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 SEPTEMBER 30, 1995
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.
48,519,452 shares of Common Stock, $.10 par value, as of October 31, 1995.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
September 30 December 31
1995 1994
____________ ___________
ASSETS (in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 74,315 $116,781
Marketable securities 161,715 85,264
Accounts receivable, less allowance of $7,400
(1994 -- $6,400) 158,070 154,590
Inventories 128,706 115,757
Deferred income taxes 54,651 54,333
Prepaid expenses and other current assets 12,707 13,804
________ ________
TOTAL CURRENT ASSETS 590,164 540,529
PROPERTY, PLANT AND EQUIPMENT, less allowance
for depreciation 187,839 180,719
OTHER ASSETS 47,029 46,723
________ ________
$825,032 $767,971
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 208
Accounts payable $ 45,976 50,433
Accrued compensation 31,121 28,834
Income taxes 25,678 38,811
Accrued expenses and other liabilities 56,432 55,556
Current maturities of long-term debt 424 5,369
________ ________
TOTAL CURRENT LIABILITIES 159,631 179,211
LONG-TERM DEBT, excluding current maturities 103,693 95,276
OTHER LIABILITIES 24,462 35,245
MINORITY INTEREST 108,449 99,973
STOCKHOLDERS' EQUITY
Common stock, $.10 par value:
Authorized--150,000 shares
Outstanding--48,511 shares (1994--48,369) 4,851 4,837
Additional paid-in capital 18,519 15,796
Retained earnings 398,237 336,897
Unrealized gains (losses) on securities 530 (1,315)
Foreign translation adjustments 6,660 2,051
________ ________
TOTAL STOCKHOLDERS' EQUITY 428,797 358,266
________ ________
$825,032 $767,971
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
________ ________ ________ ________
(in thousands, except per share amounts)
Net Sales $205,363 $174,316 $647,885 $477,301
Costs and expenses:
Cost of sales 88,753 77,821 273,985 215,886
Research, development
and engineering 9,718 10,156 32,256 29,186
Selling, general and
administrative 72,308 57,093 226,342 152,315
________ ________ ________ ________
170,779 145,070 532,583 397,387
________ ________ ________ ________
OPERATING INCOME 34,584 29,246 115,302 79,914
Other income - net 1,365 468 3,742 5,205
________ ________ ________ ________
EARNINGS BEFORE INCOME TAXES
AND MINORITY INTEREST 35,949 29,714 119,044 85,119
Income taxes 14,380 11,885 49,280 32,940
________ ________ ________ ________
EARNINGS BEFORE MINORITY
INTEREST 21,569 17,829 69,764 52,179
Minority interest (1,439) (1,099) (8,424) (1,099)
________ ________ ________ ________
NET EARNINGS $ 20,130 $ 16,730 $ 61,340 $ 51,080
======== ======== ======== ========
Net earnings per share of
common stock $.42 $.35 $1.27 $1.06
Average outstanding shares
for the period 48,499 48,343 48,447 48,371
See accompanying notes to condensed consolidated financial statements.
In 1994 the Company declared a cash dividend of eight cents per share
to shareholders of record on December 30, 1994, payable on January 31,
1995. No cash dividends have been declared during 1995.
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
Nine Months Ended
September 30
1995 1994
___________________
(in thousands)
OPERATING ACTIVITIES
Net earnings $ 61,340 $ 51,080
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 17,018 12,431
Amortization 2,285 1,677
Minority interest 8,424 1,099
Changes in operating assets and liabilities:
Accounts receivable (4,860) 20,670
Inventories (8,193) 880
Accounts payable (4,250) (23,083)
Accrued expenses 3,503 12,954
Income taxes (9,963) (18,578)
Other (838) 3,243
________ ________
NET CASH PROVIDED BY OPERATING ACTIVITIES 64,466 62,373
INVESTING AND FINANCING ACTIVITIES
Purchases of property, plant and equipment (21,192) (19,931)
Sales (purchases) of marketable securities (76,451) 24,095
Business acquisitions (12,815) (40,645)
Proceeds from borrowings 4,257 34,478
Dividends paid (3,870) (3,388)
Proceeds from exercise of stock options 2,737 1,466
Repurchases of common stock (3,109)
Other 235 (702)
_________ ________
NET CASH USED IN INVESTING AND
FINANCING ACTIVITIES (107,099) (7,736)
Effect of exchange rate changes on cash and
cash equivalents 167 899
_________ ________
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (42,466) $ 55,536
========= ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1994.
2. INVENTORIES
Inventories are as follows (in thousands):
September 30 December 31
1995 1994
____________ ___________
(in thousands)
Finished goods $ 94,927 $ 86,719
Work-in-process 8,824 7,552
Raw material 32,253 28,784
________ ________
FIFO Cost 136,004 123,055
Less LIFO reserve 7,298 7,298
________ ________
$128,706 $115,757
======== ========
FIFO cost approximates replacement cost.
3. BUSINESS ACQUISITIONS
During the first nine months of 1995, the Company's subsidiary,
Physiotherapy Associates, Inc., purchased several physical therapy clinic
operations at an aggregate cost of $3.1 million. Intangible assets acquired,
principally goodwill, are being amortized over periods ranging from one to
fifteen years. Pro forma consolidated results including the purchased
businesses would not differ significantly from reported results.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the nine months ended September 30, 1995, net sales increased 36%
compared to the same period in 1994. All nine months of 1995 and the last two
months of the third quarter of 1994 include the operations of Matsumoto
Medical Instruments, Inc., which became a 51% owned subsidiary in August 1994.
Increased sales in Japan arising from the consolidation of Matsumoto, which
are attributable to incremental sales of distributed products and incremental
margins and increased unit volume of Stryker products, resulted in a sales
increase of 22%. Increased unit volume generated an 8% sales increase, other
business acquisitions accounted for a 4% increase and a 1% increase arose from
changes in foreign currency exchange rates. The Company also converted
certain portions of the Osteonics domestic distribution network to direct
sales, resulting in higher selling prices offset by the repurchase of
inventory from distributors, which increased net sales by 1%. Surgical product
sales (principally orthopaedic products) increased 38%, led by increased
Japanese sales from the consolidation of Matsumoto along with increased
shipments of orthopaedic implants, powered surgical instruments and endoscopic
equipment. Medical product sales (principally stretchers/beds and physical
therapy services) increased 26%. The leading Medical sales gains resulted
from higher physical therapy revenues. For the third quarter, net sales
increased 18% compared to the third quarter of 1994. Surgical product sales
increased 20% and Medical product sales increased 11% during the third
quarter.
The Company's domestic sales increased 18% for the first nine months and 15%
in the third quarter of 1995 compared to 1994. The increase was led by
orthopaedic implants, physical therapy services, powered surgical instruments
and endoscopic equipment. International sales increased 65% for the first
nine months of 1995 and 22% in the third quarter. The growth in international
sales was led by increased Japanese sales from the consolidation of Matsumoto
along with increased shipments of Surgical and Medical products by
substantially all international divisions. International sales represented
46% of total sales in the first nine months of 1995 compared to 38% in the
same period of 1994.
Cost of sales for the first nine months of 1995 represented 42.3% of sales
compared to 45.2% in the same period of 1994. In the third quarter, the cost
of sales percentage decreased to 43.2% from 44.6% in the third quarter of
1994. The lower cost of sales percentages in the 1995 periods are the result
of additional margins on Stryker products sold by Matsumoto since its
consolidation and the conversion of certain portions of Osteonics' domestic
distribution network, which resulted in increased direct sales to hospitals.
Research, development and engineering (R,D&E) expense increased 11% for the
first nine months of 1995 and represented 5.0% of sales in 1995 compared to
6.1% in the same period last year. In the third quarter, these expenses
decreased 4.3% and were 4.7% of sales in 1995 compared to 5.8% in the third
quarter of 1994. The decrease in R,D&E expense as a percentage of sales in
1995 is principally a result of consolidating Matsumoto which, as a
distributor, incurs minimal research and development costs. The Company's
commitment to product development has resulted in several new products in
1995, including the Secur-Fit HA total hip implant system, the Restoration
HA Hip System for revision surgery, the Insight Positioning and Alignment
System for knee replacement surgery, the 810 3-Chip Camera System, the
StrykeFlow suction/irrigator for laparoscopic surgery, the battery powered
Trauma Driver addition to our Heavy Duty surgical instrument line and the
Stryker Stretcher Chair.
Selling, general and administrative (S,G&A) expenses increased 49% in
the first nine months and 27% in the third quarter of 1995 compared to the
same periods of 1994. The increase in S,G&A costs is principally a result of
consolidating Matsumoto, which, as a distributor, has a higher percentage of
S,G&A expenses. In addition, higher sales expenses resulted from the changes
in Osteonics' distribution network. These costs increased to 34.9% of sales
in the first nine months of 1995 compared to 31.9% in the same period of 1994.
In the third quarter these costs represented 35.2% of sales in 1995 compared
to 32.8% in 1994.
Other income declined for the first nine months of 1995 compared to the same
period of 1994. However, in the third quarter of 1995 other income increased
compared to 1994 principally as a result of increased interest income. Other
income for the first seven months of 1994 included the equity in net earnings
of Matsumoto related to the Company's initial 20% investment. In addition,
interest expense, which is included in other income, increased in the first
nine months of 1995 as a result of the increased debt used to finance the
additional 31% investment in Matsumoto. However, the increase in interest
expense was more than offset by an increase in interest income attributable to
higher levels of invested cash.
The effective tax rate increased to 41.4% in the first nine months of 1995
compared to 38.7% in the same period of 1994 as a result of the higher
Japanese tax rate on the earnings of Matsumoto. The effective tax rate of
40.0% for the third quarter is comparable to the prior year rate.
For the first nine months of 1995, earnings before income taxes and minority
interest increased 40% and net earnings and net earnings per share increased
20% compared to the first nine months of 1994. Earnings before income taxes
and minority interest increased 21% and net earnings and net earnings per
share increased 20% in the third quarter compared to the third quarter of
1994. As a result of the consolidation with Matsumoto, net earnings for the
first nine months of 1995 increased by $3.0 million ($.06 per share) from the
first nine months of 1994. Net earnings for the third quarter were not
materially impacted by the consolidation.
LIQUIDITY AND CAPITAL RESOURCES
Stryker's financial position at September 30, 1995 remained strong with cash
and marketable securities of $236.0 million and working capital of
$430.5 million. Accounts receivable at September 30, 1995 increased 2% from
December 31, 1994 while days sales outstanding increased slightly to 69 days
from 67 days at December 31, 1994. Inventories at September 30, 1995
increased 11% from December 31, 1994 and days in inventory increased to 138
days from 131 days at December 31, 1994.
The Company generated $64.5 million of cash from operations in the first nine
months of 1995 compared to $62.4 million of cash in the same period of 1994.
Cash and marketable securities of $236.0 million and anticipated future cash
flows from operations are expected to be sufficient to fund future operating
and capital requirements. Should additional funds be required, the Company
has unsecured lines of credit with banks totaling $45.7 million, of which none
was utilized at September 30, 1995.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- The exhibits listed below are submitted as a
separate section of this report following the signature page:
Exhibit (11) Statement Re: Computation of Earnings per Share of
Common Stock
Exhibit (27) Financial Data Schedule (included in EDGAR filing
only)
(b) Reports on Form 8-K -- On July 13, 1995 a Form 8-K was filed
relating to a press release issued by the Company reporting a
decision in a patent suit brought by Stryker Corporation against
Intermedics Orthopedics, Inc.
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)
October 31, 1995 /S/JOHN W. BROWN
- --------------------------------- -------------------------------------
Date John W. Brown, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
October 31, 1995 /S/DAVID J. SIMPSON
- --------------------------------- -------------------------------------
Date David J. Simpson, Vice President,
Chief Financial Officer and
Secretary
(Principal Financial Officer)
<PAGE>
EXHIBIT (11)--STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
___________ ___________ ___________ ___________
Average number of shares
outstanding 48,499,000 48,343,000 48,447,000 48,371,000
___________ ___________ ___________ ___________
Net earnings $20,130,000 $16,730,000 $61,340,000 $51,080,000
=========== =========== =========== ===========
Net earnings per share
of common stock $.42 $.35 $1.27 $1.06
==== ==== ===== =====
Primary:
Average shares
outstanding 48,499,000 48,343,000 48,447,000 48,371,000
Net effect of dilutive
stock options, based
on the treasury stock
method using average
market price 765,000 692,000 800,000 692,000
___________ ___________ ___________ ___________
Total Primary Shares 49,264,000 49,035,000 49,247,000 49,063,000
=========== =========== =========== ===========
Fully Diluted:
Average shares
outstanding 48,499,000 48,343,000 48,447,000 48,371,000
Net effect of dilutive
stock options, using
the period-end market
price, if higher than
average market price 809,000 735,000 834,000 735,000
___________ ___________ ___________ ___________
Total Fully
Diluted Shares 49,308,000 49,078,000 49,281,000 49,106,000
=========== =========== =========== ===========
Note: Shares subject to stock options are not included in the earnings per
share computation because the present effect thereof is not materially
dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 74,315
<SECURITIES> 161,715
<RECEIVABLES> 158,070
<ALLOWANCES> 7,400
<INVENTORY> 128,706
<CURRENT-ASSETS> 590,164
<PP&E> 187,839
<DEPRECIATION> 108,221
<TOTAL-ASSETS> 825,032
<CURRENT-LIABILITIES> 159,631
<BONDS> 0
<COMMON> 4,851
0
0
<OTHER-SE> 423,946
<TOTAL-LIABILITY-AND-EQUITY> 825,032
<SALES> 647,885
<TOTAL-REVENUES> 647,885
<CGS> 273,985
<TOTAL-COSTS> 532,583
<OTHER-EXPENSES> (3,742)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,539
<INCOME-PRETAX> 119,044
<INCOME-TAX> 49,280
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,340
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
</TABLE>
