Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

About Stryker

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. Our goal is to achieve sales growth at the high-end of the medical technology (MedTech) industry and maintain our long-term capital allocation strategy that prioritizes: (1) Acquisitions, (2) Dividends and (3) Share repurchases.

COVID-19 Pandemic

The COVID-19 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. Those operations have been 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 elective medical procedures. Elective 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. While we saw progressive improvement in the second and third quarters, to the extent individuals are required to continue to de-prioritize or delay elective procedures as a result of the COVID-19 pandemic or otherwise, as we experienced in the fourth quarter, our business, cash flows, financial condition and results of operations could be negatively affected.

Overview of 2020

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 elective medical procedures and social contact restrictions, which have had, and could continue to have, a significant negative impact on Stryker’s operations and financial results.

In 2020 reported net sales declined 3.6%. Excluding the impact of acquisitions, sales declined 4.8% in constant currency. We reported net earnings of $1,599 and net earnings per diluted share of $4.20. Excluding the impact of certain items, we achieved adjusted net earnings**(1)** of $2,827 and adjusted net earnings per diluted share**(1)** of $7.43 representing a decline of 10.0%.

We continued our capital allocation strategy by investing $4,222 in acquisitions and paying $863 in dividends to our shareholders.

In 2020 we received $3,292 from issuance of debt and had total debt repayments of $2,297. We exercised our right under the acquisition clause of our credit and term loan facilities to increase the maximum permitted leverage to 5.0:1 effective as of December 31, 2020. Refer to Note 10 to our Consolidated Financial Statements for further information.

In 2020 we completed acquisitions for total net cash consideration of $4,222 and $82 in future milestone payments primarily due upon the achievement of certain regulatory and commercial milestones. In November 2020 we completed the acquisition of Wright for $30.75 per share, or an aggregate purchase price of $4.1 billion ($5.6 billion including convertible notes). Wright is a global medical device company focused on extremities and biologics. Wright is part of our Trauma and Extremities business within Orthopaedics. In December 2020 we completed the acquisition of OrthoSensor, Inc. (OrthoSensor). OrthoSensor is a leader in the digital evolution of musculoskeletal care and sensor technology for total joint replacement. OrthoSensor is part of our Joint Replacement business within Orthopaedics.

In 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 December 31, 2020. We previously announced our intention to suspend our share repurchase program through 2021.

(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.

CONSOLIDATED RESULTS OF OPERATIONS

															Percent Net Sales												Percentage Change
2020			2019			2018						2020			2019			2018						Current Year End			Prior Year End
Net sales			$	14,351		$	14,884		$	13,601					100.0		%	100.0		%	100.0		%				(3.6)		%	9.4		%
Gross profit			9,057			9,696			8,938						63.1			65.1			65.7						(6.6)			8.5
Research, development and engineering expenses			984			971			862						6.9			6.5			6.3						1.3			12.6
Selling, general and administrative expenses			5,361			5,356			5,099						37.4			36.0			37.5						0.1			5.0
Recall charges, net of insurance proceeds			17			192			23						0.1			1.3			0.2						(91.1)			nm
Amortization of intangible assets			472			464			417						3.3			3.1			3.1						1.7			11.3
Other income (expense), net			(269)			(151)			(181)						(1.9)			(1.0)			(1.3)						78.1			(16.6)
Income taxes			355			479			(1,197)																		(25.9)			nm
Net earnings			$	1,599		$	2,083		$	3,553					11.1		%	14.0		%	26.1		%				(23.2)		%	(41.4)		%
Net earnings per diluted share			$	4.20		$	5.48		$	9.34																	(23.4)		%	(41.3)		%
Adjusted net earnings per diluted share**(1)**			$	7.43		$	8.26		$	7.31																	(10.0)		%	13.0		%

Dollar amounts in millions except per share amounts or as otherwise specified.			11

STRYKER CORPORATION 2020 FORM 10-K

Geographic and Segment Net Sales															Percentage Change
												Current Year End									Prior Year End
			2020			2019			2018						As Reported			Constant Currency						As Reported			Constant Currency
Geographic:
United States			$	10,455		$	10,957		$	9,848					(4.6)		%	(4.6)		%				11.3		%	11.3		%
International			3,896			3,927			3,753						(0.8)			(0.9)						4.6			9.3
Total			$	14,351		$	14,884		$	13,601					(3.6)		%	(3.6)		%				9.4		%	10.7		%
Segment:
Orthopaedics			$	4,959		$	5,252		$	4,991					(5.6)		%	(5.7)		%				5.2		%	6.7		%
MedSurg			6,400			6,492			6,045						(1.4)			(1.3)						8.8			9.9
Neurotechnology and Spine			2,992			3,140			2,565						(4.7)			(4.9)						19.2			20.5
Total			$	14,351		$	14,884		$	13,601					(3.6)		%	(3.6)		%				9.4		%	10.7		%

