QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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 377,096,272 shares of Common Stock, $0.10 par value, on June 30, 2021.
STRYKER CORPORATION
2021 Second Quarter Form 10-Q
PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Stryker Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (Unaudited)
Three Months
Six Months
2021
2020
2021
2020
Net sales
$
4,294
$
2,764
$
8,247
$
6,352
Cost of sales
1,522
1,216
2,966
2,473
Gross profit
$
2,772
$
1,548
$
5,281
$
3,879
Research, development and engineering expenses
310
233
598
487
Selling, general and administrative expenses
1,505
1,225
3,080
2,555
Recall charges
76
—
82
(6)
Amortization of intangible assets
149
110
330
228
Total operating expenses
$
2,040
$
1,568
$
4,090
$
3,264
Operating income (loss)
$
732
$
(20)
$
1,191
$
615
Other income (expense), net
(70)
(67)
(162)
(112)
Earnings (loss) before income taxes
$
662
$
(87)
$
1,029
$
503
Income taxes
70
(4)
135
93
Net earnings (loss)
$
592
$
(83)
$
894
$
410
Net earnings (loss) per share of common stock:
Basic
$
1.57
$
(0.22)
$
2.37
$
1.09
Diluted
$
1.55
$
(0.22)
$
2.34
$
1.08
Weighted-average shares outstanding (in millions):
Basic
376.9
375.5
376.6
375.1
Effect of dilutive employee stock compensation
5.4
—
5.4
4.8
Diluted
382.3
375.5
382.0
379.9
Cash dividends declared per share of common stock
$
0.63
$
0.575
$
1.26
$
1.15
Anti-dilutive shares excluded from the calculation of dilutive employee stock options were 4.3 for the three months 2020 and de minimis in all other periods.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three Months
Six Months
2021
2020
2021
2020
Net earnings (loss)
$
592
$
(83)
$
894
$
410
Other comprehensive income (loss), net of tax:
Pension plans
(4)
(4)
3
(8)
Unrealized gains (losses) on designated hedges
8
(30)
36
(56)
Financial statement translation
(80)
(58)
175
(45)
Total other comprehensive income (loss), net of tax
$
(76)
$
(92)
$
214
$
(109)
Comprehensive income (loss)
$
516
$
(175)
$
1,108
$
301
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
1
STRYKER CORPORATION
2021 Second Quarter Form 10-Q
CONSOLIDATED BALANCE SHEETS
June 30
December 31
2021
2020
(Unaudited)
Assets
Current assets
Cash and cash equivalents
$
2,241
$
2,943
Marketable securities
84
81
Accounts receivable, less allowance of $141 ($131 in 2020)
2,714
2,701
Inventories:
Materials and supplies
658
678
Work in process
264
251
Finished goods
2,509
2,565
Total inventories
$
3,431
$
3,494
Prepaid expenses and other current assets
562
488
Total current assets
$
9,032
$
9,707
Property, plant and equipment:
Land, buildings and improvements
1,607
1,546
Machinery and equipment
3,755
3,636
Total property, plant and equipment
$
5,362
$
5,182
Less accumulated depreciation
2,624
2,430
Property, plant and equipment, net
$
2,738
$
2,752
Goodwill
12,802
12,778
Other intangibles, net
5,261
5,554
Noncurrent deferred income tax assets
1,751
1,530
Other noncurrent assets
2,114
2,009
Total assets
$
33,698
$
34,330
Liabilities and shareholders' equity
Current liabilities
Accounts payable
$
864
$
810
Accrued compensation
890
925
Income taxes
300
207
Dividends payable
238
237
Accrued product liabilities
444
515
Accrued expenses and other liabilities
1,510
1,586
Current maturities of debt
6
761
Total current liabilities
$
4,252
$
5,041
Long-term debt, excluding current maturities
12,734
13,230
Income taxes
927
990
Other noncurrent liabilities
1,965
1,985
Total liabilities
$
19,878
$
21,246
Shareholders' equity
Common stock, $0.10 par value
38
38
Additional paid-in capital
1,844
1,741
Retained earnings
12,881
12,462
Accumulated other comprehensive loss
(943)
(1,157)
Total shareholders' equity
$
13,820
$
13,084
Total liabilities and shareholders' equity
$
33,698
$
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 Second Quarter Form 10-Q
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Three Months
Six Months
2021
2020
2021
2020
Common stock shares outstanding (in millions)
Beginning
376.7
375.4
376.1
374.5
Issuance of common stock under stock compensation and benefit plans
0.4
0.2
1.0
1.1
Repurchase of common stock
—
—
—
—
Ending
377.1
375.6
377.1
375.6
Common stock
Beginning
$
38
$
38
$
38
$
37
Issuance of common stock under stock compensation and benefit plans
—
—
—
1
Repurchase of common stock
—
—
—
—
Ending
$
38
$
38
$
38
$
38
Additional paid-in capital
Beginning
$
1,806
$
1,676
$
1,741
$
1,628
Issuance of common stock under stock compensation and benefit plans
(1)
—
(4)
(8)
Repurchase of common stock
—
—
—
—
Share-based compensation
39
30
107
86
Ending
$
1,844
$
1,706
$
1,844
$
1,706
Retained earnings
Beginning
$
12,525
$
12,024
$
12,462
$
11,748
Net earnings (loss)
592
(83)
894
410
Repurchase of common stock
—
—
—
—
Cash dividends declared
(236)
(216)
(475)
(433)
Ending
$
12,881
$
11,725
$
12,881
$
11,725
Accumulated other comprehensive income (loss)
Beginning
$
(867)
$
(623)
$
(1,157)
$
(606)
Other comprehensive income (loss)
(76)
(92)
214
(109)
Ending
$
(943)
$
(715)
$
(943)
$
(715)
Total Stryker shareholders' equity
$
13,820
$
12,754
$
13,820
$
12,754
Non-controlling interest
—
—
—
—
Total shareholders' equity
$
13,820
$
12,754
$
13,820
$
12,754
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
3
STRYKER CORPORATION
2021 Second Quarter Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months
