Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibilities for the contents of this announcement,make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.(a joint stock limited company incorporated in the Peoples Republic of China with limited liability)(Stock Code:00386)Overseas Regulatory AnnouncementChina Petroleum&Chemical CorporationThe First Quarterly Report for 2024This announcement is made pursuant to Rule 13.09 and Rule 13.10B of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Inside Information Provisions under Part XIVA of the Securities and Futures Ordinance(Chapter 571,Laws of Hong Kong).By Order of the BoardChina Petroleum&Chemical CorporationHuang WenshengVice President and Secretary to the Board of DirectorsBeijing,the PRC,28 April 2024As of the date of this announcement,directors of the Company are:Ma Yongsheng*,Zhao Dong#,Li Yonglin#,Lv Lianggong#,Yu Baocai#,Cai Hongbin ,Ng,Kar Ling Johnny ,Shi Dan and Bi Mingjian .#Executive Director*Non-executive Director Independent Non-executive Director China Petroleum&Chemical Corporation The First Quarterly Report for 2024 28 April 2024 Beijing,China 2 Important notice The Board of Directors,the Supervisory Committee of China Petroleum&Chemical Corporation(“Sinopec Corp.”or“the Company”)and its directors,supervisors and senior management warrant the authenticity,accuracy and completeness of the information contained in this quarterly report and there are no false representations,misleading statements or material omissions and severally and jointly accept full responsibility.This first quarterly report for 2024 was approved at the 22nd meeting of the Eighth Session of the Board of Directors of Sinopec Corp.All directors attended this meeting.Mr.Ma Yongsheng,Chairman,Mr.Zhao Dong,President,Ms.Shou Donghua,Chief Financial Officer and Head of the Financial Department of Sinopec Corp.warrant the authenticity,accuracy and completeness of the financial statements contained in this quarterly report.The financial statements in this quarterly report were not audited.3 1.Principal financial data 1.1 Principal financial data and indicators 1.1.1 Principal financial data and indicators prepared in accordance with China Accounting Standards for Business Enterprises(CASs)RMB million Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 Change(%)Revenue 789,967 791,331(0.2)Net profit attributable to equity shareholders of the Company 18,316 20,102(8.9)Net profit attributable to equity shareholders of the Company excluding extraordinary gains and losses 18,186 19,716(7.8)Net cash flow used in operating activities(13,755)(18,397)-Basic earnings per share(RMB)0.153 0.168(8.9)Diluted earnings per share(RMB)0.153 0.168(8.9)Weighted average return on net assets(%)2.23 2.52(0.29)percentage points RMB million Items As of 31 March 2024 As of 31 December 2023 Change(%)Total assets 2,094,106 2,026,674 3.3 Total equity attributable to equity shareholders of the Company 834,174 805,794 3.5 1.1.2 Extraordinary items RMB million Extraordinary items Three-month period ended 31 March 2024(income)/expenses Net gain on disposal of non-current assets (40)Donations 19 Government grants(361)Gains on holding and disposal of various investments(129)Other extraordinary expenses,net 308 Subtotal(203)Tax effect 47 Total(156)Attributable to:Equity shareholders of the Company(130)Minority interests(26)4 1.1.3 Principal financial data and indicators prepared in accordance with IFRS Accounting Standards RMB million Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 Change(%)Revenue 789,967 791,331(0.2)Operating profit 27,320 31,090(12.1)Net profit attributable to equity shareholders of the Company 18,721 20,740(9.7)Net cash flow used in operating activities(13,755)(18,397)-Basic earnings per share(RMB)0.156 0.173(9.8)Diluted earnings per share(RMB)0.156 0.173(9.8)Return on net assets(%)2.25 2.57(0.32)percentage points RMB million Items As of 31 March 2024 As of 31 December 2023 Change(%)Total assets 2,091,935 2,024,696 3.3 Total equity attributable to equity shareholders of the Company 831,188 802,989 3.5 1.2 Significant changes in major items contained in the consolidated financial statements prepared in accordance with CASs.Items of Consolidated Balance Sheet As of 31 March 2024 As of 31 December 2023 Increase/(Decrease)Main reasons for changes Amount Percentage RMB million RMB million RMB million（%）Derivative financial assets 5,754 9,721 (3,967)(40.8)Impact of changes in fair value of hedging business.Derivative financial liabilities 4,739 2,752 1,987 72.2 Accounts receivable 84,622 48,652 35,970 73.9 Increase in the balance of accounts receivable due to increase in prices of crude oil and refined oil products.Receivables financing 6,588 2,221 4,367 196.6 Prepayments 9,086 5,067 4,019 79.3 Increase in prepayments of crude oil procurement.Other receivables 34,353 26,089 8,264 31.7 Increase in margin of hedging business.Short-term loans 86,823 59,815 27,008 45.2 Increase in short-term loans in the reporting period for supplement of liquidity.Non-current liabilities due within one year 46,562 30,457 16,105 52.9 Increase in long-term loans due within one year.5 Items of Consolidated Balance Sheet As of 31 March 2024 As of 31 December 2023 Increase/(Decrease)Main reasons for changes Amount Percentage RMB million RMB million RMB million（%）Other current liabilities 32,442 20,833 11,609 55.7 Mainly due to the issue of super short-term commercial paper during the reporting period.Other comprehensive income 1,403 3,060 (1,657)(54.2)Impact of changes in gains and losses of hedging business.Items of Consolidated Income Statement For three-month period ended 31 March Increase/(Decrease)Main reasons for changes 2024 2023 Amount Percentage RMB Million RMB Million RMB Million（%）Investment income 5,472 1,493 3,979 266.5 Impact of the increase in the profit of associates and joint ventures and the changes in gains and losses of hedging business.Losses from changes in fair value (4,897)(244)(4,653)-Impact of floating gains and losses of hedging business.Impairment reversals/(loss)42 (414)456-Provision of impairment for some inventories was recognised due to the declining oil prices in the first quarter of previous year,but no such matter in reporting period.Items of Consolidated Cash Flow Statement For three-month period ended 31 March Increase/(Decrease)Main reasons for changes 2024 2023 Amount Percentage RMB million RMB million RMB million（%）Cash received from returns on investments 921 407 514 126.3 Increase in cash dividends received from associates and joint ventures year-on-year.Net cash received from disposal of fixed assets,intangible assets and other long-term assets 621 1,849 (1,228)(66.4)Cash received from disposal of Hunan Petrochemical assets in the first quarter of previous year,and decrease in cash received during the reporting period.Other cash received relating to investing activities 19,681 5,995 13,686 228.3 Increase in withdrawal of time deposits with maturities over three months.Cash paid for acquisition of investments (91)(2,334)2,243 -Decreased in external payment for capital injection year-on-year.Cash received from capital contributions 12,358 88 12,270 13,943.2 Cash received from the issue of shares through private placement.6 Items of Consolidated Cash Flow Statement For three-month period ended 31 March Increase/(Decrease)Main reasons for changes 2024 2023 Amount Percentage RMB million RMB million RMB million（%）Other cash received relating to financing activities 799 20 779 3,895.0 Impact of carrying out the finance lease business during the reporting period.2.Shareholders information Total number of shareholders and top ten shareholders at the end of the reporting period Total number of shareholders at the end of the reporting period Total number of shareholders was 374,014,including 368,614 holders of domestic A shares and 5,400 holders of overseas H shares.Top ten shareholders2 Name of shareholder Total number of shares held Percentage(%)Number of restricted shares held3 Number of shares subject to pledge or lock-ups Nature of shareholder Total number of unreturned shares lent through refinancing business at the beginning of reporting period Total number of unreturned shares lent through refinancing business at the end of reporting period China Petrochemical Corporation 83,057,524,296 68.23 2,390,438,247 0 State-owned share 0 0 HKSCC Nominees Limited1 24,227,835,469 19.90 0 Unknown H share Unknown Unknown 中国证券金融股份有限公司 2,325,374,407 1.91 0 0 A share 0 0 中国石油天然气集团有限公司 2,165,749,530 1.78 0 0 A share 0 0 香港中央结算有限公司 1,489,475,291 1.22 0 0 A share 0 0 中国人寿保险股份有限公司传统普通保险产品005LCT001 沪 451,996,853 0.37 0 0 A share 0 0 中国工商银行上证 50 交易型开放式指数证券投资基金 318,580,334 0.26 0 0 A share 0 0 中央汇金资产管理有限责任公司 315,223,600 0.26 0 0 A share 0 0 国信证券股份有限公司 238,636,420 0.20 0 0 A share 0 0 国新投资有限公司 238,100,589 0.20 0 0 A share 0 0 Top ten non-restricted shareholders2 Name of shareholder Number of non-restricted shares held Class of shares Number of shares China Petrochemical Corporation 80,667,086,049 A share 80,667,086,049 HKSCC Nominees Limited 24,227,835,469 H share 24,227,835,469 中国证券金融股份有限公司 2,325,374,407 A share 2,325,374,407 中国石油天然气集团有限公司 2,165,749,530 A share 2,165,749,530 香港中央结算有限公司 1,489,475,291 A share 1,489,475,291 中国人寿保险股份有限公司传统普通保险产品005LCT001 沪 451,996,853 A share 451,996,853 中国工商银行上证 50 交易型开放式指数证券投资基金 318,580,334 A share 318,580,334 7 中央汇金资产管理有限责任公司 315,223,600 A share 315,223,600 国信证券股份有限公司 238,636,420 A share 238,636,420 国新投资有限公司 238,100,589 A share 238,100,589 Note 1:Sinopec Century Bright Capital Investment Limited,an overseas wholly-owned subsidiary of China Petrochemical Corporation,held 917,624,000 H shares,accounting for 0.75%of the total issued share capital of Sinopec Corp.Those shareholdings were included in the total number of the shares held by HKSCC Nominees Limited.Note 2:There was no change in the above-mentioned top ten shareholders and the top ten non-restricted shareholders of Sinopec Corp.since the end of 2023.Note 3:In the reporting period,Sinopec Cpleted the issuance of 2,390,438,247 A shares to China Petrochemical Corporation(the“Issuance”).New shares of the Issuance have completed trusteeship registration and lock-up procedures in China Securities Registration and Clearing Company Limited Shanghai Branch Company on 18 March 2024.These shares shall not be transferred within 36 months from the completion date of the Issuance.After the completion of the Issuance,the total share capital of Sinopec Corp.changed from 119,349,251,646 shares to 121,739,689,893 shares.For details,please refer to announcements published by Sinopec Corp.on China Securities Journal,Shanghai Securities News,Securities Times and the website of the Shanghai Stock Exchange on 16 March 2024 and 20 March 2024 and on the website of The Stock Exchange of Hong Kong Limited on 19 March 2024,respectively.Statement on the connected relationship or acting in concert among the aforementioned shareholders:Sinopec Corp.is not aware of any connected relationship or acting in concert among or between the above-mentioned top ten shareholders.3.Review of operating results In the first quarter of 2024,Chinas economy continued to pick up,with gross domestic product(GDP)up by 5.3%year on year.The international crude oil prices fluctuated with upward trend and the spot price of Platts Brent for the first quarter averaged USD83.2 per barrel,up by 2.4%year on year.The domestic demand for natural gas rapidly increased,demand for refined oil products maintained growth.The growth rate of domestic demand for chemical products increased year on year,and the chemical margin was at a low level affected by continuous newly-released production capacity and rising raw material prices.The Company closely followed the market demand,carried out in-depth optimisation of both the whole business chain and regions,strengthened the coordination of production and marketing,made great efforts to expand markets and sales,and achieved good performance.In accordance with CASs,net profit attributable to equity shareholders of the Company was RMB18.316 billion in the first quarter of 2024.In accordance with IFRS,net profit attributable to shareholders of the Company was RMB18.721 billion in the first quarter of 2024.Exploration and Production:The Company intensified efforts in high quality exploration,expanded the scale of profitable production capacity,and made positive progress in increasing reserve,production and profit.In exploration,we strengthened risk exploration,trap pre-exploration and integrated evaluation exploration,and made important breakthrough in such regions as Tarim Basin,Sichuan Basin and Jianghan Basin.In development,we accelerated the capacity building of Jiyang and West Junggar oilfields,and sped up capacity building of natural gas in West Sichuan and Shunbei.We further improved integrated gas system covering production,supply,storage and sales,optimised 8 the resources structure of LNG import,and achieved an improvement in the profitability of whole natural gas business chain.In the first quarter,the Companys oil and gas production reached 128.78 million barrels of oil equivalent,up by 3.4%year on year,with natural gas production reaching 350.46 billion cubic feet,up by 6.0%year on year.The exploration and production segment realised earnings before interest and tax(EBIT)of RMB14.823 billion.Exploration and Production Unit Three-month period ended 31 March Changes 2024 2023(%)Oil and gas production million boe 128.78 124.60 3.4 Crude oil production million barrels 70.36 69.49 1.3 China million barrels 63.11 61.86 2.0 Overseas million barrels 7.25 7.63(5.0)Natural gas production billion cubic feet 350.46 330.47 6.0 Realised crude oil price USD/barrel 75.43 75.21 0.3 Realised natural gas price RMB/cubic meter 1.98 2.10(5.7)Note:For domestic production of crude oil,1 tonne=7.10 barrels.For overseas production of crude oil,1 tonne=7.26 barrels.For production of natural gas,1 cubic meter=35.31 cubic feet.Refining:The Company followed up closely with the market change,vigorously optimised production operation to maximise the overall profits along the business chain.We flexibly adjusted the product slate,and increased production of market-oriented products such as gasoline and kerosene.We scaled up export volume and optimised arrangement for exports.We controlled the progress of carrying forward the“oil to specialties”and“oil to chemicals”projects,and the structural adjustment projects and the transformation and upgrading projects were proceeded in an orderly manner.In the first quarter,the Company processed 63.30 million tonnes of crude oil,up by 1.7%year on year,yielding 38.83 million tonnes of refined oil products,up by 4.1%year on year.The refining segment realised EBIT of RMB6.887 billion.Refining Unit Three-month period ended 31 March Changes(%)2024 2023 Refinery throughput million tonnes 63.30 62.24 1.7 Gasoline,diesel and kerosene production million tonnes 38.83 37.30 4.1 Gasoline million tonnes 16.22 15.16 7.0 Diesel million tonnes 14.75 15.58(5.3)Kerosene million tonnes 7.86 6.56 19.8 Light chemical feedstock production million tonnes 10.18 10.61(4.1)Light product yieldt.26 74.82(0.56)percentage points Refining yield.94 94.88 0.06 percentage points Note:Including 100%production of domestic joint ventures.Marketing and Distribution:The Company brought our advantages of integrated business into full play,strengthened the market judgement and the integration of production and sales,and made full 9 effort to expand the market and improve profit.We carried forward differentiated marketing tactics.The sales volume of gasoline rose by 5.4%and the retail volume of vehicle LNG was up by 119.3%.We actively promoted the development of EV battery charging and swapping business,steadily stepped up efforts in demonstrating application scenarios of hydrogen mobility,and transformed to an integrated energy service provider of fuel,gas,hydrogen,electricity and non-fuel services.We carried out characteristic marketing campaigns to improve the quality and profitability for the non-fuel business.In the first quarter,total sales volume of refined oil products was 59.81 million tonnes,up by 6.5%year on year.The marketing and distribution segment realised EBIT of RMB8.678 billion.Marketing and Distribution Unit Three-month period ended 31 March Changes(%)2024 2023 Total sales volume of refined oil products million tonnes 59.81 56.16 6.5 Total domestic sales volume of refined oil products million tonnes 45.58 44.57 2.3 Retail million tonnes 29.31 29.36 (0.2)Direct sales&Distribution million tonnes 16.27 15.21 7.0 Note:The total sales volume of refined oil products includes the amount of trading volume.Chemicals:In the face of tough external environment of the continuous newly-released production capacity and weak chemical margin,the Company closely followed the market demand,reinforced cost control,optimised the structure of feedstock,facilities and products with a profit-driven orientation.We maintained high utilisation rate in profitable facilities,and reduced production or shut down units of products with no marginal contribution.Integration of production,marketing,research and application was further cemented to steadily increase the proportion of high value-added products.In the first quarter,the ethylene production was 3.279 million tonnes,and the total chemicals sales volume was 19.51 million tonnes.The chemicals segment realised EBIT of RMB-1.609 billion.Chemicals Unit Three-month period ended 31 March Changes(%)2024 2023 Ethylene thousand tonnes 3,279 3,347(2.0)Synthetic resin thousand tonnes 4,837 4,816 0.4 Synthetic rubber thousand tonnes 342 349(2.0)Monomers and polymers for synthetic fiber thousand tonnes 2,044 2,034 0.5 Synthetic fiber thousand tonnes 306 258 18.6 Note:Including 100%production of domestic joint ventures.Capital expenditure:In the first quarter,the total capital expenditure was RMB20.5 billion.The capital expenditure of the E&P segment was RMB13.5 billion,mainly for the crude production capacity building in Jiyang and Tahe,natural gas production capacity building in West Sichuan,as well as the construction of oil and gas storage and transportation facilities,such as Longkou LNG project.The capital expenditure of the refining segment was RMB4.1 billion,mainly for Zhenhai Expansion,and technical modification of Guangzhou and Maoming refineries,etc.The capital expenditure of the marketing and distribution segment of RMB0.6 billion,mainly for the development of the integrated energy station network,the renovation of the existing marketing network,and the development of non-fuel business and construction of other projects.The capital expenditure of the 10 chemical segment was RMB2.1 billion,mainly for the construction of ethylene projects in the second phase of Zhenhai and Maoming,etc.The capital expenditure of corporate and others was RMB0.2 billion,mainly for R&D and the construction of IT projects,etc.4.Other significant events 4.1 Progress of share repurchase during the reporting period On 30 May 2023,the Annual General Meeting of Sinopec Corp.approved the Resolution to Grant to the Board a Mandate to Repurchase Domestic Shares and/or Overseas-listed Foreign Shares of Sinopec Corp.On 28 August 2023,the Company commenced the repurchase of A shares and H shares.As of 31 December 2023,Sinopec Corp.had repurchased 143.50 million A shares and 403.656 million H shares,and all of the repurchased shares had been cancelled.The Company continued to implement share repurchase programme as planned.During the reporting period,the Company has repurchased 39.866 million H shares.4.2 Progress of share increase in the Company by China Petrochemical Corporation Due to confidence in the Companys development prospects,the controlling shareholder of the Company,China Petrochemical Corporation planned to increase its shareholdings of A shares and H shares of the Company by itself and its wholly-owned subsidiary within 12 months since 11 November 2023(the“Shareholding Increase Plan”).According to notice from China Petrochemical Corporation,as of 31 March 2024,China Petrochemical Corporation and its wholly-owned subsidiary increased their shareholdings by 244,626,656 shares of the Company.The Shareholding Increase Plan was not complete,and China Petrochemical Corporation will continue to increase its shareholdings in the Company at the proper time in accordance with the Shareholding Increase Plan.4.3 The second phase plan of the Green Enterprise Campaign In 2018,the Company released the Green Enterprise Campaign,and has successfully achieved the targets of the first phase plan of Green Enterprise Campaign by the end of 2023.To build a green production system and enhance the green competitiveness,the Company formulated the second phase plan of the Green Enterprise Campaign.Focusing on efforts to cut carbon emissions,reduce pollution,increase efficiency and promote green development,the Company set the following targets through 2028:Emission intensities of carbon dioxide and methane decrease by 5%and 20%respectively compared with 2023,capture and utilise 2.5 million tonnes carbon dioxide per year,construct 600 carbon neutrality demonstration projects,100%compliance rate of carbon emission trading;over 92%comprehensive utilisation rate of industrial solid waste,100%compliance disposal rate of hazardous waste;comprehensive energy consumption per RMB10,000 of production output decreases by 5%compared with 2023,over 60%reuse rate of wastewater.This report is published in both Chinese and English languages.In the event of any inconsistency between the two versions,the Chinese version shall prevail.By Order of the Board Ma Yongsheng Chairman 28 April 2024 11 5 Appendix 5.1 Quarterly financial statements prepared under China Accounting Standards for Business Enterprises(CASs)Consolidated Balance Sheet As at 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items At 31 March 2024 At 31 December 2023 Current assets:Cash at bank and on hand 168,794 164,960 Financial assets held for trading 3 3 Derivative financial assets 5,754 9,721 Accounts receivable 84,622 48,652 Receivables financing 6,588 2,221 Prepayments 9,086 5,067 Other receivables 34,353 26,089 Inventories 274,638 250,898 Other current assets 24,248 26,824 Total current assets 608,086 534,435 Non-current assets:Long-term equity investments 237,279 234,608 Other equity instrument investments 450 450 Fixed assets 687,484 690,957 Construction in progress 179,289 180,250 Right-of-use assets 173,746 174,529 Intangible assets 137,039 138,181 Goodwill 6,472 6,472 Long-term deferred expenses 12,424 13,199 Deferred tax assets 19,877 20,110 Other non-current assets 31,960 33,483 Total non-current assets 1,486,020 1,492,239 Total assets 2,094,106 2,026,674 12 Consolidated Balance Sheet(Continued)Current liabilities:Short-term loans 86,823 59,815 Derivative financial liabilities 4,739 2,752 Bills payable 25,757 29,122 Accounts payable 234,366 229,878 Contract liabilities 130,048 127,239 Employee benefits payable 17,804 13,941 Taxes payable 38,626 40,008 Other payables 79,812 93,031 Non-current liabilities due within one year 46,562 30,457 Other current liabilities 32,442 20,833 Total current liabilities 696,979 647,076 Non-current liabilities:Long-term loans 162,714 179,347 Debentures payable 8,520 8,513 Lease liabilities 163,697 163,864 Provisions 48,796 48,269 Deferred tax liabilities 8,204 7,817 Other non-current liabilities 13,556 13,133 Total non-current liabilities 405,487 420,943 Total liabilities 1,102,466 1,068,019 Shareholders equity:Share capital 121,740 119,349 Capital reserve 126,099 117,273 Minus:treasury shares 81-Other comprehensive income 1,403 3,060 Specific reserve 3,182 2,597 Surplus reserves 223,134 223,134 Retained earnings 358,697 340,381 Total equity attributable to shareholders of the Company 834,174 805,794 Minority interests 157,466 152,861 Total shareholders equity 991,640 958,655 Total liabilities and shareholders equity 2,094,106 2,026,674 Ma Yongsheng Zhao Dong Shou Donghua Chairman President Chief Financial Officer(Legal representative)13 Balance Sheet As at 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items At 31 March 2024 At 31 December 2023 Current assets：Cash at bank and on hand 58,182 65,753 Financial assets held for trading 3 3 Derivative financial assets 1,359 482 Accounts receivable 30,173 27,878 Receivables financing 3,120 367 Prepayments 3,000 1,760 Other receivables 57,245 50,940 Inventories 66,830 67,922 Other current assets 30,520 33,852 Total current assets 250,432 248,957 Non-current assets：Long-term equity investments 425,287 413,572 Other equity instrument investments 14 14 Fixed assets 298,051 305,494 Construction in progress 71,334 70,306 Right-of-use assets 83,879 84,589 Intangible assets 8,154 8,312 Long-term deferred expenses 4,258 4,652 Deferred tax assets 5,981 6,567 Other non-current assets 47,519 47,004 Total non-current assets 944,477 940,510 Total assets 1,194,909 1,189,467 Current liabilities：Short-term loans 60,781 39,413 Derivative financial liabilities 434 251 Bills payable 4,887 5,014 Accounts payable 79,625 81,628 Contract liabilities 6,477 9,079 Employee benefits payable 10,706 8,366 Taxes payable 21,635 22,103 Other payables 214,182 250,472 Non-current liabilities due within one year 27,207 16,100 Other current liabilities 14,595 912 Total current liabilities 440,529 433,338 14 Balance Sheet(Continued)Non-current liabilities：Long-term loans 90,620 108,427 Debentures payable 4,993 4,993 Lease liabilities 85,578 86,399 Provisions 40,606 40,077 Other non-current liabilities 1,619 1,684 Total non-current liabilities 223,416 241,580 Total liabilities 663,945 674,918 Shareholders equity：Share capital 121,740 119,349 Capital reserve 70,833 61,814 Minus:treasury shares 81-Other comprehensive income 960 700 Specific reserve 1,912 1,673 Surplus reserves 223,134 223,134 Retained earnings 112,466 107,879 Total shareholders equity 530,964 514,549 Total liabilities and shareholders equity 1,194,909 1,189,467 Ma Yongsheng Zhao Dong Shou Donghua Chairman President Chief Financial Officer(Legal representative)15 Consolidated Income Statement For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 I.Total operating income 789,967 791,331 II.Total operating costs 765,196 764,763 Including:Operating costs 663,278 666,004 Taxes and surcharges 65,869 62,707 Selling and distribution expenses 14,166 14,372 General and administrative expenses 13,719 13,172 Research and development expenses 2,948 2,841 Financial expenses 2,704 2,539 Including:Interest expenses 4,660 5,604 Interest income 1,629 2,670 Exploration expenses,including dry holes 2,512 3,128 Add:Other income 1,878 1,977 Investment income 5,472 1,493 Including:Income from investment in associates and joint ventures 2,991 1,223 Losses from changes in fair value(4,897)(244)Credit impairment losses(40)(54)Impairment reversals/(losses)42(414)Asset disposal gains 99 78 III.Operating profit 27,325 29,404 Add:Non-operating income 281 244 Less:Non-operating expenses 525 456 IV.Profit before taxation 27,081 29,192 Less:Income tax expense 5,721 6,328 V.Net profit 21,360 22,864 Classification by going concern:(i)Continuous operating net profit 21,360 22,864(ii)Termination of net profit-Classification by ownership:(i)Equity shareholders of the Company 18,316 20,102(ii)Minority interests 3,044 2,762 16 Consolidated Income Statement(Continued)VI.Total other comprehensive income (808)(1,219)Other comprehensive income(net of tax)attributable to shareholders of the Company:(860)(1,086)Items that may not be reclassified subsequently to profit or loss:Changes in fair value of other equity instrument investments-1 Items that may be reclassified subsequently to profit or loss:Other comprehensive income that can be converted into profit or loss under the equity method(297)(373)Cash flow hedges(681)445 Foreign currency translation differences 118(1,159)Other comprehensive income(net of tax)attributable to non-controlling interests:52(133)VII.Total comprehensive income 20,552 21,645 Equity shareholders of the Company 17,456 19,016 Minority interests 3,096 2,629 VIII.Earnings per share:(i)Basic earnings per share(RMB/Share)0.153 0.168(ii)Diluted earnings per share(RMB/Share)0.153 0.168 Ma Yongsheng Zhao Dong Shou Donghua Chairman President Chief Financial Officer(Legal representative)17 Income Statement For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 I.Operating income 275,924 303,400 Less:Operating costs 222,962 245,360 Taxes and surcharges 36,969 38,018 Selling and distribution expenses 391 374 General and administrative expenses 5,041 5,718 Research and development costs 2,736 2,568 Financial expenses 3,034 2,924 Including:Interest expenses 3,353 4,461 Interest income 323 1,561 Exploration expenses,including dry holes 2,168 2,755 Add:Other income 1,517 1,543 Investment income 1,611 4,314 Including:Income from investment in associates and joint ventures 1,176 1,012 Gains from changes in fair value 27 227 Credit impairment losses(6)(4)Impairment reversals-85 Asset disposal gains 6 1 II.Operating profit 5,778 11,849 Add:Non-operating income 63 91 Less:Non-operating expenses 283 261 III.Profit before taxation 5,558 11,679 Less:Income tax expense 971 1,863 IV.Net profit 4,587 9,816(i)Continuous operating net profit 4,587 9,816(ii)Termination of net profit-V.Total other comprehensive income 585(1,592)Items that may be reclassified subsequently to profit or loss Other comprehensive income that can be converted into profit or loss under the equity method 45(56)Cash flow hedges reserve 540(1,536)VI.Total comprehensive income 5,172 8,224 Ma Yongsheng Zhao Dong Shou Donghua Chairman President Chief Financial Officer(Legal representative)18 Consolidated Cash Flow Statement For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 I.Cash flows used in operating activities:Cash received from sale of goods and rendering of services 836,253 834,060 Refund of taxes and levies 2,503 2,220 Other cash received relating to operating activities 29,942 41,972 Sub-total of cash inflows 868,698 878,252 Cash paid for goods and services(719,724)(738,348)Cash paid to and for employees(22,363)(21,340)Payments of taxes and levies(81,945)(73,344)Other cash paid relating to operating activities(58,421)(63,617)Sub-total of cash outflows(882,453)(896,649)Net cash flow used in operating activities(13,755)(18,397)II.Cash flows used in investing activities:Cash received from disposal of investments 15 36 Cash received from returns on investments 921 407 Net cash received from disposal of fixed assets,intangible assets and other long-term assets 621 1,849 Other cash received relating to investing activities 19,681 5,995 Sub-total of cash inflows 21,238 8,287 Cash paid for acquisition of fixed assets,intangible assets and other long-term assets(31,749)(32,418)Cash paid for acquisition of investments(91)(2,334)Other cash paid relating to investing activities(32,480)(27,824)Sub-total of cash outflows(64,320)(62,576)Net cash flow used in investing activities(43,082)(54,289)19 Consolidated Cash Flow Statement(Continued)III.Cash flows from financing activities:Cash received from capital contributions 12,358 88 Including:Cash received from minority shareholders capital contributions to subsidiaries 363 88 Cash received from borrowings 183,538 228,360 Other cash received relating to financing activities 799 20 Sub-total of cash inflows 196,695 228,468 Cash repayments of borrowings(144,509)(139,146)Cash paid for dividends,profits distribution or interest(2,237)(3,150)Including:Subsidiaries cash payments for distribution of dividends or profits to minority shareholders(402)(1,554)Other cash paid relating to financing activities(4,018)(3,887)Sub-total of cash outflows(150,764)(146,183)Net cash flows from financing activities 45,931 82,285 IV.Effects of changes in foreign exchange rate 111(1,102)V.Net(decrease)/increase in cash and cash equivalents(10,795)8,497 Add:Cash and cash equivalents at the beginning of the period 121,759 93,438 VI.Cash and cash equivalents at the end of the period 110,964 101,935 Ma Yongsheng Zhao Dong Shou Donghua Chairman President Chief Financial Officer(Legal representative)20 Cash Flow Statement For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 I.Cash flows from operating activities:Cash received from sale of goods and rendering of services 295,544 339,803 Refund of taxes and levies 1,115 1,379 Other cash received relating to operating activities 11,305 10,193 Sub-total of cash inflows 307,964 351,375 Cash paid for goods and services(220,151)(260,527)Cash paid to and for employees(10,415)(10,659)Payments of taxes and levies(42,205)(37,586)Other cash paid relating to operating activities(20,472)(18,722)Sub-total of cash outflows(293,243)(327,494)Net cash flow received from operating activities 14,721 23,881 II.Cash flows used in investing activities:Cash received from disposal of investments 3,170 2,249 Cash received from returns on investments 578 3,666 Net cash received from disposal of fixed assets,intangible assets and other long-term assets 151 39 Other cash received relating to investing activities 30 2,460 Sub-total of cash inflows 3,929 8,414 Cash paid for acquisition of fixed assets,intangible assets and other long-term assets(12,077)(15,947)Cash paid for acquisition of investments(1,771)(1,899)Other cash paid relating to investing activities(55,119)(35,232)Sub-total of cash outflows(68,967)(53,078)Net cash flow used in investing activities(65,038)(44,664)III.Cash flows from financing activities:Absorb cash received from investments 11,995-Cash received from borrowings 70,119 101,758 Other cash received relating to financing activities 52,412 56,691 Sub-total of cash inflows 134,526 158,449 Cash repayments of borrowings(41,975)(28,083)Cash paid for dividends or interest(1,847)(1,779)Other cash paid relating to financing activities(54,954)(89,729)Sub-total of cash outflows(98,776)(119,591)Net cash flow from financing activities 35,750 38,858 IV.Effects of changes in foreign exchange rate(3)(32)IV.Net increase in cash and cash equivalents(14,570)18,043 21 Cash Flow Statement(Continued)Add：Cash and cash equivalents at the beginning of the period 64,471 23,228 V.Cash and cash equivalents at the end of the period 49,901 41,271 Ma Yongsheng Zhao Dong Shou Donghua Chairman President Chief Financial Officer(Legal representative)22 Segment Reporting For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 Income from principal operations Exploration and production External sales 52,182 52,585 Intersegment sales 27,630 26,175 Subtotal 79,812 78,760 Refining External sales 41,422 45,216 Intersegment sales 332,790 322,166 Subtotal 374,212 367,382 Marketing and distribution External sales 408,420 412,676 Intersegment sales 1,735 3,850 Subtotal 410,155 416,526 Chemicals External sales 98,333 96,966 Intersegment sales 24,655 21,999 Subtotal 122,988 118,965 Corporate and others External sales 173,299 165,532 Intersegment sales 226,744 213,426 Subtotal 400,043 378,958 Elimination of intersegment sales(613,554)(587,616)Consolidated income from principal operations 773,656 772,975 Income from other operations Exploration and production 803 2,165 Refining 863 911 Marketing and distribution 11,545 12,418 Chemicals 2,372 2,330 Corporate and others 728 532 Consolidated income from other operations 16,311 18,356 Consolidated operating income 789,967 791,331 23 Segment Reporting(Continued)Operating profit/(loss)By segment Exploration and production 12,706 11,447 Refining 6,412 9,836 Marketing and distribution 7,947 8,062 Chemicals(1,828)(2,144)Corporate and others 4,060 1,978 Elimination(1,820)(540)Total segment operating profit 27,477 28,639 Investment income/(loss)Exploration and production 800 64 Refining(87)292 Marketing and distribution 966 609 Chemicals 157(1,239)Corporate and others 3,636 1,767 Total segment investment income 5,472 1,493 Financial expenses(2,704)(2,539)Losses from changes in fair value(4,897)(244)Asset disposal gains 99 78 Other income 1,878 1,977 Operating profit 27,325 29,404 Add:Non-operating income 281 244 Less:Non-operating expenses 525 456 Profit before taxation 27,081 29,192 24 5.2 Quarterly financial statements prepared under International Financial Reporting Accounting Standards(IFRS)Consolidated Income Statement For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 Revenue Revenue from primary business 773,656 772,975 Other operating revenues 16,311 18,356 Subtotal 789,967 791,331 Operating expenses Purchased crude oil,products and operating supplies and expenses(625,917)(631,716)Selling,general and administrative expenses(13,270)(13,504)Depreciation,depletion and amortisation(29,212)(26,999)Exploration expenses,including dry holes(2,512)(3,128)Personnel expenses(25,051)(23,883)Taxes other than income tax(65,869)(62,707)Impairment losses on trade and other receivables(40)(54)Other operating income/(expenses),net(776)1,750 Total operating expenses(762,647)(760,241)Operating profit 27,320 31,090 Finance costs Interest expense(4,660)(5,604)Interest income 1,629 2,670 Foreign currency exchange gain,net 327 395 Net finance costs(2,704)(2,539)Investment income 143 111 Share of profits less losses from associates and joint ventures 2,798 1,223 Profit before taxation 27,557 29,885 Income tax expense(5,721)(6,328)Profit for the period 21,836 23,557 Attributable to：Shareholders of the Company 18,721 20,740 Non-controlling interests 3,115 2,817 Profit for the period 21,836 23,557 Earnings per share Basic earnings per share(RMB/Share)0.156 0.173 Diluted earnings per share(RMB/Share)0.156 0.173 25 Consolidated Statement of Comprehensive Income For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 Profit for the period 21,836 23,557 Total other comprehensive income:(808)(1,219)Other comprehensive income(net of tax)attributable to shareholders of the Company:(860)(1,086)Items that may not be reclassified subsequently to profit or loss:Equity investments at fair value through other comprehensive income-1 Items that may be reclassified subsequently to profit or loss:Share of other comprehensive income of associates and joint ventures(297)(373)Cash flow hedges(681)455 Foreign currency translation differences 118(1,159)Other comprehensive income(net of tax)attributable to non-controlling interests:52(133)Total comprehensive income 21,028 22,338 Attributable to:Shareholders of the Company 17,861 19,654 Noncontrolling interests 3,167 2,684 26 Consolidated Statement of Financial Position For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items At 31 March 2024 At 31 December 2023 Non-current assets：Property,plant and equipment,net 687,431 690,897 Construction in progress 179,289 180,250 Right-of-use assets 262,720 264,054 Goodwill 6,472 6,472 Interest in associates 165,759 163,066 Interest in joint ventures 69,349 69,564 Financial assets at fair value through other comprehensive income 450 450 Deferred tax assets 19,877 20,110 Long-term prepayments and other non-current assets 92,502 95,398 Total non-current assets 1,483,849 1,490,261 Current assets:Cash and cash equivalents 110,964 121,759 Time deposits with financial institutions 56,407 41,778 Financial assets at fair value through profit or loss 3 3 Derivatives financial assets 5,754 9,721 Trade accounts receivable 84,622 48,652 Financial assets at fair value through other comprehensive income 6,588 2,221 Inventories 274,638 250,898 Prepaid expenses and other current assets 69,110 59,403 Total current assets 608,086 534,435 Current liabilities：Short-term debts 117,527 58,534 Loans from Sinopec Group Company and fellow subsidiaries 9,110 12,437 Lease liabilities 18,552 17,536 Derivatives financial liabilities 4,739 2,752 Trade accounts payable and bills payable 260,123 259,000 Contract liabilities 130,048 127,239 Other payables 154,369 168,124 Income tax payable 2,511 1,454 Total current liabilities 696,979 647,076 27 Consolidated Statement of Financial Position(Continued)Net current liabilities 88,893 112,641 Total assets less current liabilities 1,394,956 1,377,620 Non-current liabilities：Long-term debts 150,284 163,049 Loans from Sinopec Group Company and fellow subsidiaries 20,950 24,811 Lease liabilities 163,697 163,864 Deferred tax liabilities 8,204 7,817 Provisions 48,796 48,269 Other long-term liabilities 14,415 14,001 Total non-current liabilities 406,346 421,811 Total net assets 988,610 955,809 Equity：Share capital 121,740 119,349 Reserves 709,448 683,640 Total equity attributable to shareholders of the Company 831,188 802,989 Non-controlling interests 157,422 152,820 Total equity 988,610 955,809 28 Consolidated Statement of Cash Flows For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 Net cash used in operating activities(a)(13,755)(18,397)Investing activities Capital expenditure(28,456)(27,956)Exploratory wells expenditure(3,293)(4,462)Purchase of investments(91)(2,334)Proceeds from disposal of investments 15 36 Proceeds from disposal of property,plant,equipment and other non-current assets 621 1,849 Increase in time deposits with maturities over three months(30,431)(27,219)Decrease in time deposits with maturities over three months 17,452 4,335 Interest received 1,030 2,381 Investment and dividend income received 921 407 Payments of other investing activities(850)(1,326)Net cash used in investing activities(43,082)(54,289)Financing activities Proceeds from bank and other loans 183,538 228,360 Repayments of bank and other loans(144,509)(139,146)Proceeds from the issuance of shares 11,995-Contributions to subsidiaries from non-controlling interests 363 88 Distributions by subsidiaries to non-controlling interests(402)(1,554)Interest paid(1,835)(1,596)Repayments of lease liabilities(3,712)(3,867)Proceeds from other financing activities 799 20 Repayments of other financing activities(306)(20)Net cash generated from financing activities 45,931 82,285 Net(decrease)/increase in cash and cash equivalents(10,906)9,599 Cash and cash equivalents at 1 January 121,759 93,438 Effect of foreign currency exchange rate changes 111(1,102)Cash and cash equivalents at 31 March 110,964 101,935 29 Note to Consolidated Statement of Cash Flows For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited(a)Reconciliation from profit before taxation to net cash used in operating activities Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 Operating activities Profit before taxation 27,557 29,885 Adjustments for:Depreciation,depletion and amortisation 29,212 26,999 Dry hole costs written off 1,483 1,792 Share of profits from associates and joint ventures(2,798)(1,223)Investment income(143)(111)Interest income(1,629)(2,670)Interest expense 4,660 5,604 Loss/(Gain)on foreign currency exchange rate changes and derivative financial instruments 4,576(314)Gain on disposal of property,plant,equipment and other non-current assets,net(29)(7)Impairment(reversals)/losses on assets(42)414 Impairment losses on trade and other receivables 40 54 Operating profit before change of operating capital 62,887 60,423 Accounts receivable and other current assets(52,760)(25,116)Inventories(23,735)(10,234)Accounts payable and other current liabilities 3,450(38,424)Subtotal(10,158)(13,351)Income tax paid(3,597)(5,046)Net cash used in operating activities(13,755)(18,397)30 Segment Reporting For the three-month period ended 31 March 2024 Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 Revenue Exploration and production External sales 52,182 52,585 Inter-segment sales 27,630 26,175 Subtotal 79,812 78,760 Refining External sales 41,422 45,216 Inter-segment sales 332,790 322,166 Subtotal 374,212 367,382 Marketing and distribution External sales 408,420 412,676 Inter-segment sales 1,735 3,850 Subtotal 410,155 416,526 Chemicals External sales 98,333 96,966 Inter-segment sales 24,655 21,999 Subtotal 122,988 118,965 Corporate and others External sales 173,299 165,532 Inter-segment sales 226,744 213,426 Subtotal 400,043 378,958 Elimination of inter-segment sales(613,554)(587,616)Revenue from primary business 773,656 772,975 Other operating revenues Exploration and production 803 2,165 Refining 863 911 Marketing and distribution 11,545 12,418 Chemicals 2,372 2,330 Corporate and others 728 532 Other operating revenues 16,311 18,356 Revenue 789,967 791,331 31 Segment Reporting(Continued)Result Operating profit/(loss)By segment Exploration and production 14,007 12,847 Refining 6,974 10,403 Marketing and distribution 8,000 7,921 Chemicals(1,564)(1,780)Corporate and others 1,723 2,239 Elimination(1,820)(540)Total segment operating profit 27,320 31,090 Share of profits/(loss)from associates and joint ventures Exploration and production 816 510 Refining(94)46 Marketing and distribution 664 551 Chemicals 38(1,147)Corporate and others 1,374 1,263 Aggregate share of profits from associates and joint ventures 2,798 1,223 Investment income/(loss)Exploration and production-Refining 7 10 Marketing and distribution 14 3 Chemicals(83)(95)Corporate and others 205 193 Aggregate investment income 143 111 Net finance costs(2,704)(2,539)Profit before taxation 27,557 29,885 32 5.3 Differences between consolidated financial statements prepared in accordance with the accounting policies complying with CASs and IFRS Accounting Standards(Unaudited)Other than the differences in the classifications of certain financial statements captions and the accounting for the items described below,there are no material differences between the Groups consolidated financial statements prepared in accordance with the accounting policies complying with CASs and IFRS Accounting Standards.The reconciliation presented below is included as supplemental information,is not required as part of the basic financial statements and does not include differences related to classification,presentation or disclosures.Such information has not been subject to independent audit or review.The major differences are:(i)Government grants Under CASs,grants from the government are credited to capital reserve if required by relevant governmental regulations.Under IFRS Accounting Standards,government grants relating to the purchase of fixed assets are recognised as deferred income and are transferred to the income statement over the useful life of these assets.(ii)Safety production fund Under CASs,safety production fund should be recognised in profit or loss with a corresponding increase in reserve according to PRC regulations.Such reserve is reduced for expenses incurred for safety production purposes or,when safety production related fixed assets are purchased,is reduced by the purchased cost with a corresponding increase in the accumulated depreciation.Such fixed assets are not depreciated thereafter.Under IFRS Accounting Standards,payments are expensed as incurred,or capitalised as fixed assets and depreciated according to applicable depreciation methods.(iii)Capitalisation of exchange difference of specific loans Under CASs,exchange difference arising on translation of specific loans and related interest denominated in a foreign currency should be capitalised as part of the cost of qualifying assets.Under IFRS Accounting Standards,such exchange difference is recognised in income statement unless the exchange difference represents an adjustment to interest.33 Effects of major differences between the net profit under CASs and the profit for the period under IFRS Accounting Standards are analysed as follows:Prepared by:China Petroleum&Chemical Corporation Units:million Currency:RMB Type:unaudited Items Three-month period ended 31 March 2024 Three-month period ended 31 March 2023 Net profit under CASs 21,360 22,864 Adjustments:Government grants(i)9 7 Safety production fund(ii)660 686 Capitalisation of exchange difference of specific loans(iii)(193)-Profit for the period under IFRS Accounting Standards 21,836 23,557 Effects of major differences between the shareholders equity under CASs and the total equity under IFRS Accounting Standards are analysed as follows:Units:million Currency:RMB Type:unaudited Items As of 31 March 2024 As of 31 December 2023 Shareholders equity under CASs 991,640 958,655 Adjustments:Government grants(i)(859)(868)Capitalisation of exchange difference of specific loans(iii)(2,171)(1,978)Total equity under IFRS Accounting Standards 988,610 955,809
2024-05-10
34页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549_ FORM 10-Q _ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31,2024 orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission File Number:1-10864 _ UnitedHealth Group Incorporated(Exact name of registrant as specified in its charter)_ Delaware 41-1321939(State or other jurisdiction ofincorporation or organization)(I.R.S.EmployerIdentification No.)UnitedHealth Group Center 553439900 Bren Road EastMinnetonka,Minnesota(Address of principal executive offices)(Zip Code)(952)936-1300(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,$.01 par valueUNHNew York Stock ExchangeIndicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”in Rule 12b-2 of the Exchange Act Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No As of April 30,2024,there were 920,385,075 shares of the registrants Common Stock,$.01 par value per share,issued and outstanding.UNITEDHEALTH GROUPTable of Contents PagePart I.Financial InformationItem 1.Financial Statements(unaudited).1Condensed Consolidated Balance Sheets as of March 31,2024 and December 31,2023 .1Condensed Consolidated Statements of Operations for the Three Months Ended March 31,2024 and 2023 .2Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31,2024 and 2023 .3Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31,2024 and 2023 .4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,2024 and 2023 .5Notes to the Condensed Consolidated Financial Statements .61.Basis of Presentation .62.Investments .73.Fair Value .94.Medical Costs Payable .105.Short-Term Borrowings and Long-Term Debt .106.Commitments and Contingencies .117.Disposition .128.Segment Financial Information .13Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations .14Item 3.Quantitative and Qualitative Disclosures About Market Risk .22Item 4.Controls and Procedures .22Part II.Other InformationItem 1.Legal Proceedings .22Item 1A.Risk Factors .22Item 2.Unregistered Sales of Equity Securities,Use of Proceeds,and Issuer Purchases of Equity Securities .23Item 5.Other Information .23Item 6.Exhibits .24Signatures .25PART I ITEM 1.FINANCIAL STATEMENTSUnitedHealth GroupCondensed Consolidated Balance Sheets(Unaudited)(in millions,except per share data)March 31,2024December 31,2023AssetsCurrent assets:Cash and cash equivalents .$28,414$25,427 Short-term investments .4,296 4,201 Accounts receivable,net .27,197 21,276 Other current receivables,net .19,284 17,694 Assets under management .3,619 3,755 Prepaid expenses and other current assets .6,132 6,084 Total current assets .88,942 78,437 Long-term investments .45,928 47,609 Property,equipment and capitalized software,net .10,429 11,450 Goodwill .105,664 103,732 Other intangible assets,net .15,543 15,194 Other assets .17,704 17,298 Total assets .$284,210$273,720 Liabilities,redeemable noncontrolling interests and equityCurrent liabilities:Medical costs payable .$34,032$32,395 Accounts payable and accrued liabilities .30,738 31,958 Short-term borrowings and current maturities of long-term debt .9,787 4,274 Unearned revenues .3,206 3,355 Other current liabilities .26,668 27,072 Total current liabilities .104,431 99,054 Long-term debt,less current maturities .63,850 58,263 Deferred income taxes .4,167 3,021 Other liabilities .14,844 14,463 Total liabilities .187,292 174,801 Commitments and contingencies(Note 6)Redeemable noncontrolling interests .4,548 4,498 Equity:Preferred stock,$0.001 par value-10 shares authorized;no shares issued or outstanding .Common stock,$0.01 par value-3,000 shares authorized;920 and 924 issued and outstanding.9 9 Retained earnings .90,118 95,774 Accumulated other comprehensive loss .(3,439)(7,027)Nonredeemable noncontrolling interests .5,682 5,665 Total equity .92,370 94,421 Total liabilities,redeemable noncontrolling interests and equity .$284,210$273,720 See Notes to the Condensed Consolidated Financial Statements 1UnitedHealth GroupCondensed Consolidated Statements of Operations(Unaudited)Three Months Ended March 31,(in millions,except per share data)20242023Revenues:Premiums .$77,988$72,786 Products .11,909 10,267 Services .8,888 8,080 Investment and other income.1,011 798 Total revenues .99,796 91,931 Operating costs:Medical costs.65,735 59,845 Operating costs .14,077 13,625 Cost of products sold .11,056 9,405 Depreciation and amortization .997 970 Total operating costs .91,865 83,845 Earnings from operations .7,931 8,086 Interest expense .(844)(754)Loss on sale of subsidiary .(7,086)Earnings before income taxes .1 7,332 Provision for income taxes .(1,222)(1,558)Net(loss)earnings .(1,221)5,774 Earnings attributable to noncontrolling interests .(188)(163)Net(loss)earnings attributable to UnitedHealth Group common shareholders .$(1,409)$5,611(Loss)earnings per share attributable to UnitedHealth Group common shareholders:Basic .$(1.53)$6.01 Diluted .$(1.53)$5.95 Basic weighted-average number of common shares outstanding .922 933 Dilutive effect of common share equivalents .10 Diluted weighted-average number of common shares outstanding .922 943 Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents .15 5 See Notes to the Condensed Consolidated Financial Statements 2UnitedHealth GroupCondensed Consolidated Statements of Comprehensive Income(Unaudited)Three Months Ended March 31,(in millions)20242023Net(loss)earnings .$(1,221)$5,774 Other comprehensive income:Gross unrealized(losses)gains on investment securities during the period .(290)640 Income tax effect .68 (147)Total unrealized(losses)gains,net of tax .(222)493 Gross reclassification adjustment for net realized(gains)losses included in net earnings .(32)13 Income tax effect .7 (3)Total reclassification adjustment,net of tax .(25)10 Foreign currency translation(losses)gains .(293)341 Reclassification adjustment for translation losses included in net(loss)earnings .4,128 Total foreign currency translation gains .3,835 341 Other comprehensive income .3,588 844 Comprehensive income .2,367 6,618 Comprehensive income attributable to noncontrolling interests .(188)(163)Comprehensive income attributable to UnitedHealth Group common shareholders .$2,179$6,455 See Notes to the Condensed Consolidated Financial Statements 3UnitedHealth GroupCondensed Consolidated Statements of Changes in Equity(Unaudited)Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossNonredeemable Noncontrolling InterestsTotal EquityThree months ended March 31,(in millions)SharesAmountNet Unrealized(Losses)Gains on InvestmentsForeign Currency Translation(Losses)GainsBalance at January 1,2024.924$9$95,774$(1,971)$(5,056)$5,665$94,421 Net(loss)earnings .(1,409)149 (1,260)Other comprehensive(loss)income .(247)3,835 3,588 Issuances of common stock,and related tax effects .2 242 242 Share-based compensation .352 352 Common share repurchases .(6)(574)(2,518)(3,092)Cash dividends paid on common shares($1.88 per share).(1,729)(1,729)Redeemable noncontrolling interests fair value and other adjustments .(20)(20)Acquisition and other adjustments of nonredeemable noncontrolling interests.19 19 Distribution to nonredeemable noncontrolling interests .(151)(151)Balance at March 31,2024.920$9$90,118$(2,218)$(1,221)$5,682$92,370 Balance at January 1,2023.934$9$86,156$(2,778)$(5,615)$3,678$81,450 Net earnings.5,611 113 5,724 Other comprehensive income .503 341 844 Issuances of common stock,and related tax effects .2 350 350 Share-based compensation .366 366 Common share repurchases .(4)(633)(1,378)(2,011)Cash dividends paid on common shares($1.65 per share).(1,537)(1,537)Redeemable noncontrolling interests fair value and other adjustments .(83)(83)Acquisition and other adjustments of nonredeemable noncontrolling interests.819 819 Distribution to nonredeemable noncontrolling interests .(101)(101)Balance at March 31,2023.932$9$88,852$(2,275)$(5,274)$4,509$85,821 See Notes to the Condensed Consolidated Financial Statements 4UnitedHealth GroupCondensed Consolidated Statements of Cash Flows(Unaudited)Three Months Ended March 31,(in millions)20242023Operating activitiesNet(loss)earnings .$(1,221)$5,774 Noncash items:Depreciation and amortization .997 970 Deferred income taxes .(27)(332)Share-based compensation .372 362 Loss on sale of subsidiary .7,086 Other,net .179 69 Net change in other operating items,net of effects from acquisitions,dispositions and changes in AARP balances:Accounts receivable .(6,162)(4,306)Other assets .(1,927)(1,875)Medical costs payable .2,069 2,467 Accounts payable and other liabilities .(231)1,796 Unearned revenues .9 11,402 Cash flows from operating activities .1,144 16,327 Investing activitiesPurchases of investments .(4,798)(4,894)Sales of investments .2,976 456 Maturities of investments .2,314 2,119 Cash paid for acquisitions,net of cash assumed .(3,006)(7,826)Purchases of property,equipment and capitalized software .(743)(760)Other,net .(3,083)(115)Cash flows used for investing activities .(6,340)(11,020)Financing activitiesCommon share repurchases .(3,072)(2,000)Cash dividends paid .(1,729)(1,537)Proceeds from common stock issuances .486 344 Repayments of long-term debt .(750)(1,375)Proceeds from short-term borrowings,net .6,189 7,349 Proceeds from issuance of long-term debt .5,925 6,401 Customer funds administered .1,745 5,012 Other,net .(563)(1,004)Cash flows from financing activities .8,231 13,190 Effect of exchange rate changes on cash and cash equivalents .(48)51 Increase in cash and cash equivalents .2,987 18,548 Cash and cash equivalents,beginning of period.25,427 23,365 Cash and cash equivalents,end of period .$28,414$41,913 See Notes to the Condensed Consolidated Financial Statements 5UnitedHealth GroupNotes to the Condensed Consolidated Financial Statements(Unaudited)1.Basis of Presentation UnitedHealth Group Incorporated(individually and together with its subsidiaries,“UnitedHealth Group”and the“Company”)is a health care and well-being company with a mission to help people live healthier lives and help make the health system work better for everyone.The Companys two distinct,yet complementary businesses Optum and UnitedHealthcare are working to help build a modern,high-performing health system through improved access,affordability,outcomes and experiences for the individuals and organizations the Company is privileged to serve.The Company has prepared the Condensed Consolidated Financial Statements according to U.S.Generally Accepted Accounting Principles(GAAP)and has included the accounts of UnitedHealth Group and its subsidiaries.The year-end condensed consolidated balance sheet was derived from audited financial statements,but does not include all disclosures required by GAAP.In accordance with the rules and regulations of the U.S.Securities and Exchange Commission(SEC),the Company has omitted certain footnote disclosures that would substantially duplicate the disclosures contained in its annual audited Consolidated Financial Statements.Therefore,these Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and the Notes included in Part II,Item 8,“Financial Statements and Supplementary Data”in the Companys Annual Report on Form 10-K for the year ended December 31,2023 as filed with the SEC(2023 10-K).The accompanying Condensed Consolidated Financial Statements include all normal recurring adjustments necessary to present the interim financial statements fairly.Use of EstimatesThese Condensed Consolidated Financial Statements include certain amounts based on the Companys best estimates and judgments.The Companys most significant estimates relate to estimates and judgments for medical costs payable and goodwill.Certain of these estimates require the application of complex assumptions and judgments,often because they involve matters that are inherently uncertain and will likely change in subsequent periods.The impact of any change in estimates is included in earnings in the period in which the estimate is adjusted.Revenues-Products and ServicesAs of March 31,2024 and December 31,2023,accounts receivable related to products and services were$10.3 billion and$8.6 billion,respectively.As of March 31,2024,revenue expected to be recognized in any future year related to remaining performance obligations,excluding revenue pertaining to contracts having an original expected duration of one year or less,contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations,was$14.3 billion,of which approximately half is expected to be recognized in the next three years.62.InvestmentsA summary of debt securities by major security type is as follows:(in millions)AmortizedCostGrossUnrealizedGainsGrossUnrealizedLossesFairValueMarch 31,2024Debt securities-available-for-sale:U.S.government and agency obligations .$4,730$1$(262)$4,469 State and municipal obligations .7,228 7 (357)6,878 Corporate obligations .22,756 20 (1,225)21,551 U.S.agency mortgage-backed securities .9,395 7 (850)8,552 Non-U.S.agency mortgage-backed securities .2,901 1 (220)2,682 Total debt securities-available-for-sale .47,010 36 (2,914)44,132 Debt securities-held-to-maturity:U.S.government and agency obligations .510 (5)505 State and municipal obligations .28 (3)25 Corporate obligations .59 59 Total debt securities-held-to-maturity .597 (8)589 Total debt securities.$47,607$36$(2,922)$44,721 December 31,2023Debt securities-available-for-sale:U.S.government and agency obligations .$4,674$3$(234)$4,443 State and municipal obligations .7,636 39 (322)7,353 Corporate obligations .23,136 67 (1,186)22,017 U.S.agency mortgage-backed securities .8,982 22 (708)8,296 Non-U.S.agency mortgage-backed securities .3,023 3 (240)2,786 Total debt securities-available-for-sale .47,451 134 (2,690)44,895 Debt securities-held-to-maturity:U.S.government and agency obligations .506 1 (6)501 State and municipal obligations .28 (2)26 Corporate obligations .69 69 Total debt securities-held-to-maturity .603 1 (8)596 Total debt securities.$48,054$135$(2,698)$45,491 The Company held$4.1 billion and$4.9 billion of equity securities as of March 31,2024 and December 31,2023,respectively.The Companys investments in equity securities primarily consist of venture investments and employee savings plan related investments.Additionally,the Companys investments included$1.4 billion of equity method investments primarily in operating businesses in the health care sector as of March 31,2024 and December 31,2023.The allowance for credit losses on held-to-maturity securities at March 31,2024 and December 31,2023 was not material.7The amortized cost and fair value of debt securities as of March 31,2024,by contractual maturity,were as follows:Available-for-SaleHeld-to-Maturity(in millions)AmortizedCostFairValueAmortizedCostFairValueDue in one year or less .$4,430$4,398$336$334 Due after one year through five years .14,686 14,061 219 216 Due after five years through ten years .10,690 9,813 24 23 Due after ten years .4,908 4,626 18 16 U.S.agency mortgage-backed securities .9,395 8,552 Non-U.S.agency mortgage-backed securities .2,901 2,682 Total debt securities .$47,010$44,132$597$589 The fair value of available-for-sale debt securities with gross unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position were as follows:Less Than 12 Months12 Months or Greater Total(in millions)FairValueGrossUnrealizedLossesFairValueGrossUnrealizedLossesFairValueGrossUnrealizedLossesMarch 31,2024Debt securities-available-for-sale:U.S.government and agency obligations .$2,005$(18)$2,053$(244)$4,058$(262)State and municipal obligations .1,736 (18)4,334 (339)6,070 (357)Corporate obligations .4,046 (33)13,881 (1,192)17,927 (1,225)U.S.agency mortgage-backed securities .2,686 (46)5,197 (804)7,883 (850)Non-U.S.agency mortgage-backed securities .159 (1)2,265 (219)2,424 (220)Total debt securities-available-for-sale .$10,632$(116)$27,730$(2,798)$38,362$(2,914)December 31,2023Debt securities-available-for-sale:U.S.government and agency obligations .$1,270$(7)$2,077$(227)$3,347$(234)State and municipal obligations .907 (7)4,063 (315)4,970 (322)Corporate obligations .1,826 (17)14,696 (1,169)16,522 (1,186)U.S.agency mortgage-backed securities .1,337 (12)5,069 (696)6,406 (708)Non-U.S.agency mortgage-backed securities .279 (6)2,202 (234)2,481 (240)Total debt securities-available-for-sale .$5,619$(49)$28,107$(2,641)$33,726$(2,690)The Companys unrealized losses from debt securities as of March 31,2024 were generated from approximately 32,000 positions out of a total of 39,000 positions.The Company believes that it will timely collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value.The unrealized losses were primarily caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities which impacted the Companys assessment on collectability of principal and interest.At each reporting period,the Company evaluates available-for-sale debt securities for any credit-related impairment when the fair value of the investment is less than its amortized cost.The Company evaluated the expected cash flows,the underlying credit quality and credit ratings of the issuers,noting no significant credit deterioration since purchase.As of March 31,2024,the Company did not have the intent to sell any of the available-for-sale debt securities in an unrealized loss position.Therefore,the Company believes these losses to be temporary.The allowance for credit losses on available-for-sale debt securities at March 31,2024 and December 31,2023 was not material.83.Fair ValueCertain assets and liabilities are measured at fair value in the Condensed Consolidated Financial Statements or have fair values disclosed in the Notes to the Condensed Consolidated Financial Statements.These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP.For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument,see Note 4 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in the 2023 10-K.The following table presents a summary of fair value measurements by level and carrying values for items measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:(in millions)Quoted Pricesin ActiveMarkets(Level 1)OtherObservableInputs(Level 2)UnobservableInputs(Level 3)TotalFair and CarryingValueMarch 31,2024Cash and cash equivalents .$28,367$47$28,414 Debt securities-available-for-sale:U.S.government and agency obligations .4,275 194 4,469 State and municipal obligations .6,878 6,878 Corporate obligations .28 21,324 199 21,551 U.S.agency mortgage-backed securities .8,552 8,552 Non-U.S.agency mortgage-backed securities .2,682 2,682 Total debt securities-available-for-sale .4,303 39,630 199 44,132 Equity securities .1,640 16 69 1,725 Assets under management .1,636 1,876 107 3,619 Total assets at fair value .$35,946$41,569$375$77,890 Percentage of total assets at fair value .46S%10cember 31,2023Cash and cash equivalents .$25,345$82$25,427 Debt securities-available-for-sale:U.S.government and agency obligations .4,167 276 4,443 State and municipal obligations .7,353 7,353 Corporate obligations .15 21,800 202 22,017 U.S.agency mortgage-backed securities .8,296 8,296 Non-U.S.agency mortgage-backed securities .2,786 2,786 Total debt securities-available-for-sale .4,182 40,511 202 44,895 Equity securities .2,468 16 69 2,553 Assets under management .1,505 2,140 110 3,755 Total assets at fair value .$33,500$42,749$381$76,630 Percentage of total assets at fair value .44U%10%There were no transfers in or out of Level 3 financial assets or liabilities during the three months ended March 31,2024 or 2023.9The following table presents a summary of fair value measurements by level and carrying values for certain financial instruments not measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:(in millions)Quoted Pricesin ActiveMarkets(Level 1)OtherObservableInputs(Level 2)UnobservableInputs(Level 3)TotalFairValueTotal Carrying ValueMarch 31,2024Debt securities-held-to-maturity .$522$67$589$597 Long-term debt and other financing obligations .$63,489$63,489$66,299 December 31,2023Debt securities-held-to-maturity .$524$72$596$603 Long-term debt and other financing obligations .$59,851$59,851$61,449 Nonfinancial assets and liabilities or financial assets and liabilities that are measured at fair value on a nonrecurring basis are subject to fair value adjustments only in certain circumstances,such as when the Company records an impairment.There were no significant fair value adjustments for these assets and liabilities recorded during the three months ended March 31,2024 or 2023.4.Medical Costs PayableThe following table shows the components of the change in medical costs payable for the three months ended March 31:(in millions)20242023Medical costs payable,beginning of period .$32,395$29,056 Acquisitions(dispositions),net .(687)1 Reported medical costs:Current year .66,045 60,315 Prior years .(310)(470)Total reported medical costs .65,735 59,845 Medical payments:Payments for current year .(38,652)(35,087)Payments for prior years .(24,759)(22,006)Total medical payments .(63,411)(57,093)Medical costs payable,end of period .$34,032$31,809 For the three months ended March 31,2024 and 2023,prior years medical cost reserve development included no individual factors that were significant.Medical costs payable included reserves for claims incurred by consumers but not yet reported to the Company of$25.3 billion and$22.3 billion at March 31,2024 and December 31,2023,respectively.5.Short-Term Borrowings and Long-Term Debt In March 2024,the Company issued$6.0 billion of senior unsecured notes consisting of the following:(in millions,except percentages)Par Value4.600%notes due April 2027 .$500 4.700%notes due April 2029 .400 4.900%notes due April 2031 .1,000 5.000%notes due April 2034 .1,250 5.375%Notes due April 2054 .1,750 5.500%Notes due April 2064 .1,100 As of March 31,2024,the Company had$7.3 billion of commercial paper outstanding,with a weighted-average annual interest rate of 5.4%.10For more information on the Companys short-term borrowings,debt covenants and long-term debt,see Note 8 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in the 2023 10-K.6.Commitments and ContingenciesPending AcquisitionsAs of March 31,2024,the Company has entered into agreements to acquire companies in the health care sector,subject to regulatory approval and other customary closing conditions.The total anticipated consideration required for these acquisitions,excluding the payoff of acquired indebtedness,is approximately$4 billion.Legal MattersThe Company is frequently made party to a variety of legal actions and regulatory inquiries,including class actions and suits brought by members,care providers,consumer advocacy organizations,customers and regulators,relating to the Companys businesses,including management and administration of health benefit plans and other services.These matters include medical malpractice,employment,intellectual property,antitrust,privacy and contract claims and claims related to health care benefits coverage and other business practices.The Company records liabilities for its estimates of probable costs resulting from these matters where appropriate.Estimates of costs resulting from legal and regulatory matters involving the Company are inherently difficult to predict,particularly where the matters:involve indeterminate claims for monetary damages or may involve fines,penalties or punitive damages;present novel legal theories or represent a shift in regulatory policy;involve a large number of claimants or regulatory bodies;are in the early stages of the proceedings;or could result in a change in business practices.Accordingly,the Company is often unable to estimate the losses or ranges of losses for those matters where there is a reasonable possibility or it is probable a loss may be incurred.Government Investigations,Audits and ReviewsThe Company has been involved or is currently involved in various governmental investigations,audits and reviews.These include routine,regular and special investigations,audits and reviews by the Centers for Medicare and Medicaid Services(CMS),state insurance and health and welfare departments,state attorneys general,the Office of the Inspector General,the Office of Personnel Management,the Office of Civil Rights,the Government Accountability Office,the Federal Trade Commission,U.S.Congressional committees,the U.S.Department of Justice(DOJ),the SEC,the Internal Revenue Service,the U.S.Drug Enforcement Administration,the U.S.Department of Labor,the Federal Deposit Insurance Corporation,the Consumer Financial Protection Bureau(CFPB),the Defense Contract Audit Agency and other governmental authorities.Similarly,the Companys international businesses are also subject to investigations,audits and reviews by applicable foreign governments.The Company has also been responding to subpoenas,information requests and investigations from governmental entities.The Company can provide no assurance as to the scope and outcome of these matters and no assurance as to whether its business,financial condition or results of operations will be materially adversely affected.Certain of the Companys businesses have been reviewed or are currently under review,including for,among other matters,compliance with coding and other requirements under the Medicare risk-adjustment model.CMS has selected certain of the Companys local plans for risk adjustment data validation(RADV)audits to validate the coding practices of and supporting documentation maintained by health care providers and such audits may result in retrospective adjustments to payments made to the Companys health plans.On February 14,2017,the DOJ announced its decision to pursue certain claims within a lawsuit initially asserted against the Company and filed under seal by a whistleblower in 2011.The whistleblowers complaint,which was unsealed on February 15,2017,alleges the Company made improper risk adjustment submissions and violated the False Claims Act.On February 12,2018,the court granted in part and denied in part the Companys motion to dismiss.In May 2018,the DOJ moved to dismiss the Companys counterclaims,which were filed in March 2018,and moved for partial summary judgment.In March 2019,the court denied the governments motion for partial summary judgment and dismissed the Companys counterclaims without prejudice.The Company cannot reasonably estimate the outcome which may result from this matter given its procedural status.117.DispositionOn February 6,2024,the Company completed the sale of its Brazil operations.During the three months ended March 31,2024,the Company recorded a loss of$7.1 billion within the Consolidated Statement of Operations,of which$4.1 billion related to the impact of cumulative foreign currency translation losses previously included in accumulated other comprehensive loss.The assets and liabilities of the disposal group as of the date of the sale were as follows:(in millions)AssetsCash and cash equivalents .$778 Accounts receivable and other current assets .515 Long-term investments.788 Property,equipment and capitalized software .1,052 Deferred tax assets .1,035 Other intangible assets .317 Other long-term assets.439 Total assets .4,924 LiabilitiesMedical costs payable .701 Accounts payable and other current liabilities .834 Other long-term liabilities .136 Total liabilities .$1,671 128.Segment Financial InformationThe Companys four reportable segments are UnitedHealthcare,Optum Health,Optum Insight and Optum Rx.For more information on the Companys segments,see Part I,Item I,“Business”and Note 14 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in the 2023 10-K.The following tables present reportable segment financial information:Optum (in millions)UnitedHealthcareOptum HealthOptum InsightOptum RxOptum EliminationsOptumCorporate andEliminationsConsolidatedThree Months Ended March 31,2024Revenues-unaffiliated customers:Premiums .$72,293$5,695$5,695$77,988 Products .59 41 11,809 11,909 11,909 Services .2,529 3,970 1,702 687 6,359 8,888 Total revenues-unaffiliated customers .74,822 9,724 1,743 12,496 23,963 98,785 Total revenues-affiliated customers .16,617 2,731 18,281 (1,016)36,613 (36,613)Investment and other income.535 390 28 58 476 1,011 Total revenues .$75,357$26,731$4,502$30,835$(1,016)$61,052$(36,613)$99,796 Earnings from operations .$4,395$1,899$490$1,147$3,536$7,931 Interest expense .(844)(844)Loss on sale of subsidiary .(7,086)(7,086)Earnings before income taxes .$(2,691)$1,899$490$1,147$3,536$(844)$1 Three Months Ended March 31,2023Revenues-unaffiliated customers:Premiums .$67,458$5,328$5,328$72,786 Products .44 40 10,183 10,267 10,267 Services .2,555 3,089 1,926 510 5,525 8,080 Total revenues-unaffiliated customers .70,013 8,461 1,966 10,693 21,120 91,133 Total revenues-affiliated customers .14,266 2,510 16,679 (859)32,596 (32,596)Investment and other income.455 277 20 46 343 798 Total revenues .$70,468$23,004$4,496$27,418$(859)$54,059$(32,596)$91,931 Earnings from operations .$4,343$1,776$907$1,060$3,743$8,086 Interest expense .(754)(754)Earnings before income taxes .$4,343$1,776$907$1,060$3,743$(754)$7,332 13ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes and with our 2023 10-K,including the Consolidated Financial Statements and Notes included in Part II,Item 8,“Financial Statements and Supplementary Data”in that report.Unless the context indicates otherwise,references to the terms“UnitedHealth Group,”the“Company,”“we,”“our”or“us”used throughout this Managements Discussion and Analysis of Financial Condition and Results of Operations refer to UnitedHealth Group Incorporated and its consolidated subsidiaries.Readers are cautioned that the statements,estimates,projections or outlook contained in this Managements Discussion and Analysis of Financial Condition and Results of Operations,including discussions regarding financial prospects,economic conditions,trends and uncertainties contained in this Item 2,may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995(PSLRA).These forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the results discussed or implied in the forward-looking statements.A description of some of the risks and uncertainties is set forth in Part I,Item 1A,“Risk Factors”in our 2023 10-K and in the discussion below.EXECUTIVE OVERVIEW GeneralUnitedHealth Group is a health care and well-being company with a mission to help people live healthier lives and help make the health system work better for everyone.Our two distinct,yet complementary businesses Optum and UnitedHealthcare are working to help build a modern,high-performing health system through improved access,affordability,outcomes and experiences for the individuals and organizations we are privileged to serve.We have four reportable segments:Optum Health;Optum Insight;Optum Rx;andUnitedHealthcare,which includes UnitedHealthcare Employer&Individual,UnitedHealthcare Medicare&Retirement and UnitedHealthcare Community&State.Further information on our business is presented in Part I,Item 1,“Business”and Part II,Item 7,“Managements Discussion and Analysis of Financial Condition and Results of Operations”in our 2023 10-K and additional information on our segments can be found in this Item 2 and in Note 8 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report.Change Healthcare CyberattackAs previously announced,on February 21,2024,we identified that cybercrime threat actors had gained access to certain Change Healthcare information technology systems.Upon detection of this outside threat,we isolated the impacted systems to protect our partners and customers.We have made substantial progress in mitigating the impact to consumers and care providers of the unprecedented cyberattack on the U.S.health system and certain Change Healthcare services.To support care providers,we accelerated funding and provided interest-free loans of approximately$3.9 billion through March 31,2024,which has increased to over$6.5 billion through April 30,2024.For the three months ended March 31,2024,we incurred$593 million of direct response costs,including network restoration and increased medical care expenditures,as we suspended some care management activities to help care providers with their workflow processes.Optum Insight also experienced estimated business disruption impacts of$279 million for the three months ended March 31,2024,reflecting lost revenue while maintaining full readiness of the affected Change Healthcare services.We expect to continue to incur direct response costs and experience business disruption impacts over the remainder of the year,including costs to continue to restore Change Healthcares services and the impact of suspended care management activities.In April 2024,we also announced that based on initial targeted data sampling to date,we have found files containing protected health information(PHI)or personally identifiable information(PII),which could cover a substantial proportion of people in America.The investigation of impacted data is ongoing.It is possible that future risks and uncertainties resulting from the Change Healthcare cyberattack,including risks related to impacted data,litigation,reputational harm,and regulatory actions could adversely affect our financial condition or results of operations.14Business TrendsOur businesses participate in the United States and certain other international health markets.We expect overall spending on health care to continue to grow in the future,due to inflation,medical technology and pharmaceutical advancement,regulatory requirements,demographic trends in the population and national interest in health and well-being.The rate of market growth may be affected by a variety of factors,including macroeconomic conditions and regulatory changes,which could impact our results of operations,including our continued efforts to control health care costs.Pricing Trends.To price our health care benefits,products and services,we start with our view of expected future costs,including medical cost trends,inflation and labor market dynamics.We frequently evaluate and adjust our approach in each of the local markets we serve,considering all relevant factors,such as product positioning,price competitiveness and environmental,competitive,legislative and regulatory considerations,including minimum medical loss ratio thresholds and similar revenue adjustments.We will continue seeking to balance growth and profitability across all these dimensions.The commercial risk market remains highly competitive in the small group,large group and individual segments.We expect broad-based competition to continue as the industry adapts to individual and employer needs.Government programs in the community and senior sector tend to receive lower rates of increase than the commercial market due to governmental budget pressures and lower cost trends.Medical Cost Trends.Our medical cost trends primarily relate to changes in unit costs,care activity and prescription drug costs.As expected and contemplated in our benefits design,during the first quarter we continued to observe increased care patterns,primarily related to outpatient procedures for seniors,which may continue in future periods.We endeavor to mitigate those increases by engaging physicians and consumers with information and helping them make clinically sound choices,with the objective of helping them achieve quality,affordable care.In the first quarter 2024,as a result of the Change Healthcare cyberattack,we incurred$340 million of medical costs related to the temporary suspension of some care management activities,impacting our UnitedHealthcare and Optum Health businesses,to help care providers with their workflow processes.Early in the second quarter we have resumed these activities.Additionally,the business disruption impacted claims receipt timing for payer customers,including UnitedHealthcare,which could potentially result in increased variability to our medical cost reserve development in future periods.Medicaid Redeterminations.Medicaid redeterminations have continued to impact the number of people served through our Medicaid offerings,partially offset by an increase in consumers served through our commercial offerings as we endeavor to ensure that people and families have continued access to care.Regulatory Trends and UncertaintiesMedicare Advantage Rates.Medicare Advantage rate notices over the years have at times resulted in industry base rates well below industry forward medical trend.For example,the Final Notices for 2024 and 2025 rates resulted in an industry base rate decrease,both well short of an increasing industry forward medical cost trend,creating continued pressure in the Medicare Advantage program.Further,substantial revisions to the risk adjustment model,which serves to adjust rates to reflect a patients health status and care resource needs,will result in reduced funding and potentially benefits for people,especially those with some of the greatest health and social challenges.As a result of ongoing Medicare funding pressures,there are adjustments we can make to partially offset these rate pressures and reductions for a particular period.For example,we can seek to intensify our medical and operating cost management,make changes to the size and composition of our care provider networks,adjust member benefits and implement or increase the member premiums supplementing the monthly payments we receive from the government.Additionally,we decide annually on a county-by-county basis where we will offer Medicare Advantage plans.SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMSThe following summarizes select first quarter 2024 year-over-year operating comparisons to first quarter 2023 and other financial results.Consolidated revenues grew 9%,UnitedHealthcare revenues grew 7%and Optum revenues grew 13%.UnitedHealthcare served 1.6 million more people domestically,driven by growth in commercial and Medicare offerings.Consolidated earnings from operations of$7.9 billion compared to$8.1 billion last year,impacted by the Change Healthcare cyberattack.Diluted loss per common share was$1.53,impacted by the loss on the sale of our Brazil operations and the Change Healthcare cyberattack.Cash flows from operations for the three months ended March 31,2024 were$1.1 billion.15RESULTS SUMMARYThe following table summarizes our consolidated results of operations and other financial information:(in millions,except percentages and per share data)Three Months Ended March 31,Increase/(Decrease)202420232024 vs.2023Revenues:Premiums .$77,988$72,786$5,202 7%Products .11,909 10,267 1,642 16 Services .8,888 8,080 808 10 Investment and other income.1,011 798 213 27 Total revenues .99,796 91,931 7,865 9 Operating costs:Medical costs.65,735 59,845 5,890 10 Operating costs .14,077 13,625 452 3 Cost of products sold .11,056 9,405 1,651 18 Depreciation and amortization .997 970 27 3 Total operating costs .91,865 83,845 8,020 10 Earnings from operations .7,931 8,086 (155)(2)Interest expense .(844)(754)(90)12 Loss on sale of subsidiary .(7,086)(7,086)nmEarnings before income taxes .1 7,332 (7,331)nmProvision for income taxes .(1,222)(1,558)336 (22)Net(loss)earnings .(1,221)5,774 (6,995)nmEarnings attributable to noncontrolling interests .(188)(163)(25)15 Net(loss)earnings attributable to UnitedHealth Group common shareholders .$(1,409)$5,611$(7,020)nmDiluted(loss)earnings per share attributable to UnitedHealth Group common shareholders .$(1.53)$5.95$(7.48)Medical care ratio(a).84.3.2%2.1%Operating cost ratio .14.1 14.8 (0.7)Operating margin .7.9 8.8 (0.9)Tax rate .nm 21.2 nmNet earnings margin(b).(1.4)6.1 (7.5)Return on equity(c).nm 28.2%nm nm=not meaningful(a)Medical care ratio(MCR)is calculated as medical costs divided by premium revenue.(b)Net earnings margin attributable to UnitedHealth Group shareholders.(c)Return on equity is calculated as annualized net earnings attributable to UnitedHealth Group common shareholders divided by average shareholders equity.Average shareholders equity is calculated using the shareholders equity balance at the end of the preceding year and the shareholders equity balances at the end of each of the quarters in the year presented.2024 RESULTS OF OPERATIONS COMPARED TO 2023 RESULTS OF OPERATIONSConsolidated Financial ResultsRevenuesThe increases in revenues were primarily driven by growth in the number of people served through Medicare Advantage and domestic commercial offerings,pricing trends and growth in Optum Health and Optum Rx.Medical Costs and MCRMedical costs increased primarily due to growth in people served through Medicare Advantage and domestic commercial offerings.The MCR increased as a result of the revenue effects of the Medicare funding reductions,incremental medical costs for accommodations made to care providers as a result of the Change Healthcare cyberattack and decreased favorable reserve development.16Operating Cost RatioThe operating cost ratio decreased primarily due to operating cost management,partially offset by the impact of our direct response efforts to the Change Healthcare cyberattack,business mix and investments to support future growth.Loss on Sale of SubsidiaryOn February 6,2024,the Company completed the sale of its Brazil operations.During the three months ended March 31,2024,we recorded a loss of$7.1 billion,of which$4.1 billion related to the impact of cumulative foreign currency translation losses previously included in accumulated other comprehensive loss.As a result of the loss,which was non-deductible for income tax purposes,the income tax rate and return on equity were not meaningful for the three months ended March 31,2024.Reportable SegmentsSee Note 8 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report for more information on our segments.We utilize various metrics to evaluate and manage our reportable segments,including people served by UnitedHealthcare by major market segment and funding arrangement,people served by Optum Health and adjusted scripts for Optum Rx.These metrics are the main drivers of revenue,earnings and cash flows at each business.The metrics also allow management and investors to evaluate and understand business mix,including the level and scope of services provided to people,and pricing trends when comparing the metrics to revenue by segment.The following table presents a summary of the reportable segment financial information:Three Months Ended March 31,Increase/(Decrease)(in millions,except percentages)202420232024 vs.2023RevenuesUnitedHealthcare .$75,357$70,468$4,889 7%Optum Health .26,731 23,004 3,727 16 Optum Insight .4,502 4,496 6 Optum Rx .30,835 27,418 3,417 12 Optum eliminations .(1,016)(859)(157)18 Optum .61,052 54,059 6,993 13 Eliminations .(36,613)(32,596)(4,017)12 Consolidated revenues .$99,796$91,931$7,865 9rnings from operationsUnitedHealthcare .$4,395$4,343$52 1%Optum Health .1,899 1,776 123 7 Optum Insight .490 907 (417)(46)Optum Rx .1,147 1,060 87 8 Optum .3,536 3,743 (207)(6)Consolidated earnings from operations .$7,931$8,086$(155)(2)%Operating marginUnitedHealthcare .5.8%6.2%(0.4)%Optum Health .7.1 7.7 (0.6)Optum Insight .10.9 20.2 (9.3)Optum Rx .3.7 3.9 (0.2)Optum .5.8 6.9 (1.1)Consolidated operating margin .7.9%8.8%(0.9)UnitedHealthcareThe following table summarizes UnitedHealthcare revenues by business:Three Months Ended March 31,Increase/(Decrease)(in millions,except percentages)202420232024 vs.2023UnitedHealthcare Employer&Individual-Domestic .$17,839$16,544$1,295 8%UnitedHealthcare Employer&Individual-Global .1,532 2,163 (631)(29)UnitedHealthcare Employer&Individual-Total.19,371 18,707 664 4 UnitedHealthcare Medicare&Retirement .35,486 33,006 2,480 8 UnitedHealthcare Community&State .20,500 18,755 1,745 9 Total UnitedHealthcare revenues .$75,357$70,468$4,889 7%The following table summarizes the number of people served by our UnitedHealthcare businesses,by major market segment and funding arrangement:March 31,Increase/(Decrease)(in thousands,except percentages)202420232024 vs.2023Commercial-Domestic:Risk-based .8,545 8,025 520 6e-based .20,870 19,325 1,545 8 Total Commercial-Domestic .29,415 27,350 2,065 8 Medicare Advantage .7,760 7,545 215 3 Medicaid .7,680 8,380 (700)(8)Medicare Supplement(Standardized).4,325 4,320 5 Total Community and Senior .19,765 20,245 (480)(2)Total UnitedHealthcare-Domestic Medical .49,180 47,595 1,585 3 Commercial-Global .2,295 5,295 (3,000)(57)Total UnitedHealthcare-Medical.51,475 52,890 (1,415)(3)%Supplemental Data:Medicare Part D stand-alone .3,085 3,380 (295)(9)%UnitedHealthcares revenues increased due to growth in the number of people served through Medicare Advantage,those with higher acuity needs and domestic commercial offerings,partially offset by decreased people served globally due to the sale of our Brazil operations and Medicaid offerings due to continued redeterminations.Earnings from operations increased due to the factors impacting revenue,partially offset by Medicare Advantage funding reductions and incremental medical costs for accommodations to support care providers as a result of the Change Healthcare cyberattack.OptumTotal revenues increased due to growth at Optum Health and Optum Rx.Earnings from operations decreased due to the impacts of the Change Healthcare cyberattack.The results by segment were as follows:Optum HealthRevenues at Optum Health increased primarily due to organic growth in patients served under value-based care arrangements.Earnings from operations increased due to cost management initiatives,partially offset by costs associated with serving newly added patients under value-based care arrangements and incremental medical costs for accommodations to support care providers as a result of the Change Healthcare cyberattack.Optum Health served approximately 104 million people and 103 million people as of March 31,2024 and March 31,2023,respectively.Optum InsightRevenues at Optum Insight were consistent due to growth in technology services,offset by the business disruption impacts from the Change Healthcare cyberattack.Earnings from operations decreased primarily due to the business disruption impacts and direct response costs related to the Change Healthcare cyberattack.18Optum RxRevenues and earnings from operations at Optum Rx increased due to higher script volumes from both new clients and growth in existing clients and growth in pharmacy services.Optum Rx fulfilled 395 million and 378 million adjusted scripts in the first quarters of 2024 and 2023,respectively.LIQUIDITY,FINANCIAL CONDITION AND CAPITAL RESOURCESLiquiditySummary of our Major Sources and Uses of Cash and Cash Equivalents Three Months Ended March 31,Increase/(Decrease)(in millions)202420232024 vs.2023Sources of cash:Cash provided by operating activities .$1,144$16,327$(15,183)Issuances of short-term borrowings and long-term debt,net of repayments .11,364 12,375 (1,011)Proceeds from common stock issuances .486 344 142 Customer funds administered .1,745 5,012 (3,267)Sales and maturities of investments,net of purchases .492 492 Total sources of cash.15,231 34,058 Uses of cash:Common stock repurchases .(3,072)(2,000)(1,072)Cash paid for acquisitions,net of cash assumed .(3,006)(7,826)4,820 Purchases of investments,net of sales and maturities .(2,319)2,319 Purchases of property,equipment and capitalized software .(743)(760)17 Cash dividends paid .(1,729)(1,537)(192)Other .(3,646)(1,119)(2,527)Total uses of cash .(12,196)(15,561)Effect of exchange rate changes on cash and cash equivalents .(48)51 (99)Net increase in cash and cash equivalents .$2,987$18,548$(15,561)2024 Cash Flows Compared to 2023 Cash FlowsDecreased cash flows provided by operating activities were primarily driven by the receipt of the April CMS premium payment of$11.2 billion in March 2023 and Change Healthcare cyberattack response actions,including the acceleration of provider payments and the timing of public-sector cash receipts.Other significant changes in sources or uses of cash year-over-year included decreased cash paid for acquisitions and net purchases of investments;offset by decreased customer funds administered;loans to care providers in response to the Change Healthcare cyberattack,included in other uses of cash;increased common stock repurchases and decreased net issuances of short-term borrowings and long-term debt.Financial ConditionAs of March 31,2024,our cash,cash equivalent,available-for-sale debt securities and equity securities balances of$76.7 billion included approximately$28.4 billion of cash and cash equivalents(of which$2.1 billion was available for general corporate use),$44.1 billion of debt securities and$4.1 billion of investments in equity securities.Given the significant portion of our portfolio held in cash and cash equivalents,we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position.Our available-for-sale debt securities portfolio had a weighted-average duration of 4.0 years and a weighted-average credit rating of“Double A”as of March 31,2024.When multiple credit ratings are available for an individual security,the average of the available ratings is used to determine the weighted-average credit rating.19Capital Resources and Uses of LiquidityIn addition to cash flows from operations and cash and cash equivalent balances available for general corporate use,our capital resources and uses of liquidity are as follows:Cash Requirements.A summary of our cash requirements as of December 31,2023 was disclosed in Part II,Item 7,“Managements Discussion and Analysis of Financial Condition and Results of Operations”in our 2023 10-K.During the three months ended March 31,2024,there were no material changes to this previously disclosed information outside the ordinary course of business.We believe our capital resources are sufficient to meet future,short-term and long-term,liquidity needs.We continually evaluate opportunities to expand our operations,including through internal development of new products,programs and technology applications and business combinations.Short-Term Borrowings.Our revolving bank credit facilities provide liquidity support for our commercial paper borrowing program,which facilitates the private placement of unsecured debt through independent broker-dealers,and are available for general corporate purposes.For more information on our commercial paper and bank credit facilities,see Note 5 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report and Note 8 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in our 2023 10-K.Our revolving bank credit facilities contain various covenants,including covenants requiring us to maintain a defined debt to debt-plus-shareholders equity ratio of not more than 60%.As of March 31,2024,our debt to debt-plus-shareholders equity ratio,as defined and calculated under the credit facilities,was approximately 43%.Long-Term Debt.Periodically,we access capital markets and issue long-term debt for general corporate purposes,such as to meet our working capital requirements,to refinance debt,to finance acquisitions or for share repurchases.For more information on our long-term debt,see Note 5 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report and Note 8 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in our 2023 10-K.Credit Ratings.Our credit ratings as of March 31,2024 were as follows:MoodysS&P GlobalFitchA.M.Best RatingsOutlookRatingsOutlookRatingsOutlookRatingsOutlookSenior unsecured debt .A2StableA StableAStableAStableCommercial paper .P-1n/aA-1n/aF1n/aAMB-1 n/aThe availability of financing in the form of debt or equity is influenced by many factors,including our profitability,operating cash flows,debt levels,credit ratings,debt covenants and other contractual restrictions,regulatory requirements and economic and market conditions.A significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital.Share Repurchase Program.During the three months ended March 31,2024,we repurchased approximately 6 million shares at an average price of$505.46 per share.As of March 31,2024,we had Board of Directors authorization to purchase up to 9 million shares of our common stock.The Board of Directors from time to time may further amend the share repurchase program in order to increase the authorized number of shares which may be repurchased under the program.Dividends.Our quarterly cash dividend to shareholders reflects an annual rate of$7.52.Pending Acquisitions.As of March 31,2024,we have entered into agreements to acquire companies in the health care sector,subject to regulatory approval and other customary closing conditions.The total anticipated consideration required for these acquisitions,excluding the payoff of acquired indebtedness,is approximately$4 billion.For additional liquidity discussion,see Note 10 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”and“Managements Discussion and Analysis of Financial Condition and Results of Operations”included in Part II,Item 7 in our 2023 10-K.20RECENTLY ISSUED ACCOUNTING STANDARDS There are no recently issued accounting standards that are expected to have a material impact on our Condensed Consolidated Financial Statements.CRITICAL ACCOUNTING ESTIMATESIn preparing our Condensed Consolidated Financial Statements,we are required to make judgments,assumptions and estimates,which we believe are reasonable and prudent based on the available facts and circumstances.These judgments,assumptions and estimates affect certain of our revenues and expenses and their related balance sheet accounts and disclosure of our contingent liabilities.We base our assumptions and estimates primarily on historical experience and consider known and projected trends.On an ongoing basis,we re-evaluate our selection of assumptions and the method of calculating our estimates.Actual results,however,may materially differ from our calculated estimates,and this difference would be reported in our current operations.Our critical accounting estimates include medical costs payable and goodwill.For a detailed description of our critical accounting estimates,see“Managements Discussion and Analysis of Financial Condition and Results of Operations”included in Part II,Item 7 in our 2023 10-K.For a detailed discussion of our significant accounting policies,see Note 2 of Notes to the Consolidated Financial Statements included in Part II,Item 8,“Financial Statements and Supplementary Data”in our 2023 10-K.FORWARD-LOOKING STATEMENTSThe statements,estimates,projections,guidance or outlook contained in this document include“forward-looking”statements which are intended to take advantage of the“safe harbor”provisions of the federal securities laws.The words“believe,”“expect,”“intend,”“estimate,”“anticipate,”“forecast,”“outlook,”“plan,”“project,”“should”and similar expressions identify forward-looking statements.These statements may contain information about financial prospects,economic conditions and trends and involve risks and uncertainties.Actual results could differ materially from those that management expects,depending on the outcome of certain factors including:our ability to effectively estimate,price for and manage medical costs;new or changes in existing health care laws or regulations,or their enforcement or application;cyberattacks,other privacy/data security incidents,or our failure to comply with related regulations;reductions in revenue or delays to cash flows received under government programs;changes in Medicare,the CMS star ratings program or the application of risk adjustment data validation audits;the DOJs legal action relating to the risk adjustment submission matter;our ability to maintain and achieve improvement in quality scores impacting revenue;failure to maintain effective and efficient information systems or if our technology products do not operate as intended;risks and uncertainties associated with our businesses providing pharmacy care services;competitive pressures,including our ability to maintain or increase our market share;changes in or challenges to our public sector contract awards;failure to achieve targeted operating cost productivity improvements;failure to develop and maintain satisfactory relationships with health care payers,physicians,hospitals and other service providers;the impact of potential changes in tax laws and regulations;increases in costs and other liabilities associated with litigation,government investigations,audits or reviews;failure to complete,manage or integrate strategic transactions;risks associated with public health crises arising from large-scale medical emergencies,pandemics,natural disasters and other extreme events;failure to attract,develop,retain,and manage the succession of key employees and executives;our investment portfolio performance;impairment of our goodwill and intangible assets;failure to protect proprietary rights to our databases,software and related products;downgrades in our credit ratings;and our ability to obtain sufficient funds from our regulated subsidiaries or from external financings to fund our obligations,reinvest in our business,maintain our debt to total capital ratio at targeted levels,maintain our quarterly dividend payment cycle,or continue repurchasing shares of our common stock.This above list is not exhaustive.We discuss these matters,and certain risks that may affect our business operations,financial condition and results of operations,more fully in our filings with the SEC,including our reports on Forms 10-K,10-Q and 8-K.By their nature,forward-looking statements are not guarantees of future performance or results and are subject to risks,uncertainties and assumptions that are difficult to predict or quantify.Actual results may vary materially from expectations expressed or implied in this document or any of our prior communications.You should not place undue reliance on forward-looking statements,which speak only as of the date they are made.We do not undertake to update or revise any forward-looking statements,except as required by law.21ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe manage exposure to market interest rates by diversifying investments across different fixed-income market sectors and debt across maturities,as well as by matching a portion of our floating-rate assets and liabilities,either directly or through the use of interest rate swap contracts.Unrealized gains and losses on investments in available-for-sale debt securities are reported in comprehensive income.The following table summarizes the impact of hypothetical changes in market interest rates across the entire yield curve by 1%point or 2%points as of March 31,2024 on our investment income and interest expense per annum,and the fair value of our investments and debt(in millions,except percentages):March 31,2024Increase(Decrease)in Market Interest RateInvestmentIncome PerAnnumInterestExpense PerAnnumFair Value ofFinancial AssetsFair Value ofFinancial Liabilities2%.$728$556$(3,616)$(8,439)1 .364 278 (1,860)(4,607)(1).(364)(263)1,949 5,590(2).728 (524)3,960 12,440 Note:The impact of hypothetical changes in interest rates may not reflect the full 100 or 200 basis point change on interest income and interest expense or on the fair value of financial assets and liabilities as the rates are assumed to not fall below zero.ITEM 4.CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURESWe maintain disclosure controls and procedures as defined in Rules 13a-15(e)and 15d-15(e)under the Securities Exchange Act of 1934(Exchange Act)that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is(i)recorded,processed,summarized and reported within the time periods specified in SEC rules and forms;and(ii)accumulated and communicated to our management,including our principal executive officer and principal financial officer,as appropriate to allow timely decisions regarding required disclosure.In connection with the filing of this quarterly report on Form 10-Q,management evaluated,under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer,the effectiveness of the design and operation of our disclosure controls and procedures as of March 31,2024.Based upon that evaluation,our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31,2024.CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGThere have been no changes in our internal control over financial reporting during the quarter ended March 31,2024 that have materially affected,or are reasonably likely to materially affect,our internal control over financial reporting.PART II.OTHER INFORMATIONITEM 1.LEGAL PROCEEDINGSA description of our legal proceedings is included in and incorporated by reference to Note 6 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report.ITEM 1A.RISK FACTORS In addition to the other information set forth in this report,you should carefully consider the factors discussed in Part I,Item 1A,“Risk Factors”of our 2023 10-K,which could materially affect our business,financial condition or future results.The risks described in our 2023 10-K are not the only risks facing us.Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business,financial condition or future results.There have been no material changes to the risk factors as disclosed in our 2023 10-K.22ITEM 2.UNREGISTERED SALE OF EQUITY SECURITIES,USE OF PROCEEDS,AND ISSUER PURCHASES OF EQUITY SECURITIESIssuer Purchases of Equity Securities(a)First Quarter 2024For the Month EndedTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares That May Yet Be Purchased Under The Plans or Programs(in millions)(in millions)(in millions)January 31,2024 .2.5$513.89 2.5 12.4February 29,2024 .1.7 515.88 1.7 10.7March 31,2024 .1.9 484.39 1.9 8.8Total .6.1$505.46 6.1 (a)In November 1997,our Board of Directors adopted a share repurchase program,which the Board of Directors evaluates periodically.In June 2018,the Board of Directors renewed our share repurchase program with an authorization to repurchase up to 100 million shares of our common stock in open market purchases or other types of transactions(including prepaid or structured repurchase programs).There is no established expiration date for the program.The Board of Directors from time to time may further amend the share repurchase program in order to increase the authorized number of shares which may be repurchased under the program.ITEM 5.OTHER INFORMATIONTrading Arrangements During the quarter ended March 31,2024,none of the Companys directors or officers(as defined in Rule 16a-1(f)under the Exchange Act)adopted or terminated any contract,instruction or written plan for the purchase or sale of Company securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)under the Exchange Act or any non-Rule 10b5-1 trading arrangement.23ITEM 6.EXHIBITS*The following exhibits are filed or incorporated by reference herein in response to Item 601 of Regulation S-K.The Company files Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q and Current Reports on Form 8-K pursuant to the Securities Exchange Act of 1934 under Commission File No.1-10864.3.1Certificate of Incorporation of UnitedHealth Group Incorporated(incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form 8-A/A filed on July 1,2015)3.2Amended and Restated Bylaws of UnitedHealth Group Incorporated,effective February 23,2021(incorporated by reference to Exhibit 3.2 to UnitedHealth Group Incorporateds Current Report on Form 8-K filed on February 26,2021)4.1Amended and Restated Indenture,dated as of April 27,2023,between UnitedHealth Group Incorporated and Wilmington Trust Company,as successor trustee(incorporated by reference to Exhibit 4.1 to UnitedHealth Group Incorporateds Current Report on Form 8-K filed on April 28,2023)4.2Indenture,dated as of February 4,2008,between UnitedHealth Group Incorporated and U.S.Bank National Association(incorporated by reference to Exhibit 4.1 to the Companys Registration Statement on Form S-3,SEC File Number 333-149031,filed on February 4,2008)4.3Supplemental Indenture,dated as of April 18,2023,between UnitedHealth Group Incorporated and U.S.Bank Trust Company,National Association,as trustee,relating to the 6.875%Senior Notes due 2038(incorporated by reference to Exhibit 4.1 to UnitedHealth Group Incorporateds Current Report on Form 8-K filed on April 24,2023)31.1Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS XBRL Instance Document-the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.101.SCH Inline XBRL Taxonomy Extension Schema Document.101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.104 Cover Page Interactive Data File(formatted as Inline XBRL and embedded within Exhibit 101)._*Pursuant to Item 601(b)(4)(iii)of Regulation S-K,copies of instruments defining the rights of certain holders of long-term debt are not filed.The Company will furnish copies thereof to the SEC upon request.24SIGNATURES Pursuant 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.UNITEDHEALTH GROUP INCORPORATED/s/ANDREW WITTYChief Executive Officer(principal executive officer)Dated:May 8,2024Andrew Witty /s/JOHN REXPresident and Chief Financial Officer(principal financial officer)Dated:May 8,2024John Rex /s/THOMAS ROOSSenior Vice President and Chief Accounting Officer(principal accounting officer)Dated:May 8,2024Thomas Roos 25
2024-05-09
27页
5星级
Breakthroughs that change patients lives May 1,2024First Quarter 2024 Earnings TeleconferenceIntroductionFrancesca DeMartinoChief Investor Relations Officer,Senior Vice President3First Quarter 2024 EarningsForward-Looking Statements and Non-GAAP Financial Informationl Our discussions during this conference call will include forward-looking statements that are subject to substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.We include forward-looking statements about,among other topics,our anticipated operating and financial performance,including financial guidance and projections;changes to Pfizers commercial organization;reorganizations;business plans,strategy,goals and prospects;our Environmental,Social and Governance(ESG)priorities,strategy and goals;expectations for our product pipeline,in-line products and product candidates,including anticipated regulatory submissions,data read-outs,study starts,approvals,launches,clinical trial results and other developing data,revenue contribution and projections,potential pricing and reimbursement,potential market dynamics,size and utilization rates,growth,performance,timing of exclusivity and potential benefits;strategic reviews,capital allocation objectives,an enterprise-wide cost realignment program(including anticipated costs,savings and potential benefits),dividends and share repurchases;plans for and prospects of our acquisitions,dispositions and other business development activities,including our December 2023 acquisition of Seagen,and our ability to successfully capitalize on these opportunities;manufacturing and product supply;our ongoing efforts to respond to COVID-19,including our COVID-19 products and our expectations regarding the impact of COVID-19 on our business,operations and financial results;and other statements about our business,operations and financial results.Among other things,statements regarding revenue and earnings per share growth;anticipated operating and financial performance;the development or commercial potential of our product pipeline,in-line products,product candidates and additional indications or combinations,including expected clinical trial protocols,the timing and potential for the initiation and progress of clinical trials and data read-outs from trials;the timing and potential for the submission of applications for and receipt of regulatory approvals;the timing and potential for product launches and commercialization;expected profile and labeling;potential revenue;anticipated COVID-19 vaccination rates and Paxlovid treatment courses sold;expected breakthrough,best or first-in-class or blockbuster status or expected market entry of our medicines or vaccines;the regulatory landscape;and the competitive landscape are forward-looking and are estimates that are subject to change and subject to,among other risks,assumptions and uncertainties,clinical trial,regulatory and commercial success,demand,availability of supply,excess inventory write-offs and competitive and market dynamics.These statements may be affected by underlying assumptions that may prove inaccurate or incomplete,and are subject to risks,uncertainties and other factors that may cause actual results to differ materially from past results,future plans and projected future results.Additional information regarding these and other factors can be found in Pfizers Annual Report on Form 10-K for the fiscal year ended December 31,2023 and its subsequent reports on Form 10-Q,including in the sections thereof captioned“Risk Factors”and“Forward-Looking Information and Factors That May Affect Future Results”,as well as in our subsequent reports on Form 8-K,all of which are filed with the U.S.Securities and Exchange Commission and available at www.sec.gov and .Potential risks and uncertainties also include global economic and/or geopolitical instability,foreign exchange rate fluctuations and inflationary pressures and the uncertainties regarding the impact of COVID-19.The forward-looking statements in this presentation speak only as of the original date of this presentation and we undertake no obligation to update or revise any of these statements.l Also,the discussions during this conference call will include certain financial measures that were not prepared in accordance with U.S.generally accepted accounting principles(GAAP).Additional information regarding non-U.S.GAAP financial measures can be found on slides 15-16 and in our earnings release furnished with Pfizers Current Report on Form 8-K dated May 1,2024.Any non-U.S.GAAP financial measures presented are not,and should not be viewed as,substitutes for financial measures required by U.S.GAAP,have no standardized meaning prescribed by U.S.GAAP and may not be comparable to the calculation of similar measures of other companies.l Todays discussions and presentation are intended for the investor community only;they are not intended to promote the products referenced herein or otherwise influence healthcare prescribing decisions.Definitive conclusions cannot be drawn from cross-trial comparisons or anticipated data as they may be confounded by various factors and should be interpreted with caution.All trademarks in this presentation are the property of their respective owners.l Certain of the products and product candidates discussed during this conference call are being co-researched,co-developed and/or co-promoted in collaboration with other companies for which Pfizers rights vary by market or are the subject of agreements pursuant to which Pfizer has commercialization rights in certain markets.Opening RemarksAlbert BourlaChairman and Chief Executive Officer5First Quarter 2024 EarningsQ1 2024:Strong Start to the YearBreakthroughs that change patients lives.119MYTD Q1 2024 with our medicines and vaccinesPatients Impacted11.See Slides 15-16 for definition.6First Quarter 2024 Earnings2024 Key PrioritiesExecuting with excellence against our strategic goals Achieve world-class oncology leadership Deliver the next wave of pipeline innovation Maximize performance of our new products Expand margins by realigning our cost base Allocate capital to enhance shareholder value7First Quarter 2024 EarningsAchieve World-Class Oncology Leadership1.Jointly developed and commercialized with Astellas Pharma Inc.2.Pfizer is working towards achievement of these 2030 goals,which are subject to,among other things,clinical trial,regulatory and commercial success and availability of supply.3.Blockbusters defined as peak revenue exceeding$1B.Q1 2024:Oncology Revenues 19%OpSuccessfulIntegration Highly experienced,best-of-both organizations Amplified impact of medical and commercial functions Double#of patients treated Increase#of blockbuster3 medicines from 5 to 8 Drive 10 x increase in proportion of revenue from biologics2030 OncologyGoals2118First Quarter 2024 EarningsDeliver Next Wave of Pipeline InnovationSharpened Focus Across Therapeutic AreasExcellent Progress in Oncology Three pivotal Phase 3 study starts in Q1 2024:Atirmociclib selective CDK4 inhibitor Sigvotatug vedotin integrin-beta-6-directed ADC ELREXFIO 4th Phase 3 trial in multiple myeloma 50 sponsored abstracts at ASCO 2024,including:5-year PFS data for LORBRENA in 1L ALK metastatic NSCLC(CROWN)Phase 3 data for ADCETRIS in DLBCL(ECHELON-3)Advancing respiratory portfolio:CDK4=Cyclin-dependent kinase 4;ADC=Antibody drug conjugates;ASCO=American Society of Clinical Oncology;PFS=Progression-free survival;ALK =Anaplastic Lymphoma Kinase Positive;NSCLC=Non-small cell lung cancer;DLBCL=Diffuse large B-cell lymphoma;GTx=Gene Therapy;PK=Pharmacokinetics.marstacimabPotential approvalbefore year endosivelotorPhase 3 study start Execution across growing hematology portfolio:9First Quarter 2024 EarningsMaximize Performance of New Products1.Prevnar family includes revenues from Prevnar 20/Apexxnar(pediatric and adult)and Prevnar 13/Prevenar 13(pediatric and adult).2.Vyndaqel family includes global revenues from Vyndaqel,as well as revenues for Vyndamax in the U.S.and Vynmac in Japan.Key Potential Growth DriversProtect/Grow Core Franchises and Key BlockbustersPrevnar family1family2Financial ReviewDavid DentonChief Financial Officer,Executive Vice President11First Quarter 2024 EarningsRevenues$14.9B (19)%op$12.5B1 11%opExcluding Comirnaty2 and Paxlovid,op growth primarily driven by legacy Seagen,Vyndaqel family,Eliquis,Abrysvo and Prevnar family,partially offset by lower revenues for Oncology biosimilars in U.S.,Sulperazon in ex-U.S.and IbranceQuarterly Income Statement HighlightsAdjusted2 R&D ExpensesAdjusted2 Cost of SalesDiluted EPSAdjusted2 SI&A ExpensesFX Impacts$3.0B (34)%op20.4%3 5.3 pptsDecrease in COS%driven primarily by favorable changes in sales mix,including lower sales of Comirnaty2 and,to a much lesser extent,the impact of final adjustment to Paxlovid revenue reversal recorded in Q4 2023Rep.2$0.55 (44)j.2$0.82 (32)%opBoth Reported2 and Adjusted2 diluted EPS include$0.11 favorable impact of final adjustment to Paxlovid revenue reversal recorded in Q4 2023$2.5B (1)%opPrimarily driven by lower spending as a result of our cost realignment program as well as lower spending on certain ongoing vaccine programs,largely offset by increased investments mainly to develop certain medicines acquired from Seagen$3.5B 3%opPrimarily driven by an increase in marketing and promotional expenses for recently acquired and launched products,partially offset by a decrease in marketing and promotional expenses for Paxlovid and ComirnatyRevenue$(107)M (1)j.2 Dil.EPS$(0.01)(1)%Primarily driven by USD strengthening against Turkish Lira,Japanese Yen and Chinese Renminbi1.Excludes Comirnaty2 and Paxlovid.2.See Slides 15-16 for definitions.3.Adjusted cost of sales as a percentage of revenues(COS%).12First Quarter 2024 EarningsQ1 2024:Allocating Capital to Enhance Shareholder ValuePost-Seagen De-Levering,Expect More Balanced Capital AllocationBetween Reinvestment and Returning Value to Shareholders1.Current financial guidance does not anticipate any share repurchases in 2024.Reinvest in BusinessMaintain and Grow Our DividendShare Repurchases1De-lever Our Balance Sheet$2.4BReturned to shareholders$1.3BIn debt paid$2.5BIn internalR&DDriving a balanced capital allocation strategy to reinvest in our business and return value to shareholders*Additional$1.0B debt repayment expected in May 2024None plannedin 202413First Quarter 2024 Earnings2024 Financial Guidance1:Maintains 2024 Revenue Range and Raises Adjusted1 Diluted EPS RangeRevenues$58.5 to$61.5 BillionAdjusted1 SI&A Expenses$13.8 to$14.8 BillionAdjusted1 R&D Expenses$11.0 to$12.0 BillionEffective Tax Rate on Adjusted1 Income15.0justed1 Diluted EPS$2.15 to$2.35(previously$2.05 to$2.25)1.See Slides 15-16 for definitions and additional information regarding Pfizers 2024 financial guidance.14First Quarter 2024 EarningsQ&A SessionChris BoshoffChief Oncology Officer,EVPAlexandre de GermayChief InternationalCommercial Officer,EVPMikael DolstenChief Scientific Officer&President,Pfizer R&DAamir MalikChief U.S.Commercial Officer,EVPAlbert BourlaChairman and CEODavid DentonChief Financial Officer,EVPFrancesca DeMartinoChief Investor Relations Officer,Senior Vice PresidentDoug LanklerGeneral Counsel,EVP15First Quarter 2024 EarningsFootnotes(Page 1 of 2)(1)As used in this document,“Comirnaty”refers to,as applicable,and as authorized or approved,the Pfizer-BioNTech COVID-19 Vaccine;Comirnaty(COVID-19 Vaccine,mRNA)original monovalent formula;the Pfizer-BioNTech COVID-19 Vaccine,Bivalent(Original and Omicron BA.4/BA.5);the Pfizer-BioNTech COVID-19 Vaccine(2023-2024 Formula);Comirnaty(COVID-19 Vaccine,mRNA)2023-2024 Formula;Comirnaty Original/Omicron BA.1;Comirnaty Original/Omicron BA.4/BA.5;and Comirnaty Omicron XBB.1.5.“Comirnaty”includes product revenues and alliance revenues related to sales of the above-mentioned vaccines.(2)Revenues is defined as revenues in accordance with U.S.generally accepted accounting principles(GAAP).Reported net income and its components are defined as net income attributable to Pfizer Imon shareholders and its components in accordance with U.S.GAAP.Reported diluted earnings per share(EPS)is defined as diluted EPS attributable to Pfizer Imon shareholders in accordance with U.S.GAAP.(3)Adjusted income and Adjusted diluted EPS are defined as U.S.GAAP net income attributable to Pfizer Imon shareholders and U.S.GAAP diluted EPS attributable to Pfizer Imon shareholders before the impact of amortization of intangible assets,certain acquisition-related items,discontinued operations and certain significant items.See the reconciliations of certain GAAP Reported to Non-GAAP Adjusted information for the first quarter of 2024 and 2023.Adjusted income and its components and Adjusted diluted EPS measures are not,and should not be viewed as,substitutes for U.S.GAAP net income and its components and diluted EPS(2).See the Non-GAAP Financial Measure:Adjusted Income section of Managements Discussion and Analysis of Financial Condition and Results of Operations in Pfizers 2023 Annual Report on Form 10-K and the Non-GAAP Financial Measure:Adjusted Income section in Pfizers earnings release furnished with Pfizers Current Report on Form 8-K dated May 1,2024 for a definition of each component of Adjusted income as well as other relevant information.(4)First-quarter 2024 Reported(2)and Adjusted(3)diluted EPS were favorably impacted by$0.11 resulting from a$771 million final adjustment to the estimated non-cash Paxlovid revenue reversal of$3.5 billion recorded in the fourth quarter of 2023,reflecting 5.1 million EUA-labeled treatment courses returned by the U.S.government through February 29,2024 versus the estimated 6.5 million treatment courses that were expected to be returned as of December 31,2023.(5)Pfizer does not provide guidance for GAAP Reported financial measures(other than revenues)or a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP Reported financial measures on a forward-looking basis because it is unable to predict with reasonable certainty the ultimate outcome of unusual gains and losses,certain acquisition-related expenses,gains and losses from equity securities,actuarial gains and losses from pension and postretirement plan remeasurements,potential future asset impairments and pending litigation without unreasonable effort.These items are uncertain,depend on various factors,and could have a material impact on GAAP Reported results for the guidance period.Financial guidance for full-year 2024 reflects the following:Does not assume the completion of any business development transactions not completed as of March 31,2024.An anticipated immaterial impact in fiscal-year 2024 of recent and expected generic and biosimilar competition for certain products that have recently lost patent protection or that are anticipated to lose patent protection.Exchange rates assumed are a blend of actual rates in effect through first-quarter 2024 and mid-April 2024 rates for the remainder of the year.Financial guidance reflects the anticipated unfavorable impact of approximately$0.4 billion on revenues and the anticipated favorable impact of approximately$0.02 on Adjusted(3)diluted EPS as a result of changes in foreign exchange rates relative to the U.S.dollar compared to foreign exchange rates from 2023.Guidance for Adjusted(3)diluted EPS assumes diluted weighted-average shares outstanding of approximately 5.75 billion shares,and assumes no share repurchases in 2024.16First Quarter 2024 EarningsFootnotes(Page 2 of 2)(6)References to operational variances in this presentation pertain to period-over-period changes that exclude the impact of foreign exchange rates.Although foreign exchange rate changes are part of Pfizers business,they are not within Pfizers control and because they can mask positive or negative trends in the business,Pfizer believes presenting operational variances excluding these foreign exchange changes provides useful information to evaluate Pfizers results.(7)Pfizers fiscal year-end for international subsidiaries is November 30 while Pfizers fiscal year-end for U.S.subsidiaries is December 31.Therefore,Pfizers first quarter for U.S.subsidiaries reflects the three months ended on March 31,2024 and April 2,2023 while Pfizers first quarter for subsidiaries operating outside the U.S.reflects the three months ended on February 25,2024 and February 26,2023.(8)The Patients Impacted metric is calculated from Pfizer and third-party datasets.Figures may be limited given the coverage provided by external sources(e.g.,calendar duration,geographic and product coverage)and are subject to change.Numbers are estimates and in some cases use global volume,daily dosage and number of treatment days to facilitate calculations.Methodologies to calculate estimates may vary by product type given the nature of the product and available data.Patients taking multiple Pfizer products may be counted as multiple patients towards total.Numbers do not include comprehensive estimated patient counts from Ex-US Access&Affordability programs.Historical estimates may periodically be subject to revision due to restatements in the underlying data source.lThe information contained on our website or any third-party website is not incorporated by reference into this presentation.
