# STRYKER CORP (SYK) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from STRYKER CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/310764/000031076424000024/syk-20231231.htm
Accession: 0000310764-24-000024
Filing date: 2024-02-14
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SYK/
All MD&A years: /company/SYK/mda/
Previous year: /company/SYK/mda/fy2022/ (FY 2022)
Next year: /company/SYK/mda/fy2024/ (FY 2024)

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

About Stryker

Stryker is a global leader in medical technologies and, together with our customers, we are driven to make healthcare better. We offer innovative products and services in MedSurg, Neurotechnology, Orthopaedics and Spine that help improve patient and healthcare outcomes. Alongside our customers around the world, we impact more than 150 million patients annually. Our goal is to achieve sales growth at the high-end of the medical technology (MedTech) industry and maintain our long-term capital allocation strategy that prioritizes: (1) Acquisitions, (2) Dividends and (3) Share repurchases.

Macroeconomic Environment

The global economy continues to experience increased inflationary pressures in part due to global supply chain disruptions, labor shortages and other impacts of the macroeconomic environment which we anticipate will continue. Higher interest rates and capital costs, higher shipping costs, increased costs of labor, fluctuating foreign currency exchange rates and the military conflicts in Russia and Ukraine and the Middle East create additional economic challenges and uncertainties. These conditions may cause our customers to decrease or delay orders for our products and services, and the higher interest rates may impact deal mix for our capital products.

Overview of 2023

In 2023 we achieved reported net sales growth of 11.1%. Excluding the impact of acquisitions and divestitures, sales grew 11.5% in constant currency. We reported net earnings of $3,165 and net earnings per diluted share of $8.25. Excluding the impact

of certain items, we achieved adjusted net earnings(1) of $4,066 and adjusted net earnings per diluted share(1) of $10.60 representing growth of 13.5%.

We continued our capital allocation strategy by investing $390 in acquisitions and paying $1,139 in dividends to our shareholders.

In May 2023 we acquired Cerus for net cash consideration of $289 and up to $225 in future milestone payments. Cerus designs, develops and manufactures neurovascular products used for the treatment of hemorrhagic stroke. Cerus is part of our Neurovascular business within MedSurg and Neurotechnology. Refer to Note 6 to our Consolidated Financial Statements for further information.

During 2023 we made payments of $850 to extinguish the remaining balance on the $1.5 billion term loan scheduled to mature February 22, 2025.

In August 2023 we issued €500 of floating rate senior notes due November 16, 2024. The notes bear interest at a rate based on the three-month Euro Interbank Offered Rate (EURIBOR) plus 0.3%. The notes are callable at February 16, 2024, May 16, 2024 or October 16, 2024 either by us or at the option of the notes holders.

In November 2023 we repaid the outstanding €550 principal amount of 1.125% senior unsecured notes due November 30, 2023 and in December 2023 we repaid the outstanding $600 principal amount of 0.600% senior unsecured notes due December 1, 2023. We subsequently issued $600 of 4.850% senior unsecured notes due December 8, 2028 and €600 of 3.375% senior unsecured notes due December 11, 2028.

(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

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[[/GREPCENT_TABLE]]

nm - not meaningful

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[["Dollar amounts in millions except per share amounts or as otherwise specified.","13"]]
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[["STRYKER CORPORATION","","2023 FORM 10-K"]]
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[[GREPCENT_TABLE]]
[["Geographic and Segment Net Sales","","","Percentage Change"],["","","2023 vs. 2022","","2022 vs. 2021"],["","2023","2022","2021","","As Reported","Constant Currency","","As Reported","Constant Currency"],["Geographic:"],["United States","$","15,257","","$","13,638","","$","12,321","","","11.9","%","11.9","%","","10.7","%","10.7","%"],["International","5,241","","4,811","","4,787","","","8.9","","10.9","","","0.5","","11.7"],["Total","$","20,498","","$","18,449","","$","17,108","","","11.1","%","11.6","%","","7.8","%","11.0","%"],["Segment:"],["MedSurg and Neurotechnology","$","11,836","","$","10,611","","$","9,538","","","11.5","%","12.1","%","","11.2","%","14.1","%"],["Orthopaedics and Spine","8,662","","7,838","","7,570","","","10.5","","11.1","","","3.5","","7.0"],["Total","$","20,498","","$","18,449","","$","17,108","","","11.1","%","11.6","%","","7.8","%","11.0","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Supplemental Net Sales Growth Information"],["","","","","","Percentage Change"],["","","","","","2023 vs. 2022","","2022 vs. 2021"],["","","","","","","","United States","International","","","","United States","International"],["","2023","2022","2021","","As Reported","Constant Currency","As Reported","As Reported","Constant Currency","","As Reported","Constant Currency","As Reported","As Reported","Constant Currency"],["MedSurg and Neurotechnology:"],["Instruments","$","2,569","","$","2,279","","$","2,111","","","12.7","%","13.0","%","13.3","%","10.4","%","11.8","%","","8.0","%","10.4","%","10.6","%","(0.9)","%","10.0","%"],["Endoscopy","3,033","","2,725","","2,418","","","11.3","","11.7","","12.1","","7.6","","9.9","","","12.7","","15.2","","13.8","","8.3","","20.9"],["Medical","3,459","","3,031","","2,607","","","14.1","","14.4","","15.0","","10.8","","12.3","","","16.2","","18.6","","20.6","","1.5","","11.7"],["Neurovascular","1,226","","1,200","","1,188","","","2.1","","4.0","","8.1","","(1.4)","","1.5","","","1.1","","7.2","","(0.9)","","2.3","","12.2"],["Neuro Cranial","1,549","","1,376","","1,214","","","12.6","","13.0","","11.9","","16.1","","18.4","","","13.3","","15.4","","14.9","","6.1","","17.5"],["","$","11,836","","$","10,611","","$","9,538","","","11.5","%","12.1","%","13.0","%","7.0","%","9.1","%","","11.2","%","14.1","%","14.2","%","3.0","%","13.8","%"],["Orthopaedics and Spine:"],["Knees","$","2,273","","$","1,997","","$","1,848","","","13.9","%","14.4","%","12.2","%","18.8","%","20.9","%","","8.0","%","11.2","%","10.6","%","1.0","%","12.9","%"],["Hips","1,544","","1,413","","1,342","","","9.2","","10.4","","10.1","","7.7","","10.7","","","5.3","","10.1","","9.1","","(0.6)","","11.5"],["Trauma and Extremities","3,147","","2,807","","2,664","","","12.1","","12.2","","12.9","","10.1","","10.5","","","5.4","","8.7","","9.0","","(3.2)","","8.0"],["Spine","1,189","","1,146","","1,167","","","3.8","","4.0","","5.7","","(1.6)","","(0.9)","","","(1.8)","","1.1","","0.6","","(7.7)","","2.4"],["Other","509","","475","","549","","","7.1","","8.8","","(2.0)","","33.8","","40.9","","","(13.3)","","(10.3)","","(16.9)","","(0.9)","","12.8"],["","$","8,662","","$","7,838","","$","7,570","","","10.5","%","11.1","%","10.2","%","11.2","%","13.0","%","","3.5","%","7.0","%","6.0","%","(2.2)","%","9.3","%"],["Total","$","20,498","","$","18,449","","$","17,108","","","11.1","%","11.6","%","11.9","%","8.9","%","10.9","%","","7.8","%","11.0","%","10.7","%","0.5","%","11.7","%"]]
[[/GREPCENT_TABLE]]

Note: Beginning in the first quarter 2023 we consolidated Other MedSurg and Neurotechnology into Endoscopy as Other MedSurg and Neurotechnology (primarily Sustainability Solutions) has been fully integrated into our Endoscopy business. Endoscopy includes sales related to Other of $343, $302 and $277 for 2023, 2022 and 2021. We have reflected these changes in all historical periods presented.

Consolidated Net Sales

Consolidated net sales in 2023 increased 11.1% as reported and 11.6% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.5%. Excluding the 0.1% impact of acquisitions and divestitures, net sales in constant currency increased by 10.9% from increased unit volume and 0.6% due to higher prices. The unit volume increase was primarily due to higher shipments across all product lines.

Consolidated net sales in 2022 increased 7.8% as reported and 11.0% in constant currency, as foreign currency exchange rates negatively impacted net sales by 3.2%. Excluding the 1.3% impact of acquisitions and divestitures, net sales in constant currency increased by 10.6% from increased unit volume partially offset by 0.9% 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 in 2023 increased 11.5% as reported and 12.1% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.6%. Excluding the 0.3% impact of acquisitions and divestitures, net sales in constant currency increased by 10.2% from increased unit volume and 1.6% due to higher prices. The unit volume increase was due to higher shipments across all MedSurg and Neurotechnology products.

MedSurg and Neurotechnology net sales in 2022 increased 11.2% as reported and 14.1% in constant currency, as foreign currency exchange rates negatively impacted net sales by 2.9%. Excluding the 2.3% impact of acquisitions and divestitures, net sales in constant currency increased by 11.2% from increased unit volume and 0.6% due to higher prices. The unit volume increase was due to higher shipments across all MedSurg and Neurotechnology products.

Orthopaedics and Spine Net Sales

Orthopaedics and Spine net sales in 2023 increased 10.5% as reported and 11.1% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.6%. Net sales in constant currency increased by 11.9% from increased unit volume partially offset by 0.8% due to lower prices. The unit volume increase was due to higher shipments across all Orthopaedics and Spine products.

