Stryker 2015 FORM 10-K

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In 2010 we filed a lawsuit in federal court against Zimmer Biomet 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. The Federal Circuit denied our petition for a rehearing en banc on the issue of enhanced damages but on October 19, 2015 the United States Supreme Court agreed to hear our appeal on this issue. In May 2015 the trial court entered a stipulated final 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 2015 we received payment of $54, net of legal costs, which has been recorded within selling, general and administrative expenses. 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. On March 31, 2015 the court granted the parties' joint motion to dismiss with prejudice the claims and counterclaims associated with three of these patents. The case has been stayed with respect to the remaining six patents, which currently are under reexamination by the United States Patent Office. The ultimate resolution of this matter 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. Rent expense totaled $101, $103, and $100 in 2015, 2014 and 2013. Future Commitments under Purchase Obligations and Leases 2016 2017 2018 2019 2020 Thereafter Purchase obligations $ 802 $ 125 $ 62 $ 55 $ 2 $ 67 Minimum lease payments $ 69 $ 51 $ 39 $ 28 $ 20 $ 56 NOTE 9 - DEBT AND CREDIT FACILITIES In October 2015 we sold $750 of senior unsecured notes due 2025 (2025 Notes). The 2025 Notes bear interest at 3.375% per year and, unless previously redeemed, will mature on November 1, 2025. In 2015 we repaid $500 of our senior unsecured notes that were due on January 15, 2015. Our commercial paper 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. On December 31, 2015 there were no amounts outstanding under our commercial paper program. Summary of Total Debt 2015 2014 Senior unsecured notes: Rate Due 3.000% 1/15/2015 $ — $ 500 2.000% 9/30/2016 750 750 1.300% 4/1/2018 599 598 4.375% 1/15/2020 498 498 3.375% 5/15/2024 610 605 3.375% 11/1/2025 750 — 4.100% 4/1/2043 395 395 4.375% 5/15/2044 398 398 Commercial paper — 200 Other 22 29 Total debt $ 4,022 $ 3,973 Less current maturities 769 727 Total long-term debt $ 3,253 $ 3,246 Certain of our credit facilities require us to comply with financial and other covenants. We were in compliance with all covenants on December 31, 2015. We have lines of credit, issued by various financial institutions, available to fund our day-to-day operating needs. On December 31, 2015 we had $1,236 of borrowing capacity available under all of our existing credit facilities. On December 31, 2015 the total unamortized debt issuance costs incurred in connection with our outstanding notes were $24. The fair value of long-term debt (including current maturities and excluding the interest rate hedge) on December 31, 2015 and 2014 was $4,009 and $3,811. Substantially all of our long-term debt is classified within Level 1 of the fair value hierarchy because the fair value of the debt is estimated based on rates with identical terms and maturities, using quoted active market prices and yields, taking into account the underlying terms of the debt instruments. Interest expense, including required fees incurred on outstanding debt and credit facilities, which is included in other expense totaled $108, $113, and $83 in 2015, 2014 and 2013. NOTE 10 - CAPITAL STOCK Dividends Declared per Share of Common Stock 2015 Quarter Mar 31 Jun 30 Sep 30 Dec 31 $ 0.345 $ 0.345 $ 0.345 $ 0.380 Share Repurchases In 2015 we repurchased 7.4 million shares at a cost of $700 under our repurchase programs. The manner, timing and amount of purchases is determined by management based on an evaluation of market conditions, stock price and other factors and is subject to regulatory considerations. Purchases are made from time-to-time in the open market, in privately negotiated transactions or otherwise. On December 31, 2015 the total dollar value of shares that could be purchased under our authorized repurchase programs was $1,883. Other Capital Stock Information Shares reserved for future compensation grants of our common stock were 15 million and 19 million at December 31, 2015 and 2014. We have 0.5 million authorized shares of $1 par value preferred stock, none of which is outstanding. Stock Options We have long-term incentive plans from which we grant stock options to certain key employees and non-employee directors at an exercise price not less than the fair market value of the underlying STRYKER CORPORATION 2015 Form 10-K 28 Dollar amounts in millions except per share amounts or as otherwise specified.

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