Document

PART I



ITEM 1.	BUSINESS.

Stryker Corporation (Stryker or the Company) is one of the world's leading medical technology companies and, together with its customers, is driven to make healthcare better. The Company offers innovative products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine that help improve patient and hospital outcomes.

Our core values guide our behaviors and actions and are fundamental to how we execute our mission.

Stryker was incorporated in Michigan in 1946 as the successor company to a business founded in 1941 by Dr. Homer H. Stryker, a prominent orthopaedic surgeon and the inventor of several medical products. Our products are sold in over 85 countries through company-owned subsidiaries and branches, as well as third-party dealers and distributors, and include implants used in joint replacement and trauma surgeries; surgical equipment and surgical navigation systems; endoscopic and communications systems; patient handling, emergency medical equipment and intensive care disposable products; neurosurgical, neurovascular and spinal devices; as well as other products used in a variety of medical specialties. In the United States most of our products are marketed directly to doctors, hospitals and other healthcare facilities.

As used herein, and except where the context otherwise requires, "Stryker," "we," "us," and "our" refer to Stryker Corporation and its consolidated subsidiaries.

Business Segments and Geographic Information

We segregate our operations into three reportable business segments: Orthopaedics, MedSurg and Neurotechnology and Spine. Financial information regarding our reportable business segments and certain geographic information is included under "Results of Operations" in Item 7 of this report and Note 13 to our Consolidated Financial Statements.



Net Sales by Reportable Segment
	2017				2016				2015
Orthopaedics	$	4,713	38	%	$	4,422	39	%	$	4,223	43	%
MedSurg	5,557		45		4,894		43		3,895		39
Neurotechnology and Spine	2,174		17		2,009		18		1,828		18
Total	$	12,444	100	%	$	11,325	100	%	$	9,946	100	%

Orthopaedics

Orthopaedics products consist primarily of implants used in hip and knee joint replacements and trauma and extremities surgeries. We bring patients and physicians advanced implant designs and

specialized instrumentation that make orthopaedic surgery and recovery simpler, faster and more effective. We support surgeons with the technology and services they need as they develop new surgical techniques. In 2015 we received clearance by the United States Food and Drug Administration (FDA) for our Mako total knee application and completed the full commercial launch in 2017. This expands our Mako product offerings of partial knee and total hip applications to provide a comprehensive solution in the robotic arm-assisted reconstructive surgery line.

Stryker is one of four leading global competitors for joint replacement and trauma and extremities products; the other three being Zimmer Biomet Holdings, Inc. (Zimmer), DePuy Synthes (a Johnson & Johnson company) and Smith & Nephew plc (Smith & Nephew).



Composition of Orthopaedics Net Sales
	2017				2016				2015
Knees	$	1,595	34	%	$	1,490	34	%	$	1,403	33	%
Hips	1,303		28		1,283		29		1,263		30
Trauma and Extremities	1,478		31		1,364		31		1,291		31
Other	337		7		285		6		266		6
Total	$	4,713	100	%	$	4,422	100	%	$	4,223	100	%

MedSurg

MedSurg products include surgical equipment and 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.

Stryker is one of five leading global competitors in Instruments; the other four being Zimmer, Medtronic plc., Johnson & Johnson and ConMed Linvatec, Inc. (a subsidiary of CONMED Corporation). In Endoscopy we compete with Smith & Nephew, ConMed Linvatec, Arthrex, Inc., Karl Storz GmbH & Co., Olympus Optical Co. Ltd. and STERIS plc. In Medical our primary competitors are Hill-Rom Holdings, Inc., Zoll Medical Corporation, Medline Industries and Koninklijke Philips N.V.



Composition of MedSurg Net Sales
	2017				2016				2015
Instruments	$	1,678	30	%	$	1,553	32	%	$	1,466	38	%
Endoscopy	1,652		30		1,470		30		1,390		36
Medical	1,969		35		1,633		33		823		21
Sustainability	258		5		238		5		216		5
Total	$	5,557	100	%	$	4,894	100	%	$	3,895	100	%

In 2017 Instruments launched System 8, the next generation of power tools comprised of a sagittal saw, reciprocating saw, rotary drill and sternum saw. The new power tools offer improved ergonomics, a quick and efficient keyless chuck system preventing loosening through a secondary locking mechanism and advanced material and coating to prevent sticking and slipping. In addition, the handpieces are built to be actively washed and temporarily submerged prior to sterilization.

Neurotechnology and Spine

Neurotechnology and Spine products include neurosurgical, neurovascular, and spinal implant devices. Our neurotechnology offering includes products used for minimally invasive endovascular techniques; a comprehensive line of products for traditional brain and open skull based surgical procedures; orthobiologic and biosurgery products, including synthetic bone grafts and vertebral augmentation products; and minimally invasive products for the treatment of acute ischemic and hemorrhagic stroke. Our spinal

implant offering includes cervical, thoracolumbar and interbody systems used in spinal injury, deformity and degenerative therapies.

Stryker is one of five leading global competitors in Neurotechnology; the other four being Medtronic, Johnson & Johnson, Terumo Corporation and Penumbra, Inc. Stryker is one of five leading global competitors in Spine; the other four being Medtronic Sofamor Danek, Inc. (a subsidiary of Medtronic), DePuy Synthes, Nuvasive, Inc. and Globus Medical, Inc.



Composition of Neurotechnology and Spine Net Sales
	2017				2016				2015
Neurotechnology	$	1,423	65	%	$	1,255	62	%	$	1,088	60	%
Spine	751		35		754		38		740		40
Total	$	2,174	100	%	$	2,009	100	%	$	1,828	100	%

In 2017 the New England Journal of Medicine published the results of the DAWN Trial, the first to provide compelling evidence in treating late window and wake-up stroke patients with mechanical thrombectomy. The purpose of the study is to demonstrate superior clinical outcomes at 90 days with Trevo™ Retriever plus medical management compared to medical management alone in appropriately selected stroke patients treated six to 24 hours after last seen well (for cases of unknown time of onset). The Trevo™ Retriever’s indication within the DAWN Trial, for use in patients treated six to 24 hours after last seen well, is currently under an Investigational Device Exemption (IDE), and the submission for expanding the indication for the later time window is pending.

Raw Materials and Inventory

Raw materials essential to our business are generally readily available from multiple sources; however, certain of our raw materials are currently sourced from single suppliers. Substantially all products we manufacture are stocked in inventory, while certain MedSurg products are assembled to order.

Patents and Trademarks

Patents and trademarks are significant to our business to the extent that a product or an attribute of a product represents a unique design or process. Patent protection of such products restricts competitors from duplicating these unique designs and features. We seek to obtain patent protection on our products whenever appropriate for protecting our competitive advantage. On December 31, 2017 we owned approximately 2,674 United States patents and approximately 3,886 international patents.

Seasonality

Our business is generally not seasonal in nature; however, the number of orthopaedic implant surgeries is typically lower in the summer months, and sales of capital equipment are generally higher in the fourth quarter.

Competition

In each of our product lines we compete with local and global companies. The development of new and innovative products is important to our success in all areas of our business. Competition in research involving the development and improvement of new and existing products and processes is particularly significant. The competitive environment requires substantial investments in continuing research and maintaining sales forces.

We believe our commitment to innovation, quality and service and our reputation differentiates us in the highly competitive product categories in which we operate and enables us to compete effectively. We believe that our competitive position in the future will depend to a large degree on our ability to develop new products and make improvements to existing products.

Research and Development

Continued investment in research and development activities is critical to drive future growth and supports our strategy to make healthcare better through development of products and services that improve patient outcomes. Most of our products and product improvements were developed internally at research facilities in the United States, China, France, Germany, India, Ireland, Puerto Rico, Sweden, Switzerland and United Kingdom. We also invest through acquisitions in technologies developed by third parties that have the potential to expand the markets in which we operate. We maintain close working relationships with physicians and medical personnel in hospitals and universities who assist us in product development efforts. The total cost of research, development and engineering activities were $787, $715 and $625 in 2017, 2016 and 2015.

Regulation

Our businesses are subject to varying degrees of governmental regulation in the countries in which we operate, and the general trend is toward increasingly stringent regulation.

In the United States the Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic Act and its subsequent amendments and the regulations issued and proposed thereunder provide for regulation by the FDA of the design, manufacture and marketing of medical devices, including most of our products. Many of our new products fall into FDA classifications that require notification submitted as a 510(k) and review by the FDA before we begin marketing them. Certain of our products require extensive clinical testing, consisting of safety and efficacy studies, followed by pre-market approval (PMA) applications for specific surgical indications.

The FDA's Quality System regulations set forth standards for our product design and manufacturing processes, require the maintenance of certain records and provide for inspections of our facilities by the FDA. There are also certain requirements of state, local and foreign governments that must be complied with in the manufacture and marketing of our products.

The member states of the European Union (EU) adopted the European Medical Device Directives, which form a single set of medical device regulations for all EU member countries. These regulations require companies that wish to manufacture and distribute medical devices in EU member countries to meet certain quality system requirements and obtain CE marking for their products. We have authorization to apply the CE marking to substantially all of our products. In addition, we comply with the unique regulatory requirements of each of the countries in Europe and other countries in which we market our products.

Initiatives to limit the growth of general healthcare expenses and hospital costs are ongoing in the markets in which we do business. These initiatives are sponsored by government agencies, legislative bodies and the private sector and include price regulation and competitive pricing. It is not possible to predict at this time the long-term impact of such cost containment measures on our future business. In addition, business practices in the healthcare industry are scrutinized, particularly in the United States, by federal and state government agencies. The resulting investigations and prosecutions carry the risk of significant civil and criminal penalties.

Environment

We are subject to various rules and regulation in the United States and internationally related to the protection of human health and the environment. Our operations involve the use of substances regulated under environmental laws, primarily in manufacturing and sterilization processes. We believe our policies, practices and

procedures are properly designed to comply, in all material respects, with applicable environmental laws and regulations. We do not expect compliance with these requirements to have a material effect on purchases of property, plant and equipment, cash flows, net earnings or competitive position.

Employees

On December 31, 2017 we had approximately 33,000 employees globally.

Executive Officers



As of January 31, 2018
Name	Age	Title	First Became an Executive Officer
Kevin A. Lobo	52	Chairman and Chief Executive Officer	2011
Yin C. Becker	54	Vice President of Communication and Public Affairs	2016
William E. Berry Jr.	52	Vice President, Corporate Controller and Principal Accounting Officer	2014
Glenn S. Boehnlein	56	Vice President, Chief Financial Officer	2016
Lonny J. Carpenter	56	Group President, Global Quality and Business Operations	2008
M. Kathryn Fink	48	Vice President, Chief Human Resources Officer	2016
David K. Floyd	57	Group President, Orthopaedics	2012
Michael D. Hutchinson	47	General Counsel	2014
Graham A. McLean	53	President, Asia-Pacific	2017
Katherine A. Owen	47	Vice President, Strategy and Investor Relations	2007
Bijoy S.N. Sagar	49	Vice President, Chief Information Officer	2014
Timothy J. Scannell	53	Group President, MedSurg and Neurotechnology	2008

Each of our executive officers was elected by our Board of Directors to serve in the office indicated until the first meeting of the Board of Directors following the annual meeting of shareholders in 2018 or until a successor is chosen and qualified or until his or her resignation or removal. Each of our executive officers held the position above or served Stryker in various executive or administrative capacities for at least five years, except for Ms. Fink and Mr. Sagar. Prior to joining Stryker in October 2013, Ms. Fink held a variety of senior level human resources roles for the previous six years at Johnson & Johnson, most recently as the Worldwide Vice President, Human Resources of Ethicon. While at Stryker, Ms. Fink held two different senior level Human Resource roles. Prior to joining Stryker in May 2014, Mr. Sagar served as the Chief Information officer for Merck Millipore, and before that as Global Head of Information Systems and a member of the divisional board for the chemicals division of Merck KGaA. Mr. McLean was appointed to the position of President, Asia-Pacific, effective January 1, 2017. Prior to this role, Mr. McLean held a variety of senior level leadership roles at Stryker since 2005.

Available Information

Our main corporate website address is www.stryker.com. Copies of our filings with the United States Securities and Exchange Commission (SEC) are available free of charge on our website within the "Investors Relations" section as soon as reasonably practicable after having been electronically filed or furnished to the SEC. All SEC filings are also available at the SEC's website at www.sec.gov.



ITEM 1A.	RISK FACTORS.

This report contains statements 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

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. 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 the risks discussed below.

Our operations and financial results are subject to various risks and uncertainties discussed below that could materially and adversely affect our business, cash flows, financial condition and results of operations. Additional risks and uncertainties not currently known to us or that we currently deem not to be material may also materially and adversely affect our business, cash flows, financial condition or results of operations.

LEGAL AND REGULATORY RISKS

Current economic and political conditions make tax rules in jurisdictions subject to significant change: Our future results of operations could be affected by changes in the effective tax rate as a result of changes in tax laws, regulations and judicial rulings. In December 2017, the Tax Cuts and Jobs Act of 2017 was signed into law in the United States. We are continuing to evaluate the impact of tax reform and expect our effective tax rate to increase. In addition, further changes in the tax laws of foreign jurisdictions could arise, including as a result of the base erosion and profit shifting (BEPS) project undertaken by the Organisation for Economic Cooperation and Development (OECD). The OECD, which represents a coalition of member countries, has issued recommendations that, in some cases, would make substantial changes to numerous long-standing tax positions and principles. These contemplated changes, to the extent adopted by OECD members and/or other countries, could increase tax uncertainty and may adversely affect our provision for income taxes.

The impact of United States healthcare reform legislation on our business remains uncertain: In 2010 the Patient Protection and Affordable Care Act (ACA) was enacted. While the provisions of the ACA are intended to expand access to health insurance coverage and improve the quality of healthcare over time, other provisions of the legislation, including Medicare provisions aimed at decreasing costs, comparative effectiveness research, an independent payment advisory board and pilot programs to evaluate alternative payment methodologies, are having a meaningful effect on the way healthcare is developed and delivered and could have a significant effect on our business. Among other things, the ACA imposed a 2.3 percent excise tax on medical devices that applies only to United States sales, which are a majority of our medical device sales. Congress suspended the excise tax for 2016 and 2017. The suspension was once again upheld in January 2018 for two years. If the excise tax is not repealed or further suspended, the tax will adversely impact future results of operations after the current suspension expires in December 2019. We also face uncertainties that might result from modification or repeal of any of the provisions of the ACA, including as a result of current and future executive orders and legislative actions. We

cannot predict what other healthcare programs and regulations will ultimately be implemented at the federal or state level or the effect of any future legislation or regulation in the United States may have on our business.

