Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-9165
STRYKER CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-1239739
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 4085, Kalamazoo, Michigan 49003-4085
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 616/385-2600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
$.10 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based on the closing sales price of February 28, 1995 the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
approximately $1,430,000,000.
Page 2
The number of shares outstanding of the registrant's common stock, $.10 par
value, was 48,385,411 at February 28, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual stockholders report for the year ended December 31,
1994 are incorporated by reference into Parts II and IV.
Portions of the proxy statement filed with the Securities and Exchange
Commission relating to the 1995 Annual Meeting of Stockholders (the "1995
proxy statement") are incorporated by reference into Part III.
PART I
ITEM I. BUSINESS
General
Stryker Corporation and its subsidiaries (the "Company" or "Stryker")
develop, manufacture and market specialty surgical and medical products,
including orthopaedic implants, powered surgical instruments, endoscopic
systems, patient care and patient handling equipment for the global market
and provide physical therapy services through outpatient clinics in the
United States. Stryker was incorporated in Michigan on February 20, 1946 as
the successor to a business founded in 1941 by Dr. Homer H. Stryker, a
leading orthopaedic surgeon and the inventor of several orthopaedic products.
In October 1992, the Company's subsidiary, Stryker France S.A., acquired
Dimso S.A. and its subsidiary companies in France and Spain. Dimso designs
and manufactures the Diapason and Stryker 2S spinal implant systems in
addition to other orthopaedic products. The Company's European Division had
previously marketed the Stryker 2S spinal implant system since 1990.
In June 1994, the Company purchased the Steri-Shield product line, which is a
personal protection system for operating room personnel, from a private
company.
In August 1993, the Company purchased 20% of the outstanding common stock of
Matsumoto Medical Instruments, Inc. ("Matsumoto"), Osaka, Japan. Matsumoto
is one of the largest distributors of medical devices in Japan and is the
exclusive distributor of Stryker products in that country. In August 1994,
the Company purchased an additional 31% of Matsumoto's outstanding common
stock, thereby increasing its direct ownership in Matsumoto to 51%. The
results of operations for Matsumoto were consolidated with Stryker beginning
in August 1994.
Product Sales
The principal classes of products listed below accounted for the following
amounts ($000's) and percentages of net sales during each of the three years
ended December 31:
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1994 1993 1992
------------ ------------ ------------
$ % $ % $ %
------- --- ------- --- ------- ---
Surgical Products 544,049 80 447,042 80 394,111 83
Medical Products 137,871 20 110,293 20 82,973 17
------- --- ------- --- ------- ---
_______ ___ _______ ___ _______ __
681,920 100 557,335 100 477,054 100
======= === ======= === ======= ===
Approximately 60% of the Company's sales in 1994 and approximately two-thirds
of the Company's sales in 1993 and 1992 consisted of products with short
lives and service revenues, such as implants (while implants have a long
useful life to the patient, they have a one-time use to the hospital),
physical therapy revenues, disposables, expendable tools and parts, and
service and repair charges. The balance were products that could be
considered capital equipment, having useful lives in excess of one year.
The Company's backlog of firm orders is not considered material to an
understanding of its business.
Surgical Products
The principal specialty served by the Company's Surgical products is
orthopaedics. Artificial joint replacements, medical video cameras,
arthroscopes, heavy-duty powered instruments, and pulsating irrigation
systems are manufactured and marketed for use by the orthopaedic surgeon.
The Company specializes in the design and manufacture of innovative total and
partial hip and knee replacements. These artificial implants are made of
cobalt chrome or titanium alloys and are implanted in patients whose natural
joints have been damaged by arthritis, other diseases or injury.
The Company also designs and manufactures spinal implant systems outside the
United States. These implant systems are used by spinal surgeons in the
treatment of degenerative spinal diseases and deformities and to stabilize
the spine in trauma cases.
Stryker's broad line of powered surgical drills, saws, fixation and reaming
equipment and other surgical instruments are used by surgeons for drilling,
burring, rasping or cutting bone, wiring or pinning bone fractures, preparing
hip or knee surfaces for the placement of artificial hip or knee joints,
performing cranial operations or treating skin defects by surgical abrasion.
Hundreds of different sized and shaped drill bits, burrs, blades, chisels and
other attachments are available to the surgeon.
Small, light, "micro" powered tools are used in such specialties as
maxillofacial surgery, functional endoscopic sinus surgery, otology,
neurosurgery, spinal surgery, podiatry and plastic surgery. In addition, the
oral surgeon is served by the Company's line of powered oral surgery
instruments.
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The Company also produces a number of other operating room or surgery related
products. The Company's CBC-ConstavacTM system is a post-operative wound
drainage and blood reinfusion device that enables joint replacement patients
to receive their own blood rather than donor blood. In conjunction with
joint replacement surgery, the Company's High Vacuum Cement Injection System
is used to mix and inject cement under high vacuum for cemented implant
applications. The Steri-Shield Personal Protection System product line
purchased in 1994 is a totally enclosed hood and toga that helps protect
operating room personnel against contamination from blood and airborne
particles.
The Company's endoscopic systems include medical video cameras, light
sources, laparoscopes, powered instruments and manual instruments. These
systems are used in less-invasive surgery, such as arthroscopy and
cholecystectomy (gall bladder removal), in which the surgeon operates on a
patient through a series of small punctures rather than an open incision as
required by conventional surgery.
In Japan, Matsumoto Medical Instruments, Inc., the Company's 51% owned
subsidiary, distributes the Company's surgical products as well as
orthopaedic, ophthalmology and general surgery products manufactured by other
companies.
Medical Products
The Company's Medical product line consists primarily of specialty stretchers
and beds, which facilitate the transportation, transfer and treatment of
patients within the hospital. The Company designs and manufactures innovative
specialty stretchers/beds for many departments within the hospital, including
emergency, recovery, intensive care, surgery, maternity and the general
patient room. These products service the particular treatment needs of each
department by providing multiple or custom combinations of hydraulic jacks,
removable top sections, built-in weighing systems, on-board x-ray equipment,
patient-warming systems and a vast number of additional standard or optional
features. These products are assembled on a design-to-order basis.
Also included in Medical product sales is revenue of the Company's
Physiotherapy Associates, Inc. subsidiary. This organization operates
outpatient rehabilitation centers, which offer physical, occupational and
speech therapy to patients who have suffered orthopaedic or neurological
injuries. It focuses, in particular, on expediting injured workers' return
to work.
In Japan, Matsumoto Medical Instruments, Inc. distributes the Company's
specialty stretchers and beds and emergency care products manufactured by
other companies.
Product Development
Most of the Company's products and product improvements have been developed
internally. In addition, the Company maintains close working relationships
with physicians and medical personnel in hospitals and universities who
assist in product research and development. New and improved products play a
critical role in the Company's sales growth. The Company has placed
increased emphasis on the development of proprietary products and product
improvements to complement and expand its existing product lines.
Page 5
Total expenditures for product research, development and engineering were
$39,630,000 in 1994; 36,199,000 in 1993; and $32,313,000 in 1992. Research,
development and engineering expenses increased in 1994 and 1993 due
principally to the development of new implant designs (modular and
posterially stabilized components of the Series 7000 Total Knee System were
developed in 1993 and the Omnifit Plus forged cobalt chrome hip stem was
developed in 1994), the further application of hydroxylapatite (HA)
technology for arthroplasty, the development of advanced powered instruments
and video technology (the Company's Quadracut ACL/Shaver system for
arthroscopy introduced in 1993 and a new line of powered micro instruments
for oral/maxillofacial procedures, the Sapphire ViewTM arthroscope system and
a low cost high resolution 1-chip camera, all introduced in 1994), the
development of new specialized operating room equipment (the Company's
SurgiLav Plus pulsed irrigation system introduced in 1993 and the second
generation ConstaVacTM CBCII Blood Conservation System introduced in 1994),
the development of new patient handling and patient care equipment (a general
patient hospital bed introduced in 1993 and a EMS ambulance cot introduced in
1994) and ongoing clinical trials of the Company's Osteogenic Protein Device.
At the end of 1990, the Company's Osteonics subsidiary became the first
company to receive clearance from the U.S. FDA to commercially release for
sale in the U.S. a hip implant with HA surface treatment. HA is a naturally
occurring calcium phosphate material that demonstrates a high level of
biocompatibility due to its resemblance to human bone. Osteonics' clinical
experience with HA-coated hip stems now extends over six years and their
clinical performance continues to exceed that of any comparable stem reported
in the scientific literature. These excellent clinical results have further
strengthened the Company's belief that HA has significant potential as a
means of improving the performance and longevity of implants.
In 1991 the Company received FDA approval to begin human clinical trials of
its Osteogenic Protein Device which was developed by Creative BioMolecules,
Inc. (Creative), a biopharmaceutical company, as part of a long-term research
program funded by Stryker since 1985. This device is composed of a
recombinant human osteogenic protein and a bioresorbable carrier. This
osteogenic protein is naturally present in the human body and is directly
implicated in a cascade of cellular events that result in bone growth. In
preclinical studies, the Osteogenic Protein Device has induced the formation
of new bone when implanted into bone defect sites. The ongoing human
clinical studies, which began in 1992, will compare the efficacy of the
Osteogenic Protein Device to autografts in the repair of non-union fractures.
Stryker owns the patents on its Osteogenic Protein Device and has the
exclusive right to develop, market and sell the Device for local use in the
treatment, repair or replacement of bone and joint tissue ("orthopaedic
reconstruction"). Creative has the right to use the technology outside the
field of orthopaedic reconstruction.
Marketing
Most of the Company's products are marketed in the United States directly to
more than 7,500 hospitals, and to doctors and other health care facilities,
by the Company's sales force consisting of approximately 340 salespersons.
Stryker maintains separate and dedicated sales forces for each of its
principal product lines to provide focus and a high level of expertise to
each medical specialty served. Certain products, primarily orthopaedic
implants, are sold to hospitals in the United States principally through
independent dealer organizations.
Approximately 32% of the Company's domestic revenues in 1994 were accounted
for by sales to hospital cooperative buying groups and other large national
accounts and 2% by sales to the Veterans Administration and other hospitals
operated by the Federal government.
Page 6
International sales accounted for 41% of total revenues in 1994. Stryker
products are sold in over 100 foreign countries primarily through more than
370 local dealers whose efforts are coordinated by approximately 540 sales
and marketing personnel who are local nationals. Stryker distributes its
products through sales subsidiaries and branches with offices located in The
Netherlands, Belgium, France, Italy, the United Kingdom, Germany, Spain, Hong
Kong, Japan, Australia, Canada and Moscow. Stryker exports products to
dealers in Latin America, the Middle East, Singapore, Korea, India, Taiwan,
and Malaysia, and to customers in the CIS (former Soviet Union) and China.
Additional information regarding the Company's foreign and domestic
operations and export sales appearing in "Note 9--Geographic Data" on pages
38 and 39 of the 1994 Annual Report(page 52 of the EDGAR filing) is
incorporated herein by reference.
The Company's business is generally not seasonal in nature; however, the
number of orthopaedic surgeries is lower during the summer months and overall
sales have generally been stronger in the fourth quarter than in the previous
three quarters.
Competition
The Company is one of the five leading competitors in the U.S. market for
orthopaedic reconstructive products, the others being Zimmer, USA Inc. (a
subsidiary of Bristol-Myers, Squibb, Inc.), Howmedica, Inc. (a subsidiary of
Pfizer, Inc.), DePuy (a subsidiary of Boehringer Mannheim Corporation, a
German company) and Biomet. While competition abroad varies from area to
area, the Company believes it is also a leading factor in the international
markets, with these same companies being its principal competitors.
In the international market for spinal implants, the Company is one of the
four market leaders through its Dimso S.A. subsidiary, with the principal
competitors being Sofamor Danek Group, Inc., AcroMed Corporation and Synthes
France SA. The Company has not yet entered the U.S. market for spinal
implants, which is dominated by Sofamor Danek and AcroMed.
In the powered surgical instruments market, Stryker is one of the three market
leaders, with the principal competitors being Zimmer and Midas-Rex, Inc..
These same companies are competitors in the international markets along with
Aesculap-Werke AG, a large European manufacturer,
In the arthroscopy market, the Company considers itself to be one of the four
market leaders, with the principal competitors being Dyonics, Inc. (a
subsidiary of Smith & Nephew), Linvatec, Inc. (a subsidiary of Bristol-Myers,
Squibb, Inc.)and Acufex Microsurgical, Inc. ( a subsidiary of American Home
Products Companies). In the laparoscopic imaging products market, the
Company considers itself to be one of the four market leaders, with the
principal competitors being Karl Storz GmbH & Co. (a German company), Olympus
Optical Co. Ltd. (a Japanese company) and Circon Corporation.
The Company's primary competitor in the hospital bed market is Hill-Rom (a
division of Hillenbrand Industries) and in the specialty stretcher market the
primary competitors are Ferno-Washington, Hausted, Inc., Hill-Rom and Midmark
Corporation.
In the outpatient physical therapy market, the Company's primary competitors
are physician owned/independent practices and hospital-based services. There
are also several national rehabilitation companies, such as HealthSouth
Corporation, NovaCare, Inc./RehabClinics, Inc. and Rehability Corporation.
The principal factors which the Company believes differentiate its products
in these highly competitive markets and enable it to compete effectively are
innovative products, reliability, service and reputation. The Company is not
able to predict the effect that continuing efforts to reduce health care
expenses generally and hospital costs in particular will have on the future
Page 7
sales of its products or its competitive position. (See "Regulation and
Product Quality.") The Company believes that its competitive position in the
future will depend to a large degree upon the new products and improvements
in existing products it is able to develop. While the Company does not
consider patents a major factor in its overall competitive success, patents
and trademarks are significant to the extent that a product or attribute of a
product represents a unique design or process. Patent or trademark protection
of such products restricts competitors from duplicating these unique product
designs and features. Stryker seeks to obtain patent protection whenever
possible on its products. The Company currently has approximately 100 U.S.
patents and 50 foreign patents which generally expire in the next 10-15 years.
