STRYKER

2016 FORM 10-K

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STRYKER CORPORATION 2016 Form 10-K Dollar amounts in millions except per share amounts or as otherwise specified. 28 Summary of Total Debt Senior unsecured notes: 2016 2015 Rate Due 2.000% 09/30/2016 $ — $ 749 1.300% 04/01/2018 598 597 2.000% 03/08/2019 746 — 4.375% 01/15/2020 497 496 2.625% 03/15/2021 745 — 3.375% 05/15/2024 602 606 3.375% 11/01/2025 744 744 3.500% 03/15/2026 987 — 4.100% 04/01/2043 391 390 4.375% 05/15/2044 395 394 4.625% 03/15/2046 979 — Commercial paper 200 — Other 30 22 Total debt $ 6,914 $ 3,998 Less current maturities 228 768 Total long-term debt $ 6,686 $ 3,230 Unamortized debt issuance costs $ 45 $ 24 Available borrowing capacity under all existing facilities $ 1,551 $ 1,236 Fair value of debt $ 6,762 $ 4,009 The fair value of debt (excluding the interest rate hedge) was based on the quoted interest rates for similar types and amounts of borrowings. Substantially all of our debt was classified within Level 1 of the fair value hierarchy. The fair value of the debt was estimated using rates with identical terms and maturities based on quoted active market prices and yields that took into account the underlying terms of the debt instruments. On January 1, 2016 we retrospectively adopted ASU 2015-03, Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. The adoption of this update resulted in the reclassification of $24 of unamortized debt issuance costs, principally from other noncurrent assets to a reduction of long-term debt on the Consolidated Balance Sheet on December 31, 2015. Interest expense, including required fees incurred on outstanding debt and credit facilities that were included in other expense, totaled $228, $108, and $113 in 2016, 2015 and 2014. NOTE 10 - INCOME TAXES Our effective tax rate was 14.3%, 17.1% and 55.6% for 2016, 2015 and 2014. The effective income tax rate for 2014 includes the tax impacts of the establishment of a European regional headquarters and the cash repatriation that affected 2014 but was executed in 2015. The establishment of the European regional headquarters contributed to the lower effective income tax rates in 2015 and 2016. Effective Income Tax Rate Reconciliation 2016 2015 2014 United States federal statutory rate 35.0% 35.0% 35.0% United States state and local income taxes, less federal deduction 1.7 2.1 2.2 Foreign income tax at rates other than 35% (22.2) (17.6) 4.9 Tax related to repatriation of foreign earnings (0.3) (3.9) 10.1 Other 0.1 1.5 3.4 Effective income tax rate 14.3% 17.1% 55.6% Earnings Before Income Taxes 2016 2015 2014 United States $ 542 $ 475 $ 355 International 1,379 1,260 805 Total $ 1,921 $ 1,735 $ 1,160 Components of Income Tax Expense Current income tax expense: 2016 2015 2014 United States federal $ 94 $ 78 $ 213 United States state and local 50 23 26 International 176 108 346 Total current income tax expense $ 320 $ 209 $ 585 Deferred income tax expense (benefit): United States federal $ (17) $ 2 $ 9 United States state and local (12) 8 (16) International (17) 77 67 Total deferred income tax expense (benefit) $ (46) $ 87 $ 60 Total income tax expense $ 274 $ 296 $ 645 Interest and penalties included in other income (expense), net were ($1), ($4) and $8 in 2016, 2015 and 2014. The United States federal deferred income tax expense (benefit) includes the utilization of net operating loss carryforwards of $28, $79 and $78 in 2016, 2015 and 2014. Deferred Income Tax Assets and Liabilities Deferred income tax assets: 2016 2015 Inventories $ 583 $ 513 Product related liabilities 115 116 Other accrued expenses 248 206 Depreciation and amortization — 4 State income taxes 52 43 Share-based compensation 80 79 Net operating loss carryforwards 74 47 Other 117 143 Total deferred income tax assets $ 1,269 $ 1,151 Less valuation allowances (51) (47) Net deferred income tax assets $ 1,218 $ 1,104 Deferred income tax liabilities: Depreciation and amortization $ (871) $ (586) Undistributed earnings (50) (50) Other (50) (26) Total deferred income tax liabilities $ (971) $ (662) Net deferred income tax assets $ 247 $ 442 Reported as: Noncurrent assets—Other $ 302 $ 477 Noncurrent liabilities—Other liabilities (55) (35) Total $ 247 $ 442 Accrued interest and penalties were $34 and $30, which was reported in accrued expenses and other liabilities, both current and noncurrent, on December 31, 2016 and 2015. Net operating loss carryforwards totaling $185 on December 31, 2016 are available to reduce future taxable earnings of certain domestic and foreign subsidiaries. United States loss carryforwards of $160 expire through 2028. International loss carryforwards of $25 began to expire in 2016; however, some have no expiration. Of these carryforwards, $45 are subject to a full valuation allowance. We also have a tax credit carryforward of $40 with a full valuation allowance. These credits have no expiration; however, we do not anticipate generating income tax in excess of the credits in the foreseeable future. No provision was made for United States federal and state income taxes or international income taxes that may result from future remittances of the undistributed earnings of foreign subsidiaries that are determined to be indefinitely reinvested $8,391 on December 31, 2016. Determination of the amount of any unrecognized deferred income tax liability on these is not practicable.

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