2016 FORM 10-K

Issue link:

Contents of this Issue


Page 27 of 43

STRYKER CORPORATION 2016 Form 10-K Dollar amounts in millions except per share amounts or as otherwise specified. 26 consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than those estimated by management, additional expense may be incurred, which could unfavorably affect future operating results. We are self-insured for product liability 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. In June 2012 we voluntarily recalled our Rejuvenate and ABG II Modular-Neck hip stems and terminated global distribution of these hip products. Product liability lawsuits relating to this voluntary recall have been filed against us. On November 3, 2014 we announced that we had entered into a settlement agreement to compensate eligible United States patients who had revision surgery to replace their Rejuvenate and/or ABG II Modular-Neck hip stem prior to that date and in December 2016 the settlement program was extended to patients who had revision surgery prior to December 19, 2016. We continue to offer support for recall-related care and reimburse patients who are not eligible to enroll in the settlement program for testing and treatment services, including any necessary revision surgeries. In addition, some lawsuits will remain and we will continue to defend against them. Based on the information that has been received, the actuarially determined range of probable loss to resolve this matter globally is currently estimated to be approximately $1,968 to $2,224 ($2,200 to $2,456 before $232 of third-party insurance recoveries). In 2016 we recorded additional charges to earnings of $144, representing the excess of the minimum of the range over the previously recorded reserves. The final outcome of this matter is dependent on many factors that are difficult to predict including the number of enrollees in the settlement program and the total awards to them, the number and costs of patients not eligible for the settlement program who seek testing and treatment services and require revision surgery and the number and actual costs to resolve the remaining lawsuits. Accordingly, the ultimate cost to resolve this entire matter globally may be materially different than the amount of the current estimate and accruals and could have a material adverse effect on our financial position, results of operations and cash flows. In 2010 we filed a lawsuit in federal court against Zimmer Biomet Holdings, Inc. (Zimmer), alleging that a Zimmer product infringed on three of our patents. In 2013 following a jury trial favorable to us, the trial judge entered a final judgment that, among other things, awarded us damages of $76 and ordered Zimmer to pay us enhanced damages. Zimmer appealed this ruling. In December 2014 the Federal Circuit affirmed the damages awarded to us, reversed the order for enhanced damages and remanded the issue of attorney fees to the trial court. In May 2015 the trial court entered a stipulated judgment that, among other things, required Zimmer to pay us the base amount of damages and interest, while the issues of enhanced damages and attorney fees continue to be pursued. In June 2015 we recorded a $54 gain, net of legal costs, which was recorded within selling, general and administrative expenses. On June 13, 2016 the United States Supreme Court vacated the decision of the Federal Circuit that reversed our judgment for enhanced damages and remanded the case to the Federal Circuit to reconsider the issue. On September 12, 2016 the Federal Circuit issued an opinion that, among other things, remanded the issue of enhanced damages to the trial court. In April 2011 Hill-Rom Company, Inc. and affiliated entities (Hill- Rom) brought a lawsuit against us alleging infringement under United States patent laws with respect to nine patents related to electrical network communications for hospital beds. On March 31, 2015 the court granted the parties' joint motion to dismiss with prejudice the claims and counterclaims associated with three of these patents. The case has been stayed with respect to the remaining six patents, which currently are under reexamination by the United States Patent Office. The ultimate resolution of this matter cannot be predicted and it is not possible at this time for us to estimate any probable loss or range of probable losses; however, the ultimate result could have a material adverse effect on our financial position, results of operations and cash flows. Future Obligations We have purchase commitments for materials, supplies, services and property, plant and equipment as part of the normal course of business. In addition, we lease various manufacturing, warehousing and distribution facilities, administrative and sales offices as well as equipment under operating leases. Rent expense totaled $112, $101, and $103 in 2016, 2015 and 2014. Refer to Note 9 for more information on the debt obligations. Future Obligations 2017 2018 2019 2020 2021 Thereafter Debt repayments $ 200 $ 602 $ 750 $ 500 $ 750 $ 4,150 Purchase obligations 737 75 59 5 4 77 Minimum lease payments $ 90 $ 47 $ 34 $ 24 $ 15 $ 59 NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS We completed our annual impairment tests of goodwill in 2016 and 2015 and concluded in each year that no impairments exist. Summary of Other Intangible Assets Weighted Average Amortization Period (Years) Gross Carrying Amount Less Accumulated Amortization Net Carrying Amount Developed technologies 2016 14 $ 2,091 $ 706 $ 1,385 2015 13 1,597 563 1,034 Customer relationships 2016 15 $ 2,049 $ 407 $ 1,642 2015 15 788 290 498 Patents 2016 11 $ 317 $ 206 $ 111 2015 11 309 191 118 Trademarks 2016 18 $ 348 $ 59 $ 289 2015 10 109 41 68 In-process research and development 2016 $ 30 $ — $ 30 2015 25 — 25 Other 2016 12 $ 115 $ 64 $ 51 2015 13 108 57 51 Total 2016 15 $ 4,950 $ 1,442 $ 3,508 2015 13 $ 2,936 $ 1,142 $ 1,794 Changes in the Net Carrying Value of Goodwill by Segment Orthopaedics MedSurg Neurotechnology and Spine Total 2014 $ 2,386 $ 726 $ 1,074 $ 4,186 Additions and adjustments 20 46 — 66 Foreign exchange (62) 10 (64) (116) 2015 $ 2,344 $ 782 $ 1,010 $ 4,136 Additions and adjustments 72 2,196 62 2,330 Foreign exchange (44) (44) (22) (110) 2016 $ 2,372 $ 2,934 $ 1,050 $ 6,356

Articles in this issue

view archives of STRYKER - 2016 FORM 10-K