We are subject to extensive governmental regulation relating to the manufacturing, labeling and marketing of our products: The manufacturing, labeling and marketing of our products are subject to extensive and evolving regulations and rigorous regulatory enforcement by the FDA, European Union and other governmental authorities in the United States and internationally. The process of obtaining regulatory approvals to market a medical device can be costly and time consuming and approvals might not be granted timely. We have ongoing responsibilities under the laws and regulations applicable to the manufacturing of products within our facilities and those contracted by third parties that are subject to periodic inspections by the FDA and other governmental authorities to determine compliance with the quality system, medical device reporting regulations and other requirements. Costs to comply with regulations, including the regulations set for medical devices regulation enacted by the European Union in May 2017 and effective in 2020, and costs associated with remediation can be significant. If we fail to fully comply with applicable regulatory requirements, we may be subject to a range of sanctions, including substantial fines, warning letters that require corrective action, product seizures, recalls, the suspension of product manufacturing, revocation of approvals, exclusion from future participation in government healthcare programs, substantial fines and criminal prosecution.

We are subject to federal, state and foreign healthcare regulations including anti-bribery and anti-corruption laws, and could face substantial penalties if we fail to fully comply with such regulations and laws: The relationships that we and our distributors and others that market our products have with healthcare professionals, such as physicians and hospitals, are subject to scrutiny under various state and federal laws often referred to collectively as healthcare fraud and abuse laws. In addition, the United States and foreign government regulators have increased the enforcement of the Foreign Corrupt Practices Act and other anti-bribery laws. We also must comply with a variety of other laws that protect the privacy of individually identifiable healthcare information and impose extensive tracking and reporting related to all transfers of value provided to certain healthcare professionals. These laws and regulations are broad in scope and are subject to evolving interpretation and we could be required to incur substantial costs to monitor compliance or to alter our practices if we are found not to be in compliance. Violations of these laws may be punishable by criminal or civil sanctions, including substantial fines, imprisonment of current or former employees and exclusion from participation in governmental healthcare programs.

We may be adversely affected by product liability claims, unfavorable court decisions or legal settlements: We are exposed to potential product liability risks inherent in the design, manufacture and marketing of medical devices, many of which are implanted in the human body for long periods of time or indefinitely. We are currently defendants in a number of product liability matters, including those relating to our Rejuvenate and ABGII Modular-Neck hip stems discussed in Note 6 to our Consolidated Financial Statements. These matters are subject to many uncertainties and outcomes are not predictable. In addition, we may incur significant legal expenses regardless of whether we are found to be liable. We are self-insured for product liability-related claims and expenses.

Intellectual property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling certain of our products: The medical device industry is

characterized by extensive intellectual property litigation and, from time to time, we are the subject of claims of infringement or misappropriation. Regardless of outcome, such claims are expensive to defend and divert management and operating personnel from other business issues. A successful claim or claims of patent or other intellectual property infringement against us could result in payment of significant monetary damages and/or royalty payments or negatively impact our ability to sell current or future products in the affected category.

Dependence on patent and other proprietary rights and failing to protect such rights or to be successful in litigation related to such rights may impact offerings in our product portfolios: Our long-term success largely depends on our ability to market technologically competitive products. If we fail to obtain or maintain adequate intellectual property protection, it could allow others to sell products that directly compete with proprietary features in our product portfolio. Also, our issued patents may be subject to claims challenging their validity and scope and raising other issues. In addition, currently pending or future patent applications may not result in issued patents.

MARKET RISKS

We have exposure to exchange rate fluctuations on cross border transactions and translation of local currency results into United States Dollars: We report our financial results in United States Dollars and 27% of our net sales are denominated in foreign currencies, including the Euro, Japanese Yen, Australian Dollar, British Pound and Canadian Dollar. Cross border transactions with external parties and intercompany relationships result in increased exposure to foreign currency exchange effects. While we use derivative instruments to manage the impact of currency exchange; our hedging strategies may not be successful, and our unhedged exposures continue to be subject to currency fluctuations. In addition, the weakening or strengthening of the United States Dollar results in favorable or unfavorable translation effects when the results of our foreign locations are translated into United States Dollars.

Additional capital that we may require in the future may not be available to us or may only be available to us on unfavorable terms: Our future capital requirements will depend on many factors, including operating requirements, current and future acquisitions and the need to refinance existing debt. Our ability to issue additional debt or enter into other financing arrangements on acceptable terms could be adversely affected by our debt levels, unfavorable changes in economic conditions or uncertainties that affect the capital markets. Changes in credit ratings issued by nationally recognized credit rating agencies could also adversely affect our access to and cost of financing. Higher borrowing costs or the inability to access capital markets could adversely affect our ability to support future growth and operating requirements.

BUSINESS AND OPERATIONAL RISKS

We are subject to cost containment measures in the United States and other countries resulting in pricing pressures: Initiatives to limit the growth of general healthcare expenses and hospital costs are ongoing in the markets in which we do business. These initiatives are sponsored by government agencies, legislative bodies and the private sector and include price regulation and competitive pricing. Pricing pressure has also increased due to continued consolidation among healthcare providers, trends toward managed care, the shift toward governments becoming the primary payers of healthcare expenses, reduction in reimbursement levels and medical procedure volumes and government laws and regulations relating to sales and promotion, reimbursement and pricing generally.

We operate in a highly competitive industry in which competition in the development and improvement of new and existing products is significant: The markets in which we compete are highly competitive. New products and surgical procedures are introduced on an ongoing basis and our present or future products could be rendered obsolete or uneconomical by technological advances by our competitors, who may respond more quickly to new or emerging technologies, undertake more extensive marketing campaigns, have greater financial, marketing and other resources or be more successful in attracting potential customers, employees and strategic partners.

We may be unable to maintain adequate working relationships with healthcare professionals: We seek to maintain close working relationships with respected physicians and medical personnel in hospitals and universities who assist in product research and development. We rely on these professionals to assist us in the development and improvement of proprietary products. If we are unable to maintain these relationships, our ability to develop, market and sell new and improved products could be adversely affected.

We are subject to additional risks associated with our extensive international operations: We develop, manufacture and distribute our products globally. Our international operations are subject to additional risks and potential costs, including changes in reimbursement, changes in regulatory requirements, differing local product preferences and product requirements, diminished protection of intellectual property in some countries, trade protection measures and import or export licensing requirements, difficulty in staffing and managing foreign operations, and political and economic instability. Our business could be adversely impacted if we are unable to successfully manage these and other risks of international operations in an increasingly volatile environment.

We may be unable to capitalize on previous or future acquisitions: In addition to internally developed products, we invest in new products and technologies through acquisitions. Such investments are inherently risky, and we cannot guarantee that any acquisition will be successful or will not have a material unfavorable impact on us. The risks include the activities required and resources allocated to integrate new businesses, diversion of management time that could adversely affect management's ability to focus on other projects, the inability to realize the expected benefits, savings or synergies from the acquisition, the loss of key personnel and exposure to unexpected liabilities of acquired companies. In addition, we cannot be certain that the businesses we acquire will become or remain profitable.

We may incur goodwill impairment charges related to one or more of our business units: We perform our annual impairment test for goodwill in the fourth quarter of each year, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. In evaluating the potential for impairment we make assumptions regarding revenue projections, growth rates, cash flows, tax rates and discount rates. These assumptions are uncertain and by nature may vary from actual results. A significant reduction in the estimated fair values could result in impairment charges.

We could be negatively impacted by future changes in the allocation of income to each of the income tax jurisdictions in which we operate: We operate in multiple income tax jurisdictions both in the United States and internationally. Accordingly, our management must determine the appropriate allocation of income to each jurisdiction based on current interpretations of complex income tax regulations. Income tax authorities regularly perform audits of our income tax filings. Income tax audits associated with the allocation of income and other complex issues, including

inventory transfer pricing and cost sharing, product royalty and foreign branch arrangements, may require an extended period of time to resolve and may result in significant income tax adjustments.

We could experience a failure of a key information technology system, process or site or a breach of information security, including a cybersecurity breach or failure of one or more key information technology systems, networks, processes, associated sites or service providers: We rely extensively on information technology (IT) systems to conduct business. In addition, we rely on networks and services, including internet sites, data hosting and processing facilities and tools and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided and/or used by third-parties or their vendors, to assist in conducting our business. Numerous and evolving cybersecurity threats pose potential risks to the security of our IT systems, networks and services, as well as the confidentiality, availability and integrity of our data. While we have made investments seeking to address these threats, including monitoring of networks and systems, hiring of experts, employee training and security policies for employees and third-party providers, the techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures. If our IT systems are damaged or cease to function properly, the networks or service providers we rely upon fail to function properly, or we or one of our third-party providers suffer a loss or disclosure of our business or stakeholder information due to any number of causes ranging from catastrophic events or power outages to improper data handling or security breaches and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to reputational, competitive and business harm as well as litigation and regulatory action.

An inability to successfully manage the implementation of our new global enterprise resource planning (ERP) system could adversely affect our operations and operating results: We are in the process of implementing a new global ERP system. This system will replace many of our existing operating and financial systems. Such an implementation is a major undertaking, both financially and from a management and personnel perspective. Any disruptions, delays or deficiencies in the design and implementation of our new ERP system could adversely affect our ability to process orders, ship products, provide services and customer support, send invoices and track payments, fulfill contractual obligations or otherwise operate our business.

We may be unable to attract and retain key employees: Our sales, technical and other key personnel play an integral role in the development, marketing and selling of new and existing products. If we are unable to recruit, hire, develop and retain a talented, competitive work force, we may not be able to meet our strategic business objectives.

Interruption of manufacturing operations could adversely affect our business: We and our suppliers have manufacturing sites all over the world; however, the manufacturing of certain of our product lines is concentrated in one or more plants or geographic regions. Orthopaedics has principal manufacturing and distribution facilities in the United States in New Jersey, Indiana, Pennsylvania, Utah and Florida and outside the United States in China, Ireland, Netherlands, Switzerland and Germany. MedSurg has principal manufacturing and distribution facilities in the United States in Michigan, California, Illinois, Washington, Utah, Florida and Texas and outside the United States in Ireland, Germany, Mexico, Puerto Rico, Switzerland, Turkey and the United Kingdom. Neurotechnology and Spine has principal manufacturing and distribution facilities in Illinois, Indiana and California and outside

the United States in China and Netherlands. Damage to these facilities as a result of natural disasters or otherwise, as well as issues in our manufacturing arising from a failure to follow specific internal protocols and procedures, compliance concerns relating to the quality systems regulation, equipment breakdown or malfunction or other factors could adversely affect the availability of our products. In the event of an interruption in manufacturing, we may be unable to move quickly to alternate means of producing affected products to meet customer demand. In the event of a significant interruption, we may experience lengthy delays in resuming production of affected products due to the need for regulatory approvals. We may experience loss of market share, additional expense and harm to our reputation.

We use a variety of raw materials, components or devices in our global supply chains, production and distribution processes; significant shortages or price increases could increase our operating costs, require significant capital expenditures, or adversely impact the competitive position of our products: Our reliance on certain suppliers to secure raw materials, components and finished devices exposes us to product shortages and unanticipated increases in prices. In addition, several raw materials, components, and finished devices are procured from a sole-source due to the quality considerations, unique intellectual property considerations or constraints associated with regulatory requirements. If sole-source suppliers are acquired or were unable or unwilling to deliver these materials, we may not be able to manufacture or have available one or more products during such period of unavailability and our business could suffer. In certain cases we may not be able to establish additional or replacement suppliers for such materials in a timely or cost effective manner, largely as a result of FDA and other regulations that require, among other things, validation of materials and components prior to their use in our products.



ITEM 1B.	UNRESOLVED STAFF COMMENTS.

None.



ITEM 2.	PROPERTIES.

We have approximately 24 company-owned and 251 leased locations worldwide including 42 manufacturing locations. We believe that our properties are in good operating condition and adequate for the manufacture and distribution of our products. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.



ITEM 3.	LEGAL PROCEEDINGS.

We are involved in various proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor and intellectual property, and the matters described in more detail in Note 6 to our Consolidated Financial Statements.



ITEM 4.	MINE SAFETY DISCLOSURES.

Not applicable.

PART II



ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is traded on the New York Stock Exchange under the symbol SYK.



Quarterly Stock Price and Dividend Information
2017 Quarter	Mar 31		Jun 30		Sep 30		Dec 31
Dividends declared per share of common stock	$	0.425	$	0.425	$	0.425	$	0.470
Market price of common stock:
High	$	133.59	$	145.62	$	148.84	$	160.62
Low	$	116.50	$	129.82	$	137.70	$	141.68
2016 Quarter
Dividends declared per share of common stock	$	0.380	$	0.380	$	0.380	$	0.425
Market price of common stock:
High	$	107.95	$	119.83	$	123.55	$	121.84
Low	$	86.68	$	106.26	$	109.75	$	106.48

Our Board of Directors considers payment of cash dividends at its quarterly meetings. On January 31, 2018 there were 2,833 shareholders of record of our common stock.

We did not repurchase any shares in the three months ended December 31, 2017 and the total dollar value of shares that could be acquired under our authorized repurchase program at December 31, 2017 was $1,640.

We issued 100 shares of our common stock in the fourth quarter of 2017 as performance incentive awards. These shares were 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.

The following graph compares our total returns (including reinvestments of dividends) against the Standard & Poor’s (S&P) 500 Index and the S&P 500 Health Care Index. The graph assumes $100 (not in millions) invested on December 31, 2012 in our common stock and each of the indices.



Company / Index	2012		2013		2014		2015		2016		2017
Stryker Corporation	$	100.00	$	139.29	$	177.47	$	177.51	$	231.94	$	303.46
S&P 500 Index	$	100.00	$	132.39	$	150.51	$	152.59	$	170.84	$	208.14
S&P 500 Health Care Index	$	100.00	$	141.46	$	177.30	$	189.52	$	184.42	$	225.13



Statement of Earnings Data	2017			2016			2015			2014			2013
Net sales	$	12,444		$	11,325		$	9,946		$	9,675		$	9,021
Cost of sales	4,271			3,830			3,344			3,319			3,002
Gross profit	$	8,173		$	7,495		$	6,602		$	6,356		$	6,019
Research, development and engineering expenses	787			715			625			614			536
Selling, general and administrative expenses	4,552			4,137			3,610			3,547			3,467
Recall charges, net of insurance proceeds	173			158			296			761			622
Amortization of intangible assets	371			319			210			188			138
Total operating expenses	$	5,883		$	5,329		$	4,741		$	5,110		$	4,763
Operating income	$	2,290		$	2,166		$	1,861		$	1,246		$	1,256
Other income (expense), net	(227		)	(245		)	(126		)	(86		)	(44		)
Earnings before income taxes	$	2,063		$	1,921		$	1,735		$	1,160		$	1,212
Income taxes	1,043			274			296			645			206
Net earnings	$	1,020		$	1,647		$	1,439		$	515		$	1,006

