Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
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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
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STRYKER CORPORATION
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(Exact name of registrant as specified in its charter)
Michigan 38-1239739
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 4085, Kalamazoo, Michigan 49003-4085
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 616/385-2600
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK $.10
PAR VALUE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Based on the closing sales price of February 29, 1996 the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
approximately $1,818,000,000.
<PAGE>
The number of shares outstanding of the registrant's common stock, $.10 par
value, was 48,575,841 at February 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual stockholders report for the year ended December 31,
1995 are incorporated by reference into Parts II and IV.
Portions of the proxy statement filed with the Securities and Exchange
Commission relating to the 1996 Annual Meeting of Stockholders (the "1996
proxy statement") are incorporated by reference into Part III.
PART I
ITEM I. BUSINESS
GENERAL
Stryker Corporation and its subsidiaries (the "Company" or "Stryker") develop,
manufacture and market specialty surgical and medical products, including
orthopaedic implants, powered surgical instruments, endoscopic systems and
patient care and handling equipment for the global market and provide physical
therapy services in the United States. Stryker was incorporated in Michigan
in 1946 as the successor company to a business founded in 1941 by Dr. Homer H.
Stryker, a leading orthopaedic surgeon and the inventor of several orthopaedic
products.
In October 1992, the Company's subsidiary, Stryker France S.A., acquired Dimso
S.A. and its subsidiary companies in France and Spain. Dimso designs and
manufactures the Diapason and Stryker 2S spinal implant systems in addition to
other orthopaedic products. The Company's European Division had previously
marketed the Stryker 2S spinal implant system since 1990.
In August 1993, the Company purchased 20% of the outstanding common stock of
Matsumoto Medical Instruments, Inc. ("Matsumoto"), Osaka, Japan. Matsumoto is
one of the largest distributors of medical devices in Japan and is the
exclusive distributor of Stryker products in that country. In August 1994,
the Company purchased an additional 31% of Matsumoto's outstanding common
stock, thereby increasing its direct ownership in Matsumoto to 51%. The
results of operations for Matsumoto were consolidated with Stryker beginning
in August 1994.
In June 1994, the Company purchased the Steri-Shield product line, which is a
personal protection system for operating room personnel, from a private
company.
The Company's subsidiary, Physiotherapy Associates, Inc., has also purchased a
number of physical therapy clinic operations during each of the last five
years.
<PAGE>
PRODUCT SALES
The principal classes of products listed below accounted for the following
amounts ($000's) and percentages of net sales during each of the three years
ended December 31:
1995 1994 1993
______________ ______________ ______________
$ % $ % $ %
________ ____ ________ ____ ________ ____
Stryker Surgical Products $608,646 70% $502,961 74% $447,042 80%
Stryker Medical Products 158,516 18 135,520 20 110,293 20
Matsumoto Distributed
Products 104,790 12 43,439 6 -- --
________ ____ ________ ____ ________ ____
$871,952 100% $681,920 100% $557,335 100%
======== ==== ======== ==== ======== ====
Approximately two-thirds of the Company's sales in 1995 and 1993 and
approximately 60% of the Company's sales in 1994 consisted of products with
short lives and service revenues, such as implants (while implants have a long
useful life to the patient, they have a one-time use to the hospital),
physical therapy revenues, disposables, expendable tools and parts and service
and repair charges. The balance of sales in each of the years were of
products that could be considered capital equipment, having useful lives in
excess of one year.
The Company's backlog of firm orders is not considered material to an
understanding of its business.
STRYKER SURGICAL PRODUCTS
Stryker Surgical products are designed and manufactured by Osteonics,
Allendale, New Jersey; Dimso, Bordeaux, France; Stryker Instruments,
Kalamazoo, Michigan; and Stryker Endoscopy, Santa Clara, California. The
principal specialty served by Stryker Surgical products is orthopaedics.
Orthopaedic reconstructive products, such as hip, knee and spinal implants,
heavy-duty powered instruments, pulsating irrigation systems, cement injection
systems, medical video cameras and arthroscopes are manufactured and marketed
for use by the orthopaedic surgeon.
Osteonics designs and manufactures innovative total and partial hip and knee
replacements for sale around the world. These artificial implants are made of
cobalt chrome or titanium alloys and are implanted in patients whose natural
joints have been damaged by arthritis, osteoporosis, other diseases or injury.
In late 1990, Osteonics became the first company to receive clearance from the
U.S. Food & Drug Administration (FDA) to commercially release for sale in the
U.S. a hip implant with HA surface treatment. HA is a naturally occurring
calcium phosphate material that demonstrates a high level of biocompatibility
due to its resemblance to human bone. Osteonics' clinical experience with HA-
coated hip stems now extends over eight years and their clinical performance
continues to equal or exceed that of any comparable stem reported in the
scientific literature.
Dimso designs and manufactures spinal implant systems for use by spinal
surgeons in the treatment of degenerative spinal diseases and deformities and
to stabilize the spine in trauma cases. During 1995, Osteonics began to
market a version of the Dimso spinal implant system in the United States
following the receipt of U.S. FDA acceptance for limited surgical indications.
<PAGE>
Stryker's broad line of powered surgical drills, saws, fixation and reaming
equipment and other surgical instruments are used by surgeons for drilling,
burring, rasping or cutting bone, wiring or pinning bone fractures, preparing
hip or knee surfaces for the placement of artificial hip or knee joints,
performing cranial operations or treating skin defects by surgical abrasion.
Hundreds of different sized and shaped drill bits, burrs, blades, chisels and
other attachments are available to the surgeon.
In conjunction with joint replacement surgery, the Company's High Vacuum
Cement Injection System is used to mix and inject cement under high vacuum for
cemented implant applications. SurgiLav Plus(R), the Company's disposable,
self-contained pulsed lavage system, is used to cleanse the surgical site
during joint replacement surgery.
The Company's endoscopic systems include medical video cameras, light sources,
arthroscopes, laparoscopes, powered instruments and manual instruments. These
systems are used in less-invasive surgery, such as arthroscopy and
cholecystectomy (gall bladder removal), in which the surgeon operates on a
patient through a series of small punctures rather than through an open
incision as required by conventional surgery.
Small, light, "micro" powered tools produced by Stryker Instruments and
Stryker Endoscopy are used in such specialties as maxillofacial surgery,
functional endoscopic sinus surgery, otology, neurosurgery, spinal surgery,
podiatry and plastic surgery. In addition, the oral surgeon is served by the
Company's line of powered oral surgery instruments.
The Company also produces a number of other operating room or surgery related
products. The Company's CBC-ConstavacTM system is a post-operative wound
drainage and blood reinfusion device that enables joint replacement patients
to receive their own blood rather than donor blood. The Steri-Shield(R)
Personal Protection System product line purchased in 1994 is an enclosed hood
and toga that helps protect operating room personnel against contamination
from blood and airborne particles.
STRYKER MEDICAL PRODUCTS
Stryker Medical products consist of specialty hospital beds and stretchers and
general patient room beds manufactured by the Company's Medical Division in
Kalamazoo, Michigan and Clackamas, Oregon and rehabilitation services provided
through Physiotherapy Associates, Inc. The Medical Division designs and
manufactures innovative specialty stretchers/beds for many departments within
the hospital, including emergency, recovery, intensive care, surgery and
maternity. These products service the particular treatment needs of each
department by providing multiple or custom combinations of hydraulic jacks,
removable top sections, built-in weighing systems, on-board x-ray equipment,
patient-warming systems and a vast number of additional standard or optional
features. In 1993, the Medical Division introduced its first general patient
room bed, the MPS(TM) Acute Care Bed, which offers many innovative safety
features including a stable twin pedestal design and Center of Gravity Bed
Exit Alarm System. In 1994, the Medical Division introduced its Rugged(TM)
Ambulance Cot which is purchased by ambulance services and used for patient
transport. Medical Division products are generally assembled on a
design-to-order basis.
<PAGE>
Stryker Medical product sales also include revenue of the Company's
Physiotherapy Associates, Inc. subsidiary. This organization operates
outpatient rehabilitation centers, which offer physical, occupational and
speech therapy to patients who have suffered orthopaedic or neurological
injuries. It focuses, in particular, on expediting injured workers' return to
work. Physiotherapy Associates, Inc. is headquartered in Memphis, Tennessee
and operates 158 outpatient physical therapy centers in 19 states.
MATSUMOTO DISTRIBUTED PRODUCTS
Matsumoto Distributed Products represent products sourced by Matsumoto Medical
Instruments, Inc., the Company's 51% owned subsidiary, from other companies
for sale in Japan. These products are sold for use in the areas of
orthopaedics, ophthalmology, general surgery and emergency care.
PRODUCT DEVELOPMENT
Most of the Company's products and product improvements have been developed
internally. In addition, the Company maintains close working relationships
with physicians and medical personnel in hospitals and universities who assist
in product research and development. New and improved products play a
critical role in the Company's sales growth. The Company has placed increased
emphasis on the development of proprietary products and product improvements
to complement and expand its existing product lines.
Total expenditures for product research, development and engineering were
$43,771,000 in 1995; $39,630,000 in 1994; and $36,199,000 in 1993. Research,
development and engineering expenses increased in 1995 and 1994 due
principally to the development of new implant designs (the Omnifit Plus
forged cobalt chrome hip stem was developed in 1994 and the Secur-Fit(TM) HA
total hip implant system and Restoration(TM) HA Hip System for revision
surgery were developed in 1995), further enhancements to instrumentation
related to knee replacement procedures, including development of the Insight
Positioning and Alignment System in 1995, the development of advanced powered
instruments and video technology (a new line of powered micro instruments for
oral/maxillofacial procedures, the Sapphire View(TM) arthroscope system and a
low cost high resolution 1-chip camera, all introduced in 1994 and the 4100
Cordless Driver, the first battery-powered wire driver, the next generation
810 3-Chip(R) Camera System and the StrykeFlow suction/irrigator for
laparoscopic surgery, all introduced in 1995), the development of new
specialized operating room equipment (the second generation ConstaVac(TM)
CBCII Blood Conservation System introduced in 1994), the development of new
patient handling equipment (the Rugged(TM) Ambulance Cot introduced in 1994
and the Stryker Stretcher Chair introduced in 1995) and ongoing clinical
trials of the Company's OP-1 bone growth device.
In 1991 the Company received FDA approval to begin human clinical trials of
its OP-1 bone growth device which was developed by Creative BioMolecules, Inc.
(Creative), a biopharmaceutical company, as part of a long-term research
program funded by Stryker since 1985. This device is composed of a
recombinant human osteogenic protein (OP-1) and a bioresorbable carrier. This
osteogenic protein is naturally present in the human body and directs a
cascade of cellular events that result in bone growth. In preclinical
studies, OP-1 has induced the formation of new bone when implanted into bone
defect sites. The ongoing human clinical studies, which began in 1992, will
compare the efficacy of the OP-1 bone growth device to autografts in the
repair of non-union fractures in the tibia. In late 1995, the FDA allowed the
Company to enlarge the scope of these trials for expanded indications of non-
union fractures in all long bones.
<PAGE>
Stryker owns the patents on osteogenic protein technology and has the
exclusive right under those patents to develop, market and sell OP-1 for
treatment, repair or replacement of bone and joint tissue. Creative has
exclusive license to the technology under the patents for use in other
applications. Others, including Genetics Institute, Inc., are also attempting
to develop osteogenic proteins for the treatment, repair or replacement of
bone and joint tissue. These other companies have filed and obtained patents
in the U.S. and elsewhere claiming such proteins and methods of making and
using them and may in the future file and obtain other such patents. The
Company can provide no assurance that it will not need a license under one or
more of those patents to market or sell OP-1 for treatment, repair or
replacement of bone and joint tissue or whether such licenses will be
available.
MARKETING
Most of the Company's products are marketed in the United States directly to
more than 5,000 hospitals, and to doctors and other health care facilities, by
the Company's sales force consisting of approximately 340 salespersons.
Stryker maintains separate and dedicated sales forces for each of its
principal product lines to provide focus and a high level of expertise to each
medical specialty served. Certain products, primarily orthopaedic implants,
are sold to hospitals in the United States through both direct sales forces
and independent dealer organizations.
Approximately 30% of the Company's domestic revenues in 1995 were accounted
for by sales to hospital cooperative buying groups and other large national
accounts and 1% by sales to the Veterans Administration and other hospitals
operated by the Federal government.
International sales accounted for 45% of total revenues in 1995. Stryker
products are sold in over 100 foreign countries primarily through more than
400 local dealers whose efforts are coordinated by approximately 580 sales and
marketing personnel who are local nationals. Certain limited markets are
served through direct sales efforts. Stryker distributes its products through
sales subsidiaries and branches with offices located in The Netherlands,
Belgium, Finland, France, Germany, Italy, Spain, Switzerland, the United
Kingdom, Australia, Hong Kong, Japan, Canada and Mexico. Stryker exports
products to dealers and to customers in Latin America, the Middle East,
Singapore, Korea, India, Taiwan, Malaysia, the CIS (former Soviet Union) and
China. Additional information regarding the Company's foreign and domestic
operations and export sales appearing in "Note 9--Geographic Data" on page 34
of the 1995 Annual Report is incorporated herein by reference.
The Company's business is generally not seasonal in nature; however, the
number of orthopaedic surgeries is lower during the summer months.
COMPETITION
The Company is one of the six leading competitors in the U.S. market for
orthopaedic reconstructive products, the others being Zimmer, USA Inc. (a
subsidiary of Bristol-Myers, Squibb, Inc.), DePuy (a subsidiary of Boehringer
Mannheim Corporation, a German company), Howmedica, Inc. (a subsidiary of
Pfizer, Inc.), Biomet and J&J Professional, Inc. (a subsidiary of Johnson &
Johnson). While competition abroad varies from area to area, the Company
believes it is also a leading factor in the international markets, with these
same companies being its principal competitors.
<PAGE>
In the international market for spinal implants, the Company is one of the
four market leaders through its Dimso S.A. subsidiary, with the principal
competitors being Sofamor Danek Group, Inc., AcroMed Corporation and the
Synthes companies. The Company entered the U.S. market for spinal implants
during 1995 and faces competition from these same companies.
In the powered surgical instruments market, Stryker is one of the three market
leaders, with the principal domestic competitors being Zimmer and Midas-Rex,
Inc.. These same companies are competitors in the international markets along
with Aesculap-Werke AG, a large European manufacturer,
In the arthroscopy market, the Company considers itself to be one of the three
market leaders, with the principal competitors being Smith & Nephew Endoscopy
(a division of Smith & Nephew PLC) and Linvatec, Inc. (a subsidiary of
Bristol-Myers, Squibb, Inc.). In the laparoscopic imaging products market,
the Company considers itself to be one of the four market leaders, with the
principal competitors being Karl Storz GmbH & Co. (a German company), Circon
Corporation and Olympus Optical Co. Ltd. (a Japanese company).
The Company's primary competitor in the hospital bed market is Hill-Rom (a
division of Hillenbrand Industries) and in the specialty stretcher market the
primary competitors are Ferno-Washington, Hausted, Inc., Hill-Rom and Midmark
Corporation.
In the outpatient physical therapy market, the Company's primary competitors
are physician owned/independent practices and hospital-based services. There
are also several other national rehabilitation companies, such as HealthSouth
Corporation and NovaCare, Inc.
In the area of research and development of the Company's OP-1 bone growth
device with Creative Biomolecules, Inc., the Company believes that several
companies are engaged in the research and development of morphogenic proteins
for the repair of hard and soft tissues. Genetics Institute, Inc., a company
in which American Home Products Corporation holds a majority interest, has
also begun human clinical trials of a recombinant bone morphogenetic protein
for repair of orthopaedic and other skeletal defects. A number of other
companies currently provide various other therapies, including allografts,
bone fillers and electrical stimulation devices, for the treatment, repair or
replacement of bone and joint tissue. The Company's OP-1 bone growth device
would ultimately compete with these products and traditional therapies such as
autografts.
The principal factors which the Company believes differentiate its products in
these highly competitive markets and enable it to compete effectively are
innovative products, reliability, service and reputation. The Company is not
able to predict the effect that continuing efforts to reduce health care
expenses generally and hospital costs in particular will have on the future
sales of its products or its competitive position. (See "Regulation and
Product Quality.") The Company believes that its competitive position in the
future will depend to a large degree upon the new products and improvements in
existing products it is able to develop. While the Company does not consider
patents a major factor in its overall competitive success, patents and
trademarks are significant to the extent that a product or attribute of a
product represents a unique design or process. Patent or trademark protection
of such products restricts competitors from duplicating these unique product
designs and features. Stryker seeks to obtain patent protection whenever
possible on its products. The Company currently has approximately 120 U.S.
patents and 70 foreign patents which generally expire in the next 10-15 years.
<PAGE>
MANUFACTURING AND SOURCES OF SUPPLY
The Company's manufacturing processes consist primarily of precision
machining, metal fabrication, assembly operations and the investment casting
of cobalt chrome and finishing of cobalt chrome and titanium. Approximately
23% of the Company's cost of sales in 1995 represented finished products which
were purchased complete from outside suppliers. The Company also purchases
parts and components, such as forgings, castings, gears, bearings, casters and
electrical components and uses outside sources for certain finishing
operations such as plating, hardening and coating of machined components and
sterilization of certain products. The principal raw materials used by the
Company are stainless steel, aluminum, cobalt chrome and titanium alloys. In
all, purchases from outside sources were approximately 48% of the total cost
of sales in 1995.
While the Company relies on single sources for certain purchased materials and
services, it believes alternate sources are available if needed. The Company
has not experienced any significant difficulty in the past in obtaining the
materials necessary to meet its production schedules.
Products manufactured by the Company's Medical Division are generally
assembled to order, while other products are stocked in inventory.
REGULATION AND PRODUCT QUALITY
The Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic
Act, the Safe Medical Devices Act of 1990, and regulations issued or proposed
thereunder, provide for regulation by the FDA of the manufacture of medical
devices, including most of the Company's products.
The FDA's "Good Manufacturing Practices" regulations set forth standards for
the Company's manufacturing processes, require the maintenance of certain
records and provide for unscheduled inspections of the Company's facilities
by the FDA. There are also certain requirements of state, local and foreign
governments which must be complied with in the manufacturing and marketing of
the Company's products. The Company believes that the manufacturing and
quality control procedures it employs meet the requirements of these
regulations.
Most of the Company's new products fall into FDA classifications which require
notification of and review by the FDA before marketing (submitted as a
510(k)). The Company's Osteogenic Protein Device (see "Product Development")
requires extensive clinical testing, consisting of safety and efficacy
studies, followed by a Pre-Market Approval (PMA) application. The Company
currently is in the clinical testing stage of this process and has not yet
filed a PMA application. A panel of industry and medical experts will review
the results of clinical studies and make their recommendations to the FDA. If
there is a positive recommendation by the panel, the FDA may grant a PMA
allowing the product to be marketed.
Stryker also is subject to the laws that govern the manufacture and
distribution of medical devices of each country in which the Company
manufactures or sells products. The member states of the European Union
("EU") have adopted the European Medical Device Directives, which create a
single set of medical device regulations for all EU member countries. These
regulations require companies that wish to manufacture and distribute medical
devices in EU member countries to obtain CE marks for their products by
June 14, 1998. Stryker has received authorization to apply the CE mark to its
hip, knee and spinal implant products and continues to work to obtain CE marks
for all other products that it will manufacture or distribute in EU member
states.
<PAGE>
Government agencies and legislative bodies in the United States and other
countries are considering various proposals designed to hold down increases in
health care costs. It is impossible to predict at this time the long-term
impact of such cost containment measures on the Company's future business.
EMPLOYEES
At December 31, 1995, the Company had 4,629 employees worldwide, including
1,348 involved in manufacturing, warehousing and distribution operations,
1,205 in marketing and sales, 240 in research, development and engineering,
605 providing physical, occupational and speech therapy and the balance in
general management and administration. No employees are covered by collective
bargaining agreements. The Company believes that its employee relations are
satisfactory.
ITEM 2. PROPERTIES
The Company's principal owned domestic facilities are located in Kalamazoo and
Portage, Michigan. A 212,000 square foot Portage facility completed in 1992
houses manufacturing (86,000 square feet) and warehousing and distribution
(25,000 square feet) for surgical instrument products, with the remaining
portion of the facility used for Division offices. The Medical Division is
located in two facilities, one in Portage which was completed in 1985 and
contains manufacturing and warehousing (127,000 square feet) and Division
offices (23,000 square feet), and another in Kalamazoo which contains
manufacturing and warehousing (64,000 square feet) and offices (22,000 square
feet). The Medical Division also leases 11,000 square feet of warehousing
space in Kalamazoo.
The Company leases 198,000 square feet in an industrial park in Allendale, New
Jersey for its orthopaedic implant business, 115,000 square feet of which is
used for manufacturing and warehousing; 111,000 square feet in Santa Clara,
California for its endoscopy business, 49,000 square feet of which is used for
manufacturing and warehousing; 28,000 square feet in Clackamas, Oregon for
production of maternity beds and furniture; 41,000 square feet in Fenton,
Missouri for its Medical service business; and 65,000 square feet in Arroyo,
Puerto Rico for the manufacture of various products. The Company's 158
physical therapy clinics and its administrative offices are all located in
leased offices which total 523,000 square feet.
The Company's subsidiary, Matsumoto Medical Instruments, Inc., maintains its
principal facilities in two buildings in Osaka, Japan, but also owns buildings
used for branch warehousing and sales offices in eight other cities throughout
Japan. Of the total owned 105,000 square feet, 37,000 square feet is devoted
to warehousing, with the balance used for administrative offices. Matsumoto
also leases 51,000 square feet at certain branch locations, with 27,000 square
feet used for warehousing and 24,000 square feet used for administrative
offices.
In Europe, the Company maintains 33,000 square feet in Bordeaux, France (5,000
of which is leased) for its spinal implant manufacturing operation.
Manufacturing and warehousing account for 26,000 square feet of the total and
the remainder is used for administrative offices. The Company also leases
other foreign sales and administration offices which total 163,000 square
feet.
In addition, the Company leases 12,000 square feet in Kalamazoo, Michigan for
its administrative offices.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant and plaintiff in various legal actions arising in
the normal course of business. The Company does not anticipate material
losses as a result of these actions.
In July 1995, a decision was issued by a Federal District Court in a patent
suit brought by the Company against Intermedics Orthopedics, Inc. and its
distributor for infringement of the Company's U.S. patent on its Omniflex Hip
System. The Court held that the Company's patent is valid and enforceable and
that the Company is entitled to damages and attorney fees. In a subsequent
decision, the Court fixed the damage award at $72,700,000, including interest.
Intermedics has appealed the Court's decision. Until the appeal process is
complete, management is unable to determine the financial impact of the
Court's decision on the Company. Accordingly, the financial statements for
the year ended December 31, 1995, incorporated herein by reference, do not
give recognition to any gain which might ultimately be realized as a result of
this decision.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS
Certain information with respect to the executive officers of the Company is
set forth in Item 10 of this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market on The
Nasdaq Stock Market under the symbol STRY. Quarterly stock prices appearing
under the caption "Summary of Quarterly Data" on page 36 of the 1995 Annual
Report and dividend information for the years ended December 31, 1994 and 1995
under the caption "Ten Year Review" on page 18 of the 1995 Annual Report are
incorporated herein by reference. The Company's Board of Directors intends to
consider a year-end cash dividend annually at its December meeting.
On December 31, 1993, the Company's Board of Directors authorized the
repurchase in the open market from time to time, depending upon revailing
market conditions, of up to 600,000 shares of its common stock. At March 20,
1996, 122,500 shares had been repurchased under this plan.
On December 31, 1995 there were 3,260 stockholders of record of the Company's
common stock.
ITEM 6. SELECTED FINANCIAL DATA
The financial information for each of the five years in the period ended
December 31, 1995 under the caption "Ten Year Review" on pages 18 and 19 of
the 1995 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 20 through 23 of the
1995 Annual Report is incorporated herein by reference.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries and
report of independent auditors, included on pages 24 through 37 of the 1995
Annual Report are incorporated herein by reference.
Quarterly results of operations appearing under the caption "Summary of
Quarterly Data" on page 36 of the 1995 Annual Report are incorporated herein
by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding the directors of the Company appearing under the caption
"Election of Directors" and the information appearing under the caption
"Miscellaneous - Section 16 Reporting" in the 1996 proxy statement is
incorporated herein by reference.
Information regarding the executive officers of the Company appears below.
All officers are elected annually. Reported ages are as of January 31, 1996.
John W. Brown, age 61, has been Chairman of the Board since January 1981, and
President and Chief Executive Officer of the Company since February 1977. He
is also a director of Lunar Corporation, a medical products company, First of
America Bank Corporation, a bank, the Health Industry Manufacturers
Association and The American Business Conference.
Dean H. Bergy, age 36, was appointed Controller upon joining the Company in
June 1994. He had previously been a Senior Manager at Ernst & Young LLP,
independent public accountants, since October 1988.
Ronald A. Elenbaas, age 42, was appointed President of the Surgical Group in
1985 and has been a Vice President of the Company since August 1983.
Previously he was the Director of Surgical Sales since May 1982. Since
joining the Company in September 1975 he has held various other positions,
including Sales Representative, Marketing Product Manager, Plant Manager,
Canadian Sales Director, Assistant to the President and Director of Customer
Relations.
William T. Laube, III, age 56, was appointed President of Stryker Pacific
Group in 1985 and has been a Vice President of the Company since March 1979.
Since joining the Company in July 1975 he has held various international sales
management positions.
Edward B. Lipes, age 43, was appointed a Vice President of the Company in May
1994 and has been President of Osteonics Corp. since August 1989. He held the
position of President, Physiotherapy Associates, Inc. upon joining the Company
in April 1988.
Julia M. Paradine-Rice, age 34, was appointed Treasurer of the Company in June
1994. She had previously held the position of Assistant Treasurer since 1990
and also held the position of Corporate Accounting Manager since joining the
Company in 1988.
David J. Simpson, age 49, was appointed Vice President, Chief Financial
Officer and Secretary upon joining the Company in June 1987. He had
previously been Vice President and Treasurer of Rexnord Inc., a manufacturer
of industrial and aerospace products, since July 1985.
<PAGE>
Thomas R. Winkel, age 43, was appointed President of Stryker Americas/Middle
East in March 1992 and has been a Vice President of the Company since December
1984. He had previously been Vice President, Administration since June 1987.
Since joining the Company in October 1978 he has held various other positions,
including Assistant Controller, Secretary and Corporate Controller.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the compensation of the management of the Company
appearing under the captions "Director Compensation" and "Executive
Compensation" in the 1996 proxy statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Beneficial Ownership of More than 5% of
the Outstanding Common Stock" and "Beneficial Ownership of Management" in the
1996 proxy statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Executive compensation plans and arrangements are referenced as
exhibits 10(i), (ii) and (iii).)
(a)(1) and (2) - The response to this portion of Item 14 is
submitted as a separate section of this report
following the signature page.
(a)(3) - Exhibits
Exhibit 3 - Articles of Incorporation and By-
Laws
(i) Restated Articles of Incorporation
and amendment thereto dated
December 28, 1993--Incorporated by
reference to Exhibit 3(i) to the
Company's Form 10-K for the year
ended December 31, 1993 (Commission
File No. 0-9165).
(ii) By-Laws--Incorporated by reference
to Exhibit 3(ii) to the Company's
Form 10-Q for the quarter ended
June 30, 1988 (Commission File
No. 0-9165).
Exhibit 4 - Instruments defining the rights
of security holders, including
indentures--The Company agrees to
furnish to the Commission upon request
a copy of each instrument pursuant to
which long-term debt of the Company
and its subsidiaries not exceeding 10%
of the total assets of the Company and
its consolidated subsidiaries is
authorized.
Exhibit 10 - Material contracts
(i)* 1988 Stock Option Plan as amended--
Incorporated by reference to Exhibit
10(i) to the Company's Form 10-K for
the year ended December 31, 1992
(Commission File No. 0-9165).
(ii)* Supplemental Savings and Retirement
Plan (as Amended Effective January 1,
1995--Incorporated by reference to
Exhibit 10(iii) to the Company's Form
10-K for the year ended December 31,
1994 (Commission File No. 0-9165)
(iii)* Description of bonus arrangements
between the Company and certain
officers, including Messrs. Brown,
Elenbaas, Laube, Lipes, Simpson and
Winkel.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
--continued
Exhibit 11 - Statement re computation of per share
earnings
(i) Statement Re: Computation of earnings
per share of common stock.
Exhibit 13 - Annual report to security holders
(i) Portions of the 1995 Annual Report that
are incorporated herein by reference.
Exhibit 21 - Subsidiaries of the registrant
(i) List of Subsidiaries.
Exhibit 23 - Consents of experts and counsel
(i) Consent of Independent Auditors.
Exhibit 27 - Financial data schedule
(i) Financial data schedule (included in
EDGAR filing only).
(b) Reports on Form 8-K - No reports on Form 8-K were required to be
filed in the fourth quarter of 1995.
(c) Exhibits - The response to this portion of Item 14 is submitted
as a separate section of this report following the signature
page.
(d) Financial statement schedules - The response to this portion of
Item 14 is submitted as a separate section of this report
following the signature page.
