STRYKER CORP (Form: 10-Q, Received: 07/31/2020 12:56:54)

Fair Value of Available for Sale Securities by Maturity

December 2019

Due in one year or less

Due after one year through three years

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-13149

STRYKER CORPORATION
(Exact name of registrant as specified in its charter)



Michigan			38-1239739
(State of incorporation)			(I.R.S. Employer Identification No.)

2825 Airview Boulevard	Kalamazoo,	Michigan	49002
(Address of principal executive offices)			(Zip Code)

	(269)	385-2600
(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.10 Par Value	SYK	New York Stock Exchange
1.125% Notes due 2023	SYK23	New York Stock Exchange
0.250% Notes due 2024	SYK24A	New York Stock Exchange
2.125% Notes due 2027	SYK27	New York Stock Exchange
0.750% Notes due 2029	SYK29	New York Stock Exchange
2.625% Notes due 2030	SYK30	New York Stock Exchange
1.000% Notes due 2031	SYK31	New York Stock Exchange
Floating Rate Notes due 2020	SYK20A	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Small reporting company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 375,605,813 shares of Common Stock, $0.10 par value, on June 30, 2020.



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

PART I – FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

Stryker Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (Unaudited)



	Three Months						Six Months
	2020			2019			2020			2019
Net sales	$	2,764		$	3,650		$	6,352		$	7,166
Cost of sales	1,216			1,270			2,473			2,503
Gross profit	$	1,548		$	2,380		$	3,879		$	4,663
Research, development and engineering expenses	233			246			487			471
Selling, general and administrative expenses	1,225			1,282			2,555			2,685
Recall charges	—			117			(6		)	130
Amortization of intangible assets	110			122			228			236
Total operating expenses	$	1,568		$	1,767		$	3,264		$	3,522
Operating income (loss)	$	(20	)	$	613		$	615		$	1,141
Other income (expense), net	(67		)	(48		)	(112		)	(96		)
Earnings (loss) before income taxes	$	(87	)	$	565		$	503		$	1,045
Income taxes	(4		)	85			93			153
Net earnings (loss)	$	(83	)	$	480		$	410		$	892

Net earnings (loss) per share of common stock:
Basic	$	(0.22	)	$	1.29		$	1.09		$	2.39
Diluted	$	(0.22	)	$	1.26		$	1.08		$	2.35

Weighted-average shares outstanding (in millions):
Basic	375.5			373.9			375.1			373.6
Effect of dilutive employee stock compensation	—			5.6			4.8			5.8
Diluted	375.5			379.5			379.9			379.4

Cash dividends declared per share of common stock	$	0.575		$	0.52		$	1.15		$	1.04

Anti-dilutive shares excluded from the calculation of dilutive employee stock options were 4.3 for the three months 2020 and de minimis in all other periods.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)



	Three Months						Six Months
	2020			2019			2020			2019
Net earnings (loss)	$	(83	)	$	480		$	410		$	892
Other comprehensive income (loss), net of tax:
Marketable securities	—			—			—			1
Pension plans	(4		)	(7		)	(8		)	(11		)
Unrealized gains (losses) on designated hedges	(30		)	3			(56		)	(13		)
Financial statement translation	(58		)	(61		)	(45		)	24
Total other comprehensive income (loss), net of tax	$	(92	)	$	(65	)	$	(109	)	$	1
Comprehensive income (loss)	$	(175	)	$	415		$	301		$	893

See accompanying notes to Consolidated Financial Statements.



Dollar amounts are in millions except per share amounts or as otherwise specified.	1



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

CONSOLIDATED BALANCE SHEETS



	June 30			December 31
	2020			2019
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	6,539		$	4,337
Marketable securities	80			88
Accounts receivable, less allowance of $114 ($88 in 2019)	2,203			2,893
Inventories:
Materials and supplies	785			677
Work in process	158			178
Finished goods	2,499			2,427
Total inventories	$	3,442		$	3,282
Prepaid expenses and other current assets	537			760
Total current assets	$	12,801		$	11,360
Property, plant and equipment:
Land, buildings and improvements	1,445			1,263
Machinery and equipment	3,330			3,451
Total property, plant and equipment	$	4,775		$	4,714
Less accumulated depreciation	2,248			2,147
Property, plant and equipment, net	$	2,527		$	2,567
Goodwill	9,074			9,069
Other intangibles, net	4,012			4,227
Noncurrent deferred income tax assets	1,570			1,575
Other noncurrent assets	1,499			1,369
Total assets	$	31,483		$	30,167

Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	635		$	675
Accrued compensation	528			955
Income taxes	214			171
Dividends payable	216			213
Accrued expenses and other liabilities	1,702			1,527
Current maturities of debt	1,110			859
Total current liabilities	$	4,405		$	4,400
Long-term debt, excluding current maturities	11,811			10,231
Income taxes	990			1,068
Other noncurrent liabilities	1,523			1,661
Total liabilities	$	18,729		$	17,360
Shareholders' equity
Common stock, $0.10 par value	38			37
Additional paid-in capital	1,706			1,628
Retained earnings	11,725			11,748
Accumulated other comprehensive loss	(715		)	(606		)
Total shareholders' equity	$	12,754		$	12,807
Total liabilities and shareholders' equity	$	31,483		$	30,167

See accompanying notes to Consolidated Financial Statements.



Dollar amounts are in millions except per share amounts or as otherwise specified.	2



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)



	Three Months						Six Months
	2020			2019			2020			2019
Common stock shares outstanding (in millions)
Beginning	375.4			373.8			374.5			374.4
Issuance of common stock under stock compensation and benefit plans	0.2			0.3			1.1			1.6
Repurchase of common stock	—			—			—			(1.9		)
Ending	375.6			374.1			375.6			374.1

Common stock
Beginning	$	38		$	37		$	37		$	37
Issuance of common stock under stock compensation and benefit plans	—			—			1			—
Ending	$	38		$	37		$	38		$	37
Additional paid-in capital
Beginning	$	1,676		$	1,538		$	1,628		$	1,559
Issuance of common stock under stock compensation and benefit plans	—			3			(8		)	(45		)
Repurchase of common stock	—			—			—			(8		)
Share-based compensation	30			28			86			63
Ending	$	1,706		$	1,569		$	1,706		$	1,569
Retained earnings
Beginning	$	12,024		$	10,683		$	11,748		$	10,765
Net earnings (loss)	(83		)	480			410			892
Repurchase of common stock	—			—			—			(299		)
Cash dividends declared	(216		)	(196		)	(433		)	(391		)
Ending	$	11,725		$	10,967		$	11,725		$	10,967
Accumulated other comprehensive (loss) income
Beginning	$	(623	)	$	(565	)	$	(606	)	$	(631	)
Other comprehensive income (loss)	(92		)	(65		)	(109		)	1
Ending	$	(715	)	$	(630	)	$	(715	)	$	(630	)
Total Stryker shareholders' equity	$	12,754		$	11,943		$	12,754		$	11,943
Non-controlling interest	—			—			—			—
Total shareholders' equity	$	12,754		$	11,943		$	12,754		$	11,943

See accompanying notes to Consolidated Financial Statements.



Dollar amounts are in millions except per share amounts or as otherwise specified.	3



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Six Months
	2020			2019
Operating activities
Net earnings	$	410		$	892
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation	163			153
Amortization of intangible assets	228			236
Asset impairments	161			—
Share-based compensation	86			63
Recall charges	(6		)	130
Sale of inventory stepped-up to fair value at acquisition	9			38
Changes in operating assets and liabilities:
Accounts receivable	671			(72		)
Inventories	(181		)	(285		)
Accounts payable	(34		)	(16		)
Accrued expenses and other liabilities	(375		)	(76		)
Recall-related payments	(12		)	(34		)
Income taxes	(39		)	(86		)
Other, net	130			(116		)
Net cash provided by operating activities	$	1,211		$	827
Investing activities
Acquisitions, net of cash acquired	(26		)	(260		)
Purchases of marketable securities	(23		)	(37		)
Proceeds from sales of marketable securities	31			34
Purchases of property, plant and equipment	(253		)	(287		)
Other investing, net	(9		)	—
Net cash used in investing activities	$	(280	)	$	(550	)
Financing activities
Proceeds (payments) on short-term borrowings, net	8			6
Proceeds from issuance of long-term debt	2,293			—
Payments on long-term debt	(500		)	(1,341		)
Dividends paid	(431		)	(390		)
Repurchases of common stock	—			(307		)
Cash paid for taxes from withheld shares	(68		)	(111		)
Other financing, net	(14		)	8
Net cash provided by (used in) financing activities	$	1,288		$	(2,135	)
Effect of exchange rate changes on cash and cash equivalents	(17		)	(4		)
Change in cash and cash equivalents	$	2,202		$	(1,862	)
Cash and cash equivalents at beginning of period	4,337			3,616
Cash and cash equivalents at end of period	$	6,539		$	1,754

See accompanying notes to Consolidated Financial Statements.



Dollar amounts are in millions except per share amounts or as otherwise specified.	4



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

General Information

Management believes the accompanying unaudited Consolidated Financial Statements contain all adjustments, including normal recurring items, considered necessary to fairly present the financial position of Stryker Corporation and its consolidated subsidiaries ("Stryker," the "Company," "we," us" or "our") on June 30, 2020 and the results of operations for the three and six months 2020. The results of operations included in these Consolidated Financial Statements may not necessarily be indicative of our annual results. These statements should be read in conjunction with our Annual Report on Form 10-K for 2019.

Certain prior year amounts have been reclassified to conform with current year presentation of segment results.

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.

Accounting Pronouncements Recently Adopted

On January 1, 2020 we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses for accounts receivables, loans and other financial instruments. The adoption of this update did not have a material impact on our Consolidated Financial Statements.

NOTE 2 - REVENUE RECOGNITION

Our policies for recognizing sales have not changed from those described in our Annual Report on Form 10-K for 2019.

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.



Net Sales by Product Line
	Three Months				Six Months
	2020		2019		2020		2019
Orthopaedics:
Knees	$	241	$	440	$	673	$	879
Hips	216		343		532		679
Trauma and Extremities	330		394		722		790
Other	107		96		189		175
	$	894	$	1,273	$	2,116	$	2,523
MedSurg:
Instruments	$	328	$	504	$	841	$	965
Endoscopy	316		480		771		950
Medical	632		542		1,219		1,073
Sustainability	48		75		115		140
	$	1,324	$	1,601	$	2,946	$	3,128
Neurotechnology and Spine:
Neurotechnology	$	369	$	484	$	852	$	953
Spine	177		292		438		562
	$	546	$	776	$	1,290	$	1,515
Total	$	2,764	$	3,650	$	6,352	$	7,166



Net Sales by Geography
	Three Months 2020				Three Months 2019
	United States		International		United States		International
Orthopaedics:
Knees	$	179	$	62	$	324	$	116
Hips	140		76		219		124
Trauma and Extremities	208		122		252		142
Other	96		11		79		17
	$	623	$	271	$	874	$	399
MedSurg:
Instruments	$	249	$	79	$	399	$	105
Endoscopy	253		63		383		97
Medical	454		178		430		112
Sustainability	48		—		75		—
	$	1,004	$	320	$	1,287	$	314
Neurotechnology and Spine:
Neurotechnology	$	211	$	158	$	313	$	171
Spine	128		49		221		71
	$	339	$	207	$	534	$	242
Total	$	1,966	$	798	$	2,695	$	955



Net Sales by Geography
	Six Months 2020				Six Months 2019
	United States		International		United States		International
Orthopaedics:
Knees	$	501	$	172	$	644	$	235
Hips	341		191		432		247
Trauma and Extremities	468		254		506		284
Other	165		24		142		33
	$	1,475	$	641	$	1,724	$	799
MedSurg:
Instruments	$	659	$	182	$	764	$	201
Endoscopy	617		154		759		191
Medical	908		311		846		227
Sustainability	114		1		139		1
	$	2,298	$	648	$	2,508	$	620
Neurotechnology and Spine:
Neurotechnology	$	512	$	340	$	613	$	340
Spine	324		114		429		133
	$	836	$	454	$	1,042	$	473
Total	$	4,609	$	1,743	$	5,274	$	1,892

Contract Assets and Liabilities

On June 30, 2020 there were no contract assets recorded on our Consolidated Balance Sheets.

Our contract liabilities arise as a result of consideration 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. Our contract liabilities were $379 and $313 on June 30, 2020 and December 31, 2019.



Dollar amounts are in millions except per share amounts or as otherwise specified.	5



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (AOCI)



Three Months 2020	Marketable Securities			Pension Plans			Hedges			Financial Statement Translation			Total
Beginning	$	(3	)	$	(183	)	$	21		$	(458	)	$	(623	)
OCI	(1		)	(8		)	(33		)	(91		)	(133		)
Income taxes	—			2			8			39			49
Reclassifications to:
Cost of sales	—			—			(3		)	—			(3		)
Other (income) expense	1			3			(2		)	(7		)	(5		)
Income taxes	—			(1		)	—			1			—
Net OCI	$	—		$	(4	)	$	(30	)	$	(58	)	$	(92	)
Ending	$	(3	)	$	(187	)	$	(9	)	$	(516	)	$	(715	)



Three Months 2019	Marketable Securities			Pension Plans			Hedges			Financial Statement Translation			Total
Beginning	$	(3	)	$	(141	)	$	34		$	(455	)	$	(565	)
OCI	—			(10		)	3			(66		)	(73		)
Income taxes	—			2			2			5			9
Reclassifications to:
Cost of sales	—			—			—			—			—
Other (income) expense	—			2			—			—			2
Income taxes	—			(1		)	(2		)	—			(3		)
Net OCI	$	—		$	(7	)	$	3		$	(61	)	$	(65	)
Ending	$	(3	)	$	(148	)	$	37		$	(516	)	$	(630	)



Six Months 2020	Marketable Securities			Pension Plans			Hedges			Financial Statement Translation			Total
Beginning	$	(3	)	$	(179	)	$	47		$	(471	)	$	(606	)
OCI	—			(14		)	(72		)	(36		)	(122		)
Income taxes	—			2			19			2			23
Reclassifications to:
Cost of sales	—			—			—			—			—
Other (income) expense	—			6			(3		)	(14		)	(11		)
Income taxes	—			(2		)	—			3			1
Net OCI	$	—		$	(8	)	$	(56	)	$	(45	)	$	(109	)
Ending	$	(3	)	$	(187	)	$	(9	)	$	(516	)	$	(715	)



Six Months 2019	Marketable Securities			Pension Plans			Hedges			Financial Statement Translation			Total
Beginning	$	(4	)	$	(137	)	$	50		$	(540	)	$	(631	)
OCI	1			(16		)	(16		)	28			(3		)
Income taxes	—			3			8			(4		)	7
Reclassifications to:
Cost of sales	—			—			(2		)	—			(2		)
Other (income) expense	—			3			—			—			3
Income taxes	—			(1		)	(3		)	—			(4		)
Net OCI	$	1		$	(11	)	$	(13	)	$	24		$	1
Ending	$	(3	)	$	(148	)	$	37		$	(516	)	$	(630	)

NOTE 4 - DERIVATIVE INSTRUMENTS

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 our counterparties on our outstanding derivative instruments but do not anticipate nonperformance by any of our counterparties. Should a counterparty default, our maximum loss exposure is the asset balance of the instrument. We have not

changed our hedging strategies, accounting practices or objectives from those disclosed in our Annual Report on Form 10-K for 2019.

Foreign Currency Hedges



June 2020	Cash Flow			Net Investment		Non-Designated			Total
Gross notional amount	$	639		$	1,124	$	5,336		$	7,099
Maximum term in days									1464
Fair value:
Other current assets	$	9		$	—	$	15		$	24
Other noncurrent assets	1			85		—			86
Other current liabilities	(2		)	—		(88		)	(90		)
Other noncurrent liabilities	—			—		—			—
Total fair value	$	8		$	85	$	(73	)	$	20



December 2019	Cash Flow			Net Investment		Non-Designated			Total
Gross notional amount	$	801		$	1,113	$	6,174		$	8,088
Maximum term in days									1646
Fair value:
Other current assets	$	5		$	—	$	180		$	185
Other noncurrent assets	1			40		—			41
Other current liabilities	(10		)	—		(11		)	(21		)
Other noncurrent liabilities	(2		)	—		—			(2		)
Total fair value	$	(6	)	$	40	$	169		$	203

In December 2019 and November 2018 we designated the issuance of €2,400 and €2,250 of senior unsecured notes as net investment hedges 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 June 30, 2020 the total after tax gain (loss) amount in AOCI related to these designated net investment hedges was ($23).

In July 2019 we entered into €1.0 billion in certain forward currency contracts and designated these as net investment hedges to hedge a portion of our investments in certain of our entities with functional currencies denominated in Euros.

Net Currency Exchange Rate Gains (Losses)



		Three Months						Six Months
Derivative instrument	Recorded in:	2020			2019			2020			2019
Cash Flow	Cost of sales	$	3		$	—		$	—		$	2
Net Investment	Other income (expense), net	7			—			14			—
Non-Designated	Other income (expense), net	(2		)	(2		)	(9		)	(4		)
	Total	$	8		$	(2	)	$	5		$	(2	)

Pretax gains (losses) on derivatives designated as cash flow of $9 and net investment hedges of $27 recorded in AOCI are expected to be reclassified to cost of sales and other income (expense) in earnings within 12 months as of June 30, 2020. This cash flow hedge reclassification is primarily due to the sale of inventory that includes previously hedged purchases. A component of the AOCI amounts related to net investment hedges is reclassified over the life of the hedge instruments as we elected to exclude the initial value of the component related to the spot-forward difference from the effectiveness assessment.

Interest Rate Hedges

In conjunction with our offerings of senior unsecured notes in December 2019 and June 2020 we terminated cash flow hedges with gross notional amounts of €600 and $500 designated as forward starting interest rate swaps of our interest rates, the impact



Dollar amounts are in millions except per share amounts or as otherwise specified.	6



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

of which will be recognized over time within interest expense. Pretax gains recorded in AOCI related to closed interest rate hedges of $6 are expected to be reclassified to other income (expense) in earnings within 12 months of June 30, 2020.

On June 30, 2020 we had interest rate swap agreements with notional amounts of $750 designated as forward starting interest rate swaps in anticipation of future debt issuances. Pretax losses of $69 were recorded in AOCI as of June 30, 2020. Upon the probable issuance of the debt, these amounts will be released to interest expense over the term of the debt. The cash flow effect of these hedges is recorded in cash flow from operations.

NOTE 5 - FAIR VALUE MEASUREMENTS

Our policies for managing risk related to foreign currency, interest rates, credit and markets and our process for determining fair value have not changed from those described in our Annual Report on Form 10-K for 2019.

There were no significant transfers into or out of any level in 2020.



Assets Measured at Fair Value	June		December
Assets Measured at Fair Value	2020		2019
Cash and cash equivalents	$	6,539	$	4,337
Trading marketable securities	144		149
Level 1 - Assets	$	6,683	$	4,486
Available-for-sale marketable securities:
Corporate and asset-backed debt securities	$	35	$	32
United States agency debt securities	4		2
United States Treasury debt securities	39		49
Certificates of deposit	2		5
Total available-for-sale marketable securities	$	80	$	88
Foreign currency exchange forward contracts	110		226
Interest rate swap asset	—		17
Level 2 - Assets	$	190	$	331
Total assets measured at fair value	$	6,873	$	4,817



Liabilities Measured at Fair Value	June			December
Liabilities Measured at Fair Value	2020			2019
Deferred compensation arrangements	$	144		$	149
Level 1 - Liabilities	$	144		$	149
Foreign currency exchange forward contracts	$	90		$	23
Interest rate swap liability	69			—
Level 2 - Liabilities	$	159		$	23
Contingent consideration:
Beginning	$	306		$	117
Additions	—			298
Change in estimate	—			(10		)
Settlements	(22		)	(99		)
Ending	$	284		$	306
Level 3 - Liabilities	$	284		$	306
Total liabilities measured at fair value	$	587		$	478

On June 30, 2020 and December 31, 2019 the aggregate difference between the cost and fair value of available-for-sale marketable securities was nominal. Interest and marketable securities income recorded in other income (expense), net, was $25 and $34 in the three months and $65 and $73 in the six months 2020 and 2019.

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.

NOTE 6 - 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, the most significant of which 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.

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 defense and settlement of these matters. Based on the information that has been received, we have estimated the remaining range of probable loss related to these matters globally to be approximately $290 to $520. 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 related to these matters 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.



Dollar amounts are in millions except per share amounts or as otherwise specified.	7



STRYKER CORPORATION		2020 Second Quarter Form 10-Q



Leases	June			December
Leases	2020			2019
Right-of-use assets	$	406		$	384
Lease liabilities, current	$	92		$	86
Lease liabilities, non-current	$	320		$	301

Other information
Weighted-average remaining lease term	5.7 years			6.2 years
Weighted-average discount rate	3.03		%	3.34		%



	Three Months			Six Months
	2020		2019	2020	2019
Operating lease cost	$	31	34	67	68

NOTE 7 - ACQUISITIONS

We acquire stock in companies and various assets that continue to support our capital deployment and product development strategies. The aggregate purchase price of our acquisitions, net of cash acquired was $26 and $425 in the six months 2020 and 2019.

In October 2019 we completed the acquisition of Mobius Imaging and Cardan Robotics for net cash consideration of $360 and future regulatory and commercial milestone payments of up to $130. Mobius Imaging is a leader in point-of-care imaging technology focused on integrating advanced imaging technologies into medical workflow. Cardan Robotics is working to develop innovative robotics and navigation technology systems for surgical and interventional radiology procedures. Mobius Imaging and Cardan Robotics (Mobius) are part of our Spine business within Neurotechnology and Spine. For income tax purposes the acquisition was treated as an asset purchase. Goodwill attributable to the acquisition is deductible for tax purposes.

In March 2019 we completed the acquisition of OrthoSpace, Ltd. (OrthoSpace) for net cash consideration of $110 and future regulatory milestone payments of up to $110. OrthoSpace is a medical device company specializing in orthopaedic biodegradable technology for the treatment of irreparable rotator cuff tears. OrthoSpace is part of our Endoscopy business within MedSurg. Goodwill attributable to the acquisition is not deductible for tax purposes.

In November 2019 we announced a definitive agreement to acquire all of the issued and outstanding ordinary shares of Wright Medical Group N.V. (Wright) for $30.75 per share, or an aggregate purchase price of approximately $5.4 billion (including convertible notes). Pursuant to the agreement, on December 13, 2019 our wholly owned subsidiary, Stryker B.V., commenced a tender offer to purchase all of the outstanding ordinary shares, par value €0.03 per share, of Wright at a price of $30.75 per share, without interest, but subject to any applicable withholding of taxes. We expect the acquisition to close in the second half of 2020, subject to the expiration of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of other required approvals and clearances under applicable antitrust laws and other customary conditions. Wright is a global medical device company focused on extremities and biologics. Following closing, we plan to integrate Wright into our Trauma and Extremities business within Orthopaedics.

Purchase price allocations for our significant acquisitions are presented below:



Purchase Price Allocation of Acquired Net Assets
	2019
	Mobius			OrthoSpace
Tangible assets:
Accounts receivable	$	3		$	1
Inventory	6			1
Other assets	2			1
Contingent consideration	(4		)	—
Other liabilities	(10		)	(29		)
Intangible assets:
Customer relationship	7			—
Developed technology and patents	59			120
In-process research and development	98			—
Non-compete agreements	9			—
Goodwill	303			114
Purchase price, net of cash acquired	$	473		$	208
Weighted-average life of intangible assets	12			18

The purchase price allocation for Mobius is based on preliminary valuations, primarily related to intangible assets that are subject to change within the measurement period. The purchase price allocation for OrthoSpace was finalized in 2020.



Estimated Amortization Expense
Remainder of 2020		2021		2022		2023		2024
$	230	$	442	$	437	$	419	$	388

NOTE 8 - DEBT AND CREDIT FACILITIES

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 June 30, 2020.

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 June 30, 2020 there were no amounts outstanding under our commercial paper program.



Summary of Total Debt			June 2020		December 2019
Senior unsecured notes:
	Rate	Due
	4.375%	January 15, 2020	$	—	$	500
	Variable	November 30, 2020	337		333
	2.625%	March 15, 2021	749		749
	1.125%	November 30, 2023	616		609
	3.375%	May 15, 2024	589		587
	0.250%	December 3, 2024	948		938
	1.150%	June 15, 2025	644		—
	3.375%	November 1, 2025	747		746
	3.500%	March 15, 2026	991		991
	2.125%	November 30, 2027	837		829
	3.650%	March 7, 2028	596		596
	0.750%	March 1, 2029	893		884
	1.950%	June 15, 2030	988		—
	2.625%	November 30, 2030	720		712
	1.000%	December 3, 2031	832		823
	4.100%	April 1, 2043	392		391
	4.375%	May 15, 2044	395		395
	4.625%	March 15, 2046	981		981
	2.900%	June 15, 2050	641		—
Other			25		26
Total debt			$	12,921	$	11,090
Less current maturities of debt			1,110		859
Total long-term debt			$	11,811	$	10,231



Dollar amounts are in millions except per share amounts or as otherwise specified.	8



STRYKER CORPORATION		2020 Second Quarter Form 10-Q



	June 2020		December 2019
Unamortized debt issuance costs	$	74	$	58
Available secured borrowing capacity	$	2,904	$	1,403
Fair value of senior unsecured notes	$	13,984	$	11,910

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.

In January 2020 we repaid $500 of senior unsecured notes with a coupon of 4.375% that were due on January 15, 2020.

On April 30, 2020 we amended our primary credit facility. The principal change was to increase the leverage ratio financial covenant from 3.5:1 to 4.5:1 at the end of each fiscal quarter ending on or prior to June 30, 2021.

On April 30, 2020 we entered into a credit agreement that provides for up to $1,500 of borrowings in United States Dollars pursuant to a 364-day revolving credit facility, which matures on April 29, 2021 and is available for working capital and general corporate purposes.

In June 2020 we issued $650 of senior unsecured notes with a fixed interest rate of 1.150% due on June 15, 2025, $1,000 of senior unsecured notes with a fixed interest rate of 1.950% due on June 15, 2030 and $650 of senior unsecured notes with a fixed interest rate of 2.900% due on June 15, 2050. The 2025 and 2030 notes are subject to a special mandatory redemption feature in which we will be required to redeem the notes in whole at a price equal to 101% of the aggregate principal amount plus accrued and unpaid interest if we do not consummate the Wright tender offer on or before February 4, 2021.

NOTE 9 - INCOME TAXES

Our effective tax rates were 4.6% and 15.0% in the three months and 18.5% and 14.6% in the six months 2020 and 2019. The changes in the effective tax rates were primarily due to pre-tax losses and a change in geographic profit mix for the three months and a favorable audit settlement recorded in 2019 for the six months.

In March 2020 the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law in the United States. We do not expect the provisions of the CARES Act to have a material impact on our annual effective tax rate or Consolidated Financial Statements in 2020.

NOTE 10 - SEGMENT INFORMATION



	Three Months						Six Months
	2020			2019			2020			2019
Orthopaedics	$	894		$	1,273		$	2,116		$	2,523
MedSurg	1,324			1,601			2,946			3,128
Neurotechnology and Spine	546			776			1,290			1,515
Net sales	$	2,764		$	3,650		$	6,352		$	7,166
Orthopaedics	$	163		$	448		$	555		$	885
MedSurg	237			399			634			771
Neurotechnology and Spine	75			219			285			423
Segment operating income	$	475		$	1,066		$	1,474		$	2,079
Items not allocated to segments:
Corporate and other	(130		)	(122		)	(267		)	(254		)
Acquisition and integration-related charges	(19		)	(53		)	(56		)	(191		)
Amortization of intangible assets	(110		)	(122		)	(228		)	(236		)
Restructuring-related and other charges	(209		)	(42		)	(263		)	(98		)
Medical device regulations	(22		)	(12		)	(46		)	(19		)
Recall-related matters	—			(117		)	6			(130		)
Regulatory and legal matters	(5		)	15			(5		)	(10		)
Consolidated operating income (loss)	$	(20	)	$	613		$	615		$	1,141

There were no significant changes to total assets by segment from information provided in our Annual Report on Form 10-K for 2019.

NOTE 11 - ASSET IMPAIRMENTS

The significant negative impact the COVID-19 pandemic has had on Stryker’s operations and financial results has led to the decision to suspend certain in-process investments resulting in charges of $189 to impair certain long-lived assets (primarily the portion of our investment in a new global ERP system that was in-process of being developed for future deployment) and product line and other exit costs in the three months 2020. These charges are included in cost of sales and selling, general and administrative expenses.



Dollar amounts are in millions except per share amounts or as otherwise specified.	9



STRYKER CORPORATION		2020 Second Quarter Form 10-Q



ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ABOUT STRYKER

Stryker is one of the world's leading medical technology companies and, together with our customers, we are driven to make healthcare better. We offer innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine that help improve patient and hospital outcomes.

We segregate our operations into three reportable business segments: Orthopaedics, MedSurg, and Neurotechnology and Spine. Orthopaedics products consist primarily of implants used in hip and knee joint replacements and trauma and extremities surgeries. 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. Neurotechnology and Spine products include neurosurgical, neurovascular and spinal implant devices.

COVID-19 Pandemic

The COVID-19 outbreak, which has been declared a global pandemic, has led to severe disruptions in the market and the global and United States economies that may continue for a prolonged duration and trigger a recession or a period of economic slowdown. In response, various governmental authorities and private enterprises have implemented numerous measures to contain the pandemic, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. A significant number of our global suppliers, vendors, distributors and manufacturing facilities are located in regions that have been affected by the pandemic, such as, among others, the United States, China, France, Germany, Switzerland and the United Kingdom. Those operations have been, and will continue to be, materially adversely affected by restrictive government and private enterprise measures implemented in response to the pandemic.

Some of our products are particularly sensitive to reductions in deferrable medical procedures. Deferrable medical procedures were suspended in the first quarter of 2020 in many of the markets where our products are marketed and sold, which negatively affected our business, cash flows, financial condition and results of operations. To the extent individuals are required to continue to de-prioritize or delay deferrable procedures as a result of the COVID-19 pandemic or otherwise, our business, cash flows, financial condition and results of operations could be negatively affected.

In addition, certain of our MedSurg products, such as personal protective equipment, have experienced, and could continue to experience, higher demand as our customers focus on treating COVID-19 patients. Unpredictable increases in demand for certain of our products could exceed our capacity to meet such demand timely, which could adversely affect our customer relationships and result in negative publicity. In this regard, the accelerated development and production of products and services in an effort to address medical and other requirements as a result of the pandemic could increase the risk of regulatory enforcement actions, product defects or related claims.

Further, in an effort to increase the wider availability of needed medical and other supplies and products in response to the pandemic, governments may require us (such as under the United States Defense Production Act) to allocate manufacturing capacity in a way that adversely affects our regular operations, results in

differential treatment of customers and/or adversely affects our reputation and customer relationships. It is also possible that certain of our operations are deemed non-essential and thus subject to suspension or other restrictions by government orders. We cannot predict how these changes in operations, if implemented, would affect our future operations and commercial activities as the impact of the pandemic begins to subside.

In addition, in March 2020 the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law in the United States. We do not expect the provisions of the CARES Act to have a material impact on our annual effective tax rate or Consolidated Financial Statements in 2020.

Finally, the COVID-19 pandemic’s significant disruption on global financial markets may limit our ability to access capital, and the terms on which we are able to access capital may be substantially less favorable than those existing prior to the pandemic.

Overview of the Three and Six Months

The response to the COVID-19 pandemic has included unprecedented measures to slow the spread of the virus taken by local governments and health care authorities globally, including the postponement of deferrable medical procedures and social contact restrictions, which have had, and we expect will continue to have, a significant negative impact on Stryker’s operations and financial results. While we reported overall decreased unit volume in the quarter, most of our businesses saw gradual recoveries in the month of June 2020.

In the three months 2020 we experienced sales declines of 24.3%. Excluding the impact of acquisitions sales decreased 24.0% in constant currency. We reported operating income (loss) margin of (0.7%), net earnings (loss) of ($83) and net earnings (loss) per diluted share of ($0.22), including $170 of charges related to certain in-process asset impairments (primarily the portion of our investment in a new global ERP system that was in-process of being developed for future deployment) and product line and other exit costs resulting from our decision to suspend certain investments due to pandemic-related constraints. Excluding the impact of certain items, adjusted operating income margin⁽¹⁾ was 12.5%, with adjusted net earnings⁽¹⁾ of $245 and a reduction of 67.7% in adjusted net earnings per diluted share⁽¹⁾.

In the six months 2020 we experienced sales declines of 11.4%. Excluding the impact of acquisitions sales decreased 11.1% in constant currency. We reported operating income margin of 9.7%, net earnings of $410 and net earnings per diluted share of $1.08. Excluding the impact of certain items, adjusted operating income margin⁽¹⁾ contracted by 650 basis points to 19.0%, with adjusted net earnings⁽¹⁾ of $944 and a reduction of 35.8% in adjusted net earnings per diluted share⁽¹⁾.

Recent Developments

In January 2020 we repaid $500 of our senior unsecured notes with a coupon of 4.375% that were due on January 15, 2020. In June 2020 we issued $650 of senior unsecured notes with a fixed interest rate of 1.150% due on June 15, 2025, $1,000 of senior unsecured notes with a fixed interest rate of 1.950% due on June 15, 2030 and $650 of senior unsecured notes with a fixed interest rate of 2.900% due on June 15, 2050. Refer to Note 8 to our Consolidated Financial Statements for further Information.



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



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

June 30, 2020. As previously announced we intend to maintain the suspension of our share repurchase program through 2021.

On April 30, 2020 we amended our primary credit facility. The principal change was to increase the leverage ratio financial covenant from 3.5:1 to 4.5:1 at the end of each fiscal quarter ending

on or prior to June 30, 2021.

On April 30, 2020 we entered into a credit agreement that provides for up to $1,500 of borrowings in U.S. Dollars pursuant to a 364-day revolving credit facility, which matures on April 29, 2021 and is available for working capital and general corporate purposes.

⁽¹⁾Refer to "Non-GAAP Financial Measures" for a discussion of non-GAAP financial measures used in this report and a reconciliation to the most directly comparable GAAP financial measure.

CONSOLIDATED RESULTS OF OPERATIONS



	Three Months												Six Months
							Percent Net Sales				Percentage								Percent Net Sales				Percentage
	2020			2019			2020		2019		Change		2020			2019			2020		2019		Change
Net sales	$	2,764		$	3,650		100.0	%	100.0	%	(24.3	)%	$	6,352		$	7,166		100.0	%	100.0	%	(11.4	)%
Gross profit	1,548			2,380			56.0		65.2		(35.0	)	3,879			4,663			61.1		65.1		(16.8	)
Research, development and engineering expenses	233			246			8.4		6.7		(5.3	)	487			471			7.7		6.6		3.4
Selling, general and administrative expenses	1,225			1,282			44.3		35.1		(4.4	)	2,555			2,685			40.2		37.5		(4.8	)
Recall charges	—			117			—		3.2		(100.0	)	(6		)	130			(0.1	)	1.8		nm
Amortization of intangible assets	110			122			4.0		3.3		(9.8	)	228			236			3.6		3.3		(3.4	)
Other income (expense), net	(67		)	(48		)	(2.4	)	(1.3	)	39.6		(112		)	(96		)	(1.8	)	(1.3	)	16.7
Income taxes	(4		)	85			nm		nm		(104.7	)	93			153			nm		nm		(39.2	)
Net earnings (loss)	$	(83	)	$	480		(3.0	)%	13.2	%	(117.3	)%	$	410		$	892		6.5	%	12.4	%	(54.0	)%

Net earnings (loss) per diluted share	$	(0.22	)	$	1.26						(117.5	)%	$	1.08		$	2.35						(54.0	)%
Adjusted net earnings per diluted share⁽¹⁾	$	0.64		$	1.98						(67.7	)%	$	2.48		$	3.86						(35.8	)%

nm - not meaningful



Geographic and Segment Net Sales	Three Months								Six Months
					Percentage Change								Percentage Change
	2020		2019		As Reported		Constant Currency		2020		2019		As Reported		Constant Currency
Geographic:
United States	$	1,966	$	2,695	(27.0	)%	(27.0	)%	$	4,609	$	5,274	(12.6	)%	(12.6	)%
International	798		955		(16.5	)	(13.6	)	1,743		1,892		(7.9	)	(4.8	)
Total	$	2,764	$	3,650	(24.3	)%	(23.5	)%	$	6,352	$	7,166	(11.4	)%	(10.6	)%
Segment:
Orthopaedics	$	894	$	1,273	(29.9	)%	(29.3	)%	$	2,116	$	2,523	(16.2	)%	(15.4	)%
MedSurg	1,324		1,601		(17.3	)	(16.4	)	2,946		3,128		(5.8	)	(5.0	)
Neurotechnology and Spine	546		776		(29.6	)	(28.9	)	1,290		1,515		(14.8	)	(14.1	)
Total	$	2,764	$	3,650	(24.3	)%	(23.5	)%	$	6,352	$	7,166	(11.4	)%	(10.6	)%



Supplemental Net Sales Growth Information
	Three Months														Six Months
					Percentage Change														Percentage Change
									United States		International												United States		International
	2020		2019		As Reported		Constant Currency		As Reported		As Reported		Constant Currency		2020		2019		As Reported		Constant Currency		As Reported		As Reported		Constant Currency
Orthopaedics:
Knees	$	241	$	440	(45.2	)%	(44.7	)%	(44.8	)%	(46.2	)%	(44.6	)%	$	673	$	879	(23.5	)%	(22.8	)%	(22.3	)%	(26.8	)%	(24.4	)%
Hips	216		343		(37.1	)	(36.3	)	(35.9	)	(39.2	)	(37.1	)	532		679		(21.7	)	(20.7	)	(20.9	)	(22.9	)	(20.4	)
Trauma and Extremities	330		394		(16.4	)	(15.6	)	(17.8	)	(13.9	)	(11.8	)	722		790		(8.6	)	(7.7	)	(7.5	)	(10.4	)	(8.1	)
Other	107		96		10.2		10.4		21.3		(41.3	)	(40.3	)	189		175		7.7		8.1		16.0		(28.3	)	(26.5	)
	$	894	$	1,273	(29.9	)%	(29.3	)%	(28.8	)%	(32.4	)%	(30.4	)%	$	2,116	$	2,523	(16.2	)%	(15.4	)%	(14.5	)%	(19.8	)%	(17.4	)%
MedSurg:
Instruments	$	328	$	504	(34.8	)%	(34.2	)%	(37.3	)%	(25.1	)%	(22.3	)%	$	841	$	965	(12.8	)%	(12.2	)%	(13.7	)%	(9.4	)%	(6.3	)%
Endoscopy	316		480		(34.2	)	(33.7	)	(34.1	)	(34.7	)	(32.4	)	771		950		(18.9	)	(18.3	)	(18.7	)	(19.6	)	(16.7	)
Medical	632		542		16.6		18.4		5.4		60.3		69.1		1,219		1,073		13.6		15.0		7.2		37.4		44.3
Sustainability	48		75		(35.7	)	(35.7	)	(35.7	)	nm		nm		115		140		(17.8	)	(17.8	)	(17.7	)	nm		nm
	$	1,324	$	1,601	(17.3	)%	(16.4	)%	(22.0	)%	2.1	%	6.8	%	$	2,946	$	3,128	(5.8	)%	(5.0	)%	(8.4	)%	4.5	%	8.9	%
Neurotechnology and Spine:
Neurotechnology	$	369	$	484	(23.8	)%	(23.0	)%	(32.4	)%	(8.1	)%	(5.8	)%	$	852	$	953	(10.6	)%	(9.8	)%	(16.5	)%	—	%	2.4	%
Spine	177		292		(39.1	)	(38.7	)	(42.1	)	(29.7	)	(27.8	)	438		562		(22.0	)	(21.4	)	(24.4	)	(14.2	)	(11.8	)
	$	546	$	776	(29.6	)%	(28.9	)%	(36.4	)%	(14.4	)%	(12.2	)%	$	1,290	$	1,515	(14.8	)%	(14.1	)%	(19.7	)%	(4.0	)%	(1.6	)%
Total	$	2,764	$	3,650	(24.3	)%	(23.5	)%	(27.0	)%	(16.5	)%	(13.6	)%	$	6,352	$	7,166	(11.4	)%	(10.6	)%	(12.6	)%	(7.9	)%	(4.8	)%



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



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

Consolidated Net Sales

Consolidated net sales were significantly negatively impacted by the global response to the COVID-19 pandemic, resulting in lower unit volume across all segments. Consolidated net sales decreased 24.3% in the three months 2020 as reported and 23.5% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.8%. Excluding the 0.5% impact of acquisitions, net sales in constant currency decreased by 23.8% from decreased unit volume and 0.2% due to lower prices. The unit volume decrease was primarily due to lower shipments of knee, hip, instruments, endoscopy, neurotechnology and spine products partially offset by higher shipments of medical products.

Consolidated net sales decreased 11.4% in the six months 2020 as reported and 10.6% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.8%. Excluding the 0.5% impact of acquisitions, net sales in constant currency decreased by 10.8% from decreased unit volume and 0.3% due to lower prices. The unit volume decrease was primarily due to lower shipments of knee, hip, instruments, endoscopy, neurotechnology and spine products partially offset by higher shipments of medical products.

Orthopaedics Net Sales

Orthopaedics net sales decreased 29.9% in the three months 2020 as reported and 29.3% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.6%. Net sales in constant currency decreased due to the postponement of deferrable medical procedures as part of the global response to the COVID-19 pandemic with 28.1% from lower unit volume and 1.2% from lower prices. The unit volume decrease was primarily due to lower shipments of knee, hip and trauma and extremities products.

Orthopaedics net sales decreased 16.2% in the six months 2020 as reported and 15.4% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.8%. Net sales in constant currency decreased due to the postponement of deferrable medical procedures as part of the global response to the COVID-19 pandemic with 14.1% from lower unit volume and 1.3% from lower prices. The unit volume decrease was primarily due to lower shipments of knee, hip and trauma and extremities products.

MedSurg Net Sales

MedSurg net sales decreased 17.3% in the three months 2020 as reported and 16.4% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.9%. Excluding the 0.6% impact of acquisitions, net sales in constant currency decreased by 17.2% from decreased unit volume partially offset by 0.2% due to higher prices. The unit volume decrease was primarily due to lower shipments of instruments, endoscopy and sustainability solutions products partially offset by higher shipments of medical products.

MedSurg net sales decreased 5.8% in the six months 2020 as reported and 5.0% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.8%. Excluding the 0.6% impact of acquisitions, net sales in constant currency decreased by 5.9% from decreased unit volume partially offset by 0.3% due to higher prices. The unit volume decrease was primarily due to lower shipments of instruments, endoscopy and sustainability solutions products partially offset by higher shipments of medical products.

Neurotechnology and Spine Net Sales

Neurotechnology and Spine net sales decreased 29.6% in the three months 2020 as reported and 28.9% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.7%. Excluding the 1.0% impact of acquisitions, net sales in constant

currency decreased by 30.4% from decreased unit volume partially offset by 0.5% due to higher prices. The unit volume decrease was due to lower shipments of neurotechnology and spine products.

Neurotechnology and Spine net sales decreased 14.8% in the six months 2020 as reported and 14.1% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.7%. Excluding the 1.1% impact of acquisitions, net sales in constant currency decreased by 15.5% from decreased unit volume partially offset by 0.3% due to higher prices. The unit volume decrease was due to lower shipments of neurotechnology and spine products.

Gross Profit

Gross profit was significantly negatively impacted by the global response to the COVID-19 pandemic. Gross profit as a percentage of sales in the three months 2020 decreased to 56.0% from 65.2% in 2019. Excluding the impact of the items noted below, gross profit decreased to 57.3% of sales in the three months 2020 from 65.8% in 2019 primarily due to lower sales volumes, lower selling prices, lower manufacturing volumes and unfavorable product mix due to the postponement of deferrable medical procedures as part of the global response to the COVID-19 pandemic.

Gross profit as a percentage of sales in the six months 2020 decreased to 61.1% from 65.1% in 2019. Excluding the impact of the items noted below, gross profit decreased to 61.8% of sales in the six months 2020 from 65.8% in 2019 primarily due to lower sales volumes, lower selling prices, lower manufacturing volumes and unfavorable product mix due to the postponement of deferrable medical procedures as part of the global response to the COVID-19 pandemic.



					Percent Net Sales
Three Months	2020		2019		2020		2019
Reported	$	1,548	$	2,380	56.0	%	65.2	%
Inventory stepped-up to fair value	3		14		0.1		0.4
Restructuring-related and other charges	32		6		1.2		0.2
Medical device regulations	—		1		—		—
Adjusted	$	1,583	$	2,401	57.3	%	65.8	%



					Percent Net Sales
Six Months	2020		2019		2020		2019
Reported	$	3,879	$	4,663	61.1	%	65.1	%
Inventory stepped-up to fair value	9		38		0.1		0.5
Restructuring-related and other charges	36		11		0.6		0.2
Medical device regulations	1		1		—		—
Adjusted	$	3,925	$	4,713	61.8	%	65.8	%

Research, Development and Engineering Expenses

Research, development and engineering expenses decreased $13 or 5.3% in the three months 2020 and increased as a percentage of sales to 8.4% from 6.7% in 2019. Excluding the impact of the items noted below, expenses increased to 7.6% of sales in 2020 from 6.4% in 2019. Overall spending levels decreased based on operating expense savings actions taken during the three months 2020 in response to the COVID-19 pandemic.

Research, development and engineering expenses increased $16 or 3.4% to 7.7% of sales in the six months 2020 from 6.6% in 2019. Excluding the impact of the items noted below, expenses increased to 6.9% of sales in 2020 from 6.3% in 2019. Projects to develop new products, investments in new technologies and integration of recent acquisitions contributed to the increased spending levels partially offset by operating expense savings actions taken during 2020 in response to the COVID-19 pandemic that will continue to drive lower spending in the remainder of the year.



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



STRYKER CORPORATION		2020 Second Quarter Form 10-Q



							Percent Net Sales
Three Months	2020			2019			2020		2019
Reported	$	233		$	246		8.4	%	6.7	%
Medical device regulations	(23		)	(11		)	(0.8	)	(0.3	)
Adjusted	$	210		$	235		7.6	%	6.4	%



							Percent Net Sales
Six Months	2020			2019			2020		2019
Reported	$	487		$	471		7.7	%	6.6	%
Medical device regulations	(46		)	(18		)	(0.8	)	(0.3	)
Adjusted	$	441		$	453		6.9	%	6.3	%

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $57 or 4.4% in the three months 2020 and increased as a percentage of sales to 44.3% from 35.1% in 2019 and included charges related to certain in-process asset impairments (primarily the portion of our investment in a new global ERP system that was in-process of being developed for future deployment) and other exit costs resulting from our decision to suspend certain investments due to pandemic-related constraints. Excluding the impact of the items noted below, expenses increased to 37.1% of sales in 2020 from 33.5% in 2019, primarily due to the impact of lower sales volumes partially offset by operating expense savings actions taken in response to the COVID-19 pandemic.

Selling, general and administrative expenses decreased $130 or 4.8% in the six months 2020 and increased as a percentage of sales to 40.2% from 37.5% in 2019. Excluding the impact of the items noted below, expenses increased to 35.8% of sales in 2020 from 34.0% in 2019, primarily due to the impact of lower sales volumes partially offset by operating expense savings actions taken in response to the COVID-19 pandemic that will continue to drive lower spending in the remainder of the year.



							Percent Net Sales
Three Months	2020			2019			2020		2019
Reported	$	1,225		$	1,282		44.3	%	35.1	%
Other acquisition and integration-related	(16		)	(39		)	(0.6	)	(1.0	)
Restructuring-related and other charges	(178		)	(36		)	(6.4	)	(1.0	)
Regulatory and legal matters	(5		)	15			(0.2	)	0.4
Adjusted	$	1,026		$	1,222		37.1	%	33.5	%



							Percent Net Sales
Six Months	2020			2019			2020		2019
Reported	$	2,555		$	2,685		40.2	%	37.5	%
Other acquisition and integration-related	(47		)	(153		)	(0.7	)	(2.2	)
Restructuring-related and other charges	(227		)	(88		)	(3.6	)	(1.2	)
Regulatory and legal matters	(5		)	(10		)	(0.1	)	(0.1	)
Adjusted	$	2,276		$	2,434		35.8	%	34.0	%

Recall Charges

Recall charges were minimal in the three and six months 2020 and were $117 and $130 in the three and six months 2019. Charges were primarily due to the previously disclosed Rejuvenate and ABGII Modular-Neck hip stems and LFIT V40 femoral head voluntary recalls. Refer to Note 6 to our Consolidated Financial Statements for further information.

Amortization of Intangible Assets

Amortization of intangible assets was $110 and $122 in the three months and $228 and $236 in the six months 2020 and 2019. The decrease in 2020 was primarily due to decreased acquisition activity in 2020. Refer to Note 7 to our Consolidated Financial Statements for further information.

Operating Income (Loss)

Operating income (loss) was significantly negatively impacted by

the global response to the COVID-19 pandemic. Operating income (loss) decreased $633 or 103.3% to an operating loss of (0.7%) of sales in the three months 2020 from operating income of 16.8% of sales in 2019. Excluding the impact of the items noted below, operating income (loss) decreased to 12.5% of sales in 2020 from 25.9% in 2019 primarily due to unfavorable business mix and the impact of lower sales volumes from the postponement of deferrable medical procedures as part of the global response to the COVID-19 pandemic partially offset by continued focus on our operating expense savings actions.

Operating income decreased $526 or 46.1% to 9.7% of sales in the six months 2020 from 15.9% in 2019. Excluding the impact of the items noted below, operating income decreased to 19.0% of sales in 2020 from 25.5% in 2019 primarily due to unfavorable business mix and the impact of lower sales volumes from the postponement of deferrable medical procedures as part of the global response to the COVID-19 pandemic partially offset by continued focus on our operating expense savings actions that will continue to drive lower spending in the remainder of the year.



							Percent Net Sales
Three Months	2020			2019			2020		2019
Reported	$	(20	)	$	613		(0.7	)%	16.8	%
Inventory stepped-up to fair value	3			14			0.1		0.4
Other acquisition and integration-related	16			39			0.6		1.1
Amortization of purchased intangible assets	110			122			4.0		3.3
Restructuring-related and other charges	209			42			7.5		1.2
Medical device regulations	22			12			0.8		0.3
Recall-related matters	—			117			—		3.2
Regulatory and legal matters	5			(15		)	0.2		(0.4	)
Adjusted	$	345		$	944		12.5	%	25.9	%



						Percent Net Sales
Six Months	2020			2019		2020		2019
Reported	$	615		$	1,141	9.7	%	15.9	%
Inventory stepped-up to fair value	9			38		0.1		0.5
Other acquisition and integration-related	47			153		0.7		2.1
Amortization of purchased intangible assets	228			236		3.7		3.4
Restructuring-related and other charges	263			98		4.1		1.4
Medical device regulations	46			19		0.7		0.3
Recall-related matters	(6		)	130		(0.1	)	1.8
Regulatory and legal matters	5			10		0.1		0.1
Tax matters	—			—		—		—
Adjusted	$	1,207		$	1,825	19.0	%	25.5	%

Other Income (Expense), Net

Other income (expense), net was ($67) and ($48) in the three months and ($112) and ($96) in the six months 2020 and 2019. The increase in net expense in 2020 was primarily due to increased interest expense driven by the additional debt from the bond offerings completed in December 2019 and June 2020.

Income Taxes

Net Earnings (Loss)

Earnings were significantly negatively impacted by the global



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



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

response to the COVID-19 pandemic. Net earnings (loss) decreased to ($83) or ($0.22) per diluted share in the three months 2020 from net earnings of $480 or $1.26 per diluted share in 2019. Adjusted net earnings per diluted share⁽¹⁾ decreased 67.7% to $0.64 in 2020 from $1.98 in 2019. The impact of foreign currency exchange rates had a minimal impact on net earnings (loss) per diluted share in 2020 and reduced net earnings per diluted share by approximately $0.05 in 2019.

Net earnings decreased to $410 or $1.08 per diluted share in the six months 2020 from $892 or $2.35 per diluted share in 2019. Adjusted net earnings per diluted share⁽¹⁾ decreased 35.8% to $2.48 in 2020 from $3.86 in 2019. The impact of foreign currency exchange rates reduced net earnings per diluted share by approximately $0.02 in 2020 and $0.10 in 2019.



							Percent Net Sales
Three Months	2020			2019			2020		2019
Reported	$	(83	)	$	480		(3.0	)%	13.2	%
Inventory stepped-up to fair value	1			10			—		0.3
Other acquisition and integration-related	12			30			0.4		0.8
Amortization of purchased intangible assets	88			98			3.2		2.7
Restructuring-related and other charges	170			32			6.2		0.9
Medical device regulations	18			9			0.7		0.2
Recall-related matters	—			106			—		2.9
Regulatory and legal matters	6			(14		)	0.2		(0.4	)
Tax matters	33			1			1.2		—
Adjusted	$	245		$	752		8.9	%	20.6	%



						Percent Net Sales
Six Months	2020			2019		2020		2019
Reported	$	410		$	892	6.5	%	12.4	%
Inventory stepped-up to fair value	6			29		0.1		0.4
Other acquisition and integration-related	36			118		0.6		1.7
Amortization of purchased intangible assets	184			189		2.9		2.6
Restructuring-related and other charges	212			82		3.3		1.2
Medical device regulations	36			15		0.6		0.2
Recall-related matters	(4		)	116		(0.1	)	1.6
Regulatory and legal matters	6			5		0.1		0.1
Tax matters	58			20		0.9		0.3
Adjusted	$	944		$	1,466	14.9	%	20.5	%

Non-GAAP Financial Measures

We supplement the reporting of our financial information determined under accounting principles generally accepted in the United States (GAAP) with certain non-GAAP financial measures, including percentage sales growth in constant currency; percentage organic sales growth; adjusted gross profit; adjusted selling, general and administrative expenses; adjusted research, development and engineering expenses; adjusted operating income; adjusted other income (expense), net; adjusted effective income tax rate; adjusted net earnings; and adjusted net earnings per diluted share (Diluted EPS). We believe these non-GAAP financial measures provide meaningful information to assist investors and shareholders in understanding our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures for reviewing the operating results of reportable business segments and analyzing potential future business trends in connection with our budget process and bases certain management incentive compensation on these non-GAAP financial measures. To measure percentage sales growth in

constant currency, we remove the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Percentage sales growth in constant currency is calculated by translating current and prior year results at the same foreign currency exchange rate. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates and acquisitions, which 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 and may not be indicative of our past and future performance. The following are examples of the types of adjustments that may be included in a period:


1.	Acquisition and integration-related costs. Costs related to integrating recently acquired businesses and specific costs (e.g., inventory step-up and deal costs) related to the consummation of the acquisition process.


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


3.	Restructuring-related and other charges. Costs associated with the termination of sales relationships in certain countries, workforce reductions, elimination of product lines, certain long-lived asset impairments and associated costs and other restructuring-related activities.


4.	Medical Device Regulations. Costs specific to updating our quality system, product labeling, asset write-offs and product remanufacturing to comply with the medical device reporting regulations and other requirements of the European Union and China regulations for medical devices.


5.	Recall-related matters. Our best estimate of the minimum of the range of probable loss to resolve the Rejuvenate, LFIT V40 and other product recalls.


6.	Regulatory and legal matters. Our best estimate of the minimum of the range of probable loss to resolve certain regulatory matters and other legal settlements.


7.	Tax matters. Charges represent the impact of accounting for certain significant and discrete tax items.

Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, gross profit, selling, general and administrative expenses, research, development and engineering expenses, operating income (loss), other income (expense), net, effective income tax rate, net earnings (loss) and net earnings (loss) per diluted share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of our operations when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures at the end of the discussion of Consolidated Results of Operations below. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

The weighted-average diluted shares outstanding used in the calculation of non-GAAP net earnings per diluted share are the same as those used in the calculation of reported net earnings per diluted share for the respective period, except for 4.3 million anti-dilutive shares excluded from reported net loss per dilutive share for the three months 2020.



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



STRYKER CORPORATION		2020 Second Quarter Form 10-Q



Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Three Months 2020	Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income (Loss)			Other income (expense), net			Net Earnings (Loss)			Effective Tax Rate		Diluted EPS
Reported	$	1,548		$	1,225		$	233		$	(20	)	$	(67	)	$	(83	)	4.6	%	$	(0.22	)
Reported percent net sales	56.0		%	44.3		%	8.4		%	(0.7		)%	(2.4		)%	(3.0		)%
Acquisition and integration-related charges:
Inventory stepped-up to fair value	3			—			—			3			—			1			(0.5	)	—
Other acquisition and integration-related	—			(16		)	—			16			—			12			(2.0	)	0.03
Amortization of purchased intangible assets	—			—			—			110			—			88			(7.0	)	0.23
Restructuring-related and other charges	32			(178		)	—			209			—			170			(10.7	)	0.45
Medical device regulations	—			—			(23		)	22			—			18			(2.4	)	0.05
Recall-related matters	—			—			—			—			—			—			—		—
Regulatory and legal matters	—			(5		)	—			5			—			6			2.3		0.02
Tax matters	—			—			—			—			7			33			30.1		0.08
Adjusted	$	1,583		$	1,026		$	210		$	345		$	(60	)	$	245		14.4	%	$	0.64
Adjusted percent net sales	57.3		%	37.1		%	7.6		%	12.5		%	(2.2		)%	8.9		%



Three Months 2019	Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other income (expense), net			Net Earnings			Effective Tax Rate		Diluted EPS
Reported	$	2,380		$	1,282		$	246		$	613		$	(48	)	$	480		15.0	%	$	1.26
Reported percent net sales	65.2		%	35.1		%	6.7		%	16.8		%	(1.3		)%	13.2		%
Acquisition and integration-related charges:
Inventory stepped-up to fair value	14			—			—			14			—			10			0.3		0.03
Other acquisition and integration-related	—			(39		)	—			39			—			30			0.6		0.08
Amortization of purchased intangible assets	—			—			—			122			—			98			0.9		0.26
Restructuring-related and other charges	6			(36		)	—			42			—			32			0.4		0.08
Medical device regulations	1			—			(11		)	12			—			9			0.2		0.03
Recall-related matters	—			—			—			117			—			106			(1.4	)	0.28
Regulatory and legal matters	—			15			—			(15		)	—			(14		)	0.2		(0.04		)
Tax matters	—			—			—			—			—			1			(0.2	)	—
Adjusted	$	2,401		$	1,222		$	235		$	944		$	(48	)	$	752		16.0	%	$	1.98
Adjusted percent net sales	65.8		%	33.5		%	6.4		%	25.9		%	(1.3		)%	20.6		%



Six Months 2020	Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other income (expense), net			Net Earnings			Effective Tax Rate		Diluted EPS
Reported	$	3,879		$	2,555		$	487		$	615		$	(112	)	$	410		18.5	%	$	1.08
Reported percent net sales	61.1		%	40.2		%	7.7		%	9.7		%	(1.8		)%	6.5		%
Acquisition and integration-related charges:
Inventory stepped-up to fair value	9			—			—			9			—			6			0.2		0.02
Other acquisition and integration-related	—			(47		)	—			47			—			36			0.7		0.09
Amortization of purchased intangible assets	—			—			—			228			—			184			2.4		0.48
Restructuring-related and other charges	36			(227		)	—			263			—			212			2.6		0.56
Medical device regulations	1			—			(46		)	46			—			36			0.8		0.09
Recall-related matters	—			—			—			(6		)	—			(4		)	(0.1	)	(0.01		)
Regulatory and legal matters	—			(5		)	—			5			—			6			(0.4	)	0.02
Tax matters	—			—			—			—			7			58			(10.4	)	0.15
Adjusted	$	3,925		$	2,276		$	441		$	1,207		$	(105	)	$	944		14.3	%	$	2.48
Adjusted percent net sales	61.8		%	35.8		%	6.9		%	19.0		%	(1.7		)%	14.9		%



Six Months 2019	Gross Profit			Selling, General & Administrative Expenses			Research, Development & Engineering Expenses			Operating Income			Other income (expense), net			Net Earnings			Effective Tax Rate		Diluted EPS
Reported	$	4,663		$	2,685		$	471		$	1,141		$	(96	)	$	892		14.6	%	$	2.35
Reported percent net sales	65.1		%	37.5		%	6.6		%	15.9		%	(1.3		)%	12.4		%
Acquisition and integration-related charges:
Inventory stepped-up to fair value	38			—			—			38			—			29			0.3		0.08
Other acquisition and integration-related	—			(153		)	—			153			—			118			1.2		0.31
Amortization of purchased intangible assets	—			—			—			236			—			189			1.1		0.50
Restructuring-related and other charges	11			(88		)	—			98			—			82			0.1		0.21
Medical device regulations	1			—			(18		)	19			—			15			0.1		0.04
Recall-related matters	—			—			—			130			—			116			(0.6	)	0.31
Regulatory and legal matters	—			(10		)	—			10			—			5			0.3		0.01
Tax matters	—			—			—			—			—			20			(1.9	)	0.05
Adjusted	$	4,713		$	2,434		$	453		$	1,825		$	(96	)	$	1,466		15.2	%	$	3.86
Adjusted percent net sales	65.8		%	34.0		%	6.3		%	25.5		%	(1.3		)%	20.5		%



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



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

FINANCIAL CONDITION AND LIQUIDITY



Six Months	2020			2019
Net cash provided by operating activities	$	1,211		$	827
Net cash used in investing activities	(280		)	(550		)
Net cash provided by (used in) financing activities	1,288			(2,135		)
Effect of exchange rate changes on cash and cash equivalents	(17		)	(4		)
Change in cash and cash equivalents	$	2,202		$	(1,862	)

Operating Activities

Cash provided by operating activities was $1,211 and $827 in the six months 2020 and 2019. The increase was primarily due to improved accounts receivable collections and less spending on inventory due to lower production from lower sales partially offset by decreased net earnings.

Investing Activities

Cash used in investing activities was $280 and $550 in the six months 2020 and 2019. The decrease in cash used was primarily due to decreased payments for acquisitions in 2020.

Financing Activities

Cash provided by (used in) financing activities was $1,288 and ($2,135) in the six months 2020 and 2019. The change in cash was primarily driven by the issuance of $2,300 of notes in June 2020, partially offset by the repayment of $500 of notes upon maturity in January 2020 compared to repayments of $1,341 of debt in the six months 2019, along with the suspension of share repurchases.



Six Months	2020		2019
Total dividends paid to common shareholders	$	431	$	390
Total amount paid to repurchase common stock	$	—	$	307
Shares of repurchased common stock (in millions)	—		1.9

Liquidity

Cash, cash equivalents and marketable securities were $6,619 and $4,425 on June 30, 2020 and December 31, 2019. Current assets exceeded current liabilities by $8,396 and $6,960 on June 30, 2020 and December 31, 2019. Despite the impact from the COVID-19 pandemic, we anticipate being able to support our short-term liquidity and operating needs from a variety of sources including cash from operations, commercial paper, existing credit lines and capital expenditure and operating expense reductions. We maintain a revolving credit facility with $1.5 billion of committed capital which expires in August 2023 and a $1.5 billion unsecured revolving credit facility that matures on April 29, 2021.

We have a well-positioned balance sheet and liquidity profile to manage these disruptions for the foreseeable future. We raised funds in the capital markets in 2020, 2019 and 2018 and may continue to do so from time-to-time. We continue to have strong investment-grade short-term and long-term debt ratings that we believe should enable us to refinance our debt as needed.

Our cash, cash equivalents and marketable securities held in locations outside the United States was approximately 12% on June 30, 2020 compared to 25% on December 31, 2019. We intend to use this cash to sustain operations during our response to the COVID-19 pandemic.

Critical Accounting Policies

There were no changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for 2019.

New Accounting Pronouncements Not Yet Adopted

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

Guarantees and Other Off-Balance Sheet Arrangements

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

OTHER MATTERS

Legal and Regulatory Matters

We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of our business, including proceedings related to product, labor, intellectual property and other matters. Refer to Note 6 to our Consolidated Financial Statements for further information.

FORWARD-LOOKING STATEMENTS

This report contains statements referring to us that are not historical facts and are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which are intended to take advantage of the "safe harbor" provisions of the Reform Act, are based on current projections about operations, industry conditions, financial condition and liquidity. Words that identify forward-looking statements include words such as "may," "could," "will," "should," "possible," "plan," "predict," "forecast," "potential," "anticipate," "estimate," "expect," "project," "intend," "believe," "may impact," "on track," "goal," "strategy" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, an acquisition or our businesses. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Those statements are not guarantees and are subject to risks, uncertainties and assumptions that are difficult to predict, including uncertainties related to the impact of the COVID-19 pandemic on our operations and financial results. Therefore, actual results could differ materially and adversely from these forward-looking statements. Some important factors that could cause our actual results to differ from our expectations in any forward-looking statements include those risks discussed in Item 1A. "Risk Factors" of our Annual Report on Form 10-K for 2019 and in Part II, Item 1A. "Risk Factors" on Form 10-Q for the quarter ended March 31, 2020. This Form 10-Q should be read in conjunction with our Consolidated Financial Statements and accompanying notes to our Consolidated Financial Statements in our Annual Report on Form 10-K for 2019. We disclaim any intention or obligation to publicly update or revise any forward-looking statement to reflect any change in our expectations or in events, conditions or circumstances on which those expectations may be based, or that affect the likelihood that actual results will differ from those contained in the forward-looking statements.



ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We consider our greatest potential areas of market risk exposure to be exchange rate risk and the impacts of the COVID-19 pandemic on our operations and financial results. Quantitative and qualitative disclosures about exchange rate risk are included in Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for 2019. There were no material changes from the information provided therein. We are not able to quantify the impacts of the COVID-19 pandemic on our financial results. Qualitative disclosures about the COVID-19 pandemic are included in Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part II, Item 1A "Risk Factors" of this Form 10-Q.



Dollar amounts are in millions except per share amounts or as otherwise specified.	16



ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer (the Certifying Officers), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) on June 30, 2020. Based on that evaluation, the Certifying Officers concluded the Company's disclosure controls and procedures were effective as of June 30, 2020.

Changes in Internal Control Over Financial Reporting

There was no change to our internal control over financial reporting during the three months 2020 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION



ITEM 1A.	RISK FACTORS

We are not aware of any material changes to the risk factors included in Item 1A. "Risk Factors" in our Annual Report on Form 10-K for 2019 and Part II, Item 1A. "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.



ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We issued 7,511 shares of our common stock in the three months 2020 as performance incentive awards to employees. These shares are not registered under the Securities Act of 1933 based on the conclusion that the awards would not be events of sale within the meaning of Section 2(a)(3) of the Act.

In March 2015 we announced that our Board of Directors had authorized us to purchase up to $2,000 of our common stock. 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.

In the six months 2020 we did not repurchase any shares of our common stock under our authorized repurchase program. The total dollar value of shares of our common stock that could be acquired under our authorized repurchase program was $1,033 as of June 30, 2020. As previously announced we intend to maintain the suspension of our share repurchase program through 2021.



ITEM 5.	OTHER INFORMATION

Effective as of August 1, 2020, our Board of Directors and Compensation Committee of the Board approved the restoration of (1) the base salaries of the Company's Chief Executive Officer and other named executive officers and (2) the cash retainer fees of non-employee members of the Board, in each case to the amounts that were in effect prior to the temporary reductions implemented in response to the COVID-19 pandemic and disclosed in the Form 8-K dated April 27, 2020.



ITEM 6.	EXHIBITS



4(i)	Twenty-Second Supplemental Indenture (including the form of the note), dated June 4, 2020, between Stryker Corporation and U.S. Bank National Association, as trustee - Incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K dated June 4, 2020 (Commission File No. 001-13149).
4(ii)	Twenty-Third Supplemental Indenture (including the form of the note), dated June 4, 2020, between Stryker Corporation and U.S. Bank National Association - Incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K dated June 4, 2020 (Commission File No. 001-13149).
4(iii)	Twenty-Fourth Supplemental Indenture (including the form of the note), dated June 4, 2020, between Stryker Corporation and U.S. Bank National Association - Incorporated by reference to Exhibit 4.4 to the Company’s Form 8-K dated June 4, 2020 (Commission File No. 001-13149).
10(i)*	Form of grant notice and terms and conditions for restricted stock units granted in 2020 under the 2011 Long-Term Incentive Plan to non-employee directors.
31(i)*	Certification of Principal Executive Officer of Stryker Corporation pursuant to Rule 13a-14(a).
31(ii)*	Certification of Principal Financial Officer of Stryker Corporation pursuant to Rule 13a-14(a).
32(i)*	Certification by Principal Executive Officer of Stryker Corporation pursuant to 18 U.S.C. Section 1350.
32(ii)*	Certification by Principal Financial Officer of Stryker Corporation pursuant to 18 U.S.C. Section 1350.
101.INS	iXBRL Instance Document
101.SCH	iXBRL Schema Document
101.CAL	iXBRL Calculation Linkbase Document
101.DEF	iXBRL Definition Linkbase Document
101.LAB	iXBRL Label Linkbase Document
101.PRE	iXBRL Presentation Linkbase Document
104	Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)
	† Filed with this Form 10-Q
	* Furnished with this Form 10-Q



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



STRYKER CORPORATION		2020 Second Quarter Form 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		STRYKER CORPORATION
		(Registrant)


Date:	July 31, 2020	/s/ KEVIN A. LOBO
		Kevin A. Lobo
		Chairman and Chief Executive Officer


Date:	July 31, 2020	/s/ GLENN S. BOEHNLEIN
		Glenn S. Boehnlein
		Vice President, Chief Financial Officer



		18

Exhibit 10(i)

STRYKER CORPORATION

TERMS AND CONDITIONS

RELATING TO RESTRICTED STOCK UNITS GRANTED

PURSUANT TO THE 2011 LONG-TERM INCENTIVE PLAN, AS AMENDED AND RESTATED

NON-EMPLOYEE DIRECTORS

1. The Restricted Stock Units (“RSUs”) with respect to Common Stock of Stryker Corporation (the “Company”) granted to you during 2020 are subject to these Terms and Conditions Relating to Restricted Stock Units Granted Pursuant to the 2011 Long-Term Incentive Plan, as Amended and Restated (the “Terms and Conditions”) and all of the terms and conditions of the Stryker Corporation 2011 Long-Term Incentive Plan, as Amended and Restated (the “2011 Plan”), which is incorporated herein by reference. In the case of a conflict between these Terms and Conditions and the terms of the 2011 Plan, the provisions of the 2011 Plan will govern. Capitalized terms used but not defined herein have the meaning provided therefor in the 2011 Plan.

2. Your right to receive the Shares issuable pursuant to the RSUs shall be only as follows:

(a) If you continue to be a Director, you will receive the Shares underlying the RSUs that have become vested as soon as administratively possible following the vesting date as set forth in the award letter.

(b) If you cease to be a Director by reason of Disability (as such term is defined in the 2011 Plan) or death prior to the date that your RSUs become fully vested, you or your estate will become fully vested in your RSUs, and you, your legal representative or your estate will receive all of the underlying Shares as soon as administratively practicable following your termination by Disability or death.

(c) If you cease to be a Director by reason of Retirement (as such term is defined in the 2011 Plan) prior to the date that your RSUs become fully vested, you (or your estate in the event of your death after your termination by Retirement) will continue to vest in your RSUs in accordance with the vesting schedule as set forth in the award letter as if you had continued your service as a Director.

(d) If you cease to be a Director prior to the date that your RSUs become fully vested for any reason other than those provided in (b) or (c) above, you shall cease vesting in your RSUs effective as of your Termination Date, which shall be the last day of your active service as a Director.

(e) Notwithstanding the foregoing, the Company may, in its sole discretion, settle your RSUs in the form of: (i) a cash payment to the extent settlement in Shares (1) is prohibited under local law, (2) would require you or the Company to obtain the approval of

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any governmental and/or regulatory body in your country of residence or (3) is administratively burdensome; or (ii) Shares, but require you to immediately sell such Shares (in which case, the Company shall have the authority to issue sales instructions in relation to such Shares on your behalf).

(f) You may elect to defer delivery of the Shares that are otherwise issuable upon the vesting date by completing a prescribed deferral election form and returning it to the Company according to the instructions on such deferral election form. The deferral election form will be distributed to you separately. If made, the deferral election shall be irrevocable. You generally shall receive your Shares at such time(s) specified in the deferral election form.

3. The number of Shares subject to the RSUs shall be subject to adjustment and the vesting dates hereof may be accelerated as follows:

(a) In the event that the Shares, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, split-up, combination of shares, or otherwise) or if the number of such Shares shall be increased through the payment of a stock dividend or a dividend on the Shares of rights or warrants to purchase securities of the Company shall be made, then there shall be substituted for or added to each Share theretofore subject to the RSUs the number and kind of shares of stock or other securities into which each outstanding Share shall be so changed, or for which each such Share shall be exchanged, or to which each such Share shall be entitled. The other terms of the RSUs shall also be appropriately amended as may be necessary to reflect the foregoing events. In the event there shall be any other change in the number or kind of the outstanding Shares, or of any stock or other securities into which such Shares shall have been exchanged, then if the Board of Directors shall, in its sole discretion, determine that such change equitably requires an adjustment in the RSUs, such adjustment shall be made in accordance with such determination.

(b) Fractional Shares resulting from any adjustment in the RSUs may be settled in cash or otherwise as the Board of Directors shall determine, in its sole discretion. Notice of any adjustment will be given to you and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes hereof.

(c) The Board of Directors shall have the power to amend the RSUs to permit the immediate vesting of the RSUs (and to terminate any unvested RSUs) and the distribution of the underlying Shares prior to the effectiveness of (i) any disposition of substantially all of the assets of the Company, (ii) the shutdown, discontinuance of operations or dissolution of the Company, or (iii) the merger or consolidation of the Company with or into any other unrelated corporation.

4. If you are resident outside of the United States, you agree, as a condition of the grant of the RSUs, to repatriate all payments attributable to the Shares and/or cash acquired under the 2011 Plan (including, but not limited to, dividends, dividend equivalents and any proceeds derived from the sale of the Shares acquired pursuant to the RSUs) required by and

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in accordance with local foreign exchange rules and regulations in your country of residence. In addition, you also agree to take any and all actions, and consent to any and all actions taken by the Company and its Subsidiaries, as may be required to allow the Company and its Subsidiaries to comply with local laws, rules and regulations in your country of residence. Finally, you agree to take any and all actions as may be required to comply with your personal legal and tax obligations under local laws, rules and regulations in your country of residence.

5. If you are resident in a country that is a member of the European Union, the grant of the RSUs and these Terms and Conditions are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive, as implemented into local law (the “Age Discrimination Rules”). To the extent that a court or tribunal of competent jurisdiction determines that any provision of these Terms and Conditions is invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Company, in its sole discretion, shall have the power and authority to revise or strike such provision to the minimum extent necessary to make it valid and enforceable to the full extent permitted under local law.

6. Regardless of any action the Company takes with respect to any or all income tax (including U.S. federal, state and local taxes or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including the grant of the RSUs, the vesting of the RSUs, the subsequent sale of any Shares acquired pursuant to the RSUs and the receipt of any dividends or dividend equivalents and (ii) do not commit to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate your liability for Tax-Related Items. Further, if you become subject to taxation in more than one country between the grant date and the date of any relevant taxable or tax withholding event, as applicable, you acknowledge that the Company may be required to withhold or account for Tax-Related Items in more than one country.

Prior to any taxable event (or such later date(s) as specified in a valid deferral election form), if your country of residence (and/or the country services as a director occur, if different) requires withholding of Tax-Related Items, the Company shall withhold a number of whole Shares that have an aggregate Fair Market Value that the Company, taking into account local requirements and administrative issues, determines in its sole discretion is appropriate to cover withholding for Tax-Related Items with respect to the Shares. The cash equivalent of the Shares withheld will be used to settle the obligation to withhold the Tax-Related Items. In cases where the Fair Market Value of the number of whole Shares withheld is greater than the amount required to be paid to the relevant government authorities with respect to withholding for Tax-Related Items, the Company shall make a cash payment to you equal to the difference as soon as administratively practicable. In the event that withholding in Shares is prohibited or problematic under applicable law or otherwise may trigger adverse consequences to the Company, the Company shall withhold the Tax-Related Items required to be withheld with respect to the Shares in cash from your director fees or other amounts payable to you. In the event the withholding requirements are not satisfied through the withholding of Shares or

Page 3

through your director fees or other amounts payable to you by the Company, no Shares will be issued to you (or your estate) unless and until satisfactory arrangements have been made by you with respect to the payment of any Tax-Related Items that the Company determines, in its sole discretion, should be withheld or collected with respect to such RSUs. By accepting these RSUs, you expressly consent to the withholding of Shares and/or withholding from your director fees or other amounts payable to you as provided for hereunder. All other Tax-Related Items related to the RSUs and any Shares delivered in payment thereof are your sole responsibility.

7. The RSUs are intended to be exempt from the requirements of Code Section 409A. The 2011 Plan and these Terms and Conditions shall be administered and interpreted in a manner consistent with this intent. If the Company determines that these Terms and Conditions are subject to Code Section 409A and that it has failed to comply with the requirements of that Section, the Company may, at the Company’s sole discretion, and without your consent, amend these Terms and Conditions to cause them to comply with Code Section 409A or be exempt from Code Section 409A.

8. The RSUs shall be transferable only by will or the laws of descent and distribution. If you purport to make any transfer of the RSUs, except as aforesaid, the RSUs and all rights thereunder shall terminate immediately.

9. The RSUs shall not be vested in whole or in part, and the Company shall not be obligated to issue any Shares subject to the RSUs, if such issuance would, in the opinion of counsel for the Company, violate the Securities Act of 1933 or any other U.S. federal, state or non-U.S. statute having similar requirements as it may be in effect at the time. The RSUs are subject to the further requirement that, if at any time the Board of Directors shall determine in its discretion that the listing or qualification of the Shares subject to the RSUs under any securities exchange requirements or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the issuance of Shares pursuant to the RSUs, the RSUs may not be vested in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors.

10. The grant of the RSUs shall not confer upon you any right to serve as a Director of the Company nor limit in any way the right of the Company to terminate your service as a Director at any time. You shall have no rights as a shareholder of the Company with respect to any Shares issuable upon the vesting of the RSUs until the date of issuance of such Shares.

11. You acknowledge and agree that the 2011 Plan is discretionary in nature and may be amended, cancelled, or terminated by the Company, in its sole discretion, at any time. The grant of the RSUs under the 2011 Plan is a one-time benefit and does not create any contractual or other right to receive a grant of RSUs or any other award under the 2011 Plan or other benefits in lieu thereof in the future. Future grants, if any, will be at the sole discretion of the Company, including, but not limited to, the form and timing of any grant, the number of Shares subject to the grant, and the vesting provisions. Any amendment, modification or

Page 4

termination of the 2011 Plan shall not constitute a change or impairment of the terms and conditions of your service as a Director of the Company.

12. Your participation in the 2011 Plan is voluntary.

13. These Terms and Conditions shall bind and inure to the benefit of the Company, its successors and assigns and you and your estate in the event of your death.

14. The Company is located at 2825 Airview Boulevard Kalamazoo, Michigan 49002, U.S.A. and grants RSUs under the 2011 Plan to employees and directors of the Company and Subsidiaries in its sole discretion. In conjunction with the Company’s grant of the RSUs under the 2011 Plan and its ongoing administration of such awards, the Company is providing the following information about its data collection, processing and transfer practices (“Personal Data Activities”). In accepting the grant of the RSUs, you expressly and explicitly consent to the Personal Data Activities as described herein.

(a) The Company collects, processes and uses your personal data, including your name, home address, email address, and telephone number, date of birth, social insurance number or other identification number, citizenship, any Shares or directorships held in the Company, and details of all RSUs or any other equity compensation awards granted, canceled, exercised, vested, or outstanding in your favor, which the Company receives from you. In granting the RSUs under the Plan, the Company will collect your personal data for purposes of allocating Shares and implementing, administering and managing the 2011 Plan. The Company’s legal basis for the collection, processing and usage of your personal data is your consent.

(b) The Company transfers your personal data to UBS Financial Services Inc., an independent service provider based in the United States, which assists the Company with the implementation, administration and management of the 2011 Plan (the “Stock Plan Administrator”). In the future, the Company may select a different Stock Plan Administrator and share your personal data with another company that serves in a similar manner. The Stock Plan Administrator will open an account for you, if an account is not already in place, to receive and trade Shares acquired under the 2011 Plan. You will be asked to agree on separate terms and data processing practices with the Stock Plan Administrator, which is a condition to your ability to participate in the 2011 Plan.

(c) The Company and the Stock Plan Administrator are based in the United States. You should note that your country of residence may have enacted data privacy laws that are different from the United States. The Company’s legal basis for the transfer of your personal data to the United States is your consent.

(d) Your participation in the 2011 Plan and your grant of consent is purely voluntary. You may deny or withdraw your consent at any time. If you do not consent, or if you withdraw your consent, you may be unable to participate in the 2011 Plan. This would not affect your existing directorship or your annual cash retainer; instead, you merely may forfeit the opportunities associated with the 2011 Plan.

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You may have a number of rights under the data privacy laws in your country of residence. For example, your rights may include the right to (i) request access or copies of personal data the Company processes, (ii) request rectification of incorrect data, (iii) request deletion of data, (iv) place restrictions on processing, (v) lodge complaints with competent authorities in your country or residence, and/or (vi) request a list with the names and addresses of any potential recipients of your personal data. To receive clarification regarding your rights or to exercise your rights, you should contact the Company’s Human Resources Department.

15. The grant of the RSUs is not intended to be a public offering of securities in your country of residence. The Company has not submitted any registration statement, prospectus or other filing(s) with the local securities authorities (unless otherwise required under local law). No employee of the Company is permitted to advise you on whether you should acquire Shares under the 2011 Plan or provide you with any legal, tax or financial advice with respect to the grant of the RSUs. The acquisition of Shares involves certain risks, and you should carefully consider all risk factors and tax considerations relevant to the acquisition of Shares under the 2011 Plan or the disposition of them. Further, you should carefully review all of the materials related to the RSUs and the 2011 Plan, and you should consult with your personal legal, tax and financial advisors for professional advice in relation to your personal circumstances.

16. All questions concerning the construction, validity and interpretation of the RSUs and the 2011 Plan shall be governed and construed according to the laws of the state of Michigan, without regard to the application of the conflicts of laws provisions thereof. Any disputes regarding the RSUs or the 2011 Plan shall be brought only in the state or federal courts of the state of Michigan.

17. The Company may, in its sole discretion, decide to deliver any documents related to the RSUs or other awards granted to you under the 2011 Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the 2011 Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

18. The invalidity or unenforceability of any provision of the 2011 Plan or these Terms and Conditions shall not affect the validity or enforceability of any other provision of the 2011 Plan or these Terms and Conditions.

19. If you are resident outside of the United States, you acknowledge and agree that it is your express intent that these Terms and Conditions, the 2011 Plan and all other documents, notices and legal proceedings entered into, given or instituted pursuant to the RSUs be drawn up in English. If you have received these Terms and Conditions, the 2011 Plan or any other documents related to the RSUs translated into a language other than English and the meaning of the translated version is different than the English version, the English version will control.

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20. Notwithstanding any provisions of these Terms and Conditions to the contrary, the RSUs shall be subject to any special terms and conditions for your country of residence set forth in an addendum to these Terms and Conditions (an “Addendum”). Further, if you transfer your residence to another country reflected in an Addendum to these Terms and Conditions at the time of transfer, the special terms and conditions for such country will apply to you to the extent the Company determines, in its sole discretion, that the application of such special terms and conditions is necessary or advisable in order to comply with local law, rules and regulations or to facilitate the operation and administration of the award and the 2011 Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate your transfer). In all circumstances, any applicable Addendum shall constitute part of these Terms and Conditions.

21. The Company reserves the right to impose other requirements on the RSUs, any Shares acquired pursuant to the RSUs, and your participation in the 2011 Plan to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable in order to comply with local law, rules and regulations or to facilitate the operation and administration of the award and the 2011 Plan. Such requirements may include (but are not limited to) requiring you to sign any agreements or undertakings that may be necessary to accomplish the foregoing.

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STRYKER CORPORATION

ADDENDUM TO

TERMS AND CONDITIONS

RELATING TO RESTRICTED STOCK UNITS GRANTED

PURSUANT TO THE 2011 PLAN, AS AMENDED AND RESTATED

In addition to the terms of the 2011 Plan and the Terms and Conditions, the RSUs are subject to the following additional terms and conditions (the “Addendum”). All capitalized terms as contained in this Addendum shall have the same meaning as set forth in the 2011 Plan and the Terms and Conditions. Pursuant to Section 20 of the Terms and Conditions, if you transfer your residence and/or employment to another country reflected in an Addendum at the time of transfer, the special terms and conditions for such country will apply to you to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable in order to comply with local law, rules and regulations, or to facilitate the operation and administration of the award and the 2011 Plan (or the Company may establish alternative terms and conditions as may be necessary or advisable to accommodate your transfer).

European Union (“EU”) / European Economic Area (“EEA”)

1. Data Privacy. If you reside and/or you work in the EU / EEA, the following provision replaces Section 14 of the Terms and Conditions:

The Company is located at 2825 Airview Boulevard Kalamazoo, Michigan 49002, U.S.A. and grants RSUs under the 2011 Plan to employees and directors of the Company and its Subsidiaries in its sole discretion. You should review the following information about the Company’s data processing practices.

(a) Data Collection, Processing and Usage. Pursuant to applicable data protection laws, you are hereby notified that the Company collects, processes and uses certain personally-identifiable information about you for the legitimate interest of implementing, administering and managing the 2011 Plan and generally administering equity awards; specifically, including your name, home address, email address and telephone number, date of birth, social insurance number or other identification number, citizenship, any Shares or directorships held in the Company, and details of all options or any other awards granted, canceled, exercised, vested, or outstanding in your favor, which the Company receives from you. In granting the RSUs under the 2011 Plan, the Company will collect your personal data for purposes of allocating Shares and implementing, administering and managing the 2011 Plan. The Company’s collection, processing, use and transfer of your personal data is necessary for the performance of the Company’s contractual obligations under the Plan and pursuant to the Company’s legitimate interest of managing and generally administering equity awards. Your refusal to provide personal data would make it impossible for the Company to perform its contractual obligations and may affect your ability to participate in the 2011 Plan. As such, by participating in the

Page 8

2011 Plan, you voluntarily acknowledge the collection, processing and use of your personal data as described herein.

(b) Stock Plan Administration Service Provider. The Company transfers participant data to UBS Financial Services Inc., an independent service provider based in the United States, which assists the Company with the implementation, administration and management of the 2011 Plan (the “Stock Plan Administrator”). In the future, the Company may select a different Stock Plan Administrator and share your data with another company that serves in a similar manner. The Stock Plan Administrator will open an account for you, if an account is not already in place, to receive and trade Shares acquired under the 2011 Plan. You will be asked to agree on separate terms and data processing practices with the Stock Plan Administrator, which is a condition to your ability to participate in the 2011 Plan.

(c) International Data Transfers. The Company and the Stock Plan Administrator are based in the United States. The Company can only meet its contractual obligations to you if your personal data is transferred to the United States. The Company’s legal basis for the transfer of your personal data to the United States is to satisfy its contractual obligations to you and/or its use of the standard data protection clauses adopted by the EU Commission.

(d) Data Retention. The Company will use your personal data only as long as is necessary to implement, administer and manage your participation in the 2011 Plan or as required to comply with legal or regulatory obligations, including under tax and security laws. When the Company no longer needs your personal data, the Company will remove it from its systems. If the Company keeps your data longer, it would be to satisfy legal or regulatory obligations and the Company’s legal basis would be for compliance with relevant laws or regulations.

(e) Data Subject Rights. You may have a number of rights under data privacy laws in your country of residence. For example, your rights may include the right to (i) request access or copies of personal data the Company processes, (ii) request rectification of incorrect data, (iii) request deletion of data, (iv) place restrictions on processing, (v) lodge complaints with competent authorities in your country of residence, and/or (vi) request a list with the names and addresses of any potential recipients of the Participant’s personal data. To receive clarification regarding your rights or to exercise your rights, you should contact the Company’s Human Resources Department.

ARGENTINA

No country specific provisions.

AUSTRALIA

1.RSUs Conditioned on Satisfaction of Regulatory Obligations. If you are (a) a director of a Subsidiary incorporated in Australia, or (b) a person who is a management-level executive of a Subsidiary incorporated in Australia and who also is a director of a Subsidiary incorporated outside of the Australia, the grant of the RSUs is conditioned upon satisfaction

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of the shareholder approval provisions of section 200B of the Corporations Act 2001 (Cth) in Australia.

The Australian Offer document can be accessed here [UBS INSERT LINK HERE]

AUSTRIA

No country specific provisions.

BELGIUM

No country specific provisions.

BRAZIL

1. Compliance with Law. By accepting the RSUs, you acknowledge and agree to comply with applicable Brazilian laws and to pay any and all applicable taxes associated with the vesting of the RSUs, the issuance and/or sale of Shares acquired under the 2011 Plan and the receipt of any dividends.

CANADA

1. Settlement in Shares. Notwithstanding anything to the contrary in the Terms and Conditions or the 2011 Plan, the RSUs shall be settled only in Shares (and may not be settled in cash).

2. Use of English Language. If you are a resident of Quebec, by accepting your RSUs, you acknowledge and agree that it is your wish that the Terms and Conditions, this Addendum, as well as all other documents, notices and legal proceedings entered into, given or instituted pursuant to your RSUs, either directly or indirectly, be drawn up in English.

Langue anglaise. En acceptant l'allocation de vos RSUs, vous reconnaissez et acceptez avoir souhaité que le Termes et Conditions, le présent avenant, ainsi que tous autres documents exécutés, avis donnés et procédures judiciaires intentées, relatifs, directement ou indirectement, à l'allocation de vos RSUs, soient rédigés en anglais.

BY SIGNING BELOW, YOU ACKNOWLEDGE, UNDERSTAND AND AGREE TO THE PROVISIONS OF THE 2011 PLAN, THE TERMS AND CONDITIONS AND THIS ADDENDUM.

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PLEASE SIGN AND RETURN THIS ADDENDUM VIA EMAIL NO LATER THAN APRIL 30, 2020 TO STOCKPLANADMINISTRATION@STRYKER.COM.

___________________________________ ______________________________

Signature Name (Printed)

_____________________

Date

CHILE

1. Private Placement. The following provision shall replace Section 15 of the Terms and Conditions:

The grant of the RSUs hereunder is not intended to be a public offering of securities in Chile but instead is intended to be a private placement.


a)	The starting date of the offer will be the grant date, and this offer conforms to General Ruling no. 336 of the Chilean Commission for the Financial Markets (“CMF”);


b)	The offer deals with securities not registered in the registry of securities or in the registry of foreign securities of the CMF, and therefore such securities are not subject to its oversight;


c)	The Company, as the issuer, is not obligated to provide public information in Chile regarding the foreign securities, as such securities are not registered with the CMF; and


d)	The Shares, as foreign securities, shall not be subject to public offering as long as they are not registered with the corresponding registry of securities in Chile.


a)	La fecha de inicio de la oferta será el de la fecha de otorgamiento y esta oferta se acoge a la norma de Carácter General n° 336 de la Comisión para el Mercado Financiero Chilena (“CMF”);


b)	La oferta versa sobre valores no inscritos en el registro de valores o en el registro de valores extranjeros que lleva la CMF, por lo que tales valores no están sujetos a la fiscalización de ésta;


c)	Por tratar de valores no inscritos no existe la obligación por parte del emisor de entregar en chile información pública respecto de esos valores; y


d)	Esos valores no podrán ser objeto de oferta pública mientras no sean inscritos en el registro de valores correspondiente.

Page 11

CHINA

1. RSUs Conditioned on Satisfaction of Regulatory Obligations. If you are a People’s Republic of China (“PRC”) national, the grant of the RSUs is conditioned upon the Company securing all necessary approvals from the PRC State Administration of Foreign Exchange to permit the operation of the 2011 Plan and the participation of PRC nationals, as determined by the Company in its sole discretion.

2. Sale of Shares. Notwithstanding anything to the contrary in the 2011 Plan, upon any termination of your relationship with the Company, you shall be required to sell all Shares acquired under the 2011 Plan within such time period as may be established by the PRC State Administration of Foreign Exchange.

3. Exchange Control Restrictions. You acknowledge and agree that you will be required immediately to repatriate to the PRC the proceeds from the sale of any Shares acquired under the 2011 Plan, as well as any other cash amounts attributable to the Shares acquired under the 2011 Plan (collectively, “Cash Proceeds”). Further, you acknowledge and agree that the repatriation of the Cash Proceeds must be effected through a special bank account established by the local company, the Company or one of its Subsidiaries, and you hereby consent and agree that the Cash Proceeds may be transferred to such account by the Company on your behalf prior to being delivered to you. The Cash Proceeds may be paid to you in U.S. dollars or local currency at the Company’s discretion. If the Cash Proceeds are paid to you in U.S. dollars, you understand that a U.S. dollar bank account must be established and maintained in China so that the proceeds may be deposited into such account. If the Cash Proceeds are paid to you in local currency, you acknowledge and agree that the Company is under no obligation to secure any particular exchange conversion rate and that the Company may face delays in converting the Cash Proceeds to local currency due to exchange control restrictions. You agree to bear any currency fluctuation risk between the time the Shares are sold and the Cash Proceeds are converted into local currency and distributed to you. You further agree to comply with any other requirements that may be imposed by the local company, the Company and its Subsidiaries in the future in order to facilitate compliance with exchange control requirements in the PRC.

COLOMBIA

1. Securities Law Information. The Shares subject to the RSUs are not and will not be registered in the Colombian registry of publicly traded securities (Registro Nacional de Valores y Emisores) and therefore the Shares may not be offered to the public in Colombia. Nothing in this document should be construed as the making of a public offer of securities in Colombia.

COSTA RICA

No country specific provisions.

Page 12

DENMARK

1. Treatment of RSUs upon Termination of Employment. Notwithstanding any provision in the Terms and Conditions or the 2011 Plan to the contrary, unless you are a member of registered management who is not considered a salaried employee, the treatment of the RSUs upon a termination of employment which is not a result of death shall be governed by Sections 4 and 5 of the Danish Act on Stock Option in Employment Relations. However, if the provisions in the Terms and Conditions or the Plan governing the treatment of the RSUs upon a termination of employment are more favorable, then the provisions of the Terms and Conditions or the 2011 Plan will govern.

FINLAND

1. Withholding of Tax-Related Items. Notwithstanding anything in Section 6 of the Terms and Conditions to the contrary, if you are a local national of Finland, any Tax-Related Items shall be withheld only in cash or other amounts payable to you in cash or such other withholding methods as may be permitted under the 2011 Plan and allowed under local law.

FRANCE

1. Use of English Language. By accepting your RSUs, you acknowledge and agree that it is your wish that the Terms and Conditions, this Addendum, as well as all other documents, notices and legal proceedings entered into, given or instituted pursuant to your RSUs, either directly or indirectly, be drawn up in English.

BY SIGNING BELOW, YOU ACKNOWLEDGE, UNDERSTAND AND AGREE TO THE PROVISIONS OF THE 2011 PLAN, THE TERMS AND CONDITIONS AND THIS ADDENDUM.

PLEASE SIGN AND RETURN THIS ADDENDUM VIA EMAIL NO LATER THAN APRIL 30, 2020 TO STOCKPLANADMINISTRATION@STRYKER.COM.

___________________________________ ______________________________

Signature Name (Printed)

_____________________

Date

Page 13

GERMANY

No country specific provisions.

HONG KONG

1. Important Notice. Warning: The contents of the Terms and Conditions, this Addendum, the 2011 Plan, and all other materials pertaining to the RSUs and/or the 2011 Plan have not been reviewed by any regulatory authority in Hong Kong. You are hereby advised to exercise caution in relation to the offer thereunder. If you have any doubts about any of the contents of the aforesaid materials, you should obtain independent professional advice.

2. Lapse of Restrictions. If, for any reason, Shares are issued to you within six (6) months of the grant date, you agree that you will not sell or otherwise dispose of any such Shares prior to the six-month anniversary of the grant date.

3. Settlement in Shares. Notwithstanding anything to the contrary in this Addendum, the Terms and Conditions or the 2011 Plan, the RSUs shall be settled only in Shares (and may not be settled in cash).

4. Nature of the Plan. The Company specifically intends that the 2011 Plan will not be treated as an occupational retirement scheme for purposes of the Occupational Retirement Schemes Ordinance (“ORSO”). To the extent any court, tribunal or legal/regulatory body in Hong Kong determines that the 2011 Plan constitutes an occupational retirement scheme for the purposes of ORSO, the grant of the RSUs shall be null and void.

INDIA

1. Repatriation Requirements. You expressly agree to repatriate all sale proceeds and dividends attributable to Shares acquired under the 2011 Plan in accordance with local foreign exchange rules and regulations. Neither the Company, the local company or any of the Company’s Subsidiaries shall be liable for any fines or penalties resulting from your failure to comply with applicable laws, rules or regulations.

IRELAND

No country specific provisions.

ITALY

No country specific provisions.

JAPAN

No country specific provisions.

Page 14

MEXICO

1. Commercial Relationship. You expressly recognize that your participation in the 2011 Plan and the Company’s grant of the RSUs does not constitute an employment relationship between you and the Company. You have been granted the RSUs as a consequence of the commercial relationship between the Company and the Subsidiary in Mexico that employs you, and the Company’s Subsidiary in Mexico is your sole employer. Based on the foregoing, (a) you expressly recognize the 2011 Plan and the benefits you may derive from your participation in the 2011 Plan do not establish any rights between you and the Company’s Subsidiary in Mexico that employs you, (b) the 2011 Plan and the benefits you may derive from your participation in the 2011 Plan are not part of the employment conditions and/or benefits provided by the Company’s Subsidiary in Mexico that employs you, and (c) any modification or amendment of the 2011 Plan by the Company, or a termination of the 2011 Plan by the Company, shall not constitute a change or impairment of the terms and conditions of your employment with the Company’s Subsidiary in Mexico that employs you.

2. Extraordinary Item of Compensation. You expressly recognize and acknowledge that your participation in the 2011 Plan is a result of the discretionary and unilateral decision of the Company, as well as your free and voluntary decision to participate in the 2011 Plan in accord with the terms and conditions of the 2011 Plan, the Terms and Conditions, and this Addendum. As such, you acknowledge and agree that the Company may, in its sole discretion, amend and/or discontinue your participation in the 2011 Plan at any time and without any liability. The value of the RSUs is an extraordinary item of compensation outside the scope of your employment contract, if any. The RSUs are not part of your regular or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits, or any similar payments, which are the exclusive obligations of the Company’s Subsidiary in Mexico that employs you.

BY SIGNING BELOW, YOU ACKNOWLEDGE, UNDERSTAND AND AGREE TO THE PROVISIONS OF THE 2011 PLAN, THE TERMS AND CONDITIONS AND THIS ADDENDUM.

PLEASE SIGN AND RETURN THIS ADDENDUM VIA EMAIL NO LATER THAN APRIL 30, 2020 TO STOCKPLANADMINISTRATION@STRYKER.COM.

___________________________________ ______________________________

Signature Name (Printed)

_____________________

Date

Page 15

NETHERLANDS

1. Waiver of Termination Rights. As a condition to the grant of the RSUs, you hereby waive any and all rights to compensation or damages as a result of the termination of your relationship with the Company and the local company for any reason whatsoever, insofar as those rights result or may result from (a) the loss or diminution in value of such rights or entitlements under the 2011 Plan, or (b) you ceasing to have rights under or ceasing to be entitled to any awards under the 2011 Plan as a result of such termination.

2. Tax Deferral Upon Retirement. Unless you otherwise elect by contacting Stryker no later than April 30, 2020, you hereby agree that upon Retirement eligibility, the RSUs shall not become taxable until the date of settlement when Shares are actually delivered or otherwise made available.

NEW ZEALAND

1. WARNING. You are being offered RSUs to be settled in the form of shares of Stryker Corporation common stock. If the Company runs into financial difficulties and is wound up, you may lose some or all your investment. New Zealand law normally requires people who offer financial products to give information to investors before they invest. This requires those offering financial products to have disclosed information that is important for investors to make an informed decision. The usual rules do not apply to this offer because it is an offer made under the Employee Share Scheme exemption. As a result, you may not be given all the information usually required. You will also have fewer other legal protections for this investment. You should ask questions, read all documents carefully, and seek independent financial advice before accepting the offer. The Company’s Shares are currently traded on the New York Stock Exchange under the ticker symbol “SYK” and Shares acquired under the 2011 Plan may be sold through this exchange. You may end up selling the Shares at a price that is lower than the value of the Shares when you acquired them. The price will depend on the demand for the Company's Shares. The Company’s most recent annual report (which includes the Company’s financial statements) is available at http://phx.corporate-ir.net/phoenix.zhtml?c=118965&p=irol-irhome. You are entitled to receive a copy of this report, free of charge, upon written request to the Company at STOCKPLANADMINISTRATION@STRYKER.COM.

NORWAY

No country specific provisions.

POLAND

No country specific provisions.

PORTUGAL

No country specific provisions.

Page 16

PUERTO RICO

No country specific provisions.

RUSSIA

1. IMPORTANT NOTIFICATION. If you are a citizen of the Russian Federation, any cash proceeds derived from the 2011 Plan (including any dividend equivalents payable in cash but excluding cash dividends) must be remitted directly to a personal bank account opened with an authorized bank in the Russian Federation (an “Authorized Russian Account”). Thereafter, you may, in your sole discretion, personally transfer such amounts from your Authorized Russian Account to a bank account legally established outside of the Russian Federation with a non-Russian bank located in the Organization for Economic Co-operation and Development or the Financial Action Task Force countries (an “Authorized Foreign Account”). Cash dividends (but not dividend equivalents payable in cash) can be remitted directly to an Authorized Foreign Account. However, you are required to notify the Russian tax authorities within one month of opening or closing an Authorized Foreign Account or changing the account details. You also are required to file quarterly reports of any transactions involving any Authorized Foreign Account you hold with the Russian tax authorities.

2. SECURITIES LAW NOTIFICATION. The grant of RSUs and the issuance of Shares upon vesting are not intended to be an offering of securities with the Russian Federation, and the Terms and Conditions, the 2011 Plan, this Addendum and all other materials that you receive in connection with the grant of RSUs and your participation in the 2011 Plan (collectively, “Grant Materials”) do not constitute advertising or a solicitation within the Russian Federation. In connection with your grant of RSUs, the Company has not submitted any registration statement, prospectus or other filing with the Russian Federal Bank or any other governmental or regulatory body within the Russian Federation, and the Grant Materials expressly may not be used, directly or indirectly, for the purpose of making a securities offering or public circulation of Shares within the Russian Federation.

SINGAPORE

1. Qualifying Person Exemption. The following provision shall replace Section 15 of the Terms and Conditions:

The grant of the RSUs under the 2011 Plan is being made pursuant to the “Qualifying Person” exemption” under section 273(1)(f) of the Securities and Futures Act (Chapter 289, 2011 Ed.) (“SFA”). The 2011 Plan has not been lodged or registered as a prospectus with the Monetary Authority of Singapore. You should note that, as a result, the RSUs are subject to section 257 of the SFA and you will not be able to make (a) any subsequent sale of the Shares in Singapore or (ii) any offer of such subsequent sale of the Shares subject to the RSUs in Singapore, unless such sale or offer is made pursuant to the exemptions under Part XIII Division (1) Subdivision (4) (other than section 280) of the SFA (Chapter 289, 2011 Ed.).

Page 17

2. CEO and Director Reporting Notification. If you are the Chief Executive Officer (“CEO”) or a director, associate director or shadow director of a Singapore company, you are subject to certain notification requirements under the Singapore Companies Act. Among these requirements is an obligation to notify the Singapore company in writing when you receive an interest (e.g., RSUs or Shares) in the Company or any related company. In addition, you must notify the Singapore company when you sell Shares (including when you sell Shares acquired at vesting of the Restricted Stock Units). These notifications must be made within two business days of acquiring or disposing of any interest in the Company or any related company. In addition, a notification must be made of Participant’s interests in the Company or any related company within two business days of becoming the CEO or a director.

SOUTH AFRICA

1. Exchange Control Obligations. You are solely responsible for complying with applicable exchange control regulations and rulings (the “Exchange Control Regulations”) in South Africa. As the Exchange Control Regulations change frequently and without notice, you should consult your legal advisor prior to the acquisition or sale of Shares under the 2011 Plan to ensure compliance with current Exchange Control Regulations. Neither the Company nor any of its Subsidiaries will be liable for any fines or penalties resulting from your failure to comply with applicable laws.

2. Securities Law Information and Deemed Acceptance of RSUs. Neither the RSUs nor the underlying Shares shall be publicly offered or listed on any stock exchange in South Africa. The offer is intended to be private pursuant to Section 96 of the Companies Act and is not subject to the supervision of any South African governmental authority. Pursuant to Section 96 of the Companies Act, the RSU offer must be finalized on or before the 60th day following the grant date. If you do not want to accept the RSUs, you are required to decline the RSUs no later than the 60th day following the grant date. If you do not reject the RSUs on or before the 60th day following the grant date, you will be deemed to accept the RSUs.

SOUTH KOREA

No country specific provisions.

Page 18

SPAIN

1. Acknowledgement of Discretionary Nature of the 2011 Plan; No Vested Rights. In accepting the RSUs, you acknowledge that you consent to participation in the 2011 Plan and have received a copy of the 2011 Plan. You understand that the Company has unilaterally, gratuitously and in its sole discretion granted RSUs under the 2011 Plan to individuals who may be employees or directors of the Company or its Subsidiaries throughout the world. The decision is a limited decision that is entered into upon the express assumption and condition that any grant will not economically or otherwise bind the Company or any of its Subsidiaries on an ongoing basis. Consequently, you understand that the RSUs are granted on the assumption and condition that the RSUs and the Shares acquired upon vesting of the RSUs shall not become a part of any employment contract (either with the Company or any of its Subsidiaries) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. In addition, you understand that this grant would not be made to you but for the assumptions and conditions referenced above. Thus, you acknowledge and freely accept that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, the RSUs shall be null and void.

You understand and agree that, as a condition of the grant of the RSUs, any unvested RSUs as of the date you cease active employment will be forfeited without entitlement to the underlying Shares or to any amount of indemnification in the event of the termination of employment by reason of, but not limited to, (i) material modification of the terms of employment under Article 41 of the Workers’ Statute or (ii) relocation under Article 40 of the Workers’ Statute. You acknowledge that you have read and specifically accept the conditions referred to in the Terms and Conditions regarding the impact of a termination of employment on your RSUs.

BY SIGNING BELOW, YOU ACKNOWLEDGE, UNDERSTAND AND AGREE TO THE PROVISIONS OF THE 2011 PLAN, THE TERMS AND CONDITIONS AND THIS ADDENDUM.

PLEASE SIGN AND RETURN THIS ADDENDUM VIA EMAIL NO LATER THAN APRIL 30, 2020 TO STOCKPLANADMINISTRATION@STRYKER.COM.

___________________________________ ______________________________

Signature Name (Printed)

_____________________

Date

SWITZERLAND

No country specific provisions.

Page 19

TAIWAN

No country specific provisions.

THAILAND

No country specific provisions.

TURKEY

1. Securities Law Information. Under Turkish law, you are not permitted to sell any Shares acquired under the 2011 Plan within Turkey. The Shares are currently traded on the New York Stock Exchange, which is located outside of Turkey, under the ticker symbol “SYK” and the Shares may be sold through this exchange.

2. Financial Intermediary Obligation. You acknowledge that any activity related to investments in foreign securities (e.g., the sale of Shares) should be conducted through a bank or financial intermediary institution licensed by the Turkey Capital Markets Board and should be reported to the Turkish Capital Markets Board. You solely are responsible for complying with this requirement and should consult with a personal legal advisor for further information regarding any obligations in this respect.

UNITED ARAB EMIRATES

No country specific provisions.

UNITED KINGDOM

1. Income Tax and Social Insurance Contribution Withholding. The following provision shall supplement Section 6 of the Terms and Conditions:

Without limitation to Section 6 of the Terms and Conditions, you agree that you are liable for all Tax-Related Items and hereby covenant to pay all such Tax-Related Items, as and when requested by the Company, the local company or by Her Majesty’s Revenue and Customs (“HMRC”) (or any other tax authority or any other relevant authority). You also agree to indemnify and keep indemnified the Company and/or the local company against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC on your behalf (or any other tax authority or any other relevant authority).

2. Exclusion of Claim. You acknowledge and agree that you will have no entitlement to compensation or damages in consequence of the termination of your service with the Company and the local company for any reason whatsoever and whether or not in breach of contract, insofar as any purported claim to such entitlement arises or may arise from your ceasing to have rights under or to be entitled to vest in the RSUs as a result of such termination of service (whether the termination is in breach of contract or otherwise), or from the loss or

Page 20

diminution in value of the RSUs. Upon the grant of the RSUs, you shall be deemed irrevocably to have waived any such entitlement.

Page 21


(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.