Orthopaedics and Spine net sales in 2022 increased 3.5% as reported and 7.0% in constant currency, as foreign currency exchange rates negatively impacted net sales by 3.5%. Net sales in constant currency increased by 9.9% from increased unit volume partially offset by 2.9% due to lower prices. The unit volume increase was due to higher shipments across most Orthopaedics and Spine products.

Gross Profit

Gross profit was $13,058, $11,578 and $10,968 in 2023, 2022, and 2021. The key components of the change were:

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[["","Gross Profit Percent Net Sales"],["2021","64.1","%"],["Sales pricing","(30) bps"],["Volume and mix","110 bps"],["Manufacturing and supply chain costs","(360) bps"],["Inventory stepped up to fair value","150 bps"],["2022","62.8","%"],["Sales pricing","20 bps"],["Volume and mix","100 bps"],["Manufacturing and supply chain costs","(40) bps"],["Inventory stepped up to fair value","10 bps"],["2023","63.7","%"]]
[[/GREPCENT_TABLE]]

Gross profit as a percentage of net sales increased to 63.7% in 2023 from 62.8% in 2022 due to higher sales pricing and favorable volume offset by higher manufacturing and supply chain costs primarily due to higher raw material costs in the first six months of 2023 and supply chain inefficiencies.

Gross profit as a percentage of net sales decreased to 62.8% in 2022 from 64.1% in 2021 due to higher manufacturing and supply chain costs 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 partially offset by favorable volume and lower amortization of inventory stepped up to fair value.

While segment mix was not a significant driver of the change in gross profit as a percent of net sales between 2023, 2022 and 2021, we generally expect segment mix to have an unfavorable impact for the foreseeable future as we anticipate more rapid sales growth in our lower gross margin MedSurg and Neurotechnology segment than our Orthopaedics and Spine segment.

Research, Development and Engineering Expenses

Research, development and engineering expenses as a percentage of net sales in 2023 decreased to 6.8% from 7.9% in 2022 primarily due to increased spending for product launches, the write-off of certain intangible assets and higher spend related to medical device regulations in the European Union in 2022.

Research, development and engineering expenses as a percentage of net sales in 2022 increased to 7.9% from 7.2% in 2021 primarily due to increased spending for product launches, the write-off of certain intangible assets and higher spend related to the new medical device regulations in the European Union in 2022.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of net sales in 2023 decreased to 34.8% from 35.0% in 2022 primarily due to charges of $132 related to share-based awards for Vocera employees that vested upon our acquisition in 2022, partially offset by disciplined increases in spend and investments in 2023 to support our growth, including sales growth incentives and increased spend on travel and meetings. In addition, in 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.

Selling, general and administrative expenses as a percentage of net sales in 2022 decreased to 35.0% from 37.6% in 2021. Both 2022 and 2021 included charges related to certain asset impairments. Refer to Note 15 to our Consolidated Financial Statements for further information. In 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. In addition, we recorded charges of $132 related to share-based awards for Vocera employees that vested upon our acquisition in 2022.

Recall Charges, Net

Recall charges, net were $18, ($15) and $103 in 2023, 2022 and 2021. Charges in 2021 were primarily due to the previously disclosed Rejuvenate and ABGII Modular-Neck hip stems and LFIT Anatomic CoCr V40 Femoral Heads voluntary recalls. Refer to Note 7 to our Consolidated Financial Statements for further information.

Amortization of Intangible Assets

Amortization of intangible assets was $635, $627 and $619 in 2023, 2022 and 2021. These amounts include amortization related to intangible assets acquired in the second quarter 2023 from Cerus and in the first quarter 2022 from Vocera. Refer to Notes 6 and 8 to our Consolidated Financial Statements for further information.

Goodwill Impairment

In 2022 we recorded a goodwill impairment charge of $216 related to our Spine business. Refer to Note 8 to our Consolidated Financial Statements for further information.

Operating Income

Operating income was $3,888, $2,841 and $2,584 in 2023, 2022 and 2021. Operating income increased as a percentage of sales to 19.0% in 2023 from 15.4% in 2022 and from 15.1% in 2021. Refer to the comments above for discussion of the primary drivers of the change.

MedSurg and Neurotechnology operating income as a percentage of net sales increased to 28.2% in 2023 from 25.8% in 2022. MedSurg and Neurotechnology operating income as a percentage of net sales decreased to 25.8% in 2022 from 29.4% in 2021. Orthopaedics and Spine operating income as a percentage of net sales decreased to 27.7% in 2023 from 29.3% in 2022. Orthopaedics and Spine operating income as a percentage of net sales increased to 29.3% in 2022 from 28.8% in 2021. The key components of the change were:

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[[/GREPCENT_TABLE]]

The increase in MedSurg and Neurotechnology operating income as a percentage of net sales in 2023 from 2022 was primarily driven by higher unit volumes, higher prices and lower

[[GREPCENT_TABLE]]
[["Dollar amounts in millions except per share amounts or as otherwise specified.","15"]]
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manufacturing and supply chain costs due to supply chain challenges impacting capital products in our MedSurg businesses in 2022 which improved in 2023 partially offset by higher selling, general and administrative expenses due to continued investments including sales growth incentives and a more normalized cadence of travel and meetings.

The decrease in MedSurg and Neurotechnology operating income as a percentage of net sales in 2022 from 2021 was primarily driven by higher manufacturing and supply chain costs due to supply chain challenges impacting capital products in our MedSurg businesses and higher selling, general and administrative expenses due to a return to more normal levels following the COVID pandemic partially offset by higher unit volumes and prices.

The decrease in Orthopaedics and Spine operating income as a percentage of net sales for 2023 from 2022 was primarily driven by higher selling, general and administrative expenses due to continued investments including sales growth incentives and a more normalized cadence of travel and meetings and higher manufacturing and supply chain costs primarily due to increased inventory reserves partially offset by higher unit volumes.

The increase in Orthopaedics and Spine operating income as a percentage of net sales for 2022 from 2021 was primarily driven by higher unit volumes partially offset by lower prices.

Other Income (Expense), Net

Other income (expense), net was ($215), ($158) and ($303) in 2023, 2022 and 2021. The increase in net expense in 2023 compared to 2022 was primarily due to the release of accrued interest of $50 in 2022 related to the effective settlement of the United States federal income tax audit for years 2014 through 2018. Refer to Note 11 to our Consolidated Financial Statements for further information. The decrease in net expense in 2022 compared to 2021 was primarily due to the aforementioned release of accrued interest and higher interest income in 2022.

Income Taxes

Our effective tax rate was 13.8%, 12.1% and 12.6% for 2023, 2022 and 2021. The effective income tax rate for 2023 increased from 2022 due to the 2022 effective settlement of the United States federal income tax audit for years 2014 through 2018 and the 2022 reversal of deferred income tax on undistributed earnings of foreign subsidiaries partially offset by the 2023 tax effect related to transfers of intellectual property between tax jurisdictions. The effective income tax rate for 2022 decreased from 2021 due to the 2022 effective settlement of the United States federal income tax audit for years 2014 through 2018 and the 2022 reversal of deferred income tax on undistributed earnings of foreign subsidiaries. The effective income tax rates for 2023, 2022 and 2021 reflect the continued lower effective income tax rates as a result of our European operations, the tax effect related to the transfers of intellectual property between tax jurisdictions, the tax effect of future remittances of the undistributed earnings of foreign subsidiaries and certain discrete tax items.

Net Earnings

Net earnings for 2023 increased to $3,165 or $8.25 per diluted share from $2,358 or $6.17 per diluted share in 2022 and $1,994 or $5.21 per diluted share in 2021. Refer to the comments above for discussion of the primary drivers of the change.

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 income taxes; 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 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. The income tax effect of each adjustment was determined based on the tax effect of the jurisdiction in which the related pre-tax adjustment was recorded. 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, employee retention and workforce reductions, manufacturing integration costs and other integration-related activities), changes in the fair value of contingent consideration, amortization of inventory stepped-up to fair value, specific costs (e.g., deal costs and costs associated with legal entity rationalization) related to the consummation of the acquisition process and legal entity rationalization and acquisition-related tax items.

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

3.Structural optimization and other special charges. Costs associated with employee retention and workforce reductions, the closure or transfer of manufacturing and other facilities (e.g., site closure costs, contract termination costs and redundant employee costs during the work transfers), product line exits (primarily inventory, long-lived asset and specifically-identified intangible asset write-offs), certain long-lived and intangible asset write-offs and impairments and other charges.

4.Medical device regulations. Costs specific to updating our

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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. Changes in our best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within a range is not known, to resolve the Rejuvenate, LFIT V40, Wright legacy hip products and other product recalls.

6.Regulatory and legal matters. Changes in our best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within a range is not known, to resolve certain regulatory or other legal matters and the amount of favorable awards from settlements.

7.Tax matters. 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, income taxes, 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 adjusted net earnings per diluted share are the same as those used in the calculation of reported net earnings per diluted share for the respective period.

