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 2024, worldwide sales were $43.8 billion, a total increase of 3.3%, including an operational (which excludes translational currency) increase of 5.2% as compared to 2023 fiscal six months sales of $42.4 billion. Currency fluctuations had a negative impact of 1.9% for the fiscal six months of 2024. In the fiscal six months of 2024, acquisitions and divestitures had no net impact on the worldwide operational sales growth. In the fiscal six months of 2024, the impact of the Covid-19 Vaccine sales decline on the worldwide operational sales was a negative 2.2%.

Sales by U.S. companies were $24.2 billion in the fiscal six months of 2024, which represented an increase of 7.8% as compared to the prior year. In the fiscal six months of 2024, acquisitions and divestitures had no net impact on the U.S. operational sales growth. Sales by international companies were $19.6 billion, a decrease of 1.7%, including an operational increase of 2.4%, offset by a negative currency impact of 4.1% as compared to the fiscal six months sales of 2023. In the fiscal six months of 2024, the net impact of acquisitions and divestitures on the international operational sales growth was a negative 0.1%. In the fiscal six months of 2024, the impact of the Covid-19 Vaccine sales decline on the international operational sales was a negative 4.5%.

In the fiscal six months of 2024, sales by companies in Europe experienced a decline of 3.2%, which included an operational decline of 2.4% and a negative currency impact of 0.8%. In the fiscal six months of 2024, the impact of the Covid-19 Vaccine sales decline on the European region operational sales was a negative 8.4%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 8.8%, which included an operational increase of 21.9%, and a negative currency impact of 13.1%. Sales by companies in the Asia-Pacific, Africa region experienced a decline of 2.6%, including an operational increase of 3.4% offset by a negative currency impact of 6.0%.

Fiscal six months 2024 sales by geographic region (in billions)

Fiscal six months 2024 sales by segment (in billions)

Note: values may have been rounded

42

For the fiscal second quarter of 2024, worldwide sales were $22.4 billion, a total increase of 4.3%, which included operational growth of 6.6% and a negative currency impact of 2.3% as compared to 2023 fiscal second quarter sales of $21.5 billion. In the fiscal second quarter of 2024, the net impact of acquisitions and divestitures on worldwide operational sales growth was a positive 0.1%. In the fiscal second quarter of 2024, the impact of the Covid-19 Vaccine sales decline on the worldwide operational sales was a negative 0.6%.

Sales by U.S. companies were $12.6 billion in the fiscal second quarter of 2024, which represented an increase of 7.8% as compared to the prior year. In the fiscal second quarter of 2024, the net impact of acquisitions and divestitures on the U.S. operational sales growth was a positive 0.2%. Sales by international companies were $9.9 billion, a total increase of 0.2%, which included operational growth of 5.1% and a negative currency impact of 4.9%. In the fiscal second quarter of 2024, the net impact of acquisitions and divestitures on international operational sales growth was a negative 0.2%. In the fiscal second quarter of 2024, the impact of the Covid-19 Vaccine sales decline on the international operational sales was a negative 1.3%.

In the fiscal second quarter of 2024, sales by companies in Europe achieved growth of 1.6%, which included a operational growth of 3.4% and a negative currency impact of 1.8%. In the fiscal second quarter of 2024, the impact of the Covid-19 Vaccine sales decline on the European region operational sales was a negative 2.6%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 6.7%, including operational growth of 22.6% and a negative currency impact of 15.9%. Sales by companies in the Asia-Pacific, Africa region experienced a decline of 4.0%, which included operational growth of 1.9% offset by a negative currency impact of 5.9%.

Q2 2024 Sales by Geographic Region (in billions)

Q2 2024 Sales by Segment (in billions)

Note: values may have been rounded

Form 10-Q			43

Analysis of sales by business segments

Innovative Medicine

Innovative Medicine segment sales in the fiscal six months of 2024 were $28.1 billion, an increase of 3.3% as compared to the same period a year ago, with an operational increase of 5.2% and a negative currency impact of 1.9%. In the fiscal six months of 2024, the impact of the Covid-19 Vaccine sales decline on the Innovative Medicine segment operational sales was a negative 3.4%. U.S. Innovative Medicine sales increased 8.6% as compared to the same period a year ago. International Innovative Medicine sales decreased by 3.0%, including operational growth of 1.0% offset by a negative currency impact of 4.0%. In the fiscal six months of 2024, the impact of the Covid-19 Vaccine sales decline on the international Innovative Medicine segment operational sales was a negative 7.5%. In the fiscal six months of 2024, the net impact of acquisitions and divestitures on the Innovative Medicine segment operational sales growth was a negative 0.1%.

Major Innovative Medicine therapeutic area sales — Fiscal Six Months Ended

(Dollars in Millions)			June 30, 2024						July 2, 2023						Total Change			Operations Change			Currency Change
Immunology			$8,969						$8,608						4.2		%	6.0		%	(1.8)		%
REMICADE			827						949						(12.9)			(11.6)			(1.3)
SIMPONI/ SIMPONI ARIA			1,091						1,066						2.3			7.0			(4.7)
STELARA			5,336						5,241						1.8			3.1			(1.3)
TREMFYA			1,714						1,346						27.3			29.2			(1.9)
Other Immunology			2						7						(75.4)			(75.4)			—
Infectious Diseases			1,786						2,707						(34.0)			(33.7)			(0.3)
COVID-19 VACCINE			197						1,032						(80.9)			(80.9)			0.0
EDURANT/rilpivirine			620						546						13.4			13.7			(0.3)
PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA			856						968						(11.6)			(11.2)			(0.4)
Other Infectious Diseases			114						161						(29.3)			(26.2)			(3.1)
Neuroscience			3,585						3,597						(0.3)			1.9			(2.2)
CONCERTA/methylphenidate			340						414						(17.8)			(14.5)			(3.3)
INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA			2,110						2,075						1.7			2.8			(1.1)
SPRAVATO			496						300						65.5			65.7			(0.2)
Other Neuroscience			639						809						(21.0)			(15.8)			(5.2)
Oncology			9,904						8,510						16.4			18.7			(2.3)
CARVYKTI			343						189						81.5			81.5			0.0
DARZALEX			5,570						4,695						18.6			21.2			(2.6)
ERLEADA			1,425						1,109						28.4			30.5			(2.1)
IMBRUVICA			1,554						1,668						(6.9)			(5.1)			(1.8)
TECVAYLI			268						157						70.2			70.2			0.0
ZYTIGA/ abiraterone acetate			346						472						(26.8)			(22.0)			(4.8)
Other Oncology			399						219						82.4			84.2			(1.8)
Pulmonary Hypertension			2,088						1,844						13.2			15.5			(2.3)
OPSUMIT			1,068						947						12.7			14.4			(1.7)
UPTRAVI			894						761						17.4			18.7			(1.3)
Other Pulmonary Hypertension			127						136						(6.5)			5.3			(11.8)
Cardiovascular / Metabolism / Other			1,721						1,877						(8.3)			(8.0)			(0.3)
XARELTO			1,105						1,215						(9.1)			(9.1)			—
Other			616						662						(7.0)			(6.0)			(1.0)
Total Innovative Medicine Sales			$28,052						$27,144						3.3		%	5.2		%	(1.9)		%

44

Innovative Medicine segment sales in the fiscal second quarter of 2024 were $14.5 billion, an increase of 5.5% as compared to the same period a year ago, including an operational increase of 7.8% and a negative currency impact of 2.3%. In the fiscal second quarter of 2024, the impact of the Covid-19 Vaccine sales decline on the Innovative Medicine segment operational sales was a negative 1.0%. U.S. Innovative Medicine sales increased 8.9% as compared to the same period a year ago. International Innovative Medicine sales increased by 1.1%, including an operational increase of 6.4% partially offset by a negative currency impact of 5.3%. In the fiscal second quarter of 2024, the impact of the Covid-19 Vaccine sales decline on the international Innovative Medicine operational sales was a negative 2.3%. In the fiscal second quarter of 2024, the net impact of acquisitions and divestitures on the Innovative Medicine segment operational sales growth was a negative 0.2%.

Major Innovative Medicine therapeutic area sales — Fiscal Second Quarter Ended

(Dollars in Millions)			June 30, 2024						July 2, 2023						Total Change			Operations Change			Currency Change
Immunology			$4,722						$4,496						5.0		%	7.3		%	(2.3)		%
REMICADE			393						462						(14.9)			(13.4)			(1.5)
SIMPONI/ SIMPONI ARIA			537						529						1.6			7.1			(5.5)
STELARA			2,885						2,797						3.1			4.9			(1.8)
TREMFYA			906						706						28.3			30.7			(2.4)
Other Immunology			2						4						(51.5)			(51.5)			—
Infectious Diseases			965						1,121						(13.9)			(12.9)			(1.0)
COVID-19 VACCINE			172						285						(39.7)			(39.7)			0.0
EDURANT/rilpivirine			297						266						11.0			12.5			(1.5)
PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA			438						491						(11.0)			(10.3)			(0.7)
Other Infectious Diseases			61						79						(23.1)			(18.8)			(4.3)
Neuroscience			1,782						1,793						(0.6)			1.5			(2.1)
CONCERTA/ methylphenidate			163						208						(21.5)			(17.9)			(3.6)
INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA			1,054						1,031						2.2			3.5			(1.3)
SPRAVATO			271						169						60.2			60.8			(0.6)
Other Neuroscience			294						386						(23.7)			(19.1)			(4.6)
Oncology			5,090						4,398						15.7			18.6			(2.9)
CARVYKTI			186						117						59.8			59.9			(0.1)
DARZALEX			2,878						2,431						18.4			21.3			(2.9)
ERLEADA			736						567						29.8			32.5			(2.7)
IMBRUVICA			770						841						(8.5)			(5.9)			(2.6)
TECVAYLI			135						94						42.9			43.5			(0.6)
ZYTIGA/ abiraterone acetate			165						227						(27.7)			(21.9)			(5.8)
Other Oncology			221						120						84.2			87.2			(3.0)
Pulmonary Hypertension			1,039						972						6.9			9.4			(2.5)
OPSUMIT			544						507						7.1			9.1			(2.0)
UPTRAVI			426						399						6.6			8.1			(1.5)
Other Pulmonary Hypertension			71						66						7.2			20.4			(13.2)
Cardiovascular / Metabolism / Other			892						950						(6.2)			(5.5)			(0.7)
XARELTO			587						637						(7.9)			(7.9)			—
Other			305						313						(2.5)			(0.6)			(1.9)
Total Innovative Medicine Sales			$14,490						$13,731						5.5		%	7.8		%	(2.3)		%

