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STRYKER CORPORATION 2016 Form 10-K Dollar amounts in millions except per share amounts or as otherwise specified. 27 Estimated Amortization Expense 2017 2018 2019 2020 2021 $ 345 $ 342 $ 329 $ 312 $ 298 NOTE 8 - CAPITAL STOCK In 2016 shares repurchased at the end of 2015 totaling 135 thousand were settled at a cost of $13. The manner, timing and amount of repurchases is determined by management based on an evaluation of market conditions, stock price and other factors and is subject to regulatory considerations. Purchases are made from time-to-time in the open market, in privately negotiated transactions or otherwise. On December 31, 2016 the total dollar value of shares that could be purchased under our authorized repurchase programs was $1,870. Shares reserved for future compensation grants of our common stock were 11 million and 15 million on December 31, 2016 and 2015. We had 0.5 million authorized shares of $1 par value preferred stock; none of which was outstanding on December 31, 2016. Stock Options We measure the cost of employee stock options based on the grant- date fair value and recognize that cost using the straight-line method over the period in which a recipient is required to provide services in exchange for the options, typically the vesting period. The weighted-average fair value per share of options is estimated on the date of grant using the Black-Scholes option pricing model. Option Value and Assumptions 2016 2015 2014 Weighted-average fair value per share $ 17.73 $ 22.55 $ 15.80 Assumptions: Risk-free interest rate 1.3% 1.8% 2.1% Expected dividend yield 1.6% 1.6% 1.8% Expected stock price volatility 20.5% 25.5% 26.3% Expected option life (years) 6.1 7.3 7.1 The risk-free interest rate for periods within the expected life of options granted is based on the United States Treasury yield curve in effect at the time of grant. Expected stock price volatility is based on the historical volatility of our stock. The expected option life, representing the period of time that options granted are expected to be outstanding, is based on historical option exercise and employee termination data. 2016 Stock Option Activity Shares (in millions) Weighted Average Exercise Price Weighted- Average Remaining Term (in years) Aggregate Intrinsic Value Outstanding January 1 14.9 $ 65.85 Granted 3.1 96.73 Exercised (2.6) 58.00 Canceled (0.5) 83.80 Outstanding December 31 14.9 $ 73.14 5.9 $ 696.0 Exercisable December 31 7.8 $ 60.30 4.0 $ 464.4 Options expected to vest 6.5 $ 86.75 7.9 $ 215.1 The aggregate intrinsic value of options, which represents the cumulative difference between the fair market value of the underlying common stock and the option exercise prices, exercised was $128, $98, and $113 in 2016, 2015 and 2014. Exercise prices for options outstanding ranged from $38.71 to $115.35 on December 31, 2016. On December 31, 2016 there was $84 of unrecognized compensation cost related to nonvested stock options granted under the long-term incentive plans; that cost is expected to be recognized over the weighted-average period of approximately 1.6 years. Restricted Stock Units (RSUs) and Performance Stock Units (PSUs) Activity Shares (in millions) Weighted Average Grant Date Fair Value RSUs PSUs RSUs PSUs Nonvested on January 1 1.1 0.3 $ 79.71 $ 79.02 Granted 0.6 0.1 94.70 98.10 Vested (0.5) (0.1) 74.95 64.01 Canceled or forfeited (0.1) — 86.94 73.27 Nonvested on December 31 1.1 0.3 $ 90.10 $ 91.19 On December 31, 2016 there was $53 of unrecognized compensation cost related to nonvested RSUs. That cost is expected to be recognized as expense over the weighted-average period of approximately one year. The weighted-average grant date fair value per share of RSUs granted was $94.70 and $88.47 in 2016 and 2015. The fair value of RSUs and PSUs vested in 2016 was $40 and $5. On December 31, 2016 there was $12 of unrecognized compensation cost related to nonvested PSUs; that cost is expected to be recognized as expense over the weighted- average period of approximately one year. Employee Stock Purchase Plans (ESPP) Full- and part-time employees may participate in our ESPP provided they meet certain eligibility requirements. The purchase price for our common stock under the terms of the ESPP is defined as 95% of the closing stock price on the last trading day of a purchase period. We issued 159,329 and 157,931 shares under the ESPP in 2016 and 2015. NOTE 9 - DEBT AND CREDIT FACILITIES In January 2017 we sold $500 of senior unsecured notes with an interest rate of 1.800% due on January 15, 2019. In September 2016 we repaid all $750 of our senior unsecured notes that were due on September 30, 2016. In March 2016 we sold $3,500 of senior unsecured notes. In September 2016 we increased the amount of commercial paper issuable under our commercial paper program by $250 to a maximum of $1,500 outstanding with maturities up to 397 days from the date of issuance. On December 31, 2016 outstanding commercial paper totaled $200, the weighted-average original maturity of the commercial paper outstanding was approximately 60 days and the weighted average annualized interest rate of short- term debt was approximately 0.9%. We have lines of credit issued by various financial institutions that are available to fund our day-to-day operating needs. In August 2016 we entered into a new senior unsecured revolving credit facility that replaced our previous agreement dated August 29, 2014. The primary changes were to increase the aggregate principal amount of the commitments by $250 to $1,500 and extend the maturity date to August 19, 2021. Certain of our credit facilities require us to comply with financial and other covenants. We were in compliance with all covenants on December 31, 2016.