QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
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 379,778,279 shares of Common Stock, $0.10 par value, on June 30, 2023.
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Stryker Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Three Months
Six Months
2023
2022
2023
2022
Net sales
$
4,996
$
4,493
$
9,774
$
8,768
Cost of sales
1,815
1,667
3,577
3,208
Gross profit
$
3,181
$
2,826
$
6,197
$
5,560
Research, development and engineering expenses
346
351
685
764
Selling, general and administrative expenses
1,706
1,539
3,487
3,249
Recall charges, net
3
4
3
18
Amortization of intangible assets
161
160
322
310
Total operating expenses
$
2,216
$
2,054
$
4,497
$
4,341
Operating income
$
965
$
772
$
1,700
$
1,219
Other income (expense), net
(66)
(52)
(122)
(113)
Earnings before income taxes
$
899
$
720
$
1,578
$
1,106
Income taxes
161
64
248
127
Net earnings
$
738
$
656
$
1,330
$
979
Net earnings per share of common stock:
Basic
$
1.95
$
1.73
$
3.51
$
2.59
Diluted
$
1.93
$
1.72
$
3.47
$
2.56
Weighted-average shares outstanding (in millions):
Basic
379.7
378.3
379.4
378.0
Effect of dilutive employee stock compensation
4.2
3.9
4.2
4.5
Diluted
383.9
382.2
383.6
382.5
Cash dividends declared per share of common stock
$
0.75
$
0.695
$
1.50
$
1.39
Anti-dilutive shares excluded from the calculation of dilutive employee stock options were 4.5 for the three months 2022 and de minimis in all other periods.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months
Six Months
2023
2022
2023
2022
Net earnings
$
738
$
656
$
1,330
$
979
Other comprehensive income (loss), net of tax:
Marketable securities
—
—
—
(1)
Pension plans
(1)
8
(3)
7
Unrealized gains (losses) on designated hedges
11
24
2
25
Financial statement translation
(35)
161
(108)
214
Total other comprehensive income (loss), net of tax
$
(25)
$
193
$
(109)
$
245
Comprehensive income
$
713
$
849
$
1,221
$
1,224
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
1
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
CONSOLIDATED BALANCE SHEETS
June 30
December 31
2023
2022
(Unaudited)
Assets
Current assets
Cash and cash equivalents
$
1,401
$
1,844
Marketable securities
77
84
Accounts receivable, less allowance of $181 ($154 in 2022)
3,261
3,565
Inventories:
Materials and supplies
1,221
1,006
Work in process
391
348
Finished goods
2,981
2,641
Total inventories
$
4,593
$
3,995
Prepaid expenses and other current assets
819
787
Total current assets
$
10,151
$
10,275
Property, plant and equipment:
Land, buildings and improvements
1,646
1,739
Machinery and equipment
4,441
4,066
Total property, plant and equipment
$
6,087
$
5,805
Less allowance for depreciation
3,005
2,835
Property, plant and equipment, net
$
3,082
$
2,970
Goodwill
15,172
14,880
Other intangibles, net
4,917
4,885
Noncurrent deferred income tax assets
1,439
1,410
Other noncurrent assets
2,648
2,464
Total assets
$
37,409
$
36,884
Liabilities and shareholders' equity
Current liabilities
Accounts payable
$
1,326
$
1,413
Accrued compensation
929
1,149
Income taxes
298
292
Dividends payable
284
284
Accrued product liabilities
220
230
Accrued expenses and other liabilities
1,729
1,744
Current maturities of debt
1,798
1,191
Total current liabilities
$
6,584
$
6,303
Long-term debt, excluding current maturities
11,149
11,857
Income taxes
469
641
Other noncurrent liabilities
1,846
1,467
Total liabilities
$
20,048
$
20,268
Shareholders' equity
Common stock, $0.10 par value
38
38
Additional paid-in capital
2,127
2,034
Retained earnings
15,526
14,765
Accumulated other comprehensive loss
(330)
(221)
Total shareholders' equity
$
17,361
$
16,616
Total liabilities and shareholders' equity
$
37,409
$
36,884
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
2
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Three Months
Six Months
2023
2022
2023
2022
Common stock shares outstanding (in millions)
Beginning
379.6
378.2
378.7
377.5
Issuance of common stock under stock compensation and benefit plans
0.2
0.1
1.1
0.8
Ending
379.8
378.3
379.8
378.3
Common stock
Beginning
$
38
$
38
$
38
$
38
Issuance of common stock under stock compensation and benefit plans
—
—
—
—
Ending
$
38
$
38
$
38
$
38
Additional paid-in capital
Beginning
$
2,090
$
1,947
$
2,034
$
1,890
Issuance of common stock under stock compensation and benefit plans
(2)
6
(20)
(8)
Share-based compensation
39
36
113
107
Ending
$
2,127
$
1,989
$
2,127
$
1,989
Retained earnings
Beginning
$
15,072
$
13,540
$
14,765
$
13,480
Net earnings
738
656
1,330
979
Cash dividends declared
(284)
(263)
(569)
(526)
Ending
$
15,526
$
13,933
$
15,526
$
13,933
Accumulated other comprehensive income (loss)
Beginning
$
(305)
$
(479)
$
(221)
$
(531)
Other comprehensive income (loss)
(25)
193
(109)
245
Ending
$
(330)
$
(286)
$
(330)
$
(286)
Total shareholders' equity
$
17,361
$
15,674
$
17,361
$
15,674
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
3
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months
2023
2022
Operating activities
Net earnings
$
1,330
$
979
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation
194
185
Amortization of intangible assets
322
310
Asset impairments
3
—
Share-based compensation
113
107
Recall charges, net
3
18
Sale of inventory stepped-up to fair value at acquisition
—
12
Changes in operating assets and liabilities:
Accounts receivable
308
(159)
Inventories
(589)
(523)
Accounts payable
(97)
34
Accrued expenses and other liabilities
(159)
(257)
Recall-related payments
(23)
(19)
Income taxes
(169)
(132)
Other, net
(103)
177
Net cash provided by operating activities
$
1,133
$
732
Investing activities
Acquisitions, net of cash acquired
(390)
(2,563)
Purchases of marketable securities
(35)
(38)
Proceeds from sales of marketable securities
42
29
Purchases of property, plant and equipment
(282)
(262)
Net cash used in investing activities
$
(665)
$
(2,834)
Financing activities
Proceeds (payments) on short-term borrowings, net
(4)
(376)
Proceeds from issuance of long-term debt
—
1,500
Payments on long-term debt
(201)
(252)
Payments of dividends
(569)
(525)
Cash paid for taxes from withheld shares
(111)
(84)
Other financing, net
(1)
(23)
Net cash provided by (used in) financing activities
$
(886)
$
240
Effect of exchange rate changes on cash and cash equivalents
(25)
(38)
Change in cash and cash equivalents
$
(443)
$
(1,900)
Cash and cash equivalents at beginning of period
1,844
2,944
Cash and cash equivalents at end of period
$
1,401
$
1,044
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
4
STRYKER CORPORATION
2023 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, 2023 and the results of operations for the three and six months 2023. 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 2022. Certain immaterial reclassifications have been made to prior year's segment operating income to conform with current year presentation in our Consolidated Financial Statements.
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 2022.
We disaggregate our net sales by business 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.
Beginning in the first quarter 2023 we consolidated Other MedSurg and Neurotechnology into Endoscopy as Other MedSurg and Neurotechnology (primarily Sustainability Solutions) has been fully integrated into our Endoscopy business. Endoscopy includes sales related to Other of $87 and $77 for the three months 2023 and 2022 and $168 and $146 for the six months 2023 and 2022. We have reflected these changes in all historical periods presented.
Net Sales by Business
Three Months
Six Months
2023
2022
2023
2022
MedSurg and Neurotechnology:
Instruments
$
630
$
563
$
1,205
$
1,091
Endoscopy
705
677
1,403
1,284
Medical
841
666
1,619
1,330
Neurovascular
311
306
595
607
Neuro Cranial
373
337
728
660
$
2,860
$
2,549
$
5,550
$
4,972
Orthopaedics and Spine:
Knees
$
562
$
500
$
1,128
$
964
Hips
393
364
768
691
Trauma and Extremities
766
676
1,535
1,361
Spine
296
290
580
569
Other
119
114
213
211
$
2,136
$
1,944
$
4,224
$
3,796
Total
$
4,996
$
4,493
$
9,774
$
8,768
Net Sales by Geography
Three Months 2023
Three Months 2022
United States
International
United States
International
MedSurg and Neurotechnology:
Instruments
$
512
$
118
$
451
$
112
Endoscopy
568
137
548
129
Medical
682
159
536
130
Neurovascular
123
188
113
193
Neuro Cranial
306
67
281
56
$
2,191
$
669
$
1,929
$
620
Orthopaedics and Spine:
Knees
$
406
$
156
$
368
$
132
Hips
249
144
230
134
Trauma and Extremities
559
207
489
187
Spine
221
75
209
81
Other
85
34
86
28
$
1,520
$
616
$
1,382
$
562
Total
$
3,711
$
1,285
$
3,311
$
1,182
Net Sales by Geography
Six Months 2023
Six Months 2022
United States
International
United States
International
MedSurg and Neurotechnology:
Instruments
$
962
$
243
$
865
$
226
Endoscopy
1,132
271
1,034
250
Medical
1,294
325
1,061
269
Neurovascular
241
354
223
384
Neuro Cranial
595
133
545
115
$
4,224
$
1,326
$
3,728
$
1,244
Orthopaedics and Spine:
Knees
$
822
$
306
$
713
$
251
Hips
485
283
432
259
Trauma and Extremities
1,113
422
976
385
Spine
433
147
409
160
Other
146
67
158
53
$
2,999
$
1,225
$
2,688
$
1,108
Total
$
7,223
$
2,551
$
6,416
$
2,352
Contract Assets and Liabilities
On June 30, 2023 and December 31, 2022 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. This occurs primarily when payment is received upfront for certain multi-period extended service contracts. Our contract liabilities of $784 and $741 on June 30, 2023 and December 31, 2022 are classified within accrued expenses and other liabilities and other noncurrent liabilities within our Consolidated Balance Sheets based on the timing of when we expect to complete our performance obligations.
Changes in contract liabilities during the six months 2023 were as follows:
June 2023
Beginning contract liabilities
$
741
Revenue recognized from beginning of year contract liabilities
(230)
Net advance consideration received during the period
273
Ending contract liabilities
$
784
Dollar amounts are in millions except per share amounts or as otherwise specified.
5
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (AOCI)
Three Months 2023
Marketable Securities
Pension Plans
Hedges
Financial Statement Translation
Total
Beginning
$
(1)
$
29
$
43
$
(376)
$
(305)
OCI
(1)
1
24
(24)
—
Income taxes
—
(2)
(5)
(4)
(11)
Reclassifications to:
Cost of sales
—
—
(9)
—
(9)
Other (income) expense, net
1
(1)
(1)
(9)
(10)
Income taxes
—
1
2
2
5
Net OCI
—
(1)
11
(35)
(25)
Ending
$
(1)
$
28
$
54
$
(411)
$
(330)
Three Months 2022
Marketable Securities
Pension Plans
Hedges
Financial Statement Translation
Total
Beginning
$
(1)
$
(156)
$
41
$
(363)
$
(479)
OCI
—
8
32
268
308
Income taxes
—
(2)
(4)
(98)
(104)
Reclassifications to:
Cost of sales
—
—
(3)
—
(3)
Other (income) expense, net
—
2
(1)
(11)
(10)
Income taxes
—
—
—
2
2
Net OCI
—
8
24
161
193
Ending
$
(1)
$
(148)
$
65
$
(202)
$
(286)
Six Months 2023
Marketable Securities
Pension Plans
Hedges
Financial Statement Translation
Total
Beginning
$
(1)
$
31
$
52
$
(303)
$
(221)
OCI
(1)
3
27
(123)
(94)
Income taxes
—
(5)
(6)
28
17
Reclassifications to:
Cost of sales
—
—
(22)
—
(22)
Other (income) expense, net
1
(2)
(2)
(17)
(20)
Income taxes
—
1
5
4
10
Net OCI
—
(3)
2
(108)
(109)
Ending
$
(1)
$
28
$
54
$
(411)
$
(330)
Six Months 2022
Marketable Securities
Pension Plans
Hedges
Financial Statement Translation
Total
Beginning
$
—
$
(155)
$
40
$
(416)
$
(531)
OCI
(1)
4
36
354
393
Income taxes
—
—
(6)
(123)
(129)
Reclassifications to:
Cost of sales
—
—
(3)
—
(3)
Other (income) expense, net
—
4
(2)
(22)
(20)
Income taxes
—
(1)
—
5
4
Net OCI
(1)
7
25
214
245
Ending
$
(1)
$
(148)
$
65
$
(202)
$
(286)
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 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 2022.
Foreign Currency Hedges
June 2023
Cash Flow
Net Investment
Non-Designated
Total
Gross notional amount
$
809
$
1,630
$
3,885
$
6,324
Maximum term in years
3.4
Fair value:
Other current assets
$
30
$
—
$
24
$
54
Other noncurrent assets
2
79
—
81
Other current liabilities
(6)
—
(15)
(21)
Other noncurrent liabilities
—
(27)
—
(27)
Total fair value
$
26
$
52
$
9
$
87
December 2022
Cash Flow
Net Investment
Non-Designated
Total
Gross notional amount
$
1,053
$
1,598
$
3,417
$
6,068
Maximum term in years
3.9
Fair value:
Other current assets
$
20
$
—
$
9
$
29
Other noncurrent assets
1
89
—
90
Other current liabilities
(6)
—
(79)
(85)
Other noncurrent liabilities
(1)
(16)
—
(17)
Total fair value
$
14
$
73
$
(70)
$
17
We had €1.5 billion at June 30, 2023 and December 31, 2022 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 had €4.4 billion at June 30, 2023 and December 31, 2022 of senior unsecured notes designated as net investment hedges to selectively hedge portions of our investment in certain international subsidiaries. The currency effects of our Euro-denominated senior unsecured notes are reflected in AOCI within shareholders' equity where they offset gains and losses recorded on our net investment in international subsidiaries.
The total after-tax gain (loss) recognized in OCI related to designated net investment hedges was ($101) in the six months 2023.
Net Currency Exchange Rate Gains (Losses)
Derivative
Three Months
Six Months
instrument:
Recorded in:
2023
2022
2023
2022
Cash Flow
Cost of sales
$
9
$
3
$
22
$
3
Net Investment
Other income (expense), net
9
11
17
22
Non-Designated
Other income (expense), net
5
2
9
3
Total
$
23
$
16
$
48
$
28
Pretax gains (losses) on derivatives designated as cash flow hedges of $30 and net investment hedges of $34 recorded in AOCI are expected to be reclassified to cost of sales and other income (expense), net in earnings within 12 months of June 30, 2023. 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.
Dollar amounts are in millions except per share amounts or as otherwise specified.
6
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
Interest Rate Hedges
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), net in earnings within 12 months of June 30, 2023. 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 2022.
In the third quarter 2022 we determined that certain commercial and regulatory milestones related to technology acquired in the purchase of Mobius Imaging and Cardan Robotics were no longer probable of being achieved and recorded a $110 reduction in the fair value of contingent consideration reflected in selling, general and administrative expenses.
In the second quarter 2023 we recorded $192 of contingent consideration related to the acquisition of Cerus Endovascular Limited (Cerus) described in Note 7.
There were no significant transfers into or out of any level of the fair value hierarchy in 2023.
Assets Measured at Fair Value
June
December
2023
2022
Cash and cash equivalents
$
1,401
$
1,844
Trading marketable securities
192
166
Level 1 - Assets
$
1,593
$
2,010
Available-for-sale marketable securities:
Corporate and asset-backed debt securities
$
36
$
42
Foreign government debt securities
—
1
United States agency debt securities
5
3
United States treasury debt securities
35
36
Certificates of deposit
1
2
Total available-for-sale marketable securities
$
77
$
84
Foreign currency exchange forward contracts
135
119
Level 2 - Assets
$
212
$
203
Total assets measured at fair value
$
1,805
$
2,213
Liabilities Measured at Fair Value
June
December
2023
2022
Deferred compensation arrangements
$
192
$
166
Level 1 - Liabilities
$
192
$
166
Foreign currency exchange forward contracts
$
48
$
102
Level 2 - Liabilities
$
48
$
102
Contingent consideration:
Beginning
$
121
$
306
Additions
192
1
Change in estimate and foreign exchange
(3)
(137)
Settlements
(1)
(49)
Ending
$
309
$
121
Level 3 - Liabilities
$
309
$
121
Total liabilities measured at fair value
$
549
$
389
Fair Value of Available for Sale Securities by Maturity
June
December
2023
2022
Due in one year or less
$
42
$
53
Due after one year through three years
$
35
$
31
On June 30, 2023 and December 31, 2022 the aggregate difference between the cost and fair value of available-for-sale marketable securities was nominal. Interest on cash and cash equivalents, short-term investments and marketable securities income was $11 and $20 in the three months and $25 and $35 in the six months 2023 and 2022, which was recorded in other income (expense), net.
Our investments in available-for-sale marketable securities had a minimum credit quality rating of A2 (Moody's), A (Standard & Poor's) and A (Fitch). We do not plan to sell the investments, and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.
NOTE 6 - CONTINGENCIES AND COMMITMENTS
We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor, intellectual property and other matters, the most significant of which are more fully described below. The outcomes of these matters will generally not be known for prolonged periods of time. In certain of the legal proceedings the claimants seek damages as well as other compensatory and equitable relief that could result in the payment of significant claims and settlements and/or the imposition of injunctions or other equitable relief. For legal matters for which management had sufficient information to reasonably estimate our future obligations, a liability representing management's best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known, is recorded. The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than those estimated by management, additional expense may be incurred, which could unfavorably affect future operating results. We are self-insured for certain claims and expenses. The ultimate cost to us with respect to product liability claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.
In April 2022 the United States District Court for the District of Delaware issued a judgment following a jury verdict in favor of PureWick Corporation (PureWick) for its 2019 complaint seeking patent infringement damages related to our PrimaFit and PrimoFit products. Following a jury trial, the court awarded damages related to this complaint and we recorded charges of $28 in March 2022. Stryker plans to appeal the results of the trial. If ultimately successful, PureWick may seek to recover its legal fees. In June 2022 PureWick filed a motion to enhance the damages awarded, which the court denied in March 2023. In 2022 PureWick also filed a separate complaint seeking additional patent infringement damages related to our current PrimaFit products. A trial for this matter is currently set for December 2023.
We are currently investigating whether certain business activities in certain foreign countries violated provisions of the Foreign Corrupt Practices Act (FCPA) and have engaged outside counsel to conduct these investigations. We have been contacted by the United States Securities and Exchange Commission, United States Department of Justice and certain other regulatory authorities and are cooperating with these agencies. At this time we are unable to predict the outcome of the investigations or the potential impact, if any, on our financial statements.
Recall Matters
We have conducted voluntary recalls of certain products, including our Rejuvenate and ABG II Modular-Neck hip stems and certain lot-specific sizes and offsets of LFIT Anatomic CoCr V40 Femoral Heads. Additionally, we are responsible for certain product liability claims, primarily related to certain hip products sold by Wright Medical Group N.V. (Wright) prior to its 2014 divestiture of the OrthoRecon business.
Dollar amounts are in millions except per share amounts or as otherwise specified.
7
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
We have incurred, and expect to incur in the future, costs associated with the defense and settlement of claims and lawsuits related to our recalls. Based on the information that has been received, we have recorded reserves of $194, representing our best estimate of probable loss related to recall matters globally. The final outcomes of these matters are dependent on many factors that are difficult to predict. Accordingly the ultimate cost related to these matters may be materially different than the amount of our current estimate and accruals and could have a material adverse effect on our results of operations and cash flows.
Leases
June
December
2023
2022
Right-of-use assets
$
481
$
473
Lease liabilities, current
$
125
$
121
Lease liabilities, non-current
$
363
$
357
Other information:
Weighted-average remaining lease term (years)
5.7
5.5
Weighted-average discount rate
3.60
%
3.22
%
Three Months
Six Months
2023
2022
2023
2022
Operating lease cost
$
41
$
38
$
79
$
73
NOTE 7 - ACQUISITIONS
We acquire stock in companies and various assets that continue to support our capital deployment and product development strategies. In the six months 2023 and 2022 cash paid for acquisitions, net of cash acquired was $390 and $2,563.
On May 2, 2023 we acquired Cerus for net cash consideration of $289 and up to $225 in future milestone payments that had a fair value of $192 at the acquisition date. Cerus designs, develops and manufactures neurovascular products used for the treatment of hemorrhagic stroke. Cerus is part of our Neurovascular business within MedSurg and Neurotechnology. Goodwill attributable to the acquisition is not deductible for tax purposes.
In February 2022 we completed the acquisition of Vocera Communications, Inc. (Vocera) for $79.25 per share, or an aggregate purchase price of $2.6 billion, net of cash acquired ($3.0 billion including convertible notes). Vocera is a leader in the digital care coordination and communication category. Vocera is part of our Medical business within MedSurg and Neurotechnology. Goodwill attributable to the acquisition reflects the strategic benefits of expanding our presence in adjacent markets, diversifying our product portfolio, advancing innovations, and accelerating our digital aspirations. This goodwill is not deductible for tax purposes.
In the six months 2022 note holders elected to redeem the 1.50% and 0.50% convertible notes assumed in the Vocera acquisition for $101 and $324. These repayments are classified as financing activities in the Consolidated Statements of Cash Flows.
Share-based awards for Vocera employees vested upon our acquisition and a charge of $132 was recorded in selling, general and administrative expenses in 2022.
Purchase price allocations for our significant acquisitions are:
Purchase Price Allocation of Acquired Net Assets
2023
2022
Cerus
Vocera
Tangible assets acquired:
Accounts receivable
$
1
$
33
Inventory
2
13
Deferred income tax assets
7
91
Other assets
1
92
Debt
—
(425)
Deferred income tax liabilities
(60)
(193)
Other liabilities
(22)
(117)
Intangible assets:
Customer and distributor relationships
—
603
Developed technology
240
175
Trade name
—
18
Goodwill
312
2,273
Purchase price, net of cash acquired of $7 and $281
$
481
$
2,563
Weighted average amortization period at acquisition (years):
Developed technologies
15
6
Customer relationships
—
15
Trademarks
—
9
The purchase price allocation for Cerus is based on preliminary valuations, primarily related to developed technology and deferred income taxes. Our estimates and assumptions are subject to change within the measurement period. The purchase price allocation for Vocera was finalized in the first quarter 2023 without material adjustments.
Consolidated Estimated Amortization Expense
Remainder of 2023
2024
2025
2026
2027
$
319
$
608
$
591
$
534
$
511
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. Our credit facilities require us to comply with financial and other covenants. We were in compliance with all covenants on June 30, 2023.
In February 2022 we entered into a $1.5 billion term loan agreement that matures on February 22, 2025 and bears interest at a base rate based on the Term Secured Overnight Financing Rate (SOFR) plus 0.725%. Through June 30, 2023 we have repaid $850 on the term loan.
In the first quarter 2022 our Board of Directors approved an increase to the maximum amount of commercial paper that can be outstanding from $1,500 to $2,250.
On June 30, 2023 there were no borrowings outstanding under our revolving credit facility or our commercial paper program which allows for maturities up to 397 days from the date of issuance.
Dollar amounts are in millions except per share amounts or as otherwise specified.
8
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
Summary of Total Debt
June
December
2023
2022
Rate
Due
Senior unsecured notes:
1.125%
November 30, 2023
$
598
$
585
0.600%
December 1, 2023
600
599
3.375%
May 15, 2024
597
596
0.250%
December 3, 2024
922
903
1.150%
June 15, 2025
647
647
3.375%
November 1, 2025
749
748
3.500%
March 15, 2026
996
995
2.125%
November 30, 2027
812
795
3.650%
March 7, 2028
597
597
0.750%
March 1, 2029
865
848
1.950%
June 15, 2030
992
991
2.625%
November 30, 2030
699
684
1.000%
December 3, 2031
807
790
4.100%
April 1, 2043
392
392
4.375%
May 15, 2044
396
396
4.625%
March 15, 2046
983
983
2.900%
June 15, 2050
642
642
Term loan
650
850
Other
3
7
Total debt
$
12,947
$
13,048
Less current maturities
1,798
1,191
Total long-term debt
$
11,149
$
11,857
June
December
2023
2022
Unamortized debt issuance costs
$
47
$
52
Borrowing capacity on existing facilities
$
2,160
$
2,162
Fair value of senior unsecured notes
$
11,082
$
10,910
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.
NOTE 9 - INCOME TAXES
Our effective tax rates were 17.9% and 15.7% in the three and six months 2023 and 8.9% and 11.5% in the three and six months 2022. The effective tax rates for the three and six months 2023 and 2022 reflect the continued lower effective income tax rates as a result of our European operations and certain discrete tax items. In addition, the effective tax rates for the three and six months 2022 reflect the reversal of deferred income tax on undistributed earnings of foreign subsidiaries as our revised capital plan determined that certain cash outside of the United States would no longer need to be repatriated during the period previously contemplated.
NOTE 10 - SEGMENT INFORMATION
Three Months
Six Months
2023
2022
2023
2022
MedSurg and Neurotechnology
$
2,860
$
2,549
$
5,550
$
4,972
Orthopaedics and Spine
2,136
1,944
4,224
3,796
Net sales
$
4,996
$
4,493
$
9,774
$
8,768
MedSurg and Neurotechnology
$
780
$
629
$
1,407
$
1,259
Orthopaedics and Spine
601
579
1,202
1,082
Segment operating income
$
1,381
$
1,208
$
2,609
$
2,341
Items not allocated to segments:
Corporate and other
$
(165)
$
(145)
$
(387)
$
(344)
Acquisition and integration-related costs
(2)
(37)
(8)
(186)
Amortization of intangible assets
(161)
(160)
(322)
(310)
Structural optimization and other special charges
(72)
(62)
(114)
(171)
Medical device regulations
(27)
(32)
(55)
(60)
Recall-related matters
(3)
(4)
(3)
(18)
Regulatory and legal matters
14
4
(20)
(33)
Consolidated operating income
$
965
$
772
$
1,700
$
1,219
There were no significant changes to total assets by segment from information provided in our Annual Report on Form 10-K for 2022.
Dollar amounts are in millions except per share amounts or as otherwise specified.
9
STRYKER CORPORATION
2023 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 Medical and Surgical, Neurotechnology, Orthopaedics and Spine that help improve patient and healthcare outcomes. Alongside its customers around the world, Stryker impacts more than 130 million patients annually.
We segregate our operations into two reportable business segments: (i) MedSurg and Neurotechnology and (ii) Orthopaedics and Spine. MedSurg and Neurotechnology products include surgical equipment and navigation systems (Instruments), endoscopic and communications systems (Endoscopy), patient handling, emergency medical equipment and intensive care disposable products (Medical), minimally invasive products for the treatment of acute ischemic and hemorrhagic stroke (Neurovascular), a comprehensive line of products for traditional brain and open skull based surgical procedures; orthobiologic and biosurgery products, including synthetic bone grafts and vertebral augmentation products (Neuro Cranial). Orthopaedics and Spine products consist primarily of implants used in hip and knee joint replacements and trauma and extremity surgeries, and cervical, thoracolumbar and interbody systems used in spinal injury, deformity and degenerative therapies.
Macroeconomic Environment
The global economy continues to experience increased inflationary pressures in part due to global supply chain disruptions, labor shortages and other impacts of the macroeconomic environment which we anticipate will continue. Higher interest rates and capital costs, higher shipping costs, increased costs of labor, fluctuating foreign currency exchange rates and the military conflict in Russia and Ukraine have created additional economic challenges and uncertainties. These conditions may cause our customers to decrease or delay orders for our products and services, and the higher interest rates may impact deal mix for our capital products.
China Volume-Based Procurement and Import Purchase Evaluation
The government in China has launched regional and national programs for volume-based procurement (VBP) of high-value medical consumables to reduce healthcare costs. Each VBP program has specific requirements to award contracts to the lowest bidders who are able to satisfy the quality and quantity requirements. The successful bidders may be guaranteed sales volume for certain products, while unsuccessful bidders may lose unit sales volume. We have been a winning bidder in certain national and regional VBP programs, including those for joint replacement and trauma products in 2021 and certain neurovascular products in the fourth quarter 2022 and the first six months of 2023. The prices required for a successful bid have negatively impacted the commercial operations of our joint
replacement, trauma and certain neurovascular products in China.
We were unsuccessful in our bids in the VBP program for spine products that took place in the third quarter 2022 and as a result we are exiting the spine business in China. To date our other businesses have not been significantly impacted, but may be in the future as a result of additional VBP programs. In the second quarter 2023 government agencies announced data collection initiatives for sports medicine, biologics and craniomaxilliofacial products in preparation for VBP programs that could be announced as soon as the third quarter 2023. The impact of VBP programs, if any, for these products is not expected to be significant. China has also issued national guiding standards for Import Purchase Evaluation which has increased the purchase of locally sourced equipment in China's public hospitals and is impacting our MedSurg business in China. Our business in China represented approximately 1.8% our revenues in the six months 2023.
Overview of the Three and Six Months
In the three months 2023 we achieved sales growth of 11.2% from 2022. Excluding the impact of acquisitions and divestitures sales grew 11.9% in constant currency. We reported operating income margin of 19.3%, net earnings of $738 and net earnings per diluted share of $1.93. Excluding the impact of certain items, adjusted operating income margin(1) increased by 60 basis points to 24.3%, with adjusted net earnings(1) of $976 and adjusted net earnings per diluted share(1) of $2.54, an increase of 12.9% from 2022.
In the six months 2023 we achieved sales growth of 11.5% from 2022. Excluding the impact of acquisitions and divestitures sales grew 12.7% in constant currency. We reported operating income margin of 17.4%, net earnings of $1,330 and net earnings per diluted share of $3.47. Excluding the impact of certain items, adjusted operating income margin(1) contracted by 10 basis points to 22.7%, with adjusted net earnings(1) of $1,796 and adjusted net earnings per diluted share(1) of $4.68, an increase of 10.9% from 2022.
Recent Developments
On May 2, 2023 we acquired Cerus Endovascular Limited (Cerus) for net cash consideration of $289 and up to $225 in future milestone payments. Cerus designs, develops and manufactures neurovascular products used for the treatment of hemorrhagic stroke. Cerus is part of our Neurovascular business within MedSurg and Neurotechnology. Refer to Note 7 to our Consolidated Financial Statements for further information.
(1) Refer to "Non-GAAP Financial Measures" for a discussion of non-GAAP financial measures used in this report and a reconciliation to the most directly comparable GAAP financial measure.
Dollar amounts are in millions except per share amounts or as otherwise specified.
10
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
CONSOLIDATED RESULTS OF OPERATIONS
Three Months
Six Months
Percent Net Sales
Percentage
Percent Net Sales
Percentage
2023
2022
2023
2022
Change
2023
2022
2023
2022
Change
Net sales
$
4,996
$
4,493
100.0
%
100.0
%
11.2
%
$
9,774
$
8,768
100.0
%
100.0
%
11.5
%
Gross profit
3,181
2,826
63.7
62.9
12.6
6,197
5,560
63.4
63.4
11.5
Research, development and engineering expenses
346
351
6.9
7.8
(1.4)
685
764
7.0
8.7
(10.3)
Selling, general and administrative expenses
1,706
1,539
34.1
34.3
10.9
3,487
3,249
35.7
37.1
7.3
Recall charges, net
3
4
0.1
0.1
(25.0)
3
18
—
0.2
(83.3)
Amortization of intangible assets
161
160
3.2
3.6
0.6
322
310
3.3
3.5
3.9
Other income (expense), net
(66)
(52)
(1.3)
(1.2)
26.9
(122)
(113)
(1.2)
(1.3)
8.0
Income taxes
161
64
nm
nm
151.6
248
127
nm
nm
95.3
Net earnings
$
738
$
656
14.8
%
14.6
%
12.5
%
$
1,330
$
979
13.6
%
11.2
%
35.9
%
Net earnings per diluted share
$
1.93
$
1.72
12.2
%
$
3.47
$
2.56
35.5
%
Adjusted net earnings per diluted share(1)
$
2.54
$
2.25
12.9
%
$
4.68
$
4.22
10.9
%
nm - not meaningful
Geographic and Segment Net Sales
Three Months
Six Months
Percentage Change
Percentage Change
2023
2022
As Reported
Constant Currency
2023
2022
As Reported
Constant Currency
Geographic:
United States
$
3,711
$
3,311
12.1
%
12.1
%
$
7,223
$
6,416
12.6
%
12.6
%
International
1,285
1,182
8.7
11.5
2,551
2,352
8.5
13.9
Total
$
4,996
$
4,493
11.2
%
11.9
%
$
9,774
$
8,768
11.5
%
12.9
%
Segment:
MedSurg and Neurotechnology
$
2,860
$
2,549
12.2
%
12.9
%
$
5,550
$
4,972
11.6
%
13.0
%
Orthopaedics and Spine
2,136
1,944
9.9
10.6
4,224
3,796
11.3
12.8
Total
$
4,996
$
4,493
11.2
%
11.9
%
$
9,774
$
8,768
11.5
%
12.9
%
Supplemental Net Sales Growth Information
Three Months
Six Months
Percentage Change
Percentage Change
United States
International
United States
International
2023
2022
As Reported
Constant Currency
As Reported
As Reported
Constant Currency
2023
2022
As Reported
Constant Currency
As Reported
As Reported
Constant Currency
MedSurg and Neurotechnology:
Instruments
$
630
$
563
11.9
%
12.4
%
13.2
%
6.7
%
9.1
%
$
1,205
$
1,091
10.4
%
11.6
%
11.1
%
7.8
%
13.3
%
Endoscopy
705
677
4.1
4.6
3.5
6.9
9.7
1,403
1,284
9.3
10.3
9.5
8.5
13.8
Medical
841
666
26.3
26.9
27.2
22.5
25.7
1,619
1,330
21.7
22.9
21.9
21.0
26.9
Neurovascular
311
306
1.5
3.6
9.0
(2.9)
0.3
595
607
(2.0)
1.3
8.1
(7.9)
(2.9)
Neuro Cranial
373
337
10.8
11.3
9.6
16.5
20.0
728
660
10.3
11.3
9.4
15.1
21.3
$
2,860
$
2,549
12.2
%
12.9
%
13.5
%
8.0
%
11.0
%
$
5,550
$
4,972
11.6
%
13.0
%
13.3
%
6.6
%
12.1
%
Orthopaedics and Spine:
Knees
$
562
$
500
12.5
%
13.2
%
10.4
%
18.1
%
21.2
%
$
1,128
$
964
17.0
%
18.4
%
15.3
%
22.0
%
27.8
%
Hips
393
364
8.1
9.3
8.8
6.8
10.3
768
691
11.1
13.5
12.3
9.0
15.6
Trauma and Extremities
766
676
13.3
13.6
14.3
10.7
11.7
1,535
1,361
12.8
14.0
14.0
9.8
14.1
Spine
296
290
1.8
2.1
5.2
(7.0)
(6.1)
580
569
1.9
3.0
5.7
(8.0)
(4.6)
Other
119
114
4.3
6.2
(1.6)
22.3
30.9
213
211
0.7
2.9
(7.6)
25.3
35.8
$
2,136
$
1,944
9.9
%
10.6
%
10.0
%
9.5
%
12.0
%
$
4,224
$
3,796
11.3
%
12.8
%
11.6
%
10.6
%
15.9
%
Total
$
4,996
$
4,493
11.2
%
11.9
%
12.1
%
8.7
%
11.5
%
$
9,774
$
8,768
11.5
%
12.9
%
12.6
%
8.5
%
13.9
%
Note: Beginning in the first quarter 2023 we consolidated Other MedSurg and Neurotechnology into Endoscopy as Other MedSurg and Neurotechnology (primarily Sustainability Solutions) has been fully integrated into our Endoscopy business. Endoscopy includes sales related to Other of $87 and $77 for the three months 2023 and 2022 and $168 and $146 for the six months 2023 and 2022. We have reflected these changes in all historical periods presented.
Consolidated Net Sales
Consolidated net sales increased 11.2% in the three months 2023 as reported and 11.9% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.7%. Net sales in constant currency increased by 11.4% from increased unit volume and 0.5% due to higher prices. The unit volume increase was due to higher product shipments across all
MedSurg and Neurotechnology and Orthopaedics and Spine businesses.
Consolidated net sales increased 11.5% in the six months 2023 as reported and 12.9% in constant currency, as foreign currency exchange rates negatively impacted net sales by 1.4%. Excluding the 0.2% impact of acquisitions and divestitures, net sales in constant currency increased by 12.1% from increased unit
Dollar amounts are in millions except per share amounts or as otherwise specified.
11
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
volume and 0.6% due to higher prices. The unit volume increase was due to higher product shipments across all MedSurg and Neurotechnology and Orthopaedics and Spine businesses.
MedSurg and Neurotechnology Net Sales
MedSurg and Neurotechnology net sales increased 12.2% in the three months 2023 as reported and 12.9% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.7%. Net sales in constant currency increased by 11.5% from increased unit volume and 1.4% from higher prices. The unit volume increase was due to higher shipments across all MedSurg and Neurotechnology businesses.
MedSurg and Neurotechnology net sales increased 11.6% in the six months 2023 as reported and 13.0% in constant currency, as foreign currency exchange rates negatively impacted net sales by 1.4%. Excluding the 0.4% impact of acquisitions and divestitures, net sales in constant currency increased by 11.0% from increased unit volume and 1.6% from higher prices. The unit volume increase was due to higher shipments across all MedSurg and Neurotechnology businesses.
Orthopaedics and Spine Net Sales
Orthopaedics and Spine net sales increased 9.9% in the three months 2023 as reported and 10.6% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.7%. Net sales in constant currency increased 11.3% from increased unit volume partially offset by 0.7% from lower prices. The unit volume increase was due to higher shipments across all Orthopaedics and Spine businesses.
Orthopaedics and Spine net sales increased 11.3% in the six months 2023 as reported and 12.8% in constant currency, as foreign currency exchange rates negatively impacted net sales by 1.5%. Net sales in constant currency increased 13.6% from increased unit volume partially offset by 0.8% from lower prices. The unit volume increase was due to higher shipments across all Orthopaedics and Spine businesses.
Gross Profit
Gross profit was $3,181 and $2,826 in the three months 2023 and 2022. The key components of the change were:
Gross Profit Percent Net Sales
Three Months 2022
62.9
%
Sales pricing
20 bps
Volume and mix
100 bps
Manufacturing and supply chain costs
(60) bps
Inventory stepped up to fair value
20 bps
Three Months 2023
63.7
%
Gross profit as a percentage of net sales in the three months 2023 increased to 63.7% from 62.9% in 2022 due to favorable volume and mix partially offset by higher manufacturing and supply chain costs primarily due to supply chain inefficiencies.
Gross Profit Percent Net Sales
Six Months 2022
63.4
%
Sales pricing
20 bps
Volume and mix
100 bps
Manufacturing and supply chain costs
(130) bps
Inventory stepped up to fair value
10 bps
Six Months 2023
63.4
%
Gross profit as a percentage of net sales in the six months 2023 of 63.4% remained flat with 2022 due to higher prices and favorable volume and mix offset by higher manufacturing and supply chain costs primarily due to higher raw material costs and supply chain inefficiencies.
While segment mix was not a significant driver of the change in gross profit as a percent of net sales between the three and six months 2023 and 2022, we generally expect segment mix to have an unfavorable impact for the foreseeable future as we anticipate more rapid sales growth in our lower gross margin MedSurg and Neurotechnology segment than our Orthopaedics and Spine segment.
Research, Development and Engineering Expenses
Research, development and engineering expenses decreased $5 or 1.4% in the three months 2023 and decreased as a percentage of net sales to 6.9% from 7.8% in 2022, primarily due to increased costs for product launches in the three months 2022.
Research, development and engineering expenses decreased $79 or 10.3% in the six months 2023 and decreased as a percentage of net sales to 7.0% from 8.7% in 2022, primarily due to increased costs for product launches and the write-off of certain intangible assets in the six months 2022.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $167 or 10.9% in the three months 2023 and decreased as a percentage of net sales to 34.1% from 34.3% in 2022, primarily due to disciplined increases in spend and investments to support our growth. Expenses as a percentage of net sales in the three months 2022 included the impact of $30 of charges for acquisition and integration-related costs primarily related to Wright and Vocera.
Selling, general and administrative expenses increased $238 or 7.3% in the six months 2023 and decreased as a percentage of net sales to 35.7% from 37.1% in 2022. Expenses as a percentage of net sales in the six months 2022 included the impact of $132 of charges for share-based awards for Vocera employees that vested upon our acquisition. The increase in selling, general and administrative expenses in the six months 2023 was primarily due to disciplined increases in spend and investments to support our growth.
Recall Charges, Net
Recall charges, net were $3 and $4 in the three months and $3 and $18 in the six months 2023 and 2022. Charges in the three and six months 2023 were related to LFIT Anatomic CoCr V40 Femoral Heads. Charges in the three and six months 2022 were related to Wright hip products. Refer to Note 6 to our Consolidated Financial Statements for further information.
Amortization of Intangible Assets
Amortization of intangible assets was $161 and $160 in the three months and $322 and $310 in the six months 2023 and 2022. Refer to Note 7 to our Consolidated Financial Statements for further information.
Operating Income
Operating income was $965 and $772 in the three months 2023 and 2022. Operating income as a percentage of net sales in the three months 2023 increased to 19.3% from 17.2% in 2022. Refer to the comments above for discussion of the primary drivers of the change.
Operating income was $1,700 and $1,219 in the six months 2023 and 2022. Operating income as a percentage of net sales in the six months 2023 increased to 17.4% from 13.9% in 2022. Refer to the comments above for discussion of the primary drivers of the change.
MedSurg and Neurotechnology operating income as a percentage of net sales increased to 27.3% in the three months 2023 from 24.7% in 2022. Orthopaedics and Spine operating
Dollar amounts are in millions except per share amounts or as otherwise specified.
12
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
income as a percentage of net sales decreased to 28.1% in the three months 2023 from 29.8% in 2022. The key components of the change were:
Operating Income Percent Net Sales
MedSurg and Neurotechnology
Orthopaedics and Spine
Three Months 2022
24.7
%
29.8
%
Sales pricing
100 bps
(50) bps
Volume
430 bps
510 bps
Manufacturing and supply chain costs
70 bps
(170) bps
Research, development and engineering expenses
30 bps
10 bps
Selling, general and administrative expenses
(370) bps
(470) bps
Three Months 2023
27.3
%
28.1
%
The increase in MedSurg and Neurotechnology operating income as a percentage of net sales for the three months was primarily impacted by higher unit volumes partially offset by higher selling, general and administrative expenses due to disciplined increases in spend and investments to support our growth.
The decrease in Orthopaedics and Spine operating income as a percentage of net sales for the three months was primarily impacted by higher selling, general and administrative expenses due to disciplined increases in spend and investments to support our growth and higher manufacturing and supply chain costs primarily due to supply chain inefficiencies partially offset by higher unit volumes.
MedSurg and Neurotechnology operating income as a percentage of net sales increased to 25.4% in the six months 2023 from 25.3% in 2022. Orthopaedics and Spine operating income as a percentage of net sales was 28.5% in the six months 2023 and remained flat with 2022. The key components of the change were:
Operating Income Percent Net Sales
MedSurg and Neurotechnology
Orthopaedics and Spine
Six Months 2022
25.3
%
28.5
%
Sales pricing
120 bps
(50) bps
Volume
420 bps
610 bps
Manufacturing and supply chain costs
(150) bps
(100) bps
Research, development and engineering expenses
0 bps
10 bps
Selling, general and administrative expenses
(380) bps
(470) bps
Six Months 2023
25.4
%
28.5
%
The increase in MedSurg and Neurotechnology operating income as a percentage of net sales for the six months was primarily impacted by higher unit volumes and higher prices partially offset by higher selling, general and administrative expenses due to disciplined increases in spend and investments to support our growth and higher manufacturing and supply chain costs primarily due to the effects of inflation on the cost of raw materials.
Orthopaedics and Spine operating income as a percentage of net sales for the six months remained flat with 2022 as higher unit volumes were offset by higher selling, general and administrative expenses due to disciplined increases in spend and investments to support our growth, higher manufacturing and supply chain costs primarily due to supply chain inefficiencies and lower prices.
Other Income (Expense), Net
Other income (expense), net was ($66) and ($52) in the three months and ($122) and ($113) in the six months 2023 and 2022. The increase in net expense in the three months 2023 was primarily due to higher interest expense. The increase in net expense in the six months 2023 was primarily due to foreign currency fluctuations and higher interest expense, partially offset by interest income and favorable investment returns.
Income Taxes
Our effective tax rates were 17.9% and 15.7% in the three and six months 2023 and 8.9% and 11.5% in the three and six months 2022. The effective tax rates for the three and six months 2023 and 2022 reflect the continued lower effective income tax rates as a result of our European operations and certain discrete tax items. In addition, the effective tax rates for the three and six months 2022 reflect the reversal of deferred income tax on undistributed earnings of foreign subsidiaries as our revised capital plan determined that certain cash outside of the United States would no longer need to be repatriated during the period previously contemplated.
Net Earnings
Net earnings increased to $738 or $1.93 per diluted share in the three months 2023 from $656 or $1.72 per diluted share in 2022. Adjusted net earnings per diluted share(1) was $2.54 in three months 2023, an increase of 12.9% from 2022.
Net earnings increased to $1,330 or $3.47 per diluted share in the six months 2023 from $979 or $2.56 per diluted share in 2022. Adjusted net earnings per diluted share(1) was $4.68 in the six months 2023, an increase of 10.9% from 2022.
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 income taxes; 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
Dollar amounts are in millions except per share amounts or as otherwise specified.
13
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
organic sales growth is calculated by translating current year and prior year results at the same foreign currency exchange rates excluding the impact of acquisitions and divestitures. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings. The income tax effect of each adjustment was determined based on the tax effect of the jurisdiction in which the related pre-tax adjustment was recorded. 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, employee retention and workforce reductions, manufacturing integration costs and other integration-related activities), changes in the fair value of contingent consideration, amortization of inventory stepped-up to fair value and specific costs (e.g., deal costs) related to the consummation of the acquisition process and legal entity rationalization.
2.Amortization of purchased intangible assets. Periodic amortization expense related to purchased intangible assets.
3.Structural optimization and other special charges. Costs associated with employee retention and workforce reductions, the closure or transfer of manufacturing and other facilities (e.g., site closure costs, contract termination costs and redundant employee costs during the work transfers), product line exits (primarily inventory, long-lived asset and specifically-identified intangible asset write-offs), certain long-lived and intangible asset write-offs and impairments and other charges.
4.Medical device regulations. Costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the new medical device reporting regulations and other requirements of the European Union.
5.Recall-related matters. Changes in our best estimate of the minimum of the range of probable loss to resolve the Rejuvenate, LFIT V40, Wright legacy hip products and other product recalls.
6.Regulatory and legal matters. Changes in our best estimate of the minimum of the range of probable loss to resolve certain regulatory or other legal matters and the amount of favorable awards from settlements.
7.Tax matters. 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, income taxes, 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.
Dollar amounts are in millions except per share amounts or as otherwise specified.
14
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Three Months 2023
Gross Profit
Selling, General & Administrative Expenses
Research, Development & Engineering Expenses
Operating Income
Other Income (Expense), Net
Income Taxes
Net Earnings
Effective Tax Rate
Diluted EPS
Reported
$
3,181
$
1,706
$
346
$
965
$
(66)
$
161
$
738
17.9
%
$
1.93
Reported percent net sales
63.7
%
34.1
%
6.9
%
19.3
%
(1.3)
%
nm
14.8
%
Acquisition and integration-related costs:
Inventory stepped-up to fair value
—
—
—
—
—
—
—
—
—
Other acquisition and integration-related (a)
—
(2)
—
2
—
2
—
0.1
—
Amortization of purchased intangible assets
—
—
—
161
—
34
127
1.1
0.33
Structural optimization and other special charges (b)
9
(63)
—
72
—
17
55
0.7
0.14
Medical device regulations (c)
—
—
(27)
27
—
8
19
0.4
0.05
Recall-related matters (d)
—
—
—
3
—
1
2
—
0.01
Regulatory and legal matters (e)
—
14
—
(14)
—
(3)
(11)
(0.1)
(0.03)
Tax matters (f)
—
—
—
—
—
(46)
46
(4.9)
0.11
Adjusted
$
3,190
$
1,655
$
319
$
1,216
$
(66)
$
174
$
976
15.2
%
$
2.54
Adjusted percent net sales
63.9
%
33.1
%
6.4
%
24.3
%
(1.3)
%
nm
19.5
%
Three Months 2022
Gross Profit
Selling, General & Administrative Expenses
Research, Development & Engineering Expenses
Operating Income
Other Income (Expense), Net
Income Taxes
Net Earnings
Effective Tax Rate
Diluted EPS
Reported
$
2,826
$
1,539
$
351
$
772
$
(52)
$
64
$
656
8.9
%
$
1.72
Reported percent net sales
62.9
%
34.3
%
7.8
%
17.2
%
(1.2)
%
nm
14.6
%
Acquisition and integration-related costs:
Inventory stepped-up to fair value
7
—
—
7
—
2
5
0.1
0.01
Other acquisition and integration-related (a)
—
(30)
—
30
—
7
23
0.4
0.06
Amortization of purchased intangible assets
—
—
—
160
—
36
124
2.0
0.33
Structural optimization and other special charges (b)
8
(54)
—
62
—
6
56
(0.4)
0.15
Medical device regulations (c)
2
(2)
(28)
32
—
6
26
0.2
0.07
Recall-related matters (d)
—
—
—
4
—
1
3
0.1
—
Regulatory and legal matters (e)
—
4
—
(4)
—
—
(4)
—
(0.02)
Tax matters (f)
—
—
—
—
(12)
17
(29)
2.6
(0.07)
Adjusted
$
2,843
$
1,457
$
323
$
1,063
$
(64)
$
139
$
860
13.9
%
$
2.25
Adjusted percent net sales
63.3
%
32.4
%
7.2
%
23.7
%
(1.4)
%
nm
19.1
%
(a)
Charges represent certain acquisition and integration-related costs associated with acquisitions, including charges for termination of sales relationships ($0 in 2023, $6 in 2022), employee retention and workforce reductions ($0 in 2023, $14 in 2022), changes in the fair value of contingent consideration (($2) in 2023, ($9) in 2022), manufacturing integration costs ($0 in 2023, $8 in 2022) and other integration-related activities such as deal costs and costs associated with legal entity rationalization ($4 in 2023, $11 in 2022).
(b)
Charges represent the costs associated with employee retention and workforce reductions ($47 in 2023, $20 in 2022), the closure/transfer of manufacturing and other facilities, including site closure costs, contract termination costs and redundant employee costs during the work transfers ($12 in 2023, $29 in 2022), product line exits (primarily inventory, long-lived asset and specifically-identified intangible asset write-offs) ($6 in 2023, ($8) in 2022), certain long-lived and intangible asset write-offs and impairments ($2 in 2023, $12 in 2022) and other charges ($5 in 2023, $9 in 2022).
(c)
Charges represent the 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 new medical device regulations in the European Union.
(d)
Charges represent changes in our best estimate of the minimum of the range of probable loss to resolve certain recall-related matters.
(e)
Charges represent changes in our best estimate of the minimum of the range of probable loss to resolve certain regulatory or other legal matters and the amount of favorable awards from settlements.
(f)
Benefits and charges represent the accounting impact of certain significant and discrete tax items, including adjustments related to the transfer of certain intellectual properties between tax jurisdictions (charges of $47 in 2023 and $46 in 2022), certain tax audit settlements (benefit of $4 included in Income Taxes for 2023, $0 for 2022) and the reversal of deferred income tax on undistributed earnings of foreign subsidiaries ($0 for 2023, benefit of $71 for 2022).
Six Months 2023
Gross Profit
Selling, General & Administrative Expenses
Research, Development & Engineering Expenses
Operating Income
Other Income (Expense), Net
Income Taxes
Net Earnings
Effective Tax Rate
Diluted EPS
Reported
$
6,197
$
3,487
$
685
$
1,700
$
(122)
$
248
$
1,330
15.7
%
$
3.47
Reported percent net sales
63.4
%
35.7
%
7.0
%
17.4
%
(1.2)
%
nm
13.6
%
Acquisition and integration-related costs:
Inventory stepped-up to fair value
—
—
—
—
—
—
—
—
—
Other acquisition and integration-related (a)
—
(8)
—
8
—
3
5
0.1
0.01
Amortization of purchased intangible assets
—
—
—
322
—
68
254
1.4
0.66
Structural optimization and other special charges (b)
11
(103)
—
114
—
25
89
0.6
0.23
Medical device regulations (c)
—
—
(55)
55
—
13
42
0.3
0.11
Recall-related matters (d)
—
—
—
3
—
1
2
—
0.01
Regulatory and legal matters (e)
—
(20)
—
20
—
3
17
—
0.04
Tax matters (f)
—
—
—
—
(9)
(66)
57
(4.0)
0.15
Adjusted
$
6,208
$
3,356
$
630
$
2,222
$
(131)
$
295
$
1,796
14.1
%
$
4.68
Adjusted percent net sales
63.5
%
34.3
%
6.4
%
22.7
%
(1.3)
%
nm
18.4
%
Dollar amounts are in millions except per share amounts or as otherwise specified.
15
STRYKER CORPORATION
2023 Second Quarter Form 10-Q
Six Months 2022
Gross Profit
Selling, General & Administrative Expenses
Research, Development & Engineering Expenses
Operating Income
Other Income (Expense), Net
Income Taxes
Net Earnings
Effective Tax Rate
Diluted EPS
Reported
$
5,560
$
3,249
$
764
$
1,219
$
(113)
$
127
$
979
11.5
%
$
2.56
Reported percent net sales
63.4
%
37.1
%
8.7
%
13.9
%
(1.3)
%
nm
11.2
%
Acquisition and integration-related costs:
Inventory stepped-up to fair value
12
—
—
12
—
3
9
0.1
0.02
Other acquisition and integration-related (a)
—
(174)
—
174
—
46
128
2.0
0.33
Amortization of purchased intangible assets
—
—
—
310
—
71
239
2.6
0.63
Structural optimization and other special charges (b)
10
(82)
(79)
171
—
31
140
0.6
0.37
Medical device regulations (c)
2
(2)
(56)
60
—
10
50
0.2
0.13
Recall-related matters (d)
—
—
—
18
—
4
14
0.2
0.04
Regulatory and legal matters (e)
—
(33)
—
33
—
9
24
0.4
0.06
Tax matters (f)
—
—
—
—
(12)
(41)
29
(3.7)
0.08
Adjusted
$
5,584
$
2,958
$
629
$
1,997
$
(125)
$
260
$
1,612
13.9
%
$
4.22
Adjusted percent net sales
63.7
%
33.7
%
7.2
%
22.8
%
(1.4)
%
nm
18.4
%
(a)
Charges represent certain acquisition and integration-related costs associated with acquisitions, including charges for termination of sales relationships ($0 in 2023, $14 in 2022), employee retention and workforce reductions ($0 in 2023, $18 in 2022), changes in the fair value of contingent consideration (($3) in 2023, ($25) in 2022), manufacturing integration costs ($2 in 2023, $17 in 2022), stock compensation payments upon a change in control ($0 in 2023, $132 in 2022) and other integration-related activities such as deal costs and costs associated with legal entity rationalization ($9 in 2023, $18 in 2022).
(b)
Charges represent the costs associated with employee retention and workforce reductions ($68 in 2023, $29 in 2022), the closure/transfer of manufacturing and other facilities, including site closure costs, contract termination costs and redundant employee costs during the work transfers ($24 in 2023, $46 in 2022), product line exits (primarily inventory, long-lived asset and specifically-identified intangible asset write-offs) ($9 in 2023, ($8) in 2022), certain long-lived and intangible asset write-offs and impairments ($3 in 2023, $92 in 2022) and other charges ($10 in 2023, $12 in 2022).
(c)
Charges represent the 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 new medical device regulations in the European Union.
(d)
Charges represent changes in our best estimate of the minimum of the range of probable loss to resolve certain recall-related matters.
(e)
Charges represent changes in our best estimate of the minimum of the range of probable loss to resolve certain regulatory or other legal matters and the amount of favorable awards from settlements.
(f)
Benefits and charges represent the accounting impact of certain significant and discrete tax items, including adjustments related to the transfer of certain intellectual properties between tax jurisdictions (charges of $94 in 2023 and $92 in 2022), certain tax audit settlements (benefit of $9 included in Other Income (Expense), Net for 2023 and benefit of $24 included in Income Taxes for 2023, $0 for 2022) and the reversal of deferred income tax on undistributed earnings of foreign subsidiaries ($0 for 2023, benefit of $71 for 2022).
FINANCIAL CONDITION AND LIQUIDITY
Six Months
2023
2022
Net cash provided by (used in):
Operating activities
$
1,133
$
732
Investing activities
(665)
(2,834)
Financing activities
(886)
240
Effect of exchange rate changes on cash and cash equivalents
(25)
(38)
Change in cash and cash equivalents
$
(443)
$
(1,900)
Operating Activities
Cash provided by operating activities was $1,133 and $732 in the six months 2023 and 2022. The increase was primarily due to net earnings and higher accounts receivable collections.
Investing Activities
Cash used in investing activities was $665 and $2,834 in the six months 2023 and 2022. The six months 2023 included cash paid for the Cerus acquisition and the six months 2022 included cash paid for the Vocera acquisition. Refer to Note 7 to our Consolidated Financial Statements for further information.
Financing Activities
Cash (used in) provided by financing activities was ($886) and $240 in the six months 2023 and 2022. Cash used in 2023 was primarily due to dividend payments of $569 and repayments of $200 on the term loan used to fund the acquisition of Vocera. Cash provided by financing activities in 2022 was primarily due to the $1,500 term loan used to fund the acquisition of Vocera, partially offset by $250 of payments on the term loan, dividend payments of $525 and net repayments of $376 on short-term borrowings.
We did not repurchase any shares in the six months 2023 and 2022.
Liquidity
Cash, cash equivalents and marketable securities were $1,478 and $1,928 on June 30, 2023 and December 31, 2022. Current assets exceeded current liabilities by $3,567 and $3,972 on June 30, 2023 and December 31, 2022. We anticipate being able to support our short-term liquidity and operating needs from a variety of sources including cash from operations, commercial paper and existing credit lines.
We have raised funds in the capital markets and have accessed the credit markets in the past and may continue to do so from time-to-time. We continue to have strong investment-grade short-term and long-term debt ratings that we believe should enable us to refinance our debt as needed.
Our cash, cash equivalents and marketable securities held in locations outside the United States was approximately 35% on June 30, 2023 compared to 36% on December 31, 2022.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There were no changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for 2022, except as described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.
New Accounting Pronouncements Not Yet Adopted
Refer to Note 1 to our Consolidated Financial Statements for information.
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2023 Second Quarter Form 10-Q
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 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 are based on current projections about operations, industry conditions, financial condition and liquidity. Words that identify forward-looking statements include, without limitation, 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. Therefore, actual results could differ materially and adversely from these forward-looking statements, historical experience or our present expectations. Some important factors that could cause our actual results to differ from our expectations in any forward-looking statements include the risks discussed in Item 1A. "Risk Factors" of our Annual Report on Form 10-K for 2022. This Form 10-Q should be read in conjunction with our Consolidated Financial Statements and accompanying notes to our Consolidated Financial Statements in our Annual Report on Form 10-K for 2022. 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 area of market risk exposure to be exchange rate risk on our operating 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 2022. There were no material changes from the information provided therein.
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, 2023. Based on that evaluation, the Certifying Officers concluded the Company's disclosure controls and procedures were effective as of June 30, 2023.
Changes in Internal Control Over Financial Reporting
There was no change to our internal control over financial reporting during the six months 2023 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1A.
RISK FACTORS
We are not aware of any material changes to the risk factors included in Item 1A. "Risk Factors" in our Annual Report on Form 10-K for 2022.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We issued 5,146 shares of our common stock in the three months 2023 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 2023 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, 2023.
ITEM 5.
OTHER INFORMATION
Certain of our officers or directors have made elections to participate in, and are participating in, our employee stock purchase plan and 401(k) plan and have made, and may from time to time make, elections to have shares withheld to cover withholding taxes due or pay the exercise price of stock options, restricted stock units and performance stock units, which may constitute non-Rule 10b5–1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
Dollar amounts are in millions except per share amounts or as otherwise specified.
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
* Furnished with this Form 10-Q
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2023 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.