Measured Approach

Data as of

: 12/18/2009

Industry: Medical Equipment & Supplies

Current Data

Current Price $50.50 PEG 0.9Market Cap ($M) $20,078.8 EPS TTM ($) $2.70Shares Outstanding (M) 397.6 P/E TTM 18.7XInstitutional Holdings % 60.6% EPS Estimated 2009 ($) $2.94Insider Holdings % 14.6% P/Estimated EPS 17.2XBeta 0.97

MA Value ($) $41.25

Latest Quarter Reported 09/30/2009 Dividend Yield % 1.2%

Stryker Corporation is one of the world’s leading medical technology companies with the most broadly

based range of products in orthopedics and a significant presence in other medical specialties. Strykerworks with respected medical professionals to help people lead more active and more satisfying lives. TheCompany's products include implants used in joint replacement, trauma, craniomaxillofacial and spinalsurgeries; biologics; surgical, neurologic, ear, nose & throat and interventional pain equipment;endoscopic, surgical navigation, communications and digital imaging systems; as well as patient handlingand emergency medical equipment.Jim Edwards, writing in BNET, provides the following history of wrong doing at Stryker.At

Stryker

, the maker of bone replacement devices and drugs, there appears to be apolicy of rewarding management for the moral failings of their company. Over the lasttwo years, Stryker has been the subject of investigations by the SEC, FDA andDepartment of Justice into corrupt practices and the manufacturing quality of theirproducts.You can read the NY Times story on themost recent criminal convictions here. The response of th

e company’s board

of directors? To give their top people a pile of

extra stock options and consultancy contracts. What follows is a summary of Stryker’s

legal difficulties and, after that, the rewards Stryker has given its top people in theaftermath of those difficulties. All the information is drawn from SEC documents:



Stryker’s legal history:



2008: One criminal probe into two salesmen who were distributing misbranded devicesand bone drugs and actually giving doctors instructions on

how to use them. That’s

right

—

Stryker salesmen were training bone doctors. The reps pleaded guilty.



2008: Three warning letters from the FDA regarding quality at three differentmanufacturing plants in 2008.



2008: Received subpoena into whether company was complying with a previousagreement not to pay kickbacks to bone doctors.



2008: DOJ subpoena received into whether Stryker violated the Foreign CorruptPractices act, which bans companies from paying bribes to do business in foreigncountries.



2007: Settlement of DOJ probe into kickbacks paid to knee doctors.



2007: SEC inquiry into whether Stryker violated the Foreign Corrupt Practices act, whichbans companies from paying bribes to do business in foreign countries.



2006: Was the subject of grand jury hearings into whether Stryker was violatingantitrust laws. No charges brought.

That protracted failure of leadership was rewarded with the following largesse in

2008:



CEO Stephen MacMillan:

150,000 stock options at $42 per share.



99,000 restricted stock units went to nine members of management, including:



Curt R. Hartman, Vice President, Finance

: 15,000 restricted stock units



Andrew Fox-Smith, Group President, International:

15,000 restricted stock units.

You’ll notice that

at the end of 2008 there was a significant change of management at

Stryker

,in which a group president, CFO, and a vp finance all relinquished their posts.Were they being punished for failing to instill into their underlings a sense of responsibility? No.

Here’s what they got:

Stephen Si Johnson, Vice President, Group President:

relinquished that position butgets an advisor to the company role: $400,000 in 2009, $200,000 in 2010. Plus benefits.



Dean Bergy, CFO:

relinquished that role but gets an advisory role through 2011,$450,000 salary. Plus benefits.None of these executives have been accused of any wrongdoing.

Financial Analysis

An essential step in the valuation of any company is an analysis of its financial performance over time.

Analyzing a company’s financial statements provides an indication of historical growth, liquidity, leverag

and profitability, all of which influence the value of a company’s equity. The following sections of this

report examine the trend of

Stryker Corporation’s

balance sheets, income statements, and financialratios over the past five years. In addition, th

e Company’s financial performance is compared to themedian company in the Medical Equipment & Supplies industry as a means of measuring the Company’s

relative historical performance.

