You can access the conference call by dialing 1-800-343-4136 within the U.S., or +1 203-518-9708 outside the U.S. a few minutes before 8:30 a.m. ET and notifying the operator that you are dialing in for Veralto's earnings conference call (Conference ID: VLTO2Q24). A replay of the conference call will be available shortly after the conclusion of the call until August 9, 2024. You can access the replay dial-in information on the "Investors" section of Veralto's website under the subheading "Events & Presentat ...

[INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS](index=4&type=section&id=INFORMATION%20RELATING%20TO%20FORWARD-LOOKING%20STATEMENTS) This section provides cautionary statements regarding forward-looking information, emphasizing inherent risks and uncertainties PART I [Item 1. Business](index=6&type=section&id=Item%201.%20Business) Veralto Corporation, spun off from Danaher, operates in Water Quality and Product Quality & Innovation segments, safeguarding vital resources with $5.0 billion in 2023 sales [Our Company](index=6&type=section&id=Our%20Company) Veralto, separated from Danaher in September 2023, focuses on water and product quality through two segments, generating 59% recurring sales - Veralto completed its separation from Danaher Corporation on September 30, 2023, and its common stock began 'regular way' trading on the New York Stock Exchange under the ticker symbol 'VLTO' on October 2, 2023[22](index=22&type=chunk) - Veralto's unifying purpose is 'Safeguarding the World's Most Vital Resources,' providing essential technology solutions in water analytics, water treatment, marking and coding, and packaging and color[23](index=23&type=chunk) - The company operates through two segments: Water Quality (WQ) and Product Quality & Innovation (PQI), with approximately **16,000 employees globally** as of December 31, 2023[23](index=23&type=chunk)[24](index=24&type=chunk) - Veralto's business model generates recurring sales, which represented approximately **59% of total sales** during the year ended December 31, 2023[24](index=24&type=chunk) [Water Quality](index=7&type=section&id=Water%20Quality) The Water Quality segment provides analytics and treatment solutions under brands like Hach and Trojan Technologies, ensuring safe water for billions - The Water Quality segment provides comprehensive water analytics and treatment solutions, including proprietary precision instrumentation and advanced water treatment technologies, under leading brands such as Hach, Trojan Technologies, and ChemTreat[27](index=27&type=chunk) - Hach serves over **125,000 customers**, helping ensure safe water for more than **3.4 billion people daily**[32](index=32&type=chunk) - ChemTreat's solutions helped industrial customers save over **80 billion gallons of water** in 2023[32](index=32&type=chunk) - Trojan Technologies' systems support the treatment of **12 trillion gallons of water annually**, improving access to clean water for over **250 million people daily**[32](index=32&type=chunk) [Product Quality & Innovation](index=8&type=section&id=Product%20Quality%20%26%20Innovation) The Product Quality & Innovation segment offers marking, coding, and color solutions through brands like Videojet and Pantone, enabling traceability and quality control - The Product Quality & Innovation segment offers solutions for brand owners and consumer packaged goods companies, enabling speed to market, traceability, and quality control through brands like Videojet, Linx, Esko, X-Rite, and Pantone[30](index=30&type=chunk) - Videojet, the largest operating company within PQI, provides inline printing solutions that help ensure transparency, safety, authenticity, tracking, and traceability for an estimated more than **10 billion codes printed globally daily**[33](index=33&type=chunk) - Esko's design software and imaging systems are used by over **25,000 brands and suppliers** in more than **140 countries**[33](index=33&type=chunk) - Pantone is the preeminent color standard in the design industry, leveraged by over **10 million designers and marketers**[33](index=33&type=chunk) [Sales and Distribution](index=9&type=section&id=Sales%20and%20Distribution) Veralto generated **$5.0 billion** in 2023 sales, with **59% recurring revenue** and **47% from North America**, utilizing third-party distributors for 20% of products - In 2023, Veralto generated **$5.0 billion in sales**, with approximately **59% derived from recurring sources** such as consumables, spare parts, services, and software[34](index=34&type=chunk) 2023 Sales by Geographical Region | Region | % of Total Sales | | :--- | :--- | | North America | 47% | | Western Europe | 22% | | Other Developed Markets | 2% | | High-Growth Markets | 29% | - Approximately **20% of Veralto's technology and equipment products** are distributed through third-party distributors, and no single customer accounted for more than **10% of combined sales** in 2023, 2022, or 2021[35](index=35&type=chunk) [Acquisition Activities](index=9&type=section&id=Acquisition%20Activities) Veralto considers acquisitions a key growth strategy to expand its business through new technologies, products, and geographic reach - Veralto considers acquisitions a key part of its growth strategy, aiming to supplement core growth and expand its business through new technologies, additional products, organizational strength, and geographic breadth[36](index=36&type=chunk) [Sustainability](index=9&type=section&id=Sustainability) Veralto is committed to sustainability, aiming to establish quantitative GHG reduction goals and leveraging its Enterprise System for continuous improvement - Veralto is committed to advancing broad sustainability objectives for its customers through its products and services, such as enabling clean water delivery and reducing packaging waste[37](index=37&type=chunk) - The company intends to establish and publicly communicate quantitative greenhouse gas (GHG) reduction goals, with oversight from its Board's nominating and governance committee and a dedicated Sustainability Council[37](index=37&type=chunk) - Veralto leverages its Veralto Enterprise System (VES) to achieve sustainability goals and facilitate continuous improvement in its sustainability program[37](index=37&type=chunk) [Materials](index=11&type=section&id=Materials) Veralto's manufacturing relies on diverse raw materials, with 2023 supply chain disruptions and cost inflation largely mitigated by VES tools and price increases - Veralto's manufacturing operations utilize a wide variety of raw materials, including metallic-based components, electronic components, chemistries, OEM products, plastics, and petroleum-based products[40](index=40&type=chunk) - Supply chain disruptions, cost inflation, and labor availability constraints continued in 2023 but were largely mitigated through the application of VES tools and price increases, preventing a material adverse effect on profitability[41](index=41&type=chunk) [Russia-Ukraine Conflict](index=11&type=section&id=Russia-Ukraine%20Conflict) The Russia-Ukraine conflict led to suspended shipments to Russia in 2022 and continues to pose risks of increased costs and supply chain disruptions for European operations - In 2022, Veralto suspended product shipments to Russia and recorded a **$1 million pretax charge** related to the impairment of accounts receivable and inventory from Russian operations[42](index=42&type=chunk) - The conflict continues to pose risks, including increased costs and potential production disruptions for Veralto's European manufacturing facilities due to reduced natural gas supply, and adverse impacts on its supply chain and product demand[42](index=42&type=chunk) [Intellectual Property](index=11&type=section&id=Intellectual%20Property) Veralto owns numerous patents, trademarks, and trade secrets important to its operations, and actively litigates to protect its intellectual property rights - The Company