Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. 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.

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.

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 through the first quarter of 2021. In the second quarter of 2021 we saw partial recovery of elective procedures in most geographies; however, in the third quarter 2021 we saw hospitalization rates increase, especially in the United States, as a result of the Delta variant. This, along with hospital staffing shortages, has adversely impacted elective procedures and has slowed the recovery in our Orthopaedic and Spine implant business that we experienced in the second quarter of 2021.

Overview of the Three and Nine Months

In the three months 2021 we achieved sales growth of 11.3% and 16.0% from 2020 and 2019. Excluding the impact of acquisitions and divestitures sales grew 4.5% and 8.4% in constant currency. We reported operating income margin of 13.8%, net earnings of $438 and net earnings per diluted share of $1.14. Excluding the

impact of certain items, adjusted operating income margin(1) contracted by 260 bps to 25.4%, with adjusted net earnings(1) of $842 and adjusted net earnings per diluted share(1) of $2.20 representing growth of 2.8%.

In the nine months 2021 we achieved sales growth of 23.0% and 15.4% from 2020 and 2019. Excluding the impact of acquisitions and divestitures sales grew 14.2% and 7.6% in constant currency. We reported operating income margin of 14.2%, net earnings of $1,332 and net earnings per diluted share of $3.48. Excluding the impact of certain items, adjusted operating income margin(1) increased by 270 bps to 25.0%, with adjusted net earnings(1) of $2,440 and adjusted net earnings per diluted share(1) of $6.38 representing growth of 38.1%.

Recent Developments

In March 2021 we repaid $750 of our senior unsecured notes with a coupon of 2.625% that were due on March 15, 2021. In June 2021 we repaid the $400 term loan that was due on November 10, 2023. Refer to Note 8 to our Consolidated Financial Statements for further information.

We have not repurchased any shares of our common stock under our authorized repurchase program in 2021. The total dollar value of shares of our common stock that could be acquired under our authorized share repurchase program was $1,033 as of September 30, 2021. We previously announced our intention to suspend our repurchase program through 2021.

The government in China has launched regional and national programs for volume-based procurement ("VBP") of high-value medical consumables to reduce healthcare costs. Each VBP program has specific requirements to award contracts to the lowest bidders who are able to satisfy the quality and quantity requirements. The successful bidders may be guaranteed sales volume for certain products, while unsuccessful bidders may lose unit sales volume. We expect that the prices required for a successful bid will, nevertheless, negatively impact our existing commercial operations of joint replacement and trauma products in China. As a result of the outcome of certain regional programs for our trauma products and the national VBP program for hips and knees we recorded charges of $105 to impair certain long-lived and intangible assets in the third quarter of 2021. These charges were included in selling, general and administrative expenses. Spine products are part of the VBP program in one province and it is not clear to what extent spine products will be included in further provincial or national VBP programs. We do not expect any significant impairments related to the potential Spine VBP programs. Our business in China represented approximately 2% of our revenues for the year ended December 31, 2020.

(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.


Dollar amounts are in millions except per share amounts or as otherwise specified.			10


STRYKER CORPORATION						2021 Third Quarter Form 10-Q


CONSOLIDATED RESULTS OF OPERATIONS
	Three Months										Nine Months
					Percent Net Sales				Percentage						Percent Net Sales				Percentage
	2021		2020		2021		2020		Change		2021		2020		2021		2020		Change
Net sales	$	4,160	$	3,737	100.0	%	100.0	%	11.3	%	$	12,407	$	10,089	100.0	%	100.0	%	23.0	%
Gross profit	2,642		2,461		63.5		65.9		7.4		7,923		6,340		63.9		62.8		25.0
Research, development and engineering expenses	306		242		7.4		6.5		26.4		904		729		7.3		7.2		24.0
Selling, general and administrative expenses	1,602		1,244		38.5		33.3		28.8		4,682		3,799		37.7		37.7		23.2
Recall charges	16		2		0.4		0.1		nm		98		(4)		0.8		—		nm
Amortization of intangible assets	144		114		3.5		3.1		26.3		474		342		3.8		3.4		38.6
Other income (expense), net	(79)		(79)		(1.9)		(2.1)		—		(241)		(191)		(1.9)		(1.9)		26.2
Income taxes	57		159		nm		nm		(64.2)		192		252		nm		nm		(23.8)
Net earnings	$	438	$	621	10.5	%	16.6	%	(29.5)	%	$	1,332	$	1,031	10.7	%	10.2	%	29.2	%

