filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales to Customers
Analysis of Consolidated Sales
For the fiscal six months of 2023, worldwide sales were $50.3 billion, a total increase of 6.0%, including an operational increase of 8.2% as compared to 2022 fiscal six months sales of $47.4 billion. Currency fluctuations had a negative impact of 2.2% for the fiscal six months of 2023. In the fiscal six months of 2023, the net impact of acquisitions and divestitures on worldwide operational sales growth was a positive 1.3%.
Sales by U.S. companies were $26.0 billion in the fiscal six months of 2023, which represented an increase of 10.0% as compared to the prior year. In the fiscal six months of 2023, the net impact of acquisitions and divestitures on the U.S. operational sales growth was a positive 2.3%. Sales by international companies were $24.3 billion, an increase of 2.0%, including an operational increase of 6.5%, and a negative currency impact of 4.5% as compared to the fiscal six months sales of 2022. In the fiscal six months of 2023, the net impact of acquisitions and divestitures on the international operational sales growth was a positive 0.3%.
In the fiscal six months of 2023, sales by companies in Europe achieved growth of 1.0%, which included an operational increase of 3.0% and a negative currency impact of 2.0%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 9.3%, which included an operational increase of 16.1%, and a negative currency impact of 6.8%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 0.9%, including an operational increase of 8.2% and a negative currency impact of 7.3%.
Note: values may have been rounded
For the fiscal second quarter of 2023, worldwide sales were $25.5 billion, a total increase of 6.3%, which included operational growth of 7.5% and a negative currency impact of 1.2% as compared to 2022 fiscal second quarter sales of $24.0 billion. In the fiscal second quarter of 2023, the net impact of acquisitions and divestitures on worldwide operational sales growth was a positive 1.3%.
Sales by U.S. companies were $13.4 billion in the fiscal second quarter of 2023, which represented an increase of 10.2% as compared to the prior year. In the fiscal second quarter of 2023, the net impact of acquisitions and divestitures on the U.S. operational sales growth was a positive 2.2%. Sales by international companies were $12.1 billion, a total increase of 2.2%, which included operational growth of 4.7% and a negative currency impact of 2.5%. In the fiscal second quarter of 2023, the net impact of acquisitions and divestitures on the international operational sales growth was a positive 0.3%.
In the fiscal second quarter of 2023, sales by companies in Europe experienced a decline of 3.1%, which included an operational decline of 3.9% and a positive currency impact of 0.8%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 11.5%, including operational growth of 17.7% and a negative currency impact of 6.2%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 6.6%, including operational growth of 12.5% and a negative currency impact of 5.9%.
Note: values may have been rounded
Analysis of Sales by Business Segments
Consumer Health
Consumer Health segment sales in the fiscal six months of 2023 were $7.9 billion, an increase of 6.4% as compared to the same period a year ago, including operational growth of 9.5% and a negative currency impact of 3.1%. U.S. Consumer Health segment sales increased by 8.6%. International Consumer Health segment sales increased by 4.7%, including operational growth of 10.1% and a negative currency impact of 5.4%. In the fiscal six months of 2023, the net impact of acquisitions and divestitures on the Consumer Health segment operational sales growth was negligible.
Major Consumer Health Franchise Sales — Fiscal Six Months Ended
| (Dollars in Millions) | July 2, 2023 | July 3, 2022 | Total Change | Operations Change | Currency Change | |||||||||||||||||||||||||||
| OTC | $ | 3,301 | $ | 2,943 | 12.2 | % | 14.8 | % | (2.6) | % | ||||||||||||||||||||||
| Skin Health/Beauty | 2,258 | 2,138 | 5.6 | 8.0 | (2.4) | |||||||||||||||||||||||||||
| Oral Care | 759 | 760 | (0.2) | 2.4 | (2.6) | |||||||||||||||||||||||||||
| Baby Care | 719 | 730 | (1.6) | 3.1 | (4.7) | |||||||||||||||||||||||||||
| Women’s Health | 455 | 458 | (0.6) | 7.1 | (7.7) | |||||||||||||||||||||||||||
| Wound Care/Other | 371 | 361 | 2.6 | 4.9 | (2.3) | |||||||||||||||||||||||||||
| Total Consumer Health Sales | $ | 7,863 | $ | 7,391 | 6.4 | % | 9.5 | % | (3.1) | % |
Consumer Health segment sales in the fiscal second quarter of 2023 were $4.0 billion, an increase of 5.4% as compared to the same period a year ago, including operational growth of 7.7% and a negative currency impact of 2.3%. U.S. Consumer Health segment sales increased by 6.0%. International Consumer Health segment sales increased by 5.0% including operational growth of 9.0% and a negative currency impact of 4.0%. In the fiscal second quarter of 2023, the net impact of acquisitions and divestitures on the Consumer Health segment operational sales growth was negligible.
Major Consumer Health Franchise Sales — Fiscal Second Quarter Ended
| (Dollars in Millions) | July 2, 2023 | July 3, 2022 | Total Change | Operations Change | Currency Change | |||||||||||||||||||||||||||
| OTC | $ | 1,659 | $ | 1,482 | 12.0 | % | 13.9 | % | (1.9) | % | ||||||||||||||||||||||
| Skin Health/Beauty | 1,148 | 1,126 | 2.0 | 3.5 | (1.5) | |||||||||||||||||||||||||||
| Oral Care | 398 | 394 | 0.9 | 2.7 | (1.8) | |||||||||||||||||||||||||||
| Baby Care | 360 | 375 | (4.0) | (0.2) | (3.8) | |||||||||||||||||||||||||||
| Women’s Health | 238 | 230 | 3.4 | 10.0 | (6.6) | |||||||||||||||||||||||||||
| Wound Care/Other | 207 | 197 | 4.9 | 6.8 | (1.9) | |||||||||||||||||||||||||||
| Total Consumer Health Sales | $ | 4,011 | $ | 3,805 | 5.4 | % | 7.7 | % | (2.3) | % |
The OTC franchise achieved operational growth of 13.9% as compared to the prior year fiscal second quarter. The growth was driven by price actions and strong TYLENOL and MOTRIN performance due to increased global Cough/Cold/Flu incidences.
The Skin Health/Beauty franchise achieved operational growth of 3.5% as compared to the prior year fiscal second quarter. The growth was driven by price actions and strength in NEUTROGENA particularly in Sun Care, driven by innovation and supply repositioning.
The Oral Care franchise achieved operational growth of 2.7% as compared to the prior year fiscal second quarter. The growth was driven by price actions, partially offset by category deceleration in Asia and the negative impact from the suspension of personal care sales in Russia.
The Baby Care franchise experienced an operational decline of 0.2% as compared to the prior year fiscal second quarter. The decline was driven by competitive pressures in Asia and the negative impact from the suspension of personal care sales in Russia.
The Women’s Health franchise achieved operational growth of 10.0% as compared to the prior year fiscal second quarter primarily driven by price actions and continued strong growth in India partially offset by the negative impact from the suspension of personal care sales in Russia.
The Wound Care/Other franchise achieved operational growth of 6.8% as compared to the prior year fiscal second quarter primarily driven by price actions and innovation.
In November 2021, the Company announced its intention to separate the Company’s Consumer Health business (Kenvue, the New Consumer Health Company), with the intention to create a new, publicly traded company by the end of the fiscal year 2023, pending market conditions. On May 8, 2023, Kenvue completed an initial public offering (the IPO). As of the closing of the IPO, the Company owns approximately 89.6% of the total outstanding shares of Kenvue Common Stock, and has continued to consolidate the financial results of Kenvue (See Note 12 to the Consolidated Financial Statements for additional details).
Pharmaceutical
Pharmaceutical segment sales in the fiscal six months of 2023 were $27.1 billion, an increase of 3.7% as compared to the same period a year ago, with an operational increase of 5.5% and a negative currency impact of 1.8%. U.S. Pharmaceutical sales increased 7.6% as compared to the same period a year ago. International Pharmaceutical sales decreased by 0.7%, including operational growth of 3.1% offset by a negative currency impact of 3.8%. In the fiscal six months of 2023, the net impact of acquisitions and divestitures on the Pharmaceutical segment operational sales growth was a negative 0.1%.
Major Pharmaceutical Therapeutic Area Sales** — Fiscal Six Months Ended
| (Dollars in Millions) | July 2, 2023 | July 3, 2022 | Total Change | Operations Change | Currency Change | |||||||||||||||||||||||||||
| Immunology | $ | 8,608 | $ | 8,530 | 0.9 | % | 2.6 | % | (1.7) | % | ||||||||||||||||||||||
| REMICADE | 949 | 1,310 | (27.5) | (26.3) | (1.2) | |||||||||||||||||||||||||||
| SIMPONI/ SIMPONI ARIA | 1,066 | 1,137 | (6.2) | (3.3) | (2.9) | |||||||||||||||||||||||||||
| STELARA | 5,241 | 4,887 | 7.2 | 8.7 | (1.5) | |||||||||||||||||||||||||||
| TREMFYA | 1,346 | 1,187 | 13.4 | 15.0 | (1.6) | |||||||||||||||||||||||||||
| Other Immunology | 7 | 9 | (30.2) | (30.2) | — | |||||||||||||||||||||||||||
| Infectious Diseases | 2,707 | 2,613 | 3.6 | 4.7 | (1.1) | |||||||||||||||||||||||||||
| COVID-19 VACCINE | 1,032 | 1,001 | 3.0 | 4.2 | (1.2) | |||||||||||||||||||||||||||
| EDURANT/rilpivirine | 546 | 473 | 15.6 | 17.1 | (1.5) | |||||||||||||||||||||||||||
| PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA | 968 | 965 | 0.3 | 0.7 | (0.4) | |||||||||||||||||||||||||||
| Other Infectious Diseases | 161 | 174 | (7.6) | (3.6) | (4.0) | |||||||||||||||||||||||||||
| Neuroscience | 3,597 | 3,475 | 3.5 | 5.8 | (2.3) | |||||||||||||||||||||||||||
| CONCERTA/methylphenidate | 414 | 318 | 30.0 | 35.3 | (5.3) | |||||||||||||||||||||||||||
| INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA | 2,075 | 2,102 | (1.3) | 0.1 | (1.4) | |||||||||||||||||||||||||||
| SPRAVATO | 300 | 155 | 93.1 | 93.8 | (0.7) | |||||||||||||||||||||||||||
| Other Neuroscience(1) | 809 | 900 | (10.1) | (6.4) | (3.7) | |||||||||||||||||||||||||||
| Oncology | 8,510 | 7,992 | 6.5 | 8.8 | (2.3) | |||||||||||||||||||||||||||
| CARVYKTI | 189 | 24 | * | * | * | |||||||||||||||||||||||||||
| DARZALEX | 4,695 | 3,842 | 22.2 | 24.5 | (2.3) | |||||||||||||||||||||||||||
| ERLEADA | 1,109 | 850 | 30.4 | 33.2 | (2.8) | |||||||||||||||||||||||||||
| IMBRUVICA | 1,668 | 2,008 | (16.9) | (15.0) | (1.9) | |||||||||||||||||||||||||||
| ZYTIGA/ abiraterone acetate | 472 | 1,044 | (54.8) | (52.3) | (2.5) | |||||||||||||||||||||||||||
| Other Oncology | 376 | 224 | 68.0 | 70.4 | (2.4) | |||||||||||||||||||||||||||
| Pulmonary Hypertension | 1,844 | 1,695 | 8.8 | 10.8 | (2.0) | |||||||||||||||||||||||||||
| OPSUMIT | 947 | 881 | 7.5 | 9.5 | (2.0) | |||||||||||||||||||||||||||
| UPTRAVI | 761 | 653 | 16.6 | 17.5 | (0.9) | |||||||||||||||||||||||||||
| Other Pulmonary Hypertension | 136 | 161 | (15.5) | (9.5) | (6.0) | |||||||||||||||||||||||||||
| Cardiovascular / Metabolism / Other | 1,877 | 1,882 | (0.3) | 0.4 | (0.7) | |||||||||||||||||||||||||||
| XARELTO | 1,215 | 1,117 | 8.8 | 8.8 | — | |||||||||||||||||||||||||||
| Other(2) | 662 | 765 | (13.5) | (11.9) | (1.6) | |||||||||||||||||||||||||||
| Total Pharmaceutical Sales | $ | 27,144 | $ | 26,186 | 3.7 | % | 5.5 | % | (1.8) | % |
- Percentage greater than 100% or not meaningful
**Certain prior year amounts have been reclassified to conform to current year presentation
(1)Inclusive of RISPERDAL CONSTA which was previously disclosed separately
(2)Inclusive of INVOKANA which was previously disclosed separately
Pharmaceutical segment sales in the fiscal second quarter of 2023 were $13.7 billion, an increase of 3.1% as compared to the same period a year ago, including an operational increase of 3.8% and a negative currency impact of 0.7%. U.S. Pharmaceutical sales increased 9.2% as compared to the same period a year ago. International Pharmaceutical sales decreased by 4.0%, including an operational decline of 2.5% and a negative currency impact of 1.5%. In the fiscal second quarter of 2023, the net impact of acquisitions and divestitures on the Pharmaceutical segment operational sales growth was a negative 0.1%.
Major Pharmaceutical Therapeutic Area Sales** — Fiscal Second Quarter Ended
| (Dollars in Millions) | July 2, 2023 | July 3, 2022 | Total Change | Operations Change | Currency Change | |||||||||||||||||||||||||||
| Immunology | $ | 4,496 | $ | 4,411 | 1.9 | % | 2.6 | % | (0.7) | % | ||||||||||||||||||||||
| REMICADE | 462 | 647 | (28.6) | (27.6) | (1.0) | |||||||||||||||||||||||||||
| SIMPONI/ SIMPONI ARIA | 529 | 566 | (6.6) | (4.7) | (1.9) | |||||||||||||||||||||||||||
| STELARA | 2,797 | 2,599 | 7.6 | 8.0 | (0.4) | |||||||||||||||||||||||||||
| TREMFYA | 706 | 597 | 18.3 | 18.9 | (0.6) | |||||||||||||||||||||||||||
| Other Immunology | 4 | 3 | 17.8 | 17.8 | — | |||||||||||||||||||||||||||
| Infectious Diseases | 1,121 | 1,316 | (14.8) | (16.6) | 1.8 | |||||||||||||||||||||||||||
| COVID-19 VACCINE | 285 | 544 | (47.7) | (51.8) | 4.1 | |||||||||||||||||||||||||||
| EDURANT/rilpivirine | 266 | 225 | 18.6 | 16.2 | 2.4 | |||||||||||||||||||||||||||
| PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA | 491 | 464 | 5.8 | 5.6 | 0.2 | |||||||||||||||||||||||||||
| Other Infectious Diseases | 79 | 83 | (5.2) | 1.3 | (6.5) | |||||||||||||||||||||||||||
| Neuroscience | 1,793 | 1,734 | 3.5 | 5.5 | (2.0) | |||||||||||||||||||||||||||
| CONCERTA/ methylphenidate | 208 | 161 | 28.6 | 32.4 | (3.8) | |||||||||||||||||||||||||||
| INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA | 1,031 | 1,054 | (2.1) | (1.5) | (0.6) | |||||||||||||||||||||||||||
| SPRAVATO | 169 | 85 | 98.2 | 98.5 | (0.3) | |||||||||||||||||||||||||||
| Other Neuroscience(1) | 386 | 433 | (10.9) | (5.8) | (5.1) | |||||||||||||||||||||||||||
| Oncology | 4,398 | 4,042 | 8.8 | 9.7 | (0.9) | |||||||||||||||||||||||||||
| CARVYKTI | 117 | 24 | * | * | * | |||||||||||||||||||||||||||
| DARZALEX | 2,431 | 1,986 | 22.4 | 23.4 | (1.0) | |||||||||||||||||||||||||||
| ERLEADA | 567 | 450 | 25.9 | 26.9 | (1.0) | |||||||||||||||||||||||||||
| IMBRUVICA | 841 | 970 | (13.2) | (12.6) | (0.6) | |||||||||||||||||||||||||||
| ZYTIGA/ abiraterone acetate | 227 | 505 | (55.1) | (53.8) | (1.3) | |||||||||||||||||||||||||||
| Other Oncology | 214 | 106 | * | * | * | |||||||||||||||||||||||||||
| Pulmonary Hypertension | 972 | 843 | 15.3 | 16.5 | (1.2) | |||||||||||||||||||||||||||
| OPSUMIT | 507 | 438 | 15.7 | 16.7 | (1.0) | |||||||||||||||||||||||||||
| UPTRAVI | 399 | 328 | 21.8 | 22.5 | (0.7) | |||||||||||||||||||||||||||
| Other Pulmonary Hypertension | 66 | 78 | (14.7) | (9.7) | (5.0) | |||||||||||||||||||||||||||
| Cardiovascular / Metabolism / Other | 950 | 972 | (2.2) | (2.0) | (0.2) | |||||||||||||||||||||||||||
| XARELTO | 637 | 609 | 4.7 | 4.7 | — | |||||||||||||||||||||||||||
| Other(2) | 313 | 363 | (13.8) | (13.4) | (0.4) | |||||||||||||||||||||||||||
| Total Pharmaceutical Sales | $ | 13,731 | $ | 13,317 | 3.1 | % | 3.8 | % | (0.7) | % |
- Percentage greater than 100% or not meaningful
**Certain prior year amounts have been reclassified to conform to current year presentation
(1) Inclusive of RISPERDAL CONSTA which was previously disclosed separately
(2) Inclusive of INVOKANA which was previously disclosed separately
Immunology products achieved operational growth of 2.6% as compared to the same period a year ago driven by market growth of STELARA (ustekinumab) partially offset by unfavorable patient mix and rebates. Additionally, growth of TREMFYA (guselkumab) was due to share gains and market growth partially offset by unfavorable patient mix. Lower sales of REMICADE (infliximab) were due to biosimilar competition.
Biosimilar versions of REMICADE have been introduced in the United States and certain markets outside the United States and additional competitors continue to enter the market. Continued infliximab biosimilar competition will result in a further reduction in sales of REMICADE.
The latest expiring United States composition of matter patent for STELARA (ustekinumab) expires in September 2023. STELARA (ustekinumab) U.S. sales in fiscal 2022 were approximately $6.4 billion. Third parties have filed abbreviated Biologics License Applications with the FDA seeking approval to market biosimilar versions of STELARA. In May 2023, the Company settled litigation with Amgen under the Biosimilar Price Competition and Innovation Act of 2009. As a result of the settlement and other agreements with separate third parties, the Company does not anticipate the launch of a biosimilar version of STELARA until January 1, 2025.
Infectious disease products experienced an operational decline of 16.6% as compared to the same period a year ago primarily driven by a decline in COVID-19 vaccine revenue.
Neuroscience products achieved operational sales growth of 5.5% as compared to the same period a year ago. The growth of SPRAVATO (esketamine) was driven by ongoing launches in the U.S. and Europe. Growth was partially offset by declines from the paliperidone long-acting injectables, due to the XEPLION loss of exclusivity in the European Union.
Oncology products achieved operational sales growth of 9.7% as compared to the same period a year ago. Strong sales of DARZALEX (daratumumab) were driven by share gains in all regions and continued market growth. Growth of ERLEADA (apalutamide) was due to continued strong share gains, market growth, and increased penetration from new launches. Sales of CARVYKTI (ciltacabtagene autoleucel) were driven by continued market share gains from the ongoing launch. Additionally, sales from the launch of TECVAYLI (teclistamab-cqyv), included in Other Oncology, contributed to the growth. Growth was partially offset by ZYTIGA (abiraterone acetate) due to loss of exclusivity and IMBRUVICA (ibrutinib) due to global competitive pressures.
Pulmonary Hypertension achieved operational sales growth of 16.5% as compared to the same period a year ago. Sales growth was due to favorable patient mix, share gains and market growth from UPTRAVI (selexipag) and OPSUMIT (macitentan) partially offset by declines in Other Pulmonary Hypertension.
Cardiovascular / Metabolism / Other products experienced an operational decline of 2.0% as compared to the same period a year ago. The growth of XARELTO (rivaroxaban) was primarily driven by favorable patient mix and market growth partially offset by share loss.
The Company maintains a policy that no end customer will be permitted direct delivery of product to a location other than the billing location. This policy impacts contract pharmacy transactions involving non-grantee 340B covered entities for most of the Company’s drugs, subject to multiple exceptions. Both grantee and non-grantee covered entities can maintain certain contract pharmacy arrangements under policy exceptions. The Company has been and will continue to offer 340B discounts to covered entities on all of its covered outpatient drugs, and it believes its policy will improve its ability to identify inappropriate duplicate discounts and diversion prohibited by the 340B statute. The 340B Drug Pricing Program is a U.S. federal government program requiring drug manufacturers to provide significant discounts on covered outpatient drugs to covered entities. This policy had discount implications which positively impacted sales to customers in fiscal 2023.
MedTech
The MedTech segment sales in the fiscal six months of 2023 were $15.3 billion, an increase of 10.1% as compared to the same period a year ago, with an operational increase of 12.8% and a negative currency impact of 2.7%. U.S. MedTech sales increased 15.5%. International MedTech sales increased by 5.2%, including an operational increase of 10.3% and a negative currency impact of 5.1%. In the fiscal six months of 2023, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a positive 4.7% related to the Abiomed acquisition on December 22, 2022.
Major MedTech Franchise Sales** — Fiscal Six Months Ended
| (Dollars in Millions) | July 2, 2023 | July 3, 2022 | Total Change | Operations Change | Currency Change | |||||||||||||||||||||||||||
| Surgery | $ | 5,028 | $ | 4,884 | 3.0 | % | 6.3 | % | (3.3) | % | ||||||||||||||||||||||
| Advanced | 2,340 | 2,302 | 1.7 | 5.0 | (3.3) | |||||||||||||||||||||||||||
| General | 2,688 | 2,582 | 4.1 | 7.4 | (3.3) | |||||||||||||||||||||||||||
| Orthopaedics | 4,510 | 4,345 | 3.8 | 5.4 | (1.6) | |||||||||||||||||||||||||||
| Hips | 787 | 777 | 1.3 | 2.8 | (1.5) | |||||||||||||||||||||||||||
| Knees | 731 | 688 | 6.3 | 7.9 | (1.6) | |||||||||||||||||||||||||||
| Trauma | 1,496 | 1,444 | 3.6 | 4.9 | (1.3) | |||||||||||||||||||||||||||
| Spine, Sports & Other | 1,495 | 1,436 | 4.2 | 6.1 | (1.9) | |||||||||||||||||||||||||||
| Interventional Solutions | 3,123 | 2,141 | 45.8 | 49.3 | (3.5) | |||||||||||||||||||||||||||
| Electrophysiology | 2,288 | 1,970 | 16.2 | 19.5 | (3.3) | |||||||||||||||||||||||||||
| Abiomed | 655 | — | * | * | * | |||||||||||||||||||||||||||
| Other Interventional Solutions | 180 | 171 | 5.1 | 9.5 | (4.4) | |||||||||||||||||||||||||||
| Vision | 2,608 | 2,498 | 4.4 | 7.2 | (2.8) | |||||||||||||||||||||||||||
| Contact Lenses/Other | 1,892 | 1,804 | 4.9 | 8.0 | (3.1) | |||||||||||||||||||||||||||
| Surgical | 716 | 694 | 3.1 | 5.4 | (2.3) | |||||||||||||||||||||||||||
| Total MedTech Sales | $ | 15,269 | $ | 13,869 | 10.1 | % | 12.8 | % | (2.7) | % |
- Percentage greater than 100% or not meaningful
**Certain prior year amounts have been reclassified to conform to current year presentation
The MedTech segment sales in the fiscal second quarter of 2023 were $7.8 billion, an increase of 12.9% as compared to the same period a year ago, which included operational growth of 14.7% and a negative currency impact of 1.8%. U.S. MedTech sales increased 14.6%. International MedTech sales increased by 11.3%, including operational growth of 14.7% partially offset by a negative currency impact of 3.4%. In the fiscal second quarter of 2023, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a positive 4.8%, related to the Abiomed acquisition.
Major MedTech Franchise Sales** — Fiscal Second Quarter Ended
| (Dollars in Millions) | July 2, 2023 | July 3, 2022 | Total Change | Operations Change | Currency Change | |||||||||||||||||||||||||||
| Surgery | $ | 2,594 | $ | 2,450 | 5.9 | % | 8.4 | % | (2.5) | % | ||||||||||||||||||||||
| Advanced | 1,222 | 1,156 | 5.8 | 8.4 | (2.6) | |||||||||||||||||||||||||||
| General | 1,372 | 1,294 | 6.0 | 8.4 | (2.4) | |||||||||||||||||||||||||||
| Orthopaedics | 2,265 | 2,157 | 5.0 | 5.7 | (0.7) | |||||||||||||||||||||||||||
| Hips | 397 | 388 | 2.2 | 3.0 | (0.8) | |||||||||||||||||||||||||||
| Knees | 363 | 349 | 3.9 | 4.5 | (0.6) | |||||||||||||||||||||||||||
| Trauma | 739 | 696 | 6.1 | 6.5 | (0.4) | |||||||||||||||||||||||||||
| Spine, Sports & Other | 766 | 724 | 5.8 | 7.0 | (1.2) | |||||||||||||||||||||||||||
| Interventional Solutions | 1,620 | 1,049 | 54.4 | 56.9 | (2.5) | |||||||||||||||||||||||||||
| Electrophysiology | 1,196 | 968 | 23.5 | 25.9 | (2.4) | |||||||||||||||||||||||||||
| Abiomed | 331 | — | * | * | * | |||||||||||||||||||||||||||
| Other Interventional Solutions | 93 | 81 | 15.1 | 18.8 | (3.7) | |||||||||||||||||||||||||||
| Vision | 1,308 | 1,241 | 5.4 | 6.9 | (1.5) | |||||||||||||||||||||||||||
| Contact Lenses/Other | 939 | 894 | 5.1 | 6.6 | (1.5) | |||||||||||||||||||||||||||
| Surgical | 369 | 347 | 6.2 | 7.6 | (1.4) | |||||||||||||||||||||||||||
| Total MedTech Sales | $ | 7,788 | $ | 6,898 | 12.9 | % | 14.7 | % | (1.8) | % |
- Percentage greater than 100% or not meaningful
**Certain prior year amounts have been reclassified to conform to current year presentation
The Surgery franchise achieved operational sales growth of 8.4% as compared to the prior year fiscal second quarter. The operational growth in Advanced Surgery was primarily driven by the following: Biosurgery global procedure growth and strength of the portfolio; Endocutter procedure recovery outside the U.S. and uptake of recently launched products partially offset by volume-based procurement impacts in China, competitive pressures predominantly in the U.S. and supply challenges; and Energy products procedure recovery outside the U.S. and strength of new products partially offset by volume-based procurement impacts in China and supply challenges. The operational growth in General Surgery was primarily driven by procedure recovery outside the U.S. coupled with technology penetration and benefits from the differentiated Wound Closure portfolio.
The Orthopaedics franchise achieved operational sales growth of 5.7% as compared to the prior year fiscal second quarter. The operational growth in hips reflects global procedure growth and continued strength of the portfolio. This was partially offset by supply challenges. The operational growth in knees was primarily driven by global procedure recovery, benefits from launches in the ATTUNE portfolio and pull through related to the VELYS Robotic assisted solution. This was partially offset by supply constraints. The operational growth in Trauma was driven by procedure recovery and the adoption of recently launched products. This was partially offset by volume-based procurement impacts in China. The operational growth in Spine, Sports & Other was primarily driven by procedure growth, positive uptake from new products and growth in VELYS Digital Solutions. This was partially offset by volume-based procurement impacts in China and continued competitive pressures in Spine.
The Interventional Solutions franchise achieved operational sales growth of 56.9% as compared to the prior year fiscal second quarter which includes sales from Abiomed acquired on December 22, 2022. Electrophysiology grew by double digits due to global procedure growth, new product performance and commercial execution. This was partially offset by the impacts of volume-based procurement in China. Abiomed sales reflect the strength of all commercialized regions and continued adoption of Impella 5.5 and Impella RP.
The Vision franchise achieved operational sales growth of 6.9% as compared to the prior year fiscal second quarter. The Contact Lenses/Other operational growth was primarily driven by the continued strong performance in the ACUVUE OASYS 1-Day family (including recent launches) and commercial execution. This was partially offset by impacts from strategic portfolio decisions and supply challenges. The Surgical operational growth was primarily driven by cataract procedure growth and continued strength of recent innovations. This was partially offset by softer Refractive and premium IOL markets challenges.
ANALYSIS OF CONSOLIDATED EARNINGS BEFORE PROVISION FOR TAXES ON INCOME
Consolidated earnings before provision for taxes on income for the fiscal six months of 2023 was $6.0 billion representing 12.0% of sales as compared to $11.7 billion in the fiscal six months of 2022, representing 24.7% of sales. The decline was primarily related to the talc settlement proposal in the fiscal first quarter.
Consolidated earnings before provision for taxes on income for the fiscal second quarter of 2023 was $6.8 billion representing 26.5% of sales as compared to $5.8 billion in the fiscal second quarter of 2022, representing 24.3% of sales.
Cost of Products Sold
(Dollars in billions. Percentages in chart are as a percent to total sales)
Fiscal six months Q2 2023 versus Fiscal six months Q2 2022
Cost of products sold increased as a percent to sales driven by:
-
Commodity inflation and Abiomed amortization in the MedTech business
-
Commodity inflation in the Consumer Health business
The intangible asset amortization expense included in cost of products sold for the fiscal six months of 2023 and 2022 was $2.4 billion and $2.2 billion, respectively.
Q2 2023 versus Q2 2022
Cost of products sold decreased as a percent to sales primarily driven by:
- Favorable mix and lower one-time COVID-19 vaccine manufacturing related exit costs in 2023 in the Pharmaceutical business
partially offset by
-
Commodity inflation and Abiomed amortization in the MedTech business
-
Commodity inflation in the Consumer Health business
The intangible asset amortization expense included in cost of products sold for the fiscal second quarters of 2023 and 2022 was $1.2 billion and $1.1 billion, respectively.
Selling, Marketing and Administrative Expenses
(Dollars in billions. Percentages in chart are as a percent to total sales)
Fiscal six months Q2 2023 versus Fiscal six months Q2 2022
Selling, Marketing and Administrative Expenses decreased slightly as a percent to sales driven by:
- Leveraging in the Pharmaceutical and MedTech businesses
partially offset by
- An increase in Kenvue standalone start-up costs
Q2 2023 versus Q2 2022
Selling, Marketing and Administrative Expenses increased as a percent to sales primarily driven by:
- An increase in Kenvue standalone start-up costs
partially offset by
- Leveraging in the Pharmaceutical and MedTech businesses
Research and Development Expense
(Dollars in billions. Percentages in chart are as a percent to total sales)
Fiscal six months Q2 2023 versus Fiscal six months Q2 2022
Research and Development decreased as a percent to sales driven by:
-
Cost management initiatives in the MedTech business
-
Portfolio prioritization in the Pharmaceutical business
partially offset by
- acquired in-process research & development costs in the Pharmaceutical business
Q2 2023 versus Q2 2022
Research and Development decreased as a percent to sales driven by:
-
Cost management initiatives in the MedTech business
-
Portfolio prioritization in the Pharmaceutical business
partially offset by
- acquired in-process research & development costs in the Pharmaceutical business
In-Process Research and Development (IPR&D) Impairments
In the fiscal first quarter of 2023, the Company recorded a charge of approximately $0.1 billion associated with the IPR&D acquired with Pulsar Vascular in 2016. In the first fiscal six months of 2022, the Company recorded an intangible asset impairment charge of approximately $0.6 billion related to an in-process research and development asset, bermekimab (JnJ-77474462), an investigational drug for the treatment of Atopic Dermatitis (AD) and Hidradenitis Suppurativa (HS). The Company acquired all rights to bermekimab from XBiotech, Inc. in the fiscal year 2020.
Interest (Income) Expense
Interest income in the first fiscal six months of 2023 was $604 million as compared to $86 million in the same period a year ago primarily due to higher rates of interest earned on cash balances. Interest income in the fiscal second quarter of 2023 was $369 million as compared to $64 million in the fiscal second quarter of 2022 primarily due to higher rates of interest earned on cash balances. Interest expense in the first fiscal six months of 2023 was $561 million as compared to $48 million in the same period a year ago primarily due to a higher debt balance at higher interest rates. Interest expense in the fiscal second quarter of 2023 was $346 million as compared to $38 million in the same period a year ago primarily due to a higher debt balance at higher
interest rates. The balance of cash, cash equivalents and current marketable securities was $28.5 billion at the end of the fiscal second quarter of 2023 as compared to $32.6 billion at the end of the fiscal second quarter of 2022. The Company’s debt position was $45.6 billion as of July 2, 2023, as compared to $32.6 billion the same period a year ago.
Other (Income) Expense, Net*
Fiscal six months Q2 2023 versus Fiscal six months Q2 2022
Other (income) expense, net for the fiscal six months of 2023 was unfavorable by $7.0 billion as compared to the prior year primarily due to the following:
| Fiscal Six Months | ||||||||||||||||||||
| (Dollars in Billions)(Income)/Expense | 2023 | 2022 | Change | |||||||||||||||||
| Litigation related(1) | $ | 6.8 | 0.4 | 6.4 | ||||||||||||||||
| Consumer Health separation costs | 0.5 | 0.4 | 0.1 | |||||||||||||||||
| COVID-19 Vaccine related exit costs | 0.4 | 0.0 | 0.4 | |||||||||||||||||
| Changes in the fair value of securities | 0.1 | 0.5 | (0.4) | |||||||||||||||||
| Employee benefit plan related | (0.7) | (0.6) | (0.1) | |||||||||||||||||
| Other(2) | 0.1 | (0.5) | 0.6 | |||||||||||||||||
| Total Other (Income) Expense, Net | $ | 7.2 | 0.2 | 7.0 |
(1) Primarily related to the talc settlement proposal. The fiscal six months of 2023 includes favorable intellectual property related litigation settlements of approximately $0.3 billion.
(2) Fiscal 2023 includes $37 million related to the 10.4% non-controlling interest in Kenvue from the time of the initial public offering on May 8, 2023 through the end of the fiscal second quarter
Q2 2023 versus Q2 2022
Other (income) expense, net for the fiscal second quarter of 2023 was favorable by $0.3 billion as compared to the prior year primarily due to the following:
| Fiscal Second Quarter | ||||||||||||||||||||
| (Dollars in Billions)(Income)/Expense | 2023 | 2022 | Change | |||||||||||||||||
| Consumer Health separation costs | $ | 0.2 | 0.3 | (0.1) | ||||||||||||||||
| COVID-19 Vaccine related exit costs | 0.2 | 0.0 | 0.2 | |||||||||||||||||
| Employee benefit plan related | (0.4) | (0.3) | (0.1) | |||||||||||||||||
| Litigation related(1) | (0.1) | 0.4 | (0.5) | |||||||||||||||||
| Changes in the fair value of securities | 0.0 | 0.1 | (0.1) | |||||||||||||||||
| Other(2) | 0.0 | (0.2) | 0.2 | |||||||||||||||||
| Total Other (Income) Expense, Net | $ | (0.1) | 0.3 | (0.4) |
(1) The fiscal second quarter of 2023 includes favorable intellectual property related litigation settlements of approximately $0.3 billion.
(2) Fiscal 2023 includes $37 million related to the 10.4% non-controlling interest in Kenvue from the time of the initial public offering on May 8, 2023 through the end of the fiscal second quarter
*Other (income) expense, net is the account where the Company records gains and losses related to the sale and write-down of certain investments in equity securities held by Johnson & Johnson Innovation - JJDC, Inc. (JJDC), changes in the fair value of securities, gains and losses on divestitures, gains and losses on sale of assets, certain transactional currency gains and losses, acquisition-related costs, litigation accruals and settlements, investment (income)/loss related to employee benefit plans, as well as royalty income.
EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT
Income before tax by segment of business for the fiscal six months were as follows:
| Income Before Tax | Segment Sales | Percent of Segment Sales | ||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | July 2, 2023 | July 3, 2022 | July 2, 2023 | July 3, 2022 | July 2, 2023 | July 3, 2022 | ||||||||||||||||||||||||||||||||
| Consumer Health | $ | 1,636 | $ | 1,470 | $ | 7,863 | $ | 7,391 | 20.8 | % | 19.9 | % | ||||||||||||||||||||||||||
| Pharmaceutical | 9,306 | 8,344 | 27,144 | 26,186 | 34.3 | 31.9 | ||||||||||||||||||||||||||||||||
| MedTech | 3,144 | 2,618 | 15,269 | 13,869 | 20.6 | 18.9 | ||||||||||||||||||||||||||||||||
| Segment earnings before tax | 14,086 | 12,432 | 50,276 | 47,446 | 28.0 | 26.2 | ||||||||||||||||||||||||||||||||
| Less: Expenses not allocated to segments(1) | 7,479 | 360 | ||||||||||||||||||||||||||||||||||||
| Less: Consumer Health separation costs | 582 | 370 | ||||||||||||||||||||||||||||||||||||
| Worldwide income before tax | $ | 6,025 | $ | 11,702 | $ | 50,276 | $ | 47,446 | 12.0 | % | 24.7 | % |
(1)Amounts not allocated to segments include interest (income) expense and general corporate (income) expense. The fiscal six months of 2023 includes an approximately $7 billion incremental charge primarily related to the talc settlement proposal.
Consumer Health Segment
The Consumer Health segment income before tax as a percent of sales in the fiscal six months of 2023 was 20.8% versus 19.9% for the same period a year ago. The increase in the income before tax as a percent of sales in the fiscal six months of 2023 as compared to the prior year was primarily driven by the following:
- Pricing actions
partially offset by
-
Commodity inflation
-
Increased Kenvue standalone start-up costs
Pharmaceutical Segment
The Pharmaceutical segment income before tax as a percent of sales in the fiscal six months of 2023 was 34.3% versus 31.9% for the same period a year ago. The increase in the income before tax as a percent of sales for the fiscal six months of 2023 as compared to the prior year was primarily driven by the following:
-
An IPR&D charge of $0.6 billion in 2022 related to bermekimab (JnJ-77474462), an investigational drug for the treatment of AD and Hidradenitis Suppurativa (HS)
-
Favorable changes in the fair value of securities in 2023 of $0.4 billion as compared to 2022
-
Leveraging in selling, marketing and administrative expenses
-
Portfolio prioritization
partially offset by
-
One-time COVID-19 Vaccine related exit costs of $0.6 billion in 2023 as compared to $0.3 billion in 2022
-
Restructuring charges of $0.3 billion in 2023
-
Acquired in-process research & development costs of $0.2 billion
MedTech Segment
The MedTech segment income before tax as a percent of sales in the fiscal six months of 2023 was 20.6% versus 18.9% for the same period a year ago. The increase in the income before tax as a percent of sales for the fiscal six months of 2023 was primarily driven by the following:
-
Net favorable litigation matters of $0.2 billion in 2023 as compared to expense of $0.3 billion in 2022
-
No Restructuring charges in 2023 versus $0.2 billion in 2022
-
Leveraging in selling and marketing expenses
partially offset by
-
Higher amortization expense of $0.3 billion in 2023 related to Abiomed
-
An IPR&D charge in 2023 of approximately $0.1 billion related to the Pulsar Vascular acquisition
-
Acquisition costs related to Abiomed of $0.1 billion
-
Commodity inflation in 2023
Income before tax by segment of business for the fiscal second quarters were as follows:
| Income Before Tax | Segment Sales | Percent of Segment Sales | ||||||||||||||||||||||||||||||||||||
| (Dollars in Millions) | July 2, 2023 | July 3, 2022 | July 2, 2023 | July 3, 2022 | July 2, 2023 | July 3, 2022 | ||||||||||||||||||||||||||||||||
| Consumer Health | $ | 860 | $ | 784 | $ | 4,011 | $ | 3,805 | 21.4 | % | 20.6 | % | ||||||||||||||||||||||||||
| Pharmaceutical | 4,862 | 4,420 | 13,731 | 13,317 | 35.4 | 33.2 | ||||||||||||||||||||||||||||||||
| MedTech | 1,699 | 1,141 | 7,788 | 6,898 | 21.8 | 16.5 | ||||||||||||||||||||||||||||||||
| Segment earnings before tax | 7,421 | 6,345 | 25,530 | 24,020 | 29.1 | 26.4 | ||||||||||||||||||||||||||||||||
| Less: Expenses not allocated to segments(1) | 377 | 237 | ||||||||||||||||||||||||||||||||||||
| Less: Consumer Health separation costs | 282 | 268 | ||||||||||||||||||||||||||||||||||||
| Worldwide income before tax | $ | 6,762 | $ | 5,840 | $ | 25,530 | $ | 24,020 | 26.5 | % | 24.3 | % |
(1)Amounts not allocated to segments include interest (income) expense, certain litigation expenses and general corporate (income) expense.
Consumer Health Segment
The Consumer Health segment income before tax as a percent of sales in the fiscal second quarter of 2023 was 21.4% versus 20.6% for the same period a year ago. The increase in the income before tax as a percent of sales in the fiscal second quarter of 2023 as compared to the prior year was primarily driven by the following:
-
Pricing actions
-
Supply chain efficiencies
partially offset by
-
Commodity inflation
-
Increased Kenvue standalone start-up costs
Pharmaceutical Segment
The Pharmaceutical segment income before tax as a percent of sales in the fiscal second quarter of 2023 was 35.4% versus 33.2% for the same period a year ago. The increase in the income before tax as a percent of sales for the fiscal second quarter as compared to the prior year was primarily driven by the following:
-
Favorable litigation related items of $0.1 billion in 2023
-
Favorable changes in the fair value of securities in 2023 of $0.1 billion as compared to 2022
-
One-time COVID-19 Vaccine related exit costs of $0.2 billion in 2023 as compared to $0.3 billion in 2022
-
Favorable mix
-
Leveraging in selling, marketing and administrative expenses
-
Portfolio prioritization
partially offset by
-
Restructuring charges of $0.1 billion in 2023
-
Acquired in-process research & development costs of $0.2 billion
MedTech Segment
The MedTech segment income before tax as a percent of sales in the fiscal second quarter of 2023 was 21.8% versus 16.5% for the same period a year ago. The increase in the income before tax as a percent of sales for the fiscal second quarter was primarily driven by the following:
-
Net favorable litigation matters of $0.2 billion in 2023 as compared to expense of $0.3 billion in 2022
-
No Restructuring charges in 2023 versus $0.1 billion in 2022
-
Leveraging in selling, marketing and administrative expenses
partially offset by
-
Higher amortization expense of $0.1 billion in 2023 related to Abiomed
-
Commodity inflation in 2023
Restructuring
In the fiscal first and second quarters of 2023, the Company completed a prioritization of its research and development (R&D) investment within the Pharmaceutical segment to focus on the most promising medicines with the greatest benefit to patients. This resulted in the exit of certain programs within therapeutic areas. The R&D program exits are primarily in infectious diseases and vaccines including the discontinuation of its respiratory syncytial virus (RSV) adult vaccine program, hepatitis and
HIV development. The pre-tax restructuring charge of approximately $0.1 billion and $0.3 billion in the fiscal second quarter and fiscal six months of 2023, respectively, includes the termination of partnered and non-partnered program costs and asset impairments. The Company recorded a pre-tax charge of $0.1 billion in the fiscal second quarter and $0.2 billion in the first fiscal six months of 2022, related to a restructuring program of its Global Supply Chain. The Global Supply Chain program was announced in the second quarter of 2018 and was completed in the fiscal fourth quarter of 2022.
Provision for Taxes on Income
The worldwide effective income tax rate for the first fiscal six months of 2023 was 15.8% in 2023 and 14.9% in 2022.
On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework that was supported by over 130 countries worldwide. The EU’s Pillar Two Directive effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. On July 17, 2023, the OECD published Administrative Guidance proposing certain safe harbor rules that effectively extend certain effective dates to January 1, 2027. EU Member States will still need to adopt the OECD Administrative Guidance in their local Pillar Two legislation for such safe harbor rules to apply. A significant number of other countries are also considering implementing similar legislation. The Company is continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by additional individual countries, including those within the European Union.
On July 21, 2023, the IRS issued Notice 2023-55 which provides guidance to taxpayers in determining whether a foreign tax is eligible for a U.S. foreign tax credit for tax years 2022 and 2023, specifically delaying until 2024 the application of unfavorable foreign tax credit regulations that were originally issued late last year. As a result of this new guidance, the Company has concluded that it is applicable to certain of its tax positions and therefore will record a tax benefit of approximately $0.5 billion in the fiscal third quarter of 2023.
For discussion related to the 2023 provision for taxes refer to Note 5 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash and cash equivalents were $21.2 billion at the end of the fiscal second quarter of 2023 as compared with $14.1 billion at the end of fiscal year 2022. The primary sources and uses of cash that contributed to the $7.1 billion increase were:
| (Dollars In Billions) | |||||
| $ | 14.1 | Q4 2022 Cash and cash equivalents balance | |||
| 7.4 | net cash generated from operating activities | ||||
| (0.5) | net cash used by investing activities | ||||
| 0.1 | net cash generated from financing activities | ||||
| 0.1 | rounding | ||||
| $ | 21.2 | Q2 2023 Cash and cash equivalents |
In addition, the Company had $7.3 billion in marketable securities at the end of the fiscal second quarter of 2023 and $9.4 billion at the end of fiscal year 2022.
Cash flow from operations of $7.4 billion was the result of:
| (Dollars In Billions) | |||||
| $ | 5.1 | Net earnings | |||
| 2.5 | non-cash expenses and other adjustments primarily for depreciation and amortization, stock-based compensation and asset write-downs partially offset by the deferred tax provision and net gain on sale of assets/businesses | ||||
| (1.3) | an increase in accounts receivable and inventories | ||||
| (1.1) | a decrease in accounts payable and accrued liabilities | ||||
| (1.1) | an increase in other current and non-current assets | ||||
| 3.4 | an increase in other current and non-current liabilities | ||||
| (0.1) | Rounding | ||||
| $ | 7.4 | Cash Flow from operations |
Cash flow used by investing activities of $0.5 billion was primarily from:
| (Dollars In Billions) | |||||
| (2.0) | additions to property, plant and equipment | ||||
| 0.1 | proceeds from the disposal of assets/businesses, net | ||||
| 2.2 | net sales of investments | ||||
| (0.8) | credit support agreements activity, net and other | ||||
| $ | (0.5) | Net cash used by investing activities |
Cash flow from financing activities of $0.1 billion was primarily from:
| (Dollars In Billions) | |||||
| $ | (6.0) | dividends to shareholders | |||
| (3.9) | repurchase of common stock | ||||
| (1.9) | net repayment of short and long term debt and other | ||||
| 7.7 | proceeds from Kenvue long term debt, net of issuance cost | ||||
| 4.2 | proceeds from Kenvue initial public offering | ||||
| $ | 0.1 | Net cash from financing activities |
The Company has access to substantial sources of funds at numerous banks worldwide. In September 2022, the Company secured a new 364-day Credit Facility of $10 billion, which expires on September 7, 2023. In November 2022, the Company secured an additional 364-day revolving Credit Facility of $10 billion, which has an expiration of November 21, 2023. Interest charged on borrowings under the credit line agreement is based on either Secured Overnight Financing Rate (SOFR) Reference Rate or other applicable market rate as allowed plus applicable margins. Commitment fees under the agreement are not material.
In March 2023, Kenvue, priced an offering of senior unsecured notes (the Notes) in an aggregate principal amount of $7.75 billion (See Note 4 to the Consolidated Financial Statements for additional details). The Notes were initially fully and unconditionally guaranteed (the Guarantees) on a senior unsecured basis by the Company. The Guarantees terminated on April 5, 2023, upon completion of the Consumer Health Business transfer.
Further, in March 2023, Kenvue entered into a credit agreement providing for a five-year senior unsecured revolving credit facility (the Revolving Credit Facility) in an aggregate principal amount of $4.0 billion to be made available in U.S. dollars and Euros. The Revolving Credit Facility contains representations and warranties, covenants and events of default that are customary for this type of financing, including covenants restricting the incurrence of liens and the entry into certain merger transactions. In addition, Kenvue entered into a commercial paper program (the Commercial Paper Program) of up to $4.0
billion in aggregate principal amount of commercial paper under the Commercial Paper Program. The Commercial Paper Program contains representations and warranties, covenants and default that are customary for this type of financing.
On May 8, 2023, Kenvue completed an initial public offering (the IPO) of 198,734,444 shares of its common stock, par value $0.01 per share (the “Kenvue Common Stock”), including the underwriters’ full exercise of their option to purchase 25,921,884 shares to cover over-allotments, at an initial public offering price of $22.00 per share for net proceeds of $4.2 billion. Kenvue shares began trading on the New York Stock Exchange under the symbol “KVUE”. Additionally, on May 8,2023, as partial consideration for the transfer of the Consumer Health business, Kenvue paid $13.2 billion to Johnson & Johnson from the net proceeds of the initial public offering and debt financing transactions (approximately $7.7 billion of unsecured notes and $1.2 billion of commercial paper) in connection with the separation. The excess of the net proceeds from the IPO over the net book value of the Johnson & Johnson divested interest was 2.5 billion and was recorded in additional paid-in capital.
As of the closing of the IPO, Johnson & Johnson owns 1,716,160,000 shares of Kenvue Common Stock, or approximately 89.6% of the total outstanding shares of Kenvue Common Stock, and continues to consolidate the financial results of Kenvue. As of July 2, 2023, the non-controlling interest of $1.3 billion associated with Kenvue is reflected in equity attributable to non-controlling interests in the consolidated balance sheet. Other (income) expense, net on the consolidated statement of earnings for the fiscal second quarter and fiscal six months ended July 2, 2023, includes $37 million related to the 10.4% non-controlling interest in Kenvue from the time of the initial public offering on May 8, 2023 through the end of the fiscal second quarter.
Subsequent to the fiscal second quarter on July 24, 2023, the Company announced its intention to split-off at least 80.1% of the shares of Kenvue through an exchange offer. Through the planned exchange offer, Johnson & Johnson shareholders can exchange all, some or none of their shares of Johnson & Johnson Common Stock for shares of Kenvue Common Stock, subject to the terms of the offer. (See Note 12 to the Consolidated Financial Statements for additional details). The shares of Johnson & Johnson Common Stock acquired by the Company in the exchange offer will be recorded as an acquisition of treasury stock at a cost equal to the market value of the shares of Johnson & Johnson Common Stock accepted in the exchange offer at its expiration. Any difference between the net book value of Kenvue attributable to Johnson & Johnson and the market value of the shares of Johnson & Johnson Common Stock acquired at that date will be recognized by the Company as a gain on disposal of discontinued operations net of any direct and incremental expenses of the exchange offer on the disposal of its Kenvue Common Stock. Upon completion of the exchange offer, and assuming the Company no longer has a controlling financial interest in Kenvue, Kenvue’s historical results will be shown in the Company's financial statements as discontinued operations, and, in subsequent periods, the Company's financial statements will no longer reflect the assets, liabilities, results of operations or cash flows attributable to Kenvue.
As of July 2, 2023, the Company's cash, cash equivalents and marketable securities was approximately $28.5 billion and had approximately $45.6 billion of notes payable and long-term debt for a net debt position of $17.1 billion as compared to the prior year net neutral position. The Company anticipates that operating cash flows, the ability to raise funds from external sources, borrowing capacity from existing committed credit facilities and access to the commercial paper markets will continue to provide sufficient resources to fund operating needs, including the Company’s remaining balance to be paid on the agreement to settle opioid litigation for approximately $2.2 billion and the establishment of the approximately $9 billion reserve (present value) for the talc settlement proposal (See Note 11 to the Consolidated Financial Statements for additional details). In addition, the Company monitors the global capital markets on an ongoing basis and from time to time may raise capital when market conditions are favorable.
In the fiscal second quarter of 2023, the Company paid approximately $4.3 billion to the U.S. Treasury including $1.5 billion related to the current installment due on foreign undistributed earnings as part of the TCJA charge (see Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2023), $1.4 billion in pre-payments to resolve certain items previously reserved for and under examination in its 2013 through 2016 U.S. IRS audit, and $1.4 billion primarily related to the normal estimated payments for the first six months of fiscal 2023.
On September 14, 2022, the Company announced that its Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $5.0 billion of the Company’s Common Stock. As of April 2, 2023, $5.0 billion has been repurchased and the repurchase program was completed.
Dividends
On April 18, 2023, the Board of Directors declared a regular cash dividend of $1.19 per share, payable on June 6, 2023, to shareholders of record as of May 23, 2023.
On July 20, 2023, the Board of Directors declared a regular cash dividend of $1.19 per share, payable on September 7, 2023, to shareholders of record as of August 28, 2023. The Company expects to continue the practice of paying regular quarterly cash dividends.
OTHER INFORMATION
New Accounting Pronouncements
Refer to Note 1 to the Consolidated Financial Statements for new accounting pronouncements.
Economic and Market Factors
In July 2023, Janssen Pharmaceuticals, Inc. (Janssen) filed litigation against the U.S. Department of Health and Human Services as well as the Centers for Medicare and Medicaid Services challenging the constitutionality of the Inflation Reduction Act’s (IRA) Medicare Drug Price Negotiation Program. The litigation requests a declaration that the IRA violates Janssen’s rights under the First Amendment and the Fifth Amendment to the Constitution and therefore that Janssen is not subject to the IRA’s mandatory pricing scheme.
Russia-Ukraine War
Although the long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time, the financial impact of the conflict in the fiscal second quarter and fiscal six months of 2023, including accounts receivable or inventory reserves, was not material. As of both the fiscal second quarter ending July 2, 2023, and the 2022 fiscal year ending January 1, 2023, the business of the Company’s Ukraine subsidiaries represented less than 1% of the Company’s consolidated assets and revenues. As of both the fiscal second quarter ending July 2, 2023, and the 2022 fiscal year ending January 1, 2023, the business of the Company’s Russian subsidiaries represented less than 1% of the Company’s consolidated assets and represented 1% of revenues.
In early March of 2022, the Company took steps to suspend all advertising, enrollment in clinical trials, and any additional investment in Russia. Additionally, at the end of March 2022, the Company made the decision to suspend supply of personal care products in Russia. The Company continues to supply its other products as patients rely on many of the products for healthcare purposes.
The Company operates in certain countries where the economic conditions continue to present significant challenges. The Company continues to monitor these situations and take appropriate actions. Inflation rates and currency exchange rates continue to have an effect on worldwide economies and, consequently, on the way the Company operates. The Company has accounted for operations in Venezuela, Argentina and Turkey (beginning in the fiscal second quarter of 2022) as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases.
Governments around the world consider various proposals to make changes to tax laws, which may include increasing or decreasing existing statutory tax rates. In connection with various government initiatives, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries. A change in statutory tax rate in any country would result in the revaluation of the Company’s deferred tax assets and liabilities related to that particular jurisdiction in the period in which the new tax law is enacted. This change would result in an expense or benefit recorded to the Company’s Consolidated Statement of Earnings. The Company closely monitors these proposals as they arise in the countries where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted.
The Company faces various worldwide health care changes that may continue to result in pricing pressures that include health care cost containment and government legislation relating to sales, promotions and reimbursement of health care products.
Changes in the behavior and spending patterns of purchasers of healthcare products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing healthcare insurance coverage, as a result of the current global economic downturn, may continue to impact the Company’s businesses.
The Company faces regular intellectual property challenges from third parties, including generic and biosimilar manufacturers, seeking to manufacture and market generic and biosimilar versions of key pharmaceutical products prior to the expiration of the applicable patents. These challengers file Abbreviated New Drug Applications or abbreviated Biologics License Applications with the FDA or otherwise challenged the coverage and/or validity of the Company’s patents. In the event the Company is not successful in defending the patent claims challenged in the resulting lawsuits, generic or biosimilar versions of the products at issue may be introduced to the market, resulting in the potential for substantial market share and revenue losses for those products, and which may result in a non-cash impairment charge in any associated intangible asset. There is also risk that one or more competitors could launch a generic or biosimilar version of the product at issue following regulatory approval even though one or more valid patents are in place.
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