Supplemental Net Sales Growth Information
									Percentage Change																								Percentage Change
															United States			International																					United States			International
			2020			2019			As Reported			Constant Currency			As Reported			As Reported			Constant Currency						2019			2018			As Reported			Constant Currency			As Reported			As Reported			Constant Currency
Orthopaedics:
Knees			$	1,567		$	1,815		(13.7)		%	(13.7)		%	(13.1)		%	(15.3)		%	(15.5)		%				$	1,815		$	1,701		6.7		%	8.1		%	8.2		%	2.6		%	7.6		%
Hips			1,206			1,383			(12.8)			(12.7)			(12.0)			(14.1)			(13.8)						1,383			1,336			3.5			5.2			5.4			0.3			4.8
Trauma and Extremities			1,722			1,639			5.1			4.7			8.4			(0.9)			(1.9)						1,639			1,580			3.7			5.2			4.9			1.6			5.8
Other			464			415			11.7			11.4			15.8			(4.9)			(6.5)						415			374			11.2			12.0			11.5			10.0			14.2
			$	4,959		$	5,252		(5.6)		%	(5.7)		%	(3.9)		%	(9.2)		%	(9.6)		%				$	5,252		$	4,991		5.2		%	6.7		%	6.8		%	1.9		%	6.4		%
MedSurg:
Instruments			$	1,863		$	1,959		(5.0)		%	(5.0)		%	(4.7)		%	(6.1)		%	(6.2)		%				$	1,959		$	1,822		12.0		%	13.1		%	12.9		%	8.7		%	13.8		%
Endoscopy			1,763			1,983			(11.1)			(11.0)			(10.7)			(12.5)			(12.2)						1,983			1,846			7.5			8.6			10.1			(1.8)			3.4
Medical			2,524			2,264			11.5			11.8			6.9			28.9			30.3						2,264			2,118			6.9			8.1			9.6			(2.4)			2.9
Sustainability			250			286			(12.3)			(12.3)			(12.4)			nm			nm						286			259			10.4			10.4			9.9			nm			nm
			$	6,400		$	6,492		(1.4)		%	(1.3)		%	(2.9)		%	4.7		%	5.3		%				$	6,492		$	6,045		8.8		%	9.9		%	10.8		%	1.3		%	6.5		%
Neurotechnology and Spine:
Neurotechnology			$	1,945		$	1,983		(1.9)		%	(2.1)		%	(7.7)		%	8.8		%	8.2		%				$	1,983		$	1,737		13.5		%	14.9		%	13.9		%	12.7		%	16.7		%
Spine			1,047			1,157			(9.5)			(9.6)			(12.5)			(0.6)			(0.9)						1,157			828			31.1			32.3			34.7			21.3			25.4
			$	2,992		$	3,140		(4.7)		%	(4.9)		%	(9.6)		%	6.1		%	5.6		%				$	3,140		$	2,565		19.2		%	20.5		%	21.3		%	14.9		%	18.9		%
Total			$	14,351		$	14,884		(3.6)		%	(3.6)		%	(4.6)		%	(0.8)		%	(0.9)		%				$	14,884		$	13,601		9.4		%	10.7		%	11.3		%	4.6		%	9.3		%

nm - not meaningful

Consolidated Net Sales

Consolidated net sales in 2020 were significantly negatively impacted by the global response to the COVID-19 pandemic. Consolidated net sales decreased 3.6% as reported and in constant currency. Excluding the 1.2% impact of acquisitions, net sales in constant currency decreased by 4.1% from decreased unit volume and 0.7% due to lower prices. The unit volume decrease was primarily due to lower shipments of instruments, endoscopy, neurotechnology, spine, knee and hip products partially offset by higher shipments of medical products.

Consolidated net sales in 2019 increased 9.4% as reported and 10.7% in constant currency, as foreign currency exchange rates negatively impacted net sales by 1.3%. Excluding the 2.6% impact of acquisitions, net sales in constant currency increased by 9.0% from increased unit volume partially offset by 0.9% due to lower prices. The unit volume increase was primarily due to higher shipments of medical, instruments, endoscopy, neurotechnology, knee, hip and trauma and extremities products.

Orthopaedics Net Sales

Orthopaedics net sales in 2020 decreased 5.6% as reported and 5.7% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.1%. Excluding the 2.4% impact of acquisitions, net sales in constant currency decreased due to the postponement of elective medical procedures as part of the global response to the COVID-19 pandemic with 6.6% from decreased unit volume and 1.5% due to lower prices. The unit volume decrease was primarily due to lower shipments of knee, hip and trauma and extremities products.

