Add
SYK to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SYK > SEC Filings for SYK > Form 10-K on 27-Feb-2013 | All Recent SEC Filings |
27-Feb-2013
Annual Report
We supplement the reporting of our financial information determined under
accounting principles generally accepted in the United States (GAAP) with
certain non-GAAP financial measures, including percentage sales growth in
constant currency, adjusted net earnings and adjusted diluted net earnings per
share. We believe that these non-GAAP measures provide meaningful information to
assist shareholders in understanding our financial results and assessing our
prospects for future performance. Management believes percentage sales growth in
constant currency, adjusted net earnings and adjusted net earnings per diluted
share are important indicators of our operations because they exclude items that
may not be indicative of or are unrelated to our core operating results and
provide a baseline for analyzing trends in our underlying businesses. Management
uses these non-GAAP financial measures for reviewing the operating results of
reportable business segments and analyzing potential future business trends in
connection with our budget process and bases certain annual bonus plans on these
non-GAAP financial measures. To measure percentage sales growth in constant
currency, we remove the impact of changes in foreign currency exchange rates
that affect the comparability and trend of sales. Percentage sales growth in
constant currency is calculated by translating current year results at prior
year average foreign currency exchange rates. To measure earnings performance on
a consistent and comparable basis, we exclude certain items that affect the
comparability of operating results and the trend of earnings. Because non-GAAP
financial measures are not standardized, it may not be possible to compare these
financial measures with other companies' non-GAAP financial measures having the
same or similar names. These adjusted financial measures should not be
considered in isolation or as a substitute for reported sales growth, net
earnings and diluted net earnings per share, the most directly comparable GAAP
financial measures. These non-GAAP financial measures are an additional way of
viewing aspects of our operations that, when viewed with our GAAP results and
the reconciliations to corresponding GAAP financial measures at the end of the
discussion of Results of Operations below, provide a more complete understanding
of our business. We strongly encourage investors and shareholders to review our
financial statements and publicly-filed reports in their entirety and not to
rely on any single financial measure.
ABOUT STRYKER
Stryker is one of the world's leading medical technology companies, with 2012
revenues of $8,657 and net earnings of $1,298. We are dedicated to helping
healthcare professionals perform their jobs more efficiently while enhancing
patient care. We offer a diverse array of innovative medical technologies,
including reconstructive, medical and surgical, and neurotechnology and spine
products, to help people lead more active and more satisfying lives.
In the United States, most of our products are marketed directly to doctors,
hospitals and other healthcare facilities. In general, we maintain separate
dedicated sales forces for each of our principal product lines to provide focus
and a high level of expertise to each medical specialty served. Internationally
our products are sold in over 100 countries through company-owned sales
subsidiaries and branches as well as third-party dealers and distributors. Our
business is generally not seasonal in nature; however, the number of
reconstructive surgeries is generally lower during the summer months.
Recent Business Developments
In February 2013 we made a voluntary general offer to acquire all the shares of
Trauson Holdings Company Limited for HK$7.50 per ordinary share for a total
consideration of $764 in an all cash transaction. With this acquisition, which
is expected to close before the end of the second quarter of 2013, we will
expand our presence in a key emerging market with a product portfolio and
pipeline that is targeted at the large and fast growing value segment of the
Chinese orthopaedic market.
In December 2012 we recorded a charge of $174 ($133 net of taxes), or
approximately $0.35 per share, related to the previously disclosed voluntary
recall of our Rejuvenate and ABG II modular-neck hip stems.
In November 2012 we completed the acquisition of Surpass Medical, Ltd.
(Surpass). Surpass is developing and commercializing next-generation flow
diversion stent technology to treat brain aneurysms using a unique mesh design
and delivery system. The acquisition of Surpass enhances the product offerings
within our Neurotechnology product line.
In October 2012 Kevin A. Lobo was named our President and Chief Executive
Officer. Mr. Lobo replaced Curt R. Hartman, who had served as Interim Chief
Executive Officer since the resignation of Stephen P. MacMillan.
In August 2012 we refinanced our credit facility with a new $1,000 Unsecured
Revolving Credit Facility due August 2017 (2012 Facility). The 2012 Facility
replaced the previously outstanding $1,000 Unsecured Credit Facility due in
August 2013.
In 2012 we recorded $40 in severance and related costs in connection with
focused reductions of our global workforce and other restructuring activities
that are expected to reduce our global workforce by approximately 5%. The
targeted reductions and other restructuring activities were initiated to provide
efficiencies and realign resources in advance of the Medical Device Excise Tax,
as well as to allow for continued investment in strategic areas and drive
growth. In addition, we recorded $7 in intangible asset impairments, $3 in agent
conversion and $25 in contractual and other obligations, as certain of our
restructuring actions resulted in the discontinued use of specific assets and
the exit of certain lease and other commitments.
Dollar amounts in millions except per share
11 amounts or as otherwise specified
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Our consolidated results of operations were:
Percentage Change
2012 2011 2010 2012/2011 2011/2010
Net Sales $8,657 $8,307 $7,320 4.2 13.5
Gross Profit 5,876 5,496 5,034 6.9 9.2
Research, development & engineering
expenses 471 462 394 1.9 17.3
Selling, general & administrative
expenses 3,466 3,150 2,707 10.0 16.4
Intangible amortization 123 122 58 0.8 110.3
Property, plant and equipment
impairment - - 124 - (100.0 )
Restructuring charges 75 76 - (1.3 ) -
Other income (expense) (36 ) - (22) - (100.0 )
Income taxes 407 341 456 19.4 (25.2 )
Net Earnings $1,298 $1,345 $1,273 (3.5 ) 5.7
Diluted Net Earnings per share $3.39 $3.45 $3.19 (1.7 ) 8.2
|
Our geographic and segment net sales were:
Percentage Change
2012/2011 2011/2010
Net Sales Constant Constant
2012 2011 2010 Reported Currency Reported Currency
Geographic sales:
United States $ 5,658 $ 5,269 $ 4,793 7.4 7.4 9.9 9.9
International 2,999 3,038 2,527 (1.3 ) 1.9 20.2 13.4
Total net sales $ 8,657 $ 8,307 $ 7,320 4.2 5.4 13.5 11.1
Segment sales:
Reconstructive $ 3,823 $ 3,710 $ 3,549 3.1 4.4 4.5 1.5
MedSurg 3,265 3,160 2,803 3.3 4.2 12.7 11.2
Neurotechnology and Spine 1,569 1,437 968 9.2 10.5 48.5 46.4
Total net sales $ 8,657 $ 8,307 $ 7,320 4.2 5.4 13.5 11.1
|
Net sales increased 4.2% in 2012 after increasing 13.5% in 2011. In 2012 net sales grew by 5.6% as a result of increased unit volume and changes in product mix and 1.2% due to acquisitions, and were negatively impacted by 1.4% due to changes in price and 1.2% due to the unfavorable impact of foreign currency exchange rates on net sales. In constant currency, net sales in 2012 increased by 5.4%. In 2011 net sales grew by 6.1% as a result of increased unit volume and changes in product mix, 2.4% due to the favorable impact of foreign currency and 6.8% due to acquisitions, and were negatively impacted by 1.8% due to changes in price. In constant currency, net sales in 2011 increased by 11.1%. The increase in consolidated net sales for 2012 was primarily due to higher shipments of Neurotechnology, Instruments, Trauma and Extremities, Spine and reprocessed and remanufactured medical devices; these gains were partially offset by slowness in the European markets. The increase in consolidated net sales for 2011 was primarily due to sales growth through acquisitions, higher United States shipments of MedSurg products and higher international shipments of MedSurg products and Neurotechnology and Spine products. In the United States net sales increased 7.4% in 2012 after increasing 9.9% in 2011. In constant currency, international sales increased 1.9% in 2012, compared to 13.4% in 2011. The following geographical sales growth information by segment is provided to supplement the net sales information presented above:
Year Ended December 31, 2012 Year Ended December 31, 2011
Percentage Change Percentage Change
U.S. International U.S. International
Constant Constant Constant Constant
2012 2011 As Reported Currency As Reported As Reported Currency 2011 2010 As Reported Currency As Reported As Reported Currency
Reconstructive
Hips $ 1,233 $ 1,228 0.4 1.5 5.2 (4.5 ) (2.3 ) $ 1,228 $ 1,154 6.4 2.9 2.1 11.2 3.8
Knees 1,356 1,316 3.0 4.0 6.0 (2.4 ) 0.4 1,316 1,306 0.8 (1.5 ) (2.3 ) 6.8 0.1
Trauma and Extremities 989 931 6.2 8.4 18.0 (3.5 ) 0.4 931 845 10.2 6.5 10.2 10.2 3.4
Total Reconstructive 3,823 3,710 3.1 4.4 9.2 (4.3 ) (1.4 ) 3,710 3,549 4.5 1.5 0.9 9.3 2.3
MedSurg
Instruments 1,261 1,187 6.2 7.3 9.1 (0.4 ) 3.1 1,187 1,085 9.4 7.4 9.4 9.5 2.9
Endoscopy 1,111 1,080 2.9 3.9 2.6 3.7 7.1 1,080 985 9.6 7.9 7.5 15.4 9.1
Medical 691 722 (4.3 ) (3.7 ) (7.8 ) 11.1 14.8 722 583 23.8 22.8 25.5 16.7 11.5
Total MedSurg 3,265 3,160 3.3 4.2 3.4 3.0 6.5 3,160 2,803 12.7 11.2 12.6 13.2 6.9
Neurotechnology and Spine
Spine 727 687 5.8 6.9 9.2 (1.7 ) 1.7 687 648 6.0 4.0 2.5 14.4 7.6
Neurotechnology 842 750 12.3 13.9 19.0 3.9 7.6 750 320 134.4 132.3 78.6 283.6 275.7
Total Neurotechnology and Spine 1,569 1,437 9.2 10.5 13.8 1.7 5.3 1,437 968 48.5 46.4 28.1 99.6 92.4
|
Reconstructive net sales in 2012 increased 3.1% from 2011, primarily due to a 5.6% increase in unit volume and changes in product mix and 0.9% due to acquisitions. Net sales were negatively impacted by 2.2% due to changes in price and 1.3% due to the
Dollar amounts in millions except per share
12 amounts or as otherwise specified
unfavorable impact of foreign currency exchange rates on net sales. In constant
currency, Reconstructive net sales increased by 4.4% in 2012, primarily due to
increases in Trauma and Extremities and market share gains in part as a result
of a competitor's product recall, offset in part by slowness in the European
markets. Reconstructive net sales in 2011 increased 4.5% from 2010, primarily
due to a 3.4% increase in unit volume and changes in product mix, a 3.0%
favorable foreign currency impact and 0.8% due to acquisitions. The increase in
units sold was due to higher industry demand. In addition, net sales were
negatively impacted by 2.8% due to changes in price. In constant currency,
Reconstructive net sales increased by 1.5% in 2011.
MedSurg net sales in 2012 increased 3.3% from 2011, primarily due to a 4.1%
increase in unit volume and changes in product mix and 0.1% due to acquisitions,
and were negatively impacted by 0.1% due to changes in price and 0.9% due to the
unfavorable impact of foreign currency exchange rates on net sales. In constant
currency, MedSurg net sales in 2012 increased 4.2%, led by higher shipments of
Instruments and reprocessed and remanufactured medical devices; these higher
shipments were partially offset by challenging global market conditions for
capital equipment. MedSurg net sales in 2011 increased 12.7% from 2010, led by
Medical while Endoscopy and Instruments also increased, primarily due to a 9.5%
increase in unit volume and changes in product mix, 1.6% due to the favorable
impact of foreign currency and 1.9% due to acquisitions. The effect of pricing
on net sales was not significant. In constant currency MedSurg net sales
increased by 11.2% in 2011.
Neurotechnology and Spine net sales in 2012 increased 9.2% from 2011, primarily
due to an 8.5% increase in unit volume and changes in product mix and 4.2% due
to acquisitions, and were negatively impacted by 2.2% due to changes in price
and 1.3% due to the unfavorable impact of foreign currency exchange rates on net
sales. In constant currency Neurotechnology and Spine net sales in 2012
increased 10.5%. Neurotechnology and Spine net sales in 2011 increased 48.5%
from 2010, primarily due to the acquisition of Neurovascular. Sales growth from
acquisitions was 42.6%. The remainder of the increase included 6.3% due to
increases in unit volume and changes in product mix and 2.0% due to the
favorable impact of foreign currency, and the negative impact of changes in
price of 2.5%. In constant currency, Neurotechnology and Spine net sales in 2011
increased by 46.4%.
Consolidated Cost of Sales
Cost of sales decreased 1.1% from 2011 to 32.1% of sales compared to 33.8% in
2011. Cost of sales in 2012 and 2011 includes an additional cost of $18 and
$143, respectively, related to inventory that was "stepped up" to fair value
following acquisitions. Cost of sales for 2012 also included $5 in other
restructuring related costs. Aside from these factors, the decrease in the cost
of sales percentage in 2012 was primarily due to efficiencies in our
manufacturing and distribution network, a favorable product mix and a favorable
impact from the effect of foreign currency on costs from our euro-based
manufacturing operations. Cost of sales in 2011 increased 23.0% from 2010 to
33.8% of sales compared to 31.2% in 2010. The increase in the cost of sales
percentage in 2011 was primarily due to the impact of inventory "step up" and
lower pricing on sales resulting in an increase in cost of sales as a percentage
of sales, the impact of changes in product mix and of a weaker United States
dollar on purchases from international manufacturing operations.