owns numerous patents, trademarks, copyrights, trade secrets, and licenses, which are important to its operations, though no single item is considered materially important to any segment or the business as a whole[43](index=43&type=chunk) - Veralto engages in litigation from time to time to protect its intellectual property rights[43](index=43&type=chunk) [Competition](index=11&type=section&id=Competition) Veralto operates in highly competitive markets, maintaining leadership through strong commercial organizations, innovation, and customer focus, competing on price, quality, and service - Veralto operates in highly competitive markets, facing a wide variety of competitors, including regional specialists, large companies, and emerging technology firms[44](index=44&type=chunk) - Management believes Veralto holds a leadership position in many of its served markets, driven by strong commercial organizations, innovation, customer connectivity, and a culture of continuous improvement[24](index=24&type=chunk)[44](index=44&type=chunk) - Key competitive factors include price, quality, performance, delivery speed, application expertise, service and support, technology and innovation, distribution network, breadth of offerings, and brand name recognition[45](index=45&type=chunk) [Human Capital](index=12&type=section&id=Human%20Capital) As of December 31, 2023, Veralto employed approximately **16,000 people globally**, focusing on attracting and retaining diverse talent through its continuous improvement culture - As of December 31, 2023, Veralto had approximately **16,000 employees globally**, with **6,000 in North America**, **5,000 in Western Europe**, and **5,000 in high-growth markets**[46](index=46&type=chunk) - The company's human capital strategy focuses on attracting, developing, engaging, and retaining diverse talent, rooted in the Veralto Enterprise System (VES) culture of continuous improvement[47](index=47&type=chunk)[51](index=51&type=chunk) - Diversity, Equity, and Inclusion initiatives include broadening candidate pools, sourcing diverse slates, and developing leaders' competency, resulting in achieved base pay equity for women and racial/ethnic minorities in the U.S[50](index=50&type=chunk) [Research and Development](index=13&type=section&id=Research%20and%20Development) Veralto conducts R&D globally to develop and enhance products, anticipating significant expenditures to maintain its competitive position through innovation - Veralto conducts R&D activities primarily in North America, Europe, and Asia to develop new products, enhance existing ones, and expand applications[54](index=54&type=chunk) - The company anticipates significant R&D expenditures to maintain and improve its competitive position through continuous innovation[54](index=54&type=chunk) [Government Contracts](index=13&type=section&id=Government%20Contracts) While most 2023 revenue was non-governmental, Veralto sells to government entities and is subject to related regulations, with no material portion subject to renegotiation - While the substantial majority of Veralto's 2023 revenue was from non-governmental entities (less than **2% from the U.S. federal government**), the company has agreements to sell products to government entities and is subject to related statutes and regulations[55](index=55&type=chunk)[118](index=118&type=chunk) - No material portion of Veralto's business is subject to renegotiation of profits or termination of contracts at the election of a government entity[55](index=55&type=chunk) [Regulatory Matters](index=13&type=section&id=Regulatory%20Matters) Veralto is subject to extensive global regulations, including data privacy, environmental, and antitrust laws, with compliance not expected to materially affect its financial position - Veralto is subject to extensive government regulation globally, including data privacy and security laws (e.g., GDPR, California state laws), environmental, health, and safety laws, antitrust laws, and export/import control and economic sanctions laws[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk) - Compliance with these regulations has not had, and is not expected to have, a material effect on Veralto's capital expenditures, earnings, or competitive position[58](index=58&type=chunk) [International Operations](index=14&type=section&id=International%20Operations) In 2023, **57% of Veralto's sales** were from outside the U.S., primarily Europe and Asia, benefiting from geographic diversity for stability and market access - In 2023, approximately **57% of Veralto's sales** were derived from customers outside the U.S., with principal markets in Europe, Asia, and Latin America[63](index=63&type=chunk)[79](index=79&type=chunk) 2023 International Sales Distribution | Region | % of Sales | | :--- | :--- | | North America | 47% | | Western Europe | 22% | | Other Developed Markets | 2% | | High-Growth Markets | 29% | - Geographic diversity provides stability, economies of scale, diversified revenue streams, and access to new markets, particularly high-growth markets[64](index=64&type=chunk) [Properties](index=15&type=section&id=Properties) As of December 31, 2023, Veralto operated approximately **64 principal facilities** across over **40 countries**, including administrative, manufacturing, and R&D sites - As of December 31, 2023, Veralto had approximately **64 principal administrative, sales, research and development, manufacturing, and distribution facilities** in over **40 countries**, with **20 in the United States** and **44 outside**[66](index=66&type=chunk) [Legal Proceedings](index=15&type=section&id=Legal%20Proceedings) Veralto is subject to various litigation and legal proceedings incidental to its business, which are not expected to have a material effect on its financial statements - Veralto is subject to various litigation and other legal and regulatory proceedings and claims incidental to its business[67](index=67&type=chunk) - Based on current information, the company does not believe these proceedings and claims will have a material effect on its business and financial statements[67](index=67&type=chunk) [Item 1A. Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) Veralto faces diverse material risks including adverse global economic conditions, intense competition, operational disruptions, increased debt, and challenges from its Danaher separation [Business and Strategic Risks](index=15&type=section&id=Business%20and%20Strategic%20Risks) Global economic conditions, intense competition, and the need for continuous innovation pose significant business and strategic risks for Veralto, particularly in high-growth markets - Global economic conditions, including military conflicts, inflation, and market volatility, can adversely affect Veralto's business by reducing demand, limiting financing, increasing cancellations, and raising costs[69](index=69&type=chunk) - Intense competition in Veralto's markets may lead to decreased demand, reduced market share, and pricing pressures, potentially impacting financial performance[72](index=72&type=chunk)[74](index=74&type=chunk) - Veralto's growth depends on the timely development, commercialization, and customer acceptance of new and enhanced products based on technological innovation; failure to innovate can lead to obsolescence[75](index=75&type=chunk) - Non-U.S. economic, political, legal, compliance, social, and business factors, particularly in high-growth markets (which account for **57% of 2023 sales**), pose risks such as supply interruptions, currency devaluation, and unexpected regulatory changes[79](index=79&type=chunk) - The COVID-19 pandemic has adversely impacted elements of Veralto's business in the past, and any future resurgence or reinstatement of preventive measures could negatively affect global economies and the company's financial statements[83](index=83&type=chunk) [Acquisition, Divestiture and Investment Risks](index=18&type=section&id=Acquisition%2C%20Divestiture%20and%20Investment%20Risks) Veralto's growth strategy relies on successful acquisitions, which carry financial, operational, and integration risks, including potential unknown liabilities and impairment charges - Veralto's ability to grow depends on successfully identifying, acquiring, and integrating businesses at appropriate prices; an inability to do so could negatively impact its business[84](index=84&type=chunk) - Acquisitions, divestitures, and strategic relationships involve financial, accounting, managerial, and operational risks, including underperformance, significant debt, integration difficulties, and failure to achieve anticipated synergies[85](index=85&type=chunk) - The company may assume unknown liabilities or incur impairment charges for goodwill and other assets as a result of acquisitions and investments[85](index=85&type=chunk) [Operational Risks](index=19&type=section&id=Operational%20Risks) Operational risks for Veralto include IT system disruptions, product defects, catastrophic events, supply chain vulnerabilities, and challenges in retaining talented employees - Significant disruptions or breaches in Veralto's information technology (IT) systems or data, including cyber-attacks, can adversely affect its business and financial statements by interrupting operations, causing data loss, damaging reputation, and incurring legal liabilities[87](index=87&type=chunk) - Defects, unanticipated use, or inadequate disclosure related to Veralto's products or services can lead to personal injury, regulatory violations, recalls, product liability claims, and reputational damage[91](index=91&type=chunk) - Catastrophic events (e.g., fire, flood, cyber-attack, public health crises) affecting facilities, supply chains, distribution systems, or IT systems could seriously harm operations and financial results[93](index=93&type=chunk) - Fluctuations in the cost and availability of supplies and labor, as well as supply chain disruptions, can adversely impact Veralto's financial results and profitability if cost increases cannot be fully recovered through pricing or offset by cost reductions[95](index=95&type=chunk) - Veralto's success depends on its ability to recruit, retain, and motivate talented employees; failure to do so, or labor disputes, could adversely affect its business and financial statements[99](index=99&type=chunk) [Intellectual Property Risks](index=22&type=section&id=Intellectual%20Property%20Risks) Inadequate protection of intellectual property or third-party infringement claims can lead to competitive injury, significant litigation expenses, or restrictions on product sales - If Veralto is unable to adequately protect its intellectual property (IP) rights, or if third parties infringe them, the company may suffer competitive injury or expend significant resources on enforcement, particularly in countries with weaker IP protection[101](index=101&type=chunk)[102](index=102&type=chunk) - Claims from third parties alleging IP infringement or misappropriation can result in significant litigation expenses, losses, licensing costs, or restrictions on selling products or services[105](index=105&type=chunk) [Financial and Tax Risks](index=23&type=section&id=Financial%20and%20Tax%20Risks) Veralto faces financial risks from increased debt post-separation, potential goodwill impairment, foreign currency fluctuations, and changes in tax rates or laws - Veralto's outstanding debt increased significantly to approximately **$2.6 billion** as of December 31, 2023, following its separation from Danaher, which may limit operations, cash flow, and negatively impact credit ratings[106](index=106&type=chunk) - The company may be required to recognize impairment charges for its goodwill and other intangible assets, which totaled approximately **$3.0 billion** (net carrying value) as of December 31, 2023, adversely affecting financial statements[109](index=109&type=chunk) - Foreign currency exchange rate fluctuations can adversely affect Veralto's financial statements, impacting sales, costs, and the translation of non-U.S. business earnings into U.S. dollars[110](index=110&type=chunk)[111](index=111&type=chunk) - Changes in tax rates, exposure to additional income tax liabilities or assessments (including from audits), and changes in tax law relating to multinational corporations (e.g., Pillar Two legislation) could affect Veralto's earnings and tax position[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) [Legal, Regulatory, Compliance and Reputational Risks](index=26&type=section&id=Legal%2C%20Regulatory%2C%20Compliance%20and%20Reputational%20Risks) Extensive global regulations, litigation, and environmental liabilities expose Veralto to fines, penalties, operating restrictions, and reputational damage - Veralto's businesses are subject to extensive regulation (e.g., environmental, health, safety, export/import, government contracts); failure to comply can result in fines, penalties, operating restrictions, and reputational harm[117](index=117&type=chunk)[118](index=118&type=chunk) - The company is subject to various litigation and other legal and regulatory proceedings, which can divert management attention, incur significant expenses, and result in damage awards or settlements[119](index=119&type=chunk) - Veralto's operations, products, and services expose it to environmental, health, and safety liabilities, costs, and violations, including those related to hazardous materials and past waste disposal practices[121](index=121&type=chunk) [Separation and Our Relationship with Danaher Risks](index=30&type=section&id=Separation%20and%20Our%20Relationship%20with%20Danaher%20Risks) Veralto faces unique risks post-separation from Danaher, including loss of prior benefits, uncapped indemnification liabilities, potential taxability of the separation, and competition from Danaher - As an independent, publicly traded company, Veralto may not enjoy the same benefits (e.g., operating diversity, purchasing power, brand identity) it did as part of Danaher[133](index=133&type=chunk) - Veralto has potential uncapped indemnification liabilities to Danaher under the separation agreement, which could materially and adversely affect its business and financial statements[134](index=134&type=chunk) - There is a risk that the separation and/or distribution could be deemed taxable for U.S. federal income tax purposes, potentially incurring significant tax liabilities for Danaher, its stockholders, and Veralto[136](index=136&type=chunk) - Veralto is subject to significant restrictions for a two-year period after the distribution on its ability to engage in certain corporate transactions (e.g., acquisitions, mergers, stock sales) to preserve the tax-free status of the separation[138](index=138&type=chunk) - Certain executive officers and directors may have actual or potential conflicts of interest due to their equity interests in Danaher or dual board memberships[139](index=139&type=chunk) - Danaher is not restricted from competing with Veralto, which could adversely affect Veralto's business[140](index=140&type=chunk) [Item 1B. Unresolved Staff Comments](index=32&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) Veralto Corporation has no unresolved comments from the SEC staff - The company has no unresolved staff comments[142](index=142&type=chunk) [Item 1C. Cybersecurity](index=32&type=section&id=Item%201C.%20Cybersecurity) Veralto employs a risk-based cybersecurity program, overseen by the Board's Audit Committee, with no material impact from threats on its business or financial condition [Risk Management and Strategy](index=32&type=section&id=Risk%20Management%20and%20Strategy) Veralto implements a risk-based cybersecurity program aligned with NIST, featuring incident response and continuous monitoring, with no material impact from threats - Veralto takes a risk-based approach to cybersecurity, implementing policies designed to address threats and incidents, aligned with its enterprise risk management program[143](index=143&type=chunk)[144](index=144&type=chunk) - The company's cybersecurity strategy is guided by prioritized risk, identified areas for improvement based on the National Institute for Standards and Technology (NIST) Cybersecurity Framework, and emerging business needs[146](index=146&type=chunk) - Veralto maintains a global incident response plan and continuous monitoring program, with escalation processes to senior leadership and the Board[146](index=146&type=chunk)[147](index=147&type=chunk) - Cybersecurity threats, including any previous incidents, have not materially affected Veralto's business strategy, results of operations, or financial condition[149](index=149&type=chunk) [Governance](index=33&type=section&id=Governance) Veralto's Board, through its Audit Committee, oversees cybersecurity risks, with the CISO reporting quarterly on risk assessment and management - The Board of Directors oversees Veralto's risk management process, including cybersecurity risks, directly and through its Audit Committee[150](index=150&type=chunk) - The Chief Information Security Officer (CISO), with over **25 years of experience**, is responsible for leading cybersecurity risk assessment and management, reporting to the Board, Audit Committee, and management quarterly or as needed[151](index=151&type=chunk) [Item 2. Properties](index=33&type=section&id=Item%202.%20Properties) As of December 31, 2023, Veralto operated approximately **60 principal facilities** across over **40 countries**, including administrative, sales, research and development, manufacturing, and distribution sites - As of December 31, 2023, Veralto had facilities in over **40 countries**, comprising approximately **60 principal administrative, sales, research and development, manufacturing, and distribution facilities**[152](index=152&type=chunk) - Of these facilities, **20 are located in the United States** (across over **10 states**) and **40 are located outside the United States**, primarily in Europe, and to a lesser extent in Latin America, Asia, and Canada[152](index=152&type=chunk) [Item 3. Legal Proceedings](index=33&type=section&id=Item%203.%20Legal%20Proceedings) Veralto is subject to various legal proceedings incidental to its business. The company discloses environmental proceedings with governmental entities if monetary sanctions of **$1 million or more** are reasonably believed to result - Veralto is, from time to time, subject to a variety of litigation and other legal and regulatory proceedings and claims incidental to its business[67](index=67&type=chunk)[153](index=153&type=chunk) - The company discloses environmental proceedings with a governmental entity as a party where it reasonably believes such proceeding would result in monetary sanctions, exclusive of interest and costs, of **$1 million or more**[153](index=153&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Veralto Corporation - This item is not applicable[154](index=154&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=34&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Veralto's common stock trades on the NYSE under VLTO, with **1,493 holders of record** as of February 16, 2024, and its first quarterly dividend of **$0.09 per share** paid in January 2024 - Veralto's common stock is traded on the New York Stock Exchange under the ticker symbol 'VLTO'[4](index=4&type=chunk)[156](index=156&type=chunk) - As of February 16, 2024, there were **1,493 holders of record** of Veralto's common stock[156](index=156&type=chunk) - The company declared its first dividend of **$0.09 per share** on December 20, 2023, which was paid on January 31, 2024, to holders of record as of December 29, 2023[157](index=157&type=chunk) [Item 6. [Reserved]](index=34&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Veralto's 2023 revenues increased **3.1% to $5.021 billion**, with net earnings slightly down to **$839 million** due to higher operating expenses and post-separation costs, while operating cash flow rose **11% to $963 million** [BASIS OF PRESENTATION](index=35&type=section&id=BASIS%20OF%20PRESENTATION) Veralto's financial statements are prepared under U.S. GAAP, presented on a carve-out basis pre-separation and consolidated post-separation, excluding Danaher allocations - Veralto's financial statements are prepared in accordance with U.S. GAAP[161](index=161&type=chunk) - Prior to the September 30, 2023 Separation, the financial statements were derived from Danaher's records on a carve-out basis, including allocations of certain general, administrative, sales, marketing, and cost of sales expenses[161](index=161&type=chunk) - Following the Separation, the Consolidated Financial Statements include Veralto's accounts and those of its wholly-owned subsidiaries, no longer including allocations from Danaher[162](index=162&type=chunk) [OVERVIEW](index=36&type=section&id=OVERVIEW) Veralto, a multinational business with **57% of 2023 sales** from outside the United States, achieved **3.1% revenue growth** in 2023, with net earnings slightly decreasing due to post-separation costs - Veralto is a multinational business with global operations, with approximately **57% of its 2023 sales** derived from customers outside the United States, benefiting from geographic and industry diversity[163](index=163&type=chunk) - Consolidated revenues for 2023 increased **3.1%** compared to 2022, with core sales increasing **2.6%**[165](index=165&type=chunk) 2023 Geographic Sales Growth (YoY) | Region | Sales Growth | | :--- | :--- | | Developed Markets | 4.3% | | North America | 4.1% | | Western Europe | 5.8% | | High-Growth Markets | Flat (due to low double-digit declines in China) | Net Earnings and Diluted EPS (2022 vs. 2023) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Earnings (in millions) | $839 | $845 | | Diluted EPS | $3.40 | $3.43 | - The decrease in net earnings in 2023 was driven by higher operating expenses, standalone public company costs, and interest expense post-separation from Danaher[168](index=168&type=chunk) - For 2024, Water Quality expects continued growth in North America, Western Europe, and Latin America, partially offset by weakness in China, while Product Quality & Innovation anticipates stabilization in the consumer packaged goods market with modest recovery in the second half[169](index=169&type=chunk)[170](index=170&type=chunk) [RESULTS OF OPERATIONS](index=37&type=section&id=RESULTS%20OF%20OPERATIONS) Veralto's 2023 sales grew **3.1% to $5.021 billion**, with Water Quality core sales up **5.1%** and Product Quality & Innovation core sales down **1.0%**, while gross profit margins improved to **57.8%** Sales Growth and Core Sales Growth (2023 vs. 2022) | Metric | 2023 vs. 2022 | | :--- | :--- | | Total sales growth GAAP | 3.1 % | | Impact of: Acquisitions/divestitures | (0.3)% | | Impact of: Currency exchange rates | (0.2)% | | Core sales growth (non-GAAP) | 2.6 % | Sales by Business Segment (in millions) | Segment | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Water Quality | $3,039 | $2,887 | $2,669 | | Product Quality & Innovation | $1,982 | $1,983 | $2,031 | | **Total** | **$5,021** | **$4,870** | **$4,700** | - Cost of sales increased **$10 million (0.5%)** in 2023 compared to 2022, primarily due to higher labor costs partially offset by lower material costs[180](index=180&type=chunk) Gross Profit and Gross Profit Margin | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Gross profit (in millions) | $2,901 | $2,760 | $2,713 | | Gross profit margin | 57.8 % | 56.7 % | 57.7 % | - Gross profit margins increased **110 basis points** in 2023, driven by positive pricing actions and lower material costs, partially offset by foreign currency exchange rates and higher labor costs[181](index=181&type=chunk) Operating Expenses as a Percentage of Sales | Expense Type | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | SG&A as a % of sales | 30.6 % | 29.4 % | 30.4 % | | R&D as a % of sales | 4.5 % | 4.5 % | 5.2 % | - SG&A expenses as a percentage of sales increased **120 basis points** in 2023 due to investments in sales and marketing, intangible asset impairments (**$12 million in 2023 vs. $9 million in 2022**), increased labor costs, and standalone public company costs[182](index=182&type=chunk)[183](index=183&type=chunk) - Operating profit margins were **22.7%** in 2023, slightly down from **22.8%** in 2022, unfavorably impacted by Argentine Peso devaluation (**55 bps**), net impairment charges (**20 bps**), and separation costs (**15 bps**), but favorably impacted by higher core sales (**45 bps**) and 2022 impairment reversals (**20 bps**)[184](index=184&type=chunk) Water Quality Segment Sales Growth and Core Sales Growth (2023 vs. 2022) | Metric | 2023 vs. 2022 | | :--- | :--- | | Total sales growth GAAP | 5.3 % | | Impact of: Acquisitions/divestitures | — % | | Impact of: Currency exchange rates | (0.2)% | | Core sales growth (non-GAAP) | 5.1 % | - Water Quality core sales increased **5.1% year-over-year** in 2023, with price increases contributing **5.4% sales growth**[188](index=188&type=chunk) - Geographic core sales growth was driven by North America (**6.9%**), Western Europe (**4.9%**), and high-growth markets (**2.9%**), despite high single-digit decreases in China[189](index=189&type=chunk) Product Quality & Innovation Segment Sales Growth (Decline) and Core Sales Growth (Decline) (2023 vs. 2022) | Metric | 2023 vs. 2022 | | :--- | :--- | | Total sales growth (decline) GAAP | — % | | Impact of: Acquisitions/divestitures | (0.7)% | | Impact of: Currency exchange rates | (0.3)% | | Core sales (decline) growth (non-GAAP) | (1.0)% | - Product Quality & Innovation core sales decreased **1.0% year-over-year** in 2023, with price increases contributing **2.0% sales growth**[195](index=195&type=chunk) - Core sales declined in North America (**1.9%**) and high-growth markets (**1.0%**, driven by China), while Western Europe grew **0.3%**[196](index=196&type=chunk) - Nonoperating income (expense) in 2023 included a **$15 million impairment charge** related to an equity method investment[197](index=197&type=chunk) - Interest expense was **$30 million** for 2023, compared to **$0 million** in 2022, due to the company incurring debt for the first time post-separation[198](index=198&type=chunk) Effective Income Tax Rate | Year | Effective Tax Rate | | :--- | :--- | | 2023 | 23.4 % | | 2022 | 24.1 % | | 2021 | 17.8 % | - Comprehensive income increased by **$61 million** in 2023 compared to 2022, primarily driven by foreign currency translation gains (**$29 million**) offset by unrealized losses on a net investment hedge (**$14 million**)[207](index=207&type=chunk)[261](index=261&type=chunk) [FINANCIAL INSTRUMENTS AND RISK MANAGEMENT](index=43&type=section&id=FINANCIAL%20INSTRUMENTS%20AND%20RISK%20MANAGEMENT) Veralto manages interest rate and foreign currency risks, with a **100 basis point interest rate increase** impacting fixed-rate debt by **$149 million** and a **10% currency depreciation** impacting equity by **$171 million** - Veralto manages interest cost using a mixture of fixed-rate and variable-rate debt; a **100 basis point increase in interest rates** would have decreased the fair value of its fixed-rate long-term debt by approximately **$149 million** as of December 31, 2023[209](index=209&type=chunk) - The company is exposed to transactional and translational foreign currency exchange rate risks; a **10% depreciation in major currencies** relative to the U.S. dollar as of December 31, 2023, would have reduced foreign currency-denominated net assets and equity by approximately **$171 million**[210](index=210&type=chunk)[212](index=212&type=chunk) - Veralto's credit risk is limited due to the diversity of its customers and its practice of placing cash and temporary investments with high-quality financial institutions[214](index=214&type=chunk)[215](index=215&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=44&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Veralto's operating cash flow increased **11% to $963 million** in 2023, with **$762 million in cash and equivalents**, deemed sufficient to fund operations, acquisitions, and debt servicing Cash Flows (in millions) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total operating cash flows | $963 | $870 | $896 | | Net cash used in investing activities | $(55) | $(89) | $(97) | | Net cash used in financing activities | $(135) | $(781) | $(799) | - Operating cash flows increased **$93 million (11%)** in 2023, primarily due to significant decreases in cash used for working capital and the impact of deferred income taxes[223](index=223&type=chunk) - Net cash used in investing activities decreased in 2023 primarily due to lower cash paid for acquisitions[223](index=223&type=chunk) - Net cash used in financing activities decreased significantly in 2023 due to lower transfers to the Former Parent compared to the prior period[223](index=223&type=chunk) - Veralto's Board authorized a quarterly dividend of **$0.09 per share ($22 million total)** on December 20, 2023, which was paid on January 31, 2024; no dividends were paid in 2023[221](index=221&type=chunk) - As of December 31, 2023, Veralto held **$762 million in cash and cash equivalents**, with **$217 million in the U.S.** and **$545 million outside the U.S.**[222](index=222&type=chunk) - The company believes its operating cash flow and other liquidity sources will be sufficient to fund its operating and investing activities, including strategic acquisitions, debt servicing, and future pension plan contributions (forecasted **$6 million for 2024**)[217](index=217&type=chunk)[222](index=222&type=chunk)[226](index=226&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=46&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) Critical accounting estimates include acquired intangibles, contingent liabilities, income taxes, and pre-separation corporate allocations, requiring significant judgment and fair value assessments - Critical accounting estimates include acquired intangibles (goodwill, customer relationships, developed technology), contingent liabilities, income taxes, and corporate allocations (pre-separation)[231](index=231&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk)[241](index=241&type=chunk) - Goodwill impairment testing involves estimating the fair value of reporting units using a market-based approach; in 2023, all reporting units' fair values exceeded their carrying values (excess ranging from **150% to 750%**)[232](index=232&type=chunk)[233](index=233&type=chunk) - Contingent liabilities are recognized when a loss is probable and reasonably estimable, requiring judgment on litigation outcomes and claim costs[236](index=236&type=chunk) - Income tax estimates involve deferred tax assets and liabilities, unrecognized tax benefits, and are subject to changes in tax laws, interpretations, and audit outcomes[237](index=237&type=chunk)[238](index=238&type=chunk)[240](index=240&type=chunk) [NEW ACCOUNTING STANDARDS](index=48&type=section&id=NEW%20ACCOUNTING%20STANDARDS) Veralto early adopted ASU 2023-05 and ASU 2022-03 with no significant impact, and is assessing ASU 2023-09 and ASU 2023-07 for future fiscal years - Veralto early adopted ASU 2023-05 (Joint Venture Formations) effective September 30, 2023, and ASU 2022-03 (Fair Value Measurement of Equity Securities) effective July 1, 2022, with no significant impact[305](index=305&type=chunk)[306](index=306&type=chunk) - The company is currently assessing the impact of ASU 2023-09 (Improvements to Income Tax Disclosures) and ASU 2023-07 (Improvements to Reportable Segment Disclosures), both effective for fiscal years beginning after December 15, 2024[303](index=303&type=chunk)[304](index=304&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item's required information is incorporated by reference from the 'Financial Instruments and Risk Management' section within Item 7 - The information required by this item is included under 'Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations,' specifically the 'Financial Instruments and Risk Management' section[243](index=243&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=49&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Veralto's audited consolidated and combined financial statements for 2021-2023, with an unqualified audit opinion from Ernst & Young LLP, highlighting goodwill impairment as a critical audit matter [Report of Independent Registered Public Accounting Firm](index=49&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Ernst & Young LLP issued an unqualified audit opinion for Veralto's 2023 financial statements, identifying goodwill impairment testing as a critical audit matter due to subjective judgments - Ernst & Young LLP served as Veralto's auditor since 2022 and issued an unqualified opinion on the consolidated and combined financial statements for the period ended December 31, 2023[245](index=245&type=chunk)[254](index=254&type=chunk) - A critical audit matter identified was goodwill impairment testing, which involved challenging and subjective judgments in determining the fair value of reporting units, particularly regarding valuation methodology and the identification of peer companies and comparable market transactions[251](index=251&type=chunk)[252](index=252&type=chunk) [CONSOLIDATED AND COMBINED BALANCE SHEETS](index=51&type=section&id=CONSOLIDATED%20AND%20COMBINED%20BALANCE%20SHEETS) Veralto's balance sheet as of December 31, 2023, shows **$5.693 billion in total assets**, including **$2.533 billion in goodwill**, and **$2.629 billion in long-term debt** post-separation Consolidated and Combined Balance Sheet Highlights (in millions) | Metric | As of December 31, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Cash and equivalents | $762 | $— | | Total current assets | $2,073 | $1,280 | | Goodwill | $2,533 | $2,476 | | Other intangible assets, net | $427 | $479 | | Total assets | $5,693 | $4,825 | | Total current liabilities | $1,265 | $1,123 | | Long-term debt | $2,629 | $— | | Total equity | $1,389 | $3,240 | | Total liabilities and equity | $5,693 | $4,825 | [CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS](index=52&type=section&id=CONSOLIDATED%20AND%20COMBINED%20STATEMENTS%20OF%20EARNINGS) Veralto reported **$5.021 billion in sales** and **$839 million in net earnings** for 2023, with diluted EPS of **$3.40**, reflecting slight decreases from 2022 Consolidated and Combined Statements of Earnings Highlights (in millions, except per share amounts) | Metric | Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | | :--- | :--- | :--- | :--- | | Sales | $5,021 | $4,870 | $4,700 | | Gross profit | $2,901 | $2,760 | $2,713 | | Operating profit | $1,140 | $1,112 | $1,041 | | Net earnings | $839 | $845 | $861 | | Diluted Net Earnings Per Common Share | $3.40 | $3.43 | $3.50 | [CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME](index=53&type=section&id=CONSOLIDATED%20AND%20COMBINED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) Veralto's comprehensive income increased to **$839 million** in 2023, driven by foreign currency translation gains, partially offset by unrealized losses on a net investment hedge Consolidated and Combined Statements of Comprehensive Income (in millions) | Metric | Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | | :--- | :--- | :--- | :--- | | Net earnings | $839 | $845 | $861 | | Foreign currency translation adjustments | $29 | $(100) | $(88) | | Pension and postretirement plan benefit adjustments | $(15) | $33 | $15 | | Unrealized loss on net investment hedge | $(14) | $— | $— | | Total other comprehensive income (loss), net of income taxes | $— | $(67) | $(73) | | **Comprehensive income** | **$839** | **$778** | **$788** | [CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY](index=54&type=section&id=CONSOLIDATED%20AND%20COMBINED%20STATEMENTS%20OF%20EQUITY) As of December 31, 2023, Veralto had **246.3 million common shares outstanding**, with significant equity changes due to the **$2.6 billion consideration** paid to Danaher during the separation - As of December 31, 2023, Veralto had **246.3 million common shares outstanding**[264](index=264&type=chunk) - Key changes in equity during 2023 included a **$2.6 billion consideration** paid to Former Parent in connection with the Separation, net transfers of **$147 million** to Former Parent, and a **$22 million common stock dividend** declared[264](index=264&type=chunk) - Noncash adjustments to Former Parent's investment, net, resulted in a **$2,114 million increase** in Additional Paid-In Capital and a corresponding decrease in Net Former Parent investment[264](index=264&type=chunk) [CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS](index=55&type=section&id=CONSOLIDATED%20AND%20COMBINED%20STATEMENTS%20OF%20CASH%20FLOWS) Veralto's operating cash flow increased **11% to $963 million** in 2023, while net cash used in investing and financing activities decreased significantly due to lower acquisitions and transfers to Danaher Consolidated and Combined Statements of Cash Flows (in millions) | Metric | Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $963 | $870 | $896 | | Net cash used in investing activities | $(55) | $(89) | $(97) | | Net cash used in financing activities | $(135) | $(781) | $(799) | | Ending balance of cash and equivalents | $762 | $— | $— | - Net cash provided by operating activities increased by **$93 million (11%)** in 2023, primarily due to significant decreases in cash used for working capital and the impact of deferred income taxes[223](index=223&type=chunk)[266](index=266&type=chunk) - Net cash used in investing activities decreased in 2023 primarily due to lower cash paid for acquisitions[223](index=223&type=chunk)[266](index=266&type=chunk) - Net cash used in financing activities decreased by **$646 million** in 2023, primarily due to significantly lower net transfers to Former Parent[223](index=223&type=chunk)[266](index=266&type=chunk) [NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS](index=56&type=section&id=NOTES%20TO%20CONSOLIDATED%20AND%20COMBINED%20FINANCIAL%20STATEMENTS) [NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=56&type=section&id=NOTE%201.%20BUSINESS%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details Veralto's September 2023 separation from Danaher, its two segments, basis of financial presentation, key accounting policies, and the non-material impact of new accounting standard adoptions - Veralto completed its separation from Danaher Corporation on September 30, 2023, involving a recapitalization of **100 shares into 246,291,342 common shares** and a **$2.6 billion cash payment** to Danaher[268](index=268&type=chunk)[270](index=270&type=chunk) - The company operates through two segments: Water Quality and Product Quality & Innovation, focused on safeguarding vital resources[271](index=271&type=chunk) - Financial statements for periods prior to separation are presented on a carve-out basis from Danaher's records, while post-separation statements are consolidated and do not include Danaher allocations[272](index=272&type=chunk) - Revenue is recognized when control of products or services transfers to customers, with recurring revenue from consumables, services, and operating-type leases, and nonrecurring revenue from equipment and sales-type leases[286](index=286&type=chunk)[320](index=320&type=chunk) - Veralto early adopted ASU 2023-05 (Joint Venture Formations) effective September 30, 2023, and ASU 2022-03 (Fair Value Measurement of Equity Securities) effective July 1, 2022, with no significant impact[305](index=305&type=chunk)[306](index=306&type=chunk) - ASU 2021-08 and ASU 2020-06 also had no significant impact[307](index=307&type=chunk)[308](index=308&type=chunk) [NOTE 2. ACQUISITIONS](index=62&type=section&id=NOTE%202.%20ACQUISITIONS) Veralto views acquisitions as a key growth strategy, making no acquisitions in 2023 but acquiring five businesses in 2021-2022 for a total of **$115 million**, contributing to goodwill and intangible assets - Veralto continually evaluates potential acquisitions that strategically fit or expand its portfolio, viewing them as a key part of its growth strategy[309](index=309&type=chunk) - There were no acquisitions for the year ended December 31, 2023[311](index=311&type=chunk) - In 2022, Veralto acquired three businesses for **$55 million in cash**, recording **$38 million in goodwill** and **$18 million in intangible assets**, complementing its Product Quality & Innovation segment[312](index=312&type=chunk) - In 2021, the company acquired two businesses for **$60 million in cash**, recording **$48 million in goodwill** and **$12 million in intangible assets**, complementing both of its segments[313](index=313&type=chunk) [NOTE 3. CAPITAL STOCK AND NET EARNINGS PER COMMON SHARE](index=63&type=section&id=NOTE%203.%20CAPITAL%20STOCK%20AND%20NET%20EARNINGS%20PER%20COMMON%20SHARE) As of December 31, 2023, Veralto's authorized capital stock included **1.0 billion common shares** and **15 million preferred shares**. On September 29, 2023, **100 shares of common stock** were recapitalized into **246.3 million shares**. Diluted earnings per common share for 2023 was **$3.40**, compared to **$3.43** in 2022 and **$3.50** in 2021 - As of December 31, 2023, Veralto's authorized capital stock consisted of **1.0 billion common shares ($0.01 par value)** and **15 million preferred shares ($0.01 par value)**[314](index=314&type=chunk) - On September 29, 2023, **100 shares of Veralto common stock** held by Danaher were recapitalized into **246,291,342 shares of Veralto common stock**[314](index=314&type=chunk) Net Earnings Per Common Share (in millions, except per share amounts) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net earnings | $839 | $845 | $861 | | Weighted average common shares outstanding used in Diluted EPS | 246.8 | 246.3 | 246.3 | | Diluted EPS | $3.40 | $3.43 | $3.50 | [NOTE 4. REVENUE](index=64&type=section&id=NOTE%204.%20REVENUE) In 2023, Veralto's total revenue reached **$5,021 million**, with recurring revenue accounting for **$2,954 million (59%)**. North America was the largest geographical contributor at **$2,353 million (47%)**, followed by Western Europe (**$1,120 million, 22%**) and high-growth markets (**$1,430 million, 29%**). Lease revenue for 2023 was **$86 million**. As of December 31, 2023, remaining performance obligations totaled approximately **$290 million**, with **42%** expected to be recognized within the next 12 months Revenue by Type (in millions) | Revenue Type | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Recurring | $2,954 | $2,859 | $2,660 | | Nonrecurring | $2,067 | $2,011 | $2,040 | | **Total** | **$5,021** | **$4,870** | **$4,700** | Revenue by Geographical Region (2023, in millions) | Region | Water Quality | Product Quality & Innovation | Total | | :--- | :--- | :--- | :--- | | North America | $1,694 | $659 | $2,353 | | Western Europe | $536 | $584 | $1,120 | | Other developed markets | $65 | $53 | $118 | | High-growth markets | $744 | $686 | $1,430 | | **Total** | **$3,039** | **$1,982** | **$5,021** | - Lease revenue was **$86 million** in 2023, an increase from **$69 million** in 2022 and **$61 million** in 2021[320](index=320&type=chunk) - As of December 31, 2023, remaining performance obligations totaled approximately **$290 million**, with about **42%** expected to be recognized as revenue over the next 12 months[322](index=322&type=chunk) - Contract liabilities were approximately **$223 million** as of December 31, 2023, up from **$206 million** in 2022[323](index=323&type=chunk) [NOTE 5. SEGMENT INFORMATION](index=65&type=section&id=NOTE%205.%20SEGMENT%20INFORMATION) This note provides detailed financial data for Veralto's two segments: Water Quality and Product Quality & Innovation. In 2023, Water Quality generated **$3,039 million in sales** and **$730 million in operating profit**, while Product Quality & Innovation generated **$1,982 million in sales** and **$472 million in operating profit**. The United States was the largest single country for sales, contributing **$2,177 million** in 2023 Segment Sales (in millions) | Segment | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Water Quality | $3,039 | $2,887 | $2,669 | | Product Quality & Innovation | $1,982 | $1,983 | $2,031 | | **Total** | **$5,021** | **$4,870** | **$4,700** | Segment Operating Profit (in millions) | Segment | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Water Quality | $730 | $668 | $584 | | Product Quality & Innovation | $472 | $488 | $496 | | Other | $(62) | $(44) | $(39) | | **Total** | **$1,140** | **$1,112** | **$1,041** | Identifiable Assets by Segment (as of December 31, 2023, in millions) | Segment | Identifiable Assets | | :--- | :--- | | Water Quality | $2,508 | | Product Quality & Innovation | $2,289 | | Other | $896 | | **Total** | **$5,693** | Sales by Country (in millions) | Country | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | United States | $2,177 | $2,094 | $1,890 | | China | $356 | $395 | $416 | | Germany | $257 | $251 | $273 | [NOTE 6. INCOME TAXES](index=67&type=section&id=NOTE%206.%20INCOME%20TAXES) Veralto's effective income tax rate for 2023 was **23.4%**, compared to **24.1%** in 2022 and **17.8%** in 2021. The 2023 rate was primarily influenced by non-U.S. earnings, state taxes, and net discrete tax benefits from stock-based compensation. As of December 31, 2023, gross unrecognized tax benefits totaled **$97 million**. The company evaluated the Inflation Reduction Act and concluded it does not have a material impact on its financial statements Earnings from Operations Before Income Taxes (in millions) | Region | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | United States | $484 | $528 | $432 | | Non-U.S. | $612 | $585 | $615 | | **Total** | **$1,096** | **$1,113** | **$1,047** | Effective Income Tax Rate | Year | Effective Tax Rate | | :--- | :--- | | 2023 | 23.4 % | | 2022 | 24.1 % | | 2021 | 17.8 % | - The 2023 effective tax rate was principally influenced by non-U.S. earnings taxed at different rates, state taxes, and net discrete tax benefits of **$12 million** primarily from stock-based compensation[201](index=201&type=chunk)[331](index=331&type=chunk) - As of December 31, 2023, gross unrecognized tax benefits totaled **$97 million** (**$82 million net** of indirect tax benefits and potential interest/penalties)[339](index=339&type=chunk) - The company evaluated the impact of the Inflation Reduction Act (IRA) and concluded that it does not have a material impact on its Consolidated Financial Statements[338](index=338&type=chunk) [NOTE 7. NONOPERATING INCOME (EXPENSE)](index=71&type=section&id=NOTE%207.%20NONOPERATING%20INCOME%20%28EXPENSE%29) In 2023, Veralto's other income (expense), net, was **$(14) million**, primarily due to a **$15 million impairment charge** related to an equity method investment. In 2021, the company recognized an **$8 million pretax gain** from the sale of certain product lines Other Income (Expense), Net (in millions) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Other components of net periodic benefit costs | $1 | $1 | $(2) | | Unrealized investment gains (losses) | $(15) | $— | $— | | Gains on sale of product lines | $— | $— | $8 | | **Total other income (expense), net** | **$(14)** | **$1** | **$6** | - During 2023, Veralto recorded a **$15 million impairment charge** related to an equity method investment[346](index=346&type=chunk) - In 2021, the company divested certain product lines, recognizing an **$8 million pretax gain** on sale[347](index=347&type=chunk) [NOTE 8. LEASES](index=71&type=section&id=NOTE%208.