UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 Or 15(D) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1997
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)
(616) 385-2600
(Registrant's telephone number, including area code)
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 and 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:
96,040,424 shares of Common Stock, $.10 par value, as of July 31, 1997.
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
STRYKER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
June 30 December 31
1997 1996
----------- -----------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 179,690 $ 175,673
Marketable debt securities 123,055 191,900
Accounts receivable, less allowance
of $9,900 (1996 - $9,500) 182,257 166,052
Inventories 128,100 127,387
Deferred income taxes 75,027 78,034
Prepaid expenses and other current assets 13,637 14,491
--------- ---------
Total Current Assets 701,766 753,537
Property, Plant and Equipment, less allowance
for depreciation of $127,984 (1996 - $117,882) 165,895 172,303
Other Assets 71,169 67,666
--------- ---------
TOTAL ASSETS $ 938,830 $ 993,506
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 51,633 $ 62,433
Accrued compensation 32,939 37,693
Income taxes 32,778 56,723
Accrued expenses and other liabilities 83,283 90,489
Current maturities of long-term debt 2,593 4,403
--------- ---------
Total Current Liabilities 203,226 251,741
Long Term Debt, excluding current maturities 90,382 89,502
Other Liabilities 29,874 36,034
Minority Interest 54,722 85,868
Stockholders' Equity
Common stock, $.10 par value:
Authorized - 150,000 shares
Outstanding - 96,009 shares (1996 - 96,787) 9,601 9,679
Additional paid-in capital 140 5,922
Retained earnings 557,599 514,318
Unrealized gains on securities 1,406 1,196
Foreign translation adjustments (8,120) (754)
--------- ---------
Total Stockholders' Equity 560,626 530,361
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 938,830 $ 993,506
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
STRYKER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $248,036 $225,413 $487,572 $443,036
Costs and expenses:
Cost of sales 100,532 92,359 198,217 181,695
Research, development and 14,361 13,826 28,059 26,090
engineering
Selling, general and administrative 88,088 80,646 172,101 156,801
-------- -------- -------- --------
202,981 186,831 398,377 364,586
-------- -------- -------- --------
Operating Income 45,055 38,582 89,195 78,450
Other Income 1,754 2,476 5,773 4,373
-------- -------- -------- --------
Earnings Before Income Taxes
and Minority Interest 46,809 41,058 94,968 82,823
Income Taxes 17,318 15,600 35,138 31,470
-------- -------- -------- --------
Earnings Before Minority Interest 29,491 25,458 59,830 51,353
Minority Interest (111) (968) (430) (1,843)
-------- -------- -------- --------
Net Earnings $ 29,380 $ 24,490 $ 59,400 $ 49,510
======== ======== ======== ========
Net Earnings Per Share of Common
Stock $.31 $.25 $.62 $.51
==== ==== ==== ====
Average Outstanding Shares
for the Period 96,004 96,743 96,431 96,945
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
STRYKER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the six months ended June 30, 1997
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
Additional Unrealized Foreign
Common Paid-In Retained Gains on Translation
Stock Capital Earnings Securities Adjustments
------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1997 $9,679 $5,922 $514,318 $1,196 ($754)
Net earnings for
six months ended
June 30, 1997 59,400
Sales of 214
shares of common
stock under stock
option and benefit
plans, including
$1,296 income tax
benefit 21 3,576
Repurchases of 993
shares of common
stock (99) (9,358) (16,119)
Unrealized gains,
net of $64 income
tax benefit 210
Translation
adjustment (7,366)
------- ---------- -------- ---------- -----------
Balance at
June 30, 1997 $9,601 $140 $557,599 $1,406 ($8,120)
======= ========== ======== ========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
In 1996 the Company declared a cash dividend of ten cents per share to
shareholders of record on December 31, 1996, payable on January 31, 1997. No
cash dividends have been declared during 1997.
<PAGE>
STRYKER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
Six Months Ended
June 30
1997 1996
-------- --------
OPERATING ACTIVITIES
<S> <C> <C>
Net Earnings $ 59,400 $ 49,510
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 12,865 12,120
Amortization 4,579 1,948
Minority interest 430 1,843
Changes in operating assets and liabilities,
net of effects of business acquisitions:
Accounts receivable (19,686) (10,755)
Inventories (9,730) (14,348)
Accounts payable (10,340) (2,340)
Accrued expenses (2,941) (1,729)
Income taxes (25,487) 4,736
Other (5,186) (145)
-------- --------
Net Cash Provided by Operating Activities 3,904 40,840
INVESTING AND FINANCING ACTIVITIES
Purchases of property, plant and equipment (15,599) (14,337)
Sales of marketable securities 68,845 12,722
Business acquisitions (24,984) (5,159)
Payments on borrowings (1,278) (1,554)
Dividends paid (9,679) (4,370)
Proceeds from exercise of stock options 3,597 3,245
Repurchases of common stock (25,576) (14,862)
Other 5,525 (2,119)
-------- --------
Net Cash Provided by (Used in) Investing
and Financing Activities 851 (26,434)
Effect of exchange rate changes on
cash and cash equivalents (738) (319)
-------- --------
Increase in Cash and Cash Equivalents $ 4,017 $ 14,087
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
STRYKER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
Note 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, 1996.
Note 2. INVENTORIES
Inventories are as follows (in thousands):
June 30 December 31
1997 1996
--------- ---------
Finished goods $ 94,753 $ 94,424
Work-in-process 10,852 8,328
Raw material 29,849 31,989
--------- ---------
FIFO Cost 135,454 134,741
Less LIFO reserve 7,354 7,354
--------- ---------
$ 128,100 $ 127,387
========= =========
FIFO cost approximates replacement cost.
Note 3. BUSINESS ACQUISITIONS
During the first six months of 1997, the Company's subsidiary,
Physiotherapy Associates, Inc., purchased certain physical therapy clinic
operations at an aggregate cost of $2.2 million. In addition, the Company
purchased an additional 17% of the outstanding common stock of Matsumoto
Medical Instruments, Inc. at a cost of $20.9 million, thereby increasing its
direct ownership interest in Matsumoto to 68%. The Company also purchased the
InfraVision product line, which is an infra-red detection technology used in
laparoscopic surgery, at a cost of $1.9 million. All of the above acquisitions
were accounted for by the purchase method. Any intangible assets acquired in
the above acquisitions are being amortized over periods ranging from five to
fifteen years. Pro forma consolidated operating results including the
acquisitions would not differ significantly from reported results.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results Of Operations
- ---------------------
The table below sets forth domestic/international and product line sales
information:
<TABLE>
Three Months Ended Six Months Ended
June 30 % June 30 %
1997 1996 Chg 1997 1996 Chg
-------- -------- --- -------- -------- ---
Domestic/
International Sales
<S> <C> <C> <C> <C> <C> <C>
Domestic $157,075 $139,284 13 $306,667 $272,971 12
International 90,961 86,129 6 180,905 170,065 6
-------- -------- -------- --------
Total Net Sales $248,036 $225,413 10 $487,572 $443,036 10
======== ======== ======== ========
Product Line Sales
Stryker Surgical $188,342 $166,372 13 $366,961 $327,847 12
Stryker Medical 52,189 48,015 9 103,526 91,577 13
Matsumoto Dist
Products 7,505 11,026 (32) 17,085 23,612 (28)
-------- -------- -------- --------
Total Net Sales $248,036 $225,413 10 $487,572 $443,036 10
======== ======== ======== ========
</TABLE>
For the six months ended June 30, 1997, Stryker Corporation's net sales
increased 10% compared to the same period in 1996. Increased unit volume
generated an 11% sales increase. Net sales also increased 4% from business
acquisitions and 1% from the conversion of certain portions of the Osteonics'
domestic distribution network to direct sales. These increases were partially
offset by a 4% decrease in sales from unfavorable foreign currency comparisons,
a 1% decline from a divested business and a 1% decline in average selling
prices. For the second quarter, net sales increased 10% when compared to the
second quarter of 1996. Increased unit volume generated a 9% sales increase,
acquisitions accounted for a 4% sales increase and the conversion of certain
portions of the Osteonics distribution network added 1% to sales. These
increases were partially offset by a 3% decrease arising from changes in
foreign currency exchange rates and a 1% decline from a divested business.
