REVENUE RECOGNITION

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

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

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

Sales are recognized as the performance obligations to deliver products or services are satisfied and are recorded based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. In the United States most of our products and services are marketed directly to doctors, hospitals and other healthcare facilities through company-owned subsidiaries and branches. Our products are also sold in over 85 countries through company-owned sales subsidiaries and branches as well as third-party dealers and distributors.

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

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

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



	Three Months				Six Months
	2018		2017		2018		2017
Orthopaedics:
Knees	$	422	$	389	$	841	$	780
Hips	336		322		667		642
Trauma and Extremities	387		351		776		703
Other	83		79		160		151
	$	1,228	$	1,141	$	2,444	$	2,276
MedSurg:
Instruments	$	438	$	392	$	850	$	786
Endoscopy	448		406		892		779
Medical	505		474		1,016		949
Sustainability	64		64		124		127
	$	1,455	$	1,336	$	2,882	$	2,641
Neurotechnology and Spine:
Neurotechnology	$	437	$	352	$	847	$	683
Spine	202		183		390		367
	$	639	$	535	$	1,237	$	1,050
Total	$	3,322	$	3,012	$	6,563	$	5,967



	Three Months 2018				Three Months 2017
	United States		International		United States		International
Orthopaedics:
Knees	$	304	$	118	$	282	$	107
Hips	207		129		203		119
Trauma and Extremities	242		145		228		123
Other	68		15		65		14
	$	821	$	407	$	778	$	363
MedSurg:
Instruments	$	339	$	99	$	303	$	89
Endoscopy	354		94		319		87
Medical	384		121		372		101
Sustainability	63		1		64		1
	$	1,140	$	315	$	1,058	$	278
Neurotechnology and Spine:
Neurotechnology	$	280	$	158	$	223	$	129
Spine	144		57		141		42
	$	424	$	215	$	364	$	171
Total	$	2,385	$	937	$	2,200	$	812



	Six Months 2018				Six Months 2017
	United States		International		United States		International
Orthopaedics:
Knees	$	605	$	236	$	568	$	212
Hips	412		255		407		235
Trauma and Extremities	487		289		456		247
Other	131		29		122		29
	$	1,635	$	809	$	1,553	$	723
MedSurg:
Instruments	$	655	$	195	$	611	$	175
Endoscopy	703		189		611		168
Medical	765		251		742		206
Sustainability	123		1		127		1
	$	2,246	$	636	$	2,091	$	550
Neurotechnology and Spine:
Neurotechnology	$	536	$	312	$	438	$	245
Spine	282		107		282		85
	$	818	$	419	$	720	$	330
Total	$	4,699	$	1,864	$	4,364	$	1,603

Orthopaedics

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

MedSurg

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

Neurotechnology and Spine

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

Contract Assets and Liabilities

The nature of our products and services do not generally give rise to contract assets as we typically do not incur costs to fulfill a contract before a product or service is provided to a customer. Our costs to obtain contracts are typically in the form of sales commissions paid to employees of Stryker or third-party agents. We have elected to expense sales commissions associated with obtaining a contract as incurred as the amortization period is generally less than one year. These costs have been presented within selling, general and administrative expenses. On June 30, 2018 there were no contract assets recorded in our Consolidated Balance Sheets.

Our contract liabilities arise as a result of unearned revenue received from customers at inception of contracts for certain businesses or where the timing of billing for services precedes satisfaction of our performance obligations. We generally satisfy performance obligations within one year from the contract inception date. On January 1, 2018 our contract liabilities were $381, which were reported in accrued expenses and other liabilities and other noncurrent liabilities in our Consolidated Balance Sheets, $33 of which was recognized in sales in the three months 2018 and $158 in the six months 2018. On June 30, 2018 our contract liabilities were $337.