNINGS PER SHARE                                    $     0.71      $     1.05        (32.4 )        $      3.39       $      3.45          (1.7 )      
 Acquisition and integration related charges, net of tax   (a)                                                                                                         
 Inventory "step up" to fair value                                          -            0.03       (100.0 )               0.03              0.25         (88.0 )      
 Acquisition and integration related                                     0.02            0.04        (50.0 )               0.06              0.12         (50.0 )      
 Restructuring and related charges                         (b)           0.06            0.16        (62.5 )               0.15              0.16          (6.3 )      
 Uncertain income tax position adjustments                 (c)              -           (0.26 )     (100.0 )                  -             (0.26 )      (100.0 )      
 OtisKnee matter                                           (d)              -               -            -                 0.09                 -             -        
 Rejuvenate and ABGII recall                               (e)           0.35               -            -                 0.35                 -             -        
 ADJUSTED DILUTED NET EARNINGS PER SHARE                           $     1.14      $     1.02         11.8          $      4.07       $      3.72           9.4        


 (a)  The Company has incurred and will incur certain acquisition and integration related charges in connection with the acquisition of Surpass Medical, Ltd. in 2012 and of the Neurovascular division of Boston Scientific Corporation, Orthovita, Inc., Memometal Technologies S.A., and Concentric Medical,Inc. in 2011.                                                                                               
 (b)  In 2011 the Company announced focused workforce reductions and other restructuring activities and has incurred and will continue to incur certain restructuring and related charges.                                                                                                                                                                                                                                 
 (c)  In 2011 the Company reached a settlement with the United States Internal Revenue Service regarding a proposed adjustment and recorded charges for other uncertain income tax positions.                                                                                                                                                                                                                              
 (d)  In 2012 the Company announced entering into discussions with the DOJ regarding the settlement of the allegations of violations of Federal law related to sales of the OtisKnee device not cleared by the United States Food and Drug Administration. The Company recorded a non-tax deductible charge representing the Company's best estimate of the minimum of the range of probable loss to resolve this matter.  
 (e)  In the fourth quarter of 2012 the Company recorded a charge representing the Company's best estimate of the minimum of the range of probable loss to resolve the previously disclosed voluntarily recall of its Rejuvenate and ABG II modular-neck hip stems over previously recorded reserves.                                                                                                                      



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