Form 10-Q			45

Immunology products achieved operational growth of 7.3% as compared to the same period a year ago. Sales of STELARA (ustekinumab) were driven by market growth partially offset by net unfavorable patient mix. Growth of TREMFYA (guselkumab) was due to market growth, share gains and favorable patient mix. Additionally, SIMPONI/SIMPONI ARIA growth was driven by growth outside the U.S. Lower sales of REMICADE (infliximab) were due to biosimilar competition.

Sales of STELARA in the United States were approximately $7.0 billion in fiscal 2023. Third parties have filed abbreviated Biologics License Applications with the FDA seeking approval to market biosimilar versions of STELARA. The Company has settled certain litigation under the Biosimilar Price Competition and Innovation Act of 2009. As a result of these settlements and other agreements with separate third parties, the Company does not anticipate the launch of a biosimilar version of STELARA until January 1, 2025 in the United States. In July 2024, a biosimilar version of STELARA launched in certain European markets for certain indications.

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.

Infectious disease products experienced an operational decline of 12.9% as compared to the same period a year ago primarily driven by a decline in COVID-19 vaccine revenue. The Company does not anticipate any COVID-19 vaccine revenue in the remainder of fiscal 2024.

Neuroscience products achieved operational sales growth of 1.5% as compared to the same period a year ago. The growth of SPRAVATO (esketamine) was driven by increased physician and patient demand and ongoing launches. Growth was partially offset by declines in Other Neuroscience.

Oncology products achieved operational sales growth of 18.6% as compared to the same period a year ago. Strong sales of DARZALEX (daratumumab) were driven by continued share gains in all regions and market growth. Growth of ERLEADA (apalutamide) was due to continued share gains and market growth. Increased sales of CARVYKTI (ciltacabtagene autoleucel) were driven by continued share gains, capacity expansion and manufacturing efficiencies. Additionally, sales from the ongoing launch of TECVAYLI (teclistamab-cqyv) and the launch of TALVEY (talquetamab) and RYBREVANT (amivantamab) in Other Oncology contributed to the growth. Growth was partially offset by ZYTIGA (abiraterone acetate) due to loss of exclusivity and IMBRUVICA (ibrutinib) declines due to competitive pressures.

Pulmonary Hypertension achieved operational sales growth of 9.4% as compared to the same period a year ago. Sales growth of OPSUMIT (macitentan) was driven by share gains and market growth partially offset by unfavorable mix in the European Union. Sales growth of UPTRAVI (selexipag) was driven by market growth and share gains partially offset by inventory dynamics in the U.S.

Cardiovascular / Metabolism / Other products experienced an operational decline of 5.5% as compared to the same period a year ago. The decline of XARELTO (rivaroxaban) sales was primarily driven by unfavorable patient mix and 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.

46

MedTech

The MedTech segment sales in the fiscal six months of 2024 were $15.8 billion, an increase of 3.3% as compared to the same period a year ago, with an operational increase of 5.4% and a negative currency impact of 2.1%. U.S. MedTech sales increased 6.2%. International MedTech sales increased by 0.5%, including an operational increase of 4.6% and a negative currency impact of 4.1%. In the fiscal six months of 2024, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a positive 0.2%.

Major MedTech franchise sales — Fiscal Six Months Ended

(Dollars in Millions)			June 30, 2024						July 2, 2023						Total Change			Operations Change			Currency Change
Surgery			$4,904						$5,028						(2.5		%)	0.3		%	(2.8)		%
Advanced			2,228						2,340						(4.8)			(2.2)			(2.6)
General			2,676						2,688						(0.5)			2.4			(2.9)
Orthopaedics			4,652						4,510						3.2			4.0			(0.8)
Hips			839						787						6.5			7.4			(0.9)
Knees			795						731						8.7			9.4			(0.7)
Trauma			1,524						1,496						1.9			2.6			(0.7)
Spine, Sports & Other			1,495						1,495						0.0			1.1			(1.1)
Cardiovascular**(1)**			3,679						3,123						17.8			20.2			(2.4)
Electrophysiology			2,667						2,288						16.5			19.4			(2.9)
Abiomed			750						655						14.5			15.2			(0.7)
Shockwave (2)			77						—						*			*			—
Other Cardiovascular(1)			185						180						2.9			5.7			(2.8)
Vision			2,543						2,608						(2.5)			(0.3)			(2.2)
Contact Lenses/Other			1,828						1,892						(3.4)			(0.8)			(2.6)
Surgical			715						716						(0.1)			1.1			(1.2)
Total MedTech Sales			$15,778						$15,269						3.3		%	5.4		%	(2.1)		%

(1) Previously referred to as Interventional Solutions

(2) Acquired on May 31, 2024

*Percentage greater than 100% or not meaningful

Form 10-Q			47

The MedTech segment sales in the fiscal second quarter of 2024 were $8.0 billion, an increase of 2.2% as compared to the same period a year ago, which included operational growth of 4.4% and a negative currency impact of 2.2%. U.S. MedTech sales increased 5.7%. International MedTech sales decreased by 1.3%, including operational growth of 3.2% and a negative currency impact of 4.5%. In the fiscal second quarter of 2024, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a positive 0.4%.

Major MedTech franchise sales — Fiscal Second Quarter Ended

(Dollars in Millions)			June 30, 2024						July 2, 2023						Total Change			Operations Change			Currency Change
Surgery			$2,488						$2,594						(4.1)		%	(1.2		%)	(2.9)		%
Advanced			1,141						1,222						(6.7)			(3.9)			(2.8)
General			1,346						1,372						(1.9)			1.2			(3.1)
Orthopaedics			2,312						2,265						2.1			3.3			(1.2)
Hips			417						397						4.9			6.2			(1.3)
Knees			394						363						8.4			9.5			(1.1)
Trauma			759						739						2.8			3.8			(1.0)
Spine, Sports & Other			743						766						(3.1)			(1.7)			(1.4)
Cardiovascular**(1)**			1,873						1,620						15.6			18.0			(2.4)
Electrophysiology			1,323						1,196						10.6			13.4			(2.8)
Abiomed			379						331						14.5			15.4			(0.9)
Shockwave(2)			77						—						*			*			—
Other Cardiovascular(1)			93						93						0.3			2.8			(2.5)
Vision			1,285						1,308						(1.7)			0.8			(2.5)
Contact Lenses/Other			918						939						(2.2)			0.7			(2.9)
Surgical			367						369						(0.5)			1.2			(1.7)
Total MedTech Sales			$7,957						$7,788						2.2		%	4.4		%	(2.2)		%

(1) Previously referred to as Interventional Solutions

(2) Acquired on May 31, 2024

*Percentage greater than 100% or not meaningful

The Surgery franchise experienced an operational sales decline of 1.2% as compared to the prior year fiscal second quarter. The decline in Advanced Surgery was primarily driven by competitive pressures in Energy and Endocutters, China volume-based procurement impacts and EMEA tender timing. All Advanced Surgery platforms were impacted by prior year China recovery. This was partially offset by the strength of the portfolio and commercial execution in Biosurgery as well as the strength of new products. The operational growth in General Surgery was primarily driven by increased procedures coupled with technology penetration and upgrades within the differentiated Wound Closure portfolio. The growth was partially offset by the impact of the Acclarent divestiture, prior year China recovery and supply constraints.

The Orthopaedics franchise achieved operational sales growth of 3.3% as compared to the prior year fiscal second quarter. The operational growth in Hips reflects global procedure growth and continued strength of the portfolio. The operational growth in Knees was primarily driven by procedures, continued strength of the ATTUNE portfolio, pull through related to the VELYS Robotic assisted solution and tender timing outside the U.S. The operational growth in Trauma was driven by the continued adoption of recently launched products partially offset by U.S. competitive dynamics. The operational sales decline in Spine, Sports & Other was primarily driven by spine competitive pressures and China volume-based procurement impacts partially offset by growth in Digital Solutions, Craniomaxillofacial and Shoulders.

The Cardiovascular franchise, which includes sales from Shockwave Medical (Shockwave) acquired on May 31, 2024, achieved operational sales growth of 18.0% as compared to the prior year fiscal second quarter. Electrophysiology grew by double digits due to global procedure growth, new product uptake and commercial execution partially offset by the impact of volume-based procurement in China. Abiomed sales reflect the strength of all major commercialized regions driven by continued strong adoption of Impella 5.5 and Impella RP.

