H A L F-YEA R REPO RT3 0 J U N E 2 023CONTENTS3 BMWGroup at a Glance10 Interim Group Management Repo.
2023-09-28
76页
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Half Year Financial Report/June 30,2023 TABLE OF CONTENTS I.Activity Report.3 II.Consolidated finan.
2023-09-28
152页
5星级
SAMSUNG ELECTRONICS CO.,LTD.AND ITS SUBSIDIARIES Interim Consolidated Financial Statements June 30,2023 and 2022 (With Independent Auditors Review Report Thereon)Contents Page Independent Auditors Review Report 1 Interim Consolidated Statements of Financial Position 3 Interim Consolidated Statements of Profit or Loss 6 Interim Consolidated Statements of Comprehensive Income 7 Interim Consolidated Statements of Changes in Equity 8 Interim Consolidated Statements of Cash Flows 12 Notes to the Interim Consolidated Financial Statements 14 152,Teheran-ro,Gangnam-gu,Seoul 06236(Yeoksam-dong,Gangnam Finance Center 27th Floor)Republic of Korea Independent Auditors Review Report Based on a report originally issued in Korean To the Board of Directors and Shareholders Samsung Electronics Co.,Ltd.:Reviewed Financial Statements We have reviewed the accompanying interim consolidated financial statements of Samsung Electronics Co.,Ltd.and its subsidiaries(“the Group”),expressed in Korean won,which comprise the interim consolidated statement of financial position as of June 30,2023,the interim consolidated statements of profit or loss and comprehensive income for the three-month and six-month periods ended June 30,2023,and the interim consolidated statements of changes in equity and cash flows for the six-month period ended June 30,2023,and notes,comprising material accounting policy information and other explanatory information.Managements Responsibility for the Interim Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these interim consolidated financial statements in accordance with Korean International Financial Reporting Standard No.1034,Interim Financial Reporting,and for such internal control as management determines is necessary to enable the preparation of interim consolidated financial statements that are free form material misstatement,whether due to fraud or error.Auditors Responsibility Our responsibility is to express a report on these interim consolidated financial statements based on our review.We conducted our review in accordance with the Review Standards for Quarterly and Semiannual Financial Statements established by the Security and Futures Commission of the Republic of Korea.A review of interim financial information consists principally of making inquiries,primarily of persons responsible for financial and accounting matters,and applying analytical and other review procedures.A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.Accordingly,we do not express an audit opinion.Conclusion Based on our review,nothing has come to our attention that causes us to believe that the interim consolidated financial statements referred to above are not presented fairly,in all material respects,in accordance with Korean International Financial Reporting Standard No.1034,Interim Financial Reporting.Other matters The interim consolidated statements of profit or loss and comprehensive income for the three-month and six-month periods ended June 30,2022,and the interim consolidated statements of changes in equity and cash flows for the six-month period ended June 30,2022,presented for comparative purposes,were reviewed by other auditors whose report thereon dated August 12,2022,expressed that nothing came to their attention that caused them to believe that the accompanying interim consolidated financial information as of June 30,2022 was not prepared,in all material respects,in accordance with Korean International Financial Reporting Standard No.1034,Interim Financial Reporting.The consolidated statement of financial position of the Group as of December 31,2022,and the related consolidated statements of comprehensive income,changes in equity and cash flows for the year then ended,which are not accompanying this review report,were audited by other auditors,whose report thereon dated February 15,2023,expressed an unqualified opinion.The accompanying statement of financial position of the Group as of December 31,2022,presented for comparative purposes,is not different from that audited by other auditors in all material respects.The procedures and practices utilized in the Republic of Korea to review such interim consolidated financial statements may differ from those generally accepted and applied in other countries.The accompanying interim consolidated financial statements as of June 30,2023 and December 31,2022 and for the three-month and six-months periods ended June 30,2023 and 2022 have been translated into United States dollars solely for the convenience of the reader.We have reviewed the translation and nothing came to our attention that cause us to believe that the interim consolidated financial statements expressed in Korean won have not been translated into dollars on the basis set forth in note 2.3 to the interim consolidated financial statements.-2-Seoul,Korea August 11,2023 This report is effective as of August 11,2023,the review report date.Certain subsequent events or circumstances,which may occur between the review report date and the time of reading this report,could have a material impact on the accompanying interim consolidated financial statements and notes thereto.Accordingly,the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances,if any.Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION The above interim consolidated statements of financial position should be read in conjunction with the accompanying notes.-3-(In millions of Korean won,in thousands of US dollars(Note 2.3)June 30,December 31,June 30,December 31,Notes 2023 2022 2023 2022 KRW KRW USD USD Assets Current assets Cash and cash equivalents 3,25 79,919,775 49,680,710 61,700,345 38,354,925 Short-term financial instruments 3,25 17,180,130 65,102,886 13,263,550 50,261,284 Short-term financial assets at amortized cost 3,25-414,610-320,091 Short-term financial assets at fair value through profit or loss 3,4,25 25,310 29,080 19,540 22,451 Trade receivables 3,25 36,104,142 35,721,563 27,873,427 27,578,065 Non-trade receivables 3,25 5,822,772 6,149,209 4,495,346 4,747,365 Prepaid expenses 3,214,408 2,867,823 2,481,615 2,214,041 Inventories 5 55,504,798 52,187,866 42,851,287 40,290,521 Other current assets 3,25 6,204,038 6,316,834 4,789,694 4,876,776 203,975,373 218,470,581 157,474,804 168,665,519 Non-current assets Financial assets at fair value through other comprehensive income 3,4,25 10,308,125 11,397,012 7,958,166 8,798,818 Financial assets at fair value through profit or loss 3,4,25 1,573,457 1,405,468 1,214,754 1,085,061 Investments in associates and joint ventures 6 11,334,699 10,893,869 8,750,711 8,410,377 Property,plant and equipment 7 177,869,942 168,045,388 137,320,667 129,735,831 Intangible assets 8 23,430,234 20,217,754 18,088,809 15,608,683 Net defined benefit assets 11 5,143,048 5,851,972 3,970,580 4,517,889 Deferred income tax assets 5,527,377 5,101,318 4,267,293 3,938,363 Other non-current assets 3,25 8,838,297 7,041,145 6,823,417 5,435,965 244,025,179 229,953,926 188,394,397 177,530,987 Total assets 448,000,552 448,424,507 345,869,201 346,196,506 Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION The above interim consolidated statements of financial position should be read in conjunction with the accompanying notes.-4-(In millions of Korean won,in thousands of US dollars(Note 2.3)June 30,December 31,June 30,December 31,Notes 2023 2022 2023 2022 KRW KRW USD USD Liabilities and Equity Current liabilities Trade payables 3,25 11,744,005 10,644,686 9,066,707 8,218,001 Short-term borrowings 3,9,25 3,557,360 5,147,315 2,746,383 3,973,874 Other payables 3,25 15,020,336 17,592,366 11,596,128 13,581,808 Advances received 14 1,165,583 1,314,934 899,863 1,015,167 Withholdings 3,25 756,934 1,298,244 584,375 1,002,281 Accrued expenses 3,14,25 25,402,072 29,211,487 19,611,124 22,552,101 Current income tax liabilities 2,601,584 4,250,397 2,008,497 3,281,428 Current portion of long-term liabilities 3,9,10,25 1,263,841 1,089,162 975,721 840,864 Provisions 12 6,861,551 5,844,907 5,297,313 4,512,435 Other current liabilities 3,14,25 2,407,372 1,951,354 1,858,560 1,506,501 70,780,638 78,344,852 54,644,671 60,484,460 Non-current liabilities Debentures 3,10,25 554,625 536,093 428,186 413,879 Long-term borrowings 3,9,25 3,763,250 3,560,672 2,905,336 2,748,940 Long-term other payables 3,25 5,358,916 2,753,305 4,137,236 2,125,630 Net defined benefit liabilities 11 429,242 268,370 331,387 207,189 Deferred income tax liabilities 3,485,352 5,111,332 2,690,791 3,946,094 Long-term provisions 12 2,271,470 1,928,518 1,753,640 1,488,871 Other non-current liabilities 3,14,25 2,381,433 1,171,761 1,838,534 904,633 18,244,288 15,330,051 14,085,110 11,835,236 Total liabilities 89,024,926 93,674,903 68,729,781 72,319,696 Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION The above interim consolidated statements of financial position should be read in conjunction with the accompanying notes.-5-(In millions of Korean won,in thousands of US dollars(Note 2.3)June 30,December 31,June 30,December 31,Notes 2023 2022 2023 2022 KRW KRW USD USD Equity attributable to owners of the parent company Preference shares 15 119,467 119,467 92,232 92,232 Ordinary shares 15 778,047 778,047 600,674 600,674 Share premium 4,403,893 4,403,893 3,399,931 3,399,931 Retained earnings 16 338,310,655 337,946,407 261,185,471 260,904,262 Other components of equity 17 5,430,351 1,938,328 4,192,387 1,496,444 349,042,413 345,186,142 269,470,695 266,493,543 Non-controlling interests 9,933,213 9,563,462 7,668,725 7,383,267 Total equity 358,975,626 354,749,604 277,139,420 273,876,810 Total liabilities and equity 448,000,552 448,424,507 345,869,201 346,196,506 Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS The above interim consolidated statements of profit or loss should be read in conjunction with the accompanying notes.-6-(In millions of Korean won,in thousands of US dollars(Note 2.3)For the three-month periods ended June 30,For the six-month periods ended June 30,Notes 2023 2022 2023 2022 2023 2022 2023 2022 KRW KRW USD USD KRW KRW USD USD Revenue 26 60,005,533 77,203,607 46,325,982 59,603,386 123,750,904 154,985,105 95,539,226 119,652,920 Cost of sales 18 41,647,190 46,269,748 32,152,818 35,721,565 87,654,283 93,341,805 67,671,606 72,062,535 Gross profit 18,358,343 30,933,859 14,173,164 23,881,821 36,096,621 61,643,300 27,867,620 47,590,385 Selling and administrative expenses 18,19 17,689,796 16,836,814 13,657,027 12,998,500 34,787,896 33,424,846 26,857,248 25,804,934 Operating profit 26 668,547 14,097,045 516,137 10,883,321 1,308,725 28,218,454 1,010,372 21,785,451 Other non-operating income 20 201,176 463,971 155,314 358,199 705,471 1,164,164 544,644 898,768 Other non-operating expense 20 169,057 600,393 130,517 463,521 373,039 1,053,503 287,997 813,334 Share of net profit of associates and joint ventures 6 199,941 259,229 154,360 200,132 413,782 491,706 319,452 379,611 Financial income 21 4,056,928 5,371,885 3,132,064 4,147,248 8,684,977 8,874,074 6,705,050 6,851,038 Financial expense 21 3,244,540 5,130,979 2,504,877 3,961,262 7,200,541 8,164,297 5,559,023 6,303,070 Profit before income tax 1,712,995 14,460,758 1,322,481 11,164,117 3,539,375 29,530,598 2,732,498 22,798,464 Income tax expense(income)22(10,576)3,361,953(8,165)2,595,523 241,204 7,107,165 186,216 5,486,934 Profit for the period 1,723,571 11,098,805 1,330,646 8,568,594 3,298,171 22,423,433 2,546,282 17,311,530 Profit attributable to:Owners of the parent company 1,547,018 10,954,515 1,194,342 8,457,198 2,948,270 22,083,609 2,276,148 17,049,176 Non-controlling interests 176,553 144,290 136,304 111,396 349,901 339,824 270,134 262,354 Earnings per share(in Korean won,in US dollars)23 -Basic 228 1,613 0.18 1.25 434 3,251 0.34 2.51-Diluted 228 1,613 0.18 1.25 434 3,251 0.34 2.51 Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME The above interim consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.-7-(In millions of Korean won,in thousands of US dollars(Note 2.3)For the three-month periods ended June 30,For the six-month periods ended June 30,Notes 2023 2022 2023 2022 2023 2022 2023 2022 KRW KRW USD USD KRW KRW USD USD Profit for the period 1,723,571 11,098,805 1,330,646 8,568,594 3,298,171 22,423,433 2,546,282 17,311,530 Other comprehensive income(loss)Items that will not be reclassified subsequently to profit or loss:Gain(loss)on valuation of financial assets at fair value through other comprehensive income,net of tax 17 475,009(1,195,764)366,720(923,164)1,471,490(1,799,944)1,136,032(1,389,608)Share of other comprehensive income(loss)of associates and joint ventures,net of tax 17(7,191)(15,627)(5,552)(12,064)22,697(11,875)17,523(9,168)Remeasurement of net defined benefit assets,net of tax 17(102,927)(34,481)(79,463)(26,620)(350,551)(97,369)(270,635)(75,171)Items that may be reclassified subsequently to profit or loss:Share of other comprehensive income(loss)of associates and joint ventures,net of tax 17(50,332)295,429(38,858)228,080 85,428 34,846 65,953 26,902 Foreign currency translation,net of tax 17(403,003)4,919,214(311,130)3,797,773 4,653,884 7,356,247 3,592,931 5,679,232 Gain on valuation of cash flow hedge derivatives 17 4,700 1,567 3,630 1,209 12,808 7,909 9,888 6,106 Other comprehensive income(loss)for the period,net of tax (83,744)3,970,338(64,653)3,065,214 5,895,756 5,489,814 4,551,692 4,238,293 Total comprehensive income for the period 1,639,827 15,069,143 1,265,993 11,633,808 9,193,927 27,913,247 7,097,974 21,549,823 Comprehensive income attributable to:Owners of the parent company 1,474,638 14,890,896 1,138,463 11,496,196 8,761,401 27,498,046 6,764,052 21,229,276 Non-controlling interests 165,189 178,247 127,530 137,612 432,526 415,201 333,922 320,547 Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY The above interim consolidated statements of changes in equity should be read in conjunction with the accompanying notes.-8-(In millions of Korean won)For the six-month period ended June 30,2022 Notes Preference shares Ordinary shares Share premium Retained earnings Other components of equity Equity attributable to owners of the parent company Non-controlling interests Total Balance as of January 1,2022 119,467 778,047 4,403,893 293,064,763(2,128,473)296,237,697 8,662,234 304,899,931 Profit for the period -22,083,609-22,083,609 339,824 22,423,433 Loss on valuation of financial assets at fair value through other comprehensive income,net of tax 17-(26,456)(1,756,494)(1,782,950)(16,994)(1,799,944)Share of other comprehensive income of associates and joint ventures,net of tax 17-22,729 22,729 242 22,971 Foreign currency translation,net of tax -7,264,141 7,264,141 92,106 7,356,247 Remeasurement of net defined benefit liabilities(assets),net of tax 17-(97,392)(97,392)23(97,369)Gain on valuation of cash flow hedge derivatives 17-7,909 7,909-7,909 Total comprehensive income for the period -22,057,153 5,440,893 27,498,046 415,201 27,913,247 Dividends declared -(4,905,131)-(4,905,131)(1,457)(4,906,588)Capital transactions under common control -(404)(404)Others -478 478 Total transactions with owners -(4,905,131)-(4,905,131)(1,383)(4,906,514)Balance as of June 30,2022 119,467 778,047 4,403,893 310,216,785 3,312,420 318,830,612 9,076,052 327,906,664 Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY The above interim consolidated statements of changes in equity should be read in conjunction with the accompanying notes.-9-(In thousands of US dollars(Note 2.3)For the six-month period ended June 30,2022 Notes Preference shares Ordinary shares Share premium Retained earnings Other components of equity Equity attributable to owners of the parent company Non-controlling interests Total Balance as of January 1,2022 92,232 600,674 3,399,931 226,254,353(1,643,242)228,703,948 6,687,492 235,391,440 Profit for the period -17,049,176-17,049,176 262,354 17,311,530 Loss on valuation of financial assets at fair value through other comprehensive income,net of tax 17-(20,425)(1,356,063)(1,376,488)(13,120)(1,389,608)Share of other comprehensive income of associates and joint ventures,net of tax 17-17,547 17,547 187 17,734 Foreign currency translation,net of tax -5,608,124 5,608,124 71,108 5,679,232 Remeasurement of net defined benefit liabilities(assets),net of tax 17-(75,189)(75,189)18(75,171)Gain on valuation of cash flow hedge derivatives 17-6,106 6,106-6,106 Total comprehensive income for the period -17,028,751 4,200,525 21,229,276 320,547 21,549,823 Dividends declared -(3,786,901)-(3,786,901)(1,125)(3,788,026)Capital transactions under common control -(312)(312)Others -369 369 Total transactions with owners -(3,786,901)-(3,786,901)(1,068)(3,787,969)Balance as of June 30,2022 92,232 600,674 3,399,931 239,496,203 2,557,283 246,146,323 7,006,971 253,153,294 Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY The above interim consolidated statements of changes in equity should be read in conjunction with the accompanying notes.-10-(In millions of Korean won)For the six-month period ended June 30,2023 Notes Preference shares Ordinary shares Share premium Retained earnings Other components of equity Equity attributable to owners of the parent company Non-controlling interests Total Balance as of January 1,2023 119,467 778,047 4,403,893 337,946,407 1,938,328 345,186,142 9,563,462 354,749,604 Profit for the period -2,948,270-2,948,270 349,901 3,298,171 Gain(loss)on valuation of financial assets at fair value through other comprehensive income,net of tax 17-2,321,108(897,106)1,424,002 47,488 1,471,490 Share of other comprehensive income of associates and joint ventures,net of tax 17-104,471 104,471 3,654 108,125 Foreign currency translation,net of tax -4,622,266 4,622,266 31,618 4,653,884 Remeasurement of net defined benefit liabilities(assets),net of tax 17-(350,415)(350,415)(136)(350,551)Gain on valuation of cash flow hedge derivatives 17-12,807 12,807 1 12,808 Total comprehensive income for the period -5,269,378 3,492,023 8,761,401 432,526 9,193,927 Dividends declared -(4,905,130)-(4,905,130)(61,116)(4,966,246)Capital transactions under common control -(825)(825)Others -(834)(834)Total transactions with owners -(4,905,130)-(4,905,130)(62,775)(4,967,905)Balance as of June 30,2023 119,467 778,047 4,403,893 338,310,655 5,430,351 349,042,413 9,933,213 358,975,626 Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY The above interim consolidated statements of changes in equity should be read in conjunction with the accompanying notes.-11-(In thousands of US dollars(Note 2.3)For the six-month period ended June 30,2023 Notes Preference shares Ordinary shares Share premium Retained earnings Other components of equity Equity attributable to owners of the parent company Non-controlling interests Total Balance as of January 1,2023 92,232 600,674 3,399,931 260,904,262 1,496,444 266,493,543 7,383,267 273,876,810 Profit for the period -2,276,148-2,276,148 270,134 2,546,282 Gain(loss)on valuation of financial assets at fair value through other comprehensive income,net of tax 17-1,791,961(692,590)1,099,371 36,661 1,136,032 Share of other comprehensive income of associates and joint ventures,net of tax 17-80,655 80,655 2,821 83,476 Foreign currency translation,net of tax -3,568,521 3,568,521 24,410 3,592,931 Remeasurement of net defined benefit liabilities(assets),net of tax 17-(270,530)(270,530)(105)(270,635)Gain on valuation of cash flow hedge derivatives 17-9,887 9,887 1 9,888 Total comprehensive income for the period -4,068,109 2,695,943 6,764,052 333,922 7,097,974 Dividends declared -(3,786,900)-(3,786,900)(47,183)(3,834,083)Capital transactions under common control -(637)(637)Others -(644)(644)Total transactions with owners -(3,786,900)-(3,786,900)(48,464)(3,835,364)Balance as of June 30,2023 92,232 600,674 3,399,931 261,185,471 4,192,387 269,470,695 7,668,725 277,139,420 Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS The above interim consolidated statements of cash flows should be read in conjunction with the accompanying notes.-12-(In millions of Korean won,in thousands of US dollars(Note 2.3)For the six-month period ended June 30,Notes 2023 2022 2023 2022 KRW KRW USD USD Operating activities Profit for the period 3,298,171 22,423,433 2,546,282 17,311,530 Adjustments 24 21,958,025 28,057,798 16,952,221 21,661,420 Changes in assets and liabilities arising from operating activities 24(8,273,365)(19,427,200)(6,387,273)(14,998,353)Cash generated from operations 16,982,831 31,054,031 13,111,230 23,974,597 Interest received 2,429,443 706,755 1,875,599 545,635 Interest paid (441,850)(264,834)(341,121)(204,459)Dividends received 52,618 229,806 40,623 177,417 Income tax paid (4,561,353)(7,136,623)(3,521,495)(5,509,678)Net cash from operating activities 14,461,689 24,589,135 11,164,836 18,983,512 Investing activities Net decrease(increase)in short-term financial instruments 43,879,546(906,942)33,876,261(700,185)Net decrease in short-term financial assets at amortized cost 416,095 2,198,246 321,237 1,697,109 Net decrease(increase)in short-term financial assets at fair value through profit or loss 3,770(14,748)2,911(11,386)Disposal of long-term financial instruments 4,491,705 5,343,921 3,467,724 4,125,659 Acquisition of long-term financial instruments (534)(4,326,888)(412)(3,340,481)Disposal of financial assets at fair value through other comprehensive income 3,750,752 484,094 2,895,687 373,734 Acquisition of financial assets at fair value through other comprehensive income (20,013)(15,385)(15,451)(11,878)Disposal of financial assets at fair value through profit or loss 38,818 157,878 29,969 121,886 Acquisition of financial assets at fair value through profit or loss (69,368)(76,726)(53,554)(59,235)Disposal of investments in associates and joint ventures 17,839 6,933 13,772 5,352 Acquisition of investments in associates and joint ventures (65,182)(903,758)(50,322)(697,727)Disposal of property,plant and equipment 67,844 105,839 52,378 81,711 Acquisition of property,plant and equipment (29,373,990)(20,157,775)(22,677,558)(15,562,377)Disposal of intangible assets 11,253 19,036 8,688 14,696 Acquisition of intangible assets (1,620,300)(1,576,361)(1,250,918)(1,216,996)Cash outflow from business combinations -(31,383)-(24,229)Cash outflow from other investing activities (505,671)(235,248)(390,392)(181,618)Net cash from(used in)investing activities 21,022,564(19,929,267)16,230,020(15,385,965)Samsung Electronics Co.,Ltd.and its subsidiaries INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS The above interim consolidated statements of cash flows should be read in conjunction with the accompanying notes.-13-(In millions of Korean won,in thousands of US dollars(Note 2.3)For the six-month period ended June 30,Notes 2023 2022 2023 2022 KRW KRW USD USD Financing activities Net decrease in short-term borrowings (1,503,980)(668,224)(1,161,115)(515,888)Increase in long-term borrowings 193,279 73,224 149,217 56,531 Repayment of debentures and long-term borrowings (543,400)(955,802)(419,520)(737,906)Dividends paid (4,905,792)(4,906,518)(3,787,411)(3,787,972)Net decrease in non-controlling interests (827)(323)(640)(250)Net cash used in financing activities (6,760,720)(6,457,643)(5,219,469)(4,985,485)Effect of foreign exchange rate changes 1,515,532 2,349,501 1,170,033 1,813,887 Net increase in cash and cash equivalents 30,239,065 551,726 23,345,420 425,949 Cash and cash equivalents Beginning of the period 49,680,710 39,031,415 38,354,925 30,133,365 End of the period 79,919,775 39,583,141 61,700,345 30,559,314 Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -14-As of June 30,2023 and December 31,2022,and for the three-month and six-month periods ended June 30,2023 and 2022 1.General Information 1.1 Company Overview Samsung Electronics Co.,Ltd.(“SEC”)was incorporated under the laws of the Republic of Korea in 1969 and listed its shares on the Korea Stock Exchange in 1975.SEC and its subsidiaries(collectively referred to as the“Company”)operate four business divisions:DX,DS,SDC and Harman.DX(Device eXperience)division comprises businesses for digital TVs,refrigerators,mobile phones and communication systems.DS(Device Solutions)division comprises businesses for memory,foundry,and system LSI.SDC includes display panels products.Harman division includes connected car systems,audio and visual products,enterprise automation solutions and connected services.SEC is domiciled in the Republic of Korea and is located in Suwon,the Republic of Korea.These consolidated financial statements have been prepared in accordance with Korean International Financial Reporting Standards(“Korean IFRS”)1110,Consolidated Financial Statements.SEC,as the controlling company,consolidates its 233 subsidiaries,including Samsung Display and Samsung Electronics America.The Company also applies the equity method of accounting for its 38 associates and joint ventures,including Samsung Electro-Mechanics Co.,Ltd.1.2 Consolidated Subsidiaries The consolidated subsidiaries as of June 30,2023 are as follows:Area Subsidiaries Industry Percentage of ownership(%)(*)America Samsung Electronics America,Inc.(SEA)Sale of electronic devices 100.0 Samsung International,Inc.(SII)Manufacture of electronic devices 100.0 Samsung Mexicana S.A.de C.V(SAMEX)Manufacture of electronic devices 100.0 Samsung Electronics Home Appliances America,LLC(SEHA)Manufacture of home appliances 100.0 Samsung Research America,Inc.(SRA)R&D 100.0 Samsung Next LLC(SNX)Management of overseas subsidiaries 100.0 Samsung Next Fund LLC(SNXF)Technology business,venture capital investments 100.0 NeuroLogica Corp.Manufacture and sale of medical equipment 100.0 Samsung HVAC America,LLC Sale of air conditioning products 100.0 Joyent,Inc.Cloud services 100.0 SmartThings,Inc.Sale of smart home electronics 100.0 TeleWorld Solutions,Inc.(TWS)Installation of network devices 100.0 Samsung Semiconductor,Inc.(SSI)Sale of semiconductor and display panels 100.0 Samsung Federal,Inc.(SFI)R&D 100.0 Samsung Austin Semiconductor LLC.(SAS)Manufacture of semiconductors 100.0 Samsung Oak Holdings,Inc.(SHI)Management of overseas subsidiaries 100.0 SEMES America,Inc.Semiconductor equipment 100.0 Emerald Intermediate,Inc.Management of overseas subsidiaries 100.0 Emerald Merger Sub,Inc.Management of overseas subsidiaries 100.0 Samsung Electronics Canada,Inc.(SECA)Sale of electronic devices 100.0 AdGear Technologies Inc.Digital advertising platforms 100.0(*)Ownership represents the Companys ownership of the voting rights in each entity,including subsidiaries ownerships.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -15-Area Subsidiaries Industry Percentage of ownership(%)(*)America Samsung Electronica da Amazonia Ltda.(SEDA)Manufacture and sale of electronic devices 100.0 Samsung Electronics Mexico S.A.de C.V.(SEM)Sale of electronic devices 100.0 Samsung Electronics Digital Appliance Mexico,S.A.de C.V.(SEDAM)Manufacture of home appliances 100.0 Samsung Electronics Latinoamerica(Zona Libre),S.A.(SELA)Sale of electronic devices 100.0 Samsung Electronics Latinoamerica Miami,Inc.(SEMI)Sale of electronic devices 100.0 Samsung Electronica Colombia S.A.(SAMCOL)Sale of electronic devices 100.0 Samsung Electronics Argentina S.A.(SEASA)Marketing and services 100.0 Samsung Electronics Chile Limitada(SECH)Sale of electronic devices 100.0 Samsung Electronics Peru S.A.C.(SEPR)Sale of electronic devices 100.0 Samsung Electronics Venezuela,C.A.(SEVEN)Marketing and services 100.0 Samsung Electronics Panama.S.A.(SEPA)Consulting 100.0 Harman International Industries,Inc.Management of overseas subsidiaries 100.0 Harman Becker Automotive Systems,Inc.Manufacture and sale of audio products,R&D 100.0 Harman Connected Services,Inc.Connected service provider 100.0 Harman Connected Services Engineering Corp.Connected service provider 100.0 Harman da Amazonia Industria Eletronica e Participacoes Ltda.Manufacture and sale of audio products 100.0 Harman de Mexico,S.de R.L.de C.V.Manufacture of audio products 100.0 Harman do Brasil Industria Eletronica e Participacoes Ltda.Sale of audio products,R&D 100.0 Harman Financial Group LLC Management company 100.0 Harman International Industries Canada Ltd.Sale of audio products 100.0 Harman International Mexico,S.de R.L.de C.V.Sale of audio products 100.0 Harman KG Holding,LLC Management of overseas subsidiaries 100.0 Harman Professional,Inc.Sale of audio products,R&D 100.0 Beijing Integrated Circuit Industry International Fund,L.P Venture capital investments 61.4 China Materialia New Materials 2016 Limited Partnership Venture capital investments 99.0(*)Ownership represents the Companys ownership of the voting rights in each entity,including subsidiaries ownerships.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -16-Area Subsidiaries Industry Percentage of ownership(%)(*)Europe/CIS Samsung Electronics(UK)Ltd.(SEUK)Sale of electronic devices 100.0 Samsung Electronics Ltd.(SEL)Management of overseas subsidiaries 100.0 Samsung Semiconductor Europe Limited(SSEL)Sale of semiconductor and display panels 100.0 Samsung Electronics GmbH(SEG)Sale of electronic devices 100.0 Samsung Electronics Holding GmbH(SEHG)Management of overseas subsidiaries 100.0 Samsung Semiconductor Europe GmbH(SSEG)Sale of semiconductor and display panels 100.0 Samsung Electronics France S.A.S(SEF)Sale of electronic devices 100.0 Samsung Electronics Italia S.P.A.(SEI)Sale of electronic devices 100.0 Samsung Electronics Iberia,S.A.(SESA)Sale of electronic devices 100.0 Samsung Electronics Portuguesa,Unipessoal,Lda.(SEP)Sale of electronic devices 100.0 Samsung Electronics Hungarian Private Co.,Ltd.(SEH)Manufacture and sale of electronic devices 100.0 Samsung Electronics Europe Logistics B.V.(SELS)Logistics 100.0 Samsung Electronics Benelux B.V.(SEBN)Sale of electronic devices 100.0 Samsung Electronics Europe Holding Cooperatief U.A.(SEEH)Management of overseas subsidiaries 100.0 Samsung Electronics Nordic Aktiebolag(SENA)Sale of electronic devices 100.0 Samsung Electronics Slovakia s.r.o(SESK)Manufacture of TV and monitors 100.0 Samsung Display Slovakia,s.r.o.,v likvidacii(SDSK)Toll processing of display panels 100.0 Samsung Electronics Polska,SP.Zo.o(SEPOL)Sale of electronic devices 100.0 Samsung Electronics Poland Manufacturing SP.Zo.o(SEPM)Manufacture of home appliances 100.0 Samsung Electronics Romania LLC(SEROM)Sale of electronic devices 100.0 Samsung Electronics Austria GmbH(SEAG)Sale of electronic devices 100.0 Samsung Electronics Switzerland GmbH(SESG)Sale of electronic devices 100.0 Samsung Electronics Czech and Slovak s.r.o.(SECZ)Sale of electronic devices 100.0 Samsung Electronics Baltics SIA(SEB)Sale of electronic devices 100.0 Samsung Electronics Greece S.M.S.A(SEGR)Sale of electronic devices 100.0 Samsung Electronics Air Conditioner Europe B.V.(SEACE)Sale of air conditioning products 100.0 Samsung Nanoradio Design Center(SNDC)R&D 100.0 Samsung Denmark Research Center ApS(SDRC)R&D 100.0 Samsung Cambridge Solution Centre Limited(SCSC)R&D 100.0 SAMSUNG Zhilabs,S.L.Development and sale of network solutions 100.0 FOODIENT LTD.R&D 100.0 Samsung Electronics Rus Company LLC(SERC)Sale of electronic devices 100.0 Samsung Electronics Rus Kaluga LLC(SERK)Manufacture of TV 100.0 Samsung Electronics Ukraine Company LLC(SEUC)Sale of electronic devices 100.0 Samsung R&D Institute Ukraine(SRUKR)R&D 100.0 Samsung Electronics Central Eurasia LLP(SECE)Sale of electronic devices 100.0 Samsung Electronics Overseas B.V.(SEO)Sale of electronic devices 100.0 Samsung R&D Institute Rus LLC(SRR)R&D 100.0 Samsung Electronics Caucasus Co.,Ltd.(SECC)Marketing 100.0 Samsung Electronics Uzbekistan Ltd.(SEUZ)Sale of electronic devices 100.0(*)Ownership represents the Companys ownership of the voting rights in each entity,including subsidiaries ownerships.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -17-Area Subsidiaries Industry Percentage of ownership (%)(*)Europe/CIS AKG Acoustics GmbH Manufacture and sale of audio products 100.0 Apostera UA,LLC Connected Service Provider 100.0 Harman Audio Iberia Espana Sociedad Limitada Sale of audio products 100.0 Harman Automotive UK Limited Manufacture of audio products 100.0 Harman Becker Automotive Systems GmbH Manufacture and sale of audio products,R&D 100.0 Harman Becker Automotive Systems Italy S.R.L.Sale of audio products 100.0 Harman Becker Automotive Systems Manufacturing Kft Manufacture of audio products,R&D 100.0 Harman Belgium SA Sale of audio products 100.0 Harman Connected Services AB.Connected service provider 100.0 Harman Finland Oy Connected service provider 100.0 Harman Connected Services GmbH Connected service provider 100.0 Harman Connected Services Poland Sp.zoo Connected service provider 100.0 Harman Connected Services UK Ltd.Connected service provider 100.0 Harman Consumer Nederland B.V.Sale of audio products 100.0 Harman Deutschland GmbH Sale of audio products 100.0 Harman Finance International GP S.a.r.l Management of overseas subsidiaries 100.0 Harman France SNC Sale of audio products 100.0 Harman Holding GmbH&Co.KG Management company 100.0 Harman Hungary Financing Ltd.Financing company 100.0 Harman Inc.&Co.KG Management of overseas subsidiaries 100.0 Harman International Estonia OU R&D 100.0 Harman International Industries Limited Sale of audio products,R&D 100.0 Harman International Romania SRL R&D 100.0 Harman Finance International,SCA Financing company 100.0 Harman Management GmbH Management of overseas subsidiaries 100.0 Harman Professional Kft Manufacture of audio products,R&D 100.0 Harman Professional Denmark ApS Sale of audio products,R&D 100.0 Red Bend Software S.A.S Software design 100.0 Studer Professional Audio GmbH Sale of audio products,R&D 100.0 Harman Connected Services OOO Connected service provider 100.0 Harman RUS CIS LLC Sale of audio products 100.0(*)Ownership represents the Companys ownership of the voting rights in each entity,including subsidiaries ownerships.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -18-Area Subsidiaries Industry Percentage of ownership (%)(*)Middle East&Africa Samsung Gulf Electronics Co.,Ltd.(SGE)Sale of electronic devices 100.0 Samsung Electronics Turkiye(SETK)Sale of electronic devices 100.0 Samsung Electronics Industry and Commerce Ltd.(SETK-P)Manufacture of electronic devices 100.0 Samsung Electronics Levant Co.,Ltd.(SELV)Sale of electronic devices 100.0 Samsung Electronics Maghreb Arab(SEMAG)Sale of electronic devices 100.0 Samsung Electronics Egypt S.A.E(SEEG)Manufacture and sale of electronic devices 100.0 Samsung Electronics Israel Ltd.(SEIL)Marketing 100.0 Samsung Electronics Tunisia S.A.R.L(SETN)Marketing 100.0 Samsung Electronics Pakistan(Private)Ltd.(SEPAK)Marketing 100.0 Samsung Electronics Saudi Arabia Ltd.(SESAR)Sale of electronic devices 100.0 Samsung Semiconductor Israel R&D Center,Ltd.(SIRC)R&D 100.0 Corephotonics Ltd.R&D 100.0 Samsung Electronics South Africa(Pty)Ltd.(SSA)Sale of electronic devices 100.0 Samsung Electronics South Africa Production(Pty)Ltd.(SSAP)Manufacture of TV and monitors 100.0 Samsung Electronics West Africa Ltd.(SEWA)Marketing 100.0 Samsung Electronics East Africa Ltd.(SEEA)Marketing 100.0 Global Symphony Technology Group Private Ltd.Management of overseas subsidiaries 100.0 Harman Connected Services Morocco Connected service provider 100.0 Harman Industries Holdings Mauritius Ltd.Management of overseas subsidiaries 100.0 Red Bend Ltd.Manufacture of audio products 100.0 Asia(Excluding China)Samsung Asia Pte.Ltd.(SAPL)Management of overseas subsidiaries 100.0 Samsung Electronics Singapore Pte.Ltd.(SESP)Sale of electronic devices 100.0 Samsung Malaysia Electronics(SME)Sdn.Bhd.(SME)Sale of electronic devices 100.0 Samsung Electronics Display(M)Sdn.Bhd.(SDMA)Manufacture of electronic devices 100.0 Samsung Electronics(M)Sdn.Bhd.(SEMA)Manufacture of home appliances 100.0 Samsung Vina Electronics Co.,Ltd.(SAVINA)Sale of electronic devices 100.0 Samsung Electronics Vietnam Co.,Ltd.(SEV)Manufacture of electronic devices 100.0 Samsung Electronics Vietnam THAINGUYEN Co.,Ltd.(SEVT)Manufacture of communication equipment 100.0 Samsung Electronics HCMC CE Complex Co.,Ltd.(SEHC)Manufacture and sale of electronic devices 100.0 Samsung Display Vietnam Co.,Ltd.(SDV)Manufacture of display panels 100.0 DOWOOINSYS VINA COMPANY LIMITED Manufacture of display components 100.0 PT Samsung Electronics Indonesia(SEIN)Manufacture and sale of electronic devices 100.0 PT Samsung Telecommunications Indonesia(STIN)Sale of electronic devices and services 100.0 Thai Samsung Electronics Co.,Ltd.(TSE)Manufacture and sale of electronic devices 91.8 Laos Samsung Electronics Sole Co.,Ltd(LSE)Marketing 100.0 Samsung Electronics Philippines Corporation(SEPCO)Sale of electronic devices 100.0 Samsung Electronics Australia Pty.Ltd.(SEAU)Sale of electronic devices 100.0 Samsung Electronics New Zealand Limited(SENZ)Sale of electronic devices 100.0 Samsung India Electronics Private Ltd.(SIEL)Manufacture and sale of electronic devices 100.0 Red Brick Lane Marketing Solutions Pvt.Ltd.Marketing 100.0 Samsung Display Noida Private Limited(SDN)Manufacture of display panels 100.0 Samsung R&D Institute India-Bangalore Private Limited(SRI-Bangalore)R&D 100.0 Samsung R&D Institute BanglaDesh Limited(SRBD)R&D 100.0 Samsung Nepal Services Pvt,Ltd(SNSL)Service 100.0 Samsung Japan Corporation(SJC)Sale of semiconductor and display panels 100.0(*)Ownership represents the Companys ownership of the voting rights in each entity,including subsidiaries ownerships.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -19-Area Subsidiaries Industry Percentage of ownership (%)(*)Asia(Excluding China)Samsung R&D Institute Japan Co.Ltd.(SRJ)R&D 100.0 Samsung Electronics Japan Co.,Ltd.(SEJ)Sale of electronic devices 100.0 Harman Connected Services Corp.India Pvt.Ltd.Connected service provider 100.0 Harman International(India)Private Limited Sale of audio products,R&D 100.0 Harman International Industries PTY Ltd.Management of overseas subsidiaries 100.0 Harman International Japan Co.,Ltd.Sale of audio products,R&D 100.0 Harman Singapore Pte.Ltd.Sale of audio products 100.0 China Samsung(CHINA)Investment Co.,Ltd.(SCIC)Sale of electronic devices 100.0 Samsung Electronics Hong Kong Co.,Ltd.(SEHK)Sale of electronic devices 100.0 Samsung Electronics Taiwan Co.,Ltd.(SET)Sale of electronic devices 100.0 Tianjin Samsung Electronics Co.,Ltd.(TSEC)Manufacture of TV and monitors 91.2 Suzhou Samsung Electronics Co.,Ltd.(SSEC)Manufacture of home appliances 88.3 Samsung Suzhou Electronics Export Co.,Ltd.(SSEC-E)Manufacture of home appliances 100.0 Samsung Electronics Suzhou Computer Co.,Ltd.(SESC)R&D 100.0 Tianjin Samsung Telecom Technology Co.,Ltd.(TSTC)Manufacture of communication equipment 90.0 Beijing Samsung Telecom R&D Center(SRC-Beijing)R&D 100.0 Samsung Electronics China R&D Center(SRC-Nanjing)R&D 100.0 Samsung Mobile R&D Center China-Guangzhou(SRC-Guangzhou)R&D 100.0 Samsung R&D Institute China-Shenzhen(SRC-Shenzhen)R&D 100.0 Shanghai Samsung Semiconductor Co.,Ltd.(SSS)Sale of semiconductor and display panels 100.0 Samsung(China)Semiconductor Co.,Ltd.(SCS)Manufacture of semiconductors 100.0 Samsung SemiConductor Xian Co.,Ltd.(SSCX)Sale of semiconductor and display panels 100.0 Samsung Electronics Suzhou Semiconductor Co.,Ltd.(SESS)Toll processing of semiconductors 100.0 Tianjin Samsung LED Co.,Ltd.(TSLED)Manufacture of LED 100.0 Samsung Semiconductor(China)R&D Co.,Ltd.(SSCR)R&D 100.0 Samsung Display Dongguan Co.,Ltd.(SDD)Manufacture of display panels 100.0 Samsung Display Tianjin Co.,Ltd.(SDT)Manufacture of display panels 95.0 SEMES(XIAN)Co.,Ltd.Semiconductor equipment services 100.0 Samsung Semiconductor Investment L.P.Technology business,Venture capital investments 99.0 Harman(China)Technologies Co.,Ltd.Manufacture of audio products 100.0 Harman(Suzhou)Audio and Infotainment Systems Co.,Ltd.Sale of audio products 100.0 Harman Automotive Electronic Systems(Suzhou)Co.,Ltd.Manufacture of audio products,R&D 100.0 Harman Commercial(Shanghai)Co.,Ltd.Sale of audio products 100.0 Harman Connected Services Solutions(Chengdu)Co.,Ltd.Connected service provider 100.0 Harman Holding Limited Sale of audio products 100.0 Harman International(China)Holdings Co.,Ltd.Sale of audio products,R&D 100.0 Harman Technology(Shenzhen)Co.,Ltd.Sale of audio products,R&D 100.0(*)Ownership represents the Companys ownership of the voting rights in each entity,including subsidiaries ownerships.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -20-Area Subsidiaries Industry Percentage of ownership (%)(*)Domestic Samsung Display Co.,Ltd.Manufacture and sale of display panels 84.8 SU Materials Manufacture of display components 50.0 STECO Co.,Ltd.Manufacture of semiconductor components 70.0 SEMES Co.,Ltd.Manufacture and sale of semiconductor/FPD 91.5 Samsung Electronics Service Co.,Ltd.Repair services for electronic devices 99.3 Samsung Electronics Service Customer Satisfaction Co.,Ltd.Call center for repair services for electronic devices 100.0 Samsung Electronics Sales Co.,Ltd.Sale of electronic devices 100.0 Samsung Electronics Logitech Co.,Ltd.General logistics agency 100.0 Samsung Medison Co.,Ltd.Manufacture and sale of medical equipment 68.5 Stella Forest of Hope Manufacture of food 100.0 Mirero System Co.,Ltd.Development and supply of semiconductor process defect and quality control software 99.9 Dowooinsys Co.,Ltd.Manufacture of display components 69.0 Gf-System Co.,Ltd.Manufacture of display components 100.0 Harman International Korea Software development and supply 100.0 Samsung Venture Capital Union#21 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#22 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#26 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#28 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#29 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#32 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#33 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#37 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#40 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#42 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#43 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#45 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#48 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#52 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#55 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#56 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#57 Technology business,Venture capital investments 99.0 Samsung Venture Capital Union#62 Technology business,Venture capital investments 99.0 Growth type private equity trust specialized in semiconductors Investment on semiconductor industry 66.7 System LSI Mutual benefit private equity trust Investment on semiconductor industry 62.5(*)Ownership represents the Companys ownership of the voting rights in each entity,including subsidiaries ownerships.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -21-1.3 Summary of Financial Data of Major Consolidated Subsidiaries Summary of financial data of major consolidated subsidiaries is as follows:(1)2023 As of June 30,2023 June 30,2023(In millions of Korean won)For the three-month period ended For the six-month period ended Major subsidiaries(*1)Assets Liabilities Sales Profit(loss)Sales Profit(loss)Samsung Display Co.,Ltd.59,206,888 6,470,299 5,444,771 871,621 11,035,413 2,404,779 Samsung Electronics America,Inc.(SEA)38,938,571 12,063,696 9,157,280 79,508 19,977,552 294,772 Samsung Asia Pte.Ltd.(SAPL)23,579,581 1,186,112 -333,661 -6,966,849 Harman and its subsidiaries(*2)17,628,070 6,154,046 3,488,999 205,076 6,651,475 285,899 Samsung(China)Semiconductor Co.,Ltd.(SCS)15,957,741 1,346,950 2,440,992 203,913 5,011,167 530,735 Samsung Electronics Vietnam THAINGUYEN Co.,Ltd.(SEVT)14,327,372 2,734,691 6,729,383 870,408 15,346,957 1,166,442 Samsung Semiconductor,Inc.(SSI)11,686,283 5,001,617 5,113,436 55,475 10,076,971 182,461 Samsung Austin Semiconductor LLC.(SAS)11,545,027 2,512,400 1,136,235 148,327 2,091,445 252,445 Samsung(CHINA)Investment Co.,Ltd.(SCIC)9,821,955 8,407,678 702,653 12,754 1,574,264 177,969 Samsung Electronics Europe Holding Cooperatief U.A.(SEEH)9,693,632 4,624,422 -23,610 -32,085 Samsung Electronics Vietnam Co.,Ltd.(SEV)9,526,085 1,890,857 4,337,615 447,372 10,033,911 910,213 Samsung India Electronics Private Ltd.(SIEL)7,396,505 3,478,642 3,499,445 235,083 7,313,363 568,363 Samsung Display Vietnam Co.,Ltd.(SDV)7,237,305 1,889,058 5,025,494 120,439 10,213,581 570,535 Samsung Eletronica da Amazonia Ltda.(SEDA)5,290,815 1,439,082 1,738,745 32,413 3,654,447 164,645 Samsung Electronics HCMC CE Complex Co.,Ltd.(SEHC)4,029,275 821,791 1,598,461 153,715 3,095,852 352,241 Shanghai Samsung Semiconductor Co.,Ltd.(SSS)3,785,339 3,202,972 3,669,230 50,856 6,589,203 114,934 Samsung International,Inc.(SII)2,981,785 830,750 1,912,341 403,181 3,668,330 768,771 Thai Samsung Electronics Co.,Ltd.(TSE)2,918,991 534,692 1,183,524 96,887 2,402,275 185,939 Samsung Electronics(UK)Ltd.(SEUK)2,552,143 1,722,261 1,323,540 14 2,850,876 72,364 Samsung Electronics Europe Logistics B.V.(SELS)2,438,051 2,019,758 3,802,880 42,336 8,045,329 226,763 Samsung Electronics Mexico S.A.De C.V.(SEM)2,251,383 1,193,458 909,620 23,765 1,752,163 83,052 SEMES Co.,Ltd.2,147,494 603,152 683,383 58,675 1,409,736 82,958 Samsung Display Dongguan Co.,Ltd.(SDD)2,117,019 191,384 348,339 33,691 757,767 62,505 Samsung Electronics GmbH(SEG)2,013,641 1,891,158 1,407,255 (5,306)3,049,199 54,982 Samsung Electronics Benelux B.V.(SEBN)1,782,683 635,257 630,333 26,455 1,462,038 132,672 (*1)Summary of financial information is based on separate financial statements of each subsidiary.(*2)Consolidated financial data of an intermediate company that includes Harman International Industries,Inc.and its subsidiaries.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -22-(2)2022 As of December 31,2022 June 30,2022(In millions of Korean won)For the three-month period ended For the six-month period ended Major subsidiaries(*1)Assets Liabilities Sales Profit(loss)Sales Profit(loss)Samsung Display Co.,Ltd.57,302,567 7,282,718 6,845,875 791,204 13,946,851 1,817,837 Samsung Electronics America,Inc.(SEA)37,883,156 12,258,315 12,333,476 316,721 23,673,944 271,086 Samsung Asia Pte.Ltd.(SAPL)26,894,611 2,678,285 -2,505,351 -2,516,913 Harman and its subsidiaries(*2)17,102,324 6,380,456 2,986,052 36,184 5,648,793 126,028 Samsung(China)Semiconductor Co.,Ltd.(SCS)17,095,000 2,970,835 2,453,729 165,104 4,869,323 321,642 Samsung Electronics Vietnam THAINGUYEN Co.,Ltd.(SEVT)15,718,299 2,358,140 9,983,377 971,650 20,552,811 1,934,576 Samsung(CHINA)Investment Co.,Ltd.(SCIC)13,830,988 9,764,636 528,784 (43,273)1,361,932 63,608 Samsung Semiconductor,Inc.(SSI)12,199,102 5,930,369 12,742,094 33,503 23,653,098 75,744 Samsung Electronics Vietnam Co.,Ltd.(SEV)10,931,037 1,408,387 5,919,010 499,274 11,739,681 928,374 Samsung Electronics Europe Holding Cooperatief U.A.(SEEH)10,841,515 6,272,800 -21,517 -28,482 Samsung Austin Semiconductor LLC.(SAS)9,301,017 828,494 836,674 (12,167)1,625,295 (14,589)Samsung Display Vietnam Co.,Ltd.(SDV)7,471,680 1,608,448 5,142,739 56,185 10,814,792 187,691 Samsung India Electronics Private Ltd.(SIEL)6,772,537 3,571,863 3,488,909 114,899 7,688,929 317,183 Shanghai Samsung Semiconductor Co.,Ltd.(SSS)5,067,891 2,858,382 6,504,147 62,530 13,054,783 138,258 Samsung Eletronica da Amazonia Ltda.(SEDA)4,600,508 1,342,517 1,971,171 (45,838)3,890,800 68,690 Samsung Electronics HCMC CE Complex Co.,Ltd.(SEHC)3,732,057 980,448 1,602,862 125,102 3,554,895 327,308 Thai Samsung Electronics Co.,Ltd.(TSE)3,263,473 486,820 1,297,116 22,286 2,711,163 5,686 Samsung Electronics(UK)Ltd.(SEUK)2,819,792 1,708,064 1,349,597 (24,169)2,881,511 (5,105)Samsung Electronics Benelux B.V.(SEBN)2,377,730 597,044 612,857 (13,563)1,420,327 (6,661)Samsung Electronics Hungarian Private Co.Ltd.(SEH)2,374,317 452,628 881,554 42,573 2,205,901 123,503 Samsung Electronics Europe Logistics B.V.(SELS)2,194,975 2,021,491 3,663,321 60,139 8,262,182 300,226 Samsung Display Dongguan Co.,Ltd.(SDD)2,135,132 265,835 788,603 33,918 1,595,752 83,548 SEMES Co.,Ltd.2,065,558 602,323 740,885 54,932 1,466,317 128,901 Samsung Electronics GmbH(SEG)1,968,273 1,907,132 1,485,197 (75,712)3,186,298 (133,174)Samsung Electronics Mexico S.A.De C.V.(SEM)1,816,895 996,002 880,155 17,403 1,556,318 52,569 (*1)Summary of financial information is based on separate financial statements of each subsidiary.(*2)Consolidated financial data of an intermediate company that includes Harman International Industries,Inc.and its subsidiaries.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -23-1.4 Changes in Consolidation Scope Changes in consolidation scope during the six-month period ended June 30,2023 are as follows:Change Area Subsidiary Description Included Domestic Samsung Venture Capital Union#62 Establishment America Samsung Federal,Inc.(SFI)Establishment Emerald Intermediate,Inc.Establishment Emerald Merger Sub,Inc.Establishment Excluded America Dacor Holdings,Inc.Merger Dacor,Inc.Merger Europe/CIS Red Bend Software Ltd.Liquidation 2.Significant Accounting Policies 2.1 Basis of Presentation The Company maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language(Hangul)in accordance with International Financial Reporting Standards as adopted by the Republic of Korea(“Korean IFRS”).The accompanying interim consolidated financial statements have been condensed,restructured and translated into English from the Korean language financial statements.The interim consolidated financial statements for the six-month period ended June 30,2023 have been prepared in accordance with Korean IFRS 1034,Interim Financial Reporting.These interim consolidated financial statements have been prepared in accordance with the Korean IFRS which is effective as of June 30,2023.(A)New and amended standards adopted by the Company The Company applied the following amended standards for the first time for the annual reporting period commencing January 1,2023:Amendments to Korean IFRS 1001,Presentation of Financial Statements The amendments require companies to define and disclose their material accounting policy information instead of its significant accounting policies.The amendments explain how an entity can identify material accounting policy information.The application of amendments does not have a significant impact on the Companys interim consolidated financial statements.Amendments to Korean IFRS 1008,Accounting Policies,Changes in Accounting Estimates and Errors The amendments clarify the definition of a change in accounting estimates and specify how to distinguish it from a change in accounting policies.The application of amendments does not have a significant impact on the Companys interim consolidated financial statements.Amendments to Korean IFRS 1012,Income Taxes The amendments add to the initial recognition exemption that the initial recognition exemption does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition.The application of amendments does not have a significant impact on the Companys interim consolidated financial statements.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -24-(B)New and amended standards not yet adopted by the Company The amended accounting standard issued that is not yet effective for the annual reporting period commencing January 1,2023 and has not been early adopted by the Company is as follows:Amendments to Korean IFRS 1001,Presentation of Financial Statements The amendments to Korean-IFRS 1001 clarify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period and that the classification is unaffected by managements intentions or expectations about whether an entity will exercise its right to defer settlement of a liability.The amendments also introduce a definition of settlement to make clear that settlement includes the transfer to the counterparty of the entitys own equity instruments,however,it would be excluded if an option to settle the liability by the transfer of the entitys own equity instruments is recognized separately from the liability as an equity component of a compound financial instrument.The amendments are applied retrospectively for annual periods beginning on or after January,1 2024,with early application permitted.2.2 Accounting Policies Material accounting policies and method of computation used in the preparation of the interim consolidated financial statements are consistent with those of the annual financial statements for the year ended December 31,2022,except for the changes due to the application of amendments of standards described in Note 2.1 and as described below.Income tax expense Income tax expense for the interim period is recognized based on managements best estimate of the weighted average annual income tax rate expected for the full financial year.The estimated average annual effective income tax rate is applied to the pre-tax income of the interim period.2.3 Convenience Translation into United States Dollar Amounts The US dollar amounts provided in the consolidated financial statements represent supplementary information solely for the convenience of the reader.All Korean won amounts are expressed in US dollars at the rate of W 1,295.3 to$1,the average exchange rate for the six-month period ended June 30,2023.Such presentation is not in accordance with generally accepted accounting principles and should not be construed as a representation that the Korean won amounts shown could be readily converted,realized or settled in US dollars at this or at any other rate.2.4 Material Accounting Estimates and Assumptions In preparing the interim consolidated financial statements,the management of the Company makes judgements,estimates and assumptions on matters which affect the application of policies and reported amounts of assets,liabilities,income and expenses.Estimates and assumptions are continually evaluated and are based on historical experience and other factors,including expectations of future events that are believed to be reasonable under the circumstances.The resulting accounting estimates,by definition,seldom equal the related actual results Material accounting estimates and assumptions made in the preparation of the interim consolidated financial statements are consistent with those applied in the preparation of the annual consolidated financial statements for the year ended December 31,2022,except for the estimates used to determine the income tax expense.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -25-3.Financial Instruments by Category (A)Categorizations of financial assets and liabilities as of June 30,2023 and December 31,2022 are as follows:(1)As of June 30,2023 (In millions of Korean won)Financial assets measured at amortized cost Financial assets measured at fair value through other comprehensive income Financial assets measured at fair value through profit or loss Other financial assets(*)Total Financial assets Cash and cash equivalents 79,919,775-79,919,775 Short-term financial instruments 17,180,130-17,180,130 Short-term financial assets at amortized cost-Short-term financial assets at fair value through profit or loss-25,310-25,310 Trade receivables 36,104,142-36,104,142 Financial assets at fair value through other comprehensive income -10,308,125-10,308,125 Financial assets at fair value through profit or loss -1,573,457-1,573,457 Other 10,472,509-448,027 76,182 10,996,718 Total 143,676,556 10,308,125 2,046,794 76,182 156,107,657 (*)Other financial assets include derivatives designated as hedging instruments which are not subject to categorizations.(In millions of Korean won)Financial liabilities measured at amortized cost Financial liabilities measured at fair value through profit or loss Other financial liabilities(*)Total Financial liabilities Trade payables 11,744,005-11,744,005 Short-term borrowings 473,326-3,084,034 3,557,360 Other payables 13,443,741-13,443,741 Current portion of long-term liabilities 299,158-964,683 1,263,841 Debentures 554,625-554,625 Long-term borrowings 33,756-3,729,494 3,763,250 Long-term other payables 4,890,945-4,890,945 Other 10,421,841 297,833 24,105 10,743,779 Total 41,861,397 297,833 7,802,316 49,961,546 (*)Other financial liabilities include collateralized borrowings,lease liabilities and derivatives designated as hedging instruments,which are not subject to categorizations.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -26-(2)As of December 31,2022 (In millions of Korean won)Financial assets measured at amortized cost Financial assets measured at fair value through other comprehensive income Financial assets measured at fair value through profit or loss Other financial assets(*)Total Financial assets Cash and cash equivalents 49,680,710-49,680,710 Short-term financial instruments 65,102,886-65,102,886 Short-term financial assets at amortized cost 414,610-414,610 Short-term financial assets at fair value through profit or loss-29,080-29,080 Trade receivables 35,721,563-35,721,563 Financial assets at fair value through other comprehensive income -11,397,012-11,397,012 Financial assets at fair value through profit or loss -1,405,468-1,405,468 Other 9,945,209-334,263 61,404 10,340,876 Total 160,864,978 11,397,012 1,768,811 61,404 174,092,205 (*)Other financial assets include derivatives designated as hedging instruments which are not subject to categorizations.(In millions of Korean won)Financial liabilities measured at amortized cost Financial liabilities measured at fair value through profit or loss Other financial liabilities(*)Total Financial liabilities Trade payables 10,644,686 -10,644,686 Short-term borrowings 1,577,958 -3,569,357 5,147,315 Other payables 16,328,237 -16,328,237 Current portion of long-term liabilities 215,143 -874,019 1,089,162 Debentures 536,093 -536,093 Long-term borrowings 33,846 -3,526,826 3,560,672 Long-term other payables 2,289,236 -2,289,236 Other 12,047,761 334,415 27,353 12,409,529 Total 43,672,960 334,415 7,997,555 52,004,930 (*)Other financial liabilities include collateralized borrowings,lease liabilities and derivatives designated as hedging instruments,which are not subject to categorizations.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -27-4.Financial Assets at Fair Value (A)Details of financial assets at fair value as of June 30,2023 and December 31,2022 are as follows:(1)Financial assets at fair value through other comprehensive income (In millions of Korean won)June 30,2023 December 31,2022 Non-current Equity instruments 10,308,125 11,397,012 (2)Financial assets at fair value through profit or loss (In millions of Korean won)June 30,2023 December 31,2022 Current Debt instruments 25,310 29,080 Non-current Equity instruments 904,192 773,063 Debt instruments 669,265 632,405 Subtotal 1,573,457 1,405,468 Total 1,598,767 1,434,548 (B)Details of listed equity securities of financial assets at fair value as of June 30,2023 and December 31,2022 are as follows:(In millions of Korean won,number of shares and percentage)June 30,2023 December 31,2022 Number of shares owned Percentage of ownership(*)(%)Acquisition cost Carrying amount(Market value)Carrying amount(Market value)Samsung Heavy Industries.Co,Ltd.134,027,281 15.2 932,158 893,962 684,879 Hotel Shilla Co.,Ltd,2,004,717 5.1 13,957 147,146 166,592 iMarketKorea Inc.647,320 1.9 324 6,402 6,538 SFA Engineering Corporation 2,100,000 5.8 22,050 75,600 132,642 Wonik Holdings,Co.,Ltd.3,518,342 4.6 30,821 13,352 11,945 Wonik IPS Co.,Ltd.3,701,872 7.5 32,428 121,421 91,621 ASML Holding N.V 2,750,072 0.7 158,517 2,601,025 4,287,121 Wacom Co.,Ltd.8,398,400 5.3 62,013 44,789 46,750 Corning Incorporated 80,000,000 9.4 3,980,636 3,680,041 3,238,205 Other 594,391 999,767 855,452 Total 5,827,295 8,583,505 9,521,745 (*)Ownership represents the Companys ownership of the total ordinary shares issued by each entity.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -28-5.Inventories Inventories as of June 30,2023 and December 31,2022 are as follows:June 30,2023 December 31,2022(In millions of Korean won)Gross amount Valuation allowance Carrying amount Gross amount Valuation allowance Carrying amount Finished goods 16,909,611 (1,823,192)15,086,419 17,526,178 (1,493,952)16,032,226 Work in process 27,960,258 (3,784,518)24,175,740 21,612,965 (1,535,446)20,077,519 Raw materials and supplies 16,304,014 (1,324,533)14,979,481 16,268,974 (1,289,694)14,979,280 Materials in transit 1,263,158 -1,263,158 1,098,841 -1,098,841 Total 62,437,041 (6,932,243)55,504,798 56,506,958 (4,319,092)52,187,866 6.Investments in Associates and Joint Ventures (A)Changes in investments in associates and joint ventures for the six-month periods ended June 30,2023 and 2022 are as follows:(In millions of Korean won)2023 2022 Balance as of January 1 10,893,869 8,932,251 Acquisition 65,182 1,002,798 Disposal(18,357)(6,913)Share of profit 413,782 491,706 Other(*)(19,777)(36,904)Balance as of June 30 11,334,699 10,382,938 (*)Other consists of dividends,impairment,and reclassification.(B)Major investments in associates and joint ventures as of June 30,2023 are as follows:(1)Investments in associates Investee Nature of relationship Percentage of ownership(%)(*1)Principal business location Fiscal period-end Samsung Electro-Mechanics Co.,Ltd.Manufacture and supply electronic components including passive components,circuit boards,and modules 23.7 Korea December Samsung SDS Co.,Ltd.Provide IT services including computer programming,system integration and management and logistical services 22.6 Korea December Samsung Biologics Co.,Ltd.Investment in new business 31.2 Korea December Samsung SDI Co.,Ltd.(*2)Manufacture and supply electronics including secondary cell batteries 19.6 Korea December Cheil Worldwide,Inc.Advertising agency 25.2 Korea December (*1)Ownership represents the Companys ownership of the total ordinary shares issued by each entity.(*2)The Companys ownership of ordinary shares outstanding is 20.6%.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -29-(2)Investments in joint ventures Investee Nature of relationship with joint venture Percentage of ownership(%)(*)Principal business location Fiscal period-end Samsung Corning Advanced Glass LLC Manufacture and supply industrial glass devices 50.0 Korea December (*)Ownership represents the Companys ownership of the total ordinary shares issued by each entity.(C)Details of investments in associates and joint ventures as of June 30,2023 and December 31,2022 are as follows:(1)Investments in associates (In millions of Korean won)June 30,2023 Investee Acquisition cost Net asset value of equity shares(*)Carrying amount Samsung Electro-Mechanics Co.,Ltd.359,237 1,789,744 1,789,544 Samsung SDS Co.,Ltd.147,963 1,905,359 1,918,426 Samsung Biologics Co.,Ltd.1,424,358 2,906,481 2,911,314 Samsung SDI Co.,Ltd.1,242,605 3,540,877 2,816,234 Cheil Worldwide,Inc.506,162 349,678 650,157 Other 693,839 795,017 1,042,491 Total 4,374,164 11,287,156 11,128,166 (*)The Companys portion of net asset value of associates is based on the Companys percentage of ownership.(In millions of Korean won)December 31,2022 Investee Acquisition cost Net asset value of equity shares(*)Carrying amount Samsung Electro-Mechanics Co.,Ltd.359,237 1,765,507 1,764,249 Samsung SDS Co.,Ltd.147,963 1,857,481 1,870,338 Samsung Biologics Co.,Ltd.1,424,358 2,804,547 2,808,673 Samsung SDI Co.,Ltd.1,242,605 3,318,875 2,691,223 Cheil Worldwide,Inc.506,162 347,510 649,161 Other 645,255 718,801 907,333 Total 4,325,580 10,812,721 10,690,977 (*)The Companys portion of net asset value of associates is based on the Companys percentage of ownership.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -30-(2)Investments in joint ventures (In millions of Korean won)June 30,2023 Investee Acquisition cost Net asset value of equity shares(*)Carrying amount Samsung Corning Advanced Glass LLC 215,000 136,279 136,297 Other 259,994 71,044 70,236 Total 474,994 207,323 206,533 (*)The Companys portion of net asset value of joint ventures is based on the Companys percentage of ownership.(In millions of Korean won)December 31,2022 Investee Acquisition cost Net asset value of equity shares(*)Carrying amount Samsung Corning Advanced Glass LLC 215,000 137,727 137,745 Other 259,994 67,632 65,147 Total 474,994 205,359 202,892 (*)The Companys portion of net asset value of joint ventures is based on the Companys percentage of ownership.(D)Details of the changes in the book value of investments in associates and joint ventures using the equity method are as follows:(1)For the six-month period ended June 30,2023 (In millions of Korean won)Balance as of January 1 Share of profit(loss)Share of other comprehensive income(loss)Other(*)Balance as of June 30 Samsung Electro-Mechanics Co.,Ltd.1,764,249 56,192 6,258 (37,155)1,789,544 Samsung SDS Co.,Ltd.1,870,338 84,939 19,059 (55,910)1,918,426 Samsung Biologics Co.,Ltd.2,808,673 102,673 (32)-2,911,314 Samsung SDI Co.,Ltd.2,691,223 101,539 37,340 (13,868)2,816,234 Cheil Worldwide,Inc.649,161 29,823 4,567 (33,394)650,157 Samsung Corning Advanced Glass LLC 137,745 (1,448)-136,297 Other 972,480 40,064 40,933 59,250 1,112,727 Total 10,893,869 413,782 108,125 (81,077)11,334,699 (*)Other consists of acquisitions,disposals,dividends,impairment,and reclassification.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -31-(2)For the six-month period ended June 30,2022 (In millions of Korean won)Balance as of January 1 Share of profit Share of other comprehensive income(loss)Other(*)Balance as of June 30 Samsung Electro-Mechanics Co.,Ltd.1,556,386 143,913 24,503 (37,156)1,687,646 Samsung SDS Co.,Ltd.1,652,155 100,037 26,499 (41,933)1,736,758 Samsung Biologics Co.,Ltd.1,577,664 93,678 (1,888)981,164 2,650,618 Samsung SDI Co.,Ltd.2,529,650 91,076 20,729 (13,462)2,627,993 Cheil Worldwide,Inc.621,292 30,141 7,828 (28,747)630,514 Samsung Corning Advanced Glass LLC 135,580 3,277 -138,857 Other 859,524 29,584 (54,700)76,144 910,552 Total 8,932,251 491,706 22,971 936,010 10,382,938 (*)Other consists of acquisitions,disposals,dividends,impairment,and reclassification.(E)Summary of the financial information of major associates and joint ventures (1)Summary of financial information of major associates and dividends received from associates as of June 30,2023 and December 31,2022,and for the six-month periods ended June 30,2023 and 2022 are as follows:2023(In millions of Korean won)Samsung Electro-Mechanics Co.,Ltd.Samsung SDS Co.,Ltd.Samsung Biologics Co.,Ltd.Samsung SDI Co.,Ltd.Cheil Worldwide,Inc.1.Condensed financial information Condensed statements of financial position:Current assets 4,989,963 7,873,234 5,222,084 10,437,387 1,979,357 Non-current assets 6,196,663 4,078,928 10,479,717 22,465,431 564,032 Current liabilities 2,643,685 2,210,196 3,590,808 9,489,196 1,110,927 Non-current liabilities 736,124 996,079 2,799,969 4,961,003 201,884 Non-controlling interests 164,835 310,735 -864,153 10,974 Condensed statements of comprehensive income:Revenue 4,242,517 6,691,688 1,587,107 11,195,427 1,913,000 Profit from continuing operations,net of tax(*)237,527 375,102 326,641 899,767 104,081 Other comprehensive income(loss)(*)36,158 84,377 (91)271,927 19,952 Total comprehensive income(*)273,685 459,479 326,550 1,171,694 124,033 2.Dividends from associates Dividends 37,155 55,911 -13,867 33,394 (*)Profit(loss)attributable to owners of the investee Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -32-2022(In millions of Korean won)Samsung Electro-Mechanics Co.,Ltd.Samsung SDS Co.,Ltd.Samsung Biologics Co.,Ltd.Samsung SDI Co.,Ltd.Cheil Worldwide,Inc.1.Condensed financial information Condensed statements of financial position:Current assets 4,888,319 8,005,764 6,457,657 9,651,702 2,193,979 Non-current assets 6,108,852 3,946,660 10,124,394 20,605,823 557,466 Current liabilities 2,525,123 2,493,323 4,181,542 8,006,939 1,335,643 Non-current liabilities 778,563 992,132 3,416,034 5,033,084 194,373 Non-controlling interests 154,991 243,777-731,779 9,388 Condensed statements of comprehensive income:Revenue 5,089,065 8,786,676 1,162,727 8,790,200 1,922,981 Profit from continuing operations,net of tax(*)604,625 464,770 298,983 747,915 105,224 Other comprehensive income(*)106,251 110,958 1,476 148,171 28,644 Total comprehensive income(*)710,876 575,728 300,459 896,086 133,868 2.Dividends from associates Dividends 37,155 41,933-13,463 28,748 (*)Profit attributable to owners of the investee.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -33-(2)Summary of financial information of major joint ventures and dividends received from joint ventures as of June 30,2023 and December 31,2022,and for the six-month periods ended June 30,2023 and 2022 are as follows:Samsung Corning Advanced Glass,LLC(In millions of Korean won)2023 2022 Condensed financial information Condensed statements of financial position:Current assets 108,663 170,103 Non-current assets 186,867 125,507 Current liabilities 21,507 19,794 Non-current liabilities 1,466 363 Condensed statements of comprehensive income:Revenue 50,320 75,043 Profit(Loss)from continuing operations,net of tax(2,896)6,553 Other comprehensive income-Total comprehensive income(2,896)6,553 Dividends from joint ventures Dividends-(3)Profit(loss)attributable to owners of the parent company from associates and joint ventures which are not individually material for the six-month periods ended June 30,2023 and 2022 are as follows:2023 2022(In millions of Korean won)Associates Joint ventures Associates Joint ventures Profit from continuing operations 38,861 1,203 28,633 951 Other comprehensive income(loss)40,789 144 (51,498)(3,202)Total comprehensive income(loss)79,650 1,347 (22,865)(2,251)(F)Details of marketable investments in associates as of June 30,2023 and December 31,2022 are as follows:(In millions of Korean won and number of shares)June 30,2023 December 31,2022 Number of shares held Market value Market value Samsung Electro-Mechanics Co.,Ltd.17,693,084 2,556,651 2,308,947 Samsung SDS Co.,Ltd.17,472,110 2,147,322 2,149,070 Samsung Biologics Co.,Ltd.22,217,309 16,529,678 18,240,411 Samsung SDI Co.,Ltd.13,462,673 9,006,528 7,956,440 Cheil Worldwide,Inc.29,038,075 526,460 669,328 Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -34-(G)Other matters On July 12,2018,the Korea Securities and Futures Commission determined an initial measure following an investigation relating to Samsung Biologics Co.,Ltd.,an associate of the Company,and its accounting for its investment in Samsung Bioepis Co.,Ltd,a joint venture between Biogen Therapeutics Inc.and Samsung Biologics Co.,Ltd.This measure included a recommendation to dismiss the director in charge,prosecution charges,and external auditor designation by the regulator,on the basis that the Joint Venture Agreement was not disclosed in the notes to the financial statements.On November 14,2018,the Korea Securities and Futures Commission determined a second measure which included a penalty of W 8,000 million,a recommendation to dismiss the CEO,a requirement to restate its financial statements,and further prosecution charges.To prove justification of its accounting treatment,Samsung Biologics Co.,Ltd.filed a suit for cancellation of the aforementioned measures to the Seoul Administrative Court,which is currently in progress.On September 24,2020,the Seoul Administrative Court announced a decision to cancel the first measure charged by the Korea Securities and Futures Commission and suspended its execution until the final rulings of appeal.On October 16,2020,the Korea Securities and Futures Commission appealed the decision and the litigation is in progress at Seoul High Court.Samsung Biologics Co.,Ltd.also filed for suspending the execution of the initial and second measures.On January 22,2019 and February 19,2019,the Seoul Administrative Court pronounced decisions to suspend the second and initial measures,respectively,until the final rulings.The Korea Securities and Futures Commission immediately appealed against the decisions but the appeals were dismissed by the Seoul High Court on May 13,2019 and May 24,2019,in relation to the second and first measures,respectively.On May 23,2019 and June 10,2019,the Korea Securities and Futures Commission re-appealed against the dismissals relating to the second and first measures,respectively.On September 6,2019 and October 11,2019,the Supreme Court of Korea dismissed the Korea Securities and Futures Commissions re-appeal relating to the second and first measures,respectively,and confirmed the decision to suspend the execution of these measures.Although the future outcome of the administrative litigation cannot be estimated,should Samsung Biologics Co.,Ltd.be required to restate its financial statements to amend its historical accounting treatment relating to its investment in Samsung Bioepis Co.,Ltd.,the Companys share of profit or loss relating to its equity method investment,the amount of investment in associates,and retained earnings,for the years ended December 31,2015 and onwards,and the profit on disposal of investment for the year ended December 31,2016,may be impacted.Given the timing of completion and the final result of the administrative litigation between Samsung Biologics Co.,Ltd.and the Korea Securities and Futures Commission is uncertain and cannot currently be estimated,it is not possible for the Company to recognize the effects of these proceedings in the current period consolidated financial statements.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -35-7.Property,Plant and Equipment(A)Changes in property,plant and equipment for the six-month periods ended June 30,2023 and 2022 are as follows:(In millions of Korean won)2023 2022 Balance as of January 1 168,045,388 149,928,539 Acquisition and capital expenditures 26,299,312 20,754,405 Depreciation(17,568,639)(18,077,845)Disposals/scrap/impairment(209,921)(164,773)Other(*)1,303,802 1,814,250 Balance as of June 30 177,869,942 154,254,576 (*)Other includes effects of changes in foreign currency exchange rates and effects of the offset of government grants.(B)Details of depreciation of property,plant and equipment for the six-month periods ended June 30,2023 and 2022 are as follows:(In millions of Korean won)2023 2022 Cost of sales 15,643,321 16,292,066 Selling and administrative expenses and other 1,925,318 1,785,779 Total 17,568,639 18,077,845 (C)Right-of-use assets as of June 30,2023 amount to W 5,479,379 million(December 31,2022:W 4,917,609 million).During the six-month periods ended June 30,2023 and 2022,newly recognized right-of-use assets amount to W 1,040,012 million and W 502,506 million,respectively,with relevant depreciation of W 589,402 million and W 469,474 million,respectively.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -36-8.Intangible Assets(A)Changes in intangible assets for the six-month periods ended June 30,2023 and 2022 are as follows:(In millions of Korean won)2023 2022 Balance as of January 1 20,217,754 20,236,244 External acquisitions 4,324,670 859,818 Amortization(1,576,451)(1,543,029)Disposals/scrap/impairment(25,652)(27,801)Other(*)489,913 571,694 Balance as of June 30 23,430,234 20,096,926 (*)Other includes the cumulative effect of changes in foreign currency exchange rates and business combinations.(B)Details of amortization of intangible assets for the six-month periods ended June 30,2023 and 2022 are as follows:(In millions of Korean won)2023 2022 Cost of sales 1,109,423 1,070,464 Selling and administrative expenses and other 467,028 472,565 Total 1,576,451 1,543,029 9.Borrowings Details of the carrying amounts of borrowings as of June 30,2023 and December 31,2022 are as follows:(In millions of Korean won)Financial institutions Interest rates(%)as of June 30,2023 June 30,2023 December 31,2022 Short-term borrowings Collateralized borrowings(*1)Woori Bank and others 0.117.7 3,084,034 3,569,357 Non-collateralized borrowings Citibank and others 0.162.2 473,326 1,577,958 Total 3,557,360 5,147,315 Current portion of long-term borrowings Bank borrowings BNP and others 36.761.5 292,688 208,915 Lease liabilities(*2)CSSD and others 4.1 964,683 874,019 Total 1,257,371 1,082,934 Long-term borrowings Bank borrowings Industrial Bank of Korea and others 2.56.7 33,756 33,846 Lease liabilities(*2)CSSD and others 4.1 3,729,494 3,526,826 Total 3,763,250 3,560,672 (*1)Collateralized borrowings are secured by trade receivables.(*2)Interest expenses arising from the lease liabilities for the six-month periods ended June 30,2023 and 2022 amounted to W 94,075 million and W 61,932 million,respectively,which were determined using the weighted average incremental borrowing rate.The right-of-use assets are pledged as collateral to the lessor in the event of default.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -37-10.Debentures Details of the carrying amounts of debentures as of June 30,2023 and December 31,2022 are as follows:(In millions of Korean won)Issue date Due date Interest rates(%)as of June 30,2023 June 30,2023 December 31,2022 US dollar denominated straight bonds(*1)1997.10.2 2027.10.1 7.7 32,820 31,683 (US$25 million)(US$25 million)US dollar denominated debentures(*2)2015.5.11 2025.5.15 4.2 525,120 506,920 (US$400 million)(US$400 million)Less:Discounts (467)(543)Add:Premium 3,622 4,261 Less:Current portion (6,470)(6,228)Total 554,625 536,093 (*1)US dollar denominated straight bonds are repaid annually for twenty years after a ten-year grace period from the date of issuance.Interest is paid semi-annually.(*2)Harman International Industries,Inc.issued US dollar denominated debentures.These debentures are repaid on the maturity and interest is paid semi-annually.11.Net Defined Benefit Liabilities(Assets)(A)Details of net defined benefit liabilities(assets)recognized in the statements of financial position as of June 30,2023 and December 31,2022 are as follows:(In millions of Korean won)June 30,2023 December 31,2022 Present value of funded defined benefit obligations 14,408,258 13,639,460 Present value of unfunded defined benefit obligations 277,253 370,848 Subtotal 14,685,511 14,010,308 Fair value of plan assets(19,399,317)(19,593,910)Total(4,713,806)(5,583,602)(B)The components of defined benefit costs recognized in profit or loss for the six-month periods ended June 30,2023 and 2022 relating to defined benefit plans are as follows:(In millions of Korean won)2023 2022 Current service cost 634,643 684,929 Net interest income(176,734)(49,382)Past service cost(581)56 Other 15,865 3,417 Total 473,193 639,020 Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -38-(C)The expenses related to defined benefit plans recognized in the statements of profit or loss for the six-month periods ended June 30,2023 and 2022 are as follows:(In millions of Korean won)2023 2022 Cost of sales 189,349 273,388 Selling and administrative expenses and other 283,844 365,632 Total 473,193 639,020 12.Provisions Changes in the provisions for the six-month period ended June 30,2023 are as follows:(In millions of Korean won)Warranty(A)Royalty expenses(B)Long-term incentives(C)Other(D,E)Total Balance as of January 1 2,309,726 1,546,606 783,263 3,133,830 7,773,425 Charged to profit or loss 1,237,011 344,251 140,071 1,464,674 3,186,007 Payment(1,131,980)(188,844)(44,421)(597,610)(1,962,855)Other(*)66,854 39,497 5,490 24,603 136,444 Balance as of June 30 2,481,611 1,741,510 884,403 4,025,497 9,133,021 (*)Other includes effects of changes in foreign currency exchange rates.(A)The Company accrues warranty reserves for estimated costs of quality assurance,exchanges,repairs,recalls,and future services based on historical experience and terms of warranty programs.(B)The Company recognizes provisions for the estimated royalty expenses that are under negotiation with counterparties.The timing and amount of payment depend on the settlement of the negotiations.(C)The Company has a long-term incentive plan for its executives based on a three-year management performance criteria and recognizes a provision for the estimated incentive cost.(D)The Company records provisions for future expenses expected to be incurred for products that have been discontinued from manufacturing and sales.(E)The Company makes provisions for the emission in excess of the emission rights held by the Company for the applicable years.Details of emission rights and liabilities as of June 30,2023 are as follows:(1)The amount of emission rights allocated free of charge in the current commitment period and the estimated volume of emission as of June 30,2023 are as follows:(In ten thousand metric tons)June 30,2023 Emission rights allocated free of charge 1,710 Estimated volume of emission 1,903 Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -39-(2)Changes in the emission rights for the six-month periods ended June 30,2023 and 2022 are as follows:(In millions of Korean won)2023 2022 Balance as of January 1 19,567 46,074 Increase 1,272 1,871 Utilization(225)-Balance as of June 30 20,614 47,945 (3)Changes in emissions liabilities for the six-month periods ended June 30,2023 and 2022 are as follows:(In millions of Korean won)2023 2022 Balance as of January 1 32,838 45,049 Charged to profit or loss-23,365 Utilization(14)-Balance as of June 30 32,824 68,414 13.Commitments and Contingencies (A)Litigation As of June 30,2023,the Company is involved in various claims,disputes,and investigations conducted by regulatory bodies that arose during the normal course of business with numerous entities.Although the outflow of resources and timing of these matters are uncertain,the Company believes the outcome will not have a material impact on the financial position of the Company.(B)Other commitments As of June 30,2023,the Company has commitments for the acquisition of tangible and intangible assets that have not yet been incurred of W 17,119,756 million.14.Contract Liabilities The Company has recognized contract liabilities related to contracts with customers as follows:(In millions of Korean won)June 30,2023 December 31,2022 Contract liabilities(*)12,787,097 13,255,682 (*)Contract liabilities include advances received,accrued expenses,other current liabilities and others.15.Share Capital As of June 30,2023,the Companys total number of authorized shares is 25,000,000,000 shares(W 100 per share).The Company has issued 5,969,782,550 shares of ordinary shares and 822,886,700 shares of preference shares as of June 30,2023,excluding retired shares.As of June 30,2023,the number of shares outstanding is the same as the number of shares issued above,and no changes were made to the number of shares outstanding during the six-month periods ended June 30,2023 and 2022.Due to the retirement of shares,the total par value of the shares issued is W 679,267 million(ordinary shares of W 596,978 million and preference shares of W 82,289 million),which does not agree with paid-in capital of W 897,514 million.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -40-16.Retained Earnings (A)Retained earnings as of June 30,2023 and December 31,2022 consist of the following:(In millions of Korean won)June 30,2023 December 31,2022 Discretionary reserve,etc.208,019,306 192,294,496 Unappropriated retained earnings 130,291,349 145,651,911 Total 338,310,655 337,946,407 (B)Details of interim dividends are as follows:Interim dividends(Record date:March 31 and June 30,2023 and 2022)(In millions of Korean won and number of shares)2023 2022 1st Quarter Number of shares eligible for dividends Ordinary shares 5,969,782,550 5,969,782,550 Preference shares 822,886,700 822,886,700 Dividend rate(based on par value)Ordinary/Preference 36161%Dividend amount Ordinary shares 2,155,092 2,155,092 Preference shares 297,062 297,062 Total 2,452,154 2,452,154 2nd Quarter Number of shares eligible for dividends Ordinary shares 5,969,782,550 5,969,782,550 Preference shares 822,886,700 822,886,700 Dividend rate(based on par value)Ordinary/Preference 36161%Dividend amount Ordinary shares 2,155,092 2,155,092 Preference shares 297,062 297,062 Total 2,452,154 2,452,154 17.Other Components of Equity Other components of equity as of June 30,2023 and December 31,2022 are as follows:(In millions of Korean won)June 30,2023 December 31,2022 Gain on valuation of financial assets at fair value through other comprehensive income 1,852,003 2,749,109 Share of other comprehensive income of associates and joint ventures 219,458 114,987 Foreign currency translation,net of tax 5,661,463 1,039,197 Remeasurement of net defined benefit liabilities(assets)(2,402,025)(2,051,610)Other 99,452 86,645 Total 5,430,351 1,938,328 Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -41-18.Expenses by Nature Expenses by nature for the three and six-month periods ended June 30,2023 and 2022 consist of the following:(In millions of Korean won)2023 2022 3 Months 6 Months 3 Months 6 Months Changes in finished goods,work in process,and other (935,654)(3,152,414)(4,439,969)(6,998,972)Raw materials used,merchandise purchased,and other 21,190,339 48,387,259 28,865,165 56,931,407 Wages and salaries 8,090,473 15,991,639 7,528,038 15,260,987 Post-employment benefit 273,221 551,510 341,528 692,424 Depreciation 8,767,744 17,568,639 9,068,814 18,077,845 Amortization 790,853 1,576,451 772,552 1,543,029 Welfare 1,740,173 3,281,449 1,738,929 3,140,865 Utilities 1,771,378 3,632,488 1,383,458 2,782,026 Outsourcing 1,729,937 3,410,856 1,652,475 3,135,008 Advertising 1,073,439 2,218,782 1,397,480 2,865,181 Sales promotion 1,568,835 3,241,787 1,536,956 3,360,354 Other 13,276,248 25,733,733 13,261,136 25,976,497 Total(*)59,336,986 122,442,179 63,106,562 126,766,651 (*)Equal to the sum of cost of sales and selling and administrative expenses in the consolidated statements of profit or loss.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -42-19.Selling and Administrative Expenses Selling and administrative expenses for the three and six-month periods ended June 30,2023 and 2022 are as follows:(In millions of Korean won)2023 2022 3 Months 6 Months 3 Months 6 Months Selling and administrative expenses Wages and salaries 2,102,067 4,174,476 1,884,465 3,879,818 Post-employment benefit 70,645 140,157 72,706 150,000 Commissions 2,070,654 4,174,578 1,806,907 3,537,298 Depreciation 419,353 822,999 382,702 761,443 Amortization 172,647 341,586 163,203 331,697 Advertising 1,073,439 2,218,782 1,397,480 2,865,181 Sales promotion 1,568,835 3,241,787 1,536,956 3,360,354 Transportation 420,198 834,603 984,085 1,841,718 Service charges 1,088,395 2,110,131 837,018 1,730,562 Other 1,505,008 2,951,508 1,516,418 2,789,669 Subtotal 10,491,241 21,010,607 10,581,940 21,247,740 Research and development expenses Research and development 7,198,555 13,777,289 6,254,874 12,177,106 Total 17,689,796 34,787,896 16,836,814 33,424,846 Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -43-20.Other Non-Operating Income and Expenses Details of other non-operating income and expenses for the three and six-month periods ended June 30,2023 and 2022 are as follows:2023 2022(In millions of Korean won)3 Months 6 Months 3 Months 6 Months Other non-operating income Dividend income 48,894 96,788 62,400 330,909 Rental income 36,963 74,905 34,914 69,498 Gain on disposal of property,plant and equipment 20,598 55,047 63,780 114,200 Other 94,721 478,731 302,877 649,557 Total 201,176 705,471 463,971 1,164,164 2023 2022(In millions of Korean won)3 Months 6 Months 3 Months 6 Months Other non-operating expenses Loss on disposal of property,plant and equipment 10,611 20,003 19,911 24,107 Donations 29,710 102,793 85,866 175,426 Other 128,736 250,243 494,616 853,970 Total 169,057 373,039 600,393 1,053,503 Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -44-21.Financial Income and Expenses Details of financial income and expenses for the three and six-month periods ended June 30,2023 and 2022 are as follows:2023 2022(In millions of Korean won)3 Months 6 Months 3 Months 6 Months Financial income Interest income:1,152,273 2,212,719 487,194 856,226 Interest income from financial assets measured at amortized cost 1,152,212 2,212,592 487,130 856,097 Interest income from financial assets measured at fair value through profit or loss 61 127 64 129 Foreign exchange differences 2,758,603 5,878,615 4,490,804 7,099,407 Gains from derivatives 146,052 593,643 393,887 918,441 Total 4,056,928 8,684,977 5,371,885 8,874,074 2023 2022(In millions of Korean won)3 Months 6 Months 3 Months 6 Months Financial expenses Interest expense:286,893 578,570 123,064 272,295 Interest expense from financial liabilities measured at amortized cost 176,050 327,906 31,904 106,567 Other financial liabilities 110,843 250,664 91,160 165,728 Foreign exchange differences 2,556,359 5,932,237 4,675,575 7,136,257 Losses from derivatives 401,288 689,734 332,340 755,745 Total 3,244,540 7,200,541 5,130,979 8,164,297 The Company recognizes foreign exchange gains and losses arising from foreign currency transactions and translation as financial income and expenses.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -45-22.Income Tax Expense Income tax expense is recognized based on managements best estimate of the weighted average annual income tax rate expected for the full financial year.The average annual tax rate expected as of June 30,2023 to be effective for the year ended December 31,2023 is 6.8%.23.Earnings per Share (A)Basic earnings per share Basic earnings per share for the three and six-month periods ended June 30,2023 and 2022 are calculated as follows:(1)Ordinary shares 2023 2022(In millions of Korean won,thousands of number of shares)3 Months 6 Months 3 Months 6 Months Profit for the period attributable to owners of the parent company 1,547,018 2,948,270 10,954,515 22,083,609 Profit for the period available for ordinary shares 1,359,607 2,591,107 9,627,448 19,408,327 Weighted-average number of ordinary shares outstanding 5,969,783 5,969,783 5,969,783 5,969,783 Basic earnings per ordinary share(in Korean won)228 434 1,613 3,251 (2)Preference shares 2023 2022(In millions of Korean won,thousands of number of shares)3 Months 6 Months 3 Months 6 Months Profit for the period attributable to owners of the parent company 1,547,018 2,948,270 10,954,515 22,083,609 Profit for the period available for preference shares 187,411 357,163 1,327,067 2,675,282 Weighted-average number of preference shares outstanding 822,887 822,887 822,887 822,887 Basic earnings per preference share(in Korean won)228 434 1,613 3,251 (B)Diluted earnings per share The Company does not have dilutive potential ordinary shares and as a result,basic earnings per share and diluted earnings per share are the same for the six-month periods ended June 30,2023 and 2022.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -46-24.Statements of Cash Flows The Company used the indirect method to present cash flows from operating activities.Adjustments and changes in assets and liabilities arising from operating activities for the six-month periods ended June 30,2023 and 2022 are as follows:-Adjustments (In millions of Korean won)2023 2022 Adjustments:Income tax expense 241,205 7,107,165 Financial income(3,619,551)(3,033,105)Financial expense 2,601,229 2,516,133 Post-employment benefits 551,510 692,424 Depreciation 17,568,639 18,077,845 Amortization 1,576,451 1,543,029 Bad debt expense 76,054 24,421 Dividend income(96,788)(330,909)Share of profit of associates and joint ventures(413,782)(491,706)Gain on disposal of property,plant and equipment(55,047)(114,200)Loss on disposal of property,plant and equipment 20,003 24,107 Loss on valuation of inventories 3,569,456 1,934,530 Other(61,354)108,064 Total 21,958,025 28,057,798 -Changes in assets and liabilities arising from operating activities (In millions of Korean won)2023 2022 Changes in assets and liabilities:Decrease in trade receivables 727,124 383,614 Decrease(increase)in other receivables 990,666 (656,444)Increase in prepaid expenses(449,776)(323,801)Increase in inventories(5,846,100)(10,473,730)Increase(decrease)in trade payables 635,101 (3,479,374)Increase(decrease)in other payables 589,905 (2,076,950)Increase(decrease)in advances received(181,346)13,502 Decrease in withholdings(562,980)(563,671)Decrease in accrued expenses(4,485,803)(1,705,600)Increase in provisions 1,223,152 326,635 Payment of post-employment benefits(323,060)(295,378)Other(590,248)(576,003)Total(8,273,365)(19,427,200)For the six-month periods ended June 30,2023 and 2022,cash outflows from principal portion of lease liabilities(financial activities)amount to W 538,783 million and W 485,458 million,respectively,and cash outflows due to interest expenses(operating activities)in relation to the lease liabilities amount to W 94,075 million and W 61,932 million,respectively.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -47-25.Financial Risk Management The Companys financial risk management focuses on minimizing market risk,credit risk,and liquidity risk arising from operating activities.To mitigate these risks,the Company implements and operates a financial risk policy and program that closely monitors and manages such risks.In addition,the Company uses derivatives to hedge certain risk exposure.The finance team mainly carries out the Companys financial risk management.After implementing the global financial risk management policies,the finance team periodically measures,evaluates,and hedges financial risks.The Company also manages foreign exchange risk by monitoring foreign exchange rate fluctuations through local financial centers in the major regions(United States,United Kingdom,Singapore,China,Brazil,and Russia),which act as an agent for the subsidiaries in each region to manage foreign exchange transactions.In addition,local finance centers in the major regions manage liquidity risk through a globally integrated financial structure.The Companys financial assets that are under financial risk management are comprised of cash and cash equivalents,short-term financial instruments,financial assets at amortized cost,trade receivables and others.The Companys financial liabilities under financial risk management are comprised of trade payables,borrowings,and others.(A)Market risk (1)Foreign exchange risk The Company is exposed to foreign exchange risk arising from its global operations performed in currencies other than its functional currency.The major currencies that the Company is exposed to foreign exchange risk are the US dollar,Euro,and Indian Rupee.The Company focuses on minimizing the impact of foreign exchange fluctuation by maintaining matching levels of assets and liabilities denominated in each foreign currency.To minimize exchange position,the Companys foreign exchange management policy requires normal business transactions,including import and export,as well as financing transactions such as depositing and borrowing,to be in local currency or match as closely as possible cash inflows and outflows incurred in the respective foreign currencies.Moreover,the Company periodically evaluates and monitors the foreign exchange risk to efficiently mitigate such risk,and the speculative foreign exchange transactions are strictly prohibited.(2)Interest rate risk Risk of changes in interest rates for floating interest rate financial instruments is defined as the risk that the fair value of components of the statements of financial position,and future cash flows of interest income(expenses)of a financial instrument,will fluctuate because of changes in market interest rates.The Companys position with regard to interest rate risk exposure is mainly driven by its floating interest rate debt obligations and interest-bearing deposits.The Company has implemented policies and practices to minimize uncertainty arising from changes in interest rates and financial expenses.(3)Price risk The Companys investment portfolio consists of direct and indirect investments in equity instruments classified as financial assets at fair value through other comprehensive income and financial assets at fair value through profit or loss,which is in line with the Companys strategy.As of June 30,2023 and 2022,price fluctuation of marketable equity securities(listed stocks)by 1%would result in changes in other comprehensive income(before income tax)of W 81,526 million and W 90,393 million,respectively,and changes in profit before tax of W 4,309 million and W 3,413 million,respectively.Samsung Electronics Co.,Ltd.and its subsidiaries NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS -48-(B)Credit
2023-09-26
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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 April1,2023or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to.Commission File Number:001-36743Apple Inc.(Exact name of Registrant as specified in its charter)California94-2404110(State or other jurisdictionof incorporation or organization)(I.R.S.Employer Identification No.)One Apple Park WayCupertino,California95014(Address of principal executive offices)(Zip Code)(408)996-1010(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading symbol(s)Name of each exchange on which registeredCommon Stock,$0.00001 par value per shareAAPLThe Nasdaq Stock Market LLC1.375%Notes due 2024The Nasdaq Stock Market LLC0.000%Notes due 2025The Nasdaq Stock Market LLC0.875%Notes due 2025The Nasdaq Stock Market LLC1.625%Notes due 2026The Nasdaq Stock Market LLC2.000%Notes due 2027The Nasdaq Stock Market LLC1.375%Notes due 2029The Nasdaq Stock Market LLC3.050%Notes due 2029The Nasdaq Stock Market LLC0.500%Notes due 2031The Nasdaq Stock Market LLC3.600%Notes due 2042The Nasdaq Stock Market LLCIndicate 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 during the 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 for the past 90 days.YesNoIndicate by check mark 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).YesNoIndicate by check mark 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 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 or revised 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).YesNo15,728,702,000 shares of common stock were issued and outstanding as of April21,2023.Apple Inc.Form 10-QFor the Fiscal Quarter Ended April1,2023 TABLE OF CONTENTSPagePart IItem 1.Financial Statements1Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations14Item 3.Quantitative and Qualitative Disclosures About Market Risk19Item 4.Controls and Procedures19Part IIItem 1.Legal Proceedings20Item 1A.Risk Factors20Item 2.Unregistered Sales of Equity Securities and Use of Proceeds20Item 3.Defaults Upon Senior Securities21Item 4.Mine Safety Disclosures21Item 5.Other Information21Item 6.Exhibits21PART I FINANCIAL INFORMATIONItem 1.Financial StatementsApple Inc.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In millions,except number of shares which are reflected in thousands and per share amounts)Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Net sales:Products$73,929$77,457$170,317$181,886 Services 20,907 19,821 41,673 39,337 Total net sales 94,836 97,278 211,990 221,223 Cost of sales:Products 46,795 49,290 107,560 113,599 Services 6,065 5,429 12,122 10,822 Total cost of sales 52,860 54,719 119,682 124,421 Gross margin 41,976 42,559 92,308 96,802 Operating expenses:Research and development 7,457 6,387 15,166 12,693 Selling,general and administrative 6,201 6,193 12,808 12,642 Total operating expenses 13,658 12,580 27,974 25,335 Operating income 28,318 29,979 64,334 71,467 Other income/(expense),net 64 160 (329)(87)Income before provision for income taxes 28,382 30,139 64,005 71,380 Provision for income taxes 4,222 5,129 9,847 11,740 Net income$24,160$25,010$54,158$59,640 Earnings per share:Basic$1.53$1.54$3.42$3.65 Diluted$1.52$1.52$3.41$3.62 Shares used in computing earnings per share:Basic 15,787,154 16,278,802 15,839,939 16,335,263 Diluted 15,847,050 16,403,316 15,901,384 16,461,304 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q2 2023 Form 10-Q|1Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Unaudited)(In millions)Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Net income$24,160$25,010$54,158$59,640 Other comprehensive income/(loss):Change in foreign currency translation,net of tax(95)(21)(109)(381)Change in unrealized gains/losses on derivative instruments,net of tax:Change in fair value of derivative instruments(13)334 (1,001)696 Adjustment for net(gains)/losses realized and included in net income(191)(301)(1,957)(208)Total change in unrealized gains/losses on derivative instruments(204)33 (2,958)488 Change in unrealized gains/losses on marketable debt securities,net of tax:Change in fair value of marketable debt securities 1,403 (5,633)2,303 (6,809)Adjustment for net(gains)/losses realized and included in net income 62 54 127 45 Total change in unrealized gains/losses on marketable debt securities 1,465 (5,579)2,430 (6,764)Total other comprehensive income/(loss)1,166 (5,567)(637)(6,657)Total comprehensive income$25,326$19,443$53,521$52,983 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q2 2023 Form 10-Q|2Apple Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(In millions,except number of shares which are reflected in thousands and par value)April 1,2023September 24,2022ASSETS:Current assets:Cash and cash equivalents$24,687$23,646 Marketable securities 31,185 24,658 Accounts receivable,net 17,936 28,184 Inventories 7,482 4,946 Vendor non-trade receivables 17,963 32,748 Other current assets 13,660 21,223 Total current assets 112,913 135,405 Non-current assets:Marketable securities 110,461 120,805 Property,plant and equipment,net 43,398 42,117 Other non-current assets 65,388 54,428 Total non-current assets 219,247 217,350 Total assets$332,160$352,755 LIABILITIES AND SHAREHOLDERS EQUITY:Current liabilities:Accounts payable$42,945$64,115 Other current liabilities 56,425 60,845 Deferred revenue 8,131 7,912 Commercial paper 1,996 9,982 Term debt 10,578 11,128 Total current liabilities 120,075 153,982 Non-current liabilities:Term debt 97,041 98,959 Other non-current liabilities 52,886 49,142 Total non-current liabilities 149,927 148,101 Total liabilities 270,002 302,083 Commitments and contingenciesShareholders equity:Common stock and additional paid-in capital,$0.00001 par value:50,400,000 shares authorized;15,723,406 and 15,943,425 shares issued and outstanding,respectively 69,568 64,849 Retained earnings/(Accumulated deficit)4,336 (3,068)Accumulated other comprehensive income/(loss)(11,746)(11,109)Total shareholders equity 62,158 50,672 Total liabilities and shareholders equity$332,160$352,755 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q2 2023 Form 10-Q|3Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY(Unaudited)(In millions,except per share amounts)Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Total shareholders equity,beginning balances$56,727$71,932$50,672$63,090 Common stock and additional paid-in capital:Beginning balances 66,399 58,424 64,849 57,365 Common stock issued 690 593 690 593 Common stock withheld related to net share settlement of equity awards(281)(149)(1,715)(1,412)Share-based compensation 2,760 2,313 5,744 4,635 Ending balances 69,568 61,181 69,568 61,181 Retained earnings/(Accumulated deficit):Beginning balances 3,240 14,435 (3,068)5,562 Net income 24,160 25,010 54,158 59,640 Dividends and dividend equivalents declared(3,684)(3,633)(7,396)(7,298)Common stock withheld related to net share settlement of equity awards(152)(190)(1,130)(1,920)Common stock repurchased(19,228)(22,910)(38,228)(43,272)Ending balances 4,336 12,712 4,336 12,712 Accumulated other comprehensive income/(loss):Beginning balances(12,912)(927)(11,109)163 Other comprehensive income/(loss)1,166 (5,567)(637)(6,657)Ending balances(11,746)(6,494)(11,746)(6,494)Total shareholders equity,ending balances$62,158$67,399$62,158$67,399 Dividends and dividend equivalents declared per share or RSU$0.23$0.22$0.46$0.44 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q2 2023 Form 10-Q|4Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In millions)Six Months EndedApril 1,2023March 26,2022Cash,cash equivalents and restricted cash,beginning balances$24,977$35,929 Operating activities:Net income 54,158 59,640 Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization 5,814 5,434 Share-based compensation expense 5,591 4,517 Other(1,732)1,068 Changes in operating assets and liabilities:Accounts receivable,net 9,596 5,542 Inventories(2,548)1,065 Vendor non-trade receivables 14,785 643 Other current and non-current assets(4,092)(3,542)Accounts payable(20,764)(1,750)Other current and non-current liabilities 1,757 2,515 Cash generated by operating activities 62,565 75,132 Investing activities:Purchases of marketable securities(11,197)(61,987)Proceeds from maturities of marketable securities 17,124 18,000 Proceeds from sales of marketable securities 1,897 24,668 Payments for acquisition of property,plant and equipment(6,703)(5,317)Other(247)(735)Cash generated by/(used in)investing activities 874 (25,371)Financing activities:Payments for taxes related to net share settlement of equity awards(2,734)(3,218)Payments for dividends and dividend equivalents(7,418)(7,327)Repurchases of common stock(39,069)(43,109)Repayments of term debt(3,651)(3,750)Proceeds from/(Repayments of)commercial paper,net(7,960)999 Other(455)(105)Cash used in financing activities(61,287)(56,510)Increase/(Decrease)in cash,cash equivalents and restricted cash 2,152 (6,749)Cash,cash equivalents and restricted cash,ending balances$27,129$29,180 Supplemental cash flow disclosure:Cash paid for income taxes,net$4,894$9,301 Cash paid for interest$1,873$1,406 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q2 2023 Form 10-Q|5Apple Inc.Notes to Condensed Consolidated Financial Statements(Unaudited)Note 1 Summary of Significant Accounting PoliciesBasis of Presentation and PreparationThe condensed consolidated financial statements include the accounts of Apple Inc.and its wholly owned subsidiaries(collectively“Apple”or the“Company”).Intercompany accounts and transactions have been eliminated.In the opinion of the Companys management,the condensed consolidated financial statements reflect all adjustments,which are normal and recurring in nature,necessary for fair financial statement presentation.The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S.generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported.Actual results could differ materially from those estimates.Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current periods presentation.These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Companys annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended September24,2022.The Companys fiscal year is the 52-or 53-week period that ends on the last Saturday of September.An additional week is included in the first fiscal quarter every five or six years to realign the Companys fiscal quarters with calendar quarters,which occurred in the first fiscal quarter of 2023.The Companys fiscal years 2023 and 2022 span 53 and 52 weeks,respectively.Unless otherwise stated,references to particular years,quarters,months and periods refer to the Companys fiscal years ended in September and the associated quarters,months and periods of those fiscal years.Earnings Per ShareThe following table shows the computation of basic and diluted earnings per share for the three-and six-month periods ended April 1,2023 and March 26,2022(net income in millions and shares in thousands):Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Numerator:Net income$24,160$25,010$54,158$59,640 Denominator:Weighted-average basic shares outstanding 15,787,154 16,278,802 15,839,939 16,335,263 Effect of dilutive securities 59,896 124,514 61,445 126,041 Weighted-average diluted shares 15,847,050 16,403,316 15,901,384 16,461,304 Basic earnings per share$1.53$1.54$3.42$3.65 Diluted earnings per share$1.52$1.52$3.41$3.62 Approximately 48million restricted stock units(“RSUs”)were excluded from the computation of diluted earnings per share for the six months ended April 1,2023 because their effect would have been antidilutive.Apple Inc.|Q2 2023 Form 10-Q|6Note 2 RevenueNet sales disaggregated by significant products and services for the three-and six-month periods ended April 1,2023 and March26,2022 were as follows(in millions):Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022iPhone$51,334$50,570$117,109$122,198 Mac 7,168 10,435 14,903 21,287 iPad 6,670 7,646 16,066 14,894 Wearables,Home and Accessories 8,757 8,806 22,239 23,507 Services 20,907 19,821 41,673 39,337 Total net sales$94,836$97,278$211,990$221,223 Total net sales include$3.5 billion of revenue recognized in the three months ended April1,2023 that was included in deferred revenue as of December31,2022,$3.0 billion of revenue recognized in the three months ended March26,2022 that was included in deferred revenue as of December25,2021,$5.5 billion of revenue recognized in the six months ended April1,2023 that was included in deferred revenue as of September24,2022,and$4.8 billion of revenue recognized in the six months ended March26,2022 that was included in deferred revenue as of September25,2021.The Companys proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 10,“Segment Information and Geographic Data”for the three-and six-month periods ended April 1,2023 and March26,2022,except in Greater China,where iPhone revenue represented a moderately higher proportion of net sales.As of April 1,2023 and September 24,2022,the Company had total deferred revenue of$12.5 billion and$12.4 billion,respectively.As of April1,2023,the Company expects 65%of total deferred revenue to be realized in less than a year,26%within one-to-two years,7%within two-to-three years and 2%in greater than three years.Note 3 Financial InstrumentsCash,Cash Equivalents and Marketable SecuritiesThe following tables show the Companys cash,cash equivalents and marketable securities by significant investment category as of April1,2023 and September24,2022(in millions):April 1,2023AdjustedCostUnrealizedGainsUnrealizedLossesFairValueCash andCashEquivalentsCurrentMarketableSecuritiesNon-CurrentMarketableSecuritiesCash$20,050$20,050$20,050$Level 1(1):Money market funds 1,656 1,656 1,656 Mutual funds 345 5 (26)324 324 Subtotal 2,001 5 (26)1,980 1,656 324 Level 2(2):U.S.Treasury securities 22,754 1 (1,262)21,493 9 8,002 13,482 U.S.agency securities 5,743 (538)5,205 199 5,006 Non-U.S.government securities 17,380 20 (961)16,439 10,222 6,217 Certificates of deposit and time deposits 2,999 2,999 2,881 118 Commercial paper 271 271 271 Corporate debt securities 82,802 32 (6,049)76,785 91 11,676 65,018 Municipal securities 790 (20)770 257 513 Mortgage-and asset-backed securities 22,438 9 (2,106)20,341 116 20,225 Subtotal 155,177 62 (10,936)144,303 2,981 30,861 110,461 Total(3)$177,228$67$(10,962)$166,333$24,687$31,185$110,461 Apple Inc.|Q2 2023 Form 10-Q|7September 24,2022AdjustedCostUnrealizedGainsUnrealizedLossesFairValueCash andCashEquivalentsCurrentMarketableSecuritiesNon-CurrentMarketableSecuritiesCash$18,546$18,546$18,546$Level 1(1):Money market funds 2,929 2,929 2,929 Mutual funds 274 (47)227 227 Subtotal 3,203 (47)3,156 2,929 227 Level 2(2):U.S.Treasury securities 25,134 (1,725)23,409 338 5,091 17,980 U.S.agency securities 5,823 (655)5,168 240 4,928 Non-U.S.government securities 16,948 2 (1,201)15,749 8,806 6,943 Certificates of deposit and time deposits 2,067 2,067 1,805 262 Commercial paper 718 718 28 690 Corporate debt securities 87,148 9 (7,707)79,450 9,023 70,427 Municipal securities 921 (35)886 266 620 Mortgage-and asset-backed securities 22,553 (2,593)19,960 53 19,907 Subtotal 161,312 11 (13,916)147,407 2,171 24,431 120,805 Total(3)$183,061$11$(13,963)$169,109$23,646$24,658$120,805(1)Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.(2)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities,quoted prices for identical or similar assets or liabilities in inactive markets,or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.(3)As of April1,2023 and September24,2022,total marketable securities included$13.1billion and$12.7 billion,respectively,that were restricted from general use,related to the State Aid Decision(refer to Note 5,“Income Taxes”)and other agreements.The following table shows the fair value of the Companys non-current marketable debt securities,by contractual maturity,as of April1,2023(in millions):Due after 1 year through 5 years$81,352 Due after 5 years through 10 years 11,928 Due after 10 years 17,181 Total fair value$110,461 Derivative Instruments and HedgingThe Company may use derivative instruments to partially offset its business exposure to foreign exchange and interest rate risk.However,the Company may choose not to hedge certain exposures for a variety of reasons,including accounting considerations or the prohibitive economic cost of hedging particular exposures.There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange or interest rates.Foreign Exchange RiskTo protect gross margins from fluctuations in foreign currency exchange rates,the Company may enter into forward contracts,option contracts or other instruments,and may designate these instruments as cash flow hedges.The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases,typically for up to 12 months.To protect the Companys foreign currencydenominated term debt or marketable securities from fluctuations in foreign currency exchange rates,the Company may enter into forward contracts,cross-currency swaps or other instruments.The Company designates these instruments as either cash flow or fair value hedges.As of April1,2023,the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for term debtrelated foreign currency transactions is 19 years.Apple Inc.|Q2 2023 Form 10-Q|8The Company may also enter into derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations in foreign currency exchange rates,as well as to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.Interest Rate RiskTo protect the Companys term debt or marketable securities from fluctuations in interest rates,the Company may enter into interest rate swaps,options or other instruments.The Company designates these instruments as either cash flow or fair value hedges.The notional amounts of the Companys outstanding derivative instruments as of April1,2023 and September24,2022 were as follows(in millions):April 1,2023September 24,2022Derivative instruments designated as accounting hedges:Foreign exchange contracts$51,119$102,670 Interest rate contracts$19,375$20,125 Derivative instruments not designated as accounting hedges:Foreign exchange contracts$111,696$185,381 The gross fair values of the Companys derivative assets and liabilities as of September24,2022 were as follows(in millions):September 24,2022Fair Value ofDerivatives Designatedas Accounting HedgesFair Value ofDerivatives Not Designatedas Accounting HedgesTotalFair ValueDerivative assets(1):Foreign exchange contracts$4,317$2,819$7,136 Derivative liabilities(2):Foreign exchange contracts$2,205$2,547$4,752 Interest rate contracts$1,367$1,367(1)Derivative assets are measured using Level 2 fair value inputs and are included in other current assets and other non-current assets in the Condensed Consolidated Balance Sheet.(2)Derivative liabilities are measured using Level 2 fair value inputs and are included in other current liabilities and other non-current liabilities in the Condensed Consolidated Balance Sheet.The derivative assets above represent the Companys gross credit exposure if all counterparties failed to perform.To mitigate credit risk,the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair values of certain derivatives fluctuate from contractually established thresholds.To further limit credit risk,the Company generally enters into master netting arrangements with the respective counterparties to the Companys derivative contracts,under which the Company is allowed to settle transactions with a single net amount payable by one party to the other.As of September24,2022,the potential effects of these rights of set-off associated with the Companys derivative contracts,including the effects of collateral,would be a reduction to both derivative assets and derivative liabilities of$7.8 billion,resulting in a net derivative asset of$412 million.The carrying amounts of the Companys hedged items in fair value hedges as of April1,2023 and September24,2022 were as follows(in millions):April 1,2023September 24,2022Hedged assets/(liabilities):Current and non-current marketable securities$14,651$13,378 Current and non-current term debt$(18,249)$(18,739)Apple Inc.|Q2 2023 Form 10-Q|9Accounts ReceivableTrade ReceivablesThe Company has considerable trade receivables outstanding with its third-party cellular network carriers,wholesalers,retailers,resellers,small and mid-sized businesses and education,enterprise and government customers.The Company generally does not require collateral from its customers;however,the Company will require collateral or third-party credit support in certain instances to limit credit risk.In addition,when possible,the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing,loans or leases to support credit exposure.These credit-financing arrangements are directly between the third-party financing company and the end customer.As such,the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.As of both April1,2023 and September24,2022,the Company had one customer that represented 10%or more of total trade receivables,which accounted for 10%.The Companys cellular network carriers accounted for 32%and 44%of total trade receivables as of April1,2023 and September24,2022,respectively.Vendor Non-Trade ReceivablesThe Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture subassemblies or assemble final products for the Company.The Company purchases these components directly from suppliers.As of April1,2023,the Company had three vendors that individually represented 10%or more of total vendor non-trade receivables,which accounted for 43%,19%and 13%.As of September24,2022,the Company had two vendors that individually represented 10%or more of total vendor non-trade receivables,which accounted for 54%and 13%.Note 4 Condensed Consolidated Financial Statement DetailsThe following tables show the Companys condensed consolidated financial statement details as of April 1,2023 and September24,2022(in millions):InventoriesApril 1,2023September 24,2022Components$3,379$1,637 Finished goods 4,103 3,309 Total inventories$7,482$4,946 Property,Plant and Equipment,NetApril 1,2023September 24,2022Gross property,plant and equipment$113,066$114,457 Accumulated depreciation and amortization(69,668)(72,340)Total property,plant and equipment,net$43,398$42,117 Other Income/(Expense),NetThe following table shows the detail of other income/(expense),net for the three-and six-month periods ended April 1,2023 and March26,2022(in millions):Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Interest and dividend income$918$700$1,786$1,350 Interest expense(930)(691)(1,933)(1,385)Other income/(expense),net 76 151 (182)(52)Total other income/(expense),net$64$160$(329)$(87)Apple Inc.|Q2 2023 Form 10-Q|10Note 5 Income TaxesEuropean Commission State Aid DecisionOn August 30,2016,the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company(the“State Aid Decision”).The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014.Irish legislative changes,effective as of January 2015,eliminated the application of the tax opinions from that date forward.The Company and Ireland appealed the State Aid Decision to the General Court of the Court of Justice of the European Union(the“General Court”).On July 15,2020,the General Court annulled the State Aid Decision.On September 25,2020,the European Commission appealed the General Courts decision to the European Court of Justice and a hearing has been scheduled for May 23,2023.The Company believes it would be eligible to claim a U.S.foreign tax credit for a portion of any incremental Irish corporate income taxes potentially due related to the State Aid Decision.Note 6 DebtCommercial PaperThe Company issues unsecured short-term promissory notes(“Commercial Paper”)pursuant to a commercial paper program.The Company uses net proceeds from the commercial paper program for general corporate purposes,including dividends and share repurchases.As of April1,2023 and September24,2022,the Company had$2.0 billion and$10.0 billion of Commercial Paper outstanding,respectively.The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the six months ended April1,2023 and March26,2022(in millions):Six Months EndedApril 1,2023March 26,2022Maturities 90 days or less:Proceeds from/(Repayments of)commercial paper,net$(5,315)$4,952 Maturities greater than 90 days:Proceeds from commercial paper 1,191 Repayments of commercial paper(2,645)(5,144)Repayments of commercial paper,net(2,645)(3,953)Total proceeds from/(repayments of)commercial paper,net$(7,960)$999 Term DebtAs of April1,2023 and September24,2022,the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of$107.6 billion and$110.1 billion,respectively(collectively the“Notes”).As of April1,2023 and September24,2022,the fair value of the Companys Notes,based on Level 2 inputs,was$98.4 billion and$98.8 billion,respectively.Note 7 Shareholders EquityShare Repurchase ProgramDuring the six months ended April 1,2023,the Company repurchased 262 million shares of its common stock under an authorized share repurchase program for$38.1 billion,excluding excise tax due under the Inflation Reduction Act of 2022.The program does not obligate the Company to acquire a minimum amount of shares.Under the program,shares may be repurchased in privately negotiated or open market transactions,including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934,as amended.Apple Inc.|Q2 2023 Form 10-Q|11Note 8 Benefit PlansRestricted Stock UnitsA summary of the Companys RSU activity and related information for the six months ended April1,2023 is as follows:Number ofRSUs(in thousands)Weighted-AverageGrant Date FairValue Per RSUAggregateFair Value(in millions)Balance as of September 24,2022 201,501$109.48 RSUs granted 84,902$149.73 RSUs vested(54,795)$86.72 RSUs canceled(4,671)$122.79 Balance as of April 1,2023 226,937$129.76$37,422 The fair value as of the respective vesting dates of RSUs was$1.1 billion and$8.0 billion for the three-and six-month periods ended April 1,2023,respectively,and was$1.0 billion and$9.5 billion for the three-and six-month periods ended March 26,2022,respectively.Share-Based CompensationThe following table shows share-based compensation expense and the related income tax benefit included in the Condensed Consolidated Statements of Operations for the three-and six-month periods ended April 1,2023 and March 26,2022(in millions):Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Share-based compensation expense$2,686$2,252$5,591$4,517 Income tax benefit related to share-based compensation expense$(620)$(649)$(1,798)$(2,185)As of April1,2023,the total unrecognized compensation cost related to outstanding RSUs and stock options was$23.2 billion,which the Company expects to recognize over a weighted-average period of 2.8 years.Note 9 Commitments and ContingenciesUnconditional Purchase ObligationsThe Company has entered into certain offbalance sheet commitments that require the future purchase of goods or services(“unconditional purchase obligations”).The Companys unconditional purchase obligations primarily consist of supplier arrangements,licensed content and distribution rights.Future payments under noncancelable unconditional purchase obligations with a remaining term in excess of one year as of April1,2023,are as follows(in millions):2023(remaining six months)$2,263 2024 2,716 2025 2,028 2026 2,602 2027 571 Thereafter 5,897 Total$16,077 ContingenciesThe Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved.The outcome of litigation is inherently uncertain.In the opinion of management,there was not at least a reasonable possibility the Company may have incurred a material loss,or a material loss greater than a recorded accrual,concerning loss contingencies for asserted legal and other claims.Apple Inc.|Q2 2023 Form 10-Q|12Note 10 Segment Information and Geographic DataThe following table shows information by reportable segment for the three-and six-month periods ended April 1,2023 and March 26,2022(in millions):Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Americas:Net sales$37,784$40,882$87,062$92,378 Operating income$13,927$15,279$31,791$34,864 Europe:Net sales$23,945$23,287$51,626$53,036 Operating income$9,368$8,505$19,385$20,050 Greater China:Net sales$17,812$18,343$41,717$44,126 Operating income$7,531$8,112$17,968$19,295 Japan:Net sales$7,176$7,724$13,931$14,831 Operating income$3,394$3,496$6,630$6,845 Rest of Asia Pacific:Net sales$8,119$7,042$17,654$16,852 Operating income$3,268$2,823$7,119$6,818 A reconciliation of the Companys segment operating income to the Condensed Consolidated Statements of Operations for the three-and six-month periods ended April 1,2023 and March 26,2022 is as follows(in millions):Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Segment operating income$37,488$38,215$82,893$87,872 Research and development expense(7,457)(6,387)(15,166)(12,693)Other corporate expenses,net(1,713)(1,849)(3,393)(3,712)Total operating income$28,318$29,979$64,334$71,467 Apple Inc.|Q2 2023 Form 10-Q|13Item 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsThis section and other parts of this Quarterly Report on Form 10-Q(“Form 10-Q”)contain forward-looking statements,within the meaning of the Private Securities Litigation Reform Act of 1995,that involve risks and uncertainties.Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.For example,statements in this Form 10-Q regarding the potential future impact of macroeconomic conditions on the Companys business and results of operations are forward-looking statements.Forward-looking statements can also be identified by words such as“future,”“anticipates,”“believes,”“estimates,”“expects,”“intends,”“plans,”“predicts,”“will,”“would,”“could,”“can,”“may,”and similar terms.Forward-looking statements are not guarantees of future performance and the Companys actual results may differ significantly from the results discussed in the forward-looking statements.Factors that might cause such differences include,but are not limited to,those discussed in Part I,Item 1A of the Companys Annual Report on Form 10-K for the fiscal year ended September24,2022(the“2022 Form 10-K”)under the heading“Risk Factors.”The Company assumes no obligation to revise or update any forward-looking statements for any reason,except as required by law.Unless otherwise stated,all information presented herein is based on the Companys fiscal calendar,and references to particular years,quarters,months or periods refer to the Companys fiscal years ended in September and the associated quarters,months and periods of those fiscal years.Each of the terms the“Company”and“Apple”as used herein refers collectively to Apple Inc.and its wholly owned subsidiaries,unless otherwise stated.The following discussion should be read in conjunction with the 2022 Form 10-K filed with the U.S.Securities and Exchange Commission(the“SEC”)and the condensed consolidated financial statements and accompanying notes included in Part I,Item 1 of this Form 10-Q.Available InformationThe Company periodically provides certain information for investors on its corporate website,and its investor relations website,.This includes press releases and other information about financial performance,information on environmental,social and governance matters,and details related to the Companys annual meeting of shareholders.The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing.Further,the Companys references to website URLs are intended to be inactive textual references only.Business Seasonality and Product IntroductionsThe Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand.Additionally,new product and service introductions can significantly impact net sales,cost of sales and operating expenses.The timing of product introductions can also impact the Companys net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch,and channel inventory of an older product often declines as the launch of a newer product approaches.Net sales can also be affected when consumers and distributors anticipate a product introduction.Fiscal PeriodThe Companys fiscal year is the 52-or 53-week period that ends on the last Saturday of September.An additional week is included in the first fiscal quarter every five or six years to realign the Companys fiscal quarters with calendar quarters,which occurred in the first quarter of 2023.The Companys fiscal years 2023 and 2022 span 53 and 52 weeks,respectively.Quarterly HighlightsWeakness in foreign currencies relative to the U.S.dollar had an unfavorable impact on the Companys total net sales,which decreased 3%or$2.4 billion during the second quarter of 2023 compared to the same quarter in 2022.The year-over-year net sales decrease consisted primarily of lower net sales of Mac,partially offset by higher net sales of Services.During the second quarter of 2023,the Company announced the following new products:MacBook Pro 14”and MacBook Pro 16”,powered by the Apple M2 Pro and M2 Max chip;Mac mini,powered by the Apple M2 and M2 Pro chip;andSecond-generation HomePod.The Company repurchased$19.1 billion of its common stock and paid dividends and dividend equivalents of$3.7 billion during the second quarter of 2023.Apple Inc.|Q2 2023 Form 10-Q|14Macroeconomic ConditionsMacroeconomic conditions,including inflation,changes in interest rates,and currency fluctuations,have directly and indirectly impacted,and could in the future materially impact,the Companys results of operations and financial condition.Segment Operating PerformanceThe following table shows net sales by reportable segment for the three-and six-month periods ended April 1,2023 and March26,2022(dollars in millions):Three Months EndedSix Months EndedApril 1,2023March 26,2022ChangeApril 1,2023March 26,2022ChangeNet sales by reportable segment:Americas$37,784$40,882 (8)%$87,062$92,378 (6)%Europe 23,945 23,287 3Q,626 53,036 (3)%Greater China 17,812 18,343 (3)A,717 44,126 (5)%Japan 7,176 7,724 (7),931 14,831 (6)%Rest of Asia Pacific 8,119 7,042 15,654 16,852 5%Total net sales$94,836$97,278 (3)%$211,990$221,223 (4)%AmericasAmericas net sales decreased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to lower net sales of iPhone and Mac,partially offset by higher net sales of Services.EuropeThe weakness in foreign currencies relative to the U.S.dollar had a net unfavorable year-over-year impact on Europe net sales during the second quarter and first six months of 2023.During the second quarter of 2023,the Europe net sales increase consisted primarily of higher net sales of iPhone,partially offset by lower net sales of Mac.During the first six months of 2023,the Europe net sales decrease consisted primarily of lower net sales of Mac,partially offset by higher net sales of iPhone.Greater ChinaThe weakness in the renminbi relative to the U.S.dollar had an unfavorable year-over-year impact on Greater China net sales during the second quarter and first six months of 2023.During the second quarter and first six months of 2023,the Greater China net sales decrease consisted primarily of lower net sales of iPhone and Mac.JapanThe weakness in the yen relative to the U.S.dollar had an unfavorable year-over-year impact on Japan net sales during the second quarter and first six months of 2023.During the second quarter of 2023,the Japan net sales decrease consisted primarily of lower net sales of iPad,Services and iPhone.During the first six months of 2023,the Japan net sales decrease consisted primarily of lower net sales of Services,Wearables,Home and Accessories and Mac.Rest of Asia PacificThe weakness in foreign currencies relative to the U.S.dollar had an unfavorable year-over-year impact on Rest of Asia Pacific net sales during the second quarter and first six months of 2023.During the second quarter and first six months of 2023,the Rest of Asia Pacific net sales increase consisted primarily of higher net sales of iPhone,partially offset by lower net sales of Mac.Apple Inc.|Q2 2023 Form 10-Q|15Products and Services PerformanceThe following table shows net sales by category for the three-and six-month periods ended April 1,2023 and March26,2022(dollars in millions):Three Months EndedSix Months EndedApril 1,2023March 26,2022ChangeApril 1,2023March 26,2022ChangeNet sales by category:iPhone$51,334$50,570 2%$117,109$122,198 (4)%Mac 7,168 10,435 (31),903 21,287 (30)%iPad 6,670 7,646 (13),066 14,894 8%Wearables,Home and Accessories 8,757 8,806 (1),239 23,507 (5)%Services 20,907 19,821 5A,673 39,337 6%Total net sales$94,836$97,278 (3)%$211,990$221,223 (4)%iPhoneiPhone net sales were relatively flat during the second quarter of 2023 compared to the second quarter of 2022.Year-over-year iPhone net sales decreased during the first six months of 2023 due primarily to lower net sales from the Companys new iPhone models launched in the fourth quarter of 2022.MacMac net sales decreased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to lower net sales of MacBook Pro.iPadiPad net sales decreased during the second quarter of 2023 compared to the second quarter of 2022 due primarily to lower net sales of iPad Pro and iPad Air.Year-over-year iPad net sales increased during the first six months of 2023 due primarily to higher net sales of iPad,partially offset by lower net sales of iPad mini.Wearables,Home and AccessoriesWearables,Home and Accessories net sales were relatively flat during the second quarter of 2023 compared to the second quarter of 2022.Year-over-year Wearables,Home and Accessories net sales decreased during the first six months of 2023 due primarily to lower net sales of AirPods.ServicesServices net sales increased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to higher net sales from cloud services,music and advertising.Apple Inc.|Q2 2023 Form 10-Q|16Gross MarginProducts and Services gross margin and gross margin percentage for the three-and six-month periods ended April 1,2023 and March26,2022 were as follows(dollars in millions):Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Gross margin:Products$27,134$28,167$62,757$68,287 Services 14,842 14,392 29,551 28,515 Total gross margin$41,976$42,559$92,308$96,802 Gross margin percentage:Products 36.76.46.87.5%Services 71.0r.6p.9r.5%Total gross margin percentage 44.3C.7C.5C.8%Products Gross MarginProducts gross margin decreased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to lower Products volume and the weakness in foreign currencies relative to the U.S.dollar,partially offset by a different Products mix.Products gross margin percentage increased during the second quarter of 2023 compared to the second quarter of 2022 due primarily to a different Products mix,partially offset by the weakness in foreign currencies relative to the U.S.dollar.Year-over-year Products gross margin percentage decreased during the first six months of 2023 due primarily to the weakness in foreign currencies relative to the U.S.dollar,partially offset by a different Products mix.Services Gross MarginServices gross margin increased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to higher Services net sales,partially offset by the weakness in foreign currencies relative to the U.S.dollar and higher Services costs.Services gross margin percentage decreased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to the weakness in foreign currencies relative to the U.S.dollar and higher Services costs,partially offset by improved leverage.The Companys future gross margins can be impacted by a variety of factors,as discussed in Part I,Item 1A of the 2022 Form 10-K under the heading“Risk Factors.”As a result,the Company believes,in general,gross margins will be subject to volatility and downward pressure.Apple Inc.|Q2 2023 Form 10-Q|17Operating ExpensesOperating expenses for the three-and six-month periods ended April 1,2023 and March26,2022 were as follows(dollars in millions):Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Research and development$7,457$6,387$15,166$12,693 Percentage of total net sales 8%7%7%6%Selling,general and administrative$6,201$6,193$12,808$12,642 Percentage of total net sales 7%6%6%6%Total operating expenses$13,658$12,580$27,974$25,335 Percentage of total net sales 14%Research and DevelopmentThe growth in research and development(“R&D”)expense during the second quarter and first six months of 2023 compared to the same periods in 2022 was driven primarily by increases in headcount-related expenses.Selling,General and AdministrativeSelling,general and administrative expense was relatively flat during the second quarter and first six months of 2023 compared to the same periods in 2022.Provision for Income TaxesProvision for income taxes,effective tax rate and statutory federal income tax rate for the three-and six-month periods ended April 1,2023 and March26,2022 were as follows(dollars in millions):Three Months EndedSix Months EndedApril 1,2023March 26,2022April 1,2023March 26,2022Provision for income taxes$4,222$5,129$9,847$11,740 Effective tax rate 14.9.0.4.4%Statutory federal income tax rate 21!%The Companys effective tax rate for the second quarter of 2023 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings and the U.S.federal R&D credit,partially offset by state income taxes.The Companys effective tax rate for the first six months of 2023 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings,the U.S.federal R&D credit and tax benefits from share-based compensation,partially offset by state income taxes.The Companys effective tax rate for the second quarter of 2023 was lower compared to the second quarter of 2022 due primarily to the impact of U.S.foreign tax credit regulations issued by the U.S.Department of the Treasury in 2022 and a higher U.S.federal R&D credit.The Companys effective tax rate for the first six months of 2023 was lower compared to the same period in 2022 due primarily to the impact of U.S.foreign tax credit regulations issued by the U.S.Department of the Treasury in 2022 and a higher U.S.federal R&D credit,partially offset by lower tax benefits from share-based compensation.Liquidity and Capital ResourcesThe Company believes its balances of cash,cash equivalents and unrestricted marketable securities,along with cash generated by ongoing operations and continued access to debt markets,will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.The Companys contractual cash requirements have not changed materially since the 2022 Form 10-K,except for commercial paper and manufacturing purchase obligations.Apple Inc.|Q2 2023 Form 10-Q|18Commercial PaperThe Company issues unsecured short-term promissory notes(“Commercial Paper”)pursuant to a commercial paper program.As of April1,2023,the Company had$2.0 billion of Commercial Paper outstanding,all of which was payable within 12 months.Manufacturing Purchase ObligationsThe Company utilizes several outsourcing partners to manufacture subassemblies for the Companys products and to perform final assembly and testing of finished products.The Company also obtains individual components for its products from a wide variety of individual suppliers.Outsourcing partners acquire components and build product based on demand information supplied by the Company,which typically covers periods up to 150 days.As of April1,2023,the Company had manufacturing purchase obligations of$40.5 billion,with$40.1 billion payable within 12 months.The Companys manufacturing purchase obligations are primarily noncancelable.Capital Return ProgramIn addition to its contractual cash requirements,the Company has an authorized share repurchase program,under which the remaining availability was$22.6 billion as of April1,2023.On May4,2023,the Company announced the Board of Directors had authorized an additional program to repurchase up to$90 billion of the Companys common stock.The programs do not obligate the Company to acquire a minimum amount of shares.On May4,2023,the Company also announced the Board of Directors raised the Companys quarterly cash dividend from$0.23 to$0.24 per share,beginning with the dividend to be paid during the third quarter of 2023.The Company intends to increase its dividend on an annual basis,subject to declaration by the Board of Directors.Critical Accounting EstimatesThe preparation of financial statements and related disclosures in conformity with U.S.generally accepted accounting principles and the Companys discussion and analysis of its financial condition and operating results require the Companys management to make judgments,assumptions and estimates that affect the amounts reported.Note 1,“Summary of Significant Accounting Policies”of the Notes to condensed consolidated Financial Statements in Part I,Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II,Item 8 of the 2022 Form 10-K describe the significant accounting policies and methods used in the preparation of the Companys condensed consolidated financial statements.There have been no material changes to the Companys critical accounting estimates since the 2022 Form 10-K.Item 3.Quantitative and Qualitative Disclosures About Market RiskThere have been no material changes to the Companys market risk during the first six months of 2023.For a discussion of the Companys exposure to market risk,refer to the Companys market risk disclosures set forth in Part II,Item 7A,“Quantitative and Qualitative Disclosures About Market Risk”of the 2022 Form 10-K.Item 4.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresBased on an evaluation under the supervision and with the participation of the Companys management,the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures as defined in Rules 13a-15(e)and 15d-15(e)under the Securities Exchange Act of 1934,as amended(the“Exchange Act”)were effective as of April1,2023 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is(i)recorded,processed,summarized and reported within the time periods specified in the SEC rules and forms and(ii)accumulated and communicated to the Companys management,including its principal executive officer and principal financial officer,as appropriate to allow timely decisions regarding required disclosure.Changes in Internal Control over Financial ReportingThere were no changes in the Companys internal control over financial reporting during the second quarter of 2023,which were identified in connection with managements evaluation required by paragraph(d)of Rules 13a-15 and 15d-15 under the Exchange Act,that have materially affected,or are reasonably likely to materially affect,the Companys internal control over financial reporting.Apple Inc.|Q2 2023 Form 10-Q|19PART II OTHER INFORMATIONItem 1.Legal ProceedingsEpic GamesEpic Games,Inc.(“Epic”)filed a lawsuit in the U.S.District Court for the Northern District of California(the“Northern California District Court”)against the Company alleging violations of federal and state antitrust laws and Californias unfair competition law based upon the Companys operation of its App Store.The Company filed a counterclaim for breach of contract.On September 10,2021,the Northern California District Court ruled in favor of the Company with respect to nine out of the ten counts included in Epics claim,and in favor of the Company with respect to the Companys claims for breach of contract.The Northern California District Court found that certain provisions of the Companys App Store Review Guidelines violate Californias unfair competition law and issued an injunction.On April 24,2023,the U.S.Court of Appeals for the Ninth Circuit affirmed the Northern California District Courts ruling.The Company is considering further review of the decision.Other Legal ProceedingsThe Company is subject to other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.The Company settled certain matters during the second quarter of 2023 that did not individually or in the aggregate have a material impact on the Companys financial condition or operating results.The outcome of litigation is inherently uncertain.If one or more legal matters were resolved against the Company in a reporting period for amounts above managements expectations,the Companys financial condition and operating results for that reporting period could be materially adversely affected.Item 1A.Risk FactorsThe Companys business,reputation,results of operations,financial condition and stock price can be affected by a number of factors,whether currently known or unknown,including those described in Part I,Item 1A of the 2022 Form 10-K under the heading“Risk Factors.”When any one or more of these risks materialize from time to time,the Companys business,reputation,results of operations,financial condition and stock price can be materially and adversely affected.There have been no material changes to the Companys risk factors since the 2022 Form 10-K.Item 2.Unregistered Sales of Equity Securities and Use of ProceedsPurchases of Equity Securities by the Issuer and Affiliated PurchasersShare repurchase activity during the three months ended April1,2023 was as follows(in millions,except number of shares,which are reflected in thousands,and per share amounts):PeriodsTotal Numberof Shares PurchasedAverage PricePaid Per ShareTotal Number of SharesPurchased as Part of PubliclyAnnounced Plans or ProgramsApproximate Dollar Value ofShares That May Yet Be PurchasedUnder the Plans or Programs(1)January 1,2023 to February 4,2023:Open market and privately negotiated purchases 36,980$135.21 36,980 February 5,2023 to March 4,2023:Open market and privately negotiated purchases 49,168$150.33 49,168 March 5,2023 to April 1,2023:Open market and privately negotiated purchases 43,164$155.32 43,164 Total 129,312$22,570(1)On April 28,2022,the Board of Directors authorized the purchase of an additional$90billion of the Companys common stock under a share repurchase program.As of April1,2023,total utilization under the April 2022 authorization was$67.4 billion.On May4,2023,the Company announced the Board of Directors had authorized an additional program to repurchase up to$90 billion of the Companys common stock.The programs do not obligate the Company to acquire a minimum amount of shares.Under the programs,shares may be repurchased in privately negotiated or open market transactions,including under plans complying with Rule 10b5-1 under the Exchange Act.Apple Inc.|Q2 2023 Form 10-Q|20Item 3.Defaults Upon Senior SecuritiesNone.Item 4.Mine Safety DisclosuresNot applicable.Item 5.Other InformationRule 10b5-1 Trading PlansDuring the three months ended April1,2023,Katherine L.Adams,Timothy D.Cook,Luca Maestri,Deirdre OBrien and Jeffrey Williams,each an officer for purposes of Section 16 of the Exchange Act,had equity trading plans in place in accordance with Rule 10b5-1(c)(1)under the Exchange Act.An equity trading plan is a written document that preestablishes the amounts,prices and dates(or formula for determining the amounts,prices and dates)of future purchases or sales of the Companys stock,including sales of shares acquired under the Companys employee and director equity plans.Item 6.ExhibitsIncorporated by ReferenceExhibitNumberExhibit DescriptionFormExhibitFiling Date/Period End Date31.1*Rule 13a-14(a)/15d-14(a)Certification of Chief Executive Officer.31.2*Rule 13a-14(a)/15d-14(a)Certification of Chief Financial Officer.32.1*Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.101*Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I,Item 1,“Financial Statements”of this Quarterly Report on Form 10-Q.104*Inline XBRL for the cover page of this Quarterly Report on Form 10-Q,included in the Exhibit 101 Inline XBRL Document Set.*Filed herewith.*Furnished herewith.Apple Inc.|Q2 2023 Form 10-Q|21SIGNATUREPursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.Date:May4,2023Apple Inc.By:/s/Luca MaestriLuca MaestriSenior Vice President,Chief Financial OfficerApple Inc.|Q2 2023 Form 10-Q|22Exhibit 31.1CERTIFICATIONI,Timothy D.Cook,certify that:1.I have reviewed this quarterly report on Form 10-Q of Apple Inc.;2.Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report;3.Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all material respects the financial condition,results of operations and cash flows of the Registrant as of,and for,the periods presented in this report;4.The Registrants other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)for the Registrant and have:(a)Designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the Registrant,including its consolidated subsidiaries,is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting,or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,as of the end of the period covered by this report based on such evaluation;and(d)Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter(the Registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or is reasonably likely to materially affect,the Registrants internal control over financial reporting;and5.The Registrants other certifying officer(s)and I have disclosed,based on our most recent evaluation of internal control over financial reporting,to the Registrants auditors and the audit committee of the Registrants board of directors(or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record,process,summarize and report financial information;and(b)Any fraud,whether or not material,that involves management or other employees who have a significant role in the Registrants internal control over financial reporting.Date:May4,2023By:/s/Timothy D.CookTimothy D.CookChief Executive OfficerExhibit 31.2CERTIFICATIONI,Luca Maestri,certify that:1.I have reviewed this quarterly report on Form 10-Q of Apple Inc.;2.Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report;3.Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all material respects the financial condition,results of operations and cash flows of the Registrant as of,and for,the periods presented in this report;4.The Registrants other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)for the Registrant and have:(a)Designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the Registrant,including its consolidated subsidiaries,is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting,or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,as of the end of the period covered by this report based on such evaluation;and(d)Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter(the Registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or is reasonably likely to materially affect,the Registrants internal control over financial reporting;and5.The Registrants other certifying officer(s)and I have disclosed,based on our most recent evaluation of internal control over financial reporting,to the Registrants auditors and the audit committee of the Registrants board of directors(or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record,process,summarize and report financial information;and(b)Any fraud,whether or not material,that involves management or other employees who have a significant role in the Registrants internal control over financial reporting.Date:May4,2023By:/s/Luca MaestriLuca MaestriSenior Vice President,Chief Financial OfficerExhibit 32.1CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO18 U.S.C.SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I,Timothy D.Cook,certify,as of the date hereof,pursuant to 18 U.S.C.Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,that the Quarterly Report of Apple Inc.on Form 10-Q for the period ended April1,2023 fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Apple Inc.at the dates and for the periods indicated.Date:May4,2023By:/s/Timothy D.CookTimothy D.CookChief Executive OfficerI,Luca Maestri,certify,as of the date hereof,pursuant to 18 U.S.C.Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,that the Quarterly Report of Apple Inc.on Form 10-Q for the period ended April1,2023 fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Apple Inc.at the dates and for the periods indicated.Date:May4,2023By:/s/Luca MaestriLuca MaestriSenior Vice President,Chief Financial OfficerA signed original of this written statement required by Section 906 has been provided to Apple Inc.and will be retained by Apple Inc.and furnished to the Securities and Exchange Commission or its staff upon request.
2023-09-25
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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 December31,2022or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to.Commission File Number:001-36743Apple Inc.(Exact name of Registrant as specified in its charter)California94-2404110(State or other jurisdictionof incorporation or organization)(I.R.S.Employer Identification No.)One Apple Park WayCupertino,California95014(Address of principal executive offices)(Zip Code)(408)996-1010(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading symbol(s)Name of each exchange on which registeredCommon Stock,$0.00001 par value per shareAAPLThe Nasdaq Stock Market LLC1.375%Notes due 2024The Nasdaq Stock Market LLC0.000%Notes due 2025The Nasdaq Stock Market LLC0.875%Notes due 2025The Nasdaq Stock Market LLC1.625%Notes due 2026The Nasdaq Stock Market LLC2.000%Notes due 2027The Nasdaq Stock Market LLC1.375%Notes due 2029The Nasdaq Stock Market LLC3.050%Notes due 2029The Nasdaq Stock Market LLC0.500%Notes due 2031The Nasdaq Stock Market LLC3.600%Notes due 2042The Nasdaq Stock Market LLCIndicate 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 during the 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 for the past 90 days.YesNoIndicate by check mark 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).YesNoIndicate by check mark 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 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 or revised 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).YesNo15,821,946,000 shares of common stock were issued and outstanding as of January20,2023.Apple Inc.Form 10-QFor the Fiscal Quarter Ended December31,2022 TABLE OF CONTENTSPagePart IItem 1.Financial Statements1Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations15Item 3.Quantitative and Qualitative Disclosures About Market Risk20Item 4.Controls and Procedures20Part IIItem 1.Legal Proceedings21Item 1A.Risk Factors21Item 2.Unregistered Sales of Equity Securities and Use of Proceeds21Item 3.Defaults Upon Senior Securities21Item 4.Mine Safety Disclosures22Item 5.Other Information22Item 6.Exhibits22PART I FINANCIAL INFORMATIONItem 1.Financial StatementsApple Inc.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In millions,except number of shares which are reflected in thousands and per share amounts)Three Months EndedDecember 31,2022December 25,2021Net sales:Products$96,388$104,429 Services 20,766 19,516 Total net sales 117,154 123,945 Cost of sales:Products 60,765 64,309 Services 6,057 5,393 Total cost of sales 66,822 69,702 Gross margin 50,332 54,243 Operating expenses:Research and development 7,709 6,306 Selling,general and administrative 6,607 6,449 Total operating expenses 14,316 12,755 Operating income 36,016 41,488 Other income/(expense),net(393)(247)Income before provision for income taxes 35,623 41,241 Provision for income taxes 5,625 6,611 Net income$29,998$34,630 Earnings per share:Basic$1.89$2.11 Diluted$1.88$2.10 Shares used in computing earnings per share:Basic 15,892,723 16,391,724 Diluted 15,955,718 16,519,291 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q1 2023 Form 10-Q|1Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Unaudited)(In millions)Three Months EndedDecember 31,2022December 25,2021Net income$29,998$34,630 Other comprehensive income/(loss):Change in foreign currency translation,net of tax(14)(360)Change in unrealized gains/losses on derivative instruments,net of tax:Change in fair value of derivative instruments(988)362 Adjustment for net(gains)/losses realized and included in net income(1,766)93 Total change in unrealized gains/losses on derivative instruments(2,754)455 Change in unrealized gains/losses on marketable debt securities,net of tax:Change in fair value of marketable debt securities 900 (1,176)Adjustment for net(gains)/losses realized and included in net income 65 (9)Total change in unrealized gains/losses on marketable debt securities 965 (1,185)Total other comprehensive income/(loss)(1,803)(1,090)Total comprehensive income$28,195$33,540 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q1 2023 Form 10-Q|2Apple Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(In millions,except number of shares which are reflected in thousands and par value)December 31,2022September 24,2022ASSETS:Current assets:Cash and cash equivalents$20,535$23,646 Marketable securities 30,820 24,658 Accounts receivable,net 23,752 28,184 Inventories 6,820 4,946 Vendor non-trade receivables 30,428 32,748 Other current assets 16,422 21,223 Total current assets 128,777 135,405 Non-current assets:Marketable securities 114,095 120,805 Property,plant and equipment,net 42,951 42,117 Other non-current assets 60,924 54,428 Total non-current assets 217,970 217,350 Total assets$346,747$352,755 LIABILITIES AND SHAREHOLDERS EQUITY:Current liabilities:Accounts payable$57,918$64,115 Other current liabilities 59,893 60,845 Deferred revenue 7,992 7,912 Commercial paper 1,743 9,982 Term debt 9,740 11,128 Total current liabilities 137,286 153,982 Non-current liabilities:Term debt 99,627 98,959 Other non-current liabilities 53,107 49,142 Total non-current liabilities 152,734 148,101 Total liabilities 290,020 302,083 Commitments and contingenciesShareholders equity:Common stock and additional paid-in capital,$0.00001 par value:50,400,000 shares authorized;15,842,407 and 15,943,425 shares issued and outstanding,respectively 66,399 64,849 Retained earnings/(Accumulated deficit)3,240 (3,068)Accumulated other comprehensive income/(loss)(12,912)(11,109)Total shareholders equity 56,727 50,672 Total liabilities and shareholders equity$346,747$352,755 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q1 2023 Form 10-Q|3Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY(Unaudited)(In millions,except per share amounts)Three Months EndedDecember 31,2022December 25,2021Total shareholders equity,beginning balances$50,672$63,090 Common stock and additional paid-in capital:Beginning balances 64,849 57,365 Common stock withheld related to net share settlement of equity awards(1,434)(1,263)Share-based compensation 2,984 2,322 Ending balances 66,399 58,424 Retained earnings/(Accumulated deficit):Beginning balances(3,068)5,562 Net income 29,998 34,630 Dividends and dividend equivalents declared(3,712)(3,665)Common stock withheld related to net share settlement of equity awards(978)(1,730)Common stock repurchased(19,000)(20,362)Ending balances 3,240 14,435 Accumulated other comprehensive income/(loss):Beginning balances(11,109)163 Other comprehensive income/(loss)(1,803)(1,090)Ending balances(12,912)(927)Total shareholders equity,ending balances$56,727$71,932 Dividends and dividend equivalents declared per share or RSU$0.23$0.22 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q1 2023 Form 10-Q|4Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In millions)Three Months EndedDecember 31,2022December 25,2021Cash,cash equivalents and restricted cash,beginning balances$24,977$35,929 Operating activities:Net income 29,998 34,630 Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization 2,916 2,697 Share-based compensation expense 2,905 2,265 Other(317)849 Changes in operating assets and liabilities:Accounts receivable,net 4,275 (3,934)Inventories(1,807)681 Vendor non-trade receivables 2,320 (9,812)Other current and non-current assets(4,099)(4,921)Accounts payable(6,075)19,813 Deferred revenue 131 462 Other current and non-current liabilities 3,758 4,236 Cash generated by operating activities 34,005 46,966 Investing activities:Purchases of marketable securities(5,153)(34,913)Proceeds from maturities of marketable securities 7,127 11,309 Proceeds from sales of marketable securities 509 10,675 Payments for acquisition of property,plant and equipment(3,787)(2,803)Other(141)(374)Cash used in investing activities(1,445)(16,106)Financing activities:Payments for taxes related to net share settlement of equity awards(2,316)(2,888)Payments for dividends and dividend equivalents(3,768)(3,732)Repurchases of common stock(19,475)(20,478)Repayments of term debt(1,401)Repayments of commercial paper,net(8,214)(1,000)Other(389)(61)Cash used in financing activities(35,563)(28,159)Increase/(Decrease)in cash,cash equivalents and restricted cash(3,003)2,701 Cash,cash equivalents and restricted cash,ending balances$21,974$38,630 Supplemental cash flow disclosure:Cash paid for income taxes,net$828$5,235 Cash paid for interest$703$531 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q1 2023 Form 10-Q|5Apple Inc.Notes to Condensed Consolidated Financial Statements(Unaudited)Note 1 Summary of Significant Accounting PoliciesBasis of Presentation and PreparationThe condensed consolidated financial statements include the accounts of Apple Inc.and its wholly owned subsidiaries(collectively“Apple”or the“Company”).Intercompany accounts and transactions have been eliminated.In the opinion of the Companys management,the condensed consolidated financial statements reflect all adjustments,which are normal and recurring in nature,necessary for fair financial statement presentation.The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S.generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported.Actual results could differ materially from those estimates.Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current periods presentation.These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Companys annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended September24,2022.The Companys fiscal year is the 52-or 53-week period that ends on the last Saturday of September.An additional week is included in the first fiscal quarter every five or six years to realign the Companys fiscal quarters with calendar quarters,which occurred in the first fiscal quarter of 2023.The Companys fiscal years 2023 and 2022 span 53 and 52 weeks,respectively.Unless otherwise stated,references to particular years,quarters,months and periods refer to the Companys fiscal years ended in September and the associated quarters,months and periods of those fiscal years.Earnings Per ShareThe following table shows the computation of basic and diluted earnings per share for the three months ended December 31,2022 and December 25,2021(net income in millions and shares in thousands):Three Months EndedDecember 31,2022December 25,2021Numerator:Net income$29,998$34,630 Denominator:Weighted-average basic shares outstanding 15,892,723 16,391,724 Effect of dilutive securities 62,995 127,567 Weighted-average diluted shares 15,955,718 16,519,291 Basic earnings per share$1.89$2.11 Diluted earnings per share$1.88$2.10 Approximately 89 million restricted stock units(“RSUs”)were excluded from the computation of diluted earnings per share for the three months ended December31,2022 because their effect would have been antidilutive.Apple Inc.|Q1 2023 Form 10-Q|6Note 2 RevenueNet sales disaggregated by significant products and services for the three months ended December 31,2022 and December25,2021 were as follows(in millions):Three Months EndedDecember 31,2022December 25,2021iPhone(1)$65,775$71,628 Mac(1)7,735 10,852 iPad(1)9,396 7,248 Wearables,Home and Accessories(1)(2)13,482 14,701 Services(3)20,766 19,516 Total net sales(4)$117,154$123,945(1)Products net sales include amortization of the deferred value of unspecified software upgrade rights,which are bundled in the sales price of the respective product.(2)Wearables,Home and Accessories net sales include sales of AirPods,Apple TV,Apple Watch,Beats products,HomePod mini and accessories.(3)Services net sales include sales from the Companys advertising,AppleCare,cloud,digital content,payment and other services.Services net sales also include amortization of the deferred value of services bundled in the sales price of certain products.(4)Includes$3.4 billion of revenue recognized in the three months ended December31,2022 that was included in deferred revenue as of September24,2022 and$3.0 billion of revenue recognized in the three months ended December25,2021 that was included in deferred revenue as of September25,2021.The Companys proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 9,“Segment Information and Geographic Data”for the three months ended December 31,2022 and December25,2021,except in Greater China,where iPhone revenue represented a moderately higher proportion of net sales.As of December31,2022 and September24,2022,the Company had total deferred revenue of$12.6 billion and$12.4billion,respectively.As of December31,2022,the Company expects 63%of total deferred revenue to be realized in less than a year,27%within one-to-two years,8%within two-to-three years and 2%in greater than three years.Apple Inc.|Q1 2023 Form 10-Q|7Note 3 Financial InstrumentsCash,Cash Equivalents and Marketable SecuritiesThe following tables show the Companys cash,cash equivalents and marketable securities by significant investment category as of December31,2022 and September24,2022(in millions):December 31,2022AdjustedCostUnrealizedGainsUnrealizedLossesFairValueCash andCashEquivalentsCurrentMarketableSecuritiesNon-CurrentMarketableSecuritiesCash$17,908$17,908$17,908$Level 1(1):Money market funds 818 818 818 Mutual funds 330 2 (40)292 292 Subtotal 1,148 2 (40)1,110 818 292 Level 2(2):U.S.Treasury securities 24,128 1 (1,576)22,553 13 9,105 13,435 U.S.agency securities 5,743 (643)5,100 310 4,790 Non-U.S.government securities 17,778 14 (1,029)16,763 9,907 6,856 Certificates of deposit and time deposits 2,025 2,025 1,795 230 Commercial paper 237 237 237 Corporate debt securities 85,895 14 (7,039)78,870 1 10,377 68,492 Municipal securities 864 (26)838 278 560 Mortgage-and asset-backed securities 22,448 3 (2,405)20,046 84 19,962 Subtotal 159,118 32 (12,718)146,432 1,809 30,528 114,095 Total(3)$178,174$34$(12,758)$165,450$20,535$30,820$114,095 September 24,2022AdjustedCostUnrealizedGainsUnrealizedLossesFairValueCash andCashEquivalentsCurrentMarketableSecuritiesNon-CurrentMarketableSecuritiesCash$18,546$18,546$18,546$Level 1(1):Money market funds 2,929 2,929 2,929 Mutual funds 274 (47)227 227 Subtotal 3,203 (47)3,156 2,929 227 Level 2(2):U.S.Treasury securities 25,134 (1,725)23,409 338 5,091 17,980 U.S.agency securities 5,823 (655)5,168 240 4,928 Non-U.S.government securities 16,948 2 (1,201)15,749 8,806 6,943 Certificates of deposit and time deposits 2,067 2,067 1,805 262 Commercial paper 718 718 28 690 Corporate debt securities 87,148 9 (7,707)79,450 9,023 70,427 Municipal securities 921 (35)886 266 620 Mortgage-and asset-backed securities 22,553 (2,593)19,960 53 19,907 Subtotal 161,312 11 (13,916)147,407 2,171 24,431 120,805 Total(3)$183,061$11$(13,963)$169,109$23,646$24,658$120,805(1)Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.(2)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities,quoted prices for identical or similar assets or liabilities in inactive markets,or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.(3)As of December31,2022 and September24,2022,total marketable securities included$13.6billion and$12.7 billion,respectively,that were restricted from general use,related to the European Commission decision finding that Ireland granted state aid to the Company,and other agreements.Apple Inc.|Q1 2023 Form 10-Q|8The following table shows the fair value of the Companys non-current marketable debt securities,by contractual maturity,as of December31,2022(in millions):Due after 1 year through 5 years$82,497 Due after 5 years through 10 years 14,243 Due after 10 years 17,355 Total fair value$114,095 Derivative Instruments and HedgingThe Company may use derivative instruments to partially offset its business exposure to foreign exchange and interest rate risk.However,the Company may choose not to hedge certain exposures for a variety of reasons,including accounting considerations or the prohibitive economic cost of hedging particular exposures.There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange or interest rates.Foreign Exchange RiskTo protect gross margins from fluctuations in foreign currency exchange rates,the Company may enter into forward contracts,option contracts or other instruments,and may designate these instruments as cash flow hedges.The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases,typically for up to 12 months.To protect the Companys foreign currencydenominated term debt or marketable securities from fluctuations in foreign currency exchange rates,the Company may enter into forward contracts,cross-currency swaps or other instruments.The Company designates these instruments as either cash flow or fair value hedges.As of December31,2022,the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for term debtrelated foreign currency transactions is 20 years.The Company may also enter into derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations in foreign currency exchange rates,as well as to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.Interest Rate RiskTo protect the Companys term debt or marketable securities from fluctuations in interest rates,the Company may enter into interest rate swaps,options or other instruments.The Company designates these instruments as either cash flow or fair value hedges.The notional amounts of the Companys outstanding derivative instruments as of December31,2022 and September24,2022 were as follows(in millions):December 31,2022September 24,2022Derivative instruments designated as accounting hedges:Foreign exchange contracts$66,054$102,670 Interest rate contracts$20,125$20,125 Derivative instruments not designated as accounting hedges:Foreign exchange contracts$134,971$185,381 Apple Inc.|Q1 2023 Form 10-Q|9The gross fair values of the Companys derivative assets and liabilities as of September24,2022 were as follows(in millions):September 24,2022Fair Value ofDerivatives Designatedas Accounting HedgesFair Value ofDerivatives Not Designatedas Accounting HedgesTotalFair ValueDerivative assets(1):Foreign exchange contracts$4,317$2,819$7,136 Derivative liabilities(2):Foreign exchange contracts$2,205$2,547$4,752 Interest rate contracts$1,367$1,367(1)Derivative assets are measured using Level 2 fair value inputs and are included in other current assets and other non-current assets in the Condensed Consolidated Balance Sheet.(2)Derivative liabilities are measured using Level 2 fair value inputs and are included in other current liabilities and other non-current liabilities in the Condensed Consolidated Balance Sheet.The derivative assets above represent the Companys gross credit exposure if all counterparties failed to perform.To mitigate credit risk,the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair values of certain derivatives fluctuate from contractually established thresholds.To further limit credit risk,the Company generally enters into master netting arrangements with the respective counterparties to the Companys derivative contracts,under which the Company is allowed to settle transactions with a single net amount payable by one party to the other.As of September24,2022,the potential effects of these rights of set-off associated with the Companys derivative contracts,including the effects of collateral,would be a reduction to both derivative assets and derivative liabilities of$7.8 billion,resulting in a net derivative asset of$412 million.The carrying amounts of the Companys hedged items in fair value hedges as of December31,2022 and September24,2022 were as follows(in millions):December 31,2022September 24,2022Hedged assets/(liabilities):Current and non-current marketable securities$14,311$13,378 Current and non-current term debt$(18,731)$(18,739)Accounts ReceivableTrade ReceivablesThe Company has considerable trade receivables outstanding with its third-party cellular network carriers,wholesalers,retailers,resellers,small and mid-sized businesses and education,enterprise and government customers.The Company generally does not require collateral from its customers;however,the Company will require collateral or third-party credit support in certain instances to limit credit risk.In addition,when possible,the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing,loans or leases to support credit exposure.These credit-financing arrangements are directly between the third-party financing company and the end customer.As such,the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.As of both December31,2022 and September24,2022,the Company had one customer that represented 10%or more of total trade receivables,which accounted for 11%and 10%,respectively.The Companys cellular network carriers accounted for 43%and 44%of total trade receivables as of December31,2022 and September24,2022,respectively.Vendor Non-Trade ReceivablesThe Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture subassemblies or assemble final products for the Company.The Company purchases these components directly from suppliers.As of December31,2022,the Company had two vendors that individually represented 10%or more of total vendor non-trade receivables,which accounted for 54%and 16%.As of September24,2022,the Company had two vendors that individually represented 10%or more of total vendor non-trade receivables,which accounted for 54%and 13%.Apple Inc.|Q1 2023 Form 10-Q|10Note 4 Condensed Consolidated Financial Statement DetailsThe following tables show the Companys condensed consolidated financial statement details as of December31,2022 and September24,2022(in millions):InventoriesDecember 31,2022September 24,2022Components$2,513$1,637 Finished goods 4,307 3,309 Total inventories$6,820$4,946 Property,Plant and Equipment,NetDecember 31,2022September 24,2022Gross property,plant and equipment$110,995$114,457 Accumulated depreciation and amortization(68,044)(72,340)Total property,plant and equipment,net$42,951$42,117 Other Income/(Expense),NetThe following table shows the detail of other income/(expense),net for the three months ended December 31,2022 and December25,2021(in millions):Three Months EndedDecember 31,2022December 25,2021Interest and dividend income$868$650 Interest expense(1,003)(694)Other expense,net(258)(203)Total other income/(expense),net$(393)$(247)Note 5 DebtCommercial PaperThe Company issues unsecured short-term promissory notes(“Commercial Paper”)pursuant to a commercial paper program.The Company uses net proceeds from the commercial paper program for general corporate purposes,including dividends and share repurchases.As of December31,2022 and September24,2022,the Company had$1.7 billion and$10.0 billion of Commercial Paper outstanding,respectively.The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the three months ended December31,2022 and December25,2021(in millions):Three Months EndedDecember 31,2022December 25,2021Maturities 90 days or less:Proceeds from/(Repayments of)commercial paper,net$(5,569)$1,339 Maturities greater than 90 days:Proceeds from commercial paper 1,191 Repayments of commercial paper(2,645)(3,530)Repayments of commercial paper,net(2,645)(2,339)Total repayments of commercial paper,net$(8,214)$(1,000)Apple Inc.|Q1 2023 Form 10-Q|11Term DebtAs of December31,2022 and September24,2022,the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of$109.4 billion and$110.1 billion,respectively(collectively the“Notes”).As of December31,2022 and September24,2022,the fair value of the Companys Notes,based on Level 2 inputs,was$98.0 billion and$98.8 billion,respectively.Note 6 Shareholders EquityShare Repurchase ProgramDuring the three months ended December31,2022,the Company repurchased 133 million shares of its common stock for$19.0 billion under a share repurchase program authorized by the Board of Directors(the“Program”).The Program does not obligate the Company to acquire a minimum amount of shares.Under the Program,shares may be repurchased in privately negotiated and/or open market transactions,including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934,as amended.Note 7 Benefit PlansRestricted Stock UnitsA summary of the Companys RSU activity and related information for the three months ended December31,2022 is as follows:Number ofRSUs(in thousands)Weighted-AverageGrant Date FairValue Per RSUAggregateFair Value(in millions)Balance as of September 24,2022 201,501$109.48 RSUs granted 82,123$149.85 RSUs vested(47,298)$84.46 RSUs canceled(2,958)$120.26 Balance as of December 31,2022 233,368$128.62$30,322 The fair value as of the respective vesting dates of RSUs was$6.8 billion and$8.5 billion for the three months ended December 31,2022 and December25,2021,respectively.Share-Based CompensationThe following table shows share-based compensation expense and the related income tax benefit included in the Condensed Consolidated Statements of Operations for the three months ended December 31,2022 and December 25,2021(in millions):Three Months EndedDecember 31,2022December 25,2021Share-based compensation expense$2,905$2,265 Income tax benefit related to share-based compensation expense$(1,178)$(1,536)As of December31,2022,the total unrecognized compensation cost related to outstanding RSUs and stock options was$25.5 billion,which the Company expects to recognize over a weighted-average period of 3.0 years.Apple Inc.|Q1 2023 Form 10-Q|12Note 8 Commitments and ContingenciesUnconditional Purchase ObligationsThe Company has entered into certain offbalance sheet commitments that require the future purchase of goods or services(“unconditional purchase obligations”).The Companys unconditional purchase obligations primarily consist of supplier arrangements,licensed content and distribution rights.Future payments under noncancelable unconditional purchase obligations with a remaining term in excess of one year as of December31,2022,are as follows(in millions):2023(remaining nine months)$2,899 2024 2,897 2025 1,584 2026 6,554 2027 348 Thereafter 444 Total$14,726 ContingenciesThe Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved.The outcome of litigation is inherently uncertain.In the opinion of management,there was not at least a reasonable possibility the Company may have incurred a material loss,or a material loss greater than a recorded accrual,concerning loss contingencies for asserted legal and other claims.Note 9 Segment Information and Geographic DataThe following table shows information by reportable segment for the three months ended December 31,2022 and December 25,2021(in millions):Three Months EndedDecember 31,2022December 25,2021Americas:Net sales$49,278$51,496 Operating income$17,864$19,585 Europe:Net sales$27,681$29,749 Operating income$10,017$11,545 Greater China:Net sales$23,905$25,783 Operating income$10,437$11,183 Japan:Net sales$6,755$7,107 Operating income$3,236$3,349 Rest of Asia Pacific:Net sales$9,535$9,810 Operating income$3,851$3,995 Apple Inc.|Q1 2023 Form 10-Q|13A reconciliation of the Companys segment operating income to the Condensed Consolidated Statements of Operations for the three months ended December 31,2022 and December 25,2021 is as follows(in millions):Three Months EndedDecember 31,2022December 25,2021Segment operating income$45,405$49,657 Research and development expense(7,709)(6,306)Other corporate expenses,net(1,680)(1,863)Total operating income$36,016$41,488 Apple Inc.|Q1 2023 Form 10-Q|14Item 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsThis section and other parts of this Quarterly Report on Form 10-Q(“Form 10-Q”)contain forward-looking statements,within the meaning of the Private Securities Litigation Reform Act of 1995,that involve risks and uncertainties.Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.For example,statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on the Companys business and results of operations are forward-looking statements.Forward-looking statements can also be identified by words such as“future,”“anticipates,”“believes,”“estimates,”“expects,”“intends,”“plans,”“predicts,”“will,”“would,”“could,”“can,”“may,”and similar terms.Forward-looking statements are not guarantees of future performance and the Companys actual results may differ significantly from the results discussed in the forward-looking statements.Factors that might cause such differences include,but are not limited to,those discussed in Part I,Item 1A of the Companys Annual Report on Form 10-K for the fiscal year ended September24,2022(the“2022 Form 10-K”)under the heading“Risk Factors.”The Company assumes no obligation to revise or update any forward-looking statements for any reason,except as required by law.Unless otherwise stated,all information presented herein is based on the Companys fiscal calendar,and references to particular years,quarters,months or periods refer to the Companys fiscal years ended in September and the associated quarters,months and periods of those fiscal years.Each of the terms the“Company”and“Apple”as used herein refers collectively to Apple Inc.and its wholly owned subsidiaries,unless otherwise stated.The following discussion should be read in conjunction with the 2022 Form 10-K filed with the U.S.Securities and Exchange Commission(the“SEC”)and the condensed consolidated financial statements and accompanying notes included in Part I,Item 1 of this Form 10-Q.Available InformationThe Company periodically provides certain information for investors on its corporate website,and its investor relations website,.This includes press releases and other information about financial performance,information on environmental,social and governance matters,and details related to the Companys annual meeting of shareholders.The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing.Further,the Companys references to website URLs are intended to be inactive textual references only.Business Seasonality and Product IntroductionsThe Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand.Additionally,new product and service introductions can significantly impact net sales,cost of sales and operating expenses.The timing of product introductions can also impact the Companys net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch,and channel inventory of an older product often declines as the launch of a newer product approaches.Net sales can also be affected when consumers and distributors anticipate a product introduction.Fiscal PeriodThe Companys fiscal year is the 52-or 53-week period that ends on the last Saturday of September.An additional week is included in the first fiscal quarter every five or six years to realign the Companys fiscal quarters with calendar quarters,which occurred in the first quarter of 2023.The Companys fiscal years 2023 and 2022 span 53 and 52 weeks,respectively.Quarterly HighlightsTotal net sales decreased 5%or$6.8 billion during the first quarter of 2023 compared to the same quarter in 2022 due to the weakness in foreign currencies relative to the U.S.dollar.The weakness in foreign currencies contributed to lower net sales of iPhone and Mac,which was partially offset by higher net sales of iPad.During the first quarter of 2023,the Company announced a new iPad,a new iPad Pro powered by the Apple M2 chip,and a new Apple TV 4K.The Company repurchased$19.0 billion of its common stock and paid dividends and dividend equivalents of$3.8 billion during the first quarter of 2023.Apple Inc.|Q1 2023 Form 10-Q|15COVID-19The COVID-19 pandemic has had,and continues to have,a significant impact around the world,prompting governments and businesses to take unprecedented measures,such as restrictions on travel and business operations,temporary closures of businesses,and quarantine and shelter-in-place orders.The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.The COVID-19 pandemic and the measures taken by many countries in response have affected and could in the future materially impact the Companys business,results of operations and financial condition.Certain of the Companys outsourcing partners,component suppliers and logistical service providers have experienced,and could in the future experience,disruptions related to the COVID-19 pandemic,resulting in supply shortages.During the first quarter of 2023,COVID-related impacts temporarily affected the Companys primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility located in Zhengzhou,China.The facility operated at significantly reduced capacity,impacting iPhone 14 Pro and iPhone Pro Max shipments.Macroeconomic ConditionsMacroeconomic conditions,including inflation,rising interest rates and currency fluctuations,have direct and indirect impacts on the Companys business.The Company believes these factors have impacted,and could in the future materially impact,the Companys results of operations and financial condition.Segment Operating PerformanceThe Company manages its business primarily on a geographic basis.The Companys reportable segments consist of the Americas,Europe,Greater China,Japan and Rest of Asia Pacific.Americas includes both North and South America.Europe includes European countries,as well as India,the Middle East and Africa.Greater China includes China mainland,Hong Kong and Taiwan.Rest of Asia Pacific includes Australia and those Asian countries not included in the Companys other reportable segments.Although the reportable segments provide similar hardware and software products and similar services,each one is managed separately to better align with the location of the Companys customers and distribution partners and the unique market dynamics of each geographic region.Further information regarding the Companys reportable segments can be found in Part I,Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 9,“Segment Information and Geographic Data.”The following table shows net sales by reportable segment for the three months ended December 31,2022 and December25,2021(dollars in millions):Three Months EndedDecember 31,2022December 25,2021ChangeNet sales by reportable segment:Americas$49,278$51,496 (4)%Europe 27,681 29,749 (7)%Greater China 23,905 25,783 (7)%Japan 6,755 7,107 (5)%Rest of Asia Pacific 9,535 9,810 (3)%Total net sales$117,154$123,945 (5)%AmericasAmericas net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to lower net sales of iPhone and Mac,partially offset by higher net sales of Services and iPad.The weakness of the Canadian dollar relative to the U.S.dollar had an unfavorable year-over-year impact on Americas net sales during the first quarter of 2023.EuropeEurope net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due to the weakness in foreign currencies relative to the U.S.dollar,which contributed to lower net sales of iPhone and Mac.Apple Inc.|Q1 2023 Form 10-Q|16Greater ChinaGreater China net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due to the weakness of the renminbi relative to the U.S.dollar.The weakness of the renminbi contributed to lower net sales of iPhone,which was partially offset by higher net sales of iPad.JapanJapan net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due to the weakness of the yen relative to the U.S.dollar,which contributed to lower net sales of Services and Mac.Rest of Asia PacificRest of Asia Pacific net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due to the weakness in foreign currencies relative to the U.S.dollar.The weakness in foreign currencies contributed to lower net sales of iPhone and Mac,which was partially offset by higher net sales of Services and iPad.Products and Services PerformanceThe following table shows net sales by category for the three months ended December 31,2022 and December25,2021(dollars in millions):Three Months EndedDecember 31,2022December 25,2021ChangeNet sales by category:iPhone(1)$65,775$71,628 (8)%Mac(1)7,735 10,852 (29)%iPad(1)9,396 7,248 30%Wearables,Home and Accessories(1)(2)13,482 14,701 (8)%Services(3)20,766 19,516 6%Total net sales$117,154$123,945 (5)%(1)Products net sales include amortization of the deferred value of unspecified software upgrade rights,which are bundled in the sales price of the respective product.(2)Wearables,Home and Accessories net sales include sales of AirPods,Apple TV,Apple Watch,Beats products,HomePod mini and accessories.(3)Services net sales include sales from the Companys advertising,AppleCare,cloud,digital content,payment and other services.Services net sales also include amortization of the deferred value of services bundled in the sales price of certain products.iPhoneiPhone net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to lower net sales from the Companys new iPhone models launched in the fourth quarter of 2022.MacMac net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to lower net sales of MacBook Pro.iPadiPad net sales increased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to higher net sales of iPad and iPad Air.Apple Inc.|Q1 2023 Form 10-Q|17Wearables,Home and AccessoriesWearables,Home and Accessories net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to lower net sales of AirPods,partially offset by higher net sales of Watch.ServicesServices net sales increased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to higher net sales from cloud services,the App Store and music.Gross MarginProducts and Services gross margin and gross margin percentage for the three months ended December 31,2022 and December25,2021 were as follows(dollars in millions):Three Months EndedDecember 31,2022December 25,2021Gross margin:Products$35,623$40,120 Services 14,709 14,123 Total gross margin$50,332$54,243 Gross margin percentage:Products 37.08.4%Services 70.8r.4%Total gross margin percentage 43.0C.8%Products Gross MarginProducts gross margin decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to the weakness in foreign currencies relative to the U.S.dollar and lower Products volume.Products gross margin percentage decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to the weakness in foreign currencies relative to the U.S.dollar.Services Gross MarginServices gross margin increased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to higher Services net sales,partially offset by the weakness in foreign currencies relative to the U.S.dollar.Services gross margin percentage decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to the weakness in foreign currencies relative to the U.S.dollar and higher Services costs,partially offset by improved leverage.The Companys future gross margins can be impacted by a variety of factors,as discussed in Part I,Item 1A of the 2022 Form 10-K under the heading“Risk Factors.”As a result,the Company believes,in general,gross margins will be subject to volatility and downward pressure.Apple Inc.|Q1 2023 Form 10-Q|18Operating ExpensesOperating expenses for the three months ended December 31,2022 and December 25,2021 were as follows(dollars in millions):Three Months EndedDecember 31,2022December 25,2021Research and development$7,709$6,306 Percentage of total net sales 7%5%Selling,general and administrative$6,607$6,449 Percentage of total net sales 6%5%Total operating expenses$14,316$12,755 Percentage of total net sales 12%Research and DevelopmentThe growth in research and development(“R&D”)expense during the first quarter of 2023 compared to the same quarter in 2022 was driven primarily by increases in headcount-related expenses.Selling,General and AdministrativeThe growth in selling,general and administrative expense during the first quarter of 2023 compared to the same quarter in 2022 was driven primarily by increases in headcount-related expenses.Provision for Income TaxesProvision for income taxes,effective tax rate and statutory federal income tax rate for the three months ended December 31,2022 and December25,2021 were as follows(dollars in millions):Three Months EndedDecember 31,2022December 25,2021Provision for income taxes$5,625$6,611 Effective tax rate 15.8.0%Statutory federal income tax rate 21!%The Companys effective tax rate for the first quarter of 2023 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings,tax benefits from share-based compensation,and the U.S.federal R&D credit,partially offset by state income taxes.The Companys effective tax rate for the first quarter of 2023 was lower compared to the same quarter in 2022 due primarily to a higher U.S.federal R&D credit,lower state income taxes and a lower effective tax rate on foreign earnings,largely offset by lower tax benefits from share-based compensation.Liquidity and Capital ResourcesThe Company believes its balances of cash,cash equivalents and unrestricted marketable securities,along with cash generated by ongoing operations and continued access to debt markets,will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.The Companys contractual cash requirements have not changed materially since the 2022 Form 10-K,except for commercial paper and manufacturing purchase obligations.Commercial PaperThe Company issues unsecured short-term promissory notes(“Commercial Paper”)pursuant to a commercial paper program.As of December31,2022,the Company had$1.7 billion of Commercial Paper outstanding,all of which was payable within 12 months.Apple Inc.|Q1 2023 Form 10-Q|19Manufacturing Purchase ObligationsThe Company utilizes several outsourcing partners to manufacture subassemblies for the Companys products and to perform final assembly and testing of finished products.The Company also obtains individual components for its products from a wide variety of individual suppliers.Outsourcing partners acquire components and build product based on demand information supplied by the Company,which typically covers periods up to 150 days.As of December 31,2022,the Company had manufacturing purchase obligations of$55.1 billion,with$54.8 billion payable within 12 months.The Companys manufacturing purchase obligations are primarily noncancelable.In addition to its contractual cash requirements,the Company has a capital return program authorized by the Board of Directors.The share repurchase program(the“Program”)does not obligate the Company to acquire a minimum amount of shares.As of December31,2022,the Companys quarterly cash dividend was$0.23 per share.The Company intends to increase its dividend on an annual basis,subject to declaration by the Board of Directors.Critical Accounting EstimatesThe preparation of financial statements and related disclosures in conformity with U.S.generally accepted accounting principles and the Companys discussion and analysis of its financial condition and operating results require the Companys management to make judgments,assumptions and estimates that affect the amounts reported.Note 1,“Summary of Significant Accounting Policies”of the Notes to condensed consolidated Financial Statements in Part I,Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II,Item 8 of the 2022 Form 10-K describe the significant accounting policies and methods used in the preparation of the Companys condensed consolidated financial statements.There have been no material changes to the Companys critical accounting estimates since the 2022 Form 10-K.Item 3.Quantitative and Qualitative Disclosures About Market RiskThere have been no material changes to the Companys market risk during the first three months of 2023.For a discussion of the Companys exposure to market risk,refer to the Companys market risk disclosures set forth in Part II,Item 7A,“Quantitative and Qualitative Disclosures About Market Risk”of the 2022 Form 10-K.Item 4.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresBased on an evaluation under the supervision and with the participation of the Companys management,the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures as defined in Rules 13a-15(e)and 15d-15(e)under the Securities Exchange Act of 1934,as amended(the“Exchange Act”)were effective as of December31,2022 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is(i)recorded,processed,summarized and reported within the time periods specified in the SEC rules and forms and(ii)accumulated and communicated to the Companys management,including its principal executive officer and principal financial officer,as appropriate to allow timely decisions regarding required disclosure.Changes in Internal Control over Financial ReportingThere were no changes in the Companys internal control over financial reporting during the first quarter of 2023,which were identified in connection with managements evaluation required by paragraph(d)of Rules 13a-15 and 15d-15 under the Exchange Act,that have materially affected,or are reasonably likely to materially affect,the Companys internal control over financial reporting.Apple Inc.|Q1 2023 Form 10-Q|20PART II OTHER INFORMATIONItem 1.Legal ProceedingsEpic GamesEpic Games,Inc.(“Epic”)filed a lawsuit in the U.S.District Court for the Northern District of California(the“Northern California District Court”)against the Company alleging violations of federal and state antitrust laws and Californias unfair competition law based upon the Companys operation of its App Store.The Company filed a counterclaim for breach of contract.On September 10,2021,the Northern California District Court ruled in favor of the Company with respect to nine out of the ten counts included in Epics claim,and in favor of the Company with respect to the Companys claims for breach of contract.The Northern California District Court found that certain provisions of the Companys App Store Review Guidelines violate Californias unfair competition law and issued an injunction.Epic appealed the decision.The Company filed a cross-appeal and has been granted a stay pending the appeal.Other Legal ProceedingsThe Company is subject to other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.The Company settled certain matters during the first quarter of 2023 that did not individually or in the aggregate have a material impact on the Companys financial condition or operating results.The outcome of litigation is inherently uncertain.If one or more legal matters were resolved against the Company in a reporting period for amounts above managements expectations,the Companys financial condition and operating results for that reporting period could be materially adversely affected.Item 1A.Risk FactorsThe Companys business,reputation,results of operations,financial condition and stock price can be affected by a number of factors,whether currently known or unknown,including those described in Part I,Item 1A of the 2022 Form 10-K under the heading“Risk Factors.”When any one or more of these risks materialize from time to time,the Companys business,reputation,results of operations,financial condition and stock price can be materially and adversely affected.There have been no material changes to the Companys risk factors since the 2022 Form 10-K.Item 2.Unregistered Sales of Equity Securities and Use of ProceedsPurchases of Equity Securities by the Issuer and Affiliated PurchasersShare repurchase activity during the three months ended December31,2022 was as follows(in millions,except number of shares,which are reflected in thousands,and per share amounts):PeriodsTotal Numberof Shares PurchasedAverage PricePaid Per ShareTotal Number of SharesPurchased as Part of PubliclyAnnounced Plans or ProgramsApproximate Dollar Value ofShares That May Yet Be PurchasedUnder the Plans or Programs(1)September 25,2022 to October 29,2022:Open market and privately negotiated purchases 69,169$144.57 69,169 October 30,2022 to November 26,2022:Open market and privately negotiated purchases 23,113$149.26 23,113 November 27,2022 to December 31,2022:Open market and privately negotiated purchases 40,557$136.85 40,557 Total 132,839$41,665(1)On April 28,2022,the Board of Directors authorized the purchase of an additional$90billion of the Companys common stock under the Program.As of December31,2022,total utilization under the April 2022 authorization was$48.3 billion.The Program does not obligate the Company to acquire a minimum amount of shares.Under the Program,shares may be repurchased in privately negotiated and/or open market transactions,including under plans complying with Rule 10b5-1 under the Exchange Act.Item 3.Defaults Upon Senior SecuritiesNone.Apple Inc.|Q1 2023 Form 10-Q|21Item 4.Mine Safety DisclosuresNot applicable.Item 5.Other InformationRule 10b5-1 Trading PlansDuring the three months ended December31,2022,Katherine L.Adams,Timothy D.Cook,Luca Maestri,Deirdre OBrien and Jeffrey Williams,each an officer for purposes of Section 16 of the Exchange Act,had equity trading plans in place in accordance with Rule 10b5-1(c)(1)under the Exchange Act.An equity trading plan is a written document that preestablishes the amounts,prices and dates(or formula for determining the amounts,prices and dates)of future purchases or sales of the Companys stock,including sales of shares acquired under the Companys employee and director equity plans.Item 6.ExhibitsIncorporated by ReferenceExhibitNumberExhibit DescriptionFormExhibitFiling Date/Period End Date10.1*Form of CEO Restricted Stock Unit Award Agreement under 2022 Employee Stock Plan effective as of September 25,2022.10.2*Form of CEO Performance Award Agreement under 2022 Employee Stock Plan effective as of September 25,2022.31.1*Rule 13a-14(a)/15d-14(a)Certification of Chief Executive Officer.31.2*Rule 13a-14(a)/15d-14(a)Certification of Chief Financial Officer.32.1*Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.101*Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I,Item 1,“Financial Statements”of this Quarterly Report on Form 10-Q.104*Inline XBRL for the cover page of this Quarterly Report on Form 10-Q,included in the Exhibit 101 Inline XBRL Document Set.*Filed herewith.*Furnished herewith.Apple Inc.|Q1 2023 Form 10-Q|22SIGNATUREPursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.Date:February2,2023Apple Inc.By:/s/Luca MaestriLuca MaestriSenior Vice President,Chief Financial OfficerApple Inc.|Q1 2023 Form 10-Q|23APPLE INC.2022 EMPLOYEE STOCK PLANRESTRICTED STOCK UNIT AWARD AGREEMENTNOTICE OF GRANTName:(the“Participant”)Employee ID:Grant Number:No.of Units Subject to Award:Award Date:(the“Award Date”)Vesting Commencement Date:(the“Vesting Commencement Date”)Vesting Schedule:This restricted stock unit award(the“Award”)is granted under and governed by the terms and conditions of the Apple Inc.2022 Employee Stock Plan and the Terms and Conditions of Restricted Stock Unit Award,which are incorporated herein by reference.You do not have to accept the Award.If you wish to decline your Award,you should promptly notify Apple Inc.s Stock Plan Group of your decision at .If you do not provide such notification by the last day of the calendar month prior to the first Vesting Date,you will be deemed to have accepted your Award on the terms and conditions set forth herein.Exhibit 10.1APPLE INC.2022 EMPLOYEE STOCK PLANRESTRICTED STOCK UNIT AWARD AGREEMENTTERMS AND CONDITIONS OF RESTRICTED STOCK UNIT AWARD1.General.These Terms and Conditions of Restricted Stock Unit Award(these“Terms”)apply to a particular restricted stock unit award(the“Award”)granted by Apple Inc.,a California corporation(the“Company”),and are incorporated by reference in the Notice of Grant(the“Grant Notice”)corresponding to that particular grant.The recipient of the Award identified in the Grant Notice is referred to as the“Participant.”The effective date of grant of the Award as set forth in the Grant Notice is referred to as the“Award Date.”The Award was granted under and is subject to the provisions of the Apple Inc.2022 Employee Stock Plan,as amended from time to time(the“Plan”).Capitalized terms are defined in the Plan if not defined herein.The Award is discretionary and has been granted to the Participant in addition to,and not in lieu of,any other form of compensation otherwise payable or to be paid to the Participant.The Grant Notice and these Terms are collectively referred to as the“Award Agreement”applicable to the Award.2.RSUs.As used herein,the term“RSU”shall mean a non-voting unit of measurement which is deemed for bookkeeping purposes to be equivalent to one outstanding Share solely for purposes of the Plan and this Award Agreement.RSUs shall be used solely as a device for the determination of the payment to eventually be made to the Participant if such RSUs vest pursuant to this Award Agreement.The RSUs shall not be treated as property or as a trust fund of any kind.3.Vesting.Subject to Sections 4 and 8 below,the Award shall vest and become nonforfeitable as set forth in the Grant Notice.(Each vesting date set forth in the Grant Notice is referred to herein as a“Vesting Date.”)Unless and until the Company elects to issue fractional Shares in settlement of a vested RSU,any fractional RSUs that vest on a Vesting Date shall be carried forward and vest when such combined fractional RSUs result in a full RSU and any fractional RSU that is not carried forward as a result of a termination of the Award prior to the next subsequent Vesting Date shall be forfeited.4.Continuance of Employment.Except as provided in this Section 4 and in Section 8 below,vesting of the Award requires continued active employment or service through each applicable Vesting Date as a condition to the vesting of the applicable installment of the Award and the rights and benefits under this Award Agreement.Employment or service for only a portion of the period between the Vesting Commencement Date and the first Vesting Date or between subsequent Vesting Dates,even if a substantial portion,will not entitle the Participant to any proportionate vesting of the Award.For purposes of this Award Agreement,active service shall include(a)the duration of an approved leave of absence(other than a personal leave of absence)and(b)the first thirty(30)days of an approved personal leave of absence,in each case as approved by the Company,in its sole discretion.The vesting of the Award shall be tolled beginning on the thirty-first(31st)day of a personal leave of absence.Nothing contained in this Award Agreement or the Plan constitutes an employment or service commitment by the Company,affects the Participants status as an employee at will who is subject to termination with or without cause,confers upon the Participant any right to remain employed by or in service to the Company or any Subsidiary,interferes in any way with the right of the Company or any Subsidiary at any time to terminate such employment or service,or affects the right of the Company or any Subsidiary to increase or decrease the Participants other compensation or benefits.Nothing in this Section 4,however,is intended to adversely affect any independent contractual right of the Participant without the Participants consent thereto.15.Dividend and Voting Rights.(a)Limitations on Rights Associated with RSUs.The Participant shall have no rights as a shareholder of the Company,no dividend rights(except as expressly provided in Section 5(b)with respect to Dividend Equivalent Rights)and no voting rights,with respect to the RSUs or any Shares underlying or issuable in respect of such RSUs until such Shares are actually issued to and held of record by the Participant.No adjustments will be made for dividends or other rights of a holder for which the record date is prior to the date of issuance of the stock as reflected in the book entry evidencing such Shares.(b)Dividend Equivalent Rights Distributions.As of any date that the Company pays an ordinary cash dividend on its Shares,the Company shall credit the Participant with a dollar amount equal to(i)the per share cash dividend paid by the Company on its Shares on such date,multiplied by(ii)the total number of RSUs(with such total number adjusted pursuant to Section 11 of the Plan)subject to the Award that are outstanding immediately prior to the record date for that dividend(a“Dividend Equivalent Right”).Any Dividend Equivalent Rights credited pursuant to the foregoing provisions of this Section 5(b)shall be subject to the same vesting,payment and other terms,conditions and restrictions as the original RSUs to which they relate,including the obligation to satisfy the Tax-Related Items;provided,however,that the amount of any vested Dividend Equivalent Rights shall be paid in cash.No crediting of Dividend Equivalent Rights shall be made pursuant to this Section 5(b)with respect to any RSUs which,immediately prior to the record date for that dividend,have either been paid pursuant to Section 7 or terminated pursuant to Section 8.6.Restrictions on Transfer.Except as provided in Section 4(c)of the Plan,the Award,the Dividend Equivalent Rights and any interest therein or amount or Shares payable in respect thereof shall not be sold,assigned,transferred,pledged or otherwise disposed of,alienated or encumbered,either voluntarily or involuntarily.7.Timing and Manner of Payment of RSUs.On or as soon as administratively practical following each Vesting Date determined pursuant to Section 3 or Section 8 or following the Participants death as specified in Section 8(d)(and in all events not later than two and one-half(2)months after such Vesting Date or the date of the Participants death,as applicable),the Company shall deliver to the Participant a number of Shares(either by delivering one or more certificates for such Shares or by entering such Shares in book entry form,as determined by the Company in its discretion)equal to the number of RSUs subject to the Award that vest(or,in the case of the Participants Retirement,death or Disability,are treated as vesting)on the applicable Vesting Date or the Participants death,as applicable,less Tax-Related Items,unless such RSUs terminate prior to the given Vesting Date pursuant to Section 8.The Companys obligation to deliver Shares or otherwise make payment with respect to vested RSUs is subject to the condition precedent that the Participant or other person entitled under the Plan to receive any Shares with respect to the vested RSUs deliver to the Company any representations or other documents or assurances required pursuant to Section 13(c)of the Plan.The Participant shall have no further rights with respect to any RSUs that are paid or that terminate pursuant to Section8.8.Effect of Termination of Service.(a)Except as expressly provided in Section 4 or this Section 8,the Participants RSUs(as well as the related Dividend Equivalent Rights)shall terminate to the extent such RSUs have not become vested prior to the Participants Termination of Service,meaning the first date the Participant is no longer employed by or providing services to the Company or one of its Subsidiaries(the“Severance Date”),regardless of the reason for the Participants Termination of Service,whether with or without cause,voluntarily or involuntarily,or whether the Participant was employed or provided services for a portion of the vesting period prior to a Vesting Date.2(b)Notwithstanding the foregoing,and except as otherwise provided by the Committee,in the event of the Participants Termination of Service due to the Participants Retirement(defined below)on or after the first anniversary of the Award Date,any unvested RSUs shall continue to be eligible to vest on a pro rata basis(in accordance with the schedule set forth in the Grant Notice and Section 8(d)without regard to the Participants Termination of Service,determined by multiplying(i)the number of RSUs eligible to vest on the applicable Vesting Date,by(ii)a fraction,the numerator of which shall be the number of days that have elapsed between the Award Date and the Participants Retirement date,and the denominator of which shall be the total number of days contained in the period between the Award Date and the applicable Vesting Date.For purposes of this Award Agreement,“Retirement”means the Participants Termination of Service on or after the Participant both has reached the age of sixty(60)and has completed ten(10)years of service with the Company,or any Subsidiary(including service with any entity acquired by the Company)as of the Severance Date,as determined in the sole discretion of the Committee.In the event the Participants Termination of Service occurs prior to the first anniversary of the Award Date,this Section 8(b)shall not apply,unless the Committee shall otherwise determine.For purposes of this Section 8(b),a Termination of Service shall not include the Participants Termination of Service resulting from the Participants Disability or death(in which case Section 8(c)or 8(d),as applicable,will apply).(c)In the event of the Participants Termination of Service due to the Participants Disability,any unvested RSUs shall continue to be eligible to vest in full(in accordance with the schedule set forth in the Grant Notice and Section 8(d)without regard to the Participants Termination of Service.(d)In the event of the Participants Termination of Service due to the Participants death,all unvested RSUs eligible to vest on Vesting Date(s)subsequent to the Participants death shall accelerate and vest immediately,and upon the Participants death following the Participants Termination of Service due to Disability or Retirement any RSUs that were eligible to vest in full,or pro rata in the case of Retirement,will be settled as soon as administratively practicable after the Participants death in accordance with Section 7.(e)If any unvested RSUs are terminated hereunder,such RSUs(as well as the related Dividend Equivalent Rights)shall automatically terminate and be cancelled as of the applicable Severance Date without payment of any consideration by the Company and without any other action by the Participant or the Participants personal representative,as the case may be.9.Recoupment.Notwithstanding any other provision herein,the Award and any Shares or other amount or property that may be issued,delivered or paid in respect of the Award,as well as any consideration that may be received in respect of a sale or other disposition of any such Shares or property,shall be subject to any recoupment,“clawback”or similar provisions of applicable law.In addition,the Company may require the Participant to deliver or otherwise repay to the Company the Award and any Shares or other amount or property that may be issued,delivered or paid in respect of the Award,as well as any consideration that may be received in respect of a sale or other disposition of any such Shares or property,if the Company reasonably determines that one or more of the following has occurred:(a)during the period of the Participants employment or service with the Company or any of its Subsidiaries(the“Employment Period”),the Participant has committed a felony(under the laws of the United States or any relevant state,or a similar crime or offense under the applicable laws of any relevant foreign jurisdiction);3(b)during the Employment Period or at any time thereafter,the Participant has committed or engaged in a breach of confidentiality,or an unauthorized disclosure or use of inside information,customer lists,trade secrets or other confidential information of the Company or any of its Subsidiaries;(c)during the Employment Period or at any time thereafter,the Participant has committed or engaged in an act of theft,embezzlement or fraud,or materially breached any agreement to which the Participant is a party with the Company or any of its Subsidiaries.For purposes of the foregoing,the Participant expressly and explicitly authorizes the Company to issue instructions,on the Participants behalf,to any brokerage firm or third party administrator holding the Participants Shares and other amounts acquired under the Plan to re-convey,transfer,or otherwise return such Shares and other amounts to the Company.This Section 9 is not the Companys exclusive remedy with respect to such matters.10.Adjustments Upon Specified Events.Upon the occurrence of certain events relating to the Companys stock contemplated by Section 11 of the Plan(including,without limitation,an extraordinary cash dividend on such stock),the Committee shall make adjustments in accordance with such section in the number of RSUs then outstanding and the number and kind of securities that may be issued in respect of the Award.No such adjustment shall be made with respect to any ordinary cash dividend for which Dividend Equivalent Rights are credited pursuant to Section 5(b).11.Responsibility for Taxes.The Participant acknowledges that,regardless of any action the Company or the Participants employer(“Employer”)take with respect to any Tax-Related Items,the ultimate liability for all Tax-Related Items is and remains the Participants responsibility and may exceed the amount,if any,actually withheld by the Company or the Employer.The Participant further acknowledges that the Company and the Employer(i)make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award,including the grant of the RSUs,the vesting of the RSUs,the delivery of Shares,the subsequent sale of any Shares acquired at vesting,and the receipt of any dividends or Dividend Equivalent Rights;and(ii)do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Participants liability for Tax-Related Items or achieve any particular tax result.Further,if the Participant is or becomes subject to tax in more than one jurisdiction,the Participant acknowledges that the Company or the Employer(or former employer,as applicable)may be required to withhold or account for Tax-Related Items in more than one jurisdiction.Prior to the relevant taxable or tax withholding event,as applicable,the Participant shall pay or make arrangements satisfactory to the Company or the Employer to satisfy all Tax-Related Items.In this regard,the Participant authorizes the Company or the Employer,or their respective agents,at their discretion and pursuant to such procedures as they may specify from time to time,to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following:(a)withholding from any wages or other cash compensation,including short-term cash incentives,payable to the Participant by the Company or the Employer;(b)withholding otherwise deliverable Shares and from otherwise payable Dividend Equivalent Rights to be issued or paid upon vesting/settlement of the Award;(c)arranging for the sale of Shares otherwise deliverable to the Participant(on the Participants behalf and at the Participants direction pursuant to this authorization),including selling Shares as part of a block trade with other Participants in the Plan;4(d)withholding from the proceeds of the sale of Shares acquired upon vesting/settlement of the Award;or(e)any other method of withholding determined by the Company to be permitted under the Plan and,to the extent required by Applicable Law or under the Plan,approved by the Committee.Notwithstanding the foregoing,if the Participant is an officer of the Company who is subject to Section 16 of the Exchange Act,then theCompany must satisfy any withholding obligations arising upon the occurrence of a taxable or tax withholding event,as applicable,bywithholding Shares otherwise deliverable or an amount otherwise payable upon settlement of Dividend Equivalent Rights pursuant to method(b),unless theBoard or the Committee determines in its discretion to satisfy the obligation for Tax-Related Items by one or a combination of methods(a),(b),(c),and(d)above.The Company may withhold or account for Tax-Related Items by considering statutory withholding amounts or other withholding rates,including maximum rates applicable in the Participants jurisdiction(s).If the maximum rate is used,any over-withheld amount may be refunded to the Participant in cash by the Company or Employer(with no entitlement to the Share equivalent)or if not refunded,the Participant may seek a refund from the local tax authorities.In the event of under-withholding,the Participant may be required to pay additional Tax-Related Items directly to the applicable tax authority or to the Company or Employer.If the obligation for Tax-Related Items is satisfied by withholding a number of Shares as described herein,for tax purposes,the Participant is deemed to have been issued the full number of Shares subject to the vested RSUs,notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.The Company may refuse to issue or deliver to the Participant any Shares or the proceeds of the sale of Shares if the Participant fails to comply with the Participants obligations in connection with the Tax-Related Items.12.Electronic Delivery and Acceptance.The Company may,in its sole discretion,deliver any documents related to the Award by electronic means or request the Participants consent to participate in the Plan by electronic means.The Participant hereby consents to receive all applicable documentation by electronic delivery and to participate in the Plan through an on-line or voice activated system established and maintained by the Company or a third party vendor designated by the Company.13.Data Privacy.By participating in the Plan,the Participant acknowledges and consents to the collection,use,processing and transfer of personal data as described in this Section 13.The Company,its related entities,and the Employer hold certain personal information about the Participant,including the Participants name,home address and telephone number,email address,date of birth,social security number or other employee identification number,salary,nationality,job title,any Shares or directorships held in the Company,details of all RSUs or any other entitlement to Shares or equivalent benefits awarded,canceled,purchased,vested,unvested or outstanding in the Participants favor,for the purpose of managing and administering the Plan(“Data”).The Company and its related entities may transfer Data amongst themselves as necessary for the purpose of implementation,administration,and management of the Participants participation in the Plan,and the Company and its related entities may each further transfer Data to any third parties assisting the Company or any such related entity in the implementation,administration,and management of the Plan.The Participant acknowledges that the transferors and transferees of such Data may be located anywhere in the world and hereby authorizes each of them to receive,possess,use,retain and transfer the Data,in electronic or other form,for the purposes of implementing,administering,and managing the Participants participation in the Plan,including any transfer of such Data as may be required for the administration of the Plan and the subsequent holding of Shares on the Participants behalf to a broker or to other third party with whom the Participant may elect to deposit any Shares acquired under the Plan(whether pursuant to the Award or otherwise).514.Notices.Any notice to be given under the terms of this Award Agreement shall be in writing and addressed to the Company at its principal office to the attention of the Secretary,and to the Participant at the Participants last address reflected on the Companys records,or at such other address as either party may hereafter designate in writing to the other.Any such notice shall be given only when received,but if the Participant is no longer an employee of the Company,shall be deemed to have been duly given by the Company when enclosed in a properly sealed envelope addressed as aforesaid,registered or certified,and deposited(postage and registry or certification fee prepaid)in a post office or branch post office regularly maintained by the United States Government.15.Plan.The Award and all rights of the Participant under this Award Agreement are subject to the terms and conditions of the provisions of the Plan,incorporated herein by reference.The Participant agrees to be bound by the terms of the Plan and this Award Agreement.The Participant acknowledges having read and understood the Plan,the Prospectus for the Plan,and this Award Agreement.Unless otherwise expressly provided in other sections of this Award Agreement,provisions of the Plan that confer discretionary authority on the Board or the Committee do not(and shall not be deemed to)create any rights in the Participant unless such rights are expressly set forth herein or are otherwise in the sole discretion of the Board or the Committee so conferred by appropriate action of the Board or the Committee under the Plan after the date hereof.16.Entire Agreement.This Award Agreement and the Plan together constitute the entire agreement and supersede all prior understandings and agreements,written or oral,of the parties hereto with respect to the subject matter hereof.The Plan and this Award Agreement may be amended pursuant to Section15 of the Plan.Such amendment must be in writing and signed by the Company.The Company may,however,unilaterally waive any provision hereof in writing to the extent such waiver does not adversely affect the interests of the Participant hereunder,but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof.17.Limitation on the Participants Rights.Participation in the Plan confers no rights or interests other than as herein provided.This Award Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust.Neither the Plan nor any underlying program,in and of itself,has any assets.The Participant shall have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable,if any,with respect to the RSUs,and rights no greater than the right to receive the Shares as a general unsecured creditor with respect to RSUs,as and when payable hereunder.18.Section Headings.The section headings of this Award Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision hereof.19.Governing Law.This Award Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California and applicable U.S.federal laws without regard to conflict of law principles thereunder.20.Choice of Venue.For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this grant or this Award Agreement,the parties hereby submit to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of Santa Clara County,California,or the federal courts for the Northern District of California,and no other courts,where this grant is made or to be performed.21.Construction.It is intended that the terms of the Award will not result in the imposition of any tax liability pursuant to Section 409A of the Code.This Award Agreement shall be construed and interpreted with that intent.622.Severability.The provisions of this Award Agreement are severable and if any one of more provisions are determined to be illegal or otherwise unenforceable,in whole or in part,the remaining provisions shall nevertheless be binding and enforceable.23.Imposition of Other Requirements.The Company reserves the right to impose other requirements on the Participants participation in the Plan,on the RSUs and on any Shares acquired under the Plan,to the extent the Company determines it is necessary or advisable for legal or administrative reasons,and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.7APPLE INC.2022 EMPLOYEE STOCK PLANRESTRICTED STOCK UNIT AWARD AGREEMENTPERFORMANCE AWARDNOTICE OF GRANTName:(the“Participant”)Employee ID:Grant Number:Target No.of Units Subject to Award:Award Date:(the“Award Date”)Vesting Date:Performance Period:This restricted stock unit award(the“Award”)is granted under and governed by the terms and conditions of the Apple Inc.2022 Employee Stock Plan and the Terms and Conditions of Restricted Stock Unit Award-Performance Award(including Exhibit A thereto),which are incorporated herein by reference.You do not have to accept the Award.If you wish to decline your Award,you should promptly notify Apple Inc.s Stock Plan Group of your decision at .If you do not provide such notification by the last day of the calendar month prior to the Vesting Date,you will be deemed to have accepted your Award on the terms and conditions set forth herein.Exhibit 10.2APPLE INC.2022 EMPLOYEE STOCK PLANRESTRICTED STOCK UNIT AWARD AGREEMENTTERMS AND CONDITIONS OF RESTRICTED STOCK UNIT AWARDPERFORMANCE AWARD1.General.These Terms and Conditions of Restricted Stock Unit Award-Performance Award(these“Terms”)apply to a particular restricted stock unit award(the“Award”)granted by Apple Inc.,a California corporation(the“Company”),and are incorporated by reference in the Notice of Grant(the“Grant Notice”)corresponding to that particular grant.The recipient of the Award identified in the Grant Notice is referred to as the“Participant.”The effective date of grant of the Award as set forth in the Grant Notice is referred to as the“Award Date.”The Award was granted under and is subject to the provisions of the Apple Inc.2022 Employee Stock Plan,as amended from time to time(the“Plan”).Capitalized terms are defined in the Plan if not defined herein.The Award is discretionary and has been granted to the Participant in addition to,and not in lieu of,any other form of compensation otherwise payable or to be paid to the Participant.The Grant Notice and these Terms(including Exhibit A hereto,incorporated herein by this reference)are collectively referred to as the“Award Agreement”applicable to the Award.2.RSUs.As used herein,the term“RSU”shall mean a non-voting unit of measurement which is deemed for bookkeeping purposes to be equivalent to one outstanding Share solely for purposes of the Plan and this Award Agreement.The RSUs shall be used solely as a device for the determination of the payment to eventually be made to the Participant if such RSUs vest pursuant to this Award Agreement.The RSUs shall not be treated as property or as a trust fund of any kind.3.Vesting.Subject to Sections 4 and 8 below,the Award shall vest and become nonforfeitable as set forth in the Grant Notice and Exhibit A hereto.(The vesting date set forth in the Grant Notice is referred to herein as a“Vesting Date”).4.Continuance of Employment.Except as provided in this Section 4 and in Section 8 below,vesting of the Award requires continued active employment or service through the Vesting Date as a condition to the vesting of the Award and the rights and benefits under this Award Agreement.Employment or service for only a portion of the vesting period,even if a substantial portion,will not entitle the Participant to any proportionate vesting of the Award.For purposes of this Award Agreement,active service shall include(a)the duration of an approved leave of absence(other than a personal leave of absence)and(b)the first thirty(30)days of an approved personal leave of absence,in each case as approved by the Company,in its sole discretion.The vesting of the Award shall be tolled beginning on the thirty-first(31st)day of a personal leave of absence.Nothing contained in this Award Agreement or the Plan constitutes an employment or service commitment by the Company,affects the Participants status as an employee at will who is subject to termination with or without cause,confers upon the Participant any right to remain employed by or in service to the Company or any Subsidiary,interferes in any way with the right of the Company or any Subsidiary at any time to terminate such employment or services,or affects the right of the Company or any Subsidiary to increase or decrease the Participants other compensation or benefits.Nothing in this Section 4,however,is intended to adversely affect any independent contractual right of the Participant without the Participants consent thereto.15.Dividend and Voting Rights.(a)Limitations on Rights Associated with RSUs.The Participant shall have no rights as a shareholder of the Company,no dividend rights(except as expressly provided in Section 5(b)with respect to Dividend Equivalent Rights)and no voting rights,with respect to the RSUs or any Shares underlying or issuable in respect of such RSUs until such Shares are actually issued to and held of record by the Participant.No adjustments will be made for dividends or other rights of a holder for which the record date is prior to the date of issuance of the book entry evidencing such Shares.(b)Dividend Equivalent Rights Distributions.As of any date that the Company pays an ordinary cash dividend on its Shares,the Company shall credit the Participant with a dollar amount equal to(i)the per share cash dividend paid by the Company on its Shares on such date,multiplied by(ii)the total target number of RSUs(with such total number adjusted pursuant to Section 11 of the Plan)subject to the Award that are outstanding immediately prior to the record date for that dividend(a“Dividend Equivalent Right”).Any Dividend Equivalent Rights credited pursuant to the foregoing provisions of this Section 5(b)shall be subject to the same vesting,payment and other terms,conditions and restrictions as the original RSUs to which they relate,including the obligation to satisfy the Tax-Related Items;provided,however,that the amount of any vested Dividend Equivalent Rights shall be paid in cash.For purposes of clarity,the percentage of the Dividend Equivalent Rights that are paid will correspond to the percentage of the total target number of RSUs that vest on the Vesting Date,after giving effect to Exhibit A.No crediting of Dividend Equivalent Rights shall be made pursuant to this Section 5(b)with respect to any RSUs which,immediately prior to the record date for that dividend,have either been paid pursuant to Section 7 or terminated pursuant to Section 8 or Exhibit A.6.Restrictions on Transfer.Except as provided in Section 4(c)of the Plan,the Award,the Dividend Equivalent Rights and any interest therein or amount or Shares payable in respect thereof shall not be sold,assigned,transferred,pledged or otherwise disposed of,alienated or encumbered,either voluntarily or involuntarily.7.Timing and Manner of Payment of RSUs.On or as soon as administratively practical following the Vesting Date pursuant to Section 3 or Section 8(and in all events not later than two and one-half(2)months after such Vesting Date),the Company shall deliver to the Participant a number of Shares(either by delivering one or more certificates for such Shares or by entering such Shares in book entry form,as determined by the Company in its discretion)equal to the number of RSUs subject to the Award that vest(or,in the case of the Participants Retirement,death or Disability,are treated as vesting)on the Vesting Date,less Tax-Related Items,unless such RSUs terminate prior to the Vesting Date pursuant to Section 8.The Companys obligation to deliver Shares or otherwise make payment with respect to vested RSUs is subject to the condition precedent that the Participant or other person entitled under the Plan to receive any Shares with respect to the vested RSUs deliver to the Company any representations or other documents or assurances required pursuant to Section 13(c)of the Plan.The Participant shall have no further rights with respect to any RSUs that are paid or that terminate pursuant to Section 8.8.Effect of Termination of Service.(a)Except as expressly provided in Section 4 or this Section 8,the Participants RSUs(as well as the related Dividend Equivalent Rights)shall terminate to the extent such RSUs have not become vested prior to the Participants Termination of Service,meaning the first date the Participant is no longer employed by or providing services to the Company or one of its Subsidiaries(the“Severance Date”),regardless of the reason for the Participants Termination of Service,whether with or without cause,voluntarily or involuntarily or whether the Participant was employed or provided services for a portion of the vesting period prior to a Vesting Date.2(b)Notwithstanding the foregoing,and except as otherwise provided by the Committee,in the event of the Participants Termination of Service due to the Participants Retirement(defined below)on or after the first anniversary of the Award Date,death or Disability,any unvested RSUs shall continue to be eligible to vest on the Vesting Date without regard to the Participants Termination of Service.For purposes of this Award Agreement,“Retirement”means the Participants Termination of Service on or after the Participant both has reached the age of sixty(60)and has completed ten(10)years of service with the Company,or any Subsidiary(including service with any entity acquired by the Company),as of the Severance Date,as determined in the sole discretion of the Committee.In the event the Participants Termination of Service occurs due to Retirement prior to the first anniversary of the Award Date,this Section 8(b)shall not apply,unless the Committee shall otherwise determine.(c)If any unvested RSUs are terminated pursuant to this Award Agreement,such RSUs(as well as the related Dividend Equivalent Rights)shall automatically terminate and be cancelled as of the applicable Severance Date(or,to the extent that any RSUs remain outstanding following the Severance Date by reason of Section 8(b)but the applicable performance-based vesting conditions are not satisfied,such RSUs shall automatically terminate and be cancelled as of the Vesting Date,as provided in Exhibit A)without payment of any consideration by the Company and without any other action by the Participant,or the Participants beneficiary or personal representative,as the case may be.9.Recoupment.Notwithstanding any other provision herein,the Award and any Shares or other amount or property that may be issued,delivered or paid in respect of the Award,as well as any consideration that may be received in respect of a sale or other disposition of any such Shares or property,shall be subject to any recoupment,“clawback”or similar provisions of applicable law.In addition,the Company may require the Participant to deliver or otherwise repay to the Company the Award and any Shares or other amount or property that may be issued,delivered or paid in respect of the Award,as well as any consideration that may be received in respect of a sale or other disposition of any such Shares or property,if the Company reasonably determines that one or more of the following has occurred:(a)during the period of the Participants employment or service with the Company or any of its Subsidiaries(the“Employment Period”),the Participant has committed a felony(under the laws of the United States or any relevant state,or a similar crime or offense under the applicable laws of any relevant foreign jurisdiction);(b)during the Employment Period or at any time thereafter,the Participant has committed or engaged in a breach of confidentiality,or an unauthorized disclosure or use of inside information,customer lists,trade secrets or other confidential information of the Company or any of its Subsidiaries;(c)during the Employment Period or at any time thereafter,the Participant has committed or engaged in an act of theft,embezzlement or fraud,or materially breached any agreement to which the Participant is a party with the Company or any of its Subsidiaries.For purposes of the foregoing,the Participant expressly and explicitly authorizes the Company to issue instructions,on the Participants behalf,to any brokerage firm and/or third party administrator engaged by the Company to hold the Participants Shares and other amounts acquired under the Plan to re-convey,transfer or otherwise return such Shares and/or other amounts to the Company.This Section 9 is not the Companys exclusive remedy with respect to such matters.10.Adjustments Upon Specified Events.Upon the occurrence of certain events relating to the Companys stock contemplated by Section 11 of the Plan(including,without limitation,an extraordinary cash dividend on such stock),the Committee shall make adjustments in accordance with such section in the number of RSUs then outstanding and the number and kind of securities that may be 3issued in respect of the Award.No such adjustment shall be made with respect to any ordinary cash dividend for which Dividend Equivalent Rights are credited pursuant to Section 5(b).11.Responsibility for Taxes.The Participant acknowledges that,regardless of any action the Company and/or the Participants employer(“Employer”)take with respect to any Tax-Related Items,the ultimate liability for all Tax-Related Items is and remains the Participants responsibility and may exceed the amount,if any,actually withheld by the Company or the Employer.The Participant further acknowledges that the Company and/or the Employer(i)make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award,including the grant of the RSUs,the vesting of the RSUs,the delivery of Shares,the subsequent sale of any Shares acquired at vesting and the receipt of any dividends and/or Dividend Equivalent Rights;and(ii)do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Award to reduce or eliminate the Participants liability for Tax-Related Items or achieve any particular tax result.Further,if the Participant is or becomes subject to tax in more than one jurisdiction,the Participant acknowledges that the Company and/or the Employer(or former employer,as applicable)may be required to withhold or account for Tax-Related Items in more than one jurisdiction.Prior to the relevant taxable or tax withholding event,as applicable,the Participant shall pay or make arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items.In this regard,the Participant authorizes the Company and/or the Employer,or their respective agents,at their discretion and pursuant to such procedures as they may specify from time to time,to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following:(a)withholding from any wages or other cash compensation,including short-term cash incentives,payable to the Participant by the Company and/or the Employer;(b)withholding otherwise deliverable Shares and/or from otherwise payable Dividend Equivalent Rights to be issued or paid upon vesting/settlement of the Award;(c)arranging for the sale of Shares otherwise deliverable to the Participant(on the Participants behalf and at the Participants direction pursuant to this authorization),including selling Shares as part of a block trade with other Participants in the Plan;(d)withholding from the proceeds of the sale of Shares acquired upon vesting/settlement of the Award;or(e)any other method of withholding determined by the Company to be permitted under the Plan and,to the extent required by Applicable Law or under the Plan,approved by the Committee.Notwithstanding the foregoing,if the Participant is an officer of the Company who is subject to Section 16 of the Exchange Act,then theCompany must satisfy any withholding obligations arising upon the occurrence of a taxable or tax withholding event,as applicable,by withholding Shares otherwise deliverable or an amount otherwise payable upon settlement of Dividend Equivalent Rights pursuant to method(b),unless theBoard or the Committee determines in its discretion to satisfy the obligation for Tax-Related Items by one or a combination of methods(a),(b),(c),and(d)above.The Company may withhold or account for Tax-Related Items by considering statutory withholding amounts or other withholding rates,including maximum rates applicable in the Participants jurisdictions(s).If the maximum rate is used,any over-withheld amount may be refunded to the Participant in cash by the Company or Employer(with no entitlement to the Share equivalent)or if not refunded,the Participant may seek a refund from the local tax authorities.In the event of under-withholding,the Participant may be required to pay additional Tax-Related Items directly to the applicable tax authority or to 4the Company or Employer.If the obligation for Tax-Related Items is satisfied by withholding a number of Shares as described herein,for tax purposes,the Participant is deemed to have been issued the full number of Shares subject to the vested RSUs,notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.The Company may refuse to issue or deliver to the Participant any Shares or the proceeds of the sale of Shares if the Participant fails to comply with the Participants obligations in connection with the Tax-Related Items.12.Electronic Delivery and Acceptance.The Company may,in its sole discretion,deliver any documents related to the Award by electronic means or request the Participants consent to participate in the Plan by electronic means.The Participant hereby consents to receive all applicable documentation by electronic delivery and to participate in the Plan through an on-line(and/or voice activated)system established and maintained by the Company or a third party vendor designated by the Company.13.Data Privacy.The Participant acknowledges and consents to the collection,use,processing and transfer of personal data as described in this Section 13.The Company,its related entities,and the Employer hold certain personal information about the Participant,including the Participants name,home address and telephone number,email address,date of birth,social security number or other employee identification number,salary,nationality,job title,any Shares or directorships held in the Company,details of all RSUs or any other entitlement to Shares or equivalent benefits awarded,canceled,purchased,vested,unvested or outstanding in the Participants favor,for the purpose of managing and administering the Plan(“Data”).The Company and its related entities may transfer Data amongst themselves as necessary for the purpose of implementation,administration and management of the Participants participation in the Plan,and the Company and its related entities may each further transfer Data to any third parties assisting the Company or any such related entity in the implementation,administration and management of the Plan.The Participant acknowledges that the transferors and transferees of such Data may be located anywhere in the world and hereby authorizes each of them to receive,possess,use,retain and transfer the Data,in electronic or other form,for the purposes of implementing,administering and managing the Participants participation in the Plan,including any transfer of such Data as may be required for the a
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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 July1,2023or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to.Commission File Number:001-36743Apple Inc.(Exact name of Registrant as specified in its charter)California94-2404110(State or other jurisdictionof incorporation or organization)(I.R.S.Employer Identification No.)One Apple Park WayCupertino,California95014(Address of principal executive offices)(Zip Code)(408)996-1010(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading symbol(s)Name of each exchange on which registeredCommon Stock,$0.00001 par value per shareAAPLThe Nasdaq Stock Market LLC1.375%Notes due 2024The Nasdaq Stock Market LLC0.000%Notes due 2025The Nasdaq Stock Market LLC0.875%Notes due 2025The Nasdaq Stock Market LLC1.625%Notes due 2026The Nasdaq Stock Market LLC2.000%Notes due 2027The Nasdaq Stock Market LLC1.375%Notes due 2029The Nasdaq Stock Market LLC3.050%Notes due 2029The Nasdaq Stock Market LLC0.500%Notes due 2031The Nasdaq Stock Market LLC3.600%Notes due 2042The Nasdaq Stock Market LLCIndicate 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 during the 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 for the past 90 days.YesNoIndicate by check mark 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).YesNoIndicate by check mark 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 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 or revised 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).YesNo15,634,232,000 shares of common stock were issued and outstanding as of July21,2023.Apple Inc.Form 10-QFor the Fiscal Quarter Ended July1,2023 TABLE OF CONTENTSPagePart IItem 1.Financial Statements1Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations14Item 3.Quantitative and Qualitative Disclosures About Market Risk19Item 4.Controls and Procedures19Part IIItem 1.Legal Proceedings20Item 1A.Risk Factors20Item 2.Unregistered Sales of Equity Securities,Use of Proceeds,and Issuer Purchases of Equity Securities21Item 3.Defaults Upon Senior Securities21Item 4.Mine Safety Disclosures21Item 5.Other Information21Item 6.Exhibits22PART I FINANCIAL INFORMATIONItem 1.Financial StatementsApple Inc.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In millions,except number of shares which are reflected in thousands and per share amounts)Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Net sales:Products$60,584$63,355$230,901$245,241 Services 21,213 19,604 62,886 58,941 Total net sales 81,797 82,959 293,787 304,182 Cost of sales:Products 39,136 41,485 146,696 155,084 Services 6,248 5,589 18,370 16,411 Total cost of sales 45,384 47,074 165,066 171,495 Gross margin 36,413 35,885 128,721 132,687 Operating expenses:Research and development 7,442 6,797 22,608 19,490 Selling,general and administrative 5,973 6,012 18,781 18,654 Total operating expenses 13,415 12,809 41,389 38,144 Operating income 22,998 23,076 87,332 94,543 Other income/(expense),net(265)(10)(594)(97)Income before provision for income taxes 22,733 23,066 86,738 94,446 Provision for income taxes 2,852 3,624 12,699 15,364 Net income$19,881$19,442$74,039$79,082 Earnings per share:Basic$1.27$1.20$4.69$4.86 Diluted$1.26$1.20$4.67$4.82 Shares used in computing earnings per share:Basic 15,697,614 16,162,945 15,792,497 16,277,824 Diluted 15,775,021 16,262,203 15,859,263 16,394,937 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q3 2023 Form 10-Q|1Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Unaudited)(In millions)Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Net income$19,881$19,442$74,039$79,082 Other comprehensive income/(loss):Change in foreign currency translation,net of tax(385)(721)(494)(1,102)Change in unrealized gains/losses on derivative instruments,net of tax:Change in fair value of derivative instruments 509 852 (492)1,548 Adjustment for net(gains)/losses realized and included in net income 103 121 (1,854)(87)Total change in unrealized gains/losses on derivative instruments 612 973 (2,346)1,461 Change in unrealized gains/losses on marketable debt securities,net of tax:Change in fair value of marketable debt securities(340)(3,150)1,963 (9,959)Adjustment for net(gains)/losses realized and included in net income 58 95 185 140 Total change in unrealized gains/losses on marketable debt securities(282)(3,055)2,148 (9,819)Total other comprehensive income/(loss)(55)(2,803)(692)(9,460)Total comprehensive income$19,826$16,639$73,347$69,622 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q3 2023 Form 10-Q|2Apple Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(In millions,except number of shares which are reflected in thousands and par value)July 1,2023September 24,2022ASSETS:Current assets:Cash and cash equivalents$28,408$23,646 Marketable securities 34,074 24,658 Accounts receivable,net 19,549 28,184 Inventories 7,351 4,946 Vendor non-trade receivables 19,637 32,748 Other current assets 13,640 21,223 Total current assets 122,659 135,405 Non-current assets:Marketable securities 104,061 120,805 Property,plant and equipment,net 43,550 42,117 Other non-current assets 64,768 54,428 Total non-current assets 212,379 217,350 Total assets$335,038$352,755 LIABILITIES AND SHAREHOLDERS EQUITY:Current liabilities:Accounts payable$46,699$64,115 Other current liabilities 58,897 60,845 Deferred revenue 8,158 7,912 Commercial paper 3,993 9,982 Term debt 7,216 11,128 Total current liabilities 124,963 153,982 Non-current liabilities:Term debt 98,071 98,959 Other non-current liabilities 51,730 49,142 Total non-current liabilities 149,801 148,101 Total liabilities 274,764 302,083 Commitments and contingenciesShareholders equity:Common stock and additional paid-in capital,$0.00001 par value:50,400,000 shares authorized;15,647,868 and 15,943,425 shares issued and outstanding,respectively 70,667 64,849 Retained earnings/(Accumulated deficit)1,408 (3,068)Accumulated other comprehensive income/(loss)(11,801)(11,109)Total shareholders equity 60,274 50,672 Total liabilities and shareholders equity$335,038$352,755 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q3 2023 Form 10-Q|3Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY(Unaudited)(In millions,except per share amounts)Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Total shareholders equity,beginning balances$62,158$67,399$50,672$63,090 Common stock and additional paid-in capital:Beginning balances 69,568 61,181 64,849 57,365 Common stock issued 690 593 Common stock withheld related to net share settlement of equity awards(1,595)(1,371)(3,310)(2,783)Share-based compensation 2,694 2,305 8,438 6,940 Ending balances 70,667 62,115 70,667 62,115 Retained earnings/(Accumulated deficit):Beginning balances 4,336 12,712 (3,068)5,562 Net income 19,881 19,442 74,039 79,082 Dividends and dividend equivalents declared(3,811)(3,760)(11,207)(11,058)Common stock withheld related to net share settlement of equity awards(858)(1,403)(1,988)(3,323)Common stock repurchased(18,140)(21,702)(56,368)(64,974)Ending balances 1,408 5,289 1,408 5,289 Accumulated other comprehensive income/(loss):Beginning balances(11,746)(6,494)(11,109)163 Other comprehensive income/(loss)(55)(2,803)(692)(9,460)Ending balances(11,801)(9,297)(11,801)(9,297)Total shareholders equity,ending balances$60,274$58,107$60,274$58,107 Dividends and dividend equivalents declared per share or RSU$0.24$0.23$0.70$0.67 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q3 2023 Form 10-Q|4Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In millions)Nine Months EndedJuly 1,2023June 25,2022Cash,cash equivalents and restricted cash,beginning balances$24,977$35,929 Operating activities:Net income 74,039 79,082 Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization 8,866 8,239 Share-based compensation expense 8,208 6,760 Other(1,651)2,695 Changes in operating assets and liabilities:Accounts receivable,net 7,609 4,561 Inventories(2,570)1,049 Vendor non-trade receivables 13,111 4,789 Other current and non-current assets(4,863)(3,289)Accounts payable(16,790)(6,108)Other current and non-current liabilities 2,986 246 Cash generated by operating activities 88,945 98,024 Investing activities:Purchases of marketable securities(20,956)(70,178)Proceeds from maturities of marketable securities 27,857 24,203 Proceeds from sales of marketable securities 3,959 33,609 Payments for acquisition of property,plant and equipment(8,796)(7,419)Other(753)(1,352)Cash generated by/(used in)investing activities 1,311 (21,137)Financing activities:Payments for taxes related to net share settlement of equity awards(5,119)(5,915)Payments for dividends and dividend equivalents(11,267)(11,138)Repurchases of common stock(56,547)(64,974)Proceeds from issuance of term debt,net 5,228 Repayments of term debt(11,151)(6,750)Proceeds from/(Repayments of)commercial paper,net(5,971)4,970 Other(508)(148)Cash used in financing activities(85,335)(83,955)Increase/(Decrease)in cash,cash equivalents and restricted cash 4,921 (7,068)Cash,cash equivalents and restricted cash,ending balances$29,898$28,861 Supplemental cash flow disclosure:Cash paid for income taxes,net$7,020$12,251 Cash paid for interest$2,590$1,910 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q3 2023 Form 10-Q|5Apple Inc.Notes to Condensed Consolidated Financial Statements(Unaudited)Note 1 Summary of Significant Accounting PoliciesBasis of Presentation and PreparationThe condensed consolidated financial statements include the accounts of Apple Inc.and its wholly owned subsidiaries(collectively“Apple”or the“Company”).Intercompany accounts and transactions have been eliminated.In the opinion of the Companys management,the condensed consolidated financial statements reflect all adjustments,which are normal and recurring in nature,necessary for fair financial statement presentation.The preparation of these condensed consolidated financial statements and accompanying notes in conformity with U.S.generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported.Actual results could differ materially from those estimates.Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current periods presentation.These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Companys annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended September24,2022.The Companys fiscal year is the 52-or 53-week period that ends on the last Saturday of September.An additional week is included in the first fiscal quarter every five or six years to realign the Companys fiscal quarters with calendar quarters,which occurred in the first fiscal quarter of 2023.The Companys fiscal years 2023 and 2022 span 53 and 52 weeks,respectively.Unless otherwise stated,references to particular years,quarters,months and periods refer to the Companys fiscal years ended in September and the associated quarters,months and periods of those fiscal years.Earnings Per ShareThe following table shows the computation of basic and diluted earnings per share for the three-and nine-month periods ended July 1,2023 and June 25,2022(net income in millions and shares in thousands):Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Numerator:Net income$19,881$19,442$74,039$79,082 Denominator:Weighted-average basic shares outstanding 15,697,614 16,162,945 15,792,497 16,277,824 Effect of dilutive securities 77,407 99,258 66,766 117,113 Weighted-average diluted shares 15,775,021 16,262,203 15,859,263 16,394,937 Basic earnings per share$1.27$1.20$4.69$4.86 Diluted earnings per share$1.26$1.20$4.67$4.82 Approximately 32million restricted stock units(“RSUs”)were excluded from the computation of diluted earnings per share for the nine months ended July1,2023 because their effect would have been antidilutive.Apple Inc.|Q3 2023 Form 10-Q|6Note 2 RevenueNet sales disaggregated by significant products and services for the three-and nine-month periods ended July 1,2023 and June25,2022 were as follows(in millions):Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022iPhone$39,669$40,665$156,778$162,863 Mac 6,840 7,382 21,743 28,669 iPad 5,791 7,224 21,857 22,118 Wearables,Home and Accessories 8,284 8,084 30,523 31,591 Services 21,213 19,604 62,886 58,941 Total net sales$81,797$82,959$293,787$304,182 Total net sales include$3.3 billion of revenue recognized in the three months ended July1,2023 that was included in deferred revenue as of April1,2023,$3.1 billion of revenue recognized in the three months ended June25,2022 that was included in deferred revenue as of March26,2022,$7.0 billion of revenue recognized in the nine months ended July1,2023 that was included in deferred revenue as of September24,2022,and$6.3 billion of revenue recognized in the nine months ended June25,2022 that was included in deferred revenue as of September25,2021.The Companys proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 10,“Segment Information and Geographic Data”for the three-and nine-month periods ended July 1,2023 and June25,2022,except in Greater China,where iPhone revenue represented a moderately higher proportion of net sales.As of July 1,2023 and September 24,2022,the Company had total deferred revenue of$12.2 billion and$12.4 billion,respectively.As of July1,2023,the Company expects 67%of total deferred revenue to be realized in less than a year,26%within one-to-two years,6%within two-to-three years and 1%in greater than three years.Note 3 Financial InstrumentsCash,Cash Equivalents and Marketable SecuritiesThe following tables show the Companys cash,cash equivalents and marketable securities by significant investment category as of July1,2023 and September24,2022(in millions):July 1,2023AdjustedCostUnrealizedGainsUnrealizedLossesFairValueCash andCashEquivalentsCurrentMarketableSecuritiesNon-CurrentMarketableSecuritiesCash$25,337$25,337$25,337$Level 1(1):Money market funds 1,108 1,108 1,108 Mutual funds 366 15 (19)362 362 Subtotal 1,474 15 (19)1,470 1,108 362 Level 2(2):U.S.Treasury securities 22,274 (1,354)20,920 8,076 12,844 U.S.agency securities 5,709 (594)5,115 3 272 4,840 Non-U.S.government securities 17,588 19 (927)16,680 11,262 5,418 Certificates of deposit and time deposits 2,315 2,315 1,960 355 Commercial paper 364 364 364 Corporate debt securities 79,621 22 (6,079)73,564 13,005 60,559 Municipal securities 713 (23)690 213 477 Mortgage-and asset-backed securities 22,383 4 (2,299)20,088 165 19,923 Subtotal 150,967 45 (11,276)139,736 1,963 33,712 104,061 Total(3)$177,778$60$(11,295)$166,543$28,408$34,074$104,061 Apple Inc.|Q3 2023 Form 10-Q|7September 24,2022AdjustedCostUnrealizedGainsUnrealizedLossesFairValueCash andCashEquivalentsCurrentMarketableSecuritiesNon-CurrentMarketableSecuritiesCash$18,546$18,546$18,546$Level 1(1):Money market funds 2,929 2,929 2,929 Mutual funds 274 (47)227 227 Subtotal 3,203 (47)3,156 2,929 227 Level 2(2):U.S.Treasury securities 25,134 (1,725)23,409 338 5,091 17,980 U.S.agency securities 5,823 (655)5,168 240 4,928 Non-U.S.government securities 16,948 2 (1,201)15,749 8,806 6,943 Certificates of deposit and time deposits 2,067 2,067 1,805 262 Commercial paper 718 718 28 690 Corporate debt securities 87,148 9 (7,707)79,450 9,023 70,427 Municipal securities 921 (35)886 266 620 Mortgage-and asset-backed securities 22,553 (2,593)19,960 53 19,907 Subtotal 161,312 11 (13,916)147,407 2,171 24,431 120,805 Total(3)$183,061$11$(13,963)$169,109$23,646$24,658$120,805(1)Level 1 fair value estimates are based on quoted prices in active markets for identical assets or liabilities.(2)Level 2 fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities,quoted prices for identical or similar assets or liabilities in inactive markets,or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.(3)As of July1,2023 and September24,2022,total marketable securities included$14.1billion and$12.7 billion,respectively,that were restricted from general use,related to the State Aid Decision(refer to Note 5,“Income Taxes”)and other agreements.The following table shows the fair value of the Companys non-current marketable debt securities,by contractual maturity,as of July1,2023(in millions):Due after 1 year through 5 years$76,267 Due after 5 years through 10 years 11,148 Due after 10 years 16,646 Total fair value$104,061 Derivative Instruments and HedgingThe Company may use derivative instruments to partially offset its business exposure to foreign exchange and interest rate risk.However,the Company may choose not to hedge certain exposures for a variety of reasons,including accounting considerations or the prohibitive economic cost of hedging particular exposures.There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange or interest rates.Foreign Exchange RiskTo protect gross margins from fluctuations in foreign currency exchange rates,the Company may enter into forward contracts,option contracts or other instruments,and may designate these instruments as cash flow hedges.The Company generally hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases,typically for up to 12 months.To protect the Companys foreign currencydenominated term debt or marketable securities from fluctuations in foreign currency exchange rates,the Company may enter into forward contracts,cross-currency swaps or other instruments.The Company designates these instruments as either cash flow or fair value hedges.As of July1,2023,the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for term debtrelated foreign currency transactions is 19 years.Apple Inc.|Q3 2023 Form 10-Q|8The Company may also enter into derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations in foreign currency exchange rates,as well as to offset a portion of the foreign currency exchange gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.Interest Rate RiskTo protect the Companys term debt or marketable securities from fluctuations in interest rates,the Company may enter into interest rate swaps,options or other instruments.The Company designates these instruments as either cash flow or fair value hedges.The notional amounts of the Companys outstanding derivative instruments as of July1,2023 and September24,2022 were as follows(in millions):July 1,2023September 24,2022Derivative instruments designated as accounting hedges:Foreign exchange contracts$45,425$102,670 Interest rate contracts$19,375$20,125 Derivative instruments not designated as accounting hedges:Foreign exchange contracts$90,977$185,381 The gross fair values of the Companys derivative assets and liabilities as of September24,2022 were as follows(in millions):September 24,2022Fair Value ofDerivatives Designatedas Accounting HedgesFair Value ofDerivatives Not Designatedas Accounting HedgesTotalFair ValueDerivative assets(1):Foreign exchange contracts$4,317$2,819$7,136 Derivative liabilities(2):Foreign exchange contracts$2,205$2,547$4,752 Interest rate contracts$1,367$1,367(1)Derivative assets are measured using Level 2 fair value inputs and are included in other current assets and other non-current assets in the Condensed Consolidated Balance Sheet.(2)Derivative liabilities are measured using Level 2 fair value inputs and are included in other current liabilities and other non-current liabilities in the Condensed Consolidated Balance Sheet.The derivative assets above represent the Companys gross credit exposure if all counterparties failed to perform.To mitigate credit risk,the Company generally enters into collateral security arrangements that provide for collateral to be received or posted when the net fair values of certain derivatives fluctuate from contractually established thresholds.To further limit credit risk,the Company generally enters into master netting arrangements with the respective counterparties to the Companys derivative contracts,under which the Company is allowed to settle transactions with a single net amount payable by one party to the other.As of September24,2022,the potential effects of these rights of set-off associated with the Companys derivative contracts,including the effects of collateral,would be a reduction to both derivative assets and derivative liabilities of$7.8 billion,resulting in a net derivative asset of$412 million.The carrying amounts of the Companys hedged items in fair value hedges as of July1,2023 and September24,2022 were as follows(in millions):July 1,2023September 24,2022Hedged assets/(liabilities):Current and non-current marketable securities$14,863$13,378 Current and non-current term debt$(17,986)$(18,739)Apple Inc.|Q3 2023 Form 10-Q|9Accounts ReceivableTrade ReceivablesThe Company has considerable trade receivables outstanding with its third-party cellular network carriers,wholesalers,retailers,resellers,small and mid-sized businesses and education,enterprise and government customers.The Company generally does not require collateral from its customers;however,the Company will require collateral or third-party credit support in certain instances to limit credit risk.In addition,when possible,the Company attempts to limit credit risk on trade receivables with credit insurance for certain customers or by requiring third-party financing,loans or leases to support credit exposure.These credit-financing arrangements are directly between the third-party financing company and the end customer.As such,the Company generally does not assume any recourse or credit risk sharing related to any of these arrangements.As of September24,2022,the Company had one customer that represented 10%or more of total trade receivables,which accounted for 10%.The Companys cellular network carriers accounted for 44%of total trade receivables as of September24,2022.Vendor Non-Trade ReceivablesThe Company has non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture subassemblies or assemble final products for the Company.The Company purchases these components directly from suppliers.As of July1,2023,the Company had two vendors that individually represented 10%or more of total vendor non-trade receivables,which accounted for 54%and 14%.As of September24,2022,the Company had two vendors that individually represented 10%or more of total vendor non-trade receivables,which accounted for 54%and 13%.Note 4 Condensed Consolidated Financial Statement DetailsThe following tables show the Companys condensed consolidated financial statement details as of July 1,2023 and September24,2022(in millions):InventoriesJuly 1,2023September 24,2022Components$3,788$1,637 Finished goods 3,563 3,309 Total inventories$7,351$4,946 Property,Plant and Equipment,NetJuly 1,2023September 24,2022Gross property,plant and equipment$114,337$114,457 Accumulated depreciation and amortization(70,787)(72,340)Total property,plant and equipment,net$43,550$42,117 Other Income/(Expense),NetThe following table shows the detail of other income/(expense),net for the three-and nine-month periods ended July 1,2023 and June25,2022(in millions):Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Interest and dividend income$980$722$2,766$2,072 Interest expense(998)(719)(2,931)(2,104)Other expense,net(247)(13)(429)(65)Total other income/(expense),net$(265)$(10)$(594)$(97)Apple Inc.|Q3 2023 Form 10-Q|10Note 5 Income TaxesEuropean Commission State Aid DecisionOn August 30,2016,the European Commission announced its decision that Ireland granted state aid to the Company by providing tax opinions in 1991 and 2007 concerning the tax allocation of profits of the Irish branches of two subsidiaries of the Company(the“State Aid Decision”).The State Aid Decision ordered Ireland to calculate and recover additional taxes from the Company for the period June 2003 through December 2014.Irish legislative changes,effective as of January 2015,eliminated the application of the tax opinions from that date forward.The Company and Ireland appealed the State Aid Decision to the General Court of the Court of Justice of the European Union(the“General Court”).On July 15,2020,the General Court annulled the State Aid Decision.On September 25,2020,the European Commission appealed the General Courts decision to the European Court of Justice(the“ECJ”)and a hearing was held on May 23,2023.A decision from the ECJ is expected in calendar year 2024.The Company believes it would be eligible to claim a U.S.foreign tax credit for a portion of any incremental Irish corporate income taxes potentially due related to the State Aid Decision.Note 6 DebtCommercial PaperThe Company issues unsecured short-term promissory notes(“Commercial Paper”)pursuant to a commercial paper program.The Company uses net proceeds from the commercial paper program for general corporate purposes,including dividends and share repurchases.As of July1,2023 and September24,2022,the Company had$4.0 billion and$10.0 billion of Commercial Paper outstanding,respectively.The following table provides a summary of cash flows associated with the issuance and maturities of Commercial Paper for the nine months ended July1,2023 and June25,2022(in millions):Nine Months EndedJuly 1,2023June 25,2022Maturities 90 days or less:Proceeds from/(Repayments of)commercial paper,net$(3,326)$4,383 Maturities greater than 90 days:Proceeds from commercial paper 5,731 Repayments of commercial paper(2,645)(5,144)Proceeds from/(Repayments of)commercial paper,net(2,645)587 Total proceeds from/(repayments of)commercial paper,net$(5,971)$4,970 Term DebtAs of July1,2023 and September24,2022,the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of$105.3 billion and$110.1 billion,respectively(collectively the“Notes”).As of July1,2023 and September24,2022,the fair value of the Companys Notes,based on Level 2 inputs,was$95.3 billion and$98.8 billion,respectively.Note 7 Shareholders EquityShare Repurchase ProgramDuring the nine months ended July1,2023,the Company repurchased 365 million shares of its common stock for$56.1 billion,excluding excise tax due under the Inflation Reduction Act of 2022.The Companys share repurchase programs do not obligate the Company to acquire a minimum amount of shares.Under the programs,shares may be repurchased in privately negotiated or open market transactions,including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934,as amended.Apple Inc.|Q3 2023 Form 10-Q|11Note 8 Benefit PlansRestricted Stock UnitsA summary of the Companys RSU activity and related information for the nine months ended July1,2023 is as follows:Number ofRSUs(in thousands)Weighted-AverageGrant Date FairValue Per RSUAggregateFair Value(in millions)Balance as of September 24,2022 201,501$109.48 RSUs granted 86,896$150.23 RSUs vested(96,681)$95.97 RSUs canceled(7,000)$126.48 Balance as of July 1,2023 184,716$135.08$35,829 The fair value as of the respective vesting dates of RSUs was$7.0 billion and$14.9 billion for the three-and nine-month periods ended July 1,2023,respectively,and was$7.8 billion and$17.3 billion for the three-and nine-month periods ended June 25,2022,respectively.Share-Based CompensationThe following table shows share-based compensation expense and the related income tax benefit included in the Condensed Consolidated Statements of Operations for the three-and nine-month periods ended July 1,2023 and June 25,2022(in millions):Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Share-based compensation expense$2,617$2,243$8,208$6,760 Income tax benefit related to share-based compensation expense$(993)$(1,231)$(2,791)$(3,416)As of July1,2023,the total unrecognized compensation cost related to outstanding RSUs and stock options was$20.9 billion,which the Company expects to recognize over a weighted-average period of 2.7 years.Note 9 Commitments and ContingenciesUnconditional Purchase ObligationsThe Company has entered into certain offbalance sheet commitments that require the future purchase of goods or services(“unconditional purchase obligations”).The Companys unconditional purchase obligations primarily consist of supplier arrangements,licensed intellectual property and content,and distribution rights.Future payments under noncancelable unconditional purchase obligations with a remaining term in excess of one year as of July1,2023,are as follows(in millions):2023(remaining three months)$1,260 2024 3,417 2025 1,990 2026 3,079 2027 1,013 Thereafter 8,198 Total$18,957 ContingenciesThe Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and that have not been fully resolved.The outcome of litigation is inherently uncertain.In the opinion of management,there was not at least a reasonable possibility the Company may have incurred a material loss,or a material loss greater than a recorded accrual,concerning loss contingencies for asserted legal and other claims.Apple Inc.|Q3 2023 Form 10-Q|12Note 10 Segment Information and Geographic DataThe following table shows information by reportable segment for the three-and nine-month periods ended July 1,2023 and June 25,2022(in millions):Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Americas:Net sales$35,383$37,472$122,445$129,850 Operating income$13,117$13,914$44,908$48,778 Europe:Net sales$20,205$19,287$71,831$72,323 Operating income$7,995$7,124$27,380$27,174 Greater China:Net sales$15,758$14,604$57,475$58,730 Operating income$6,207$5,760$24,175$25,055 Japan:Net sales$4,821$5,446$18,752$20,277 Operating income$2,443$2,418$9,073$9,263 Rest of Asia Pacific:Net sales$5,630$6,150$23,284$23,002 Operating income$2,328$2,367$9,447$9,185 A reconciliation of the Companys segment operating income to the Condensed Consolidated Statements of Operations for the three-and nine-month periods ended July 1,2023 and June 25,2022 is as follows(in millions):Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Segment operating income$32,090$31,583$114,983$119,455 Research and development expense(7,442)(6,797)(22,608)(19,490)Other corporate expenses,net(1,650)(1,710)(5,043)(5,422)Total operating income$22,998$23,076$87,332$94,543 Apple Inc.|Q3 2023 Form 10-Q|13Item 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsThis section and other parts of this Quarterly Report on Form 10-Q(“Form 10-Q”)contain forward-looking statements,within the meaning of the Private Securities Litigation Reform Act of 1995,that involve risks and uncertainties.Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.For example,statements in this Form 10-Q regarding the potential future impact of macroeconomic conditions on the Companys business and results of operations are forward-looking statements.Forward-looking statements can also be identified by words such as“future,”“anticipates,”“believes,”“estimates,”“expects,”“intends,”“plans,”“predicts,”“will,”“would,”“could,”“can,”“may,”and similar terms.Forward-looking statements are not guarantees of future performance and the Companys actual results may differ significantly from the results discussed in the forward-looking statements.Factors that might cause such differences include,but are not limited to,those discussed in Part I,Item 1A of the Companys Annual Report on Form 10-K for the fiscal year ended September24,2022(the“2022 Form 10-K”)under the heading“Risk Factors.”The Company assumes no obligation to revise or update any forward-looking statements for any reason,except as required by law.Unless otherwise stated,all information presented herein is based on the Companys fiscal calendar,and references to particular years,quarters,months or periods refer to the Companys fiscal years ended in September and the associated quarters,months and periods of those fiscal years.Each of the terms the“Company”and“Apple”as used herein refers collectively to Apple Inc.and its wholly owned subsidiaries,unless otherwise stated.The following discussion should be read in conjunction with the 2022 Form 10-K filed with the U.S.Securities and Exchange Commission(the“SEC”)and the condensed consolidated financial statements and accompanying notes included in Part I,Item 1 of this Form 10-Q.Available InformationThe Company periodically provides certain information for investors on its corporate website,and its investor relations website,.This includes press releases and other information about financial performance,information on environmental,social and governance matters,and details related to the Companys annual meeting of shareholders.The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing.Further,the Companys references to website URLs are intended to be inactive textual references only.Business Seasonality and Product IntroductionsThe Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand.Additionally,new product and service introductions can significantly impact net sales,cost of sales and operating expenses.The timing of product introductions can also impact the Companys net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch,and channel inventory of an older product often declines as the launch of a newer product approaches.Net sales can also be affected when consumers and distributors anticipate a product introduction.Fiscal PeriodThe Companys fiscal year is the 52-or 53-week period that ends on the last Saturday of September.An additional week is included in the first fiscal quarter every five or six years to realign the Companys fiscal quarters with calendar quarters,which occurred in the first quarter of 2023.The Companys fiscal years 2023 and 2022 span 53 and 52 weeks,respectively.Quarterly HighlightsWeakness in foreign currencies relative to the U.S.dollar had an unfavorable impact on the Companys total net sales,which decreased 1%or$1.2 billion during the third quarter of 2023 compared to the same quarter in 2022.The year-over-year net sales decrease consisted primarily of lower net sales of iPad and iPhone,partially offset by higher net sales of Services.During the third quarter of 2023,the Company announced the following new products:15-inch MacBook Air,powered by the M2 chip;Mac Studio,powered by the M2 Max chip and the new M2 Ultra chip;Mac Pro,powered by the new M2 Ultra chip;andApple Vision Pro,the Companys first spatial computer featuring its new visionOS,expected to be available in early calendar year 2024.The Company also announced iOS 17,macOS Sonoma,iPadOS 17,tvOS 17 and watchOS 10,updates to its operating systems that are expected to be available in the fall of 2023.Apple Inc.|Q3 2023 Form 10-Q|14The Company repurchased$18.0 billion of its common stock and paid dividends and dividend equivalents of$3.8 billion during the third quarter of 2023.Macroeconomic ConditionsMacroeconomic conditions,including inflation,changes in interest rates,and currency fluctuations,have directly and indirectly impacted,and could in the future materially impact,the Companys results of operations and financial condition.Segment Operating PerformanceThe following table shows net sales by reportable segment for the three-and nine-month periods ended July 1,2023 and June25,2022(dollars in millions):Three Months EndedNine Months EndedJuly 1,2023June 25,2022ChangeJuly 1,2023June 25,2022ChangeNet sales by reportable segment:Americas$35,383$37,472 (6)%$122,445$129,850 (6)%Europe 20,205 19,287 5q,831 72,323 (1)%Greater China 15,758 14,604 8W,475 58,730 (2)%Japan 4,821 5,446 (11),752 20,277 (8)%Rest of Asia Pacific 5,630 6,150 (8)#,284 23,002 1%Total net sales$81,797$82,959 (1)%$293,787$304,182 (3)%AmericasAmericas net sales decreased during the third quarter and first nine months of 2023 compared to the same periods in 2022 due primarily to lower net sales of iPhone and Mac,partially offset by higher net sales of Services.EuropeThe weakness in foreign currencies relative to the U.S.dollar had a net unfavorable year-over-year impact on Europe net sales during the third quarter and first nine months of 2023.During the third quarter of 2023,the Europe net sales increase consisted primarily of higher net sales of iPhone.During the first nine months of 2023,the Europe net sales decrease consisted primarily of lower net sales of Mac,partially offset by higher net sales of iPhone.Greater ChinaThe weakness in the renminbi relative to the U.S.dollar had an unfavorable year-over-year impact on Greater China net sales during the third quarter and first nine months of 2023.During the third quarter of 2023,the Greater China net sales increase consisted primarily of higher net sales of iPhone.During the first nine months of 2023,the Greater China net sales decrease consisted primarily of lower net sales of iPhone.JapanThe weakness in the yen relative to the U.S.dollar had an unfavorable year-over-year impact on Japan net sales during the third quarter and first nine months of 2023.During the third quarter of 2023,the Japan net sales decrease consisted primarily of lower net sales of iPhone.During the first nine months of 2023,the Japan net sales decrease consisted primarily of lower net sales of iPhone,Services and Wearables,Home and Accessories.Rest of Asia PacificThe weakness in foreign currencies relative to the U.S.dollar had a net unfavorable year-over-year impact on Rest of Asia Pacific net sales during the third quarter and first nine months of 2023.During the third quarter of 2023,the Rest of Asia Pacific net sales decrease consisted primarily of lower net sales of iPhone and iPad.During the first nine months of 2023,the Rest of Asia Pacific net sales increase consisted primarily of higher net sales of iPhone,partially offset by lower net sales of Mac.Apple Inc.|Q3 2023 Form 10-Q|15Products and Services PerformanceThe following table shows net sales by category for the three-and nine-month periods ended July 1,2023 and June25,2022(dollars in millions):Three Months EndedNine Months EndedJuly 1,2023June 25,2022ChangeJuly 1,2023June 25,2022ChangeNet sales by category:iPhone$39,669$40,665 (2)%$156,778$162,863 (4)%Mac 6,840 7,382 (7)!,743 28,669 (24)%iPad 5,791 7,224 (20)!,857 22,118 (1)%Wearables,Home and Accessories 8,284 8,084 20,523 31,591 (3)%Services 21,213 19,604 8b,886 58,941 7%Total net sales$81,797$82,959 (1)%$293,787$304,182 (3)%iPhoneiPhone net sales decreased during the third quarter and first nine months of 2023 compared to the same periods in 2022 due primarily to lower net sales from certain iPhone models,partially offset by higher net sales of iPhone 14 Pro models.MacMac net sales decreased during the third quarter and first nine months of 2023 compared to the same periods in 2022 due primarily to lower net sales of laptops.iPadiPad net sales decreased during the third quarter of 2023 compared to the third quarter of 2022 due primarily to lower net sales across most iPad models.Year-over-year iPad net sales were relatively flat during the first nine months of 2023.Wearables,Home and AccessoriesWearables,Home and Accessories net sales increased during the third quarter of 2023 compared to the third quarter of 2022 due primarily to higher net sales of Wearables,which includes AirPods,Apple Watch and Beats products,partially offset by lower net sales of accessories.Year-over-year Wearables,Home and Accessories net sales decreased during the first nine months of 2023 due primarily to lower net sales of Wearables and accessories.ServicesServices net sales increased during the third quarter of 2023 compared to the third quarter of 2022 due primarily to higher net sales from advertising,cloud services and the App Store.Year-over-year Services net sales increased during the first nine months of 2023 due primarily to higher net sales from cloud services,advertising and music.Apple Inc.|Q3 2023 Form 10-Q|16Gross MarginProducts and Services gross margin and gross margin percentage for the three-and nine-month periods ended July 1,2023 and June25,2022 were as follows(dollars in millions):Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Gross margin:Products$21,448$21,870$84,205$90,157 Services 14,965 14,015 44,516 42,530 Total gross margin$36,413$35,885$128,721$132,687 Gross margin percentage:Products 35.44.56.56.8%Services 70.5q.5p.8r.2%Total gross margin percentage 44.5C.3C.8C.6%Products Gross MarginProducts gross margin decreased during the third quarter and first nine months of 2023 compared to the same periods in 2022 due primarily to the weakness in foreign currencies relative to the U.S.dollar and lower Products volume,partially offset by cost savings and a different Products mix.Products gross margin percentage increased during the third quarter of 2023 compared to the third quarter of 2022 due primarily to cost savings and a different Products mix,partially offset by the weakness in foreign currencies relative to the U.S.dollar and decreased leverage.Year-over-year Products gross margin percentage decreased during the first nine months of 2023 due primarily to the weakness in foreign currencies relative to the U.S.dollar and decreased leverage,partially offset by cost savings and a different Products mix.Services Gross MarginServices gross margin increased during the third quarter and first nine months of 2023 compared to the same periods in 2022 due primarily to higher Services net sales,partially offset by the weakness in foreign currencies relative to the U.S.dollar and higher Services costs.Services gross margin percentage decreased during the third quarter of 2023 compared to the third quarter of 2022 due primarily to higher Services costs,partially offset by improved leverage.Year-over-year Services gross margin percentage decreased during the first nine months of 2023 due primarily to higher Services costs and the weakness in foreign currencies relative to the U.S.dollar,partially offset by improved leverage.The Companys future gross margins can be impacted by a variety of factors,as discussed in Part I,Item 1A of the 2022 Form 10-K under the heading“Risk Factors.”As a result,the Company believes,in general,gross margins will be subject to volatility and downward pressure.Apple Inc.|Q3 2023 Form 10-Q|17Operating ExpensesOperating expenses for the three-and nine-month periods ended July 1,2023 and June25,2022 were as follows(dollars in millions):Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Research and development$7,442$6,797$22,608$19,490 Percentage of total net sales 9%8%8%6%Selling,general and administrative$5,973$6,012$18,781$18,654 Percentage of total net sales 7%7%6%6%Total operating expenses$13,415$12,809$41,389$38,144 Percentage of total net sales 16%Research and DevelopmentThe growth in research and development(“R&D”)expense during the third quarter and first nine months of 2023 compared to the same periods in 2022 was driven primarily by increases in headcount-related expenses.Selling,General and AdministrativeSelling,general and administrative expense was relatively flat during the third quarter and first nine months of 2023 compared to the same periods in 2022.Provision for Income TaxesProvision for income taxes,effective tax rate and statutory federal income tax rate for the three-and nine-month periods ended July 1,2023 and June25,2022 were as follows(dollars in millions):Three Months EndedNine Months EndedJuly 1,2023June 25,2022July 1,2023June 25,2022Provision for income taxes$2,852$3,624$12,699$15,364 Effective tax rate 12.5.7.6.3%Statutory federal income tax rate 21!%The Companys effective tax rate for the third quarter and first nine months of 2023 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings,including the favorable impact of changes in unrecognized tax benefits,tax benefits from share-based compensation,and the U.S.federal R&D credit,partially offset by state income taxes.The Companys effective tax rate for the third quarter of 2023 was lower compared to the third quarter of 2022 due primarily to a lower effective tax rate on foreign earnings,including the favorable impact of changes in unrecognized tax benefits,partially offset by lower tax benefits from share-based compensation.The Companys effective tax rate for the first nine months of 2023 was lower compared to the same period in 2022 due primarily to a lower effective tax rate on foreign earnings and the impact of U.S.foreign tax credit regulations issued by the U.S.Department of the Treasury in 2022,partially offset by lower tax benefits from share-based compensation.Apple Inc.|Q3 2023 Form 10-Q|18Liquidity and Capital ResourcesThe Company believes its balances of cash,cash equivalents and unrestricted marketable securities,along with cash generated by ongoing operations and continued access to debt markets,will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.The Companys contractual cash requirements have not changed materially since the 2022 Form 10-K,except for manufacturing purchase obligations.Manufacturing Purchase ObligationsThe Company utilizes several outsourcing partners to manufacture subassemblies for the Companys products and to perform final assembly and testing of finished products.The Company also obtains individual components for its products from a wide variety of individual suppliers.Outsourcing partners acquire components and build product based on demand information supplied by the Company,which typically covers periods up to 150 days.As of July1,2023,the Company had manufacturing purchase obligations of$38.4 billion,with$38.1 billion payable within 12 months.The Companys manufacturing purchase obligations are primarily noncancelable.Capital Return ProgramIn addition to its contractual cash requirements,the Company had authorized share repurchase programs as of July1,2023.The programs do not obligate the Company to acquire a minimum amount of shares.As of July1,2023,the Companys quarterly cash dividend was$0.24 per share.The Company intends to increase its dividend on an annual basis,subject to declaration by the Board of Directors.Critical Accounting EstimatesThe preparation of financial statements and related disclosures in conformity with U.S.generally accepted accounting principles and the Companys discussion and analysis of its financial condition and operating results require the Companys management to make judgments,assumptions and estimates that affect the amounts reported.Note 1,“Summary of Significant Accounting Policies”of the Notes to condensed consolidated Financial Statements in Part I,Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II,Item 8 of the 2022 Form 10-K describe the significant accounting policies and methods used in the preparation of the Companys condensed consolidated financial statements.There have been no material changes to the Companys critical accounting estimates since the 2022 Form 10-K.Item 3.Quantitative and Qualitative Disclosures About Market RiskThere have been no material changes to the Companys market risk during the first nine months of 2023.For a discussion of the Companys exposure to market risk,refer to the Companys market risk disclosures set forth in Part II,Item 7A,“Quantitative and Qualitative Disclosures About Market Risk”of the 2022 Form 10-K.Item 4.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresBased on an evaluation under the supervision and with the participation of the Companys management,the Companys principal executive officer and principal financial officer have concluded that the Companys disclosure controls and procedures as defined in Rules 13a-15(e)and 15d-15(e)under the Securities Exchange Act of 1934,as amended(the“Exchange Act”)were effective as of July1,2023 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is(i)recorded,processed,summarized and reported within the time periods specified in the SEC rules and forms and(ii)accumulated and communicated to the Companys management,including its principal executive officer and principal financial officer,as appropriate to allow timely decisions regarding required disclosure.Changes in Internal Control over Financial ReportingThere were no changes in the Companys internal control over financial reporting during the third quarter of 2023,which were identified in connection with managements evaluation required by paragraph(d)of Rules 13a-15 and 15d-15 under the Exchange Act,that have materially affected,or are reasonably likely to materially affect,the Companys internal control over financial reporting.Apple Inc.|Q3 2023 Form 10-Q|19PART II OTHER INFORMATIONItem 1.Legal ProceedingsEpic GamesEpic Games,Inc.(“Epic”)filed a lawsuit in the U.S.District Court for the Northern District of California(the“District Court”)against the Company alleging violations of federal and state antitrust laws and Californias unfair competition law based upon the Companys operation of its App Store.On September 10,2021,the District Court ruled in favor of the Company with respect to nine out of the ten counts included in Epics claim.The District Court found that certain provisions of the Companys App Store Review Guidelines violate Californias unfair competition law and issued an injunction enjoining the Company from prohibiting developers from including in their apps external links that direct customers to purchasing mechanisms other than Apple in-app purchasing.The injunction applies to apps on the U.S.storefront of the iOS and iPadOS App Store.On April 24,2023,the U.S.Court of Appeals for the Ninth Circuit(the“Circuit Court”)affirmed the District Courts ruling.On June 7,2023,the Company and Epic filed petitions with the Circuit Court requesting further review of the decision.On June 30,2023,the Circuit Court denied both petitions.On July 17,2023,the Circuit Court granted Apples motion to stay enforcement of the injunction pending appeal to the U.S.Supreme Court.Epic has appealed the Circuit Courts stay of the injunction.If the U.S.Supreme Court reverses the Circuit Courts stay of the injunction or declines Apples petition,the injunction will take effect.Other Legal ProceedingsThe Company is subject to other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.The Company settled certain matters during the third quarter of 2023 that did not individually or in the aggregate have a material impact on the Companys financial condition or operating results.The outcome of litigation is inherently uncertain.If one or more legal matters were resolved against the Company in a reporting period for amounts above managements expectations,the Companys financial condition and operating results for that reporting period could be materially adversely affected.Item 1A.Risk FactorsThe Companys business,reputation,results of operations,financial condition and stock price can be affected by a number of factors,whether currently known or unknown,including those described in Part I,Item 1A of the 2022 Form 10-K under the heading“Risk Factors.”When any one or more of these risks materialize from time to time,the Companys business,reputation,results of operations,financial condition and stock price can be materially and adversely affected.There have been no material changes to the Companys risk factors since the 2022 Form 10-K.Apple Inc.|Q3 2023 Form 10-Q|20Item 2.Unregistered Sales of Equity Securities,Use of Proceeds,and Issuer Purchases of Equity SecuritiesPurchases of Equity Securities by the Issuer and Affiliated PurchasersShare repurchase activity during the three months ended July1,2023 was as follows(in millions,except number of shares,which are reflected in thousands,and per share amounts):PeriodsTotal Numberof Shares PurchasedAverage PricePaid Per ShareTotal Number of SharesPurchased as Part of PubliclyAnnounced Plans or ProgramsApproximate Dollar Value ofShares That May Yet Be PurchasedUnder the Plans or Programs(1)April 2,2023 to May 6,2023:Open market and privately negotiated purchases 38,121$165.46 38,121 May 7,2023 to June 3,2023:Open market and privately negotiated purchases 21,876$174.91 21,876 June 4,2023 to July 1,2023:Open market and privately negotiated purchases 42,676$184.34 42,676 Total 102,673$94,569(1)On April 28,2022,the Board of Directors authorized the purchase of an additional$90billion of the Companys common stock under a share repurchase program.As of July1,2023,remaining availability under the April 2022 authorization was$4.6 billion.On May 4,2023,the Board of Directors authorized an additional program to repurchase up to$90 billion of the Companys common stock.The programs do not obligate the Company to acquire a minimum amount of shares.Under the programs,shares may be repurchased in privately negotiated or open market transactions,including under plans complying with Rule 10b5-1 under the Exchange Act.Item 3.Defaults Upon Senior SecuritiesNone.Item 4.Mine Safety DisclosuresNot applicable.Item 5.Other InformationNone.Apple Inc.|Q3 2023 Form 10-Q|21Item 6.ExhibitsIncorporated by ReferenceExhibitNumberExhibit DescriptionFormExhibitFiling Date/Period End Date4.1Officers Certificate of the Registrant,dated as of May 10,2023,including forms of global notes representing the 4.421%Notes due 2026,4.000%Notes due 2028,4.150%Notes due 2030,4.300%Notes due 2033 and 4.850%Notes due 2053.8-K4.15/10/2331.1*Rule 13a-14(a)/15d-14(a)Certification of Chief Executive Officer.31.2*Rule 13a-14(a)/15d-14(a)Certification of Chief Financial Officer.32.1*Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.101*Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I,Item 1,“Financial Statements”of this Quarterly Report on Form 10-Q.104*Inline XBRL for the cover page of this Quarterly Report on Form 10-Q,included in the Exhibit 101 Inline XBRL Document Set.*Filed herewith.*Furnished herewith.Apple Inc.|Q3 2023 Form 10-Q|22SIGNATUREPursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.Date:August3,2023Apple Inc.By:/s/Luca MaestriLuca MaestriSenior Vice President,Chief Financial OfficerApple Inc.|Q3 2023 Form 10-Q|23Exhibit 31.1CERTIFICATIONI,Timothy D.Cook,certify that:1.I have reviewed this quarterly report on Form 10-Q of Apple Inc.;2.Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report;3.Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all material respects the financial condition,results of operations and cash flows of the Registrant as of,and for,the periods presented in this report;4.The Registrants other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)for the Registrant and have:(a)Designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the Registrant,including its consolidated subsidiaries,is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting,or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,as of the end of the period covered by this report based on such evaluation;and(d)Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter(the Registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or is reasonably likely to materially affect,the Registrants internal control over financial reporting;and5.The Registrants other certifying officer(s)and I have disclosed,based on our most recent evaluation of internal control over financial reporting,to the Registrants auditors and the audit committee of the Registrants board of directors(or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record,process,summarize and report financial information;and(b)Any fraud,whether or not material,that involves management or other employees who have a significant role in the Registrants internal control over financial reporting.Date:August3,2023By:/s/Timothy D.CookTimothy D.CookChief Executive OfficerExhibit 31.2CERTIFICATIONI,Luca Maestri,certify that:1.I have reviewed this quarterly report on Form 10-Q of Apple Inc.;2.Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,in light of the circumstances under which such statements were made,not misleading with respect to the period covered by this report;3.Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all material respects the financial condition,results of operations and cash flows of the Registrant as of,and for,the periods presented in this report;4.The Registrants other certifying officer(s)and I are responsible for establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)for the Registrant and have:(a)Designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the Registrant,including its consolidated subsidiaries,is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting,or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the Registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures,as of the end of the period covered by this report based on such evaluation;and(d)Disclosed in this report any change in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter(the Registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or is reasonably likely to materially affect,the Registrants internal control over financial reporting;and5.The Registrants other certifying officer(s)and I have disclosed,based on our most recent evaluation of internal control over financial reporting,to the Registrants auditors and the audit committee of the Registrants board of directors(or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record,process,summarize and report financial information;and(b)Any fraud,whether or not material,that involves management or other employees who have a significant role in the Registrants internal control over financial reporting.Date:August3,2023By:/s/Luca MaestriLuca MaestriSenior Vice President,Chief Financial OfficerExhibit 32.1CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO18 U.S.C.SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I,Timothy D.Cook,certify,as of the date hereof,pursuant to 18 U.S.C.Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,that the Quarterly Report of Apple Inc.on Form 10-Q for the period ended July1,2023 fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Apple Inc.at the dates and for the periods indicated.Date:August3,2023By:/s/Timothy D.CookTimothy D.CookChief Executive OfficerI,Luca Maestri,certify,as of the date hereof,pursuant to 18 U.S.C.Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,that the Quarterly Report of Apple Inc.on Form 10-Q for the period ended July1,2023 fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Apple Inc.at the dates and for the periods indicated.Date:August3,2023By:/s/Luca MaestriLuca MaestriSenior Vice President,Chief Financial OfficerA signed original of this written statement required by Section 906 has been provided to Apple Inc.and will be retained by Apple Inc.and furnished to the Securities and Exchange Commission or its staff upon request.
2023-09-25
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FY2023 First Quarter Financial ResultsSUZUKI MOTOR CORPORATIONAugust 4,2023 Suzuki Motor Corporation,2023.All rights reserved.2/30Financial SummarySales increased due to price increase in response to inflation,improved mix from the introduction of new SUVs in India,increase in sales volume owing to mitigating of the impact of production reduction due to semiconductor shortage,and impact on foreign exchange rates.Operating profit increased due to increased sales volume,impact on foreign exchange rates,improvement in change in mix/price,etc.,cost reduction efforts,etc.,absorbing the increase in fixed cost and depreciation expenses.Automobiles:Increased sales and profit owing to increase in sales volume in India,Europe and Japan,and impact on foreign exchange rates,absorbing the increase in fixed costs.Motorcycles:Secured a 7.5%profit margin despite decreased profit.Made progress in improving earnings and business structure through inventory reduction and price increases.Marine:decreased sales due to decreased outboard motor demand in Europe and the United States.We will monitor trends in developed economies.Forecast to be revised upwardsReviewing the exchange rate,and updating the sales volume based on the regional market outlook,we forecast a record high sales of 5 trillion yen.Operating profit is also expected to increase than the previous fiscal year,taking into account the 38 billion yen increase due to foreign exchange impact,and 8 billion yen decrease due to decrease in sales volume.Although there are various risks such as the shift to appreciation of the yen,concerns about the economic slowdown in the U.S.and Europe,slowdown in emerging economies,and resurgence in raw material prices,etc.,we will work to improve our competitiveness by promoting capital investment and R&D investments as outlined in our growth strategy.FY2023 1Q ResultsForecast for the FY2023 Suzuki Motor Corporation,2023.All rights reserved.3/30FY2023 First Quarter Results 4Production and Sales Volume of Automobiles 14Production and Sales Volume of Motorcycles 20Marine Business 21Full Year Forecast 22Shareholder return .28 Contents Suzuki Motor Corporation,2023.All rights reserved.4/30RatioNet Sales1,208.9 1,063.4 145.5 13.7%Increased for the 3rd consecutive period,record-highOperating Profit 99.8 74.5(Margin)(8.3%)(7.0%)Ordinary Profit108.0 89.8(Margin)(8.9%)(8.4%)Profit67.1 58.3(Margin)(5.5%)(5.5%)US Dollar137 yen130 yen 8 yen 5.9%Euro150 yen138 yen 11 yen 8.1%Indian Rupee1.68 yen1.69 yen-0.01 yen-0.6%Automobile732710 22 3.0%Increased in India,Europe,Japan,etc.Motorcycle479472 7 1.5%Increased in India,Europe,etc.FX RatesIncreased for the 3rd consecutive period,2nd all-time 8.8 15.1%Increased for the first time in 2 periods,3rd all-time 18.2 20.3%GlobalSales Volume(Thousand units)FY2023(23/4-6)FY2022(22/4-6)(Billions of yen)RecordChangeIncreased for the first time in 2 periods,3rd all-timeConsoli-datedFinancialResults 25.3 33.9%*1 Record comments refer to the first quarter evaluation*2 Profit attributable to owners of parentFY2023 First Quarter ResultsHighlights*1*2 Suzuki Motor Corporation,2023.All rights reserved.5/301.373.663.955.654.544.647.644.874.589.8102.683.699.8425.3844.9905.31,002.7845.4828.2900.7994.11,063.41,154.11,195.31,228.81,208.90.040.080.0120.0160.01Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q0.0300.0600.0900.01,200.0Operating ProfitNet Sales(Operating Profit)(Billions of yen)（Net Sales）FY2020FY2021FY2022FY2023FY2023 First Quarter ResultsTrends in Operating Results by Quarter Suzuki Motor Corporation,2023.All rights reserved.6/30FY2023(23/4-6)FY2022(22/4-6)ChangeFY2023(23/4-6)FY2022(22/4-6)ChangeFY2023(23/4-6)FY2022(22/4-6)ChangeFY2023(23/4-6)FY2022(22/4-6)ChangeFY2023(23/4-6)FY2022(22/4-6)ChangeJapan total282.3256.7 25.55.56.1-0.71.00.9 0.12.52.7-0.2291.2266.4 24.8 28.5Suzuki brand258.2237.6 20.65.56.1-0.71.00.9 0.12.52.7-0.2267.2247.3 19.8OEM24.019.1 4.924.019.1 4.9Overseas total804.3683.4 121.080.980.2 0.832.533.4-1.0917.7797.0 120.8 12.0 35.0Europe136.777.9 58.914.811.4 3.46.17.2-1.1157.796.5 61.2 11.5 56.7N.America0.10.2-0.011.814.9-3.118.419.3-0.930.334.4-4.0 1.5-5.6Asia536.8482.9 53.940.139.5 0.73.12.4 0.7580.1524.8 55.4-4.9-2.0India471.5376.2 95.424.519.9 4.70.10.1-0.0496.2396.2 100.1-2.9 37.9Others65.3106.7-41.415.619.6-4.03.02.3 0.783.9128.6-44.7-1.9-39.9Others130.6122.4 8.214.214.4-0.34.84.5 0.3149.5141.3 8.2 3.8-14.1Grand total1,086.5940.1 146.586.486.3 0.133.434.3-0.92.52.7-0.21,208.9 1,063.4 145.5 12.0 63.4of which effect ofFX rates conversion 9.3（Billionsof yen）AutomobileMotorcycleMarineOthersvolumechangeof whicheffect ofFX ratesconversion 1.4 1.4 12.0TotalNote:North America:United States and CanadaAutomobile in North America:Sales of parts and accessoriesFY2023 First Quarter ResultsNet Sales Suzuki Motor Corporation,2023.All rights reserved.7/30Labor costs-8.5Marketing costs-1.4Quality-related costs -1.3Operating Profit 25.3*3Breakdown for Fixed cost,etc.*3Change in volume,Change in volume,mix/price,etc.mix/price,etc. 27.1 27.1*1*1 Breakdown for Change in volumeExcluding external factors： 13.7Non-Consolidated 13.2Maruti Suzuki India 3.4FY2023 First Quarter Results Factors of Change in Operating Profit(billions of yen)*2 Breakdown for Change in mix/price etc.*2Maruti Suzuki India 13.0Non-Consolidated 2.0FY2022Apr.-JuneOperating profitFY2023Apr.-JuneOperating profitChangein volumeChange inmix/price etc.Effect ofFX ratesChange in price ofraw materialsFixed cost,etc.Increase of depreciation expensesDecrease of R&D expensesCost Reduction Suzuki Motor Corporation,2023.All rights reserved.8/30(yen)(yen)(yen)(bln yen)(bln yen)Euro150138 110.5 5.5Mexican Peso 7.796.49 1.302.9 3.8US Dollar137130 80.3 2.2Sterling Pound172163 90.1 1.2South African Rand7.368.34-0.981.5-1.5Indian Rupee1.681.69-0.0144.4-0.4Pakistan Rupee0.490.67-0.182.1-0.4Others*- 0.7Total- 10.9*Others Polish Zloty 0.5 bln yen,Indonesian Rupiah 0.3 bln yen etc.*Exchange sensitivity Represents the impact on operating profit when the rate of each currency changes by one yenImpact amountExchangesensitivity*FY2023(23/4-6)FY2022(22/4-6)ChangeEffect of ForEX rates in operating profitFY2023 First Quarter ResultsForeign Exchange Rates Suzuki Motor Corporation,2023.All rights reserved.9/30(Non-consolidated)15.4 bln yen12.7 bln yen 2.7 bln yen(Subsidiaries)45.1 bln yen61.5 bln yen-16.5 bln yen60.5 bln yen74.2 bln yen-13.8 bln yen42.4 bln yen38.3 bln yen 4.1 bln yen41.5 bln yen43.6 bln yen-2.1 bln yenR&D ExpensesChangeCapital ExpendituresDepreciation ExpensesFY2023(23/4-6)FY2022(22/4-6)FY2023(23/6)(22/6)Change(23/3)Change764.0 bln yen733.1 bln yen 31.0 bln yen763.8 bln yen 0.2 bln yen120117 3120-3232-32-71,45970,333 1,12670,012 1,447FY2022Q4EmployeesFY2022Interest-Bearing Debt balanceConsolidated SubsidiariesEntities accounted for using equity methodFY2023 First Quarter ResultsCapital Expenditures,etc.Suzuki Motor Corporation,2023.All rights reserved.10/30 74.1 69.2-7.4 150.8 8.6-61.8-70.8-25.0-145.1-35.9 33.3-6.3 6.1-1.5-34.7 12.3 12.3-1.51.5-32.432.4 5.6 5.6-27.427.4-200.0-100.0 0.0 100.0 200.0Operating C/FInvesting C/FFinancing C/FFree C/F1Q2Q3Q4Q1QOperating C/F 74.1 69.2-7.4 150.8 8.6Investing C/F-61.8-70.8-25.0-145.1-35.9Free C/F 12.3-1.5-32.4 5.6-27.4Financing C/F 33.3-6.3 6.1-1.5-34.7(of which divided payout*)(-22.5)(-13.6)(-24.3)( 0.2)(-24.5)Cash balance921.5917.1874.0882.1849.9(Billions of yen)*Including dividends paid to non-controlling interestsFY2022FY2023FY2023 First Quarter ResultsCash Flows(Quarterly trends)Suzuki Motor Corporation,2023.All rights reserved.11/30AutomobileOperating Results by SegmentMotorcycleFY2022Change inmix/price etc.Effect ofForEX ratesCost ReductionChange in price ofraw materialsIncrease ofFixed Cost,etc.Increase of depreciation expensesDecrease of R&D expensesChangein volume22/4-6Operating Profit-1.9Operating Profit 0.0Operating Profit 27.1FY2023 First 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 volumeYr/YrYr/YrMarginAutomobile1,086.5 15.6.4 48.1%7.7%Motorcycle86.4 0.2%6.4-22.4%7.5%Marine33.4-2.6%9.2 0.1.6%Others2.5-8.5%0.7 11.9(.5%Total1,208.9 13.7.8 33.9%8.3#/4-6SalesOperating profit(Billions of yen)FY202323/4-6FY202222/4-6FY202323/4-6FY202222/4-6FY202323/4-6 Suzuki Motor Corporation,2023.All rights reserved.12/30FY2023 First Quarter ResultsOperating Results by Geographic RegionOperating Results by Geographic RegionOperating Profit 6.3Operating Profit 20.8Operating Profit 12.2Change inmix/price etc.Effect ofFX ratesCost ReductionChange in price ofraw materialsIncrease of Fixed Cost,etc.Increase of depreciation expensesDecrease 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 involumeYr/YrYr/YrMarginJapan644.8 16.6e.2 23.1.1%Europe211.8 62.5%8.6 277.5%4.1%Asia657.4 10.9C.4 91.7%6.6%Others100.0-3.9%4.9-38.7%4.9%Total1,208.9 13.7.8 33.9%8.3#/4-6SalesOperating profit(Billions of yen)JapanAsiaEuropeFY202222/4-6FY202323/4-6FY202222/4-6FY202323/4-6FY202323/4-6FY202222/4-6Increase ofFixed Cost,etc.Suzuki Motor Corporation,2023.All rights reserved.13/30Note.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 Sales308.5252.9 55.6518.2427.4 90.8Operating Profit*222.412.637.621.3(Margin)(7.3%)(5.0%)(7.3%)(5.0%)Profit before income taxes32.313.554.322.8(Margin)(10.5%)(5.3%)(10.5%)(5.3%)Profit25.310.442.417.5(Margin)(8.2%)(4.1%)(8.2%)(4.1%)EX rate1.68 yen1.69 yen-0.01 yenDomestic*3435398 36Exports*36369-6Total498468 30FY2022(22/4-6)Consoli-dated 9.8 16.3 18.8 31.5 14.9 24.9Whole-sales(Thousandunits)ChangeChangeFY2023(23/4-6)FY2023(23/4-6)FY2022(22/4-6)*1 Results shown in Rupees are consolidated resultsannounced by Maruti Suzuki India on July 31*2 Operating Profit is calculated by using thefollowing formula:Sales of product Other operating revenues-Total Expenses Finance costs*3 Domestic and exports include OEM unitsFY2023 First Quarter ResultsOperating Results of Maruti Suzuki India Suzuki Motor Corporation,2023.All rights reserved.14/30209 219 31 38 466 462 54 34 FY2022FY2023133 148 36 54 380 422 81 41 79 67 FY2022FY2023EuropeOf whichCBUs:181761Japan(Thousand units)-7(-1%)FY2023 First Quarter global salesFY2023 First Quarter global sales 22( 3%)710IndiaAsiaOthers(Thousand units)EuropeJapanIndiaAsia754732Of whichCBUs:219 22/4-6 23/4-6Production ResultSales ResultVolumeGlobal Sales732 22 3.0%Japan148 15 11.1%Europe54 18 48.5%India422 42 11.1%Asia(excl.India)41-40-49.3%Indonesia19-1-6.2%Pakistan7-33-81.8%Thailand4-2-32.3%Others30-5-14.1%Others67-13-15.9%(Thousand units)Year-on-yearProduction and Sales Volume of AutomobilesGlobal22/4-6 23/4-6Asia Suzuki Motor Corporation,2023.All rights reserved.15/30 Japan productionJapan production軽自動車 15( 11%)113 121 21 27 FY2022FY2023Mini-vehicleSub-compact and standard-sized vehicle133148Trends in domestic production units(CBUs)(Thousand units)(Thousand units)First Quarter ComparisonSales Volume of AutomobilesJapan 22/4-6 23/4-6181 219 249 238 219 1Q2Q3Q4QFY22FY231Q CBU production in Japan:219 thousand units,20.7%increase year-on-year.Increase in sales volume due to increased production P Price rice R RevisionevisionFrom this fiscal year,we will revise prices in line with specification changes.In addition to higher costs due to improved specifications and equipment,higher raw material prices reflection.The numbers of units after 2Q of FY23 are the expected numbers Suzuki Motor Corporation,2023.All rights reserved.16/3049 40 205 211 3 4 81126323311 8 FY2022FY2023422MiniCompactUV2VansLCV1Mid-size380Note.The left graph shows wholesale sales including commercial vehicles,excluding OEMs*1 LCV=Light Commercial Vehicles*2 UV=Utility Vehicles3.9%7.1.8.0.5.1.9.9.5.0 .8!.0A.8.8A.8A.7A.0.6B.5D.09.5A.4B.9.6/722/822/922/1022/1122/1223/123/223/323/423/523/6Total passenger car shareChanges in Suzukis Market Share in India1Q Sales in India1Q Sales in IndiaRestore market share by introducing SUVs22/4-623/4-6SUV shareBrezza(Launched:June 2022)Grand Vitara(Launched:September 2022)Fronx(Launched:April 2023)Jimny(Launched:June 2023)First Quarter Comparison(Thousand units)Sales Volume of AutomobilesIndia 42( 11%)Suzuki Motor Corporation,2023.All rights reserved.17/3077 90 85 76 113 6 3 4 44 66 70 106 61 259 277 230 254 243 380 434 392 439 422 1Q2Q3Q4Q1QCombeMild HVStrongHVCNG(Thousand units)Provides a variety of options including CNG and HEVExpansion of CNG model set-up Record sales of 110 thousand units in 1QCNG vehicles and HEVs account for about 40%of total salesEconomic Comparison of CNG and Gasoline Vehicles.Comparison of Wagon R LXI5MTMarket Share of CNG Vehicles(Passenger Cars)Sales by powertrainFY22FY2374y%FY22FY23 1QFuel cost(Rs)CO2 emissionGasoline554,50024.35km/L96.8Rs/L39,721974kgCNG644,50034.05km/kg73.6Rs/kg21,612805kgDifference 90,000-18,108-169kgChange-46%-17%VariantPrice(Rs)FuelefficiencyFuel Priceper 10,000km Environmental performance of CNG vehiclesEnvironmental performance of CNG vehiclesCNG vehicles emit 17%less CO2 compared to gasoline vehicles.Government of India also advocates the use of CNG vehicle to achievecarbon neutrality.Sales by powertrainSales by powertrainSales Volume of AutomobilesCarbon Neutrality in India Note.Price.as of July 27,2023Fuel price.Delhi price as of July 27,2023CO2emission.Derived from the Fuel Consumption value as per equations from Ministry of Power SO 1072E dt 23rd April 2015.We want to contribute to carbon neutrality through a“multi-pathway that includes CNG vehicles,HEVs,etc.Suzuki Motor Corporation,2023.All rights reserved.18/3020 19 41 7 5 4 54107FY2022FY20238141Sales Volume of AutomobilesAsia(excluding India)/Europe4 10 5 7 3 5 551218 25 FY2022FY20233654EuropeS-CROSS equipped with strong hybrid system(Oct.2022)EuropeAsia excluding IndiaIndonesiaPakistanThailandPhilippinesOthers(Thousand units)GermanyItalyUKOthersFranceSpain-40(-49%)(Thousand units)18( 49%)Indonesia|Grand Vitara launched(Feb.2023)22/4-6 23/4-622/4-6 23/4-6 Suzuki Motor Corporation,2023.All rights reserved.19/3033 25 9 7 8 10 3025FY2022FY2023MiddleEastLatin AmericaAfricaOceaniaSales Volume of AutomobilesOther Regions-13(-16%)(Thousand units)7967(Thousand units)FY2023 First QuarterFY2023 First Quarter salessalesFirst Quarter Comparison22/4-6 23/4-6(Thousand units)VolumeYear-on-yearAfrica25-5-18.1%South Africa12-1-7.7%Angola4 3 230.6%Cote dIvoire3 1 40.0%Ethiopia1-2-66.2%Egypt1-5-81.2%Middle East10 2 26.3%Saudi Arabia5 2 61.0%Oceania7-2-18.9%Australia5-2-30.8%Latin America25-8-23.1%Mexico8-2-21.4%Chile4-2-33.2%Colombia2-4-62.3%Suzuki Motor Corporation,2023.All rights reserved.20/3026 25 1 1 169 216 226 211 30 21 FY2022FY202313 12 9 13 11 10 167 193 216 202 5550FY2022FY2023453472 FY2023 First Quarter global salesFY2023 First Quarter global salesEuropeAsiaNorthAmericaJapanOthersAsiaNorthAmericaJapanOthers475479Production and Sales Volume of MotorcyclesGlobal(Thousand units) 7( 1%)(Thousand units)Production ResultSales Result 23( 5%)22/4-6 23/4-622/4-6 23/4-6VolumeGlobal Sales479 7 1.5%Japan12-2-12.1%Europe13 3 33.4%North America10-1-9.0%India193 26 15.4%Asia（excl.India)202-14-6.4%China123 3 2.1%Phillipines41-7-14.6%Others38-9-19.8%Others50-6-10.2%Latina America45-4-8.8%Others4-1-22.2%（Thousand units）Year-on-yearIndiaIndia Suzuki Motor Corporation,2023.All rights reserved.21/305.2 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 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 0510152025303540024681012141618201Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1QTrends in Marine Operating Results(Billions of yen)Marine Business Consolidated ResultsFY2019FY2020FY2021FY2022FY2023Net SalesOperating Profit Suzuki Motor Corporation,2023.All rights reserved.22/30*Profit attributable to owners of parentFY2023FY2022(23/4-24/3)(22/4-23/3)RatioFY2023ChangeNet Sales5,000.0 4,641.6 358.4 7.7%Increase for the 3rdconsecutive period4,900.0 100.0Operating Profit360.0 350.6 330.0(Margin)(7.2%)(7.6%)(6.7%)Ordinary Profit370.0 382.8 340.0(Margin)(7.4%)(8.2%)(6.9%)Profit*210.0 221.1 190.0(Margin)(4.2%)(4.8%)(3.9%)US Dollar134 yen136 yen-2 yen-1.10 yen 4 yenEuro148 yen141 yen 7 yen 5.02 yen 6 yenIndian Rupee1.64 yen1.70 yen-0.06 yen-3.5%1.60 yen 0.04 yenAutomobile3,1813,000 181 6.0%3,186-5Motorcycle1,9191,860 59 3.2%1,941-22Annual cashdividends per shareComparison with previous forecast 30.0 30.0 20.0100 yen or more-11.1-5.0crease for the firsttime in 4 periodsGlobalSales Volume(Thousand units)Cash Dividends100 yen or more100 yen-FX Rates(Billions of yen)ChangeRecordConsoli-datedFinancialResults 9.4 2.7%Increase for the 2ndconsecutive period-12.8-3.3crease for the firsttime in 4 periodsFull Year ForecastHighlights Suzuki Motor Corporation,2023.All rights reserved.23/30Changein volumeChange inmix/price etc.Operating Profit 9.4Excluding external factors： 26.4Effect ofForEX ratesChange in price ofraw materialsIncrease ofFixed cost,etc.Increase of depreciation expensesIncrease of R&D expensesCost ReductionChange in volume,Change in volume,mix/price,etc.mix/price,etc. 103.5 103.5Full Year ForecastFactors of Change in Operating ProfitCompared with FY2022FY2022 Full YearResults22/4-23/3FY2023 Full Year Forecast23/4-24/3(Billions of yen)Suzuki Motor Corporation,2023.All rights reserved.24/30Operating Profit 30.0000000Full Year ForecastFactors of Change in Operating ProfitCompared with MayFY2023 Full Year ForecastFY2023 Full Year ForecastChangein volumeChange in price ofraw materialsEffect ofFX ratesChange inmix/priceetc.Cost ReductionFixed cost,etc.R&DexpensesDepreciation expenses(Billions of yen)(May 2023)(August 2023)Suzuki Motor Corporation,2023.All rights reserved.25/30Capital ExpendituresDepreciation ExpensesR&D ExpensesFY2022 ResultChangeCapitalExpenditures340.0269.9 70.1DepreciationExpenses190.0177.3 12.7R&D Expenses230.0205.6 24.4(Billions of yen)FY2023ForecastComparison with FY2022(yen)(yen)(yen)(yen)(yen)(bln yen)(bln yen)Euro148148142141 71.7 12.8Mexican Peso 7.577.507.106.91 0.6613.4 8.9Sterling Pound171170162163 70.5 3.8Indian Rupee1.641.621.601.70-0.06184.9-11.1South African Rand 7.177.107.207.99-0.826.5-5.3Pakistan Rupee 0.480.470.460.61-0.1314.8-1.9Australian Dollar90898893-30.5-1.5US Dollar134133130136-21.1-1.5Others-1.2- 3.0*Exchange sensitivity Represents the impact on operating profit when the rate of each currency changes by one yenImpactamountEffect of ForEX rates in operating profitFY2023 Forecast23/7-24/3PreviousForecast(May)Effect of ForEX rates totalFY2022ResultChangeExchangesensitivity*Full Year Forecast ForEX Rates and Capital Expenditures,etc.160.7205.6230.0189.4269.9340.0161.5177.3190.0FY21FY22FY23R&D ExpensesCapital ExpendituresDepreciation Expenses(Forecast)Suzuki Motor Corporation,2023.All rights reserved.26/30627 687 680 171 236 236 1,903 1,974 1,989 299 284 281 FY22FY23FY23954 1,004 993 142 166 170 2,114 2,204 2,100 0 0 0 FY22FY23FY233,263Full Year ForecastProduction and Sales Volume of Automobiles3,2103,0003,3753,181 165( 5.1%)(Thousand units) 181( 6.0%)(Thousand units)EuropeJapanAsiaOthersOthersEuropeJapanAsiaFY2023FY2022ChangeRatioRevised Unitsfrom MayTotal3,3753,210 165 5.1% 112Japan1,004954 50 5.2% 11Europe166142 24 16.8%-4Asia2,2042,114 91 4.3% 105Others00 0- 0(Thousand units)Production VolumeProduction Volume Sales VolumeSales VolumeTotal3,1813,000 181 6.0%-5Japan687627 60 9.6% 7Europe236171 65 37.7%-0Asia1,9741,903 71 3.7%-15Others284299-15-5.0% 3India expected to outpace market growth( 5-7%year-on-year)Of whichCBUs:887 Of whichCBUs:977 3,186Of which CBUs:972 ProductionSalesForecast(Aug.)Forecast(May)Forecast(May)Forecast(Aug.)Suzuki Motor Corporation,2023.All rights reserved.27/3046 55 55 31 40 43 32 33 33 1,528 1,589 1,594 223 201 215 FY22FY23FY23111 121 123 3 4 5 1,698 1,750 1,784 102 67 59 FY22FY23FY23Full Year ForecastProduction and Sales Volume of MotorcyclesProductionSales 28( 1.5%)(Thousand units) 59( 3.2%)(Thousand units)1,9141,8601,9421,919AsiaNorthAmericaJapanOthersEuropeAsiaNorthAmericaJapanOthersFY2023FY2022ChangeRatioRevised Unitsfrom MayTotal1,9421,914 28 1.5%-29Japan121111 10 9.0%-2North America43 1 20.9%-1Asia1,7501,698 52 3.1%-34Others67102-35-34.1% 9(Thousand units)Total1,9191,860 59 3.2%-22Japan5546 9 20.8urope4031 9 30.1%-3North America3332 1 2.8% 0Asia1,5891,528 61 4.0%-5Others201223-21-9.5%-14 Production VolumeProduction Volume Sales VolumeSales Volume1,9711,941Forecast(Aug.)Forecast(May)Forecast(Aug.)Forecast(May)Suzuki Motor Corporation,2023.All rights reserved.28/30Shareholder ReturnStatus of Acquisition of Treasury Shares6,000 1,017 02,0004,0006,000ResolutionActualNumber of shares acquiredTotal number of shares to be repurchased(maximum):6 million shares(Ordinary shares)Total value of shares repurchased(maximum):20 billion yenPeriod of repurchase(schedule):From May 16,2023 to Sep.30,2023Details of resolution at the meeting of the Board of Directors(announced on May 15,2023)20.05.10.05.010.015.020.0ResolutionActualAmount of acquisitionImplementation rate:16.9%Implementation rate:25.4%(Thousand shares)(Billions of yen)FY2023 First Quarter Financial ResultsLimited to 300 units(lottery sales in Japan)https:/s-mall.jpa place where everythingrelated to SUZUKI can be foundSUZUKI MOTOR CORPORATIONAugust 4,2023The 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
2023-09-05
30页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM10-Q(Mark One)QUARTERLY REPOR.
2023-09-05
34页
5星级
Taking actionnowQ1 2023 Results10 May 20232Solid start to the year allowing for FY guidance confirmationE.ON Q1 2023 ResultsSolid performance in Q1 2023 in both Energy Networks and Customer SolutionsSignificant year-over-year increase driven by investment-backed underlying growth,strong execution and timing effectsNormalization of weak Q1 2022 outturn supporting growth1.Core business only(segments:Energy Networks,Customer Solutions,Corporate Functions&Other);excl.Non-Core contribution in Q1 2022:EBITDA -246m;ANI -144m.2.Adjusted for non-operating effects.EBITDA2Economic Net DebtQ1 2022Q1 2023Adj.Net Income2 0.40 0.20Key financialsbnQ1 development EPS21.812.70.511.032.735.1FY 2023 guidance and FY 2027 targets,including dividend policy,fully confirmed2023 outlook assumes energy crisis not over yetAccelerated energy transition in Europe underpins E.ONs growth strategyFY outlook FY 20223Growth from investments,strong execution and timing effects drive year-over-year EBITDA increaseE.ON Q1 2023 Results1.Adjusted for non-operating effects 2.See explanation in annex slide 13 3.Turkey generation EBITDA Q1 2023 53m;EBITDA Q1 2022 53m Energy Networks RAB growth Germany:Timing effects,e.g.redispatch cost2 Sweden and CEE:Recovery of network lossesCustomer Solutions Increased energy procurement cost passed through to customers Germany/Netherlands:Procurement optimization /-UK:Improvement on cap allowances balanced by weather effects and temporary one offs Romania:Normalization of business conditionsCorporate Functions&Other Turkey generation3and Urenco moving in from non-core 436 399 38Q1 2022-246Non-CoreCore Q1 2022Energy NetworksCustomer SolutionsCorp.Functions&OtherQ1 20232,0881,8422,715 873EBITDA1mKey financials1.Adjusted for non-operating effects4Adjusted Net Income following EBITDA development E.ON Q1 2023 ResultsTax rate at 25%EPS1(per share)2,7152,0361,8031,031EBITDA1-679D&A1EBIT1-233Economicinterest resultProfitbefore Taxes1-451Income taxes-321MinoritiesAdjustedNet Income10.40ANI1m5Payment behavior remains unchanged,bad debt exposure continues to be tightly managedE.ON Q1 2023 Results1.Aggregation of maturity of receivables and country specific KPIs in comparison to FY 2022 2.For trade receivables in Customer Solutions 3.P&L effective additions in relation to relevant Customer Solutions revenuesIndicators for relevant marketsBad debt allowances2bnRatio of bad debt additions to revenue2,3%Q1 2022FY 20221.31.5Q1 2022FY 20220.60.7Direct government support packages and price caps still supportive for payment behaviorPrice adjustments did not meaningfully affect payment behaviors across E.ON markets(Customer Solutions revenues increased by 65%Q1 2023 vs.Q1 2022)Stringent management of bad debt exposureGovernmentinterventionPayment behavior1GERUKNLOther(incl.CEE)positive/unchangedneutral/slight changenegative/worsenedEarnings effective additions to bad debt provisions up by 0.1bn in Q1 yoyQ1 20231.8Q1 20230.7Economic Net Debt quarterly comparisonbn6Solid END position despite typical seasonal cash outflowsE.ON Q1 2023 ResultsAsset Retirement Obligations(ARO)Pension provisionsNet financial position1.Net of divestments excl.margining effects 2.Actuarial interest rates for German pensions at 3.65%(vs.3.71%FY 2022),for UK pensions at 4.77%(vs.4.80%FY 2022)3.Economic Net Debt/EBITDA,EBITDA adjusted for non-operating effects-7.4-7.4-3.7-0.8-0.90.0-0.3-3.8-21.6ENDFY 2022OCFQ1 2023Net Investments Q1 20231Pensions2Margining Effects-0.2Other(incl.AROs)-23.9ENDQ1 2023-32.7-35.1END development fully in line with expectationsInvestments ramp up fully on track( 30%YOY increase in Q1)Expectation on 2023 CCR broadly unchangedDebt factor1target of 5.0 xSecuring a strong BBB/Baa rating7Fully on-track for FY 2023 and 2027 outlookE.ON Q1 2023 Results1.Adjusted for non-operating effects 2.Core business only(segments:Energy Networks,Customer Solutions,Corporate Functions&Other)3.Subject to 2023 AGM approval4.Cash-effective investments including Corporate Functions&Other and Non-Core 5.Based on EU taxonomy eligible capex 6.2023-2027 7.Average for period 2023-2027bnActuals FY 2022FY 2023FY 2027EBITDA16.97527.8-8.09.0Energy Networks5.4596.0-6.26.5-6.7Customer Solutions1.6861.8-2.02.3-2.6Energy Retail1.1181.3-1.41.5-1.7Energy Infrastructure Solutions5680.5-0.60.8-0.9Corporate Functions&Other-0.170-0.1-0.1Adj.Net Income11.94422.3-2.52.5EPS1 0.7520.88-0.960.97Dividend 0.513Up to 5%p.a.Up to 5%p.a.Capex44.7535.8336Energy Networks3.8454.6266Customer Solutions0.8311.166Capex EU Taxonomy aligned498Y5%5ROCE8.8%7-8w-8ebt factor4.1x5.0 x5.0 xSolid start to Q1supported by timing effects in Energy Networks and Energy Retail2023 outlook assumes energy crisis not over yetDue to strong Q1,FY 2023 outturn now likely closer to the higher end of guidance rangesFY 2027 outlook fully confirmedFinancial AppendixFinancial OverviewE.ON Q1 2023 Results|Financial Appendix1.Adjusted for non-operating effects 2.As of 31 December 2022 and 31 March 2023;Bonds formerly issued by innogy are recorded at their nominal value.The figure shown in the Consolidated Balance Sheet is 1.6 billion higher(year-end 2022:1.7 billion higher);this figure includes again the same as the asset-retirement obligations shown in the Balance Sheet(7.369 million on March 31,2023;7,445 million at December 31,2022).mQ1 2022Q1 2023%YoYSales29,50733,543 14EBITDA12,0882,715 30EBIT11,3962,036 46Adjusted Net Income16831,031 51OCFbIT-476-431 9Investments7901,038 31Economic Net Debt2-32,742-35,086-791.Cash Conversion Rate(CCR):OCFbIT excl.OCFbIT related to dismantling activities and generation activities until April 15th of nuclear power plants/Adj.EBITDA 2.Adjusted for non-operating effects 3.Incl.non-cash-effective EBITDA items,provision utilizations and payments related to non-operating earningsCash conversion rate of-19%in Q1 2023 following typical seasonal patternsFirst Quarter2023|Financial AppendixCCR1bn-19ROCFEBITDA20.7CapexFCFCash adjustments3-3.9Change in WCOCFbIT-0.2Interest payments-0.2Tax payments2.7-0.4-0.8-1.9-1.0151.Adjusted for non-operating effects11Key performance drivers for 2023E.ON Q1 2023 Results|Financial AppendixEnergy Networks All Organic RAB growthGermany Increasing efficiencies Redispatch costsSweden Network losses recovery-Lower volumes CEE&Turkey Network losses recovery-Lower volumes Customer SolutionsAll Normalization of procurement costEnergy Retail Germany:Procurement optimization,solutions business growth UK:Market stabilizationNL:Business normalization Other:Solutions business growthEnergy Infrastructure Solutions Organic growth from new projectsEBITDA11.Adjusted for non-operating effects 2.Due to the retrospective first-time application of IAS 29 as of January 1,2022 in the first half of 2022,the comparative figures for the first quarter of 2022 have been adjusted12Energy Networks EBITDA1mDriversSweden Increased recovery for network lossesFXCEE&Turkey Increased recovery for network lossesGermany Increasing efficiencies Redispatch cost All RAB growthLower volumesQ1 20221,899Q1 20231,463 30%E.ON Q1 2023 Results|Financial AppendixCEE&TurkeyGermanySwedenmQ1 2022Q1 2023%YoYQ1 2022Q1 2023%YoYQ1 2022Q1 2023%YoYQ1 2022Q1 2023%YoYRevenue4,0964,895 20265297 126811,026 515,0426,218 23EBITDA1,1961,489 24117168 44150242 611,4631,899 30EBIT8251,095 3374122 6570158 1269691,375 42thereof equity-method earnings5250-41427 936677 17OCFbIT797-75-109105102-390356 296992383-61Investments389526 357088 26152211 39611825 35GermanySwedenCEE&TurkeyTotal213Redispatch cost E.ON Q1 2023 Results|Financial Appendixt=0 expectedt=0actualt 3t 4t 51000000 26Q10.51.31.0%1.0%0.51.6%0.7Q2Q20.70.50.9%0.718.20.82026202520242023E.ON Q1 2023 Results|Financial AppendixAnnual ReportsFinancial calendar&important linksMay 17,2023Annual General MeetingAugust 09,2023Half Year Financial Report 2023 November 08,2023Quarterly Statement January November 2023Financial calendarImportant linksTo be directed to our products please follow the links:E.ON Q1 2023 Results|CalenderPresentationsFacts&Figures 2023Interim ReportsAnnual General MeetingGreen Bond FrameworkSustainability Report23March13,2024Full Year Financial Report 202324E.ON Investor Relations teamE.ON Q1 2023 Results|Financial AppendixIris EveleighHead of Investor R 49 170 7688749Milagros DEliaManager Investor R 49 151 52298030Martin JgerManager Investor R 49 162 2754355Julian JostManager Investor R 49 1520 9137925Max SadrinaManager Investor R 49 172 8344377 Bjrn SiggemannManager Investor R 49 175 1996123Andreas ThielenManager Investor R 49 151 67114918DisclaimerThis presentation contains information relating to E.ON Group(E.ON)that must not be relied upon for any purpose and may not be redistributed,reproduced,published,or passedon to any other person or used in whole or in part for any other purpose.By accessing this document,you agree to abide by the limitations set out in this document as well as anylimitations set outon the webpage of E.ON SE on which this presentation has been madeavailable.This document is being presented solely for informational purposes.It should not be treated as giving investment advice,nor is it intended to provide the basis for any evaluation orany securities and should not beconsidered as a recommendation that any person shouldpurchase,hold or dispose of any shares or other securities.The information contained in this presentation may comprise financial and similar information which is neither audited nor reviewed and should be considered preliminary andsubjectto change.Some of the information presented herein is based on statements by third parties.No representation or warranty,express or implied,is made as to,and no reliance should be placedon,the fairness,accuracy,completeness or correctness of this information or any other information or opinions contained herein,for any purposewhatsoever.This presentation may contain forward-looking statements based on current assumptions and forecasts made by E.ON management and other information currently available toE.ON.Various known and unknown risks,uncertainties and other factors could lead to material differences between the actual future results,financial situation,development orperformance of the company and the estimates given here.E.ON does not intend,and does not assume any liability whatsoever,to update these forward-looking statements or toconform them to futureevents or developments.Neither E.ON nor any respective agents of E.ON undertake any obligation to provide the recipient with access to any additional information or to update this presentation or anyinformation or to correctany inaccuraciesin any suchinformation.Certain numerical data,financial information and market data(including percentages)in this presentation have been rounded according to established commercial standards.As aresult,the aggregate amounts(sum totals or interim totals or differences or if numbers are put in relation)in this presentation may not correspond in all cases to the amountscontained in the underlying(unrounded)figures appearing in the consolidated financial statements.Furthermore,in tables and charts,these rounded figures may not add up exactlyto the totals contained in therespective tables and charts.25E.ON Q1 2023 Results|Financial Appendix
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Financial Results for the Three Months Ended June 30,2023August 9,2023Copyright 2023 NTT CORPORATION.
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1 Total second quarter sales includes an approximately$335 million headwind related to a timing shift in our fiscal calendar as we cycle over a 53-week year.2 Comparable sales are based on comparison to weeks 15-27 in 2022.August 22,2023 For 6:00 a.m.ET Release LOWES REPORTS SECOND QUARTER 2023 SALES AND EARNINGS RESULTS Comparable Sales Decreased 1.6%;Diluted EPS of$4.56 Affirms Full Year 2023 Outlook MOORESVILLE,N.C.,Aug.22,2023 Lowes Companies,Inc.(NYSE:LOW)today reported net earnings of$2.7 billion and diluted earnings per share(EPS)of$4.56 for the quarter ended Aug.4,2023,compared to diluted EPS of$4.67 in the second quarter of 2022.Total sales for the quarter were$25.0 billion1.Comparable sales decreased 1.6%2,with strong spring recovery and Pro and online sales growth,partially offsetting lumber deflation and lower DIY discretionary demand.“Our investments in our Total Home strategy continued to drive growth across Pro and online this quarter.And we are excited by our recent launch of same-day delivery nationwide and the expansion of our rural merchandising framework to roughly 300 stores,”said Marvin R.Ellison,Lowes chairman,president and CEO.“Our ability to reduce expenses while improving customer service is the result of excellent execution by our team,and we remain confident in the mid-to long-term outlook for the home improvement industry.In recognition of the contributions of our front-line associates,we are awarding over$100 million in discretionary and profit-sharing bonuses to them this quarter.I would like to thank our front-line team for serving our customers and supporting our communities.”Capital Allocation With a disciplined focus on its leading capital allocation program,the company continues to generate long-term shareholder value.During the quarter,the company repurchased approximately 10.1 million shares for$2.2 billion,and it paid$624 million in dividends.Lowes Business Outlook The company is affirming its outlook for the operating results of full year 2023.Adjusted operating income,adjusted operating margin,adjusted effective income tax and adjusted diluted EPS are non-GAAP financial measures that exclude the impact and timing of the gain associated with the 2022 sale of the Canadian retail business,recorded in the first quarter.The company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items(which may be significant)without unreasonable effort,including timing of adjustments associated with the sale of our Canadian retail business.Full Year 2023 Outlook a 52-week Year(comparisons to full year 2022 a 53-week year)Total sales of approximately$87$89 billion Comparable sales expected to be down-2%to-4%as compared to prior year Adjusted operating income as a percentage of sales(adjusted operating margin)of 13.4%to 13.6%Interest expense of approximately$1.5 billion Adjusted effective income tax rate of approximately 25justed diluted earnings per share of$13.20 to$13.60 Capital expenditures of up to$2 billion A conference call to discuss second quarter 2023 operating results is scheduled for today,Tuesday,Aug.22,at 9 a.m.ET.The conference call will be available by webcast and can be accessed by visiting Lowes website at and clicking on Lowes Second Quarter 2023 Earnings Conference Call Webcast.Supplemental slides will be available approximately 15 minutes prior to the start of the conference call.A replay of the call will be archived at .Lowes Companies,Inc.Lowes Companies,Inc.(NYSE:LOW)is a FORTUNE 50 home improvement company serving approximately 17 million customer transactions a week in the U.S.With total fiscal year 2022 sales of over$97 billion,approximately$92 billion of sales were generated in the U.S.,where Lowes operates over 1,700 home improvement stores and employs approximately 300,000 associates.Based in Mooresville,N.C.,Lowes supports the communities it serves through programs focused on creating safe,affordable housing and helping to develop the next generation of skilled trade experts.For more information,visit L.Disclosure Regarding Forward-Looking Statements This press release includes“forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995.Statements including words such as“believe”,“expect”,“anticipate”,“plan”,“desire”,“project”,“estimate”,“intend”,“will”,“should”,“could”,“would”,“may”,“strategy”,“potential”,“opportunity”,“outlook”,“scenario”,“guidance”,and similar expressions are forward-looking statements.Forward-looking statements involve,among other things,expectations,projections,and assumptions about future financial and operating results,objectives(including objectives related to environmental,social,and governance matters),business outlook,priorities,sales growth,shareholder value,capital expenditures,cash flows,the housing market,the home improvement industry,demand for products and services,share repurchases,Lowes strategic initiatives,including those relating to acquisitions and dispositions and the impact of such transactions on our strategic and operational plans and financial results.Such statements involve risks and uncertainties,and we can give no assurance that they will prove to be correct.Actual results may differ materially from those expressed or implied in such statements.A wide variety of potential risks,uncertainties,and other factors could materially affect our ability to achieve the results either expressed or implied by these forward-looking statements including,but not limited to,changes in general economic conditions,such as volatility and/or lack of liquidity from time to time in U.S.and world financial markets and the consequent reduced availability and/or higher cost of borrowing to Lowes and its customers,slower rates of growth in real disposable personal income that could affect the rate of growth in consumer spending,inflation and its impacts on discretionary spending and on our costs,shortages,and other disruptions in the labor supply,interest rate and currency fluctuations,home price appreciation or decreasing housing turnover,age of housing stock,the availability of consumer credit and of mortgage financing,trade policy changes or additional tariffs,outbreaks of pandemics,fluctuations in fuel and energy costs,inflation or deflation of commodity prices,natural disasters,armed conflicts,acts of both domestic and international terrorism,and other factors that can negatively affect our customers.Investors and others should carefully consider the foregoing factors and other uncertainties,risks and potential events including,but not limited to,those described in“Item 1A-Risk Factors”in our most recent Annual Report on Form 10-K and as may be updated from time to time in Item 1A in our quarterly reports on Form 10-Q or other subsequent filings with the SEC.All such forward-looking statements speak only as of the date they are made,and we do not undertake any obligation to update these statements other than as required by law.LOW-IR#Contacts:Shareholder/Analyst Inquiries:Media Inquiries:Kate Pearlman Steve Salazar 704-775-3856 Lowes Companies,Inc.Consolidated Statements of Current Earnings and Accumulated Deficit(Unaudited)In Millions,Except Per Share and Percentage Data Three Months Ended Six Months Ended August 4,2023 July 29,2022 August 4,2023 July 29,2022 Current Earnings Amount%Sales Amount%Sales Amount%Sales Amount%Sales Net sales$24,956 100.00$27,476 100.00$47,304 100.00$51,135 100.00 Cost of sales 16,557 66.34 18,343 66.76 31,378 66.33 33,952 66.40 Gross margin 8,399 33.66 9,133 33.24 15,926 33.67 17,183 33.60 Expenses:Selling,general and administrative 4,086 16.38 4,455 16.22 7,912 16.73 8,758 17.12 Depreciation and amortization 427 1.71 449 1.63 841 1.78 894 1.75 Operating income 3,886 15.57 4,229 15.39 7,173 15.16 7,531 14.73 Interest net 341 1.36 264 0.96 689 1.45 507 0.99 Pre-tax earnings 3,545 14.21 3,965 14.43 6,484 13.71 7,024 13.74 Income tax provision 872 3.50 973 3.54 1,551 3.28 1,699 3.33 Net earnings$2,673 10.71$2,992 10.89$4,933 10.43$5,325 10.41 Weighted average common shares outstanding basic 584 638 590 649 Basic earnings per common share(1)$4.56$4.68$8.34$8.18 Weighted average common shares outstanding diluted 585 639 591 651 Diluted earnings per common share(1)$4.56$4.67$8.32$8.16 Cash dividends per share$1.10$1.05$2.15$1.85 Accumulated Deficit Balance at beginning of period$(15,310)$(7,367)$(14,862)$(5,115)Net earnings 2,673 2,992 4,933 5,325 Cash dividends declared (641)(666)(1,266)(1,190)Share repurchases (2,063)(3,854)(4,146)(7,915)Balance at end of period$(15,341)$(8,895)$(15,341)$(8,895)(1)Under the two-class method,earnings per share is calculated using net earnings allocable to common shares,which is derived by reducing net earnings by the earnings allocable to participating securities.Net earnings allocable to common shares used in the basic and diluted earnings per share calculation were$2,666 million for the three months ended August 4,2023,and$2,983 million for the three months ended July 29,2022.Net earnings allocable to common shares used in the basic and diluted earnings per share calculation were$4,920 million for the six months ended August 4,2023,and$5,308 million for the six months ended July 29,2022.Lowes Companies,Inc.Consolidated Statements of Comprehensive Income(Unaudited)In Millions,Except Percentage Data Three Months Ended Six Months Ended August 4,2023 July 29,2022 August 4,2023 July 29,2022 Amount%Sales Amount%Sales Amount%Sales Amount%Sales Net earnings$2,673 10.71$2,992 10.89$4,933 10.43$5,325 10.41 Foreign currency translation adjustments net of tax 5 0.01 12 0.05 5 0.01 (5)(0.02)Cash flow hedges net of tax (3)(0.01)(38)(0.14)(6)(0.02)181 0.36 Other (1)(3)0.01 Other comprehensive income/(loss)2 (27)(0.09)(1)(0.01)173 0.35 Comprehensive income$2,675 10.71$2,965 10.80$4,932 10.42$5,498 10.76 Lowes Companies,Inc.Consolidated Balance Sheets(Unaudited)In Millions,Except Par Value Data August 4,2023 July 29,2022 Assets Current assets:Cash and cash equivalents$3,494$1,482 Short-term investments 374 450 Merchandise inventory net 17,422 19,329 Other current assets 946 1,406 Total current assets 22,236 22,667 Property,less accumulated depreciation 17,373 18,713 Operating lease right-of-use assets 3,650 4,158 Long-term investments 182 56 Deferred income taxes net 230 104 Other assets 850 1,027 Total assets$44,521$46,725 Liabilities and shareholders deficit Current liabilities:Current maturities of long-term debt$592$121 Current operating lease liabilities 534 652 Accounts payable 10,333 12,631 Accrued compensation and employee benefits 1,026 1,227 Deferred revenue 1,566 1,968 Income taxes payable 91 330 Other current liabilities 3,470 3,437 Total current liabilities 17,612 20,366 Long-term debt,excluding current maturities 35,839 28,763 Noncurrent operating lease liabilities 3,611 4,069 Deferred revenue Lowes protection plans 1,231 1,169 Other liabilities 960 800 Total liabilities 59,253 55,167 Shareholders deficit:Preferred stock,$5 par value:Authorized 5.0 million shares;Issued and outstanding none Common stock,$0.50 par value:Authorized 5.6 billion shares;Issued and outstanding 582 million and 631 million,respectively 291 316 Capital in excess of par value 12 Accumulated deficit (15,341)(8,895)Accumulated other comprehensive income 306 137 Total shareholders deficit (14,732)(8,442)Total liabilities and shareholders deficit$44,521$46,725 Lowes Companies,Inc.Consolidated Statements of Cash Flows(Unaudited)In Millions Six Months Ended August 4,2023 July 29,2022 Cash flows from operating activities:Net earnings$4,933$5,325 Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization 941 1,007 Noncash lease expense 241 273 Deferred income taxes 23 Asset impairment and loss on property net 23 32 Gain on sale of business (67)Share-based payment expense 113 110 Changes in operating assets and liabilities:Merchandise inventory net 1,109 (1,728)Other operating assets 224 (120)Accounts payable (191)1,279 Deferred revenue (6)97 Other operating liabilities (1,375)(263)Net cash provided by operating activities 5,968 6,012 Cash flows from investing activities:Purchases of investments (878)(330)Proceeds from sale/maturity of investments 811 290 Capital expenditures (765)(687)Proceeds from sale of property and other long-term assets 17 19 Proceeds from sale of business 123 Other net (23)(1)Net cash used in investing activities (715)(709)Cash flows from financing activities:Net change in commercial paper (499)Net proceeds from issuance of debt 2,983 4,964 Repayment of debt (45)(799)Proceeds from issuance of common stock under share-based payment plans 76 72 Cash dividend payments (1,257)(1,061)Repurchases of common stock (4,356)(8,128)Other net (9)(2)Net cash used in financing activities (3,107)(4,954)Net increase in cash and cash equivalents 2,146 349 Cash and cash equivalents,beginning of period 1,348 1,133 Cash and cash equivalents,end of period$3,494$1,482
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPO.
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549_FORM 10-Q(Mark One)QUARTERLY REP.
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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549FORM 10-Q(Mark One)QUARTERLY REP.
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July 27,2023CONSOLIDATED RESULTS FOR THE SECOND QUARTER(Millions of yen,thousands of U.S.dollars,exc.
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Table of ContentsUNITED 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 March 31,2023orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission File Number:1-11373Cardinal Health,Inc.(Exact name of registrant as specified in its charter)Ohio31-0958666(State or other jurisdiction ofincorporation or organization)(IRS EmployerIdentification No.)7000 Cardinal Place,Dublin,Ohio43017(Address of principal executive offices)(Zip Code)(614)757-5000(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon shares(without par value)CAHNew York Stock ExchangeIndicate 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 of1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject tosuch filing requirements for the past 90 days.Yes No oIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required tosubmit such files).Yes No oIndicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reportingcompany,or an emerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”andemerging growth company in Rule 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 withany new or revised 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 the registrants common shares,without par value,outstanding as of April 30,2023,was the following:254,600,182.Cardinal HealthQ3 Fiscal 2023 Form 10-QTable of ContentsPageManagements Discussion and Analysis of Financial Condition and Results of Operations2Explanation and Reconciliation of Non-GAAP Financial Measures16Quantitative and Qualitative Disclosures about Market Risk21Controls and Procedures21Legal Proceedings22Risk Factors23Unregistered Sales of Equity Securities and Use of Proceeds25Financial Statements26Exhibits44Form 10-Q Cross Reference Index45Signatures46About Cardinal HealthCardinal Health,Inc.,an Ohio corporation formed in 1979,is a globally integrated healthcare services and products company providingcustomized solutions for hospitals,healthcare systems,pharmacies,ambulatory surgery centers,clinical laboratories,physician offices andpatients in the home.We provide pharmaceuticals and medical products and cost-effective solutions that enhance supply chain efficiency.Weconnect patients,providers,payers,pharmacists and manufacturers for integrated care coordination and better patient management.Wemanage our business and report our financial results in two segments:Pharmaceutical and Medical.As used in this report,“we,”“our,”“us,”andsimilar pronouns refer to Cardinal Health,Inc.and its majority-owned and consolidated subsidiaries,unless the context requires otherwise.Ourfiscal year ends on June 30.References to fiscal 2023 and fiscal 2022 and to FY23 and FY22 are to the fiscal years ending or ended June 30,2023 and June 30,2022,respectively.Forward-Looking StatementsThis Quarterly Report on Form 10-Q for the quarter ended March 31,2023(this Form 10-Q)(including information incorporated by reference)includes forward-looking statements addressing expectations,prospects,estimates and other matters that are dependent upon future events ordevelopments.Many forward-looking statements appear in Managements Discussion and Analysis of Financial Condition and Results ofOperations(MD&A),but there are others in this Form 10-Q,which may be identified by words such as expect,anticipate,intend,plan,believe,will,should,could,would,project,continue,likely,and similar expressions,and include statements reflecting future resultsor guidance,statements of outlook and expense accruals.These matters are subject to risks and uncertainties that could cause actual results todiffer materially from those made,projected or implied.The most significant of these risks and uncertainties are described in this Form 10-Q,including Exhibit 99.1,and in Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30,2022(our“2022 Form 10-K”).Forward-looking statements in this Form 10-Q speak only as of the date of this document.Except to the extent required by applicable law,weundertake no obligation to update or revise any forward-looking statement.Non-GAAP Financial MeasuresIn the Overview of Consolidated Results section of MD&A,we use financial measures that are derived from our consolidated financial data butare not presented in our condensed consolidated financial statements prepared in accordance with U.S.generally accepted accountingprinciples(GAAP).These measures are considered non-GAAP financial measures under the United States Securities and ExchangeCommission(SEC)rules.The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparableGAAP financial measures are included in the“Explanation and Reconciliation of Non-GAAP Financial Measures”section following MD&A in thisForm 10-Q.1Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AOverviewManagements Discussion and Analysis of Financial Condition andResults of OperationsThe discussion and analysis presented below is concerned with material changes in financial condition and results of operations,includingamounts and certainty of cash flows from operations and from outside sources,between the periods specified in our condensed consolidatedbalance sheets at March 31,2023 and June 30,2022,and in our condensed consolidated statements of earnings/(loss)for the three and ninemonths ended March 31,2023 and 2022.All comparisons presented are with respect to the prior-year period,unless stated otherwise.Thisdiscussion and analysis should be read in conjunction with the MD&A included in our 2022 Form 10-K.2Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AOverviewOverview of Consolidated ResultsRevenueDuring the three and nine months ended March 31,2023,revenue increased 13 percent to$50.5 billion and$151.6 billion,respectively,primarilydue to branded and specialty pharmaceutical sales growth from existing customers.During the nine months ended March 31,2023,pharmaceutical sales growth from net new customers also contributed to increased revenue.GAAP and Non-GAAP Operating Earnings/(Loss)Three Months Ended March 31,Nine Months Ended March 31,(in millions)20232022Change20232022ChangeGAAP operating earnings/(loss)$572$(97)N.M.$590$(632)N.M.Surgical gown recall costs/(income)1 State opioid assessment related to prior fiscal years (6)Shareholder cooperation agreement costs 8 Restructuring and employee severance16 31 62 56 Amortization and other acquisition-related costs74 79 216 237 Impairments and(gain)/loss on disposal of assets,net20 471 883 1,764 Litigation(recoveries)/charges,net(76)61(256)113 Non-GAAP operating earnings$606$545 11%$1,497$1,540(3)%The sum of the components and certain computations may reflect rounding adjustments.We had GAAP operating earnings of$572 million during the three months ended March 31,2023 and a GAAP operating loss of$97 millionduring the three months ended March 31,2022,which reflects no goodwill impairment charge recognized during the three months endedMarch 31,2023 and the$474 million pre-tax non-cash goodwill impairment charge related to the Medical segment recognized during the threemonths ended March 31,2022.We had GAAP operating earnings of$590 million and a GAAP operating loss of$632 million during the nine months ended March 31,2023 and2022,respectively,which included the$863 million and$1.8 billion pre-tax non-cash goodwill impairment charges related to the Medicalsegment,respectively.See Critical Accounting Policies and Sensitive Accounting Estimates section of this MD&A and Note 4 of the Notes toCondensed Consolidated Financial Statements for additional detail related to goodwill impairment.GAAP operating earnings during the three and nine months ended March 31,2023 were favorably impacted by litigation recoveries.SeeResults of Operations section of this MD&A and Note 6 of the Notes to Condensed Consolidated Financial Statements for additional detailrelated to litigation recoveries.Non-GAAP operating earnings during the three months ended March 31,2023 increased 11 percent to$606 million primarily due to an increasein Pharmaceutical segment profit largely driven by the performance of our generics program and an increased contribution from branded andspecialty pharmaceutical products.This increase was partially offset by a decrease in Medical segment profit largely resulting from lowervolumes and unfavorable product sales mix within products and distribution.Non-GAAP operating earnings during the nine months ended March 31,2023 decreased 3 percent to$1.5 billion primarily due to a decrease inMedical segment profit largely resulting from lower volumes and unfavorable product sales mix within products and distribution and netinflationary impacts.This decrease was partially offset by an increase in Pharmaceutical segment profit primarily driven by the performance ofour generics program and an increased contribution from branded and specialty pharmaceutical products.3Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AOverviewGAAP and Non-GAAP Diluted EPSThree Months Ended March 31,Nine Months Ended March 31,($per share)20232022Change20232022ChangeGAAP diluted EPS$1.34$(5.05)N.M.$1.23$(3.82)N.M.State opioid assessment related to prior fiscal years 0.02 Shareholder cooperation agreement costs (0.02)Restructuring and employee severance0.05 0.08 0.18 0.15 Amortization and other acquisition-related costs0.21 0.21 0.61 0.63 Impairments and(gain)/loss on disposal of assets,net 0.35 6.03 2.82 6.71 Litigation(recoveries)/charges,net(0.21)0.18(0.60)0.33 Loss on early extinguishment of debt 0.03 Non-GAAP diluted EPS$1.74$1.45 20%$4.24$4.01 6%The sum of the components and certain computations may reflect rounding adjustments.The reconciling items are presented within this table net of tax.See quantification of tax effect of each reconciling item in our GAAP to Non-GAAP Reconciliations in the Explanationand Reconciliation of Non-GAAP Financial Measures.(1)Diluted earnings/(loss)per share attributable to Cardinal Health,Inc.(diluted EPS).(2)For the three and nine months ended March 31,2022,GAAP diluted EPS and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using aweighted average of 275 million and 281 million common shares,respectively,which excludes potentially dilutive securities from the denominator due to their anti-dilutiveeffects resulting from our GAAP net loss for the periods.For the three and nine months ended March 31,2022,non-GAAP diluted EPS is calculated using a weighted averageof 277 million and 282 million common shares,respectively,which includes potentially dilutive shares.(3)Impairments and(gain)/loss on disposal of assets,net included pre-tax goodwill impairment charges related to the Medical segment of$863 million recorded during the ninemonths ended March 31,2023.For fiscal 2023,the estimated net tax benefit related to the impairments is$68 million and is included in the annual effective tax rate.As a result,the amount of tax expense recognized increased approximately by an incremental$74 million during the three months ended March 31,2023.The incremental interim taxbenefit recognized during the nine months ended March 31,2023 was$66 million and will reverse in the fourth quarter of the fiscal year.During the three and nine months ended March 31,2022,impairments and(gain)/loss on disposal of assets,net included pre-tax goodwill impairment charges of$474 millionand$1.8 billion,respectively,related to the Medical segment.For fiscal 2022,the estimated net tax benefit related to the impairment was$126 million and was included in theannual effective tax rate.As a result,the amount of tax expense recognized during the three and nine months ended March 31,2022 increased approximately by anincremental$1.2 billion and$180 million,respectively,and lowered the provision for income taxes during the fourth quarter of fiscal 2022 by approximately$180 million.GAAP diluted EPS was adversely impacted by the goodwill impairment charges related to the Medical segment,which had a$(2.76)per shareafter tax impact during the nine months ended March 31,2023,and$(6.01)and$(6.67)per share after tax impact during the three and ninemonths ended March 31,2022,respectively.See Critical Accounting Policies and Sensitive Accounting Estimates section of this MD&A,andNote 4 and Note 7 of the Notes to Condensed Consolidated Financial Statements for additional detail.GAAP EPS during the three and ninemonths ended March 31,2023 also includes the favorable impact of litigation recoveries as described further in the Results of Operationssection of this MD&A and Note 6 of Notes to Condensed Consolidated Financial Statements.During the three months ended March 31,2023,non-GAAP diluted EPS increased 20 percent to$1.74 per share due to higher non-GAAPoperating earnings and a lower share count.During the nine months ended March 31,2023,non-GAAP diluted EPS increased 6 percent to$4.24 per share due to a lower share count andinterest expense,partially offset by lower non-GAAP operating earnings.Cash and EquivalentsOur cash and equivalents balance was$4.0 billion at March 31,2023 compared to$4.7 billion at June 30,2022.During the nine months endedMarch 31,2023,net cash provided by operating activities was$2.0 billion,which includes the impact of our second annual payment of$372 million related to the agreement to settle the vast majority of the opioid lawsuits filed by states and local governmental entities(theSettlement Agreement).In addition,during the nine months ended March 31,2023,we deployed$1.5 billion for share repurchases,$571million for debt repayments,$399 million for cash dividends and$264 million for capital expenditures.(2)(2)(1)(3)(1)4Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AOverviewSignificant Developments in Fiscal 2023 and TrendsInflationary ImpactsBeginning in fiscal 2022,Medical segment profit was negatively affected by incremental inflationary impacts,primarily related to transportation(including ocean and domestic freight),commodities and labor,and global supply chain constraints.Since that time,we have taken certainactions to mitigate these impacts,including implementing certain price increases and evolving our pricing and commercial contracting processesto provide us with greater pricing flexibility.In addition,certain decreases in some product-related costs are beginning to be recognized as thehigher-cost inventory is moving through our supply chain.As a result,during the three months ended March 31,2023,these inflationary impacts,net of our mitigation actions,and global supply chain constraints had a slightly favorable impact on Medical segment profit on a year-over-yearbasis.During the nine months ended March 31,2023,these net inflationary impacts negatively affected Medical segment profit on a year-over-year basis.We expect these net inflationary impacts to continue to affect Medical segment profit in fiscal 2023 and beyond,but to a lesser extent than inprior periods.These inflationary costs are difficult to predict and may be greater than we expect or continue longer than our current expectations.Any additional benefit to Medical segment profit from further decreases in these product-related costs will be delayed until the higher-costinventory has moved through our supply chain.Our actions to increase prices and evolve our contracting strategies are subject to contingenciesand uncertainties and it is possible that our results of operations will be adversely impacted to a greater extent than we currently anticipate orthat we may not be able to mitigate the negative impact to the extent or on the timeline we anticipate.To a lesser extent,inflationary impacts,primarily related to increased transportation and labor costs,also adversely affected Pharmaceuticalsegment profit during the three and nine months ended March 31,2023 and on a year-over-year basis during the nine months ended March 31,2023.During the three months ended March 31,2023,these inflationary impacts did not have a meaningful impact on Pharmaceutical segmentprofit on a year-over-year basis.PPE Demand and PricingPersonal protective equipment(PPE)refers to protective clothing,medical gloves,face shields,face masks and other equipment designed toprotect the wearer from injury or the spread of infection or illness.PPE adversely impacted Medical segment revenue during the three and nine months ended March 31,2023 on a year-over-year basis,primarilydue to declines in volumes and pricing.Medical segment profit was favorably impacted during the three and nine months ended March 31,2023 and on a year-over-year basis by a netpositive contribution from PPE,primarily driven by lower costs.The demand and pricing for PPE is subject to risks and uncertainties,which may continue to impact Medical segment revenue,Medical segmentprofit and consolidated operating earnings during the remainder of fiscal 2023.Medical GoodwillDue to changes in our long-term financial plan assumptions made during the three months ended March 31,2023,we performed interimgoodwill impairment testing for the Medical operating segment(excluding our Cardinal Health at-Home Solutions division)(the“Medical Unit”)atMarch 31,2023.We concluded that there was no impairment of goodwill at March 31,2023,as the estimated fair value of the Medical Unitexceeded its carrying value.We performed quantitative goodwill impairment testing for the Medical Unit at December 31,2022 and September 30,2022,which resulted inpre-tax goodwill impairment charges of$709 million and$154 million,respectively.The cumulative pre-tax goodwill impairment charges of$863million were recognized in impairments and(gain)/loss on disposal of assets,net in our condensed consolidated statements of earnings/(loss)for the nine months ended March 31,2023.See Critical Accounting Policies and Sensitive Accounting Estimates section of this MD&A andNote 4 of the Notes to Condensed Consolidated Financial Statements for additional detail.Adverse changes in key assumptions,including an increase in the discount rate,or a significant change in industry or economic trends duringthe remainder of fiscal 2023 and beyond could result in additional goodwill impairments.5Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AOverviewShareholder Cooperation AgreementIn September 2022,we entered into a Cooperation Agreement(the Cooperation Agreement)with Elliott Associates,L.P.and ElliottInternational,L.P.(together,Elliott)under which our Board of Directors(the Board),among other things,(1)appointed four new independentdirectors,including a representative from Elliott,and(2)formed an advisory Business Review Committee of the Board,which is tasked withundertaking a comprehensive review of our strategy,portfolio,capital-allocation framework and operations.In May 2023,we extended the termof the Cooperation Agreement until the later of July 15,2024 or until Elliotts representative ceases to serve on,or resigns from,the Board.Inconnection with this extension,the Board has extended the term of the Business Review Committee until July 15,2024.The evaluation and implementation of any actions recommended by the Business Review Committee and the Board may impact our financialposition and results of operations during the remainder of fiscal 2023 and beyond.In addition,during the nine months ended March 31,2023,weincurred$8 million of expenses related to the negotiation and finalization of the Cooperation Agreement and other consulting expenses.We haveincurred,and expect to continue to incur additional legal,consulting and other expenses related to the Cooperation Agreement and the activitiesof the Business Review Committee.See Risk Factors section for additional detail related to risks associated with the Cooperation Agreement.Pharmaceutical Segment Generics ProgramThe performance of our Pharmaceutical segment generics program positively impacted the year-over-year comparison of Pharmaceuticalsegment profit during the three and nine months ended March 31,2023.The Pharmaceutical segment generics program includes,among otherthings,the impact of generic pharmaceutical product launches,customer volumes,pricing changes,the Red Oak Sourcing,LLC venture(RedOak Sourcing)with CVS Health Corporation(CVS Health)and generic pharmaceutical contract manufacturing and sourcing costs.During thenine months ended March 31,2023,generic pharmaceutical contract manufacturing inventory-related charges adversely impacted theperformance of our generics program.The frequency,timing,magnitude and profit impact of generic pharmaceutical customer volumes,pricing changes,customer contract renewals,generic pharmaceutical manufacturer pricing changes and generic pharmaceutical contract manufacturing and sourcing costs all impactPharmaceutical segment profit and are subject to risks and uncertainties.These risks and uncertainties may impact Pharmaceutical segmentprofit and consolidated operating earnings during the remainder of fiscal 2023.6Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AResults of OperationsResults of OperationsRevenueThree Months Ended March 31,Nine Months Ended March 31,(in millions)20232022Change20232022ChangePharmaceutical$46,809$40,957 14%$140,310$122,154 15%Medical3,684 3,884(5),259 12,118(7)%Total segment revenue50,493 44,841 131,569 134,272 13%Corporate(6)(5)N.M.(10)(11)N.M.Total revenue$50,487$44,836 13%$151,559$134,261 13%Pharmaceutical SegmentPharmaceutical segment revenue increased during the three and nine months ended March 31,2023 due to branded and specialtypharmaceutical sales growth,which increased revenue by$5.8 billion and$17.9 billion,respectively,primarily from existing customers.Duringthe nine months ended March 31,2023,pharmaceutical sales growth from net new customers also contributed to increased revenue.Medical SegmentMedical segment revenue decreased during the three months ended March 31,2023 primarily due to an adverse impact of PPE volumes andpricing within products and distribution.Medical segment revenue decreased during the nine months ended March 31,2023 primarily due to lower sales within products and distribution,which includes an adverse impact from PPE volumes and pricing,and was partially offset by sales growth in at-Home Solutions.Cost of Products SoldCost of products sold for the three and nine months ended March 31,2023 increased 13 percent to$48.7 billion and$146.5 billion,respectively,compared to the prior-year periods due to the factors affecting the changes in revenue and gross margin.7Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AResults of OperationsGross MarginThree Months Ended March 31,Nine Months Ended March 31,(in millions)20232022Change20232022ChangeGross margin$1,785$1,682 6%$5,062$4,940 2%Gross margin increased during the three and nine months ended March 31,2023 primarily due to the Pharmaceutical segment,which includedthe performance of our generics program and a higher contribution from branded and specialty pharmaceutical products.The increase in grossmargin due to the Pharmaceutical segment during the nine months ended March 31,2023 was partially offset by the performance of productsand distribution within the Medical segment,primarily driven by lower volumes and unfavorable product sales mix.Gross margin rate declined 21 basis points and 34 basis points during the three and nine months ended March 31,2023,respectively,mainlydue to changes in overall product mix,primarily driven by increased pharmaceutical distribution branded sales,which have a dilutive impact onour overall gross margin rate.Distribution,Selling,General and Administrative(SG&A)ExpensesThree Months Ended March 31,Nine Months Ended March 31,(in millions)20232022Change20232022ChangeSG&A expenses$1,179$1,137 4%$3,567$3,402 5%During the three and nine months ended March 31,2023,SG&A expenses increased primarily due to inflationary impacts,primarily related toincreased transportation and labor costs,and higher operating expenses(which were partially offset by the beneficial impact of enterprise-widecost-savings measures).During the nine months ended March 31,2023,we incurred$8 million of expenses primarily related to the finalization of the CooperationAgreement.See Significant Developments in Fiscal 2023 and Trends section in this MD&A for additional detail related to the CooperationAgreement.During the nine months ended March 31,2023,we recorded$6 million of income to reduce our accrual for the assessment on prescription opioidmedications that were sold or distributed in New York state in calendar year 2018 to the amount invoiced.See Note 6 of the Notes toCondensed Consolidated Financial Statements for additional information.8Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AResults of OperationsSegment ProfitWe evaluate segment performance based on segment profit,among other measures.See Note 12 of the Notes to Condensed ConsolidatedFinancial Statements for additional information on segment profit.Three Months Ended March 31,Nine Months Ended March 31,(in millions)20232022Change20232022ChangePharmaceutical$600$487 23%$1,495$1,319 13%Medical20 59(66) 232(88)%Total segment profit620 546 14%1,524 1,551(2)%Corporate(48)(643)N.M.(934)(2,183)N.M.Total consolidated operating earnings/(loss)$572$(97)N.M.$590$(632)N.M.Pharmaceutical Segment ProfitPharmaceutical segment profit increased during the three and nine months ended March 31,2023 primarily due to the performance of ourgenerics program and an increased contribution from branded and specialty pharmaceutical products.Medical Segment ProfitMedical segment profit decreased during the three and nine months ended March 31,2023 primarily due to the performance of products anddistribution,largely driven by lower volumes and unfavorable product sales mix.Medical segment profit during the nine months ended March 31,2023 was also unfavorably affected by net inflationary impacts.CorporateThe changes in Corporate during the three and nine months ended March 31,2023 were due to the factors discussed in the Other Componentsof Consolidated Operating Earnings/(Loss)section that follows.9Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AResults of OperationsOther Components of Consolidated Operating Earnings/(Loss)In addition to revenue,gross margin and SG&A expenses discussed previously,consolidated operating earnings/(loss)were impacted by thefollowing:Three Months Ended March 31,Nine Months Ended March 31,(in millions)2023202220232022Restructuring and employee severance$16$31$62$56 Amortization and other acquisition-related costs74 79 216 237 Impairments and(gain)/loss on disposal of assets,net20 471 883 1,764 Litigation(recoveries)/charges,net(76)61(256)113 Restructuring and Employee SeveranceRestructuring and employee severance costs during the three and nine months ended March 31,2023 were primarily related to theimplementation of certain enterprise-wide cost-savings measures and the divestiture of the Cordis business.During the three and nine monthsended March 31,2022,restructuring also included facility exit costs related to decreasing our overall office space.Amortization and Other Acquisition-Related CostsAmortization of acquisition-related intangible assets was$69 million and$78 million for the three months ended March 31,2023 and 2022,respectively,and$211 million and$235 million for the nine months ended March 31,2023 and 2022,respectively.Impairments and(Gain)/Loss on Disposal of Assets,NetWe recognized$863 million of pre-tax non-cash goodwill impairment charges related to our Medical segment during the nine months endedMarch 31,2023,and$474 million and$1.8 billion during the three and nine months ended March 31,2022,respectively,as discussed further inthe Critical Accounting Policies and Sensitive Accounting Estimates section of this MD&A and Note 4 of the Notes to Condensed ConsolidatedFinancial Statements.Litigation(Recoveries)/Charges,NetWe recognized income of$71 million and$95 million during the three and nine months ended March 31,2023,respectively,primarily related to areduction of the reserve for the estimated settlement and defense costs for the Cordis OptEase and TrapEase inferior vena cava(IVC)productliability due to the execution of certain settlement agreements.During the three and nine months ended March 31,2022,we recognizedestimated losses and legal defense costs associated with the IVC filter product liability claims of$24 million and$63 million,respectively.SeeNote 6 of the Notes to Condensed Consolidated Financial Statements for additional information.During the nine months ended March 31,2023,we recognized income of$93 million due to net proceeds from the settlement of a shareholderderivative litigation matter as described further in the Legal Proceedings section.We recognized income for net recoveries in class action antitrust lawsuits in which we were a class member or plaintiff of$66 million and$17 million during the nine months ended March 31,2023 and 2022,respectively.During the three and nine months ended March 31,2022,we incurred a one-time contingent attorney fee of$18 million related to the finalizationof the Settlement Agreement resulting in the settlement of the vast majority of opioid lawsuits filed by state and local governmental entities.Dueto the unique nature and significance of the Settlement Agreement,and the one-time,contingent nature of the fee,this related fee was includedin litigation(recoveries)/charges,net.Earnings/(Loss)Before Income TaxesIn addition to the items discussed above,earnings/(loss)before income taxes were impacted by the following:Three Months Ended March 31,Nine Months Ended March 31,(in millions)20232022Change20232022ChangeOther(income)/expense,net$3 N.M.$(5)$(14)N.M.Interest expense,net28 38(26)x 115(32)%Loss on early extinguishment of debt N.M.10 N.M.(Gain)/loss on sale of equity interest in naviHealth(1)N.M.(2)N.M.10Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AResults of OperationsInterest Expense,NetDuring the three and nine months ended March 31,2023,interest expense decreased by 26 percent and 32 percent,respectively,primarily dueto increased interest income from cash and equivalents.Loss on Early Extinguishment of DebtDuring the nine months ended March 31,2022,we recognized a$10 million loss in connection with the debt redemption as described further inNote 5 of the“Notes to Condensed Consolidated Financial Statements.”Provision for Income TaxesThe effective tax rate was 36.3 percent and(916.5)percent during the three months ended March 31,2023 and 2022,respectively,and 36.7percent and(44.4)percent during the nine months ended March 31,2023 and 2022,respectively.These tax rates reflect the impact of the taxeffects of goodwill impairment charges recognized during the three and nine months ended March 31,2023 and 2022.Tax Effects of Goodwill Impairment ChargesDuring the nine months ended March 31,2023,we recognized cumulative pre-tax goodwill impairment charges of$863 million related to theMedical Unit.The net tax benefit related to these charges is$68 million for fiscal 2023.Unless an item is considered discrete because it is unusual or infrequent,the tax impact of the item is included in our estimated annual effectivetax rate.When items are recognized through our estimated annual effective tax rate,we apply our estimated annual effective tax rate to theearnings/(loss)before income taxes for the year-to-date period to compute our impact from income taxes for the current quarter and year-to-dateperiod.The tax impacts of discrete items are recognized in their entirety in the period in which they occur.The tax effect of the goodwill impairment charges recorded during the nine months ended March 31,2023 was included in our estimated annualeffective tax rate because it was not considered unusual or infrequent,given that we recorded goodwill impairments in prior fiscal years.Theimpact of the non-deductible goodwill increased the estimated annual effective tax rate for fiscal 2023.Applying the higher tax rate to the pre-taxincome for the nine months ended March 31,2023 resulted in recognizing an incremental interim tax expense of approximately$74 million,which impacted the provision for income taxes in the condensed consolidated statements of earnings/(loss)during the three months endedMarch 31,2023 and prepaid expenses and other assets in the condensed consolidated balance sheet at March 31,2023.The incrementalinterim tax benefit recognized during the nine months ended March 31,2023 was$66 million and will reverse in the fourth quarter of fiscal 2023.11Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&ALiquidity and Capital ResourcesLiquidity and Capital ResourcesWe currently believe that,based on available capital resources(cash on hand and committed credit facilities)and projected operating cash flow,we have adequate capital resources to fund working capital needs;currently anticipated capital expenditures;currently anticipated businessgrowth and expansion;contractual obligations and cash requirements;tax payments;current and projected debt service requirements,upcomingdebt maturities,dividends and share repurchases;and known opioid litigation settlement payments.If we decide to engage in one or moreacquisitions,depending on the size and timing of such transactions,we may need to access capital markets for additional financing.Cash and EquivalentsOur cash and equivalents balance was$4.0 billion at March 31,2023compared to$4.7 billion at June 30,2022.During the nine months ended March 31,2023,net cash provided byoperating activities was$2.0 billion,which includes the impact of oursecond annual payment of$372 million related to the SettlementAgreement.For additional information,see Opioid LitigationSettlement Agreement section below.In addition,we deployed cashof$1.5 billion for share repurchases,$571 million for debtrepayments,$399 million for cash dividends and$264 million forcapital expenditures.At March 31,2023,our cash and equivalents were held in cashdepository accounts with major banks or invested in high quality,short-term liquid investments.Changes in working capital,which impact operating cash flow,canvary significantly depending on factors such as the timing of customerpayments,inventory purchases,payments to vendors and taxpayments in the regular course of business,as well as fluctuatingworking capital needs driven by customer and product mix.The cash and equivalents balance at March 31,2023 includes$689million of cash held by subsidiaries outside of the United States.Other Financing Arrangements and Financial InstrumentsCredit Facilities and Commercial PaperIn addition to cash and equivalents and operating cash flow,othersources of liquidity at March 31,2023 include a$2.0 billioncommercial paper program,backed by a$2.0 billion revolving creditfacility.We also have a$1.0 billion committed receivables salesfacility.During the nine months ended March 31,2023,under ourcommercial paper program and our committed receivables program,we had maximum combined total daily amounts outstanding of$445million and average combined daily amount outstanding of$4 million.At March 31,2023,we had no amounts outstanding under ourcommercial paper program,revolving credit facility,or our committedreceivables sales facility.In February 2023,we extended our revolving credit facility throughFebruary 25,2028.In September 2022,we renewed our committedreceivables sales facility program through Cardinal Health Funding,LLC(CHF)through September 30,2025.Our revolving credit and committed receivables sales facilities requireus to maintain a consolidated net leverage ratio of no more than 3.75-to-1.As of March 31,2023,we were in compliance with this financialcovenant.Long-Term Debt and Other Short-Term BorrowingsAt March 31,2023 and June 30,2022,we had total long-termobligations,including the current portion and other short-termborrowings,of$4.7 billion and$5.3 billion,respectively.In March2023,we repaid$550 million 3.2%Notes due 2023 at maturity withavailable cash.12Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&ALiquidity and Capital ResourcesCapital DeploymentOpioid Litigation Settlement AgreementWe had$5.85 billion accrued at March 31,2023 related to certainopioid litigation,as further described within Note 6 of the Notes toCondensed Consolidated Financial Statements.We expect themajority of the remaining payment amounts to be spread over thenext 17 years.The effective date of the Settlement Agreement wasApril 2,2022.During the nine months ended March 31,2023,wemade our second annual payment of$372 million under theSettlement Agreement.We expect to make subsequent annualpayments under the Settlement Agreement every July for theremainder of the 18-year term of the Settlement Agreement.Theamounts of these future payments may differ from the payments thatwe have already made.Capital ExpendituresCapital expenditures during the nine months ended March 31,2023and 2022 were$264 million and$223 million,respectively.DividendsOn each of May 10,2022,August 10,2022,November 8,2022 andFebruary 10,2023,our Board of Directors approved a quarterlydividend of$0.4957 per share,or$1.98 per share on an annualizedbasis,which were paid on July 15,2022,October 17,2022,January15,2023 and April 15,2023 to shareholders of record on July 1,2022,October 3,2022,January 3,2023 and April 3,2023,respectively.Share RepurchasesDuring the nine months ended March 31,2023,we repurchased$1.5 billion of our common shares,in the aggregate,underaccelerated share repurchase(ASR)programs.We funded the ASRprograms with available cash.See Note 10 of the Notes toCondensed Consolidated Financial Statements for additionalinformation.On November 4,2021,our Board of Directors approved a new$3.0 billion share repurchase program,which will expire onDecember 31,2024.As of March 31,2023,we have$1.2 billionauthorized for share repurchases remaining under this program.13Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AOther ItemsOther ItemsThe MD&A in our 2022 Form 10-K addresses our contractual obligations and cash requirements,as of and for the fiscal year ended June 30,2022.There have been no subsequent material changes outside the ordinary course of business to those items.Critical Accounting Policies and Sensitive Accounting EstimatesThe discussion and analysis presented below is a supplemental disclosure to the critical accounting policies and sensitive accounting estimatesspecified in our consolidated balance sheet at June 30,2022.This discussion and analysis should be read in conjunction with the CriticalAccounting Policies and Sensitive Accounting Estimates included in our 2022 Form 10-K and our Form 10-Q for the quarters ended September30,2022 and December 31,2022.Critical accounting policies are those accounting policies that(i)can have a significant impact on our financial condition and results of operationsand(ii)require the use of complex and subjective estimates based upon past experience and managements judgment.Other people applyingreasonable judgment to the same facts and circumstances could develop different estimates.Because estimates are inherently uncertain,actualresults may differ,including due to the risks discussed in Risk Factors and other risks discussed in our 2022 Form 10-K and our other filingswith the SEC since June 30,2022.GoodwillPurchased goodwill is tested for impairment annually or whenindicators of impairment exist.Goodwill impairment testing involves acomparison of the estimated fair value of reporting units to therespective carrying amount,which may be performed utilizing either aqualitative or quantitative assessment.Qualitative factors are firstassessed to determine if it is more likely than not that the fair value ofa reporting unit is less than its carrying amount.If it is determined thatit is more likely than not that the fair value does not exceed thecarrying amount,then a quantitative test is performed.Thequantitative goodwill impairment test involves a comparison of theestimated fair value of the reporting unit to the respective carryingamount.A reporting unit is defined as an operating segment or onelevel below an operating segment(also known as a component).Our reporting units are:Pharmaceutical operating segment(excludingour Nuclear and Precision Health Solutions division);Nuclear andPrecision Health Solutions division;Medical operating segment(excluding our Cardinal Health at-Home Solutions division)(“MedicalUnit”);and Cardinal Health at-Home Solutions division.Goodwill impairment testing involves judgment,including theidentification of reporting units,qualitative evaluation of events andcircumstances to determine if it is more likely than not that animpairment exists,and,if necessary,the estimation of the fair value ofthe applicable reporting unit.Our qualitative evaluation considers theweight of evidence and significance of all identified events andcircumstances and most relevant drivers of fair value,both positiveand negative,in determining whether it is more likely than not that thefair value of a reporting unit is less than its carrying amount.Medical Unit GoodwillDue to changes in our long-term financial plan assumptions madeduring the three months ended March 31,2023,we elected to bypassthe qualitative assessment and perform quantitative goodwillimpairment testing for the Medical Unit.We concluded that there wasno impairment of goodwill at March 31,2023,as the estimated fairvalue of the Medical Unit exceeded its carrying value byapproximately 4 percent,primarily driven by a lower discount rate asdescribed below.We performed quantitative goodwill impairment testing for theMedical Unit at December 31,2022 and September 30,2022,whichresulted in pre-tax goodwill impairment charges of$709 million and$154 million,respectively.The impairment charge recognized in thesecond quarter was driven by certain reductions in our long-termfinancial plan assumptions,and the impairment charge recognized inthe first quarter was driven by an increase in the discount rateprimarily due to an increase in the risk-free interest rate.Thecumulative pre-tax goodwill impairment charges of$863 million wererecognized in impairments and(gain)/loss on disposal of assets,netin our condensed consolidated statements of earnings/(loss)for thenine months ended March 31,2023.Our determinations of the estimated fair value of the Medical Unit atMarch 31,2023,December 31,2022 and September 30,2022 werebased on a combination of the income-based approach(using aterminal growth rate of 2 percent),and the market-based approaches.For the income-based approach,we used discount rates of 10percent,10.5 percent and 10.5 percent for each quarter,respectively.Additionally,we assigned a weighting of 80 percent to the discountedcash flow method,10 percent to the guideline public companymethod,and 10 percent to the guideline transaction method.Thedecrease in the discount rate for the interim testing performed atMarch 31,2023 was primarily due to a decrease in the risk-freeinterest rate.14Cardinal Health|Q3 Fiscal 2023 Form 10-QMD&AOther ItemsWhile we consider the assumptions used in our determination of theestimated fair value of the Medical Unit to be reasonable andappropriate,they are complex and subjective,and additional adversechanges in one key assumption or a combination of key assumptionsduring fiscal 2023 may significantly affect future estimates.Theseassumptions include,among other things,a failure to meet expectedearnings or other financial plans,including the execution of keyinitiatives related to optimizing and growing sales of Cardinal Healthbranded medical products,increasing growth in certain strategicdivisions within our Medical segment,and driving simplification effortsand cost optimization projects,or unanticipated events andcircumstances,such as changes in assumptions about the durationand magnitude of increased supply chain and commodities costs andour efforts to mitigate such impact,including price increases orsurcharges;further disruptions in the supply chain;manufacturingcost inefficiencies resulting from lower than anticipated sales volume;estimated demand and selling prices for PPE;an increase in thediscount rate;a decrease in the terminal growth rate;increases in taxrates;or a significant change in industry or economic trends.Adverse changes in key assumptions may result in a decline in fairvalue below the carrying value in the future and therefore,animpairment of our Medical Unit goodwill in future periods,which couldadversely affect our results of operations.For example,if we were toincrease the discount rate by a hypothetical 0.5 percent to 10.5percent or decrease the terminal growth rate by a hypothetical 1.7percent to 0.3 percent,the carrying value would have exceeded thefair value of the Medical Unit by approximately 1 percent.During the three months ended March 31,2022 and December 31,2021,we performed quantitative goodwill impairment testing for theMedical Unit.This quantitative testing resulted in the carrying amountof the Medical Unit exceeding the fair value,resulting in pre-taximpairment charges of$474 million and$1.3 billion recorded duringthe three months ended March 31,2022 and December 31,2021,respectively.Refer to our 2022 Form 10-K for additional detail.15Cardinal Health|Q3 Fiscal 2023 Form 10-QExplanation and Reconciliation of Non-GAAP Financial MeasuresExplanation and Reconciliation of Non-GAAP Financial MeasuresThe Overview of Consolidated Results section within MD&A in this Form 10-Q contains financial measures that are not calculated inaccordance with GAAP.In addition to analyzing our business based on financial information prepared in accordance with GAAP,we use these non-GAAP financialmeasures internally to evaluate our performance,engage in financial and operational planning,and determine incentive compensation becausewe believe that these measures provide additional perspective on and,in some circumstances are more closely correlated to,the performanceof our underlying,ongoing business.We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers inassessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance tothat of our competitors.However,the non-GAAP financial measures that we use may be calculated differently from,and therefore may not becomparable to,similarly titled measures used by other companies.The non-GAAP financial measures disclosed by us should not be considereda substitute for,or superior to,financial measures calculated in accordance with GAAP,and the financial results calculated in accordance withGAAP and reconciliations to those financial statements set forth below should be carefully evaluated.Exclusions from Non-GAAP Financial MeasuresManagement believes it is useful to exclude the following items from the non-GAAP measures presented in this report for its own and forinvestors assessment of the business for the reasons identified below:LIFO charges and credits are excluded because the factors that drive last-in first-out(LIFO)inventory charges or credits,such aspharmaceutical manufacturer price appreciation or deflation and year-end inventory levels(which can be meaningfully influenced bycustomer buying behavior immediately preceding our fiscal year-end),are largely out of our control and cannot be accurately predicted.The exclusion of LIFO charges and credits from non-GAAP metrics facilitates comparison of our current financial results to our historicalfinancial results and to our peer group companies financial results.We did not recognize any LIFO charges or credits during the periodspresented.Surgical gown recall costs or income includes inventory write-offs and certain remediation and supply disruption costs,net of relatedinsurance recoveries,arising from the January 2020 recall of select Association for the Advancement of Medical Instrumentation(AAMI)Level 3 surgical gowns and voluntary field actions(a recall of some packs and a corrective action allowing overlabeling of otherpacks)for Presource Procedure Packs containing affected gowns.Income from surgical gown recall costs represents insurancerecoveries of these certain costs.We have excluded these costs from our non-GAAP metrics to allow investors to better understand theunderlying operating results of the business and to facilitate comparison of our current financial results to our historical financial resultsand to our peer group companies financial results.State opioid assessments related to prior fiscal years is the portion of state assessments for prescription opioid medications that weresold or distributed in periods prior to the period in which the expense is incurred.This portion is excluded from non-GAAP financialmeasures because it is retrospectively applied to sales in prior fiscal years and inclusion would obscure analysis of the current fiscalyear results of our underlying,ongoing business.Additionally,while states laws may require us to make payments on an ongoing basis,the portion of the assessment related to sales in prior periods are contemplated to be one-time,nonrecurring items.Income from stateopioid assessments related to prior fiscal years represents reversals of accruals due to changes in estimates or when the underlyingassessments were invalidated by a Court or reimbursed by manufacturers.Shareholder cooperation agreement costs includes costs such as legal,consulting and other expenses incurred in relation to theagreement(the Cooperation Agreement)entered into among Elliott Associates,L.P.,Elliott International,L.P.(together,Elliott)andCardinal Health,including costs incurred to negotiate and finalize the Cooperation Agreement and costs incurred by the new BusinessReview Committee of the Board of Directors,which was formed under this Cooperation Agreement.We have excluded these costs fromour non-GAAP metrics because they do not occur in or reflect the ordinary course of our ongoing business operations and may obscureanalysis of trends and financial performance.Restructuring and employee severance costs are excluded because they are not part of the ongoing operations of our underlyingbusiness.Amortization and other acquisition-related costs,which include transaction costs,integration costs,and changes in the fair value ofcontingent consideration obligations,are excluded because they are not part of the ongoing operations of our underlying business and tofacilitate comparison of our current financial results to our historical financial results and to our peer group 16Cardinal Health|Q3 Fiscal 2023 Form 10-QExplanation and Reconciliation of Non-GAAP Financial Measurescompanies financial results.Additionally,costs for amortization of acquisition-related intangible assets are non-cash amounts,which arevariable in amount and frequency and are significantly impacted by the timing and size of acquisitions,so their exclusion facilitatescomparison of historical,current and forecasted financial results.We also exclude other acquisition-related costs,which are directlyrelated to an acquisition but do not meet the criteria to be recognized on the acquired entitys initial balance sheet as part of thepurchase price allocation.These costs are also significantly impacted by the timing,complexity and size of acquisitions.Impairments and gain or loss on disposal of assets,net are excluded because they do not occur in or reflect the ordinary course of ourongoing business operations and are inherently unpredictable in timing and amount,and in the case of impairments,are non-cashamounts,so their exclusion facilitates comparison of historical,current and forecasted financial results.Litigation recoveries or charges,net are excluded because they often relate to events that may have occurred in prior or multipleperiods,do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount.Duringfiscal 2022,we incurred a one-time contingent attorneys fee of$18 million related to the finalization of the settlement agreement(the“Settlement Agreement”)resulting in the settlement of the vast majority of opioid lawsuits filed by state and local governmental entities.Due to the unique nature and significance of the Settlement Agreement,and the one-time,contingent nature of the fee,this fee wasincluded in litigation recoveries or charges,net.Additionally,during fiscal 2022 our Pharmaceutical segment profit was positivelyimpacted by a$16 million judgment for lost profits.This judgment was the result of an ordinary course intellectual property rights claimand,therefore,is not adjusted in calculating the litigation recoveries or charges,net adjustment.During fiscal 2021,we incurred a taxbenefit related to a carryback of a net operating loss.Some pre-tax amounts,which contributed to this loss,relate to litigation charges.As a result,we allocated substantially all of the tax benefit to litigation charges.Loss on early extinguishment of debt is excluded because it does not typically occur in the normal course of business and may obscureanalysis of trends and financial performance.Additionally,the amount and frequency of this type of charge is not consistent and issignificantly impacted by the timing and size of debt extinguishment transactions.(Gain)/Loss on sale of equity interest in naviHealth was incurred in connection with the sale of our remaining equity interest innaviHealth in fiscal 2020.The equity interest was retained in connection with the initial sale of our majority interest in naviHealth duringfiscal 2019.We exclude this significant gain because gains or losses on investments of this magnitude do not typically occur in thenormal course of business and are similar in nature to a gain or loss from a divestiture of a majority interest,which we exclude from non-GAAP results.The gain on the initial sale of our majority interest in naviHealth in fiscal 2019 was also excluded from our non-GAAPmeasures.The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the item and thejurisdiction(s)in which the item is recorded.The gross,tax and net impact of each item are presented with our GAAP to non-GAAPreconciliations.DefinitionsGrowth rate calculation:growth rates in this report are determined by dividing the difference between current-period results and prior-periodresults by prior-period results.Non-GAAP operating earnings:operating earnings/(loss)excluding(1)LIFO charges/(credits),(2)surgical gown recall costs/(income),(3)state opioid assessment related to prior fiscal years,(4)shareholder cooperation agreement costs,(5)restructuring and employee severance,(6)amortization and other acquisition-related costs,(7)impairments and(gain)/loss on disposal of assets,net and(8)litigation(recoveries)/charges,net.Non-GAAP earnings before income taxes:earnings/(loss)before income taxes excluding(1)LIFO charges/(credits),(2)surgical gown recallcosts/(income),(3)state opioid assessment related to prior fiscal years,(4)shareholder cooperation agreement costs,(5)restructuring andemployee severance,(6)amortization and other acquisition-related costs,(7)impairments and(gain)/loss on disposal of assets,net,(8)litigation(recoveries)/charges,net,(9)loss on early extinguishment of debt and(10)(gain)/loss on sale of equity interest in naviHealth.Non-GAAP net earnings attributable to Cardinal Health,Inc.:net earnings/(loss)attributable to Cardinal Health,Inc.excluding(1)LIFOcharges/(credits),(2)surgical gown recall costs/(income),(3)state opioid assessment related to prior fiscal years,(4)shareholder cooperationagreement costs,(5)restructuring and employee severance,(6)amortization and other acquisition-related costs,(7)impairments and(gain)/losson disposal of assets,net,(8)litigation(recoveries)/charges,net,(9)loss on early extinguishment of debt and(10)(gain)/loss on sale of equityinterest in naviHealth,each net of tax.17Cardinal Health|Q3 Fiscal 2023 Form 10-QExplanation and Reconciliation of Non-GAAP Financial MeasuresNon-GAAP effective tax rate:provision for income taxes adjusted for the tax impacts of(1)LIFO charges/(credits),(2)surgical gown recallcosts/(income),(3)state opioid assessment related to prior fiscal years,(4)shareholder cooperation agreement costs,(5)restructuring andemployee severance,(6)amortization and other acquisition-related costs,(7)impairments and(gain)/loss on disposal of assets,net,(8)litigation(recoveries)/charges,net,(9)loss on early extinguishment of debt and(10)(gain)/loss on sale of equity interest in naviHealth divided by(earnings before income taxes adjusted for the ten items above).Non-GAAP diluted earnings per share attributable to Cardinal Health,Inc.:non-GAAP net earnings attributable to Cardinal Health,Inc.divided by diluted weighted-average shares outstanding.18Cardinal Health|Q3 Fiscal 2023 Form 10-QExplanation and Reconciliation of Non-GAAP Financial MeasuresGAAP to Non-GAAP Reconciliation(in millions,except per common share amounts)OperatingEarnings/(Loss)OperatingEarningsGrowth RateEarnings/(Loss)Before IncomeTaxesProvision forIncome TaxesNetEarnings/(Loss)Net EarningsGrowth RateDilutedEPSDilutedEPSGrowthRateThree Months Ended March 31,2023GAAP$572 N.M.$544$197$345 N.M.$1.34 N.M.Restructuring and employee severance16 16 4 12 0.05 Amortization and other acquisition-related costs74 74 19 55 0.21 Impairments and(gain)/loss on disposal of assets,net 20 20(69)89 0.35 Litigation(recoveries)/charges,net(76)(76)(22)(54)(0.21)Non-GAAP$606 11%$578$129$447 11%$1.74 20%Three Months Ended March 31,2022GAAP$(97)N.M.$(137)$1,253$(1,391)N.M.$(5.05)N.M.Restructuring and employee severance31 31 8 23 0.08 Amortization and other acquisition-related costs79 79 20 59 0.21 Impairments and(gain)/loss on disposal of assets,net 471 471(1,189)1,660 6.03 Litigation(recoveries)/charges,net 61 61 10 51 0.18(Gain)/Loss on sale of equity interest in naviHealth(1)(1)Non-GAAP$545(21)%$504$101$402(11)%$1.45(5)%Nine Months Ended March 31,2023GAAP$590 N.M.$517$189$325 N.M.$1.23 N.M.State opioid assessment related to prior fiscalyears(6)(6)(2)(4)0.02 Shareholder cooperation agreement costs8 8 2 6(0.02)Restructuring and employee severance62 62 14 48 0.18 Amortization and other acquisition-related costs216 216 56 160 0.61 Impairments and(gain)/loss on disposal of assets,net 883 883 138 745 2.82 Litigation(recoveries)/charges,net(256)(256)(98)(158)(0.60)Non-GAAP$1,497(3)%$1,424$299$1,122(1)%$4.24 6%Nine Months Ended March 31,2022GAAP$(632)N.M.$(741)$328$(1,071)N.M.$(3.82)N.M.Surgical gown recall costs/(income)1 1 1 Restructuring and employee severance56 56 14 42 0.15 Amortization and other acquisition-related costs237 237 61 176 0.63 Impairments and(gain)/loss on disposal of assets,net 1,764 1,764(119)1,883 6.71 Litigation(recoveries)/charges,net 113 113 19 94 0.33 Loss on early extinguishment of debt 10 3 7 0.03(Gain)/Loss on sale of equity interest in naviHealth(2)(2)Non-GAAP$1,540(20)%$1,438$306$1,131(20)%$4.01(16)1,21334334,5 19Cardinal Health|Q3 Fiscal 2023 Form 10-QExplanation and Reconciliation of Non-GAAP Financial MeasuresAttributable to Cardinal Health,Inc.For the three and nine months ended March 31,2022,GAAP diluted EPS and the EPS impact from the GAAP to non-GAAP per share reconciling items arecalculated using a weighted average of 275 million and 281 million common shares,respectively,which excludes potentially dilutive securities from thedenominator due to their anti-dilutive effects resulting from our GAAP net loss for the periods.For the three and nine months ended March 31,2022,non-GAAP diluted EPS is calculated using a weighted average of 277 million and 282 million common shares,respectively,which includes potentially dilutiveshares.Impairments and(gain)/loss on disposal of assets,net included pre-tax goodwill impairment charges related to the Medical segment of$863 million recordedduring the nine months ended March 31,2023.For fiscal 2023,the estimated net tax benefit related to the impairments is$68 million and is included in theannual effective tax rate.As a result,the amount of tax expense recognized increased approximately by an incremental$74 million during the three monthsended March 31,2023.The incremental interim tax benefit recognized during the nine months ended March 31,2023 was$66 million and will reverse in thefourth quarter of the fiscal year.During the three and nine months ended March 31,2022,impairments and(gain)/loss on disposal of assets,net included pre-tax goodwill impairmentcharges of$474 million and$1.8 billion,respectively,related to the Medical segment.For fiscal 2022,the estimated net tax benefit related to the impairmentwas$126 million and was included in the annual effective tax rate.As a result,the amount of tax expense recognized during the three and nine monthsended March 31,2022 increased approximately by an incremental$1.2 billion and$180 million,respectively,and lowered the provision for income taxesduring the fourth quarter of fiscal 2022 by approximately$180 million.Litigation(recoveries)/charges,net includes a one-time contingent attorney fee of$18 million recorded during the three and nine months ended March 31,2022 related to the finalization of the settlement agreement(the Settlement Agreement)resulting in the settlement of the vast majority of opioid lawsuitsfiled by state and local governmental entities.Due to the unique nature and significance of the Settlement Agreement,and the one-time,contingent natureof the fee,this related fee was included in litigation(recoveries)/charges,net.Litigation(recoveries)/charges,net for the nine months ended March 31,2022 does not include a$16 million judgement for lost profits related to an ordinarycourse intellectual property claim,which positively impacted Pharmaceutical segment profit.The sum of the components and certain computations may reflect rounding adjustments.We apply varying tax rates depending on the items nature and tax jurisdiction where it is incurred.1 2 3 4 5 .20Cardinal Health|Q3 Fiscal 2023 Form 10-QOtherQuantitative and Qualitative Disclosures About Market RiskThere have been no material changes in the quantitative and qualitative market risk disclosures included in our 2022 Form 10-K since the end offiscal 2022 through March 31,2023.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresWe evaluated,with the participation of our principal executive officer and principal financial officer,the effectiveness of our disclosure controlsand procedures(as defined in Rule 13a-15(e)under the Securities Exchange Act of 1934(the Exchange Act)as of March 31,2023.Based onthis evaluation,our principal executive officer and principal financial officer have concluded that as of March 31,2023,our disclosure controlsand procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Actis recorded,processed,summarized,and reported within the time periods specified in the SEC rules and forms and that such information isaccumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.Changes in Internal Control Over Financial ReportingThere were no changes in our internal control over financial reporting during the quarter ended March 31,2023 that have materially affected,orare reasonably likely to materially affect,our internal control over financial reporting.21Cardinal Health|Q3 Fiscal 2023 Form 10-QOtherLegal ProceedingsIn addition to the proceeding described below,the legal proceedings described in Note 6 of the Notes to Condensed Consolidated FinancialStatements are incorporated in this Legal Proceedings section by reference.Between June 2019 and January 2020,three purported shareholders filed actions on behalf of Cardinal Health,Inc.in the U.S.District Court forthe Southern District of Ohio against certain current and former members of our Board of Directors alleging that the defendants breached theirfiduciary duties by failing to effectively monitor Cardinal Healths distribution of controlled substances and approving certain payments ofexecutive compensation.In January,2020,the court consolidated these derivative cases under the caption In re Cardinal Health,Inc.DerivativeLitigation and in March 2020,plaintiffs filed an amended complaint.In December 2021,the parties reached an agreement in principle to settle this matter and in October 2022,the court entered an order approvingthe settlement and dismissing the case.This settlement does not include any admission of liability.Under the settlement,in December 2022,Cardinal Healths director and officer liability insurance carriers,on behalf of the defendants,paid Cardinal Health$124 million,lessapproximately$31 million in attorneys fees and expenses awarded by the court to plaintiffs counsel.22Cardinal Health|Q3 Fiscal 2023 Form 10-QOtherRisk FactorsYou should carefully consider the information in this Form 10-Q,including the Risk Factors below,and the risk factors discussed in RiskFactors and other risks discussed in our 2022 Form 10-K,our Form 10-Q for the quarter ended December 31,2022 and September 30,2022,and our other filings with the SEC since June 30,2022.These risks could materially and adversely affect our results of operations,financialcondition,liquidity,and cash flows.Our business also could be affected by risks that we are not presently aware of or that we currently considerimmaterial to our operations.Our business could be affected by activist shareholders.In September 2022,we entered into a Cooperation Agreement(theCooperation Agreement)with Elliott Associates,L.P.and ElliottInternational,L.P.(together,Elliott)under which our Board ofDirectors,among other things,(1)appointed four new independentdirectors,including a representative from Elliott,and(2)formed anadvisory Business Review Committee of the Board,which is taskedwith undertaking a comprehensive review of our strategy,portfolio,capital-allocation framework and operations.In May 2023,weextended the term of the Cooperation Agreement until the later of July15,2024 or until Elliotts representative ceases to serve on,or resignsfrom,our Board of Directors.The Cooperation Agreement may create unintended consequences,such as creating uncertainty about our management,operations orfuture strategic direction,which could result in the loss of futurebusiness opportunities or negatively impact our ability to attract andretain qualified talent.Additionally,implementing any actionsrecommended by the Business Review Committee and the Boardmay be costly and time-consuming,may be disruptive to our ongoingbusiness operations and may ultimately be unsuccessful.It is possible that activist shareholders may,among other things,attempt to effect additional changes and exert influence over ourBoard of Directors and management or initiate a proxy contest,whichmay disrupt our operations by diverting the attention of managementand the Board and be costly and time-consuming.Any such proxycontests,actions or requests,or the mere public presence of activistshareholders,may cause the market price for our shares toexperience volatility,which could be significant.We could be subject to adverse changes in the tax laws oradditional challenges to our tax positions.We are a large multinational corporation with operations in the UnitedStates and many foreign countries.As a result,we are subject to thetax laws of many jurisdictions.From time to time,proposals are made in the United States and otherjurisdictions in which we operate that could adversely affect our taxpositions,effective tax rate or tax payments.Specific initiatives thatmay impact us include possible increases in U.S.or foreign corporateincome tax rates or other changes in tax law to raise revenue,therepeal of the LIFO(last-in,first-out)method of inventory accountingfor income tax purposes,the establishment or increase in taxation atthe U.S.state level on the basis of gross revenues,recommendationsof the base erosion and profit shifting project undertaken by theOrganization for Economic Cooperation and Development and theEuropean Commissions investigationinto illegal state aid.In August 2022,the U.S.federal governmentenacted the Inflation Reduction Act,which imposed a 15 percentcorporate minimum tax on certain large corporations and a 1 percenttax on share repurchases after December 31,2022.These provisionsmay adversely impact our financial position and results of operations.Additionally,in connection with the accruals taken in connection withopioid-related lawsuits in fiscal years 2021 and 2020,we recordednet tax benefits of$228 million and$488 million,respectively,reflecting our current assessment of the estimated future deductibilityof the amount that may be paid.We have made reasonable estimatesand recorded amounts based on managements judgment and ourcurrent understanding of the U.S.Tax Cuts and Jobs Act(Tax Act);however,these estimates require significant judgment,and it ispossible that they could be subject to challenges by the U.S.InternalRevenue Service(IRS).The U.S.tax law governing deductibility was changed by the Tax Act.The taxing authorities could challenge our interpretation of the TaxAct or the estimates and assumptions used to assess the futuredeductibility of these benefits,or tax law could change again.We alsoregularly review these estimates and assumptions from time to timeand adjust our accruals based on our review,resulting in changes inour tax provision/(benefit).The actual amount of tax benefit related touncertain tax positions may differ materially from these estimates.See Note 7 of the Notes to Condensed Consolidated FinancialStatements for more information regarding these matters.In fiscal year 2021,our provision for income taxes reflected a$424million benefit from the tax benefits of a self-insurance pre-tax netoperating loss carryback under the Coronavirus Aid,Relief andEconomic Security(“CARES”)Act.Also,as a result of this netoperating loss carryback,we received a U.S.federal income taxrefund of$966 million.In connection with this net operating losscarryback,certain industry participants,including us,received a letterfrom the U.S.House of Representatives Committee on Oversightand Reform questioning,among other things,our plans to take taxdeductions for opioid-related losses,including our use of the netoperating loss carryback provisions under the CARES Act anddeductibility under the Tax Act.We responded to the letter.It ispossible that the IRS could challenge our tax position with respect tothis self-insurance loss.If these initiatives are successful,oureffective tax rate could be adversely impacted.Additionally,lawsgoverning insurance coverage vary by state and 23Cardinal Health|Q3 Fiscal 2023 Form 10-QOthersome state courts have interpreted laws and insurance policies inways that may impact our self-insurance loss,which could negativelyimpact our financial position.We file income tax returns in the U.S.federal jurisdiction,various U.S.state jurisdictions and various foreign jurisdictions.Tax laws arecomplex and subject to varying interpretations.With few exceptions,we are subject to audit by taxing authorities for fiscal years 2015through the current fiscal year.Proposed adjustments in ongoingaudits may adversely affect our effective tax rate or tax payments.24Cardinal Health|Q3 Fiscal 2023 Form 10-QOtherUnregistered Sales of Equity Securities and Use of ProceedsIssuer Purchases of Equity SecuritiesPeriodTotal Numberof SharesPurchased(1)Average Price Paid per Share(2,3)Total Number of SharesPurchasedas Part of Publicly AnnouncedPrograms(2,3,4)ApproximateDollar Value ofShares That MayYet be PurchasedUnder the Program(4)(in millions)January 2023614,596$81.40 614,248$1,493 February 20232,596,570 77.03 2,596,391 1,293 March 2023639,115 78.25 638,930 1,243 Total3,850,281$77.93 3,849,569$1,243(1)Reflects 348,179 and 185 common shares purchased in January,February,and March 2023,respectively,through a rabbi trust as investments of participants in our DeferredCompensation Plan.(2)On February 6,2023,we entered into an accelerated share repurchase(ASR)program to purchase common shares for an aggregate purchase price of$250 million andreceived an initial delivery of 2.6 million common shares using a reference price of$77.03.The ASR program concluded on February 28,2023 at a volume weighted averageprice per common share of$77.27 resulting in a final delivery of 0.6 million common shares.See Note 10 of the Notes to Condensed Consolidated Financial Statements foradditional information.(3)On November 17,2022,we entered into an ASR program to purchase common shares for an aggregate purchase price of$250 million and received an initial delivery of 2.6million common shares using a reference price of$76.58.The ASR program concluded on January 13,2023 at a volume weighted average price per common share of$77.50resulting in a final delivery of 0.6 million common shares.See Note 10 of the Notes to Condensed Consolidated Financial Statements for additional information.(4)On November 4,2021,our Board of Directors approved a new$3.0 billion share repurchase program,which will expire on December 31,2024.As of March 31,2023,we have$1.2 billion authorized for share repurchases remaining under this program.25Cardinal Health|Q3 Fiscal 2023 Form 10-QFinancial StatementsCondensed Consolidated Statements of Earnings/(Loss)(Unaudited)Three Months Ended March 31,Nine Months Ended March 31,(in millions,except per common share amounts)2023202220232022Revenue$50,487$44,836$151,559$134,261 Cost of products sold48,702 43,154 146,497 129,321 Gross margin1,785 1,682 5,062 4,940 Operating expenses:Distribution,selling,general and administrative expenses1,179 1,137 3,567 3,402 Restructuring and employee severance16 31 62 56 Amortization and other acquisition-related costs74 79 216 237 Impairments and(gain)/loss on disposal of assets,net20 471 883 1,764 Litigation(recoveries)/charges,net(76)61(256)113 Operating earnings/(loss)572(97)590(632)Other(income)/expense,net 3(5)(14)Interest expense,net28 38 78 115 Loss on early extinguishment of debt 10(Gain)/loss on sale of equity interest in naviHealth(1)(2)Earnings/(loss)before income taxes544(137)517(741)Provision for income taxes197 1,253 189 328 Net earnings/(loss)347(1,390)328(1,069)Less:Net earnings attributable to noncontrolling interests(2)(1)(3)(2)Net earnings/(loss)attributable to Cardinal Health,Inc.$345$(1,391)$325$(1,071)Earnings/(Loss)per common share attributable to Cardinal Health,Inc.:Basic$1.35$(5.05)$1.24$(3.82)Diluted1.34(5.05)1.23(3.82)Weighted-average number of common shares outstanding:Basic256275263281Diluted258275264281Cash dividends declared per common share$0.4957$0.4908$1.4871$1.4724 See notes to condensed consolidated financial statements.26Cardinal Health|Q3 Fiscal 2023 Form 10-QFinancial StatementsCondensed Consolidated Statements of ComprehensiveIncome/(Loss)(Unaudited)Three Months Ended March 31,Nine Months Ended March 31,(in millions)2023202220232022Net earnings/(loss)$347$(1,390)$328$(1,069)Other comprehensive income/(loss):Foreign currency translation adjustments and other4(4)(34)(47)Net unrealized gain on derivative instruments,net of tax 12 6 4 Total other comprehensive income/(loss),net of tax4 8(28)(43)Total comprehensive income/(loss)351(1,382)300(1,112)Less:comprehensive income attributable to noncontrolling interests(2)(1)(3)(2)Total comprehensive income/(loss)attributable to Cardinal Health,Inc.$349$(1,383)$297$(1,114)See notes to condensed consolidated financial statements.27Cardinal Health|Q3 Fiscal 2023 Form 10-QFinancial StatementsCondensed Consolidated Balance Sheets(in millions)March 31,2023June 30,2022(Unaudited)AssetsCurrent assets:Cash and equivalents$3,990$4,717 Trade receivables,net10,992 10,561 Inventories,net16,620 15,636 Prepaid expenses and other1,895 2,021 Total current assets33,497 32,935 Property and equipment,net2,362 2,361 Goodwill and other intangibles,net6,567 7,629 Other assets951 953 Total assets$43,377$43,878 Liabilities and Shareholders DeficitCurrent liabilities:Accounts payable$29,601$27,128 Current portion of long-term obligations and other short-term borrowings26 580 Other accrued liabilities2,876 2,842 Total current liabilities32,503 30,550 Long-term obligations,less current portion4,708 4,735 Deferred income taxes and other liabilities8,384 9,299 Shareholders deficit:Preferred shares,without par value:Authorized500 thousand shares,Issuednone Common shares,without par value:Authorized755 million shares,Issued327 million shares at March 31,2023 and June 30,20222,818 2,813 Accumulated deficit(342)(280)Common shares in treasury,at cost:72 million shares and 54 million shares at March 31,2023 and June 30,2022,respectively(4,554)(3,128)Accumulated other comprehensive loss(142)(114)Total Cardinal Health,Inc.shareholders deficit(2,220)(709)Noncontrolling interests2 3 Total shareholders deficit(2,218)(706)Total liabilities and shareholders deficit$43,377$43,878 See notes to condensed consolidated financial statements.28Cardinal Health|Q3 Fiscal 2023 Form 10-QFinancial StatementsCondensed Consolidated Statements of ShareholdersEquity/(Deficit)(Unaudited)Common SharesRetainedEarnings/(AccumulatedDeficit)Treasury SharesAccumulatedOtherComprehensiveLossNoncontrollingInterestsTotalShareholdersEquity/(Deficit)(in millions)SharesIssuedAmountSharesAmountThree Months Ended March 31,2023Balance at December 31,2022327$2,747$(560)(68)$(4,254)$(146)$1$(2,212)Net earnings345 2 347 Other comprehensive income,net of tax4 4 Employee stock plans activity,net of shareswithheld for employee taxes 21 3 24 Share repurchase program activity50(4)(303)(253)Dividends declared(128)(128)Other1(1)Balance at March 31,2023327$2,818$(342)(72)$(4,554)$(142)$2$(2,218)Three Months Ended March 31,2022Balance at December 31,2021327$2,721$1,245(50)$(2,883)$(85)$4$1,002 Net earnings/(loss)(1,391)1(1,390)Other comprehensive income,net of tax8 8 Employee stock plans activity,net of shares withheldfor employee taxes 20 3 23 Share repurchase program activity20(4)(220)(200)Dividends declared(135)(135)Other(1)(1)Balance at March 31,2022327$2,761$(281)(54)$(3,100)$(77)$4$(693)Nine Months Ended March 31,2023Balance at June 30,2022327$2,813$(280)(54)$(3,128)$(114)$3$(706)Net earnings325 3 328 Other comprehensive loss,net of tax(28)(28)Purchase of noncontrolling interests(2)(2)Employee stock plans activity,net of shares withheldfor employee taxes5 2 77 82 Share repurchase program activity(20)(1,503)(1,503)Dividends declared(388)(388)Other1(2)(1)Balance at March 31,2023327$2,818$(342)(72)$(4,554)$(142)$2$(2,218)Nine Months Ended March 31,2022Balance at June 30,2021327$2,806$1,205(36)$(2,186)$(34)$3$1,794 Net earnings/(loss)(1,071)2(1,069)Other comprehensive loss,net of tax(43)(43)Employee stock plans activity,net of shares withheldfor employee taxes(5)1 46 41 Share repurchase program activity(40)(19)(960)(1,000)Dividends declared(415)(415)Other(1)(1)Balance at March 31,2022327$2,761$(281)(54)$(3,100)$(77)$4$(693)See notes to condensed consolidated financial statements.29Cardinal Health|Q3 Fiscal 2023 Form 10-QFinancial StatementsCondensed Consolidated Statements of Cash Flows(Unaudited)Nine Months Ended March 31,(in millions)20232022Cash flows from operating activities:Net earnings/(loss)$328$(1,069)Adjustments to reconcile net earnings/(loss)to net cash provided by operating activities:Depreciation and amortization516 513 Impairments and(gain)/loss on disposal of assets,net883 1,764 Impairments and loss on sale of other investments 3(Gain)/loss on sale of equity interest in naviHealth(2)Loss on early extinguishment of debt 10 Share-based compensation69 65 Provision for bad debts79 46 Change in operating assets and liabilities,net of effects from acquisitions and divestitures:Increase in trade receivables(510)(1,193)Increase in inventories(1,012)(922)Increase in accounts payable2,473 1,121 Other accrued liabilities and operating items,net(845)(206)Net cash provided by operating activities1,981 130 Cash flows from investing activities:Proceeds from divestitures,net of cash sold 923 Acquisition of subsidiaries,net of cash acquired(10)Additions to property and equipment(264)(223)Proceeds from disposal of property and equipment2 11 Purchases of investments(6)(38)Proceeds from investments1 27 Proceeds from net investment hedge terminations29 71 Net cash provided by/(used in)investing activities(248)771 Cash flows from financing activities:Reduction of long-term obligations(571)(597)Net tax proceeds/(withholdings)from share-based compensation11(26)Dividends on common shares(399)(425)Purchase of treasury shares(1,500)(1,000)Net cash used in financing activities(2,459)(2,048)Effect of exchange rate changes on cash and equivalents(1)(13)Cash and equivalents reclassified from assets held for sale 109 Net decrease in cash and equivalents(727)(1,051)Cash and equivalents at beginning of period4,717 3,407 Cash and equivalents at end of period$3,990$2,356 See notes to condensed consolidated financial statements.30Cardinal Health|Q3 Fiscal 2023 Form 10-QNotes to Financial StatementsNotes to Condensed Consolidated Financial Statements1.Basis of Presentation and Summary ofSignificant Accounting PoliciesBasis of PresentationOur condensed consolidated financial statements include theaccounts of all majority-owned or consolidated subsidiaries,and allsignificant intercompany transactions and amounts have beeneliminated.The results of businesses acquired or disposed of areincluded in the condensed consolidated financial statements from thedate of the acquisition or up to the date of disposal,respectively.References to we,our,and similar pronouns in this QuarterlyReport on Form 10-Q for the quarter ended March 31,2023(thisForm 10-Q)refer to Cardinal Health,Inc.and its majority-owned orconsolidated subsidiaries unless the context requires otherwise.Our fiscal year ends on June 30.References to fiscal 2023 and 2022in these condensed consolidated financial statements are to the fiscalyears ending or ended June 30,2023 and June 30,2022,respectively.Our condensed consolidated financial statements have beenprepared in accordance with the U.S.Securities and ExchangeCommission(SEC)instructions to Quarterly Reports on Form 10-Qand include the information and disclosures required by accountingprinciples generally accepted in the United States(GAAP)forinterim financial reporting.The preparation of financial statements inconformity with GAAP requires us to make estimates,judgments andassumptions that affect amounts reported in the condensedconsolidated financial statements and accompanying notes.Actualamounts may differ from these estimated amounts.In our opinion,all adjustments necessary for a fair presentation of thecondensed consolidated financial statements have been included.Except as disclosed elsewhere in this Form 10-Q,all suchadjustments are of a normal and recurring nature.In addition,financial results presented for this fiscal 2023 interim period are notnecessarily indicative of the results that may be expected for the fullfiscal year ending June 30,2023.These condensed consolidatedfinancial statements are unaudited and,accordingly,should be readin conjunction with the audited consolidated financial statements andrelated notes contained in our Annual Report on Form 10-K for thefiscal year ended June 30,2022(our 2022 Form 10-K).Recently Issued Financial Accounting StandardsNot Yet AdoptedWe assess the adoption impacts of recently issued accountingstandards by the Financial Accounting Standards Board(FASB)onour condensed consolidated financial statements as well as materialupdates to previous assessments,if any,from our fiscal 2022 Form10-K.There were no accounting standards issued in fiscal 2023 thatwill have a material impact on our condensed consolidated financialstatements.Recently Adopted Financial Accounting StandardsThere were no new material accounting standards adopted during thenine months ended March 31,2023.2.DivestituresIn August 2021,we sold the Cordis business to Hellman&Friedmanfor proceeds of$923 million,net of cash transferred,and we retainedcertain working capital accounts.Cardinal Health also retainedproduct liability associated with lawsuits and claims related to theCordis OptEase and TrapEase inferior vena cava(IVC)filterproducts in the U.S.and Canada,as well as authority for thesematters discussed in Note 6.The Cordis business operated within ourMedical segment.31Cardinal Health|Q3 Fiscal 2023 Form 10-QNotes to Financial Statements3.Restructuring and Employee SeveranceThe following table summarizes restructuring and employeeseverance:Three Months Ended March 31,(in millions)20232022Employee-related$3$12 Facility exit and other13 19 Total restructuring and employeeseverance$16$31 Nine Months Ended March 31,(in millions)20232022Employee-related$32$22 Facility exit and other30 34 Total restructuring and employeeseverance$62$56 Employee-related costs primarily consist of termination benefitsprovided to employees who have been involuntarily terminated,duplicate payroll costs and retention bonuses incurred duringtransition periods.Facility exit and other costs primarily consist ofproject consulting fees,accelerated depreciation,professional,project management and other service fees to support divestitures,costs associated with vacant facilities,and certain other divestiture-related costs.Restructuring and employee severance costs during the three andnine months ended March 31,2023 and March 31,2022 wereprimarily related to the implementation of certain enterprise-widecost-savings measures and the divestiture of the Cordis business.During the three and nine months ended March 31,2022,restructuring also included costs related to decreasing our overalloffice space.The following table summarizes activity related to liabilitiesassociated with restructuring and employee severance:(in millions)Employee-Related CostsFacility Exitand OtherCostsTotalBalance at June 30,2022$56$10$66 Additions29 8 37 Payments and other adjustments(36)(15)(51)Balance at March 31,2023$49$3$52 4.Goodwill and Other Intangible AssetsGoodwillThe following table summarizes the changes in the carrying amountof goodwill by segment and in total:(in millions)PharmaceuticalMedical(1)TotalBalance at June 30,2022$2,673$3,182$5,855 Goodwill acquired,net ofpurchase price adjustments 13 13 Foreign currency translationadjustments and other(5)(5)Goodwill impairment(863)(863)Balance at March 31,2023$2,673$2,327$5,000(1)At March 31,2023 and June 30,2022,the Medical segment accumulatedgoodwill impairment loss was$4.4 billion and$3.5 billion,respectively.Due to changes in our long-term financial plan assumptions madeduring the three months ended March 31,2023,we elected to bypassthe qualitative assessment and perform quantitative goodwillimpairment testing for the Medical Unit.The fair value of the reportingunit was estimated to be approximately 4 percent in excess of itscarrying value,primarily driven by a lower discount rate as describedbelow.We performed quantitative goodwill impairment testing for theMedical Unit at December 31,2022 and September 30,2022,whichresulted in pre-tax goodwill impairment charges of$709 million and$154 million,respectively.The impairment charge recognized in thesecond quarter was driven by certain reductions in our long-termfinancial plan assumptions,and the impairment charge recognized inthe first quarter was driven by an increase in the discount rateprimarily due to an increase in the risk-free interest rate.Thecumulative pre-tax goodwill impairment charges of$863 million wererecognized in impairments and(gain)/loss on disposal of assets,netin our condensed consolidated statements of earnings/(loss)for thenine months ended March 31,2023.Our determinations of the estimated fair value of the Medical Unit atMarch 31,2023,December 31,2022 and September 30,2022 werebased on a combination of the income-based approach(using aterminal growth rate of 2 percent),and the market-based approaches.For the income-based approach,we used discount rates of 10percent,10.5 percent and 10.5 percent for each quarter,respectively.The decrease in the discount rate for the interim testing performed atMarch 31,2023 was primarily due to a decrease in the risk-freeinterest rate.Additionally,we assigned a weighting of 80 percent tothe discounted cash flow method,10 percent to the guideline publiccompany method,and 10 percent to the guideline transactionmethod.Our fair value estimates utilize significant unobservableinputs and thus represent Level 3 fair value measurements.During the three months ended March 31,2022 and December 31,2021,we performed quantitative goodwill impairment testing for theMedical Unit.This quantitative testing resulted in the carrying 32Cardinal Health|Q3 Fiscal 2023 Form 10-QNotes to Financial Statementsamount of the Medical Unit exceeding the fair value,resulting in apre-tax impairment charges of$474 million and$1.3 billion recordedduring the three months ended March 31,2022 and December 31,2021,respectively.Other Intangible AssetsThe following tables summarize other intangible assets by class at:March 31,2023(in millions)GrossIntangibleAccumulatedAmortizationNetIntangibleWeighted-AverageRemainingAmortizationPeriod(Years)Indefinite-lifeintangibles:Trademarks andpatents$11$11 N/ATotal indefinite-lifeintangibles11 11 N/ADefinite-lifeintangibles:Customerrelationships3,235 2,267 968 10Trademarks,tradenames and patents550 376 174 9Developedtechnology andother1,037 623 414 9Total definite-lifeintangibles4,822 3,266 1,556 10Total otherintangibleassets$4,833$3,266$1,567 N/AJune 30,2022(in millions)GrossIntangibleAccumulatedAmortizationNetIntangibleIndefinite-life intangibles:Trademarks and patents$11$11 Total indefinite-life intangibles11 11 Definite-life intangibles:Customer relationships3,272 2,165 1,107 Trademarks,trade names andpatents552 360 192 Developed technology and other1,038 574 464 Total definite-life intangibles4,862 3,099 1,763 Total other intangible assets$4,873$3,099$1,774 Total amortization of intangible assets was$69 million and$78 millionfor the three months ended March 31,2023 and 2022,respectively,and$211 million and$235 million for the nine months endedMarch 31,2023 and 2022,respectively.Estimated annualamortization of intangible assets for the remainder of fiscal 2023through 2027 is as follows:$71 million,$261 million,$236 million,$209 million and$177 million.5.Long-Term Obligations and Other Short-TermBorrowingsLong-Term DebtWe had total long-term obligations,including the current portion andother short-term borrowings,of$4.7 billion and$5.3 billion forMarch 31,2023 and June 30,2022,respectively.All the notesrepresent unsecured obligations of Cardinal Health,Inc.and rankequally in right of payment with all of our existing and futureunsecured and unsubordinated indebtedness.Interest is paidpursuant to the terms of the obligations.These notes are effectivelysubordinated to the liabilities of our subsidiaries,including tradepayables of$29.6 billion and$27.1 billion at March 31,2023 andJune 30,2022,respectively.During the three months ended March 31,2023,we repaid the fullprincipal of the$550 million 3.2%Notes due 2023 at maturity withavailable cash.During the nine months ended March 31,2022,we redeemed alloutstanding$572 million principal amount of 2.616%Notes due June2022 at a redemption price equal to 100%of the principal amountand accrued but unpaid interest,plus the make-whole premiumapplicable to the notes.In connection with this redemption,werecorded a$10 million loss on early extinguishment of debt.The earlyredemption was funded with available cash.Other Financing ArrangementsIn addition to cash and equivalents and operating cash flow,othersources of liquidity include a$2.0 billion commercial paper programbacked by a$2.0 billion revolving credit facility.We also have a$1.0billion committed receivables sales facility.During the nine monthsended March 31,2023,under our commercial paper program and ourcommitted receivables program,we had maximum combined totaldaily amounts outstanding of$445 million and average combineddaily amount outstanding of$4 million.At March 31,2023,we had noamounts outstanding under our commercial paper program,revolvingcredit facility or our committed receivables sales facility.In February 2023,we extended our$2.0 billion revolving credit facilitythrough February 25,2028.In September 2022,we renewed ourcommitted receivables sales facility program through Cardinal HealthFunding,LLC(“CHF”)through September 30,2025.CHF wasorganized for the sole purpose of buying receivables and sellingundivided interests in those receivables to third-party purchasers.Although consolidated with Cardinal Health,33Cardinal Health|Q3 Fiscal 2023 Form 10-QNotes to Financial StatementsInc.in accordance with GAAP,CHF is a separate legal entity fromCardinal Health,Inc.and from our subsidiary that sells receivables toCHF.CHF is designed to be a special purpose,bankruptcy-remoteentity whose assets are available solely to satisfy the claims of itscreditors.Our revolving credit and committed receivables sales facilities requireus to maintain a consolidated net leverage ratio of no more than 3.75-to-1.As of March 31,2023,we were in compliance with this financialcovenant.6.Commitments,Contingent Liabilities andLitigationCommitmentsGeneric Sourcing Venture with CVS Health Corporation(CVSHealth)In July 2014,we established Red Oak Sourcing,LLC(Red OakSourcing),a U.S.-based generic pharmaceutical sourcing venturewith CVS Health for an initial term of 10 years.Red Oak Sourcingnegotiates generic pharmaceutical supply contracts on behalf of itsparticipants.In August 2021,we amended our agreement to extendthe term through June 2029.We are required to make quarterlypayments to CVS Health for the term of the arrangement.ContingenciesNew York Opioid Stewardship ActIn April 2018,the State of New York passed a budget which includedthe Opioid Stewardship Act(the OSA).The OSA created anaggregate$100 million annual assessment on all manufacturers anddistributors licensed to sell or distribute opioids in New York.Underthe OSA,each licensed manufacturer and distributor would berequired to pay a portion of the assessment based on its share of thetotal morphine milligram equivalents sold or distributed in New Yorkduring the applicable calendar year,beginning in 2017.Subsequently,New York passed a new statute that modified the assessment goingforward and limited the OSA to two years(2017 and 2018).We accrue contingencies if it is probable that a liability has beenincurred and the amount can be estimated.In the second quarter offiscal year 2022,we paid the State of New York$20 million,ourportion of the assessment for calendar year 2017.At June 30,2022,we had an accrual of$20 million,which represented our estimate ofour portion of the assessment for calendar year 2018.During the ninemonths ended March 31,2023,we recorded$6 million of income toreduce this accrual to the invoiced amount for the calendar year 2018assessment and we paid$7 million,resulting in an accrual of$7 million at March 31,2023.Legal ProceedingsWe become involved from time to time in disputes,litigation andregulatory matters.From time to time,we determine that products we source,manufacture or market do not meet our specifications,regulatoryrequirements,or published standards.When we or a regulatoryagency identify a potential quality or regulatory issue,we investigateand take appropriate corrective action.Such actions have led toproduct recalls,costs to repair or replace affected products,temporary interruptions in product sales,product liability claims andlawsuits and can lead to action by regulators.Even absent anidentified regulatory or quality issue or product recall,we can becomesubject to product liability claims and lawsuits.From time to time,we become aware through employees,internalaudits or other parties of possible compliance matters,such ascomplaints or concerns relating to accounting,internal accountingcontrols,financial reporting,auditing,or other ethical matters orrelating to compliance with laws such as healthcare fraud and abuse,anti-corruption or anti-bribery laws.When we become aware of suchpossible compliance matters,we investigate internally and takeappropriate corrective action.In addition,from time to time,wereceive subpoenas or requests for information from various federal orstate agencies relating to our business or to the business of acustomer,supplier or other industry participants.Internalinvestigations,subpoenas or requests for information could directly orindirectly lead to the assertion of claims or the commencement oflegal proceedings against us or result in sanctions.We have been named from time to time in qui tam actions initiated byprivate third parties.In such actions,the private parties purport to acton behalf of federal or state governments,allege that false claimshave been submitted for payment by the government and mayreceive an award if their claims are successful.After a private partyhas filed a qui tam action,the government must investigate theprivate partys claim and determine whether to intervene in and takecontrol over the litigation.These actions may remain under seal whilethe government makes this determination.If the government declinesto intervene,the private party may nonetheless continue to pursuethe litigation on his or her own purporting to act on behalf of thegovernment.We accrue for contingencies related to disputes,litigation andregulatory matters if it is probable that a liability has been incurredand the amount of the loss can be reasonably estimated.Becausethese matters are inherently unpredictable and unfavorabledevelopments or resolutions can occur,assessing contingencies ishighly subjective and requires judgments about future events.Weregularly review contingencies to determine whether our accruals andrelated disclosures are adequate.The amount of ultimate loss maydiffer from these estimates.We recognize income from the favorable outcome of litigation whenwe receive the associated cash or assets.We recognize estimated loss contingencies for certain litigation andregulatory matters and income from favorable resolution of litigationin litigation(recoveries)/charges,net in our condensed consolidatedstatements of earnings/(loss);however,losses and recoveries of lostprofits from disputes that occur in the ordinary course of business areincluded within segment profit.For example,in the second quarter offiscal year 2022,our 34Cardinal Health|Q3 Fiscal 2023 Form 10-QNotes to Financial StatementsPharm
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