STRYKER CORP

Operating lease expense totaled $172, $149, and $133 in 2023, 2022 and 2021.

Future Obligations

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. Refer to Note 10 for more information on the debt obligations.

NOTE 8 -GOODWILL AND OTHER INTANGIBLE ASSETS

In our annual impairment tests of goodwill as of October 31, 2023 and 2022, we performed a quantitative assessment of the Spine reporting unit using a discounted cash flow analysis to estimate the fair value. Significant inputs to the analysis included assumptions for future revenue growth and operating margin. The analysis also included a rate to discount the estimated future cash flow projections to their present value, based on the reporting unit’s estimated weighted average cost of capital.

In 2022, the carrying value of the Spine reporting unit exceeded its fair value and a charge of $216 was recognized in the Goodwill impairment line in the Consolidated Statements of Earnings. The impairment charge for the Spine reporting unit was primarily driven by the slower than anticipated recovery of surgery volumes as we emerged from the COVID-19 pandemic, the competitive pressures in the spine market and rising interest rates in the macroeconomic environment at that time. Due to the goodwill impairment charge in 2022, for our annual impairment test in 2023 we also elected to perform a quantitative assessment. As a result of that assessment we concluded that goodwill of the Spine reporting unit was not impaired in 2023 as its fair value exceeded its carrying value. Goodwill attributable to the Spine reporting unit as of December 31, 2023 was $1,034.

For our other reporting units, we considered qualitative indicators of impairment as it was considered more likely than not that the fair values of those reporting units exceeded their respective carrying values. No impairment was identified for those reporting units in 2023 or 2022.

Future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill, including discount and tax rates and future cash flow projections, could result in significantly different estimates of the fair values. A

significant reduction in the estimated fair values could result in impairment charges that could materially affect our results of operations.

NOTE 9 -CAPITAL STOCK

The aggregate number of shares of all classes of stock which we are authorized to issue is up to 1,000,500,000, divided into two classes consisting of 500,000 shares of $1 par value preferred stock and 1,000,000,000 shares of common stock with a par value of $0.10. No shares of preferred stock were outstanding on December 31, 2023.

We made no repurchases of shares in 2023. The manner, timing and amount of repurchases are determined by management based on an evaluation of market conditions, stock price and other factors and are subject to regulatory considerations. Purchases are made from time-to-time in the open market, in privately negotiated transactions or otherwise. On December 31, 2023 the total dollar value of shares that could be purchased under our authorized repurchase program was $1,033.

Shares reserved for future compensation grants of our common stock were 20 million and 23 million on December 31, 2023 and 2022.

Stock Options

We measure the cost of employee stock options based on the grant-date fair value and recognize that cost using the straight-line method over the period in which a recipient is required to

provide services in exchange for the options, typically the vesting period. The weighted-average fair value per share of options is estimated on the date of grant using the Black-Scholes option pricing model.

The risk-free interest rate for periods within the expected life of options granted is based on the United States Treasury yield curve in effect at the time of grant. Expected stock price volatility is based on the historical volatility of our stock. The expected option life, representing the period of time that options granted are expected to be outstanding, is based on historical option exercise and employee termination data.

The aggregate intrinsic value of options, which represents the cumulative difference between the fair market value of the underlying common stock and the option exercise prices, exercised was $318, $218 and $253 in 2023, 2022 and 2021. Exercise prices for options outstanding ranged from $77.75 to $287.14 on December 31, 2023. On December 31, 2023 there was $135 of unrecognized compensation cost related to nonvested stock options granted under the long-term incentive plans; that cost is expected to be recognized over the weighted-average period of approximately 1.6 years.

On December 31, 2023 there was $81 of unrecognized compensation cost related to nonvested RSUs. That cost is expected to be recognized as expense over the weighted-average period of approximatelyone year. The weighted-average grant date fair value per share of RSUs granted was $257.09 and $239.76 in 2023 and 2022. The fair value of RSUs and PSUs vested in 2023 was $74 and $10. On December 31, 2023 there was $19 of unrecognized compensation cost related to nonvested PSUs; the cost is expected to be recognized as expense over the weighted-average period of approximatelyone year.

Employee Stock Purchase Plans (ESPP)

Employees may participate in our ESPP provided they meet certain eligibility requirements. The purchase price for our common stock under the terms of the ESPP is defined as 95% of the closing stock price on the last trading day of a purchase period. We issued 190,524 and 221,387 shares under the ESPP in 2023 and 2022.

NOTE 10 -DEBT AND CREDIT FACILITIES

We have lines of credit issued by various financial institutions that are available to fund our day-to-day operating needs. Certain of our credit facilities require us to comply with financial and other covenants. We were in compliance with all covenants on December 31, 2023.