2021
2020
Operating activities
Net earnings
$
894
$
410
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation
187
163
Amortization of intangible assets
330
228
Asset impairments
3
161
Share-based compensation
107
86
Recall charges
82
(6)
Sale of inventory stepped-up to fair value at acquisition
137
9
Changes in operating assets and liabilities:
Accounts receivable
(24)
671
Inventories
(128)
(181)
Accounts payable
57
(34)
Accrued expenses and other liabilities
22
(375)
Recall-related payments
(163)
(12)
Income taxes
(98)
(39)
Other, net
(76)
130
Net cash provided by operating activities
$
1,330
$
1,211
Investing activities
Acquisitions, net of cash acquired
(104)
(26)
Purchases of marketable securities
(31)
(23)
Proceeds from sales of marketable securities
28
31
Purchases of property, plant and equipment
(189)
(253)
Other investing, net
(2)
(9)
Net cash used in investing activities
$
(298)
$
(280)
Financing activities
Proceeds (payments) on short-term borrowings, net
(7)
8
Proceeds from issuance of long-term debt
5
2,293
Payments on long-term debt
(1,151)
(500)
Dividends paid
(475)
(431)
Repurchases of common stock
—
—
Cash paid for taxes from withheld shares
(74)
(68)
Other financing, net
(27)
(14)
Net cash provided by (used in) financing activities
$
(1,729)
$
1,288
Effect of exchange rate changes on cash and cash equivalents
(5)
(17)
Change in cash and cash equivalents
$
(702)
$
2,202
Cash and cash equivalents at beginning of period
2,943
4,337
Cash and cash equivalents at end of period
$
2,241
$
6,539
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
4
STRYKER CORPORATION
2021 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 June 30, 2021 and the results of operations for the three and six 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
Six Months
2021
2020
2021
2020
Orthopaedics:
Knees
$
474
$
241
$
886
$
673
Hips
353
216
662
532
Trauma and Extremities
674
330
1,314
722
Other
127
107
250
189
$
1,628
$
894
$
3,112
$
2,116
MedSurg:
Instruments
$
517
$
328
$
986
$
841
Endoscopy
518
316
987
771
Medical
640
632
1,262
1,219
Sustainability
73
48
134
115
$
1,748
$
1,324
$
3,369
$
2,946
Neurotechnology and Spine:
Neurotechnology
$
611
$
369
$
1,181
$
852
Spine
307
177
585
438
$
918
$
546
$
1,766
$
1,290
Total
$
4,294
$
2,764
$
8,247
$
6,352
Net Sales by Geography
Three Months 2021
Three Months 2020
United States
International
United States
International
Orthopaedics:
Knees
$
349
$
125
$
179
$
62
Hips
221
132
140
76
Trauma and Extremities
475
199
208
122
Other
99
28
96
11
$
1,144
$
484
$
623
$
271
MedSurg:
Instruments
$
401
$
116
$
249
$
79
Endoscopy
407
111
253
63
Medical
488
152
454
178
Sustainability
72
1
48
—
$
1,368
$
380
$
1,004
$
320
Neurotechnology and Spine:
Neurotechnology
$
371
$
240
$
211
$
158
Spine
217
90
128
49
$
588
$
330
$
339
$
207
Total
$
3,100
$
1,194
$
1,966
$
798
Net Sales by Geography
Six Months 2021
Six Months 2020
United States
International
United States
International
Orthopaedics:
Knees
$
643
$
243
$
501
$
172
Hips
407
255
341
191
Trauma and Extremities
915
399
468
254
Other
193
57
165
24
$
2,158
$
954
$
1,475
$
641
MedSurg:
Instruments
$
756
$
230
$
659
$
182
Endoscopy
761
226
617
154
Medical
961
301
908
311
Sustainability
132
2
114
1
$
2,610
$
759
$
2,298
$
648
Neurotechnology and Spine:
Neurotechnology
$
706
$
475
$
512
$
340
Spine
410
175
324
114
$
1,116
$
650
$
836
$
454
Total
$
5,884
$
2,363
$
4,609
$
1,743
Contract Assets and Liabilities
On June 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 $476 and $416 on June 30, 2021 and December 31, 2020.
Dollar amounts are in millions except per share amounts or as otherwise specified.
5
STRYKER CORPORATION
2021 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
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)
Three Months 2020
Marketable Securities
Pension Plans
Hedges
Financial Statement Translation
Total
Beginning
$
(3)
$
(183)
$
21
$
(458)
$
(623)
OCI
(1)
(8)
(33)
(91)
(133)
Income taxes
—
2
8
39
49
Reclassifications to:
Cost of sales
—
—
(3)
—
(3)
Other (income) expense
1
3
(2)
(7)
(5)
Income taxes
—
(1)
—
1
—
Net OCI
$
—
$
(4)
$
(30)
$
(58)
$
(92)
Ending
$
(3)
$
(187)
$
(9)
$
(516)
$
(715)
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)
Six Months 2020
Marketable Securities
Pension Plans
Hedges
Financial Statement Translation
Total
Beginning
$
(3)
$
(179)
$
47
$
(471)
$
(606)
OCI
—
(14)
(72)
(36)
(122)
Income taxes
—
2
19
2
23
Reclassifications to:
Cost of sales
—
—
—
—
—
Other (income) expense
—
6
(3)
(14)
(11)
Income taxes
—
(2)
—
3
1
Net OCI
$
—
$
(8)
$
(56)
$
(45)
$
(109)
Ending
$
(3)
$
(187)
$
(9)
$
(516)
$
(715)
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
June 2021
Cash Flow
Net Investment
Non-Designated
Total
Gross notional amount
$
950
$
1,792
$
5,339
$
8,081
Maximum term in days
1612
Fair value:
Other current assets
$
11
$
—
$
43
$
54
Other noncurrent assets
1
22
—
23
Other current liabilities
(16)
—
(14)
(30)
Other noncurrent liabilities
(1)
(7)
—
(8)
Total fair value
$
(5)
$
15
$
29
$
39
December 2020
Cash Flow
Net Investment
Non-Designated
Total
Gross notional amount
$
949
$
1,828
$
5,382
$
8,159
Maximum term in days
1793
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 June 30, 2021 the total after tax gain (loss) in AOCI related to designated net investment hedges was ($291).
