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Year Ended December 31, 2012 Gross Profit Selling General and Administrative Expenses Intangible Amortization Operating Income Net Earnings Effective Tax Rate Diluted EPS AS REPORTED $ 5,876 $ 3,466 $ 123 $ 1,741 $ 1,298 23.9% $ 3.39 Acquisition and integration related charges Inventory stepped up to fair value 18 — — 18 13 — 0.03 Other acquisition and integration related — (37) — 37 24 0.3 0.06 Amortization of intangible assets — — (123) 123 88 0.3 0.23 Restructuring related charges 5 (75) — 80 59 0.1 0.15 Rejuvenate and other recall matters — (174) — 174 133 — 0.35 Regulatory and legal matters — (33) — 33 33 (0.5) 0.09 ADJUSTED $ 5,899 $ 3,147 $ — $ 2,206 $ 1,648 24.1% $ 4.30 The weighted-average basic and diluted shares outstanding used in the calculation of these non-GAAP financial measures are the same as the weighted-average shares outstanding used in the calculation of the reported per share amounts. STRYKER CORPORATION 2014 Form 10-K 14 Dollar amounts in millions except per share amounts or as otherwise specified. FINANCIAL CONDITION AND LIQUIDITY We believe our financial condition continues to be of high quality, as evidenced by our ability to generate substantial cash from operations and ready access to capital markets at competitive rates. Operating cash flow provides the primary source of cash to fund operating needs and capital expenditures. Excess operating cash is used first to fund acquisitions to complement our portfolio of businesses. Other discretionary uses include dividends and share repurchases. As necessary, we may supplement operating cash flow with debt to fund these activities. Our overall cash position shows our strong business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations. Operating Activities Operating cash flow was $1,782 in 2014, a decrease of 5.5% and resulted primarily from net earnings adjusted for non-cash items (recall charges, depreciation and amortization, share-based compensation, sale of inventory "stepped up" to fair value at acquisition and deferred income taxes). In addition, the increase in taxes payable was primarily due to the timing of tax payments associated with tax liabilities arising from the establishment of a European regional headquarters. 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 $249 of cash in 2014. Inventory days on hand increased by eight days compared to 2013 as inventory grew to support higher sales and acquisitions, while accounts receivable days sales outstanding decreased by one day compared to 2013. 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. The net of accounts receivable, inventory and accounts payable consumed $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. Investing Activities Net investing activities resulted in cash consumption of $1,878, $2,217 and $736 in 2014, 2013 and 2012, respectively, primarily due to acquisitions and capital spending. Acquisitions. Acquisitions resulted in cash consumption of $916 in 2014 and $2,320 in 2013. In 2014 the cash consumed was primarily for SBi, Berchtold, PST and Pivot. In 2013 cash consumed was primarily for Trauson and MAKO. Cash consumed in 2012 of $154 was primarily associated with the acquisition of Surpass Medical Ltd. 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 $233, $195 and $210 in 2014, 2013 and 2012, respectively. Financing Activities Dividend Payments. Dividends paid per common share increased 15.1% to $1.22 per share in 2014, and increased 24.7% to $1.06 per share in 2013. As a result of the annual increase in dividends paid per share, total dividend payments to common shareholders were $462, $401 and $324 in 2014, 2013 and 2012, 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. Net proceeds from borrowings were $1,159 and $1,005 in 2014 and 2013, respectively. In 2014 the proceeds were primarily from the public offerings of notes and commercial paper, and proceeds in 2013 were primarily from public offerings of notes. Refer to Note 8 in the Notes to the Consolidated Financial Statements for further information. Total debt was $3,973 and $2,764 in 2014 and 2013, respectively. Share Repurchases. The total use of cash for share repurchases was $100, $317 and $108 in 2014, 2013 and 2012, respectively. Liquidity Our cash, cash equivalents and marketable securities were $5,000 and $3,980 at December 31, 2014 and 2013, respectively, and our current assets exceeded current liabilities by $5,209 and $5,678 at December 31, 2014 and 2013, 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. Should additional funds be required we had approximately $1,289 of borrowing capacity available under all of our existing credit facilities at December 31, 2014. At December 31, 2014, approximately 68% of our consolidated cash, cash equivalents and marketable securities were held outside of the United States. During the third quarter of 2014 we announced