AUDIT COMMITTEE CHARTER
This Charter governs the operations of the Audit Committee of the Board of Directors of Stryker Corporation (the “Committee”). The Committee shall review and reassess the adequacy of this Charter at least annually and recommend any proposed changes to the Board of Directors for approval. This Charter may be amended only by the affirmative vote of the Board of Directors.
1.1 The Committee shall be appointed annually by the Board of Directors upon the recommendation of the Governance and Nominating Committee and shall comprise at least three directors, each of whom has been affirmatively determined by the Board to be independent of the Company. A director shall not be considered independent if he or she (i) accepts, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries other than in his or her capacity as a member of the Committee, the Board of Directors or any other committee of the Board, (ii) is an affiliate of the Company or any of its subsidiaries, (iii) has a material relationship with the Company or any of its subsidiaries (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company or a subsidiary and determined not merely from the standpoint of the director but also from that of any person or organization with which the director is affiliated) that may interfere with the exercise of his or her independence from management and the Company or (iv) does not meet any other independence requirement under applicable laws, rules or stock exchange listing standards, each as in effect from time to time.
1.2 All Committee members shall be financially literate and at least one member shall have a strong financial/investment background as determined by the Board in its business judgment. In addition, at least one member shall qualify as an “audit committee financial expert” as defined in rules promulgated by the Securities and Exchange Commission (“SEC”).
The Committee shall meet as often as it deems necessary to fulfill its responsibilities, but not less frequently than quarterly. Periodically during the year, the Committee shall meet separately with management, the internal auditors and the independent auditors to discuss issues and concerns warranting Committee attention. At least annually, the Committee shall coordinate with the Governance and Nominating Committee with regard to matters of mutual interest within the context of each Committee’s responsibilities for compliance with legal and regulatory requirements. The Committee shall report regularly to the Board of Directors.
The Committee shall provide assistance to the Board of Directors in fulfilling its oversight responsibility to the shareholders, potential shareholders, the investment community and others relating to (i) the integrity of the Company’s financial statements and its financial reporting process; (ii) the qualifications, independence and performance of the Company’s independent auditors; (iii) the performance of the Company’s internal audit function; and (iv) the Company’s compliance with legal and regulatory requirements. In addition, the Committee shall assist the Board of Directors in discharging its responsibilities with respect to certain financial matters, including the review of the Company’s investment, dividend and share repurchase policies and financing arrangements. In so doing, it is the responsibility of the Committee to maintain free and open communication among the Committee, the Board of Directors, the independent auditors, the internal audit and compliance supervisory personnel of the Company and management of the Company. In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention, with full access to all books, records, facilities and personnel of the Company and the independent auditor and the power to retain, at the Company’s expense, independent legal, accounting and other advisers to provide advice and assistance as the Committee deems necessary or appropriate to carry out its duties.
4. Responsibilities and Processes
4.1 The primary responsibility of the Committee is to oversee the accounting and financial reporting processes of the Company and the audits and reviews of the financial statements of the Company and to report to the Board with respect thereto. While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Management is responsible for preparing the Company’s financial statements and the independent auditors are responsible for auditing the Company’s annual financial statements and for reviewing the Company’s interim unaudited financial statements. The Committee shall take appropriate action to set the overall corporate “tone” for quality financial reporting, sound business risk practices and compliant and ethical behavior.
4.2 The Committee in carrying out its responsibilities believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The following shall be the principal duties and responsibilities of the Committee and are set forth as a guide, with the understanding that the Committee may supplement them as appropriate:
4.3 Relationship with the Company’s Independent Auditors.
4.3.1 The Committee shall be directly responsible for the appointment, retention and oversight of the work of the firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services, which firm or firms shall report directly to the Committee, and for the determination of the compensation to be paid by the Company for such services.
4.3.2 The Committee shall evaluate the qualifications, performance and independence of the independent auditors (after receipt of the written disclosures and letter required by Independence Standards Board Standard No. 1 from the independent auditors confirming the professional judgment of the independent auditors that the firm is independent of the Company).
4.3.3 The Committee shall pre-approve all audit and non-audit services to be provided by the independent auditors (other than non-audit services that satisfy an exception provided by applicable law) and, in the case of non-audit services, provide for the disclosure of such approval as required by SEC regulations. The independent auditors shall not be engaged to perform any non-audit service proscribed by law or regulation. The independent auditors shall not be engaged to provide any permitted non-audit service unless it is affirmatively determined that performing such service is compatible with maintaining the independent auditors’ independence. The Committee may delegate pre-approval authority to a member of the Committee. The decisions of any Committee member to whom pre-approval authority is delegated must be presented to the full Committee at its next scheduled meeting.
4.3.4 At least annually, the Committee shall obtain and review a report by the independent auditors that describes:
18.104.22.168 The independent auditors’ internal quality control procedures;
22.214.171.124 Any material issues raised by the most recent internal quality control review, or peer review, of the independent auditor, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, with respect to one or more audits carried out by the independent auditor and the steps taken to deal with any such issues; and
126.96.36.199 All relationships between the independent auditors and the Company (in order to assess independence).
4.3.5 The Committee shall evaluate the partner of the independent auditors who has primary responsibility for the audit, taking into account the opinions of the Company’s management and its internal auditors, and shall ensure that such lead partner and the reviewing partner are rotated at least every five years.
