FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9165
STRYKER CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
Michigan 38-1239739
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 4085, Kalamazoo, Michigan 49003-4085
________________________________________ __________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 616/385-2600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
96,651,638 shares of Common Stock*, $.10 par value, as of April 30, 1996
*Note: These shares have been adjusted to reflect the two-for-one stock split
effective for shareholders of record on May 10, 1996.
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
March 31 December 31
1996 1995
________ ___________
ASSETS (in thousands, except
CURRENT ASSETS per share amounts)
Cash and cash equivalents $ 63,927 $ 69,049
Marketable securities 206,559 195,599
Accounts receivable, less allowance of $7,500
(1995 -- $7,800) 164,800 163,593
Inventories 138,920 133,619
Deferred income taxes 46,629 47,058
Prepaid expenses and other current assets 19,484 14,335
________ ________
TOTAL CURRENT ASSETS 640,319 623,253
PROPERTY, PLANT AND EQUIPMENT, less allowance for
depreciation 182,725 182,592
OTHER ASSETS 48,914 49,046
________ ________
$871,958 $854,891
LIABILITIES AND STOCKHOLDERS' EQUITY ======== ========
CURRENT LIABILITIES
Accounts payable $ 50,426 $ 49,029
Accrued compensation 23,473 32,447
Income taxes 38,123 25,633
Accrued expenses and other liabilities 62,172 64,277
Current maturities of long-term debt 2,599 3,052
________ ________
TOTAL CURRENT LIABILITIES 176,793 174,438
LONG-TERM DEBT, excluding current maturities 93,511 96,967
OTHER LIABILITIES 22,894 24,214
MINORITY INTEREST 102,026 104,993
STOCKHOLDERS' EQUITY
Common stock, $.10 par value:
Authorized--150,000 shares
Outstanding--97,132 shares (1995--97,107) 9,713 9,711
Additional paid-in capital 14,556 14,736
Retained earnings 444,557 419,537
Unrealized gains on securities 1,494 2,314
Foreign translation adjustments 6,414 7,981
________ ________
TOTAL STOCKHOLDERS' EQUITY 476,734 454,279
________ ________
$871,958 $854,891
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
Three Months Ended
March 31
__________________
1996 1995
________ ________
(in thousands, except
per share amounts)
Net Sales $217,623 $214,013
Costs and expenses:
Cost of sales 89,336 87,584
Research, development and engineering 12,264 10,843
Selling, general and administrative 76,155 73,511
________ ________
177,755 171,938
________ ________
OPERATING INCOME 39,868 42,075
Other income 1,897 804
________ ________
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 41,765 42,879
Income taxes 15,870 18,010
________ ________
EARNINGS BEFORE MINORITY INTEREST 25,895 24,869
Minority interest (875) (4,069)
________ ________
NET EARNINGS $ 25,020 $ 20,800
======== ========
Net earnings per share of common stock $.26 $.22
==== ====
Average outstanding shares for the period 97,146 96,780
====== ======
See accompanying notes to condensed consolidated financial statements.
In 1995 the Company declared a cash dividend of four and one-half cents per
share (after the two-for-one stock split described in Note 4 to the condensed
consolidated financial statements) to shareholders of record on December 29,
1995, payable on January 31, 1996. No cash dividends have been declared
during 1996.
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
Three Months Ended
March 31
__________________
1996 1995
_______ _______
(in thousands)
OPERATING ACTIVITIES
Net earnings $25,020 $20,800
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 5,925 5,828
Amortization 1,038 728
Minority interest 875 4,069
Changes in operating assets and liabilities, net
of effects of business acquisitions:
Accounts receivable (3,913) (1,462)
Inventories (8,759) (6,540)
Accounts payable 1,874 (7,876)
Accrued expenses (6,762) (7,295)
Income taxes 12,729 (1,347)
Other (4,845) (2,142)
_______ _______
NET CASH PROVIDED BY OPERATING ACTIVITIES 23,182 4,763
INVESTING AND FINANCING ACTIVITIES
Purchases of property, plant and equipment (7,803) (7,707)
Purchases of marketable securities (10,960) (46,564)
Business acquisitions (3,399) (11,350)
Proceeds from (payments on) borrowings (359) 7,982
Dividends paid (4,370) (3,870)
Proceeds from exercise of stock options 2,259 1,259
Repurchases of common stock (2,436)
Other (1,267) 754
_______ _______
NET CASH USED IN INVESTING AND
FINANCING ACTIVITIES (28,335) (59,496)
Effect of exchange rate changes on cash and
cash equivalents 31 288
_______ _______
DECREASE IN CASH AND CASH EQUIVALENTS ($ 5,122)($54,445)
======= =======
See accompanying notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STRYKER CORPORATION AND SUBSIDIARIES
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
all adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the results of operations for
the periods shown. The financial statements have been prepared in accordance
with the instructions to Form 10-Q and, therefore, do not include all
information and footnotes necessary for a fair presentation of consolidated
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. The results of operations for any
interim period are not necessarily indicative of the results to be expected
for the full year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
2. INVENTORIES
Inventories are as follows (in thousands):
March 31 December 31
1996 1995
________ ___________
Finished goods $106,919 $105,209
Work-in-process 10,680 7,552
Raw material 29,065 28,602
________ ________
FIFO Cost 146,664 141,363
Less LIFO reserve 7,744 7,744
________ ________
$138,920 $133,619
======== ========
FIFO cost approximates replacement cost.
3. BUSINESS ACQUISITIONS
During the first quarter of 1996, the Company's subsidiary, Physiotherapy
Associates, Inc., purchased certain physical therapy clinic operations at an
aggregate cost of $3.0 million. Intangible assets acquired, principally
goodwill, are being amortized over periods ranging from five to fifteen years.
Pro forma consolidated results including the purchased businesses would not
differ significantly from reported results.
4. STOCK SPLIT
On April 24, 1996, the Company's Board of Directors approved a two-for-one
stock split effective for shareholders of record on May 10, 1996. All share
and per share data have been adjusted to reflect the stock split as though it
had occurred at the beginning of the periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESTATED PRODUCT LINE SALES AND EARNINGS PER SHARE DATA
Comparative product line sales information originally reported in 1995 has
been restated below to conform with the presentation adopted in the fourth
quarter of 1995:
Quarter Ended
March 31 June 30
_______________________ _______________________
% %
1995 1994 Chg 1995 1994 Chg
________ ________ ___ ________ ________ ___
Product Line Sales
Stryker Surgical $145,415 $118,912 22% $155,292 $124,310 25%
Stryker Medical 36,675 29,847 23 40,158 29,916 34
Matsumoto Distributed
products 31,923 -0- -- 33,059 -0- --
________ ________ ________ ________
$214,013 $148,759 44% $228,509 $154,226 48%
======== ======== === ======== ======== ===
September 30 December 31
_______________________ ________________________
% %
1995 1994 Chg 1995 1994 Chg
________ ________ ___ ________ ________ ____
Product Line Sales
Stryker Surgical $146,612 $123,202 19% $161,327 $136,537 18%
Stryker Medical 38,301 34,883 10 43,382 40,874 6
Matsumoto Distributed
products 20,450 16,231 26 19,358 27,208 (29)
________ ________ ________ ________
$205,363 $174,316 18% $224,067 $204,619 10%
======== ======== === ======== ======== ===
<PAGE>
Earnings per share information originally reported in 1995 has been restated
below to reflect the two-for-one stock split as though it had occurred as of
January 1, 1995:
Year Ended
1995 Quarter Ended Dec 31,
_____________________________________
Mar 31 Jun 30 Sept 30 Dec 31 1995
_______ _______ _______ _______ _________
Net Earnings $20,800 $20,410 $20,130 $25,670 $87,010
Net Earnings per share
of common stock $.22 $.21 $.21 $.26 $.90
Average outstanding shares
for the period 96,780 96,903 96,998 97,057 96,936
RESULTS OF OPERATIONS
The table below sets forth domestic/international and product line sales
information for the first quarter:
Three Months Ended
March 31 %
1996 1995 Change
________ ________ ______
Domestic/International Sales
Domestic $133,687 $112,215 19%
International 83,936 101,798 (18)
________ ________
Total Net Sales $217,623 $214,013 2%
======== ========
Product Line Sales
Stryker Surgical $161,475 $145,415 11%
Stryker Medical 43,562 36,675 19
Matsumoto Distributed Products 12,586 31,923 (61)
________ ________
Total Net Sales $217,623 $214,013 2%
======== ========
For the first quarter of 1996, net sales increased 2% compared to the same
period in 1995. Additional sales attributable to acquired businesses
accounted for a 2% sales increase and increased unit volume generated a 1%
increase. Net sales also increased 1% as a result of the Company's conversion
of certain portions of the Osteonics domestic distribution network to direct
sales which resulted in higher selling prices. These increases were partially
offset by a 2% decrease arising from changes in foreign currency exchange
rates.
