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, 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.
48,441,382 shares of Common Stock, $.10 par value, as of April 28, 1995.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
March 31 December 31
1995 1994
-------- -----------
ASSETS (in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 62,336 $116,781
Marketable securities 131,828 85,264
Accounts receivable, less allowance of $6,800
(1994 -- $6,400) 163,598 154,590
Inventories 128,611 115,757
Deferred income taxes 54,618 54,333
Other current assets 16,398 13,804
-------- --------
TOTAL CURRENT ASSETS 557,389 540,529
PROPERTY, PLANT AND EQUIPMENT, less allowance for
depreciation 193,937 180,719
OTHER ASSETS 50,928 46,723
-------- --------
$802,254 $767,971
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 208
Accounts payable $ 43,600 50,433
Accrued compensation 22,579 28,834
Income taxes 36,763 38,811
Accrued expenses and other liabilities 54,769 55,556
Current maturities of long-term debt 4,227 5,369
-------- --------
TOTAL CURRENT LIABILITIES 161,938 179,211
LONG-TERM DEBT, excluding current maturities 119,060 95,276
OTHER LIABILITIES 27,477 35,245
MINORITY INTEREST 116,514 99,973
STOCKHOLDERS' EQUITY
Common stock, $.10 par value:
Authorized--150,000 shares
Outstanding--48,418 shares (1994--48,369) 4,842 4,837
Additional paid-in capital 17,050 15,796
Retained earnings 357,697 336,897
Unrealized losses on securities (961) (1,315)
Foreign translation adjustments (1,363) 2,051
-------- --------
TOTAL STOCKHOLDERS' EQUITY 377,265 358,266
-------- --------
$802,254 $767,971
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
Three Months Ended
March 31
------------------
1995 1994
--------- --------
(in thousands, except
per share amounts)
Net Sales $214,013 $148,759
Costs and expenses:
Cost of sales 87,584 67,544
Research, development and engineering 10,843 9,218
Selling, general and administrative 73,511 46,577
171,938 123,339
-------- --------
OPERATING INCOME 42,075 25,420
Other income 804 2,550
-------- --------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 42,879 27,970
Income taxes 18,010 10,630
-------- --------
EARNINGS BEFORE MINORITY INTEREST 24,869 17,340
Minority interest (4,069)
-------- --------
NET EARNINGS $ 20,800 $ 17,340
======== ========
Net earnings per share of common stock $.43 $.36
Average outstanding shares for the period 48,390 48,413
See accompanying notes to 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)
Three Months Ended
March 31
------------------
1995 1994
-------- --------
(in thousands)
OPERATING ACTIVITIES
Net earnings $20,800 $17,340
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation 5,828 3,925
Amortization 728 402
Minority interest 4,069
Changes in operating assets and liabilities:
Accounts receivable (1,462) (16,150)
Inventories (6,540) (4,398)
Accounts payable (7,876) (10,592)
Accrued expenses (7,295) 47
Income taxes (1,347) 6,028
Other (2,142) (2,085)
------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 4,763 (5,483)
INVESTING AND FINANCING ACTIVITIES
Purchases of property, plant and equipment (7,707) (7,198)
Sales and maturities (purchases) of marketable
securities (46,564) 13,213
Business acquisitions (11,350) (4,262)
Proceeds from borrowings 7,982 149
Proceeds from exercise of stock options 1,259 871
Dividends paid (3,870) (3,388)
Other 754 (197)
------- -------
NET CASH USED IN INVESTING AND
FINANCING ACTIVITIES (59,496) (812)
Effect of exchange rate changes on cash and cash
equivalents 288 99
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS ($54,445) ($6,196)
======= =======
See accompanying notes to 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.
2. INVENTORIES
Inventories are as follows (in thousands):
March 31 December 31
1995 1994
-------- -----------
(in thousands)
Finished goods $ 94,678 $ 86,719
Work-in-process 8,686 7,552
Raw material 32,545 28,784
-------- --------
FIFO Cost 135,909 123,055
Less LIFO reserve 7,298 7,298
-------- --------
$128,611 $115,757
======== ========
FIFO cost approximates replacement cost.
3. BUSINESS ACQUISITIONS
In August 1994, the Company purchased 31% of the outstanding common stock of
Matsumoto Medical Instruments, Inc., Osaka, Japan, thereby increasing its
direct ownership interest in Matsumoto to 51%. The acquisition was accounted
for by the purchase method and the cost of the 31% investment, which was based
on net book value, was approximately 6.0 billion Yen. Funding and payment of
approximately 847 million Yen ($9.8 million) of the purchase price was deferred
to March 31, 1995.
<PAGE>
During the first quarter of 1995, the Company's subsidiary, Physiotherapy
Associates, Inc., purchased several physical therapy clinic operations at an
aggregate cost of $1.6 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 first quarter of 1995, net sales increased 44% compared to the same
period in 1994. Increased sales in Japan, attributable to the consolidation
with Matsumoto, resulted in a sales increase of 29%. Increased unit volume
generated a 10% sales increase, other business acquisitions accounted for a 4%
increase and a 2% 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 the repurchase of inventory
from distributors, which reduced net sales by 1%.
Surgical product sales (principally orthopaedic products) increased 48%, led
by increased Japanese sales from the consolidation of Matsumoto along with
increased shipments of powered surgical instruments, orthopaedic implants and
endoscopic equipment. Medical product sales (principally stretchers/beds and
physical therapy services) increased 29%. The Medical sales gain resulted
from higher physical therapy revenues and increased shipments of patient
handling equipment.
The Company's domestic sales increased 19% in the first quarter of 1995
compared to 1994. The increase was led by powered surgical instruments,
orthopaedic implants, endoscopic equipment and physical therapy services.
International sales increased 88% in the first quarter of 1995 compared to the
same period of 1994. The growth in international sales was led by increased
Japanese sales from the consolidation of Matsumoto along with increased
shipments of Surgical products by all international divisions. International
sales represented 48% of total sales in the first quarter of 1995 compared to
36% in the same period of 1994.
Cost of sales in the first quarter of 1995 represented 40.9% of sales compared
to 45.4% in the same period of 1994. The lower cost of sales percentage in
1995 resulted from 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 18% in the
first quarter, and represented 5.1% of sales in 1995 compared to 6.2% in the
same period last year. 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 resulted in several new products in 1995,
including the Secur-Fit HA acetabular shell and hip stem and the StrykeFlow
suction/irrigator for laparoscopic surgery.
<PAGE>
Selling, general and administrative (S,G&A) expenses increased 58% in the
first quarter of 1995 compared to the same period 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, along with increased
sales expenses resulting from the changes in Osteonics' distribution network.
These costs increased to 34.3% of sales in the first quarter of 1995 compared
to 31.3% in the same period of 1994.
Other income declined $1.7 million in the first quarter of 1995 compared to
the first quarter of 1994. Other income in the first quarter 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 quarter of 1995 as a result of the increased debt used
to finance the additional 31% investment in Matsumoto.
The effective tax rate increased to 42% in the first quarter of 1995 compared
to 38% in the first quarter of 1994 as a result of the higher Japanese tax
rate on the earnings of Matsumoto. In the first quarter of 1995, earnings
before income taxes and minority interest increased 53%, net earnings
increased 20% and net earnings per share increased 19% compared to the first
quarter of 1994. As a result of the consolidation with Matsumoto, net
earnings for the first quarter of 1995 increased by $1.9 million ($.04 per
share) from the first quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
Stryker's financial position at March 31, 1995 remained strong with cash and
marketable securities of $194.2 million and working capital of $395.5 million.
Accounts receivable at March 31, 1995 increased 6% from December 31, 1994
while days sales outstanding decreased slightly to 65 days from 67 days at
December 31, 1994. The increase in accounts receivable is comparable to the
5% increase in sales in the first quarter of 1995 compared to the 4th quarter
of 1994. Inventories at March 31, 1995 increased 11% from December 31, 1994
and days in inventory increased to 140 days from 131 days at December 31,
1994. These changes reflect the overall growth in the Company's business
activity in the comparable periods.
In August 1994, the Company completed the purchase of 31% of the outstanding
common stock of Matsumoto, thereby increasing its direct ownership interest in
Matsumoto to 51%. The purchase price of approximately 6.0 billion Yen was based
on net book value at December 31, 1993. Funding and payment of approximately
847 million Yen, or approximately $9.8 million, of the purchase price was
deferred to March 31, 1995. The acquisition of the shares has been funded
with an unsecured Yen denominated four year floating rate loan. The effective
annual interest rate on the amounts funded in August 1994 and March 1995 have
been fixed at 4.17% and 3.73%, respectively.
<PAGE>
The Company generated $4.8 million of cash from operations in the first
quarter of 1995 compared to $5.5 million of cash used in the same period of
1994. Cash and marketable securities of $194.2 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 March 31, 1995.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(c) At the Annual Meeting of Stockholders held on April 25, 1995, the
stockholders elected seven directors to serve until the next
Annual Meeting of Stockholders. The voting results for each
nominee are as follows:
Shares
--------------------
Name For Withheld
------------------------- ---------- --------
John W. Brown 42,599,078 44,904
Howard E. Cox, Jr. 42,598,638 45,344
Donald M. Engelman, Ph.D. 42,598,208 45,774
Jerome H. Grossman, M.D. 42,598,918 45,064
John S. Lillard 42,598,661 45,321
William U. Parfet 42,588,921 55,061
Ronda E. Stryker 42,599,318 44,664
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.
<PAGE>
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 10, 1995 JOHN W. BROWN
- --------------------------- --------------------------------------
Date John W. Brown, Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
May 10, 1995 DAVID J. SIMPSON
- --------------------------- --------------------------------------
Date David J. Simpson, Vice President, Chief
Financial Officer and Secretary
(Principal Financial Officer)
EXHIBIT (11)--STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Three Months Ended
March 31
1995 1994
----------- -----------
Average number of shares outstanding 48,390,000 48,413,000
----------- -----------
Net earnings $20,800,000 $17,340,000
=========== ===========
Net earnings per share of common stock $.43 $.36
==== ====
Primary:
Average shares outstanding 48,390,000 48,413,000
Net effect of dilutive stock options,
based on the treasury stock method
using average market price 837,000 679,000
----------- -----------
Total Primary Shares 49,227,000 49,092,000
=========== ===========
Fully Diluted:
Average shares outstanding 48,390,000 48,413,000
Net effect of dilutive stock options,
using the period-end market price, if
higher than average market price 895,000 679,000
----------- -----------
Total Fully Diluted Shares 49,285,000 49,092,000
=========== ===========
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-30-1995
<CASH> 62,336
<SECURITIES> 131,828
<RECEIVABLES> 163,598
<ALLOWANCES> 6,800
<INVENTORY> 128,611
<CURRENT-ASSETS> 557,389
<PP&E> 193,937
<DEPRECIATION> 50,928
<TOTAL-ASSETS> 802,254
<CURRENT-LIABILITIES> 161,938
<BONDS> 0
<COMMON> 4,842
0
0
<OTHER-SE> 372,423
<TOTAL-LIABILITY-AND-EQUITY> 802,254
<SALES> 214,013
<TOTAL-REVENUES> 214,013
<CGS> 87,584
<TOTAL-COSTS> 171,938
<OTHER-EXPENSES> (804)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 42,879
<INCOME-TAX> 18,010
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,800
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
