2017 FORM 10-K

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Page 27 of 43

STRYKER CORPORATION 2017 FORM 10-K Dollar amounts in millions except per share amounts or as otherwise specified. 26 Purchase Price Allocation of Acquired Net Assets 2017 2016 NOVADAQ Sage Physio Purchase price paid $ 716 $ 2,870 $ 1,299 Contingent consideration — 5 — Total consideration $ 716 $ 2,875 $ 1,299 Tangible assets acquired: Cash 42 91 32 Accounts receivable 11 29 107 Inventory 39 63 61 Other assets 9 80 103 Liabilities (58) (83) (364) Intangible assets: Customer relationship 18 930 344 Trade name 1 70 160 Developed technology and patents 133 173 226 IPRD — — 7 Goodwill 521 1,522 623 $ 716 $ 2,875 $ 1,299 Weighted average life of intangible assets 14 15 14 Purchase price allocations for NOVADAQ and other acquisitions in 2017 and 2016 were based on preliminary valuations. Our estimates and assumptions are subject to change within the measurement period. The purchase price allocation for the acquisitions of Sage Products, LLC (Sage) and Physio-Control International, Inc. (Physio) was finalized in 2017. Goodwill related to the Sage acquisition is deductible for tax purposes. 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 consultation with legal counsel, previous settlement experience and settlement strategies. If actual outcomes are less favorable than those estimated by management, additional expense may be incurred, which could unfavorably affect future operating results. We are self-insured for product liability claims and expenses. The ultimate cost to us with respect to product liability claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows. In June 2012 we voluntarily recalled our Rejuvenate and ABG II Modular-Neck hip stems and terminated global distribution of these hip products. Product liability lawsuits relating to this voluntary recall have been filed against us. On November 3, 2014 we announced that we had entered into a settlement agreement to compensate eligible United States patients who had revision surgery to replace their Rejuvenate and/or ABG II Modular-Neck hip stem prior to that date and in December 2016 the settlement program was extended to patients who had revision surgery prior to December 19, 2016. We continue to offer support for recall-related care and reimburse patients who are not eligible to enroll in the settlement program for testing and treatment services, including any necessary revision surgeries. In addition, some lawsuits will remain and we will continue to defend against them. Based on the information that has been received, the actuarially determined range of probable loss to resolve this matter globally is currently estimated to be approximately $2,072 to $2,307 ($2,304 to $2,539 before $232 of third-party insurance recoveries). We recorded additional charges to earnings of $104 in 2017, representing the excess of the minimum of the range over the previously recorded reserves. The final outcome of this matter is dependent on many factors that are difficult to predict including the number of enrollees in the settlement program and the total awards to them, the number and costs of patients not eligible for the settlement program who seek testing and treatment services and require revision surgery and the number and actual costs to resolve the remaining lawsuits. Accordingly, the ultimate cost to resolve this entire matter globally may be materially different than the amount of the current estimate and accruals and could have a material adverse effect on our financial position, results of operations and cash flows. In 2010 we filed a lawsuit in federal court against Zimmer Biomet Holdings, Inc. (Zimmer), alleging that a Zimmer product infringed on three of our patents. In 2013 following a jury trial favorable to us, the trial judge entered a final judgment that, among other things, awarded us damages of $76 and ordered Zimmer to pay us enhanced damages. Zimmer appealed this ruling. In December 2014 the Federal Circuit affirmed the damages awarded to us, reversed the order for enhanced damages and remanded the issue of attorney fees to the trial court. In May 2015 the trial court entered a stipulated judgment that, among other things, required Zimmer to pay us the base amount of damages and interest, while the issues of enhanced damages and attorney fees continue to be pursued. In June 2015 we recorded a $54 gain, net of legal costs, which was recorded within selling, general and administrative expenses. On June 13, 2016 the United States Supreme Court vacated the decision of the Federal Circuit that reversed our judgment for enhanced damages and remanded the case to the Federal Circuit to reconsider the issue. On September 12, 2016 the Federal Circuit issued an opinion that, among other things, remanded the issue of enhanced damages to the trial court. On July 12, 2017 the trial court reaffirmed its award of enhanced damages and entered a judgment of $164 in our favor. On July 24, 2017 Zimmer filed a notice of appeal of this decision. Future Obligations We have purchase commitments for materials, supplies, services and property, plant and equipment as part of the normal course of business. In addition, we lease various manufacturing, warehousing and distribution facilities, administrative and sales offices as well as equipment under operating leases. Rent expense totaled $125, $112, and $101 in 2017, 2016 and 2015. Refer to Note 9 for more information on the debt obligations. Future Obligations 2018 2019 2020 2021 2022 Thereafter Debt repayments $ 600 $1,250 $ 500 $ 750 $ — $ 4,150 Purchase obligations $1,046 $ 95 $ 2 $ 1 $ — $ — Minimum lease payments $ 106 $ 63 $ 45 $ 31 $ 21 $ 60 NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS We completed our annual impairment tests of goodwill in 2017 and 2016 and concluded in each year that no impairments exist.

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