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.

Macroeconomic Environment

The global economy is experiencing increased inflationary pressures in part due to global supply chain disruptions, labor shortages and other impacts of the COVID-19 pandemic and current macroeconomic environment which we anticipate will continue. Higher interest rates and capital costs, higher shipping costs, increased costs of labor and weakening foreign currency exchange rates are creating additional economic challenges. We expect these conditions to cause our customers to decrease or delay orders for our products and services, and the higher interest rates to impact demand for our capital products.

Our operations have been adversely impacted by the inflationary pressures primarily related to labor, steel and transportation costs as well as the impact of purchasing electronic components at premium prices on the spot market. 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 nine months 2022 net sales in Russia were approximately 0.3% 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 and energy 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. The national VBP program for spine products took place in the third quarter of 2022 and we were unsuccessful in our bid. As a result we are exiting the spine business in China. We expect regional VBP programs to be initiated for neurovascular products in the fourth quarter of 2022 and additional VBP programs may be initiated in the future. 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 2.5% of our revenues for the nine months 2022.

Overview of the Three and Nine Months

In the three months 2022 we achieved sales growth of 7.7% from 2021. Excluding the impact of acquisitions and divestitures sales grew 9.9% in constant currency. We reported operating income margin of 18.0%, net earnings of $816 and net earnings per diluted share of $2.14. Excluding the impact of certain items, adjusted operating income margin(1) contracted by 310 basis points to 22.3%, with adjusted net earnings(1) of $810 and adjusted net earnings per diluted share(1) of $2.12, a decrease of 3.6% from 2021.

In the nine months 2022 we achieved sales growth of 6.8% from 2021. Excluding the impact of acquisitions and divestitures sales grew 8.3% in constant currency. We reported operating income margin of 15.3%, net earnings of $1,795 and net earnings per diluted share of $4.70. Excluding the impact of certain items, adjusted operating income margin(1) contracted by 240 basis points to 22.6%, with adjusted net earnings(1) of $2,422 and adjusted net earnings per diluted share(1) of $6.34, a decrease of 0.6% from 2021.

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 and September 2022 we repaid $250 and $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.

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

STRYKER CORPORATION						2022 Third Quarter Form 10-Q

On August 16, 2022 the Inflation Reduction Act (“IRA”) was enacted into law. The IRA includes a 15% corporate alternative minimum tax effective in 2023 and a 1% tax on share repurchases after December 31, 2022. We are currently evaluating the impact of the IRA and do not expect the tax-related provisions to have a material impact on our Consolidated Financial Statements. The impact of the excise tax on share repurchases will be dependent on the extent of share repurchases made in future periods.

(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
			Three Months																		Nine Months
									Percent Net Sales						Percentage												Percent Net Sales						Percentage
			2022			2021			2022			2021			Change						2022			2021			2022			2021			Change
Net sales			$	4,479		$	4,160		100.0		%	100.0		%	7.7		%				$	13,247		$	12,407		100.0		%	100.0		%	6.8		%
Gross profit			2,782			2,642			62.1			63.5			5.3						8,342			7,923			63.0			63.9			5.3
Research, development and engineering expenses			364			306			8.1			7.4			19.0						1,128			904			8.5			7.3			24.8
Selling, general and administrative expenses			1,455			1,602			32.5			38.5			(9.2)						4,704			4,682			35.5			37.7			0.5
Recall charges			(4)			16			(0.1)			0.4			nm						14			98			0.1			0.8			nm
Amortization of intangible assets			159			144			3.5			3.5			10.4						469			474			3.5			3.8			(1.1)
Other income (expense), net			8			(79)			0.2			(1.9)			nm						(105)			(241)			(0.8)			(1.9)			(56.4)
Income taxes			—			57			nm			nm			(100.0)						127			192			nm			nm			(33.9)
Net earnings			$	816		$	438		18.2		%	10.5		%	86.3		%				$	1,795		$	1,332		13.6		%	10.7		%	34.8		%
Net earnings per diluted share			$	2.14		$	1.14								87.7		%				$	4.70		$	3.48								35.1		%
Adjusted net earnings per diluted share**(1)**			$	2.12		$	2.20								(3.6)		%				$	6.34		$	6.38								(0.6)		%

