FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of May 29, 2002
Sulzer Medica Ltd
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(Translation of Registrant's Name Into English)
Andreasstrasse 15
8050 Zurich
Switzerland
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(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F [X] Form 40-F [ ]
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes [ ] No [X]
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- )
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Enclosure: First Quarter Report 2002
Sulzer Medica Ltd is filing this Report on Form 6-K to furnish the
attached first quarter 2002 report to our shareholders.
Sulzer Medica Ltd hereby incorporates this Report on Form 6-K by
reference into the Registration Statements on Form S-8, No. 33-8300,
No. 333-76280, No. 333-76282 and No. 333-85388.
REPORT /1ST QUARTER 2002
DEAR SHAREHOLDERS:
In the first quarter of 2002, Sulzer Medica has achieved a marked increase in
sales, distinctly improving its operating income (EBITDA) at the same time. This
advance is the initial result of measures Sulzer Medica's Executive Management
initiated in 2001 to strengthen the Company's operating performance. Our U.S.
orthopedics business has made a manifest recovery.
Sulzer Medica's first quarter performance was shaped by the following key
developments:
o Adjusted for currency effects, sales increased by 8.5% to
CHF 386.2 million.
o EBITDA excluding exceptional items improved by 3.7% to CHF
92.3 million.
o Excluding exceptional items, the EBIT improved by 9.2% to
CHF 59.0 million.
o Sales were powered by Spine Care, Dental Care, and
Vascular Care.
o Mechanical heart valve capacities were adjusted to the
declining market.
o Overhead and production capacities were streamlined
while R&D activities were focused.
As regards one of our main objectives in 2002, i.e. settling the litigation in
the U.S., we are confident that both patients and plaintiffs' attorneys will
accept our revised settlement agreement proposal. By the end of May 2002, we
expect to know if and subject to which terms the case can be closed.
Aiming at increased transparency, Sulzer Medica changes its reporting approach
starting with this first quarter report. As of now, we will disclose a sales
breakdown by business units and by geographic regions. Furthermore, we introduce
earnings before interest, taxes, depreciation, goodwill amortization, and
exceptional items (EBITDA) as our new operating income parameter. Up until now,
we had not shown depreciation separately, discounting it in our reported
operating income (EBITA).
Change in %
nominal adjusted for
JAN.-MARCH 2002 Jan.-March 2001 currency
OVERVIEW in million CHF in million CHF effects
-------- -------------- -------------- ----------------------
NET SALES 386.2 360.3 +7.2% +8.5%
OPERATING INCOME
BEFORE INTEREST, TAX,
DEPRECIATION, GOODWILL
AMORTIZATION, AND
EXCEPTIONAL ITEMS
(EBITDA) 92.3 89.1 +3.7% +4.5%
OPERATING INCOME
BEFORE GOODWILL
AMORTIZATION AND
EXCEPTIONAL ITEMS 72.6 67.4 +7.7% +8.5%
Operating income 59.0 86.2 -31.5% -31.0%
ADJUSTED NET INCOME* 44.2 29.2 +51.5% +51.0%
*= excluding exceptional items
FOREIGN EXCHANGE RATES
Average rates in CHF Closing date rates in CHF
JAN.-MARCH 2002 Jan.-March 2001 March 31, 2002 Dec. 31, 2001
--------------- -------------------- -------------- -------------
1 USD 1.68 1.66 1.68 1.68
1 GBP 2.41 2.42 2.40 2.44
1 EUR 1.47 1.53 1.47 1.48
SETTLEMENT AGREEMENT IN THE U.S. AND RISK MANAGEMENT
In the period under review, we successfully continued the settlement agreement
negotiations made necessary by recalling Inter-Op hip shells and withdrawing
tibial baseplates. The preliminary approval for our proposed settlement
agreement was granted on March 15, 2002, and the opt-out period has started on
April 19, 2002. We expect the District Court Judge to pronounce her ruling on
the fairness of Sulzer Medica's settlement agreement proposal as from May 6,
2002. Subsequently, patients and plaintiffs' attorneys will have five workdays
after the end of the opt-out period to either accept the proposal or to opt out
for good. So while we may not have warded off the risk of the agreement failing,
we have certainly limited it. An 8.3% sales growth (adjusted for currency
effects) in U.S. orthopedics markets proves that customers have regained full
confidence in our products. Group sales in North America effectively increased
by 10.0%. As a result of the case of damage in the U.S., we have decided to
invest in a uniform Group-wide quality and risk management system. This measure
is not only meant to prevent such claims in the future, but also to set new
quality standards for the medtech industry as a whole. Continued and sustained
improvement of products and manufacturing processes is a top-priority issue for
Sulzer Medica.
STOCK TREND AND CAPITAL STOCK
At the end of the first quarter of 2002, Sulzer Medica's registered shares stood
at CHF 155.00, and its American Depositary Shares (ADS) at USD 9.15. On December
31, 2001, the shares had
closed at CHF 70.00, and the ADS at USD 4.49. In other words, share and ADS
prices surged by 121% and 104% respectively during the period under review. This
favorable stock trend is connected to the course the litigation in the U.S. has
taken, as confirmed by trading volumes increasing on all major hearing dates. On
occasion of our Annual Shareholders' Meeting on May 17, 2002, the Board of
Directors will propose an authorized and conditional capital increase of 4
million shares each, having a par value of CHF 30.00 each. These shares will
exclusively be utilized as a means of securing the financial settlement
agreement Sulzer Medica has proposed in the U.S. litigation, i.e., used either
to replace the callable convertible instrument (CCI), through utilization of the
authorized capital, or by converting the CCI into shares (conditional capital).
In both cases, shareholders are protected against the dilution of their
shareholdings either by the granting of subscription rights or by the issuance
of options to shareholders.
GROUP RESULT
In the period under review, the Group's nominal consolidated sales growth
reached 7.2% despite the Euro's negative development. Adjusted for currency
effects, sales increased by 8.5%. This growth rate surpasses the 1.0% rate
reached both in the prior-year period and in 2001 as a whole. Registering 7.7%,
the increase of our operating income before goodwill amortization and
exceptional items (EBITA) was higher than the sales growth. Due to CHF 32.1
million in exceptional earnings in the prior-year
SULZER MEDICA GROUP SALES
North Rest of
Europe America World Total
------ ------- ------- -----
Q1 2001 in MCHF 176.8 148.8 34.6 360.3
Q1 2002 in MCHF 179.5 165.9 40.9 386.2
Growth rate in %
Nominal 1.5 11.4 18.3 7.2
Adjusted
for currency effects 4.5 10.0 25.0 8.5
period Sulzer Medica's operating income and net income declined by 31.5% and
19.3% respectively against the previous year. Adjusted for these exceptional
earnings, however, the EBIT increased by 9.2% and the net income by 51.5%. The
reduced tax load resulting from the litigation in the U.S., which had an
influence during the first quarter, will influence our net income in the future:
Financing costs in the U.S. will impact the operating income in the U.S. for
years to come, which--because of tax rates being comparatively high in the
U.S.--will structurally lower the Group's consolidated tax rate. Lagging
slightly behind the increase in net sales, the gross profit rose by 5.4%. Sulzer
Medica's gross margin declined from 68.6% to 67.4%, mainly as a result of the
business trend in Cardiac Care. Affected by negative developments in the
mechanical heart valve market, this Business Unit's sales decreased by 5.6% and
its gross margin fell by more than 20%. Correspondingly, capacities were
adjusted in the first quarter of 2002, which also contributed to our gross
margin declining. The initiated measures will result in a greater gross margin
for Cardiac Care.
JOINT & FRACTURE CARE
Contributing 63% to overall sales, Sulzer Medica's most important Business Unit
registered an 8.6% sales increase (adjusted for currency effects) against the
first quarter of 2001 (Q1 01/00 +3.5%). This favorable business trend has a wide
basis, being supported by sales increases in all major markets, i.e. Europe,
Asia, and the U.S. Particularly in Sulzer Orthopedics' main markets Germany and
France, sales continued to grow. While the sales increase in Europe was mainly
generated by knee implants and trauma products, advances in the U.S. were above
all made with hip and knee implants. Introducing innovative products made it
possible to push through price increases in the U.S. We have remained
well-focused in pursuing our strategy of selectively optimizing our product
portfolio with cutting-edge products. The Innex Knee Implant met with just as
favorable a reception in European markets as the newly launched Converge Hip
Implant and the minimally invasive UniSpacer Knee Implant did in the U.S. The
trend towards minimally invasive and computer-assisted surgery was still going
strong in the period under review. Consequently, we will continue to emphasize
research and development of products
J&F CARE SALES
North Rest of
Europe America World Total
------ ------- ------- -----
Q1 2001 in MCHF 142.2 66.8 18.9 227.9
Q1 2002 in MCHF 145.5 73.6 22.4 241.7
Growth rate in %
Nominal 2.5 10.2 18.8 6.1
Adjusted
for currency effects 6.0 8.3 29.5 8.6
tailored to such procedures. We are also set on keeping up our marketing efforts
such as advanced training and customer loyalty measures for our main customer
group, the surgeons. Some European and Asian countries still hold a large
potential for Sulzer Medica. In order to improve our position in these markets,
we have developed specific marketing action plans.
SPINE CARE
Our Spine Care Business Unit was able to increase its sales by 12% (adjusted for
currency effects) against the prior year period (Q1 01/00: -10%). This
gratifying business trend is disproportionately based on the success of our
Silhouette Spinal Fixation System and our Dynesis Dynamic Restabilization
System. While Silhouette has been approved for marketing in the U.S. and Europe,
FDA approval for Dynesis is intensely being worked at. Keeping the spine at
least partially mobile, this exclusive non-fusion product
SPINE CARE SALES
North Rest of
Europe America World Total
------ ------- ------- -----
Q1 2001 in MCHF 4.6 36.9 1.3 42.8
Q1 2002 in MCHF 4.6 41.8 1.7 48.2
Growth rate in %
Nominal 1.1 13.4 28.4 12.5
Adjusted
for currency effects 3.5 12.0 49.0 12.0
already accounts for half of all Spine Care sales in Europe. The bone graft
product portfolio was enlarged by the Symmetry Posterior Specialty Bone Graft
and pertaining instruments in the period under review. Still, due to delivery
problems at our partner Tutogen Medical, expectations in this area could not be
met. By eliminating the unprofitable Proceed product line, we were able to
optimize Sulzer Spine-Tech's gross margin.
DENTAL CARE
Sulzer Medica's high Dental Care sales targets were reached virtually
completely. Adjusted for currency effects, sales increased by 19.5% against the
prior-year period (Q1 01/00: +13%), gaining market shares at the same time.
Sulzer Dental particularly benefited from its excellent
DENTAL CARE SALES
North Rest of
Europe America World Total
------ ------- ------- -----
Q1 2001 in MCHF 6.0 16.8 3.3 26.1
Q1 2002 in MCHF 7.2 19.1 5.0 31.2
Growth rate in %
Nominal 18.9 13.4 51.5 19.5
Adjusted
for currency effects 21.0 12.5 55.0 19.5
position in increasingly dynamic product segments in the U.S. (Tapered
Screw-Vent, AdVent, Tapered SwissPlus). Well-aimed marketing efforts are meant
to optimally position the Company in immediate techniques (immediate loading,
immediate impression, immediate nonfunctional restorations) as well, in order to
make full use of this market's potential. Backed by a comprehensive product
portfolio that was greatly optimized by integrating the Paragon company acquired
in early 2001, Sulzer Dental holds its own especially well in U.S. markets. The
extension of its sales organization, which was initiated in the period under
review, is likely to develop this potential not only in the U.S., but also in
Europe. For this purpose, we have hired a Vice President Sales as of May 1,
2002. Finalizing the integration of Paragon has freed crucial synergies.
CARDIAC CARE
In the period under review, the market-wide substitution of mechanical heart
valves by tissue heart valves has continued, reducing Cardiac Care sales by 5.6%
(adjusted for currency effects) compared to the first quarter of 2001. But a
sales decline of just under 10% in mechanical heart valves was at least
partially offset by an almost 30% sales increase in tissue heart valves such as
Synergy PC and Synergy ST. While mechanical heart valve sales stagnated in the
U.S. or even slowed down primarily in Japan and Europe, additional sales efforts
departing from low sales levels were able to generate added volumes in various
other markets. However, outside the U.S., pressure on prices has increased
considerably, resulting in a corresponding negative impact on gross margins. In
response to the general market trend, a number of measures were implemented in
mechanical heart valve production, resulting in CHF 1.5 million in costs and
more than 50 jobs being cut. On the other hand, tissue heart valve manufacturing
capacities were further extended, so we will be able to work off the current
backlog of orders in the
CARDIAC CARE SALES
North Rest of
Europe America World Total
------ ------- ------- -----
Q1 2001 in MCHF 16.0 20.1 7.0 43.1
Q1 2002 in MCHF 13.8 20.0 6.9 40.7
Growth rate in %
Nominal -13.5 -0.4 -2.4 -5.6
Adjusted
for currency effects -12.9 -0.6 -3.5 -5.6
months to come. Prospects for 2002 remain ambiguous, even though we anticipate
the negative market dynamics for mechanical heart valves to subside, accompanied
by a steady positive business trend for tissue heart valves.
VASCULAR CARE
Adjusted for currency and acquisition effects--Sulzer Medica took over ITI
IntraTherapeutics as of February 2001--, Vascular Care sales increased by 9.5%
overall against the prior-year period. The business with vascular grafts
(artificial blood vessels) registered a 9% growth rate, while stents (miniature
cylindrical latticework used to stabilize blood vessels) improved by 11%.
Introduced in the
VASCULAR CARE SALES
North Rest of
Europe America World Total
------ ------- ------- -----
Q1 2001 in MCHF 8.1 8.4 4.1 20.6
Q1 2002 in MCHF 8.2 11.5 4.9 24.6
Growth rate in %
Nominal 1.3 36.5 21.2 19.7
Adjusted
for currency and
acquisition effects 0.2 13.1 21.9 9.5
U.S. market in September of 2001, the specialist tapered Taperflo Graft, which
is used in renal dialysis, continues to increase its share in overall graft
sales. In the period under review, Sulzer Vascutek launched a new member of the
Protege stent family which features a diameter of 12 millimeters. By mid-year,
we also expect marketing approval for an extended-length Protege stent. The
measures that were initiated in the second half of 2001 in order to improve
operating efficiency have produced initial favorable results. As part of a
locally limited pilot project, we initiated--among other things--a cross-selling
program targeted at realizing synergies between our separate sales organizations
for heart valves, stents, and grafts. Furthermore, we consolidated various back
office functions, cutting costs accordingly.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited; in millions, except share/ADS data)
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS JANUARY - MARCH
2002 2002 2001
USD 1) CHF CHF
------ ------- ------
NET SALES
Orthopedics 191.1 321.0 296.8
Cardiovascular prostheses 38.9 65.3 64.4
Eliminations -0.1 -0.1 -0.9
TOTAL NET SALES 229.9 386.2 360.3
Cost of sales -75.0 -126.0 -113.3
GROSS PROFIT 154.9 260.2 247.0
Percent of net sales 67.4% 67.4% 68.6%
Selling, general and administrative expense -95.2 -159.9 -152.0
Research and development expense -16.0 -26.8 -29.1
Other operating income/expense -0.5 -0.9 1.5
OPERATING INCOME BEFORE GOODWILL AMORTIZATION
AND EXCEPTIONAL ITEMS 43.2 72.6 67.4
Percent of net sales 18.8% 18.8% 18.7%
Goodwill amortization -8.1 -13.6 -13.3
Exceptional operating items 0.0 0.0 32.1
OPERATING LOSS/INCOME 35.1 59.0 86.2
Financial income/expense -0.5 -0.8 0.5
Other non-operating income/expense -0.1 -0.1 -5.1
LOSS/INCOME BEFORE TAXES 34.5 58.1 81.6
Taxes -8.3 -13.9 -26.9
LOSS/INCOME BEFORE MINORITY INTERESTS 26.2 44.2 54.7
Minority interests -0.3 -0.5 -0.5
NET LOSS/INCOME 25.9 43.7 54.2
Basic loss/earnings per share 2.60 4.39 5.43
Basic loss/earnings per ADS 0.26 0.44 0.54
Number of shares outstanding (000') 9945 9945 9989
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
Cash flow from operating activities -1.2 -2.0 51.9
Cash flow of investing activities -20.5 -34.4 -429.6
Cash flow from financing activities 2.4 4.1 -7.6
Net effect of currency translation on cash 0.2 0.4 15.5
CHANGE IN CASH AND CASH EQUIVALENTS -19.1 -31.9 -369.8
1) U.S. dollar information is for the convenience of the reader only. The
average exchange rate used for translating the cumulative January-March Swiss
franc figures into US dollars was 1.68.
CONSOLIDATED BALANCE SHEET
(unaudited; in millions)
CONSOLIDATED BALANCE SHEET MARCH 2002 DECEMBER 2001
USD 1) CHF CHF
------ ------- ------
ASSETS
NON-CURRENT ASSETS
Intangible assets 545 915 930
Property, plant and equipment 142 238 236
Investments and other financial assets 39 65 65
Deferred income taxes 384 645 643
TOTAL NON-CURRENT ASSETS 1110 1863 1874
CURRENT ASSETS
Inventories 240 403 411
Trade accounts receivable 200 336 308
Other accounts receivable and prepaid expenses 55 93 122
Cash and cash equivalents 74 124 156
TOTAL CURRENT ASSETS 569 956 997
TOTAL ASSETS 1679 2819 2871
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY 492 827 784
MINORITY INTERESTS 4 7 7
LIABILITIES
LONG-TERM LIABILITIES
Long-term borrowings 12 20 20
Deferred income taxes 11 19 19
Long-term provisions 873 1466 1468
Other long-term liabilities 7 11 11
TOTAL LONG-TERM LIABILITIES 903 1516 1518
CURRENT LIABILITIES
Short-term borrowings 46 78 75
Short-term provisions 101 169 223
Trade accounts payable 35 58 70
Other current and accrued liabilities 98 164 194
TOTAL CURRENT LIABILITIES 280 469 562
TOTAL LIABILITIES 1183 1985 2080
TOTAL EQUITY AND LIABILITIES 1679 2819 2871
EQUITY RECONCILIATION
EQUITY AS OF PRIOR YEAR END 784 1993
Adjustments for adopting IAS 39 0 12
Change in fair value of financial instruments 0 -9
Realized gain on sales of available-for-sale securities 0 0
Net income 44 -1193
Dividends 0 -60
Change in treasury stock 0 -9
Options exercised 0 0
Currency translation adjustments -1 50
EQUITY AS OF PERIOD END 827 784
1) US Dollar information is presented for the convenience of the reader only.
The exchange rate used for translating the CHF figures into US Dollars were 1.68
at the end of March 2002.
PROSPECTS
Our first quarter results show that despite difficult outline conditions, Sulzer
Medica has reached the growth objectives it had set for itself regarding sales
and profitability. We will focus on increasing our operating efficiency even
further in the quarters to come. This particularly applies to our orthopedics
business in Europe. In addition, we will also prioritize securing Sulzer
Medica's financial stability in connection with financing our proposed
settlement agreement in the U.S., and orienting our R&D activities to
entrepreneurial guidelines. Based on our results in the period under review, we
feel confident about Sulzer Medica's business trend in 2002. The measures
initiated are aimed at increasing the gross margins in all business segments to
industry levels.
Winterthur (Switzerland), April 2002
/s/ MAX LINK
Max Link
Chairman of the Board
/s/ STEPHAN RIETIKER
Stephan Rietiker
President and CEO
SULZER MEDICA LTD.
CH-8050 Zurich, Switzerland
Telephone +41 1 306 96 96
Telefax +41 1 306 96 97
Internet www.sulzermedica.com
Investor Relations Europe
Telephone +41 1 306 98 25
Telefax +41 1 306 98 31
E-Mail investor-relations@sulzermedica.com
SULZER MEDICA USA INC.
Houston, TX 77046-0391, USA
Telephone +1 713 561 6300
Telefax +1 713 561 6410
Internet www.sulzermedica.com
Investor Relations USA
Telephone +1 713 561 6376
Telefax +1 713 561 6380
E-Mail investor-relations-us@sulzermedica.com
This report is published in German and English.
THE "SAFE HARBOR" STATEMENT
This report contains forward-looking statements including, but not limited to,
projections of future performance of materials and products, financial
condition, results of operations and cash flows, containing risks and
uncertainties. These statements are subject to change based on known risks
detailed from time to time in the Company's Securities and Exchange Commission
filings and other known and unknown risks and various other factors which could
cause the actual results or performance to differ materially from the statements
made herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Current Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SULZER MEDICA LTD
Date: May 29, 2002 /s/ David S. Wise
--------------------------------
David S. Wise
Authorized Representative