Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SYK > SEC Filings for SYK > Form 10-Q on 30-Apr-2013All Recent SEC Filings

Show all filings for STRYKER CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for STRYKER CORP


30-Apr-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We supplement the reporting of our financial information determined under 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. For the most part, we maintain separate and 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.

Revenues in the United States accounted for 65.8% and 64.0% of total revenues in the first three months of 2013 and 2012, respectively, and international revenues accounted for 34.2% and 36.0% of total revenues in the first three months of 2013 and 2012, respectively.

RESULTS OF OPERATIONS

Consolidated results of operations for the three months ended March 31, 2013 and
2012 were:
                                                     Three Months Ended March 31
                                                       2013            2012   % Change
Net Sales                                      $     2,190           $ 2,161      1.3
Gross Profit                                                   1,477    1,452     1.7
Research, development & engineering expenses                     129      112    15.2
Selling, general & administrative expenses                       916      819    11.8
Intangible amortization                                           32       31     3.2
Restructuring charges                                             14      14        -
Other income (expense)                                          (11)      (8)    37.5
Income taxes                                                      71      118   (39.8 )
Net Earnings                                   $       304           $   350    (13.1 )
Diluted Net Earnings per share                 $      0.79           $  0.91    (13.2 )

Dollar amounts in millions except per share
12 amounts or as otherwise specified


Geographic and segment net sales for the three months ended March 31, 2013 and 2012 were:

                                                            Percentage Change
                                                                2013/2012
                                Three Months Ended                   Constant
                                  2013           2012     Reported   Currency
Geographic sales:
United States               $    1,441         $ 1,384       4.0            4.0
International                      749             777      (3.4 )          0.2
Total net sales             $    2,190         $ 2,161       1.3            2.6
Segment sales:
Reconstructive              $      969         $   958       1.2            2.8
MedSurg                            824             821       0.3            1.0
Neurotechnology and Spine          397             382       4.0            5.7
Total net sales             $    2,190         $ 2,161       1.3            2.6

Net sales increased 1.3% for the three-month period ended March 31, 2013 from 2012. Net sales grew 3.8% as a result of increased unit volume and changes in product mix and 0.2% due to acquisitions. Net sales were unfavorably impacted by 1.3% due to changes in price and 1.3% due to the unfavorable impact of foreign currency exchange rates on net sales. In constant currency, net sales increased in the three-month period by 2.6%. The increase in consolidated net sales for the three-month period was primarily due to higher shipments of neurotechnology, trauma and extremities products, and reprocessed and remanufactured medical devices; these gains were partially offset by slowness in the European markets and unfavorable price impacts in the Japanese markets.

The following sales growth information is provided to supplement the net sales information presented above:

                                                              Three Months Ended March 31
                                                                                  % Change
                                                                                    U.S.            International
                                                                     Constant                                Constant
                                   2013      2012     As Reported    Currency    As Reported  As Reported    Currency
Reconstructive
Hips                            $    308   $   312        (1.2 )       0.8            3.7          (6.4 )     (2.4 )
Knees                                345       352        (2.0 )      (1.0 )         (0.4 )        (5.0 )     (2.2 )
Trauma and Extremities               266       243         9.3        11.6           26.2          (5.0 )     (0.8 )
TOTAL RECONSTRUCTIVE                 969       958         1.2         2.8            6.5          (5.6 )     (1.9 )
MedSurg
Instruments                          312       314        (0.7 )       0.2           (1.3 )         1.0        4.1
Endoscopy                            278       279        (0.2 )       0.6           (0.9 )         1.5        4.3
Medical                              182       179         1.3         1.5            4.3          (7.6 )     (6.6 )
TOTAL MEDSURG                        824       821         0.3         1.0            0.7          (0.7 )      1.9
Neurotechnology and Spine
Neurotechnology                      221       201        10.2        12.6           14.5           4.5       10.0
Spine                                176       181        (3.0 )      (1.8 )            -         (10.1 )     (6.2 )
TOTAL NEUROTECHNOLOGY AND SPINE      397       382         4.0         5.7            6.9          (1.1 )      3.7

Reconstructive net sales in the three-month period increased 1.2%, due to an increase of 5.2% in unit volume and changes in product mix and 0.2% as a result of acquisitions. Net sales were unfavorably impacted by 2.6% due to changes in price and 1.6% due to the unfavorable impact of foreign currency exchange rates on net sales. In constant currency, Reconstructive net sales in the quarter increased 2.8%, primarily due to increases in trauma and extremities products in the United States.

