Unleash InnovationTSMC,Ltd02023TSMC PropertyUnleash Innovation2023 Third Quarter Earnings Conference October 19,2023Unleash InnovationTSMC,Ltd12023TSMC PropertyAgendaWelcomeJeff Su,IR Director3Q23 Financial Results and 4Q23 OutlookWendell Huang,CFOKey Messages Wendell Huang,CFO C.C.Wei,CEOQ&AUnleash InnovationTSMC,Ltd22023TSMC PropertySafe Harbor NoticeTSMCs statements of its current expectations are forward-looking statements subject to significant risks and uncertainties and actual results may differ materially from those contained in the forward-looking statements.Information as to those factors that could cause actual results to vary can be found in TSMCs 2022 Annual Report on Form 20-F filed with the United States Securities and Exchange Commission(the“SEC”)on April 20,2023 and such other documents as TSMC may file with,or submit to,the SEC from time to time.Except as required by law,we undertake no obligation to update any forward-looking statement,whether as a result of new information,future events,or otherwise.Unleash InnovationTSMC,Ltd32023TSMC PropertyStatements of Comprehensive IncomeSelected Items from Statements of Comprehensive Income 3Q23(In NT$billions unless otherwise noted)GuidanceNet Revenue(US$billions)17.2816.7-17.515.6820.23 10.2%-14.6%Net Revenue546.73480.84613.14 13.7%-10.8%Gross Margin54.3Q.5%-53.5T.1.4% 0.2 ppt-6.1 pptsOperating Expenses(68.70)(58.19)(60.19) 18.1% 14.2%Operating Margin41.78%-40B.0P.6%-0.3 ppt-8.9 pptsNon-Operating Items13.8712.726.37 9.1% 117.9%Net Income to Shareholders of the Parent Company211.00181.80280.87 16.1%-24.9%Net Profit Margin38.67.8E.8% 0.8 ppt-7.2 pptsEPS(NT Dollar)8.147.0110.83 16.1%-24.9%ROE25.8#.2B.9% 2.6 ppts-17.1 pptsShipment(Kpcs,12-equiv.Wafer)2,9022,9163,974-0.5%-27.0%Average Exchange Rate-USD/NTD31.6430.8030.6730.32 3.2% 4.4%*Diluted weighted average outstanding shares were 25,929mn units in 3Q23*ROE figures are annualized based on average equity attributable to shareholders of the parent company3Q232Q233Q223Q23 Over 2Q233Q23 Over 3Q22Unleash InnovationTSMC,Ltd42023TSMC Property3Q23 Revenue by TechnologyUnleash InnovationTSMC,Ltd52023TSMC Property3Q23 Revenue by PlatformSmartphoneAutomotiveOthersHPCIoTDCEUnleash InnovationTSMC,Ltd62023TSMC PropertyBalance Sheets&Key IndicesSelected Items from Balance Sheets(In NT$billions)Amount%Amount%Amountsh&Marketable Securities1,551.32 28.3%1,489.96 28.9%1,498.87 32.3counts Receivable222.83 4.11.033.7&1.545.6%Inventories262.094.8#4.334.6!8.344.7%Long-term Investments116.352.1.611.8u.801.6%Net PP&E3,132.66 57.1%2,947.23 57.2%2,411.49 51.9%Total Assets5,484.56 100.0%5,149.47 100.0%4,643.30 100.0%Current Liabilities970.0417.70.8315.87.4317.4%Long-term Interest-bearing Debts937.4917.17.3217.65.4418.2%Total Liabilities2,111.74 38.5%1,944.00 37.8%1,890.99 40.7%Total Shareholders Equity3,372.82 61.5%3,205.47 62.2%2,752.31 59.3%Key IndicesA/R Turnover DaysInventory Turnover DaysCurrent Ratio(x)Asset Productivity(x)*Total outstanding shares were 25,932mn units at 9/30/23*Asset productivity=Annualized net revenue/Average net PP&E963Q232Q233Q2235323699902.12.42.50.70.71.1Unleash InnovationTSMC,Ltd72023TSMC PropertyCash Flows(In NT$billions)3Q232Q233Q22Beginning Balance1,276.721,385.231,253.19Cash from operating activities294.65167.25412.70Capital expenditures(226.62)(250.53)(265.97)Cash dividends(71.30)(71.30)(71.30)Short-term loans 0.000.00(116.01)Bonds payable9.8040.7059.65Investments and others28.565.3723.75Ending Balance1,311.811,276.721,296.01Free Cash Flow68.03(83.28)146.73*Free cash flow =Cash from operating activities Capital expenditures*Unleash InnovationTSMC,Ltd82023TSMC Property4Q23 GuidanceRevenue to be between US$18.8 billion and US$19.6 billionBased on our current business outlook,management expects:And,based on the exchange rate assumption of 1 US dollar to 32 NT dollars,management expects:Gross profit margin to be between 51.5%and 53.5%Operating profit margin to be between 39.5%and 41.5%Unleash InnovationTSMC,Ltd92023TSMC PropertyPlease visit TSMCs website(https:/)and Market Observation Post System(https:/.tw)for details and other announcementsTSMC Announces Breakthrough Set to Redefine the Future of 3D IC.New 3Dblox 2.0 and 3DFabric Alliance Achievements Were Detailed at 2023 OIP Ecosystem Forum(2023/09/28)TSMC Accelerates Renewable Energy Adoption and Moves RE100 Target Forward to 2040(2023/09/15)TSMC Board of Directors Approved the Purchase of 10%Equity Interest in IMS Nanofabrication Global,LLC from Intel Corporation for an Amount Not Exceeding US$432.8 Million(2023/09/12)TSMC Board of Directors Approved an Investment in Arm Holdings plc in an Amount Not Exceeding US$100 Million Based on Arms Share Price at IPO(2023/09/12)MediaTek Successfully Develops First Chip Using TSMCs 3nm Process,Set for Volume Production in 2024(2023/09/07)TSMC,Bosch,Infineon,and NXP Establish Joint Venture European Semiconductor Manufacturing Company(ESMC)to Bring Advanced Semiconductor Manufacturing to Europe(2023/08/08)TSMC Board of Directors Approved NT$3.00 Cash Dividend for the Second Quarter of 2023 and Set December 14 as the Ex-Dividend Date,December 20 as the Record Date and January 11,2024 as the Distribution Date(2023/08/08)TSMC Inaugurates Global R&D Center,Celebrating Its Newest Hub for Technology Innovation(2023/07/28)Recap of Recent Major EventsUnleash InnovationTSMC,Ltd102023TSMC Propertyhttps:/
2024-01-05
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COMPANY PROFILE公司簡介BYD Company Limited(“BYD”or“the Company”,together with its subsidiaries,“the Grou.
2024-01-04
111页
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Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no respons.
2024-01-04
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)xQUARTERLY REP.
2024-01-02
41页
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K id UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)QUARTERL.
2024-01-02
38页
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30,2023OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO .Commission File No.1-10635NIKE,Inc.(Exact name of Registrant as specified in its charter)Oregon93-0584541(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)One Bowerman Drive,Beaverton,Oregon 97005-6453(Address of principal executive offices and zip code)(503)671-6453(Registrants telephone number,including area code)SECURITIES REGISTERED PURSUANT TO SECTION 12(B)OF THE ACT:Class B Common StockNKENew York Stock Exchange(Title of each class)(Trading symbol)(Name of each exchange on which registered)Indicate by check mark:YESNOwhether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for thepast 90 days.whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growth company.See the definitions of large accelerated filer,accelerated filer,smaller reporting company,and emerging growth company in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filer Non-accelerated filerSmaller reporting companyEmerging growth companyif an emerging growth company,if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a)of the Exchange Act.whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).As of December 28,2023,the number of shares of the Registrants Common Stock outstanding were:Class A297,897,252 Class B1,217,224,816 1,515,122,068 Table of ContentsNIKE,INC.FORM 10-QTABLE OF CONTENTSPAGEPART I-FINANCIAL INFORMATION1ITEM 1.Financial Statements1Unaudited Condensed Consolidated Statements of Income1Unaudited Condensed Consolidated Statements of Comprehensive Income2Unaudited Condensed Consolidated Balance Sheets3Unaudited Condensed Consolidated Statements of Cash Flows4Unaudited Condensed Consolidated Statements of Shareholders Equity5Notes to the Unaudited Condensed Consolidated Financial Statements7ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations23ITEM 3.Quantitative and Qualitative Disclosures about Market Risk43ITEM 4.Controls and Procedures43PART II-OTHER INFORMATION45ITEM 1.Legal Proceedings45ITEM 1A.Risk Factors45ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds46ITEM 5.Other Information47ITEM 6.Exhibits48Signatures49Table of ContentsPART I-FINANCIAL INFORMATIONITEM 1.FINANCIAL STATEMENTSNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOMETHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(In millions,except per share data)2023202220232022Revenues$13,388$13,315$26,327$26,002 Cost of sales7,417 7,604 14,636 14,676 Gross profit5,971 5,711 11,691 11,326 Demand creation expense1,114 1,102 2,183 2,045 Operating overhead expense3,032 3,022 6,079 5,999 Total selling and administrative expense4,146 4,124 8,262 8,044 Interest expense(income),net(22)16(56)29 Other(income)expense,net(75)(79)(85)(225)Income before income taxes1,922 1,650 3,570 3,478 Income tax expense344 319 542 679 NET INCOME$1,578$1,331$3,028$2,799 Earnings per common share:Basic$1.04$0.85$1.99$1.79 Diluted$1.03$0.85$1.97$1.77 Weighted average common shares outstanding:Basic1,520.8 1,559.0 1,524.6 1,563.1 Diluted1,532.1 1,572.4 1,537.7 1,579.1 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.1Table of ContentsNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMETHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)2023202220232022Net income$1,578$1,331$3,028$2,799 Other comprehensive income(loss),net of tax:Change in net foreign currency translation adjustment39 354 75 128 Change in net gains(losses)on cash flow hedges(55)(401)(189)154 Change in net gains(losses)on other1(30)4(41)Total other comprehensive income(loss),net of tax(15)(77)(110)241 TOTAL COMPREHENSIVE INCOME$1,563$1,254$2,918$3,040 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.2Table of ContentsNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETSNOVEMBER 30,MAY 31,(In millions)20232023ASSETSCurrent assets:Cash and equivalents$7,919$7,441 Short-term investments2,008 3,234 Accounts receivable,net4,782 4,131 Inventories7,979 8,454 Prepaid expenses and other current assets1,943 1,942 Total current assets24,631 25,202 Property,plant and equipment,net5,153 5,081 Operating lease right-of-use assets,net2,943 2,923 Identifiable intangible assets,net269 274 Goodwill281 281 Deferred income taxes and other assets3,926 3,770 TOTAL ASSETS$37,203$37,531 LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt$Notes payable6 6 Accounts payable2,709 2,862 Current portion of operating lease liabilities456 425 Accrued liabilities5,470 5,723 Income taxes payable358 240 Total current liabilities8,999 9,256 Long-term debt8,930 8,927 Operating lease liabilities2,785 2,786 Deferred income taxes and other liabilities2,343 2,558 Commitments and contingencies(Note 11)Redeemable preferred stock Shareholders equity:Common stock at stated value:Class A convertible 298 and 305 shares outstanding Class B 1,219 and 1,227 shares outstanding3 3 Capital in excess of stated value12,871 12,412 Accumulated other comprehensive income(loss)121 231 Retained earnings1,151 1,358 Total shareholders equity14,146 14,004 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$37,203$37,531 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.3Table of ContentsNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022Cash provided(used)by operations:Net income$3,028$2,799 Adjustments to reconcile net income to net cash provided(used)by operations:Depreciation382 342 Deferred income taxes(144)(150)Stock-based compensation402 364 Amortization,impairment and other(12)137 Net foreign currency adjustments(43)(125)Changes in certain working capital components and other assets and liabilities:(Increase)decrease in accounts receivable(649)(878)(Increase)decrease in inventories493(948)(Increase)decrease in prepaid expenses,operating lease right-of-use assets and other current and non-currentassets(394)(239)Increase(decrease)in accounts payable,accrued liabilities,operating lease liabilities and other current and non-current liabilities(312)56 Cash provided(used)by operations2,751 1,358 Cash provided(used)by investing activities:Purchases of short-term investments(2,206)(3,500)Maturities of short-term investments1,477 1,951 Sales of short-term investments2,072 1,972 Additions to property,plant and equipment(458)(500)Other investing activities(10)54 Cash provided(used)by investing activities875(23)Cash provided(used)by financing activities:Increase(decrease)in notes payable,net(3)Proceeds from exercise of stock options and other stock issuances327 260 Repurchase of common stock(2,331)(2,550)Dividends common and preferred(1,047)(960)Other financing activities(100)(68)Cash provided(used)by financing activities(3,151)(3,321)Effect of exchange rate changes on cash and equivalents3(98)Net increase(decrease)in cash and equivalents478(2,084)Cash and equivalents,beginning of period7,441 8,574 CASH AND EQUIVALENTS,END OF PERIOD$7,919$6,490 Supplemental disclosure of cash flow information:Non-cash additions to property,plant and equipment$165$124 Dividends declared and not paid565 526 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.4Table of ContentsNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITYCOMMON STOCKCAPITAL INEXCESSOF STATEDVALUEACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS)RETAINEDEARNINGSTOTALCLASS ACLASS B(In millions,except per share data)SHARESAMOUNTSHARESAMOUNTBalance at August 31,2023298$1,226$3$12,590$136$1,242$13,971 Stock options exercised2 106 106 Repurchase of Class B Common Stock(12)(99)(1,110)(1,209)Dividends on common stock($0.370 per share)(565)(565)Issuance of shares to employees,net of shareswithheld for employee taxes3 68 6 74 Stock-based compensation206 206 Net income1,578 1,578 Other comprehensive income(loss)(15)(15)Balance at November 30,2023298$1,219$3$12,871$121$1,151$14,146 COMMON STOCKCAPITAL INEXCESSOF STATEDVALUEACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS)RETAINEDEARNINGSTOTALCLASS ACLASS B(In millions,except per share data)SHARESAMOUNTSHARESAMOUNTBalance at August 31,2022305$1,259$3$11,648$636$3,535$15,822 Stock options exercised1 69 69 Repurchase of Class B Common Stock(17)(123)(1,484)(1,607)Dividends on common stock($0.340 per share)(526)(526)Issuance of shares to employees,net of shareswithheld for employee taxes2 63 3 66 Stock-based compensation194 194 Net income1,331 1,331 Other comprehensive income(loss)(77)(77)Balance at November 30,2022305$1,245$3$11,851$559$2,859$15,272 COMMON STOCKCAPITAL INEXCESSOF STATEDVALUEACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS)RETAINEDEARNINGSTOTALCLASS ACLASS B(In millions,except per share data)SHARESAMOUNTSHARESAMOUNTBalance at May 31,2023305$1,227$3$12,412$231$1,358$14,004 Stock options exercised4 212 212 Conversion to Class B Common Stock(7)7 Repurchase of Class B Common Stock(22)(184)(2,157)(2,341)Dividends on common stock($0.710 per share)and preferred stock($0.10 per share)(1,084)(1,084)Issuance of shares to employees,net of shareswithheld for employee taxes3 29 6 35 Stock-based compensation402 402 Net income3,028 3,028 Other comprehensive income(loss)(110)(110)Balance at November 30,2023298$1,219$3$12,871$121$1,151$14,146 5Table of ContentsCOMMON STOCKCAPITAL INEXCESSOF STATEDVALUEACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS)RETAINEDEARNINGSTOTALCLASS ACLASS B(In millions,except per share data)SHARESAMOUNTSHARESAMOUNTBalance at May 31,2022305$1,266$3$11,484$318$3,476$15,281 Stock options exercised3 149 149 Repurchase of Class B Common Stock(26)(189)(2,409)(2,598)Dividends on common stock($0.645 per share)and preferred stock($0.10 per share)(1,008)(1,008)Issuance of shares to employees,net of shareswithheld for employee taxes2 43 1 44 Stock-based compensation364 364 Net income2,799 2,799 Other comprehensive income(loss)241 241 Balance at November 30,2022305$1,245$3$11,851$559$2,859$15,272 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.6Table of ContentsNOTES TO THE UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTSNOTE 1Summary of Significant Accounting Policies8NOTE 2Accrued Liabilities9NOTE 3Fair Value Measurements9NOTE 4Income Taxes11NOTE 5Stock-Based Compensation11NOTE 6Earnings Per Share12NOTE 7Risk Management and Derivatives13NOTE 8Accumulated Other Comprehensive Income(Loss)16NOTE 9Revenues18NOTE 10Operating Segments20NOTE 11Contingencies22NOTE 12Acquisitions and Divestitures22NOTE 13Subsequent Events227Table of ContentsNOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBASIS OF PRESENTATIONThe Unaudited Condensed Consolidated Financial Statements include the accounts of NIKE,Inc.and its subsidiaries(the Company or NIKE)and reflect all normalrecurring adjustments which are,in the opinion of management,necessary for a fair statement of the results of operations for the interim period.The year-end CondensedConsolidated Balance Sheet data as of May 31,2023,was derived from audited financial statements,but does not include all disclosures required by accountingprinciples generally accepted in the United States of America(U.S.GAAP).The interim financial information and notes thereto should be read in conjunction with theCompanys latest Annual Report on Form 10-K for the fiscal year ended May 31,2023(the Annual Report).The results of operations for the three and six months endedNovember 30,2023,are not necessarily indicative of results to be expected for the entire fiscal year.RECENTLY ISSUED ACCOUNTING STANDARDSIn November 2023,the Financial Accounting Standards Board(the FASB)issued Accounting Standards Update(ASU)2023-07,Segment Reporting(Topic 280):Improvements to Reportable Segment Disclosures,which is intended to improve reportable segment disclosure requirements,primarily through enhanced disclosuresabout significant expenses.The amendments will require public entities to disclose significant segment expenses that are regularly provided to the chief operatingdecision maker and included within segment profit and loss.The amendments are effective for the Companys annual periods beginning June 1,2024,and interim periodsbeginning June 1,2025,with early adoption permitted,and will be applied retrospectively to all prior periods presented in the financial statements.The Company iscurrently evaluating the ASU to determine its impact on the Companys disclosures.In December 2023,the FASB issued ASU 2023-09,Income Taxes(Topic 740):Improvements to Income Tax Disclosures,which includes amendments that furtherenhance income tax disclosures,primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.Theamendments are effective for the Companys annual periods beginning June 1,2025,with early adoption permitted,and should be applied either prospectively orretrospectively.The Company is currently evaluating the ASU to determine its impact on the Companys disclosures.RECENTLY ADOPTED ACCOUNTING STANDARDSIn September 2022,the FASB issued ASU 2022-04,Liabilities Supplier Finance Programs(Subtopic 405-50):Disclosure of Supplier Finance Program Obligations.Thenew guidance requires qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature,activity during the period,changes from period to period and potential magnitude of such programs.The Company adopted the required guidance in the first quarter of fiscal 2024.Certain financial institutions offer voluntary supplier finance programs facilitated through a third-party platform that provide participating suppliers the option to financevalid payment obligations from the Company.The Company is not a party to agreements negotiated between participating suppliers and third-party financial institutions.The Companys obligations to its suppliers,including amounts due and payment terms,are not affected by a suppliers decision to participate in these programs and theCompany does not provide guarantees to third parties in connection with these programs.As of November 30,2023 and May 31,2023,the Company had$819 millionand$834 million,respectively,of outstanding supplier obligations confirmed as valid under these programs.These amounts are included within Accounts payable on theUnaudited Condensed Consolidated Balance Sheets.8Table of ContentsNOTE 2 ACCRUED LIABILITIESAccrued liabilities included the following:NOVEMBER 30,MAY 31,(Dollars in millions)20232023Compensation and benefits,excluding taxes$1,254$1,737 Sales-related reserves1,130 994 Dividends payable568 529 Taxes other than income taxes payable499 377 Endorsement compensation415 552 Other1,604 1,534TOTAL ACCRUED LIABILITIES$5,470$5,723 NOTE 3 FAIR VALUE MEASUREMENTSThe Company measures certain financial assets and liabilities at fair value on a recurring basis,including derivatives,equity securities and available-for-sale debtsecurities.For additional information about the Companys fair value policies,refer to Note 1 Summary of Significant Accounting Policies within the Annual Report.The following tables present information about the Companys financial assets measured at fair value on a recurring basis as of November 30,2023 and May 31,2023,and indicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:NOVEMBER 30,2023(Dollars in millions)ASSETS AT FAIR VALUECASH AND EQUIVALENTSSHORT-TERM INVESTMENTSCash$1,603$1,603$Level 1:U.S.Treasury securities1,420 1,420 Level 2:Commercial paper and bonds550 18 532 Money market funds5,653 5,653 Time deposits652 645 7 U.S.Agency securities49 49 Total Level 26,904 6,316 588 TOTAL$9,927$7,919$2,008 MAY 31,2023(Dollars in millions)ASSETS AT FAIR VALUECASH AND EQUIVALENTSSHORT-TERM INVESTMENTSCash$1,767$1,767$Level 1:U.S.Treasury securities2,655 2,655 Level 2:Commercial paper and bonds543 15 528 Money market funds5,157 5,157 Time deposits507 502 5 U.S.Agency securities46 46 Total Level 26,253 5,674 579 TOTAL$10,675$7,441$3,234 9Table of ContentsAs of November 30,2023,the Company held$1,316 million of available-for-sale debt securities with maturity dates within one year and$692 million with maturity datesgreater than one year and less than five years in Short-term investments on the Unaudited Condensed Consolidated Balance Sheets.The fair value of the Companysavailable-for-sale debt securities approximates their amortized cost.Included in Interest expense(income),net was interest income related to the Companys investment portfolio of$92 million and$49 million for the three months endedNovember 30,2023 and 2022,respectively,and$191 million and$114 million for the six months ended November 30,2023 and 2022,respectively.The following tables present information about the Companys derivative assets and liabilities measured at fair value on a recurring basis and indicate the level in the fairvalue hierarchy in which the Company classifies the fair value measurement:NOVEMBER 30,2023DERIVATIVE ASSETSDERIVATIVE LIABILITIES(Dollars in millions)ASSETS ATFAIR VALUEOTHERCURRENTASSETSOTHER LONG-TERM ASSETSLIABILITIESAT FAIRVALUEACCRUEDLIABILITIESOTHER LONG-TERMLIABILITIESLevel 2:Foreign exchange forwards and options$371$322$49$202$162$40(1)If the foreign exchange derivative instruments had been netted on the Unaudited Condensed Consolidated Balance Sheets,the asset and liability positions each would have been reduced by$180million as of November 30,2023.As of that date,no amount of cash collateral had been received or posted on the derivative asset and liability balances related to these foreign exchange derivativeinstruments.MAY 31,2023DERIVATIVE ASSETSDERIVATIVE LIABILITIES(Dollars in millions)ASSETS ATFAIR VALUEOTHERCURRENTASSETSOTHER LONG-TERM ASSETSLIABILITIESAT FAIRVALUEACCRUEDLIABILITIESOTHER LONG-TERMLIABILITIESLevel 2:Foreign exchange forwards and options$557$493$64$180$128$52(1)If the foreign exchange derivative instruments had been netted on the Consolidated Balance Sheets,the asset and liability positions each would have been reduced by$178 million as of May 31,2023.As of that date,the Company received$36 million of cash collateral from counterparties related to foreign exchange derivative instruments.No amount of collateral was posted on the derivative liabilitybalance as of May 31,2023.For additional information related to the Companys derivative financial instruments and credit risk,refer to Note 7 Risk Management and Derivatives.The carrying amounts of other current financial assets and other current financial liabilities approximate fair value.FINANCIAL ASSETS AND LIABILITIES NOT RECORDED AT FAIR VALUEThe Companys Long-term debt is recorded at adjusted cost,net of unamortized premiums,discounts and debt issuance costs.The fair value of long-term debt isestimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets(Level 2).The fair value of the Companys Long-term debt,including the current portion,was approximately$7,744 million at November 30,2023 and$7,889 million at May 31,2023.The carrying amounts reflected on the Unaudited Condensed Consolidated Balance Sheets for Notes payable approximate fair value.(1)(1)10Table of ContentsNOTE 4 INCOME TAXESThe effective tax rate was 15.2%and 19.5%for the six months ended November 30,2023 and 2022,respectively.The decrease in the Companys effective tax rate wasprimarily due to one-time benefits including the impact of temporary relief provided by the Internal Revenue Service(IRS)relating to U.S.foreign tax credit regulations.On July 21,2023,the IRS issued Notice 2023-55 which specifically delayed the application of certain U.S.foreign tax credit regulations that had previously limited theCompanys ability to claim credits on certain foreign taxes for the fiscal year ended May 31,2023.As a result of this new guidance,the Company recognized a one-timetax benefit related to prior year tax positions in the first three months of fiscal 2024.Other one-time benefits included a reduction in accrued withholding taxes onundistributed foreign earnings recognized in the second quarter of fiscal 2024.On August 16,2022,the U.S.government enacted the Inflation Reduction Act of 2022 that included,among other provisions,changes to the U.S.corporate income taxsystem,including a fifteen percent minimum tax based on adjusted financial statement income,which was effective for the Company beginning June 1,2023.Based onthe Companys current analysis of the provisions,these tax law changes are not expected to have a material impact on the Companys financial statements for fiscal2024.As of November 30,2023,total gross unrecognized tax benefits,excluding related interest and penalties,were$931 million,$649 million of which would affect theCompanys effective tax rate if recognized in future periods.The majority of the total gross unrecognized tax benefits are long-term in nature and included within Deferredincome taxes and other liabilities on the Unaudited Condensed Consolidated Balance Sheets.As of May 31,2023,total gross unrecognized tax benefits,excluding relatedinterest and penalties,were$936 million.As of November 30,2023 and May 31,2023,accrued interest and penalties related to uncertain tax positions were$287 millionand$268 million,respectively,(excluding federal benefit)and included within Deferred income taxes and other liabilities on the Unaudited Condensed ConsolidatedBalance Sheets.The Company is subject to taxation in the U.S.,as well as various state and foreign jurisdictions.The Company is currently under audit by the U.S.IRS for fiscal years2017 through 2019.The Company has closed all U.S.federal income tax matters through fiscal 2016,with the exception of certain transfer pricing adjustments.Tax years after 2011 remain open in certain major foreign jurisdictions.Although the timing of resolution of audits is not certain,the Company evaluates all domestic andforeign audit issues in the aggregate,along with the expiration of applicable statutes of limitations,and estimates that it is reasonably possible the total grossunrecognized tax benefits could decrease by up to$30 million within the next 12 months.In January 2019,the European Commission opened a formal investigation toexamine whether the Netherlands has breached State Aid rules when granting certain tax rulings to the Company.The Company believes the investigation is withoutmerit.If this matter is adversely resolved,the Netherlands may be required to assess additional amounts with respect to prior periods,and the Companys income taxesrelated to prior periods in the Netherlands could increase.NOTE 5 STOCK-BASED COMPENSATIONSTOCK-BASED COMPENSATIONThe NIKE,Inc.Stock Incentive Plan(the Stock Incentive Plan)provides for the issuance of up to 798 million previously unissued shares of Class B Common Stock inconnection with equity awards granted under the Stock Incentive Plan.The Stock Incentive Plan authorizes the grant of non-statutory stock options,incentive stockoptions,stock appreciation rights and stock awards,including restricted stock and restricted stock units.Restricted stock units include both time-vesting restricted stockunits(RSUs)as well as performance-based restricted stock units(PSUs).In addition to the Stock Incentive Plan,the Company gives employees the right to purchaseshares at a discount from the market price under employee stock purchase plans(ESPPs).For additional information,refer to Note 9 Common Stock and Stock-Based Compensation within the Annual Report.11Table of ContentsThe following table summarizes the Companys total stock-based compensation expense recognized in Cost of sales or Operating overhead expense,as applicable:THREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)2023202220232022Stock options$88$79$164$154 ESPPs17 18 38 33 Restricted stock and restricted stock units101 97 200 177 TOTAL STOCK-BASED COMPENSATION EXPENSE$206$194$402$364(1)Expense for stock options includes the expense associated with stock appreciation rights.(2)Restricted stock units include RSUs and PSUs.The income tax benefit related to stock-based compensation expense was$1 million and$2 million for the three months ended November 30,2023 and 2022,respectively,and$18 million and$22 million for the six months ended November 30,2023 and 2022,respectively,and reported within Income tax expense.STOCK OPTIONSAs of November 30,2023,the Company had$621 million of unrecognized compensation costs from stock options,net of estimated forfeitures,to be recognized in Cost ofsales or Operating overhead expense,as applicable,over a weighted average remaining period of 2.7 years.RESTRICTED STOCK AND RESTRICTED STOCK UNITSAs of November 30,2023,the Company had$859 million of unrecognized compensation costs from restricted stock and restricted stock units,net of estimated forfeitures,to be recognized in Cost of sales or Operating overhead expense,as applicable,over a weighted average remaining period of 2.7 years.NOTE 6 EARNINGS PER SHAREThe following is a reconciliation from basic earnings per common share to diluted earnings per common share.The computations of diluted earnings per common shareexclude restricted stock,restricted stock units and options,including shares under ESPPs,to purchase an estimated additional 46.2 million and 38.0 million shares ofcommon stock outstanding for the three months ended November 30,2023 and 2022,respectively,and 43.5 million and 35.1 million shares of common stock outstandingfor the six months ended November 30,2023 and 2022,respectively,because the awards were assumed to be anti-dilutive.THREE MONTHS ENDEDNOVEMBER 30,SIX MONTHS ENDEDNOVEMBER 30,(In millions,except per share data)2023202220232022Net income available to common stockholders$1,578$1,331$3,028$2,799 Determination of shares:Weighted average common shares outstanding1,520.8 1,559.0 1,524.6 1,563.1 Assumed conversion of dilutive stock options and awards11.3 13.4 13.1 16.0 DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING1,532.1 1,572.4 1,537.7 1,579.1 Earnings per common share:Basic$1.04$0.85$1.99$1.79 Diluted$1.03$0.85$1.97$1.77(1)(2)12Table of ContentsNOTE 7 RISK MANAGEMENT AND DERIVATIVESThe Company is exposed to global market risks,including the effect of changes in foreign currency exchange rates and interest rates,and uses derivatives to managefinancial exposures that occur in the normal course of business.As of and for the six months ended November 30,2023,there have been no material changes to theCompanys hedging program or strategy from what was disclosed within the Annual Report.For additional information about the Companys derivatives and hedgingpolicies,refer to Note 1 Summary of Significant Accounting Policies and Note 12 Risk Management and Derivatives within the Annual Report.The majority of derivatives outstanding as of November 30,2023,are designated as foreign currency cash flow hedges,primarily for Euro/U.S.Dollar,British Pound/Euro,Chinese Yuan/U.S.Dollar and Japanese Yen/U.S.Dollar currency pairs.All derivatives are recognized on the Unaudited Condensed Consolidated Balance Sheets at fairvalue and classified based on the instruments maturity date.The following tables present the fair values of derivative instruments included within the Unaudited Condensed Consolidated Balance Sheets:DERIVATIVE ASSETSBALANCE SHEET LOCATIONNOVEMBER 30,MAY 31,(Dollars in millions)20232023Derivatives formally designated as hedging instruments:Foreign exchange forwards and optionsPrepaid expenses and other current assets$309$480 Foreign exchange forwards and optionsDeferred income taxes and other assets49 64 Total derivatives formally designated as hedging instruments358 544 Derivatives not designated as hedging instruments:Foreign exchange forwards and optionsPrepaid expenses and other current assets13 13 Total derivatives not designated as hedging instruments13 13 TOTAL DERIVATIVE ASSETS$371$557 DERIVATIVE LIABILITIESBALANCE SHEET LOCATIONNOVEMBER 30,MAY 31,(Dollars in millions)20232023Derivatives formally designated as hedging instruments:Foreign exchange forwards and optionsAccrued liabilities$138$93 Foreign exchange forwards and optionsDeferred income taxes and other liabilities40 52 Total derivatives formally designated as hedging instruments178 145 Derivatives not designated as hedging instruments:Foreign exchange forwards and optionsAccrued liabilities24 35 Total derivatives not designated as hedging instruments24 35 TOTAL DERIVATIVE LIABILITIES$202$180 13Table of ContentsThe following tables present the amounts affecting the Unaudited Condensed Consolidated Statements of Income:(Dollars in millions)AMOUNT OF GAIN(LOSS)RECOGNIZED IN OTHERCOMPREHENSIVE INCOME(LOSS)ON DERIVATIVESAMOUNT OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVEINCOME(LOSS)INTO INCOMETHREE MONTHS ENDEDNOVEMBER 30,LOCATION OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVE INCOME(LOSS)INTO INCOMETHREE MONTHS ENDEDNOVEMBER 30,2023202220232022Derivatives designated as cash flowhedges:Foreign exchange forwards and options$(5)$(3)Revenues$2$4 Foreign exchange forwards and options21(101)Cost of sales65 173 Foreign exchange forwards and options2 2 Demand creation expense(2)Foreign exchange forwards and options39(47)Other(income)expense,net51 125 Interest rate swaps Interest expense(income),net(2)(2)TOTAL DESIGNATED CASH FLOWHEDGES$57$(149)$116$298(1)For the three months ended November 30,2023 and 2022,the amounts recorded in Other(income)expense,net as a result of the discontinuance of cash flow hedges because the forecastedtransactions were no longer probable of occurring were immaterial.(2)Gains and losses associated with terminated interest rate swaps,which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income(loss),will bereleased through Interest expense(income),net over the term of the issued debt.(Dollars in millions)AMOUNT OF GAIN(LOSS)RECOGNIZED IN OTHERCOMPREHENSIVE INCOME(LOSS)ON DERIVATIVESAMOUNT OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVEINCOME(LOSS)INTO INCOMESIX MONTHS ENDED NOVEMBER30,LOCATION OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVE INCOME(LOSS)INTO INCOMESIX MONTHS ENDED NOVEMBER30,2023202220232022Derivatives designated as cash flowhedges:Foreign exchange forwards and options$(23)$22 Revenues$3$(5)Foreign exchange forwards and options19 386 Cost of sales151 282 Foreign exchange forwards and options2(3)Demand creation expense(3)Foreign exchange forwards and options29 246 Other(income)expense,net86 207 Interest rate swaps Interest expense(income),net(4)(4)TOTAL DESIGNATED CASH FLOWHEDGES$27$651$236$477(1)For the six months ended November 30,2023 and 2022,the amounts recorded in Other(income)expense,net as a result of the discontinuance of cash flow hedges because the forecastedtransactions were no longer probable of occurring were immaterial.(2)Gains and losses associated with terminated interest rate swaps,which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income(loss),will bereleased through Interest expense(income),net over the term of the issued debt.(1)(1)(2)(1)(1)(2)14Table of ContentsAMOUNT OF GAIN(LOSS)RECOGNIZEDIN INCOME ON DERIVATIVESLOCATION OF GAIN(LOSS)RECOGNIZED IN INCOMEON DERIVATIVESTHREE MONTHS ENDEDNOVEMBER 30,SIX MONTHS ENDEDNOVEMBER 30,(Dollars in millions)2023202220232022Derivatives not designated as hedging instruments:Foreign exchange forwards and options and embeddedderivatives$17$17$(10)$78 Other(income)expense,netCASH FLOW HEDGESThe total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately$17.7 billion as of November 30,2023.Approximately$252 million of deferred net gains(net of tax)on both outstanding and matured derivatives in Accumulated other comprehensive income(loss)as ofNovember 30,2023,are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded inNet income.Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature.As of November 30,2023,the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months.UNDESIGNATED DERIVATIVE INSTRUMENTSThe total notional amount of outstanding undesignated derivative instruments was$4.6 billion as of November 30,2023.CREDIT RISKAs of November 30,2023,the Company was in compliance with all credit risk-related contingent features,and derivative instruments with such features were in a netasset position of approximately$169 million.Accordingly,the Company was not required to post cash collateral as a result of these contingent features.Further,nocollateral was received on the Companys derivative asset balance as of November 30,2023.The Company considers the impact of the risk of counterparty default to beimmaterial.For additional information related to the Companys derivative financial instruments and collateral,refer to Note 3 Fair Value Measurements.15Table of ContentsNOTE 8 ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS)The changes in Accumulated other comprehensive income(loss),net of tax,were as follows:(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at August 31,2023$(217)$297$115$(59)$136 Other comprehensive income(loss):Other comprehensive gains(losses)before reclassifications37 48 11 96 Reclassifications to net income of previously deferred(gains)losses2(103)(10)(111)Total other comprehensive income(loss)39(55)1(15)Balance at November 30,2023$(178)$242$115$(58)$121(1)The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or uponcomplete or substantially complete liquidation of the respective entity.(2)Net of immaterial tax impact.(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at August 31,2022$(746)$1,334$115$(67)$636 Other comprehensive income(loss):Other comprehensive gains(losses)before reclassifications45(138)(24)(117)Reclassifications to net income of previously deferred(gains)losses309(263)(6)40 Total other comprehensive income(loss)354(401)(30)(77)Balance at November 30,2022$(392)$933$115$(97)$559(1)The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or uponcomplete or substantially complete liquidation of the respective entity.(2)Net of immaterial tax impact.(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at May 31,2023$(253)$431$115$(62)$231 Other comprehensive income(loss):Other comprehensive gains(losses)before reclassifications73 25 11 109 Reclassifications to net income of previously deferred(gains)losses2(214)(7)(219)Total other comprehensive income(loss)75(189)4(110)Balance at November 30,2023$(178)$242$115$(58)$121(1)The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or uponcomplete or substantially complete liquidation of the respective entity.(2)Net of immaterial tax impact.(1)(1)(2)(2)(1)(1)(2)(2)(1)(1)(2)(2)16Table of Contents(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at May 31,2022$(520)$779$115$(56)$318 Other comprehensive income(loss):Other comprehensive gains(losses)before reclassifications(227)578 (27)324 Reclassifications to net income of previously deferred(gains)losses355(424)(14)(83)Total other comprehensive income(loss)128 154 (41)241 Balance at November 30,2022$(392)$933$115$(97)$559(1)The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or uponcomplete or substantially complete liquidation of the respective entity.(2)Net of immaterial tax impact.The following table summarizes the reclassifications from Accumulated other comprehensive income(loss)to the Unaudited Condensed Consolidated Statements ofIncome:AMOUNT OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVE INCOME(LOSS)INTO INCOMELOCATION OF GAIN(LOSS)RECLASSIFIED FROMACCUMULATEDOTHER COMPREHENSIVEINCOME(LOSS)INTO INCOMETHREE MONTHS ENDEDNOVEMBER 30,SIX MONTHS ENDED NOVEMBER30,(Dollars in millions)2023202220232022Gains(losses)on foreign currency translationadjustment$(2)$(325)$(2)$(371)Other(income)expense,netTotal before tax(2)(325)(2)(371)Tax(expense)benefit 16 16 Gain(loss)net of tax(2)(309)(2)(355)Gains(losses)on cash flow hedges:Foreign exchange forwards and options2 4 3(5)RevenuesForeign exchange forwards and options65 173 151 282 Cost of salesForeign exchange forwards and options(2)(3)Demand creation expenseForeign exchange forwards and options51 125 86 207 Other(income)expense,netInterest rate swaps(2)(2)(4)(4)Interest expense(income),netTotal before tax116 298 236 477 Tax(expense)benefit(13)(35)(22)(53)Gain(loss)net of tax103 263 214 424 Gains(losses)on other14 9 10 20 Other(income)expense,netTotal before tax14 9 10 20 Tax(expense)benefit(4)(3)(3)(6)Gain(loss)net of tax10 6 7 14 Total net gain(loss)reclassified for the period$111$(40)$219$83(1)(1)(2)(2)17Table of ContentsNOTE 9 REVENUESDISAGGREGATION OF REVENUESThe following tables present the Companys Revenues disaggregated by reportable operating segment,major product line and distribution channel:THREE MONTHS ENDED NOVEMBER 30,2023(Dollars in millions)NORTHAMERICAEUROPE,MIDDLEEAST&AFRICAGREATERCHINAASIAPACIFIC&LATINAMERICAGLOBALBRANDDIVISIONSTOTALNIKEBRANDCONVERSECORPORATETOTALNIKE,INC.Revenues by:Footwear$3,757$2,186$1,361$1,303$8,607$442$9,049 Apparel1,668 1,200 469 437 3,774 30 3,804 Equipment200 181 33 65 479 7 486 Other 12 12 40(3)49 TOTAL REVENUES$5,625$3,567$1,863$1,805$12$12,872$519$(3)$13,388 Revenues by:Sales to Wholesale Customers$2,902$2,138$1,027$1,051$7,118$257$7,375 Sales through Direct to Consumer2,723 1,429 836 754 5,742 222 5,964 Other 12 12 40(3)49 TOTAL REVENUES$5,625$3,567$1,863$1,805$12$12,872$519$(3)$13,388 THREE MONTHS ENDED NOVEMBER 30,2022(Dollars in millions)NORTHAMERICAEUROPE,MIDDLEEAST&AFRICAGREATERCHINAASIAPACIFIC&LATINAMERICAGLOBALBRANDDIVISIONSTOTALNIKEBRANDCONVERSECORPORATETOTALNIKE,INC.Revenues by:Footwear$3,963$2,063$1,370$1,108$8,504$517$9,021 Apparel1,685 1,281 393 435 3,794 21 3,815 Equipment182 145 25 56 408 6 414 Other 18 18 42 5 65 TOTAL REVENUES$5,830$3,489$1,788$1,599$18$12,724$586$5$13,315 Revenues by:Sales to Wholesale Customers$3,183$2,242$897$965$7,287$304$7,591 Sales through Direct to Consumer2,647 1,247 891 634 5,419 240 5,659 Other 18 18 42 5 65 TOTAL REVENUES$5,830$3,489$1,788$1,599$18$12,724$586$5$13,315 18Table of ContentsSIX MONTHS ENDED NOVEMBER 30,2023(Dollars in millions)NORTHAMERICAEUROPE,MIDDLEEAST&AFRICAGREATERCHINAASIAPACIFIC&LATINAMERICAGLOBALBRANDDIVISIONSTOTALNIKEBRANDCONVERSECORPORATETOTALNIKE,INC.Revenues by:Footwear$7,490$4,446$2,648$2,444$17,028$964$17,992 Apparel3,147 2,337 870 808 7,162 50 7,212 Equipment411 394 80 125 1,010 18 1,028 Other 25 25 75(5)95 TOTAL REVENUES$11,048$7,177$3,598$3,377$25$25,225$1,107$(5)$26,327 Revenues by:Sales to Wholesale Customers$5,674$4,517$1,922$1,988$14,101$586$14,687 Sales through Direct to Consumer5,374 2,660 1,676 1,389 11,099 446 11,545 Other 25 25 75(5)95 TOTAL REVENUES$11,048$7,177$3,598$3,377$25$25,225$1,107$(5)$26,327 SIX MONTHS ENDED NOVEMBER 30,2022(Dollars in millions)NORTHAMERICAEUROPE,MIDDLEEAST&AFRICAGREATERCHINAASIAPACIFIC&LATINAMERICAGLOBALBRANDDIVISIONSTOTALNIKEBRANDCONVERSECORPORATETOTALNIKE,INC.Revenues by:Footwear$7,768$4,075$2,603$2,172$16,618$1,093$17,711 Apparel3,179 2,434 767 848 7,228 42 7,270 Equipment393 313 74 114 894 14 908 Other 32 32 80 1 113 TOTAL REVENUES$11,340$6,822$3,444$3,134$32$24,772$1,229$1$26,002 Revenues by:Sales to Wholesale Customers$6,210$4,445$1,736$1,879$14,270$647$14,917 Sales through Direct to Consumer5,130 2,377 1,708 1,255 10,470 502 10,972 Other 32 32 80 1 113 TOTAL REVENUES$11,340$6,822$3,444$3,134$32$24,772$1,229$1$26,002 For the three and six months ended November 30,2023 and 2022,Global Brand Divisions revenues included NIKE Brand licensing and other miscellaneous revenuesthat are not part of a geographic operating segment.Converse Other revenues were primarily attributable to licensing businesses.Corporate revenues primarily consistedof foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse,but managedthrough the Companys central foreign exchange risk management program.As of November 30,2023 and May 31,2023,the Company did not have any contract assets and had an immaterial amount of contract liabilities recorded in Accruedliabilities on the Unaudited Condensed Consolidated Balance Sheets.19Table of ContentsNOTE 10 OPERATING SEGMENTSThe Companys operating segments are evidence of the structure of the Companys internal organization.The NIKE Brand segments are defined by geographic regionsfor operations participating in NIKE Brand sales activity.Each NIKE Brand geographic segment operates predominantly in one industry:the design,development,marketing and selling of athletic footwear,apparel andequipment.The Companys reportable operating segments for the NIKE Brand are:North America;Europe,Middle East&Africa(EMEA);Greater China;and AsiaPacific&Latin America(APLA),and include results for the NIKE and Jordan brands.The Companys NIKE Direct operations are managed within each NIKE Brand geographic operating segment.Converse is also a reportable segment for the Companyand operates in one industry:the design,marketing,licensing and selling of athletic lifestyle sneakers,apparel and accessories.Global Brand Divisions is included within the NIKE Brand for presentation purposes to align with the way management views the Company.Global Brand Divisionsrevenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.Global Brand Divisions costs representdemand creation and operating overhead expense that include product creation and design expenses centrally managed for the NIKE Brand,as well as costs associatedwith NIKE Direct global digital operations and enterprise technology.Corporate consists primarily of unallocated general and administrative expenses,including expenses associated with centrally managed departments;depreciation andamortization related to the Companys headquarters;unallocated insurance,benefit and compensation programs,including stock-based compensation;and certainforeign currency gains and losses,including certain hedge gains and losses.The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes(EBIT),whichrepresents Net income before Interest expense(income),net,and Income taxes in the Unaudited Condensed Consolidated Statements of Income.As part of the Companys centrally managed foreign exchange risk management program,standard foreign currency rates are assigned twice per year to each NIKEBrand entity in the Companys geographic operating segments and to Converse.These rates are set approximately nine and twelve months in advance of the futureselling seasons to which they relate(specifically,for each currency,one standard rate applies to the fall and holiday selling seasons,and one standard rate applies to thespring and summer selling seasons)based on average market spot rates in the calendar month preceding the date they are established.Inventories and Cost of sales forgeographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases in the entitys functionalcurrency.Differences between assigned standard foreign currency rates and actual market rates are included in Corporate,together with foreign currency hedge gainsand losses generated from the Companys centrally managed foreign exchange risk management program and other conversion gains and losses.Accounts receivable,net,Inventories and Property,plant and equipment,net for operating segments are regularly reviewed by management and are therefore providedbelow.20Table of Contents THREE MONTHS ENDEDNOVEMBER 30,SIX MONTHS ENDED NOVEMBER30,(Dollars in millions)2023202220232022REVENUESNorth America$5,625$5,830$11,048$11,340 Europe,Middle East&Africa3,567 3,489 7,177 6,822 Greater China1,863 1,788 3,598 3,444 Asia Pacific&Latin America1,805 1,599 3,377 3,134 Global Brand Divisions12 18 25 32 Total NIKE Brand12,872 12,724 25,225 24,772 Converse519 586 1,107 1,229 Corporate(3)5(5)1 TOTAL NIKE,INC.REVENUES$13,388$13,315$26,327$26,002 EARNINGS BEFORE INTEREST AND TAXESNorth America$1,526$1,497$2,960$2,874 Europe,Middle East&Africa927 990 1,857 1,965 Greater China514 511 1,039 1,052 Asia Pacific&Latin America521 485 935 985 Global Brand Divisions(1,168)(1,226)(2,373)(2,413)Converse115 153 282 362 Corporate(535)(744)(1,186)(1,318)Interest expense(income),net(22)16(56)29 TOTAL NIKE,INC.INCOME BEFORE INCOME TAXES$1,922$1,650$3,570$3,478 NOVEMBER 30,MAY 31,(Dollars in millions)20232023ACCOUNTS RECEIVABLE,NETNorth America$1,902$1,653 Europe,Middle East&Africa1,369 1,197 Greater China194 162 Asia Pacific&Latin America919 700 Global Brand Divisions83 96 Total NIKE Brand4,467 3,808 Converse228 235 Corporate87 88 TOTAL ACCOUNTS RECEIVABLE,NET$4,782$4,131 INVENTORIESNorth America$3,327$3,806 Europe,Middle East&Africa2,013 2,167 Greater China1,218 973 Asia Pacific&Latin America946 894 Global Brand Divisions204 232 Total NIKE Brand7,708 8,072 Converse290 305 Corporate(19)77 TOTAL INVENTORIES$7,979$8,454(1)Inventories as of November 30,2023 and May 31,2023,were substantially all finished goods.(1)21Table of ContentsNOVEMBER 30,MAY 31,(Dollars in millions)20232023PROPERTY,PLANT AND EQUIPMENT,NETNorth America$788$794 Europe,Middle East&Africa1,076 1,009 Greater China275 292 Asia Pacific&Latin America298 279 Global Brand Divisions908 840 Total NIKE Brand3,345 3,214 Converse33 38 Corporate1,775 1,829 TOTAL PROPERTY,PLANT AND EQUIPMENT,NET$5,153$5,081 NOTE 11 CONTINGENCIESIn the ordinary course of business,the Company is subject to various legal proceedings,claims and government investigations relating to its business,products andactions of its employees and representatives,including contractual and employment relationships,product liability,antitrust,customs,tax,intellectual property and othermatters.The outcome of these legal matters is inherently uncertain,and the Company cannot predict the eventual outcome of currently pending matters,the timing oftheir ultimate resolution or the eventual losses,fines,penalties or consequences relating to those matters.When a loss related to a legal proceeding or claim is probableand reasonably estimable,the Company accrues its best estimate for the ultimate resolution of the matter.If one or more legal matters were to be resolved against theCompany in a reporting period for amounts above managements expectations,the Companys financial position,operating results and cash flows for that reporting periodcould be materially adversely affected.In the opinion of management,based on its current knowledge and after consultation with counsel,the Company does not believeany currently pending legal matters will have a material adverse impact on the Companys results of operations,financial position or cash flows,except as describedbelow.BELGIAN CUSTOMS CLAIMThe Company has received claims for certain years from Belgian Customs and other government authorities for alleged underpaid duties related to products importedbeginning in fiscal 2018.The Company disputes these claims and has engaged in the appellate process.The Company has issued bank guarantees in order to appealthe claims.At this time,the Company is unable to estimate the range of loss and cannot predict the final outcome as it could take several years to reach a resolution onthis matter.If this matter is ultimately resolved against the Company,the amounts owed,including fines,penalties and other consequences relating to the matter,couldhave a material adverse effect on the Companys results of operations,financial position and cash flows.NOTE 12 ACQUISITIONS AND DIVESTITURESDuring the second quarter of fiscal 2023,the sale of the Companys entities in Argentina and Uruguay to a third-party distributor was completed and the net loss on thesale of these entities totaled approximately$550 million.This loss included$389 million,recognized primarily in fiscal 2020,largely due to the anticipated release of thecumulative foreign currency translation losses.The remaining loss recognized in fiscal 2023 was due to the devaluation of local currency and cash equivalents included inthe transferred assets.Upon completion of the sale,the foreign currency translation losses recorded in Accumulated other comprehensive income(loss)were reclassifiedto Net income within Other(income)expense,net,on the Unaudited Condensed Consolidated Statements of Comprehensive Income along with the allowance forpreviously recognized losses recorded in Accrued liabilities.The net loss was classified within Corporate.The net cash proceeds received are reflected within Other investing activities on the Unaudited Condensed Consolidated Statements of Cash Flows.NOTE 13 SUBSEQUENT EVENTSIn December 2023,the Company announced an enterprise initiative designed to accelerate its future growth.As part of this initiative,management is taking steps tostreamline the organization which are expected to result in pre-tax restructuring charges of approximately$400 million to$450 million,primarily associated with employeeseverance costs largely expected to be recognized in the third quarter of fiscal 2024 within Operating overhead expense.The expected pre-tax charges are estimates andare subject to a number of assumptions.Actual results may vary from the estimates provided above.22Table of ContentsITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSOVERVIEWNIKE designs,develops,markets and sells athletic footwear,apparel,equipment,accessories and services worldwide.We are the largest seller of athletic footwear andapparel in the world.We sell our products through NIKE Direct operations,which is comprised of both NIKE-owned retail stores and sales through our digital platforms(also referred to as NIKE Brand Digital),to wholesale accounts and to a mix of independent distributors,licensees and sales representatives in nearly all countriesaround the world.Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear,apparel,equipment and accessoriesbusinesses.Our strategy is to achieve long-term revenue growth by creating innovative,must-have products,building deep personal consumer connections with ourbrands and delivering compelling consumer experiences through digital platforms and at retail.Through the Consumer Direct Acceleration strategy,we are focused on creating the marketplace of the future with more premium,consistent and seamless consumerexperiences,leading with digital and our owned stores,as well as select wholesale partners.In addition,our product creation and marketing organizations are aligned to aconsumer construct focused on sports dimensions through Mens,Womens and Kids,which allows us to better serve consumer needs.We continue to invest in a newEnterprise Resource Planning Platform,data and analytics,demand sensing,insight gathering and other areas to create an end-to-end technology foundation,which webelieve will further accelerate our digital transformation.We believe this unified approach will accelerate growth and unlock more efficiency for our business,while drivingspeed and responsiveness as we serve consumers globally.QUARTERLY FINANCIAL HIGHLIGHTS NIKE,Inc.Revenues for the second quarter of fiscal 2024 were$13.4 billion,an increase of 1%on a reported basis and a decrease of 1%on a currency-neutralbasis,compared to the second quarter of fiscal 2023 NIKE Direct revenues grew 6%from$5.4 billion for the second quarter of fiscal 2023 to$5.7 billion for the second quarter of fiscal 2024,and representedapproximately 45%of total NIKE Brand revenues for the second quarter of fiscal 2024 Gross margin for the second quarter of fiscal 2024 increased 170 basis points to 44.6%,primarily driven by strategic pricing actions and lower ocean freight rates,partially offset by unfavorable changes in net foreign currency exchange rates and higher product input costs Inventories as of November 30,2023,were$8.0 billion,a decrease of 6%compared to May 31,2023,primarily driven by a decrease in units We returned approximately$1.7 billion to our shareholders in the second quarter of fiscal 2024 through share repurchases and dividendsECONOMIC CONDITIONS AND MARKET DYNAMICS Consumer Spending:During the second quarter of fiscal 2024,we saw shifts in consumer behavior as the global economy remains uncertain.Across our industry,consumers are spending more cautiously and promotional activity remains high.In this environment,we experienced lower digital traffic and moderation in ourrevenue growth.We will continue to monitor macroeconomic conditions,including the potential impacts of inflation and higher interest rates on consumer behavior.Cost Inflationary Pressures:Inflationary pressures,including higher product input costs,continued to negatively impact our gross margin.These negative impactson gross margin were more than offset by strategic pricing actions we have taken through the second quarter of fiscal 2024 as well as improvements in ocean freightrates we started to realize at the beginning of the second quarter of fiscal 2024.Supply Chain Conditions:During the first six months of fiscal 2024 and as of November 30,2023,our inventory levels were healthy and reflected our proactiveactions taken to manage our inventory supply.In addition,we continued to experience normalized inventory transit times and flow of seasonal product.Foreign Currency Impacts:As a global company with significant operations outside the United States,we are exposed to risk arising from changes in foreigncurrency exchange rates.For additional information,refer to Foreign Currency Exposures and Hedging Practices.23Table of ContentsThe operating environment could remain volatile in fiscal 2024,and the risk exists that worsening macroeconomic conditions could have a material adverse impact on ourfuture revenue growth as well as overall profitability.We continue to be confident in our brand strength and deep consumer connections.We are committed to acceleratingour pace of innovation,elevating our marketplace experiences and maximizing the impact of our storytelling.We will also continue to focus on driving gross marginexpansion and disciplined cost control.RECENT DEVELOPMENTSIn December 2023,we announced an enterprise initiative designed to accelerate our future growth.As part of this initiative,we are taking steps to streamline theorganization which are expected to result in pre-tax restructuring charges of approximately$400 million to$450 million,primarily associated with employee severancecosts largely expected to be recognized in the third quarter of fiscal 2024 within Operating overhead expense.The expected pre-tax charges are estimates and subject toa number of assumptions.Actual results may differ from the estimates provided above.USE OF NON-GAAP FINANCIAL MEASURESThroughout this Quarterly Report on Form 10-Q,we discuss non-GAAP financial measures,which should be considered in addition to,and not in lieu of,the financialmeasures calculated and presented in accordance with U.S.GAAP.References to these measures should not be considered in isolation or as a substitute for otherfinancial measures calculated and presented in accordance with U.S.GAAP and may not be comparable to similarly titled measures used by other companies.Management uses these non-GAAP measures when evaluating the Companys performance,including when making financial and operating decisions.Additionally,management believes these non-GAAP financial measures provide investors with additional financial information that should be considered when assessing ourunderlying business performance and trends.Earnings Before Interest and Taxes(EBIT):Calculated as Net income before Interest expense(income),net and Income tax expense in the Unaudited CondensedConsolidated Statements of Income.Total NIKE,Inc.EBIT for the three and six months ended November 30,2023 and 2022 are as follows:THREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)2023202220232022Net income$1,578$1,331$3,028$2,799 Add:Interest expense(income),net(22)16(56)29 Add:Income tax expense344 319 542 679 Earnings before interest and taxes$1,900$1,666$3,514$3,507 EBIT margin:Calculated as total NIKE,Inc.EBIT divided by total NIKE,Inc.Revenues.Our EBIT margin calculation for the three and six months ended November 30,2023 and 2022 are as follows:THREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)2023202220232022NumeratorEarnings before interest and taxes$1,900$1,666$3,514$3,507 DenominatorTotal NIKE,Inc.Revenues$13,388$13,315$26,327$26,002 EBIT margin14.2.5.3.5%Currency-neutral revenues:Currency-neutral revenues enhance visibility to underlying business trends,excluding the impact of translation arising from foreign currencyexchange rate fluctuations.Currency-neutral revenues are calculated using actual exchange rates in use during the comparative prior year period in place of theexchange rates in use during the current period.Wholesale equivalent revenues:References to wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint ifwe had no NIKE Direct operations.NIKE Brand wholesale equivalent revenues consist of(1)sales to external wholesale customers and(2)internal sales from ourwholesale operations to our NIKE Direct operations,which are charged at prices comparable to those charged to external wholesale customers.24Table of ContentsCOMPARABLE STORE SALESComparable store sales:This key metric,which excludes NIKE Brand Digital sales,comprises revenues from NIKE-owned in-line and factory stores for which all three ofthe following requirements have been met:(1)the store has been open at least one year,(2)square footage has not changed by more than 15%within the past year and(3)the store has not been permanently repositioned within the past year.Comparable store sales includes revenues from stores that were temporarily closed during theperiod as a result of COVID-19.Comparable store sales represents a performance metric that we believe is useful information for management and investors inunderstanding the performance of our established NIKE-owned in-line and factory stores.Management considers this metric when making financial and operatingdecisions.The method of calculating comparable store sales varies across the retail industry.As a result,our calculation of this metric may not be comparable to similarlytitled metrics used by other companies.25Table of ContentsRESULTS OF OPERATIONSTHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions,except per share data)20232022%CHANGE20232022%CHANGERevenues$13,388$13,315 1%$26,327$26,002 1%Cost of sales7,417 7,604-2,636 14,676 0%Gross profit5,971 5,711 5,691 11,326 3%Gross margin44.6B.9D.4C.6mand creation expense1,114 1,102 1%2,183 2,045 7%Operating overhead expense3,032 3,022 0%6,079 5,999 1%Total selling and administrative expense4,146 4,124 1%8,262 8,044 3%of revenues31.01.01.40.9%Interest expense(income),net(22)16 (56)29 Other(income)expense,net(75)(79)(85)(225)Income before income taxes1,922 1,650 16%3,570 3,478 3%Income tax expense344 319 8T2 679-20fective tax rate17.9.3.2.5%NET INCOME$1,578$1,331 19%$3,028$2,799 8%Diluted earnings per common share$1.03$0.85 21%$1.97$1.77 11%CONSOLIDATED OPERATING RESULTSREVENUESTHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESNIKE,Inc.Revenues:NIKE Brand Revenues by:Footwear$8,607$8,504 1%0%$17,028$16,618 2%2%Apparel3,774 3,794-1%-2%7,162 7,228-1%-1%Equipment479 408 17%1,010 894 13%Global Brand Divisions12 18-33%-41% 32-22%-25%Total NIKE Brand Revenues12,872 12,724 1%0%,225 24,772 2%2%Converse519 586-11%-13%1,107 1,229-10%-11%Corporate(3)5 (5)1 TOTAL NIKE,INC.REVENUES$13,388$13,315 1%-1%$26,327$26,002 1%1%Supplemental NIKE Brand RevenuesDetails:NIKE Brand Revenues by:Sales to Wholesale Customers$7,118$7,287-2%-3%$14,101$14,270-1%-1%Sales through NIKE Direct5,742 5,419 6%4,099 10,470 6%5%Global Brand Divisions12 18-33%-41% 32-22%-25%TOTAL NIKE BRAND REVENUES$12,872$12,724 1%0%$25,225$24,772 2%2%(1)The percent change excluding currency changes represents a non-GAAP financial measure.For additional information,see Use of Non-GAAP Financial Measures.(2)Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.(3)Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse,butmanaged through our central foreign exchange risk management program.(1)(1)(2)(3)(2)26Table of ContentsSECOND QUARTER OF FISCAL 2024 COMPARED TO SECOND QUARTER OF FISCAL 2023 NIKE,Inc.Revenues were$13.4 billion for the second quarter of fiscal 2024,which increased 1%on a reported basis and decreased 1%on a currency-neutral basis,compared to the second quarter of fiscal 2023.The decrease,on a currency-neutral basis,was driven by lower revenues in North America,Europe,Middle East&Africa(EMEA)and Converse,which each reduced NIKE,Inc.Revenues by approximately 1 percentage point.Higher revenues in Asia Pacific&Latin America(APLA)and Greater China each increased NIKE,Inc.Revenues by approximately 1 percentage point.NIKE Brand revenues,which represented over 90%of NIKE,Inc.Revenues,increased 1%on a reported basis and were flat on a currency-neutral basis.This wasdue to higher revenues in the Jordan Brand,offset by lower revenues in Mens,Kids and Womens.NIKE Brand footwear revenues were flat on a currency-neutral basis due to higher revenues in the Jordan Brand,offset by lower revenues in Mens,Kids andWomens.Unit sales of footwear decreased 6%,while higher average selling price(ASP)per pair contributed approximately 6 percentage points of footwearrevenue growth.Higher ASP per pair was primarily due to higher full-price ASP,net of discounts,on a wholesale equivalent basis,and growth in the size ofour NIKE Direct business.NIKE Brand apparel revenues decreased 2%on a currency-neutral basis,primarily due to lower revenues in Mens and Womens,partially offset by higherrevenues in the Jordan Brand.Unit sales of apparel decreased 15%,while higher ASP per unit contributed approximately 13 percentage points of apparelrevenue growth.Higher ASP per unit was primarily due to higher full-price,NIKE Direct and off-price ASPs.NIKE Brand wholesale revenues decreased 2%and 3%compared to the second quarter of fiscal 2023,on a reported and currency-neutral basis,respectively,primarily due to decreases in North America and EMEA,reflecting our proactive decisions to prioritize marketplace health in the current year coupled with ourliquidation of excess inventory in the prior year.NIKE Direct revenues increased 6%,on a reported basis,from$5.4 billion in the second quarter of fiscal 2023 to$5.7 billion in the second quarter of fiscal 2024.Ona currency-neutral basis,NIKE Direct revenues increased 4%,driven by comparable store sales growth of 5%,the addition of new stores and NIKE Brand Digitalsales growth of 1%.For additional information regarding comparable store sales,including the definition,see Comparable Store Sales.NIKE Brand Digital saleswere$3.5 billion for the second quarter of fiscal 2024 compared to$3.4 billion for the second quarter of fiscal 2023.Within NIKE Direct revenues,there were certainreclassifications made between NIKE-owned retail stores and NIKE Brand Digital in the prior period to conform to current period presentation.The reclassificationsdid not have a material impact on our Unaudited Condensed Consolidated Financial Statements.FIRST SIX MONTHS OF FISCAL 2024 COMPARED TO FIRST SIX MONTHS OF FISCAL 2023 NIKE,Inc.Revenues were$26.3 billion for the first six months of fiscal 2024,which increased 1%compared to the first six months of fiscal 2023 on a reported andcurrency-neutral basis.The increase,on a currency-neutral basis,was driven by higher revenues in Greater China and APLA,which both contributed approximately 1percentage point to NIKE,Inc.Revenues.Lower revenues in North America reduced NIKE,Inc.Revenues by approximately 1 percentage point.NIKE Brand revenues,which represented over 90%of NIKE,Inc.Revenues,increased 2%on a reported and currency-neutral basis.This increase was primarily dueto higher revenues in the Jordan Brand,partially offset by lower revenues in Mens and Kids.NIKE Brand footwear revenues increased 2%on a currency-neutral basis due to higher revenues in the Jordan Brand and Womens,partially offset by lowerrevenues in Kids and Mens.Unit sales of footwear decreased 5%,while higher ASP per pair contributed approximately 7 percentage points of footwearrevenue growth.Higher ASP per pair was primarily due to higher full-price ASP and growth in NIKE Direct.NIKE Brand apparel revenues decreased 1%on a currency-neutral basis,primarily due to lower revenues in Mens,Womens and the Jordan Brand.Unitsales of apparel decreased 15%,while higher ASP per unit contributed approximately 14 percentage points of apparel revenue growth.Higher ASP per unitwas primarily due to higher full-price and NIKE Direct ASPs.NIKE Direct revenues increased 6%,on a reported basis,from$10.5 billion for the first six months of fiscal 2023 to$11.1 billion for the first six months of fiscal 2024.On a currency-neutral basis,NIKE Direct revenues increased 5%,driven by comparable store sales growth of 7%,the addition of new stores and NIKE Brand Digitalsales growth of 2%.NIKE Brand Digital sales were$6.4 billion for the first six months of fiscal 2024 compared to$6.2 billion for the first six months of fiscal 2023.Within NIKE Direct revenues,there were certain reclassifications made between NIKE-owned retail stores and NIKE Brand Digital in the prior period to conform tocurrent period presentation.The reclassifications did not have a material impact on our Unaudited Condensed Consolidated Financial Statements.27Table of ContentsGROSS MARGINTHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE20232022%CHANGEGross profit$5,971$5,711 5%$11,691$11,326 3%Gross margin44.6B.90 bps44.4C.6 bpsSECOND QUARTER OF FISCAL 2024 COMPARED TO SECOND QUARTER OF FISCAL 2023For the second quarter of fiscal 2024,our consolidated gross margin was 170 basis points higher than the prior year primarily due to:Higher NIKE Brand full-price ASP,net of discounts,on a wholesale equivalent basis(increasing gross margin approximately 320 basis points)primarily due tostrategic pricing actions and lower discounts.This was partially offset by:Unfavorable changes in net foreign currency exchange rates,including hedges(decreasing gross margin approximately 60 basis points);Higher NIKE Brand product costs,on a wholesale equivalent basis(decreasing gross margin approximately 50 basis points),primarily due to increased product inputcosts largely offset by lower ocean freight rates;Lower off-price margin,on a wholesale equivalent basis(decreasing gross margin approximately 20 basis points);and Lower margin in our NIKE Direct business(decreasing gross margin approximately 20 basis points).FIRST SIX MONTHS OF FISCAL 2024 COMPARED TO FIRST SIX MONTHS OF FISCAL 2023For the first six months of fiscal 2024,our consolidated gross margin was 80 basis points higher than the prior year primarily due to:Higher NIKE Brand full-price ASP,net of discounts,on a wholesale equivalent basis(increasing gross margin approximately 310 basis points)primarily due tostrategic pricing actions.This was partially offset by:Higher NIKE Brand product costs,on a wholesale equivalent basis(decreasing gross margin approximately 110 basis points),primarily due to increased productinput costs largely offset by lower ocean freight rates;Unfavorable changes in net foreign currency exchange rates,including hedges(decreasing gross margin approximately 80 basis points);and Lower off-price margin,on a wholesale equivalent basis(decreasing gross margin approximately 30 basis points).TOTAL SELLING AND ADMINISTRATIVE EXPENSETHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE20232022%CHANGEDemand creation expense$1,114$1,102 1%$2,183$2,045 7%Operating overhead expense3,032 3,022 0%6,079 5,999 1%Total selling and administrative expense$4,146$4,124 1%$8,262$8,044 3%of revenues31.01.0%bps31.40.9P bps(1)Demand creation expense consists of advertising and promotion costs,including costs of endorsement contracts,complimentary products,television,digital and print advertising and media costs,brandevents and retail brand presentation.SECOND QUARTER OF FISCAL 2024 COMPARED TO SECOND QUARTER OF FISCAL 2023Demand creation expense increased 1%reflecting an increase in marketing expense.Changes in foreign currency exchange rates did not have a material impact onDemand creation expense.Operating overhead expense was flat as increases in NIKE Direct variable costs were offset by lower technology spend and wage-related expenses.Changes in foreigncurrency exchange rates did not have a material impact on Operating overhead expense.(1)28Table of ContentsFIRST SIX MONTHS OF FISCAL 2024 COMPARED TO FIRST SIX MONTHS OF FISCAL 2023Demand creation expense increased 7%reflecting an increase in marketing expense.Changes in foreign currency exchange rates did not have a material impact onDemand creation expense.Operating overhead expense increased 1%primarily due to higher wage-related expenses and NIKE Direct variable costs,partially offset by lower technology spend.Changes in foreign currency exchange rates did not have a material impact on Operating overhead expense.OTHER(INCOME)EXPENSE,NETTHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)2023202220232022Other(income)expense,net$(75)$(79)$(85)$(225)Other(income)expense,net comprises foreign currency conversion gains and losses from the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments,as well as unusual or non-operating transactions that are outside the normalcourse of business.For the second quarter of fiscal 2024,Other(income)expense,net decreased from$79 million of other income,net,to$75 million of other income,net,in the currentyear,primarily due to a net unfavorable change in foreign currency conversion gains and losses,including hedges,partially offset by the loss recognized in the prior yearupon completion of the sale of our entities in Argentina and Uruguay to a third-party distributor.For the first six months of fiscal 2024,Other(income)expense,net decreased from$225 million of other income,net,to$85 million of other income,net,in the currentyear,primarily due to a net unfavorable change in foreign currency conversion gains and losses,including hedges,as well as net favorable settlements of legal matters inthe prior year,partially offset by the loss recognized in the prior year upon completion of the sale of our entities in Argentina and Uruguay to a third-party distributor.We estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreigncurrency-related gains and losses included in Other(income)expense,net had unfavorable impacts of approximately$37 million and$102 million on our Income beforeincome taxes for the second quarter and first six months of fiscal 2024.INCOME TAXESTHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,20232022%CHANGE20232022%CHANGEEffective tax rate17.9.3%(140)bps15.2.5%(430)bpsOur effective tax rate was 17.9%for the second quarter of fiscal 2024 compared to 19.3%for the second quarter of fiscal 2023,primarily due to a one-time benefitprovided by the reduction in accrued withholding taxes on undistributed foreign earnings.Our effective tax rate was 15.2%for the first six months of fiscal 2024,compared to 19.5%for the first six months of fiscal 2023,primarily due to one-time benefitsprovided by the delay of the effective date of certain U.S.foreign tax credit regulations and a reduction in accrued withholding taxes on undistributed foreign earnings.For additional information,refer to Note 4 Income Taxes within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.29Table of ContentsOPERATING SEGMENTSAs discussed in Note 10 Operating Segments in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements,our operating segmentsare evidence of the structure of the Companys internal organization.The NIKE Brand segments are defined by geographic regions for operations participating in NIKEBrand sales activity.The breakdown of Revenues is as follows:THREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESNorth America$5,625$5,830-4%-3%$11,048$11,340-3%-2%Europe,Middle East&Africa3,567 3,489 2%-3%7,177 6,822 5%2%Greater China1,863 1,788 4%8%3,598 3,444 4%Asia Pacific&Latin America1,805 1,599 13%3,377 3,134 8%7%Global Brand Divisions12 18-33%-41% 32-22%-25%TOTAL NIKE BRAND12,872 12,724 1%0%,225 24,772 2%2%Converse519 586-11%-13%1,107 1,229-10%-11%Corporate(3)5 (5)1 TOTAL NIKE,INC.REVENUES$13,388$13,315 1%-1%$26,327$26,002 1%1%(1)The percent change excluding currency changes represents a non-GAAP financial measure.For additional information,see Use of Non-GAAP Financial Measures.(2)Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.