*compensation arrangement
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
-----------------------------------------
Date: 3/20/96 DAVID J. SIMPSON
---------------------- -----------------------------------------
David J. Simpson, Vice President, Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
JOHN W. BROWN 3/20/96 DAVID J. SIMPSON 3/20/96
- ----------------------------------- -----------------------------------
John W. Brown, Chairman, President David J. Simpson, Vice President,
and Chief Executive Officer Chief Financial Officer and
Secretary
(Principal Executive Officer) (Principal Financial Officer)
HOWARD E. COX, JR. 3/20/96 DEAN H. BERGY 3/20/96
- ----------------------------------- -----------------------------------
Howard E. Cox, Jr. - Director Dean H. Bergy, Controller
(Principal Accounting Officer)
DONALD M. ENGELMAN 3/20/96 RONDA E. STRYKER 3/20/96
- ----------------------------------- -----------------------------------
Donald M. Engelman, Ph.D.- Director Ronda E. Stryker - Director
JEROME H. GROSSMAN 3/20/96 WILLIAM U. PARFET 3/20/96
- ----------------------------------- -----------------------------------
Jerome H. Grossman, M.D. - Director William U. Parfet - Director
JOHN S. LILLARD 3/20/96
- -----------------------------------
John S. Lillard - Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1995
STRYKER CORPORATION
KALAMAZOO, MICHIGAN
<PAGE>
FORM 10-K--ITEM 14(a)(1), (2) AND (d)
STRYKER CORPORATION AND SUBSIDIARIES
List of Financial Statements and Financial Statement Schedule
The following consolidated financial statements of Stryker Corporation and
subsidiaries and report of independent auditors, included in the annual
stockholders report of the registrant for the year ended December 31, 1995,
are incorporated by reference in Item 8:
Report of independent auditors
Consolidated balance sheets--December 31, 1995 and 1994.
Consolidated statements of earnings--years ended December 31, 1995, 1994
and 1993.
Consolidated statements of stockholders' equity--years ended December 31,
1995, 1994 and 1993.
Consolidated statements of cash flows--years ended December 31, 1995,
1994 and 1993.
Notes to consolidated financial statements--December 31, 1995.
The following consolidated financial statement schedule of Stryker Corporation
and subsidiaries is included in Item 14(d):
Schedule II--Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
<PAGE>
<TABLE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
STRYKER CORPORATION AND SUBSIDIARIES
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
ADDITIONS
________________________________
(1) (2)
Charged to
Balance at Charged to Costs Other Accounts Deductions-- Balance at End
Description Beginning Period and Expenses --Describe<F2> Describe<F1> of Period
________________________________ ________________ ________________ ______________ ____________ ______________
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSET ACCOUNTS
Allowance for Doubtful Accounts:
Year ended December 31, 1995 $6,400,000 $1,934,000 $534,000 $7,800,000
========== ========== ======== ==========
Year ended December 31, 1994 $3,800,000 $3,090,000 $800,000 $1,290,000 $6,400,000
========== ========== ======== ========== ==========
Year ended December 31, 1993 $2,900,000 $1,660,000 $760,000 $3,800,000
========== ========== ======== ==========
<FN>
<F1>Uncollectible amounts written off, net of recoveries
<F2>Represents allowance for doubtful accounts acquired in connection with the acquisition of an additional 31%
interest in Matsumoto Medical Instruments, Inc. in August 1994, thereby increasing the Company's direct
ownership in Matsumoto to 51% and requiring Matsumoto's consolidation with Stryker beginning with that date.
</FN>
</TABLE>
<PAGE>
FORM 10-K--ITEM 14(c)
STRYKER CORPORATION AND SUBSIDIARIES
Exhibit Index
EXHIBIT
Page*
(3) Articles of incorporation and by-laws
(i) Restated Articles of Incorporation and amendment
thereto dated December 28, 1993 . . . . . . . . . . . . 13**
(ii) By Laws . . . . . . . . . . . . . . . . . . . . . . . . 13**
(10) Material contracts
(i) 1988 Stock Option Plan as amended . . . . . . . . . . . 13**
(ii) Supplemental Savings and Retirement Plan (as Amended
Effective January 1, 1995). . . . . . . . . . . . . . . 13**
(iii) Description of bonus arrangements between the Company
and certain officers, including Messrs. Brown, Elenbaas,
Laube, Lipes, Simpson and Winkel . . . . . . . . . . . 20
(11) Statement re computation of per share earnings
(i) Statement Re: Computation of earnings per share of
common stock. . . . . . . . . . . . . . . . . . . . . . 21
(13) Annual report to security holders
(i) Portions of the 1995 Annual Report that are
incorporated herein by reference. . . . . . . . . . . . 14**
(21) Subsidiaries of the registrant
(i) List of Subsidiaries. . . . . . . . . . . . . . . . . . 22
(23) Consents of experts and counsel
(i) Consent of Independent Auditors . . . . . . . . . . . . 23
(27) Financial data schedule
(i) Financial data schedule (included in EDGAR filing only)
* Page number in sequential numbering system where such exhibit can be
found, or it is stated that such exhibit is incorporated by reference.
** Incorporated by reference in this Annual Report on Form 10-K.
<PAGE>
EXHIBIT (10)(iii)
DESCRIPTION OF BONUS ARRANGEMENTS
The Company has entered into bonus arrangements with certain executive
officers for 1996, including Mr. Brown, Mr. Elenbaas, Mr. Laube, Mr. Lipes,
Mr. Simpson and Mr. Winkel, based on specific performance criteria including
sales, profits and asset management. The aggregate amount of such bonuses is
not expected to exceed $1,500,000.
<PAGE>
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Year Ended December 31
1995 1994 1993
----------- ----------- -----------
Average number of shares outstanding 48,468,000 48,367,000 48,356,000
Net earnings $87,010,000 $72,400,000 $60,205,000
=========== =========== ===========
Earnings per share of common stock:
Net earnings $1.80 $1.50 $1.25
===== ===== =====
Primary:
Average shares outstanding 48,468,000 48,367,000 48,356,000
Net effect of dilutive stock options,
based on the treasury stock method
using average market price 799,000 737,000 536,000
----------- ----------- -----------
Total Primary Shares 49,267,000 49,104,000 48,892,000
=========== =========== ===========
Fully Diluted:
Average shares outstanding 48,468,000 48,367,000 48,356,000
Net effect of dilutive stock options,
using the year-end market price, if
higher then average market price 898,000 770,000 586,000
----------- ----------- -----------
Total Fully Diluted Shares 49,366,000 49,137,000 48,942,000
=========== =========== ===========
Note: Shares subject to stock options are not included in the earnings per
share computation because the present effect thereof is not materially
dilutive.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Stryker Corporation
We have audited the accompanying consolidated balance sheet of Stryker
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Stryker
Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Ernst & Young LLP
Kalamazoo, Michigan
January 31, 1996
<TABLE>
TEN-YEAR REVIEW
(dollars in thousands, except per share amounts)
<CAPTION>
SUMMARY OF OPERATIONS 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
________ ________ ________ ________ ________ ________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $871,952 $681,920 $557,335 $477,054 $364,825 $280,634 $225,860 $178,636 $148,095 $129,183
Costs and expenses:
Cost of sales 369,444 300,381 256,748 221,650 172,477 132,882 106,899 85,037 71,420 64,090
Research, development
and engineering 43,771 39,630 36,199 32,313 23,703 19,663 15,572 12,193 8,888 6,509
Selling, general and
administrative 301,426 221,433 172,446 149,390 117,089 92,384 71,761 55,046 45,776 39,946
________ ________ ________ ________ ________ ________ ________ ________ ________ ________
714,641 561,444 465,393 403,353 313,269 244,929 194,232 152,276 126,084 110,545
________ ________ ________ ________ ________ ________ ________ ________ ________ ________
Operating Income 157,311 120,476 91,942 73,701 51,556 35,705 31,628 26,360 22,011 18,638
Other income (expense) 5,782 7,099 4,123 3,239 1,789 2,395 (598) (360) 14 77
________ ________ ________ ________ ________ ________ ________ ________ ________ ________
Earnings Before Income Taxes,
Minority Interest and
Extraordinary Item 163,093 127,575 96,065 76,940 53,345 38,100 31,030 26,000 22,025 18,715
Income taxes 66,900 50,770 35,860 29,240 20,270 14,475 11,800 10,140 9,300 8,502
Earnings before Minority
Interest 96,193 76,805 60,205 47,700 33,075 23,625 19,230 15,860 12,725 10,213
Minority interest (9,183) (4,405)
________ ________ ________ ________ ________ ________ ________ ________ ________ ________
Earnings Before Extraordinary
Item 87,010 72,400 60,205 47,700 33,075 23,625 19,230 15,860 12,725 10,213
Extraordinary gain (net) 9,910
________ ________ ________ ________ ________ ________ ________ ________ ________ ________
Net Earnings $87,010 $72,400 $60,205 $47,700 $33,075 $33,535 $19,230 $15,860 $12,725 $10,213
Earnings Per Share of
Common Stock:<F1>(a)
Before extraordinary item $1.80 $1.50 $1.25 $1.00 $.70 $.50 $.41 $.34 $.27 $.22
Extraordinary gain (net)
Net Earnings $1.80 $1.50 $1.25 $1.00 $.70 $.71 $.41 $.34 $.27 $.22
Dividend Per Share of
Common Stock $.09 $.08 $.07 $.06 $.05
Average Number of Shares
Outstanding - in thousands (a) 48,468 48,367 48,356 47,716 47,526 47,396 47,178 46,864 46,734 46,410
<FN>
<F1>(a) Adjusted for the three-for-two stock split effective May 19, 1989, and the two-for-one stock splits effective May 11, 1987
and May 13, 1991.
</FN>
</TABLE>
<PAGE>
<TABLE>
FINANCIAL AND STATISTICAL DATA
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
________ ________ ________ ________ ________ ________ ________ ________ ________ ________
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and Marketable Securities 264,648 202,045 152,637 91,752 80,029 54,052 19,282 4,602 5,999 8,390
Working Capital 448,815 361,318 213,965 168,197 140,296 117,877 89,594 70,071 56,399 43,538
Current Ratio 3.6 3.0 2.6 2.7 2.6 3.0 3.5 3.4 3.3 2.9
Property, Plant and
Equipment - Net 182,592 180,719 67,707 59,649 36,056 28,700 22,918 20,703 17,658 17,018
Capital Expenditures 36,299 29,239 20,160 31,618 16,570 11,935 7,106 7,987 3,895 5,377
Depreciation and Amortization 28,654 20,944 16,183 11,382 11,796 7,109 6,312 5,999 5,402 3,860
Total Assets 854,891 767,971 454,204 340,272 270,316 209,521 152,333 124,830 104,965 89,323
Long-Term Debt 96,967 95,276 31,282 1,433 1,400 1,900 2,655 3,121 3,704 3,951
Stockholders' Equity 454,279 358,266 288,434 232,261 179,875 147,875 112,029 91,019 75,216 60,455
Return on Average Equity 21.4 22.4 23.1 23.1 20.2 18.2 18.9 19.1 18.8 18.6
Number of Stockholders of Record 3,260 3,684 3,951 3,512 2,914 2,400 2,294 2,049 2,055 1,626
Number of Employees 4,629 4,221 3,228 2,906 2,448 1,913 1,599 1,408 1,180 1,073
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The table below outlines the components of the consolidated statements of
earnings as a percentage of net sales:
Percentage
Percentage of Net Sales Increase
_______________________ ________________
1995 1994 1993 1995/94 1994/93
______ ______ ______ _______ _______
Net Sales 100.0% 100.0% 100.0% 28% 22%
Cost of sales 42.4 44.0 46.1 23 17
Research, development and
engineering expense 5.0 5.8 6.5 10 9
Selling, general and
administrative expense 34.6 32.5 30.9 36 28
______ ______ ______
Operating Income 18.0 17.7 16.5 31 31
Other income 0.7 1.0 0.7
______ ______ ______
Earnings Before Income Taxes
and Minority Interest 18.7 18.7 17.2 28 33
Income taxes 7.7 7.4 6.4 32 42
______ ______ ______
Earnings Before Minority Interest 11.0 11.3 10.8 25 28
Minority interest (1.0) (.7)
______ ______ ______
Net Earnings 10.0% 10.6% 10.8% 20 20
====== ====== ======
The table below sets forth domestic/international and product line sales
information:
Percentage
Net Sales (in thousands) Increase
____________________________ ________________
1995 1994 1993 1995/94 1994/93
________ ________ ________ _______ _______
Domestic/International Sales
Domestic $477,207 $405,549 $378,255 18% 7%
International 394,745 276,371 179,080 43 54
Total Net Sales $871,952 $681,920 $557,335 28 22
Product Line Sales
Stryker Surgical $608,646 $502,961 $447,042 21 13
Stryker Medical 158,516 135,520 110,293 17 23
Matsumoto Distributed
Products 104,790 43,439 141 --
________ ________ ________
Total Net Sales $871,952 $681,920 $557,335 28 22
======== ======== ========
<PAGE>
1995 COMPARED TO 1994
Stryker Corporation's net sales increased 28% in 1995 to $872.0 million from
$681.9 million in 1994. The 1994 purchase by Stryker of an additional 31%
interest in its Japanese distributor, Matsumoto Medical Instruments, Inc.
(Matsumoto), and Matsumoto's resulting consolidation with Stryker beginning in
August 1994, accounted for a 15% sales increase through incremental sales of
Matsumoto Distributed Products, which are sourced by Matsumoto from other
companies for sale in Japan, and incremental margins and increased unit volume
of Stryker products in Japan for the first seven months of 1995. Increased
unit volume generated a 6% sales increase, other business acquisitions
accounted for a 3% increase and a 1% increase arose from changes in foreign
currency exchange rates. Net sales increased 3% as a result of the Company's
conversion of certain portions of the Osteonics domestic distribution network
to direct sales, which began in 1994 and resulted in higher selling prices
offset by the repurchase of inventory from distributors converted in 1995.
The Company's domestic sales increased 18% in 1995 compared to 1994. The
leading domestic sales gains came from strong shipments of Stryker Surgical
products and increased physical therapy revenue. International sales
increased 43% in 1995 and were led by incremental Japanese sales from the
consolidation of Matsumoto along with increased shipments of Stryker Surgical
and Medical products. International sales grew to 45% of total sales in 1995
compared to 41% in 1994.
Stryker Surgical product sales (principally orthopaedic products) increased
21% for the year. The increase in domestic sales of Stryker Surgical products
was led by Osteonics hip and knee implants, the Steri-Shield Personal
Protection System product line acquired in June 1994 and Stryker Instruments'
heavy duty powered surgical instruments and High Vacuum Cement Injection
System. The increase in international sales of Stryker Surgical products was
led by incremental sales from the consolidation of Matsumoto along with sales
of Osteonics orthopaedic implants, endoscopic equipment and powered surgical
instruments. Stryker Medical product sales (principally specialty
stretchers/beds and physical therapy services) increased 17% for the year, led
by increased revenues from physical therapy services,primarily as a result of
business acquisitions during the year. Sales of Matsumoto Distributed
Products increased by 141% for the year as a result of the consolidation of
Matsumoto for twelve months in 1995 and only five months in 1994. Sales of
Matsumoto Distributed Products declined 29% in the fourth quarter of 1995
compared to the fourth quarter of 1994 as a result of the termination of
several distribution agreements. These terminations are expected to lead to a
further decrease in sales of Matsumoto Distributed Products in 1996.
<PAGE>
Cost of sales represented 42.4% of sales compared to 44.0% in 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 the Osteonics domestic distribution network, which
resulted in increased direct sales to hospitals. Research, development and
engineering expense increased 10% as the Company spent $43.8 million on
product development in 1995 compared to $39.6 million in 1994. The decrease
in research, development and engineering 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
continued commitment to product development 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 4100 Cordless
Driver and the Stryker Stretcher Chair. Selling, general and administrative
expenses increased 36% in 1995 as a result of consolidating Matsumoto which,
as a distributor, has a higher percentage of these expenses, along with
increased selling expenses resulting from the changes in the Osteonics
distribution network. These costs increased to 34.6% of sales in 1995
compared to 32.5% in 1994.
The effective tax rate increased to 41.0% in 1995 compared to 39.8% in 1994 as
a result of the higher Japanese tax rate on the earnings of Matsumoto.
Earnings before minority interest increased 25% in 1995 compared to 1994. Net
earnings in 1995 were $87.0 million, a 20% increase over the Company's 1994
net earnings of $72.4 million. The consolidation with Matsumoto increased net
earnings for 1995 by $3.0 million ($.06 per share) from 1994.
1994 COMPARED TO 1993
Stryker Corporation's net sales increased 22% in 1994 to $681.9 million
compared to $557.3 million in 1993. The consolidation of Matsumoto beginning
in August 1994, accounted for a 12% sales increase through incremental sales
at end customer selling prices of Stryker products and added sales of
Matsumoto Distributed Products. Increased unit volume generated an 8%
increase in sales, other business acquisitions accounted for 3% of the overall
gain and higher selling prices provided an additional 2% increase. 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 3%.
Uncertainty over the impact of U.S. health care reform programs generally
slowed domestic sales of medical devices during 1994. The Company's domestic
sales increased 7% in 1994 compared to 1993. International sales increased
54% in 1994. The international sales gains were led by incremental Japanese
sales from the consolidation of Matsumoto along with increased shipments of
Osteonics orthopaedic implants, Dimso spinal implants, powered surgical
instruments and hospital beds and stretchers. International sales grew to 41%
of total sales in 1994 compared to 32% in 1993.
<PAGE>
Stryker Surgical product sales increased 13% for the year. The increase in
domestic sales of Stryker Surgical products was led by Stryker Instruments'
SurgiLav Plus pulsed irrigation system and High Vacuum Cement Injection System
and Stryker Endoscopy's line of powered arthroscopic instruments. The
increase in international sales of Surgical products was led by sales of
Osteonics orthopaedic implants, Dimso spinal implants, powered surgical
instruments and incremental margins on Stryker products resulting from the
consolidation of Matsumoto. Sales of Stryker Medical products increased 23%,
led by increased revenues from physical therapy services as a result of
business acquisitions during the year, increased sales of the MPS Primary
Acute Care Bed, which was introduced in the third quarter of 1993, and
increased sales of patient handling equipment. Sales of Matsumoto Distributed
Products were added beginning with the consolidation of Matsumoto in August
1994.
Cost of sales represented 44.0% of sales compared to 46.1% in 1993. The lower
cost of sales percentage in 1994 resulted from additional margins on Stryker
products sold by Matsumoto since its consolidation and improved margins from
ongoing cost reduction programs and the conversion of certain portions of the
Osteonics domestic distribution network, which resulted in increased direct
sales to hospitals. Research, development and engineering expense increased
9% as the Company spent $39.6 million on product development in 1994 compared
to $36.2 million in 1993. The decrease in research, development and
engineering expense as a percentage of sales in 1994 is principally a result
of consolidating Matsumoto which, as a distributor, incurs minimal research
and development costs. The Company's continued commitment to product
development resulted in several new products in 1994, including the Omnifit-
Plus forged cobalt chrome hip stem, the Sapphire View arthroscope system, a
new low cost high resolution 1-chip camera, a second generation ConstaVac
CBCII Blood Conservation System and a new line of powered micro instruments
for oral/maxillofacial procedures. Selling, general and administrative
expenses increased 28% in 1994, principally as a result of consolidating
Matsumoto which, as a distributor, has a higher percentage of these expenses,
along with increased selling expenses resulting from the changes in the
Osteonics distribution network. These costs increased to 32.5% of sales in
1994 compared to 30.9% in 1993.
The effective tax rate increased to 39.8% in 1994 compared to 37.3% in 1993 as
a result of the higher Japanese tax rate on the earnings of Matsumoto.
Earnings before minority interest increased 28% in 1994 compared to 1993. Net
earnings in 1994 were $72.4 million, a 20% increase over the Company's 1993
net earnings of $60.2 million.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Stryker's financial position continued to strengthen in 1995, with operating
activities providing $111.5 million in cash. Working capital increased to
$448.8 million from $361.3 million in the prior year. Accounts receivable
increased 6% and days sales outstanding at the end of 1995 decreased to 64
days from 67 days at the end of 1994. Inventories increased 15% in 1995 and
days sales in inventory finished 1995 at 133 days compared to 131 days at the
end of 1994.
The Company's cash and marketable securities of $264.6 million at December 31,
1995, as well as anticipated cash flows from operations, are expected to be
sufficient to fund planned future operating capital requirements and to
finance future acquisitions. Should additional funds be required, the Company
has unsecured lines of credit with banks totaling $55.4 million, of which none
was utilized at December 31, 1995.
CONSOLIDATED BALANCE SHEETS
STRYKER CORPORATION AND SUBSIDIARIES
December 31
(in thousands, except per share amounts) 1995 1994
________ ________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 69,049 $116,781
Marketable securities 195,599 85,264
Accounts receivable, less allowance of $7,800
($6,400 in 1994) 163,593 154,590
Inventories 133,619 115,757
Deferred income taxes 47,058 54,333
Prepaid expenses and other current assets 14,335 13,804
________ ________
TOTAL CURRENT ASSETS 623,253 540,529
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements 138,324 131,320
Machinery and equipment 147,177 139,948
________ ________
285,501 271,268
Less allowance for depreciation 102,909 90,549
________ ________
182,592 180,719
OTHER ASSETS
Intangibles, less accumulated amortization
of $11,344 ($8,159 in 1994) 18,193 17,272
Other 30,853 29,451
________ ________
49,046 46,723
________ ________
$854,891 $767,971
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 208
Accounts payable $ 49,029 50,433
Accrued compensation 32,447 28,834
Income taxes 25,633 38,811
Accrued expenses and other liabilities 64,277 55,556
Current maturities of long-term debt 3,052 5,369
________ ________
TOTAL CURRENT LIABILITIES 174,438 179,211
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 96,967 95,276
OTHER LIABILITIES 24,214 35,245
MINORITY INTEREST 104,993 99,973
STOCKHOLDERS' EQUITY
Common stock, $.10 par value:
Authorized--150,000 shares
Outstanding--48,554 shares (48,369 in 1994) 4,855 4,837
Additional paid-in capital 19,592 15,796
Retained earnings 419,537 336,897
Unrealized gains (losses) on securities 2,314 (1,315)
Foreign translation adjustments 7,981 2,051
________ ________
TOTAL STOCKHOLDERS' EQUITY 454,279 358,266
________ ________
$854,891 $767,971
======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS
STRYKER CORPORATION AND SUBSIDIARIES
Years Ended December 31
(in thousands, except per
share amounts)
1995 1994 1993
________ ________ ________
Net Sales $871,952 $681,920 $557,335
Costs and expenses:
Cost of sales 369,444 300,381 256,748
Research, development and engineering 43,771 39,630 36,199
Selling, general and administrative 301,426 221,433 172,446
________ ________ ________
714,641 561,444 465,393
________ ________ ________
Operating Income 157,311 120,476 91,942
Other income 5,782 7,099 4,123
________ ________ ________
Earnings Before Income Taxes and
Minority Interest 163,093 127,575 96,065
Income taxes 66,900 50,770 35,860
________ ________ ________
Earnings Before Minority Interest 96,193 76,805 60,205
Minority interest (9,183) (4,405)
________ ________ ________
Net Earnings $ 87,010 $ 72,400 $ 60,205
======== ======== ========
Net Earnings Per Share of Common Stock $1.80 $1.50 $1.25
======== ======== ========
Average Number of Shares Outstanding 48,468 48,367 48,356
======== ======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
STRYKER CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31 Additional Unrealized Foreign
(in thousands, except Common Paid-In Retained Gains (Losses) Translation
per share amounts) Stock Capital Earnings on Securities Adjustments
______ __________ ________ ______________ ___________
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $4,830 $15,732 $211,550 $ 149
Net earnings for 1993 60,205
Sales of 92 shares of common stock under
stock option and benefit plans,
including $393 income tax benefit 10 1,379
Cash dividend declared of $.07 per share
of common stock (3,388)
Translation adjustment (2,033)
______ _______ ________ _______ ______
Balance at December 31, 1993 4,840 17,111 268,367 (1,884)
Net earnings for 1994 72,400
Sales of 96 shares of common stock under
stock option and benefit plans,
including $740 income tax benefit 9 1,782
Repurchases of 122 shares of common stock (12) (3,097)
Cash dividend declared of $.08 per share
of common stock (3,870)
Adjustment to beginning balance for change
in accounting method, net of income taxes
of $751 $1,180
Unrealized losses, net of $1,636 income
tax benefit (2,495)
Translation adjustment 3,935
______ _______ ________ _______ ______
Balance at December 31, 1994 4,837 15,796 336,897 (1,315) 2,051
Net earnings for 1995 87,010
Sales of 185 shares of common stock under
stock option and benefit plans,
including $1,615 income tax benefit 18 3,796
Cash dividend declared of
$.09 per share of common
stock (4,370)
Unrealized gains, net of
income taxes of $2,535 3,629
Translation adjustment 5,930
______ _______ ________ _______ ______
Balance at December 31, 1995 $4,855 $19,592 $419,537 $ 2,314 $7,981
====== ======= ======== ======= ======
See accompanying notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
STRYKER CORPORATION AND SUBSIDIARIES
Years Ended December 31
(in thousands)
1995 1994 1993
________ ________ ________
OPERATING ACTIVITIES
Net Earnings $ 87,010 $ 72,400 $ 60,205
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 25,542 18,717 13,048
Amortization 3,112 2,227 3,135
Minority interest 9,183 4,405
Provision for losses on accounts receivable 1,400 2,600 900
Deferred income taxes (credit) 2,484 (3,818) (2,917)
Changes in operating assets and liabilities,
net of effects of business acquisitions:
Decrease (increase) in accounts receivable (13,560) 2,862 (11,305)
Decrease (increase) in inventories (1,599) 5,798 2,271
Increase (decrease) in accounts payable (703) (8,594) 4,982
Increase (decrease) in income taxes (5,909) (3,898) 11,092
Other 4,576 4,994 4,691
________ ________ ________
Net Cash Provided by Operating Activities 111,536 97,693 86,102
INVESTING ACTIVITIES
Purchases of property, plant and equipment (36,299) (29,239) (20,160)
Sales (purchases) of marketable securities (110,335) 17,661 (54,264)
Business acquisitions, net of cash acquired (17,743) (42,557) (34,654)
________ ________ ________
Net Cash Used in Investing Activities (164,377) (54,135) (109,078)
FINANCING ACTIVITIES
Proceeds from borrowings 9,795 59,919 33,563
Payments on borrowings (5,913) (31,771) (2,016)
Dividends paid (3,870) (3,388) (2,898)
Proceeds from exercise of stock options 3,814 1,791 1,389
Repurchases of common stock (3,109)
Other 1,131 (1,307) (126)
________ ________ ________
Net Cash Provided by Financing Activities 4,957 22,135 29,912
Effect of exchange rate changes on cash and
cash equivalents 152 1,376 (315)
________ ________ ________
Increase (Decrease) in Cash and Cash
Equivalents (47,732) 67,069 6,621
Cash and cash equivalents at beginning of year 116,781 49,712 43,091
________ ________ ________
Cash and Cash Equivalents at End of Year $ 69,049 $116,781 $ 49,712
======== ======== ========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STRYKER CORPORATION AND SUBSIDIARIES
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: Stryker Corporation develops, manufactures and markets specialty
surgical and medical products which are sold primarily to hospitals throughout
the world and provides outpatient physical therapy services in the United
States.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries and, effective
in August 1994 (see Note 4), its 51% owned subsidiary, Matsumoto Medical
Instruments, Inc., after elimination of all significant intercompany accounts
and transactions. Minority interest represents the minority stockholders'
equity in Matsumoto's net earnings since August 1994 and their equity in
Matsumoto's net assets at December 31, 1995 and 1994. The Company's 20%
investment in Matsumoto during the period from August 1993 to July 1994 was
accounted for by the equity method.
REVENUE RECOGNITION: Revenue is recognized on the sale of products and
services when the related goods have been shipped or services have been
rendered.
USE OF ESTIMATES: The preparation of these consolidated financial statements
in conformity with generally accepted accounting principles requires
management of the Company to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
CASH EQUIVALENTS AND INVESTMENTS: Cash equivalents are highly liquid
investments with a maturity of three months or less when purchased.
Investments include marketable equity and debt securities classified as
current assets and certain noncurrent investments included in other assets.
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 income taxes, reported as a separate
component of stockholders' equity. Interest and dividends on these securities
are included in other income.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost for
approximately 78% (75% in 1994) of inventories is determined using the lower
of first-in, first-out (FIFO) cost or market. Cost for certain domestic
inventories is determined using the last-in, first-out (LIFO) cost method.
The FIFO cost for all inventories approximates replacement cost.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at
cost. Depreciation is computed by the straight-line or declining balance
methods over the estimated useful lives of the assets.
INTANGIBLE ASSETS: Intangible assets represent the excess of purchase price
over fair value of tangible net assets of acquired businesses. Intangible
assets, which include patents and intangibles not specifically identifiable,
are being amortized using the straight-line method over periods of up to
sixteen years.
INCOME TAXES: The Company accounts for income taxes using the liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates in effect for the
years in which the differences are expected to reverse. Deferred tax expense
represents the change in net deferred tax assets and liabilities during the
year.
STOCK OPTIONS: The Company follows Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees" in accounting for its
employee stock options. Under APB 25, no compensation expense is recognized
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant.
EARNINGS PER SHARE: Earnings per share is based upon the average number of
shares of common stock outstanding during each year. Shares subject to option
are not included in earnings per share computations because the present effect
thereof is not materially dilutive.
2. INVESTMENTS
Effective January 1, 1994, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," for investments held as of or acquired after that
date. In accordance with the Statement, prior period financial statements
were not restated to reflect the change in accounting principle. The balance
of stockholders' equity at January 1, 1994 was increased by $1,180,000 (net of
$751,000 in deferred income taxes) to reflect the net unrealized holding gains
on securities classified as available-for-sale previously carried at cost.
<PAGE>
The following is a summary of the Company's investments in marketable equity
and debt securities (in thousands):
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
________ __________ __________ __________
At December 31, 1995:
Debt securities $193,988 $1,720 ($109) $195,599
Equity securities 7,575 2,579 (226) 9,928
________ ______ ______ ________
Total $201,563 $4,299 ($335) $205,527
======== ====== ====== ========
At December 31, 1994:
Debt securities $ 87,490 ($2,081) $ 85,409
Equity securities 7,700 $ 263 (382) 7,581
________ ______ ______ ________
Total $ 95,190 $ 263 ($2,463) $ 92,990
======== ====== ====== ========
Gross realized gains on sales of the Company's investments totaled $248,000
and $50,000 in 1995 and 1994, respectively, and gross realized losses totaled
$768,000 and $306,000 in 1995 and 1994, respectively. At December 31, 1995,
approximately 30% of the Company's investments in debt securities mature
within one year and substantially all of the remainder mature within three
years.
Interest income, which is included in other income, totaled $11,197,000 in
1995, $6,048,000 in 1994 and $3,520,000 in 1993.
3. INVENTORIES
Inventories are as follows (in thousands):
December 31
1995 1994
________ ________
Finished goods $105,209 $ 86,719
Work-in-process 7,552 7,552
Raw material 28,602 28,784
________ ________
FIFO cost 141,363 123,055
Less LIFO reserve 7,744 7,298
________ ________
$133,619 $115,757
======== ========
4. 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%. Matsumoto is one of the
largest distributors of medical devices in Japan and is the exclusive
distributor of most Stryker products in that country. The cost of the 31%
investment, which was based on net book value, was approximately 6.0 billion
yen ($62.0 million). Payment of approximately 847 million yen ($9.8 million)
of the purchase price was deferred to March 1995. The acquisition was
accounted for by the purchase method and the results of operations for
Matsumoto were consolidated with Stryker beginning in August 1994. If the
acquisition had occurred on January 1, 1993, pro forma net sales for the
Company would have been $762,341,000 for 1994 and $694,923,000 for 1993. Pro
forma net earnings would not have differed significantly from reported
results.
In August 1993, the Company purchased 20% of the outstanding common stock of
Matsumoto. The cost of the investment, which was based on net book value, was
approximately 3.4 billion yen ($32.8 million). This initial investment was
accounted for under the equity method until August 1994, when the additional
31% interest was acquired. The Company's share of Matsumoto's net earnings
did not have a material impact on the Company's net earnings in 1993.
In June 1994, the Company purchased the Steri-Shield product line, which is a
personal protection system for operating room personnel. The acquisition was
accounted for by the purchase method at a total cost of $6,500,000, of which
$5,500,000 in royalties will be paid over the following seven years.
Intangible assets acquired, principally patents, are being amortized over
seven to ten years. Pro forma consolidated results including the purchased
business would not differ significantly from reported results.
During 1995, 1994 and 1993, the Company's subsidiary, Physiotherapy
Associates, Inc., purchased several physical therapy clinic operations. The
aggregate purchase price of these clinics in 1995, 1994 and 1993 was
approximately $5,700,000, $7,600,000 and $1,900,000, respectively. Intangible
assets acquired, principally employment contracts and 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.
5. BORROWINGS
The Company and its subsidiaries have unsecured short-term line of credit
arrangements with banks aggregating $20,000,000 domestically and $35,400,000
equivalent in foreign currencies. There were no borrowings under these lines
at December 31, 1995. Borrowings under these lines at December 31, 1994 were
$208,000 in foreign funds at an average interest rate of 12.8%. These lines
generally expire on July 31, 1996.
<PAGE>
Long-term debt is as follows (in thousands):
December 31
1995 1994
________ ________
Bank loans $ 91,606 $ 86,616
Other 8,413 14,029
________ ________
100,019 100,645
Less current maturities 3,052 5,369
________ ________
$ 96,967 $ 95,276
======== ========
The bank loans represent two separate borrowings made to finance the
acquisition of the Company's 51% interest in Matsumoto Medical Instruments,
Inc. (see Note 4). Both loans are Japanese yen denominated, are unsecured and
mature in August 1998. The first loan is from the Chicago branch of The Sanwa
Bank, Limited, has a principal balance of $33,167,000 ($34,442,000 at December
31, 1994) and bears interest at a fixed annual rate of 4.76%. The second loan
is a floating rate loan from the Chicago branches of The Bank of Tokyo, Ltd.,
The Mitsubishi Bank Limited and The Sanwa Bank, Limited and has a principal
balance of $58,439,000 ($52,174,000 at December 31, 1994). The Company has
fixed the effective annual interest rate of this debt at 4.10% using an
interest rate swap with a notional amount and term equal to that of the
related loan. The yen denominated loans act as hedges of the Company's
investment in Matsumoto. As a result, adjustments made to the loan balances
to reflect applicable currency exchange rates at December 31 are included in
the foreign translation adjustments component of stockholders' equity.
Maturities of debt for the four years succeeding 1996 are: 1997 - $52,000;
1998 - $91,662,000; 1999 - $4,918,000; and 2000 - $66,000.
The carrying amounts of the Company's long-term debt and interest rate swap
approximate their fair values based on the Company's current borrowing rates
for similar types of borrowing agreements and quoted market rates,
respectively.
Total interest expense, which is included in other income and approximates
interest paid, was $6,319,000 in 1995, $3,677,000 in 1994, and $1,067,000 in
1993.
<PAGE>
6. CAPITAL STOCK
The Company has key employee and director Stock Option Plans under which
options are granted at a price not less than fair market value at the date of
grant. The options are granted for periods of up to ten years and become
exercisable in varying installments. A summary of stock option activity
follows:
Option
Shares Price Per Share
_________ _________________
Options Outstanding at January 1, 1994 1,656,525 $ 3.20 - $34.25
Granted 37,500 25.88 - 28.00
Canceled (58,000) 6.75 - 34.25
Exercised (88,040) 3.20 - 25.50
_________ _________________
Options Outstanding at December 31, 1994 1,547,985 3.20 - 34.25
Granted 25,000 45.88
Canceled (66,700) 6.75 - 25.50
Exercised (184,585) 3.20 - 34.25
_________ _________________
Options Outstanding at December 31, 1995 1,321,700 $4.34 - $45.88
========= =================
At December 31, 1995, options for 809,600 shares were exercisable and
1,175,300 shares were reserved for future grants.
The Company has 500,000 authorized shares of $1 par value preferred stock,
none of which are outstanding.
7. RETIREMENT PLANS
Substantially all employees of the Company are covered by retirement plans.
The majority of employees are covered by profit sharing or defined
contribution retirement plans.
The Company's 51% owned subsidiary, Matsumoto Medical Instruments, Inc., has a
noncontributory defined benefit plan covering all employees who are generally
entitled, upon termination, to lump-sum or annuity payments of amounts
determined by reference to the current level of salary, length of service, and
the conditions under which the termination occurs. Matsumoto's funding policy
for the plan is to contribute actuarially determined amounts on a monthly
basis. In addition, certain officers of Matsumoto are customarily entitled to
lump-sum payments under an unfunded retirement plan. An accrual has been
provided for the expected cost of these benefits earned to date, although
such payments are subject to the approval of Matsumoto's stockholders.
Amounts accrued for both Matsumoto retirement plans, which provide for
substantially all unfunded obligations under the plans, totaled $16,369,000 at
December 31, 1995 ($16,235,000 at December 31, 1994) and are recorded as other
noncurrent liabilities in the consolidated balance sheets.
<PAGE>
Retirement plan expense under all of the Company's retirement plans totaled
$11,253,000 in 1995, $6,753,000 in 1994 and $5,302,000 in 1993.
8. INCOME TAXES
Earnings before income taxes and minority interest consist of the following
(in thousands):
1995 1994 1993
________ ________ _______
United States operations $103,813 $100,996 $88,181
Foreign operations 59,280 26,579 7,884
________ ________ _______
$163,093 $127,575 $96,065
======== ======== =======
The components of the provision for income taxes follow (in thousands):
1995 1994 1993
_______ ________ _______
Current:
Federal $34,676 $31,932 $26,114
State, including Puerto Rico 2,300 5,133 10,372
Foreign 27,440 17,523 2,291
_______ ________ _______
64,416 54,588 38,777
Deferred tax expense (credit) 2,484 (3,818) (2,917)
_______ ________ _______
$66,900 $50,770 $35,860
======= ======== =======
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:
1995 1994 1993
_____ _____ ____
U.S. statutory income tax rate 35.0% 35.0% 35.0%
Add (deduct):
State taxes, less effect of federal deduction .3 2.3 6.3
Foreign income taxes at rates different from the
U.S. statutory rate 6.8 5.4 (.8)
Tax benefit relating to operations in Puerto Rico (1.7) (2.0) (1.8)
U.S. research and development tax credit (.2) (.6) (1.4)
Earnings of Foreign Sales Corporation (1.0) (1.4) (1.4)
Other 1.8 1.1 1.4
____ ____ ____
41.0% 39.8% 37.3%
==== ==== ====
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effect of
significant temporary differences which comprise the Company's deferred tax
assets and liabilities are as follows (in thousands):
December 31
1995 1994
_______ _______
Deferred Tax Assets:
Inventories $30,533 $34,475
Accounts receivable and other assets 1,877 2,048
Other accrued expenses 20,729 18,165
State taxes 1,677 3,127
Other 164 2,226
_______ _______
Total Deferred Tax Assets 54,980 60,041
Deferred Tax Liabilities:
Depreciation (2,017) (1,681)
Other (2,030) (2,244)
Total Deferred Tax Liabilities (4,047) (3,925)
_______ _______
Total Net Deferred Tax Assets $50,933 $56,116
======= =======
Deferred tax assets and liabilities are included in the consolidated balance
sheets as follows (in thousands):
December 31
1995 1994
_______ _______
Current assets -- Deferred income taxes $47,058 $54,333
Noncurrent assets -- Other assets 6,269 4,438
Noncurrent liabilities -- Other liabilities (2,394) (2,655)
_______ _______
Total Net Deferred Tax Assets $50,933 $56,116
======= =======
No provision has been made for U.S. federal and state income taxes or foreign
taxes that may result from future remittances of the undistributed earnings
($168,630,000 at December 31, 1995) of foreign subsidiaries because it is
expected that such earnings will be reinvested overseas indefinitely.
