Stryker Corporation

10/30/2024 | Press release | Distributed by Public on 10/30/2024 10:36

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

syk-20240930
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
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.)
1941 Stryker Way Portage, 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
0.250% Notes due 2024 SYK24A New York Stock Exchange
2.125% Notes due 2027 SYK27 New York Stock Exchange
3.375% Notes due 2028 SYK28 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
3.375% Notes due 2032 SYK32 New York Stock Exchange
3.625% Notes due 2036 SYK36 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. YesNo
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). YesNo
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 381,215,773 shares of Common Stock, $0.10 par value, on September 30, 2024.
STRYKER CORPORATION
2024 Third Quarter Form 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Stryker Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
Three Months Nine Months
2024 2023 2024 2023
Net sales $ 5,494 $ 4,909 $ 16,159 $ 14,683
Cost of sales 1,977 1,751 5,893 5,328
Gross profit $ 3,517 $ 3,158 $ 10,266 $ 9,355
Research, development and engineering expenses 377 353 1,108 1,038
Selling, general and administrative expenses 1,896 1,710 5,583 5,200
Amortization of intangible assets 159 164 467 486
Total operating expenses $ 2,432 $ 2,227 $ 7,158 $ 6,724
Operating income $ 1,085 $ 931 $ 3,108 $ 2,631
Other income (expense), net (42) (62) (144) (184)
Earnings before income taxes $ 1,043 $ 869 $ 2,964 $ 2,447
Income taxes 209 177 517 425
Net earnings $ 834 $ 692 $ 2,447 $ 2,022
Net earnings per share of common stock:
Basic $ 2.18 $ 1.82 $ 6.42 $ 5.33
Diluted $ 2.16 $ 1.80 $ 6.35 $ 5.27
Weighted-average shares outstanding (in millions):
Basic 381.1 379.8 380.9 379.5
Effect of dilutive employee stock compensation 4.5 4.2 4.5 4.2
Diluted 385.6 384.0 385.4 383.7
Cash dividends declared per share of common stock $ 0.80 $ 0.75 $ 2.40 $ 2.25
Anti-dilutive shares excluded from the calculation of dilutive employee stock options were de minimis in all periods.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Nine Months
2024 2023 2024 2023
Net earnings $ 834 $ 692 $ 2,447 $ 2,022
Other comprehensive income (loss), net of tax:
Marketable securities - - - -
Pension plans (2) (1) (1) (4)
Unrealized gains (losses) on designated hedges (27) 2 (28) 4
Financial statement translation (161) 80 (100) (28)
Total other comprehensive income (loss), net of tax $ (190) $ 81 $ (129) $ (28)
Comprehensive income $ 644 $ 773 $ 2,318 $ 1,994
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
1
STRYKER CORPORATION
2024 Third Quarter Form 10-Q
CONSOLIDATED BALANCE SHEETS
September 30 December 31
2024 2023
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 3,850 $ 2,971
Short-term investments 750 -
Marketable securities 84 82
Accounts receivable, less allowance of $200 ($182 in 2023)
3,736 3,765
Inventories:
Materials and supplies 1,234 1,242
Work in process 391 330
Finished goods 3,667 3,271
Total inventories $ 5,292 $ 4,843
Prepaid expenses and other current assets 961 857
Total current assets $ 14,673 $ 12,518
Property, plant and equipment:
Land, buildings and improvements 1,729 1,692
Machinery and equipment 5,160 4,652
Total property, plant and equipment $ 6,889 $ 6,344
Less allowance for depreciation 3,460 3,129
Property, plant and equipment, net $ 3,429 $ 3,215
Goodwill 16,396 15,243
Other intangibles, net 4,940 4,593
Noncurrent deferred income tax assets 1,562 1,670
Other noncurrent assets 2,833 2,673
Total assets $ 43,833 $ 39,912
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 1,337 $ 1,517
Accrued compensation 1,250 1,478
Income taxes 394 391
Dividends payable 305 304
Accrued expenses and other liabilities 2,224 2,137
Current maturities of debt 2,159 2,094
Total current liabilities $ 7,669 $ 7,921
Long-term debt, excluding current maturities 13,325 10,901
Income taxes 368 567
Other noncurrent liabilities 2,322 1,930
Total liabilities $ 23,684 $ 21,319
Shareholders' equity
Common stock, $0.10 par value
38 38
Additional paid-in capital 2,353 2,200
Retained earnings 18,303 16,771
Accumulated other comprehensive loss (545) (416)
Total shareholders' equity $ 20,149 $ 18,593
Total liabilities and shareholders' equity $ 43,833 $ 39,912
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
2
STRYKER CORPORATION
2024 Third Quarter Form 10-Q
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Three Months Nine Months
2024 2023 2024 2023
Common stock shares outstanding (in millions)
Beginning 381.1 379.8 380.1 378.7
Issuance of common stock under stock compensation and benefit plans 0.1 0.1 1.1 1.2
Ending 381.2 379.9 381.2 379.9
Common stock
Beginning $ 38 $ 38 $ 38 $ 38
Issuance of common stock under stock compensation and benefit plans - - - -
Ending $ 38 $ 38 $ 38 $ 38
Additional paid-in capital
Beginning $ 2,305 $ 2,127 $ 2,200 $ 2,034
Issuance of common stock under stock compensation and benefit plans (3) 4 (31) (16)
Share-based compensation 51 52 184 165
Ending $ 2,353 $ 2,183 $ 2,353 $ 2,183
Retained earnings
Beginning $ 17,774 $ 15,526 $ 16,771 $ 14,765
Net earnings 834 692 2,447 2,022
Cash dividends declared (305) (285) (915) (854)
Ending $ 18,303 $ 15,933 $ 18,303 $ 15,933
Accumulated other comprehensive income (loss)
Beginning $ (355) $ (330) $ (416) $ (221)
Other comprehensive income (loss) (190) 81 (129) (28)
Ending $ (545) $ (249) $ (545) $ (249)
Total shareholders' equity $ 20,149 $ 17,905 $ 20,149 $ 17,905
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
3
STRYKER CORPORATION
2024 Third Quarter Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months
2024 2023
Operating activities
Net earnings $ 2,447 $ 2,022
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation 319 292
Amortization of intangible assets 467 486
Asset impairments 21 12
Share-based compensation 184 165
Sale of inventory stepped-up to fair value at acquisition 38 -
Deferred income tax (benefit) expense (21) (4)
Changes in operating assets and liabilities:
Accounts receivable 67 266
Inventories (362) (922)
Accounts payable (203) (118)
Accrued expenses and other liabilities (224) 149
Income taxes (236) (65)
Other, net (186) (100)
Net cash provided by operating activities $ 2,311 $ 2,183
Investing activities
Acquisitions, net of cash acquired (1,598) (390)
Purchases of short-term investments (750) -
Purchases of marketable securities (41) (41)
Proceeds from sales of marketable securities 40 49
Purchases of property, plant and equipment (489) (430)
Proceeds from settlement of net investment hedges 99 -
Other investing, net 42 2
Net cash used in investing activities $ (2,697) $ (810)
Financing activities
Proceeds (payments) on short-term borrowings, net (32) 540
Proceeds from issuance of long-term debt 3,011 -
Payments on long-term debt (601) (852)
Payments of dividends (914) (854)
Cash paid for taxes from withheld shares (146) (121)
Other financing, net (49) (21)
Net cash provided by (used in) financing activities $ 1,269 $ (1,308)
Effect of exchange rate changes on cash and cash equivalents (4) (49)
Change in cash and cash equivalents $ 879 $ 16
Cash and cash equivalents at beginning of period 2,971 1,844
Cash and cash equivalents at end of period $ 3,850 $ 1,860
See accompanying notes to Consolidated Financial Statements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
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STRYKER CORPORATION
2024 Third Quarter Form 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
General Information
Management believes the accompanying unaudited Consolidated Financial Statements contain all adjustments, including normal recurring items, considered necessary to fairly present the financial position of Stryker Corporation and its consolidated subsidiaries ("Stryker," the "Company," "we," "us" or "our") on September 30, 2024 and the results of operations for the three and nine months 2024. 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 2023.
New Accounting Pronouncements Not Yet Adopted
In December 2023 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-09 (Topic 740): Income Taxes: Improvements to Income Tax Disclosureswhich expands the existing rules on income tax disclosures. This update requires entities to disclose specific categories in the tax rate reconciliation, provide additional information for reconciling items that meet a quantitative threshold and disclose additional information about income taxes paid on an annual basis. The new disclosure requirements are effective for fiscal years beginning after December 15, 2024 and we will adopt this ASU in 2025.
In November 2023 the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosureswhich expands disclosure requirements to require entities to disclose significant segment expenses that are regularly provided to or easily computed from information regularly provided to the chief operating decision maker. This update also requires all annual disclosures currently required by Topic 280 to be disclosed in interim periods. The new disclosure requirements are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We will adopt this ASU in the fourth quarter 2024.
We evaluate all ASUs issued by the FASB for consideration of their applicability. ASUs not included in our disclosures were assessed and determined to be either not applicable or are not expected to have a material impact on our Consolidated Financial Statements.
NOTE 2 - REVENUE RECOGNITION
Our policies for recognizing sales have not changed from those described in our Annual Report on Form 10-K for 2023.
We disaggregate our net sales by business and geographic location for each of our segments as we believe it best depicts how the nature, amount, timing and certainty of our net sales and cash flows are affected by economic factors.
Beginning in the first quarter 2024, a product line previously included in Instruments has been reclassified to Endoscopy to align with a change in our internal reporting structure. We have reflected this change in all historical periods presented.
Net Sales by Business
Three Months Nine Months
2024 2023 2024 2023
MedSurg and Neurotechnology:
Instruments $ 679 $ 620 $ 2,044 $ 1,808
Endoscopy 837 746 2,383 2,166
Medical 938 798 2,710 2,417
Neurovascular 329 311 966 906
Neuro Cranial 441 384 1,237 1,112
$ 3,224 $ 2,859 $ 9,340 $ 8,409
Orthopaedics and Spine:
Knees $ 570 $ 515 $ 1,760 $ 1,643
Hips 420 362 1,241 1,130
Trauma and Extremities 849 752 2,511 2,287
Spine 304 291 911 871
Other 127 130 396 343
$ 2,270 $ 2,050 $ 6,819 $ 6,274
Total $ 5,494 $ 4,909 $ 16,159 $ 14,683
Net Sales by Geography
Three Months 2024 Three Months 2023
United States International United States International
MedSurg and Neurotechnology:
Instruments $ 544 $ 135 $ 495 $ 125
Endoscopy 689 148 618 128
Medical 783 155 660 138
Neurovascular 121 208 120 191
Neuro Cranial 366 75 315 69
$ 2,503 $ 721 $ 2,208 $ 651
Orthopaedics and Spine:
Knees $ 417 $ 153 $ 385 $ 130
Hips 256 164 231 131
Trauma and Extremities 621 228 550 202
Spine 225 79 217 74
Other 87 40 87 43
$ 1,606 $ 664 $ 1,470 $ 580
Total $ 4,109 $ 1,385 $ 3,678 $ 1,231
Net Sales by Geography
Nine Months 2024 Nine Months 2023
United States International United States International
MedSurg and Neurotechnology:
Instruments $ 1,640 $ 404 $ 1,440 $ 368
Endoscopy 1,948 435 1,767 399
Medical 2,261 449 1,954 463
Neurovascular 369 597 361 545
Neuro Cranial 1,014 223 910 202
$ 7,232 $ 2,108 $ 6,432 $ 1,977
Orthopaedics and Spine:
Knees $ 1,279 $ 481 $ 1,207 $ 436
Hips 768 473 716 414
Trauma and Extremities 1,842 669 1,663 624
Spine 675 236 650 221
Other 274 122 233 110
$ 4,838 $ 1,981 $ 4,469 $ 1,805
Total $ 12,070 $ 4,089 $ 10,901 $ 3,782
We sell certain customer lease agreements and the related leased assets to third-party financial institutions to accelerate our cash collection cycle. The lease receivables are sold without recourse and are derecognized from our Consolidated Balance Sheets at the time of sale. Under the terms of our arrangements,
Dollar amounts are in millions except per share amounts or as otherwise specified.
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STRYKER CORPORATION
2024 Third Quarter Form 10-Q
we collect lease payments on behalf of the financial institutions but maintain no other form of continuing involvement. Sales of these lease agreements are classified as operating activities in our Consolidated Statements of Cash Flows. Fees earned for our servicing activities are immaterial. Revenue related to customer lease agreements sold under these arrangements represented less than 3% of our total revenue for the three and nine months 2024 and 2023.
Contract Assets and Liabilities
On September 30, 2024 and December 31, 2023 contract assets recorded in our Consolidated Balance Sheets were not significant.
Our contract liabilities arise as a result of consideration received from customers at inception of contracts for certain businesses or where the timing of billing for services precedes satisfaction of our performance obligations. This occurs primarily when payment is received upfront for certain multi-period extended service contracts. Our contract liabilities of $1,008 and $860 on September 30, 2024 and December 31, 2023 are classified within accrued expenses and other liabilities and other noncurrent liabilities within our Consolidated Balance Sheets based on the timing of when we expect to complete our performance obligations.
Changes in contract liabilities during the nine months 2024 were as follows:
September 30
2024
Beginning contract liabilities $ 860
Revenue recognized from beginning of year contract liabilities (382)
Net advance consideration received during the period 530
Ending contract liabilities $ 1,008
NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (AOCI)
Three Months 2024 Marketable Securities Pension Plans Hedges Financial Statement Translation Total
Beginning $ - $ (27) $ 38 $ (366) $ (355)
OCI - (1) (28) (221) (250)
Income taxes - (1) 7 66 72
Reclassifications to:
Cost of sales - - (8) - (8)
Other (income) expense, net - - - (8) (8)
Income taxes - - 2 2 4
Net OCI $ - $ (2) $ (27) $ (161) $ (190)
Ending $ - $ (29) $ 11 $ (527) $ (545)
Three Months 2023 Marketable Securities Pension Plans Hedges Financial Statement Translation Total
Beginning $ (1) $ 28 $ 54 $ (411) $ (330)
OCI 1 (1) 11 133 144
Income taxes - 1 (2) (47) (48)
Reclassifications to:
Cost of sales - - (7) - (7)
Other (income) expense, net (1) (1) (2) (8) (12)
Income taxes - - 2 2 4
Net OCI $ - $ (1) $ 2 $ 80 $ 81
Ending $ (1) $ 27 $ 56 $ (331) $ (249)
Nine Months 2024 Marketable Securities Pension Plans Hedges Financial Statement Translation Total
Beginning $ - $ (28) $ 39 $ (427) $ (416)
OCI - (1) (4) (91) (96)
Income taxes - - - 9 9
Reclassifications to:
Cost of sales - - (28) - (28)
Other (income) expense, net - - (3) (24) (27)
Income taxes - - 7 6 13
Net OCI $ - $ (1) $ (28) $ (100) $ (129)
Ending $ - $ (29) $ 11 $ (527) $ (545)
Nine Months 2023 Marketable Securities Pension Plans Hedges Financial Statement Translation Total
Beginning $ (1) $ 31 $ 52 $ (303) $ (221)
OCI - 2 38 10 50
Income taxes - (4) (8) (19) (31)
Reclassifications to:
Cost of sales - - (29) - (29)
Other (income) expense, net - (3) (4) (25) (32)
Income taxes - 1 7 6 14
Net OCI $ - $ (4) $ 4 $ (28) $ (28)
Ending $ (1) $ 27 $ 56 $ (331) $ (249)
NOTE 4 - DERIVATIVE INSTRUMENTS
We use operational and economic hedges, foreign currency exchange forward contracts, net investment hedges (both derivative and non-derivative financial instruments) and interest rate derivative instruments to manage the impact of currency exchange and interest rate fluctuations on earnings, cash flow and equity. We do not enter into derivative instruments for speculative purposes. We are exposed to potential credit loss in the event of nonperformance by counterparties on our outstanding derivative instruments but do not anticipate nonperformance by any of our counterparties. Should a counterparty default, our maximum loss exposure is the asset balance of the instrument. We have not changed our hedging strategies, accounting practices or objectives from those disclosed in our Annual Report on Form 10-K for 2023.
Foreign Currency Hedges
September 2024 Cash Flow Net Investment Non-Designated Total
Gross notional amount $ 1,730 $ 2,516 $ 5,649 $ 9,895
Maximum term in years 10.0
Fair value:
Other current assets $ 14 $ - $ 10 $ 24
Other noncurrent assets 1 - - 1
Other current liabilities (28) - (82) (110)
Other noncurrent liabilities (3) (78) - (81)
Total fair value $ (16) $ (78) $ (72) $ (166)
December 2023 Cash Flow Net Investment Non-Designated Total
Gross notional amount $ 1,650 $ 1,662 $ 4,315 $ 7,627
Maximum term in years 2.9
Fair value:
Other current assets $ 24 $ 74 $ 16 $ 114
Other noncurrent assets 2 - - 2
Other current liabilities (16) - (36) (52)
Other noncurrent liabilities (2) (43) - (45)
Total fair value $ 8 $ 31 $ (20) $ 19
Dollar amounts are in millions except per share amounts or as otherwise specified.
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STRYKER CORPORATION
2024 Third Quarter Form 10-Q
We had €2.3 billion and €1.5 billion at September 30, 2024 and December 31, 2023 in certain forward currency contracts designated as net investment hedges, for which the maximum term is 10 years, 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 €5.0 billion and €4.9 billion at September 30, 2024 and December 31, 2023 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.
In the nine months 2024 we settled certain foreign currency forward contracts designated as net investment hedges resulting in cash proceeds of $99. The amounts in AOCI related to settled net investment hedges will remain in AOCI until the hedged investment is either sold or substantially liquidated.
The total after-tax gain (loss) recognized in OCI related to designated net investment hedges was ($67) in the nine months 2024.
Currency Exchange Rate Gains (Losses) Recognized in Net Earnings
Three Months Nine Months
Derivative Instrument Recognized in: 2024 2023 2024 2023
Cash Flow Cost of sales $ 8 $ 7 $ 28 $ 29
Net Investment Other income (expense), net 8 8 24 25
Non-Designated Other income (expense), net 20 4 33 13
Total $ 36 $ 19 $ 85 $ 67
Pretax gains (losses) on derivatives designated as cash flow hedges of ($4) and net investment hedges of $40 recorded in AOCI are expected to be reclassified to cost of sales and other income (expense), net in earnings within 12 months of September 30, 2024. 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 (losses) of $4 recorded in AOCI related to 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 September 30, 2024. The cash flow effect of interest rate hedges is recorded in cash flow from operations.
NOTE 5 - FAIR VALUE MEASUREMENTS
Our policies for managing risk related to foreign currency, interest rates, credit and markets and our process for determining fair value have not changed from those described in our Annual Report on Form 10-K for 2023.
In the nine months 2024 we recorded $204 of contingent consideration related to various acquisitions described in Note 7.
In 2023 we recorded $192 of contingent consideration related to the acquisition of Cerus Endovascular Limited (Cerus) described in Note 7.
There were no significant transfers into or out of any level of the fair value hierarchy in 2024.
Assets Measured at Fair Value
September 30 December 31
2024 2023
Cash and cash equivalents $ 3,850 $ 2,971
Short-term investments 750 -
Trading marketable securities 255 209
Level 1 - Assets $ 4,855 $ 3,180
Available-for-sale marketable securities:
Corporate and asset-backed debt securities $ 50 $ 43
United States agency debt securities 1 4
United States treasury debt securities 28 31
Certificates of deposit 5 4
Total available-for-sale marketable securities $ 84 $ 82
Foreign currency exchange forward contracts 25 116
Level 2 - Assets $ 109 $ 198
Total assets measured at fair value $ 4,964 $ 3,378
Liabilities Measured at Fair Value
September 30 December 31
2024 2023
Deferred compensation arrangements $ 255 $ 209
Level 1 - Liabilities $ 255 $ 209
Foreign currency exchange forward contracts $ 191 $ 97
Level 2 - Liabilities $ 191 $ 97
Contingent consideration:
Beginning $ 289 $ 121
Additions 204 192
Change in estimate and foreign exchange (11) (2)
Settlements (53) (22)
Ending $ 429 $ 289
Level 3 - Liabilities $ 429 $ 289
Total liabilities measured at fair value $ 875 $ 595
Fair Value of Available for Sale Securities by Maturity
September 30 December 31
2024 2023
Due in one year or less $ 41 $ 46
Due after one year through three years $ 43 $ 36
On September 30, 2024 and December 31, 2023 the aggregate difference between the cost and fair value of available-for-sale marketable securities was nominal. Interest income on cash and cash equivalents, short-term investments and marketable securities income was $30 and $15 in the three months and $92 and $40 in the nine months 2024 and 2023, 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
Dollar amounts are in millions except per share amounts or as otherwise specified.
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STRYKER CORPORATION
2024 Third Quarter Form 10-Q
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.
We are currently investigating whether certain business activities in certain foreign countries violated provisions of the Foreign Corrupt Practices Act (FCPA) and have engaged outside counsel to conduct these investigations. We have been contacted by the United States Securities and Exchange Commission, United States Department of Justice and certain other regulatory authorities and are cooperating with these agencies. At this time we are unable to predict the outcome of the investigations or the potential impact, if any, on our financial statements.
We have conducted voluntary recalls of certain products, including our Rejuvenate and ABG II Modular-Neck hip stems and certain lot-specific sizes and offsets of LFIT Anatomic CoCr V40 Femoral Heads. Additionally, we are responsible for certain product liability claims, primarily related to certain hip products sold by Wright Medical Group N.V. (Wright) prior to its 2014 divestiture of the OrthoRecon business.
We have incurred, and expect to incur in the future, costs associated with the defense and settlement of claims and lawsuits. Based on the information that has been received related to the matters discussed above, our accrual for these matters was $185 at September 30, 2024, representing our best estimate 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
September 30 December 31
2024 2023
Right-of-use assets $ 516 $ 494
Lease liabilities, current $ 149 $ 143
Lease liabilities, non-current $ 374 $ 356
Other information:
Weighted-average remaining lease term (years) 5.1 5.5
Weighted-average discount rate 3.88 % 3.87 %
Three Months Nine Months
2024 2023 2024 2023
Operating lease cost $ 47 $ 48 $ 144 $ 127
NOTE 7 - ACQUISITIONS
We acquire stock in companies and various assets that continue to support our capital deployment and product development strategies. In the nine months 2024 and 2023 cash paid for acquisitions, net of cash acquired was $1,598 and $390.
In the nine months 2024 we completed various acquisitions for total consideration that includes $1,598 in upfront payments, net of cash acquired, and $395 contingent upon the achievement of certain commercial or clinical milestones. The combined acquisition-date fair values of the contingent milestone payments totaled $204. Goodwill of $615 and $528 was recorded within our Orthopaedics and Spine and our MedSurg and Neurotechnology segments respectively. The acquired companies expand the product portfolios of our Instruments, Endoscopy, Medical and Neuro Cranial businesses within MedSurg and Neurotechnology and our Trauma and Extremities, Joint Replacement and Spine businesses within Orthopaedics and Spine. The purchase price allocation for our acquisitions are based on preliminary valuations, primarily related to developed technology and customer relationships. Goodwill attributable to the acquisitions reflects the strategic benefits of expanding our market presence, diversifying our product portfolio and advancing innovations. This goodwill is not deductible for tax purposes.
In May 2023 we acquired Cerus for net cash consideration of $289 and up to $225 in future milestone payments that had a fair value of $192 at the acquisition date. Cerus designs, develops and manufactures neurovascular products used for the treatment of hemorrhagic stroke. Cerus is part of our Neurovascular business within MedSurg and Neurotechnology. Goodwill attributable to the acquisition is not deductible for tax purposes.
The purchase price allocations for the acquisitions completed in the nine months 2024 and Cerus are:
Purchase Price Allocation of Acquired Net Assets
2024 2023
Total Cerus
Tangible assets acquired:
Accounts receivable $ 36 $ 1
Inventory 104 2
Deferred income tax assets 31 4
Other assets 27 1
Debt (31) -
Deferred income tax liabilities (200) (60)
Other liabilities (94) (22)
Intangible assets:
Developed technology 576 240
Customer relationships 202 -
Patents 6 -
Trademarks 2 -
Goodwill 1,143 315
Purchase price, net of cash acquired of $53 and $7
$ 1,802 $ 481
Weighted average amortization period at acquisition (years):
Developed technologies 12 13
Customer relationships 14 -
Patents 12 -
Trademarks 5 -
The purchase price allocation for Cerus was finalized in the second quarter 2024 with no material adjustments.
Consolidated Estimated Amortization Expense
Remainder of 2024 2025 2026 2027 2028
$ 169 $ 648 $ 592 $ 570 $ 520
Dollar amounts are in millions except per share amounts or as otherwise specified.
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STRYKER CORPORATION
2024 Third Quarter Form 10-Q
NOTE 8 - DEBT AND CREDIT FACILITIES
We have lines of credit issued by various financial institutions that are available to fund our day-to-day operating needs. Certain of our credit facilities require us to comply with financial and other covenants. We were in compliance with all covenants on September 30, 2024.
On September 30, 2024 there were no borrowings outstanding under our revolving credit facility or our commercial paper program which allows for maturities up to 397 days from the date of issuance. The maximum amount of our commercial paper that can be outstanding at any time is $2,250.
In May 2024 we repaid the outstanding $600 principal amount of the 3.375% senior unsecured notes due May 15, 2024. In September 2024 we issued $750 of 4.250% senior unsecured notes due September 11, 2029, €800 of 3.375% senior unsecured notes due September 11, 2032, $750 of 4.625% senior unsecured notes due September 11, 2034 and €600 of 3.625% senior unsecured notes due September 11, 2036.
Summary of Total Debt September 30 December 31
2024 2023
Rate Due
Senior unsecured notes:
3.375% May 15, 2024 $ - $ 600
Floating November 16, 2024 559 554
0.250% December 3, 2024 951 940
1.150% June 15, 2025 649 648
3.375% November 1, 2025 749 749
3.500% March 15, 2026 997 997
2.125% November 30, 2027 837 828
3.650% March 7, 2028 598 598
4.850% December 8, 2028 596 596
3.375% December 11, 2028 668 661
0.750% March 1, 2029 892 883
4.250% September 11, 2029 743 -
1.950% June 15, 2030 991 991
2.625% November 30, 2030 721 713
1.000% December 3, 2031 832 823
3.375% September 11, 2032 887 -
4.625% September 11, 2034 740 -
3.625% September 11, 2036 660 -
4.100% April 1, 2043 393 393
4.375% May 15, 2044 396 396
4.625% March 15, 2046 983 983
2.900% June 15, 2050 642 642
Total debt $ 15,484 $ 12,995
Less current maturities 2,159 2,094
Total long-term debt $ 13,325 $ 10,901
September 30 December 31
2024 2023
Unamortized debt issuance costs $ 66 $ 50
Borrowing capacity on existing facilities $ 2,159 $ 2,160
Fair value of senior unsecured notes $ 14,950 $ 12,252
The fair value of the senior unsecured notes was estimated using quoted interest rates, maturities and amounts of borrowings based on quoted active market prices and yields that took into account the underlying terms of the debt instruments. Substantially all of our debt is classified within Level 2 of the fair value hierarchy.
NOTE 9 - INCOME TAXES
Our effective tax rates were 20.0% and 17.4% in the three and nine months 2024 and 20.4% and 17.4% in the three and nine months 2023. The effective tax rates for the three and nine months 2024 and 2023 reflect the continued lower effective income tax rates as a result of our European operations and certain discrete tax items.
NOTE 10 - SEGMENT INFORMATION
Three Months Nine Months
2024 2023 2024 2023
MedSurg and Neurotechnology $ 3,224 $ 2,859 $ 9,340 $ 8,409
Orthopaedics and Spine 2,270 2,050 6,819 6,274
Net sales $ 5,494 $ 4,909 $ 16,159 $ 14,683
MedSurg and Neurotechnology $ 924 $ 859 $ 2,589 $ 2,266
Orthopaedics and Spine 643 499 1,924 1,701
Segment operating income $ 1,567 $ 1,358 $ 4,513 $ 3,967
Items not allocated to segments:
Corporate and other
$ (210) $ (209) $ (676) $ (596)
Acquisition and integration-related costs (77) 1 (87) (7)
Amortization of intangible assets
(159) (164) (467) (486)
Structural optimization and other special charges (24) (28) (113) (142)
Medical device regulations
(13) (19) (41) (74)
Recall-related matters
- (9) (22) (12)
Regulatory and legal matters
1 1 1 (19)
Consolidated operating income $ 1,085 $ 931 $ 3,108 $ 2,631
There were no significant changes to total assets by segment from the information provided in our Annual Report on Form 10-K for 2023.
Dollar amounts are in millions except per share amounts or as otherwise specified.
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STRYKER CORPORATION
2024 Third Quarter Form 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ABOUT STRYKER
Stryker is a global leader in medical technologies and, together with our customers, we are driven to make healthcare better. We offer innovative products and services in MedSurg, Neurotechnology, Orthopaedics and Spine that help improve patient and healthcare outcomes. Alongside our customers around the world, we impact more than 150 million patients annually.
We segregate our operations into two reportable business segments: (i) MedSurg and Neurotechnology and (ii) Orthopaedics and Spine. MedSurg and Neurotechnology products include surgical equipment and navigation systems (Instruments), endoscopic and communications systems (Endoscopy), patient handling, emergency medical equipment and intensive care disposable products (Medical), minimally invasive products for the treatment of acute ischemic and hemorrhagic stroke (Neurovascular), a comprehensive line of products for traditional brain and open skull based surgical procedures; orthobiologic and biosurgery products, including synthetic bone grafts and vertebral augmentation products (Neuro Cranial). Orthopaedics and Spine products consist primarily of implants used in hip and knee joint replacements and trauma and extremity surgeries, and cervical, thoracolumbar and interbody systems used in spinal injury, deformity and degenerative therapies.
Overview of the Three and Nine Months
In the three months 2024 we achieved sales growth of 11.9% from 2023. Excluding the impact of acquisitions and divestitures, sales grew 11.5% in constant currency. We reported operating income margin of 19.7%, net earnings of $834 and net earnings per diluted share of $2.16. Excluding the impact of certain items,
adjusted operating income margin(1)increased by 130 basis points to 24.7%, with adjusted net earnings(1)of $1,107 and adjusted net earnings per diluted share(1) of $2.87, an increase of 16.7% from 2023.
In the nine months 2024 we achieved sales growth of 10.1% from 2023. Excluding the impact of acquisitions and divestitures, sales grew 10.2% in constant currency. We reported operating income margin of 19.2%, net earnings of $2,447 and net earnings per diluted share of $6.35. Excluding the impact of certain items, adjusted operating income margin(1)increased by 70 basis points to 23.7%, with adjusted net earnings(1)of $3,154 and adjusted net earnings per diluted share(1) of $8.18, an increase of 14.6% from 2023.
Recent Developments
In the nine months 2024 we completed various acquisitions for total consideration of $1,598 in upfront payments, net of cash acquired, as well as $395 of contingent consideration if certain commercial or clinical milestones are achieved. Refer to Note 7 to our Consolidated Financial Statements for further information.
In September 2024 we issued $750 of 4.250% senior unsecured notes due September 11, 2029, €800 of 3.375% senior unsecured notes due September 11, 2032, $750 of 4.625% senior unsecured notes due September 11, 2034 and €600 of 3.625% senior unsecured notes due September 11, 2036. Refer to Note 8 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.
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Nine Months
Percent Net Sales Percentage Percent Net Sales Percentage
2024 2023 2024 2023 Change 2024 2023 2024 2023 Change
Net sales $ 5,494 $ 4,909 100.0 % 100.0 % 11.9 % $ 16,159 $ 14,683 100.0 % 100.0 % 10.1 %
Gross profit 3,517 3,158 64.0 64.3 11.4 10,266 9,355 63.5 63.7 9.7
Research, development and engineering expenses 377 353 6.9 7.2 6.8 1,108 1,038 6.9 7.1 6.7
Selling, general and administrative expenses 1,896 1,710 34.5 34.8 10.9 5,583 5,200 34.6 35.4 7.4
Amortization of intangible assets 159 164 2.9 3.3 (3.0) 467 486 2.9 3.3 (3.9)
Other income (expense), net (42) (62) (0.8) (1.3) (32.3) (144) (184) (0.9) (1.3) (21.7)
Income taxes 209 177 nm nm 18.1 517 425 nm nm 21.6
Net earnings $ 834 $ 692 15.2 % 14.1 % 20.5 % $ 2,447 $ 2,022 15.1 % 13.8 % 21.0 %
Net earnings per diluted share $ 2.16 $ 1.80 20.0 % $ 6.35 $ 5.27 20.5 %
Adjusted net earnings per diluted share(1)
$ 2.87 $ 2.46 16.7 % $ 8.18 $ 7.14 14.6 %
nm - not meaningful
Geographic and Segment Net Sales Three Months Nine Months
Percentage Change Percentage Change
2024 2023 As Reported Constant
Currency
2024 2023 As Reported Constant
Currency
Geographic:
United States $ 4,109 $ 3,678 11.7 % 11.7 % $ 12,070 $ 10,901 10.7 % 10.7 %
International 1,385 1,231 12.5 13.0 4,089 3,782 8.1 10.1
Total $ 5,494 $ 4,909 11.9 % 12.0 % $ 16,159 $ 14,683 10.1 % 10.6 %
Segment:
MedSurg and Neurotechnology $ 3,224 $ 2,859 12.8 % 12.9 % $ 9,340 $ 8,409 11.1 % 11.5 %
Orthopaedics and Spine 2,270 2,050 10.7 10.8 6,819 6,274 8.7 9.2
Total $ 5,494 $ 4,909 11.9 % 12.0 % $ 16,159 $ 14,683 10.1 % 10.6 %
Dollar amounts are in millions except per share amounts or as otherwise specified.
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STRYKER CORPORATION
2024 Third Quarter Form 10-Q
Supplemental Net Sales Growth Information
Three Months Nine Months
Percentage Change Percentage Change
United States International United States International
2024 2023 As Reported Constant Currency As Reported As Reported Constant Currency 2024 2023 As Reported Constant Currency As Reported As Reported Constant Currency
MedSurg and Neurotechnology:
Instruments $ 679 $ 620 9.6 % 9.5 % 9.9 % 8.3 % 7.8 % $ 2,044 $ 1,808 13.1 % 13.3 % 13.9 % 9.7 % 10.9 %
Endoscopy 837 746 12.2 12.5 11.3 16.6 18.1 2,383 2,166 10.0 10.5 10.2 9.1 11.6
Medical 938 798 17.6 17.7 18.6 12.7 13.2 2,710 2,417 12.1 12.3 15.7 (2.9) (1.8)
Neurovascular 329 311 5.5 5.9 1.5 8.1 8.6 966 906 6.6 8.3 2.2 9.4 12.4
Neuro Cranial 441 384 15.0 15.0 16.2 9.4 9.6 1,237 1,112 11.3 11.7 11.4 10.7 12.9
$ 3,224 $ 2,859 12.8 % 12.9 % 13.3 % 10.9 % 11.4 % $ 9,340 $ 8,409 11.1 % 11.5 % 12.4 % 6.7 % 8.7 %
Orthopaedics and Spine:
Knees $ 570 $ 515 10.6 % 10.7 % 8.4 % 17.1 % 17.4 % $ 1,760 $ 1,643 7.1 % 7.7 % 6.0 % 10.2 % 12.2 %
Hips 420 362 15.9 16.2 10.9 24.8 25.3 1,241 1,130 9.9 10.9 7.3 14.4 17.3
Trauma and Extremities 849 752 12.8 12.6 12.9 12.6 12.0 2,511 2,287 9.8 10.0 10.8 7.1 7.8
Spine 304 291 4.6 4.4 3.5 7.5 6.8 911 871 4.6 4.8 3.9 6.5 7.3
Other 127 130 (2.4) 0.1 (0.6) (6.1) 1.3 396 343 15.4 17.8 17.4 11.2 18.6
$ 2,270 $ 2,050 10.7 % 10.8 % 9.2 % 14.4 % 14.8 % $ 6,819 $ 6,274 8.7 % 9.2 % 8.3 % 9.7 % 11.6 %
Total $ 5,494 $ 4,909 11.9 % 12.0 % 11.7 % 12.5 % 13.0 % $ 16,159 $ 14,683 10.1 % 10.6 % 10.7 % 8.1 % 10.1 %
Note: Beginning in the first quarter 2024, a product line previously included in Instruments has been reclassified to Endoscopy to align with a change in our internal reporting structure. We have reflected this change in all historical periods presented.
Consolidated Net Sales
Consolidated net sales increased 11.9% in the three months 2024 as reported and 12.0% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.1%. Excluding the 0.5% impact of acquisitions and divestitures, net sales in constant currency increased by 10.3% from increased unit volume and 1.2% due to higher prices. The unit volume increase was due to higher product shipments across all MedSurg and Neurotechnology businesses and most Orthopaedics and Spine businesses.
Consolidated net sales increased 10.1% in the nine months 2024 as reported and 10.6% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.5%. Excluding the 0.4% impact of acquisitions and divestitures, net sales in constant currency increased by 9.2% from increased unit volume and 1.0% due to higher prices. The unit volume increase was due to higher product shipments across all MedSurg and Neurotechnology and Orthopaedics and Spine businesses.
MedSurg and Neurotechnology Net Sales
MedSurg and Neurotechnology net sales increased 12.8% in the three months 2024 as reported and 12.9% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.1%. Excluding the 0.2% impact of acquisitions and divestitures, net sales in constant currency increased by 11.0% from increased unit volume and 1.7% from higher prices. The unit volume increase was due to higher shipments across all MedSurg and Neurotechnology businesses.
MedSurg and Neurotechnology net sales increased 11.1% in the nine months 2024 as reported and 11.5% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.4%. Excluding the 0.2% impact of acquisitions and divestitures, net sales in constant currency increased by 9.6% from increased unit volume and 1.7% from higher prices. The unit
volume increase was due to higher shipments across all MedSurg and Neurotechnology businesses.
Orthopaedics and Spine Net Sales
Orthopaedics and Spine net sales increased 10.7% in the three months 2024 as reported and 10.8% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.1%. Excluding the 1.1% impact of acquisitions and divestitures, net sales in constant currency increased 9.3% from increased unit volume and 0.4% from higher prices. The unit volume increase was due to higher shipments across most Orthopaedics and Spine businesses.
Orthopaedics and Spine net sales increased 8.7% in the nine months 2024 as reported and 9.2% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.5%. Excluding the 0.6% impact of acquisitions and divestitures, net sales in constant currency increased 8.6% from increased unit volume. The unit volume increase was due to higher shipments across all Orthopaedics and Spine businesses.
Gross Profit
Gross profit was $3,517 and $3,158 in the three months 2024 and 2023. The key components of the change were:
Gross Profit
Percent Net Sales
Three Months 2023 64.3 %
Sales pricing 40 bps
Volume and mix 60 bps
Manufacturing and supply chain costs (90) bps
Structural optimization and other special charges 20 bps
Inventory stepped up to fair value (60) bps
Three Months 2024 64.0 %
Gross profit as a percentage of net sales in the three months 2024 remained relatively flat with 2023.
Gross profit was $10,266 and $9,355 in the nine months 2024 and 2023. The key components of the change were:
Dollar amounts are in millions except per share amounts or as otherwise specified.
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STRYKER CORPORATION
2024 Third Quarter Form 10-Q
Gross Profit
Percent Net Sales
Nine Months 2023 63.7 %
Sales pricing 40 bps
Volume and mix 60 bps
Manufacturing and supply chain costs (70) bps
Structural optimization and other special charges (20) bps
Inventory stepped up to fair value (30) bps
Nine Months 2024 63.5 %
Gross profit as a percentage of net sales in the nine months 2024 remained relatively flat with 2023.
While segment mix was not a significant driver of the change in gross profit as a percent of net sales between the three and nine months 2024 and 2023, we generally expect segment mix to have an unfavorable impact for the foreseeable future as we anticipate more rapid sales growth in our lower gross margin MedSurg and Neurotechnology segment than our Orthopaedics and Spine segment.
Research, Development and Engineering Expenses
Research, development and engineering expenses increased $24 or 6.8% in the three months 2024 and decreased as a percentage of net sales to 6.9% from 7.2% in 2023, primarily due to lower product launch costs.
Research, development and engineering expenses increased $70 or 6.7% in the nine months 2024 and decreased as a percentage of net sales to 6.9% from 7.1% in 2023, primarily due to lower spend on medical device regulations in the European Union.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $186 or 10.9% in the three months 2024. As a percentage of net sales, expenses decreased to 34.5% from 34.8% in 2023, primarily due to continued spend discipline that was partially offset by higher acquisition-related costs.
Selling, general and administrative expenses increased $383 or 7.4% in the nine months 2024 and decreased as a percentage of net sales to 34.6% from 35.4% in 2023, primarily due to continued spend discipline and lower charges for structural optimization and certain legal matters, offset by higher acquisition-related costs.
Amortization of Intangible Assets
Amortization of intangible assets was $159 and $164 in the three months and $467 and $486 in the nine months 2024 and 2023. Refer to Note 7 to our Consolidated Financial Statements for further information.
Operating Income
Operating income was $1,085 and $931 in the three months 2024 and 2023. Operating income as a percentage of net sales in the three months 2024 increased to 19.7% from 19.0% in 2023. Refer to the discussion above for the primary drivers of the change.
Operating income was $3,108 and $2,631 in the nine months 2024 and 2023. Operating income as a percentage of net sales in the nine months 2024 increased to 19.2% from 17.9% in 2023. Refer to the discussion above for the primary drivers of the change.
MedSurg and Neurotechnology operating income as a percentage of net sales decreased to 28.7% in the three months 2024 from 30.0% in 2023. Orthopaedics and Spine operating income as a percentage of net sales increased to 28.3% in the three months 2024 from 24.3% in 2023. The key components of
the change were:
Operating Income
Percent Net Sales
MedSurg and Neurotechnology Orthopaedics and Spine
Three Months 2023 30.0 % 24.3 %
Sales pricing 120 bps 30 bps
Volume 340 bps 530 bps
Manufacturing and supply chain costs (310) bps 180 bps
Research, development and engineering expenses (80) bps (30) bps
Selling, general and administrative expenses (200) bps (310) bps
Three Months 2024 28.7 % 28.3 %
The decrease in MedSurg and Neurotechnology operating income as a percentage of net sales for the three months was primarily driven by higher manufacturing and supply chain costs and higher selling, general and administrative expenses partially offset by higher unit volumes and higher prices.
The increase in Orthopaedics and Spine operating income as a percentage of net sales for the three months was primarily driven by higher unit volumes and lower manufacturing and supply chain costs partially offset by higher selling, general and administrative expenses.
MedSurg and Neurotechnology operating income as a percentage of net sales increased to 27.7% in the nine months 2024 from 26.9% in 2023. Orthopaedics and Spine operating income as a percentage of net sales increased to 28.2% in the nine months 2024 from 27.1% in 2023. The key components of the change were:
Operating Income
Percent Net Sales
MedSurg and Neurotechnology Orthopaedics and Spine
Nine Months 2023 26.9 % 27.1 %
Sales pricing 130 bps 0 bps
Volume 320 bps 450 bps
Manufacturing and supply chain costs (80) bps (40) bps
Research, development and engineering expenses (90) bps (60) bps
Selling, general and administrative expenses (200) bps (240) bps
Nine Months 2024 27.7 % 28.2 %
The increase in MedSurg and Neurotechnology operating income as a percentage of net sales for the nine months was primarily driven by higher unit volumes and higher prices partially offset by higher selling, general and administrative expenses.
The increase in Orthopaedics and Spine operating income as a percentage of net sales for the nine months was primarily driven by higher sales volume partially offset by higher selling, general and administrative expenses.
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2024 Third Quarter Form 10-Q
Other Income (Expense), Net
Other income (expense), net was ($42) and ($62) in the three months and ($144) and ($184) in the nine months 2024 and 2023. The decrease in net expense in the three and nine months 2024 compared to 2023 was primarily due to higher interest income in 2024.
Income Taxes
Our effective tax rates were 20.0% and 17.4% in the three and nine months 2024 and 20.4% and 17.4% in the three and nine months 2023. The effective tax rates for the three and nine months 2024 and 2023 reflect the continued lower effective income tax rates as a result of our European operations and certain discrete tax items. The Organisation for Economic Cooperation and Development (OECD), which represents a coalition of member countries, has put forth two proposed base erosion and profit shifting frameworks that revise the existing profit allocation and nexus rules (Pillar One) and ensure a minimal level of taxation (Pillar Two). On December 12, 2022 the European Union member states agreed to implement the Inclusive Framework's global corporate minimum tax rate of 15%, and various countries within and outside the European Union have either enacted or proposed new tax laws implementing Pillar Two in 2024. The OECD continues to release additional guidance and we anticipate more countries will enact similar tax laws. Some of the new tax laws are effective in 2024 while others will be effective in future years. These tax law changes and any additional contemplated tax law changes could increase tax expense in future periods.
Net Earnings
Net earnings increased to $834 or $2.16 per diluted share in the three months 2024 from $692 or $1.80 per diluted share in 2023. Net earnings increased to $2,447 or $6.35 per diluted share in the nine months 2024 from $2,022 or $5.27 per diluted share in 2023. Refer to the discussion above for the primary drivers of the change.
Non-GAAP Financial Measures
We supplement the reporting of our financial information determined under accounting principles generally accepted in the United States (GAAP) with certain non-GAAP financial measures, including percentage sales growth in constant currency; percentage organic sales growth; adjusted gross profit; adjusted selling, general and administrative expenses; adjusted research, development and engineering expenses; adjusted operating income; adjusted other income (expense), net; adjusted income taxes; adjusted effective income tax rate; adjusted net earnings; and adjusted net earnings per diluted share (Diluted EPS). We believe these non-GAAP financial measures provide meaningful information to assist investors and shareholders in understanding our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures for reviewing the operating results of reportable business segments and analyzing potential future business trends in connection with our budget process and bases certain management incentive compensation on these non-GAAP financial measures. To measure percentage sales growth in constant currency, we remove the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Percentage sales growth in constant currency is calculated by translating current and prior year results at the same foreign currency exchange rate. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates, acquisitions and divestitures, which affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year and prior year results at the same foreign currency exchange rates excluding the impact of acquisitions and divestitures. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings. The income tax effect of each adjustment was determined based on the tax effect of the jurisdiction in which the related pre-tax adjustment was recorded. These adjustments are irregular in timing and may not be indicative of our past and future performance. The following are examples of the types of adjustments that may be included in a period:
1.Acquisition and integration-related costs. Costs related to integrating recently acquired businesses (e.g., costs associated with the termination of sales relationships, employee retention and workforce reductions, manufacturing integration costs and other integration-related activities), changes in the fair value of contingent consideration, amortization of inventory stepped-up to fair value, specific costs (e.g., deal costs and costs associated with legal entity rationalization) related to the consummation of the acquisition process and legal entity rationalization and acquisition-related tax items.
2.Amortization of purchased intangible assets. Periodic amortization expense related to purchased intangible assets.
3.Structural optimization and other special charges.Costs associated with employee retention and workforce reductions, the closure or transfer of manufacturing and other facilities (e.g., site closure costs, contract termination costs and redundant employee costs during the work transfers), product line exits (primarily inventory, long-lived
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2024 Third Quarter Form 10-Q
asset and specifically-identified intangible asset write-offs), certain long-lived and intangible asset write-offs and impairments and other charges.
4.Medical device regulations.Costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the new medical device reporting regulations and other requirements of the European Union.
5.Recall-related matters. Changes in our best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within a range is not known, to resolve the Rejuvenate, LFIT V40, Wright legacy hip products and other product recalls.
6.Regulatory and legal matters. Changes in our best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within a range is not known, to resolve certain regulatory or other legal matters and the amount of favorable awards from settlements.
7.Tax matters. Impact of accounting for certain significant and discrete tax items.
Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, gross profit, selling, general and administrative expenses, research, development and engineering expenses, operating income, other income (expense), net, income taxes, effective income tax rate, net earnings and net earnings per diluted share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of our operations when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures at the end of the discussion of Consolidated Results of
Operations below. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
The weighted-average diluted shares outstanding used in the calculation of adjusted net earnings per diluted share are the same as those used in the calculation of reported net earnings per diluted share for the respective period.
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Three Months 2024 Gross Profit Selling, General & Administrative Expenses Research, Development & Engineering Expenses Operating Income Other Income (Expense), Net Income Taxes Net Earnings Effective
Tax Rate
Diluted EPS
Reported $ 3,517 $ 1,896 $ 377 $ 1,085 $ (42) $ 209 $ 834 20.0 % $ 2.16
Reported percent net sales 64.0 % 34.5 % 6.9 % 19.7 % (0.8) % nm 15.2 %
Acquisition and integration-related costs:
Inventory stepped-up to fair value 29 - - 29 - 7 22 0.2 0.06
Other acquisition and integration-related (a) - (48) - 48 - 11 37 0.3 0.10
Amortization of purchased intangible assets - - - 159 - 32 127 0.7 0.32
Structural optimization and other special charges (b) (2) (26) - 24 - 4 20 - 0.05
Medical device regulations (c) - - (13) 13 - 2 11 0.1 0.03
Recall-related matters (d) - - - - - - - - -
Regulatory and legal matters (e) - 1 - (1) - - (1) - -
Tax matters (f) - - - - - (57) 57 (5.5) 0.15
Adjusted $ 3,544 $ 1,823 $ 364 $ 1,357 $ (42) $ 208 $ 1,107 15.8 % $ 2.87
Adjusted percent net sales 64.5 % 33.2 % 6.6 % 24.7 % (0.8) % nm 20.1 %
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2024 Third Quarter Form 10-Q
Three Months 2023 Gross Profit Selling, General & Administrative Expenses Research, Development & Engineering Expenses Operating Income Other Income (Expense), Net Income Taxes Net Earnings Effective
Tax Rate
Diluted EPS
Reported $ 3,158 $ 1,710 $ 353 $ 931 $ (62) $ 177 $ 692 20.4 % $ 1.80
Reported percent net sales 64.3 % 34.8 % 7.2 % 19.0 % (1.3) % nm 14.1 %
Acquisition and integration-related costs:
Inventory stepped-up to fair value - - - - - - - - -
Other acquisition and integration-related (a) - 1 - (1) - (28) 27 (3.1) 0.07
Amortization of purchased intangible assets - - - 164 - 36 128 1.6 0.34
Structural optimization and other special charges (b) 19 (9) - 28 - 7 21 0.3 0.06
Medical device regulations (c) 1 - (18) 19 - 4 15 0.2 0.04
Recall-related matters (d) - (9) - 9 - 2 7 0.1 0.01
Regulatory and legal matters (e) - 1 - (1) - 1 (2) 0.1 -
Tax matters (f) - - - - 1 (55) 56 (6.4) 0.14
Adjusted $ 3,178 $ 1,694 $ 335 $ 1,149 $ (61) $ 144 $ 944 13.2 % $ 2.46
Adjusted percent net sales 64.7 % 34.5 % 6.8 % 23.4 % (1.2) % nm 19.2 %
(a) Charges represent certain acquisition and integration-related costs associated with acquisitions, including:
Three Months
2024 2023
Termination of sales relationships $ - $ 2
Employee retention and workforce reductions 13 3
Changes in the fair value of contingent consideration 2 (4)
Manufacturing integration costs 1 -
Stock compensation payments upon a change in control 22 -
Other integration-related activities 10 (2)
Adjustments to Operating Income $ 48 $ (1)
Charges for acquisition-related tax provisions - (28)
Other income taxes related to acquisition and integration-related costs 11 -
Adjustments to Income Taxes $ 11 $ (28)
Adjustments to Net Earnings $ 37 $ 27
(b) Structural optimization and other special charges represent the costs associated with:
Three Months
2024 2023
Employee retention and workforce reductions $ 12 $ (5)
Closure/transfer of manufacturing and other facilities 2 12
Product line exits 4 7
Certain long-lived and intangible asset write-offs and impairments 12 9
Termination of sales relationships in certain countries 6 -
Other charges (12) 5
Adjustments to Operating Income $ 24 $ 28
Adjustments to Income Taxes $ 4 $ 7
Adjustments to Net Earnings $ 20 $ 21
(c) Charges represent the costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the medical device reporting regulations and other requirements of the new medical device regulations in the European Union.
(d) Charges represent changes in our best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within a range is not known, to resolve certain recall-related matters.
(e) Charges represent changes in our best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within a range is not known, to resolve certain regulatory or other legal matters and the amount of favorable awards from settlements.
(f) Benefits / (charges) represent the accounting impact of certain significant and discrete tax items, including:
Three Months
2024 2023
Adjustments related to the transfer of certain intellectual properties between tax jurisdictions $ (47) $ (44)
Other tax matters (10) (11)
Adjustments to Income Taxes $ (57) $ (55)
Charges / benefits for certain tax audit settlements - 1
Adjustments to Other Income (Expense), Net $ - $ 1
Adjustments to Net Earnings $ 57 $ 56
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2024 Third Quarter Form 10-Q
Nine Months 2024 Gross Profit Selling, General & Administrative Expenses Research, Development & Engineering Expenses Operating Income Other Income (Expense), Net Income Taxes Net Earnings Effective
Tax Rate
Diluted EPS
Reported $ 10,266 $ 5,583 $ 1,108 $ 3,108 $ (144) $ 517 $ 2,447 17.4 % $ 6.35
Reported percent net sales 63.5 % 34.6 % 6.9 % 19.2 % (0.9) % nm 15.1 %
Acquisition and integration-related costs:
Inventory stepped-up to fair value 38 - - 38 - 9 29 0.3 0.08
Other acquisition and integration-related (a) - (49) - 49 - 14 35 0.2 0.09
Amortization of purchased intangible assets - - - 467 - 96 371 1.0 0.96
Structural optimization and other special charges (b) 41 (72) - 113 - 24 89 0.2 0.23
Medical device regulations (c) 5 - (36) 41 - 9 32 0.1 0.08
Recall-related matters (d) 11 (11) - 22 - 5 17 0.1 0.04
Regulatory and legal matters (e) - 1 - (1) - - (1) - -
Tax matters (f) - - - - (1) (136) 135 (4.7) 0.35
Adjusted $ 10,361 $ 5,452 $ 1,072 $ 3,837 $ (145) $ 538 $ 3,154 14.6 % $ 8.18
Adjusted percent net sales 64.1 % 33.7 % 6.6 % 23.7 % (0.9) % nm 19.5 %
Nine Months 2023 Gross Profit Selling, General & Administrative Expenses Research, Development & Engineering Expenses Operating Income Other Income (Expense), Net Income Taxes Net Earnings Effective
Tax Rate
Diluted EPS
Reported $ 9,355 $ 5,200 $ 1,038 $ 2,631 $ (184) $ 425 $ 2,022 17.4 % $ 5.27
Reported percent net sales 63.7 % 35.4 % 7.1 % 17.9 % (1.3) % nm 13.8 %
Acquisition and integration-related costs:
Inventory stepped-up to fair value - - - - - - - - -
Other acquisition and integration-related (a) - (7) - 7 - (25) 32 (1.0) 0.08
Amortization of purchased intangible assets - - - 486 - 104 382 1.5 1.00
Structural optimization and other special charges (b) 30 (112) - 142 - 32 110 0.5 0.29
Medical device regulations (c) 1 - (73) 74 - 17 57 0.3 0.15
Recall-related matters (d) - (12) - 12 - 3 9 - 0.02
Regulatory and legal matters (e) - (19) - 19 - 4 15 - 0.04
Tax matters (f) - - - - (8) (121) 113 (4.9) 0.29
Adjusted $ 9,386 $ 5,050 $ 965 $ 3,371 $ (192) $ 439 $ 2,740 13.8 % $ 7.14
Adjusted percent net sales 63.9 % 34.4 % 6.6 % 23.0 % (1.3) % nm 18.7 %
(a) Charges represent certain acquisition and integration-related costs associated with acquisitions, including:
Nine Months
2024 2023
Termination of sales relationships $ 3 $ 2
Employee retention and workforce reductions 17 3
Changes in the fair value of contingent consideration (12) (7)
Manufacturing integration costs 2 2
Stock compensation payments upon a change in control 22 -
Other integration-related activities 17 7
Adjustments to Operating Income $ 49 $ 7
Charges for acquisition-related tax provisions - (28)
Other income taxes related to acquisition and integration-related costs 14 3
Adjustments to Income Taxes $ 14 $ (25)
Adjustments to Net Earnings $ 35 $ 32
(b) Structural optimization and other special charges represent the costs associated with:
Nine Months
2024 2023
Employee retention and workforce reductions $ 14 $ 63
Closure/transfer of manufacturing and other facilities 18 36
Product line exits 19 16
Certain long-lived and intangible asset write-offs and impairments 22 12
Termination of sales relationships in certain countries 7 -
Other charges 33 15
Adjustments to Operating Income $ 113 $ 142
Adjustments to Income Taxes $ 24 $ 32
Adjustments to Net Earnings $ 89 $ 110
(c) Charges represent the costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the medical device reporting regulations and other requirements of the new medical device regulations in the European Union.
(d) Charges represent changes in our best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within a range is not known, to resolve certain recall-related matters.
(e) Charges represent changes in our best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within a range is not known, to resolve certain regulatory or other legal matters and the amount of favorable awards from settlements.
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2024 Third Quarter Form 10-Q
(f) Benefits / (charges) represent the accounting impact of certain significant and discrete tax items, including:
Nine Months
2024 2023
Adjustments related to the transfer of certain intellectual properties between tax jurisdictions $ (141) $ (138)
Certain tax audit settlements (2) 24
Other tax matters 7 (7)
Adjustments to Income Taxes $ (136) $ (121)
Charges / benefits for certain tax audit settlements (1) (9)
Other tax related adjustments - 1
Adjustments to Other Income (Expense), Net $ (1) $ (8)
Adjustments to Net Earnings $ 135 $ 113
FINANCIAL CONDITION AND LIQUIDITY
Nine Months
Net cash provided by (used in): 2024 2023
Operating activities $ 2,311 $ 2,183
Investing activities (2,697) (810)
Financing activities 1,269 (1,308)
Effect of exchange rate changes (4) (49)
Change in cash and cash equivalents $ 879 $ 16
Operating Activities
Cash provided by operating activities was $2,311 and $2,183 in the nine months 2024 and 2023. The increase was primarily due to higher net earnings partially offset by the timing of payments and collections in working capital accounts.
Investing Activities
Cash used in investing activities was $2,697 and $810 in the nine months 2024 and 2023. The nine months 2024 included cash paid for various acquisitions and purchases of short-term investments partially offset by proceeds from the settlement of certain foreign currency forward contracts designated as net investment hedges. The nine months 2023 included cash paid for the Cerus acquisition. Refer to Notes 4 and 7 to our Consolidated Financial Statements for further information on derivative instruments and acquisitions.
Financing Activities
Cash provided by financing activities was $1,269 in the nine months 2024 and cash used in financing activities was $1,308 in the nine months 2023. In 2024, cash provided was primarily driven by proceeds from the issuance of various senior unsecured notes as described in Note 8 to our Consolidated Financial Statements. This was partially offset by the repayment of maturing senior unsecured notes, dividend payments and cash paid for taxes on withheld shares. Cash used in 2023 was primarily driven by dividend payments, repayment of theterm loan used to fund the acquisition of Vocera and cash paid for taxes on withheld shares, partially offset by proceeds from the issuance of €500 of floating rate senior notes.
We did not repurchase any shares in the nine months 2024 and 2023.
Liquidity
Cash, cash equivalents, short-term investments and marketable securities were $4,684 and $3,053 on September 30, 2024 and December 31, 2023. Current assets exceeded current liabilities by $7,004 and $4,597 on September 30, 2024 and December 31, 2023. We anticipate being able to support our short-term liquidity and operating needs from a variety of sources including cash from operations, commercial paper and existing credit lines.
We have raised funds in the capital markets and have accessed the credit markets in the past and may continue to do so from time-to-time. We continue to have strong investment-grade short-term and long-term debt ratings that we believe should enable us to refinance our debt as needed.
Our cash, cash equivalents, short-term investments and marketable securities held in locations outside the United States was 14% on September 30, 2024 compared to 25% on December 31, 2023.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There were no changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for 2023, except as follows.
We test goodwill annually for impairment at October 31 or whenever events or circumstances indicate that goodwill may be impaired. When it is unlikely that goodwill of a reporting unit is impaired, we perform a qualitative assessment that may be periodically supplemented with a corroborative quantitative analysis.
During 2022 we recognized a goodwill impairment charge of $216 for the Spine reporting unit. Due to the impairment charge in 2022, we performed a quantitative impairment test for our Spine reporting unit at October 31, 2023 and determined that its fair value exceeded its carrying amount by 10% and no additional impairment charges were recorded.
The Spine business's operating results continue to be affected by inflationary pressures and the competitive environment. These inputs were included in the updated projections used in our annual long-range financial plan, which was approved during the third quarter 2024. Additionally, it is likely we will reorganize our Spine reporting unit during the fourth quarter 2024 to separate the spine enabling technologies portfolio (Enabling Technologies) from the spinal implant portfolio (Core Spine). While changes in reporting units are accounted for on a prospective basis, they may be an indicator that goodwill of a reporting unit is potentially impaired. As a result of these factors, we performed a quantitative impairment test of the Spine reporting unit at September 30, 2024. The outcome of the impairment test was that the fair value of the Spine reporting unit exceeded its carrying amount by 9% and we did not record any impairment charges during the quarter ended September 30, 2024. Goodwill attributable to the Spine reporting unit was approximately $1.0 billion at September 30, 2024.
In our quantitative impairment test, the fair value of the Spine reporting unit was determined using a discounted cash flow analysis, which is a form of the income approach. Significant inputs to the analysis included assumptions for future revenue growth, operating margin and the rate used to discount the estimated future cash flows to their present value based on the reporting unit's estimated weighted average cost of capital. Our assumptions for revenue growth and operating margin considered several operating factors, including surgery volumes, increased costs and our competitive environment. We believe our estimates are appropriate based upon current and anticipated future market conditions and the best information available at the impairment assessment date. However, future impairment charges could be required if our Spine reporting unit does not
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2024 Third Quarter Form 10-Q
achieve its cash flow, revenue and profitability projections or if there is an increase in the weighted average cost of capital.
The assumptions used in the discounted cash flow analysis are subject to inherent uncertainties and subjectivity. The use of different assumptions, estimates or judgments with respect to the estimation of future cash flows and the determination of the discount rate used to reduce such estimated future cash flows to their net present value could materially affect the determination of any impairment charges. Hypothetical changes in our estimates of the discount rate, long-term revenue growth and long-term operating margin would result in impairment charges as follows:
Change in selected assumption Percentage decline in fair value Impairment charge
100 bps increase in discount rate 16 % $ 150
100 bps decrease in long-term revenue growth 11 50
100 bps decrease in long-term operating margin 6 -
During the fourth quarter 2024, it is likely we will reorganize certain of our reporting units, including the Spine reporting unit. Upon a reorganization of our reporting units, the assets (including goodwill) and liabilities will be reassigned to the new reporting units and we will perform a goodwill impairment test immediately before and after the reorganization. We estimate that approximately $265 of goodwill will be assigned to the Core Spine reporting unit upon a reorganization and we expect that a material portion of this balance could be impaired.
Historical impairment assessments for our other reporting units have indicated that their implied fair values exceed their respective carrying amounts by at least 100%. We have not identified any factors in 2024 that would lead us to believe that those reporting units are at risk of a goodwill impairment.
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 that are not historical facts and are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current projections about operations, industry conditions, financial condition and liquidity. Words that identify forward-looking statements include, without limitation, words such as "may," "could," "will," "should," "possible," "plan," "predict," "forecast," "potential," "anticipate," "estimate," "expect," "project," "intend," "believe," "may impact," "on track," "goal," "strategy" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, an acquisition or our businesses. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements. Those statements are not guarantees and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results could differ materially and adversely from these forward-looking statements, historical experience or our present expectations. Some important factors that could cause our actual results to differ from our expectations in any forward-looking statements include the risks discussed in Item 1A. "Risk Factors" of our Annual Report on Form 10-K for 2023. 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 2023. While we believe that the assumptions underlying such forward-looking statements are reasonable, there can be no assurance that future events or developments will not cause such statements to be inaccurate. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement. We expressly disclaim any intention or obligation to publicly update or revise any forward-looking statement to reflect any change in our expectations or in events, conditions or circumstances on which those expectations may be based, or that affect the likelihood that actual results will differ from those contained in the forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We consider our greatest potential area of market risk exposure to be exchange rate risk on our operating results. Quantitative and qualitative disclosures about exchange rate risk are included in Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for 2023. There were no material changes from the information provided therein.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer (the Certifying Officers), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) on September 30, 2024. Based on that evaluation, the Certifying Officers concluded the Company's disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control Over Financial Reporting
There was no change to our internal control over financial reporting during the nine months 2024 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS
We are not aware of any material changes to the risk factors included in Item 1A. "Risk Factors" in our Annual Report on Form 10-K for 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In the three months 2024 we did not issue shares of our common stock as performance incentive awards to employees. When issued, 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.
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2024 Third Quarter Form 10-Q
The manner, timing and amount of repurchases are determined by management based on an evaluation of market conditions, stock price, and other factors and are subject to regulatory considerations. Purchases are made from time-to-time in the open market, in privately negotiated transactions or otherwise.
In the nine months 2024 we did not repurchase any shares of our common stock under our authorized repurchase program. The total dollar value of shares of our common stock that could be acquired under our authorized repurchase program was $1,033 as of September 30, 2024.
ITEM 5. OTHER INFORMATION
Certain of our officers or directors have made elections to participate in, and are participating in, our employee stock purchase plan and 401(k) plan and have made, and may from time to time make, elections to have shares withheld to cover withholding taxes due or pay the exercise price of stock options, restricted stock units and performance stock units, which may constitute non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
ITEM 6. EXHIBITS
4(i)
4(ii)
4(iii)
4(iv)
31(i)†
Certification of Principal Executive Officer of Stryker Corporation pursuant to Rule 13a-14(a).
31(ii)†
Certification of Principal Financial Officer of Stryker Corporation pursuant to Rule 13a-14(a).
32(i)††
Certification by Principal Executive Officer of Stryker Corporation pursuant to 18 U.S.C. Section 1350.
32(ii)††
Certification by Principal Financial Officer of Stryker Corporation pursuant to 18 U.S.C. Section 1350.
101.INS iXBRL Instance Document
101.SCH iXBRL Schema Document
101.CAL iXBRL Calculation Linkbase Document
101.DEF iXBRL Definition Linkbase Document
101.LAB iXBRL Label Linkbase Document
101.PRE iXBRL Presentation Linkbase Document
104 Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
† Filed with this Form 10-Q
†† Furnished with this Form 10-Q
Dollar amounts are in millions except per share amounts or as otherwise specified.
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2024 Third Quarter Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STRYKER CORPORATION
(Registrant)
Date: October 30, 2024 /s/ KEVIN A. LOBO
Kevin A. Lobo
Chair, Chief Executive Officer and President
Date: October 30, 2024 /s/ GLENN S. BOEHNLEIN
Glenn S. Boehnlein
Vice President, Chief Financial Officer
20