Net earnings per diluted share	$	1.14	$	1.63					(30.1)	%	$	3.48	$	2.71					28.4	%
Adjusted net earnings per diluted share(1)	$	2.20	$	2.14					2.8	%	$	6.38	$	4.62					38.1	%

nm - not meaningful


Geographic and Segment Net Sales	Three Months								Nine Months
					Percentage Change								Percentage Change
	2021		2020		As Reported		Constant Currency		2021		2020		As Reported		Constant Currency
Geographic:
United States	$	3,019	$	2,748	9.9	%	9.9	%	$	8,903	$	7,357	21.0	%	21.0	%
International	1,141		989		15.3		12.8		3,504		2,732		28.2		21.1
Total	$	4,160	$	3,737	11.3	%	10.7	%	$	12,407	$	10,089	23.0	%	21.0	%
Segment:
Orthopaedics	$	1,529	$	1,317	16.1	%	15.5	%	$	4,641	$	3,433	35.2	%	33.0	%
MedSurg	1,755		1,600		9.4		8.9		5,124		4,546		12.7		11.2
Neurotechnology and Spine	876		820		7.3		6.4		2,642		2,110		25.2		22.8
Total	$	4,160	$	3,737	11.3	%	10.7	%	$	12,407	$	10,089	23.0	%	21.0	%


Supplemental Net Sales Growth Information
	Three Months														Nine Months
					Percentage Change														Percentage Change
									United States		International												United States		International
	2021		2020		As Reported		Constant Currency		As Reported		As Reported		Constant Currency		2021		2020		As Reported		Constant Currency		As Reported		As Reported		Constant Currency
Orthopaedics:
Knees	$	439	$	435	0.8	%	0.3	%	(3.3)	%	13.9	%	11.7	%	$	1,325	$	1,108	19.5	%	17.8	%	15.8	%	31.0	%	23.6	%
Hips	328		334		(1.6)		(2.3)		(10.6)		16.7		14.5		990		866		14.4		12.1		7.4		27.5		20.9
Trauma and Extremities	639		430		49.0		48.2		56.9		33.4		30.9		1,953		1,152		69.6		66.5		80.8		48.5		40.2
Other	123		118		3.4		3.2		(0.2)		19.4		18.2		373		307		21.6		20.6		11.0		82.2		74.3
	$	1,529	$	1,317	16.1	%	15.5	%	13.6	%	22.4	%	20.2	%	$	4,641	$	3,433	35.2	%	33.0	%	33.6	%	39.1	%	31.6	%
MedSurg:
Instruments	$	525	$	467	11.5	%	10.9	%	12.4	%	7.9	%	5.5	%	$	1,511	$	1,308	15.4	%	13.9	%	13.9	%	20.9	%	13.8	%
Endoscopy	525		467		12.2		11.8		9.9		22.5		20.1		1,512		1,238		22.1		20.7		18.2		38.4		31.0
Medical	636		600		6.1		5.5		9.2		(3.5)		(6.0)		1,898		1,819		4.4		2.7		7.0		(3.3)		(9.6)
Sustainability	69		66		4.2		4.1		3.9		25.8		19.0		203		181		12.1		12.0		11.6		59.2		48.4
	$	1,755	$	1,600	9.4	%	8.9	%	10.1	%	6.8	%	4.4	%	$	5,124	$	4,546	12.7	%	11.2	%	12.3	%	14.0	%	7.1	%
Neurotechnology and Spine:
Neurotechnology	$	594	$	518	14.7	%	13.6	%	10.6	%	21.4	%	18.5	%	$	1,775	$	1,370	29.6	%	26.9	%	27.4	%	33.1	%	26.2	%
Spine	282		302		(5.4)		(5.9)		(8.0)		1.6		(0.3)		867		740		17.1		15.3		12.5		29.5		22.6
	$	876	$	820	7.3	%	6.4	%	3.1	%	15.7	%	13.0	%	$	2,642	$	2,110	25.2	%	22.8	%	21.5	%	32.2	%	25.2	%
Total	$	4,160	$	3,737	11.3	%	10.7	%	9.9	%	15.3	%	12.8	%	$	12,407	$	10,089	23.0	%	21.0	%	21.0	%	28.2	%	21.1	%

Consolidated Net Sales

Consolidated net sales increased 11.3% in the three months 2021 as reported and 10.7% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.6%. Excluding the 6.2% impact of acquisitions and divestitures, net sales in constant currency increased by 5.2% from increased unit volume partially offset by 0.7% due to lower prices. The unit volume increase was due to higher shipments of MedSurg and Neurotechnology products.

