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STRYKER CORPORATION 2017 FORM 10-K Dollar amounts in millions except per share amounts or as otherwise specified. 25 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. 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. 2017 Designated Non-Designated Total Gross notional amount $ 1,104 $ 4,767 $ 5,871 Maximum term in days 548 Fair value: Other current assets $ 11 $ 4 $ 15 Other noncurrent assets 1 — 1 Other current liabilities (7) (29) (36) Other noncurrent liabilities (1) — (1) Total fair value $ 4 $ (25) $ (21) 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 On December 31, 2017 the total after-tax amount in AOCI related to our designated net investment hedges was $30. We evaluate the effectiveness of our net investment hedges quarterly. We have not recognized any ineffectiveness in 2017. Net Currency Exchange Rate Gains (Losses) Recorded in: 2017 2016 2015 Cost of sales $ (6) $ — $ 19 Other income (expense), net (9) (19) (22) Total $ (15) $ (19) $ (3) On December 31, 2017 pretax gains recorded in AOCI on derivatives designated as hedges that are expected to be reclassified to earnings within 12 months of the balance sheet date were $7 compared with less than $1 on December 31, 2016. This reclassification is primarily due to the sale of inventory that includes previously hedged purchases. There were de minimis ineffective portions of derivatives, which are included in the table above. Interest Rate Hedges On December 31, 2017 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, 2017 was $44, which was recorded in other current 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. On December 31, 2017 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 in 2017. Fair Value Interest Rate Hedge Instruments 2017 2016 Gross notional amount $ 500 $ 500 Fair value: Other noncurrent assets 5 9 Long-term debt (5) (9) Total $ — $ — NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (AOCI) Marketable Securities Pension Plans Hedges Financial Statement Translation Total 2015 $ — $ (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) 2016 $ — $ (132) $ 24 $ (653) $ (761) OCI (7) (27) (4) 163 125 Income taxes 1 19 4 47 71 Reclassifications to: Cost of Sales — 8 6 — 14 Other Income 2 — — — 2 Income taxes — (2) (2) — (4) Net OCI (4) (2) 4 210 208 2017 $ (4) $ (134) $ 28 $ (443) $ (553) NOTE 5 - ACQUISITIONS In 2017 and 2016 total cash paid for acquisitions was $831 and $4,332. We acquired stock in companies and various assets that continue to support our capital deployment and product development strategies. In December 2017 we announced a definitive merger agreement to acquire Entellus Medical, Inc. (Entellus), a high-growth global medical technology company focused on delivering superior patient and physician experiences through products designed for the minimally invasive treatment of various ear, nose and throat (ENT) disease states, for $24.00 per share, or total consideration of approximately $662. Entellus, which had net sales of approximately $75 in 2016, will be integrated into the Instruments business within MedSurg. We expect the acquisition to close in February 2018. In September 2017 we completed the acquisition of NOVADAQ Technologies Inc. (NOVADAQ) for total consideration of approximately $716. NOVADAQ is a leading developer of fluorescence imaging technology that provides surgeons with visualization of blood flow in vessels and related tissue perfusion in cardiac, cardiovascular, gastrointestinal, plastic, microsurgical, and reconstructive procedures. This acquisition enhances product offerings within our MedSurg segment. Goodwill related to the NOVADAQ acquisition is not deductible for tax purposes.