Stryker Operating Results for Quarter Ended June 30, 2006

KALAMAZOO, Mich., July 20 /PRNewswire-FirstCall/ -- Stryker Corporation reported operating results for the quarter ended June 30, 2006 as follows:

Second Quarter Highlights * Net sales increased 9.0% (9.4% constant currency) to $1,328 million * Orthopaedic Implant sales increased 6.6% (7.3% constant currency) * MedSurg Equipment sales increased 14.5% (14.4% constant currency) * Net earnings increased 20.3% to $214 million * Diluted net earnings per share increased 20.9% to $.52 * 2006 and 2005 include additional compensation expense of $14.2 million and $10.1 million, respectively, to reflect the expensing of stock option compensation

"We once again delivered on our commitments in the quarter, including strong net earnings growth and the continuing turnaround of our U.S. Orthopaedics division, which reported its third straight quarter of sequentially improved sales growth," commented Stephen P. MacMillan, President and Chief Executive Officer. "We were also particularly pleased by very strong MedSurg growth overseas, which helped offset softer International implant sales growth."

Net sales were $1,327.9 million for the second quarter of 2006, representing a 9.0% increase over net sales of $1,218.6 million in the second quarter of 2005, and $2,648.8 million for the first half of 2006, representing a 9.4% increase over net sales of $2,421.1 million for the first half of 2005. Excluding the impact of foreign currency, net sales increased 9.4% for the second quarter and 10.8% for the first half.

The second quarter and first half results reflect the adoption of Financial Accounting Standards Board (FASB) Statement No. 123R, Share-Based Payment, which requires companies to recognize the cost of stock options as compensation expense. The Company adopted the Statement using the modified- retrospective transition method, under which all prior period amounts have been restated on a consistent basis. As a result of adopting Statement No. 123R, the Company recognized additional compensation expense of $14.2 million and $10.1 million in the second quarter of 2006 and 2005, respectively, and $29.0 million and $19.9 million in the first half of 2006 and 2005, respectively.

Net earnings for the second quarter of 2006 were $213.9 million, representing a 20.3% increase over net earnings of $177.8 million for the second quarter of 2005. Diluted net earnings per share for the second quarter of 2006 increased 20.9% to $.52 compared to $.43 in the second quarter of 2005.

The Company's net earnings for the first half of 2006 were reduced by a $52.7 million charge in the first quarter to write off purchased in-process research and development associated with the acquisition of Sightline Technologies, Ltd. (Sightline).

Excluding the impact of the $52.7 million charge to write off purchased in-process research and development, adjusted net earnings for the first half of 2006 were $414.1 million, representing a 20.2% increase over net earnings of $344.5 million for the first half of 2005, and adjusted diluted net earnings per share for the first half of 2006 were $1.01, representing a 20.2% increase over diluted net earnings per share of $.84 for the first half of 2005.

Reported net earnings for the first half of 2006 were $361.4 million, representing a 4.9% increase over net earnings of $344.5 million in the first half of 2005. Reported diluted net earnings per share for the first half of 2006 increased 4.8% to $.88 compared to $.84 in the first half of 2005.

Sales Analysis

Domestic sales were $864.0 million for the second quarter and $1,731.9 million for the first half of 2006, representing increases of 10.2% and 11.1%, respectively, as a result of higher shipments of Orthopaedic Implants and MedSurg Equipment.

International sales were $463.9 million for the second quarter and $916.9 million for the first half of 2006, representing increases of 6.8% and 6.3%, respectively, as a result of higher shipments of Orthopaedic Implants and MedSurg Equipment. The impact of foreign currency comparisons to the Dollar value of international sales was unfavorable by $4.9 million in the second quarter and by $34.8 million in the first half of 2006. Excluding the impact of foreign currency, international sales increased 7.9% in the second quarter and 10.4% in the first half of 2006.