(3)Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse,butmanaged through our central foreign exchange risk management program.The primary financial measure used by the Company to evaluate performance of individual operating segments is EBIT.As discussed in Note 10 Operating Segmentsin the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements,certain corporate costs are not included in EBIT of our operating segments.The breakdown of EBIT is as follows:THREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE20232022%CHANGENorth America$1,526$1,497 2%$2,960$2,874 3%Europe,Middle East&Africa927 990-6%1,857 1,965-5%Greater China514 511 1%1,039 1,052-1%Asia Pacific&Latin America521 485 75 985-5%Global Brand Divisions(1,168)(1,226)5%(2,373)(2,413)2%TOTAL NIKE BRAND2,320 2,257 3%4,418 4,463-1%Converse115 153-25(2 362-22%Corporate(535)(744)28%(1,186)(1,318)10%TOTAL NIKE,INC.EARNINGS BEFORE INTERESTAND TAXES1,900 1,666 14%3,514 3,507 0IT margin14.2.5.3.5%Interest expense(income),net(22)16 (56)29 TOTAL NIKE,INC.INCOME BEFORE INCOMETAXES$1,922$1,650 16%$3,570$3,478 3%(1)Total NIKE Brand EBIT,Total NIKE,Inc.EBIT and EBIT margin represent non-GAAP financial measures.For additional information,see Use of Non-GAAP Financial Measures.(1)(1)(2)(3)(1)(1)(1)30Table of ContentsNORTH AMERICATHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$3,757$3,963-5%-5%$7,490$7,768-4%-3%Apparel1,668 1,685-1%-1%3,147 3,179-1%-1%Equipment200 182 10A1 393 5%5%TOTAL REVENUES$5,625$5,830-4%-3%$11,048$11,340-3%-2%Revenues by:Sales to Wholesale Customers$2,902$3,183-9%-9%$5,674$6,210-9%-9%Sales through NIKE Direct2,723 2,647 3%3%5,374 5,130 5%5%TOTAL REVENUES$5,625$5,830-4%-3%$11,048$11,340-3%-2RNINGS BEFORE INTEREST ANDTAXES$1,526$1,497 2%$2,960$2,874 3%SECOND QUARTER OF FISCAL 2024 COMPARED TO SECOND QUARTER OF FISCAL 2023 North America revenues decreased 3%on a currency-neutral basis due to lower revenues in Mens,Kids and Womens,partially offset by higher revenues in theJordan Brand.Wholesale revenues decreased 9%,reflecting our proactive decisions to prioritize marketplace health in the current year coupled with our liquidation ofexcess inventory in the prior year.NIKE Direct revenues increased 3%,driven by digital sales growth of 2%,comparable store sales growth of 1%and the addition ofnew stores.Footwear revenues decreased 5%on a currency-neutral basis due to lower revenues in Mens,Kids and Womens,partially offset by higher revenues in the JordanBrand.Unit sales of footwear decreased 17%,while higher ASP per pair contributed approximately 12 percentage points of footwear revenue growth.Higher ASP perpair was primarily due to higher full-price and NIKE Direct ASPs as well as growth in NIKE Direct.Apparel revenues decreased 1%on a currency-neutral basis,primarily due to lower revenues in Mens,partially offset by higher revenues in Kids and Womens.Unitsales of apparel decreased 16%,while higher ASP per unit contributed 15 percentage points of apparel revenue growth.Higher ASP per unit was primarily due tohigher full-price and NIKE Direct ASPs.Reported EBIT increased 2%reflecting lower revenues and the following:Gross margin expansion of 240 basis points primarily due to higher full-price ASP,net of discounts,largely due to strategic pricing actions and lower discounts.Thiswas partially offset by higher product costs,reflecting higher product input costs partially offset by lower ocean freight rates,and lower margin in NIKE Direct.Selling and administrative expense increase of 2%driven by higher operating overhead expense.The increase in operating overhead expense was primarily due toan increase in NIKE Direct variable costs,partially offset by lower wage-related expenses.Demand creation expense was flat as lower sports marketing expense wasoffset by higher digital marketing.31Table of ContentsFIRST SIX MONTHS OF FISCAL 2024 COMPARED TO FIRST SIX MONTHS OF FISCAL 2023 North America revenues decreased 2%on a currency-neutral basis due to lower revenues in Mens,Womens and Kids,partially offset by higher revenues in theJordan Brand.Wholesale revenues decreased 9%,reflecting our proactive decisions to prioritize marketplace health in the current year coupled with our liquidation ofexcess inventory in the prior year.NIKE Direct revenues increased 5%,driven by comparable sales growth of 4%,the addition of new stores and digital sales growthof 3%.Footwear revenues decreased 3%on a currency-neutral basis due to lower revenues in Mens,Kids and Womens,partially offset by higher revenues in the JordanBrand.Unit sales of footwear decreased 15%,while higher ASP per pair contributed approximately 12 percentage points of footwear revenue growth.Higher ASP perpair was primarily due to higher full-price and NIKE Direct ASPs as well as growth in NIKE Direct.Apparel revenues decreased 1%on a currency-neutral basis due to lower revenues in Mens,Womens and the Jordan Brand,partially offset by higher revenues inKids.Unit sales of apparel decreased 17%,while higher ASP per unit contributed 16 percentage points of apparel revenue growth.Higher ASP per unit was primarilydue to higher full-price and NIKE Direct ASPs.Reported EBIT increased 3%reflecting lower revenues and the following:Gross margin expansion of 240 basis points primarily due to higher full-price ASP,net of discounts,largely due to strategic pricing actions and lower discounts.Thiswas partially offset by higher product costs,reflecting higher product input costs partially offset by lower ocean freight rates.Selling and administrative expense increase of 3%driven by higher operating overhead expense.The increase in operating overhead expense was primarily due tohigher NIKE Direct variable costs.Demand creation expense was flat as lower sports marketing expense and lower advertising and marketing expense was offset byhigher digital marketing.EUROPE,MIDDLE EAST&AFRICATHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$2,186$2,063 6%1%$4,446$4,075 9%6%Apparel1,200 1,281-6%-10%2,337 2,434-4%-7%Equipment181 145 2594 313 26!%TOTAL REVENUES$3,567$3,489 2%-3%$7,177$6,822 5%2%Revenues by:Sales to Wholesale Customers$2,138$2,242-5%-8%$4,517$4,445 2%-1%Sales through NIKE Direct1,429 1,247 15%7%2,660 2,377 12%7%TOTAL REVENUES$3,567$3,489 2%-3%$7,177$6,822 5%2RNINGS BEFORE INTEREST ANDTAXES$927$990-6%$1,857$1,965-5%SECOND QUARTER OF FISCAL 2024 COMPARED TO SECOND QUARTER OF FISCAL 2023 EMEA revenues decreased 3%on a currency-neutral basis due to lower revenues in Womens,Kids and Mens,partially offset by higher revenues in the JordanBrand.Wholesale revenues decreased 8%,reflecting our proactive decisions to prioritize marketplace health in the current year coupled with our liquidation of excessinventory in the prior year.NIKE Direct revenues increased 7%,driven by digital sales growth of 7%,comparable store sales growth of 8%and the addition of newstores.Footwear revenues increased 1%on a currency-neutral basis due to higher revenues in Mens and the Jordan Brand,largely offset by lower revenues in Kids andWomens.Unit sales of footwear decreased 5%,while higher ASP per pair contributed approximately 6 percentage points of footwear revenue growth.Higher ASPper pair was primarily due to growth in NIKE Direct and higher full-price ASP.Apparel revenues decreased 10%on a currency-neutral basis primarily due to lower revenues in Mens,Womens and Kids.Unit sales of apparel decreased 21%,while higher ASP per unit contributed approximately 11 percentage points of apparel revenue growth.Higher ASP per unit was primarily due to higher full-price andNIKE Direct ASPs.32Table of ContentsReported EBIT decreased 6%reflecting higher revenues and the following:Gross margin contraction of 140 basis points largely due to unfavorable changes in standard foreign currency exchange rates,partially offset by lower product costs,reflecting lower ocean freight rates,higher full-price ASP,net of discounts,primarily due to strategic pricing actions,and higher margin in NIKE Direct.Selling and administrative expense increase of 8%due to higher demand creation and operating overhead expense.Demand creation expense increased primarilydue to higher sports marketing expense and unfavorable changes in foreign currency exchange rates.Operating overhead expense increased primarily due tounfavorable changes in foreign currency exchange rates.FIRST SIX MONTHS OF FISCAL 2024 COMPARED TO FIRST SIX MONTHS OF FISCAL 2023 EMEA revenues increased 2%on a currency-neutral basis due to higher revenues in Mens,partially offset by lower revenues in Kids,Womens and the JordanBrand.NIKE Direct revenues increased 7%,driven by comparable store sales growth of 11%,the addition of new stores and digital sales growth of 3%.Footwear revenues increased 6%on a currency-neutral basis,primarily due to higher revenues in Mens and Womens,partially offset by lower revenues in Kids.Unit sales of footwear decreased 1%,while higher ASP per pair contributed approximately 7 percentage points of footwear revenue growth.Higher ASP per pair wasprimarily due to higher full-price ASP and growth in NIKE Direct.Apparel revenues decreased 7%on a currency-neutral basis due to lower revenues in Mens,Womens,the Jordan Brand and Kids.Unit sales of apparel decreased18%,while higher ASP per unit contributed approximately 11 percentage points of apparel revenue growth.Higher ASP per unit was primarily due to higher full-priceand NIKE Direct ASPs.Reported EBIT decreased 5%reflecting higher revenues and the following:Gross margin contraction of 220 basis points largely due to unfavorable changes in standard foreign currency exchange rates,partially offset by higher full-price ASP,net of discounts,primarily due to strategic pricing actions and higher margin in NIKE Direct.Selling and administrative expense increase of 9%due to higher operating overhead and demand creation expense.Operating overhead expense increasedprimarily due to higher wage-related expenses,other administrative costs and unfavorable changes in foreign currency exchange rates.Demand creation expenseincreased primarily due to higher sports marketing expense and unfavorable changes in foreign currency exchange rates.GREATER CHINATHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$1,361$1,370-1%3%$2,648$2,603 2%7%Apparel469 393 19$0 767 13%Equipment33 25 326 74 8%TOTAL REVENUES$1,863$1,788 4%8%$3,598$3,444 4%Revenues by:Sales to Wholesale Customers$1,027$897 14%$1,922$1,736 11%Sales through NIKE Direct836 891-6%-4%1,676 1,708-2%3%TOTAL REVENUES$1,863$1,788 4%8%$3,598$3,444 4RNINGS BEFORE INTEREST ANDTAXES$514$511 1%$1,039$1,052-13Table of ContentsSECOND QUARTER OF FISCAL 2024 COMPARED TO SECOND QUARTER OF FISCAL 2023 Greater China revenues increased 8%on a currency-neutral basis due to higher revenues in Mens,the Jordan Brand,Womens and Kids.NIKE Direct revenuesdecreased 4%due to digital sales declines of 22%,reflecting reduced digital traffic,partially offset by comparable store sales growth of 7%and growth in non-comparable store sales.Footwear revenues increased 3%on a currency-neutral basis due to higher revenues in Mens,the Jordan Brand,Kids and Womens.Unit sales of footwearincreased 3%and ASP per pair was flat,as lower NIKE Direct ASP and a lower mix of NIKE Direct sales were offset by higher full-price and off-price ASPs.Apparel revenues increased 24%on a currency-neutral basis due to higher revenues in Mens,the Jordan Brand,Womens and Kids.Unit sales of apparel increased16%,while higher ASP per unit contributed approximately 8 percentage points of apparel revenue growth.Higher ASP per unit was primarily due to higher NIKEDirect and off-price ASPs.Reported EBIT increased 1%reflecting higher revenues and the following:Gross margin expansion of approximately 80 basis points,primarily due to lower product costs,reflecting product mix,partially offset by unfavorable changes instandard foreign currency exchange rates and lower ASP,net of discounts,reflecting product mix partially offset by lower discounts.Selling and administrative expense increase of 7%primarily due to higher operating overhead expense.Operating overhead expense increased due to higher NIKEDirect costs,partially offset by favorable changes in foreign currency exchange rates.FIRST SIX MONTHS OF FISCAL 2024 COMPARED TO FIRST SIX MONTHS OF FISCAL 2023 Greater China revenues increased 10%on a currency-neutral basis due to higher revenues in Mens,the Jordan Brand,Womens and Kids.NIKE Direct revenuesincreased 3%due to comparable store sales growth of 7%and growth in non-comparable store sales,partially offset by digital sales declines of 10%,reflectingreduced digital traffic.Footwear revenues increased 7%on a currency-neutral basis due to higher revenues in the Jordan Brand,Mens,Womens and Kids.Unit sales of footwearincreased 6%,while higher ASP per pair contributed approximately 1 percentage point of footwear revenue growth.Higher ASP per pair was primarily due to higherfull-price ASP,partially offset by lower NIKE Direct ASP.Apparel revenues increased 19%on a currency-neutral basis,primarily due to higher revenues in Mens,Womens,and Kids.Unit sales of apparel increased 5%,while higher ASP per unit contributed approximately 14 percentage points of apparel revenue growth.Higher ASP per unit was primarily due to higher NIKE Directand full-price ASPs,as well as a higher mix of full-price sales.Reported EBIT decreased 1%reflecting higher revenues and the following:Flat gross margin,primarily due to unfavorable changes in standard foreign currency exchange rates offset by higher full-price ASP,net of discounts,largely due tolower discounts.Selling and administrative expense increase of 7%primarily due to higher operating overhead and demand creation expense.Operating overhead expenseincreased primarily due to higher NIKE Direct costs,partially offset by favorable changes in foreign currency exchange rates.Demand creation expense increasedprimarily due to higher advertising and marketing expense,partially offset by favorable changes in foreign currency exchange rates.34Table of ContentsASIA PACIFIC&LATIN AMERICATHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$1,303$1,108 18%$2,444$2,172 13%Apparel437 435 0%-28 848-5%-5%Equipment65 56 165 114 10%9%TOTAL REVENUES$1,805$1,599 13%$3,377$3,134 8%7%Revenues by:Sales to Wholesale Customers$1,051$965 9%7%$1,988$1,879 6%5%Sales through NIKE Direct754 634 19%1,389 1,255 11%9%TOTAL REVENUES$1,805$1,599 13%$3,377$3,134 8%7RNINGS BEFORE INTEREST ANDTAXES$521$485 7%$935$985-5%We completed the sale of our entity in Chile and our entities in Argentina and Uruguay to third-party distributors in the first and second quarters of fiscal 2023,respectively.The impacts from closing these transactions are included within Corporate and are not reflected in the Asia Pacific&Latin America operating segment results.Thiscompleted the transition of our NIKE Brand businesses within our Central and South America(CASA)marketplace,which now reflects a full distributor operating model.SECOND QUARTER OF FISCAL 2024 COMPARED TO SECOND QUARTER OF FISCAL 2023 APLA revenues increased 10%on a currency-neutral basis due to higher revenues across most territories,led by Southeast Asia&India,Korea and Mexico.Revenues increased due to overall growth in Mens,the Jordan Brand,Womens and Kids.NIKE Direct revenues increased 15%,driven by digital sales growth of14%,comparable store sales growth of 11%and the addition of new stores.Footwear revenues increased 15%on a currency-neutral basis,due to higher revenues in Mens,Womens,the Jordan Brand and Kids.Unit sales of footwearincreased 10%,while higher ASP per unit contributed approximately 5 percentage points of footwear revenue growth.Higher ASP per pair was primarily due to higherfull-price ASP,growth in NIKE Direct and higher off-price ASP,partially offset by lower NIKE Direct ASP.Apparel revenues decreased 2%on a currency-neutral basis,primarily due to lower revenues in Mens and Womens.Unit sales of apparel decreased 9%,whilehigher ASP per unit contributed approximately 7 percentage points of apparel revenue growth.Higher ASP per unit was primarily due to higher full-price ASP,growthin NIKE Direct and higher off-price ASP,partially offset by lower NIKE Direct ASP.Reported EBIT increased 7%reflecting higher revenues and the following:Gross margin contraction of approximately 200 basis points primarily due to unfavorable changes in standard foreign currency exchange rates and lower margin inNIKE Direct.This was partially offset by higher full-price ASP,net of discounts,primarily due to strategic pricing actions.Selling and administrative expense increase of 9%due to higher demand creation and operating overhead expense.Demand creation expense increased primarilydue to higher digital marketing and sports marketing expense.Operating overhead expense increased primarily due to higher wage-related expenses and NIKEDirect variable costs.FIRST SIX MONTHS OF FISCAL 2024 COMPARED TO FIRST SIX MONTHS OF FISCAL 2023 APLA revenues increased 7%on a currency-neutral basis due to higher revenues across most territories,led by Southeast Asia&India,Japan,Mexico and Korea,partially offset by lower revenues in CASA.Within our CASA territory,the transition of our Chile,Argentina and Uruguay entities to a third-party distributor operatingmodel did not have a material impact on APLA revenues.Revenues increased due to overall growth in Mens,the Jordan Brand,Womens and Kids.NIKE Directrevenues increased 9%,driven by comparable store sales growth of 11%,the addition of new stores and digital sales growth of 6%.Footwear revenues increased 11%on a currency-neutral basis due to higher revenues in Mens,Womens,the Jordan Brand and Kids.Unit sales of footwearincreased 8%,while higher ASP per unit contributed approximately 3 percentage points of footwear revenue growth.Higher ASP per pair was primarily due to higherfull-price ASP,growth in NIKE Direct and higher off-price ASP,partially offset by lower NIKE Direct ASP.35Table of Contents Apparel revenues decreased 5%on a currency-neutral basis,primarily due to lower revenues in Mens and Womens.Unit sales of apparel decreased 13%,whilehigher ASP per unit contributed approximately 8 percentage points of apparel revenue growth.Higher ASP per unit was primarily due to higher full-price ASP,growthin NIKE Direct and higher off-price ASP,partially offset by lower NIKE Direct ASP.Reported EBIT decreased 5%reflecting higher revenues and the following:Gross margin contraction of approximately 310 basis points primarily due to unfavorable changes in standard foreign currency exchange rates,lower margin in NIKEDirect and higher product costs,reflecting higher product input costs.This was partially offset by higher full-price ASP,net of discounts.Selling and administrative expense increase of 12%due to higher demand creation and operating overhead expense.Demand creation expense increased primarilydue to higher marketing expense.Operating overhead expense increased primarily due to higher wage-related expenses and NIKE Direct variable costs.GLOBAL BRAND DIVISIONSTHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues$12$18-33%-41%$25$32-22%-25rnings(Loss)Before Interest and Taxes$(1,168)$(1,226)5%$(2,373)$(2,413)2%Global Brand Divisions primarily represent demand creation and operating overhead expense,including product creation and design expenses that are centrally managedfor the NIKE Brand,as well as costs associated with NIKE Direct global digital operations and enterprise technology.Global Brand Divisions revenues include NIKE Brandlicensing and other miscellaneous revenues that are not part of a geographic operating segment.SECOND QUARTER OF FISCAL 2024 COMPARED TO SECOND QUARTER OF FISCAL 2023Global Brand Divisions loss before interest and taxes decreased 5%primarily due to lower operating overhead and demand creation expense.Lower operating overheadexpense was primarily due to lower technology spend and wage-related costs.Lower demand creation expense was primarily due to decreased advertising and marketingexpense.FIRST SIX MONTHS OF FISCAL 2024 COMPARED TO FIRST SIX MONTHS OF FISCAL 2023Global Brand Divisions loss before interest and taxes decreased 2%primarily due to lower operating overhead expense partially offset by higher demand creationexpense.Lower operating overhead expense was primarily due to lower technology spend and lower wage-related costs.Higher demand creation expense was primarilydue to higher advertising and marketing expense.36CONVERSETHREE MONTHS ENDED NOVEMBER 30,SIX MONTHS ENDED NOVEMBER 30,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$442$517-15%-16%$964$1,093-12%-13%Apparel30 21 43EP 42 19%Equipment7 6 17 14 29(%Other40 42-5%-5u 80-6%-6%TOTAL REVENUES$519$586-11%-13%$1,107$1,229-10%-11%Revenues by:Sales to Wholesale Customers$257$304-15%-17%$586$647-9%-11%Sales through Direct to Consumer222 240-8%-9D6 502-11%-11%Other40 42-5%-5u 80-6%-6%TOTAL REVENUES$519$586-11%-13%$1,107$1,229-10%-11RNINGS BEFORE INTERESTAND TAXES$115$153-25%$282$362-22%(1)Other revenues consist of territories serviced by third-party licensees who pay royalties to Converse for the use of its registered trademarks and other intellectual property rights.We do not own theConverse trademarks in Japan and accordingly do not earn revenues in Japan.SECOND QUARTER OF FISCAL 2024 COMPARED TO SECOND QUARTER OF FISCAL 2023 Converse revenues decreased 13%on a currency-neutral basis as revenue declines in North America and Western Europe were partially offset by growth in Asia.Combined unit sales within the wholesale and direct to consumer channels decreased 13%,driven primarily by a decrease in wholesale,while ASP was flat.Wholesale revenues decreased 17%on a currency-neutral basis,as declines in North America and Western Europe were partially offset by growth in Asia.Direct to consumer revenues decreased 9%on a currency-neutral basis primarily due to reduced traffic in North America.Reported EBIT decreased 25%reflecting lower revenues and the following:Gross margin contraction of approximately 160 basis points due to lower margin in direct to consumer and unfavorable changes in standard foreign currencyexchange rates,offset by lower ocean freight rates.Selling and administrative expense decrease of 8%due to lower demand creation and operating overhead expense.Demand creation expense decreased as a resultof lower advertising and marketing costs
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Shell plc|November 2,2023Consistent performance,supporting enhanced distributions Third quarter 2023 resultsShell plcNovember 2,2023Shell plc|November 2,20232This presentation includes certain measures that are calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles(GAAP)such as IFRS,including Adjusted Earnings,Adjusted EBITDA,CFFO excluding working capital movements,Cash capital expenditure,free cash flow,Divestment proceeds and Net debt.This information,along with comparable GAAP measures,is useful to investors because it provides a basis for measuring Shell plcs operating performance and ability to retire debt and invest in new business opportunities.Shell plcs management uses these financial measures,along with the most directly comparable GAAP financial measures,in evaluating the business performance.This presentation contains a forward-looking non-GAAP measure for cash capital expenditure and divestments.We are unable to provide a reconciliation of this forward-looking non-GAAP measure to the most comparable GAAP financial measure because certain information needed to reconcile the non-GAAP measure to the most comparable GAAP financial measure is dependent on future events some of which are outside the control of the company,such as oil and gas prices,interest rates and exchange rates.Moreover,estimating such GAAP measure with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort.Non-GAAP measures in respect of future periods which cannot be reconciled to the most comparable GAAP financial measure are estimated in a manner which is consistent with the accounting policies applied in Shell plcs consolidated financial statements.“Adjusted Earnings”is the income attributable to Shell plc shareholders for the period,adjusted for the after-tax effect of oil price changes on inventory and for identified items,and excludes earnings attributable to non-controlling interest.In this presentation,“earnings”refers to“Adjusted Earnings”unless stated otherwise.We define“Adjusted EBITDA“as“Income/(loss)for the period“adjusted for current cost of supplies;identified items;tax charge/(credit);depreciation,amortisation and depletion;exploration well write-offs and net interest expense.All items include the non-controlling interest component.In this presentation,“operating expenses”,“costs”and“underlying costs”refer to“Underlying operating expenses”unless stated otherwise.Underlying operating expenses represent“operating expenses excluding identified items”.Operating expenses consist of the following lines in the Consolidated Statement of Income:(i)production and manufacturing expenses;(ii)selling,distribution and administrative expenses;and(iii)research and development expenses.Cash flow from operating activities excluding working capital movements is defined as“Cash flow from operating activities”less the sum of the following items in the Consolidated Statement of Cash Flows:(i)(increase)/decrease in inventories,(ii)(increase)/decrease in current receivables,and(iii)increase/(decrease)in current payables.In this presentation,“capex”refers to“Cash capital expenditure”unless stated otherwise.Cash capital expenditure comprises the following lines from the Consolidated Statement of Cash Flows:Capital expenditure,Investments in joint ventures and associates and Investments in equity securities.Free cash flow is defined as the sum of“Cash flow from operating activities”and“Cash flow from investing activities”.Organic free cash flow is defined as free cash flow excluding inorganic cash capital expenditure,divestment proceeds,and tax paid on divestments.In this presentation,“divestments”refers to“divestment proceeds”unless stated otherwise.Divestment proceeds are defined as the sum of(i)proceeds from sale of property,plant and equipment and businesses,(ii)proceeds from sale of joint ventures and associates,and(iii)proceeds from sale of equity securities.Net debt is defined as the sum of current and non-current debt,less cash and cash equivalents,adjusted for the fair value of derivative financial instruments used to hedge foreign exchange and interest rate risks relating to debt,and associated collateral balances.Reconciliations of the above non-GAAP measures are included in the Shell plc Unaudited Condensed Financial Report for the thirdquarter and nine months ended September 30,2023.The companies in which Shell plc directly and indirectly owns investments are separate legal entities.In this presentation“Shell”,“Shell Group”and“Group”are sometimes used for convenience where references are made to Shell plc and its subsidiaries in general.Likewise,the words“we”,“us”and“our”are also used to refer to Shell plc and its subsidiaries in general or to those who work for them.These terms are also used where no useful purpose is served by identifying the particular entity or entities.“Subsidiaries”,“Shell subsidiaries”and“Shell companies”as used in this presentation refer to entities over which Shell plc either directly or indirectly has control.Entities and unincorporated arrangements over which Shell has joint control are generally referred to as“joint ventures”and“joint operations”,respectively.“Joint ventures”and“joint operations”are collectively referred to as“joint arrangements”.Entities over which Shell has significant influence but neither control nor joint control are referred to as“associates”.The term“Shell interest”is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in an entity or unincorporated joint arrangement,after exclusion of all third-party interest.This presentation contains forward-looking statements(within the meaning of the U.S.Private Securities Litigation Reform Act of 1995)concerning the financial condition,results of operations and businesses of Shell.All statements other than statements of historical fact are,or may be deemed to be,forward-looking statements.Forward-looking statements are statements of future expectations that are based on managements current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results,performance or events to differ materially from those expressed or implied in these statements.Forward-looking statements include,among other things,statements concerning the potential exposure of Shell to market risks and statements expressing managements expectations,beliefs,estimates,forecasts,projections and assumptions.These forward-looking statements are identified by their use of terms and phrases such as“aim”,“ambition”,“anticipate”,“believe”,“could”,“estimate”,“expect”,“goals”,“intend”,“may”,“milestones”,“objectives”,“outlook”,“plan”,“probably”,“project”,“risks”,“schedule”,“seek”,“should”,“target”,“will”and similar terms and phrases.There are a number of factors that could affect the future operations of Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation,including(without limitation):(a)price fluctuations in crude oil and natural gas;(b)changes in demand for Shells products;(c)currency fluctuations;(d)drilling and production results;(e)reserves estimates;(f)loss of market share and industry competition;(g)environmental and physical risks;(h)risks associated with the identification of suitable potential acquisition properties and targets,and successful negotiation and completion of such transactions;(i)the risk of doing business in developing countries and countries subject to international sanctions;(j)legislative,judicial,fiscal and regulatory developments including regulatory measures addressing climate change;(k)economic and financial market conditions in various countries and regions;(l)political risks,including the risks of expropriation and renegotiation of the terms of contracts with governmental entities,delays or advancements in the approval of projects and delays in the reimbursement for shared costs;(m)risks associated with the impact of pandemics,such as the COVID-19(coronavirus)outbreak;and(n)changes in trading conditions.No assurance is provided that future dividend payments will match or exceed previous dividend payments.All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.Readers should not place undue reliance on forward-looking statements.Additional risk factors that may affect future results are contained in Shell plcs Form 20-F for the year ended December 31,2022(available at and www.sec.gov).These risk factors also expressly qualify all forward-looking statements contained in this presentation and should be considered by the reader.Each forward-looking statement speaks only as of the date of this presentation,November 2,2023.Neither Shell plc nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information,future events or other information.In light of these risks,results could differ materially from those stated,implied or inferred from the forward-looking statements contained in this presentation.All amounts shown throughout this presentation are unaudited.The numbers presented throughout this presentation may not sum precisely to the totals provided and percentages may not precisely reflect the absolute figures,due to rounding.Also,in this presentation we may refer to Shells“Net Carbon Intensity”,which includes Shells carbon emissions from the production of our energy products,our suppliers carbon emissions in supplying energy for that production and our customers carbon emissions associated with their use of the energy products we sell.Shell only controls its own emissions.The use of the term Shells“Net Carbon Intensity”is for convenience only and not intended to suggest these emissions are those of Shell plc or its subsidiaries.Shells operating plan,outlook and budgets are forecasted for a ten-year period and are updated every year.They reflect the current economic environment and what we can reasonably expect to see over the next ten years.Accordingly,they reflect our Scope 1,Scope 2 and Net Carbon Intensity(NCI)targets over the next ten years.However,Shells operating plans cannot reflect our 2050 net-zero emissions target and 2035 NCI target,as these targets are currently outside our planning period.In the future,as society moves towards net-zero emissions,we expect Shells operating plans to reflect this movement.However,if society is not net zero in 2050,as of today,there would be significant risk that Shell may not meet this target.The content of websites referred to in this presentation does not form part of this presentation.We may have used certain terms,such as resources,in this presentation that the United States Securities and Exchange Commission(SEC)strictly prohibits us from including in our filings with the SEC.Investors are urged to consider closely the disclosure in our Form 20-F,File No 1-32575,available on the SEC website www.sec.gov.The financial information presented in this presentation does not constitute statutory accounts within the meaning of section 434(3)of the Companies Act 2006(“the Act”).Statutory accounts for the year ended December 31,2022,were published in Shells Annual Report and Accounts,a copy of which was delivered to the Registrar of Companies for England and Wales,and in Shells Form 20-F.The auditors report on those accounts was unqualified,did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under sections 498(2)or 498(3)of the Act.The information in this presentation does not constitute the unaudited condensed consolidated financial statements which are contained in Shells third quarter 2023 unaudited results available on 207 934 5550;USA 1 832 337 4355Definitions&cautionary note Shell plc|November 2,20233Key messages 1Income attributable to shareholders is$7.0 billion in Q3 2023.APM reconciliations are available in the Q3 2023 Quarterly Databook here.2For the next three monthsQ3 2023 PerformanceHigher oil prices and refining marginsRobust operational performance across Upstream and Integrated GasSolid cash performance,with working capital inflowDisciplineShareholder returns$6.2 billionAdjusted Earnings1$12.3 billionCFFO$2325 billion2023 Cash capex$40.5 billionNet debt$0.331Dividend per share$3.5 billionBuyback programme2Lower cash capex outlook,including inorganicUK Power B2C and Pakistan divestments agreedStrong balance sheet32%higher dividend per share than Q3 2022Announced total shareholder distributions of$23 billion for 2023NYSEShell plc|November 2,20234A pragmatic approach to capital allocation1 1Subject to Board approvalFinancial framework3040%of CFFO through the cycle4%progressive dividend annually1 1Balanced Capital AllocationEnhanced Shareholder DistributionsDisciplinedInvestmentStrong Balance SheetCash capex:$2225 billion p.a.for 2024 and 2025AA credit metricsthrough the cycleTotal shareholder distributions of$23 billion announced for 2023Cash capex outlook of$2325 billion for 2023Shell plc|November 2,20235Higher oil prices and refining marginsData based on monthly averages.Macro6080100120140BrentJCC-3020406080Henry HubEU TTF-1000100200300400-10010203040IRMICM(RHS)$/bbl$/MMBtu$/tonne$/bblOilShell Indicative Refining Margin(IRM)and Indicative Chemical Margin(ICM)GasShell plc|November 2,20236Strong financial performanceAPM reconciliations are available in the Q3 2023 Quarterly Databook here.Financial resultsIncome attributable to Shell plc shareholdersAdjusted EarningsAdjusted EBITDACash flow from operationsCash capital expenditureFree cash flow Net debt$3.1 billion$5.1 billion$14.4 billion$15.1 billion$5.1 billion$12.1 billion$40.3 billionQ2 2023$7.0 billion$6.2 billion$16.3 billion$12.3 billion$5.6 billion$7.5 billion$40.5 billionQ3 2023Shell plc|November 2,20237Strong financial performance1Non-controlling interestAPM reconciliations are available in the Q3 2023 Quarterly Databook here.Financial resultsAdjusted EarningsAdjusted EBITDACFFO$billionQ3 2023Q2 2023Q3 2023Q2 2023Q3 2023Q2 2023Integrated Gas2.52.54.94.84.03.6Upstream2.21.77.46.45.34.5Marketing0.70.91.51.60.91.4Chemicals&Products1.40.42.61.32.42.1R&ES(0.1)0.20.10.4(0.0)3.2Corporate&NCI1(0.6)(0.7)(0.1)(0.2)(0.2)0.3Total6.25.15.116.314.414.412.315.115.1Additional information available in the Q3 2023 Quarterly Press ReleaseShell plc|November 2,2023Solid cash generation6.216.312.30481216208Cash conversion Q3 2023$billion1Non-controlling interest2AR/AP&Other includes initial margin.Financial results5.16.20246810Adjusted Earnings Q2 2023 to Q3 2023$billion0.55.93.7(0.0)(2.5)(1.9)(2.5)(0.7)3.60.00.5(0.2)0.9(0.3)0.1Prices&margins:$1.7 billion Volume&mix:$0.1 billion Other:$(0.7)billion$0.4 billionworking capital movement Shell plc|November 2,20239Portfolio updatesClick on the icons on map for further details on the deal/project.2023 deliveryGrowthFor additional portfolio information visit our investors page on Volta acquisitionVito start-upAera Energy divestmentShell home energy retail businesses(UK,NL and Germany)exit announcedPierce redevelopmentNature Energy acquisition Shell Pakistan Limited(SPL)divestment agreedQatarEnergy LNG NFS(2)Strategic review of Singapore Energy&Chemicals ParkBaram Delta divestmentLongevityHigh-gradingMap not to scaleSprng Energy investment funnelSavion investment funnel Masela PSC/Abadi divestmentTimi start-upEV growthShell plc|November 2,2023Corporate reports:Annual Report 2022Energy Transition Progress Report 2022 Payments to Governments Report 2022Sustainability Report 2022Nigeria briefing notes 2022Useful links:Capital Markets DayAnnual and Quarterly DatabookShell Energy Transition StrategyESG performance dataWar in Ukraine:Shells ResponseUpcoming events:Feb 1,2024Q4 2023 resultsMay 2,2024Q1 2024 resultsAug 1,2024Q2 2024 resultsOct 31,2024Q3 2024 resultsShell plc|November 2,202312Performing with purposeGeneratingshareholder valuePoweringlivesAchieving net-zeroemissionsRespectingnatureUnderpinned by our core values and our focus on safetyOur purpose is topower progress together by providing more and cleaner energy solutionsPowering ProgressShell plc|November 2,202313The investment case through the energy transition 1 12023-2025 2 2Includes infrastructure&assets($20 billion)and low-carbon energy solutions($10-15 billion)3 32022 to 2025,for price assumptions see CMD 23 materials4 4Subject to Board approval 5 5Share buyback programmes for the second half of 2023 are expected to be completed by the Q4 2023 results announcement.Providing Energy SecurityEnabling the Energy TransitionPerformance,Discipline,Simplification Committed to Enhancing Shareholder ReturnsReduce structural cost by$2-3 billion by end-2025&lower capital spend to$22-25 billion p.a.in 2024 and 2025Grow FCF/share 10%p.a.through 20253 3Shareholder returns increased to 30-40%of CFFO through the cycleDividend per share increase of 15%at Q2 2023&second half 2023 buybacks of at least$5 billion4,5;actual announced buybacks$6.5 billion5Providing molecules to decarbonise the transport and industry sectors,while high-grading the Downstream businessInvesting$35 billion1,21,2into Downstream and Renewables&Energy Solutions,of which$10-15 billion1 1is directly into low-carbon energy solutionsCommitted to oil and gas,with a focus on LNG growthInvesting$40 billion1 1in Leading Integrated Gas&Advantaged Upstream Shell plc|November 2,202314Pipeline of major projects KEYLow-carbon fuelsMap not to scaleProjects under constructionPeak production/Capacity/ProductsShell share%CountryStart-up 2023-2024Mero 2 A180 kboe/d19.3BrazilMero 3 A180 kboe/d19.3BrazilWhale100 kboe/d60USASprng Energy(multiple)B1,168 MW100IndiaSavion(multiple)B591 MW100USACrosswind/HKN B759 MW79.9NetherlandsShell Bovarius400,000 MMBtu RNG100USAShell Friesian350,000 MMBtu RNG100USANorthern Lights JV(Phase 1)1.5 mtpa CO2captured and/or stored33.3NorwayStart-up 2025 Mero 4 A180 kboe/d19.3 BrazilMarjoram/Rosmari100 kboe/d80MalaysiaLNG Canada T1-214 mtpa40CanadaNLNG T77.6 mtpa26NigeriaQatarEnergy LNG NFE(2)8 mtpa25*QatarQatarEnergy LNG NFS(2)6 mtpa25*QatarHEFA Biofuels Plant Rotterdam820,000 tonnes of renewable fuels 100NetherlandsHolland Hydrogen I200 MW100NetherlandsEcowende/HKW B760 MW60NetherlandsSouthCoast Wind Project 1 B1,209 MW50USAAtlantic Shores-Project 1 B1,509 MW50USAUpstreamLiquefaction plantsHydrogen electrolyser.CCSSolarOffshore wind.A Subject to unitisation agreements,data shown as per operator.B Renewable generation capacity under construction and/or committed for sale,with multiple start-up dates.*A 25%share in a JV company which will own 25%of the QatarEnergy LNG NFE(2)expansion project and a 25%share in a JV company which will own 37.5%of the QatarEnergy LNG NFS(2)expansion projectFurther details are available on our investors page on Q3 2023 updates:First gas from the Timi platform in MalaysiaShell plc|November 2,202315Start-up of Razens second E2G plant1non-operated JV;Dotted arrows indicate optional marketsGrowing our Low Carbon Fuels businessShell and Razen partnership with an integrated value offerRazen sugarcane fields 2,000 km away from the Amazon forest,0forestation,Bonsucro certifiedProprietary E2G TechnologyCarbon Intensity of 18gCO2e/MJ(vs gasoline 94gCO2e/MJ)Shell-branded service stations#2 market position in Brazil&Argentina;#1 in Paraguay 2 E2G plants completed,7 under construction75%Shell offtake across plantsRazen(a listed company with a 44%Shell interest)1is a leading second-generation ethanol(E2G)producer globally,transforming waste into a high-value product with low emissions.BrazilTogether one of the worlds largest producers&distributors of advanced biofuels&EthanolMap not to scaleKey E2G markets AutomotiveSAF/Alcohol to JetSolventsCosmetics/PharmaBeveragesBioplasticsAsia
2023-12-20
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Aramco announces third quarter 2023 resultsCompany continues to deliver robust earnings while progressing its growth strategy“Our robust financial results reinforce Aramcos ability to generate consistent value for our shareholders,and we continue to identify new opportunities to evolve our business and meet the needs of customers.“During the third quarter we agreed to make our first international investment in liquefied natural gas(LNG)to capitalize on rising LNG demand,and announced our intention to enter the South American retail market.These planned investments demonstrate the scale of our ambition,the broad scope of our activities,and the disciplined execution of our strategy.I am excited by the progress we are making,which I believe will complement both our Upstream capacity expansion and our growing Downstream presence.“We intend to continue investing across the hydrocarbon chain,leveraging cutting-edge technologies to optimize our operations and advance the development of emerging energy solutions.It is an approach rooted in our belief that a balanced and realistic energy transition plan should consider the needs of all geographies,in order to avoid disparities between global energy consumers.”Key financial resultsThird quarter ended September 30Nine months ended September 30SARUSD*SARUSD*All amounts in millions unless otherwise stated20232022202320222023202220232022Net income 122,188159,11532,58342,430354,540488,78494,544130,342EBIT1233,523301,81062,27380,482667,233909,618177,929242,565Capital expenditures41,35433,89511,0289,038113,39097,42330,23725,979Free cash flow176,280168,61720,34144,965278,966413,27474,392110,207Dividends paid110,18170,32929,38218,754256,491210,98868,39856,263ROACE1,2 23.42.6#.42.6#.42.6#.42.6%Average realized crude oil price($/barrel)n/an/a89.3101.7n/an/a82.9104.3*Supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only.1.Non-IFRS measure:refer to Non-IFRS measures reconciliations and definitions section for further details.2.Calculated on a 12-month rolling basis.Amin H.NasserPresident and CEO Net income:$32.6 billion(Q3 2022:$42.4 billion)Cash flow from operating activities:$31.4 billion(Q3 2022:$54.0 billion)Free cash flow1:$20.3 billion(Q3 2022:$45.0 billion)Gearing ratio1:-7.6%as at September 30,2023,compared to-7.9%at end of 2022 Q2 base dividend of$19.5 billion paid in the third quarter;Q3 base dividend of$19.5 billion to be paid in the fourth quarter First performance-linked dividend distribution of$9.9 billion paid in Q3;second distribution of approximately$9.9 billion to be paid in Q4 based on combined full-year 2022 and nine-month 2023 results Strategic expansion continues with agreement on first international LNG investment,and plan to enter South American market through a downstream retail acquisition Company increases raw gas processing capacity by 800 million standard cubic feet per day(mmscfd),including approximately 750 mmscfd of sales gas processing capacity,through Hawiyah Gas Plant expansion Collaboration with Stellantis indicates eFuel compatibility with 24 engine families in Europe 2Saudi AramcoThird quarter and nine months interim report 2023Third quarter highlights Aramco announced its first international investment in LNG by signing definitive agreements to acquire a strategic minority stake in MidOcean Energy for SAR 1.88 billion($0.5 billion).The agreements include the option for Aramco to increase its shareholding and associated rights in MidOcean Energy in the future.Completion of the transaction is subject to closing conditions which include regulatory approvals.DownstreamAramcos Downstream segment continued its efforts to further integrate across the hydrocarbon value chain,leverage the potential of its products in order to meet anticipated demand for petrochemical products,and expand its business in key global markets.During the quarter,the Company continued to demonstrate its excellent track record of dependable operations,achieving 99.8%supply reliability.In the first nine months of the year,Downstream utilized approximately 45%of Aramcos crude oil production.Key Downstream developments include the following:SABIC,a subsidiary of Aramco,agreed to the sale of all its shares in the Saudi Iron and Steel Company(Hadeed)to PIF.The transaction,which is subject to certain customary approvals and satisfaction of certain conditions,will enable SABIC to optimize its portfolio,focus on its core business,and support its vision to become the preferred world leader in chemicals.The transaction is expected to be completed in the first quarter of 2024;Aramco agreed to purchase a 100%equity stake in the Chilean retailer Esmax Distribuscin SpA(Esmax)from Southern Cross Group,representing the Companys first downstream retail investment in South America.The transaction,which is subject to certain customary conditions including regulatory approvals,would Global crude oil market conditions strengthened in the third quarter despite continued inflationary pressures as strong demand and reduced inventories lifted crude oil prices.As a result of this increase,along with improved refining margins,the Companys low-cost Upstream operations and its strategically integrated Downstream business,Aramco delivered robust earnings and free cash flow.In line with its aim to maximize shareholder returns,the Company declared a base dividend of SAR 73.2 billion($19.5 billion)for the third quarter.As announced earlier this year,Aramco also intends to share additional upside with investors through performance-linked dividends to be calculated based on the Groups combined full-year results for 2022 and 2023.These are intended to be paid over six quarters,and the first distribution was paid in the third quarter of 2023.The Board has approved the second distribution of these performance-linked dividends in the amount of SAR 37.0 billion($9.87 billion)calculated based on the full-year results of 2022 and the nine-month results for the period ended September 30,2023.This second distribution will be made in the fourth quarter and subsequent distributions are expected to be adjusted to reflect the remaining results for 2023.Aramco believes energy demand is likely to increase over the mid-to long-term and is investing in its growing,integrated portfolio through the largest capital program in its history.During the quarter,capital expenditures were SAR 41.4 billion($11.0 billion),reflecting Aramcos intention to meet rising demand by capturing unique investment opportunities.UpstreamIn the third quarter,Aramco delivered total hydrocarbon production of 12.8 mmboed through continued reliable and efficient operations.The Company also progressed the strategic expansion of its MSC to 13.0 mmbpd by 2027 through ongoing engineering,procurement,and construction activities related to the following projects:The Marjan and Berri crude oil increments,which are expected to be onstream by 2025 and add production capacity of 300 mbpd and 250 mbpd,respectively;The Dammam development project,which is expected to add crude oil production of 25 mbpd in 2024 and 50 mbpd in 2027;and,The Zuluf crude oil increment,which is expected to process 600 mbpd of crude oil from the Zuluf field through a central facility by 2026.Aramco believes gas will be important in meeting the worlds rising need for secure,accessible,and more sustainable energy.During the quarter,the Company progressed its gas expansion strategy to meet growing domestic demand through ongoing projects,and took a first step towards becoming a leading global liquefied natural gas(LNG)player.The Hawiyah Gas Plant expansion,part of the Haradh gas increment program,was successfully commissioned and brought onstream,increasing the Plants raw gas processing capacity by 800 mmscfd which includes approximately 750 mmscfd of sales gas processing capacity.Commissioning activities for the gas compression projects at the Haradh and Hawiyah fields are in advanced stages of completion,with eight of the nine plants commissioned and the final plant expected to be fully onstream in 2023.3Saudi AramcoThird quarter and nine months interim report 2023Sustainability As part of its sustainability framework,Aramco seeks to develop lower-carbon solutions and noncombustible uses for its products,and invest in the development of lower greenhouse gas emissions technologies.Subsequent to its announcement in the second quarter,Aramco completed the financial close of the Al Shuaibah 1 and Al Shuaibah 2 photovoltaic solar projects.The projects,which will be jointly owned by Aramco(30.0%),PIF(34.99%)and ACWA Power Company(35.01%),have an estimated total cost of SAR 8.9 billion($2.37 billion)and are expected to have combined capacity of 2.66 GW.These projects align with Aramcos intention to invest in solar and wind energy in support of the Kingdoms National Renewable Energy Program.Extensive testing of Aramco-provided surrogate eFuels has determined that advanced eFuels can be compatible with 24 engine families in Europe and used as a drop-in technology without powertrain modifications.The testing was completed through a partnership with Stellantis over several months at their technical centers across Europe.The surrogate eFuels used in the testing exhibit the expected characteristics of the fuels to be produced at Aramcos planned synthetic fuels demonstration plants in Saudi Arabia and Spain.The use of eFuels could potentially result in a reduction of CO2 emissions from existing internal combustion vehicles by at least 70%on a life cycle basis compared to conventional fuels.Novel Non-Metallic Solutions(Novel),a joint venture between Aramco and Baker Hughes to develop and commercialize a broad range of nonmetallic products,has commenced operations from its nonmetallic production facility at King Salman Energy Park in the Eastern Province of Saudi Arabia.The Novel facility produces a nonmetallic reinforced thermoplastic(RTP)pipe and has an annual production capacity of 1,000 kilometers.The Novel RTP pipe is corrosion resistant,lighter,enable Aramco to secure outlets for its refined products,create a platform to launch the Aramco brand in South America while strengthening its downstream value chain,and unlock new market opportunities for its Valvoline-branded lubricants;and Aramco signed a cooperation framework agreement with Jiangsu Eastern Shenghong Company Limited(Eastern Shenghong)and a Memorandum of Understanding(MoU)with Shandong Yulong Petrochemical Company Limited(Shandong Yulong).The agreement and MoU are expected to facilitate discussions of acquiring 10%strategic equity interests in each of Shenghong Petrochemical Industry Group Company Limited(Shenghong Petrochemical),a wholly-owned subsidiary of Eastern Shenghong,and in Shandong Yulong.Under these potential transactions,it is intended that Aramco would have the right to supply both companies with crude oil and possibly other feedstocks.Shenghong Petrochemical owns and operates a 320 mbpd integrated refinery and petrochemicals complex and other facilities,and Shandong Yulong is currently in the process of completing the construction of a refining and petrochemicals complex designed to process approximately 400 mbpd of crude oil.These transactions are subject to due diligence,negotiation of transaction documents,and required regulatory clearances.These opportunities are expected to support Aramcos efforts to increase the conversion of liquids-to-chemicals and expand into high-growth and strategic geographies.more durable,and easier to install than conventional steel pipe,reducing its cost and carbon footprint across the life cycle.Aramco has utilized RTP pipes at its facilities since 2015,and the Novel joint venture supports its efforts to localize its supply chain and help build a thriving in-Kingdom energy value chain.Aramco has been exploring multiple early-stage greenhouse gas emissions reduction initiatives during the quarter related to lower-carbon hydrogen,direct air capture of CO2,an innovative approach to CO2 storage that involves dissolving CO2 in water and injecting it into volcanic rock,and assessing potential geothermal resources on the west coast of Saudi Arabia.It is believed these initiatives,if they prove successful,could potentially help support Aramcos ambition to achieve net-zero Scope 1 and Scope 2 greenhouse gas emissions across its wholly-owned operated assets by 2050.4Saudi AramcoThird quarter and nine months interim report 2023 All amounts in millions unless otherwise statedFinancial performanceSummary of financial performanceThird quarterNine monthsSARUSD*SARUSD*All amounts in millions unless otherwise stated2023202220232022%change2023202220232022%changeIncome before income taxes and zakat238,373302,27963,56680,607(21.1)h5,038909,890182,677242,637(24.7)%Income taxes and zakat(116,185)(143,164)(30,983)(38,177)(18.8)%(330,498)(421,106)(88,133)(112,295)(21.5)%Net income122,188159,11532,58342,430(23.2)54,540488,78494,544130,342(27.5)%*Supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only.Financial ResultsKey factors affecting Aramcos financial results Aramcos results of operations and cash flows are primarily driven by market prices and volumes sold of hydrocarbons as well as refined and chemicals products.Ongoing economic uncertainty resulted in lower prices for hydrocarbons and lower refining and chemicals margins,compared to the same period in 2022.In January 2023,Aramco received a payment of SAR 15.6 billion($4.2 billion)related to the financing arrangement with the Jazan Integrated Gasification and Power Company(JIGPC).This is the second of three payments to be received by Aramco as a result of this transaction.The remaining amount of SAR 2.0 billion($0.5 billion)is expected to be received by the end of the year.With respect to the deferred consideration related to the SABIC acquisition,the Company made payments in the amount of SAR 59.0 billion($15.7 billion),SAR 41.3 billion($11.0 billion)and SAR 16.7 billion($4.5 billion),resulting in the full settlement of the deferred consideration.These payments resulted in a decrease in total borrowings and cash and cash equivalents,and a gain of SAR 5.8 billion($1.5 billion).With regards to Aramcos acquisition of a 10%equity interest in Rongsheng Petrochemical in July 2023,Aramco recognized an equity investment at fair value through other comprehensive income within investments in securities of SAR 6.4 billion($1.7 billion),and a non-current other asset of SAR 6.0 billion($1.6 billion)relating to a payment made for the long-term sales agreement.This acquisition aligns with Aramcos strategic goal to enhance its Downstream business in high-growth geographies and advance its liquids-to-chemicals strategy.In relation to SABICs agreement to sell its 100%shareholding in Hadeed to PIF,the assets and liabilities of Hadeed were remeasured and classified as held for sale as at September 30,2023.As a result,a loss on fair value measurement of SAR 3.2 billion($0.85 billion)was recognized in the condensed consolidated statement of income.The agreement will enable SABIC to optimize its portfolio by focusing on its core business and further advancing its vision to become the preferred world leader in chemicals.Third quarterIncome before income taxes and zakat for the third quarter of 2023 was SAR 238,373($63,566),compared to SAR 302,279($80,607)for the same quarter in 2022.The decrease principally reflects the impact of lower crude oil prices and volumes sold.This was partially offset by a reduction in production royalties primarily driven by lower average effective royalty rate,lower crude oil prices,and lower volumes sold.Income taxes and zakat for the third quarter of 2023 were SAR 116,185($30,983),compared to SAR 143,164($38,177)for the same quarter in 2022.This decrease was mainly driven by lower earnings in the third quarter of 2023.Nine monthsIncome before income taxes and zakat for the first nine months of 2023 was SAR 685,038($182,677),compared to SAR 909,890($242,637)for the same period in 2022.The decrease was largely attributable to lower crude oil prices and weakening refining and chemicals margins.This was partially offset by a decrease in production royalties,primarily due to lower average effective royalty rate and lower crude oil prices,and higher finance and other income.Income taxes and zakat for the first nine months of 2023 were SAR 330,498($88,133),compared to SAR 421,106($112,295)for the same period in 2022.The decrease largely resulted from lower earnings in the first nine months of 2023.For non-IFRS measures,refer to the Non-IFRS measures reconciliations and definitions section.5Saudi AramcoThird quarter and nine months interim report 2023 All amounts in millions unless otherwise statedThird quarterNine monthsSARUSD*SARUSD*All amounts in millions unless otherwise stated2023202220232022%change2023202220232022%changeEarnings before interest,income taxes and zakat227,371293,99660,63278,399(22.7)e5,105852,261174,695227,270(23.1)pital expenditures-cash basis33,69327,2098,9857,25623.8,34476,77024,09220,47217.7%*Supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only.Upstream financial performanceThird quarterEarnings before interest,income taxes and zakat(EBIT)for the third quarter of 2023 was SAR 227,371($60,632),compared to SAR 293,996($78,399)for the same quarter in 2022.The decrease in EBIT resulted from both lower average realized crude oil prices and lower volumes sold,partially offset by a decrease in production royalties.Capital expenditures for the third quarter of 2023 were SAR 33,693($8,985),an increase of 23.8%compared to SAR 27,209($7,256)for the same period in 2022.This increase was primarily due to progression of crude oil increments to expand the MSC,and ongoing development of gas projects to increase gas production capacity.Nine months EBIT for the first nine months of 2023 was SAR 655,105($174,695),compared to SAR 852,261($227,270)for the same period in 2022.This decrease was primarily due to a decline in average realized crude oil prices,partially offset by lower production royalties.Capital expenditures for the first nine months of 2023 were SAR 90,344($24,092),an increase of 17.7%compared to SAR 76,770($20,472)for the same period in 2022.The increase was largely due to the development of crude oil increments related to raising crude oil MSC,and continued advancement of multiple gas projects.Downstream financial performance Third quarterNine monthsSARUSD*SARUSD*All amounts in millions unless otherwise stated2023202220232022%change2023202220232022%changeEarnings(losses)before interest,income taxes and zakat19,739(4,246)5,264(1,132)564.95,52581,7749,47321,806(56.6)pital expenditures-cash basis7,0566,3651,8821,69710.9!,78319,4045,8095,17412.3%*Supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only.Third quarterEBIT for the third quarter of 2023 was a profit of SAR 19,739($5,264),compared to a loss of SAR 4,246($1,132)for the same quarter in 2022.This increase was primarily driven by inventory valuation movement.Capital expenditures for the third quarter of 2023 were SAR 7,056($1,882),an increase of 10.9%compared to SAR 6,365($1,697)for the same period in 2022,primarily due to growth project developments.Nine months EBIT for the first nine months of 2023 was SAR 35,525($9,473),compared to SAR 81,774($21,806)for the same period in 2022.This decrease was primarily driven by inventory valuation movement and lower refining and chemicals margins.Capital expenditures for the first nine months of 2023 were SAR 21,783($5,809),an increase of 12.3%compared to SAR 19,404($5,174)for the same period in 2022.This was primarily due to increased investments and expansion.6Saudi AramcoThird quarter and nine months interim report 2023 All amounts in millions unless otherwise statedNon-IFRS measures reconciliations and definitionsThis Interim Report includes certain non-IFRS financial measures(ROACE,free cash flow,gearing,and EBIT),which Aramco uses to make informed decisions about its financial position and operating performance or liquidity.These non-IFRS financial measures have been included in this Interim Report to facilitate a better understanding of Aramcos historical trends of operation and financial position.Aramco uses non-IFRS financial measures as supplementary information to its IFRS-based operating performance and financial position.The non-IFRS financial measures are not defined by,or presented in accordance with,IFRS.The non-IFRS financial measures are not measurements of Aramcos operating performance or liquidity under IFRS and should not be used instead of,or considered as alternatives to,any measures of performance or liquidity under IFRS.The non-IFRS financial measures relate to the reporting periods described in this Interim Report and are not intended to be predictive of future results.In addition,other companies,including those in Aramcos industry,may calculate similarly titled non-IFRS financial measures differently from Aramco.Because companies do not necessarily calculate these non-IFRS financial measures in the same manner,Aramcos presentation of such non-IFRS financial measures may not be comparable to other similarly titled non-IFRS financial measures used by other companies.Twelve months ended September 30SARUSD*All amounts in millions unless otherwise stated2023202220232022Net income469,761610,182125,270162,714Finance costs,net of income taxes and zakat4,3965,2141,1731,391Net income before finance costs,net of income taxes and zakat474,157615,396126,443164,105As at period start:Non-current borrowings319,952421,99885,320112,533Current borrowings70,321115,28718,75230,743Total equity1,618,2121,231,404431,523328,375Capital employed 2,008,4851,768,689535,595471,651As at period end:Non-current borrowings227,787319,95260,74385,320Current borrowings57,26270,32115,27018,752Total equity1,754,5131,618,212467,870431,523Capital employed2,039,5622,008,485543,883535,595Average capital employed2,024,0241,888,587539,739503,623ROACE23.42.6#.42.6%*Supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only.ROACEROACE measures the efficiency of Aramcos utilization of capital.Aramco defines ROACE as net income before finance costs,net of income taxes and zakat,as a percentage of average capital employed,calculated on a 12-month rolling basis.Average capital employed is the average of total borrowings plus total equity at the beginning and end of the applicable period.Aramco utilizes ROACE to evaluate managements performance and demonstrate to its shareholders that capital has been used effectively.ROACE for the 12 months ended September 30,2023,was 23.4%,compared to 32.6%for the same period in 2022.The decrease in ROACE,calculated on a 12-month rolling basis,was primarily attributable to lower earnings principally reflecting the decline in crude oil prices,weakening refining and chemicals margins,and higher average capital employed during the period.7Saudi AramcoThird quarter and nine months interim report 2023 All amounts in millions unless otherwise statedAramco uses free cash flow to evaluate its cash available for financing activities,including dividend payments.Aramco defines free cash flow as net cash provided by operating activities less capital expenditures.Free cash flow for the third quarter of 2023 was SAR 76,280($20,341),compared to SAR 168,617($44,965)for the same quarter in 2022.This decrease of SAR 92,337($24,624)was largely due to lower net cash provided by operating activities resulting from lower earnings and unfavorable movements in working capital.This was partially offset by a reduction in cash paid for the settlement of income,zakat and other taxes.Capital expenditures increased by SAR 7,459($1,990)in the third quarter of 2023,compared to the same period in 2022,primarily due to progression of crude oil increments to expand the MSC,and ongoing development of gas projects to increase gas production capacity.Free cash flow for the first nine months of 2023 was SAR 278,966($74,392),compared to SAR 413,274($110,207)for the same period in 2022.The decrease of SAR 134,308($35,815)was primarily attributable to lower net cash provided by operating activities resulting from lower earnings,partially offset by favorable movements in working capital and lower cash paid for the settlement of income,zakat and other taxes.Capital expenditures for the first nine months of 2023 increased by SAR 15,967($4,258)compared to the same period in 2022,largely due to the development of crude oil increments related to raising crude oil MSC,and continued advancement of multiple gas projects.Free cash flowThird quarterNine monthsSARUSD*SARUSD*All amounts in millions unless otherwise stated20232022202320222023202220232022Net cash provided by operating activities117,634202,51231,36954,003392,356510,697104,629136,186Capital expenditures(41,354)(33,895)(11,028)(9,038)(113,390)(97,423)(30,237)(25,979)Free cash flow76,280168,61720,34144,965278,966413,27474,392110,207*Supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only.GearingGearing is a measure of the degree to which Aramcos operations are financed by debt and reflects available liquidity held in current and non-current investments and cash management instruments.Aramco defines gearing as the ratio of net(cash)/debt(total borrowings less cash and cash equivalents,short-term investments,investment in debt securities(current and non-current),and non-current cash investments)to total equity and net(cash)/debt.Management believes that gearing is widely used by analysts and investors in the oil and gas industry to indicate a companys financial health and flexibility.Aramcos gearing ratio as at September 30,2023,was(7.6)%compared to(7.9)%as at December 31,2022.This increase was primarily due to higher total equity,partially offset by an increase in net(cash).The increase in net(cash)was mainly attributable to a reduction in total borrowings driven by repayment of the deferred consideration related to the SABIC acquisition,partially offset by lower cash and cash equivalents and short-term investments.SARUSD*All amounts in millions unless otherwise statedSeptember 30,2023December 31,2022September 30,2023December 31,2022Total borrowings(current and non-current)285,049393,14476,013104,838Cash and cash equivalents(191,022)(226,047)(50,939)(60,279)Short-term investments(208,656)(281,215)(55,642)(74,991)Investments in debt securities(current and non-current)1(8,952)(8,565)(2,387)(2,282)Non-current cash investments-Net(cash)(123,581)(122,683)(32,955)(32,714)Total equity1,754,5131,666,147467,870444,306Total equity and net(cash)1,630,9321,543,464434,915411,592Gearing(7.6)%(7.9)%(7.6)%(7.9)%*Supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only.1.As at September 30,2023,investments in debt securities(current and non-current)are comprised of SAR 1,688($450)and 7,264($1,937)which form part of other assets and receivables under current assets,and investments in securities under non-current assets,respectively.As at December 31,2022,the investments in debt securities(current and non-current)are comprised of SAR 906($240)and SAR 7,659($2,042)which form part of other assets and receivables under current assets,and investments in securities under non-current assets,respectively.8Saudi AramcoThird quarter and nine months interim report 2023 All amounts in millions unless otherwise statedEarnings before interest,income taxes and zakat(EBIT)Aramco defines EBIT as net income plus finance costs and income taxes and zakat,less finance income.Aramco believes EBIT provides useful information regarding its financial performance to analysts and investors.EBIT for the third quarter ended September 30,2023,was SAR 233,523($62,273),compared to SAR 301,810 Third quarterNine monthsSARUSD*SARUSD*All amounts in millions unless otherwise stated20232022202320222023202220232022Net income 122,188159,11532,58342,430354,540488,78494,544130,342Finance income(6,798)(2,562)(1,813)(683)(25,086)(7,644)(6,690)(2,038)Finance costs1,9482,0935205587,2817,3721,9421,966Income taxes and zakat116,185143,16430,98338,177330,498421,10688,133112,295Earnings before interest,income taxes and zakat233,523301,81062,27380,482667,233909,618177,929242,565*Supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only.($80,482)for the same quarter in 2022.This decrease of SAR 68,287($18,209)was primarily due to the decline in crude oil prices and volumes sold,partially offset by a decrease in production royalties during the period.EBIT for the first nine months of 2023 was SAR 667,233($177,929),compared to SAR 909,618($242,565)for the same period in 2022.The decrease of SAR 242,385($64,636)mainly reflects the impact of lower crude oil prices,and weakening refining and chemicals margins compared to the same period in 2022,partially offset by a reduction in production royalties during the period.9Saudi AramcoThird quarter and nine months interim report 2023Terms and abbreviationsCurrencies SAR/Saudi RiyalSaudi Arabian Riyal,the lawful currency of the Kingdom$/USD/Dollar U.S.dollarUnits of measurement Barrel(bbl)Barrels of crude oil,condensate or refined products boe Barrels of oil equivalent bpd Barrels per day bscf Billion standard cubic feet bscfd Billion standard cubic feet per day GWGigawatts mboed Thousand barrels of oil equivalent per day mbpd Thousand barrels per day mmbbl Million barrels mmboe Million barrels of oil equivalent mmboed Million barrels of oil equivalent per day mmbpd Million barrels per day mmBTU Million British thermal unitsmmscf Million standard cubic feet mmscfd Million standard cubic feet per daymmtpa Million metric tonnes per annumper day Volumes are converted into a daily basis using a calendar year(Gregorian)scf Standard cubic feettscf Trillion standard cubic feetTechnical termsCO2Carbon dioxide.CondensateLight hydrocarbon substances produced with raw gas which condenses into liquid at normal temperatures and pressures associated with surface production equipment.HydrocarbonsCrude oil and other hydrogen and carbon compounds in liquid or gaseous state.MSC Maximum Sustainable Capacity the average maximum number of barrels per day of crude oil that can be produced for one year during any future planning period,after taking into account all planned capital expenditures and maintenance,repair and operating costs,and after being given three months to make operational adjustments.The MSC excludes AGOCs crude oil production capacity.Natural GasDry gas produced at Aramcos gas plants and sold within the Kingdom.ReliabilityTotal products volume shipped/delivered within 24 hours of the scheduled time,divided by the total products volume committed.Any delays caused by factors that are under the Companys control(e.g.terminal,pipeline,stabilization,or production)negatively affect the score,whereas delays caused by conditions that are beyond the Companys control,such as adverse weather,are not considered.A score of less than 100 percent indicates there were issues that negatively impacted reliability.Sales GasA mixture consisting primarily of the lightest component of natural gas that meets specifications for sale within the Kingdom.10Saudi AramcoThird quarter and nine months interim report 2023GlossaryAffiliate Except with respect to financial information,the term affiliate means a person who controls another person or is controlled by that other person,or who is under common control with that person by a third person.In any of the preceding,control could be direct or indirect.With respect to financial information,the term affiliate means the Companys subsidiaries,joint arrangements and associates,each as defined by IFRS.AssociateWith respect to financial information,the term Associate,as defined by IFRS,means an entity over which the Company has significant influence but not control,generally reflected by a shareholding of between 20%and 50%of the voting rights.Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.AuditorPricewaterhouseCoopers Public Accountants,the independent external auditor of Aramco.BoardThe Board of Directors of the Company.CompanySaudi Arabian Oil Company(The Company).ControlExcept with respect to financial information,the term“Control”means the ability to influence the actions or decisions of another person through,whether directly or indirectly,alone or with a relative or affiliate(a)holding 30%or more of the voting rights in a company,or(b)having the right to appoint 30%or more of the Board of a company;“controller”shall be construed accordingly.With respect to financial information,the term“Control”is defined by IFRS:The Company controls an entity when it is exposed to,or has rights to,variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.DomesticRefers to the Kingdom of Saudi Arabia.EBITEarnings(losses)before interest,income taxes and zakat.ESGEnvironmental,social,governance.General Assembly Any Ordinary General Assembly or Extraordinary General Assembly.GovernmentThe Government of the Kingdom(and“Governmental”shall be interpreted accordingly).HHijri calendar.IAS International Accounting Standard(s).IFRS International Financial Reporting Standard(s)that are endorsed in the Kingdom and other standards and pronouncements endorsed by SOCPA.Joint Operation The term joint operation,as defined by IFRS,means a type of joint arrangement whereby the parties that have joint control of the agreement have rights to the assets and obligations for the liabilities relating to the arrangement.Joint VentureThe term joint venture,as defined by IFRS,means a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement.KingdomKingdom of Saudi Arabia.MENAMiddle East and North Africa.PIFPublic Investment Fund of Saudi Arabia.ROACEReturn on average capital employed.SABICSaudi Basic Industries Corporation.Saudi Aramco/Aramco/GroupSaudi Arabian Oil Company,together with its consolidated subsidiaries,and where the context requires,its joint operations,joint ventures and associates.Any reference to“us”,“we”or“our”refers to Saudi Aramco/Aramco except where otherwise stated.Unless otherwise stated,the text does not distinguish between the activities and operations of the Company and those of its subsidiaries.ShareholderAny holder of shares.SOCPA Saudi Organization for Chartered and Professional Accountants.SubsidiariesExcept with respect to financial information,the term subsidiaries mean the companies that Aramco controls through its ability to influence the actions or decisions of another person through,whether directly or indirectly,alone or with a relative or affiliate(i)holding 30%or more of the voting rights in a company or(ii)having the right to appoint 30%or more of the Board of a company.With respect to financial information,the term subsidiaries is defined by IFRS,meaning entities over which the Company has controls.11Saudi AramcoThird quarter and nine months interim report 2023Disclaimer This Interim Report may contain certain forward-looking statements with respect to Aramcos financial position,results of operations and business and certain of Aramcos plans,intentions,expectations,assumptions,goals and beliefs regarding such items.These statements include all matters that are not historical fact and generally,but not always,may be identified by the use of words such as“believes”,“expects”,“are expected to”,“anticipates”,“intends”,“estimates”,“should”,“will”,“shall”,“may”,“is likely to”,“plans”,“outlook”or similar expressions,including variations and the negatives thereof or comparable terminology.Investors and prospective investors should be aware that forward-looking statements are not guarantees of future performance and that Aramcos actual financial position,results of operations and business and the development of the industries in which it operates may differ significantly from those made in or suggested by these forward-looking statements.In addition,even if Aramcos financial position,results of operations and business and the development of the industries in which it operates are consistent with these forward-looking statements,those results or developments may not be indicative of results or developments in subsequent periods.Factors that could cause actual results to differ materially from Aramcos expectations are contained in cautionary statements in this Interim Report and include,among other things,the following:Supply,demand and price fluctuations with respect to oil and gas,and Aramcos other products;Global economic market conditions;Natural disasters and public health pandemics or epidemics,and weather conditions(including those associated with climate change);Competition in the industries in which Aramco operates;Climate change concerns and related impacts on the global demand for hydrocarbons and hydrocarbon-based products,as well as risks related to Aramcos ESG goals and targets;Conditions affecting the transportation of products;Operational risk and hazards common in the oil and gas,refining and petrochemicals industries;The cyclical nature of the oil and gas,refining and petrochemicals industries;Terrorism and armed conflict,political and social instability and unrest,and actual or potential armed conflicts in the MENA region and other areas;Managing Aramcos growth and risks related to its strategic growth objectives;Risks in connection with projects under development and recent and future acquisitions and joint ventures,including with respect to SABIC;Aramcos dependence on the reliability and security of its IT systems;Managing Aramcos subsidiaries,joint operations,joint ventures,associates and entities in which it holds a minority interest;Aramcos exposure to interest rate risk and foreign exchange risk;Risks related to operating in a regulated industry and changes to oil,gas,environmental or other regulations that impact the industries in which Aramco operates;Risks related to litigation,including international trade litigation,disputes or agreements;and Risks related to the Kingdom.Disclaimer Risk FactorsFor a discussion of our risk factors,please see Aramcos Annual Report 2022,available through the investor relations section of Aramcos website at undertake no obligation to update or revise any forward-looking statement,whether as a result of new information,future events or otherwise.All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements referred to above and our risk factors in our Annual Report and statements contained elsewhere in this Interim Report.Aramcos financial information herein has been extracted from Aramcos condensed consolidated interim financial report for the three-and nine-month periods ended September 30,2023,which is prepared and presented in accordance with IAS 34,that is endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by the Saudi Organization for Chartered and Professional Accountants(“SOCPA”).In addition,this document includes certain“non-IFRS financial measures.”These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS.Rather,these measures are provided as additional information to complement IFRS measures by providing further understanding of Aramcos results of operations,cash flow and financial position from managements perspective.Accordingly,they should not be considered in isolation or as a substitute for analysis of Aramcos financial information reported under IFRS.A reconciliation of non-IFRS measures is included in the Non-IFRS measures reconciliations and definitions section of this Interim Report.Independent auditors review report.13 Condensed consolidated statement of income.14 Condensed consolidated statement of comprehensive income.15Condensed consolidated balance sheet.16Condensed consolidated statement of changes in equity.17 Condensed consolidated statement of cash flows.18 Notes to the condensed consolidated interim financial report.19Condensed consolidated interim financial reportFor the three-month and nine-month periods ended September 30,2023(unaudited)Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated Amin H.Nasser Director,President&Chief Executive Officer Ziad T.Al Murshed Executive Vice President&Chief Financial Officer Bassam M.Asiri Senior Vice President&Controller 14 Condensed consolidated statement of income SAR USD*3rd quarter 3rd quarter Nine months Nine months 3rd quarter 3rd quarter Nine months Nine months Note 2023 2022 2023 2022 2023 2022 2023 2022 Revenue 10 424,095 543,712 1,244,119 1,572,783 113,092 144,990 331,765 419,409 Other income related to sales 64,840 70,223 152,967 206,422 17,290 18,726 40,791 55,046 Revenue and other income related to sales 488,935 613,935 1,397,086 1,779,205 130,382 163,716 372,556 474,455 Royalties and other taxes(55,185)(91,177)(175,521)(271,393)(14,716)(24,314)(46,806)(72,372)Purchases(121,277)(148,856)(346,710)(400,203)(32,340)(39,694)(92,456)(106,720)Producing and manufacturing(22,868)(29,219)(70,133)(69,012)(6,098)(7,792)(18,702)(18,403)Selling,administrative and general(27,800)(19,615)(57,417)(63,919)(7,413)(5,231)(15,311)(17,045)Exploration(1,962)(1,401)(6,075)(4,550)(524)(374)(1,620)(1,214)Research and development(1,042)(939)(3,025)(2,805)(278)(251)(806)(748)Depreciation and amortization 5,6(24,355)(22,494)(69,022)(64,895)(6,494)(5,998)(18,406)(17,305)Operating costs(254,489)(313,701)(727,903)(876,777)(67,863)(83,654)(194,107)(233,807)Operating income 234,446 300,234 669,183 902,428 62,519 80,062 178,449 240,648 Share of results of joint ventures and associates(1,014)130(2,545)4,946(270)34(678)1,318 Finance and other income 6,889 4,008 25,681 9,888 1,837 1,069 6,848 2,637 Finance costs(1,948)(2,093)(7,281)(7,372)(520)(558)(1,942)(1,966)Income before income taxes and zakat 238,373 302,279 685,038 909,890 63,566 80,607 182,677 242,637 Income taxes and zakat 7(116,185)(143,164)(330,498)(421,106)(30,983)(38,177)(88,133)(112,295)Net income 122,188 159,115 354,540 488,784 32,583 42,430 94,544 130,342 Net income(loss)attributable to Shareholders equity 123,534 156,068 349,886 471,875 32,942 41,618 93,303 125,833 Non-controlling interests(1,346)3,047 4,654 16,909(359)812 1,241 4,509 122,188 159,115 354,540 488,784 32,583 42,430 94,544 130,342 Earnings per share(basic and diluted)18 0.51 0.64 1.45 1.95 0.14 0.17 0.39 0.52*This supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only,and is presented in millions of U.S.dollars.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated Amin H.Nasser Director,President&Chief Executive Officer Ziad T.Al Murshed Executive Vice President&Chief Financial Officer Bassam M.Asiri Senior Vice President&Controller 15 Condensed consolidated statement of comprehensive income SAR USD*3rd quarter 3rd quarter Nine months Nine months 3rd quarter 3rd quarter Nine months Nine months Note 2023 2022 2023 2022 2023 2022 2023 2022 Net income 122,188 159,115 354,540 488,784 32,583 42,430 94,544 130,342 Other comprehensive income(loss),net of tax 8 Items that will not be reclassified to net income Remeasurement of post-employment benefits 4,956 4,774 5,166 21,318 1,321 1,273 1,377 5,685 Share of post-employment benefits remeasurement from joint ventures and associates 26 180 137 256 7 48 36 68 Changes in fair value of equity investments classified as fair value through other comprehensive income(761)(131)(1,340)(205)(202)(34)(357)(54)Items that may be reclassified subsequently to net income Cash flow hedges and other 122 268(790)1,234 33 71(210)329 Changes in fair value of debt securities classified as fair value through other comprehensive income 87(86)245(465)23(23)65(124)Share of other comprehensive(loss)income of joint ventures and associates(120)(580)610(649)(32)(155)163(173)Currency translation differences(1,261)(3,953)(2,607)(8,170)(337)(1,054)(695)(2,179)3,049 472 1,421 13,319 813 126 379 3,552 Total comprehensive income 125,237 159,587 355,961 502,103 33,396 42,556 94,923 133,894 Total comprehensive income(loss)attributable to Shareholders equity 126,663 157,008 351,685 486,103 33,777 41,868 93,783 129,627 Non-controlling interests(1,426)2,579 4,276 16,000(381)688 1,140 4,267 125,237 159,587 355,961 502,103 33,396 42,556 94,923 133,894*This supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only,and is presented in millions of U.S.dollars.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated Amin H.Nasser Director,President&Chief Executive Officer Ziad T.Al Murshed Executive Vice President&Chief Financial Officer Bassam M.Asiri Senior Vice President&Controller 16 Condensed consolidated balance sheet SAR USD*September 30,December 31,September 30,December 31,Note 2023 2022 2023 2022 Assets Non-current assets Property,plant and equipment 5 1,355,276 1,303,266 361,407 347,538 Intangible assets 6 164,919 159,328 43,978 42,487 Investments in joint ventures and associates 70,660 72,196 18,843 19,252 Deferred income tax assets 18,229 18,093 4,861 4,825 Post-employment benefits 31,796 23,034 8,479 6,142 Other assets and receivables 47,727 32,418 12,727 8,645 Investments in securities 32,397 26,758 8,639 7,136 1,721,004 1,635,093 458,934 436,025 Current assets Inventories 95,424 100,528 25,446 26,808 Trade receivables 183,141 164,442 48,837 43,851 Due from the Government 65,796 54,545 17,546 14,545 Other assets and receivables 35,136 31,054 9,370 8,281 Short-term investments 208,656 281,215 55,642 74,991 Cash and cash equivalents 191,022 226,047 50,939 60,279 779,175 857,831 207,780 228,755 Assets classified as held for sale 17 15,344 4,092 794,519 857,831 211,872 228,755 Total assets 2,515,523 2,492,924 670,806 664,780 Equity and liabilities Shareholders equity Share capital 90,000 75,000 24,000 20,000 Additional paid-in capital 26,981 26,981 7,195 7,195 Treasury shares(1,529)(2,236)(408)(596)Retained earnings:Unappropriated 1,423,126 1,339,892 379,500 357,305 Appropriated 6,000 6,000 1,600 1,600 Other reserves 8 578 3,279 155 874 1,545,156 1,448,916 412,042 386,378 Non-controlling interests 209,357 217,231 55,828 57,928 1,754,513 1,666,147 467,870 444,306 Non-current liabilities Borrowings 9 227,787 318,380 60,743 84,901 Deferred income tax liabilities 137,042 122,311 36,545 32,616 Post-employment benefits 23,968 26,923 6,391 7,179 Provisions and other liabilities 33,380 27,777 8,901 7,408 422,177 495,391 112,580 132,104 Current liabilities Trade and other payables 156,781 135,390 41,809 36,104 Obligations to the Government:Income taxes and zakat 7 94,823 104,978 25,286 27,995 Royalties 23,273 16,254 6,206 4,334 Borrowings 9 57,262 74,764 15,270 19,937 332,139 331,386 88,571 88,370 Liabilities directly associated with assets classified as held for sale 17 6,694 1,785 338,833 331,386 90,356 88,370 Total liabilities 761,010 826,777 202,936 220,474 Total equity and liabilities 2,515,523 2,492,924 670,806 664,780*This supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only,and is presented in millions of U.S.dollars.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated Amin H.Nasser Director,President&Chief Executive Officer Ziad T.Al Murshed Executive Vice President&Chief Financial Officer Bassam M.Asiri Senior Vice President&Controller 17 Condensed consolidated statement of changes in equity SAR USD*Shareholders equity Retained earnings Share capital Additional paid-in capital Treasury shares Unappropriated Appropriated Other reserves(Note 8)Non-controlling interests Total Total Balance at January 1,2022 60,000 26,981(2,828)1,018,443 6,000 4,661 167,411 1,280,668 341,512 Net income 471,875 16,909 488,784 130,342 Other comprehensive income(loss)14,228(909)13,319 3,552 Total comprehensive income 471,875 14,228 16,000 502,103 133,894 Transfer of post-employment benefits remeasurement 19,235 (19,235)Transfer of share of post-employment benefits remeasurement from joint ventures and associates 256 (256)Treasury shares issued to employees 444(49)18 413 110 Share-based compensation (3)239 236 63 Dividends(Note 18)(210,988)(210,988)(56,263)Bonus shares issued 15,000 (15,000)Sale of non-controlling equity interest in a subsidiary 58,125 58,125 15,500 Acquisition of non-controlling interests in subsidiaries (3)(227)(230)(62)Dividends to non-controlling interests and other (12,115)(12,115)(3,231)Balance at September 30,2022 75,000 26,981(2,384)1,283,766 6,000(345)229,194 1,618,212 431,523 Balance at January 1,2023 75,000 26,981(2,236)1,339,892 6,000 3,279 217,231 1,666,147 444,306 Net income 349,886 4,654 354,540 94,544 Other comprehensive income(loss)1,799(378)1,421 379 Total comprehensive income 349,886 1,799 4,276 355,961 94,923 Transfer of post-employment benefits remeasurement(Note 8)4,762 (4,762)Transfer of share of post-employment benefits remeasurement from joint ventures and associates(Note 8)137 (137)Treasury shares issued to employees 707(176)(31)500 133 Share-based compensation (3)430 427 114 Dividends(Note 18)(256,491)(256,491)(68,398)Bonus shares issued(Note 18)15,000 (15,000)Dividends to non-controlling interests and other 119 (12,150)(12,031)(3,208)Balance at September 30,2023 90,000 26,981(1,529)1,423,126 6,000 578 209,357 1,754,513 467,870*This supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only,and is presented in millions of U.S.dollars.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated Amin H.Nasser Director,President&Chief Executive Officer Ziad T.Al Murshed Executive Vice President&Chief Financial Officer Bassam M.Asiri Senior Vice President&Controller 18 Condensed consolidated statement of cash flows SAR USD*3rd quarter 3rd quarter Nine months Nine months 3rd quarter 3rd quarter Nine months Nine months Note 2023 2022 2023 2022 2023 2022 2023 2022 Income before income taxes and zakat 238,373 302,279 685,038 909,890 63,566 80,607 182,677 242,637 Adjustments to reconcile income before income taxes and zakat to net cash provided by operating activities Depreciation and amortization 5,6 24,355 22,494 69,022 64,895 6,494 5,998 18,406 17,305 Exploration and evaluation costs written off 779 183 2,353 654 208 48 628 174 Loss on disposal of property,plant and equipment 321 476 1,398 1,894 85 127 372 505 Loss on fair value measurement of assets classified as held for sale 17 3,216 3,216 858 858 Inventory movement(609)(65)663 139(162)(17)177 38 Share of results of joint ventures and associates 1,014(130)2,545(4,946)270(34)678(1,318)Finance and other income(6,889)(4,008)(25,681)(9,888)(1,837)(1,069)(6,848)(2,637)Finance costs 1,948 2,093 7,281 7,372 520 558 1,942 1,966 Change in fair value of investments through profit or loss 42 157(110)428 11 42(29)114 Change in joint ventures and associates inventory profit elimination 85(208)(110)(282)23(56)(29)(76)Other(1,358)1,587(1,025)1,557 (362)424(274)415 Change in working capital Inventories(15,070)8,465 1,596(33,105)(4,019)2,257 426(8,828)Trade receivables(26,326)26,286(19,419)(54,184)(7,020)7,009(5,178)(14,449)Due from the Government(19,151)14,010(11,251)(31,363)(5,107)3,737(3,001)(8,363)Other assets and receivables(3,764)2,096(3,792)(2,867)(1,004)559(1,011)(765)Trade and other payables 23,649(17,329)20,398 13,667 6,307(4,622)5,440 3,644 Royalties payable 8,422(20,103)7,019 11,544 2,246(5,360)1,872 3,079 Other changes Other assets and receivables 16(c)(10,754)(280)(16,295)2,957(2,867)(75)(4,345)788 Provisions and other liabilities 326 3,552 1,136 3,126 86 947 302 834 Post-employment benefits(478)1,139(32)3,401(128)304(9)907 Settlement of income,zakat and other taxes(100,497)(140,182)(331,594)(374,192)(26,799)(37,381)(88,425)(99,784)Net cash provided by operating activities 117,634 202,512 392,356 510,697 31,369 54,003 104,629 136,186 Capital expenditures 4(41,354)(33,895)(113,390)(97,423)(11,028)(9,038)(30,237)(25,979)Acquisition of an affiliate,net of cash acquired 16(a)(9,886)(402)(2,636)(107)Distributions from joint ventures and associates 450 1,092 2,778 3,047 120 292 740 813 Additional investments in joint ventures and associates(1,019)(296)(3,177)(1,396)(272)(79)(847)(372)Dividends from investments in securities 2 234 364 540 1 62 97 144 Interest received 6,563 1,782 19,361 3,060 1,750 475 5,162 816 Investments in securities-net 16(c)(7,293)(899)(8,253)(1,943)(1,944)(240)(2,200)(519)Net(purchases)maturities of short-term investments(15,033)(75,638)72,559(144,053)(4,009)(20,171)19,349(38,415)Net cash used in investing activities(57,684)(107,620)(39,644)(238,570)(15,382)(28,699)(10,572)(63,619)Dividends paid to shareholders of the Company 18(110,181)(70,329)(256,491)(210,988)(29,382)(18,754)(68,398)(56,263)Dividends paid to non-controlling interests in subsidiaries(2,596)(2,807)(10,108)(9,757)(692)(749)(2,695)(2,602)Proceeds from sale of non-controlling equity interest in a subsidiary 58,125 15,500 Acquisition of non-controlling interest in a subsidiary (49)(230)(14)(62)Proceeds from issue of treasury shares 177 145 497 408 47 39 132 109 Proceeds from borrowings 2,406 248 20,203 5,089 642 67 5,387 1,357 Repayments of borrowings(1,585)(3,263)(122,494)(123,255)(423)(870)(32,665)(32,868)Principal portion of lease payments(3,465)(3,082)(9,690)(9,045)(924)(822)(2,584)(2,412)Interest paid(2,575)(2,020)(9,654)(7,343)(687)(538)(2,574)(1,958)Net cash used in financing activities(117,819)(81,157)(387,737)(296,996)(31,419)(21,641)(103,397)(79,199)Net(decrease)increase in cash and cash equivalents(57,869)13,735(35,025)(24,869)(15,432)3,663(9,340)(6,632)Cash and cash equivalents at beginning of the period 248,891 260,975 226,047 299,579 66,371 69,593 60,279 79,888 Cash and cash equivalents at end of the period 191,022 274,710 191,022 274,710 50,939 73,256 50,939 73,256*This supplementary information is converted at a fixed rate of U.S.dollar 1.00=SAR 3.75 for convenience only,and is presented in millions of U.S.dollars.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 19 Notes to the condensed consolidated interim financial report 1.General information The Saudi Arabian Oil Company(the“Company”),with headquarters located in Dhahran,Kingdom of Saudi Arabia(the“Kingdom”),is engaged in prospecting,exploring,drilling and extracting hydrocarbon substances(“Upstream”)and processing,manufacturing,refining and marketing these hydrocarbon substances(“Downstream”).The Company was formed on November 13,1988 by Royal Decree No.M/8;however,its history dates back to May 29,1933 when the Saudi Arabian Government(the“Government”)granted a concession to the Companys predecessor for the right to,among other things,explore the Kingdom for hydrocarbons.Effective January 1,2018,Council of Ministers Resolution No.180,dated 1/4/1439H(December 19,2017),converted the Company to a Saudi Joint Stock Company with new Bylaws.On December 11,2019,the Company completed its Initial Public Offering(“IPO”)and its ordinary shares were listed on the Saudi Exchange.In connection with the IPO,the Government,being the sole owner of the Companys shares at such time,sold an aggregate of 3.45 billion ordinary shares,or 1.73%of the Companys share capital.On February 13,2022,the Government transferred 4%of the Companys issued shares to the Public Investment Fund(“PIF”),the sovereign wealth fund of the Kingdom.Subsequently,the Government announced on April 16,2023,the transfer of 4%of the Companys issued shares to Saudi Arabian Investment Company(“Sanabil Investments”),a wholly owned company of PIF.The Government remains the Companys largest shareholder,retaining a 90.19%direct shareholding.The condensed consolidated interim financial report of the Company and its subsidiaries(together“Saudi Aramco”)was approved by the Board of Directors on November 6,2023.2.Basis of preparation and other significant accounting policies The condensed consolidated interim financial report has been prepared in accordance with International Accounting Standard 34(“IAS 34”),Interim Financial Reporting,that is endorsed in the Kingdom,and other standards and pronouncements issued by the Saudi Organization for Chartered and Professional Accountants(“SOCPA”).This condensed consolidated interim financial report is consistent with the accounting policies and methods of computation and presentation set out in Saudi Aramcos consolidated financial statements for the year ended December 31,2022,except for new and amended standards disclosed below.The results for the interim periods are unaudited and include all adjustments necessary for a fair presentation of the results for the periods presented.This condensed consolidated interim financial report should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31,2022,which have been prepared in accordance with International Financial Reporting Standards(“IFRS”)that are endorsed in the Kingdom,and other standards and pronouncements issued by SOCPA.The consolidated financial statements for the year ended December 31,2022 are also in compliance with IFRS as issued by the International Accounting Standards Board(“IASB”).Translations from SAR to USD presented as supplementary information in the condensed consolidated statement of income,condensed consolidated statement of comprehensive income,condensed consolidated balance sheet,condensed consolidated statement of changes in equity,and condensed consolidated statement of cash flows at September 30,2023 and December 31,2022 and for the three-month and nine-month periods ended September 30,2023 and 2022,are for convenience and were calculated at the rate of USD 1.00=SAR 3.75 representing the exchange rate at the balance sheet dates.New or amended standards(i)Saudi Aramco adopted the following IASB pronouncements,as endorsed in the Kingdom,effective for annual periods beginning on or after January 1,2023:Amendment to IAS 12,Income Taxes In May 2023,the IASB issued an amendment to IAS 12,Income Taxes,relating to the International Tax Reform-Pillar Two Model Rules.This amendment applies to income taxes arising from tax law enacted or substantively enacted to implement the Pillar Two model rules published by the Organisation for Economic Co-operation and Development(“OECD”),including tax law that implements qualified domestic minimum top-up taxes described in those rules.The amendment requires entities to make additional disclosures in their annual financial statements regarding their current tax exposure to pillar two income taxes.Further,as required by the amendment,Saudi Aramco has applied the mandatory temporary exception to neither recognize nor disclose information about deferred tax assets and liabilities related to Pillar Two income taxes.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 20 2.Basis of preparation and other significant accounting policies continued IFRS 17,Insurance Contracts In May 2017,the IASB issued IFRS 17,Insurance Contracts,which introduces a new comprehensive accounting model for insurance contracts,and sets out the principles for the recognition,measurement,presentation and disclosure for the issuers of those contracts.The new standard replaces IFRS 4,Insurance Contracts,that was issued in 2005,and allowed insurers to use a range of different accounting treatments for insurance contracts.There is no material impact on the condensed consolidated interim financial report from the adoption of IFRS 17.There are no other amendments or interpretations that are effective for annual periods beginning on or after January 1,2023 that have a material impact on the condensed consolidated interim financial report.(ii)Saudi Aramco has not early adopted any new accounting standards,interpretations or amendments that are issued but not yet effective.3.Fair value estimation Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or,in the absence of a principal market,in the most advantageous market for the asset or liability.Management believes that the fair values of Saudi Aramcos financial assets and liabilities that are measured and recognized at amortized cost are not materially different from their carrying amounts at the end of the reporting period.The following table presents Saudi Aramcos assets and liabilities measured and recognized at fair value at September 30,2023 and December 31,2022,based on the prescribed fair value measurement hierarchy on a recurring basis.Saudi Aramco did not measure any financial assets or financial liabilities at fair value on a non-recurring basis at September 30,2023 and December 31,2022.There were no changes made to any of the valuation techniques and valuation processes applied as of December 31,2022 and changes in unobservable inputs are not expected to materially impact the fair values.Assets Level 1i Level 2ii Level 3iii Total September 30,2023 Investments in securities:Equity securities at Fair Value Through Other Comprehensive Income(FVOCI)13,694 36 2,114 15,844 Debt securities at FVOCI 111 8,241 8,352 Equity securities at Fair Value Through Profit or Loss(FVPL)489 1,487 7,315 9,291 Debt securities at FVPL 135 135 Trade receivables related to contracts with provisional pricing arrangements 141,405 141,405 14,294 9,899 150,834 175,027 Other assets and receivables:Interest rate swaps 902 902 Commodity derivative contracts 3,852 3,852 Currency forward contracts 45 45 Financial assets-option rights 3,952 3,952 4,799 3,952 8,751 Total assets 14,294 14,698 154,786 183,778 December 31,2022 Investments in securities:Equity securities at FVOCI 8,699 33 2,285 11,017 Debt securities at FVOCI 47 7,463 7,510 Equity securities at FVPL 318 1,562 6,201 8,081 Debt securities at FVPL 53 82 4 139 Trade receivables related to contracts with provisional pricing arrangements 113,542 113,542 9,117 9,140 122,032 140,289 Other assets and receivables:Interest rate swaps 734 734 Commodity derivative contracts 2,987 47 3,034 Currency forward contracts 130 130 Financial assets-option rights 2,687 2,687 3,851 2,734 6,585 Total assets 9,117 12,991 124,766 146,874 Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 21 3.Fair value estimation continued Liabilities Level 1i Level 2ii Level 3iii Total September 30,2023 Trade and other payables:Interest rate swaps 2 2 Commodity derivative contracts 5,277 13 5,290 Currency forward contracts 98 98 Provisions and other liabilities:Financial liabilities-options and forward contracts 2,839 2,839 Total liabilities 5,377 2,852 8,229 December 31,2022 Trade and other payables:Interest rate swaps 16 16 Commodity derivative contracts 228 2,358 81 2,667 Currency forward contracts 134 134 Provisions and other liabilities:Financial liabilities-options and forward contracts 2,929 2,929 Total liabilities 228 2,508 3,010 5,746 i.Quoted prices(unadjusted)in active markets for identical assets or liabilities.ii.Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.iii.Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.The changes in Level 3 investments in securities for the nine-month period ended September 30,2023 and the year ended December 31,2022 are as follows:September 30,December 31,2023 2022 Beginning 8,490 5,268 Net additions 1,075 2,790 Net unrealized fair value(loss)gain(157)391 Realized gain 21 41 Ending 9,429 8,490 The movement in trade receivables related to contracts with provisional pricing arrangements mainly relates to sales transactions,net of settlements,made during the period,resulting from contracts with customers(Note 10).Unrealized fair value movements on these trade receivables are not significant.The change in the carrying amount of commodity derivative contracts primarily relates to purchase and sales of derivative contracts,including recognition of a gain or loss that results from adjusting a derivative to fair value.Fair value movements on commodity derivative contracts are not significant.The movements in financial assets-option rights and financial liabilities-options and forward contracts,being put,call and forward contracts on Saudi Aramcos own equity instruments in certain subsidiaries,are mainly due to changes in the unrealized fair values of those contracts during the period.4.Operating segments Saudi Aramco is engaged in prospecting,exploring,drilling,extracting,processing,manufacturing,refining and marketing hydrocarbon substances within the Kingdom and has interests in refining,petrochemical,distribution,marketing and storage facilities outside the Kingdom.Saudi Aramcos operating segments are established on the basis of those components that are evaluated regularly by the President&CEO,considered to be the Chief Operating Decision Maker.The Chief Operating Decision Maker monitors the operating results of Saudi Aramcos operating segments separately for the purpose of making decisions about resource allocation and performance assessment.Segment performance is evaluated based on revenues,costs and a broad range of key performance indicators in addition to segment profitability.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 22 4.Operating segments continued For management purposes,Saudi Aramco is organized into business units based on the main types of activities.At September 30,2023,Saudi Aramco had two reportable segments,Upstream and Downstream,with all other supporting functions aggregated into a Corporate segment.Upstream activities include crude oil,natural gas and natural gas liquids exploration,field development and production.Downstream activities consist primarily of refining and petrochemical manufacturing,supply and trading,distribution and power generation,logistics,and marketing of crude oil and related services to international and domestic customers.Corporate activities include primarily supporting services including Human Resources,Finance and IT,not allocated to Upstream and Downstream.Transfer prices between operating segments are on an arms length basis in a manner similar to transactions with third parties.There are no differences from the consolidated financial statements for the year ended December 31,2022 in the basis of segmentation or in the basis of measurement of segment earnings before interest,income taxes and zakat,except for some limited changes in the pricing basis of certain inter-segment transactions between Upstream and Downstream.Information by segments for the three-month period ended September 30,2023 is as follows:Upstream Downstream Corporate Eliminations Consolidated External revenue 196,753 226,561 781 424,095 Other income related to sales 24,198 40,642 64,840 Inter-segment revenue 96,317 8,632 83(105,032)Earnings(losses)before interest,income taxes and zakat 227,371 19,739(3,201)(10,386)233,523 Finance income 6,798 Finance costs (1,948)Income before income taxes and zakat 238,373 Capital expenditures-cash basis 33,693 7,056 605 41,354 Information by segments for the three-month period ended September 30,2022 is as follows:Upstream Downstream Corporate Eliminations Consolidated External revenue 268,626 274,628 458 543,712 Other income related to sales 26,466 43,757 70,223 Inter-segment revenue 120,930 11,007 70(132,007)Earnings(losses)before interest,income taxes and zakat 293,996(4,246)(4,984)17,044 301,810 Finance income 2,562 Finance costs (2,093)Income before income taxes and zakat 302,279 Capital expenditures-cash basis 27,209 6,365 321 33,895 Information by segments for the nine-month period ended September 30,2023 is as follows:Upstream Downstream Corporate Eliminations Consolidated External revenue 590,577 651,785 1,757 1,244,119 Other income related to sales 53,681 99,286 152,967 Inter-segment revenue 268,381 26,172 209(294,762)Earnings(losses)before interest,income taxes and zakat 655,105 35,525(10,261)(13,136)667,233 Finance income 25,086 Finance costs (7,281)Income before income taxes and zakat 685,038 Capital expenditures-cash basis 90,344 21,783 1,263 113,390 Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 23 4.Operating segments continued Information by segments for the nine-month period ended September 30,2022 is as follows:Upstream Downstream Corporate Eliminations Consolidated External revenue 797,137 774,278 1,368 1,572,783 Other income related to sales 68,443 137,979 206,422 Inter-segment revenue 362,165 33,334 213(395,712)Earnings(losses)before interest,income taxes and zakat 852,261 81,774(13,757)(10,660)909,618 Finance income 7,644 Finance costs (7,372)Income before income taxes and zakat 909,890 Capital expenditures-cash basis 76,770 19,404 1,249 97,423 5.Property,plant and equipment Land and land improvements Buildings Oil and gas properties Plant,machinery and equipment Depots,storage tanks and pipelines Fixtures,IT and office equipment Construction-in-progress Total Cost January 1,2023 55,911 91,617 641,029 932,134 95,610 20,755 262,903 2,099,959 Additions1 631 619 295 11,291 253 120 114,344 127,553 Acquisition(Note 16(a)482 806 779 35 44 139 2,285 Construction completed 1,086 1,322 36,020 32,250 9,306 400(80,384)Currency translation differences(345)(230)(2,320)(368)(65)(281)(3,609)Transfers and adjustments 1,137(7)379(379)(12)80(503)695 Transfer of exploration and evaluation assets 672 672 Transfer to assets held for sale(Note 17)(349)(4,072)(21,513)(415)(545)(26,894)Retirements and sales(51)(556)(282)(4,730)(208)(470)(89)(6,386)September 30,2023 58,502 89,499 677,441 947,512 104,616 20,449 296,256 2,194,275 Accumulated depreciation January 1,2023(19,411)(42,330)(244,678)(431,840)(45,802)(12,632)(796,693)Charge for the period2(1,096)(2,840)(15,789)(45,017)(2,269)(1,156)(68,167)Currency translation differences 2 160 1,257 169 48 1,636 Transfers and adjustments(59)24(14)860 6(4)813 Transfer to assets held for sale(Note 17)64 2,427 15,540 393 18,424 Retirements and sales 61 465 137 3,656 208 461 4,988 September 30,2023(20,439)(42,094)(260,344)(455,544)(47,688)(12,890)(838,999)Property,plant and equipment-net,September 30,2023 38,063 47,405 417,097 491,968 56,928 7,559 296,256 1,355,276 1.Additions include borrowing costs capitalized during the nine-month period ended September 30,2023,amounting to SAR 5,516,which were calculated using an average annualized capitalization rate of 4.7%.2.Saudi Aramco recognized write-down of SAR 452 relating to certain downstream facilities.Additions to right-of-use assets during the three-month and nine-month periods ended September 30,2023 were SAR 2,998 and SAR 8,935,respectively.Acquisition of right-of-use assets during the three-month and nine-month periods ended September 30,2023 were nil and SAR 364,respectively.The following table presents depreciation charges and net carrying amounts of right-of-use assets by class of assets.Depreciation expense for the nine-month period ended September 30,2023 Net carrying amount at September 30,2023 Land and land improvements 134 5,132 Buildings 372 3,087 Oil and gas properties 10 Plant,machinery and equipment 8,799 46,954 Depots,storage tanks and pipelines 246 2,238 Fixtures,IT and office equipment 95 277 9,656 57,688 Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 24 6.Intangible assets Goodwill Exploration and evaluation Brands and trademarks Franchise/customer relationships Computer software Other1 Total Cost January 1,2023 100,603 17,971 22,730 19,647 5,854 4,031 170,836 Additions 5,080 53 132 5,265 Acquisition(Note 16(a)411 2,288 2,073 267 5,039 Currency translation differences(10)(54)(7)(6)(33)(110)Transfers and adjustments (67)(57)4(460)(580)Transfer of exploration and evaluation assets (672)(672)Transfer to assets held for sale(Note 17)(167)(167)Retirements and write offs (2,353)(34)(2)(2,389)September 30,2023 101,004 20,026 24,897 21,656 5,871 3,768 177,222 Accumulated amortization January 1,2023 (2,559)(3,362)(4,066)(1,521)(11,508)Charge for the period (208)(166)(236)(245)(855)Currency translation differences 3 1 5 22 31 Transfers and adjustments 68(608)5 384 (151)Transfer to assets held for sale(Note 17)146 146 Retirements and write offs 34 34 September 30,2023 (2,696)(4,135)(4,258)(1,214)(12,303)Intangible assets-net,September 30,2023 101,004 20,026 22,201 17,521 1,613 2,554 164,919 1.Other intangible assets with a net book value of SAR 2,554 as at September 30,2023 comprise of processing and offtake agreements,licenses,technology,usage rights,patents and intellectual property.7.Income taxes and zakat(a)Kingdom income tax rates The Company is subject to an income tax rate of 20%on its Downstream activities and on the activities of exploration and production of non-associated natural gas,including gas condensates,as well as the collection,treatment,processing,fractionation and transportation of associated and non-associated natural gas and their liquids,gas condensates and other associated elements.All other activities are subject to an income tax rate of 50%,in accordance with the Saudi Arabian Income Tax Law of 2004 and its amendments(the“Tax Law”).The 20%income tax rate applicable to the Companys Downstream activities,which came into effect on January 1,2020,is conditional on the Company separating its Downstream activities under the control of one or more separate wholly owned subsidiaries before December 31,2024,otherwise the Companys Downstream activities will be retroactively taxed at 50%.The Company expects to transfer all its Downstream activities into a separate legal entity or entities within the period specified.Additionally,according to the Tax Law,shares held directly or indirectly in listed companies on the Saudi Exchange by taxpayers engaged in oil and hydrocarbon activities are exempt from the application of corporate income tax.As a result,the Companys ownership interests in such companies are subject to zakat.The reconciliation of tax charge at the Kingdom statutory rates to consolidated tax and zakat expense is as follows:3rd quarter 3rd quarter Nine months Nine months 2023 2022 2023 2022 Income before income taxes and zakat 238,373 302,279 685,038 909,890 Add(less):Loss(income)subject to zakat 856(5,240)(5,321)(23,194)Income subject to income tax 239,229 297,039 679,717 886,696 Income taxes at the Kingdoms statutory tax rates 114,210 145,230 330,139 429,473 Tax effect of:Loss(income)not subject to tax at statutory rates and other 1,608(2,499)(1,034)(9,952)Income tax expense 115,818 142,731 329,105 419,521 Zakat expense 367 433 1,393 1,585 Total income tax and zakat expense 116,185 143,164 330,498 421,106 Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 25 7.Income taxes and zakat continued(b)Income tax and zakat expense 3rd quarter 3rd quarter Nine months Nine months 2023 2022 2023 2022 Current income tax-Kingdom 108,100 134,841 313,911 401,084 Current income tax-Foreign 2,018 138 4,494 1,108 Deferred income tax-Kingdom 6,252 7,196 11,644 12,618 Deferred income tax-Foreign(552)556(944)4,711 Zakat-Kingdom 367 433 1,393 1,585 116,185 143,164 330,498 421,106 (c)Income tax and zakat obligation to the Government 2023 2022 January 1 104,978 90,525 Provided during the period 315,304 402,669 Payments during the period by the Company(Note 14)(163,117)(182,064)Payments during the period by subsidiaries and joint operations(11,369)(7,759)Settlements of due from the Government(145,936)(179,569)Other settlements(4,812)(3,831)Transfer to liabilities associated with assets held for sale(225)September 30 94,823 119,971 8.Other reserves Share of other comprehensive income(loss)of joint ventures and associates Currency translation differences Investments in securities at FVOCI Post-employment benefits Share-based compensation reserve Cash flow hedges and other Foreign currency translation gains(losses)Cash flow hedges and other Total January 1,2023(3,407)5,155 298 1,034 195 4 3,279 Current period change(2,607)(1,328)430(790)485 125 (3,685)Remeasurement gain1 9,075 137 9,212 Transfer to retained earnings (4,762)(31)(137)(4,930)Tax effect 233(3,909)(3,676)Less:amounts related to non-controlling interests 938 (404)6(162)378 September 30,2023(5,076)4,060 697 250 518 129 578 1.The remeasurement gain is primarily due to the net impact arising from changes in discount rates used to determine the present value of the post-employment benefit obligations and changes in the fair value of post-employment benefit plan assets.9.Borrowings September 30,2023 December 31,2022 Non-current Current Total Non-current Current Total Conventional:Deferred consideration(Note 9(a)81,168 40,995 122,163 Debentures 81,630 14,506 96,136 89,585 7,627 97,212 Bank borrowings 22,747 3,682 26,429 20,998 2,166 23,164 Short-term borrowings 12,332 12,332 10,205 10,205 Revolving credit facilities 469 469 Export credit agencies 1,266 657 1,923 1,582 657 2,239 Public Investment Fund 638 365 1,003 820 365 1,185 Other financing arrangements(Note 9(b)36,094 323 36,417 23,570 408 23,978 Sharia compliant:Sukuk 22,434 11,250 33,684 34,300 281 34,581 Murabaha 14,602 2,411 17,013 16,158 2,135 18,293 Saudi Industrial Development Fund 3,051 281 3,332 3,441 295 3,736 Ijarah/Procurement 3,479 13 3,492 2,688 13 2,701 Wakala 798 13 811 997 26 1,023 186,739 46,302 233,041 275,307 65,173 340,480 Lease liabilities 41,048 10,960 52,008 43,073 9,591 52,664 227,787 57,262 285,049 318,380 74,764 393,144 Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 26 9.Borrowings continued(a)Deferred consideration Deferred consideration represented the amount payable to PIF for the SABIC acquisition in 2020.The amount was payable over several installments,in the form of promissory notes,from August 2020 to April 2028.During the nine-month period ended September 30,2023,the Company made the following repayments:(i)On March 13,2023,the Company,in agreement with PIF,made a partial prepayment of SAR 59,040($15,744),which resulted in a gain of SAR 4,635($1,236).(ii)On April 7,2023,the Company repaid the outstanding amounts of the promissory notes due on or before April 7,2023,aggregating to SAR 41,250($11,000).(iii)On May 2,2023,the Company,in agreement with PIF,made a final prepayment of SAR 16,691($4,451),which resulted in a gain of SAR 1,141($304).Following the above repayments,the outstanding amount of deferred consideration was fully settled.(b)Other financing arrangements On January 19,2023,the Company received SAR 15,563 in respect of the second tranche of the financing arrangement with the Jazan Integrated Gasification and Power Company(“JIGPC”),a joint operation of Saudi Aramco.An amount of SAR 12,450 was recognized on the condensed consolidated balance sheet in this regard,being the amount due to the other shareholders of JIGPC.The final tranche of SAR 1,968 under the financing arrangement is expected to be received by the end of 2023.10.Revenue 3rd quarter 3rd quarter Nine months Nine months 2023 2022 2023 2022 Revenue from contracts with customers 416,472 545,768 1,234,045 1,568,420 Movement between provisional and final prices 4,386(3,365)1,758 416 Other revenue 3,237 1,309 8,316 3,947 424,095 543,712 1,244,119 1,572,783 Disaggregation of revenue from contracts with customers Saudi Aramcos revenue from contracts with customers according to product type and source is as follows:3rd quarter 2023 Upstream Downstream Corporate Total Crude oil 182,330 22,040 204,370 Refined and chemical products 197,460 197,460 Natural gas and NGLs 10,143 1,070 11,213 Metal products 3,429 3,429 Revenue from contracts with customers 192,473 223,999 416,472 Movement between provisional and final prices 4,216 170 4,386 Other revenue 64 2,392 781 3,237 External revenue 196,753 226,561 781 424,095 3rd quarter 2022 Upstream Downstream Corporate Total Crude oil 257,226 40,837 298,063 Refined and chemical products 224,560 224,560 Natural gas and NGLs 14,217 5,376 19,593 Metal products 3,552 3,552 Revenue from contracts with customers 271,443 274,325 545,768 Movement between provisional and final prices(3,017)(348)(3,365)Other revenue 200 651 458 1,309 External revenue 268,626 274,628 458 543,712 Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 27 10.Revenue continued Nine months 2023 Upstream Downstream Corporate Total Crude oil 559,469 67,653 627,122 Refined and chemical products 564,884 564,884 Natural gas and NGLs 29,081 3,199 32,280 Metal products 9,759 9,759 Revenue from contracts with customers 588,550 645,495 1,234,045 Movement between provisional and final prices 1,753 5 1,758 Other revenue 274 6,285 1,757 8,316 External revenue 590,577 651,785 1,757 1,244,119 Nine months 2022 Upstream Downstream Corporate Total Crude oil 750,405 88,348 838,753 Refined and chemical products 654,101 654,101 Natural gas and NGLs 45,971 17,650 63,621 Metal products 11,945 11,945 Revenue from contracts with customers 796,376 772,044 1,568,420 Movement between provisional and final prices 461(45)416 Other revenue 300 2,279 1,368 3,947 External revenue 797,137 774,278 1,368 1,572,783 11.Non-cash investing and financing activities Investing and financing activities for the three-month and nine-month periods ended September 30,2023 include additions to right-of-use assets of SAR 2,998 and SAR 8,935(September 30,2022:SAR 2,909 and SAR 7,720),respectively,asset retirement provisions of SAR 111 and SAR 297(September 30,2022:SAR 119 and SAR 281),respectively,and equity awards issued to employees of SAR 7 and SAR 210(September 30,2022:SAR 3 and SAR 63),respectively.12.Commitments Capital commitments Capital expenditures contracted for but not yet incurred were SAR 225,911 and SAR 172,639 at September 30,2023 and December 31,2022,respectively.In addition,leases contracted for but not yet commenced were SAR 25,193 and SAR 18,326 at September 30,2023 and December 31,2022,respectively.13.Contingencies Saudi Aramco has contingent assets and liabilities with respect to certain disputed matters,including claims by and against contractors and lawsuits and arbitrations involving a variety of issues.These contingencies arise in the ordinary course of business.It is not anticipated that any material adjustments will result from these contingencies.(a)Rabigh Refining and Petrochemical Company(“Petro Rabigh”)On March 20,2023,Petro Rabigh refinanced the outstanding amount of equity bridge loans of SAR 9,310,which were previously guaranteed on a several and equal basis by the two founding shareholders of Petro Rabigh,the Company and Sumitomo Chemical Co.Ltd.Under the refinancing arrangement,Sumitomo Chemical Co.Ltd.guaranteed its share of the equity bridge loans,amounting to SAR 4,655,that was fully financed by external lenders.In addition,the Company,through its wholly owned subsidiary,Aramco Overseas Company B.V.(“AOC”),provided Petro Rabigh an equity bridge loan of SAR 3,000,while the remaining amount of its share,amounting to SAR 1,655,was provided by external lenders and was guaranteed by the Company.The refinanced equity bridge loans mature on December 20,2027.(b)Noor Al Shuaibah Holding Company On May 2,2023,Saudi Aramco Power Company(“SAPCO”),a wholly owned subsidiary of the Company,entered into a shareholders agreement with the Water and Electricity Holding Company(“Badeel”),wholly owned by PIF,and ACWA Power Company,to invest in Noor Al Shuaibah Holding Company for the development of Al Shuaibah 1 and Al Shuaibah 2 solar photovoltaic power generating plants in Makkah province in the Kingdom(the“Projects”).The Projects will have a combined capacity of 2.66 gigawatts and commercial operations are expected to commence by 2025.The estimated total cost of the Projects is SAR 8,919 which will be funded through a mix of senior debt financing and equity bridge loans.During the third quarter of 2023,the Company guaranteed SAPCOs 30%share of the equity bridge loans,amounting to approximately SAR 800,under the terms of the project financing.The equity bridge loans were fully drawn as of September 30,2023.Further,additional guarantees amounting to SAR 347 have been provided to support SAPCOs obligations related to the Projects.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 28 14.Payments to the Government by the Company 3rd quarter 3rd quarter Nine months Nine months 2023 2022 2023 2022 Income taxes(Note 7(c)46,946 50,704 163,117 182,064 Royalties 49,857 109,160 152,908 273,935 Dividends 99,391 66,266 234,308 198,801 15.Related party transactions and balances(a)Transactions 3rd quarter 3rd quarter Nine months Nine months 2023 2022 2023 2022 Joint ventures:Revenue from sales 6,259 6,855 17,295 21,720 Other revenue 15 12 26 23 Interest income 45 41 143 90 Purchases 6,877 5,378 19,230 22,249 Service expenses 4 4 8 8 Associates:Revenue from sales 32,156 10,882 67,785 57,765 Other revenue 34 22 124 86 Interest income 26 11 131 90 Purchases 13,882 7,215 42,840 48,394 Service expenses 30 34 79 79 Lease expenses 36 150 Government,semi-Government and other entities with Government ownership or control:Revenue from sales 424 5,539 11,299 16,635 Other income related to sales 64,840 70,223 152,967 206,422 Other revenue 214 292 668 866 Purchases 3,597 3,821 11,153 9,334 Service expenses 142 135 356 304 Lease expenses 255 165 769 424 (b)Balances September 30,December 31,2023 2022 Joint ventures:Other assets and receivables 5,441 5,363 Trade receivables 5,021 5,096 Interest receivable 514 371 Trade and other payables 6,191 7,060 Associates:Other assets and receivables 2,220 1,519 Trade receivables 10,826 13,410 Trade and other payables 7,676 6,278 Borrowings 15 Government,semi-Government and other entities with Government ownership or control:Other assets and receivables 1,170 510 Trade receivables 3,713 3,874 Due from the Government 65,796 54,545 Trade and other payables 1,658 2,093 Borrowings 6,618 128,026 (c)Compensation of key management personnel Compensation policies for and composition of key management personnel remain consistent with 2022.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 29 16.Investments in affiliates and securities(a)Valvoline Inc.s global products business On March 1,2023,AOC,a wholly owned subsidiary of the Company,acquired a 100%equity interest in Valvoline Inc.s global products business(“VGP Holdings LLC”)for a cash consideration of SAR 10,346($2,759),including customary adjustments.VGP Holdings LLC is a leading worldwide independent producer and distributor of premium branded automotive,commercial and industrial lubricants,and automotive chemicals.This strategic acquisition is expected to complement Saudi Aramcos line of premium branded lubricant products,optimize its global base oils production capabilities,and expand its own research and development activities and partnerships with original equipment manufacturers.The transaction resulted in Saudi Aramco obtaining control of VGP Holdings LLC.Saudi Aramco accounts for acquisitions of subsidiaries using the acquisition method of accounting.This requires recognition of the assets acquired and liabilities assumed at fair value as of the acquisition date.Saudi Aramco engaged an independent valuer in order to determine the fair value of the assets and liabilities of VGP Holdings LLC as part of the purchase price allocation process.The preliminary fair values of the identifiable assets and liabilities are as follows:Cash and cash equivalents 460 Trade receivables,inventories and other current assets 3,836 Property,plant and equipment(Note 5)2,285 Intangible assets(Note 6)4,628 Other non-current assets 522 Trade payables and other current liabilities(1,275)Non-current liabilities(521)Total identifiable net assets at fair value 9,935 Goodwill(Note 6)411 Purchase consideration 10,346 Acquisition and transaction costs of SAR 161 were expensed as selling,administrative and general expenses in the condensed consolidated statement of income for the nine-month period ended September 30,2023.Post-acquisition,VGP Holdings LLC contributed revenues of SAR 6,570 and net income of SAR 424,which are included in the condensed consolidated statement of income.If the acquisition had occurred on January 1,2023,management estimates that consolidated revenue and net income for the nine-month period ended September 30,2023 would have been SAR 8,332 and SAR 559,respectively.(b)Huajin Aramco Petrochemical Co.,Ltd.(“HAPCO”)On March 25,2023,AOC,a wholly owned subsidiary of the Company,entered into definitive agreements with North Huajin Chemical Industries Group Corporation(“North Huajin”)and Panjin Xincheng Industrial Group Co.,Ltd.(“Panjin Xincheng”)to construct the HAPCO refinery and petrochemical complex in Panjin City,Liaoning Province,China.AOC owns a 30%interest in HAPCO,while North Huajin and Panjin Xincheng own 51%and 19%,respectively.The investment in HAPCO has been accounted for as an associate.The complex,expected to be completed in 2026 with an estimated construction cost of RMB 83.7 billion(SAR 43,039),will be financed through a combination of debt and equity.The facility will combine a 300,000 barrels per day(“bpd”)refinery and a petrochemical plant with annual production capacity of 1.65 million metric tons of ethylene and 2 million metric tons of paraxylene.Saudi Aramcos share of the equity contribution is RMB 8.4 billion(SAR 4,304),of which RMB 5.8 billion(SAR 2,998)was undrawn as at September 30,2023.(c)Rongsheng Petrochemical Co.,Ltd.(“Rongsheng Petrochemical”)On July 21,2023,the Company announced the completion of the acquisition of a 10%equity interest in Rongsheng Petrochemical from Zhejiang Rongsheng Holding Group Co.,Ltd.,through its wholly owned subsidiary,AOC,for a total transaction value of RMB 24.6 billion(SAR 12,767).The acquisition of the equity interest in Rongsheng Petrochemical,a company listed on the Shenzhen Stock Exchange in China,follows the signing of definitive strategic agreements by the companies,as announced on March 27,2023.Among other assets,Rongsheng Petrochemical owns a 51%equity interest in Zhejiang Petroleum&Chemical Co.,Ltd.(“ZPC”),which in turn owns and operates the largest integrated refining and chemicals complex in China with a capacity to process 800,000 bpd of crude oil and to produce 4.2 million metric tons of ethylene per year.Through this strategic arrangement,Saudi Aramco would significantly expand its downstream presence in China,including supplying 480,000 bpd of crude oil to ZPC,under a long-term sales agreement.Upon completion,Saudi Aramco recognized an equity investment at fair value through other comprehensive income of SAR 6,399 within investments in securities,and a non-current other asset of SAR 5,932,relating to a payment made for the long-term sales agreement,which is amortized over the term of the agreement.In addition,a loss of SAR 436 was recognized in selling,administrative and general expenses in the condensed consolidated statement of income,representing fair value changes to the market price up to the completion date.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 30 16.Investments in affiliates and securities continued(d)Esmax Distribuscin SpA(“Esmax”)On September 15,2023,AOC,a wholly owned subsidiary of the Company,agreed to purchase a 100%equity stake in Esmax Distribuscin SpA(“Esmax”)from Southern Cross Group,a Latin America-focused private equity company.Esmax is one of the leading diversified downstream fuels and lubricants retailers in Chile,and its operations include retail fuel stations,airport operations,fuel distribution terminals and a lubricant blending plant.The transaction represents Saudi Aramcos first downstream retail investment in South America and would enable it to secure outlets for its refined products,create a platform to launch the Aramco brand in South America while strengthening its downstream value chain,and unlock new market opportunities for its Valvoline-branded lubricants.The transaction is subject to customary closing conditions and regulatory approvals,and is expected to close during the first quarter of 2024.(e)MidOcean Energy(“MidOcean”)On September 27,2023,AOC,a wholly owned subsidiary of the Company,entered into definitive agreements to acquire a strategic minority stake in MidOcean Energy(“MidOcean”)for a purchase consideration of SAR 1,875($500),with an option to increase its shareholding and associated rights in the future.MidOcean is a Liquefied Natural Gas(“LNG”)company,formed and managed by EIG Global Energy Partners with the objective of building a portfolio of high-quality,long term LNG interests,and is currently in the process of acquiring interests in four Australian LNG projects,with a growth strategy to create a diversified global LNG business.The strategic partnership with MidOcean marks Saudi Aramcos first international investment in LNG.The transaction is expected to close during the first quarter of 2024,subject to customary closing conditions and regulatory approvals.17.Sale of equity interest in a subsidiary Saudi Iron and Steel Company(“Hadeed”)On September 3,2023,SABIC,a subsidiary of Saudi Aramco,announced the signing of an agreement to sell its 100%shareholding in the Saudi Iron and Steel Company(“Hadeed”)to PIF.This transaction will enable SABIC to optimize its portfolio and focus on its core business.The completion of the transaction is subject to customary conditions and regulatory approvals,and is expected to occur during the first quarter of 2024.Following the signing of the agreement,Hadeeds assets and liabilities were classified as held for sale,and were presented separately on the condensed consolidated balance sheet.At the Saudi Aramco level,a loss on fair value measurement of SAR 3,216 was recognized within selling,administrative and general expenses in the condensed consolidated statement of income to reduce the carrying amount of the assets to their fair value less costs to sell.The major classes of Hadeeds assets classified as held for sale as at September 30,2023,comprise property,plant and equipment and intangible assets of SAR 5,275,inventories of SAR 4,291,trade receivables of SAR 3,002,and other assets of SAR 2,776.The liabilities directly associated with assets classified as held for sale comprise trade payables of SAR 908,post-employment benefit obligations of SAR 2,969,and other liabilities of SAR 2,817.18.Dividends Dividends declared and paid on ordinary shares are as follows:SAR per share Nine months Nine months Nine months Nine months 2023 2022 2023 2022 Quarter:March1 73,150 70,331 0.33 0.35 June2 73,160 70,328 0.30 0.32 September2,3 110,181 70,329 0.45 0.32 Total dividends declared and paid 256,491 210,988 1.08 0.99 Dividends declared on November 6,2023 and October 31,20222,4 110,183 70,330 0.45 0.32 1.Dividend of SAR 73,150 paid in 2023 relates to 2022 results.Dividend of SAR 70,331 paid in 2022 relates to 2021 results.2.Dividends per share of SAR 0.30,SAR 0.45 and SAR 0.45,declared on May 8,2023,August 6,2023,and November 6,2023,respectively,reflect the effect of the issuance of the bonus shares approved on May 8,2023,as described below.3.Dividend of SAR 110,181(SAR 0.45 per share)represents a base dividend of SAR 73,164(SAR 0.30 per share)and a performance-linked dividend of SAR 37,017(SAR 0.15 per share)that were declared on August 6,2023(August 12,2022:base dividend of SAR 70,329(SAR 0.32 per share).4.Dividend of SAR 110,183(SAR 0.45 per share)represents a base dividend of SAR 73,165(SAR 0.30 per share)and a performance-linked dividend of SAR 37,018(SAR 0.15 per share)that were declared on November 6,2023(October 31,2022:base dividend of SAR 70,330(SAR 0.32 per share).These dividends are not reflected in this condensed consolidated interim financial report and will be deducted from unappropriated retained earnings in the year ending December 31,2023.Saudi Aramco Third quarter and nine months interim report 2023 All amounts in millions of Saudi Riyals unless otherwise stated 31 18.Dividends continued On May 8,2023,after obtaining necessary approvals from the competent authorities,the Extraordinary General Assembly(“EGA”)approved the increase of the Companys share capital by SAR 15,000 and the commensurate increase of the number of the Companys issued ordinary shares by 22 billion without par value.Such increase was effected through capitalization of the Companys retained earnings.Each shareholder was granted one(1)bonus share for every ten(10)shares owned.The Companys share capital after the increase is SAR 90,000,divided into 242 billion fully paid ordinary shares with equal voting rights without par value.Accordingly,earnings per share for the three-month and nine-month periods ended September 30,2023 and 2022 have been calculated by retrospectively adjusting the weighted average number of outstanding shares to reflect the effect of the issuance of the above bonus shares.32Saudi AramcoThird quarter and nine months interim report 2023About Aramco Aramco,headquartered in the city of Dhahran,is one of the worlds largest integrated energy and chemicals companies;its Upstream operations are primarily based in the Kingdom of Saudi Arabia while the Downstream business is 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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-QQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended July 30,2023ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number:0-23985NVIDIA CORPORATION(Exact name of registrant as specified in its charter)Delaware94-3177549(State or other jurisdiction of(I.R.S.Employerincorporation or organization)Identification No.)2788 San Tomas Expressway,Santa Clara,California95051(Address of principal executive offices)(Zip Code)(408)486-2000(Registrants telephone number,including area code)N/A(Former name,former address and former fiscal year if changed since last report)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock,$0.001 par value per shareNVDAThe Nasdaq Global Select MarketIndicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and emerging growth company inRule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No The number of shares of common stock,$0.001 par value,outstanding as of August 18,2023,was 2.47 billion.NVIDIA CORPORATIONFORM 10-QFOR THE QUARTER ENDED JULY 30,2023TABLE OF CONTENTS Page PART I:FINANCIAL INFORMATION Item 1.Financial Statements(Unaudited)a)Condensed Consolidated Statements of Income for the three and six months ended July 30,2023 and July 31,20223b)Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 30,2023and July 31,20224 c)Condensed Consolidated Balance Sheets as of July 30,2023 and January 29,20235d)Condensed Consolidated Statements of Shareholders Equity for the three and six months ended July 30,2023and July 31,20226 e)Condensed Consolidated Statements of Cash Flows for the six months ended July 30,2023 and July 31,20228 f)Notes to Condensed Consolidated Financial Statements9Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations25Item 3.Quantitative and Qualitative Disclosures About Market Risk34Item 4.Controls and Procedures34 PART II:OTHER INFORMATION Item 1.Legal Proceedings34Item 1A.Risk Factors35Item 2.Unregistered Sales of Equity Securities and Use of Proceeds45Item 5.Other Information45Item 6.Exhibits46Signature 47WHERE YOU CAN FIND MORE INFORMATIONInvestors and others should note that we announce material financial information to our investors using our investor relations website,pressreleases,SEC filings and public conference calls and webcasts.We also use the following social media channels as a means of disclosinginformation about the company,our products,our planned financial and other announcements and attendance at upcoming investor and industryconferences,and other matters,and for complying with our disclosure obligations under Regulation FD:NVIDIA Company Blog(http:/)NVIDIA LinkedIn Page(http:/ Facebook Page(https:/ Instagram Page(https:/ Twitter Account(https:/ addition,investors and others can view NVIDIA videos on YouTube(https:/www.YouT information we post through these social media channels may be deemed material.Accordingly,investors should monitor these accountsand the blog,in addition to following our press releases,SEC filings and public conference calls and webcasts.This list may be updated fromtime to time.The information we post through these channels is not a part of this Quarterly Report on Form 10-Q.These channels may beupdated from time to time on NVIDIAs investor relations website.2PART I.FINANCIAL INFORMATIONITEM 1.FINANCIAL STATEMENTS(UNAUDITED)NVIDIA CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME(In millions,except per share data)(Unaudited)Three Months EndedSix Months Ended July 30,July 31,July 30,July 31,2023202220232022Revenue$13,507$6,704$20,699$14,992 Cost of revenue4,045 3,789 6,589 6,646 Gross profit9,462 2,915 14,110 8,346 Operating expenses Research and development2,040 1,824 3,916 3,443 Sales,general and administrative622 592 1,253 1,183 Acquisition termination cost 1,353 Total operating expenses2,662 2,416 5,169 5,979 Operating income6,800 499 8,941 2,367 Interest income187 46 338 64 Interest expense(65)(65)(131)(132)Other,net59(5)42(19)Other income(expense),net181(24)249(87)Income before income tax6,981 475 9,190 2,280 Income tax expense(benefit)793(181)958 6 Net income$6,188$656$8,232$2,274 Net income per share:Basic$2.50$0.26$3.33$0.91 Diluted$2.48$0.26$3.30$0.90 Weighted average shares used in per share computation:Basic2,473 2,495 2,472 2,500 Diluted2,499 2,516 2,495 2,526 See accompanying Notes to Condensed Consolidated Financial Statements.3NVIDIA CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions)(Unaudited)Three Months EndedSix Months Ended July 30,July 31,July 30,July 31,2023202220232022 Net income$6,188$656$8,232$2,274 Other comprehensive loss,net of taxAvailable-for-sale securities:Net change in realized gain(loss)(11)(12)7(35)Reclassification adjustments for net realized gain included in netincome 1 1 Net change in unrealized gain(loss)(11)(11)7(34)Cash flow hedges:Net unrealized gain(loss)22(2)8(30)Reclassification adjustments for net realized loss included in netincome(12)(13)(23)(15)Net change in unrealized gain(loss)10(15)(15)(45)Other comprehensive loss,net of tax(1)(26)(8)(79)Total comprehensive income$6,187$630$8,224$2,195 See accompanying Notes to Condensed Consolidated Financial Statements.4NVIDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS(In millions)(Unaudited)July 30,January 29,20232023ASSETSCurrent assets:Cash and cash equivalents$5,783$3,389 Marketable securities10,240 9,907 Accounts receivable,net7,066 3,827 Inventories4,319 5,159 Prepaid expenses and other current assets1,389 791 Total current assets28,797 23,073 Property and equipment,net3,799 3,807 Operating lease assets1,235 1,038 Goodwill4,430 4,372 Intangible assets,net1,395 1,676 Deferred income tax assets5,398 3,396 Other assets4,501 3,820 Total assets$49,555$41,182 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities:Accounts payable$1,929$1,193 Accrued and other current liabilities7,156 4,120 Short-term debt1,249 1,250 Total current liabilities10,334 6,563 Long-term debt8,456 9,703 Long-term operating lease liabilities1,041 902 Other long-term liabilities2,223 1,913 Total liabilities22,054 19,081 Commitments and contingencies-see Note 13Shareholders equity:Preferred stock Common stock2 2 Additional paid-in capital12,629 11,971 Accumulated other comprehensive loss(51)(43)Retained earnings14,921 10,171 Total shareholders equity27,501 22,101 Total liabilities and shareholders equity$49,555$41,182 See accompanying Notes to Condensed Consolidated Financial Statements.5NVIDIA CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITYFOR THE THREE MONTHS ENDED JULY 30,2023 AND JULY 31,2022(Unaudited)Common StockOutstandingAdditionalPaid-in CapitalAccumulated OtherComprehensive LossRetainedEarningsTotalShareholdersEquity(In millions,except per share data)SharesAmountBalances,April 30,20232,473$2$12,453$(50)$12,115$24,520 Net income 6,188 6,188 Other comprehensive loss (1)(1)Issuance of common stock from stock plans 5 1 1 Tax withholding related to vesting of restricted stock units(1)(672)(672)Shares repurchased(8)(1)(3,283)(3,284)Cash dividends declared and paid($0.04 per common share)(99)(99)Stock-based compensation 848 848 Balances,July 30,20232,469$2$12,629$(51)$14,921$27,501 Balances,May 1,20222,504$3$10,623$(64)$15,758$26,320 Net income 656 656 Other comprehensive loss (26)(26)Issuance of common stock from stock plans 6 1 1 Tax withholding related to vesting of restricted stock units(2)(299)(299)Shares repurchased(19)(1)(1)(3,343)(3,345)Cash dividends declared and paid($0.04 per common share)(100)(100)Stock-based compensation 644 644 Balances,July 31,20222,489$2$10,968$(90)$12,971$23,851 See accompanying Notes to Condensed Consolidated Financial Statements.6NVIDIA CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITYFOR THE SIX MONTHS ENDED JULY 30,2023 AND JULY 31,2022(Unaudited)Common StockOutstandingAdditionalPaid-inCapitalAccumulated OtherComprehensive LossRetainedEarningsTotalShareholdersEquity(In millions,except per share data)SharesAmountBalances,January 29,20232,466$2$11,971$(43)$10,171$22,101 Net income 8,232 8,232 Other comprehensive loss (8)(8)Issuance of common stock from stock plans 14 247 247 Tax withholding related to vesting of restricted stock units(3)(1,179)(1,179)Shares repurchased(8)(1)(3,283)(3,284)Cash dividends declared and paid($0.08 per common share)(199)(199)Stock-based compensation 1,591 1,591 Balances,July 30,20232,469$2$12,629$(51)$14,921$27,501 Balances,January 30,20222,506$3$10,385$(11)$16,235$26,612 Net income 2,274 2,274 Other comprehensive loss (79)(79)Issuance of common stock from stock plans 15 205 205 Tax withholding related to vesting of restricted stock units(4)(837)(837)Shares repurchased(28)(1)(2)(5,338)(5,341)Cash dividends declared and paid($0.08 per common share)(200)(200)Stock-based compensation 1,217 1,217 Balances,July 31,20222,489$2$10,968$(90)$12,971$23,851 See accompanying Notes to Condensed Consolidated Financial Statements.7NVIDIA CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions)(Unaudited)Six Months EndedJuly 30,July 31,20232022Cash flows from operating activities:Net income$8,232$2,274 Adjustments to reconcile net income to net cash provided by operating activities:Stock-based compensation expense1,576 1,226 Depreciation and amortization749 712(Gains)losses on investments in non-affiliates,net(45)24 Deferred income taxes(1,881)(985)Acquisition termination cost 1,353 Other(102)18 Changes in operating assets and liabilities,net of acquisitions:Accounts receivable(3,239)(668)Inventories861(1,285)Prepaid expenses and other assets(592)(1,554)Accounts payable789 559 Accrued and other current liabilities2,675 1,267 Other long-term liabilities236 60 Net cash provided by operating activities9,259 3,001 Cash flows from investing activities:Proceeds from maturities of marketable securities5,111 10,983 Proceeds from sales of marketable securities 1,731 Purchases of marketable securities(5,343)(7,576)Purchases related to property and equipment and intangible assets(537)(794)Acquisitions,net of cash acquired(83)(49)Investments and other,net(435)(65)Net cash provided by(used in)investing activities(1,287)4,230 Cash flows from financing activities:Proceeds related to employee stock plans247 205 Payments related to repurchases of common stock(3,067)(5,341)Repayment of debt(1,250)Payments related to tax on restricted stock units(1,179)(837)Dividends paid(199)(200)Principal payments on property and equipment and intangible assets(31)(36)Other 1 Net cash used in financing activities(5,479)(6,208)Change in cash,cash equivalents,and restricted cash2,493 1,023 Cash,cash equivalents,and restricted cash at beginning of period3,389 1,990 Cash,cash equivalents,and restricted cash at end of period$5,882$3,013 Reconciliation of cash,cash equivalents,and restricted cash to the Condensed Consolidated Balance Sheet:Cash and cash equivalents$5,783$3,013 Restricted cash,included in prepaid expenses and other current assets99 Total cash,cash equivalents,and restricted cash$5,882$3,013 Supplemental disclosure of cash flow information:Cash paid for income taxes,net$328$1,108 See accompanying Notes to Condensed Consolidated Financial Statements.8NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)Note 1-Summary of Significant Accounting PoliciesBasis of PresentationThe accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generallyaccepted in the United States of America,or U.S.GAAP,for interim financial information and with the instructions to Form 10-Q and Article 10 ofSecurities and Exchange Commission,or SEC,Regulation S-X.The January 29,2023 consolidated balance sheet was derived from our auditedconsolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 29,2023,as filed with the SEC,but does not include all disclosures required by U.S.GAAP.In the opinion of management,all adjustments,consisting only of normal recurringadjustments considered necessary for a fair statement of results of operations and financial position,have been included.The results for theinterim periods presented are not necessarily indicative of the results expected for any future period.The following information should be read inconjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal yearended January 29,2023.Significant Accounting PoliciesThere have been no material changes to our significant accounting policies disclosed in Note 1-Organization and Summary of SignificantAccounting Policies,of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedJanuary 29,2023.Fiscal YearWe operate on a 52-or 53-week year,ending on the last Sunday in January.Fiscal years 2024 and 2023 are both 52-week years.The secondquarters of fiscal years 2024 and 2023 were both 13-week quarters.ReclassificationsCertain prior fiscal year balances have been reclassified to conform to the current fiscal year presentation.Principles of ConsolidationOur condensed consolidated financial statements include the accounts of NVIDIA Corporation and our wholly-owned subsidiaries.Allintercompany balances and transactions have been eliminated in consolidation.Use of EstimatesThe preparation of financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and thereported amounts of revenue and expenses during the reporting period.Actual results could differ materially from our estimates.On an on-goingbasis,we evaluate our estimates,including those related to revenue recognition,cash equivalents and marketable securities,accountsreceivable,inventories,income taxes,goodwill,stock-based compensation,litigation,investigation and settlement costs,restructuring and othercharges,property,plant,and equipment,and other contingencies.These estimates are based on historical facts and various other assumptionsthat we believe are reasonable.In February 2023,we completed an assessment of the useful lives of our property,plant,and equipment.Based on advances in technology andusage rate,we increased the estimated useful life of a majority of our server,storage,and network equipment from three to a range of four tofive years,and our assembly and test equipment from five to seven years.This change in accounting estimate became effective at the beginningof fiscal year 2024.Based on the carrying amounts of a majority of our server,storage,network,and assembly and test equipment,net,in useas of the end of fiscal year 2023,the effect of this change in estimate for the three months ended July 30,2023 was a benefit of$5 million and$28 million for cost of revenue and operating expenses,respectively,which resulted in an increase in operating income of$33 million and netincome of$27 million after tax,or$0.01 per both basic and diluted share.The effect of this change in estimate for the first half of fiscal year 2024was a benefit of$7 million and$59 million for9NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)cost of revenue and operating expenses,respectively,which resulted in an increase in operating income of$66 million and net income of$55 million after tax,or$0.02 per both basic and diluted share.Note 2-Business CombinationTermination of the Arm Share Purchase AgreementIn February 2022,NVIDIA and SoftBank Group Corp,or SoftBank,announced the termination of the Share Purchase Agreement wherebyNVIDIA would have acquired Arm Limited,or Arm,from SoftBank.The parties agreed to terminate due to significant regulatory challengespreventing the completion of the transaction.We recorded an acquisition termination cost of$1.35 billion in fiscal year 2023 reflecting the write-off of the prepayment provided at signing.Note 3-LeasesOur lease obligations primarily consist of operating leases for our headquarters complex,domestic and international office facilities,and datacenter space,with lease periods expiring between fiscal years 2024 and 2035.Future minimum lease payments under our non-cancelable operating leases as of July 30,2023 are as follows:Operating LeaseObligations(In millions)Fiscal Year:2024(excluding first half of fiscal year 2024)$134 2025249 2026227 2027211 2028191 2029 and thereafter415 Total1,427 Less imputed interest178 Present value of net future minimum lease payments1,249 Less short-term operating lease liabilities208 Long-term operating lease liabilities$1,041 In addition,we have operating leases,primarily for our data centers,that are expected to commence between the third quarter of fiscal year2024 and the end of fiscal year 2025 with lease terms of 3 to 8 years for$205 million.Operating lease expenses were$67 million and$47 million for the second quarter of fiscal years 2024 and 2023,respectively,and$126 millionand$90 million for the first half of fiscal years 2024 and 2023,respectively.Short-term and variable lease expenses for the second quarter andfirst half of fiscal years 2024 and 2023 were not significant.10NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)Other information related to leases was as follows:Six Months EndedJuly 30,2023July 31,2022(In millions)Supplemental cash flows information Operating cash flows used for operating leases$135$91 Operating lease assets obtained in exchange for lease obligations$299$98 As of July 30,2023,our operating leases had a weighted average remaining lease term of 6.5 years and a weighted average discount rate of3.47%.As of January 29,2023,our operating leases had a weighted average remaining lease term of 6.8 years and a weighted averagediscount rate of 3.21%.Note 4-Stock-Based CompensationOur stock-based compensation expense is associated with restricted stock units,or RSUs,performance stock units that are based on ourcorporate financial performance targets,or PSUs,performance stock units that are based on market conditions,or market-based PSUs,and ouremployee stock purchase plan,or ESPP.Our Condensed Consolidated Statements of Income include stock-based compensation expense,net of amounts allocated to inventory,asfollows:Three Months EndedSix Months Ended July 30,2023July 31,2022July 30,2023July 31,2022(In millions)Cost of revenue$31$38$58$76 Research and development600 452 1,124 836 Sales,general and administrative211 159 394 315 Total$842$649$1,576$1,227 Equity Award ActivityThe following is a summary of our equity award transactions under our equity incentive plans:RSUs,PSUs,and Market-based PSUs Outstanding Number of SharesWeighted Average Grant-Date FairValue Per Share(In millions,except per share data)Balances,January 29,202345$158.45 Granted13$359.70 Vested restricted stock(11)$127.12 Canceled and forfeited(1)$194.70 Balances,July 30,202346$219.47 As of July 30,2023,there was$9.69 billion of aggregate unearned stock-based compensation expense.This amount is expected to berecognized over a weighted average period of 2.7 years for RSUs,PSUs,and market-based PSUs,and 1.0 year for ESPP.11NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)Note 5 Net Income Per ShareThe following is a reconciliation of the denominator of the basic and diluted net income per share computations for the periods presented:Three Months EndedSix Months EndedJuly 30,July 31,July 30,July 31,2023202220232022(In millions,except per share data)Numerator:Net income$6,188$656$8,232$2,274 Denominator:Basic weighted average shares2,473 2,495 2,472 2,500 Dilutive impact of outstanding equity awards26 21 23 26 Diluted weighted average shares2,499 2,516 2,495 2,526 Net income per share:Basic(1)$2.50$0.26$3.33$0.91 Diluted(2)$2.48$0.26$3.30$0.90 Equity awards excluded from diluted net income pershare because their effect would have been anti-dilutive10 33 14 25(1)Calculated as net income divided by basic weighted average shares.