Net earnings per share of common stock:
Basic net earnings per share of common stock	$	2.73		$	4.40		$	3.82		$	1.36		$	2.66
Diluted net earnings per share of common stock	$	2.68		$	4.35		$	3.78		$	1.34		$	2.63

Dividends declared per share of common stock	$	1.745		$	1.565		$	1.415		$	1.26		$	1.10

Balance Sheet Data
Cash, cash equivalents and current marketable securities	$	2,793		$	3,384		$	4,079		$	5,000		$	3,980
Accounts receivable, less allowance	2,198			1,967			1,662			1,572			1,518
Inventories	2,465			2,030			1,639			1,588			1,422
Property, plant and equipment, net	1,975			1,569			1,199			1,098			1,081
Total assets	22,197			20,435			16,223			17,258			15,383
Accounts payable	487			437			410			329			314
Total debt	7,222			6,914			3,998			3,952			2,748
Shareholders’ equity	$	9,980		$	9,550		$	8,511		$	8,595		$	9,047

Cash Flow Data
Net cash provided by operating activities	$	1,559		$	1,915		$	981		$	1,858		$	1,930
Purchases of property, plant and equipment	598			490			270			233			195
Depreciation	271			227			187			190			169
Acquisitions, net of cash acquired	831			4,332			153			916			2,320
Amortization of intangible assets	371			319			210			188			138
Dividends paid	636			568			521			462			401
Repurchase of common stock	$	230		$	13		$	700		$	100		$	317

Other Data
Number of shareholders of record	2,850			3,010			3,118			3,305			3,612
Approximate number of employees	33,000			33,000			27,000			26,000			25,000

Overview of 2017

Our goal is to achieve sales growth at the high-end of the medical technology (MedTech) industry and maintain our capital allocation strategy that prioritizes: (1) Acquisitions, (2) Dividends and (3) Share repurchases.

In 2017 we achieved reported net sales growth of 9.9%. Excluding the impact of acquisitions, net sales grew 7.1% in constant currency, in line with our ongoing goal to grow organic sales at the high-end of MedTech. We reported net earnings of $1,020 and net earnings per diluted shareof$2.68. Excluding the impact of certain items, we achieved adjusted net earnings of $2,465 and growth of 11.9% in adjusted net earnings per diluted share⁽¹⁾.

We continued our capital allocation strategy by investing $831 in acquisitions, paying $636 in dividends to our shareholders and using $230 for share repurchases.

In December 2017 we announced a definitive merger agreement to acquire Entellus Medical, Inc. (Entellus), a high-growth global medical technology company focused on delivering superior patient and physician experiences through products designed for the minimally invasive treatment of various ear, nose and throat (ENT) disease states, for $24.00 per share, or total consideration of approximately $662. We expect the acquisition to close in February 2018.

In September 2017 we acquired NOVADAQ Technologies Inc. (NOVADAQ) for total consideration of approximately $716. NOVADAQ is a leading developer of fluorescence imaging

technology that provides surgeons with visualization of blood flow in vessels and related tissue perfusion in cardiac, cardiovascular, gastrointestinal, plastic, microsurgical and reconstructive procedures. Refer to Note 5 to our Consolidated Financial Statements for further information.

In August 2017 we initiated a voluntary product recall involving specific lots of our Sage Products (Sage) Oral Care products. We took this action in response to a Warning Letter received from the United States Food and Drug Administration (FDA) dated July 17, 2017, which set forth concerns regarding the potential for cross-contamination of Oral Care solutions manufactured by a third-party supplier on equipment also used to manufacture non-pharmaceutical products. We discontinued business with the third-party supplier and the Oral Care solutions are now being manufactured in-house. We resumed shipping Oral Care products in October and returned to full supply capacity by the end of 2017.

We also placed Sage cloth-based products on a temporary ship hold during the third quarter in response to concerns set forth in the FDA Warning Letter regarding testing methods used for all Sage products containing solutions. We resumed shipping products manufactured in-house and tested under the testing method required by FDA in September 2017 and returned to full supply capacity by the end of 2017.

In January 2017 we issued $500 of senior unsecured notes. Refer to Note 9 to our Consolidated Financial Statements for further information.



Supplemental Net Sales Growth Information
					Percentage Change														Percentage Change
									United States		International												United States		International
	2017		2016		As Reported		Constant Currency		As Reported		As Reported		Constant Currency		2016		2015		As Reported		Constant Currency		As Reported		As Reported		Constant Currency
Orthopaedics:
Knees	$	1,595	$	1,490	7.0	%	6.9	%	7.4	%	5.9	%	5.5	%	$	1,490	$	1,403	6.2	%	6.7	%	6.8	%	4.6	%	6.5	%
Hips	1,303		1,283		1.6		1.8		2.0		0.9		1.4		1,283		1,263		1.5		2.3		2.0		0.8		2.9
Trauma and Extremities	1,478		1,364		8.3		8.2		11.0		3.8		3.5		1,364		1,291		5.7		5.7		9.1		0.4		0.4
Other	337		285		18.0		17.6		17.9		18.6		16.4		285		266		7.3		7.6		8.1		4.1		5.6
	$	4,713	$	4,422	6.6	%	6.5	%	7.8	%	4.0	%	3.8	%	$	4,422	$	4,223	4.7	%	5.1	%	6.2	%	1.8	%	3.1	%
MedSurg:
Instruments	$	1,678	$	1,553	8.1	%	8.0	%	8.1	%	7.9	%	7.5	%	$	1,553	$	1,466	5.9	%	6.3	%	7.2	%	1.5	%	3.1	%
Endoscopy	1,652		1,470		12.4		12.0		14.2		6.3		5.0		1,470		1,390		5.8		6.3		8.8		(3.1	)	(1.0	)
Medical	1,969		1,633		20.5		20.4		17.7		31.4		30.4		1,633		823		98.4		99.9		92.4		125.3		133.4
Sustainability	258		238		8.9		8.9		8.9		26.2		24.4		238		216		9.9		9.9		9.8		33.3		37.6
	$	5,557	$	4,894	13.6	%	13.4	%	13.2	%	15.1	%	14.1	%	$	4,894	$	3,895	25.6	%	26.3	%	26.8	%	21.6	%	24.6	%
Neurotechnology and Spine:
Neurotechnology	$	1,423	$	1,255	13.4	%	13.4	%	11.2	%	17.4	%	17.3	%	$	1,255	$	1,088	15.4	%	15.1	%	14.5	%	17.0	%	16.2	%
Spine	751		754		(0.4	)	(0.4	)	(0.6	)	0.1		0.2		754		740		1.8		2.0		3.9		(4.1	)	(3.5	)
	$	2,174	$	2,009	8.2	%	8.3	%	6.3	%	12.4	%	12.4	%	$	2,009	$	1,828	9.9	%	9.8	%	9.8	%	9.9	%	9.6	%
Total	$	12,444	$	11,325	9.9	%	9.8	%	10.1	%	9.4	%	9.0	%	$	11,325	$	9,946	13.9	%	14.3	%	15.6	%	9.4	%	10.8	%

Consolidated Net Sales

Consolidated net sales in 2017 increased 9.9% as reported and 9.8% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.1%. Excluding the 2.7% impact of acquisitions, net sales increased in constant currency by 8.2% from increased unit volume partially offset by 1.1% lower prices. The unit volume increase was primarily due to higher shipments of neurotechnology, endoscopy, knees, trauma and extremities and instruments products.