Worldwide sales of Orthopaedic Implants were $771.1 million for the second quarter and $1,534.7 million for the first half of 2006, representing increases of 6.6% and 6.8%, respectively, based on higher shipments of reconstructive (hip, knee and shoulder), trauma, spinal and craniomaxillofacial implant systems; bone cement; and the bone growth factor OP-1. Excluding the impact of foreign currency, sales of Orthopaedic Implants increased 7.3% in the second quarter and 8.9% in the first half of 2006.

Worldwide sales of MedSurg Equipment were $490.7 million for the second quarter and $981.0 million for the first half of 2006, representing increases of 14.5% and 15.0%, respectively, based on higher shipments of surgical equipment; surgical navigation systems; endoscopic, communications and digital imaging systems; as well as patient handling and emergency medical equipment. Excluding the impact of foreign currency, sales of MedSurg Equipment increased 14.4% in the second quarter and 15.5% in the first half of 2006.

Physical Therapy Services revenues were $66.1 million for the second quarter and $133.1 million for the first half of 2006, representing a decrease of 0.5% and an increase of 1.2%, respectively.

Income Tax Rate

The Company's effective income tax rates for the second quarter and first half of 2006 were 27.9% and 31.0%, respectively, as compared to effective income tax rates for the second quarter, first half and year ended December 31, 2005 of 29.2%, 29.3% and 32.6%, respectively. The effective income tax rate for the first half of 2006 reflects the impact of the non-deductibility for income tax purposes of the purchased in-process research and development charge associated with the acquisition of Sightline. The effective income tax rate, excluding the effect of the Sightline acquisition, for the first half of 2006 was reduced from 28.5% to 28.2% in the second quarter of 2006, thereby reducing income tax expense by $1.8 million. The income tax rate reduction results primarily from increased manufacturing in lower tax jurisdictions and a favorable change in U.S. tax legislation enacted during the second quarter. The effective income tax rates for the 2005 periods have been restated to reflect the adoption of FASB Statement No. 123R. The effective income tax rate for the year ended December 31, 2005 also reflects the non-deductibility for income tax purposes of the purchased in-process research and development charge associated with the acquisition of PlasmaSol Corp. as well as the third and fourth quarter 2005 income taxes associated with the repatriation of foreign earnings under the provisions of the American Jobs Creation Act.

Outlook for 2006

The Company's outlook for 2006 continues to be optimistic regarding underlying growth rates in orthopaedic procedures and the Company's broadly based range of products in orthopaedics and other medical specialties, despite the potential for increased pricing pressure on Orthopaedic Implants products in the United States, Japan and certain other foreign markets. The Company projects adjusted diluted net earnings per share for 2006 of $2.02, excluding the impact of the charge to write off purchased in-process research and development associated with the acquisition of Sightline during the first quarter of 2006. The projection represents a 21.0% increase over adjusted restated diluted net earnings per share of $1.67 in 2005.

The financial forecast for 2006 includes a net sales increase in the range of 11% to 13% as a result of growth in shipments of Orthopaedic Implants and MedSurg Equipment and higher revenue from Physical Therapy Services, offset by unfavorable foreign currency exchange rate movements. If foreign currency exchange rates hold near recent levels, the Company does not expect a significant impact on net sales in the third quarter and anticipates an unfavorable impact of 0% to 1% for the full year of 2006. Excluding the effect of foreign currency exchange rates, the Company expects annual net sales growth in the range of 11% to 13% in 2006, which is comparable to the 11% sales growth, excluding the effect of foreign currency exchange rates, reported for the first half of 2006.

Conference Call

As previously announced, the Company will conduct a conference call for financial analysts at 5:00 p.m., Eastern Time, today. To hear the conference call, dial 800/725-9961. A simultaneous webcast of the call may be accessed via the Company's website at http://www.stryker.com/. The call will be archived on this site for 90 days. A recording of the call will also be available from 7:00 p.m., Eastern Time, today until 7:00 p.m. on Saturday, July 22, 2006. To hear this recording dial 800/633-8284 (domestic) or 402/977-9140 (international) and enter the registration number 21279877.

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 the Company's actual results to differ materially from those expressed or implied in such statements. Such factors include, but are not limited to: pricing pressures generally, including cost-containment measures that could adversely affect the price of or demand for the Company's products; regulatory actions; unanticipated issues arising in connection with clinical studies and eventual United States Food and Drug Administration approval of additional OP-1 applications, the FlexiCore and CerviCore spinal implant products or other new product introductions; integration and other issues that could delay the introduction of the recently acquired Sightline product line; changes in reimbursement levels from third-party payors; a significant increase in product liability claims; changes in economic conditions that adversely affect the level of demand for the Company's products; changes in foreign exchange markets; changes in financial markets; and changes in the competitive environment. Additional information concerning these and other factors are contained in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Stryker Corporation is one of the world's leading medical technology companies with the most broadly based range of products in orthopaedics and a significant presence in other medical specialties. Stryker works with respected medical professionals to help people lead more active and more satisfying lives. The Company's products include implants used in joint replacement, trauma, craniomaxillofacial and spinal surgeries; biologics; surgical, neurologic, ear, nose & throat and interventional pain equipment; endoscopic, surgical navigation, communications and digital imaging systems; as well as patient handling and emergency medical equipment. Stryker also provides outpatient physical therapy services in the United States.

STRYKER CORPORATION For the Three Month and Six Month Periods Ended June 30, 2006 (Unaudited - In Millions Except Per Share Amounts) Second Quarter Six Months CONDENSED STATEMENTS % % OF EARNINGS (1) 2006 2005 Change 2006 2005 Change Net sales $1,327.9 $1,218.6 9.0 $2,648.8 $2,421.1 9.4 Cost of sales 452.5 423.1 6.9 905.4 853.1 6.1 GROSS PROFIT 875.4 795.5 10.0 1,743.4 1,568.0 11.2 % of Sales 65.9 65.3 65.8 64.8 Research, development and engineering expenses 75.9 67.0 13.3 153.0 128.6 19.0 Selling, general and administrative expenses 497.0 465.6 6.7 1,002.7 923.7 8.6 Intangibles amortization 10.6 11.4 (7.0) 21.0 27.8 (24.5) Purchased in-process research and development - - -- 52.7 - -- 583.5 544.0 7.3 1,229.4 1,080.1 13.8 OPERATING INCOME 291.9 251.5 16.1 514.0 487.9 5.3 % of Sales 22.0 20.6 19.4 20.2 Other income (expense) 4.7 (0.2) -- 9.9 (0.8) -- EARNINGS BEFORE INCOME TAXES 296.6 251.3 18.0 523.9 487.1 7.6 Income taxes 82.7 73.5 12.5 162.5 142.6 14.0 NET EARNINGS $213.9 $177.8 20.3 $361.4 $344.5 4.9 Net Earnings Per Share Basic $0.53 $0.44 20.5 $0.89 $0.85 4.7 Diluted $0.52 $0.43 20.9 $0.88 $0.84 4.8 Average Shares Outstanding Basic 406.4 403.3 406.0 403.1 Diluted 410.7 410.5 411.0 410.7 RECONCILIATION OF REPORTED NET EARNINGS TO ADJUSTED NET EARNINGS Six Months 2006 2005 % Change NET EARNINGS Reported net earnings $361.4 $344.5 4.9 Purchased in-process research and development 52.7 - -- Adjusted net earnings $414.1 $344.5 20.2 DILUTED NET EARNINGS PER SHARE Reported diluted net earnings per share $0.88 $0.84 4.8 Purchased in-process research and development $0.13 $- -- Adjusted diluted net earnings per share $1.01 $0.84 20.2 (1) On