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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; cost of sales excluding specified items; adjusted selling, general and administrative expenses; adjusted amortization of intangible assets; adjusted operating income; adjusted effective income tax rate; adjusted net earnings; and adjusted net earnings per diluted share (Diluted EPS). We believe that these non-GAAP 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 year results at prior year average foreign currency exchange rates. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates and acquisitions that affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year results at prior year average foreign currency exchange rates excluding the impact of acquisitions. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings. These adjustments are irregular in timing, may not be indicative of our past and future performance and are therefore excluded to allow investors to better understand underlying operating trends. The following are examples of the types of adjustments that may be included in a period: 1. Acquisition and integration related costs. Costs related to integrating recently acquired businesses and specific costs related to the consummation of the acquisition process. 2. Amortization of intangible assets. Periodic amortization expense related to purchased intangible assets. 3. Restructuring-related charges. Costs associated with workforce reductions, facility rationalizations and other restructuring activities. 4. Recall matters. Our best estimate of the minimum of the range of probable loss to resolve certain product recalls. 5. 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. 6. Tax matters. Certain significant and discrete tax items and adjustments to interest expense related to the settlement of certain tax matters. 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, cost of sales, selling, general and administrative expenses, amortization of intangible assets, operating income, 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 that, when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures below provide a more complete understanding of our business. 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 following reconciles the non-GAAP financial measures: adjusted gross profit; adjusted selling, general and administrative expense; adjusted operating income; adjusted other income (expense), net; adjusted net earnings; adjusted effective tax rate; and adjusted diluted EPS; with the most directly comparable GAAP financial measures: Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures 2015 Gross Profit Selling, General & Administrative Expenses Intangible Amortization Operating Income Net Earnings Effective Tax Rate Diluted EPS AS REPORTED $ 6,602 $ 3,610 $ 210 $ 1,861 $ 1,439 17.1% $ 3.78 Acquisition and integration-related charges Inventory stepped up to fair value 7 — — 7 4 0.1 0.01 Other acquisition and integration-related — (28) — 28 20 0.2 0.05 Amortization of intangible assets — — (210) 210 147 1.5 0.39 Restructuring-related charges 7 (125) — 132 97 0.7 0.26 Rejuvenate and other recall matters — — — 296 210 2.0 0.55 Regulatory and legal matters — 53 — (53) (46) 0.1 (0.12) Tax matters — — — — 78 (4.4) 0.20 ADJUSTED $ 6,616 $ 3,510 $ — $ 2,481 $ 1,949 17.3% $ 5.12 STRYKER CORPORATION 2015 Form 10-K 12 Dollar amounts in millions except per share amounts or as otherwise specified.