What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-04 · 108 added, 94 removed, 281 unchanged (42% of the section changed)

26 unchanged sentences

any natural disaster, public health crisis or other catastrophic event;

and the effect of laws and regulations governing government contracts, as well as the possibility that expected benefits related to recent or pending acquisitions may not materialize as expected.

and the effect of laws and regulations governing government contracts, as well as the possibility that expected benefits related to recent or pending acquisitions, including our proposed acquisition of Olink, may not materialize as expected.

The company refers to various amounts or measures not prepared in accordance with generally accepted accounting principles (non-GAAP measures).

6 unchanged sentences

Consolidated Results

Three months ended Six months ended

July 1, July 2, July 1, July 2,

Three months ended Nine months ended

September 30, October 1, September 30, October 1,

(Dollars in millions except per share amounts) 2023 2022 Change 2023 2022 Change

12 unchanged sentences

Organic Revenue Growth

Three months ended Six months ended

July 1, 2023 July 1, 2023

Three months ended Nine months ended

September 30, 2023 September 30, 2023

Revenue growth (1) % (4) %

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Additionally, our pharma services business has provided our pharma and biotech customers with the services they needed to develop and produce vaccines and therapies globally.

Since the company’s acquisition of PPD in December 2021, the clinical research business has continued to play a leading role in supporting the clinical trials for COVID-19 vaccines and therapies.

These positive impacts are expected to continue at much lower levels in 2023 as customer testing as well as therapy and vaccine demand declines.

Sales of products related to COVID-19 testing were $0.08 billion and $0.63 billion in the second quarter of 2023 and 2022, respectively, and $0.22 billion and $2.31 billion in the first six months of 2023 and 2022, respectively.

During the second quarter of 2023, growth was flat from pharma and biotech customers driven by lower demand associated with COVID-19 vaccine and therapies, the impact on customers from a more challenging macroeconomic environment and the slow economic recovery in China.

We saw very strong growth across the academic and government market with great customer adoption of our high-impact innovation.

The industrial and applied market grew slightly, driven by continued strong demand for our analytical instruments serving our semiconductor and materials science customers, partially offset by the impact of a slow economic recovery in China.

Sales of products related to COVID-19 testing were $0.05 billion and $0.44 billion in the third quarter of 2023 and 2022, respectively, and $0.27 billion and $2.75 billion in the first nine months of 2023 and 2022, respectively.

During the third quarter of 2023, growth declined slightly from pharma and biotech customers driven by lower demand associated with COVID-19 vaccine and therapies as well as the continued impact on customers from a more challenging macroeconomic environment and low economic activity in China.

We saw very strong growth from academic and government customers, with strong adoption of our high-impact innovation.

The industrial and applied market was flat, driven by more challenging macroeconomic environment and low economic activity in China.

The diagnostics and healthcare market declined due to decreased demand for COVID-19 testing products.

During the second quarter of 2023, sales growth in North America and Asia Pacific declined, while Europe grew slightly.

During the third quarter of 2023, sales growth in North America and Asia Pacific declined, while Europe grew slightly.

Sales growth in all regions was impacted by decreased demand in 2023 for COVID-19 related products and the impact on customers from a more challenging macroeconomic environment.

Asia Pacific was impacted by the slow economic recovery in China.

Contributions to organic revenue during the second quarter of 2023 from the Laboratory Products and Biopharma Services and Analytical Instruments segments were more than offset by declines in the Life Sciences Solutions and Specialty Diagnostics segments.

During the first six months of 2023, we saw good demand from pharma and biotech customers driven by our trusted partner status, partially offset by the impact on customers from a more challenging macroeconomic environment.

Asia Pacific was impacted by low economic activity in China.

Contributions to organic revenue during the third quarter of 2023 from the Analytical Instruments and Laboratory Products and Biopharma Services segments were more than offset by declines in the Life Sciences Solutions and Specialty Diagnostics segments.

During the first nine months of 2023, we saw slight growth from pharma and biotech customers driven by our trusted partner status, partially offset by the impact on customers from a more challenging macroeconomic environment and low economic activity in China.

We saw broad based strength across the academic and government market.

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The diagnostics and healthcare market declined due to decreased demand for COVID-19 testing products.

During the first six months of 2023, sales growth in all major regions declined due to decreased demand for COVID-19 related products.

Contributions to organic revenue during the first six months of 2023 from the Laboratory Products and Biopharma Services and Analytical Instruments segments were more than offset by declines in the Life Sciences Solutions and Specialty Diagnostics segments.

During the first nine months of 2023, sales growth in all major regions declined due to decreased demand for COVID-19 related products, as well as a challenging macroeconomic environment and low economic activity in China.

Contributions to organic revenue during the first nine months of 2023 from the Laboratory Products and Biopharma Services and Analytical Instruments segments were more than offset by declines in the Life Sciences Solutions and Specialty Diagnostics segments.

The company continues to execute its proven growth strategy which consists of three pillars:

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• Our unparalleled commercial engine.

GAAP operating income margin and adjusted operating income margin decreased in the second quarter and first six months of 2023 due primarily to lower COVID-19 related revenue, strategic growth investments and effects of currency translation.

This was partially offset by strong productivity improvements and strong pricing realization across all segments to address higher inflation.

GAAP operating income margin in the second quarter and first six months of 2023 was also impacted by restructuring and other charges incurred for headcount reductions and facility consolidations in an effort to streamline operations and limit the impact of expected lower revenue (Note 9).

The company’s references to strategic growth investments generally refer to targeted spending for enhancing commercial capabilities, including expansion of geographic sales reach and e-commerce platforms, marketing initiatives, expanded service and operational infrastructure, research and development projects and other expenditures to enhance the customer experience, as well as incentive compensation and recognition for employees.

GAAP operating income margin and adjusted operating income margin increased in the third quarter of 2023 due primarily to exceptionally strong productivity improvements and good price realization, partially offset by lower COVID-19 related revenue.

GAAP operating income margin and adjusted operating income margin decreased in the first nine months of 2023 due primarily to lower COVID-19 related revenue.

This was partially offset by strong productivity improvements and strong pricing realization to address higher inflation.

GAAP operating income margin in the third quarter and first nine months of 2023 was also impacted by restructuring and other charges incurred for headcount reductions and facility consolidations in an effort to streamline operations and limit the impact of expected lower revenue (Note 12).

THERMO FISHER SCIENTIFIC INC.

initiatives, a lower cost structure following restructuring actions including headcount reductions and consolidation of facilities, and low cost region manufacturing.

as well as incentive compensation and recognition for employees.

The company’s references throughout this discussion to productivity improvements generally refer to improved cost efficiencies from its Practical Process Improvement (PPI) business system including reduced costs resulting from implementing continuous improvement methodologies, global sourcing initiatives, a lower cost structure following restructuring actions including headcount reductions and consolidation of facilities, and low cost region manufacturing.

Notable Recent Acquisitions

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The acquisition expands the segment’s portfolio with the addition of pioneering innovation in diagnostics and monitoring for multiple myeloma.

On August 14, 2023, the company acquired, within the Laboratory Products and Biopharma Services segment, CorEvitas, LLC, a U.S.-based provider of regulatory-grade, real-world evidence for approved medical treatments and therapies.

The acquisition expands the segment’s portfolio with the addition of highly complementary real-world evidence solutions to enhance decision-making as well as the time and cost of drug development.

Segment Results

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Accordingly, the following segment data are reported on this basis.

Three months ended Six months ended

July 1, July 2, July 1, July 2,

Three months ended Nine months ended

September 30, October 1, September 30, October 1,

(Dollars in millions) 2023 2022 2023 2022

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Three months ended Organic* (non-GAAP measure)

(Dollars in millions) July 1,

(Dollars in millions) September 30,

2023 October 1,

Change Currency

3 unchanged sentences

Segment income margin 35.9 % 35.1 % 0.8 pt

The decrease in organic revenues in the second quarter of 2023 was primarily due to moderation in COVID-19 related revenue and, to a lesser extent, the impact on customers from a more challenging macroeconomic environment.

The decrease in segment income margin resulted primarily from significantly lower COVID-19 related revenue and business mix.

These decreases were partially offset by very strong productivity improvements.

Six months ended Organic* (non-GAAP measure)

(Dollars in millions) July 1,

The decrease in organic revenues in the third quarter of 2023 was primarily due to moderation in COVID-19 related revenue.

The increase in segment income margin resulted primarily from exceptionally strong productivity improvements, good price realization, and favorable effects of currency translation, partially offset by significantly lower COVID-19 related revenue and business mix.

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

Change Currency

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Segment income margin 33.6 % 43.3 % -9.7 pt

The decrease in organic revenues in the first six months of 2023 was primarily due to moderation in COVID-19 related revenue and, to a lesser extent, the impact on customers from a more challenging macroeconomic environment.

The decrease in segment income margin resulted primarily from significantly lower COVID-19 related revenue and business mix, partially offset by very strong productivity improvements.

The decrease in organic revenues in the first nine months of 2023 was primarily due to moderation in COVID-19 related revenue.

The decrease in segment income margin resulted primarily from significantly lower COVID-19 related revenue and business mix, partially offset by very strong productivity improvements and good price realization.

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Three months ended Organic* (non-GAAP measure)

(Dollars in millions) July 1,

(Dollars in millions) September 30,

2023 October 1,

Change Currency

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Segment income margin 26.7 % 23.8 % 2.9 pt

The increase in organic revenues in the second quarter of 2023 was driven by increased demand across each of the segment’s businesses, with particular strength in the electron microscopy business.

The increase in segment income margin resulted primarily from very strong productivity improvements, strong volume and business mix, offset in part by strategic growth investments and effects of currency translation.

Six months ended Organic* (non-GAAP measure)

(Dollars in millions) July 1,

The increase in organic revenues in the third quarter of 2023 was led by the electron microscopy business.

The increase in segment income margin resulted primarily from very strong productivity improvements, strong volume pull-through, and strong pricing realization to address higher inflation, offset in part by effects of currency translation.

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

Change Currency

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Segment income margin 25.3 % 21.7 % 3.6 pt

The increase in organic revenues in the first six months of 2023 was due to increased demand across all the segment’s businesses, with particular strength in the chromatography and mass spectrometry and electron microscopy businesses.

The increase in segment income margin resulted primarily from strong volume, business mix, and very strong productivity improvements, offset in part by strategic growth investments and effects of currency translation.

The increase in organic revenues in the first nine months of 2023 was due to increased demand across all the segment’s businesses, with particular strength in the electron microscopy and chromatography and mass spectrometry businesses.

The increase in segment income margin resulted primarily from very strong productivity improvements, strong volume, strong pricing realization to address higher inflation, offset in part by the effects of currency translation and strategic growth investments.

Specialty Diagnostics

Three months ended Organic* (non-GAAP measure)

(Dollars in millions) July 1,

(Dollars in millions) September 30,

2023 October 1,

Change Currency

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Segment income margin 26.1 % 20.6 % 5.5 pt

The decrease in organic revenues in the second quarter of 2023 was due to decreased demand, primarily driven by products addressing diagnosis of COVID-19, offset in part by underlying growth in the microbiology, immunodiagnostics and transplant diagnostics businesses.

The impact of lower COVID-19 testing volume on segment income margin was more than offset by business mix and very strong productivity improvements.

Six months ended Organic* (non-GAAP measure)

(Dollars in millions) July 1,

The decrease in organic revenues in the third quarter of 2023 was due to decreased demand, primarily driven by products addressing diagnosis of COVID-19, offset in part by underlying growth in the immunodiagnostics, microbiology and transplant diagnostics businesses.

The increase in segment income margin was due to favorable business mix and very strong productivity improvements, partially offset by the impact of lower COVID-19 testing volume.

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

Change Currency

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Segment income margin 26.1 % 22.4 % 3.7 pt

The decrease in organic revenues in the first six months of 2023 was due to decreased demand, primarily driven by products addressing diagnosis of COVID-19, partially offset by underlying growth in the immunodiagnostics and transplant diagnostics businesses.

The impact of lower COVID-19 testing volume on segment income margin was more than offset by business mix and very strong productivity improvements.

The decrease in organic revenues in the first nine months of 2023 was due to decreased demand, primarily driven by products addressing diagnosis of COVID-19, partially offset by underlying growth in the immunodiagnostics, microbiology and transplant diagnostics businesses.

The increase in segment income margin was due to favorable business mix and very strong productivity improvements, partially offset by the impact of lower COVID-19 testing volume.

THERMO FISHER SCIENTIFIC INC.

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Three months ended Organic* (non-GAAP measure)

(Dollars in millions) July 1,

(Dollars in millions) September 30,

2023 October 1,

Change Currency

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Segment income margin 16.4 % 13.0 % 3.4 pt

The increase in organic revenues in the second quarter of 2023 was primarily due to higher sales in the clinical research and pharma services businesses.

The increase in segment income margin was primarily due to very strong productivity improvements, partially offset by effects of currency translation and strategic growth investments.

Six months ended Organic* (non-GAAP measure)

(Dollars in millions) July 1,

The increase in organic revenues in the third quarter of 2023 was primarily due to higher sales in the pharma services and clinical research businesses.

The increase in segment income margin was primarily due to exceptionally strong productivity improvements and favorable business mix, partially offset by effects of currency translation.

Nine months ended Organic* (non-GAAP measure)

(Dollars in millions) September 30,

2023 October 1,

Change Currency

3 unchanged sentences

Segment income margin 14.7 % 12.3 % 2.4 pt

The increase in organic revenues in the first six months of 2023 was primarily due to higher sales in the pharma services and clinical research businesses.

The increase in organic revenues in the first nine months of 2023 was primarily due to higher sales in the pharma services and clinical research businesses.

The increase in segment income margin was primarily due to very strong productivity improvements.

1 unchanged sentence

Non-operating Items

Three months ended Six months ended

July 1, July 2, July 1, July 2,

Three months ended Nine months ended

September 30, October 1, September 30, October 1,

(Dollars and shares in millions) 2023 2022 2023 2022

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Adjusted other income/(expense) (non-GAAP measure)

(1) 10 (1) 14

GAAP tax rate 3.0 % 1.9 % 3.3 % 8.8 %

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Weighted average diluted shares 388 395 388 395

Net interest expense (interest expense less interest income) increased due primarily to the company’s capital deployment initiatives, which included financing stock buybacks and the acquisition of The Binding Site Group (Note 2).

Net interest expense (interest expense less interest income) increased due primarily to the increase in debt for general corporate purposes and the company’s capital deployment initiatives, which included financing stock buybacks, paying dividends and acquiring The Binding Site Group and CorEvitas, LLC (Note 2).

See additional discussion under the caption “Liquidity and Capital Resources” below.

In the third quarter and first nine months of 2023, the company’s net interest expense was reduced by approximately $34 million and $62 million, respectively, as a result of its interest rate swap and cross-currency interest rate swap arrangements (Note 10).

GAAP other income/(expense) and adjusted other income/(expense) includes currency transaction gains/losses on non-operating monetary assets and liabilities, and net periodic pension benefit cost/income, excluding the service cost component.

GAAP other income/(expense) in the first six months of 2023 also includes $43 million of net losses on investments.

GAAP other income/(expense) in the second quarter and first six months of 2022 also includes $18 million and $(123) million, respectively, of net gains/(losses) on investments.

GAAP other income/expense in the first six months of 2022 also includes $26 million of losses on the early extinguishment of debt (Note 7).

The company’s GAAP and adjusted tax rates decreased in 2023 compared to 2022 primarily due to tax planning initiatives, including a tax benefit of $91 million, net of related tax expenses, from a foreign exchange loss on an intercompany debt refinancing transaction in the second quarter of 2023, as well as a $144 million tax benefit resulting from a capital loss generated in the first quarter of 2023 as part of an intra-entity transaction.

