UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20212022
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-13149
STRYKER CORPORATION
(Exact name of registrant as specified in its charter)
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Michigan | | | | | | 38-1239739 |
(State of incorporation) | | | | | | (I.R.S. Employer Identification No.) |
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2825 Airview Boulevard | Kalamazoo, | Michigan | | 49002 |
(Address of principal executive offices) | | (Zip Code) |
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| | (269) | 385-2600 | | |
(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.10 Par Value | SYK | New York Stock Exchange |
1.125% Notes due 2023 | SYK23 | New York Stock Exchange |
0.250% Notes due 2024 | SYK24A | New York Stock Exchange |
2.125% Notes due 2027 | SYK27 | New York Stock Exchange |
0.750% Notes due 2029 | SYK29 | New York Stock Exchange |
2.625% Notes due 2030 | SYK30 | New York Stock Exchange |
1.000% Notes due 2031 | SYK31 | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | | Accelerated filer | ☐ | | Emerging growth company | ☐ |
Non-accelerated filer | ☐ | | Small reporting company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 377,239,958378,320,706 shares of Common Stock, $0.10 par value, on SeptemberJune 30, 2021.2022.
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
PART I – FINANCIAL INFORMATION
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ITEM 1. | FINANCIAL STATEMENTS |
Stryker Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
| | | Three Months | | Nine Months | | Three Months | | Six Months |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net sales | Net sales | $ | 4,160 | | | $ | 3,737 | | | $ | 12,407 | | | $ | 10,089 | | Net sales | $ | 4,493 | | | $ | 4,294 | | | $ | 8,768 | | | $ | 8,247 | |
Cost of sales | Cost of sales | 1,518 | | | 1,276 | | | 4,484 | | | 3,749 | | Cost of sales | 1,667 | | | 1,522 | | | 3,208 | | | 2,966 | |
Gross profit | Gross profit | $ | 2,642 | | | $ | 2,461 | | | $ | 7,923 | | | $ | 6,340 | | Gross profit | $ | 2,826 | | | $ | 2,772 | | | $ | 5,560 | | | $ | 5,281 | |
Research, development and engineering expenses | Research, development and engineering expenses | 306 | | | 242 | | | 904 | | | 729 | | Research, development and engineering expenses | 351 | | | 310 | | | 764 | | | 598 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 1,602 | | | 1,244 | | | 4,682 | | | 3,799 | | Selling, general and administrative expenses | 1,539 | | | 1,505 | | | 3,249 | | | 3,080 | |
Recall charges | Recall charges | 16 | | | 2 | | | 98 | | | (4) | | Recall charges | 4 | | | 76 | | | 18 | | | 82 | |
Amortization of intangible assets | Amortization of intangible assets | 144 | | | 114 | | | 474 | | | 342 | | Amortization of intangible assets | 160 | | | 149 | | | 310 | | | 330 | |
Total operating expenses | Total operating expenses | $ | 2,068 | | | $ | 1,602 | | | $ | 6,158 | | | $ | 4,866 | | Total operating expenses | $ | 2,054 | | | $ | 2,040 | | | $ | 4,341 | | | $ | 4,090 | |
Operating income | Operating income | $ | 574 | | | $ | 859 | | | $ | 1,765 | | | $ | 1,474 | | Operating income | $ | 772 | | | $ | 732 | | | $ | 1,219 | | | $ | 1,191 | |
Other income (expense), net | Other income (expense), net | (79) | | | (79) | | | (241) | | | (191) | | Other income (expense), net | (52) | | | (70) | | | (113) | | | (162) | |
Earnings before income taxes | Earnings before income taxes | $ | 495 | | | $ | 780 | | | $ | 1,524 | | | $ | 1,283 | | Earnings before income taxes | $ | 720 | | | $ | 662 | | | $ | 1,106 | | | $ | 1,029 | |
Income taxes | Income taxes | 57 | | | 159 | | | 192 | | | 252 | | Income taxes | 64 | | | 70 | | | 127 | | | 135 | |
Net earnings | Net earnings | $ | 438 | | | $ | 621 | | | $ | 1,332 | | | $ | 1,031 | | Net earnings | $ | 656 | | | $ | 592 | | | $ | 979 | | | $ | 894 | |
| Net earnings per share of common stock: | Net earnings per share of common stock: | | Net earnings per share of common stock: | |
Basic | Basic | $ | 1.17 | | | $ | 1.66 | | | $ | 3.54 | | | $ | 2.75 | | Basic | $ | 1.73 | | | $ | 1.57 | | | $ | 2.59 | | | $ | 2.37 | |
Diluted | Diluted | $ | 1.14 | | | $ | 1.63 | | | $ | 3.48 | | | $ | 2.71 | | Diluted | $ | 1.72 | | | $ | 1.55 | | | $ | 2.56 | | | $ | 2.34 | |
| Weighted-average shares outstanding (in millions): | Weighted-average shares outstanding (in millions): | | Weighted-average shares outstanding (in millions): | |
Basic | Basic | 377.1 | | | 375.7 | | | 376.8 | | | 375.3 | | Basic | 378.3 | | | 376.9 | | | 378.0 | | | 376.6 | |
Effect of dilutive employee stock compensation | Effect of dilutive employee stock compensation | 5.6 | | | 4.5 | | | 5.5 | | | 4.7 | | Effect of dilutive employee stock compensation | 3.9 | | | 5.4 | | | 4.5 | | | 5.4 | |
Diluted | Diluted | 382.7 | | | 380.2 | | | 382.3 | | | 380.0 | | Diluted | 382.2 | | | 382.3 | | | 382.5 | | | 382.0 | |
| Cash dividends declared per share of common stock | Cash dividends declared per share of common stock | $ | 0.63 | | | $ | 0.575 | | | $ | 1.89 | | | $ | 1.725 | | Cash dividends declared per share of common stock | $ | 0.695 | | | $ | 0.63 | | | $ | 1.39 | | | $ | 1.26 | |
Anti-dilutive shares excluded from the calculation of dilutive employee stock options were 4.5 for the three months 2022 and de minimis in all other periods.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| | | Three Months | | Nine Months | | Three Months | | Six Months |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net earnings | Net earnings | $ | 438 | | | $ | 621 | | | $ | 1,332 | | | $ | 1,031 | | Net earnings | $ | 656 | | | $ | 592 | | | $ | 979 | | | $ | 894 | |
Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | |
Marketable securities | Marketable securities | 3 | | | — | | | 3 | | | — | | Marketable securities | — | | | — | | | (1) | | | — | |
Pension plans | Pension plans | 5 | | | (6) | | | 8 | | | (14) | | Pension plans | 8 | | | (4) | | | 7 | | | 3 | |
Unrealized gains (losses) on designated hedges | Unrealized gains (losses) on designated hedges | 7 | | | (2) | | | 43 | | | (58) | | Unrealized gains (losses) on designated hedges | 24 | | | 8 | | | 25 | | | 36 | |
Financial statement translation | Financial statement translation | 112 | | | (194) | | | 287 | | | (239) | | Financial statement translation | 161 | | | (80) | | | 214 | | | 175 | |
Total other comprehensive income (loss), net of tax | Total other comprehensive income (loss), net of tax | $ | 127 | | | $ | (202) | | | $ | 341 | | | $ | (311) | | Total other comprehensive income (loss), net of tax | $ | 193 | | | $ | (76) | | | $ | 245 | | | $ | 214 | |
Comprehensive income | Comprehensive income | $ | 565 | | | $ | 419 | | | $ | 1,673 | | | $ | 720 | | Comprehensive income | $ | 849 | | | $ | 516 | | | $ | 1,224 | | | $ | 1,108 | |
See accompanying notes to Consolidated Financial Statements.
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 1 |
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
CONSOLIDATED BALANCE SHEETS
| | | September 30 | | December 31 | | June 30 | | December 31 |
| | 2021 | | 2020 | | 2022 | | 2021 |
| | (Unaudited) | | | | (Unaudited) | | |
Assets | Assets | | Assets | |
Current assets | Current assets | | Current assets | |
Cash and cash equivalents | Cash and cash equivalents | $ | 2,563 | | | $ | 2,943 | | Cash and cash equivalents | $ | 1,044 | | | $ | 2,944 | |
Marketable securities | Marketable securities | 76 | | | 81 | | Marketable securities | 83 | | | 75 | |
Accounts receivable, less allowance of $146 ($131 in 2020) | 2,817 | | | 2,701 | | |
Accounts receivable, less allowance of $144 ($167 in 2021) | | Accounts receivable, less allowance of $144 ($167 in 2021) | 3,145 | | | 3,022 | |
Inventories: | Inventories: | | Inventories: | |
Materials and supplies | Materials and supplies | 663 | | | 678 | | Materials and supplies | 790 | | | 691 | |
Work in process | Work in process | 274 | | | 251 | | Work in process | 315 | | | 264 | |
Finished goods | Finished goods | 2,497 | | | 2,565 | | Finished goods | 2,644 | | | 2,359 | |
Total inventories | Total inventories | $ | 3,434 | | | $ | 3,494 | | Total inventories | $ | 3,749 | | | $ | 3,314 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 570 | | | 488 | | Prepaid expenses and other current assets | 804 | | | 662 | |
Total current assets | Total current assets | $ | 9,460 | | | $ | 9,707 | | Total current assets | $ | 8,825 | | | $ | 10,017 | |
Property, plant and equipment: | Property, plant and equipment: | | Property, plant and equipment: | |
Land, buildings and improvements | Land, buildings and improvements | 1,627 | | | 1,546 | | Land, buildings and improvements | 1,662 | | | 1,656 | |
Machinery and equipment | Machinery and equipment | 3,813 | | | 3,636 | | Machinery and equipment | 3,887 | | | 3,842 | |
Total property, plant and equipment | Total property, plant and equipment | $ | 5,440 | | | $ | 5,182 | | Total property, plant and equipment | $ | 5,549 | | | $ | 5,498 | |
Less accumulated depreciation | Less accumulated depreciation | 2,694 | | | 2,430 | | Less accumulated depreciation | 2,746 | | | 2,665 | |
Property, plant and equipment, net | Property, plant and equipment, net | $ | 2,746 | | | $ | 2,752 | | Property, plant and equipment, net | $ | 2,803 | | | $ | 2,833 | |
Goodwill | Goodwill | 12,893 | | | 12,778 | | Goodwill | 15,115 | | | 12,918 | |
Other intangibles, net | Other intangibles, net | 5,058 | | | 5,554 | | Other intangibles, net | 5,245 | | | 4,840 | |
Noncurrent deferred income tax assets | Noncurrent deferred income tax assets | 1,860 | | | 1,530 | | Noncurrent deferred income tax assets | 1,625 | | | 1,760 | |
Other noncurrent assets | Other noncurrent assets | 2,128 | | | 2,009 | | Other noncurrent assets | 2,419 | | | 2,263 | |
Total assets | Total assets | $ | 34,145 | | | $ | 34,330 | | Total assets | $ | 36,032 | | | $ | 34,631 | |
| Liabilities and shareholders' equity | Liabilities and shareholders' equity | | Liabilities and shareholders' equity | |
Current liabilities | Current liabilities | | Current liabilities | |
Accounts payable | Accounts payable | $ | 934 | | | $ | 810 | | Accounts payable | $ | 1,160 | | | $ | 1,129 | |
Accrued compensation | Accrued compensation | 976 | | | 925 | | Accrued compensation | 779 | | | 1,092 | |
Income taxes | Income taxes | 373 | | | 207 | | Income taxes | 300 | | | 192 | |
Dividends payable | Dividends payable | 238 | | | 237 | | Dividends payable | 263 | | | 263 | |
Accrued product liabilities | Accrued product liabilities | 439 | | | 515 | | Accrued product liabilities | 400 | | | 401 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 1,467 | | | 1,586 | | Accrued expenses and other liabilities | 1,495 | | | 1,465 | |
Current maturities of debt | Current maturities of debt | 22 | | | 761 | | Current maturities of debt | 7 | | | 7 | |
Total current liabilities | Total current liabilities | $ | 4,449 | | | $ | 5,041 | | Total current liabilities | $ | 4,404 | | | $ | 4,549 | |
Long-term debt, excluding current maturities | Long-term debt, excluding current maturities | 12,629 | | | 13,230 | | Long-term debt, excluding current maturities | 13,374 | | | 12,472 | |
Income taxes | Income taxes | 929 | | | 990 | | Income taxes | 787 | | | 913 | |
Other noncurrent liabilities | Other noncurrent liabilities | 1,960 | | | 1,985 | | Other noncurrent liabilities | 1,793 | | | 1,820 | |
Total liabilities | Total liabilities | $ | 19,967 | | | $ | 21,246 | | Total liabilities | $ | 20,358 | | | $ | 19,754 | |
Shareholders' equity | Shareholders' equity | | Shareholders' equity | |
Common stock, $0.10 par value | Common stock, $0.10 par value | 38 | | | 38 | | Common stock, $0.10 par value | 38 | | | 38 | |
Additional paid-in capital | Additional paid-in capital | 1,875 | | | 1,741 | | Additional paid-in capital | 1,989 | | | 1,890 | |
Retained earnings | Retained earnings | 13,081 | | | 12,462 | | Retained earnings | 13,933 | | | 13,480 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (816) | | | (1,157) | | Accumulated other comprehensive loss | (286) | | | (531) | |
Total shareholders' equity | Total shareholders' equity | $ | 14,178 | | | $ | 13,084 | | Total shareholders' equity | $ | 15,674 | | | $ | 14,877 | |
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | $ | 34,145 | | | $ | 34,330 | | Total liabilities and shareholders' equity | $ | 36,032 | | | $ | 34,631 | |
See accompanying notes to Consolidated Financial Statements.
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 2 |
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
| | | Three Months | | Nine Months | | Three Months | | Six Months |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Common stock shares outstanding (in millions) | Common stock shares outstanding (in millions) | | | | | | | | Common stock shares outstanding (in millions) | | | | | | | |
Beginning | Beginning | 377.1 | | | 375.6 | | | 376.1 | | | 374.5 | | Beginning | 378.2 | | | 376.7 | | | 377.5 | | | 376.1 | |
Issuance of common stock under stock compensation and benefit plans | Issuance of common stock under stock compensation and benefit plans | 0.1 | | | 0.2 | | | 1.1 | | | 1.3 | | Issuance of common stock under stock compensation and benefit plans | 0.1 | | | 0.4 | | | 0.8 | | | 1.0 | |
| Ending | Ending | 377.2 | | | 375.8 | | | 377.2 | | | 375.8 | | Ending | 378.3 | | | 377.1 | | | 378.3 | | | 377.1 | |
| Common stock | Common stock | | Common stock | |
Beginning | Beginning | $ | 38 | | | $ | 38 | | | $ | 38 | | | $ | 37 | | Beginning | $ | 38 | | | $ | 38 | | | $ | 38 | | | $ | 38 | |
Issuance of common stock under stock compensation and benefit plans | Issuance of common stock under stock compensation and benefit plans | — | | | — | | | — | | | 1 | | Issuance of common stock under stock compensation and benefit plans | — | | | — | | | — | | | — | |
| Ending | Ending | $ | 38 | | | $ | 38 | | | $ | 38 | | | $ | 38 | | Ending | $ | 38 | | | $ | 38 | | | $ | 38 | | | $ | 38 | |
Additional paid-in capital | Additional paid-in capital | | | | | | | | Additional paid-in capital | | | | | | | |
Beginning | Beginning | $ | 1,844 | | | $ | 1,706 | | | $ | 1,741 | | | $ | 1,628 | | Beginning | $ | 1,947 | | | $ | 1,806 | | | $ | 1,890 | | | $ | 1,741 | |
Issuance of common stock under stock compensation and benefit plans | Issuance of common stock under stock compensation and benefit plans | (3) | | | 1 | | | (7) | | | (7) | | Issuance of common stock under stock compensation and benefit plans | 6 | | | (1) | | | (8) | | | (4) | |
| Share-based compensation | Share-based compensation | 34 | | | 29 | | | 141 | | | 115 | | Share-based compensation | 36 | | | 39 | | | 107 | | | 107 | |
Ending | Ending | $ | 1,875 | | | $ | 1,736 | | | $ | 1,875 | | | $ | 1,736 | | Ending | $ | 1,989 | | | $ | 1,844 | | | $ | 1,989 | | | $ | 1,844 | |
Retained earnings | Retained earnings | | | | | | | | Retained earnings | | | | | | | |
Beginning | Beginning | $ | 12,881 | | | $ | 11,725 | | | $ | 12,462 | | | $ | 11,748 | | Beginning | $ | 13,540 | | | $ | 12,525 | | | $ | 13,480 | | | $ | 12,462 | |
| Net earnings | Net earnings | 438 | | | 621 | | | 1,332 | | | 1,031 | | Net earnings | 656 | | | 592 | | | 979 | | | 894 | |
| Cash dividends declared | Cash dividends declared | (238) | | | (217) | | | (713) | | | (650) | | Cash dividends declared | (263) | | | (236) | | | (526) | | | (475) | |
Ending | Ending | $ | 13,081 | | | $ | 12,129 | | | $ | 13,081 | | | $ | 12,129 | | Ending | $ | 13,933 | | | $ | 12,881 | | | $ | 13,933 | | | $ | 12,881 | |
Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | | | | | | | Accumulated other comprehensive income (loss) | | | | | | | |
Beginning | Beginning | $ | (943) | | | $ | (715) | | | $ | (1,157) | | | $ | (606) | | Beginning | $ | (479) | | | $ | (867) | | | $ | (531) | | | $ | (1,157) | |
Other comprehensive income (loss) | Other comprehensive income (loss) | 127 | | | (202) | | | 341 | | | (311) | | Other comprehensive income (loss) | 193 | | | (76) | | | 245 | | | 214 | |
Ending | Ending | $ | (816) | | | $ | (917) | | | $ | (816) | | | $ | (917) | | Ending | $ | (286) | | | $ | (943) | | | $ | (286) | | | $ | (943) | |
| Total shareholders' equity | Total shareholders' equity | $ | 14,178 | | | $ | 12,986 | | | $ | 14,178 | | | $ | 12,986 | | Total shareholders' equity | $ | 15,674 | | | $ | 13,820 | | | $ | 15,674 | | | $ | 13,820 | |
See accompanying notes to Consolidated Financial Statements.
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 3 |
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| | | Nine Months | | Six Months |
| | 2021 | | 2020 | | 2022 | | 2021 |
Operating activities | Operating activities | | | | Operating activities | | | |
Net earnings | Net earnings | $ | 1,332 | | | $ | 1,031 | | Net earnings | $ | 979 | | | $ | 894 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | Adjustments to reconcile net earnings to net cash provided by operating activities: | | Adjustments to reconcile net earnings to net cash provided by operating activities: | |
Depreciation | Depreciation | 278 | | | 247 | | Depreciation | 185 | | | 187 | |
Amortization of intangible assets | Amortization of intangible assets | 474 | | | 342 | | Amortization of intangible assets | 310 | | | 330 | |
Asset impairments | Asset impairments | 119 | | | 161 | | Asset impairments | — | | | 3 | |
Share-based compensation | Share-based compensation | 141 | | | 115 | | Share-based compensation | 107 | | | 107 | |
Recall charges | Recall charges | 98 | | | (4) | | Recall charges | 18 | | | 82 | |
Sale of inventory stepped-up to fair value at acquisition | Sale of inventory stepped-up to fair value at acquisition | 231 | | | 9 | | Sale of inventory stepped-up to fair value at acquisition | 12 | | | 137 | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable | Accounts receivable | (145) | | | 467 | | Accounts receivable | (159) | | | (24) | |
Inventories | Inventories | (231) | | | (154) | | Inventories | (523) | | | (128) | |
Accounts payable | Accounts payable | 134 | | | (26) | | Accounts payable | 34 | | | 57 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 184 | | | (184) | | Accrued expenses and other liabilities | (257) | | | 22 | |
Recall-related payments | Recall-related payments | (180) | | | (13) | | Recall-related payments | (19) | | | (163) | |
Income taxes | Income taxes | (193) | | | 5 | | Income taxes | (132) | | | (98) | |
Other, net | Other, net | 21 | | | 44 | | Other, net | 177 | | | (76) | |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 2,263 | | | $ | 2,040 | | Net cash provided by operating activities | $ | 732 | | | $ | 1,330 | |
Investing activities | Investing activities | | Investing activities | |
Acquisitions, net of cash acquired | Acquisitions, net of cash acquired | (226) | | | (26) | | Acquisitions, net of cash acquired | (2,563) | | | (104) | |
Purchases of marketable securities | Purchases of marketable securities | (38) | | | (34) | | Purchases of marketable securities | (38) | | | (31) | |
Proceeds from sales of marketable securities | Proceeds from sales of marketable securities | 43 | | | 44 | | Proceeds from sales of marketable securities | 29 | | | 28 | |
Purchases of property, plant and equipment | Purchases of property, plant and equipment | (319) | | | (322) | | Purchases of property, plant and equipment | (262) | | | (189) | |
Other investing, net | Other investing, net | (5) | | | (11) | | Other investing, net | — | | | (2) | |
Net cash used in investing activities | Net cash used in investing activities | $ | (545) | | | $ | (349) | | Net cash used in investing activities | $ | (2,834) | | | $ | (298) | |
Financing activities | Financing activities | | Financing activities | |
Proceeds (payments) on short-term borrowings, net | Proceeds (payments) on short-term borrowings, net | 7 | | | 3 | | Proceeds (payments) on short-term borrowings, net | (376) | | | (7) | |
Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | 5 | | | 2,293 | | Proceeds from issuance of long-term debt | 1,500 | | | 5 | |
Payments on long-term debt | Payments on long-term debt | (1,151) | | | (500) | | Payments on long-term debt | (252) | | | (1,151) | |
Payments of dividends | Payments of dividends | (713) | | | (647) | | Payments of dividends | (525) | | | (475) | |
| Cash paid for taxes from withheld shares | Cash paid for taxes from withheld shares | (88) | | | (79) | | Cash paid for taxes from withheld shares | (84) | | | (74) | |
Other financing, net | Other financing, net | (137) | | | (24) | | Other financing, net | (23) | | | (27) | |
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | $ | (2,077) | | | $ | 1,046 | | Net cash provided by (used in) financing activities | $ | 240 | | | $ | (1,729) | |
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (21) | | | 9 | | Effect of exchange rate changes on cash and cash equivalents | (38) | | | (5) | |
Change in cash and cash equivalents | Change in cash and cash equivalents | $ | (380) | | | $ | 2,746 | | Change in cash and cash equivalents | $ | (1,900) | | | $ | (702) | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 2,943 | | | 4,337 | | Cash and cash equivalents at beginning of period | 2,944 | | | 2,943 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 2,563 | | | $ | 7,083 | | Cash and cash equivalents at end of period | $ | 1,044 | | | $ | 2,241 | |
See accompanying notes to Consolidated Financial Statements.
| | | | | |
Dollar amounts are in millions except per share amounts or as otherwise specified. | 4 |
| | | | | | | | |
STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
General Information
Management believes the accompanying unaudited Consolidated Financial Statements contain all adjustments, including normal recurring items, considered necessary to fairly present the financial position of Stryker Corporation and its consolidated subsidiaries ("Stryker," the "Company," "we," "us" or "our") on SeptemberJune 30, 2021 and2022 and the results of operations for the three and ninesix months 2021.2022. The results of operations included in these Consolidated Financial Statements may not necessarily be indicative of our annual results. These statements should be read in conjunction with our Annual Report on Form 10-K for 2020.2021.
New Accounting Pronouncements Not Yet Adopted
We evaluate all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) for consideration of their applicability. ASUs not included in our disclosures were assessed and determined to be either not applicable or are not expected to have a material impact on our Consolidated Financial Statements.
New Accounting Pronouncements Recently Adopted
On January 1, 2022 we adopted ASU 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers. The adoption of this update did not have a material impact on our Consolidated Financial Statements.
NOTE 2 - REVENUE RECOGNITION
Our policies for recognizing sales have not changed from those described in our Annual Report on Form 10-K for 2020.2021.
We disaggregate our net sales by product line and geographic location for each of our segments as we believe it best depicts how the nature, amount, timing and certainty of our net sales and cash flows are affected by economic factors.
| Net Sales by Product Line | Net Sales by Product Line | | Net Sales by Product Line | |
| | Three Months | | Nine Months | | Three Months | | Six Months |
| | 2021 | 2020 | | 2021 | 2020 | | 2022 | 2021 | | 2022 | 2021 |
Orthopaedics: | | | | |
MedSurg and Neurotechnology: | | MedSurg and Neurotechnology: | | | |
Instruments | | Instruments | $ | 563 | | $ | 517 | | | $ | 1,091 | | $ | 986 | |
Endoscopy | | Endoscopy | 600 | | 518 | | | 1,138 | | 987 | |
Medical | | Medical | 666 | | 640 | | | 1,330 | | 1,262 | |
Neurovascular | | Neurovascular | 306 | | 301 | | | 607 | | 590 | |
Neuro Cranial | | Neuro Cranial | 337 | | 310 | | | 660 | | 591 | |
Other | | Other | 77 | | 73 | | | 146 | | 134 | |
| | | $ | 2,549 | | $ | 2,359 | | | $ | 4,972 | | $ | 4,550 | |
Orthopaedics and Spine: | | Orthopaedics and Spine: | | | |
Knees | Knees | $ | 439 | | $ | 435 | | | $ | 1,325 | | $ | 1,108 | | Knees | $ | 500 | | $ | 474 | | | $ | 964 | | $ | 886 | |
Hips | Hips | 328 | | 334 | | | 990 | | 866 | | Hips | 364 | | 353 | | | 691 | | 662 | |
Trauma and Extremities | Trauma and Extremities | 639 | | 430 | | | 1,953 | | 1,152 | | Trauma and Extremities | 676 | | 674 | | | 1,361 | | 1,314 | |
Spine | | Spine | 290 | | 307 | | | 569 | | 585 | |
Other | Other | 123 | | 118 | | | 373 | | 307 | | Other | 114 | | 127 | | | 211 | | 250 | |
| | $ | 1,529 | | $ | 1,317 | | | $ | 4,641 | | $ | 3,433 | | | $ | 1,944 | | $ | 1,935 | | | $ | 3,796 | | $ | 3,697 | |
MedSurg: | | |
Instruments | $ | 525 | | $ | 467 | | | $ | 1,511 | | $ | 1,308 | | |
Endoscopy | 525 | | 467 | | | 1,512 | | 1,238 | | |
Medical | 636 | | 600 | | | 1,898 | | 1,819 | | |
Sustainability | 69 | | 66 | | | 203 | | 181 | | |
| $ | 1,755 | | $ | 1,600 | | | $ | 5,124 | | $ | 4,546 | | |
Neurotechnology and Spine: | | |
Neurotechnology | $ | 594 | | $ | 518 | | | $ | 1,775 | | $ | 1,370 | | |
Spine | 282 | | 302 | | | 867 | | 740 | | |
| $ | 876 | | $ | 820 | | | $ | 2,642 | | $ | 2,110 | | |
Total | Total | $ | 4,160 | | $ | 3,737 | | | $ | 12,407 | | $ | 10,089 | | Total | $ | 4,493 | | $ | 4,294 | | | $ | 8,768 | | $ | 8,247 | |
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Net Sales by Geography | | | | | |
| Three Months 2021 | | Three Months 2020 |
| United States | International | | United States | International |
Orthopaedics: | | | | | |
Knees | $ | 321 | | $ | 118 | | | $ | 332 | | $ | 103 | |
Hips | 199 | | 129 | | | 223 | | 111 | |
Trauma and Extremities | 447 | | 192 | | | 285 | | 145 | |
Other | 97 | | 26 | | | 97 | | 21 | |
| $ | 1,064 | | $ | 465 | | | $ | 937 | | $ | 380 | |
MedSurg: | | | | | |
Instruments | $ | 415 | | $ | 110 | | | $ | 369 | | $ | 98 | |
Endoscopy | 418 | | 107 | | | 380 | | 87 | |
Medical | 496 | | 140 | | | 455 | | 145 | |
Sustainability | 68 | | 1 | | | 65 | | 1 | |
| $ | 1,397 | | $ | 358 | | | $ | 1,269 | | $ | 331 | |
Neurotechnology and Spine: | | | | | |
Neurotechnology | $ | 357 | | $ | 237 | | | $ | 323 | | $ | 195 | |
Spine | 201 | | 81 | | | 219 | | 83 | |
| $ | 558 | | $ | 318 | | | $ | 542 | | $ | 278 | |
Total | $ | 3,019 | | $ | 1,141 | | | $ | 2,748 | | $ | 989 | |
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Net Sales by Geography | | | | | |
| Nine Months 2021 | | Nine Months 2020 |
| United States | International | | United States | International |
Orthopaedics: | | | | | |
Knees | $ | 964 | | $ | 361 | | | $ | 833 | | $ | 275 | |
Hips | 606 | | 384 | | | 564 | | 302 | |
Trauma and Extremities | 1,362 | | 591 | | | 753 | | 399 | |
Other | 290 | | 83 | | | 262 | | 45 | |
| $ | 3,222 | | $ | 1,419 | | | $ | 2,412 | | $ | 1,021 | |
MedSurg: | | | | | |
Instruments | $ | 1,171 | | $ | 340 | | | $ | 1,028 | | $ | 280 | |
Endoscopy | 1,179 | | 333 | | | 997 | | 241 | |
Medical | 1,457 | | 441 | | | 1,363 | | 456 | |
Sustainability | 200 | | 3 | | | 179 | | 2 | |
| $ | 4,007 | | $ | 1,117 | | | $ | 3,567 | | $ | 979 | |
Neurotechnology and Spine: | | | | | |
Neurotechnology | $ | 1,063 | | $ | 712 | | | $ | 835 | | $ | 535 | |
Spine | 611 | | 256 | | | 543 | | 197 | |
| $ | 1,674 | | $ | 968 | | | $ | 1,378 | | $ | 732 | |
Total | $ | 8,903 | | $ | 3,504 | | | $ | 7,357 | | $ | 2,732 | |
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Net Sales by Geography | | | | | |
| Three Months 2022 | | Three Months 2021 |
| United States | International | | United States | International |
MedSurg and Neurotechnology: | | | | | |
Instruments | $ | 451 | | $ | 112 | | | $ | 401 | | $ | 116 | |
Endoscopy | 473 | | 127 | | | 407 | | 111 | |
Medical | 536 | | 130 | | | 488 | | 152 | |
Neurovascular | 113 | | 193 | | | 115 | | 186 | |
Neuro Cranial | 281 | | 56 | | | 256 | | 54 | |
Other | 75 | | 2 | | | 72 | | 1 | |
| $ | 1,929 | | $ | 620 | | | $ | 1,739 | | $ | 620 | |
Orthopaedics and Spine: | | | | | |
Knees | $ | 368 | | $ | 132 | | | $ | 349 | | $ | 125 | |
Hips | 230 | | 134 | | | 221 | | 132 | |
Trauma and Extremities | 489 | | 187 | | | 475 | | 199 | |
Spine | 209 | | 81 | | | 217 | | 90 | |
Other | 86 | | 28 | | | 99 | | 28 | |
| $ | 1,382 | | $ | 562 | | | $ | 1,361 | | $ | 574 | |
Total | $ | 3,311 | | $ | 1,182 | | | $ | 3,100 | | $ | 1,194 | |
| | | | | | | | | | | | | | | | | |
Net Sales by Geography | | | | | |
| Six Months 2022 | | Six Months 2021 |
| United States | International | | United States | International |
MedSurg and Neurotechnology: | | | | | |
Instruments | $ | 865 | | $ | 226 | | | $ | 756 | | $ | 230 | |
Endoscopy | 891 | | 247 | | | 761 | | 226 | |
Medical | 1,061 | | 269 | | | 961 | | 301 | |
Neurovascular | 223 | | 384 | | | 226 | | 364 | |
Neuro Cranial | 545 | | 115 | | | 480 | | 111 | |
Other | 143 | | 3 | | | 132 | | 2 | |
| $ | 3,728 | | $ | 1,244 | | | $ | 3,316 | | $ | 1,234 | |
Orthopaedics and Spine: | | | | | |
Knees | $ | 713 | | $ | 251 | | | $ | 643 | | $ | 243 | |
Hips | 432 | | 259 | | | 407 | | 255 | |
Trauma and Extremities | 976 | | 385 | | | 915 | | 399 | |
Spine | 409 | | 160 | | | 410 | | 175 | |
Other | 158 | | 53 | | | 193 | | 57 | |
| $ | 2,688 | | $ | 1,108 | | | $ | 2,568 | | $ | 1,129 | |
Total | $ | 6,416 | | $ | 2,352 | | | $ | 5,884 | | $ | 2,363 | |
Contract Assets and Liabilities
On SeptemberJune 30, 20212022 and December 31, 20202021 contract assets recorded in our Consolidated Balance Sheets were not significant.
Our contract liabilities arise as a result of consideration received from customers at inception of contracts for certain businesses or where the timing of billing for services precedes satisfaction of our performance obligations. We generally satisfy performance obligations within one year from the contract inception date. Our contract liabilities were $501$640 and $416$529 on SeptemberJune 30, 20212022 and December 31, 2020.2021.
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 5 |
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (AOCI)
| Three Months 2021 | Marketable Securities | Pension Plans | Hedges | Financial Statement Translation | Total | |
Three Months 2022 | | Three Months 2022 | Marketable Securities | Pension Plans | Hedges | Financial Statement Translation | Total |
Beginning | Beginning | $ | (3) | | $ | (256) | | $ | 26 | | $ | (710) | | $ | (943) | | Beginning | $ | (1) | | $ | (156) | | $ | 41 | | $ | (363) | | $ | (479) | |
OCI | OCI | 4 | | 2 | | 6 | | 71 | | 83 | | OCI | — | | 8 | | 32 | | 268 | | 308 | |
Income taxes | Income taxes | — | | — | | (2) | | 47 | | 45 | | Income taxes | — | | (2) | | (4) | | (98) | | (104) | |
Reclassifications to: | Reclassifications to: | | Reclassifications to: | |
Cost of sales | Cost of sales | — | | — | | 4 | | — | | 4 | | Cost of sales | — | | — | | (3) | | — | | (3) | |
Other (income) expense | Other (income) expense | — | | 4 | | (2) | | (8) | | (6) | | Other (income) expense | — | | 2 | | (1) | | (11) | | (10) | |
Income taxes | Income taxes | (1) | | (1) | | 1 | | 2 | | 1 | | Income taxes | — | | — | | — | | 2 | | 2 | |
Net OCI | Net OCI | $ | 3 | | $ | 5 | | $ | 7 | | $ | 112 | | $ | 127 | | Net OCI | $ | — | | $ | 8 | | $ | 24 | | $ | 161 | | $ | 193 | |
Ending | Ending | $ | — | | $ | (251) | | $ | 33 | | $ | (598) | | $ | (816) | | Ending | $ | (1) | | $ | (148) | | $ | 65 | | $ | (202) | | $ | (286) | |
| | | | | | | | | | | | | | | | | |
Three Months 2020 | Marketable Securities | Pension Plans | Hedges | Financial Statement Translation | Total |
Beginning | $ | (3) | | $ | (187) | | $ | (9) | | $ | (516) | | $ | (715) | |
OCI | — | | (11) | | 2 | | (248) | | (257) | |
Income taxes | — | | 3 | | (1) | | 59 | | 61 | |
Reclassifications to: | | | | | |
Cost of sales | — | | — | | (3) | | — | | (3) | |
Other (income) expense | — | | 2 | | (1) | | (7) | | (6) | |
Income taxes | — | | — | | 1 | | 2 | | 3 | |
Net OCI | $ | — | | $ | (6) | | $ | (2) | | $ | (194) | | $ | (202) | |
Ending | $ | (3) | | $ | (193) | | $ | (11) | | $ | (710) | | $ | (917) | |
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Nine Months 2021 | Marketable Securities | Pension Plans | Hedges | Financial Statement Translation | Total |
Beginning | $ | (3) | | $ | (259) | | $ | (10) | | $ | (885) | | $ | (1,157) | |
OCI | 4 | | 1 | | 40 | | 269 | | 314 | |
Income taxes | — | | (2) | | (13) | | 37 | | 22 | |
Reclassifications to: | | | | | |
Cost of sales | — | | — | | 9 | | — | | 9 | |
Other (income) expense | — | | 12 | | 7 | | (25) | | (6) | |
Income taxes | (1) | | (3) | | — | | 6 | | 2 | |
Net OCI | $ | 3 | | $ | 8 | | $ | 43 | | $ | 287 | | $ | 341 | |
Ending | $ | — | | $ | (251) | | $ | 33 | | $ | (598) | | $ | (816) | |
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Nine Months 2020 | Marketable Securities | Pension Plans | Hedges | Financial Statement Translation | Total |
Beginning | $ | (3) | | $ | (179) | | $ | 47 | | $ | (471) | | $ | (606) | |
OCI | — | | (25) | | (70) | | (285) | | (380) | |
Income taxes | — | | 5 | | 18 | | 61 | | 84 | |
Reclassifications to: | | | | | |
Cost of sales | — | | — | | (3) | | — | | (3) | |
Other (income) expense | — | | 8 | | (4) | | (20) | | (16) | |
Income taxes | — | | (2) | | 1 | | 5 | | 4 | |
Net OCI | $ | — | | $ | (14) | | $ | (58) | | $ | (239) | | $ | (311) | |
Ending | $ | (3) | | $ | (193) | | $ | (11) | | $ | (710) | | $ | (917) | |
| | | | | | | | | | | | | | | | | |
Three Months 2021 | Marketable Securities | Pension Plans | Hedges | Financial Statement Translation | Total |
Beginning | $ | (3) | | $ | (252) | | $ | 18 | | $ | (630) | | $ | (867) | |
OCI | — | | (9) | | 7 | | (75) | | (77) | |
Income taxes | — | | 2 | | (3) | | 2 | | 1 | |
Reclassifications to: | | | | | |
Cost of sales | — | | — | | 4 | | — | | 4 | |
Other (income) expense | — | | 4 | | (1) | | (9) | | (6) | |
Income taxes | — | | (1) | | 1 | | 2 | | 2 | |
Net OCI | $ | — | | $ | (4) | | $ | 8 | | $ | (80) | | $ | (76) | |
Ending | $ | (3) | | $ | (256) | | $ | 26 | | $ | (710) | | $ | (943) | |
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Six Months 2022 | Marketable Securities | Pension Plans | Hedges | Financial Statement Translation | Total |
Beginning | $ | — | | $ | (155) | | $ | 40 | | $ | (416) | | $ | (531) | |
OCI | (1) | | 4 | | 36 | | 354 | | 393 | |
Income taxes | — | | — | | (6) | | (123) | | (129) | |
Reclassifications to: | | | | | |
Cost of sales | — | | — | | (3) | | — | | (3) | |
Other (income) expense | — | | 4 | | (2) | | (22) | | (20) | |
Income taxes | — | | (1) | | — | | 5 | | 4 | |
Net OCI | $ | (1) | | $ | 7 | | $ | 25 | | $ | 214 | | $ | 245 | |
Ending | $ | (1) | | $ | (148) | | $ | 65 | | $ | (202) | | $ | (286) | |
| | | | | | | | | | | | | | | | | |
Six Months 2021 | Marketable Securities | Pension Plans | Hedges | Financial Statement Translation | Total |
Beginning | $ | (3) | | $ | (259) | | $ | (10) | | $ | (885) | | $ | (1,157) | |
OCI | — | | (1) | | 34 | | 198 | | 231 | |
Income taxes | — | | (2) | | (11) | | (10) | | (23) | |
Reclassifications to: | | | | | |
Cost of sales | — | | — | | 5 | | — | | 5 | |
Other (income) expense | — | | 8 | | 9 | | (17) | | — | |
Income taxes | — | | (2) | | (1) | | 4 | | 1 | |
Net OCI | $ | — | | $ | 3 | | $ | 36 | | $ | 175 | | $ | 214 | |
Ending | $ | (3) | | $ | (256) | | $ | 26 | | $ | (710) | | $ | (943) | |
NOTE 4 - DERIVATIVE INSTRUMENTS
We use operational and economic hedges, foreign currency exchange forward contracts, net investment hedges (both derivative and non-derivative financial instruments) and interest rate derivative instruments to manage the impact of currency exchange and interest rate fluctuations on earnings, cash flow and equity. We do not enter into derivative instruments for speculative purposes. We are exposed to potential credit loss in the event of nonperformance by our counterparties on our outstanding derivative instruments but do not anticipate nonperformance by any of our counterparties. Should a counterparty default, our maximum loss exposure is the asset balance of the instrument. We have not changed our hedging
strategies, accounting practices or objectives from those disclosed in our Annual Report on Form 10-K for 2020.2021.