(2)Calculated as net income divided by diluted weighted average shares.Note 6 Income TaxesIncome tax was an expense of$793 million and$958 million for the second quarter and first half of fiscal year 2024,respectively,a benefit of$181 million for the second quarter of fiscal year 2023,and an expense of$6 million for the first half of fiscal year 2023.The income tax as apercentage of income before income tax was an expense of 11.4%and 10.4%for the second quarter and first half of fiscal year 2024,respectively,a benefit of 38.0%for the second quarter of fiscal year 2023,and an expense of 0.3%for the first half of fiscal year 2023.The increase in the effective tax rate was primarily due to a decreased impact of tax benefits from the foreign-derived intangible incomededuction,stock-based compensation,and the U.S.federal research tax credit,relative to the increase in income before income tax.Our effective tax rates for the first half of fiscal years 2024 and 2023 were lower than the U.S.federal statutory rate of 21%due to tax benefitsfrom the foreign-derived intangible income deduction,stock-based compensation and the U.S.federal research tax credit.For the first half of fiscal year 2024,there were no material changes to our tax years that remain subject to examination by major taxjurisdictions.We are currently under examination by the Internal Revenue Service for our fiscal years 2018 and 2019.Additionally,there havebeen no material changes to our unrecognized tax benefits and any related interest or penalties since the fiscal year ended January 29,2023.While we believe that we have adequately provided for all uncertain tax positions,or tax positions where we believe it is not more-likely-than-notthat the position will be sustained upon review,amounts asserted by tax authorities could be greater or less than our accrued position.Accordingly,our provisions on federal,state and foreign tax related matters to be recorded in the future may change as revised estimates aremade or the underlying matters are settled or otherwise resolved with the respective tax authorities.As of July 30,2023,we do not believe thatour estimates,as otherwise provided for,on such tax positions will significantly increase or decrease within the next 12 months.12NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)Note 7-Cash Equivalents and Marketable Securities Our cash equivalents and marketable securities related to debt securities are classified as“available-for-sale”debt securities.The following is a summary of cash equivalents and marketable securities:July 30,2023AmortizedCostUnrealizedGainUnrealizedLossEstimatedFair ValueReported as CashEquivalentsMarketableSecurities(In millions)Corporate debt securities$5,990$1$(13)$5,978$2,149$3,829 Debt securities issued by the U.S.Treasury3,716 (31)3,685 3,685 Debt securities issued by U.S.government agencies2,903 (4)2,899 647 2,252 Money market funds2,348 2,348 2,348 Certificates of deposit690 690 265 425 Foreign government bonds248 248 199 49 Total$15,895$1$(48)$15,848$5,608$10,240 January 29,2023AmortizedCostUnrealizedGainUnrealizedLossEstimatedFair ValueReported as CashEquivalentsMarketableSecurities(In millions)Corporate debt securities$4,809$(12)$4,797$1,087$3,710 Debt securities issued by the U.S.Treasury4,185 1(44)4,142 4,142 Debt securities issued by U.S.government agencies1,836 (2)1,834 50 1,784 Money market funds1,777 1,777 1,777 Certificates of deposit365 365 134 231 Foreign government bonds140 140 100 40 Total$13,112$1$(58)$13,055$3,148$9,907 13NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)The following tables provide the breakdown of unrealized losses,aggregated by investment category and length of time that individual securitieshave been in a continuous loss position:July 30,2023 Less than 12 Months12 Months or GreaterTotal Estimated FairValueGrossUnrealizedLossEstimated FairValueGrossUnrealizedLossEstimated FairValueGrossUnrealizedLoss(In millions)Debt securities issued by the U.S.Treasury$1,595$(16)$1,375$(15)$2,970$(31)Corporate debt securities1,379(9)802(4)2,181(13)Debt securities issued by U.S.government agencies2,223(4)2,223(4)Total$5,197$(29)$2,177$(19)$7,374$(48)January 29,2023 Less than 12 Months12 Months or GreaterTotal Estimated FairValueGrossUnrealizedLossEstimated FairValueGrossUnrealizedLossEstimated FairValueGrossUnrealizedLoss(In millions)Debt securities issued by the U.S.Treasury$2,444$(21)$1,172$(23)$3,616$(44)Corporate debt securities1,188(7)696(5)1,884(12)Debt securities issued by U.S.government agencies1,307(2)1,307(2)Total$4,939$(30)$1,868$(28)$6,807$(58)The gross unrealized losses are related to fixed income securities,driven primarily by changes in interest rates.Net realized gains and losseswere not significant for all periods presented.The amortized cost and estimated fair value of cash equivalents and marketable securities are shown below by contractual maturity.July 30,2023January 29,2023Amortized CostEstimated FairValueAmortized CostEstimated FairValue(In millions)Less than one year$12,613$12,592$9,738$9,708 Due in 1-5 years3,282 3,256 3,374 3,347 Total$15,895$15,848$13,112$13,055 Restricted cash was$99 million as of July 30,2023 and primarily represented amounts due to employees.14NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)Note 8 Fair Value of Financial Assets and LiabilitiesThe fair values of our financial assets and liabilities are determined using quoted market prices of identical assets or quoted market prices ofsimilar assets from active markets.We review fair value hierarchy classification on a quarterly basis.Fair Value atPricingCategoryJuly 30,2023January 29,2023(In millions)AssetsCash equivalents and marketable securities:Money market fundsLevel 1$2,348$1,777 Corporate debt securitiesLevel 2$5,978$4,797 Debt securities issued by the U.S.TreasuryLevel 2$3,685$4,142 Debt securities issued by U.S.government agenciesLevel 2$2,899$1,834 Certificates of depositLevel 2$690$365 Foreign government bondsLevel 2$248$140 Other assets(Investments in non-affiliated entities):Publicly-held equity securitiesLevel 1$124$11 Privately-held equity securitiesLevel 3$676$288 Liabilities(1)0.309%Notes Due 2023Level 2$1,230 0.584%Notes Due 2024Level 2$1,199$1,185 3.20%Notes Due 2026Level 2$959$966 1.55%Notes Due 2028Level 2$1,089$1,099 2.85%Notes Due 2030Level 2$1,355$1,364 2.00%Notes Due 2031Level 2$1,042$1,044 3.50%Notes Due 2040Level 2$848$870 3.50%Notes Due 2050Level 2$1,609$1,637 3.70%Notes Due 2060Level 2$406$410(1)These liabilities are carried on our Condensed Consolidated Balance Sheets at their original issuance value,net of unamortized debt discount and issuance costs.15NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)Note 9-Amortizable Intangible Assets and GoodwillThe components of our amortizable intangible assets are as follows:July 30,2023January 29,2023 GrossCarryingAmountAccumulatedAmortizationNet CarryingAmountGrossCarryingAmountAccumulatedAmortizationNet CarryingAmount(In millions)Acquisition-relatedintangible assets$2,642$(1,448)$1,194$3,093$(1,614)$1,479 Patents and licensedtechnology453(252)201 446(249)197 Total intangible assets$3,095$(1,700)$1,395$3,539$(1,863)$1,676 Amortization expense associated with intangible assets was$146 million and$327 million for the second quarter and first half of fiscal year2024,respectively,and$182 million and$336 million for the second quarter and first half of fiscal year 2023,respectively.The following table outlines the estimated future amortization expense related to the net carrying amount of intangible assets as of July 30,2023:Future Amortization Expense(In millions)Fiscal Year:2024(excluding first half of fiscal year 2024)$288 2025554 2026259 2027149 202836 2029 and thereafter109 Total$1,395 In the first half of fiscal year 2024,goodwill increased by$58 million from an acquisition,and was assigned to our Compute&Networkingsegment.Note 10-Balance Sheet Components Certain balance sheet components are as follows:July 30,January 29,20232023Inventories(1):(In millions)Raw materials$1,632$2,430 Work in-process1,058 466 Finished goods1,629 2,263 Total inventories$4,319$5,159(1)During the second quarter of fiscal years 2024 and 2023,we recorded an inventory provision of approximately$343 million and$570 million,respectively,in cost of revenue.16NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)July 30,January 29,20232023Other Assets:(In millions)Prepaid supply and capacity agreements(1)$3,008$2,989 Investments in non-affiliated entities800 299 Prepaid royalties375 387 Prepaid cloud services170 23 Other148 122 Total other assets$4,501$3,820(1)As of July 30,2023 and January 29,2023,there were$799 million and$458 million of short-term prepaid supply and capacity agreements included in Prepaid expenses andother current assets,respectively.July 30,January 29,20232023Accrued and Other Current Liabilities:(In millions)Taxes payable$2,803$467 Customer program accruals1,482 1,196 Excess inventory purchase obligations(1)870 954 Accrued payroll and related expenses642 530 Deferred revenue(2)421 354 Unsettled share repurchases217 Operating leases208 176 Product warranty and return provisions168 108 Licenses and royalties144 149 Other201 186 Total accrued and other current liabilities$7,156$4,120(1)During the second quarter of fiscal years 2024 and 2023,we recorded an expense of approximately$232 million and$650 million,respectively,in cost of revenue for inventorypurchase obligations in excess of our current demand projections,and cancellation and underutilization penalties.(2)Deferred revenue primarily includes customer advances and deferrals related to license and development arrangements,support for hardware and software,and cloudservices.July 30,January 29,20232023Other Long-Term Liabilities:(In millions)Income tax payable(1)$1,350$1,204 Deferred income tax373 247 Deferred revenue(2)308 218 Licenses payable127 181 Other65 63 Total other long-term liabilities$2,223$1,913(1)Income tax payable is comprised of the long-term portion of the one-time transition tax payable,unrecognized tax benefits,and related interest and penalties.(2)Deferred revenue primarily includes deferrals related to support for hardware and software.17NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)Deferred RevenueThe following table shows the changes in deferred revenue during the first half of fiscal years 2024 and 2023:July 30,July 31,20232022(In millions)Balance at beginning of period$572$502 Deferred revenue additions during the period713 399 Revenue recognized during the period(556)(341)Balance at end of period$729$560 Revenue allocated to remaining performance obligations,which includes deferred revenue and amounts that will be invoiced and recognized asrevenue in future periods,was$717 million as of July 30,2023.We expect to recognize approximately 44%of this revenue over the next twelvemonths and the remainder thereafter.This excludes revenue related to performance obligations for contracts with a length of one year or less.Note 11-Derivative Financial InstrumentsWe enter into foreign currency forward contracts to mitigate the impact of foreign currency exchange rate movements on our operatingexpenses.These contracts are designated as cash flow hedges for hedge accounting treatment.Gains or losses on the contracts are recordedin accumulated other comprehensive income or loss and reclassified to operating expense when the related operating expenses are recognizedin earnings or ineffectiveness should occur.We also enter into foreign currency forward contracts to mitigate the impact of foreign currency movements on monetary assets and liabilitiesthat are denominated in currencies other than the U.S.dollar.These forward contracts were not designated for hedge accounting treatment.Therefore,the change in fair value of these contracts is recorded in other income or expense and offsets the change in fair value of the hedgedforeign currency denominated monetary assets and liabilities,which is also recorded in other income or expense.The table below presents the notional value of our foreign currency forward contracts outstanding:July 30,2023January 29,2023(In millions)Designated as cash flow hedges$1,138$1,128 Non-designated hedges$367$366 The unrealized gains and losses or fair value of our foreign currency forward contracts was not significant as of July 30,2023 and January 29,2023.As of July 30,2023,all designated foreign currency forward contracts mature within 18 months.The expected realized gains and losses deferredinto accumulated other comprehensive income or loss related to foreign currency forward contracts within the next twelve months was notsignificant.During the first half of fiscal years 2024 and 2023,the impact of derivative financial instruments designated for hedge accounting treatment onother comprehensive income or loss was not significant and all such instruments were determined to be highly effective.18NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)Note 12-DebtLong-Term DebtThe carrying value of our outstanding notes,the calendar year of maturity,and the associated interest rates were as follows:Carrying Value atExpectedRemaining Term(years)EffectiveInterest RateJuly 30,2023January 29,2023(In millions)0.309%Notes Due 20230.41%$1,250 0.584%Notes Due 20240.90.66%1,250 1,250 3.20%Notes Due 20263.13.31%1,000 1,000 1.55%Notes Due 20284.91.64%1,250 1,250 2.85%Notes Due 20306.72.93%1,500 1,500 2.00%Notes Due 20317.92.09%1,250 1,250 3.50%Notes Due 204016.73.54%1,000 1,000 3.50%Notes Due 205026.73.54%2,000 2,000 3.70%Notes Due 206036.73.73P0 500 Unamortized debt discount and issuance costs(45)(47)Net carrying amount9,705 10,953 Less short-term portion(1,249)(1,250)Total long-term portion$8,456$9,703 All our notes are unsecured senior obligations.All existing and future liabilities of our subsidiaries will be effectively senior to the notes.Ournotes pay interest semi-annually.We may redeem each of our notes prior to maturity,subject to a make-whole premium as defined in theapplicable form of note.On June 15,2023,we repaid the 0.309%Notes Due 2023.As of July 30,2023,we were in compliance with the required covenants,which are non-financial in nature,under the outstanding notes.Commercial PaperWe have a$575 million commercial paper program to support general corporate purposes.As of July 30,2023,we had not issued anycommercial paper.Note 13-Commitments and ContingenciesPurchase ObligationsOur purchase obligations reflect our commitments to purchase components used to manufacture our products,including long-term supply andcapacity agreements,certain software and technology licenses,other goods and services and long-lived assets.As of July 30,2023,we had outstanding inventory purchase and long-term supply and capacity obligations totaling$11.15 billion.During thenormal course of business,to manage manufacturing lead times and help ensure adequate supply,we enter into agreements with contractmanufacturers that allow them to procure inventory based upon criteria as defined by us,and in certain instances,these agreements allow usthe option to cancel,reschedule,and adjust our requirements based on our business needs prior to firm orders being19NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)placed,but these changes may result in the payment of costs incurred through the date of cancellation.Other non-inventory purchaseobligations of$4.31 billion include$3.50 billion of multi-year cloud service agreements.Total future purchase commitments as of July 30,2023 are as follows:Commitments(In millions)Fiscal Year:2024(excluding first half of fiscal year 2024)$8,439 20253,960 2026957 2027999 2028637 2029 and thereafter468 Total$15,460 Accrual for Product Warranty LiabilitiesThe estimated amount of product warranty liabilities was$115 million and$82 million as of July 30,2023 and January 29,2023,respectively.The estimated product returns and estimated product warranty activity consisted of the following:Three Months EndedSix Months EndedJuly 30,2023July 31,2022July 30,2023July 31,2022(In millions)Balance at beginning of period$77$55$82$46 Additions4212255138Utilization(4)(9)(22)(16)Balance at end of period$115$168$115$168 In connection with certain agreements that we have entered in the past,we have provided indemnities for matters such as tax,product,andemployee liabilities.We have included intellectual property indemnification provisions in our technology-related agreements with third parties.Maximum potential future payments cannot be estimated because many of these agreements do not have a maximum stated liability.We havenot recorded any liability in our Condensed Consolidated Financial Statements for such indemnifications.LitigationSecurities Class Action and Derivative LawsuitsThe plaintiffs in the putative securities class action lawsuit,captioned 4:18-cv-07669-HSG,initially filed on December 21,2018 in the UnitedStates District Court for the Northern District of California,and titled In Re NVIDIA Corporation Securities Litigation,filed an amended complainton May 13,2020.The amended complaint asserted that NVIDIA and certain NVIDIA executives violated Section 10(b)of the SecuritiesExchange Act of 1934,as amended,or the Exchange Act,and SEC Rule 10b-5,by making materially false or misleading statements related tochannel inventory and the impact of cryptocurrency mining on GPU demand between May 10,2017 and November 14,2018.Plaintiffs alsoalleged that the NVIDIA executives who they named as defendants violated Section 20(a)of the Exchange Act.Plaintiffs sought classcertification,an award of unspecified compensatory damages,an award of reasonable costs and expenses,including attorneys fees and expertfees,and further relief as the Court may deem just and proper.On March 2,2021,the district court granted NVIDIAs motion to dismiss thecomplaint without leave to amend,entered judgment in favor of NVIDIA and closed the case.On March 30,2021,plaintiffs filed an appeal fromjudgment20NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)in the United States Court of Appeals for the Ninth Circuit,case number 21-15604.On August 25,2023,a majority of a three-judge Ninth Circuitpanel affirmed in part and reversed in part the district courts dismissal of the case,with a third judge dissenting on the basis that the districtcourt did not err in dismissing the case.The putative derivative lawsuit pending in the United States District Court for the Northern District of California,captioned 4:19-cv-00341-HSG,initially filed January 18,2019 and titled In re NVIDIA Corporation Consolidated Derivative Litigation,was stayed pending resolution of theplaintiffs appeal in the In Re NVIDIA Corporation Securities Litigation action.On February 22,2022,the court administratively closed the case,but stated that it would reopen the case once the appeal in the In Re NVIDIA Corporation Securities Litigation action is resolved.The lawsuitasserts claims,purportedly on behalf of us,against certain officers and directors of the Company for breach of fiduciary duty,unjust enrichment,waste of corporate assets,and violations of Sections 14(a),10(b),and 20(a)of the Exchange Act based on the dissemination of allegedly falseand misleading statements related to channel inventory and the impact of cryptocurrency mining on GPU demand.The plaintiffs are seekingunspecified damages and other relief,including reforms and improvements to NVIDIAs corporate governance and internal procedures.The putative derivative actions initially filed September 24,2019 and pending in the United States District Court for the District of Delaware,Lipchitz v.Huang,et al.(Case No.1:19-cv-01795-UNA)and Nelson v.Huang,et.al.(Case No.1:19-cv-01798-UNA),remain stayed pendingresolution of the plaintiffs appeal in the In Re NVIDIA Corporation Securities Litigation action.The lawsuits assert claims,purportedly on behalfof us,against certain officers and directors of the Company for breach of fiduciary duty,unjust enrichment,insider trading,misappropriation ofinformation,corporate waste and violations of Sections 14(a),10(b),and 20(a)of the Exchange Act based on the dissemination of allegedlyfalse,and misleading statements related to channel inventory and the impact of cryptocurrency mining on GPU demand.The plaintiffs seekunspecified damages and other relief,including disgorgement of profits from the sale of NVIDIA stock and unspecified corporate governancemeasures.Accounting for Loss ContingenciesAs of July 30,2023,we have not recorded any accrual for contingent liabilities associated with the legal proceedings described above based onour belief that liabilities,while possible,are not probable.Further,except as specifically described above,any possible loss or range of loss inthese matters cannot be reasonably estimated at this time.We are engaged in legal actions not described above arising in the ordinary course ofbusiness and,while there can be no assurance of favorable outcomes,we believe that the ultimate outcome of these actions will not have amaterial adverse effect on our operating results,liquidity or financial position.Note 14-Shareholders Equity Capital Return Program During the second quarter and first half of fiscal year 2024,we repurchased 7.5 million shares of our common stock for$3.28 billion.During thesecond quarter and first half of fiscal year 2023,we repurchased 19 million and 28 million shares for$3.35 billion and$5.34 billion,respectively.Since the inception of our share repurchase program through July 30,2023,we have repurchased an aggregate of 1.11 billion shares for a totalcost of$20.40 billion.As of July 30,2023,we were authorized,subject to certain specifications,to repurchase shares of our common stock up to$3.95 billion.On August 21,2023,our Board of Directors approved an increase to our share repurchase program of an additional$25.00 billion,without expiration.From July 31,2023 through August 24,2023,we repurchased 2 million shares for$998 million pursuant to a Rule 10b5-1trading plan.As of August 24,2023,a total of$27.95 billion was available for repurchase.Our share repurchase program aims to offset dilutionfrom shares issued to employees.We may pursue additional share repurchases as we weigh market factors and other investment opportunities.During the second quarter and first half of fiscal year 2024,we paid$99 million and$199 million in cash dividends to our shareholders,respectively.During the second quarter and first half of fiscal year 2023,we paid$100 million and$200 million in cash dividends to ourshareholders,respectively.Our cash dividend program and the payment of future cash dividends under that program are subject to our Board ofDirectors21NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)continuing determination that the dividend program and the declaration of dividends thereunder are in the best interests of our shareholders.Note 15-Segment InformationOur Chief Executive Officer,who is considered to be our chief operating decision maker,or CODM,reviews financial information presented onan operating segment basis for purposes of making decisions and assessing financial performance.The Compute&Networking segment includes our Data Center accelerated computing platform;networking;automotive artificial intelligence,orAI,Cockpit,autonomous driving development agreements,and autonomous vehicle solutions;electric vehicle computing platforms;Jetson forrobotics and other embedded platforms;NVIDIA AI Enterprise and other software;and cryptocurrency mining processors,or CMP.The Graphics segment includes GeForce GPUs for gaming and PCs,the GeForce NOW game streaming service and related infrastructure,andsolutions for gaming platforms;Quadro/NVIDIA RTX GPUs for enterprise workstation graphics;virtual GPU software for cloud-based visual andvirtual computing;automotive platforms for infotainment systems;and Omniverse Enterprise software for building and operating 3D internetapplications.Operating results by segment include costs or expenses that are directly attributable to each segment,and costs or expenses that are leveragedacross our unified architecture and therefore allocated between our two segments.The“All Other”category includes the expenses that our CODM does not assign to either Compute&Networking or Graphics for purposes ofmaking operating decisions or assessing financial performance.The expenses include stock-based compensation expense,acquisition-relatedand other costs,corporate infrastructure and support costs,acquisition termination cost,intellectual property related,or IP-related and legalsettlement costs,contributions,and other non-recurring charges and benefits that our CODM deems to be enterprise in nature.Our CODM does not review any information regarding total assets on a reportable segment basis.Depreciation and amortization expensedirectly attributable to each reportable segment is included in operating results for each segment.However,our CODM does not evaluatedepreciation and amortization expense by operating segment and,therefore,it is not separately presented.There is no intersegment revenue.The accounting policies for segment reporting are the same as for our consolidated financial statements.The table below presents details of ourreportable segments and the“All Other”category.22NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)Compute&NetworkingGraphicsAll OtherConsolidated(In millions)Three Months Ended July 30,2023 Revenue$10,402$3,105$13,507 Operating income(loss)$6,728$1,211$(1,139)$6,800 Three Months Ended July 31,2022 Revenue$3,907$2,797$6,704 Operating income(loss)$816$657$(974)$499 Six Months Ended July 30,2023Revenue$14,862$5,837$20,699 Operating income(loss)$8,887$2,258$(2,204)$8,941 Six Months Ended July 31,2022Revenue$7,579$7,413$14,992 Operating income(loss)$2,422$3,133$(3,188)$2,367 Three Months EndedSix Months EndedJuly 30,2023July 31,2022July 30,2023July 31,2022(In millions)Reconciling items included in All Other category:Stock-based compensation expense$(842)$(649)$(1,576)$(1,227)Unallocated cost of revenue and operating expenses(163)(148)(317)(275)Acquisition-related and other costs(137)(175)(311)(324)IP-related and legal settlement costs(2)(10)(7)Acquisition termination cost (1,353)Contributions(2)(2)Other5 10 Total$(1,139)$(974)$(2,204)$(3,188)Revenue by geographic region is allocated to individual countries based on the billing location of the customer.End customer location may bedifferent than our customers billing location.The following table23NVIDIA CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)(Unaudited)summarizes information pertaining to our revenue from customers based on the invoicing address by geographic regions:Three Months EndedSix Months EndedJuly 30,July 31,July 30,July 31,2023202220232022(In millions)Revenue:United States$6,043$1,988$8,428$3,921 Taiwan2,839 1,204 4,635 3,981 China(including Hong Kong)2,740 1,602 4,330 3,683 Other countries1,885 1,910 3,306 3,407 Total revenue$13,507$6,704$20,699$14,992 One data center distributor customer represented approximately 17%and 13%of total revenue for the second quarter and first half of fiscal year2024,respectively,and was attributable to the Compute&Networking segment.There were no customers with 10%or more of total revenue forthe second quarter and first half of fiscal year 2023.A large cloud service provider,or CSP,which primarily purchases indirectly through multiple system integrators and distributors,is estimated torepresent approximately 22%and 19%of total revenue for the second quarter and first half of fiscal year 2024,respectively,and was attributableto our Compute&Networking segment.Two customers accounted for 16%and 13%of our accounts receivable balance as of July 30,2023.Two customers accounted for 14%and11%of our accounts receivable balance as of January 29,2023.The following table summarizes information pertaining to our revenue by each of the specialized markets we serve:Three Months EndedSix Months EndedJuly 30,July 31,July 30,July 31,2023202220232022(In millions)Revenue:Data Center$10,323$3,806$14,607$7,556 Gaming2,486 2,042 4,726 5,662 Professional Visualization379 496 674 1,118 Automotive253 220 549 358 OEM and Other66 140 143 298 Total revenue$13,507$6,704$20,699$14,992 24ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSForward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements which are based on our managements beliefs and assumptions andon information currently available to our management.In some cases,you can identify forward-looking statements by terms such as“may,”“will,”“should,”“could,”“goal,”“would,”“expect,”“plan,”“anticipate,”“believe,”“estimate,”“project,”“predict,”“potential”and similar expressionsintended to identify forward-looking statements.These statements involve known and unknown risks,uncertainties and other factors,which maycause our actual results,performance,time frames or achievements to be materially different from any future results,performance,time framesor achievements expressed or implied by the forward-looking statements.We discuss many of these risks,uncertainties and other factors in thisQuarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended January 29,2023 in greater detail under theheading“Risk Factors”of such reports.Given these risks,uncertainties and other factors,you should not place undue reliance on these forward-looking statements.Also,these forward-looking statements represent our estimates and assumptions only as of the date of this filing.You shouldread this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different fromwhat we expect.We hereby qualify our forward-looking statements by these cautionary statements.Except as required by law,we assume noobligation to update these forward-looking statements publicly,or to update the reasons actual results could differ materially from thoseanticipated in these forward-looking statements,even if new information becomes available in the future.All references to“NVIDIA,”“we,”“us,”“our”or the“Company”mean NVIDIA Corporation and its subsidiaries.2023 NVIDIA Corporation.All rights reserved.The following discussion and analysis of our financial condition and results of operations shouldbe read in conjunction with the risk factors set forth in Item 1A.“Risk Factors”of our Annual Report on Form 10-K for the fiscal year endedJanuary 29,2023 and Part II,Item 1A.“Risk Factors”of this Quarterly Report on Form 10-Q and our Condensed Consolidated FinancialStatements and related Notes thereto,as well as other cautionary statements and risks described elsewhere in this Quarterly Report on Form10-Q and our other filings with the SEC,before deciding to purchase or sell shares of our common stock.OverviewOur Company and Our BusinessesSince our founding in 1993,NVIDIA has been a pioneer in accelerated computing.Our invention of the GPU in 1999 has sparked the growth ofthe PC gaming market,redefined computer graphics,ignited the era of modern AI and has fueled industrial digitalization across markets.NVIDIAis now a full-stack computing company with data-center-scale offerings that are reshaping industry.Our two operating segments are Compute&Networking and Graphics,as described in Note 15 of the Notes to Condensed ConsolidatedFinancial Statements.Headquartered in Santa Clara,California,NVIDIA was incorporated in California in April 1993 and reincorporated in Delaware in April 1998.Recent Developments,Future Objectives and ChallengesDemand and Supply,Product Transitions,and New Products and Business ModelsDemand for our data center systems and products has surged over the last two quarters and our demand visibility extends into next year.Inorder to meet this demand,we have increased our purchase obligations with existing suppliers,added new suppliers and entered into prepaidsupply and capacity agreements.These increased purchase volumes and number of suppliers may create more supply chain complexity andexecution risk.We expect our supply to increase each quarter through next year.We have entered and expect to continue to enter into supplierand capacity arrangements.Product transitions are complex as we often ship both new and prior architecture products simultaneously and we and our channel partnersprepare to ship and support new products.We are in various stages of transitioning the architecture of our Data Center,ProfessionalVisualization,and Gaming products.Qualification time for new products,customers anticipating product transitions and channel partners25reducing channel inventory of prior architectures ahead of new product introductions can create reductions or volatility in our revenue.Inaddition,the bring up of new product architectures is complex due to functionality challenges and quality concerns not identified in manufacturingtesting.These product quality issues may incur costs,increase our warranty costs,and delay further production of our architecture.While wehave managed prior product transitions and have previously sold multiple product architectures at the same time,these transitions are difficult,may impair our ability to predict demand and impact our supply mix,and we may incur additional costs.We build technology and products for use cases and applications that may be new or may not yet exist such as our Omniverse platform,third-party large language models,and generative AI models.We have recently begun offering enterprise customers NVIDIA DGX cloud servicesdirectly and through our network of partners,which includes cloud-based infrastructure and software and services for training and deploying AImodels,and NVIDIA AI Foundations for customizable pretrained AI models.Our demand estimates for new use cases,applications,and servicescan be incorrect and create volatility in our revenue or supply levels,and we may not be able to generate significant revenue from these usecases,applications,and services.New technologies such as generative AI models have emerged,and while they have driven increased demandfor Data Center compute infrastructure,the long-term trajectory is unknown.Global TradeDuring the third quarter of fiscal year 2023,the U.S.government,or the USG,announced license requirements that,with certain exceptions,impact exports to China(including Hong Kong and Macau)and Russia of our A100 and H100 integrated circuits,DGX or any other systems orboards which incorporate A100 or H100 integrated circuits.During the second quarter of fiscal year 2024,the USG informed us of an additionallicensing requirement for a subset of A100 and H100 products destined to certain customers and other regions,including some countries in theMiddle East.We have sold alternative products in China not subject to the license requirements,such as our A800 or H800 offerings.Given the strength of demand for our products worldwide,we do not anticipate that additional export restrictions,if adopted,would have animmediate material impact on our financial results.However,over the long term,our results and competitive position may be harmed,and wemay be effectively excluded from all or part of the China market if there are further changes in the USGs export controls,if customers in Chinado not want to purchase our alternative product offerings,if customers purchase product from competitors,if customers develop their owninternal solution,if the USG does not grant licenses in a timely manner or denies licenses to significant customers,or if we incur significanttransition costs.While we work to enhance the resiliency and redundancy of our supply chain,which is currently concentrated in the Asia-Pacific,includingChina,Hong Kong,Korea and Taiwan,new export controls or changes to existing export controls could negatively impact our business.Macroeconomic FactorsMacroeconomic factors,includinginflation,increased interest rates,significant capital market volatility,global supply chain constraints and globaleconomic and geopolitical developments,may have direct and indirect impacts on our results of operations.While difficult to isolate and quantify,these macroeconomic factors can impact our supply chain and manufacturing costs,employee wages,costs for capital equipment and value ofour investments.Our product and solution pricing strategy generally does not fluctuate with short-term changes in our costs.Within our supplychain,we continuously manage product availability and costs with our vendors.26Second Quarter of Fiscal Year 2024 SummaryThree Months Ended July 30,2023April 30,2023July 31,2022Quarter-over-QuarterChangeYear-over-YearChange($in millions,except per share data)Revenue$13,507$7,192$6,704 881%Gross margin70.1d.6C.5%5.5 pts26.6 ptsOperating expenses$2,662$2,508$2,416 6%Operating income$6,800$2,140$499 218%1,263%Net income$6,188$2,043$656 2033%Net income per diluted share$2.48$0.82$0.26 2024%We specialize in markets where our computing platforms can provide tremendous acceleration for applications.These platforms incorporateprocessors,interconnects,software,algorithms,systems,and services to deliver unique value.Our platforms address four large markets whereour expertise is critical:Data Center,Gaming,Professional Visualization,and Automotive.Revenue for the second quarter of fiscal year 2024 was$13.51 billion,up 101%from a year ago and up 88%sequentially.Data Center revenue was up 171%from a year ago and up 141%sequentially,led by CSPs and large consumer internet companies.Strongdemand for the NVIDIA HGX platform based on our Hopper and Ampere GPU architectures was primarily driven by the development of largelanguage models and generative AI.Data Center Compute grew 195%from a year ago and 157%sequentially,largely reflecting the strong rampof our Hopper-based HGX platform.Networking was up 94%from a year ago and up 85%sequentially,primarily on strong growth in InfiniBandinfrastructure to support our HGX platform.In the second quarter of fiscal year 2024,CSPs represented slightly more than half of our estimatedData Center end demand,with large consumer internet companies being the next largest end demand,followed by enterprise and highperformance computing.Gaming revenue was up 22%from a year ago and up 11%sequentially,primarily reflecting demand for our GeForce RTX 40 Series GPUsbased on the NVIDIA Ada Lovelace architecture following normalization of channel inventory levels.Professional Visualization revenue was down 24%from a year ago and up 28%sequentially.The year-on-year decrease primarily reflects lowersell-in to partners following normalization of channel inventory levels.The sequential increase was primarily due to stronger enterpriseworkstation demand and the ramp of NVIDIA RTX products based on the Ada Lovelace Architecture.Automotive revenue was up 15%from a year ago and down 15%sequentially.The year-on-year increase was primarily driven by sales of self-driving platforms.The sequential decrease primarily reflects lower overall auto demand,particularly in China.Gross margin increased from a year ago and sequentially,primarily reflecting growth in Data Center sales.The year-on-year increase alsoreflects the impact on the year-ago gross margin from$1.34 billion in inventory provisions and related charges.Operating expenses were up 10%from a year ago and up 6%sequentially,primarily driven by compensation and benefits,including stock-basedcompensation,reflecting growth in employees and compensation increases.Market Platform HighlightsData Center revenue for the second quarter of fiscal year 2024 was$10.32 billion,up 171%from a year ago.We announced that the NVIDIAGH200 Grace Hopper Superchip is available in the third quarter of fiscal year 2024;announced the NVIDIA L40S GPU-a universal data centerprocessor for compute-intensive applications,including AI training and inference,is available now;unveiled the NVIDIA MGX server referencedesign;announced NVIDIA Spectrum-X,an accelerated networking platform for AI;and partnered with a27range of companies on AI initiatives,including ServiceNow,Accenture,VMware,Snowflake,WPP,SoftBank,and Hugging Face.Gaming revenue for the second quarter of fiscal year 2024 was$2.49 billion,up 22%from a year ago.We began shipping the GeForce RTX4060 family of GPUs;and announced NVIDIA Avatar Cloud Engine for Games,a custom AI model foundry service using AI-powered naturallanguage interactions to transform games.Professional Visualization revenue for the second quarter of fiscal year 2024 was$379 million,down 24%from a year ago.We announced newNVIDIA RTX GPUs for desktop workstations based on the Ada Lovelace architecture;and a major release of the NVIDIA Omniverse platform.Automotive revenue for the second quarter of fiscal year 2024 was$253 million,up 15%from a year ago.We announced that NVIDIA DRIVEOrin is powering the new XPENG G6 Coupe SUVs;and announced a partnership with MediaTek,which will develop mainstream automotivesystems on chips for global OEMs integrating a new NVIDIA GPU chiplet IP for AI and graphics.Financial Information by Business Segment and Geographic DataRefer to Note 15 of the Notes to Condensed Consolidated Financial Statements for disclosure regarding segment information.Critical Accounting Policies and EstimatesRefer to Part II,Item 7,Critical Accounting Policies and Estimates of our Annual Report on Form 10-K for the fiscal year ended January 29,2023.There have been no material changes to our Critical Accounting Policies and Estimates.Results of OperationsThe following table sets forth,for the periods indicated,certain items in our Condensed Consolidated Statements of Income expressed as apercentage of revenue.Three Months EndedSix Months Ended July 30,2023July 31,2022July 30,2023July 31,2022Revenue100.00.00.00.0%Cost of revenue29.9 56.5 31.8 44.3 Gross profit70.1 43.5 68.2 55.7 Operating expenses Research and development15.1 27.2 18.9 23.0 Sales,general and administrative4.7 8.8 6.1 7.9 Acquisition termination cost 9.0 Total operating expenses19.8 36.0 25.0 39.9 Operating income50.3 7.5 43.2 15.8 Interest income1.4 0.7 1.6 0.4 Interest expense(0.5)(1.0)(0.6)(0.9)Other,net0.4(0.1)0.2(0.1)Other income(expense),net1.3(0.4)1.2(0.6)Income before income tax51.6 7.1 44.4 15.2 Income tax expense(benefit)5.9(2.7)4.6 Net income45.7%9.89.8.2(RevenueRevenue for the second quarter and first half of fiscal year 2024 was$13.51 billion and$20.70 billion,up 101%and 38%,respectively.Revenue by Reportable SegmentsThree Months EndedSix Months Ended July 30,2023July 31,2022$Change%ChangeJuly 30,2023July 31,2022$Change%Change($in millions)Compute&Networking$10,402$3,907$6,495 166%$14,862$7,579$7,283 96%Graphics3,105 2,797 308 11%5,837 7,413(1,576)(21)%Total$13,507$6,704$6,803 101%$20,699$14,992$5,707 38%Compute&Networking-The increase in the second quarter and first half of fiscal year 2024 compared to the second quarter and first half offiscal year 2023 was primarily due to higher Data Center revenue.Compute GPUs grew 208%year-on-year and 112%compared to the first halfof fiscal year 2023 led by demand for NVIDIA HGX platform based on our Hopper and Ampere GPU architecture for large language models andgenerative AI.Networking was up 94%year-on-year and 63%compared to the first half of last year driven primarily by strong growth inInfiniBand infrastructure to support our HGX platform.Graphics-The increase in the second quarter of fiscal year 2024 compared to the second quarter of fiscal year 2023 primarily reflects growth inGaming GPUs related to the demand for our GeForce RTX 40 Series GPUs based on the NVIDIA Ada Lovelace architecture followingnormalization of channel inventory levels.The decrease in the first half of fiscal year 2024 compared to the first half of fiscal year 2023 primarilyreflects 16%lower Gaming GPU sales and 36%lower Professional Visualization GPU sales,due to lower sell-in to partners followingnormalization of channel inventory levels.Concentration of Revenue Revenue by geographic region is allocated to countries based on the billed location even if the revenue may be attributable to end customers ina different location.Revenue from sales to customers outside of the United States accounted for 55%and 59%of total revenue for the secondquarter and first half of fiscal year 2024,respectively,and 70%and 74%of total revenue for the second quarter and first half of fiscal year 2023,respectively.The increase in revenue to the United States for the second quarter and first half of fiscal year 2024 was primarily due to higherU.S.-based Data Center end demand.Our customer and partner network incorporates original equipment manufacturers,original device manufacturers,system builders,systemintegrators,add-in board manufacturers,retailers/distributors,independent software vendors,internet and CSPs,automotive manufacturers andtier-1 automotive suppliers,mapping companies,start-ups,and other ecosystem participants.One data center distributor customer representedapproximately 17%and 13%of total revenue for the second quarter and first half of fiscal year 2024,respectively,and was attributable to theCompute&Networking segment.There were no customers with 10%or more of total revenue for the second quarter and first half of fiscal year2023.A large CSP,which primarily purchases indirectly through multiple system integrators and distributors,is estimated to represent approximately22%and 19%of total revenue for the second quarter and first half of fiscal year 2024,respectively,and was attributable to our Compute&Networking segment.Our estimated Compute&Networking end customer demand is concentrated among several large CSPs and consumerinternet companies.Most of these large companies do not purchase directly from us but often purchase through multiple system integrators,distributors,and channel partners.We expect this concentration trend will continue.Gross MarginOur overall gross margin increased to 70.1%and 68.2%for the second quarter and first half of fiscal year 2024,respectively,from 43.5%and55.7%for the second quarter and first half of fiscal year 2023,respectively.The increase in the second quarter and first half of fiscal year 2024compared to second quarter and first half of fiscal year 2023 was primarily due to higher revenue from Compute GPUs of 208%and 112%,respectively,and lower inventory provisions.29Provisions for inventory and excess inventory purchase obligations totaled$576 million and$709 million for the second quarter and first half offiscal year 2024,respectively.Sales of inventory that was previously written off or down,or settlements of excess inventory purchase obligations,totaled$84 million and$134 million for the second quarter and first half of fiscal year 2024,respectively.As a result,the overall net effect on ourgross margin was an unfavorable impact of 3.6%and 2.8%in the second quarter and first half of fiscal year 2024,respectively.Provisions for inventory and excess inventory purchase obligations totaled$1.22 billion and$1.31 billion for the second quarter and first half offiscal year 2023,respectively.Sales of inventory that was previously written off or down,or settlements of excess inventory purchase obligations,totaled$23 million and$38 million for the second quarter and first half of fiscal year 2023,respectively.As a result,the overall net effect on ourgross margin was an unfavorable impact of 17.8%and 8.5%in the second quarter and first half of fiscal year 2023,respectively.Operating Expenses Three Months EndedSix Months Ended July 30,2023July 31,2022$Change%ChangeJuly 30,2023July 31,2022$Change%Change($in millions)Research and developmentexpenses$2,040$1,824$216 12%$3,916$3,443$473 14%of net revenue15.1.2.9#.0%Sales,general and administrativeexpenses622 592 30 5%1,253 1,183 70 6%of net revenue4.7%8.8%6.1%7.9quisition termination cost%1,353(1,353)(100)%of net revenue%9.0%Total operating expenses$2,662$2,416$246 10%$5,169$5,979$(810)(14)%of net revenue19.86.0%.09.9%The increases in research and development expenses and sales,general and administrative expenses for the second quarter and first half offiscal year 2024 were primarily driven by compensation and benefits,including stock-based compensation,reflecting employee growth andcompensation increases.Acquisition termination costWe recorded an acquisition termination cost related to the Arm transaction of$1.35 billion in fiscal year 2023 reflecting the write-off of theprepayment provided at signing.Operating IncomeOperating income for the second quarter and first half of fiscal year 2024 was$6.80 billion and$8.94 billion,respectively,up 1,263%and 278%from a year ago,respectively.Operating income by Reportable SegmentsThree Months EndedSix Months EndedJuly 30,2023July 31,2022$Change%ChangeJuly 30,2023July 31,2022$Change%Change($in millions)Compute&Networking$6,728$816$5,912 725%$8,887$2,422$6,465 267%Graphics1,211 657 554 84%2,258 3,133(875)(28)%All Other(1,139)(974)(165)17%(2,204)(3,188)984(31)%Total$6,800$499$6,301 1,263%$8,941$2,367$6,574 2780Compute&Networking Segment operating income increased during the second quarter and first half of fiscal year 2024 compared to thesecond quarter and first half of fiscal year 2023 primarily due to higher revenues.Graphics-Segment operating income increased during the second quarter of fiscal year 2024 compared to the second quarter of fiscal year2023 primarily due to higher revenues of 11%.Segment operating income was also impacted by inventory provisions which were$81 million inthe second quarter of fiscal year 2024 compared to$396 million in the second quarter of fiscal year 2023.Segment operating income decreasedduring the first half of fiscal year 2024 compared to the first half of fiscal year 2023 primarily due to lower revenues of 21%.Segment operatingincome was also impacted by inventory provisions which were$125 million in the first half of fiscal year 2024 compared to$416 million in thefirst half of fiscal year 2023.All Other expenses increased during the second quarter of fiscal year 2024 compared to the second quarter of fiscal year 2023 primarily due tohigher stock-based compensation expense.All Other expenses decreased during the first half of fiscal year 2024 compared to the first half offiscal year 2023 primarily due to an acquisition termination cost of$1.35 billion related to the Arm transaction in the prior year.Other Income(Expense),NetThree Months EndedSix Months Ended July 30,2023July 31,2022$ChangeJuly 30,2023July 31,2022$Change($in millions)Interest income$187$46$141$338$64$274 Interest expense(65)(65)(131)(132)1 Other,net59(5)64 42(19)61 Other income(expense),net$181$(24)$205$249$(87)$336 Interest income consists of interest earned on cash,cash equivalents and marketable securities.The increase in interest income was primarilydue to higher yields earned on our investments.Interest expense is primarily comprised of coupon interest and debt discount amortization related to our notes.Other,net,consists primarily of realized or unrealized gains and losses from investments in non-affiliated entities and the impact of changes inforeign currency rates.Change in other,net,compared to the second quarter and first half of fiscal year 2023 was primarily driven by mark-to-market gains from publicly traded equity investments.Income TaxesIncome tax was an expense of$793 million and$958 million for the second quarter and first half of fiscal year 2024,respectively,a benefit of$181 million for the second quarter of fiscal year 2023,and an expense of$6 million for the first half of fiscal year 2023.The income tax as apercentage of income before income tax was an expense of 11.4%and 10.4%for the second quarter and first half of fiscal year 2024,respectively,a benefit of 38.0%for the second quarter of fiscal year 2023,and an expense of 0.3%for the first half of fiscal year 2023.The increase in the effective tax rate was primarily due to a decreased impact of tax benefits from the foreign-derived intangible incomededuction,stock-based compensation,and the U.S.federal research tax credit,relative to the increase in income before income tax.31Liquidity and Capital Resources July 30,2023January 29,2023(In millions)Cash and cash equivalents$5,783$3,389 Marketable securities10,240 9,907 Cash,cash equivalents and marketable securities$16,023$13,296 Six Months EndedJuly 30,2023July 31,2022(In millions)Net cash provided by operating activities$9,259$3,001 Net cash provided by(used in)investing activities$(1,287)$4,230 Net cash used in financing activities$(5,479)$(6,208)As of July 30,2023,we had$16.02 billion in cash,cash equivalents,and marketable securities,an increase of$2.73 billion from the end of fiscalyear 2023.Our investment policy requires the purchase of highly rated fixed income securities,the diversification of investment types and creditexposures,and certain maturity limits on our portfolio.Cash provided by operating activities increased in the first half of fiscal year 2024 compared to the first half of fiscal year 2023,primarily due tohigher revenue and lower inventory,partially offset by higher accounts receivable.Accounts receivable in the second quarter of fiscal year 2024benefited by approximately$1.25 billion from customer payments received ahead of the invoice due date.Cash used in investing activities increased in the first half of fiscal year 2024 compared to the first half of fiscal year 2023,primarily driven bylower marketable securities sales and maturities,partially offset by lower purchases of marketable securities.Cash used in financing activities decreased in the first half of fiscal year 2024 compared to the first half of fiscal year 2023,which primarilyreflects lower share repurchases partially offset by a debt repayment in the second quarter of fiscal year 2024.LiquidityOur primary sources of liquidity are our cash,cash equivalents,and marketable securities,and the cash generated by our operations.As ofJuly 30,2023,we had$16.02 billion in cash,cash equivalents,and marketable securities.Our marketable securities consist of debt securitiesissued by the USG and its agencies,highly rated corporations and financial institutions,and foreign government entities,as well as certificates ofdeposit issued by highly rated financial institutions.These marketable securities are primarily denominated in U.S.dollars.Refer to Note 7 of theNotes to Condensed Consolidated Financial Statements for additional information.We believe that we have sufficient liquidity to meet ouroperating requirements for at least the next twelve months,and for the foreseeable future,including our debt obligations,future supplyobligations and vendor and supplier prepayments.We continuously evaluate our liquidity and capital resources,including our access to externalcapital,to ensure we can finance future capital requirements.Except for approximately$1.38 billion of cash,cash equivalents,and marketable securities held outside the U.S.for which we have not accruedany related foreign or state taxes if we repatriate these amounts to the U.S.,substantially all of our cash,cash equivalents and marketablesecurities held outside of the U.S.as of July 30,2023 are available for use in the U.S.without incurring additional U.S.federal income taxes.Weexpect to pay approximately$3.81 billion in cash taxes in the third quarter of fiscal year 2024 as we had previously deferred our federal incometax payments due to the disaster relief made available by the Internal Revenue Service for certain California taxpayers.Primarily based upon increased cash tax payments,we expect that our cash flow from operations will decline in the third quarter of fiscal year2024 compared to the second quarter of fiscal year 2024.32Capital Return to ShareholdersDuring the second quarter and first half of fiscal year 2024,we returned$3.28 billion in share repurchases and$99 million and$199 million,respectively,in cash dividends.From July 31,2023 through August 24,2023,we repurchased 2 million shares for$998 million pursuant to aRule 10b5-1 trading plan.Our cash dividend program and the payment of future cash dividends under that program are subject to the continuing determination by ourBoard of Directors that the dividend program and the declaration of dividends thereunder are in the best interests of our shareholders.As of July 30,2023,we were authorized,subject to certain specifications,to repurchase additional shares of our common stock up to$3.95billion.On August 21,2023,our Board of Directors approved an increase to our share repurchase program of an additional$25.00 billion,without expiration.As of August 24,2023,a total of$27.95 billion was available for repurchase.Our share repurchase program aims to offsetdilution from shares issued to employees.We may pursue additional share repurchases as we weigh market factors and other investmentopportunities.We plan to continue share repurchases this fiscal year.The U.S.Inflation Reduction Act of 2022 was enacted on August 16,2022 and requires a 1%excise tax on certain share repurchases in excessof shares issued for employee compensation made after December 31,2022.We do not expect this provision to have a material effect on ourconsolidated financial statements.Outstanding Indebtedness and Commercial PaperOur aggregate debt maturities as of July 30,2023,by year payable,are as follows:July 30,2023(In millions)Due in one year$1,250 Due in one to five years2,250 Due in five to ten years2,750 Due in greater than ten years3,500 Unamortized debt discount and issuance costs(45)Net carrying amount9,705 Less short-term portion(1,249)Total long-term portion$8,456 We have a$575 million commercial paper program to support general corporate purposes.As of July 30,2023,we had not issued anycommercial paper.Material Cash Requirements and Other ObligationsWe have unrecognized tax benefits of$1.25 billion,which includes related interest and penalties of$128 million recorded in non-current incometax payable as of July 30,2023.We are unable to reasonably estimate the timing of any potential tax liability,interest payments,or penalties inindividual years due to uncertainties in the underlying income tax positions and the timing of the effective settlement of such tax positions.Weare currently under examination by the Internal Revenue Service for our fiscal years 2018 and 2019.Refer to Note 6 of the Notes to CondensedConsolidated Financial Statements for further information.Other than the contractual obligations described above,there were no material changes outside the ordinary course of business in ourcontractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 29,2023.Refer to Item 7,“Managements Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources”in our AnnualReport on Form 10-K for the fiscal year ended January 29,2023 for a description of our contractual obligations.For a description of ouroperating lease obligations,long-term debt,and purchase obligations,refer to Note 3,Note 12,and Note 13 of the Notes to CondensedConsolidated Financial Statements,respectively.33Climate ChangeTo date,there has been no material impact to our results of operations associated with global sustainability regulations,compliance,costs fromsourcing renewable energy or climate-related business trends.Adoption of New and Recently Issued Accounting PronouncementsThere has been no adoption of any new and recently issued accounting pronouncements.ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKInvestment and Interest Rate RiskFinancial market risks related to investment and interest rate risk are described in Part II,Item 7A,“Quantitative and Qualitative DisclosuresAbout Market Risk”in our Annual Report on Form 10-K for the fiscal year ended January 29,2023.As of July 30,2023,there have been nomaterial changes to the financial market risks described as of January 29,2023.Foreign Exchange Rate RiskThe impact of foreign currency transactions related to foreign exchange rate risk is described in Part II,Item 7A,“Quantitative and QualitativeDisclosures About Market Risk”in our Annual Report on Form 10-K for the fiscal year ended January 29,2023.As of July 30,2023,there havebeen no material changes to the foreign exchange rate risks described as of January 29,2023.ITEM 4.CONTROLS AND PROCEDURESControls and ProceduresDisclosure Controls and ProceduresBased on their evaluation as of July 30,2023,our management,including our Chief Executive Officer and Chief Financial Officer,has concludedthat our disclosure controls and procedures(as defined in Exchange Act Rule 13a-15(e)and 15d-15(e)were effective to provide reasonableassurance.Changes in Internal Control Over Financial ReportingThere were no changes that occurred during the second quarter of fiscal year 2024 that have materially affected,or are reasonably likely tomaterially affect,our internal control over financial reporting.In fiscal year 2022,we began an upgrade of our enterprise resource planning,orERP,system,which will update much of our existing core financial systems.The ERP system is designed to accurately maintain our financialrecords used to report operating results.The upgrade will occur in phases.We will continue to evaluate each quarter whether there are changesthat materially affect our internal control over financial reporting.Inherent Limitations on Effectiveness of ControlsOur management,including our Chief Executive Officer and Chief Financial Officer,does not expect that our disclosure controls and proceduresor our internal controls,will prevent all error and all fraud.A control system,no matter how well conceived and operated,can provide onlyreasonable,not absolute,assurance that the objectives of the control system are met.Further,the design of a control system must reflect thefact that there are resource constraints,and the benefits of controls must be considered relative to their costs.Because of the inherent limitationsin all control systems,no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,if any,withinNVIDIA have been detected.PART II.OTHER INFORMATIONITEM 1.LEGAL PROCEEDINGSRefer to Part I,Item 1,Note 13 of the Notes to Condensed Consolidated Financial Statements for a discussion of significant developments in ourlegal proceedings since January 29,2023.Also refer to Item 3,“Legal Proceedings”in our Annual Report on Form 10-K for the fiscal year endedJanuary 29,2023 for a prior discussion of our legal proceedings.34ITEM 1A.RISK FACTORSOther than the risk factors listed below,there have been no material changes from the risk factors previously described under Item 1A of ourAnnual Report on Form 10-K for the fiscal year ended January 29,2023 and Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarterended April 30,2023.Purchasing or owning NVIDIA common stock involves investment risks including,but not limited to,the risks described in Item 1A of our AnnualReport on Form 10-K for the fiscal year ended January 29,2023,in Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter endedApril 30,2023,and below.Additionally,any one of those risks could harm our business,financial condition and results of operations orreputation,which could cause our stock price to decline.Additional risks,trends and uncertainties not presently known to us or that we currentlybelieve are immaterial may also harm our business,financial condition,results of operations or reputation.Failure to meet the evolving needs of our industry and markets may adversely impact our financial results.Our accelerated computing platforms experience rapid changes in technology,customer requirements,competitive products,and industrystandards.Our success depends on our ability to:timely identify industry changes,adapt our strategies,and develop new or enhance and maintain existing products and technologies thatmeet the evolving needs of these markets,including due to unexpected changes in industry standards or disruptive technologicalinnovation that could render our products incompatible with products developed by other companies;develop or acquire new products and technologies through investments in research and development;launch new offerings with new business models including software,services and cloud solutions,as well as software-,infrastructure-,orplatform-as-a-service solutions;expand the ecosystem for our products and technologies;meet evolving and prevailing customer and industry safety,security,reliability expectations,and compliance standards;manage product and software lifecycles to maintain customer and end user satisfaction;develop,acquire,and maintain the internal and external infrastructure needed to scale our business,including acquisition integrations,customer support,e-commerce,IP licensing capabilities and cloud service capacity;andcomplete technical,financial,operational,compliance,sales and marketing investments for the above activities.We have invested in research and development in markets where we have a limited operating history,which may not produce meaningfulrevenue for several years,if at all.If we fail to develop or monetize new products and technologies,or if they do not become widely adopted,ourfinancial results could be adversely affected.Obtaining design wins may involve a lengthy process and depend on our ability to anticipate andprovide features and functionality that customers will demand.They also do not guarantee revenue.Failure to obtain a design win may preventus from obtaining future design wins in subsequent generations.We cannot ensure that the products and technologies we bring to market willprovide value to our customers and partners.If we fail any of these key success criteria,our financial results may be harmed.We have recently begun offering enterprise customers NVIDIA DGX cloud services directly and through our network of partners,which includescloud-based infrastructure and software and services for training and deploying AI models,and NVIDIA AI Foundations for customizablepretrained AI models.We have partnered with CSPs to host these software and services in their data centers,and we entered and may continueto enter into multi-year cloud service agreements to support these offerings and our research and development activities.The timing andavailability of these cloud services has changed and may continue to change,impacting our revenue,expenses and development timelines.NVIDIA DGX cloud services may not be successful and will take time,resources and investment.We also offer or plan to offer standalonesoftware35solutions including NVIDIA AI Enterprise,NVIDIA Omniverse,NVIDIA DRIVE,and several other software solutions.These new business modelsor strategies may not be successful and we may fail to sell any meaningful standalone software or services.We may incur significant costs andmay not achieve any significant revenue from these offerings.Failure to estimate customer demand properly has led and could lead to mismatches between supply and demand.We use third parties to manufacture and assemble our products,and we have had and may in the future have long manufacturing lead times.We are not provided guaranteed wafer,component and capacity supply,and our supply deliveries and production may be non-linear within aquarter or year.If our estimates of customer demand are ultimately inaccurate,as we have experienced in the past,there could be a significantmismatch between supply and demand.This mismatch has resulted in both product shortages and excess inventory,has varied across ourmarket platforms,and has significantly harmed our financial results.We build finished products and maintain inventory in advance of anticipated demand.While we have in the past entered and may in the futureenter into long-term supply and capacity commitments,we may not be able to secure sufficient commitments for capacity to address ourbusiness needs or our long-term demand expectations may change.Additionally,our ability to sell certain products has been and could beimpeded if components from third parties that are necessary for the finished product are not available.This risk may increase as a result of ourplatform strategy.In periods of shortages impacting the semiconductor industry and/or limited supply or capacity in our supply chain,the leadtimes on our orders may be extended.We have previously experienced extended lead times of more than 12 months.We have paid premiumsand provided deposits to secure future supply and capacity,which have increased our product costs and may continue to do so.We may nothave the ability to reduce our supply commitments at the same rate or at all if our revenue declines.Many additional factors have caused and/or could in the future cause us to either underestimate or overestimate our customers future demandfor our products,or otherwise cause a mismatch between supply and demand for our products and impact the timing and volume of our revenue,including:competing technologies and competitor product releases and announcements;changes in business and economic conditions resulting in decreased end demand;sudden or sustained government lockdowns or actions to control case spread of global or local health issues;rapidly changing technology or customer requirements;time to market;new product introductions and transitions resulting in less demand for existing products;new or unexpected end use cases;increase in demand for competitive products,including competitive actions;business decisions made by third parties;the demand for accelerated or AI-related cloud services,including our own software and NVIDIA DGX cloud services;changes that impact the ecosystem for the architectures underlying our products and technologies;the demand for our products relating to cryptocurrency mining,our Omniverse platform,third-party large language models andgenerative AI models;orgovernment actions or changes in governmental policies,such as increased restrictions on gaming usage.Demand for our data center systems and products has surged over the last two quarters and our demand visibility extends into next year.Inorder to meet this demand,we have increased our purchase obligations36with existing suppliers,added new suppliers,and entered into prepaid supply and capacity agreements.These increased purchase volumes andnumber of suppliers may create more supply chain complexity and execution risk.We expect our supply to increase each quarter through nextyear.We have entered and expect to continue to enter into supplier and capacity arrangements.We may incur inventory provisions orimpairments if our inventory or supply and capacity commitments are impacted by changes in demand for our products.Our customer orders and longer-term demand estimates may change or may not be correct,as we have experienced in the past.Producttransitions are complex and can impact our revenue as we often ship both new and prior architecture products simultaneously and we and ourchannel partners prepare to ship and support new products.Our architecture transitions of Data Center,Professional Visualization,and Gamingproducts may impair our ability to predict demand and impact our supply mix.Qualification time for new products,customers anticipating producttransitions and channel partners reducing channel inventory of prior architectures ahead of new product introductions can create reductions orvolatility in our revenue.We have experienced and may in the future experience reduced demand for current generation architectures whencustomers anticipate transitions,and we may be unable to sell multiple product architectures at the same time for current and future architecturetransitions.If we are unable to execute our architectural transitions as planned for any reason,our financial results may be negatively impacted.In addition,the bring up of new product architectures is complex due to functionality challenges and quality concerns not identified inmanufacturing testing.These product quality issues may incur costs,increase our warranty costs,and delay further production of ourarchitecture.While we have managed prior product transitions and have previously sold multiple product architectures at the same time,thesetransitions are difficult,and we may incur additional costs.We sell most of our products through channel partners,who sell to distributors,retailers,and/or end customers.As a result,the decisions madeby our channel partners,distributors,retailers,and in response to changing market conditions and changes in end user demand for our productshave impacted and could in the future continue to impact our ability to properly forecast demand,particularly as they are based on estimatesprovided by various downstream parties.If we underestimate our customers future demand for our products,our foundry partners may not have adequate lead-time or capacity toincrease production and we may not be able to obtain sufficient inventory to fill orders on a timely basis.Even if we are able to increaseproduction levels to meet customer demand,we may not be able to do so in a timely manner,or our contract manufacturers may experiencesupply constraints.If we cannot procure sufficient supply to meet demand or otherwise fail to fulfill our customers orders on a timely basis,or atall,our customer relationships could be damaged,we could lose revenue and market share and our reputation could be harmed.Additionally,since some of our products are part of a complex data center buildout,supply constraints or availability issues with respect to any onecomponent have had and may have a broader revenue impact.If we overestimate our customers future demand for our products,or if customers cancel or defer orders or choose to purchase from ourcompetitors,we may not be able to reduce our inventory or other contractual purchase commitments.In the past,we have experienced areduction in average selling prices,including due to channel pricing programs that we have implemented and may continue to implement,as aresult of our overestimation of future demand,and we may need to continue these reductions.We have had to increase prices for certain of ourproducts as a result of our suppliers increase in prices,and we may need to continue to do so for other products in the future.We have alsowritten-down our inventory,incurred cancellation penalties,and recorded impairments.These impacts were amplified by our placement of non-cancellable and non-returnable purchasing terms,well in advance of our historical lead times and could be exacerbated if we need to makechanges to the design of future products.The risk of these impacts has increased and may continue to increase as our purchase obligations andprepaids have grown and are expected to continue to grow and become a greater portion of our total supply.All of these factors may negativelyimpact our gross margins and financial results.We build technology and products for use cases and applications that may be new or may not yet exist,such as NVIDIA DGX cloud services,ourOmniverse platform,third-party large language models and generative AI models.Our demand estimates for new use cases,applications,andservices can be incorrect and create volatility in our revenue or supply levels,and we may not be able to generate significant revenue from theseuse cases,applications,and services.New technologies such as generative AI models have emerged,and while they have driven increaseddemand for Data Center compute infrastructure,the long-term trajectory is37unknown.Because our products may be used in multiple use cases and applications,it is difficult for us to estimate with any reasonable degreeof precision the impact of generative AI models on our reported revenue or forecasted demand.Additionally,we expect to start shipping our CPUproduct offerings,the Grace CPU and Grace Hopper Superchips,in the third quarter of fiscal year 2024.Our ability to adequately predict ourCPU demand may create volatility in our revenue or supply levels.Challenges in estimating demand could become more pronounced or volatile in the future on both a global and regional basis.Extended leadtimes may occur if we experience other supply constraints caused by natural disasters,pandemics or other events.In addition,geopoliticaltensions,such as those involving Taiwan and China,which comprise a significant portion of our revenue and where we have suppliers,contractmanufacturers,and assembly partners who are critical to our supply continuity,could have a material adverse impact on us.The use of our GPUs other than that for which they were designed and marketed,including new and unexpected use cases,has impacted andcan in the future impact demand for our products,including by leading to inconsistent spikes and drops in demand.For example,several yearsago,our Gaming GPUs began to be used for mining digital currencies such as Ethereum.It is difficult for us to estimate with any reasonabledegree of precision the past or current impact of cryptocurrency mining,or forecast the future impac
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-QQUARTERLY REPORT PURSUAN.
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,D.C.20549 FORM 10-Q QUARTERLY REPORT PU.
