Stryker Reports Fourth Quarter and Full Year 2012 Results
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
* Reconstructive increased 6.7% as reported, 7.4% constant currency
* MedSurg increased 2.4% as reported, 2.7% constant currency
* Neurotechnology and Spine increased 9.7% as reported, 10.8% constant
currency
* Adjusted net earnings((1)) increased 11.8% to $436 million
* Adjusted diluted net earnings per share((2)) 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
1. Reconstructive increased 3.1% as reported, 4.4% constant currency
2. MedSurg increased 3.3% as reported, 4.2% constant currency
3. Neurotechnology and Spine increased 9.2% as reported, 10.5% constant
currency
* Adjusted net earnings((1)) increased 7.7% to $1,560 million
* Adjusted diluted net earnings per share((2)) 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:
1. the first quarter of 2013 having one to two fewer selling days in key
markets compared to 2012,
2. the continued negative impact in the first quarter of 2013 of the previously
disclosed Japanese price reductions that took effect in April of 2012,
3. the continued impact of the recall of the Neptune waste management system
that occurred during the third quarter of 2012, and
4. the 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.
1. A reconciliation of reported net earnings to adjusted net earnings, a non-
GAAP financial measure, and other important information, appears below.
2. A 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
Year Ended December
Fourth Quarter 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
------------------- ------------------
As Constant As Constant
2012 2011 Reported Currency 2012 2011 Reported 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
----------------------------
As Constant As As Constant
2012 2011 Reported Currency Reported Reported 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
---------------------------
As Constant As As Constant
2012 2011 Reported Currency Reported Reported 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.
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Stryker Corporation via Thomson Reuters ONE
[HUG#1672624]
Press Release $SYK Stryker Corporation
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 * Reconstructive increased 6.7% as reported, 7.4% constant currency * MedSurg increased 2.4% as reported, 2.7% constant currency * Neurotechnology and Spine increased 9.7% as reported, 10.8% constant currency * Adjusted net earnings((1)) increased 11.8% to $436 million * Adjusted diluted net earnings per share((2)) 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 1. Reconstructive increased 3.1% as reported, 4.4% constant currency 2. MedSurg increased 3.3% as reported, 4.2% constant currency 3. Neurotechnology and Spine increased 9.2% as reported, 10.5% constant currency * Adjusted net earnings((1)) increased 7.7% to $1,560 million * Adjusted diluted net earnings per share((2)) 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: 1. the first quarter of 2013 having one to two fewer selling days in key markets compared to 2012, 2. the continued negative impact in the first quarter of 2013 of the previously disclosed Japanese price reductions that took effect in April of 2012, 3. the continued impact of the recall of the Neptune waste management system that occurred during the third quarter of 2012, and 4. the 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. 1. A reconciliation of reported net earnings to adjusted net earnings, a non- GAAP financial measure, and other important information, appears below. 2. A 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 Year Ended December Fourth Quarter 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 ------------------- ------------------ As Constant As Constant 2012 2011 Reported Currency 2012 2011 Reported 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 ---------------------------- As Constant As As Constant 2012 2011 Reported Currency Reported Reported 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 --------------------------- As Constant As As Constant 2012 2011 Reported Currency Reported Reported 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. This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Stryker Corporation via Thomson Reuters ONE [HUG#1672624]