STRYKER CORP

Operating lease expense totaled$205,$190 and$172 in 2025,

2024 and 2023.

Future Obligations

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.

Other Contractual Obligations and Commitments

We participate in a supplier financing program that enables our

suppliers, at their sole discretion, to sell their Stryker receivables

to a financial institution on a non-recourse basis in order to be

paid earlier than our payment terms provide. Under this program,

we agree to pay participating banks the stated amount of

confirmed invoices from its designated suppliers on the original

maturity dates of the invoices, generally within 90 days of the

invoice date. We or the banks may agree to terminate the

agreements with advance notice. Separately, the banks may

have arrangements with the suppliers that provide them the

option to request early payment from the bank for invoices

confirmed by us. Our outstanding balances of confirmed invoices

in the programs were$75 and$71 on December 31, 2025 and

2024 and are included withina ccounts payable on our

NOTE 8 -GOODWILL AND OTHER INTANGIBLE ASSETS

In our annual impairment test of goodwill as of October 31,2024

we performed a quantitative assessment of the Spine reporting

unit using a discounted cash flow analysis to estimate the fair

value. The carrying value of the Spine reporting unit exceeded its

fair value and a charge of$273 was recognized in goodwill and

other impairments in the Consolidated Statements of Earnings.

The impairment charge for the Spine reporting unit was driven by

a decrease in future product demand due to the competitive

environment and an increase in the Spine reporting unit’s

weighted average cost of capital. Subsequent to the annual

goodwill impairment test management committed to a plan to sell

certain assets associated with the Spinal Implants business

(disposal group). Goodwill was allocated to the disposal group

based on the relative fair values of the disposal group and the

portion of the Spine reporting unit that will be retained. Goodwill

allocated to the disposal group was tested for impairment which

resulted in an impairment charge of$183 recognized in goodwill

and other impairments in the Consolidated Statements of

Earnings. Refer to Note 16 for additional information on the sale

of the Spinal Implants business.

In our annual impairment test as of October 31, 2025 we

performed a quantitative impairment test for our Peripheral

Vascular reporting unit and determined that its fair value

exceeded its carrying amount by 12%. At October 31, 2025,

goodwill attributable to the Peripheral Vascular reporting unit was

$3,203. The fair value of this reporting unit was determined using

a discounted cash flow analysis, which is a form of the income

approach. Significant inputs to the analysis included assumptions

for future revenue growth, operating margin and the rate used to

discount the estimated future cash flows to their present value,

based on the reporting unit’s estimated weighted average cost of

capital.

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 2025 or 2024.

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 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.

In 2024 goodwill of$117 previously reported within Orthopaedics

was reclassified to MedSurg and Neurotechnology to reflect the

reclassification of the Interventional Spine reporting unit from

Orthopaedics to MedSurg and Neurotechnology to align with

certain updates in our internal reporting structure.

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 intotwo

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, 2025.

We made no repurchases of shares in 2025. 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,

2025 the total dollar value of shares of our common stock that

could be purchased under our authorized repurchase program

was$1,033.

Shares reserved for future compensation grants of our common

stock were 31 million and 18 million on December 31, 2025 and

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$260,$362 and$318 in 2025,2024 and 2023.

Exercise prices for options outstanding ranged from$96.64 to

$392.39 on December 31, 2025. On December 31, 2025 there

was$160 of unrecognized compensation cost related to

nonvested stock options granted under the long-term incentive

plans. That cost is expected to be recognized as expense over

the weighted-average period of approximately 1.5 years.

On December 31, 2025 there was$100 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$385.68 and

$332.64 in 2025 and 2024. The fair value of RSUs and PSUs

vested in 2025 was$91 and$26. On December 31, 2025 there

was$26 of unrecognized compensation cost related to

nonvested PSUs. That 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 178,090 and 173,708 shares under the ESPP

in 2025 and 2024.

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, 2025.

In February 2025 we entered into a new revolving credit

agreement that replaces our previous agreement dated October

2021. The primary changes included increasing the aggregate

principal amount of the facility by$750 to$3,000 and extending

the maturity date to February 25, 2030. On December 31, 2025

there wereno borrowings outstanding under our revolving credit

facility or our commercial paper program which allows for

maturities up to 397 days from the date of issuance. The

maximum amount of our commercial paper that can be

outstanding at any time is$3,000.

In February 2025 we issued$500 of 4.550% senior unsecured

notes due February 10, 2027,$700 of 4.700% senior unsecured

notes due February 10, 2028,$800 of 4.850% senior unsecured

notes due February 10, 2030 and$1,000 of 5.200% senior

unsecured notes due February 10, 2035. In June 2025 we repaid

$650 of 1.150% senior unsecured notes. In November 2025 we

repaid$750 of 3.375% senior unsecured notes. 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 totaled$582,$396 and$356 in

2025,2024 and 2023.

NOTE 11 -INCOME TAXES

On January 1, 2025 we prospectively adopted ASU 2023-09

(Topic 740): Income Taxes: Improvements to Income Tax

Disclosures which expands the existing rules on income tax

disclosures. This update requires entities to disclose specific

categories in the tax rate reconciliation, provide additional

information for reconciling items that meet a quantitative

threshold and disclose additional information about income taxes

paid on an annual basis. In determining the reconciling items we

considered the effect of tax rulings as part of the statutory tax

rate.