Net Currency Exchange Rate Gains (Losses)
Three Months
Six Months
Derivative instrument:
Recorded in:
2021
2020
2021
2020
Cash Flow
Cost of sales
$
(4)
$
3
$
(5)
$
—
Net Investment
Other income (expense), net
9
7
17
14
Non-Designated
Other income (expense), net
1
(2)
(1)
(9)
Total
$
6
$
8
$
11
$
5
Pretax gains (losses) on derivatives designated as cash flow hedges of ($9) and net investment hedges of $33 recorded in AOCI are expected to be reclassified to cost of sales and other income (expense) in earnings within 12 months as of June 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 six months 2021 a loss of $11 was reclassified from AOCI to 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 probable that the original
Dollar amounts are in millions except per share amounts or as otherwise specified.
6
STRYKER CORPORATION
2021 Second Quarter Form 10-Q
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 June 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 in 2021.
Assets Measured at Fair Value
June
December
2021
2020
Cash and cash equivalents
$
2,241
$
2,943
Trading marketable securities
183
171
Level 1 - Assets
$
2,424
$
3,114
Available-for-sale marketable securities:
Corporate and asset-backed debt securities
$
43
$
38
United States agency debt securities
5
5
United States Treasury debt securities
32
36
Foreign government
1
—
Certificates of deposit
3
2
Total available-for-sale marketable securities
$
84
$
81
Foreign currency exchange forward contracts
77
20
Level 2 - Assets
$
161
$
101
Total assets measured at fair value
$
2,585
$
3,215
Liabilities Measured at Fair Value
June
December
2021
2020
Deferred compensation arrangements
$
183
$
171
Level 1 - Liabilities
$
183
$
171
Foreign currency exchange forward contracts
$
38
$
160
Interest rate swap liability
—
53
Level 2 - Liabilities
$
38
$
213
Contingent consideration:
Beginning
$
393
$
306
Additions
4
108
Change in estimate
18
9
Settlements
(21)
(30)
Ending
$
394
$
393
Level 3 - Liabilities
$
394
$
393
Total liabilities measured at fair value
$
615
$
777
Fair Value of Available for Sale Securities by Maturity
June 2021
December 2020
Due in one year or less
$
44
$
42
Due after one year through three years
$
40
$
39
On June 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 $18 and $25 in the three months and $35 and $65 in the six months 2021 and 2020, 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.
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 six months 2021 we have recorded charges of $82 and made payments of $163, 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 $415 to $550. 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.
Dollar amounts are in millions except per share amounts or as otherwise specified.
7
STRYKER CORPORATION
2021 Second Quarter Form 10-Q
Leases
June
December
2021
2020
Right-of-use assets
$
404
$
423
Lease liabilities, current
$
109
$
109
Lease liabilities, non-current
$
306
$
325
Other information:
Weighted-average remaining lease term
5.8 years
5.6 years
Weighted-average discount rate
2.74
%
2.57
%
Three Months
Six Months
2021
2020
2021
2020
Operating lease cost
$
31
$
31
$
67
$
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 $108 and $26 in the six months 2021 and 2020.
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 Joint Replacement business within Orthopaedics. 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
419
Deferred income tax assets
477
Other assets
345
Debt
(1,446)
Deferred income tax liabilities
(490)
Product liabilities
(211)
Other liabilities
(291)
Intangible assets:
Customer and distributor relationships
182
Developed technology and patents
1,510
Trade name
58
Goodwill
3,401
Purchase price, net of cash acquired
$
4,081
Weighted-average life of intangible assets
12
Purchase price allocations for Wright and other 2020 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
$
300
$
588
$
567
$
540
$
521
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 June 30, 2021.
Our commercial paper program backed by our primary revolving credit facility which expires in August 2023 allows us to have a maximum of $1,500 in commercial paper outstanding with maturities up to 397 days from the date of issuance. On June 30, 2021 there were no borrowings outstanding under our credit facility or commercial paper programs.
Summary of Total Debt
June 2021
December 2020
Rate
Due
Senior unsecured notes:
2.625%
March 15, 2021
$
—
$
750
1.125%
November 30, 2023
655
668
0.600%
December 1, 2023
597
597
3.375%
May 15, 2024
592
590
0.250%
December 3, 2024
1,010
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
891
909
3.650%
March 7, 2028
596
596
0.750%
March 1, 2029
950
969
1.950%
June 15, 2030
989
989
2.625%
November 30, 2030
767
782
1.000%
December 3, 2031
885
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
12
16
Total debt
$
12,740
$
13,991
Less current maturities of debt
6
761
Total long-term debt
$
12,734
$
13,230
June 2021
December 2020
Unamortized debt issuance costs
$
66
$
71
Borrowing capacity on existing facilities
$
1,408
$
2,903
Fair value of senior unsecured notes
$
13,881
$
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 10.6% and 4.6% in the three months and 13.1% and 18.5% in the six months 2021 and 2020. The change in the effective income tax rate for the three months was primarily due to pre-tax losses and a change in geographic profit mix recorded in 2020 and certain discrete tax items recorded in 2021. The effective income tax rates for the six months 2021 and 2020 reflect the continued lower effective income tax rates as a result of our European operations.
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.
Dollar amounts are in millions except per share amounts or as otherwise specified.
8
STRYKER CORPORATION
2021 Second Quarter Form 10-Q
NOTE 10 - SEGMENT INFORMATION
Three Months
Six Months
2021
2020
2021
2020
Orthopaedics
$
1,628
$
894
$
3,112
$
2,116
MedSurg
1,748
1,324
3,369
2,946
Neurotechnology and Spine
918
546
1,766
1,290
Net sales
$
4,294
$
2,764
$
8,247
$
6,352
Orthopaedics
$
511
$
163
$
927
$
555
MedSurg
441
237
986
634
Neurotechnology and Spine
313
75
442
285
Segment operating income
$
1,265
$
475
$
2,355
$
1,474
Items not allocated to segments:
Corporate and other
(154)
(130)
(316)
(267)
Acquisition and integration-related charges
(120)
(19)
(369)
(56)
Amortization of intangible assets
(149)
(110)
(330)
(228)
Restructuring-related and other charges
(17)
(209)
(31)
(263)
Medical device regulations
(26)
(22)
(45)
(46)
Recall-related matters
(76)
—
(82)
6
Regulatory and legal matters
9
(5)
9
(5)
Consolidated operating income (loss)
$
732
$
(20)
$
1,191
$
615
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
Impairment charges in the six months 2021 were not significant. 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.
NOTE 12 - RISK AND UNCERTAINTIES
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 tender has specific requirements to award contracts to the lowest bidders who are able to satisfy the quality and quantity requirements. The successful bidders may experience increases in unit sales volume for certain products, while unsuccessful bidders will lose unit sales volume. While the unit volume increases for successful bidders may enable manufacturers to lower their distribution and commercial costs, we expect that the new prices required for a successful bid will, nevertheless, negatively impact our existing commercial operations of joint replacement and trauma products in China. Based on preliminary indications received subsequent to the end of the second quarter, we believe we will be a successful bidder in certain regional tenders for several of our trauma products and unsuccessful in the bid for other trauma products. When the final decisions are made, it is reasonably possible that we will record an impairment charge of approximately $100 relating to certain long-lived and intangible assets. The national VBP program for hips and knees is currently in preparation. If we are unsuccessful in that national program, we expect that our commercial operations of joint replacement products will also be negatively impacted; however, we do not expect additional intangible asset impairments. Spine products are part of the volume-based procurement in one province and it is not clear to what extent spine products will be included in further VBP initiatives provincial or nationwide. Our business in China represented approximately 2% of our revenues for the year ended December 31, 2020.
Dollar amounts are in millions except per share amounts or as otherwise specified.
9
STRYKER CORPORATION
2021 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 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 three months 2021 we saw recovery of elective procedures as the impact of the COVID-19 pandemic eased in most geographies. However, the recovery of elective procedures continues to be variable by region and geography. Demand increases for certain capital products continued from the first quarter 2021.
Overview of the Three and Six Months
In the three months 2021 we achieved sales growth of 55.4% and 17.6% from 2020 and 2019. Excluding the impact of acquisitions sales grew 42.9% and 9.3% in constant currency. We reported operating income margin of 17.0%, net earnings of $592 and net earnings per diluted share of $1.55. Excluding the impact of certain items, adjusted operating income margin(1) increased by 1,340 bps to 25.9%, with adjusted net earnings(1) of $861 and adjusted net earnings per diluted share(1) of $2.25 representing growth of 251.6%.
In the six months 2021 we achieved sales growth of 29.8% and 15.1% from 2020 and 2019. Excluding the impact of acquisitions sales grew 19.7% and 7.1% in constant currency. We reported operating income margin of 14.4%, net earnings of $894 and net earnings per diluted share of $2.34. Excluding the impact of certain items, adjusted operating income margin(1) increased by 570 bps to 24.7%, with adjusted net earnings(1) of $1,598 and adjusted net earnings per diluted share(1) of $4.18 representing growth of 68.5%.
