Issue link: http://catalog.e-digitaleditions.com/i/275023
14 Dollar amounts in millions except per share amounts or as otherwise specified FINANCIAL CONDITION AND LIQUIDITY Operating Activities Operating cash flow was $1,886 in 2013, an increase of 13.8% and resulted primarily from net earnings adjusted for non-cash items (depreciation and amortization, share-based compensation, sale of inventory "stepped up" to fair value at acquisition and deferred income taxes), along with a decrease of $278 in cash paid for income taxes, associated with the timing of cash payments as well as favorable tax audit resolutions in multiple jurisdictions. These increases were partially offset by higher levels of inventory and accounts receivable. The net of accounts receivable, inventory and accounts payable resulted in the consumption of $165 of cash in 2013. Inventory days on hand improved by 1 day due to continued focus on improved inventory management; accounts receivable days sales outstanding remained consistent with 2012. Operating cash flow was $1,657 in 2012, an increase of 15.6%, and resulted primarily from net earnings adjusted for non-cash items (depreciation and amortization, share-based compensation, sale of inventory "stepped up" to fair value at acquisition and deferred income taxes). The net of accounts receivable, inventory and accounts payable consumed $50 of cash in 2012. Inventory reductions contributed $18 of cash as inventory days on hand decreased by 5 days, due to lower inventory levels driven primarily by improved inventory management. Accounts receivable increases from business growth resulted in the consumption of $20 of cash, while accounts receivable days sales outstanding decreased by 3 days due to timing of sales. Investing Activities Net investing activities resulted in cash consumption of $2,217, $736 and $2,135 in 2013, 2012 and 2011, respectively, primarily due to acquisitions and capital spending. Acquisitions. Acquisitions resulted in cash consumption of $2,320 in 2013 and $154 in 2012. In 2013 the cash consumed was primarily for Trauson and MAKO. In 2012 cash consumed was primarily for Surpass for $99 as well as for milestone payments related to previous acquisitions. Cash consumed in 2011 of $2,066 was primarily for the acquisitions of Neurovascular for $1,450; Orthovita for $316; Memometal for $150; and Concentric for $135. Capital Spending. We manage capital spending to support our business growth. Capital expenditures, primarily to support integration of acquisitions, information technology infrastructure upgrades, capacity expansion, new product introductions, innovation and cost savings, were $195, $210 and $226 in 2013, 2012 and 2011, respectively. Proceeds from Asset Sales. Proceeds from asset sales contributed $67 of cash in 2011, primarily due to the sale of certain assets related to the OP-1 product family. Financing Activities Dividend Payments. Dividends paid per common share increased 24.7% to $1.06 per share in 2013, and increased 18.1% to $0.85 per share in 2012. As a result of the annual increase in dividends paid per share, total dividend payments to common shareholders were $401, $324 and $279 in 2013, 2012 and 2011, respectively. Short-term and Long-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment and financing plans (including acquisitions and share repurchase activities) and overall cost of capital. In March 2013 we sold $600 million of senior unsecured notes due 2018 (the 2018 Notes) and $400 million of senior unsecured notes due 2043 (the 2043 Notes). The 2018 Notes bear interest at 1.3% per year and mature in April 1, 2018. The 2043 Notes bear interest at 4.1% per year and mature on April 1, 2043. We intend to use the net proceeds from the offering for working capital and other general corporate purposes, including acquisitions, stock repurchases and other business opportunities. Total debt was $2,764 and $1,762 in 2013 and 2012, respectively. Share Repurchases. The total use of cash for share repurchases was $317, $108 and $622 in 2013, 2012 and 2011, respectively. Liquidity Our cash, cash equivalents and marketable securities were $3,980 and $4,285 at December 31, 2013 and 2012, respectively, and our current assets exceeded current liabilities by $5,678 and $6,272 at December 31, 2013 and 2012, respectively. We anticipate being able to support our short-term liquidity and operating needs, including settlements related to the Rejuvenate and ABG II recalls, from a variety of sources, including cash from operations, commercial paper and existing credit lines. In the past we have also raised funds in the capital markets and may continue to do so from time to time in the future. We have strong short-term and long- term debt ratings that we believe should enable us to refinance our debt as it becomes due. In August 2012 we refinanced our credit facility with a new $1,000 Unsecured Revolving Credit Facility due August 2017 (2012 Facility). The 2012 Facility replaced the previously outstanding $1,000 Unsecured Credit Facility that would have become due in August 2013. The 2012 Facility includes an increase option permitting us to increase the size of the facility up to an additional $500, a $500 multicurrency sublimit (with no sublimit for euro borrowings) and a $100 letter of credit sublimit. The 2012 Facility has an annual facility fee ranging from 5 to 22.5 basis points and bears interest at LIBOR, as defined in the 2012 Facility agreement, plus an applicable margin ranging from 57.5 to 127.5 basis points, both of which are dependent on our credit ratings. Should additional funds be required we had approximately $1,052 of borrowing capacity available under all of our existing credit facilities at December 31, 2013, including the 2012 Facility. At December 31, 2013, approximately 78% of our consolidated cash, cash equivalents and marketable securities were held outside of the United States. These funds are considered indefinitely reinvested to be used to expand operations either organically or through acquisitions outside the United States. We continually evaluate our receivables, particularly in Spain, Portugal, Italy and Greece (the Southern European Region). The total net receivables from the Southern European Region were approximately $199 and $198 at December 31, 2013 and 2012, respectively, including approximately $103 of sovereign