Manufacturing and Sources of Supply
The Company's manufacturing processes consist primarily of precision
machining, metal fabrication, assembly operations and the investment casting
of cobalt chrome and finishing of cobalt chrome and titanium. Approximately
15% of the Company's cost of sales in 1994 represented finished products
which were purchased complete from outside suppliers. The Company also
purchases parts and components, such as forgings, castings, gears, bearings,
casters and electrical components and uses outside sources for certain
finishing operations such as plating, hardening and coating of machined
components and sterilization of certain products. The principal raw
materials used by the Company are stainless steel, aluminum, cobalt chrome
and titanium alloys. In all, purchases from outside sources were
approximately 49% of the total cost of sales in 1994.
While the Company relies on single sources for certain purchased materials
and services, it believes alternate sources are available if needed. The
Company has not experienced any significant difficulty in the past in
obtaining the materials necessary to meet its production schedules.
The Company's patient handling products are assembled to order, while other
products are stocked in inventory.
Regulation and Product Quality
The Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic
Act, the Safe Medical Devices Act of 1990, and regulations issued or proposed
thereunder, provide for regulation by the FDA of the manufacture of medical
devices, including most of the Company's products.
The FDA's "Good Manufacturing Practices" regulations set forth standards for
the Company's manufacturing processes, require the maintenance of certain
records and provide for unscheduled inspections of the Company's facilities
by the FDA. There are also certain requirements of state, local and foreign
governments which must be complied with in the manufacturing and marketing of
the Company's products. The Company believes that the manufacturing and
quality control procedures it employs meet the requirements of these
regulations.
Most of the Company's new products fall into FDA classifications which
require notification of and review by the FDA before marketing (submitted as
a 510(k)). The Company's Osteogenic Protein Device (see "Product
Development") requires extensive clinical testing, consisting of safety and
efficacy studies, followed by a Pre-Market Approval (PMA) application. A
panel of industry and medical experts review the results of clinical studies
and make their recommendations to the FDA. Upon positive recommendation by
the panel, the FDA may grant a PMA allowing the product to be marketed.
Stryker also is subject to the laws that govern the manufacture and
distribution of medical devices of each country in which the Company
manufactures or sells products. The member states of the European Union
Page 8
("EU") have adopted the European Medical Device Directives, which create a
single set of medical device regulations for all EU member countries. These
regulations require companies that wish to manufacture and distribute medical
devices in EU member countries to obtain CE marks for their products by June
14, 1998. Stryker presently is working to obtain CE marks for all products
that it will manufacture or distribute in EU member states.
Government agencies and legislative bodies in the United States and other
countries are considering various proposals designed to hold down increases
in health care costs. It is impossible to predict at this time the long-term
impact of such cost containment measures on the Company's future business.
Employees
At December 31, 1994, the Company had 4,221 employees worldwide, including
1,407 involved in manufacturing, warehousing and distribution operations,
1,164 in marketing and sales, 255 in research, development and engineering,
352 providing physical, occupational and speech therapy and the balance in
general management and administration. No employees are covered by
collective bargaining agreements. The Company believes that its employee
relations are satisfactory.
ITEM 2. PROPERTIES
The Company's principal owned domestic facilities are located in Kalamazoo
and Portage, Michigan. A 190,000 square foot Portage facility completed in
1992 houses manufacturing (80,000 square feet) and warehousing and
distribution (25,000 square feet) for surgical instrument products, with the
remaining portion of the facility used for Division offices. The Medical
Division is located in two facilities, one in Portage which was completed in
1985 and contains manufacturing and warehousing (122,000 square feet) and
Division offices (23,000 square feet), and another in Kalamazoo which
contains manufacturing and warehousing (64,000 square feet) and offices
(22,000 square feet). The Medical Division also leases 20,000 square feet of
warehousing space in Kalamazoo.
The Company leases 185,000 square feet in an industrial park in Allendale,
New Jersey for its orthopaedic implant business; 56,000 square feet in San
Jose, California for its endoscopic systems business; 28,000 square feet in
Clackamas, Oregon for production of maternity beds and furniture; 20,000
square feet in St. Louis, Missouri for its Medical service business; and
65,000 square feet in Arroyo, Puerto Rico for the assembly of disposable
tubing sets and other manufacturing. The Company's 135 physical therapy
clinics are all located in leased offices.
The Company's subsidiary, Matsumoto Medical Instruments, Inc. maintains its
principal facilities in two buildings in Osaka, Japan, but also owns
buildings used for branch warehousing and sales offices in eight other cities
throughout Japan. Of the total owned 139,000 square feet, 74,000 square feet
is devoted to warehousing, with the balance used for administrative offices.
Matsumoto also leases 53,000 square feet at certain branch locations, with
30,000 square feet used for warehousing and 23,000 square feet used for
administrative offices.
In Europe, the Company maintains 16,000 square feet in Bordeaux, France
(5,000 of which is leased) for its spinal implant manufacturing operation.
Manufacturing and warehousing account for 11,000 square feet of the total and
the remainder is used for administrative offices. In addition, the Company
maintains two buildings (one of which is leased) in Uden, The Netherlands.
The 49,000 square foot owned facility is currently for sale. A 20,000 square
foot leased facility contains 9,000 square feet used for manufacturing and
warehousing with the balance used for administrative offices. The Company
also leases other foreign sales and administration offices.
Page 9
In addition, the Company leases 12,000 square feet in Kalamazoo, Michigan for
its administrative offices.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant and plaintiff in various legal actions arising in
the normal course of business. The Company does not anticipate material
losses as a result of these actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS
Certain information with respect to the executive officers of the Company is
set forth in Item 10 of this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market on The
Nasdaq Stock Market under the symbol STRY. Quarterly stock prices appearing
under the caption "Summary of Quarterly Data" on page 40 of the 1994 Annual
Report (page 55 of the EDGAR filing) and dividend information for the years
ended December 31, 1993 and 1994 under the caption "Ten Year Review" on pages
22 and 23 of the 1994 Annual Report (page 35 of the EDGAR filing) are
incorporated herein by reference. The Company's Board of Directors intends
to consider a year-end cash dividend annually at its December meeting.
On December 31, 1994 there were 3,684 stockholders of record of the Company's
common stock.
ITEM 6. SELECTED FINANCIAL DATA
The financial information for each of the five years in the period ended
December 31, 1994 under the caption "Ten Year Review" on pages 22 and 23 of
the 1994 Annual Report (pages 35 and 36 of the EDGAR filing) is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 24 through 27 of the
1994 Annual Report (pages 37 through 40 of the EDGAR filing) is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries and
report of independent auditors, included on pages 28 through 41 of the 1994
Annual Report (pages 41 through 56 of the EDGAR filing) are incorporated
herein by reference.
Quarterly results of operations appearing under the caption "Summary of
Quarterly Data" on page 40 of the 1994 Annual Report (page 55 of the EDGAR
filing) are incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Page 10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding the directors of the Company appearing under the
caption "Election of Directors" and the information appearing under the
caption "Miscellaneous - Section 16 Reporting" in the 1995 proxy statement is
incorporated herein by reference.
Information regarding the executive officers of the Company appears below.
All officers are elected annually. Reported ages are as of January 31, 1995.
John W. Brown, age 60, has been Chairman of the Board since January 1981, and
President and Chief Executive Officer of the Company since February 1977. He
is also a director of Lunar Corporation, a medical products company, First of
America, a bank, and the Health Industry Manufacturers Association and a
Trustee of Kalamazoo College.
Dean H. Bergy, age 35, was appointed Controller upon joining the Company in
June 1994. He had previously been a Senior Manager at Ernst & Young LLP,
independent public accountants, since October 1988.
Ronald A. Elenbaas, age 41, was appointed President of the Surgical Group in
1985 and has been a Vice President of the Company since August 1983.
Previously he was the Director of Surgical Sales since May 1982. Since
joining the Company in September 1975 he has held various other positions,
including Sales Representative, Marketing Product Manager, Plant Manager,
Canadian Sales Director, Assistant to the President and Director of Customer
Relations.
William T. Laube, III, age 55, was appointed President of Stryker Pacific
Group in 1985 and has been a Vice President of the Company since March
1979. Since joining the Company in July 1975 he has held various
international sales management positions.
Edward B. Lipes, age 42, was appointed a Vice President of the Company in May
1994 and has been President of Osteonics Corp. since August 1989. He held
the position of President, Physiotherapy Associates, Inc. upon joining the
Company in April 1988.
Julia M. Paradine-Rice, age 33, was appointed Treasurer of the Company in
June 1994. She had previously held the position of Assistant Treasurer since
1990 and also held the position of Corporate Accounting Manager since joining
the Company in 1988.
David J. Simpson, age 48, was appointed Vice President, Chief Financial
Officer and Secretary upon joining the Company in June 1987. He had
previously been Vice President and Treasurer of Rexnord Inc., a manufacturer
of industrial and aerospace products, since July 1985.
Thomas R. Winkel, age 42, was appointed President of Stryker Americas/Middle
East in March 1992 and has been a Vice President of the Company since
December 1984. He had previously been Vice President, Administration since
June 1987. Since joining the Company in October 1978 he has held various
other positions, including Assistant Controller, Secretary and Corporate
Controller.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the compensation of the management of the Company
appearing under the captions "Director Compensation" and "Executive
Compensation" in the 1995 proxy statement is incorporated herein by
reference.
Page 11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Beneficial Ownership of More than 5% of
the Outstanding Common Stock" and "Beneficial Ownership of Management" in the
1995 proxy statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
Page 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Executive compensation plans and arrangements are referenced as
exhibits 10(i), (ii), (iii) and (iv).)
(a)(1) and (2) - The response to this portion of Item 14 is
submitted as a separate section of this report
following the signature page.
(a)(3) - Exhibits
Exhibit 2 - Plan of Acquisition
(i) Offer to Purchase Shares of Matsumoto
Medical Instruments, Inc. by Stryker
Corporation dated June 6, 1994--
Incorporated by reference to Exhibit 2
to the Company's Form 10-Q for the
quarter ended June 30, 1994 (Commission
File No. 0-9165).
Exhibit 3 - Articles of Incorporation and By-Laws
(i) Restated Articles of Incorporation and
amendment thereto dated December 28,
1993--Incorporated by reference to
Exhibit 3(i) to the Company's Form 10-K
for the year ended December 31, 1993
(Commission File No. 0-9165).
(ii) By-Laws--Incorporated by reference to
Exhibit 3(ii) to the Company's Form 10-Q
for the quarter ended June 30, 1988
(Commission File No. 0-9165).
Exhibit 4 - Instruments defining the rights of security
holders, including indentures--The Company
agrees to furnish to the Commission upon request
a copy of each instrument pursuant to which long-
term debt of the Company and its subsidiaries not
exceeding 10% of the total assets of the Company
and its consolidated subsidiaries is authorized.
Exhibit 10- Material contracts
(i)* 1988 Stock Option Plan as amended-- Incorporated
by reference to Exhibit 10(i) to the Company's
Form 10-K for the year ended December 31, 1992
(Commission File No. 0-9165).
(ii)* Supplemental Savings and Retirement Plan.
(iii)* Supplemental Savings and Retirement Plan
(as Amended Effective January 1, 1995).
(iv)* Description of bonus arrangements between
the Company and certain officers, including
Messrs. Brown, Elenbaas, Laube, Lipes, Simpson
and Winkel.
Exhibit 11- Statement re computation of per share earnings
(i) Statement Re: Computation of earnings
per share of common stock.
Page 13
Exhibit 13- Annual report to security holders
(i) Portions of the 1994 Annual Report that
are incorporated herein by reference.
Exhibit 21- Subsidiaries of the registrant
(i) List of Subsidiaries.
Exhibit 23- Consents of experts and counsel
(i) Consent of Independent Auditors.
Exhibit 27- Financial data schedule
(i) Financial data schedule (included in
EDGAR filing only).
(b) Reports on Form 8-K - No reports on Form 8-K were required
to be filed in the fourth quarter of 1994.
(c) Exhibits - The response to this portion of Item 14 is
submitted as a separate section of this report following the
signature page.
(d) Financial statement schedules - The response to this portion
of Item 14 is submitted as a separate section of this report
following the signature page.
*compensation arrangement
Page 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: 3/20/95 DAVID J. SIMPSON
David J. Simpson, Vice President,
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
JOHN W. BROWN 3/20/95 DAVID J. SIMPSON 3/20/95
John W. Brown, Chairman, President David J. Simpson, Vice President,
and Chief Executive Officer Chief Financial Officer and
(Principal Executive Officer) Secretary
(Principal Financial Officer)
HOWARD E. COX, JR. 3/20/95 DEAN H. BERGY 3/20/95
Howard E. Cox, Jr. - Director Dean H. Bergy, Controller
(Principal Accounting Officer)
DONALD M. ENGELMAN 3/20/95 RONDA E. STRYKER 3/20/95
Donald M. Engelman, Ph.D. - Director Ronda E. Stryker - Director
JEROME H. GROSSMAN 3/20/95 WILLIAM U. PARFET 3/20/95
Jerome H. Grossman, M.D. - Director William U. Parfet - Director
JOHN S. LILLARD 3/20/95
John S. Lillard - Director
Page 15
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
STRYKER CORPORATION
KALAMAZOO, MICHIGAN
Page 16
FORM 10-K--ITEM 14(a)(1), (2) AND (d)
STRYKER CORPORATION AND SUBSIDIARIES
Index to Financial Statements and Financial Statement Schedule
The following consolidated financial statements of Stryker Corporation and
subsidiaries and report of independent auditors, included in the annual
stockholders report of the registrant for the year ended December 31, 1994,
are incorporated by reference in Item 8:
Report of independent auditors
Consolidated balance sheet--December 31, 1994 and 1993.
Consolidated statement of earnings--years ended December 31, 1994, 1993
and 1992.
Consolidated statement of stockholders' equity--years ended December 31,
1994, 1993 and 1992.
Consolidated statement of cash flows--years ended December 31, 1994,
1993 and 1992.
Notes to consolidated financial statements--December 31, 1994.
The following consolidated financial statement schedule of Stryker Corporation
and subsidiaries is included in Item 14(d):
Schedule II--Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
Page 17
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
STRYKER CORPORATION AND SUBSIDIARIES
Col. A Col. B Col. C Col. D Col. E
ADDITIONS
------------------------------------
Balance at (1) (2) Balance at
Beginning Charged to Costs Charged to Other Deductions-- End of
Description of Period and Expenses Accounts--Describe Describe Period
(B)<F2> (A)<F1>
--------------------------------- ---------- ---------------- ------------------ ------------ ----------
DEDUCTED FROM ASSET ACCOUNTS
Allowance for Doubtful Accounts:
Year ended December 31, 1994 $3,800,000 $3,090,000 $800,000 $1,290,000 $6,400,000
========== ========== ======== ========== ==========
Year ended December 31, 1993 $2,900,000 $1,660,000 $760,000 $3,800,000
========== ========== ======== ========== ==========
Year ended December 31, 1992 $2,500,000 $1,060,000 $660,000 $2,900,000
========== ========== ======== ========== ==========
<FN>
<F1>(A) Uncollectable amounts written off, net of recoveries
<F2>(B) Represents allowance for doubtful accounts acquired in connection with the acquisition of an additional 31%
interest in Matsumoto Medical Instruments, Inc. in August 1994, thereby increasing the Company's direct
ownership in Matsumoto to 51% and requiring Matsumoto's consolidation with Stryker beginning with that date.
</FN>
Page 18
FORM 10-K--ITEM 14(c)
STRYKER CORPORATION AND SUBSIDIARIES
Exhibit Index
Exhibit
Page*
(2) Plan of acquisition
(i) Offer to Purchase Shares of Matsumoto Medical
Instruments, Inc. by Stryker Corporation dated
June 6, 1994 . . . . . . . . . . . . . . . . . . 12**
(3) Articles of incorporation and by-laws
(i) Restated Articles of Incorporation and amendment
thereto dated December 28, 1993. . . . . . . . . 12**
(ii) By Laws . . . . . . . . . . . . . . . . . . . . . 12**
(10) Material contracts
(i) 1988 Stock Option Plan as amended. . . . . . . . 12**
(ii) Supplemental Savings and Retirement Plan . . . . 19
(iii) Supplemental Savings and Retirement Plan
(as Amended Effective January 1, 1995) . . . . . 26
(iv) Description of bonus arrangements between the
Company and certain officers, including
Messrs. Brown, Elenbaas, Laube, Lipes, Simpson
and Winkel . . . . . . . . . . . . . . . . . . . 33
(11) Statement re computation of per share earnings
(i) Statement Re: Computation of earnings per share
of common stock. . . . . . . . . . . . . . . . . 34
(13) Annual report to security holders
(i) Portions of the 1994 Annual Report that are
incorporated herein by reference . . . . . . . . 35
(21) Subsidiaries of the registrant
(i) List of Subsidiaries . . . . . . . . . . . . . . 57
(23) Consents of experts and counsel
(i) Consent of Independent Auditors . . . . . . . . 58
(27) Financial data schedule
(i) Financial data schedule (included in EDGAR
filing only) . . . . . . . . . . . . . . . . . . 59
* Page number in sequential numbering system where such exhibit can be
found, or it is stated that such exhibit is incorporated by reference.
** Incorporated by reference in this Annual Report on Form 10-K.
Page 19
EXHIBIT 10(ii)
STRYKER CORPORATION
SUPPLEMENTAL SAVINGS AND RETIREMENT PLAN
1. PURPOSE OF THE PLAN
The purpose of this Stryker Corporation Supplemental Savings and
Retirement Plan is to provide a select group of the Company's executives
with an opportunity to defer a portion of their annual pay and to receive
the benefit of Company contributions, to the extent such benefits are
unavailable to such executives under the Savings Plan (as hereinafter
defined) as a result of limitations imposed by the Internal Revenue Code
of 1986, as amended, or other limitations imposed by the terms of such
plan.
2. DEFINITIONS
2.01 ACCOUNT shall mean the bookkeeping account maintained for a
Participant to record his Pay Deferrals, Matching Contributions, and
Company Discretionary Contributions, together with earnings thereon
credited pursuant to Section 7.03.
2.02 ADMINISTRATOR shall mean the Company. The Company may periodically
delegate some or all its duties as Administrator to a committee
appointed by the Board.
2.03 BOARD shall mean the Board of Directors of the Company.
2.04 CODE shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2.05 COMPANY shall mean Stryker Corporation and any successor thereto.
Where the context requires, "Company" shall also include any
employer related to the Company any of whose employees ahve been
designated as eligible to participate in the Plan.
2.06 COMPANY DISCRETIONARY CONTRIBUTION shall mean the amount credited to
a Participant's Account pursuant to Article 6.
2.07 COMPENSATION shall mean "Compensation" as defined in the Savings
Plan; provided, however, that for purposes of the Plan the
limitation on a Participant's Compensation for a Plan Year shall be
200% of the Section 401(a)(17) Limitation for such Plan Year.
2.08 DEFERABLE COMPENSATION shall mean a Participant's Compensation for a
Plan Year that is ineligible for deferral under the Savings Plan
because it is earned after the Participant's pay deferrals under the
Savings Plan have attained the dollar limitation under Section
402(g)(1) of the Code (or such lesser limitation on pay deferrals as
may apply to the Participant under the terms of the Savings Plan)
for such Plan Year.
2.09 DISCRETIONARY CONTRIBUTION PERCENTAGE shall mean the employer's
discretionary contribution for a Plan Year under the Savings Plan,
expressed as a percentage of a participant's includible compensation
for such Plan Year under the Savings Plan.
2.10 EFFECTIVE DATE shall mean January 1, 1994.
2.11 EMPLOYEE shall mean an employee of the Company.
2.12 ENTRY DATE shall mean January 1 of any Plan Year.
Page 20
2.13 INVESTMENT ELECTION shall mean a Participant's election under
Article 7 of the investment fund or funds used to measure the
investment performance of the Participant's Account.
2.14 MATCHING CONTRIBUTION shall mean the amount credited to a
Participant's Account pursuant to Article 5.
2.15 PARTICIPANT shall mean an Employee who satisfies the requirements
for participation in the Plan pursuant to Section 3.01 and whose
Account has not been distributed.
2.16 PAY DEFERRAL ELECTION shall mean a Participant's election pursuant
to Section 4.01 to defer a portion of his Deferable Compensation.
2.17 PAY DEFERRALS shall mean the amounts credited to a Participant's
Account pursuant to Section 4.01.
2.18 PLAN shall mean this Stryker Corporation Supplemental Savings and
Retirement Plan, as amended from time to time.
2.19 PLAN YEAR shall mean the calendar year.
2.20 SAVINGS PLAN shall mean the Stryker Corporation Savings and
Retirement Plan for Salaried, Clerical, and Technical Employees, as
amended from time to time.
2.21 SECTION 401(a)(17) LIMITATION shall mean the dollar limitation
under Section 401(a)(17) of the Code in effect for a Plan Year.
2.22 SELECT GROUP shall mean, with respect to a Plan Year, the select
group of management or highly compensated Employees who are
designated by the Board of Directors as eligible to participate in
this Plan.
2.23 UNFORESEEABLE EMERGENCY shall have the meaning ascribed thereto in
Section 11.03.
2.24 VALUATION DATE shall mean the last day of each calendar quarter.
3. PARTICIPATION
3.01 PARTICIPATION. Any Employee who is a member of the Select Group
shall become eligible to participate in the Plan as of the Entry
Date coincident with or next following the latest of (i) the
Effective Date, (ii) the date he becomes eligible to participate in
the Savings Plan, or (iii) the date he becomes a member of the
Select Group. Participation in the Plan shall terminate when all
amounts credited to a Participant's Account have been distributed.
4. PAY DEFERRALS
4.01 PAY DEFERRAL ELECTIONS
(a) A Participant may elect to defer a portion of his Deferable
Compensation otherwise payable during the Plan Year by making a
written election on such form as the Administrator shall designate.
Such election shall specify a whole percentage of the Participant's
Deferable Compensation which the Participant elects to defer, which
percentage may not exceed the maximum percentage of compensation
that may be deferred by nonhighly compensated employees under the
terms of the Savings Plan. Such election must be made prior to
Page 21
the first day of such Plan Year or such earlier date as the
Administrator may specify, and may not be modified or revoked after
the commencement of such Plan Year except as provided in Sections
4.02 and 11.01.
(b) An amount deferred pursuant to a Pay Deferral Election shall be
withheld from the Deferable Compensation otherwise payable to the
Participant, and shall be credited to the Participant's Account as
of the date on which such amount was withheld.
(c) A Pay Deferral Election applies only to the Deferable Compensation
for the Plan Year to which such election relates. To defer a
portion of his Deferable Compensation in a subsequent Plan Year a
Participant must make a new Pay Deferral Election.
4.02 SUSPENSION OF DEFERRALS. Notwithstanding anything to the contrary
in this Article 4, in the event the Administrator approves a
Participant's request for a suspension of deferrals pursuant to
Section 11.01 on account of an Unforeseeable Emergency, the
Participant's Pay Deferral Election shall be suspended (and the
Participant shall be ineligible to make a new Pay Deferral Election)
with respect to any Compensation otherwise payable during the period
beginning on the date of such withdrawal or effective date of such
approval and ending on the last day of the next succeeding Plan
Year.
5. MATCHING CONTRIBUTIONS
5.01 For each Plan Year, the Company shall credit to the Account of each
eligible Participant a Matching Contribution equal to the lesser of
(i) 100% of such Participant's Pay Deferrals for such Plan Year or
(ii) 4% of such Participant's Compensation in excess of the Section
401(a)(17) Limitation for such Plan Year. Such Matching
Contribution shall be credited to the Participant's Account by the
March 15 following the end of such Plan Year.
5.02 A Participant shall be eligible for a Matching Contribution with
respect to a Plan Year only if he is eligible for a matching
contribution under the Savings Plan for such Plan Year.
6. COMPANY DISCRETIONARY CONTRIBUTIONS
6.01 For each Plan Year, the Company shall credit to the Account of each
eligible Participant a Company Discretionary Contribution equal to
such Participant's Compensation in excess of the Section 401(a)(17)
Limitation for such Plan Year, multiplied by the Discretionary
Contribution Percentage for such Plan Year. Such Company
Discretionary Contribution shall be credited to the Participant's
Account by the March 15 following the end of such Plan Year.
6.02 A Participant shall be eligible for a Company Discretionary
Contribution with respect to a Plan Year only if he is eligible for
an employer discretionary contribution under the Savings Plan for
such Plan Year.
7. INVESTMENT PERFORMANCE ELECTIONS
7.01 INITIAL ELECTION. Prior to the commencement of his participation in
the Plan, each Participant shall file an initial Investment Election
which shall designate from among the investment funds available for
selection under the Plan the investment fund or funds which shall be
used to measure the investment performance of the Participant's
Account.
Page 22
7.02 CHANGE IN ELECTION. A Participant may change his Investment
Election effective as of the first day of any calendar quarter by
filing a written notice with the Administrator at least 30 days in
advance of such date.
7.03 CREDITING OF INVESTMENT RETURN. As of each Valuation Date, each
Participant's Account shall, under such procedures as the
Administrator shall establish, be credited with any income, and
debited with any loss, that would have been realized if the amounts
credited to his Account had been invested in accordance with
his Investment Election. References in the Plan to Investment
Elections are for the sole purpose of attributing hypothetical
investment performance to each Participant's Account. Nothing
herein shall require the Company to invest, earmark, or set aside
its general assets in any specific manner.
7.04 AVAILABLE INVESTMENT FUNDS. The investment funds available for
selection under the Plan shall be the investment funds (other than
the employer stock fund) available for investment under the Savings
Plan.
8. ACCOUNTS
8.01 MAINTENANCE OF ACCOUNTS. The Administrator shall maintain or cause
to be maintained records showing the individual balances of each
Account. At least once per quarter each Participant shall be
furnished with a statement setting forth the value of his Account.
8.02 VESTING. A benefit shall be payable under this Plan only to the
extent that it is vested. The portion of a Participant's Account
attributable to Pay Deferrals, together with credited earnings or
losses thereon, shall be fully vested at all times. The portion of
a Participant's Account attributable to Matching Contributions and
Company Discretionary Contributions, and credited earnings and
losses with respect thereto, shall be vested only to the extent that
matching contributions and employer discretionary contributions
credited to the Participant's account under the Savings Plan are
vested. The nonvested portion of a Participant's Account shall be
forfeited at the same time, and under the same conditions, as
the nonvested portion of his account under the Savings Plan is
forfeited.
9. DISTRIBUTION OF BENEFITS
9.01 BENEFIT PAYMENT ELECTION. Prior to the commencement of his
participation in the Plan, each Participant shall file a benefit
payment election with the Administrator on such form as the
Administrator shall prescribe specifying (i) whether the
Participant's benefit is to be paid in a lump sum, in substantially
equal annual installments, or in a combination thereof, (ii) the
year in which such lump-sum payment is to be made or such
installments are to commence, and (iii) if installments are elected,
the number of such installments. Except as provided in Section
11.02, no portion of a Participant's benefit may be distributed
prior to his separation from service. Lump-sum payments may not be
made later than, and installment payments may not extend beyond, the
tenth anniversary of the date of the Participant's separation from
service.
9.02 CHANGE IN ELECTION. A Participant's benefit payment election may be
changed from time to time, provided, however, that no such change
shall be effective if the Participant's separation from service from
the Company occurs less than one year after the date such change is
made. In such event the Participant's benefit shall be paid in
Page 23
accordance with his most recent election or change in election
(other than a change in election made less than one year before his
separation from service).
9.03 DISTRIBUTION OF BENEFITS. Except as otherwise provided in Article
10 and Section 11.02, a Participant's Account shall be distributed
in accordance with his benefit election made in accordance with
Section 9.01 (after giving effect to any modifications to such
election pursuant to Section 9.02). The payment of any installment
or lump sum shall, in accordance with the Participant's election, be
made either (i) within 90 days after the end of the calendar quarter
during which the Participant separates from service or (ii) within
the first 90 days of a calendar year commencing after the
Participant separates from service.
10. DEATH OF A PARTICIPANT
10.01 Except as otherwise provided in Section 10.02, in the event of a
Participant's death prior to the distribution of his entire Account
balance, the remaining balance in his Account shall be distributed
in accordance with his benefit payment election made pursuant to
Section 9.01 (after giving effect to any modifications to such
election pursuant to Section 9.02). Such distribution shall be made
to the beneficiary designated by the Participant under the Savings
Plan, unless the Participant has specifically designated a different
beneficiary under this Plan in a writing filed with the
Administrator.
10.02 A Participant may elect to have any amount remaining in his Account
upon his death paid to his beneficiary in a lump sum within 60 days
after the Administrator has received notification of his death,
rather than in accordance with his benefit payment election under
Section 9.01. Such a lump-sum death benefit election may be made or
revoked at any time, provided, however, that no such election or
revocation shall be effective if made less than one year before the
date of the Participant's death.
11. UNFORESEEABLE EMERGENCIES
11.01 SUSPENSION OF DEFERRALS. In the vent of a Participant's
Unforeseeable Emergency, such Participant may request a suspension
of his Pay Deferral in accordance with Section 4.02 (if a suspension
is not already in effect pursuant to such section). Any such
request shall be subject to the approval of the Administrator, which
approval shall not be granted unless such need cannot be relieved
(i) through reimbursement or compensation by insurance or otherwise
or (ii) by liquidation of the Participant's assets (to the extent
the liquidation of such assets would not itself cause severe
financial hardship). If the request is granted, such suspension
shall be effective as of such date as the Administrator shall
prescribe.
11.02 EMERGENCY WITHDRAWAL. In the event of a Participant's Unforeseeable
Emergency, such Participant may request an emergency withdrawal from
his Account. Any such request shall be subject to the approval of
the Administrator, which approval (a) shall not be granted unless
the Participant's Pay Deferral Election have been suspended pursuant
to Section 4.02, (b) shall only be granted to the extent reasonably
needed to satisfy the need created by the Unforeseeable Emergency,
and (c) shall not be granted to the extent that such need may be
relieved (i) through reimbursement or compensation by insurance or
otherwise or (ii) by liquidation of the Participant's assets (to the
extent the liquidation of such assets would not itself cause severe
financial hardship).
Page 24
11.03 UNFORESEEABLE EMERGENCY. An "Unforeseeable Emergency" means severe
financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or his dependent,
loss of the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of
events beyond the Participant's control. Examples of circumstances
not qualifying as an Unforeseeable Emergency include the need to
send a Participant's child to college and the desire to purchase a
home.
12. ADMINISTRATION
The Plan shall be administered by the Administrator, which shall have
discretionary authority to determine eligibility for benefits and to
construe the terms of the Plan. The Administrator's good-faith
determination with respect to any issue relating to the interpretation of
the Plan shall be conclusive and final.
13. GENERAL PROVISIONS
13.01 NO CONTRACT OF EMPLOYMENT. The establishment of the Plan shall not
be construed as conferring any legal rights upon any Participant for
a continuation of employment, nor shall it interfere with the rights
of the Company to discharge a Participant and to treat him without
regard to the effect which such treatment might have upon him as a
Participant in the Plan.
13.02 WITHHOLDING. As a condition to a Participant's entitlement to
benefits hereunder, the Company shall have the right to deduct from
any amounts otherwise payable to a Participant, whether pursuant to
the Plan or otherwise, or otherwise to collect from the Participant,
any required withholding taxes with respect to benefits under the
Plan.
13.03 NON-ASSIGNABILITY OF BENEFITS. Subject to any applicable law, no
benefit under the Plan shall be subject in any manner to, nor shall
the Company be obligated to recognize, any purported anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to do so shall be void. No such benefit
shall in any manner be liable for or subject to garnishment,
attachment, execution, or a levy, or liable for or subject to the
debts, contracts, liabilities, engagements or torts of the
Participant.
13.04 SUCCESSOR EMPLOYERS. The Plan shall be binding upon the successors
and assigns of the Company. The Company shall require any successor
(whether direct or indirect, and whether by purchase, merger,
consolidation, or otherwise) to all or substantially all of the
business or assets of the Company, by written agreement to expressly
assume and agree to perform the Company's obligations under the Plan
in the same manner and to the same extent that the Company would be
required to perform them if no such succession had taken place. The
provisions of this Section 13.04 shall continue to apply to each
subsequent employer of the Participant hereunder in the event of any
subsequent merger, consolidation, or transfer of assets of such
subsequent employer.
13.05 GOVERNING LAW. The laws of the State of Michigan shall govern the
construction of this Plan and the rights and the liabilities
hereunder of the parties hereto.
13.06 PRONOUNS. The masculine pronoun shall mean the feminine wherever
appropriate.
Page 25
14. SOURCE OF BENEFITS
The Plan is an unfunded plan maintained by the Company for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees. Benefits under the Plan shall be payable from the
general assets of the Company except to the extent paid from the Stryker
Corporation Supplemental Savings and Retirement Plan Trust (a grantor
trust of the type commonly known as a "rabbi trust"). The Plan shall not
be construed as conferring on a Participant any right, title, interest, or
claim in or to any specific asset, reserve, account, or property or any
kind possessed by the Company. To the extent that a Participant or any
other person acquires a right to receive payments from the Company, such
right shall be no greater than the right of an unsecured general creditor.
15. EFFECTIVE DATE
This Plan shall be effective as of January 1, 1994.
16. AMENDMENT OR TERMINATION
The Board of Directors of the Company reserves the right to amend or
terminate this Plan at any time; provided, however, that without such
Participant's written consent, no amendment or termination of the Plan
shall adversely affect the right of any Participant to receive, or
otherwise result in a material adverse effect on such Participant's rights
under the Plan with respect to, his accrued vested benefits as determined
as of the date of amendment or termination.
IN WITNESS OF WHICH, the Company has adopted the Plan this 21st day of
January 1994.
STRYKER CORPORATION
By: THOMAS R. WINKEL
Thomas R. Winkel,
Vice President
Page 26
EXHIBIT 10(iii)
STRYKER CORPORATION
SUPPLEMENTAL SAVINGS AND RETIREMENT PLAN
(as Amended Effective January 1, 1995)
1. PURPOSE OF THE PLAN
The purpose of this Stryker Corporation Supplemental Savings and
Retirement Plan is to provide a select group of the Company's
executives with an opportunity to defer a portion of their annual pay
and to receive the benefit of Company contributions, to the extent such
benefits are unavailable to such executives under the Savings Plan (as
hereinafter defined) as a result of limitations imposed by the Internal
Revenue Code of 1986, as amended, or other limitations imposed by the
terms of such plan.
2. DEFINITIONS
2.01 ACCOUNT shall mean the bookkeeping account maintained for a
Participant to record his Pay Deferrals, Matching Contributions,
and Company Discretionary Contributions, together with earnings
thereon credited pursuant to Section 7.03.
2.02 ADMINISTRATOR shall mean the Company. The Company may
periodically delegate some or all its duties as
Administrator to a committee appointed by the Board.
2.03 BOARD shall mean the Board of Directors of the Company.
2.04 CODE shall mean the Internal Revenue Code of 1986, as amended
from time to time.
2.05 COMPANY shall mean Stryker Corporation and any successor thereto.
Where the context requires, "Company" shall also include any
employer related to the Company any of whose employees have been
designated as eligible to participate in the Plan.
2.06 COMPANY DISCRETIONARY CONTRIBUTION shall mean the amount credited
to a Participant's Account pursuant to Article 6.
2.07 COMPENSATION shall mean "Compensation" as defined in the Savings
Plan; provided, however, that for purposes of the Plan the
limitation on a Participant's Compensation for a Plan Year shall
be 200% of the Section 401(a)(17) Limitation for such Plan Year.
2.08 DEFERABLE COMPENSATION shall mean a Participant's Compensation
for a Plan Year that is ineligible for deferral under the Savings
Plan because it is earned after the Participant's pay deferrals
under the Savings Plan have attained the dollar limitation under
Section 402(g)(1) of the Code (or such lesser limitation on pay
deferrals as may apply to the Participant under the terms of the
Savings Plan) for such Plan Year.
2.09 DISCRETIONARY CONTRIBUTION PERCENTAGE shall mean the employer's
discretionary contribution for a Plan Year under the Savings
Plan, expressed as a percentage of a participant's includible
compensation for such Plan Year under the Savings Plan.
2.10 EFFECTIVE DATE shall mean January 1, 1994.
2.11 EMPLOYEE shall mean an employee of the Company.
Page 27
2.12 ENTRY DATE shall mean January 1 of any Plan Year.
2.13 INVESTMENT ELECTION shall mean a Participant's election under
Article 7 of the investment fund or funds used to measure the
investment performance of the Participant's Account.
2.14 MATCHING CONTRIBUTION shall mean the amount credited to a
Participant's Account pursuant to Article 5.
2.15 PARTICIPANT shall mean an Employee who satisfies the requirements
for participation in the Plan pursuant to Section 3.01 and whose
Account has not been distributed.
2.16 PAY DEFERRAL ELECTION shall mean a Participant's election
pursuant to Section 4.01 to defer a portion of his Deferable
Compensation.
2.17 PAY DEFERRALS shall mean the amounts credited to a Participant's
Account pursuant to Section 4.01.
2.18 PLAN shall mean this Stryker Corporation Supplemental Savings and
Retirement Plan, as amended from time to time.
2.19 PLAN YEAR shall mean the calendar year.
2.20 SAVINGS PLAN shall mean the Stryker Corporation 401(k) Savings and
Retirement Plan, as amended from time to time.
2.21 SECTION 401(a)(17) LIMITATION shall mean the dollar limitation
under Section 401(a)(17) of the Code in effect for a Plan Year.
2.22 SELECT GROUP shall mean, with respect to a Plan Year, the select
group of management or highly compensated Employees who are
designated by the Board of Directors as eligible to participate
in this Plan.
2.23 UNFORESEEABLE EMERGENCY shall have the meaning ascribed thereto
in Section 11.03.
2.24 VALUATION DATE shall mean the last day of each calendar quarter.
3. PARTICIPATION
3.01 PARTICIPATION. Any Employee who is a member of the Select Group
shall become eligible to participate in the Plan as of the Entry
Date coincident with or next following the latest of (i) the
Effective Date, (ii) the date he becomes eligible to participate
in the Savings Plan, or (iii) the date he becomes a member of
the Select Group. Participation in the Plan shall terminate when
all amounts credited to a Participant's Account have been
distributed.
4. PAY DEFERRALS
4.01 PAY DEFERRAL ELECTIONS
(a) A Participant may elect to defer a portion of his Deferable
Compensation otherwise payable during the Plan Year by making a
written election on such form as the Administrator shall
designate. Such election shall specify a whole percentage of
the Participant's Deferable Compensation which the Participant
elects to defer, which percentage may not exceed the maximum
percentage of compensation that may be deferred by nonhighly
compensated employees under the terms of the Savings Plan. Such
Page 28
election must be made prior to the first day of such Plan Year
or such earlier date as the Administrator may specify, and may
not be modified or revoked after the commencement of such Plan
Year except as provided in Sections 4.02 and 11.01.
(b) An amount deferred pursuant to a Pay Deferral Election shall be
withheld from the Deferable Compensation otherwise payable to
the Participant, and shall be credited to the Participant's
Account as of the date on which such amount was withheld.
(c) A Pay Deferral Election applies only to the Deferable
Compensation for the Plan Year to which such election relates.
To defer a portion of his Deferable Compensation in a subsequent
Plan Year a Participant must make a new Pay Deferral Election.
4.02 SUSPENSION OF DEFERRALS. Notwithstanding anything to the
contrary in this Article 4, in the event the Administrator
approves a Participant's request for a suspension of deferrals
pursuant to Section 11.01 on account of an Unforeseeable
Emergency, the Participant's Pay Deferral Election shall be
suspended (and the Participant shall be ineligible to make a new
Pay Deferral Election) with respect to any Compensation
otherwise payable during the period beginning on the date of
such withdrawal or effective date of such approval and ending on
the last day of the next succeeding Plan Year.
5. MATCHING CONTRIBUTIONS
5.01 For each Plan Year, the Company shall credit to the Account of
each eligible Participant a Matching Contribution equal to the
lesser of (i) 50% of such Participant's Pay Deferrals for such
Plan Year or (ii) 4% of such Participant's Compensation in
excess of the Section 401(a)(17) Limitation for such Plan Year.