The Company's domestic sales increased 13% in the second quarter and 12%
in the first half of 1997 compared to 1996. The domestic sales increase
results from higher shipments of orthopaedic implants, powered surgical
instruments and endoscopic equipment and increased revenue from physical
therapy services. International sales increased 6% in the second quarter and
the first half of 1997 compared to the same period of 1996. The increase in
international sales from higher shipments of Stryker Surgical products more
than offset unfavorable foreign currency comparisons which reduced the dollar
value of the international sales by $7.1 million, or 8%, for the second quarter
and $16.8 million, or 10%, for the first half.
<PAGE>
Stryker Surgical product sales (principally orthopaedic products)
increased 13% in the second quarter and 12% in the first half, led by higher
shipments of orthopaedic implants, powered surgical instruments and endoscopic
equipment, partially offset by lower dollar translation of foreign currency
sales. Stryker Medical product sales (principally stretchers/beds and physical
therapy services) increased 9% in the second quarter and 13% in the first half
resulting primarily from increased physical therapy revenues. Higher shipments
of hospital beds and stretchers were substantially offset by the January 1997
sale of the Sterilizer Service Division and the lower dollar translation of
foreign currency sales.
Sales of Matsumoto distributed products, which are sourced from other
companies for sale in Japan, declined 32% in the second quarter and 28% in the
first half. The decline in sales of distributed products results from
unfavorable foreign currency comparisons and lower sales volumes.
Cost of sales for the first six months of 1997 represented 40.7% of sales
compared to 41.0% in the same period of 1996. In the second quarter, the cost
of sales percentage decreased to 40.5% from 41.0% in the second quarter of
1996. Research, development and engineering (R,D&E) expense increased 8% for
the six months of 1997, and represented 5.7% of sales in 1997 compared to 5.9%
in the same period last year. In the second quarter, these expenses increased
3.9% and were 5.8% of sales in 1997 compared to 6.1% in the second quarter of
1996. The decrease in R,D&E expense as a percentage of sales in 1997 is
principally a result of increased product development spending measured against
higher sales in 1997 compared to 1996. R,D&E spending has increased as a
result of the continued development of the OP-1 bone growth device at Stryker
Biotech and the Company-wide focus on new product development. The Company's
commitment to product development has resulted in several new product
introductions in the first half of 1997 including the Scorpio Knee system,
TPS advanced micro-powered instruments, the Advanced Cement Mixing System, the
Sterishield Turbo3 Helmet, the Tempest Arthroscopy Pump and the 6080 MX-Pro
Ambulance Cot. Selling, general and administrative (S,G&A) expenses increased
9.8% in the first six months and 9.2% in the second quarter of 1997 compared to
the same periods of 1996. These costs decreased to 35.3% of sales in the first
six months of 1997 compared to 35.4% of sales in the same period of 1996. In
the second quarter, S,G&A costs represented 35.5% of sales compared to 35.8% in
the same period of 1996. The increase in S,G,&A costs is principally a result
of increased selling expenses resulting from higher shipments. Other income
increased $1.4 million for the first six months and decreased $0.7 million in
the second quarter of 1997 compared to the same periods of 1996. The increase
in the first half of 1997 is due to increased interest income attributable to
higher levels of invested cash and lower interest expense on the Company's yen
denominated debt.
The effective tax rate decreased to 37% for the first six months of 1997
compared to 38% in the same period of 1996 as a result of the decline in
earnings reported by Matsumoto, which are taxed at the higher Japanese tax
rate. The earnings decline and the Company's increased ownership percentage of
Matsumoto also led to a reduction in the minority interest charge for the first
six months as compared to the same period of 1996. For the first six months of
1997, earnings before income taxes and minority interest increased 14.7% and
net earnings increased 20.0% compared to the first six months of 1996.
Earnings before income taxes and minority interest increased 14.0% and net
earnings increased 20.0% in the second quarter of 1997 when compared to 1996.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Stryker's financial position at June 30, 1997 remained strong with cash
and marketable securities of $302.7 million and working capital of
$498.5 million. Accounts receivable at June 30, 1997 increased 10% from
December 31, 1996 as a result of increased sales and a 3-day increase in days
sales outstanding from a record low of 62 days at December 31, 1996 to 65 days
at June 30, 1997. Inventories at June 30, 1997 increased 1% from December 31,
1996 and days in inventory increased to 121 days from 104 days at
December 31, 1996.
The Company provided $3.9 million of cash from operations in the first six
months of 1997, compared to $40.8 million of cash generated in the same period
of 1996. The large decrease of cash provided in the first six months is the
result of first quarter payments of attorney fees and taxes totaling $37.9
million relating to the patent judgment received in the fourth quarter of 1996.
Excluding those payments, cash flow from operations would be $41.8 million, an
increase of $1 million over 1996. During the first six months of 1997, the
Company repurchased 992,800 shares of common stock at a cost of $25.6 million.
On April 30, 1997 the Company's Board of Directors authorized the repurchase of
an additional 1,000,000 shares of common stock. Shares repurchased will be used
for employee stock option plans and other corporate purposes. In the first
half, $20.9 million of cash was used to purchase an additional 17% of the
outstanding common stock of Matsumoto Medical Instruments, Inc. Cash and
marketable securities of $302.7 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 $52.4 million, none of which was utilized at June 30, 1997.
Stryker began trading on the New York Stock Exchange on July 24, 1997
under the symbol SYK. The Company's shares were previously traded on The
Nasdaq Stock Market.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed below are submitted as a separate section of this
report following the signature page:
Exhibit 11 - Statement Re: Computation of Earnings per Share of
Common Stock
Exhibit 27 - Financial Data Schedule (included in EDGAR filing
only)
(b) Reports on Form 8-K
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)
August 12, 1997 /s/ JOHN W. BROWN
- --------------- -----------------------------------
Date John W. Brown, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
August 12, 1997 /s/ DAVID J. SIMPSON
- --------------- --------------------------------
Date David J. Simpson, Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
<PAGE>
Exhibit 11
STRYKER CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
June 30, 1997
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
Average number of shares
<S> <C> <C> <C> <C>
outstanding 96,004,000 96,743,000 96,431,000 96,945,000
----------- ----------- ----------- -----------
Net earnings $29,380,000 $24,490,000 $59,400,000 $49,510,000
=========== =========== =========== ===========
Net earnings per share
of common stock $.31 $.25 $.62 $.51
==== ==== ==== ====
Primary:
Average shares outstanding 96,004,000 96,743,000 96,431,000 96,945,000
Net effect of dilutive
stock options, based on
the treasury stock
method using average
market price 1,802,000 1,315,000 1,707,000 1,476,000
---------- ---------- ---------- ----------
Total Primary Shares 97,806,000 98,058,000 98,138,000 98,421,000
========== ========== ========== ==========
Fully Diluted:
Average shares outstanding 96,004,000 96,743,000 96,431,000 96,945,000
Net effect of dilutive
stock options, using the
period-end market price,
if higher than average
market price 1,933,000 1,315,000 1,772,000 1,476,000
---------- ---------- ---------- ----------
Total Fully Diluted Shares 97,937,000 98,058,000 98,203,000 98,421,000
========== ========== ========== ==========
</TABLE>
Note: Shares subject to stock options are not included in the earnings per
share computation because the present effect thereof is not materially
dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 179690
<SECURITIES> 123055
<RECEIVABLES> 182257
<ALLOWANCES> 9900
<INVENTORY> 128100
<CURRENT-ASSETS> 701766
<PP&E> 165895
<DEPRECIATION> 127984
<TOTAL-ASSETS> 938830
<CURRENT-LIABILITIES> 203226
<BONDS> 0
0
0
<COMMON> 9601
<OTHER-SE> 551025
<TOTAL-LIABILITY-AND-EQUITY> 938830
<SALES> 248036
<TOTAL-REVENUES> 248036
<CGS> 100532
<TOTAL-COSTS> 202981
<OTHER-EXPENSES> (1754)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1227
<INCOME-PRETAX> 46809
<INCOME-TAX> 17318
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29380
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