nm - not meaningful

Geographic and Segment Net Sales			Three Months																		Nine Months
												Percentage Change																		Percentage Change
			2022			2021						As Reported			Constant Currency						2022			2021						As Reported			Constant Currency
Geographic:
United States			$	3,360		$	3,019					11.3		%	11.3		%				$	9,776		$	8,903					9.8		%	9.8		%
International			1,119			1,141						(1.9)			11.7						3,471			3,504						(0.9)			9.1
Total			$	4,479		$	4,160					7.7		%	11.4		%				$	13,247		$	12,407					6.8		%	9.6		%
Segment:
MedSurg and Neurotechnology			$	2,588		$	2,349					10.2		%	13.5		%				$	7,560		$	6,899					9.6		%	12.1		%
Orthopaedics and Spine			1,891			1,811						4.4			8.7						5,687			5,508						3.2			6.5
Total			$	4,479		$	4,160					7.7		%	11.4		%				$	13,247		$	12,407					6.8		%	9.6		%

Supplemental Net Sales Growth Information
			Three Months																								Nine 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			$	535		$	525		1.8		%	4.8		%	2.3		%	—		%	14.4		%				$	1,626		$	1,511		7.6		%	9.9		%	10.1		%	(1.0)		%	9.4		%
Endoscopy			590			525			12.4			14.9			14.8			3.1			15.6						1,728			1,512			14.3			16.6			16.3			7.2			17.8
Medical			765			636			20.1			22.9			25.8			—			12.7						2,095			1,898			10.4			12.4			15.7			(7.3)			1.2
Neurovascular			294			295			(0.3)			7.6			(2.0)			0.7			13.6						901			885			1.7			7.1			(1.7)			3.8			12.7
Neuro Cranial			332			299			11.3			13.9			12.7			5.0			19.6						992			890			11.5			13.4			13.2			4.2			14.3
Other			72			69			5.9			6.0			5.8			12.9			16.4						218			203			7.8			7.8			7.3			42.1			45.2
			$	2,588		$	2,349		10.2		%	13.5		%	13.2		%	1.3		%	14.4		%				$	7,560		$	6,899		9.6		%	12.1		%	12.7		%	1.0		%	10.4		%
Orthopaedics and Spine:
Knees			$	481		$	439		9.6		%	13.4		%	13.7		%	(1.7)		%	12.3		%				$	1,445		$	1,325		9.1		%	12.1		%	11.8		%	1.6		%	12.8		%
Hips			347			328			5.6			11.3			12.4			(5.0)			9.6						1,038			990			4.8			9.2			8.3			(0.7)			10.5
Trauma and Extremities			672			639			5.1			9.5			10.4			(7.1)			7.3						2,033			1,953			4.1			7.2			7.9			(4.8)			5.6
Spine			280			282			(1.0)			2.6			2.0			(8.7)			3.9						849			867			(2.1)			0.6			0.6			(8.5)			0.7
Other			111			123			(9.2)			(5.6)			(11.2)			(1.7)			15.5						322			373			(13.4)			(10.6)			(16.0)			(4.3)			9.0
			$	1,891		$	1,811		4.4		%	8.7		%	8.6		%	(5.4)		%	8.8		%				$	5,687		$	5,508		3.2		%	6.5		%	6.0		%	(3.0)		%	7.7		%
Total			$	4,479		$	4,160		7.7		%	11.4		%	11.3		%	(1.9)		%	11.7		%				$	13,247		$	12,407		6.8		%	9.6		%	9.8		%	(0.9)		%	9.1		%

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

STRYKER CORPORATION						2022 Third Quarter Form 10-Q

Consolidated Net Sales

Consolidated net sales increased 7.7% in the three months 2022 as reported and 11.4% in constant currency, as foreign currency exchange rates negatively impacted net sales by 3.7%. Excluding the 1.5% impact of acquisitions and divestitures, net sales in constant currency increased by 10.6% from increased unit volume partially offset by 0.7% 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.

Consolidated net sales increased 6.8% in the nine months 2022 as reported and 9.6% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.8%. Excluding the 1.3% impact of acquisitions and divestitures, net sales in constant currency increased by 9.4% from increased unit volume partially offset by 1.1% 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.

MedSurg and Neurotechnology Net Sales

MedSurg and Neurotechnology net sales increased 10.2% in the three months 2022 as reported and 13.5% in constant currency, as foreign currency exchange rates negatively impacted net sales by 3.3%. Excluding the 2.7% impact of acquisitions and divestitures, net sales in constant currency increased by 9.8% from increased unit volume and 1.0% from higher prices. The unit volume increase was due to higher shipments across all MedSurg and Neurotechnology products.

MedSurg and Neurotechnology net sales increased 9.6% in the nine months 2022 as reported and 12.1% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.5%. Excluding the 2.3% impact of acquisitions and divestitures, net sales in constant currency increased by 9.5% from increased unit volume and 0.3% from higher prices. The unit volume increase was due to higher shipments across all MedSurg products.

Orthopaedics and Spine Net Sales

Orthopaedics and Spine net sales increased 4.4% in the three months 2022 as reported and 8.7% in constant currency, as foreign currency exchange rates negatively impacted net sales by 4.3%. Net sales in constant currency increased 11.6% from increased unit volume partially offset by 2.9% from lower prices. The unit volume increase was due to higher shipments across most Orthopaedics and Spine products.

Orthopaedics and Spine net sales increased 3.2% in the nine months 2022 as reported and 6.5% in constant currency, as foreign currency exchange rates negatively impacted net sales by 3.3%. Net sales in constant currency increased 9.3% 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 62.1% from 63.5% in 2021. Excluding the impact of the items noted below, gross profit decreased to 62.6% of sales in the three months 2022 from 66.3% 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, as well as inefficiencies from supply chain disruptions.

Gross profit as a percentage of sales in the nine months 2022 decreased to 63.0% from 63.9% in 2021. Excluding the impact of the items noted below, gross profit decreased to 63.3% of sales in the nine months 2022 from 65.9% 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, as well as inefficiencies from supply chain disruptions.

									Percent Net Sales
Three Months			2022			2021			2022			2021
Reported			$	2,782		$	2,642		62.1		%	63.5		%
Inventory stepped-up to fair value			—			94			—			2.3
Restructuring-related and other charges			19			20			0.5			0.5
Medical device regulations			1			1			—			—
Adjusted			$	2,802		$	2,757		62.6		%	66.3		%

									Percent Net Sales
Nine Months			2022			2021			2022			2021
Reported			$	8,342		$	7,923		63.0		%	63.9		%
Inventory stepped-up to fair value			12			231			0.1			1.9
Restructuring-related and other charges			29			20			0.2			0.1
Medical device regulations			3			2			—			—
Adjusted			$	8,386		$	8,176		63.3		%	65.9		%

Research, Development and Engineering Expenses

Research, development and engineering expenses increased $58 or 19.0% in the three months 2022 and increased as a percentage of sales to 8.1% from 7.4% in 2021. Excluding the impact of the items noted below, expenses increased to 7.1% of sales in 2022 from 6.7% in 2021.

Research, development and engineering expenses increased $224 or 24.8% in the nine months 2022 and increased as a percentage of sales to 8.5% from 7.3% in 2021. Excluding the impact of the items noted below, expenses increased to 7.1% of sales in 2022 from 6.7% in 2021.

The increases for the three and nine months reflect our continued investment in innovation, integration of recent acquisitions and for the nine months the write-off of certain intangible assets.

									Percent Net Sales
Three Months			2022			2021			2022			2021
Reported			$	364		$	306		8.1		%	7.4		%
Restructuring-related and other charges			(8)			—			(0.2)			—
Medical device regulations			(39)			(26)			(0.8)			(0.7)
Adjusted			$	317		$	280		7.1		%	6.7		%

									Percent Net Sales
Nine Months			2022			2021			2022			2021
Reported			$	1,128		$	904		8.5		%	7.3		%
Restructuring-related and other charges			(87)			—			(0.7)			—
Medical device regulations			(95)			(70)			(0.7)			(0.6)
Adjusted			$	946		$	834		7.1		%	6.7		%

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $147 or 9.2% in the three months 2022 and decreased as a percentage of sales to 32.5% from 38.5% in 2021. During the three months 2022 we determined that certain commercial and regulatory milestones related to technology acquired in the purchase of Mobius Imaging and Cardan Robotics were no longer probable of being achieved and recorded $110 to reduce the fair value of contingent consideration as well as $8 in research, development and engineering expenses to write off the related in-process research and development intangible asset. Excluding the impact of the items noted below, expenses decreased to 33.1% of sales in 2022 from 34.1% in 2021.

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

STRYKER CORPORATION						2022 Third Quarter Form 10-Q

Selling, general and administrative expenses increased $22 or 0.5% in the nine months 2022 and decreased as a percentage of sales to 35.5% from 37.7%. 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 33.5% of sales in 2022 from 34.2% in 2021.

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

									Percent Net Sales
Three Months			2022			2021			2022			2021
Reported			$	1,455		$	1,602		32.5		%	38.5		%
Other acquisition and integration-related			78			(32)			1.7			(0.8)
Restructuring-related and other charges			(31)			(158)			(0.7)			(3.8)
Medical device regulations			2			—			—			—
Regulatory and legal matters			(20)			7			(0.4)			0.2
Adjusted			$	1,484		$	1,419		33.1		%	34.1		%

									Percent Net Sales
Nine Months			2022			2021			2022			2021
Reported			$	4,704		$	4,682		35.5		%	37.7		%
Other acquisition and integration-related			(96)			(264)			(0.7)			(2.1)
Restructuring-related and other charges			(113)			(189)			(0.9)			(1.5)
Regulatory and legal matters			(53)			16			(0.4)			0.1
Adjusted			$	4,442		$	4,245		33.5		%	34.2		%

Recall Charges

Recall charges were minimal in the three and nine months 2022 and the three months 2021. Charges of $98 in the nine 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 $159 and $144 in the three months and $469 and $474 in the nine months 2022 and 2021. Refer to Note 7 to our Consolidated Financial Statements for further information.

Operating Income

Operating income increased $234 to 18.0% of sales in the three months 2022 from 13.8% of sales in 2021. Excluding the impact of the items noted below, operating income decreased to 22.3% of sales in 2022 from 25.4% in 2021 primarily due to higher costs from inflationary pressures, slightly lower selling price, unfavorable foreign currency and our continued investments in innovation, partially offset by leverage from higher sales volumes and cost discipline.

Operating income increased $262 or 14.8% to 15.3% of sales in the nine months 2022 from 14.2% of sales in 2021. Excluding the impact of the items noted below, operating income decreased to 22.6% of sales in 2022 from 25.0% in 2021 primarily due to higher costs from inflationary pressures, slightly lower selling price, unfavorable foreign currency and our continued investments in innovation, partially offset by leverage from higher sales and cost discipline.

									Percent Net Sales
Three Months			2022			2021			2022			2021
Reported			$	808		$	574		18.0		%	13.8		%
Inventory stepped-up to fair value			—			94			—			2.3
Other acquisition and integration-related			(78)			32			(1.7)			0.8
Amortization of purchased intangible assets			159			144			3.5			3.5
Restructuring-related and other charges			58			178			1.4			4.2
Medical device regulations			38			27			0.8			0.6
Recall-related matters			(4)			16			(0.1)			0.4
Regulatory and legal matters			20			(7)			0.4			(0.2)
Adjusted			$	1,001		$	1,058		22.3		%	25.4		%

									Percent Net Sales
Nine Months			2022			2021			2022			2021
Reported			$	2,027		$	1,765		15.3		%	14.2		%
Inventory stepped-up to fair value			12			231			0.1			1.9
Other acquisition and integration-related			96			264			0.7			2.1
Amortization of purchased intangible assets			469			474			3.5			3.8
Restructuring-related and other charges			229			209			1.8			1.7
Medical device regulations			98			72			0.7			0.6
Recall-related matters			14			98			0.1			0.8
Regulatory and legal matters			53			(16)			0.4			(0.1)
Adjusted			$	2,998		$	3,097		22.6		%	25.0		%

Other Income (Expense), Net

Other income (expense), net was $8 and ($79) in the three months and ($105) and ($241) in the nine months 2022 and 2021. The decrease in net expense in 2022 was primarily due to favorable investment returns and the reversal of accrued interest related to the effective settlement of the United States federal income tax audit for years 2014 through 2018. Refer to Note 9 to our Consolidated Financial Statements for further information.

Income Taxes

Our effective tax rates were 0.0% and 6.6% in the three and nine months 2022. In the three months 2022 income tax expense decreased $162 due to the effective settlement of the United States federal income tax audit for years 2014 through 2018. In addition, other income (expense), net includes a benefit of $50 related to the release of accrued interest associated with this settlement. The nine months 2022 additionally include the reversal of deferred income tax on undistributed earnings of foreign subsidiaries no longer determined to be indefinitely reinvested. Our effective tax rates of 11.5% and 12.6% in the three and nine months 2021 include certain discrete tax items.

Net Earnings

Net earnings increased to $816 or $2.14 per diluted share in the three months 2022 from $438 or $1.14 per diluted share in 2021. Adjusted net earnings per diluted share(1) was $2.12 in 2022, a decrease of 3.6% from 2021.

Net earnings increased to $1,795 or $4.70 per diluted share in the nine months 2022 from $1,332 or $3.48 per diluted share in 2021. Adjusted net earnings per diluted share(1) decreased 0.6% to $6.34 in 2022 from $6.38 in 2021.

									Percent Net Sales
Three Months			2022			2021			2022			2021
Reported			$	816		$	438		18.2		%	10.5		%
Inventory stepped-up to fair value			—			73			—			1.8
Other acquisition and integration-related			(82)			24			(1.8)			0.6
Amortization of purchased intangible assets			132			114			2.9			2.7
Restructuring-related and other charges			50			165			1.1			3.9
Medical device regulations			32			23			0.7			0.6
Recall-related matters			(4)			12			(0.1)			0.3
Regulatory and legal matters			15			(7)			0.3			(0.2)
Tax matters			(149)			—			(3.2)			—
Adjusted			$	810		$	842		18.1		%	20.2		%

									Percent Net Sales
Nine Months			2022			2021			2022			2021
Reported			$	1,795		$	1,332		13.6		%	10.7		%
Inventory stepped-up to fair value			9			176			0.1			1.4
Other acquisition and integration-related			46			204			0.3			1.6
Amortization of purchased intangible assets			371			378			2.8			3.1
Restructuring-related and other charges			190			198			1.4			1.7
Medical device regulations			82			60			0.6			0.5
Recall-related matters			10			85			0.1			0.7
Regulatory and legal matters			39			(19)			0.3			(0.2)
Tax matters			(120)			26			(0.9)			0.2
Adjusted			$	2,422		$	2,440		18.3		%	19.7		%

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

STRYKER CORPORATION						2022 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; 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), changes in the fair value of contingent consideration 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.

*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 Third 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			$	2,782		$	1,455		$	364		$	808		$	8		$	816		—		%	$	2.14
Reported percent net sales			62.1		%	32.5		%	8.1		%	18.0		%	0.2		%	18.2		%
Acquisition and integration-related costs:
Inventory stepped-up to fair value			—			—			—			—			—			—			—			—
Other acquisition and integration-related			—			78			—			(78)			—			(82)			2.0			(0.21)
Amortization of purchased intangible assets			—			—			—			159			—			132			0.5			0.34
Restructuring-related and other charges			19			(31)			(8)			58			—			50			—			0.13
Medical device regulations			1			2			(39)			38			—			32			0.1			0.08
Recall-related matters			—			—			—			(4)			—			(4)			—			(0.01)
Regulatory and legal matters			—			(20)			—			20			—			15			0.2			0.04
Tax matters			—			—			—			—			(62)			(149)			11.7			(0.39)
Adjusted			$	2,802		$	1,484		$	317		$	1,001		$	(54)		$	810		14.5		%	$	2.12
Adjusted percent net sales			62.6		%	33.1		%	7.1		%	22.3		%	(1.2)		%	18.1		%

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			$	2,642		$	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 costs:
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		%

Nine 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			$	8,342		$	4,704		$	1,128		$	2,027		$	(105)		$	1,795		6.6		%	$	4.70
Reported percent net sales			63.0		%	35.5		%	8.5		%	15.3		%	(0.8)		%	13.6		%
Acquisition and integration-related costs:
Inventory stepped-up to fair value			12			—			—			12			—			9			—			0.02
Other acquisition and integration-related			—			(96)			—			96			—			46			1.9			0.12
Amortization of purchased intangible assets			—			—			—			469			—			371			1.7			0.97
Restructuring-related and other charges			29			(113)			(87)			229			—			190			0.4			0.50
Medical device regulations			3			—			(95)			98			—			82			0.1			0.21
Recall-related matters			—			—			—			14			—			10			0.1			0.03
Regulatory and legal matters			—			(53)			—			53			—			39			0.3			0.10
Tax matters			—			—			—			—			(74)			(120)			3.0			(0.31)
Adjusted			$	8,386		$	4,442		$	946		$	2,998		$	(179)		$	2,422		14.1		%	$	6.34
Adjusted percent net sales			63.3		%	33.5		%	7.1		%	22.6		%	(1.4)		%	18.3		%

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 costs:
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		%

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

STRYKER CORPORATION						2022 Third Quarter Form 10-Q

FINANCIAL CONDITION AND LIQUIDITY

Nine Months			2022			2021
Net cash provided by operating activities			$	1,621		$	2,263
Net cash used in investing activities			(2,762)			(545)
Net cash provided by (used in) financing activities			(303)			(2,077)
Effect of exchange rate changes on cash and cash equivalents			(80)			(21)
Change in cash and cash equivalents			$	(1,524)		$	(380)

Operating Activities

Cash provided by operating activities was $1,621 and $2,263 in the nine months 2022 and 2021. The decrease was primarily due to higher costs for certain electronic components and increases of other critical inventory to manage supply chain delays due to component shortages.

Investing Activities

Cash used in investing activities was $2,762 and $545 in the nine months 2022 and 2021. The increase in cash used in 2022 was primarily due to the acquisition of Vocera and investments in capital projects partially offset by settlements of certain foreign currency forward contracts designated as net investment hedges.

Financing Activities

Cash provided by (used in) financing activities was ($303) and ($2,077) in the nine months 2022 and 2021. Cash used in 2022 was primarily driven by dividend payments and repayments of debt, including $500 of payments on the $1,500 term loan used to fund the acquisition of Vocera. 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 nine months 2022 and 2021. Dividends paid to common shareholders were $788 and $713 in the nine months 2022 and 2021.

Liquidity

Cash, cash equivalents and marketable securities were $1,497 and $3,019 on September 30, 2022 and December 31, 2021. Current assets exceeded current liabilities by $4,747 and $5,468 on September 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 47% on September 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 Reports on Form 10-Q for the quarters ended March 31 and June 30, 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.