The GAAP and adjusted tax rates in 2023 were also impacted, to a lesser extent, by a decrease in pre-tax earnings compared to 2022.

The company’s GAAP and adjusted tax rates in 2022 were impacted by releases of valuation allowances of $88 million and $175 million in the second quarter and first six months of 2022, respectively, in jurisdictions where the deferred tax assets are now expected to be realized.

GAAP other income/(expense) in the third quarter and first nine months of 2023 also includes $10 million and $(33) million of net gains/(losses) on investments, respectively.

GAAP other income/(expense) in the third quarter and first nine months of 2022 also includes $12 million and $135 million, respectively, of net losses on investments.

GAAP other income/expense in the first nine months of 2022 also includes $26 million of losses on the early extinguishment of debt (Note 7).

The GAAP and adjusted tax rates in 2023 were impacted by the release of a valuation allowance of $183 million in the third quarter of 2023 in jurisdictions where the deferred tax assets are now expected to be realized, and, to a lesser extent, by a decrease in pre-tax earnings compared to 2022.

The company’s GAAP and adjusted tax rates in 2023 were also impacted by tax planning initiatives, including a tax benefit of $91 million, net of related tax expenses, from a foreign exchange loss on an intercompany debt refinancing transaction in the second quarter of 2023, as well as a $144 million tax benefit resulting from a capital loss generated in the first quarter of 2023 as part of an intra-entity transaction.

The company’s GAAP and adjusted tax rates in 2022 were impacted by releases of valuation allowances of $189 million in the first nine months of 2022 in jurisdictions where the deferred tax assets are now expected to be realized.

The company’s 2022 GAAP tax rate was also impacted by a net benefit of $208 million resulting from tax audit settlements in the third quarter of 2022 (Note 5).

THERMO FISHER SCIENTIFIC INC.

The effective tax rates in both 2023 and 2022 were also affected by relatively significant earnings in lower tax jurisdictions.

Due primarily to the non-deductibility of intangible asset amortization for tax purposes, the company’s cash payments for income taxes are higher than its income tax expense for financial reporting purposes and are expected to total approximately $1.40 billion in 2023.

THERMO FISHER SCIENTIFIC INC.

The company expects its GAAP effective tax rate in 2023 will be between 3% and 5% based on currently forecasted rates of profitability in the countries in which the company conducts business and expected generation of foreign tax credits.

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The company deploys its capital primarily via mergers and acquisitions and secondarily via share buybacks and dividends.

(In millions) July 1, 2023 December 31, 2022

(In millions) September 30, 2023 December 31, 2022

Cash and cash equivalents $ 6,151 $ 8,524

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The company believes that its existing cash and cash equivalents and its future cash flow from operations together with available borrowing capacity under its revolving credit agreement will be sufficient to meet the cash requirements of its existing businesses for the foreseeable future, including at least the next 24 months.

As of July 1, 2023, the company’s short-term debt totaled $4.81 billion.

As of September 30, 2023, the company’s short-term debt totaled $4.80 billion.

The company has a revolving credit facility with a bank group that provides up to $5.00 billion of unsecured multi-currency revolving credit (Note 7).

If the company borrows under this facility, it intends to leave undrawn an amount equivalent to outstanding commercial paper to provide a source of funds in the event that commercial paper markets are not available.

As of July 1, 2023, no borrowings were outstanding under the company’s revolving credit facility, although available capacity was reduced by immaterial outstanding letters of credit.

Six months ended

(In millions) July 1, 2023 July 2, 2022

As of September 30, 2023, no borrowings were outstanding under the company’s revolving credit facility, although available capacity was reduced by immaterial outstanding letters of credit.

Nine months ended

(In millions) September 30, 2023 October 1, 2022

Net cash provided by operating activities

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Operating Activities

During the first six months of 2023, cash provided by income was offset in part by investments in working capital.

During the first nine months of 2023, cash provided by income was offset in part by investments in working capital.

Changes in other assets and other liabilities used cash of $1.36 billion primarily due to the timing of payments for compensation and income taxes.

A decrease in accounts payable used cash of $0.74 billion.

Cash payments for income taxes were $0.78 billion during the first six months of 2023.

During the first six months of 2022, cash provided by income was offset in part by investments in working capital.

Cash payments for income taxes were $1.17 billion during the first nine months of 2023.

During the first nine months of 2022, cash provided by income was offset in part by investments in working capital.

An increase in inventories used cash of $1.12 billion, primarily to support growth in sales.

Changes in other assets and other liabilities used cash of $0.74 billion primarily due to the timing of payments for compensation.

Cash payments for income taxes were $0.83 billion during the first six months of 2022.

Changes in other assets and other

THERMO FISHER SCIENTIFIC INC.

liabilities used cash of $0.73 billion primarily due to the timing of payments for compensation.

Cash payments for income taxes were $1.05 billion during the first nine months of 2022.

Investing Activities

During the first six months of 2023, acquisitions used cash of $2.75 billion.

During the first nine months of 2023, acquisitions used cash of $3.66 billion.

The company’s investing activities also included purchases of $1.07 billion of property, plant and equipment for capacity and capability investments.

During the first six months of 2022, acquisitions used cash of $0.04 billion.

During the first nine months of 2022, acquisitions used cash of $0.04 billion.

The company’s investing activities also included purchases of $1.69 billion of property, plant and equipment for capacity and capability investments.

The company expects that for all of 2023, expenditures for property, plant and equipment, net of disposals, will be approximately $1.7 billion.

The company expects that for all of 2023, expenditures for property, plant and equipment, net of disposals, will be between $1.3 billion and $1.5 billion.

Financing Activities

During the first six months of 2023, repayment of senior notes used cash of $1.00 billion.

During the first nine months of 2023, repayment of senior notes and net commercial paper activity used cash of $2.00 billion and $0.32 billion, respectively.

Issuance of debt provided $3.47 billion of cash.

The company’s financing activities also included the repurchase of $3.00 billion of the company’s common stock (5.2 million shares) and the payment of $0.39 billion in cash dividends.

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All of the shares of common stock repurchased by the company during the first quarter of 2023 were under this program.

At August 4, 2023, authorization remained for $1.00 billion of future repurchases of the company’s common stock.

During the first six months of 2022, repayment of senior notes and net commercial paper activity used cash of $0.38 billion and $2.46 billion, respectively.

During the first nine months of 2022, repayment of senior notes and net commercial paper activity used cash of $0.38 billion and $2.46 billion, respectively.

The company’s financing activities also included the repurchase of $2.00 billion of the company’s common stock (3.3 million shares) and the payment of $0.34 billion in cash dividends.

The company’s commitments for purchases of property, plant and equipment, contractual obligations and other commercial commitments did not change materially subsequent to July 1, 2023, except for the agreement to acquire CorEvitas, LLC.

The company’s commitments for purchases of property, plant and equipment, contractual obligations and other commercial commitments did not change materially subsequent to September 30, 2023, except for the agreement to acquire Olink (Note 2).

Non-GAAP Measures

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THERMO FISHER SCIENTIFIC INC.

• The tax impacts of the above items and the impact of significant tax audits or events (such as changes in deferred taxes from enacted tax rate/law changes), the latter of which we exclude because they are outside of our normal operations and difficult to forecast accurately for future periods.

• The noncontrolling interest and tax impacts of the above items and the impact of significant tax audits or events (such as changes in deferred taxes from enacted tax rate/law changes), the latter of which we exclude because they are outside of our normal operations and difficult to forecast accurately for future periods.

We report free cash flow, which is operating cash flow excluding net capital expenditures, to provide a view of the continuing operations’ ability to generate cash for use in acquisitions and other investing and financing activities.

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The non-GAAP financial measures of the company’s results of operations and cash flows included in this Form 10-Q are not meant to be considered superior to or a substitute for the company’s results of operations prepared in accordance with GAAP.

Reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth within the “Overview” and “Results of Operations” sections and below.

Three months ended Six months ended

July 1, July 2, July 1, July 2,

Reconciliations of such non-GAAP financial measures to the most directly comparable GAAP financial measures are set forth within the “Consolidated Results” and “Segment Results” sections and below.

Three months ended Nine months ended

September 30, October 1, September 30, October 1,

(Dollars in millions except per share amounts) 2023 2022 2023 2022

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Restructuring and other costs (c)

183 24 295 26

Amortization of acquisition-related intangible assets 584 594 1,775 1,803

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Equity in earnings/losses of unconsolidated entities 0.04 0.18 0.15 0.36

Noncontrolling interests adjustments (f) (0.05) 0.00 (0.05) 0.00

Adjusted EPS (non-GAAP measure)

1 unchanged sentence

THERMO FISHER SCIENTIFIC INC.

Three months ended Six months ended

July 1, July 2, July 1, July 2,

Three months ended Nine months ended

September 30, October 1, September 30, October 1,

(Dollars in millions except per share amounts) 2023 2022 2023 2022

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$ 2,148 $ 1,394 $ 3,685 $ 3,992

(a) Adjusted results in 2023 and in 2022 exclude charges for the sale of inventories revalued at the date of acquisition.

Adjusted results in the second quarter and first six months of 2023 also exclude $2 million and $33 million, respectively, of inventory write-downs associated with large-scale abandonment of product lines.

Adjusted results in the second quarter of 2023 also excludes $5 million of accelerated depreciation on manufacturing assets to be abandoned due to facility consolidations.

(b) Adjusted results in 2023 and 2022 exclude certain third-party expenses, principally transaction/integration costs related to recent acquisitions and charges/credits for changes in estimates of contingent acquisition consideration.

(a) Adjusted results in 2023 and in 2022 exclude charges for the sale of inventories revalued at the date of acquisition and charges for inventory write-downs associated with large-scale abandonment of product lines.

Adjusted results in the third quarter and first nine months of 2023 also exclude $5 million and $10 million, respectively, of accelerated depreciation on manufacturing assets to be abandoned due to facility consolidations.

(b) Adjusted results in 2023 and 2022 exclude certain third-party expenses, principally transaction/integration costs related to recent acquisitions, charges/credits for changes in estimates of contingent acquisition consideration, and charges associated with product liability litigation.

(c) Adjusted results in 2023 and 2022 exclude restructuring and other costs consisting principally of severance, impairments of long-lived assets, abandoned facility and other expenses of headcount reductions and real estate consolidations.

Adjusted results in the second quarter of 2023 also exclude $26 million of contract termination costs associated with facility closures.

Adjusted results in the first six months of 2023 also exclude $18 million of net charges for pre-acquisition litigation and other matters.

Adjusted results in the third quarter of 2023 also exclude $5 million of net gains on the sale of real estate.

Adjusted results in the first nine months of 2023 also exclude $26 million of contract termination costs associated with facility closures, $18 million of net charges for pre-acquisition litigation and other matters, and $8 million of net gains on the sale of real estate.

(d) Adjusted results in 2023 and 2022 exclude net gains/losses on investments.

Adjusted results in 2022 also exclude $26 million of losses on the early extinguishment of debt.

(e) Adjusted provision for income taxes in 2023 and 2022 excludes incremental tax impacts for the reconciling items between GAAP and adjusted net income, incremental tax impacts as a result of tax rate/law changes and the tax impacts from audit settlements.

Adjusted results in the third quarter of 2022 also exclude a $423 million charge for the impact of deferred tax realizability assessments as a result of audit settlements.

(f) Adjusted results exclude the incremental impacts for the reconciling items between GAAP and adjusted net income attributable to noncontrolling interests.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis and Note 1 to the Consolidated Financial Statements of the company’s Annual Report on Form 10-K for 2022 describe the significant accounting estimates and policies used in preparation of the consolidated financial statements.

There have been no significant changes in the company’s critical accounting policies during the first six months of 2023.

There have been no significant changes in the company’s critical accounting policies during the first nine months of 2023.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis