Stryker Corporation : Stryker Reports Fourth Quarter and Full Year 2012 Results
Stryker Corporation : Stryker Reports Fourth Quarter and Full Year 2012
Results
Kalamazoo, Michigan - January 23, 2013 - Stryker Corporation (NYSE:SYK)
reported operating results for the fourth quarter and full year 2012:
Quarter Highlights
* Net sales growth of 5.5% to $2.3 billion
* Reconstructive increased 6.7% as reported, 7.4% constant currency
* MedSurg increased 2.4% as reported, 2.7% constant currency
* Neurotechnology and Spine increased 9.7% as reported, 10.8% constant
currency
* Adjusted net earnings^(1) increased 11.8% to $436 million
* Adjusted diluted net earnings per share^(2) increased 11.8% to $1.14
* Reported net earnings decreased 32.7% to $270 million
* Reported diluted net earnings per share decreased 32.4% to $0.71
Full Year Highlights
* Net sales growth of 4.2% to $8.7 billion
1. Reconstructive increased 3.1% as reported, 4.4% constant currency
2. MedSurg increased 3.3% as reported, 4.2% constant currency
3. Neurotechnology and Spine increased 9.2% as reported, 10.5% constant
currency
* Adjusted net earnings^(1) increased 7.7% to $1,560 million
* Adjusted diluted net earnings per share^(2) increased 9.4% to $4.07
* Reported net earnings decreased 3.5% to $1,298 million
* Reported diluted net earnings per share decreased 1.7% to $3.39
"We are pleased with our fourth quarter results and look to build on this
momentum in 2013," commented Kevin A. Lobo, President and Chief Executive
Officer.
Sales Analysis
Consolidated net sales of $2.3 billion and $8.7 billion increased 5.5% and
4.2% in the quarter and full year over the prior year, respectively. Net
sales in the quarter grew by 7.5% due to increased unit volume and changes in
product mix. Net sales in the quarter were unfavorably impacted by 1.4% due to
changes in price and 0.6% due to the unfavorable impact of foreign currency
exchange rates on net sales.
Reconstructive net sales of $1,046 million increased 6.7% in the quarter over
the prior year, as reported, and 7.4% in constant currency. Net sales in the
quarter grew by 9.8% due to increased unit volume and changes in product mix.
Net sales in the quarter were unfavorably impacted by 2.4% due to changes in
price and 0.7% due to the unfavorable impact of foreign currency exchange
rates on net sales.
MedSurg net sales of $877 million increased 2.4% in the quarter over the prior
year, as reported, and 2.7% in constant currency. Net sales in the quarter
grew by 2.2% due to increased unit volume and changes in product mix and a
favorable impact of 0.5% due to changes in price. Net sales in the quarter
were unfavorably impacted by 0.3% due to the unfavorable impact of foreign
currency exchange rates on net sales.
Neurotechnology and Spine net sales of $414 million increased 9.7% in the
quarter over the prior year, as reported, and 10.8% in constant currency. Net
sales in the quarter grew by 13.5% due to increased unit volume and changes in
product mix and 0.1% as a result of acquisitions. Net sales in the quarter
were unfavorably impacted by 2.8% due to changes in price and 1.1% due to the
unfavorable impact of foreign currency exchange rates on net sales.
Earnings Analysis
Reported net earnings in the quarter and full year include a charge of $133
million (net of taxes) related to the previously disclosed voluntary recall of
the Company's Rejuvenate and ABG II modular-neck hip stems. Reported net
earnings in the quarter and full year also include restructuring and related
charges of $24 million (net of taxes) and $59 million (net of taxes),
respectively, and acquisition and integration related charges of $9 million
(net of taxes) and $37 million (net of taxes), respectively, related to
acquisitions completed in 2011 and 2012. Reported net earnings in the full
year include a $33 million non-tax deductible charge related to the previously
disclosed OtisKnee matter. These charges reduced reported gross profit margin
in the fourth quarter from 68.3% to 68.2% and reported operating income margin
from 25.3% to 15.8%.
Excluding the charges described above, adjusted net earnings^(1) of $436
million and $1,560 increased 11.8% and 7.7% in the quarter and full year over
the prior year, respectively. Adjusted diluted net earnings per share^(2) of
$1.14 and $4.07 increased 11.8% and 9.4% in the quarter and full year over the
prior year, respectively.
Net earnings of $270 million and $1,298 million decreased 32.7% and 3.5% in
the quarter and full year over the prior year, respectively. Diluted net
earnings per share of $0.71 and $3.39 decreased 32.4% and 1.7% in the quarter
and full year over the prior year, respectively.
In 2012 Stryker repurchased 2.1 million shares at a cost of $108 million with
no share repurchase activity in the fourth quarter.
2013 Outlook
For the full year 2013, Stryker is projecting constant currency sales growth
in a range of 3.0% to 5.5%. If foreign currency exchange rates hold near
current levels, the Company anticipates net sales will be negatively impacted
by approximately 0% to 1% in both the first quarter and full year of 2013.
As previously communicated, the Company projects 2013 adjusted diluted net
earnings per share^(2),including the estimated $100 million (pre-tax) annual
impact from the medical device excise tax, to be in a range of $4.25 to $4.40.
With respect to 2013 quarterly sales and earnings, the Company is highlighting
several factors that are expected to impact the year-over-year growth rates,
including:
1. the first quarter of 2013 having one to two fewer selling days in key
markets compared to 2012,
2. the continued negative impact in the first quarter of 2013 of the
previously disclosed Japanese price reductions that took effect in April
of 2012,
3. the continued impact of the recall of the Neptune waste management system
that occurred during the third quarter of 2012, and
4. the adverse year-over-year net earnings comparison in the third quarter as
a result of favorable income tax adjustments in 2012.
As a result of these factors, the Company projects 2013 adjusted diluted net
earnings per share to be distributed across the year by approximately:
* 23% in the first quarter,
* 24% in each of the second and third quarters, and
* 29% in the fourth quarter.
1. A reconciliation of reported net earnings to adjusted net earnings, a
non-GAAP financial measure, and other important information, appears
below.
2. A reconciliation of reported diluted net earnings per share to adjusted
diluted net earnings per share, a non-GAAP financial measure, and other
important information, appears below.
Conference Call on Wednesday, January 23, 2013
As previously announced, the Company will host a conference call on Wednesday,
January 23, 2013 at 4:30 p.m., Eastern Time, to discuss the Company's
operating results for the quarter and year ended December 31, 2012.
To participate in the conference call dial 800-446-2782 (domestic) or
847-413-3235 (international) and be prepared to provide confirmation number
34031905 to the operator.
A simultaneous webcast of the call will be accessible via the Company's
website at www.stryker.com. The call will be archived on this site for 90
days.
A recording of the call will also be available from 7:30 p.m., Eastern Time,
on Wednesday, January 23, 2013, until 11:59 p.m., Eastern Time, on Wednesday,
January 30, 2013. To hear this recording you may dial 888-843-7419 (domestic)
or 630-652-3042 (international) and enter the passcode 34031905#.
Forward-Looking Statements
This press release contains information that includes or is based on
forward-looking statements within the meaning of the federal securities law
that are subject to various risks and uncertainties that could cause our
actual results to differ materially from those expressed or implied in such
statements. Such factors include, but are not limited to: weakening of
economic conditions that could adversely affect the level of demand for our
products; pricing pressures generally, including cost-containment measures
that could adversely affect the price of or demand for our products; changes
in foreign exchange markets; legislative and regulatory actions; unanticipated
issues arising in connection with clinical studies and otherwise that affect
U.S. Food and Drug Administration approval of new products; changes in
reimbursement levels from third-party payors; a significant increase in
product liability claims; the ultimate total cost with respect to the
Rejuvenate and ABG II matter; the impact of investigative and legal
proceedings and compliance risks; resolution of tax audits; the impact of the
federal legislation to reform the United States healthcare system and the 2.3
percent medical device excise tax; changes in financial markets; changes in
the competitive environment; our ability to integrate acquisitions, including
the acquisition of Trauson Holdings Company Limited; and our ability to
realize anticipated cost savings as a result of workforce reductions and other
restructuring activities. Additional information concerning these and other
factors are contained in our filings with the U.S. Securities and Exchange
Commission, including our Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q.
Stryker is one of the world's leading medical technology companies and is
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. For more information about Stryker, please
visit www.stryker.com.
For investor inquiries please contact:
Katherine A. Owen, Stryker Corporation, 269-385-2600 or
katherine.owen@stryker.com
STRYKER CORPORATION
(Unaudited - Millions of Dollars, Except Per Share Amounts)
CONDENSED STATEMENTS OF EARNINGS
Fourth Quarter Year Ended December 31
2012 2011 % Change 2012 2011 % Change
Net sales $ 2,337 $ 2,215 5.5 $ 8,657 $ 8,307 4.2
Cost of sales 744 740 0.5 2,781 2,811 (1.1 )
GROSS PROFIT 1,593 1,475 8.0 5,876 5,496 6.9
% of sales 68.2 % 66.6 % 67.9 % 66.2 %
Research,
development &
engineering
expenses 129 115 12.2 471 462 1.9
Selling general &
administrative
expenses 1,033 834 23.9 3,466 3,150 10.0
Intangibles
amortization 31 32 (3.1 ) 123 122 0.8
Restructuring
charges 30 76 (60.5 ) 75 76 (1.3 )
1,223 1,057 15.7 4,135 3,810 8.5
OPERATING INCOME 370 418 (11.5 ) 1,741 1,686 3.3
% of sales 15.8 % 18.9 % 20.1 % 20.3 %
Other income
(expense) (12 ) 15 (180.0 ) (36 ) - -
EARNINGS BEFORE
INCOME TAXES 358 433 (17.3 ) 1,705 1,686 1.1
Income Taxes 88 32 175.0 407 341 19.4
NET EARNINGS $ 270 $ 401 (32.7 ) $ 1,298 $ 1,345 (3.5 )
Net earnings per
share
Basic 0.71 1.05 (32.4 ) 3.41 3.48 (2.0 )
Diluted 0.71 1.05 (32.4 ) 3.39 3.45 (1.7 )
Average shares
outstanding
Basic 380.3 381.7 380.6 386.5
Diluted 382.7 383.3 383.0 389.5
CONDENSED BALANCE SHEETS
December December
2012 2011
ASSETS
Cash and cash equivalents $ 1,395 $ 905
Marketable securities 2,890 2,513
Accounts receivable (net) 1,430 1,417
Inventories 1,265 1,283
Other current assets 1,138 1,093
TOTAL CURRENT ASSETS 8,118 7,211
Property, plant and equipment (net) 948 888
Goodwill and other intangibles (net) 3,566 3,514
Other assets 835 792
TOTAL ASSETS $ 13,467 $ 12,405
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 1,837 $ 1,828
Other liabilities 1,287 1,143
Long-term debt 1,746 1,751
Shareholders' equity 8,597 7,683
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,467 $ 12,405
CONDENSED STATEMENTS OF CASH FLOWS
Fourth Quarter Year Ended December 31
2012 2011 2012 2011
OPERATING ACTIVITIES
Net earnings $ 270 $ 401 $ 1,298 $ 1,345
Depreciation 39 41 154 160
Amortization 83 81 332 321
Restructuring charges 30 76 75 76
Changes in operating assets and
liabilities and other, net 174 28 (202 ) (468 )
NET CASH PROVIDED BY OPERATING
ACTIVITIES 596 627 1,657 1,434
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (107 ) (144 ) (154 ) (2,066 )
Proceeds from sales of property, plant
and equipment - - - 67
Proceeds from sales of (purchases of)
marketable securities, net (413 ) (172 ) (372 ) 90
Purchases of property, plant and
equipment (49 ) (64 ) (210 ) (226 )
NET CASH USED IN INVESTING ACTIVITIES (569 ) (380 ) (736 ) (2,135 )
FINANCING ACTIVITIES
Borrowings (repayments) of debt, net (6 ) (10 ) (4 ) 737
Dividends paid (81 ) (69 ) (324 ) (279 )
Repurchase and retirement of common
stock - (83 ) (108 ) (622 )
Other 24 23 (13 ) 3
NET CASH USED IN FINANCING ACTIVITIES (63 ) (139 ) (449 ) (161 )
Effect of exchange rate changes on
cash and cash equivalents 8 (13 ) 18 9
CHANGE IN CASH AND CASH EQUIVALENTS $ (28 ) $ 95 $ 490 $ (853 )
STRYKER CORPORATION
For the Three Month and Year Ended December 31, 2012
(Unaudited - Millions of Dollars)
CONDENSED SALES ANALYSIS
Fourth Quarter Year Ended December 31
% Change % Change
As Constant As Constant
2012 2011 Reported Currency 2012 2011 Reported Currency
Geographic
sales
United States $ 1,529 $ 1,407 8.7 8.7 $ 5,658 $ 5,269 7.4 7.4
International 808 808 0.1 1.7 2,999 3,038 (1.3 ) 1.9
NET SALES $ 2,337 $ 2,215 5.5 6.1 $ 8,657 $ 8,307 4.2 5.4
Worldwide sales
Reconstructive $ 1,046 $ 981 6.7 7.4 $ 3,823 $ 3,710 3.1 4.4
MedSurg 877 857 2.4 2.7 3,265 3,160 3.3 4.2
Neurotechnology
and Spine 414 377 9.7 10.8 1,569 1,437 9.2 10.5
NET SALES $ 2,337 $ 2,215 5.5 6.1 $ 8,657 $ 8,307 4.2 5.4
SUPPLEMENTAL SALES GROWTH ANALYSIS
Fourth Quarter
% Change
U.S. International
As Constant As As Constant
2012 2011 Reported Currency Reported Reported Currency
Reconstructive
Hips $ 325 $ 314 3.6 4.1 7.4 (0.4 ) 0.7
Knees 360 341 5.4 5.7 9.2 (1.5 ) (0.6 )
Trauma and
Extremities 278 253 10.2 11.7 26.4 (3.3 ) (0.4 )
TOTAL
RECONSTRUCTIVE 1,046 981 6.7 7.4 13.9 (2.2 ) (0.7 )
MedSurg
Instruments 330 319 3.5 4.0 5.1 - 1.6
Endoscopy 309 292 6.0 6.3 6.9 4.0 5.0
Medical 185 200 (7.4 ) (7.4 ) (8.6 ) (2.0 ) (2.2 )
TOTAL MEDSURG 877 857 2.4 2.7 2.8 1.2 2.3
Neurotechnology and
Spine
Spine 190 178 6.4 7.2 10.1 (1.2 ) 1.1
Neurotechnology 224 199 12.7 14.0 14.6 10.0 13.0
TOTAL
NEUROTECHNOLOGY AND
SPINE 414 377 9.7 10.8 12.3 5.4 8.2
Year Ended December 31
% Change
U.S. International
As Constant As As Constant
2012 2011 Reported Currency Reported Reported Currency
Reconstructive
Hips $ 1,233 $ 1,228 0.4 1.5 5.2 (4.5 ) (2.3 )
Knees 1,356 1,316 3.0 4.0 6.0 (2.4 ) 0.4
Trauma and
Extremities 989 931 6.2 8.4 18.0 (3.5 ) 0.4
TOTAL
RECONSTRUCTIVE 3,823 3,710 3.1 4.4 9.2 (4.3 ) (1.4 )
MedSurg
Instruments 1,261 1,187 6.2 7.3 9.1 (0.4 ) 3.1
Endoscopy 1,111 1,080 2.9 3.9 2.6 3.7 7.1
Medical 691 722 (4.3 ) (3.7 ) (7.8 ) 11.1 14.8
TOTAL MEDSURG 3,265 3,160 3.3 4.2 3.4 3.0 6.5
Neurotechnology
and Spine
Spine 727 687 5.8 6.9 9.2 (1.7 ) 1.7
Neurotechnology 842 750 12.3 13.9 19.0 3.9 7.6
TOTAL
NEUROTECHNOLOGY
AND SPINE 1,569 1,437 9.2 10.5 13.8 1.7 5.3
SUPPLEMENTAL INFORMATION - CONDENSED STATEMENTS OF EARNINGS RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES
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 investors and 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 for 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 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.