In 2022 our Board of Directors approved an increase to the maximum amount of commercial paper that can be outstanding from $1,500 to $2,250.

On December 31, 2023 there wereno borrowings outstanding under our credit facility or commercial paper program which allows for maturities up to 397 days from the date of issuance.

During 2023 we made payments of $850 to extinguish the remaining balance on the $1.5 billion term loan scheduled to mature on February 22, 2025.

In August 2023 we issued €500 of floating rate senior notes due November 16, 2024. The notes bear interest at a rate based on the three-month Euro Interbank Offered Rate (EURIBOR) plus 0.3%. The notes are callable at February 16, 2024, May 16, 2024 or October 16, 2024 either by us or at the option of the notes holders.

In November 2023 we repaid the outstanding €550 principal amount of 1.125% senior unsecured notes due November 30, 2023 and in December 2023 we repaid the outstanding $600 principal amount of 0.600% senior unsecured notes due December 1, 2023. We subsequently issued $600 of 4.850% senior unsecured notes due December 8, 2028 and €600 of 3.375% senior unsecured notes due December 11, 2028. The following table summarizes our total debt at December 31:

The fair value of the senior unsecured notes was estimated using quoted interest rates, maturities and amounts of borrowings based on quoted active market prices and yields that took into account the underlying terms of the debt instruments. Substantially all of our debt is classified within Level 2 of the fair value hierarchy.

Interest expense on outstanding debt and credit facilities, including required fees incurred, that were included in other income (expense), net, totaled $356, $337, and $337 in 2023, 2022 and 2021.

NOTE 11 -INCOME TAXES

Our effective tax rate was 13.8%,12.1% and 12.6% for 2023, 2022 and 2021. The effective income tax rate for 2023 increased from 2022 due to the 2022 effective settlement of the United States federal income tax audit for years 2014 through 2018 and the 2022 reversal of deferred income tax on undistributed earnings of foreign subsidiaries partially offset by the 2023 tax effect related to transfers of intellectual property between tax jurisdictions. The effective income tax rate for 2022 decreased from 2021 due to the 2022 effective settlement of the United States federal income tax audit for years 2014 through 2018 and the 2022 reversal of deferred income tax on undistributed earnings of foreign subsidiaries. The effective income tax rates for 2023, 2022 and 2021 reflect the continued lower effective income tax rates as a result of our European operations, the tax effect related to the transfers of intellectual property between tax jurisdictions, the tax effect of future remittances of the undistributed earnings of foreign subsidiaries and certain discrete tax items.

Interest and penalties included in other income (expense), net were expense of $1 in 2023, income of $71 in 2022 and expense of $23 in 2021. The United States federal deferred income tax expense (benefit) includes the utilization of net operating loss carryforwards of $189, $56 and $283 in 2023, 2022 and 2021.

Accrued interest and penalties were $67 and $66 on December 31, 2023 and 2022 which were reported in accrued expenses and other liabilities and other noncurrent liabilities.

United States federal loss carryforwards of $254, with $53 of associated deferred tax asset and with $2 being subject to a valuation allowance, begin to expire in 2024. United States state loss carryforwards of $3,006, with $74 associated deferred tax asset and with $47 being subject to a valuation allowance, begin to expire in 2024. International loss carryforwards of $259, with $66 of associated deferred tax asset and with $63 being subject

to a valuation allowance, begin to expire in 2026; however, some have no expiration. We also have tax credit carryforwards of $208 with $79 being subject to a full valuation allowance. The credits with a full valuation allowance begin to expire in 2024. We do not anticipate generating income tax in excess of the non-expiring credits in the foreseeable future.

The Tax Cuts and Jobs Act (the Act) was enacted in 2017 in the United States. We recorded a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred. The Act also subjects a United States shareholder to tax on Global Intangible Low-Taxed Income (GILTI) earned by certain foreign subsidiaries. We have elected to account for GILTI tax in the year the tax is incurred.

We recorded deferred income tax on undistributed earnings of foreign subsidiaries not determined to be indefinitely reinvested. In 2022 it was determined that, based on our revised capital plan, certain cash outside the United States would no longer need to be repatriated during the period previously contemplated. As a result deferred taxes of $71 that were recorded on the associated earnings were reversed. The amount of undistributed earnings of foreign subsidiaries determined to be indefinitely reinvested at December 31, 2023 was approximately $11 billion. Determination of the total amount of unrecognized deferred income tax on undistributed earnings of foreign subsidiaries is not practicable.

Our income tax expense would have been reduced by $248 and $289 in 2023 and 2022 had these uncertain income tax positions been favorably resolved. It is reasonably possible that the amount of unrecognized tax benefits will significantly change due to one or more of the following events in the next 12 months: expiring statutes, audit activity, tax payments, competent authority proceedings related to transfer pricing or final decisions in matters that are the subject of controversy in various taxing jurisdictions in which we operate, including inventory transfer pricing, cost sharing, product royalty and foreign branch arrangements. We are not able to reasonably estimate the amount or the future periods in which changes in unrecognized tax benefits may be resolved. Interest and penalties incurred associated with uncertain tax positions are included in other income (expense), net.

In the normal course of business, income tax authorities in various income tax jurisdictions both within the United States and internationally conduct routine audits of our income tax returns filed in prior years. These audits are generally designed to determine if individual income tax authorities are in agreement with our interpretations of complex income tax regulations regarding the allocation of income to the various income tax jurisdictions. Income tax expense in 2022 decreased $162 due to the effective settlement of the United States federal income tax audit for years 2014 through 2018. In addition 2022 other income (expense), net includes a benefit of $50 related to the release of accrued interest associated with this settlement. Income tax years are open from 2019 through the current year for the United

States federal jurisdiction. Income tax years open for our other major jurisdictions range from 2007 through the current year.

NOTE 12 -RETIREMENT PLANS

Defined Contribution Plans

We provide certain employees with defined contribution plans and other types of retirement plans. A portion of our retirement plan expense under the defined contribution plans is funded with Stryker common stock. The use of Stryker common stock represents a non-cash operating activity that is not reflected in our Consolidated Statements of Cash Flows.

Defined Benefit Plans

Certain of our subsidiaries have both funded and unfunded defined benefit pension plans covering some or all of their employees. The majority of our defined benefit pension plans have projected benefit obligations in excess of plan assets.

Discount Rate

The discount rates were selected using a hypothetical portfolio of high quality bonds on December 31 that would provide the necessary cash flows to match our projected benefit payments.

Expected Return on Plan Assets

The expected return on plan assets is determined by applying the target allocation in each asset category of plan investments to the anticipated return for each asset category based on historical and projected returns.

The actuarial gain (loss) for all pension plans was primarily related to a change in the discount rate used to measure the benefit obligations of those plans.

Investment Strategy

The investment strategy for our defined benefit pension plans is to meet the liabilities of the plans as they fall due and to maximize the return on invested assets within appropriate risk tolerances.

Our Level 3 pension plan assets consist primarily of guaranteed investment contracts with insurance companies. The insurance contracts guarantee us principal repayment and a fixed rate of return. The $10 increase in Level 3 pension plan assets is primarily driven by the change in the corresponding pension liability. We expect to contribute $24 to our defined benefit pension plans in 2024.

NOTE 13 -SUMMARY OF QUARTERLY DATA (UNAUDITED)

NOTE 14 -SEGMENT AND GEOGRAPHIC DATA

We segregate our operations intotwo reportable business segments: (i) MedSurg and Neurotechnology and (ii) Orthopaedics and Spine which aligns to our internal reporting structure and how the Company manages its businesses.

The Corporate and Other category shown in the table below includes corporate and administration, corporate initiatives and share-based compensation, which includes compensation related to employee stock options, restricted stock units and performance stock unit grants and director stock options and restricted stock unit grants.

We measure the financial results of our reportable segments using an internal performance measure that excludes acquisition and integration-related charges, structural optimization and other special charges, goodwill impairment, reserves for certain product recall matters and reserves for certain legal and regulatory matters. Identifiable assets are those assets used exclusively in the operations of each business segment or allocated when used jointly. Corporate assets are principally property, plant and equipment and noncurrent assets. Certain assets in 2022 have been reallocated to the segments to conform with current year presentation.

The countries in which we have local revenue generating operations have been combined into the following geographic areas: the United States; Europe, Middle East, Africa; Asia Pacific; and other foreign countries, which include Canada and countries in the Latin American region. Net sales are reported based on the geographic area of the Stryker location where the sales to the customer originated.

NOTE 15 -ASSET IMPAIRMENTS

Asset impairments recognized in 2023 werenot significant. Asset impairments recognized in 2022 included $47 to write off long-lived and intangible assets primarily as a result of the exit of certain product lines.

The government in China conducts regional and national volume-based procurement (VBP) programs for high-value medical consumables as part of its efforts to reduce healthcare costs. Each VBP program has specific requirements to award contracts to the lowest bidders who are able to satisfy the quality and quantity requirements. As a result of the outcome of certain regional programs for our trauma products and the national VBP program for hips and knees we recorded charges of $105 to impair certain long-lived and intangible assets in 2021. These charges were included in selling, general and administrative expenses.

In addition to the above, we recorded asset impairments of $159 in 2021 consisting primarily of in-process research and development, other intangible assets and property, plant and equipment as a result of COVID-19-related demand impacts on in-process product development and certain other divestiture and restructuring activities. These charges were included in selling, general and administrative expenses.