01—Abstract
Summary
Summary of the 10-K/A filed April 24, 2012. Cited figures are marked; the original filing is the authoritative source.
This filing is a limited-scope amendment to Stryker's 2011 annual report.
It contains only Item 9A (Controls and Procedures), the auditor's internal control report, and exhibit listings. It does not include the financial statements, MD&A, or segment results, which were previously filed with the original 10-K on February 13, 2012. Management concluded that Stryker's disclosure controls and internal control over financial reporting were effective as of December 31, 2011, and Ernst & Young issued an unqualified opinion on internal control on the same basis.
The most important disclosure for investors is the scope carve-out. Management excluded the Neurovascular business acquired from Boston Scientific in 2011 from its internal control assessment, as the SEC permits for a one-year period after an acquisition. That business represented 13%a of total assets, 7% of shareholders' equity, and 4% of 2011 revenues.
Stryker is also implementing new ERP systems at several divisions, including Canada, Europe, and Neurovascular, and states it does not expect this to adversely affect internal control. The filing also reflects a leadership transition.
The Vice President and Chief Financial Officer was serving as Interim Chief Executive Officer, following the departure of the prior President and CEO. The exhibit index shows the acquisition agreement with Boston Scientific, the 2010 credit agreement with Bank of America, and the 2010 and 2011 note indentures, which are the key contractual documents for the acquisition and debt structure.
02—Key points
Key Highlights
- Management concluded internal control over financial reporting and disclosure controls were effective as of December 31, 2011, and Ernst & Young issued an unqualified opinion on that basis.
- The Neurovascular business acquired from Boston Scientific in 2011 was excluded from the internal control assessment, covering 13% of total assets, 7% of shareholders' equity, and 4% of 2011 revenues.
- Stryker is implementing new ERP systems at its Canadian and European divisions and at the Neurovascular business, and updating internal controls to match revised processes.
- The Vice President and CFO is serving as Interim Chief Executive Officer, following the departure of the prior President and CEO.
- The filing is limited to Item 9A and exhibits; the financial statements were previously filed on February 13, 2012, so this document contains no new financial results.
- Key debt and acquisition documents are incorporated by reference, including the August 2010 Bank of America credit agreement, 2010 and 2011 note indentures, and the January 2011 Boston Scientific sale and purchase agreement.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Stryker Corp kept $0.16.
- Revenue$8.31B100.0%
- Cost of revenue−$2.81B33.8%
- Gross profit$5.50B66.2%
- Operating costs−$3.81B45.9%
- Operating income$1.69B20.3%
- Interest, other & tax−$341.0M4.1%
- Net income$1.34B16.2%
Where FY2011 revenue went
$8.31B- SG&A: $3.15B, 38% of revenue
- Cost of revenue: $2.81B, 34% of revenue
- Net income: $1.34B, 16% of revenue
- R&D: $462.0M, 5.6% of revenue
- Other operating costs: $198.0M, 2.4% of revenue
- Interest, other & tax: $341.0M, 4.1% of revenue
Kept 16% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2011filed April 24, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $8.31B$7.32B | +13.5% |
| Cost of Revenue | $2.81B$2.29B | +23.0% |
| Gross Profit | $5.50B$5.03B | +9.2% |
| R&D Expenses | $462.00M$394.00M | +17.3% |
| SG&A Expenses | $3.15B$2.71B | +16.4% |
| Operating Expenses | $3.81B$3.28B | +16.1% |
| Operating Income | $1.69B$1.75B | −3.7% |
| Interest Expense | $56.00M$53.00M | +5.7% |
| Net Income | $1.34B$1.27B | +5.7% |
| EPS (Basic) | $3.48$3.21 | +8.4% |
| EPS (Diluted) | $3.45$3.19 | +8.2% |
| Shares Outstanding (Basic) | 386.50M396.40M | −2.5% |
| Shares Outstanding (Diluted) | 389.50M399.50M | −2.5% |
05—Questions
Frequently Asked Questions
Did Stryker's internal controls over financial reporting have any material weaknesses as of December 31, 2011?
No. Management concluded that internal control over financial reporting was effective as of December 31, 2011, and Ernst & Young issued an unqualified opinion on the effectiveness of those controls. Management reported no change in internal controls during Q4 2011 that materially affected them.
Why were the Neurovascular business's controls excluded from the assessment?
Neurovascular was acquired from Boston Scientific in 2011. SEC staff guidance allows companies to exclude an acquired business's internal controls from the first year's assessment. The business represented 13% of total assets, 7% of shareholders' equity, and 4% of 2011 revenues, so the exclusion is significant. Investors should expect its controls to be included in the assessment for the following year.
Does the ERP system implementation pose a risk to financial reporting?
Management states it does not believe the ERP implementation will adversely affect internal control over financial reporting. It is updating controls as needed to accommodate changes in business processes and accounting procedures at the Canadian, European, and Neurovascular operations.
Who is leading Stryker following the change in CEO?
The Vice President and Chief Financial Officer is serving as Interim Chief Executive Officer. The filing refers to the 'then-President and Chief Executive Officer' who evaluated disclosure controls as of December 31, 2011, but it does not name a successor or give a timeline for a permanent appointment.
Where can investors find Stryker's 2011 financial results?
The consolidated financial statements and the auditor's report on them were filed with the original Form 10-K on February 13, 2012. This filing does not restate them. It contains only Item 9A, the internal control audit report, and the exhibit index.
06—Continue