MedSurg net sales in the three-month period increased 0.3% due to a 0.5% increase in unit volume and changes in product mix and a favorable price effect of 0.5%. Net sales were unfavorably impacted by 0.7% due to the impact of foreign currency exchange rates on net sales. In constant currency, MedSurg net sales in the three-month period increased 1.0%, led by higher Medical shipments as well as reprocessed and remanufactured medical devices.

Neurotechnology and Spine net sales in the three-month period increased 4.0%, primarily due to a 7.5% increase in unit volume and changes in product mix and 0.3% due to acquisitions. Net sales were unfavorably impacted by 2.0% due to changes in price and 1.8% due to the unfavorable impact of foreign currency exchange rates on net sales. In constant currency, Neurotechnology and Spine net sales in the three-month period increased 5.7%, with higher shipments of Neurotechnology offset by slowness in the Spine markets.

Dollar amounts in millions except per share
13 amounts or as otherwise specified


Consolidated Cost of Sales

Cost of sales increased 0.6% for the three-month period to 32.6% of sales, compared to 32.8% of sales in 2012. Cost of sales in 2013 includes $23 for the Medical Device Excise Tax (MDET); 2012 includes $12 related to inventory that was "stepped-up" to fair value following acquisitions and $2 in other restructuring-related costs. Excluding the impact of inventory "stepped-up" to fair value and other restructuring-related costs, cost of sales in the first quarter was 32.5% of sales compared to 32.2% of sales in 2012.

Research, Development and Engineering Expenses

Research, development and engineering expenses increased 15.2% to $129 representing 5.9% of sales in the three-month period compared to 5.2% of sales in 2012. The timing of projects for anticipated future products and continued investment in new technologies causes the spending level to vary from quarter to quarter as a percentage of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three-month period increased from 2012 by 11.8% to $916 (41.8% and 37.9% of sales for the first quarter of 2013 and 2012, respectively). The three-month periods included $20 and $9 in 2013 and 2012, respectively, in acquisition and integration-related charges. General and administrative costs in 2013 also included $40 related to the previously disclosed voluntary recall of the Rejuvenate and ABG II modular-neck hip stems and $40 related to two previously disclosed United States regulatory matters. Excluding the impact of these charges, selling, general and administrative expenses in 2013 were 37.2% of sales, compared to 37.5% of sales in 2012.

Restructuring Charges

In the three-month period we recorded $14 in restructuring charges related to the continuation of focused reductions of our global workforce and other restructuring activities that are expected to reduce our global workforce by approximately 5% and be substantially complete by the end of 2013 at a total cost of approximately $225. The actions were initiated in 2011 to provide efficiencies and realign resources in advance of the MDET, which began on January 1, 2013, as well as to allow for continued investment in strategic areas and drive growth.

Other Income (Expense)

Other expense in the three-month period increased $3 from 2012, primarily as a result of lower interest income on marketable securities.

Income Taxes

Our effective income tax rate on earnings in the three-month period was 18.9% compared to 25.2% in 2012. In 2013 we recorded tax benefits of $13 upon the signing of the American Taxpayer Relief Act of 2012 that was signed into law on January 2, 2013. These tax benefits related to the retroactive extension of numerous tax provisions, including an extension of the research tax credit and other provisions for companies with significant international operations.

Net Earnings

Net earnings in the three-month period decreased to $304 or $0.79 per diluted share in 2013 compared to $350 or $0.91 per diluted share in 2012.

Reported net earnings includes restructuring and related charges of $11 in 2013 and $12 in 2012, and acquisition and integration related charges of $17 in both periods. In addition, 2013 also includes $32 related to the previously disclosed voluntary recall of the Rejuvenate and ABG II modular-neck hip stems and $30 related to two previously disclosed United States regulatory matters. Excluding the impact of these items, adjusted net earnings in the three-month period increased 4.0% from 2012, to $394 or $1.03 per diluted share.

