Stryker is one of the world's leading medical technology companies and, together
with our customers, we are driven to make healthcare better. We offer innovative
products and services in Orthopaedics, Medical and Surgical, and Neurotechnology
and Spine that help improve patient and hospital outcomes.
We segregate our operations into three reportable business segments:
Orthopaedics, MedSurg, and Neurotechnology and Spine. Orthopaedics products
consist primarily of implants used in hip and knee joint replacements and trauma
and extremities surgeries. MedSurg products include surgical equipment and
surgical navigation systems (Instruments), endoscopic and communications systems
(Endoscopy), patient handling, emergency medical equipment and intensive care
disposable products (Medical), reprocessed and remanufactured medical devices
(Sustainability) and other medical device products used in a variety of medical
specialties. Neurotechnology and Spine products include neurosurgical,
neurovascular and spinal implant devices.
The COVID-19 outbreak, which has been declared a global pandemic, has led to
severe disruptions in the market and the global and United States economies that
may continue for a prolonged duration and trigger a recession or a period of
economic slowdown. In response, various governmental authorities and private
enterprises have implemented numerous measures to contain the pandemic, such as
travel bans and restrictions, quarantines, shelter-in-place orders and
shutdowns. A significant number of our global suppliers, vendors, distributors
and manufacturing facilities are located in regions that have been affected by
the pandemic, such as, among others, the United States, China, France, Germany,
Switzerland and the United Kingdom. Those operations have been, and will
continue to be, materially adversely affected by restrictive government and
private enterprise measures implemented in response to the pandemic.
Some of our products are particularly sensitive to reductions in deferrable
medical procedures. Deferrable medical procedures were suspended in the first
quarter of 2020 in many of the markets where our products are marketed and sold,
which negatively affected our business, cash flows, financial condition and
results of operations. To the extent individuals are required to continue to
de-prioritize or delay deferrable procedures as a result of the COVID-19
pandemic or otherwise, our business, cash flows, financial condition and results
of operations could be negatively affected.
In addition, certain of our MedSurg products, such as personal protective
equipment, have experienced, and could continue to experience, higher demand as
our customers focus on treating COVID-19 patients. Unpredictable increases in
demand for certain of our products could exceed our capacity to meet such demand
timely, which could adversely affect our customer relationships and result in
negative publicity. In this regard, the accelerated development and production
of products and services in an effort to address medical and other requirements
as a result of the pandemic could increase the risk of regulatory enforcement
actions, product defects or related claims.
Further, in an effort to increase the wider availability of needed medical and
other supplies and products in response to the pandemic, governments may require
us (such as under the United States Defense Production Act) to allocate
manufacturing capacity in a way that adversely affects our regular operations,
differential treatment of customers and/or adversely affects our reputation and
customer relationships. It is also possible that certain of our operations are
deemed non-essential and thus subject to suspension or other restrictions by
government orders. We cannot predict how these changes in operations, if
implemented, would affect our future operations and commercial activities as the
impact of the pandemic begins to subside.
In addition, in March 2020 the Coronavirus Aid, Relief and Economic Security Act
(the "CARES Act") was signed into law in the United States. We do not expect the
provisions of the CARES Act to have a material impact on our annual effective
tax rate or Consolidated Financial Statements in 2020.
Finally, the COVID-19 pandemic's significant disruption on global financial
markets may limit our ability to access capital, and the terms on which we are
able to access capital may be substantially less favorable than those existing
prior to the pandemic.
Overview of the Three and Six Months
The response to the COVID-19 pandemic has included unprecedented measures to
slow the spread of the virus taken by local governments and health care
authorities globally, including the postponement of deferrable medical
procedures and social contact restrictions, which have had, and we expect will
continue to have, a significant negative impact on Stryker's operations and
financial results. While we reported overall decreased unit volume in the
quarter, most of our businesses saw gradual recoveries in the month of June
In the three months 2020 we experienced sales declines of 24.3%. Excluding the
impact of acquisitions sales decreased 24.0% in constant currency. We reported
operating income (loss) margin of (0.7%), net earnings (loss) of ($83) and net
earnings (loss) per diluted share of ($0.22), including $170 of charges related
to certain in-process asset impairments (primarily the portion of our investment
in a new global ERP system that was in-process of being developed for future
deployment) and product line and other exit costs resulting from our decision to
suspend certain investments due to pandemic-related constraints. Excluding the
impact of certain items, adjusted operating income margin(1) was 12.5%, with
adjusted net earnings(1) of $245 and a reduction of 67.7% in adjusted net
earnings per diluted share(1).
In the six months 2020 we experienced sales declines of 11.4%. Excluding the
impact of acquisitions sales decreased 11.1% in constant currency. We reported
operating income margin of 9.7%, net earnings of $410 and net earnings per
diluted share of $1.08. Excluding the impact of certain items, adjusted
operating income margin(1) contracted by 650 basis points to 19.0%, with
adjusted net earnings(1) of $944 and a reduction of 35.8% in adjusted net
earnings per diluted share(1).
In January 2020 we repaid $500 of our senior unsecured notes with a coupon of
4.375% that were due on January 15, 2020. In June 2020 we issued $650 of senior
unsecured notes with a fixed interest rate of 1.150% due on June 15, 2025,
$1,000 of senior unsecured notes with a fixed interest rate of 1.950% due on
June 15, 2030 and $650 of senior unsecured notes with a fixed interest rate of
2.900% due on June 15, 2050. Refer to Note 8 to our Consolidated Financial
Statements for further Information.
In the six months 2020 we did not repurchase any shares of our common stock
under our authorized repurchase program. The total dollar value of shares of our
common stock that could be acquired under our authorized repurchase program was
$1,033 as of
Dollar amounts are in millions except per share amounts or as
STRYKER CORPORATION 2020 Second Quarter Form 10-Q
June 30, 2020. As previously announced we intend to maintain the suspension of
our share repurchase program through 2021.
On April 30, 2020 we amended our primary credit facility. The principal change
was to increase the leverage ratio financial covenant from 3.5:1 to 4.5:1 at the
end of each fiscal quarter ending
on or prior to June 30, 2021.
On April 30, 2020 we entered into a credit agreement that provides for up to
$1,500 of borrowings in U.S. Dollars pursuant to a 364-day revolving credit
facility, which matures on April 29, 2021 and is available for working capital
and general corporate purposes.
(1) Refer to "Non-GAAP Financial Measures" for a discussion of non-GAAP
financial measures used in this report and a reconciliation to the most directly
comparable GAAP financial measure.
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