01—Abstract
Summary
Summary of the 10-K filed February 13, 2014. Cited figures are marked; the original filing is the authoritative source.
Stryker Corporation reported total revenues of $9.02 billiona for the fiscal year ended December 30, 2013, a 4.2% increase over the prior year.
Net earnings for the period were $1.01 billionb, a decrease of 22.5% compared to $1.30 billion in 2012. This decline in net earnings was significantly influenced by charges related to product recalls, specifically the Rejuvenate and ABG II hip stems, as well as acquisition and integration costs. The company demonstrated revenue growth across its three main segments: Reconstructive, MedSurg, and Neurotechnology and Spine, driven primarily by increased unit volumes, particularly in trauma and extremities products, neurotechnology, hips, and endoscopy.
Stryker continued its strategic acquisition approach, notably acquiring MAKO Surgical Corp. for approximately $1.68 billionc to enhance its robotic-assisted surgery capabilities and Trauson Holdings Company Limited for $751 million to expand its presence in China and the value segment of emerging markets. The company also announced its intent to acquire Patient Safety Technologies, Inc. in early 2014.
Despite ongoing legal and regulatory matters, including reserves for the hip stem recalls totaling between $790 milliond and $1.235 billion, Stryker maintained a strong balance sheet with significant cash and cash equivalents. The company also increased its dividend payments and continued share repurchases, signaling confidence in its financial position and future prospects.
02—Key points
Key Highlights
- Revenue grew by 4.2% to $9.02 billion in 2013, indicating continued top-line expansion.
- Significant strategic acquisitions of MAKO Surgical Corp. ($1.68 billion) and Trauson Holdings Company Limited ($751 million) were completed, aimed at bolstering robotic surgery capabilities and emerging market presence.
- Net earnings decreased by 22.5% to $1.01 billion, impacted by substantial charges related to product recalls (Rejuvenate and ABG II hip stems) and acquisition-related expenses.
- The Reconstructive segment saw a 4.8% increase in net sales, driven by trauma and extremities, and hips, despite the ongoing hip recall issues.
- Stryker maintained a strong financial position with $3.98 billion in cash, cash equivalents, and marketable securities at year-end 2013.
- The company raised $1 billion in senior unsecured notes in March 2013 to support general corporate purposes, including potential acquisitions and stock repurchases.
- Despite significant recall-related charges, the company continued to return capital to shareholders through a 24.7% increase in dividend payments per share in 2013.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Stryker Corp kept $0.11.
- Revenue$9.02B100.0%
- Cost of revenue−$3.00B33.3%
- Gross profit$6.02B66.7%
- Operating costs−$4.76B52.8%
- Operating income$1.26B13.9%
- Interest, other & tax−$250.0M2.8%
- Net income$1.01B11.2%
Where FY2013 revenue went
$9.02B- SG&A: $3.47B, 38% of revenue
- Cost of revenue: $3.00B, 33% of revenue
- Net income: $1.01B, 11% of revenue
- R&D: $536.0M, 5.9% of revenue
- Other operating costs: $760.0M, 8.4% of revenue
- Interest, other & tax: $250.0M, 2.8% of revenue
Kept 11% as net incomeNet income $1.01B · 11%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 13, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $9.02B$8.66B | +4.2% |
| Cost of Revenue | $3.00B$2.78B | +7.9% |
| Gross Profit | $6.02B$5.88B | +2.4% |
| R&D Expenses | $536.00M$471.00M | +13.8% |
| SG&A Expenses | $3.47B$3.37B | +3.0% |
| Operating Expenses | $4.76B$4.13B | +15.2% |
| Operating Income | $1.26B$1.74B | −27.9% |
| Interest Expense | $83.00M$63.00M | +31.7% |
| Net Income | $1.01B$1.30B | −22.5% |
| EPS (Basic) | $2.66$3.41 | −22.0% |
| EPS (Diluted) | $2.63$3.39 | −22.4% |
| Shares Outstanding (Basic) | 378.60M380.60M | −0.5% |
| Shares Outstanding (Diluted) | 382.10M383.00M | −0.2% |
05—Questions
Frequently Asked Questions
What were the main drivers of revenue growth in 2013?
Revenue growth in 2013 was primarily driven by higher unit volumes across key product areas, including trauma and extremities, neurotechnology, hip implants, and endoscopy products. Acquisitions also contributed to revenue growth. Price changes had a slight negative impact, and foreign currency exchange rates also presented a headwind.
What significant challenges or risks did Stryker face in 2013?
The company faced significant challenges related to product recalls, specifically the voluntary recall of Rejuvenate and ABG II modular-neck hip stems due to potential fretting and corrosion issues. This resulted in substantial charges and ongoing litigation. Additionally, Stryker navigated a complex regulatory environment and faced pricing pressures common in the medical device industry. Healthcare reform legislation in the US also presented ongoing uncertainty.
How did the acquisitions of MAKO and Trauson impact Stryker's business?
The acquisition of MAKO Surgical Corp. is expected to enhance Stryker's robotic-assisted surgery capabilities, particularly in joint reconstruction. The acquisition of Trauson Holdings Company Limited was aimed at expanding Stryker's presence in China and targeting the fast-growing value segment of the orthopaedic market in emerging economies. Both acquisitions are strategic moves to bolster product offerings and market reach.
What is the financial impact of the Rejuvenate and ABG II hip stem recalls?
As of December 31, 2013, Stryker had recorded charges totaling $790 million, representing the minimum of the estimated probable loss range of $790 million to $1.235 billion (before insurance recoveries) to resolve these recalls. The company continued to work with the medical community to evaluate data and understand the associated costs, which could materially impact future financial performance.
06—Continue