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Stryker 2015 FORM 10-K

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regulations. Income tax authorities in these jurisdictions regularly perform audits of our income tax filings. Income tax audits associated with the allocation of this income and other complex issues, including inventory transfer pricing and cost sharing, product royalty and foreign branch arrangements, may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. New Accounting Pronouncements Not Yet Adopted In April 2015 the FASB issued ASU 2015-03, Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. This update requires an entity to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability consistent with debt discounts and is effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. We adopted this standard on January 1, 2016 and do not expect it to have a material impact on the Consolidated Financial Statements. In May 2014 the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This guidance, which is effective for financial statements issued for fiscal years beginning after December 15, 2017, outlines a single, comprehensive model for accounting for revenue from contracts with customers. We plan to adopt this standard on January 1, 2018. We are still evaluating what impact, if any, that the standard will have on our financial statements. NOTE 2 - SUBSEQUENT EVENT On February 1, 2016 we entered into a definitive agreement to acquire Sage Products, LLC (Sage) in an all cash transaction for $2,775. Sage develops, manufactures and distributes disposable products targeted at reducing "Never Events," primarily in the intensive care unit and MedSurg hospital unit setting. Sage's products include solutions for oral care, skin preparation and protection, patient cleaning and hygiene, turning and positioning devices and heel care boots. This transaction is expected to close during the second quarter of 2016. NOTE 3 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME 2015 Marketable Securities Pension Plans Hedges Financial Statement Translation Total Beginning $ 3 $ (136 ) $ 13 $ (134 ) $ (254 ) OCI before reclassifications 1 15 2 (362 ) (344 ) Tax (benefit) expense on OCI (1 ) (4 ) 2 (28 ) (31 ) Reclassifications out of AOCI, net Cost of Sales — 8 (19 ) — (11 ) Other (income) expense (4 ) — — — (4 ) Income tax expense (benefit) 1 (2 ) 6 — 5 Net current period OCI $ (3 ) $ 17 $ (9 ) $ (390 ) $ (385 ) Ending $ — $ (119 ) $ 4 $ (524 ) $ (639 ) 2014 Marketable Securities Pension Plans Hedges Financial Statement Translation Total Beginning $ — $ (81 ) $ 7 $ 306 $ 232 OCI before reclassifications 12 (72 ) 10 (440 ) (490 ) Tax (benefit) expense on OCI (2 ) 22 (4 ) — 16 Reclassifications out of AOCI, net Cost of Sales — (6 ) (1 ) — (7 ) Other (income) expense (9 ) — — — (9 ) Income tax expense (benefit) 2 1 1 — 4 Net current period OCI $ 3 $ (55 ) $ 6 $ (440 ) $ (486 ) Ending $ 3 $ (136 ) $ 13 $ (134 ) $ (254 ) NOTE 4 - FAIR VALUE MEASUREMENTS Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: Level 1 Quoted market prices in active markets for identical assets or liabilities. Level 2 Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 Unobservable inputs reflecting our assumptions or external inputs from active markets. When applying fair value principles in the valuation of assets and liabilities, we are required to maximize the use of quoted market prices and minimize the use of unobservable inputs. We calculate the fair value of our Level 1 and Level 2 instruments based on the exchange traded price of similar or identical instruments, where available, or based on other observable inputs taking into account our credit risk and that of our counterparties. Foreign currency exchange contracts and interest rate hedges are included in Level 2 as we use inputs other than quoted prices that are observable for the asset or liability. The Level 2 derivative instruments are primarily valued using standard calculations and models that use readily observable market data as their basis. Our Level 3 liabilities represent milestone payments for acquisitions. The fair value of the liability was estimated using a discounted cash flow technique. Significant unobservable inputs to this technique included our probability assessments of occurrence of triggering events, appropriately discounted considering the uncertainties associated with the obligation. We remeasure our assets and liabilities each reporting period and record the changes in fair value within selling, general and administrative expense and the changes in the time value of money within other income (expense), net. STRYKER CORPORATION 2015 Form 10-K 24 Dollar amounts in millions except per share amounts or as otherwise specified.

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