Stryker Corporation - Shareholder/Analyst Call

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Stryker Corporation (NYSE:SYK) April 30, 2013 2:00 PM ET


William U. Parfet - Non-Executive Chairman and Member of Governance & Nominating Committee

Dean H. Bergy - Vice President and Secretary

Kevin A. Lobo - Chief Executive Officer, President and Director


This presentation contains information that includes or is based on forward-looking statements within the meaning of the federal securities law that are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in such statements.

Such factors include, but are not limited to, weakening of economic conditions that could adversely affect the level of demand for our products; pricing pressures generally, including cost containment measures that could adversely affect the price of or demand for our products; changes in foreign exchange markets; legislative and regulatory actions; unanticipated issues arising in connection with clinical studies and otherwise that affect U.S. Food and Drug Administration approval of new products; changes in reimbursement levels from third-party payors; a significant increase in product liability claims; the ultimate total cost with respect to the Rejuvenate and ABG II matter; the impact of investigated and legal proceedings and compliance risks; resolution of tax audits; the impact of the federal legislation to reform the U.S. health care system; changes in financial markets; changes in the competitive environment; our ability to integrate acquisitions; and our ability to realize anticipated cost savings as a result of workforce reductions and other restructuring activities. Additional information concerning these and other factors are contained in our filings with the U.S. Securities and Exchange Commission, including our annual report on Form 10-K and quarterly reports on Form 10-Q.


William U. Parfet

A nice upbeat way to start our annual shareholders meeting. With that, I'd like to say good afternoon, and welcome you to the 34th meeting of the shareholders of Stryker Corporation.

On behalf of the entire Board of Directors, it's my privilege to serve as the Non-Executive Chairman of Stryker Corporation and to preside at this meeting.

I hope you can all tell by the video we just saw that we had a solid year. We enhanced our products and technologies, spoke directly to potential clients, educated our customers around the globe, served those in need, earned industry recognition from Fortune and Gallup, and hired a new CEO.

Joining me at the podium today and participating in the meeting are Kevin Lobo, our new CEO, who's President and Chief Executive Officer; and Dean Bergy, Vice President and Corporate Secretary.

Before starting the formal business of this meeting, I'd like to introduce several guests and ask them to stand as -- and be recognized. First, and with great admiration and in the middle -- in the best seat in the house, join me in welcoming John Brown. He doesn't even need an introduction, he gets a great applause. But just for those of you who'd remember, he's our Chairman Emeritus and led the company for over 3 decades, helping to build Stryker into the Fortune 500 company that it is today.

Accompanying John are the rest of his family his wife, Rosemary, daughters, Sarah Brown and Jeannine Brown, who came all the way from Atlanta. Please stand.

Also joining us today are 3 members of the Stryker family: So Patty, I'll start with you. Pat Stryker, you can stand up for just a minute, we're going to look at you. There we go, thank you. You got up early this morning, I know. Pat Stryker is a philanthropist and founder of Bohemian Foundation, which works to empower citizens and impact communities through a strategic grant-making program and special initiatives. Bohemian Foundation focuses locally in the area of music, youth, education and poverty and global in the areas of public health, poverty alleviation and the environment. The foundation is based in Fort Collins, where Pat resides. Welcome.

Jon Stryker is a philanthropist, architect and conservationist who is the Founder and board of -- Board President of the Arcus Foundation, a leading global foundation advancing pressing social justice and conservation issues to create a more just and humane world. Specifically, Argus focused to advance LGBT equality, as well as to conserve and protect the great apes. The foundation ranks among the top 5 funders for LGBT programs in the United States and also gives generously to initiatives abroad. It is also the largest private funder of great ape sanctuaries and conservation in the world. Jon is also a trustee of Kalamazoo College, and he calls Kalamazoo his home. Welcome, John.

