Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Stryker Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Stryker Corporation and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of earnings and comprehensive income, shareholder’s equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements“). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 7, 2019 expressed an unqualified opinion thereon.

Adoption of ASU No. 2016-16

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for the income tax consequences of intercompany transfers of assets other than inventory in 2018 due to the adoption of Accounting Standards Update (ASU) No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ ERNST & YOUNG LLP

We have served as the Company's auditor since 1974

Grand Rapids, Michigan

February 7, 2019

	16

STRYKER CORPORATION 2018 FORM 10-K

Stryker Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

	2018				2017				2016
Net sales	$	13,601			$	12,444			$	11,325
Cost of sales	4,663				4,264				3,821
Gross profit	$	8,938			$	8,180			$	7,504
Research, development and engineering expenses	862				787				715
Selling, general and administrative expenses	5,099				4,552				4,137
Recall charges, net of insurance proceeds	23				173				158
Amortization of intangible assets	417				371				319
Total operating expenses	$	6,401			$	5,883			$	5,329
Operating income	$	2,537			$	2,297			$	2,175
Other income (expense), net	(181		)		(234		)		(254		)
Earnings before income taxes	$	2,356			$	2,063			$	1,921
Income taxes	(1,197		)		1,043				274
Net earnings (loss)	$	3,553			$	1,020			$	1,647
Net earnings (loss) per share of common stock:
Basic	$	9.50			$	2.73			$	4.40
Diluted	$	9.34			$	2.68			$	4.35
Weighted-average shares outstanding:
Basic	374.1				374.0				374.1
Effect of dilutive employee stock options	6.2				6.1				4.4
Diluted	380.3				380.1				378.5

Anti-dilutive shares excluded from the calculation of dilutive employee stock options were de minimis in all periods.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	2018				2017				2016
Net earnings (loss)	$	3,553			$	1,020			$	1,647
Other comprehensive income (loss), net of tax
Marketable securities	—				(4		)		—
Pension plans	(3		)		(2		)		(13		)
Unrealized gains (losses) on designated hedges	22				4				20
Financial statement translation	(97		)		210				(129		)
Total other comprehensive income (loss), net of tax	$	(78	)		$	208			$	(122	)
Comprehensive income	$	3,475			$	1,228			$	1,525

See accompanying notes to Consolidated Financial Statements.

Dollar amounts in millions except per share amounts or as otherwise specified.	17

STRYKER CORPORATION 2018 FORM 10-K

Stryker Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

	2018				2017
Assets
Current assets
Cash and cash equivalents	$	3,616			$	2,542
Marketable securities	83				251
Accounts receivable, less allowance of $64 ($59 in 2017)	2,332				2,198
Inventories:
Materials and supplies	606				528
Work in process	149				148
Finished goods	2,200				1,789
Total inventories	$	2,955			$	2,465
Prepaid expenses and other current assets	747				537
Total current assets	$	9,733			$	7,993
Property, plant and equipment:
Land, buildings and improvements	1,041				936
Machinery and equipment	3,236				2,864
Total property, plant and equipment	4,277				3,800
Less allowance for depreciation	1,986				1,825
Property, plant and equipment, net	$	2,291			$	1,975
Goodwill	8,563				7,168
Other intangibles, net	4,163				3,477
Noncurrent deferred income tax assets	1,678				283
Other noncurrent assets	801				1,301
Total assets	$	27,229			$	22,197
Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	646			$	487
Accrued compensation	917				838
Income taxes	158				143
Dividend payable	192				178
Accrued expenses and other liabilities	1,521				1,207
Current maturities of debt	1,373				632
Total current liabilities	$	4,807			$	3,485
Long-term debt, excluding current maturities	8,486				6,590
Income taxes	1,228				1,261
Other noncurrent liabilities	978				881
Total liabilities	$	15,499			$	12,217
Shareholders' equity
Common stock, $0.10 par value	37				37
Additional paid-in capital	1,559				1,496
Retained earnings	10,765				8,986
Accumulated other comprehensive loss	(631		)		(553		)
Total Stryker shareholders' equity	$	11,730			$	9,966
Noncontrolling interest	—				14
Total shareholders' equity	$	11,730			$	9,980
Total liabilities & shareholders' equity	$	27,229			$	22,197

See accompanying notes to Consolidated Financial Statements.

Dollar amounts in millions except per share amounts or as otherwise specified.	18

STRYKER CORPORATION 2018 FORM 10-K

Stryker Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	2018						2017						2016
	Shares		Amount				Shares		Amount				Shares		Amount
Common stock
Beginning	374.4		$	37			374.6		$	37			373.0		$	37
Issuance of common stock under stock option and benefit plans	1.9		—				1.7		—				1.7		—
Repurchase of common stock	(1.9	)	—				(1.9	)	—				(0.1	)	—
Ending	374.4		$	37			374.4		$	37			374.6		$	37
Additional paid-in capital
Beginning			$	1,496					$	1,432					$	1,321
Issuance of common stock under stock option and benefit plans			(49		)				(42		)				15
Repurchase of common stock			(7		)				(7		)				(1		)
Share-based compensation			119						113						97
Ending			$	1,559					$	1,496					$	1,432
Retained earnings
Beginning			$	8,986					$	8,842					$	7,792
Cumulative effect of accounting changes			(759		)				—						—
Net earnings			3,553						1,020						1,647
Repurchase of common stock			(293		)				(223		)				(12		)
Cash dividends declared			(722		)				(653		)				(585		)
Ending			$	10,765					$	8,986					$	8,842
Accumulated other comprehensive (loss) income
Beginning			$	(553	)				$	(761	)				$	(639	)
Other comprehensive income (loss)			(78		)				208						(122		)
Ending			$	(631	)				$	(553	)				$	(761	)
Total Stryker shareholders' equity			$	11,730					$	9,966					$	9,550
Non-controlling interest
Beginning			$	14					$	—					$	—
Acquisitions			—						114						—
Interest purchased			(15		)				(99		)				—
Net earnings attributable to noncontrolling interest			—						—						—
Foreign currency exchange translation adjustment			1						(1		)				—
Ending			$	—					14						$	—
Total shareholders' equity			$	11,730					$	9,980					$	9,550

See accompanying notes to Consolidated Financial Statements.

Dollar amounts in millions except per share amounts or as otherwise specified.	19

STRYKER CORPORATION 2018 FORM 10-K

Stryker Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

	2018				2017				2016
Operating activities
Net earnings	$	3,553			$	1,020			$	1,647
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	306				271				227
Amortization of intangible assets	417				371				319
Share-based compensation	119				113				97
Recall charges, net of insurance proceeds	23				173				158
Sale of inventory stepped up to fair value at acquisition	16				22				36
Deferred income tax (benefit) expense	(1,582		)		36				(46		)
Changes in operating assets and liabilities:
Accounts receivable	(60		)		(162		)		(192		)
Inventories	(385		)		(320		)		(299		)
Accounts payable	116				21				(16		)
Accrued expenses and other liabilities	289				90				241
Recall-related payments	(90		)		(526		)		(190		)
Income taxes	(156		)		704				(128		)
Other, net	44				(254		)		61
Net cash provided by operating activities	$	2,610			$	1,559			$	1,915
Investing activities
Acquisitions, net of cash acquired	(2,451		)		(831		)		(4,332		)
Purchases of marketable securities	(226		)		(270		)		(151		)
Proceeds from sales of marketable securities	394				87				785
Purchases of property, plant and equipment	(572		)		(598		)		(490		)
Other investing, net	(2		)		(1		)		(3		)
Net cash used in investing activities	$	(2,857	)		$	(1,613	)		$	(4,191	)
Financing activities
Proceeds and payments on short-term borrowings, net	(1		)		(200		)		209
Proceeds from issuance of long-term debt	3,126				499				3,453
Payments on long-term debt	(669		)		—				(750		)
Dividends paid	(703		)		(636		)		(568		)
Repurchase of common stock	(300		)		(230		)		(13		)
Cash paid for taxes from withheld shares	(120		)		(95		)		(67		)
Payments to purchase noncontrolling interest	(14		)		(99		)		—
Other financing, net	10				(33		)		(6		)
Net cash provided by (used in) financing activities	$	1,329			$	(794	)		$	2,258
Effect of exchange rate changes on cash and cash equivalents	(8		)		74				(45		)
Change in cash and cash equivalents	$	1,074			$	(774	)		$	(63	)
Cash and cash equivalents at beginning of year	2,542				3,316				3,379
Cash and cash equivalents at end of year	$	3,616			$	2,542			$	3,316
Supplemental cash flow disclosure:
Cash paid for income taxes, net of refunds	$	539			$	312			$	510
Cash paid for interest on debt	$	248			$	231			$	180

See accompanying notes to Consolidated Financial Statements.

Dollar amounts in millions except per share amounts or as otherwise specified.	20

STRYKER CORPORATION 2018 FORM 10-K

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: Stryker (the "Company," "we," "us," or "our") is one of the world's leading medical technology companies and, together with its customers, is driven to make healthcare better. The Company offers innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine that improve patient and hospital outcomes. Our products include implants used in joint replacement and trauma surgeries; surgical equipment and surgical navigation systems; endoscopic and communications systems; patient handling, emergency medical equipment and intensive care disposable products; neurosurgical, neurovascular and spinal devices; as well as other products used in a variety of medical specialties.

Basis of Presentation and Consolidation: The Consolidated Financial Statements include the Company and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. We have no material interests in variable interest entities and none that require consolidation. Certain prior year amounts have been reclassified to conform to the presentation of our Consolidated Financial Statements in 2018.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of net sales and expenses in the reporting period. Actual results could differ from those estimates.

Revenue Recognition: Sales are recognized as the performance obligations to deliver products or services are satisfied and are recorded based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. Our sales continue to be recognized primarily when we transfer control to the customer, which can be on the date of shipment, the date of receipt by the customer or, for most Orthopaedics products, when we have received a purchase order and appropriate notification the product has been used or implanted. Products and services are primarily transferred to customers at a point in time, with some transfers of services taking place over time. A provision for estimated sales returns, discounts and rebates is recognized as a reduction of sales in the same period that the sales are recognized. Our estimate of the provision for sales returns has been established based on contract terms with our customers and historical business practices and current trends. Shipping and handling costs charged to customers are included in net sales.

Cost of Sales: Cost of sales is primarily comprised of direct materials and supplies consumed in the manufacture of product, as well as manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of sales also includes the cost to distribute products to customers, inbound freight costs, warehousing costs and other shipping and handling activity.

Research, Development and Engineering Expenses: Research and development costs are charged to expense as incurred. Costs include research, development and engineering activities relating to the development of new products, improvement of existing products, technical support of products and compliance with governmental regulations for the protection of customers and patients. Costs primarily consist of salaries, wages, consulting and depreciation and maintenance of research facilities and equipment.

Selling, General and Administrative Expenses: Selling, general and administrative expense is primarily comprised of selling expenses, marketing expenses, administrative and other indirect overhead costs, amortization of loaner instrumentation, depreciation and amortization expense of non-manufacturing assets and other miscellaneous operating items.

Currency Translation: Financial statements of subsidiaries outside the United States generally are measured using the local currency as the functional currency. Adjustments to translate those statements into United States Dollars are recorded in other comprehensive income (OCI). Transactional exchange gains and losses are included in earnings.

Cash Equivalents: Highly liquid investments with remaining stated maturities of three months or less when purchased are considered cash equivalents and recorded at cost.

Marketable Securities: Marketable securities consist of marketable debt securities, certificates of deposit and mutual funds. Mutual funds are acquired to offset changes in certain liabilities related to deferred compensation arrangements and are expected to be used to settle these liabilities. Pursuant to our investment policy, all individual marketable security investments must have a minimum credit quality of single A (Standard & Poor’s and Fitch) and A2 (Moody’s Corporation) at the time of acquisition, while the overall portfolio of marketable securities must maintain a minimum average credit quality of double A (Standard & Poor’s and Fitch) or Aa (Moody’s Corporation). In the event of a rating downgrade below the minimum credit quality subsequent to purchase, the marketable security investment is evaluated to determine the appropriate action to take to minimize the overall risk to our marketable security investment portfolio. Our marketable securities are classified as available-for-sale and trading securities. Investments in trading securities represent participant-directed investments of deferred employee compensation.

Accounts Receivable: Accounts receivable consists of trade and other miscellaneous receivables. An allowance is maintained for doubtful accounts for estimated losses in the collection of accounts receivable. Estimates are made regarding the ability of customers to make required payments based on historical credit experience and expected future trends. Accounts receivable are written off when all reasonable collection efforts are exhausted.

Inventories: Inventories are stated at the lower of cost or market, with cost generally determined using the first-in, first-out (FIFO) cost method. For excess and obsolete inventory resulting from the potential inability to sell specific products at prices in excess of current carrying costs, reserves are maintained to reduce current carrying cost to market prices.

Financial Instruments: Our financial instruments consist of cash, cash equivalents, marketable securities, accounts receivable, other investments, accounts payable, debt and foreign currency exchange contracts. The carrying value of our financial instruments, with the exception of our senior unsecured notes, approximates fair value on December 31, 2018 and 2017. Refer to Notes 3 and 10 for further details.

All marketable securities are recognized at fair value. Adjustments to the fair value of marketable securities that are classified as available-for-sale are recorded as increases or decreases, net of income taxes, within accumulated other comprehensive income (AOCI) in shareholders’ equity and adjustments to the fair value of marketable securities that are classified as trading are recorded in earnings. The amortized cost of marketable debt securities is adjusted for amortization of premiums and discounts to maturity computed under the effective interest method. Such amortization and interest and realized gains and losses are included in other

Dollar amounts in millions except per share amounts or as otherwise specified.	21

STRYKER CORPORATION 2018 FORM 10-K

income (expense), net. The cost of securities sold is determined by the specific identification method.

We review declines in the fair value of our investments classified as available-for-sale to determine whether the decline in fair value is other-than-temporary. The resulting losses from other-than-temporary impairments of available-for-sale marketable securities are included in earnings.

Derivatives: All derivatives are recognized at fair value and reported on a gross basis. We enter into forward currency exchange contracts to mitigate the impact of currency fluctuations on transactions denominated in nonfunctional currencies, thereby limiting our risk that would otherwise result from changes in exchange rates. The periods of the forward currency exchange contracts correspond to the periods of the exposed transactions, with realized gains and losses included in the measurement and recording of transactions denominated in the nonfunctional currencies. All forward currency exchange contracts are recorded at their fair value each period.

Forward currency exchange contracts designated as cash flow hedges are designed to hedge the variability of cash flows associated with forecasted transactions denominated in a foreign currency that will take place in the future. These nonfunctional currency exposures principally relate to forecasted intercompany sales and purchases of manufactured products and generally have maturities up to eighteen months. Changes in value of derivatives designated as cash flow hedges are recorded in AOCI on the Consolidated Balance Sheets until earnings are affected by the variability of the underlying cash flows. At that time, the applicable amount of gain or loss from the derivative instrument that is deferred in shareholders’ equity is reclassified into earnings and is included in cost of goods sold in the Consolidated Statements of Earnings. Cash flows associated with these hedges are included in cash from operations in the same category as the cash flows from the items being hedged.

Derivative forward contracts are used to offset our exposure to the change in value of specific foreign currency denominated assets and liabilities, primarily intercompany payables and receivables. These derivatives are not designated as hedges and, therefore, changes in the value of these forward contracts are recognized in earnings, thereby offsetting the current earnings effect of the related changes in value of foreign currency denominated assets and liabilities. The estimated fair value of our forward currency exchange contracts represents the measurement of the contracts at month-end spot rates as adjusted by current forward points.

From time to time, we designate derivative and non-derivative financial instruments as net investment hedges of our investments in certain international subsidiaries. For derivative instruments that are designated and qualify as a net investment hedge, the effective portion of the derivative's gain or loss is recognized in OCI and reported as a component of AOCI. We use the forward method to measure ineffectiveness. Under this method the change in the carrying value related to the effective portion of the derivative instrument due to remeasurement is reported as a component of AOCI. The remaining change in the carrying value, if any, is considered to be ineffective and recognized in other income (expense), net. The gain or loss related to settled net investment hedges will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated.

From time to time, we designate forward starting interest rate derivative instruments as cash flow hedges to manage the exposure to interest rate volatility with regard to future issuance and refinancing of debt. The effective portion of the gain or loss on a forward starting interest rate derivative instrument that is designated

and qualifies as a cash flow hedge is reported as a component of AOCI. Beginning in the period in which the debt refinancing occurs and the related derivative instruments is terminated, the effective portion of the gains or losses is then reclassified into interest expense over the term of the related debt.

Interest rate derivative instruments designated as fair value hedges have been used in the past to manage the exposure to interest rate movements and to reduce borrowing costs by converting fixed-rate debt into floating-rate debt. Under these agreements, we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. At December 31, 2018, there were no open cash flow or fair value interest rate hedges.

Property, Plant and Equipment: Property, plant and equipment is stated at cost. Depreciation is generally computed by the straight-line method over the estimated useful lives of three to 30 years for buildings and improvements and three to 10 years for machinery and equipment.

Goodwill and Other Intangible Assets: Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses at the acquisition date, after amounts allocated to other identifiable intangible assets. Factors that contribute to the recognition of goodwill include synergies that are specific to our business and not available to other market participants and are expected to increase net sales and profits; acquisition of a talented workforce; cost savings opportunities; the strategic benefit of expanding our presence in core and adjacent markets; and diversifying our product portfolio.

The fair values of other identifiable intangible assets are primarily determined using the income approach. Other intangible assets include, but are not limited to, developed technology, customer and distributor relationships (which reflect expected continued customer or distributor patronage) and trademarks and patents. Intangible assets with determinable useful lives are amortized on a straight-line basis over their estimated useful lives of four to 40 years. Certain acquired trade names are considered to have indefinite lives and are not amortized, but are assessed annually for potential impairment as described below.

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.

Goodwill, Intangibles and Long-Lived Asset Impairment Tests: We perform our annual impairment test for goodwill in the fourth quarter of each year. We consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. In certain circumstances, we may also utilize a discounted cash flow analysis that requires certain assumptions and estimates be made regarding market conditions and our future profitability. Indefinite-lived intangible assets are also tested at least annually for impairment by comparing the individual carrying values to the fair value.

We review 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. Undiscounted cash flows expected to be generated by the related assets are estimated over the asset's useful life based on updated projections. If the evaluation indicates that the carrying amount of the asset may not be recoverable, any potential impairment is measured based upon the

Dollar amounts in millions except per share amounts or as otherwise specified.	22

STRYKER CORPORATION 2018 FORM 10-K

fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique. Assets classified as held for sale are recorded at the lower of carrying amount or fair value less costs to sell.

Share-Based Compensation: We use share based compensation in the form of stock options, restricted stock units (RSUs) and performance-based restricted stock units (PSUs). Stock options are granted under long-term incentive plans to certain key employees and non-employee directors at an exercise price not less than the fair market value of the underlying common stock, which is the quoted closing price of our common stock on the day prior to the date of grant. The options are granted for periods of up to 10 years and become exercisable in varying installments.

We grant RSUs to key employees and non-employee directors and PSUs to certain key employees under our long-term incentive plans. The fair value of RSUs is determined based on the number of shares granted and the quoted closing price of our common stock on the date of grant, adjusted for the fact that RSUs do not include anticipated dividends. RSUs generally vest in one-third increments over a three-year period and are settled in stock. PSUs are earned over a three-year performance cycle and vest in March of the year following the end of that performance cycle. The number of PSUs that will ultimately be earned is based on our performance relative to pre-established goals in that three-year performance cycle. The fair value of PSUs is determined based on the quoted closing price of our common stock on the day of grant.

Compensation expense is recognized in the Consolidated Statements of Earnings based on the estimated fair value of the awards on the grant date. Compensation expense recognized reflects an estimate of the number of awards expected to vest after taking into consideration an estimate of award forfeitures based on actual experience and is recognized on a straight-line basis over the requisite service period, which is generally the period required to obtain full vesting. Management expectations related to the achievement of performance goals associated with PSU grants is assessed regularly and that assessment is used to determine whether PSU grants are expected to vest. If performance-based milestones related to PSU grants are not met or not expected to be met, any compensation expense recognized associated with such grants will be reversed.

Income Taxes: Deferred income tax assets and liabilities are determined based on differences between financial reporting and income tax bases of assets and liabilities and are measured using the enacted income tax rates in effect for the years in which the differences are expected to reverse. Deferred income tax benefits generally represent the change in net deferred income tax assets and liabilities in the year. Other amounts result from adjustments related to acquisitions and foreign currency as appropriate.

We operate in multiple income tax jurisdictions both within the United States and internationally. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on current interpretations of complex income tax regulations. Income tax authorities in these jurisdictions regularly perform audits of our income tax filings. Income tax audits associated with the allocation of this income and other complex issues, including inventory transfer pricing and cost sharing, product royalty and foreign branch arrangements, may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates.

New Accounting Pronouncements Not Yet Adopted

We evaluate all Accounting Standards Updates (ASUs) issued by

the Financial Accounting Standards Board (FASB) for consideration of their applicability. ASUs not included in our disclosures were assessed and determined to be either not applicable or are not expected to have a material impact on our Consolidated Financial Statements.

In August 2018 the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract to align with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. We are in the process of evaluating the impact on our Consolidated Financial Statements and the timing of adoption of this update.

In August 2017 the FASB issued ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies hedge accounting guidance, as well as improves presentation and disclosure to align the economic effects of risk management strategies in the financial statements. The update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We have performed a preliminary assessment of the impact from this update and do not expect the adoption of this standard to have a material impact on our Consolidated Financial Statements. We plan to adopt this update on January 1, 2019.

In February 2016 the FASB issued ASU 2016-02, Leases (Topic 842), which requires lease assets and liabilities to be recorded on the balance sheet for leases with terms greater than twelve months. We will adopt this ASU and related amendments on January 1, 2019 and expect to elect certain practical expedients permitted under the transition guidance. Additionally, we will elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods. We are substantially complete in assessing the transitional impact from adopting the standard; however, we are still assessing the lessor provisions under the standard but do not expect any material adjustments to the estimated right of use asset and/or lease liability. We currently estimate the impact of the adoption will result in the recognition of right of use assets and lease liabilities of approximately $350 as of January 1, 2019. We do not believe the adoption will have a material impact on net earnings or cash flows.

Accounting Pronouncements Recently Adopted

On January 1, 2018 we adopted ASU 2014-09, Revenue from Contracts with Customers. Refer to Note 2 for further information.

On January 1, 2018 we adopted ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory, which requires companies to account for the income tax effect of intercompany sales and transfers of assets other than inventory when the transfer occurs. Under previous guidance, we deferred the income tax effects of intercompany transfers of assets until the asset had been sold to an outside party or otherwise recognized. We recorded a $695 cumulative-effect adjustment to decrease the opening balance of retained earnings as of January 1, 2018.

On January 1, 2018 we adopted ASU 2017-07, Compensation - Retirement Benefits, which revises the presentation of the elements of net pension benefit costs. We have retrospectively applied the change in presentation of the non-service cost components of net periodic pension cost by reclassifying these amounts to other income (expense), net within our Consolidated Statements of

Dollar amounts in millions except per share amounts or as otherwise specified.	23

STRYKER CORPORATION 2018 FORM 10-K

Earnings. The adoption of this update did not have a material impact on our Consolidated Financial Statements.

On January 1, 2018 we adopted ASU 2017-09, Compensation - Stock Compensation, which revises the guidance related to changes in terms or conditions of a share-based payment award. The adoption of this update did not have a material impact on our Consolidated Financial Statements.

On January 1, 2018 we adopted ASU 2018-02, Income Statements - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which was issued in February 2018 and provides guidance allowing for the reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income to retained earnings. The adoption of this update did not have a material impact on our Consolidated Financial Statements.

No other new accounting pronouncements were issued or became effective in the period that had, or are expected to have, a material impact on our Consolidated Financial Statements.

NOTE 2 - REVENUE RECOGNITION

On January 1, 2018 we adopted ASU 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. The cumulative effect of initially applying ASC 606 was an adjustment to decrease the opening balance of retained earnings by $64 as of January 1, 2018.

With the adoption of ASC 606, we elected to apply certain permitted practical expedients. In evaluating the cumulative-effect adjustment to retained earnings, we adopted the standard only for contracts that were not complete as of the date of adoption. For contracts containing elements of variable consideration, we have elected to use the transaction price at the date the contract was deemed complete. For contracts that were modified prior to the adoption date, we have elected to present the aggregate effect of all contract modifications in determining the transaction price and for the allocation to the satisfied and unsatisfied performance obligations.

The impact of ASC 606 on our results of operations for 2018 was not material and related primarily to the reclassification of certain costs previously presented as selling, general and administrative expenses to net sales.

Sales are recognized as the performance obligations to deliver products or services are satisfied and are recorded based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. In the United States most of our products and services are marketed directly to doctors, hospitals and other healthcare facilities through company-owned subsidiaries and branches. Our products are also sold in over 80 countries through company-owned subsidiaries and branches as well as third-party dealers and distributors.

Sales represent the amount of consideration we expect to receive from customers in exchange for transferring products and services. Net sales exclude sales, value added and other taxes we collect from customers. Other costs to obtain and fulfill contracts are expensed as incurred due to the short-term nature of most of our sales. We extend terms of payment to our customers based on commercially reasonable terms for the markets of our customers, while also considering their credit quality. A provision for estimated sales returns, discounts and rebates is recognized as a reduction of sales in the same period that the sales are recognized. Our estimate of the provision for sales returns has been established based on contract terms with our customers and historical business practices. Shipping and handling costs charged to customers are included in net sales.

Our sales continue to be recognized primarily when title to the product, ownership and risk of loss transfer to the customer, which can be on the date of shipment, the date of receipt by the customer or, for most Orthopaedics products, when we have received a purchase order and appropriate notification the product has been used or implanted. Products and services are primarily transferred to customers at a point in time, with some transfers of services taking place over time. In 2018 less than 10% of our sales were recognized as services transferred over time.

We disaggregate our net sales by product line and geographic location for each of our segments as we believe it best depicts how the nature, amount, timing and certainty of our net sales and cash flows are affected by economic factors.