January 1, 2006, the Company adopted Financial Accounting Standards Board Statement No. 123R using the modified-retrospective transition method, under which all prior period amounts have been restated on a consistent basis. STRYKER CORPORATION For the Three Month and Six Month Periods Ended June 30, 2006 (Unaudited - In Millions) Second Quarter % Change Constant CONDENSED SALES ANALYSIS 2006 2005 Reported Currency Domestic $864.0 $784.1 10.2 10.2 International 463.9 434.5 6.8 7.9 NET SALES $1,327.9 $1,218.6 9.0 9.4 Orthopaedic Implants $771.1 $723.5 6.6 7.3 MedSurg Equipment 490.7 428.7 14.5 14.4 Physical Therapy Services 66.1 66.4 (0.5) (0.5) NET SALES $1,327.9 $1,218.6 9.0 9.4 STRYKER CORPORATION For the Three Month and Six Month Periods Ended June 30, 2006 (Unaudited - In Millions) Six Months % Change Constant CONDENSED SALES ANALYSIS 2006 2005 Reported Currency Domestic $1,731.9 $1,558.8 11.1 11.1 International 916.9 862.3 6.3 10.4 NET SALES $2,648.8 $2,421.1 9.4 10.8 Orthopaedic Implants $1,534.7 $1,436.5 6.8 8.9 MedSurg Equipment 981.0 853.1 15.0 15.5 Physical Therapy Services 133.1 131.5 1.2 1.2 NET SALES $2,648.8 $2,421.1 9.4 10.8 STRYKER CORPORATION (Unaudited - In Millions) June 30 December 31 CONDENSED BALANCE SHEETS (1) 2006 2005 ASSETS Cash and cash equivalents $129.7 $491.2 Marketable securities 738.0 565.3 Accounts receivable (net) 842.1 770.3 Inventories 644.1 563.5 Other current assets 508.3 479.8 TOTAL CURRENT ASSETS 2,862.2 2,870.1 Property, Plant and Equipment (net) 892.1 831.0 Goodwill and Other Intangibles (net) 928.8 922.9 Other Assets 425.9 368.5 TOTAL ASSETS $5,109.0 $4,992.5 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities $1,058.0 $1,248.8 Long-Term Debt 0.7 184.2 Other Liabilities 281.2 259.3 Shareholders' Equity 3,769.1 3,300.2 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,109.0 $4,992.5 (1) On January 1, 2006, the Company adopted Financial Accounting Standards Board Statement No. 123R using the modified-retrospective transition method, under which all prior period amounts have been restated on a consistent basis. STRYKER CORPORATION For the Three Month and Six Month Periods Ended June 30, 2006 (Unaudited - In Millions) Second Quarter Six Months CONDENSED STATEMENTS OF CASH FLOWS (1) 2006 2005 2006 2005 OPERATING ACTIVITIES Net earnings $213.9 $177.8 $361.4 $344.5 Depreciation 30.4 26.4 59.1 53.5 Amortization 51.5 43.0 100.6 89.8 Purchased in-process research and development - - 52.7 - Changes in working capital and other (100.0) (65.0) (357.3) (279.2) NET CASH PROVIDED BY OPERATING ACTIVITIES 195.8 182.2 216.5 208.6 INVESTING ACTIVITIES Acquisitions, net of cash acquired (31.9) (3.0) (79.3) (53.1) Purchases of marketable securities, net (62.3) (212.9) (172.7) (212.9) Purchases of property, plant and equipment (52.3) (71.1) (104.2) (116.4) Proceeds from sales of property, plant and equipment 0.1 0.2 0.2 0.4 NET CASH USED IN INVESTING ACTIVITIES (146.4) (286.8) (356.0) (382.0) FINANCING ACTIVITIES Borrowings (repayments) of debt, net (128.7) 0.2 (226.8) 0.2 Dividends paid - - (44.6) (36.2) Other 8.1 (6.4) 46.3 (4.9) NET CASH USED IN FINANCING ACTIVITIES (120.6) (6.2) (225.1) (40.9) Effect of exchange rate changes on cash and cash equivalents 2.5 (15.5) 3.1 (16.7) CHANGE IN CASH AND CASH EQUIVALENTS $(68.7) $(126.3) $(361.5) $(231.0) (1) On January 1, 2006, the Company adopted Financial Accounting Standards Board Statement No. 123R using the modified-retrospective transition method, under which all prior period amounts have been restated on a consistent basis.