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 Medical and Surgical, Neurotechnology, Orthopaedics and Spine that help improve patient and hospital outcomes. Alongside its customers around the world, Stryker impacts more than 100 million patients annually.

We segregate our operations into two reportable business segments: (i) MedSurg and Neurotechnology and (ii) Orthopaedics and Spine. MedSurg and Neurotechnology products include surgical equipment and navigation systems (Instruments), endoscopic and communications systems (Endoscopy), patient handling, emergency medical equipment and intensive care disposable products (Medical), minimally invasive products for the treatment of acute ischemic and hemorrhagic stroke (Neurovascular), a comprehensive line of products for traditional brain and open skull based surgical procedures; orthobiologic and biosurgery products, including synthetic bone grafts and vertebral augmentation products (Neuro Cranial) and other medical device products used in a variety of medical specialties. Orthopaedics and Spine products consist primarily of implants used in hip and knee joint replacements and trauma and extremity surgeries, and cervical, thoracolumbar and interbody systems used in spinal injury, deformity and degenerative therapies.

COVID-19 Pandemic and Macroeconomic Environment

The COVID-19 global pandemic and macroeconomic environment has led to severe disruptions in the market and the global and United States economies that may continue for a prolonged period. In response to the COVID-19 pandemic, various governmental authorities and private enterprises have implemented numerous containment measures, 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. This has led to product shortages and an increase in raw material and component pricing as well as other inflationary pressures particularly on our manufacturing costs.

During the quarter we have seen recovery of elective procedures as the impact of the COVID-19 pandemic has subsided in many geographies, with the exception of some countries in the Asia Pacific region. However sales growth in certain products has been constrained by the continuing supply chain challenges and electronic component shortages, especially impacting the capital products in our MedSurg businesses.

Russia and Ukraine Conflict

The military conflict in Russia and Ukraine and the sanctions imposed by the United States government and other nations in response to this conflict have caused significant volatility and disruptions to the global markets. Given that we provide life-saving and life-enhancing products, we plan to continue operating in Russia provided we can safely do so. During the six months 2022 net sales in Russia were approximately 0.2% of our revenues. Although Russia does not constitute a material portion of our business, there is uncertainty around the impact it will have on the global economy, supply chains and fuel prices generally, and therefore our business. Refer to Part II, Item 1A. "Risk

Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 for further details.

China Volume-Based Procurement and Import Purchase Evaluation

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. The prices required for a successful bid have negatively impacted our existing commercial operations of joint replacement and trauma products in China. To date our other businesses have not been significantly impacted; however, the national spine products VBP program was initiated in July 2022. China has also issued national guiding standards for Import Purchase Evaluation which has increased the purchase of locally sourced equipment in China's public hospitals and is impacting our MedSurg business in China. Our business in China represented approximately 2.6% of our revenues for the six months 2022.

Overview of the Three and Six Months

In the three months 2022 we achieved sales growth of 4.6% from 2021. Excluding the impact of acquisitions and divestitures sales grew 6.1% in constant currency. We reported operating income margin of 17.2%, net earnings of $656 and net earnings per diluted share of $1.72. Excluding the impact of certain items, adjusted operating income margin(1) contracted by 220 basis points to 23.7%, with adjusted net earnings(1) of $860 and adjusted net earnings per diluted share(1) of $2.25 in line with 2021.

In the six months 2022 we achieved sales growth of 6.3% from 2021. Excluding the impact of acquisitions and divestitures sales grew 7.6% in constant currency. We reported operating income margin of 13.9%, net earnings of $979 and net earnings per diluted share of $2.56. Excluding the impact of certain items, adjusted operating income margin(1) contracted by 190 basis points to 22.8%, with adjusted net earnings(1) of $1,612 and adjusted net earnings per diluted share(1) of $4.22 representing growth of 1.0%.

Recent Developments

In February 2022 we entered into a $1.5 billion term loan agreement that matures on February 22, 2025 and bears interest at a base rate based on the Term Secured Overnight Financing Rate (SOFR) plus 0.725%. In June 2022 we repaid $250 of this term loan.

In February 2022 we completed the acquisition of Vocera Communications, Inc. (Vocera) for $79.25 per share, or an aggregate purchase price of $2.6 billion, net of cash acquired ($3.0 billion including convertible notes). Vocera is a leader in the digital care coordination and communication category. Vocera is part of our Medical business within MedSurg and Neurotechnology. Goodwill attributable to the acquisition reflects the strategic benefits of expanding our presence in adjacent markets, diversifying our product portfolio, advancing innovations, and accelerating our digital aspirations. Refer to Note 7 to our Consolidated Financial Statements for further information.

(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						2022 Second Quarter Form 10-Q


CONSOLIDATED RESULTS OF OPERATIONS
	Three Months										Six Months
					Percent Net Sales				Percentage						Percent Net Sales				Percentage
	2022		2021		2022		2021		Change		2022		2021		2022		2021		Change
Net sales	$	4,493	$	4,294	100.0	%	100.0	%	4.6	%	$	8,768	$	8,247	100.0	%	100.0	%	6.3	%
Gross profit	2,826		2,772		62.9		64.6		1.9		5,560		5,281		63.4		64.0		5.3
Research, development and engineering expenses	351		310		7.8		7.2		13.2		764		598		8.7		7.3		27.8
Selling, general and administrative expenses	1,539		1,505		34.3		35.0		2.3		3,249		3,080		37.1		37.3		5.5
Recall charges	4		76		0.1		1.8		nm		18		82		0.2		1.0		nm
Amortization of intangible assets	160		149		3.6		3.5		7.4		310		330		3.5		4.0		(6.1)
Other income (expense), net	(52)		(70)		(1.2)		(1.6)		(25.7)		(113)		(162)		(1.3)		(2.0)		(30.2)
Income taxes	64		70		nm		nm		(8.6)		127		135		nm		nm		(5.9)
Net earnings	$	656	$	592	14.6	%	13.8	%	10.8	%	$	979	$	894	11.2	%	10.8	%	9.5	%

Net earnings per diluted share	$	1.72	$	1.55					11.0	%	$	2.56	$	2.34					9.4	%
Adjusted net earnings per diluted share(1)	$	2.25	$	2.25					—	%	$	4.22	$	4.18					1.0	%

nm - not meaningful


Geographic and Segment Net Sales	Three Months								Six Months
					Percentage Change								Percentage Change
	2022		2021		As Reported		Constant Currency		2022		2021		As Reported		Constant Currency
Geographic:
United States	$	3,311	$	3,100	6.8	%	6.8	%	$	6,416	$	5,884	9.0	%	9.0	%
International	1,182		1,194		(1.0)		9.7		2,352		2,363		(0.5)		7.8
Total	$	4,493	$	4,294	4.6	%	7.6	%	$	8,768	$	8,247	6.3	%	8.7	%
Segment:
MedSurg and Neurotechnology	$	2,549	$	2,359	8.0	%	10.6	%	$	4,972	$	4,550	9.3	%	11.3	%
Orthopaedics and Spine	1,944		1,935		0.5		3.9		3,796		3,697		2.7		5.4
Total	$	4,493	$	4,294	4.6	%	7.6	%	$	8,768	$	8,247	6.3	%	8.7	%


Supplemental Net Sales Growth Information
	Three Months														Six Months
					Percentage Change														Percentage Change
									United States		International												United States		International
	2022		2021		As Reported		Constant Currency		As Reported		As Reported		Constant Currency		2022		2021		As Reported		Constant Currency		As Reported		As Reported		Constant Currency
MedSurg and Neurotechnology:
Instruments	$	563	$	517	8.9	%	11.3	%	12.3	%	(3.1)	%	7.7	%	$	1,091	$	986	10.7	%	12.7	%	14.3	%	(1.4)	%	7.0	%
Endoscopy	600		518		15.7		18.2		16.2		13.8		25.8		1,138		987		15.3		17.5		17.1		9.2		18.9
Medical	666		640		4.1		6.2		10.0		(14.6)		(6.1)		1,330		1,262		5.4		7.0		10.5		(10.7)		(4.3)
Neurovascular	306		301		1.6		7.2		(1.8)		3.7		12.9		607		590		2.7		6.9		(1.6)		5.4		12.2
Neuro Cranial	337		310		8.5		10.3		9.4		4.1		14.7		660		591		11.6		13.1		13.5		3.8		11.7
Other	77		73		5.8		5.8		4.9		68.5		74.5		146		134		8.8		8.8		8.1		57.6		60.7
	$	2,549	$	2,359	8.0	%	10.6	%	10.9	%	(0.1)	%	9.9	%	$	4,972	$	4,550	9.3	%	11.3	%	12.4	%	0.8	%	8.5	%
Orthopaedics and Spine:
Knees	$	500	$	474	5.5	%	8.7	%	5.3	%	6.2	%	18.6	%	$	964	$	886	8.8	%	11.5	%	10.9	%	3.2	%	13.1	%
Hips	364		353		3.2		7.6		4.5		1.2		13.0		691		662		4.5		8.1		6.3		1.5		10.9
Trauma and Extremities	676		674		0.2		3.4		3.1		(6.5)		4.4		1,361		1,314		3.6		6.2		6.7		(3.7)		4.8
Spine	290		307		(5.1)		(2.3)		(3.6)		(8.9)		1.0		569		585		(2.6)		(0.3)		(0.1)		(8.5)		(0.7)
Other	114		127		(10.8)		(7.3)		(13.8)		0.1		16.3		211		250		(15.5)		(13.0)		(18.4)		(5.5)		5.9
	$	1,944	$	1,935	0.5	%	3.9	%	1.6	%	(2.0)	%	9.5	%	$	3,796	$	3,697	2.7	%	5.4	%	4.7	%	(1.9)	%	7.2	%
Total	$	4,493	$	4,294	4.6	%	7.6	%	6.8	%	(1.0)	%	9.7	%	$	8,768	$	8,247	6.3	%	8.7	%	9.0	%	(0.5)	%	7.8	%

Consolidated Net Sales

Consolidated net sales increased 4.6% in the three months 2022 as reported and 7.6% in constant currency, as foreign currency exchange rates negatively impacted net sales by 3.0%. Excluding the 1.5% impact of acquisitions and divestitures, net sales in constant currency increased by 7.5% from increased unit volume partially offset by 1.4% due to lower prices. The unit volume increase was due to higher shipments across most MedSurg and Neurotechnology products and most Orthopaedics and Spine products.

Consolidated net sales increased 6.3% in the six months 2022 as reported and 8.7% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.4%. Excluding the 1.1% impact of acquisitions and divestitures, net sales in constant currency increased by 8.8% from increased unit volume partially offset by 1.2% due to lower prices. The unit volume increase was due to higher shipments across all MedSurg and Neurotechnology products and most Orthopaedics and Spine products.


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


STRYKER CORPORATION						2022 Second Quarter Form 10-Q

MedSurg and Neurotechnology Net Sales

MedSurg and Neurotechnology net sales increased 8.0% in the three months 2022 as reported and 10.6% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.6%. Excluding the 2.7% impact of acquisitions, net sales in constant currency increased by 7.8% from increased unit volume and 0.1% from higher prices. The unit volume increase was due to higher shipments across most MedSurg and Neurotechnology products.

MedSurg and Neurotechnology net sales increased 9.3% in the six months 2022 as reported and 11.3% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.0%. Excluding the 2.0% impact of acquisitions, net sales in constant currency increased by 9.3% from increased unit volume. The unit volume increase was due to higher shipments across all MedSurg products.

Orthopaedics and Spine Net Sales

Orthopaedics and Spine net sales increased 0.5% in the three months 2022 as reported and 3.9% in constant currency, as foreign currency exchange rates negatively impacted net sales by 3.4%. Net sales in constant currency increased 7.1% from increased unit volume partially offset by 3.2% from lower prices. The unit volume increase was due to higher shipments of hips, knees and trauma and extremities products.

Orthopaedics and Spine net sales increased 2.7% in the six months 2022 as reported and 5.4% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.7%. Net sales in constant currency increased 8.2% from increased unit volume partially offset by 2.8% from lower prices. The unit volume increase was due to higher shipments across most Orthopaedics and Spine products.

Gross Profit

Gross profit as a percentage of sales in the three months 2022 decreased to 62.9% from 64.6% in 2021. Excluding the impact of the items noted below, gross profit decreased to 63.3% of sales in the three months 2022 from 66.0% in 2021 due to increased costs from purchases of electronic components at premium prices on the spot market and other inflationary pressures, primarily related to labor, steel and transportation.

Gross profit as a percentage of sales in the six months 2022 decreased to 63.4% from 64.0% in 2021. Excluding the impact of the items noted below, gross profit decreased to 63.7% of sales in the six months 2022 from 65.7% in 2021 primarily due to increased costs from purchases of electronic components at premium prices on the spot market and other inflationary pressures, primarily related to labor, steel and transportation. These increased costs were partially offset by higher sales volumes and favorable mix.


					Percent Net Sales
Three Months	2022		2021		2022		2021
Reported	$	2,826	$	2,772	62.9	%	64.6	%
Inventory stepped-up to fair value	7		58		0.2		1.4


Restructuring-related and other charges	8		2		0.2		—
Medical device regulations	2		—		—		—



Adjusted	$	2,843	$	2,832	63.3	%	66.0	%


					Percent Net Sales
Six Months	2022		2021		2022		2021
Reported	$	5,560	$	5,281	63.4	%	64.0	%
Inventory stepped-up to fair value	12		137		0.2		1.7


Restructuring-related and other charges	10		—		0.1		—
Medical device regulations	2		1		—		—



Adjusted	$	5,584	$	5,419	63.7	%	65.7	%

Research, Development and Engineering Expenses

Research, development and engineering expenses increased $41 or 13.2% in the three months 2022 and increased as a percentage of sales to 7.8% from 7.2% in 2021. Excluding the impact of the items noted below, expenses increased to 7.2% of sales in 2022 from 6.6% in 2021.

Research, development and engineering expenses increased $166 or 27.8% in the six months 2022 and increased as a percentage of sales to 8.7% from 7.3% in 2021. Excluding the impact of the items noted below, expenses increased to 7.2% of sales in 2022 from 6.7% in 2021.

The increases for the three and six months reflect our continued commitment to new product development and technologies, integration of recent acquisitions and for the six months the write-off of certain intangible assets.


					Percent Net Sales
Three Months	2022		2021		2022		2021
Reported	$	351	$	310	7.8	%	7.2	%




Medical device regulations	(28)		(26)		(0.6)		(0.6)



Adjusted	$	323	$	284	7.2	%	6.6	%


					Percent Net Sales
Six Months	2022		2021		2022		2021
Reported	$	764	$	598	8.7	%	7.3	%



Restructuring-related and other charges	(79)		—		(0.9)		—
Medical device regulations	(56)		(44)		(0.6)		(0.6)



Adjusted	$	629	$	554	7.2	%	6.7	%

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $34 or 2.3% in the three months 2022 and decreased as a percentage of sales to 34.3% from 35.0% in 2021. Excluding the impact of the items noted below, expenses decreased to 32.4% of sales in 2022 from 33.4% in 2021.

Selling, general and administrative expenses increased $169 or 5.5% in the six months 2022 and decreased as a percentage of sales to 37.1% from 37.3%. Share-based awards for Vocera employees vested upon our acquisition in 2022 and a charge of $132 was recorded. Excluding the impact of the items noted below, expenses decreased to 33.7% of sales in 2022 from 34.3% in 2021.

The decreases as a percentage of sales for the three and six months were due to our continued cost discipline and fixed cost leverage.


					Percent Net Sales
Three Months	2022		2021		2022		2021
Reported	$	1,539	$	1,505	34.3	%	35.0	%

Other acquisition and integration-related	(30)		(62)		(0.8)		(1.4)

Restructuring-related and other charges	(54)		(16)		(1.2)		(0.4)
Medical device regulations	(2)		—		—		—

Regulatory and legal matters	4		9		0.1		0.2

Adjusted	$	1,457	$	1,436	32.4	%	33.4	%


					Percent Net Sales
Six Months	2022		2021		2022		2021
Reported	$	3,249	$	3,080	37.1	%	37.3	%

Other acquisition and integration-related	(174)		(232)		(2.1)		(2.8)

Restructuring-related and other charges	(82)		(31)		(0.9)		(0.3)
Medical device regulations	(2)		—		—		—

Regulatory and legal matters	(33)		9		(0.4)		0.1

Adjusted	$	2,958	$	2,826	33.7	%	34.3	%


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


STRYKER CORPORATION						2022 Second Quarter Form 10-Q

Recall Charges

Recall charges were $4 and $76 in the three months and $18 and $82 in the six months 2022 and 2021. Charges in the three and six months 2022 were primarily related to the previously disclosed Wright hip products, and charges in the three and six months 2021 were primarily related to 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 $160 and $149 in the three months and $310 and $330 in the six months 2022 and 2021. Refer to Note 7 to our Consolidated Financial Statements for further information.

Operating Income

Operating income increased $40 to 17.2% of sales in the three months 2022 from 17.0% of sales in 2021. Excluding the impact of the items noted below, operating income decreased to 23.7% of sales in 2022 from 25.9% in 2021 primarily due to higher costs from inflationary pressures, partially offset by leverage from higher sales volumes and cost discipline.

Operating income increased $28 or 2.4% to 13.9% of sales in the six months 2022 from 14.4% of sales in 2021. Excluding the impact of the items noted below, operating income decreased to 22.8% of sales in 2022 from 24.7% in 2021 primarily due to higher costs from inflationary pressures and our continued investments in innovation, partially offset by leverage from higher sales volumes and cost discipline.


					Percent Net Sales
Three Months	2022		2021		2022		2021
Reported	$	772	$	732	17.2	%	17.0	%
Inventory stepped-up to fair value	7		58		0.2		1.4
Other acquisition and integration-related	30		62		0.6		1.4
Amortization of purchased intangible assets	160		149		3.6		3.5
Restructuring-related and other charges	62		17		1.4		0.4
Medical device regulations	32		26		0.7		0.6
Recall-related matters	4		76		0.1		1.8
Regulatory and legal matters	(4)		(9)		(0.1)		(0.2)

Adjusted	$	1,063	$	1,111	23.7	%	25.9	%


					Percent Net Sales
Six Months	2022		2021		2022		2021
Reported	$	1,219	$	1,191	13.9	%	14.4	%
Inventory stepped-up to fair value	12		137		0.1		1.7
Other acquisition and integration-related	174		232		2.0		2.8
Amortization of purchased intangible assets	310		330		3.5		4.0
Restructuring-related and other charges	171		31		2.0		0.4
Medical device regulations	60		45		0.7		0.5
Recall-related matters	18		82		0.2		1.0
Regulatory and legal matters	33		(9)		0.4		(0.1)

Adjusted	$	1,997	$	2,039	22.8	%	24.7	%

Other Income (Expense), Net

Other income (expense), net was ($52) and ($70) in the three months and ($113) and ($162) in the six months 2022 and 2021. The decrease in net expense in 2022 was primarily due to favorable investment returns and interest income.

Income Taxes

Our effective tax rates of 8.9% and 11.5% in the three and six months 2022 include the reversal of deferred income tax on undistributed earnings of foreign subsidiaries determined to be indefinitely reinvested and certain discrete tax items. Our effective tax rates of 10.6% and 13.1% in the three and six months 2021 include certain discrete tax items.

We are routinely audited by income tax authorities in the jurisdictions we operate. In July 2022 we effectively settled the United States federal income tax audit for years 2014 through 2018. Accordingly in the three months ending September 30, 2022 we expect to reduce our accruals for uncertain tax positions and related interest by approximately $220.

Net Earnings

Net earnings increased to $656 or $1.72 per diluted share in the three months 2022 from $592 or $1.55 per diluted share in 2021. Adjusted net earnings per diluted share(1) was $2.25 in 2022 in line with 2021.

Net earnings increased to $979 or $2.56 per diluted share in the six months 2022 from $894 or $2.34 per diluted share in 2021. Adjusted net earnings per diluted share(1) increased 1.0% to $4.22 in 2022 from $4.18 in 2021.


					Percent Net Sales
Three Months	2022		2021		2022		2021
Reported	$	656	$	592	14.6	%	13.8	%
Inventory stepped-up to fair value	5		43		0.1		1.0
Other acquisition and integration-related	23		51		0.5		1.2
Amortization of purchased intangible assets	124		113		2.8		2.7
Restructuring-related and other charges	56		15		1.2		0.3
Medical device regulations	26		21		0.6		0.5
Recall-related matters	3		68		0.1		1.6
Regulatory and legal matters	(4)		(12)		(0.1)		(0.3)
Tax matters	(29)		(30)		(0.7)		(0.7)
Adjusted	$	860	$	861	19.1	%	20.1	%


					Percent Net Sales
Six Months	2022		2021		2022		2021
Reported	$	979	$	894	11.2	%	10.8	%
Inventory stepped-up to fair value	9		103		0.1		1.2
Other acquisition and integration-related	128		180		1.5		2.2
Amortization of purchased intangible assets	239		264		2.6		3.3
Restructuring-related and other charges	140		33		1.6		0.4
Medical device regulations	50		37		0.6		0.4
Recall-related matters	14		73		0.2		0.9
Regulatory and legal matters	24		(12)		0.3		(0.1)
Tax matters	29		26		0.3		0.3
Adjusted	$	1,612	$	1,598	18.4	%	19.4	%


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


STRYKER CORPORATION						2022 Second 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; 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, acquisitions and divestitures, which affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year and prior year results at the same 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. 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. 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 and intangible asset write-offs and 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 new medical device reporting regulations and other requirements of the European Union and the more stringent regulations for medical devices in China.

*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.


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


STRYKER CORPORATION						2022 Second Quarter Form 10-Q



Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Three Months 2022	Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other Income (Expense), Net			Net Earnings			Effective Tax Rate		Diluted EPS
Reported	$	2,826		$	1,539		$	351		$	772		$	(52)		$	656		8.9	%	$	1.72
Reported percent net sales	62.9		%	34.3		%	7.8		%	17.2		%	(1.2)		%	14.6		%
Acquisition and integration-related costs:
Inventory stepped-up to fair value	7			—			—			7			—			5			0.1		0.01
Other acquisition and integration-related	—			(30)			—			30			—			23			0.4		0.06
Amortization of purchased intangible assets	—			—			—			160			—			124			2.0		0.33
Restructuring-related and other charges	8			(54)			—			62			—			56			(0.4)		0.15
Medical device regulations	2			(2)			(28)			32			—			26			0.2		0.07
Recall-related matters	—			—			—			4			—			3			0.1		—
Regulatory and legal matters	—			4			—			(4)			—			(4)			—		(0.02)
Tax matters	—			—			—			—			(12)			(29)			2.6		(0.07)
Adjusted	$	2,843		$	1,457		$	323		$	1,063		$	(64)		$	860		13.9	%	$	2.25
Adjusted percent net sales	63.3		%	32.4		%	7.2		%	23.7		%	(1.4)		%	19.1		%


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	$	2,772		$	1,505		$	310		$	732		$	(70)		$	592		10.6	%	$	1.55
Reported percent net sales	64.6		%	35.0		%	7.2		%	17.0		%	(1.6)		%	13.8		%
Acquisition and integration-related costs:
Inventory stepped-up to fair value	58			—			—			58			—			43			0.6		0.11
Other acquisition and integration-related	—			(62)			—			62			—			51			0.1		0.13
Amortization of purchased intangible assets	—			—			—			149			—			113			1.4		0.29
Restructuring-related and other charges	2			(16)			—			17			—			15			(0.1)		0.03
Medical device regulations	—			—			(26)			26			—			21			0.1		0.06
Recall-related matters	—			—			—			76			—			68			(0.4)		0.18
Regulatory and legal matters	—			9			—			(9)			(3)			(12)			0.3		(0.03)
Tax matters	—			—			—			—			—			(30)			4.4		(0.07)
Adjusted	$	2,832		$	1,436		$	284		$	1,111		$	(73)		$	861		17.0	%	$	2.25
Adjusted percent net sales	66.0		%	33.4		%	6.6		%	25.9		%	(1.7)		%	20.1		%


Six Months 2022	Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other Income (Expense), Net			Net Earnings			Effective Tax Rate		Diluted EPS
Reported	$	5,560		$	3,249		$	764		$	1,219		$	(113)		$	979		11.5	%	$	2.56
Reported percent net sales	63.4		%	37.1		%	8.7		%	13.9		%	(1.3)		%	11.2		%
Acquisition and integration-related costs:
Inventory stepped-up to fair value	12			—			—			12			—			9			0.1		0.02
Other acquisition and integration-related	—			(174)			—			174			—			128			2.0		0.33
Amortization of purchased intangible assets	—			—			—			310			—			239			2.6		0.63
Restructuring-related and other charges	10			(82)			(79)			171			—			140			0.6		0.37
Medical device regulations	2			(2)			(56)			60			—			50			0.2		0.13
Recall-related matters	—			—			—			18			—			14			0.2		0.04
Regulatory and legal matters	—			(33)			—			33			—			24			0.4		0.06
Tax matters	—			—			—			—			(12)			29			(3.7)		0.08
Adjusted	$	5,584		$	2,958		$	629		$	1,997		$	(125)		$	1,612		13.9	%	$	4.22
Adjusted percent net sales	63.7		%	33.7		%	7.2		%	22.8		%	(1.4)		%	18.4		%


Six 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	$	5,281		$	3,080		$	598		$	1,191		$	(162)		$	894		13.1	%	$	2.34
Reported percent net sales	64.0		%	37.3		%	7.3		%	14.4		%	(2.0)		%	10.8		%
Acquisition and integration-related costs:
Inventory stepped-up to fair value	137			—			—			137			—			103			1.1		0.27
Other acquisition and integration-related	—			(232)			—			232			—			180			1.6		0.47
Amortization of purchased intangible assets	—			—			—			330			—			264			1.6		0.69
Restructuring-related and other charges	—			(31)			—			31			11			33			0.3		0.08
Medical device regulations	1			—			(44)			45			—			37			0.2		0.10
Recall-related matters	—			—			—			82			—			73			(0.3)		0.19
Regulatory and legal matters	—			9			—			(9)			(3)			(12)			0.2		(0.03)
Tax matters	—			—			—			—			—			26			(2.6)		0.07
Adjusted	$	5,419		$	2,826		$	554		$	2,039		$	(154)		$	1,598		15.2	%	$	4.18
Adjusted percent net sales	65.7		%	34.3		%	6.7		%	24.7		%	(1.9)		%	19.4		%


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


STRYKER CORPORATION						2022 Second Quarter Form 10-Q

FINANCIAL CONDITION AND LIQUIDITY


Six Months	2022		2021
Net cash provided by operating activities	$	732	$	1,330
Net cash used in investing activities	(2,834)		(298)
Net cash provided by (used in) financing activities	240		(1,729)
Effect of exchange rate changes on cash and cash equivalents	(38)		(5)
Change in cash and cash equivalents	$	(1,900)	$	(702)

Operating Activities

Cash provided by operating activities was $732 and $1,330 in the six months 2022 and 2021. The decrease was primarily due to increased inventory driven by higher material prices and inventory levels to manage supply chain issues and increased accounts receivable primarily due to timing of sales.

Investing Activities

Cash used in investing activities was $2,834 and $298 in the six months 2022 and 2021. The increase in cash used in 2022 was primarily due to increased payments for acquisitions and investments in capital projects.

Financing Activities

Cash provided by (used in) financing activities was $240 and ($1,729) in the six months 2022 and 2021. Cash provided in 2022 was primarily driven by the issuance of a $1,500 term loan used to fund the Vocera acquisition, of which $250 has been repaid, partially offset by the payment of dividends. Cash used in 2021 was primarily due to debt repayments of $750 in March 2021 and $400 for the term loan in June 2021. We did not repurchase any shares in the six months 2022 and 2021. Dividends paid to common shareholders were $525 and $475 in the six months 2022 and 2021.

Liquidity

Cash, cash equivalents and marketable securities were $1,127 and $3,019 on June 30, 2022 and December 31, 2021. Current assets exceeded current liabilities by $4,421 and $5,468 on June 30, 2022 and December 31, 2021. We anticipate being able to support our short-term liquidity and operating needs from a variety of sources including cash from operations, commercial paper and existing credit lines.

We raised funds in the capital markets in the past 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 55% on June 30, 2022 compared to 26% on December 31, 2021.

Critical Accounting Policies

There were no changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for 2021.

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 2021 and Part II, Item 1A. "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. 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 2021. 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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