Foreign Currency Hedges
| September 2021 | Cash Flow | Net Investment | Non-Designated | Total | |
June 2022 | | June 2022 | Cash Flow | Net Investment | Non-Designated | Total |
Gross notional amount | Gross notional amount | $ | 945 | | $ | 1,755 | | $ | 6,016 | | $ | 8,716 | | Gross notional amount | $ | 676 | | $ | 1,578 | | $ | 5,194 | | $ | 7,448 | |
Maximum term in years | Maximum term in years | | 4.2 | Maximum term in years | | 4.4 |
Fair value: | Fair value: | | | Fair value: | | |
Other current assets | Other current assets | $ | 12 | | $ | 19 | | $ | 43 | | $ | 74 | | Other current assets | $ | 36 | | $ | — | | $ | 158 | | $ | 194 | |
Other noncurrent assets | Other noncurrent assets | 2 | | 36 | | — | | 38 | | Other noncurrent assets | 2 | | 150 | | — | | 152 | |
Other current liabilities | Other current liabilities | (10) | | — | | (10) | | (20) | | Other current liabilities | (4) | | — | | (10) | | (14) | |
Other noncurrent liabilities | (1) | | — | | — | | (1) | | |
| Total fair value | Total fair value | $ | 3 | | $ | 55 | | $ | 33 | | $ | 91 | | Total fair value | $ | 34 | | $ | 150 | | $ | 148 | | $ | 332 | |
| December 2020 | Cash Flow | Net Investment | Non-Designated | Total | |
December 2021 | | December 2021 | Cash Flow | Net Investment | Non-Designated | Total |
Gross notional amount | Gross notional amount | $ | 949 | | $ | 1,828 | | $ | 5,382 | | $ | 8,159 | | Gross notional amount | $ | 973 | | $ | 2,266 | | $ | 5,512 | | $ | 8,751 | |
Maximum term in years | Maximum term in years | | 4.9 | Maximum term in years | | 4.9 |
Fair value: | Fair value: | | | Fair value: | | |
Other current assets | Other current assets | $ | 9 | | $ | — | | $ | 7 | | $ | 16 | | Other current assets | $ | 15 | | $ | 39 | | $ | 92 | | $ | 146 | |
Other noncurrent assets | Other noncurrent assets | — | | 4 | | — | | 4 | | Other noncurrent assets | 1 | | 65 | | — | | 66 | |
Other current liabilities | Other current liabilities | (12) | | — | | (121) | | (133) | | Other current liabilities | (7) | | — | | (10) | | (17) | |
Other noncurrent liabilities | (1) | | (26) | | — | | (27) | | |
| Total fair value | Total fair value | $ | (4) | | $ | (22) | | $ | (114) | | $ | (140) | | Total fair value | $ | 9 | | $ | 104 | | $ | 82 | | $ | 195 | |
We have €1,500 inhad €1.5 billion and €2.0 billion on June 30, 2022 and December 31, 2021 of certain foreign currency forward currency contracts designated as net investment hedges to hedge a portion of our investments in certain of our entities with functional currencies denominated in Euros. In addition to these derivative financial instruments designated as net investment hedges, we have designated €4,350had €4.4 billion on June 30, 2022 and December 31, 2021 of senior unsecured notes designated as net investment hedges to selectively hedge portions of our investment in certain international subsidiaries. The currency effects of our Euro-denominated senior unsecured notes are reflected in AOCI within shareholders' equity where they offset gains and losses recorded on our net investment in international subsidiaries.
On SeptemberJune 30, 20212022 the total after tax gain (loss) in AOCI related to designated net investment hedges was ($185).$254.
Net Currency Exchange Rate Gains (Losses)
| Derivative | Derivative | | Three Months | | Nine Months | Derivative | | Three Months | | Six Months |
instrument: | instrument: | Recorded in: | 2021 | 2020 | | 2021 | 2020 | instrument: | Recorded in: | 2022 | 2021 | | 2022 | 2021 |
Cash Flow | Cash Flow | Cost of sales | $ | (4) | | $ | 3 | | | $ | (9) | | $ | 3 | | Cash Flow | Cost of sales | $ | 3 | | $ | (4) | | | $ | 3 | | $ | (5) | |
Net Investment | Net Investment | Other income (expense), net | 8 | | 7 | | | 25 | | 20 | | Net Investment | Other income (expense), net | 11 | | 9 | | | 22 | | 17 | |
Non-Designated | Non-Designated | Other income (expense), net | (5) | | (3) | | | (6) | | (12) | | Non-Designated | Other income (expense), net | 2 | | 1 | | | 3 | | (1) | |
| | Total | $ | (1) | | $ | 7 | | | $ | 10 | | $ | 11 | | | Total | $ | 16 | | $ | 6 | | | $ | 28 | | $ | 11 | |
Pretax gains (losses) on derivatives designated as cash flow hedges of $1$38 and net investment hedges of $30$32 recorded in AOCI are expected to be reclassified to cost of sales and other income (expense), net in earnings within 12 months as of SeptemberJune 30, 2021.2022. This cash flow hedge reclassification is primarily due to the sale of inventory that includes previously hedged purchases. A component of the AOCI amounts related to net investment hedges is reclassified over the life of the hedge instruments as we elected to exclude the initial value of the component related to the spot-forward difference from the effectiveness assessment.
Interest Rate Hedges
In the nine months 2021 a lossPretax gains of $11 was$5 recorded in AOCI related to other interest rate hedges closed in conjunction with debt issuances are expected to be reclassified from AOCI to other income (expense), net in earnings relating to the terminationwithin 12 months of forward startingJune 30, 2022. The cash flow effect of interest rate swaps with notional amounts of $750 designated ashedges is recorded in cash flow hedges as we now consider itfrom operations.
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 6 |
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
probable that the original forecasted debt issuances will not occur. Pretax gains of $5 recorded in AOCI related to other interest rate hedges closed in conjunction with debt issuances are expected to be reclassified to other income (expense) in earnings within 12 months of September 30, 2021. The cash flow effect of interest rate hedges is recorded in cash flow from operations.
NOTE 5 - FAIR VALUE MEASUREMENTS
Our policies for managing risk related to foreign currency, interest rates, credit and markets and our process for determining fair value have not changed from those described in our Annual Report on Form 10-K for 2020.2021.
There were no significant transfers into or out of any level of the fair value hierarchy in 2021.2022.
| Assets Measured at Fair Value | Assets Measured at Fair Value | September | December | Assets Measured at Fair Value | June | December |
2021 | 2020 | 2022 | 2021 |
Cash and cash equivalents | Cash and cash equivalents | $ | 2,563 | | $ | 2,943 | | Cash and cash equivalents | $ | 1,044 | | $ | 2,944 | |
Trading marketable securities | Trading marketable securities | 184 | | 171 | | Trading marketable securities | 160 | | 193 | |
Level 1 - Assets | Level 1 - Assets | $ | 2,747 | | $ | 3,114 | | Level 1 - Assets | $ | 1,204 | | $ | 3,137 | |
Available-for-sale marketable securities: | Available-for-sale marketable securities: | | Available-for-sale marketable securities: | |
Corporate and asset-backed debt securities | Corporate and asset-backed debt securities | $ | 46 | | $ | 38 | | Corporate and asset-backed debt securities | $ | 47 | | $ | 48 | |
| Foreign government debt securities | | Foreign government debt securities | 2 | | 2 | |
United States agency debt securities | United States agency debt securities | 5 | | 5 | | United States agency debt securities | 4 | | 5 | |
United States Treasury debt securities | United States Treasury debt securities | 22 | | 36 | | United States Treasury debt securities | 27 | | 19 | |
Foreign government | 1 | | — | | |
| Certificates of deposit | Certificates of deposit | 2 | | 2 | | Certificates of deposit | 3 | | 1 | |
Total available-for-sale marketable securities | Total available-for-sale marketable securities | $ | 76 | | $ | 81 | | Total available-for-sale marketable securities | $ | 83 | | $ | 75 | |
Foreign currency exchange forward contracts | Foreign currency exchange forward contracts | 112 | | 20 | | Foreign currency exchange forward contracts | 346 | | 212 | |
| Level 2 - Assets | Level 2 - Assets | $ | 188 | | $ | 101 | | Level 2 - Assets | $ | 429 | | $ | 287 | |
Total assets measured at fair value | Total assets measured at fair value | $ | 2,935 | | $ | 3,215 | | Total assets measured at fair value | $ | 1,633 | | $ | 3,424 | |
| Liabilities Measured at Fair Value | Liabilities Measured at Fair Value | September | December | Liabilities Measured at Fair Value | June | December |
2021 | 2020 | 2022 | 2021 |
Deferred compensation arrangements | Deferred compensation arrangements | $ | 184 | | $ | 171 | | Deferred compensation arrangements | $ | 160 | | $ | 193 | |
Level 1 - Liabilities | Level 1 - Liabilities | $ | 184 | | $ | 171 | | Level 1 - Liabilities | $ | 160 | | $ | 193 | |
Foreign currency exchange forward contracts | Foreign currency exchange forward contracts | $ | 21 | | $ | 160 | | Foreign currency exchange forward contracts | $ | 14 | | $ | 17 | |
Interest rate swap liability | — | | 53 | | |
| Level 2 - Liabilities | Level 2 - Liabilities | $ | 21 | | $ | 213 | | Level 2 - Liabilities | $ | 14 | | $ | 17 | |
Contingent consideration: | Contingent consideration: | | Contingent consideration: | |
Beginning | Beginning | $ | 393 | | $ | 306 | | Beginning | $ | 306 | | $ | 393 | |
Additions | Additions | 43 | | 108 | | Additions | 1 | | 62 | |
Change in estimate | Change in estimate | 11 | | 9 | | Change in estimate | (27) | | (1) | |
Settlements | Settlements | (133) | | (30) | | Settlements | (24) | | (148) | |
Ending | Ending | $ | 314 | | $ | 393 | | Ending | $ | 256 | | $ | 306 | |
Level 3 - Liabilities | Level 3 - Liabilities | $ | 314 | | $ | 393 | | Level 3 - Liabilities | $ | 256 | | $ | 306 | |
Total liabilities measured at fair value | Total liabilities measured at fair value | $ | 519 | | $ | 777 | | Total liabilities measured at fair value | $ | 430 | | $ | 516 | |
| Fair Value of Available for Sale Securities by Maturity | | | September 2021 | December 2020 | | June 2022 | December 2021 |
Due in one year or less | Due in one year or less | $ | 39 | | $ | 42 | | Due in one year or less | $ | 52 | | $ | 36 | |
Due after one year through three years | Due after one year through three years | $ | 37 | | $ | 39 | | Due after one year through three years | $ | 31 | | $ | 39 | |
On SeptemberJune 30, 20212022 and December 31, 20202021 the aggregate difference between the cost and fair value of available-for-sale marketable securities was nominal. Interest and marketable securities income was $15$20 and $19$18 in the three months and $50$35 and $84$35 in the ninesix months 20212022 and 2020,2021, which was recorded in other income (expense)., net.
Our investments in available-for-sale marketable securities had a minimum credit quality rating of A2 (Moody's), A (Standard & Poor's) and A (Fitch). We do not plan to sell the investments, and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.
NOTE 6 - CONTINGENCIES AND COMMITMENTS
We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor, intellectual property and other matters, the most significant of which are more fully
described below. The outcomes of these matters will generally not be known for prolonged periods of time. In certain of the legal proceedings the claimants seek damages as well as other compensatory and equitable relief that could result in the payment of significant claims and settlements and/or the imposition of injunctions or other equitable relief. For legal matters for which management had sufficient information to reasonably estimate our future obligations, a liability representing
management's best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known, is recorded. The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than those estimated by management, additional expense may be incurred, which could unfavorably affect future operating results. We are self-insured for certain claims and expenses. The ultimate cost to us with respect to product liability claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.
In April 2022 the United States District Court for the District of Delaware issued a judgment following a jury verdict in favor of PureWick Corporation (PureWick) for its 2019 complaint seeking patent infringement damages related to our PrimaFit and PrimoFit products. The court awarded damages and we recorded charges of $28 in March 2022. In June 2022 PureWick filed a motion to seek enhancement of the judgment and if successful, the judgment could total approximately $100 and include an injunction against future sales. We intend to appeal the outcome of this case.
Recall Matters
In June 2012 we voluntarily recalled our Rejuvenate and ABG II Modular-Neck hip stems and terminated global distribution of these hip products. Product liability lawsuits relating to this voluntary recall have been filed against us. In November 2014 we entered into a settlement agreement to compensate eligible United States patients who had revision surgery prior to November 3, 2014 and in December 2016 the settlement program was extended to patients who had revision surgery prior to December 19, 2016. In September 2020 we entered into a second settlement agreement to compensate eligible United States patients who had revision surgery prior to September 9, 2020. We continue to offer support for recall-related care and reimburse patients who are not eligible to enroll in the settlement program for testing and treatment services, including any necessary revision surgeries. In addition, there are remaining lawsuits that we will continue to defend against.
In August 2016 and May 2018 we voluntarily recalled certain lot-specific sizes and offsets of LFIT Anatomic CoCr V40 Femoral Heads. Product liability lawsuits and claims relating to this voluntary recall have been filed against us. In November 2018 we entered into a settlement agreement to resolve a significant number of claims and lawsuits related to the recalls. In April 2022 we executed a second agreement to resolve a significant number of claims and lawsuits related to the recalls. The specific terms of the settlement agreement, including the financial terms, are confidential.
With the acquisition of Wright as more fully describedMedical Group N.V. (Wright) in Note 7,November 2020, we are responsible for certain product liability claims, primarily related to certain hip products sold by Wright prior to its 2014 divestiture of the OrthoRecon business. We will continue to evaluate each claim and the possible loss we may incur.
We have incurred, and expect to incur in the future, costs associated with the defense and settlement of these matters. For the nine months 2021 we have recorded charges of $98 and made payments of $180, primarily related to Rejuvenate and ABG II Modular-Neck hip stems. Based on the information that has been received, we have estimated the remaining range of probable loss related to recall matters globally to be approximately $410 to $545. We have recorded reserves representing the remaining minimum of the range of probable loss. The final outcomes of these matters are dependent on many factors that are difficult to predict. Accordingly, the ultimate cost related to these matters may be materially different than the amount of our current estimate and accruals and could have a
| | | | | |
Dollar amounts are in millions except per share amounts or as otherwise specified. | 7 |
| | | | | | | | |
STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
We have incurred, and expect to incur in the future, costs associated with the defense and settlement of these matters. For the six months 2022 we have recorded charges of $18 primarily related to Wright hip products and made payments of $19 primarily related to Rejuvenate and ABG II Modular-Neck hip stems. Based on the information that has been received, we have estimated the remaining range of probable loss related to recall matters globally to be approximately $380 to $515. We have recorded reserves representing the remaining minimum of the range of probable loss. The final outcomes of these matters are dependent on many factors that are difficult to predict. Accordingly the ultimate cost related to these matters may be materially different than the amount of our current estimate and accruals and could have a material adverse effect on our results of operations and cash flows.
| Leases | Leases | September | | December | Leases | June | | December |
2021 | | 2020 | 2022 | | 2021 |
Right-of-use assets | Right-of-use assets | $ | 400 | | | $ | 423 | | Right-of-use assets | $ | 469 | | | $ | 419 | |
Lease liabilities, current | Lease liabilities, current | $ | 108 | | | $ | 109 | | Lease liabilities, current | $ | 118 | | | $ | 112 | |
Lease liabilities, non-current | Lease liabilities, non-current | $ | 298 | | | $ | 325 | | Lease liabilities, non-current | $ | 353 | | | $ | 310 | |
| Other information: | Other information: | | Other information: | |
Weighted-average remaining lease term | Weighted-average remaining lease term | 5.6 years | | 5.6 years | Weighted-average remaining lease term | 5.6 years | | 5.4 years |
Weighted-average discount rate | Weighted-average discount rate | 2.83 | % | | 2.57 | % | Weighted-average discount rate | 2.66 | % | | 2.86 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months | | Nine Months |
| 2021 | | 2020 | | 2021 | | 2020 |
Operating lease cost | $ | 35 | | | $ | 27 | | | $ | 102 | | | $ | 94 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months | | Six Months |
| 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost | $ | 38 | | | $ | 31 | | | $ | 73 | | | $ | 67 | |
NOTE 7 - ACQUISITIONS
We acquire stock in companies and various assets that continue to support our capital deployment and product development strategies. The aggregate purchase price of our acquisitions, net of cash acquired was $267$2,563 and $26$108 in the ninesix months 20212022 and 2020.2021.
In September 2021February 2022 we completed the acquisition of Gauss Surgical,Vocera Communications, Inc. (Gauss)(Vocera) for $79.25 per share, or an aggregate purchase price of $2.6 billion, net of cash acquired ($3.0 billion including convertible notes). GaussVocera is a medical device company that has developed Triton, an artificial intelligence-enabled platform for real-time monitoring of blood loss during surgery. Gaussleader in the digital care coordination and communication category. Vocera is part of our InstrumentsMedical business within MedSurg.MedSurg and Neurotechnology. Goodwill attributable to the acquisition reflects the strategic benefits of expanding our presence in adjacent markets, diversifying our product portfolio, advancing innovations, and accelerating our digital aspirations. This goodwill is not deductible for tax purposes.
In November 2020 we completed the acquisition of Wright Medical Group N.V. (Wright) for $30.75 per share, or an aggregate purchase price of $4.1 billion ($5.6 billion includingsix months 2022 note holders elected to redeem the 1.50% and 0.50% convertible notes). Wright is a global medical device company focused on extremities and biologics. Wright is part of our Trauma and Extremities business within Orthopaedics. Goodwill attributable to the acquisition is not deductible for tax purposes.
In December 2020 we completed the acquisition of OrthoSensor, Inc. (OrthoSensor). OrthoSensor is a leadernotes assumed in the digital evolutionVocera acquisition for $101 and $324. These repayments are classified as financing activities in the Consolidated Statements of musculoskeletal careCash Flows.
Share-based awards for Vocera employees vested upon our acquisition and sensor technology for total joint replacement. OrthoSensor is parta charge of our Orthopaedics business. Goodwill attributable to the acquisition is not deductible for tax purposes.$132 was recorded in selling, general and administrative expenses in 2022.
Purchase price allocations for our significant acquisitions are:
| | | | | |
Purchase Price Allocation of Acquired Net Assets |
20202022 | WrightVocera |
Tangible assets and liabilities: | |
Accounts receivable | $ | 12733 | |
Inventory | 44813 | |
Deferred income tax assets | 47273 | |
Other assets | 34592 | |
Debt | (1,446)(425) | |
Deferred income tax liabilities | (494)(182) | |
Product liabilities | (208) | |
Other liabilities | (292)(115) | |
Intangible assets: | |
| |
Customer and distributor relationships | 182550 | |
Developed technology and patents | 1,503178 | |
Trade name | 5818 | |
| |
| |
Goodwill | 3,3862,328 | |
Purchase price, net of cash acquired of $281 | $ | 4,0812,563 | |
Weighted-average life of intangible assets | 1213 |
Purchase price allocations for Wright and other acquisitionsVocera were based on preliminary valuations, primarily related to intangible assets product liabilities and deferred income taxes. Our
estimates and assumptions are subject to change within the measurement period.
| Consolidated Estimated Amortization Expense | Consolidated Estimated Amortization Expense | Consolidated Estimated Amortization Expense |
Remainder of 2021 | 2022 | 2023 | 2024 | 2025 | |
Remainder of 2022 | | Remainder of 2022 | 2023 | 2024 | 2025 | 2026 |
$ | 149 | | $ | 577 | | $ | 558 | | $ | 534 | | $ | 512 | | 320 | | $ | 620 | | $ | 590 | | $ | 570 | | $ | 513 | |
NOTE 8 - DEBT AND CREDIT FACILITIES
We have lines of credit issued by various financial institutions that are available to fund our day-to-day operating needs. Certain of our credit facilities require us to comply with financial and other covenants. We were in compliance with all covenants on SeptemberJune 30, 2021.2022.
In October 2021February 2022 we entered into a new revolving credit$1.5 billion term loan agreement that replacesmatures on February 22, 2025 and bears interest at a base rate based on the Term Secured Overnight Financing Rate (SOFR) plus 0.725%. In June 2022 we repaid $250 on the term loan.
In 2022 our previous agreement dated August 19, 2016. The primary changes wereBoard of Directors approved an increase to increase the aggregate principalmaximum amount of the facility by $750commercial paper that can be outstanding from $1,500 to $2,250, extend the maturity date to October 26, 2026, increase the leverage ratio to 3.75 and provide LIBOR replacement language. $2,250.
On SeptemberJune 30, 20212022 there were no borrowings outstanding under our previous credit facility or commercial paper programs.program which allows for maturities up to 397 days from the date of issuance.
| | | | | | | | | | | | | | | | | | | | |
Summary of Total Debt | September 2021 | | December 2020 |
| Rate | | Due | | | |
Senior unsecured notes: | | | |
| 2.625% | | March 15, 2021 | $ | — | | | $ | 750 | |
| 1.125% | | November 30, 2023 | 642 | | | 668 | |
| 0.600% | | December 1, 2023 | 598 | | | 597 | |
| 3.375% | | May 15, 2024 | 592 | | | 590 | |
| 0.250% | | December 3, 2024 | 989 | | | 1,030 | |
| 1.150% | | June 15, 2025 | 645 | | | 644 | |
| 3.375% | | November 1, 2025 | 747 | | | 747 | |
| 3.500% | | March 15, 2026 | 993 | | | 992 | |
| 2.125% | | November 30, 2027 | 873 | | | 909 | |
| 3.650% | | March 7, 2028 | 597 | | | 596 | |
| 0.750% | | March 1, 2029 | 931 | | | 969 | |
| 1.950% | | June 15, 2030 | 990 | | | 989 | |
| 2.625% | | November 30, 2030 | 751 | | | 782 | |
| 1.000% | | December 3, 2031 | 867 | | | 903 | |
| 4.100% | | April 1, 2043 | 392 | | | 392 | |
| 4.375% | | May 15, 2044 | 395 | | | 395 | |
| 4.625% | | March 15, 2046 | 982 | | | 981 | |
| 2.900% | | June 15, 2050 | 642 | | | 641 | |
Variable term loan | | November 10, 2023 | — | | | 400 | |
| | | |
Other | | | 25 | | | 16 | |
Total debt | $ | 12,651 | | | $ | 13,991 | |
Less current maturities of debt | 22 | | | 761 | |
Total long-term debt | $ | 12,629 | | | $ | 13,230 | |
| | | | | | |
| September 2021 | | December 2020 |
Unamortized debt issuance costs | $ | 64 | | | $ | 71 | |
Borrowing capacity on existing facilities | $ | 1,408 | | | $ | 2,903 | |
Fair value of senior unsecured notes | $ | 13,736 | | | $ | 15,022 | |
| | | | | |
Dollar amounts are in millions except per share amounts or as otherwise specified. | 8 |
| | | | | | | | |
STRYKER CORPORATION | | 2022 Second Quarter Form 10-Q |
| | | | | | | | | | | | | | | | | | | | |
Summary of Total Debt | June 2022 | | December 2021 |
| Rate | | Due | | | |
Senior unsecured notes: | | | |
| 1.125% | | November 30, 2023 | $ | 577 | | | $ | 622 | |
| 0.600% | | December 1, 2023 | 598 | | | 598 | |
| 3.375% | | May 15, 2024 | 595 | | | 593 | |
| 0.250% | | December 3, 2024 | 890 | | | 958 | |
| 1.150% | | June 15, 2025 | 646 | | | 645 | |
| 3.375% | | November 1, 2025 | 748 | | | 748 | |
| 3.500% | | March 15, 2026 | 994 | | | 994 | |
| 2.125% | | November 30, 2027 | 784 | | | 845 | |
| 3.650% | | March 7, 2028 | 597 | | | 597 | |
| 0.750% | | March 1, 2029 | 836 | | | 901 | |
| 1.950% | | June 15, 2030 | 990 | | | 990 | |
| 2.625% | | November 30, 2030 | 675 | | | 727 | |
| 1.000% | | December 3, 2031 | 779 | | | 840 | |
| 4.100% | | April 1, 2043 | 392 | | | 392 | |
| 4.375% | | May 15, 2044 | 395 | | | 395 | |
| 4.625% | | March 15, 2046 | 982 | | | 982 | |
| 2.900% | | June 15, 2050 | 642 | | | 642 | |
Term loan | | February 22, 2025 | 1,250 | | | — | |
| | | |
Other | | | 11 | | | 10 | |
Total debt | $ | 13,381 | | | $ | 12,479 | |
Less current maturities of debt | 7 | | | 7 | |
Total long-term debt | $ | 13,374 | | | $ | 12,472 | |
| | | | | | |
| June 2022 | | December 2021 |
Unamortized debt issuance costs | $ | 57 | | | $ | 62 | |
Borrowing capacity on existing facilities | $ | 2,162 | | | $ | 2,162 | |
Fair value of senior unsecured notes | $ | 11,122 | | | $ | 13,391 | |
The fair value of the senior unsecured notes was estimated using quoted interest rates, maturities and amounts of borrowings based on quoted active market prices and yields that took into account the underlying terms of the debt instruments. Substantially all of our debt is classified within Level 2 of the fair value hierarchy.
In March 2021 we repaid $750 of senior unsecured notes with a coupon of 2.625% that were due on March 15, 2021.
In June 2021 we repaid the $400 term loan that was due on November 10, 2023.
NOTE 9 - INCOME TAXES
Our effective tax rates wereof 8.9% and 11.5% in the three and 20.4%six months 2022 include the reversal of deferred income tax on undistributed earnings of foreign subsidiaries determined to be indefinitely reinvested and certain discrete tax items. Our effective tax rates of 10.6% and 13.1% in the three and six months 2021 include certain discrete tax items.
We are routinely audited by income tax authorities in the jurisdictions we operate. In July 2022 we effectively settled the United States federal income tax audit for years 2014 through 2018. Accordingly in the three months ending September 30, 2022 we expect to reduce our accruals for uncertain tax positions and 12.6% and 19.6% in the nine months 2021 and
related interest by approximately $220. | | | | | |
Dollar amounts are in millions except per share amounts or as otherwise specified. | 8 |
| | | | | | | | |
STRYKER CORPORATION | | 2021 Third Quarter Form 10-Q |
2020. The change in the effective income tax rate for the three months was primarily due to lower pre-tax income and certain discrete tax items recorded in 2021. The change in effective income tax rates for the nine months reflects certain discrete tax items recorded in 2021.
In March 2021 the American Rescue Plan Act (the Act) was signed into law in the United States. We do not expect the provisions of the Act to have a material impact on our annual effective tax rate or Consolidated Financial Statements in 2021.
NOTE 10 - SEGMENT INFORMATION
| | | | | | | | | | | | | | | | | |
| Three Months | | Nine Months |
| 2021 | 2020 | | 2021 | 2020 |
Orthopaedics | $ | 1,529 | | $ | 1,317 | | | $ | 4,641 | | $ | 3,433 | |
MedSurg | 1,755 | | 1,600 | | | 5,124 | | 4,546 | |
Neurotechnology and Spine | 876 | | 820 | | | 2,642 | | 2,110 | |
Net sales | $ | 4,160 | | $ | 3,737 | | | $ | 12,407 | | $ | 10,089 | |
Orthopaedics | $ | 455 | | $ | 472 | | | $ | 1,388 | | $ | 1,027 | |
MedSurg | 425 | | 451 | | | 1,266 | | 1,085 | |
Neurotechnology and Spine | 283 | | 228 | | | 864 | | 513 | |
Segment operating income | $ | 1,163 | | $ | 1,151 | | | $ | 3,518 | | $ | 2,625 | |
Items not allocated to segments: | | | | | |
Corporate and other | (105) | | (104) | | | (421) | | (371) | |
Acquisition and integration-related charges | (126) | | (29) | | | (495) | | (85) | |
Amortization of intangible assets | (144) | | (114) | | | (474) | | (342) | |
Restructuring-related and other charges | (178) | | (29) | | | (209) | | (292) | |
Medical device regulations | (27) | | (14) | | | (72) | | (60) | |
Recall-related matters | (16) | | (2) | | | (98) | | 4 | |
Regulatory and legal matters | 7 | | — | | | 16 | | (5) | |
| | | | | |
Consolidated operating income | $ | 574 | | $ | 859 | | | $ | 1,765 | | $ | 1,474 | |
As previously disclosed, effective December 31, 2021 we changed our reportable business segments to (i) MedSurg and Neurotechnology and (ii) Orthopaedics and Spine to align to our new internal reporting structure. We have reflected these changes in all historical periods presented. | | | | | | | | | | | | | | | | | |
| Three Months | | Six Months |
| 2022 | 2021 | | 2022 | 2021 |
MedSurg and Neurotechnology | $ | 2,549 | | $ | 2,359 | | | $ | 4,972 | | $ | 4,550 | |
Orthopaedics and Spine | 1,944 | | 1,935 | | | 3,796 | | 3,697 | |
Net sales | $ | 4,493 | | $ | 4,294 | | | $ | 8,768 | | $ | 8,247 | |
MedSurg and Neurotechnology | $ | 601 | | $ | 702 | | | $ | 1,212 | | $ | 1,337 | |
Orthopaedics and Spine | 607 | | 563 | | | 1,129 | | 1,018 | |
Segment operating income | $ | 1,208 | | $ | 1,265 | | | $ | 2,341 | | $ | 2,355 | |
Items not allocated to segments: | | | | | |
Corporate and other | $ | (145) | | $ | (154) | | | $ | (344) | | $ | (316) | |
Acquisition and integration-related costs | (37) | | (120) | | | (186) | | (369) | |
Amortization of intangible assets | (160) | | (149) | | | (310) | | (330) | |
Restructuring-related and other charges | (62) | | (17) | | | (171) | | (31) | |
Medical device regulations | (32) | | (26) | | | (60) | | (45) | |
Recall-related matters | (4) | | (76) | | | (18) | | (82) | |
Regulatory and legal matters | 4 | | 9 | | | (33) | | 9 | |
| | | | | |
Consolidated operating income | $ | 772 | | $ | 732 | | | $ | 1,219 | | $ | 1,191 | |
There werewere no significant changes to total assets by segment from information provided in our Annual Report on Form 10-K for 2020.
NOTE 11 - ASSET IMPAIRMENTS
The government in China has launched regional and national programs for volume-based procurement ("VBP") of high-value medical consumables to reduce healthcare costs. Each VBP program has specific requirements to award contracts to2021, other than the lowest bidders who are able to satisfy the quality and quantity requirements. The successful bidders may be guaranteed sales volume for certain products, while unsuccessful bidders may lose unit sales volume. We expect that the prices required for a successful bid will, nevertheless, negatively impact our existing commercial operations of joint replacement and trauma products in China. As a resultaddition of the outcome of certain regional programs for our trauma products and the national VBP program for hips and knees we recorded charges of $105 to impair certain long-lived and intangible assets acquired in the third quarter of 2021. These charges wereVocera acquisition which are included in selling, generalthe MedSurg and administrative expenses. Spine products are part of the VBP program in one province and it is not clear to what extent spine products will be included in further provincial or national VBP programs. We do not expect any significant impairments related to the potential Spine VBP programs. Our business in China represented approximately 2% of our revenues for the year ended December 31, 2020.Neurotechnology segment.
In the second quarter of 2020 due to the significant negative impact the COVID-19 pandemic had on our operations and financial results, we suspended certain in-process investments resulting in charges of $189 to impair certain long-lived assets (primarily the portion of our investment in a new global ERP system that was in-process of being developed for future deployment) and product line and other exit costs. These charges were included in cost of sales and selling, general and administrative expenses.
| | | | | |
Dollar amounts are in millions except per share amounts or as otherwise specified. | 9 |
| | | | | | | | |
STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
| | | | | |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ABOUT STRYKER
Stryker is one of the world's leading medical technology companies and, together with our customers, we are driven to make healthcare better. We offer innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology, Orthopaedics and Spine that help improve patient and hospital outcomes. Alongside its customers around the world, Stryker impacts more than 100 million patients annually.
We segregate our operations into threetwo reportable business segments: Orthopaedics,(i) MedSurg and Neurotechnology and (ii) Orthopaedics and Spine. Orthopaedics products consist primarily of implants used in hipMedSurg and knee joint replacements and trauma and extremities surgeries. MedSurgNeurotechnology products include surgical equipment and surgical navigation systems (Instruments), endoscopic and communications systems (Endoscopy), patient handling, emergency medical equipment and intensive care disposable products (Medical), reprocessedminimally invasive products for the treatment of acute ischemic and remanufactured medical devices (Sustainability)hemorrhagic stroke (Neurovascular), a comprehensive line of products for traditional brain and open skull based surgical procedures; orthobiologic and biosurgery products, including synthetic bone grafts and vertebral augmentation products (Neuro Cranial) and other medical device products used in a variety of medical specialties. NeurotechnologyOrthopaedics and Spine products include neurosurgical, neurovascularconsist primarily of implants used in hip and knee joint replacements and trauma and extremity surgeries, and cervical, thoracolumbar and interbody systems used in spinal implant devices.injury, deformity and degenerative therapies.
COVID-19 Pandemic and Macroeconomic Environment
The COVID-19 global pandemic and macroeconomic environment has led to severe disruptions in the market and the global and United States economies that may continue for a prolonged duration and trigger a recession or a period of economic slowdown.period. In response to the COVID-19 pandemic, various governmental authorities and private enterprises have implemented numerous containment measures, to contain the pandemic, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. A significant number of our global suppliers, vendors, distributors and manufacturing facilities are located in regions that have been affected by the pandemic. Those operations have been materially adversely affected by restrictive government and private enterprise measures implemented in response to the pandemic. This has led to product shortages and an increase in raw material and component pricing as well as other inflationary pressures particularly on our manufacturing costs.
Some of our products are particularly sensitive to reductions in elective medical procedures. Elective medical procedures were suspended inDuring the first quarter of 2020 in many of the markets where our products are marketed and sold, which negatively affected our business, cash flows, financial condition and results of operations through the first quarter of 2021. In the second quarter of 2021 we saw partialhave seen recovery of elective procedures as the impact of the COVID-19 pandemic has subsided in most geographies; however,many geographies, with the exception of some countries in the third quarter 2021 we saw hospitalization rates increase,Asia Pacific region. However sales growth in certain products has been constrained by the continuing supply chain challenges and electronic component shortages, especially impacting the capital products in our MedSurg businesses.
Russia and Ukraine Conflict
The military conflict in Russia and Ukraine and the sanctions imposed by the United States as a result ofgovernment and other nations in response to this conflict have caused significant volatility and disruptions to the Delta variant. This, along with hospital staffing shortages, has adversely impacted elective procedures and has slowed the recovery in our Orthopaedic and Spine implant businessglobal markets. Given that we experiencedprovide life-saving and life-enhancing products, we plan to continue operating in Russia provided we can safely do so. During the second quartersix months 2022 net sales in Russia were approximately 0.2% of 2021.
Overviewour revenues. Although Russia does not constitute a material portion of the Three and Nine Months
In the three months 2021 we achieved sales growth of 11.3% and 16.0% from 2020 and 2019. Excludingour business, there is uncertainty around the impact of acquisitionsit will have on the global economy, supply chains and divestitures sales grew 4.5%fuel prices generally, and 8.4% in constant currency. We reported operating income margin of 13.8%, net earnings of $438 and net earnings per diluted share of $1.14. Excluding thetherefore our business. Refer to Part II, Item 1A. "Risk
impact of certain items, adjusted operating income margin(1) contracted by 260 bps to 25.4%, with adjusted net earnings(1) of $842 and adjusted net earnings per diluted share(1) of $2.20 representing growth of 2.8%.
InFactors" in our Quarterly Report on Form 10-Q for the nine months 2021 we achieved sales growth of 23.0% and 15.4% from 2020 and 2019. Excluding the impact of acquisitions and divestitures sales grew 14.2% and 7.6% in constant currency. We reported operating income margin of 14.2%, net earnings of $1,332 and net earnings per diluted share of $3.48. Excluding the impact of certain items, adjusted operating income margin(1) increased by 270 bps to 25.0%, with adjusted net earnings(1) of $2,440 and adjusted net earnings per diluted share(1) of $6.38 representing growth of 38.1%.
Recent Developments
Inquarter ended March 2021 we repaid $750 of our senior unsecured notes with a coupon of 2.625% that were due on March 15, 2021. In June 2021 we repaid the $400 term loan that was due on November 10, 2023. Refer to Note 8 to our Consolidated Financial Statements31, 2022 for further information.details.
We have not repurchased any shares of our common stock under our authorized repurchase program in 2021. The total dollar value of shares of our common stock that could be acquired under our authorized share repurchase program was $1,033 as of September 30, 2021. We previously announced our intention to suspend our repurchase program through 2021.China Volume-Based Procurement and Import Purchase Evaluation
The government in China has launched regional and national programs for volume-based procurement ("VBP") of high-value medical consumables to reduce healthcare costs. Each VBP program has specific requirements to award contracts to the lowest bidders who are able to satisfy the quality and quantity requirements. The successful bidders may be guaranteed sales volume for certain products, while unsuccessful bidders may lose unit sales volume. We expect that theThe prices required for a successful bid will, nevertheless,have negatively impactimpacted our existing commercial operations of joint replacement and trauma products in China. As a result of the outcome of certain regional programs forTo date our trauma products andother businesses have not been significantly impacted; however, the national spine products VBP program was initiated in July 2022. China has also issued national guiding standards for hipsImport Purchase Evaluation which has increased the purchase of locally sourced equipment in China's public hospitals and knees we recorded charges of $105 to impair certain long-lived and intangible assetsis impacting our MedSurg business in the third quarter of 2021. These charges were included in selling, general and administrative expenses. Spine products are part of the VBP program in one province and it is not clear to what extent spine products will be included in further provincial or national VBP programs. We do not expect any significant impairments related to the potential Spine VBP programs.China. Our business in China represented approximately 2%2.6% of our revenues for the year ended December 31, 2020.six months 2022.
Overview of the Three and Six Months
In the three months 2022 we achieved sales growth of 4.6% from 2021. Excluding the impact of acquisitions and divestitures sales grew 6.1% in constant currency. We reported operating income margin of 17.2%, net earnings of $656 and net earnings per diluted share of $1.72. Excluding the impact of certain items, adjusted operating income margin(1) contracted by 220 basis points to 23.7%, with adjusted net earnings(1) of $860 and adjusted net earnings per diluted share(1) of $2.25 in line with 2021.
In the six months 2022 we achieved sales growth of 6.3% from 2021. Excluding the impact of acquisitions and divestitures sales grew 7.6% in constant currency. We reported operating income margin of 13.9%, net earnings of $979 and net earnings per diluted share of $2.56. Excluding the impact of certain items, adjusted operating income margin(1) contracted by 190 basis points to 22.8%, with adjusted net earnings(1) of $1,612 and adjusted net earnings per diluted share(1) of $4.22 representing growth of 1.0%.
Recent Developments
In February 2022 we entered into a $1.5 billion term loan agreement that matures on February 22, 2025 and bears interest at a base rate based on the Term Secured Overnight Financing Rate (SOFR) plus 0.725%. In June 2022 we repaid $250 of this term loan.
In February 2022 we completed the acquisition of Vocera Communications, Inc. (Vocera) for $79.25 per share, or an aggregate purchase price of $2.6 billion, net of cash acquired ($3.0 billion including convertible notes). Vocera is a leader in the digital care coordination and communication category. Vocera is part of our Medical business within MedSurg and Neurotechnology. Goodwill attributable to the acquisition reflects the strategic benefits of expanding our presence in adjacent markets, diversifying our product portfolio, advancing innovations, and accelerating our digital aspirations. Refer to Note 7 to our Consolidated Financial Statements for further information.
(1) Refer to "Non-GAAP Financial Measures" for a discussion of non-GAAP financial measures used in this report and a reconciliation to the most directly comparable GAAP financial measure.
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 10 |
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
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CONSOLIDATED RESULTS OF OPERATIONS | | | | | | | | | |
| Three Months | | Nine Months |
| | | Percent Net Sales | Percentage | | | | Percent Net Sales | Percentage |
| 2021 | 2020 | 2021 | 2020 | Change | | 2021 | 2020 | 2021 | 2020 | Change |
Net sales | $ | 4,160 | | $ | 3,737 | | 100.0 | % | 100.0 | % | 11.3 | % | | $ | 12,407 | | $ | 10,089 | | 100.0 | % | 100.0 | % | 23.0 | % |
Gross profit | 2,642 | | 2,461 | | 63.5 | | 65.9 | | 7.4 | | | 7,923 | | 6,340 | | 63.9 | | 62.8 | | 25.0 | |
Research, development and engineering expenses | 306 | | 242 | | 7.4 | | 6.5 | | 26.4 | | | 904 | | 729 | | 7.3 | | 7.2 | | 24.0 | |
Selling, general and administrative expenses | 1,602 | | 1,244 | | 38.5 | | 33.3 | | 28.8 | | | 4,682 | | 3,799 | | 37.7 | | 37.7 | | 23.2 | |
Recall charges | 16 | | 2 | | 0.4 | | 0.1 | | nm | | 98 | | (4) | | 0.8 | | — | | nm |
Amortization of intangible assets | 144 | | 114 | | 3.5 | | 3.1 | | 26.3 | | | 474 | | 342 | | 3.8 | | 3.4 | | 38.6 | |
Other income (expense), net | (79) | | (79) | | (1.9) | | (2.1) | | — | | | (241) | | (191) | | (1.9) | | (1.9) | | 26.2 | |
Income taxes | 57 | | 159 | | nm | nm | (64.2) | | 192 | | 252 | | nm | nm | (23.8) | |
Net earnings | $ | 438 | | $ | 621 | | 10.5 | % | 16.6 | % | (29.5) | % | | $ | 1,332 | | $ | 1,031 | | 10.7 | % | 10.2 | % | 29.2 | % |
| | | | | | | | | | | |
Net earnings per diluted share | $ | 1.14 | | $ | 1.63 | | | | (30.1) | % | | $ | 3.48 | | $ | 2.71 | | | | 28.4 | % |
Adjusted net earnings per diluted share(1) | $ | 2.20 | | $ | 2.14 | | | | 2.8 | % | | $ | 6.38 | | $ | 4.62 | | | | 38.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CONSOLIDATED RESULTS OF OPERATIONS | | | | | | | | | |
| Three Months | | Six Months |
| | | Percent Net Sales | Percentage | | | | Percent Net Sales | Percentage |
| 2022 | 2021 | 2022 | 2021 | Change | | 2022 | 2021 | 2022 | 2021 | Change |
Net sales | $ | 4,493 | | $ | 4,294 | | 100.0 | % | 100.0 | % | 4.6 | % | | $ | 8,768 | | $ | 8,247 | | 100.0 | % | 100.0 | % | 6.3 | % |
Gross profit | 2,826 | | 2,772 | | 62.9 | | 64.6 | | 1.9 | | | 5,560 | | 5,281 | | 63.4 | | 64.0 | | 5.3 | |
Research, development and engineering expenses | 351 | | 310 | | 7.8 | | 7.2 | | 13.2 | | | 764 | | 598 | | 8.7 | | 7.3 | | 27.8 | |
Selling, general and administrative expenses | 1,539 | | 1,505 | | 34.3 | | 35.0 | | 2.3 | | | 3,249 | | 3,080 | | 37.1 | | 37.3 | | 5.5 | |
Recall charges | 4 | | 76 | | 0.1 | | 1.8 | | nm | | 18 | | 82 | | 0.2 | | 1.0 | | nm |
Amortization of intangible assets | 160 | | 149 | | 3.6 | | 3.5 | | 7.4 | | | 310 | | 330 | | 3.5 | | 4.0 | | (6.1) | |
Other income (expense), net | (52) | | (70) | | (1.2) | | (1.6) | | (25.7) | | | (113) | | (162) | | (1.3) | | (2.0) | | (30.2) | |
Income taxes | 64 | | 70 | | nm | nm | (8.6) | | 127 | | 135 | | nm | nm | (5.9) | |
Net earnings | $ | 656 | | $ | 592 | | 14.6 | % | 13.8 | % | 10.8 | % | | $ | 979 | | $ | 894 | | 11.2 | % | 10.8 | % | 9.5 | % |
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Net earnings per diluted share | $ | 1.72 | | $ | 1.55 | | | | 11.0 | % | | $ | 2.56 | | $ | 2.34 | | | | 9.4 | % |
Adjusted net earnings per diluted share(1) | $ | 2.25 | | $ | 2.25 | | | | — | % | | $ | 4.22 | | $ | 4.18 | | | | 1.0 | % |
nm - not meaningful
| Geographic and Segment Net Sales | Geographic and Segment Net Sales | Three Months | | Nine Months | Geographic and Segment Net Sales | Three Months | | Six Months |
| | | Percentage Change | | | Percentage Change | | | Percentage Change | | | Percentage Change |
| | 2021 | 2020 | | As Reported | Constant Currency | | 2021 | 2020 | | As Reported | Constant Currency | | 2022 | 2021 | | As Reported | Constant Currency | | 2022 | 2021 | | As Reported | Constant Currency |
Geographic: | Geographic: | | | | | | | | Geographic: | | | | | | | |
United States | United States | $ | 3,019 | | $ | 2,748 | | | 9.9 | % | 9.9 | % | | $ | 8,903 | | $ | 7,357 | | | 21.0 | % | 21.0 | % | United States | $ | 3,311 | | $ | 3,100 | | | 6.8 | % | 6.8 | % | | $ | 6,416 | | $ | 5,884 | | | 9.0 | % | 9.0 | % |
International | International | 1,141 | | 989 | | | 15.3 | | 12.8 | | | 3,504 | | 2,732 | | | 28.2 | | 21.1 | | International | 1,182 | | 1,194 | | | (1.0) | | 9.7 | | | 2,352 | | 2,363 | | | (0.5) | | 7.8 | |
Total | Total | $ | 4,160 | | $ | 3,737 | | | 11.3 | % | 10.7 | % | | $ | 12,407 | | $ | 10,089 | | | 23.0 | % | 21.0 | % | Total | $ | 4,493 | | $ | 4,294 | | | 4.6 | % | 7.6 | % | | $ | 8,768 | | $ | 8,247 | | | 6.3 | % | 8.7 | % |
Segment: | Segment: | | | | | | | | Segment: | | | | | | | |
Orthopaedics | $ | 1,529 | | $ | 1,317 | | | 16.1 | % | 15.5 | % | | $ | 4,641 | | $ | 3,433 | | | 35.2 | % | 33.0 | % | |
MedSurg | 1,755 | | 1,600 | | | 9.4 | | 8.9 | | | 5,124 | | 4,546 | | | 12.7 | | 11.2 | | |
Neurotechnology and Spine | 876 | | 820 | | | 7.3 | | 6.4 | | | 2,642 | | 2,110 | | | 25.2 | | 22.8 | | |
MedSurg and Neurotechnology | | MedSurg and Neurotechnology | $ | 2,549 | | $ | 2,359 | | | 8.0 | % | 10.6 | % | | $ | 4,972 | | $ | 4,550 | | | 9.3 | % | 11.3 | % |
Orthopaedics and Spine | | Orthopaedics and Spine | 1,944 | | 1,935 | | | 0.5 | | 3.9 | | | 3,796 | | 3,697 | | | 2.7 | | 5.4 | |
Total | Total | $ | 4,160 | | $ | 3,737 | | | 11.3 | % | 10.7 | % | | $ | 12,407 | | $ | 10,089 | | | 23.0 | % | 21.0 | % | Total | $ | 4,493 | | $ | 4,294 | | | 4.6 | % | 7.6 | % | | $ | 8,768 | | $ | 8,247 | | | 6.3 | % | 8.7 | % |
| Supplemental Net Sales Growth Information | Supplemental Net Sales Growth Information | | Supplemental Net Sales Growth Information | |
| | Three Months | | Nine Months | | Three Months | | Six Months |
| | | Percentage Change | | | Percentage Change | | | Percentage Change | | | Percentage Change |
| | | United States | International | | | United States | International | | | United States | International | | | United States | International |
| | 2021 | 2020 | As Reported | Constant Currency | As Reported | Constant Currency | | 2021 | 2020 | As Reported | Constant Currency | As Reported | Constant Currency | | 2022 | 2021 | As Reported | Constant Currency | As Reported | Constant Currency | | 2022 | 2021 | As Reported | Constant Currency | As Reported | Constant Currency |
Orthopaedics: | | | | |
MedSurg and Neurotechnology: | | MedSurg and Neurotechnology: | | | |
Instruments | | Instruments | $ | 563 | | $ | 517 | | 8.9 | % | 11.3 | % | 12.3 | % | (3.1) | % | 7.7 | % | | $ | 1,091 | | $ | 986 | | 10.7 | % | 12.7 | % | 14.3 | % | (1.4) | % | 7.0 | % |
Endoscopy | | Endoscopy | 600 | | 518 | | 15.7 | | 18.2 | | 16.2 | | 13.8 | | 25.8 | | | 1,138 | | 987 | | 15.3 | | 17.5 | | 17.1 | | 9.2 | | 18.9 | |
Medical | | Medical | 666 | | 640 | | 4.1 | | 6.2 | | 10.0 | | (14.6) | | (6.1) | | | 1,330 | | 1,262 | | 5.4 | | 7.0 | | 10.5 | | (10.7) | | (4.3) | |
Neurovascular | | Neurovascular | 306 | | 301 | | 1.6 | | 7.2 | | (1.8) | | 3.7 | | 12.9 | | | 607 | | 590 | | 2.7 | | 6.9 | | (1.6) | | 5.4 | | 12.2 | |
Neuro Cranial | | Neuro Cranial | 337 | | 310 | | 8.5 | | 10.3 | | 9.4 | | 4.1 | | 14.7 | | | 660 | | 591 | | 11.6 | | 13.1 | | 13.5 | | 3.8 | | 11.7 | |
Other | | Other | 77 | | 73 | | 5.8 | | 5.8 | | 4.9 | | 68.5 | | 74.5 | | | 146 | | 134 | | 8.8 | | 8.8 | | 8.1 | | 57.6 | | 60.7 | |
| | | $ | 2,549 | | $ | 2,359 | | 8.0 | % | 10.6 | % | 10.9 | % | (0.1) | % | 9.9 | % | | $ | 4,972 | | $ | 4,550 | | 9.3 | % | 11.3 | % | 12.4 | % | 0.8 | % | 8.5 | % |
Orthopaedics and Spine: | | Orthopaedics and Spine: | | | |
Knees | Knees | $ | 439 | | $ | 435 | | 0.8 | % | 0.3 | % | (3.3) | % | 13.9 | % | 11.7 | % | | $ | 1,325 | | $ | 1,108 | | 19.5 | % | 17.8 | % | 15.8 | % | 31.0 | % | 23.6 | % | Knees | $ | 500 | | $ | 474 | | 5.5 | % | 8.7 | % | 5.3 | % | 6.2 | % | 18.6 | % | | $ | 964 | | $ | 886 | | 8.8 | % | 11.5 | % | 10.9 | % | 3.2 | % | 13.1 | % |
Hips | Hips | 328 | | 334 | | (1.6) | | (2.3) | | (10.6) | | 16.7 | | 14.5 | | | 990 | | 866 | | 14.4 | | 12.1 | | 7.4 | | 27.5 | | 20.9 | | Hips | 364 | | 353 | | 3.2 | | 7.6 | | 4.5 | | 1.2 | | 13.0 | | | 691 | | 662 | | 4.5 | | 8.1 | | 6.3 | | 1.5 | | 10.9 | |
Trauma and Extremities | Trauma and Extremities | 639 | | 430 | | 49.0 | | 48.2 | | 56.9 | | 33.4 | | 30.9 | | | 1,953 | | 1,152 | | 69.6 | | 66.5 | | 80.8 | | 48.5 | | 40.2 | | Trauma and Extremities | 676 | | 674 | | 0.2 | | 3.4 | | 3.1 | | (6.5) | | 4.4 | | | 1,361 | | 1,314 | | 3.6 | | 6.2 | | 6.7 | | (3.7) | | 4.8 | |
Spine | | Spine | 290 | | 307 | | (5.1) | | (2.3) | | (3.6) | | (8.9) | | 1.0 | | | 569 | | 585 | | (2.6) | | (0.3) | | (0.1) | | (8.5) | | (0.7) | |
Other | Other | 123 | | 118 | | 3.4 | | 3.2 | | (0.2) | | 19.4 | | 18.2 | | | 373 | | 307 | | 21.6 | | 20.6 | | 11.0 | | 82.2 | | 74.3 | | Other | 114 | | 127 | | (10.8) | | (7.3) | | (13.8) | | 0.1 | | 16.3 | | | 211 | | 250 | | (15.5) | | (13.0) | | (18.4) | | (5.5) | | 5.9 | |
| | $ | 1,529 | | $ | 1,317 | | 16.1 | % | 15.5 | % | 13.6 | % | 22.4 | % | 20.2 | % | | $ | 4,641 | | $ | 3,433 | | 35.2 | % | 33.0 | % | 33.6 | % | 39.1 | % | 31.6 | % | | $ | 1,944 | | $ | 1,935 | | 0.5 | % | 3.9 | % | 1.6 | % | (2.0) | % | 9.5 | % | | $ | 3,796 | | $ | 3,697 | | 2.7 | % | 5.4 | % | 4.7 | % | (1.9) | % | 7.2 | % |
MedSurg: | | | | |
Instruments | $ | 525 | | $ | 467 | | 11.5 | % | 10.9 | % | 12.4 | % | 7.9 | % | 5.5 | % | | $ | 1,511 | | $ | 1,308 | | 15.4 | % | 13.9 | % | 13.9 | % | 20.9 | % | 13.8 | % | |
Endoscopy | 525 | | 467 | | 12.2 | | 11.8 | | 9.9 | | 22.5 | | 20.1 | | | 1,512 | | 1,238 | | 22.1 | | 20.7 | | 18.2 | | 38.4 | | 31.0 | | |
Medical | 636 | | 600 | | 6.1 | | 5.5 | | 9.2 | | (3.5) | | (6.0) | | | 1,898 | | 1,819 | | 4.4 | | 2.7 | | 7.0 | | (3.3) | | (9.6) | | |
Sustainability | 69 | | 66 | | 4.2 | | 4.1 | | 3.9 | | 25.8 | | 19.0 | | | 203 | | 181 | | 12.1 | | 12.0 | | 11.6 | | 59.2 | 48.4 | |
| $ | 1,755 | | $ | 1,600 | | 9.4 | % | 8.9 | % | 10.1 | % | 6.8 | % | 4.4 | % | | $ | 5,124 | | $ | 4,546 | | 12.7 | % | 11.2 | % | 12.3 | % | 14.0 | % | 7.1 | % | |
Neurotechnology and Spine: | | | | |
Neurotechnology | $ | 594 | | $ | 518 | | 14.7 | % | 13.6 | % | 10.6 | % | 21.4 | % | 18.5 | % | | $ | 1,775 | | $ | 1,370 | | 29.6 | % | 26.9 | % | 27.4 | % | 33.1 | % | 26.2 | % | |
Spine | 282 | | 302 | | (5.4) | | (5.9) | | (8.0) | | 1.6 | | (0.3) | | | 867 | | 740 | | 17.1 | | 15.3 | | 12.5 | | 29.5 | | 22.6 | | |
| $ | 876 | | $ | 820 | | 7.3 | % | 6.4 | % | 3.1 | % | 15.7 | % | 13.0 | % | | $ | 2,642 | | $ | 2,110 | | 25.2 | % | 22.8 | % | 21.5 | % | 32.2 | % | 25.2 | % | |
Total | Total | $ | 4,160 | | $ | 3,737 | | 11.3 | % | 10.7 | % | 9.9 | % | 15.3 | % | 12.8 | % | | $ | 12,407 | | $ | 10,089 | | 23.0 | % | 21.0 | % | 21.0 | % | 28.2 | % | 21.1 | % | Total | $ | 4,493 | | $ | 4,294 | | 4.6 | % | 7.6 | % | 6.8 | % | (1.0) | % | 9.7 | % | | $ | 8,768 | | $ | 8,247 | | 6.3 | % | 8.7 | % | 9.0 | % | (0.5) | % | 7.8 | % |
Consolidated Net Sales
Consolidated net sales increased 11.3%4.6% in the three months 20212022 as reported and 10.7%7.6% in constant currency, as foreign currency exchange rates positivelynegatively impacted net sales by 0.6%3.0%. Excluding the 6.2%1.5% impact of acquisitions and divestitures, net sales in constant currency increased by 5.2%7.5% from increased unit volume partially offset by 0.7% due to lower prices. The unit volume increase was due to higher shipments of MedSurg and Neurotechnology products.
Consolidated net sales increased 23.0% in the nine months 2021 as reported and 21.0% in constant currency, as foreign currency exchange rates positively impacted net sales by 2.0%. Excluding the 6.8% impact of acquisitions and divestitures, net sales in constant currency increased by 14.9% from increased unit volume partially offset by 0.7%1.4% due to lower prices. The unit volume increase was due to higher shipments across most MedSurg and Neurotechnology products and most Orthopaedics and Spine products.
Consolidated net sales increased 6.3% in the six months 2022 as reported and 8.7% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.4%. Excluding the 1.1% impact of acquisitions and divestitures, net sales in constant currency increased by 8.8% from increased unit volume partially offset by 1.2% due to lower prices. The unit volume increase was due to higher shipments across all MedSurg and Neurotechnology products and most Orthopaedics and Spine products.
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 11 |
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
OrthopaedicsMedSurg and Neurotechnology Net Sales
OrthopaedicsMedSurg and Neurotechnology net sales increased 16.1%8.0% in the three months 20212022 as reported and 15.5%10.6% in constant currency, as foreign currency exchange rates positivelynegatively impacted net sales by 0.6%2.6%. Excluding the 17.3%2.7% impact of acquisitions, and divestitures, net sales in constant currency decreased 1.2%increased by 7.8% from lowerincreased unit volume and 0.6%0.1% from lowerhigher prices. The unit volume decreaseincrease was due to lowerhigher shipments of hips, traumaacross most MedSurg and extremitiesNeurotechnology products.
MedSurg and other orthopaedics products.
OrthopaedicsNeurotechnology net sales increased 35.2%9.3% in the ninesix months 20212022 as reported and 33.0%11.3% in constant currency, as foreign currency exchange rates positivelynegatively impacted net sales by 2.2%2.0%. Excluding the 20.0%2.0% impact of acquisitions, and divestitures, net sales in constant currency increased 14.4%by 9.3% from increased unit volume. The unit volume increase was due to higher shipments across all MedSurg products.
Orthopaedics and Spine Net Sales
Orthopaedics and Spine net sales increased 0.5% in the three months 2022 as reported and 3.9% in constant currency, as foreign currency exchange rates negatively impacted net sales by 3.4%. Net sales in constant currency increased 7.1% from increased unit volume partially offset by 1.4%3.2% from lower prices. The unit volume increase was due to higher shipments of hips, knees and trauma and extremities products.
Orthopaedics and Spine net sales increased 2.7% in the six months 2022 as reported and 5.4% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.7%. Net sales in constant currency increased 8.2% from increased unit volume partially offset by 2.8% from lower prices. The unit volume increase was due to higher shipments across allmost Orthopaedics products.
MedSurg Net Sales
MedSurg net sales increased 9.4% in the three months 2021 as reported and 8.9% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.5%. Excluding the 0.1% impact of acquisitions, net sales in constant currency increased by 9.6% from increased unit volume partially offset by 0.8% due to lower prices. The unit volume increase was primarily due to higher shipments across all MedSurg products.
MedSurg net sales increased 12.7% in the nine months 2021 as reported and 11.2% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.5%. Excluding the 0.1% impact of acquisitions, net sales in constant currency increased by 11.4% from increased unit volume partially offset by 0.3% due to lower prices. The unit volume increase was due to higher shipments across all MedSurg products.
Neurotechnology and Spine Net Sales
Neurotechnology and Spine net sales increased 7.3% in the three months 2021 as reported and 6.4% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.9%. Excluding the 0.3% impact for acquisitions, net sales in constant currency increased by 6.7% from increased unit volume partially offset by 0.6% due to lower prices. The unit volume increase was due to higher shipments of neurotechnology products partially offset by lower shipments of spine products.
Neurotechnology and Spine net sales increased 25.2% in the nine months 2021 as reported and 22.8% in constant currency, as foreign currency exchange rates positively impacted net sales by 2.4%. Excluding the 0.3% impact for acquisitions, net sales in constant currency increased by 23.1% from increased unit volume partially offset by 0.6% due to lower prices. The unit volume increase was due to higher shipments across all Neurotechnology and Spine products.
Gross Profit
Gross profit as a percentage of sales in the three months 20212022 decreased to 63.5%62.9% from 65.9%64.6% in 2020.2021. Excluding the impact of the items noted below, gross profit increaseddecreased to 66.3%63.3% of sales in the three months 20212022 from 65.9%66.0% in 2020 primarily2021 due to leverageincreased costs from higher sales volumespurchases of electronic components at premium prices on the spot market and favorable mix, partially offset by lower selling prices.other inflationary pressures, primarily related to labor, steel and transportation.
Gross profit as a percentage of sales in the ninesix months 2021 increased2022 decreased to 63.9%63.4% from 62.8%64.0% in 2020.2021. Excluding the impact of the items noted below, gross profit increaseddecreased to 65.9%63.7% of sales in the ninesix months 20212022 from 63.3%65.7% in 20202021 primarily due to leverageincreased costs from purchases of electronic components at premium prices on the spot market and other inflationary pressures, primarily related to labor, steel and transportation. These increased costs were partially offset by higher sales volumes and favorable mix, partially offset by lower selling prices.mix.
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Three Months | 2022 | 2021 | 2022 | 2021 |
Reported | $ | 2,826 | | $ | 2,772 | | 62.9 | % | 64.6 | % |
Inventory stepped-up to fair value | 7 | | 58 | | 0.2 | | 1.4 | |
| | | | |
| | | | |
Restructuring-related and other charges | 8 | | 2 | | 0.2 | | — | |
Medical device regulations | 2 | | — | | — | | — | |
| | | | |
| | | | |
| | | | |
Adjusted | $ | 2,843 | | $ | 2,832 | | 63.3 | % | 66.0 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Six Months | 2022 | 2021 | 2022 | 2021 |
Reported | $ | 5,560 | | $ | 5,281 | | 63.4 | % | 64.0 | % |
Inventory stepped-up to fair value | 12 | | 137 | | 0.2 | | 1.7 | |
| | | | |
| | | | |
Restructuring-related and other charges | 10 | | — | | 0.1 | | — | |
Medical device regulations | 2 | | 1 | | — | | — | |
| | | | |
| | | | |
| | | | |
Adjusted | $ | 5,584 | | $ | 5,419 | | 63.7 | % | 65.7 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Three Months | 2021 | 2020 | 2021 | 2020 |
Reported | $ | 2,642 | | $ | 2,461 | | 63.5 | % | 65.9 | % |
Inventory stepped-up to fair value | 94 | | — | | 2.3 | | — | |
| | | | |
| | | | |
Restructuring-related and other charges | 20 | | — | | 0.5 | | — | |
Medical device regulations | 1 | | — | | — | | — | |
| | | | |
| | | | |
| | | | |
Adjusted | $ | 2,757 | | $ | 2,461 | | 66.3 | % | 65.9 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Nine Months | 2021 | 2020 | 2021 | 2020 |
Reported | $ | 7,923 | | $ | 6,340 | | 63.9 | % | 62.8 | % |
Inventory stepped-up to fair value | 231 | | 9 | | 1.9 | | 0.1 | |
| | | | |
| | | | |
Restructuring-related and other charges | 20 | | 36 | | 0.1 | | 0.4 | |
Medical device regulations | 2 | | 1 | | — | | — | |
| | | | |
| | | | |
| | | | |
Adjusted | $ | 8,176 | | $ | 6,386 | | 65.9 | % | 63.3 | % |
Research, Development and Engineering Expenses
Research, development and engineering expenses increased $64$41 or 26.4%13.2% in the three months 20212022 and increased as a percentage of sales to 7.4%7.8% from 6.5%7.2% in 2020.2021. Excluding the impact of the items noted below, expenses increased to 6.7%7.2% of sales in 20212022 from 6.1%6.6% in 2020.2021.
Research, development and engineering expenses increased $175$166 or 24.0%27.8% in the ninesix months 20212022 and increased as a percentage of sales to 8.7% from 7.3% from 7.2% in 2020.2021. Excluding the impact of the items noted below, expenses increased to 6.7%7.2% of sales in 20212022 from 6.6%6.7% in 2020.2021.
The increases for the three and ninesix months are duereflect our continued commitment to disciplined ramp up in spending to facilitate our growth, including projects to develop new products, investments in newproduct development and technologies, and integration of recent acquisitions.acquisitions and for the six months the write-off of certain intangible assets.
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Three Months | 2021 | 2020 | 2021 | 2020 |
Reported | $ | 306 | | $ | 242 | | 7.4 | % | 6.5 | % |
| | | | |
| | | | |
| | | | |
| | | | |
Medical device regulations | (26) | | (13) | | (0.7) | | (0.4) | |
| | | | |
| | | | |
| | | | |
Adjusted | $ | 280 | | $ | 229 | | 6.7 | % | 6.1 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Nine Months | 2021 | 2020 | 2021 | 2020 |
Reported | $ | 904 | | $ | 729 | | 7.3 | % | 7.2 | % |
| | | | |
| | | | |
| | | | |
| | | | |
Medical device regulations | (70) | | (59) | | (0.6) | | (0.6) | |
| | | | |
| | | | |
| | | | |
Adjusted | $ | 834 | | $ | 670 | | 6.7 | % | 6.6 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Three Months | 2022 | 2021 | 2022 | 2021 |
Reported | $ | 351 | | $ | 310 | | 7.8 | % | 7.2 | % |
| | | | |
| | | | |
| | | | |
| | | | |
Medical device regulations | (28) | | (26) | | (0.6) | | (0.6) | |
| | | | |
| | | | |
| | | | |
Adjusted | $ | 323 | | $ | 284 | | 7.2 | % | 6.6 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Six Months | 2022 | 2021 | 2022 | 2021 |
Reported | $ | 764 | | $ | 598 | | 8.7 | % | 7.3 | % |
| | | | |
| | | | |
| | | | |
Restructuring-related and other charges | (79) | | — | | (0.9) | | — | |
Medical device regulations | (56) | | (44) | | (0.6) | | (0.6) | |
| | | | |
| | | | |
| | | | |
Adjusted | $ | 629 | | $ | 554 | | 7.2 | % | 6.7 | % |
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $358$34 or 28.8%2.3% in the three months 20212022 and increaseddecreased as a percentage of sales to 38.5%34.3% from 33.3%35.0% in 2020 and included an impairment charge of $105 million recorded for certain long-lived and intangible assets resulting from price reductions on our trauma and joint replacement products in China based on the outcome of the regional and national volume-based procurement programs. Excluding the impact of the items noted below, expenses increased to 34.1% of sales in 2021 from 31.7% in 2020. The increase was due to disciplined ramp up in spending to facilitate our growth.
Selling, general and administrative expenses increased $883 or 23.2% in the nine months 2021 and remained flat as a percentage of sales at 37.7%.2021. Excluding the impact of the items noted below, expenses decreased to 34.2%32.4% of sales in 20212022 from 33.4% in 2021.
Selling, general and administrative expenses increased $169 or 5.5% in the six months 2022 and decreased as a percentage of sales to 37.1% from 37.3%. Share-based awards for Vocera employees vested upon our acquisition in 2022 and a charge of $132 was recorded. Excluding the impact of the items noted below, expenses decreased to 33.7% of sales in 2022 from 34.3% in 2020. 2021.
The decrease wasdecreases as a percentage of sales for the three and six months were due to our continued cost discipline and fixed cost leverage.
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Three Months | 2022 | 2021 | 2022 | 2021 |
Reported | $ | 1,539 | | $ | 1,505 | | 34.3 | % | 35.0 | % |
| | | | |
Other acquisition and integration-related | (30) | | (62) | | (0.8) | | (1.4) | |
| | | | |
Restructuring-related and other charges | (54) | | (16) | | (1.2) | | (0.4) | |
Medical device regulations | (2) | | — | | — | | — | |
| | | | |
Regulatory and legal matters | 4 | | 9 | | 0.1 | | 0.2 | |
| | | | |
Adjusted | $ | 1,457 | | $ | 1,436 | | 32.4 | % | 33.4 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Six Months | 2022 | 2021 | 2022 | 2021 |
Reported | $ | 3,249 | | $ | 3,080 | | 37.1 | % | 37.3 | % |
| | | | |
Other acquisition and integration-related | (174) | | (232) | | (2.1) | | (2.8) | |
| | | | |
Restructuring-related and other charges | (82) | | (31) | | (0.9) | | (0.3) | |
Medical device regulations | (2) | | — | | — | | — | |
| | | | |
Regulatory and legal matters | (33) | | 9 | | (0.4) | | 0.1 | |
| | | | |
Adjusted | $ | 2,958 | | $ | 2,826 | | 33.7 | % | 34.3 | % |
| | | | | |
Dollar amounts are in millions except per share amounts or as otherwise specified. | 12 |
| | | | | | | | |
STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Three Months | 2021 | 2020 | 2021 | 2020 |
Reported | $ | 1,602 | | $ | 1,244 | | 38.5 | % | 33.3 | % |
| | | | |
Other acquisition and integration-related | (32) | | (29) | | (0.8) | | (0.8) | |
| | | | |
Restructuring-related and other charges | (158) | | (29) | | (3.8) | | (0.8) | |
| | | | |
| | | | |
Regulatory and legal matters | 7 | | — | | 0.2 | | — | |
| | | | |
Adjusted | $ | 1,419 | | $ | 1,186 | | 34.1 | % | 31.7 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Nine Months | 2021 | 2020 | 2021 | 2020 |
Reported | $ | 4,682 | | $ | 3,799 | | 37.7 | % | 37.7 | % |
| | | | |
Other acquisition and integration-related | (264) | | (76) | | (2.1) | | (0.8) | |
| | | | |
Restructuring-related and other charges | (189) | | (256) | | (1.5) | | (2.6) | |
| | | | |
| | | | |
Regulatory and legal matters | 16 | | (5) | | 0.1 | | — | |
| | | | |
Adjusted | $ | 4,245 | | $ | 3,462 | | 34.2 | % | 34.3 | % |
Recall Charges
Recall charges were $16$4 and $76 in the three months and $98$18 and $82 in the ninesix months 20212022 and minimal2021. Charges in the three and ninesix months 2020. Charges2022 were primarily duerelated to the previously disclosed Wright hip products, and charges in the three and six months 2021 were primarily related to Rejuvenate and ABG II Modular-Neck hip stems. Refer to Note 6 to our Consolidated Financial Statements for further information.
Amortization of Intangible Assets
Amortization of intangible assets was $144$160 and $114$149 in the three months and $474$310 and $342$330 in the ninesix months 20212022 and 2020. The increase in 2021 was primarily due to the acquisition of Wright Medical in the fourth quarter of 2020.2021. Refer to Note 7 to our Consolidated Financial Statements for further information.
Operating Income
Operating income decreased $285increased $40 to 13.8%17.2% of sales in the three months 20212022 from 23.0%17.0% of sales in 2020.2021. Excluding the impact of the items noted below, operating income decreased to 25.4%23.7% of sales in 20212022 from 28.0%25.9% in 20202021 primarily due to disciplined spending to facilitate our growth.higher costs from inflationary pressures, partially offset by leverage from higher sales volumes and cost discipline.
Operating income increased $291$28 or 19.7%2.4% to 14.2%13.9% of sales in the ninesix months 20212022 from 14.6%14.4% of sales in 2020.2021. Excluding the impact of the items noted below, operating income increaseddecreased to 25.0%22.8% of sales in 20212022 from 22.3%24.7% in 20202021 primarily due to higher costs from inflationary pressures and our continued investments in innovation, partially offset by leverage from higher sales volumes partially offset by disciplined spending to facilitate our growth.and cost discipline.
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Three Months | 2021 | 2020 | 2021 | 2020 |
Reported | $ | 574 | | $ | 859 | | 13.8 | % | 23.0 | % |
Inventory stepped-up to fair value | 94 | | — | | 2.3 | | — | |
Other acquisition and integration-related | 32 | | 29 | | 0.8 | | 0.7 | |
Amortization of purchased intangible assets | 144 | | 114 | | 3.5 | | 3.1 | |
Restructuring-related and other charges | 178 | | 29 | | 4.2 | | 0.7 | |
Medical device regulations | 27 | | 14 | | 0.6 | | 0.4 | |
Recall-related matters | 16 | | 2 | | 0.4 | | 0.1 | |
Regulatory and legal matters | (7) | | — | | (0.2) | | — | |
| | | | |
Adjusted | $ | 1,058 | | $ | 1,047 | | 25.4 | % | 28.0 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Nine Months | 2021 | 2020 | 2021 | 2020 |
Reported | $ | 1,765 | | $ | 1,474 | | 14.2 | % | 14.6 | % |
Inventory stepped-up to fair value | 231 | | 9 | | 1.9 | | 0.1 | |
Other acquisition and integration-related | 264 | | 76 | | 2.1 | | 0.8 | |
Amortization of purchased intangible assets | 474 | | 342 | | 3.8 | | 3.3 | |
Restructuring-related and other charges | 209 | | 292 | | 1.7 | | 2.9 | |
Medical device regulations | 72 | | 60 | | 0.6 | | 0.6 | |
Recall-related matters | 98 | | (4) | | 0.8 | | — | |
Regulatory and legal matters | (16) | | 5 | | (0.1) | | — | |
| | | | |
Adjusted | $ | 3,097 | | $ | 2,254 | | 25.0 | % | 22.3 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Three Months | 2022 | 2021 | 2022 | 2021 |
Reported | $ | 772 | | $ | 732 | | 17.2 | % | 17.0 | % |
Inventory stepped-up to fair value | 7 | | 58 | | 0.2 | | 1.4 | |
Other acquisition and integration-related | 30 | | 62 | | 0.6 | | 1.4 | |
Amortization of purchased intangible assets | 160 | | 149 | | 3.6 | | 3.5 | |
Restructuring-related and other charges | 62 | | 17 | | 1.4 | | 0.4 | |
Medical device regulations | 32 | | 26 | | 0.7 | | 0.6 | |
Recall-related matters | 4 | | 76 | | 0.1 | | 1.8 | |
Regulatory and legal matters | (4) | | (9) | | (0.1) | | (0.2) | |
| | | | |
Adjusted | $ | 1,063 | | $ | 1,111 | | 23.7 | % | 25.9 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Six Months | 2022 | 2021 | 2022 | 2021 |
Reported | $ | 1,219 | | $ | 1,191 | | 13.9 | % | 14.4 | % |
Inventory stepped-up to fair value | 12 | | 137 | | 0.1 | | 1.7 | |
Other acquisition and integration-related | 174 | | 232 | | 2.0 | | 2.8 | |
Amortization of purchased intangible assets | 310 | | 330 | | 3.5 | | 4.0 | |
Restructuring-related and other charges | 171 | | 31 | | 2.0 | | 0.4 | |
Medical device regulations | 60 | | 45 | | 0.7 | | 0.5 | |
Recall-related matters | 18 | | 82 | | 0.2 | | 1.0 | |
Regulatory and legal matters | 33 | | (9) | | 0.4 | | (0.1) | |
| | | | |
Adjusted | $ | 1,997 | | $ | 2,039 | | 22.8 | % | 24.7 | % |
Other Income (Expense), Net
Other income (expense), net was ($79)52) and ($79)70) in the three months and ($241)113) and ($191)162) in the ninesix months 20212022 and 2020.2021. The increasedecrease in net expense in 20212022 was primarily due to increasedfavorable investment returns and interest expense driven by the additional debt from the bond offerings completed in June 2020 and November 2020.income.
Income Taxes
Our effective tax rates wereof 8.9% and 11.5% in the three and 20.4%six months 2022 include the reversal of deferred income tax on undistributed earnings of foreign subsidiaries determined to be indefinitely reinvested and certain discrete tax items. Our effective tax rates of 10.6% and 13.1% in the three and six months 2021 include certain discrete tax items.
We are routinely audited by income tax authorities in the jurisdictions we operate. In July 2022 we effectively settled the United States federal income tax audit for years 2014 through 2018. Accordingly in the three months ending September 30, 2022 we expect to reduce our accruals for uncertain tax positions and 12.6% and 19.6% in the nine months 2021 and 2020. The change in the effective income tax rate for the three months was primarily due to lower pre-tax income and certain discrete tax items recorded in 2021. The change in effective income tax rates for the nine months reflects certain discrete tax items recorded in 2021.
In March 2021 the American Rescue Plan Act (the Act) was signed into law in the United States. We do not expect the provisions of the Act to have a material impact on our annual effective tax rate or Consolidated Financial Statements in 2021.related interest by approximately $220.
Net Earnings
Net earnings decreasedincreased to $438$656 or $1.14$1.72 per diluted share in the three months 20212022 from $621$592 or $1.63$1.55 per diluted share in 2020.2021. Adjusted net earnings per diluted share(1) was $2.25 in 2022 in line with 2021.
Net earnings increased to $979 or $2.56 per diluted share in the six months 2022 from $894 or $2.34 per diluted share in 2021. Adjusted net earnings per diluted share(1) increased 1.0% to $2.20$4.22 in 20212022 from $2.14$4.18 in 2020. The impact of foreign currency exchange rates increased net earnings per diluted share by approximately $0.04 in 2021 and increased net earnings per diluted share by approximately $0.01 in 2020.2021.
Net earnings increased to $1,332 or $3.48 per diluted share in the nine months 2021 from $1,031 or $2.71 per diluted share in 2020. Adjusted net earnings per diluted share(1) increased 38.1% to $6.38 in 2021 from $4.62 in 2020. The impact of foreign currency exchange rates increased net earnings per diluted share by approximately $0.16 in 2021 and reduced net earnings per diluted share by approximately $0.01 in 2020.
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Three Months | 2021 | 2020 | 2021 | 2020 |
Reported | $ | 438 | | $ | 621 | | 10.5 | % | 16.6 | % |
Inventory stepped-up to fair value | 73 | | — | | 1.8 | | — | |
Other acquisition and integration-related | 24 | | 24 | | 0.6 | | 0.6 | |
Amortization of purchased intangible assets | 114 | | 93 | | 2.7 | | 2.5 | |
Restructuring-related and other charges | 165 | | 26 | | 3.9 | | 0.7 | |
Medical device regulations | 23 | | 11 | | 0.6 | | 0.3 | |
Recall-related matters | 12 | | 2 | | 0.3 | | 0.1 | |
Regulatory and legal matters | (7) | | — | | (0.2) | | — | |
Tax matters | — | | 35 | | — | | 0.9 | |
Adjusted | $ | 842 | | $ | 812 | | 20.2 | % | 21.7 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Nine Months | 2021 | 2020 | 2021 | 2020 |
Reported | $ | 1,332 | | $ | 1,031 | | 10.7 | % | 10.2 | % |
Inventory stepped-up to fair value | 176 | | 6 | | 1.4 | | 0.1 | |
Other acquisition and integration-related | 204 | | 60 | | 1.6 | | 0.6 | |
Amortization of purchased intangible assets | 378 | | 277 | | 3.1 | | 2.6 | |
Restructuring-related and other charges | 198 | | 238 | | 1.7 | | 2.4 | |
Medical device regulations | 60 | | 47 | | 0.5 | | 0.5 | |
Recall-related matters | 85 | | (2) | | 0.7 | | — | |
Regulatory and legal matters | (19) | | 6 | | (0.2) | | 0.1 | |
Tax matters | 26 | | 93 | | 0.2 | | 0.9 | |
Adjusted | $ | 2,440 | | $ | 1,756 | | 19.7 | % | 17.4 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Three Months | 2022 | 2021 | 2022 | 2021 |
Reported | $ | 656 | | $ | 592 | | 14.6 | % | 13.8 | % |
Inventory stepped-up to fair value | 5 | | 43 | | 0.1 | | 1.0 | |
Other acquisition and integration-related | 23 | | 51 | | 0.5 | | 1.2 | |
Amortization of purchased intangible assets | 124 | | 113 | | 2.8 | | 2.7 | |
Restructuring-related and other charges | 56 | | 15 | | 1.2 | | 0.3 | |
Medical device regulations | 26 | | 21 | | 0.6 | | 0.5 | |
Recall-related matters | 3 | | 68 | | 0.1 | | 1.6 | |
Regulatory and legal matters | (4) | | (12) | | (0.1) | | (0.3) | |
Tax matters | (29) | | (30) | | (0.7) | | (0.7) | |
Adjusted | $ | 860 | | $ | 861 | | 19.1 | % | 20.1 | % |
| | | | | | | | | | | | | | |
| | Percent Net Sales |
Six Months | 2022 | 2021 | 2022 | 2021 |
Reported | $ | 979 | | $ | 894 | | 11.2 | % | 10.8 | % |
Inventory stepped-up to fair value | 9 | | 103 | | 0.1 | | 1.2 | |
Other acquisition and integration-related | 128 | | 180 | | 1.5 | | 2.2 | |
Amortization of purchased intangible assets | 239 | | 264 | | 2.6 | | 3.3 | |
Restructuring-related and other charges | 140 | | 33 | | 1.6 | | 0.4 | |
Medical device regulations | 50 | | 37 | | 0.6 | | 0.4 | |
Recall-related matters | 14 | | 73 | | 0.2 | | 0.9 | |
Regulatory and legal matters | 24 | | (12) | | 0.3 | | (0.1) | |
Tax matters | 29 | | 26 | | 0.3 | | 0.3 | |
Adjusted | $ | 1,612 | | $ | 1,598 | | 18.4 | % | 19.4 | % |
| | | | | |
Dollar amounts are in millions except per share amounts or as otherwise specified. | 13 |
| | | | | | | | |
STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
Non-GAAP Financial Measures
We supplement the reporting of our financial information determined under accounting principles generally accepted in the United States (GAAP) with certain non-GAAP financial measures, including percentage sales growth in constant currency; percentage organic sales growth; adjusted gross profit; adjusted selling, general and administrative expenses; adjusted research, development and engineering expenses; adjusted operating income; adjusted other income (expense), net; adjusted effective income tax rate; adjusted net earnings; and adjusted net earnings per diluted share (Diluted EPS).; free cash flow; and free cash flow conversion. We believe these non-GAAP financial measures provide meaningful information to assist investors and shareholders in understanding our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures for reviewing the operating results of reportable business segments and analyzing potential future business trends in connection with our budget process and bases certain management incentive compensation on these non-GAAP financial measures. To measure percentage sales growth in constant currency, we remove the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Percentage sales growth in constant currency is calculated by translating current and prior year results at the same foreign currency exchange rate. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates, acquisitions and divestitures, which affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year and prior year results at prior year averagethe same foreign currency exchange rates excluding the impact of acquisitions and divestitures. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings. To measure free cash flow, we adjust cash provided by operating activities by the amount of purchases of property, plant and equipment and proceeds from long-lived asset disposals and remove the impact of certain legal settlements and recall payments. To measure free cash flow conversion we divide free cash flow by adjusted net earnings. These adjustments are irregular in timing and may not be indicative of our past and future performance. The following are examples of the types of adjustments that may be included in a period:
1.Acquisition and integration-related costs. Costs related to integrating recently acquired businesses (e.g., costs associated with the termination of sales relationships,
workforce reductions and other integration-related activities) and specific costs (e.g., inventory step-up and deal costs) related to the consummation of the acquisition process.
2.Amortization of purchased intangible assets. Periodic amortization expense related to purchased intangible assets.
3.Restructuring-related and other charges. Costs associated with the termination of sales relationships in certain countries, workforce reductions, elimination of product lines, certain long-lived and intangible asset write-offs and impairments and associated costs and other restructuring-related activities.
4.Medical Device Regulations.device regulations. Costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the new medical device reporting regulations and other requirements of the European Union and Chinathe more stringent regulations for medical devices.devices in China.
5.Recall-related matters. Our best estimate of the minimum of the range of probable loss to resolve the Rejuvenate, LFIT V40 and other product recalls.
6.Regulatory and legal matters. Our best estimate of the minimum of the range of probable loss to resolve certain regulatory matters and other legal settlements.
7.Tax matters. Charges represent the impact of accounting for certain significant and discrete tax items.
Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, gross profit, selling, general and administrative expenses, research, development and engineering expenses, operating income, other income (expense), net, effective income tax rate, net earnings and net earnings per diluted share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of our operations when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures at the end of the discussion of Consolidated Results of Operations below. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
The weighted-average diluted shares outstanding used in the calculation of non-GAAP net earnings per diluted share are the same as those used in the calculation of reported net earnings per diluted share for the respective period.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures |
Three Months 2021 | Gross Profit | Selling, General & Administrative Expenses | Research, Development & Engineering Expenses | Operating Income | Other income (expense), net | Net Earnings | Effective Tax Rate | Diluted EPS |
Reported | $ | 2,642 | | $ | 1,602 | | $ | 306 | | $ | 574 | | $ | (79) | | $ | 438 | | 11.5 | % | $ | 1.14 | |
Reported percent net sales | 63.5 | % | 38.5 | % | 7.4 | % | 13.8 | % | (1.9) | % | 10.5 | % | | |
Acquisition and integration-related charges: | | | | | | | | |
Inventory stepped-up to fair value | 94 | | — | | — | | 94 | | — | | 73 | | 1.9 | | 0.19 | |
Other acquisition and integration-related | — | | (32) | | — | | 32 | | — | | 24 | | 0.8 | | 0.06 | |
Amortization of purchased intangible assets | — | | — | | — | | 144 | | — | | 114 | | 2.0 | | 0.30 | |
Restructuring-related and other charges | 20 | | (158) | | — | | 178 | | — | | 165 | | (2.6) | | 0.44 | |
Medical device regulations | 1 | | — | | (26) | | 27 | | — | | 23 | | (0.1) | | 0.06 | |
Recall-related matters | — | | — | | — | | 16 | | — | | 12 | | 0.3 | | 0.03 | |
Regulatory and legal matters | — | | 7 | | — | | (7) | | — | | (7) | | 0.2 | | (0.02) | |
Tax matters | — | | — | | — | | — | | — | | — | | — | | — | |
Adjusted | $ | 2,757 | | $ | 1,419 | | $ | 280 | | $ | 1,058 | | $ | (79) | | $ | 842 | | 14.0 | % | $ | 2.20 | |
Adjusted percent net sales | 66.3 | % | 34.1 | % | 6.7 | % | 25.4 | % | (1.9) | % | 20.2 | % | | |
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 14 |
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
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Three Months 2020 | Gross Profit | Selling, General & Administrative Expenses | Research, Development & Engineering Expenses | Operating Income | Other income (expense), net | Net Earnings | Effective Tax Rate | Diluted EPS |
Reported | $ | 2,461 | | $ | 1,244 | | $ | 242 | | $ | 859 | | $ | (79) | | $ | 621 | | 20.4 | % | $ | 1.63 | |
Reported percent net sales | 65.9 | % | 33.3 | % | 6.5 | % | 23.0 | % | (2.1) | % | 16.6 | % | | |
Acquisition and integration-related charges: | | | | | | | | |
Inventory stepped-up to fair value | — | | — | | — | | — | | — | | — | | — | | — | |
Other acquisition and integration-related | — | | (29) | | — | | 29 | | — | | 24 | | 0.1 | | 0.07 | |
Amortization of purchased intangible assets | — | | — | | — | | 114 | | — | | 93 | | 0.4 | | 0.25 | |
Restructuring-related and other charges | — | | (29) | | — | | 29 | | — | | 26 | | (0.1) | | 0.06 | |
Medical device regulations | — | | — | | (13) | | 14 | | — | | 11 | | 0.1 | | 0.03 | |
Recall-related matters | — | | — | | — | | 2 | | — | | 2 | | (0.2) | | 0.01 | |
Regulatory and legal matters | — | | — | | — | | — | | — | | — | | — | | — | |
Tax matters | — | | — | | — | | — | | — | | 35 | | (4.6) | | 0.09 | |
Adjusted | $ | 2,461 | | $ | 1,186 | | $ | 229 | | $ | 1,047 | | $ | (79) | | $ | 812 | | 16.1 | % | $ | 2.14 | |
Adjusted percent net sales | 65.9 | % | 31.7 | % | 6.1 | % | 28.0 | % | (2.1) | % | 21.7 | % | | |
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Nine Months 2021 | Gross Profit | Selling, General & Administrative Expenses | Research, Development & Engineering Expenses | Operating Income | Other income (expense), net | Net Earnings | Effective Tax Rate | Diluted EPS |
Reported | $ | 7,923 | | $ | 4,682 | | $ | 904 | | $ | 1,765 | | $ | (241) | | $ | 1,332 | | 12.6 | % | $ | 3.48 | |
Reported percent net sales | 63.9 | % | 37.7 | % | 7.3 | % | 14.2 | % | (1.9) | % | 10.7 | % | | |
Acquisition and integration-related charges: | | | | | | | | |
Inventory stepped-up to fair value | 231 | | — | | — | | 231 | | — | | 176 | | 1.4 | | 0.46 | |
Other acquisition and integration-related | — | | (264) | | — | | 264 | | — | | 204 | | 1.4 | | 0.53 | |
Amortization of purchased intangible assets | — | | — | | — | | 474 | | — | | 378 | | 1.7 | | 0.99 | |
Restructuring-related and other charges | 20 | | (189) | | — | | 209 | | 11 | | 198 | | (0.7) | | 0.52 | |
Medical device regulations | 2 | | — | | (70) | | 72 | | — | | 60 | | 0.1 | | 0.16 | |
Recall-related matters | — | | — | | — | | 98 | | — | | 85 | | (0.1) | | 0.22 | |
Regulatory and legal matters | — | | 16 | | — | | (16) | | (3) | | (19) | | 0.2 | | (0.05) | |
Tax matters | — | | — | | — | | — | | — | | 26 | | (1.8) | | 0.07 | |
Adjusted | $ | 8,176 | | $ | 4,245 | | $ | 834 | | $ | 3,097 | | $ | (233) | | $ | 2,440 | | 14.8 | % | $ | 6.38 | |
Adjusted percent net sales | 65.9 | % | 34.2 | % | 6.7 | % | 25.0 | % | (1.9) | % | 19.7 | % | | |
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Nine Months 2020 | Gross Profit | Selling, General & Administrative Expenses | Research, Development & Engineering Expenses | Operating Income | Other income (expense), net | Net Earnings | Effective Tax Rate | Diluted EPS |
Reported | $ | 6,340 | | $ | 3,799 | | $ | 729 | | $ | 1,474 | | $ | (191) | | $ | 1,031 | | 19.6 | % | $ | 2.71 | |
Reported percent net sales | 62.8 | % | 37.7 | % | 7.2 | % | 14.6 | % | (1.9) | % | 10.2 | % | | |
Acquisition and integration-related charges: | | | | | | | | |
Inventory stepped-up to fair value | 9 | | — | | — | | 9 | | — | | 6 | | 0.1 | | 0.02 | |
Other acquisition and integration-related | — | | (76) | | — | | 76 | | — | | 60 | | 0.4 | | 0.16 | |
Amortization of purchased intangible assets | — | | — | | — | | 342 | | — | | 277 | | 1.0 | | 0.73 | |
Restructuring-related and other charges | 36 | | (256) | | — | | 292 | | — | | 238 | | 0.8 | | 0.62 | |
Medical device regulations | 1 | | — | | (59) | | 60 | | — | | 47 | | 0.3 | | 0.12 | |
Recall-related matters | — | | — | | — | | (4) | | — | | (2) | | (0.2) | | — | |
Regulatory and legal matters | — | | (5) | | — | | 5 | | — | | 6 | | (0.2) | | 0.02 | |
Tax matters | — | | — | | — | | — | | 7 | | 93 | | (6.6) | | 0.24 | |
Adjusted | $ | 6,386 | | $ | 3,462 | | $ | 670 | | $ | 2,254 | | $ | (184) | | $ | 1,756 | | 15.2 | % | $ | 4.62 | |
Adjusted percent net sales | 63.3 | % | 34.3 | % | 6.6 | % | 22.3 | % | (1.8) | % | 17.4 | % | | |
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Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures |
Three Months 2022 | Gross Profit | Selling, General & Administrative Expenses | Research, Development & Engineering Expenses | Operating Income | Other Income (Expense), Net | Net Earnings | Effective Tax Rate | Diluted EPS |
Reported | $ | 2,826 | | $ | 1,539 | | $ | 351 | | $ | 772 | | $ | (52) | | $ | 656 | | 8.9 | % | $ | 1.72 | |
Reported percent net sales | 62.9 | % | 34.3 | % | 7.8 | % | 17.2 | % | (1.2) | % | 14.6 | % | | |
Acquisition and integration-related costs: | | | | | | | | |
Inventory stepped-up to fair value | 7 | | — | | — | | 7 | | — | | 5 | | 0.1 | | 0.01 | |
Other acquisition and integration-related | — | | (30) | | — | | 30 | | — | | 23 | | 0.4 | | 0.06 | |
Amortization of purchased intangible assets | — | | — | | — | | 160 | | — | | 124 | | 2.0 | | 0.33 | |
Restructuring-related and other charges | 8 | | (54) | | — | | 62 | | — | | 56 | | (0.4) | | 0.15 | |
Medical device regulations | 2 | | (2) | | (28) | | 32 | | — | | 26 | | 0.2 | | 0.07 | |
Recall-related matters | — | | — | | — | | 4 | | — | | 3 | | 0.1 | | — | |
Regulatory and legal matters | — | | 4 | | — | | (4) | | — | | (4) | | — | | (0.02) | |
Tax matters | — | | — | | — | | — | | (12) | | (29) | | 2.6 | | (0.07) | |
Adjusted | $ | 2,843 | | $ | 1,457 | | $ | 323 | | $ | 1,063 | | $ | (64) | | $ | 860 | | 13.9 | % | $ | 2.25 | |
Adjusted percent net sales | 63.3 | % | 32.4 | % | 7.2 | % | 23.7 | % | (1.4) | % | 19.1 | % | | |
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Three Months 2021 | Gross Profit | Selling, General & Administrative Expenses | Research, Development & Engineering Expenses | Operating Income | Other Income (Expense), Net | Net Earnings | Effective Tax Rate | Diluted EPS |
Reported | $ | 2,772 | | $ | 1,505 | | $ | 310 | | $ | 732 | | $ | (70) | | $ | 592 | | 10.6 | % | $ | 1.55 | |
Reported percent net sales | 64.6 | % | 35.0 | % | 7.2 | % | 17.0 | % | (1.6) | % | 13.8 | % | | |
Acquisition and integration-related costs: | | | | | | | | |
Inventory stepped-up to fair value | 58 | | — | | — | | 58 | | — | | 43 | | 0.6 | | 0.11 | |
Other acquisition and integration-related | — | | (62) | | — | | 62 | | — | | 51 | | 0.1 | | 0.13 | |
Amortization of purchased intangible assets | — | | — | | — | | 149 | | — | | 113 | | 1.4 | | 0.29 | |
Restructuring-related and other charges | 2 | | (16) | | — | | 17 | | — | | 15 | | (0.1) | | 0.03 | |
Medical device regulations | — | | — | | (26) | | 26 | | — | | 21 | | 0.1 | | 0.06 | |
Recall-related matters | — | | — | | — | | 76 | | — | | 68 | | (0.4) | | 0.18 | |
Regulatory and legal matters | — | | 9 | | — | | (9) | | (3) | | (12) | | 0.3 | | (0.03) | |
Tax matters | — | | — | | — | | — | | — | | (30) | | 4.4 | | (0.07) | |
Adjusted | $ | 2,832 | | $ | 1,436 | | $ | 284 | | $ | 1,111 | | $ | (73) | | $ | 861 | | 17.0 | % | $ | 2.25 | |
Adjusted percent net sales | 66.0 | % | 33.4 | % | 6.6 | % | 25.9 | % | (1.7) | % | 20.1 | % | | |
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Six Months 2022 | Gross Profit | Selling, General & Administrative Expenses | Research, Development & Engineering Expenses | Operating Income | Other Income (Expense), Net | Net Earnings | Effective Tax Rate | Diluted EPS |
Reported | $ | 5,560 | | $ | 3,249 | | $ | 764 | | $ | 1,219 | | $ | (113) | | $ | 979 | | 11.5 | % | $ | 2.56 | |
Reported percent net sales | 63.4 | % | 37.1 | % | 8.7 | % | 13.9 | % | (1.3) | % | 11.2 | % | | |
Acquisition and integration-related costs: | | | | | | | | |
Inventory stepped-up to fair value | 12 | | — | | — | | 12 | | — | | 9 | | 0.1 | | 0.02 | |
Other acquisition and integration-related | — | | (174) | | — | | 174 | | — | | 128 | | 2.0 | | 0.33 | |
Amortization of purchased intangible assets | — | | — | | — | | 310 | | — | | 239 | | 2.6 | | 0.63 | |
Restructuring-related and other charges | 10 | | (82) | | (79) | | 171 | | — | | 140 | | 0.6 | | 0.37 | |
Medical device regulations | 2 | | (2) | | (56) | | 60 | | — | | 50 | | 0.2 | | 0.13 | |
Recall-related matters | — | | — | | — | | 18 | | — | | 14 | | 0.2 | | 0.04 | |
Regulatory and legal matters | — | | (33) | | — | | 33 | | — | | 24 | | 0.4 | | 0.06 | |
Tax matters | — | | — | | — | | — | | (12) | | 29 | | (3.7) | | 0.08 | |
Adjusted | $ | 5,584 | | $ | 2,958 | | $ | 629 | | $ | 1,997 | | $ | (125) | | $ | 1,612 | | 13.9 | % | $ | 4.22 | |
Adjusted percent net sales | 63.7 | % | 33.7 | % | 7.2 | % | 22.8 | % | (1.4) | % | 18.4 | % | | |
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Six Months 2021 | Gross Profit | Selling, General & Administrative Expenses | Research, Development & Engineering Expenses | Operating Income | Other Income (Expense), Net | Net Earnings | Effective Tax Rate | Diluted EPS |
Reported | $ | 5,281 | | $ | 3,080 | | $ | 598 | | $ | 1,191 | | $ | (162) | | $ | 894 | | 13.1 | % | $ | 2.34 | |
Reported percent net sales | 64.0 | % | 37.3 | % | 7.3 | % | 14.4 | % | (2.0) | % | 10.8 | % | | |
Acquisition and integration-related costs: | | | | | | | | |
Inventory stepped-up to fair value | 137 | | — | | — | | 137 | | — | | 103 | | 1.1 | | 0.27 | |
Other acquisition and integration-related | — | | (232) | | — | | 232 | | — | | 180 | | 1.6 | | 0.47 | |
Amortization of purchased intangible assets | — | | — | | — | | 330 | | — | | 264 | | 1.6 | | 0.69 | |
Restructuring-related and other charges | — | | (31) | | — | | 31 | | 11 | | 33 | | 0.3 | | 0.08 | |
Medical device regulations | 1 | | — | | (44) | | 45 | | — | | 37 | | 0.2 | | 0.10 | |
Recall-related matters | — | | — | | — | | 82 | | — | | 73 | | (0.3) | | 0.19 | |
Regulatory and legal matters | — | | 9 | | — | | (9) | | (3) | | (12) | | 0.2 | | (0.03) | |
Tax matters | — | | — | | — | | — | | — | | 26 | | (2.6) | | 0.07 | |
Adjusted | $ | 5,419 | | $ | 2,826 | | $ | 554 | | $ | 2,039 | | $ | (154) | | $ | 1,598 | | 15.2 | % | $ | 4.18 | |
Adjusted percent net sales | 65.7 | % | 34.3 | % | 6.7 | % | 24.7 | % | (1.9) | % | 19.4 | % | | |
FINANCIAL CONDITION AND LIQUIDITY
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Nine Months | 2021 | 2020 |
Net cash provided by operating activities | $ | 2,263 | | $ | 2,040 | |
Net cash used in investing activities | (545) | | (349) | |
Net cash provided by (used in) financing activities | (2,077) | | 1,046 | |
Effect of exchange rate changes on cash and cash equivalents | (21) | | 9 | |
Change in cash and cash equivalents | $ | (380) | | $ | 2,746 | |
Operating Activities
Cash provided by operating activities was $2,263 and $2,040 in the nine months 2021 and 2020. The increase was primarily due to higher net earnings partially offset by decreases in overall working capital and higher recall-related payments.
Investing Activities
Cash used in investing activities was $545 and $349 in the nine months 2021 and 2020. The increase in cash used in 2021 was primarily due to increased payments for acquisitions.
Financing Activities
Cash provided by (used in) financing activities was ($2,077) and $1,046 in the nine months 2021 and 2020. Cash used in 2021 was primarily driven by debt repayments of $750 in March 2021 and $400 for the term loan in June 2021. Cash provided in 2020 was driven by the issuance of $2,300 of notes in June 2020 partially offset by debt repayments of $500 in January 2020. We did not repurchase any shares in the nine months 2021 or 2020.
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Nine Months | 2021 | 2020 |
Total dividends paid to common shareholders | $ | 713 | | $ | 647 | |
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Liquidity
Cash, cash equivalents and marketable securities were $2,639 and $3,024 on September 30, 2021 and December 31, 2020. Current assets exceeded current liabilities by $5,011 and $4,666 on September 30, 2021 and December 31, 2020. We anticipate being able to support our short-term liquidity and operating needs from a variety of sources including cash from operations,
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 15 |
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
FINANCIAL CONDITION AND LIQUIDITY
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Six Months | 2022 | 2021 |
Net cash provided by operating activities | $ | 732 | | $ | 1,330 | |
Net cash used in investing activities | (2,834) | | (298) | |
Net cash provided by (used in) financing activities | 240 | | (1,729) | |
Effect of exchange rate changes on cash and cash equivalents | (38) | | (5) | |
Change in cash and cash equivalents | $ | (1,900) | | $ | (702) | |
Operating Activities
Cash provided by operating activities was $732 and $1,330 in the six months 2022 and 2021. The decrease was primarily due to increased inventory driven by higher material prices and inventory levels to manage supply chain issues and increased accounts receivable primarily due to timing of sales.
Investing Activities
Cash used in investing activities was $2,834 and $298 in the six months 2022 and 2021. The increase in cash used in 2022 was primarily due to increased payments for acquisitions and investments in capital projects.
Financing Activities
Cash provided by (used in) financing activities was $240 and ($1,729) in the six months 2022 and 2021. Cash provided in 2022 was primarily driven by the issuance of a $1,500 term loan used to fund the Vocera acquisition, of which $250 has been repaid, partially offset by the payment of dividends. Cash used in 2021 was primarily due to debt repayments of $750 in March 2021 and $400 for the term loan in June 2021. We did not repurchase any shares in the six months 2022 and 2021. Dividends paid to common shareholders were $525 and $475 in the six months 2022 and 2021.
Liquidity
Cash, cash equivalents and marketable securities were $1,127 and $3,019 on June 30, 2022 and December 31, 2021. Current assets exceeded current liabilities by $4,421 and $5,468 on June 30, 2022 and December 31, 2021. We anticipate being able to support our short-term liquidity and operating needs from a variety of sources including cash from operations, commercial paper and existing credit lines and capital expenditure and operating expense reductions. In October 2021 we entered into a new revolving credit facility of $2,250 that expires in October 2026 and replaces our previous agreement dated August 19, 2016.lines.
We raised funds in the capital markets in 2020, 2019 and 2018the past and may continue to do so from time-to-time. We continue to have strong investment-grade short-term and long-term debt ratings that we believe should enable us to refinance our debt as needed.
Our cash, cash equivalents and marketable securities held in locations outside the United States was approximately 40%55% on SeptemberJune 30, 20212022 compared to 30%26% on December 31, 2020.2021.
Critical Accounting Policies
There were no changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for 2020.2021.
New Accounting Pronouncements Not Yet Adopted
Refer to Note 1 to our Consolidated Financial Statements for information.
Guarantees and Other Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, of a magnitude that we believe could have a material impact on our financial condition or liquidity.
OTHER MATTERS
Legal and Regulatory Matters
We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of our business, including
proceedings related to product, labor, intellectual property and other matters. Refer to Note 6 to our Consolidated Financial Statements for further information.
FORWARD-LOOKING STATEMENTS
This report contains statements referring to us that are not historical facts and are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which are intended to take advantage of the "safe harbor" provisions of the Reform Act, are based on current projections about operations, industry conditions, financial condition and liquidity. Words that identify forward-looking statements include words such as "may," "could," "will," "should," "possible," "plan," "predict," "forecast," "potential," "anticipate," "estimate," "expect," "project," "intend," "believe," "may impact," "on track," "goal," "strategy" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, an acquisition or our businesses. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Those statements are not guarantees and are subject to risks, uncertainties and assumptions that are difficult to predict, including uncertainties related to the impact of the COVID-19 pandemic on our operations and financial results. Therefore, actual results could differ materially and adversely from these forward-looking statements. Some important factors that could cause our actual results to differ from our expectations in any forward-looking statements include those risks discussed in Item 1A. "Risk Factors" of our Annual Report on Form 10-K for 2020.2021 and Part II, Item 1A. "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. This Form 10-Q should be read in conjunction with our Consolidated Financial Statements and accompanying notes to our Consolidated Financial Statements in our Annual Report on Form
10-K for 2020.2021. We disclaim any intention or obligation to publicly update or revise any forward-looking statement to reflect any change in our expectations or in events, conditions or circumstances on which those expectations may be based, or that affect the likelihood that actual results will differ from those contained in the forward-looking statements.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We consider our greatest potential areas of market risk exposure to be exchange rate risk and the impacts of the COVID-19 pandemic on our operations and financial results. Quantitative and qualitative disclosures about exchange rate risk are included in Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for 2020.2021. There were no material changes from the information provided therein. We are not able to quantify the impacts of the COVID-19 pandemic on our financial results. Qualitative disclosures about the COVID-19 pandemic are included in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q and Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for 2020.2021.
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 16 |
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ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer (the Certifying Officers), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) on SeptemberJune 30, 2021.2022. Based on that evaluation, the Certifying Officers concluded the Company's disclosure controls and procedures were effective as of SeptemberJune 30, 2021.2022.
Changes in Internal Control Over Financial Reporting
There was no change to our internal control over financial reporting during the threesix months 20212022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In February 2022 we completed the acquisition of Vocera and are currently integrating Vocera into our operations, compliance programs and internal control processes. Vocera constituted approximately 8.5% of our total assets as of June 30, 2022, including the goodwill and intangible assets recorded as part of the purchase price allocation and approximately 1% of our net sales in the six months ended June 30, 2022. United States Securities and Exchange Commission guidance allows companies to exclude acquisitions from their assessment of the internal control over financial reporting during the first year following an acquisition while integrating the acquired company. We have excluded the acquired operations of Vocera from our assessment of the Company's internal control over financial reporting.
PART II – OTHER INFORMATION
We are not aware of any material changes to the risk factors included in Item 1A. "Risk Factors" in our Annual Report on Form 10-K for 2021 and Part II, Item 1A. "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, except for updates to the following risk factor:
We use a variety of raw materials, components, devices and third-party services in our global supply chains, production and distribution processes; significant shortages, price increases or unavailability of third-party services could increase our operating costs, require significant capital expenditures, or adversely impact the competitive position of our products: Our reliance on certain suppliers to secure raw materials, components and finished devices, and on certain third-party service providers, such as sterilization service providers, exposes us to product shortages and unanticipated increases in prices, whether due to inflationary pressure, regulatory changes or otherwise. In addition, several raw materials, components, finished devices and services are procured from a sole-source due to the quality considerations, unique intellectual property considerations or constraints associated with regulatory requirements. If sole-source suppliers or service providers are acquired or were unable or unwilling to deliver these materials or services, we may not be able to manufacture or have available one or more products during such period of unavailability and our business could suffer. In certain cases we may not be able to establish additional or replacement suppliers for such materials or service providers for such services in a timely or cost effective manner, largely as a result of FDA and other regulations that require, among other things, validation of materials, components and services prior to their use in or with our products. In addition, during 2022, the market has experienced increasing inflationary pressures in part due to global supply chain disruptions, labor shortages and other impacts of the COVID-19 pandemic, which
we anticipate will continue. The existence of inflation in the United States and in many of the countries where we conduct business has resulted in, and may continue to result in, higher interest rates and capital costs, shipping costs, increased costs of labor, weakening exchange rates and other similar effects. We have experienced and may continue to experience inflationary increases in manufacturing costs and operating expenses as well as negative impacts from weakening exchange rates, caused by the COVID-19 pandemic or as a result of general macroeconomic factors, and may not be able to pass these cost increases on to our customers in a timely manner, which could have a material adverse impact on our profitability and results of operations. Inflation may also cause our customers to reduce or delay orders for our products and services, which could have a material adverse impact on our sales and results of operations.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
We issued 1706,071 shares of our common stock in the three months 20212022 as performance incentive awards to employees. These shares are not registered under the Securities Act of 1933 based on the conclusion that the awards would not be events of sale within the meaning of Section 2(a)(3) of the Act.
In March 2015 we announced that our Board of Directors had authorized us to purchase up to $2,000 of our common stock. The manner, timing and amount of repurchases are determined by management based on an evaluation of market conditions, stock price, and other factors and are subject to regulatory considerations. Purchases are made from time to timetime-to-time in the open market, in privately negotiated transactions or otherwise.
In the ninesix months 20212022 we did not repurchase any shares of our common stock under our authorized repurchase program. The total dollar value of shares of our common stock that could be acquired under our authorized repurchase program was $1,033 as of SeptemberJune 30, 2021. As previously announced we intend to maintain the suspension of our share repurchase program through 2021.
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 16 |
On October 26, 2021 Stryker Corporation, and certain of its subsidiaries as designated borrowers, entered into a revolving credit agreement with various lenders and issuing banks and Wells Fargo Bank, National Association, as administrative agent (the "2021 Credit Agreement"), that replaces our previous revolving credit agreement dated August 19, 2016 (the "2016 Credit Agreement"). The principle terms of the 2021 Credit Agreement are: (1) an aggregate principal amount of commitments of $2.25 billion, (2) a maturity date of October 26, 2026 and (3) a leverage ratio financial covenant that provides for a maximum permitted leverage ratio of 3.75:1 at the end of any fiscal quarter, with an acquisition holiday no more than twice during the term of the 2021 Credit Agreement that permits the Company to elect to increase the maximum permitted leverage ratio by 1.0 to 4.75:1 for a period of four consecutive fiscal quarters, with the maximum permitted leverage ratio then stepping down by 0.25:1 for each of the next four quarters until it reaches 3.75:1, in connection with the consummation of certain material acquisitions. The 2021 Credit Agreement has an annual facility fee ranging from 6.0 to 11.0 basis points and loans under the 2021 Credit Agreement bear interest at either a Base Rate or an Offshore Rate, in each case as defined in the 2021 Credit Agreement, plus an applicable margin ranging from 0 to 1.5 basis points for Base Rate loans and 56.5 to 101.5 basis points for Offshore Rate loans. The applicable margin for Offshore Rate loans also applies to letters of credit. Both the facility fee and the applicable margin are dependent on the Company's credit ratings. The representations and warranties, covenants and events of default contained in the 2021 Credit Agreement are substantially the same as those contained in the 2016 Credit Agreement. The foregoing summary is qualified in its entirety by the terms of the 2021 Credit Agreement, a copy of which is filed as Exhibit 10(i) hereto and is incorporated herein by reference.2022.
| | | | | |
10(i) | |
31(i) | |
31(ii) | |
32(i)* | |
32(ii)* | |
101.INS | iXBRL Instance Document |
101.SCH | iXBRL Schema Document |
101.CAL | iXBRL Calculation Linkbase Document |
101.DEF | iXBRL Definition Linkbase Document |
101.LAB | iXBRL Label Linkbase Document |
101.PRE | iXBRL Presentation Linkbase Document |
104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document) |
| |
| * Furnished with this Form 10-Q |
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Dollar amounts are in millions except per share amounts or as otherwise specified. | 17 |
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STRYKER CORPORATION | | 2021 Third2022 Second Quarter Form 10-Q |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | STRYKER CORPORATION |
| | | (Registrant) |
| | | |
| | | |
Date: | October 29, 2021July 27, 2022 | | /s/ KEVIN A. LOBO |
| | | Kevin A. Lobo |
| | | Chair, and Chief Executive Officer and President |
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| | | |
Date: | October 29, 2021July 27, 2022 | | /s/ GLENN S. BOEHNLEIN |
| | | Glenn S. Boehnlein |
| | | Vice President, Chief Financial Officer |