Pat and Jon, as well as Ronda Stryker, Ronda is a member of our board, so she'll be introduced in just a moment, are great-grandchildren of Dr. Homer Stryker, the founder of the company, and the children of Lee Stryker, a former President of the company. All 3 are great supporters of this company and it's glad to have them here today. So one more time.

Ronda's husband, Bill Johnston, is also here. He's a local developer, owner of Greenleaf Trust, as well as this hotel, a great civic leader, a wonderful friend and trustee of Western Michigan University. We're glad to have you here too, Bill.

I want to acknowledge the passing of Lyle Stryker. Stryker board member from 1976 to 1989, Lyle was a nephew of Dr. Stryker and a cousin of Lee Stryker. Lyle was 96 years old when he passed away, just recently. So on behalf of the board and the shareholders, we would like to extend our condolences to the family. And the board resolution acknowledging his wonderful contribution to this company has been included in the minutes of yesterday's Board of Directors' meeting and we'll make those available to the family.

At your seats is an agenda for today's meeting. The primary purpose of the annual meeting is to seek shareholder approval on 3 proposals that were outlined in the Proxy Statement and are listed here in your agenda.

Of equal importance to our official business is the chance for our shareholders and all of you in the room to get a first-hand exposure to Kevin Lobo. I think you'll be pleased with our new leader. So accordingly, I'll purposely work through my official duties as expeditiously as possible to maximize our time today with Kevin. I know you'll be happy.

So here's how it work. And so when we get to when the votes are tabulated in a few minutes, it's planned that Kevin will then share with you the results of our business activities for last year and for the next first quarter. And we will also share some of our exciting opportunities that lie ahead. We will then announce the voting results and then at the end, provide an opportunity for Kevin to answer shareholder questions.

Now here's a little formality. So at this time, out of consideration for the meeting speakers and attendees, we'd ask that all cellphones and pagers be shut off. Investors are also reminded that our meeting today may include forward-looking information. You can see that on the screen. These factors are included in the most recent 10-K and are covered by a statement you see, as I said before, on the screen and in addition, printed in your agenda.

And now as Dean makes his way to the podium and we get officially started, let me acknowledge the wonderful service that Dean provided as our Interim Chief Financial Officer. Dean's knowledge of Stryker, his keen abilities in accounting and finance and respect throughout their entire organization provided excellent leadership during an important transition period. Dean, we thank you for your good work.

So Dean returns here now in his sole capacity as our Corporate Secretary. So that being said, and so that I can officially call the meeting to order, I'll ask Dean to establish that this meeting has been duly called, and that a quorum is present.

Dean H. Bergy

Thank you, Bill, and good afternoon, everyone. With me, I have an affidavit from the proxy solicitor related to the mailing of the notice of the meeting and proxy materials on March 18, 2013, to all shareholders of record as of March 4, 2013, the record date fixed by the Board of Directors.

I have a certified list of the shareholders of record of the company as of March 4, 2013, which is available for inspection by any shareholder during and immediately following the meeting and the minutes of the 2012 Annual Meeting of Shareholders, which are also available for inspection by any shareholder. Bill Berry, Corporate Controller and Tim Williams, Assistant Secretary of the Corporation, have been appointed to serve as inspectors of election.

Based on the proxies received, the inspectors have reported to me that a majority of the 377,125,109 shares of common stock entitled to vote are represented at the meeting, either in person or by proxy. A quorum of common stock is therefore, present, and the meeting may proceed.

William U. Parfet

Thank you, Dean. On the basis of the Secretary's report, this meeting is duly constituted, and we're ready to transact business.

First, I'd like to introduce the individuals who serve as directors of the corporation. I'll ask each director to stand as he or she is introduced.

Howard Cox. Howard is a partner of Greylock and its affiliated venture capital partnerships. He resides in Boston and is our longest-serving Director. Howard joined our board in 1974 and chairs our finance committee.

Srikant Datar. Srikant is the Arthur Lowes Dickinson Professor of Accounting at the Graduate School of Business Administration at Harvard University. He resides in Boston and has served as a director since 2009.

Roch Doliveux. Roch is the Chairman of the Executive Committee of UCB S.A., a global biopharmaceutical company. He resides in Belgium and has been a director since 2010.

Louise Francesconi. Louise is former President of Raytheon Missile Systems and also chairs the Governance and Nominating Committee. She served as director since 2006 and resides in Tucson.

Allan Golston. Allan is President, U.S. Programs for the Bill & Melinda Gates Foundation. Allan's became a director in 2011 and is Chair of the Audit Committee. He resides in Seattle, Washington.

Howard Lance. Howard is an Executive Advisor to the Blackstone Group and the former Chairman, President and Chief Executive Officer of Harris Corporation. Howard became Director in 2009 and is Chairman of the Compensation Committee. He resides in Florida.

Kevin Lobo. Kevin is our newest member of the board as of October 1, 2012, when he was appointed President and Chief Executive Officer of Stryker. Kevin joined Stryker in 2011 and was a Group Vice [ph] President for Orthopedics. He has a broad and diverse 25-year business career that includes executive positions in general management and finance with extensive international experience. He knows the health care markets well, he's a decisive clear thinker and he's very engaged with our employees. Kevin is off to a great start, and the board is confident that he will meet and exceed the high expectations that our shareholders place on both leadership and growth.

As the sole member of the management on our board, he provides management's business perspectives and the necessary link to the company's day-to-day operations. As many of you know, I'm Chairman and CEO of MPI Research in Mattawan, Michigan. And I've served on Stryker's board since 1993, and I'm a native of Kalamazoo.

Ronda Stryker. Ronda is the Vice Chairman and Director of Greenleaf Trust, a trustee of Spelman College and Kalamazoo College and Vice Chairperson of the Kalamazoo Community Foundation. Ronda has served on the board since 1984 and resides in Kalamazoo.

I'd like you to thank all of the directors for their contributions to the success of Stryker Corporation. The job of outside director has changed significantly over the last few years and becoming more complex and requiring a greater time commitment. I assure you this is a highly-engaged group that's committed to the future of this wonderful company.

Also, with us today, as I said, is the executive leadership team and the corporate officers of Stryker Corporation. I'll ask Kevin to introduce those people, please.

Kevin A. Lobo

Thank you, Bill, and good afternoon, everyone. I'm very pleased to be with you all today. I'm also proud and honored to have the opportunity to introduce to you the men and women who, along with our corporate officers and division leaders, run the various part of Stryker's businesses. They're all seated here in front of me, and you can see them depicted on the screen.

This is our executive leadership team. These are the people that I have calls with every week and meet with in person roughly 8x a year. If you look at the top row, each of these members of the executive leadership team was a member of the leadership team 1 year ago. Some of these faces, you'll surely recognize: Curtis Hall, Lonny Carpenter, Tim Scannell. They are all longtime Stryker veterans who have contributed greatly to the success of the company.

Curtis was actually the first lawyer that Stryker hired. When he was hired, he was the legal department at Stryker. He remains our General Counsel today, but as you can imagine in today's day and age, we've added a few more lawyers since then. Lonny has held many leadership roles at Stryker and took on the great challenge of leading a centralized Global Quality and Operations group, which is making great progress.

Tim has led many large businesses at Stryker and is currently leading our MedSurg and Neurotechnology businesses.

Next, you see Katherine Owen, who's been with Stryker for roughly 6 years after starting her career as a Wall Street Analyst. She has been a huge help to me in dealing with investors and analysts who, as you know, can be very demanding.

Last on the top row, Ramesh Subrahmanian, who is leading our international group. He joined Stryker a few months after I did and spearheaded the recent Trauson acquisition, which we closed in March and announced in January.

Now every member on the second row was not a member of our executive leadership team last year at this time. So it's quite a lot of change in 1 year. The first 2 on the bottom row are long-time Stryker employees who were promoted to the leadership team last year. Yin Becker is responsible for public affairs, communications and strategic marketing. She's an employee with Howmedica and joined Stryker as part of that acquisition.

Next, Steven Benscoter, who is promoted to VP of Human Resources in June. Steve has held leadership roles in many functions, including HR throughout his Stryker career.

The last 3 members on the bottom row are all relatively new. Scott Bruder joined us in January as our Chief Scientific and Medical Officer. Scott will help us raise our science and innovation focus and act as a key interface with regulatory bodies around the world.

David Floyd, our Group President of Orthopedics, joined us last November. David has vast experience in orthopedics, and I knew him when we both worked at Johnson & Johnson.

Our most recent team member who started last week, sitting here in the front, is our new CFO, Bill Jellison. Bill is a native of Michigan and attended Hope College. He was the former CFO of Dentsply, the world's largest dental supply company.

As you can see, we have a talented and experienced leadership team, which is aligning and taking Stryker to new heights. Let's please acknowledge them with a round of applause.

Next, I'd like to talk about our other corporate officers and acknowledge them. You can see them here on the picture, and the areas that they're responsible for are noted on the slide. This is a group of very accomplished executives who take great measure to keep Stryker on track. Let's please all give them a round of applause.

Finally, I would ask our division leaders who are present today to stand. I believe we have 2 division leaders here. Come on Brad, stand up. Take a look at Brad. So Brad Sauer runs our Medical division, which is based right here in Kalamazoo. We have obviously a number of division leaders, we have Brad present. We have another division leader here present who, for some reason, is a little shy. Bill Enquist, can you please stand up? Bill, please stay standing for a minute please. I really want to acknowledge Bill Enquist. Bill retired earlier this month after 27 years of service. Most recently, he was the President of our Endoscopy business, which he lead for an amazing 17 years. 17 years as a President, you can imagine, they weren't all easy years. You've got to go through a lot of ups and downs. Endoscopy is now a flagship business for Stryker under his leadership. It's also been a great training ground for many leaders who have moved on to bigger and better things within Stryker, including Tim Scannell, who's now running a very, very large business for Stryker.

So I'd like to thank Bill for his outstanding contributions to Stryker.

So with that, I'll turn the podium back over to Bill.

William U. Parfet

Thank you, Kevin. Also joining us today is Rich Witzel, a partner of Skadden, Arps, Slate, Meagher & Flom, our corporate counsel; and David Hoogendoorn and Bill Miller representing Ernst & Young, our independent accountants.

Now Ernst & Young has been the auditors for Stryker since before we were a public company in 1979. Okay, now we'll move to the formal part of the business. And included in your seats, as I said before, is the agenda.

We will vote on each of the 3 proposals that are included in the proxy and also then reflected on this agenda. If anyone during this voting period would like to speak or raise a question, please move to the microphone located in the aisle. Remember, these comments should relate to the specific proposal that we're voting on.

For questions not directly related to the proposals, there will be a time period for shareholders' question-and-answer, following the announcement of the voting results. So the time to speak now is just as it relates to these proposals, if you'd like.

At this time, as we move to the voting, I'd like to ask any shareholders in the room who have completed a proxy and have it with them and would like to turn it in at this time. Please raise your hand and one of our inspectors of election will come around and take a signed proxy. Do we have one? We've got one here. Any others? Just keep your hand up, and we'll come right to you. There's one there, yes. Another one there. Is that it? Any other proxies to be turned in at this time? There's one right there, Bill. Okay, so that will come next, does anybody who would like to -- who does not have a proxy and would like to vote that have proxy now? Okay, I'm going to -- as we're picking those up, I'll proceed then.

For proposals listed in your proxy statement and on the agenda, our corporate bylaws don't require motions or seconds. So the polls are now officially open for voting on these proposals. If there are any shareholders in addition who would like to vote their shares from the floor, please raise your hand and one of our inspectors will give you a ballot. So we've got one there. Any other additional?

Okay, the first matter is the election of 9 directors, constituting the entire Board of Directors. At Stryker, we annually elect directors to serve for a 1-year term, a governance practice that many other companies are now adopting. So the nominees for election of directors are, you've already been introduced so I'll just read their names: Howard Cox, Srikant Datar, Roch Doliveux, Louise Francesconi, Allan Golston, Howard Lance, Kevin Lobo, William Parfet and Ronda Stryker.

As there have been no other nominations during the designated nominating period, in accordance with our bylaws, the nominations are now closed.

The second matter to come before the meeting is ratification of the appointment of Ernst & Young as the company's independent registered accounting firm for 2013. Under SEC rules, the responsibility for appointment and oversight of the company's auditors resides with the Audit Committee. However, today, we continue our practice of asking shareholders to ratify this appointment. Is there any discussion? Okay.

The third matter to come before the meeting is an advisory vote to approve named executive officer compensation. Shareholders have asked for, and been recently granted, the right to offer an advisory vote on executive compensation practices. Our goal regarding executive compensation is to be as transparent as possible. The philosophy in setting executive compensation is discussed in detail in the proxy under Compensation Discussion and Analysis, that's CD&A, which begins on Page 11 of your proxy. Is there any discussion?

All of the proposals on the agenda are now before the meeting, and the polls are open. We're ready to receive the votes from shareholders. If you have not turned in a proxy, as I said, or if you have just voted and are completed with your ballot, now would be the time to turn it in. I think you've got them all, right? Okay.

In addition, any shareholder of record who is present may change their vote at this time, okay. The inspectors will now complete the vote count, and we will announce the results later in the meeting. While that's taking place, Kevin Lobo will share with us and review Stryker's performance and talk about its future. Thank you.

Kevin A. Lobo

Okay. So I'm going to talk to you a little bit about 2012. First quarter results, as you all know, we have an analyst call last week when we published our first quarter results, so I'll just touch on the first quarter, but primarily focus on 2012.

So overall, we're a leading player in medtech. We occupy the #1 or #2 position in the vast majority of markets in which we compete. Over 80% of the business that we have is in markets where we're either #1 or #2, so very strong market positions.

We also have a significant opportunity to expand these markets. In many of these cases, a market share of 22% or 23% still has significant room to grow in gaining market share and reinforcing our strong position.

We are a company, through its heritage, that's been focused on innovation, products and services that drive improved out clinical outcomes, as well as cost savings, which is now increasingly important in today's health care environment.

We partner very, very well with hospitals to leverage our product breadth. Hopefully, you saw in our annual review, you've got the chance to see just the breadth of our products, tremendous breadth across the orthopedic service line, neuroservice line and surgical service line.

We have been and continue to be a strong, strong company related to cash flow generation, with a very strong balance sheet. We continue to pursue a three-pronged approach to capital allocation: with M&A, dividends and share buybacks, in that order of priority. So the first focus with our cash is to do acquisitions, then dividends, then share buybacks.

This chart is very interesting if you look at the diversity of Stryker. No single business of Stryker represents more than 16% of the corporation, so we've really evolved over time to be a very, very diversified company. In 2012, our sales were $8.7 billion, an increase of 4%. So 4% may not sound like a number we're accustomed to, if you look back at our history, but it was actually very solid performance in difficult markets around the world.

If you look at the broader medtech environment, in 2012 the growth rate was roughly 2% to 3%. So we are actually at the high end of growth within the medtech sector, coming in at 4% sales growth.

Our adjusted earnings was up 9%, and we have adjusted EPS of $4.07. So 4% sales growth, 9% earnings growth, very solid performance in 2012, good leveraged earnings.

The next slide kind of shows you the -- an example of the breadth and depth of Stryker. And certainly, the annual review illustrates that even more clearly. But you can see here we have over 57,000 products across our 3 franchises of Reconstructive, MedSurg and Neurotechnology and Spine. And we are leveraging these with our hospital customers who are looking to rationalize their vendors just in the same way that Lonny and the Global Quality and Operations organization is rationalizing suppliers in our supply base. Our customers are doing the same thing. We're very, very well-positioned.

An enormous opportunity for Stryker remains growth outside the United States. 65% of our sales in 2012 were in the United States, that's a ratio that hasn't changed in the last 10 years. So we've had great success in the United States, but outside the United States, we still have room to grow. We have a fabulous product portfolio, I already illustrated that before, but we haven't taken all those products to many countries in the world. So that's the first step in growing outside the United States, is to leverage our existing product portfolio.

Second step is Europe. We're in a turnaround scenario with Europe, where we've actually lost market share over the last few years. We have a new organization, a new leader, many new country leaders that we put in place. And as I've described to the analyst community, our expectation is by the end of this year, we'll be back to market growth and looking to expand further in 2014.

A huge opportunity is emerging markets. You can see in the pie chart, emerging markets represent only 6% of our sales today. And if you look at the average medtech company, that number is closer to 10% to 12%. So we're actually underdeveloped in emerging markets. The key platform acquisition of Trauson was made in January, closed in March. That enabled us to get into a lower price segment of the market that today we do not sell products to.

So we're having a very, very fast growth. If you look at China and India, we're growing close to 30% month after month in the premium segment, however, off of a very small base. We're now going to access the value segment of the market. So it's a huge platform for growth not just in China but also in other emerging markets.

Here's the history of performance. So in 2012, we continued the strong history which you see across multiple dimensions: Sales, adjusted earnings per share, dividends paid, R&D. These are a chart that any company would be proud to have. And we continued that legacy in 2012 with a solid performance on sales, EPS. The dividend, as you all know, we increased the dividend 25%, and you can see this was not a 1-year wonder. We've been increasing dividend very steadily since 2007. And R&D, we ramped up our investment again in 2012. We continue to be a very strong generator of cash flow, $1.7 million of cash flow generated in 2012.

A little bit more detail on our capital allocation, this three-pronged approach that I talked about before. First, being Mergers & Acquisitions. Highly focused, we're very disciplined, we target primarily acquisitions that are in our core and key adjacent markets where we can leverage our strength. Examples are Orthovita and Memometal, recent acquisitions that we've done, that we've been able to tuck in to our existing businesses. The key focus with our Mergers & Acquisitions is to accelerate sales growth.

Second is dividends. We've committed to growing the dividend. You saw the chart, the 5-year CAGR of roughly 38%, with a 25% increase in our dividend rate this year.

And lastly, share repurchases. We announced in the first quarter of this year a $250 million share buyback. In 2012, we were a little bit quieter on share buybacks. This was a big increase versus what we did last year. And buybacks will remain a component of our overall capital allocation strategy.

So Q1, we had a very, very lengthy call with the investment committee last week. Here are the key highlights. Revenue and earnings growth were in line with the targets that we laid out at the beginning of the year. We had sales of $2.2 billion, which is an increase in 1.3% as reported. On a constant currency basis, that increase was 2.6%. And if you adjust for selling days, Q1 had less selling days this year than it did the prior year, you get to 5%.

It's a little complicated. The 1.3% doesn't look so great, but when you make the adjustments to have an apples-to-apples comparison, our underlying growth was 5%, which was a very strong performance and recognized on the call that we had with the analysts.

That 5% mark was the highest organic growth the we've had since the second quarter of 2011. So we feel very good. We had a very strong fourth quarter. We actually increased the growth rate in the first quarter, it just didn't look that way because we had an extra day in the fourth quarter, 2 less days in the first quarter but very, very strong underlying growth.

Our adjusted diluted net earnings per share of $1.03 was up 4%. So on a reported 1.3%, we're up 4%. Again, showing leveraged earnings. We completed a $1 billion bond offering. We took advantage of our strong balance sheet with debt. Debt is very, very inexpensive, as you know. We have $600 million of 5-year and $400 million of 30-year debt. And the 30-year debt, we were able to get at 4.1%, which is extremely, extremely cheap. So this gives us tremendous financial flexibility to continue to pursue our three-pronged capital allocation approach.

We also confirmed our 2013 financial targets. So these are targets that we laid out in January as we do each year, which was organic sales growth of between 3% and 5.5%, which excludes acquisitions and excludes the effect of foreign exchange, what we call core or underlying growth.

As you heard, we were at 5% in the first quarter. So we're at the top end of this range, and the 3% to 5.5% was seen as a very good growth in today's marketplace. At the end of Q1, we're at the high end, looking forward to continuing to be at the high end on the sales side.

Foreign exchange has gotten even worse, obviously, with the yen, the fall of the yen and other currencies of the world. So we'll have a bit more of a negative impact than we had said earlier in the year but the underlying growth, we confirmed our guidance. We also confirmed our guidance around, regarding earnings per share, which was between $4.25 and $4.40, which we laid out at the beginning of the year, an increase of 4% to 8%, including the medical device excise tax. So this the first year of the medical device excise tax. We had a $23 million charge to our P&L in the first quarter, about $100 million annually. If you exclude that effect because it's the first year we're having that in 2013, which we didn't have in 2012, our actual growth would be between 8% and 12%.

So if you grow sort of in the close to 5% range on the top line and 8% to 12% on the bottom line, that's very, very strong performance at the top end of the medtech sector.

So with that, I'll turn it over to Bill. Thank you.

William U. Parfet

Okay, thank you, Kevin. And now we'll wind up the formal portion of our meeting, if we can, and ask Dean to come and to share with us the results of the voting.

Dean H. Bergy

Thanks, Bill. I'm advised by the inspectors of election that each of the persons nominated for director in Proposal 1 received at least 85% of the shares present in favor of his or her election and therefore, each has duly been elected a director of the company.

I'm also advised by the inspectors of election that at least 98% of the total shares cast on Proposal 2 were voted for ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for 2013. I therefore, declare that Ernst & Young LLP is appointed as the company's independent registered public accounting firm for 2013.

I am also advised by the inspectors of election that a majority of the total shares cast on Proposal 3, the advisory vote on the resolution relating to the company's executive compensation, were voted in favor of that proposal. The final results of the meeting will be filed on a Form 8-K with the SEC shortly, and the business portion of the meeting is now adjourned.

William U. Parfet

Thank you, Dean. We would now like to hear any questions or comments that any of you may have. Shareholders who wish to be recognized should work their way to 1 of the 2 microphones in the hall. We ask -- or if anyone needs a microphone, we could bring it to you. We ask that you kindly keep your comments to about 3 minutes. And we look forward to hearing from you. Kevin will handle the questions today. Thank you. Kevin?

Question-and-Answer Session

Kevin A. Lobo

Thank you, Bill. So you can make your way to a mic or raise your hand, if you'd like a mic brought to you.

Unknown Shareholder

Jerry Cowell [ph] I didn't hear a percentage on the vote on Proposal 3, could we have that percentage?

Dean H. Bergy

It's just the majority standard, so I don't have the percentages. But a majority passed it. It will be published in the 8-K tomorrow.

Stacy Swimp

Good afternoon. Can you hear me? My name is Stacy Swimp, and I'm here as a proxy for my colleague, David Almasi. And I am representing the National Center for Public Policy, a free market thinktank based in Washington, DC. And I just wanted to thank you for this quick opportunity to speak to you today, sir. I just wanted to say, Mr. Lobo, that last November Fox News reported that as a consequence of ObamaCare, Stryker planned to cut 5% of its workforce, sending 1,170 hardworking medical industry professionals to the unemployment lines. This is reportedly in response to ObamaCare's medical device excise tax, which you've spoken earlier, that took effect in January. Originally intended as a revenue booster for ObamaCare, it's now seen by many as harming medical innovation, as well as employment in the medical device industry. So I just want to say that, currently, lawmakers from both sides of the political aisle, supporting revoking the tax, they're just there for means to do so. I want to present to you today, sir, with a financial responsible proposal to accomplish repeal the medical device excise tax that I hope that you will support. The National Center for Public Policy Research offers a proposal that calls for repealing the medical device tax and repealing much of the revenue that would be lost by ending lavish subsidies on the wind industry. Our analysis shows that eliminating the wind production tax credit by not renewing it when it expires at the end of this year could replace over 60% of the revenue lost from the repeal of the medical device tax. Therefore, we are formally proposing to Congress that it repeal the medical device tax and replace lost revenue with an end to wind subsidies. We thank you for your time. I thank you for your time, and I look forward to your thoughts on our proposal to prepare a complete repeal of the medical device tax, with a halt to wind energy subsidies. Thank you.

Kevin A. Lobo

Thank you for your comments. And I -- we, as a company, Stryker is very concerned about the medical device excise tax. As I mentioned earlier in my presentation, it'll be $100 million impact to the corporation this year. That's roughly 20% of our annual R&D budget. We would much rather use those dollars to create jobs and to provide innovative products and services to enhance and save patient lives. We are working with our lobbying group, which is an industry-wide group called AdvaMed, in favor of repealing the medical device excise tax. The Senate has passed a bipartisan bill to repeal the medical device excise tax. However, this has to pass through the House, which we'll see whether that will happen or not. We'll take that under advisement. Thank you very much. Next question, please? Any questions for my team up front? Yes, a question right here.

Unknown Shareholder

Thank you. My name is Warren Asosio [ph] and I am a shareholder. And I'm concerned, as I'm sure many people here are, about the several recalls that we had in the not-too-distant past. And I realize that is a part of this industry, and I realize this is not the only company that has had these struggles. And J&J that you once said as your employer, in fact, I think has suffered more. But yet I don't think that we're provided with all the information. I just want to know whether you could give us a little summary of these recalls, the recent ones and where we stand on each of these and how serious or not serious you believe they are. Thank you.

Kevin A. Lobo

Okay. I think today's meeting doesn't permit me to go into great depth on all of our products. What I can say is recalls are something that happens in our industry. We obviously take them extremely seriously. I'm very pleased with the progress that we've made over the past 4, 5 years with our quality control system. Under Lonny's leadership, we centralized our Global Quality and Operations organization, and we've made significant improvements in our processes. This is recognized through FDA inspections. That said, we have had a number of recalls. Some of these are public, and you get to read about them in newspapers. And clearly, the lawyers have a voice that sometimes can drown out other voices. But we take them very, very seriously. We have a quality first mindset. So the term quality first is what every Stryker employee thinks about when they get up in the morning. We've embedded that into our culture. We are on an improvement trajectory, but we do have the work through these incidents. Some of these incidents have to do with product performance, some of them have to do with misuse. And again, time won't permit me to really go through all of the issues, but I can tell you that we take it very seriously. We're on a very, very good path right now with the organizational changes that we put in place, a commitment of hundreds of millions of dollars to upgrade our quality systems, which is really going back to the warning letters that we had a number of years ago. So I can assure you, Ron, a good trajectory doesn't mean that we're immune from it. We do have a couple of challenging issues right now, which I know you read them in the newspapers and we take just as seriously as you do. But it's something that we're definitely made improvements on, and we're going to continue to stay very focused. I think that's it.

William U. Parfet

Okay. Well, thank you. So Kevin and I, wish you all -- thank you for coming. Wish you a safe trip home. And on behalf of the entire Stryker team, we thank you for your continued support of Stryker Corporation. We stand adjourned. Have a great day.

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