%20LEASES) Veralto holds operating leases for various facilities and equipment. Total operating lease expense for 2023 was **$55 million**. As of December 31, 2023, operating lease Right-of-Use (ROU) assets were **$144 million**, and total operating lease liabilities were **$148 million**, with a weighted average remaining lease term of **8 years** and a weighted average discount rate of **4.1%** Operating Lease Expenses (in millions) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Fixed operating lease expense | $43 | $40 | $45 | | Variable operating lease expense | $12 | $13 | $13 | | **Total operating lease expense** | **$55** | **$53** | **$58** | - As of December 31, 2023, operating lease ROU assets were **$144 million**, and total operating lease liabilities were **$148 million**[350](index=350&type=chunk) - The weighted average remaining lease term for operating leases was **8 years**, and the weighted average discount rate was **4.1%** as of December 31, 2023[350](index=350&type=chunk) Maturity of Operating Lease Liabilities (as of December 31, 2023, in millions) | Year | Amount | | :--- | :--- | | 2024 | $38 | | 2025 | $29 | | 2026 | $22 | | 2027 | $17 | | 2028 | $13 | | Thereafter | $56 | | **Total operating lease payments** | **$175** | [NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS](index=72&type=section&id=NOTE%209.%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) Goodwill totaled **$2,533 million** as of December 31, 2023. Veralto performs annual goodwill impairment tests, and no impairment charges were recorded in 2023, 2022, or 2021, with reporting unit fair values significantly exceeding carrying values. However, impairment charges of **$12 million** in 2023 and **$9 million** in 2022 were recorded for certain long-lived intangible assets. Total intangible amortization expense was **$48 million** in 2023, with an estimated **$30 million** for 2024 - Goodwill totaled **$2,533 million** as of December 31, 2023[355](index=355&type=chunk) - No goodwill impairment charges were recorded for the years ended December 31, 2023, 2022, and 2021, as the fair values of all reporting units exceeded their carrying values[354](index=354&type=chunk) - Impairment charges totaling **$12 million** in 2023 and **$9 million** in 2022 were recorded for certain long-lived intangible assets (technology, customer relationships, trade names)[356](index=356&type=chunk) Total Intangible Amortization Expense (in millions) | Year | Amortization Expense | | :--- | :--- | | 2023 | $48 | | 2022 | $50 | | 2021 | $62 | - Estimated amortization expense for 2024 is approximately **$30 million**[357](index=357&type=chunk) [NOTE 10. FAIR VALUE MEASUREMENTS](index=74&type=section&id=NOTE%2010.%20FAIR%20VALUE%20MEASUREMENTS) Veralto's financial instruments include cash, receivables, payables, and debt. Deferred compensation liabilities, measured at fair value on a recurring basis, totaled **$23 million** as of December 31, 2023. The fair value of long-term debt was **$2,710 million**, compared to a carrying amount of **$2,629 million**, as of December 31, 2023 - Deferred compensation liabilities, measured at fair value on a recurring basis (Level 1 inputs), totaled **$23 million** as of December 31, 2023, and **$22 million** as of December 31, 2022[359](index=359&type=chunk) Long-term Debt Carrying Amount and Fair Value (as of December 31, 2023, in millions) | Metric | Carrying Amount | Fair Value | | :--- | :--- | :--- | | Long-term debt | $2,629 | $2,710 | - The fair value of long-term borrowings was based on quoted market prices and categorized as Level 1[362](index=362&type=chunk) [NOTE 11. ACCRUED EXPENSES AND OTHER LIABILITIES](index=75&type=section&id=NOTE%2011.%20ACCRUED%20EXPENSES%20AND%20OTHER%20LIABILITIES) As of December 31, 2023, Veralto's total accrued expenses and other liabilities were **$1,244 million**, comprising **$834 million in current liabilities** and **$410 million in noncurrent liabilities**. Significant components include compensation and benefits (**$228 million**), taxes, income and other (**$324 million**), and deferred revenue (**$223 million**) Accrued Expenses and Other Liabilities (as of December 31, 2023, in millions) | Category | Current | Noncurrent | Total | | :--- | :--- | :--- | :--- | | Compensation and benefits | $184 | $44 | $228 | | Pension and postretirement benefits | $6 | $30 | $36 | | Taxes, income and other | $139 | $185 | $324 | | Deferred revenue | $208 | $15 | $223 | | Sales and product allowances | $27 | $— | $27 | | Operating lease liabilities | $33 | $115 | $148 | | Other | $237 | $21 | $258 | | **Total** | **$834** | **$410** | **$1,244** | [NOTE 12. FINANCING](index=75&type=section&id=NOTE%2012.%20FINANCING) In September 2023, Veralto issued approximately **$2.1 billion in USD senior unsecured notes** and **€500 million in Euro notes**, resulting in **$2,629 million in long-term debt** as of December 31, 2023. The proceeds were paid to Danaher as consideration for asset contribution during the separation. Additionally, the company entered into a **$1.5 billion unsecured revolving credit facility**, with no outstanding amounts as of year-end 2023 Long-term Debt (as of December 31, 2023, in millions) | Description | Outstanding Amount | | :--- | :--- | | 5.50% senior unsecured notes due 9/18/2026 | $696 | | 5.35% senior unsecured notes due 9/18/2028 | $695 | | 4.15% senior unsecured notes due 9/19/2031 | $546 | | 5.45% senior unsecured notes due 9/18/2033 | $692 | | **Total Long-term debt** | **$2,629** | - In September 2023, Veralto issued approximately **$2.1 billion in USD senior unsecured notes** and **€500 million in Euro notes**, with proceeds of approximately **$2.6 billion** paid to Danaher in connection with the Separation[218](index=218&type=chunk)[367](index=367&type=chunk)[371](index=371&type=chunk) - The company entered into a **$1.5 billion unsecured revolving credit facility** on August 31, 2023, which had no outstanding amounts as of December 31, 2023[373](index=373&type=chunk) Minimum Principal Payments for Long-term Debt (in millions) | Year | Amount | | :--- | :--- | | 2024 | $— | | 2025 | $— | | 2026 | $700 | | 2027 | $— | | 2028 | $700 | | Thereafter | $1,233 | [NOTE 13. HEDGING TRANSACTIONS](index=77&type=section&id=NOTE%2013.%20HEDGING%20TRANSACTIONS) Veralto uses foreign currency-denominated long-term debt as a nonderivative hedging instrument to partially hedge its net investment in foreign operations against adverse exchange rate movements. As of December 31, 2023, the notional amount outstanding for this hedge was **$546 million**, with a **$19 million loss** recognized in accumulated other comprehensive income (OCI) for the year - Veralto uses foreign currency-denominated long-term debt as a partial hedge of its net investment in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro[212](index=212&type=chunk)[378](index=378&type=chunk) - As of December 31, 2023, the notional amount outstanding for this hedging instrument was **$546 million**, and a **$19 million loss** was recognized in accumulated other comprehensive income (OCI) for the year[379](index=379&type=chunk) [NOTE 14. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS](index=77&type=section&id=NOTE%2014.%20PENSION%20AND%20OTHER%20POSTRETIREMENT%20EMPLOYEE%20BENEFIT%20PLANS) As of December 31, 2023, Veralto's noncontributory defined benefit pension plans had a funded status deficit of **$36 million**, with a benefit obligation of **$(171) million** and plan assets of **$135 million**. The net periodic pension cost for 2023 was **$(4) million**. The company expects to contribute approximately **$6 million** to its pension plans in 2024, and total pension expense for all plans was **$52 million** in 2023 Funded Status of Pension Plans (as of December 31, in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Bene