QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
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 378,320,706 shares of Common Stock, $0.10 par value, on June 30, 2022.
STRYKER CORPORATION
2022 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
2022
2021
2022
2021
Net sales
$
4,493
$
4,294
$
8,768
$
8,247
Cost of sales
1,667
1,522
3,208
2,966
Gross profit
$
2,826
$
2,772
$
5,560
$
5,281
Research, development and engineering expenses
351
310
764
598
Selling, general and administrative expenses
1,539
1,505
3,249
3,080
Recall charges
4
76
18
82
Amortization of intangible assets
160
149
310
330
Total operating expenses
$
2,054
$
2,040
$
4,341
$
4,090
Operating income
$
772
$
732
$
1,219
$
1,191
Other income (expense), net
(52)
(70)
(113)
(162)
Earnings before income taxes
$
720
$
662
$
1,106
$
1,029
Income taxes
64
70
127
135
Net earnings
$
656
$
592
$
979
$
894
Net earnings per share of common stock:
Basic
$
1.73
$
1.57
$
2.59
$
2.37
Diluted
$
1.72
$
1.55
$
2.56
$
2.34
Weighted-average shares outstanding (in millions):
Basic
378.3
376.9
378.0
376.6
Effect of dilutive employee stock compensation
3.9
5.4
4.5
5.4
Diluted
382.2
382.3
382.5
382.0
Cash dividends declared per share of common stock
$
0.695
$
0.63
$
1.39
$
1.26
Anti-dilutive shares excluded from the calculation of dilutive employee stock options were 4.5 for the three months 2022 and de minimis in all other periods.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months
Six Months
2022
2021
2022
2021
Net earnings
$
656
$
592
$
979
$
894
Other comprehensive income (loss), net of tax:
Marketable securities
—
—
(1)
—
Pension plans
8
(4)
7
3
Unrealized gains (losses) on designated hedges
24
8
25
36
Financial statement translation
161
(80)
214
175
Total other comprehensive income (loss), net of tax
$
193
$
(76)
$
245
$
214
Comprehensive income
$
849
$
516
$
1,224
$
1,108
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
1
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
CONSOLIDATED BALANCE SHEETS
June 30
December 31
2022
2021
(Unaudited)
Assets
Current assets
Cash and cash equivalents
$
1,044
$
2,944
Marketable securities
83
75
Accounts receivable, less allowance of $144 ($167 in 2021)
3,145
3,022
Inventories:
Materials and supplies
790
691
Work in process
315
264
Finished goods
2,644
2,359
Total inventories
$
3,749
$
3,314
Prepaid expenses and other current assets
804
662
Total current assets
$
8,825
$
10,017
Property, plant and equipment:
Land, buildings and improvements
1,662
1,656
Machinery and equipment
3,887
3,842
Total property, plant and equipment
$
5,549
$
5,498
Less accumulated depreciation
2,746
2,665
Property, plant and equipment, net
$
2,803
$
2,833
Goodwill
15,115
12,918
Other intangibles, net
5,245
4,840
Noncurrent deferred income tax assets
1,625
1,760
Other noncurrent assets
2,419
2,263
Total assets
$
36,032
$
34,631
Liabilities and shareholders' equity
Current liabilities
Accounts payable
$
1,160
$
1,129
Accrued compensation
779
1,092
Income taxes
300
192
Dividends payable
263
263
Accrued product liabilities
400
401
Accrued expenses and other liabilities
1,495
1,465
Current maturities of debt
7
7
Total current liabilities
$
4,404
$
4,549
Long-term debt, excluding current maturities
13,374
12,472
Income taxes
787
913
Other noncurrent liabilities
1,793
1,820
Total liabilities
$
20,358
$
19,754
Shareholders' equity
Common stock, $0.10 par value
38
38
Additional paid-in capital
1,989
1,890
Retained earnings
13,933
13,480
Accumulated other comprehensive loss
(286)
(531)
Total shareholders' equity
$
15,674
$
14,877
Total liabilities and shareholders' equity
$
36,032
$
34,631
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
2
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Three Months
Six Months
2022
2021
2022
2021
Common stock shares outstanding (in millions)
Beginning
378.2
376.7
377.5
376.1
Issuance of common stock under stock compensation and benefit plans
0.1
0.4
0.8
1.0
Ending
378.3
377.1
378.3
377.1
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
$
1,947
$
1,806
$
1,890
$
1,741
Issuance of common stock under stock compensation and benefit plans
6
(1)
(8)
(4)
Share-based compensation
36
39
107
107
Ending
$
1,989
$
1,844
$
1,989
$
1,844
Retained earnings
Beginning
$
13,540
$
12,525
$
13,480
$
12,462
Net earnings
656
592
979
894
Cash dividends declared
(263)
(236)
(526)
(475)
Ending
$
13,933
$
12,881
$
13,933
$
12,881
Accumulated other comprehensive income (loss)
Beginning
$
(479)
$
(867)
$
(531)
$
(1,157)
Other comprehensive income (loss)
193
(76)
245
214
Ending
$
(286)
$
(943)
$
(286)
$
(943)
Total shareholders' equity
$
15,674
$
13,820
$
15,674
$
13,820
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
3
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months
2022
2021
Operating activities
Net earnings
$
979
$
894
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation
185
187
Amortization of intangible assets
310
330
Asset impairments
—
3
Share-based compensation
107
107
Recall charges
18
82
Sale of inventory stepped-up to fair value at acquisition
12
137
Changes in operating assets and liabilities:
Accounts receivable
(159)
(24)
Inventories
(523)
(128)
Accounts payable
34
57
Accrued expenses and other liabilities
(257)
22
Recall-related payments
(19)
(163)
Income taxes
(132)
(98)
Other, net
177
(76)
Net cash provided by operating activities
$
732
$
1,330
Investing activities
Acquisitions, net of cash acquired
(2,563)
(104)
Purchases of marketable securities
(38)
(31)
Proceeds from sales of marketable securities
29
28
Purchases of property, plant and equipment
(262)
(189)
Other investing, net
—
(2)
Net cash used in investing activities
$
(2,834)
$
(298)
Financing activities
Proceeds (payments) on short-term borrowings, net
(376)
(7)
Proceeds from issuance of long-term debt
1,500
5
Payments on long-term debt
(252)
(1,151)
Payments of dividends
(525)
(475)
Cash paid for taxes from withheld shares
(84)
(74)
Other financing, net
(23)
(27)
Net cash provided by (used in) financing activities
$
240
$
(1,729)
Effect of exchange rate changes on cash and cash equivalents
(38)
(5)
Change in cash and cash equivalents
$
(1,900)
$
(702)
Cash and cash equivalents at beginning of period
2,944
2,943
Cash and cash equivalents at end of period
$
1,044
$
2,241
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
4
STRYKER CORPORATION
2022 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, 2022 and the results of operations for the three and six months 2022. The results of operations included in these Consolidated Financial Statements may not necessarily be indicative of our annual results. These statements should be read in conjunction with our Annual Report on Form 10-K for 2021.
New Accounting Pronouncements Not Yet Adopted
We evaluate all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) for consideration of their applicability. ASUs not included in our disclosures were assessed and determined to be either not applicable or are not expected to have a material impact on our Consolidated Financial Statements.
New Accounting Pronouncements Recently Adopted
On January 1, 2022 we adopted ASU 2021-08, Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers. The adoption of this update did not have a material impact on our Consolidated Financial Statements.
NOTE 2 - REVENUE RECOGNITION
Our policies for recognizing sales have not changed from those described in our Annual Report on Form 10-K for 2021.
We disaggregate our net sales by product line and geographic location for each of our segments as we believe it best depicts how the nature, amount, timing and certainty of our net sales and cash flows are affected by economic factors.
Net Sales by Product Line
Three Months
Six Months
2022
2021
2022
2021
MedSurg and Neurotechnology:
Instruments
$
563
$
517
$
1,091
$
986
Endoscopy
600
518
1,138
987
Medical
666
640
1,330
1,262
Neurovascular
306
301
607
590
Neuro Cranial
337
310
660
591
Other
77
73
146
134
$
2,549
$
2,359
$
4,972
$
4,550
Orthopaedics and Spine:
Knees
$
500
$
474
$
964
$
886
Hips
364
353
691
662
Trauma and Extremities
676
674
1,361
1,314
Spine
290
307
569
585
Other
114
127
211
250
$
1,944
$
1,935
$
3,796
$
3,697
Total
$
4,493
$
4,294
$
8,768
$
8,247
Net Sales by Geography
Three Months 2022
Three Months 2021
United States
International
United States
International
MedSurg and Neurotechnology:
Instruments
$
451
$
112
$
401
$
116
Endoscopy
473
127
407
111
Medical
536
130
488
152
Neurovascular
113
193
115
186
Neuro Cranial
281
56
256
54
Other
75
2
72
1
$
1,929
$
620
$
1,739
$
620
Orthopaedics and Spine:
Knees
$
368
$
132
$
349
$
125
Hips
230
134
221
132
Trauma and Extremities
489
187
475
199
Spine
209
81
217
90
Other
86
28
99
28
$
1,382
$
562
$
1,361
$
574
Total
$
3,311
$
1,182
$
3,100
$
1,194
Net Sales by Geography
Six Months 2022
Six Months 2021
United States
International
United States
International
MedSurg and Neurotechnology:
Instruments
$
865
$
226
$
756
$
230
Endoscopy
891
247
761
226
Medical
1,061
269
961
301
Neurovascular
223
384
226
364
Neuro Cranial
545
115
480
111
Other
143
3
132
2
$
3,728
$
1,244
$
3,316
$
1,234
Orthopaedics and Spine:
Knees
$
713
$
251
$
643
$
243
Hips
432
259
407
255
Trauma and Extremities
976
385
915
399
Spine
409
160
410
175
Other
158
53
193
57
$
2,688
$
1,108
$
2,568
$
1,129
Total
$
6,416
$
2,352
$
5,884
$
2,363
Contract Assets and Liabilities
On June 30, 2022 and December 31, 2021 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 $640 and $529 on June 30, 2022 and December 31, 2021.
Dollar amounts are in millions except per share amounts or as otherwise specified.
5
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (AOCI)
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
—
2
(1)
(11)
(10)
Income taxes
—
—
—
2
2
Net OCI
$
—
$
8
$
24
$
161
$
193
Ending
$
(1)
$
(148)
$
65
$
(202)
$
(286)
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)
Six Months 2022
Marketable Securities
Pension Plans
Hedges
Financial Statement Translation
Total
Beginning
$
—
$
(155)
$
40
$
(416)
$
(531)
OCI
(1)
4
36
354
393
Income taxes
—
—
(6)
(123)
(129)
Reclassifications to:
Cost of sales
—
—
(3)
—
(3)
Other (income) expense
—
4
(2)
(22)
(20)
Income taxes
—
(1)
—
5
4
Net OCI
$
(1)
$
7
$
25
$
214
$
245
Ending
$
(1)
$
(148)
$
65
$
(202)
$
(286)
Six Months 2021
Marketable Securities
Pension Plans
Hedges
Financial Statement Translation
Total
Beginning
$
(3)
$
(259)
$
(10)
$
(885)
$
(1,157)
OCI
—
(1)
34
198
231
Income taxes
—
(2)
(11)
(10)
(23)
Reclassifications to:
Cost of sales
—
—
5
—
5
Other (income) expense
—
8
9
(17)
—
Income taxes
—
(2)
(1)
4
1
Net OCI
$
—
$
3
$
36
$
175
$
214
Ending
$
(3)
$
(256)
$
26
$
(710)
$
(943)
NOTE 4 - DERIVATIVE INSTRUMENTS
We use operational and economic hedges, foreign currency exchange forward contracts, net investment hedges (both derivative and non-derivative financial instruments) and interest rate derivative instruments to manage the impact of currency exchange and interest rate fluctuations on earnings, cash flow and equity. We do not enter into derivative instruments for speculative purposes. We are exposed to potential credit loss in the event of nonperformance by our counterparties on our outstanding derivative instruments but do not anticipate nonperformance by any of our counterparties. Should a counterparty default, our maximum loss exposure is the asset balance of the instrument. We have not changed our hedging
strategies, accounting practices or objectives from those disclosed in our Annual Report on Form 10-K for 2021.
Foreign Currency Hedges
June 2022
Cash Flow
Net Investment
Non-Designated
Total
Gross notional amount
$
676
$
1,578
$
5,194
$
7,448
Maximum term in years
4.4
Fair value:
Other current assets
$
36
$
—
$
158
$
194
Other noncurrent assets
2
150
—
152
Other current liabilities
(4)
—
(10)
(14)
Total fair value
$
34
$
150
$
148
$
332
December 2021
Cash Flow
Net Investment
Non-Designated
Total
Gross notional amount
$
973
$
2,266
$
5,512
$
8,751
Maximum term in years
4.9
Fair value:
Other current assets
$
15
$
39
$
92
$
146
Other noncurrent assets
1
65
—
66
Other current liabilities
(7)
—
(10)
(17)
Total fair value
$
9
$
104
$
82
$
195
We had €1.5 billion and €2.0 billion on June 30, 2022 and December 31, 2021 of certain foreign currency forward 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 on June 30, 2022 and December 31, 2021 of senior unsecured notes designated as net investment hedges to selectively hedge portions of our investment in certain international subsidiaries. The currency effects of our Euro-denominated senior unsecured notes are reflected in AOCI within shareholders' equity where they offset gains and losses recorded on our net investment in international subsidiaries.
On June 30, 2022 the total after tax gain (loss) in AOCI related to designated net investment hedges was $254.
Net Currency Exchange Rate Gains (Losses)
Derivative
Three Months
Six Months
instrument:
Recorded in:
2022
2021
2022
2021
Cash Flow
Cost of sales
$
3
$
(4)
$
3
$
(5)
Net Investment
Other income (expense), net
11
9
22
17
Non-Designated
Other income (expense), net
2
1
3
(1)
Total
$
16
$
6
$
28
$
11
Pretax gains (losses) on derivatives designated as cash flow hedges of $38 and net investment hedges of $32 recorded in AOCI are expected to be reclassified to cost of sales and other income (expense), net in earnings within 12 months as of June 30, 2022. This cash flow hedge reclassification is primarily due to the sale of inventory that includes previously hedged purchases. A component of the AOCI amounts related to net investment hedges is reclassified over the life of the hedge instruments as we elected to exclude the initial value of the component related to the spot-forward difference from the effectiveness assessment.
Interest Rate Hedges
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, 2022. The cash flow effect of interest rate hedges is recorded in cash flow from operations.
Dollar amounts are in millions except per share amounts or as otherwise specified.
6
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
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 2021.
There were no significant transfers into or out of any level of the fair value hierarchy in 2022.