Balance Sheets

Presented below are the balance sheets for

Stryker Corporation

for the twelve month period endingSeptember 30, 2009 and for the fiscal years ending December 31, 2004 through 2008.

As of September 30, 2009, the Company’s assets totaled $8,459.2 million, up 11% from the end of fiscal

2008. Current assets totaled $5,761.8 million, or 68.1% of total assets, and consisted primarily of short-term investments (23.3% of total assets), accounts receivable (13.2% of total assets) and inventory (11.6%of total assets). Since fiscal 2004, inventory decreased as a percent of total assets, from 13.5% to 11.6%on September 2009. The cash balance of the Company increased by approximately 37% over fiscal 2008,to $960.3 million from $701.1 million as of December 2008.As of September 30, 2009, fixed assets including net property, plant and equipment represented 14.7% of total assets. Due to a lack of new investment, fixed assets declined from 21.6% of total assets in fiscal2005 to 14.7% of total assets at the end of September 2009.

Current liabilities were $1,198.0 million as of September 30, 2009, or 14.2% of total assets. Other currentliabilities were the largest current liabilities of the Company on September 30, 2009, accounting for 11.5%of total liabilities.Stryker Corporation has no long-term debt.Due to consistent

profitability of the Company over the past five years, shareholders’ equity increased

from $2,752.0 million (67% of total liabilities and equity) at the end of fiscal 2004 to $6,440.9 million (76%of total liabilities and equity) as of September 30, 2009.

This increase in equity indicates the Company’s

financial risk decreased somewhat over the past five years.

Balance Sheet

(Amounts in Millions)

Assets

TTM09/30/09FYE12/31/08FYE12/31/07FYE12/31/06FYE12/31/05FYE12/31/04Cash 960.3 701.1 290.5 416.6 491.2 349.4ST Investments 1,969.1 1,494.5 2,120.3 998.2 565.3 0.0Accounts Receivable 1,113.5 1,129.5 1,030.7 867.2 770.3 751.1Inventory 977.3 952.7 796.2 677.6 563.5 552.5Other Current Assets 741.6 701.5 667.2 574.7 479.8 489.6Total Current Assets 5,761.8 4,979.3 4,904.9 3,534.3 2,870.1 2,142.6Net Property, Plant & Equip. 1,241.0 1,239.0 1,284.7 1,202.6 1,076.6 700.5LT Investments 0.0 0.0 0.0 0.0 0.0 0.0Goodwill/Intangibles 954.9 935.5 925.5 914.8 922.9 963.2Other LT Assets 501.5 449.5 238.9 222.1 122.9 277.5

Total Assets 8,459.2 7,603.3 7,354.0 5,873.8 4,992.5 4,083.8Liabilities

Accounts Payable 204.5 274.3 265.5 247.9 206.5 214.5Short Term Debt 18.1 20.5 16.8 14.8 47.4 9.3Other Current Liabilities 975.4 1,167.3 1,050.7 1,088.8 994.9 889.7Total Current Liabilities 1,198.0 1,462.1 1,333.0 1,351.5 1,248.8 1,113.5LT Debt 0.0 0.0 0.0 0.0 184.2 0.7Other LT Liabilities 820.3 734.5 642.5 331.3 259.3 217.6

Total Liabilities

2,018.3 2,196.6 1,975.5 1,682.8 1,692.3 1,331.8Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0Common Stock Equity 6,440.9 5,406.7 5,378.5 4,191.0 3,300.2 2,752.0

Total Liabilities & Equity 8,459.2 7,603.3 7,354.0 5,873.8 4,992.5 4,083.8

Book Value Per Share 16.20 13.25 13.13 10.31 8.17 6.86

Income Statements

We present below Stryker Corporation’s income statements for the fiscal years ended December 31, 2004

through December 31, 2009 and for the twelve month period ending September 30, 2009.As presented, the Company reported increases in revenues in each of the past five years, from $4,017.4million in 2004 to $6,718.2 million in 2008, for a compound annual growth rate of 14.6%. During thetwelve month period ending September 30, 2009, revenues declined to $6,607.1 million or approximately2.0%.

Stryker’s revenue increases over the five year period were above the 13.2% revenue growth