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:
STRYKER CORPORATION
For the Three Month and Year Ended December 31, 2012
(Unaudited - Millions of Dollars, Except Per Share Amounts)
RECONCILIATION OF NET EARNINGS TO ADJUSTED NET EARNINGS
Fourth Quarter Year Ended December 31
Notes 2012 2011 % Change 2012 2011 % Change
NET EARNINGS $ 270 $ 401 (32.7 ) $ 1,298 $ 1,345 (3.5 )
Acquisition and
integration
related charges,
net of tax (a)
Inventory "step
up" to fair value 2 12 (83.3 ) 13 97 (86.6 )
Acquisition and
integration
related 7 16 (56.3 ) 24 45 (46.7 )
Restructuring and
related charges (b) 24 60 (60.0 ) 59 60 (1.7 )
Uncertain income
tax position
adjustments (c) - (99 ) (100.0 ) - (99 ) (100.0 )
OtisKnee matter (d) - - - 33 - -
Rejuvenate and
ABGII recall (e) 133 - - 133 - -
ADJUSTED NET
EARNINGS $ 436 $ 390 11.8 $ 1,560 $ 1,448 7.7
RECONCILIATION OF DILUTED NET EARNINGS PER SHARE TO ADJUSTED DILUTED NET
EARNINGS PER SHARE
Fourth Quarter Year Ended December 31
Notes 2012 2011 % Change 2012 2011 % Change
DILUTED NET
EARNINGS PER SHARE $ 0.71 $ 1.05 (32.4 ) $ 3.39 $ 3.45 (1.7 )
Acquisition and
integration
related charges,
net of tax (a)
Inventory "step
up" to fair value - 0.03 (100.0 ) 0.03 0.25 (88.0 )
Acquisition and
integration
related 0.02 0.04 (50.0 ) 0.06 0.12 (50.0 )
Restructuring and
related charges (b) 0.06 0.16 (62.5 ) 0.15 0.16 (6.3 )
Uncertain income
tax position
adjustments (c) - (0.26 ) (100.0 ) - (0.26 ) (100.0 )
OtisKnee matter (d) - - - 0.09 - -
Rejuvenate and
ABGII recall (e) 0.35 - - 0.35 - -
ADJUSTED DILUTED
NET EARNINGS PER
SHARE $ 1.14 $ 1.02 11.8 $ 4.07 $ 3.72 9.4
(a) The Company has incurred and will incur certain acquisition and
integration related charges in connection with the acquisition of Surpass
Medical, Ltd. in 2012 and of the Neurovascular division of Boston
Scientific Corporation, Orthovita, Inc., Memometal Technologies S.A., and
Concentric Medical,Inc. in 2011.
(b) In 2011 the Company announced focused workforce reductions and other
restructuring activities and has incurred and will continue to incur
certain restructuring and related charges.
(c) In 2011 the Company reached a settlement with the United States Internal
Revenue Service regarding a proposed adjustment and recorded charges for
other uncertain income tax positions.
(d) In 2012 the Company announced entering into discussions with the DOJ
regarding the settlement of the allegations of violations of Federal law
related to sales of the OtisKnee device not cleared by the United States
Food and Drug Administration. The Company recorded a non-tax deductible
charge representing the Company's best estimate of the minimum of the
range of probable loss to resolve this matter.
(e) In the fourth quarter of 2012 the Company recorded a charge representing
the Company's best estimate of the minimum of the range of probable loss
to resolve the previously disclosed voluntarily recall of its Rejuvenate
and ABG II modular-neck hip stems over previously recorded reserves.
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(ii) they are solely responsible for the content, accuracy and originality of
the
information contained therein.
Source: Stryker Corporation via Thomson Reuters ONE
HUG#1672624
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