The Company's domestic sales increased 19% in the first quarter of 1996
compared to 1995. The increase was led by orthopaedic implants, powered
surgical instruments and endoscopic equipment, increased revenue from physical
therapy services and higher shipments of hospital beds and stretchers.
International sales declined 18% in the first quarter of 1996 compared to the
same period of 1995. The decrease in sales is the result of lower sales in
Japan which more than offset strong shipments in the other international
markets. Sales in Japan declined 35% because of lower shipments of Matsumoto
distributed products, which are sourced from other companies for sale in
Japan, and unfavorable currency comparisons. Sales in the other international
markets increased 19%. International sales represented 39% of total sales in
the first quarter of 1996 compared to 48% in the same period of 1995.
Stryker Surgical product sales (principally orthopaedic products) increased
11%, led by increased shipments of orthopaedic implants, powered surgical
instruments and endoscopic equipment. Stryker Medical product sales
(principally stretchers/beds and physical therapy services) increased 19% in
the first quarter resulting from higher physical therapy revenues and
increased shipments of hospital beds and stretchers.
Sales of Matsumoto distributed products declined 61% in the first quarter.
The decline results from the termination of several distribution arrangements
and unfavorable currency comparisons. Matsumoto has lost three suppliers who
have chosen other distribution channels. Matsumoto has introduced new
products to replace two of the lost lines and is seeking replacements for the
third. However, 1996 sales of Matsumoto distributed products are expected to
be significantly lower than 1995 levels.
Cost of sales in the first quarter of 1996 represented 41.1% of sales compared
to 40.9% in the same period of 1995. Research, development and engineering
(R,D&E) expense increased 13% in the first quarter, and represented 5.6% of
sales in 1996 compared to 5.1% in the same period last year. The increase in
R,D&E expense as a percentage of sales in 1996 is principally a result of
increased product development spending measured against the 2% sales increase
in the quarter attributable to lower sales in Japan. The Company's commitment
to product development has resulted in several new products in late 1995 and
early 1996, including the Restoration HA revision hip system, Passport knee
instruments, the Insight Knee positioning and Alignment system, the battery
powered 4100 Cordless driver and several new arthroscopy instruments.
Selling, general and administrative (S,G&A) expenses increased 4% in the
first quarter of 1996 compared to the same period of 1995. The increase in
S,G&A costs is principally a result of increased sales expenses resulting from
the changes in the Osteonics distribution network. S,G&A costs increased to
35.0% of sales in the first quarter of 1996 compared to 34.3% in the same
period of 1995. Other income increased $1.1 million in the first quarter of
1996 compared to the first quarter of 1995 principally as a result of
increased interest income attributable to higher levels of invested cash.
The effective tax rate decreased to 38% in the first quarter of 1996 compared
to 42% in the first quarter of 1995 due to a significant decline in earnings
reported by Matsumoto, which are taxed at the higher Japanese tax rate. The
earnings decline at Matsumoto also led to a significant reduction in the
minority interest charge in the first quarter of 1996 as compared to the same
period of 1995. In the first quarter of 1996, earnings before income taxes
and minority interest decreased 3%, primarily as a result of Matsumoto's lower
profits, and net earnings increased 20% compared to the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Stryker's financial position at March 31, 1996 remained strong with cash and
marketable securities of $270.5 million and working capital of $463.5 million.
Accounts receivable at March 31, 1996 increased 1% from December 31, 1995
while days sales outstanding increased slightly to 65 days from 64 days at
December 31, 1995. Inventories at March 31, 1996 increased 4% from December
31, 1995 and days in inventory increased to 148 days from 133 days at December
31, 1995.
