STRYKER CORP - Quarter Report: 2020 June (Form 10-Q)

Fair Value of Available for Sale Securities by Maturity

December 2019

Due in one year or less

Due after one year through three years

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