Segment Net Sales
Orthopaedics:	2018				2017				2016
Knees	$	1,701			$	1,595			$	1,490
Hips	1,336				1,303				1,283
Trauma and Extremities	1,580				1,478				1,364
Other	374				337				285
	$	4,991			$	4,713			$	4,422
MedSurg:
Instruments	$	1,822			$	1,678			$	1,553
Endoscopy	1,846				1,652				1,470
Medical	2,118				1,969				1,633
Sustainability	259				258				238
	$	6,045			$	5,557			$	4,894
Neurotechnology and Spine:
Neurotechnology	$	1,737			$	1,423			$	1,255
Spine	828				751				754
	$	2,565			$	2,174			$	2,009
Total	$	13,601			$	12,444			$	11,325

United States Net Sales
Orthopaedics:	2018				2017				2016
Knees	$	1,244			$	1,169			$	1,087
Hips	838				820				804
Trauma and Extremities	1,001				950				856
Other	300				276				234
	$	3,383			$	3,215			$	2,981
MedSurg:
Instruments	$	1,424			$	1,304			$	1,207
Endoscopy	1,432				1,290				1,130
Medical	1,630				1,525				1,296
Sustainability	257				257				236
	$	4,743			$	4,376			$	3,869
Neurotechnology and Spine:
Neurotechnology	$	1,115			$	900			$	809
Spine	607				568				571
	$	1,722			$	1,468			$	1,380
Total	$	9,848			$	9,059			$	8,230

Dollar amounts in millions except per share amounts or as otherwise specified.	24

STRYKER CORPORATION 2018 FORM 10-K

International Net Sales
Orthopaedics:	2018				2017				2016
Knees	$	457			$	426			$	403
Hips	498				483				479
Trauma and Extremities	579				528				508
Other	74				61				51
	$	1,608			$	1,498			$	1,441
MedSurg:
Instruments	$	398			$	374			$	346
Endoscopy	414				362				341
Medical	488				444				337
Sustainability	2				1				1
	$	1,302			$	1,181			$	1,025
Neurotechnology and Spine:
Neurotechnology	$	622			$	523			$	446
Spine	221				183				183
	$	843			$	706			$	629
Total	$	3,753			$	3,385			$	3,095

Orthopaedics

Orthopaedics products consist primarily of implants used in hip and knee joint replacements and trauma and extremity surgeries. Substantially all Orthopaedics sales are recognized when we have received a purchase order and appropriate notification the product has been used or implanted. For certain Orthopaedic products in the "other" category, we recognize sales at a point in time, as well as over time for performance obligations that may include an obligation to complete installation, provide training and ongoing services. These performance obligations are satisfied within one year.

MedSurg

MedSurg products include surgical equipment and surgical navigation systems (Instruments), endoscopic and communications systems (Endoscopy), patient handling, emergency medical equipment and intensive care disposable products (Medical), reprocessed and remanufactured medical devices (Sustainability) and other medical device products used in a variety of medical specialties. Substantially all MedSurg sales are recognized when a purchase order has been received and control has transferred. For certain Endoscopy, Instruments and Medical services, we may recognize sales over time as we satisfy performance obligations that may include an obligation to complete installation, provide training and perform ongoing services and are generally performed within one year.

Neurotechnology and Spine

Neurotechnology and Spine products include both neurosurgical and neurovascular devices. Our spinal implant products include cervical, thoracolumbar and interbody systems used in spinal injury, deformity and degenerative therapies. Substantially all Neurotechnology and Spine sales are recognized when a purchase order has been received and control has transferred.

Contract Assets and Liabilities

The nature of our products and services do not generally give rise to contract assets as we typically do not incur costs to fulfill a contract before a product or service is provided to a customer. Our costs to obtain contracts are typically in the form of sales commissions paid to employees of Stryker or third-party agents. We have elected to expense sales commissions associated with obtaining a contract as incurred as the amortization period is generally less than one year. These costs have been presented within selling, general and administrative expenses. On December 31, 2018 there were no contract assets recorded in our Consolidated Balance Sheets.

Our contract liabilities arise as a result of unearned revenue received from customers at inception of contracts for certain businesses or where the timing of billing for services precedes satisfaction of our performance obligations. We generally satisfy performance obligations within one year from the contract inception date. On January 1, 2018 our contract liabilities were $381, which were reported in accrued expenses and other liabilities and other noncurrent liabilities in our Consolidated Balance Sheets, $333 of which were recognized in sales during 2018. On December 31, 2018 our contract liabilities were $327.

NOTE 3 - FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified in their entirety based on the lowest level of input and disclosed in one of the following three categories:

Level 1	Quoted market prices in active markets for identical assets or liabilities.
Level 2	Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3	Unobservable inputs reflecting our assumptions or external inputs from active markets.

Use of observable market data, when available, is required in making fair value measurements. When inputs used fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. We determine fair value for Level 1 instruments using exchange-traded prices for identical instruments. We determine fair value of Level 2 instruments using exchange-traded prices of similar instruments, where available, or utilizing other observable inputs that take into account our credit risk and that of our counterparties. Foreign currency exchange contracts and interest rate hedges are included in Level 2 and we use inputs other than quoted prices that are observable for the asset or liability. The Level 2 derivative instruments are primarily valued using standard calculations and models that use readily observable market data as their basis. Our Level 3 liabilities are comprised of contingent consideration arising from recently completed acquisitions. We determine fair value of these Level 3 liabilities using a discounted cash flow technique. Significant unobservable inputs were used in our assessment of fair value, including assumptions regarding future business results, discount rates, discount periods and probability assessments based on likelihood of reaching various targets. We remeasure the fair value of our assets and liabilities each reporting period. We record the changes in fair value within selling, general and administrative expense and the changes in the time value of money within other income (expense), net.

Dollar amounts in millions except per share amounts or as otherwise specified.	25

STRYKER CORPORATION 2018 FORM 10-K

Assets Measured at Fair Value
	2018			2017
Cash and cash equivalents	$	3,616		$	2,542
Trading marketable securities	118			121
Level 1 - Assets	$	3,734		$	2,663
Available-for-sale marketable securities:
Corporate and asset-backed debt securities	$	38		$	125
Foreign government debt securities	—			2
United States agency debt securities	11			27
United States treasury debt securities	23			70
Certificates of deposit	11			27
Total available-for-sale marketable securities	$	83		$	251
Foreign currency exchange forward contracts	77			15
Interest rate swap asset	—			49
Level 2 - Assets	$	160		$	315
Total assets measured at fair value	$	3,894		$	2,978

Liabilities Measured at Fair Value
	2018			2017
Deferred compensation arrangements	$	118		$	121
Level 1 - Liabilities	$	118		$	121
Foreign currency exchange forward contracts	$	20		$	37
Level 2 - Liabilities	$	20		$	37
Contingent consideration:
Beginning	$	32		$	86
Additions	77			3
Change in estimate	15			2
Settlements	(7		)	(59		)
Ending	$	117		$	32
Level 3 - Liabilities	$	117		$	32
Total liabilities measured at fair value	$	255		$	190

Fair Value of Available for Sale Securities by Maturity
	2018			2017
Due in one year or less	$	51		$	107
Due after one year through three years	$	32		$	144

On December 31, 2018 the aggregate difference between the cost and fair value of available-for-sale marketable securities was nominal. Interest receivable was $1 and $1 in 2018 and 2017 related to our marketable security portfolio. Interest and marketable securities income was $119, $60, and $29 in 2018, 2017, and 2016, which was recorded in other income (expense), net.

Our investments in available-for-sale marketable securities had a minimum credit quality rating of A2 (Moody's), A (Standard & Poor's) and A (Fitch). We do not plan to sell the investments, and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. We do not consider these investments to be other-than-temporarily impaired on December 31, 2018. On December 31, 2018 the majority of our investments with unrealized losses that were not deemed to be other-than-temporarily impaired were in a continuous unrealized loss position for less than twelve months, and the losses were not material.

Securities in a Continuous Unrealized Loss Position
	Number of Investments	Fair Value
Corporate and Asset-Backed	75	$	34
Foreign government	0	—
United States Agency	8	10
United States Treasury	17	19
Certificate of Deposit	15	7
Total	115	$	70

NOTE 4 - DERIVATIVE INSTRUMENTS

Foreign Currency Hedges

We use operational and economic hedges, foreign currency exchange forward contracts, net investment hedges (both

derivative and non-derivative financial instruments) and interest rate derivative instruments to manage the impact of currency exchange and interest rate fluctuations on earnings, cash flow and equity. We do not enter into derivative instruments for speculative purposes. We are exposed to potential credit loss in the event of nonperformance by counterparties on our outstanding derivative instruments but do not anticipate nonperformance by any of our counterparties. Should a counterparty default, our maximum exposure to loss is the asset balance of the instrument.

2018	Designated			Non-Designated			Total
Gross notional amount	$	870		$	5,466		$	6,336
Maximum term in days							586
Fair value:
Other current assets	$	15		$	28		$	43
Other noncurrent assets	1			33			34
Other current liabilities	(5		)	(15		)	(20		)
Other noncurrent liabilities	—			—			—
Total fair value	$	11		$	46		$	57
2017
Gross notional amount	$	1,104		$	4,767		$	5,871
Maximum term in days							548
Fair value:
Other current assets	$	11		$	4		$	15
Other noncurrent assets	1			—			1
Other current liabilities	(7		)	(29		)	(36		)
Other noncurrent liabilities	(1		)	—			(1		)
Total fair value	$	4		$	(25	)	$	(21	)

In November 2018 we designated the issuance of €2,250 of senior unsecured notes as a net investment hedge to selectively hedge portions of our investment in certain international subsidiaries. The currency effects of our euro-denominated senior unsecured notes are reflected in AOCI within shareholders' equity where they offset gains and losses recorded on our net investment in international subsidiaries.

On December 31, 2018 the total after-tax loss in AOCI related to our designated net investment hedges was $19. We evaluate the effectiveness of our net investment hedges quarterly. We have not recognized any ineffectiveness in 2018.

Net Currency Exchange Rate Gains (Losses)
Recorded in:	2018			2017			2016
Cost of sales	$	7		$	(6	)	$	—
Other income (expense), net	(6		)	(9		)	(19		)
Total	$	1		$	(15	)	$	(19	)

On December 31, 2018 pretax gains recorded in AOCI on derivatives designated as hedges that are expected to be reclassified to earnings within 12 months of the balance sheet date were $13 compared with $7 on December 31, 2017. This reclassification is primarily due to the sale of inventory that includes previously hedged purchases. There was a $1 gain in 2018 due to ineffective portions of derivatives, which is included in the table above.

Interest Rate Hedges

In conjunction with our offering of senior unsecured notes in March 2018 we terminated cash flow hedges with gross notional amounts of $600 designated as hedges of our interest rates, the impact of which will be recognized over time as a benefit within interest expense.

We also elected to terminate interest rate swaps with gross notional amounts of $500 designated as fair value hedges of underlying fixed rate obligations representing a portion of our $600 unsecured notes due in 2024. The remaining fair value is presented in long-term

Dollar amounts in millions except per share amounts or as otherwise specified.	26

STRYKER CORPORATION 2018 FORM 10-K

debt and will be reclassified to interest expense over the term of the debt.

There was no hedge ineffectiveness recorded as a result of these fair value hedges in 2018. At December 31, 2018 there are no open cash flow or fair value interest rate hedges.

NOTE 5 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (AOCI)

	Marketable Securities			Pension Plans			Hedges			Financial Statement Translation			Total
2016	$	—		$	(132	)	$	24		$	(653	)	$	(761	)
OCI	(7		)	(27		)	(4		)	163			125
Income taxes	1			19			4			47			71
Reclassifications to:
Cost of Sales	—			8			6			—			14
Other income	2			—			—			—			2
Income taxes	—			(2		)	(2		)	—			(4		)
Net OCI	(4		)	(2		)	4			210			208
2017	$	(4	)	$	(134	)	$	28		$	(443	)	$	(553	)
OCI	2			(16		)	36			(115		)	(93		)
Income taxes	—			1			(9		)	18			10
Reclassifications to:
Cost of Sales	—			9			(7		)	—			2
Other Income	(2		)	1			—			—			(1		)
Income taxes	—			2			2			—			4
Net OCI	—			(3		)	22			(97		)	(78		)
2018	$	(4	)	$	(137	)	$	50		$	(540	)	$	(631	)

NOTE 6 - ACQUISITIONS

In 2018, 2017 and 2016 total cash paid for acquisitions net of cash acquired was $2,451, $831 and $4,332. We acquired stock in companies and various assets that continue to support our capital deployment and product development strategies.

In November 2018 we completed the acquisition of K2M Group Holdings, Inc. (K2M) for $27.50 per share, or an aggregate purchase price of approximately $1,380. K2M is a global leader of complex spine and minimally invasive solutions focused on achieving three-dimensional Total Body Balance. K2M is part of our Spine business within Neurotechnology and Spine. Goodwill attributable to the acquisition of K2M is not deductible for tax purposes.

In February 2018 we completed the acquisition of Entellus Medical, Inc. (Entellus) for $24.00 per share, or an aggregate purchase price of $697, net of cash acquired. Entellus is focused on delivering superior patient and physician experiences through products designed for the minimally invasive treatment of various ear, nose and throat (ENT) disease states. Entellus is part of our Neurotechnology business within Neurotechnology and Spine. Goodwill attributable to the acquisition of Entellus is not deductible for tax purposes.

In September 2017 we completed the acquisition of NOVADAQ Technologies Inc. (NOVADAQ) for an aggregate purchase price of $674, net of cash acquired. NOVADAQ is a leading developer of fluorescence imaging technology that provides surgeons with visualization of blood flow in vessels and related tissue perfusion in cardiac, cardiovascular, gastrointestinal, plastic, microsurgical, and reconstructive procedures. NOVADAQ is part of our Endoscopy business within the MedSurg segment. Goodwill attributable to the acquisition of NOVADAQ is not deductible for tax purposes.

Purchase Price Allocation of Acquired Net Assets
	2018							2017
	K2M			Entellus				NOVADAQ
Tangible assets acquired:
Accounts receivable	67			17				11
Inventory	136			14				25
Other assets	118			72				7
Contingent consideration	—			(78		)		—
Liabilities	(247		)	(92		)		(56		)
Intangible assets:
Customer relationship	34			33				18
Distributor relationship	1			—				—
Trade name	10			—				1
Developed technology and patents	473			256				141
Internally developed software	2			—				—
Goodwill	786			475				527
Purchase price, net of cash acquired	$	1,380		$	697			$	674
Weighted average life of intangible assets	14			16				15

Purchase price allocations for K2M, Entellus and other acquisitions in 2018 and 2017 were based on preliminary valuations, primarily related to intangible assets and inventory. Our estimates and assumptions are subject to change within the measurement period. The purchase price allocation for the acquisition of NOVADAQ was finalized in 2018.

NOTE 7 - CONTINGENCIES AND COMMITMENTS

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 below. 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, 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 estimated by management, additional expense may be incurred, which could unfavorably affect future operating results. We are self-insured for product liability 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.

In 2010 we filed a lawsuit in federal court against Zimmer Biomet Holdings, Inc. (Zimmer), alleging that a Zimmer product infringed on three of our patents. In 2013 following a jury trial favorable to us, the trial judge entered a final judgment that, among other things, awarded us damages of $76 and ordered Zimmer to pay us enhanced damages. Zimmer appealed this ruling. In December 2014 the Federal Circuit affirmed the damages awarded to us, reversed the order for enhanced damages and remanded the issue of attorney fees to the trial court. In May 2015 the trial court entered a stipulated judgment that, among other things, required Zimmer to pay us the base amount of damages and interest, while the issues of enhanced damages and attorney fees continue to be pursued. In June 2015 we recorded a $54 gain, net of legal costs, which was recorded within selling, general and administrative expenses. On June 13, 2016 the United States Supreme Court vacated the decision of the Federal Circuit that reversed our judgment for

Dollar amounts in millions except per share amounts or as otherwise specified.	27

STRYKER CORPORATION 2018 FORM 10-K

enhanced damages and remanded the case to the Federal Circuit to reconsider the issue. On September 12, 2016 the Federal Circuit issued an opinion that, among other things, remanded the issue of enhanced damages to the trial court. On July 12, 2017 the trial court reaffirmed its award of enhanced damages and entered a judgment of $164 in our favor. Zimmer appealed, and on December 10, 2018 the Federal Circuit affirmed the decision. Zimmer filed a petition on January 23, 2019 to seek a rehearing of this ruling by the entire Federal Circuit.

Recall Matters

In June 2012 we voluntarily recalled our Rejuvenate and ABG II Modular-Neck hip stems and terminated global distribution of these hip products. Product liability lawsuits relating to this voluntary recall have been filed against us. In November 2014 we entered into a settlement agreement to compensate eligible United States patients who had revision surgery prior to November 3, 2014 and in December 2016 the settlement program was extended to patients who had revision surgery prior to December 19, 2016. We continue to offer support for recall-related care and reimburse patients who are not eligible to enroll in the settlement program for testing and treatment services, including any necessary revision surgeries. In addition, there are remaining lawsuits that we will continue to defend against.

In August 2016 and May 2018 we voluntarily recalled certain lot-specific sizes and offsets of LFIT Anatomic CoCr V40 Femoral Heads. Product liability lawsuits and claims relating to this voluntary recall have been filed against us. In November 2018 we entered into a settlement agreement to resolve a significant number of claims and lawsuits related to the recalls. The specific terms of the settlement agreement, including the financial terms, are confidential.

We have incurred, and expect to incur in the future, costs associated with the settlement of these matters. Based on the information that has been received, we have estimated the remaining range of probable loss to resolve these matters globally to be approximately $255 to $400. We have recorded charges to earnings representing the minimum of the range of probable loss. The final outcomes of these matters are dependent on many factors that are difficult to predict. Accordingly, the ultimate cost to entirely resolve these matters globally may be materially different than the amount of our current estimate and accruals and could have a material adverse effect on our results of operations and cash flows.

Future Obligations

We have purchase commitments for materials, supplies, services and property, plant and equipment as part of the normal course of business. In addition, we lease various manufacturing, warehousing and distribution facilities, administrative and sales offices as well as equipment under operating leases. Rent expense totaled $138, $125, and $112 in 2018, 2017 and 2016. Refer to Note 10 for more information on the debt obligations.

Future Obligations
	2019			2020			2021			2022			2023			Thereafter
Debt repayments	$	1,373		$	844		$	750		$	—		$	630		$	6,355
Purchase obligations	$	1,306		$	74		$	6		$	6		$	7		$	12
Minimum lease payments	$	107		$	53		$	39		$	30		$	24		$	89

NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS

We completed our annual impairment tests of goodwill in 2018 and 2017 and concluded in each year that no impairments exist.

Summary of Other Intangible Assets
	Weighted Average Amortization Period (Years)	Gross Carrying Amount			Less Accumulated Amortization			Net Carrying Amount
Developed technologies
2018	13	$	3,426		$	1,115		$	2,311
2017	12	2,416			917			1,499
Customer relationships
2018	15	$	2,155		$	703		$	1,452
2017	15	2,088			561			1,527
Patents
2018	12	$	332		$	231		$	101
2017	10	340			227			113
Trademarks
2018	18	$	349		$	108		$	241
2017	18	352			84			268
In-process research and development
2018	N/A	$	6		—			$	6
2017	N/A	25			—			25
Other
2018	11	$	128		$	76		$	52
2017	9	93			48			45
Total
2018	14	$	6,396		$	2,233		$	4,163
2017	14	$	5,314		$	1,837		$	3,477

Changes in the Net Carrying Value of Goodwill by Segment
	Orthopaedics			MedSurg			Neurotechnology and Spine			Total
2016	$	2,372		$	2,934		$	1,050		$	6,356
Additions and adjustments	2			553			109			664
Foreign exchange	52			22			74			148
2017	$	2,426		$	3,509		$	1,233		$	7,168
Additions and adjustments	4			100			1,366			1,470
Foreign exchange	(31		)	(28		)	(16		)	(75		)
2018	$	2,399		$	3,581		$	2,583		$	8,563

Estimated Amortization Expense
2019			2020			2021			2022			2023
$	438		$	413		$	400		$	392		$	372

NOTE 9 - CAPITAL STOCK

The aggregate number of shares of all classes of stock with which we are authorized to issue is up to 1,000,500,000, divided into two classes consisting of 500,000 shares of $1 par value preferred stock and 1,000,000,000 shares of common stock with a par value of $0.10. No shares of preferred stock were outstanding on December 31, 2018.

In 2018 we repurchased 1.9 million shares at a cost of $300. The manner, timing and amount of repurchases are determined by management based on an evaluation of market conditions, stock price and other factors and are subject to regulatory considerations. Purchases are made from time-to-time in the open market, in privately negotiated transactions or otherwise. On December 31, 2018 the total dollar value of shares that could be purchased under our authorized repurchase program was $1,340.

Shares reserved for future compensation grants of our common stock were 33 million and 37 million on December 31, 2018 and 2017.

Stock Options

We measure the cost of employee stock options based on the grant-date fair value and recognize that cost using the straight-line method over the period in which a recipient is required to provide services in exchange for the options, typically the vesting period. The

Dollar amounts in millions except per share amounts or as otherwise specified.	28

STRYKER CORPORATION 2018 FORM 10-K

weighted-average fair value per share of options is estimated on the date of grant using the Black-Scholes option pricing model.

Option Value and Assumptions
	2018				2017				2016
Weighted-average fair value per share	$	28.52			$	22.43			$	17.73
Assumptions:
Risk-free interest rate	2.7		%		2.0		%		1.3		%
Expected dividend yield	1.2		%		1.5		%		1.6		%
Expected stock price volatility	16.8		%		19.4		%		20.5		%
Expected option life (years)	6.0				6.0				6.1

The risk-free interest rate for periods within the expected life of options granted is based on the United States Treasury yield curve in effect at the time of grant. Expected stock price volatility is based on the historical volatility of our stock. The expected option life, representing the period of time that options granted are expected to be outstanding, is based on historical option exercise and employee termination data.

2018 Stock Option Activity
	Shares (in millions)			Weighted Average Exercise Price				Weighted-Average Remaining Term (in years)		Aggregate Intrinsic Value
Outstanding January 1	14.7			$	83.71
Granted	2.4			154.50
Exercised	(2.5	)		66.98
Canceled	(0.5	)		114.98
Outstanding December 31	14.1			$	97.69			6.1		$	834.5
Exercisable December 31	7.3			$	74.10			4.4		$	598.4
Options expected to vest	6.2			$	121.48			7.8		$	220.7

The aggregate intrinsic value of options, which represents the cumulative difference between the fair market value of the underlying common stock and the option exercise prices, exercised was $247, $184, and $128 in 2018, 2017 and 2016. Exercise prices for options outstanding ranged from $38.88 to $169.42 on December 31, 2018. On December 31, 2018 there was $99 of unrecognized compensation cost related to nonvested stock options granted under the long-term incentive plans; that cost is expected to be recognized over the weighted-average period of approximately 1.5 years.

Restricted Stock Units (RSUs) and Performance Stock Units (PSUs) Activity
	Shares (in millions)						Weighted Average Grant Date Fair Value
	RSUs			PSUs			RSUs				PSUs
Nonvested on January 1	1.0			0.3			$	104.85			$	104.51
Granted	0.5			0.1			150.23				153.67
Vested	(0.5	)		(0.1	)		100.32				92.96
Canceled or forfeited	(0.1	)		—			117.86				—
Nonvested on December 31	0.9			0.3			$	129.90			$	122.39

On December 31, 2018 there was $63 of unrecognized compensation cost related to nonvested RSUs. That cost is expected to be recognized as expense over the weighted-average period of approximately one year. The weighted-average grant date fair value per share of RSUs granted was $150.23 and $117.44 in 2018 and 2017. The fair value of RSUs and PSUs vested in 2018 was $47 and $8. On December 31, 2018 there was $15 of unrecognized compensation cost related to nonvested PSUs; the cost is expected to be recognized as expense over the weighted-average period of approximately one year.

Employee Stock Purchase Plans (ESPP)

Full- and part-time employees may participate in our ESPP provided they meet certain eligibility requirements. The purchase price for our common stock under the terms of the ESPP is defined as 95% of the closing stock price on the last trading day of a purchase period. We issued 168,626 and 163,415 shares under the ESPP in 2018 and 2017.

NOTE 10 - DEBT AND CREDIT FACILITIES

In March 2018 we issued $600 of senior unsecured notes with a fixed interest rate of 3.650% due on March 7, 2028. Our annual interest expense arising from the issuance of the notes will be reduced by the benefit from the cash flow hedges that were terminated in conjunction with the issuance. Refer to Note 4 for further information. In April 2018 we repaid $600 of our senior unsecured notes with a coupon of 1.300%. In November 2018 we issued €300 of senior unsecured notes with a floating interest rate (Three Month EURIBOR plus 28 bps) due on November 30, 2020, €550 of senior unsecured notes with a fixed interest rate of 1.125% due on November 30, 2023, €750 of senior unsecured notes with a fixed interest rate of 2.125% due on November 30, 2027 and €650 of senior unsecured notes with a fixed interest rate of 2.625% due on November 30, 2030. In January 2019 we repaid $500 of our senior unsecured notes with a coupon of 1.800% that were due on January 15, 2019.

Our commercial paper program allows us to have a maximum of $1,500 in commercial paper outstanding with maturities up to 397 days from the date of issuance. On December 31, 2018 there were no amounts outstanding under our commercial paper program.

We have lines of credit issued by various financial institutions that are available to fund our day-to-day operating needs. Certain of our credit facilities require us to comply with financial and other covenants. We were in compliance with all covenants on December 31, 2018.

Summary of Total Debt
					2018				2017
Senior unsecured notes:
	Rate		Due
	1.300%		April 1, 2018		$	—			$	600
	1.800%		January 15, 2019		500				499
	2.000%		March 8, 2019		750				748
	4.375%		January 15, 2020		499				498
	Variable		November 30, 2020		343				—
	2.625%		March 15, 2021		747				746
	1.125%		November 30, 2023		627				—
	3.375%		May 15, 2024		584				598
	3.375%		November 1, 2025		746				745
	3.500%		March 15, 2026		990				988
	2.125%		November 30, 2027		853				—
	3.650%		March 7, 2028		595				—
	2.625%		November 30, 2030		733				—
	4.100%		April 1, 2043		391				391
	4.375%		May 15, 2044		395				394
	4.625%		March 15, 2046		980				980
Commercial paper					—				—
Other					126				35
Total debt					$	9,859			$	7,222
Less current maturities					1,373				632
Total long-term debt					$	8,486			$	6,590
Unamortized debt issuance costs					$	50			$	39
Borrowing capacity on existing facilities					$	1,548			$	1,547
Fair value of senior unsecured notes					$	9,746			$	7,521

Dollar amounts in millions except per share amounts or as otherwise specified.	29

STRYKER CORPORATION 2018 FORM 10-K

The fair value of the senior unsecured notes was estimated using quoted interest rates, maturities and amounts of borrowings based on quoted active market prices and yields that took into account the underlying terms of the debt instruments. Substantially all of our debt is classified within Level 2 of the fair value hierarchy.

Interest expense, including required fees incurred on outstanding debt and credit facilities that were included in other expense, totaled $264, $247, and $228 in 2018, 2017 and 2016.

NOTE 11 - INCOME TAXES

Our effective tax rate was (50.8)%, 50.6% and 14.3% for 2018, 2017 and 2016. The effective income tax rate for 2018 reflects the tax effect related to the transfer of intellectual properties between tax jurisdictions, the continuing impact of complying with the Tax Cuts and Jobs Act of 2017 (the Tax Act), and continued lower effective income tax rates as a result of our European operations. The effective income tax rate for 2017 reflects compliance with the Tax Act offset by lower effective income tax rates as a result of our European operations. The effective income tax rate for 2016 reflects lower effective income tax rates as a result of our European operations.

Effective Income Tax Rate Reconciliation
	2018			2017			2016
United States federal statutory rate	21.0	%		35.0	%		35.0	%
United States state and local income taxes, less federal deduction	0.4			1.2			1.7
Foreign income tax at rates other than 21%	(6.5	)		(21.0	)		(22.2	)
Tax Cuts and Jobs Act of 2017 transition tax	2.2			38.0			—
Tax Cuts and Jobs Act of 2017 deferred tax changes	(0.6	)		2.3			—
Tax related to repatriation of foreign earnings	0.5			—			(0.3	)
Intellectual property transfer	(63.8	)		—			—
Other	(4.0	)		(4.9	)		0.1
Effective income tax rate	(50.8	)%		50.6	%		14.3	%

In December 2017 the Tax Act was signed into law in the United States. The law includes significant changes to the United States corporate income tax system, including a federal corporate rate reduction, limitations on the deductibility of certain expenses, and the transition of United States international taxation from a worldwide tax system to a territorial tax system. As part of the transition to a territorial tax system, the Tax Act requires taxpayers to calculate a one-time transition tax based on undistributed earnings of foreign subsidiaries. In 2017 and 2018 we recorded provisional amounts for certain enactment-date effects of the Tax Act by applying guidance in SAB 118 because we had not yet completed the enactment-date accounting for these effects.

We applied the guidance of SAB 118 when accounting for the enactment date effects of the Tax Act in 2017 and throughout 2018. As of December 31, 2017 we had not completed our accounting for all of the enactment-date income tax effects of the Tax Act for the following aspects: remeasurement of deferred tax assets and liabilities, transition tax, and tax on global intangible low-taxed income (GILTI).

Upon further analysis of the Tax Act and notices and regulations issued and proposed by the United States Department of Treasury and the Internal Revenue Service, we finalized our calculations and completed our accounting for the enactment-date income tax effects of the Tax Act in December 2018. We elected to pay our transition tax over the eight-year period provided by the Tax Act and adjusted our December 2017 provisional estimate. We adjusted our December 2017 transition tax provision by $51 which increased our effective income tax rate by 2.2%. We also adjusted our December 2017 provisional estimate for remeasuring our deferred tax assets

and liabilities by $13. The deferred tax assets and liabilities adjustment decreased our effective income tax rate by 0.6%.

The Tax Act subjects a United States shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5 states that an entity can make an accounting policy election to either recognize deferred taxes related to GILTI or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to account for GILTI tax in the year the tax is incurred.

Earnings Before Income Taxes
	2018				2017				2016
United States	$	509			$	499			$	542
International	1,847				1,564				1,379
Total	$	2,356			$	2,063			$	1,921

Components of Income Tax Expense (Benefit)
Current income tax expense:	2018				2017				2016
United States federal	$	178			$	836			$	94
United States state and local	30				38				50
International	177				133				176
Total current income tax expense	$	385			$	1,007			$	320
Deferred income tax (benefit) expense:
United States federal	$	(44	)		$	84			$	(17	)
United States state and local	(20		)		(9		)		(12		)
International	(1,518		)		(39		)		(17		)
Total deferred income tax (benefit) expense	$	(1,582	)		$	36			$	(46	)
Total income tax (benefit) expense	$	(1,197	)		$	1,043			$	274

Interest and penalties included in other income (expense), net were expense of ($9), ($28) and ($1) in 2018, 2017 and 2016. The United States federal deferred income tax benefit (expense) includes the utilization of net operating loss carryforwards of $31, $32 and $28 in 2018, 2017 and 2016.

Deferred Income Tax Assets and Liabilities
Deferred income tax assets:	2018				2017
Inventories	$	390			$	480
Product-related liabilities	60				34
Other accrued expenses	222				204
Depreciation and amortization	1,504				—
State income taxes	70				46
Share-based compensation	47				46
Net operating loss carryforwards	134				52
Other	177				105
Total deferred income tax assets	$	2,604			$	967
Less valuation allowances	(66		)		(49		)
Net deferred income tax assets	$	2,538			$	918
Deferred income tax liabilities:
Depreciation and amortization	$	(865	)		$	(598	)
Undistributed earnings	(46		)		(81		)
Other	(3		)		(3		)
Total deferred income tax liabilities	$	(914	)		$	(682	)
Net deferred income tax assets	$	1,624			$	236
Reported as:
Noncurrent deferred income tax assets	$	1,678			$	283
Noncurrent liabilities—Other liabilities	(54		)		(47		)
Total	$	1,624			$	236

Accrued interest and penalties were $85 and $60 on December 31, 2018 and 2017 which were reported in current and non-current accrued expenses and other liabilities.

Net operating loss carryforwards totaling $606 on December 31, 2018 are available to reduce future taxable earnings of certain domestic and foreign subsidiaries. United States loss carryforwards of $489 expire through 2028. International loss carryforwards of $117 began to expire in 2018; however, some have no expiration. Of these carryforwards, $56 are subject to a full valuation allowance.

Dollar amounts in millions except per share amounts or as otherwise specified.	30

STRYKER CORPORATION 2018 FORM 10-K

We also have a tax credit carryforward of $55 with $52 being subject to a full valuation allowance. The credits with a full valuation allowance have no expiration; however, we do not anticipate generating income tax in excess of the credits in the foreseeable future.

We recorded a transition tax on undistributed foreign earnings as required by the Tax Act. No other provision was made for income taxes that may result from future remittances of the undistributed earnings of foreign subsidiaries that are determined to be indefinitely reinvested. Determination of the total amount of unrecognized deferred income tax on undistributed earnings of foreign subsidiaries is not practicable.

Uncertain Income Tax Positions
	2018				2017
Beginning uncertain tax positions	$	540			$	287
Increases related to current year income tax positions	22				123
Increases related to prior year income tax positions	25				131
Decreases related to prior year income tax positions:
Settlements and resolutions of income tax audits	(37		)		(9		)
Statute of limitations expirations	(14		)		(4		)
Foreign currency translation	(8		)		12
Ending uncertain tax positions	$	528			$	540
Reported as:
Noncurrent liabilities—Income taxes	528				540
Total	$	528			$	540

Our income tax expense would have been reduced by $521 and $232 on December 31, 2018 and 2017 had these uncertain income tax positions been favorably resolved. It is reasonably possible that the amount of unrecognized tax benefits will significantly change due to one or more of the following events in the next 12 months: expiring statutes, audit activity, tax payments, competent authority proceedings related to transfer pricing or final decisions in matters that are the subject of controversy in various taxing jurisdictions in which we operate, including inventory transfer pricing, cost sharing, product royalty and foreign branch arrangements. We are not able to reasonably estimate the amount or the future periods in which changes in unrecognized tax benefits may be resolved. Interest and penalties incurred associated with uncertain tax positions are included in other income (expense), net.

In the normal course of business, income tax authorities in various income tax jurisdictions both within the United States and internationally conduct routine audits of our income tax returns filed in prior years. These audits are generally designed to determine if individual income tax authorities are in agreement with our interpretations of complex income tax regulations regarding the allocation of income to the various income tax jurisdictions. Income tax years are open from 2012 through the current year for the United States federal jurisdiction. Income tax years open for our other major jurisdictions range from 2005 through the current year.

NOTE 12 - RETIREMENT PLANS

Defined Contribution Plans

We provide certain employees with defined contribution plans and other types of retirement plans. A portion of our retirement plan expense under the defined contribution plans is funded with Stryker common stock. The use of Stryker common stock represents a non-cash operating activity that is not reflected in our Consolidated Statements of Cash Flows.

	2018				2017				2016
Plan expense	$	180			$	181			$	166
Expense funded with Stryker common stock	29				25				22
Stryker common stock held by plan:
Dollar amount	358				353				272
Shares (in millions)	2.3				2.3				2.3
Value as a percentage of total plan assets	12		%		11		%		11		%

Defined Benefit Plans

Certain of our subsidiaries have both funded and unfunded defined benefit pension plans covering some or all of their employees. Substantially all of the defined benefit pension plans have projected benefit obligations in excess of plan assets.

Discount Rate

The discount rates were selected using a hypothetical portfolio of high quality bonds on December 31 that would provide the necessary cash flows to match our projected benefit payments. Effective January 1, 2017, in countries where it was possible, we elected to change the method to calculate the service cost and interest cost components of net periodic benefit costs for our defined benefit plans and will measure these costs by applying the specific spot rates along the yield curve of the projected cash flows for the respective plans. Our defined benefit plans previously utilized the yield curve approach to establish discount rates and we believe the new approach provides a more precise measurement of service and interest costs by improving the correlation between projected cash flows and the corresponding spot yield curve rates. The change does not affect the measurement of our total benefit obligations for those plans and is accounted for as a change in accounting estimate inseparable from a change in accounting principle, which is applied prospectively. The reductions in service and interest costs for 2017 associated with this change in estimate are nominal.

Expected Return on Plan Assets

The expected return on plan assets is determined by applying the target allocation in each asset category of plan investments to the anticipated return for each asset category based on historical and projected returns.

Components of Net Periodic Pension Cost
Net periodic benefit cost:	2018				2017				2016
Service cost	$	(44	)		$	(42	)		$	(33	)
Interest cost	(11		)		(10		)		(11		)
Expected return on plan assets	12				11				10
Amortization of prior service credit	1				1				1
Recognized actuarial loss	(11		)		(9		)		(9		)
Net periodic benefit cost	$	(53	)		$	(49	)		$	(42	)
Changes in assets and benefit obligations recognized in OCI:
Net actuarial gain (loss)	$	11			$	(25	)		$	(26	)
Recognized net actuarial loss	10				9				9
Prior service (credit) cost and transition amount	(1		)		(1		)		(1		)
Total recognized in other comprehensive income (loss)	$	20			$	(17	)		$	(18	)
Total recognized in net periodic benefit cost and OCI	$	(33	)		$	(66	)		$	(60	)
Weighted-average rates used to determine net periodic benefit cost:
Discount rate	1.8		%		1.8		%		2.1		%
Expected return on plan assets	3.3		%		3.3		%		3.6		%
Rate of compensation increase	2.8		%		2.8		%		2.3		%
Weighted-average discount rate used to determine projected benefit obligations	1.9		%		1.8		%		1.8		%

Investment Strategy

The investment strategy for our defined benefit pension plans is to meet the liabilities of the plans as they fall due and to maximize the return on invested assets within appropriate risk tolerances.

Dollar amounts in millions except per share amounts or as otherwise specified.	31

STRYKER CORPORATION 2018 FORM 10-K

	2018				2017
Fair value of plan assets	$	376			$	370
Benefit obligations	(735		)		(708		)
Funded status	$	(359	)		$	(338	)
Reported as:
Current liabilities—accrued compensation	$	(2	)		$	(2	)
Noncurrent liabilities—other liabilities	(339		)		(336		)
Pre-tax amounts recognized in AOCI:
Unrecognized net actuarial loss	(168		)		(189		)
Unrecognized prior service credit	11				12
Total	$	(157	)		$	(177	)

The estimated net actuarial loss for the defined benefit pension plans to be reclassified from AOCI into net periodic benefit cost is $7 in 2019. The total estimated amortization of prior service credit and transition asset for the defined benefit pension plans to be reclassified from AOCI into net periodic benefit credit is $1 in 2019.

Change in Benefit Obligations
	2018				2017
Beginning projected benefit obligations	$	708			$	588
Service cost	44				42
Interest cost	11				10
Foreign exchange impact	(16		)		60
Employee contributions	6				6
Actuarial (gains) losses	(1		)		19
Acquisition	—				—
Benefits paid	(17		)		(17		)
Ending projected benefit obligations	$	735			$	708
Ending accumulated benefit obligations	$	702			$	675

Change in Plan Assets
	2018				2017
Beginning fair value of plan assets	$	370			$	308
Actual return	(2		)		21
Employer contributions	22				23
Employee contributions	6				6
Foreign exchange impact	(6		)		26
Acquisition	—				—
Benefits paid	(14		)		(14		)
Ending fair value of plan assets	$	376			$	370

Allocation of Plan Assets
	2019 Target		2018 Actual			2017 Actual
Equity securities	26	%	26	%		28	%
Debt securities	45		46			45
Other	29		28			27
Total	100	%	100	%		100	%

Valuation of Plan Assets
2018	Level 1			Level 2			Level 3			Total
Cash and cash equivalents	$	10		$	—		$	—		$	10
Equity securities	20			85			—			105
Corporate debt securities	2			153			—			155
Other	7			43			56			106
Total	$	39		$	281		$	56		$	376
2017
Cash and cash equivalents	$	4		$	—		$	—		$	4
Equity securities	28			92			—			120
Corporate debt securities	2			148			—			150
Other	2			45			49			96
Total	$	36		$	285		$	49		$	370

Our Level 3 pension plan assets consist primarily of guaranteed investment contracts with insurance companies. The insurance contracts guarantee us principal repayment and a fixed rate of return. The $7 increase in Level 3 pension plan assets is primarily related to actual returns and acquired assets. We expect to contribute $25 to our defined benefit pension plans in 2019.

Estimated Future Benefit Payments
2019			2020			2021			2022			2023			2024-2028
$	18		$	17		$	17		$	18		$	18		$	106

NOTE 13 - SUMMARY OF QUARTERLY DATA (UNAUDITED)

2018 Quarters	Mar 31			Jun 30			Sep 30			Dec 31
Net sales	$	3,241		$	3,322		$	3,242		$	3,796
Gross profit	2,137			2,190			2,155			2,456
Earnings before income taxes	542			623			534			657
Net earnings	443			452			590			2,068
Net earnings per share of common stock:
Basic	$	1.18		$	1.21		$	1.58		$	5.52
Diluted	$	1.16		$	1.19		$	1.55		$	5.44
Market price of common stock:
High	$	170.00		$	179.84		$	177.76		$	178.90
Low	$	146.80		$	153.76		$	163.16		$	144.75
Dividends declared per share of common stock	$	0.47		$	0.47		$	0.47		$	0.52
2017 Quarters	Mar 31			Jun 30			Sep 30			Dec 31
Net sales	$	2,955		$	3,012		$	3,006		$	3,471
Gross profit	1,964			1,991			1,984			2,241
Earnings before income taxes	499			444			471			649
Net earnings	444			391			434			(249		)
Net earnings per share of common stock:
Basic	$	1.19		$	1.04		$	1.16		$	(0.66	)
Diluted	$	1.17		$	1.03		$	1.14		$	(0.66	)
Market price of common stock:
High	$	133.59		$	145.62		$	148.84		$	160.62
Low	$	116.50		$	129.82		$	137.70		$	141.68
Dividends declared per share of common stock	$	0.425		$	0.425		$	0.425		$	0.47

NOTE 14 - SEGMENT AND GEOGRAPHIC DATA

We segregate our operations into three reportable business segments: Orthopaedics, MedSurg, and Neurotechnology and Spine.

The Corporate and Other category shown in the table below includes corporate and administration, corporate initiatives and share-based compensation, which includes compensation related to employee stock options, restricted stock units and performance stock unit grants and director stock options and restricted stock unit grants.

Dollar amounts in millions except per share amounts or as otherwise specified.	32

STRYKER CORPORATION 2018 FORM 10-K

Segment Results
	2018			2017			2016
Orthopaedics	$	4,991		$	4,713		$	4,422
MedSurg	$	6,045		5,557			4,894
Neurotechnology & Spine	2,565			2,174			2,009
Net sales	$	13,601		$	12,444		$	11,325
Orthopaedics	$	350		$	337		$	317
MedSurg	285			315			249
Neurotechnology & Spine	176			142			140
Segment depreciation and amortization	$	811		$	794		$	706
Corporate and Other	155			65			46
Total depreciation and amortization	$	966		$	859		$	752
Orthopaedics	$	1,804		$	1,681		$	1,602
MedSurg	1,444			1,228			1,087
Neurotechnology & Spine	700			631			559
Segment operating income	$	3,948		$	3,540		$	3,248
Items not allocated to segments:
Corporate and Other	$	(431	)	$	(402	)	$	(352	)
Acquisition & integration-related charges	(123		)	(64		)	(131		)
Amortization of intangible assets	(417		)	(371		)	(319		)
Restructuring related-charges	(220		)	(194		)	(125		)
Medical device regulations	(12		)	—			—
Recall-related matters	(23		)	(173		)	(158		)
Regulatory and legal matters	(185		)	(39		)	12
Consolidated operating income	$	2,537		$	2,297		$	2,175

Segment Assets and Capital Spending
Assets:	2018			2017			2016
Orthopaedics	$	8,873		$	7,486		$	7,048
MedSurg	10,417			9,759			8,553
Neurotechnology & Spine	7,260			4,105			4,129
Total segment assets	$	26,550		$	21,350		$	19,730
Corporate and Other	679			847			705
Total assets	$	27,229		$	22,197		$	20,435
Capital spending:
Orthopaedics	$	134		$	138		$	153
MedSurg	217			194			129
Neurotechnology & Spine	31			50			25
Total segment capital spending	$	382		$	382		$	307
Corporate and Other	190			216			183
Total capital spending	$	572		$	598		$	490

We measure the financial results of our reportable segments using an internal performance measure that excludes acquisition and integration-related charges, restructuring-related charges, reserves for certain product recall matters, reserves for certain legal and regulatory matters and a donation to an educational institution. Identifiable assets are those assets used exclusively in the operations of each business segment or allocated when used jointly. Corporate assets are principally cash and cash equivalents, marketable securities and property, plant and equipment.

The countries in which we have local revenue generating operations have been combined into the following geographic areas: the United States (including Puerto Rico); Europe, Middle East, Africa; Asia Pacific; and other foreign countries, which include Canada and countries in the Latin American region. Net sales are reported based off the geographic area of the Stryker location where the sales to the customer originated.

Geographic Information
	Net Sales										Net Property, Plant and Equipment
	2018			2017			2016				2018			2017
United States	$	9,848		$	9,059		$	8,230			$	1,348		$	1,102
Europe, Middle East, Africa	1,793			1,567			1,437				669			718
Asia Pacific	1,532			1,413			1,325				96			107
Other countries	428			405			333				178			48
Total	$	13,601		$	12,444		$	11,325			$	2,291		$	1,975