The Company generated $23.2 million of cash from operations in the first
quarter of 1996 compared to $4.8 million of cash used in the same period of
1995. During the first quarter of 1996, the Company repurchased 50,000 shares
of common stock (100,000 shares after adjustment for the two-for-one stock
split described in Note 4 to the Condensed Consolidated Financial Statements)
in the open market at a cost of $2.4 million. Subsequent to the first
quarter, in April 1996 the Company repurchased an additional 550,000
split-adjusted shares of common stock at a cost of $12.4 million, bringing the
total split-adjusted shares repurchased under a December 9, 1993 repurchase
authorization by the Company's Board of Directors to 895,000 of the
1,200,000 shares authorized. This repurchase authorization was replaced by a
new authorization approved by the Board of Directors on April 24, 1996 for
repurchases of up to 1,000,000 split-adjusted shares of common stock. Shares
repurchased under the share repurchase programs will be used for employee
stock option plans and other corporate purposes. Cash and marketable
securities of $270.5 million and anticipated future cash flows from operations
are expected to be sufficient to fund future operating and capital
requirements. The Company also has unsecured lines of credit with banks
totaling $55.4 million, none of which was utilized at March 31, 1996.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(c) At the Annual Meeting of Stockholders held on April 24, 1996, the
stockholders elected seven directors to serve until the next
Annual Meeting of Stockholders. The voting results for each
nominee were as follows:
Shares*
_____________________
Name For Withheld
____ __________ _________
John W. Brown 41,047,634 277,725
Howard E. Cox, Jr. 41,047,621 277,738
Donald M. Engelman, Ph.D. 41,038,866 286,493
Jerome H. Grossman, M.D. 40,082,825 1,242,534
John S. Lillard 41,035,508 289,851
William U. Parfet 40,994,751 330,608
Ronda E. Stryker 41,038,946 286,413
* Note: Shares have not been adjusted for the two-for-one stock split
declared on April 24, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -- The exhibit listed below is submitted as a separate
section of this report following the signature page:
Exhibit (11) Statement Re: Computation of Earnings per Share of
Common Stock
(b) Reports on Form 8-K -- No reports on Form 8-K were filed during
the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STRYKER CORPORATION
____________________
(Registrant)
May 10, 1996 JOHN W. BROWN
____________ __________________________________
Date John W. Brown, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
May 10, 1996 DAVID J. SIMPSON
____________ _______________________________________
Date David J. Simpson, Vice President, Chief
Financial Officer and Secretary
(Principal Financial Officer)
EXHIBIT (11)--STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Three Months Ended
March 31
1996 1995
___________ ___________
Average number of shares outstanding 97,146,000 96,780,000
___________ ___________
Net earnings $25,020,000 $20,800,000
=========== ===========
Net earnings per share of common stock $.26 $.22
==== ====
Primary:
Average shares outstanding 97,146,000 96,780,000
Net effect of dilutive stock options,
based on the treasury stock method
using average market price 1,638,000 1,674,000
___________ ___________
Total Primary Shares 98,784,000 98,454,000
=========== ===========
Fully Diluted:
Average shares outstanding 97,146,000 96,780,000
Net effect of dilutive stock options,
using the period-end market price, if
higher than average market price 1,638,000 1,790,000
___________ ___________
Total Fully Diluted Shares 98,784,000 98,570,000
=========== ===========
Note: All share and per share data have been adjusted to reflect the
two-for-one stock split effective for shareholders of record on May 10, 1996
as though it had occurred at the beginning of the periods presented. Shares
subject to stock options are not included in the earnings per share
computation because the present effect thereof is not materially dilutive.
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<PERIOD-END> MAR-31-1996
<CASH> 63,927
<SECURITIES> 206,559
<RECEIVABLES> 164,800
<ALLOWANCES> 7,500
<INVENTORY> 138,920
<CURRENT-ASSETS> 640,319
<PP&E> 182,725
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0
0
<COMMON> 9,713
<OTHER-SE> 467,021
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<SALES> 217,623
<TOTAL-REVENUES> 217,623
<CGS> 89,336
<TOTAL-COSTS> 177,755
<OTHER-EXPENSES> (1,897)
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