4.3.6 The Committee shall set clear hiring policies for employees or former employees of the independent auditors that meet applicable SEC regulations and stock exchange listing standards.
4.4 Oversight Responsibilities.
4.4.1 The Committee shall discuss with the independent auditors the overall scope and plans for the audit, including the adequacy of staffing, and the estimated fees.
4.4.2 The Committee shall discuss with the Vice President, Internal Audit the responsibilities, budget and staffing of the internal audit function and the planned scope of internal audits and any significant changes therein and review summaries of the reports issued by the internal audit function, together with management’s responses and follow-up to such reports.
4.4.3 The Committee shall discuss with management, the Vice President, Internal Audit and the independent auditors the adequacy and effectiveness of the accounting and financial controls, and special audit steps adopted in light of any material control deficiencies that could significantly affect the Company’s financial statements.
4.4.4 The Committee shall review with the independent auditors any audit problem or difficulty encountered in the course of the audit work, including any restriction on the scope of activities or access to required information, and any significant disagreement with management.
4.4.5 The Committee shall resolve disagreements between management and the independent auditor regarding financial reporting.
4.4.6 The Committee shall receive regular reports from the independent auditors regarding the critical accounting policies and practices used by the Company and the alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, the ramifications of the use of such alternative treatments and the treatment preferred by the independent auditors.
4.4.7 The Committee shall review any management or internal control letter or schedule of unadjusted differences and other material written communications between the independent auditors and management.
4.4.8 The Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, and auditing matters. The Committee shall establish procedures for the confidential, anonymous submission of concerns by employees of the Company that provide protection to an employee who reports such information.
4.4.9 The Committee shall review with management and the independent auditors the potential effect of regulatory and accounting initiatives on the Company’s financial statements.
4.4.10 The Committee shall review and discuss with management the Company’s policies and practices with respect to risk assessment and risk management, including the guidelines and policies that govern the assessment and management of the Company’s exposure to risk and the steps management has taken to assess, monitor and control such exposure.
4.4.11 The Committee shall review the status of compliance with laws, regulations and internal procedures. The Committee shall coordinate its review of the last two matters with the Governance and Nominating Committee and may rely on reports, analyses and recommendations provided to it by that Committee.
4.5 Review of Periodic Statements and Disclosures.
4.5.1 The Committee shall review management’s certifications of disclosure controls and procedures and internal control over financial reporting as of the end of each fiscal quarter and at year end and, in the case of the report of management as of year-end, the required report of management and attestation of the independent auditors regarding management’s evaluation of the internal control over financial reporting.
4.5.2 The Committee shall review analyses prepared by management and the independent auditors of significant accounting and financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements and its financial reporting generally, including an analysis of any significant changes in the Company’s selection or application of accounting principles, the critical accounting policies and practices used, off-balance sheet financial structures and the use of non-GAAP financial measures.
4.5.3 The Committee shall review and discuss with management the policies with respect to earnings press releases, as well as the financial information and earnings guidance to be provided to analysts and rating agencies. Such review may be done generally (consisting of reviewing the types of information to be disclosed and the types of presentations to be made) and need not be in connection with each earnings release or each instance in which the Company provides earnings guidance.
4.5.4 The Committee shall discuss the results of the annual audit and any other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards, including the matters required to be discussed by Statement on Auditing Standards No. 61, as amended by Statement on Auditing Standards Nos. 89 and 90, relating to the conduct of the audit.
4.5.5 The Committee shall review and discuss with management and the independent auditors the audited financial statements and the disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations, and recommend to the Board of Directors that such financial statements and disclosures be included in the Company’s Annual Report on Form 10-K (or the annual report to shareholders if distributed prior to the filing of Form 10-K).
4.5.6 The Committee shall prepare its report to be included in the Company’s annual proxy statement, as required by SEC regulations.
4.5.7 The Committee shall discuss the results of the quarterly review and any other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards.
4.5.8 The Committee shall review and discuss the interim financial statements and the disclosures under Management’s Discussion and Analysis of Financial Condition and Results of Operations with management and the independent auditors prior to the filing of the Company’s Quarterly Report on Form 10-Q.
4.6 Other Activities & Financial Matters.
4.6.1 The Committee shall oversee the Company’s Related Party Transactions Policy and approve or disapprove transactions as provided therein.
4.6.2 The Committee shall perform an evaluation of its performance at least annually to determine whether it is functioning effectively.
4.6.3 The Committee shall annually review the Company’s investment policies with respect to the various U.S. and International employee savings and retirement plans (“the Plans”) and the investment and safeguarding of the working reserves of cash of Stryker Corporation. These reviews shall include cash held in foreign countries and repatriation thereof and risk areas (including foreign exchange, interest rates, investments and derivatives).
4.6.4 The Committee shall review and approve the Company’s annual Capital Plan and take action with respect to proposed capital expenditures not in the Plan that exceed the CEO approval threshold.
4.6.5 The Committee shall review, and make recommendations to the Board of Directors regarding (i) the Company’s dividend policy and dividend actions; (ii) the Company’s plans for share repurchases; and (iii) the capital structure of the Company and any significant financing arrangements (including debt or equity securities and credit agreements).
This Charter was approved by the Board of Directors on February 10, 2004 and amended on February 14, 2007; April 23, 2008; September 27, 2011; April 21, 2014; and September 29, 2015.