Consolidated net sales in 2016 increased 13.9% as reported and 14.3% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.4%. Excluding the 7.9% impact of acquisitions, net sales increased in constant currency by 7.8% from increased unit volume partially offset by 1.4% lower prices. The unit volume increase was primarily due to higher shipments of knees, instruments, endoscopy, neurotechnology, trauma and extremities and medical products.

Orthopaedics Net Sales

Orthopaedics net sales in 2017 increased 6.6% as reported and 6.5% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.1%. Excluding the 0.3% impact of acquisitions, net sales increased in constant currency by 8.6% from increased unit volume partially offset by 2.4% lower prices. The unit volume increase was led primarily by higher shipments of knees and trauma and extremities products.

Orthopaedics net sales in 2016 increased 4.7% as reported and 5.1% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.4%. Excluding the 0.3% impact of acquisitions, net sales increased in constant currency by 6.9% from increased unit volume partially offset by 2.1% lower prices. The unit volume increase was led primarily by higher shipments of knees and trauma and extremities products.

MedSurg Net Sales

MedSurg net sales in 2017 increased 13.6% as reported and 13.4% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.2%. Excluding the 5.6% impact of acquisitions, net sales increased in constant currency by 7.5% from increased unit volume and 0.2% higher prices. The unit volume increase was led primarily by higher shipments of endoscopy, instruments and medical products.

MedSurg net sales in 2016 increased 25.6% as reported and 26.3% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.7%. Excluding the 19.1% impact of acquisitions, net sales increased in constant currency by 7.8% from increased unit volume partially offset by 0.6% lower prices. The unit volume increase was led primarily by higher shipments of instruments, endoscopy and medical products.

Neurotechnology and Spine Net Sales

Neurotechnology and Spine net sales in 2017 increased 8.2% as reported and 8.3% in constant currency, as foreign currency exchange rates impacted net sales nominally. Excluding the 0.7% impact of acquisitions, net sales in constant currency increased by 9.1% from increased unit volume partially offset by 1.5% lower prices. The unit volume increase was led primarily by higher shipments of neurotechnology products.

Neurotechnology and Spine net sales in 2016 increased 9.9% as reported and 9.8% in constant currency, as foreign currency exchange rates positively impacted net sales by 0.1%. Excluding the 1.4% impact of acquisitions, net sales in constant currency increased by 9.8% from increased unit volume partially offset by 1.4% lower prices. The unit volume increase was led primarily by higher shipments of neurotechnology products.

Gross Profit

Gross profit in 2017 as a percentage of net sales decreased to 65.7% from 66.2% in 2016 primarily due to the impact from restructuring-related charges, the impact of hurricanes, unfavorable mix and inflation, partially offset by higher sales volumes, increased productivity and favorable impact of foreign currency exchange.

Gross profit as a percentage of net sales decreased to 66.2% in 2016 from 66.4% in 2015 as the benefit from the suspension of the medical device excise tax and favorable productivity was more than offset by unfavorable mix, including the impact of acquisitions and the unfavorable impact of foreign currency exchange.



							Percent Net Sales
	2017		2016		2015		2017		2016		2015
Reported	$	8,173	$	7,495	$	6,602	65.7	%	66.2	%	66.4	%
Inventory stepped up to fair value	22		36		7		0.2		0.3		0.1
Restructuring-related and other charges	57		15		7		0.4		0.1		—
Adjusted	$	8,252	$	7,546	$	6,616	66.3	%	66.6	%	66.5	%

Research, Development and Engineering Expenses

Research, development and engineering expenses represented 6.3% of net sales in 2017, 2016 and 2015. Projects to develop new products, investments in new technologies and recent acquisitions contributed to the spending levels, reflecting our continued commitment to innovation.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of net sales in 2017 increased to 36.6% from 36.5% in 2016. Excluding the impact of certain items in the table below, expenses as a percentage of net sales were 34.8% in 2017 and 2016. This reflects favorable leverage from higher sales volumes and continued focus on operating expense improvement initiatives, including leverage from our recent acquisitions, partially offset by the unfavorable impact of foreign currency exchange.

Selling, general and administrative expenses as a percentage of net sales in 2016 increased to 36.5% from 36.3% in 2015. Excluding the impact of certain items noted below, selling, general and administrative expenses as a percentage of sales decreased in 2016 due to favorable leverage from the continued focus on operating expense improvement initiatives, cost containment efforts and business mix, including leverage from our recent acquisitions.



										Percent Net Sales
	2017			2016			2015			2017		2016		2015
Reported	$	4,552		$	4,137		$	3,610		36.6	%	36.5	%	36.3	%
Other acquisition and integration-related	(42		)	(95		)	(28		)	(0.4	)	(0.8	)	(0.3	)
Restructuring-related and other charges	(137		)	(110		)	(125		)	(1.1	)	(1.0	)	(1.2	)
Regulatory and legal matters	(39		)	12			53			(0.3	)	0.1		0.5
Adjusted	$	4,334		$	3,944		$	3,510		34.8	%	34.8	%	35.3	%

Recall Charges, Net of Insurance Proceeds

Recall charges, net of insurance proceeds, were $173, $158 and $296 in 2017, 2016 and 2015. Charges were primarily due to the previously disclosed Rejuvenate and ABGII Modular-Neck hip stems voluntary recalls. Refer to Note 6 to our Consolidated Financial Statements for further information.

Amortization of Intangible Assets

Amortization of intangible assets was $371, $319 and $210 in 2017, 2016 and 2015. The increase in 2017 and 2016 was due to acquisitions. Refer to Note 7 to our Consolidated Financial Statements for further information.

Other Income (Expense), Net

Other income (expense), net was ($227), ($245) and ($126) in 2017, 2016 and 2015. The decrease in 2017 was primarily driven by higher interest income and decreased foreign currency transaction losses, partially offset by higher interest expense due to higher debt levels as a result of our January 2017 debt offering. Refer to Note 9 to our Consolidated Financial Statements for further information.

Income Taxes

The effective income tax rate on earnings was 50.6%, 14.3% and

17.1% for 2017, 2016 and 2015. The effective income tax rate for 2017 includes the impact of complying with the Tax Cuts and Jobs Act of 2017 signed into law in December 2017, partially offset by the benefits from the adoption of ASU 2016-09 Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting on January 1, 2017 and continued lower effective income tax rates as a result of the European regional headquarters. The establishment of the European regional headquarters contributed to the lower effective income tax rates in 2016 and 2015.

Net Earnings

Net earnings in 2017 decreased to $1,020 or $2.68 per diluted share from $1,647 or $4.35 per diluted share in 2016 and $1,439 or $3.78 per diluted share in 2015. The impact of foreign currency exchange rates reduced net earnings per diluted share by approximately $0.07, $0.11 and $0.26 in 2017, 2016 and 2015.



									Percent Net Sales
	2017		2016			2015			2017		2016		2015
Reported	$	1,020	$	1,647		$	1,439		8.2	%	14.5	%	14.5	%
Inventory stepped up to fair value	20		23			4			0.2		0.2		—
Other acquisition and integration-related	31		77			20			0.2		0.7		0.2
Amortization of intangible assets	250		221			147			2.0		2.0		1.5
Restructuring-related and other charges	155		98			97			1.2		0.9		1.0
Rejuvenate and other recall matters	131		127			210			1.1		1.1		2.1
Regulatory and legal matters	25		(7		)	(46		)	0.2		(0.1	)	(0.5	)
Tax matters	833		8			78			6.7		0.1		0.8
Adjusted	$	2,465	$	2,194		$	1,949		19.8	%	19.4	%	19.6	%

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 amortization of intangible assets; adjusted operating income; adjusted effective income tax rate; adjusted net earnings; and adjusted net earnings per diluted share (Diluted EPS). We believe that these non-GAAP measures provide meaningful information to assist investors and shareholders in understanding our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures for reviewing the operating results of reportable business segments and analyzing potential future business trends in connection with our budget process and bases certain management incentive compensation on these non-GAAP financial measures.

To measure percentage sales growth in constant currency, we remove the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Percentage sales growth in constant currency is calculated by translating current 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 that

affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year results at prior year average foreign currency exchange rates excluding the impact of acquisitions.

To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings. These adjustments are irregular in timing 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, weather-related asset impairments and associated costs and other restructuring-related activities.


4.	Rejuvenate and other recall matters. Our best estimate of the minimum of the range of probable loss to resolve certain product recalls.


5.	Regulatory and legal matters. Our best estimate of the

minimum of the range of probable loss to resolve certain regulatory matters and other legal settlements.


6.	Tax matters. Charges represent the impact of accounting for the compliance with the Tax Cuts and Jobs Act of 2017, certain significant and discrete tax items and adjustments to interest expense related to the settlement of certain tax matters.

Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, gross profit, cost of sales, selling, general and administrative expenses, amortization of intangible assets, operating income, effective income tax rate, net earnings and net earnings per diluted share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of our operations when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures at the end of the discussion of 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 basic and diluted shares outstanding used in the calculation of non-GAAP earnings per share are the same as those used in the calculation of the reported per share amounts.

FINANCIAL CONDITION AND LIQUIDITY



	2017			2016			2015
Net cash provided by operations activities	$	1,559		$	1,915		$	981
Net cash (used in) provided by investing activities	(1,613		)	(4,191		)	1,956
Net cash (used in) provided by financing activities	(794		)	2,258			(1,223		)
Effect of exchange rate changes	74			(45		)	(130		)
Change in cash and cash equivalents	$	(774	)	$	(63	)	$	1,584

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

Operating Activities

Cash provided by operations was $1,559, $1,915, and $981 in 2017, 2016 and 2015. The decrease in cash from operations in 2017 was primarily due to higher Rejuvenate and ABG II recall-related payments compared to 2016 and the unfavorable impact of foreign currency remeasurement. The net of accounts receivable, inventory and accounts payable resulted in the consumption of $461, $507, and $231 of cash in 2017, 2016 and 2015.

Investing Activities

Cash (used in) provided by investing activities was ($1,613), ($4,191) and $1,956 in 2017, 2016 and in 2015.

Acquisitions, Net of Cash Acquired: Acquisitions resulted in cash consumption of $831, $4,332 and $153 in 2017, 2016 and 2015. In 2017 we acquired NOVADAQ and certain other businesses and related assets. In 2016 the primary acquisitions were Sage and Physio. In 2015 the primary acquisition was CHG Hospital Beds, Inc.

Purchases of Property, Plant and Equipment: Purchases of property, plant and equipment were $598, $490 and $270 in 2017, 2016 and 2015. Capital expenditures in 2017 were primarily due to capital expenditures associated with the development of our global ERP system and investments in new and existing plants and equipment to support sales growth.

Marketable Securities, Net: Net cash (used in) provided by the (purchase) sale of marketable securities was ($183), $634, and $2,379 in 2017, 2016 and 2015. Cash provided by the sale of marketable securities in 2016 was used to repay all of our senior unsecured notes that were due in September 2016. Cash provided by sales of marketable securities in 2015 was primarily used to make recall-related payments.

Financing Activities

Dividends and Share Repurchases: Dividends paid per common share increased 11.8% to $1.70 per share in 2017 compared to $1.52 per share in 2016, an increase of 10.1% from $1.38 in 2015.



	2017		2016		2015
Dividends paid per common share	$	1.70	$	1.52	$	1.38
Total dividends paid to common shareholders	$	636	$	568	$	521
Total amount paid to repurchase common stock	$	230	$	13	$	700
Shares of repurchased common stock (in millions)	1.9		0.1		7.4

Borrowings and Repayments of Debt: We maintain debt levels that we consider appropriate after evaluating a number of factors including cash requirements for ongoing operations, investment and financing plans (including acquisitions and share repurchase activities) and overall cost of capital.

Net proceeds from borrowings were $299, $2,912 and $48 in 2017, 2016 and 2015. In 2017 the proceeds were primarily from the issuance of $500 of senior unsecured notes in January 2017 partially offset by payment of $200 of commercial paper. In 2016 the proceeds were primarily from the issuance of $3,500 of senior unsecured notes in March 2016 partially offset by repayment of $750 of our senior unsecured notes due in September 2016. Refer to Note 9 to our Consolidated Financial Statements for further information.

Liquidity

Cash, cash equivalents and marketable securities were $2,793 and $3,384, and our current assets exceeded current liabilities by $4,508 and $4,713 on December 31, 2017 and 2016. We anticipate being able to support our short-term liquidity and operating needs, including acquisitions and recall-related payments, from a variety of sources, including cash from operations, commercial paper and existing credit lines. We have raised funds in the capital markets and may continue to do so from time to time. As a result of the issuance of senior unsecured notes in March 2016, Moody's downgraded our unsecured note ratings to Baa1 from A3, and Standard & Poor's downgraded our corporate credit and long-term issue-level rating to A from A+ and our short-term rating to A-1 from A-1+. Nevertheless, 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.

We have existing credit facilities should additional funds be required. We have a borrowing capacity available under our main credit facility of $1,500. The amount of commercial paper we have issuable under the commercial paper program is $1,500.

Our cash, cash equivalents and marketable securities held in locations outside the United States was approximately 62% and 84% on December 31, 2017 and 2016. The majority of our cash held in locations outside the United States is considered to be indefinitely reinvested. We intend to use this cash to expand operations organically and through acquisitions.

Guarantees and Other Off-Balance Sheet Arrangements

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

CONTRACTUAL OBLIGATIONS AND FORWARD-LOOKING CASH REQUIREMENTS

As further described in Note 6 to our Consolidated Financial Statements, in 2017 we recorded additional charges to earnings totaling $104 related to the Rejuvenate and ABG II recalls. Based on the information received, the actuarially determined range of probable loss to resolve this matter was estimated to be approximately $2,072 to $2,307 ($2,304 to $2,539 before $232 of third-party insurance recoveries). The final outcome of this matter is dependent on many variables that are difficult to predict. The ultimate cost to entirely resolve this matter may be materially different than the amount of the current estimate and could have a material adverse effect on our financial position, results of operations and cash flows. We are not able to reasonably estimate the future periods in which payments will be made.

As further described in Note 10 to our Consolidated Financial Statements, on December 31, 2017 we had a reserve for uncertain income tax positions of $540. Due to uncertainties regarding the ultimate resolution of income tax audits, we are not able to reasonably estimate the future periods in which any income tax payments to settle these uncertain income tax positions will be made.

As further described in Note 11 to our Consolidated Financial Statements, on December 31, 2017 our defined benefit pension plans were underfunded by $338, of which approximately $331 related to plans outside the United States. Due to the rules affecting tax-deductible contributions in the jurisdictions in which the plans are offered and the impact of future plan asset performance, changes in interest rates and potential changes in legislation in the United States and other foreign jurisdictions, we are not able to reasonably estimate the amounts that may be required to fund defined benefit pension plans.



Contractual Obligations
	Total		2018		2019 - 2020		2021 - 2022		After 2022
Total debt	$	7,250	$	600	$	1,750	$	750	$	4,150
Interest payments	2,995		230		406		331		2,028
Unconditional purchase obligations	1,144		1,046		97		1		—
Operating leases	326		106		108		52		60
Other	133		13		13		7		100
Total	$	11,848	$	1,995	$	2,374	$	1,141	$	6,338

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements in accordance with generally accepted accounting principles, there are certain accounting policies, which may require substantial judgment or estimation in their application. We believe these accounting policies and the others set forth in Note 1 to our Consolidated Financial Statements are critical to understanding our results of operations and financial condition. Actual results could differ from our estimates and assumptions, and any such differences could be material to our results of operations and financial condition.

Inventory Reserves

We maintain reserves for excess and obsolete inventory resulting from the potential inability to sell certain products at prices in excess of current carrying costs. We make estimates regarding the future recoverability of the costs of these products and record provisions based on historical experience, expiration of sterilization dates and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write downs may be required, which could unfavorably affect future operating results.

Income Taxes

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

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

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

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

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

Acquisitions, Goodwill and Intangibles, and Long-Lived Assets

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

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

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

In some of our acquisitions, we acquire in-process research and development (IPRD) intangible assets. IPRD is considered to be an indefinite-lived intangible asset until the research is completed (then it becomes a determinable-lived intangible asset) or determined to have no future use (then it is impaired).

The value of indefinite-lived intangible assets and goodwill is not amortized but is tested at least annually for impairment. Our impairment testing for goodwill is performed separately from our impairment testing of indefinite-lived intangibles. We perform our annual impairment test for goodwill in the fourth quarter of each year. We consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. In certain circumstances, we also use a discounted cash flow analysis that requires certain assumptions and estimates be made regarding market conditions and our future profitability. In those circumstances we test goodwill for impairment by reviewing the book value compared to the fair value at the reporting unit level. We test individual indefinite-lived intangibles by reviewing the individual book values compared to the fair value. We determine the fair value of our reporting units and indefinite-lived intangible assets based on the income approach. Under the income approach, we calculate the fair value of our reporting units and indefinite-lived intangible assets based on the present value of estimated future

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

We did not recognize any impairment charges for goodwill in the years presented, as our annual impairment testing indicated that all reporting unit goodwill fair values exceeded their respective recorded values. Future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived intangible assets, including discount and tax rates and future cash flow projections, could result in significantly different estimates of the fair values. A significant reduction in the estimated fair values could result in impairment charges that could materially affect our results of operations.

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

Legal and Other Contingencies

We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor and intellectual property, and other matters that are more fully described in Note 6 to our Consolidated Financial Statements. The outcomes of these matters will generally not be known for prolonged periods of time. In certain of the legal proceedings, the claimants seek damages, as well as other compensatory and equitable relief, that could result in the payment of significant claims and settlements and/or the imposition of injunctions or other equitable relief. For legal matters for which management had sufficient information to reasonably estimate our future obligations, a liability representing management's best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known, for the resolution of these legal matters is recorded. The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than those projected by management, additional expense may be incurred, which could unfavorably affect future operating results. We are currently self-insured for product liability-related claims and expenses. The ultimate cost to us with respect to product liability claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

NEW ACCOUNTING PRONOUNCEMENTS

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



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:
Common Stock, $.10 par value		New York Stock Exchange
(Title of each class)		(Name of each exchange on which registered)



Large accelerated filer	[X]		Accelerated filer	[ ]
Non-accelerated filer	[ ]	(Do not check if a smaller reporting company)	Small reporting company	[ ]
			Emerging growth company	[ ]



PART I
Item 1.	Business	1
Item 1A.	Risk Factors	3
Item 1B.	Unresolved Staff Comments	6
Item 2.	Properties	6
Item 3.	Legal Proceedings	6
Item 4.	Mine Safety Disclosures	6

PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	6
Item 6.	Selected Financial Data	7
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 8.	Financial Statements and Supplementary Data	16
	Report of Independent Registered Public Accounting Firm	16
	Consolidated Statements of Earnings	17
	Consolidated Statements of Comprehensive Income	17
	Consolidated Balance Sheets	18
	Consolidated Statements of Shareholders’ Equity	19
	Consolidated Statements of Cash Flows	20
	Notes to Consolidated Financial Statements	21
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	31
Item 9A.	Controls and Procedures	31
Item 9B.	Other Information	33

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	33
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13.	Certain Relationships and Related Transactions, and Director Independence	33
Item 14.	Principal Accounting Fees and Services	33

PART IV
Item 15.	Exhibits, Financial Statement Schedules	34
Item 16.	Form 10-K Summary	37



	2017			2016
Assets
Current assets
Cash and cash equivalents	$	2,542		$	3,316
Marketable securities	251			68
Accounts receivable, less allowance of $59 ($56 in 2016)	2,198			1,967
Inventories:
Materials and supplies	528			425
Work in process	148			130
Finished goods	1,789			1,475
Total inventories	$	2,465		$	2,030
Prepaid expenses and other current assets	537		</



[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



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



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



Geographic and Segment Net Sales							Percentage Change
Geographic and Segment Net Sales							2017/2016				2016/2015
	2017		2016		2015		As Reported		Constant Currency		As Reported		Constant Currency
Geographic:
United States	$	9,059	$	8,230	$	7,116	10.1	%	10.1	%	15.7	%	15.6	%
International	3,385		3,095		2,830		9.4		9.0		9.4		10.8
Total	$	12,444	$	11,325	$	9,946	9.9	%	9.8	%	13.9	%	14.3	%
Segment:
Orthopaedics	$	4,713	$	4,422	$	4,223	6.6	%	6.5	%	4.7	%	5.1	%
MedSurg	5,557		4,894		3,895		13.6		13.4		25.6		26.3
Neurotechnology and Spine	2,174		2,009		1,828		8.2		8.3		9.9		9.8
Total	$	12,444	$	11,325	$	9,946	9.9	%	9.8	%	13.9	%	14.3	%



2017	Gross Profit		Selling, General & Administrative Expenses			Amortization of Intangible Assets			Operating Income		Net Earnings		Effective Tax Rate		Diluted EPS
Reported	$	8,173	$	4,552		$	371		$	2,290	$	1,020	50.6	%	$	2.68
Acquisition and integration-related charges:
Inventory stepped up to fair value	22		—			—			22		20		(0.1	)	0.05
Other acquisition and integration-related	—		(42		)	—			42		31		0.2		0.09
Amortization of purchased intangible assets	—		—			(371		)	371		250		3.0		0.67
Restructuring-related and other charges	57		(137		)	—			194		155		0.4		0.41
Rejuvenate and other recall matters	—		—			—			173		131		0.7		0.34
Regulatory and legal matters	—		(39		)	—			39		25		0.4		0.06
Tax Matters	—		—			—			—		833		(39.6	)	2.19
Adjusted	$	8,252	$	4,334		$	—		$	3,131	$	2,465	15.6	%	$	6.49



ITEM 6.	SELECTED FINANCIAL DATA.



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