10-KPeriod: FY2007

STRYKER CORP Annual Report, Year Ended Dec 31, 2007

Filed February 28, 2008For Securities:SYK

Summary

Stryker Corporation's 2007 Form 10-K details a year of robust growth, with net sales increasing 17% to $6.0 billion, driven by strong performance in both its Orthopaedic Implants and MedSurg Equipment segments. The company experienced broad-based sales growth across key product lines, including hip and knee implants, trauma systems, and surgical equipment. This growth was fueled by new product introductions and continued investment in research and development, which represented 6.3% of sales. Operationally, Stryker demonstrated improved profitability, with net earnings from continuing operations up 28% year-over-year. The company successfully managed its cost of sales and selling, general, and administrative expenses relative to sales, indicating operational efficiency. While facing some regulatory scrutiny, including FDA warning letters regarding quality systems, Stryker is actively addressing these concerns and maintains a positive outlook for 2008, projecting a 22% increase in diluted net earnings per share. The company also reports a healthy financial position with ample liquidity and borrowing capacity.

Financial Highlights

31 data points
Beta

Revenue

$6.00B

68.9% Gross Margin

Net Income

$1.02B

17.0% Net Margin

EPS (Diluted)

$2.44

Cash & Equivalents

$290.50M

Free Cash Flow

$840.60M

Financial Statements
Beta
Revenue$6.00B
Cost of Revenue$1.87B
Gross Profit$4.14B
R&D Expenses$375.30M
SG&A Expenses$2.39B
Operating Expenses$2.83B
Operating Income$1.31B
Net Income$1.02B
EPS (Basic)$2.48
EPS (Diluted)$2.44

Key Highlights

  • 1Net sales grew 17% to $6.0 billion in 2007, driven by strong performance in both Orthopaedic Implants and MedSurg Equipment segments.
  • 2Orthopaedic Implants segment sales increased 15%, with notable growth in knee, trauma, and spinal implant systems.
  • 3MedSurg Equipment segment sales rose 19%, boosted by surgical equipment, digital imaging, and patient handling products.
  • 4Net earnings from continuing operations increased 28% to $986.7 million, with diluted EPS rising 27% to $2.37.
  • 5Research, development, and engineering expenses remained at 6.3% of sales, underscoring a continued commitment to innovation.
  • 6The company divested its outpatient physical therapy business, Physiotherapy Associates, for $150 million.
  • 7Stryker is addressing FDA warning letters regarding quality system specifications at two manufacturing facilities and is cooperating with ongoing Department of Justice investigations.

Frequently Asked Questions

Stryker's sales growth in 2007 was driven by a combination of factors, including increased unit volume across its product portfolio, a favorable product mix, and strategic new product introductions within both its Orthopaedic Implants and MedSurg Equipment segments. The company also benefited from favorable foreign currency exchange rates, which contributed approximately 3% to net sales growth.

Stryker received two FDA warning letters in 2007 regarding quality system specifications at its reconstructive implant manufacturing facilities in Ireland and New Jersey. The company states it is taking these matters very seriously and is fully cooperating with the FDA to address their observations. Additionally, Stryker is cooperating with ongoing investigations by the U.S. Department of Justice concerning foreign corrupt practices and antitrust laws related to orthopaedic implants.

Stryker has an optimistic outlook for 2008, projecting diluted net earnings per share to approximate $2.88, a 22% increase over 2007. The company anticipates constant currency net sales growth in the range of 11% to 13%, driven by continued growth in shipments of Orthopaedic Implants and MedSurg Equipment. A favorable impact on net sales from foreign currency exchange rates is also projected.

Stryker sold its outpatient physical therapy business, Physiotherapy Associates, in 2007 for $150 million (less indebtedness). This transaction resulted in a gain of $25.7 million (net of income taxes), which was recognized as 'Net gain on sale of discontinued operations.' The operating results of Physiotherapy Associates are reported as discontinued operations for all periods presented.