Consolidated net sales increased 23.0% in the nine months 2021 as reported and 21.0% in constant currency, as foreign currency exchange rates positively impacted net sales by 2.0%. Excluding the 6.8% impact of acquisitions and divestitures, net sales in constant currency increased by 14.9% from increased unit volume partially offset by 0.7% due to lower prices. The unit volume increase was due to higher shipments across all products.


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


STRYKER CORPORATION						2021 Third Quarter Form 10-Q

Orthopaedics Net Sales

Orthopaedics net sales increased 16.1% in the three months 2021 as reported and 15.5% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.6%. Excluding the 17.3% impact of acquisitions and divestitures, net sales in constant currency decreased 1.2% from lower unit volume and 0.6% from lower prices. The unit volume decrease was due to lower shipments of hips, trauma and extremities and other orthopaedics products.

Orthopaedics net sales increased 35.2% in the nine months 2021 as reported and 33.0% in constant currency, as foreign currency exchange rates positively impacted net sales by 2.2%. Excluding the 20.0% impact of acquisitions and divestitures, net sales in constant currency increased 14.4% from higher unit volume partially offset by 1.4% from lower prices. The unit volume increase was due to higher shipments across all Orthopaedics products.

MedSurg Net Sales

MedSurg net sales increased 9.4% in the three months 2021 as reported and 8.9% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.5%. Excluding the 0.1% impact of acquisitions, net sales in constant currency increased by 9.6% from increased unit volume partially offset by 0.8% due to lower prices. The unit volume increase was primarily due to higher shipments across all MedSurg products.

MedSurg net sales increased 12.7% in the nine months 2021 as reported and 11.2% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.5%. Excluding the 0.1% impact of acquisitions, net sales in constant currency increased by 11.4% from increased unit volume partially offset by 0.3% due to lower prices. The unit volume increase was due to higher shipments across all MedSurg products.

Neurotechnology and Spine Net Sales

Neurotechnology and Spine net sales increased 7.3% in the three months 2021 as reported and 6.4% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.9%. Excluding the 0.3% impact for acquisitions, net sales in constant currency increased by 6.7% from increased unit volume partially offset by 0.6% due to lower prices. The unit volume increase was due to higher shipments of neurotechnology products partially offset by lower shipments of spine products.

Neurotechnology and Spine net sales increased 25.2% in the nine months 2021 as reported and 22.8% in constant currency, as foreign currency exchange rates positively impacted net sales by 2.4%. Excluding the 0.3% impact for acquisitions, net sales in constant currency increased by 23.1% from increased unit volume partially offset by 0.6% due to lower prices. The unit volume increase was due to higher shipments across all Neurotechnology and Spine products.

Gross Profit

Gross profit as a percentage of sales in the three months 2021 decreased to 63.5% from 65.9% in 2020. Excluding the impact of the items noted below, gross profit increased to 66.3% of sales in the three months 2021 from 65.9% in 2020 primarily due to leverage from higher sales volumes and favorable mix, partially offset by lower selling prices.

Gross profit as a percentage of sales in the nine months 2021 increased to 63.9% from 62.8% in 2020. Excluding the impact of the items noted below, gross profit increased to 65.9% of sales in the nine months 2021 from 63.3% in 2020 primarily due to leverage from higher sales volumes and favorable mix, partially offset by lower selling prices.


					Percent Net Sales
Three Months	2021		2020		2021		2020
Reported	$	2,642	$	2,461	63.5	%	65.9	%
Inventory stepped-up to fair value	94		—		2.3		—


Restructuring-related and other charges	20		—		0.5		—
Medical device regulations	1		—		—		—



Adjusted	$	2,757	$	2,461	66.3	%	65.9	%


					Percent Net Sales
Nine Months	2021		2020		2021		2020
Reported	$	7,923	$	6,340	63.9	%	62.8	%
Inventory stepped-up to fair value	231		9		1.9		0.1


Restructuring-related and other charges	20		36		0.1		0.4
Medical device regulations	2		1		—		—



Adjusted	$	8,176	$	6,386	65.9	%	63.3	%

Research, Development and Engineering Expenses

Research, development and engineering expenses increased $64 or 26.4% in the three months 2021 and increased as a percentage of sales to 7.4% from 6.5% in 2020. Excluding the impact of the items noted below, expenses increased to 6.7% of sales in 2021 from 6.1% in 2020.

Research, development and engineering expenses increased $175 or 24.0% in the nine months 2021 and increased as a percentage of sales to 7.3% from 7.2% in 2020. Excluding the impact of the items noted below, expenses increased to 6.7% of sales in 2021 from 6.6% in 2020.

The increases for the three and nine months are due to disciplined ramp up in spending to facilitate our growth, including projects to develop new products, investments in new technologies and integration of recent acquisitions.


					Percent Net Sales
Three Months	2021		2020		2021		2020
Reported	$	306	$	242	7.4	%	6.5	%




Medical device regulations	(26)		(13)		(0.7)		(0.4)



Adjusted	$	280	$	229	6.7	%	6.1	%


					Percent Net Sales
Nine Months	2021		2020		2021		2020
Reported	$	904	$	729	7.3	%	7.2	%




Medical device regulations	(70)		(59)		(0.6)		(0.6)



Adjusted	$	834	$	670	6.7	%	6.6	%

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $358 or 28.8% in the three months 2021 and increased as a percentage of sales to 38.5% from 33.3% in 2020 and included an impairment charge of $105 million recorded for certain long-lived and intangible assets resulting from price reductions on our trauma and joint replacement products in China based on the outcome of the regional and national volume-based procurement programs. Excluding the impact of the items noted below, expenses increased to 34.1% of sales in 2021 from 31.7% in 2020. The increase was due to disciplined ramp up in spending to facilitate our growth.

Selling, general and administrative expenses increased $883 or 23.2% in the nine months 2021 and remained flat as a percentage of sales at 37.7%. Excluding the impact of the items noted below, expenses decreased to 34.2% of sales in 2021 from 34.3% in 2020. The decrease was due to our continued cost discipline and fixed cost leverage.


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


STRYKER CORPORATION						2021 Third Quarter Form 10-Q


					Percent Net Sales
Three Months	2021		2020		2021		2020
Reported	$	1,602	$	1,244	38.5	%	33.3	%

Other acquisition and integration-related	(32)		(29)		(0.8)		(0.8)

Restructuring-related and other charges	(158)		(29)		(3.8)		(0.8)


Regulatory and legal matters	7		—		0.2		—

Adjusted	$	1,419	$	1,186	34.1	%	31.7	%


					Percent Net Sales
Nine Months	2021		2020		2021		2020
Reported	$	4,682	$	3,799	37.7	%	37.7	%

Other acquisition and integration-related	(264)		(76)		(2.1)		(0.8)

Restructuring-related and other charges	(189)		(256)		(1.5)		(2.6)


Regulatory and legal matters	16		(5)		0.1		—

Adjusted	$	4,245	$	3,462	34.2	%	34.3	%

Recall Charges

Recall charges were $16 in the three months and $98 in the nine months 2021 and minimal in the three and nine months 2020. Charges were primarily due to the previously disclosed Rejuvenate and ABG II Modular-Neck hip stems. Refer to Note 6 to our Consolidated Financial Statements for further information.

Amortization of Intangible Assets

Amortization of intangible assets was $144 and $114 in the three months and $474 and $342 in the nine months 2021 and 2020. The increase in 2021 was primarily due to the acquisition of Wright Medical in the fourth quarter of 2020. Refer to Note 7 to our Consolidated Financial Statements for further information.

Operating Income

Operating income decreased $285 to 13.8% of sales in the three months 2021 from 23.0% of sales in 2020. Excluding the impact of the items noted below, operating income decreased to 25.4% of sales in 2021 from 28.0% in 2020 primarily due to disciplined spending to facilitate our growth.

Operating income increased $291 or 19.7% to 14.2% of sales in the nine months 2021 from 14.6% of sales in 2020. Excluding the impact of the items noted below, operating income increased to 25.0% of sales in 2021 from 22.3% in 2020 primarily due to leverage from higher sales volumes partially offset by disciplined spending to facilitate our growth.


					Percent Net Sales
Three Months	2021		2020		2021		2020
Reported	$	574	$	859	13.8	%	23.0	%
Inventory stepped-up to fair value	94		—		2.3		—
Other acquisition and integration-related	32		29		0.8		0.7
Amortization of purchased intangible assets	144		114		3.5		3.1
Restructuring-related and other charges	178		29		4.2		0.7
Medical device regulations	27		14		0.6		0.4
Recall-related matters	16		2		0.4		0.1
Regulatory and legal matters	(7)		—		(0.2)		—

Adjusted	$	1,058	$	1,047	25.4	%	28.0	%


					Percent Net Sales
Nine Months	2021		2020		2021		2020
Reported	$	1,765	$	1,474	14.2	%	14.6	%
Inventory stepped-up to fair value	231		9		1.9		0.1
Other acquisition and integration-related	264		76		2.1		0.8
Amortization of purchased intangible assets	474		342		3.8		3.3
Restructuring-related and other charges	209		292		1.7		2.9
Medical device regulations	72		60		0.6		0.6
Recall-related matters	98		(4)		0.8		—
Regulatory and legal matters	(16)		5		(0.1)		—

Adjusted	$	3,097	$	2,254	25.0	%	22.3	%

Other Income (Expense), Net

Other income (expense), net was ($79) and ($79) in the three months and ($241) and ($191) in the nine months 2021 and 2020. The increase in net expense in 2021 was primarily due to increased interest expense driven by the additional debt from the bond offerings completed in June 2020 and November 2020.

Income Taxes

Our effective tax rates were 11.5% and 20.4% in the three months and 12.6% and 19.6% in the nine months 2021 and 2020. The change in the effective income tax rate for the three months was primarily due to lower pre-tax income and certain discrete tax items recorded in 2021. The change in effective income tax rates for the nine months reflects certain discrete tax items recorded in 2021.

In March 2021 the American Rescue Plan Act (the Act) was signed into law in the United States. We do not expect the provisions of the Act to have a material impact on our annual effective tax rate or Consolidated Financial Statements in 2021.

Net Earnings

Net earnings decreased to $438 or $1.14 per diluted share in the three months 2021 from $621 or $1.63 per diluted share in 2020. Adjusted net earnings per diluted share(1) increased to $2.20 in 2021 from $2.14 in 2020. The impact of foreign currency exchange rates increased net earnings per diluted share by approximately $0.04 in 2021 and increased net earnings per diluted share by approximately $0.01 in 2020.

Net earnings increased to $1,332 or $3.48 per diluted share in the nine months 2021 from $1,031 or $2.71 per diluted share in 2020. Adjusted net earnings per diluted share(1) increased 38.1% to $6.38 in 2021 from $4.62 in 2020. The impact of foreign currency exchange rates increased net earnings per diluted share by approximately $0.16 in 2021 and reduced net earnings per diluted share by approximately $0.01 in 2020.


					Percent Net Sales
Three Months	2021		2020		2021		2020
Reported	$	438	$	621	10.5	%	16.6	%
Inventory stepped-up to fair value	73		—		1.8		—
Other acquisition and integration-related	24		24		0.6		0.6
Amortization of purchased intangible assets	114		93		2.7		2.5
Restructuring-related and other charges	165		26		3.9		0.7
Medical device regulations	23		11		0.6		0.3
Recall-related matters	12		2		0.3		0.1
Regulatory and legal matters	(7)		—		(0.2)		—
Tax matters	—		35		—		0.9
Adjusted	$	842	$	812	20.2	%	21.7	%


					Percent Net Sales
Nine Months	2021		2020		2021		2020
Reported	$	1,332	$	1,031	10.7	%	10.2	%
Inventory stepped-up to fair value	176		6		1.4		0.1
Other acquisition and integration-related	204		60		1.6		0.6
Amortization of purchased intangible assets	378		277		3.1		2.6
Restructuring-related and other charges	198		238		1.7		2.4
Medical device regulations	60		47		0.5		0.5
Recall-related matters	85		(2)		0.7		—
Regulatory and legal matters	(19)		6		(0.2)		0.1
Tax matters	26		93		0.2		0.9
Adjusted	$	2,440	$	1,756	19.7	%	17.4	%


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


STRYKER CORPORATION						2021 Third Quarter Form 10-Q

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; and adjusted net earnings per diluted share (Diluted EPS). 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, acquisitions and divestitures, 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 and divestitures. 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 (e.g., costs associated with the termination of sales relationships,

workforce reductions and other integration-related activities) 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.

