Our consolidated financial statements include the operating results for each acquired entity from its respective date of acquisition. We do not present pro forma financial information for these acquisitions given their results are not material to our consolidated financial statements. Transaction costs associated with these acquisitions were expensed as incurred and are not material for the years ended December 31, 2016, 2015, and 2014.

2016 Acquisitions

Neovasc, Inc.'s Advanced Biological Tissue Business

On December 12, 2016, we completed the acquisition of certain manufacturing assets and capabilities of the Neovasc, Inc. (Neovasc) advanced biological tissue business for a total upfront cash payment of $68 million. With this acquisition, we will integrate certain manufacturing assets and biologic tissue capabilities into our structural heart business for use in the manufacturing of the Lotus™ Valve System and future heart valve technologies within our Interventional Cardiology business. We began the process of integrating Neovasc into our Interventional Cardiology business in the fourth quarter of 2016 and expect to be substantially complete by the end of 2018.

EndoChoice Holdings, Inc.

On November 22, 2016, we completed our acquisition of EndoChoice Holdings, Inc. (EndoChoice) for $8.00 per share or approximately $214 million. In addition, total consideration for the acquisition also included repayment of Endochoice's existing senior term loan facility totaling $43 million, and related acquisition fees and expenses. EndoChoice is an Alpharetta, Georgia based company focused on the development and commercialization of infection control products, pathology services and single-use devices for specialists treating a wide range of gastrointestinal (GI) conditions. We began the process of integrating EndoChoice into our Endoscopy business in the fourth quarter of 2016 and expect to be substantially complete by the end of 2017.

Distal Access, LLC's Gynecology and Urology Portfolio

On November 15, 2016, we completed the acquisition of the gynecology and urology portfolio of Distal Access, LLC (Distal), a Salt Lake City based company that designs minimally invasive medical devices for an upfront cash payment of $20 million plus a potential $35 million in future consideration based on future sales through 2020 in addition to regulatory and product launch milestones. The portfolio includes the Resectr™ Tissue Resection Device, a single-use solution designed to remove uterine polyps. We began the process of integrating the Resectr device into our Urology and Pelvic Health business during the fourth quarter of 2016 and expect to be substantially complete by the end of 2017.

LumenR™ Tissue Retractor System

On November 1, 2016, we acquired the LumenR™ Tissue Retractor System from LumenR LLC (LumenR), a privately held Newark, California based company for an upfront cash payment of $30 million plus a potential $70 million in future consideration based on future sales through the third quarter of 2026 in addition to development and technology transfer milestones. The LumenR™ Tissue Retractor System is currently in development for use during endoscopic resection of lesions in the colon, esophagus or stomach.

Cosman Medical, Inc.

On July 27, 2016, we acquired Cosman Medical, Inc. (Cosman), a privately held manufacturer of radiofrequency ablation systems, expanding our Neuromodulation portfolio and offering physicians treating patients with chronic pain a wider choice of non-opioid therapeutic options. Total consideration was comprised of $71 million in up-front cash plus related fees and expenses, and a potential additional $20 million in consideration based on future sales through June 30, 2019. We are in the process of integrating Cosman into our Neuromodulation business, and expect the integration to be substantially complete by the end of 2017.

Purchase Price Allocation

We accounted for these acquisitions as a business combination and, in accordance with FASB ASC Topic 805, Business Combinations (Topic 850), we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The components of the aggregate preliminary purchase price are as follows (in millions):



Cash, net of cash acquired	$	366
Fair value of contingent consideration	50
Fair value of debt repaid	43
	$	459

The following summarizes the preliminary purchase price allocation for our 2016 acquisitions as of December 31, 2016, (in millions):



Goodwill	$	208
Amortizable intangible assets	228
Inventory	11
Property, plant and equipment	6
Other net liabilities	(2		)
Deferred income taxes	8
	$	459

We allocated a portion of the preliminary purchase price to specific intangible asset categories as follows:



	Amount Assigned (in millions)		Weighted Average Amortization Period (in years)	Range of Risk- Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related	$	176	9-13	11% - 20%
Customer relationships	51		9-13	11% - 12%
Other intangible assets	1		4	11%
	$	228

2015 Acquisitions

Interventional Radiology Business of CeloNova Biosciences

On December 31, 2015, we completed the acquisition of the interventional radiology business of CeloNova Biosciences (CeloNova), for an upfront payment of $70 million and additional payments contingent on regulatory and sales milestones. The acquisition includes drug-eluting microspheres designed to be loaded with chemotherapy drugs for delivery to cancerous tumors, and spherical embolic products used to treat uterine fibroids and other conditions. We are in the process of integrating CeloNova into our Peripheral Interventions business and expect to be substantially complete by the second half of 2017.

AMS Portfolio Acquisition

On August 3, 2015, we completed the acquisition of the American Medical Systems male urology portfolio (AMS Portfolio Acquisition), which includes the men's health and prostate health businesses, from Endo International plc. Total consideration was comprised of $1.616 billion in up-front cash plus related fees and expenses, and a potential additional $50 million in consideration based on 2016 sales. The AMS male urology portfolio was integrated with our formerly named Urology and Women's Health business, and the joint businesses became Urology and Pelvic Health. The integration was substantially complete by the end of 2016. In addition, as part of the acquisition agreement, we made a $60 million Series B non-voting preferred stock investment in the women's health business of Endo Health Solutions, a wholly owned subsidiary of Endo International, plc., representing the remaining Women's Health business of the American Medical Systems' Portfolio. This investment was subsequently repaid in the fourth quarter of 2015.

Xlumena, Inc.

On April 2, 2015, we acquired Xlumena, Inc. (Xlumena), a medical device company that developed minimally invasive devices for Endoscopic Ultrasound (EUS) guided transluminal drainage of targeted areas within the gastrointestinal tract. The purchase agreement called for an upfront payment of $63 million, an additional payment of $13 million upon FDA clearance of the HOT AXIOS™ Product, and further sales-based milestones based on sales achieved through 2018. In 2016, we completed the integration of Xlumena into our Endoscopy business.

In addition, we completed other acquisitions during 2015 for total consideration of $6 million in cash at closing plus contingent consideration of up to $1 million.

Purchase Price Allocation

We accounted for these acquisitions as business combinations and, in accordance with FASB ASC Topic 850, we have recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition dates. The components of the aggregate purchase prices are as follows (in millions):



Cash, net of cash acquired	$	1,735
Fair value of contingent consideration	63
	$	1,798

The following summarizes the aggregate purchase price allocation for the 2015 acquisitions as of December 31, 2015 (in millions):



Goodwill	$	573
Amortizable intangible assets	1,074
Indefinite-lived intangible assets	6
Inventory	103
Property, plant and equipment	43
Other net assets	42
Deferred income taxes	(43		)
	$	1,798

We allocated a portion of the purchase price to specific intangible asset categories as follows:



	Amount Assigned (in millions)		Weighted Average Amortization Period (in years)	Range of Risk- Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related	$	431	11-13	14% - 23%
Customer relationships	625		12-13	14% - 15%
Other intangible assets	18		13	14%
Indefinite-lived intangible assets:
In-process research & development	$	6	N/A	17%
	$	1,080

2014 Acquisitions

Interventional Business of Bayer AG

On August 29, 2014, we completed the acquisition of the Interventional Division of Bayer AG (Bayer), for a total cash consideration of $414 million. We believe that this acquisition enhances our ability to offer physicians and healthcare systems a more complete portfolio of solutions to treat challenging vascular conditions. The transaction includes the AngioJet™ Thrombectomy System and the Fetch® 2 Aspiration Catheter, which are used in endovascular procedures to remove blood clots from blocked arteries and veins, and the JetStream™ Atherectomy System, used to remove plaque and thrombi from diseased arteries. In 2016, we completed the integration of Bayer into our Peripheral Interventions and Interventional Cardiology businesses.

IoGyn, Inc.

On May 7, 2014, we completed the acquisition of the remaining fully diluted equity of IoGyn, Inc. (IoGyn). Prior to the acquisition, we held a 28 percent minority interest in IoGyn in addition to notes receivable of approximately $8 million. Total consideration was comprised of a net cash payment of $65 million at closing to acquire the remaining 72 percent of IoGyn equity and repay outstanding debt. IoGyn has developed the Symphion™System, a next generation system for hysteroscopic intrauterine tissue removal including fibroids (myomas) and polyps. In March 2014, IoGyn received U.S. Food & Drug Administration (FDA) approval for the system and in October 2014, we began a limited market release of the system in the United States. We integrated the operations of the IoGyn business into our Urology and Pelvic Health business.

In addition, we completed other acquisitions during 2014 for total consideration of $7 million cash at closing plus contingent consideration of up to $4 million.

