Stryker (SYK) 10-Q 29 Apr 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Trading Symbol	SYK
Entity Registrant Name	STRYKER CORP
Entity Central Index Key	0000310764
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding	396,698,933

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Millions	Mar. 31, 2010	Dec. 31, 2009
Current Assets
Cash and cash equivalents	1202.5	658.7
Marketable securities	2735.1	2296.1
Accounts receivable, less allowance of $66.9 ($66.3 in 2009)	1120.6	1147.1
Inventories	961	943
Deferred income taxes	616.8	602.2
Prepaid expenses and other current assets	239.4	204.1
Total current assets	6875.4	5851.2
Property, Plant and Equipment, less allowance for depreciation of $1,043.0 ($1,016.1 in 2009)	925	947.6
Other Assets
Goodwill	951.2	956.8
Other intangibles, less accumulated amortization of $429.4 ($421.0 in 2009)	666.3	634.7
Loaner instrumentation, less accumulated amortization of $704.1 ($771.3 in 2009)	290	285.4
Deferred income taxes	254.7	258.9
Other	135.8	136.7
Total assets	10098.4	9071.3
Current Liabilities
Accounts payable	230.7	200.2
Accrued compensation	250	354.1
Income taxes	166	134.7
Dividend payable	59.5	59.7
Accrued expenses and other liabilities	671	674.3
Current maturities of debt	27.6	18
Total current liabilities	1404.8	1,441
Long-term debt	996.2
Other Liabilities	1026.6	1035.2
Shareholders' Equity
Common stock, $.10 par value: Authorized - 1,000.0 shares Outstanding 396.7 shares (397.9 in 2009)	39.7	39.8
Additional paid-in capital	925.4	899.9
Retained earnings	5553.7	5397.4
Accumulated other comprehensive gain	152	258
Total shareholders' equity	6670.8	6595.1
Total liabilities & shareholders' equity	10098.4	9071.3

1_CONDENSED CONSOLIDATED BALANC

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Per Share data	Mar. 31, 2010	Dec. 31, 2009
Accounts receivable, allowance	66.9	66.3
Property, Plant and Equipment, allowance for depreciation	1,043	1016.1
Other intangibles, accumulated amortization	429.4	421
Loaner instrumentation, accumulated amortization	704.1	771.3
Common stock, par value	0.1	0.1
Common stock, Authorized	1,000	1,000
Common stock, Outstanding	396.7	397.9

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Net sales	1799.1	1601.3
Cost of sales	581.4	515.5
Gross profit	1217.7	1085.8
Research, development and engineering expenses	90	80.4
Selling, general and administrative expenses	667.8	616.6
Intangibles amortization	13.5	9.6
Operating Expenses, Total	771.3	706.6
Operating income	446.4	379.2
Other income (expense)	-0.6	7.2
Earnings before income taxes	445.8	386.4
Income taxes	124.1	105.3
Net earnings	321.7	281.1
Net earnings per share:
Basic	0.81	0.71
Diluted	0.8	0.71
Weighted-average outstanding shares for the period:
Basic	397.2	396.7
Diluted	400.1	398.6

2_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (USD $)
In Millions	Common stock	Additional Paid-In Capital	Retained earnings		Accumulated Other Comprehensive Gain (Loss)	Total
Beginning Balances at Dec. 31, 2009	39.8	899.9	5397.4		$258	6595.1
Net earnings			321.7			321.7
Unrealized gains on securities, net of income taxes					3.7	3.7
Unfunded pension gains, net of income taxes					0.6	0.6
Foreign currency translation adjustments					-110.3	-110.3
Comprehensive earnings for the three months ended						215.7
Issuance of 0.9 shares of common stock under stock option and benefit plans, including $9.0 excess income tax benefit	0.1	11.7				11.8
Repurchase and retirement of 2.1 shares of common stock	-0.2	(5)	-105.9			-111.1
Share-based compensation		18.8				18.8
Cash dividends declared of $0.15 per share of common stock			-59.5	[1]		-59.5
Ending Balances at Mar. 31, 2010	39.7	925.4	5553.7		$152	6670.8
[1]In February 2010 the Company declared a quarterly dividend of $0.15 per share payable April 30, 2010 to shareholders of record at the close of business on March 30, 2010.

3_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Parenthetical) (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010
Issuance of common stock under stock option and benefit plans, shares	0.9
Issuance of common stock under stock option and benefit plans, excess income tax benefit	$9
Repurchase and retirement common stock, shares	2.1
Cash dividends declared, per share of common stock	0.15
Retained earnings
Dividend payable date	2010-04-30
Dividend record date	2010-03-30

4_CONDENSED CONSOLIDATED STATEM

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Operating Activities
Net earnings	321.7	281.1
Adjustments to reconcile net earnings from operations to net cash provided by operating activities:
Depreciation	40.8	37.9
Amortization	58.4	53.8
Share-based compensation	18.8	16.7
Income tax benefit from exercise of stock options	14.9	4.2
Excess income tax benefit from exercise of stock options	(9)	-2.7
Other	2.5	2.6
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	9.2	53.5
Inventories	-30.1	-51.8
Loaner instrumentation	-52.1	-43.9
Accounts payable	33.1	2.5
Accrued expenses and other liabilities	-109.7	-170.3
Income taxes	14.5	116.2
Other	-38.2	-27.4
Net cash provided by operating activities	274.8	272.4
Investing Activities
Acquisitions, net of cash acquired	-57.4	-2.6
Purchases of marketable securities	-1041.2	-1198.6
Proceeds from sales of marketable securities	524.3	1100.4
Purchases of property, plant and equipment	-31.1	-30.6
Proceeds from sales of property, plant and equipment		0.7
Net cash used in investing activities	-605.4	-130.7
Financing Activities
Proceeds from borrowings	17.3	10.5
Payments on borrowings	-7.1	-9.6
Proceeds from issuance of long-term debt, net	996.1
Issuance cost of long-term debt	-10.5
Dividends paid	-59.7	-158.6
Proceeds from exercise of stock options	1.3	1.3
Repurchase and retirement of common stock	-111.1
Excess income tax benefit from exercise of stock options	9	2.7
Other	62.7	20
Net cash provided by (used in) financing activities	898	-133.7
Effect of exchange rate changes on cash and cash equivalents	-23.6	-23.3
Increase (decrease) in cash and cash equivalents	543.8	-15.3

BASIS OF PRESENTATION

BASIS OF PRESENTATION
	3 Months Ended Mar. 31, 2010
BASIS OF PRESENTATION	NOTE 1 BASIS OF PRESENTATION The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three-month period ended March31, 2010 are not necessarily indicative of the results that may be expected for the year ended December31, 2010. The balance sheet at December31, 2009 has been derived from the audited Consolidated Financial Statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Recently Adopted Accounting Standards: The Company adopted the provisions of the Improvement to Financial Reporting by Enterprises Involved with Variable Interest Entities Topic of the Financial Accounting Standard Board (FASB) Accounting Standard Codification (Codification) on January1, 2010. The topic requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (VIE), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. There was no impact to the Condensed Consolidated Financial Statements as a result of the adoption of this topic of the FASB Codification. The Company adopted the provisions of the Fair Value Measurements and Disclosures Topic Improving Disclosures About Fair Value Measurements of the FASB Codification on January1, 2010. This topic requires companies to make new disclosures about recurring and nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements, and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The enhanced disclosures about recurring and nonrecurring fair value measurements are included in Note 2 to the Condensed Consolidated Financial Statements. Recently Issued Accounting Standards: In 2009 the FASB amended the provisions of the Revenue Recognition for Multiple-Deliverable Revenue Arrangements Topic of the FASB Codification. This topic amends prior guidance and requires an entity to apply the relative selling price allocation method in order to estimate the selling price for all units of accounting, including delivered items, when vendor-specific objective evidence or acceptable third-party evidence does not exist. These provisions are effective for revenue arrangements entered into or which contain material modifications in fiscal years beginning on or after June15, 2010, applied prospectively. The Company is currently reviewing the effect of this new topic on its Condensed Consolidated Financial Statements.

FINANCIAL INSTRUMENTS

FINANCIAL INSTRUMENTS
	3 Months Ended Mar. 31, 2010
FINANCIAL INSTRUMENTS	NOTE 2 FINANCIAL INSTRUMENTS The Companys financial instruments consist of cash, cash equivalents, marketable securities, accounts receivable, other investments, accounts payable, debt and foreign currency exchange contracts. The Companys estimates of fair value for financial instruments approximate their carrying amounts as of March31, 2010 and December31, 2009. Pursuant to the requirements of Fair Value Measurements and Disclosures Topic of the FASB Codification, the Companys financial assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories: Level1: Financial instruments with unadjusted, quoted prices listed on active market exchanges. Level2: Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over-the-counter traded financial instruments. The prices for the financial instruments are determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3: Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument.The prices are determined using significant unobservable inputs or valuation techniques. The following describes the methods the Company uses to estimate the fair value of the Companys financial assets and liabilities: Cash and cash equivalents: The Company considers the carrying values of these financial instruments to approximate fair value because of the short period of time between origination of the instruments and their expected realization. Available-for-sale marketable securities: The Companys Level 2 available-for-sale marketable securities primarily include U.S. government and agency securities, foreign government debt securities, asset-backed debt securities, commercial paper, corporate debt securities, and certificates of deposit. The Companys Level 2 available-for-sale marketable securities values are determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. The Companys Level 3 available-for-sale marketable securities include corporate debt securities. The Companys Level 3 available-for-sale marketable securities valuations are based on the income approach, specifically, discounted cash flow analyses that utilize significant inputs based on the Companys estimates and assumptions. Using this approach, estimates for timing and amount of cash flows and expected holding periods of the securities were used and the expected future cash flows were calculated over the expected life of each security and were discounted to a single present value using an estimated market required rate of return. Trading marketable securities and Auction Rate Securities (ARS) Rights: The Com

DERIVATIVE INSTRUMENTS AND HEDG

DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES
	3 Months Ended Mar. 31, 2010
DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES	NOTE 3 DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES The Company follows the provisions of the Derivatives and Hedging Topic of the FASB Codification, which requires the Company to recognize all derivatives on the Condensed Consolidated Balance Sheets at fair value. The Company enters into forward currency exchange contracts to mitigate the impact of currency fluctuations on transactions denominated in nonfunctional currencies, thereby limiting risk to the Company that would otherwise result from changes in exchange rates. These currency exposures principally relate to intercompany receivables and payables arising from intercompany purchases of manufactured products. The duration of the forward currency exchange contracts corresponds to the anticipated period the intercompany receivables and payables remain outstanding. The Company does not designate these contracts as hedges; therefore, all forward currency exchange contracts are recorded at their fair value each period, with resulting gains and losses included in other income (expense) in the Condensed Consolidated Statements of Earnings as an offset to the gains and losses recognized on the intercompany receivables and payables. For the three months ended March31, 2010, recognized foreign currency transaction gains included in other income (expense) in the Condensed Consolidated Statements of Earnings was $1.3 million. For the three months ended March31, 2009, recognized foreign currency transaction losses included in other income (expense) in the Condensed Consolidated Statements of Earnings was $0.4 million. At March31, 2010, the Company had outstanding forward currency exchange contracts to purchase $480.1 million and sell $407.1 million of various currencies (principally U.S. dollars and euros) with original maturities ranging from 9 to 93 days. The maximum length of time over which the Company is limiting its exposure to the reduction in value of nonfunctional receivables and payables through foreign currency exchange contracts is through June30, 2010. At March31, 2010, the fair value carrying amount of the Companys forward currency exchange contracts assets and liabilities was $3.6 million and $1.3 million, respectively, and was included as a component of prepaid expenses and other current assets and accrued expenses and other liabilities, respectively, in the Condensed Consolidated Balance Sheets. The estimated fair value of forward currency exchange contracts represents the measurement of the contracts at month-end spot rates as adjusted by current forward points. The Company is exposed to credit loss in the event of nonperformance by counterparties on its outstanding forward currency exchange contracts but does not anticipate nonperformance by any of its counterparties.

COMPREHENSIVE EARNINGS

COMPREHENSIVE EARNINGS
	3 Months Ended Mar. 31, 2010
COMPREHENSIVE EARNINGS	NOTE 4 COMPREHENSIVE EARNINGS The Company follows the Comprehensive Income Topic of the FASB Codification in accounting for comprehensive earnings and its components. The comprehensive earnings for the three months ended March31, 2010 and 2009 were $215.7 million and $185.6 million, respectively.

INVENTORIES

INVENTORIES
	3 Months Ended Mar. 31, 2010
INVENTORIES	NOTE 5 INVENTORIES Inventories are as follows (in millions): March31 2010 December31 2009 Finished goods $735.0 $730.4 Work-in-process 89.3 84.0 Raw materials 148.2 140.1 FIFO cost 972.5 954.5 Less LIFO reserve (11.5 ) (11.5 ) $961.0 $943.0

ACQUISITIONS

ACQUISITIONS
	3 Months Ended Mar. 31, 2010
ACQUISITIONS	NOTE 6 ACQUISITIONS Business and product line acquisitions completed in the first quarter of 2010 for $57.4 million included the previously announced acquisition of assets used to produce the Sonopet Ultrasonic Aspirator control consoles, handpieces and accessories from Mutoh Co., Ltd. and Synergetics USA, Inc. These acquisitions, which are expected to enhance the Companys product offerings within its Orthopaedic Implants and MedSurg Equipment segments, did not have a material effect on the Companys consolidated net sales or operating income for the quarter ended March31, 2010. These acquisitions were accounted for pursuant to the requirements of the Business Combinations Topic of the FASB Codification. The assets acquired and liabilities assumed as a result of the acquisitions were included in the Companys Condensed Consolidated Balance Sheet as of March31, 2010 and did not have a material effect on the Companys Condensed Consolidated Balance Sheet as of March31, 2010. The purchase price for each of the acquisitions was primarily allocated to identifiable intangible assets acquired based on their estimated fair values on the acquisition date. The fair value assigned to identifiable intangible assets acquired was determined primarily by using the income approach. Purchased identifiable intangible assets are amortized on a straight-line basis over their respective estimated useful lives. The purchase price was based upon a preliminary valuation, and the Companys estimates and assumptions are subject to change within the measurement period as valuations are finalized. In 2004 the Company acquired all of the outstanding stock of SpineCore, Inc. (SpineCore), a developer of artificial lumbar and cervical discs for an upfront payment of $120.0 million in cash plus certain transaction costs. Terms of the transaction also include potential milestone and royalty payments of up to an additional $240.0 million upon commercialization of SpineCores products in the United States. The potential milestone payments are expected to be capitalized at their fair values as intangible assets at the time of payment. Current products under development include the FlexiCore lumbar artificial disc and the CerviCore cervical artificial disc. The Company believes that the technologies acquired in the SpineCore acquisition will result in the introduction of new products and additional future sales. However, unanticipated issues may arise that could further delay or terminate a products development prior to regulatory approval or commercialization, which could have an unfavorable impact on the Companys operating results. As of March31, 2010, the Company had not encountered significant issues and expects completion of the development and initial U.S. commercialization of the FlexiCore lumbar artificial disc and the CerviCore cervical artificial disc following receipt of all required regulatory approvals.

RESTRUCTURING CHARGES

RESTRUCTURING CHARGES
	3 Months Ended Mar. 31, 2010
RESTRUCTURING CHARGES	NOTE 7 RESTRUCTURING CHARGES Restructuring charges recorded by the Company in 2009 and 2008 are described in Note 7 to the Consolidated Financial Statements included in the Companys 2009 Form 10-K. The following table provides a rollforward of the remaining liabilities, included within accrued expenses and other liabilities in the Condensed Consolidated Balance Sheet, related to the restructuring charges recorded by the Company in 2009 and 2008 (in millions): Agent Conversions Severanceand Related Costs Contractual Obligations andOtherCharges Balances at January1, 2010 $5.9 $3.4 $2.5 Payments (5.9 ) (1.3 ) (0.5 ) Balances at March31, 2010 $0.0 $2.1 $2.0 The restructuring projects initiated in 2009 and 2008 are substantially complete. The Company expects the contractual obligations and other charges to be completed and final severance payments to be made in the fourth quarter of 2010.

LONG-TERM DEBT

LONG-TERM DEBT
	3 Months Ended Mar. 31, 2010
LONG-TERM DEBT	NOTE 8 LONG-TERM DEBT The Companys long-term debt is summarized as follows: March31 2010 December31 2009 3.00% senior unsecured notes, due January15, 2015 $499.5 $ - 4.375% senior unsecured notes, due January15, 2020 496.7 - Other 27.6 18.0 Total debt 1,023.8 18.0 Less current maturities (27.6 ) (18.0 ) Long-term debt $996.2 $ - On January15, 2010, the Company sold $500.0 million of senior unsecured notes due January15, 2015 (the 2015 Notes) and $500.0 million of senior unsecured notes due January15, 2020 (the 2020 Notes). The 2015 Notes bear interest at 3.00%per year and, unless previously redeemed, will mature on January15, 2015. The 2020 Notes bear interest at 4.375%per year and, unless previously redeemed, will mature on January15, 2020. The Company received net proceeds of $996.1 million, net of an offering discount of $3.9 million. The 2015 Notes and 2020 Notes carry effective interest rates of 3.02% and 4.46%, respectively. The Company intends to use the net proceeds from the offering for working capital and other general corporate purposes, including acquisitions, stock repurchases and other business opportunities. The carrying amounts of the Companys long-term debt approximate their fair values, based on the quoted interest rates for similar types and amounts of borrowing agreements. Debt issuance costs of $10.5 million were incurred in connection with the sale of the senior unsecured notes. These costs were capitalized and are being amortized to interest expense over the lives of the related senior unsecured notes. At March31, 2010, total unamortized debt issuance costs were $10.1 million. The weighted average interest rate for all borrowing was 3.7% at March31, 2010. In addition to the senior unsecured notes, the Company had current debt outstanding under various debt instruments totaling $27.6 and $18.0 million at March31, 2010 and December31, 2009, respectively.

NET EARNINGS PER SHARE

NET EARNINGS PER SHARE
	3 Months Ended Mar. 31, 2010
NET EARNINGS PER SHARE	NOTE 9 NET EARNINGS PER SHARE The Company has key employee and director stock option plans under which options are granted at an exercise price not less than the fair market value of the underlying common stock at the date of grant. Options to purchase 5.8million and 23.4million shares of common stock were outstanding during the quarters ended March31, 2010 and 2009, respectively, but were not included in the computation of diluted net earnings per share because the exercise prices of the options were greater than the average market price of common shares for those periods.

CAPITAL STOCK

CAPITAL STOCK
	3 Months Ended Mar. 31, 2010
CAPITAL STOCK	NOTE 10 CAPITAL STOCK In December 2009 the Companys Board of Directors authorized the Company to purchase up to $750.0 million of the Companys common stock. The manner, timing and amount of any purchases will be determined by the Companys management based on their evaluation of market conditions, stock price and other factors and will be subject to regulatory considerations. Purchases may be made from time to time in the open market, in privately negotiated transactions or otherwise.During the first quarter of 2010, the Company repurchased 2.1million shares of common stock in the open market at a cost of $111.1 million pursuant to the repurchase program. Shares repurchased under the share repurchase program are available for general corporate purposes, including offsetting dilution associated with stock option and other equity-based employee benefit plans.

RETIREMENT PLANS

RETIREMENT PLANS
	3 Months Ended Mar. 31, 2010
RETIREMENT PLANS	NOTE 11 RETIREMENT PLANS Certain of the Companys subsidiaries have both funded and unfunded defined benefit plans covering some or all of their employees. The components of net periodic benefit cost are as follows (in millions): ThreeMonthsEnded March 31 2010 2009 Service cost $4.1 $3.9 Interest cost 3.2 2.9 Expected return on plan assets (2.3 ) (2.4 ) Amortization of prior service cost and transition amount 0.3 0.3 Recognized actuarial loss - 0.2 Net periodic benefit cost $5.3 $4.9 The Company previously disclosed in its 2009 Form 10-K that it anticipated contributing approximately $19.0 million to its defined benefit plans in 2010 to meet minimum funding requirements. As of March31, 2010, $4.0 million of contributions have been made.

INCOME TAXES

INCOME TAXES
	3 Months Ended Mar. 31, 2010
INCOME TAXES	NOTE 12 INCOME TAXES The Company operates in multiple income tax jurisdictions both inside and outside the United States. Income tax authorities in these jurisdictions regularly perform audits of the Companys income tax filings. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on current interpretations of complex income tax regulations. Income tax audits associated with the allocation of this income and other complex issues, including inventory transfer pricing and cost sharing, product royalty and foreign branch arrangements, may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. In 2010 the Company reached settlements related to certain income tax audits both inside and outside the United States. In April 2009 the U.S. Internal Revenue Service (IRS) proposed adjustments to the Companys previously filed 2003, 2004 and 2005 income tax returns related to income tax positions the Company has taken for its cost sharing arrangements with two wholly owned entities operating in Ireland. The Company believes it followed the applicable tax law and Treasury regulations and will vigorously defend these income tax positions. If the IRS were ultimately to prevail with respect to its proposed adjustments, such adjustments could have a material unfavorable impact on the Companys income tax expense and net earnings in future periods.

SEGMENT INFORMATION

SEGMENT INFORMATION
	3 Months Ended Mar. 31, 2010
SEGMENT INFORMATION	NOTE 13 SEGMENT INFORMATION The Company segregates its operations into two reportable business segments: Orthopaedic Implants and MedSurg Equipment. The Orthopaedic Implants segment includes orthopaedic reconstructive (hip and knee), trauma and spinal implant systems and other related products. The MedSurg Equipment segment includes surgical equipment and surgical navigation systems; endoscopic and communications systems; patient handling and emergency medical equipment; as well as other related products. The Other category includes corporate administration, interest expense, interest and marketable securities income and share-based compensation, which includes compensation related to both employee and director stock option and restricted stock grants. The Companys reportable segments are business units that offer different products and services and are managed separately because each business requires different manufacturing, technology and marketing strategies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies found in Note 1 of the Companys 2009 Form 10-K. Sales and net earnings by business segment follow (in millions): Orthopaedic Implants MedSurg Equipment Other Total Three Months Ended March31, 2010: Net sales $1,076.9 $722.2 $ - $1,799.1 Segment net earnings (loss) 235.9 120.0 (34.2 ) 321.7 Three Months Ended March31, 2009: Net sales $973.2 $628.1 $ - $1,601.3 Segment net earnings (loss) 187.4 114.1 (20.4 ) 281.1

CONTINGENCIES

CONTINGENCIES
	3 Months Ended Mar. 31, 2010
CONTINGENCIES	NOTE 14 CONTINGENCIES The Company is involved in various proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor and intellectual property, and other matters. The outcomes of these matters will generally not be known for prolonged periods of time. In certain of the legal proceedings, the claimants seek damages, as well as other compensatory relief, which could result in the payment of significant claims and settlements. For legal matters for which management has sufficient information to reasonably estimate the Companys future obligations, a liability representing managements best estimate of the probable cost, or the minimum of the range of probable losses when a best estimate within the range is not known, for the resolution of these legal matters is recorded. The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. On March26, 2010, a shareholders derivative action complaint against certain current and former Directors and Officers of the Company was filed in the United States District Court for the Western District of Michigan Southern Division.This lawsuit was brought by the Westchester Putnam Counties Heavy and Highway Laborers Local 60 Benefit Funds and Laborers Local 235 Benefit Funds. The complaint alleges claims for breach of fiduciary duties and gross mismanagement in connection with certain product recalls, U.S. Food and Drug Administration (FDA) warning letters, government investigations relating to physician compensation and the criminal proceeding brought against the Companys Biotech division. The case has been stayed while a Special Committee of the Board of Directors evaluates the claims. On January15, 2010, a class action lawsuit against the Company was filed in the United States District Court for the Southern District of New York on behalf of those who purchased the Companys common stock between January25, 2007 and November13, 2008, inclusive. The lawsuit seeks remedies under the Securities Exchange Act of 1934. The Company is evaluating the scope of the claim and intends to defend itself vigorously. In 2009 a federal grand jury in the District of Massachusetts returned an indictment charging Stryker Biotech LLC and certain current and former employees of Stryker Biotech with wire fraud, conspiracy to defraud the FDA, distribution of a misbranded device and false statements to the FDA. The Company still hopes to be able to reach a fair and just resolution of this matter. The ultimate resolution of this matter is not reasonably estimatable at this time. A conviction on the charges described above would impact the Companys OP-1 implant product sales, which were not material to the Companys consolidated revenue and operating results for the quarters ended March31, 2010 and 2009. However, conviction of these charges could result in significant monetary fines and Stryker Biotechs exclusion from participating in federal and state health care programs, which could have a material effect on Stryker Biotechs business. The Company understands that certain former Stryker Biotech employe

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS
	3 Months Ended Mar. 31, 2010
SUBSEQUENT EVENTS	NOTE 15 SUBSEQUENT EVENTS Pursuant to the Subsequent Events Topic of the FASB Codification, the Company evaluated subsequent events after March31, 2010 and concluded that no material transactions occurred subsequent to that date that provided additional evidence about conditions that existed at or after March31, 2010 that require adjustment to the Unaudited Condensed Consolidated Financial Statements.