Johnson & Johnson · 10-Q · Item 2 MD&A

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 2026, worldwide sales were $49.4 billion, a total increase of 8.2%, including an operational* increase of 6.0% as compared to 2025 fiscal six months sales of $45.6 billion. T1Currency fluctuations had a positive impact of 2.2% for the fiscal six months of 2026. In the fiscal six months of 2026, acquisitions and divestitures had net positive impact of 0.5%, on worldwide operational sales growth, primarily related to CAPLYTA. In the fiscal six months of 2026, T2the negative impact of the STELARA sales decline, due to biosimilar competition, on worldwide operational sales was approximately 5.0%.

Sales by U.S. companies were $27.9 billion in the fiscal six months of 2026, which represented an increase of 7.8% as compared to the prior year. In the fiscal six months of 2026, acquisitions and divestitures had net positive impact of 0.9% on U.S. operational sales growth, primarily related to CAPLYTA. In the fiscal six months of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition on U.S. operational sales was approximately 7.0%. Sales by international companies were $21.5 billion, which represented an increase of 8.7%, including an operational increase of 3.6%, and a positive currency impact of 5.1% as compared to the fiscal six months sales of 2025.

In the fiscal six months of 2026, the net impact of acquisitions and divestitures on international operational sales growth was a negative 0.1%. In the fiscal six months of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition, on international operational sales was approximately 2.5%.

In the fiscal six months of 2026, sales by companies in Europe achieved growth of 10.3%, which included an operational increase of 3.0% and a positive currency impact of 7.3%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 9.6%, which included an operational increase of 2.6% and a positive currency impact of 7.0%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 6.0%, including operational growth of 4.9% and a positive currency impact of 1.1%.

sales by geographic region (in billions)

sales by segment (in billions)

Note: values may have been rounded

*operational excludes the effect of translational currency

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For the fiscal second quarter of 2026, worldwide sales were $25.3 billion, a total increase of 6.6%, which included operational growth of 5.6% and a positive currency impact of 1.0% as compared to 2025 fiscal second quarter sales of $23.7 billion. In the fiscal second quarter of 2026, the net impact of acquisitions and divestitures on worldwide operational sales growth was a negative 0.1%. In the fiscal second quarter of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition, on worldwide operational sales was approximately 4.6%.

Sales by U.S. companies were $14.5 billion in the fiscal second quarter of 2026, which represented an increase of 7.3% as compared to the prior year. In the fiscal second quarter of 2026, the net impact of acquisitions and divestitures on U.S. operational sales growth was a negative 0.1%. In the fiscal second quarter of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition on U.S. operational sales was approximately 6.6%. Sales by international companies were $10.8 billion, a total increase of 5.7%, which included operational growth of 3.4% and a positive currency impact of 2.3%. In the fiscal second quarter of 2026, the net impact of acquisitions and divestitures on international operational sales growth was a negative 0.1%. In the fiscal second quarter of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition, on international operational sales was approximately 2.1%.

In the fiscal second quarter of 2026, sales by companies in Europe achieved growth of 6.3%, which included operational growth of 3.3% and a positive currency impact of 3.0%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 8.5%, which included operational growth of 2.7% and a positive currency impact of 5.8%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 3.8%, which included operational growth of 3.9% and a negative currency impact of 0.1%.

Sales by Geographic Region (in billions)

Sales by Segment (in billions)

Note: values may have been rounded

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Analysis of sales by business segments

Innovative Medicine

Innovative Medicine segment sales in the fiscal six months of 2026 were $31.8 billion, an increase of 9.4% as compared to the same period a year ago, with an operational increase of 7.1% and a positive currency impact of 2.3%. U.S. Innovative Medicine sales increased 9.3% as compared to the same period a year ago. International Innovative Medicine sales increased by 9.6%, including an operational increase of 3.9% and a positive currency impact of 5.7%. In the fiscal six months of 2026, the net impact of acquisitions and divestitures on the Innovative Medicine segment operational sales growth was a positive 0.9%, primarily related to CAPLYTA. In the fiscal six months of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition, was an approximate 8.4%, 11.1% and 4.5% on worldwide, U.S. and international Innovative Medicine segment operational sales, respectively.

Major Innovative Medicine therapeutic area sales — Fiscal Six Months Ended

(Dollars in Millions)

Total

Change

Operations

Change

Currency

Change

Oncology

%

%

%

DARZALEX

CARVYKTI

TECVAYLI

TALVEY

RYBREVANT/ LAZCLUZE

ERLEADA

IMBRUVICA

Other Oncology(1)

Immunology

TREMFYA

SIMPONI/ SIMPONI ARIA

REMICADE

STELARA

Other Immunology

9

*

*

*

Neuroscience

SPRAVATO

CAPLYTA(2)

*

*

—

INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA

CONCERTA/methylphenidate

Other Neuroscience

Pulmonary Hypertension

UPTRAVI

OPSUMIT/ OPSYNVI

Other Pulmonary Hypertension

Infectious Diseases

EDURANT/rilpivirine

PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA

Other Infectious Diseases

Cardiovascular / Metabolism / Other

XARELTO

—

Other

Total Innovative Medicine Sales

%

%

%

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Innovative Medicine segment sales in the fiscal second quarter of 2026 were $16.4 billion, an increase of 7.8% as compared to the same period a year ago, including an operational increase of 6.8% and a positive currency impact of 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 6.0%, including an operational increase of 3.6% and a positive currency impact of 2.4%. In the fiscal second quarter of 2026, the impact of divestitures on the worldwide Innovative Medicine segment operational sales growth was a negative 0.1%. In the fiscal second quarter of 2026, the negative impact of the STELARA sales decline, due to biosimilar competition, was an approximate 7.6%, 10.4% and 3.6% on worldwide, U.S. and international Innovative Medicine segment operational sales, respectively.

Major Innovative Medicine therapeutic area sales — Fiscal Second Quarter Ended

(Dollars in Millions)

Total

Change

Operations

Change

Currency

Change

Oncology

%

%

%

DARZALEX

CARVYKTI

TECVAYLI

TALVEY

RYBREVANT/ LAZCLUZE

ERLEADA

IMBRUVICA

Other Oncology(1)

Immunology

TREMFYA

SIMPONI/ SIMPONI ARIA

REMICADE

STELARA

Other Immunology

8

*

*

*

Neuroscience

SPRAVATO

CAPLYTA

—

INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA

CONCERTA/ methylphenidate

Other Neuroscience

Pulmonary Hypertension

UPTRAVI

OPSUMIT/ OPSYNVI

Other Pulmonary Hypertension

Infectious Diseases

EDURANT/rilpivirine

PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA

Other Infectious Diseases

Cardiovascular / Metabolism / Other

XARELTO

—

Other

Total Innovative Medicine Sales

%

%

%

*percentage greater than 100% or not meaningful

(1) Includes sales of ZYTIGA which were previously disclosed separately

(2) Acquired with Intra-Cellular Therapies on April 2, 2025

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Oncology products achieved operational sales growth of 16.1% as compared to the same period a year ago. Contributors to the growth were: T3DARZALEX (daratumumab) driven by strong share gains and market growth, CARVYKTI (ciltacabtagene autoleucel) driven by continued share gains and site expansion, T4TECVAYLI (teclistamab-cqyv) driven by launch uptake and share gains from the U.S. TECVAYLI + DARZALEX FASPRO approval and expansion in the community setting, TALVEY (talquetamab-tgvs) driven by share gains from expansion in the community setting, RYBREVANT (amivantamab)/LAZCLUZE (lazertinib) driven by launch uptake and share gains and ERLEADA (apalutamide) due to continued share gains and market growth partially offset by unfavorable patient mix and inventory dynamics. Growth was partially offset by a decline in IMBRUVICA (ibrutinib) sales due to share loss from competitive pressures and unfavorable patient mix.

Immunology products experienced an operational decline of 4.6% as compared to the same period a year ago due to the sales decline of STELARA (ustekinumab) driven by the impact of biosimilar competition, increasing adoption of novel classes and unfavorable patient mix as well as declines of SIMPONI/SIMPONI ARIA (golimumab) and REMICADE (infliximab) driven by share loss, biosimilar competition, and unfavorable patient mix partially offset by market growth. The decline was partially offset by growth of TREMFYA (guselkumab) due to share gains across all indications with significant IBD launch momentum and market growth as well as growth in Other Immunology driven by sales of IMAAVY (nipocalimab) and ICOTYDE (icotrokinra) in the U.S.

The Company expects STELARA biosimilars to continue to negatively impact the Company’s sales of STELARA. Biosimilars for SIMPONI have entered the European market in the second quarter of 2026, with a potential U.S. entrant later in 2026. This will likely result in a reduction in future sales.

Neuroscience products achieved operational growth of 13.4% as compared to the same period a year ago. T5The sales growth of SPRAVATO (esketamine) was driven by continued increased physician and patient demand. Growth of CAPLYTA (lumateperone) was driven by strong continued momentum in the adjunctive treatment of Major Depressive Disorder (aMDD) launch. Growth of INVEGA SUSTENNA / XEPLION / INVEGA TRINZA / TREVICTA was primarily driven by favorable patient mix partially offset by share loss and inventory dynamics.

Pulmonary Hypertension products achieved operational sales growth of 2.2% as compared to the same period a year ago. The sales growth of UPTRAVI (selexipag) was driven by market and share growth partially offset by unfavorable patient mix. The sales growth of OPSUMIT (macitentan)/OPSYNVI (macitentan/tadalafil) was driven by share gains and market growth partially offset by the U.S. inventory burn related to expected generic competition. T6Generic competition for OPSUMIT entered the U.S. market late in the second quarter of 2026, which will likely result in a reduction in future sales.

Infectious disease products experienced an operational sales decline of 6.3% as compared to the same period a year ago. The sales decrease of PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA was driven by declines in share and market partially offset by favorable patient mix.

Cardiovascular / Metabolism / Other products experienced an operational sales decline of 4.7% as compared to the same period a year ago. The sales decline was partially offset by an increase in XARELTO (rivaroxaban) sales primarily driven by favorable patient mix partially offset by continued share erosion.

T7The 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.

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MedTech

The MedTech segment sales in the fiscal six months of 2026 were $17.6 billion, an increase of 6.0% as compared to the same period a year ago, with an operational increase of 4.1% and a positive currency impact of 1.9%. U.S. MedTech sales increased by 4.8%. International MedTech sales increased by 7.3%, including an operational increase of 3.2% and a positive currency impact of 4.1%. In the fiscal six months of 2026, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a negative 0.1%.

Major MedTech franchise sales — Fiscal Six Months Ended

(Dollars in Millions)

Total

Change

Operations

Change

Currency

Change

Cardiovascular

%

%

%

Electrophysiology

Abiomed

Shockwave

Other Cardiovascular

Surgery

Advanced

General

Vision

Contact Lenses/Other

Surgical

Orthopaedics

Hips

Knees

Trauma

Spine, Sports & Other

Total MedTech Sales

%

%

%

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MedTech segment sales in the fiscal second quarter of 2026 were $8.9 billion, an increase of 4.5% as compared to the same period a year ago, which included operational growth of 3.6% and a positive currency impact of 0.9%. U.S. MedTech sales increased by 3.9%. International MedTech sales increased by 5.2%, including operational growth of 3.2% and a positive currency impact of 2.0%. In the fiscal second quarter of 2026, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a negative 0.1%.

Major MedTech franchise sales — Fiscal Second Quarter Ended

(Dollars in Millions)

Total

Change

Operations

Change

Currency

Change

Cardiovascular

%

%

%

Electrophysiology

Abiomed

Shockwave

Other Cardiovascular

Surgery

Advanced

General

Vision

Contact Lenses/Other

Surgical

Orthopaedics

Hips

Knees

Trauma

Spine, Sports & Other

Total MedTech Sales

%

%

%

The Cardiovascular franchise achieved operational sales growth of 3.1% as compared to the prior year fiscal second quarter. Electrophysiology sales growth was driven by procedure growth, commercial execution and new product performance (VARIPULSE, TRUPULSE, NUVISION and CRYSTAL) partially offset by competitive pressures in Pulsed Field Ablation catheters and China inventory dynamics. Abiomed sales decline was driven by lower U.S. procedure volumes partially offset by continued growth outside the U.S. including sustained adoption of Impella 5.5. Shockwave sales growth was driven by strong adoption of Coronary and Peripheral portfolios and new product launches.

The Surgery franchise achieved operational sales growth of 2.3% as compared to the prior year fiscal second quarter. The operational growth in Advanced Surgery was primarily due to the strength of the portfolio and commercial execution in Biosurgery and new product launches in Energy. This was partially offset by China volume-based procurement across all platforms, the impact of the surgery transformation program in Biosurgery and Energy and competitive pressures in Endocutters. The operational growth in General Surgery was primarily driven by technology penetration and upgrades within the differentiated Wound Closure portfolio coupled with market expansion partially offset by China volume-based procurement.

The Vision franchise achieved operational sales growth of 5.6% as compared to the prior year fiscal second quarter. The Contact Lenses/Other operational growth was driven by strong performance in the ACUVUE OASYS 1-Day family of products including recent launches and strategic price actions partially offset by inventory dynamics. The Surgical operational growth was primarily driven by the strength of recent product innovations, robust demand and strong commercial execution partially offset by competitive pressures in the U.S.

The Orthopaedics franchise achieved operational sales growth of 4.2% as compared to the prior year fiscal second quarter. The operational growth in Hips was due to new product launches. The operational growth in Knees was driven by the strength of the ATTUNE portfolio driven in part by pull through related to the VELYS Robotic assisted solutions. The operational growth in Trauma was primarily driven by recently launched products. The operational growth in Spine, Sports & Other was driven by new product innovations as well as growth in shoulders partially offset by competitive pressures and inventory dynamics.

In October 2025, the Company announced its intention to separate its Orthopaedics business. The Company continues to explore multiple paths to effect the planned separation with a targeted completion within 18 to 24 months after the initial announcement.

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Analysis of consolidated earnings before provision for taxes on income

Consolidated earnings before provision for taxes on income for the fiscal six months of 2026 was $12.7 billion representing 25.8% of sales as compared to $20.1 billion in the fiscal six months of 2025, representing 44.1% of sales. Consolidated earnings before provision for taxes on income for the fiscal second quarter of 2026 was $6.7 billion representing 26.7% of sales as compared to $6.5 billion in the fiscal second quarter of 2025, representing 27.3% of sales. The fiscal six months of 2025 includes approximately $7.0 billion related to the talc reserve reversal.

Cost of products sold

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

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

•Operational drivers and favorable currency in the Innovative Medicine and MedTech businesses

partially offset by

•Unfavorable product mix primarily driven by the decline of STELARA sales in the Innovative Medicine business

•T8Impact of tariffs in the MedTech business

The intangible asset amortization expense included in cost of products sold for the fiscal six months of 2026 and 2025 was $2.5 billion and $2.4 billion, respectively.

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

•Operational drivers and favorable currency in the Innovative Medicine and MedTech businesses

partially offset by

•Unfavorable product mix primarily driven by the decline of STELARA sales in the Innovative Medicine business

•Impact of tariffs in the MedTech business

The intangible asset amortization expense included in cost of products sold for the fiscal second quarters of 2026 and 2025 was $1.2 billion and $1.3 billion, respectively.

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Selling, marketing and administrative expenses

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

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

•Commercial investments in the Innovative Medicine and MedTech businesses

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

•Commercial investments in the Innovative Medicine and MedTech businesses

Research and development expense

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

Fiscal Second Quarter Ended

Fiscal Six Months Ended

(Dollars in Millions)

Amount

% of Sales*

Amount

% of Sales*

Amount

% of Sales*

Amount

% of Sales*

Innovative Medicine

%

%

%

%

MedTech

Total research and development expense

%

%

%

%

Percent increase over the prior year

%

%

*As a percent to segment sales

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

•Expense phasing in the Innovative Medicine business

partially offset by

•Increased investment in the Surgery and Cardiovascular businesses in MedTech

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

•Expense phasing in the Innovative Medicine business

partially offset by

•Increased investment in the Surgery and Cardiovascular businesses in MedTech

Interest (income) expense

Interest (income) expense in the fiscal six months of 2026 was net expense of $105 million as compared to net income of $80 million in the fiscal six months of 2025. Interest income in the fiscal six months of 2026 decreased as compared to the prior year, driven by a lower average cash balance earning a lower rate of interest. Interest expense in the fiscal six months of 2026 was higher as compared to the prior year, due to a higher average debt balance. Interest (income) expense in the fiscal second quarter of 2026 was net expense of $62 million as compared to net expense of $48 million in the fiscal second quarter of 2025.

Interest income in the fiscal second quarter of 2026 decreased as compared to the prior year, driven by a lower average cash balance. Interest expense in the fiscal second quarter of 2026 decreased as compared to the prior year, due to a lower average interest rate on the average debt balance. The balance of cash, cash equivalents and current marketable securities was $20.8 billion at the end of the fiscal second quarter of 2026 as compared to $18.9 billion at the end of the fiscal second quarter of 2025. The Company’s debt position was $49.0 billion as of June 28, 2026, as compared to $50.8 billion the same period a year ago.

Other (income) expense, net*

Other (income) expense, net for the fiscal six months of 2026 was an expense of $0.6 billion as compared to $7.2 billion of income in the prior year primarily due to the following:

Fiscal Six Months

(Dollars in Billions)(Income)/Expense

Change

Litigation related(1)

$

Orthopaedics separation related

Employee benefit related

(Gains)/Losses on securities

Acquisition, Integration and Divestiture related

Restructuring related

Other

Total Other (Income) Expense, Net

$

(1)The fiscal six months of 2026 include charges for talc matters of $0.8 billion. The fiscal six months of 2025 include approximately $7.0 billion related to the talc reserve reversal. For additional details related to talc refer to Note 11 to the Consolidated Financial Statements.

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Other (income) expense, net for the fiscal second quarter of 2026 reflected an increase in expense of $0.2 billion as compared to the prior year primarily due to the following:

Fiscal Second Quarter

(Dollars in Billions)(Income)/Expense

Change

Litigation related(1)

$

Orthopaedics separation related

Restructuring related

Employee benefit related

(Gains)/Losses on securities

Acquisition, Integration and Divestiture related

Other

Total Other (Income) Expense, Net

$

(1)The fiscal second quarter of 2026 include charges primarily related to talc matters.

*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 and on sales of assets, certain transactional currency gains and losses, acquisition and divestiture-related costs, litigation accruals and settlements, investment (income)/loss related to employee benefit plans, as well as royalty income.

Segment income before tax

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)

Innovative Medicine

%

%

MedTech

Segment total

(Income) Expenses not allocated to segments(1)

Earnings before provision for taxes on income

%

%

(1)Amounts not allocated to segments include interest (income) expense, certain litigation expenses and general corporate (income) expense. The fiscal six months of 2026 include charges of $0.8 billion related to talc matters. The fiscal six months of 2025 include approximately $7.0 billion related to the talc reserve reversal. For additional details related to talc refer to Note 11 to the Consolidated Financial Statements.

Innovative Medicine segment

The Innovative Medicine segment income before tax as a percent of sales in the fiscal six months of 2026 was 36.4% versus 37.0% 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 2026 as compared to the prior year was primarily driven by the following:

•Restructuring related costs of $0.2 billion in 2026

•Unfavorable product mix in Cost of products sold, primarily driven by the decline of STELARA sales

•Increased commercial investments

partially offset by

•Favorable currency in Cost of products sold

•Lower acquisition and integration costs related to the acquisition of Intra-Cellular (CAPLYTA)

•Favorable changes in the fair value of securities versus the prior year

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•Research & Development expense phasing

MedTech segment

The MedTech segment income before tax as a percent of sales in the fiscal six months of 2026 was 13.8% versus 15.9% 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 2026 was primarily driven by the following:

•T9Orthopaedics separation related costs of $0.4 billion in 2026

•Increased investment in Research and Development

•Increased commercial investments

•Tariffs included in Cost of products sold

partially offset by

•Operational drivers and favorable currency in Cost of products sold

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)

Innovative Medicine

%

%

MedTech

Segment total

(Income)/ Expenses not allocated to segments(1)

Earnings before provision for taxes on income

%

%

(1)Amounts not allocated to segments include interest (income) expense, certain litigation expenses and general corporate (income) expense. The fiscal second quarter of 2026 includes charges of $0.4 billion related to talc matters. For additional details related to talc refer to Note 11 to the Consolidated Financial Statements.

Innovative Medicine segment

The Innovative Medicine segment income before tax as a percent of sales in the fiscal second quarter of 2026 was 38.1% versus 36.5% for the same period a year ago. The increase in the income before tax as a percent of sales for the fiscal second quarter of 2026 as compared to the prior year was primarily driven by the following:

•Favorable changes in the fair value of securities versus the prior year

•Lower acquisition and integration costs in 2026 related to the acquisition of Intra-Cellular (CAPLYTA)

•Phasing of Research and Development expense

partially offset by

•Restructuring related costs of $0.2 billion in 2026

•Unfavorable product mix in Cost of products sold, primarily driven by the decline of STELARA sales

•Increased commercial investments

MedTech segment

The MedTech segment income before tax as a percent of sales in the fiscal second quarter of 2026 was 13.2% versus 14.1% 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 2026 as compared to the prior year was primarily driven by the following:

•Orthopaedics separation related costs of $0.3 billion in 2026

•Increased investment in Research and Development

•Increased commercial investments

•Tariffs included in Cost of products sold

partially offset by

•Operational drivers and favorable currency in Cost of products sold

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Restructuring

In the fiscal second quarter of 2026, T10the Company initiated a supply chain restructuring program primarily in the Innovative Medicine segment to exit certain manufacturing locations as part of its optimization efforts to streamline operations. The program is expected to be substantially complete by the end of 2029 with estimated costs between $650 million and $750 million, and include site and supplier exit costs, decommissioning and asset impairments costs. Restructuring expenses of $200 million, primarily related to asset impairments, were recorded in the fiscal second quarter of 2026.

In fiscal 2025, the company initiated a restructuring program of its Surgery franchise within the MedTech segment to simplify and focus operations by exiting certain non-strategic product lines and optimize select sites across the network. The pre-tax restructuring expense was $59 million in the fiscal second quarter of 2026, of which $31 million was recorded in Restructuring, $4 million in Cost of products sold and $24 million in Other income and expense on the Consolidated Statement of Earnings primarily related to product exits. The pre-tax restructuring expense was $114 million in the fiscal six months of 2026, of which $61 million was recorded in Restructuring, $24 million in Cost of products sold and $29 million in Other income and expense on the Consolidated Statement of Earnings primarily related to product exits.

The pre-tax restructuring expense was $29 million in the fiscal second quarter and fiscal six months of 2025. Total project costs of approximately $0.3 billion have been recorded since the restructuring was announced. The estimated costs of the total program are between $0.6 billion - $0.7 billion and is expected to be substantially completed by the end of fiscal year 2026.

In fiscal 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 was $17 million in the fiscal second quarter of 2026, of which $3 million was recorded in Restructuring, $1 million in Other (Income)/Expense and $13 million in Cost of products sold on the Consolidated Statement of Earnings primarily for costs related to market and product exits. The pre-tax restructuring expense was $24 million in the fiscal six months of 2026, of which $5 million was recorded in Restructuring, $1 million in Other (Income)/Expense and $18 million in Cost of products sold on the Consolidated Statement of Earnings primarily for costs related to market and product exits.

The pre-tax restructuring expense was $50 million in the fiscal second quarter of 2025, of which $35 million was recorded in Restructuring and $15 million in Cost of products sold on the Consolidated Statement of Earnings primarily for costs related to market and product exits. The pre-tax restructuring expense was $105 million in the fiscal six months of 2025, of which $52 million was recorded in Restructuring, $23 million in Cost of products sold and $30 million in Other (Income)/Expense on the Consolidated Statement of Earnings primarily for costs related to asset impairments as well as market and product exits. Total project costs of approximately $0.8 billion have been recorded since the restructuring was announced. This program will be completed as of the fiscal fourth quarter of 2026 at a total project cost of approximately $1.0 billion.

For further details related to the restructuring refer to Note 12 to the Consolidated Financial Statements.

Provision for taxes on income

The worldwide effective income tax rate for the fiscal six months was 15.5% in 2026 and 17.8% in 2025.

For further details related to the fiscal 2026 provision for taxes refer to Note 5 to the Consolidated Financial Statements.

Liquidity and capital resources

Dividends to shareholders

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Cash flows

Cash and cash equivalents were $20.4 billion at the end of the fiscal second quarter of 2026 as compared with $19.7 billion at the end of fiscal year 2025. The primary sources and uses of cash that contributed to the $0.7 billion increase were:

(Dollars In Billions)

Q4 2025 Cash and cash equivalents balance

net cash generated from operating activities

net cash used for investing activities

net cash used for financing activities

$

In addition, the Company had $0.3 billion in marketable securities at the end of the fiscal second quarter of 2026 and $0.4 billion at the end of fiscal year 2025.

Cash flow from operations of $11.1 billion was the result of:

(Dollars In Billions)

$

Net earnings

non-cash expenses and other adjustments primarily for depreciation and amortization, stock-based compensation and asset write-downs partially offset by deferred tax provision and net gain on sale of assets/businesses

an increase in accounts receivable and inventories

a decrease in accounts payable and accrued liabilities

a decrease in other current and non-current assets

a decrease in other current and non-current liabilities

rounding

$

Net cash flows from operations

Cash flow used for investing activities of $2.2 billion was primarily from:

(Dollars In Billions)

$

additions to property, plant and equipment

proceeds from the disposal of assets/businesses, net

acquisitions, net of cash acquired

net sales of investments

credit support agreements activity, net

Other and rounding

$

Net cash used for investing activities

Cash flow used for financing activities of $8.2 billion was primarily from:

(Dollars In Billions)

$

dividends to shareholders

repurchase of common stock

net proceeds from short and long term debt

proceeds from stock options exercised/employee withholding tax on stock awards, net

Other, primarily Auris shareholder payment (described in Note 11), Credit support agreements and rounding

$

Net cash used for financing activities

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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 June 2026, the Company secured a new 364-day Credit Facility of $12.5 billion (expiration on June 23, 2027) which may be used for general corporate purposes including to support 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 28, 2026, the Company had cash, cash equivalents and marketable securities of approximately $20.8 billion and had approximately $49.0 billion of notes payable and long-term debt for a net debt position of $28.2 billion as compared to the prior year fiscal second quarter net debt position of $31.9 billion. 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 of approximately $3.7 billion related to talc matters, $1.7 billion related to the current portion of Corporate bonds due and the remaining approximately $0.9 billion related to opioid settlements. 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.

Dividends

On April 14, 2026, the Board of Directors declared a regular cash dividend of $1.34 per share, payable on June 9, 2026, to shareholders of record as of May 26, 2026.

On July 15, 2026, the Board of Directors declared a regular cash dividend of $1.34 per share, payable on September 8, 2026, to shareholders of record as of August 25, 2026. 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

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, Turkey and Egypt 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.

The long-term implications of regional conflicts on the Company are difficult to predict. The financial impact of known existing conflicts in the fiscal second quarter of 2026 was not material.

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 may be further impacted by the imposition of tariffs, trade protection measures or other policies adopted by any jurisdiction that favor domestic companies and technologies over foreign competitors.

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, may continue to impact the Company’s businesses.

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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.