Stryker Corp 10-Q for FY2020 Q1

About this 10-Q

Headline figures

Stryker Corp (SYK)

10-Q 2020-05-01 For: 2020-03-31

Added on April 02, 2026

Stryker Corp filed this 10-Q on May 1, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Fair Value of Available for Sale Securities by Maturity

March 2020

December 2019

Due in one year or less

Due after one year through three years

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $3.59B; up 2.0% from $3.52B a year earlier
Net income: $493M; up 19.7% from net income of $412M a year earlier
Diluted EPS: $1.30; up 19.3% from $1.09 a year earlier

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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
Floating Rate Notes due 2020	SYK20A	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Small reporting company	☐



	Three Months
	2020			2019
Net sales	$	3,588		$	3,516
Cost of sales	1,257			1,233
Gross profit	$	2,331		$	2,283
Research, development and engineering expenses	254			225
Selling, general and administrative expenses	1,330			1,403
Recall charges	(6		)	13
Amortization of intangible assets	118			114
Total operating expenses	$	1,696		$	1,755
Operating income	$	635		$	528
Other income (expense), net	(45		)	(48		)
Earnings before income taxes	$	590		$	480
Income taxes	97			68
Net earnings	$	493		$	412

Net earnings per share of common stock:
Basic	$	1.32		$	1.10
Diluted	$	1.30		$	1.09

Weighted-average shares outstanding (in millions):
Basic	374.8			373.3
Effect of dilutive employee stock compensation	4.9			6.0
Diluted	379.7			379.3

Cash dividends declared per share of common stock	$	0.575		$	0.52



	Three Months
	2020			2019
Net earnings	$	493		$	412
Other comprehensive income (loss), net of tax:
Marketable securities	—			1
Pension plans	(4		)	(4		)
Unrealized gains (losses) on designated hedges	(26		)	(16		)
Financial statement translation	13			85
Total other comprehensive income (loss), net of tax	$	(17	)	$	66
Comprehensive income	$	476		$	478



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Dollar amounts are in millions except per share amounts or as otherwise specified.	1



	March 31			December 31
	2020			2019
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	3,964		$	4,337
Marketable securities	84			88
Accounts receivable, less allowance of $100 ($88 in 2019)	2,646			2,893
Inventories:
Materials and supplies	738			677
Work in process	187			178
Finished goods	2,434			2,427
Total inventories	$	3,359		$	3,282
Prepaid expenses and other current assets	683			760
Total current assets	$	10,736		$	11,360
Property, plant and equipment:
Land, buildings and improvements	1,419			1,263
Machinery and equipment	3,357			3,451
Total property, plant and equipment	$	4,776		$	4,714
Less accumulated depreciation	2,169			2,147
Property, plant and equipment, net	$	2,607		$	2,567
Goodwill	9,025			9,069
Other intangibles, net	4,107			4,227
Noncurrent deferred income tax assets	1,537			1,575
Other noncurrent assets	1,428			1,369
Total assets	$	29,440		$	30,167

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	736		$	675
Accrued compensation	430			955
Income taxes	227			171
Dividends payable	216			213
Accrued expenses and other liabilities	1,450			1,527
Current maturities of debt	1,103			859
Total current liabilities	$	4,162		$	4,400
Long-term debt, excluding current maturities	9,404			10,231
Income taxes	1,026			1,068
Other noncurrent liabilities	1,733			1,661
Total liabilities	$	16,325		$	17,360
Shareholders' equity
Common stock, $0.10 par value	38			37
Additional paid-in capital	1,676			1,628
Retained earnings	12,024			11,748
Accumulated other comprehensive loss	(623		)	(606		)
Total shareholders' equity	$	13,115		$	12,807
Total liabilities and shareholders' equity	$	29,440		$	30,167



Net Sales by Product Line
	Three Months
	2020		2019
Orthopaedics:
Knees	$	432	$	439
Hips	316		336
Trauma and Extremities	392		396
Other	82		79
	$	1,222	$	1,250
MedSurg:
Instruments	$	513	$	461
Endoscopy	455		470
Medical	587		531
Sustainability	67		65
	$	1,622	$	1,527
Neurotechnology and Spine:
Neurotechnology	$	483	$	469
Spine	261		270
	$	744	$	739
Total	$	3,588	$	3,516



Net Sales by Geography
	Three Months 2020				Three Months 2019
	United States		International		United States		International
Orthopaedics:
Knees	$	322	$	110	$	320	$	119
Hips	201		115		213		123
Trauma and Extremities	260		132		254		142
Other	69		13		63		16
	$	852	$	370	$	850	$	400
MedSurg:
Instruments	$	410	$	103	$	365	$	96
Endoscopy	364		91		376		94
Medical	454		133		416		115
Sustainability	66		1		64		1
	$	1,294	$	328	$	1,221	$	306
Neurotechnology and Spine:
Neurotechnology	$	301	$	182	$	300	$	169
Spine	196		65		208		62
	$	497	$	247	$	508	$	231
Total	$	2,643	$	945	$	2,579	$	937



March 2020	Cash Flow			Net Investment		Non-Designated			Total
Gross notional amount	$	837		$	1,094	$	5,275		$	7,206
Maximum term in days									1555
Fair value:
Other current assets	$	30		$	—	$	100		$	130
Other noncurrent assets	5			105		—			110
Other current liabilities	(2		)	—		(27		)	(29		)
Other noncurrent liabilities	—			—		—			—
Total fair value	$	33		$	105	$	73		$	211



December 2019	Cash Flow			Net Investment		Non-Designated			Total
Gross notional amount	$	801		$	1,113	$	6,174		$	8,088
Maximum term in days									1646
Fair value:
Other current assets	$	5		$	—	$	180		$	185
Other noncurrent assets	1			40		—			41
Other current liabilities	(10		)	—		(11		)	(21		)
Other noncurrent liabilities	(2		)	—		—			(2		)
Total fair value	$	(6	)	$	40	$	169		$	203



		Three Months
Derivative instrument	Recorded in:	2020			2019
Cash Flow	Cost of sales	$	(3	)	$	2
Net Investment	Other income (expense), net	7			—
Non-Designated	Other income (expense), net	(7		)	(2		)
	Total	$	(3	)	$	—



Assets Measured at Fair Value	March		December
Assets Measured at Fair Value	2020		2019
Cash and cash equivalents	$	3,964	$	4,337
Trading marketable securities	127		149
Level 1 - Assets	$	4,091	$	4,486
Available-for-sale marketable securities:
Corporate and asset-backed debt securities	$	32	$	32
United States agency debt securities	3		2
United States Treasury debt securities	45		49
Certificates of deposit	4		5
Total available-for-sale marketable securities	$	84	$	88
Foreign currency exchange forward contracts	240		226
Interest rate swap asset	—		17
Level 2 - Assets	$	324	$	331
Total assets measured at fair value	$	4,415	$	4,817



STRYKER CORPORATION		2020 First Quarter Form 10-Q



ITEM 1.	FINANCIAL STATEMENTS



STRYKER CORPORATION		2020 First Quarter Form 10-Q



STRYKER CORPORATION		2020 First Quarter Form 10-Q



Liabilities Measured at Fair Value	March		December
Liabilities Measured at Fair Value	2020		2019
Deferred compensation arrangements	$	127	$	149
Level 1 - Liabilities	$	127	$	149
Foreign currency exchange forward contracts	$	29	$	23
Interest rate swap liability	62		—
Level 2 - Liabilities	$	91	$	23
Contingent consideration:
Beginning	$	306	$	117
Additions	—		298
Change in estimate	—		(10		)
Settlements	—		(99		)
Ending	$	306	$	306
Level 3 - Liabilities	$	306	$	306
Total liabilities measured at fair value	$	524	$	478



Leases	March			December
Leases	2020			2019
Right-of-use assets	$	393		$	384
Lease liabilities, current	$	89		$	86
Lease liabilities, non-current	$	306		$	301

Other information
Weighted-average remaining lease term	5.9 years			6.2 years
Weighted-average discount rate	3.09		%	3.34		%
	Three Months
	2020			2019
Operating lease cost	$	36		34



Purchase Price Allocation of Acquired Net Assets
	2019
	Mobius			OrthoSpace
Tangible assets:
Accounts receivable	$	3		$	1
Inventory	6			1
Other assets	2			1
Contingent consideration	(4		)	—
Other liabilities	(10		)	(29		)
Intangible assets:
Customer relationship	7			—
Developed technology and patents	59			120
In-process research and development	98			—
Non-compete agreements	9			—
Goodwill	303			114
Purchase price, net of cash acquired	$	473		$	208
Weighted-average life of intangible assets	12			18



Estimated Amortization Expense
Remainder of 2020		2021		2022		2023		2024
$	341	$	440	$	438	$	417	$	386



Summary of Total Debt			March 2020		December 2019
Senior unsecured notes:
	Rate	Due
	4.375%	January 15, 2020	$	—	$	500
	Variable	November 30, 2020	328		333
	2.625%	March 15, 2021	749		749
	1.125%	November 30, 2023	599		609
	3.375%	May 15, 2024	588		587
	0.250%	December 3, 2024	923		938
	3.375%	November 1, 2025	746		746
	3.500%	March 15, 2026	991		991
	2.125%	November 30, 2027	815		829
	3.650%	March 7, 2028	596		596
	0.750%	March 1, 2029	869		884
	2.625%	November 30, 2030	700		712
	1.000%	December 3, 2031	809		823
	4.100%	April 1, 2043	392		391
	4.375%	May 15, 2044	395		395
	4.625%	March 15, 2046	981		981
Other			26		26
Total debt			$	10,507	$	11,090
Less current maturities of debt			1,103		859
Total long-term debt			$	9,404	$	10,231



	March 2020		December 2019
Unamortized debt issuance costs	$	56	$	58
Available secured borrowing capacity	$	1,403	$	1,403
Fair value of senior unsecured notes	$	10,904	$	11,910



ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



	Three Months
							Percent Net Sales				Percentage
	2020			2019			2020		2019		Change
Net sales	$	3,588		$	3,516		100.0	%	100.0	%	2.0	%
Gross profit	2,331			2,283			65.0		64.9		2.1
Research, development and engineering expenses	254			225			7.1		6.4		12.9
Selling, general and administrative expenses	1,330			1,403			37.1		39.9		(5.2	)
Recall charges	(6		)	13			(0.2	)	0.4		nm
Amortization of intangible assets	118			114			3.3		3.2		3.5
Other income (expense), net	(45		)	(48		)	(1.3	)	(1.4	)	(6.3	)
Income taxes	97			68							42.6
Net earnings	$	493		$	412		13.7	%	11.7	%	19.7	%

Net earnings per diluted share	$	1.30		$	1.09						19.3	%
Adjusted net earnings per diluted share⁽¹⁾	$	1.84		$	1.88						(2.1	)%



Geographic and Segment Net Sales	Three Months
					Percentage Change
	2020		2019		As Reported		Constant Currency
Geographic:
United States	$	2,643	$	2,579	2.5	%	2.5	%
International	945		937		0.8		4.2
Total	$	3,588	$	3,516	2.0	%	2.9	%
Segment:
Orthopaedics	$	1,222	$	1,250	(2.1	)%	(1.2	)%
MedSurg	1,622		1,527		6.2		7.0
Neurotechnology and Spine	744		739		0.7		1.5
Total	$	3,588	$	3,516	2.0	%	2.9	%



Supplemental Net Sales Growth Information
	Three Months
					Percentage Change
									United States		International
	2020		2019		As Reported		Constant Currency		As Reported		As Reported		Constant Currency
Orthopaedics:
Knees	$	432	$	439	(1.7	)%	(0.8	)%	0.6	%	(7.8	)%	(4.5	)%
Hips	316		336		(5.9	)	(4.8	)	(5.7	)	(6.4	)	(3.2	)
Trauma and Extremities	392		396		(0.8	)	0.2		2.7		(6.9	)	(4.3	)
Other	82		79		4.7		5.3		9.4		(14.3	)	(11.5	)
	$	1,222	$	1,250	(2.1	)%	(1.2	)%	0.3	%	(7.3	)%	(4.3	)%
MedSurg:
Instruments	$	513	$	461	11.1	%	11.9	%	12.0	%	7.8	%	11.4	%
Endoscopy	455		470		(3.2	)	(2.4	)	(2.9	)	(4.1	)	(0.4	)
Medical	587		531		10.5		11.5		9.1		15.5		20.3
Sustainability	67		65		2.8		2.8		3.1		nm		nm
	$	1,622	$	1,527	6.2	%	7.0	%	6.0	%	6.9	%	11.1	%
Neurotechnology and Spine:
Neurotechnology	$	483	$	469	3.1	%	4.0	%	0.2	%	8.1	%	10.8	%
Spine	261		270		(3.5	)	(2.8	)	(5.6	)	3.3		6.4
	$	744	$	739	0.7	%	1.5	%	(2.1	)%	6.8	%	9.6	%
Total	$	3,588	$	3,516	2.0	%	2.9	%	2.5	%	0.8	%	4.2	%


1.	Acquisition and integration-related costs. Costs related to integrating recently acquired businesses 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, weather-related asset impairments and associated costs and other restructuring-related activities.


4.	Medical Device Regulations. Costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the medical device reporting regulations and other requirements of the European Union and China regulations for medical devices.


5.	Recall-related matters. Our best estimate of the minimum of the range of probable loss to resolve the Rejuvenate, LFIT V40 and other product recalls.


6.	Regulatory and legal matters. Our best estimate of the minimum of the range of probable loss to resolve certain regulatory matters and other legal settlements.


7.	Tax matters. Charges represent the impact of accounting for certain significant and discrete tax items.



Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Three Months 2020	Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other income (expense), net			Net Earnings			Effective Tax Rate		Diluted EPS
Reported	$	2,331		$	1,330		$	254		$	635		$	(45	)	$	493		16.4	%	$	1.30
Reported percent net sales	65.0		%	37.1		%	7.1		%	17.7		%	(1.3		)%	13.7		%
Acquisition and integration-related charges:
Inventory stepped-up to fair value	6			—			—			6			—			5			0.1		0.01
Other acquisition and integration-related	—			(31		)	—			31			—			24			0.3		0.06
Amortization of purchased intangible assets	—			—			—			118			—			96			0.9		0.25
Restructuring-related and other charges	4			(49		)	—			54			—			42			0.6		0.11
Medical device regulations	1			—			(23		)	24			—			18			0.3		0.05
Recall-related matters	—			—			—			(6		)	—			(4		)	(0.1	)	(0.01		)
Regulatory and legal matters	—			—			—			—			—			—			—		—
Tax matters	—			—			—			—			—			25			(4.2	)	0.07
Adjusted	$	2,342		$	1,250		$	231		$	862		$	(45	)	$	699		14.3	%	$	1.84
Adjusted percent net sales	65.3		%	34.8		%	6.4		%	24.0		%	(1.3		)%	19.5		%



ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK