STRYKER

Stryker 2014 Annual Report

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Components of Net Periodic Pension Cost 2014 2013 2012 Net periodic benefit cost: Service cost $ (26) $ (30) $ (21) Interest cost (13) (13) (13) Expected return on plan assets 10 10 9 Amortization of prior service cost and transition amount 1 1 1 Recognized actuarial loss (7) (8) (5) Net periodic benefit cost (35) (40) (29) Changes in assets and benefit obligations recognized in OCI: Net actuarial gain (loss) (88) 28 (87) Recognized net actuarial loss 7 8 5 Prior service cost and transition amount 4 (1 ) — Total recognized in OCI (77) 35 (82) Total recognized in net periodic benefit cost and OCI $ (112 ) $ (5 ) $ (111 ) Assumptions Weighted-average rates used to determine net periodic benefit cost: Discount rate 3.2% 2.9% 4.2% Expected return on plan assets 3.7% 3.7% 4.2% Rate of compensation increase 2.9% 3.0% 3.0% Weighted-average discount rate used to determine projected benefit obligations 2.0 % 3.2 % 2.9 % Discount rate The discount rates were selected using a hypothetical portfolio of high quality bonds at December 31 that would provide the necessary cash flows to match our projected benefit payments. Expected return on plan assets The expected return on plan assets is determined by applying the target allocation in each asset category of plan investments to the anticipated return for each asset category based on historical and projected returns. Investment strategy The investment strategy for our defined benefit pension plans is to meet the liabilities of the plans as they fall due and to maximize the return on invested assets within appropriate risk tolerances. The weighted-average target and actual allocation of plan assets by asset category is as follows: Target December 2014 2014 2013 Equity securities 30% 30% 34% Debt securities 50 48 46 Other 20 22 20 100% 100% 100% Valuation of Our Pension Plan Assets by Pricing Categories: Level 2014 1 2 3 Total Cash and cash equivalents $ 6 $ — $ — $ 6 Equity securities 125 — — 125 Corporate debt securities 121 — — 121 Other 17 8 33 58 Total $ 269 $ 8 $ 33 $ 310 2013 Cash and cash equivalents $ 10 $ — $ — $ 10 Equity securities 94 — — 94 Corporate debt securities 127 2 — 129 Other 18 8 22 48 Total $ 249 $ 10 $ 22 $ 281 Our Level 3 pension plan assets (See Note 3 for an explanation of our fair value hierarchy) consist primarily of guaranteed investment contracts with insurance companies. The insurance contracts guarantee us principal repayment and a fixed rate of return. Our valuation of Level 3 assets is based on third-party actuarial valuations that are an estimation of the surrender value of the guaranteed investment contract between us and the insurance company. The surrender value equals the actuarial value of the notional investments underlying the guaranteed investment contract, using the actuarial assumptions as stated in the guaranteed investment contract. Rollforward of Level 3 Pension Plan Assets 2014 2013 Balance at January 1 $ 22 $ 23 Actual return on plan assets held at the reporting date 11 — Purchases, sales, and settlements — (1) Balance at December 31 $ 33 $ 22 We expect to contribute $19 to our defined benefit pension plans in 2015. The estimated future benefit payments by year based on expected future service as appropriate are: 2015 2016 2017 2018 2019 2020-24 Expected benefit payments $ 15 $ 15 $ 15 $ 15 $ 15 $ 81 STRYKER CORPORATION 2014 Form 10-K 33 Dollar amounts in millions except per share amounts or as otherwise specified. NOTE 12 - SEGMENT AND GEOGRAPHIC DATA In 2014 we changed the name of our Reconstructive business segment to Orthopaedics. The name change did not change the composition of any of our business segments and had no financial impact. We segregate our operations into three reportable business segments: Orthopaedics, MedSurg, and Neurotechnology and Spine. The Orthopaedics segment includes reconstructive (hip and knee) and trauma implant systems as well as other related products. The MedSurg segment includes surgical equipment and surgical navigation systems (Instruments); endoscopic and communications systems (Endoscopy); patient handling and emergency medical equipment (Medical); and reprocessed and remanufactured medical devices (Sustainability) as well as other products. The Neurotechnology and Spine segment includes neurovascular products, spinal implant systems and other related products. The Other category shown in the table below includes corporate and global operations administration, central research and development initiatives, interest expense, interest and marketable securities income and share-based compensation, which includes compensation related to both employee and director stock option,

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