Purchase Price Allocation

We accounted for these acquisitions as business combinations and, in accordance with FASB ASC Topic 850, we have recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The components of the aggregate purchase price for our 2014 acquisitions are as follows (in millions):



Cash, net of cash acquired	$	479
Fair value of prior interests	31
	$	510

In addition, prior to the acquisition of IoGyn, we had an equity interest in IoGyn and held $8 million of notes receivables. We re-measured our previously-held investments to their estimated acquisition-date fair value of $31 million and recorded a gain of $19 million in other, net, in the accompanying consolidated statements of operations during the second quarter of 2014. We measured the fair values of the previously-held investments based on the liquidation preferences and priority of the equity interest and debt, including accrued interest.

The following summarizes the aggregate purchase price allocation for our 2014 acquisitions as of December 31, 2014:



Goodwill	$	210
Amortizable intangible assets	263
Inventory	23
Property, plant and equipment	17
Prepaid Transaction Service Agreement	5
Other net assets	(1		)
Deferred income taxes	(7		)
	$	510

We allocated a portion of the purchase price to specific intangible asset categories as follows:



	Amount Assigned (in millions)		Weighted Average Amortization Period (in years)	Range of Risk- Adjusted Discount Rates used in Purchase Price Allocation
Amortizable intangible assets:
Technology-related	$	233	10 - 14	14 - 18 %
Customer relationships	29		10	18%
Other intangible assets	1		2	14%
	$	263

For our 2016, 2015 and 2014 acquisitions, our technology-related intangible assets consist of technical processes, intellectual property, and institutional understanding with respect to products and processes that we will leverage in future products or processes and will carry forward from one product generation to the next. We used the income approach and relief from royalty approach to derive the fair value of the technology-related intangible assets, and are amortizing them on a straight-line basis over their assigned estimated useful lives.

In-process research and development represents the estimated fair value of acquired in-process research and development projects that have not yet reached technological feasibility. These indefinite-lived intangible assets are tested for impairment on an annual basis, or more frequently if impairment indicators are present, in accordance with U.S. GAAP and our accounting policies. Upon completion of the associated research and development efforts, we will determine the useful life of the technology and begin amortizing the assets to reflect their use over their remaining lives. The primary basis for determining the technological feasibility or completion of these projects is obtaining regulatory approval to market the underlying products.

Customer relationships represent the estimated fair value of non-contractual customer, payor and distributor relationships. Customer relationships are direct relationships with physicians and hospitals performing procedures with the acquired products, payor relationships are contracts and relationships with healthcare payors relating to reimbursement of services and distributor relationships are relationships with third parties used to sell the acquired products, all as of the acquisition date. These relationships were valued separately from goodwill because there is a history and pattern of conducting business with customers and distributors. We used the income approach or the replacement cost and lost profits methodology to derive the fair value of the customer relationships. The customer relationships intangible assets are amortized on a straight-line basis over their assigned estimated useful lives.

Other intangible assets primarily include acquired tradenames. These tradenames include brand names that we expect to continue using in our product portfolio and related marketing materials. The tradenames are valued using a relief from royalty methodology and are amortized on a straight-line basis over their assigned estimated useful lives.

We believe that the estimated intangible asset values represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets. These fair value measurements are based on significant unobservable inputs, including management estimates and assumptions and, accordingly, are classified as Level 3 within the fair value hierarchy prescribed by FASB ASC Topic 820, Fair Value Measurements and Disclosures.

We recorded the excess of the aggregate purchase price over the estimated fair values of the identifiable assets acquired as goodwill. Goodwill was established due primarily to synergies expected to be gained from leveraging our existing operations as well as revenue and cash flow projections associated with future technologies, and has been allocated to our reportable segments based on the relative expected benefit. Of the goodwill recorded, approximately $116 million, based on preliminary estimates, related to our 2016 acquisitions is deductible for tax purposes. Of the goodwill recorded related to our 2015 acquisitions $449 million is deductible for tax purposes and $160 million of the recorded goodwill related to our 2014 acquisitions is deductible for tax purposes. Refer to Note D - Goodwill and Other Intangible Assets for more information related to goodwill allocated to our reportable segments.

Contingent Consideration

Certain of our acquisitions involve contingent consideration arrangements. Payment of additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified revenue levels, achieving product development targets and/or obtaining regulatory approvals. In accordance with U.S. GAAP, we recognize a liability equal to the fair value of the contingent payments we expect to make as of the acquisition date. We re-measure this liability each reporting period and record changes in the fair value through a separate line item within our consolidated statements of operations.

We recorded a net expense related to the changes in fair value of our contingent consideration liabilities of $29 million during 2016, net expense related to the changes in fair value of our contingent consideration liabilities of $123 million during 2015, and a net benefit related to the change in fair value of our contingent consideration liabilities of $85 million during 2014. We made contingent consideration payments of $122 million in 2016, $213 million in 2015 and $137 million in 2014.

Changes in the fair value of our contingent consideration liabilities were as follows (in millions):



Balance as of December 31, 2014	$	274
Amounts recorded related to new acquisitions	63
Other amounts recorded related to prior acquisitions	(1		)
Fair value adjustment	123
Contingent payments related to prior period acquisition	(213		)
Balance as of December 31, 2015	$	246
Amounts recorded related to new acquisitions	50
Other amounts recorded related to prior acquisitions	1
Fair value adjustment	29
Contingent payments related to prior period acquisition	(122		)
Balance as of December 31, 2016	$	204

As of December 31, 2016, the maximum amount of future contingent consideration (undiscounted) that we could be required to pay was approximately $1.308 billion.

Contingent consideration liabilities are remeasured to fair value each reporting period using projected revenues, discount rates, probabilities of payment and projected payment dates. The recurring Level 3 fair value measurements of our contingent consideration liabilities include the following significant unobservable inputs:



Contingent Consideration Liability	Fair Value as of December 31, 2016	Valuation Technique	Unobservable Input	Range
R&D and Commercialization-based Milestone	$46 million	Discounted Cash Flow	Discount Rate	2% - 3%
R&D and Commercialization-based Milestone	$46 million	Discounted Cash Flow	Projected Year of Payment	2017 - 2021
Revenue-based Payments	$60 million	Discounted Cash Flow	Discount Rate	11% - 15%
	$60 million	Discounted Cash Flow	Projected Year of Payment	2017 - 2026
	$98 million	Monte Carlo	Revenue Volatility	25%
			Risk Free Rate	LIBOR Term and Cost of Debt Structure
			Projected Year of Payment	2017 - 2022

Increases or decreases in the fair value of our contingent consideration can result from changes in discount periods and rates, as well as changes in the timing and amount of revenue estimates or in the timing or likelihood of achieving R&D, regulatory and commercialization-based, and revenue-based milestones. Projected contingent payment amounts related to some of our R&D, regulatory and commercialization-based and revenue-based milestones are discounted back to the current period using a discounted cash flow (DCF) model. Other revenue-based payments are valued using a Monte Carlo valuation model, which simulates future revenues during the earn out-period using management's best estimates. Projected revenues are based on our most recent internal operational budgets and long-range strategic plans. Increases in projected revenues and probabilities of payment may result in higher fair value measurements. Increases in discount rates and the time to payment may result in lower fair value measurements. Increases or decreases in any of those inputs together, or in isolation, may result in a significantly lower or higher fair value measurement.

Strategic Investments

On April 30, 2015, we acquired a 27 percent ownership interest in Preventice Solutions, Inc. (Preventice), which includes 18.5 percent of Preventice's common stock. Preventice is a privately-held company headquartered in Minneapolis, MN, and a leading developer of mobile health solutions and services. In addition to the equity agreement, we entered into a commercial agreement with Preventice, under which we have become Preventice’s exclusive, worldwide sales and marketing representative. In October 2016, we notified Preventice of our intent to terminate the commercial agreement and will transition the sales force back to Preventice in 2017 under the terms of the agreement.

On April 13, 2015, we acquired 25 percent of the common stock of Frankenman Medical Equipment Company (Frankenman). Frankenman is a privately-held company headquartered in Suzhou, China, and is a local market leader in surgical staplers. Additionally, we entered into co-promotional and co-selling agreements with Frankenman to commercialize selected products jointly in China. We believe this alliance will enable us to reach more clinicians and treat more patients in China by providing access to training on less invasive endoscopic technologies with clinical and economic benefits.

We are accounting for our investments in Preventice and Frankenman, as well as certain of our other strategic investments, as equity method investments, in accordance with FASB ASC Topic 323.

The aggregate carrying amount of our strategic investments as of December 31, 2016 and December 31, 2015, were comprised of the following categories:



	As of
	December 31, 2016		December 31, 2015
Equity method investments	$	265	$	173
Cost method investments	20		45
Available-for-sale securities	20		—
Notes receivable	42		30
	$	347	$	248

As of December 31, 2016, the book value of our equity method investments exceeded our share of the book value of the investees’ underlying net assets by approximately $200 million, which represents amortizable intangible assets and in-process research and development, corresponding deferred tax liabilities, and goodwill. The net losses from our equity method adjustments, presented within the Other, net caption of our consolidated statement of operations were $17 million in 2016 and were immaterial in 2015 and 2014.