Orthopaedics net sales in 2019 increased 5.2% as reported and 6.7% in constant currency, as foreign currency exchange rates negatively impacted net sales by 1.5%. Net sales in constant currency increased by 8.2% from unit volume partially offset by 1.5% due to lower prices. The unit volume increase was primarily due to higher shipments of knee, hip and trauma and extremities products.

MedSurg Net Sales

MedSurg net sales in 2020 decreased 1.4% as reported and 1.3% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.1%. Excluding the 0.5% impact of acquisitions, net sales in constant currency decreased by 1.8% from decreased unit volume with a nominal impact from changes in pricing. The unit volume decrease was primarily due to lower shipments of instruments, endoscopy, and sustainability solutions products partially offset by higher shipments of medical products.

MedSurg net sales in 2019 increased 8.8% as reported and 9.9% in constant currency, as foreign currency exchange rates negatively impacted net sales by 1.1%. Excluding the 1.0% impact of acquisitions, net sales in constant currency increased by 9.4% from increased unit volume partially offset by 0.5% due to lower prices. The unit volume increase was primarily due to higher shipments of medical, instruments, endoscopy and sustainability solutions products.

Neurotechnology and Spine Net Sales

Neurotechnology and Spine net sales in 2020 decreased 4.7% as reported and 4.9% in constant currency, as foreign currency

Dollar amounts in millions except per share amounts or as otherwise specified.			12

STRYKER CORPORATION 2020 FORM 10-K

exchange rates positively impacted net sales by 0.2%. Excluding the 0.8% impact of acquisitions, net sales in constant currency decreased by 4.9% from decreased unit volume and 0.8% due to lower prices. The unit volume decrease was primarily due to lower shipments of spine and neurotechnology products.

Neurotechnology and Spine net sales in 2019 increased 19.2% as reported and 20.5% in constant currency, as foreign currency exchange rates negatively impacted net sales by 1.3%. Excluding the 11.6% impact of acquisitions, net sales in constant currency increased by 9.6% from increased unit volume partially offset by 0.7% due to lower prices. The unit volume increase was primarily due to higher shipments of neurotechnology products.

Gross Profit

Gross profit was significantly negatively impacted by the global response to the COVID-19 pandemic in 2020, decreasing as a percentage of net sales to 63.1% from 65.1% in 2019. Excluding the impact of the items noted below, gross profit decreased to 63.8% from 65.9% in 2019 primarily due to lower sales volumes, lower selling prices, lower manufacturing volumes and unfavorable product mix due to the postponement of elective medical procedures as part of the global response to the COVID-19 pandemic.

Gross profit as a percentage of net sales decreased to 65.1% in 2019 from 65.7% in 2018. Excluding the impact of the items noted below, gross profit decreased to 65.9% in 2019 from 66.1% in 2018 primarily due to the impact of lower selling prices.

															Percent Net Sales
			2020			2019			2018						2020			2019			2018
Reported			$	9,057		$	9,696		$	8,938					63.1		%	65.1		%	65.7		%
Inventory stepped up to fair value			48			67			16						0.3			0.5			0.1
Restructuring-related and other charges			53			38			27						0.4			0.3			0.3
Medical device regulations			2			6			2						—			—			—
Adjusted			$	9,160		$	9,807		$	8,983					63.8		%	65.9		%	66.1		%

Research, Development and Engineering Expenses

Research, development and engineering expenses as a percentage of net sales increased to 6.9% in 2020 from 6.5% in 2019 and 6.3% in 2018. Excluding the impact of the items noted below, expenses increased to 6.3% in 2020 from 6.1% in 2019 and were consistent with 2018. Projects to develop new products, investments in new technologies, integration of recent acquisitions and the impact of lower sales contributed to the increase partially offset by operating expense savings actions in response to the COVID-19 pandemic.

															Percent Net Sales
			2020			2019			2018						2020			2019			2018
Reported			$	984		$	971		$	862					6.9		%	6.5		%	6.3		%
Medical device regulations			(79)			(56)			(10)						(0.6)			(0.4)			—
Adjusted			$	905		$	915		$	852					6.3		%	6.1		%	6.3		%

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of net sales in 2020 increased to 37.4% from 36.0% in 2019 and included 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 other exit costs resulting from our decision to suspend certain investments due to pandemic-related constraints. Excluding the impact of the items noted below, expenses decreased to 33.1% in 2020 from 33.5% in 2019

primarily due to operating expense savings actions taken in response to the COVID-19 pandemic.

Selling, general and administrative expenses as a percentage of net sales in 2019 decreased to 36.0% from 37.5% in 2018. Excluding the impact of the items noted below, expenses decreased to 33.5% in 2019 from 33.9% in 2018 primarily due to leverage from higher sales volumes and continued focus on our operating expense improvement initiatives, partially offset by the leverage from recent acquisitions.

															Percent Net Sales
			2020			2019			2018						2020			2019			2018
Reported			$	5,361		$	5,356		$	5,099					37.4		%	36.0		%	37.5		%
Other acquisition and integration-related			(194)			(208)			(108)						(1.4)			(1.4)			(0.8)
Restructuring-related and other charges			(406)			(188)			(192)						(2.9)			(1.3)			(1.4)
Regulatory and legal matters			(6)			24			(185)						—			0.2			(1.4)
Adjusted			$	4,755		$	4,984		$	4,614					33.1		%	33.5		%	33.9		%

Recall Charges, Net of Insurance Proceeds

Recall charges were $17, $192 and $23 in 2020, 2019 and 2018. Charges were primarily due to the previously disclosed Rejuvenate and ABGII Modular-Neck hip stems and LFIT V40 femoral head voluntary recalls. Refer to Note 7 to our Consolidated Financial Statements for further information.

Amortization of Intangible Assets

Amortization of intangible assets was $472, $464 and $417 in 2020, 2019 and 2018. The increase in 2020 and 2019 was due to acquisitions. Refer to Notes 6 and 8 to our Consolidated Financial Statements for further information.

Operating Income

Operating income was significantly negatively impacted by the global response to the COVID-19 pandemic in 2020, decreasing as a percentage of sales to 15.5% from 18.2% in 2019 and 18.7% in 2018. Excluding the impact of the items noted below, operating income decreased to 24.4% of sales in 2020 from 26.3% in 2019 and 25.9% in 2018, primarily due to unfavorable business mix and the impact of lower sales volumes from the postponement of elective medical procedures as part of the global response to the COVID-19 pandemic partially offset by continued focus on our operating expense savings actions.

															Percent Net Sales
			2020			2019			2018						2020			2019			2018
Reported			$	2,223		$	2,713		$	2,537					15.5		%	18.2		%	18.7		%
Inventory stepped up to fair value			48			67			15						0.3			0.5			0.1
Other acquisition and integration-related			194			208			108						1.4			1.4			0.8
Amortization of intangible assets			472			464			417						3.3			3.2			3.0
Restructuring-related and other charges			458			226			220						3.2			1.5			1.6
Medical device regulations			81			62			12						0.6			0.4			0.1
Recall-related matters			17			192			23						0.1			1.3			0.2
Regulatory and legal matters			6			(24)			185						—			(0.2)			1.4
Adjusted			$	3,499		$	3,908		$	3,517					24.4		%	26.3		%	25.9		%

Other Income (Expense), Net

Other income (expense), net was ($269), ($151) and ($181) in 2020, 2019 and 2018. The increase in net expense in 2020 was primarily due to increased interest expense driven by the

Dollar amounts in millions except per share amounts or as otherwise specified.			13

STRYKER CORPORATION 2020 FORM 10-K

additional debt from the bond offerings completed in December 2019 and June 2020. Refer to Note 10 to our Consolidated Financial Statements for further information.

Income Taxes

Our effective tax rate was 18.2%, 18.7% and (50.8%) for 2020, 2019 and 2018. The effective income tax rate for 2020 reflects the continued lower effective income tax rates as a result of our European operations, the tax effect related to the transfer of intellectual property between tax jurisdictions and the tax effect of future remittances of the undistributed earnings of foreign subsidiaries.

The effective income tax rate for 2019 reflects the tax related to the transfer of intellectual properties between tax jurisdictions and the continued lower effective income tax rates as a result of our European operations. The effective income tax rate for 2018 reflects the tax effect related to the transfer of intellectual properties between tax jurisdictions, the continuing impact of complying with the Tax Cuts and Jobs Act of 2017 (the Tax Act), and continued lower effective income tax rates as a result of our European operations.

Net Earnings

Earnings were significantly negatively impacted by the global response to the COVID-19 pandemic in 2020. Net earnings decreased to $1,599 or $4.20 per diluted share from $2,083 or $5.48 per diluted share in 2019 and $3,553 or $9.34 per diluted share in 2018. Adjusted net earnings per diluted share(1) of $7.43 decreased 10.0% from $8.26 in 2019 compared to $7.31 in 2018. The impact of foreign currency exchange rates reduced net earnings per diluted share by approximately $0.02, $0.14 and $0.06 in 2020, 2019 and 2018.

															Percent Net Sales
			2020			2019			2018						2020			2019			2018
Reported			$	1,599		$	2,083		$	3,553					11.1		%	14.0		%	26.1		%
Inventory stepped up to fair value			36			51			9						0.3			0.3			0.1
Other acquisition and integration-related			157			160			90						1.1			1.1			0.7
Amortization of intangible assets			381			375			338						2.6			2.6			2.5
Restructuring-related and other charges			397			180			179						2.8			1.2			1.3
Medical device regulations			63			48			10						0.4			0.3			0.1
Recall-related matters			13			154			18						0.1			1.0			0.1
Regulatory and legal matters			8			(33)			141						0.1			(0.2)			1.0
Tax matters			173			121			(1,559)						1.2			0.8			(11.5)
Adjusted			$	2,827		$	3,139		$	2,779					19.7		%	21.1		%	20.4		%

Non-GAAP Financial Measures

We supplement the reporting of our financial information determined under accounting principles generally accepted in the United States (GAAP) with certain non-GAAP financial measures, including percentage sales growth in constant currency; percentage organic sales growth; adjusted gross profit; adjusted selling, general and administrative expenses; adjusted research, development and engineering expenses; adjusted operating income; adjusted other income (expense), net; adjusted effective income tax rate; adjusted net earnings; adjusted net earnings per diluted share (Diluted EPS); free cash flow; and free cash flow conversion. We believe these non-GAAP financial measures provide meaningful information to assist investors and shareholders in understanding our financial results and assessing our prospects for future performance. Management believes

percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures for reviewing the operating results of reportable business segments and analyzing potential future business trends in connection with our budget process and bases certain management incentive compensation on these non-GAAP financial measures. To measure percentage sales growth in constant currency, we remove the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Percentage sales growth in constant currency is calculated by translating current and prior year results at the same foreign currency exchange rate. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates and acquisitions, which affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year results at prior year average foreign currency exchange rates excluding the impact of acquisitions. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings. These adjustments are irregular in timing and may not be indicative of our past and future performance. The following are examples of the types of adjustments that may be included in a period:

1.Acquisition and integration-related costs. Costs related to integrating recently acquired businesses and specific costs (e.g., inventory step-up and deal costs) related to the consummation of the acquisition process.

2.Amortization of purchased intangible assets. Periodic amortization expense related to purchased intangible assets.

3.Restructuring-related and other charges. Costs associated with the termination of sales relationships in certain countries, workforce reductions, elimination of product lines, certain long-lived asset impairments and associated costs and other restructuring-related activities.

4.Medical Device Regulations. Costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the medical device reporting regulations and other requirements of the European Union and China regulations for medical devices.

5.Recall-related matters. Our best estimate of the minimum of the range of probable loss to resolve the Rejuvenate, LFIT V40 and other product recalls.

6.Regulatory and legal matters. Our best estimate of the minimum of the range of probable loss to resolve certain regulatory matters and other legal settlements.

7.Tax matters. Charges represent the impact of accounting for certain significant and discrete tax items.

To measure free cash flow, we adjust cash provided by operating activities by the amount of purchases of property, plant and equipment and proceeds from long-lived asset disposals and remove the impact of certain legal settlements and recall payments. To measure free cash flow conversion we divide free cash flow by adjusted net earnings.

Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, gross profit, selling, general and administrative expenses,

Dollar amounts in millions except per share amounts or as otherwise specified.			14

STRYKER CORPORATION 2020 FORM 10-K

research, development and engineering expenses, operating income, other income (expense), net, effective income tax rate, net earnings and net earnings per diluted share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of our operations when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures at the end of the discussion of Consolidated Results of Operations

below. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

The weighted-average diluted shares outstanding used in the calculation of non-GAAP net earnings per diluted share are the same as those used in the calculation of reported net earnings per diluted share for the respective period.

Reconciliation of the Most Directly Comparable GAAP Financial Measure to Non-GAAP Financial Measure

2020			Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other income (expense), net			Net Earnings			Effective Tax Rate			Diluted EPS
Reported			$	9,057		$	5,361		$	984		$	2,223		$	(269)		$	1,599		18.2		%	$	4.20
Acquisition and integration-related charges:
Inventory stepped-up to fair value			48			—			—			48			—			36			0.3			0.10
Other acquisition and integration-related			—			(194)			—			194			—			157			0.7			0.41
Amortization of purchased intangible assets			—			—			—			472			—			381			1.6			1.00
Restructuring-related and other charges			53			(406)			—			458			—			397			0.2			1.04
Medical device regulations			2			—			(79)			81			—			63			0.4			0.17
Recall-related matters			—			—			—			17			—			13			0.1			0.03
Regulatory and legal matters			—			(6)			—			6			—			8			(0.1)			0.02
Tax Matters			—			—			—			—			4			173			(8.8)			0.46
Adjusted			$	9,160		$	4,755		$	905		$	3,499		$	(265)		$	2,827		12.6		%	$	7.43

2019			Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other income (expense), net			Net Earnings			Effective Tax Rate			Diluted EPS
Reported			$	9,696		$	5,356		$	971		$	2,713		$	(151)		$	2,083		18.7		%	$	5.48
Acquisition and integration-related charges:
Inventory stepped-up to fair value			67			—			—			67			—			51			0.2			0.13
Other acquisition and integration-related			—			(208)			—			208			—			160			0.6			0.42
Amortization of purchased intangible assets			—			—			—			464			—			375			0.6			0.99
Restructuring-related and other charges			38			(188)			—			226			—			180			0.4			0.47
Medical device regulations			6			—			(56)			62			—			48			0.2			0.13
Recall-related matters			—			—			—			192			—			154			0.3			0.41
Regulatory and legal matters			—			24			—			(24)			—			(33)			0.5			(0.09)
Tax Matters			—			—			—			—			(30)			121			(5.7)			0.32
Adjusted			$	9,807		$	4,984		$	915		$	3,908		$	(181)		$	3,139		15.8		%	$	8.26

2018			Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other income (expense), net			Net Earnings			Effective Tax Rate			Diluted EPS
Reported			$	8,938		$	5,099		$	862		$	2,537		$	(181)		$	3,553		(50.8)		%	$	9.34
Acquisition and integration-related charges:
Inventory stepped-up to fair value			16			—			—			15			—			9			0.2			0.02
Other acquisition and integration-related			—			(108)			—			108			—			90			—			0.24
Amortization of purchased intangible assets			—			—			—			417			—			338			0.4			0.89
Restructuring-related and other charges			27			(192)			—			220			—			179			0.1			0.47
Medical device regulations			2			—			(10)			12			—			10			—			0.03
Recall-related matters			—			—			—			23			—			18			—			0.05
Regulatory and legal matters			—			(185)			—			185			—			141			0.6			0.37
Tax Matters			—			—			—			—			—			(1,559)			66.2			(4.10)
Adjusted			$	8,983		$	4,614		$	852		$	3,517		$	(181)		$	2,779		16.7		%	$	7.31

			2020						2019						2018
Cash provided by operating activities			$	3,277					$	2,191					$	2,610
Purchases of property, plant and equipment			(487)						(649)						(572)
Proceeds from long-lived asset disposals			14						3						—
Legal settlement proceeds			—						(100)						—
Recall payments			17						177						90
Free cash flow			$	2,821					$	1,622					$	2,128
Adjusted net earnings			2,827						3,139						2,779
Free cash flow conversion			99.8		%				51.7		%				76.6		%

Dollar amounts in millions except per share amounts or as otherwise specified.			15

STRYKER CORPORATION 2020 FORM 10-K

FINANCIAL CONDITION AND LIQUIDITY

			2020			2019			2018
Net cash provided by operating activities			$	3,277		$	2,191		$	2,610
Net cash used in investing activities			(4,701)			(1,455)			(2,857)
Net cash provided by (used in) financing activities			(11)			3			1,329
Effect of exchange rate changes			41			(18)			(8)
Change in cash and cash equivalents			$	(1,394)		$	721		$	1,074

We believe our financial condition continues to be of high quality, as evidenced by our ability to generate substantial cash from operations and to readily access capital markets at competitive rates despite the COVID-19 pandemic. Operating cash flow provides the primary source of cash to fund operating needs and capital expenditures. Excess operating cash is used first to fund acquisitions to complement our portfolio of businesses. Other discretionary uses include dividends and share repurchases; however, in 2019 we announced our intention to suspend our share repurchase program for 2020 and 2021. We supplement operating cash flow with debt to fund our activities as necessary. Our overall cash position reflects our business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations.

Operating Activities

Cash provided by operating activities was $3,277, $2,191 and $2,610 in 2020, 2019 and 2018. The increase from 2019 was primarily due to cash from working capital, including higher accounts receivable collections, less spending on inventory due to lower production from lower sales and an increase in our accounts payable, partially offset by decreased net earnings.

Investing Activities

Cash used in investing activities was $4,701, $1,455 and $2,857 in 2020, 2019 and 2018. The increase in cash used in 2020 was primarily due to the acquisition of Wright and OrthoSensor. In 2019 we acquired Mobius and certain other businesses and related assets. In 2018 we acquired Entellus and K2M.

Financing Activities

Cash provided by (used in) financing activities was ($11), $3 and $1,329 in 2020, 2019 and 2018. The change in cash was primarily driven by securing a $400 term loan in November 2020, the issuance of $600 of notes in November 2020 and $2,300 of notes in June 2020, offset by total debt repayments of $2,297 and dividend payments of $863 in 2020. This is compared to the issuance of €2.4 billion of notes in November 2019 and repayments of $1,342 of debt, dividend payments of $778 and share repurchases of $307 in 2019. Share repurchases were suspended in 2020.

We maintain debt levels that we consider appropriate after evaluating a number of factors including cash requirements for ongoing operations, investment and financing plans (including acquisitions and share repurchase activities) and overall cost of capital. Refer to Note 10 to our Consolidated Financial Statements for further information.

			2020			2019			2018
Dividends paid per common share			$	2.30		$	2.08		$	1.88
Total dividends paid to common shareholders			$	863		$	778		$	703
Total amount paid to repurchase common stock			$	—		$	307		$	300
Shares of repurchased common stock (in millions)			—			1.9			1.9

Liquidity

Cash, cash equivalents and marketable securities were $3,024 and $4,425, and our current assets exceeded current liabilities by $4,666 and $6,658 on December 31, 2020 and 2019. Despite the impact from the COVID-19 pandemic, we anticipate being able to

support our short-term liquidity and operating needs from a variety of sources including cash from operations, commercial paper, existing credit lines and capital expenditure and operating expense reductions. We maintain a revolving credit facility with $1.5 billion of committed capital which expires in August 2023 and a $1.5 billion unsecured revolving credit facility that matures in April 2021.

We raised funds in the capital markets in 2020, 2019 and 2018 and may continue to do so from time-to-time. We continue to have strong investment-grade short-term and long-term debt ratings that we believe should enable us to refinance our debt as needed.

Our cash, cash equivalents and marketable securities held in locations outside the United States was approximately 30% and 25% on December 31, 2020 and 2019. We intend to use this cash to expand operations organically and through acquisitions.

Guarantees and Other Off-Balance Sheet Arrangements

We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, of a magnitude that we believe could have a material impact on our financial condition or liquidity.

CONTRACTUAL OBLIGATIONS AND FORWARD-LOOKING CASH REQUIREMENTS

As further described in Note 7 to our Consolidated Financial Statements, in 2020 we recorded charges to earnings related to the Rejuvenate and ABG II, LFIT Anatomic CoCr V40 Femoral Heads recall matters and recorded product liabilities relating to Wright legacy hip products claims. Recorded reserves represent the minimum of the range of probable cost remaining to resolve these matters. The final outcome of these matters is dependent on many variables that are difficult to predict. The ultimate cost to entirely resolve these matters may be materially different from the amount of the current estimates and could have a material adverse effect on our financial position, results of operations and cash flows. We are not able to reasonably estimate the future periods in which payments will be made.

As further described in Note 11 to our Consolidated Financial Statements, on December 31, 2020 we had a reserve for uncertain income tax positions of $457. Due to uncertainties regarding the ultimate resolution of income tax audits, we are not able to reasonably estimate the future periods in which any income tax payments to settle these uncertain income tax positions will be made.

As further described in Note 12 to our Consolidated Financial Statements, on December 31, 2020 our defined benefit pension plans were underfunded by $596, of which approximately $588 related to plans outside the United States. Due to the rules affecting tax-deductible contributions in the jurisdictions in which the plans are offered and the impact of future plan asset performance, changes in interest rates and potential changes in legislation in the United States and other foreign jurisdictions, we are not able to reasonably estimate the amounts that may be required to fund defined benefit pension plans.

Contractual Obligations			Total			2021			2022 - 2023			2024 - 2025			After 2025
Total debt			$	14,115		$	761		$	1,672		$	3,036		$	8,646
Interest payments			3,855			310			598			539			2,408
Unconditional purchase obligations			1,587			1,294			134			104			55
Operating leases			420			110			152			68			90
United States Tax Cuts and Jobs Act Transition Tax			595			63			182			350			—
Other			182			17			18			6			141
Total			$	20,754		$	2,555		$	2,756		$	4,103		$	11,340

Dollar amounts in millions except per share amounts or as otherwise specified.			16

STRYKER CORPORATION 2020 FORM 10-K

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements in accordance with generally accepted accounting principles, there are certain accounting policies, which may require substantial judgment or estimation in their application. We believe these accounting policies and the others set forth in Note 1 to our Consolidated Financial Statements are critical to understanding our results of operations and financial condition. Actual results could differ from our estimates and assumptions, and any such differences could be material to our results of operations and financial condition.

Inventory Reserves

We maintain reserves for excess and obsolete inventory resulting from the potential inability to sell certain products at prices in excess of current carrying costs. We make estimates regarding the future recoverability of the costs of these products and record provisions based on historical experience, expiration of sterilization dates and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write downs may be required, which could unfavorably affect future operating results.

Income Taxes

Our annual tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires certain items be included in the tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences are temporary and reverse over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities.

Deferred tax assets generally represent the tax effect of items that can be used as a tax deduction or credit in future years for which we have already recorded the tax benefit in our income statement. Deferred tax liabilities generally represent tax expense recognized in our financial statements for which payment was deferred, the tax effect of expenditures for which a deduction was taken in our tax return but has not yet been recognized in our financial statements or assets recorded at fair value in business combinations for which there was no corresponding tax basis adjustment.

Inherent in determining our annual tax rate are judgments regarding business plans, tax planning opportunities and expectations about future outcomes. Realization of certain deferred tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods. Although realization is not assured, management believes it is more likely than not that our deferred tax assets, net of valuation allowances, will be realized.

We operate in multiple jurisdictions with complex tax policy and regulatory environments. In certain of these jurisdictions, we may take tax positions that management believes are supportable but are potentially subject to successful challenge by the applicable taxing authority. These differences of interpretation with the respective governmental taxing authorities can be impacted by the local economic and fiscal environment. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We review these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly. We have a number of audits in process in various jurisdictions. Although the resolution of these tax

positions is uncertain, based on currently available information, we believe that it is more likely than not that the ultimate outcomes will not have a material adverse effect on our financial position, results of operations or cash flows.

Due to the number of estimates and assumptions inherent in calculating the various components of our tax provision, certain changes or future events, such as changes in tax legislation, geographic mix of earnings, completion of tax audits or earnings repatriation plans, could have an impact on those estimates and our effective tax rate.

Acquisitions, Goodwill and Intangibles, and Long-Lived Assets

Our financial statements include the operations of an acquired business starting from the completion of the acquisition. In addition, the assets acquired and liabilities assumed are recorded on the date of acquisition at their respective estimated fair values, with any excess of the purchase price over the estimated fair values of the net assets acquired recorded as goodwill.

Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. Accordingly, we typically obtain the assistance of third-party valuation specialists for significant items. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain. We typically use an income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product or technology life cycles, the economic barriers to entry and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions.

Determining the useful life of an intangible asset also requires judgment. With the exception of certain trade names, the majority of our acquired intangible assets (e.g., certain trademarks or brands, customer and distributor relationships, patents and technologies) are expected to have determinable useful lives. Our assessment as to the useful lives of these intangible assets is based on a number of factors including competitive environment, market share, trademark, brand history, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the trademarked or branded products are sold. Our estimates of the useful lives of determinable-lived intangibles are primarily based on these same factors. Determinable-lived intangible assets are amortized to expense over their estimated useful life.

In some of our acquisitions, we acquire in-process research and development (IPRD) intangible assets. For acquisitions accounted for as business combinations IPRD is considered to be an indefinite-lived intangible asset until the research is completed (then it becomes a determinable-lived intangible asset) or determined to have no future use (then it is impaired). For asset acquisitions IPRD is expensed immediately unless there is an alternative future use.

The value of indefinite-lived intangible assets and goodwill is not amortized but is tested at least annually for impairment. Our impairment testing for goodwill is performed separately from our impairment testing of indefinite-lived intangibles. We perform our annual impairment test for goodwill in the fourth quarter of each

Dollar amounts in millions except per share amounts or as otherwise specified.			17

STRYKER CORPORATION 2020 FORM 10-K

year. We consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. In certain circumstances, we also use a discounted cash flow analysis that requires certain assumptions and estimates be made regarding market conditions and our future profitability. In those circumstances we test goodwill for impairment by reviewing the book value compared to the fair value at the reporting unit level. We test individual indefinite-lived intangibles by reviewing the individual book values compared to the fair value. We determine the fair value of our reporting units and indefinite-lived intangible assets based on the income approach. Under the income approach, we calculate the fair value of our reporting units and indefinite-lived intangible assets based on the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows to measure fair value. Assumptions used in our impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections and operating plans. We believe such assumptions and estimates are also comparable to those that would be used by other marketplace participants.

Our annual impairment testing indicated that all reporting unit goodwill fair values significantly exceeded their respective recorded values. Future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived intangible assets, including discount and tax rates and future cash flow projections, could result in significantly different estimates of the fair values. A significant reduction in the estimated fair values could result in impairment charges that could materially affect our results of operations.

We review our other long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows, which is at the individual asset level or the asset group level. The undiscounted cash flows expected to be generated by the related assets are estimated over their useful life based on updated projections. If the evaluation indicates that the carrying amount of the assets may not be recoverable, any potential impairment is measured based upon the fair value of the related assets or asset group as determined by an appropriate market appraisal or other valuation technique. Assets classified as held for sale, if any, are recorded at the lower of carrying amount or fair value less costs to sell.

Legal and Other Contingencies

We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor and intellectual property, and other matters that are more fully described in Note 7 to our Consolidated Financial Statements. The outcomes of these matters will generally not be known for prolonged periods of time. In certain of the legal proceedings, the claimants seek damages, as well as other compensatory and equitable relief, that could result in the payment of significant claims and settlements and/or the imposition of injunctions or other equitable relief. For legal matters for which management had sufficient information to reasonably estimate our future obligations, a liability representing management's best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known, for the resolution of these legal matters is recorded. The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than

those projected by management, additional expense may be incurred, which could unfavorably affect future operating results. We are currently self-insured for certain 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.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 1 to our Consolidated Financial Statements for further information.