SYK 10-K & 10-Q changes, risk factors and insider trading

We use a variety of raw materials, components, devices and third-party services in our global supply chains, production and distribution processes; significant shortages, price increases or unavailability of third-party services have in the past increased, and could in the future increase, our operating costs and could require significant capital expenditures or adversely impact the competitive position of our products: Our reliance on certain suppliers to secure raw materials, components and finished devices, and on certain third-party service providers, such as sterilization service providers, exposes us to the risk of product shortages and unanticipated increases in prices, whether due to inflationary pressure, regulatory changes, litigation exposure, tariffs, geopolitical tensions or otherwise. For example, in the past we have experienced limited product availability due to an electronic componentscomponent shortage in certain product lines. If a similar shortage occurs in the future with respect to any raw materials or components, we may not be able to obtain them from our suppliers on a timely basis, or at all, or identify alternative suppliers. In addition, several raw materials, components, finished devices and services are procured from a sole source due to, among other things, the quality considerations, unique intellectual property considerations or constraints associated with regulatory requirements. If sole-source suppliers or service providers are unable or unwilling to deliver these materials or services as a result of financial difficulties, business disruptions, acquisition by a third party, natural disastersdisasters, embargoes, tariffs or otherwise, we may not be able to manufacture or have available one or more products during such period of unavailability and our business could suffer, possibly materially. In certain cases, we may not be able to establish additional or replacement suppliers for such materials or service providers for such services in a timely or cost-effective manner, often as a result of FDA and other regulations that require, among other things, validation of materials, components and services prior to their use in or with our products. In certain instances we have been unable to meet demand due to supply chain challenges, which has led to loss of sales. Although the impacts have not been material to date, an inability to meet demand due to supply chain challenges in the future could materially adversely impact our reputation, the competitive position of our products and our business. Any of the foregoing risks could have a material adverse impact on our profitability and results of operations.

In addition, in recent years, the market has experienced inflationary pressures in part due to global supply chain disruptions, labor shortages and other impacts following the COVID-19 pandemic. Inflation in the United States and in many of the countries where we conduct business has resulted in, and may in the future result in, high interest rates and increased capital, energy, shipping and labor costs, weakening or strengthening exchange rates against the United States Dollar and other similar effects. We have experienced,continued to experience, and may in the future experience, inflationary increases in manufacturing costs and operating expenses, as well as negative impacts from weakening or strengthening exchange rates against the United States Dollar. Although we have been able to pass certain cost increases on to our customers, we have not been able to pass along all cost increases and we cannot guarantee that we will be able to do so in the future.future, including in connection with proposed or enacted tariffs. Inflation, high interest rates orrates, interest rate volatility or proposed or enacted tariffs may also cause our customers to reduce or delay orders for our products and services. Any of the foregoing could have a material adverse impact on our sales, profitability and results of operations.

We are subject to pricing pressures as a result of cost containment measures in the United States and other countries and other factors, including changes in reimbursement practices and coverage policies and third-party payor cost containment measures: Initiatives to limit the growth of general healthcare expenses and hospital costs are ongoing and gaining increased attention in the markets in which we do business. These initiatives are sponsored by government agencies, legislative bodies and the private sector and include price regulation and competitive pricing. For example, China has implemented a volume-based procurement process designed to decrease prices for medical devices and other products. Pricing pressure has also increased due to pressures on healthcare budgets, continued consolidation among healthcare providers, trends toward managed care, the shift toward governments becoming the primary payers of healthcare expenses, reduction in coverage or reimbursement levels and medical procedure volumes and government laws and regulations relating to sales and promotion, reimbursement and pricing generally. Coverage policies and reimbursement levels can vary across the payer community globally, regionally, and locally, and may affect which products customers purchase, the market acceptance rate for new technologies and the prices customers are willing to pay for those products in a particular jurisdiction. Furthermore, any changes to the coverage or reimbursement landscape, or adverse decisions relating to our products by administrators of these systems could significantly reduce reimbursement for procedures using our products or result in denial of reimbursement for those products, which could adversely affect customer demand, or the price customers are willing to pay for such products. Public and private payers have challenged, and are expected to continue to challenge, prices charged for medical products and services. Such downward pricing pressures from any or all of these payers may result in an adverse effect on our business, results of operations, financial condition and cash flows. We have also reduced prices for certain products due to increased competition and if we further reduce prices, we could become less profitable. In addition, due to healthcare industry consolidation in recent years, competition to provide goods and services to industry participants has become, and may continue to become, more intense, and this consolidation has produced, and may continue to produce, larger enterprises with more bargaining power. Pricing pressures related to any of the foregoing or other factors have impacted and could in the future impact our results of operations and profitability.

We operate in a highly competitive industry in which competition and the regulatory burden in the development and improvement of new and existing products is significant: The markets in which we compete are highly competitive, and a significant element of our strategy is to increase revenue growth by focusing on innovation, new product development and improvement of existing products.products, including connectivity solutions. New business models, products and surgical procedures, as well as improvements to existing products, are introduced on an ongoing basis and our present or future products could be rendered obsolete or uneconomical by internal or external technological advances, including by our existing competitors and new market entrants, which could adversely impact demand for certain of our existing products. The success of our products and services depends on, among other things, our ability to properly identify customer needs and predict future needsneeds, including connectivity solutions; innovate and develop new technologies, services and applications at an accelerated pace; and appropriately allocate our research and development spending to products and services with higher growth. Our existing competitors and new market entrants may respond more quickly to or integrate new or emerging technologies such as robotics, artificial intelligence (AI) and machine learning in their product offerings, undertake more extensive marketing campaigns, have greater access to clinical information to support ongoing product position in the market, have greater financial, marketing and other resources or be more successful in attracting potential customers, employees and strategic partners. There can be no assurance that any products now in development, or that we may seek to develop in the future, will achieve technological feasibility, obtain regulatory approval or gain market acceptance. If we are unable to develop and launch new products, our ability to maintain or expand our market position in the markets in which we participate may be negatively impacted.

We are subject to risks associated with our extensive global operations: We develop, manufacture and distribute our products globally. Our global operations are subject to risks and costs related to, among other things, changes in coverage or reimbursement levels from third-party payors in the United States and other countries; changes in regulatory requirements (such as the staggered phase-in period for manufacturers to comply with the European Union Medical Device Regulation (MDR) through December 2028); differing local product preferences and product requirements; diminished protection of intellectual property in some countries; tariffs and other trade protection measures, as well as increasing localization and protectionism policies in certain jurisdictions; international trade disputes and import or export requirements; difficulty in staffing and managing foreign operations; introduction of new internal business structures and programs; political and economic instability and uncertainty; current or potential geopolitical conflicts, such as the tensions between China and Taiwan and the wars in Ukraine and the Middle East, and related sanctions and other developments; disruptions of transportation, including port closures, increased border controls or border closures or reduced transportation availability, due to military conflicts, a global pandemic of contagious diseases like COVID-19 or otherwise; increased energy or transportation costs; fluctuations in currency exchange rates and financial markets; and increased security threats to our supply chain. Many of these risks are rapidly evolving and subject to an accelerating pace of change. Our business could be adversely impacted if we are unable to successfully manage these and other risks of global operations in an increasingly volatile environment. In addition, in many countries, the laws and regulations applicable to us or our industry are evolving, and we have in certain cases become subject to divergent and conflicting laws and regulations across our operations, which has increased the risks we are subject to.

We may be unable to capitalize on previous or future acquisitions: In addition to internally developed products, we invest in new products and technologies through acquisitions.acquisitions, including our acquisition of Inari in 2025. Such investments are inherently risky, and we cannot guarantee that any acquisition will be successful or will not have a material unfavorable impact on us. The risks include the activities required and resources allocated to integrate new businesses, a slower pace of integration than initially projected, diversion of management time that could adversely affect management’s ability to focus on other projects, the inability to realize the expected benefits, savings or synergies from the acquisition, the loss of key personnel, litigation resulting from the acquisition and exposure to unexpected liabilities of acquired companies. Certain acquisitions are subject to antitrust and competition laws, and antitrust scrutiny by regulatory agencies and changes to the regulatory approval process in the United States and foreign jurisdictions may cause approvals to take longer than anticipated to obtain, not be obtained at all, or contain burdensome conditions, which may jeopardize, delay or reduce the anticipated benefits of acquisitions to us and could impede the execution of our business strategy. In addition, we cannot be certain that the businesses we acquire will become or remain profitable.

We, our business partners or our third-party vendors could experience a material failure or breach of a key information technology system, network, process or site: We rely extensively on information technology (IT) systems to conduct business. In addition, we rely on networks and services, including internet sites, cloud and software-as-a-service solutions, data hosting and processing facilities and tools and other hardware, software (including open-source software) and technical applications and platforms, some of which are managed, hosted, provided and/or used by third parties or their vendors, to assist in conducting our business. Furthermore, numerous and evolving cybersecurity threats have posed, and will continue to pose, risks to the security of our IT systems, networks and product offerings, as well as the confidentiality, availability and integrity of our data. Emerging technologies such as generative artificial intelligence (AI) may be used by malicious actors to create more targeted phishing narratives, spread disinformation about us or our products or otherwise strengthen social engineering capabilities. Some of our products, services, and information technology systems contain or use open-source software which poses particular risks, including potential security vulnerabilities, licensing compliance issues and quality issues. We, our customers and third-party hosting services have experienced, and expect to continue to experience, security breaches of, unauthorized access to, and disruptions of, products or systems. While such breaches, unauthorized access and disruptions have not had a material effect on us to date, we cannot guarantee that any future breach or unauthorized access will not be material and any breach or unauthorized access could impact the use of such products and systems and the security of information stored therein. Although we have made investments and expect to continue to make investments seeking to address these threats, including monitoring of networks and systems, use of artificial intelligence, hiring of experts, employee training and security policies for employees and third-party providers, the techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures.

We may be unable to attract, develop and retain executives and key employees: Our sales, technical and other key personnel play an integral role in the development, marketing and selling of new and existing products. Our future performance also depends in large part on the continued services of our senior management. If we are unable to recruit, hire, develop and retain a talented, competitive workforce in our highly competitive industry, or if we are unable to plan effective succession for the future, we may not be able to meet our strategic business objectives. Inflationary pressures, labor demand and shortages and other macroeconomic factors have increased and could further increase the cost of labor and could harm our ability to recruit, hire and retain talented employees. In addition, increased unionization could negatively impact our labor costs and ability to create an engaging, connected culture, which could adversely affect our ability to recruit, hire, develop and retain a talented, competitive workforce. Further, if we are unable to maintain competitive and equitable compensation and benefit programs, including incentive programs which reward financial and operational performance, our ability to recruit, hire, engage, motivate and retain talent could be negatively affected. Additionally, if we are unable to maintain an inclusive culture that aligns our diverse workforce with our mission and values, it could adversely impact our ability to recruit, hire, develop and retain key talent. Further, our remote and hybrid work practices, ability to provide flexible and alternative work arrangements, and our practices relating to corporate responsibility may not meet the needs or expectations of our employees, including senior management or other key employees, which could negatively impact our ability to attract and retain highly skilled employees, or may harm our culture and/or decrease employee engagement, which could adversely impact our ability to recruit, hire, develop and retain a talented, competitive workforce.