Dollar amounts in millions except per share
14 amounts or as otherwise specified


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:

                                                              Three Months Ended March 31
                                                                  2013             2012
Reported net earnings                                       $          304     $      350
Acquisition and integration related charges, net of tax
Inventory stepped up to fair value                                       -             10
Acquisition and integration related                                     17              7
Restructuring and related charges                                       11             12
Rejuvenate / ABG II hip recall charges                                  32
Regulatory matter charges                                               30              -
Adjusted net earnings                                       $          394     $      379

Diluted net earnings per share of common stock:
Reported diluted net earnings per share                     $         0.79     $     0.91
Acquisition and integration related charges, net of tax
Inventory stepped up to fair value                                       -           0.03
Acquisition and integration related                                   0.05           0.02
Restructuring and related charges                                     0.03           0.03
Rejuvenate / ABG II hip recall charges                                0.08              -
Regulatory matter charges                                             0.08              -
Adjusted diluted net earnings per share                     $         1.03     $     0.99
Weighted-average diluted shares outstanding                          383.0          383.8

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.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

We generated $236 of cash from operations in the three-month period ended March 31, 2013 compared to $35 in 2012. Operating cash flow resulted primarily from net earnings adjusted for non-cash items (depreciation and amortization, stock-based compensation, deferred income taxes and, in 2013, accrued charges for product recall and regulatory matters). In 2012 cash payments of tax consumed $153 and payments of legal settlements consumed $33.

The net of accounts receivable, inventory and accounts payable consumed $40 of operating cash flow in the three-month period in 2013, compared to $112 in 2012. Improved collection of accounts receivable and the impact of the timing of sales resulted in the generation of $7 of cash in 2013 compared to the consumption of $48 in 2012, and a 3 day improvement in accounts receivable days outstanding compared to 2012. Accounts receivable days outstanding compared to December 31 increased by 3 days in both 2013 and 2012. Inventory days on hand compared to December 31 increased by 14 days in 2013 compared to 11 days in 2012. The increase in 2013 compared to 2012 was primarily due to the acquisition of Trauson in March 2013.

Investing Activities

Net investing activities consumed $360 of cash in the three-month period compared to $123 in 2012, primarily due to acquisitions and capital spending, partially offset in 2013 by $289 in cash generated from sales of marketable securities.

Acquisitions. Acquisitions used $600 of cash in 2013 and $9 in 2012. Cash used in 2013 was primarily for the acquisition of Trauson.

Capital Spending. We manage capital spending to support our business growth. Capital expenditures, primarily to support integration of acquisitions, capacity expansion, new product introductions, innovation and cost savings, were $49 in 2013 and $52 in 2012.

Financing Activities

Dividend Payments. Dividends paid per common share increased 24.7% to $0.265 per share in 2013 as compared to $0.2125 in 2012. Total dividend payments to common shareholders were $101 in 2013 and $81 in 2012.

Dollar amounts in millions except per share
15 amounts or as otherwise specified


Long-Term and Short-Term Debt. Net proceeds from borrowings were $1,009 in 2013 and $6 in 2012. We maintain debt levels we consider appropriate after evaluation of a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment and financing plans and overall cost of capital.

In March 2013 we completed a public offering of $600 in 1.30% Notes due April 1, 2018, net of an offering discount of $3 (2018 Notes), and $400 in 4.10% Notes due April 1, 2043, net of an offering discount of $6 (2043 Notes and, together with the 2018 Notes, the Notes).
Share Repurchases. Total use of cash for share repurchases was $250 in 2013 and $50 in 2012. The 2013 repurchase activity was attributable to the initial delivery of shares under our Accelerated Share Repurchase (ASR) program. The ASR program was completed in April of 2013.
Liquidity

Cash and marketable securities were $4,487 at March 31, 2013 and $4,285 at December 31, 2012 and current assets exceeded current liabilities by $6,613 at March 31, 2013 and $6,272 at December 31, 2012. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. We have strong short- and long-term debt ratings that we believe should enable us to refinance our debt as it becomes due.

As discussed above, in March 2013 we completed a public offering on our 2018 Notes and 2043 Notes. Interest on the Notes is payable on April 1 and October 1 of each year, commencing on October 1, 2013. Unless previously redeemed, the 2018 Notes will mature on April 1, 2018 and the 2043 Notes will mature on April 1, 2043. We intend to use the net proceeds from the Notes for working capital and other general corporate purposes, including acquisitions, stock repurchases and other business opportunities.

Should additional funds be required we had approximately $1,042 of borrowing capacity available under all of our existing credit facilities at March 31, 2013.

At March 31, 2013, approximately 49% of our consolidated cash and cash equivalents and marketable securities were held in locations outside of the United States. These funds are considered indefinitely reinvested to be used to expand operations either organically or through acquisitions outside the United States.

Several European countries, including Spain, Portugal, Italy and Greece (the Southern European Region), have been subject to credit deterioration due to weaknesses in their economic and fiscal situations. We continuously monitor our investment portfolio positions for exposures to the European debt crisis. We currently do not have any investments in the sovereign debt instruments of the Southern European Region. Any non-sovereign exposure in these countries in our investment portfolios is considered immaterial.

We continually evaluate our receivables, particularly in the Southern European Region. The total net receivables from the Southern European Region at March 31, 2013 and December 31, 2012 was approximately $197 and $198, respectively, including approximately $101 and $103, respectively, of sovereign receivables. We believe that our current reserves related to receivables are adequate and any additional credit risk associated with the European debt crisis is not expected to have a material adverse impact on our financial position or liquidity.

Guarantees and Other Off-Balance Sheet Arrangements

We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, that we believe could have a material impact on our financial condition or liquidity.

OTHER MATTERS

Hedging

We have certain investments in net assets in international locations that are not hedged. These investments are subject to translation gains and losses due to changes in foreign currencies. The strengthening of the United States dollar relative to foreign currencies has decreased the value of these investments in net assets and the related foreign currency translation adjustment loss in shareholders' equity by $114 since the beginning of 2013.

Legal and Regulatory Matters

We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor and intellectual property and other matters. The outcomes of certain of these matters will not be

Dollar amounts in millions except per share
16 amounts or as otherwise specified


known for prolonged periods of time. To partially mitigate losses arising from unfavorable outcomes in such matters, we purchase third-party insurance coverage subject to certain deductibles and loss limitations. Future operating results may be unfavorably impacted by any settlement payments or losses beyond the amounts of insurance carried. In addition, such matters may negatively impact our ability to obtain cost effective third-party insurance coverage in future periods. In certain of the legal proceedings, the claimants seek damages, as well as other compensatory and equitable relief, that could result in the payment of significant claims and settlements and/or the imposition of injunctions or other equitable relief. For legal matters for which management has sufficient information to reasonably estimate our future obligations, a liability representing management's best estimate of the probable cost, or the minimum of the range of probable losses when a best estimate within the range is not known, for the resolution of these legal matters is recorded. Estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than those projected by management, additional expense may be incurred, which could unfavorably affect future operating results.

In 2010 we received a subpoena from the United States Department of Justice (DOJ) related to the sales and marketing of the OtisKnee device. The subpoena concerns allegations of violations of Federal laws related to sales of a device not cleared by the United States Food and Drug Administration (FDA). We continue to discuss the settlement of this matter with the DOJ, but there can be no assurance that we will reach a consensual resolution rather than seeking a resolution through the courts.

In 2007 we disclosed that the United States Securities and Exchange Commission (SEC) made an inquiry of us regarding possible violations of the Foreign Corrupt Practices Act in connection with the sale of medical devices in certain foreign countries. The investigation is ongoing and we are fully cooperating with the SEC regarding these matters.

We have recorded charges totaling $75 related to the above DOJ and SEC regulatory, including $40 in the first quarter of 2013. The final outcome of these matters is difficult to predict, and the ultimate cost to resolve these matters may be materially different than the amount of the current estimate and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

In June 2012 we voluntarily recalled our Rejuvenate and ABG II modular-neck hip stems and terminated global distribution of these hip products. We notified healthcare professionals and regulatory bodies of this recall, which was taken due to potential risks associated with fretting and/or corrosion that may lead to adverse local tissue reactions. Product liability lawsuits relating to this voluntary recall have been filed against us. As previously announced, we intend to reimburse implanted patients for reasonable and customary costs of testing and treatment services, including any necessary revision surgeries. We continue to work with the medical community to evaluate the data and further understand this matter and the associated costs. The ultimate total cost with respect to this matter will depend on many factors that are difficult to predict with the limited information received to date and may vary materially based on the number of and actual costs of patients seeking testing and treatment services, the number of and actual costs of patients requiring revision surgeries, the number of and actual costs to settle lawsuits filed against us, and the amount of third-party insurance recoveries. Based on the information that has been received, we estimate the probable loss to resolve this matter to be in the range of approximately $230 to $430, before third-party insurance recoveries.
In the first quarter of 2013 we recorded a charge to earnings of $40 representing the excess of the $230 minimum of the range over the previously recorded reserves. No contingent gain for third-party recoveries was recorded as of March 31, 2013. As noted above, the final outcome of this matter is dependent on many variables that are difficult to predict. The ultimate cost to entirely resolve this matter may be materially different than the amount of the current estimate and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

. . .

  Add SYK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SYK - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.