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

[[GREPCENT_TABLE]]
[["2023","Gross Profit","Selling, General & Administrative Expenses","Research, Development & Engineering Expenses","Operating Income","Other Income (Expense), Net","Income Taxes","Net Earnings","Effective Tax Rate","Diluted EPS"],["Reported","$","13,058","","$","7,129","","$","1,388","","$","3,888","","$","(215)","","$","508","","$","3,165","","13.8","%","$","8.25"],["Acquisition and integration-related costs:"],["Inventory stepped-up to fair value","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014"],["Other acquisition and integration-related (a)","\u2014","","(20)","","\u2014","","20","","\u2014","","(25)","","45","","(0.8)","","0.12"],["Amortization of purchased intangible assets","\u2014","","\u2014","","\u2014","","635","","\u2014","","132","","503","","1.2","","1.31"],["Structural optimization and other special charges (b)","39","","(166)","","(1)","","206","","\u2014","","47","","159","","0.5","","0.42"],["Goodwill impairment","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014"],["Medical device regulations (c)","2","","\u2014","","(94)","","96","","\u2014","","22","","74","","0.2","","0.19"],["Recall-related matters (d)","\u2014","","\u2014","","\u2014","","18","","\u2014","","4","","14","","\u2014","","0.04"],["Regulatory and legal matters (e)","\u2014","","(92)","","\u2014","","92","","\u2014","","29","","63","","0.4","","0.16"],["Tax matters (f)","\u2014","","\u2014","","\u2014","","\u2014","","(8)","","(51)","","43","","(1.2)","","0.11"],["Adjusted","$","13,099","","$","6,851","","$","1,293","","$","4,955","","$","(223)","","$","666","","$","4,066","","14.1","%","$","10.60"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["2022","Gross Profit","Selling, General & Administrative Expenses","Research, Development & Engineering Expenses","Operating Income","Other Income (Expense), Net","Income Taxes","Net Earnings","Effective Tax Rate","Diluted EPS"],["Reported","$","11,578","","$","6,455","","$","1,454","","$","2,841","","$","(158)","","$","325","","$","2,358","","12.1","%","$","6.17"],["Acquisition and integration-related costs:"],["Inventory stepped-up to fair value","12","","\u2014","","\u2014","","12","","\u2014","","3","","9","","\u2014","","0.02"],["Other acquisition and integration-related (a)","\u2014","","(138)","","\u2014","","138","","\u2014","","34","","104","","0.5","","0.27"],["Amortization of purchased intangible assets","\u2014","","\u2014","","\u2014","","627","","\u2014","","132","","495","","1.7","","1.30"],["Structural optimization and other special charges (b)","56","","(206)","","(87)","","349","","\u2014","","66","","283","","0.7","","0.74"],["Goodwill impairment","\u2014","","\u2014","","\u2014","","216","","\u2014","","\u2014","","216","","(1.1)","","0.57"],["Medical device regulations (c)","3","","\u2014","","(137)","","140","","\u2014","","25","","115","","0.2","","0.30"],["Recall-related matters (d)","\u2014","","\u2014","","\u2014","","(15)","","\u2014","","(3)","","(12)","","\u2014","","(0.03)"],["Regulatory and legal matters (e)","\u2014","","(76)","","\u2014","","76","","\u2014","","7","","69","","(0.2)","","0.18"],["Tax matters (f)","\u2014","","\u2014","","\u2014","","\u2014","","(75)","","(9)","","(66)","","0.1","","(0.18)"],["Adjusted","$","11,649","","$","6,035","","$","1,230","","$","4,384","","$","(233)","","$","580","","$","3,571","","14.0","%","$","9.34"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Dollar amounts in millions except per share amounts or as otherwise specified.","17"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["STRYKER CORPORATION","","2023 FORM 10-K"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["2021","Gross Profit","Selling, General & Administrative Expenses","Research, Development & Engineering Expenses","Operating Income","Other Income (Expense), Net","Income Taxes","Net Earnings","Effective Tax Rate","Diluted EPS"],["Reported","$","10,968","","$","6,427","","$","1,235","","$","2,584","","$","(303)","","$","287","","$","1,994","","12.6","%","$","5.21"],["Acquisition and integration-related costs:"],["Inventory stepped-up to fair value","266","","\u2014","","\u2014","","266","","\u2014","","63","","203","","1.0","","0.53"],["Other acquisition and integration-related (a)","\u2014","","(319)","","\u2014","","319","","\u2014","","75","","244","","1.2","","0.64"],["Amortization of purchased intangible assets","\u2014","","\u2014","","\u2014","","619","","\u2014","","130","","489","","1.6","","1.28"],["Structural optimization and other special charges (b)","28","","(358)","","\u2014","","386","","11","","52","","345","","(0.3)","","0.90"],["Goodwill impairment","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014"],["Medical device regulations (c)","5","","\u2014","","(102)","","107","","\u2014","","17","","90","","\u2014","","0.24"],["Recall-related matters (d)","\u2014","","\u2014","","\u2014","","103","","\u2014","","14","","89","","\u2014","","0.23"],["Regulatory and legal matters (e)","\u2014","","2","","\u2014","","(2)","","(7)","","3","","(12)","","0.2","","(0.02)"],["Tax matters (f)","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","(32)","","32","","(1.4)","","0.08"],["Adjusted","$","11,267","","$","5,752","","$","1,133","","$","4,382","","$","(299)","","$","609","","$","3,474","","14.9","%","$","9.09"]]
[[/GREPCENT_TABLE]]

(a) Charges represent certain acquisition and integration-related costs associated with acquisitions, including:

[[GREPCENT_TABLE]]
[["","2023","2022","2021"],["Termination of sales relationships","$","5","","$","21","","$","154"],["Employee retention and workforce reductions","6","","33","","90"],["Changes in the fair value of contingent consideration","(1)","","(135)","","\u2014"],["Manufacturing integration costs","2","","32","","16"],["Stock compensation payments upon a change in control","\u2014","","132","","\u2014"],["Other integration-related activities","8","","55","","59"],["Adjustments to Operating Income","$","20","","$","138","","$","319"],["Charges for acquisition-related tax provisions","(30)","","\u2014","","\u2014"],["Other income taxes related to acquisition and integration-related costs","5","","34","","75"],["Adjustments to Income Taxes","$","(25)","","$","34","","$","75"],["Adjustments to Net Earnings","$","45","","$","104","","$","244"]]
[[/GREPCENT_TABLE]]

(b) Structural optimization and other special charges represent the costs associated with:

[[GREPCENT_TABLE]]
[["","2023","2022","2021"],["Employee retention and workforce reductions","$","69","","$","74","","$","39"],["Closure/transfer of manufacturing and other facilities","50","","83","","52"],["Product line exits","32","","80","","61"],["Certain long-lived and intangible asset write-offs and impairments","28","","96","","203"],["Other charges","27","","16","","31"],["Adjustments to Operating Income","$","206","","$","349","","$","386"],["Adjustments to Other Income (Expense), Net","$","\u2014","","$","\u2014","","$","11"],["Adjustments to Income Taxes","$","47","","$","66","","$","52"],["Adjustments to Net Earnings","$","159","","$","283","","$","345"]]
[[/GREPCENT_TABLE]]

(c) Charges represent the 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 new medical device regulations in the European Union.

(d) Charges represent changes in our best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within a range is not known, to resolve certain recall-related matters.

(e) Charges represent changes in our best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within a range is not known, to resolve certain regulatory or other legal matters and the amount of favorable awards from settlements.

(f) Benefits / (charges) represent the accounting impact of certain significant and discrete tax items, including:

[[GREPCENT_TABLE]]
[["","2023","2022","2021"],["Adjustments related to the transfer of certain intellectual properties between tax jurisdictions","$","(89)","","$","(182)","","$","(77)"],["Certain tax audit settlements","24","162","\u2014"],["Reversal of deferred income tax on undistributed earnings of foreign subsidiaries","\u2014","71","\u2014"],["Other significant and discrete tax items","14","(60)","45"],["Adjustments to Income Taxes","$","(51)","","$","(9)","","$","(32)"],["Benefits for certain tax audit settlements","(9)","(45)","\u2014"],["Other tax related adjustments","1","(30)","\u2014"],["Adjustments to Other Income (Expense), Net","$","(8)","","$","(75)","","$","\u2014"],["Adjustments to Net Earnings","$","43","","$","(66)","","$","32"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Dollar amounts in millions except per share amounts or as otherwise specified.","18"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["STRYKER CORPORATION","","2023 FORM 10-K"]]
[[/GREPCENT_TABLE]]

FINANCIAL CONDITION AND LIQUIDITY

[[GREPCENT_TABLE]]
[["Net cash provided by (used in):","2023","2022","2021"],["Operating activities","$","3,711","","$","2,624","","$","3,263"],["Investing activities","(962)","","(2,924)","","(859)"],["Financing activities","(1,594)","","(749)","","(2,365)"],["Effect of exchange rate changes","(28)","","(51)","","(38)"],["Change in cash and cash equivalents","$","1,127","","$","(1,100)","","$","1"]]
[[/GREPCENT_TABLE]]

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

Operating Activities

Cash provided by operating activities was $3,711, $2,624 and $3,263 in 2023, 2022 and 2021. The increase from 2022 was primarily due to higher net earnings and increased collections on accounts receivable. The decrease in 2022 compared to 2021 was due to higher costs for certain electronic components and pre-buying of critical raw materials to manage supply chain delays as well as higher accounts receivable as a result of sales occurring near the end of the year, partially offset by increased net earnings.

Investing Activities

Cash used in investing activities was $962, $2,924 and $859 in 2023, 2022 and 2021. The decrease in cash used in 2023 was primarily due to lower amounts paid for acquisitions. Our 2023 acquisitions included Cerus and in 2022 we acquired Vocera.

Financing Activities

Cash used in financing activities was $1,594, $749 and $2,365 in 2023, 2022 and 2021. Cash used in 2023 was primarily driven by dividend payments of $1,139 and repayments of debt, including $850 to pay off the $1,500 term loan used to fund the acquisition of Vocera and $1,208 to pay off maturing senior unsecured notes. These repayments were offset by net proceeds of $1,781 from the issuance of various senior unsecured notes as described in Note 10 to our Consolidated Financial Statements. In 2022 we made payments of $653 on long-term debt and dividend payments of $1,051. In 2021 we made payments of $1,151 on long-term debt and dividend payments of $950. There were no share repurchases in 2023, 2022 or 2021.

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

[[GREPCENT_TABLE]]
[["","2023","2022","2021"],["Dividends paid per common share","$","3.00","","$","2.78","","$","2.52"],["Total dividends paid to common shareholders","$","1,139","","$","1,051","","$","950"]]
[[/GREPCENT_TABLE]]

Liquidity

Cash, cash equivalents and marketable securities were $3,053 and $1,928, and our current assets exceeded current liabilities by $4,597 and $3,972 on December 31, 2023 and 2022. 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 also have a revolving credit agreement maturing in October 2026 with an aggregate principal amount of $2,250.

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 25% and 36% on December 31, 2023 and 2022.

Guarantees and Other Off-Balance Sheet Arrangements

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

CONTRACTUAL OBLIGATIONS AND FORWARD-LOOKING CASH REQUIREMENTS

In 2023 we recorded charges for various legal matters as further described in Note 7 to our Consolidated Financial Statements. Recorded reserves represent the best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known. The final outcome of these matters is dependent on many variables that are difficult to predict. The ultimate cost to entirely resolve these matters may be materially different from the amount of the current estimates and could have a material adverse effect on our financial position, results of operations and cash flows. We are not able to reasonably estimate the future periods in which payments will be made.

As further described in Note 11 to our Consolidated Financial Statements, on December 31, 2023 we had a reserve for uncertain income tax positions of $371. Due to uncertainties regarding the ultimate resolution of income tax audits, we are not able to reasonably estimate the future periods in which any income tax payments to settle these uncertain income tax positions will be made.

As further described in Note 12 to our Consolidated Financial Statements, on December 31, 2023 our defined benefit pension plans were underfunded by $341, of which approximately $337 related to plans outside the United States. Due to the rules affecting tax-deductible contributions in the jurisdictions in which the plans are offered and the impact of future plan asset performance, changes in interest rates and potential changes in legislation in the United States and other foreign jurisdictions, we are not able to reasonably estimate the amounts that may be required to fund defined benefit pension plans.

[[GREPCENT_TABLE]]
[["Contractual Obligations","Total","2024","2025 - 2026","2027 - 2028","After 2028"],["Debt repayments","$","13,080","","$","2,097","","$","2,400","","$","3,582","","$","5,001"],["Interest payments","3,163","","348","","560","","453","","1,802"],["Unconditional purchase obligations","2,750","","2,349","","296","","85","","20"],["Minimum lease payments","520","","150","","195","","97","","78"],["United States Tax Cuts and Jobs Act Transition Tax","354","","158","","196","","\u2014","","\u2014"],["Other","68","","13","","20","","16","","19"],["Total","$","19,935","","$","5,115","","$","3,667","","$","4,233","","$","6,920"]]
[[/GREPCENT_TABLE]]

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements in accordance with generally accepted accounting principles, there are certain accounting policies, which may require substantial judgment or estimation in their application. We believe these accounting

[[GREPCENT_TABLE]]
[["Dollar amounts in millions except per share amounts or as otherwise specified.","19"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["STRYKER CORPORATION","","2023 FORM 10-K"]]
[[/GREPCENT_TABLE]]

policies and the others set forth in Note 1 to our Consolidated Financial Statements are critical to understanding our results of operations and financial condition. Actual results could differ from our estimates and assumptions, and any such differences could be material to our results of operations and financial condition.

Income Taxes

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

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

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

We operate in multiple jurisdictions with complex tax policy and regulatory environments. In certain of these jurisdictions, we may take tax positions that management believes are supportable but are potentially subject to successful challenge by the applicable taxing authority. These differences of interpretation with the respective governmental taxing authorities can be impacted by the local economic and fiscal environment. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We review these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly. We have a number of audits in process in various jurisdictions. Although the resolution of these tax positions is uncertain, based on currently available information, we believe that it is more likely than not that the ultimate outcomes will not have a material adverse effect on our financial position, results of operations or cash flows.

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

Acquisitions, Goodwill and Intangibles, and Long-Lived Assets

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

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

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

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

Indefinite-lived intangible assets and goodwill are not amortized but are tested annually for impairment or whenever events or circumstances indicate such assets may be impaired. Our annual impairment testing date is October 31. When it is unlikely that an indefinite-lived intangible asset or goodwill of a reporting unit is impaired, we perform a qualitative assessment. For goodwill, that qualitative assessment may be periodically supplemented with a corroborative quantitative analysis.

When necessary, we perform a quantitative impairment test and determine the fair value of the indefinite-lived intangible asset or reporting unit using an income approach. For the quantitative impairment test of goodwill, we corroborate our concluded value under the income approach using a market approach that utilizes trading multiples derived from a peer set of similar companies. The income approach calculates the present value of estimated

[[GREPCENT_TABLE]]
[["Dollar amounts in millions except per share amounts or as otherwise specified.","20"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["STRYKER CORPORATION","","2023 FORM 10-K"]]
[[/GREPCENT_TABLE]]

future cash flows and requires certain assumptions and estimates be made regarding market conditions and our future profitability. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows used to measure fair value. Assumptions used in our impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal business plans. We believe such assumptions and estimates are also comparable to those that would be used by other marketplace participants.

During 2022 our Spine reporting unit’s operating performance was affected by several factors, including a slower than anticipated recovery of surgery volumes as we emerged from the COVID-19 pandemic, rising costs and our competitive environment. Consequently, for the year ended December 31, 2022 revenues, gross margin and operating income were 3%, 4% and 33% below budgeted amounts. For our annual impairment test at October 31, 2022 we performed a quantitative impairment test and recognized a goodwill impairment charge of $216 in our Consolidated Statements of Earnings. Due to the impairment charge in 2022, we also performed a quantitative impairment test for our Spine reporting unit at October 31, 2023 and determined that its fair value exceeded its carrying amount by 10%. Accordingly, we did not record any additional impairment charges. At October 31, 2023, goodwill attributable to the Spine reporting unit was approximately $1.0 billion.

In our quantitative impairment tests, the fair value of our Spine reporting unit was determined using a discounted cash flow analysis, which is a form of the income approach. Significant inputs to the analysis included assumptions for future revenue growth, operating margin and the rate used to discount the estimated future cash flows to their present value, based on the reporting unit’s estimated weighted average cost of capital. Our assumptions for revenue growth and operating margin considered several operating factors, including surgery volumes, increased costs and our competitive environment. We believe our estimates are appropriate based upon current and future market conditions and the best information available at the impairment assessment date. However, future impairment charges could be required if we do not achieve our cash flow, revenue and profitability projections or if there is an increase in the weighted average cost of capital.

The assumptions used in the discounted cash flow analysis are subject to inherent uncertainties and subjectivity. The use of different assumptions, estimates or judgments with respect to the estimation of future cash flows and the determination of the discount rate used to reduce such estimated future cash flows to their net present value could materially affect the determination of any impairment charges. Hypothetical changes in our estimates of the discount rate, long-term revenue growth and long-term operating margin would result in impairment charges as follows:

[[GREPCENT_TABLE]]
[["Change in selected assumption","Percentage decline in fair value","Impairment charge"],["100 bps increase in discount rate","12","%","$","51"],["100 bps decrease in long-term revenue growth","7","","\u2014"],["100 bps decrease in long-term operating margin","3","","\u2014"]]
[[/GREPCENT_TABLE]]

Historical impairment assessments for our other reporting units have indicated that their implied fair values exceed their respective carrying amounts by at least 100%. We did not identify any factors in 2023 or 2022 that would lead us to believe that those reporting units are at risk of a goodwill impairment. Accordingly, we performed qualitative assessments and concluded it was more likely than not that the fair values of those

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

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

Legal and Other Contingencies

We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor, intellectual property, and other matters that are more fully described in Note 7 to our Consolidated Financial Statements. The outcomes of these matters will generally not be known for prolonged periods of time. In certain of the legal proceedings, the claimants seek damages, as well as other compensatory and equitable relief, that could result in the payment of significant claims and settlements and/or the imposition of injunctions or other equitable relief. For legal matters for which management had sufficient information to reasonably estimate our future obligations, a liability representing management's best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known, for the resolution of these legal matters is recorded. The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than those projected by management, additional expense may be incurred, which could unfavorably affect future operating results. We are currently self-insured for certain claims and expenses. The ultimate cost to us with respect to product liability claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

NEW ACCOUNTING PRONOUNCEMENTS

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

[[GREPCENT_TABLE]]
[["Dollar amounts in millions except per share amounts or as otherwise specified.","21"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["STRYKER CORPORATION","","2023 FORM 10-K"]]
[[/GREPCENT_TABLE]]