Interruption of manufacturing operations could adversely affect our business: We and our suppliers have manufacturing and supply sites all over the world. However, the manufacturing of certain of our product lines is concentrated in one or more plants or geographic regions. We have principal manufacturing and distribution facilities in the United States in Arizona, California, Florida, Illinois, Indiana, Michigan, Minnesota, New Jersey, Puerto Rico, Tennessee, Texas, Utah, VirginiaUtah and Washington, and outside the United States in China, France, Germany, Ireland, Mexico, the Netherlands, Poland, Switzerland and Turkey. Damage to our facilities, to our suppliers’ or service providers’ facilities, or to our central distribution centers as a result of natural disasters, fires, explosions or otherwise, as well as issues in our manufacturing arising from a failure to follow specific internal protocols and procedures, compliance concerns relating to the quality systems regulation, equipment breakdown or malfunction, IT system failures or cybersecurity incidents, environmental hazard incidents or changes to environmental regulations or other factors, could adversely affect the availability of our products. In the event of an interruption in manufacturing, we may be unable to move quickly to alternate means of producing and distributing affected products to meet customer demand. In the event of a significant interruption, we may experience lengthy delays in resuming production or distribution of affected products due to the need for regulatory approvals, and we may experience loss of market share, additional expense and harm to our reputation.

Unpredictable increases in demand for certain of our products have exceeded in the past, and could exceed in the future, our capacity to meet such demand timely, which could adversely affect our customer relationships and result in negative publicity. In this regard, the accelerated development and production of products and services to address medical and other requirements could increase the risk of regulatory enforcement actions, product defects or related claims or reputational harm, among other things.

Our use of AI and other emerging technologies could adversely impact our business and financial results: We have begun to deploy AI and other emerging technologies in various facets of our operations and products and we continue to explore further use cases. The rapid advancement of these technologies presents opportunities for us in research, manufacturing, commercialization, and other business endeavors, but also entails risks, including that AI-generated content, analyses, or recommendations we utilize could be deficient, that our competitors may more quickly or effectively adopt AI capabilities, or that our use of AI or other emerging technologies increases regulatory, cybersecurity and other significant risks. In addition, any disruption or failure in the AI functionality we incorporate into our business activities, products or services could adversely impact our business or result in delays or errors in our product offerings. The legal and regulatory landscape surrounding AI technologies is rapidly evolving and uncertain, including in the areas of intellectual property, cybersecurity and privacy and data protection. Compliance with new or changing laws, regulations or industry standards relating to AI may impose significant costs on us and limit our ability to effectively develop, deploy or use AI technologies. Furthermore, if we are unable to effectively manage the use of AI technologies by our employees and service providers, our confidential information, intellectual property and reputation could be put at risk. Failure to appropriately respond to this evolving landscape may result in reputational, competitive and business harm as well as litigation and regulatory action and fines, penalties and expenses related thereto.

Pandemics and public health emergencies, and the fear thereof, have in the past materially adversely affected and could in the future materially adversely affect, our operations, supply chain, manufacturing, product distribution, customers and other business activities: In connection with prior pandemics, governmental authorities and private enterprises implemented, and may in the future implement in connection with another pandemic or public health emergency (or in response to the fear thereof), measures, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. Our customers, global suppliers, distributors and manufacturing facilities have in the past been, and could in the future be, materially affected by restrictive measures implemented in response to a pandemic or public health emergency, which has in the past caused and could in the future cause them to be unable to hire and retain employees, distribute or use our products or provide required services. We have as a result experienced, and could in the future experience, delays in, or the suspension of, our manufacturing operations, sales activities, research and product development activities, regulatory work streams, clinical development programs and other important commercial functions, which may result in our inability to satisfy consumer demand for our products in a timely manner or at all and which could harm our reputation, future sales and profitability. The extent of any future pandemic or public health emergency’s effect on our business and industry will depend on, among other things, the severity of the disease, the successful development, distribution and acceptance of vaccines for diseases, future resurgences and/or the spread of disease variants, all of which are uncertain and difficult to predict. The COVID-19 pandemic materially impacted us, and any future pandemic or public health emergency could materially impact us and would heighten many of the other risks described in this report.

Current economic and political conditions make tax rules in jurisdictions subject to significant change: Our future results of operations could be affected by changes in the effective tax rate as a result of changes in tax laws, regulations and judicial rulings. We are continuing to evaluate the impact of tax reform in the countries in which we operate as new guidance is published and new regulations are adopted. In addition, further changes in the tax laws could arise, including as a result of the base erosion and profit shifting project undertaken by the Organisation for Economic Cooperation and Development (OECD). The OECD, which represents a coalition of member countries, has put forth two proposed frameworks that revise the existing profit allocation and nexus rules (Pillar 1) and ensure a minimal level of taxation (Pillar 2), respectively.respectively, and several countries enacted tax legislation based on these frameworks. In 2022January 2026 the EuropeanOECD Unionreleased memberAdministrative statesGuidance agreed to implementcontaining the InclusiveSide-by- Framework’sSide globalsystem corporate(SbS minimumSystem) and introduced two new Pillar 2 safe harbors for multinationals headquartered in jurisdictions including the United States with eligible tax ratesystems. ofThe 15%,safe andharbors variousmust countriesnow withinbe andlegislated outsidedomestically theby Europeaneach Unioncountry have eitherwith enacted or proposed new tax laws implementing Pillar Two2 inlegislation 2024.impacted The OECD continues to release additional guidance and we anticipate more countries will enact similar tax laws. Some ofby the new taxOECD lawsAdministrative are effective in 2024 while others will be effective in future years.Guidance. These tax law changes and any additional contemplated tax law changes,changes could increaseimpact tax expense in future periods.

In 2024 we achieved reported net sales growth of 10.2%. Excluding the impact of acquisitions and divestitures, sales grew 10.2%10.3% in constant currency. We reported net earnings of $2,993$3,246 and net earnings per diluted share of $7.76.$8.40. Excluding the impact of certain items, we achieved adjusted net earnings(1) of $4,700$5,267 and adjusted net earnings per diluted share(1) of $12.19$13.63 representing growth of 15.0%.11.8%.

In 20242025 we completed various acquisitions for total consideration of $1,628 in upfront payments,$4,960, net of cash acquired, as well as $400 of contingent consideration if certain commercial or clinical milestones are achieved.acquired. Refer to Note 6 to our Consolidated Financial Statements for further information.

(1) Refer to "Non-GAAP Financial Measures" for a discussion of non-GAAP financial measures used in this report and a reconciliation to the most directly comparable GAAP financial measure.

Consolidated net sales in 20242025 increased 10.2%11.2% as reported and 10.7% in constant currency, as foreign currency exchange rates negativelypositively impacted net sales by 0.5%. Excluding the 0.5%0.4% impact of acquisitions and divestitures, net sales in constant currency increased by 9.1%9.9% from increased unit volume and 1.1%0.4% due to higher prices. The unit volume increase was primarily due to higher shipments across all businesses.

MedSurg and Neurotechnology net sales in 2023 increased 11.7% as reported and 12.2% in constant currency, as foreign currency exchange rates negatively impacted net sales by 0.5%. Excluding the 0.3%4.7% impact of acquisitions and divestitures, net sales in constant currency increased by 10.2%10.0% from increased unit volume and 1.7%0.7% due to higher prices. The unit volume increase was due to higher shipments across all MedSurg and Neurotechnology businesses.

Gross profit as a percentage of net sales increased to 64.0% in 2025 from 63.9% in 2024 from 63.7% in 2023primarily due to higher sales pricing and favorable volume partially offset by higher manufacturing and supply chain costs primarily due to inflationary pressures impacting fixed and variable manufacturing costs as well as higher amortization of inventory stepped up to fair value.

Gross profit as a percentage of net sales increased to 63.9% in 2024 from 63.7% in 2023 from 62.8% in 2022 due to higher sales pricing and favorable volume offset by higher manufacturing and supply chain costs primarily due to higherinflationary rawpressures materialimpacting fixed and variable manufacturing costs inas thewell firstas sixhigher monthsamortization of 2023inventory andstepped supplyup chainto inefficiencies.fair value.

Amortization of intangible assets was $623,$732, $623 and $635 and $627 in 2024,2025, 20232024 and 2022.2023. These amounts include amortization related to intangible assets acquired in 2025 from Inari, 2024 from various acquisitions,acquisitions and 2023 from Cerus Endovascular Limited (Cerus) and 2022 from Vocera.. Refer to Notes 6 and 8 to our Consolidated Financial Statements for further information.

In 2024 we recorded goodwill impairment charges of $456 related to our Spine business and recognized an estimated loss of $362 as a result of classifying certain assets in our Spinal Implants business as held for sale. Refer to Notes 8, 168 and 1716 to our Consolidated Financial Statements for further information.

In 2024,2025, 20232024 and 20222023 we recorded other impairments of $159,$109, $36$159 and $54.$36. Refer to NotesNote 15 and 16 to our Consolidated Financial Statements for further information.

Operating income was $3,689,$4,889, $3,689 and $3,888 and $2,841 in 2024,2025, 20232024 and 2022.2023. Operating income decreasedincreased as a percentage of sales to 19.5% in 2025 from 16.3% in 2024 and increased from 19.0% in 2023 and increased from 15.4% in 2022.2023. Refer to the comments above for discussion of the primary drivers of the change.

OtherInterest Income (Expense), Net

We supplement the reporting of our financial information determined under accounting principles generally accepted in the United States (GAAP) with certain non-GAAP financial measures, including percentage sales growth in constant currency; percentage organic sales growth; adjusted gross profit; adjusted selling, general and administrative expenses; adjusted research, development and engineering expenses; adjusted operating income; adjusted other income (expense), net; adjusted income taxes; adjusted effective income tax rate; adjusted net earnings; and adjusted net earnings per diluted share (Diluted EPS). We believe these non-GAAP financial measures provide meaningful information to assist investors and shareholders in understanding our financial results and assessing our prospects for future performance. Management believes percentage sales growth in constant currency and the other adjusted measures described above are important indicators of our operations because they exclude items that may not be indicative of or are unrelated to our core operating results and provide a baseline for analyzing trends in our underlying businesses. Management uses these non-GAAPnon- GAAP financial measures for reviewing the operating results of reportable business segments and analyzing potential future business trends in connection with our budget process and bases certain management incentive compensation on these non-GAAP financial measures. To measure percentage sales growth in constant currency, we remove the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Percentage sales growth in constant currency is calculated by translating current and prior year results at the same foreign currency exchange rate. To measure percentage organic sales growth, we remove the impact of changes in foreign currency exchange rates, acquisitions and divestitures, which affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year and prior year results at the same foreign currency exchange rates excluding the impact of acquisitions and divestitures. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings. The income tax effect of each adjustment was determined based on the tax effect of the jurisdiction in which the related pre-tax adjustment was recorded. These adjustments are irregular in timing and may not be indicative of our past and future performance. The following are examples of the types of adjustments that may be included in a period:

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 despite the current macroeconomic environment. 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 potentially share repurchases. We supplement operating cash flow with debt to fund our activities as necessary. Our overall cash position reflects our business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations.

Cash provided by operating activities was $4,242,$5,044, $4,242 and $3,711 in 2025, 2024 and $2,6242023. The increase in 2024,2025 2023was primarily due to higher cash earnings and 2022.working capital improvements. The increase in 2024 from 2023 was primarily due to higher cash earnings partially offset by changes in working capital. The increase in 2023 from 2022 was primarily due to higher net earnings and increased collections on accounts receivable.

Overview of the Three and Six Months

In the three months 2026 we achieved sales growth of 2.6%9.4% from 2025. Excluding the impact of acquisitions and divestitures, sales grew 1.0%9.0% in constant currency. We reported operating income margin of 15.5%,25.2%, net earnings of $745$1,276 and net earnings per diluted share of $1.93.$3.30. Excluding the impact of certain items, adjusted operating income margin(1) contractedincreased by 180170 basis points to 21.1%,27.4%, with adjusted net earnings(1) of $1,004$1,424 and adjusted net earnings per diluted share(1) of $2.60,$3.69, aan decreaseincrease of 8.5%17.9% from 2025.

Note: In the first quarter 2026 we announced a change in our organizational structure. Our new Ortho Tech business combines the orthopaedic instruments portfolio (Orthopaedic Instruments) from Instruments with Other Orthopaedics. In addition, Neuro Cranial and the spine enabling technologies portfolio (Enabling Technologies) from Other Orthopaedics waswere combined with the remaining Instruments business to align with our internal reporting structure. Ortho Tech includes sales related to Orthopaedic Instruments of $489$523 and $484$501 and Other Orthopaedics of $157$194 and $133.$148 for the three months 2026 and 2025. For the six months 2026 and 2025 Ortho Tech includes sales related to Orthopaedic Instruments of $1,012 and $985 and Other Orthopaedics of $351 and $281. Instruments includes sales related to Neuro Cranial of $606$681 and $563$616 and Enabling Technologies of $26$28 and $29$34 for the three months 2026 and 2025. For the six months 2026 and 2025 Instruments includes sales related to Neuro Cranial of $1,287 and $1,179 and Enabling Technologies of $54 and $63. We have reflected these changes in all historical periods presented.

Consolidated net sales increased 2.6%9.4% in the three months 2026 as reported and 1.0%9.0% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.6%.0.4%. Excluding the 1.4% impact of acquisitions and divestitures, netNet sales in constant currency increased by 2.1%9.0% from increased unit volume and 0.3% due to higher prices.volume. The unit volume increase was due to higher product shipments across most MedSurg and Neurotechnology businesses and all Orthopaedics businesses.

MedSurg and Neurotechnology net sales increased 5.0%9.7% in the three months 2026 as reported and 3.6%9.2% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.4%.0.5%. Excluding the 2.7% impact of acquisitions and divestitures, netNet sales in constant currency increased by 0.3%9.1% from increased unit volume and 0.6%0.1% from higher prices. The unit volume increase was due to higher shipments across themost InstrumentsMedsurg and VascularNeurotechnology businesses.

Orthopaedics net sales increased 0.1%9.1% in the three months 2026 as reported butand decreased 1.8%8.7% in constant currency, as foreign currency exchange rates positively impacted net sales by 1.9%.0.4%. Excluding the 0.1% impact of acquisitions and divestitures, net sales in constant currency increased 8.6% from increased unit volume.

Excluding the 5.9% impact of acquisitions and divestitures, net sales in constant currency increased 4.1% from increased unit volume. The unit volume increase was due to higher shipments across all Orthopaedics businesses.

Gross profit as a percentage of net sales in the three months 2026 decreasedincreased to 63.3%68.3% from 63.8% in 2025 primarily driven by highera manufacturingreduction of certain import tariffs and supplylower chainamortization costsof primarilyinventory duestepped up to idlefair production time related to the cybersecurity incident.value.

Research, development and engineering expenses increased $8$27 or 2.0%6.6% in the three months 2026 and $35 or 4.3% in the six months 2026. Expenses as a percentage of net sales of 6.9%6.6% in the three months and 6.7% in the six months 2026 remained relatively flat with 6.8% in the three and six months 2025.

Selling, general and administrative expenses decreasedincreased $19$150 or 0.8%7.2% in the three months 2026. As a percentage of net sales, expenses decreased to 37.9%33.8% from 39.2%34.5% in 2025, primarily due to continued spend discipline and lower acquisition and integration-related charges partially offset by higher structural optimization and other special charges. Expenses in the three months 2025 included a charge of $139 for share-based awards for Inari employees that vested upon our acquisition.

Amortization of intangible assets was $180$175 and $167$187 in the three months and $355 and $354 in the six months 2026 and 2025. Refer to Note 7 to our Consolidated Financial Statements for further information.

Goodwill and otherOther impairments was $35 in the three monthsImpairments

Operating income was $936 and $837 in the three months 2026 and 2025. Operating income as a percentage of net sales in the three months 2026 increased to 15.5%25.2% from 14.3%18.5% in 2025.

MedSurgOperating income was $2,595 and Neurotechnology$1,950 operatingin the six months 2026 and 2025. Operating income as a percentage of net sales decreased to 21.8% in the threesix months 2026 increased to 20.6% from 24.8%16.4% in 2025. Orthopaedics operating income as a percentage of net sales decreasedRefer to 30.1%the indiscussion above for the threeprimary months 2026 from 30.4% in 2025. The key componentsdrivers of the change were:change.

The decreaseincrease in MedSurg and Neurotechnology operating income as a percentage of net sales for the three months was primarily driven by higherlower selling, general and administrative expenses, lower manufacturing and supply chain costs due to idle production time related to the cybersecurity incident,and higher selling,unit generalvolumes, andpartially administrativeoffset expenses, andby higher research, development and engineering expenses partially offset by higher unit volumes and prices.expenses.

The decreaseincrease in Orthopaedics operating income as a percentage of net sales for the three months was primarily driven by higher manufacturingunit volumes, lower research, development and supplyengineering chain costs due to idle production time related to the cybersecurity incidentexpenses and lower unit volumes partially offset by lower selling, general and administrative expensesexpenses, partially offset by higher manufacturing and research,supply developmentchain and engineering expenses.costs.

Interest expense was $148$289 and $137$296 in the threesix months 2026 and 2025. The increasedecrease in interest expense in the three months and six months 2026 from 2025 was primarily due to 2025lower outstanding debt issuances.and credit facilities partially offset by higher average interest rates.

Other income was $46 and $62 in the three months and $108 and $126 in the six months 2026 and 2025. The decrease in other income in the three and six months 2026 from 2025 was primarily due to lower interest income in 2026.

Our effective tax rates were 12.4%18.4% and 14.4%16.3% in the three and six months 2026 and 13.0% and 13.6% in the three and six months 2025. The effective tax rate for the three and six months 2026 increased from the three and six months 2025 due to the 2025 tax benefit related to the sale of the Spinal Implants business. The effective tax rates for the three and six months 2026 and 2025 reflect the continued lower effective income tax rates as a result of our European operations and certain discrete tax items.

Net earnings increased to $745$1,276 or $1.93$3.30 per diluted share in the three months 2026 from $654$884 or $1.69$2.29 per diluted share in 2025. Net earnings increased to $2,021 or $5.23 per diluted share in six months 2026 from $1,538 or $3.98 per diluted share in 2025. Refer to the discussion above for the primary drivers of the change.

Cash provided by operating activities was $581$1,842 and $250$1,361 in the threesix months 2026 and 2025. The increase was primarily due to changes in working capital accounts.

Cash used in investing activities was $185$824 and $4,136$4,240 in the threesix months 2026 and 2025. The threesix months 2026 included cash paid for purchases of property, plant and equipment. The threesix months 2025 included cash paid to acquire Inari and purchases of property, plant and equipment partially offset by proceeds from the sale of short-term investments. Refer to Note 7 to our Consolidated Financial Statements for further information on acquisitions.

Cash used in financing activities was $1,510$1,605 in the threesix months 2026 and cash provided by financing activities was $2,534$1,545 in the threesix months 2025. In 2026, cash used was primarily driven by repayments of $1,000 to pay off maturing unsecured notes as described in Note 8 to our Consolidated Financial Statements and dividend payments. Cash provided by financing activities in 2025 was primarily driven by proceeds from the issuance of various senior unsecured notes which was partially offset by dividend payments.

Cash, cash equivalents, short-term investments and marketable securities were $2,965$3,476 and $4,100 on MarchJune 31,30, 2026 and December 31, 2025. Current assets exceeded current liabilities by $7,023$7,734 and $6,961 on MarchJune 31,30, 2026 and December 31, 2025. We anticipate being able to support our short-term liquidity and operating needs from a variety of sources including cash from operations, commercial paper and existing credit lines.

Our cash, cash equivalents, short-term investments and marketable securities held in locations outside the United States was 32%51% on MarchJune 31,30, 2026 compared to 20% on December 31, 2025.