Research, Development and Engineering Expenses
Research, development and engineering expenses represented 5.4% of sales
compared to 5.6% in 2011 and 5.4% in 2010. The spending level in 2012 decreased
as a percentage of sales primarily due to the termination of all development of
the OP-1 molecule in late 2011. The higher spending level in 2011 compared to
2010 was the result of our focus on new product development for anticipated
future product launches and continued investments in new technologies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 10.0% and represented
40.0% of sales compared to 37.9% in 2011 and 37.0% in 2010. In 2012 we recorded
$37 in acquisition and integration-related charges compared to $66 in 2011. In
addition, general and administrative costs in 2012 included $174 related to the
previously disclosed voluntary recall of our Rejuvenate and ABG II modular-neck
hip stems, $33 offered to the DOJ to settle the subpoena received in 2010
related to the sales and marketing of the OtisKnee device and $8 in separation
costs associated with our former Chief Executive Officer. In 2011 general and
administrative expenses included the payment of an intellectual property
infringement claim, offset by a favorable resolution of a value added tax issue.
In 2010 we sold a manufacturing facility in France and recorded a gain of $24
that is included in general and administrative expenses.
Restructuring Charges
In 2012 and 2011 we recorded $75 and $76, respectively, in restructuring charges
related to focused reductions of our global workforce and other restructuring,
expected to reduce our global workforce by approximately 5% and be complete by
the end of 2013 at a total cost of approximately $225. The targeted reductions
and other restructuring activities were initiated to provide efficiencies and
realign resources in advance of the Medical Device Excise Tax, as well as to
allow for continued investment in strategic areas and drive growth.
Other Income (Expense)
Other expense in 2012 increased $36 from 2011 after decreasing $22 from 2010.
The increase in expense in 2012 from 2011 and the reduction in expense from 2010
to 2011 are primarily due to reductions of accrued interest expense in 2011
resulting from settlements
Dollar amounts in millions except per share
13 amounts or as otherwise specified
reached with the United States Internal Revenue Service (IRS). In 2011 we
reached a favorable settlement regarding an IRS proposed adjustment to our
previously filed 2003 through 2007 income tax returns related to the income tax
positions we had taken for our Irish cost sharing arrangements. We also reached
a settlement with the IRS with respect to the allocation of income with a wholly
owned subsidiary operating in Puerto Rico for the years 2006 through 2009. The
higher interest expense in 2012 due to the effect of the 2011 tax settlements
was partially offset by higher interest income on our investments, due to higher
cash and cash equivalents and marketable securities balances compared to 2011.
Income Taxes
Our effective income tax rate on earnings was 23.9%, 20.2% and 26.4% in 2012,
2011 and 2010, respectively. The effective income tax rate for 2012 includes the
net impact of effective settlement of all tax matters through 2004 relating to
two German subsidiaries, and adjustment of the estimate of foreign tax credits
to the amount shown on the tax return as filed. The effective income tax rate
for 2011 includes the net impact of the settlements with the IRS as described
above. The effective income tax rate for 2010 includes the impact of a property,
plant and equipment impairment charge, the gain on sale of a manufacturing
facility and the favorable income tax expense adjustment associated with the
repatriation of foreign earnings to the United States completed in 2009.
The American Taxpayer Relief Act of 2012 (the Act) was signed on January 2,
2013. The Act provided numerous tax provisions for corporations including an
extension of the research tax credit and an extension of certain provisions for
companies with significant international operations. These provisions
originally expired at December 31, 2011 but were retroactively extended through
December 31, 2013. In 2013 we will record tax benefits of approximately $13
related to the 2012 research tax credit and other provisions of the Act.
Net Earnings
Net earnings in 2012 decreased 3.5% from 2011 to $1,298. Basic net earnings per
share in 2012 decreased 2.0% from 2011 to $3.41, and diluted net earnings per
share in 2012 decreased 1.7% from 2011 to $3.39. Net earnings in 2011 increased
5.7% from 2010 to $1,345. Basic net earnings per share in 2011 increased 8.4%
from 2010 to $3.48, and diluted net earnings per share in 2011 increased 8.2%
from 2010 to $3.45.
