What drove Stryker's 1994 earnings growth?

Growth came from a 22% rise in net sales, with Matsumoto's consolidation adding about 12 points, unit volume adding 8 points, and acquisitions adding 3 points. Gross margin improved as cost of sales fell to 44.0% of sales from 46.1%, while SG&A rose to 32.5% of sales from 30.9%, largely because of the Matsumoto and Osteonics distribution changes.

How much did the Matsumoto acquisition cost, and how is it financed?

Stryker bought an additional 31% of Matsumoto in August 1994 for about 6.0 billion yen ($60.7 million), raising its stake to 51%. About 847 million yen ($8.5 million) is deferred to April 1995. The purchase was funded with yen-denominated bank loans maturing in August 1998, and the company swapped the floating-rate loan to a fixed 4.17% rate.

Is Stryker's domestic business growing, or is growth coming from abroad?

Most of the 1994 growth came from outside the U.S. International sales rose 54% to 41% of total sales, while domestic sales grew only 7%. Management cited uncertainty over U.S. health care reform as slowing domestic device purchases. Domestic sales also fell as a share of total, from 68% in 1993 to 59% in 1994.

What are the main risks investors should consider?

Key risks include slower U.S. demand from health care cost containment, dependence on new product development, and working-capital strain (receivable days rose to 67 from 47 and inventory days to 131 from 114). Foreign currency exposure matters given the yen-denominated debt and Japanese operations. The company also faces competition from larger rivals such as Zimmer, Howmedica, DePuy, and Biomet, and it has not yet entered the U.S. spinal implant market.

Does Stryker pay dividends, and how is its stock traded?

Stryker paid a dividend of $0.08 per share in 1994, up from $0.07 in 1993. The Board considers a year-end dividend annually at its December meeting. The common stock trades over the counter on Nasdaq under the symbol STRY, and there were 3,684 stockholders of record at December 31, 1994.

SYK 10-K FY1994 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 24, 1995. Cited figures are marked; the original filing is the authoritative source.

Stryker Corporation's 1994 10-K shows a company in strong growth, with net sales up 22% to $681.9 million^a (from $557.3 million) and net earnings up 20% to $72.4 million, or $1.50 per share.

Operating income rose 31% to $120.5 million^b, and the operating margin expanded to 17.7% from 16.5%, driven mainly by the lower cost-of-sales ratio (44.0% vs. 46.1%) and the consolidation of Japanese distributor Matsumoto Medical Instruments, in which Stryker raised its stake from 20% to 51% in August 1994. Matsumoto alone contributed about 12 points of sales growth, and international sales rose to 41% of the total from 32%. Surgical products (orthopaedic implants, powered instruments, endoscopy) make up 80% of sales, and Medical products (stretchers, beds, physical therapy) make up 20%.

The balance sheet and cash flow were also strong, though the period had some notable changes. Operating cash flow was $97.7 million^c, and cash plus marketable securities reached $202.0 million. Total assets nearly doubled to $768.0 million, largely from the Matsumoto consolidation, and long-term debt rose to $95.3 million, mostly yen-denominated loans swapped to a fixed 4.17% rate.

Receivables and inventory grew faster than sales, with days sales outstanding up to 67 from 47, which investors should watch. Management attributes much of this to Matsumoto's distributor-style working capital and says domestic sales grew only 7%^d amid U.S. health care reform uncertainty. The filing also shows a company that depends heavily on new product development and international expansion.

R&D spending rose 9% to $39.6 million, and the company holds roughly 100 U.S. patents and 50 foreign patents. Stryker has not yet entered the U.S. spinal implant market, and it has a CE-mark deadline in the EU in 1998.

The company reported no material legal losses and no customer above 10% of 1994 sales. Its stock trades on Nasdaq under STRY, and it paid an $0.08 annual dividend.

02—Key points

Key Highlights

Net sales rose 22% to $681.9 million in 1994, and net earnings rose 20% to $72.4 million ($1.50 per share).
Operating income increased 31% to $120.5 million, and operating margin improved to 17.7% from 16.5%, helped by a lower cost-of-sales ratio (44.0% vs. 46.1%).
Consolidating Matsumoto Medical Instruments (51% owned from August 1994) contributed about 12 points of sales growth and pushed international sales to 41% of total revenue, up from 32%.
Cash and marketable securities reached $202.0 million, and operating cash flow was $97.7 million, giving the company ample liquidity.
Total assets grew to $768.0 million, and long-term debt rose to $95.3 million, mostly yen-denominated loans fixed at a 4.17% effective rate via interest rate swap.
Accounts receivable rose 76% and inventory rose 51%, with days sales outstanding up to 67 from 47, which is a working-capital trend to monitor.
R&D spending increased 9% to $39.6 million, supporting new products such as the Omnifit Plus hip stem and Sapphire View arthroscope, and the Osteogenic Protein Device remains in clinical trials.

03—Questions

Frequently Asked Questions

What drove Stryker's 1994 earnings growth?
Growth came from a 22% rise in net sales, with Matsumoto's consolidation adding about 12 points, unit volume adding 8 points, and acquisitions adding 3 points. Gross margin improved as cost of sales fell to 44.0% of sales from 46.1%, while SG&A rose to 32.5% of sales from 30.9%, largely because of the Matsumoto and Osteonics distribution changes.
How much did the Matsumoto acquisition cost, and how is it financed?
Stryker bought an additional 31% of Matsumoto in August 1994 for about 6.0 billion yen ($60.7 million), raising its stake to 51%. About 847 million yen ($8.5 million) is deferred to April 1995. The purchase was funded with yen-denominated bank loans maturing in August 1998, and the company swapped the floating-rate loan to a fixed 4.17% rate.
Is Stryker's domestic business growing, or is growth coming from abroad?
Most of the 1994 growth came from outside the U.S. International sales rose 54% to 41% of total sales, while domestic sales grew only 7%. Management cited uncertainty over U.S. health care reform as slowing domestic device purchases. Domestic sales also fell as a share of total, from 68% in 1993 to 59% in 1994.
What are the main risks investors should consider?
Key risks include slower U.S. demand from health care cost containment, dependence on new product development, and working-capital strain (receivable days rose to 67 from 47 and inventory days to 131 from 114). Foreign currency exposure matters given the yen-denominated debt and Japanese operations. The company also faces competition from larger rivals such as Zimmer, Howmedica, DePuy, and Biomet, and it has not yet entered the U.S. spinal implant market.
Does Stryker pay dividends, and how is its stock traded?
Stryker paid a dividend of $0.08 per share in 1994, up from $0.07 in 1993. The Board considers a year-end dividend annually at its December meeting. The common stock trades over the counter on Nasdaq under the symbol STRY, and there were 3,684 stockholders of record at December 31, 1994.

04—Continue

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