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STRYKER CORPORATION 2016 Form 10-K Dollar amounts in millions except per share amounts or as otherwise specified. 25 Interest Rate Hedges On December 31, 2016 we had interest rate swaps with notional amounts of $600 designated as forward starting interest rate swaps in anticipation of future debt issuances. The market value of outstanding interest rate swap agreements on December 31, 2016 was $48, which was recorded in other long term assets with an offsetting amount recorded in AOCI. Upon the probable issuance of the debt, these amounts will be released to interest expense over the term of the debt. The cash flow effect of this hedge is recorded in cash flow from operations. In 2016 we terminated multiple designated interest rate cash flow hedges, recognized $7 in OCI related to hedges on our debt issuances and recognized a nominal amount of ineffectiveness in interest expense. The remaining amounts in AOCI will be reclassified to interest expense over the term of the debt. The cash flow effect of these hedges is recognized in cash flow from operations. On December 31, 2016 we had interest rate swaps with gross notional amounts of $500 designated as fair value hedges of underlying fixed rate obligations representing a portion of our $600 senior unsecured notes due in 2024. There was no hedge ineffectiveness recorded as a result of these fair value hedges. Fair Value Interest Rate Hedge Instruments 2016 2015 Gross notional amount $ 500 $ 500 Fair value: Other noncurrent assets 9 15 Long-term debt (9) (15) Total $ — $ — NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME Marketable Securities Pension Plans Hedges Financial Statement Translation Total 2016 Beginning $ — $ (119) $ 4 $ (524) $ (639) OCI 3 (20) 35 (112) (94) Income taxes (1) 3 (15) (17) (30) Reclassifications to: Cost of Sales — 6 — — 6 Other Income (3) — — — (3) Income taxes 1 (2) — — (1) Net OCI $ — $ (13) $ 20 $ (129) $ (122) Ending $ — $ (132) $ 24 $ (653) $ (761) 2015 Beginning $ 3 $ (136) $ 13 $ (134) $ (254) OCI 1 15 2 (362) (344) Income taxes (1) (4) 2 (28) (31) Reclassifications to: Cost of Sales — 8 (19) — (11) Other income (4) — — — (4) Income taxes 1 (2) 6 — 5 Net OCI $ (3) $ 17 $ (9) $ (390) $ (385) Ending $ — $ (119) $ 4 $ (524) $ (639) NOTE 5 - ACQUISITIONS In April 2016 we completed the acquisition of Sage Products, LLC (Sage) for total consideration of approximately $2,875. Sage develops, manufactures and distributes intensive care disposable products. This acquisition enhanced our product offerings within our MedSurg segment. Purchase price allocations for this acquisition were based on preliminary valuations. Our estimates and assumptions are subject to change within the measurement period. In April 2016 we completed the acquisition of Physio-Control International, Inc. (Physio) for total net consideration of approximately $1,299. Physio develops, manufactures and markets monitors/defibrillators, AEDs and CPR-assist devices along with data management and support services. This acquisition enhances our product offerings within our MedSurg segment. Purchase price allocations for this acquisition were based on preliminary valuations. Our estimates and assumptions are subject to change within the measurement period. The Other acquisitions in 2016 include the acquisition of the Synergetics neuro portfolio (Synergetics). The Synergetics acquisition enhances our product offerings within our MedSurg segment. Purchase price allocations for the Other acquisitions were based on preliminary valuations. Our estimates and assumptions are subject to change within the measurement period. The Other acquisitions in 2015 include the acquisition of certain assets of CHG Hospital Beds, Inc. (CHG). The CHG acquisition enhances our product offerings within our MedSurg segment. The measurement period for CHG is complete. Revisions to the original purchase price allocation were nominal. Goodwill acquired with the Sage, Synergetics and CHG acquisitions is deductible for tax purposes. Supplemental pro forma combined statements of earnings have not been presented for the Sage and Physio acquisitions as the impact of their results of operations were not material to the Consolidated Statements of Earnings. Purchase Price Allocation of Acquired Net Assets 2016 2015 Sage Physio Other Other Purchase price paid $ 2,870 $ 1,299 $ 348 $ 140 Contingent consideration 5 — 27 9 Loss on settlement of pre- existing contract $ — $ — $ (19) $ — Total consideration $ 2,875 $ 1,299 $ 356 $ 149 Tangible assets acquired: Cash 91 32 1 — Accounts receivable 29 106 17 4 Inventory 63 66 5 9 Other assets 75 99 21 13 Liabilities (81) (363) (29) (7) Goodwill 1,525 625 180 62 Intangible assets: Customer relationship 930 341 12 13 Trade name 70 160 13 2 Developed technology and patents 173 226 127 53 Non-compete — — 2 — IPRD — 7 7 — $ 2,875 $ 1,299 $ 356 $ 149 Weighted average life of intangible assets 15 14 12 10 NOTE 6 - CONTINGENCIES AND COMMITMENTS We are involved in various ongoing proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor, intellectual property and other matters that are more fully described below. 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, is recorded. The estimates are based on