48

The Vision franchise achieved operational sales growth of 0.8% 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 of products (including recent launches) partially offset by the impact of the Blink divestiture, U.S. distributor stocking dynamics, competitive pressures and Japan macroeconomic pressures. The Surgical operational growth was primarily driven by the continued strength of recent innovations and commercial execution partially offset by China volume-based procurement and competitive pressures in the U.S.

Analysis of consolidated earnings before provision for taxes on income

Consolidated earnings before provision for taxes on income for the fiscal second quarter of 2024 was $5.7 billion representing 25.6% of sales as compared to $6.3 billion in the fiscal second quarter of 2023, representing 29.3% of sales.

Consolidated earnings before provision for taxes on income for the fiscal six months of 2024 was $9.5 billion representing 21.6% of sales as compared to $5.0 billion in the fiscal six months of 2023, representing 11.8% of sales.

Cost of products sold

(Dollars in billions. Percentages in chart are as a percent to total sales)

Fiscal six months Q2 2024 versus Fiscal six months Q2 2023

Cost of products sold decreased as a percent to sales driven by:

• Lower one-time COVID-19 vaccine supply network related exit costs in 2024 ($0 in 2024 versus $0.2 billion 2023)

• Favorable patient mix in the Innovative Medicine business

partially offset by

• Macroeconomic factors in both the Innovative Medicine and MedTech businesses

The intangible asset amortization expense included in cost of products sold for the fiscal six months of 2024 and 2023 was $2.2 billion in both periods.

Q2 2024 versus Q2 2023

Cost of products sold increased as a percent to sales primarily driven by:

• Product mix in the Innovative Medicine business

• Macroeconomic factors in both the Innovative Medicine and MedTech businesses

The intangible asset amortization expense included in cost of products sold for the fiscal second quarters of 2024 and 2023 was $1.1 billion in both periods.

Form 10-Q			49

Selling, marketing and administrative expenses

(Dollars in billions. Percentages in chart are as a percent to total sales)

Fiscal six months Q2 2024 versus Fiscal six months Q2 2023

Selling, Marketing and Administrative Expenses increased as a percent to sales driven by:

• Timing of brand marketing investment in the Innovative Medicine business and timing of administrative costs due to technology investments

Q2 2024 versus Q2 2023

Selling, Marketing and Administrative Expenses increased as a percent to sales primarily driven by:

• Timing of administrative costs due to technology investments

Research and development expense

Research and development expense by segment of business was as follows:

			Fiscal Second Quarters Ended															Fiscal Six Months Ended
			2024									2023						2024									2023
(Dollars in Millions)			Amount			% of Sales*						Amount			% of Sales*			Amount			% of Sales*						Amount			% of Sales*
Innovative Medicine			$2,722			18.8		%				$3,048			22.2		%	$5,618			20.0		%				$5,826			21.5		%
MedTech			718			9.0						655			8.4			1,364			8.6						1,332			8.7
Total research and development expense			$3,440			15.3		%				$3,703			17.2		%	$6,982			16.0		%				$7,158			16.9		%
Percent increase/(decrease) over the prior year			(7.1		%)													(2.5		%)
*As a percent to segment sales

Fiscal six months Q2 2024 versus Fiscal six months Q2 2023

Research and Development decreased as a percent to sales driven by:

• Lower milestone payments and portfolio prioritization in the Innovative Medicine business

Q2 2024 versus Q2 2023

Research and Development decreased as a percent to sales driven by:

• Lower milestone payments and portfolio prioritization in the Innovative Medicine business

partially offset by

• Phasing of expenses in the MedTech business

50

In-process research and development (IPR&D) impairments

In the fiscal second quarter and fiscal six months of 2024, the Company recorded a charge of approximately $0.2 billion associated with the M710 (biosimilar) asset acquired with Momenta in 2020. There was also a partial impairment of this asset for $0.2 billion in the fiscal third quarter of 2023. This asset is now fully impaired. In the fiscal six months of 2023, the Company recorded a charge of approximately $0.1 billion associated with the IPR&D acquired with Pulsar Vascular in 2016.

Interest (income) expense

Interest income in the fiscal six months of 2024 was $759 million as compared to $524 million in the fiscal six months of 2023 primarily due to higher rates of interest earned on cash balances and a higher average cash balance. Interest income in the fiscal second quarter of 2024 was $395 million as compared to $326 million in the fiscal second quarter of 2023 primarily due to a higher average cash balance. Interest expense in the fiscal six months of 2024 was $425 million and was relatively flat as compared to $429 million in the same period a year ago. Interest expense in the fiscal second quarter of 2024 was $270 million as compared to $217 million in the same period a year ago primarily due to a higher average debt rate. The balance of cash, cash equivalents and current marketable securities was $25.5 billion at the end of the fiscal second quarter of 2024 as compared to $28.5 billion (including $1.2 billion of cash related to Kenvue) at the end of the fiscal second quarter of 2023. The Company’s debt position was $41.5 billion as of June 30, 2024, as compared to $45.6 billion the same period a year ago (including $8.4 billion related to Kenvue debt).

Other (income) expense, net*

Fiscal six months Q2 2024 versus Fiscal six months Q2 2023

Other (income) expense, net for the fiscal six months of 2024 reflected less expense of $3.5 billion as compared to the prior year primarily due to the following:

Fiscal Six Months
(Dollars in Billions)(Income)/Expense						June 30, 2024						July 2, 2023						Change
Litigation related(1)						3.1						6.8						(3.7)
Acquisition, Integration and Divestiture related						0.5						0.1						0.4
Changes in the fair value of securities(2)						0.4						0.1						0.3
COVID-19 Vaccine manufacturing related exit costs						0.1						0.4						(0.3)
Employee benefit plan related						(0.5)						(0.7)						0.2
Other						(0.5)						(0.1)						(0.4)
Total Other (Income) Expense, Net						$	3.1					6.6						(3.5)

(1)The fiscal six months of 2024 and 2023 include charges for talc matters. The fiscal six months of 2023 includes favorable intellectual property related litigation settlements of approximately $0.3 billion.

(2)Includes the loss on the completion of the debt for equity exchange of the retained stake in Kenvue

Form 10-Q			51

Q2 2024 versus Q2 2023

Other (income) expense, net for the fiscal second quarter of 2024 reflected an increase in expense as compared to income in the prior year primarily due to the following:

Fiscal Second Quarter
(Dollars in Billions)(Income)/Expense						June 30, 2024						July 2, 2023						Change
Acquisition, Integration and Divestiture related						$	0.4					—						0.4
Litigation related(1)						0.4						(0.1)						0.5
Changes in the fair value of securities(2)						0.4						—						0.4
COVID-19 Vaccine manufacturing related exit costs						0.1						0.2						(0.1)
Employee benefit plan related						(0.2)						(0.4)						0.2
Other						(0.4)						(0.1)						(0.3)
Total Other (Income) Expense, Net						$	0.7					(0.4)						1.1

(1)The fiscal second quarters of 2024 and 2023 include charges for talc matters. The fiscal second quarter of 2023 includes favorable intellectual property related litigation settlements of approximately $0.3 billion.

(2)Includes the loss on the completion of the debt for equity exchange of the retained stake in Kenvue

*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.

52

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)			June 30, 2024						July 2, 2023						June 30, 2024						July 2, 2023						June 30, 2024						July 2, 2023
Innovative Medicine			$10,428						$9,214						$28,052						$27,144						37.2		%				33.9		%
MedTech			2,609						3,080						15,778						15,269						16.5						20.2
Segment earnings before tax			13,037						12,294						43,830						42,413						29.7						29.0
Less: Expenses not allocated to segments(1)			3,575						7,275
Worldwide income before tax			$9,462						$5,019						$43,830						$42,413						21.6		%				11.8		%

**(1)**Amounts not allocated to segments include interest (income) expense, certain litigation expenses and general corporate (income) expense. The fiscal six months of 2024 and 2023 include charges for talc matters of $3.0 billion and $7.1 billion, respectively. The fiscal six months of 2024 includes a loss of approximately $0.4 billion related to the debt to equity exchange of the Company's remaining shares of Kenvue Common Stock.

Innovative Medicine segment

The Innovative Medicine segment income before tax as a percent of sales in the fiscal six months of 2024 was 37.2% versus 33.9% 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 2024 as compared to the prior year was primarily driven by the following:

• One-time COVID-19 Vaccine related exit costs of $0.1 billion in 2024 versus $0.6 billion in 2023

• Restructuring related charge of $0.1 billion in 2024 versus $0.3 billion in 2023

• Reduced milestone payments and portfolio prioritization in Research and development

• Favorable patient mix in Cost of products sold

partially offset by

• An In-process research and development impairment of $0.2 billion in 2024 related to the M710 (biosimilar) asset acquired with Momenta in 2020

MedTech segment

The MedTech segment income before tax as a percent of sales in the fiscal six months of 2024 was 16.5% versus 20.2% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal six months of 2024 was primarily driven by the following:

• Acquisition and integration related costs of $0.6 billion in 2024 (primarily related to the Shockwave acquisition) versus $0.1 billion in 2023

• Favorable intellectual property litigation settlements of approximately $0.3 billion in 2023

• Restructuring related charge of $0.1 billion in 2024

• Macroeconomic factors in Cost of products sold

partially offset by

• A gain of $0.2 billion related to the Acclarent divestiture in 2024

• An IPR&D charge in 2023 of approximately $0.1 billion related to the Pulsar Vascular acquisition in the fiscal year 2016

Form 10-Q			53

Income (loss) 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)						June 30, 2024						July 2, 2023						June 30, 2024						July 2, 2023						June 30, 2024						July 2, 2023
Innovative Medicine						$5,459						$4,812						$14,490						$13,731						37.7		%				35.0		%
MedTech						1,089						1,671						7,957						7,788						13.7						21.5
Segment earnings before tax						6,548						6,483						22,447						21,519						29.2						30.1
Less: Expenses not allocated to segments(1)						800						177
Worldwide income (loss) before tax						$5,748						$6,306						$22,447						$21,519						25.6		%				29.3		%

(1)Amounts not allocated to segments include interest (income) expense, certain litigation expenses and general corporate (income) expense. The fiscal second quarters of 2024 and 2023 include charges for talc matters of $0.3 billion and $0.2 billion, respectively. The fiscal second quarter of 2024 includes a loss of approximately $0.4 billion related to the debt to equity exchange of the Company's remaining shares of Kenvue Common Stock

Innovative Medicine segment

The Innovative Medicine segment income before tax as a percent of sales in the fiscal second quarter of 2024 was 37.7% versus 35.0% for the same period a year ago. The increase in the income before tax as a percent of sales for the fiscal second quarter of 2024 as compared to the prior year was primarily driven by the following:

• Lower one-time COVID-19 Vaccine related exit costs of $0.1 billion in 2024 versus $0.2 billion in 2023

• Restructuring related income from asset divestments of $0.1 billion in 2024 versus restructuring expense of $0.1 billion in 2023

• Lower milestone payments and portfolio prioritization in Research and Development

partially offset by

• An In-process research and development impairment of $0.2 billion in 2024 related to the M710 (biosimilar) asset acquired with Momenta in 2020

• Unfavorable product mix in Cost of products sold

MedTech segment

The MedTech segment income before tax as a percent of sales in the fiscal second quarter of 2024 was 13.7% versus 21.5% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal second quarter of 2024 as compared to the prior year was primarily driven by the following:

• Acquisition and integration related costs of $0.6 billion in 2024 (primarily related to the Shockwave acquisition)

• Favorable intellectual property litigation settlements of approximately $0.3 billion in 2023

• Restructuring related charge of $0.1 billion in 2024

• Research and development expense phasing

• Macroeconomic factors in Cost of products sold

partially offset by

• A gain of $0.2 billion related to the Acclarent divestiture in 2024

54

Restructuring

In the fiscal year 2023, the Company completed a prioritization of its research and development (R&D) investment within the Innovative Medicine 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. Pre-tax Restructuring income of $0.1 billion in the fiscal second quarter of 2024 and $0.1 billion of expense in the fiscal six months of 2024, included asset divestments, the termination of partnered and non-partnered development program costs and asset impairments. 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, included the termination of partnered and non-partnered program costs and asset impairments. Total project costs of approximately $0.6 billion have been recorded since the restructuring was announced.

In the fiscal year 2023, the Company initiated a restructuring program of its Orthopaedics franchise within its MedTech segment to streamline operations by exiting certain markets, product lines and distribution network arrangements. The pre-tax restructuring expense of $0.1 billion and $0.1 billion in the fiscal second quarter and fiscal six months of 2024, respectively, primarily included costs related to market and product exits. Total project costs of approximately $0.4 billion have been recorded since the restructuring was announced.

Provision for taxes on income

The worldwide effective income tax rate for the fiscal six months was 16.1% in 2024 and 2.7% in 2023.

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. As of December 31, 2023, several EU and non-EU countries have enacted Pillar Two legislation with an initial effective date of January 1, 2024, with other aspects of the law effective in 2025 or later. The Company is estimating that as a total result of this legislation the 2024 effective tax rate will increase by approximately 1.0 to 1.5% compared to fiscal 2023. Further legislation, guidance and regulations that may be issued in fiscal 2024, as well as other business events, may impact this estimate.

As discussed in Note 10 to the Consolidated Financial Statements, subsequent to the balance sheet date, the Company acquired Yellow Jersey, a demerged subsidiary of Numab Therapeutics, to secure the global rights to NM26, a bispecific antibody compound and will record a related $1.25 billion non-tax-deductible expense in the third fiscal quarter of 2024. Since this acquisition is not expected to be deductible for tax purposes this charge will be a factor for a higher effective tax rate for the remainder of fiscal 2024.

For further details related to the 2024 provision for taxes refer to Note 5 to the Consolidated Financial Statements.

Liquidity and capital resources

Acquisitions (net of cash acquired)

Proceeds from the disposal of assets/businesses, net

Dividends to shareholders

Form 10-Q			55

Cash flows

Cash and cash equivalents were $24.9 billion at the end of the fiscal second quarter of 2024 as compared with $21.9 billion at the end of fiscal year 2023. The primary sources and uses of cash that contributed to the $3.0 billion increase were:

(Dollars In Billions)
21.9						Q4 2023 Cash and cash equivalents balance
9.3						net cash generated from operating activities
(14.2)						net cash used by investing activities
8.1						net cash generated from financing activities
(0.2)						effect of exchange rate changes on cash and cash equivalents
$	24.9					Q2 2024 Cash and cash equivalents

In addition, the Company had $0.6 billion in marketable securities at the end of the fiscal second quarter of 2024 and $1.1 billion at the end of fiscal year 2023.

Cash flow from operations of $9.3 billion was the result of:

(Dollars In Billions)
$	7.9					Net earnings
2.1						non-cash expenses and other adjustments primarily for depreciation and amortization, stock-based compensation, and asset write-downs partially offset by the net gain on sale of assets/businesses and the deferred tax provision
(1.9)						an increase in accounts receivable and inventories
0.4						an increase in accounts payable and accrued liabilities
3.7						a decrease in other current and non-current assets
(3.1)						a decrease in other current and non-current liabilities
0.2						Other and rounding
$	9.3					Net cash flows from operations

Cash flow used by investing activities of $14.2 billion was primarily from:

(Dollars In Billions)
$	(1.8)					additions to property, plant and equipment
0.6						proceeds from the disposal of assets/businesses, net
(14.8)						acquisitions, net of cash acquired
0.5						net sales of investments
1.4						credit support agreements activity, net
(0.1)						Other (primarily capitalized licenses and milestones)
$	(14.2)					Net cash used by investing activities

56

Cash flow from financing activities of $8.1 billion was primarily from:

(Dollars In Billions)
$	(5.9)					dividends to shareholders
(1.6)						repurchase of common stock
15.9						net proceeds from short and long term debt
0.3						proceeds from stock options exercised/employee withholding tax on stock awards, net
0.3						credit support agreements activity, net
(1.0)						Settlement of convertible debt acquired from Shockwave
0.1						Other and rounding
$	8.1					Net cash from financing activities

The Company has access to substantial sources of funds at numerous banks worldwide and has the ability to issue up to $20 billion in Commercial Paper. Furthermore, in September 2023, the Company secured a new 364-day Credit Facility of $10 billion (expiration on September 5, 2024) which may be used for general corporate purposes including to support our commercial paper borrowings. 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.

As of June 30, 2024, the Company had cash, cash equivalents and marketable securities of approximately $25.5 billion and had approximately $41.5 billion of notes payable and long-term debt for a net debt position of $16.0 billion as compared to the prior year fiscal second quarter net debt position of $17.1 billion (which included cash of $1.2 billion and debt of $8.4 billion related to Kenvue). In the fiscal second quarter of 2024, the Company issued senior unsecured notes for a total of $6.7 billion. For additional details on borrowings, see Note 4 to the Consolidated Financial Statements. The net proceeds from this offering were used to fund the Shockwave acquisition which closed on May 31, 2024, and for general corporate purposes. 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 $1.5 billion and the approximately $10.6 billion ($12.8 billion nominal) reserve remaining 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 2024, the Company paid approximately $3.1 billion to the U.S. Treasury including $2.0 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 December 31, 2023) and $1.1 billion primarily related to the normal estimated payment for the first six months of fiscal 2024. Additionally, the Company paid $1.1 billion in income related taxes net of refunds to foreign jurisdictions in the first six months of fiscal 2024.

Dividends

On April 16, 2024, the Board of Directors declared a regular cash dividend of $1.24 per share, payable on June 4, 2024, to shareholders of record as of May 21, 2024.

On July 17, 2024, the Board of Directors declared a regular cash dividend of $1.24 per share, payable on September 10, 2024, to shareholders of record as of August 27, 2024. The Company expects to continue the practice of paying regular quarterly cash dividends.

Form 10-Q			57

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. In April 2024, Janssen appealed the district court’s denial of its summary judgment motion to the Third Circuit.

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 of 2024, including accounts receivable or inventory reserves, was not material. As of the fiscal six months ending June 30, 2024, and the fiscal year ending December 31, 2023, the business of the Company’s Russian subsidiaries represented less than 1% of both Company’s consolidated assets and revenues. The Company does not maintain Ukraine subsidiaries subsequent to the Kenvue separation.

In March of 2022, the Company took steps to suspend all advertising, enrollment in clinical trials, and any additional investment in Russia. The Company continues to supply products relied upon by patients for healthcare purposes.

Conflict in the Middle East

Although the long-term implications of the conflict in the Middle East are difficult to predict at this time, the financial impact of the conflict in the fiscal second quarter of 2024, including accounts receivable or inventory reserves, was not material. As of the fiscal six months ending June 30, 2024, and the fiscal year ending December 31, 2023, the business of the Company’s Israel subsidiaries represented approximately 1% of the Company’s consolidated assets and represented less than 1% of revenues.

Other Macroeconomic Considerations

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 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

58

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.

Form 10-Q			59