Issue link: http://catalog.e-digitaleditions.com/i/467674
royalty and foreign branch arrangements, may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates. New Accounting Pronouncements Not Yet Adopted: In May 2014, the FASB issued Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes and replaces nearly all currently-existing United States GAAP revenue recognition guidance including related disclosure requirements. This guidance will be effective for us beginning January 1, 2017. We have not yet completed our assessment of the impact that adoption of this guidance will have on our financial statements. STRYKER CORPORATION 2014 Form 10-K 25 Dollar amounts in millions except per share amounts or as otherwise specified. NOTE 2 - ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) Changes in and reclassifications out of AOCI, net of tax, for the years ended December 31, 2014 and 2013 were: 2014 2013 Marketable Securities - Beginning $ — $ 4 Other comprehensive income (OCI) 12 16 Income tax expense on OCI (2) 1 Reclassifications out of AOCI into: Cost of sales — — Other (income) expense (9) (21) Income tax expense (benefit) 2 — Total other comprehensive income 3 (4) Marketable Securities - Ending $ 3 $ — Pension Plans - Beginning $ (81) $ (101) Other comprehensive income (OCI) (72) 30 Income tax expense on OCI 22 (15) Reclassifications out of AOCI into: Cost of sales (6) 7 Other (income) expense — — Income tax expense (benefit) 1 (2) Total other comprehensive income (55) 20 Pension Plans - Ending $ (136) $ (81) Hedges - Beginning $ 7 $ — Other comprehensive income (OCI) 10 8 Income tax expense on OCI (4) 4 Reclassifications out of AOCI into: Cost of sales (1) (9) Other (income) expense — — Income tax expense (benefit) 1 4 Total other comprehensive income 6 7 Hedges - Ending $ 13 $ 7 Financial Statement Translation - Beginning $ 306 $ 226 Other comprehensive income (OCI) (440) 80 Financial Statement Translation - Ending $ (134) $ 306 AOCI - Beginning $ 232 $ 129 Other comprehensive income (OCI) (490) 134 Income tax expense on OCI 16 (10) Reclassifications out of AOCI into: Cost of sales (7) (2) Other (income) expense (9) (21) Income tax expense (benefit) 4 2 Total other comprehensive income (486) 103 AOCI - Ending $ (254) $ 232 NOTE 3 - FAIR VALUE MEASUREMENTS Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories: Level 1 Quoted market prices in active markets for identical assets or liabilities. Level 2 Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 Unobservable inputs reflecting our assumptions or external inputs from active markets. When applying fair value principles in the valuation of assets and liabilities, we are required to maximize the use of quoted market prices and minimize the use of unobservable inputs. We calculate the fair value of our Level 1 and Level 2 instruments based on the exchange traded price of similar or identical instruments, where available, or based on other observable inputs. There were no significant transfers into or out of Level 1 or Level 2 that occurred between December 31, 2014 and December 31, 2013. The fair value of our Level 3 assets and liabilities are calculated as the net present value of expected cash flows based on externally provided or obtained inputs. Certain Level 3 assets may also be based on sale prices of similar assets. Our fair value calculations take into consideration our credit risk and that of our counterparties. Should a counterparty default, our maximum exposure to loss is the asset balance of the instrument. We did not change our valuation techniques used in measuring the fair value of any financial assets and liabilities during the year. Our valuation of our assets and liabilities measured at fair value at December 31, 2014 and 2013 is: 2014 2013 Cash and cash equivalents $ 1,795 $ 1,339 Trading marketable securities 80 72 Level 1 - Assets 1,875 1,411 Available-for-sale marketable securities Corporate and asset-backed debt securities 1,525 1,177 Foreign government debt securities 726 845 United States agency debt securities 382 211 United States treasury debt securities 474 350 Certificates of deposit 110 53 Other 12 5 Total available-for-sale marketable securities 3,229 2,641 Foreign currency exchange forward contracts 32 25 Interest rate swap asset 10 — Level 2 - Assets 3,271 2,666 Total assets measured at fair value $ 5,146 $ 4,077 Deferred compensation arrangements $ 80 $ 72 Level 1 - Liabilities 80 72 Foreign currency exchange forward contracts 12 2 Level 2 - Liabilities 12 2 Contingent consideration Beginning Balance 59 103 Losses (Gains) included in earnings 4 (5) Settlements (15) (39) Ending Balance 48 59 Level 3 - Liabilities 48 59 Total liabilities measured at fair value $ 140 $ 133