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STRYKER CORPORATION 2016 Form 10-K Dollar amounts in millions except per share amounts or as otherwise specified. 24 related to the occurrence of certain triggering events, appropriately discounted considering the uncertainties associated with the obligation, which we estimate to be near 100%. We remeasure the fair value of our assets and liabilities each reporting period. We record the changes in fair value within selling, general and administrative expense and the changes in the time value of money within other income (expense), net. Assets and Liabilities Measured at Fair Value 2016 2015 Cash and cash equivalents $ 3,316 $ 3,379 Trading marketable securities 94 82 Level 1 - Assets $ 3,410 $ 3,461 Available-for-sale marketable securities: Corporate and asset-backed debt securities $ 25 $ 214 Foreign government debt securities — 96 United States agency debt securities 9 120 United States treasury debt securities 16 264 Certificates of deposit 18 8 Total available-for-sale marketable securities $ 68 $ 702 Foreign currency exchange forward contracts 45 69 Interest rate swap asset 57 15 Level 2 - Assets $ 170 $ 786 Total assets measured at fair value $ 3,580 $ 4,247 Deferred compensation arrangements $ 94 $ 82 Level 1 - Liabilities $ 94 $ 82 Foreign currency exchange forward contracts $ 18 $ 10 Interest rate swap liability — 4 Level 2 - Liabilities $ 18 $ 14 Contingent consideration: Beginning balance $ 56 $ 48 Additions 49 11 Change in estimate (7) — Settlements (12) (3) Balance at the end of the period $ 86 $ 56 Level 3 - Liabilities $ 86 $ 56 Total liabilities measured at fair value $ 198 $ 152 Fair Value of Available for Sale Securities by Maturity 2016 2015 Due in one year or less $ 36 $ 588 Due after one year through three years $ 32 $ 114 On December 31, 2016 the aggregate difference between the cost and fair value of available-for-sale marketable securities was nominal. Interest receivable was less than $1 and $2 in 2016 and 2015 related to our marketable security portfolio. The total of interest and marketable securities income was $29, $14, and $28 in 2016, 2015, and 2014. The amounts were included in other income (expense), net. Less than 1% of our investments in available-for-sale marketable securities had a credit quality rating of less than A2 (Moody's), A (Standard & Poor's) and A (Fitch). We do not plan to sell the investments, and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. We do not consider these investments to be other-than-temporarily impaired on December 31, 2016. On December 31, 2016 substantially all our investments with unrealized losses that were not deemed to be other-than- temporarily impaired were in a continuous unrealized loss position for less than twelve months, and the losses were nominal. Securities in a Continuous Unrealized Loss Position Number of Investments Fair Value Corporate and Asset-Backed 33 $ 11 United States Agency 8 5 United States Treasury 19 15 Certificate of Deposit 5 2 Total 65 $ 33 NOTE 3 - DERIVATIVE INSTRUMENTS Foreign Currency Hedges We use operational and economic hedges, foreign currency exchange forward contracts, net investment hedges (both long-term intercompany loans payable and forward exchange contracts) and interest rate derivative instruments to manage the impact of currency exchange and interest rate fluctuations on earnings and cash flow. We do not enter into derivative instruments for speculative purposes. Designated Non- Designated Total 2016 Gross notional amount $ 1,058 $ 2,841 $ 3,899 Maximum term in days 548 Fair value: Other current assets $ 24 $ 17 $ 41 Other noncurrent assets 4 — 4 Other current liabilities (9) (7) (16) Other noncurrent liabilities (2) — (2) Total fair value $ 17 $ 10 $ 27 2015 Gross notional amount $ 889 $ 4,061 $ 4,950 Maximum term in days 546 Fair value: Other current assets $ 27 $ 41 $ 68 Other noncurrent assets 1 — 1 Other current liabilities (6) (3) (9) Other noncurrent liabilities (1) — (1) Total fair value $ 21 $ 38 $ 59 On December 31, 2016 the total after-tax amount in AOCI related to our designated net investment hedges was $48. We evaluate the effectiveness of our net investment hedges quarterly and did not recognize any ineffectiveness in 2016. We are exposed to credit loss in the event of nonperformance by counterparties on our outstanding derivative instruments but do not anticipate nonperformance by any of our counterparties. Should a counterparty default, our maximum exposure to loss is the asset balance of the instrument. Net Currency Exchange Rate Gains (Losses) Recorded in: 2016 2015 2014 Cost of sales $ — $ 19 $ 1 Other income (expense), net (19) (22) (8) Total $ (19) $ (3) $ (7) On December 31, 2016 pretax gains on derivatives designated as hedges that were recorded in AOCI are expected to be reclassified to earnings in the next 12 months were less than $1 compared with $17 on December 31, 2015. This reclassification is primarily due to the sale of inventory that includes previously hedged purchases. There were no ineffective portions of derivatives that resulted in gains or losses in any of the periods presented.