Stryker 2014 Annual Report

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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. 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 currently self-insured for product liability-related 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. 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 entire matter on a global basis is estimated to be approximately $1,534 ($1,713 before $179 of third-party insurance recoveries) to $2,453. In 2014, we recorded charges to earnings, net of insurance recoveries, of $748 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 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 Holdings, Inc. (Zimmer), alleging that a Zimmer product infringed 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. We have filed for a petition for rehearing en banc on the issue of enhanced damages. Following the conclusion of the proceedings at the Federal Circuit, each party may seek Supreme Court review. We have not recorded a contingent gain related to this matter. In April 2011 Hill-Rom Company, Inc. and affiliated entities (Hill- Rom) brought a lawsuit against us alleging infringement under United States patent laws with respect to nine patents related to electrical network communications for hospital beds. The case has been stayed with respect to six of the patents, which are currently under reexamination by the United States Patent Office. With respect to the three remaining patents, Hill-Rom appealed the trial court's grant of summary judgment in our favor and the Federal Circuit reversed the trial court's decision and remanded the matter for additional proceedings. The ultimate resolution of this suit cannot be predicted and it is not possible at this time for us to estimate any probable loss or range of probable losses. However, the ultimate result could have a material adverse effect on our financial position, results of operations and cash flows. Purchase Commitments and Operating Leases 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. Future commitments under these obligations and minimum lease commitments under these leases are: 2015 2016 2017 2018 2019 Thereafter Purchase obligations $ 710 $ 134 $ 121 $ 67 $ 62 $ 56 Minimum lease payments 60 45 33 25 19 34 Rent expense totaled $103, $100, and $98 in 2014, 2013 and 2012, respectively. STRYKER CORPORATION 2014 Form 10-K 29 Dollar amounts in millions except per share amounts or as otherwise specified. NOTE 8 - DEBT AND CREDIT FACILITIES In August 2014 we amended and restated our Senior Unsecured Revolving Credit Facility. The principal changes were to increase the aggregate principal amount of the commitments to $1,250, to extend the maturity date to August 22, 2019 and to revise the definition of the consolidated Earnings Before Interest Taxes Depreciation and Amortization (EBITDA). During 2014 we issued commercial paper under the commercial paper program. The program allows us to have a maximum of $1,250 in commercial paper outstanding, with maturities up to 397 days from the date of issuance. At December 31, 2014, outstanding commercial paper totaled $200, the weighted average original maturity of the commercial paper outstanding was approximately 62 days and the weighted average interest rate was 0.2%. In May 2014 we sold $600 in senior unsecured notes due 2024 (2024 Notes) and $400 of senior unsecured notes due 2044 (2044 Notes). The 2024 Notes will bear interest at 3.375% per year and, unless previously redeemed, will mature on May 15, 2024. The 2044 Notes will bear interest at 4.375% per year and, unless previously redeemed, will mature on May 15, 2044. Our debt is as follows: December December 2014 2013 Senior unsecured notes: Rate Due 3.00% 1/15/2015 $ 500 $ 500 2.00% 9/30/2016 750 749 1.30% 4/1/2018 598 598 4.375% 1/15/2020 498 498 3.375% 5/15/2024 605 — 4.10% 4/1/2043 395 394 4.375% 5/15/2044 398 — Commercial paper 200 — Other 29 25 Total debt 3,973 2,764 Less current maturities (727) (25) Total long-term debt $ 3,246 $ 2,739 Certain of our credit facilities require us to comply with financial and other covenants. We were in compliance with all covenants at December 31, 2014. We have lines of credit, issued by various financial institutions, available to fund our day-to-day operating needs. At December 31, 2014, we had $1,289 of borrowing capacity available under all of our existing credit facilities.The weighted

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