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Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington,DC 20549Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended October 1,2023or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to .Commission File Number:000-20322Starbucks Corporation(Exact Name of Registrant as Specified in its Charter)Washington91-1325671(State of Incorporation)(IRS Employer ID)2401 Utah Avenue South,Seattle,Washington 98134(206)447-1575(Address of principal executive office,zip code,telephone number)Securities Registered Pursuant to Section 12(b)of the Act:Title of Each ClassTrading SymbolName of Each Exchange on Which RegisteredCommon Stock,$0.001 par value per shareSBUXNasdaq Global Select MarketSecurities Registered Pursuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes x No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes No xIndicate by check mark whether the registrant:(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes x No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit suchfiles).Yes x No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerxAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal controlover financial reporting under Section 404(b)of the Sarbanes-Oxley Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issuedits audit report.xIf securities are registered pursuant to Section 12(b)of the Act,indicate by check mark whether the financial statements of the registrant included in the filingreflect the correction of an error to previously issued financial statements.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received byany of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b).Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).Yes No xThe aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrants most recently completedsecond fiscal quarter,based upon the closing sale price of the registrants common stock on April 2,2023 as reported on the Nasdaq Global Select Market was$117.1 billion.As of November 10,2023,there were 1,136.7 million shares of the registrants Common Stock outstanding.Table of ContentsDOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive Proxy Statement for the registrants Annual Meeting of Shareholders to be held on March 13,2024 have been incorporated byreference into Part III of this Annual Report on Form 10-K.Table of ContentsSTARBUCKS CORPORATIONForm 10-KFor the Fiscal Year Ended October 1,2023TABLE OF CONTENTSPART IItem 1Business3Item 1ARisk Factors11Item 1BUnresolved Staff Comments23Item 1CCybersecurity23Item 2Properties23Item 3Legal Proceedings24Item 4Mine Safety Disclosures24PART IIItem 5Market for the Registrants Common Equity,Related Shareholder Matters and Issuer Purchases of Equity Securities25Item 6Reserved27Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations28Item 7AQuantitative and Qualitative Disclosures About Market Risk41Item 8Financial Statements and Supplementary Data42Index for Notes to Consolidated Financial Statements47Report of Independent Registered Public Accounting Firm81Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure83Item 9AControls and Procedures83Item 9BOther Information85Item 9CDisclosure Regarding Foreign Jurisdictions that Prevent Inspections85PART IIIItem 10Directors,Executive Officers and Corporate Governance86Item 11Executive Compensation86Item 12Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters86Item 13Certain Relationships and Related Transactions and Director Independence86Item 14Principal Accountant Fees and Services86PART IVItem 15Exhibits and Financial Statement Schedules87Item 16Form 10-K Summary93SIGNATURES94 Table of ContentsCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K includes“forward-looking”statements within the meaning of the Private Securities Litigation Reform Act of 1995 regardingfuture events and the future results of Starbucks Corporation(together with its subsidiaries)that are based on our current expectations,estimates,forecastsand projections about our business,our results of operations,the industry in which we operate,our economic and market outlook,and the beliefs andassumptions of our management.Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.Theyoften include words such as“believes,”“expects,”“anticipates,”“estimates,”“intends,”“plans,”“seeks”or words of similar meaning,or future orconditional verbs,such as“will,”“should,”“could,”“may,”“aims,”“intends,”or“projects.”By their nature,forward-looking statements involve risks,uncertainties,and other factors(many beyond our control)that could cause our actual results to differ materially from our historical experience or from ourcurrent expectations or projections.Our forward-looking statements,and the risks and uncertainties related thereto,include,but are not limited to,thosedescribed under the“Risk Factors”and“Managements Discussion and Analysis of Financial Condition and Results of Operations”sections and in otherreports we file with the U.S.Securities and Exchange Commission(“SEC”),as well as:our ability to preserve,grow and leverage our brands;the acceptance of the companys products and changes in consumer preferences,consumption,or spending behavior and our ability to anticipate or react tothem;shifts in demographic or health and wellness trends;or unfavorable consumer reaction to new products,platforms,reformulations,or other innovations;our anticipated operating expenses,including our anticipated total capital expenditures;the costs associated with,and the successful execution and effects of,our existing and any future business opportunities,expansions,initiatives,strategies,investments and plans,including our Reinvention Plan;the impacts of partner investments and changes in the availability and cost of labor including any union organizing efforts and our responses to such efforts;the ability of our business partners,suppliers and third-party providers to fulfill their responsibilities and commitments;higher costs,lower quality,or unavailability of coffee,dairy,energy,water,raw materials,or product ingredients;the impact of significant increases in logistics costs;a worsening in the terms and conditions upon which we engage with our manufacturers and source suppliers,whether resulting from broader local or globalconditions,or dynamics specific to our relationships with such parties;unfavorable global or regional economic conditions and related economic slowdowns or recessions,low consumer confidence,high unemployment,weakcredit or capital markets,budget deficits,burdensome government debt,austerity measures,higher interest rates,higher taxes,political instability,higherinflation,or deflation;inherent risks of operating a global business including geopolitical instability;failure to attract or retain key executive or partner talent or successfully transition executives;the potential negative effects of incidents involving food or beverage-borne illnesses,tampering,adulteration,contamination or mislabeling;negative publicity related to our company,products,brands,marketing,executive leadership,partners,board of directors,founder,operations,businessperformance,or prospects;potential negative effects of a material breach,failure,or corruption of our information technology systems or those of our direct and indirect businesspartners,suppliers or third-party providers,or failure to comply with personal data protection laws;our environmental,social and governance(“ESG”)efforts and any reaction related thereto such as the rise in opposition to ESG and inclusion and diversityefforts;risks associated with acquisitions,dispositions,business partnerships,or investments such as acquisition integration,termination difficulties or costs orimpairment in recorded value;the impact of foreign currency translation,particularly a stronger U.S.dollar;the impact of substantial competition from new entrants,consolidations by competitors,and other competitive activities,such as pricing actions(includingprice reductions,promotions,discounting,couponing,or free goods),marketing,category expansion,product introductions,or entry or expansion in ourgeographic markets;the impact of changes in U.S.tax law and related guidance and regulations that may be implemented,including on tax rates and the Inflation Reduction Actof 2022;the impact of health epidemics,pandemics or other public health events on our business and financial results,and the risk of negative economic impacts andrelated regulatory measures or voluntary actions that may be put in place,including restrictions on business operations or social distancing requirements,andthe duration and efficacy of such restrictions;failure to comply with anti-corruption laws,trade sanctions and restrictions or similar laws or regulations;and the impact of significant legal disputes and proceedings,or government investigations.In addition,many of the foregoing risks and uncertainties are,or could be,exacerbated by any worsening of the global business and economic environment.Aforward-looking statement is neither a prediction nor a guarantee of future events or1Table of Contentscircumstances,and those future events or circumstances may not occur.You should not place undue reliance on the forward-looking statements,which speakonly as of the date of this report.We are under no obligation to update or alter any forward-looking statements,whether as a result of new information,futureevents or otherwise.2Table of ContentsPART IItem 1.BusinessGeneralIn this Annual Report on Form 10-K(“10-K”or“Report”)for the fiscal year ended October 1,2023(“fiscal 2023”),Starbucks Corporation(together with itssubsidiaries)is referred to as“Starbucks,”the“Company,”“we,”“us”or“our.”Starbucks is the premier roaster,marketer and retailer of specialty coffee in the world,operating in 86 markets.Formed in 1985,Starbucks Corporationscommon stock trades on the Nasdaq Global Select Market(“Nasdaq”)under the symbol“SBUX.”We purchase and roast high-quality coffees that we sell,along with handcrafted coffee,tea and other beverages and a variety of high-quality food items through company-operated stores.We also sell a variety ofcoffee and tea products and license our trademarks through other channels,such as licensed stores as well as grocery and foodservice through our GlobalCoffee Alliance with Nestl S.A.(“Nestl”).In addition to our flagship Starbucks Coffee brand,we sell goods and services under the following brands:Teavana,Ethos,Starbucks Reserve and Princi.Our primary objective is to maintain Starbucks standing as one of the most recognized and respected brands in the world.We believe the continuousinvestments in our brand and operations will deliver long-term targeted revenue and income growth.This includes expansion of our global store base,addingstores in both existing,developed markets such as the U.S.and in higher growth markets such as China,as well as optimizing the mix of company-operatedand licensed stores around the world.In addition,by leveraging experiences gained through our stores and elsewhere,we continue to drive beverage,equipment,process and technology innovation,including in our industry-leading digital platform.We strive to regularly offer consumers new,innovative coffeeand other products in a variety of forms,across new categories,diverse channels and alternative store formats.Starbucks has always been a different kind of company one deep with purpose,where we work together to create a positive impact in the world.With coffeeat our core,we pursue ambitious goals for our partners(employees),our communities and our planet,which we believe also contributes to the long-termsustainability of our business to create a thriving business powered by thriving people for a thriving planet and communities.Our work to uplift one anotherextends well beyond our partners to the communities where we do business around the world.We are committed to responsible and ethical sourcing led byCoffee and Farmer Equity Practices(C.A.F.E.Practices),the Companys third-party verification program and the cornerstone of our approach to ethicalsourcing of coffee with over 98%of our coffee having been historically verified through C.A.F.E.Practices as ethically sourced.Human Capital ManagementWe invest in the well-being the mental,physical and financial health of every partner through our practices,policies and benefits.This work is grounded inthe belief that we are at our best when we create inclusive,supportive and welcoming environments,where we uplift one another with dignity,respect andkindness.And we are hard at work uplifting our communities and building environments in our stores that are welcoming and safe.We believe the strength ofour workforce is one of the significant contributors to our success as a global brand that leads with purpose.Therefore,one of our core strategies is to invest inand support our partners to differentiate our brand,products and services in the competitive specialty coffee market,including the following areas of focus:Oversight and ManagementWe recognize the diversity of customers,partners and communities and believe in creating an inclusive and equitable environment that represents a broadspectrum of backgrounds and cultures.Working under these principles,our Partner Resources Organization is tasked with managing employment-relatedmatters,including recruiting and hiring,onboarding and training,compensation planning,performance management and professional development.Our Boardof Directors(the“Board”)and Board committees provide oversight on certain human capital matters,including our Inclusion and Diversity programs andinitiatives.As noted in its charter,our Compensation and Management Development Committee is responsible for periodically reviewing Starbucks partnerresource programs and initiatives,including healthcare and other benefits,as well as our management development and succession planning practices andstrategies.Our Audit and Compliance Committee works closely with the Risk Management Committee,led by Starbucks cfo and general counsel,to monitorand mitigate current and emerging labor and human capital management risks.Furthermore,our Nominating and Corporate Governance Committee,inconsultation with management,annually evaluates the effectiveness of our social responsibility policies,goals and programs,which also include partner-relatedissues.These reports and recommendations to the Board and its committees are part of the broader framework that guides how Starbucks should attract,retainand develop a skilled workforce that aligns with our values and strategies.We regularly conduct anonymous surveys to seek feedback from our partners on a variety of topics,including confidence in company leadership,competitiveness of our compensation and benefits package,career growth opportunities and3Table of Contentsrecommendations on how we can remain an employer of choice.The results are shared with our partners and reviewed by senior leadership,who analyze areasof progress or deterioration and prioritize actions and activities in response to this feedback to drive meaningful improvements in partner engagement.Ourmanagement and cross-functional teams also work closely to evaluate human capital management issues such as partner retention,workplace safety,harassment and bullying,as well as to implement measures to mitigate these risks.Diversity,Equity and InclusionWe are committed to creating a welcoming,supportive and inclusive environment.We are committed to advancing inclusion and racial and social equity,andwe seek to further that work with intention,transparency and accountability.We continue to welcome our partners,customers,civil rights and communityleaders,along with our senior vice president,talent and inclusion,to advise us along this journey.Starbucks has made specific equity commitments based on our principles of being intentional,transparent and accountable at all levels:Being intentional in cultivating a culture of inclusion,with a focus on partner retention and development.Expanding our mentorship program designed to prioritize our partners sense of belonging by creating an inclusive and supportiveenvironment.Mentors offer guidance,encouragement and a safe space for partners to share their experiences,challenges and aspirations.Asof 2023,the program has welcomed nearly 1,400 partners and was expanded to include U.S.based store and district managers in 2023.Being transparent in our approach to Inclusion and Diversity goal setting and progress.Publicly sharing workforce diversity data.Setting aspirational Inclusion and Diversity goals based on retention rates and progress towards achieving racial and ethnic diversity.Ourgoal is to achieve racial and ethnic diversity of at least 30%of all corporate roles and at least 40%of all retail and manufacturing roles in theU.S.by 2025,by setting broad recruiting parameters and through inclusive and legally compliant employment practices.Holding ourselves accountable at the highest levels of the organization.Incorporating our efforts to build and retain inclusive and diverse teams into our executive compensation programs.Joining the Board Diversity Action Alliance to act alongside other companies similarly committed to increasing diverse representation oncorporate boards.Publicizing self-identified race/ethnicity/gender of each member of our Board.Total RewardsWe have demonstrated a history of investing in our workforce by offering competitive salaries and wages by continuously assessing the current businessenvironment and labor market.We have consistently made enhancements in wages in order to attract talent to support our growth strategy and to elevate thecustomer experience.To foster a stronger sense of ownership and align the interests of partners with shareholders,restricted stock units are provided to eligiblenon-executive partners under our broad-based stock incentive programs.Furthermore,we offer comprehensive,locally relevant and innovative benefits to alleligible partners.In the U.S.,our largest and most mature market,these include:Comprehensive health insurance coverage is offered to partners working an average of 20 hours or more each week.100%upfront tuition coverage through the Starbucks College Achievement Plan for partners to earn a first-time bachelors degree online at ArizonaState University is offered to partners working an average of 20 hours or more each week.Our Future Roast 401(k)savings plan helps partners save for their financial goal through convenient payroll deductions.Partners can contribute pre-tax or Roth after-tax dollars,and Starbucks matches 5%of eligible contributions with immediate vesting in those matching contributions.100%paid parental leave is available to new parents that welcome a child through birth,adoption or foster placement and work an average of 20 hoursor more each week.A Partner and Family Sick Time program is provided and allows partners to accrue paid sick time based on hours worked and use that time forthemselves or family members in need of care.4Table of Contents We view mental health as a fundamental part of our humanity and provide a comprehensive suite of related programs and benefits.These include afree subscription to Headspace,an online application that enables guided meditation,and 20 free mental health therapy or coaching sessions annuallywith Lyra.Outside of the U.S.,we have provided other innovative benefits to help address market-specific needs,such as providing interest-free loans to our U.K.partners to help cover rental deposits,mental health services in Canada,and in China,an extra 14th Month Pay initiative,giving retail partners an additionalmonths salary as a bonus on top of the 13th month pay that is customary in China,as well as a monthly housing subsidy for full-time Starbucks baristas andshift supervisors,and comprehensive health insurance coverage for parents of partners.Role-based SupportTo help our partners succeed in their roles,we emphasize continuous training and development opportunities.These include,but are not limited to,safety andsecurity protocols,updates on new products and service offerings and deployment of technologies.Training provided through our Pour Over sessions,whichare a series of inspiring talks with thought leaders to help partners understand how to bring the Starbucks Experience to life,include a wide variety of topicssuch as achievable goal setting,giving and receiving constructive feedback,and effective engagement with customers and communities.To help furtherpromote an inclusive culture and to better serve our customers,we encourage U.S.-based partners to enroll in the To Be Welcoming courses we created inpartnership with Arizona State University to address different forms of bias and discrimination.Pay EquityTo be an employer of choice and maintain the strength of our workforce,we consistently assess the current business environment and labor market to refine ourcompensation and benefits programs and other resources available to our partners.We previously achieved and currently maintain 100 percent pay equity in the U.S.for women and men and people of all races for partners performing similarwork.We have made a commitment to achieve gender pay equity in all company-operated markets.Further,we have formulated pay-equity principles whichprovide equal footing,transparency and accountability as best practices that help address known,systemic barriers to global pay equity.As of October 1,2023,Starbucks employed approximately 381,000 people worldwide.In the U.S.,Starbucks employed approximately 228,000 people,withapproximately 219,000 in company-operated stores and the remainder in corporate support,store development,roasting,manufacturing,warehousing anddistribution operations.Approximately 153,000 employees were employed outside of the U.S.,with approximately 148,000 in company-operated stores and theremainder in regional support operations.Approximately 3.6%of Starbucks partners in U.S.company-operated stores are represented by unions.We believeour efforts in managing our workforce have been effective,evidenced by improved retention,lower turnover,and employee satisfaction during fiscal 2023.Information about our Executive OfficersNameAgePositionLaxman Narasimhan56chief executive officerMichael Conway57group president,International and Channel DevelopmentSara Kelly44executive vice president and chief partner officerBrad Lerman67executive vice president and general counselRachel Ruggeri54executive vice president and chief financial officerLaxman Narasimhan joined Starbucks as its chief executive officer-elect in 2022 and has served as chief executive officer and has been a Starbucks directorsince March 2023.Prior to joining Starbucks,Mr.Narasimhan served as Chief Executive Officer of Reckitt Benckiser Group Plc(“Reckitt”),a FTSE 12 listedBritish multinational consumer health,hygiene,and nutrition company,from 2019 to 2022.Prior to joining Reckitt,Mr.Narasimhan held various executiveroles at PepsiCo from 2012 to 2019 including as PepsiCos Group Chief Commercial Officer and as Chief Executive Officer-Latin America,Europe,and Sub-Saharan Africa,Chief Executive Officer-Latin America,and Chief Financial Officer of PepsiCo Americas Foods.Prior to joining PepsiCo,Mr.Narasimhanspent 19 years at McKinsey&Company,where he focused on its consumer,retail,and technology practices in the U.S.,Asia,and India.Mr.Narasimhancurrently serves on the Board of Directors of Verizon Communications,Inc.,a NYSE-listed telecommunications company.Mr.Narasimhan is a trustee of theBrookings Institution and a member of the Council on Foreign Relations.Michael Conway joined Starbucks in 2013 and was named group president,International and Channel Development in 2021,where he is responsible forleading Starbucks retail growth and operations in over 80 markets across Asia Pacific,Europe,Middle East and Africa,Latin America and the Caribbean andgrowth for the Global Channel Development business,which consists of consumer packaged goods,ready-to-drink businesses and strategic partnerships,including those with Nestl,5Table of ContentsPepsiCo,and other key business partners.Prior to this,he served as executive vice president and president,International Licensed Markets,from 2020 to 2021.He also served as executive vice president and president of Starbucks Canada from 2018 to 2020,president of Starbucks Licensed Stores Operations for theUnited States and Latin America from 2016 to 2018,and president of Starbucks Global Channel Development from 2013 to 2016.He currently serves on theBoard of Directors of McCormick&Company,Incorporated,a NYSE-listed a spice and extract manufacturing company.Sara Kelly joined Starbucks in 2001 and was named executive vice president and chief partner officer in 2022,where she is responsible for helping partnersrealize their career potential and building global partner capability to enable growth and deliver on the Companys strategic plan.Prior to her current role,Ms.Kelly was senior vice president,Talent&Partner Experience from 2021 to 2022,where she was responsible for advancing Starbucks talent and organizationalleadership agenda and was focused on amplifying the strategic work being led by the talent acquisition,talent management,partner experience,learning anddevelopment,and organization and leadership effectiveness teams.From 2014 to 2021,Ms.Kelly served as vice president,Partner Resources,supportingpartners in our global markets.Brad Lerman joined Starbucks in April 2023 as executive vice president and general counsel.In this role,he leads the Companys Legal and Corporate Affairsorganization.Prior to Starbucks,Mr.Lerman served as senior vice president,general counsel and corporate secretary of Medtronic plc from 2014 to 2022;andprior to that he was an executive vice president,general counsel and corporate secretary for the Federal National Mortgage Association(Fannie Mae)from2012 to 2014.Mr.Lerman has also served as chief litigation counsel for Pfizer and has worked in private practice as a partner at Winston&Strawn LLP inChicago.He also served as an Assistant United States Attorney in the Northern District of Illinois.Mr.Lerman currently serves on the Board of Directors ofMcKesson Corporation,a NYSE-listed health care,pharmaceutical,and medical supply company.Rachel Ruggeri joined Starbucks in 2001 as a member of the accounting team and was named executive vice president and chief financial officer in 2021.Inthis leadership role,Rachel is responsible for the global finance function for Starbucks,which includes developing and executing the financial strategies thatenable the long-term growth of the Company.Prior to her promotion in 2021,she served as senior vice president of Americas with responsibility for the retailportfolio across the segment,including company-operated and licensed stores from 2020 to 2021.From 2016 to 2020,she held various leadership roles infinance both internal and external to Starbucks,including Chief Financial Officer of Continental Mills from 2018 to 2020 and prior to that she was senior vicepresident of Finance at Starbucks in support of the Americas and Global Retail from 2016 to 2018.She also served as vice president of Finance from 2010 to2016 supporting Corporate Financial Planning&Analysis and the U.S.Retail business.Segment Financial InformationSegment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes.We have three reportable operating segments:1)North America,which is inclusive of the U.S.and Canada;2)International,which is inclusive of China,Japan,Asia Pacific,Europe,Middle East and Africa,Latin America and Caribbean;and 3)Channel Development.Non-reportable operating segments andunallocated corporate expenses are reported within Corporate and Other.Revenues from our reportable operating segments as a percentage of total net revenuesfor fiscal 2023 were as follows:North America(74%),International(21%)and Channel Development(5%).Our North America and International segments include both company-operated and licensed stores.Our North America segment is our most mature businessand has achieved significant scale.Certain markets within our International operations are in various stages of development and may require more extensivesupport,relative to their current levels of revenue and operating income,than our North America operations.Our Channel Development segment includes roasted whole bean and ground coffees,Starbucks-and Teavana-branded single-serve products,a variety ofready-to-drink beverages,such as Frappuccino and Starbucks Doubleshot,foodservice products and other branded products sold worldwide outside of ourcompany-operated and licensed stores.A large portion of our Channel Development business operates under a licensed model of the Global Coffee Alliancewith Nestl,while our global ready-to-drink businesses operate under collaborative relationships with PepsiCo,Inc.,Tingyi-Ashi Beverages Holding Co.,Ltd.,Arla Foods amba,Nestl and others.6Table of ContentsRevenue ComponentsWe generate the majority of our revenues through company-operated stores and licensed stores.Company-operated and Licensed Store Summary as of October 1,2023:North AmericaAs a%of TotalNorth America StoresInternationalAs a%of TotalInternational StoresTotalAs a%ofTotal StoresCompany-operated stores10,628 60%8,964 44,592 52%Licensed stores7,182 40,264 56,446 48%Total17,810 100 ,228 1008,038 100%The mix of company-operated versus licensed stores in a given market generally varies based on several factors,including our ability to access desirable localretail space,the complexity,profitability and expected ultimate size of the market for Starbucks and our ability to leverage the support infrastructure within ageographic region.Company-operated StoresRevenue from company-operated stores accounted for 82%of total net revenues during fiscal 2023.Our retail objective is to be the leading retailer and brandof coffee and tea in each of our target markets by selling the finest quality coffee,tea and related products,as well as complementary food offerings,and byproviding each customer with a unique Starbucks Experience.The Starbucks Experience is built upon superior customer service,convenience and a seamlessdigital experience as well as safe,clean and well-maintained stores that reflect the personalities of the communities in which they operate,thereby building ahigh degree of customer loyalty.Our strategy for expanding our global retail business is to increase our category share in a disciplined manner,by selectively opening additional stores in newand existing markets,as well as increasing sales in existing stores,to support our long-term strategic objective to maintain Starbucks standing as one of themost recognized and respected brands in the world.Store growth in specific existing markets will vary due to many factors,including expected financialreturns,the maturity of the market,economic conditions,consumer behavior and the local business environment.Company-operated store data for the fiscal year-ended October 1,2023:Stores Openas ofStores Openas of Oct 2,2022OpenedClosedTransfersNetOct 1,2023North America:U.S.9,265 483(103)380 9,645 Canada946 43(12)31 977 Siren Retail5 1 1 6 Total North America10,216 527(115)412 10,628 International:China6,019 857(72)785 6,804 Japan1,630 110(8)1 103 1,733 U.K.318 42(5)37 355 All Other65 3(1)2 67 Siren Retail5 5 Total International8,037 1,012(86)1 927 8,964 Total company-operated18,253 1,539(201)1 1,339 19,592 Starbucks company-operated stores are typically located in high-traffic,high-visibility locations.Our ability to vary the size and format of our stores allows usto locate them in or near a variety of settings,including downtown and suburban retail centers,office buildings,university campuses and rural and off-highwaylocations.We are continuing the expansion of our stores,particularly drive-thru formats that provide a higher degree of access and convenience,and alternativestore formats,which are designed to provide a more streamlined customer experience in dense metropolitan areas.In fiscal 2022,we announced our plan in the U.S.market to increase efficiency while elevating the partner and customer experience(the“Reinvention Plan”).We believe the company-operated market investments in partner wages and trainings have7Table of Contentsincreased retention and productivity while the acceleration of purpose-built store concepts and innovations in technologies have provided additionalconvenience and connection with our customers.In our major international markets,we also continue to invest in technology and establish partnerships withthird parties with relevant expertise to increase digital adoption to provide convenience and elevate the customer experience.Additionally,as our business hasevolved,we have built an omni-channel business to meet more occasions as we serve a more diverse customer base through growth in online,e-commerce,delivery,mobile ordering and the in-store experience.In China,we leverage platforms such as Starbucks Now stores to enable a seamless integration ofphysical and digital customer touchpoints.Orders may be placed in advance through the Starbucks Mobile App or Starbucks Delivers and can beconveniently picked up by customers and delivery providers in these express retail format locations.These strategies align closely with rapidly evolvingcustomer preferences,including higher levels of mobile ordering,more contactless pick-up experiences and reduced in-store congestion.Our investments in adigital third place offer members access to new benefits,a digital community and immersive coffee experiences,giving our customers new ways to experienceand connect with Starbucks.We believe our continued efforts to transform our store portfolio and elevate technology will enhance the customer experience andposition Starbucks for long-term growth.Retail sales mix by product type for company-operated stores:Fiscal Year EndedOct 1,2023Oct 2,2022Oct 3,2021Beverages74tt%Food22!%Other4%4%5%Total10000%“Other”primarily consists of sales of serveware,packaged and single-serve coffees and teas and ready-to-drink beverages,among other items.Stored Value Cards and Loyalty ProgramThe Starbucks Card,our branded stored value card program,is designed to provide customers with a convenient payment method,support gifting and increasethe frequency of store visits by cardholders,in part through the related Starbucks Rewards loyalty program where available,as discussed below.Stored valuecards are issued to customers when they initially load them with an account balance.They can be obtained in our company-operated and most licensed stores inNorth America,China,Japan and many of our other markets in our International segment.Stored value cards can also be obtained online,via the StarbucksMobile App and through other U.S.and international retailers.Customers may access their card balances by utilizing their stored value card or the StarbucksMobile App in participating stores.In nearly all markets,including the U.S.and Canada,customers who register their Starbucks Cards are automaticallyenrolled in the Starbucks Rewards program.Registered members can receive various benefits depending on factors such as the number of reward points(“Stars”)earned.In addition to using their Starbucks Cards,Starbucks Rewards members can earn Stars by paying with cash,credit or debit cards,or selectedmobile wallets at all company-operated stores and a majority of licensed stores in North America.Using the Mobile Order and Pay functionality of theStarbucks Mobile App,customers can also place orders in advance for pick-up at certain participating locations in several markets.Refer to Note 1,Summaryof Significant Accounting Policies and Estimates,included in Item 8 of Part II of this 10-K,for further discussion of our stored value cards and loyaltyprogram.Licensed StoresRevenues from our licensed stores accounted for 13%of total net revenues in fiscal 2023.Licensed stores generally have a lower gross margin and a higheroperating margin than company-operated stores.Under the licensed model,Starbucks receives a margin on branded products and supplies sold to the licensedstore operator along with a royalty on retail sales.Licensees are responsible for operating costs and capital investments,which more than offset the lowerrevenues we receive under the licensed store model.In our licensed store operations,we seek to leverage the expertise of our local partners and share our operating and store development experience.Licenseesprovide improved,and at times the only,access to desirable retail space.Most licensees are prominent retailers with in-depth market knowledge and access.Aspart of these arrangements,we sell coffee,tea,food and related products to licensees for resale to customers and receive royalties and license fees from thelicensees.We also sell certain equipment,such as coffee brewers and espresso machines,to our licensees for use in their operations.Licensee employeesworking in licensed retail locations are required to follow our detailed store operating procedures and attend training classes similar to those given toemployees in company-operated stores.In a limited number of international markets,we also use traditional franchising and include these stores in the resultsof operations from our other licensed stores.TMTM(1)(1)8Table of ContentsLicensed store data for the fiscal year-ended October 1,2023:Stores Openas ofStores Openas of Oct 2,2022OpenedClosedTransfersNetOct 1,2023North America:U.S.6,608 206(113)93 6,701 Canada471 17(7)10 481 Total North America7,079 223(120)103 7,182 International:Korea1,750 153(33)120 1,870 Latin America1,549 108(8)100 1,649 U.K.838 77(4)73 911 Turkey604 81(9)72 676 Taiwan544 30(11)19 563 Indonesia523 58 58 581 Thailand446 29(1)28 474 Philippines418 29 29 447 All Other3,707 469(82)(1)386 4,093 Total International10,379 1,034(148)(1)885 11,264 Total licensed17,458 1,257(268)(1)988 18,446 Other RevenuesOther revenues primarily are recorded in our Channel Development segment and include sales of packaged coffee,tea and ready-to-drink beverages tocustomers outside of our company-operated and licensed stores,as well as royalties received from Nestl under the Global Coffee Alliance and othercollaborative partnerships.Product SupplyStarbucks is committed to selling the finest whole bean coffees and coffee beverages.To help ensure compliance with our rigorous coffee standards,wegenerally control substantially all coffee purchasing,roasting and packaging and the global distribution of coffee used in our operations.Nestl controlsdistribution of Starbucks packaged coffee products outside of Starbucks stores through the Global Coffee Alliance,and in some cases,also roasts and packagesthese products.We purchase green coffee beans from multiple coffee-producing regions around the world and custom roast them to our exacting standards forour many blends and single-origin coffees.The price of coffee is subject to significant volatility.Although most coffee trades in the commodity market,high-altitude arabica coffee of the quality soughtby Starbucks tends to trade on a negotiated basis at a premium above the“C”coffee commodity price.Both the premium and the commodity price dependupon the supply and demand at the time of purchase.Supply and price can be affected by multiple factors in the producing countries,including weather,watersupply quality and availability throughout the coffee production chain,natural disasters,crop disease and pests,general increase in farm inputs and costs ofproduction,inventory levels and political and economic conditions.Climate change may further exacerbate many of these factors.Price is also impacted bytrading activities in the arabica coffee futures market,including hedge funds and commodity index funds.In addition,green coffee prices have been affected inthe past,and may be affected in the future,by the actions of certain organizations and associations that have historically attempted to influence prices of greencoffee through agreements establishing export quotas or by restricting coffee supplies.We buy coffee using fixed-price and price-to-be-fixed purchase commitments,depending on market conditions,to secure an adequate supply of quality greencoffee.We also utilize forward contracts,futures contracts and collars to hedge“C”price exposure under our price-to-be-fixed green coffee contracts and ourlong-term forecasted coffee demand where underlying fixed-price and price-to-be-fixed contracts are not yet available.Total purchase commitments,togetherwith existing inventory,are expected to provide an adequate supply of green coffee through fiscal 2024.We depend upon our relationships with coffee producers,outside trading companies and exporters for our supply of green coffee.We believe,based onrelationships established with our suppliers,the risk of non-delivery on such purchase commitments is remote.9Table of ContentsTo help ensure the future supply of high-quality green coffee and to reinforce our leadership role in the coffee industry,Starbucks operates ten farmer supportcenters,including our China Farmer Support Center located in the Yunnan Province of this high-growth market.Farmer support centers are staffed withagronomists and sustainability experts who work with coffee farming communities to promote best practices in coffee production designed to improve bothcoffee quality and yields and agronomy support to address climate change and other impacts.In addition to coffee,we also purchase significant amounts of dairy,particularly fluid milk,and to a lesser degree,plant-based dairy-free alternative products,such as oat milk and almond milk,to support the needs of our company-operated stores.We believe,based on relationships established with our dairy andplant-based dairy-free suppliers,that the risk of non-delivery of sufficient fluid milk and plant-based dairy-free alternatives to support our stores generally isremote.Products other than whole bean coffees and coffee beverages sold in Starbucks stores include tea and a number of ready-to-drink beverages that are purchasedfrom several specialty suppliers,usually under long-term supply contracts.Food products,such as pastries,breakfast sandwiches and lunch items,arepurchased from national,regional and local sources.We also purchase a broad range of paper and plastic products,such as cups and cutlery,from severalcompanies to support the needs of our retail stores as well as our manufacturing and distribution operations.We are also expanding our use of reusablepackaging to reduce landfill waste.We believe,based on relationships established with these suppliers and manufacturers,that the risk of non-delivery ofsufficient amounts of these items generally is remote.CompetitionOur primary competitors for coffee beverage sales are specialty coffee retailers and shops.We believe that our customers choose among specialty coffeeretailers and shops primarily on the basis of product quality,brand reputation,service and convenience,as well as price.We continue to experience directcompetition from large competitors in the quick-service restaurant sector and the ready-to-drink coffee beverage market,in addition to both well-establishedand start-up companies in many international markets.We also compete with restaurants and other specialty retailers for prime retail locations and qualifiedpersonnel to operate both new and existing stores.Our coffee and tea products sold through our Channel Development segment compete directly against specialty coffees and teas sold through grocery stores,warehouse clubs,specialty retailers,convenience stores and foodservice accounts and compete indirectly against all other coffees and teas on the market.Trademarks,Copyrights,Patents and Domain NamesStarbucks owns and has applied to register numerous trademarks and service marks in the U.S.and in other countries throughout the world.Some of ourtrademarks,including Starbucks,the Starbucks logo,Starbucks Reserve and Frappuccino are of material importance.The duration of trademark registrationsvaries from country to country.However,trademarks are generally valid and may be renewed indefinitely as long as they are in use and/or their registrationsare properly maintained.We own numerous copyrights for items such as product packaging,promotional materials,in-store graphics and training materials.We also hold patents oncertain products,systems and designs which have an average remaining useful life of approximately five years.In addition,Starbucks has registered andmaintains numerous Internet domain names,including“S,”“S”and“S.”Seasonality and Quarterly ResultsOur business is subject to moderate seasonal fluctuations,of which our second fiscal quarter typically experiences lower revenues and operating income.Additionally,as Starbucks Cards are issued to and loaded by customers during the holiday season,we tend to have higher cash flows from operations duringthe first quarter of the fiscal year.However,since revenues from Starbucks Cards are recognized upon redemption and not when cash is loaded onto the Card,the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced.As a result of moderate seasonal fluctuations,resultsfor any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.Government RegulationAs a company with global operations,we are subject to the laws and regulations of the United States and the multiple foreign jurisdictions in which we operateas well as the rules,reporting obligations and interpretations of all such requirements and obligations by various governing bodies,which may differ amongjurisdictions.In addition,changes to such laws,regulations,rules,reporting obligations and related compliance obligations could result in significant costs butare not expected to have a material effect on our capital expenditures,results of operations and competitive position as compared to prior periods.10Table of ContentsAvailable InformationStarbucks Annual Report on Form 10-K reports,along with all other reports and amendments filed with or furnished to the Securities and ExchangeCommission(the“SEC”),are publicly available free of charge on the Investor Relations section of our website at as soon as reasonablypracticable after these materials are filed with or furnished to the SEC.In addition,the SEC maintains an internet site that contains reports,proxy andinformation statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.We also use our website as a tool todisclose important information about the company and comply with our disclosure obligations under Regulation Fair Disclosure.Our corporate governancepolicies,code of ethics and Board committee charters and policies are also posted on the Investor Relations section of Starbucks website.The information onour website(or any webpages referenced in this Annual Report on Form 10-K)is not part of this or any other report Starbucks files with,or furnishes to,theSEC.Item 1A.Risk FactorsYou should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K,including theManagements Discussion and Analysis of Financial Conditions and Results of Operations section,the Quantitative and Qualitative Disclosures About MarketRisk section and the consolidated financial statements and related notes.If any of the risks and uncertainties described in the cautionary factors describedbelow actually occur or continue to occur,our business,financial condition and results of operations and the trading price of our common stock could bematerially and adversely affected.The considerations and risks that follow are organized within relevant headings but may be relevant to other headings aswell.Moreover,the risks below are not the only risks we face and additional risks not currently known to us or that we presently deem immaterial may emergeor become material at any time and may negatively impact our business,reputation,financial condition,results of operations or the trading price of ourcommon stock.It is not possible for management to predict all such risks,nor can it assess the impact of all such risks on Starbucks business or the extent towhich any risk,or combination of risks,may cause actual results to differ materially from those contained in any forward-looking statements.Given these risksand uncertainties,investors should not place undue reliance on forward-looking statements as a prediction of actual results.Risks Related to Brand Relevance and Brand Execution Our success depends substantially on the value of our brands and failure to preserve their value could have a negative impact on our financial results.We believe we have built an excellent reputation globally for the quality of our products,for delivery of a consistently positive consumer experience and forour global social and environmental impact programs.The Starbucks brand is recognized throughout most of the world,and we have received high ratings inglobal brand value studies.To be successful in the future,particularly outside of the U.S.where the Starbucks brand and our other brands are less well-known,we believe we must preserve,grow and leverage the value of our brands across all sales channels.Brand value is based in part on consumer perceptions on avariety of subjective qualities.Erosion of trust in our brand value can be caused by isolated or recurring incidents originating both from us or our business partners,or from external events.Such incidents can potentially trigger boycotts of our stores or result in civil or criminal liability and can have a negative impact on our financial results.Incidents that can erode trust in our brand value include actual or perceived breaches of privacy or violations of domestic or international privacy laws,contaminated food,product recalls,store employees or other food handlers infected with communicable diseases,safety-related incidents or other potentialincidents discussed in this risk factors section.The impact of such incidents may be exacerbated if they receive considerable publicity,including rapidlythrough social or digital media(including for malicious reasons)or result in litigation.Consumer demand for our products and our brand value could diminishsignificantly if we,our employees,licensees or other business partners fail to preserve the quality of our products,act or are perceived to act in an unethical,illegal,racially-biased,unequal,inequitable or socially irresponsible manner,including with respect to the sourcing,content or sale of our products,service andtreatment of customers at Starbucks stores,treatment of employees,including our responses to unionization efforts,or the use of customer data for general ordirect marketing or other purposes.Furthermore,if we are not effective in making sufficient progress toward our social and environmental program goals or inexecuting on our Reinvention Plan,consumer trust in our brand may suffer,and this perception could result in negative publicity or litigation.Additionally,ifwe fail to comply with laws and regulations,take controversial positions or actions or fail to deliver a consistently positive consumer experience in each of ourmarkets,including by failing to invest in the right balance of wages and benefits to attract and retain employees that represent the brand well or to foster aninclusive and diverse environment,our brand value may be diminished.The ongoing relevance of our brand may depend on making sufficient progress toward our social and environmental program goals as well as the successfulexecution of the Reinvention Plan,each of which requires company-wide coordination and alignment.We are working to manage risks and costs to us,ourlicensees and our supply chain of any effects of climate change as well as diminishing energy and water resources.These risks include any increased publicfocus,including by governmental11Table of Contentsand nongovernmental organizations,on these and other environmental sustainability matters,including packaging and waste,animal health and welfare,deforestation and land use.These risks may also include any increased pressure to make commitments or set goals and take actions to meet them,which couldexpose us to market,operational and execution costs or risks.Some third parties may object to the scope or nature of our social and environmental programinitiatives or goals,or any revisions to these initiatives or goals,which could give rise to negative responses by governmental actors(such as retaliatorylegislative treatment)or consumers(such as boycotts or negative publicity campaigns)that could adversely affect our brand value.We may not be successful in our marketing,promotional and advertising plans and pricing strategies.Our continued success depends in part on our ability to adjust our marketing,promotional and advertising plans and pricing strategy to respond quickly andeffectively to shifting economic and competitive conditions as well as evolving customer preferences.We operate in a complex and costly marketing,promotional and advertising environment.Competition to attract and retain high-quality marketing partners and endorsers has increased.Our decisions tocollaborate or to cease collaborating with certain endorsers or marketing partners in light of actions taken or statements made by them could seriously harm ourbrand image with consumers and,as a result,could have an adverse effect on our sales and financial condition.Our marketing,promotional and advertisingprograms may not be successful in reaching consumers in the way we intend.Our success depends in part on whether the allocation of our advertising,promotional and marketing resources across different channels,including digital,allows us to reach consumers effectively and efficiently,and in ways that aremeaningful to them.If the advertising,promotional and marketing programs or our pricing strategies are not successful,or are not as successful as those of ourcompetitors,our sales and market share could decrease.Finally,consumers are focusing more on sustainability and the environmental impacts of operations,as well as the alignment of Starbucks actions with itsstated mission,values and promises.An inability to meet consumer expectations with respect to these issues could adversely affect our financial results.Risks Related to Our Business If our business partners and third-party providers do not satisfactorily fulfill their responsibilities and commitments,it could damage our brand and ourfinancial results could suffer.Our global business strategy,including our plans for new stores,branded products and other initiatives,relies significantly on a variety of business partners,including licensee and joint venture relationships,third-party manufacturers,distributors and retailers,particularly for our entire global Channel Developmentbusiness.Licensees,retailers and foodservice operators are often authorized to use our logos and provide branded food,beverage and other products directly tocustomers.We believe our customers expect the same quality of service regardless of whether they visit a licensed or company-operated store,so we providetraining and support to,and monitor the operations of,certain of these licensees and other business partners.However,the product quality and service theydeliver may still be diminished by any number of factors beyond our control,including financial constraints or solvency,adherence to sanitation protocols andguidance,labor shortages and other factors.We do not have direct control over our business partners and may not have visibility into their practices.We also source our food,beverage and other products from a wide variety of domestic and international business partners,and in certain cases such productsare produced or sourced by our licensees directly.We do not monitor the quality of non-Starbucks products served by foodservice operators we have authorizedto use our logos and provide branded products as part of their foodservice business.Additionally,inconsistent uses of our brand and other of our intellectualproperty assets,as well as failure to protect our intellectual property,can erode consumer trust and our brand value and have a material negative impact on ourfinancial results.Incidents involving food or beverage-borne illnesses,tampering,adulteration,contamination or mislabeling,whether or not accurate,as well as adversepublic or medical opinions about the health effects of consuming our products,could harm our business.Instances or reports,whether true or not,of unclean water supply or food-safety issues,such as food or beverage-borne illnesses,tampering,adulteration,contamination or mislabeling,either during growing,manufacturing,packaging,storing or preparation,have in the past severely injured the reputations ofcompanies in the food and beverage processing,grocery and quick-service restaurant sectors.Any report linking us to such instances could severely hurt oursales and could possibly lead to product liability claims,litigation(including class actions),temporary store closures,or other adverse consequences.Cleanwater is critical to the preparation of coffee,tea and other beverages,as well as ice for our cold beverages,and our ability to ensure adequate supplies of cleanwater and ice to our stores can be limited,particularly in some international locations.We are also continuing to incorporate more products in our food andbeverage lineup that require freezing or refrigeration,which increases the risk of food safety related incidents if correct temperatures are not maintained due tomechanical malfunction or human error.12Table of ContentsWe also face risk by relying on third-party food suppliers to provide and transport ingredients and finished products to our stores.The product quality andservice they deliver may be diminished by any number of factors beyond our control and it may be difficult to detect contamination or other defects in theseproducts.There is greater risk from those we do not monitor,or do not monitor as closely.Furthermore,stemming from the COVID-19 pandemic,there arestricter health regulations and guidelines and increased public concern over food safety standards and controls.Potential food safety incidents,whether at ourstores or involving our business partners,could lead to wide public exposure,which could materially harm our business.In addition,instances of food or beverage-safety issues,even those involving solely the restaurants or stores of competitors or of suppliers or distributors(regardless of whether we use or have used those suppliers or distributors),could adversely affect our sales on a regional or global basis by resulting in negativepublicity about us or the foodservice industry in general.A decrease in customer traffic as a result of food-safety concerns or negative publicity,or as a result ofa temporary closure of any of our stores,product recalls,viral-contaminated food or beverage claims or other food or beverage-safety claims or litigation,couldmaterially harm our business and results of operations.We may not be successful in implementing important strategic initiatives or effectively managing growth,which may have an adverse impact on ourbusiness and financial results.There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations or that they will generate expectedreturns,which may result in an adverse impact on our business and financial results.These strategic initiatives,which include our Reinvention Plan,aredesigned to create growth,improve our results of operations and drive long-term shareholder value,and include:being an employer of choice and investing in employees to deliver a superior customer experience;building our leadership position around coffee;driving convenience,brand engagement and digital relationships through our mobile,loyalty,delivery and digital capabilities both domestically andinternationally;simplifying store administrative tasks to allow store partners to better engage with customers;increasing the scale of the Starbucks store footprint with disciplined global expansion and introducing flexible and unique store formats,including theaccelerated development of alternative store formats(such as Starbucks Pickup stores,Starbucks Now stores and curbside pickup);adjusting rapidly to changing customer preferences and behaviors as a result of the COVID-19 pandemic,changing economic conditions,increasedglobal interest rates and inflation;moving to a more licensed store model in certain markets and a more company-operated model in other markets;creating new occasions in stores across all dayparts with new product offerings,including our growing lunch food and beverage product lineup;continuing the global growth of our Channel Development business through our supply,distribution and licensing agreements with Nestl and otherChannel Development business partners;delivering continued growth in our cold beverage business;working to address the potential effects of climate change and the sustainability of our business;and reducing our operating costs,particularly general and administrative expenses.In addition to other factors listed in this risk factors section,factors that may adversely affect the successful implementation of these initiatives,which couldhave a material adverse impact on our business and financial results,include the following:imposition of additional taxes by jurisdictions,such as on certain types of beverages or based on number of employees;construction cost increases associated with new store openings and remodeling of existing stores;delays in store openings for reasons beyond ourcontrol,such as potential shortages of materials and labor and delays in permits,or a lack of desirable real estate locations available for lease atreasonable rates,either of which could keep us from meeting annual store opening targets in the U.S.and internationally;governmental regulations or other health guidelines concerning operations of stores,including due to public health emergencies;not successfully scaling our supply chain infrastructure as our product offerings increase and as we continue to expand,including our emphasis on abroad range of high-quality food offerings;13Table of Contents not successfully adapting to customer or market factors affecting our supply chain as we work to address sustainability and climate change;the deterioration in our credit ratings,which could limit the availability of additional financing and increase the cost of obtaining financing to fund ourinitiatives;and geopolitical instability and international conflicts.Effectively managing growth can be challenging,particularly as we continue to expand in international markets where we must balance the need for flexibilityand a degree of autonomy for local management against the need for consistency with our goals,policies and standards.If we are not successful inimplementing our strategic initiatives,or,in the event we undertake large acquisitions,integrations and divestitures,we may be required to evaluate whethercertain assets,including goodwill and other intangibles,have become impaired.In the event we record an impairment charge,it could have a material impacton our financial results.Evolving consumer preferences and tastes may adversely affect our business.Our continued success depends on our ability to attract and retain customers.Our financial results could be adversely affected by a shift in consumer spendingaway from outside-the-home food and beverages(such as a reduction in discretionary spending as a result of the resumption of student loan payments);lack ofcustomer acceptance of new products(including due to price increases necessary to cover the costs of new products or higher input costs),brands(such as theglobal expansion of the Starbucks brand)and platforms(such as features of our mobile technology,changes in our loyalty rewards programs and our deliveryservices initiatives);or customers reducing their demand for our current offerings as new products are introduced.In addition,some of our products containcaffeine,dairy products,sugar and other compounds and allergens,the health effects of which are the subject of public and regulatory scrutiny,including thesuggestion of linkages to a variety of adverse health effects.Particularly in the U.S.,there is increasing consumer awareness of health risks,including obesity,as well as increased consumer litigation based on alleged adverse health impacts of consumption of various food and beverage products.An unfavorable reporton the health effects of caffeine or other compounds present in our products,whether accurate or not,imposition of additional taxes on certain types of foodand beverage components,or negative publicity or litigation arising from certain health risks could significantly reduce the demand for our beverages and foodproducts and could materially harm our business and results of operations.Our financial results have been,and could continue to be,adversely affected bychanges in macroeconomic conditions,including increases in real estate costs in certain domestic and international markets,inflationary pressures and changesin prevailing interest rates,disruptions to our supply chain,changes in governmental rules and approaches to taxation,and fluctuations in foreign currencyexchange rates.Such changes could affect consumer behavior and their ability or willingness to spend discretionary income on our products.Furthermore,ourfinancial results have been and could continue to be adversely affected by the persisting impacts of the COVID-19 pandemic,including the disruption ofcustomer routines,changes to employer“work-from-home”policies and changes in consumer behavior and the ability or willingness to spend discretionaryincome on our products.Risks Related to Operating a Global Business We are highly dependent on the financial performance of our North America operating segment.Our financial performance is highly dependent on our North America operating segment,which comprised approximately 74%of consolidated total netrevenues in fiscal year 2023.If the North America operating segment revenue trends slow or decline,especially in our U.S.market,our other segments may beunable to make up any significant shortfall and our business and financial results could be adversely affected.And because the North America segment isrelatively mature and produces the large majority of our operating cash flows,such a slowdown or decline could result in reduced cash flows for funding theexpansion of our international businesses and other initiatives and for returning cash to shareholders.We are increasingly dependent on the success of certain international markets in order to achieve our growth targets.Our future growth increasingly depends on the growth and sustained profitability of certain international markets.Some or all of our international marketbusiness units(“MBUs”),which we generally define by the countries in which they operate,may not be successful in their operations or in achieving expectedgrowth,which ultimately requires achieving consistent,stable net revenues and earnings.The performance of these international operations may be adverselyaffected by economic downturns in one or more of the countries in which our large MBUs operate.A decline in performance of one or more of our significantinternational MBUs could have a material adverse impact on our consolidated results.The International segment is a significant profit center driving our global returns,along with our North America segment.In particular,our China MBUcontributes meaningfully to both consolidated and International net revenues and operating income.China is expected to be our fastest growing market in termsof percentage growth,our second largest market overall and 100%company-owned.Due to the significance of our China market for our profit and growth,weare exposed to risks in China,including the risks mentioned elsewhere and the following:14Table of Contents the effects of current U.S.-China relations,including rounds of tariff increases and retaliations and increasing restrictive regulations,potential boycottsand increasing anti-Americanism;escalating U.S.-China tension and increasing political sensitivities in China;the lingering effects of the COVID-19 pandemic and related governmental regulations and restrictions on our operations in China;entry of new competitors to the specialty coffee market in China;changes in economic conditions in China and potential negative effects to the growth of its middle class,wages,labor,inflation,discretionaryspending and real estate and supply chain costs;ongoing government regulatory reform,including relating to public health,food safety,tariffs and tax,sustainability and responses to climate change,which result in regulatory uncertainty as well as potential significant increases in compliance costs;data-privacy and cybersecurity risks unique to the conduct of business in China;and food-safety related matters,including compliance with food-safety regulations and ability to ensure product quality and safety.Additionally,some factors that will be critical to the success of our international operations overall are different than those affecting our U.S.stores andlicensees.Tastes naturally vary by region,and consumers in some MBUs may not embrace our products to the same extent as consumers in the U.S.or otherinternational markets.Occupancy costs and store operating expenses can be higher internationally than in the U.S.due to higher rents for prime store locationsor costs of compliance with country-specific regulatory requirements.Because many of our international operations are in an early phase of development,operating expenses as a percentage of related revenues are often higher compared to more developed operations.We face risks as a global business that could adversely affect our financial performance.We operate in 86 markets globally.Our international operations are also subject to additional inherent risks of conducting business abroad,such as:foreign currency exchange rate fluctuations,or requirements to transact in specific currencies;changes or uncertainties in economic,legal,regulatory,social and political conditions in our markets,as well as negative effects on U.S.businessesdue to increasing anti-American sentiment in certain markets;interpretation and application of laws and regulations,including tax,tariffs,labor,merchandise,anti-bribery and privacy laws and regulations;restrictive actions of foreign or U.S.governmental authorities affecting trade and foreign investment,especially during periods of heightened tensionbetween the U.S.and such foreign governmental authorities,including protective measures such as export and customs duties and tariffs,governmentintervention favoring local competitors and restrictions on the level of foreign ownership;import or other business licensing requirements;the enforceability of intellectual property and contract rights;limitations on the repatriation of funds and foreign currency exchange restrictions due to current or new U.S.and international regulations;in developing economies,the growth rate in the portion of the population achieving sufficient levels of disposable income may not be as fast as weforecast;difficulty in staffing,developing and managing foreign operations and supply chain logistics,including ensuring the consistency of product qualityand service,due to governmental actions affecting supply chain logistics,distance,language and cultural differences,as well as challenges inrecruiting and retaining high-quality employees in local markets;local laws that make it more expensive and complex to negotiate with,retain or terminate employees;local regulations,health guidelines and safety protocols affecting our operations;and delays in store openings for reasons beyond our control,competition with locally relevant competitors or a lack of desirable real estate locationsavailable for lease at reasonable rates,any of which could keep us from meeting annual store opening targets and,in turn,negatively impact netrevenues,operating income and earnings per share.15Table of ContentsMoreover,many of the foregoing risks are particularly acute in developing countries,which are important to our long-term growth prospects.An inability tomanage effectively the risks associated with our international operations could adversely affect our business and financial results.Our reliance on key business partners may adversely affect our business and operations.The growth of our business relies on the ability of our licensee partners to implement our growth platforms and product innovations as well as on the degree towhich we are able to enter into,maintain,develop and negotiate appropriate terms and conditions of,and enforce,commercial and other agreements and theperformance of our business partners under such agreements.Our international licensees may face capital constraints or other factors that may limit the speedat which they are able to expand and develop in a certain market.Our Channel Development business is heavily reliant on Nestl,which has the right to selland distribute our packaged goods and foodservice products to retailers and operators,with few exceptions.If Nestl fails to perform its distribution andmarketing commitments under our agreements and/or fails to support,protect and grow our brand in Channel Development,our Channel Developmentbusiness could be adversely impacted for a period of time,present long-term challenges to our brand,limit our ability to grow our Channel Developmentbusiness and have a material adverse impact on our business and financial results.Additionally,the growth of our Channel Development business is in partdependent on the level of discretionary support provided by our retail and licensed store businesses.There are generally a relatively small number of licensee partners operating in specific markets.If they are not able to access sufficient funds or financing,orare otherwise unable or unwilling to successfully operate and grow their businesses,it could have a material adverse effect on our results in the applicablemarkets.Risks Related to Supply Chain Increases in the cost of high-quality arabica coffee beans or other commodities or decreases in the availability of high-quality arabica coffee beans orother commodities could have an adverse impact on our business and financial results.The availability and prices of coffee beans and other commodities are subject to significant volatility.We purchase,roast and sell high-quality whole beanarabica coffee beans and related coffee products.The high-quality arabica coffee of the quality we seek tends to trade on a negotiated basis at a premium abovethe“C”price.This premium depends upon the supply and demand at the time of purchase and the amount of the premium can vary significantly.Increases inthe“C”coffee commodity price increase the price of high-quality arabica coffee and also impact our ability to enter into fixed-price purchase commitments.We frequently enter into supply contracts whereby the quality,quantity,delivery period and other negotiated terms are agreed upon,but the date,and thereforeprice,at which the base“C”coffee commodity price component will be fixed has not yet been established.The supply and price of coffee we purchase can also be affected by multiple factors in the producing countries,such as weather,water supply quality andavailability throughout the coffee production chain,natural disasters,crop disease and pests,general increase in farm inputs and costs of production,inventorylevels,political and economic conditions and the actions of certain organizations and associations that have historically attempted to influence prices of greencoffee through agreements establishing export quotas or by restricting coffee supplies.Climate change may further exacerbate many of these factors.Speculative trading in coffee commodities can also influence coffee prices.For example,extreme weather conditions such as drought or frost in Brazil haveimpacted coffee prices in the past,and in the likely event that such weather conditions were to reoccur in the future,they would have similar consequences oncoffee price volatility.Because of the significance of coffee beans to our operations,combined with our ability to only partially mitigate future price riskthrough purchasing practices and hedging activities,increases in the cost of high-quality arabica coffee beans could have a material adverse impact on ourprofitability.In addition,if we are not able to purchase sufficient quantities of green coffee due to any of the above factors or due to a worldwide or regionalshortage,we may not be able to fulfill the demand for our coffee,which could have a material adverse impact on our business operations and financialperformance.We also purchase significant amounts of dairy products,particularly fluid milk,and to a lesser degree,plant-based dairy-free alternative products,such as oatmilk and almond milk,to support the needs of our company-operated retail stores.Additionally,other commodities,including tea and those related to food andbeverage inputs,such as cocoa,produce,baking ingredients,meats,eggs and energy,as well as the processing of these inputs,are important to our operations.Increases in the cost of dairy products and other commodities,or lack of availability,whether due to supply shortages,delays or interruptions in processing,orotherwise,especially in international markets,could have a material adverse impact on our profitability.Similarly,increases in the cost of,or lack ofavailability,whether due to supply shortages,delays or interruptions in the processing of plant-based alternatives could have a material adverse impact on ourprofitability.Interruption of our supply chain could affect our ability to produce or deliver our products and could negatively impact our business and profitability.16Table of ContentsAny material interruption in our supply chain,such as material interruption of roasted coffee supply due to the casualty loss of any of our roasting plants,interruptions in service by our third-party logistic service providers or common carriers that ship goods within our distribution channels,trade restrictions,suchas increased tariffs or quotas,embargoes or customs restrictions,pandemics,social or labor unrest,labor shortages,natural disasters or political disputes andmilitary conflicts that cause a material disruption in our supply chain could have a negative material impact on our business and our profitability.Additionally,our food,beverage and other products are sourced from a wide variety of domestic and international business partners in our supply chain operations,and incertain cases are produced or sourced by our licensees directly.We rely on these suppliers to provide high-quality products and to comply with applicable laws.Our ability to find qualified suppliers who meet our standards and supply products in a timely and efficient manner is a significant challenge as we increase ourfresh and prepared food offerings,especially with respect to goods sourced from outside the U.S.and from countries or regions with diminished infrastructure,developing or failing economies or which are experiencing political instability or social unrest.For certain products,we may rely on one or very few suppliers.A suppliers failure to meet our standards,provide products in a timely and efficient manner or comply with applicable laws is beyond our control.These issuescould have a material negative impact on our business and profitability.Risks Related to Macroeconomic Conditions Our financial condition and results of operations are subject to,and may be adversely affected by,a number of macroeconomic and other factors,manyof which are also largely outside our control.Our operating results have been in the past and will continue to be subject to a number of macroeconomic and other factors,many of which are largely outsideour control.Any one or more of the factors listed below or described elsewhere in this risk factors section could have a material adverse impact on ourbusiness,financial condition and/or results of operations:increases in real estate costs in certain domestic and international markets;inflationary pressures and changes in prevailing interest rates;disruptions to our supply chain;changes in governmental rules and approaches to taxation;fluctuations in foreign currency exchange rates;adverse outcomes of litigation;severe weather or other natural or man-made disasters affecting a large market or several closely located markets that may temporarily butsignificantly affect our retail business in such markets;changes in climate,including changes to the frequency or severity of extreme weather events,that impact the price and availability or cost of goodsand services,energy and other materials throughout our supply chain;and especially in our largest markets,including the U.S.and China,labor discord or disruption,geopolitical events,war,terrorism(including incidentstargeting us),political instability,acts of public violence,boycotts,increasing anti-American sentiment in certain markets,hostilities and social unrestand health pandemics that lead to avoidance of public places or restrictions on public gatherings such as in our stores.Unfavorable economic conditions could also adversely affect our suppliers and licensees,who in turn could experience cash flow problems,more costly orunavailable financing,credit defaults and other financial hardships.This couldlead to supplier or licensee insolvency,increase our bad debt expense,or causeus to increase the levels of unsecured credit that we provide to suppliers and licensees.Further,if any of our licensees becomes insolvent this could result in ourexit from a particular market,and negatively impact our reputation.For example,one of our licensees is experiencing financial solvency issues,whichmayrequire the Company to expend capital resources to help fundtheiroperating expenses in the short term.Economic conditions in the U.S.and international markets could adversely affect our business and financial results.As a retailer that is dependent upon consumer discretionary spending,our results of operations are sensitive to changes in or uncertainty about macroeconomicconditions.A continued economic downturn or recession,or slowing or stalled recovery therefrom,may have a material adverse effect on our business,financial condition or results of operations.Our customers may have or in the future have less money for discretionary purchases and may stop or reduce theirpurchases of our products or switch to Starbucks or competitors lower-priced products as a result of various factors,including job losses,inflation,changes inprevailing interest rates,higher taxes,reduced access to credit,changes in federal economic policy,a global health pandemic,international trade disputes orgeopolitical instability.We may also experience a reduction and increased volatility in demand for our products in connection with a global health pandemic.For example,in China,reductions and continuing volatility in that market may be caused by,among other things:store closures or modified operating hoursand business model,reduced customer traffic due to illness,quarantine or government or self-imposed restrictions placed on our stores operations,impacts17Table of Contentscaused by precautionary measures such as those related to face coverings and vaccinations and changes in consumer spending behaviors,including thosecaused by social distancing,a decrease in consumer confidence in general macroeconomic conditions and a decrease in consumer discretionary spending.Decreases in customer traffic and/or average value per transaction without a corresponding decrease in costs would put downward pressure on margins andwould negatively impact our financial results.There is also a risk that if negative economic conditions or uncertainty persist for a long period of time orworsen,consumers may make long-lasting changes to their discretionary purchasing behavior,including less frequent discretionary purchases on a morepermanent basis or enduring changes in behavior that precipitate a more general downturn in the restaurant industry.These and other macroeconomic factorscould have an adverse effect on our sales,profitability or development plans,which could harm our results of operations and financial condition.Failure to meet market expectations for our financial performance and fluctuations in the stock market as a whole will likely adversely affect the marketprice and volatility of our stock.Failure to meet market expectations going forward,particularly with respect to our operational and financial results,and expectations regarding the success ofour Reinvention Plan and related guidance,environmental performance and shareholder returns,will likely result in a decline and/or increased volatility in themarket price of our stock.In addition,price and volume fluctuations in the stock market as a whole may affect the market price of our stock in ways that maybe unrelated to our financial performance.Risks Related to Human Capital Changes in the availability of and the cost of labor could adversely affect our business.Our business could be adversely impacted by increases in labor costs,including wages and benefits,which,in a retail business such as ours,are two of ourmost significant costs,both domestically and internationally,including those increases triggered by state and federal legislation and regulatory actionsregarding wages,scheduling and benefits;increased healthcare and workers compensation insurance costs;and increased wages and costs of other benefitsnecessary to attract and retain high-quality employees with the right skill sets.The growth of our business can make it increasingly difficult to locate and hiresufficient numbers of employees,to maintain an effective system of internal controls for a globally dispersed enterprise and to train employees worldwide todeliver a consistently high-quality product and customer experience,which could materially harm our business and results of operations.Furthermore,we haveexperienced,and could continue to experience,a shortage of labor for store positions,and the increased availability of alternative telecommuting employmentoptions by other employers could decrease the pool of available qualified talent for key functions.In addition,our wages and benefits programs may beinsufficient to attract and retain the best talent.Starting in September 2021,Starbucks partners at a number of company-operated stores sought union representation through elections conducted by theauthorities.Unions have secured representation rights at a number of these stores,with potentially more to follow.The law places limitations on unilateral actions taken with respect to employees who are represented by unions because in certain circumstances the lawrequires the employer to notify and to bargain with the union prior to making certain operational or other changes that may affect employee wages,hours orother terms and conditions of employment.These limitations could negatively affect our costs,change our employee culture,and decrease our flexibility.Theyalso present the potential to disrupt our current operational model by affecting our ability to fully implement operational changes to enhance our efficiency andadapt to changing business needs.Moreover,we have experienced job actions in some company-operated stores.Such job actions and work stoppages have the potential to negatively impact ouroperations,third-party providers upon whom we rely to deliver product,our sales,and our costs.Additionally,our position with respect to unions and the unionization of partners could negatively impact how our brand is perceived and have adverse effectson our business,including on our financial results.These positions could also expose us to legal risk,causing us to incur costs to defend legal and regulatoryactions,potential penalties and restrictions,and reputational harm.The loss of key personnel or difficulties recruiting and retaining qualified personnel or effectively managing changes in our workforce could adverselyimpact our business and financial results.Much of our future success depends on the continued availability and service of key personnel and employees.The loss of any of our executive officers orother key senior management personnel could harm our business.Our success also depends substantially on the contributions and abilities of our retail storeemployees upon whom we rely to give customers a superior in-store experience and elevate our brand.Accordingly,our performance depends on our ability torecruit and retain high-quality management personnel and other employees to work in and manage our stores,both domestically and internationally.Our18Table of Contentsability to do so has been and may continue to be impacted by challenges in the labor market,which has experienced and may continue to experience wageinflation,labor shortages,increased employee turnover,changes in availability of our workforce and a shift toward remote or hybrid work arrangements.Ourability to attract and retain corporate,retail and other personnel is also acutely impacted in certain international and domestic markets where the competition fora relatively small number of qualified employees is intense or in markets where large high-tech companies are able to offer more competitive salaries andbenefits.Additionally,there is intense competition for qualified technology systems developers necessary to develop and implement new technologies for ourgrowth initiatives,including increasing our digital relationships with customers.If we are unable to recruit,retain and motivate employees sufficiently tomaintain our current business and support our projected growth,our business and financial performance may be adversely affected.Risks Related to Competition We face intense competition in each of our channels and markets,which could lead to reduced profitability.The specialty coffee market is intensely competitive,including with respect to product quality,innovation,service,convenience,such as delivery service andmobile ordering,and price,and we face significant and increasing competition in all of these areas in each of our channels and markets.Accordingly,we do nothave leadership positions in all channels and markets.In the U.S.,the ongoing focus by large competitors in the quick-service restaurant sector on selling high-quality specialty coffee beverages could lead to decreases in customer traffic to Starbucks stores and/or average value per transaction adversely affecting oursales and results of operations.Similarly,continued competition from well-established competitors,or competition from large new entrants or well-fundedsmaller companies,in our domestic and international markets could hinder growth and adversely affect our sales and results of operations in those markets.Many small competitors also continue to open coffee specialty stores in many of our markets across the world,which in the aggregate may also lead tosignificant decreases of customer traffic to our stores in those markets.Increased competition globally in packaged coffee and tea and single-serve and ready-to-drink coffee beverage markets,including from new and large entrants to this market,could adversely affect the profitability of the Channel Developmentsegment.In addition,not all of our competitors may seek to establish environmental or sustainability goals at a comparable level to ours,which could result inlower supply chain or operating costs for our competitors.We may incur increased costs associated with reducing carbon dioxide and other greenhouse gasemissions,reducing the use of plastic or imposing performance obligations on our suppliers that could increase financial obligations for us and our businesspartners and could affect our profitability.Additionally,if we are unable to respond to consumer demand for healthy beverages and foods,or our competitorsrespond more effectively,this could have a negative effect on our business.Furthermore,declines in general consumer demand for specialty coffee products forany reason,including due to consumer preference for other products,flattening demand for our products,changed customer daily routines or traffic to stores,orchanged customer spending behaviors due to challenging economic conditions,could have a negative effect on our business.Risks Related to Environmental,Social and Governance Matters Climate change may have an adverse impact on our business.We recognize that there are inherent climate-related risks wherever business is conducted.For example,as we noted above,the supply and price of coffee wepurchase can also be affected by multiple factors in the producing countries,such as weather and water supply quality and availability,which factors may becaused by or exacerbated by climate change.Climate change may also result in decreased availability,less favorable pricing,or other adverse consequences fornon-coffee inputs in our products.In particular,climate change may affect the availability of water in the markets in which we operate and expect to operateand elsewhere in our supply chain,which could have adverse impacts on our business.We operate in 86 markets globally.Our properties and operations maybe vulnerable to the adverse effects of climate change,which are predicted to increase the frequency and severity of extreme weather events and other naturalcycles such as wildfires and droughts.Such events have the potential to disrupt our operations,cause store closures,disrupt the business of our third-partysuppliers and impact our customers,all of which may cause us to suffer losses and additional costs to maintain or resume operations.Our business is subject to evolving corporate governance and public disclosure regulations and expectations,including with respect to environmental,social and governance matters,that could expose us to numerous risks.We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations,including the SEC,the NasdaqStock Market and the Financial Accounting Standards Board.These rules and regulations continue to evolve in scope and complexity and many newrequirements have been created in response to laws enacted by Congress,making compliance more difficult and uncertain.In addition,increasingly regulators,customers,investors,employees and other stakeholders are focusing on environmental,social and governance(“ESG”)matters and related disclosures.Thesechanging rules,regulations and stakeholder expectations have resulted in,and are likely to continue to result in,increased general and administrative expensesand increased management time and attention spent complying with or19Table of Contentsmeeting such regulations and expectations.For example,developing and acting on initiatives within the scope of ESG,and collecting,measuring and reportingESG-related information and metrics can be costly,difficult and time consuming and is subject to evolving reporting standards,including the SECs proposedclimate-related reporting requirements,and similar proposals by other international regulatory bodies.We may also communicate certain initiatives and goals,regarding environmental matters,diversity,responsible sourcing and social investments and other ESG-related matters,in our SEC filings or in other publicdisclosures.These initiatives and goals within the scope of ESG could be difficult and expensive to implement,the technologies needed to implement themmay not be cost effective and may not advance at a sufficient pace,and we could be criticized for the accuracy,adequacy or completeness of the disclosure.Further,statements about our ESG-related initiatives and goals,and progress toward those goals,may be based on standards for measuring progress that arestill developing,internal controls and processes that continue to evolve,and assumptions that are subject to change in the future.If we are unable to meet ourESG-related goals or evolving stakeholder or industry expectations and standards,or if we are perceived to have not responded appropriately to the growingconcern for ESG issues,customers and consumers may choose to stop purchasing our products or purchase products from another company or a competitor,and our reputation,business or financial condition may be adversely affected.If our ESG-related data,processes and reporting are incomplete or inaccurate,orif we fail to achieve progress with respect to our goals within the scope of ESG on a timely basis,or at all,our reputation,business,financial performance andgrowth could be adversely affected.In addition,we could be criticized by ESG detractors for the scope or nature of our ESG initiatives or goals or for any revisions to these goals.We could alsobe subjected to negative responses by governmental actors(such as anti-ESG legislation or retaliatory legislative treatment)or consumers(such as boycotts ornegative publicity campaigns)targeting Starbucks that could adversely affect our reputation,business,financial performance and growth.Risks Related to Intellectual Property We may not be able to adequately protect our intellectual property or adequately ensure that we are not infringing the
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Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,DC 20549FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended July 2,2023OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to .Commission File Number:000-20322Starbucks Corporation(Exact Name of Registrant as Specified in its Charter)Washington91-1325671(State or Other Jurisdiction ofIncorporation or Organization)(IRS EmployerIdentification No.)2401 Utah Avenue South,Seattle,Washington 98134(Address of principal executive offices)(206)447-1575(Registrants Telephone Number,including Area Code)Securities registered pursuant to Section 12(b)of the Act:TitleTrading SymbolName of each exchange on which registeredCommon Stock,par value$0.001 per shareSBUXNasdaq Global Select MarketIndicate by check mark whether the registrant:(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes x No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit suchfiles).Yes x No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,smaller reporting company,or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerxAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act):Yes No x Indicate the number of shares outstanding of each of the issuers classes of common stock,as of the latest practicable date.Shares Outstanding as of July 26,20231,145.4 millionTable of ContentsSTARBUCKS CORPORATIONFORM 10-QFor the Quarterly Period Ended July 2,2023Table of Contents PART I.FINANCIAL INFORMATIONItem 1Financial Statements(Unaudited)3Consolidated Statements of Earnings3Consolidated Statements of Comprehensive Income4Consolidated Balance Sheets5Consolidated Statements of Cash Flows6Consolidated Statements of Equity7Index for Notes to Consolidated Financial Statements9Notes to Consolidated Financial Statements10Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations27Item 3Quantitative and Qualitative Disclosures About Market Risk38Item 4Controls and Procedures39PART II.OTHER INFORMATIONItem 1Legal Proceedings40Item 1ARisk Factors40Item 2Unregistered Sales of Equity Securities and Use of Proceeds40Item 3Defaults Upon Senior Securities40Item 4Mine Safety Disclosures40Item 5Other Information40Item 6Exhibits41Signatures42 Table of ContentsPART I FINANCIAL INFORMATIONItem 1.Financial StatementsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EARNINGS(in millions,except per share data)(unaudited)Quarter EndedThree Quarters EndedJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Net revenues:Company-operated stores$7,556.7$6,675.5$21,782.4$19,674.7 Licensed stores1,136.2 956.8 3,325.2 2,657.0 Other475.4 517.8 1,494.4 1,504.4 Total net revenues9,168.3 8,150.1 26,602.0 23,836.1 Product and distribution costs2,864.2 2,613.6 8,476.1 7,606.4 Store operating expenses3,697.6 3,302.5 10,998.9 10,017.1 Other operating expenses138.7 135.1 394.1 338.4 Depreciation and amortization expenses342.2 356.8 1,011.2 1,090.5 General and administrative expenses604.3 486.7 1,805.6 1,494.0 Restructuring and impairments7.1 14.0 21.8 10.9 Total operating expenses7,654.1 6,908.7 22,707.7 20,557.3 Income from equity investees69.7 54.1 179.0 143.5 Gain from sale of assets 91.3 Operating income1,583.9 1,295.5 4,164.6 3,422.3 Interest income and other,net21.3 19.8 51.1 66.0 Interest expense(140.9)(123.1)(406.9)(357.6)Earnings before income taxes1,464.3 1,192.2 3,808.8 3,130.7 Income tax expense322.4 278.5 903.4 725.9 Net earnings including noncontrolling interests1,141.9 913.7 2,905.4 2,404.8 Net earnings attributable to noncontrolling interests0.2 0.8 0.2 1.5 Net earnings attributable to Starbucks$1,141.7$912.9$2,905.2$2,403.3 Earnings per share-basic$1.00$0.80$2.53$2.08 Earnings per share-diluted$0.99$0.79$2.52$2.07 Weighted average shares outstanding:Basic1,145.9 1,147.0 1,147.6 1,155.3 Diluted1,150.5 1,151.0 1,152.0 1,160.5 See Notes to Consolidated Financial Statements.3Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in millions,unaudited)Quarter EndedThree Quarters EndedJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Net earnings including noncontrolling interests$1,141.9$913.7$2,905.4$2,404.8 Other comprehensive income/(loss),net of tax:Unrealized holding gains/(losses)on available-for-sale debt securities(2.2)(2.1)3.4(16.0)Tax(expense)/benefit0.5 0.5(0.8)3.9 Unrealized gains/(losses)on cash flow hedging instruments4.6 54.4(177.3)210.3 Tax(expense)/benefit(3.8)(13.4)25.8(39.5)Unrealized gains/(losses)on net investment hedging instruments101.0 109.2 33.7 188.8 Tax(expense)/benefit(25.5)(27.6)(8.5)(47.7)Translation adjustment and other(318.1)(396.9)(34.5)(421.2)Tax(expense)/benefit Reclassification adjustment for net(gains)/losses realized in netearnings for available-for-sale debt securities,hedging instruments,and translation adjustment(16.5)(59.2)(181.5)(109.5)Tax expense/(benefit)4.1 9.8 25.4 18.7 Other comprehensive income/(loss)(255.9)(325.3)(314.3)(212.2)Comprehensive income including noncontrolling interests886.0 588.4 2,591.1 2,192.6 Comprehensive income attributable to noncontrolling interests(0.5)0.8(0.5)1.5 Comprehensive income attributable to Starbucks$886.5$587.6$2,591.6$2,191.1 See Notes to Consolidated Financial Statements.4Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED BALANCE SHEETS(in millions,except per share data)(unaudited)Jul 2,2023Oct 2,2022ASSETSCurrent assets:Cash and cash equivalents$3,357.0$2,818.4 Short-term investments263.0 364.5 Accounts receivable,net1,140.2 1,175.5 Inventories1,987.0 2,176.6 Prepaid expenses and other current assets423.5 483.7 Total current assets7,170.7 7,018.7 Long-term investments238.6 279.1 Equity investments384.4 311.2 Property,plant and equipment,net7,053.5 6,560.5 Operating lease,right-of-use asset8,178.5 8,015.6 Deferred income taxes,net1,790.3 1,799.7 Other long-term assets541.7 554.2 Other intangible assets124.4 155.9 Goodwill3,250.9 3,283.5 TOTAL ASSETS$28,733.0$27,978.4 LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIT)Current liabilities:Accounts payable$1,503.5$1,441.4 Accrued liabilities2,060.5 2,137.1 Accrued payroll and benefits755.4 761.7 Current portion of operating lease liability1,265.2 1,245.7 Stored value card liability and current portion of deferred revenue1,759.6 1,641.9 Short-term debt34.5 175.0 Current portion of long-term debt1,835.9 1,749.0 Total current liabilities9,214.6 9,151.8 Long-term debt13,544.4 13,119.9 Operating lease liability7,691.2 7,515.2 Deferred revenue6,152.5 6,279.7 Other long-term liabilities471.9 610.5 Total liabilities37,074.6 36,677.1 Shareholders deficit:Common stock($0.001 par value)authorized,2,400.0 shares;issued and outstanding,1,145.4 and 1,147.9shares,respectively1.1 1.1 Additional paid-in capital38.3 205.3 Retained deficit(7,610.5)(8,449.8)Accumulated other comprehensive income/(loss)(777.5)(463.2)Total shareholders deficit(8,348.6)(8,706.6)Noncontrolling interests7.0 7.9 Total deficit(8,341.6)(8,698.7)TOTAL LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIT)$28,733.0$27,978.4 See Notes to Consolidated Financial Statements.5Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in millions,unaudited)Three Quarters EndedJul 2,2023Jul 3,2022OPERATING ACTIVITIES:Net earnings including noncontrolling interests$2,905.4$2,404.8 Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization1,073.8 1,169.0 Deferred income taxes,net(30.2)35.0 Income earned from equity method investees(182.7)(175.0)Distributions received from equity method investees146.6 145.9 Gain on sale of assets(91.3)Stock-based compensation228.5 206.6 Non-cash lease costs998.4 1,090.4 Loss on retirement and impairment of assets79.1 89.6 Other22.8(44.7)Cash provided by/(used in)changes in operating assets and liabilities:Accounts receivable44.3(245.5)Inventories194.5(557.3)Accounts payable47.3 341.7 Deferred revenue(8.2)32.7 Operating lease liability(1,056.1)(1,201.4)Other operating assets and liabilities(308.5)5.8 Net cash provided by operating activities4,063.7 3,297.6 INVESTING ACTIVITIES:Purchases of investments(357.1)(117.3)Sales of investments2.0 72.6 Maturities and calls of investments515.0 59.5 Additions to property,plant and equipment(1,634.1)(1,295.4)Proceeds from sale of assets110.0 Other(42.0)(95.7)Net cash used in investing activities(1,406.2)(1,376.3)FINANCING ACTIVITIES:Net(payments)/proceeds from issuance of commercial paper(175.0)200.0 Net proceeds from issuance of short-term debt83.7 38.9 Repayments of short-term debt(46.7)(38.9)Net proceeds from issuance of long-term debt1,497.8 1,498.1 Repayments of long-term debt(1,000.0)(1,000.0)Proceeds from issuance of common stock149.4 75.5 Cash dividends paid(1,824.8)(1,701.1)Repurchase of common stock(699.3)(4,013.0)Minimum tax withholdings on share-based awards(87.0)(123.5)Other(11.0)(9.2)Net cash used in financing activities(2,112.9)(5,073.2)Effect of exchange rate changes on cash and cash equivalents(6.0)(126.3)Net increase/(decrease)in cash and cash equivalents538.6(3,278.2)CASH AND CASH EQUIVALENTS:Beginning of period2,818.4 6,455.7 End of period$3,357.0$3,177.5 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for:Interest,net of capitalized interest$369.6$344.9 Income taxes$939.8$911.2 See Notes to Consolidated Financial Statements.6Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EQUITYFor the Quarter Ended July 2,2023 and July 3,2022(in millions,except per share data,unaudited)Common StockAdditionalPaid-inCapitalRetainedEarnings/(Deficit)AccumulatedOtherComprehensiveIncome/(Loss)ShareholdersEquity/(Deficit)NoncontrollingInterestsTotal SharesAmountBalance,April 2,20231,147.0$1.1$38.2$(8,024.6)$(521.6)$(8,506.9)$7.5$(8,499.4)Net earnings 1,141.7 1,141.7 0.2 1,141.9 Other comprehensive loss (255.2)(255.2)(0.7)(255.9)Stock-based compensation expense 69.9 69.9 69.9 Exercise of stock options/vesting ofRSUs0.3 1.6 1.6 1.6 Sale of common stock0.1 12.4 12.4 12.4 Repurchase of common stock(2.0)(83.8)(121.1)(204.9)(204.9)Cash dividends declared,$0.53 pershare (606.5)(606.5)(606.5)Purchase of non-controlling interestsand other (0.7)(0.7)(0.7)Balance,July 2,20231,145.4$1.1$38.3$(7,610.5)$(777.5)$(8,348.6)$7.0$(8,341.6)Balance,April 3,20221,146.9$1.1$41.1$(9,070.5)$260.3$(8,768.0)$6.8$(8,761.2)Net earnings 912.9 912.9 0.8 913.7 Other comprehensive loss (325.3)(325.3)(325.3)Stock-based compensation expense 58.2 58.2 58.2 Exercise of stock options/vesting ofRSUs0.2 5.8 5.8 5.8 Sale of common stock0.2 12.0 12.0 12.0 Cash dividends declared,$0.49 pershare (562.1)(562.1)(562.1)Balance,July 3,20221,147.3$1.1$117.1$(8,719.7)$(65.0)$(8,666.5)$7.6$(8,658.9)See Notes to Consolidated Financial Statements.7Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EQUITYFor the Three Quarters Ended July 2,2023 and July 3,2022(in millions,except per share data,unaudited)Common StockAdditionalPaid-inCapitalRetainedEarnings/(Deficit)AccumulatedOtherComprehensiveIncome/(Loss)ShareholdersEquity/(Deficit)NoncontrollingInterestsTotal SharesAmountBalance,October 2,20221,147.9$1.1$205.3$(8,449.8)$(463.2)$(8,706.6)$7.9$(8,698.7)Net earnings 2,905.2 2,905.2 0.2 2,905.4 Other comprehensive loss (313.6)(313.6)(0.7)(314.3)Stock-based compensation expense 231.3 231.3 231.3 Exercise of stock options/vesting ofRSUs4.0 25.1 25.1 25.1 Sale of common stock0.4 37.3 37.3 37.3 Repurchase of common stock(6.9)(457.7)(242.5)(700.2)(700.2)Cash dividends declared,$1.59 pershare (1,823.4)(1,823.4)(1,823.4)Purchase of noncontrolling interestsand other(3.0)(0.7)(3.7)(0.4)(4.1)Balance,July 2,20231,145.4$1.1$38.3$(7,610.5)$(777.5)$(8,348.6)$7.0$(8,341.6)Balance,October 3,20211,180.0$1.2$846.1$(6,315.7)$147.2$(5,321.2)$6.7$(5,314.5)Net earnings 2,403.3 2,403.3 1.5 2,404.8 Other comprehensive loss (212.2)(212.2)(212.2)Stock-based compensation expense 209.7 209.7 209.7 Exercise of stock options/vesting ofRSUs3.2(0.1)(82.7)(82.8)(82.8)Sale of common stock0.4 34.8 34.8 34.8 Repurchase of common stock(36.3)(890.8)(3,122.2)(4,013.0)(4,013.0)Cash dividends declared,$1.47 pershare (1,685.1)(1,685.1)(1,685.1)Net distributions to noncontrollinginterests (0.6)(0.6)Balance,July 3,20221,147.3$1.1$117.1$(8,719.7)$(65.0)$(8,666.5)$7.6$(8,658.9)See Notes to Consolidated Financial Statements.8Table of ContentsSTARBUCKS CORPORATIONINDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1Summary of Significant Accounting Policies and Estimates10Note 2Acquisitions,Divestitures and Strategic Alliance10Note 3Derivative Financial Instruments11Note 4Fair Value Measurements15Note 5Inventories17Note 6Supplemental Balance Sheet and Statement of Earnings Information17Note 7Other Intangible Assets and Goodwill18Note 8Debt19Note 9Leases21Note 10Deferred Revenue22Note 11Equity23Note 12Employee Stock Plans24Note 13Earnings per Share25Note 14Commitments and Contingencies25Note 15Segment Reporting259Table of ContentsSTARBUCKS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)Note 1:Summary of Significant Accounting Policies and EstimatesFinancial Statement PreparationThe unaudited consolidated financial statements as of July 2,2023,and for the quarters and three quarters ended July 2,2023 and July 3,2022,have beenprepared by Starbucks Corporation under the rules and regulations of the Securities and Exchange Commission(“SEC”).In the opinion of management,thefinancial information for the quarters and three quarters ended July 2,2023 and July 3,2022 reflects all adjustments and accruals,which are of a normalrecurring nature,necessary for a fair presentation of the financial position,results of operations and cash flows for the interim periods.In this Quarterly Reporton Form 10-Q(“10-Q”),Starbucks Corporation is referred to as“Starbucks,”the“Company,”“we,”“us”or“our.”Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes.The financial information as of October 2,2022 is derived from our audited consolidated financial statements and notes for the fiscal year ended October 2,2022(“fiscal 2022”)included in Item 8 in the Fiscal 2022 Annual Report on Form 10-K(“10-K”).The information included in this 10-Q should be read inconjunction with the footnotes and managements discussion and analysis of the consolidated financial statements in the 10-K.The results of operations for the quarter and three quarters ended July 2,2023 are not necessarily indicative of the results of operations that may be achievedfor the entire fiscal year ending October 1,2023(“fiscal 2023”).The novel coronavirus,known as the global COVID-19 pandemic,was first identified in December 2019 before spreading to markets where we have company-operated or licensed stores.We have since established the necessary protocols to operate safely,and in many of our markets,our businesses demonstratedpowerful momentum beyond recovery from the COVID-19 pandemic.During the quarter ended July 2,2023,our China market continued its recovery frompandemic-related business interruptions in previous quarters that had suppressed customer mobility.We continue to monitor the COVID-19 pandemic and itseffect on our business and results of operations;however,we cannot predict the duration,scope or severity of the COVID-19 pandemic or its future impact onour business,results of operations,cash flows and financial condition.RestructuringIn fiscal 2022,we announced our plan in the U.S.market to increase efficiency while elevating the partner and customer experience(the“Reinvention Plan”).We believe the company-operated market investments in partner wages and trainings have increased retention and productivity while the acceleration ofpurpose-built store concepts and innovations in technologies will provide additional convenience and connection with our customers.As a result of therestructuring efforts in connection with the Reinvention Plan,we recorded an immaterial charge on our consolidated statements of earnings during the quarterand three quarters ended July 2,2023.Future restructuring and impairment costs attributable to our Reinvention Plan are not expected to be material.As of July 2,2023 and October 2,2022,there were no material restructuring-related accrued liabilities on our consolidated balance sheets.Recently Adopted Accounting PronouncementsIn the first quarter of fiscal 2022,we adopted the Financial Accounting Standards Board(“FASB”)issued guidance related to reference rate reform.Thepronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease thefinancial reporting burden related to the expected market transition from the London Interbank Offered Rate(“LIBOR”)and other interbank offered rates toalternative reference rates.The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31,2024.The adoption of the new guidance did not have a material impact on our financial statements.Note 2:Acquisitions,Divestitures and Strategic AllianceFiscal 2023On January 13,2023,we sold the assets,primarily consisting of intellectual properties associated with the Seattles Best Coffee brand,to Nestl for$110.0million.The transaction resulted in a pre-tax gain of$91.3 million,which was included in gain from sale of assets on our consolidated statements of earnings.Results from Seattles Best Coffee operations prior to the sale are reported in our Channel Development operating segment.10Table of ContentsFiscal 2022In the fourth quarter of fiscal 2022,we sold our Evolution Fresh brand and business to Bolthouse Farms.This transaction did not have a material impact on ourconsolidated financial statements.Note 3:Derivative Financial InstrumentsInterest RatesFrom time to time,we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates.We enter intointerest rate swap agreements and treasury locks,which are synthetic forward sales of U.S.Treasury securities settled in cash based upon the differencebetween an agreed-upon treasury rate and the prevailing treasury rate at settlement.These agreements are cash settled at the time of the pricing of the relateddebt.Each derivative agreements gain or loss is recorded in accumulated other comprehensive income(“AOCI”)and is subsequently reclassified to interestexpense over the life of the related debt.To hedge the exposure to changes in the fair value of our fixed-rate debt,we enter into interest rate swap agreements,which are designated as fair value hedges.The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevantbenchmark interest rates are recorded in interest expense.Refer to Note 8,Debt,for additional information on our long-term debt.Foreign CurrencyTo reduce cash flow volatility from foreign currency fluctuations,we enter into forward and swap contracts to hedge portions of cash flows of anticipatedintercompany royalty payments,inventory purchases,and intercompany borrowing and lending activities.The resulting gains and losses from these derivativesare recorded in AOCI and subsequently reclassified to revenue,product and distribution costs,or interest income and other,net,respectively,when the hedgedexposures affect net earnings.From time to time,we may enter into financial instruments,including,but not limited to,forward and swap contracts or foreign currency-denominated debt,tohedge the currency exposure of our net investments in certain international operations.The resulting gains and losses from these derivatives are recorded inAOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balancesheet items.Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency-denominated payables andreceivables,and these gains and losses are recorded in interest income and other,net.CommoditiesDepending on market conditions,we may enter into coffee forward contracts,futures contracts and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts,which are described further in Note 5,Inventories,or our longer-dated forecasted coffee demand where underlying fixed priceand price-to-be-fixed contracts are not yet available.The resulting gains and losses are recorded in AOCI and are subsequently reclassified to product anddistribution costs when the hedged exposure affects net earnings.Depending on market conditions,we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under ourdairy purchase contracts and our forecasted dairy demand.The resulting gains or losses are recorded in AOCI and are subsequently reclassified to product anddistribution costs when the hedged exposure affects net earnings.Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge.Cash flows from hedging transactions areclassified in the same categories as the cash flows from the respective hedged items.For de-designated cash flow hedges in which the underlying transactionsare no longer probable of occurring,the related accumulated derivative gains or losses are recognized in interest income and other,net on our consolidatedstatements of earnings.These derivatives may be accounted for prospectively as non-designated derivatives until maturity,re-designated to new hedgingrelationships or terminated early.We continue to believe transactions related to our other designated cash flow hedges are probable to occur.To mitigate the price uncertainty of a portion of our future purchases,including diesel fuel and other commodities,we enter into swap contracts,futures andcollars that are not designated as hedging instruments.The resulting gains and losses are recorded in interest income and other,net to help offset pricefluctuations on our beverage,food,packaging and transportation costs,which are included in product and distribution costs on our consolidated statements ofearnings.11Table of ContentsGains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to bereclassified into earnings within 12 months,net of tax(in millions):Net Gains/(Losses)Included in AOCINet Gains/(Losses)Expectedto be Reclassified from AOCIinto Earnings within 12MonthsOutstanding Contract/DebtRemaining Maturity(Months)Jul 2,2023Oct 2,2022Cash Flow Hedges:Coffee$(107.6)$153.9$(95.6)6Cross-currency swaps(1.1)(1.9)17Dairy(5.2)(2.6)(5.2)9Foreign currency-other25.7 55.3 18.2 33Interest rates(5.9)(5.8)(1.7)0Net Investment Hedges:Cross-currency swaps76.5 67.3 105Foreign currency16.0 16.1 0Foreign currency debt126.8 125.7 9Pre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in othercomprehensive income(“OCI”)and reclassifications from AOCI to earnings(in millions):Quarter EndedGains/(Losses)Recognized inOCI Before ReclassificationsGains/(Losses)Reclassified fromAOCI to EarningsLocation of gain/(loss)Jul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Cash Flow Hedges:Coffee$(20.0)$(19.3)$0.3$32.2 Product and distribution costsCross-currency swaps4.2 12.9(3.5)(2.1)Interest expense7.5 16.0 Interest income and other,netDairy(6.1)(1.4)(3.8)4.4 Product and distribution costsForeign currency-other26.5 43.4 6.1 6.6 Licensed stores revenue1.4(0.9)Product and distribution costsInterest rates 18.8 0.8(0.6)Interest expenseNet Investment Hedges:Cross-currency swaps47.6 37.0 7.8 3.8 Interest expenseForeign currency debt53.4 72.2 Three Quarters EndedGains/(Losses)Recognized inOCI Before ReclassificationsGains/(Losses)Reclassified fromAOCI to EarningsLocation of gain/(loss)Jul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Cash Flow Hedges:Coffee$(139.9)$76.1$156.9$56.6 Product and distribution costsCross-currency swaps(10.0)22.3(9.2)(3.7)Interest expense(1.7)32.3 Interest income and other,netDairy(12.0)6.6(8.6)6.8 Product and distribution costsForeign currency-other(15.7)51.1 18.0 11.0 Licensed stores revenue5.8(2.5)Product and distribution costs0.2 Interest income and other,netInterest rates0.3 54.2 0.5(1.5)Interest expenseNet Investment Hedges:Cross-currency swaps32.5 51.2 20.1 10.7 Interest expenseForeign currency debt1.2 137.6 12Table of ContentsPre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized inearnings(in millions):Gains/(Losses)Recognized in EarningsLocation of gain/(loss)recognized in earningsQuarter EndedThree Quarters Ended Jul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Non-Designated Derivatives:DairyInterest income and other,net$(0.1)$0.1$(0.1)$0.2 Foreign currency-otherInterest income and other,net 6.4(10.0)28.2 CoffeeInterest income and other,net(0.2)(5.5)9.1 Diesel fuel and other commoditiesInterest income and other,net(1.0)3.3(2.9)4.0 Fair Value Hedges:Interest rate swapInterest expense(12.2)(11.6)(9.1)(37.7)Long-term debt(hedged item)Interest expense3.4 14.5(12.0)47.5 Notional amounts of outstanding derivative contracts(in millions):Jul 2,2023Oct 2,2022Coffee$373$649 Cross-currency swaps1,092 741 Dairy67 94 Diesel fuel and other commodities24 33 Foreign currency-other1,190 1,269 Interest rate swaps1,100 1,100 Fair value of outstanding derivative contracts(in millions)including the location of the asset and/or liability on the consolidated balance sheets:Derivative AssetsBalance Sheet LocationJul 2,2023Oct 2,2022Designated Derivative Instruments:Cross-currency swapsOther long-term assets$117.3$115.4 DairyPrepaid expenses and other current assets0.1 0.5 Foreign currency-otherPrepaid expenses and other current assets27.3 39.9 Other long-term assets17.4 33.5 Non-designated Derivative Instruments:Diesel fuel and other commoditiesPrepaid expenses and other current assets0.2 0.4 Foreign currencyPrepaid expenses and other current assets6.7 34.3 Other long-term assets 7.3 Derivative LiabilitiesBalance Sheet LocationJul 2,2023Oct 2,2022Designated Derivative Instruments:DairyAccrued liabilities$3.0$2.9 Foreign currency-otherAccrued liabilities5.5 0.3 Other long-term liabilities5.5 Interest rate swapsAccrued liabilities12.9 12.0 Other long-term liabilities37.1 34.0 Non-designated Derivative Instruments:Diesel fuel and other commoditiesAccrued liabilities1.2 Foreign currencyAccrued liabilities2.0 5.8 13Table of ContentsThe following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedgingrelationships(in millions):Carrying amount of hedged itemCumulative amount of fair value hedging adjustmentincluded in the carrying amountJul 2,2023Oct 2,2022Jul 2,2023Oct 2,2022Location on the balance sheetLong-term debt$1,059.7$1,047.7$(40.3)$(52.3)Additional disclosures related to cash flow gains and losses included in AOCI,as well as subsequent reclassifications to earnings,are included in Note 11,Equity.14Table of ContentsNote 4:Fair Value MeasurementsAssets and liabilities measured at fair value on a recurring basis(in millions):Fair Value Measurements at Reporting Date Using Balance atJuly 2,2023Quoted Prices in ActiveMarkets for Identical Assets(Level 1)Significant OtherObservable Inputs(Level 2)Significant Unobservable Inputs(Level 3)Assets:Cash and cash equivalents$3,357.0$3,357.0$Short-term investments:Available-for-sale debt securitiesCorporate debt securities68.4 68.4 U.S.government treasury securities6.9 6.9 Foreign government obligations3.9 3.9 Total available-for-sale debt securities79.2 6.9 72.3 Structured deposits111.1 111.1 Marketable equity securities72.7 72.7 Total short-term investments263.0 79.6 183.4 Prepaid expenses and other current assets:Derivative assets34.3 34.3 Long-term investments:Available-for-sale debt securitiesCorporate debt securities86.3 86.3 Mortgage and other asset-backedsecurities47.5 47.5 State and local government obligations1.3 1.3 U.S.government treasury securities103.5 103.5 Total long-term investments238.6 103.5 135.1 Other long-term assets:Derivative assets134.7 134.7 Total assets$4,027.6$3,540.1$487.5$Liabilities:Accrued liabilities:Derivative liabilities$24.6$24.6$Other long-term liabilities:Derivative liabilities42.6 42.6 Total liabilities$67.2$67.2$15Table of Contents Fair Value Measurements at Reporting Date Using Balance atOctober 2,2022Quoted Prices in ActiveMarkets for Identical Assets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs(Level 3)Assets:Cash and cash equivalents$2,818.4$2,797.3$21.1$Short-term investments:Available-for-sale debt securitiesCorporate debt securities22.4 22.4 U.S.government treasury securities9.3 9.3 Total available-for-sale debt securities31.7 9.3 22.4 Structured deposits275.1 275.1 Marketable equity securities57.7 57.7 Total short-term investments364.5 67.0 297.5 Prepaid expenses and other current assets:Derivative assets75.1 75.1 Long-term investments:Available-for-sale debt securitiesCorporate debt securities134.7 134.7 Foreign government obligations3.8 3.8 Mortgage and other asset-backedsecurities56.5 56.5 State and local government obligations1.3 1.3 U.S.government treasury securities82.8 82.8 Total long-term investments279.1 82.8 196.3 Other long-term assets:Derivative assets156.2 156.2 Total assets$3,693.3$2,947.1$746.2$Liabilities:Accrued liabilities:Derivative liabilities$21.0$21.0$Other long-term liabilities:Derivative liabilities34.0 34.0 Total liabilities$55.0$55.0$There were no material transfers between levels and there was no significant activity within Level 3 instruments during the periods presented.The fair valuesof any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists.Gross unrealized holding gains and losses on available-for-sale debt securities,structured deposits and marketable equity securities were not material as ofJuly 2,2023 and October 2,2022.Assets and Liabilities Measured at Fair Value on a Nonrecurring BasisAssets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property,plantand equipment,ROU assets,goodwill and other intangible assets and other assets.These assets are measured at fair value if determined to be impaired.16Table of ContentsThe estimated fair value of our long-term debt based on the quoted market price(Level 2)is included at Note 8,Debt.There were no material fair valueadjustments during the three quarters ended July 2,2023 and July 3,2022.Note 5:Inventories(in millions):Jul 2,2023Oct 2,2022Coffee:Unroasted$926.7$1,018.6 Roasted270.9 310.3 Other merchandise held for sale345.8 430.9 Packaging and other supplies443.6 416.8 Total$1,987.0$2,176.6 Other merchandise held for sale includes,among other items,serveware,food and tea.Inventory levels vary due to seasonality,commodity market supply andprice fluctuations.As of July 2,2023,we had committed to purchasing green coffee totaling$300.5 million under fixed-price contracts and an estimated$786.0 million underprice-to-be-fixed contracts.A portion of our price-to-be-fixed contracts are effectively fixed through the use of futures.See Note 3,Derivative FinancialInstruments,for further discussion.Price-to-be-fixed contracts are purchase commitments whereby the quality,quantity,delivery period and other negotiatedterms are agreed upon,but the date,and therefore the price,at which the base“C”coffee commodity price component will be fixed has not yet beenestablished.For most contracts,either Starbucks or the seller has the option to“fix”the base“C”coffee commodity price prior to the delivery date.For othercontracts,Starbucks and the seller may agree upon pricing parameters determined by the base“C”coffee commodity price.Until prices are fixed,we estimatethe total cost of these purchase commitments.We believe,based on established relationships with our suppliers and continuous monitoring,the risk of non-delivery on these purchase commitments is remote.Note 6:Supplemental Balance Sheet and Statement of Earnings Information(in millions):Property,Plant and Equipment,netJul 2,2023Oct 2,2022Land$46.1$46.1 Buildings622.7 555.4 Leasehold improvements9,731.5 9,066.8 Store equipment3,203.9 3,018.2 Roasting equipment829.1 838.5 Furniture,fixtures and other1,578.0 1,526.1 Work in progress729.9 558.7 Property,plant and equipment,gross16,741.2 15,609.8 Accumulated depreciation(9,687.7)(9,049.3)Property,plant and equipment,net$7,053.5$6,560.5 Accrued LiabilitiesJul 2,2023Oct 2,2022Accrued occupancy costs$82.3$84.6 Accrued dividends payable607.0 608.3 Accrued capital and other operating expenditures737.2 878.1 Self-insurance reserves255.1 232.3 Income taxes payable184.2 139.2 Accrued business taxes194.7 194.6 Total accrued liabilities$2,060.5$2,137.1 17Table of ContentsStore Operating ExpensesQuarter EndedThree Quarters EndedJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Wages and benefits$2,185.7$1,983.0$6,575.6$6,012.0 Occupancy costs727.4 652.9 2,102.2 1,983.1 Other expenses784.5 666.6 2,321.1 2,022.0 Total store operating expenses$3,697.6$3,302.5$10,998.9$10,017.1 Note 7:Other Intangible Assets and GoodwillIndefinite-Lived Intangible Assets(in millions)Jul 2,2023Oct 2,2022Trade names,trademarks and patents$79.1$97.5 Finite-Lived Intangible AssetsJul 2,2023Oct 2,2022(in millions)Gross CarryingAmountAccumulatedAmortizationNet CarryingAmountGross CarryingAmountAccumulatedAmortizationNet CarryingAmountAcquired and reacquired rights$966.5$(966.5)$990.0$(990.0)$Acquired trade secrets and processes27.6(27.6)27.6(27.3)0.3 Trade names,trademarks and patents130.2(87.2)43.0 124.6(69.6)55.0 Licensing agreements16.9(14.6)2.3 19.3(16.2)3.1 Other finite-lived intangible assets20.3(20.3)20.6(20.6)Total finite-lived intangible assets$1,161.5$(1,116.2)$45.3$1,182.1$(1,123.7)$58.4 Amortization expense for finite-lived intangible assets was$5.4 million and$16.4 million for the quarter and three quarters ended July 2,2023,respectively,and$47.6 million and$147.0 million for the quarter and three quarters ended July 3,2022,respectively.Estimated future amortization expense as of July 2,2023(in millions):Fiscal YearTotal2023(excluding the three quarters ended July 2,2023)$5.0 202419.7 202514.0 20262.0 20271.7 Thereafter2.9 Total estimated future amortization expense$45.3 GoodwillChanges in the carrying amount of goodwill by reportable operating segment(in millions):North AmericaInternationalChannel DevelopmentCorporate and OtherTotalGoodwill balance at October 2,2022$491.1$2,756.7$34.7$1.0$3,283.5 Other0.9(33.5)(32.6)Goodwill balance at July 2,2023$492.0$2,723.2$34.7$1.0$3,250.9“Other”consists of changes in the goodwill balance resulting from foreign currency translation.(1)(1)18Table of ContentsNote 8:DebtRevolving Credit FacilityOur$3.0 billion unsecured five-year revolving credit facility(the“2021 credit facility”),of which$150.0 million may be used for issuances of letters of credit,is currently set to mature on September 16,2026.The 2021 credit facility is available for working capital,capital expenditures and other corporate purposes,including acquisitions and share repurchases.We have the option,subject to negotiation and agreement with the related banks,to increase the maximumcommitment amount by an additional$1.0 billion.Borrowings under the 2021 credit facility,which was most recently amended in April 2023,will bear interest at a variable rate based on Term SOFR,and,forU.S.dollar-denominated loans under certain circumstances,a Base Rate(as defined in the 2021 credit facility),in each case plus an applicable margin.Theapplicable margin is based on the Companys long-term credit ratings assigned by the Moodys and Standard&Poors rating agencies.The“Base Rate”is thehighest of(i)the Federal Funds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americas prime rate,and(iii)Term SOFR plus 1.000%.Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plus a SOFR Adjustment of 0.100%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants,including a minimum fixed charge coverage ratio,which measures our ability to cover financing expenses.As of July 2,2023,we were in compliance with all applicable covenants.No amounts wereoutstanding under our 2021 credit facility as of July 2,2023 or October 2,2022.Short-term DebtUnder our commercial paper program,we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0billion,with individual maturities that may vary but not exceed 397 days from the date of issue.Amounts outstanding under the commercial paper program arerequired to be backstopped by available commitments under our 2021 credit facility.The proceeds from borrowings under our commercial paper program maybe used for working capital needs,capital expenditures and other corporate purposes,including,but not limited to,business expansion,payment of cashdividends on our common stock and share repurchases.As of July 2,2023,we had no borrowings outstanding under the program.As of October 2,2022,wehad$175.0 million in borrowings outstanding under this program.Additionally,we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within ourJapanese market:A 5 billion,or$34.5 million,credit facility is currently set to mature on January 4,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on Tokyo Interbank Offered Rate(TIBOR)plus an applicable margin of0.400%.A 10 billion,or$69.1 million,credit facility is currently set to mature on March 27,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.As of July 2,2023,we had 5 billion,or$34.5 million,of borrowings outstanding under these credit facilities.As of October 2,2022,we had no borrowingsoutstanding under these credit facilities.19Table of ContentsLong-term DebtComponents of long-term debt including the associated interest rates and related estimated fair values by calendar maturity(in millions,except interest rates):Jul 2,2023Oct 2,2022Stated Interest RateEffective InterestRateIssuanceAmountEstimated FairValueAmountEstimated FairValueMarch 2023 notes$1,000.0$996.5 3.100%3.107%October 2023 notes750.0 747.1 750.0 744.8 3.850%2.859bruary 2024 notes500.0 500.4 500.0 497.3 5.600%5.830%March 2024 notes587.2 586.9 588.4 584.7 0.372%0.462%August 2025 notes1,250.0 1,209.1 1,250.0 1,209.6 3.800%3.721bruary 2026 notes1,000.0 990.0 4.750%4.788%June 2026 notes500.0 464.6 500.0 458.3 2.450%2.511%March 2027 notes500.0 449.5 500.0 437.9 2.000%2.058%March 2028 notes600.0 563.2 600.0 554.8 3.500%3.529%November 2028 notes750.0 719.0 750.0 704.7 4.000%3.958%August 2029 notes1,000.0 931.1 1,000.0 900.3 3.550%3.840%March 2030 notes750.0 634.4 750.0 607.7 2.250%3.084%November 2030 notes1,250.0 1,061.2 1,250.0 1,017.9 2.550%2.582bruary 2032 notes1,000.0 864.9 1,000.0 827.1 3.000%3.155bruary 2033 notes500.0 493.1 4.800%3.798%June 2045 notes350.0 304.5 350.0 281.5 4.300%4.348cember 2047 notes500.0 393.5 500.0 369.6 3.750%3.765%November 2048 notes1,000.0 890.3 1,000.0 824.6 4.500%4.504%August 2049 notes1,000.0 881.3 1,000.0 817.8 4.450%4.447%March 2050 notes500.0 367.5 500.0 342.0 3.350%3.362%November 2050 notes1,250.0 945.2 1,250.0 874.9 3.500%3.528%Total15,537.2 13,996.8 15,038.4 13,052.0 Aggregate debt issuance costs andunamortized premium/(discount),net(116.6)(117.2)Hedge accounting fair value adjustment(40.3)(52.3)Total$15,380.3$14,868.9 Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-startinginterest rate swaps utilized to hedge interest rate risk prior to the debt issuance.Amount includes the change in fair value due to changes in benchmark interest rates related to hedging our October 2023 notes and$350 million of ourAugust 2029 notes.Refer to Note 3,Derivative Financial Instruments,for additional information on our interest rate swaps designated as fair value hedges.Floating rate notes which bear interest at a rate equal to Compounded SOFR(as defined in the February 2024 notes)plus 0.420%,resulting in a statedinterest rate of 5.600%at July 2,2023.Japanese yen-denominated long-term debt.(1)(2)(3)(4)(2)(2)(1)(2)(3)(4)20Table of ContentsThe following table summarizes our long-term debt maturities as of July 2,2023 by fiscal year(in millions):Fiscal YearTotal2023$750.0 20241,087.2 20251,250.0 20261,500.0 2027500.0 Thereafter10,450.0 Total$15,537.2 Note 9:LeasesThe components of lease costs(in millions):Quarter EndedThree Quarters EndedJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Operating lease costs$401.6$386.5$1,188.2$1,166.0 Variable lease costs264.1 221.5 753.3 687.1 Short-term lease costs7.0 6.9 20.9 21.1 Total lease costs$672.7$614.9$1,962.4$1,874.2 Includes immaterial amounts of sublease income and rent concessions.The following table includes supplemental information(in millions):Three Quarters EndedJul 2,2023Jul 3,2022Cash paid related to operating lease liabilities$1,234.8$1,248.7 Operating lease liabilities arising from obtaining ROU assets1,245.5 1,121.6 Jul 2,2023Jul 3,2022Weighted-average remaining operating lease term8.5 years8.5 yearsWeighted-average operating lease discount rate3.0%2.5%Finance lease assets are recorded in property,plant and equipment,net with the corresponding lease liabilities included in accrued liabilities and other long-term liabilities on the consolidated balance sheet.There were no material finance leases as of July 2,2023 and October 2,2022.Minimum future maturities of operating lease liabilities(in millions):Fiscal YearTotal2023(excluding the three quarters ended July 2,2023)$384.8 20241,527.5 20251,458.8 20261,313.8 20271,128.2 Thereafter4,428.2 Total lease payments10,241.3 Less imputed interest(1,284.9)Total$8,956.4 As of July 2,2023,we have entered into operating leases that have not yet commenced of$1.4 billion,primarily related to real estate leases.These leases willcommence between fiscal year 2023 and fiscal year 2026 with lease terms ranging from two to twenty years.(1)(1)21Table of ContentsNote 10:Deferred RevenueOur deferred revenue primarily consists of the prepaid royalty from Nestl,for which we have continuing performance obligations to support the Global CoffeeAlliance,our unredeemed stored value card liability and unredeemed loyalty points(“Stars”)associated with our loyalty program.As of July 2,2023,the current and long-term deferred revenue related to Nestl was$177.0 million and$6.0 billion,respectively.As of October 2,2022,thecurrent and long-term deferred revenue related to the Nestl up-front payment was$177.0 million and$6.2 billion,respectively.During the quarter and threequarters ended July 2,2023,we recognized$44.1 million and$132.3 million of prepaid royalty revenue related to Nestl.During the quarter and three quartersended July 3,2022,we recognized$44.1 million and$132.5 million of prepaid royalty revenue related to Nestl.Changes in our deferred revenue balance related to our stored value cards and loyalty program(in millions):Quarter Ended July 2,2023TotalStored value cards and loyalty program at April 2,2023$1,664.5 Revenue deferred-card activations,card reloads and Stars earned3,641.3 Revenue recognized-card and Stars redemptions and breakage(3,662.9)Other(14.7)Stored value cards and loyalty program at July 2,2023$1,628.2 Quarter Ended July 3,2022TotalStored value cards and loyalty program at April 3,2022$1,645.2 Revenue deferred-card activations,card reloads and Stars earned3,282.6 Revenue recognized-card and Stars redemptions and breakage(3,312.3)Other(21.7)Stored value cards and loyalty program at July 3,2022$1,593.8 Three Quarters Ended July 2,2023TotalStored value cards and loyalty program at October 2,2022$1,503.0 Revenue deferred-card activations,card reloads and Stars earned11,280.7 Revenue recognized-card and Stars redemptions and breakage(11,155.4)Other(0.1)Stored value cards and loyalty program at July 2,2023$1,628.2 Three Quarters Ended July 3,2022TotalStored value cards and loyalty program at October 3,2021$1,448.5 Revenue deferred-card activations,card reloads and Stars earned10,324.1 Revenue recognized-card and Stars redemptions and breakage(10,149.4)Other(29.4)Stored value cards and loyalty program at July 3,2022$1,593.8“Other”primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation.As of July 2,2023 and July 3,2022,approximately$1.5 billion and$1.5 billion of these amounts were current,respectively.(1)(2)(1)(2)(1)(2)(1)(2)(1)(2)22Table of ContentsNote 11:EquityChanges in AOCI by component,net of tax(in millions):Quarter Ended Available-for-SaleDebt Securities Cash FlowHedges Net InvestmentHedgesTranslationAdjustment andOtherTotalJuly 2,2023Net gains/(losses)in AOCI,beginning of period$(10.9)$(88.1)$149.6$(572.2)$(521.6)Net gains/(losses)recognized in OCI before reclassifications(1.7)0.8 75.5(317.4)(242.8)Net(gains)/losses reclassified from AOCI to earnings0.2(6.8)(5.8)(12.4)Other comprehensive income/(loss)attributable to Starbucks(1.5)(6.0)69.7(317.4)(255.2)Other comprehensive income/(loss)attributable to NCI (0.7)(0.7)Net gains/(losses)in AOCI,end of period$(12.4)$(94.1)$219.3$(890.3)$(777.5)July 3,2022Net gains/(losses)in AOCI,beginning of period$(9.0)$251.7$103.0$(85.4)$260.3 Net gains/(losses)recognized in OCI before reclassifications(1.6)41.0 81.6(396.9)(275.9)Net(gains)/losses reclassified from AOCI to earnings0.1(46.7)(2.8)(49.4)Other comprehensive income/(loss)attributable to Starbucks(1.5)(5.7)78.8(396.9)(325.3)Net gains/(losses)in AOCI,end of period$(10.5)$246.0$181.8$(482.3)$(65.0)Three Quarters EndedAvailable-for-SaleDebt SecuritiesCash FlowHedgesNet InvestmentHedgesTranslationAdjustment andOtherTotalJuly 2,2023Net gains/(losses)in AOCI,beginning of period$(15.5)$199.0$209.1$(855.8)$(463.2)Net gains/(losses)recognized in OCI before reclassifications2.6(151.5)25.2(33.8)(157.5)Net(gains)/losses reclassified from AOCI to earnings0.5(141.6)(15.0)(156.1)Other comprehensive income/(loss)attributable to Starbucks3.1(293.1)10.2(33.8)(313.6)Other comprehensive income/(loss)attributable to NCI (0.7)(0.7)Net gains/(losses)in AOCI,end of period$(12.4)$(94.1)$219.3$(890.3)$(777.5)July 3,2022Net gains/(losses)in AOCI,beginning of period$1.5$158.3$48.6$(61.2)$147.2 Net gains/(losses)recognized in OCI before reclassifications(12.1)170.8 141.1(421.2)(121.4)Net(gains)/losses reclassified from AOCI to earnings0.1(83.1)(7.9)0.1(90.8)Other comprehensive income/(loss)attributable to Starbucks(12.0)87.7 133.2(421.1)(212.2)Net gains/(losses)in AOCI,end of period$(10.5)$246.0$181.8$(482.3)$(65.0)23Table of ContentsImpact of reclassifications from AOCI on the consolidated statements of earnings(in millions):Quarter EndedAOCIComponentsAmounts Reclassified from AOCIAffected Line Item inthe Statements of EarningsJul 2,2023Jul 3,2022Gains/(losses)on available-for-sale debt securities$(0.1)$(0.2)Interest income and other,netGains/(losses)on cash flow hedges8.8 55.6 Please refer to Note 3,Derivative Financial Instrumentsfor additional information.Gains/(losses)on net investment hedges7.8 3.8 Interest expense16.5 59.2 Total before tax(4.1)(9.8)Tax expense$12.4$49.4 Net of taxThree Quarters EndedAOCIComponentsAmounts Reclassified from AOCIAffected Line Item inthe Statements of EarningsJul 2,2023Jul 3,2022Gains/(losses)on available-for-sale debt securities$(0.5)$(0.2)Interest income and other,netGains/(losses)on cash flow hedges161.9 99.0 Please refer to Note 3,Derivative Financial Instrumentsfor additional information.Gains/(losses)on net investment hedges20.1 10.7 Interest expense181.5 109.5 Total before tax(25.4)(18.7)Tax expense$156.1$90.8 Net of taxIn addition to 2.4 billion shares of authorized common stock with$0.001 par value per share,the Company has authorized 7.5 million shares of preferred stock,none of which was outstanding as of July 2,2023.During the three quarters ended July 2,2023 and July 3,2022,we repurchased 6.9 million and 36.3 million shares of common stock for$699.3 million and$4.0 billion,respectively.As of July 2,2023,45.7 million shares remained available for repurchase under current authorizations.During the third quarter of fiscal 2023,our Board of Directors approved a quarterly cash dividend to shareholders of$0.53 per share to be paid on August 25,2023 to shareholders of record as of the close of business on August 11,2023.Note 12:Employee Stock PlansAs of July 2,2023,there were 92.5 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 10.4million shares available for issuance under our employee stock purchase plan.Stock-based compensation expense recognized in the consolidated statements of earnings(in millions):Quarter EndedThree Quarters Ended Jul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Restricted Stock Units(“RSUs”)$69.1$57.4$228.3$207.2 Options0.1(0.1)0.2(0.6)Total stock-based compensation expense$69.2$57.3$228.5$206.6 Stock option and RSU transactions from October 2,2022 through July 2,2023(in millions):Stock OptionsRSUsOptions outstanding/Nonvested RSUs,October 2,20224.1 7.0 Granted 4.3 Options exercised/RSUs vested(2.0)(2.9)Forfeited/expired0.0(0.9)Options outstanding/Nonvested RSUs,July 2,20232.1 7.5 Total unrecognized stock-based compensation expense,net of estimated forfeitures,as of July 2,2023$223.9 24Table of ContentsNote 13:Earnings per ShareCalculation of net earnings per common share(“EPS”)basic and diluted(in millions,except EPS):Quarter EndedThree Quarters EndedJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Net earnings attributable to Starbucks$1,141.7$912.9$2,905.2$2,403.3 Weighted average common shares outstanding(for basiccalculation)1,145.9 1,147.0 1,147.6 1,155.3 Dilutive effect of outstanding common stock options andRSUs4.6 4.0 4.4 5.2 Weighted average common and common equivalent sharesoutstanding(for diluted calculation)1,150.5 1,151.0 1,152.0 1,160.5 EPS basic$1.00$0.80$2.53$2.08 EPS diluted$0.99$0.79$2.52$2.07 Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options(both vested and non-vested)andunvested RSUs,calculated using the treasury stock method.The calculation of dilutive shares outstanding excludes anti-dilutive stock options or unvestedRSUs,which were immaterial in the periods presented.Note 14:Commitments and ContingenciesLegal ProceedingsStarbucks is involved in various legal proceedings arising in the ordinary course of business,including certain employment litigation cases that have beencertified as class or collective actions,but is not currently a party to any legal proceeding that management believes could have a material adverse effect on ourconsolidated financial position,results of operations or cash flows.Note 15:Segment ReportingSegment information is prepared on the same basis that our chief executive officer,who is our chief operating decision maker,manages the segments,evaluatesfinancial results and makes key operating decisions.Consolidated revenue mix by product type(in millions):Quarter EndedThree Quarters EndedJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Beverage$5,587.9 61%$4,944.6 61%$15,988.9 60%$14,442.9 61%Food1,704.5 19%1,472.0 18%4,861.0 18%4,271.5 18%Other1,875.9 20%1,733.5 21%5,752.1 22%5,121.7 21%Total$9,168.3 100%$8,150.1 100%$26,602.0 100%$23,836.1 100verage represents sales within our company-operated stores.Food includes sales within our company-operated stores.Other primarily consists of packaged and single-serve coffees and teas,royalty and licensing revenues,beverage-related ingredients and serveware,amongother items.(1)(2)(3)(1)(2)(3)25Table of ContentsThe tables below present financial information for our reportable operating segments and Corporate and Other segment(in millions):Quarter EndedNorth AmericaInternationalChannelDevelopmentCorporate and OtherTotalJuly 2,2023Total net revenues$6,737.8$1,972.9$448.8$8.8$9,168.3 Depreciation and amortization expenses230.4 83.1 0.0 28.7 342.2 Income from equity investees 0.8 68.9 69.7 Operating income/(loss)1,463.9 374.5 208.0(462.5)1,583.9 July 3,2022Total net revenues$6,058.4$1,584.7$479.7$27.3$8,150.1 Depreciation and amortization expenses201.2 125.0 0.0 30.6 356.8 Income from equity investees 0.4 53.7 54.1 Operating income/(loss)1,330.1 135.3 191.7(361.6)1,295.5 Three Quarters EndedNorth AmericaInternationalChannelDevelopmentCorporate and OtherTotalJuly 2,2023Total net revenues$19,669.7$5,507.8$1,407.7$16.8$26,602.0 Depreciation and amortization expenses673.5 250.8 0.1 86.8 1,011.2 Income from equity investees 2.0 177.0 179.0 Operating income/(loss)3,894.3 929.6 696.4(1,355.7)4,164.6 July 3,2022Total net revenues$17,236.4$5,163.1$1,359.9$76.7$23,836.1 Depreciation and amortization expenses603.2 391.4 0.1 95.8 1,090.5 Income from equity investees 1.6 141.9 143.5 Operating income/(loss)3,344.8 615.7 572.7(1,110.9)3,422.3 26Table of ContentsItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsCAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995Certain statements contained herein are“forward-looking”statements within the meaning of applicable securities laws and regulations.Generally,thesestatements can be identified by the use of words such as“aim,”“anticipate,”“believe,”“continue,”“could,”“estimate,”“expect,”“feel,”“forecast,”“intend,”“may,”“outlook,”“plan,”“potential,”“predict,”“project,”“seek,”“should,”“will,”“would,”and similar expressions intended to identifyforward-looking statements,although not all forward-looking statements contain these identifying words.By their nature,forward-looking statements involverisks,uncertainties,and other factors(many beyond our control)that could cause our actual results to differ materially from our historical experience or fromour current expectations or projections.Our forward-looking statements,and the risks and uncertainties related thereto,include,but are not limited to,thosedescribed under the“Risk Factors”and“Managements Discussion and Analysis of Financial Condition and Results of Operations”sections of the companysmost recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings with the SEC,as well as:our ability to preserve,grow and leverage our brands;the acceptance of the companys products and changes in consumer preferences,consumption,or spending behavior and our ability to anticipate orreact to them;shifts in demographic or health and wellness trends;or unfavorable consumer reaction to new products,platforms,reformulations,orother innovations;the costs associated with,and the successful execution and effects of,our existing and any future business opportunities,expansions,initiatives,strategies,investments and plans,including our Reinvention Plan;the impacts of partner investments and changes in the availability and cost of labor including any union organizing efforts and our responses to suchefforts;the ability of our business partners,suppliers and third-party providers to fulfill their responsibilities and commitments;higher costs,lower quality,or unavailability of coffee,dairy,energy,water,raw materials,or product ingredients;the impact of significant increases in logistics costs;unfavorable global or regional economic conditions and related economic slowdowns or recessions,low consumer confidence,high unemployment,weak credit or capital markets,budget deficits,burdensome government debt,austerity measures,higher interest rates,higher taxes,politicalinstability,higher inflation,or deflation;inherent risks of operating a global business including geopolitical considerations related to our business in China and any potential negative effectsstemming from the Russian invasion of Ukraine;failure to attract or retain key executive or partner talent or successfully transition executives;the potential negative effects of incidents involving food or beverage-borne illnesses,tampering,adulteration,contamination or mislabeling;negative publicity related to our company,products,brands,marketing,executive leadership,partners,board of directors,founder,operations,business performance,or prospects;potential negative effects of a material breach,failure,or corruption of our information technology systems or those of our direct and indirectbusiness partners,suppliers or third-party providers,or failure to comply with personal data protection laws;our environmental,social and governance(“ESG”)efforts and any reaction related thereto such as the rise in opposition to ESG and inclusion anddiversity efforts;risks associated with acquisitions,dispositions,business partnerships,or investments such as acquisition integration,termination difficulties orcosts or impairment in recorded value;the impact of foreign currency translation,particularly a stronger U.S.dollar;the impact of substantial competition from new entrants,consolidations by competitors,and other competitive activities,such as pricing actions(including price reductions,promotions,discounting,couponing,or free goods),marketing,category expansion,product introductions,or entry orexpansion in our geographic markets;the impact of changes in U.S.tax law and related guidance and regulations that may be implemented,including on tax rates and the InflationReduction Act of 2022;the impact of health epidemics,pandemics or other public health events on our business and financial results,and the risk of negative economicimpacts and related regulatory measures or voluntary actions that may be put in place,including restrictions on business operations or socialdistancing requirements,and the duration and efficacy of such restrictions;failure to comply with anti-corruption laws,trade sanctions and restrictions or similar laws or regulations;andthe impact of significant legal disputes and proceedings,or government investigations.A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances,and those future events or circumstances may not occur.You should not place undue reliance on the forward-looking statements,which speak only as of the date of this report.We are under no obligation to update oralter any forward-looking statements,whether as a result of new information,future events or otherwise.This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the auditedconsolidated financial statements and notes,and Managements Discussion and Analysis of Financial Condition and Results of Operations(“MD&A”),contained in the 10-K filed with the SEC on November 18,2022.27Table of ContentsIntroduction and OverviewStarbucks is the premier roaster,marketer and retailer of specialty coffee in the world,operating in 86 markets.As of July 2,2023,Starbucks had more than37,200 company-operated and licensed stores,an increase of 7%from the prior year.Additionally,we sell a variety of consumer-packaged goods,primarilythrough the Global Coffee Alliance established with Nestl and other partnerships and joint ventures.We have three reportable operating segments:1)North America,which is inclusive of the U.S.and Canada,2)International,which is inclusive of China,Japan,Asia Pacific,Europe,Middle East,Africa,Latin America and the Caribbean;and 3)Channel Development.Non-reportable operating segments and unallocatedcorporate expenses are reported within Corporate and Other.We believe our financial results and long-term growth model will continue to be driven by new store openings,comparable store sales growth and operatingmargin management,underpinned by disciplined capital allocation.We believe these key operating metrics are useful to investors because management usesthese metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.Throughout this MD&A,we commonlydiscuss the following key operating metrics:New store openings and store countComparable store sales growthOperating marginComparable store sales growth represents the percentage change in sales in one period from the same prior year period for company-operated stores open for13 months or longer and exclude the impact of foreign currency translation.We analyze comparable store sales growth on a constant currency basis as thishelps identify underlying business trends,without distortion from the effects of currency movements.Stores that are temporarily closed or operating at reducedhours due to the COVID-19 pandemic remain in comparable store sales while stores identified for permanent closure have been removed.Our fiscal year ends on the Sunday closest to September 30.Fiscal 2023 and 2022 include 52 weeks.All references to store counts,including data for new storeopenings,are reported net of store closures,unless otherwise noted.Starbucks results for the third quarter of fiscal 2023 demonstrate the overall strength of our brand.Consolidated net revenues increased 12%to$9.2 billion inthe third quarter of fiscal 2023 compared to$8.2 billion in the third quarter of fiscal 2022,primarily driven by strength in our U.S.business and internationallicensed markets as well as continued recovery from COVID-19 pandemic-related business interruptions in China.During the quarter ended July 2,2023,ourglobal comparable store sales grew 10%,primarily driven by 7%growth in the U.S.market and 24%growth internationally,demonstrating the strength of theStarbucks brand globally.Consolidated operating margin increased 140 basis points from the prior year to 17.3%,primarily driven by sales leverage,pricingand productivity improvement from increased efficiency in our U.S.stores.These were partially offset by previously-committed investments in labor,includingenhancements in retail store partner wages and benefits as well as increased general and administrative costs related to our Reinvention Plan.Results of Operations(in millions)Revenues Quarter EndedThree Quarters EndedJul 2,2023Jul 3,2022$Change%ChangeJul 2,2023Jul 3,2022$Change%ChangeCompany-operated stores$7,556.7$6,675.5$881.2 13.2%$21,782.4$19,674.7$2,107.7 10.7%Licensed stores1,136.2 956.8 179.4 18.8 3,325.2 2,657.0 668.2 25.1 Other475.4 517.8(42.4)(8.2)1,494.4 1,504.4(10.0)(0.7)Total net revenues$9,168.3$8,150.1$1,018.2 12.5%$26,602.0$23,836.1$2,765.9 11.6%For the quarter ended July 2,2023 compared with the quarter ended July 3,2022Total net revenues for the third quarter of fiscal 2023 increased$1.0 billion,primarily due to higher revenues from company-operated stores($881 million).The growth of company-operated stores revenue was driven by a 10%increase in comparable store sales($632 million),attributable to a 5%increase incomparable transactions and a 4%increase in average ticket.Also contributing was incremental revenues from 1,265 net new Starbucks company-operatedstores,or a 7%increase,over the past 12 months($336 million).Partially offsetting these increases was unfavorable foreign currency translation($96 million).Licensed stores revenue increased$179 million contributing to the increase in total net revenues,driven by higher product and equipment sales to and royaltyrevenues from our licensees($185 million).Other revenues decreased$42 million,primarily due to a decline in revenue in the Global Coffee Alliance($31 million)and the absence of revenues from theEvolution Fresh business following its sale in the fourth quarter of fiscal 2022($18 million).28Table of ContentsFor the three quarters ended July 2,2023 compared with the three quarters ended July 3,2022Total net revenues for the first three quarters of fiscal 2023 increased$2.8 billion,primarily due to higher revenues from company-operated stores($2.1billion).The growth of company-operated stores revenue was driven by a 9%increase in comparable store sales($1.6 billion)attributed to a 5%increase inaverage ticket and a 3%increase in transactions.Also contributing to the increase were incremental revenues from 1,265 net new Starbuckscompany-operatedstores,or a 7%increase,over the past 12 months($907 million).Partially offsetting these increases was unfavorable foreign currency translation($484million).Licensed stores revenue increased$668 million contributing to the increase in total net revenues,driven by higher product and equipment sales to and royaltyrevenues from our licensees($716 million).Partially offsetting this increase was unfavorable foreign currency translation($66 million).Other revenues decreased$10 million,primarily due to the absence of revenues from the Evolution Fresh business following its sale in the fourth quarter offiscal 2022($55 million),partially offset by an increase in revenue in the Global Coffee Alliance($32 million).Operating Expenses Quarter EndedThree Quarters EndedJul 2,2023Jul 3,2022$ChangeJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022$ChangeJul 2,2023Jul 3,2022As a%ofTotal Net RevenuesAs a%ofTotal Net RevenuesProduct and distributioncosts$2,864.2$2,613.6$250.6 31.22.1%$8,476.1$7,606.4$869.7 31.91.9%Store operating expenses3,697.6 3,302.5 395.1 40.3 40.5 10,998.9 10,017.1 981.8 41.3 42.0 Other operating expenses138.7 135.1 3.6 1.5 1.7 394.1 338.4 55.7 1.5 1.4 Depreciation andamortization expenses342.2 356.8(14.6)3.7 4.4 1,011.2 1,090.5(79.3)3.8 4.6 General andadministrative expenses604.3 486.7 117.6 6.6 6.0 1,805.6 1,494.0 311.6 6.8 6.3 Restructuring andimpairments7.1 14.0(6.9)0.1 0.2 21.8 10.9 10.9 0.1 0.0 Total operating expenses7,654.1 6,908.7 745.4 83.5 84.8 22,707.7 20,557.3 2,150.4 85.4 86.2 Income from equityinvestees69.7 54.1 15.6 0.8 0.7 179.0 143.5 35.5 0.7 0.6 Gain from sale of assets 91.3 91.3 0.3 Operating income$1,583.9$1,295.5$288.4 17.3.9%$4,164.6$3,422.3$742.3 15.7.4%Store operating expenses as a%of company-operated stores revenue48.9I.5P.5P.9%For the quarter ended July 2,2023 compared with the quarter ended July 3,2022Product and distribution costs as a percentage of total net revenues decreased 90 basis points for the third quarter of fiscal 2023,primarily due to pricing.Store operating expenses as a percentage of total net revenues decreased 20 basis points for the third quarter of fiscal 2023.Store operating expenses as apercentage of company-operated stores revenue decreased 60 basis points,primarily due to sales leverage(approximately 250 basis points)and productivityimprovement(approximately 190 basis points).These were partially offset by previously-committed investments in labor,including enhancements in retailstore partner wages and benefits(approximately 340 basis points)and increased spend on partner training(approximately 50 basis points).Depreciation and amortization expenses as a percentage of total net revenues decreased 70 basis points,primarily due to lapping amortization expenses ofacquisition-related intangibles assets that are now fully amortized.General and administrative expenses increased$118 million,primarily due to incremental investments in technology($38 million),increased support costs ofstrategic initiatives including the Reinvention Plan($27 million),higher performance-based compensation($20 million)and a donation to the StarbucksFoundation($15 million).29Table of ContentsIncome from equity investees increased$16 million,primarily due to higher income from our North American Coffee Partnership joint venture.The combination of these changes resulted in an overall increase in operating margin of 140 basis points for the third quarter of fiscal 2023.For the three quarters ended July 2,2023 compared with the three quarters ended July 3,2022Store operating expenses as a percentage of total net revenues decreased 70 basis points for the first three quarters of fiscal 2023.Store operating expenses as apercentage of company-operated stores revenue decreased 40 basis points,primarily due to pricing(approximately 180 basis points),sales leverage(approximately 160 basis points)and productivity improvement(approximately 130 basis points).These were partially offset by previously-committedinvestments in labor,including enhancements in retail store partner wages and benefits(approximately 340 basis points)and increased spend on partnertraining(approximately 50 basis points).Other operating expenses increased$56 million for the first three quarters of fiscal 2023,primarily due to higher strategic investments in technology and otherinitiatives($21 million)and support costs for our growing licensed markets($21 million).Depreciation and amortization expenses as a percentage of total net revenues decreased 80 basis points,primarily due to lapping amortization expenses ofacquisition-related intangibles assets that are now fully amortized.General and administrative expenses increased$312 million,primarily due to incremental investments in technology($103 million),increased support costs ofstrategic initiatives including the Reinvention Plan($57 million),higher performance-based compensation($45 million),donations to the StarbucksFoundation($30 million)and other labor and leadership support costs($26 million).Income from equity investees increased$36 million,primarily due to higher income from our North American Coffee Partnership joint venture.Gain from sale of assets includes the sale of our Seattles Best Coffee brand to Nestl in the second quarter of fiscal 2023.The combination of these changes resulted in an overall increase in operating margin of 130 basis points for the first three quarters of fiscal 2023.30Table of ContentsOther Income and Expenses Quarter EndedThree Quarters EndedJul 2,2023Jul 3,2022$ChangeJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022$ChangeJul 2,2023Jul 3,2022As a%of TotalNet RevenuesAs a%of TotalNet RevenuesOperating income$1,583.9$1,295.5$288.4 17.3.9%$4,164.6$3,422.3$742.3 15.7.4%Interest income and other,net21.3 19.8 1.5 0.2 0.2 51.1 66.0(14.9)0.2 0.3 Interest expense(140.9)(123.1)(17.8)(1.5)(1.5)(406.9)(357.6)(49.3)(1.5)(1.5)Earnings before incometaxes1,464.3 1,192.2 272.1 16.0 14.6 3,808.8 3,130.7 678.1 14.3 13.1 Income tax expense322.4 278.5 43.9 3.5 3.4 903.4 725.9 177.5 3.4 3.0 Net earnings includingnoncontrolling interests1,141.9 913.7 228.2 12.5 11.2 2,905.4 2,404.8 500.6 10.9 10.1 Net earningsattributable tononcontrolling interests0.2 0.8(0.6)0.0 0.0 0.2 1.5(1.3)0.0 0.0 Net earningsattributable toStarbucks$1,141.7$912.9$228.8 12.5.2%$2,905.2$2,403.3$501.9 10.9.1fective tax rate includingnoncontrolling interests22.0#.4#.7#.2%For the quarter ended July 2,2023 compared with the quarter ended July 3,2022Interest expense increased$18 million,primarily due to higher debt balances and a rising interest rate environment.The effective tax rate for the quarter ended July 2,2023 was 22.0%compared to 23.4%for the same period in fiscal 2022.The decrease was primarily due tothe release of valuation allowances recorded against certain deferred tax assets of an international jurisdiction(approximately 300 basis points),partially offsetby lapping beneficial valuation allowance activity from the prior year.For the three quarters ended July 2,2023 compared with the three quarters ended July 3,2022Interest income and other,net decreased$15 million,primarily due to lapping higher investment gains in the prior year.Interest expense increased$49 million,primarily due to higher debt balances and a rising interest rate environment.The effective tax rate for the first three quarters ended July 2,2023 was 23.7%compared to 23.2%for the same period in fiscal 2022.The increase wasprimarily due to lapping a beneficial return-to-provision adjustment recorded related to the divestiture of certain joint venture operations(approximately 70basis points)and a decrease in stock-based compensation excess tax benefits(approximately 50 basis points),offset by the release of valuation allowancesrecorded against certain deferred tax assets of an international jurisdiction(approximately 120 basis points).31Table of ContentsSegment InformationResults of operations by segment(in millions):North America Quarter EndedThree Quarters EndedJul 2,2023Jul 3,2022$ChangeJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022$ChangeJul 2,2023Jul 3,2022As a%of North AmericaTotal Net RevenuesAs a%of North AmericaTotal Net RevenuesNet revenues:Company-operatedstores$6,080.6$5,513.2$567.4 90.2.0%$17,693.9$15,663.6$2,030.3 90.0.9%Licensed stores655.8 544.2 111.6 9.7 9.0 1,973.2 1,567.1 406.1 10.0 9.1 Other1.4 1.0 0.4 0.0 0.0 2.6 5.7(3.1)0.0 0.0 Total net revenues6,737.8 6,058.4 679.4 100.0 100.0 19,669.7 17,236.4 2,433.3 100.0 100.0 Product and distributioncosts1,885.4 1,713.2 172.2 28.0 28.3 5,624.7 4,906.5 718.2 28.6 28.5 Store operating expenses2,990.1 2,670.0 320.1 44.4 44.1 8,973.2 7,997.8 975.4 45.6 46.4 Other operating expenses67.8 55.4 12.4 1.0 0.9 196.7 150.7 46.0 1.0 0.9 Depreciation andamortization expenses230.4 201.2 29.2 3.4 3.3 673.5 603.2 70.3 3.4 3.5 General andadministrative expenses93.1 76.5 16.6 1.4 1.3 286.6 224.5 62.1 1.5 1.3 Restructuring andimpairments7.1 12.0(4.9)0.1 0.2 20.7 8.9 11.8 0.1 0.1 Total operating expenses5,273.9 4,728.3 545.6 78.3 78.0 15,775.4 13,891.6 1,883.8 80.2 80.6 Operating income$1,463.9$1,330.1$133.8 21.7.0%$3,894.3$3,344.8$549.5 19.8.4%Store operating expenses as a%ofcompany-operated stores revenue49.2H.4P.7Q.1%For the quarter ended July 2,2023 compared with the quarter ended July 3,2022RevenuesNorth America total net revenues for the third quarter of fiscal 2023 increased$679 million,or 11%,primarily due to a 7%increase in comparable store sales($379 million)driven by a 6%increase in average ticket and a 1%increase in transactions.Also contributing to these increases were the performance of netnew company-operated store openings over the past 12 months($206 million)and higher product and equipment sales to and royalty revenues from ourlicensees($108 million).Operating MarginNorth America operating income for the third quarter of fiscal 2023 increased 10%to$1.5 billion,compared to$1.3 billion in the third quarter of fiscal 2022.Operating margin decreased 30 basis points to 21.7%,primarily due to previously-committed investments in labor,including enhancements in retail storepartner wages and benefits(approximately 360 basis points)and increased spend on partner training(approximately 50 basis points),partially offset by pricing(approximately 220 basis points),labor productivity(approximately 210 basis points)and sales leverage.32Table of ContentsFor the three quarters ended July 2,2023 compared with the three quarters ended July 3,2022RevenuesNorth America total net revenues for the first three quarters of fiscal 2023 increased$2.4 billion,or 14%,primarily due to a 10%increase in comparable storesales($1.5 billion)driven by a 7%increase in average ticket and a 3%increase in transactions.Also contributing to these increases were net new company-operated store openings over the past 12 months($593 million)and higher product and equipment sales to and royalty revenues from our licensees($390million).Operating MarginNorth America operating income for the first three quarters of fiscal 2023 increased 16%to$3.9 billion,compared to$3.3 billion for the same period in fiscal2022.Operating margin increased 40 basis points to 19.8%,primarily due to pricing(approximately 350 basis points),labor productivity(approximately 150basis points)and sales leverage.These increases were partially offset by previously-committed investments in labor,including enhancements in retail storepartner wages and benefits(approximately 370 basis points)and increased spend on partner training(approximately 50 basis points)as well as inflationarypressures on commodities and our supply chain(approximately 100 basis points).International Quarter EndedThree Quarters Ended Jul 2,2023Jul 3,2022$ChangeJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022$ChangeJul 2,2023Jul 3,2022As a%of InternationalTotal Net RevenuesAs a%of InternationalTotal Net RevenuesNet revenues:Company-operatedstores$1,476.1$1,162.3$313.8 74.8s.3%$4,088.5$4,011.1$77.4 74.2w.7%Licensed stores480.4 412.6 67.8 24.3 26.0 1,352.0 1,089.9 262.1 24.5 21.1 Other16.4 9.8 6.6 0.8 0.6 67.3 62.1 5.2 1.2 1.2 Total net revenues1,972.9 1,584.7 388.2 100.0 100.0 5,507.8 5,163.1 344.7 100.0 100.0 Product and distributioncosts677.3 550.3 127.0 34.3 34.7 1,903.8 1,746.8 157.0 34.6 33.8 Store operating expenses707.5 632.5 75.0 35.9 39.9 2,025.7 2,019.3 6.4 36.8 39.1 Other operating expenses54.3 60.2(5.9)2.8 3.8 155.0 138.8 16.2 2.8 2.7 Depreciation andamortization expenses83.1 125.0(41.9)4.2 7.9 250.8 391.4(140.6)4.6 7.6 General andadministrative expenses77.0 81.8(4.8)3.9 5.2 244.9 252.7(7.8)4.4 4.9 Total operating expenses1,599.2 1,449.8 149.4 81.1 91.5 4,580.2 4,549.0 31.2 83.2 88.1 Income from equityinvestees0.8 0.4 0.4 0.0 0.0 2.0 1.6 0.4 0.0 0.0 Operating income$374.5$135.3$239.2 19.0%8.5%$929.6$615.7$313.9 16.9.9%Store operating expenses as a%of company-operated stores revenue47.9T.4I.5P.3%For the quarter ended July 2,2023 compared with the quarter ended July 3,2022RevenuesInternational total net revenues for the third quarter of fiscal 2023 increased$388 million,or 24%,primarily due to a 24%increase in comparable store sales($253 million)driven by a 21%increase in customer transactions,primarily attributable to business recovery from COVID-19 pandemic related disruptions inChina.Also contributing were 863 net new company-operated store openings,or an 11%increase,over the past 12 months($131 million)and higher productand equipment sales to and royalty revenues from our licensees($77 million).These increases were partially offset by unfavorable foreign currency translation($86 million).33Table of ContentsOperating MarginInternational operating income for the third quarter of fiscal 2023 increased 177%to$375 million,compared to$135 million in the third quarter of fiscal 2022.Operating margin increased 1,050 basis points to 19.0%,primarily due to sales leverage(approximately 860 basis points),including lapping prior year mobilityrestrictions in China.Also contributing was lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized(approximately260 basis points),partially offset by digital investments(approximately 110 basis points)and inflationary pressures(approximately 100 basis points).For the three quarters ended July 2,2023 compared with the three quarters ended July 3,2022RevenuesInternational total net revenues for the first three quarters of fiscal 2023 increased$345 million,or 7%,primarily due to higher product and equipment sales toand royalty revenues from our licensees($326 million)and 863 net new company-operated store openings,or an 11%increase,over the past 12 months($314million).Also contributing was a 5%increase in comparable store sales($168 million)driven by a 4%increase in customer transactions.These increases werepartially offset by unfavorable foreign currency translation($485 million).Operating MarginInternational operating income for the first three quarters of fiscal 2023 increased 51%to$930 million,compared to$616 million for the same period in fiscal2022.Operating margin increased 500 basis points to 16.9%,primarily due to sales leverage(approximately 290 basis points)and lapping amortizationexpenses of acquisition-related intangibles assets that are now fully amortized(approximately 250 basis points).Channel Development Quarter EndedThree Quarters Ended Jul 2,2023Jul 3,2022$ChangeJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022$ChangeJul 2,2023Jul 3,2022As a%of ChannelDevelopmentTotal Net RevenuesAs a%of ChannelDevelopmentTotal Net RevenuesNet revenues$448.8$479.7$(30.9)$1,407.7$1,359.9$47.8 Product and distributioncosts293.0 325.8(32.8)65.3g.92.7 885.2 47.5 66.3e.1%Other operating expenses14.8 13.6 1.2 3.3 2.8 40.6 35.7 4.9 2.9 2.6 Depreciation andamortization expenses0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.0 General and administrativeexpenses1.9 2.3(0.4)0.4 0.5 6.2 8.1(1.9)0.4 0.6 Total operating expenses309.7 341.7(32.0)69.0 71.2 979.6 929.1 50.5 69.6 68.3 Income from equityinvestees68.9 53.7 15.2 15.4 11.2 177.0 141.9 35.1 12.6 10.4 Gain from sale of assets nmnm91.3 91.3 6.5%nmOperating income$208.0$191.7$16.3 46.3.0%$696.4$572.7$123.7 49.5B.1%For the quarter ended July 2,2023 compared with the quarter ended July 3,2022RevenuesChannel Development total net revenues for the third quarter of fiscal 2023 decreased$31 million,or 6%,primarily due to a decline in revenue in the GlobalCoffee Alliance($31 million).Operating MarginChannel Development operating income for the third quarter of fiscal 2023 increased 9%to$208 million,compared to$192 million in the third quarter offiscal 2022.Operating margin increased 630 basis points to 46.3%,primarily due to growth in our North American Coffee Partnership joint venture income(approximately 410 basis points)and mix shift(approximately 310 basis points).34Table of ContentsFor the three quarters ended July 2,2023 compared with the three quarters ended July 3,2022RevenuesChannel Development total net revenues for the first three quarters of fiscal 2023 increased$48 million,or 4%,primarily due to an increase in revenue in theGlobal Coffee Alliance($32 million)and growth in our global ready-to-drink business($27 million).Operating MarginChannel Development operating income for the first three quarters of fiscal 2023 increased 22%to$696 million,compared to$573 million for the same periodin fiscal 2022.Operating margin increased 740 basis points to 49.5%,primarily due to the gain from sale of our Seattles Best Coffee brand(approximately 650basis points)and growth in our North American Coffee Partnership joint venture income(approximately 200 basis points),partially offset by impairmentcharges against certain manufacturing assets(approximately 120 basis points).Corporate and Other Quarter EndedThree Quarters EndedJul 2,2023Jul 3,2022$Change%ChangeJul 2,2023Jul 3,2022$Change%ChangeNet revenues:Other$8.8$27.3$(18.5)(67.8)%$16.8$76.7$(59.9)(78.1)%Total net revenues8.8 27.3(18.5)(67.8)16.8 76.7(59.9)(78.1)Product and distribution costs8.5 24.3(15.8)(65.0)14.9 67.9(53.0)(78.1)Other operating expenses1.8 5.9(4.1)(69.5)1.8 13.2(11.4)(86.4)Depreciation and amortizationexpenses28.7 30.6(1.9)(6.2)86.8 95.8(9.0)(9.4)General and administrativeexpenses432.3 326.1 106.2 32.6 1,267.9 1,008.7 259.2 25.7 Restructuring and impairments 2.0(2.0)nm1.1 2.0(0.9)(45.0)%Total operating expenses471.3 388.9 82.4 21.2 1,372.5 1,187.6 184.9 15.6 Operating loss$(462.5)$(361.6)$(100.9)27.9%$(1,355.7)$(1,110.9)$(244.8)22.0%Corporate and Other primarily consists of our unallocated corporate expenses and Evolution Fresh,prior to its sale in the fourth quarter of fiscal 2022.Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to ormanaged by any segment and are not included in the reported financial results of the operating segments.For the quarter ended July 2,2023 compared with the quarter ended July 3,2022Corporate and Other operating loss increased by 28%to$463 million for the third quarter of fiscal 2023 compared to$362 million for the third quarter of fiscal2022.This increase was primarily driven by incremental investments in technology($38 million),increased support costs of strategic initiatives including theReinvention Plan($27 million),higher performance-based compensation($17 million)and a donation to the Starbucks Foundation($15 million).For the three quarters ended July 2,2023 compared with the three quarters ended July 3,2022Corporate and Other operating loss increased by 22%to$1.4 billion for the first three quarters of fiscal 2023 compared to$1.1 billion for the same period infiscal 2022.This increase was primarily driven by incremental investments in technology($100 million),increased support costs of strategic initiativesincluding the Reinvention Plan($57 million),higher performance-based compensation($33 million)and donations to the Starbucks Foundation($30 million).35Table of ContentsQuarterly Store DataOur store data for the periods presented is as follows:Net stores opened/(closed)and transferred during the period Quarter EndedThree Quarters EndedStores open as ofJul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022Jul 2,2023Jul 3,2022North AmericaCompany-operated stores105 96 236 189 10,452 10,050 Licensed stores5 28 61 35 7,140 7,000 Total North America110 124 297 224 17,592 17,050 InternationalCompany-operated stores272 130 543 445 8,580 7,717 Licensed stores206 64 671 446 11,050 10,181 Total International478 194 1,214 891 19,630 17,898 Total Company588 318 1,511 1,115 37,222 34,948 Financial Condition,Liquidity and Capital ResourcesCash and Investment OverviewOur cash and investments totaled$3.9 billion as of July 2,2023 and$3.5 billion as of October 2,2022.We actively manage our cash and investments in orderto internally fund operating needs,make scheduled interest and principal payments on our borrowings,make acquisitions and return cash to shareholdersthrough common stock cash dividend payments and share repurchases.Our investment portfolio primarily includes highly liquid available-for-sale securities,including corporate debt securities,government treasury securities(foreign and domestic)and commercial paper as well as principal-protected structureddeposits.As of July 2,2023,approximately$2.5 billion of cash and short-term investment were held in foreign subsidiaries.Borrowing CapacityRevolving Credit FacilityOur$3.0 billion unsecured five-year revolving credit facility(the“2021 credit facility”),of which$150.0 million may be used for issuances of letters of credit,is currently set to mature on September 16,2026.The 2021 credit facility is available for working capital,capital expenditures and other corporate purposes,including acquisitions and share repurchases.We have the option,subject to negotiation and agreement with the related banks,to increase the maximumcommitment amount by an additional$1.0 billion.Borrowings under the 2021 credit facility,which was most recently amended in April 2023,will bear interest at a variable rate based on Term SOFR,and,forU.S.dollar-denominated loans under certain circumstances,a Base Rate(as defined in the 2021 credit facility),in each case plus an applicable margin.Theapplicable margin is based on the Companys long-term credit ratings assigned by the Moodys and Standard&Poors rating agencies.The“Base Rate”is thehighest of(i)the Federal Funds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americas prime rate,and(iii)Term SOFR plus 1.000%.Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plus a SOFR Adjustment of 0.100%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants,including a minimum fixed charge coverage ratio,which measures our ability to cover financing expenses.As of July 2,2023,we were in compliance with all applicable covenants.No amounts wereoutstanding under our 2021 credit facility as of July 2,2023 or October 2,2022.Commercial PaperUnder our commercial paper program,we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0billion,with individual maturities that may vary but not exceed 397 days from the date of issue.Amounts outstanding under the commercial paper program arerequired to be backstopped by available commitments under the 2021 credit facility discussed above.The proceeds from borrowings under our commercialpaper program may be used for working capital needs,capital expenditures and other corporate purposes,including,but not limited to,business expansion,payment of cash dividends on our common stock and share repurchases.As of July 2,2023,we had no borrowings outstanding under our commercial paperprogram.As of October 2,2022,we had$175.0 million in borrowings outstanding under this36Table of Contentsprogram.Our total contractual borrowing capacity for general corporate purposes was$3.0 billion as of the end of our third quarter of fiscal 2023.Credit facilities in JapanAdditionally,we hold Japanese yen-denominated credit facilities for the use of our Japan subsidiary.These are available for working capital needs and capitalexpenditures within our Japanese market.A 5 billion,or$34.5 million,credit facility is currently set to mature on January 4,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%.A 10 billion,or$69.1 million,credit facility is currently set to mature on March 27,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.As of July 2,2023,we had 5 billion,or$34.5 million,of borrowings outstanding under these credit facilities.As of October 2,2022,we had no borrowingsoutstanding under these credit facilities.See Note 8,Debt,to the consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt.Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indenturesunder which the long-term notes were issued.As of July 2,2023,we were in compliance with all applicable covenants.Use of CashWe expect to use our available cash and investments,including,but not limited to,additional potential future borrowings under the credit facilities,commercialpaper program and the issuance of debt to support and invest in our core businesses,including investing in new ways to serve our customers and supporting ourstore partners,repaying maturing debts,as well as returning cash to shareholders through common stock cash dividend payments and discretionary sharerepurchases and investing in new business opportunities related to our core and developing businesses.Furthermore,we may use our available cash resourcesto make proportionate capital contributions to our investees.We may also seek strategic acquisitions to leverage existing capabilities and further build ourbusiness.Acquisitions may include increasing our ownership interests in our investees.Any decisions to increase such ownership interests will be driven byvaluation and fit with our ownership strategy.We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally combined with ourability to leverage our balance sheet through the issuance of debt will be sufficient to finance capital requirements for our core businesses as well asshareholder distributions for at least the next 12 months.We are currently not aware of any trends or demands,commitments,events or uncertainties that willresult in,or that are reasonably likely to result in,our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyondthe next 12 months.We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates;however,additional borrowingswould result in increased interest expense in the future.In this regard,we may incur additional debt,within targeted levels,as part of our plans to fund ourcapital programs,including cash returns to shareholders through future dividends and discretionary share repurchases as well as investing in new businessopportunities.If necessary,we may pursue additional sources of financing,including both short-term and long-term borrowings and debt issuances.We regularly review our cash positions and our determination of indefinite reinvestment of foreign earnings.In the event we determine that all or a portion ofsuch foreign earnings are no longer indefinitely reinvested,we may be subject to additional foreign withholding taxes and U.S.state income taxes,which couldbe material.While we do not anticipate the need for repatriated funds to the U.S.to satisfy domestic liquidity requirements,any foreign earnings which are notindefinitely reinvested may be repatriated at managements discretion.During the third quarter of fiscal 2023,our Board of Directors approved a quarterly cash dividend to shareholders of$0.53 per share to be paid on August 25,2023 to shareholders of record as of the close of business on August 11,2023.During the first quarter of fiscal 2023,we resumed our share repurchase program which was temporarily suspended in April 2022.During the three quartersended July 2,2023,we repurchased 6.9 million shares of common stock for$699.3 million.As of July 2,2023,45.7 million shares remained available forrepurchase under current authorizations.Other than normal operating expenses,cash requirements for the remainder of fiscal 2023 are expected to consist primarily of capital expenditures forinvestments in our new and existing stores,our supply chain and corporate facilities.Total capital expenditures for fiscal 2023 are expected to be approximately$2.5 billion.37Table of ContentsIn the MD&A included in the 10-K,we disclosed that we had$33.2 billion of current and long-term material cash requirements as of October 2,2022.Therehave been no material changes to our material cash requirements during the period covered by this 10-Q outside of the normal course of our business.Cash FlowsCash provided by operating activities was$4.1 billion for the first three quarters of fiscal 2023,compared to$3.3 billion for the same period in fiscal 2022.Thechange was primarily due to a decrease in net cash used by changes in operating assets and liabilities and higher net earnings during the period.Cash used in investing activities totaled$1.4 billion for each of the first three quarters of fiscal 2023 and fiscal 2022,respectively.Increased maturities andcalls of investments in fiscal 2023 were offset by increased capital expenditures and higher investment purchases.Cash used in financing activities for the first three quarters of fiscal 2023 totaled$2.1 billion compared to cash used in financing activities of$5.1 billion forthe same period in fiscal 2022.The change is primarily due to a decrease in share repurchase activities.Commodity Prices,Availability and General Risk ConditionsCommodity price risk represents our primary market risk,generated by our purchases of green coffee and dairy products,among other items.We purchase,roast and sell high-quality arabica coffee and related products and risk arises from the price volatility of green coffee.In addition to coffee,we also purchasesignificant amounts of dairy products to support the needs of our company-operated stores.The price and availability of these commodities directly impact ourresults of operations,and we expect commodity prices,particularly coffee,to impact future results of operations.For additional details,see Product Supply inItem 1 of the 10-K,as well as Risk Factors in Item 1A of the 10-K.Seasonality and Quarterly ResultsOur business is subject to moderate seasonal fluctuations,of which our fiscal second quarter typically experiences lower revenues and operating income.Additionally,as our stored value cards are issued to and loaded by customers during the holiday season,we tend to have higher cash flows from operationsduring the first quarter of the fiscal year.However,since revenues from our stored value cards are recognized upon redemption and not when cash is loaded,the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced.As a result of moderate seasonal fluctuations,resultsfor any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.Critical Accounting EstimatesThe preparation of financial statements and related disclosures in conformity with U.S.generally accepted accounting principles and the Companys discussionand analysis of its financial condition and operating results require the Companys management to make judgments,assumptions and estimates that affect theamounts reported.Note 1,Summary of Significant Accounting Policies and Estimates,to the consolidated financial statements included in Item 1 of Part I ofthis 10-Q and in the Notes to Consolidated Financial Statements in Part II,Item 8 of the 10-K describe the significant accounting policies and methods used inthe preparation of the Companys consolidated financial statements.There have been no material changes to the Companys critical accounting estimates sincethe 10-K.RECENT ACCOUNTING PRONOUNCEMENTSSee Note 1,Summary of Significant Accounting Policies and Estimates,to the consolidated financial statements included in Item 1 of Part I of this 10-Q,for adetailed description of recent accounting pronouncements.Item 3.Quantitative and Qualitative Disclosures About Market RiskThere has been no material change in the commodity price risk,foreign currency exchange risk,equity security price risk or interest rate risk discussed inItem 7A of the 10-K.38Table of ContentsItem 4.Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed orsubmitted under the Securities Exchange Act of 1934,as amended(the“Exchange Act”),is recorded,processed,summarized and reported within the timeperiods specified in the SECs rules and forms.Our disclosure controls and procedures are also designed to ensure that information required to be disclosed inthe reports we file or submit under the Exchange Act is accumulated and communicated to our management,including our principal executive officer andprincipal financial officer as appropriate,to allow timely decisions regarding required disclosure.During the third qua
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JD.com,Inc.23Q3 Financial and Operational HighlightsNov 2023DisclaimerThe following document has bee.
2023-11-30
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549 FORM 6-K REPORT OF FOREIGN PRIV.
2023-11-30
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Financial presentationto accompany management commentaryQ1 FY24The following guidance reflects the Companys expectations for the second quarter and fiscal year 2024 and is provided on a non-GAAP basis as the Company cannot predict certain elements that are included in reported GAAP results,such as the changes in fair value of the Companys equity and other investments.Growth rates reflect an adjusted basis for prior year results.Additionally,the Companys guidance assumes a generally stable consumer and continued pressure from its mix of products and formats globally.The Companys fiscal year guidance is based on the following previously disclosed FY23 figures:Net sales:$605.9 billion,adjusted operating income1:$24.6 billion,adjusted EPS1$6.29.MetricFY24 Consolidated net sales(cc)Increase approximately 3.5%Consolidated operating income(cc)Increase approximately 4.0%-4.5%,including an expected 100bps impact from LIFOInterest,netIncrease approximately$600M v.LYEffective tax rateApproximately 26.5%Non-controlling interestApproximately$0.20 headwind to EPS v.LYAdjusted EPS$6.10 to$6.20,including an expected$0.14 impact from LIFOCapital expendituresFlat to up slightly v.LY,unchanged from prior guidanceMetricQ2 Consolidated net sales(cc)Increase approximately 4.0%Consolidated operating income(cc)Decline approximately 2.0justed EPS$1.63 to$1.681 For relevant reconciliations,see Q4 FY23 earnings release furnished on Form 8-K on February 21,2023.2 Our expectations are for Walmart U.S.and International to grow slightly faster than our prior view and for Sams Club growth to be consistent with our February guidanceCC=Constant currencyGuidanceTotal Revenue(cc)1$152.5 billion,up 7.7%Total revenue reached$152.3 billion with strength across all operating segments Negatively affected by$0.2 billion from currency fluctuations eCommerce net sales up 26%globally led by omnichannel,including pickup and delivery Strong growth in membership income,globally Other income negatively affected by a decline in sustainability incomeY/Y Change 2.4% 8.4% 8.7% 7.3% 7.6%Y/Y Change(cc)1 2.6% 9.1% 9.8% 7.9% 7.7%1See additional information at the end of this presentation regarding non-GAAP financial measures.Total Revenue$141.6$152.9$152.8$164$152.3Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24 Gross profit rate declined primarily due to mix of sales globally,partially offset by normalization of supply chain and freight costs in the U.S.,and favorable business mix from higher margin initiatives Sales mix negatively affected by a shift from general merchandise to grocery and health&wellness,including nearly 360 bps shift in Walmart U.S.Y/Y Change-87bps-132bps-89bps-83bps-18bpsGross Profit Rate23.8#.5#.7.9#.7%Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Gross Profit Rate-18bps to 23.7%As a percentage of net sales,-58bps to 20.4%Leverage driven by strong net sales growth and operating discipline Y/Y Change 45bps-45bps 144bps-44bps-58bpsOperating Expenses21.0.9.8 .3 .4%Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY241See additional information at the end of this presentation regarding non-GAAP financial measures.Operating Income Operating income up 17.3%relative to 7.6%growth in net sales Net income margin decreased 40bps and EBITDA margin1 increased 30bps over last year Q3 FY23 and Q4 FY23 negatively affected by discrete charges of$3.3B and$0.8B,respectively,associated with the opioid legal settlement frameworks,and business reorganization and restructuringsOperating IncomeAdjusted Operating Income1 5.36.92.75.66.2Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Y/Y Change-23.0%-6.8% 3.9% 6.9% 17.3%Y/Y Change(cc)1-22.7%-6.0% 4.6% 6.3% 16.0%Y/Y Change-23.0%-6.8%-53.5%-5.5% 17.3%Y/Y Change(cc)1-22.7%-6.0%-52.8%-6.5% 16.0%5.36.96.06.46.2Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY241See additional information at the end of this presentation regarding non-GAAP financial measures.NM=not meaningfulAdjusted EPS1 of$1.47,up 13.1%EPSPY$1.69$1.78$1.45$1.53$1.30Y/Y Change-23.1%-0.6% 3.4% 11.8% 13.1justed EPS excludes the effects of$0.85 from net losses on equity and other investmentsY/Y Change-23.7% 23.7%NM 81.3%-16.2%EPSAdjusted EPS1$0.74$1.88$(0.66)$2.32$0.62Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24$1.30$1.77$1.50$1.71$1.47Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24PY$0.6$7.4$7.7$11.1$(7.3)Y/Y ChangeNM-76.4%-52.8% 8.2%NM Operating cash flow increased primarily due to moderated levels of inventory purchases and timing of certain payments Free cash flow increased due to the improvement in operating cash flow,partially offset by an increase of$0.9B in capital expenditures to support the companys growth strategy1See additional information at the end of this presentation regarding non-GAAP financial measures.NM=not meaningfulPY$2.9$12.4$16.3$24.2$(3.8)Y/Y ChangeNM-25.6%-3.6% 19.3%NMOperating Cash FlowFree Cash Flow1Cash Flow$(7.3)$1.7$3.6$12.0$0.2Q1 FY23 YTDQ2 FY23 YTDQ3 FY23 YTDQ4 FY23 YTDQ1 FY24 YTD$(3.8)$9.2$15.7$28.8$4.6Q1 FY23 YTDQ2 FY23 YTDQ3 FY23 YTDQ4 FY23 YTDQ1 FY24 YTDAmounts in billions,except as noted.Dollar changes may not recalculate due to rounding.Through dividends and share repurchasesAmounts in billions,except as noted.Dollar changes may not recalculate due to rounding.Share repurchases during quarter totaled$686 million representing 4.8 million shares at an average price of$143.46 per share Remaining share repurchase authorization is$18.6 billionReturns to Shareholders$4.0$4.9$4.5$2.7$2.2Returns to Shareholders$1.5$1.5$1.5$1.5$1.5$2.4$3.3$3.0$1.2$0.7DividendsShare RepurchaseQ1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Y/Y Change-50bps-100bps-170bps-220bps-120bps ROI declined on a trailing 12-month basis as a result of discrete charges for the opioid legal settlement frameworks in Q3 FY23 and business reorganization and restructurings in Q4 FY23 Discrete charges totaled 140 bps headwind to ROI1See additional information at the end of this presentation regarding non-GAAP financial measures.Return on Assets(ROA)Return on Investment(ROI)1ReturnsY/Y Change 20bps 140bps 40bps-100bps-100bps5.5%5.8%3.7%4.6%4.5%Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY2413.9.8.8.7.7%Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Net Sales 7.2%,eCommerce 27%Comp sales 7.4%with strength in grocery and health&wellness,offset by softness in general merchandise Monthly comp sales growth moderated as the quarter progressed Strength in food categories,private brand sales,and higher average ticket and store transactions Strong market share gains in grocery,including higher-income households Strong growth for eCommerce in store-fulfilled pickup and delivery as well as nearly 40%growth in advertisingeCommerce Contribution-30bps100bps80bps140bps270bpsWalmart U.S.Comp Sales13.0%6.5%8.2%8.3%7.4%Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY241Comp sales for the 13-week period ended April 28,2023 compared to the 13-week period ended April 29,2022,and excludes fuel.Store Remodels:96 Pickup:4,600 stores Delivery from Store:3,900Unfavorable product mix shifts as grocery and health&wellness,which have a lower margin rate than general merchandise,increased nearly 360 bps as a portion of sales mixPartly offset by lower supply chain and freight costsGross profit rate-41 bpsAided by strong net sales growthAlso,lapping last years COVID-related wage expensesContinued investment in associates;raised average wage to$17.50 per hour in FebruaryOperating expenses as a percentage of net sales-65 bpsOperating expense leverage and membership income growth,partially offset by a decline in the gross profit rateOperating income$5.0 billion, 11.7tter efficiency and merchandise flow;in-stock levels improved versus last year Inventory-9.4%Walmart U.S.Merchandise category performance detailsWalmart U.S.CategoryCompCommentsGrocery low double-digitStrength in food( LDD)reflected continued market share gains(according to Nielsen),including from higher income households,and growth in private brand penetration( 110bps)Food inflation increased LDD in Q1 and was up mid-20s on a two-year stackFood units sold increased year-over-yearConsumables led by strength in pet and personal care products due in part to inflationHealth&Wellness high teensStrong pharmacy sales reflected increased script counts,higher mix of branded versus generic prescriptions,strength in immunizations,and branded drug inflationGeneral Merchandise-mid single-digitGeneral merchandise sales reflected softness in discretionary categories including home,electronics and apparelAutomotive and seasonal performed wellNet Sales(cc)1$26.8 billion, 12.9%Strong sales growth(cc)1 led by double digit growth in China,Walmex and Flipkart eCommerce sales grew 25%with particular strength in store-fulfilled and advertising Sales negatively affected by$0.2 billion due to currency rate fluctuationsY/Y Change-13.0% 5.7% 7.1% 2.1% 12.0%Net Sales(cc)1,2$23.8$25.3$26.8$28.5$26.8Y/Y Change(cc)1-11.6% 9.9% 13.3% 5.5% 12.9%1See additional information at the end of this presentation regarding non-GAAP financial measures.2For Q1 FY23,net sales constant currency reflects reported results for comparison to current quarter growth in constant currency.Walmart International Net Sales$23.8$24.4$25.3$27.6$26.6Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Net salesStrong local businesses powered by Walmart1See additional information at the end of this presentation regarding non-GAAP financial measures.Increase primarily due to lapping higher markdowns from slower sales growth last year Partially offset by ongoing format and channel mix changesGross profit rate 12 bps Leverage driven by strong sales growth driving fixed cost leverage across most markets Strong operating efficienciesOperating expenses as a percentage of net sales-111 bps 41.5%increase driven by widespread growth as all markets improved operating incomeOperating income$1.2 billion, 50.8%;$1.1 billion(cc)1, 41.5%Inventory 1.7%WalmartInternationalSales Double-digit growth with continued strength in food and consumables In Mexico,comp sales grew 8.7%driven by Sams Club and Bodega Opened more than 120 new stores in the past twelve months,including 12 new stores in the quarterGross profit rate Increase Primarily from efficiencies in logistics and lower imports costsOperating expense rate Increase Primarily due to planned investments in associates and strategic prioritiesOperating income$IncreaseNet sales growth 10.4% 12.7% 12.9% 11.8% 10.6ommerce net sales growth 19% 17% 17% 14% 17%1Walmex includes the consolidated results of Mexico and Central America2Results are presented on a constant currency basis.Net sales and comparable sales are presented on a nominal,calendar basis and include eCommerce results.Change is calculated as the change versus the prior year comparable period.Walmex1,2Net Sales(cc):$10.1 billion, 10.6%9.2.5.7.6%9.3%Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Comparable sales growthNet sales growth 6.9% 10.0% 5.5% 5.9% 6.7ommerce net sales growth-4%-9% 3%-3%-2%1Results are presented on a constant currency basis.Net sales and comparable sales are presented on a nominal,calendar basis and include eCommerce results.Change is calculated as the change versus the prior year comparable period.Canada1Net Sales(cc):$5.5 billion, 6.7%7.7.3%5.2%5.7%6.3%Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Sales Continued momentum in food and consumables with softness in GM Continued strength in private brands which grew over 7%year over yearGross profit rate Relatively flat Primarily from efficiencies in logistics and lower import costs offset by category mix impactOperating expense rate Relatively flat Driven by balanced expense management in line with sales growthOperating income$IncreaseComparable sales growthNet sales growth 7.2% 15.9% 6.9% 13.5% 28.3ommercenet sales growth 89% 77% 63% 70% 54%1Results are presented on a constant currency basis.Net sales and comparable sales are presented on a nominal,calendar basis and include eCommerce results.Change is calculated as the change versus the prior year comparable period.China1Net Sales(cc):$5.3 billion, 28.3%4.4.1%5.6.3%.5%Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Sales Strength in both formats and eCommerce Post-covid reopening helped fuel a strong Chinese New Year season and sustained momentum through the entire quarter Members Mark private brand was particularly strong,growing 46ommerce penetration at 40%Gross profit rate Increase Lapping higher markdowns from slower sales growth last year,partially offset by higher mix of Sams Club and eCommerce salesOperating expense rate Decrease Driven by strong sales growth,operational efficiencies,and higher penetration of Sams ClubOperating income$IncreaseComparable sales growthNet sales with fuel 4.5%,Net sales without fuel 7.4%,eCommerce 19%Strong comp sales driven by solid increases in ticket and transactions as well as unit growth Ticket without fuel 4.0%Transactions without fuel 2.9%Strength led by food and consumables eCommerce 19%,led by curbside Scan&Go penetration increased more than 600 bps y/yeComm Cont.without fuel150bps170bps120bps120bps160bps1Comp sales for the 13-week period ended April 28,2023 compared to the 13-week period ended April 29,2022.Sams Club Comp Sales1Comparable sales17.0.5.7.9%4.2.2%9.5.0.2%7.0%With fuelWithout fuelQ1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Celebrating 40 years of Member Obsession Rate increase primarily due to lapping elevated supply chain costs last year LIFO expense$48MGross profit rate 36 bps,without fuel 26 bps Lower fuel sales negatively affected expense leverage Without fuel,deleverage primarily due to elevated technology investmentsOperating expenses as a percentage of net sales 47 bps,without fuel 23 bps Continued strength primarily due to Plus membership growth,acquisitions,and renewals Membership count and Plus penetration reached all-time highs in the quarterMembership income 6.3%Inventory-6.0%Sams ClubOperating income$458M,-0.4%,without fuel$354M, 5.7%LIFO reduced operating income by 10.0%y/y Better inventory efficiency and merchandise flow as well as a LIFO reserve adjustmentCategory comparable salesSams ClubCategoryCompCommentsFresh/Freezer/Cooler high single-digitCooler,prepared foods,produce&floral,and bakery performed wellGrocery and Beverage low double-digitDrinks,dry grocery,and snacks showed strengthConsumables low double-digitPaper goods,tabletop&bags,laundry&home care,and pet supplies performed well Home and Apparel-low single-digitSoftness in outdoor living,toys and sporting goods,partially offset by strength in tires,auto,and apparelTechnology,Office and Entertainment-low double-digitSoftness in consumer electronics,partially offset by strength in gift cardsHealth and Wellness mid-teensPharmacy and over the counter performed well Safe harbor and non-GAAP measuresThis presentation and related management commentary contains statements that may be forward-looking statements as defined in,and are intended to enjoy the protection of the safe harbor for forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934,as amended.Assumptions on which such forward-looking statements are based are also forward-looking statements.Our actual results may differ materially from those expressed in or implied by any of these forward-looking statements as a result of changes in circumstances,assumptions not being realized or other risks,uncertainties and factors including:the impact of the COVID-19 pandemic on our business and the global economy;economic,capital markets and business conditions;trends and events around the world and in the markets in which we operate;currency exchange rate fluctuations,changes in market interest rates and market levels of wages;changes in the size of various markets,including eCommerce markets;unemployment levels;inflation or deflation,generally and in particular product categories;consumer confidence,disposable income,credit availability,spending levels,shopping patterns,debt levels and demand for certain merchandise;the effectiveness of the implementation and operation of our strategies,plans,programs and initiatives;unexpected changes in our objectives and plans;the impact of acquisitions,investments,divestitures,store or club closures,and other strategic decisions;our ability to successfully integrate acquired businesses,including within the eCommerce space;changes in the trading prices of certain equity investments we hold;initiatives of competitors,competitors entry into and expansion in our markets,and competitive pressures;customer traffic and average ticket in our stores and clubs and on our eCommerce websites;the mix of merchandise we sell,the cost of goods we sell and the shrinkage we experience;trends in consumer shopping habits around the world and in the markets in which we operate;our gross profit margins;the financial performance of Walmart and each of its segments,including the amounts of our cash flow during various periods;changes in the credit ratings assigned to our commercial paper and debt securities by credit rating agencies;the amount of our net sales and operating expenses denominated in the U.S.dollar and various foreign currencies;transportation,energy and utility costs;commodity prices and the price of gasoline and diesel fuel;supply chain disruptions and disruptions in seasonal buying patterns;the availability of goods from suppliers and the cost of goods acquired from suppliers;consumer acceptance of and response to our stores,clubs,eCommerce platforms,programs,merchandise offerings and delivery methods;cyber security events affecting us and related costs and impact to the business;developments in,outcomes of,and costs incurred in legal or regulatory proceedings to which we are a party or are subject,and the liabilities,obligations and expenses,if any,that we may incur in connection therewith;casualty and accident-related costs and insurance costs;the turnover in our workforce and labor costs,including healthcare and other benefit costs;consumer enrollment in health and drug insurance programs and such programs reimbursement rates and drug formularies;our effective tax rate and the factors affecting our effective tax rate,including assessments of certain tax contingencies,valuation allowances,changes in law,administrative audit outcomes,impact of discrete items and the mix of earnings between the U.S.and Walmarts international operations;changes in existing tax,labor and other laws and regulations and changes in tax rates including the enactment of laws and the adoption and interpretation of administrative rules and regulations;the imposition of new taxes on imports,new tariffs and changes in existing tariff rates;the imposition of new trade restrictions and changes in existing trade restrictions;adoption or creation of new,and modification of existing,governmental policies,programs,initiatives and actions in the markets in which Walmart operates and elsewhere and actions with respect to such policies,programs and initiatives;changes in accounting estimates or judgments;the level of public assistance payments;natural disasters,changes in climate,geopolitical events and catastrophic events;and changes in generally accepted accounting principles in the United States.Our most recent annual report on Form 10-K filed with the SEC discusses other risks and factors that could cause actual results to differ materially from those expressed or implied by any forward-looking statement in the presentations.We urge you to consider all of the risks,uncertainties and factors identified above or discussed in such reports carefully in evaluating the forward-looking statements in this release.Walmart cannot assure you that the results reflected in or implied by any forward-looking statement will be realized or,even if substantially realized,that those results will have the forecasted or expected consequences and effects for or on our operations or financial performance.The forward-looking statements made in the presentation are as of the date of this meeting.Walmart undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.This presentation includes certain non-GAAP measures as defined under SEC rules,including net sales,revenue,and operating income on a constant currency basis,adjusted EPS,free cash flow,return on investment,and EBITDA and EBITDA margin.Refer to information about the non-GAAP measures contained in this presentation.Additional information as required by Regulation G and Item 10(e)of Regulation S-K regarding non-GAAP measures can be found in our most recent Form 10-K and our Form 8-K furnished as of the date of this presentation with the SEC,which are available at .Non-GAAP measures-ROIWe include Return on Assets(ROA),which is calculated in accordance with U.S.generally accepted accounting principles(GAAP)as well as Return on Investment(ROI)as measures to assess returns on assets.Management believes ROI is a meaningful measure to share with investors because it helps investors assess how effectively Walmart is deploying its assets.Trends in ROI can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts.We consider ROA to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure to our calculation of ROI.ROA was 4.5%percent and 5.5%percent for the trailing twelve months ended April 30,2023 and 2022,respectively.The decrease in ROA was primarily due to the decrease in net income,which was driven by lower operating income,partially offset by lapping debt extinguishment charges.ROI was 12.7%and 13.9%for the trailing 12 months ended April 30,2023 and 2022,respectively.The decrease in ROI was primarily due to the decrease in operating income which included opioid legal charges and reorganization and restructuring charges recorded in Q3 and Q4 of fiscal 2023.We define ROI as operating income plus interest income,depreciation and amortization,and rent expense for the trailing twelve months divided by average invested capital during that period.We consider average invested capital to be the average of our beginning and ending total assets,plus average accumulated depreciation and average amortization,less average accounts payable and average accrued liabilities for that period.Our calculation of ROI is considered a non-GAAP financial measure because we calculate ROI using financial measures that exclude and include amounts that are included and excluded in the most directly comparable GAAP financial measure.For example,we exclude the impact of depreciation and amortization from our reported operating income in calculating the numerator of our calculation of ROI.As mentioned above,we consider ROA to be the financial measure computed in accordance with generally accepted accounting principles most directly comparable to our calculation of ROI.ROI differs from ROA(which is consolidated net income for the period divided by average total assets for the period)because ROI:adjusts operating income to exclude certain expense items and adds interest income;adjusts total assets for the impact of accumulated depreciation and amortization,accounts payable and accrued liabilities to arrive at total invested capital.Because of the adjustments mentioned above,we believe ROI more accurately measures how we are deploying our key assets and is more meaningful to investors than ROA.Although ROI is a standard financial measure,numerous methods exist for calculating a companys ROI.As a result,the method used by management to calculate our ROI may differ from the methods used by other companies to calculate their ROI.The calculation of ROA and ROI,along with a reconciliation of ROI to the calculation of ROA,is as follows:Non-GAAP measures ROI(cont.)CALCULATION OF RETURN ON ASSETSTrailing Twelve Months EndingApr 30,Jul 31,Oct 31,Jan 31,Apr 30,(Dollars in millions)20222022202220232023NumeratorConsolidated net income$13,232$14,015$9,116$11,292$11,085 DenominatorAverage total assets1$241,362$242,876$246,254$244,029$245,598 Return on assets(ROA)5.5%5.8%3.7%4.6%4.5%April 30,Jul 31,Oct 31,Jan 31,April 30,Jul 31,Oct 31,Jan 31,April 30,Certain Balance Sheet Data202120212021202220222022202220232023Total assets$236,581$238,552$244,851$244,860$246,142$247,199$247,656$243,197$245,053 Accumulated depreciation and amortization 96,334 98,346 100,168 102,211 104,295 105,963 107,628 110,286 113,164 Accounts payable 48,151 49,601 57,156 55,261 52,926 54,191 57,263 53,742 54,268 Accrued liabilities 21,371 23,915 24,474 26,060 21,061 23,843 27,443 31,126 27,527 1 The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2The calculation of ROA and ROI,along with a reconciliation of ROI to the calculation of ROA,is as follows:Non-GAAP measures ROI(cont.)CALCULATION OF RETURN ON INVESTMENTTrailing Twelve Months EndingApr 30,Jul 31,Oct 31,Jan 31,Apr 30,(Dollars in millions)20222022202220232023NumeratorOperating income$24,351$23,851$20,754$20,428$21,350 Interest income 163 155 196 254 323 Depreciation and amortization 10,679 10,733 10,840 10,945 11,110 Rent 2,270 2,302 2,296 2,306 2,301 ROI operating income$37,463$37,041$34,086$33,933$35,084 DenominatorAverage total assets1$241,362$242,876$246,254$244,029$245,598 Average accumulated depreciation and amortization1 100,315 102,155 103,898 106,249 108,730-Average accounts payable1 50,539 51,896 57,210 54,502 53,597-Average accrued liabilities1 21,216 23,878 25,959 28,593 24,294 Average invested capital$269,922$269,257$266,983$267,183$276,437 Return on investment(ROI)13.9.8.8.7.7%1 The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2Non-GAAP measures free cash flowWe define free cash flow as net cash provided by or used in operating activities in a period minus payments for property and equipment made in that period.Net cash provided by operating activities was$4.6 billion for the three months ended April30,2023,which represents an increase of$8.4 billion when compared to the same period in the prior year.The increase is primarily due to moderated levels of inventory purchases and timing of certain payments.Free cash flow for the three months ended April30,2023 was$0.2 billion,which represents an increase of$7.5 billion when compared to the same period in the prior year.The increase in free cash flow is due to the increase in operating cash flows described above,partially offset by an increase of$0.9 billion in capital expenditures to support our investment strategy.Free cash flow is considered a non-GAAP financial measure.Management believes,however,that free cash flow,which measures our ability to generate additional cash from our business operations,is an important financial measure for use in evaluating the Companys financial performance.Free cash flow should be considered in addition to,rather than as a substitute for,consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.Additionally,Walmarts definition of free cash flow is limited,in that it does not represent residual cash flows available for discretionary expenditures,due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions.Therefore,we believe it is important to view free cash flow as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows.Although other companies report their free cash flow,numerous methods may exist for calculating a companys free cash flow.As a result,the method used by Walmarts management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow.Non-GAAP measures free cash flow(cont.)The following table sets forth a reconciliation of free cash flow,a non-GAAP financial measure,to net cash provided by operating activities,which we believe to be the GAAP financial measure most directly comparable to free cash flow.Year to Date Period Ended(Dollars in millions)Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Net cash provided by(used in)operating activities$(3,758)$9,240$15,698$28,841$4,633 Payments for property and equipment(capital expenditures)(3,539)(7,492)(12,061)(16,857)(4,429)Free cash flow$(7,297)$1,748$3,637$11,984$204 Year to Date Period Ended(Dollars in millions)Q1 FY22Q2 FY22Q3 FY22Q4 FY22Q1 FY23Net cash provided by(used in)operating activities$2,858$12,423$16,291$24,181$(3,758)Payments for property and equipment(capital expenditures)(2,214)(5,019)(8,588)(13,106)(3,539)Free cash flow$644$7,404$7,703$11,075$(7,297)Y/Y Change in Free Cash FlowNM-76.4%-52.8% 8.2%NMNM=not meaningfulNon-GAAP measures constant currencyIn discussing our operating results,the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for countries where the functional currency is not the U.S.dollar into U.S.dollars.We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the current periods currency exchange rates and the comparable prior year periods currency exchange rates.Additionally,no currency exchange rate fluctuations are calculated for non-USD acquisitions until owned for 12 months.Throughout our discussion,we refer to the results of this calculation as the impact of currency exchange rate fluctuations.When we refer to constant currency operating results,this means operating results without the impact of the currency exchange rate fluctuations.The disclosure of constant currency amounts or results permits investors to better understand Walmarts underlying performance without the effects of currency exchange rate fluctuations.The table below reflects the calculation of constant currency for net sales for the Walmart International segment for the trailing five quarters and operating income for the current quarter.Three Months EndedWalmart International(Dollars in millions)Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Net sales:As reported$23,763$24,350$25,295$27,575$26,604 Currency exchange rate fluctuations 376 956 1,473 901 226 Net sales(cc)$24,139$25,306$26,768$28,476$26,830 PY Reported$27,300$23,035$23,627$26,997$23,763%change(cc)-11.6% 9.9% 13.3% 5.5% 12.9%Operating income:As reported$1,164 Currency exchange rate fluctuations(72)Operating income(cc)$1,092 PY Reported$772%change(cc) 41.5%Non-GAAP measures constant currency(cont.)Three Months EndedConsolidated(Dollars in millions)Q1 FY23Q2 FY23Q3 FY23Q4 FY23Q1 FY24Total Revenue:As reported$141,569$152,859$152,813$164,048$152,301 Currency exchange rate fluctuations 377 996 1,491 917 230 Total Revenue(cc)$141,946$153,855$154,304$164,965$152,531 PY Reported$138,310$141,048$140,525$152,871$141,569%change(cc) 2.6% 9.1% 9.8% 7.9% 7.7%Net sales:As reported$140,288$151,381$151,469$162,743$151,004 Currency exchange rate fluctuations 376 956 1,473 901 226 Net sales(cc)$140,664$152,337$152,942$163,644$151,230 PY Reported$137,159$139,871$139,207$151,525$140,288%change(cc) 2.6% 8.9% 9.9% 8.0% 7.8%Operating income:As reported$5,318$6,854$2,695$5,561$6,240 Currency exchange rate fluctuations 20 62 38 (57)(72)Operating income(cc)$5,338$6,916$2,733$5,504$6,168 PY Reported$6,909$7,354$5,792$5,887$5,318%change(cc)-22.7%-6.0%-52.8%-6.5% 16.0%The table below reflects the calculation of constant currency for total revenues,net sales and operating income for the trailing five quarters.Non-GAAP measures Adjusted Operating IncomeThree Months Ended(Dollars in millions)Q1 FY23Q1 FY22Q2 FY23Q2 FY22Q3 FY23Q3 FY22Q4 FY23Q4 FY22Q1 FY24Q1 FY23Operatingincome:Operatingincome,asreported$5,318$6,909$6,854$7,354$2,695$5,792$5,561$5,887$6,240$5,318 Businessreorganizationandrestructuringcharges1 849 108 Opioidlegalcharges2 3,325 Adjustedoperatingincome$5,318$6,909$6,854$7,354$6,020$5,792$6,410$5,995$6,240$5,318 Percentchange3-23.0%NP-6.8%NP 3.9%NP 6.9%NP 17.3%NPCurrencyexchangeratefluctuations$20$62$38$(39)$(72)Adjustedoperatingincome,constantcurrency$5,338$6,909$6,916$7,354$6,058$5,792$6,371$5,995$6,168$5,318 Percentchange3-22.7%NP-6.0%NP 4.6%NP 6.3%NP 16.0%NPAdjusted operating income is considered a non-GAAP financial measure under the SECs rules because it excludes certain charges included in operating income calculated in accordance with GAAP.Management believes that adjusted operating income is a meaningful measure to share with investors because it best allows comparison of the performance with that of the comparable period.In addition,adjusted operating income affords investors a view of what management considers Walmarts core earnings performance and the ability to make a more informed assessment of such core earnings performance as compared with that of the prior year.When we refer to adjusted operating income in constant currency,this means adjusted operating results without the impact of the currency exchange rate fluctuations.The disclosure of constant currency amounts or results permits investors to better understand Walmarts underlying performance without the effects of currency exchange rate fluctuations.The table below reflects the calculation of adjusted operating income and adjusted operating income in constant currency,when applicable,for the trailing five quarters.1Business reorganization and restructuring charges in the fourth quarter of fiscal 2023 primarily relate to compensation expenses incurred in connection with the strategic decisions made in the Walmart International segment.Business restructuring charges in the fourth quarter of fiscal 2022 primarily consist of severance and store closure related costs due to strategic decisions made in the Walmart International segment.2 The opioid legal charges are recorded in Corporate and support.3Change versus prior year comparable period.NP=not providedNon-GAAP measures adjusted EPS Adjusted diluted earnings per share attributable to Walmart(Adjusted EPS)is considered a non-GAAP financial measure under the SECs rules because it excludes certain amounts included in the diluted earnings per share attributable to Walmart calculated in accordance with GAAP(EPS),the most directly comparable financial measure calculated in accordance with GAAP.Management believes that Adjusted EPS is a meaningful measure to share with investors because it best allows comparison of the performance with that of the comparable period.In addition,Adjusted EPS affords investors a view of what management considers Walmarts core earnings performance and the ability to make a more informed assessment of such core earnings performance with that of the prior year.We adjust for the unrealized and realized gains and losses on our equity and other investments each quarter because although the investments are strategic decisions for the companys retail operations,managements measurement of each strategy is primarily focused on the operational results rather than the fair value of such investments.Additionally,management does not forecast changes in the fair value of its equity and other investments.Accordingly,management adjusts EPS each quarter for the realized and unrealized gains and losses related to those equity investments.We have calculated Adjusted EPS for the trailing five quarters as well as the prior year comparable periods by adjusting EPS for the relevant adjustments for each period presented.Three Months Ended Apr 30,2023Three Months Ended Apr 30,2022Percent ChangeDiluted earnings per share:Reported EPS$0.62$0.74-16.2justments:Pre-Tax ImpactTax Impact1,2NCI Impact4Net ImpactPre-Tax ImpactTax Impact1,3NCI ImpactNet ImpactUnrealized and realized(gains)and losses on equity and other investments$1.13$(0.27)$(0.01)$0.85$0.71$(0.15)$0.56Adjusted EPS$1.47$1.30 13.1%1 Tax impact calculated based on nature of item,including any realizable deductions,and statutory rate in effect for relevant jurisdictions.2 The reported effective tax rate was 29.5%for the three months ended April 30,2023.Adjusted for the above item,the effective tax rate was 26.5%for the three months ended April 30,2023.3 The reported effective tax rate was 27.5%for the three months ended April 30,2022.Adjusted for the above item,the effective tax rate was 24.9%for the three months ended April 30,2022.4 Calculated based on the ownership percentages of our noncontrolling interests.Non-GAAP measures adjusted EPS(cont.)1 Tax impact calculated based on nature of item,including any realizable deductions,and statutory rate in effect for relevant jurisdictions.2 Business reorganization and restructuring charges include tax amounts incurred on separation of Flipkart and PhonePe.3 Calculated based on the ownership percentages of our noncontrolling interests.4 Adjusted EPS for the three months ended October 31,2022 was calculated using weighted average shares outstanding of 2,720 million,which includes the dilutive impact of share-based payment awards.NM=not meaningfulThree Months Ended Jan 31,2023Three Months Ended Jan 31,2022Percent ChangeDiluted earnings per share:Reported EPS$2.32$1.28 81.3justments:Pre-Tax ImpactTax Impact1,2NCI Impact3Net ImpactPre-Tax ImpactTax Impact1NCI Impact3Net ImpactUnrealized and realized(gains)and losses on equity and other investments$(1.43)$0.27$(1.16)$0.22$(0.05)$0.02$0.19Business reorganization and restructuring charges0.310.40(0.16)0.550.08(0.02)0.06Net Adjustments$(0.61)$0.25Adjusted EPS$1.71$1.53 11.8%Three Months Ended Oct 31,2022Three Months Ended Oct 31,2021Percent ChangeDiluted earnings per share:Reported EPS$(0.66)$1.11NMAdjustments:Pre-Tax ImpactTax Impact1NCI Impact3Net ImpactPre-Tax ImpactTax Impact1NCI ImpactNet ImpactUnrealized and realized(gains)and losses on equity and other investments$1.34$(0.24)$0.01$1.11$(0.42)$0.09$(0.33)Opioid legal charges1.22(0.17)1.05Loss on extinguishment of debt0.86(0.19)0.67Net Adjustments4$2.16$0.34Adjusted EPS4$1.50$1.45 3.4%Non-GAAP measures adjusted EPS(cont.)1 Tax impact calculated based on nature of item,including any realizable deductions,and statutory rate in effect for relevant jurisdictions.2 No tax expense was incurred in connection with the gain on sale of equity method investment in Brazil.3 Calculated based on the ownership percentages of our noncontrolling interests.Three Months Ended Jul 31,2022Three Months Ended Jul 31,2021Percent ChangeDiluted earnings per share:Reported EPS$1.88$1.52 23.7justments:Pre-Tax ImpactTax Impact1,2NCI Impact3Net ImpactPre-Tax ImpactTax Impact1NCI ImpactNet ImpactUnrealized and realized(gains)and losses on equity and other investments$0.14$(0.02)$(0.01)$0.11$0.34$(0.08)$0.26Gain on sale of equity method investment in Brazil(0.16)(0.16)Discrete tax item(0.06)(0.06)Net Adjustments$(0.11)$0.26Adjusted EPS$1.77$1.78-0.6%Three Months Ended Apr 30,2022Three Months Ended Apr 30,2021Percent ChangeDiluted earnings per share:Reported EPS$0.74$0.97-23.7justments:Pre-Tax ImpactTax Impact1NCI ImpactNet ImpactPre-Tax ImpactTax Impact1NCI ImpactNet ImpactUnrealized and realized(gains)and losses on equity and other investments$0.71$(0.15)$0.56$0.74$(0.17)$0.57Incremental loss on sale of our operations in the U.K.and Japan0.150.15Net Adjustments$0.56$0.72Adjusted EPS$1.30$1.69-23.1%Non-GAAP measures-EBITDA and EBITDA MarginWe include net income and net income margin,which are calculated in accordance with U.S.generally accepted accounting principle as well as EBITDA and EBITDA margin to provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of certain items.We calculate EBITDA as earnings before interest,taxes,depreciation and amortization.We also exclude other gains and losses,which is primarily comprised of fair value adjustments on our investments which management does not believe are indicative of our core business performance.From time to time,we will adjust EBITDA(Adjusted EBITDA)for certain items that we adjust from operating income,which we believe is meaningful because it best allows comparison of the performance with that of the comparable period.EBITDA or Adjusted EBITDA margin is calculated by dividing EBITDA or Adjusted EBITDA by consolidated net sales.EBITDA and EBITDA margin are considered non-GAAP financial measures.Management believes,however,that these measures provide meaningful information about our operational efficiency by excluding the impact of differences in tax jurisdictions and structures,debt levels,capital investments and other items which management does not believe are indicative of our core business performance.We consider net income to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure to our calculation of EBITDA.We consider net income margin to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure to our calculation of EBITDA margin.Although EBITDA and EBITDA margin are standard financial measures,numerous methods exist for calculating a companys EBITDA and EBITDA margin.As a result,the method used by management to calculate our EBITDA and EBITDA margin may differ from the methods used by other companies to calculate similarly titled measures.Net income margin was 1.1%and 1.5%for the three months ended April 30,2023 and 2022,respectively.The decrease in net income margin was primarily due to the decrease in net income,which was impacted by higher unrealized losses on our equity and other investments,when compared to the same period in the previous year.EBITDA margin was 6.0%and 5.7%for the 3 months ended April 30,2023 and 2022,respectively.The increase in EBITDA margin was due to higher operating income driven primarily by an increase in net sales when compared to the same period in the previous year.Non-GAAP measures EBITDA&EBITDA marginThe calculation of net income margin and EBITDA margin,along with a reconciliation of EBITDA margin to the calculation of net income margin,is as follows:We define adjusted EBITDA as earnings before interest,taxes,depreciation and amortization,as well as adjustments for certain items that are excluded from earnings as previously described in the reconciliation for adjusted EPS.Adjusted EBITDA is considered a non-GAAP financial measure.Management believes,however,that this measure provides meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures,debt levels,capital investments and other items which management does not believe are indicative of our core business performance.Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by consolidated net income.Adjusted EBITDA margin is also considered a non-GAAP financial measure.These non-GAAP measures should be considered in addition to,rather than as a substitute for,consolidated net income,which is the most comparable GAAP measure for adjusted EBITDA and consolidated net income margin,which is the most comparable GAAP measure for adjusted EBITDA margin.Although other companies report adjusted EBITDA and adjusted EBITDA margin,numerous methods may exist for calculating these metrics.As a result,the methods used by Walmarts management to calculate our adjusted EBITDA and adjusted EBITDA margin may differ from the methods used by other companies to calculate similarly titled measures.Three Months EndedQ1 FY24Q1 FY23(Amounts in millions)20232022Consolidated net income attributable to Walmart 1,673 2,054 Consolidated net income attributable to noncontrolling interest(223)(49)Provision for income taxes 792 798 Other(gains)and losses 2,995 1,998 Interest,Net 557 419 Operating Income$6,240$5,318 Depreciation and Amortization 2,845 2,680 EBITDA$9,085$7,998 Net Sales$151,004$140,288 Consolidated net income margin 1.1%1.5ITDA margin 6.0%5.7%
2023-11-29
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5星级
Financial presentationto accompany management commentaryFY24 Q2The following guidance reflects the Companys expectations for the third quarter and fiscal year 2024 and is provided on a non-GAAP basis as the Company cannot predict certain elements that are included in reported GAAP results,such as the changes in fair value of the Companys equity and other investments.Growth rates reflect an adjusted basis for prior year results.Additionally,the Companys guidance assumes a generally stable consumer and continued pressure from its mix of products and formats globally.The Companys fiscal year guidance is based on the following previously disclosed FY23 figures:Net sales:$605.9 billion,adjusted operating income1:$24.6 billion,adjusted EPS1$6.29.MetricFY242 Consolidated net sales(cc)Increase approximately 4.0%to 4.5%Consolidated operating income(cc)Increase approximately 7.0%-7.5%,including an expected 30bps tailwind from LIFOInterest,netIncrease approximately$500M v.LYEffective tax rateUnchanged at 26.5%Non-controlling interestApproximately$0.26 headwind to EPSAdjusted EPS$6.36 to$6.46,including an expected$0.05 impact from LIFOCapital expendituresFlat to up slightly v.LY,unchanged from prior guidanceMetricQ3Consolidated net sales(cc)Increase approximately 3.0%Consolidated operating income(cc)Increase approximately 1.0justed EPS$1.45 to$1.501 For relevant reconciliations,see Q4 FY23 earnings release furnished on Form 8-K on February 21,2023.2 Our expectations are for Walmart U.S.and International to grow slightly faster than our prior view and for Sams Club growth to be consistent with our February guidance.CC=Constant currencyGuidanceTotal Revenue(cc)1$161.1 billion,up 5.4%Amounts in billions,except as noted.Dollar changes may not recalculate due to rounding.Total revenue reached$161.6 billion with strength across all operating segments Positively affected by$0.6 billion from currency fluctuations eCommerce net sales up 24%globally led by omnichannel,including pickup and delivery eCommerce net sales globally$24B,reaching 15%of net sales Strong growth in membership income,globally Other income negatively affected by lapping Chile insurance proceeds last yearY/Y Change 8.4% 8.7% 7.3% 7.6% 5.7%Y/Y Change(cc)1 9.1% 9.8% 7.9% 7.7% 5.4%1See additional information at the end of this presentation regarding non-GAAP financial measures.Total Revenue$152.9$152.8$164$152.3$161.6Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24 Gross profit rate increased due to lapping last years elevated levels of markdowns and supply chain costs Partially offset by ongoing category mix pressure as grocery and health&wellness sales outperform general merchandise Walmart US sales mix shifted 240bps from general merchandise to grocery and health&wellnessY/Y Change-132bps-89bps-83bps-18bps 50bpsGross Profit Rate23.5#.7.9#.7$.0%Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Gross Profit Rate 50bps to 24.0%As a percentage of net sales, 33bps to 20.3%Expense deleverage reflects increased variable pay,higher tech expenses,and increased store remodel costs in the U.S.Partially offset by robust leverage in International on strong sales growth Y/Y Change-45bps 144bps-44bps-58bps 33bpsOperating Expenses19.9.8 .3 .4 .3%Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY241See additional information at the end of this presentation regarding non-GAAP financial measures.Operating Income Adjusted operating income1 up 8.1%relative to 5.9%growth in net sales Net income margin increased 150bps and Adjusted EBITDA margin1 increased 10bps over last year Q3 FY23 and Q4 FY23 negatively affected by discrete charges of$3.3B and$0.8B,respectively,associated with the opioid legal settlement frameworks,and business reorganization and restructuringsOperating IncomeAdjusted Operating Income1$6.9$2.7$5.6$6.2$7.3Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Y/Y Change-6.8% 3.9% 6.9% 17.3% 8.1%Y/Y Change(cc)1-6.0% 4.6% 6.3% 16.0% 6.3%Y/Y Change-6.8%-53.5%-5.5% 17.3% 6.7%Y/Y Change(cc)1-6.0%-52.8%-6.5% 16.0% 4.9%$6.9$6.0$6.4$6.2$7.4Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Adjusted Operating Income1 of$7.4 billion,up 8.1%Amounts in billions,except as noted.Dollar changes may not recalculate due to rounding.1See additional information at the end of this presentation regarding non-GAAP financial measures.NM=not meaningfulAdjusted EPS1 of$1.84,up 4.0%EPSPY$1.78$1.45$1.53$1.30$1.77Y/Y Change-0.6% 3.4% 11.8% 13.1% 4.0justed EPS1 excludes the net effects of$1.08 from net gains on equity and other investments and an incremental opioid settlement expenseY/Y Change 23.7%NM 81.3%-16.2% 55.3%EPSAdjusted EPS1$1.88$(0.66)$2.32$0.62$2.92Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24$1.77$1.50$1.71$1.47$1.84Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24PY$7.4$7.7$11.1$(7.3)$1.7Y/Y Change-76.4%-52.8% 8.2%NM 414.0%Operating cash flow increased primarily due to moderated levels of inventory purchases and timing of certain payments Free cash flow increased due to the increase in operating cash flow,partially offset by an increase of$1.7B in capital expenditures to support the companys investment strategy1See additional information at the end of this presentation regarding non-GAAP financial measures.NM=not meaningfulPY$12.4$16.3$24.2$(3.8)$9.2Y/Y Change-25.6%-3.6% 19.3%NM 97.0%Operating Cash FlowFree Cash Flow1Cash Flow$1.7$3.6$12.0$0.2$9.0Q2 FY23 YTDQ3 FY23 YTDQ4 FY23 YTDQ1 FY24 YTDQ2 FY24 YTD$9.2$15.7$28.8$4.6$18.2Q2 FY23 YTDQ3 FY23 YTDQ4 FY23 YTDQ1 FY24 YTDQ2 FY24 YTDAmounts in billions,except as noted.Dollar changes may not recalculate due to rounding.Through dividends and share repurchasesAmounts in billions,except as noted.Dollar changes may not recalculate due to rounding.Share repurchases during quarter totaled$485 million representing 3.2 million shares at an average price of$152.78 per share Remaining share repurchase authorization is$18.2 billionReturns to Shareholders$4.9$4.5$2.7$2.2$2.0Returns to Shareholders$1.5$1.5$1.5$1.5$1.5$3.3$3.0$1.2$0.7$0.5DividendsShare RepurchaseQ2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Y/Y Change-100bps-170bps-220bps-120bps-100bps ROI declined on a trailing 12-month basis as a result of discrete charges for the opioid legal settlement frameworks in Q3 FY23 and business reorganization and restructurings in Q4 FY23 Discrete charges totaled 140 bps headwind to ROI1See additional information at the end of this presentation regarding non-GAAP financial measures.Return on Assets(ROA)Return on Investment(ROI)1ReturnsY/Y Change 140bps 40bps-100bps-100bps-20bps5.8%3.7%4.6%4.5%5.6%Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY2413.8.8.7.7.8%Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Net Sales 5.4%,eCommerce 24%Comp sales 6.4%with strength in grocery and health&wellness,offset by softness in general merchandise Sales growth included increases in both store and digital transactions Strong market share gains in grocery eCommerce led by double-digit growth in store-fulfilled pickup and delivery and 36%increase in advertising Weekly active digital users grew 20%Marketplace customer counts 14ommerce Contribution100bps80bps140bps270bps230bpsWalmart U.S.Comp Sales16.5%8.2%8.3%7.4%6.4%Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY241Comp sales for the 13-week period ended July 28,2023 compared to the 13-week period ended July 29,2022,and excludes fuel.Store Remodels:165 Pickup:4,600 stores Delivery from Store:4,000The lapping of last years elevated markdowns and supply chain costs benefited marginsBenefited from managing prices to reflect elevated levels of cost inflationPartly offset by unfavorable product mix shifts as grocery and health&wellness increased nearly 240 bps as a portion of sales mix,while general merchandise sales declinedGrowth initiatives like marketplace and advertising contributed to margin improvement Gross profit rate 40 bpsReflects higher variable pay relative to last year when we were below our planned performance,as well as technology investmentsStore remodel costs increased as we continue rollout of an elevated store experienceOperating expenses as a percentage of net sales 28 bpsReflects increased gross margins and Walmart membership income,partially offset by expense deleverageOperating income$6.1 billion, 7.6%In-stock levels and the composition of inventory mix has improvedMaintaining discipline in buying general merchandise due to macro uncertainty Inventory-7.6%Walmart U.S.Merchandise category performance detailsWalmart U.S.CategoryCompCommentsGrocery high single-digitStrong comps reflected continued market share gains in dollars and units(according to Nielsen),and growth in private brand penetration( 40 bps)Grocery inflation increased HSD in Q2(but moderated 400 bps versus Q1),and up low-20s on a two-year stackSolid increase in food units soldConsumables led by strength in pet and personal care products due in part to inflationHealth&Wellness high teensStrong pharmacy sales reflected increased script counts,higher mix of branded versus generic prescriptions,strength in immunizations,and branded drug inflationGeneral Merchandise-low single-digitGeneral merchandise sales reflected softness in discretionary categories including apparel,home,and sporting goodsAutomotive and back-to-school categories performed wellNet Sales(cc)1$27.0 billion, 11.0%Strong sales growth(cc)1 led by double-digit growth in Walmex,China and Flipkart Sales positively affected by$0.6 billion,or 2.2%,due to currency rate fluctuations eCommerce sales grew 26%with strength in China,Flipkart and Walmex.Continued strong growth in food and consumables as well as an increase in private brands penetration across marketsY/Y Change 5.7% 7.1% 2.1% 12.0% 13.3%Net Sales(cc)1,2$24.4$26.8$28.5$26.8$27.0Y/Y Change(cc)1 9.9% 13.3% 5.5% 12.9% 11.0%1See additional information at the end of this presentation regarding non-GAAP financial measures.2For Q2 FY23,net sales constant currency reflects reported results for comparison to current quarter growth in constant currency.Walmart International Net Sales$24.4$25.3$27.6$26.6$27.6Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Net sales Format and channel mix changes in China,consistent with prior quarters Continuing category mix shifts towards food and consumablesStrong local businesses powered by Walmart1See additional information at the end of this presentation regarding non-GAAP financial measures.Gross profit rate-37 bps Leverage driven by strong sales growth driving fixed cost leverage across most markets Benefited by format mix changesOperating expenses as a percentage of net sales-129 bps Growth rate impacted 20 percentage points from lapping last years$0.2b insurance benefit related to the disruption in Chile in fiscal year 2020Operating income$1.2 billion, 14.1%;$1.1 billion(cc)1, 2.2%Inventory 6.2%WalmartInternational Primarily due to currency rate fluctuationsSales Double-digit growth with continued strength in food and consumables Opened more than 120 new stores in past twelve months,including 22 new stores in the quarter In Mexico,comp sales grew 8.5%driven by Sams Club and Bodega Strong performance during the annual“Hot Sale”eventGross profit rate Relatively flat New sources of revenue offsetting price investmentsOperating expense rate Decrease Driven by strong sales growth partially offset by continued investments in associates and strategic prioritiesOperating income$IncreaseNet sales growth 12.7% 12.9% 11.8% 10.6% 10.1ommerce net sales growth 17% 17% 14% 17% 21%1Walmex includes the consolidated results of Mexico and Central America2Results are presented on a constant currency basis.Net sales and comparable sales are presented on a nominal,calendar basis and include eCommerce results.Change is calculated as the change versus the prior year comparable period.Walmex1,2Net Sales(cc):$10.7 billion, 10.1.5.7.6%9.3%8.7%Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Comparable sales growthNet sales growth 10.0% 5.5% 5.9% 6.7% 5.1ommerce net sales growth-9% 3%-3%-2% 4%1Results are presented on a constant currency basis.Net sales and comparable sales are presented on a nominal,calendar basis and include eCommerce results.Change is calculated as the change versus the prior year comparable period.Canada1Net Sales(cc):$6.1 billion, 5.1.3%5.2%5.7%6.3%4.8%Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Sales Continued momentum in food and consumables with softness in general merchandise eCommerce investments in customer experience showing positive resultsGross profit rate Relatively flat Primarily from higher shrink and food and consumables mix,offset by efficiencies in logistics and lower import costs Operating expense rate Increase Higher maintenance costs and planned investments in eCommerce technologyOperating income$DecreaseComparable sales growthNet sales growth 15.9% 6.9% 13.5% 28.3% 21.7ommercenet sales growth 77% 63% 70% 54% 44%1Results are presented on a constant currency basis.Net sales and comparable sales are presented on a nominal,calendar basis and include eCommerce results.Change is calculated as the change versus the prior year comparable period.China1Net Sales(cc):$4.1 billion, 21.7.1%5.6.3%.5.2%Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Sales Continued strength in Sams Club and eCommerce Both Sams and Hyper formats with positive traffic online and offline eCommerce penetration at 47%Gross profit rate Decrease Mix effect from continued growth in lower margin formats and channelsOperating expense rate Decrease Driven by strong sales growth,operational efficiencies,and higher penetration of Sams ClubOperating income$IncreaseComparable sales growthNet sales with fuel-0.3%,Net sales without fuel 5.3%,eCommerce 18%Strong comp sales driven by solid increases in ticket,transactions,and units sold Ticket without fuel 2.5%Transactions without fuel 2.9%Strength in food and consumables,and healthcare Gained market share in grocery and general merchandise,including apparel,home,and toys(according to Circana)eCommerce 18%,led by curbside Scan&Go penetration is up nearly 570 bpseComm Cont.without fuel170bps120bps120bps160bps150bps1Comp sales for the 13-week period ended July 28,2023 compared to the 13-week period ended July 29,2022.Sams Club U.S.Comp Sales117.5.7.9%4.2%(0.2)%9.5.0.2%7.0%5.5%With fuelWithout fuelQ2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Helping our members share more,serve more and live more Rate increase primarily due to lapping elevated markdowns last year LIFO expense$48MGross profit rate 135 bps,without fuel 143 bps Lower fuel sales negatively affected expense leverage Without fuel,deleverage primarily due to higher facilities costs and technology investmentsOperating expenses as a percentage of net sales 107 bps,without fuel 64 bps Continued strength primarily due toPlus membership growth and renewals Member count strong with Plus penetration 130bps y/yMembership income 7.0%Inventory-9.5%Sams Club U.S.Operating income$521M, 22.0%,without fuel$392M, 76.6%Lower LIFO charge this year($48M)vs.last year($123M)benefited operating income Lapping supply chain challenges and reduced general merchandise demand last year as well as an elevated LIFO reserve adjustment Pleased with flow of inventory as merchandise is closer to customers,in Clubs and DCsCategory comparable salesSams Club U.S.CategoryCompCommentsFresh/Freezer/Cooler mid single-digitProduce&floral,prepared foods,bakery,and fresh meat performed wellGrocery and Beverage high single-digitDrinks,dry grocery,and snacks showed strengthConsumables high single-digitPaper goods,tabletop&bags,pet supplies,and laundry&home care performed well Home and Apparel-low single-digitSoftness in furniture and toys,partially offset by strength in tiresTechnology,Office and Entertainment-low double-digitsSoftness in office supplies and consumer electronics,partially offset by strength in gift cardsHealth and Wellness mid-teensPharmacy and over the counter performed well Safe harbor and non-GAAP measuresThis presentation and related management commentary contains statements that may be forward-looking statements as defined in,and are intended to enjoy the protection of the safe harbor for forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934,as amended.Assumptions on which such forward-looking statements are based are also forward-looking statements.Our actual results may differ materially from those expressed in or implied by any of these forward-looking statements as a result of changes in circumstances,assumptions not being realized or other risks,uncertainties and factors including:the impact of the COVID-19 pandemic on our business and the global economy;economic,capital markets and business conditions;trends and events around the world and in the markets in which we operate;currency exchange rate fluctuations,changes in market interest rates and market levels of wages;changes in the size of various markets,including eCommerce markets;unemployment levels;inflation or deflation,generally and in particular product categories;consumer confidence,disposable income,credit availability,spending levels,shopping patterns,debt levels and demand for certain merchandise;the effectiveness of the implementation and operation of our strategies,plans,programs and initiatives;unexpected changes in our objectives and plans;the impact of acquisitions,investments,divestitures,store or club closures,and other strategic decisions;our ability to successfully integrate acquired businesses,including within the eCommerce space;changes in the trading prices of certain equity investments we hold;initiatives of competitors,competitors entry into and expansion in our markets,and competitive pressures;customer traffic and average ticket in our stores and clubs and on our eCommerce websites;the mix of merchandise we sell,the cost of goods we sell and the shrinkage we experience;trends in consumer shopping habits around the world and in the markets in which we operate;our gross profit margins;the financial performance of Walmart and each of its segments,including the amounts of our cash flow during various periods;changes in the credit ratings assigned to our commercial paper and debt securities by credit rating agencies;the amount of our net sales and operating expenses denominated in the U.S.dollar and various foreign currencies;transportation,energy and utility costs;commodity prices and the price of gasoline and diesel fuel;supply chain disruptions and disruptions in seasonal buying patterns;the availability of goods from suppliers and the cost of goods acquired from suppliers;consumer acceptance of and response to our stores,clubs,eCommerce platforms,programs,merchandise offerings and delivery methods;cyber security events affecting us and related costs and impact to the business;developments in,outcomes of,and costs incurred in legal or regulatory proceedings to which we are a party or are subject,and the liabilities,obligations and expenses,if any,that we may incur in connection therewith;casualty and accident-related costs and insurance costs;the turnover in our workforce and labor costs,including healthcare and other benefit costs;consumer enrollment in health and drug insurance programs and such programs reimbursement rates and drug formularies;our effective tax rate and the factors affecting our effective tax rate,including assessments of certain tax contingencies,valuation allowances,changes in law,administrative audit outcomes,impact of discrete items and the mix of earnings between the U.S.and Walmarts international operations;changes in existing tax,labor and other laws and regulations and changes in tax rates including the enactment of laws and the adoption and interpretation of administrative rules and regulations;the imposition of new taxes on imports,new tariffs and changes in existing tariff rates;the imposition of new trade restrictions and changes in existing trade restrictions;adoption or creation of new,and modification of existing,governmental policies,programs,initiatives and actions in the markets in which Walmart operates and elsewhere and actions with respect to such policies,programs and initiatives;changes in accounting estimates or judgments;the level of public assistance payments;natural disasters,changes in climate,geopolitical events and catastrophic events;and changes in generally accepted accounting principles in the United States.Our most recent annual report on Form 10-K and subsequent quarterly report on Form 10-Q filed with the SEC discuss other risks and factors that could cause actual results to differ materially from those expressed or implied by any forward-looking statement in the presentations.We urge you to consider all of the risks,uncertainties and factors identified above or discussed in such reports carefully in evaluating the forward-looking statements in this release.Walmart cannot assure you that the results reflected in or implied by any forward-looking statement will be realized or,even if substantially realized,that those results will have the forecasted or expected consequences and effects for or on our operations or financial performance.The forward-looking statements made in the presentation are as of the date of this meeting.Walmart undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.This presentation includes certain non-GAAP measures as defined under SEC rules,including net sales,revenue,and operating income on a constant currency basis,adjusted EPS,free cash flow,return on investment,and EBITDA and EBITDA margin.Refer to information about the non-GAAP measures contained in this presentation.Additional information as required by Regulation G and Item 10(e)of Regulation S-K regarding non-GAAP measures can be found in our most recent Form 10-K and our Form 8-K furnished as of the date of this presentation with the SEC,which are available at .Non-GAAP measures-ROIWe include Return on Assets(ROA),which is calculated in accordance with U.S.generally accepted accounting principles(GAAP)as well as Return on Investment(ROI)as measures to assess returns on assets.Management believes ROI is a meaningful measure to share with investors because it helps investors assess how effectively Walmart is deploying its assets.Trends in ROI can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts.We consider ROA to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure to our calculation of ROI.ROA was 5.6%percent and 5.8%percent for the trailing twelve months ended July 31,2023 and 2022,respectively.The decrease in ROA was primarily due to the increase in average total assets driven by higher purchases of property and equipment.ROI was 12.8%and 13.8%for the trailing 12 months ended July 31,2023 and 2022,respectively.The decrease in ROI was the result of a decrease in operating income primarily due to opioid legal charges and reorganization and restructuring charges recorded in Q3 and Q4 of fiscal 2023 respectively,as well as an increase in average invested capital primarily due to higher purchases of property and equipment.We define ROI as operating income plus interest income,depreciation and amortization,and rent expense for the trailing twelve months divided by average invested capital during that period.We consider average invested capital to be the average of our beginning and ending total assets,plus average accumulated depreciation and average amortization,less average accounts payable and average accrued liabilities for that period.Our calculation of ROI is considered a non-GAAP financial measure because we calculate ROI using financial measures that exclude and include amounts that are included and excluded in the most directly comparable GAAP financial measure.For example,we exclude the impact of depreciation and amortization from our reported operating income in calculating the numerator of our calculation of ROI.As mentioned above,we consider ROA to be the financial measure computed in accordance with generally accepted accounting principles most directly comparable to our calculation of ROI.ROI differs from ROA(which is consolidated net income for the period divided by average total assets for the period)because ROI:adjusts operating income to exclude certain expense items and adds interest income;adjusts total assets for the impact of accumulated depreciation and amortization,accounts payable and accrued liabilities to arrive at total invested capital.Because of the adjustments mentioned above,we believe ROI more accurately measures how we are deploying our key assets and is more meaningful to investors than ROA.Although ROI is a standard financial measure,numerous methods exist for calculating a companys ROI.As a result,the method used by management to calculate our ROI may differ from the methods used by other companies to calculate their ROI.The calculation of ROA and ROI,along with a reconciliation of ROI to the calculation of ROA,is as follows:Non-GAAP measures ROI(cont.)CALCULATION OF RETURN ON ASSETSTrailing Twelve Months EndingJul 31,Oct 31,Jan 31,Apr 30,Jul 31,(Dollars in millions)20222022202320232023NumeratorConsolidated net income$14,015$9,116$11,292$11,085$13,991 DenominatorAverage total assets1$242,876$246,254$244,029$245,598$251,160 Return on assets(ROA)5.8%3.7%4.6%4.5%5.6%Jul 31,Oct 31,Jan 31,April 30,Jul 31,Oct 31,Jan 31,April 30,Jul 31,Certain Balance Sheet Data202120212022202220222022202320232023Total assets$238,552$244,851$244,860$246,142$247,199$247,656$243,197$245,053$255,121 Accumulated depreciation and amortization 98,346 100,168 102,211 104,295 105,963 107,628 110,286 113,164 115,878 Accounts payable 49,601 57,156 55,261 52,926 54,191 57,263 53,742 54,268 56,576 Accrued liabilities 23,915 24,474 26,060 21,061 23,843 27,443 31,126 27,527 29,239 1 The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2The calculation of ROA and ROI,along with a reconciliation of ROI to the calculation of ROA,is as follows:Non-GAAP measures ROI(cont.)CALCULATION OF RETURN ON INVESTMENTTrailing Twelve Months EndingJul 31,Oct 31,Jan 31,Apr 30,Jul 31,(Dollars in millions)20222022202320232023NumeratorOperating income$23,851$20,754$20,428$21,350$21,812 Interest income 155 196 254 323 442 Depreciation and amortization 10,733 10,840 10,945 11,110 11,318 Rent 2,302 2,296 2,306 2,301 2,284 ROI operating income$37,041$34,086$33,933$35,084$35,856 DenominatorAverage total assets1$242,876$246,254$244,029$245,598$251,160 Average accumulated depreciation and amortization1 102,155 103,898 106,249 108,730 110,921-Average accounts payable1 51,896 57,210 54,502 53,597 55,384-Average accrued liabilities1 23,878 25,959 28,593 24,294 26,541 Average invested capital$269,257$266,983$267,183$276,437$280,156 Return on investment(ROI)13.8.8.7.7.8%1 The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2Non-GAAP measures free cash flowWe define free cash flow as net cash provided by operating activities in a period minus payments for property and equipment made in that period.Net cash provided by operating activities was$18.2 billion for the six months ended July31,2023,which represents an increase of$9.0 billion when compared to the same period in the prior year.The increase is primarily due to moderated levels of inventory purchases and timing of certain payments.Free cash flow for the six months ended July31,2023 was$9.0 billion,which represents an increase of$7.2 billion when compared to the same period in the prior year.The increase in free cash flow is due to the increase in operating cash flows described above,partially offset by an increase of$1.7 billion in capital expenditures to support our investment strategy.Free cash flow is considered a non-GAAP financial measure.Management believes,however,that free cash flow,which measures our ability to generate additional cash from our business operations,is an important financial measure for use in evaluating the Companys financial performance.Free cash flow should be considered in addition to,rather than as a substitute for,consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.Additionally,Walmarts definition of free cash flow is limited,in that it does not represent residual cash flows available for discretionary expenditures,due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions.Therefore,we believe it is important to view free cash flow as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows.Although other companies report their free cash flow,numerous methods may exist for calculating a companys free cash flow.As a result,the method used by Walmarts management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow.Non-GAAP measures free cash flow(cont.)The following table sets forth a reconciliation of free cash flow,a non-GAAP financial measure,to net cash provided by operating activities,which we believe to be the GAAP financial measure most directly comparable to free cash flow,as well as information regarding net cash used in investing activities and net cash used in financing activities.Year to Date Period Ended(Dollars in millions)Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Net cash provided by operating activities$9,240$15,698$28,841$4,633$18,201 Payments for property and equipment(capital expenditures)(7,492)(12,061)(16,857)(4,429)(9,216)Free cash flow$1,748$3,637$11,984$204$8,985 Net cash used in investing activities1$(8,584)$(12,965)$(17,722)$(4,860)$(9,909)Net cash provided by(used in)financing activities$(1,400)$(5,581)$(17,039)$1,940$(3,309)Year to Date Period Ended(Dollars in millions)Q2 FY22Q3 FY22Q4 FY22Q1 FY23Q2 FY23Net cash provided by(used in)operating activities$12,423$16,291$24,181$(3,758)$9,240 Payments for property and equipment(capital expenditures)(5,019)(8,588)(13,106)(3,539)(7,492)Free cash flow$7,404$7,703$11,075$(7,297)$1,748 Net cash provided by(used in)investing activities1$2,402$(1,530)$(6,015)$(4,558)$(8,584)Net cash provided by(used in)financing activities(11,559)(18,113)(22,828)5,315 (1,400)Y/Y Change in Free Cash Flow-76.4%-52.8% 8.2%NM 414.0%1 Net Cash used in investing activities includes payments for property and equipment,which is also included in our computation of free cash flow.NM=not meaningfulNon-GAAP measures constant currencyIn discussing our operating results,the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for countries where the functional currency is not the U.S.dollar into U.S.dollars.We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the current periods currency exchange rates and the comparable prior year periods currency exchange rates.Additionally,no currency exchange rate fluctuations are calculated for non-USD acquisitions until owned for 12 months.Throughout our discussion,we refer to the results of this calculation as the impact of currency exchange rate fluctuations.When we refer to constant currency operating results,this means operating results without the impact of the currency exchange rate fluctuations.The disclosure of constant currency amounts or results permits investors to better understand Walmarts underlying performance without the effects of currency exchange rate fluctuations.The table below reflects the calculation of constant currency for net sales for the Walmart International segment for the trailing five quarters and operating income for the current quarter.Three Months EndedWalmart International(Dollars in millions)Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Net sales:As reported$24,350$25,295$27,575$26,604$27,596 Currency exchange rate fluctuations 956 1,473 901 226 (574)Net sales(cc)$25,306$26,768$28,476$26,830$27,022 PY Reported$23,035$23,627$26,997$23,763$24,350%change(cc) 9.9% 13.3% 5.5% 12.9% 11.0%Operating income:As reported$1,190 Currency exchange rate fluctuations$(124)Operating income(cc)$1,066 PY Reported$1,043%change(cc) 2.2%Non-GAAP measures constant currency(cont.)Three Months EndedConsolidated(Dollars in millions)Q2 FY23Q3 FY23Q4 FY23Q1 FY24Q2 FY24Total Revenue:As reported$152,859$152,813$164,048$152,301$161,632 Currency exchange rate fluctuations 996 1,491 917 230 (576)Total Revenue(cc)$153,855$154,304$164,965$152,531$161,056 PY Reported$141,048$140,525$152,871$141,569$152,859%change(cc) 9.1% 9.8% 7.9% 7.7% 5.4%Net sales:As reported$151,381$151,469$162,743$151,004$160,280 Currency exchange rate fluctuations 956 1,473 901 226 (574)Net sales(cc)$152,337$152,942$163,644$151,230$159,706 PY Reported$139,871$139,207$151,525$140,288$151,381%change(cc) 8.9% 9.9% 8.0% 7.8% 5.5%Operating income:As reported$6,854$2,695$5,561$6,240$7,316 Currency exchange rate fluctuations 62 38 (57)(72)(124)Operating income(cc)$6,916$2,733$5,504$6,168$7,192 PY Reported$7,354$5,792$5,887$5,318$6,854%change(cc)-6.0%-52.8%-6.5% 16.0% 4.9%The table below reflects the calculation of constant currency for total revenues,net sales and operating income for the trailing five quarters.Non-GAAP measures Adjusted Operating IncomeThree Months Ended(Dollars in millions)Q2 FY23Q2 FY22Q3 FY23Q3 FY22Q4 FY23Q4 FY22Q1 FY24Q1 FY23Q2 FY24Q2 FY23Operatingincome:Operatingincome,asreported$6,854$7,354$2,695$5,792$5,561$5,887$6,240$5,318$7,316$6,854 Businessreorganizationandrestructuringcharges1 849 108 Opioidlegalcharges2 3,325 93 Adjustedoperatingincome$6,854$7,354$6,020$5,792$6,410$5,995$6,240$5,318$7,409$6,854 Percentchange3-6.8%NP 3.9%NP 6.9%NP 17.3%NP 8.1%NPCurrencyexchangeratefluctuations$62$38$(39)$(72)$(124)$Adjustedoperatingincome,constantcurrency$6,916$7,354$6,058$5,792$6,371$5,995$6,168$5,318$7,285$6,854 Percentchange3-6.0%NP 4.6%NP 6.3%NP 16.0%NP 6.3%NPAdjusted operating income is considered a non-GAAP financial measure under the SECs rules because it excludes certain charges included in operating income calculated in accordance with GAAP.Management believes that adjusted operating income is a meaningful measure to share with investors because it best allows comparison of the performance with that of the comparable period.In addition,adjusted operating income affords investors a view of what management considers Walmarts core earnings performance and the ability to make a more informed assessment of such core earnings performance as compared with that of the prior year.When we refer to adjusted operating income in constant currency,this means adjusted operating results without the impact of the currency exchange rate fluctuations.The disclosure of constant currency amounts or results permits investors to better understand Walmarts underlying performance without the effects of currency exchange rate fluctuations.The table below reflects the calculation of adjusted operating income and adjusted operating income in constant currency,when applicable,for the trailing five quarters.1Business reorganization and restructuring charges in the fourth quarter of fiscal 2023 primarily relate to compensation expenses incurred in connection with the strategic decisions made in the Walmart International segment.Business restructuring charges in the fourth quarter of fiscal 2022 primarily consist of severance and store closure related costs due to strategic decisions made in the Walmart International segment.2Recorded in Corporate and support.3Change versus prior year comparable period.NP=not providedNon-GAAP measures adjusted EPS Adjusted diluted earnings per share attributable to Walmart(Adjusted EPS)is considered a non-GAAP financial measure under the SECs rules because it excludes certain amounts included in the diluted earnings per share attributable to Walmart calculated in accordance with GAAP(EPS),the most directly comparable financial measure calculated in accordance with GAAP.Management believes that Adjusted EPS is a meaningful measure to share with investors because it best allows comparison of the performance with that of the comparable period.In addition,Adjusted EPS affords investors a view of what management considers Walmarts core earnings performance and the ability to make a more informed assessment of such core earnings performance with that of the prior year.We adjust for the unrealized and realized gains and losses on our equity and other investments each quarter because although the investments are strategic decisions for the companys retail operations,managements measurement of each strategy is primarily focused on the operational results rather than the fair value of such investments.Additionally,management does not forecast changes in the fair value of its equity and other investments.Accordingly,management adjusts EPS each quarter for the realized and unrealized gains and losses related to those equity investments.We have calculated Adjusted EPS for the trailing five quarters as well as the prior year comparable periods by adjusting EPS for the relevant adjustments for each period presented.Three Months Ended Jul 31,20235Three Months Ended Jul 31,20225Percent ChangeDiluted earnings per share:Reported EPS$2.92$1.88 55.3justments:Pre-Tax ImpactTax Impact1,2NCI Impact4Net ImpactPre-Tax ImpactTax Impact1,3NCI Impact4Net ImpactUnrealized and realized(gains)and losses on equity and other investments6$(1.44)$0.33$(1.11)$0.14$(0.02)$(0.01)$0.11Incremental opioid settlement expense0.04(0.01)0.03Gain on sale of equity method investment in Brazil(0.16)(0.16)Discrete tax item(0.06)(0.06)Net Adjustments$(1.08)$(0.11)Adjusted EPS$1.84$1.77 4.0%1 Tax impact calculated based on nature of item,including any realizable deductions,and statutory rate in effect for relevant jurisdictions.No tax expense was incurred in connection with the gain on sale of equity method investment in Brazil.2 The reported effective tax rate was 24.9%for the three months ended July 31,2023.Adjusted for the above items,the effective tax rate was 25.8%for the three months ended July 31,2023.3 The reported effective tax rate was 22.5%for the three months ended July 31,2022.Adjusted for the above items,the effective tax rate was 26.2%for the three months ended July 31,2022.4 Calculated based on the ownership percentages of our noncontrolling interests,where applicable.5 Individual components in the accompanying tables may include immaterial rounding.6 For the three months ended July 31,2023,unrealized gains were primarily driven by increases in the underlying stock prices of our investments in Symbotic and JD.com.Non-GAAP measures adjusted EPS(cont.)1 Tax impact calculated based on nature of item,including any realizable deductions,and statutory rate in effect for relevant jurisdictions.2 Business reorganization and restructuring charges include tax amounts incurred on separation of Flipkart and PhonePe.3 Calculated based on the ownership percentages of our noncontrolling interests,where applicable.Three Months Ended Apr 30,2023Three Months Ended Apr 30,2022Percent ChangeDiluted earnings per share:Reported EPS$0.62$0.74-16.2justments:Pre-Tax ImpactTax Impact1NCI Impact3Net ImpactPre-Tax ImpactTax Impact1NCI Impact3Net ImpactUnrealized and realized(gains)and losses on equity and other investments$1.13$(0.27)$(0.01)$0.85$0.71$(0.15)$0.56Adjusted EPS$1.47$1.30 13.1%Three Months Ended Jan 31,2023Three Months Ended Jan 31,2022Percent ChangeDiluted earnings per share:Reported EPS$2.32$1.28 81.3justments:Pre-Tax ImpactTax Impact1,2NCI Impact3Net ImpactPre-Tax ImpactTax Impact1NCI Impact3Net ImpactUnrealized and realized(gains)and losses on equity and other investments$(1.43)$0.27$(1.16)$0.22$(0.05)$0.02$0.19Business reorganization and restructuring charges0.310.40(0.16)0.550.08(0.02)0.06Net Adjustments$(0.61)$0.25Adjusted EPS$1.71$1.53 11.8%Non-GAAP measures adjusted EPS(cont.)1 Tax impact calculated based on nature of item,including any realizable deductions,and statutory rate in effect for relevant jurisdictions.2 No tax expense was incurred in connection with the gain on sale of equity method investment in Brazil.3 Calculated based on the ownership percentages of our noncontrolling interests,where applicable.4 Adjusted EPS for the three months ended October 31,2022 was calculated using weighted average shares outstanding of 2,720 million,which includes the dilutive impact of share-based payment awards.NM=not meaningfulThree Months Ended Oct 31,2022Three Months Ended Oct 31,2021Percent ChangeDiluted earnings per share:Reported EPS$(0.66)$1.11NMAdjustments:Pre-Tax ImpactTax Impact1NCI Impact3Net ImpactPre-Tax ImpactTax Impact1NCI Impact3Net ImpactUnrealized and realized(gains)and losses on equity and other investments$1.34$(0.24)$0.01$1.11$(0.42)$0.09$(0.33)Opioid legal charges1.22(0.17)1.05Loss on extinguishment of debt0.86(0.19)0.67Net Adjustments4$2.16$0.34Adjusted EPS4$1.50$1.45 3.4%Three Months Ended Jul 31,2022Three Months Ended Jul 31,2021Percent ChangeDiluted earnings per share:Reported EPS$1.88$1.52 23.7justments:Pre-Tax ImpactTax Impact1,2NCI Impact3Net ImpactPre-Tax ImpactTax Impact1NCI Impact3Net ImpactUnrealized and realized(gains)and losses on equity and other investments$0.14$(0.02)$(0.01)$0.11$0.34$(0.08)$0.26Gain on sale of equity method investment in Brazil(0.16)(0.16)Discrete tax item(0.06)(0.06)Net Adjustments$(0.11)$0.26Adjusted EPS$1.77$1.78-0.6%Non-GAAP measures-Adjusted EBITDA and Adjusted EBITDA MarginWe include net income and net income margin,which are calculated in accordance with U.S.generally accepted accounting principle as well as Adjusted EBITDA and Adjusted EBITDA margin to provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of certain items.We calculate Adjusted EBITDA as earnings before interest,taxes,depreciation and amortization.We also exclude other gains and losses,which is primarily comprised of fair value adjustments on our investments which management does not believe are indicative of our core business performance.From time to time,we will also adjust certain items from operating income,which we believe is meaningful because it best allows comparison of the performance with that of the comparable period.Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by consolidated net sales.Adjusted EBITDA and Adjusted EBITDA margin are considered non-GAAP financial measures.Management believes,however,that these measures provide meaningful information about our operational efficiency by excluding the impact of differences in tax jurisdictions and structures,debt levels,capital investments and other items which management does not believe are indicative of our core business performance.We consider net income to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure to our calculation of Adjusted EBITDA.We consider net income margin to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure to our calculation of Adjusted EBITDA margin.Although Adjusted EBITDA and Adjusted EBITDA margin are standard financial measures,numerous methods exist for calculating a companys Adjusted EBITDA and Adjusted EBITDA margin.As a result,the method used by management to calculate our Adjusted EBITDA and Adjusted EBITDA margin may differ from the methods used by other companies to calculate similarly titled measures.Net income margin was 4.9%and 3.4%for the three months ended July 31,2023 and 2022,respectively.The increase in net income margin was primarily due to the increase in net income,which was impacted by higher unrealized net gains on our equity and other investments,when compared to the same period in the previous year.Adjusted EBITDA margin was 6.4%and 6.3%for the three months ended July 31,2023 and 2022,respectively.The increase in Adjusted EBITDA margin was due to higher operating income driven primarily by an increase in net sales when compared to the same period in the previous year.Non-GAAP measures Adjusted EBITDA&Adjusted EBITDA marginThe calculation of net income margin and Adjusted EBITDA margin,along with a reconciliation of Adjusted EBITDA margin to the calculation of net income margin,is as follows:We define adjusted EBITDA as earnings before interest,taxes,depreciation and amortization,as well as adjustments for certain items that are excluded from earnings as previously described in the reconciliation for adjusted EPS.Adjusted EBITDA is considered a non-GAAP financial measure.Management believes,however,that this measure provides meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures,debt levels,capital investments and other items which management does not believe are indicative of our core business performance.Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by consolidated net income.Adjusted EBITDA margin is also considered a non-GAAP financial measure.These non-GAAP measures should be considered in addition to,rather than as a substitute for,consolidated net income,which is the most comparable GAAP measure for adjusted EBITDA and consolidated net income margin,which is the most comparable GAAP measure for adjusted EBITDA margin.Although other companies report adjusted EBITDA and adjusted EBITDA margin,numerous methods may exist for calculating these metrics.As a result,the methods used by Walmarts management to calculate our adjusted EBITDA and adjusted EBITDA margin may differ from the methods used by other companies to calculate similarly titled measures.Three Months EndedQ2 FY24Q2 FY23(Amounts in millions)20232022Consolidated net income attributable to Walmart 7,891 5,149 Consolidated net(income)loss attributable to noncontrolling interest(162)2 Provision for income taxes 2,674 1,497 Other(gains)and losses(3,905)(238)Interest,Net 494 448 Operating Income$7,316$6,854 Depreciation and Amortization 2,905 2,699 Incremental opioid settlement expense 93 Adjusted EBITDA$10,314$9,553 Net Sales$160,280$151,381 Consolidated net income margin 4.9%3.4justed EBITDA margin 6.4%6.3%
2023-11-29
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Financial presentationto accompany management commentaryFY24 Q3The following guidance reflects the Companys expectations for fiscal year 2024 and is provided on a non-GAAP basis as the Company cannot predict certain elements that are included in reported GAAP results,such as the changes in fair value of the Companys equity and other investments.Growth rates reflect an adjusted basis for prior year results.Additionally,the Companys guidance assumes a generally stable consumer and continued pressure from its mix of products and formats globally.The Companys fiscal year guidance is based on the following previously disclosed FY23 figures:Net sales:$605.9 billion,adjusted operating income1:$24.6 billion,adjusted EPS1$6.29.MetricFiscal Year 2024Consolidated net sales(cc)Increase approximately 5.0%to 5.5%Consolidated operating income(cc)Increase approximately 7.0%to 7.5%,including expected 70bps tailwind from LIFOInterest,netIncrease approximately$300M vs.LYEffective tax rateUnchanged at approximately 26.5%Non-controlling interestApproximately$0.27 headwind to EPS vs.LYAdjusted EPS$6.40 to$6.48,including expected$0.03 headwind from current year LIFO charges,$0.04 benefit YOYCapital expendituresUnchanged from prior guidance at flat to up slightly vs.LY1 For relevant reconciliations,see Q4 FY23 earnings release furnished on Form 8-K on February 21,2023.cc=constant currencyGuidanceTotal revenues(cc)1$159.4 billion,up 4.3%Amounts in billions,except as noted.Dollar changes may not recalculate due to rounding.Total revenues reached$160.8 billion with strength across all operating segments Positively affected by$1.4 billion from currency fluctuations eCommerce net sales globally$24 billion,reaching 15%of net sales eCommerce net sales up 15%globally,led by pickup and delivery Strong growth in membership income globallyY/Y Change 8.7% 7.3% 7.6% 5.7% 5.2%Y/Y Change(cc)1 9.8% 7.9% 7.7% 5.4% 4.3%1See additional information at the end of this presentation regarding non-GAAP financial measures.Total revenues$152.8$164.0$152.3$161.6$160.8Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24 Gross profit rate positively affected by a slight improvement for Walmart U.S.and timing of Flipkarts The Big Billion Days event,which flipped from Q3 last year to Q4 this year Positive impact from a reduction in inflation related LIFO charges in the Sams Club segmentY/Y Change-89bps-83bps-18bps 50bps 32bpsGross profit rate23.7.9#.7$.0$.0%Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Gross profit rate 32bps to 24.0justed operating expenses as a percentage of net sales1, 37bps to 21.0%As a percentage of net sales,operating expenses leveraged on a reported basis 182bps,lapping a discrete charge from last year On an adjusted basis,operating expenses as a percentage of net sales deleveraged 37bps reflecting higher variable pay expenses and Walmart U.S.store remodels Y/Y Change-75bps-89bps-58bps 27bps 37bps20.6.8 .4 .2!.0%Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Operating expenses as a percentage of net sales22.8 .3 .4 .3!.0%Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Y/Y Change 144bps-44bps-58bps 33bps-182bpsOperating expenses as a percentage of net salesAdjusted operating expenses as a percentage of net sales11See additional information at the end of this presentation regarding non-GAAP financial measures.1See additional information at the end of this presentation regarding non-GAAP financial measures.Operating income Adjusted operating income1 up 3.0%relative to 5.3%growth in net sales,and positively affected by the impact of currency and LIFO of 2.7%and 1.9%,respectively Net income margin increased 150bps and adjusted EBITDA margin1 was relatively flat compared to last year Q3 FY23 and Q4 FY23 reported operating income negatively affected by discrete charges of$3.3B and$0.8B,respectively,associated with the opioid legal settlement frameworks,and business reorganization and restructuringsOperating incomeAdjusted operating income1$2.7$5.6$6.2$7.3$6.2Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Y/Y Change 3.9% 6.9% 17.3% 8.1% 3.0%Y/Y Change(cc)1 4.6% 6.3% 16.0% 6.3% 0.3%Y/Y Change-53.5%-5.5% 17.3% 6.7% 130.1%Y/Y Change(cc)1-52.8%-6.5% 16.0% 4.9% 124.0%$6.0$6.4$6.2$7.4$6.2Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Adjusted operating income1 of$6.2 billion,up 3.0%Amounts in billions,except as noted.Dollar changes may not recalculate due to rounding.1See additional information at the end of this presentation regarding non-GAAP financial measures.NM=not meaningfulAdjusted EPS1 of$1.53,up 2.0%EPSPY$1.45$1.53$1.30$1.77$1.50Y/Y Change 3.4% 11.8% 13.1% 4.0% 2.0justed EPS1 excludes the effects,net of tax,of$1.36 from net losses on equity and other investmentsY/Y ChangeNM 81.3%-16.2% 55.3%NMEPSAdjusted EPS1$1.50$1.71$1.47$1.84$1.53Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24$(0.66)$2.32$0.62$2.92$0.17Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24PY$7.7$11.1$(7.3)$1.7$3.6Y/Y Change-52.8% 8.2%NM 414.0% 19.4%Operating cash flow increased primarily due to moderated levels of inventory purchases and timing of certain payments,partially offset by payment of the remaining accrued opioid legal charges Free cash flow1 increased due to the increase in operating cash flow,partially offset by an increase of$2.6B in capital expenditures to support the companys investment strategy1See additional information at the end of this presentation regarding non-GAAP financial measures.NM=not meaningfulPY$16.3$24.2$(3.8)$9.2$15.7Y/Y Change-3.6% 19.3%NM 97.0% 21.1%Operating cash flowFree cash flow1Cash flow$3.6$12.0$0.2$9.0$4.3Q3 FY23 YTDQ4 FY23 YTDQ1 FY24 YTDQ2 FY24 YTDQ3 FY24 YTD$15.7$28.8$4.6$18.2$19.0Q3 FY23 YTDQ4 FY23 YTDQ1 FY24 YTDQ2 FY24 YTDQ3 FY24 YTDAmounts in billions,except as noted.Dollar changes may not recalculate due to rounding.Through dividends and share repurchasesAmounts in billions,except as noted.Dollar changes may not recalculate due to rounding.Share repurchases during the quarter totaled$111 million representing 0.7 million shares,at an average price of$159.77 per share Remaining share repurchase authorization is$18.1 billionReturns to shareholders$4.5$2.7$2.2$2.0$1.6Returns to shareholders$1.5$1.5$1.5$1.5$1.5$3.0$1.2$0.7$0.5$0.1DividendsShare repurchasesQ3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Y/Y Change-170bps-220bps-120bps-100bps 130bps ROI1 increased on a trailing 12-month basis primarily as a result of lapping discrete charges for the opioid legal settlement frameworks in Q3 FY23 Discrete charges in Q4 FY23 totaled approximately 30 bps ROI1 headwind1See additional information at the end of this presentation regarding non-GAAP financial measures.Return on assets(ROA)Return on investment(ROI)1ReturnsY/Y Change 40bps-100bps-100bps-20bps 280bps3.7%4.6%4.5%5.6%6.5%Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY2412.8.7.7.8.1%Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Net sales 4.4%,eCommerce 24%Comp sales 4.9%with strength in grocery and health&wellness,partially offset by softness in general merchandise Sales growth included increases in both store and digital transaction counts Strong share gains in grocery and general merchandise eCommerce led by double-digit growth in store-fulfilled pickup and delivery and 26%increase in Walmart ConnecteCommerce Contribution80bps140bps270bps230bps300bpsWalmart U.S.comp sales18.2%8.3%7.4%6.4%4.9%Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY241Comp sales for the 13-week period ended October 27,2023 compared to the 13-week period ended October 28,2022,and excludes fuel.Store Remodels:233 Q3;494 YTDPickup:4,600 storesDelivery from Store:4,200Benefited from lapping last years elevated markdowns and supply chain costsSaw ongoing unfavorable product mix shifts as grocery and health&wellness increased as a portion of sales,while general merchandise sales declinedGross profit rate 5 bpsHigher wage-related costs,including increased variable pay relative to last year when we were below our planned performanceStore remodel costs increased as we continue rollout of an elevated store experienceLegal expenses were higher than last yearOperating expenses as a percentage of net sales 35 bpsReflects expense deleverage,partially offset by higher gross margins and increased Walmart membership incomeOperating income$5.0 billion,-2.2%In-stock levels continued to improveMaintaining discipline in buying general merchandise due to macro uncertainty Inventory-4.8%Walmart U.S.Merchandise category performance detailsWalmart U.S.CategoryCompCommentsGrocery mid single-digitStrong comps reflected continued share gains in dollars and units(according to Nielsen),and growth in private brand penetration( 20 bps)Grocery inflation increased MSD in Q3(but moderated 300 bps versus Q2);up high-teens on a two-year stackSolid increase in food units soldConsumables led by strength in personal care products and pet supplies due in part to inflationHealth&Wellness high teensStrong pharmacy sales reflected increased script counts,higher mix of branded versus generic prescriptions,strength in immunizations,and branded drug inflationGeneral Merchandise-low single-digitGeneral merchandise sales reflected softness in discretionary categories including apparel,home,and toysAutomotive categories continued to perform wellNet sales(cc)1$26.7 billion, 5.4%Amounts in billions,except as noted.Dollar changes may not recalculate due to rounding.Sales growth(cc)1 led by Walmex and China Currency rate fluctuations positively affected sales by$1.4 billion eCommerce sales declined 3%Overall and eCommerce sales growth negatively affected by the timing of Flipkarts The Big Billion Days event,which moved from Q3 last year to Q4 this year Continued strong growth in food and consumables as well as increased private brands penetration across marketsY/Y Change 7.1% 2.1% 12.0% 13.3% 10.8%Net Sales(cc)1,2$25.3$28.5$26.8$27.0$26.7Y/Y Change(cc)1 13.3% 5.5% 12.9% 11.0% 5.4%1See additional information at the end of this presentation regarding non-GAAP financial measures.2For Q3 FY23,net sales constant currency reflects reported results for comparison to current quarter growth in constant currency.Walmart International net sales$25.3$27.6$26.6$27.6$28.0Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Net sales Increase mostly from the timing shift of Flipkarts The Big Billion Days(BBD)event Partially offset by ongoing format and channel mix changesStrong local businesses powered by Walmart1See additional information at the end of this presentation regarding non-GAAP financial measures.Gross profit rate 151 bps Deleverage mostly due to timing shift of BBD Partially offset by ongoing format mix changes Operating expenses as a percentage of net sales 75 bps Operating income growth outpaced sales growth with strength across marketsOperating income$1.1 billion, 29.7%;$1.0 billion(cc)1, 10.7%Inventory 15.8%WalmartInternational Increase driven by timing shift of festive events and currency rate fluctuations Overall inventory levels are healthy from continued operational discipline Sales Increase Continued strength in food and consumables Opened 130 new stores in past twelve months,including 27 new stores in the quarter In Mexico,comp sales grew 8.0%driven by Bodega and Sams ClubGross profit rate Increase Growth of services revenue and lower import costsOperating expense rate Increase Driven by continued investments in associates and strategic priorities Operating income$IncreaseNet sales growth 12.9% 11.8% 10.6% 10.1% 9.4ommerce net sales growth 17% 14% 17% 21% 16%1Results are presented on a constant currency basis.Net sales and comparable sales are presented on a nominal,calendar basis and include eCommerce results.Change is calculated as the change versus the prior year comparable period.2Walmex includes the consolidated results of Mexico and Central AmericaWalmex1,2Net sales(cc):$10.6 billion, 9.4.7.6%9.3%8.7%8.0%Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Comparable sales growthNet sales growth 5.5% 5.9% 6.7% 5.1% 5.3ommerce net sales growth 3%-3%-2% 4% 16%1Results are presented on a constant currency basis.Net sales and comparable sales are presented on a nominal,calendar basis and include eCommerce results.Change is calculated as the change versus the prior year comparable period.Canada1Net sales(cc):$5.8 billion, 5.3%5.2%5.7%6.3%4.8%5.0%Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Sales Increase Continued momentum in food and consumables with softness in general merchandise eCommerce growth improving led by store fulfilled and marketplaceGross profit rate Increase Lower supply chain costs partially offset by higher shrink and food and consumables mixOperating expense rate Increase Higher maintenance costs and planned investments in eCommerce technologyOperating income$IncreaseComparable sales growthNet sales growth 6.9% 13.5% 28.3% 21.7% 25.3ommerce net sales growth 63% 70% 54% 44% 38%1Results are presented on a constant currency basis.Net sales and comparable sales are presented on a nominal,calendar basis and include eCommerce results.Change is calculated as the change versus the prior year comparable period.China1Net sales(cc):$4.5 billion, 25.3%5.6.3%.5.2.6%Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Sales Increase Continued strength in Sams Club and eCommerce Higher in-store traffic in both Sams and Hyper formats Double-digit growth in both formats during Mid-Autumn Festival eCommerce penetration at 45%Gross profit rate Decrease Due to format and channel mix changesOperating expense rate Decrease Driven by strong sales growth,format mix changes,and operational efficienciesOperating income$IncreaseComparable sales growthNet sales with fuel 2.8%,Net sales without fuel 3.2%,eCommerce 16%Solid comp sales driven by increases in transactions and units sold Transactions without fuel 4.0%Average ticket without fuel-0.2%Strength in food and consumables,and healthcare Gained dollar and unit market share in grocery Gained dollar and unit market share in general merchandise categories including apparel and automotive eCommerce 16%,led by curbside and delivery Scan&Go penetration is up over 470 bpseComm Cont.without fuel120bps120bps160bps150bps170bps1Comp sales for the 13-week period ended October 27,2023 compared to the 13-week period ended October 28,2022.Sams Club U.S.comp sales1Sams Club U.S.comp sales12.7.9%4.2%(0.2)%3.3.0.2%7.0%5.5%3.8%With fuelWithout fuelQ3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24 Lower LIFO charge this year($0M)vs.last year($113M)benefited gross profit Excluding LIFO,gross profit negatively affected by price investments in grocery,coupled with product mix shiftsGross profit rate 16 bps,without fuel 9 bps Primarily due to technology investments and higher facilities costsOperating expenses as a percentage of net sales 13 bps,without fuel 11 bps Achieved new highs for total membership and Plus penetration at quarter end Plus penetration 130bps y/yMembership income 7.2%Inventory-7.3%Sams Club U.S.Operating income$593M, 5.5%,without fuel$412M, 3.8%Lower LIFO charge this year($0M)vs.last year($113M)benefited operating income Improved flow of inventory as merchandise is closer to customers,in Clubs and DCs Maintaining discipline in buying general merchandise due to macro uncertainty Category comparable salesSams Club U.S.CategoryCompCommentsFresh/Freezer/Cooler mid single-digitProduce&floral,prepared foods,and bakery performed wellGrocery and Beverage mid single-digitDrinks and candy showed strengthConsumables high single-digitPaper goods,laundry&home care,and health&beauty aids performed well Home and Apparel-mid single-digitSoftness in toys and housewares,partially offset by strength in basic apparelTechnology,Office and Entertainment-low double-digitsSoftness in office supplies and consumer electronicsHealth and Wellness low twentiesPharmacy and over the counter performed well Safe harbor and non-GAAP measuresThis presentation and related management commentary contains statements that may be forward-looking statements as defined in,and are intended to enjoy the protection of the safe harbor for forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934,as amended.Assumptions on which such forward-looking statements are based are also forward-looking statements.Our actual results may differ materially from those expressed in or implied by any of these forward-looking statements as a result of changes in circumstances,assumptions not being realized or other risks,uncertainties and factors including:the impact of the COVID-19 pandemic on our business and the global economy;economic,capital markets and business conditions;trends and events around the world and in the markets in which we operate;currency exchange rate fluctuations,changes in market interest rates and market levels of wages;changes in the size of various markets,including eCommerce markets;unemployment levels;inflation or deflation,generally and in particular product categories;consumer confidence,disposable income,credit availability,spending levels,shopping patterns,debt levels and demand for certain merchandise;the effectiveness of the implementation and operation of our strategies,plans,programs and initiatives;unexpected changes in our objectives and plans;the impact of acquisitions,investments,divestitures,store or club closures,and other strategic decisions;our ability to successfully integrate acquired businesses,including within the eCommerce space;changes in the trading prices of certain equity investments we hold;initiatives of competitors,competitors entry into and expansion in our markets,and competitive pressures;customer traffic and average ticket in our stores and clubs and on our eCommerce websites;the mix of merchandise we sell,the cost of goods we sell and the shrinkage we experience;trends in consumer shopping habits around the world and in the markets in which we operate;our gross profit margins;the financial performance of Walmart and each of its segments,including the amounts of our cash flow during various periods;changes in the credit ratings assigned to our commercial paper and debt securities by credit rating agencies;the amount of our net sales and operating expenses denominated in the U.S.dollar and various foreign currencies;transportation,energy and utility costs;commodity prices and the price of gasoline and diesel fuel;supply chain disruptions and disruptions in seasonal buying patterns;the availability of goods from suppliers and the cost of goods acquired from suppliers;consumer acceptance of and response to our stores,clubs,eCommerce platforms,programs,merchandise offerings and delivery methods;cyber security events affecting us and related costs and impact to the business;developments in,outcomes of,and costs incurred in legal or regulatory proceedings to which we are a party or are subject,and the liabilities,obligations and expenses,if any,that we may incur in connection therewith;casualty and accident-related costs and insurance costs;the turnover in our workforce and labor costs,including healthcare and other benefit costs;consumer enrollment in health and drug insurance programs and such programs reimbursement rates and drug formularies;our effective tax rate and the factors affecting our effective tax rate,including assessments of certain tax contingencies,valuation allowances,changes in law,administrative audit outcomes,impact of discrete items and the mix of earnings between the U.S.and Walmarts international operations;changes in existing tax,labor and other laws and regulations and changes in tax rates including the enactment of laws and the adoption and interpretation of administrative rules and regulations;the imposition of new taxes on imports,new tariffs and changes in existing tariff rates;the imposition of new trade restrictions and changes in existing trade restrictions;adoption or creation of new,and modification of existing,governmental policies,programs,initiatives and actions in the markets in which Walmart operates and elsewhere and actions with respect to such policies,programs and initiatives;changes in accounting estimates or judgments;the level of public assistance payments;natural disasters,changes in climate,geopolitical events and catastrophic events;and changes in generally accepted accounting principles in the United States.Our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q filed with the SEC discuss other risks and factors that could cause actual results to differ materially from those expressed or implied by any forward-looking statement in the presentations.We urge you to consider all of the risks,uncertainties and factors identified above or discussed in such reports carefully in evaluating the forward-looking statements in this release.Walmart cannot assure you that the results reflected in or implied by any forward-looking statement will be realized or,even if substantially realized,that those results will have the forecasted or expected consequences and effects for or on our operations or financial performance.The forward-looking statements made in the presentation are as of the date of this meeting.Walmart undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.This presentation includes certain non-GAAP measures as defined under SEC rules,including net sales,revenue,and operating income on a constant currency basis,adjusted EPS,free cash flow,return on investment,and EBITDA and EBITDA margin.Refer to information about the non-GAAP measures contained in this presentation.Additional information as required by Regulation G and Item 10(e)of Regulation S-K regarding non-GAAP measures can be found in our most recent Form 10-K and our Form 8-K furnished as of the date of this presentation with the SEC,which are available at .Non-GAAP measures ROIWe include return on assets(ROA),which is calculated in accordance with U.S.generally accepted accounting principles(GAAP)as well as return on investment(ROI)as measures to assess returns on assets.Management believes ROI is a meaningful measure to share with investors because it helps investors assess how effectively Walmart is deploying its assets.Trends in ROI can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts.We consider ROA to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure to our calculation of ROI.ROA was 6.5%percent and 3.7%percent for the trailing twelve months ended October 31,2023 and 2022,respectively.The increase in ROA was primarily due to an increase in consolidated net income during the trailing twelve month period primarily due to lapping the opioid legal charges incurred in the prior year comparable period.ROI was 14.1%and 12.8%for the trailing 12 months ended October 31,2023 and 2022,respectively.The increase in ROI was the result of an increase in operating income primarily due to lapping the opioid legal charges incurred in the prior year comparable period,partially offset by an increase in average invested capital primarily due to higher purchases of property and equipment.We define ROI as operating income plus interest income,depreciation and amortization,and rent expense for the trailing twelve months divided by average invested capital during that period.We consider average invested capital to be the average of our beginning and ending total assets,plus average accumulated depreciation and average amortization,less average accounts payable and average accrued liabilities for that period.Our calculation of ROI is considered a non-GAAP financial measure because we calculate ROI using financial measures that exclude and include amounts that are included and excluded in the most directly comparable GAAP financial measure.For example,we exclude the impact of depreciation and amortization from our reported operating income in calculating the numerator of our calculation of ROI.As mentioned above,we consider ROA to be the financial measure computed in accordance with generally accepted accounting principles most directly comparable to our calculation of ROI.ROI differs from ROA(which is consolidated net income for the period divided by average total assets for the period)because ROI:adjusts operating income to exclude certain expense items and adds interest income;adjusts total assets for the impact of accumulated depreciation and amortization,accounts payable and accrued liabilities to arrive at total invested capital.Because of the adjustments mentioned above,we believe ROI more accurately measures how we are deploying our key assets and is more meaningful to investors than ROA.Although ROI is a standard financial measure,numerous methods exist for calculating a companys ROI.As a result,the method used by management to calculate our ROI may differ from the methods used by other companies to calculate their ROI.The calculation of ROA and ROI,along with a reconciliation of ROI to the calculation of ROA,is as follows:Non-GAAP measures ROI(cont.)CALCULATION OF RETURN ON ASSETSTrailing Twelve Months EndingOct 31,Jan 31,Apr 30,Jul 31,Oct 31,(Dollars in millions)20222023202320232023NumeratorConsolidated net income$9,116$11,292$11,085$13,991$16,401 DenominatorAverage total assets1$246,254$244,029$245,598$251,160$253,415 Return on assets(ROA)3.7%4.6%4.5%5.6%6.5%Oct 31,Jan 31,Apr 30,Jul 31,Oct 31,Jan 31,Apr 30,Jul 31,Oct 31,Certain Balance Sheet Data202120222022202220222023202320232023Total assets$244,851$244,860$246,142$247,199$247,656$243,197$245,053$255,121$259,174 Accumulated depreciation and amortization 100,168 102,211 104,295 105,963 107,628 110,286 113,164 115,878 118,122 Accounts payable 57,156 55,261 52,926 54,191 57,263 53,742 54,268 56,576 61,049 Accrued liabilities 24,474 26,060 21,061 23,843 27,443 31,126 27,527 29,239 26,132 1 The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2The calculation of ROA and ROI,along with a reconciliation of ROI to the calculation of ROA,is as follows:Non-GAAP measures ROI(cont.)CALCULATION OF RETURN ON INVESTMENTTrailing Twelve Months EndingOct 31,Jan 31,Apr 30,Jul 31,Oct 31,(Dollars in millions)20222023202320232023NumeratorOperating income$20,754$20,428$21,350$21,812$25,319 Interest income 196 254 323 442 504 Depreciation and amortization 10,840 10,945 11,110 11,318 11,547 Rent 2,296 2,306 2,301 2,284 2,286 ROI operating income$34,086$33,933$35,084$35,856$39,656 DenominatorAverage total assets1$246,254$244,029$245,598$251,160$253,415 Average accumulated depreciation and amortization1 103,898 106,249 108,730 110,921 112,875-Average accounts payable1 57,210 54,502 53,597 55,384 59,156-Average accrued liabilities1 25,959 28,593 24,294 26,541 26,788 Average invested capital$266,983$267,183$276,437$280,156$280,346 Return on investment(ROI)12.8.7.7.8.1%1 The average is based on the addition of the account balance at the end of the current period to the account balance at the end of the prior period and dividing by 2Non-GAAP measures free cash flowWe define free cash flow as net cash provided by operating activities in a period minus payments for property and equipment made in that period.Net cash provided by operating activities was$19.0 billion for the nine months ended October31,2023,which represents an increase of$3.3 billion when compared to the same period in the prior year.The increase is primarily due to timing of certain payments and moderated levels of inventory purchases,partially offset by payment of the remaining accrued opioid legal charges.Free cash flow for the nine months ended October31,2023 was$4.3 billion,which represents an increase of$0.7 billion when compared to the same period in the prior year.The increase in free cash flow is due to the increase in operating cash flows described above,partially offset by an increase of$2.6 billion in capital expenditures to support our investment strategy.Free cash flow is considered a non-GAAP financial measure.Management believes,however,that free cash flow,which measures our ability to generate additional cash from our business operations,is an important financial measure for use in evaluating the Companys financial performance.Free cash flow should be considered in addition to,rather than as a substitute for,consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.Additionally,Walmarts definition of free cash flow is limited,in that it does not represent residual cash flows available for discretionary expenditures,due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions.Therefore,we believe it is important to view free cash flow as a measure that provides supplemental information to our Condensed Consolidated Statements of Cash Flows.Although other companies report their free cash flow,numerous methods may exist for calculating a companys free cash flow.As a result,the method used by Walmarts management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow.Non-GAAP measures free cash flow(cont.)The following table sets forth a reconciliation of free cash flow,a non-GAAP financial measure,to net cash provided by operating activities,which we believe to be the GAAP financial measure most directly comparable to free cash flow,as well as information regarding net cash used in investing activities and net cash used in financing activities.Year to Date Period Ended(Dollars in millions)Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Net cash provided by operating activities$15,698$28,841$4,633$18,201$19,014 Payments for property and equipment(capital expenditures)(12,061)(16,857)(4,429)(9,216)(14,674)Free cash flow$3,637$11,984$204$8,985$4,340 Net cash used in investing activities1$(12,965)$(17,722)$(4,860)$(9,909)$(15,374)Net cash provided by(used in)financing activities$(5,581)$(17,039)$1,940$(3,309)$(179)Year to Date Period Ended(Dollars in millions)Q3 FY22Q4 FY22Q1 FY23Q2 FY23Q3 FY23Net cash provided by(used in)operating activities$16,291$24,181$(3,758)$9,240$15,698 Payments for property and equipment(capital expenditures)(8,588)(13,106)(3,539)(7,492)(12,061)Free cash flow$7,703$11,075$(7,297)$1,748$3,637 Net cash provided by(used in)investing activities1$(1,530)$(6,015)$(4,558)$(8,584)$(12,965)Net cash provided by(used in)financing activities(18,113)(22,828)5,315 (1,400)(5,581)Y/Y Change in Free Cash Flow-52.8% 8.2%NM 414.0% 19.3%1 Net Cash used in investing activities includes payments for property and equipment,which is also included in our computation of free cash flow.NM=not meaningfulNon-GAAP measures constant currencyIn discussing our operating results,the term currency exchange rates refers to the currency exchange rates we use to convert the operating results for countries where the functional currency is not the U.S.dollar into U.S.dollars.We calculate the effect of changes in currency exchange rates as the difference between current period activity translated using the current periods currency exchange rates and the comparable prior year periods currency exchange rates.Additionally,no currency exchange rate fluctuations are calculated for non-USD acquisitions until owned for 12 months.Throughout our discussion,we refer to the results of this calculation as the impact of currency exchange rate fluctuations.When we refer to constant currency operating results,this means operating results without the impact of the currency exchange rate fluctuations.The disclosure of constant currency amounts or results permits investors to better understand Walmarts underlying performance without the effects of currency exchange rate fluctuations.The table below reflects the calculation of constant currency for net sales for the Walmart International segment for the trailing five quarters and operating income for the current quarter.Three Months EndedWalmart International(Dollars in millions)Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Net sales:As reported$25,295$27,575$26,604$27,596$28,022 Currency exchange rate fluctuations 1,473 901 226 (574)(1,357)Net sales(cc)$26,768$28,476$26,830$27,022$26,665 PY Reported$23,627$26,997$23,763$24,350$25,295%change(cc) 13.3% 5.5% 12.9% 11.0% 5.4%Operating income:As reported$1,117 Currency exchange rate fluctuations$(164)Operating income(cc)$953 PY Reported$861%change(cc) 10.7%Non-GAAP measures constant currency(cont.)Three Months EndedConsolidated(Dollars in millions)Q3 FY23Q4 FY23Q1 FY24Q2 FY24Q3 FY24Total Revenue:As reported$152,813$164,048$152,301$161,632$160,804 Currency exchange rate fluctuations 1,491 917 230 (576)(1,366)Total Revenue(cc)$154,304$164,965$152,531$161,056$159,438 PY Reported$140,525$152,871$141,569$152,859$152,813%change(cc) 9.8% 7.9% 7.7% 5.4% 4.3%Net sales:As reported$151,469$162,743$151,004$160,280$159,439 Currency exchange rate fluctuations 1,473 901 226 (574)(1,357)Net sales(cc)$152,942$163,644$151,230$159,706$158,082 PY Reported$139,207$151,525$140,288$151,381$151,469%change(cc) 9.9% 8.0% 7.8% 5.5% 4.4%Operating income:As reported$2,695$5,561$6,240$7,316$6,202 Currency exchange rate fluctuations 38 (57)(72)(124)(164)Operating income(cc)$2,733$5,504$6,168$7,192$6,038 PY Reported$5,792$5,887$5,318$6,854$2,695%change(cc)-52.8%-6.5% 16.0% 4.9% 124.0%The table below reflects the calculation of constant currency for total revenues,net sales and operating income for the trailing five quarters.Non-GAAP measures adjusted operating expenses as a percentage of net salesThree Months Ended(Dollars in millions)Q3 FY23Q3 FY22Q4 FY23Q4 FY22Q1 FY24Q1 FY23Q2 FY24Q2 FY23Q3 FY24Q3 FY23Operating,selling,generalandadministrativeexpenses$34,505$29,710$33,064$31,462$30,777$29,404$32,466$30,167$33,419$34,505 Less:Businessreorganizationandrestructuringcharges1 849 108 Less:Opioidlegalcharges2 3,325 93 3,325 Adjustedoperatingexpenses$31,180$29,710$32,215$31,354$30,777$29,404$32,373$30,167$33,419$31,180 NetSales$151,469$139,207$162,743$151,525$151,004$140,288$160,280$151,381$159,439$151,469 Operating,selling,generalandadministrativeexpensesasapercentageofnetsales 22.8% 21.3% 20.3% 20.8% 20.4% 21.0% 20.3% 19.9% 21.0% 22.8justedoperatingexpensesasapercentageofnetsales 20.6% 21.3% 19.8% 20.7% 20.4% 21.0% 20.2% 19.9% 21.0% 20.6%Y/YChange(bps)(75)NP(89)NP(58)NP 27 NP 37 NP1Business reorganization and restructuring charges in the fourth quarter of fiscal 2023 primarily relate to compensation expenses incurred in connection with the strategic decisions made in the Walmart International segment.Business restructuring charges in the fourth quarter of fiscal 2022 primarily consist of severance and store closure related costs due to strategic decisions made in the Walmart International segment.2Recorded in Corporate and support.NP=not providedAdjusted operating expenses as a percentage of net sales is considered a non-GAAP financial measure under the SECs rules because it excludes certain charges included in operating,selling,general and administrative expenses calculated in accordance with GAAP.Management believes that adjusted operating expenses as a percentage of net sales is a meaningful measure to share with investors because it best allows comparison of performance with that of the comparable period.In addition,adjusted operating expenses as a percentage of net sales affords investors a view of what management considers Walmarts core operating expenses and the ability to make a more informed assessment of such core operating expenses as compared with that of the prior year.The table below reflects the calculation of adjusted operating expenses as a percentage of net sales for the trailing five quarters.Non-GAAP measures adjusted operating incomeThree Months Ended(Dollars in millions)Q3 FY23Q3 FY22Q4 FY23Q4 FY22Q1 FY24Q1 FY23Q2 FY24Q2 FY23Q3 FY24Q3 FY23Operatingincome:Operatingincome,asreported$2,695$5,792$5,561$5,887$6,240$5,318$7,316$6,854$6,202$2,695 Businessreorganizationandrestructuringcharges1 849 108 Opioidlegalcharges2 3,325 93 3,325 Adjustedoperatingincome$6,020$5,792$6,410$5,995$6,240$5,318$7,409$6,854$6,202$6,020 Percentchange3 3.9%NP 6.9%NP 17.3%NP 8.1%NP 3.0%NPCurrencyexchangeratefluctuations$38$(39)$(72)$(124)$(164)$Adjustedoperatingincome,constantcurrency$6,058$5,792$6,371$5,995$6,168$5,318$7,285$6,854$6,038$6,020 Percentchange3 4.6%NP 6.3%NP 16.0%NP 6.3%NP 0.3%NPAdjusted operating income is considered a non-GAAP financial measure under the SECs rules because it excludes certain charges included in operating income calculated in accordance with GAAP.Management believes that adjusted operating income is a meaningful measure to share with investors because it best allows comparison of performance with that of the comparable period.In addition,adjusted operating income affords investors a view of what management considers Walmarts core earnings performance and the ability to make a more informed assessment of such core earnings performance as compared with that of the prior year.When we refer to adjusted operating income in constant currency,this means adjusted operating results without the impact of the currency exchange rate fluctuations.The disclosure of constant currency amounts or results permits investors to better understand Walmarts underlying performance without the effects of currency exchange rate fluctuations.The table below reflects the calculation of adjusted operating income and adjusted operating income in constant currency,when applicable,for the trailing five quarters.1Business reorganization and restructuring charges in the fourth quarter of fiscal 2023 primarily relate to compensation expenses incurred in connection with the strategic decisions made in the Walmart International segment.Business restructuring charges in the fourth quarter of fiscal 2022 primarily consist of severance and store closure related costs due to strategic decisions made in the Walmart International segment.2Recorded in Corporate and support.3Change versus prior year comparable period.NP=not providedNon-GAAP measures adjusted EPS Adjusted diluted earnings per share attributable to Walmart(Adjusted EPS)is considered a non-GAAP financial measure under the SECs rules because it excludes certain amounts included in the diluted earnings per share attributable to Walmart calculated in accordance with GAAP(EPS),the most directly comparable financial measure calculated in accordance with GAAP.Management believes that Adjusted EPS is a meaningful measure to share with investors because it best allows comparison of the performance with that of the comparable period.In addition,Adjusted EPS affords investors a view of what management considers Walmarts core earnings performance and the ability to make a more informed assessment of such core earnings performance with that of the prior year.We adjust for the unrealized and realized gains and losses on our equity and other investments each quarter because although the investments are strategic decisions for the companys retail operations,managements measurement of each strategy is primarily focused on the operational results rather than the fair value of such investments.Additionally,management does not forecast changes in the fair value of its equity and other investments.Accordingly,management adjusts EPS each quarter for the unrealized and realized gains and losses related to those equity investments.We have calculated Adjusted EPS for the trailing five quarters as well as the prior year comparable periods by adjusting EPS for the relevant adjustments for each period presented.Three Months Ended Oct 31,20233Three Months Ended Oct 31,20223Percent ChangeDiluted earnings per share:Reported EPS$0.17$(0.66)NMAdjustments:Pre-Tax ImpactTax Impact1,4NCI Impact2Net ImpactPre-Tax ImpactTax Impact1,4NCI Impact2Net ImpactUnrealized and realized(gains)and losses on equity and other investments5$1.76$(0.41)$0.01$1.36$1.34$(0.24)$0.01$1.11Opioid legal charges1.22(0.17)1.05Net Adjustments$1.36$2.16Adjusted EPS$1.53$1.50 2.0%1 Tax impact calculated based on nature of item,including any realizable deductions,and statutory rate in effect for relevant jurisdictions.2 Calculated based on the ownership percentages of our noncontrolling interests,where applicable.3 Individual components in the accompanying tables may include immaterial rounding.4 The reported effective tax rate was 29.7%and(23.5%)for the three months ended October 31,2023 and October 31,2022,respectively.Adjusted for the above items,the effective tax rate was 24.1%and 25.9%for the three months ended October 31,2023 and October 31,2022,respectively5 For the three months ended October 31,2023,net losses were primarily driven by decreases in the underlying stock prices of our investments in Symbotic and JD.com.Non-GAAP measures adjusted EPS(cont.)Three Months Ended Jul 31,20233Three Months Ended Jul 31,20223Percent ChangeDiluted earnings per share:Reported EPS$2.92$1.88 55.3justments:Pre-Tax ImpactTax Impact1NCI Impact2Net ImpactPre-Tax ImpactTax Impact1NCI Impact2Net ImpactUnrealized and realized(gains)and losses on equity and other investments$(1.44)$0.33$(1.11)$0.14$(0.02)$(0.01)$0.11Incremental opioid settlement expense0.04(0.01)0.03 Gain on sale of equity method investment in Brazil (0.16)(0.16)Discrete tax item (0.06)(0.06)Net Adjustments$(1.08)$(0.11)Adjusted EPS$1.84$1.77 4.0%Three Months Ended Apr 30,20233Three Months Ended Apr 30,20223Percent ChangeDiluted earnings per share:Reported EPS$0.62$0.74-16.2justments:Pre-Tax ImpactTax Impact1NCI Impact2Net ImpactPre-Tax ImpactTax Impact1NCI Impact2Net ImpactUnrealized and realized(gains)and losses on equity and other investments$1.13$(0.27)$(0.01)$0.85$0.71$(0.15)$0.56Adjusted EPS$1.47$1.30 13.1%1 Tax impact calculated based on nature of item,including any realizable deductions,and statutory rate in effect for relevant jurisdictions.2 Calculated based on the ownership percentages of our noncontrolling interests,where applicable.3 Individual components in the accompanying tables may include immaterial rounding.Non-GAAP measures adjusted EPS(cont.)Three Months Ended Jan 31,20233Three Months Ended Jan 31,20223Percent ChangeDiluted earnings per share:Reported EPS$2.32$1.28 81.3justments:Pre-Tax ImpactTax Impact1NCI Impact2Net ImpactPre-Tax ImpactTax Impact1NCI Impact2Net ImpactUnrealized and realized(gains)and losses on equity and other investments$(1.43)$0.27$(1.16)$0.22$(0.05)$0.02$0.19Business reorganization and restructuring charges0.310.40(0.16)0.550.08(0.02)0.06Net Adjustments$(0.61)$0.25Adjusted EPS$1.71$1.53 11.8%Three Months Ended Oct 31,20223Three Months Ended Oct 31,20213Percent ChangeDiluted earnings per share:Reported EPS$(0.66)$1.11NMAdjustments:Pre-Tax ImpactTax Impact1NCI Impact2Net ImpactPre-Tax ImpactTax Impact1NCI Impact2Net ImpactUnrealized and realized(gains)and losses on equity and other investments$1.34$(0.24)$0.01$1.11$(0.42)$0.09$(0.33)Opioid legal charges1.22(0.17)1.05Loss on extinguishment of debt0.86(0.19)0.67Net Adjustments4$2.16$0.34Adjusted EPS4$1.50$1.45 3.4%1 Tax impact calculated based on nature of item,including any realizable deductions,and statutory rate in effect for relevant jurisdictions.2 Calculated based on the ownership percentages of our noncontrolling interests,where applicable.3 Individual components in the accompanying tables may include immaterial rounding.4 Adjusted EPS for the three months ended October 31,2022 was calculated using weighted average shares outstanding of 2,720 million,which includes the dilutive impact of share-based payment awards.Non-GAAP measures adjusted EBITDA andadjusted EBITDA marginThe calculation of net income(loss)margin and adjusted EBITDA margin,along with a reconciliation of adjusted EBITDA margin to the calculation of net income(loss)margin,is as follows:Three Months EndedQ3 FY24Q3 FY23(Dollars in millions)20232022Consolidated net income(loss)attributable to Walmart$453$(1,798)Consolidated net income attributable to noncontrolling interest(190)(31)Provision for income taxes 272 336 Other(gains)and losses 4,750 3,626 Interest,Net 537 500 Operating Income$6,202$2,695 Depreciation and Amortization 2,986 2,755 Opioid legal charges 3,325 Adjusted EBITDA$9,188$8,775 Net Sales$159,439$151,469 Consolidated net income(loss)margin 0.3%-1.2justed EBITDA margin 5.8%5.8%We include net income(loss)and net income(loss)margin,which are calculated in accordance with U.S.generally accepted accounting principle as well as adjusted EBITDA and adjusted EBITDA margin to provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of certain items.We calculate adjusted EBITDA as earnings before interest,taxes,depreciation and amortization.We also exclude other gains and losses,which is primarily comprised of fair value adjustments on our investments which management does not believe are indicative of our core business performance.From time to time,we will also adjust certain items from operating income,which we believe is meaningful because it best allows comparison of the performance with that of the comparable period.Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by consolidated net sales.Adjusted EBITDA and adjusted EBITDA margin are considered non-GAAP financial measures.Management believes,however,that these measures provide meaningful information about our operational efficiency by excluding the impact of differences in tax jurisdictions and structures,debt levels,capital investments and other items which management does not believe are indicative of our core business performance.We consider net income(loss)to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure to our calculation of adjusted EBITDA.We consider net income(loss)margin to be the financial measure computed in accordance with GAAP that is the most directly comparable financial measure to our calculation of adjusted EBITDA margin.Although adjusted EBITDA and adjusted EBITDA margin are standard financial measures,numerous methods exist for calculating a companys adjusted EBITDA and adjusted EBITDA margin.As a result,the method used by management to calculate our adjusted EBITDA and adjusted EBITDA margin may differ from the methods used by other companies to calculate similarly titled measures.Net income(loss)margin was 0.3%and-1.2%for the three months ended October 31,2023 and 2022,respectively.The increase in net income margin was primarily due to the increase in net income primarily due to lapping the opioid legal charges incurred in Q3 FY23.Adjusted EBITDA margin was 5.8%for the three months ended October 31,2023 and 2022.Adjusted EBITDA margin remained relatively flat as the increase in adjusted EBITDA was offset by the increase in net sales.
2023-11-29
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FY2023 Second Quarter Financial ResultsSUZUKI MOTOR CORPORATIONNovember 7,2023Representative Director and President Toshihiro Suzuki Suzuki Motor Corporation,2023.All rights reserved.2/35Financial SummaryFY2023 2Q Results Summary of 1H(April-September)Net Sales,Operating Profit,Ordinary Profit:Record-highTailwind of the weak yenCalming of raw material prices Overcoming semiconductor shortage andmaintaining production normalizationImprovement of changes in sales compositionincluding price revision Summary of Q2(July-September)Operating profit for Q2 was 129.7 billion yen:an increase of about 30 billion yen compared to Q1Improvement of unit volume increase,change in sales structure,etc.Quality improvement initiatives(reduction of quality-related costs)CoverAccelerate sowing seeds for the future(growth investment)(Increase in R&D expenses and Depreciation Expenses)Solid management of operations,based on philosophy of conduct“Three Actuals”Increased profit even as growth investments such as Capex and R&D expenses accelerateContinue these efforts without ending temporarily Suzuki Motor Corporation,2023.All rights reserved.3/35Forecast for the FY2023 Upward revision based on 1H results and updates to 2H plans Operating profit is expected to reach a record 430 billion yen(the previous record was 374.2 billion yen in the FY2017)Key AssumptionsUnit sales:Market conditions and uncertainties have been factored inR&D and fixed costs1H:We factored in expenses with business promotion as the top priority,butslightly below plan(bad profit increase against plan)2H:We factored in expenses with business promotion as the top priority,continuously.Full Year Forecast SummaryStrengthen PDCA within the companyClosely follow the progress of the business planSteady implementation of sowing seeds for the future(growth investment)Major RiskIn addition to the situation in Ukraine,the situation in Palestine has deepened.Increase instability in world affairs.Suzuki Motor Corporation,2023.All rights reserved.4/35Shareholder Return DividendThe interim dividend was 55 yen per share(up 5 yen from 50 yen in the previous fiscal year)Acquisition of treasury shares20 billion yen(8.3%return ratio)implemented in 1HShareholder ReturnShareholder return is one of the important management issuesOur policy is to pay a continuous and stable dividend,and we will consider improving the total return ratio Suzuki Motor Corporation,2023.All rights reserved.5/35Second Quarter Results .(6-15)ContentsDirector and Senior Managing Officer Masahiko NagaoFY2023 Second Quarter Financial ResultsHighlights .6Quarter Results .7Factors of Change in Operating Profit .8Operating Results by Segment .9Production and Sales Volume of Automobiles .10-14Production and Sales Volume of Motorcycles .15Full Year Forecast.(16-20)Highlights .16Factors of Change in Operating Profit .17-18 Production and Sales Volume of Auto.and MC.19-20 Suzuki Motor Corporation,2023.All rights reserved.6/35RatioNet Sales2,564.4 2,217.5 346.9 15.6%Record-high,increased for the 3rd consecutive periodOperating Profit 229.5 164.3(Margin)(8.9%)(7.4%)Ordinary Profit241.0 192.3(Margin)(9.4%)(8.7%)Profit129.3 115.1(Margin)(5.0%)(5.2%)US Dollar141 yen134 yen 7 yen 5.2%Euro153 yen139 yen 15 yen 10.6%Indian Rupee1.72 yen1.72 yen-Automobile1,5351,463 72 4.9%Motorcycle958966-8-0.8shDividendsInterim CashDividends Per Share55 yen50 yen 5 yenRecord-high interim dividendRecord-high,increased for the 3rd consecutive period 14.2 12.4%2nd all-time,increased for the 3rd consecutive period 48.6 25.3%GlobalSales Volume(Thousand units)FY2023(23/4-9)FY2022(22/4-9)(Billions of yen)RecordChangeRecord-high,increased for the 3rd consecutive periodConsoli-datedFinancialResults 65.1 39.6%FX Rates*1 Record comments refer to the second quarter evaluation *2 Profit attributable to owners of parentFY2023 Second Quarter ResultsHighlights*1*2 Suzuki Motor Corporation,2023.All rights reserved.7/3554.544.647.644.874.589.8102.683.699.8129.7845.4828.2900.7994.11,063.41,154.11,195.31,228.81,208.91,355.50.050.0100.0150.01Q2Q3Q4Q1Q2Q3Q4Q1Q2Q0.0400.0800.01,200.0(Operating Profit)(Billions of yen)FY2021FY2022FY2023FY2023 Second Quarter ResultsTrends in Operating Results by QuarterOperating ProfitNet Sales(Net Sales)Suzuki Motor Corporation,2023.All rights reserved.8/35Labor costs-15.7Marketing costs-3.1Quality-related costs 5.8Operating Profit 65.1*3Breakdown for Fixed cost,etc.*3Change in volume,Change in volume,mix/price,etc.mix/price,etc. 67.7 67.7*1*1 Breakdown for Change in volumeNon-Consolidated 26.0Maruti Suzuki India 8.2FY2023 Second Quarter ResultsFactors of Change in Operating Profit:6 months(Apr.-Sep.period)*2 Breakdown for Change in mix/price etc.*2Maruti Suzuki India 22.6Non-Consolidated 13.4FY2022Apr.-Sep.Changein volumeChange inmix/price etc.Effect ofFX ratesChange in price ofraw materialsIncrease ofFixed cost,etc.Increase of depreciation expensesIncrease of R&D expensesCost Reduction(billions of yen)Excluding external factors： 33.5FY2023Apr.-Sep.Suzuki Motor Corporation,2023.All rights reserved.9/35AutomobileOperating Results by SegmentMotorcycleFY2022Change inmix/price etc.Effect ofForEX ratesCost ReductionChange in price ofraw materialsIncrease ofFixed Cost,etc.Increase of depreciation expensesIncrease of R&D expensesChangein volume22/4-9FY2023 Second Quarter ResultsOperating Results by SegmentMarineChange inmix/price etc.Effect ofForEX ratesCost ReductionChange in price ofraw materialsIncrease ofFixed Cost,etc.Decrease of depreciation expensesIncrease of R&D expensesChangein volumeChange inmix/price etc.Effect ofForEX ratesCost ReductionChange in price ofraw materialsIncrease ofFixed Cost,etc.Increase of depreciation expensesDecrease of R&D expensesChangein volumeYoYYoYMarginYoYYoYMarginAuto.2,317.9 187.2 54%8.5%1,231.3 203.8 59%9.2%Moto.179.7 2.2 6%9.0.3 4%9.7 40.4%Marine61.3-11.6-26#.8.9-19%5.4-49.2%Others5.5-3%1.5 22.9%3.0 1%0.8 32.4%Total2,564.4 169.5 40%8.9%1,355.5 179.7 44%9.6#/4-923/7-9SalesOperating profitSalesOperating profit(Billions of yen)FY202323/4-9FY202222/4-9FY202323/4-9FY202222/4-9FY202323/4-9Operating Profit 69.1Operating Profit 0.9Operating Profit-5.2 Suzuki Motor Corporation,2023.All rights reserved.10/35451 472 64 77 988 989 102 64 FY2022FY2023284 313 74 112 814 889 136 86 155 136 FY2022FY2023EuropeOf whichCBUs:4001,606Japan(Thousand units)-2(-0.1%)FY2023 Second Quarter global salesFY2023 Second Quarter global sales 72( 4.9%)1,463IndiaOthers(Thousand units)EuropeJapanIndiaAsia1,6031,535Of whichCBUs:465 22/4-9 23/4-9Production ResultSales ResultVolumeGlobal Sales1,535 72 4.9%Japan313 29 10.2%Europe112 38 50.6%India889 75 9.2%Asia(excl.India)86-51-37.0%Indonesia38-4-9.5%Pakistan18-39-68.0%Thailand6-3-34.2%Others23-4-15.0%Others136-19-12.2%(Thousand units)Year-on-yearProduction and Sales Volume of AutomobilesGlobal22/4-9 23/4-9AsiaOthers Suzuki Motor Corporation,2023.All rights reserved.11/35軽自動車 29( 10.2%)237 258 47 55 FY2022FY2023Mini-vehicleSub-compact and standard-sized vehicle284313(Thousand units)Second Quarter ResultSales Volume of AutomobilesJapan 22/4-9 23/4-9From this fiscal year,we have been revising prices in line with specification changes.Reflected higher raw material prices,in addition to higher costs due to improved specifications and equipment.(Thousand units)FY23 2QMini-vehicle136124 12121 15Spacia3024 627 3Hustler2417 816 8Others8284-278 32826 227 1(YoY)(QoQ)Sub-compact andstandard-sized vehiclevs FY22 2Qvs FY23 1QImproved model mixPrice RevisionSince August,the impact of the semiconductor shortage has been resolved.As a result,in addition to the overall number of units,production and sales of relatively expensive models increased.Sales units in 2Q Suzuki Motor Corporation,2023.All rights reserved.12/35121 73 433 419 7 7 164 306 70 68 20 15 FY2022FY2023889MiniCompactUV*2VansLCV*1Mid-size814Note.The left graph shows wholesale sales including commercial vehicles,excluding OEMs*1 LCV=Light Commercial Vehicles *2 UV=Utility Vehicles13.0.5.1.9.9.5.0 .8!.0$.6#.7!.6A.7A.0.6B.5D.09.5A.4B.9.6C.2C.3A.5/1022/1122/1223/123/223/323/423/523/623/723/823/9Total passenger car shareChanges in Suzukis Market Share in India2Q Sales in IndiaDue to the effect of the aggressive introduction of SUV models,it was the top market share in the SUV segment22/4-923/4-9SUV shareSecond Quarter Result(Thousand units)Sales Volume of AutomobilesIndia 75( 9.2%)For more information on topics related to the Indian Automobile Business,please refer to materials of the JMS(Japan Mobility Show)conference held on October 24,2023.LinkJapan Mobility Conference 2023 Update on the Indian Market Situation and Outlook of SuzukiJapan Mobility Conference 2023 Update on the Indian Market Situation and Outlook of Suzuki(with transcripts)Suzuki Motor Corporation,2023.All rights reserved.13/3542 38 58 18 10 9 7710610 7 FY2022FY202313686Sales Volume of AutomobilesEurope/Asia(excluding India)10 19 9 15 8 13 813662 3 32 44 FY2022FY202374112EuropeAsia(excluding India)IndonesiaPakistanThailandPhilippinesOthers(Thousand units)GermanyItalyUKOthersFranceSpain-51(-37.0%)(Thousand units)38( 50.6%)22/4-9 23/4-922/4-9 23/4-9HungaryVietnam15 16 15 22 24 25 19 20 26 30 28 32 1Q2Q3Q4Q1Q2QJapan ProductionHungary ProductionOEM(Thousand units)FY2022 FY2023Sales by production siteSupplies from Japan recovered.Topics of EuropeTopics of AsiaIn Pakistan,with the easing of restrictions on the import of parts,we are making efforts to ensure stable operations,although the production volume is small.Suzuki Motor Corporation,2023.All rights reserved.14/3562 53 171314216249FY2022FY2023MiddleEastLatin AmericaAfricaOceaniaSales Volume of AutomobilesOther Regions-19(-12.2%)(Thousand units)155136 FY2023 Second Quarter salesSecond Quarter Result22/4-9 23/4-9(Thousand units)VolumeYear-on-yearAfrica49-13-20.4%South Africa25-1-4.0%Angola6 2 67.8%Cote dIvoire6 1 15.8%Egypt3-7-69.2%Ethiopia2-6-73.5%Middle East21 7 52.3%Saudi Arabia10 5 113.7%Oceania13-4-23.2%Australia9-3-27.0%Latin America53-9-15.0%Mexico18-3-15.0%Chile8-2-15.9%Colombia5-6-57.4%Suzuki Motor Corporation,2023.All rights reserved.15/355553223814844743995743FY2022FY2023242218231917350413442382112100FY2022FY2023969966 FY2023 Second Quarter global salesEuropeAsiaNorthAmericaJapanOthersAsiaNorthAmericaJapanOthers980958Production and Sales Volume of MotorcyclesGlobal(Thousand units)-8(-0.8%)(Thousand units)Production ResultSales Result 11( 1.1%)22/4-9 23/4-922/4-9 23/4-9VolumeGlobal Sales958-8-0.8%Japan22-2-9.9%Europe23 6 31.4%North America17-2-10.9%India413 62 17.8%Asia（excl.India)382-59-13.4%China229-16-6.7%Phillipines80-19-19.1%Others74-24-24.6%Others100-12-10.8%Latin America91-11-10.4%Others9-2-14.5%（Thousand units）Year-on-yearIndiaIndia Suzuki Motor Corporation,2023.All rights reserved.16/35*Profit attributable to owners of parentFY2023FY2022(23/4-24/3)(22/4-23/3)RatioFY2023ChangeNet Sales5,200.0 4,641.6 558.4 12.0%record-high5,000.0 200.0Operating Profit430.0 350.6 360.0(Margin)(8.3%)(7.6%)(7.2%)Ordinary Profit450.0 382.8 370.0(Margin)(8.7%)(8.2%)(7.4%)Profit*240.0 221.1 210.0(Margin)(4.6%)(4.8%)(4.2%)US Dollar141 yen136 yen 5 yen 4.04 yen 7 yenEuro152 yen141 yen 11 yen 7.88 yen 4 yenIndian Rupee1.72 yen1.70 yen 0.02 yen 1.2%1.64 yen 0.08 yenAutomobile3,1883,000 188 6.3%3,181 7Motorcycle1,8801,867 12 0.7%1,919-39Annual cashdividends per shareComparison with previous forecast(Aug.) 70.0 80.0 30.0100 yen or more- 18.9 8.5%record-highGlobalSales Volume(Thousand units)Cash Dividends-100 yen-FX Rates(Billions of yen)ChangeRecordConsoli-datedFinancialResults 79.4 22.7%record-high 67.2 17.6%record-highFull Year ForecastHighlights Suzuki Motor Corporation,2023.All rights reserved.17/35Full Year ForecastFactors of Change in Operating ProfitCompared with FY2022Changein volumeChange inmix/price etc.Effect ofFX ratesChange in price ofraw materialsIncrease ofFixed cost,etc.Increase of depreciation expensesIncrease of R&D expensesCost Reduction(billions of yen)Excluding external factors： 39.4Change in volume,Change in volume,mix/price,etc.mix/price,etc. 111.5 111.5FY2022Operating Profit 79.4 45.0 50.0 61.5 35.0-70.0-12.7-24.4-5.0350.6430.0FY2023Forecast Suzuki Motor Corporation,2023.All rights reserved.18/35Full Year ForecastFactors of Change in Operating ProfitCompared with August00(Aug.)FY2023Forecast(Nov.)FY2023ForecastChangein volumeChange inmix/price etc.Effect ofFX ratesChange in price ofraw materialsDecrease of Fixed cost,etc.depreciation expensesR&DexpensesCost Reduction(billions of yen) 42.0 50.0 61.5 35.0-70.0 15.0Excluding external factors： 13.0Operating Profit 70.0-12.0 20.0-5.0 10.0Change in volume,Change in volume,mix/price,etc.mix/price,etc. 8.0 8.0360.0430.0 Suzuki Motor Corporation,2023.All rights reserved.19/35954 993 1,004 1,019 142 170 166 165 2,114 2,100 2,204 2,145 0 0 0 0 FY22FY23FY23FY233,3753,263627 680 687 685 171 236 236 222 1,903 1,989 1,974 1,998 299 281 284 283 FY22FY23FY23FY23OthersAsiaEuropeJapanAsiaJapanEurope3,210(Thousand units)3,0003,3293,181Production3,188Sales3,1863,3293,188AsiaJapanEuropeOthers(Thousand units)Of whichCBUs:887 JapanEuropeAsiaOthersForecast(May)Forecast(Aug.)Forecast(Nov.)Full Year ForecastProduction and Sales Volume of AutomobilesForecast(May)Forecast(Aug.)Forecast(Nov.)YoY 119( 3.7%)vs Previous Forecast -46(-1.4%)YoY 188( 6.3%)vs Previous Forecast 7( 0.2%)Of whichCBUs:972 Of whichCBUs:977 Of whichCBUs:987 Others Suzuki Motor Corporation,2023.All rights reserved.20/3546 55 55 45 31 43 40 41 32 33 33 33 1,536 1,594 1,589 1,557 223 215 201 205 FY22FY23FY23FY23111 123 121 119 3 5 4 4 1,698 1,784 1,750 1,701 102 59 67 65 FY22FY23FY23FY23AsiaJapanOthersNorth AmericaNorth AmericaAsiaOthers1,9141,867AsiaEuropeJapanOthers1,8891,9191,880NorthAmerica1,942ProductionYoY -25(-1.3%)vs Previous Forecast -53(-2.7%)Sales1,9711,9411,8891,880Full Year ForecastProduction and Sales Volume of MotorcyclesForecast(May)Forecast(Aug.)Forecast(Nov.)Forecast(May)Forecast(Aug.)Forecast(Nov.)(Thousand units)YoY 12( 0.7%)vs Previous Forecast -39(-2.0%)(Thousand units)JapanNorthAmericaEuropeJapanAsiaOthers Suzuki Motor Corporation,2023.All rights reserved.21/35Appendix Suzuki Motor Corporation,2023.All rights reserved.22/35FY2023(23/4-9)FY2022(22/4-9)ChangeFY2023(23/4-9)FY2022(22/4-9)ChangeFY2023(23/4-9)FY2022(22/4-9)ChangeFY2023(23/4-9)FY2022(22/4-9)ChangeFY2023(23/4-9)FY2022(22/4-9)ChangeJapan total594.0539.5 54.511.013.2-2.11.91.9 0.05.55.7-0.2612.4560.2 52.2 54.8Suzuki brand544.5496.5 48.011.013.2-2.11.91.9 0.05.55.7-0.2562.9 517.2 45.7OEM49.543.0 6.549.543.0 6.5Overseas total1,723.9 1,427.6 296.3168.7162.7 5.959.566.9-7.51,952.0 1,657.3 294.7 42.5 98.2Europe289.8168.3 121.524.820.7 4.09.913.2-3.3324.6202.3 122.3 30.5 103.7N.America0.30.3-0.123.126.5-3.432.538.7-6.255.965.5-9.6 2.5-6.6Asia1,161.1 1,008.7 152.489.585.5 4.06.85.2 1.71,257.4 1,099.4 158.0-3.9 15.5India1,023.9822.7 201.256.944.5 12.30.40.4 0.01,081.2867.6 213.6 72.1Others137.1186.0-48.832.641.0-8.36.44.8 1.6176.2231.8-55.5-3.9-56.6Others272.7250.3 22.431.330.0 1.210.29.9 0.3314.2290.2 24.0 13.3-14.4Grand total2,317.9 1,967.1 350.8179.7175.9 3.861.368.8-7.55.55.7-0.22,564.4 2,217.5 346.9 42.5 152.9 35.0 4.9 2.5 42.5Othersvolumechangeof whicheffect ofFX ratesconversionTotalof which effect ofFX rates conversion（Billionsof yen）AutomobileMotorcycleMarineNote:North America:United States and CanadaAutomobile in North America:Sales of parts and accessoriesFY2023 Second Quarter ResultsNet Sales Suzuki Motor Corporation,2023.All rights reserved.23/35Labor costs-7.2Marketing costs-1.7Quality-related costs 7.1Operating Profit 39.8*3Breakdown for Fixed cost,etc.*3Change in volume,Change in volume,mix/price,etc.mix/price,etc. 40.7 40.7*1*1 Breakdown for Change in volumeExcluding external factors： 19.8Non-Consolidated 12.8Maruti Suzuki India 4.8FY2023 Second Quarter ResultsFactors of Change in Operating Profit:3 months(Jul.-Sep.period)(billions of yen)*2 Breakdown for Change in mix/price etc.*2Non-Consolidated 11.4Maruti Suzuki India 9.5FY2022Jul.-Sep.FY2023Jul.-Sep.Changein volumeChange inmix/price etc.Effect ofFX ratesChange in price ofraw materialsIncrease ofFixed cost,etc.Increase of depreciation expensesIncrease of R&DexpensesCost Reduction Suzuki Motor Corporation,2023.All rights reserved.24/35Exchange sensitivity*Impact amount(yen)(yen)(yen)(%)(bln yen)(bln yen)Euro153139 15 10.6% 1.2 13.2Mexican Peso 8.136.66 1.47 22.1% 0.4 9.6Sterling Pound178163 15 9.0% 0.4 4.0US Dollar141134 7 5.2% 0.7 3.7Indian Rupee1.721.72- 1.9-South African Rand7.568.23-0.67-8.1% 0.2-2.0Pakistan Rupee0.490.65-0.16-24.6% 0.1-2.4Others*- 0.7 2.1Total 5.8 28.1*Others Polish Zloty 1.3bln yen,Indonesian Rupiah 0.5 bln yen etc.*Exchange sensitivity Represents the impact on operating profit when the rate of each currency increased by 1%yen from the previous second quarterFY2023(23/4-9)FY2022(22/4-9)Effect of ForEX ratesin operating profitChangefrom FY2022FY2023 Second Quarter ResultsForeign Exchange Rates Suzuki Motor Corporation,2023.All rights reserved.25/35(Non-consolidated)29.0 bln yen32.9 bln yen-3.9 bln yen(Subsidiaries)105.8 bln yen98.8 bln yen 6.9 bln yen134.7 bln yen131.7 bln yen 3.0 bln yen92.5 bln yen78.1 bln yen 14.4 bln yen108.4 bln yen95.4 bln yen 13.0 bln yenR&D ExpensesChangeCapital ExpendituresDepreciation ExpensesFY2023(23/4-9)FY2022(22/4-9)FY2023(23/9)(22/9)Change(23/3)Change767.2 bln yen744.1 bln yen 23.1 bln yen763.8 bln yen 3.4 bln yen118119-1120-23132-132-172,44470,7461,69870,0122,432FY2022Q4EmployeesFY2022Interest-Bearing Debt balanceConsolidated SubsidiariesEntities accounted for using equity methodFY2023 Second Quarter ResultsCapital Expenditures,etc.Suzuki Motor Corporation,2023.All rights reserved.26/35 74.1 69.2-7.4 150.8 8.6 187.6-61.8-70.8-25.0-145.1-35.9-188.8 33.3-6.3 6.1-1.5-34.7-28.9 12.3 12.3-1.51.5-32.432.4 5.6 5.6-27.427.4-1.21.2-300.0-200.0-100.0 0.0 100.0 200.0 300.0Operating C/FInvesting C/FFinancing C/FFree C/F1Q2Q3Q4Q1Q2QOperating C/F 74.1 69.2-7.4 150.8 8.6 187.6Investing C/F-61.8-70.8-25.0-145.1-35.9-188.8Free C/F 12.3-1.5-32.4 5.6-27.4-1.2Financing C/F 33.3-6.3 6.1-1.5-34.7-28.9(of which divided payout*)(-22.5)(-13.6)(-24.3)( 0.2)(-24.5)(-20.3)Cash balance921.5917.1874.0882.1849.9823.0FY2022FY2023(Billions of yen)*Including dividends paid to non-controlling interestsFY2022FY2023FY2023 Second Quarter ResultsCash Flows(Quarterly trends)Suzuki Motor Corporation,2023.All rights reserved.27/35FY2023 Second Quarter ResultsOperating Results by Geographic RegionOperating Results by Geographic RegionChange inmix/priceetc.Effect ofFX ratesCost ReductionChange in price ofraw materialsIncrease of Fixed Cost,etc.Increase of depreciation expensesIncrease of R&D expensesChangein volumeChange inmix/priceetc.Effect ofFX ratesCost ReductionChange in price ofraw materialsIncrease ofFixed Cost,etc.Increase of depreciation expensesChangein volumeChange inmix/priceetc.Effect of FX ratesCostReductionChange in price ofraw materialsIncrease of depreciation expensesDecrease of R&D expensesChange involumeYoYYoYMarginYoYYoYMarginJapan1,342.5 172.7 25%9.1i7.7 18W.5 27%8.2%Europe441.6 62.8 302%3.19.8 62%5.3 349%2.3%Asia1,422.7 143.8 91%8.7v5.3 18.4 91.5%Others198.0-3%7.3-42%3.7.0-2%2.4-49%2.5%Total2,564.4 169.5 40%8.9%1,355.5 179.7 44%9.6#/4-923/7-9SalesOperating profitSalesOperating profit(Billions of yen)JapanAsiaEuropeFY202222/4-9FY202323/4-9FY202222/4-9FY202323/4-9FY202323/4-9FY202222/4-9Increase ofFixed Cost,etc.Operating Profit 24.4Operating Profit 10.4Operating Profit 59.2 Suzuki Motor Corporation,2023.All rights reserved.28/35Note.The above figures are for reference purpose only as financial results of Maruti Suzuki India are based on IndAS(Indian IFRS).Rupees(Billions of Rupees)*1Yen Conversion(Billions of yen)Net Sales663.9538.3 125.51,141.8926.0 215.9Operating Profit*262.333.1107.256.9(Margin)(9.4%)(6.1%)(9.4%)(6.1%)Profit before taxes80.840.3139.069.2(Margin)(12.2%)(7.5%)(12.2%)(7.5%)Profit after taxes62.931.5108.254.2(Margin)(9.5%)(5.8%)(9.5%)(5.8%)EX rate1.72 yen1.72 yen-Domestic*3918853 65Exports*3133133-0Total1,050985 65FY2022(22/4-9)Consoli-dated 29.2 50.3 40.5 69.7 31.4 54.0Whole-sales(Thousandunits)ChangeChangeFY2023(23/4-9)FY2023(23/4-9)FY2022(22/4-9)*1 Results shown in Rupees are consolidated results announced by Maruti Suzuki India on October 27*2 Operating Profit is calculated by using the following formula:Operating Profit=Sales of product Other operating revenues-Total Expenses Finance costs*3 Domestic and exports include OEM unitsFY2023 Second Quarter ResultsOperating Results of Maruti Suzuki India Suzuki Motor Corporation,2023.All rights reserved.29/355.2 3.8 2.2 2.9 3.8 4.2 3.6 5.5 6.8 5.4 6.6 5.2 9.2 10.5 11.0 8.6 9.2 5.4 21.9 17.9 16.4 18.3 20.2 21.2 18.2 23.8 26.0 23.9 20.2 27.9 34.3 34.5 33.0 32.8 33.4 27.9 0510152025303540024681012141618201Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2QTrends in Marine Operating Results(Billions of yen)Marine Business Consolidated ResultsFY2019FY2020FY2021FY2022FY2023Net SalesOperating Profit Suzuki Motor Corporation,2023.All rights reserved.30/35(yen)(yen)(yen)(yen)(yen)(%)(bln yen)(bln yen)Euro152150148141 11 7.6% 2.5 18.8Mexican Peso 8.108.067.576.91 1.19 17.1% 0.9 15.8Sterling Pound175173171163 12 7.4% 0.8 6.1US Dollar141141134136 5 4.0% 1.3 5.2Indian Rupee1.721.711.641.70 0.02 0.9% 3.6 3.1South African Rand 7.487.407.177.99-0.51-6.4% 0.5-3.3Pakistan Rupee 0.490.490.480.61-0.12-19.7% 0.2-4.7Others*- 1.4 4.0 11.3 45.0*Others Polish Zloty 2.2bln yen,Indonesian Rupiah 0.8 bln yen etc.*Exchange sensitivity Represents the impact on operating profit when the rate of each currency increased by 1%yen from FY2022ImpactamountEffect of ForEX rates in operating profitFY2023 Forecast23/10-24/3PreviousForecastEffect of ForEX rates totalFY2022Exchangesensitivity*Changefrom FY2022Full Year Forecast ForEX Rates and Capital Expenditures,etc.Suzuki Motor Corporation,2023.All rights reserved.31/35Full Year Forecast|Trends in Capital expenditures,Depreciation and R&D Expenses194.5171.5198.8213.4268.9236.4170.9189.4269.9340.0134.4168.3163.4150.9148.9164.2136.5161.5177.3190.0125.9131.0131.5139.4158.1148.1146.2160.7205.6230.0FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23Capital expendituresDepreciation expensesR&D expenses(Billions of yen)Forecast Suzuki Motor Corporation,2023.All rights reserved.32/355 6 7 8 10 10 15 17 30 37 37 37 45 50 55 7 7 8 10 14 17 17 27 44 37 48 53 46 50 12 13 15 18 24 27 32 44 74 74 85 90 91 100 19.1.1.6.6.5.6.6.1.1.7).7).8.6.00%-10%-5%0%5 %00100150200FY09FY10FY11FY12FY13FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23FY25Shareholder ReturnDividend per sharePayout ratioInterim dividend:55 yen(up 5 yen from FY2022):Record-highAcquisition of Treasury Shares:Acquired 20 billion yen(3,768 thousand shares)(equivalent to 8.3%return ratio)FY25 payout ratio targetin Mid-Term Management PlanAnnual dividendYear-end dividendInterim dividend(yen)Suzuki Motor Corporation,2023.All rights reserved.33/35Publication of Integrated Report and Sustainability Reporthttps:/www.suzuki.co.jp/about/csr/report/2023/pdf/2023_envj_all.pdfhttps:/www.suzuki.co.jp/ir/library/annualreport/pdf/2023/2023_jp.pdfIntegrated Report and Sustainability Report were published this November.Documents are now only available in Japanese and the English version will follow soon.The forward-looking statements mentioned in this presentation are based on currently available information and assumptions,contain risks and uncertainty and do not constitute guarantees of future achievement.Please note that the future results may greatly vary by the changes of various factors.Those factors,which may influence the future results,include economic conditions and the trend of demand in major markets and the fluctuations of foreign exchange rates.Caution with respect to Forward-Looking StatementsEnglish translation from the original Japanese language document
2023-11-14
35页
5星级
HALF YEAR FINANCIAL REPORTSix-month period ended June 30,2023Condensed Consolidated Financial Statem.
2023-11-13
30页
5星级
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