REVENUE RECOGNITION

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

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

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

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

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

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

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



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



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



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

Orthopaedics

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

MedSurg

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

Neurotechnology and Spine

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

Contract Assets and Liabilities

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

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