Reported net earnings includes the benefits from settlements and other
adjustments related to uncertain tax positions, restructuring and related
charges and acquisition and integration related charges, including transaction
costs, integration related costs and additional cost of sales for inventory sold
in the year that was "stepped up" to fair value. In addition, 2012 net earnings
includes a charge of $133 (net of taxes) related to the previously disclosed
voluntary recall of our Rejuvenate and ABG II modular-neck hip stems, and $33
offered to the United States Department of Justice to resolve the matter related
to the sales and marketing of our OtisKnee device for which we have recorded a
corresponding non-tax deductible charge. Excluding the impact of these items,
adjusted net earnings in 2012 increased 7.7% to $1,560 after increasing 9.0% in
2011. Adjusted diluted net earnings per share in 2012 increased 9.4% to $4.07
after increasing 11.7% in 2011.
The following reconciles the non-GAAP financial measures adjusted net earnings
and adjusted diluted net earnings per share with the most directly comparable
GAAP financial measures, reported net earnings and diluted net earnings per
share:
2012 2011 2010
Reported net earnings $ 1,298 $ 1,345 $ 1,273
Acquisition and integration-related charges, net of tax:
Inventory stepped up to fair value 13 97 -
Acquisition and integration-related charges 24 45 -
Restructuring and related charges 59 60 -
Uncertain income tax position adjustments - (99 ) -
OtisKnee matter 33 - -
Rejuvenate and ABG II recall 133 - -
Gain on sale of property, plant and equipment - - (13 )
Income taxes on repatriation of foreign earnings - - (7 )
Impairment of property, plant and equipment - - 76
Adjusted net earnings $ 1,560 $ 1,448 $ 1,329
Diluted net earnings per share of common stock:
Reported diluted net earnings per share $ 3.39 $ 3.45 $ 3.19
Acquisition and integration-related charges, net of tax:
Inventory stepped up to fair value 0.03 0.25 -
Acquisition and integration-related charges 0.06 0.12 -
Restructuring and related charges 0.15 0.16 -
Uncertain income tax position adjustments - (0.26 ) -
OtisKnee matter 0.09 - -
Rejuvenate and ABG II recall 0.35 - -
Gain on sale of property, plant and equipment - - (0.03 )
Income taxes on repatriation of foreign earnings - - (0.02 )
Impairment of property, plant and equipment - - 0.19
Adjusted diluted net earnings per share $ 4.07 $ 3.72 $ 3.33
Weighted-average diluted shares outstanding 383.0 389.5 399.5
|
Dollar amounts in millions except per share
14 amounts or as otherwise specified
The weighted-average basic and diluted shares outstanding used in the calculation of these non-GAAP financial measures are the same as the weighted-average shares outstanding used in the calculation of the reported per share amounts.
FINANCIAL CONDITION AND LIQUIDITY
Operating Activities
Operating cash flow was $1,657 in 2012, an increase of 15.6% from 2011.
Operating cash flow resulted primarily from net earnings adjusted for non-cash
items (depreciation and amortization, share-based compensation, sale of
inventory "stepped up" to fair value at acquisition and deferred income taxes).
The net of accounts receivable, inventory and accounts payable consumed $50 of
operating cash flow in 2012. Inventory contributed $18 of operating cash flow as
inventory days on hand decreased by 5 days due to lower inventory levels driven
primarily by improved inventory management. Accounts receivable used $20
primarily to support business growth, while accounts receivable days sales
outstanding decreased by 3 days due to timing of sales.
Operating cash flow was $1,434 in 2011, a decrease of 7.3% from 2010. Operating
cash flow resulted primarily from net earnings adjusted for non-cash items
(depreciation and amortization, share-based compensation, sale of inventory
"stepped up" to fair value at acquisition and deferred income taxes). The net of
accounts receivable, inventory and accounts payable consumed $274 of operating
cash flow in 2011. Inventory consumed $166 of operating cash flow primarily due
to the building of inventory related to acquisitions and other business growth,
increased stock levels in advance of new product introductions and higher
inventory levels in support of anticipated 2012 sales growth. Inventory days on
hand increased by 4 days due to the impact of the above. Accounts receivable
used $143, primarily due to the building of accounts receivable related to
acquisitions and other business growth. Accounts receivable days sales
outstanding increased by 2 days due to timing of sales.
Investing Activities
Net investing activities consumed $736 of cash in 2012 and $2,135 in 2011,
primarily due to acquisitions and capital spending.
. . .
|
|