Determination of the amount of any unrecognized deferred income tax liability
on these unremitted earnings is not practicable.
Total income taxes paid were $70,009,000 in 1995, $51,898,000 in 1994 and
$27,641,000 in 1993.
<PAGE>
9. GEOGRAPHIC DATA
Geographic area information follows (in thousands):
1995 1994 1993
________ ________ ________
NET SALES
United States operations:
Domestic $477,207 $405,549 $378,255
Export 137,355 117,669 115,977
Foreign operations:
Pacific 272,362 130,223 33,651
Europe 83,674 70,366 63,366
Other 13,521 12,094 11,987
Eliminations (112,167) (53,981) (45,901)
________ ________ ________
Total Net Sales $871,952 $681,920 $557,335
======== ======== ========
OPERATING INCOME
United States operations $121,411 $109,429 $ 90,726
Foreign operations:
Pacific 35,060 12,560 1,465
Europe 9,491 6,554 6,571
Other 1,954 1,686 1,660
________ ________ ________
Total Foreign Operations 46,505 20,800 9,696
Corporate expenses (10,605) (9,753) (8,480)
________ ________ ________
Total Operating Income $157,311 $120,476 $ 91,942
======== ======== ========
ASSETS
United States operations $283,471 $248,883 $225,587
Foreign operations:
Pacific 273,686 281,259 12,053
Europe 65,406 50,111 39,313
Other 9,304 9,801 4,067
Corporate 223,024 177,917 173,184
________ ________ ________
Total Assets $854,891 $767,971 $454,204
======== ======== ========
Intercompany sales between geographic areas are included in export and foreign
operations sales at agreed upon prices which include a profit element.
No customer accounted for 10% or more of the Company's sales in 1995 or 1994.
For the year ended December 31, 1993, sales to Matsumoto Medical Instruments,
Inc. were $64,300,000 or 12% of total net sales.
Gains (losses) on foreign currency transactions, which are included in other
income, totaled $904,000, $586,000 and $(256,000) in 1995, 1994 and 1993,
respectively.
Corporate assets consist primarily of domestic cash and cash equivalents and
marketable securities and, in 1993, the investment in affiliate.
<PAGE>
10. LEASES
The Company leases various manufacturing and office facilities and equipment
under operating leases. Future minimum lease commitments under these leases
are as follows (in thousands):
1996 $14,137
1997 9,951
1998 8,030
1999 4,641
2000 3,151
Thereafter 5,093
_______
$45,003
=======
Rent expense totaled $21,437,000 in 1995, $14,644,000 in 1994 and $10,950,000
in 1993.
11. CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
normal course of business. The Company does not anticipate material losses as
a result of these actions.
In July 1995, a decision was issued by a Federal District Court in a patent
suit brought by the Company against Intermedics Orthopedics, Inc. and its
distributor for infringement of the Company's U.S. patent on its Omniflex Hip
System. The Court held that the Company's patent is valid and enforceable and
that the Company is entitled to damages and attorney fees. In a subsequent
decision, the Court fixed the damage award at $72,700,000 million, including
interest. Intermedics has appealed the Court's decision. Until the appeal
process is complete, management is unable to determine the financial impact of
the Court's decision on the Company. Accordingly, these financial statements
do not give recognition to any gain which might ultimately be realized as a
result of this decision.
<TABLE>
SALES ANALYSIS, QUARTERLY DATA
(dollars in thousands, except per share data)
<CAPTION>
PRODUCT LINE SALES (Unaudited) 1995 1994 1993
_______________ _______________ _______________
<S> <C> <C> <C> <C> <C> <C>
STRYKER SURGICAL
Orthopaedic implants, endoscopic
systems, powered surgical instruments
and other operating room devices $608,646 70% $502,961 74% $447,042 80%
STRYKER MEDICAL
Patient care and patient handling
equipment and physical therapy services 158,516 18 135,520 20 110,293 20
MATSUMOTO DISTRIBUTED PRODUCTS
Orthopaedic, opthalmic, general surgery and
emergency care products sourced from other
companies for sale in Japan 104,790 12 43,439 6
________ ____ ________ ____ ________ ____
$871,952 100% $681,920 100% $557,335 100%
======== ==== ======== ==== ======== ====
DOMESTIC/INTERNATIONAL SALES (Unaudited)
Domestic $477,207 55% $405,549 59% $378,255 68%
International 394,745 45 276,371 41 179,080 32
________ ____ ________ ____ ________ ____
$871,952 100% $681,920 100% $557,335 100%
======== ==== ======== ==== ======== ====
</TABLE>
<PAGE>
<TABLE>
SUMMARY OF QUARTERLY DATA (Unaudited)
<CAPTION>
1995 Quarter Ended 1994 Quarter Ended
_____________________________________________ ______________________________________________
March31<F1> June 30<F1> Sept. 30 Dec. 31 March 31 June 30 Sept. 30<F2> Dec. 31<F2>
__________ __________ ________ ________ ________ ________ ___________ __________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $214,013 $228,509 $205,363 $224,067 $148,759 $154,226 $174,316 $204,619
Gross Profit 126,429 130,861 116,610 128,608 81,215 83,705 96,495 120,124
Earnings Before
Income Taxes and
Minority Interest 42,879 40,216 35,949 44,049 27,970 27,435 29,714 42,456
Net Earnings 20,800 20,410 20,130 25,670 17,340 17,010 16,730 21,320
Net Earnings Per Share
of Common Stock 0.43 0.42 0.42 0.53 0.36 0.35 0.35 0.44
Market Price of
Common Stock:
High 48-3/4 48-1/8 48-7/8 58-1/2 35-1/2 30-3/4 37-1/2 37-1/2
Low 36-1/8 37-1/2 38 44 26 23-3/4 27-1/4 32-3/4
The price quotations reported above were supplied by The Nasdaq Stock Market.
<FN>
<F1> The consolidation of Matsumoto Medical Instruments, Inc., which was consolidated beginning in August 1994 (see
Note 4 to consolidated financial statements), resulted in incremental net sales of $43,000,000 and incremental
net earnings of $1,900,000 ($.04 per share) in the first quarter of 1995 and incremental net sales of
$49,700,000 and incremental net earnings of $900,000 ($.02 per share) in the second quarter of 1995.
<F2> In the third quarter of 1994, the consolidation of Matsumoto resulted in incremental net sales of $25,000,000.
The incremental impact on net earnings was not material. In the fourth quarter of 1994, the consolidation of
Matsumoto resulted in incremental net sales of $40,200,000 and incremental net earnings of $1,900,000 ($.04 per
share).
</FN>
</TABLE>
EXHIBIT (21)
LIST OF SUBSIDIARIES
State or Country of
Name of Subsidiary Incorporation
- ------------------ -------------------
Dimso Iberica S.A. Spain
Dimso SA France
Osteonics Corp. New Jersey
Physiotherapy Associates, Inc. Michigan
Physiotherapy Associates UK Ltd. United Kingdom
Stryker Arroyo, Inc. Delaware
Stryker Australia Pty. Ltd. Australia
Stryker B.V. The Netherlands
Stryker (Barbados) Foreign Sales Corporation Barbados
Stryker Biotech France SARL France
Stryker Canada Inc. Canada
Stryker China Limited Hong Kong
Stryker Corporation (Malaysia) SDN.BHD. Malaysia
Stryker Deutschland GmbH Germany
Stryker Far East, Inc. Delaware
Stryker Foreign Sales Corporation U.S. Virgin Islands
Stryker France SA France
Stryker Italia SRL Italy
Stryker Korea Ltd. Korea
Stryker Mexico, S.A. de C.V. Mexico
Stryker Osteonics SA Switzerland
Stryker Pacific Limited Hong Kong
Stryker Puerto Rico, Inc. Delaware
Stryker SA Switzerland
Stryker Sales Corporation Michigan
Stryker Singapore Private Limited Singapore
Stryker Corporation directly or indirectly owns 100% of the outstanding voting
securities of each of the above-named subsidiaries.
Stryker is a 51% investor in:
Matsumoto Medical Instruments, Inc. Japan
Stryker effectively controls:
Stryker India Medical Equipment Private Limited India
EXHIBIT 23--CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Stryker Corporation of our report dated January 31, 1996, included in the
1995 Annual Report to Stockholders of Stryker Corporation.
Our auditors also included the financial statement schedule of Stryker
Corporation and subsidiaries listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement Number 33-55662 on Form S-8 dated December 11, 1992, Registration
Statement Number 2-96467 on Form S-8 dated April 4, 1985, and Registration
Statement Number 33-32240 on Form S-8 dated November 20, 1989 and to the
related prospectus for each of the registration statements, of our report
dated January 31, 1996, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of Stryker Corporation.
/s/ERNST & YOUNG LLP
Kalamazoo, Michigan
March 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 69,049
<SECURITIES> 195,599
<RECEIVABLES> 163,593
<ALLOWANCES> 7,800
<INVENTORY> 133,619
<CURRENT-ASSETS> 623,253
<PP&E> 182,592
<DEPRECIATION> 102,909
<TOTAL-ASSETS> 854,891
<CURRENT-LIABILITIES> 174,438
<BONDS> 0
0
0
<COMMON> 4,855
<OTHER-SE> 449,424
<TOTAL-LIABILITY-AND-EQUITY> 854,891
<SALES> 871,852
<TOTAL-REVENUES> 871,952
<CGS> 369,444
<TOTAL-COSTS> 714,641
<OTHER-EXPENSES> (5,782)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,319
<INCOME-PRETAX> 163,093
<INCOME-TAX> 66,900
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,010
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
</TABLE>
