2017 FORM 10-K

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STRYKER CORPORATION 2017 FORM 10-K Dollar amounts in millions except per share amounts or as otherwise specified. 24 Consolidated Statements of Cash Flow we reclassified $36 from other financing to income taxes within operating activities to conform to current year presentation. On January 1, 2017 we adopted ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The adoption of this update did not have a material impact on our Consolidated Financial Statements. No other new accounting pronouncements were issued or became effective in the period that had, or are expected to have, a material impact on our Consolidated Financial Statements. NOTE 2 - FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified in their entirety based on the lowest level of input 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. Use of observable market data, when available, is required in making fair value measurements. When inputs used fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. We determine fair value for Level 1 instruments using exchange-traded prices for identical instruments. We determine fair value of Level 2 instruments using exchange-traded prices of similar instruments, where available, or utilizing other observable inputs that take into account our credit risk and that of our counterparties. Foreign currency exchange contracts and interest rate hedges are included in Level 2 and we use inputs other than quoted prices that are observable for the asset or liability. The Level 2 derivative instruments are primarily valued using standard calculations and models that use readily observable market data as their basis. Our Level 3 liabilities are comprised of contingent consideration arising from recently completed acquisitions. We determine fair value of these Level 3 liabilities using a discounted cash flow technique or the Black-Scholes option pricing model. Significant unobservable inputs were used in our assessment of fair value, including assumptions regarding future business results, discount rates, discount periods and probability assessments based on likelihood of reaching various targets. 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 Measured at Fair Value 2017 2016 Cash and cash equivalents $ 2,542 $ 3,316 Trading marketable securities 121 94 Level 1 - Assets $ 2,663 $ 3,410 Available-for-sale marketable securities: Corporate and asset-backed debt securities $ 125 $ 25 Foreign government debt securities 2 — United States agency debt securities 27 9 United States treasury debt securities 70 16 Certificates of deposit 27 18 Total available-for-sale marketable securities $ 251 $ 68 Foreign currency exchange forward contracts 15 45 Interest rate swap asset 49 57 Level 2 - Assets $ 315 $ 170 Total assets measured at fair value $ 2,978 $ 3,580 Liabilities Measured at Fair Value 2017 2016 Deferred compensation arrangements $ 121 $ 94 Level 1 - Liabilities $ 121 $ 94 Foreign currency exchange forward contracts $ 37 $ 18 Level 2 - Liabilities $ 37 $ 18 Contingent consideration: Beginning $ 86 $ 56 Additions 3 49 Change in estimate 2 (7) Settlements (59) (12) Ending $ 32 $ 86 Level 3 - Liabilities $ 32 $ 86 Total liabilities measured at fair value $ 190 $ 198 Fair Value of Available for Sale Securities by Maturity 2017 2016 Due in one year or less $ 107 $ 36 Due after one year through three years $ 144 $ 32 On December 31, 2017 the aggregate difference between the cost and fair value of available-for-sale marketable securities was nominal. Interest receivable was $1 and less than $1 in 2017 and 2016 related to our marketable security portfolio. Interest and marketable securities income was $60, $29, and $14 in 2017, 2016, and 2015, which was recorded in other income (expense), net. Our investments in available-for-sale marketable securities had a minimum credit quality rating of 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, 2017. On December 31, 2017 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 118 $ 108 Foreign government 1 2 United States Agency 15 20 United States Treasury 20 70 Certificate of Deposit 28 23 Total 182 $ 223 NOTE 3 - DERIVATIVE INSTRUMENTS Foreign Currency Hedges We use operational and economic hedges, foreign currency exchange forward contracts, net investment hedges (both long-term

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