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 June 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 tender has specific requirements to award contracts to the lowest bidders who are able to satisfy the quality and quantity requirements. The successful bidders may experience increases in unit sales volume for certain products, while unsuccessful bidders will lose unit sales volume. While the unit volume increases for successful bidders may enable manufacturers to lower their distribution and commercial costs, we expect that the new prices required for a successful bid will, nevertheless, negatively impact our existing commercial operations of joint replacement and trauma products in China. Based on preliminary indications received subsequent to the end of the second quarter, we believe we will be a successful bidder in certain regional tenders for several of our trauma products and unsuccessful in the bid for other trauma products. When the final decisions are made, it is reasonably possible that we will record an impairment charge of approximately $100 relating to certain long-lived and intangible assets. The national VBP program for hips and knees is currently in preparation. If we are unsuccessful in that national program, we expect that our commercial operations of joint replacement products will also be negatively impacted; however, we do not expect additional intangible asset impairments. Spine products are part of volume-based procurement in one province and it is not clear to what extent spine products will be included in further VBP initiatives provincial or nationwide. 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 Second Quarter Form 10-Q
CONSOLIDATED RESULTS OF OPERATIONS
Three Months
Six Months
Percent Net Sales
Percentage
Percent Net Sales
Percentage
2021
2020
2021
2020
Change
2021
2020
2021
2020
Change
Net sales
$
4,294
$
2,764
100.0
%
100.0
%
55.4
%
$
8,247
$
6,352
100.0
%
100.0
%
29.8
%
Gross profit
2,772
1,548
64.6
56.0
79.1
5,281
3,879
64.0
61.1
36.1
Research, development and engineering expenses
310
233
7.2
8.4
33.0
598
487
7.3
7.7
22.8
Selling, general and administrative expenses
1,505
1,225
35.0
44.3
22.9
3,080
2,555
37.3
40.2
20.5
Recall charges
76
—
1.8
—
nm
82
(6)
1.0
(0.1)
nm
Amortization of intangible assets
149
110
3.5
4.0
35.5
330
228
4.0
3.6
44.7
Other income (expense), net
(70)
(67)
(1.6)
(2.4)
4.5
(162)
(112)
(2.0)
(1.8)
44.6
Income taxes
70
(4)
nm
nm
nm
135
93
nm
nm
nm
Net earnings (loss)
$
592
$
(83)
13.8
%
(3.0)
%
nm
$
894
$
410
10.8
%
6.5
%
118.0
%
Net earnings (loss) per diluted share
$
1.55
$
(0.22)
nm
$
2.34
$
1.08
116.7
%
Adjusted net earnings per diluted share(1)
$
2.25
$
0.64
nm
$
4.18
$
2.48
68.5
%
nm - not meaningful
Geographic and Segment Net Sales
Three Months
Six Months
Percentage Change
Percentage Change
2021
2020
As Reported
Constant Currency
2021
2020
As Reported
Constant Currency
Geographic:
United States
$
3,100
$
1,966
57.7
%
57.7
%
$
5,884
$
4,609
27.7
%
27.7
%
International
1,194
798
49.7
37.9
2,363
1,743
35.6
25.6
Total
$
4,294
$
2,764
55.4
%
51.8
%
$
8,247
$
6,352
29.8
%
27.1
%
Segment:
Orthopaedics
$
1,628
$
894
82.3
%
77.9
%
$
3,112
$
2,116
47.1
%
43.7
%
MedSurg
1,748
1,324
32.3
29.7
3,369
2,946
14.5
12.5
Neurotechnology and Spine
918
546
66.9
62.4
1,766
1,290
36.5
33.0
Total
$
4,294
$
2,764
55.4
%
51.8
%
$
8,247
$
6,352
29.8
%
27.1
%
Supplemental Net Sales Growth Information
Three Months
Six 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
$
474
$
241
96.4
%
92.2
%
95.2
%
100.0
%
83.8
%
$
886
$
673
31.7
%
29.0
%
28.4
%
41.3
%
30.6
%
Hips
353
216
63.3
58.7
57.0
74.8
61.5
662
532
24.4
21.1
19.1
33.8
24.5
Trauma and Extremities
674
330
104.2
98.5
128.0
63.7
50.7
1,314
722
81.9
77.2
95.3
57.0
45.2
Other
127
107
20.9
19.6
4.3
179.6
159.7
250
189
33.0
31.5
17.6
140.3
124.5
$
1,628
$
894
82.3
%
77.9
%
83.6
%
79.4
%
65.4
%
$
3,112
$
2,116
47.1
%
43.7
%
46.3
%
49.0
%
38.1
%
MedSurg:
Instruments
$
517
$
328
58.8
%
55.8
%
61.0
%
51.7
%
39.4
%
$
986
$
841
17.7
%
15.6
%
14.8
%
28.4
%
18.4
%
Endoscopy
518
316
64.0
61.2
61.0
76.2
62.4
987
771
28.1
26.1
23.3
47.5
36.9
Medical
640
632
1.4
(1.1)
7.6
(14.5)
(22.2)
1,262
1,219
3.5
1.3
5.9
(3.2)
(11.2)
Sustainability
73
48
51.6
51.4
50.9
127.5
102.6
134
115
16.6
16.5
16.0
85.3
71.3
$
1,748
$
1,324
32.3
%
29.7
%
36.4
%
19.6
%
9.4
%
$
3,369
$
2,946
14.5
%
12.5
%
13.6
%
17.7
%
8.5
%
Neurotechnology and Spine:
Neurotechnology
$
611
$
369
65.6
%
60.9
%
75.1
%
52.8
%
42.3
%
$
1,181
$
852
38.7
%
34.9
%
37.9
%
39.8
%
30.5
%
Spine
307
177
69.6
65.6
69.8
69.0
55.9
585
438
32.2
29.4
26.4
48.4
37.6
$
918
$
546
66.9
%
62.4
%
73.1
%
56.9
%
45.8
%
$
1,766
$
1,290
36.5
%
33.0
%
33.4
%
42.0
%
32.4
%
Total
$
4,294
$
2,764
55.4
%
51.8
%
57.7
%
49.7
%
37.9
%
$
8,247
$
6,352
29.8
%
27.1
%
27.7
%
35.6
%
25.6
%
Consolidated Net Sales
Consolidated net sales increased 55.4% in the three months 2021 as reported and 51.8% in constant currency, as foreign currency exchange rates positively impacted net sales by 3.6%. Excluding the 8.9% impact of acquisitions, net sales in constant currency increased by 43.4% from increased unit volume partially offset by 0.5% due to lower prices. The unit volume increase was due to higher shipments across all products except medical, as consolidated net sales in the three months 2020 were significantly negatively impacted by the global response to the COVID-19 pandemic.
Consolidated net sales increased 29.8% in the six months 2021 as reported and 27.1% in constant currency, as foreign currency exchange rates positively impacted net sales by 2.7%. Excluding the 7.4% impact of acquisitions, net sales in constant currency increased by 20.5% from increased unit volume partially offset by 0.8% due to lower prices. The unit volume increase was due to higher shipments across all products.
Orthopaedics Net Sales
Orthopaedics net sales increased 82.3% in the three months 2021 as reported and 77.9% in constant currency, as foreign
Dollar amounts are in millions except per share amounts or as otherwise specified.
11
STRYKER CORPORATION
2021 Second Quarter Form 10-Q
currency exchange rates positively impacted net sales by 4.4%. Excluding the 27.2% impact of acquisitions, net sales in constant currency increased 52.2% from increased unit volume partially offset by 1.5% from lower prices. The unit volume increase was due to higher shipments across all orthopaedics products.
Orthopaedics net sales increased 47.1% in the six months 2021 as reported and 43.7% in constant currency, as foreign currency exchange rates positively impacted net sales by 3.4%. Excluding the 21.9% impact of acquisitions, net sales in constant currency increased 23.6% from higher unit volume partially offset by 1.8% from lower prices. The unit volume increase was due to higher shipments across all Orthopaedics products.
MedSurg Net Sales
MedSurg net sales increased 32.3% in the three months 2021 as reported and 29.7% in constant currency, as foreign currency exchange rates positively impacted net sales by 2.6%. Net sales in constant currency increased by 29.5% from increased unit volume and 0.1% due to higher prices. The unit volume increase was primarily due to higher shipments of instruments, endoscopy and sustainability solutions products partially offset by lower shipments of medical products.
MedSurg net sales increased 14.5% in the six months 2021 as reported and 12.5% in constant currency, as foreign currency exchange rates positively impacted net sales by 2.0%. Net sales in constant currency increased by 12.5% from increased unit volume partially offset by 0.1% 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 66.9% in the three months 2021 as reported and 62.4% in constant currency, as foreign currency exchange rates positively impacted net sales by 4.5%. Excluding the 0.6% impact for acquisitions, net sales in constant currency increased by 62.4% from increased unit volume partially offset by 0.6% due to lower prices. The unit volume increase was due to higher shipments of neurotechnology and spine products.
Neurotechnology and Spine net sales increased 36.5% in the six months 2021 as reported and 33.0% in constant currency, as foreign currency exchange rates positively impacted net sales by 3.5%. Excluding the 0.2% impact for acquisitions, net sales in constant currency increased by 33.4% from increased unit volume partially offset by 0.6% due to lower prices. The unit volume increase was due to higher shipments of neurotechnology and spine products.
Gross Profit
Gross profit as a percentage of sales in the three months 2021 increased to 64.6% from 56.0% in 2020. Excluding the impact of the items noted below, gross profit increased to 66.0% of sales in the three months 2021 from 57.3% 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 six months 2021 increased to 64.0% from 61.1% in 2020. Excluding the impact of the items noted below, gross profit increased to 65.7% of sales in the six months 2021 from 61.8% 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
$
2,772
$
1,548
64.6
%
56.0
%
Inventory stepped-up to fair value
58
3
1.4
0.1
Restructuring-related and other charges
2
32
—
1.2
Adjusted
$
2,832
$
1,583
66.0
%
57.3
%
Percent Net Sales
Six Months
2021
2020
2021
2020
Reported
$
5,281
$
3,879
64.0
%
61.1
%
Inventory stepped-up to fair value
137
9
1.7
0.1
Restructuring-related and other charges
—
36
—
0.6
Medical device regulations
1
1
—
—
Adjusted
$
5,419
$
3,925
65.7
%
61.8
%
Research, Development and Engineering Expenses
Research, development and engineering expenses increased $77 or 33.0% in the three months 2021 and decreased as a percentage of sales to 7.2% from 8.4% in 2020. Excluding the impact of the items noted below, expenses decreased to 6.6% of sales in 2021 from 7.6% in 2020.
Research, development and engineering expenses increased $111 or 22.8% in the six months 2021 and decreased as a percentage of sales to 7.3% from 7.7% in 2020. Excluding the impact of the items noted below, expenses decreased to 6.7% of sales in 2021 from 6.9% in 2020.
The decreases as a percentage of sales for the three and six months are due to leverage from higher sales volumes. Total expense increased 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
$
310
$
233
7.2
%
8.4
%
Medical device regulations
(26)
(23)
(0.6)
(0.8)
Adjusted
$
284
$
210
6.6
%
7.6
%
Percent Net Sales
Six Months
2021
2020
2021
2020
Reported
$
598
$
487
7.3
%
7.7
%
Medical device regulations
(44)
(46)
(0.6)
(0.8)
Adjusted
$
554
$
441
6.7
%
6.9
%
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $280 or 22.9% in the three months 2021 and decreased as a percentage of sales to 35.0% from 44.3% in 2020. Excluding the impact of the items noted below, expenses decreased to 33.4% of sales in 2021 from 37.1% in 2020.
Selling, general and administrative expenses increased $525 or 20.5% in the six months 2021 and decreased as a percentage of sales to 37.3% from 40.2% in 2020. Excluding the impact of the items noted below, expenses decreased to 34.3% of sales in 2021 from 35.8% in 2020.
The decreases as a percentage of sales for the three and six months are due to leverage from higher sales volumes. Total expense increased due to disciplined ramp up in spending to facilitate our growth.
Dollar amounts are in millions except per share amounts or as otherwise specified.
12
STRYKER CORPORATION
2021 Second Quarter Form 10-Q
Percent Net Sales
Three Months
2021
2020
2021
2020
Reported
$
1,505
$
1,225
35.0
%
44.3
%
Other acquisition and integration-related
(62)
(16)
(1.4)
(0.6)
Restructuring-related and other charges
(16)
(178)
(0.4)
(6.4)
Regulatory and legal matters
9
(5)
0.2
(0.2)
Adjusted
$
1,436
$
1,026
33.4
%
37.1
%
Percent Net Sales
Six Months
2021
2020
2021
2020
Reported
$
3,080
$
2,555
37.3
%
40.2
%
Other acquisition and integration-related
(232)
(47)
(2.8)
(0.7)
Restructuring-related and other charges
(31)
(227)
(0.3)
(3.6)
Regulatory and legal matters
9
(5)
0.1
(0.1)
Adjusted
$
2,826
$
2,276
34.3
%
35.8
%
Recall Charges
Recall charges were $76 in the three months and $82 in the six months 2021 and minimal in the three and six 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 $149 and $110 in the three months and $330 and $228 in the six 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 (Loss)
Operating income (loss) increased $752 to 17.0% of sales in the three months 2021 from (0.7)% of sales in 2020. Excluding the impact of the items noted below, operating income increased to 25.9% of sales in 2021 from 12.5% in 2020 primarily due to leverage from higher sales volumes and disciplined spending to facilitate our growth.
Operating income increased $576 or 93.7% to 14.4% of sales in the six months 2021 from 9.7% of sales in 2020. Excluding the impact of the items noted below, operating income increased to 24.7% of sales in 2021 from 19.0% in 2020 primarily due to leverage from higher sales volumes and disciplined spending to facilitate our growth.
Percent Net Sales
Three Months
2021
2020
2021
2020
Reported
$
732
$
(20)
17.0
%
(0.7)
%
Inventory stepped-up to fair value
58
3
1.4
0.1
Other acquisition and integration-related
62
16
1.4
0.6
Amortization of purchased intangible assets
149
110
3.5
4.0
Restructuring-related and other charges
17
209
0.4
7.5
Medical device regulations
26
22
0.6
0.8
Recall-related matters
76
—
1.8
—
Regulatory and legal matters
(9)
5
(0.2)
0.2
Adjusted
$
1,111
$
345
25.9
%
12.5
%
Percent Net Sales
Six Months
2021
2020
2021
2020
Reported
$
1,191
$
615
14.4
%
9.7
%
Inventory stepped-up to fair value
137
9
1.7
0.1
Other acquisition and integration-related
232
47
2.8
0.7
Amortization of purchased intangible assets
330
228
4.0
3.7
Restructuring-related and other charges
31
263
0.4
4.1
Medical device regulations
45
46
0.5
0.7
Recall-related matters
82
(6)
1.0
(0.1)
Regulatory and legal matters
(9)
5
(0.1)
0.1
Adjusted
$
2,039
$
1,207
24.7
%
19.0
%
Other Income (Expense), Net
Other income (expense), net was ($70) and ($67) in the three months and ($162) and ($112) in the six 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 10.6% and 4.6% in the three months and 13.1% and 18.5% in the six months 2021 and 2020. The change in the effective income tax rate for the three months was primarily due to pre-tax losses and a change in geographic profit mix recorded in 2020 and certain discrete tax items recorded in 2021. The effective income tax rates for the six months 2021 and 2020 reflect the continued lower effective income tax rates as a result of our European operations.
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 (Loss)
Net earnings (loss) increased to $592 or $1.55 per diluted share in the three months 2021 from ($83) or ($0.22) per diluted share in 2020. Adjusted net earnings per diluted share(1) increased to $2.25 in 2021 from $0.64 in 2020, as net earnings in the three months 2020 were significantly negatively impacted by the global response to the COVID-19 pandemic. The impact of foreign currency exchange rates increased net earnings per diluted share by approximately $0.06 in 2021 and had a minimal impact on net earnings (loss) per diluted share in 2020.
Net earnings increased to $894 or $2.34 per diluted share in the six months 2021 from $410 or $1.08 per diluted share in 2020. Adjusted net earnings per diluted share(1) increased 68.5% to $4.18 in 2021 from $2.48 in 2020. The impact of foreign currency exchange rates increased net earnings per diluted share by approximately $0.12 in 2021 and reduced net earnings per diluted share by approximately $0.02 in 2020.
Percent Net Sales
Three Months
2021
2020
2021
2020
Reported
$
592
$
(83)
13.8
%
(3.0)
%
Inventory stepped-up to fair value
43
1
1.0
—
Other acquisition and integration-related
51
12
1.2
0.4
Amortization of purchased intangible assets
113
88
2.7
3.2
Restructuring-related and other charges
15
170
0.3
6.2
Medical device regulations
21
18
0.5
0.7
Recall-related matters
68
—
1.6
—
Regulatory and legal matters
(12)
6
(0.3)
0.2
Tax matters
(30)
33
(0.7)
1.2
Adjusted
$
861
$
245
20.1
%
8.9
%
Percent Net Sales
Six Months
2021
2020
2021
2020
Reported
$
894
$
410
10.8
%
6.5
%
Inventory stepped-up to fair value
103
6
1.2
0.1
Other acquisition and integration-related
180
36
2.2
0.6
Amortization of purchased intangible assets
264
184
3.3
2.9
Restructuring-related and other charges
33
212
0.4
3.3
Medical device regulations
37
36
0.4
0.6
Recall-related matters
73
(4)
0.9
(0.1)
Regulatory and legal matters
(12)
6
(0.1)
0.1
Tax matters
26
58
0.3
0.9
Adjusted
$
1,598
$
944
19.4
%
14.9
%
Dollar amounts are in millions except per share amounts or as otherwise specified.
13
STRYKER CORPORATION
2021 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). 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 and acquisitions, 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. 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, except for 4.3 million anti-dilutive shares excluded from reported net loss per dilutive share for the three months 2020.
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
$
2,772
$
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 charges:
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
%
Dollar amounts are in millions except per share amounts or as otherwise specified.
14
STRYKER CORPORATION
2021 Second Quarter Form 10-Q
Three Months 2020
Gross Profit
Selling, General & Administrative Expenses
Research, Development & Engineering Expenses
Operating Income (Loss)
Other income (expense), net
Net Earnings (Loss)
Effective Tax Rate
Diluted EPS
Reported
$
1,548
$
1,225
$
233
$
(20)
$
(67)
$
(83)
4.6
%
$
(0.22)
Reported percent net sales
56.0
%
44.3
%
8.4
%
(0.7)
%
(2.4)
%
(3.0)
%
Acquisition and integration-related charges:
Inventory stepped-up to fair value
3
—
—
3
—
1
(0.5)
—
Other acquisition and integration-related
—
(16)
—
16
—
12
(2.0)
0.03
Amortization of purchased intangible assets
—
—
—
110
—
88
(7.0)
0.23
Restructuring-related and other charges
32
(178)
—
209
—
170
(10.7)
0.45
Medical device regulations
—
—
(23)
22
—
18
(2.4)
0.05
Recall-related matters
—
—
—
—
—
—
—
—
Regulatory and legal matters
—
(5)
—
5
—
6
2.3
0.02
Tax matters
—
—
—
—
7
33
30.1
0.08
Adjusted
$
1,583
$
1,026
$
210
$
345
$
(60)
$
245
14.4
%
$
0.64
Adjusted percent net sales
57.3
%
37.1
%
7.6
%
12.5
%
(2.2)
%
8.9
%
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 charges:
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
%
Six 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
$
3,879
$
2,555
$
487
$
615
$
(112)
$
410
18.5
%
$
1.08
Reported percent net sales
61.1
%
40.2
%
7.7
%
9.7
%
(1.8)
%
6.5
%
Acquisition and integration-related charges:
Inventory stepped-up to fair value
9
—
—
9
—
6
0.2
0.02
Other acquisition and integration-related
—
(47)
—
47
—
36
0.7
0.09
Amortization of purchased intangible assets
—
—
—
228
—
184
2.4
0.48
Restructuring-related and other charges
36
(227)
—
263
—
212
2.6
0.56
Medical device regulations
1
—
(46)
46
—
36
0.8
0.09
Recall-related matters
—
—
—
(6)
—
(4)
(0.1)
(0.01)
Regulatory and legal matters
—
(5)
—
5
—
6
(0.4)
0.02
Tax matters
—
—
—
—
7
58
(10.4)
0.15
Adjusted
$
3,925
$
2,276
$
441
$
1,207
$
(105)
$
944
14.3
%
$
2.48
Adjusted percent net sales
61.8
%
35.8
%
6.9
%
19.0
%
(1.7)
%
14.9
%
FINANCIAL CONDITION AND LIQUIDITY
Six Months
2021
2020
Net cash provided by operating activities
$
1,330
$
1,211
Net cash used in investing activities
(298)
(280)
Net cash provided by (used in) financing activities
(1,729)
1,288
Effect of exchange rate changes on cash and cash equivalents
(5)
(17)
Change in cash and cash equivalents
$
(702)
$
2,202
Operating Activities
Cash provided by operating activities was $1,330 and $1,211 in the six months 2021 and 2020. The increase was primarily due to higher net earnings partially offset by changes in working capital accounts related to increased sales and higher recall-related payments.
Investing Activities
Cash used in investing activities was $298 and $280 in the six months 2021 and 2020. The increase in cash used in 2021 was
primarily due to increased payments for acquisitions partially offset by lower purchases of property, plant and equipment.
Financing Activities
Cash provided by (used in) financing activities was ($1,729) and $1,288 in the six 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 six months 2021 or 2020.
Six Months
2021
2020
Total dividends paid to common shareholders
$
475
$
431
Liquidity
Cash, cash equivalents and marketable securities were $2,325 and $3,024 on June 30, 2021 and December 31, 2020. Current assets exceeded current liabilities by $4,780 and $4,666 on June 30, 2021 and December 31, 2020. We anticipate being able
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2021 Second Quarter Form 10-Q
to support our short-term liquidity and operating needs from a variety of sources including cash from operations, commercial paper, existing credit lines and capital expenditure and operating expense reductions. We maintain a revolving credit facility with $1.5 billion of committed capital which expires in August 2023.
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 42% on June 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 June 30, 2021. Based on that evaluation, the Certifying Officers concluded the Company's disclosure controls and procedures were effective as of June 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 3,231 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 six 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 June 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
Section 13(r) of the Securities Exchange Act of 1934, as amended, requires an issuer to disclose in its annual or quarterly reports whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to parties subject to sanctions administered by the Office of Foreign Assets Control (“OFAC”) within the United States Department of the Treasury, whether or not such activities are prohibited or sanctionable under United States law. On March 2, 2021, the United States government designated the Russian Federal Security Service (the “FSB”) under additional sanctions authorities. On the same day, OFAC issued General License No. 1B (the “OFAC General License”), which generally authorizes certain licensing, permitting, certification, notification and related transactions with the FSB as may be required pursuant to Russian encryption product import controls for the importation, distribution or use of certain information technology products and radio frequency technology products in the Russian Federation.
As required under Russian law and as permitted under the OFAC General License, one of our subsidiaries in Russia periodically files notifications with or applies for import licenses and permits from the FSB on our behalf in connection with the importation of our products into Russia. These notification and licensing activities are free of charge, and none of our gross revenue or net profits are attributable to such activities. We expect to continue to file notifications with and apply for import licenses and permits from the FSB to qualify our products for importation and distribution in the Russian Federation to the extent required under Russian law, but only so long as such notification and licensing activities are authorized by the OFAC General License, any successor general license or other authorization issued by OFAC.
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
† Filed with this Form 10-Q
* Furnished with this Form 10-Q
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2021 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.