Assets Measured at Fair Value
June
December
2022
2021
Cash and cash equivalents
$
1,044
$
2,944
Trading marketable securities
160
193
Level 1 - Assets
$
1,204
$
3,137
Available-for-sale marketable securities:
Corporate and asset-backed debt securities
$
47
$
48
Foreign government debt securities
2
2
United States agency debt securities
4
5
United States Treasury debt securities
27
19
Certificates of deposit
3
1
Total available-for-sale marketable securities
$
83
$
75
Foreign currency exchange forward contracts
346
212
Level 2 - Assets
$
429
$
287
Total assets measured at fair value
$
1,633
$
3,424
Liabilities Measured at Fair Value
June
December
2022
2021
Deferred compensation arrangements
$
160
$
193
Level 1 - Liabilities
$
160
$
193
Foreign currency exchange forward contracts
$
14
$
17
Level 2 - Liabilities
$
14
$
17
Contingent consideration:
Beginning
$
306
$
393
Additions
1
62
Change in estimate
(27)
(1)
Settlements
(24)
(148)
Ending
$
256
$
306
Level 3 - Liabilities
$
256
$
306
Total liabilities measured at fair value
$
430
$
516
Fair Value of Available for Sale Securities by Maturity
June 2022
December 2021
Due in one year or less
$
52
$
36
Due after one year through three years
$
31
$
39
On June 30, 2022 and December 31, 2021 the aggregate difference between the cost and fair value of available-for-sale marketable securities was nominal. Interest and marketable securities income was $20 and $18 in the three months and $35 and $35 in the six months 2022 and 2021, which was recorded in other income (expense), net.
Our investments in available-for-sale marketable securities had a minimum credit quality rating of A2 (Moody's), A (Standard & Poor's) and A (Fitch). We do not plan to sell the investments, and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.
NOTE 6 - CONTINGENCIES AND COMMITMENTS
We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor, intellectual property and other matters, the most significant of which are more fully described below. The outcomes of these matters will generally not be known for prolonged periods of time. In certain of the legal proceedings the claimants seek damages as well as other compensatory and equitable relief that could result in the payment of significant claims and settlements and/or the imposition of injunctions or other equitable relief. For legal matters for which management had sufficient information to reasonably estimate our future obligations, a liability representing
management's best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known, is recorded. The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than those estimated by management, additional expense may be incurred, which could unfavorably affect future operating results. We are self-insured for certain claims and expenses. The ultimate cost to us with respect to product liability claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.
In April 2022 the United States District Court for the District of Delaware issued a judgment following a jury verdict in favor of PureWick Corporation (PureWick) for its 2019 complaint seeking patent infringement damages related to our PrimaFit and PrimoFit products. The court awarded damages and we recorded charges of $28 in March 2022. In June 2022 PureWick filed a motion to seek enhancement of the judgment and if successful, the judgment could total approximately $100 and include an injunction against future sales. We intend to appeal the outcome of this case.
Recall Matters
In June 2012 we voluntarily recalled our Rejuvenate and ABG II Modular-Neck hip stems and terminated global distribution of these hip products. Product liability lawsuits relating to this voluntary recall have been filed against us. In November 2014 we entered into a settlement agreement to compensate eligible United States patients who had revision surgery prior to November 3, 2014 and in December 2016 the settlement program was extended to patients who had revision surgery prior to December 19, 2016. In September 2020 we entered into a second settlement agreement to compensate eligible United States patients who had revision surgery prior to September 9, 2020. We continue to offer support for recall-related care and reimburse patients who are not eligible to enroll in the settlement program for testing and treatment services, including any necessary revision surgeries. In addition, there are remaining lawsuits that we will continue to defend against.
In August 2016 and May 2018 we voluntarily recalled certain lot-specific sizes and offsets of LFIT Anatomic CoCr V40 Femoral Heads. Product liability lawsuits and claims relating to this voluntary recall have been filed against us. In November 2018 we entered into a settlement agreement to resolve a significant number of claims and lawsuits related to the recalls. In April 2022 we executed a second agreement to resolve a significant number of claims and lawsuits related to the recalls. The specific terms of the settlement agreement, including the financial terms, are confidential.
With the acquisition of Wright Medical Group N.V. (Wright) in November 2020, we are responsible for certain product liability claims, primarily related to certain hip products sold by Wright prior to its 2014 divestiture of the OrthoRecon business. We will continue to evaluate each claim and the possible loss we may incur.
Dollar amounts are in millions except per share amounts or as otherwise specified.
7
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
We have incurred, and expect to incur in the future, costs associated with the defense and settlement of these matters. For the six months 2022 we have recorded charges of $18 primarily related to Wright hip products and made payments of $19 primarily related to Rejuvenate and ABG II Modular-Neck hip stems. Based on the information that has been received, we have estimated the remaining range of probable loss related to recall matters globally to be approximately $380 to $515. We have recorded reserves representing the remaining minimum of the range of probable loss. The final outcomes of these matters are dependent on many factors that are difficult to predict. Accordingly the ultimate cost related to these matters may be materially different than the amount of our current estimate and accruals and could have a material adverse effect on our results of operations and cash flows.
Leases
June
December
2022
2021
Right-of-use assets
$
469
$
419
Lease liabilities, current
$
118
$
112
Lease liabilities, non-current
$
353
$
310
Other information:
Weighted-average remaining lease term
5.6 years
5.4 years
Weighted-average discount rate
2.66
%
2.86
%
Three Months
Six Months
2022
2021
2022
2021
Operating lease cost
$
38
$
31
$
73
$
67
NOTE 7 - ACQUISITIONS
We acquire stock in companies and various assets that continue to support our capital deployment and product development strategies. The aggregate purchase price of our acquisitions, net of cash acquired was $2,563 and $108 in the six months 2022 and 2021.
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
2022
Vocera
Tangible assets and liabilities:
Accounts receivable
$
33
Inventory
13
Deferred income tax assets
73
Other assets
92
Debt
(425)
Deferred income tax liabilities
(182)
Other liabilities
(115)
Intangible assets:
Customer and distributor relationships
550
Developed technology and patents
178
Trade name
18
Goodwill
2,328
Purchase price, net of cash acquired of $281
$
2,563
Weighted-average life of intangible assets
13
Purchase price allocations for Vocera were based on preliminary valuations, primarily related to intangible assets and deferred income taxes. Our estimates and assumptions are subject to change within the measurement period.
Consolidated Estimated Amortization Expense
Remainder of 2022
2023
2024
2025
2026
$
320
$
620
$
590
$
570
$
513
NOTE 8 - DEBT AND CREDIT FACILITIES
We have lines of credit issued by various financial institutions that are available to fund our day-to-day operating needs. Certain of our credit facilities require us to comply with financial and other covenants. We were in compliance with all covenants on June 30, 2022.
In February 2022 we entered into a $1.5 billion term loan agreement that matures on February 22, 2025 and bears interest at a base rate based on the Term Secured Overnight Financing Rate (SOFR) plus 0.725%. In June 2022 we repaid $250 on the term loan.
In 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, 2022 there were no borrowings outstanding under our credit facility or 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
2022 Second Quarter Form 10-Q
Summary of Total Debt
June 2022
December 2021
Rate
Due
Senior unsecured notes:
1.125%
November 30, 2023
$
577
$
622
0.600%
December 1, 2023
598
598
3.375%
May 15, 2024
595
593
0.250%
December 3, 2024
890
958
1.150%
June 15, 2025
646
645
3.375%
November 1, 2025
748
748
3.500%
March 15, 2026
994
994
2.125%
November 30, 2027
784
845
3.650%
March 7, 2028
597
597
0.750%
March 1, 2029
836
901
1.950%
June 15, 2030
990
990
2.625%
November 30, 2030
675
727
1.000%
December 3, 2031
779
840
4.100%
April 1, 2043
392
392
4.375%
May 15, 2044
395
395
4.625%
March 15, 2046
982
982
2.900%
June 15, 2050
642
642
Term loan
February 22, 2025
1,250
—
Other
11
10
Total debt
$
13,381
$
12,479
Less current maturities of debt
7
7
Total long-term debt
$
13,374
$
12,472
June 2022
December 2021
Unamortized debt issuance costs
$
57
$
62
Borrowing capacity on existing facilities
$
2,162
$
2,162
Fair value of senior unsecured notes
$
11,122
$
13,391
The fair value of the senior unsecured notes was estimated using quoted interest rates, maturities and amounts of borrowings based on quoted active market prices and yields that took into account the underlying terms of the debt instruments. Substantially all of our debt is classified within Level 2 of the fair value hierarchy.
NOTE 9 - INCOME TAXES
Our effective tax rates of 8.9% and 11.5% in the three and six months 2022 include the reversal of deferred income tax on undistributed earnings of foreign subsidiaries determined to be indefinitely reinvested and certain discrete tax items. Our effective tax rates of 10.6% and 13.1% in the three and six months 2021 include certain discrete tax items.
We are routinely audited by income tax authorities in the jurisdictions we operate. In July 2022 we effectively settled the United States federal income tax audit for years 2014 through 2018. Accordingly in the three months ending September 30, 2022 we expect to reduce our accruals for uncertain tax positions and related interest by approximately $220.
NOTE 10 - SEGMENT INFORMATION
As previously disclosed, effective December 31, 2021 we changed our reportable business segments to (i) MedSurg and Neurotechnology and (ii) Orthopaedics and Spine to align to our new internal reporting structure. We have reflected these changes in all historical periods presented.
Three Months
Six Months
2022
2021
2022
2021
MedSurg and Neurotechnology
$
2,549
$
2,359
$
4,972
$
4,550
Orthopaedics and Spine
1,944
1,935
3,796
3,697
Net sales
$
4,493
$
4,294
$
8,768
$
8,247
MedSurg and Neurotechnology
$
601
$
702
$
1,212
$
1,337
Orthopaedics and Spine
607
563
1,129
1,018
Segment operating income
$
1,208
$
1,265
$
2,341
$
2,355
Items not allocated to segments:
Corporate and other
$
(145)
$
(154)
$
(344)
$
(316)
Acquisition and integration-related costs
(37)
(120)
(186)
(369)
Amortization of intangible assets
(160)
(149)
(310)
(330)
Restructuring-related and other charges
(62)
(17)
(171)
(31)
Medical device regulations
(32)
(26)
(60)
(45)
Recall-related matters
(4)
(76)
(18)
(82)
Regulatory and legal matters
4
9
(33)
9
Consolidated operating income
$
772
$
732
$
1,219
$
1,191
There were no significant changes to total assets by segment from information provided in our Annual Report on Form 10-K for 2021, other than the addition of the assets acquired in the Vocera acquisition which are included in the MedSurg and Neurotechnology segment.
Dollar amounts are in millions except per share amounts or as otherwise specified.
9
STRYKER CORPORATION
2022 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 hospital outcomes. Alongside its customers around the world, Stryker impacts more than 100 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) and other medical device products used in a variety of medical specialties. 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.
COVID-19 Pandemic and Macroeconomic Environment
The COVID-19 global pandemic and macroeconomic environment has led to severe disruptions in the market and the global and United States economies that may continue for a prolonged period. In response to the COVID-19 pandemic, various governmental authorities and private enterprises have implemented numerous containment measures, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. A significant number of our global suppliers, vendors, distributors and manufacturing facilities are located in regions that have been affected by the pandemic. Those operations have been materially adversely affected by restrictive government and private enterprise measures implemented in response to the pandemic. This has led to product shortages and an increase in raw material and component pricing as well as other inflationary pressures particularly on our manufacturing costs.
During the quarter we have seen recovery of elective procedures as the impact of the COVID-19 pandemic has subsided in many geographies, with the exception of some countries in the Asia Pacific region. However sales growth in certain products has been constrained by the continuing supply chain challenges and electronic component shortages, especially impacting the capital products in our MedSurg businesses.
Russia and Ukraine Conflict
The military conflict in Russia and Ukraine and the sanctions imposed by the United States government and other nations in response to this conflict have caused significant volatility and disruptions to the global markets. Given that we provide life-saving and life-enhancing products, we plan to continue operating in Russia provided we can safely do so. During the six months 2022 net sales in Russia were approximately 0.2% of our revenues. Although Russia does not constitute a material portion of our business, there is uncertainty around the impact it will have on the global economy, supply chains and fuel prices generally, and therefore our business. Refer to Part II, Item 1A. "Risk
Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 for further details.
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. The prices required for a successful bid have negatively impacted our existing commercial operations of joint replacement and trauma products in China. To date our other businesses have not been significantly impacted; however, the national spine products VBP program was initiated in July 2022. China has also issued national guiding standards for 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 2.6% of our revenues for the six months 2022.
Overview of the Three and Six Months
In the three months 2022 we achieved sales growth of 4.6% from 2021. Excluding the impact of acquisitions and divestitures sales grew 6.1% in constant currency. We reported operating income margin of 17.2%, net earnings of $656 and net earnings per diluted share of $1.72. Excluding the impact of certain items, adjusted operating income margin(1) contracted by 220 basis points to 23.7%, with adjusted net earnings(1) of $860 and adjusted net earnings per diluted share(1) of $2.25 in line with 2021.
In the six months 2022 we achieved sales growth of 6.3% from 2021. Excluding the impact of acquisitions and divestitures sales grew 7.6% in constant currency. We reported operating income margin of 13.9%, net earnings of $979 and net earnings per diluted share of $2.56. Excluding the impact of certain items, adjusted operating income margin(1) contracted by 190 basis points to 22.8%, with adjusted net earnings(1) of $1,612 and adjusted net earnings per diluted share(1) of $4.22 representing growth of 1.0%.
Recent Developments
In February 2022 we entered into a $1.5 billion term loan agreement that matures on February 22, 2025 and bears interest at a base rate based on the Term Secured Overnight Financing Rate (SOFR) plus 0.725%. In June 2022 we repaid $250 of this term loan.
In February 2022 we completed the acquisition of Vocera Communications, Inc. (Vocera) for $79.25 per share, or an aggregate purchase price of $2.6 billion, net of cash acquired ($3.0 billion including convertible notes). Vocera is a leader in the digital care coordination and communication category. Vocera is part of our Medical business within MedSurg and Neurotechnology. Goodwill attributable to the acquisition reflects the strategic benefits of expanding our presence in adjacent markets, diversifying our product portfolio, advancing innovations, and accelerating our digital aspirations. Refer to Note 7 to our Consolidated Financial Statements for further information.
(1) Refer to "Non-GAAP Financial Measures" for a discussion of non-GAAP financial measures used in this report and a reconciliation to the most directly comparable GAAP financial measure.
Dollar amounts are in millions except per share amounts or as otherwise specified.
10
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
CONSOLIDATED RESULTS OF OPERATIONS
Three Months
Six Months
Percent Net Sales
Percentage
Percent Net Sales
Percentage
2022
2021
2022
2021
Change
2022
2021
2022
2021
Change
Net sales
$
4,493
$
4,294
100.0
%
100.0
%
4.6
%
$
8,768
$
8,247
100.0
%
100.0
%
6.3
%
Gross profit
2,826
2,772
62.9
64.6
1.9
5,560
5,281
63.4
64.0
5.3
Research, development and engineering expenses
351
310
7.8
7.2
13.2
764
598
8.7
7.3
27.8
Selling, general and administrative expenses
1,539
1,505
34.3
35.0
2.3
3,249
3,080
37.1
37.3
5.5
Recall charges
4
76
0.1
1.8
nm
18
82
0.2
1.0
nm
Amortization of intangible assets
160
149
3.6
3.5
7.4
310
330
3.5
4.0
(6.1)
Other income (expense), net
(52)
(70)
(1.2)
(1.6)
(25.7)
(113)
(162)
(1.3)
(2.0)
(30.2)
Income taxes
64
70
nm
nm
(8.6)
127
135
nm
nm
(5.9)
Net earnings
$
656
$
592
14.6
%
13.8
%
10.8
%
$
979
$
894
11.2
%
10.8
%
9.5
%
Net earnings per diluted share
$
1.72
$
1.55
11.0
%
$
2.56
$
2.34
9.4
%
Adjusted net earnings per diluted share(1)
$
2.25
$
2.25
—
%
$
4.22
$
4.18
1.0
%
nm - not meaningful
Geographic and Segment Net Sales
Three Months
Six Months
Percentage Change
Percentage Change
2022
2021
As Reported
Constant Currency
2022
2021
As Reported
Constant Currency
Geographic:
United States
$
3,311
$
3,100
6.8
%
6.8
%
$
6,416
$
5,884
9.0
%
9.0
%
International
1,182
1,194
(1.0)
9.7
2,352
2,363
(0.5)
7.8
Total
$
4,493
$
4,294
4.6
%
7.6
%
$
8,768
$
8,247
6.3
%
8.7
%
Segment:
MedSurg and Neurotechnology
$
2,549
$
2,359
8.0
%
10.6
%
$
4,972
$
4,550
9.3
%
11.3
%
Orthopaedics and Spine
1,944
1,935
0.5
3.9
3,796
3,697
2.7
5.4
Total
$
4,493
$
4,294
4.6
%
7.6
%
$
8,768
$
8,247
6.3
%
8.7
%
Supplemental Net Sales Growth Information
Three Months
Six Months
Percentage Change
Percentage Change
United States
International
United States
International
2022
2021
As Reported
Constant Currency
As Reported
As Reported
Constant Currency
2022
2021
As Reported
Constant Currency
As Reported
As Reported
Constant Currency
MedSurg and Neurotechnology:
Instruments
$
563
$
517
8.9
%
11.3
%
12.3
%
(3.1)
%
7.7
%
$
1,091
$
986
10.7
%
12.7
%
14.3
%
(1.4)
%
7.0
%
Endoscopy
600
518
15.7
18.2
16.2
13.8
25.8
1,138
987
15.3
17.5
17.1
9.2
18.9
Medical
666
640
4.1
6.2
10.0
(14.6)
(6.1)
1,330
1,262
5.4
7.0
10.5
(10.7)
(4.3)
Neurovascular
306
301
1.6
7.2
(1.8)
3.7
12.9
607
590
2.7
6.9
(1.6)
5.4
12.2
Neuro Cranial
337
310
8.5
10.3
9.4
4.1
14.7
660
591
11.6
13.1
13.5
3.8
11.7
Other
77
73
5.8
5.8
4.9
68.5
74.5
146
134
8.8
8.8
8.1
57.6
60.7
$
2,549
$
2,359
8.0
%
10.6
%
10.9
%
(0.1)
%
9.9
%
$
4,972
$
4,550
9.3
%
11.3
%
12.4
%
0.8
%
8.5
%
Orthopaedics and Spine:
Knees
$
500
$
474
5.5
%
8.7
%
5.3
%
6.2
%
18.6
%
$
964
$
886
8.8
%
11.5
%
10.9
%
3.2
%
13.1
%
Hips
364
353
3.2
7.6
4.5
1.2
13.0
691
662
4.5
8.1
6.3
1.5
10.9
Trauma and Extremities
676
674
0.2
3.4
3.1
(6.5)
4.4
1,361
1,314
3.6
6.2
6.7
(3.7)
4.8
Spine
290
307
(5.1)
(2.3)
(3.6)
(8.9)
1.0
569
585
(2.6)
(0.3)
(0.1)
(8.5)
(0.7)
Other
114
127
(10.8)
(7.3)
(13.8)
0.1
16.3
211
250
(15.5)
(13.0)
(18.4)
(5.5)
5.9
$
1,944
$
1,935
0.5
%
3.9
%
1.6
%
(2.0)
%
9.5
%
$
3,796
$
3,697
2.7
%
5.4
%
4.7
%
(1.9)
%
7.2
%
Total
$
4,493
$
4,294
4.6
%
7.6
%
6.8
%
(1.0)
%
9.7
%
$
8,768
$
8,247
6.3
%
8.7
%
9.0
%
(0.5)
%
7.8
%
Consolidated Net Sales
Consolidated net sales increased 4.6% in the three months 2022 as reported and 7.6% in constant currency, as foreign currency exchange rates negatively impacted net sales by 3.0%. Excluding the 1.5% impact of acquisitions and divestitures, net sales in constant currency increased by 7.5% from increased unit volume partially offset by 1.4% due to lower prices. The unit volume increase was due to higher shipments across most MedSurg and Neurotechnology products and most Orthopaedics and Spine products.
Consolidated net sales increased 6.3% in the six months 2022 as reported and 8.7% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.4%. Excluding the 1.1% impact of acquisitions and divestitures, net sales in constant currency increased by 8.8% from increased unit volume partially offset by 1.2% due to lower prices. The unit volume increase was due to higher shipments across all MedSurg and Neurotechnology products and most Orthopaedics and Spine products.
Dollar amounts are in millions except per share amounts or as otherwise specified.
11
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
MedSurg and Neurotechnology Net Sales
MedSurg and Neurotechnology net sales increased 8.0% in the three months 2022 as reported and 10.6% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.6%. Excluding the 2.7% impact of acquisitions, net sales in constant currency increased by 7.8% from increased unit volume and 0.1% from higher prices. The unit volume increase was due to higher shipments across most MedSurg and Neurotechnology products.
MedSurg and Neurotechnology net sales increased 9.3% in the six months 2022 as reported and 11.3% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.0%. Excluding the 2.0% impact of acquisitions, net sales in constant currency increased by 9.3% from increased unit volume. The unit volume increase was due to higher shipments across all MedSurg products.
Orthopaedics and Spine Net Sales
Orthopaedics and Spine net sales increased 0.5% in the three months 2022 as reported and 3.9% in constant currency, as foreign currency exchange rates negatively impacted net sales by 3.4%. Net sales in constant currency increased 7.1% from increased unit volume partially offset by 3.2% from lower prices. The unit volume increase was due to higher shipments of hips, knees and trauma and extremities products.
Orthopaedics and Spine net sales increased 2.7% in the six months 2022 as reported and 5.4% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.7%. Net sales in constant currency increased 8.2% from increased unit volume partially offset by 2.8% from lower prices. The unit volume increase was due to higher shipments across most Orthopaedics and Spine products.
Gross Profit
Gross profit as a percentage of sales in the three months 2022 decreased to 62.9% from 64.6% in 2021. Excluding the impact of the items noted below, gross profit decreased to 63.3% of sales in the three months 2022 from 66.0% in 2021 due to increased costs from purchases of electronic components at premium prices on the spot market and other inflationary pressures, primarily related to labor, steel and transportation.
Gross profit as a percentage of sales in the six months 2022 decreased to 63.4% from 64.0% in 2021. Excluding the impact of the items noted below, gross profit decreased to 63.7% of sales in the six months 2022 from 65.7% in 2021 primarily due to increased costs from purchases of electronic components at premium prices on the spot market and other inflationary pressures, primarily related to labor, steel and transportation. These increased costs were partially offset by higher sales volumes and favorable mix.
Percent Net Sales
Three Months
2022
2021
2022
2021
Reported
$
2,826
$
2,772
62.9
%
64.6
%
Inventory stepped-up to fair value
7
58
0.2
1.4
Restructuring-related and other charges
8
2
0.2
—
Medical device regulations
2
—
—
—
Adjusted
$
2,843
$
2,832
63.3
%
66.0
%
Percent Net Sales
Six Months
2022
2021
2022
2021
Reported
$
5,560
$
5,281
63.4
%
64.0
%
Inventory stepped-up to fair value
12
137
0.2
1.7
Restructuring-related and other charges
10
—
0.1
—
Medical device regulations
2
1
—
—
Adjusted
$
5,584
$
5,419
63.7
%
65.7
%
Research, Development and Engineering Expenses
Research, development and engineering expenses increased $41 or 13.2% in the three months 2022 and increased as a percentage of sales to 7.8% from 7.2% in 2021. Excluding the impact of the items noted below, expenses increased to 7.2% of sales in 2022 from 6.6% in 2021.
Research, development and engineering expenses increased $166 or 27.8% in the six months 2022 and increased as a percentage of sales to 8.7% from 7.3% in 2021. Excluding the impact of the items noted below, expenses increased to 7.2% of sales in 2022 from 6.7% in 2021.
The increases for the three and six months reflect our continued commitment to new product development and technologies, integration of recent acquisitions and for the six months the write-off of certain intangible assets.
Percent Net Sales
Three Months
2022
2021
2022
2021
Reported
$
351
$
310
7.8
%
7.2
%
Medical device regulations
(28)
(26)
(0.6)
(0.6)
Adjusted
$
323
$
284
7.2
%
6.6
%
Percent Net Sales
Six Months
2022
2021
2022
2021
Reported
$
764
$
598
8.7
%
7.3
%
Restructuring-related and other charges
(79)
—
(0.9)
—
Medical device regulations
(56)
(44)
(0.6)
(0.6)
Adjusted
$
629
$
554
7.2
%
6.7
%
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $34 or 2.3% in the three months 2022 and decreased as a percentage of sales to 34.3% from 35.0% in 2021. Excluding the impact of the items noted below, expenses decreased to 32.4% of sales in 2022 from 33.4% in 2021.
Selling, general and administrative expenses increased $169 or 5.5% in the six months 2022 and decreased as a percentage of sales to 37.1% from 37.3%. Share-based awards for Vocera employees vested upon our acquisition in 2022 and a charge of $132 was recorded. Excluding the impact of the items noted below, expenses decreased to 33.7% of sales in 2022 from 34.3% in 2021.
The decreases as a percentage of sales for the three and six months were due to our continued cost discipline and fixed cost leverage.
Percent Net Sales
Three Months
2022
2021
2022
2021
Reported
$
1,539
$
1,505
34.3
%
35.0
%
Other acquisition and integration-related
(30)
(62)
(0.8)
(1.4)
Restructuring-related and other charges
(54)
(16)
(1.2)
(0.4)
Medical device regulations
(2)
—
—
—
Regulatory and legal matters
4
9
0.1
0.2
Adjusted
$
1,457
$
1,436
32.4
%
33.4
%
Percent Net Sales
Six Months
2022
2021
2022
2021
Reported
$
3,249
$
3,080
37.1
%
37.3
%
Other acquisition and integration-related
(174)
(232)
(2.1)
(2.8)
Restructuring-related and other charges
(82)
(31)
(0.9)
(0.3)
Medical device regulations
(2)
—
—
—
Regulatory and legal matters
(33)
9
(0.4)
0.1
Adjusted
$
2,958
$
2,826
33.7
%
34.3
%
Dollar amounts are in millions except per share amounts or as otherwise specified.
12
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
Recall Charges
Recall charges were $4 and $76 in the three months and $18 and $82 in the six months 2022 and 2021. Charges in the three and six months 2022 were primarily related to the previously disclosed Wright hip products, and charges in the three and six months 2021 were primarily related to Rejuvenate and ABG II Modular-Neck hip stems. Refer to Note 6 to our Consolidated Financial Statements for further information.
Amortization of Intangible Assets
Amortization of intangible assets was $160 and $149 in the three months and $310 and $330 in the six months 2022 and 2021. Refer to Note 7 to our Consolidated Financial Statements for further information.
Operating Income
Operating income increased $40 to 17.2% of sales in the three months 2022 from 17.0% of sales in 2021. Excluding the impact of the items noted below, operating income decreased to 23.7% of sales in 2022 from 25.9% in 2021 primarily due to higher costs from inflationary pressures, partially offset by leverage from higher sales volumes and cost discipline.
Operating income increased $28 or 2.4% to 13.9% of sales in the six months 2022 from 14.4% of sales in 2021. Excluding the impact of the items noted below, operating income decreased to 22.8% of sales in 2022 from 24.7% in 2021 primarily due to higher costs from inflationary pressures and our continued investments in innovation, partially offset by leverage from higher sales volumes and cost discipline.
Percent Net Sales
Three Months
2022
2021
2022
2021
Reported
$
772
$
732
17.2
%
17.0
%
Inventory stepped-up to fair value
7
58
0.2
1.4
Other acquisition and integration-related
30
62
0.6
1.4
Amortization of purchased intangible assets
160
149
3.6
3.5
Restructuring-related and other charges
62
17
1.4
0.4
Medical device regulations
32
26
0.7
0.6
Recall-related matters
4
76
0.1
1.8
Regulatory and legal matters
(4)
(9)
(0.1)
(0.2)
Adjusted
$
1,063
$
1,111
23.7
%
25.9
%
Percent Net Sales
Six Months
2022
2021
2022
2021
Reported
$
1,219
$
1,191
13.9
%
14.4
%
Inventory stepped-up to fair value
12
137
0.1
1.7
Other acquisition and integration-related
174
232
2.0
2.8
Amortization of purchased intangible assets
310
330
3.5
4.0
Restructuring-related and other charges
171
31
2.0
0.4
Medical device regulations
60
45
0.7
0.5
Recall-related matters
18
82
0.2
1.0
Regulatory and legal matters
33
(9)
0.4
(0.1)
Adjusted
$
1,997
$
2,039
22.8
%
24.7
%
Other Income (Expense), Net
Other income (expense), net was ($52) and ($70) in the three months and ($113) and ($162) in the six months 2022 and 2021. The decrease in net expense in 2022 was primarily due to favorable investment returns and interest income.
Income Taxes
Our effective tax rates of 8.9% and 11.5% in the three and six months 2022 include the reversal of deferred income tax on undistributed earnings of foreign subsidiaries determined to be indefinitely reinvested and certain discrete tax items. Our effective tax rates of 10.6% and 13.1% in the three and six months 2021 include certain discrete tax items.
We are routinely audited by income tax authorities in the jurisdictions we operate. In July 2022 we effectively settled the United States federal income tax audit for years 2014 through 2018. Accordingly in the three months ending September 30, 2022 we expect to reduce our accruals for uncertain tax positions and related interest by approximately $220.
Net Earnings
Net earnings increased to $656 or $1.72 per diluted share in the three months 2022 from $592 or $1.55 per diluted share in 2021. Adjusted net earnings per diluted share(1) was $2.25 in 2022 in line with 2021.
Net earnings increased to $979 or $2.56 per diluted share in the six months 2022 from $894 or $2.34 per diluted share in 2021. Adjusted net earnings per diluted share(1) increased 1.0% to $4.22 in 2022 from $4.18 in 2021.
Percent Net Sales
Three Months
2022
2021
2022
2021
Reported
$
656
$
592
14.6
%
13.8
%
Inventory stepped-up to fair value
5
43
0.1
1.0
Other acquisition and integration-related
23
51
0.5
1.2
Amortization of purchased intangible assets
124
113
2.8
2.7
Restructuring-related and other charges
56
15
1.2
0.3
Medical device regulations
26
21
0.6
0.5
Recall-related matters
3
68
0.1
1.6
Regulatory and legal matters
(4)
(12)
(0.1)
(0.3)
Tax matters
(29)
(30)
(0.7)
(0.7)
Adjusted
$
860
$
861
19.1
%
20.1
%
Percent Net Sales
Six Months
2022
2021
2022
2021
Reported
$
979
$
894
11.2
%
10.8
%
Inventory stepped-up to fair value
9
103
0.1
1.2
Other acquisition and integration-related
128
180
1.5
2.2
Amortization of purchased intangible assets
239
264
2.6
3.3
Restructuring-related and other charges
140
33
1.6
0.4
Medical device regulations
50
37
0.6
0.4
Recall-related matters
14
73
0.2
0.9
Regulatory and legal matters
24
(12)
0.3
(0.1)
Tax matters
29
26
0.3
0.3
Adjusted
$
1,612
$
1,598
18.4
%
19.4
%
Dollar amounts are in millions except per share amounts or as otherwise specified.
13
STRYKER CORPORATION
2022 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; adjusted net earnings per diluted share (Diluted EPS); free cash flow; and free cash flow conversion. We believe these non-GAAP financial measures provide meaningful information to assist investors and shareholders in understanding our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures for reviewing the operating results of reportable business segments and analyzing potential future business trends in connection with our budget process and bases certain management incentive compensation on these non-GAAP financial measures. To measure percentage sales growth in constant currency, we remove the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Percentage sales growth in constant currency is calculated by translating current and prior year results at the same foreign currency exchange rate. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates, acquisitions and divestitures, which affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year and prior year results at 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. To measure free cash flow, we adjust cash provided by operating activities by the amount of purchases of property, plant and equipment and proceeds from long-lived asset disposals and remove the impact of certain legal settlements and recall payments. To measure free cash flow conversion we divide free cash flow by adjusted net earnings. These adjustments are irregular in timing and may not be indicative of our past and future performance. The following are examples of the types of adjustments that may be included in a period:
1.Acquisition and integration-related costs. Costs related to integrating recently acquired businesses (e.g., costs associated with the termination of sales relationships, workforce reductions and other integration-related activities) and specific costs (e.g., inventory step-up and deal costs) related to the consummation of the acquisition process.
2.Amortization of purchased intangible assets. Periodic amortization expense related to purchased intangible assets.
3.Restructuring-related and other charges. Costs associated with the termination of sales relationships in certain countries, workforce reductions, elimination of product lines, certain long-lived and intangible asset write-offs and impairments and associated costs and other restructuring-related activities.
4.Medical device regulations. Costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the new medical device reporting regulations and other requirements of the European Union and the more stringent regulations for medical devices in China.
5.Recall-related matters. Our best estimate of the minimum of the range of probable loss to resolve the Rejuvenate, LFIT V40 and other product recalls.
6.Regulatory and legal matters. Our best estimate of the minimum of the range of probable loss to resolve certain regulatory matters and other legal settlements.
7.Tax matters. Charges represent the impact of accounting for certain significant and discrete tax items.
Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, gross profit, selling, general and administrative expenses, research, development and engineering expenses, operating income, other income (expense), net, effective income tax rate, net earnings and net earnings per diluted share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of our operations when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures at the end of the discussion of Consolidated Results of Operations below. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
The weighted-average diluted shares outstanding used in the calculation of non-GAAP net earnings per diluted share are the same as those used in the calculation of reported net earnings per diluted share for the respective period.
Dollar amounts are in millions except per share amounts or as otherwise specified.
14
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Three Months 2022
Gross Profit
Selling, General & Administrative Expenses
Research, Development & Engineering Expenses
Operating Income
Other Income (Expense), Net
Net Earnings
Effective Tax Rate
Diluted EPS
Reported
$
2,826
$
1,539
$
351
$
772
$
(52)
$
656
8.9
%
$
1.72
Reported percent net sales
62.9
%
34.3
%
7.8
%
17.2
%
(1.2)
%
14.6
%
Acquisition and integration-related costs:
Inventory stepped-up to fair value
7
—
—
7
—
5
0.1
0.01
Other acquisition and integration-related
—
(30)
—
30
—
23
0.4
0.06
Amortization of purchased intangible assets
—
—
—
160
—
124
2.0
0.33
Restructuring-related and other charges
8
(54)
—
62
—
56
(0.4)
0.15
Medical device regulations
2
(2)
(28)
32
—
26
0.2
0.07
Recall-related matters
—
—
—
4
—
3
0.1
—
Regulatory and legal matters
—
4
—
(4)
—
(4)
—
(0.02)
Tax matters
—
—
—
—
(12)
(29)
2.6
(0.07)
Adjusted
$
2,843
$
1,457
$
323
$
1,063
$
(64)
$
860
13.9
%
$
2.25
Adjusted percent net sales
63.3
%
32.4
%
7.2
%
23.7
%
(1.4)
%
19.1
%
Three Months 2021
Gross Profit
Selling, General & Administrative Expenses
Research, Development & Engineering Expenses
Operating Income
Other Income (Expense), Net
Net Earnings
Effective Tax Rate
Diluted EPS
Reported
$
2,772
$
1,505
$
310
$
732
$
(70)
$
592
10.6
%
$
1.55
Reported percent net sales
64.6
%
35.0
%
7.2
%
17.0
%
(1.6)
%
13.8
%
Acquisition and integration-related costs:
Inventory stepped-up to fair value
58
—
—
58
—
43
0.6
0.11
Other acquisition and integration-related
—
(62)
—
62
—
51
0.1
0.13
Amortization of purchased intangible assets
—
—
—
149
—
113
1.4
0.29
Restructuring-related and other charges
2
(16)
—
17
—
15
(0.1)
0.03
Medical device regulations
—
—
(26)
26
—
21
0.1
0.06
Recall-related matters
—
—
—
76
—
68
(0.4)
0.18
Regulatory and legal matters
—
9
—
(9)
(3)
(12)
0.3
(0.03)
Tax matters
—
—
—
—
—
(30)
4.4
(0.07)
Adjusted
$
2,832
$
1,436
$
284
$
1,111
$
(73)
$
861
17.0
%
$
2.25
Adjusted percent net sales
66.0
%
33.4
%
6.6
%
25.9
%
(1.7)
%
20.1
%
Six Months 2022
Gross Profit
Selling, General & Administrative Expenses
Research, Development & Engineering Expenses
Operating Income
Other Income (Expense), Net
Net Earnings
Effective Tax Rate
Diluted EPS
Reported
$
5,560
$
3,249
$
764
$
1,219
$
(113)
$
979
11.5
%
$
2.56
Reported percent net sales
63.4
%
37.1
%
8.7
%
13.9
%
(1.3)
%
11.2
%
Acquisition and integration-related costs:
Inventory stepped-up to fair value
12
—
—
12
—
9
0.1
0.02
Other acquisition and integration-related
—
(174)
—
174
—
128
2.0
0.33
Amortization of purchased intangible assets
—
—
—
310
—
239
2.6
0.63
Restructuring-related and other charges
10
(82)
(79)
171
—
140
0.6
0.37
Medical device regulations
2
(2)
(56)
60
—
50
0.2
0.13
Recall-related matters
—
—
—
18
—
14
0.2
0.04
Regulatory and legal matters
—
(33)
—
33
—
24
0.4
0.06
Tax matters
—
—
—
—
(12)
29
(3.7)
0.08
Adjusted
$
5,584
$
2,958
$
629
$
1,997
$
(125)
$
1,612
13.9
%
$
4.22
Adjusted percent net sales
63.7
%
33.7
%
7.2
%
22.8
%
(1.4)
%
18.4
%
Six Months 2021
Gross Profit
Selling, General & Administrative Expenses
Research, Development & Engineering Expenses
Operating Income
Other Income (Expense), Net
Net Earnings
Effective Tax Rate
Diluted EPS
Reported
$
5,281
$
3,080
$
598
$
1,191
$
(162)
$
894
13.1
%
$
2.34
Reported percent net sales
64.0
%
37.3
%
7.3
%
14.4
%
(2.0)
%
10.8
%
Acquisition and integration-related costs:
Inventory stepped-up to fair value
137
—
—
137
—
103
1.1
0.27
Other acquisition and integration-related
—
(232)
—
232
—
180
1.6
0.47
Amortization of purchased intangible assets
—
—
—
330
—
264
1.6
0.69
Restructuring-related and other charges
—
(31)
—
31
11
33
0.3
0.08
Medical device regulations
1
—
(44)
45
—
37
0.2
0.10
Recall-related matters
—
—
—
82
—
73
(0.3)
0.19
Regulatory and legal matters
—
9
—
(9)
(3)
(12)
0.2
(0.03)
Tax matters
—
—
—
—
—
26
(2.6)
0.07
Adjusted
$
5,419
$
2,826
$
554
$
2,039
$
(154)
$
1,598
15.2
%
$
4.18
Adjusted percent net sales
65.7
%
34.3
%
6.7
%
24.7
%
(1.9)
%
19.4
%
Dollar amounts are in millions except per share amounts or as otherwise specified.
15
STRYKER CORPORATION
2022 Second Quarter Form 10-Q
FINANCIAL CONDITION AND LIQUIDITY
Six Months
2022
2021
Net cash provided by operating activities
$
732
$
1,330
Net cash used in investing activities
(2,834)
(298)
Net cash provided by (used in) financing activities
240
(1,729)
Effect of exchange rate changes on cash and cash equivalents
(38)
(5)
Change in cash and cash equivalents
$
(1,900)
$
(702)
Operating Activities
Cash provided by operating activities was $732 and $1,330 in the six months 2022 and 2021. The decrease was primarily due to increased inventory driven by higher material prices and inventory levels to manage supply chain issues and increased accounts receivable primarily due to timing of sales.
Investing Activities
Cash used in investing activities was $2,834 and $298 in the six months 2022 and 2021. The increase in cash used in 2022 was primarily due to increased payments for acquisitions and investments in capital projects.
Financing Activities
Cash provided by (used in) financing activities was $240 and ($1,729) in the six months 2022 and 2021. Cash provided in 2022 was primarily driven by the issuance of a $1,500 term loan used to fund the Vocera acquisition, of which $250 has been repaid, partially offset by the payment of dividends. Cash used in 2021 was primarily due to debt repayments of $750 in March 2021 and $400 for the term loan in June 2021. We did not repurchase any shares in the six months 2022 and 2021. Dividends paid to common shareholders were $525 and $475 in the six months 2022 and 2021.
Liquidity
Cash, cash equivalents and marketable securities were $1,127 and $3,019 on June 30, 2022 and December 31, 2021. Current assets exceeded current liabilities by $4,421 and $5,468 on June 30, 2022 and December 31, 2021. We anticipate being able to support our short-term liquidity and operating needs from a variety of sources including cash from operations, commercial paper and existing credit lines.
We raised funds in the capital 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 55% on June 30, 2022 compared to 26% on December 31, 2021.
Critical Accounting Policies
There were no changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for 2021.
New Accounting Pronouncements Not Yet Adopted
Refer to Note 1 to our Consolidated Financial Statements for information.
Guarantees and Other Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, of a magnitude that we believe could have a material impact on our financial condition or liquidity.
OTHER MATTERS
Legal and Regulatory Matters
We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of our business, including
proceedings related to product, labor, intellectual property and other matters. Refer to Note 6 to our Consolidated Financial Statements for further information.
FORWARD-LOOKING STATEMENTS
This report contains statements referring to us that are not historical facts and are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which are intended to take advantage of the "safe harbor" provisions of the Reform Act, are based on current projections about operations, industry conditions, financial condition and liquidity. Words that identify forward-looking statements include words such as "may," "could," "will," "should," "possible," "plan," "predict," "forecast," "potential," "anticipate," "estimate," "expect," "project," "intend," "believe," "may impact," "on track," "goal," "strategy" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, an acquisition or our businesses. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Those statements are not guarantees and are subject to risks, uncertainties and assumptions that are difficult to predict, including uncertainties related to the impact of the COVID-19 pandemic on our operations and financial results. Therefore, actual results could differ materially and adversely from these forward-looking statements. Some important factors that could cause our actual results to differ from our expectations in any forward-looking statements include those risks discussed in Item 1A. "Risk Factors" of our Annual Report on Form 10-K for 2021 and Part II, Item 1A. "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. This Form 10-Q should be read in conjunction with our Consolidated Financial Statements and accompanying notes to our Consolidated Financial Statements in our Annual Report on Form 10-K for 2021. We disclaim any intention or obligation to publicly update or revise any forward-looking statement to reflect any change in our expectations or in events, conditions or circumstances on which those expectations may be based, or that affect the likelihood that actual results will differ from those contained in the forward-looking statements.
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 2021. There were no material changes from the information provided therein. We are not able to quantify the impacts of the COVID-19 pandemic on our financial results. Qualitative disclosures about the COVID-19 pandemic are included in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q and Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for 2021.
Dollar amounts are in millions except per share amounts or as otherwise specified.
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ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer (the Certifying Officers), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) on June 30, 2022. Based on that evaluation, the Certifying Officers concluded the Company's disclosure controls and procedures were effective as of June 30, 2022.
Changes in Internal Control Over Financial Reporting
There was no change to our internal control over financial reporting during the six months 2022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In February 2022 we completed the acquisition of Vocera and are currently integrating Vocera into our operations, compliance programs and internal control processes. Vocera constituted approximately 8.5% of our total assets as of June 30, 2022, including the goodwill and intangible assets recorded as part of the purchase price allocation and approximately 1% of our net sales in the six months ended June 30, 2022. United States Securities and Exchange Commission guidance allows companies to exclude acquisitions from their assessment of the internal control over financial reporting during the first year following an acquisition while integrating the acquired company. We have excluded the acquired operations of Vocera from our assessment of the Company's internal control over financial reporting.
PART II – OTHER INFORMATION
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 2021 and Part II, Item 1A. "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, except for updates to the following risk factor:
We use a variety of raw materials, components, devices and third-party services in our global supply chains, production and distribution processes; significant shortages, price increases or unavailability of third-party services could increase our operating costs, require significant capital expenditures, or adversely impact the competitive position of our products: Our reliance on certain suppliers to secure raw materials, components and finished devices, and on certain third-party service providers, such as sterilization service providers, exposes us to product shortages and unanticipated increases in prices, whether due to inflationary pressure, regulatory changes or otherwise. In addition, several raw materials, components, finished devices and services are procured from a sole-source due to the quality considerations, unique intellectual property considerations or constraints associated with regulatory requirements. If sole-source suppliers or service providers are acquired or were unable or unwilling to deliver these materials or services, we may not be able to manufacture or have available one or more products during such period of unavailability and our business could suffer. In certain cases we may not be able to establish additional or replacement suppliers for such materials or service providers for such services in a timely or cost effective manner, largely as a result of FDA and other regulations that require, among other things, validation of materials, components and services prior to their use in or with our products. In addition, during 2022, the market has experienced increasing inflationary pressures in part due to global supply chain disruptions, labor shortages and other impacts of the COVID-19 pandemic, which
we anticipate will continue. The existence of inflation in the United States and in many of the countries where we conduct business has resulted in, and may continue to result in, higher interest rates and capital costs, shipping costs, increased costs of labor, weakening exchange rates and other similar effects. We have experienced and may continue to experience inflationary increases in manufacturing costs and operating expenses as well as negative impacts from weakening exchange rates, caused by the COVID-19 pandemic or as a result of general macroeconomic factors, and may not be able to pass these cost increases on to our customers in a timely manner, which could have a material adverse impact on our profitability and results of operations. Inflation may also cause our customers to reduce or delay orders for our products and services, which could have a material adverse impact on our sales and results of operations.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We issued 6,071 shares of our common stock in the three months 2022 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 2022 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, 2022.
Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
* Furnished with this Form 10-Q
Dollar amounts are in millions except per share amounts or as otherwise specified.
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STRYKER CORPORATION
2022 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.
