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STRYKER CORPORATION 2017 FORM 10-K Dollar amounts in millions except per share amounts or as otherwise specified. 12 2015 Gross Profit Selling, General & Administrative Expenses Amortization of Intangible Assets Operating Income Net Earnings Effective Tax Rate Diluted EPS Reported $ 6,602 $ 3,610 $ 210 $ 1,861 $ 1,439 17.1% $ 3.78 Acquisition and integration-related charges: Inventory stepped up to fair value 7 — — 7 4 0.1 0.01 Other acquisition and integration-related — (28) — 28 20 0.2 0.05 Amortization of purchased intangible assets — — (210) 210 147 1.5 0.39 Restructuring-related and other charges 7 (125) — 132 97 0.7 0.26 Rejuvenate and other recall matters — — — 296 210 2.0 0.55 Regulatory and legal matters — 53 — (53) (46) 0.1 (0.12) Tax Matters — — — — 78 (4.4) 0.20 Adjusted $ 6,616 $ 3,510 $ — $ 2,481 $ 1,949 17.3% $ 5.12 FINANCIAL CONDITION AND LIQUIDITY 2017 2016 2015 Net cash provided by operations activities $ 1,559 $ 1,915 $ 981 Net cash (used in) provided by investing activities (1,613) (4,191) 1,956 Net cash (used in) provided by financing activities (794) 2,258 (1,223 ) Effect of exchange rate changes 74 (45) (130) Change in cash and cash equivalents $ (774) $ (63) $ 1,584 We believe our financial condition continues to be of high quality, as evidenced by our ability to generate substantial cash from operations and to readily access 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. We supplement operating cash flow with debt to fund our activities as necessary. Our overall cash position reflects our strong business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations. Operating Activities Cash provided by operations was $1,559, $1,915, and $981 in 2017, 2016 and 2015. The decrease in cash from operations in 2017 was primarily due to higher Rejuvenate and ABG II recall-related payments compared to 2016 and the unfavorable impact of foreign currency remeasurement. The net of accounts receivable, inventory and accounts payable resulted in the consumption of $461, $507, and $231 of cash in 2017, 2016 and 2015. Investing Activities Cash (used in) provided by investing activities was ($1,613), ($4,191) and $1,956 in 2017, 2016 and in 2015. Acquisitions, Net of Cash Acquired: Acquisitions resulted in cash consumption of $831, $4,332 and $153 in 2017, 2016 and 2015. In 2017 we acquired NOVADAQ and certain other businesses and related assets. In 2016 the primary acquisitions were Sage and Physio. In 2015 the primary acquisition was CHG Hospital Beds, Inc. Purchases of Property, Plant and Equipment: Purchases of property, plant and equipment were $598, $490 and $270 in 2017, 2016 and 2015. Capital expenditures in 2017 were primarily due to capital expenditures associated with the development of our global ERP system and investments in new and existing plants and equipment to support sales growth. Marketable Securities, Net: Net cash (used in) provided by the (purchase) sale of marketable securities was ($183), $634, and $2,379 in 2017, 2016 and 2015. Cash provided by the sale of marketable securities in 2016 was used to repay all of our senior unsecured notes that were due in September 2016. Cash provided by sales of marketable securities in 2015 was primarily used to make recall-related payments. Financing Activities Dividends and Share Repurchases: Dividends paid per common share increased 11.8% to $1.70 per share in 2017 compared to $1.52 per share in 2016, an increase of 10.1% from $1.38 in 2015. 2017 2016 2015 Dividends paid per common share $ 1.70 $ 1.52 $ 1.38 Total dividends paid to common shareholders $ 636 $ 568 $ 521 Total amount paid to repurchase common stock $ 230 $ 13 $ 700 Shares of repurchased common stock (in millions) 1.9 0.1 7.4 Borrowings and Repayments of Debt: We maintain debt levels that we consider appropriate after evaluating a number of factors including 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 $299, $2,912 and $48 in 2017, 2016 and 2015. In 2017 the proceeds were primarily from the issuance of $500 of senior unsecured notes in January 2017 partially offset by payment of $200 of commercial paper. In 2016 the proceeds were primarily from the issuance of $3,500 of senior unsecured notes in March 2016 partially offset by repayment of $750 of our senior unsecured notes due in September 2016. Refer to Note 9 to our Consolidated Financial Statements for further information. Liquidity Cash, cash equivalents and marketable securities were $2,793 and $3,384, and our current assets exceeded current liabilities by $4,508 and $4,713 on December 31, 2017 and 2016. We anticipate being able to support our short-term liquidity and operating needs, including acquisitions and recall-related payments, from a variety of sources, including cash from operations, commercial paper and existing credit lines. We have raised funds in the capital markets and may continue to do so from time to time. As a result of the issuance of senior unsecured notes in March 2016, Moody's downgraded our unsecured note ratings to Baa1 from A3, and Standard & Poor's downgraded our corporate credit and long-term issue-level rating to A from A+ and our short-term rating to A-1 from A-1+. Nevertheless, we continue to have strong investment-grade short-term and long-term debt ratings that we believe should enable us to refinance our debt as needed. We have existing credit facilities should additional funds be required. We have a borrowing capacity available under our main credit facility of $1,500. The amount of commercial paper we have issuable under the commercial paper program is $1,500. Our cash, cash equivalents and marketable securities held in locations outside the United States was approximately 62% and 84% on December 31, 2017 and 2016. The majority of our cash held in locations outside the United States is considered to be indefinitely reinvested. We intend to use this cash to expand operations organically and through acquisitions.