Stryker(SYK) - 2022 Q4 - Annual Report

PART I Business Overview Stryker Corporation is a leading global medical technology company providing innovative products and services across MedSurg, Neurotechnology, Orthopaedics, and Spine, operating in 75 countries amidst intense competition and strict regulations - Stryker Corporation is a leading global medical technology company, offering innovative products and services in MedSurg, Neurotechnology, Orthopaedics, and Spine, impacting over 130 million patients annually[11] - The company's core values include integrity, accountability, people, and performance[13] - Products are sold in 75 countries worldwide through company-owned subsidiaries, branches, and third-party dealers and distributors[13] 2022 Net Sales by Reporting Segment | Segment | Net Sales (million USD) | Percentage of Total | | :------------------------ | :------------- | :--------- | | MedSurg and Neurotechnology | 10,611 | 58% | | Orthopaedics and Spine | 7,838 | 42% | | Total | 18,449 | 100% | MedSurg and Neurotechnology This segment encompasses surgical equipment, patient safety technologies, navigation systems, endoscopy, patient handling, emergency medical devices, neurosurgical, neurovascular, and craniomaxillofacial implant products - MedSurg products include surgical equipment, patient and caregiver safety technologies, navigation systems (Instruments), endoscopy and communications systems (Endoscopy), patient handling, emergency medical equipment, critical care disposables, and clinical communication and workflow solutions (Medical)[17] - Neurotechnology products include neurosurgical, neurovascular, and craniomaxillofacial implant products, as well as products for minimally invasive vascular interventional procedures and traditional brain surgery[17] - In 2022, the Instruments division launched the System 9 total joint power tools and CD NXT power tools; Endoscopy introduced new 4K 1688 autoclavable cameras and SDC4K image capture devices; Medical completed the acquisition of Vocera Communications, Inc. and launched the Power Pro 2 ambulance cot; Neurovascular launched the Vecta 71/74 aspiration system in Japan, Korea, Australia, and New Zealand[19][20][21] 2022 MedSurg and Neurotechnology Net Sales Composition | Category | Net Sales (million USD) | Percentage of Segment | | :------------- | :------------- | :----------- | | Instruments | 2,279 | 21% | | Endoscopy | 2,423 | 23% | | Medical | 3,031 | 29% | | Neurovascular | 1,200 | 11% | | Neurocranial | 1,376 | 13% | | Other | 302 | 3% | | Total | 10,611 | 100% | Orthopaedics and Spine This segment offers implants for total joint replacement (hip, knee, shoulder), trauma and extremity surgeries, Mako robotic-assisted systems, and cervical and thoracolumbar systems for spine conditions - Orthopaedics products primarily include implants for total joint replacement of hips, knees, and shoulders, as well as trauma and extremity surgeries, and the Mako robotic-assisted surgery system[23] - Spine implant products include cervical and thoracolumbar systems for spinal injuries, complex spine, and degenerative treatments, as well as minimally invasive and interbody fusion systems[24] - In 2022, the company fully commercialized the Insignia Hip Stem in the United States[26] 2022 Orthopaedics and Spine Net Sales Composition | Category | Net Sales (million USD) | Percentage of Segment | | :-------------------- | :------------- | :----------- | | Knees | 1,997 | 25% | | Hips | 1,413 | 18% | | Trauma and Extremities | 2,807 | 36% | | Spine | 1,146 | 15% | | Other | 475 | 6% | | Total | 7,838 | 100% | Raw Materials and Inventory The company sources raw materials from multiple suppliers, though some are single-sourced, maintaining inventory for most products while assembling certain MedSurg items to order - Raw materials are generally available from multiple sources, but some are currently supplied by a single vendor[27] - Most products manufactured by the company are held in inventory, while certain MedSurg products are assembled to order[27] - In 2022, the company worked closely with suppliers to ensure that temporary shortages of electronic components did not materially adversely affect supply continuity[27] Patents and Trademarks Patents and trademarks are crucial for protecting unique designs and processes, with the company holding approximately 4,800 US patents and 7,300 international patents as of 2022 - Patents and trademarks are essential to the company's business, used to protect unique designs and processes and limit competitor replication[28] - As of December 31, 2022, the company held approximately 4,800 US patents and 7,300 patents in other countries[28] Seasonality While generally non-seasonal, the business experiences lower orthopedic implant surgeries in summer and higher capital equipment sales in the fourth quarter - The company's business is generally not seasonal, but orthopedic implant surgeries are typically lower during summer months, and capital equipment sales are usually higher in the fourth quarter[29] Competition The company faces intense competition across all product lines, necessitating continuous investment in R&D and sales to differentiate through innovation, quality, and service - The company competes with local and global companies across all product lines, and the development of new and innovative products is critical to its success[30] - The competitive environment requires significant investment in ongoing research and development and maintaining a sales force[30] - The company believes its commitment to innovation, quality, and service, along with its reputation, distinguishes it in the competitive market[31] Regulation The company's operations are subject to increasingly stringent government regulations globally, including FDA oversight in the US, EU MDR, and UK medical device regulations, alongside healthcare expenditure control measures - The company's business is subject to varying degrees of government regulation in the countries where it operates, with regulatory trends becoming increasingly stringent[32] - In the United States, the design, manufacture, and marketing of medical devices are regulated by federal FDA regulations, including 510(k) notifications and premarket approval (PMA) applications[33] - FDA's Quality System Regulation sets standards for product design and manufacturing processes, requiring record maintenance and inspections[34] - The European Union has enacted the EU Medical Device Regulation (MDR), and the United Kingdom has also issued new medical device regulations, both imposing stricter requirements for marketing and selling medical devices[35] - Measures to limit healthcare spending growth are being implemented, including price regulation and competitive pricing, as well as scrutiny of business practices in the healthcare industry[38] Environment The company adheres to various environmental and health regulations globally, with current policies and practices expected to ensure compliance without significant financial impact - The company is subject to various rules and regulations in the United States and internationally related to human health and environmental protection[39] - The company believes its policies, practices, and procedures comply in all material respects with applicable environmental laws and regulations, and compliance is not expected to have a material impact on asset purchases, cash flows, net earnings, or competitive position[39] Employees With approximately 51,000 global employees, the company focuses on talent attraction, development, and retention through competitive compensation, benefits, and DE&I initiatives - As of December 31, 2022, the company had approximately 51,000 employees globally, with approximately 27,000 in the United States[40] - The company is committed to attracting, developing, and retaining talent through extensive employee development programs, annual engagement surveys, and Diversity, Equity, and Inclusion (DE&I) strategies[41][43][45][48] - As of December 31, 2022, approximately 37.5% of global employees were women, and 27.5% of US employees were minorities[48] - The company offers market-competitive compensation and benefits programs, including variable compensation components based on individual, business unit, and/or overall company performance[52][53] Information about our Executive Officers This section provides key information about the company's executive officers as of January 31, 2023 Executive Officer Information (as of January 31, 2023) | Name | Age | Title | Year First Became Officer | | :--------------- | :-- | :---------------------------------------- | :----------------- | | Kevin A. Lobo | 57 | Chair and Chief Executive Officer and President | 2011 | | Yin C. Becker | 59 | Vice President, Communications, Public Affairs and Corporate Marketing | 2016 | | William E. Berry Jr. | 57 | Vice President, Chief Accounting Officer | 2014 | | Glenn S. Boehnlein | 61 | Vice President, Chief Financial Officer | 2016 | | M. Kathryn Fink | 53 | Vice President, Chief Human Resources Officer | 2016 | | Robert S. Fletcher | 52 | Vice President, Chief Legal Officer | 2019 | | Viju S. Menon | 55 | Group President, Global Quality and Operations | 2018 | | J. Andrew Pierce | 49 | Group President, MedSurg and Neurotechnology | 2021 | | Spencer S. Stiles | 46 | Group President, Orthopaedics and Spine | 2021 | Risk Factors The company faces diverse risks including operational (supply chain, inflation, competition, global complexity, M&A, IT, talent), legal/regulatory (tax, healthcare, anti-bribery, privacy, product liability, IP), market (FX, capital access), and ESG factors - Supply Chain and Inflation Risks: Dependence on certain single suppliers, electronic component shortages, and inflationary pressures on labor, steel, and transportation costs may increase operating costs and impact profitability[59][61] - Competition and Cost Control: The medical technology industry is highly competitive, with new products and technologies potentially rendering existing ones obsolete; government and private sector cost control measures (e.g., China's Volume-Based Procurement) lead to pricing pressure[62][63] - Global Operations Risks: Extensive global operations face risks from changing regulatory requirements (e.g., EU MDR), trade disputes, political and economic instability (e.g., Russia-Ukraine war and potential cyberattacks and supply chain disruptions)[67][68] - Acquisition and IT System Risks: Failure to successfully integrate acquisitions (e.g., Vocera) may prevent the realization of anticipated benefits; information technology system failures, cybersecurity breaches, or unsuccessful ERP system implementation could adversely affect business operations and data security[70][71][72] - Talent and Manufacturing Risks: Difficulty attracting and retaining key employees, as well as manufacturing operational disruptions (e.g., natural disasters, equipment failures), could impact business continuity and market share[73][74] - COVID-19 Pandemic Impact: The ongoing pandemic continues to adversely affect operations, supply chains, manufacturing, product distribution, and customer activities, including reduced elective medical procedures and labor shortages[77][79][81] - Legal and Regulatory Risks: Changes in tax laws (e.g., OECD BEPS project, IRA), healthcare reforms (ACA), anti-bribery and anti-kickback laws (FCPA), and global privacy and data security regulations (GDPR) could result in significant fines and legal proceedings[83][86][88][90] - Product Liability and Intellectual Property Risks: Inherent product liability risks in medical device design, manufacturing, and marketing, as well as intellectual property infringement claims, could lead to significant damages and/or impact product sales[91][93][94] - Market and ESG Risks: Foreign exchange rate fluctuations (approximately 30% of net sales are non-USD denominated) and future capital needs may not be available on favorable terms; increasing focus on ESG and climate change-related matters could lead to increased regulatory requirements, reduced product demand, or reputational damage[95][96][97][98] Unresolved Staff Comments There are no unresolved staff comments in this report - No unresolved staff comments[99] Properties Stryker owns approximately 27 and leases 322 properties globally, including 48 manufacturing facilities, all deemed adequate for current operations - The company owns approximately 27 properties and leases 322 properties globally, including 48 manufacturing facilities[99] - The company believes its properties are in good condition and sufficient to meet product manufacturing and distribution needs[99] Legal Proceedings The company is involved in various legal proceedings, actions, and claims arising in the ordinary course of business, detailed in Note 7 to the consolidated financial statements - The company is involved in various lawsuits, legal actions, and claims arising in the ordinary course of business, including those related to products, labor, and intellectual property[101] - Further details are provided in Note 7 to the consolidated financial statements[101] Mine Safety Disclosures This disclosure is not applicable to Stryker Corporation - Not applicable[102] PART II Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stryker's common stock trades on the NYSE under SYK, with 2,523 registered shareholders as of January 2023, and the board quarterly considers cash dividends - The company's common stock trades on the New York Stock Exchange under the symbol SYK[102] - As of January 31, 2023, the company had 2,523 registered shareholders of common stock[102] - The Board of Directors considers cash dividends on a quarterly basis[102] - No shares were repurchased in the fourth quarter of 2022, and as of December 31, 2022, the total dollar value of shares that could be repurchased under the authorized repurchase program was $1.033 billion[103] Company vs. Index Total Return (2017-2022, $100 Investment) | Company/Index | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | | :---------------- | :------ | :------ | :------ | :------ | :------ | :------ | | Stryker Corporation | $100.00 | $102.43 | $138.62 | $163.81 | $180.56 | $167.16 | | S&P 500 Index | $100.00 | $95.62 | $125.72 | $148.85 | $191.58 | $156.88 | | S&P 500 Health Care Index | $100.00 | $106.47 | $128.64 | $145.93 | $184.07 | $180.47 | Selected Financial Data This section presents selected five-year financial data for Stryker Corporation, including key income statement, balance sheet, and cash flow metrics, reflecting historical performance and trends Income Statement Data (million USD, except per share amounts) | Metric | 2022 | 2021 | 2020 | 2019 | 2018 | | :-------------------------------------- | :------ | :------ | :------ | :------ | :------ | | Net sales | 18,449 | 17,108 | 14,351 | 14,884 | 13,601 | | Cost of sales | 6,871 | 6,140 | 5,294 | 5,188 | 4,663 | | Gross profit | 11,578 | 10,968 | 9,057 | 9,696 | 8,938 | | Research and development expenses | 1,454 | 1,235 | 984 | 971 | 862 | | Selling, general and administrative expenses | 6,455 | 6,427 | 5,361 | 5,356 | 5,099 | | Recall charges, net | (15) | 103 | 17 | 192 | 23 | | Amortization of intangible assets | 627 | 619 | 472 | 464 | 417 | | Goodwill impairment | 216 | — | — | — | — | | Total operating expenses | 8,737 | 8,384 | 6,834 | 6,983 | 6,401 | | Operating income | 2,841 | 2,584 | 2,223 | 2,713 | 2,537 | | Other income (expense), net | (158) | (303) | (269) | (151) | (181) | | Earnings before income taxes | 2,683 | 2,281 | 1,954 | 2,562 | 2,356 | | Income taxes | 325 | 287 | 355 | 479 | (1,197) | | Net earnings | 2,358 | 1,994 | 1,599 | 2,083 | 3,553 | | Net earnings per share of common stock: | | | | | | | Basic | $6.23 | $5.29 | $4.26 | $5.57 | $9.50 | | Diluted | $6.17 | $5.21 | $4.20 | $5.48 | $9.34 | | Dividends declared per share of common stock | $2.835 | $2.585 | $2.355 | $2.135 | $1.930 | Balance Sheet Data (million USD) | Metric | 2022 | 2021 | 2020 | 2019 | 2018 | | :-------------------------------------- | :------ | :------ | :------ | :------ | :------ | | Cash, cash equivalents and marketable securities | 1,928 | 3,019 | 3,024 | 4,425 | 3,699 | | Accounts receivable, net | 3,565 | 3,022 | 2,701 | 2,893 | 2,332 | | Inventories | 3,995 | 3,314 | 3,494 | 2,980 | 2,955 | | Property, plant and equipment, net | 2,970 | 2,833 | 2,752 | 2,567 | 2,291 | | Total assets | 36,884 | 34,631 | 34,330 | 30,167 | 27,229 | | Accounts payable | 1,413 | 1,129 | 810 | 675 | 646 | | Total debt | 13,048 | 12,479 | 13,991 | 11,090 | 9,859 | | Shareholders' equity | 16,616 | 14,877 | 13,084 | 12,807 | 11,730 | Cash Flow Data (million USD) | Metric | 2022 | 2021 | 2020 | 2019 | 2018 | | :-------------------------------------- | :------ | :------ | :------ | :------ | :------ | | Net cash provided by operating activities | 2,624 | 3,263 | 3,277 | 2,191 | 2,610 | | Purchases of property, plant and equipment | 588 | 525 | 487 | 649 | 572 | | Depreciation | 371 | 371 | 340 | 314 | 306 | | Acquisitions, net of cash | 2,563 | 339 | 4,222 | 802 | 2,451 | | Amortization of intangible assets | 627 | 619 | 472 | 464 | 417 | | Dividends paid | 1,051 | 950 | 863 | 778 | 703 | | Repurchases of common stock | — | — | — | 307 | 300 | Other Data | Metric | 2022 | 2021 | 2020 | 2019 | 2018 | | :---------------------- | :----- | :----- | :----- | :----- | :----- | | Number of registered shareholders | 2,533 | 2,551 | 2,597 | 2,636 | 2,732 | | Number of employees (approx.) | 51,000 | 46,000 | 43,000 | 40,000 | 36,000 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the