Our effective tax rate was 28.1%,14.3% and 13.8% for 2025,

2024 and 2023. The effective income tax rate for 2025 increased

from 2024 due to the 2025 tax effect of transfers of intellectual

property between tax jurisdictions and the 2024 tax effect of the

sale of the Spinal Implants business. The effective income tax

rate for 2024 increased from 2023 due to the 2023 tax effect of

transfers of intellectual property between tax jurisdictions offset

by the 2024 tax effect of the sale of the Spinal Implants business.

(1) State taxes in Pennsylvania, New York, Illinois, Florida, California, Michigan,

Indiana, and Tennessee accounted for the majority (greater than 50%) of the tax

effect in this category.

Interest included in interest expense was$18,$13, and$1 in

2025,2024 and 2023. The United States federal deferred income

tax expense (benefit) includes the utilization of net operating loss

carryforwards of$32,$9 and$189 in 2025,2024 and 2023.

Accrued interest was$96 and$71 on December 31, 2025 and

2024 which was reported in accrued expenses and other

liabilities and other noncurrent liabilities.

United States federal loss carryforwards of$271, with$57 of

associated deferred tax asset and with$2 being subject to a

valuation allowance, begin to expire in 2026. United States state

loss carryforwards of$1,606, with$64 associated deferred tax

asset and with$33 being subject to a valuation allowance, begin

to expire in 2026. International loss carryforwards of$309, with

$67 of associated deferred tax asset and with$61 being subject

to a valuation allowance, begin to expire in 2026; however, some

have no expiration. We also have tax credit carryforwards of

$141 with$4 being subject to a full valuation allowance. The

credits with a full valuation allowance begin to expire in 2026.

We recorded deferred income tax on undistributed earnings of

foreign subsidiaries not determined to be indefinitely reinvested.

The amount of undistributed earnings of foreign subsidiaries

determined to be indefinitely reinvested at December 31,2025

was approximately$11.7 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$279 and

$224 in 2025 and 2024 had our 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 incurred associated with

uncertain tax positions is included in interest expense.

Income tax authorities in various jurisdictions globally conduct

routine audits of our income tax returns to determine if they agree

with our interpretations of income tax regulations. Any audit

assessment, draft audit assessment, or final audit report received

is reviewed for new information and evaluated for proper financial

statement treatment. We received a final audit report and

assessments from the German Federal Central Tax Office

(FCTO) related to the years 2010 through 2017 of$754 and

expect to receive additional assessments of$11 based on the

final audit report. We intend to defend our filing positions through

the FCTO independent appeals process and/or litigation as

necessary. If the resolution of this matter results in additional

German income taxes, we expect to pursue a claim for

associated foreign tax credits. Our unrecognized tax benefits

associated with this matter remain unchanged from 2024.

Income tax years are open from 2019 through 2025 for the

United States federal jurisdiction and are open for other major

jurisdictions from 2010 through 2025.

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 primarily include guaranteed

investment contracts with insurance companies. The insurance

contracts guarantee us principal repayment and a fixed rate of

return. The$3 decrease 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 2026.

NOTE 13 -SUMMARY OF QUARTERLY DATA (UNAUDITED)

NOTE 14 -SEGMENT AND GEOGRAPHIC DATA

We segregate our operations intotwo reportable business

Orthopaedics which aligns to our internal reporting structure and

how our Chief Operating Decision Maker (CODM) assesses

performance and allocates resources. The CODM is the Chief

Executive Officer. The CODM makes decisions on resource

allocation, assesses performance of the business, and monitors

budget versus actual results using segment operating income.

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 and other impairments, 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.

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

During 2025,2024 and 2023 we recorded impairment charges of

$109,$159 and$36 to write off long-lived and intangible assets

excluding long-lived assets held for sale which included charges

related to certain product line exits.

NOTE 16 -SALE OF SPINAL IMPLANTS BUSINESS

During the fourth quarter 2024 management committed to a plan

to sell certain assets associated with the Spinal Implants

business (disposal group) and such assets were classified as

held for sale beginning November 2024. As a result we recorded

a valuation allowance of$362 to record the disposal group at its

fair value less cost to sell within goodwill and other impairments

in our Consolidated Statements of Earnings.

In April 2025 we completed the sale of the disposal group to the

Viscogliosi Brothers, LLC. In the first half of 2025 we recognized

immaterial impairment charges to record the disposal group at its

fair value less cost to sell within goodwill and other impairments

in our Consolidated Statements of Earnings. The fair value of the

disposal group and consideration received was measured using a

discounted cash flow analysis based upon the selling price and

unobservable inputs, such as market conditions and the rate

used to discount the estimated future cash flows to their present

value based on factors including the disposal group’s cost of

equity and market yield rates, which are Level 3 inputs.

Consideration could increase by up to$57 or decrease by up to

$245 based on the amount received.

The assets associated with the disposal group are reported in our

Orthopaedics segment at December 31, 2024. The assets and

liabilities held for sale at December 31, 2024 are classified within

prepaid expenses and other current assets and accrued

expenses and other liabilities in our Consolidated Balance

Sheets. The assets and liabilities of the disposal group at the

date of sale and at December 31, 2024 were as follows: