FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended ___March 31, 1994______
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-9165
STRYKER CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-1239739
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 4085, Kalamazoo, Michigan 49003-4085
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 616/385-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ___X___ No ______.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
48,449,134 shares of Common Stock, $.10 par value, as of April 29, 1994
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PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
March 31 December 31
1994 1993
ASSETS (in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 43,516 $ 49,712
Marketable securities 88,564 102,925
Accounts receivable, less allowance of $4,000
(1993 -- $3,800) 105,088 87,896
Inventories 81,205 76,582
Deferred income taxes 15,693 15,829
Other current assets 13,072 10,907
_______ _______
TOTAL CURRENT ASSETS 347,138 343,851
PROPERTY, PLANT AND EQUIPMENT, less allowance
for depreciation 72,518 67,707
INVESTMENT IN AFFILIATE 37,937 32,569
OTHER ASSETS 10,667 10,077
_______ _______
$468,260 $454,204
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 926 $ 777
Accounts payable 32,662 43,172
Accrued compensation 23,131 28,270
Income taxes 27,014 21,107
Accrued expenses and other liabilities 38,489 35,678
Current maturities of long-term debt 841 882
_______ _______
TOTAL CURRENT LIABILITIES 123,063 129,886
LONG-TERM DEBT, excluding current maturities 34,033 31,282
OTHER LIABILITIES 3,293 4,602
STOCKHOLDERS' EQUITY
Common stock, $.10 par value:
Authorized--150,000 shares
Outstanding--48,449 shares (1993--48,395) 4,844 4,840
Additional paid-in capital 17,978 17,111
Retained earnings 285,707 268,367
Unrealized gains on securities 250 0
Foreign translation adjustments (908) (1,884)
_______ _______
TOTAL STOCKHOLDERS' EQUITY 307,871 288,434
_______ _______
$468,260 $454,204
======= =======
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CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
Three Months Ended
March 31
1994 1993
(in thousands, except
per share amounts)
Net Sales $148,759 $135,202
Costs and expenses:
Cost of sales 67,544 61,486
Research, development and engineering 9,218 8,621
Selling, general and administrative 46,577 42,742
_______ _______
123,339 112,849
_______ _______
OPERATING INCOME 25,420 22,353
Other income 2,550 947
_______ _______
EARNINGS BEFORE INCOME TAXES 27,970 23,300
Income taxes 10,630 8,850
_______ _______
NET EARNINGS $ 17,340 $ 14,450
======= =======
Net earnings per share of common stock $.36 $.30
Average outstanding shares for the period 48,413 48,318
In 1992 the Company declared a cash dividend of six cents per share to
shareholders of record on December 31, 1992, payable on January 29, 1993. In
1993 the Company declared a cash dividend of seven cents per share to
shareholders of record on December 31, 1993, payable on January 31, 1994. No
cash dividends have been declared during 1994.
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
Three Months Ended
March 31
1994 1993
(in thousands)
OPERATING ACTIVITIES
Net earnings $17,340 $14,450
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation 3,925 3,288
Amortization 402 390
Changes in operating assets and liabilities:
Accounts receivable (16,150) (18,559)
Inventories (4,398) (7,348)
Accounts payable (10,592) (3,186)
Accrued expenses 47 (7,686)
Income taxes 6,028 9,480
Other (2,085) (2,359)
______ ______
NET CASH USED IN OPERATING ACTIVITIES (5,483) (11,530)
INVESTING AND FINANCING ACTIVITIES
Purchases of property, plant and equipment (7,198) (5,806)
Sales and maturities of marketable securities 13,213 5,909
Business acquisitions (4,262)
Proceeds from borrowings 149 405
Proceeds from exercise of stock options 871 933
Dividends paid (3,388) (2,898)
Other (197) (541)
_______ _______
NET CASH PROVIDED BY (USED IN) INVESTING AND
FINANCING ACTIVITIES (812) (1,998)
Effect of exchange rate changes on cash and
cash equivalents 99 21
_______ _______
DECREASE IN CASH AND CASH EQUIVALENTS ($6,196) ($13,507)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
all adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the results of operations for the
periods shown. The financial statements have been prepared in accordance with
the instructions to Form 10-Q and, therefore, do not include all information
and footnotes necessary for a fair presentation of consolidated financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The results of operations for any interim period are not necessarily indicative
of the results to be expected for the full year.
2. INVENTORIES
Inventories are as follows (in thousands):
March 31 December 31
1994 1993
(in thousands)
Finished goods $ 47,405 $ 45,338
Work-in-process 10,634 10,586
Raw material 30,963 28,455
______ ______
FIFO Cost 89,002 84,379
Less LIFO reserve 7,797 7,797
______ ______
$ 81,205 $ 76,582
====== ======
FIFO cost approximates replacement cost.
3. INVESTMENTS
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." The Company adopted the provisions of the new
standard for investments held as of or acquired after January 1, 1994. In
accordance with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle.
The Company's investments in marketable equity and debt securities are
classified as "available-for-sale" and are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. Interest and dividends on these securities are included
in other income.
The following is a summary of investments at March 31, 1994:
Gross
Unrealized Estimated
Cost Gains/(Losses) Fair Value
Debt securities 98,427 (1,148) 97,279
Equity securities 256 1,557 1,813
______ ______ ______
98,683 409 99,092
====== ====== ======
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
4. BUSINESS ACQUISITIONS
During the first quarter of 1994, the Company's subsidiary, Physiotherapy
Associates, Inc., purchased several physicial therapy clinic operations. The
aggregate purchase price of these clinics was approximately $3,400,000 and
generally approximated the carrying amounts of the assets acquired. Proforma
consolidated results including the purchased businesses would not differ
significantly from reported results.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
For the first quarter of 1994, net sales increased 10% compared to the same
period in 1993, primarily as a result of increased unit volume. Surgical
product sales (principally orthopaedic products) increased 5%, led by gains in
orthopaedic implants and powered surgical instruments. Medical product sales
(principally stretchers/beds and physical therapy services) increased 37%.
The Medical sales gain resulted from increased shipments of patient care and
patient handling equipment and increased revenues from physical therapy
services.
Uncertainty over the impact of U.S. health care reform programs has generally
slowed domestic sales of medical devices. The Company's domestic sales
increased 7% in the first quarter of 1994 compared to 1993. International sales
increased 15% in the first quarter of 1994 compared to 1993, led by Osteonics
orthopaedic implant and Dimso spinal implant sales by the Company's Pacific
Division and specialty hospital bed and stretcher sales in Europe.
International sales increased to 36% of total sales in the first quarter of
1994 compared to 35% in the same period of 1993.
Research, development and engineering (R,D&E) expense increased 7% in the first
quarter, and represented 6.2% of sales in 1994 compared to 6.4% in the same
period last year. The Company's continued commitment to product development
resulted in several new product introductions in the first quarter of 1994,
including the Omnifit-Plus forged cobalt chrome hip stem, Anterior Reference
knee instrumentation, the new Sapphire View(T) arthroscope system, a second
generation ConstaVac(T) CBCII Blood Conservation System, and a new line of
powered micro instruments for oral/maxillofacial procedures.
Selling, general and administrative (S,G&A) expense increased 9% in the first
quarter of 1994 compared to the same period of 1993. Through continued cost
control measures, this cost increase was contained below the sales growth
percentage and these costs dropped to 31.3% of sales in the first quarter of
1994, compared to 31.6% in the same period of 1993.
The increase in other income in the first quarter is due to the equity in net
earnings of an affiliate, resulting from the investment in Matsumoto Medical
Instruments, Inc. in the third quarter of 1993, and increased interest income
due to the higher level of invested cash. The effective tax rate remained
constant at 38%. In the first quarter of 1994, earnings before income taxes,
net earnings and net earnings per share increased 20% compared to the first
quarter of 1993.
LIQUIDITY AND CAPITAL RESOURCES
Stryker's financial position at March 31, 1994 remained strong with cash and
marketable securities of $132.1 million and working capital of $224.1 million.
Accounts receivable at March 31, 1994 increased 20% from December 31, 1993 and
days sales outstanding increased to 58 days from 47 days at December 31, 1993.
This increase reflects the increased level of international sales, which
generally have longer collection terms. Inventories at March 31, 1994 increased
only 6% from December 31, 1993 and days in inventory increased to 119 days from
114 days at December 31, 1993.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--continued
The Company used $5.5 million of cash in operations in the quarter compared to
$11.5 million in the same period of 1993. Furthermore, early in the second
quarter of 1994, the Company acquired 110,500 shares of its common stock as part
of a 600,000 share Stock Repurchase Plan announced in December 1993. Cash and
marketable securities on hand of $132.1 million and anticipated future cash
flows from operations are expected to be sufficient to fund planned future
operating and capital requirements. Should additional funds be required, the
Company has unsecured lines of credit with banks totalling $39.0 million, of
which only $.9 million was utilized at March 31, 1994.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- The exhibit listed below is submitted as a separate
section of this report following the signature page:
Exhibit (11) Statement Re: Computation of Earnings per Share of
Common Stock
(b) Reports on Form 8-K -- No reports on Form 8-K were filed during
the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STRYKER CORPORATION
(Registrant)
May 6, 1994 __________JOHN W. BROWN____________
Date John W. Brown, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
May 6, 1994 ___________DAVID J. SIMPSON_________
Date David J. Simpson, Vice President, Chief
Financial Officer and Secretary
(Principal Financial Officer)
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EXHIBIT (11)--STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Three Months Ended
March 31
1994 1993
Average number of shares outstanding 48,413,000 48,318,000
__________ __________
Net earnings $17,340,000 $14,450,000
========== ==========
Earnings per share of common stock $.36 $.30
==== ====
Primary:
Average shares outstanding 48,413,000 48,318,000
Net effect of dilutive stock options,
based on the treasury stock method
using average market price 679,000 549,000
__________ __________
Total Primary Shares 49,092,000 48,867,000
========== ==========
Fully Diluted:
Average shares outstanding 48,413,000 48,318,000
Net effect of dilutive stock options,
using the period-end market price, if
higher than average market price 679,000 549,000
__________ __________
Total Fully Diluted Shares 49,092,000 48,867,000
========== ==========
Note: Shares subject to stock options are not included in the earnings per
share computation because the present effect thereof is not materially
dilutive.