company's financial condition and operating results, discussing macroeconomic factors, geopolitical conflicts, China's VBP policy, and key performance indicators like sales growth and EPS - The company aims for high-end sales growth within the medical technology industry and maintains a long-term capital allocation strategy prioritizing acquisitions, dividends, and share repurchases[107] - Macroeconomic Environment: The global economy faces inflationary pressures (labor, steel, transportation costs, electronic component premium purchases), supply chain disruptions, and labor shortages, with high interest rates expected to impact demand for capital products[108][109] - Russia-Ukraine Conflict: Net sales from Russia in 2022 accounted for approximately 0.3% of total revenue, and the company plans to continue operations where safe, but the conflict's impact on the global economy, supply chains, and energy prices remains uncertain[110] - China Volume-Based Procurement (VBP) and Import Procurement Evaluation (IPE): The VBP program negatively impacted commercial operating prices for joint replacement, trauma, and certain neurovascular products; the company exited its China Spine business due to an unsuccessful VBP bid for spine products; China operations accounted for approximately 2.4% of total revenue in 2022[111][112][113] 2022 Performance Overview | Metric | Amount/Percentage | | :---------------------------------------- | :---------- | | Reported Net Sales Growth | 7.8% | | Sales Growth at Constant Currency (excluding acquisitions and divestitures) | 9.7% | | Net Earnings | 2,358 million USD | | Diluted Net Earnings Per Share | $6.17 | | Adjusted Net Earnings | 3,571 million USD | | Adjusted Diluted Net Earnings Per Share | $9.34 | | Acquisition Investments | 2,563 million USD | | Dividends Paid | 1,051 million USD | - The acquisition of Vocera was completed in February 2022 for a total purchase price of $2.6 billion (net of cash), enhancing the Medical business's digital care coordination and communication capabilities[116] - A $216 million goodwill impairment charge related to the Spine business was recorded in 2022[117] - The Inflation Reduction Act (IRA) was enacted on August 16, 2022, including a 15% corporate alternative minimum tax effective 2023 and a 1% tax on stock repurchases after December 31, 2022, with no material impact expected on consolidated financial statements[118] Consolidated Results of Operations This section analyzes consolidated operating results, detailing changes and drivers for net sales growth, gross margin, R&D, SG&A, recall expenses, intangible asset amortization, goodwill impairment, operating income, and effective tax rate Consolidated Net Sales Growth Rate | Year | Reported Growth Rate | Constant Currency Growth Rate | | :--- | :--------- | :------------- | | 2022 | 7.8% | 11.0% | | 2021 | 19.2% | 18.1% | - In 2022, foreign currency exchange rates had a 3.2% negative impact on net sales[122] - Organic sales growth at constant currency (excluding acquisitions and divestitures) was 10.6% in 2022, primarily driven by increased unit volumes, partially offset by a 0.9% price decline[122] Net Sales Growth Rate by Region and Segment (2022 vs. 2021) | Category | Reported Growth Rate | Constant Currency Growth Rate | | :-------------------------- | :--------- | :------------- | | Region: | | | | United States | 10.7% | 10.7% | | International | 0.5% | 11.7% | | Segment: | | | | MedSurg and Neurotechnology | 11.2% | 14.1% | | Orthopaedics and Spine | 3.5% | 7.0% | Gross Profit as a Percentage of Net Sales | Year | Reported Percentage | Adjusted Percentage | | :--- | :--------- | :--------- | | 2022 | 62.8% | 63.1% | | 2021 | 64.1% | 65.9% | | 2020 | 63.1% | 63.8% | - The decrease in gross profit margin in 2022 was primarily due to increased premium purchase costs for electronic components, inflationary pressures (labor, steel, transportation), and inefficiencies from supply chain disruptions and unfavorable product mix[130] Research and Development Expenses as a Percentage of Net Sales | Year | Reported Percentage | Adjusted Percentage | | :--- | :--------- | :--------- | | 2022 | 7.9% | 6.7% | | 2021 | 7.2% | 6.6% | | 2020 | 6.9% | 6.3% | - The increase in R&D expenses in 2022 reflects the company's continued investment in innovation and recent acquisition integration, including the write-off of certain intangible assets[133] Selling, General and Administrative Expenses as a Percentage of Net Sales | Year | Reported Percentage | Adjusted Percentage | | :--- | :--------- | :--------- | | 2022 | 35.0% | 32.7% | | 2021 | 37.6% | 33.6% | | 2020 | 37.4% | 33.1% | - The decrease in selling, general and administrative expenses as a percentage of net sales in 2022 was primarily due to enhanced discretionary cost control and headcount discipline; this includes a $110 million decrease in the fair value of contingent consideration related to Mobius Imaging and Cardan Robotics technologies, and $132 million in Vocera employee equity award expenses[135][136] Recall Charges, Net (million USD) | Year | Amount | | :--- | :--- | | 2022 | (15) | | 2021 | 103 | | 2020 | 17 | - The recall charges in 2022 were a net gain, primarily due to adjustments to existing reserves for the LFIT Anatomic CoCr V40 femoral head voluntary recall, partially offset by Wright hip product expenses[138] Amortization of Intangible Assets (million USD) | Year | Amount | | :--- | :--- | | 2022 | 627 | | 2021 | 619 | | 2020 | 472 | - The increase in intangible asset amortization in 2022 and 2021 was due to the acquisition of Vocera in the first quarter of 2022 and Wright in the fourth quarter of 2020[140] Goodwill Impairment (million USD) | Year | Amount | | :--- | :--- | | 2022 | 216 | | 2021 | — | | 2020 | — | - A $216 million goodwill impairment charge related to the Spine business was recorded in 2022[141] Operating Income as a Percentage of Net Sales | Year | Reported Percentage | Adjusted Percentage | | :--- | :--------- | :--------- | | 2022 | 15.4% | 23.8% | | 2021 | 15.1% | 25.6% | | 2020 | 15.5% | 24.4% | - The decrease in adjusted operating income as a percentage of sales in 2022 was primarily due to inflationary pressures and unfavorable foreign exchange impacts, partially offset by cost controls[143] Other Income (Expense), Net (million USD) | Year | Amount | | :--- | :--- | | 2022 | (158)| | 2021 | (303)| | 2020 | (269)| - The decrease in net expense in 2022 was primarily due to favorable investment returns and the reversal of $50 million in accrued interest related to the effective settlement of US federal income tax audits for 2014-2018[146] Effective Tax Rate | Year | Effective Tax Rate | | :--- | :------- | | 2022 | 12.1% | | 2021 | 12.6% | | 2020 | 18.2% | - The decrease in the effective tax rate in 2022 was due to the effective settlement of US federal income tax audits for 2014-2018 ($162 million benefit) and the reversal of deferred income taxes on undistributed earnings of foreign subsidiaries[147] Net Earnings and Diluted Net Earnings Per Share | Year | Net Earnings (million USD) | Diluted Net Earnings Per Share | Adjusted Diluted Net Earnings Per Share | | :--- | :----------------- | :------------- | :------------------- | | 2022 | 2,358 | $6.17 | $9.34 | | 2021 | 1,994 | $5.21 | $9.09 | | 2020 | 1,599 | $4.20 | $7.43 | - Net earnings and diluted net earnings per share grew significantly in 2022, with adjusted diluted net earnings per share increasing by 2.8%[148] Non-GAAP Financial Measures The company utilizes non-GAAP financial measures, such as constant currency and organic sales growth, and adjusted profit metrics, to provide investors with additional insights into financial performance - The company uses non-GAAP financial measures (e.g., constant currency sales growth, organic sales growth, adjusted gross profit, adjusted operating income, adjusted net earnings, and diluted earnings per share) to help investors understand financial performance and evaluate future performance[150] - These adjustments typically exclude items unrelated to or not indicative of core operating performance, such as acquisition and integration-related costs, intangible asset amortization, restructuring charges, goodwill impairment, medical device regulation-related costs, recall-related matters, regulatory and legal matters, and certain tax items[150][156] - Non-GAAP financial measures should not be viewed in isolation or as a substitute for the most directly comparable GAAP financial measures[153] Financial Condition and Liquidity This section assesses the company's financial condition and liquidity, analyzing cash flows from operating, investing, and financing activities, and detailing contractual obligations and future cash requirements - The company maintains a high-quality financial position, capable of generating substantial cash from operations and accessing capital markets at competitive rates[158] Net Cash Provided by Operating Activities (million USD) | Year | Amount | | :--- | :--- | | 2022 | 2,624| | 2021 | 3,263| | 2020 | 3,277| - Operating cash flow decreased in 2022, primarily due to increased costs for certain electronic components, pre-purchases of key raw materials to manage supply chain delays, and increased accounts receivable from year-end sales, partially offset by higher net earnings[159] Net Cash Used in Investing Activities (million USD) | Year | Amount | | :--- | :------ | | 2022 | (2,924) | | 2021 | (859) | | 2020 | (4,701) | - Cash used in investing activities increased in 2022, primarily due to the acquisition of Vocera and investments in capital projects, partially offset by the settlement of certain foreign exchange forward contracts designated as net investment hedges[160] Net Cash Provided by (Used in) Financing Activities (million USD) | Year | Amount | | :--- | :------ | | 2022 | (749) | | 2021 | (2,365) | | 2020 | (11) | - Cash used in financing activities in 2022 was primarily driven by $1.051 billion in dividend payments and $650 million in debt repayments (for term loans used to fund the Vocera acquisition); no share repurchases were made in 2022, 2021, or 2020[161] - As of December 31, 2022, cash, cash equivalents, and marketable securities totaled $1.928 billion, with current assets exceeding current liabilities by $3.972 billion; the company expects to support short-term liquidity and operating needs through operating cash, commercial paper, and existing credit facilities[164] - As of December 31, 2022, approximately 36% of the company's cash, cash equivalents, and marketable securities were held outside the United States[165] Contractual Obligations and Forward Cash Requirements (as of December 31, 2022, million USD) | Contractual Obligations | Total | 2023 | 2024-2025 | 2026-2027 | After 2027 | | :------------------------------ | :------- | :----- | :---------- | :---------- | :--------- | | Total Debt | 12,958 | 1,208 | 3,700 | 1,750 | 6,300 | | Interest Payments | 3,193 | 290 | 524 | 397 | 1,982 | | Unconditional Purchase Obligations | 1,845 | 1,595 | 121 | 115 | 14 | | Operating Leases | 466 | 126 | 169 | 95 | 76 | | U.S. Tax Cuts and Jobs Act Transition Tax | 463 | 109 | 354 | — | — | | Other | 175 | 12 | 16 | 12 | 135 | | Total | 19,100 | 3,340| 4,884 | 2,369 | 8,507 | Critical Accounting Policies and Estimates This section outlines critical accounting policies and estimates, including inventory reserves, income taxes, valuation of acquisitions, goodwill, intangible assets, and legal contingencies, which require significant management judgment - In preparing financial statements, certain accounting policies require significant judgment or estimation, including inventory reserves, income taxes, and the valuation of acquisitions, goodwill, intangible assets, and long-lived assets[173] - Inventory Reserves: Estimates are made for the future recoverability of excess and obsolete inventory based on historical experience, expiration dates, and anticipated future trends[174] - Income Taxes: The annual tax rate is determined based on income, statutory tax rates, and the tax effects of differences between financial reporting and tax treatment; the realization of deferred tax assets depends on generating sufficient taxable income in the appropriate jurisdictions[175][178] - Acquisitions, Goodwill, and Intangible Assets: Significant judgment is required in estimating the fair value of intangible assets and assigning their useful lives, typically using the income approach; goodwill and indefinite-lived intangible assets are tested for impairment annually[182][185][187] - In the fourth quarter of 2022, the company recognized a $216 million goodwill impairment charge related to the Spine reporting unit, primarily due to slower-than-anticipated surgical volume recovery, competitive pressures in the spine market, and rising interest rates in the current macroeconomic environment[188] - Legal and Other Contingencies: Legal matters for which management has sufficient information to reasonably estimate future obligations are recorded as the minimum estimated contingent loss; the ultimate cost of product liability claims may differ materially from current estimates[191] Quantitative and Qualitative Disclosures About Market Risk Stryker's financial performance is exposed to market risks from foreign currency fluctuations, primarily USD, AUD, GBP, CAD, CNY, EUR, and JPY, which are managed using derivative and non-derivative financial instruments - The company's operating and financial performance is primarily exposed to market risks from changes in exchange rates between the US dollar and the Australian dollar, British pound, Canadian dollar, Chinese yuan, euro, and Japanese yen[193] - The company uses derivative instruments (foreign exchange forward contracts) to hedge the impact of currency fluctuations and euro-denominated senior unsecured notes as net investment hedges for certain international subsidiary investments[193][194] - A hypothetical 10% change in foreign currency exchange rates against the US dollar would result in an approximate $388 million change in the fair value of these instruments as of December 31, 2022[194] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for the three years ended December 31, 2022, along with the independent auditor's report, highlighting key audit matters - The independent registered public accounting firm (Ernst & Young LLP) issued an unqualified opinion on the company's consolidated financial statements for the period ended December 31, 2022[198] - Key audit matters include: uncertain tax positions (related liabilities of $286 million as of December 31, 2022) and the valuation of goodwill for the Spine reporting unit ($216 million goodwill impairment charge recognized in 2022)[203][206] Consolidated Statements of Earnings This section presents the consolidated statements of earnings for the three years ended December 31, 2022, detailing key financial metrics such as net sales, gross profit, operating expenses, and net income Consolidated Statements of Earnings (million USD, except per share amounts) | Metric | 2022 | 2021 | 2020 | | :-------------------------------------- | :------ | :------ | :------ | | Net sales | 18,449 | 17,108 | 14,351 | | Cost of sales | 6,871 | 6,140 | 5,294 | | Gross profit | 11,578 | 10,968 | 9,057 | | Research and development expenses | 1,454 | 1,235 | 984 | | Selling, general and administrative expenses | 6,455 | 6,427 | 5,361 | | Recall charges, net | (15) | 103 | 17 | | Amortization of intangible assets | 627 | 619 | 472 | | Goodwill impairment | 216 | — | — | | Total operating expenses | 8,737 | 8,384 | 6,834 | | Operating income | 2,841 | 2,584 | 2,223 | | Other income (expense), net | (158) | (303) | (269) | | Earnings before income taxes | 2,683 | 2,281 | 1,954 | | Income taxes | 325 | 287 | 355 | | Net earnings | 2,358 | 1,994 | 1,599 | | Net earnings per share of common stock: | | | | | Basic | $6.23 | $5.29 | $4.26 | | Diluted | $6.17 | $5.21 | $4.20 | | Weighted-average common shares outstanding (millions): | | | | | Basic | 378.2 | 377.0 | 375.5 | | Diluted | 382.2 | 382.3 | 380.3 | Consolidated Statements of Comprehensive Income This section presents the consolidated statements of comprehensive income for the three years ended December 31, 2022, showing net income and other comprehensive income items like pension plan adjustments and currency translation Consolidated Statements of Comprehensive Income (million USD) | Metric | 2022 | 2021 | 2020 | | :-------------------------------------- | :------ | :------ | :------ | | Net earnings | 2,358 | 1,994 | 1,599 | | Other comprehensive income (loss), net of tax: | | | | | Marketable securities | (1) | 3 | — | | Pension plans | 186 | 104 | (80) | | Unrealized gain (loss) on designated hedges | 12 | 50 | (57) | | Foreign currency translation | 113 | 469 | (414) | | Total other comprehensive income (loss), net of tax | 310 | 626 | (551) | | Comprehensive income | 2,668 | 2,620 | 1,048 | Consolidated Balance Sheets This section presents the consolidated balance sheets as of December 31, 2022, and 2021, detailing the composition of assets, liabilities, and shareholders' equity Consolidated Balance Sheets (million USD) | Metric | 2022 | 2021 | | :-------------------------------------- | :------ | :------ | | Assets | | | | Cash and cash equivalents | 1,844 | 2,944 | | Marketable securities | 84 | 75 | | Accounts receivable, less allowance | 3,565 | 3,022 | | Inventories, net | 3,995 | 3,314 | | Prepaid expenses and other current assets | 787 | 662 | | Total current assets | 10,275 | 10,017 | | Property, plant and equipment, net | 2,970 | 2,833 | | Goodwill | 14,880 | 12,918 | | Other intangible assets, net | 4,885 | 4,840 | | Deferred income tax assets, non-current | 1,410 | 1,760 | | Other non-current assets | 2,464 | 2,263 | | Total Assets | 36,884| 34,631| | Liabilities and Shareholders' Equity | | | | Accounts payable | 1,413 | 1,129 | | Accrued compensation | 1,149 | 1,092 | | Income taxes | 292 | 192 | | Dividends payable | 284 | 263 | | Accrued product liability | 230 | 401 | | Accrued expenses and other liabilities | 1,744 | 1,465 | | Current portion of long-term debt | 1,191 | 7 | | Total current liabilities | 6,303 | 4,549 | | Long-term debt, excluding current portion | 11,857 | 12,472 | | Income taxes (non-current) | 641 | 913 | | Other non-current liabilities | 1,467 | 1,820 | | Total Liabilities | 20,268| 19,754| | Total Shareholders' Equity | 16,616 | 14,877 | | Total Liabilities and Shareholders' Equity | 36,884| 34,631| Consolidated Statements of Shareholders' Equity This section presents the consolidated statements of shareholders' equity for the three years ended December 31, 2022, illustrating changes in common stock, additional paid-in capital, retained earnings, and accumulated other comprehensive income Consolidated Statements of Shareholders' Equity (million USD, except share amounts) | Metric | 2022 | 2021 | 2020 | | :-------------------------------------- | :------ | :------ | :------ | | Common stock (millions of shares) | 378.7 | 377.5 | 376.1 | | Common stock (amount) | $38 | $38 | $38 | | Additional paid-in capital | $2,034 | $1,890 | $1,741 | | Retained earnings | $14,765 | $13,480 | $12,462 | | Accumulated other comprehensive income (loss) | $(221) | $(531) | $(1,157)| | Total Shareholders' Equity | $16,616| $14,877| $13,084| Consolidated Statements of Cash Flows This section presents the consolidated statements of cash flows for the three years ended December 31, 2022, detailing cash flows from operating, investing, and financing activities Consolidated Statements of Cash Flows (million USD) | Metric | 2022 | 2021 | 2020 | | :-------------------------------------- | :------ | :------ | :------ | | Net cash provided by operating activities | $2,624 | $3,263 | $3,277 | | Net cash used in investing activities | $(2,924)| $(859) | $(4,701)| | Net cash provided by (used in) financing activities | $(749) | $(2,365)| $(11) | | Effect of exchange rate changes on cash and cash equivalents | $(51) | $(38) | $41 | | Net change in cash and cash equivalents | $(1,100)| $1 | $(1,394)| | Cash and cash equivalents at end of year | $1,844 | $2,944 | $2,943 | Supplemental Cash Flow Disclosures (million USD) | Metric | 2022 | 2021 | 2020 | | :-------------------------------------- | :------ | :------ | :------ | | Cash paid for income taxes, net of refunds | $505 | $622 | $323 | | Cash paid for interest on debt | $324 | $325 | $304 | Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, covering significant accounting policies, sales composition, fair value measurements, derivatives, acquisitions, contingencies, goodwill impairment, equity, debt, income taxes, and retirement plans - Note 1 details the company's significant accounting policies, including revenue recognition, inventories, financial instruments, derivatives, goodwill and intangible assets, equity compensation, and income taxes[225][262] - Note 2 discloses net sales by product line and geographic location, noting that less than 10% of 2022 sales were recognized over time for services[265][266] - Note 3 on fair value measurements discloses assets and liabilities classified by a three-level fair value hierarchy, noting a $110 million decrease in the fair value of contingent consideration related to Mobius Imaging and Cardan Robotics technologies in Q3 2022[275][276][277] - Note 4 discloses the company's use of foreign exchange forward contracts and interest rate derivatives to manage currency and interest rate risks, and the designation of euro-denominated senior unsecured notes as net investment hedges[282][283] - Note 6 discloses the $2.6 billion (net of cash) acquisition of Vocera in 2022, with $2.328 billion in goodwill attributed to strategic benefits[288][289][294] - Note 7 on contingencies and commitments discloses product liability litigation related to Rejuvenate, ABG II, LFIT Anatomic CoCr V40 femoral heads, and Wright hip products, with an estimated remaining probable loss range for recall matters of $213 million to $347 million[297][298][299][300] - Note 8 discloses a $216 million goodwill impairment charge for the Spine reporting unit in 2022, primarily due to slower-than-anticipated surgical volume recovery, market competitive pressures, and rising interest rates[306][307] - Note 9 on equity discloses no share repurchases in 2022, with $1.033 billion remaining under the authorized repurchase program; 23 million shares were reserved for future equity incentive awards as of December 31, 2022[314][315] - Note 10 on debt and credit facilities discloses a $1.5 billion term loan agreement entered into in 2022, with $650 million repaid, and the commercial paper program limit increased to $2.25 billion; total debt was $13.048 billion as of December 31, 2022[324][326] - Note 11 on income taxes discloses an effective tax rate decrease to 12.1% in 2022, primarily due to the US federal income tax audit settlement ($162 million benefit) and the reversal of deferred income taxes on undistributed earnings of foreign subsidiaries[329] - Note 12 on retirement plans discloses $305 million in defined contribution plan expenses in 2022, and defined benefit pension plans were underfunded by $253 million as of December 31, 2022[342][343][349] 2022 Quarterly Data (million USD, except per share amounts) | Quarter | Net Sales | Gross Profit | Earnings (Loss) Before Income Taxes | Net Earnings (Loss) | Diluted Net Earnings (Loss) Per Share | | :----- | :------- | :----- | :--------------- | :------------- | :--------------------- | | March 31 | 4,275 | 2,734 | 386 | 323 | $0.84 | | June 30 | 4,493 | 2,826 | 720 | 656 | $1.72 | | Sept 30 | 4,479 | 2,782 | 816 | 816 | $2.14 | | Dec 31| 5,202 | 3,236 | 761 | 563 | $1.47 | - Note 14 provides detailed financial data by business segment (MedSurg & Neurotechnology and Orthopaedics & Spine) and geographic region (United States, Europe/Middle East/Africa, Asia Pacific, Other Countries)[359][360][362] - Note 15 discloses $105 million in asset impairment charges recognized in 2021 due to China's VBP program for trauma, hip, and knee products; the exit from China Spine business in 2022 due to an unsuccessful VBP bid resulted in immaterial related asset impairment[363][364] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There is no information regarding changes in accountants or disagreements on accounting and financial disclosure in this report - Not applicable[367] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and internal controls over financial reporting were effective as of December 31, 2022, with no material changes in Q4 2022 - As of December 31, 2022, the company's disclosure controls and procedures were deemed effective[368] - No material changes occurred in internal control over financial reporting during the fourth quarter of 2022[369] - Management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2022, excluding the operations and related assets of Vocera (representing 8.2% of total assets and 1.1% of net sales) acquired in February 2022, and concluded it was effective[371] - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[373] Other Information The company discloses activities by its Russian subsidiary with the OFAC-sanctioned FSB, involving product import notifications under OFAC General License 1B, which generated no revenue or profit - Pursuant to Section 13(r) of the Securities Exchange Act of 1934, the company disclosed activities related to its Russian subsidiary with the OFAC-sanctioned Russian Federal Security Service (FSB)[382] - The company's Russian subsidiary periodically submits notifications or applies for import licenses for product imports to the FSB, as required by Russian law and authorized under OFAC General License 1B[383] - These notification and licensing activities are free of charge and generated no gross revenue or net profit[383] - In 2022, the company submitted two such notifications to the FSB[384] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This disclosure is not applicable - Not applicable[385] PART III Directors, Executive Officers and Corporate Governance Executive officer information is in Part I, Item 1, with details on directors, corporate governance, and related matters incorporated by reference from the 2023 Proxy Statement - Information about the company's executive officers is provided in Part I, Item 1 of this report[387] - Detailed information regarding directors, corporate governance, and related matters is incorporated by reference from the 2023 Proxy Statement[388] - Corporate governance guidelines, charters for the Audit Committee, Governance and Nominating Committee, and Compensation Committee, and the Code of Conduct applicable to the principal executive officer, president, principal financial officer, and principal accounting officer are available on the company's website at www.stryker.com under "Corporate Governance"[389] Executive Compensation Information on executive compensation, including discussion and analysis, committee reports, and director compensation, is incorporated by reference from the 2023 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2023 Proxy Statement[390] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Stock ownership information is incorporated by reference from the 2023 Proxy Statement, detailing equity incentive plans and unrecognized compensation costs for outstanding awards - Stock ownership information is incorporated by reference from the 2023 Proxy Statement[391] - As of December 31, 2022, the company had equity incentive plans, including stock options, restricted stock units (RSUs), and performance stock units (PSUs)[392] - As of December 31, 2022, 23 million shares of common stock were reserved for future equity incentive awards[315] - As of December 31, 2022, the unrecognized compensation cost for unvested stock options was $111 million, expected to be recognized over approximately 1.6 years[318] - As of December 31, 2022, the unrecognized compensation cost for unvested RSUs was $72 million, expected to be recognized over approximately 1 year[321] - As of December 31, 2022, the unrecognized compensation cost for unvested PSUs was $18 million, expected to be recognized over approximately 1 year[321] Certain Relationships and Related Transactions, and Director Independence Information regarding corporate governance, certain relationships, and related party transactions is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[395] Principal Accountant Fees and Services Information concerning principal accountant fees and services is incorporated by reference from the 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[396] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and a comprehensive index of exhibits, including acquisition plans, corporate charters, and material contracts - Financial statements are listed in Part II, Item 8 of this report[398] - Financial statement schedules include Schedule II - Valuation and Qualifying Accounts[399] - The exhibit index provides a detailed list of acquisition plans, corporate charters, indentures, material contracts (e.g., equity incentive plans, credit agreements), and various certification documents[400][401][402][405] Form 10-K Summary This report does not contain a Form 10-K Summary - No Form 10-K Summary[406]