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, 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 Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Three Months 2021	Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other income (expense), net			Net Earnings			Effective Tax Rate		Diluted EPS
Reported	$	2,642		$	1,602		$	306		$	574		$	(79)		$	438		11.5	%	$	1.14
Reported percent net sales	63.5		%	38.5		%	7.4		%	13.8		%	(1.9)		%	10.5		%
Acquisition and integration-related charges:
Inventory stepped-up to fair value	94			—			—			94			—			73			1.9		0.19
Other acquisition and integration-related	—			(32)			—			32			—			24			0.8		0.06
Amortization of purchased intangible assets	—			—			—			144			—			114			2.0		0.30
Restructuring-related and other charges	20			(158)			—			178			—			165			(2.6)		0.44
Medical device regulations	1			—			(26)			27			—			23			(0.1)		0.06
Recall-related matters	—			—			—			16			—			12			0.3		0.03
Regulatory and legal matters	—			7			—			(7)			—			(7)			0.2		(0.02)
Tax matters	—			—			—			—			—			—			—		—
Adjusted	$	2,757		$	1,419		$	280		$	1,058		$	(79)		$	842		14.0	%	$	2.20
Adjusted percent net sales	66.3		%	34.1		%	6.7		%	25.4		%	(1.9)		%	20.2		%


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


STRYKER CORPORATION						2021 Third Quarter Form 10-Q


Three Months 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	$	2,461		$	1,244		$	242		$	859		$	(79)		$	621		20.4	%	$	1.63
Reported percent net sales	65.9		%	33.3		%	6.5		%	23.0		%	(2.1)		%	16.6		%
Acquisition and integration-related charges:
Inventory stepped-up to fair value	—			—			—			—			—			—			—		—
Other acquisition and integration-related	—			(29)			—			29			—			24			0.1		0.07
Amortization of purchased intangible assets	—			—			—			114			—			93			0.4		0.25
Restructuring-related and other charges	—			(29)			—			29			—			26			(0.1)		0.06
Medical device regulations	—			—			(13)			14			—			11			0.1		0.03
Recall-related matters	—			—			—			2			—			2			(0.2)		0.01
Regulatory and legal matters	—			—			—			—			—			—			—		—
Tax matters	—			—			—			—			—			35			(4.6)		0.09
Adjusted	$	2,461		$	1,186		$	229		$	1,047		$	(79)		$	812		16.1	%	$	2.14
Adjusted percent net sales	65.9		%	31.7		%	6.1		%	28.0		%	(2.1)		%	21.7		%


Nine Months 2021	Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other income (expense), net			Net Earnings			Effective Tax Rate		Diluted EPS
Reported	$	7,923		$	4,682		$	904		$	1,765		$	(241)		$	1,332		12.6	%	$	3.48
Reported percent net sales	63.9		%	37.7		%	7.3		%	14.2		%	(1.9)		%	10.7		%
Acquisition and integration-related charges:
Inventory stepped-up to fair value	231			—			—			231			—			176			1.4		0.46
Other acquisition and integration-related	—			(264)			—			264			—			204			1.4		0.53
Amortization of purchased intangible assets	—			—			—			474			—			378			1.7		0.99
Restructuring-related and other charges	20			(189)			—			209			11			198			(0.7)		0.52
Medical device regulations	2			—			(70)			72			—			60			0.1		0.16
Recall-related matters	—			—			—			98			—			85			(0.1)		0.22
Regulatory and legal matters	—			16			—			(16)			(3)			(19)			0.2		(0.05)
Tax matters	—			—			—			—			—			26			(1.8)		0.07
Adjusted	$	8,176		$	4,245		$	834		$	3,097		$	(233)		$	2,440		14.8	%	$	6.38
Adjusted percent net sales	65.9		%	34.2		%	6.7		%	25.0		%	(1.9)		%	19.7		%


Nine Months 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	$	6,340		$	3,799		$	729		$	1,474		$	(191)		$	1,031		19.6	%	$	2.71
Reported percent net sales	62.8		%	37.7		%	7.2		%	14.6		%	(1.9)		%	10.2		%
Acquisition and integration-related charges:
Inventory stepped-up to fair value	9			—			—			9			—			6			0.1		0.02
Other acquisition and integration-related	—			(76)			—			76			—			60			0.4		0.16
Amortization of purchased intangible assets	—			—			—			342			—			277			1.0		0.73
Restructuring-related and other charges	36			(256)			—			292			—			238			0.8		0.62
Medical device regulations	1			—			(59)			60			—			47			0.3		0.12
Recall-related matters	—			—			—			(4)			—			(2)			(0.2)		—
Regulatory and legal matters	—			(5)			—			5			—			6			(0.2)		0.02
Tax matters	—			—			—			—			7			93			(6.6)		0.24
Adjusted	$	6,386		$	3,462		$	670		$	2,254		$	(184)		$	1,756		15.2	%	$	4.62
Adjusted percent net sales	63.3		%	34.3		%	6.6		%	22.3		%	(1.8)		%	17.4		%

FINANCIAL CONDITION AND LIQUIDITY


Nine Months	2021		2020
Net cash provided by operating activities	$	2,263	$	2,040
Net cash used in investing activities	(545)		(349)
Net cash provided by (used in) financing activities	(2,077)		1,046
Effect of exchange rate changes on cash and cash equivalents	(21)		9
Change in cash and cash equivalents	$	(380)	$	2,746

Operating Activities

Cash provided by operating activities was $2,263 and $2,040 in the nine months 2021 and 2020. The increase was primarily due to higher net earnings partially offset by decreases in overall working capital and higher recall-related payments.

Investing Activities

Cash used in investing activities was $545 and $349 in the nine months 2021 and 2020. The increase in cash used in 2021 was primarily due to increased payments for acquisitions.

Financing Activities

Cash provided by (used in) financing activities was ($2,077) and $1,046 in the nine months 2021 and 2020. Cash used in 2021 was primarily driven by debt repayments of $750 in March 2021 and $400 for the term loan in June 2021. Cash provided in 2020 was driven by the issuance of $2,300 of notes in June 2020 partially offset by debt repayments of $500 in January 2020. We did not repurchase any shares in the nine months 2021 or 2020.


Nine Months	2021		2020
Total dividends paid to common shareholders	$	713	$	647

Liquidity

Cash, cash equivalents and marketable securities were $2,639 and $3,024 on September 30, 2021 and December 31, 2020. Current assets exceeded current liabilities by $5,011 and $4,666 on September 30, 2021 and December 31, 2020. We anticipate being able to support our short-term liquidity and operating needs from a variety of sources including cash from operations,


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


STRYKER CORPORATION						2021 Third Quarter Form 10-Q

commercial paper, existing credit lines and capital expenditure and operating expense reductions. In October 2021 we entered into a new revolving credit facility of $2,250 that expires in October 2026 and replaces our previous agreement dated August 19, 2016.

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 40% on September 30, 2021 compared to 30% on December 31, 2020.

Critical Accounting Policies

There were no changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for 2020.

New Accounting Pronouncements Not Yet Adopted

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

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.

OTHER MATTERS

Legal and Regulatory Matters

We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of our business, including proceedings related to product, labor, intellectual property and other matters. Refer to Note 6 to our Consolidated Financial Statements for further information.

FORWARD-LOOKING STATEMENTS

This report contains statements referring to us that are not historical facts and are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which are intended to take advantage of the "safe harbor" provisions of the Reform Act, are based on current projections about operations, industry conditions, financial condition and liquidity. Words that identify forward-looking statements include words such as "may," "could," "will," "should," "possible," "plan," "predict," "forecast," "potential," "anticipate," "estimate," "expect," "project," "intend," "believe," "may impact," "on track," "goal," "strategy" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, an acquisition or our businesses. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Those statements are not guarantees and are subject to risks, uncertainties and assumptions that are difficult to predict, including uncertainties related to the impact of the COVID-19 pandemic on our operations and financial results. Therefore, actual results could differ materially and adversely from these forward-looking statements. Some important factors that could cause our actual results to differ from our expectations in any forward-looking statements include those risks discussed in Item 1A. "Risk Factors" of our Annual Report on Form 10-K for 2020. This Form 10-Q should be read in conjunction with our Consolidated Financial Statements and accompanying notes to our Consolidated Financial Statements in our Annual Report on Form

10-K for 2020. We disclaim any intention or obligation to publicly update or revise any forward-looking statement to reflect any change in our expectations or in events, conditions or circumstances on which those expectations may be based, or that affect the likelihood that actual results will differ from those contained in the forward-looking statements.

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