QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
☐
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)
Michigan
38-1239739
(State of incorporation)
(I.R.S. Employer Identification No.)
2825 Airview Boulevard
Kalamazoo,
Michigan
49002
(Address of principal executive offices)
(Zip Code)
(269)
385-2600
(Registrant’s telephone number, including area code)
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.
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 377,239,958 shares of Common Stock, $0.10 par value, on September 30, 2021.
STRYKER CORPORATION
2021 Third Quarter Form 10-Q
PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Stryker Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Three Months
Nine Months
2021
2020
2021
2020
Net sales
$
4,160
$
3,737
$
12,407
$
10,089
Cost of sales
1,518
1,276
4,484
3,749
Gross profit
$
2,642
$
2,461
$
7,923
$
6,340
Research, development and engineering expenses
306
242
904
729
Selling, general and administrative expenses
1,602
1,244
4,682
3,799
Recall charges
16
2
98
(4)
Amortization of intangible assets
144
114
474
342
Total operating expenses
$
2,068
$
1,602
$
6,158
$
4,866
Operating income
$
574
$
859
$
1,765
$
1,474
Other income (expense), net
(79)
(79)
(241)
(191)
Earnings before income taxes
$
495
$
780
$
1,524
$
1,283
Income taxes
57
159
192
252
Net earnings
$
438
$
621
$
1,332
$
1,031
Net earnings per share of common stock:
Basic
$
1.17
$
1.66
$
3.54
$
2.75
Diluted
$
1.14
$
1.63
$
3.48
$
2.71
Weighted-average shares outstanding (in millions):
Basic
377.1
375.7
376.8
375.3
Effect of dilutive employee stock compensation
5.6
4.5
5.5
4.7
Diluted
382.7
380.2
382.3
380.0
Cash dividends declared per share of common stock
$
0.63
$
0.575
$
1.89
$
1.725
Anti-dilutive shares excluded from the calculation of dilutive employee stock options were de minimis in all periods.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months
Nine Months
2021
2020
2021
2020
Net earnings
$
438
$
621
$
1,332
$
1,031
Other comprehensive income (loss), net of tax:
Marketable securities
3
—
3
—
Pension plans
5
(6)
8
(14)
Unrealized gains (losses) on designated hedges
7
(2)
43
(58)
Financial statement translation
112
(194)
287
(239)
Total other comprehensive income (loss), net of tax
$
127
$
(202)
$
341
$
(311)
Comprehensive income
$
565
$
419
$
1,673
$
720
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
1
STRYKER CORPORATION
2021 Third Quarter Form 10-Q
CONSOLIDATED BALANCE SHEETS
September 30
December 31
2021
2020
(Unaudited)
Assets
Current assets
Cash and cash equivalents
$
2,563
$
2,943
Marketable securities
76
81
Accounts receivable, less allowance of $146 ($131 in 2020)
2,817
2,701
Inventories:
Materials and supplies
663
678
Work in process
274
251
Finished goods
2,497
2,565
Total inventories
$
3,434
$
3,494
Prepaid expenses and other current assets
570
488
Total current assets
$
9,460
$
9,707
Property, plant and equipment:
Land, buildings and improvements
1,627
1,546
Machinery and equipment
3,813
3,636
Total property, plant and equipment
$
5,440
$
5,182
Less accumulated depreciation
2,694
2,430
Property, plant and equipment, net
$
2,746
$
2,752
Goodwill
12,893
12,778
Other intangibles, net
5,058
5,554
Noncurrent deferred income tax assets
1,860
1,530
Other noncurrent assets
2,128
2,009
Total assets
$
34,145
$
34,330
Liabilities and shareholders' equity
Current liabilities
Accounts payable
$
934
$
810
Accrued compensation
976
925
Income taxes
373
207
Dividends payable
238
237
Accrued product liabilities
439
515
Accrued expenses and other liabilities
1,467
1,586
Current maturities of debt
22
761
Total current liabilities
$
4,449
$
5,041
Long-term debt, excluding current maturities
12,629
13,230
Income taxes
929
990
Other noncurrent liabilities
1,960
1,985
Total liabilities
$
19,967
$
21,246
Shareholders' equity
Common stock, $0.10 par value
38
38
Additional paid-in capital
1,875
1,741
Retained earnings
13,081
12,462
Accumulated other comprehensive loss
(816)
(1,157)
Total shareholders' equity
$
14,178
$
13,084
Total liabilities and shareholders' equity
$
34,145
$
34,330
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
2
STRYKER CORPORATION
2021 Third Quarter Form 10-Q
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Three Months
Nine Months
2021
2020
2021
2020
Common stock shares outstanding (in millions)
Beginning
377.1
375.6
376.1
374.5
Issuance of common stock under stock compensation and benefit plans
0.1
0.2
1.1
1.3
Ending
377.2
375.8
377.2
375.8
Common stock
Beginning
$
38
$
38
$
38
$
37
Issuance of common stock under stock compensation and benefit plans
—
—
—
1
Ending
$
38
$
38
$
38
$
38
Additional paid-in capital
Beginning
$
1,844
$
1,706
$
1,741
$
1,628
Issuance of common stock under stock compensation and benefit plans
(3)
1
(7)
(7)
Share-based compensation
34
29
141
115
Ending
$
1,875
$
1,736
$
1,875
$
1,736
Retained earnings
Beginning
$
12,881
$
11,725
$
12,462
$
11,748
Net earnings
438
621
1,332
1,031
Cash dividends declared
(238)
(217)
(713)
(650)
Ending
$
13,081
$
12,129
$
13,081
$
12,129
Accumulated other comprehensive income (loss)
Beginning
$
(943)
$
(715)
$
(1,157)
$
(606)
Other comprehensive income (loss)
127
(202)
341
(311)
Ending
$
(816)
$
(917)
$
(816)
$
(917)
Total shareholders' equity
$
14,178
$
12,986
$
14,178
$
12,986
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
3
STRYKER CORPORATION
2021 Third Quarter Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months
2021
2020
Operating activities
Net earnings
$
1,332
$
1,031
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation
278
247
Amortization of intangible assets
474
342
Asset impairments
119
161
Share-based compensation
141
115
Recall charges
98
(4)
Sale of inventory stepped-up to fair value at acquisition
231
9
Changes in operating assets and liabilities:
Accounts receivable
(145)
467
Inventories
(231)
(154)
Accounts payable
134
(26)
Accrued expenses and other liabilities
184
(184)
Recall-related payments
(180)
(13)
Income taxes
(193)
5
Other, net
21
44
Net cash provided by operating activities
$
2,263
$
2,040
Investing activities
Acquisitions, net of cash acquired
(226)
(26)
Purchases of marketable securities
(38)
(34)
Proceeds from sales of marketable securities
43
44
Purchases of property, plant and equipment
(319)
(322)
Other investing, net
(5)
(11)
Net cash used in investing activities
$
(545)
$
(349)
Financing activities
Proceeds (payments) on short-term borrowings, net
7
3
Proceeds from issuance of long-term debt
5
2,293
Payments on long-term debt
(1,151)
(500)
Payments of dividends
(713)
(647)
Cash paid for taxes from withheld shares
(88)
(79)
Other financing, net
(137)
(24)
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
Cash and cash equivalents at beginning of period
2,943
4,337
Cash and cash equivalents at end of period
$
2,563
$
7,083
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
4
STRYKER CORPORATION
2021 Third 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 September 30, 2021 and the results of operations for the three and nine months 2021. 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.
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.
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.
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
Three Months
Nine Months
2021
2020
2021
2020
Orthopaedics:
Knees
$
439
$
435
$
1,325
$
1,108
Hips
328
334
990
866
Trauma and Extremities
639
430
1,953
1,152
Other
123
118
373
307
$
1,529
$
1,317
$
4,641
$
3,433
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
$
4,160
$
3,737
$
12,407
$
10,089
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
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
Contract Assets and Liabilities
On September 30, 2021 and December 31, 2020 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 and $416 on September 30, 2021 and December 31, 2020.
Dollar amounts are in millions except per share amounts or as otherwise specified.
5
STRYKER CORPORATION
2021 Third Quarter Form 10-Q
NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (AOCI)
Three Months 2021
Marketable Securities
Pension Plans
Hedges
Financial Statement Translation
Total
Beginning
$
(3)
$
(256)
$
26
$
(710)
$
(943)
OCI
4
2
6
71
83
Income taxes
—
—
(2)
47
45
Reclassifications to:
Cost of sales
—
—
4
—
4
Other (income) expense
—
4
(2)
(8)
(6)
Income taxes
(1)
(1)
1
2
1
Net OCI
$
3
$
5
$
7
$
112
$
127
Ending
$
—
$
(251)
$
33
$
(598)
$
(816)
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)
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)
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)
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.
Foreign Currency Hedges
September 2021
Cash Flow
Net Investment
Non-Designated
Total
Gross notional amount
$
945
$
1,755
$
6,016
$
8,716
Maximum term in years
4.2
Fair value:
Other current assets
$
12
$
19
$
43
$
74
Other noncurrent assets
2
36
—
38
Other current liabilities
(10)
—
(10)
(20)
Other noncurrent liabilities
(1)
—
—
(1)
Total fair value
$
3
$
55
$
33
$
91
December 2020
Cash Flow
Net Investment
Non-Designated
Total
Gross notional amount
$
949
$
1,828
$
5,382
$
8,159
Maximum term in years
4.9
Fair value:
Other current assets
$
9
$
—
$
7
$
16
Other noncurrent assets
—
4
—
4
Other current liabilities
(12)
—
(121)
(133)
Other noncurrent liabilities
(1)
(26)
—
(27)
Total fair value
$
(4)
$
(22)
$
(114)
$
(140)
We have €1,500 in certain 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 €4,350 of senior unsecured notes 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 September 30, 2021 the total after tax gain (loss) in AOCI related to designated net investment hedges was ($185).
Net Currency Exchange Rate Gains (Losses)
Derivative
Three Months
Nine Months
instrument:
Recorded in:
2021
2020
2021
2020
Cash Flow
Cost of sales
$
(4)
$
3
$
(9)
$
3
Net Investment
Other income (expense), net
8
7
25
20
Non-Designated
Other income (expense), net
(5)
(3)
(6)
(12)
Total
$
(1)
$
7
$
10
$
11
Pretax gains (losses) on derivatives designated as cash flow hedges of $1 and net investment hedges of $30 recorded in AOCI are expected to be reclassified to cost of sales and other income (expense) in earnings within 12 months as of September 30, 2021. 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 loss of $11 was reclassified from AOCI to other income (expense) in earnings relating to the termination of forward starting interest rate swaps with notional amounts of $750 designated as cash flow hedges as we now consider it
Dollar amounts are in millions except per share amounts or as otherwise specified.
6
STRYKER CORPORATION
2021 Third 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.
There were no significant transfers into or out of any level of the fair value hierarchy in 2021.
Assets Measured at Fair Value
September
December
2021
2020
Cash and cash equivalents
$
2,563
$
2,943
Trading marketable securities
184
171
Level 1 - Assets
$
2,747
$
3,114
Available-for-sale marketable securities:
Corporate and asset-backed debt securities
$
46
$
38
United States agency debt securities
5
5
United States Treasury debt securities
22
36
Foreign government
1
—
Certificates of deposit
2
2
Total available-for-sale marketable securities
$
76
$
81
Foreign currency exchange forward contracts
112
20
Level 2 - Assets
$
188
$
101
Total assets measured at fair value
$
2,935
$
3,215
Liabilities Measured at Fair Value
September
December
2021
2020
Deferred compensation arrangements
$
184
$
171
Level 1 - Liabilities
$
184
$
171
Foreign currency exchange forward contracts
$
21
$
160
Interest rate swap liability
—
53
Level 2 - Liabilities
$
21
$
213
Contingent consideration:
Beginning
$
393
$
306
Additions
43
108
Change in estimate
11
9
Settlements
(133)
(30)
Ending
$
314
$
393
Level 3 - Liabilities
$
314
$
393
Total liabilities measured at fair value
$
519
$
777
Fair Value of Available for Sale Securities by Maturity
September 2021
December 2020
Due in one year or less
$
39
$
42
Due after one year through three years
$
37
$
39
On September 30, 2021 and December 31, 2020 the aggregate difference between the cost and fair value of available-for-sale marketable securities was nominal. Interest and marketable securities income was $15 and $19 in the three months and $50 and $84 in the nine months 2021 and 2020, which was recorded in other income (expense).
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.
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. The specific terms of the settlement agreement, including the financial terms, are confidential.
With the acquisition of Wright as more fully described in Note 7, 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 Third Quarter Form 10-Q
material adverse effect on our results of operations and cash flows.
Leases
September
December
2021
2020
Right-of-use assets
$
400
$
423
Lease liabilities, current
$
108
$
109
Lease liabilities, non-current
$
298
$
325
Other information:
Weighted-average remaining lease term
5.6 years
5.6 years
Weighted-average discount rate
2.83
%
2.57
%
Three Months
Nine Months
2021
2020
2021
2020
Operating lease cost
$
35
$
27
$
102
$
94
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 and $26 in the nine months 2021 and 2020.
In September 2021 we completed the acquisition of Gauss Surgical, Inc. (Gauss). Gauss is a medical device company that has developed Triton, an artificial intelligence-enabled platform for real-time monitoring of blood loss during surgery. Gauss is part of our Instruments business within MedSurg. Goodwill attributable to the acquisition 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 including 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 leader in the digital evolution of musculoskeletal care and sensor technology for total joint replacement. OrthoSensor is part of our Orthopaedics business. Goodwill attributable to the acquisition is not deductible for tax purposes.
Purchase price allocations for our significant acquisitions are:
Purchase Price Allocation of Acquired Net Assets
2020
Wright
Tangible assets and liabilities:
Accounts receivable
$
127
Inventory
448
Deferred income tax assets
472
Other assets
345
Debt
(1,446)
Deferred income tax liabilities
(494)
Product liabilities
(208)
Other liabilities
(292)
Intangible assets:
Customer and distributor relationships
182
Developed technology and patents
1,503
Trade name
58
Goodwill
3,386
Purchase price, net of cash acquired
$
4,081
Weighted-average life of intangible assets
12
Purchase price allocations for Wright and other acquisitions 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
Remainder of 2021
2022
2023
2024
2025
$
149
$
577
$
558
$
534
$
512
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 September 30, 2021.
In October 2021 we entered into a new revolving credit agreement that replaces our previous agreement dated August 19, 2016. The primary changes were to increase the aggregate principal amount of the facility by $750 to $2,250, extend the maturity date to October 26, 2026, increase the leverage ratio to 3.75 and provide LIBOR replacement language. On September 30, 2021 there were no borrowings outstanding under our previous credit facility or commercial paper programs.
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
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 were 11.5% and 20.4% in the three months and 12.6% and 19.6% in the nine months 2021 and
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
There were 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 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 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 result 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 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. Our business in China represented approximately 2% of our revenues for the year ended December 31, 2020.
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 Third 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 and Spine that help improve patient and hospital outcomes.
We segregate our operations into three reportable business segments: Orthopaedics, MedSurg, and Neurotechnology and Spine. Orthopaedics products consist primarily of implants used in hip and knee joint replacements and trauma and extremities surgeries. MedSurg 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), reprocessed and remanufactured medical devices (Sustainability) and other medical device products used in a variety of medical specialties. Neurotechnology and Spine products include neurosurgical, neurovascular and spinal implant devices.
COVID-19 Pandemic
The COVID-19 global pandemic 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. In response, various governmental authorities and private enterprises have implemented numerous 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.
Some of our products are particularly sensitive to reductions in elective medical procedures. Elective medical procedures were suspended in 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 partial recovery of elective procedures in most geographies; however, in the third quarter 2021 we saw hospitalization rates increase, especially in the United States, as a result of 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 business that we experienced in the second quarter of 2021.
Overview 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. Excluding the impact of acquisitions and divestitures sales grew 4.5% 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 the
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%.
In 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
In 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 Statements for further information.
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.
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 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 result 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 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. Our business in China represented approximately 2% of our revenues for the year ended December 31, 2020.
(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.
Dollar amounts are in millions except per share amounts or as otherwise specified.
10
STRYKER CORPORATION
2021 Third Quarter Form 10-Q
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
%
nm - not meaningful
Geographic and Segment Net Sales
Three Months
Nine Months
Percentage Change
Percentage Change
2021
2020
As Reported
Constant Currency
2021
2020
As Reported
Constant Currency
Geographic:
United States
$
3,019
$
2,748
9.9
%
9.9
%
$
8,903
$
7,357
21.0
%
21.0
%
International
1,141
989
15.3
12.8
3,504
2,732
28.2
21.1
Total
$
4,160
$
3,737
11.3
%
10.7
%
$
12,407
$
10,089
23.0
%
21.0
%
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
Total
$
4,160
$
3,737
11.3
%
10.7
%
$
12,407
$
10,089
23.0
%
21.0
%
Supplemental Net Sales Growth Information
Three Months
Nine Months
Percentage Change
Percentage Change
United States
International
United States
International
2021
2020
As Reported
Constant Currency
As Reported
As Reported
Constant Currency
2021
2020
As Reported
Constant Currency
As Reported
As Reported
Constant Currency
Orthopaedics:
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
%
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
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
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
$
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
%
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
$
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
%
Consolidated Net Sales
Consolidated net sales increased 11.3% in the three months 2021 as reported and 10.7% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.6%. Excluding the 6.2% impact of acquisitions and divestitures, net sales in constant currency increased by 5.2% 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% due to lower prices. The unit volume increase was due to higher shipments across all products.
Dollar amounts are in millions except per share amounts or as otherwise specified.
11
STRYKER CORPORATION
2021 Third Quarter Form 10-Q
Orthopaedics Net Sales
Orthopaedics net sales increased 16.1% in the three months 2021 as reported and 15.5% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.6%. Excluding the 17.3% impact of acquisitions and divestitures, net sales in constant currency decreased 1.2% from lower unit volume and 0.6% from lower prices. The unit volume decrease was due to lower shipments of hips, trauma and extremities and other orthopaedics products.
Orthopaedics net sales increased 35.2% in the nine months 2021 as reported and 33.0% in constant currency, as foreign currency exchange rates positively impacted net sales by 2.2%. Excluding the 20.0% impact of acquisitions and divestitures, net sales in constant currency increased 14.4% from higher unit volume partially offset by 1.4% from lower prices. The unit volume increase was due to higher shipments across all 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 2021 decreased to 63.5% from 65.9% in 2020. Excluding the impact of the items noted below, gross profit increased to 66.3% of sales in the three months 2021 from 65.9% in 2020 primarily due to leverage from higher sales volumes and favorable mix, partially offset by lower selling prices.
Gross profit as a percentage of sales in the nine months 2021 increased to 63.9% from 62.8% in 2020. Excluding the impact of the items noted below, gross profit increased to 65.9% of sales in the nine months 2021 from 63.3% in 2020 primarily due to leverage from higher sales volumes and favorable mix, partially offset by lower selling prices.
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 or 26.4% in the three months 2021 and increased as a percentage of sales to 7.4% from 6.5% in 2020. Excluding the impact of the items noted below, expenses increased to 6.7% of sales in 2021 from 6.1% in 2020.
Research, development and engineering expenses increased $175 or 24.0% in the nine months 2021 and increased as a percentage of sales to 7.3% from 7.2% in 2020. Excluding the impact of the items noted below, expenses increased to 6.7% of sales in 2021 from 6.6% in 2020.
The increases for the three and nine months are due to disciplined ramp up in spending to facilitate our growth, including projects to develop new products, investments in new technologies and integration of recent acquisitions.
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
%
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $358 or 28.8% in the three months 2021 and increased as a percentage of sales to 38.5% from 33.3% 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%. Excluding the impact of the items noted below, expenses decreased to 34.2% of sales in 2021 from 34.3% in 2020. The decrease was due to our continued cost discipline and fixed cost leverage.
Dollar amounts are in millions except per share amounts or as otherwise specified.
12
STRYKER CORPORATION
2021 Third 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 in the three months and $98 in the nine months 2021 and minimal in the three and nine months 2020. Charges were primarily due to the previously disclosed 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 and $114 in the three months and $474 and $342 in the nine months 2021 and 2020. The increase in 2021 was primarily due to the acquisition of Wright Medical in the fourth quarter of 2020. Refer to Note 7 to our Consolidated Financial Statements for further information.
Operating Income
Operating income decreased $285 to 13.8% of sales in the three months 2021 from 23.0% of sales in 2020. Excluding the impact of the items noted below, operating income decreased to 25.4% of sales in 2021 from 28.0% in 2020 primarily due to disciplined spending to facilitate our growth.
Operating income increased $291 or 19.7% to 14.2% of sales in the nine months 2021 from 14.6% of sales in 2020. Excluding the impact of the items noted below, operating income increased to 25.0% of sales in 2021 from 22.3% in 2020 primarily due to leverage from higher sales volumes partially offset by disciplined spending to facilitate our growth.
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
%
Other Income (Expense), Net
Other income (expense), net was ($79) and ($79) in the three months and ($241) and ($191) in the nine months 2021 and 2020. The increase in net expense in 2021 was primarily due to increased interest expense driven by the additional debt from the bond offerings completed in June 2020 and November 2020.
Income Taxes
Our effective tax rates were 11.5% and 20.4% in the three months 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.
Net Earnings
Net earnings decreased to $438 or $1.14 per diluted share in the three months 2021 from $621 or $1.63 per diluted share in 2020. Adjusted net earnings per diluted share(1) increased to $2.20 in 2021 from $2.14 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.
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
%
Dollar amounts are in millions except per share amounts or as otherwise specified.
13
STRYKER CORPORATION
2021 Third 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). 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 results at prior year average 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. 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 asset impairments and associated costs and other restructuring-related activities.
4.Medical Device Regulations. Costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the medical device reporting regulations and other requirements of the European Union and China regulations for medical devices.
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
%
Dollar amounts are in millions except per share amounts or as otherwise specified.
14
STRYKER CORPORATION
2021 Third Quarter Form 10-Q
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
%
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
%
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
%
FINANCIAL CONDITION AND LIQUIDITY
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.
Nine Months
2021
2020
Total dividends paid to common shareholders
$
713
$
647
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,
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2021 Third Quarter Form 10-Q
commercial paper, 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.
We raised funds in the capital markets in 2020, 2019 and 2018 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% on September 30, 2021 compared to 30% on December 31, 2020.
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.
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. 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. 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.
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. 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.
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 September 30, 2021. Based on that evaluation, the Certifying Officers concluded the Company's disclosure controls and procedures were effective as of September 30, 2021.
Changes in Internal Control Over Financial Reporting
There was no change to our internal control over financial reporting during the three months 2021 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We issued 170 shares of our common stock in the three months 2021 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 time in the open market, in privately negotiated transactions or otherwise.
In the nine months 2021 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 September 30, 2021. As previously announced we intend to maintain the suspension of our share repurchase program through 2021.
Dollar amounts are in millions except per share amounts or as otherwise specified.
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ITEM 5.
OTHER INFORMATION
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.
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
* Furnished with this Form 10-Q
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2021 Third 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.