Such Matching Contribution shall be credited to the
Participant's Account by the March 15 following the end of such
Plan Year.
5.02 A Participant shall be eligible for a Matching Contribution with
respect to a Plan Year only if he is eligible for a matching
contribution under the Savings Plan for such Plan Year.
6. COMPANY DISCRETIONARY CONTRIBUTIONS
6.01 For each Plan Year, the Company shall credit to the Account of
each eligible Participant a Company Discretionary Contribution
equal to such Participant's Compensation in excess of the
Section 401(a)(17) Limitation for such Plan Year, multiplied by
the Discretionary Contribution Percentage for such Plan Year.
Such Company Discretionary Contribution shall be credited to the
Participant's Account by the March 15 following the end of such
Plan Year.
6.02 A Participant shall be eligible for a Company Discretionary
Contribution with respect to a Plan Year only if he is eligible
for an employer discretionary contribution under the Savings
Plan for such Plan Year.
Page 29
7. INVESTMENT PERFORMANCE ELECTIONS
7.01 INITIAL ELECTION. Prior to the commencement of his
participation in the Plan, each Participant shall file an
initial Investment Election which shall designate from among the
investment funds available for selection under the Plan the
investment fund or funds which shall be used to measure the
investment performance of the Participant's Account.
7.02 CHANGE IN ELECTION. A Participant may change his Investment
Election effective as of the first day of any calendar quarter
by filing a written notice with the Administrator at least 30
days in advance of such date.
7.03 CREDITING OF INVESTMENT RETURN. As of each Valuation Date, each
Participant's Account shall, under such procedures as the
Administrator shall establish, be credited with any income, and
debited with any loss, that would have been realized if the
amounts credited to his Account had been invested in accordance
with his Investment Election. References in the Plan to
Investment Elections are for the sole purpose of attributing
hypothetical investment performance to each Participant's
Account. Nothing herein shall require the Company to invest,
earmark, or set aside its general assets in any specific manner.
7.04 AVAILABLE INVESTMENT FUNDS. The investment funds available for
selection under the Plan shall be the investment funds (other
than the employer stock fund) available for investment under the
Savings Plan.
8. ACCOUNTS
8.01 MAINTENANCE OF ACCOUNTS. The Administrator shall maintain or
cause to be maintained records showing the individual balances
of each Account. At least once per quarter each Participant
shall be furnished with a statement setting forth the value of
his Account.
8.02 VESTING. A benefit shall be payable under this Plan only to the
extent that it is vested. The portion of a Participant's
Account attributable to Pay Deferrals, together with credited
earnings or losses thereon, shall be fully vested at all times.
The portion of a Participant's Account attributable to Matching
Contributions and Company Discretionary Contributions, and
credited earnings and losses with respect thereto, shall be
vested only to the extent that matching contributions and
employer discretionary contributions credited to the
Participant's account under the Savings Plan are vested. The
nonvested portion of a Participant's Account shall be forfeited
at the same time, and under the same conditions, as the
nonvested portion of his account under the Savings Plan is
forfeited.
9. DISTRIBUTION OF BENEFITS
9.01 BENEFIT PAYMENT ELECTION. Prior to the commencement of his
participation in the Plan, each Participant shall file a benefit
payment election with the Administrator on such form as the
Administrator shall prescribe specifying (i) whether the
Participant's benefit is to be paid in a lump sum, in
substantially equal annual installments, or in a combination
thereof, (ii) the year in which such lump-sum payment is to be
made or such installments are to commence, and (iii) if
installments are elected, the number of such installments.
Page 30
Except as provided in Section 11.02, no portion of a
Participant's benefit may be distributed prior to his separation
from service. Lump-sum payments may not be made later than, and
installment payments may not extend beyond, the tenth
anniversary of the date of the Participant's separation from
service.
9.02 CHANGE IN ELECTION. A Participant's benefit payment election
may be changed from time to time, provided, however, that no
such change shall be effective if the Participant's separation
from service from the Company occurs less than one year after
the date such change is made. In such event the Participant's
benefit shall be paid in accordance with his most recent
election or change in election (other than a change in election
made less than one year before his separation from service).
9.03 DISTRIBUTION OF BENEFITS. Except as otherwise provided in
Article 10 and Section 11.02, a Participant's Account shall be
distributed in accordance with his benefit election made in
accordance with Section 9.01 (after giving effect to any
modifications to such election pursuant to Section 9.02). The
payment of any installment or lump sum shall, in accordance with
the Participant's election, be made either (i) within 90 days
after the end of the calendar quarter during which the
Participant separates from service or (ii) within the first 90
days of a calendar year commencing after the Participant
separates from service.
10. DEATH OF A PARTICIPANT
10.01 Except as otherwise provided in Section 10.02, in the event of
a Participant's death prior to the distribution of his entire
Account balance, the remaining balance in his Account shall be
distributed in accordance with his benefit payment election made
pursuant to Section 9.01 (after giving effect to any
modifications to such election pursuant to Section 9.02). Such
distribution shall be made to the beneficiary designated by the
Participant under the Savings Plan, unless the Participant has
specifically designated a different beneficiary under this Plan
in a writing filed with the Administrator.
10.02 A Participant may elect to have any amount remaining in his
Account upon his death paid to his beneficiary in a lump sum
within 60 days after the Administrator has received notification
of his death, rather than in accordance with his benefit payment
election under Section 9.01. Such a lump-sum death benefit
election may be made or revoked at any time, provided, however,
that no such election or revocation shall be effective if made
less than one year before the date of the Participant's death.
11. UNFORESEEABLE EMERGENCIES
11.01 SUSPENSION OF DEFERRALS. In the vent of a Participant's
Unforeseeable Emergency, such Participant may request a
suspension of his Pay Deferral in accordance with Section 4.02
(if a suspension is not already in effect pursuant to such
section). Any such request shall be subject to the approval of
the Administrator, which approval shall not be granted unless
such need cannot be relieved (i) through reimbursement or
compensation by insurance or otherwise or (ii) by liquidation of
the Participant's assets (to the extent the liquidation of such
assets would not itself cause severe financial hardship). If
the request is granted, such suspension shall be effective as of
such date as the Administrator shall prescribe.
Page 31
11.02 EMERGENCY WITHDRAWAL. In the event of a Participant's
Unforeseeable Emergency, such Participant may request an
emergency withdrawal from his Account. Any such request shall
be subject to the approval of the Administrator, which approval
(a) shall not be granted unless the Participant's Pay Deferral
Election have been suspended pursuant to Section 4.02, (b) shall
only be granted to the extent reasonably needed to satisfy the
need created by the Unforeseeable Emergency, and (c) shall not
be granted to the extent that such need may be relived (i)
through reimbursement or compensation by insurance or otherwise
or (ii) by liquidation of the Participant's assets (to the
extent the liquidation of such assets would not itself cause
severe financial hardship).
11.03 UNFORESEEABLE EMERGENCY. An "Unforeseeable Emergency" means severe
financial hardship to the Participant resulting from a sudden
and unexpected illness or accident of the Participant or his
dependent, loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the Participant's control.
Examples of circumstances not qualifying as an Unforeseeable
Emergency include the need to send a Participant's child to
college and the desire to purchase a home.
12. ADMINISTRATION
The Plan shall be administered by the Administrator, which shall have
discretionary authority to determine eligibility for benefits and to
construe the terms of the Plan. The Administrator's good-faith
determination with respect to any issue relating to the interpretation
of the Plan shall be conclusive and final.
13. GENERAL PROVISIONS
13.01 NO CONTRACT OF EMPLOYMENT. The establishment of the Plan shall
not be construed as conferring any legal rights upon any
Participant for a continuation of employment, nor shall it
interfere with the rights of the Company to discharge a
Participant and to treat him without regard to the effect which
such treatment might have upon him as a Participant in the Plan.
13.02 WITHHOLDING. As a condition to a Participant's entitlement to
benefits hereunder, the Company shall have the right to deduct
from any amounts otherwise payable to a Participant, whether
pursuant to the Plan or otherwise, or otherwise to collect from
the Participant, any required withholding taxes with respect to
benefits under the Plan.
13.03 NON-ASSIGNABILITY OF BENEFITS. Subject to any applicable law,
no benefit under the Plan shall be subject in any manner to, nor
shall the Company be obligated to recognize, any purported
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to do so shall be void.
No such benefit shall in any manner be liable for or subject to
garnishment, attachment, execution, or a levy, or liable for or
subject to the debts, contracts, liabilities, engagements or
torts of the Participant.
13.04 SUCCESSOR EMPLOYERS. The Plan shall be binding upon the
successors and assigns of the Company. The Company shall
require any successor (whether direct or indirect, and whether
by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business or assets of the Company, by
written agreement to expressly assume and agree to perform the
Page 32
Company's obligations under the Plan in the same manner and to the
same extent that the Company would be required to perform them if
no such succession had taken place. The provisions of this Section
13.04 shall continue to apply to each subsequent employer of the
Participant hereunder in the event of any subsequent merger,
consolidation, or transfer of assets of such subsequent employer.
13.05 GOVERNING LAW. The laws of the State of Michigan shall govern
the construction of this Plan and the rights and the liabilities
hereunder of the parties hereto.
13.06 PRONOUNS. The masculine pronoun shall mean the feminine
wherever appropriate.
14. SOURCE OF BENEFITS
The Plan is an unfunded plan maintained by the Company for the purpose
of providing deferred compensation for a select group of management or
highly compensated employees. Benefits under the Plan shall be
payable from the general assets of the Company except to the extent
paid from the Stryker Corporation Supplemental Savings and Retirement
Plan Trust (a grantor trust of the type commonly known as a "rabbi
trust"). The Plan shall not be construed as conferring on a
Participant any right, title, interest, or claim in or to any specific
asset, reserve, account, or property or any kind possessed by the
Company. To the extent that a Participant or any other person
acquires a right to receive payments from the Company, such right
shall be no greater than the right of an unsecured general creditor.
15. EFFECTIVE DATE
This Plan, as amended and restated as set forth herein, shall be
effective as of January 1, 1995.
16. AMENDMENT OR TERMINATION
The Board of Directors of the Company reserves the right to amend or
terminate this Plan at any time; provided, however, that without such
Participant's written consent, no amendment or termination of the Plan
shall adversely affect the right of any Participant to receive, or
otherwise result in a material adverse effect on such Participant's
rights under the Plan with respect to, his accrued vested benefits as
determined as of the date of amendment or termination.
IN WITNESS OF WHICH, the Company has adopted the Plan this 14th day of
December 1994.
STRYKER CORPORATION
By: THOMAS R. WINKEL
Thomas R. Winkel,
Vice President
Page 33
EXHIBIT (10)(iv)
DESCRIPTION OF BONUS ARRANGEMENTS
The Company has entered into bonus arrangements with certain executive
officers for 1995, including Mr. Brown, Mr. Elenbaas, Mr. Laube, Mr. Lipes,
Mr. Simpson and Mr. Winkel, based on specific performance criteria including
sales, profits and asset management. The aggregate amount of such bonuses is
not expected to exceed $1,225,000.
Page 34
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Year Ended December 31
-----------------------------------
1994 1993 1992
---------- ---------- ----------
Average number of shares outstanding 48,367,000 48,356,000 47,716,000
Net earnings $72,400,000 $60,205,000 $47,700,000
=========== =========== ===========
Earnings per share of common stock:
Net earnings $1.50 $1.25 $1.00
===== ===== =====
Primary:
Average shares outstanding 48,367,000 48,356,000 47,716,000
Net effect of dilutive stock options,
based on the treasury stock method
using average market price 737,000 536,000 1,173,000
----------- ---------- ----------
Total Primary Shares 49,104,000 48,892,000 48,889,000
========== ========== ==========
Fully Diluted:
Average shares outstanding 48,367,000 48,356,000 47,716,000
Net effect of dilutive stock options,
using the year-end market price, if
higher then average market price 770,000 586,000 1,199,000
__________ __________ __________
Total Fully Diluted Shares 49,137,000 48,942,000 48,915,000
========== ========== ==========
Note: Shares subject to stock options are not included in the earnings
per share computation because the present effect thereof is not
materially dilutive.
Page 35
TEN-YEAR REVIEW
(dollars in thousands, except per share amounts)
Summary of Operations 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
--------------------------------------------------------------------------------------------------
Net Sales $681,920 $557,335 $477,054 $364,825 $280,634 $225,860 $178,636 $148,095 $129,183 $108,377
Costs and expenses:
Cost of sales 300,381 256,748 221,650 172,477 132,882 106,899 85,037 71,420 64,090 54,029
Research,
development and
engineering 39,630 36,199 32,313 23,703 19,663 15,572 12,193 8,888 6,509 5,706
Selling, general
and admini-
strative 221,433 172,446 149,390 117,089 92,384 71,761 55,046 45,776 39,946 33,778
--------------------------------------------------------------------------------------------------
561,444 465,393 403,353 313,269 244,929 194,232 152,276 126,084 110,545 93,513
--------------------------------------------------------------------------------------------------
Operating Income 120,476 91,942 73,701 51,556 35,705 31,628 26,360 22,011 18,638 14,864
Other income
(expense) 7,099 4,123 3,239 1,789 2,395 (598) (360) 14 77 473
--------------------------------------------------------------------------------------------------
Earnings Before
Income Taxes,
Minority
Interest and
Extraordinary
Item 127,575 96,065 76,940 53,345 38,100 31,030 26,000 22,025 18,715 15,337
Income taxes 50,770 35,860 29,240 20,270 14,475 11,800 10,140 9,300 8,502 6,770
Minority interest (4,405)
--------------------------------------------------------------------------------------------------
Earnings Before
Extraordinary Item 72,400 60,205 47,700 33,075 23,625 19,230 15,860 12,725 10,213 8,567
Extraordinary gain
(net) 9,910
--------------------------------------------------------------------------------------------------
Net Earnings $72,400 $60,205 $47,700 $33,075 $33,535 $19,230 $15,860 $12,725 $10,213 $8,567
==================================================================================================
Earnings Per Share
of Common Stock: (a)<F1>
Before extra-
ordinary item $1.50 $1.25 $1.00 $.70 $.50 $.41 $.34 $.27 $.22 $.19
Extraordinary gain $.21
Net Earnings $1.50 $1.25 $1.00 $.70 $.71 $.41 $.34 $.27 $.22 $.19
Dividend Per Share of
Common Stock $.08 $.07 $.06 $.05
Average Number of
Shares Outstanding
- in thousands(a)<F1>48,367 48,356 47,716 47,526 47,396 47,178 46,864 46,734 46,410 46,146
<FN>
<F1>(a) Adjusted for the three-for-two stock splits effective August 16, 1985 and May 19, 1989;
and the two-for-one stock splits effective May 11, 1987 and May 13, 1991.
</FN>
Page 36
FINANCIAL AND STATISTICAL DATA
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
-------------------------------------------------------------------------------------------------
Cash and Marketable
Securities 202,045 152,637 91,752 80,029 54,052 19,282 4,602 5,999 8,390 12,163
Working Capital 361,318 213,965 168,197 140,296 117,877 89,594 70,071 56,399 43,538 37,970
Current Ratio 3.0 2.6 2.7 2.6 3.0 3.5 3.4 3.3 2.9 3.0
Property, Plant and
Equipment - Net 180,719 67,707 59,649 36,056 28,700 22,918 20,703 17,658 17,018 14,689
Capital Expenditures 29,239 20,160 31,618 16,570 11,935 7,106 7,987 3,895 5,377 6,818
Depreciation and
Amortization 20,944 16,183 11,382 11,796 7,109 6,312 5,999 5,402 3,860 3,068
Total Assets 767,971 454,204 340,272 270,316 209,521 152,333 124,830 104,965 89,323 73,448
Long-Term Debt 95,276 31,282 1,433 1,400 1,900 2,655 3,121 3,704 3,951 4,242
Stockholders' Equity 358,266 288,434 232,261 179,875 147,875 112,029 91,019 75,216 60,455 49,131
Return on Average
Equity 22.4 23.1 23.1 20.2 18.2 18.9 19.1 18.8 18.6 19.2
Number of Stockholders
of Record 3,684 3,951 3,512 2,914 2,400 2,294 2,049 2,055 1,626 1,427
Number of Employees 4,221 3,228 2,906 2,448 1,913 1,599 1,408 1,180 1,073 948
Page 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The table below outlines the components of the consolidated statement of
earnings as a percentage of net sales:
Percentage of Net Sales Percentage Increase
-------------------------- -------------------
1994 1993 1992 1994/93 1993/92
------ ------ ------ ------- -------
Net Sales 100.0% 100.0% 100.0% 22% 17%
Cost of sales 44.0 46.1 46.5 17 16
Research, development
and engineering expense 5.8 6.5 6.8 9 12
Selling, general and
administrative expense 32.5 30.9 31.3 28 15
----- ----- -----
Operating Income 17.7 16.5 15.4 31 25
Other income 1.0 .7 .7
----- ----- -----
Earnings Before Income
Taxes and Minority
Interest 18.7 17.2 16.1 33 25
Income taxes 7.4 6.4 6.1 42 23
----- ----- -----
Earnings Before Minority
Interest 11.3 10.8 10.0 28 26
Minority interest (.7)
----- ----- -----
Net Earnings 10.6% 10.8% 10.0% 20 26
===== ===== =====
1994 Compared to 1993
---------------------
Stryker Corporation's net sales increased 22% in 1994 to $681.9 million
compared to $557.3 million in 1993. The purchase by Stryker of an additional
31% interest in its Japanese distributor, Matsumoto Medical Instruments, Inc.
(Matsumoto), and Matsumoto's resulting consolidation with Stryker beginning
in August 1994, accounted for 12% of the increase through incremental sales at
end customer selling prices of Stryker products and added sales of other
suppliers' products. Increased unit volume generated an 8% increase in sales,
other business acquisitions accounted for 3% of the overall increase and
increased selling prices provided an additional 2% increase. The Company also
converted certain portions of the Osteonics domestic distribution network to
direct sales, resulting in the repurchase of inventory from distributors,
which reduced net sales by 3%.
Uncertainty over the impact of U.S. health care reform programs generally
slowed domestic sales of medical devices during 1994. The Company's domestic
sales increased 7% in 1994 compared to 1993. International sales increased
54% in 1994. The international sales gains were led by incremental Japanese
sales from the consolidation of Matsumoto along with increased shipments of
Osteonics orthopaedic implants, Dimso spinal implants, powered surgical
instruments and hospital beds and stretchers. International sales grew to
41% of total sales in 1994 compared to 32% in 1993.
Page 38
Surgical product sales (principally orthopaedic products) increased 22% for
the year. The increase in domestic sales of Surgical products was led by
Stryker Instrument's SurgiLav Plus pulsed irrigation system and High Vacuum
Cement Injection System and Stryker Endoscopy's line of powered arthroscopic
instruments. The increase in international sales of Surgical products was led
by incremental sales from the consolidation of Matsumoto along with sales of
Osteonics' orthopaedic implants, Dimso spinal implants and powered surgical
instruments. Sales of Medical products (principally specialty stretchers/beds
and physical therapy services) increased 25%, led by increased revenues from
physical therapy services as a result of business acquisitions during the
year, increased sales of the MPS Primary Acute Care Bed, which was introduced
in the third quarter of 1993, and increased sales of patient handling equipment.
Cost of sales represented 44.0% of sales compared to 46.1% in 1993. The lower
cost of sales percentage in 1994 resulted from additional margins on Stryker
products sold by Matsumoto since its consolidation and improved margins from
ongoing cost reduction programs and the conversion of certain portions of
Osteonics' domestic distribution network which resulted in increased direct
sales to hospitals. Research, development and engineering expense increased
9% as the Company spent $39.6 million on product development in 1994 compared
to $36.2 million in 1993. The decrease in research, development and
engineering expense as a percentage of sales in 1994 is principally a result
of consolidating Matsumoto which, as a distributor, incurs minimal research
and development costs. The Company's continued commitment to product
development resulted in several new products in 1994, including the Omnifit
Plus forged cobalt chrome hip stem, the Sapphire ViewTM arthroscope system, a
new low cost high resolution 1-chip camera, a second generation ConstaVacTM
CBCII Blood Conservation System, and a new line of powered micro instruments
for oral/maxillofacial procedures. Selling, general and administrative
expenses increased 28% in 1994, principally as a result of consolidating
Matsumoto which, as a distributor, has a higher percentage of these expenses,
along with increased sales expenses resulting from the changes in Osteonics'
distribution network. These costs increased to 32.5% of sales in 1994
compared to 30.9% in 1993.
The effective tax rate increased to 39.8% in 1994 compared to 37.3% in 1993
as a result of the higher Japanese tax rate on the earnings of Matsumoto.
Earnings before minority interest increased 28% in 1994 compared to 1993. Net
earnings in 1994 were $72.4 million, a 20% increase over the Company's 1993
net earnings of $60.2 million.
In the fourth quarter of 1994 net sales reached a record level of $204.6
million. The consolidation of Matsumoto resulted in incremental net sales of
$40.2 million and incremental net earnings of $1.9 million ($.04 per share) in
the fourth quarter.
1993 Compared to 1992
---------------------
Stryker Corporation's net sales increased 17% in 1993 to $557.3 million as
demand for the Company's products, which are sold to hospitals throughout the
world, continued to grow. Increased unit volume accounted for the entire
increase as higher selling prices in 1993 provided only 1% growth and were
essentially offset by the effect of changes in foreign currency exchange
rates.
Uncertainty over the impact of U.S. health care reform programs has generally
slowed domestic sales of medical devices. In addition, in an effort to reduce
their costs, purchasers of the Company's orthopaedic implants domestically
have shifted their purchasing mix toward the Company's lower-cost implants.
Despite these factors, the Company's total domestic sales grew 14% in 1993.
International sales increased 22% in 1993 led by Osteonics orthopaedic implant
and Dimso spinal implant sales. International sales expanded to 32% of total
sales in 1993 compared to 31% in 1992.
Page 39
Surgical product sales increased 13% for the year. The domestic sales growth
in Surgical products was led by Stryker Instruments' High Vacuum Cement
Injection System and SurgiLav Plus pulsed irrigation system, Osteonics' knee
implants and Stryker Endoscopy's newly introduced third generation Model 782
3-Chip Camera. The international sales growth of Surgical products was led by
Osteonics orthopaedic implant sales by the Company's Pacific Division and
Dimso spinal implant system sales by all the Company's international
divisions. Sales of Medical products increased 33%, led by the introduction
of the MPS Primary Acute Care Bed in the third quarter, increased revenues
from physical therapy services and increased sales of patient handling
equipment.
Cost reduction programs at several of the Company's divisions and the higher
mix of international sales lowered the cost of sales percentage in 1993
compared to 1992. Research, development and engineering expense increased 12%
as the Company spent $36.2 million on product development in 1993 compared to
$32.3 million in 1992. This commitment to product development resulted in
several new products in 1993 including the MPS Primary Acute Care Bed, the
Quadracut ACL/Shaver System for arthroscopy, the SurgiLav Plus pulsed
irrigation system, and the Series 7000 Primary Posterially Stabilized Knee
and Modular Tibia System. Selling, general and administrative expense
increased 15% in 1993, principally as a result of larger sales forces in the
Company's Instruments and Medical Divisions. However, this cost increase was
contained below the percentage growth in sales and these costs dropped to 30.9%
of sales in 1993 compared to 31.3% in 1992.
The effective tax rate decreased to 37.3% in 1993 compared to 38.0% in 1992
due to lower effective foreign tax rates. Effective January 1, 1993, the
Company adopted FASB Statement No. 109, "Accounting for Income Taxes". The
cumulative effect of the change in the method of accounting on net earnings
was not material. Net earnings in 1993 were $60.2 million, a 26% increase
over the Company's earnings in 1992 of $47.7 million.
In the fourth quarter of 1993, net sales reached a record level of $145.2
million and net earnings were $17.8 million or 12.2% of sales. Fourth quarter
net earnings as a percent of sales was higher than the previous three quarters
of the year because manufacturing costs and operating expenses increased at a
slower rate than sales.
Liquidity and Capital Resources
-------------------------------
Stryker's financial position continued to strengthen in 1994, with operating
activities providing $97.7 million in cash. Working capital increased to
$361.3 million from $214.0 million in the prior year. Accounts receivable
increased 76% and days sales outstanding at the end of 1994 increased to 67
days from 47 days at the end of 1993. The increases reflect the consolidation
of Matsumoto's accounts receivable which generally have longer collection terms.
Inventories increased 51% in 1994 and days sales in inventory finished 1994 at
131 days compared to 114 days at the end of 1993. These increases also reflect
the consolidation of Matsumoto which, as a distributor, carries higher
inventory levels.
In August 1994, the Company purchased 31% of the outstanding common stock of
Matsumoto, thereby increasing its direct ownership interest in Matsumoto to
51%. The cost of the 31% investment, which was based on net book value, was
approximately 6.0 billion Yen ($60.7 million). Payment of approximately 847
million Yen ($8.5 million) of the purchase price has been deferred to April
1995. The acquisition of the shares was funded with an unsecured Yen
denominated four-year floating rate loan. The Company has fixed the effective
annual interest rate of this debt at 4.17% using an interest rate swap with a
notional amount and term equal to that of the related loan.
Page 40
The Company's cash and marketable securities of $202.0 million at December 31,
1994, as well as anticipated cash flows from operations, are expected to be
sufficient to fund planned future operating capital requirements. Should
additional funds be required, the Company has unsecured lines of credit with
banks totaling $45.7 million. At December 31, 1994, only $.2 million of these
lines has been utilized to fund operating activities overseas.
Page 41
CONSOLIDATED BALANCE SHEET
STRYKER CORPORATION AND SUBSIDIARIES
December 31
(in thousands, except per share amounts) 1994 1993
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $116,781 $49,712
Marketable securities 85,264 102,925
Accounts receivable, less allowance of $6,400
($3,800 in 1993) 154,590 87,896
Inventories 115,757 76,582
Deferred income taxes 54,333 15,829
Prepaid expenses and other current assets 13,804 10,907
-------- --------
Total Current Assets 540,529 343,851
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements 131,320 30,790
Machinery and equipment 139,948 94,551
-------- --------
271,268 125,341
Less allowance for depreciation 90,549 57,634
-------- --------
180,719 67,707
OTHER ASSETS
Intangibles, less accumulated amortization of
$14,071 ($9,925 in 1993) 17,272 7,795
Investment in affiliate 32,569
Other 29,451 2,282
-------- --------
46,723 42,646
-------- --------
$767,971 $454,204
======== ========
Page 42
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $208 $777
Accounts payable 50,433 43,172
Accrued compensation 28,834 28,270
Income taxes 38,811 21,107
Accrued expenses and other liabilities 55,556 35,678
Current maturities of long-term debt 5,369 882
-------- --------
Total Current Liabilities 179,211 129,886
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 95,276 31,282
OTHER LIABILITIES 35,245 4,602
MINORITY INTEREST 99,973
STOCKHOLDERS' EQUITY
Common stock, $.10 par value:
Authorized--150,000 shares
Outstanding--48,369 shares (48,395 in 1993) 4,837 4,840
Additional paid-in capital 15,796 17,111
Retained earnings 336,897 268,367
Unrealized losses on securities (1,315)
Foreign translation adjustments 2,051 (1,884)
-------- --------
Total Stockholders' Equity 358,266 288,434
-------- --------
$767,971 $454,204
======== ========
See accompanying notes to consolidated financial statements.
Page 43
CONSOLIDATED STATEMENT OF EARNINGS
STRYKER CORPORATION AND SUBSIDIARIES
Years Ended December 31
(in thousands, except per share amounts) 1994 1993 1992
-------- -------- --------
Net Sales $681,920 $557,335 $477,054
Costs and expenses:
Cost of sales 300,381 256,748 221,650
Research, development and engineering 39,630 36,199 32,313
Selling, general and administrative 221,433 172,446 149,390
-------- -------- --------
561,444 465,393 403,353
-------- -------- --------
Operating Income 120,476 91,942 73,701
Other income - net 7,099 4,123 3,239
-------- -------- --------
Earnings Before Income Taxes and
Minority Interest 127,575 96,065 76,940
Income taxes 50,770 35,860 29,240
-------- -------- --------
Earnings Before Minority Interest 76,805 60,205 47,700
Minority interest (4,405)
-------- -------- --------
Net Earnings $72,400 $60,205 $47,700
======== ======== ========
Net Earnings Per Share of Common Stock $1.50 $1.25 $1.00
===== ===== =====
Average Number of Shares Outstanding 48,367 48,356 47,716
====== ====== ======
See accompanying notes to consolidated financial statements.
Page 44
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
STRYKER CORPORATION AND SUBSIDIARIES
Additional Unrealized Foreign
Years Ended December 31 Common Paid-In Retained Gains(Losses) Translation
(in thousands, except per share amounts) Stock Capital Earnings on Securities Adjustments
------ ---------- -------- ------------- -----------
Balance at January 1, 1992 $4,760 $6,013 $166,748 $2,354
Net earnings for 1992 47,700
Sales of 706 shares of common stock
under stock option and benefit plans,
including $7,469 income tax benefit 70 9,719
Cash dividend declared of $.06 per
share of common stock (2,898)
Translation adjustment (2,205)
------ ------- -------- ------
Balance at December 31, 1992 4,830 15,732 211,550 149
Net earnings for 1993 60,205
Sales of 92 shares of common stock
under stock option and benefit plans,
including $393 income tax benefit 10 1,379
Cash dividend declared of $.07 per
share of common stock (3,388)
Translation adjustment (2,033)
------ ------- -------- ------
Balance at December 31, 1993 4,840 17,111 268,367 (1,884)
Net earnings for 1994 72,400
Sales of 96 shares of common stock
under stock option and benefit plans,
including $740 income tax benefit 9 1,782
Repurchases of 122 shares of common
stock (12) (3,097)
Cash dividend declared of $.08 per
share of common stock (3,870)
Adjustment to beginning balance for
change in accounting method, net of
income taxes of $751 $1,180
Unrealized losses, net of $1,636 income
tax benefit (2,495)
Translation adjustment 3,935
------ ------- -------- ------ ------
Balance at December 31, 1994 $4,837 $15,796 $336,897 ($1,315) $2,051
====== ======= ======== ====== ======
See accompanying notes to consolidated financial statements.
Page 45
CONSOLIDATED STATEMENT OF CASH FLOWS
STRYKER CORPORATION AND SUBSIDIARIES
Years Ended December 31 (in thousands) 1994 1993 1992
-------------------------------------- -------- -------- --------
OPERATING ACTIVITIES
Net Earnings $72,400 $60,205 $47,700
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 18,717 13,048 10,214
Amortization 2,227 3,135 1,168
Minority interest 4,405
Provision for losses on accounts
receivable 2,600 900 400
Deferred income taxes (credit) (3,818) (2,917) (4,171)
Changes in operating assets and
liabilities, net of effects of
business acquisitions:
Decrease (increase) in accounts
receivable 2,862 (11,305) (20,563)
Decrease in inventories 5,798 2,271 726
Increase (decrease) in accounts
payable (8,594) 4,982 7,723
Increase (decrease) in income
taxes (3,898) 11,092 632
Other 4,994 4,691 6,899
-------- -------- --------
Net Cash Provided by Operating Activities 97,693 86,102 50,728
INVESTING ACTIVITIES
Purchases of property, plant and equipment (29,239) (20,160) (31,618)
Sales (purchases) of marketable securities 17,661 (54,264) (21,553)
Business acquisitions, net of cash acquired (42,557) (34,654) (8,736)
-------- -------- --------
Net Cash Used in Investing Activities (54,135) (109,078) (61,907)
FINANCING ACTIVITIES
Proceeds from borrowings 59,919 33,563
Payments on borrowings (31,771) (2,016) (7,418)
Dividends paid (3,388) (2,898) (2,380)
Proceeds from exercise of stock options 1,791 1,389 9,789
Repurchases of common stock (3,109)
Other (1,307) (126) (376)
-------- -------- --------
Net Cash Provided by (Used in)
Financing Activities 22,135 29,912 (385)
Effect of exchange rate changes on cash
and cash equivalents 1,376 (315) 1,734
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents 67,069 6,621 (9,830)
Cash and cash equivalents at beginning
of year 49,712 43,091 52,921
-------- -------- --------
Cash and Cash Equivalents at End of Year $116,781 $49,712 $43,091
======== ======== ========
See accompanying notes to consolidated financial statements.
Page 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STRYKER CORPORATION AND SUBSIDIARIES
December 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: Stryker Corporation develops, manufactures and markets specialty
surgical and medical products which are sold primarily to hospitals throughout
the world.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries and, effective in
August 1994 (see Note 4), its 51% owned subsidiary, Matsumoto Medical
Instruments, Inc., after elimination of all significant intercompany accounts
and transactions. Minority interest represents the minority stockholders'
equity in Matsumoto's net earnings since August 1994 and their equity in
Matsumoto's net assets at December 31, 1994. The Company's 20% investment in
Matsumoto during the period from August 1993 to July 1994 was accounted for
by the equity method.
REVENUE RECOGNITION: Revenue is recognized on the sale of products when the
related goods have been shipped or services have been rendered.
CASH EQUIVALENTS AND INVESTMENTS: Cash equivalents are highly liquid
investments with a maturity of three months or less when purchased.
Investments include marketable equity and debt securities classified as current
assets and certain noncurrent investments included in other assets.
The Company's investments in marketable equity and debt securities are
classified as "available-for-sale" and are carried at fair value, with the
unrealized gains and losses, net of income taxes, reported as a separate
component of stockholders' equity. Interest and dividends on these securities
are included in other income.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost for
approximately 75% (63% in 1993) of inventories is determined using the lower
of first-in, first-out (FIFO) cost or market. Cost for certain domestic
inventories is determined using the last-in, first-out (LIFO) cost method. The
FIFO cost for all inventories approximates replacement cost.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at
cost. Depreciation is computed by the straight-line or declining balance
methods over the estimated useful lives of the assets.
INTANGIBLE ASSETS: Intangible assets represent the excess of purchase price
over fair value of tangible net assets of acquired businesses. Intangible
assets, which include patents and intangibles not specifically identifiable,
are being amortized using the straight-line method over periods of up to
sixteen years.
INCOME TAXES: Effective January 1, 1993, the Company adopted Financial
Accounting Standards Board (FASB) Statement No. 109, "Accounting for Income
Taxes", which requires the use of the liability method of accounting for
deferred income taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax basis
of assets and liabilities and are measured using the enacted tax rates in
effect for the years in which the differences are expected to reverse. Prior to
the adoption of Statement 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements and tax
returns and were measured at the tax rate in effect in the year the
difference originated.
Page 47
EARNINGS PER SHARE: Earnings per share is based upon the average number of
shares of common stock outstanding during each year. Shares subject to option
are not included in earnings per share computations because the present effect
thereof is not materially dilutive.
2. INVESTMENTS
Effective January 1, 1994, the Company adopted FASB Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities, " for
investments held as of or acquired after that date. In accordance with the
Statement, prior period financial statements have not been restated to reflect
the change in accounting principle. The beginning balance of stockholders'
equity was increased by $1,180,000 (net of $751,000 in deferred income taxes)
to reflect the net unrealized holding gains on securities classified as
available-for-sale previously carried at cost.
The following is a summary of the Company's investments in marketable equity
and debt securities at December 31, 1994 (in thousands):
Gross
Unrealized Estimated
Cost Gains/(Losses) Fair Value
------- -------------- ----------
Debt securities $87,490 ($2,081) $85,409
Equity securities 7,700 (119) 7,581
------- ------- -------
$95,190 ($2,200) $92,990
======= ====== =======
3. INVENTORIES
Inventories are as follows (in thousands):
December 31
------------------
1994 1993
-------- -------
Finished goods $86,719 $45,338
Work-in-process 7,552 10,586
Raw material 28,784 28,455
-------- -------
FIFO cost 123,055 84,379
Less LIFO reserve 7,298 7,797
-------- -------
$115,757 $76,582
======== =======
4. BUSINESS ACQUISITIONS
In August 1994, the Company purchased 31% of the outstanding common stock of
Matsumoto Medical Instruments, Inc., Osaka, Japan, thereby increasing its
direct ownership interest in Matsumoto to 51%. Matsumoto is one of the largest
distributors of medical devices in Japan and is the exclusive distributor of
most Stryker products in that country. The cost of the 31% investment, which
was based on net book value, was approximately 6.0 billion Yen ($60.7
million). Payment of approximately 847 million Yen ($8.5 million) of the
purchase price has been deferred to April 1995. The acquisition was accounted
for by the purchase method and the results of operations for Matsumoto were
consolidated with Stryker beginning in August 1994. If the acquisition had
occurred on January 1, 1993, pro forma net sales for the Company would have
been $762,341,000 for 1994 and $694,923,000 for 1993. Pro forma net earnings
would not have differed significantly from reported results.
Page 48
In August 1993, the Company purchased 20% of the outstanding common stock of
Matsumoto. The cost of the investment, which was based on net book value, was
approximately 3.4 billion yen ($32.8 million). This initial investment was
accounted for under the equity method until August 1994, when the additional
31% interest was acquired. The Company's share of Matsumoto's net earnings
did not have a material impact on the Company's net earnings in 1993.
In June 1994, the Company purchased the Steri-Shield product line, which is a
personal protection system for operating room personnel. The acquisition was
accounted for by the purchase method at a total cost of $6,500,000, of which
$5,500,000 in royalties will be paid over the next seven years. Intangible
assets acquired, principally patents, are being amortized over seven to ten
years. Pro forma consolidated results including the purchased business would
not differ significantly from reported results.
During 1994, 1993 and 1992, the Company's subsidiary, Physiotherapy
Associates, Inc., purchased several physical therapy clinic operations. The
aggregate purchase price of these clinics in 1994, 1993 and 1992 was
approximately $7,600,000, $1,900,000 and $2,900,000, respectively.
Intangible assets acquired, principally employment contracts and goodwill,
are being amortized over periods ranging from one to fifteen years. Pro-
forma consolidated results including the purchased businesses would not
differ significantly from reported results.
In October 1992, the Company's subsidiary, Stryker France S.A., acquired Dimso
S.A. and its subsidiary companies in France and Spain. Dimso designs and
manufactures the Diapason and Stryker 2S Spinal Implant Systems and other
orthopaedic products. The acquisition was accounted for by the purchase
method at a total cost of $13,000,000, with approximately $7,000,000 to be paid
over the following three years. Intangible assets acquired, principally
patents, are being amortized over a ten year period. Pro forma consolidated
results including the purchased business would not differ significantly from
reported results.
5. BORROWINGS
The Company and its subsidiaries have unsecured short-term line of credit
arrangements with banks aggregating $20,000,000 domestically and $25,700,000
equivalent in foreign currencies. Borrowings under these lines at December
31, 1994 were $208,000 ($777,000 at December 31, 1993) in foreign funds at an
average interest rate of 12.8% (12.5% in 1993). These lines generally expire
on July 31, 1995.
Long-term debt is as follows (in thousands):
December 31
-----------------
1994 1993
------- -------
Bank loans $86,616 $30,736
Other 14,029 1,428
------- -------
100,645 32,164
Less current maturities 5,369 882
------- -------
$95,276 $31,282
======= =======
The bank loans represent two separate borrowings made to finance the
acquisition of the Company's 51% interest in Matsumoto Medical Instruments,
Inc. (see Note 4). Both loans are Japanese Yen denominated, are unsecured and
mature in August 1998. The first loan is from the Chicago branch of The Sanwa
Bank, Limited, has a principal balance of $34,442,000 ($30,736,000 at
December 31, 1993) and bears interest at a fixed annual rate of 4.76%. The
Page 49
second loan is a floating rate loan from the Chicago branches of The Bank of
Tokyo, Ltd., The Mitsubishi Bank Limited and The Sanwa Bank, Limited and has
a principal balance of $52,174,000. The Company has fixed the effective
annual interest rate of this debt at 4.17% using an interest rate swap with a
notional amount and term equal to that of the related loan.
Maturities of debt for the four years succeeding 1995 are: 1996 - $3,152,000;
1997 - $52,000; 1998 - $86,673,000 and 1999 - $5,070,000.
The carrying amounts of the Company's long-term debt and interest rate swap
approximate their fair values based on the Company's current borrowing rates
for similar types of borrowing agreements and quoted market rates,
respectively.
Total interest expense, which is included in other income and approximates
interest paid, was $3,677,000 in 1994, $1,067,000 in 1993 and $411,000 in
1992.
6. CAPITAL STOCK
The Company has key employee and director Stock Option Plans under which
options are granted at a price not less than fair market value at date of
grant.
The options are granted for periods of up to ten years and become exercisable
in varying installments. A summary of stock option activity follows:
Option
Shares Price Per Share
--------- ---------------
Options outstanding at January 1, 1993 1,275,925 $3.20 - $38.75
Granted 867,500 22.38 - 25.50
Canceled (411,300) 6.75 - 38.75
Exercised (75,600) 3.20 - 14.63
--------- --------------
Options outstanding at December 31, 1993 1,656,525 3.20 - 34.25
Granted 37,500 25.88 - 28.00
Canceled (58,000) 6.75 - 34.25
Exercised (88,040) 3.20 - 25.50
--------- --------------
Options outstanding at December 31, 1994 1,547,985 $3.20 - $34.25
========= ==============
At December 31, 1994, options for 750,085 shares were exercisable and
1,133,600 shares were reserved for future grants.
The Company has 500,000 authorized shares of $1 par value preferred stock,
none of which are outstanding.
7. RETIREMENT PLANS
Substantially all employees of the Company are covered by retirement plans.
The majority of employees are covered by profit sharing or defined
contribution retirement plans.
The Company's 51% owned subsidiary, Matsumoto Medical Instruments, Inc., has
a noncontributory defined benefit plan covering all employees who are
generally entitled, upon termination, to lump-sum or annuity payments of
amounts determined by reference to the current level of salary, length of
service, and the conditions under which the termination occurs. Matsumoto's
funding policy for the plan is to contribute actuarially determined amounts
on a monthly basis. In addition, certain officers of Matsumoto are
customarily entitled to lump-sum payments under an unfunded retirement plan.
An accrual has been provided for the expected cost of these benefits earned
to date, although such payments
Page 50
are subject to the approval of Matsumoto's stockholders. Amounts accrued for
both Matsumoto retirement plans, which provide for substantially all unfunded
obligations under the plans, totaled $16,235,000 at December 31, 1994 and are
recorded as other noncurrent liabilities in the consolidated balance sheet.
Retirement plan expense under all of the Company's retirement plans totaled
$6,753,000 in 1994, $5,302,000 in 1993 and $4,715,000 in 1992.
8. INCOME TAXES
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes", which requires the use of the liability method
of accounting for income taxes (see Note 1). As permitted by Statement 109,
the Company has elected not to restate the financial statements of any prior
years. The cumulative effect of the change in the method of accounting on net
earnings was not material.
Earnings before income taxes and minority interest consist of the following
(in thousands):
1994 1993 1992
-------- ------- -------
United States operations $100,996 $88,181 $66,552
Foreign operations 26,579 7,884 10,388
-------- ------- -------
$127,575 $96,065 $76,940
======== ======= =======
The components of the provision for income taxes follow (in thousands):
1994 1993 1992
-------- ------- -------
Current:
Federal $31,932 $26,114 $20,827
State, including Puerto Rico 5,133 10,372 7,973
Foreign 17,523 2,291 4,611
------- ------- -------
54,588 38,777 33,411
Deferred tax expense (credit) (3,818) (2,917) (4,171)
------- ------- -------
$50,770 $35,860 $29,240
======= ======= =======
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:
1994 1993 1992
----- ----- -----
U.S. statutory income tax rate 35.0% 35.0% 34.0%
Add (deduct):
State taxes, less effect of
federal deduction 2.3 6.3 5.9
Foreign income taxes at rates
different from the U.S.
statutory rate 5.4 (.8) 1.0
Tax benefit relating to operations
in Puerto Rico (2.0) (1.8) (1.9)
U.S. research and development tax
credit (.6) (1.4) (.9)
Earnings of Foreign Sales Corporation (1.4) (1.4) (.8)
Other 1.1 1.4 .7
----- ----- -----
39.8% 37.3% 38.0%
===== ===== =====
Page 51
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effect of
significant temporary differences which comprise the Company's deferred tax
assets and liabilities are as follows (in thousands):
December 31
-----------------
1994 1993
------- -------
Deferred tax assets:
Inventories $34,475 $4,712
Accounts receivable and other assets 2,048 2,874
Other accrued expenses 18,165 6,662
State taxes 3,127 1,297
Other 2,226 920
------- -------
Total deferred tax assets 60,041 16,465
Deferred tax liabilities:
Depreciation (1,681) (792)
Other (2,244) (895)
------- -------
Total deferred tax liabilities (3,925) (1,687)
------- -------
Total net deferred tax assets $56,116 $14,778
======= =======
Deferred tax assets and liabilities are included in the consolidated balance
sheet as follows (in thousands):
December 31
-----------------
1994 1993
------- -------
Current assets -- Deferred income taxes $54,333 $15,829
Noncurrent assets -- Other assets 4,438
Noncurrent liabilities -- Other liabilities (2,655) (1,051)
------- -------
Net deferred tax assets $56,116 $14,778
======= =======
No provision has been made for U.S. federal and state income taxes or foreign
taxes that may result from future remittances of the undistributed earnings
($152,619,000 at December 31, 1994) of foreign subsidiaries because it is
expected that such earnings will be reinvested overseas indefinitely.
Determination of the amount of any unrecognized deferred income tax liability
on these unremitted earnings is not practicable.
Total income taxes paid were $51,898,000 in 1994, $27,641,000 in
1993 and $25,133,000 in 1992.
Page 52
9. GEOGRAPHIC DATA
Geographic area information follows (in thousands):
1994 1993 1992
-------- -------- --------
NET SALES
United States operations:
Domestic $405,549 $378,255 $330,782
Export 117,669 115,977 81,513
Foreign operations:
Pacific 130,223 33,651 33,660
Europe 70,366 63,366 58,010
Other 12,094 11,987 9,522
Eliminations (53,981) (45,901) (36,433)
-------- -------- --------
Net Sales $681,920 $557,335 $477,054
======== ======== ========
OPERATING INCOME
United States operations $109,429 $90,726 $68,759
Foreign operations:
Pacific 12,560 1,465 4,264
Europe 6,554 6,571 6,998
Other 1,686 1,660 213
-------- ------- -------
Total foreign operations 20,800 9,696 11,475
Corporate expenses (9,753) (8,480) (6,533)
-------- ------- -------
Total Operating Income $120,476 $91,942 $73,701
======== ======= =======
1994 1993 1992
-------- -------- --------
ASSETS
United States operations $248,883 $225,587 $199,188
Foreign operations:
Pacific 281,259 12,053 12,384
Europe 50,111 39,313 42,580
Other 9,801 4,067 2,741
Corporate 177,917 173,184 83,379
-------- -------- --------
Total Assets $767,971 $454,204 $340,272
======== ======== ========
Intercompany sales between geographic areas are included in export and foreign
operations sales at agreed upon prices which include a profit element.
For the year ended December 31, 1993, sales to Matsumoto Medical Instruments,
Inc. were $64,300,000 or 12% of total net sales. No customer accounted for
10%
or more of the Company's sales in 1994 or 1992.
Gains (losses) on foreign currency transactions, which are included in other
income, totaled $586,000, $(256,000) and $188,000 in 1994, 1993 and 1992,
respectively.
Corporate assets consist primarily of domestic cash and cash equivalents and
marketable securities and, in 1993, the investment in affiliate.
Page 53
10. LEASES
The Company leases various manufacturing and office facilities and equipment
under operating leases. Future minimum lease commitments under these leases
are as follows (in thousands):
1995 $10,076
1996 8,320
1997 5,625
1998 3,605
1999 1,823
Thereafter 1,766
-------
$31,215
=======
Rent expense totaled $14,644,000 in 1994, $10,950,000 in 1993 and $8,792,000
in 1992.
11. CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
normal course of business. The Company does not anticipate material losses as
a result of these actions.
Page 54
SALES ANALYSIS, QUARTERLY DATA
(dollars in thousands, except per share data)
PRODUCT LINE SALES (Unaudited) 1994 1993 1992
-------------- -------------- --------------
SURGICAL
Orthopaedic Implants,
Endoscopic Systems,
Powered Surgical Instruments
and Other Operating Room
Devices $544,049 80% $447,042 80% $394,111 83%
MEDICAL
Patient Care and Patient
Handling Equipment and
Physical Therapy Services 137,871 20 110,293 20 82,943 17
-------- --- -------- --- -------- ---
$681,920 100% $557,335 100% $477,054 100%
======== === ======== === ======== ===
DOMESTIC/INTERNATIONAL SALES
(Unaudited) 1994 1993 1992
-------------- -------------- --------------
Domestic $405,549 59% $378,255 68% $330,782 69%
International 276,371 41 179,080 32 146,272 31
-------- --- -------- --- -------- ---
$681,920 100% $557,335 100% $477,054 100%
======== === ======== === ======== ===
Page 55
SUMMARY OF QUARTERLY DATA (Unaudited)
1994 Quarter Ended 1993 Quarter Ended
--------------------------------------- -----------------------------------------
March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31
(a)<F1> (b)<F2>
-------- -------- -------- -------- -------- -------- -------- --------
Net Sales $148,759 $154,226 $174,316 $204,619 $135,202 $140,012 $136,932 $145,189
Gross Profit 81,215 83,705 96,495 120,124 73,716 75,172 73,056 78,643
Earnings Before
Income Taxes and
Minority Interest 27,970 27,435 29,714 42,456 23,300 22,550 22,565 27,650
Net Earnings 17,340 17,010 16,730 21,320 14,450 14,000 13,990 17,765
Net Earnings Per
Share of Common
Stock .36 .35 .35 .44 .30 .29 .29 .37
Market Price of
Common Stock:
High 35-1/2 30-3/4 37-1/2 37-1/2 39-3/4 29-1/2 29-3/4 29-1/2
Low 26 23-3/4 27-1/4 32-3/4 22-1/4 21 24-1/2 23-1/4
The price quotations reported above were supplied by the National Association
of Securities Dealers.
<FN>
<F1>(a) In the third quarter of 1994, the consolidation of Matsumoto Medical
Instruments, Inc., which was consolidated beginning in August 1994 (see
Note 4 to consolidated financial statements), resulted in incremental net
sales of $25,000,000. The incremental impact on net earnings was not
material.
<F2>(b) In the fourth quarter of 1994, the consolidation of Matsumoto
resulted in incremental net sales of $40,200,000 and incremental net
earnings of $1,900,000 ($.04 per share).
</FN>
Page 56
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Stryker Corporation
We have audited the accompanying consolidated balance sheet of Stryker
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Stryker
Corporation and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Ernst & Young LLP
Kalamazoo, Michigan
January 31, 1995
Page 57
EXHIBIT (21)
List of Subsidiaries
State or Country of
Name of Subsidiary Incorporation
----------------------------------------------------------------
Dimso Iberica S.A. France
Dimso SA France
Osteonics Corp. New Jersey
Physiotherapy Associates, Inc. Michigan
Stryker Australia Pty. Ltd. Australia
Stryker B.V. The Netherlands
Stryker (Barbados) Foreign Sales Corporation Barbados
Stryker Canada Inc. Canada
Stryker China Limited Hong Kong
Stryker Corporation (Malaysia) SDN BHD Malaysia
Stryker Deutschland GmbH Germany
Stryker Far East, Inc. Delaware
Stryker Foreign Sales Corporation U.S. Virgin Islands
Stryker France SA France
Stryker Italia SRL Italy
Stryker Korea Ltd. Korea
Stryker Mexico, S.A. de C.V. Mexico
Stryker Pacific Limited Hong Kong
Stryker Puerto Rico, Inc. Delaware
Stryker SA Switzerland
Stryker Sales Corporation Michigan
Stryker Singapore Private Limited Singapore
Stryker Corporation is the immediate parent and owns 100% of the outstanding
voting securities of each of the above-named subsidiaries.
Stryker is a 51% investor in:
Matsumoto Medical Instruments, Inc. Japan
Stryker effectively controls:
Stryker India Medical Equipment
Private Limited India
Page 58
EXHIBIT 23--CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Stryker Corporation and subsidiaries of our report dated January 31, 1995,
included in the 1994 Annual Report to Stockholders of Stryker Corporation and
subsidiaries.
Our audits also included the financial statement schedule of Stryker
Corporation and subsidiaries listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement Number 33-55662 on Form S-8 dated December 11, 1992, Registration
Statement Number 2-96467 on Form S-8 dated April 4, 1985, and Registration
Statement Number 33-32240 on Form S-8 dated November 20, 1989 and to the
related prospectus for each of the registration statements, of our report
dated January 31, 1995, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) of Stryker Corporation.
ERNST & YOUNG LLP
Kalamazoo, Michigan
March 17, 1995
Page 59
[ARTICLE] 5
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] DEC-31-1994
[CASH] 116,781
[SECURITIES] 85,264
[RECEIVABLES] 154,590
[ALLOWANCES] 6,400
[INVENTORY] 115,757
[CURRENT-ASSETS] 540,529
[PP&E] 271,268
[DEPRECIATION] 90,549
[TOTAL-ASSETS] 767,971
[CURRENT-LIABILITIES] 179,211
[BONDS] 0
[COMMON] 4,837
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 353,429
[TOTAL-LIABILITY-AND-EQUITY] 767,971
[SALES] 681,920
[TOTAL-REVENUES] 681,920
[CGS] 300,381
[TOTAL-COSTS] 561,444
[OTHER-EXPENSES] (7,099)
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 127,575
[INCOME-TAX] 50,770
[INCOME-CONTINUING] 72,400
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 72,400
[EPS-PRIMARY] 1.50
[EPS-DILUTED] 1.50