2024-05-09
16页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549_FORM 10-Q _(Mark one)QUARTERLY R.
2024-05-08
50页
5星级
Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,DC 20549FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended March 31,2024OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to .Commission File Number:000-20322Starbucks Corporation(Exact Name of Registrant as Specified in its Charter)Washington91-1325671(State or Other Jurisdiction ofIncorporation or Organization)(IRS EmployerIdentification No.)2401 Utah Avenue South,Seattle,Washington 98134(Address of principal executive offices,zip code)(206)447-1575(Registrants Telephone Number,including Area Code)Securities registered pursuant to Section 12(b)of the Act:TitleTrading SymbolName of each exchange on which registeredCommon Stock,par value$0.001 per shareSBUXNasdaq Global Select MarketIndicate by check mark whether the registrant:(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes x No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit suchfiles).Yes x No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,smaller reporting company,or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerxAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act):Yes No x Indicate the number of shares outstanding of each of the issuers classes of common stock,as of the latest practicable date.Shares Outstanding as of April 24,20241,132.7 millionTable of ContentsSTARBUCKS CORPORATIONFORM 10-QFor the Quarterly Period Ended March 31,2024Table of Contents PART I.FINANCIAL INFORMATIONItem 1Financial Statements(Unaudited)3Consolidated Statements of Earnings3Consolidated Statements of Comprehensive Income4Consolidated Balance Sheets5Consolidated Statements of Cash Flows6Consolidated Statements of Equity7Index for Notes to Consolidated Financial Statements9Notes to Consolidated Financial Statements10Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations28Item 3Quantitative and Qualitative Disclosures About Market Risk40Item 4Controls and Procedures41PART II.OTHER INFORMATIONItem 1Legal Proceedings42Item 1ARisk Factors42Item 2Unregistered Sales of Equity Securities and Use of Proceeds42Item 3Defaults Upon Senior Securities42Item 4Mine Safety Disclosures42Item 5Other Information42Item 6Exhibits43Signatures44 Table of ContentsPART I FINANCIAL INFORMATIONItem 1.Financial StatementsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EARNINGS(in millions,except per share data,unaudited)Quarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Net revenues:Company-operated stores$7,052.6$7,142.3$14,807.9$14,225.7 Licensed stores1,054.5 1,069.5 2,246.6 2,189.0 Other455.9 508.0 933.8 1,019.1 Total net revenues8,563.0 8,719.8 17,988.3 17,433.8 Product and distribution costs2,648.7 2,801.7 5,629.2 5,611.9 Store operating expenses3,724.1 3,636.0 7,575.6 7,301.3 Other operating expenses132.8 126.2 283.2 255.4 Depreciation and amortization expenses371.9 341.9 737.2 669.0 General and administrative expenses654.6 620.4 1,302.6 1,201.3 Restructuring and impairments 8.8 14.7 Total operating expenses7,532.1 7,535.0 15,527.8 15,053.6 Income from equity investees68.0 51.4 123.8 109.2 Gain from sale of assets 91.3 91.3 Operating income1,098.9 1,327.5 2,584.3 2,580.7 Interest income and other,net34.1 18.4 67.9 30.0 Interest expense(140.6)(136.3)(280.7)(266.0)Earnings before income taxes992.4 1,209.6 2,371.5 2,344.7 Income tax expense219.9 301.3 574.6 581.1 Net earnings including noncontrolling interests772.5 908.3 1,796.9 1,763.6 Net earnings attributable to noncontrolling interests0.1 0.0 0.1 0.0 Net earnings attributable to Starbucks$772.4$908.3$1,796.8$1,763.6 Earnings per share-basic$0.68$0.79$1.58$1.54 Earnings per share-diluted$0.68$0.79$1.58$1.53 Weighted average shares outstanding:Basic1,132.4 1,148.5 1,134.5 1,148.4 Diluted1,135.4 1,152.7 1,138.0 1,152.8 See Notes to Consolidated Financial Statements.3Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in millions,unaudited)Quarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Net earnings including noncontrolling interests$772.5$908.3$1,796.9$1,763.6 Other comprehensive income/(loss),net of tax:Unrealized holding gains/(losses)on available-for-sale debt securities(0.4)3.6 5.2 5.6 Tax(expense)/benefit0.1(0.8)(1.3)(1.3)Unrealized gains/(losses)on cash flow hedging instruments36.4(1.2)71.8(181.9)Tax(expense)/benefit(9.3)0.1(11.1)29.6 Unrealized gains/(losses)on net investment hedging instruments92.5(2.7)67.3(67.3)Tax(expense)/benefit(23.3)0.7(17.0)17.0 Translation adjustment and other(151.2)74.7 31.9 283.6 Tax(expense)/benefit1.1 (3.6)Reclassification adjustment for net(gains)/losses realized in netearnings for available-for-sale debt securities,hedging instruments,and translation adjustment(13.6)(66.6)11.3(165.0)Tax expense/(benefit)4.0 9.5 2.2 21.3 Other comprehensive income/(loss)(63.7)17.3 156.7(58.4)Comprehensive income including noncontrolling interests708.8 925.6 1,953.6 1,705.2 Comprehensive income attributable to noncontrolling interests 0.2 Comprehensive income attributable to Starbucks$708.8$925.6$1,953.4$1,705.2 See Notes to Consolidated Financial Statements.4Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED BALANCE SHEETS(in millions,except per share data,unaudited)Mar 31,2024Oct 1,2023ASSETSCurrent assets:Cash and cash equivalents$2,764.1$3,551.5 Short-term investments362.5 401.5 Accounts receivable,net1,110.3 1,184.1 Inventories1,744.0 1,806.4 Prepaid expenses and other current assets484.1 359.9 Total current assets6,465.0 7,303.4 Long-term investments280.4 247.4 Equity investments440.2 439.9 Property,plant and equipment,net7,817.4 7,387.1 Operating lease,right-of-use asset8,686.5 8,412.6 Deferred income taxes,net1,746.5 1,769.8 Other long-term assets587.2 546.5 Other intangible assets110.7 120.5 Goodwill3,229.3 3,218.3 TOTAL ASSETS$29,363.2$29,445.5 LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIT)Current liabilities:Accounts payable$1,487.4$1,544.3 Accrued liabilities2,016.0 2,145.1 Accrued payroll and benefits704.8 828.3 Current portion of operating lease liability1,406.6 1,275.3 Stored value card liability and current portion of deferred revenue1,872.0 1,700.2 Short-term debt42.1 33.5 Current portion of long-term debt 1,818.6 Total current liabilities7,528.9 9,345.3 Long-term debt15,547.5 13,547.6 Operating lease liability8,180.3 7,924.8 Deferred revenue6,058.4 6,101.8 Other long-term liabilities490.3 513.8 Total liabilities37,805.4 37,433.3 Shareholders deficit:Common stock($0.001 par value)authorized,2,400.0 shares;issued and outstanding,1,132.7 and 1,142.6shares,respectively1.1 1.1 Additional paid-in capital141.7 38.1 Retained deficit(7,970.7)(7,255.8)Accumulated other comprehensive income/(loss)(621.5)(778.2)Total shareholders deficit(8,449.4)(7,994.8)Noncontrolling interests7.2 7.0 Total deficit(8,442.2)(7,987.8)TOTAL LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIT)$29,363.2$29,445.5 See Notes to Consolidated Financial Statements.5Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in millions,unaudited)Two Quarters EndedMar 31,2024Apr 2,2023OPERATING ACTIVITIES:Net earnings including noncontrolling interests$1,796.9$1,763.6 Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization783.6 709.3 Deferred income taxes,net4.0 2.6 Income earned from equity method investees(132.3)(109.9)Distributions received from equity method investees154.5 88.0 Gain on sale of assets(91.3)Stock-based compensation173.0 159.3 Non-cash lease costs689.5 584.7 Loss on retirement and impairment of assets42.5 75.6 Other16.3 22.6 Cash provided by/(used in)changes in operating assets and liabilities:Accounts receivable86.4 26.2 Inventories64.5 194.6 Income taxes payable(84.9)15.8 Accounts payable(51.6)(51.2)Deferred revenue128.9 54.0 Operating lease liability(635.1)(621.8)Other operating assets and liabilities(146.3)(461.3)Net cash provided by operating activities2,889.9 2,360.8 INVESTING ACTIVITIES:Purchases of investments(472.0)(247.7)Sales of investments0.5 1.9 Maturities and calls of investments498.7 270.0 Additions to property,plant and equipment(1,255.0)(1,002.0)Proceeds from sale of assets 110.0 Other(36.2)(39.2)Net cash used in investing activities(1,264.0)(907.0)FINANCING ACTIVITIES:Net(payments)/proceeds from issuance of commercial paper(175.0)Net proceeds from issuance of short-term debt93.2 52.8 Repayments of short-term debt(80.5)Net proceeds from issuance of long-term debt1,995.3 1,497.8 Repayments of long-term debt(1,825.1)(1,000.0)Proceeds from issuance of common stock58.4 129.8 Cash dividends paid(1,293.5)(1,217.4)Repurchase of common stock(1,266.7)(479.3)Minimum tax withholdings on share-based awards(94.1)(81.4)Other(10.6)(10.7)Net cash used in financing activities(2,423.6)(1,283.4)Effect of exchange rate changes on cash and cash equivalents10.4 83.0 Net increase/(decrease)in cash and cash equivalents(787.3)253.4 CASH AND CASH EQUIVALENTS:Beginning of period3,551.5 2,818.4 End of period$2,764.1$3,071.8 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for:Interest,net of capitalized interest$275.6$250.4 Income taxes$850.9$636.8 See Notes to Consolidated Financial Statements.6Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EQUITYFor the Quarter Ended March 31,2024 and April 2,2023(in millions,except per share data,unaudited)Common StockAdditionalPaid-inCapitalRetainedEarnings/(Deficit)AccumulatedOtherComprehensiveIncome/(Loss)ShareholdersEquity/(Deficit)NoncontrollingInterestsTotal SharesAmountBalance,December 31,20231,132.2$1.1$38.2$(8,097.5)$(557.8)$(8,616.0)$7.1$(8,608.9)Net earnings 772.4 772.4 0.1 772.5 Other comprehensive loss (63.6)(63.6)(0.1)(63.7)Stock-based compensation expense 79.1 79.1 79.1 Exercise of stock options/vesting ofRSUs0.3 10.9 10.9 10.9 Sale of common stock0.2 13.0 13.0 13.0 Repurchase of common stock 0.5 0.1 0.6 0.6 Cash dividends declared,$0.57 pershare (645.7)(645.7)(645.7)Other (0.1)(0.1)0.1 Balance,March 31,20241,132.7$1.1$141.7$(7,970.7)$(621.5)$(8,449.4)$7.2$(8,442.2)Balance,January 1,20231,148.5$1.1$67.2$(8,203.2)$(538.9)$(8,673.8)$7.9$(8,665.9)Net earnings 908.3 908.3 908.3 Other comprehensive income 17.3 17.3 17.3 Stock-based compensation expense 75.0 75.0 75.0 Exercise of stock options/vesting ofRSUs1.3 68.2 68.2 68.2 Sale of common stock0.2 13.3 13.3 13.3 Repurchase of common stock(3.0)(182.5)(121.5)(304.0)(304.0)Cash dividends declared,$0.53 pershare (608.2)(608.2)(608.2)Purchase of noncontrolling interests(3.0)(3.0)(0.4)(3.4)Balance,April 2,20231,147.0$1.1$38.2$(8,024.6)$(521.6)$(8,506.9)$7.5$(8,499.4)Includes excise tax on share repurchases.See Notes to Consolidated Financial Statements.(1)(1)7Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EQUITYFor the Two Quarters Ended March 31,2024 and April 2,2023(in millions,except per share data,unaudited)Common StockAdditionalPaid-inCapitalRetainedEarnings/(Deficit)AccumulatedOtherComprehensiveIncome/(Loss)ShareholdersEquity/(Deficit)NoncontrollingInterestsTotal SharesAmountBalance,October 1,20231,142.6$1.1$38.1$(7,255.8)$(778.2)$(7,994.8)$7.0$(7,987.8)Net earnings 1,796.8 1,796.8 0.1 1,796.9 Other comprehensive income 156.6 156.6 0.1 156.7 Stock-based compensation expense 175.2 175.2 175.2 Exercise of stock options/vesting ofRSUs2.6(64.9)(64.9)(64.9)Sale of common stock0.3 29.2 29.2 29.2 Repurchase of common stock(12.8)(35.9)(1,223.9)(1,259.8)(1,259.8)Cash dividends declared,$1.14 pershare (1,287.8)(1,287.8)(1,287.8)Other 0.1 0.1 0.1 Balance,March 31,20241,132.7$1.1$141.7$(7,970.7)$(621.5)$(8,449.4)$7.2$(8,442.2)Balance,October 2,20221,147.9$1.1$205.3$(8,449.8)$(463.2)$(8,706.6)$7.9$(8,698.7)Net earnings 1,763.6 1,763.6 1,763.6 Other comprehensive loss (58.4)(58.4)(58.4)Stock-based compensation expense 161.4 161.4 161.4 Exercise of stock options/vesting ofRSUs3.7 23.5 23.5 23.5 Sale of common stock0.3 24.9 24.9 24.9 Repurchase of common stock(4.9)(373.9)(121.5)(495.4)(495.4)Cash dividends declared,$1.06 pershare (1,216.9)(1,216.9)(1,216.9)Purchase of noncontrolling interests(3.0)(3.0)(0.4)(3.4)Balance,April 2,20231,147.0$1.1$38.2$(8,024.6)$(521.6)$(8,506.9)$7.5$(8,499.4)Includes excise tax on share repurchases.See Notes to Consolidated Financial Statements.(1)(1)8Table of ContentsSTARBUCKS CORPORATIONINDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1Summary of Significant Accounting Policies and Estimates10Note 2Acquisitions,Divestitures,and Strategic Alliance10Note 3Derivative Financial Instruments11Note 4Fair Value Measurements16Note 5Inventories18Note 6Supplemental Balance Sheet and Statement of Earnings Information18Note 7Other Intangible Assets and Goodwill19Note 8Debt20Note 9Leases22Note 10Deferred Revenue23Note 11Equity24Note 12Employee Stock Plans25Note 13Earnings per Share26Note 14Commitments and Contingencies26Note 15Segment Reporting269Table of ContentsSTARBUCKS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)Note 1:Summary of Significant Accounting Policies and EstimatesFinancial Statement PreparationThe unaudited consolidated financial statements as of March 31,2024,and for the quarters and two quarters ended March 31,2024 and April 2,2023,havebeen prepared by Starbucks Corporation under the rules and regulations of the Securities and Exchange Commission(“SEC”).In the opinion of management,the financial information for the quarters and two quarters ended March 31,2024 and April 2,2023 reflects all adjustments and accruals,which are of a normalrecurring nature,necessary for a fair presentation of the financial position,results of operations,and cash flows for the interim periods.In this Quarterly Reporton Form 10-Q(“10-Q”),Starbucks Corporation is referred to as“Starbucks,”the“Company,”“we,”“us,”or“our.”Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes.Certain prior period information on the consolidated statements of cash flows have been reclassified to conform to the current presentation.The financial information as of October 1,2023 is derived from our audited consolidated financial statements and notes for the fiscal year ended October 1,2023(“fiscal 2023”)included in Item 8 in the fiscal 2023 Annual Report on Form 10-K(“10-K”).The information included in this 10-Q should be read inconjunction with the footnotes and managements discussion and analysis of the consolidated financial statements in the 10-K.The results of operations for the quarter and two quarters ended March 31,2024 are not necessarily indicative of the results of operations that may be achievedfor the entire fiscal year ending September 29,2024(“fiscal 2024”).Recent Accounting Pronouncements Not Yet AdoptedIn November 2023,the Financial Accounting Standards Board(“FASB”)issued guidance expanding segment disclosure requirements.The amendmentsrequire enhanced disclosure for certain segment items and require disclosure on how management uses reported measures to assess segment performance.Theamendments do not change how segments are determined,aggregated,or how thresholds are applied to determine reportable segments.We expect to adopt theguidance for the fiscal year ending September 28,2025.We are currently evaluating the expanded disclosure requirements and do not expect the adoption ofthis guidance to have a material impact on our consolidated financial statements.In December 2023,the FASB issued guidance expanding disclosure requirements related to income taxes.The amendments require enhanced jurisdictionaldisclosures for the income tax rate reconciliation and related to cash income taxes paid.Additionally,specific disclosures related to unrecognized tax benefitsand indefinite reinvestment assertions were removed.The amendments are effective for our fiscal year ending September 27,2026.While we are stillevaluating the specific impacts and timing of adoption,we anticipate this guidance will have a significant impact on our annual income tax disclosures.In March 2024,the SEC issued its final climate disclosure rules,which require the disclosure of climate-related information in annual reports and registrationstatements.The rules require disclosure in the audited financial statements of certain effects of severe weather events and other natural conditions above certainfinancial thresholds,as well as amounts related to carbon offsets and renewable energy credits or certificates,if material.Disclosure requirements will beginphasing in for fiscal years beginning on or after January 1,2025.On April 4,2024,the SEC determined to voluntarily stay the final rules pending certain legalchallenges.We are currently evaluating the impact of the new rules and expect to include updated climate-related disclosures in our Annual Report on Form 10-K for our fiscal year ending September 27,2026,depending on the outcome of the legal challenges.Note 2:Acquisitions,Divestitures,and Strategic AllianceOn January 13,2023,we sold the assets,primarily consisting of intellectual properties associated with the Seattles Best Coffee brand,to Nestl for$110.0million.The transaction resulted in a pre-tax gain of$91.3 million,which was included in gain from sale of assets on our consolidated statements of earningsfor the quarter and two quarters ended April 2,2023.Results from Seattles Best Coffee operations prior to the sale are reported in our Channel Developmentoperating segment.10Table of ContentsNote 3:Derivative Financial InstrumentsInterest RatesFrom time to time,we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates.We enter intointerest rate swap agreements,including forward-starting interest rate swaps and treasury locks,settled in cash based upon the difference between an agreed-upon benchmark rate and the prevailing benchmark rate at settlement.These agreements are generally settled around the time of the pricing of the related debt.Each derivative agreements gain or loss is recorded in accumulated other comprehensive income(“AOCI”)and is subsequently reclassified to interest expenseover the life of the related debt.To hedge the exposure to changes in the fair value of our fixed-rate debt,we enter into interest rate swap agreements,which are designated as fair value hedges.The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevantbenchmark interest rates are recorded in interest expense.Refer to Note 8,Debt,for additional information on our long-term debt.Foreign CurrencyTo reduce cash flow volatility from foreign currency fluctuations,we enter into forward and swap contracts to hedge portions of cash flows of anticipatedroyalty payments,inventory purchases,and intercompany borrowing and lending activities.The resulting gains and losses from these derivatives are recordedin AOCI and subsequently reclassified to revenue,product and distribution costs,or interest income and other,net,respectively,when the hedged exposuresaffect net earnings.From time to time,we may enter into financial instruments,including,but not limited to,forward and swap contracts or foreign currency-denominated debt,tohedge the currency exposure of our net investments in certain international operations.The resulting gains and losses from these derivatives are recorded inAOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.Gains and losses from thesederivatives representing hedged components excluded from the assessment of effectiveness are amortized over the life of the hedging instrument using asystematic and rational method and recognized in interest expense.Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balancesheet items.Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency-denominated payables andreceivables,and these gains and losses are recorded in interest income and other,net.CommoditiesDepending on market conditions,we may enter into coffee forward contracts,futures contracts,and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts,which are described further in Note 5,Inventories,or our longer-dated forecasted coffee demand where underlying fixed priceand price-to-be-fixed contracts are not yet available.The resulting gains and losses are recorded in AOCI and are subsequently reclassified to product anddistribution costs when the hedged exposure affects net earnings.Depending on market conditions,we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under ourdairy purchase contracts and our forecasted dairy demand.The resulting gains or losses are recorded in AOCI and are subsequently reclassified to product anddistribution costs when the hedged exposure affects net earnings.Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge.Cash flows from hedging transactions areclassified in the same categories as the cash flows from the respective hedged items.For de-designated cash flow hedges in which the underlying transactionsare no longer probable of occurring or where price variability in the underlying cash flow ceases to exist,the related accumulated derivative gains or losses arerecognized in interest income and other,net on our consolidated statements of earnings.These derivatives may be accounted for prospectively as non-designated derivatives until maturity,re-designated to new hedging relationships,or terminated early.We continue to believe transactions related to our otherdesignated cash flow hedges are probable to occur.To mitigate the price uncertainty of a portion of our future purchases,including diesel fuel and other commodities,we enter into swap contracts,futures,andcollars that are not designated as hedging instruments.The resulting gains and losses are recorded in interest income and other,net to help offset pricefluctuations on our beverage,food,packaging,and transportation costs,which are included in product and distribution costs on our consolidated statements ofearnings.11Table of ContentsGains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to bereclassified into earnings within 12 months,net of tax(in millions):Net Gains/(Losses)Included in AOCINet Gains/(Losses)Expectedto be Reclassified from AOCIinto Earnings within 12MonthsOutstanding Contract/DebtRemaining Maturity(Months)Mar 31,2024Oct 1,2023Cash Flow Hedges:Coffee$16.2$(78.1)$16.2 4Cross-currency swaps0.2(0.6)8Dairy(1.3)(1.8)(1.3)8Foreign currency-other30.6 39.6 21.4 33Interest rates(5.1)(6.6)(3.0)0Net Investment Hedges:Cross-currency swaps127.9 87.1 120Foreign currency16.0 16.0 0Foreign currency debt135.3 140.2 012Table of ContentsPre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in othercomprehensive income(“OCI”)and reclassifications from AOCI to earnings(in millions):Quarter EndedGains/(Losses)Recognized inOCI Before ReclassificationsGains/(Losses)Reclassified fromAOCI to EarningsLocation of gain/(loss)Mar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Cash Flow Hedges:Coffee$(1.2)$(0.5)$(6.2)$59.9 Product and distribution costsCross-currency swaps4.0(2.5)0.4(3.0)Interest expense3.3(0.1)Interest income and other,netDairy(1.3)(2.3)(2.3)(3.3)Product and distribution costsForeign currency-other34.9 3.8 7.4 4.0 Licensed stores revenue2.2 2.2 Product and distribution costsInterest rates 0.3(1.0)0.2 Interest expenseNet Investment Hedges:Cross-currency swaps 67.0(1.1)10.2 7.0 Interest expenseForeign currency debt25.5(1.6)Two Quarters EndedGains/(Losses)Recognized inOCI Before ReclassificationsGains/(Losses)Reclassified fromAOCI to EarningsLocation of gain/(loss)Mar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Cash Flow Hedges:Coffee$63.1$(119.9)$(46.6)$156.6 Product and distribution costsCross-currency swaps2.4(14.2)1.0(5.7)Interest expense0.6(9.2)Interest income and other,netDairy(3.2)(5.9)(3.9)(4.8)Product and distribution costsForeign currency-other9.5(42.2)16.2 11.9 Licensed stores revenue5.0 4.4 Product and distribution costs 0.2 Interest income and other,netInterest rates 0.3(2.0)(0.3)Interest expenseNet Investment Hedges:Cross-currency swaps73.6(15.1)19.1 12.3 Interest expenseForeign currency debt(6.3)(52.2)Gains and losses recognized in earnings relate to components excluded from the assessment of effectiveness.(1)(1)(1)13Table of ContentsPre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized inearnings(in millions):Gains/(Losses)Recognized in EarningsLocation of gain/(loss)recognized in earningsQuarter EndedTwo Quarters Ended Mar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Non-Designated Derivatives:Foreign currency-otherInterest income and other,net$3.6$1.6$1.2$(10.0)CoffeeInterest income and other,net (5.5)Diesel fuel and other commoditiesInterest income and other,net0.3(1.7)(0.4)(1.9)Fair Value Hedges:Interest rate swapsInterest expense(8.7)4.7 2.4 3.1 Long-term debt(hedged item)Interest expense5.7(12.1)(8.6)(15.4)Notional amounts of outstanding derivative contracts(in millions):Mar 31,2024Oct 1,2023Coffee$68$266 Cross-currency swaps1,746 1,076 Dairy52 71 Diesel fuel and other commodities14 7 Foreign currency-other1,191 1,164 Interest rate swaps350 1,100 14Table of ContentsFair value of outstanding derivative contracts(in millions)including the location of the asset and/or liability on the consolidated balance sheets:Derivative AssetsBalance Sheet LocationMar 31,2024Oct 1,2023Designated Derivative Instruments:Cross-currency swapsPrepaid expenses and other current assets$13.0$Other long-term assets164.5 130.1 DairyPrepaid expenses and other current assets0.5 0.4 Foreign currency-otherPrepaid expenses and other current assets27.3 32.0 Other long-term assets16.7 22.9 Interest rate swapsPrepaid expenses and other current assets 0.4 Non-designated Derivative Instruments:DairyPrepaid expenses and other current assets0.1 Diesel fuel and other commoditiesPrepaid expenses and other current assets0.2 0.7 Foreign currencyPrepaid expenses and other current assets7.0 7.5 Derivative LiabilitiesBalance Sheet LocationMar 31,2024Oct 1,2023Designated Derivative Instruments:DairyAccrued liabilities$1.7$1.1 Foreign currency-otherAccrued liabilities2.6 2.0 Other long-term liabilities2.2 Interest rate swapsOther long-term liabilities32.9 41.4 Non-designated Derivative Instruments:DairyAccrued liabilities0.4 Diesel fuel and other commoditiesAccrued liabilities0.1 Foreign currencyAccrued liabilities0.7 0.5 Other long-term liabilities 1.8 The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedgingrelationships(in millions):Carrying amount of hedged itemCumulative amount of fair value hedging adjustmentincluded in the carrying amountMar 31,2024Oct 1,2023Mar 31,2024Oct 1,2023Location on the balance sheetLong-term debt$318.6$1,060.0$(31.4)$(40.0)Balance as of October 1,2023 includes$750 million in senior notes that matured on October 1,2023 but remained in current portion of long-term debt onthe consolidated balance sheet as the debt repayment was not made until the first day of fiscal 2024.Additional disclosures related to cash flow gains and losses included in AOCI,as well as subsequent reclassifications to earnings,are included in Note 11,Equity.(1)(1)15Table of ContentsNote 4:Fair Value MeasurementsAssets and liabilities measured at fair value on a recurring basis(in millions):Fair Value Measurements at Reporting Date Using Balance atMarch 31,2024Quoted Prices in ActiveMarkets for Identical Assets(Level 1)Significant OtherObservable Inputs(Level 2)Significant Unobservable Inputs(Level 3)Assets:Cash and cash equivalents$2,764.1$2,764.1$Short-term investments:Available-for-sale debt securitiesCorporate debt securities37.7 37.7 Foreign corporate bonds0.2 0.2 Mortgage and other asset-backedsecurities0.3 0.3 State and local government obligations1.4 1.4 U.S.government treasury securities16.5 16.5 Total available-for-sale debt securities56.1 16.5 39.6 Structured deposits221.9 221.9 Marketable equity securities84.5 84.5 Total short-term investments362.5 101.0 261.5 Prepaid expenses and other current assets:Derivative assets48.1 48.1 Long-term investments:Available-for-sale debt securitiesCorporate debt securities127.4 116.9 10.5 Mortgage and other asset-backedsecurities52.6 52.6 State and local government obligations2.7 2.7 U.S.government treasury securities97.5 97.5 Total available-for-sale debt securities280.2 97.5 172.2 10.5 Structured deposits0.2 0.2 Total long-term investments280.4 97.5 172.4 10.5 Other long-term assets:Derivative assets181.2 181.2 Total assets$3,636.3$2,962.6$663.2$10.5 Liabilities:Accrued liabilities:Derivative liabilities$5.5$5.5$Other long-term liabilities:Derivative liabilities35.1 35.1 Total liabilities$40.6$40.6$16Table of Contents Fair Value Measurements at Reporting Date Using Balance atOctober 1,2023Quoted Prices in ActiveMarkets for IdenticalAssets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs(Level 3)Assets:Cash and cash equivalents$3,551.5$3,551.5$Short-term investments:Available-for-sale debt securitiesCorporate debt securities64.0 64.0 U.S.government treasury securities2.8 2.8 Foreign government obligations3.9 3.9 Total available-for-sale debt securities70.7 2.8 67.9 Structured deposits261.2 261.2 Marketable equity securities69.6 69.6 Total short-term investments401.5 72.4 329.1 Prepaid expenses and other current assets:Derivative assets41.0 41.0 Long-term investments:Available-for-sale debt securitiesCorporate debt securities91.1 91.1 Mortgage and other asset-backed securities50.2 50.2 State and local government obligations1.3 1.3 U.S.government treasury securities104.7 104.7 Total long-term investments247.3 104.7 142.6 Other long-term assets:Derivative assets153.0 153.0 Total assets$4,394.3$3,728.6$665.7$Liabilities:Accrued liabilities:Derivative liabilities$3.6$3.6$Other long-term liabilities:Derivative liabilities43.2 43.2 Total liabilities$46.8$46.8$There were no material transfers between levels,and there was no significant activity within Level 3 instruments during the periods presented.The fair valuesof any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists.Gross unrealized holding gains and losses on available-for-sale debt securities,structured deposits,and marketable equity securities were not material as ofMarch 31,2024 and October 1,2023.Assets and Liabilities Measured at Fair Value on a Nonrecurring BasisAssets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property,plantand equipment,ROU assets,goodwill and other intangible assets,equity and other investments,and other assets.These assets are measured at fair value ifdetermined to be impaired.The estimated fair value of our long-term debt based on the quoted market price(Level 2)is included at Note 8,Debt.There were no material fair valueadjustments during the two quarters ended March 31,2024 and April 2,2023.17Table of ContentsNote 5:Inventories(in millions):Mar 31,2024Oct 1,2023Coffee:Unroasted$694.9$747.7 Roasted257.7 280.3 Other merchandise held for sale313.4 364.6 Packaging and other supplies478.0 413.8 Total$1,744.0$1,806.4 Other merchandise held for sale includes,among other items,serveware,food,and tea.Inventory levels vary due to seasonality,commodity market supply,andprice fluctuations.As of March 31,2024,we had committed to purchasing green coffee totaling$398.6 million under fixed-price contracts and an estimated$855.6 million underprice-to-be-fixed contracts.A portion of our price-to-be-fixed contracts are effectively fixed through the use of futures.See Note 3,Derivative FinancialInstruments,for further discussion.Price-to-be-fixed contracts are purchase commitments whereby the quality,quantity,delivery period,and other negotiatedterms are agreed upon,but the date,and therefore the price,at which the base“C”coffee commodity price component will be fixed has not yet beenestablished.For most contracts,either Starbucks or the seller has the option to“fix”the base“C”coffee commodity price prior to the delivery date.For othercontracts,Starbucks and the seller may agree upon pricing parameters determined by the base“C”coffee commodity price.Until prices are fixed,we estimatethe total cost of these purchase commitments.We believe,based on established relationships with our suppliers and continuous monitoring,the risk of non-delivery on these purchase commitments is remote.Note 6:Supplemental Balance Sheet and Statement of Earnings Information(in millions):Property,Plant and Equipment,netMar 31,2024Oct 1,2023Land$46.1$46.1 Buildings671.8 666.5 Leasehold improvements10,532.8 10,133.7 Store equipment3,468.0 3,332.5 Roasting equipment880.1 859.4 Furniture,fixtures and other1,741.1 1,664.5 Work in progress713.5 607.5 Property,plant and equipment,gross18,053.4 17,310.2 Accumulated depreciation(10,236.0)(9,923.1)Property,plant and equipment,net$7,817.4$7,387.1 Accrued LiabilitiesMar 31,2024Oct 1,2023Accrued occupancy costs$78.0$86.7 Accrued dividends payable645.5 651.2 Accrued capital and other operating expenditures743.7 771.7 Insurance reserves252.0 233.5 Income taxes payable102.6 189.3 Accrued business taxes194.2 212.7 Total accrued liabilities$2,016.0$2,145.1 18Table of ContentsStore Operating ExpensesQuarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Wages and benefits$2,139.4$2,174.3$4,348.7$4,389.9 Occupancy costs741.3 703.4 1,487.0 1,374.9 Other expenses843.4 758.3 1,739.9 1,536.5 Total store operating expenses$3,724.1$3,636.0$7,575.6$7,301.3 Note 7:Other Intangible Assets and GoodwillIndefinite-Lived Intangible Assets(in millions)Mar 31,2024Oct 1,2023Trade names,trademarks and patents$79.5$79.4 Finite-Lived Intangible AssetsMar 31,2024Oct 1,2023(in millions)Gross CarryingAmountAccumulatedAmortizationNet CarryingAmountGross CarryingAmountAccumulatedAmortizationNet CarryingAmountAcquired and reacquired rights$962.0$(962.0)$957.6$(957.6)$Acquired trade secrets and processes27.6(27.6)27.6(27.6)Trade names,trademarks and patents130.3(100.6)29.7 131.0(91.9)39.1 Licensing agreements12.9(11.4)1.5 13.0(11.0)2.0 Other finite-lived intangible assets20.3(20.3)20.1(20.1)Total finite-lived intangible assets$1,153.1$(1,121.9)$31.2$1,149.3$(1,108.2)$41.1 Amortization expense for finite-lived intangible assets was$5.1 million and$10.2 million for the quarter and two quarters ended March 31,2024,respectively,and$5.3 million and$10.9 million for the quarter and two quarters ended April 2,2023,respectively.Estimated future amortization expense as of March 31,2024(in millions):Fiscal YearTotal2024(excluding the two quarters ended March 31,2024)$9.9 202514.0 20262.1 20271.8 20281.2 Thereafter2.2 Total estimated future amortization expense$31.2 GoodwillChanges in the carrying amount of goodwill by reportable operating segment(in millions):North AmericaInternationalChannel DevelopmentCorporate and OtherTotalGoodwill balance at October 1,2023$491.5$2,691.1$34.7$1.0$3,218.3 Other(0.1)11.1 11.0 Goodwill balance at March 31,2024$491.4$2,702.2$34.7$1.0$3,229.3“Other”consists of changes in the goodwill balance resulting from foreign currency translation.(1)(1)19Table of ContentsNote 8:DebtRevolving Credit FacilityOur$3.0 billion unsecured five-year revolving credit facility(the“2021 credit facility”),of which$150.0 million may be used for issuances of letters of credit,is currently set to mature on September 16,2026.The 2021 credit facility is available for working capital,capital expenditures,and other corporate purposes,including acquisitions and share repurchases.We have the option,subject to negotiation and agreement with the related banks,to increase the maximumcommitment amount by an additional$1.0 billion.Borrowings under the 2021 credit facility,which was most recently amended in April 2023,will bear interest at a variable rate based on Term SOFR,and,forU.S.dollar-denominated loans under certain circumstances,a Base Rate(as defined in the 2021 credit facility),in each case plus an applicable margin.Theapplicable margin is based on the Companys long-term credit ratings assigned by the Moodys and Standard&Poors rating agencies.The“Base Rate”is thehighest of(i)the Federal Funds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americas prime rate,and(iii)Term SOFR plus 1.000%.Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plus a SOFR Adjustment of 0.100%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants,including a minimum fixed charge coverage ratio,which measures our ability to cover financing expenses.As of March 31,2024,we were in compliance with all applicable covenants.No amounts wereoutstanding under our 2021 credit facility as of March 31,2024 or October 1,2023.Short-term DebtUnder our commercial paper program,we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0billion,with individual maturities that may vary but not exceed 397 days from the date of issue.Amounts outstanding under the commercial paper program arerequired to be backstopped by available commitments under our 2021 credit facility.The proceeds from borrowings under our commercial paper program maybe used for working capital needs,capital expenditures,and other corporate purposes,including,but not limited to,business expansion,payment of cashdividends on our common stock,and share repurchases.No amounts were outstanding under our commercial paper program as of March 31,2024 andOctober 1,2023.Additionally,we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within ourJapanese market:A 5.0 billion,or$33.0 million,credit facility is currently set to mature on December 30,2024.Borrowings under this credit facility are subject toterms defined within the facility and will bear interest at a variable rate based on Tokyo Interbank Offered Rate(“TIBOR”)plus an applicable marginof 0.400%.A 10.0 billion,or$66.1 million,credit facility is currently set to mature on March 27,2025.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.As of March 31,2024,we had 5.0 billion,or$33.0 million,of borrowings outstanding under these credit facilities.As of October 1,2023,we had 5.0 billion,or$33.5 million,of borrowings outstanding under these credit facilities.20Table of ContentsLong-term DebtComponents of long-term debt including the associated interest rates and related estimated fair values by calendar maturity(in millions,except interest rates):Mar 31,2024Oct 1,2023Stated Interest RateEffective InterestRateIssuanceAmountEstimated FairValueAmountEstimated FairValueOctober 2023 notes$750.0$749.9 3.850%2.859bruary 2024 notes 500.0 504.2 5.848%6.079%March 2024 notes 569.3 569.3 0.372%0.462%August 2025 notes1,250.0 1,225.4 1,250.0 1,210.5 3.800%3.721bruary 2026 notes1,000.0 994.3 1,000.0 985.5 4.750%4.788%June 2026 notes500.0 472.5 500.0 463.5 2.450%2.511bruary 2027 notes1,000.0 998.0 4.850%4.958%March 2027 notes500.0 459.6 500.0 446.1 2.000%2.058%March 2028 notes600.0 570.4 600.0 554.7 3.500%3.529%November 2028 notes750.0 726.8 750.0 704.5 4.000%3.958%August 2029 notes1,000.0 942.6 1,000.0 904.1 3.550%3.840%March 2030 notes750.0 646.4 750.0 615.1 2.250%3.084%November 2030 notes1,250.0 1,083.6 1,250.0 1,027.1 2.550%2.582bruary 2031 notes500.0 497.4 4.900%5.046bruary 2032 notes1,000.0 874.8 1,000.0 828.0 3.000%3.155bruary 2033 notes500.0 495.0 500.0 470.7 4.800%3.798bruary 2034 notes500.0 496.5 5.000%5.127%June 2045 notes350.0 303.7 350.0 275.3 4.300%4.348cember 2047 notes500.0 393.7 500.0 354.0 3.750%3.765%November 2048 notes1,000.0 878.0 1,000.0 799.0 4.500%4.504%August 2049 notes1,000.0 869.5 1,000.0 792.7 4.450%4.447%March 2050 notes500.0 355.8 500.0 328.6 3.350%3.362%November 2050 notes1,250.0 925.9 1,250.0 843.4 3.500%3.528%Total15,700.0 14,209.9 15,519.3 13,426.2 Aggregate debt issuance costs andunamortized premium/(discount),net(121.1)(113.1)Hedge accounting fair value adjustment(31.4)(40.0)Total$15,547.5$15,366.2 Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-startinginterest rate swaps utilized to hedge interest rate risk prior to the debt issuance.Amount includes the change in fair value due to changes in benchmark interest rates related to hedging our October 2023 notes and$350.0 million of ourAugust 2029 notes.Refer to Note 3,Derivative Financial Instruments,for additional information on our interest rate swap agreements designated as fairvalue hedges.Floating rate notes that bear interest at a rate equal to Compounded SOFR(as defined in the February 2024 notes)plus 0.420%,resulting in a statedinterest rate of 5.848%at maturity on February 14,2024.Japanese yen-denominated long-term debt.(1)(2)(3)(4)(2)(2)(1)(2)(3)(4)21Table of ContentsThe following table summarizes our long-term debt maturities as of March 31,2024 by fiscal year(in millions):Fiscal YearTotal2024$20251,250.0 20261,500.0 20271,500.0 2028600.0 Thereafter10,850.0 Total$15,700.0 Note 9:LeasesThe components of lease costs(in millions):Quarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Operating lease costs$424.1$401.7$841.5$786.5 Variable lease costs271.7 253.9 543.6 489.2 Short-term lease costs7.2 7.0 14.9 14.0 Total lease costs$703.0$662.6$1,400.0$1,289.7 Includes immaterial amounts of sublease income and rent concessions.The following table includes supplemental information(in millions):Two Quarters EndedMar 31,2024Apr 2,2023Cash paid related to operating lease liabilities$778.8$819.0 Operating lease liabilities arising from obtaining right-of-use assets980.5 828.0 Mar 31,2024Apr 2,2023Weighted-average remaining operating lease term8.6 years8.5 yearsWeighted-average operating lease discount rate3.2%2.9%Finance lease assets are recorded in property,plant and equipment,net with the corresponding lease liabilities included in accrued liabilities and other long-term liabilities on the consolidated balance sheet.There were no material finance leases as of March 31,2024 and October 1,2023.Minimum future maturities of operating lease liabilities(in millions):Fiscal YearTotal2024(excluding the two quarters ended March 31,2024)$861.1 20251,658.0 20261,515.8 20271,338.7 20281,139.4 Thereafter4,589.9 Total lease payments11,102.9 Less imputed interest(1,515.9)Total$9,587.0 As of March 31,2024,we have entered into operating leases that have not yet commenced of$1.6 billion,primarily related to real estate leases.These leaseswill commence between fiscal year 2024 and fiscal year 2027 with lease terms ranging from two to twenty years.(1)(1)22Table of ContentsNote 10:Deferred RevenueOur deferred revenue primarily consists of the prepaid royalty from Nestl,for which we have continuing performance obligations to support the Global CoffeeAlliance,our unredeemed stored value card liability,and unredeemed loyalty points(“Stars”)associated with our loyalty program.As of March 31,2024,the current and long-term deferred revenue related to the Nestl up-front payment was$177.0 million and$5.9 billion,respectively.Asof October 1,2023,the current and long-term deferred revenue related to the Nestl up-front payment was$177.0 million and$6.0 billion,respectively.Duringeach of the quarters ended March 31,2024 and April 2,2023,we recognized$44.1 million of prepaid royalty revenue related to Nestl.During each of the twoquarters ended March 31,2024 and April 2,2023,we recognized$88.2 million of prepaid royalty revenue related to Nestl.Changes in our deferred revenue balance related to our stored value cards and loyalty program(in millions):Quarter Ended March 31,2024TotalStored value cards and loyalty program at December 31,2023$2,169.7 Revenue deferred-card activations,card reloads and Stars earned3,456.5 Revenue recognized-card and Stars redemptions and breakage(3,792.4)Other(14.9)Stored value cards and loyalty program at March 31,2024$1,818.9 Quarter Ended April 2,2023TotalStored value cards and loyalty program at January 1,2023$2,025.6 Revenue deferred-card activations,card reloads and Stars earned3,416.0 Revenue recognized-card and Stars redemptions and breakage(3,778.4)Other1.3 Stored value cards and loyalty program at April 2,2023$1,664.5 Two Quarters Ended March 31,2024TotalStored value cards and loyalty program at October 1,2023$1,567.5 Revenue deferred-card activations,card reloads and Stars earned8,143.7 Revenue recognized-card and Stars redemptions and breakage(7,890.8)Other(1.5)Stored value cards and loyalty program at March 31,2024$1,818.9 Two Quarters Ended April 2,2023TotalStored value cards and loyalty program at October 2,2022$1,503.0 Revenue deferred-card activations,card reloads and Stars earned7,639.4 Revenue recognized-card and Stars redemptions and breakage(7,492.5)Other14.6 Stored value cards and loyalty program at April 2,2023$1,664.5“Other”primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation.As of March 31,2024 and April 2,2023,approximately$1.7 billion and$1.6 billion,respectively,of these amounts were current.(1)(2)(1)(2)(1)(2)(1)(2)(1)(2)23Table of ContentsNote 11:EquityChanges in AOCI by component,net of tax(in millions):Quarter Ended Available-for-SaleDebt Securities Cash FlowHedges Net InvestmentHedgesTranslationAdjustment andOtherTotalMarch 31,2024Net gains/(losses)in AOCI,beginning of period$(7.9)$15.7$217.7$(783.3)$(557.8)Net gains/(losses)recognized in OCI before reclassifications(0.3)27.1 69.2(150.0)(54.0)Net(gains)/losses reclassified from AOCI to earnings0.3(2.2)(7.7)(9.6)Other comprehensive income/(loss)attributable to Starbucks 24.9 61.5(150.0)(63.6)Other comprehensive income/(loss)attributable to NCI (0.1)(0.1)Net gains/(losses)in AOCI,end of period$(7.9)$40.6$279.2$(933.4)$(621.5)April 2,2023Net gains/(losses)in AOCI,beginning of period$(13.9)$(34.9)$156.8$(646.9)$(538.9)Net gains/(losses)recognized in OCI before reclassifications2.8(1.1)(2.0)74.7 74.4 Net(gains)/losses reclassified from AOCI to earnings0.2(52.1)(5.2)(57.1)Other comprehensive income/(loss)attributable to Starbucks3.0(53.2)(7.2)74.7 17.3 Net gains/(losses)in AOCI,end of period$(10.9)$(88.1)$149.6$(572.2)$(521.6)Two Quarters EndedAvailable-for-SaleDebt SecuritiesCash FlowHedgesNet InvestmentHedgesTranslationAdjustment andOtherTotalMarch 31,2024Net gains/(losses)in AOCI,beginning of period$(12.3)$(47.5)$243.3$(961.7)$(778.2)Net gains/(losses)recognized in OCI before reclassifications3.9 60.7 50.3 28.2 143.1 Net(gains)/losses reclassified from AOCI to earnings0.5 27.4(14.4)13.5 Other comprehensive income/(loss)attributable to Starbucks4.4 88.1 35.9 28.2 156.6 Other comprehensive income/(loss)attributable to NCI 0.1 0.1 Net gains/(losses)in AOCI,end of period$(7.9)$40.6$279.2$(933.4)$(621.5)April 2,2023Net gains/(losses)in AOCI,beginning of period$(15.5)$199.0$209.1$(855.8)$(463.2)Net gains/(losses)recognized in OCI before reclassifications4.3(152.3)(50.3)283.6 85.3 Net(gains)/losses reclassified from AOCI to earnings0.3(134.8)(9.2)(143.7)Other comprehensive income/(loss)attributable to Starbucks4.6(287.1)(59.5)283.6(58.4)Net gains/(losses)in AOCI,end of period$(10.9)$(88.1)$149.6$(572.2)$(521.6)24Table of ContentsImpact of reclassifications from AOCI on the consolidated statements of earnings(in millions):Quarter EndedAOCIComponentsAmounts Reclassified from AOCIAffected Line Item inthe Statements of EarningsMar 31,2024Apr 2,2023Gains/(losses)on available-for-sale debt securities$(0.4)$(0.3)Interest income and other,netGains/(losses)on cash flow hedges3.8 59.9 Please refer to Note 3,Derivative Financial Instrumentsfor additional information.Gains/(losses)on net investment hedges10.2 7.0 Interest expense13.6 66.6 Total before tax(4.0)(9.5)Tax expense$9.6$57.1 Net of taxTwo Quarters EndedAOCIComponentsAmounts Reclassified from AOCIAffected Line Item inthe Statements of EarningsMar 31,2024Apr 2,2023Gains/(losses)on available-for-sale debt securities$(0.7)$(0.4)Interest income and other,netGains/(losses)on cash flow hedges(29.7)153.1 Please refer to Note 3,Derivative Financial Instrumentsfor additional information.Gains/(losses)on net investment hedges19.1 12.3 Interest expense(11.3)165.0 Total before tax(2.2)(21.3)Tax expense$(13.5)$143.7 Net of taxIn addition to 2.4 billion shares of authorized common stock with$0.001 par value per share,we have 7.5 million shares of authorized preferred stock,none ofwhich was outstanding as of March 31,2024.During the two quarters ended March 31,2024 and April 2,2023,we repurchased 12.8 million and 4.9 million shares of common stock on the open market for$1,250.1 million and$495.3 million,respectively.As of March 31,2024,29.8 million shares remained available for repurchase under current authorizations.During the second quarter of fiscal 2024,our Board of Directors approved a quarterly cash dividend to shareholders of$0.57 per share to be paid on May 31,2024 to shareholders of record as of the close of business on May 17,2024.Note 12:Employee Stock PlansAs of March 31,2024,there were 84.9 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 10.0million shares available for issuance under our employee stock purchase plan.Stock-based compensation expense recognized in the consolidated statements of earnings(in millions):Quarter EndedTwo Quarters Ended Mar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Restricted Stock Units(“RSUs”)$78.3$74.1$173.2$159.2 Options(0.1)0.0(0.2)0.1 Total stock-based compensation expense$78.2$74.1$173.0$159.3 Stock option and RSU transactions from October 1,2023 through March 31,2024(in millions):Stock OptionsRSUsOptions outstanding/Nonvested RSUs,October 1,20232.0 7.3 Granted 4.1 Options exercised/RSUs vested(0.6)(2.9)Forfeited/expired(0.4)Options outstanding/Nonvested RSUs,March 31,20241.4 8.1 Total unrecognized stock-based compensation expense,net of estimated forfeitures,as of March 31,2024$314.1 25Table of ContentsNote 13:Earnings per ShareCalculation of net earnings per common share(“EPS”)basic and diluted(in millions,except EPS):Quarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Net earnings attributable to Starbucks$772.4$908.3$1,796.8$1,763.6 Weighted average common shares outstanding(for basic calculation)1,132.4 1,148.5 1,134.5 1,148.4 Dilutive effect of outstanding common stock options and RSUs3.0 4.2 3.5 4.4 Weighted average common and common equivalent shares outstanding(for diluted calculation)1,135.4 1,152.7 1,138.0 1,152.8 EPS basic$0.68$0.79$1.58$1.54 EPS diluted$0.68$0.79$1.58$1.53 Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options(both vested and non-vested)andunvested RSUs,calculated using the treasury stock method.The calculation of dilutive shares outstanding excludes anti-dilutive stock options or unvestedRSUs,which were immaterial in the periods presented.Note 14:Commitments and ContingenciesLegal ProceedingsStarbucks is involved in various legal proceedings arising in the ordinary course of business,including litigation matters associated with labor union organizingefforts and certain employment litigation cases that have been certified as class or collective actions,but is not currently a party to any legal proceeding thatmanagement believes could have a material adverse effect on our consolidated financial position,results of operations,or cash flows.While we are closelymonitoring the operational and financial impacts of labor union organizing efforts on our business,as of the date of this filing,we believe the risk of a materialcontingent loss associated with these litigation matters is remote.Refer to the Risk Factors in Part I,Item 1A of our most recently filed 10-K for furtherdiscussion of potential risks to our brand and related impacts on our financial results.Note 15:Segment ReportingSegment information is prepared on the same basis that our chief executive officer,who is our chief operating decision maker,manages the segments,evaluatesfinancial results,and makes key operating decisions.Consolidated revenue mix by product type(in millions):Quarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Beverage$5,160.6 60%$5,226.9 60%$10,856.4 60%$10,401.4 60%Food1,583.0 18%1,590.9 18%3,339.9 19%3,157.0 18%Other1,819.4 22%1,902.0 22%3,792.0 21%3,875.4 22%Total$8,563.0 100%$8,719.8 100%$17,988.3 100%$17,433.8 100%“Beverage”represents sales within our company-operated stores.“Food”includes sales within our company-operated stores.“Other”primarily consists of packaged and single-serve coffees and teas,royalty and licensing revenues,beverage-related ingredients,and serveware,among other items.(1)(2)(3)(1)(2)(3)26Table of ContentsThe tables below present financial information for our reportable operating segments and Corporate and Other(in millions):Quarter EndedNorth AmericaInternationalChannelDevelopmentCorporate andOtherTotalMarch 31,2024Total net revenues$6,380.0$1,757.3$418.2$7.5$8,563.0 Depreciation and amortization expenses257.1 84.3 30.5 371.9 Income from equity investees 0.2 67.8 68.0 Operating income/(loss)$1,148.3$233.8$216.3$(499.5)$1,098.9 April 2,2023Total net revenues$6,380.6$1,854.8$480.7$3.7$8,719.8 Depreciation and amortization expenses226.3 86.3 0.0 29.3 341.9 Income from equity investees 0.8 50.6 51.4 Operating income/(loss)$1,217.9$314.7$262.1$(467.2)$1,327.5 Two Quarters EndedNorth AmericaInternationalChannelDevelopmentCorporate andOtherTotalMarch 31,2024Total net revenues$13,500.7$3,603.6$866.2$17.8$17,988.3 Depreciation and amortization expenses507.5 168.3 61.4 737.2 Income from equity investees 0.3 123.5 123.8 Operating income/(loss)$2,669.1$475.3$426.0$(986.1)$2,584.3 April 2,2023Total net revenues$12,931.8$3,534.9$958.9$8.2$17,433.8 Depreciation and amortization expenses443.1 167.7 0.1 58.1 669.0 Income from equity investees 1.2 108.0 109.2 Operating income/(loss)$2,430.4$555.1$488.4$(893.2)$2,580.7 27Table of ContentsItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsCAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995Certain statements contained herein are“forward-looking”statements within the meaning of applicable securities laws and regulations.Generally,thesestatements can be identified by the use of words such as“aim,”“anticipate,”“believe,”“continue,”“could,”“estimate,”“expect,”“feel,”“forecast,”“intend,”“may,”“outlook,”“plan,”“potential,”“predict,”“project,”“seek,”“should,”“will,”“would,”and similar expressions intended to identifyforward-looking statements,although not all forward-looking statements contain these identifying words.By their nature,forward-looking statements involverisks,uncertainties,and other factors(many beyond our control)that could cause our actual results to differ materially from our historical experience or fromour current expectations or projections.Our forward-looking statements,and the risks and uncertainties related thereto,include,but are not limited to,thosedescribed under the“Risk Factors”and“Managements Discussion and Analysis of Financial Condition and Results of Operations”sections of our mostrecently filed 10-K and 10-Q and in other filings with the SEC,as well as:our ability to preserve,grow,and leverage our brands,including the risk of negative responses by consumers(such as boycotts or negative publicitycampaigns)or governmental actors(such as retaliatory legislative treatment)who object to certain actions taken or not taken by the Company,whichresponses could adversely affect our brand value;the acceptance of the Companys products and changes in consumer preferences,consumption,or spending behavior and our ability to anticipate orreact to them;shifts in demographic or health and wellness trends;or unfavorable consumer reaction to new products,platforms,reformulations,orother innovations;our anticipated operating expenses,including our anticipated total capital expenditures;the costs associated with,and the successful execution and effects of,our existing and any future business opportunities,expansions,initiatives,strategies,investments,and plans,including our Triple Shot Reinvention with Two Pumps Plan(“Reinvention”);the impacts of partner investments and changes in the availability and cost of labor including any union organizing efforts and our responses to suchefforts;the ability of our business partners,suppliers,and third-party providers to fulfill their responsibilities and commitments;higher costs,lower quality,or unavailability of coffee,dairy,cocoa,energy,water,raw materials,or product ingredients;the impact of significant increases in logistics costs;a worsening in the terms and conditions upon which we engage with our manufacturers and source suppliers,whether resulting from broader local orglobal conditions,or dynamics specific to our relationships with such parties;unfavorable global or regional economic conditions and related economic slowdowns or recessions,low consumer confidence,high unemployment,weak credit or capital markets,budget deficits,burdensome government debt,austerity measures,higher interest rates,higher taxes,politicalinstability,higher inflation,or deflation;inherent risks of operating a global business including geopolitical instability;failure to attract or retain key executive or partner talent or successfully transition executives;the potential negative effects of incidents involving food or beverage-borne illnesses,tampering,adulteration,contamination,or mislabeling;negative publicity related to our Company,products,brands,marketing,executive leadership,partners,Board of Directors,founder,operations,business performance,expansions,initiatives,strategies,investments,plans,or prospects;potential negative effects of a material breach,failure,or corruption of our information technology systems or those of our direct and indirectbusiness partners,suppliers,or third-party providers,or failure to comply with data protection laws;our environmental,social,and governance(“ESG”)efforts and any reaction related thereto,such as the rise in opposition to ESG and inclusion anddiversity efforts;risks associated with acquisitions,dispositions,business partnerships,or investments such as acquisition integration,termination difficulties orcosts,or impairment in recorded value;the impact of foreign currency translation,particularly a stronger U.S.dollar;the impact of substantial competition from new entrants,consolidations by competitors,and other competitive activities,such as pricing actions(including price reductions,promotions,discounting,couponing,or free goods),marketing,category expansion,product introductions,or entry orexpansion in our geographic markets;the impact of changes in U.S.tax law and related guidance and regulations that may be implemented,including on tax rates;the impact of health epidemics,pandemics,or other public health events on our business and financial results,and the risk of negative economicimpacts and related regulatory measures or voluntary actions that may be put in place,including restrictions on business operations or socialdistancing requirements,and the duration and efficacy of such restrictions;failure to comply with anti-corruption laws,trade sanctions,and restrictions,or similar laws or regulations;andthe impact of significant legal disputes and proceedings,or government investigations.In addition,many of the foregoing risks and uncertainties are,or could be,exacerbated by any worsening of the global business and economic environment.Aforward-looking statement is neither a prediction nor a guarantee of future events or28Table of Contentscircumstances,and those future events or circumstances may not occur.You should not place undue reliance on the forward-looking statements,which speakonly as of the date of this report.We are under no obligation to update or alter any forward-looking statements,whether as a result of new information,futureevents,or otherwise.This information should be read in conjunction with the unaudited consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q andthe audited consolidated financial statements and notes,and Managements Discussion and Analysis of Financial Condition and Results of Operations(“MD&A”),contained in the 10-K filed with the SEC on November 17,2023.29Table of ContentsIntroduction and OverviewStarbucks is the premier roaster,marketer,and retailer of specialty coffee in the world,operating in 86 markets.As of March 31,2024,Starbucks had morethan 38,900 company-operated and licensed stores,an increase of 6%from the prior year.Additionally,we sell a variety of consumer-packaged goods,primarily through the Global Coffee Alliance established with Nestl and other partnerships and joint ventures.We have three reportable operating segments:1)North America,which is inclusive of the U.S.and Canada;2)International,which is inclusive of China,Japan,Asia Pacific,Europe,Middle East,Africa,Latin America,and the Caribbean;and 3)Channel Development.Unallocated corporate expenses are reportedwithin Corporate and Other.We believe our financial results and long-term growth model will continue to be driven by new store openings,comparable store sales growth,and operatingmargin management,underpinned by disciplined capital allocation.We believe these key operating metrics are useful to investors because management usesthese metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.Throughout this MD&A,we commonlydiscuss the following key operating metrics:New store openings and store countComparable store sales growthOperating marginComparable store sales growth represents the percentage change in sales in one period from the same prior year period for company-operated stores open for13 months or longer and excludes the impact of foreign currency translation.We analyze comparable store sales growth on a constant currency basis as thishelps identify underlying business trends,without distortion from the effects of currency movements.Stores that are temporarily closed or operating at reducedhours remain in comparable store sales while stores identified for permanent closure have been removed.Our fiscal year ends on the Sunday closest to September 30.Fiscal 2024 and 2023 include 52 weeks.All references to store counts,including data for new storeopenings,are reported net of store closures,unless otherwise noted.Starbucks results for the second quarter of fiscal 2024 reflect a complex operating environment globally,including softening consumer sentiment,a pervasiveinflationary environment,and disruptions due to multiple international conflicts.However,efficiencies continue to be realized from the strategies underpinningReinvention,leading to tangible financial benefits,which counterbalance broader headwinds.During the second quarter of fiscal 2024,consolidated netrevenues decreased 2%to$8.6 billion compared to$8.7 billion in the second quarter of fiscal 2023,primarily driven by a decline in global comparable storesales and unfavorable foreign currency fluctuations,partially offset by incremental revenues from net new company-operated store openings over the past 12months.During the quarter ended March 31,2024,our global comparable store sales declined 4%,primarily driven by a 3cline in the U.S.market and a6cline internationally.Consolidated operating margin decreased 240 basis points from the prior year to 12.8%,primarily driven by deleverage,increasedinvestments in store partner wages and benefits,increased promotional activity,lapping the gain from the sale of our Seattles Best Coffee brand in the secondquarter of fiscal 2023,and higher general and administrative expenses,primarily in support of Reinvention.These decreases were partially offset by strategicpricing and in-store operational efficiencies.We anticipate the complex global operating environment and the related headwinds we experienced in the first half of fiscal 2024 may continue to impact thebalance of our fiscal year.Despite these challenges,we have many strengths to build upon,including our global brand,our loyal global customer base,strongnew store performance,an innovative pipeline of products,and our continued execution against Reinvention-related operational efficiencies.Our Triple ShotReinvention strategy is progressing,enhancing our capabilities and giving us continued confidence in our long-term growth and durable business model.Results of Operations(in millions)Revenues Quarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023$Change%ChangeMar 31,2024Apr 2,2023$Change%ChangeCompany-operated stores$7,052.6$7,142.3$(89.7)(1.3)%$14,807.9$14,225.7$582.2 4.1%Licensed stores1,054.5 1,069.5(15.0)(1.4)2,246.6 2,189.0 57.6 2.6 Other455.9 508.0(52.1)(10.3)933.8 1,019.1(85.3)(8.4)Total net revenues$8,563.0$8,719.8$(156.8)(1.8)%$17,988.3$17,433.8$554.5 3.2%For the quarter ended March 31,2024 compared with the quarter ended April 2,202330Table of ContentsTotal net revenues for the second quarter of fiscal 2024 decreased$157 million,primarily due to lower revenues from company-operated stores($90 million).The decrease in revenues from company-operated stores was driven by a 4crease in comparable store sales($253 million),attributable to a 6crease incomparable transactions and a 2%increase in average ticket.Also contributing to company-operated stores revenue were unfavorable foreign currencytranslation impacts($91 million).Partially offsetting these decreases were incremental revenues from 1,454 net new company-operated stores,or an 8%increase,over the past 12 months($255 million).Licensed stores revenue decreased$15 million,primarily driven by lower product and equipment sales to and royalty revenues from our licensees($11 million)and unfavorable foreign currency translation impacts($7 million).Other revenues decreased$52 million,primarily due to a decline in revenue in the Global Coffee Alliance($59 million)following the sale of our Seattles BestCoffee brand to Nestl in the second quarter of fiscal 2023 as well as product SKU optimization.For the two quarters ended March 31,2024 compared with the two quarters ended April 2,2023Total net revenues for the first two quarters of fiscal 2024 increased$555 million,primarily due to higher revenues from company-operated stores($582million).The growth of company-operated stores revenue was driven by incremental revenues from 1,454 net newcompany-operated stores,or an 8%increase,over the past 12 months($582 million).Also contributing to the growth of company-operated stores revenue was a 1%increase in comparable store sales($117million),attributable to a 2%increase in average ticket,partially offset by a 1crease in comparable transactions.Partially offsetting these increases tocompany-operated stores revenue were unfavorable foreign currency translation impacts($121 million).Licensed stores revenue increased$58 million,driven by higher product and equipment sales to,and royalty revenues from,our licensees($51 million),primarily driven by revenues from 863 net new licensed store openings,or a 5%increase,over the past 12 months.Other revenues decreased$85 million,primarily due to a decline in revenue in the Global Coffee Alliance($78 million)following the sale of our Seattles BestCoffee brand to Nestl in the second quarter of fiscal 2023 as well as product SKU optimization.Operating Expenses Quarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023$ChangeMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023$ChangeMar 31,2024Apr 2,2023As a%ofTotal Net RevenuesAs a%ofTotal Net RevenuesProduct and distributioncosts$2,648.7$2,801.7$(153.0)30.92.1%$5,629.2$5,611.9$17.3 31.32.2%Store operating expenses3,724.1 3,636.0 88.1 43.5 41.7 7,575.6 7,301.3 274.3 42.1 41.9 Other operating expenses132.8 126.2 6.6 1.6 1.4 283.2 255.4 27.8 1.6 1.5 Depreciation andamortization expenses371.9 341.9 30.0 4.3 3.9 737.2 669.0 68.2 4.1 3.8 General and administrativeexpenses654.6 620.4 34.2 7.6 7.1 1,302.6 1,201.3 101.3 7.2 6.9 Restructuring andimpairments 8.8(8.8)0.1 14.7(14.7)0.1 Total operating expenses7,532.1 7,535.0(2.9)88.0 86.4 15,527.8 15,053.6 474.2 86.3 86.3 Income from equityinvestees68.0 51.4 16.6 0.8 0.6 123.8 109.2 14.6 0.7 0.6 Gain from sale of assets 91.3(91.3)1.0 91.3(91.3)0.5 Operating income$1,098.9$1,327.5$(228.6)12.8.2%$2,584.3$2,580.7$3.6 14.4.8%Store operating expenses as a%ofcompany-operated stores revenue52.8P.9Q.2Q.3%For the quarter ended March 31,2024 compared with the quarter ended April 2,2023 31Table of ContentsProduct and distribution costs as a percentage of total net revenues decreased 120 basis points for the second quarter of fiscal 2024,primarily due to the impactof increased sales from pricing(approximately 60 basis points)and a reduction in supply chain costs(approximately 50 basis points).Store operating expenses as a percentage of total net revenues increased 180 basis points for the second quarter of fiscal 2024.Store operating expenses as apercentage of company-operated stores revenue increased 190 basis points,primarily due to increased investments in store partner wages and benefits(approximately 160 basis points),deleverage(approximately 110 basis points),and increased promotional activity(approximately 60 basis points).Theseincreases were partially offset by in-store operational efficiencies(approximately 180 basis points).Other operating expenses increased$7 million,primarily due to support costs for our growing licensed markets.Depreciation and amortization expenses as a percentage of total net revenues increased 40 basis points,primarily due to deleverage.General and administrative expenses increased$34 million,primarily due to certain proxy solicitation and advisory services costs($30 million)andincremental investments in technology($22 million).These increases were partially offset by the lapping of a donation to the Starbucks Foundation made inthe second quarter of fiscal 2023($15 million).Gain from sale of assets includes the sale of our Seattles Best Coffee Brand to Nestl in the second quarter of fiscal 2023.Income from equity investees increased$17 million,primarily due to higher income from our North American Coffee Partnership joint venture.The combination of these changes resulted in an overall decrease in operating margin of 240 basis points for the second quarter of fiscal 2024.For the two quarters ended March 31,2024 compared with the two quarters ended April 2,2023Product and distribution costs as a percentage of total net revenues decreased 90 basis points for the first two quarters of fiscal 2024,primarily due to theimpact of increased sales from pricing(approximately 60 basis points).Store operating expenses as a percentage of total net revenues increased 20 basis points for the first two quarters of fiscal 2024.Store operating expenses as apercentage of company-operated stores revenue decreased 10 basis points,primarily due to in-store operational efficiencies(approximately 210 basis points),partially offset by increased investments in store partner wages and benefits(approximately 150 basis points),and increased promotional activity(approximately 50 basis points).Other operating expenses increased$28 million,primarily due to support costs for our growing licensed markets.Depreciation and amortization expenses as a percentage of total net revenues increased 30 basis points,primarily due to deleverage.General and administrative expenses increased$101 million,primarily due to incremental investments in technology($52 million),investments in partnerwages and benefits($48 million),and certain proxy solicitation and advisory services costs($30 million).These increases were partially offset by the lappingof a donation to the Starbucks Foundation made in the second quarter of fiscal 2023($15 million).Gain from sale of assets includes the sale of our Seattles Best Coffee Brand to Nestl in the second quarter of fiscal 2023.Income from equity investees increased$15 million,primarily due to higher income from our North American Coffee Partnership joint venture.The combination of these changes resulted in an overall decrease in operating margin of 40 basis points for the first two quarters of fiscal 2024.32Table of ContentsOther Income and Expenses Quarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023$ChangeMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023$ChangeMar 31,2024Apr 2,2023As a%of TotalNet RevenuesAs a%of TotalNet RevenuesOperating income$1,098.9$1,327.5$(228.6)12.8.2%$2,584.3$2,580.7$3.6 14.4.8%Interest income and other,net34.1 18.4 15.7 0.4 0.2 67.9 30.0 37.9 0.4 0.2 Interest expense(140.6)(136.3)(4.3)(1.6)(1.6)(280.7)(266.0)(14.7)(1.6)(1.5)Earnings before incometaxes992.4 1,209.6(217.2)11.6 13.9 2,371.5 2,344.7 26.8 13.2 13.4 Income tax expense219.9 301.3(81.4)2.6 3.5 574.6 581.1(6.5)3.2 3.3 Net earnings includingnoncontrolling interests772.5 908.3(135.8)9.0 10.4 1,796.9 1,763.6 33.3 10.0 10.1 Net earningsattributable tononcontrolling interests0.1 0.1 0.0 0.1 0.1 0.0 Net earningsattributable toStarbucks$772.4$908.3$(135.9)9.0.4%$1,796.8$1,763.6$33.2 10.0.1fective tax rate includingnoncontrolling interests22.2$.9$.2$.8%For the quarter ended March 31,2024 compared with the quarter ended April 2,2023Interest income and other,net increased$16 million and interest expense increased$4 million,both primarily due to higher interest rates in the current year.The effective tax rate for the quarter ended March 31,2024 was 22.2%compared to 24.9%for the same period in fiscal 2023.The decrease was primarily dueto electing an alternative tax approach in a certain foreign jurisdiction that resulted in a tax benefit in the second quarter of fiscal 2024(approximately 300 basispoints).For the two quarters ended March 31,2024 compared with the two quarters ended April 2,2023Interest income and other,net increased$38 million and interest expense increased$15 million,both primarily due to higher interest rates in the current year.The effective tax rate for the first two quarters ended March 31,2024 was 24.2%compared to 24.8%for the same period in fiscal 2023.The decrease was dueto electing an alternative tax approach in a certain foreign jurisdiction that resulted in a tax benefit in the second quarter of fiscal 2024(approximately 130 basispoints),partially offset by the accrual of foreign withholding taxes related to the current year earnings of certain foreign subsidiaries(approximately 60 basispoints).33Table of ContentsSegment InformationResults of operations by segment(in millions):North America Quarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023$ChangeMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023$ChangeMar 31,2024Apr 2,2023As a%of North AmericaTotal Net RevenuesAs a%of North AmericaTotal Net RevenuesNet revenues:Company-operatedstores$5,724.5$5,742.7$(18.2)89.7.0%$12,105.7$11,613.2$492.5 89.7.8%Licensed stores654.8 637.4 17.4 10.3 10.0 1,392.7 1,317.4 75.3 10.3 10.2 Other0.7 0.5 0.2 0.0 0.0 2.3 1.2 1.1 0.0 0.0 Total net revenues6,380.0 6,380.6(0.6)100.0 100.0 13,500.7 12,931.8 568.9 100.0 100.0 Product anddistribution costs1,767.7 1,821.7(54.0)27.7 28.6 3,791.6 3,739.3 52.3 28.1 28.9 Store operatingexpenses3,037.4 2,951.6 85.8 47.6 46.3 6,185.1 5,983.0 202.1 45.8 46.3 Other operatingexpenses67.1 63.4 3.7 1.1 1.0 144.5 128.9 15.6 1.1 1.0 Depreciation andamortization expenses257.1 226.3 30.8 4.0 3.5 507.5 443.1 64.4 3.8 3.4 General andadministrativeexpenses102.4 91.2 11.2 1.6 1.4 202.9 193.5 9.4 1.5 1.5 Restructuring andimpairments 8.5(8.5)0.1 13.6(13.6)0.1 Total operatingexpenses5,231.7 5,162.7 69.0 82.0 80.9 10,831.6 10,501.4 330.2 80.2 81.2 Operating income$1,148.3$1,217.9$(69.6)18.0.1%$2,669.1$2,430.4$238.7 19.8.8%Store operating expenses as a%ofcompany-operated stores revenue53.1Q.4Q.1Q.5%For the quarter ended March 31,2024 compared with the quarter ended April 2,2023RevenuesNorth America total net revenues for the second quarter of fiscal 2024 were nearly flat when compared to the prior year period,primarily due to a 3creasein comparable store sales($178 million)driven by a 7crease in comparable transactions,partially offset by a 4%increase in average ticket,primarily dueto annualization of pricing and a mix shift to cold beverages.This comparable store sales decrease was partially offset by performance of net new company-operated store openings over the past 12 months($160 million),as well as higher product and equipment sales to,and royalty revenues from,our licensees($14 million).Operating MarginNorth America operating income for the second quarter of fiscal 2024 decreased 6%to$1.1 billion,compared to$1.2 billion in the second quarter of fiscal2023.Operating margin decreased 110 basis points to 18.0%,primarily due to deleverage(approximately 190 basis points),increased investments in storepartner wages and benefits(approximately 140 basis points),and increased promotional activity(approximately 90 basis points),partially offset by strategicpricing(approximately 200 basis points)and in-store operational efficiencies(approximately 180 basis points).34Table of ContentsFor the two quarters ended March 31,2024 compared with the two quarters ended April 2,2023RevenuesNorth America total net revenues for the first two quarters of fiscal 2024 increased$569 million,or 4%,primarily due to net new company-operated storeopenings over the past 12 months($382 million)and a 1%increase in comparable store sales($110 million)driven by a 4%increase in average ticket,primarily due to annualization of pricing.This was partially offset by a 3crease in comparable transactions.Also contributing to these increases werehigher product and equipment sales to,and royalty revenues from,our licensees($63 million).Operating MarginNorth America operating income for the first two quarters of fiscal 2024 increased 10%to$2.7 billion,compared to$2.4 billion in the first two quarters offiscal 2023.Operating margin increased 100 basis points to 19.8%,primarily driven by in-store operational efficiencies(approximately 220 basis points)andstrategic pricing(approximately 180 basis points),partially offset by increased investments in store partner wages and benefits(approximately 130 basispoints)and increased promotional activity(approximately 70 basis points).International Quarter EndedTwo Quarters Ended Mar 31,2024Apr 2,2023$ChangeMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023$ChangeMar 31,2024Apr 2,2023As a%of InternationalTotal Net RevenuesAs a%of InternationalTotal Net RevenuesNet revenues:Company-operatedstores$1,328.1$1,399.6$(71.5)75.6u.5%$2,702.2$2,612.5$89.7 75.0s.9%Licensed stores399.7 432.1(32.4)22.7 23.3 853.9 871.6(17.7)23.7 24.7 Other29.5 23.1 6.4 1.7 1.2 47.5 50.8(3.3)1.3 1.4 Total net revenues1,757.3 1,854.8(97.5)100.0 100.0 3,603.6 3,534.9 68.7 100.0 100.0 Product anddistribution costs619.8 632.9(13.1)35.3 34.1 1,286.4 1,226.5 59.9 35.7 34.7 Store operatingexpenses686.7 684.4 2.3 39.1 36.9 1,390.5 1,318.3 72.2 38.6 37.3 Other operatingexpenses50.0 49.9 0.1 2.8 2.7 110.1 100.6 9.5 3.1 2.8 Depreciation andamortization expenses84.3 86.3(2.0)4.8 4.7 168.3 167.7 0.6 4.7 4.7 General andadministrativeexpenses82.9 87.4(4.5)4.7 4.7 173.3 167.9 5.4 4.8 4.7 Total operatingexpenses1,523.7 1,540.9(17.2)86.7 83.1 3,128.6 2,981.0 147.6 86.8 84.3 Income from equityinvestees0.2 0.8(0.6)0.0 0.0 0.3 1.2(0.9)0.0 0.0 Operating income$233.8$314.7$(80.9)13.3.0%$475.3$555.1$(79.8)13.2.7%Store operating expenses as a%of company-operated stores revenue51.7H.9Q.5P.5%For the quarter ended March 31,2024 compared with the quarter ended April 2,2023RevenuesInternational total net revenues for the second quarter of fiscal 2024 decreased$98 million,or 5%,primarily due to unfavorable foreign currency translationimpacts($102 million),as well as a 6cline in comparable store sales($75 million),driven by a 3cline in comparable transactions and a 3cline inaverage ticket.Also contributing to the decline in international total net revenues were lower product and equipment sales to,and royalty revenues from,ourlicensees($25 million),largely driven35Table of Contentsby disruptions due to multiple international conflicts.These decreases were partially offset by 974 net new company-operated store openings,or a 12%increase,over the past 12 months($95 million).Operating MarginInternational operating income for the second quarter of fiscal 2024 decreased to$234 million,compared to$315 million in the second quarter of fiscal 2023.Operating margin decreased 370 basis points to 13.3%,primarily due to increased promotional activity(approximately 220 basis points),increased investmentsin store partner wages and benefits(approximately 130 basis points),and sales mix shift(approximately 90 basis points),partially offset by pricing in certainmarkets(approximately 100 basis points).For the two quarters ended March 31,2024 compared with the two quarters ended April 2,2023RevenuesInternational total net revenues for the first two quarters of fiscal 2024 increased$69 million,or 2%,primarily due to 974 net new company-operated storeopenings,or a 12%increase,over the past 12 months($199 million).This increase was partially offset by unfavorable foreign currency translation impacts($130 million).Operating MarginInternational operating income for the first two quarters of fiscal 2024 decreased to$475 million,compared to$555 million for the same period in fiscal 2023.Operating margin decreased 250 basis points to 13.2%,primarily due to increased promotional activity(approximately 190 basis points),increased investmentsin store partner wages and benefits(approximately 120 basis points),and sales mix shift(approximately 80 basis points).These decreases were partially offsetby leverage(approximately 120 basis points)and pricing in certain markets(approximately 70 basis points).Channel Development Quarter EndedTwo Quarters Ended Mar 31,2024Apr 2,2023$ChangeMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023$ChangeMar 31,2024Apr 2,2023As a%of ChannelDevelopmentTotal Net RevenuesAs a%of ChannelDevelopmentTotal Net RevenuesNet revenues$418.2$480.7$(62.5)$866.2$958.9$(92.7)Product anddistribution costs252.6 345.6(93.0)60.4q.9S1.5 639.8(108.3)61.4f.7%Other operatingexpenses15.2 12.8 2.4 3.6 2.7 28.0 25.8 2.2 3.2 2.7 Depreciation andamortization expenses 0.1(0.1)0.0 General andadministrativeexpenses1.9 2.1(0.2)0.5 0.4 4.2 4.1 0.1 0.5 0.4 Total operatingexpenses269.7 360.5(90.8)64.5 75.0 563.7 669.8(106.1)65.1 69.9 Income from equityinvestees67.8 50.6 17.2 16.2 10.5 123.5 108.0 15.5 14.3 11.3 Gain from sale ofassets 91.3(91.3)19.0 91.3(91.3)9.5 Operatingincome$216.3$262.1$(45.8)51.7T.5%$426.0$488.4$(62.4)49.2P.9%For the quarter ended March 31,2024 compared with the quarter ended April 2,2023RevenuesChannel Development total net revenues for the second quarter of fiscal 2024 decreased$63 million,or 13%,primarily due to a decline in revenue in theGlobal Coffee Alliance($59 million),following the sale of our Seattles Best Coffee brand to Nestl in the second quarter of fiscal 2023 as well as productSKU optimization.36Table of ContentsOperating MarginChannel Development operating income for the second quarter of fiscal 2024 decreased 17%to$216 million,compared to$262 million in the second quarterof fiscal 2023.Operating margin decreased 280 basis points to 51.7%,primarily driven by lapping the gain from the sale of our Seattles Best Coffee brand inthe second quarter of fiscal 2023(approximately 1,900 basis points),partially offset by growth in our North American Coffee Partnership joint venture income(approximately 570 basis points),mix shift(approximately 510 basis points),lapping impairment charges against certain manufacturing assets in the secondquarter of fiscal 2023(approximately 350 basis points),and lower product costs related to the Global Coffee Alliance(approximately 240 basis points).For the two quarters ended March 31,2024 compared with the two quarters ended April 2,2023RevenuesChannel Development total net revenues for the first two quarters of fiscal 2024 decreased$93 million,or 10%,primarily due to a decline in revenue in theGlobal Coffee Alliance($78 million),primarily following the sale of our Seattles Best Coffee brand to Nestl in the second quarter of fiscal 2023 as well asproduct SKU optimization,and lower revenue in our global ready-to-drink business($21 million).Operating MarginChannel Development operating income for the first two quarters of fiscal 2024 decreased 13%to$426 million,compared to$488 million for the same periodin fiscal 2023.Operating margin decreased 170 basis points to 49.2%,primarily due to lapping the gain from the sale of our Seattles Best Coffee brand in thesecond quarter of fiscal 2023(approximately 950 basis points),partially offset by mix shift(approximately 440 basis points)and growth in our North AmericanCoffee Partnership joint venture income(approximately 300 basis points).Corporate and Other Quarter EndedTwo Quarters EndedMar 31,2024Apr 2,2023$Change%ChangeMar 31,2024Apr 2,2023$Change%ChangeNet revenues:Other$7.5$3.7$3.8 102.7%$17.8$8.2$9.6 117.1%Total net revenues7.5 3.7 3.8 102.7 17.8 8.2 9.6 117.1 Product and distribution costs8.6 1.5 7.1 473.3 19.7 6.3 13.4 212.7 Other operating expenses0.5 0.1 0.4 400.0 0.6 0.1 0.5 500.0 Depreciation and amortization expenses30.5 29.3 1.2 4.1 61.4 58.1 3.3 5.7 General and administrative expenses467.4 439.7 27.7 6.3 922.2 835.8 86.4 10.3 Restructuring and impairments 0.3(0.3)nm 1.1(1.1)nmTotal operating expenses507.0 470.9 36.1 7.7 1,003.9 901.4 102.5 11.4 Operating loss$(499.5)$(467.2)$(32.3)6.9%$(986.1)$(893.2)$(92.9)10.4%Corporate and Other primarily consists of our unallocated corporate expenses.Unallocated corporate expenses include corporate administrative functions thatsupport the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of theoperating segments.For the quarter ended March 31,2024 compared with the quarter ended April 2,2023Corporate and Other operating loss increased by 7%to$500 million for the second quarter of fiscal 2024 compared to$467 million for the second quarter offiscal 2023.This increase was primarily driven by certain proxy solicitation and advisory services costs($30 million)and incremental investments intechnology in support of Reinvention($22 million).These increases were partially offset by the lapping of a donation to the Starbucks Foundation made in thesecond quarter of fiscal 2023($15 million).For the two quarters ended March 31,2024 compared with the two quarters ended April 2,2023Corporate and Other operating loss increased to$986 million for the first two quarters of fiscal 2024,or 10%,compared to$893 million for the same period infiscal 2023.This increase was primarily driven by incremental investments in technology in support of Reinvention($52 million),certain proxy solicitationand advisory services costs($30 million),and investments in partner wages and benefits($28 million).These increases were partially offset by the lapping of adonation to the Starbucks Foundation made in the second quarter of fiscal 2023($15 million).37Table of ContentsQuarterly Store DataOur store data for the periods presented is as follows:Net stores opened/(closed)and transferred during the period Quarter EndedTwo Quarters EndedStores open as ofMar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023Mar 31,2024Apr 2,2023North AmericaCompany-operated stores112 91 199 131 10,827 10,347 Licensed stores22 10 56 56 7,238 7,135 Total North America134 101 255 187 18,065 17,482 InternationalCompany-operated stores132 174 318 271 9,282 8,308 Licensed stores98 189 340 465 11,604 10,844 Total International230 363 658 736 20,886 19,152 Total Company364 464 913 923 38,951 36,634 Financial Condition,Liquidity and Capital ResourcesCash and Investment OverviewOur cash and investments were$3.4 billion as of March 31,2024 and$4.2 billion as of October 1,2023.We actively manage our cash and investments in orderto internally fund operating needs,make scheduled interest and principal payments on our borrowings,fund acquisitions,and return cash to shareholdersthrough common stock cash dividend payments and share repurchases.Our investment portfolio primarily includes highly liquid available-for-sale securities,including corporate debt securities,government treasury securities(domestic and foreign),and commercial paper,as well as principal-protected structureddeposits.As of March 31,2024,approximately$2.0 billion of cash and short-term investments were held in foreign subsidiaries.Borrowing CapacityRevolving Credit FacilityOur$3.0 billion unsecured five-year revolving credit facility(the“2021 credit facility”),of which$150.0 million may be used for issuances of letters of credit,is currently set to mature on September 16,2026.The 2021 credit facility is available for working capital,capital expenditures,and other corporate purposes,including acquisitions and share repurchases.We have the option,subject to negotiation and agreement with the related banks,to increase the maximumcommitment amount by an additional$1.0 billion.Borrowings under the 2021 credit facility,which was most recently amended in April 2023,will bear interest at a variable rate based on Term SOFR,and,forU.S.dollar-denominated loans under certain circumstances,a Base Rate(as defined in the 2021 credit facility),in each case plus an applicable margin.Theapplicable margin is based on the Companys long-term credit ratings assigned by the Moodys and Standard&Poors rating agencies.The“Base Rate”is thehighest of(i)the Federal Funds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americas prime rate,and(iii)Term SOFR plus 1.000%.Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plus a SOFR Adjustment of 0.100%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants,including a minimum fixed charge coverage ratio,which measures our ability to cover financing expenses.As of March 31,2024,we were in compliance with all applicable covenants.No amounts wereoutstanding under our 2021 credit facility as of March 31,2024 or October 1,2023.Commercial PaperUnder our commercial paper program,we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0billion,with individual maturities that may vary but not exceed 397 days from the date of issue.Amounts outstanding under the commercial paper program arerequired to be backstopped by available commitments under our 2021 credit facility.The proceeds from borrowings under our commercial paper program maybe used for working capital needs,capital expenditures,and other corporate purposes,including,but not limited to,business expansion,payment of cashdividends on our common stock,and share repurchases.No amounts were outstanding under our commercial paper program as38Table of Contentsof March 31,2024 and October 1,2023.Our total available contractual borrowing capacity for general corporate purposes was$3.0 billion as of the end of oursecond quarter of fiscal 2024.Credit Facilities in JapanAdditionally,we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within ourJapanese market.A 5.0 billion,or$33.0 million,credit facility is currently set to mature on December 30,2024.Borrowings under this credit facility are subject toterms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%.A 10.0 billion,or$66.1 million,credit facility is currently set to mature on March 27,2025.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.As of March 31,2024,we had 5.0 billion,or$33.0 million,of borrowings outstanding under these credit facilities.As of October 1,2023,we had 5.0 billion,or$33.5 million,of borrowings outstanding under these credit facilities.See Note 8,Debt,to the consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt.Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indenturesunder which the long-term notes were issued.As of March 31,2024,we were in compliance with all applicable covenants.Use of CashWe expect to use our available cash and investments,including,but not limited to,additional potential future borrowings under the credit facilities,commercialpaper program,and the issuance of debt to support and invest in our core businesses,including investing in new ways to serve our customers and supportingour store partners,repaying maturing debts,returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases,and investing in new business opportunities related to our core and developing businesses.Furthermore,we may use our available cash resources to makeproportionate capital contributions to our investees.We may also seek strategic acquisitions to leverage existing capabilities and further build our business.Acquisitions may include increasing our ownership interests in our investees.Any decisions to increase such ownership interests will be driven by valuationand fit with our ownership strategy.We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally,combined with ourability to leverage our balance sheet through the issuance of debt,will be sufficient to finance capital requirements for our core businesses as well asshareholder distributions for at least the next 12 months.We are currently not aware of any trends or demands,commitments,events,or uncertainties that willresult in,or that are reasonably likely to result in,our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyondthe next 12 months.We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates;however,additional borrowingswould result in increased interest expense in the future.In this regard,we may incur additional debt,within targeted levels,as part of our plans to fund ourcapital programs,including cash returns to shareholders through future dividends and discretionary share repurchases,refinancing debt maturities,as well asinvesting in new business opportunities.If necessary,we may pursue additional sources of financing,including both short-term and long-term borrowings anddebt issuances.We regularly review our cash positions and our determination of partial indefinite reinvestment of foreign earnings.In the event we determine that all oranother portion of such foreign earnings are no longer indefinitely reinvested,we may be subject to additional foreign withholding taxes,which could bematerial.Any foreign earnings that are not indefinitely reinvested may be repatriated at managements discretion.In anticipation of repatriation of current yearearnings of certain foreign subsidiaries,we accrued approximately$11 million for foreign withholding taxes during the first two quarters of fiscal year 2024.During the second quarter of fiscal 2024,our Board of Directors approved a quarterly cash dividend to shareholders of$0.57 per share to be paid on May 31,2024 to shareholders of record as of the close of business on May 17,2024.During the two quarters ended March 31,2024,we repurchased 12.8 million shares of common stock for$1,250.1 million on the open market.As of March 31,2024,29.8 million shares remained available for repurchase under current authorizations.Other than normal operating expenses,cash requirements for the remainder of fiscal 2024 are expected to consist primarily of capital expenditures forinvestments in our new and existing stores,our supply chain,and corporate facilities.Total capital expenditures for fiscal 2024 are expected to beapproximately$3.0 billion.39Table of ContentsIn the MD&A included in the 10-K,we disclosed that we had$33.9 billion of current and long-term material cash requirements as of October 1,2023.Therehave been no material changes to our material cash requirements during the period covered by this 10-Q outside of the normal course of our business.Cash FlowsNet cash provided by operating activities was$2.9 billion for the first two quarters of fiscal 2024,compared to$2.4 billion for the same period in fiscal 2023.The change was primarily due to an increase in net cash provided by changes in operating assets and liabilities,an increase in non-cash lease costs,and lappingthe gain on sale of assets from the prior year sale of Seattles Best Coffee brand to Nestl.Net cash used in investing activities totaled$1.3 billion for the first two quarters of fiscal 2024,compared to$907.0 million for the same period in fiscal 2023.The change was primarily due to an increase in capital expenditures,purchases of investments,and lapping the proceeds from sale of assets from the prior yearsale of Seattles Best Coffee brand to Nestl,partially offset by an increase in maturities and calls of investments.Net cash used in financing acti
2024-05-08
48页
5星级
Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,DC 20549FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended December 31,2023OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to .Commission File Number:000-20322Starbucks Corporation(Exact Name of Registrant as Specified in its Charter)Washington91-1325671(State or Other Jurisdiction ofIncorporation or Organization)(IRS EmployerIdentification No.)2401 Utah Avenue South,Seattle,Washington 98134(Address of principal executive offices,zip code)(206)447-1575(Registrants Telephone Number,including Area Code)Securities registered pursuant to Section 12(b)of the Act:TitleTrading SymbolName of each exchange on which registeredCommon Stock,par value$0.001 per shareSBUXNasdaq Global Select MarketIndicate by check mark whether the registrant:(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes x No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit suchfiles).Yes x No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,smaller reporting company,or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerxAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act):Yes No x Indicate the number of shares outstanding of each of the issuers classes of common stock,as of the latest practicable date.Shares Outstanding as of January 24,20241,132.2 millionTable of ContentsSTARBUCKS CORPORATIONFORM 10-QFor the Quarterly Period Ended December 31,2023Table of Contents PART I.FINANCIAL INFORMATIONItem 1Financial Statements(Unaudited)3Consolidated Statements of Earnings3Consolidated Statements of Comprehensive Income4Consolidated Balance Sheets5Consolidated Statements of Cash Flows6Consolidated Statements of Equity7Index for Notes to Consolidated Financial Statements8Notes to Consolidated Financial Statements9Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations24Item 3Quantitative and Qualitative Disclosures About Market Risk34Item 4Controls and Procedures35PART II.OTHER INFORMATIONItem 1Legal Proceedings36Item 1ARisk Factors36Item 2Unregistered Sales of Equity Securities and Use of Proceeds36Item 3Defaults Upon Senior Securities36Item 4Mine Safety Disclosures36Item 5Other Information36Item 6Exhibits38Signatures39 Table of ContentsPART I FINANCIAL INFORMATIONItem 1.Financial StatementsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EARNINGS(in millions,except per share data)(unaudited)Quarter EndedDec 31,2023Jan 1,2023Net revenues:Company-operated stores$7,755.2$7,083.5 Licensed stores1,192.1 1,119.5 Other478.0 510.9 Total net revenues9,425.3 8,713.9 Product and distribution costs2,980.6 2,810.2 Store operating expenses3,851.5 3,665.3 Other operating expenses150.4 129.3 Depreciation and amortization expenses365.3 327.1 General and administrative expenses648.0 580.9 Restructuring and impairments 5.8 Total operating expenses7,995.8 7,518.6 Income from equity investees55.9 57.8 Operating income1,485.4 1,253.1 Interest income and other,net33.8 11.6 Interest expense(140.1)(129.7)Earnings before income taxes1,379.1 1,135.0 Income tax expense354.7 279.8 Net earnings including noncontrolling interests1,024.4 855.2 Net earnings attributable to noncontrolling interests0.0 0.0 Net earnings attributable to Starbucks$1,024.4$855.2 Earnings per share-basic$0.90$0.74 Earnings per share-diluted$0.90$0.74 Weighted average shares outstanding:Basic1,136.6 1,148.5 Diluted1,140.6 1,152.9 See Notes to Consolidated Financial Statements.3Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in millions,unaudited)Quarter EndedDec 31,2023Jan 1,2023Net earnings including noncontrolling interests$1,024.4$855.2 Other comprehensive income/(loss),net of tax:Unrealized holding gains/(losses)on available-for-sale debt securities5.6 2.0 Tax(expense)/benefit(1.4)(0.5)Unrealized gains/(losses)on cash flow hedging instruments35.4(180.7)Tax(expense)/benefit(1.8)29.5 Unrealized gains/(losses)on net investment hedging instruments(25.2)(64.6)Tax(expense)/benefit6.3 16.3 Translation adjustment and other183.1 208.9 Tax(expense)/benefit(4.7)Reclassification adjustment for net(gains)/losses realized in net earnings for available-for-sale debt securities,hedging instruments,and translation adjustment24.9(98.4)Tax expense/(benefit)(1.8)11.8 Other comprehensive income/(loss)220.4(75.7)Comprehensive income including noncontrolling interests1,244.8 779.5 Comprehensive income attributable to noncontrolling interests0.2 Comprehensive income attributable to Starbucks$1,244.6$779.5 See Notes to Consolidated Financial Statements.4Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED BALANCE SHEETS(in millions,except per share data)(unaudited)Dec 31,2023Oct 1,2023ASSETSCurrent assets:Cash and cash equivalents$3,000.4$3,551.5 Short-term investments383.0 401.5 Accounts receivable,net1,165.1 1,184.1 Inventories1,646.3 1,806.4 Prepaid expenses and other current assets374.7 359.9 Total current assets6,569.5 7,303.4 Long-term investments239.8 247.4 Equity investments401.0 439.9 Property,plant and equipment,net7,611.7 7,387.1 Operating lease,right-of-use asset8,638.6 8,412.6 Deferred income taxes,net1,769.4 1,769.8 Other long-term assets531.1 546.5 Other intangible assets115.8 120.5 Goodwill3,302.8 3,218.3 TOTAL ASSETS$29,179.7$29,445.5 LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIT)Current liabilities:Accounts payable$1,460.7$1,544.3 Accrued liabilities2,326.9 2,145.1 Accrued payroll and benefits648.5 828.3 Current portion of operating lease liability1,309.4 1,275.3 Stored value card liability and current portion of deferred revenue2,199.8 1,700.2 Short-term debt349.5 33.5 Current portion of long-term debt1,100.8 1,818.6 Total current liabilities9,395.6 9,345.3 Long-term debt13,564.8 13,547.6 Operating lease liability8,139.0 7,924.8 Deferred revenue6,129.0 6,101.8 Other long-term liabilities560.2 513.8 Total liabilities37,788.6 37,433.3 Shareholders deficit:Common stock($0.001 par value)authorized,2,400.0 shares;issued and outstanding,1,132.2 and 1,142.6 shares,respectively1.1 1.1 Additional paid-in capital38.2 38.1 Retained deficit(8,097.5)(7,255.8)Accumulated other comprehensive income/(loss)(557.8)(778.2)Total shareholders deficit(8,616.0)(7,994.8)Noncontrolling interests7.1 7.0 Total deficit(8,608.9)(7,987.8)TOTAL LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIT)$29,179.7$29,445.5 See Notes to Consolidated Financial Statements.5Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in millions,unaudited)Quarter EndedDec 31,2023Jan 1,2023OPERATING ACTIVITIES:Net earnings including noncontrolling interests$1,024.4$855.2 Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization384.4 342.5 Deferred income taxes,net26.1 15.8 Income earned from equity method investees(59.0)(56.9)Distributions received from equity method investees105.2 45.7 Stock-based compensation94.8 85.2 Non-cash lease costs278.0 263.7 Loss on retirement and impairment of assets28.3 21.1 Other17.8 6.7 Cash provided by/(used in)changes in operating assets and liabilities:Accounts receivable42.3 42.0 Inventories174.3 108.5 Income taxes payable189.6 147.6 Accounts payable(95.8)(117.3)Deferred revenue508.5 461.0 Operating lease liability(290.5)(281.4)Other operating assets and liabilities(44.5)(346.2)Net cash provided by operating activities2,383.9 1,593.2 INVESTING ACTIVITIES:Purchases of investments(217.1)(10.5)Sales of investments 0.8 Maturities and calls of investments253.5 253.3 Additions to property,plant and equipment(595.9)(516.8)Other(9.3)(6.1)Net cash used in investing activities(568.8)(279.3)FINANCING ACTIVITIES:Net(payments)/proceeds from issuance of commercial paper300.0(175.0)Net proceeds from issuance of short-term debt49.1 Repayments of short-term debt(33.8)Repayments of long-term debt(750.0)Proceeds from issuance of common stock32.3 45.9 Cash dividends paid(648.1)(608.3)Repurchase of common stock(1,266.7)(191.4)Minimum tax withholdings on share-based awards(92.1)(79.0)Net cash used in financing activities(2,409.3)(1,007.8)Effect of exchange rate changes on cash and cash equivalents43.1 62.0 Net increase/(decrease)in cash and cash equivalents(551.1)368.1 CASH AND CASH EQUIVALENTS:Beginning of period3,551.5 2,818.4 End of period$3,000.4$3,186.5 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for:Interest,net of capitalized interest$120.1$116.7 Income taxes$143.0$106.2 See Notes to Consolidated Financial Statements.6Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EQUITYFor the Quarter Ended December 31,2023 and January 1,2023(in millions,except per share data,unaudited)Common StockAdditionalPaid-inCapitalRetainedEarnings/(Deficit)AccumulatedOtherComprehensiveIncome/(Loss)ShareholdersEquity/(Deficit)NoncontrollingInterestsTotal SharesAmountBalance,October 1,20231,142.6$1.1$38.1$(7,255.8)$(778.2)$(7,994.8)$7.0$(7,987.8)Net earnings 1,024.4 1,024.4 1,024.4 Other comprehensive income 220.2 220.2 0.2 220.4 Stock-based compensation expense 96.1 96.1 96.1 Exercise of stock options/vesting ofRSUs2.3(75.8)(75.8)(75.8)Sale of common stock0.1 16.2 16.2 16.2 Repurchase of common stock(12.8)(36.4)(1,224.0)(1,260.4)(1,260.4)Cash dividends declared,$0.57 pershare (642.1)(642.1)(642.1)Other 0.2 0.2(0.1)0.1 Balance,December 31,20231,132.2$1.1$38.2$(8,097.5)$(557.8)$(8,616.0)$7.1$(8,608.9)Balance,October 2,20221,147.9$1.1$205.3$(8,449.8)$(463.2)$(8,706.6)$7.9$(8,698.7)Net earnings 855.2 855.2 855.2 Other comprehensive loss (75.7)(75.7)(75.7)Stock-based compensation expense 86.4 86.4 86.4 Exercise of stock options/vesting ofRSUs2.4(44.7)(44.7)(44.7)Sale of common stock0.1 11.6 11.6 11.6 Repurchase of common stock(1.9)(191.4)(191.4)(191.4)Cash dividends declared,$0.53 pershare (608.6)(608.6)(608.6)Balance,January 1,20231,148.5$1.1$67.2$(8,203.2)$(538.9)$(8,673.8)$7.9$(8,665.9)See Notes to Consolidated Financial Statements.7Table of ContentsSTARBUCKS CORPORATIONINDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1Summary of Significant Accounting Policies and Estimates9Note 2Derivative Financial Instruments9Note 3Fair Value Measurements13Note 4Inventories15Note 5Supplemental Balance Sheet and Statement of Earnings Information15Note 6Other Intangible Assets and Goodwill16Note 7Debt17Note 8Leases19Note 9Deferred Revenue20Note 10Equity21Note 11Employee Stock Plans21Note 12Earnings per Share22Note 13Commitments and Contingencies22Note 14Segment Reporting238Table of ContentsSTARBUCKS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)Note 1:Summary of Significant Accounting Policies and EstimatesFinancial Statement PreparationThe unaudited consolidated financial statements as of December 31,2023,and for the quarters ended December 31,2023 and January 1,2023,have beenprepared by Starbucks Corporation under the rules and regulations of the Securities and Exchange Commission(“SEC”).In the opinion of management,thefinancial information for the quarters ended December 31,2023 and January 1,2023 reflects all adjustments and accruals,which are of a normal recurringnature,necessary for a fair presentation of the financial position,results of operations,and cash flows for the interim periods.In this Quarterly Report on Form10-Q(“10-Q”),Starbucks Corporation is referred to as“Starbucks,”the“Company,”“we,”“us,”or“our.”Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes.The financial information as of October 1,2023 is derived from our audited consolidated financial statements and notes for the fiscal year ended October 1,2023(“fiscal 2023”)included in Item 8 in the fiscal 2023 Annual Report on Form 10-K(“10-K”).The information included in this 10-Q should be read inconjunction with the footnotes and managements discussion and analysis of the consolidated financial statements in the 10-K.The results of operations for the quarter ended December 31,2023 are not necessarily indicative of the results of operations that may be achieved for the entirefiscal year ending September 29,2024(“fiscal 2024”).Recent Accounting Pronouncements Not Yet AdoptedIn November 2023,the Financial Accounting Standards Board(“FASB”)issued guidance expanding segment disclosure requirements.The amendmentsrequire enhanced disclosure for certain segment items and required disclosure on how management uses reported measures to assess segment performance.Theamendments do not change how segments are determined,aggregated,or how thresholds are applied to determine reportable segments.We expect to adopt theguidance for the fiscal year ending September 28,2025.We are currently evaluating the expanded disclosure requirements and do not expect the adoption ofthe amendments to have a material impact on our consolidated financial statements.In December 2023,the FASB issued guidance expanding disclosure requirements related to income taxes.The amendments require enhanced jurisdictionaldisclosures for the income tax rate reconciliation and related to cash income taxes paid.Additionally,specific disclosures related to unrecognized tax benefitsand indefinite reinvestment assertions were removed.The amendments are effective for our fiscal year ending September 27,2026.While we are stillevaluating the specific impacts and timing of adoption,we anticipate this guidance will have a significant impact on our annual income tax disclosures.Note 2:Derivative Financial InstrumentsInterest RatesFrom time to time,we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates.We enter intointerest rate swap agreements,including forward-starting interest rate swaps and treasury locks,settled in cash based upon the difference between an agreed-upon benchmark rate and the prevailing benchmark rate at settlement.These agreements are generally settled around the time of the pricing of the related debt.Each derivative agreements gain or loss is recorded in accumulated other comprehensive income(“AOCI”)and is subsequently reclassified to interest expenseover the life of the related debt.To hedge the exposure to changes in the fair value of our fixed-rate debt,we enter into interest rate swap agreements,which are designated as fair value hedges.The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevantbenchmark interest rates are recorded in interest expense.Refer to Note 7,Debt,for additional information on our long-term debt.9Table of ContentsForeign CurrencyTo reduce cash flow volatility from foreign currency fluctuations,we enter into forward and swap contracts to hedge portions of cash flows of anticipatedintercompany royalty payments,inventory purchases,and intercompany borrowing and lending activities.The resulting gains and losses from these derivativesare recorded in AOCI and subsequently reclassified to revenue,product and distribution costs,or interest income and other,net,respectively,when the hedgedexposures affect net earnings.From time to time,we may enter into financial instruments,including,but not limited to,forward and swap contracts or foreign currency-denominated debt,tohedge the currency exposure of our net investments in certain international operations.The resulting gains and losses from these derivatives are recorded inAOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.Gains and losses from thesederivatives representing hedged components excluded from the assessment of effectiveness are amortized over the life of the hedging instrument using asystematic and rational method and recognized in interest expense.Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balancesheet items.Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency-denominated payables andreceivables,and these gains and losses are recorded in interest income and other,net.CommoditiesDepending on market conditions,we may enter into coffee forward contracts,futures contracts,and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts,which are described further in Note 4,Inventories,or our longer-dated forecasted coffee demand where underlying fixed priceand price-to-be-fixed contracts are not yet available.The resulting gains and losses are recorded in AOCI and are subsequently reclassified to product anddistribution costs when the hedged exposure affects net earnings.Depending on market conditions,we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under ourdairy purchase contracts and our forecasted dairy demand.The resulting gains or losses are recorded in AOCI and are subsequently reclassified to product anddistribution costs when the hedged exposure affects net earnings.Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge.Cash flows from hedging transactions areclassified in the same categories as the cash flows from the respective hedged items.For de-designated cash flow hedges in which the underlying transactionsare no longer probable of occurring,the related accumulated derivative gains or losses are recognized in interest income and other,net on our consolidatedstatements of earnings.These derivatives may be accounted for prospectively as non-designated derivatives until maturity,re-designated to new hedgingrelationships,or terminated early.We continue to believe transactions related to our other designated cash flow hedges are probable to occur.To mitigate the price uncertainty of a portion of our future purchases,including diesel fuel and other commodities,we enter into swap contracts,futures,andcollars that are not designated as hedging instruments.The resulting gains and losses are recorded in interest income and other,net to help offset pricefluctuations on our beverage,food,packaging,and transportation costs,which are included in product and distribution costs on our consolidated statements ofearnings.10Table of ContentsGains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to bereclassified into earnings within 12 months,net of tax(in millions):Net Gains/(Losses)Included in AOCINet Gains/(Losses)Expectedto be Reclassified from AOCIinto Earnings within 12MonthsOutstanding Contract/DebtRemaining Maturity(Months)Dec 31,2023Oct 1,2023Cash Flow Hedges:Coffee$11.9$(78.1)$3.2 7Cross-currency swaps(0.1)(0.6)11Dairy(2.0)(1.8)(2.0)8Foreign currency-other11.7 39.6 10.1 33Interest rates(5.8)(6.6)(3.0)0Net Investment Hedges:Cross-currency swaps85.5 87.1 111Foreign currency16.0 16.0 0Foreign currency debt116.2 140.2 3Pre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in othercomprehensive income(“OCI”)and reclassifications from AOCI to earnings(in millions):Quarter EndedGains/(Losses)Recognized inOCI Before ReclassificationsGains/(Losses)Reclassified fromAOCI to EarningsLocation of gain/(loss)Dec 31,2023Jan 1,2023Dec 31,2023Jan 1,2023Cash Flow Hedges:Coffee$64.3$(119.4)$(40.4)$96.7 Product and distribution costsCross-currency swaps(1.6)(11.7)0.6(2.7)Interest expense(2.7)(9.1)Interest income and other,netDairy(1.9)(3.6)(1.6)(1.5)Product and distribution costsForeign currency-other(25.4)(46.0)8.8 8.0 Licensed stores revenue2.8 2.2 Product and distribution costs 0.2 Interest income and other,netInterest rates (1.0)(0.5)Interest expenseNet Investment Hedges:Cross-currency swaps 6.6(14.0)8.9 5.3 Interest expenseForeign currency debt(31.8)(50.6)Gains and losses recognized in earnings relate to components excluded from the assessment of effectiveness.Pre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized inearnings(in millions):Gains/(Losses)Recognized in EarningsLocation of gain/(loss)recognized in earningsQuarter Ended Dec 31,2023Jan 1,2023Non-Designated Derivatives:Foreign currency-otherInterest income and other,net$(2.4)$(11.6)CoffeeInterest income and other,net(5.5)Diesel fuel and other commoditiesInterest income and other,net(0.7)(0.2)Fair Value Hedges:Interest rate swapsInterest expense11.1(1.6)Long-term debt(hedged item)Interest expense(14.3)(3.3)(1)(1)11Table of ContentsNotional amounts of outstanding derivative contracts(in millions):Dec 31,2023Oct 1,2023Coffee$212$266 Cross-currency swaps1,234 1,076 Dairy47 71 Diesel fuel and other commodities9 7 Foreign currency-other1,149 1,164 Interest rate swaps350 1,100 Fair value of outstanding derivative contracts(in millions)including the location of the asset and/or liability on the consolidated balance sheets:Derivative AssetsBalance Sheet LocationDec 31,2023Oct 1,2023Designated Derivative Instruments:Cross-currency swapsPrepaid expenses and other current assets$13.7$Other long-term assets108.5 130.1 DairyPrepaid expenses and other current assets0.1 0.4 Foreign currency-otherPrepaid expenses and other current assets18.0 32.0 Other long-term assets10.7 22.9 Interest rate swapsPrepaid expenses and other current assets 0.4 Non-designated Derivative Instruments:Diesel fuel and other commoditiesPrepaid expenses and other current assets 0.7 Foreign currencyPrepaid expenses and other current assets5.4 7.5 Derivative LiabilitiesBalance Sheet LocationDec 31,2023Oct 1,2023Designated Derivative Instruments:Cross-currency swapsOther long-term liabilities$0.8$DairyAccrued liabilities0.9 1.1 Foreign currency-otherAccrued liabilities7.3 2.0 Other long-term liabilities7.2 Interest rate swapsOther long-term liabilities30.4 41.4 Non-designated Derivative Instruments:DairyAccrued liabilities0.3 Diesel fuel and other commoditiesAccrued liabilities0.4 Foreign currencyAccrued liabilities1.6 0.5 Other long-term liabilities 1.8 The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedgingrelationships(in millions):Carrying amount of hedged itemCumulative amount of fair value hedging adjustmentincluded in the carrying amountDec 31,2023Oct 1,2023Dec 31,2023Oct 1,2023Location on the balance sheetLong-term debt$324.2$1,060.0$(25.8)$(40.0)Balance as of October 1,2023 includes$750 million in Senior Notes that matured on October 1,2023 but remained in current portion of long-term debt onthe consolidated balance sheet as the debt repayment was not made until the first day of fiscal 2024.Additional disclosures related to cash flow gains and losses included in AOCI,as well as subsequent reclassifications to earnings,are included in Note 10,Equity.(1)(1)12Table of ContentsNote 3:Fair Value MeasurementsAssets and liabilities measured at fair value on a recurring basis(in millions):Fair Value Measurements at Reporting Date Using Balance atDecember 31,2023Quoted Prices in ActiveMarkets for Identical Assets(Level 1)Significant OtherObservable Inputs(Level 2)Significant Unobservable Inputs(Level 3)Assets:Cash and cash equivalents$3,000.4$3,000.4$Short-term investments:Available-for-sale debt securitiesCorporate debt securities65.1 65.1 U.S.government treasury securities10.4 10.4 Foreign government obligations4.0 4.0 Mortgage and other asset-backedsecurities0.3 0.3 Total available-for-sale debt securities79.8 10.4 69.4 Structured deposits225.5 225.5 Marketable equity securities77.7 77.7 Total short-term investments383.0 88.1 294.9 Prepaid expenses and other current assets:Derivative assets37.2 37.2 Long-term investments:Available-for-sale debt securitiesCorporate debt securities89.2 78.9 10.3 Mortgage and other asset-backedsecurities50.0 50.0 State and local government obligations1.4 1.4 U.S.government treasury securities99.2 99.2 Total long-term investments239.8 99.2 130.3 10.3 Other long-term assets:Derivative assets119.2 119.2 Structured deposits0.1 0.1 Total assets$3,779.7$3,187.7$581.7$10.3 Liabilities:Accrued liabilities:Derivative liabilities$10.5$10.5$Other long-term liabilities:Derivative liabilities38.4 38.4 Total liabilities$48.9$48.9$13Table of Contents Fair Value Measurements at Reporting Date Using Balance atOctober 1,2023Quoted Prices in ActiveMarkets for IdenticalAssets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs(Level 3)Assets:Cash and cash equivalents$3,551.5$3,551.5$Short-term investments:Available-for-sale debt securitiesCorporate debt securities64.0 64.0 U.S.government treasury securities2.8 2.8 Foreign government obligations3.9 3.9 Total available-for-sale debt securities70.7 2.8 67.9 Structured deposits261.2 261.2 Marketable equity securities69.6 69.6 Total short-term investments401.5 72.4 329.1 Prepaid expenses and other current assets:Derivative assets41.0 41.0 Long-term investments:Available-for-sale debt securitiesCorporate debt securities91.1 91.1 Mortgage and other asset-backed securities50.2 50.2 State and local government obligations1.3 1.3 U.S.government treasury securities104.7 104.7 Total long-term investments247.3 104.7 142.6 Other long-term assets:Derivative assets153.0 153.0 Total assets$4,394.3$3,728.6$665.7$Liabilities:Accrued liabilities:Derivative liabilities$3.6$3.6$Other long-term liabilities:Derivative liabilities43.2 43.2 Total liabilities$46.8$46.8$There were no material transfers between levels,and there was no significant activity within Level 3 instruments during the periods presented.The fair valuesof any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists.Gross unrealized holding gains and losses on available-for-sale debt securities,structured deposits,and marketable equity securities were not material as ofDecember 31,2023 and October 1,2023.Assets and Liabilities Measured at Fair Value on a Nonrecurring BasisAssets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property,plantand equipment,ROU assets,goodwill and other intangible assets,equity and other investments,and other assets.These assets are measured at fair value ifdetermined to be impaired.The estimated fair value of our long-term debt based on the quoted market price(Level 2)is included at Note 7,Debt.There were no material fair valueadjustments during the quarter ended December 31,2023 and January 1,2023.14Table of ContentsNote 4:Inventories(in millions):Dec 31,2023Oct 1,2023Coffee:Unroasted$632.7$747.7 Roasted251.2 280.3 Other merchandise held for sale361.5 364.6 Packaging and other supplies400.9 413.8 Total$1,646.3$1,806.4 Other merchandise held for sale includes,among other items,serveware,food,and tea.Inventory levels vary due to seasonality,commodity market supply,andprice fluctuations.As of December 31,2023,we had committed to purchasing green coffee totaling$396.4 million under fixed-price contracts and an estimated$843.7 millionunder price-to-be-fixed contracts.A portion of our price-to-be-fixed contracts are effectively fixed through the use of futures.See Note 2,Derivative FinancialInstruments,for further discussion.Price-to-be-fixed contracts are purchase commitments whereby the quality,quantity,delivery period,and other negotiatedterms are agreed upon,but the date,and therefore the price,at which the base“C”coffee commodity price component will be fixed has not yet beenestablished.For most contracts,either Starbucks or the seller has the option to“fix”the base“C”coffee commodity price prior to the delivery date.For othercontracts,Starbucks and the seller may agree upon pricing parameters determined by the base“C”coffee commodity price.Until prices are fixed,we estimatethe total cost of these purchase commitments.We believe,based on established relationships with our suppliers and continuous monitoring,the risk of non-delivery on these purchase commitments is remote.Note 5:Supplemental Balance Sheet and Statement of Earnings Information(in millions):Property,Plant and Equipment,netDec 31,2023Oct 1,2023Land$46.1$46.1 Buildings678.4 666.5 Leasehold improvements10,321.7 10,133.7 Store equipment3,432.6 3,332.5 Roasting equipment886.7 859.4 Furniture,fixtures and other1,717.4 1,664.5 Work in progress610.3 607.5 Property,plant and equipment,gross17,693.2 17,310.2 Accumulated depreciation(10,081.5)(9,923.1)Property,plant and equipment,net$7,611.7$7,387.1 Accrued LiabilitiesDec 31,2023Oct 1,2023Accrued occupancy costs$84.7$86.7 Accrued dividends payable645.2 651.2 Accrued capital and other operating expenditures745.9 771.7 Insurance reserves251.0 233.5 Income taxes payable374.6 189.3 Accrued business taxes225.5 212.7 Total accrued liabilities$2,326.9$2,145.1 15Table of ContentsStore Operating ExpensesQuarter EndedDec 31,2023Jan 1,2023Wages and benefits$2,209.3$2,215.7 Occupancy costs745.7 671.5 Other expenses896.5 778.1 Total store operating expenses$3,851.5$3,665.3 Note 6:Other Intangible Assets and GoodwillIndefinite-Lived Intangible Assets(in millions)Dec 31,2023Oct 1,2023Trade names,trademarks and patents$79.5$79.4 Finite-Lived Intangible AssetsDec 31,2023Oct 1,2023(in millions)Gross CarryingAmountAccumulatedAmortizationNet CarryingAmountGross CarryingAmountAccumulatedAmortizationNet CarryingAmountAcquired and reacquired rights$990.6$(990.6)$957.6$(957.6)$Acquired trade secrets and processes27.6(27.6)27.6(27.6)Trade names,trademarks and patents131.1(96.7)34.4 131.0(91.9)39.1 Licensing agreements13.8(11.9)1.9 13.0(11.0)2.0 Other finite-lived intangible assets20.6(20.6)20.1(20.1)Total finite-lived intangible assets$1,183.7$(1,147.4)$36.3$1,149.3$(1,108.2)$41.1 Amortization expense for finite-lived intangible assets was$5.1 million for the quarter ended December 31,2023 and$5.6 million for the quarter endedJanuary 1,2023.Estimated future amortization expense as of December 31,2023(in millions):Fiscal YearTotal2024(excluding the quarter ended December 31,2023)$14.9 202514.1 20262.1 20271.8 20281.2 Thereafter2.2 Total estimated future amortization expense$36.3 GoodwillChanges in the carrying amount of goodwill by reportable operating segment(in millions):North AmericaInternationalChannel DevelopmentCorporate and OtherTotalGoodwill balance at October 1,2023$491.5$2,691.1$34.7$1.0$3,218.3 Other0.5 84.0 84.5 Goodwill balance at December 31,2023$492.0$2,775.1$34.7$1.0$3,302.8“Other”consists of changes in the goodwill balance resulting from foreign currency translation.(1)(1)16Table of ContentsNote 7:DebtRevolving Credit FacilityOur$3.0 billion unsecured five-year revolving credit facility(the“2021 credit facility”),of which$150.0 million may be used for issuances of letters of credit,is currently set to mature on September 16,2026.The 2021 credit facility is available for working capital,capital expenditures,and other corporate purposes,including acquisitions and share repurchases.We have the option,subject to negotiation and agreement with the related banks,to increase the maximumcommitment amount by an additional$1.0 billion.Borrowings under the 2021 credit facility,which was most recently amended in April 2023,will bear interest at a variable rate based on Term SOFR,and,forU.S.dollar-denominated loans under certain circumstances,a Base Rate(as defined in the 2021 credit facility),in each case plus an applicable margin.Theapplicable margin is based on the Companys long-term credit ratings assigned by the Moodys and Standard&Poors rating agencies.The“Base Rate”is thehighest of(i)the Federal Funds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americas prime rate,and(iii)Term SOFR plus 1.000%.Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plus a SOFR Adjustment of 0.100%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants,including a minimum fixed charge coverage ratio,which measures our ability to cover financing expenses.As of December 31,2023,we were in compliance with all applicable covenants.No amounts wereoutstanding under our 2021 credit facility as of December 31,2023 or October 1,2023.Short-term DebtUnder our commercial paper program,we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0billion,with individual maturities that may vary but not exceed 397 days from the date of issue.Amounts outstanding under the commercial paper program arerequired to be backstopped by available commitments under our 2021 credit facility.The proceeds from borrowings under our commercial paper program maybe used for working capital needs,capital expenditures,and other corporate purposes,including,but not limited to,business expansion,payment of cashdividends on our common stock,and share repurchases.As of December 31,2023,we had$300.0 million in borrowings outstanding under the program.As ofOctober 1,2023,we had no borrowings outstanding under this program.Additionally,we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within ourJapanese market:A 5.0 billion,or$35.4 million,credit facility is currently set to mature on December 30,2024.Borrowings under this credit facility are subject toterms defined within the facility and will bear interest at a variable rate based on Tokyo Interbank Offered Rate(“TIBOR”)plus an applicable marginof 0.400%.A 10.0 billion,or$70.7 million,credit facility is currently set to mature on March 27,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.As of December 31,2023,we had 7.0 billion,or$49.5 million,of borrowings outstanding under these credit facilities.As of October 1,2023,we had5.0 billion,or$33.5 million,of borrowings outstanding under these credit facilities.17Table of ContentsLong-term DebtComponents of long-term debt including the associated interest rates and related estimated fair values by calendar maturity(in millions,except interest rates):Dec 31,2023Oct 1,2023Stated Interest RateEffective InterestRateIssuanceAmountEstimated FairValueAmountEstimated FairValueOctober 2023 notes$750.0$749.9 3.850%2.859bruary 2024 notes500.0 500.0 500.0 504.2 5.998%6.229%March 2024 notes601.1 601.0 569.3 569.3 0.372%0.462%August 2025 notes1,250.0 1,227.2 1,250.0 1,210.5 3.800%3.721bruary 2026 notes1,000.0 1,004.6 1,000.0 985.5 4.750%4.788%June 2026 notes500.0 475.5 500.0 463.5 2.450%2.511%March 2027 notes500.0 462.5 500.0 446.1 2.000%2.058%March 2028 notes600.0 575.4 600.0 554.7 3.500%3.529%November 2028 notes750.0 739.5 750.0 704.5 4.000%3.958%August 2029 notes1,000.0 964.1 1,000.0 904.1 3.550%3.840%March 2030 notes750.0 659.1 750.0 615.1 2.250%3.084%November 2030 notes1,250.0 1,105.0 1,250.0 1,027.1 2.550%2.582bruary 2032 notes1,000.0 896.1 1,000.0 828.0 3.000%3.155bruary 2033 notes500.0 510.2 500.0 470.7 4.800%3.798%June 2045 notes350.0 312.8 350.0 275.3 4.300%4.348cember 2047 notes500.0 403.7 500.0 354.0 3.750%3.765%November 2048 notes1,000.0 911.3 1,000.0 799.0 4.500%4.504%August 2049 notes1,000.0 909.8 1,000.0 792.7 4.450%4.447%March 2050 notes500.0 374.6 500.0 328.6 3.350%3.362%November 2050 notes1,250.0 969.4 1,250.0 843.4 3.500%3.528%Total14,801.1 13,601.8 15,519.3 13,426.2 Aggregate debt issuance costs andunamortized premium/(discount),net(109.7)(113.1)Hedge accounting fair value adjustment(25.8)(40.0)Total$14,665.6$15,366.2 Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-startinginterest rate swaps utilized to hedge interest rate risk prior to the debt issuance.Amount includes the change in fair value due to changes in benchmark interest rates related to hedging our October 2023 notes and$350 million of ourAugust 2029 notes.Refer to Note 2,Derivative Financial Instruments,for additional information on our interest rate swap designated as a fair value hedge.Floating rate notes that bear interest at a rate equal to Compounded SOFR(as defined in the February 2024 notes)plus 0.420%,resulting in a statedinterest rate of 5.998%at December 31,2023.Japanese yen-denominated long-term debt.(1)(2)(3)(4)(2)(2)(1)(2)(3)(4)18Table of ContentsThe following table summarizes our long-term debt maturities as of December 31,2023 by fiscal year(in millions):Fiscal YearTotal2024$1,101.1 20251,250.0 20261,500.0 2027500.0 2028600.0 Thereafter9,850.0 Total$14,801.1 Note 8:LeasesThe components of lease costs(in millions):Quarter EndedDec 31,2023Jan 1,2023Operating lease costs$417.4$384.8 Variable lease costs271.9 235.3 Short-term lease costs7.7 7.0 Total lease costs$697.0$627.1 Includes immaterial amounts of sublease income and rent concessions.The following table includes supplemental information(in millions):Quarter EndedDec 31,2023Jan 1,2023Cash paid related to operating lease liabilities$428.6$404.1 Operating lease liabilities arising from obtaining right-of-use assets470.9 367.3 Dec 31,2023Jan 1,2023Weighted-average remaining operating lease term8.6 years8.5 yearsWeighted-average operating lease discount rate3.1%2.7%Finance lease assets are recorded in property,plant and equipment,net with the corresponding lease liabilities included in accrued liabilities and other long-term liabilities on the consolidated balance sheet.There were no material finance leases as of December 31,2023 and October 1,2023.Minimum future maturities of operating lease liabilities(in millions):Fiscal YearTotal2024(excluding the quarter ended December 31,2023)$1,214.9 20251,587.2 20261,465.0 20271,281.1 20281,076.3 Thereafter4,260.5 Total lease payments10,885.0 Less imputed interest(1,436.6)Total$9,448.4 As of December 31,2023,we have entered into operating leases that have not yet commenced of$1.5 billion,primarily related to real estate leases.Theseleases will commence between fiscal year 2024 and fiscal year 2027 with lease terms ranging from two to twenty years.(1)(1)19Table of ContentsNote 9:Deferred RevenueOur deferred revenue primarily consists of the prepaid royalty from Nestl,for which we have continuing performance obligations to support the Global CoffeeAlliance,our unredeemed stored value card liability and unredeemed loyalty points(“Stars”)associated with our loyalty program.As of December 31,2023 and October 1,2023,the current and long-term deferred revenue related to the Nestl up-front payment was$177.0 million and$6.0billion,respectively.During each of the quarters ended December 31,2023 and January 1,2023,we recognized$44.1 million of prepaid royalty revenuerelated to Nestl.Changes in our deferred revenue balance related to our stored value cards and loyalty program(in millions):Quarter Ended December 31,2023TotalStored value cards and loyalty program at October 1,2023$1,567.5 Revenue deferred-card activations,card reloads and Stars earned4,687.2 Revenue recognized-card and Stars redemptions and breakage(4,098.4)Other13.4 Stored value cards and loyalty program at December 31,2023$2,169.7 Quarter Ended January 1,2023TotalStored value cards and loyalty program at October 2,2022$1,503.0 Revenue deferred-card activations,card reloads and Stars earned4,223.4 Revenue recognized-card and Stars redemptions and breakage(3,714.1)Other13.3 Stored value cards and loyalty program at January 1,2023$2,025.6“Other”primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation.As of December 31,2023 and January 1,2023,approximately$2.0 billion and$1.9 billion,respectively,of these amounts were current.(1)(2)(1)(2)(1)(2)20Table of ContentsNote 10:EquityChanges in AOCI by component,net of tax(in millions):Quarter Ended Available-for-SaleDebt Securities Cash FlowHedges Net InvestmentHedgesTranslationAdjustment andOtherTotalDecember 31,2023Net gains/(losses)in AOCI,beginning of period$(12.3)$(47.5)$243.3$(961.7)$(778.2)Net gains/(losses)recognized in OCI before reclassifications4.2 33.6(18.9)178.2 197.1 Net(gains)/losses reclassified from AOCI to earnings0.2 29.6(6.7)23.1 Other comprehensive income/(loss)attributable to Starbucks4.4 63.2(25.6)178.2 220.2 Other comprehensive income/(loss)attributable to NCI 0.2 0.2 Net gains/(losses)in AOCI,end of period$(7.9)$15.7$217.7$(783.3)$(557.8)January 1,2023Net gains/(losses)in AOCI,beginning of period$(15.5)$199.0$209.1$(855.8)$(463.2)Net gains/(losses)recognized in OCI before reclassifications1.5(151.2)(48.3)208.9 10.9 Net(gains)/losses reclassified from AOCI to earnings0.1(82.7)(4.0)(86.6)Other comprehensive income/(loss)attributable to Starbucks1.6(233.9)(52.3)208.9(75.7)Net gains/(losses)in AOCI,end of period$(13.9)$(34.9)$156.8$(646.9)$(538.9)Impact of reclassifications from AOCI on the consolidated statements of earnings(in millions):Quarter EndedAOCIComponentsAmounts Reclassified from AOCIAffected Line Item inthe Statements of EarningsDec 31,2023Jan 1,2023Gains/(losses)on available-for-sale debt securities$(0.3)$(0.2)Interest income and other,netGains/(losses)on cash flow hedges(33.5)93.3 Please refer to Note 2,Derivative Financial Instrumentsfor additional information.Gains/(losses)on net investment hedges8.9 5.3 Interest expense(24.9)98.4 Total before tax1.8(11.8)Tax expense$(23.1)$86.6 Net of taxIn addition to 2.4 billion shares of authorized common stock with$0.001 par value per share,we have 7.5 million shares of authorized preferred stock,none ofwhich was outstanding as of December 31,2023.During the quarters ended December 31,2023 and January 1,2023,we repurchased 12.8 million and 1.9 million shares of common stock on the open marketfor$1,250.1 million and$191.4 million,respectively.As of December 31,2023,29.8 million shares remained available for repurchase under currentauthorizations.During the first quarter of fiscal 2024,our Board of Directors approved a quarterly cash dividend to shareholders of$0.57 per share to be paid on February 23,2024 to shareholders of record as of the close of business on February 9,2024.Note 11:Employee Stock PlansAs of December 31,2023,there were 84.9 million shares of common stock available for issuance pursuant to future equity-based compensation awards and10.1 million shares available for issuance under our employee stock purchase plan.21Table of ContentsStock-based compensation expense recognized in the consolidated statements of earnings(in millions):Quarter Ended Dec 31,2023Jan 1,2023Restricted Stock Units(“RSUs”)$94.8$85.0 Options 0.1 Total stock-based compensation expense$94.8$85.1 Stock option and RSU transactions from October 1,2023 through December 31,2023(in millions):Stock OptionsRSUsOptions outstanding/Nonvested RSUs,October 1,20232.0 7.3 Granted 3.9 Options exercised/RSUs vested(0.4)(2.8)Forfeited/expired(0.2)Options outstanding/Nonvested RSUs,December 31,20231.6 8.2 Total unrecognized stock-based compensation expense,net of estimated forfeitures,as of December 31,2023$380.5 Note 12:Earnings per ShareCalculation of net earnings per common share(“EPS”)basic and diluted(in millions,except EPS):Quarter EndedDec 31,2023Jan 1,2023Net earnings attributable to Starbucks$1,024.4$855.2 Weighted average common shares outstanding(for basic calculation)1,136.6 1,148.5 Dilutive effect of outstanding common stock options and RSUs4.0 4.4 Weighted average common and common equivalent shares outstanding(for diluted calculation)1,140.6 1,152.9 EPS basic$0.90$0.74 EPS diluted$0.90$0.74 Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options(both vested and non-vested)andunvested RSUs,calculated using the treasury stock method.The calculation of dilutive shares outstanding excludes anti-dilutive stock options or unvestedRSUs,which were immaterial in the periods presented.Note 13:Commitments and ContingenciesLegal ProceedingsStarbucks is involved in various legal proceedings arising in the ordinary course of business,including litigation matters associated with labor union organizingefforts and certain employment litigation cases that have been certified as class or collective actions,but is not currently a party to any legal proceeding thatmanagement believes could have a material adverse effect on our consolidated financial position,results of operations,or cash flows.While we are closelymonitoring the operational and financial impacts of labor union organizing efforts on our business,as of the date of this filing,we believe the risk of a materialcontingent loss associated with these litigation matters is remote.Refer to the Risk Factors in Part I,Item 1A of our most recently filed 10-K for furtherdiscussion of potential risks to our brand and related impacts on our financial results.22Table of ContentsNote 14:Segment ReportingSegment information is prepared on the same basis that our chief executive officer,who is our chief operating decision maker,manages the segments,evaluatesfinancial results,and makes key operating decisions.Consolidated revenue mix by product type(in millions):Quarter EndedDec 31,2023Jan 1,2023Beverage$5,695.9 60%$5,173.0 59%Food1,757.1 19%1,565.9 18%Other1,972.3 21%1,975.0 23%Total$9,425.3 100%$8,713.9 100%“Beverage”represents sales within our company-operated stores.“Food”includes sales within our company-operated stores.“Other”primarily consists of packaged and single-serve coffees and teas,royalty and licensing revenues,serveware,and beverage-related ingredients,among other items.The tables below present financial information for our reportable operating segments and Corporate and Other segment(in millions):Quarter EndedNorth AmericaInternationalChannelDevelopmentCorporate andOtherTotalDecember 31,2023Total net revenues$7,120.7$1,846.3$448.0$10.3$9,425.3 Depreciation and amortization expenses250.4 84.1 30.8 365.3 Income from equity investees 0.2 55.7 55.9 Operating income/(loss)$1,520.8$241.5$209.7$(486.6)$1,485.4 January 1,2023Total net revenues$6,551.3$1,680.1$478.2$4.3$8,713.9 Depreciation and amortization expenses216.9 81.5 28.7 327.1 Income from equity investees 0.5 57.3 57.8 Operating income/(loss)$1,212.4$240.4$226.3$(426.0)$1,253.1(1)(2)(3)(1)(2)(3)23Table of ContentsItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsCAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995Certain statements contained herein are“forward-looking”statements within the meaning of applicable securities laws and regulations.Generally,thesestatements can be identified by the use of words such as“aim,”“anticipate,”“believe,”“continue,”“could,”“estimate,”“expect,”“feel,”“forecast,”“intend,”“may,”“outlook,”“plan,”“potential,”“predict,”“project,”“seek,”“should,”“will,”“would,”and similar expressions intended to identifyforward-looking statements,although not all forward-looking statements contain these identifying words.By their nature,forward-looking statements involverisks,uncertainties,and other factors(many beyond our control)that could cause our actual results to differ materially from our historical experience or fromour current expectations or projections.Our forward-looking statements,and the risks and uncertainties related thereto,include,but are not limited to,thosedescribed under the“Risk Factors”and“Managements Discussion and Analysis of Financial Condition and Results of Operations”sections of our mostrecently filed 10-K and 10-Q and in other filings with the SEC,as well as:our ability to preserve,grow,and leverage our brands,including the risk of negative responses by consumers(such as boycotts or negative publicitycampaigns)or governmental actors(such as retaliatory legislative treatment)who object to certain actions taken or not taken by the Company,whichresponses could adversely affect our brand value;the acceptance of the Companys products and changes in consumer preferences,consumption,or spending behavior and our ability to anticipate orreact to them;shifts in demographic or health and wellness trends;or unfavorable consumer reaction to new products,platforms,reformulations,orother innovations;our anticipated operating expenses,including our anticipated total capital expenditures;the costs associated with,and the successful execution and effects of,our existing and any future business opportunities,expansions,initiatives,strategies,investments,and plans,including our Triple Shot Reinvention with Two Pumps Plan(“Reinvention”);the impacts of partner investments and changes in the availability and cost of labor including any union organizing efforts and our responses to suchefforts;the ability of our business partners,suppliers,and third-party providers to fulfill their responsibilities and commitments;higher costs,lower quality,or unavailability of coffee,dairy,energy,water,raw materials,or product ingredients;the impact of significant increases in logistics costs;a worsening in the terms and conditions upon which we engage with our manufacturers and source suppliers,whether resulting from broader local orglobal conditions,or dynamics specific to our relationships with such parties;unfavorable global or regional economic conditions and related economic slowdowns or recessions,low consumer confidence,high unemployment,weak credit or capital markets,budget deficits,burdensome government debt,austerity measures,higher interest rates,higher taxes,politicalinstability,higher inflation,or deflation;inherent risks of operating a global business including geopolitical instability;failure to attract or retain key executive or partner talent or successfully transition executives;the potential negative effects of incidents involving food or beverage-borne illnesses,tampering,adulteration,contamination,or mislabeling;negative publicity related to our Company,products,brands,marketing,executive leadership,partners,Board of Directors,founder,operations,business performance,or prospects;potential negative effects of a material breach,failure,or corruption of our information technology systems or those of our direct and indirectbusiness partners,suppliers,or third-party providers,or failure to comply with personal data protection laws;our environmental,social,and governance(“ESG”)efforts and any reaction related thereto,such as the rise in opposition to ESG and inclusion anddiversity efforts;risks associated with acquisitions,dispositions,business partnerships,or investments such as acquisition integration,termination difficulties orcosts,or impairment in recorded value;the impact of foreign currency translation,particularly a stronger U.S.dollar;the impact of substantial competition from new entrants,consolidations by competitors,and other competitive activities,such as pricing actions(including price reductions,promotions,discounting,couponing,or free goods),marketing,category expansion,product introductions,or entry orexpansion in our geographic markets;the impact of changes in U.S.tax law and related guidance and regulations that may be implemented,including on tax rates;the impact of health epidemics,pandemics,or other public health events on our business and financial results,and the risk of negative economicimpacts and related regulatory measures or voluntary actions that may be put in place,including restrictions on business operations or socialdistancing requirements,and the duration and efficacy of such restrictions;failure to comply with anti-corruption laws,trade sanctions,and restrictions or similar laws or regulations;andthe impact of significant legal disputes and proceedings,or government investigations.In addition,many of the foregoing risks and uncertainties are,or could be,exacerbated by any worsening of the global business and economic environment.Aforward-looking statement is neither a prediction nor a guarantee of future events or circumstances,and those future events or circumstances may not occur.You should not place undue reliance on the forward-24Table of Contentslooking statements,which speak only as of the date of this report.We are under no obligation to update or alter any forward-looking statements,whether as aresult of new information,future events,or otherwise.This information should be read in conjunction with the unaudited consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q andthe audited consolidated financial statements and notes,and Managements Discussion and Analysis of Financial Condition and Results of Operations(“MD&A”),contained in the 10-K filed with the SEC on November 17,2023.25Table of ContentsIntroduction and OverviewStarbucks is the premier roaster,marketer,and retailer of specialty coffee in the world,operating in 86 markets.As of December 31,2023,Starbucks had morethan 38,500 company-operated and licensed stores,an increase of 7%from the prior year.Additionally,we sell a variety of consumer-packaged goods,primarily through the Global Coffee Alliance established with Nestl and other partnerships and joint ventures.We have three reportable operating segments:1)North America,which is inclusive of the U.S.and Canada;2)International,which is inclusive of China,Japan,Asia Pacific,Europe,Middle East,Africa,Latin America,and the Caribbean;and 3)Channel Development.Unallocated corporate expenses are reportedwithin Corporate and Other.We believe our financial results and long-term growth model will continue to be driven by new store openings,comparable store sales growth,and operatingmargin management,underpinned by disciplined capital allocation.We believe these key operating metrics are useful to investors because management usesthese metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.Throughout this MD&A,we commonlydiscuss the following key operating metrics:New store openings and store countComparable store sales growthOperating marginComparable store sales growth represents the percentage change in sales in one period from the same prior year period for company-operated stores open for13 months or longer and excludes the impact of foreign currency translation.We analyze comparable store sales growth on a constant currency basis as thishelps identify underlying business trends,without distortion from the effects of currency movements.Stores that are temporarily closed or operating at reducedhours remain in comparable store sales while stores identified for permanent closure have been removed.Our fiscal year ends on the Sunday closest to September 30.Fiscal 2024 and 2023 include 52 weeks.All references to store counts,including data for new storeopenings,are reported net of store closures,unless otherwise noted.Starbucks results for the first quarter of fiscal 2024 continue to demonstrate the overall strength of our brand and efficiencies realized from Reinvention,despite certain headwinds.Consolidated net revenues increased 8%to$9.4 billion in the first quarter of fiscal 2024 compared to$8.7 billion in the first quarterof fiscal 2023,primarily driven by growth in our North America business and our International segment,largely related to lapping prior year COVID-19pandemic-related business disruptions in China.During the quarter ended December 31,2023,our global comparable store sales grew 5%,primarily driven by5%growth in the U.S.market and 7%growth internationally,demonstrating the endurance of the Starbucks brand globally.Consolidated operating marginincreased 140 basis points from the prior year to 15.8%,primarily driven by sales leverage and in-store operational efficiencies.These increases were partiallyoffset by increased investments in store partner wages and benefits,as well as higher general and administrative expenses,primarily in support of Reinvention.We anticipate these headwinds experienced in the first quarter of fiscal 2024,although transitory,may continue to impact the balance of our fiscal year.Despitethese transitory headwinds,we remain confident in our long-term growth and durable business model,as our Triple Shot Reinvention is unlocking multiplelevers to drive balanced earnings growth,as evidenced in our first quarter of fiscal 2024 results.Results of Operations(in millions)Revenues Quarter EndedDec 31,2023Jan 1,2023$Change%ChangeCompany-operated stores$7,755.2$7,083.5$671.7 9.5%Licensed stores1,192.1 1,119.5 72.6 6.5 Other478.0 510.9(32.9)(6.4)Total net revenues$9,425.3$8,713.9$711.4 8.2%For the quarter ended December 31,2023 compared with the quarter ended January 1,2023Total net revenues for the first quarter of fiscal 2024 increased$711 million,primarily due to higher revenues from company-operated stores($672 million).The growth of company-operated stores revenue was driven by a 5%increase in comparable store sales($369 million),attributable to a 3%increase incomparable transactions and a 2%increase in average ticket.Also contributing to company-operated stores revenue were incremental revenues from 1,475 netnew Starbuckscompany-operated 26Table of Contentsstores,or an 8%increase,over the past 12 months($326 million).Partially offsetting these increases was unfavorable foreign currency translation($30million).Licensed stores revenue increased$73 million contributing to the increase in total net revenues,driven by higher product and equipment sales to and royaltyrevenues from our licensees($64 million),primarily driven by revenues from 942 net new licensed store openings,or a 5%increase,over the past 12 months.Other revenues decreased$33 million,primarily due to a decline in revenue in the Global Coffee Alliance following the sale of our Seattles Best Coffee brandto Nestl in the second quarter of fiscal 2023($19 million)and lower revenue in our global ready-to-drink business($11 million).Operating Expenses Quarter EndedDec 31,2023Jan 1,2023$ChangeDec 31,2023Jan 1,2023As a%ofTotal Net RevenuesProduct and distribution costs$2,980.6$2,810.2$170.4 31.62.2%Store operating expenses3,851.5 3,665.3 186.2 40.9 42.1 Other operating expenses150.4 129.3 21.1 1.6 1.5 Depreciation and amortization expenses365.3 327.1 38.2 3.9 3.8 General and administrative expenses648.0 580.9 67.1 6.9 6.7 Restructuring and impairments 5.8(5.8)0.1 Total operating expenses7,995.8 7,518.6 477.2 84.8 86.3 Income from equity investees55.9 57.8(1.9)0.6 0.7 Operating income$1,485.4$1,253.1$232.3 15.8.4%Store operating expenses as a%of company-operated stores revenue49.7Q.7%For the quarter ended December 31,2023 compared with the quarter ended January 1,2023Product and distribution costs as a percentage of total net revenues decreased 60 basis points for the first quarter of fiscal 2024,primarily due to the impact ofincreased sales from pricing.Store operating expenses as a percentage of total net revenues decreased 120 basis points for the first quarter of fiscal 2024.Store operating expenses as apercentage of company-operated stores revenue decreased 200 basis points,primarily due to in-store operational efficiencies(approximately 210 basis points),and sales leverage(approximately 160 basis points).These were partially offset by increased investments in store partner wages and benefits(approximately130 basis points).Other operating expenses increased$21 million,primarily due to support costs in wages and benefits and marketing for our growing licensed markets.Depreciation and amortization expenses as a percentage of total net revenues increased 10 basis points,primarily due to higher capital investments in supportof our retail stores.General and administrative expenses increased$67 million,primarily due to investments in partner wages and benefits($33 million)and incrementalinvestments in technology in support of our Reinvention($32 million).The combination of these changes resulted in an overall increase in operating margin of 140 basis points for the first quarter of fiscal 2024.27Table of ContentsOther Income and Expenses Quarter EndedDec 31,2023Jan 1,2023$ChangeDec 31,2023Jan 1,2023As a%of TotalNet RevenuesOperating income$1,485.4$1,253.1$232.3 15.8.4%Interest income and other,net33.8 11.6 22.2 0.4 0.1 Interest expense(140.1)(129.7)(10.4)(1.5)(1.5)Earnings before income taxes1,379.1 1,135.0 244.1 14.6 13.0 Income tax expense354.7 279.8 74.9 3.8 3.2 Net earnings including noncontrolling interests1,024.4 855.2 169.2 10.9 9.8 Net earnings attributable to noncontrolling interests0.0 0.0 0.0 0.0 0.0 Net earnings attributable to Starbucks$1,024.4$855.2$169.2 10.9%9.8fective tax rate including noncontrolling interests25.7$.6%For the quarter ended December 31,2023 compared with the quarter ended January 1,2023Interest income and other,net increased$22 million and interest expense increased$10 million,both primarily due to higher interest rates in the current year.The effective tax rate for the quarter ended December 31,2023 was 25.7%compared to 24.6%for the same period in fiscal 2023.The increase was primarilydue to the accrual of foreign withholding taxes related to the current-year earnings of certain foreign subsidiaries(approximately 80 basis points).28Table of ContentsSegment InformationResults of operations by segment(in millions):North America Quarter EndedDec 31,2023Jan 1,2023$ChangeDec 31,2023Jan 1,2023As a%of North AmericaTotal Net RevenuesNet revenues:Company-operated stores$6,381.1$5,870.6$510.5 89.6.6%Licensed stores737.9 680.0 57.9 10.4 10.4 Other1.7 0.7 1.0 0.0 0.0 Total net revenues7,120.7 6,551.3 569.4 100.0 100.0 Product and distribution costs2,023.9 1,917.6 106.3 28.4 29.3 Store operating expenses3,147.7 3,031.4 116.3 44.2 46.3 Other operating expenses77.4 65.6 11.8 1.1 1.0 Depreciation and amortization expenses250.4 216.9 33.5 3.5 3.3 General and administrative expenses100.5 102.3(1.8)1.4 1.6 Restructuring and impairments 5.1(5.1)0.1 Total operating expenses5,599.9 5,338.9 261.0 78.6 81.5 Operating income$1,520.8$1,212.4$308.4 21.4.5%Store operating expenses as a%of company-operated stores revenue49.3Q.6%For the quarter ended December 31,2023 compared with the quarter ended January 1,2023RevenuesNorth America total net revenues for the first quarter of fiscal 2024 increased$569 million,or 9%,primarily due to a 5%increase in comparable store sales($288 million)driven by a 4%increase in average ticket,primarily due to annualization of pricing,and a 1%increase in comparable transactions.Alsocontributing to revenue growth were the performance of net new company-operated store openings over the past 12 months($222 million)and higher productand equipment sales to and royalty revenues from our licensees($49 million).Operating MarginNorth America operating income for the first quarter of fiscal 2024 increased 25%to$1.5 billion,compared to$1.2 billion in the first quarter of fiscal 2023.Operating margin increased 290 basis points to 21.4%,primarily due to in-store operational efficiencies(approximately 240 basis points)and sales leverage(approximately 180 basis points),partially offset by increased investments in store partner wages and benefits(approximately 120 basis points).29Table of ContentsInternational Quarter Ended Dec 31,2023Jan 1,2023$ChangeDec 31,2023Jan 1,2023As a%of InternationalTotal Net RevenuesNet revenues:Company-operated stores$1,374.1$1,212.9$161.2 74.4r.2%Licensed stores454.2 439.5 14.7 24.6 26.2 Other18.0 27.7(9.7)1.0 1.6 Total net revenues1,846.3 1,680.1 166.2 100.0 100.0 Product and distribution costs666.5 593.6 72.9 36.1 35.3 Store operating expenses703.8 633.9 69.9 38.1 37.7 Other operating expenses60.1 50.7 9.4 3.3 3.0 Depreciation and amortization expenses84.1 81.5 2.6 4.6 4.9 General and administrative expenses90.5 80.5 10.0 4.9 4.8 Total operating expenses1,605.0 1,440.2 164.8 86.9 85.7 Income from equity investees0.2 0.5(0.3)0.0 0.0 Operating income$241.5$240.4$1.1 13.1.3%Store operating expenses as a%of company-operated stores revenue51.2R.3%For the quarter ended December 31,2023 compared with the quarter ended January 1,2023RevenuesInternational total net revenues for the first quarter of fiscal 2024 increased$166 million,or 10%,primarily due to 1,016 net new Starbucks company-operatedstores,or a 12%increase over the past 12 months($104 million),as well as a 7%increase in comparable store sales($81 million)driven by an 11%increase incustomer transactions,primarily attributable to lapping prior-year impacts from COVID-19 pandemic related disruptions in China.These increases werepartially offset by unfavorable foreign currency translation($30 million).Also contributing to the increase in revenue was growth related to 851 net newlicensed store openings,an 8%increase over the past 12 months,partially offset by unfavorable impacts related to certain headwinds.Operating MarginInternational operating income for the first quarter of fiscal 2024 increased to$242 million,compared to$240 million in the first quarter of fiscal 2023.Operating margin decreased 120 basis points to 13.1%,primarily due to investments in store partner wages and benefits(approximately 130 basis points),business mix shift toward company-operated stores(approximately 120 basis points),and strategic investments(approximately 100 basis points).Thesedecreases were partially offset by sales leverage(approximately 300 basis points).30Table of ContentsChannel Development Quarter Ended Dec 31,2023Jan 1,2023$ChangeDec 31,2023Jan 1,2023As a%of Channel DevelopmentTotal Net RevenuesNet revenues$448.0$478.2$(30.2)Product and distribution costs279.0 294.2(15.2)62.3a.5%Other operating expenses12.8 13.0(0.2)2.9 2.7 General and administrative expenses2.2 2.0 0.2 0.5 0.4 Total operating expenses294.0 309.2(15.2)65.6 64.7 Income from equity investees55.7 57.3(1.6)12.4 12.0 Operating income$209.7$226.3$(16.6)46.8G.3%For the quarter ended December 31,2023 compared with the quarter ended January 1,2023RevenuesChannel Development total net revenues for the first quarter of fiscal 2024 decreased$30 million,or 6%,primarily due to a decline in revenue in the GlobalCoffee Alliance following the sale of our Seattles Best Coffee brand to Nestl in the second quarter of fiscal 2023($19 million)and lower revenue in ourglobal ready-to-drink business($11 million).Operating MarginChannel Development operating income for the first quarter of fiscal 2024 decreased 7%to$210 million,compared to$226 million in the first quarter of fiscal2023.Operating margin decreased 50 basis points to 46.8%,primarily driven by product costs related to the Global Coffee Alliance(approximately 430 basispoints),partially offset by business mix shift(approximately 370 basis points).Corporate and Other Quarter EndedDec 31,2023Jan 1,2023$Change%ChangeNet revenues:Other$10.3$4.3$6.0 139.5%Total net revenues10.3 4.3 6.0 139.5 Product and distribution costs11.2 4.8 6.4 133.3 Other operating expenses0.1 0.1 nmDepreciation and amortization expenses30.8 28.7 2.1 7.3 General and administrative expenses454.8 396.1 58.7 14.8 Restructuring and impairments 0.7(0.7)nmTotal operating expenses496.9 430.3 66.6 15.5 Operating loss$(486.6)$(426.0)$(60.6)14.2%Corporate and Other primarily consists of our unallocated corporate expenses.Unallocated corporate expenses include corporate administrative functions thatsupport the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of theoperating segments.For the quarter ended December 31,2023 compared with the quarter ended January 1,2023Corporate and Other operating loss increased by 14%to$487 million for the first quarter of fiscal 2024 compared to$426 million for the first quarter of fiscal2023.This increase was primarily driven by incremental investments in technology in support of our Reinvention($30 million)and higher partner wages andbenefits($17 million).31Table of ContentsQuarterly Store DataOur store data for the periods presented is as follows:Net stores opened/(closed)and transferredduring the period Quarter EndedStores open as ofDec 31,2023Jan 1,2023Dec 31,2023Jan 1,2023North AmericaCompany-operated stores87 40 10,715 10,256 Licensed stores34 46 7,216 7,125 Total North America121 86 17,931 17,381 InternationalCompany-operated stores186 97 9,150 8,134 Licensed stores242 276 11,506 10,655 Total International428 373 20,656 18,789 Total Company549 459 38,587 36,170 Financial Condition,Liquidity and Capital ResourcesCash and Investment OverviewOur cash and investments were$3.6 billion as of December 31,2023 and$4.2 billion as of October 1,2023.We actively manage our cash and investments inorder to internally fund operating needs,make scheduled interest and principal payments on our borrowings,fund acquisitions,and return cash to shareholdersthrough common stock cash dividend payments and share repurchases.Our investment portfolio primarily includes highly liquid available-for-sale securities,including corporate debt securities,government treasury securities(domestic and foreign),and commercial paper,as well as principal-protected structureddeposits.As of December 31,2023,approximately$2.4 billion of cash and short-term investments were held in foreign subsidiaries.Borrowing CapacityRevolving Credit FacilityOur$3.0 billion unsecured five-year revolving credit facility(the“2021 credit facility”),of which$150.0 million may be used for issuances of letters of credit,is currently set to mature on September 16,2026.The 2021 credit facility is available for working capital,capital expenditures,and other corporate purposes,including acquisitions and share repurchases.We have the option,subject to negotiation and agreement with the related banks,to increase the maximumcommitment amount by an additional$1.0 billion.Borrowings under the 2021 credit facility,which was most recently amended in April 2023,will bear interest at a variable rate based on Term SOFR,and,forU.S.dollar-denominated loans under certain circumstances,a Base Rate(as defined in the 2021 credit facility),in each case plus an applicable margin.Theapplicable margin is based on the Companys long-term credit ratings assigned by the Moodys and Standard&Poors rating agencies.The“Base Rate”is thehighest of(i)the Federal Funds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americas prime rate,and(iii)Term SOFR plus 1.000%.Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plus a SOFR Adjustment of 0.100%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants,including a minimum fixed charge coverage ratio,which measures our ability to cover financing expenses.As of December 31,2023,we were in compliance with all applicable covenants.No amounts wereoutstanding under our 2021 credit facility as of December 31,2023 or October 1,2023.Commercial PaperUnder our commercial paper program,we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0billion,with individual maturities that may vary but not exceed 397 days from the date of issue.Amounts outstanding under the commercial paper program arerequired to be backstopped by available commitments under our 2021 credit facility.The proceeds from borrowings under our commercial paper program maybe used for working capital needs,capital expenditures,and other corporate purposes,including,but not limited to,business expansion,payment of cashdividends on our common stock,and share repurchases.As of December 31,2023,we had$300.0 million in borrowings32Table of Contentsoutstanding under our commercial paper program.As of October 1,2023,we had no borrowings outstanding under this program.Our total availablecontractual borrowing capacity for general corporate purposes was$2.7 billion as of the end of our first quarter of fiscal 2024.Credit Facilities in JapanAdditionally,we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within ourJapanese market.A 5.0 billion,or$35.4 million,credit facility is currently set to mature on December 30,2024.Borrowings under this credit facility are subject toterms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%.A 10.0 billion,or$70.7 million,credit facility is currently set to mature on March 27,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.As of December 31,2023,we had 7.0 billion,or$49.5 million,of borrowings outstanding under these credit facilities.As of October 1,2023,we had5.0 billion,or$33.5 million,of borrowings outstanding under these credit facilities.See Note 7,Debt,to the consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt.Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indenturesunder which the long-term notes were issued.As of December 31,2023,we were in compliance with all applicable covenants.Use of CashWe expect to use our available cash and investments,including,but not limited to,additional potential future borrowings under the credit facilities,commercialpaper program,and the issuance of debt to support and invest in our core businesses,including investing in new ways to serve our customers and supportingour store partners,repaying maturing debts,returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases,and investing in new business opportunities related to our core and developing businesses.Furthermore,we may use our available cash resources to makeproportionate capital contributions to our investees.We may also seek strategic acquisitions to leverage existing capabilities and further build our business.Acquisitions may include increasing our ownership interests in our investees.Any decisions to increase such ownership interests will be driven by valuationand fit with our ownership strategy.We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally,combined with ourability to leverage our balance sheet through the issuance of debt,will be sufficient to finance capital requirements for our core businesses as well asshareholder distributions for at least the next 12 months.We are currently not aware of any trends or demands,commitments,events,or uncertainties that willresult in,or that are reasonably likely to result in,our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyondthe next 12 months.We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates;however,additional borrowingswould result in increased interest expense in the future.In this regard,we may incur additional debt,within targeted levels,as part of our plans to fund ourcapital programs,including cash returns to shareholders through future dividends and discretionary share repurchases,refinancing debt maturities,as well asinvesting in new business opportunities.If necessary,we may pursue additional sources of financing,including both short-term and long-term borrowings anddebt issuances.We regularly review our cash positions and our determination of partial indefinite reinvestment of foreign earnings.In the event we determine that all oranother portion of such foreign earnings are no longer indefinitely reinvested,we may be subject to additional foreign withholding taxes,which could bematerial.Any foreign earnings that are not indefinitely reinvested may be repatriated at managements discretion.In anticipation of repatriation of current-yearearnings of certain foreign subsidiaries,we accrued approximately$10 million for foreign withholding taxes during the first quarter of fiscal year 2024.During the first quarter of fiscal 2024,our Board of Directors approved a quarterly cash dividend to shareholders of$0.57 per share to be paid on February 23,2024 to shareholders of record as of the close of business on February 9,2024.During the quarter ended December 31,2023,we repurchased 12.8 million shares of common stock for$1,250.1 million on the open market.As ofDecember 31,2023,29.8 million shares remained available for repurchase under current authorizations.Other than normal operating expenses,cash requirements for the remainder of fiscal 2024 are expected to consist primarily of capital expenditures forinvestments in our new and existing stores,our supply chain,and corporate facilities.Total capital expenditures for fiscal 2024 are expected to beapproximately$3.0 billion.33Table of ContentsIn the MD&A included in the 10-K,we disclosed that we had$33.9 billion of current and long-term material cash requirements as of October 1,2023.Therehave been no material changes to our material cash requirements during the period covered by this 10-Q outside of the normal course of our business.Cash FlowsNet cash provided by operating activities was$2.4 billion for the first quarter of fiscal 2024,compared to$1.6 billion for the same period in fiscal 2023.Thechange was primarily due to an increase in net cash provided by changes in operating assets and liabilities and higher net earnings during the period.Net cash used in investing activities totaled$568.8 million for the first quarter of fiscal 2024,compared to$279.3 million for the same period in fiscal 2023.The change was primarily due to an increase in purchases of investments and higher capital expenditures.Net cash used in financing activities for the first quarter of fiscal 2024 totaled$2.4 billion,compared to$1.0 billion for the same period in fiscal 2023.Thechange was primarily due to an increase in share repurchase activities and repayments of debt,partially offset by proceeds from issuance of commercial paper.Commodity Prices,Availability and General Risk ConditionsCommodity price risk represents our primary market risk,generated by our purchases of green coffee and dairy products,among other items.We purchase,roast,and sell high-quality arabica coffee and related products,and risk arises from the price volatility of green coffee.In addition to coffee,we also purchasesignificant amounts of dairy products to support the needs of our company-operated stores.The price and availability of these commodities directly impact ourresults of operations,and we expect commodity prices,particularly coffee,to impact future results of operations.For additional details,see Product Supply inItem 1 of the 10-K,as well as Risk Factors in Part I,Item 1A of the 10-K.Seasonality and Quarterly ResultsOur business is subject to moderate seasonal fluctuations,of which our fiscal second quarter typically experiences lower revenues and operating income.Additionally,as Starbucks Cards are issued to and loaded by customers during the holiday season,we tend to have higher cash flows from operations duringthe first quarter of the fiscal year.However,since revenues from Starbucks Cards are recognized upon redemption and not when cash is loaded onto theStarbucks Card,the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced.As a result of moderate seasonalfluctuations,results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.Critical Accounting EstimatesThe preparation of financial statements and related disclosures in conformity with U.S.generally accepted accounting principles and the Companys discussionand analysis of its financial condition and operating results require the Companys management to make judgments,assumptions,and estimates that affect theamounts reported.Note 1,Summary of Significant Accounting Policies and Estimates,to the consolidated financial statements included in Item 1 of Part I ofthis 10-Q and in the Notes to Consolidated Financial Statements in Part II,Item 8 of the 10-K describe the significant accounting policies and methods used inthe preparation of the Companys consolidated financial statements.There have been no material changes to the Companys critical accounting estimates sincethe 10-K.RECENT ACCOUNTING PRONOUNCEMENTSSee Note 1,Summary of Significant Accounting Policies and Estimates,to the consolidated financial statements included in Item 1 of Part I of this 10-Q,for adetailed description of recent accounting pronouncements.Item 3.Quantitative and Qualitative Disclosures About Market RiskThere has been no material change in the commodity price risk,foreign currency exchange risk,equity security price risk,or interest rate risk discussed inItem 7A of the 10-K.34Table of ContentsItem 4.Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed orsubmitted under the Securities Exchange Act of 1934,as amended(the“Exchange Act”),is recorded,processed,summarized,and reported within the timeperiods specified in the SECs rules and forms.Our disclosure controls and procedures are also designed to ensure that information required to be disclosed inthe reports we file or submit under the Exchange Act is accumulated and communicated to our management,including our principal executive officer andprincipal financial officer as appropriate,to allow timely decisions regarding required disclosure.During the first quarter of fiscal 2024,we carried out an evaluation,under the supervision and with the participation of our management,including our chiefexecutive officer and our chief financial officer,of the effectiveness of the design and operation of our disclosure controls and procedures,as defined in Rules13a-15(e)and 15d-15(e)under the Exchange Act.Based upon that evaluation,our chief executive officer and chief financial officer concluded that ourdisclosure controls and procedures were effective,as of the end of the period covered by this report(December 31,2023).There were no changes in our internal control over financial reporting(as defined in Rules 13a-15(f)and 15d-15(f)of the Exchange Act)during our mostrecently completed fiscal quarter that materially affected,or are reasonably likely to materially affect,our internal control over financial reporting.35Table of ContentsPART II OTHER INFORMATIONItem 1.Legal ProceedingsSee Note 13,Commitments and Contingencies,to the consolidated financial statements included in Item 1 of Part I of this 10-Q for information regardingcertain legal proceedings in which we are involved.Item 1A.Risk FactorsIn addition to the other information set forth in this 10-Q,you should carefully consider the risks and uncertainties discussed in Part I,Item 1A.Risk Factors inour 10-K and Part II,Item 1A of this 10-Q.There have been no material changes to the risk factors disclosed in our 10-K.Item 2.Unregistered Sales of Equity Securities and Use of ProceedsInformation regarding repurchases of our common stock during the quarter ended December 31,2023:TotalNumber ofSharesPurchasedAveragePricePaid perShareTotal Numberof SharesPurchased asPart of PubliclyAnnouncedPlans orProgramsMaximumNumber ofShares that MayYet BePurchasedUnder the Plansor ProgramsPeriod October 2,2023-October 29,20233,877,436$92.85 3,877,436 38,712,225 October 30,2023-November 26,20234,146,201 101.31 4,146,201 34,566,024 November 27,2023-December 31,20234,754,654 98.86 4,754,654 29,811,370 Total12,778,291$97.83 12,778,291 Monthly information is presented by reference to our fiscal months during the first quarter of fiscal 2024.Share repurchases are conducted under our ongoing share repurchase program announced in September 2001,which has no expiration date,and for whichthe authorized number of shares has been increased by our Board of Directors numerous times,with our Board of Directors most recently authorizing therepurchase of up to an additional 40 million shares in March 2022.This column includes the total number of shares available for repurchase under the Companys ongoing share repurchase program.Shares under ourongoing share repurchase program may be repurchased in open market transactions,including pursuant to a trading plan adopted in accordance with Rule10b5-1 of the Exchange Act,or through privately negotiated transactions.The timing,manner,price,and amount of repurchases will be determined at ourdiscretion and the share repurchase program may be suspended,terminated,or modified at any time for any reason.Item 3.Defaults upon Senior SecuritiesNone.Item 4.Mine Safety DisclosuresNot applicable.Item 5.Other InformationInsider Adoption or Termination of Trading Arrangements:During the fiscal quarter ended December 31,2023,none of our directors or officers informed us of the adoption or termination of a“Rule 10b5-1 tradingarrangement”or“non-Rule 10b5-1 trading arrangement,”as those terms are defined in Regulation S-K,Item 408,except as described in the table below:(2)(3)(1)(1)(2)(3)36Table of ContentsName&TitleDate AdoptedCharacter of TradingArrangementAggregate Number of Shares of Common Stock to bePurchased or Sold Pursuant to Trading ArrangementDurationOther MaterialTermsDate TerminatedRachelRuggeri,executive vicepresident,chieffinancialofficerNovember 28,2023Rule 10b5-1 TradingArrangementUp to$900,000 of shares to be soldPlusUp to 4,979 shares to be soldPlusUp to 2,165 shares to be soldDecember 3,2024N/AN/A Except as indicated by footnote,each trading arrangement marked as a“Rule 10b5-1 Trading Arrangement”is intended to satisfy the affirmative defense ofRule 10b5-1(c),as amended(the“Rule”).Ms.Ruggeris trading plan provides for the sale of up to$300,000 of shares pursuant to each of three orders,to be entered in March,May,and August 2024,respectively,with such sales subject to a limit price of$80 during the applicable good-until-cancelled period for such order.Ms.Ruggeris trading plan provides for the sale,on November 11,2024,at market price,of up to 4,979 shares to be received by Ms.Ruggeri upon thevesting of performance-based RSUs in November 2024.Ms.Ruggeris trading plan provides for the sale,on November 18,2024,at market price,of up to up to 2,165 shares to be received by Ms.Ruggeri upon thevesting of time-based RSUs in November 2024.Except as indicated by footnote,each trading arrangement permitted or permits transactions through and including the earlier to occur of(a)the completionof all purchases or sales or the expiration of all of the orders relating to such trades,or(b)the date listed in the table.The trading arrangement marked as a“Rule 10b5-1 Trading Arrangement”only permits transactions upon expiration of the applicable mandatory cooling-off period under the Rule.The arrangement also provides for automatic expiration in the event of Ms.Ruggeris death,bankruptcy,or insolvency,notice from Ms.Ruggeri or her agentof termination of the trading arrangement,or a determination by the broker that the trading arrangement has been terminated or that a breach by Mr.Ruggerihas occurred or upon the brokers exercise of its termination rights under the trading arrangement.(1)(5)(2)(3)(4)(6)(1)(2)(3)(4)(5)(6)37Table of ContentsItem 6.Exhibits Incorporated by Reference ExhibitNo.Exhibit DescriptionFormFile No.Date ofFilingExhibitNumberFiledHerewith3.1Restated Articles of Incorporation of Starbucks Corporation10-Q000-203224/28/20153.13.2Amended and Restated Bylaws of Starbucks Corporation(Asamended and restated through March 17,2021)8-K000-203223/19/20213.131.1Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)of the Securities Exchange Act of 1934,as Adopted Pursuantto Section 302 of the Sarbanes-Oxley Act of 2002X31.2Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)of the Securities Exchange Act of 1934,as Adopted Pursuantto Section 302 of the Sarbanes-Oxley Act of 2002X32*Certifications of Principal Executive Officer and Principal FinancialOfficer Pursuant to 18 U.S.C.Section 1350,as Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002101The following financial statements from the Companys 10-Q forthe fiscal quarter ended December 31,2023,formatted in iXBRL:(i)Consolidated Statements of Earnings,(ii)ConsolidatedStatements of Comprehensive Income,(iii)Consolidated BalanceSheets,(iv)Consolidated Statements of Cash Flows,(v)Consolidated Statements of Equity,and(vi)Notes to ConsolidatedFinancial StatementsX104Cover Page Interactive Data File(formatted in iXBRL andcontained in Exhibit 101)X*Furnished herewith.38Table of ContentsSIGNATURESPursuant 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 undersignedthereunto duly authorized.January 30,2024 STARBUCKS CORPORATIONBy:/s/Rachel RuggeriRachel Ruggeriexecutive vice president,chief financial officerSigning on behalf of the registrant and asprincipal financial officer39Exhibit 31.1CERTIFICATION PURSUANT TO RULE 13a-14(a)OF THE SECURITIES EXCHANGE ACT OF 1934AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I,Laxman Narasimhan,certify that:1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended December 31,2023,of Starbucks Corporation;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 thestatements made,in light of the circumstances under which such statements were made,not misleading with respect to the period covered by thisreport;3.Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all material respects thefinancial 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 and I are responsible for establishing and maintaining disclosure controls and procedures(as defined inExchange 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,toensure that material information relating to the registrant,including its consolidated subsidiaries,is made known to us by others within thoseentities,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 oursupervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 theeffectiveness 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 recentfiscal quarter(the registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or is reasonably likely tomaterially affect,the registrants internal control over financial reporting;and5.The registrants other certifying officer and I have disclosed,based on our most recent evaluation of internal control over financial reporting,to theregistrants 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 arereasonably 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 internalcontrol over financial reporting.Date:January 30,2024/s/Laxman NarasimhanLaxman Narasimhanchief executive officerExhibit 31.2CERTIFICATION PURSUANT TO RULE 13a-14(a)OF THE SECURITIES EXCHANGE ACT OF 1934AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I,Rachel Ruggeri,certify that:1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended December 31,2023,of Starbucks Corporation;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 thestatements made,in light of the circumstances under which such statements were made,not misleading with respect to the period covered by thisreport;3.Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all material respects thefinancial 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 and I are responsible for establishing and maintaining disclosure controls and procedures(as defined inExchange 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,toensure that material information relating to the registrant,including its consolidated subsidiaries,is made known to us by others within thoseentities,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 oursupervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 theeffectiveness 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 recentfiscal quarter(the registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or is reasonably likely tomaterially affect,the registrants internal control over financial reporting;and5.The registrants other certifying officer and I have disclosed,based on our most recent evaluation of internal control over financial reporting,to theregistrants 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 arereasonably 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 internalcontrol over financial reporting.Date:January 30,2024/s/Rachel RuggeriRachel Ruggeriexecutive vice president,chief financial officerExhibit 32CERTIFICATIONS PURSUANT TO 18 U.S.C.SECTION 1350AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Quarterly Report of Starbucks Corporation(“Starbucks”)on Form 10-Q for the fiscal quarter ended December 31,2023,as filed withthe Securities and Exchange Commission on January 30,2024(the“Report”),Laxman Narasimhan,chief executive officer of Starbucks,and Rachel Ruggeri,executive vice president,chief financial officer of Starbucks,each hereby certifies,pursuant to 18 U.S.C.Section 1350,as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002,that,to their knowledge:(1)the Report fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934;and(2)the information contained in the Report fairly presents,in all material respects,the financial condition and results of operations of Starbucks.January 30,2024/s/Laxman NarasimhanLaxman Narasimhanchief executive officerJanuary 30,2024/s/Rachel RuggeriRachel Ruggeriexecutive vice president,chief financial officer
2024-05-08
42页
5星级
Exhibit 99.1eBay Inc.Reports First Quarter 2024 Results Revenue of$2.6 billion,up 2%on an as-reported basis and up 2%on an FX-Neutral basis Gross Merchandise Volume of$18.6 billion,up 1%on an as-reported basis and roughly flat on an FX-Neutral basis GAAP and Non-GAAP earnings per diluted share of$0.85 and$1.25,respectively GAAP and Non-GAAP operating margin of 24.7%and 30.3%,respectively Returned$638 million to shareholders in Q1,including$499 million of share repurchases and$139 million paid in cash dividendsSan Jose,California,May 1,2024 eBay Inc.(Nasdaq:EBAY),a global commerce leader that connects millions of buyers and sellers around the world,today reported financial results for its first quarter ended March 31,2024.“eBays Q1 results marked a strong start to 2024 as we continue to make progress toward our goal of sustainable GMV growth,”said Jamie Iannone,Chief Executive Officer at eBay.“We believe our accelerating pace of innovation is fundamentally changing the selling and buying experience on eBay,generating better outcomes for customers,increasing productivity across our organization,and ultimately driving more value for shareholders.”“Our Q1 results highlight the resilience of our marketplace and business model amid persistent challenges in the global economy,”said Steve Priest,Chief Financial Officer at eBay.“We exceeded our outlook across our key financial metrics and made significant progress against our long-term strategic objectives.”First Quarter Financial HighlightsRevenue was$2.6 billion,up 2%on an as-reported basis and up 2%on a foreign exchange(FX)neutral basis.Gross Merchandise Volume(GMV)was$18.6 billion,up 1%on an as-reported basis and roughly flat on an FX-Neutral basis.GAAP net income from continuing operations was$439 million,or$0.85 per diluted share.Non-GAAP net income from continuing operations was$648 million,or$1.25 per diluted share.GAAP and Non-GAAP operating margin was 24.7%and 30.3%,respectively.Generated$615 million of operating cash flow and$472 million of free cash flow.Returned$638 million to shareholders,including$499 million of share repurchases and$139 million paid in cash dividends.Business HighlightseBays first-party advertising products delivered$370 million of revenue in the first quarter,up 30%on an as-reported basis and up 28%on an FX-Neutral basis.The companys total advertising offerings generated$384 million of revenue in the first quarter,representing 2.1%of GMV.In Q1,eBay Motors redesigned the self-service experience for its MyFitment toolkit,simplifying how sellers onboard,view and publish fitment data for Parts&Accessories listings.On the buying side,the new Motors DIY Guides offer expert content for common maintenance jobs alongside eBay listings for the specific parts,tools and materials needed to complete them.eBay expanded its consignment service to include luxury apparel,giving casual sellers the opportunity to leverage eBay experts to list and sell their luxury apparel on their behalf.During the quarter,eBay and Balenciaga collaborated to advocate for more sustainability within the fashion industry.At Paris Fashion Week in March,Balenciaga debuted its Winter 24 Collection,a line of co-branded streetwear which sourced pre-loved items from eBay.To celebrate the world-renowned“Pokmon Day,”eBay held a Pokmon“Catch 151”Auction event featuring 151 ultra-rare cards and collectibles at accessible price points.The event highlighted the vast array of Pokmon inventory available on eBay and gave enthusiasts an opportunity to elevate their collections with iconic pieces.To further reduce friction for sellers,eBay introduced a simplified mobile listing experience for Sports Trading Cards in the U.S.that pre-fills relevant item aspects,offers simplified shipping options,and provides intelligent pricing recommendations to drive measurable improvements in listing time,listing completion and sold items per customer.The company continued to enhance eBay Live in Q1,expanding to new categories like comics and sports memorabilia and revamping the auctions experience for more seamless bidding.eBay also improved event discoverability by enabling live event viewing on desktop and surfacing personalized live event recommendations on the homepage.In February,eBay announced the appointment of Zane Rowe,CFO at Workday,to its Board of Directors as well as the companys Audit Committee.ImpactDuring the quarter,eBay U.K.and eBay Australia announced their respective Circular Fashion Fund finalists and winner,demonstrating the companys continued commitment to sustainable fashion.eBay Inc.contributed$9 million to the eBay Foundation in Q1 in support of nonprofit organizations advancing inclusive entrepreneurship.eBay for Charity contributed more than$46 million globally in Q1,up 18%year-over-year.2First Quarter 2024 Financial Highlights(presented in millions,except per share data and percentages)First Quarter20242023ChangeeBay Inc.Net revenues$2,556$2,510$46 2%GAAP Continuing OperationsNet income$439$569$(130)(23)rnings per diluted share$0.85$1.05$(0.20)(19)%Non-GAAP Continuing OperationsNet income$648$600$48 8rnings per diluted share$1.25$1.11$0.14 13%Other Selected Financial and Operational ResultsOperating margin GAAP operating margin increased to 24.7%for the first quarter of 2024,compared to 22.2%for the same period last year.Non-GAAP operating margin increased to 30.3%for the first quarter of 2024,compared to 29.6%for the same period last year.Taxes The GAAP effective tax rate for continuing operations for the first quarter of 2024 was 18.1%,compared to 22.1%for the first quarter of 2023.The non-GAAP effective tax rate for continuing operations for the first quarter of 2024 was 16.5%(1).Cash flow The company generated$615 million of operating cash flow and$472 million of free cash flow during the first quarter of 2024.Capital returns The company repurchased$499 million of its common stock,or approximately 10 million shares,in the first quarter of 2024.The companys total repurchase authorization remaining as of March 31,2024 was approximately$2.9 billion.The company also paid cash dividends of$139 million during the first quarter of 2024.Cash and cash equivalents and non-equity investments The companys cash and cash equivalents and non-equity investments portfolio totaled$4.9 billion as of March 31,2024.Business OutlookeBay is providing the following guidance for the second quarter 2024.In billions,except per share data and percentagesQ2 2024 GuidanceRevenue$2.49-$2.54FX-Neutral Y/Y Growth(1)%-1%Diluted GAAP EPS$0.76-$0.81Diluted Non-GAAP EPS$1.10-$1.15Dividend DeclarationeBays Board of Directors has declared a cash dividend of$0.27 per share of the companys common stock.The dividend is payable on June 14,2024 to stockholders of record as of May 31,2024.(1)We use a non-GAAP effective tax rate for evaluating our operating results.Based on our current long-term projections,we are using a non-GAAP tax rate of 16.5%.This non-GAAP tax rate could change for various reasons including significant changes in our geographic earnings mix or fundamental tax law changes in major jurisdictions in which we operate.3Quarterly Conference Call and WebcasteBay Inc.will host a conference call to discuss first quarter 2024 results at 2:00 p.m.Pacific Time today.Investors and participants can access the call by dialing(855)761-5600 in the U.S.and(646)307-1097 internationally.The passcode for the conference line is 7435074.A live webcast of the conference call,together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures,can be accessed through the companys Investor Relations website at https:/.In addition,an archive of the webcast will be accessible for at least three months through the same link.eBay Inc.uses its Investor Relations website at https:/ as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.Accordingly,investors should monitor this website,in addition to following our press releases,SEC filings,public conference calls and webcasts.About eBayeBay Inc.(Nasdaq:EBAY)is a global commerce leader that connects people and builds communities to create economic opportunity for all.Our technology empowers millions of buyers and sellers in more than 190 markets around the world,providing everyone the opportunity to grow and thrive.Founded in 1995 in San Jose,California,eBay is one of the worlds largest and most vibrant marketplaces for discovering great value and unique selection.In 2023,eBay enabled more than$73 billion of gross merchandise volume.For more information about the company and its global portfolio of online brands,visit .PresentationAll growth rates represent year-over-year comparisons,except as otherwise noted.All amounts in tables are presented in U.S.dollars,rounded to the nearest million,except as otherwise noted.As a result,certain amounts may not sum or recalculate using the rounded dollar amounts provided.References to“revenue”refer to“net revenues”as reported in the companys consolidated statement of income.Non-GAAP Financial Measures This press release includes the following financial measures defined as“non-GAAP financial measures”by the Securities and Exchange Commission(SEC):non-GAAP net income,non-GAAP earnings per diluted share,non-GAAP operating income and margin,non-GAAP effective tax rate,free cash flow and FX-Neutral basis.These non-GAAP financial measures are presented on a continuing operations basis.These measures may be different from non-GAAP financial measures used by other companies.The presentation of this financial information,which is not prepared under any comprehensive set of accounting rules or principles,is not intended to be considered in isolation of,or as a substitute for,the financial information prepared and presented in accordance with generally accepted accounting principles(GAAP).For a reconciliation of these non-GAAP financial measures,except for figures in this press release presented on an“FX-Neutral basis,”to the nearest comparable GAAP measures,see“Business Outlook,”“Non-GAAP Measures of Financial Performance,”“Reconciliation of GAAP Operating Income to Non-GAAP Operating Income,”“Reconciliation of GAAP Net Income to Non-GAAP Net Income and Reconciliation of GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate”and“Reconciliation of Operating Cash Flow to Free Cash Flow”included in this press release.For figures in this press release reported“on an FX-Neutral basis,”we calculate the year-over-year impact of foreign currency movements using prior period foreign currency rates,excluding hedging activity,applied to current year transactional currency amounts.Forward-Looking Statements This press release contains forward-looking statements relating to,among other things,the future performance of eBay Inc.and its consolidated subsidiaries that are based on the companys current expectations,forecasts and assumptions and involve risks and uncertainties.These statements include,but are not limited to,statements regarding the future performance of eBay Inc.and its consolidated subsidiaries,including managements vision for the future of eBay and our ability to accomplish our vision,expected financial results for the second quarter and full year 2024 and the future growth in our business,the effects and potential of current and contemplated strategic initiatives and offerings including with respect to artificial intelligence,the effects of geopolitical events,foreign currency volatility,and inflationary pressure on our business and operations and our ability to respond to such effects,operating efficiency and margins,reinvestments,dividends and share repurchases.Actual results could differ materially from those expressed or implied and reported results should not be considered as an indication of future performance.Factors that could cause or contribute to such differences include,but are not limited to:fluctuations in,and our ability to predict,our results of operations and cash flows;our ability to convert visits into sales for our sellers,attract and retain sellers and buyers and execute on our business strategy;our ability to compete in the markets in which we participate;our ability to generate revenue from our foreign operations and expand in international markets;the impact of inflationary pressure,fluctuations in foreign currency exchange rates,increasing interest rates and geopolitical events such as the ongoing wars in Ukraine and in Israel and Gaza,including the related disruptions to international shipping in the Red Sea;our ability to keep pace with rapid technological developments or continue to innovate and create new initiatives to provide new programs,products and services;our ability to operate and continuously develop our payments system and financial services offerings;the impact of 4evolving domestic and foreign government laws,regulations,rules and standards that affect us,our business and/or our industry;our reliance on third-party providers;our ability to protect or enforce our intellectual property rights;our ability to deal effectively with fraudulent activities on our platforms;the impact of any security breaches,cyberattacks or system failures and resulting interruptions;our ability to attract,retain and develop highly skilled employees;our ability to accomplish or accurately track and report results related to our environmental,social and governance goals;current and potential litigation and regulatory and government inquiries,investigations and disputes involving us or our industry;our ability to generate sufficient cash flow to service our indebtedness;the impact of evolving sales and other tax regimes in various jurisdictions and anticipated tax liabilities;and the success of our pending or potential acquisitions,dispositions,joint ventures,strategic partnerships and strategic investments,including the proposed transactions involving Adevinta,Goldin,Collectors and PSA.The forward-looking statements in this release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof.More information about factors that could affect the companys operating results is included under the captions“Risk Factors”and“Managements Discussion and Analysis of Financial Condition and Results of Operations”in the companys most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q,copies of which may be obtained by visiting the companys Investor Relations website at https:/ or the SECs website at www.sec.gov.Undue reliance should not be placed on the forward-looking statements in this press release,which are based on information available to the company on the date hereof.The company assumes no obligation to update such statements.Investor Relations Contact:John EMedia Relations Contact:Trina SCompany News:https:/ Relations website:https:/ 5eBay Inc.Unaudited Condensed Consolidated Balance Sheet March 31,2024December 31,2023(In millions)ASSETSCurrent assets:Cash and cash equivalents$2,130$1,985 Short-term investments 1,743 2,533 Equity investment in Adevinta 4,240 4,474 Customer accounts and funds receivable 1,108 1,013 Other current assets 1,185 1,011 Total current assets 10,406 11,016 Long-term investments 1,546 1,129 Property and equipment,net 1,281 1,243 Goodwill 4,235 4,267 Operating lease right-of-use assets 469 493 Deferred tax assets 3,052 3,089 Other assets 429 383 Total assets$21,418$21,620 LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term debt$1,551$750 Accounts payable 300 267 Customer accounts and funds payable 1,145 1,054 Accrued expenses and other current liabilities 1,929 2,196 Income taxes payable 308 253 Total current liabilities 5,233 4,520 Operating lease liabilities 362 387 Deferred tax liabilities 2,417 2,408 Long-term debt 6,174 6,973 Other liabilities 959 936 Total liabilities 15,145 15,224 Total stockholders equity 6,273 6,396 Total liabilities and stockholders equity$21,418$21,620 6eBay Inc.Unaudited Condensed Consolidated Statement of Income Three Months EndedMarch 31,20242023(In millions,except per share amounts)Net revenues$2,556$2,510 Cost of net revenues(1)700 700 Gross profit 1,856 1,810 Operating expenses:Sales and marketing(1)541 511 Product development(1)351 352 General and administrative(1)238 297 Provision for transaction losses 91 84 Amortization of acquired intangible assets 4 8 Total operating expenses 1,225 1,252 Income from operations 631 558 Interest and other:Gain(loss)on equity investments and warrant,net(97)198 Interest expense(66)(68)Interest income and other,net 68 42 Income from continuing operations before income taxes 536 730 Income tax provision(97)(161)Income from continuing operations 439 569 Loss from discontinued operations,net of income taxes(1)(2)Net income$438$567 Income per share basic:Continuing operations$0.85$1.06 Discontinued operations Net income per share basic$0.85$1.06 Income per share diluted:Continuing operations$0.85$1.05 Discontinued operations Net income per share diluted$0.85$1.05 Weighted average shares:Basic 516 537 Diluted 519 541(1)Includes stock-based compensation as follows:Cost of net revenues$13$13 Sales and marketing 23 20 Product development 64 59 General and administrative 46 36$146$128 7eBay Inc.Unaudited Condensed Consolidated Statement of Cash Flows Three Months EndedMarch 31,20242023(In millions)Cash flows from operating activities:Net income$438$567 Loss from discontinued operations,net of income taxes 1 2 Adjustments:Provision for transaction losses 91 84 Depreciation and amortization 76 107 Stock-based compensation 146 128 Loss(gain)on investments and other,net 11 10 Deferred income taxes 40 33 Change in fair value of warrant(149)(38)Change in fair value of equity investment in Adevinta 234 (174)Changes in assets and liabilities,net of acquisition effects(273)122 Net cash provided by operating activities 615 841 Cash flows from investing activities:Purchases of property and equipment(143)(132)Purchases of investments(3,312)(3,543)Maturities and sales of investments 3,703 4,404 Other 2 (28)Net cash provided by investing activities 250 701 Cash flows from financing activities:Repurchases of common stock(453)(242)Payments for taxes related to net share settlements of restricted stock units and awards(51)(92)Payments for dividends(139)(134)Repayment of debt (1,150)Net funds receivable and payable activity(28)230 Other(15)Net cash used in financing activities(686)(1,388)Effect of exchange rate changes on cash,cash equivalents and restricted cash(11)5 Net increase in cash,cash equivalents and restricted cash 168 159 Cash,cash equivalents and restricted cash at beginning of period 2,493 2,272 Cash,cash equivalents and restricted cash at end of period$2,661$2,431 8eBay Inc.Unaudited Summary of Consolidated Net RevenuesThree Months EndedMarch 31,2024December 31,2023September 30,2023June 30,2023March 31,2023(In millions,except percentages)Total net revenues(1)(2)$2,556$2,562$2,500$2,540$2,510 Current quarter vs prior year quarter 2%2%5%5%1%Percent from international 49PPPP%(1)Hedge gain/(loss)$(10)$11$2$14$29(2)Foreign currency impact$14$63$43$(9)$(45)eBay Inc.Unaudited Supplemental Operating DataThree Months EndedMarch 31,2024December 31,2023September 30,2023June 30,2023March 31,2023(In millions,except percentages)Active Buyers(1)132 132 132 132 133 Current quarter vs prior year quarter(1)%(2)%(3)%(4)%(7)tive Buyers excluding GittiGidiyor and TCGplayer(2)131 131 131 131 131 Current quarter vs prior year quarter 0%(1)%(1)%(3)%(5)%Gross Merchandise Volume(3)U.S.$8,974$8,891$8,638$8,702$9,010 Current quarter vs prior year quarter 0%0%(1)%(3)%(3)%International$9,649$9,700$9,353$9,512$9,400 Current quarter vs prior year quarter 3%4%4%(1)%(7)%Total Gross Merchandise Volume$18,623$18,591$17,991$18,214$18,410 Current quarter vs prior year quarter 1%2%2%(2)%(5)%(1)Active Buyers consist of all buyers who paid for a transaction on our platforms within the previous 12-month period.Buyers may register more than once,and as a result,may have more than one account.(2)On June 20,2022 we announced the closure of our marketplace business in Turkey,GittiGidiyor.On October 31,2022,we completed the acquisition of TCGplayer.(3)Gross Merchandise Volume consists of the total value of all paid transactions between users on our platforms during the applicable period inclusive of shipping fees and taxes.9eBay Inc.Business OutlookThe guidance figures provided below and elsewhere in this press release are forward-looking statements,reflect a number of estimates,assumptions and other uncertainties,and are approximate in nature because the companys future performance is difficult to predict.Such guidance is based on information available on the date of this press release,and the company assumes no obligation to update it.The companys future performance involves risks and uncertainties,and the companys actual results could differ materially from the information below and elsewhere in this press release.Some of the factors that could affect the companys operating results are set forth under the caption“Forward-Looking Statements”above in this press release.More information about factors that could affect the companys operating results is included under the captions“Risk Factors”and“Managements Discussion and Analysis of Financial Condition and Results of Operations”in the companys most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q,copies of which may be obtained by visiting eBays investor relations website at https:/ or the SECs website at www.sec.gov.eBay Inc.Three Months EndingJune 30,2024(In billions,except per share amounts)GAAPNon-GAAP(a)Net revenues$2.49-$2.54$2.49-$2.54Diluted EPS from continuing operations$0.76-$0.81$1.10-$1.15(a)Estimated non-GAAP amounts above for the three months ending June 30,2024 reflect adjustments that exclude the estimated amortization of acquired intangible assets of approximately$8 million,estimated stock-based compensation expense and associated employer payroll tax expense of approximately$155-$165 million,and estimated adjustment between our GAAP and non-GAAP tax rate of approximately$25-$35 million.The estimated GAAP diluted EPS above does not assume any gains or losses on our equity investments.10eBay Inc.Non-GAAP Measures of Financial Performance To supplement the companys condensed consolidated financial statements presented in accordance with generally accepted accounting principles,or GAAP,the company uses non-GAAP measures of certain components of financial performance.These non-GAAP measures include non-GAAP net income,non-GAAP earnings per diluted share,non-GAAP operating income and margin,non-GAAP effective tax rate,free cash flow and figures in this press release presented on an FX-Neutral basis.These non-GAAP financial measures are presented on a continuing operations basis.These non-GAAP measures are not in accordance with,or an alternative to,measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies.In addition,these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the companys results of operations as determined in accordance with GAAP.These measures should only be used to evaluate the companys results of operations in conjunction with the corresponding GAAP measures.Reconciliation to the nearest GAAP measure of all non-GAAP measures included in this press release,except for figures in this press release presented on an“FX-Neutral basis,”can be found in the tables included in this press release.For figures in this press release reported on an FX-Neutral basis,”the company calculates the year-over-year impact of foreign currency movements using prior period foreign currency rates,excluding hedging activity,applied to current year transactional currency amounts.These non-GAAP measures are provided to enhance investors overall understanding of the companys current financial performance and its prospects for the future.Specifically,the company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses,gains and losses,or net purchases of property and equipment,as the case may be,that may not be indicative of its core operating results and business outlook.In addition,because the company has historically reported certain non-GAAP results to investors,the company believes that the inclusion of non-GAAP measures provides consistency in the companys financial reporting.For its internal budgeting process,and as discussed further below,the companys management uses financial measures that do not include stock-based compensation expense,employer payroll taxes on stock-based compensation,amortization or impairment of acquired intangible assets,impairment of goodwill,amortization of deferred tax assets associated with the realignment of its legal structure and related foreign exchange effects,significant gains or losses from the disposal/acquisition of a business,certain gains and losses on investments including changes in fair value,changes in foreign currency exchange rates and the impact of any related foreign exchange derivative instruments,gains or losses associated with a warrant agreement that the company entered into with Adyen,restructuring-related charges and the income taxes associated with the foregoing.In addition to the corresponding GAAP measures,the companys management also uses the foregoing non-GAAP measures in reviewing the financial results of the company.The company excludes the following items from non-GAAP net income,non-GAAP earnings per diluted share,non-GAAP operating income and margin and non-GAAP effective tax rate:Stock-based compensation expense and related employer payroll taxes.This expense consists of expenses for stock options,restricted stock and employee stock purchases.The company excludes stock-based compensation expense from its non-GAAP measures primarily because they are non-cash expenses that management does not believe are reflective of ongoing operating results.The related employer payroll taxes are dependent on the companys stock price and the vesting of restricted stock by employees and the timing and size of stock option exercises,over which management has limited to no control,and as such management does not believe it correlates to the companys operation of the business.Amortization or impairment of acquired intangible assets,impairment of goodwill,certain amortization of deferred tax assets and related foreign exchange effects,significant gains or losses and transaction expenses from the acquisition or disposal of a business and certain gains or losses on investments.The company incurs amortization or impairment of acquired intangible assets and goodwill in connection with acquisitions and may incur significant gains or losses from the acquisition or disposal of a business and therefore excludes these amounts from its non-GAAP measures.The company also excludes certain gains and losses on investments.The company excludes the non-cash amortization of deferred tax assets associated with the realignment of its legal structure,which is not reduced by the effects of the Tax Cuts and Jobs Act,and related foreign exchange effects.The company excludes these items because management does not believe they correlate to the ongoing operating results of the companys business.Restructuring.These charges consist of expenses for employee severance and other exit and disposal costs.The company excludes significant restructuring charges primarily because management does not believe they are reflective of ongoing operating results.Other certain significant gains,losses,or charges that are not indicative of the companys core operating results.These are significant gains,losses,or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly or be repeated in the future.The company excludes these amounts from its results primarily because management does not believe they are indicative of its current or ongoing operating results.These amounts include changes in fair value and the related change in foreign currency exchange rates of equity securities with readily determinable fair values,globally.Change in fair market value of warrant.These are gains or losses associated with a warrant agreement that the company entered into with Adyen,which are attributable to changes in fair value during the period.Income tax effects and adjustments.We use a non-GAAP tax rate for evaluating our operating results.Based on our current long-term projections,we are using a non-GAAP tax rate of 16.5%.This non-GAAP tax rate could change for various reasons including significant changes in our geographic earnings mix or fundamental tax law changes in major jurisdictions in which we operate.In addition to the non-GAAP measures discussed above,the company also uses free cash flow.Free cash flow represents operating cash flows less purchases of property and equipment.The company considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of property,buildings,and equipment,which can then be used to,among other things,invest in the companys business,make strategic acquisitions,repurchase stock and pay dividends.A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the companys cash balance for the period and does not exclude certain non-discretionary expenditures,such as mandatory debt service requirements.11eBay Inc.Reconciliation of GAAP Operating Income to Non-GAAP Operating Income*Three Months EndedMarch 31,20242023(In millions,except percentages)GAAP operating income$631$558 Stock-based compensation expense and related employer payroll taxes 150 132 Amortization of acquired intangible assets within cost of net revenues and operating expenses 8 10 Restructuring(9)42 Non-recurring legal matters(6)Other general and administrative expenses 2 Total non-GAAP operating income adjustments 143 186 Non-GAAP operating income$774$744 GAAP operating margin 24.7.2%Non-GAAP operating margin 30.3).6%*Presented on a continuing operations basisReconciliation of GAAP Net Income to Non-GAAP Net Income and GAAP Effective Tax Rate to Non-GAAP Effective Tax RateThree Months EndedMarch 31,20242023(In millions,except per share amounts and percentages)GAAP income from continuing operations before income taxes$536$730 GAAP provision for income taxes(97)(161)GAAP net income from continuing operations$439$569 Non-GAAP adjustments to net income from continuing operations:Non-GAAP operating income from continuing operations adjustments(see table above)$143$186 Change in fair value of equity investment in Adevinta 234 (174)Change in fair market value of warrant(149)(38)Change in fair market value of other equity investments 12 14 Income tax effects and adjustments(31)43 Non-GAAP net income from continuing operations$648$600 Diluted net income from continuing operations per share:GAAP$0.85$1.05 Non-GAAP$1.25$1.11 Shares used in GAAP diluted net income per share calculation 519 541 Shares used in non-GAAP diluted net income per share calculation 519 541 GAAP effective tax rate Continuing operations 18.1.1%Income tax effects and adjustments to net income from continuing operations(1.6)%(5.6)%Non-GAAP effective tax rate Continuing operations 16.5.5Reconciliation of Operating Cash Flow to Free Cash FlowThree Months EndedMarch 31,20242023(In millions)Net cash provided by operating activities$615$841 Less:Purchases of property and equipment(143)(132)Free cash flow$472$709 13
2024-05-08
13页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,DC 20549FORM 10-Q Quarterly report pursuan.
2024-05-07
74页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)xQUARTERLY REP.
2024-05-07
40页
5星级
UNITED STATES SECURITIES 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 March 23,2024(12 weeks)ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number 1-1183 PepsiCo,Inc.(Exact Name of Registrant as Specified in its Charter)North Carolina13-1584302(State or Other Jurisdiction ofIncorporation or Organization)(I.R.S.EmployerIdentification No.)700 Anderson Hill Road,Purchase,New York 10577(Address of principal executive offices and Zip Code)(914)253-2000 Registrants telephone number,including area codeN/A(Former Name,Former Address and Former Fiscal Year,if Changed Since Last Report)Securities registered pursuant to Section 12(b)of the Securities Exchange Act of 1934:Title of each classTrading SymbolsName of each exchange on which registeredCommon Stock,par value 1-2/3 cents per sharePEPThe Nasdaq Stock Market LLC0.250%Senior Notes Due 2024PEP24The Nasdaq Stock Market LLC2.625%Senior Notes Due 2026PEP26The Nasdaq Stock Market LLC0.750%Senior Notes Due 2027PEP27The Nasdaq Stock Market LLC0.875%Senior Notes Due 2028PEP28The Nasdaq Stock Market LLC0.500%Senior Notes Due 2028PEP28AThe Nasdaq Stock Market LLC3.200%Senior Notes Due 2029PEP29The Nasdaq Stock Market LLC1.125%Senior Notes Due 2031PEP31The Nasdaq Stock Market LLC0.400%Senior Notes Due 2032PEP32The Nasdaq Stock Market LLC0.750%Senior Notes Due 2033PEP33The Nasdaq Stock Market LLC3.550%Senior Notes Due 2034PEP34The Nasdaq Stock Market LLC0.875%Senior Notes Due 2039PEP39The Nasdaq Stock Market LLC1.050%Senior Notes Due 2050PEP50The 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.Yes No Indicate 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).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or 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).Yes No Number of shares of Common Stock outstanding as of April 16,2024 was 1,374,785,980.PepsiCo,Inc.and SubsidiariesTable of ContentsPage No.Part I Financial InformationItem 1.Condensed Consolidated Financial Statements2Condensed Consolidated Statement of Income 12 Weeks Ended March 23,2024 and March 25,20232Condensed Consolidated Statement of Comprehensive Income 12 Weeks Ended March 23,2024 and March 25,20233Condensed Consolidated Statement of Cash Flows 12 Weeks Ended March 23,2024 and March 25,20234Condensed Consolidated Balance Sheet March 23,2024 and December 30,20236Condensed Consolidated Statement of Equity 12 Weeks Ended March 23,2024 and March 25,20237Notes to the Condensed Consolidated Financial Statements8Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations21Report of Independent Registered Public Accounting Firm38Item 3.Quantitative and Qualitative Disclosures About Market Risk39Item 4.Controls and Procedures39Part II Other InformationItem 1.Legal Proceedings40Item 1A.Risk Factors40Item 2.Unregistered Sales of Equity Securities and Use of Proceeds40Item 5.Other Information40Item 6.Exhibits40Table of Contents1PART I FINANCIAL INFORMATIONITEM 1.Condensed Consolidated Financial Statements.Condensed Consolidated Statement of IncomePepsiCo,Inc.and Subsidiaries(in millions except per share amounts,unaudited)12 Weeks Ended 3/23/20243/25/2023Net Revenue$18,250$17,846 Cost of sales 8,248 7,988 Gross profit 10,002 9,858 Selling,general and administrative expenses 7,285 7,229 Operating Profit 2,717 2,629 Other pension and retiree medical benefits income 58 61 Net interest expense and other(202)(200)Income before income taxes 2,573 2,490 Provision for income taxes 520 546 Net income 2,053 1,944 Less:Net income attributable to noncontrolling interests 11 12 Net Income Attributable to PepsiCo$2,042$1,932 Net Income Attributable to PepsiCo per Common ShareBasic$1.49$1.40 Diluted$1.48$1.40 Weighted-average common shares outstandingBasic 1,375 1,378 Diluted 1,380 1,384 See accompanying notes to the condensed consolidated financial statements.Table of Contents2Condensed Consolidated Statement of Comprehensive IncomePepsiCo,Inc.and Subsidiaries(in millions,unaudited)12 Weeks Ended3/23/20243/25/2023Net income$2,053$1,944 Other comprehensive income/(loss),net of taxes:Net currency translation adjustment(182)(235)Net change on cash flow hedges 3 (59)Net pension and retiree medical adjustments 11 (4)Net change on available-for-sale debt securities and other 523 (1)355 (299)Comprehensive income 2,408 1,645 Less:Comprehensive income attributable tononcontrolling interests 11 12 Comprehensive Income Attributable to PepsiCo$2,397$1,633 See accompanying notes to the condensed consolidated financial statements.Table of Contents3Condensed Consolidated Statement of Cash FlowsPepsiCo,Inc.and Subsidiaries(in millions,unaudited)12 Weeks Ended3/23/20243/25/2023Operating ActivitiesNet income$2,053$1,944 Depreciation and amortization 641 590 Impairment and other charges/(credits)(13)Product recall-related impact 167 Cash payments for product recall-related impact(108)Operating lease right-of-use asset amortization 127 116 Share-based compensation expense 97 93 Restructuring and impairment charges 96 112 Cash payments for restructuring charges(60)(64)Pension and retiree medical plan expense 31 30 Pension and retiree medical plan contributions(218)(175)Deferred income taxes and other tax charges and credits 116 78 Change in assets and liabilities:Accounts and notes receivable(96)(348)Inventories(291)(542)Prepaid expenses and other current assets(342)(288)Accounts payable and other current liabilities(3,408)(2,259)Income taxes payable 222 290 Other,net(68)44 Net Cash Used for Operating Activities(1,041)(392)Investing ActivitiesCapital spending(614)(581)Sales of property,plant and equipment 7 19 Acquisitions,net of cash acquired,investments in noncontrolled affiliates and purchases of intangible and other assets(6)(16)Other divestitures,sales of investments in noncontrolled affiliates and other assets 53 85 Short-term investments,by original maturity:More than three months-purchases (158)More than three months-maturities 100 Three months or less,net 8 19 Other investing,net(10)Net Cash Used for Investing Activities(562)(532)(Continued on following page)Table of Contents4Condensed Consolidated Statement of Cash Flows(continued)PepsiCo,Inc.and Subsidiaries(in millions,unaudited)12 Weeks Ended3/23/20243/25/2023Financing ActivitiesProceeds from issuances of long-term debt$1,761$2,986 Payments of long-term debt(1,252)(1,251)Short-term borrowings,by original maturity:More than three months-proceeds 2,313 393 More than three months-payments(1,631)(1)Three months or less,net 774 491 Cash dividends paid(1,767)(1,608)Share repurchases(146)(160)Proceeds from exercises of stock options 66 46 Withholding tax payments on restricted stock units(RSUs)and performance stock units(PSUs)converted(108)(116)Other financing (3)Net Cash Provided by Financing Activities 10 777 Effect of exchange rate changes on cash and cash equivalents and restricted cash(38)(116)Net Decrease in Cash and Cash Equivalents and Restricted Cash(1,631)(263)Cash and Cash Equivalents and Restricted Cash,Beginning of Year 9,761 5,100 Cash and Cash Equivalents and Restricted Cash,End of Period$8,130$4,837 Supplemental Non-Cash ActivityRight-of-use assets obtained in exchange for lease obligations$259$213 See accompanying notes to the condensed consolidated financial statements.Table of Contents5Condensed Consolidated Balance SheetPepsiCo,Inc.and Subsidiaries(in millions except per share amounts)(Unaudited)3/23/202412/30/2023ASSETSCurrent AssetsCash and cash equivalents$8,047$9,711 Short-term investments 303 292 Accounts and notes receivable,less allowance($180 and$175,respectively)10,938 10,815 Inventories:Raw materials and packaging 2,465 2,388 Work-in-process 97 104 Finished goods 3,007 2,842 5,569 5,334 Prepaid expenses and other current assets 1,148 798 Total Current Assets 26,005 26,950 Property,plant and equipment 54,510 54,439 Accumulated depreciation(27,718)(27,400)Property,Plant and Equipment,net 26,792 27,039 Amortizable Intangible Assets,net 1,173 1,199 Goodwill 17,646 17,728 Other Indefinite-Lived Intangible Assets 13,680 13,730 Investments in Noncontrolled Affiliates 2,734 2,714 Deferred Income Taxes 4,444 4,474 Other Assets 7,566 6,661 Total Assets$100,040$100,495 LIABILITIES AND EQUITYCurrent LiabilitiesShort-term debt obligations$8,161$6,510 Accounts payable and other current liabilities 22,073 25,137 Total Current Liabilities 30,234 31,647 Long-Term Debt Obligations 37,707 37,595 Deferred Income Taxes 4,087 3,895 Other Liabilities 8,822 8,721 Total Liabilities 80,850 81,858 Commitments and contingenciesPepsiCo Common Shareholders EquityCommon stock,par value 12/3 per share(authorized 3,600 shares;issued,net of repurchased common stock at par value:1,375 and 1,374 shares,respectively)23 23 Capital in excess of par value 4,132 4,261 Retained earnings 70,331 70,035 Accumulated other comprehensive loss(15,179)(15,534)Repurchased common stock,in excess of par value(492 and 493 shares,respectively)(40,260)(40,282)Total PepsiCo Common Shareholders Equity 19,047 18,503 Noncontrolling interests 143 134 Total Equity 19,190 18,637 Total Liabilities and Equity$100,040$100,495 See accompanying notes to the condensed consolidated financial statements.Table of Contents6Condensed Consolidated Statement of EquityPepsiCo,Inc.and Subsidiaries(in millions,except per share amounts,unaudited)12 Weeks Ended3/23/20243/25/2023SharesAmountSharesAmountCommon StockBalance,beginning of period 1,374$23 1,377$23 Change in repurchased common stock 1 1 Balance,end of period 1,375 23 1,378 23 Capital in Excess of Par ValueBalance,beginning of period 4,261 4,134 Share-based compensation expense 92 94 Stock option exercises,RSUs and PSUs converted(113)(116)Withholding tax on RSUs and PSUs converted(108)(116)Balance,end of period 4,132 3,996 Retained EarningsBalance,beginning of period 70,035 67,800 Net income attributable to PepsiCo 2,042 1,932 Cash dividends declared(a)(1,746)(1,590)Balance,end of period 70,331 68,142 Accumulated Other Comprehensive LossBalance,beginning of period(15,534)(15,302)Other comprehensive income/(loss)attributable to PepsiCo 355 (299)Balance,end of period(15,179)(15,601)Repurchased Common StockBalance,beginning of period(493)(40,282)(490)(39,506)Share repurchases(1)(158)(1)(174)Stock option exercises,RSUs and PSUs converted 2 179 2 162 Other 1 Balance,end of period(492)(40,260)(489)(39,518)Total PepsiCo Common Shareholders Equity 19,047 17,042 Noncontrolling InterestsBalance,beginning of period 134 124 Net income attributable to noncontrolling interest 11 12 Distributions to noncontrolling interests(1)(1)Other,net(1)(2)Balance,end of period 143 133 Total Equity$19,190$17,175(a)Cash dividends declared per common share were$1.265 and$1.15 for the 12 weeks ended March 23,2024 and March 25,2023,respectively.See accompanying notes to the condensed consolidated financial statements.Table of Contents7Notes to the Condensed Consolidated Financial StatementsNote 1-Basis of Presentation and Our DivisionsBasis of PresentationWhen used in this report,the terms“we,”“us,”“our,”“PepsiCo”and the“Company”mean PepsiCo,Inc.and its consolidated subsidiaries,collectively.The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.Generally Accepted Accounting Principles(GAAP)for interim financial information and with the rules and regulations for reporting the Quarterly Report on Form 10-Q(Form 10-Q).Accordingly,they do not include all of the information and footnotes required by GAAP for complete financial statements.The condensed consolidated balance sheet at December 30,2023 has been derived from the audited consolidated financial statements at that date,but does not include all of the information and footnotes required by GAAP for complete financial statements.These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 30,2023(2023 Form 10-K).This report should be read in conjunction with our 2023 Form 10-K.In our opinion,these financial statements include all normal and recurring adjustments necessary for a fair presentation.The results for the 12 weeks ended March 23,2024 are not necessarily indicative of the results expected for any future period or the full year.Raw materials,direct labor and plant overhead,as well as purchasing and receiving costs,costs directly related to production planning,inspection costs and raw materials handling facilities,are included in cost of sales.The costs of moving,storing and delivering finished product,including merchandising activities,are included in selling,general and administrative expenses.While our financial results in the United States and Canada(North America)are reported on a 12-week basis,all of our international operations are reported on a monthly calendar basis for which the months of January and February are reflected in our results for the 12 weeks ended March 23,2024 and March 25,2023.The preparation of our condensed consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and related disclosures.Additionally,the business and economic uncertainty resulting from volatile geopolitical conditions and the high interest rate and inflationary cost environment has made such estimates and assumptions more difficult to calculate.Accordingly,actual results and outcomes could differ from those estimates.Our significant interim accounting policies include the recognition of a pro rata share of certain estimated annual sales incentives and certain advertising and marketing costs in proportion to revenue or volume,as applicable,and the recognition of income taxes using an estimated annual effective tax rate.Unless otherwise noted,tabular dollars are in millions,except per share amounts.All per share amounts reflect common per share amounts,assume dilution unless otherwise noted,and are based on unrounded amounts.Certain reclassifications were made to the prior years financial statements to conform to the current year presentation.Our DivisionsWe are organized into seven reportable segments(also referred to as divisions),as follows:1)Frito-Lay North America(FLNA),which includes our branded convenient food businesses in the United States and Canada;Table of Contents82)Quaker Foods North America(QFNA),which includes our branded convenient food businesses,such as cereal,rice,pasta and other branded food,in the United States and Canada;3)PepsiCo Beverages North America(PBNA),which includes our beverage businesses in the United States and Canada;4)Latin America(LatAm),which includes all of our beverage and convenient food businesses in Latin America;5)Europe,which includes all of our beverage and convenient food businesses in Europe;6)Africa,Middle East and South Asia(AMESA),which includes all of our beverage and convenient food businesses in Africa,the Middle East and South Asia;and7)Asia Pacific,Australia and New Zealand and China region(APAC),which includes all of our beverage and convenient food businesses in Asia Pacific,Australia and New Zealand,and China region.Net revenue of each division is as follows:12 Weeks Ended3/23/20243/25/2023FLNA$5,676$5,583 QFNA 593 777 PBNA 5,874 5,798 LatAm 2,067 1,777 Europe 1,936 1,886 AMESA 1,040 1,019 APAC 1,064 1,006 Total$18,250$17,846 Our primary performance obligation is the distribution and sales of beverage and convenient food products to our customers.The following table reflects the percentage of net revenue generated between our beverage business and our convenient food business for each of our international divisions,as well as our consolidated net revenue:12 Weeks Ended3/23/20243/25/2023Beverages(a)Convenient FoodsBeverages(a)Convenient FoodsLatAm 9%9%Europe 45UFT%AMESA 32h1i%APAC 15%PepsiCo 41YAY%(a)Beverage revenue from company-owned bottlers,which primarily includes our consolidated bottling operations in our PBNA and Europe divisions,was 35%and 36%of our consolidated net revenue in the 12 weeks ended March 23,2024 and March 25,2023,respectively.Generally,our finished goods beverage operations produce higher net revenue but lower operating margin as compared to concentrate sold to authorized bottling partners for the manufacture of finished goods beverages.Table of Contents9Operating profit/(loss)of each division is as follows:12 Weeks Ended3/23/20243/25/2023FLNA$1,554$1,599 QFNA(a)(49)188 PBNA 510 483 LatAm 485 364 Europe 202 71 AMESA 152 168 APAC 233 227 Total divisions 3,087 3,100 Corporate unallocated expenses (370)(471)Total$2,717$2,629(a)In the 12 weeks ended March 23,2024,operating loss included a pre-tax charge of$167 million($128 million after-tax or$0.09 per share)in cost of sales for property,plant and equipment write-offs,employee severance costs and other costs associated with a previously announced voluntary recall of certain bars and cereals in our QFNA division(Quaker Recall).Note 2-Recently Issued Accounting PronouncementsAdoptedIn September 2022,the Financial Accounting Standards Board(FASB)issued guidance to enhance the transparency of supplier finance programs to allow financial statement users to understand the effect on working capital,liquidity and cash flows.The new guidance requires disclosure of key terms of the program,including a description of the payment terms,payment timing and assets pledged as security or other forms of guarantees provided to the finance provider or intermediary.Other requirements include the disclosure of the amount that remains unpaid as of the end of the reporting period,a description of where these obligations are presented in the balance sheet and a rollforward of the obligation during the annual period.We adopted the guidance in the first quarter of 2023,except for the rollforward,which is effective for the current fiscal year 2024.We will adopt the rollforward guidance when it becomes effective in our 2024 annual reporting,on a prospective basis.See Note 12 for disclosures currently required under this guidance.Not Yet AdoptedIn December 2023,the FASB issued guidance to enhance transparency of income tax disclosures.On an annual basis,the new guidance requires a public entity to disclose:(1)specific categories in the rate reconciliation,(2)additional information for reconciling items that are equal to or greater than 5%of the amount computed by multiplying income(or loss)from continuing operations before income tax expense(or benefit)by the applicable statutory income tax rate,(3)income taxes paid(net of refunds received)disaggregated by federal(national),state,and foreign taxes,with foreign taxes disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than 5%of total income taxes paid,(4)income(or loss)from continuing operations before income tax expense(or benefit)disaggregated between domestic and foreign,and(5)income tax expense(or benefit)from continuing operations disaggregated between federal(national),state and foreign.The guidance is effective for fiscal year 2025 annual reporting,with early adoption permitted,to be applied on a prospective basis,with retrospective application permitted.We will adopt the guidance when it becomes effective,in our 2025 annual reporting,on a prospective basis.Table of Contents10In November 2023,the FASB issued guidance to enhance disclosure of expenses of a public entitys reportable segments.The new guidance requires a public entity to disclose:(1)on an annual and interim basis,significant segment expenses that are regularly provided to the chief operating decision maker(CODM)and included within each reported measure of segment profit or loss,(2)on an annual and interim basis,an amount for other segment items(the difference between segment revenue less the significant expenses disclosed under the significant expense principle and each reported measure of segment profit or loss),including a description of its composition,(3)on an annual and interim basis,information about a reportable segments profit or loss and assets previously required to be disclosed only on an annual basis,and(4)the title and position of the CODM and an explanation of how the CODM uses the reported measure(s)of segment profit or loss in assessing segment performance and how to allocate resources.The new guidance also clarifies that if the CODM uses more than one measure of a segments profit or loss,one or more of those measures may be reported and requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this update and all existing segment disclosures.The guidance is effective for the current fiscal year 2024 annual reporting,and in the first quarter of 2025 for interim period reporting,with early adoption permitted.Upon adoption,this guidance should be applied retrospectively to all prior periods presented.We will adopt the guidance when it becomes effective in our 2024 annual reporting.Note 3-Restructuring and Impairment Charges2019 Multi-Year Productivity PlanWe publicly announced a multi-year productivity plan on February 15,2019(2019 Productivity Plan)that leverages new technology and business models to further simplify,harmonize and automate processes;re-engineer our go-to-market and information systems,including deploying the right automation for each market;and simplify our organization and optimize our manufacturing and supply chain footprint.To build on the successful implementation of the 2019 Productivity Plan,in 2022,we expanded and extended the plan through the end of 2028 to take advantage of additional opportunities within the initiatives described above.As a result,we expect to incur pre-tax charges of approximately$3.65 billion,including cash expenditures of approximately$2.9 billion.These pre-tax charges are expected to consist of approximately 55%of severance and other employee-related costs,10%for asset impairments(all non-cash)resulting from plant closures and related actions,and 35%for other costs associated with the implementation of our initiatives.The total plan pre-tax charges are expected to be incurred by division approximately as follows:FLNAQFNAPBNALatAmEuropeAMESAAPACCorporateExpected pre-tax charges 10%10%5%4%A summary of our 2019 Productivity Plan charges is as follows:12 Weeks Ended3/23/20243/25/2023Cost of sales$6$3 Selling,general and administrative expenses 83 110 Other pension and retiree medical benefits expense/(income)(a)7 (1)Total restructuring and impairment charges$96$112 After-tax amount$76$98 Impact on net income attributable to PepsiCo per common share$(0.05)$(0.07)Table of Contents1112 Weeks EndedPlan to Date3/23/20243/25/2023through 3/23/2024FLNA$22$7$274 QFNA 4 23 PBNA 10 5 277 LatAm 5 5 205 Europe 18 89 584 AMESA 5 97 APAC 1 85 Corporate 30 1 347 89 113 1,892 Other pension and retiree medical benefits expense/(income)(a)7 (1)104 Total$96$112$1,996(a)Income amount represents adjustments for changes in estimates of previously recorded amounts.12 Weeks EndedPlan to Date3/23/20243/25/2023through 3/23/2024Severance and other employee costs$72$92$1,122 Asset impairments 1 193 Other costs 23 20 681 Total$96$112$1,996 Severance and other employee costs primarily include severance and other termination benefits,as well as voluntary separation arrangements.Other costs primarily include costs associated with the implementation of our initiatives,including contract termination costs,consulting and other professional fees.A summary of our 2019 Productivity Plan activity for the 12 weeks ended March 23,2024 is as follows:Severance and Other Employee CostsAsset ImpairmentsOther CostsTotalLiability as of December 30,2023$188$9$197 2024 restructuring charges 72 1 23 96 Cash payments(39)(21)(60)Non-cash charges and translation(5)(1)(1)(7)Liability as of March 23,2024$216$10$226 Substantially all of the restructuring accrual at March 23,2024 is expected to be paid by the end of 2024.Other Productivity InitiativesThere were no material charges related to other productivity and efficiency initiatives outside the scope of the 2019 Productivity Plan.We regularly evaluate different productivity initiatives beyond the productivity plan and other initiatives described above.Table of Contents12Note 4-Intangible AssetsA summary of our amortizable intangible assets is as follows:3/23/202412/30/2023GrossAccumulated AmortizationNetGrossAccumulated AmortizationNetAcquired franchise rights$835$(216)$619$840$(214)$626 Customer relationships 553 (267)286 560 (265)295 Brands 1,086 (987)99 1,093 (989)104 Other identifiable intangibles 445 (276)169 449 (275)174 Total$2,919$(1,746)$1,173$2,942$(1,743)$1,199 Table of Contents13The change in the book value of indefinite-lived intangible assets is as follows:Balance12/30/2023Translationand OtherBalance3/23/2024FLNAGoodwill$453$(2)$451 Brands 251 251 Total 704 (2)702 QFNAGoodwill 189 189 Total 189 189 PBNA Goodwill 11,961 (10)11,951 Reacquired franchise rights 7,114 (18)7,096 Acquired franchise rights 1,737 (3)1,734 Brands 2,508 2,508 Total 23,320 (31)23,289 LatAmGoodwill 460 (8)452 Brands 82 (1)81 Total 542 (9)533 EuropeGoodwill 3,166 (30)3,136 Reacquired franchise rights 419 (6)413 Acquired franchise rights 154 (4)150 Brands 1,124 (7)1,117 Total 4,863 (47)4,816 AMESA Goodwill 991 (22)969 Brands 137 (5)132 Total 1,128 (27)1,101 APAC Goodwill 508 (10)498 Brands 204 (6)198 Total 712 (16)696 Total goodwill 17,728 (82)17,646 Total reacquired franchise rights 7,533 (24)7,509 Total acquired franchise rights 1,891 (7)1,884 Total brands 4,306 (19)4,287 Total$31,458$(132)$31,326 Table of Contents14Note 5-Income TaxesNumerous countries have agreed to a statement in support of the Organization for Economic Co-operation and Development(OECD)model rules that propose a global minimum tax rate of 15%.Certain countries have enacted legislation incorporating the agreed global minimum tax effective in 2024.Legislation enacted as of March 23,2024 did not have a material impact on our financial statements for the 12 weeks ended March 23,2024 and is not expected to have a material impact on our 2024 financial statements.Note 6-Share-Based CompensationThe following table summarizes our total share-based compensation expense,which is primarily recorded in selling,general and administrative expenses:12 Weeks Ended3/23/20243/25/2023Share-based compensation expense equity awards$97$93 Share-based compensation expense liability awards 5 6 Restructuring charges(5)1 Total$97$100 The following table summarizes share-based awards granted under the terms of the PepsiCo,Inc.Long-Term Incentive Plan:12 Weeks Ended3/23/20243/25/2023Granted(a)Weighted-Average Grant PriceGranted(a)Weighted-Average Grant PriceStock options 1.8$164.25 2.0$171.00 RSUs and PSUs 2.3$164.25 2.1$171.00(a)In millions.All grant activity is disclosed at target.We granted long-term cash awards to certain executive officers and other senior executives with an aggregate target value of$19 million for both the 12 weeks ended March 23,2024 and March 25,2023.Our weighted-average Black-Scholes fair value assumptions are as follows:12 Weeks Ended 3/23/20243/25/2023Expected life7 years7 yearsRisk-free interest rate 4.2%4.2%Expected volatility 16%Expected dividend yield 2.9%2.7%Table of Contents15Note 7-Pension and Retiree Medical BenefitsThe components of net periodic benefit cost/(income)for pension and retiree medical plans are as follows:12 Weeks Ended PensionRetiree Medical U.S.International 3/23/20243/25/20233/23/20243/25/20233/23/20243/25/2023Service cost$80$76$9$8$7$6 Other pension and retiree medical benefits income:Interest cost 135 137 27 25 7 8 Expected return on plan assets(201)(197)(39)(35)(3)(3)Amortization of prior service credits(6)(6)(1)(1)Amortization of net losses/(gains)18 16 4 2 (6)(6)Special termination benefits 7 (1)Total other pension and retiree medical benefits income(47)(51)(8)(8)(3)(2)Total$33$25$1$4$4 We regularly evaluate opportunities to reduce risk and volatility associated with our pension and retiree medical plans.In the 12 weeks ended March 23,2024 and March 25,2023,we made discretionary contributions of$150 million and$125 million,respectively,to our U.S.qualified defined benefit plans,and$27 million and$17 million,respectively,to our international defined benefit plans.Note 8-Debt Obligations In the 12 weeks ended March 23,2024,we issued,through our wholly-owned consolidated finance subsidiary,PepsiCo Singapore Financing I Pte.Ltd.,the following notes:(a)Interest RateMaturity DatePrincipal Amount(b)Floating rateFebruary 2027$300 4.650bruary 2027$550 4.550bruary 2029$450 4.700bruary 2034$450(a)PepsiCo Singapore Financing I Pte.Ltd.is a finance subsidiary and has no assets,operations,revenues or cash flows other than those related to the issuance,administration and repayment of the notes and any other notes that may be issued in the future.The notes are fully and unconditionally guaranteed by PepsiCo,Inc.on a senior unsecured basis and may be assumed at any time by PepsiCo,Inc.as the primary and sole obligor.(b)Excludes debt issuance costs,discounts and premiums.The net proceeds from the issuances of the above notes were used for general corporate purposes,including the repayment of commercial paper.In the 12 weeks ended March 23,2024,$1.3 billion of U.S.dollar-denominated senior notes matured and were paid.As of March 23,2024,we had$3.6 billion of commercial paper outstanding,excluding discounts.Table of Contents16Note 9-Financial InstrumentsWe are exposed to market risks arising from adverse changes in:commodity prices,affecting the cost of our raw materials and energy;foreign exchange rates and currency restrictions;andinterest rates.There have been no material changes during the 12 weeks ended March 23,2024 with respect to our risk management policies or strategies and valuation techniques used in measuring the fair value of the financial assets or liabilities disclosed in Note 9 to our consolidated financial statements in our 2023 Form 10-K.Certain of our agreements with our counterparties require us to post full collateral on derivative instruments in a net liability position if our credit rating is at A2(Moodys Investors Service,Inc.)or A(S&P Global Ratings)and we have been placed on credit watch for possible downgrade or if our credit rating falls below either of these levels.The fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of March 23,2024 was$178 million.We have posted no collateral under these contracts and no credit-risk-related contingent features were triggered as of March 23,2024.The notional amounts of our financial instruments used to hedge the above risks as of March 23,2024 and December 30,2023 are as follows:Notional Amounts(a)3/23/202412/30/2023Commodity$1.5$1.7 Foreign exchange$3.9$3.8 Interest rate$1.3$1.3 Net investment(b)$3.0$3.0(a)In billions.(b)The total notional amount of our net investment hedges consists of non-derivative debt instruments.As of March 23,2024,approximately 12%of total debt,after the impact of the related interest rate derivative instruments,was subject to variable rates,compared to 9%as of December 30,2023.Debt SecuritiesHeld-to-MaturityAs of March 23,2024,we had no investments in held-to-maturity debt securities.As of December 30,2023,we had$309 million of investments in commercial paper held-to-maturity debt securities recorded in cash and cash equivalents.Held-to-maturity debt securities are recorded at amortized cost,which approximates fair value,and realized gains or losses are reported in earnings.As of December 30,2023,gross unrecognized gains and losses and the allowance for expected credit losses were not material.Available-for-SaleThere were no impairment charges related to investments in available-for-sale debt securities in both the 12 weeks ended March 23,2024 and March 25,2023.Related to our Level 3(significant unobservable inputs)investment in Celsius Holdings,Inc.(Celsius),we recorded an unrealized gain of$691 million in other comprehensive income during the 12 weeks ended March 23,2024.There were no Level 3 investments during the 12 weeks ended March 25,2023.Table of Contents17Recurring Fair Value MeasurementsThe fair values of our financial assets and liabilities as of March 23,2024 and December 30,2023 are categorized as follows:3/23/202412/30/2023 Fair Value Hierarchy Levels(a)Assets(a)Liabilities(a)Assets(a)Liabilities(a)Available-for-sale debt securities(b)2,3$2,027$1,334$Index funds(c)1$303$292$Prepaid forward contracts(d)2$13$13$Deferred compensation(e)2$491$477 Derivatives designated as cash flow hedging instruments:Foreign exchange(f)2$9$16$3$31 Interest rate(f)2 155 5 135 Commodity(g)2 4 26 10 24$13$197$18$190 Derivatives not designated as hedging instruments:Foreign exchange(f)2$8$17$33$38 Commodity(g)2 7 7 5 13$15$24$38$51 Total derivatives at fair value(h)$28$221$56$241 Total$2,371$712$1,695$718(a)Fair value hierarchy levels are categorized consistently by Level 1(quoted prices in active markets for identical assets),Level 2(significant other observable inputs)and Level 3 in both years.Unless otherwise noted,financial assets are classified on our balance sheet within prepaid expenses and other current assets and other assets.Financial liabilities are classified on our balance sheet within accounts payable and other current liabilities and other liabilities.(b)Includes Level 2 assets of$180 million and Level 3 assets of$1,847 million as of March 23,2024,and Level 2 assets of$178 million and Level 3 assets of$1,156 million as of December 30,2023.As of March 23,2024 and December 30,2023,$2,027 million and$1,334 million were classified as other assets,respectively.The fair values of our Level 2 investments approximate the transaction price and any accrued returns,as well as the amortized cost.The fair value of our Level 3 investment in Celsius is estimated using probability-weighted discounted future cash flows based on a Monte Carlo simulation using significant unobservable inputs such as an 80%probability that a certain market-based condition will be met and an average estimated discount rate of 8.1sed on Celsius estimated synthetic credit rating.An increase in the probability that certain market-based conditions will be met or a decrease in the discount rate would result in a higher fair value measurement,while a decrease in the probability that certain market-based conditions will be met or an increase in the discount rate would result in a lower fair value measurement.(c)Based on the price of index funds.These investments are classified as short-term investments and are used to manage a portion of market risk arising from our deferred compensation liability.(d)Based primarily on the price of our common stock.(e)Based on the fair value of investments corresponding to employees investment elections.(f)Based on recently reported market transactions of spot and forward rates.(g)Primarily based on recently reported market transactions of swap arrangements.(h)Derivative assets and liabilities are presented on a gross basis on our balance sheet.Amounts subject to enforceable master netting arrangements or similar agreements which are not offset on our balance sheet as of March 23,2024 and December 30,2023 were not material.Collateral received or posted against our asset or liability positions was not material.Exchange-traded commodity futures are cash-settled on a daily basis and,therefore,not included in the table.The carrying amounts of our cash and cash equivalents and short-term investments recorded at amortized cost approximate fair value(classified as Level 2 in the fair value hierarchy)due to their short-term maturity.The fair value of our debt obligations as of March 23,2024 and December 30,2023 was$42 billion and$41 billion,respectively,based upon prices of identical or similar instruments in the marketplace,which are considered Level 2 inputs.Table of Contents18Losses/(gains)on our cash flow and net investment hedges are categorized as follows:12 Weeks Ended Losses/(Gains)Recognized inAccumulated OtherComprehensive LossLosses/(Gains)Reclassified fromAccumulated OtherComprehensive Lossinto Income Statement(a)3/23/20243/25/20233/23/20243/25/2023Foreign exchange$(14)$16$9$1 Interest rate 25 11 24 3 Commodity 39 65 21 9 Net investment(52)37 Total$(2)$129$54$13(a)Foreign exchange derivative losses/(gains)are included in net revenue and cost of sales.Interest rate derivative losses/(gains)are included in selling,general and administrative expenses.Commodity derivative losses/(gains)are included in either cost of sales or selling,general and administrative expenses,depending on the underlying commodity.See Note 11 for further information.Based on current market conditions,we expect to reclassify net losses of$107 million related to our cash flow hedges from accumulated other comprehensive loss within common shareholders equity into net income during the next 12 months.Losses/(gains)recognized in the income statement related to our non-designated hedges are categorized as follows:12 Weeks Ended3/23/20243/25/2023Cost of salesSelling,general and administrative expensesTotalCost of salesSelling,general and administrative expensesTotalForeign exchange$18$18$(1)$(5)$(6)Commodity(1)(25)(26)31 50 81 Total$(1)$(7)$(8)$30$45$75 Note 10-Net Income Attributable to PepsiCo per Common ShareThe computations of basic and diluted net income attributable to PepsiCo per common share are as follows:12 Weeks Ended 3/23/20243/25/2023 IncomeShares(a)IncomeShares(a)Basic net income attributable to PepsiCo per common share$1.49$1.40 Net income available for PepsiCo common shareholders$2,042 1,375$1,932 1,378 Dilutive securities:Stock options,RSUs,PSUs and other(b)5 6 Diluted$2,042 1,380$1,932 1,384 Diluted net income attributable to PepsiCo per common share$1.48$1.40(a)Weighted-average common shares outstanding(in millions).(b)The dilutive effect of these securities is calculated using the treasury stock method.Table of Contents19The weighted-average amount of antidilutive securities excluded from the calculation of diluted earnings per common share was 5 million and 3 million for the 12 weeks ended March 23,2024 and March 25,2023,respectively.Note 11-Accumulated Other Comprehensive Loss Attributable to PepsiCoThe changes in the balances of each component of accumulated other comprehensive loss attributable to PepsiCo are as follows:Currency Translation AdjustmentCash Flow HedgesPension and Retiree MedicalAvailable-for-sale debt securities and other(a)Accumulated Other Comprehensive Loss Attributable to PepsiCoBalance as of December 30,2023(b)$(13,255)$(31)$(2,719)$471$(15,534)Other comprehensive(loss)/income before reclassifications(c)(168)(47)4 685 474 Amounts reclassified from accumulated other comprehensive loss 51 9 60 Net other comprehensive(loss)/income(168)4 13 685 534 Tax amounts(14)(1)(2)(162)(179)Balance as of March 23,2024(b)$(13,437)$(28)$(2,708)$994$(15,179)(a)The changes primarily represent fair value increases in available-for-sale debt securities,including our investment in Celsius convertible preferred stock.See Note 9 for further information.(b)Pension and retiree medical amounts are net of taxes of$1,282 million as of December 30,2023 and$1,280 million as of March 23,2024.(c)Currency translation adjustment primarily reflects depreciation of the South African rand,Canadian dollar and Russian ruble.Currency Translation AdjustmentCash Flow HedgesPension and Retiree MedicalAvailable-for-sale debt securities and otherAccumulated Other Comprehensive Loss Attributable to PepsiCoBalance as of December 31,2022(a)$(12,948)$1$(2,361)$6$(15,302)Other comprehensive loss before reclassifications(b)(350)(92)(9)(1)(452)Amounts reclassified from accumulated other comprehensive loss(c)108 13 5 126 Net other comprehensive loss(242)(79)(4)(1)(326)Tax amounts 7 20 27 Balance as of March 25,2023(a)$(13,183)$(58)$(2,365)$5$(15,601)(a)Pension and retiree medical amounts are net of taxes of$1,184 million as of both December 31,2022 and March 25,2023.(b)Currency translation adjustment primarily reflects depreciation of the Egyptian pound and Russian ruble.(c)Release of currency translation adjustment is in relation to the sale of a non-strategic brand and an investment within our AMESA division.Table of Contents20The reclassifications from accumulated other comprehensive loss to the income statement are summarized as follows:12 Weeks Ended3/23/20243/25/2023Affected Line Item in the Income StatementCurrency translation:Divestitures$108 Selling,general and administrative expensesCash flow hedges:Foreign exchange contracts$(2)Net revenueForeign exchange contracts 9 3 Cost of salesInterest rate derivatives 21 3 Selling,general and administrative expensesCommodity contracts 21 10 Cost of salesCommodity contracts (1)Selling,general and administrative expensesNet losses before tax 51 13 Tax amounts(13)(4)Net losses after tax$38$9 Pension and retiree medical items:Amortization of prior service credits$(7)$(7)Other pension and retiree medical benefits incomeAmortization of net losses 16 12 Other pension and retiree medical benefits incomeNet losses before tax 9 5 Tax amounts(2)(1)Net losses after tax$7$4 Total net losses reclassified,net of tax$45$121 Note 12-Supply Chain Financing ArrangementsWe maintain voluntary supply chain finance agreements with several participating global financial institutions.Under these agreements,our suppliers,at their sole discretion,may elect to sell their accounts receivable with PepsiCo to these participating global financial institutions.As of March 23,2024 and December 30,2023,$1.6 billion and$1.7 billion,respectively,of our accounts payable are to suppliers participating in these financing arrangements.For further information on the key terms of these supply chain financing programs,see Note 14 to our consolidated financial statements in our 2023 Form 10-K.Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations.FINANCIAL REVIEWOur discussion and analysis is intended to help the reader understand our results of operations and financial condition and is provided as an addition to,and should be read in connection with,our condensed consolidated financial statements and the accompanying notes.Unless otherwise noted,tabular dollars are presented in millions,except per share amounts.All per share amounts reflect common stock per share amounts,assume dilution unless otherwise noted,and are based on unrounded amounts.Percentage changes are based on unrounded amounts.Table of Contents21Our Critical Accounting Policies and EstimatesThe critical accounting policies and estimates below should be read in conjunction with those outlined in our 2023 Form 10-K.Total Marketplace SpendingWe offer sales incentives and discounts through various programs to customers and consumers.Total marketplace spending includes sales incentives,discounts,advertising and other marketing activities.Sales incentives and discounts are primarily accounted for as a reduction of revenue.A number of our sales incentives,such as bottler funding to independent bottlers and customer volume rebates,are based on annual targets,and accruals are established during the year,as products are delivered,for the expected payout,which may occur after year end once reconciled and settled.These accruals are based on contract terms and our historical experience with similar programs and require management judgment with respect to estimating customer and consumer participation and performance levels.Differences between estimated expense and actual incentive costs are normally insignificant and are recognized in earnings in the period such differences are determined.In addition,certain advertising and marketing costs are also based on annual targets and recognized during the year as incurred.For interim reporting,our policy is to allocate our forecasted full-year sales incentives for most of our programs to each of our interim reporting periods in the same year that benefits from the programs.The allocation methodology is based on our forecasted sales incentives for the full year and the proportion of each interim periods actual gross revenue or volume,as applicable,to our forecasted annual gross revenue or volume,as applicable.Based on our review of the forecasts at each interim period,any changes in estimates and the related allocation of sales incentives are recognized beginning in the interim period that they are identified.In addition,we apply a similar allocation methodology for interim reporting purposes for certain advertising and other marketing activities.Income TaxesIn determining our quarterly provision for income taxes,we use an estimated annual effective tax rate which is based on our expected annual income,statutory tax rates and tax structure and transactions,including transfer pricing arrangements,available to us in the various jurisdictions in which we operate.Significant judgment is required in determining our annual tax rate and in evaluating our tax positions.Subsequent recognition,derecognition and measurement of a tax position taken in a previous period are separately recognized in the quarter in which they occur.Our Business RisksThis Form 10-Q contains statements reflecting our views about our future performance that constitute“forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995(Reform Act).Statements that constitute forward-looking statements within the meaning of the Reform Act are generally identified through the inclusion of words such as“aim,”“anticipate,”“believe,”“drive,”“estimate,”“expect,”“expressed confidence,”“forecast,”“future,”“goal,”“guidance,”“intend,”“may,”“objective,”“outlook,”“plan,”“position,”“potential,”“project,”“seek,”“should,”“strategy,”“target,”“will”or similar statements or variations of such words and other similar expressions.All statements addressing our future operating performance,and statements addressing events and developments that we expect or anticipate will occur in the future,are forward-looking statements within the meaning of the Reform Act.These forward-looking statements are based on currently available information,operating plans and projections about future events and trends.They inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in any such forward-looking statement.Such risks and uncertainties include,but are not limited Table of Contents22to:the risks associated with the deadly conflict in Ukraine;future demand for PepsiCos products;damage to PepsiCos reputation or brand image;product recalls or other issues or concerns with respect to product quality and safety;PepsiCos ability to compete effectively;PepsiCos ability to attract,develop and maintain a highly skilled and diverse workforce or effectively manage changes in our workforce;water scarcity;changes in the retail landscape or in sales to any key customer;disruption of PepsiCos manufacturing operations or supply chain,including continued increased commodity,packaging,transportation,labor and other input costs;political,social or geopolitical conditions in the markets where PepsiCos products are made,manufactured,distributed or sold;PepsiCos ability to grow its business in developing and emerging markets;changes in economic conditions in the countries in which PepsiCo operates;future cyber incidents and other disruptions to our information systems;failure to successfully complete or manage strategic transactions;PepsiCos reliance on third-party service providers and enterprise-wide systems;climate change or measures to address climate change and other sustainability matters;strikes or work stoppages;failure to realize benefits from PepsiCos productivity initiatives;deterioration in estimates and underlying assumptions regarding future performance of our business or investments that can result in impairment charges;fluctuations or other changes in exchange rates;any downgrade or potential downgrade of PepsiCos credit ratings;imposition or proposed imposition of new or increased taxes aimed at PepsiCos products;imposition of limitations on the marketing or sale of PepsiCos products;changes in laws and regulations related to the use or disposal of plastics or other packaging materials;failure to comply with personal data protection and privacy laws;increase in income tax rates,changes in income tax laws or disagreements with tax authorities;failure to adequately protect PepsiCos intellectual property rights or infringement on intellectual property rights of others;failure to comply with applicable laws and regulations;potential liabilities and costs from litigation,claims,legal or regulatory proceedings,inquiries or investigations;and other risks and uncertainties including those described in“Item 1A.Risk Factors”and“Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations Our Business Risks,”included in our 2023 Form 10-K and in“Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations Our Business Risks”of this Form 10-Q.Investors are cautioned not to place undue reliance on any such forward-looking statements,which speak only as of the date they are made.We undertake no obligation to update any forward-looking statement,whether as a result of new information,future events or otherwise.Risks Associated with Commodities and Our Supply ChainDuring the 12 weeks ended March 23,2024,we continued to experience higher operating costs,including on transportation and labor costs,which may continue for the remainder of 2024.Many of the commodities used in the production and transportation of our products are purchased in the open market.The prices we pay for such items are subject to fluctuation,and we manage this risk through the use of fixed-price contracts and purchase orders,pricing agreements and derivative instruments,including swaps and futures.A number of external factors,including the ongoing conflict in Ukraine,the inflationary cost environment,adverse weather conditions,supply chain disruptions and labor shortages,have impacted and may continue to impact transportation and labor costs.When prices increase,we may or may not pass on such increases to our customers without suffering reduced volume,revenue,margins and operating results.See Note 9 to our condensed consolidated financial statements in this Form 10-Q and Note 9 to our consolidated financial statements in our 2023 Form 10-K for further information on how we manage our exposure to commodity prices.Risks Associated with Climate ChangeCertain jurisdictions in which our products are made,manufactured,distributed or sold have either imposed,or are considering imposing,new or increased legal and regulatory requirements to reduce or mitigate the potential effects of climate change,including regulation of greenhouse gas emissions and Table of Contents23potential carbon pricing programs.These new or increased legal or regulatory requirements,along with initiatives to meet our sustainability goals,could result in significant increased costs and additional investments in facilities and equipment.However,we are unable to predict the scope,nature and timing of any new or increased environmental laws and regulations and therefore cannot predict the ultimate impact of such laws and regulations on our business or financial results.We continue to monitor existing and proposed laws and regulations in the jurisdictions in which our products are made,manufactured,distributed and sold and to consider actions we may take to potentially mitigate the unfavorable impact,if any,of such laws or regulations.Risks Associated with International Operations In the 12 weeks ended March 23,2024,our financial results outside of North America reflect the months of January and February.In the 12 weeks ended March 23,2024,our operations outside of the United States generated 38%of our consolidated net revenue,with Mexico,Canada,China,Russia,Brazil,the United Kingdom and South Africa comprising approximately 23%of our consolidated net revenue.As a result,we are exposed to foreign exchange risk in the international markets in which our products are made,manufactured,distributed or sold.In the 12 weeks ended March 23,2024,unfavorable foreign exchange reduced net revenue growth by 0.5 percentage points primarily due to declines in the Russian ruble and Chinese yuan,partially offset by an appreciation of the Mexican peso.Currency declines against the U.S.dollar which are not offset could adversely impact our future financial results.In addition,volatile economic,political,social and geopolitical conditions,civil unrest and wars and other military conflicts,acts of terrorism and natural disasters and other catastrophic events in certain markets in which our products are made,manufactured,distributed or sold,including in Argentina,Brazil,China,Mexico,the Middle East,Pakistan,Russia,Turkey and Ukraine,continue to result in challenging operating environments and have resulted in and could continue to result in changes in how we operate in certain of these markets.Debt and credit issues,currency controls or fluctuations in certain of these international markets(including restrictions on the transfer of funds to and from certain markets),as well as the threat or imposition of new or expanded tariffs,sanctions or export controls have also continued to impact our operations in certain of these international markets.We continue to closely monitor the economic,operating and political environment in the markets in which we operate,including risks of additional impairments or write-offs and currency devaluation,and to identify actions to potentially mitigate any unfavorable impacts on our future results.See Note 9 to our condensed consolidated financial statements in this Form 10-Q for the fair values of our financial instruments as of March 23,2024 and December 30,2023 and Note 9 to our consolidated financial statements in our 2023 Form 10-K for a discussion of these items.Imposition of Taxes and Regulations on our ProductsCertain jurisdictions in which our products are made,manufactured,distributed or sold have either imposed,or are considering imposing,new or increased taxes or regulations on the manufacture,distribution or sale of our products or their packaging,ingredients or substances contained in,or attributes of,our products or their packaging,commodities used in the production of our products or their packaging or the recyclability or recoverability of our packaging.These taxes and regulations vary in scope and form.For example,some taxes apply to all beverages,including non-caloric beverages,while others apply only to beverages with a caloric sweetener(e.g.,sugar).Further,some regulations apply to all products using certain types of packaging(e.g.,plastic),while others are designed to increase the sustainability of packaging,encourage waste reduction and increased recycling rates or facilitate the waste management process or restrict the sale of products in certain packaging.We sell a wide variety of beverages and convenient foods in more than 200 countries and territories and the profile of the products we sell,the amount of revenue attributable to such products and the type of Table of Contents24packaging used vary by jurisdiction.Because of this,we cannot predict the scope or form potential taxes,regulations or other limitations on our products or their packaging may take,and therefore cannot predict the impact of such taxes,regulations or limitations on our financial results.In addition,taxes,regulations and limitations may impact us and our competitors differently.We continue to monitor existing and proposed taxes and regulations in the jurisdictions in which our products are made,manufactured,distributed and sold and to consider actions we may take to potentially mitigate the unfavorable impact,if any,of such taxes,regulations or limitations,including advocating alternative measures with respect to the imposition,form and scope of any such taxes,regulations or limitations.OECD Global Minimum TaxNumerous countries have agreed to a statement in support of the OECD model rules that propose a global minimum tax rate of 15%.Certain countries have enacted legislation incorporating the agreed global minimum tax effective in 2024.Legislation enacted as of March 23,2024 is not expected to have a material impact on our 2024 financial statements.More countries are expected to enact similar legislation,with widespread implementation of a global minimum tax by 2025.As legislation becomes effective in more countries in which we do business,our taxes could increase and negatively impact our provision for income taxes.We will continue to monitor pending legislation and implementation by countries and evaluate the potential impact on our business in future periods.Retail LandscapeOur industry continues to be affected by disruption of the retail landscape,including the continued growth in sales through e-commerce websites and mobile commerce applications,including through subscription services,the integration of physical and digital operations among retailers and the international expansion of hard discounters.We have seen and expect to continue to see a further shift to e-commerce,online-to-offline and other online purchasing by consumers.We continue to monitor changes in the retail landscape and seek to identify actions we may take to build our global e-commerce and digital capabilities,such as expanding our direct-to-consumer business,and distribute our products effectively through all existing and emerging channels of trade and potentially mitigate any unfavorable impacts on our future results.The retail industry also continues to be impacted by the actions and increasing power of retailers,including as a result consolidation of ownership resulting in large retailers or buying groups with increased purchasing power,particularly in North America,Europe and Latin America.We have seen and expect to continue to see retailers and buying groups impact our ability to compete in these jurisdictions.We continue to monitor our relationships with retailers and buying groups and seek to identify actions we may take to maintain mutually beneficial relationships and resolve any significant disputes and potentially mitigate any unfavorable impacts on our future results.Cautionary statements included above and in“Item 1A.Risk Factors”and“Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations Our Business Risks”in our 2023 Form 10-K should be considered when evaluating our trends and future results.Results of Operations Consolidated ReviewConsolidated ResultsVolumePhysical or unit volume is one of the key metrics management uses internally to make operating and strategic decisions,including the preparation of our annual operating plan and the evaluation of our business performance.We believe volume provides additional information to facilitate the comparison of our historical operating performance and underlying trends and provides additional transparency on how we evaluate our business because it measures demand for our products at the consumer level.See“Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations Our Financial Table of Contents25Results Volume”included in our 2023 Form 10-K for further information on volume.Unit volume growth adjusts for the impacts of acquisitions and divestitures.Acquisitions and divestitures,when used in this report,reflect mergers and acquisitions activity,as well as divestitures and other structural changes,including changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.Further,unit volume growth excludes the impact of an additional week of results every five or six years(53rd reporting week),where applicable.We report all of our international operations on a monthly calendar basis.The 12 weeks ended March 23,2024 and March 25,2023 include volume outside of North America for the months of January and February.Consolidated Net Revenue and Operating Profit 12 Weeks Ended 3/23/20243/25/2023ChangeNet revenue$18,250$17,846 2%Operating profit$2,717$2,629 3%Operating margin 14.9.7%0.2 See“Results of Operations Division Review”for a tabular presentation and discussion of key drivers of net revenue.Operating profit grew 3%and operating margin improved 0.2 percentage points.Operating profit growth was primarily driven by effective net pricing and productivity savings.These impacts were partially offset by certain operating cost increases,a decline in organic volume and a 5-percentage-point impact of charges associated with the Quaker Recall.Corporate unallocated expenses reflect a 3-percentage-point favorable impact of net mark-to-market gains on commodity derivatives.Other Consolidated Results 12 Weeks Ended 3/23/20243/25/2023ChangeOther pension and retiree medical benefits income$58$61$(3)Net interest expense and other$202$200$2 Tax rate 20.2!.9%Net income attributable to PepsiCo$2,042$1,932 6%Net income attributable to PepsiCo per common share diluted$1.48$1.40 6%Other pension and retiree medical benefits income decreased$3 million,primarily reflecting the recognition of special termination benefits due to restructuring actions as part of our 2019 Productivity Plan,partially offset by the recognition of gains on plan assets and impact of discretionary plan contributions.Net interest expense and other increased$2 million,primarily due to higher interest rates on debt and higher average debt balances,partially offset by higher average cash balances,higher gains on the market value of investments used to economically hedge a portion of our deferred compensation liability and higher interest rates on average cash balances.The reported tax rate decreased 1.7 percentage points,primarily reflecting the favorable impact of reserves for international unrecognized tax benefits recorded in the prior year.Table of Contents26Results of Operations Division ReviewWhile our financial results in North America are reported on a 12-week basis,all of our international operations are reported on a monthly calendar basis for which the months of January and February are reflected in our results for the 12 weeks ended March 23,2024 and March 25,2023.In the discussions of net revenue and operating profit below,“effective net pricing”reflects the year-over-year impact of discrete pricing actions,sales incentive activities and mix resulting from selling varying products in different package sizes and in different countries.See“Our Business Risks,”“Non-GAAP Measures”and“Items Affecting Comparability”for a discussion of items to consider when evaluating our results and related information regarding measures not in accordance with GAAP.Net Revenue and Organic Revenue GrowthOrganic revenue growth is a non-GAAP financial measure.For further information on this measure,see“Non-GAAP Measures.”12 Weeks Ended 3/23/2024Impact ofImpact ofReported%Change,GAAP MeasureForeign exchange translationAcquisitions and divestituresOrganic%Change,Non-GAAP Measure(a)Organic volume(b)Effective net pricingFLNA 2%2%(2)3 QFNA(c)(24)%(24)%(22)(2)PBNA 1%1%(5)6 LatAm 16%(8)8%(1)9 Europe 3%7 10%3 7 AMESA 2%4 7%5 2 APAC 6%5 11 (1)Total 2%0.5 3%(2)5(a)Amounts may not sum due to rounding.(b)Excludes the impact of acquisitions and divestitures.In certain instances,the impact of organic volume on net revenue growth differs from the unit volume change disclosed in the following divisional discussions due to the impacts of product mix,nonconsolidated joint venture volume,and,for our franchise-owned beverage businesses,temporary timing differences between bottler case sales and concentrate shipments and equivalents(CSE).We report net revenue from our franchise-owned beverage businesses based on CSE.The volume sold by our nonconsolidated joint ventures has no direct impact on our net revenue.(c)Net revenue decline was impacted by the Quaker Recall.Operating Profit/(Loss),Operating Profit/(Loss)Adjusted for Items Affecting Comparability and Operating Profit Performance Adjusted for Items Affecting Comparability on a Constant Currency BasisOperating profit/(loss)adjusted for items affecting comparability and operating profit growth adjusted for items affecting comparability on a constant currency basis are both non-GAAP financial measures.For further information on these measures,see“Non-GAAP Measures”and“Items Affecting Comparability.”Table of Contents27Operating Profit/(Loss)and Operating Profit/(Loss)Adjusted for Items Affecting Comparability12 Weeks Ended 3/23/2024Items Affecting Comparability(a)Reported,GAAP MeasureMark-to-market net impactRestructuring and impairment chargesAcquisition and divestiture-related chargesProduct recall-related impactCore,Non-GAAP MeasureFLNA$1,554$22$1,576 QFNA(49)4 167 122 PBNA 510 10 2 522 LatAm 485 5 490 Europe 202 18 220 AMESA 152 152 APAC 233 233 Corporate unallocated expenses(370)(36)30 (376)Total$2,717$(36)$89$2$167$2,939 12 Weeks Ended 3/25/2023Items Affecting Comparability(a)Reported,GAAP MeasureMark-to-market net impactRestructuring and impairment chargesAcquisition and divestiture-related chargesImpairment and other charges/credits(b)Core,Non-GAAP MeasureFLNA$1,599$7$1,606 QFNA 188 188 PBNA 483 5 2 490 LatAm 364 5 369 Europe 71 89 160 AMESA 168 5 (13)160 APAC 227 1 228 Corporate unallocated expenses(471)71 1 (399)Total$2,629$71$113$2$(13)$2,802(a)See“Items Affecting Comparability”for further information.(b)Income amounts represent adjustments for changes in estimates of previously recorded amounts.Operating Profit/(Loss)Performance and Operating Profit/(Loss)Performance Adjusted for Items Affecting Comparability on a Constant Currency Basis12 Weeks Ended 3/23/2024Impact of Items Affecting Comparability(a)Impact ofReported%Change,GAAP MeasureMark-to-market net impactRestructuring and impairment chargesAcquisition and divestiture-related chargesImpairment and other charges/creditsProduct recall-related impactCore%Change,Non-GAAP Measure(b)Foreign exchangetranslationCore Constant Currency%Change,Non-GAAP Measure(b)FLNA(3)%1 (2)%(2)%QFNA(126)%2 89 (35)%(35)%PBNA 5.5%1 7%6%LatAm 33%(0.5)33%(11)22%Europe 184%(147)1 37 50%AMESA(10)%(2)7 (5)%2 (2)%APAC 3%(1)2%5 7%Corporate unallocated expenses(22)! (6)(6)%(6)%Total 3%(3)(1)5 5%5%(a)See“Items Affecting Comparability”for further information.(b)Amounts may not sum due to rounding.Table of Contents28FLNANet revenue grew 2%,primarily driven by effective net pricing,partially offset by a decrease in organic volume.Unit volume decreased 2%,primarily driven by mid-single-digit declines in trademark Lays and trademark Tostitos,partially offset by mid-single-digit growth in trademark Doritos.Operating profit decreased 3%,primarily reflecting certain operating cost increases,including strategic initiatives,and the decrease in organic volume.These impacts were partially offset by the effective net pricing and productivity savings.PBNANet revenue increased 1%,primarily driven by effective net pricing,partially offset by a decrease in organic volume.Unit volume decreased 5%,driven by a 7crease in non-carbonated beverage(NCB)volume and a 3crease in carbonated soft drink(CSD)volume.The NCB volume decrease primarily reflected a double-digit decrease in Gatorade sports drinks,a high-single-digit decrease in our overall water portfolio and a mid-single-digit decrease in Lipton ready-to-drink teas,partially offset by a double-digit increase in our energy portfolio.Operating profit increased 5.5%,primarily driven by the effective net pricing,productivity savings and a 10-percentage-point impact of unfavorable insurance adjustments in the prior year.These impacts were partially offset by certain operating cost increases,the decrease in organic volume and a 7-percentage-point impact of higher commodity costs.QFNANet revenue declined 24%,driven by a decrease in organic volume and unfavorable net pricing,both of which were negatively impacted by the loss of sales from products included in the Quaker Recall.Unit volume declined 22%,primarily driven by double-digit declines in bars,ready-to-eat cereals,pancake syrup and mix and oatmeal.The unit volume decline in bars and ready-to-eat cereals was negatively impacted by the loss of sales from products included in the Quaker Recall.Operating profit declined 126%,primarily reflecting an 89-percentage-point impact of charges associated with the Quaker Recall,the net revenue performance and certain operating cost increases,partially offset by productivity savings and lower advertising and marketing expenses.LatAmNet revenue increased 16%,primarily reflecting effective net pricing and an 8-percentage-point impact of favorable foreign exchange.Convenient foods unit volume declined 0.5%,primarily reflecting double-digit declines in Peru and Argentina and a mid-single-digit decline in Colombia,partially offset by mid-single-digit growth in Brazil and low-single-digit growth in Mexico.Beverage unit volume grew 2%,primarily reflecting high-single-digit growth in Brazil and Guatemala and low-single-digit growth in Mexico and Chile,partially offset by a double-digit decline in Colombia and a mid-single-digit decline in Argentina.Additionally,Peru experienced low-single-digit growth.Operating profit increased 33%,primarily reflecting the effective net pricing,productivity savings,an 11-percentage-point impact of favorable foreign exchange translation and a 4-percentage-point favorable impact of lower commodity costs,largely driven by transaction-related foreign exchange.These impacts were partially offset by certain operating cost increases and higher advertising and marketing expenses.Table of Contents29EuropeNet revenue increased 3%,primarily reflecting effective net pricing and organic volume growth,partially offset by a 7-percentage-point impact of unfavorable foreign exchange.Convenient foods unit volume increased 2%,primarily reflecting double-digit growth in Russia,mid-single-digit growth in the United Kingdom and high-single-digit growth in Turkey,partially offset by a double-digit decline in France and a slight decline in the Netherlands.Beverage unit volume grew 7%,primarily reflecting double-digit growth in Russia,Turkey and Germany and high-single-digit growth in the United Kingdom,partially offset by a double-digit decline in France.Operating profit increased 184%,primarily reflecting a 147-percentage-point favorable impact of lower restructuring charges,the net revenue growth and productivity savings.These impacts were partially offset by certain operating cost increases,a 17-percentage-point impact of higher commodity costs,primarily packaging materials,juices and potatoes,largely driven by transaction-related foreign exchange,a 13-percentage-point impact of unfavorable foreign exchange translation,primarily due to weakening of the Russian ruble,and higher advertising and marketing expenses.AMESANet revenue grew 2%,primarily reflecting organic volume growth and effective net pricing,partially offset by a 4-percentage-point impact of unfavorable foreign exchange.Convenient foods unit volume grew 4.5%,primarily reflecting high-single-digit growth in South Africa,double-digit growth in India and mid-single-digit growth in Pakistan,partially offset by a double-digit decline in the Middle East.Beverage unit volume grew 2%,primarily reflecting mid-single-digit growth in the Middle East and high-single-digit growth in India and Nigeria,partially offset by a double-digit decline in Pakistan.Operating profit declined 10%,primarily reflecting certain operating cost increases,a 17-percentage-point impact of higher commodity costs,primarily packaging materials,sweeteners and potatoes,largely driven by transaction-related foreign exchange,and a 7-percentage-point unfavorable impact of adjustments recorded in the prior year related to the sale of a non-strategic brand.These impacts were partially offset by the net revenue growth and productivity savings.APACNet revenue grew 6%,primarily reflecting net organic volume growth,partially offset by a 5-percentage-point impact of unfavorable foreign exchange and unfavorable net pricing.Convenient foods unit volume grew 12%,primarily reflecting double-digit growth in China.Additionally,Thailand experienced low-single-digit growth and Australia experienced high-single-digit growth.Beverage unit volume declined slightly,primarily reflecting a mid-single-digit decline in China,partially offset by high-single-digit growth in Vietnam and double-digit growth in Thailand and the Philippines.Operating profit grew 3%,primarily reflecting the net organic volume growth,productivity savings and a 4-percentage-point favorable impact of lower commodity costs.These impacts were partially offset by certain operating cost increases,higher advertising and marketing expenses and a 5-percentage-point impact of unfavorable foreign exchange.Non-GAAP MeasuresCertain financial measures contained in this Form 10-Q adjust for the impact of specified items and are not in accordance with GAAP.We use non-GAAP financial measures internally to make operating and Table of Contents30strategic decisions,including the preparation of our annual operating plan,evaluation of our overall business performance and as a factor in determining compensation for certain employees.We believe presenting non-GAAP financial measures in this Form 10-Q provides additional information to facilitate comparison of our historical operating results and trends in our underlying operating results and provides additional transparency on how we evaluate our business.We also believe presenting these measures in this Form 10-Q allows investors to view our performance using the same measures that we use in evaluating our financial and business performance and trends.We consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our ongoing financial and business performance or trends.Examples of items for which we may make adjustments include:amounts related to mark-to-market gains or losses(non-cash);charges related to restructuring plans;charges associated with acquisitions and divestitures;gains associated with divestitures;asset impairment charges(non-cash);product recall-related impact;pension and retiree medical-related amounts,including all settlement and curtailment gains and losses;charges or adjustments related to the enactment of new laws,rules or regulations,such as tax law changes;amounts related to the resolution of tax positions;tax benefits related to reorganizations of our operations;debt redemptions,cash tender or exchange offers;and remeasurements of net monetary assets.See below and“Items Affecting Comparability”for a description of adjustments to our GAAP financial measures in this Form 10-Q.Non-GAAP information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP.In addition,our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies.The following non-GAAP financial measures contained in this Form 10-Q are discussed below:Cost of sales,gross profit,selling,general and administrative expenses,other pension and retiree medical benefits income,provision for income taxes,net income attributable to noncontrolling interests and net income attributable to PepsiCo,each adjusted for items affecting comparability,operating profit and net income attributable to PepsiCo per common share diluted,each adjusted for items affecting comparability and the corresponding constant currency growth ratesThese measures exclude the net impact of mark-to-market gains and losses on centrally managed commodity derivatives that do not qualify for hedge accounting,restructuring and impairment charges related to our 2019 Productivity Plan,charges associated with our acquisitions and divestitures,impairment and other charges/credits and product recall-related impact(see“Items Affecting Comparability”for a detailed description of each of these items).We also evaluate performance on operating profit and net income attributable to PepsiCo per common share diluted,each adjusted for items affecting comparability on a constant currency basis,which measure our financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period.In order to compute our constant currency results,we multiply or divide,as appropriate,our current-year U.S.dollar results by the current-year average foreign exchange rates and then multiply or divide,as appropriate,those amounts by the prior-year average foreign exchange rates.We believe these measures provide useful information in evaluating the results of our business because they exclude items that we believe are not indicative of our ongoing performance or that we believe impact comparability with the prior year.Organic revenue growthWe define organic revenue growth as a measure that adjusts for the impacts of foreign exchange translation,acquisitions and divestitures and where applicable,the impact of the 53rd reporting week.We believe organic revenue growth provides useful information in evaluating the results of our business Table of Contents31because it excludes items that we believe are not indicative of ongoing performance or that we believe impact comparability with the prior year.See“Net Revenue and Organic Revenue Growth”in“Results of Operations Division Review”for further information.Free cash flowWe define free cash flow as net cash from operating activities less capital spending,plus sales of property,plant and equipment.Since net capital spending is essential to our product innovation initiatives and maintaining our operational capabilities,we believe that it is a recurring and necessary use of cash.As such,we believe investors should also consider net capital spending when evaluating our cash from operating activities.Free cash flow is used by us primarily for acquisitions and financing activities,including debt repayments,dividends and share repurchases.Free cash flow is not a measure of cash available for discretionary expenditures since we have certain non-discretionary obligations such as debt service that are not deducted from the measure.See“Free Cash Flow”in“Our Liquidity and Capital Resources”for further information.Table of Contents32Items Affecting ComparabilityOur reported financial results in this Form 10-Q are impacted by the following items in each of the following periods:12 Weeks Ended 3/23/2024Cost of salesGross profitSelling,general and administrative expensesOperating profitOther pension and retiree medical benefits incomeProvision for income taxes(a)Net income attributable to PepsiCoReported,GAAP Measure$8,248$10,002$7,285$2,717$58$520$2,042 Items Affecting ComparabilityMark-to-market net impact 13 (13)23 (36)(9)(27)Restructuring and impairment charges(6)6 (83)89 7 20 76 Acquisition and divestiture-related charges (2)2 1 1 Product recall-related impact(167)167 167 39 128 Core,Non-GAAP Measure$8,088$10,162$7,223$2,939$65$571$2,220 12 Weeks Ended 3/25/2023Cost of salesGross profitSelling,general and administrative expensesOperating profitOther pension and retiree medical benefits incomeProvision for income taxes(a)Net income attributable to noncontrolling interestsNet income attributable to PepsiCoReported,GAAP Measure$7,988$9,858$7,229$2,629$61$546$12$1,932 Items Affecting ComparabilityMark-to-market net impact(14)14 (57)71 17 54 Restructuring and impairment charges(3)3 (110)113 (1)14 1 97 Acquisition and divestiture-related charges (2)2 1 1 Impairment and other charges/credits 4 (4)9 (13)(13)Core,Non-GAAP Measure$7,975$9,871$7,069$2,802$60$578$13$2,071(a)Provision for income taxes is the expected tax charge/benefit on the underlying item based on the tax laws and income tax rates applicable to the underlying item in its corresponding tax jurisdiction.12 Weeks Ended3/23/20243/25/2023ChangeNet income attributable to PepsiCo per common share diluted,GAAP measure$1.48$1.40 6%Mark-to-market net impact(0.02)0.04 Restructuring and impairment charges 0.05 0.07 Acquisition and divestiture-related charges Impairment and other charges/credits (0.01)Product recall-related impact 0.09 Core net income attributable to PepsiCo per common share diluted,non-GAAP measure$1.61(a)$1.50 7%Impact of foreign exchange translation Growth in core net income attributable to PepsiCo per common share diluted,on a constant currency basis,non-GAAP measure 7%(a)Does not sum due to rounding.Table of Contents33Mark-to-Market Net ImpactWe centrally manage commodity derivatives on behalf of our divisions.These commodity derivatives include agricultural products,energy and metals.Commodity derivatives that do not qualify for hedge accounting treatment are marked to market each period with the resulting gains and losses recorded in corporate unallocated expenses as either cost of sales or selling,general and administrative expenses,depending on the underlying commodity.These gains and losses are subsequently reflected in division results when the divisions recognize the cost of the underlying commodity in operating profit.Therefore,the divisions realize the economic effects of the derivative without experiencing any resulting mark-to-market volatility,which remains in corporate unallocated expenses.Restructuring and Impairment Charges2019 Multi-Year Productivity PlanThe 2019 Productivity Plan,publicly announced on February 15,2019,leverages new technology and business models to further simplify,harmonize and automate processes;re-engineer our go-to-market and information systems,including deploying the right automation for each market;and simplify our organization and optimize our manufacturing and supply chain footprint.To build on the successful implementation of the 2019 Productivity Plan,in 2022,we expanded and extended the plan through the end of 2028 to take advantage of additional opportunities within the initiatives described above.As a result,we expect to incur pre-tax charges of approximately$3.65 billion,including cash expenditures of approximately$2.9 billion.Plan to date through March 23,2024,we have incurred pre-tax charges of$2.0 billion,including cash expenditures of$1.5 billion.For the remainder of 2024,we expect to incur pre-tax charges of approximately$400 million,and cash expenditures of approximately$400 million.These charges will be funded primarily through cash from operations.We expect to incur the majority of the remaining pre-tax charges and cash expenditures through 2025,with the balance to be incurred through 2028.Charges include severance and other employee costs,asset impairments and other costs.See Note 3 to our condensed consolidated financial statements in this Form 10-Q,as well as Note 3 to our consolidated financial statements in our 2023 Form 10-K,for further information related to our 2019 Productivity Plan.We regularly evaluate productivity initiatives beyond the productivity plan and other initiatives discussed above and in Note 3 to our condensed consolidated financial statements.Acquisition and Divestiture-Related ChargesAcquisition and divestiture-related charges primarily include costs associated with divestitures,primarily consulting,advisory and other professional fees.Impairment and Other Charges/CreditsWe recognized adjustments to the charges recorded in prior years from changes in estimates of previously recorded amounts.Product Recall-Related ImpactWe recognized property,plant and equipment write-offs,employee severance costs and other costs in our QFNA division associated with a previously announced voluntary recall of certain bars and cereals.See Note 1 to our condensed consolidated financial statements for further information.Our Liquidity and Capital ResourcesWe believe that our cash generating capability and financial condition,together with our revolving credit facilities,working capital lines and other available methods of debt financing,such as commercial paper Table of Contents34borrowings and long-term debt financing,will be adequate to meet our operating,investing and financing needs,including with respect to our net capital spending plans.Our primary sources of liquidity include cash from operations,proceeds obtained from issuances of commercial paper and long-term debt,and cash and cash equivalents.These sources of cash are available to fund cash outflows that have both a short-and long-term component,including debt repayments and related interest payments;payments for acquisitions;operating leases;purchase,marketing,and other contractual commitments,including capital expenditures and the transition tax liability under the Tax Cuts and Jobs Act(TCJ Act).In addition,these sources of cash fund other cash outflows including anticipated dividend payments and share repurchases.We do not have guarantees or off-balance sheet financing arrangements,including variable interest entities,that we believe could have a material impact on our liquidity.See“Our Business Risks”and Note 8 to our condensed consolidated financial statements included in this Form 10-Q and“Item 1A.Risk Factors,”“Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations Our Business Risks”and Note 8 to our consolidated financial statements included in our 2023 Form 10-K for further information.As of March 23,2024,cash,cash equivalents and short-term investments in our consolidated subsidiaries subject to currency controls or currency exchange restrictions were not material.The TCJ Act imposed a one-time mandatory transition tax on undistributed international earnings.As of March 23,2024,our mandatory transition tax liability was$2.3 billion,which must be paid through 2026 under the provisions of the TCJ Act.See“Our Liquidity and Capital Resources”and Note 5 to our consolidated financial statements included in our 2023 Form 10-K for further discussion of the TCJ Act.Supply chain financing arrangements did not have a material impact on our liquidity or capital resources in the periods presented and we do not expect such arrangements to have a material impact on our liquidity or capital resources for the foreseeable future.See Note 12 to our condensed consolidated financial statements for further discussion of supply chain financing arrangements.Operating ActivitiesDuring the 12 weeks ended March 23,2024,net cash used for operating activities was$1.0 billion,compared to net cash used for operating activities of$0.4 billion in the prior-year period.The decrease in operating cash flow primarily reflects unfavorable working capital comparisons,partially offset by favorable operating profit performance.Investing ActivitiesDuring the 12 weeks ended March 23,2024,net cash used for investing activities was$0.6 billion,primarily reflecting net capital spending.We regularly review our plans with respect to net capital spending and believe that we have sufficient liquidity to meet our net capital spending needs.Financing ActivitiesDuring the 12 weeks ended March 23,2024,net cash provided by financing activities was$10 million,primarily reflecting the proceeds from issuances of long-term debt of$1.8 billion and net proceeds of short-term borrowings of$1.5 billion,partially offset by the return of operating cash flow to our shareholders through dividend payments of$1.8 billion and share repurchases of$0.1 billion,as well as payments of long-term debt borrowings of$1.3 billion.We annually review our capital structure with our Board of Directors,including our dividend policy and share repurchase activity.On February 10,2022,we announced a share repurchase program providing for the repurchase of up to$10.0 billion of PepsiCo common stock which commenced on February 11,2022 and will expire on February 28,2026.In addition,on February 9,2024,we announced a 7%increase in Table of Contents35our annualized dividend to$5.42 per share from$5.06 per share,effective with the dividend expected to be paid in June 2024.We expect to return a total of approximately$8.2 billion to shareholders in 2024,comprising dividends of approximately$7.2 billion and share repurchases of approximately$1.0 billion.Free Cash Flow The table below reconciles net cash used for operating activities,as reflected on our cash flow statement,to our free cash flow.Free cash flow is a non-GAAP financial measure.For further information on free cash flow,see“Non-GAAP Measures.”12 Weeks Ended 3/23/20243/25/2023Net cash used for operating activities,GAAP measure$(1,041)$(392)Capital spending(614)(581)Sales of property,plant and equipment 7 19 Free cash flow,non-GAAP measure$(1,648)$(954)We use free cash flow primarily for acquisitions and financing activities,including debt repayments,dividends and share repurchases.We expect to continue to return free cash flow to our shareholders primarily through dividends while maintaining Tier 1 commercial paper access,which we believe will facilitate appropriate financial flexibility and ready access to global capital and credit markets at favorable interest rates.See“Our Business Risks”included in this Form 10-Q and“Item 1A.Risk Factors”and“Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations Our Business Risks,”included in our 2023 Form 10-K,for certain factors that may impact our credit ratings or our operating cash flows.Any downgrade of our credit ratings by a credit rating agency,especially any downgrade to below investment grade,whether or not as a result of our actions or factors which are beyond our control,could increase our future borrowing costs and impair our ability to access capital and credit markets on terms commercially acceptable to us,or at all.In addition,any downgrade of our current short-term credit ratings could impair our ability to access the commercial paper market with the same flexibility that we have experienced historically,and therefore require us to rely more heavily on more expensive types of debt financing.See Note 8 to our condensed consolidated financial statements and“Our Business Risks”included in this Form 10-Q,as well as“Item 1A.Risk Factors”and“Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations Our Business Risks”included in our 2023 Form 10-K for further information.Table of Contents36Changes in Line Items in Our Condensed Consolidated Financial StatementsChanges in line items in the income statement are discussed in“Results of Operations Consolidated Review,”“Results of Operations Division Review”and“Items Affecting Comparability.”Changes in line items in the cash flow statement are discussed in“Our Liquidity and Capital Resources.”Changes in line items in the balance sheet are discussed below:Total AssetsAs of March 23,2024,total assets were$100.0 billion,compared to$100.5 billion as of December 30,2023.The decrease in total assets is primarily driven by the following line item:Change(a)Cash and cash equivalents(b)$(1.7)Total LiabilitiesAs of March 23,2024,total liabilities were$80.9 billion,compared to$81.9 billion as of December 30,2023.The decrease in total liabilities is primarily driven by the following line items:Change(a)Short-term debt obligations(c)$1.7 Accounts payable and other current liabilities(d)$(3.1)(a)In billions.(b)Refer to the cash flow statement for further information.(c)See Note 8 to our condensed consolidated financial statements for further information.(d)Primarily reflects timing of payments,combined with a decrease in production and capital expenditure payables across our divisions.Total EquitySee the equity statement and Notes 9 and 11 to our condensed consolidated financial statements.Table of Contents37Report of Independent Registered Public Accounting FirmTo the Shareholders and Board of Directors PepsiCo,Inc.:Results of Review of Interim Financial Information We have reviewed the Condensed Consolidated Balance Sheet of PepsiCo,Inc.and subsidiaries(the Company)as of March 23,2024,the related Condensed Consolidated Statements of Income,Comprehensive Income,Cash Flows and Equity for the twelve weeks ended March 23,2024 and March 25,2023,and the related notes(collectively,the consolidated interim financial information).Based on our reviews,we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S.generally accepted accounting principles.We have previously audited,in accordance with the standards of the Public Company Accounting Oversight Board(United States)(PCAOB),the Consolidated Balance Sheet of the Company as of December 30,2023,and the related Consolidated Statements of Income,Comprehensive Income,Cash Flows and Equity for the fiscal year then ended(not presented herein);and in our report dated February 8,2024,we expressed an unqualified opinion on those consolidated financial statements.In our opinion,the information set forth in the accompanying Condensed Consolidated Balance Sheet as of December 30,2023,is fairly stated,in all material respects,in relation to the Consolidated Balance Sheet from which it has been derived.Basis for Review ResultsThis consolidated interim financial information is the responsibility of the Companys management.We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our reviews in accordance with the standards of the PCAOB.A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB,the objective of which is the expression of an opinion regarding the financial statements taken as a whole.Accordingly,we do not express such an opinion./s/KPMG LLPNew York,New YorkApril 22,2024Table of Contents38ITEM 3.Quantitative and Qualitative Disclosures About Market Risk.See“Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations Our Business Risks.”In addition,see“Item 1A.Risk Factors,”“Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations Our Business Risks”and Note 9 to our consolidated financial statements in our 2023 Form 10-K.ITEM 4.Controls and Procedures.As of the end of the period covered by this report,we carried out an evaluation under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer,of the effectiveness of the design and operation of our disclosure controls and procedures,as such term is defined in Rules 13a-15(e)and 15d-15(e)of the Securities Exchange Act of 1934,as amended(the Exchange Act).Based upon that evaluation,our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is(1)recorded,processed,summarized and reported within the time periods specified in SEC rules and forms,and(2)accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer,as appropriate,to allow timely decisions regarding required disclosure.During the 12 weeks ended March 23,2024,we continued migrating certain of our financial processing systems to an Enterprise Resource Planning(ERP)system.These systems implementations are part of our ongoing global business transformation initiative,and we plan to continue implementing such systems throughout other parts of our businesses in phases over the next several years.In connection with these ERP implementations,we are updating and will continue to update our internal control over financial reporting,as necessary,to accommodate modifications to our business processes and accounting procedures.During the 12 weeks ended March 23,2024,we continued implementing these systems,resulting in changes that materially affected our internal control over financial reporting.These system implementations did not have an adverse effect,nor do we expect will have an adverse effect,on our internal control over financial reporting.In addition,in connection with our 2019 multi-year productivity plan,we continue to migrate to shared business models across our operations to further simplify,harmonize and automate processes.In connection with this multi-year productivity plan and resulting business process changes,we continue to enhance the design and documentation of our internal control over financial reporting processes,to maintain effective controls over our financial reporting.These business process changes have not materially affected,and we do not expect them to materially affect,our internal control over financial reporting.Except with respect to the continued implementation of ERP systems,there have been no changes in our internal control over financial reporting during the 12 weeks ended March 23,2024 that have materially affected,or are reasonably likely to materially affect,our internal control over financial reporting.We will continue to assess the impact on our internal control over financial reporting as we continue to implement our ERP solution and our 2019 multi-year productivity plan.Table of Contents39PART II OTHER INFORMATIO
2024-05-06
65页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 6-KREPORT OF FOREIGN PRIVATE ISSUERPURSUANT TO RULE 13a-16 OR 15d-16UNDER THE SECURITIES EXCHANGE ACT OF 1934For the month of April,2024Commission File Number:001-38438Spotify Technology S.A.(Translation of registrants name into English)5,Place de la GareL-1616 LuxembourgGrand Duchy of Luxembourg(Address of principal executive office)Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.Form 20-F Form 40-F Spotify Technology S.A.Interim condensed consolidated financial statementsFor the three months ended March 31,2024Table of contents PagePART I-FINANCIAL INFORMATION Item 1.Financial Statements 1Interim condensed consolidated statement of operations 1Interim condensed consolidated statement of comprehensive income/(loss)2Interim condensed consolidated statement of financial position 3Interim condensed consolidated statement of changes in equity 4Interim condensed consolidated statement of cash flows 5Notes to the interim condensed consolidated financial statements 6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations 25Item 3.Quantitative and Qualitative Disclosures About Market Risk 36PART II-OTHER INFORMATION Item 1.Legal Proceedings 39Item 1A.Risk Factors 39Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 39Item 3.Defaults Upon Senior Securities 39Item 5.Other Information 39Signatures 40PART I-FINANCIAL INFORMATIONItem 1.Financial StatementsInterim condensed consolidated statement of operations(Unaudited)(in millions,except share and per share data)Three months ended March 31,Note20242023Revenue20 3,636 3,042 Cost of revenue 2,632 2,276 Gross profit 1,004 766 Research and development 389 435 Sales and marketing 324 347 General and administrative 123 140 836 922 Operating income/(loss)168 (156)Finance income4 59 27 Finance costs4(53)(77)Finance income/(cost)-net 6 (50)Income/(loss)before tax 174 (206)Income tax(benefit)/expense5(23)19 Net income/(loss)attributable to owners of the parent 197 (225)Earnings/(loss)per share attributable to owners of the parentBasic6 0.99 (1.16)Diluted6 0.97 (1.16)Weighted-average ordinary shares outstandingBasic6 198,025,456 193,562,462 Diluted6 203,773,043 193,562,462 The accompanying notes are an integral part of the interim condensed consolidated financial statements.Table of Contents-1-Interim condensed consolidated statement of comprehensive income/(loss)(Unaudited)(in millions)Three months ended March 31,Note20242023Net income/(loss)attributable to owners of the parent 197 (225)Other comprehensive income/(loss)Items that may be subsequently reclassified to interim condensed consolidated statement of operations (net of tax):Change in net unrealized gain or loss on short term investments13,19(2)6 Change in net unrealized gain or loss on cash flow hedging instruments13,19 1 (2)Change in foreign currency translation adjustment 22 (13)Items not to be subsequently reclassified to interim condensed consolidated statement of operations (net of tax):Gains/(losses)in the fair value of long term investments13,19 252 (5)Change in fair value of Exchangeable Notes due to change in the Groups credit risk15,19(4)Other comprehensive income/(loss)for the period(net of tax)269 (14)Total comprehensive income/(loss)for the period attributable to owners of the parent 466 (239)The accompanying notes are an integral part of the interim condensed consolidated financial statements.Table of Contents-2-Interim condensed consolidated statement of financial position(in millions)NoteMarch 31,2024December 31,2023(Unaudited)Assets Non-current assets Lease right-of-use assets7 274 300 Property and equipment8 224 247 Goodwill9 1,159 1,137 Intangible assets9 76 84 Long term investments19 1,534 1,215 Restricted cash and other non-current assets10 72 75 Finance lease receivables7 51 Deferred tax assets5 41 28 3,431 3,086 Current assetsTrade and other receivables11 777 858 Income tax receivable 21 20 Short term investments19 1,220 1,100 Cash and cash equivalents 3,451 3,114 Other current assets12 175 168 5,644 5,260 Total assets 9,075 8,346 Equity and liabilitiesEquityShare capital Other paid in capital 5,397 5,155 Treasury shares13(262)(262)Other reserves13 2,159 1,812 Accumulated deficit(3,985)(4,182)Equity attributable to owners of the parent 3,309 2,523 Non-current liabilitiesExchangeable Notes15,19 1,270 1,203 Lease liabilities7 493 493 Accrued expenses and other liabilities17 17 26 Provisions18 3 3 Deferred tax liabilities5 17 8 1,800 1,733 Current liabilitiesTrade and other payables16 1,048 978 Income tax payable 14 12 Deferred revenue 634 622 Accrued expenses and other liabilities17 2,228 2,440 Provisions18 20 21 Derivative liabilities19 22 17 3,966 4,090 Total liabilities 5,766 5,823 Total equity and liabilities 9,075 8,346 The accompanying notes are an integral part of the interim condensed consolidated financial statements.Table of Contents-3-Interim condensed consolidated statement of changes in equity(Unaudited)(in millions)NoteSharecapitalOther paid incapitalTreasurySharesOtherreservesAccumulateddeficitEquity attributable toowners of the parentBalance at January 1,2024 5,155 (262)1,812 (4,182)2,523 Income for the period 197 197 Other comprehensive income 269 269 Issuance of shares upon exercise of stock options,restricted stock units,and contingently issuable shares13 242 242 Restricted stock units withheld for employee taxes (27)(27)Share-based compensation14 69 69 Income tax impact associated with share-based compensation5 36 36 Balance at March 31,2024 5,397 (262)2,159 (3,985)3,309 NoteSharecapitalOther paid incapitalTreasurySharesOtherreservesAccumulateddeficitEquity attributable toowners of the parentBalance at January 1,2023 4,789 (262)1,521 (3,647)2,401 Loss for the period (225)(225)Other comprehensive loss (14)(14)Reclassification of loss on sale of long term investments13 3 (3)Issuance of shares upon exercise of stock options,restricted stock units,and contingently issuable shares13 75 75 Restricted stock units withheld for employee taxes (13)(13)Share-based compensation14 105 105 Income tax impact associated with share-based compensation5 13 13 Balance at March 31,2023 4,864 (262)1,615 (3,875)2,342 The accompanying notes are an integral part of the interim condensed consolidated financial statements.Table of Contents-4-Interim condensed consolidated statement of cash flows(Unaudited)(in millions)Three months ended March 31,Note20242023Operating activities Net income/(loss)197 (225)Adjustments to reconcile net income/(loss)to net cash flowsDepreciation of property and equipment and lease right-of-use assets7,8 22 31 Amortization of intangible assets9 9 13 Impairment charge on real estate assets7,8 4 Share-based compensation expense14 69 105 Finance income4(59)(27)Finance costs4 53 77 Income tax(benefit)/expense5(23)19 Other (5)Changes in working capital:Decrease in trade receivables and other assets 80 118 Decrease in trade and other liabilities(171)(57)Increase in deferred revenue 7 6 Increase in provisions18 1 Interest paid on lease liabilities7(9)(10)Interest received 37 23 Income tax paid(5)(10)Net cash flows from operating activities 211 59 Investing activitiesPayment of deferred consideration pertaining to business combinations(7)(7)Purchases of property and equipment8(5)(2)Purchases of short term investments19(998)(237)Sales and maturities of short term investments19 900 111 Change in restricted cash10 1 Other(5)13 Net cash flows used in investing activities(114)(122)Financing activitiesProceeds from exercise of stock options14 242 75 Payments of lease liabilities7(15)(15)Lease incentives received7 2 Payments for employee taxes withheld from restricted stock unit releases14(25)(13)Net cash flows from financing activities 202 49 Net increase/(decrease)in cash and cash equivalents 299 (14)Cash and cash equivalents at beginning of the period 3,114 2,483 Net foreign exchange gains/(losses)on cash and cash equivalents 38 (26)Cash and cash equivalents at March 31 3,451 2,443 Supplemental disclosure of cash flow informationNon-cash investing and financing activitiesRecognition of lease right-of-use asset in exchange for lease liabilities7 13 15 Purchases of property and equipment in trade and other liabilities8 2 3 Real estate assets disposed of in exchange for finance lease receivables7,8 46 Employee taxes withheld from restricted stock unit releases in trade and other liabilities14 2 The accompanying notes are an integral part of the interim condensed consolidated financial statements.Table of Contents-5-Notes to the interim condensed consolidated financial statements(Unaudited)1.Corporate informationSpotify Technology S.A.(the“Company”or“parent”)is a public limited company incorporated and domiciled in Luxembourg.The Companys registered office is 5,Place de la Gare,L-1616 Luxembourg,Grand Duchy of Luxembourg.The principal activity of the Company and its subsidiaries(collectively,the“Group,”“we,”“us,”or“our”)is audio streaming.The Groups premium service(“Premium Service”)provides users with unlimited online and offline high-quality streaming access to its catalog of music and podcasts.In select markets,the Premium Service provides eligible users with limited online and offline streaming access to its catalog of audiobooks.The Premium Service offers a music listening experience without commercial breaks.The Groups ad-supported service(“Ad-Supported Service”and together with the Premium Service,the“Service”)has no subscription fees and provides users with limited on-demand online access to the catalog of music and unlimited online access to the catalog of podcasts.The Group depends on securing content licenses from a number of major and minor content owners and other rights holders in order to provide its service.2.Basis of preparation and summary of material accounting policiesThe interim condensed consolidated financial statements of Spotify Technology S.A.for the three months ended March 31,2024 and 2023 have been prepared in accordance with IAS 34 Interim Financial Reporting.The interim financial information is unaudited.The interim financial information reflects all normal recurring adjustments that are,in the opinion of management,necessary to fairly present the information set forth herein.The interim condensed consolidated financial statements should be read in conjunction with the Groups consolidated financial statements for the year ended December 31,2023,as they do not include all the information and disclosures required in the annual consolidated financial statements.Interim results are not necessarily indicative of the results for a full year.The interim condensed consolidated financial statements are presented in millions of Euros.New and amended standards and interpretations adopted by the GroupClassification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants-Amendments to IAS 1 On January 1,2024 the Group adopted the International Accounting Standards Board(“IASB”)issued amendments to paragraphs 69 to 76 of IAS 1 Presentation of Financial Statements to specify the requirements for classifying liabilities as current or non-current.The amendments are applied on a retrospective basis and require the Group to reclassify the Exchangeable Notes(as defined below)as a current liability if the exchange conditions are met,even if no noteholder actually requires us to exchange their notes.Adoption of this amendment did not result in the reclassification of the Exchangeable Notes as a current liability at any reporting date,from the inception of the Exchangeable Notes to March 31,2024 as the exchange conditions had not been met.There are no other new IFRS or IFRS Interpretation Committee(“IFRIC”)interpretations effective during the three months ended March 31,2024 that have a material impact to the interim condensed consolidated financial statements.New standards and interpretations issued not yet effectivePresentation and Disclosure in Financial Statements-IFRS 18 In April 2024,the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements(“IFRS 18”)which replaces IAS 1 Presentation of Financial Statements.IFRS 18 requires an entity to classify all income and expenses within its statement of profit or loss into one of five categories:operating;investing;financing;income taxes;and discontinued operations.The first three categories are new.These categories are complemented by the requirement to present subtotals and totals for“operating profit or loss”,“profit or loss before financing income and taxes”and“profit or loss”.IFRS 18,and the amendments to the other standards,is effective for reporting periods beginning on or after January 1,2027,but earlier application is permitted.The Group is currently evaluating the impact of this amendment.There are no other IFRS or IFRIC interpretations that are not yet effective and that are expected to have a material impact to the interim condensed consolidated financial statements.Table of Contents-6-3.Critical accounting estimates and judgmentsIn preparing these interim condensed consolidated financial statements,the significant judgments made by management in applying the Groups accounting policies and the key sources of estimation and uncertainty were the same as those applied to the consolidated financial statements for the year ended December 31,2023.Estimates and judgments are continually evaluated and are based on historical experience and other factors,including expectations of future events.4.Finance income and costs Three months ended March 31,20242023(in millions)Finance income Interest income 45 26 Interest income on finance lease receivables 1 Other finance income 5 1 Foreign exchange gains 8 Total 59 27 Finance costsFair value movements on derivative liabilities(Note 19)(8)(7)Fair value movements on Exchangeable Notes(Note 19)(35)(43)Interest expense on lease liabilities(9)(10)Other finance costs(1)(4)Foreign exchange losses (13)Total(53)(77)5.Income taxThe effective tax rates for the three months ended March 31,2024 and 2023 were(13.0)%and(9.3)%,respectively.The Group operates in a global environment with significant operations in various jurisdictions outside Luxembourg.Accordingly,the consolidated income tax rate is a composite rate reflecting the Groups earnings and the applicable tax rates in the various jurisdictions where the Group operates.For the three months ended March 31,2024,the income tax benefit of 23 million was due primarily to the recognition of deferred taxes as a result of the unrealized increase in the fair value of the Groups long-term investment in Tencent Music Entertainment Group(“TME”)resulting in a tax benefit of 64 million,partially offset by utilizing share-based compensation deductions recognized in equity to offset current taxable income resulting in tax expense of 26 million.For the three months ended March 31,2023,the income tax expense of 19 million was due primarily to the impact of utilizing historical share-based compensation deductions recognized in equity to offset current taxable income,income taxes associated with the Groups profitable subsidiaries as well as impacts of prior year items.Transactions recorded through other comprehensive income/(loss)have been shown net of their tax impact,as applicable.The Group is in scope of the OECD Pillar 2 Model Rules(“P2 Rules”).The P2 Rules have been enacted(or substantively enacted)in most jurisdictions in which the Group operates,including Luxembourg and Sweden.Although no material exposure arising from Pillar 2 has been identified to date,material Pillar 2 impacts to our tax expense remain possible.We are subject to ongoing tax audits in several jurisdictions,and most of these audits involve transfer pricing matters.Tax authorities in certain jurisdictions have challenged our tax positions.We regularly assess the likely outcomes of these audits,taking into account any new information available,in order to determine the appropriateness of the tax reserves.If management concludes that it is not probable that a tax position will be accepted,the effect of that uncertainty is reflected at either the most likely amount or the expected value,taking into account a range of possible outcomes.Table of Contents-7-Tax provisions related to uncertain tax positions in the interim condensed consolidated statement of financial position,which management has concluded are not probable to be accepted were 11 million as of March 31,2024 and 8 million as of December 31,2023.None of the provisions related to uncertain tax positions are reasonably expected to be resolved within the next twelve months.Interest and penalties included in income tax expense were not material in any of the periods presented.Due to the uncertainty associated with our tax positions,any future agreement with the tax authorities could have a significant impact on our results of operations,financial condition and cash flows.Net deferred tax assets of 24 million and 20 million have been recorded in the interim condensed consolidated statement of financial position as of March 31,2024 and December 31,2023,respectively.In evaluating the probability of realizing the deferred tax assets,the Group considered all available positive and negative evidence of future taxable profit,primarily past operating results.As of March 31,2024 and December 31,2023,deferred tax assets of 824 million and 796 million have not been recognized.Changes in profitability in the jurisdictions where these balances originated,among other factors,could have a substantial impact on managements assessment of deferred tax recognition.6.Earnings/(loss)per shareBasic earnings/(loss)per share is computed using the weighted-average number of outstanding ordinary shares during the period.Diluted earnings/(loss)per share is computed using the weighted-average number of outstanding ordinary shares and potential outstanding ordinary shares during the period.Potential ordinary shares,which are based on the weighted-average ordinary shares underlying outstanding stock options,restricted stock units,other contingently issuable shares,warrants,and Exchangeable Notes and computed using the treasury stock method or the if-converted method,as applicable,are included when calculating diluted earnings/(loss)per share when their effect is dilutive.The computation of earnings/(loss)per share for the respective periods is as follows:Three months ended March 31,20242023(in millions,except share and per share data)Basic earnings/(loss)per share Net income/(loss)attributable to owners of the parent 197 (225)Shares used in computation:Weighted-average ordinary shares outstanding 198,025,456 193,562,462 Basic earnings/(loss)per share attributable to owners of the parent 0.99 (1.16)Diluted earnings/(loss)per shareNet income/(loss)attributable to owners of the parent 197 (225)Net income/(loss)used in the computation of diluted earnings/(loss)per share 197 (225)Shares used in computation:Weighted-average ordinary shares outstanding 198,025,456 193,562,462 Stock options 3,684,589 Restricted stock units 2,038,363 Other contingently issuable shares 24,635 Diluted weighted-average ordinary shares 203,773,043 193,562,462 Diluted earnings/(loss)per share attributable to owners of the parent 0.97 (1.16)Table of Contents-8-Potential dilutive securities that were not included in the diluted earnings/(loss)per share calculations because they would be anti-dilutive were as follows:Three months ended March 31,20242023Stock options 2,320,221 16,519,785 Restricted stock units 597,252 3,861,368 Other contingently issuable shares 36,898 Warrants 800,000 800,000 Exchangeable Notes 2,911,500 2,911,500 7.LeasesThe Group leases certain properties under non-cancellable lease agreements that primarily relate to office space.The expected remaining lease terms are up to 10 years.Below is the roll-forward of lease right-of-use assets:Right-of-use assets (in millions)Cost At January 1,2024 684 Increases 13 Disposals(133)Exchange differences 9 At March 31,2024 573 Accumulated depreciation and impairment lossAt January 1,2024(384)Depreciation charge(11)Impairment charge(3)Disposals 104 Exchange differences(5)At March 31,2024(299)Cost,net accumulated depreciation and impairment lossAt January 1,2024 300 At March 31,2024 274 Table of Contents-9-Below is the roll-forward of lease liabilities:Lease liabilities20242023(in millions)At January 1 558 613 Increases 13 15 Payments(1)(24)(25)Interest expense 9 10 Lease incentives received(2)2 Exchange differences 6 (6)At March 31 562 609(1)9 million and 10 million of interest paid on lease liabilities are included in operating activities and 15 million and 15 million of payments of lease liabilities included in financing activities within the interim condensed consolidated statement of cash flows for the three months ended March 31,2024 and 2023,respectively.(2)2 million of lease incentives received are included in financing activities within the interim condensed statement of cash flows for the three months ended March 31,2023.There were no lease incentives received during the three months ended March 31,2024.Below is the maturity analysis of lease liabilities:Lease liabilitiesMarch 31,2024Maturity Analysis(in millions)Less than one year 110 One to five years 345 More than five years 286 Total lease commitments 741 Impact of discounting remaining lease payments(179)Total lease liabilities 562 Lease liabilities included in the interim condensed consolidated statement of financial positionCurrent 69 Non-current 493 Total 562 Excluded from the lease commitments above are short term leases.Expenses relating to short term leases were approximately 1 million for both the three months ended March 31,2024 and 2023.Additionally,the Group has entered into certain lease agreements with approximately 40 million of commitments,which had not commenced as of March 31,2024,and,as such,have not been recognized in the consolidated statement of financial position.The weighted-average incremental borrowing rate applied to lease liabilities recognized in the interim condensed consolidated statement of financial position as of March 31,2024 was 6.4%.During the three months ended March 31,2024,the Group entered into agreements to sublease a portion of its leased offices under finance leases.As an intermediate lessor,the Group accounts for sublease arrangements separately from the related head lease agreements.Subleases are classified as either finance or operating leases by reference to the right-of-use asset arising from the head lease.Where the lease transfers substantially all the risks and rewards of ownership to the lessee,the contract is classified as a finance lease;all other leases are classified as operating leases.The Group does not currently have any subleases classified as operating leases.Amounts due from lessees under finance subleases are recognized as receivables discounted using the interest rate implicit in the lease.Below is the roll-forward of finance lease receivables:Table of Contents-10-Finance lease receivables20242023(in millions)At January 1 Additions 50 Interest income 1 At March 31 51 Below is the maturity analysis of finance lease receivables:Finance lease receivablesMarch 31,2024Maturity Analysis(in millions)Less than one year 1 One to five years 35 More than five years 51 Total lease payments receivable 87 Unearned finance income(36)Total finance lease receivables 51 Finance lease receivables included in the interim condensed consolidated statement of financial positionNon-current 51 Total 51 8.Property and equipmentProperty and equipmentLeaseholdimprovementsTotal(in millions)Cost At January 1,2024 93 444 537 Additions 1 1 Disposals(2)(32)(34)Exchange differences 2 7 9 At March 31,2024 93 420 513 Accumulated depreciation and impairment lossAt January 1,2024(79)(211)(290)Depreciation charge(3)(8)(11)Impairment charge (1)(1)Disposals 2 15 17 Exchange differences(1)(3)(4)At March 31,2024(81)(208)(289)Cost,net accumulated depreciation and impairment lossAt January 1,2024 14 233 247 At March 31,2024 12 212 224 The Group had 1 million and 4 million of leasehold improvements that were not placed into service as of March 31,2024 and December 31,2023,respectively.Table of Contents-11-9.Goodwill and intangible assets Internaldevelopmentcosts andpatentsAcquiredintangibleassetsTotalGoodwillTotal(in millions)Cost At January 1,2024 68 168 236 1,137 1,373 Additions 1 1 1 Derecognition of fully amortized intangibles(2)(8)(10)(10)Exchange differences 2 2 22 24 At March 31,2024 67 162 229 1,159 1,388 Accumulated amortizationAt January 1,2024(55)(97)(152)(152)Amortization charge(2)(7)(9)(9)Derecognition of fully amortized intangibles 2 8 10 10 Exchange differences (2)(2)(2)At March 31,2024(55)(98)(153)(153)Cost,net accumulated amortizationAt January 1,2024 13 71 84 1,137 1,221 At March 31,2024 12 64 76 1,159 1,235 Amortization charges related to intangible assets of 8 million and 10 million are included in research and development in the interim condensed consolidated statement of operations during the three months ended March 31,2024 and 2023,respectively.There were no impairment charges for goodwill or intangible assets for the three months ended March 31,2024 and 2023,respectively.10.Restricted cash and other non-current assetsMarch 31,2024December 31,2023(in millions)Restricted cash Lease deposits and guarantees 48 50 Other 1 1 Other non-current assets 23 24 Total 72 75 11.Trade and other receivables March 31,2024December 31,2023(in millions)Trade receivables 564 607 Less:allowance for expected credit losses(5)(5)Trade receivables-net 559 602 Other receivables 218 256 Total 777 858 Table of Contents-12-12.Other current assetsMarch 31,2024December 31,2023(in millions)Content assets 89 95 Prepaid expenses and other 77 64 Derivative assets 9 9 Total 175 168 Content asset amortization of 51 million and 50 million is included in cost of revenue in the interim condensed consolidated statement of operations for the three months ended March 31,2024 and 2023,respectively.13.Equity and other reservesAs of March 31,2024 and December 31,2023,the Company had 202,256,242 and 201,343,630 ordinary shares issued and fully paid,respectively,with 3,202,177 and 4,200,241 ordinary shares held as treasury shares,respectively.On August 20,2021,the Company announced that the board of directors had approved a program to repurchase up to$1.0 billion of the Companys ordinary shares.Repurchases of up to 10,000,000 of the Companys ordinary shares were authorized at the Companys general meeting of shareholders on April 21,2021.The repurchase program will expire on April 21,2026.Since the commencement of this repurchase program and through March 31,2024,469,274 ordinary shares were repurchased for 91 million under this program.For the three months ended March 31,2024,the Company repurchased 900,000 of its own ordinary shares and reissued 1,898,064 treasury shares upon the exercise of stock options and restricted stock units.For the three months ended March 31,2023,the Company did not repurchase any of its own ordinary shares and reissued 836,293 treasury shares upon the exercise of stock options,restricted stock units,and contingently issuable shares.As of March 31,2024 and December 31,2023,the Groups founders held 341,341,690 and 343,841,690 beneficiary certificates,respectively.Table of Contents-13-Other reserves 20242023(in millions)Currency translation At January 1 63 100 Currency translation 22 (13)At March 31 85 87 Short term investmentsAt January 1(4)(18)(Losses)/Gains on fair value that may be subsequently reclassified to interim condensed consolidated statement of operations(7)4 Losses reclassified to consolidated statement of operations 5 4 Deferred tax (2)At March 31(6)(12)Long term investmentsAt January 1 224 161 Gains/(Losses)on fair value not to be subsequently reclassified to interim condensed consolidated statement of operations 317 (5)Losses on sale of long term investment reclassified to accumulated deficit 3 Deferred tax(65)At March 31 476 159 Exchangeable NotesAt January 1(7)3 Losses on fair value attributable to changes in credit risk(5)Deferred tax 1 At March 31(11)3 Cash flow hedgesAt January 1(3)10 Gains on fair value that may be subsequently reclassified to interim condensed consolidated statement of operations 4 Losses/(Gains)reclassified to revenue 6 (18)(Gains)/Losses reclassified to cost of revenue(4)12 Deferred tax(1)At March 31(2)8 Share-based compensationAt January 1 1,539 1,265 Share-based compensation 69 105 Income tax impact associated with share-based compensation 36 13 Restricted stock units withheld for employee taxes(27)(13)At March 31 1,617 1,370 Other reserves at March 31 2,159 1,615 14.Share-based compensationThe expense recognized in the interim condensed consolidated statement of operations for share-based compensation is as follows:Three months ended March 31,20242023(in millions)Cost of revenue 1 2 Research and development 39 65 Sales and marketing 16 20 General and administrative 13 18 Total 69 105 Table of Contents-14-Activity in the Groups RSUs and other contingently issuable shares outstanding and related information is as follows:RSUsOther Number ofRSUsWeightedaveragegrant datefair valueNumber ofAwardsWeightedaveragegrant datefair value US$US$Outstanding at January 1,20242,554,925 132.39 36,898 155.83 Granted622,105 260.17 Forfeited(28,435)144.79 Released(319,561)143.68(14,596)154.15 Outstanding at March 31,20242,829,034 159.16 22,302 156.93 In the table above,the number of RSUs and other contingently issuable shares released include ordinary shares that the Group has withheld for settlement of employees tax obligations due upon the vesting of RSUs and other contingently issuable shares.For most of our employees,when RSUs vest,the Group withholds the number of shares that are equal to the monetary value of the employees tax obligation from the total number of shares that otherwise would have been issued.The Group then remits cash to tax authorities on the employees behalf.If all the RSUs outstanding at March 31,2024 subsequently vest,the Group estimates that it would be required to remit approximately 273 million to tax authorities over the vesting period for the years 2024 through 2028.In determining this estimate,the Group used the Companys ordinary share price as at March 31,2024.The actual amount remitted to tax authorities is dependent on the Companys ordinary share price on each of the vesting dates as well as the number of awards that ultimately vest.Activity in the Groups stock options outstanding and related information is as follows:Options Number ofoptionsWeightedaverageexercise price US$Outstanding at January 1,202412,429,245 165.93 Granted566,265 264.81 Forfeited(89,342)158.69 Exercised(1,733,721)152.47 Expired(37,905)256.29 Outstanding at March 31,202411,134,542 172.80 Exercisable at January 1,20245,793,791 184.98 Exercisable at March 31,20244,919,877 192.15 The weighted-average contractual life for the stock options outstanding at March 31,2024 was 2.8 years.The weighted-average share price at exercise for options exercised during the three months ended March 31,2024 was US$246.13.The weighted-average fair value of options granted during the three months ended March 31,2024 was US$116.04 per option.The following table lists the inputs to the Black-Scholes option-pricing models used for share-based compensation for the three months ended March 31,2024 and 2023:Three months ended March 31,20242023Expected volatility(%)53.7-57.651.8-61.2Risk-free interest rate(%)3.8-4.43.5-4.7Expected life of stock options(years)2.6-4.82.6-4.8Weighted-average share price(US$)263.25 108.30 Table of Contents-15-15.Exchangeable NotesOn March 2,2021,the Companys wholly owned subsidiary,Spotify USA Inc.(the“Issuer”),issued US$1,500 million aggregate principal amount of 0%Exchangeable Senior Notes due 2026(the“Exchangeable Notes”),which included the initial purchasers exercise in full of their option to purchase an additional US$200 million principal amount of the Exchangeable Notes.The Exchangeable Notes will mature on March 15,2026,unless earlier repurchased,redeemed or exchanged.The Exchangeable Notes are fully and unconditionally guaranteed,on a senior,unsecured basis by the Company.The net proceeds from the issuance of the Exchangeable Notes were 1,223 million after deducting transaction costs of 18 million.The transaction costs were immediately expensed and included in finance costs in the interim condensed consolidated statement of operations for the three months ended March 31,2021.The Exchangeable Notes are the Issuers senior unsecured obligations and are equal in right of payment with the Issuers future senior,unsecured indebtedness,senior in right of payment to the Issuers future indebtedness that is expressly subordinated to the Exchangeable Notes and effectively subordinated to the Issuers future secured indebtedness,to the extent of the value of the collateral securing that indebtedness.The Exchangeable Notes will be structurally subordinated to all future indebtedness and other liabilities,including trade payables,and(to the extent the Issuer is not a holder thereof)preferred equity,if any,of the Issuers subsidiaries.The noteholders may exchange their Exchangeable Notes at their option into consideration that consists,at the Issuers election,of cash,ordinary shares of the Company,or a combination of cash and ordinary shares,but only under certain circumstances as set forth in the indenture governing the Exchangeable Notes(the“Indenture”).The circumstances required to allow the noteholders to exchange their Exchangeable Notes were not met during the three months ended March 31,2024.The Exchangeable Notes were not redeemable prior to March 20,2024,except in the event of certain tax law changes as set forth in the Indenture.As of March 20,2024,the Exchangeable Notes are redeemable,in whole or in part,at the Issuers option at any time,and from time to time,and on or before the 40th scheduled trading day immediately before the maturity date,at a cash redemption price equal to the principal amount of the Exchangeable Notes to be redeemed,plus accrued and unpaid special and additional interest,if any,but only if the last reported sale price per ordinary share exceeds 130%of the exchange price on:(1)each of at least 20 trading days,whether or not consecutive,during the 30 consecutive trading days ending on,and including,the trading day immediately before the date the Issuer sends the related redemption notice;and(2)the trading day immediately before the date the Issuer sends such notice.In addition,the Issuer will have the right to redeem all,but not less than all,of the Exchangeable Notes if certain changes in tax law as set forth in the Indenture occur.In addition,calling any Exchangeable Note for redemption will constitute a make-whole fundamental change with respect to that Exchangeable Note,in which case the exchange rate applicable to the exchange of that Exchangeable Note will be increased in certain circumstances if it is exchanged after it is called for redemption.Upon the occurrence of a“fundamental change”as set forth in the Indenture,noteholders may require the Issuer to repurchase their Exchangeable Notes at a cash repurchase price equal to the principal amount of the Exchangeable Notes to be repurchased,plus accrued and unpaid special and additional interest,if any,to,but excluding,the fundamental change repurchase date as set forth in the Indenture.The Group accounted for the Exchangeable Notes at fair value through profit and loss using the fair value option in accordance with IFRS 9,Financial Instruments.The fair value of the Exchangeable Notes as of March 31,2024 was 1,270 million.See Note 19 for information regarding the key inputs and assumptions used to estimate the fair value of the Exchangeable Notes.16.Trade and other payables March 31,2024December 31,2023(in millions)Trade payables 715 662 Value added tax and sales taxes payable 300 291 Other current liabilities 33 25 Total 1,048 978 Table of Contents-16-17.Accrued expenses and other liabilities March 31,2024December 31,2023(in millions)Non-current Other accrued liabilities 17 26 Total 17 26 CurrentAccrued fees to rights holders 1,716 1,826 Accrued salaries,vacation,severance,and related taxes 143 273 Accrued social costs for options and RSUs 120 57 Accrued operating liabilities 125 163 Other accrued expenses 124 121 Total 2,228 2,440 On December 4,2023,the Company announced a reduction in force,through which our employee base was reduced by approximately 17%.As of December 31,2023,we had accrued employee severance costs related to the reduction in force of 136 million included within current accrued expenses and other liabilities.As of March 31,2024,we have 27 million of accrued employee severance costs related to the reduction in force included within current accrued expenses and other liabilities.We expect to substantially settle our obligations related to the reduction in force by the end of the second fiscal quarter of 2024.18.Provisions LegalcontingenciesIndirect taxOnerous ContractsOtherTotal(in millions)Carrying amount at January 1,2024 11 8 1 4 24 Charged/(credited)to the interim condensed statement of operations:Utilized (1)(1)Carrying amount at March 31,2024 11 8 4 23 As at January 1,2024Current portion 11 8 1 1 21 Non-current portion 3 3 As at March 31,2024Current portion 11 8 1 20 Non-current portion 3 3 Various legal actions,proceedings,and claims are pending or may be instituted or asserted against the Group.The results of such legal proceedings are difficult to predict and the extent of the Groups financial exposure is difficult to estimate.The Group records a provision for contingent losses when it is both probable that a liability has been incurred,and the amount of the loss can be reasonably estimated.Table of Contents-17-As of April 2019,the Groups settlement of the Ferrick et al.v.Spotify USA Inc.,No.1:16-cv-8412-AJN(S.D.N.Y.),putative class action lawsuit,which alleged that the Group unlawfully reproduced and distributed musical compositions without obtaining licenses,was final and effective.Even with the effectiveness of the settlement,we may still be subject to claims of copyright infringement by rights holders who have purported to opt out of the settlement or who may not otherwise be covered by its terms.The Music Modernization Act of 2018 contains a limitation of liability with respect to such lawsuits filed on or after January 1,2018.Rights holders may,nevertheless,file lawsuits,and may argue that they should not be bound by this limitation of liability.For example,in August 2019,the Eight Mile Style,LLC et al v.Spotify USA Inc.,No.3:19-cv-00736-AAT,lawsuit was filed against us in the U.S.District Court for the Middle District of Tennessee,alleging both that the Group does not qualify for the limitation of liability in the Music Modernization Act and that the limitation of liability is unconstitutional and,thus,not valid law.The Group intends to vigorously defend this lawsuit,including plaintiffs challenges to the limitation of liability in the Music Modernization Act.19.Financial instrumentsForeign exchange forward contractsCash flow hedgesThe Groups currency pairs used for cash flow hedges are Euro/U.S.dollar,Euro/Australian dollar,Euro/British pound,Euro/Swedish krona,Euro/Canadian dollar,and Euro/Norwegian krone.The notional principal of foreign exchange contracts hedging the revenue and cost of revenue line items in the interim condensed consolidated statement of operations was approximately 1,504 million and 987 million,respectively,as of March 31,2024,and approximately 1,414 million and 991 million,respectively,as of December 31,2023.Fair valuesThe carrying amounts of certain financial instruments,including cash and cash equivalents,trade and other receivables,restricted cash,trade and other payables,and accrued expenses and other liabilities approximate fair value due to their relatively short maturities.The Group measures its finance lease receivables as described in Note 7.The carrying amount of our finance lease receivables is considered to approximate their fair value at March 31,2024.Refer to the consolidated financial statements for the year ended December 31,2023 for information regarding the Groups measurement of its lease liabilities.All other financial assets and liabilities are accounted for at fair value.Table of Contents-18-The following tables summarize,by major security type,the Groups financial assets and liabilities that are measured at fair value on a recurring basis,and the category using the fair value hierarchy:Quoted Prices in ActiveMarkets forIdentical Assets(Level 1)Significant OtherObservable Inputs(Level 2)Significant Unobservable Inputs(Level 3)March 31,2024(in millions)Financial assets at fair value Cash equivalents:Money market funds 2,661 2,661 Short term investments:Money market funds 182 182 Government securities 252 7 259 Corporate notes 330 330 Collateralized reverse purchase agreements 337 337 Fixed income funds 112 112 Derivatives(designated for hedging):Foreign exchange forwards 9 9 Long term investments 1,466 68 1,534 Total financial assets at fair value 4,673 683 68 5,424 Financial liabilities at fair valueExchangeable Notes 1,270 1,270 Derivatives(not designated for hedging):Warrants 11 11 Derivatives(designated for hedging):Foreign exchange forwards 11 11 Total financial liabilities at fair value 11 1,281 1,292 Table of Contents-19-Quoted Prices in ActiveMarkets forIdentical Assets(Level 1)Significant OtherObservable Inputs(Level 2)Significant Unobservable Inputs(Level 3)December 31,2023(in millions)Financial assets at fair value Cash equivalents:Money market funds 2,111 2,111 Short term investments:Money market funds 181 181 Government securities 239 8 247 Corporate notes 320 320 Collateralized reverse purchase agreements 241 241 Fixed income funds 111 111 Derivatives(designated for hedging):Foreign exchange forwards 9 9 Long term investments 1,154 61 1,215 Total financial assets at fair value 3,796 578 61 4,435 Financial liabilities at fair valueExchangeable Notes 1,203 1,203 Derivatives(not designated for hedging):Warrants 3 3 Derivatives(designated for hedging):Foreign exchange forwards 14 14 Total financial liabilities at fair value 14 1,206 1,220 The Groups policy is to recognize transfers into and transfers out of fair value hierarchy levels at the end of each reporting period.During the three months ended March 31,2024,there were no transfers between levels in the fair value hierarchy.Recurring fair value measurementsLong term investment-Tencent Music Entertainment GroupThe Groups approximate 8%investment in TME is carried at fair value through other comprehensive income/(loss).The fair value of ordinary shares of TME is based on the ending New York Stock Exchange American depository share price.The fair value of the investment in TME may vary over time and is subject to a variety of risks including company performance,macro-economic,regulatory,industry,USD to Euro exchange rate and systemic risks of the equity markets overall.The table below presents the changes in the investment in TME:20242023(in millions)At January 1 1,154 1,094 Changes in fair value recorded in other comprehensive income/(loss)312 (14)At March 31 1,466 1,080 A 10crease or increase in TMEs share price would have resulted in a fair value of the Groups long term investment in TME ranging from 1,320 million to 1,613 million at March 31,2024.The following sections describe the valuation methodologies the Group uses to measure its Level 3 financial instruments at fair value on a recurring basis.Table of Contents-20-Long term investments-otherThe Group has interests in certain long term investments,the most significant of which is our equity investment in DistroKid,an independent digital music distribution service.These long term investments primarily represent unlisted equity securities carried at fair value through other comprehensive income/(loss).The fair values of these equity investments are generally determined using business enterprise values based on market transactions or by(i)applying market multiples to the projected financial performance and(ii)discounting the future value to its present value equivalent.The key assumptions used to estimate the fair value of these equity investments include market multiples of revenue or earnings before interest,income taxes,depreciation and amortization for benchmark companies used to estimate business enterprise value and discount rate.The fair value of the long term investments may vary over time and is subject to a variety of risks including company performance,macroeconomic,regulatory,industry,USD to Euro exchange rate,and systemic risks of the overall equity markets.The table below presents the changes in the other long term investments:20242023(in millions)At January 1 61 43 Initial recognition of long term investment 2 Changes in fair value recorded in other comprehensive income/(loss)5 9 Changes in fair value recognized in interim condensed consolidated statement of operations 1 Effect of changes in foreign exchange rates 1 At March 31 68 54 WarrantsAs of March 31,2024 and December 31,2023,the number of outstanding warrants was 800,000.The outstanding warrants are valued using a Black-Scholes option-pricing model.Assumptions used to estimate the fair value of the warrants in the option pricing model are as follows:March 31,2024Expected term(years)0.4 Risk free rate(%)5.4 Volatility(%)30.0 Share price(US$)263.90 The table below presents the changes in the warrants liability:20242023(in millions)At January 1 3 1 Changes in fair value recognized in interim condensed consolidated statement of operations 8 7 At March 31 11 8 A 10crease or increase in the Companys ordinary share price would have resulted in a fair value of the warrants ranging from 4 million to 21 million at March 31,2024.Table of Contents-21-Exchangeable NotesThe table below presents the changes in the Exchangeable Notes:20242023(in millions)At January 1 1,203 1,128 Changes in fair value recognized in interim condensed consolidated statement of operations 35 43 Changes in fair value recorded in other comprehensive income/(loss)5 Effect of changes in foreign exchange rates 27 (15)At March 31 1,270 1,156 The change in estimated fair value is recognized within finance income/(cost)in the interim condensed consolidated statement of operations,excluding changes in fair value due to changes in the Groups own credit risk,which are recognized in other comprehensive income/(loss)and will not be reclassified to the interim condensed consolidated statement of operations.The fair value of the Exchangeable Notes was estimated using a combination of a binomial option pricing model and prices observed for the Exchangeable Notes in an over-the-counter market on the last trading day of the reporting period.A weight of 75%was applied to the binomial option pricing model and a weight of 25%was applied to the price of the Exchangeable Notes in the over-the-counter market on the last trading day of the reporting period.The key assumptions used in the binomial option pricing model for the Exchangeable Notes were as follows:March 31,2024Risk free rate(%)4.6 Discount rate(%)6.6 Volatility(%)40.0 Share price(US$)263.90A decrease or increase of 10 percentage points in volatility would have resulted in a fair value of the Exchangeable Notes ranging from 1,250 million to 1,296 million at March 31,2024.A 10crease or increase in the Companys ordinary share price would have resulted in a fair value of the Exchangeable Notes ranging from 1,259 million to 1,285 million at March 31,2024.A decrease or increase of 100 basis points in credit spread would have resulted in a fair value of the Exchangeable Notes ranging from 1,286 million to 1,255 million at March 31,2024.20.Segment informationThe Group has two reportable segments:Premium and Ad-Supported.Revenue for the Premium segment is generated primarily through subscription fees.Revenue for the Ad-Supported segment is primarily generated through the sale of advertising across the Groups music and podcast content.Royalty costs are primarily recorded in each segment based on specific rates for each segment agreed to with rights holders.All podcast content costs are recorded in the Ad-Supported segment.The costs of providing audiobook content as part of the Premium subscription are recorded in the Premium segment.The remaining costs that are not specifically associated to either of the segments are allocated based on user activity or the revenue recognized in each segment.No operating segments have been aggregated to form the reportable segments.Table of Contents-22-Key financial performance measures of the segments including revenue,cost of revenue,and gross profit are as follows:Three months ended March 31,20242023(in millions)Premium Revenue 3,247 2,713 Cost of revenue 2,268 1,937 Gross profit 979 776 Ad-SupportedRevenue 389 329 Cost of revenue 364 339 Gross profit/(loss)25 (10)ConsolidatedRevenue 3,636 3,042 Cost of revenue 2,632 2,276 Gross profit 1,004 766 Reconciliation of segment gross profitOperating expenses,finance income,and finance costs are not allocated to individual segments as these are managed on an overall Group basis.The reconciliation between reportable segment gross profit to the Groups income/(loss)before tax is as follows:Three months ended March 31,20242023(in millions)Segment gross profit 1,004 766 Research and development(389)(435)Sales and marketing(324)(347)General and administrative(123)(140)Finance income 59 27 Finance costs(53)(77)Income/(loss)before tax 174 (206)Revenue by country Three months ended March 31,20242023(in millions)United States 1,394 1,189 United Kingdom 336 283 Luxembourg 2 2 Other countries 1,904 1,568 Total 3,636 3,042 Premium revenue is attributed to a country based on where the membership originates.Ad-Supported revenue is attributed to a country based on where the advertising campaign is delivered.There are no countries that individually make up greater than 10%of total revenue included in“Other countries.”Table of Contents-23-21.Commitments and contingenciesCommitmentsThe Group is subject to the following minimum guarantees relating to the content on its Service,the majority of which relate to minimum royalty payments associated with its license agreements for the use of licensed content:March 31,2024December 31,2023(in millions)Not later than one year 820 1,055 Later than one year but not more than five years 2,901 3,610 3,721 4,665 In addition,the Group is subject to various non-cancelable purchase obligations and service agreements with minimum spend commitments,including a service agreement with Google for the use of Google Cloud Platform and certain podcast and marketing commitments:March 31,2024December 31,2023(in millions)Not later than one year 357 453 Later than one year but not more than five years 1,503 1,369 More than five years 75 83 1,935 1,905 ContingenciesVarious legal actions,proceedings,and claims are pending or may be instituted or asserted against the Group.These may include,but are not limited to,matters relating to intellectual property,data protection,consumer protection,employment,and contractual rights.As a general matter,the music and other content made available on the Groups Service are licensed to the Group by various third parties.Many of these licenses allow rights holders or other authorized parties to audit the Groups royalty payments,and any such audit could result in disputes over whether the Group has paid the proper royalties.If such a dispute were to occur,the Group could be required to pay additional royalties,and the amounts involved could be material.The Group expenses legal fees as incurred.The Group records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.An unfavorable outcome to any legal matter,if material,could have an adverse effect on the Groups operations or its financial position,liquidity,or results of operations.Table of Contents-24-Item 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsSpecial Note Regarding Forward-Looking StatementsThis discussion and analysis reflects our historical results of operations and financial position and contains estimates and forward-looking statements.All statements other than statements of historical fact are forward-looking statements.The words“may,”“might,”“will,”“could,”“would,”“should,”“expect,”“plan,”“anticipate,”“intend,”“seek,”“believe,”“estimate,”“predict,”“potential,”“continue,”“contemplate,”“possible,”and similar words are intended to identify estimates and forward-looking statements.Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends,which affect or may affect our businesses and operations.Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions,they are subject to numerous risks and uncertainties and are made in light of information currently available to us.Many important factors may adversely affect our results as indicated in forward-looking statements.These factors include,but are not limited to:our ability to attract prospective users,retain existing users,and monetize our products and services;competition for users,user listening time,and advertisers;risks associated with our international operations and our ability to manage our growth and the scope and complexity of our business;risks associated with our new products or services and our emphasis on long-term user engagement over short-term results;our ability to predict,recommend,and play content that our users enjoy;our ability to generate profit or positive cash flow on a sustained basis;our ability to convince advertisers of the benefits of our advertising offerings;our ability to forecast or optimize advertising inventory amid evolving industry trends in digital advertising;our ability to generate revenues from podcasts,audiobooks,and other non-music content;potential disputes or liabilities associated with content made available on our Service(as defined above);risks relating to acquisitions,investments,and divestitures;our dependence upon third-party licenses for most of the content we stream;our lack of control over third-party content providers who are concentrated and can unilaterally affect our access to content;our ability to comply with complex license agreements;our ability to accurately estimate royalty payments under our license agreements and relevant statutes;the limitations on our operating flexibility due to financial commitments required under certain of our license agreements;our ability to identify the compositions embodied in sound recordings and ownership thereof in order to obtain licenses or comply with existing license agreements;assertions by third parties of infringement or other violations by us of their intellectual property rights;our ability to protect our intellectual property;the dependence of streaming on operating systems,online platforms,hardware,networks,regulations,and standards that we do not control;our ability to maintain the integrity of our technology infrastructure and systems or the security of confidential information;undetected errors,misconfigurations,bugs,or vulnerabilities in our products;interruptions,delays,or discontinuations in service arising from our systems or systems of third parties;changes in laws or regulations affecting us;risks relating to privacy and data security,content moderation,and use of artificial intelligence;our ability to maintain,protect,and enhance our brand;risks associated with increased scrutiny of environmental,social,and governance matters;payment acceptance-related risks;our dependence on key personnel and ability to attract,retain,and motivate highly skilled employees;our ability to access additional capital to support strategic objectives;risks relating to currency exchange rate fluctuations and foreign exchange controls;Table of Contents-25-the impact of economic,social,or political conditions,including inflation,changes in interest rates,geopolitical conflicts in Europe and the Middle East,and related market uncertainty;our ability to accurately estimate user metrics and other estimates;our ability to manage and remediate attempts to manipulate streams and attempts to gain or provide unauthorized access to certain features of our Service;risks related to our indebtedness,including risks related to our Exchangeable Notes;fluctuation of our operating results and fair market value of ordinary shares;tax-related risks;the concentration of voting power among our founders,which limits shareholders ability to influence our governance and business;andrisks related to our status as a foreign private issuer and a Luxembourg company.We operate in an evolving environment.New risk factors and uncertainties emerge from time to time,and it is not possible for our management to predict all risk factors and uncertainties,nor are we able to assess the impact of all of these risk factors on our business or the extent to which any risk factor,or combination of risk factors,may cause actual results to differ materially from those contained in any forward-looking statements.We qualify all of our forward-looking statements by these cautionary statements.For additional information,refer to the risk factors discussed under Part I,Item 3.D.“Risk Factors”in our Annual Report on Form 20-F for the year ended December 31,2023(“Annual Report on Form 20-F”)and in our other filings with the U.S.Securities and Exchange Commission(“SEC”).You should read this discussion and analysis completely and with the understanding that our actual future results may be materially different from our expectations.Investors and others should note that we announce material financial information to our investors using our Investors website(),SEC filings,press releases,public conference calls,and webcasts.We use these channels,as well as social media,to communicate with our users and the public about our company,our Service,and other issues.It is possible that the information we post on these channels could be deemed to be material information.Therefore,we encourage investors,the media,and others interested in our Company to review the information we post on the channels listed on our Investors website.OverviewOur mission is to unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it.We are the worlds most popular audio streaming subscription service.With a presence in 184 countries and territories,our platform includes 615 million monthly active users(“MAUs”),including 239 million Premium Subscribers(as defined below)as of March 31,2024.We currently monetize our Service primarily through both subscriptions and advertising.Our Premium Subscribers have grown 14%year-over-year,as of March 31,2024,to 239 million.Our 615 million MAUs have grown 19%year-over-year,as of March 31,2024.Our results reflect the effects of our trial programs,both discounted and free trials,in addition to seasonal trends in user behavior and,with respect to our Ad-Supported segment,advertising behavior.Historically,Premium Subscriber growth accelerates when we run such trial programs.For our Ad-Supported segment,typically we experience higher advertising revenue in the fourth quarter of each calendar year due to greater advertising demand during the holiday season.However,in the first quarter of each calendar year,we typically experience a seasonal decline in advertising revenue due to reduced advertiser demand.AudiobooksOn April 2,2024,the Company announced the launch of audiobooks on our Premium Service in three additional markets:Canada,Ireland,and New Zealand,offering up to 15 hours of access a month to more than 250,000 audiobooks as part of a subscription to the Premium Service.Audiobooks are available for eligible Premium Subscribers in the U.S.,U.K.,Australia,Canada,Ireland,and New Zealand.On March 1,2024,the Company announced the launch of Audiobooks Access Tier in the U.S.,offering Ad-Supported Users a subscription for 15 hours of access a month to more than 250,000 audiobooks.Table of Contents-26-Current macroeconomic environmentThe global macroeconomic environment continues to be uncertain,reflecting the impacts of inflation,changes in interest rates,continued geopolitical conflicts in Europe and the Middle East,and related market uncertainty.We will continue to actively monitor and respond accordingly to the macroeconomic environment.For additional information refer to Part I,Item 3.D.“Risk Factors”in our Annual Report on Form 20-F.Key Performance IndicatorsWe use certain key performance indicators to monitor and manage our business.We use these indicators to evaluate our business,measure our performance,identify trends affecting our business,formulate business plans,and make strategic decisions.We believe these indicators provide useful information to investors in understanding and evaluating our operating results in the same manner we do.MAUsWe track MAUs as an indicator of the size of the audience engaged with our Service.We define MAUs as the total count of Ad-Supported Users and Premium Subscribers that have consumed content for greater than zero milliseconds in the last thirty days from the period-end indicated.Reported MAUs may overstate the number of unique individuals who actively use our Service within a thirty-day period as one individual may register for,and use,multiple accounts.Additionally,though we strive to detect and minimize non-bona fide accounts that may typically be created in an attempt to artificially stream content,they may contribute,from time to time,to an overstatement in our reported MAUs.Our MAUs in the tables below are inclusive of Ad-Supported Users who may have employed methods to limit or otherwise avoid being served advertisements.For additional information,refer to the risk factors discussed under Part I,Item 3.D.“Risk Factors”in our Annual Report on Form 20-F,and in our other filings with the SEC.The table below sets forth our MAUs as of March 31,2024 and 2023.As of March 31 20242023Change(in millions,except percentages)MAUs 615 515 100 19%MAUs were 615 million as of March 31,2024 and 515 million as of March 31,2023,which represented an increase of 19%.MAUs benefited from our continued investment in driving the growth of our Service through successful consumer marketing campaigns,enhanced content offerings,and product enhancements,resulting in continued user engagement and customer satisfaction.Premium SubscribersWe define Premium Subscribers as users that have completed registration with Spotify and have activated a payment method for Premium Service.Our Premium Subscribers include all registered accounts in our Family Plan and Duo Plan.Our Family Plan consists of one primary subscriber and up to five additional sub-accounts,allowing up to six Premium Subscribers per Family Plan Subscription.Our Duo Plan consists of one primary subscriber and up to one additional sub-account,allowing up to two Premium Subscribers per Duo Plan Subscription.Premium Subscribers includes subscribers in a grace period of up to 30 days after failing to pay their subscription fee.The table below sets forth our Premium Subscribers as of March 31,2024 and 2023.As of March 31 20242023Change(in millions,except percentages)Premium Subscribers 239 210 29 14%Premium Subscribers were 239 million as of March 31,2024 and 210 million as of March 31,2023,which represented an increase of 14%.Our free trial offers and global campaigns were meaningful contributors of total gross additions in Premium Subscribers,while our Family Plan and Duo Plan also accounted for a significant portion of gross additions in Premium Subscribers.Table of Contents-27-Ad-Supported MAUsWe define Ad-Supported MAUs as the total count of Ad-Supported Users that have consumed content for greater than zero milliseconds in the last thirty days from the period-end indicated.The table below sets forth our Ad-Supported MAUs as of March 31,2024 and 2023.As of March 31 20242023Change(in millions,except percentages)Ad-Supported MAUs 388 317 71 22-Supported MAUs were 388 million as of March 31,2024 and 317 million as of March 31,2023,which represented an increase of 22%.Ad-Supported MAUs benefited from our continued investment in driving the growth of our Ad-Supported Service through successful consumer marketing campaigns,enhanced content offerings,and product enhancements,resulting in continued Ad-Supported User engagement and customer satisfaction.Premium ARPUPremium average revenue per user(“ARPU”)is a monthly measure defined as Premium subscription revenue recognized in the quarter indicated divided by the average daily Premium Subscribers in such quarter,which is then divided by three months.The table below sets forth our average Premium ARPU for the three months ended March 31,2024 and 2023.Three months ended March 31,20242023ChangePremium ARPU 4.55 4.32 0.23 5%For the three months ended March 31,2024 and 2023,Premium ARPU was 4.55 and 4.32,respectively,which represented an increase of 5%.This increase of 0.23 is primarily attributable to price increases,resulting in a 0.44 increase in Premium ARPU.This increase was partially offset by changes in product and market mix,decreasing ARPU by 0.14,and unfavorable movements in foreign exchange rates,decreasing ARPU by 0.07.How We Generate RevenueWe operate and manage our business in two reportable segments-Premium and Ad-Supported.We identify our reportable segments based on the organizational units used by the chief operating decision maker to monitor performance and make operating decisions.See Note 20 to our interim condensed consolidated financial statements for additional information regarding our reportable segments.PremiumWe generate revenue for our Premium segment through the sale of subscriptions to the Premium Service.The Premium Service is primarily sold directly to end users.The Premium Service is also sold through partners who are generally telecommunications companies that bundle the subscription with their own services or collect payment for the stand-alone subscriptions from their end customers.Premium partner subscription revenue is based on a per-subscriber rate in a negotiated partner agreement.We also bundle the Premium Service with other services and products.Ad-SupportedWe generate revenue for our Ad-Supported segment primarily from the sale of display,audio,and video advertising delivered through advertising impressions across our music and podcast content.We generally enter into arrangements with advertising agencies that purchase advertising on behalf of their clients and we also enter into arrangements directly with some large advertisers.These advertising arrangements are typically sold on a cost-per-thousand-impressions(“CPM”)basis and are evidenced by an insertion order that specifies the terms of the arrangement such as the type of advertising product,pricing,insertion dates,and number of impressions or downloads in a stated period.Additionally,we generate revenue through arrangements with certain advertising automated exchanges,internal self-serve,and advertising marketplace platforms to distribute advertising inventory for purchase on a CPM basis.Table of Contents-28-Components of our Operating ResultsCost of revenue.Cost of revenue consists predominantly of royalty and distribution costs related to content streaming.We incur royalty costs,which we pay to certain record labels,music publishers,and other rights holders,for the right to stream content to our users.Music royalties are typically calculated monthly based on the combination of a number of different variables.Generally,Premium Service royalties are based on the greater of a percentage of revenue and a per user amount.Royalties for the Ad-Supported Service are typically a percentage of relevant revenue,although certain agreements are based on the greater of a percentage of relevant revenue and an amount for each time a track is streamed.We have negotiated lower per user amounts for our lower priced subscription plans such as our Family Plan,Duo Plan,and Student Plan.In our agreements with certain record labels,the percentage of revenue used in the calculation of royalties is generally dependent upon certain targets being met.The targets can include such measures as the number of Premium Subscribers,the ratio of Ad-Supported Users to Premium Subscribers,and/or the rates of Premium Subscriber churn.In addition,royalty rates vary by country.Some of our royalty agreements require that royalty costs be paid in advance or are subject to minimum guaranteed amounts.For the majority of royalty agreements,incremental costs incurred due to unrecouped advances and minimum guarantees have not been significant to date.We also have certain so-called most favored nation royalty agreements,which require us to record additional costs if certain material contract terms are not as favorable as the terms we have agreed to with similar licensors.Cost of revenue also reflects discounts provided by certain rights holders in return for promotional activities in connection with marketplace programs.Additionally,it includes the costs of discounted trials.Royalties payable in relation to audiobook licenses are generally consumption-based.Cost of revenue also includes the cost of podcast content assets(both produced and licensed).Amortization of podcast content assets is recorded over the shorter of the estimated useful economic life or the license period(if relevant)and begins at the release of each episode.We make payments to podcast publishers,whose content we monetize through advertising sales in the Spotify Audience Network(“SPAN”),which are also included in cost of revenue.Cost of revenue also includes credit card and payment processing fees for subscription revenue,advertising serving,advertising measurement,customer service,certain employee compensation and benefits,cloud computing,streaming,facility,and equipment costs.Research and Development.We invest heavily in research and development in order to drive user engagement and customer satisfaction on our platform,which we believe helps drive organic growth in MAUs,which in turn drives additional growth in,and better retention of,Premium Subscribers,as well as increased advertising opportunities to our users.We aim to design products and features that create and enhance user experiences,and new technologies are at the core of many of these opportunities.Expenses primarily comprise costs incurred for the development of products related to our platform and Service,as well as new advertising products and improvements to our mobile application and desktop application and streaming services.The costs incurred include related facility costs,consulting costs,and employee compensation and benefits costs.We expect engineers to represent a significant portion of our employees over the foreseeable future.Many of our new products and improvements to our platform require large investments and involve substantial time and risks to develop and launch.Some of these products may not be well received or may take a long time for users to adopt.As a result,the benefits of our research and development investments are difficult to forecast.Sales and Marketing.Sales and marketing expenses primarily comprise employee compensation and benefits,public relations,branding,consulting expenses,customer acquisition costs,advertising,marketing events and trade shows,amortization of trade name intangible assets,the cost of working with content creators and rights holders to promote the availability of new releases on our platform,and the costs of providing free trials.Expenses included in the cost of providing free trials are derived primarily from per user royalty fees determined in accordance with the rights holder agreements.General and Administrative.General and administrative expenses primarily comprise employee compensation and benefits for functions such as finance,accounting,analytics,legal,human resources,consulting fees,and other costs including facility and equipment costs,directors and officers liability insurance,and director fees.Table of Contents-29-Results of OperationsRevenueThree months ended March 31,20242023Change(in millions,except percentages)Premium 3,247 2,713 534 20-Supported 389 329 60 18%Total 3,636 3,042 594 20%Premium revenueFor both the three months ended March 31,2024 and 2023,Premium revenue comprised 89%of our total revenue.For the three months ended March 31,2024 as compared to the three months ended March 31,2023,Premium revenue increased 534 million,or 20%.The increase was due primarily to an increase in the number of Premium Subscribers and an increase in Premium ARPU,as described above.Ad-Supported revenueFor both the three months ended March 31,2024 and 2023,Ad-Supported revenue comprised 11%of our total revenue.For the three months ended March 31,2024 as compared to the three months ended March 31,2023,Ad-Supported revenue increased 60 million,or 18%.This increase was due primarily to growth in music impressions sold and CPM,which increased revenue in our direct and programmatic channels by 39 million.Ad sales from podcasts,supported by growth in podcast impressions sold,and our self-serve platform,also increased revenue by 26 million during the three months ended March 31,2024.Foreign exchange impact on total revenueThe general movement of the Euro relative to certain foreign currencies,primarily the U.S.Dollar,for the three months ended March 31,2024,as compared to the same period in 2023,had an unfavorable net impact on our revenue.We estimate that total revenue for the three months ended March 31,2024 would have been approximately 53 million higher if foreign exchange rates had remained consistent with foreign exchange rates for the comparable period in 2023.Cost of revenueThree months ended March 31,20242023Change(in millions,except percentages)Premium 2,268 1,937 331 17-Supported 364 339 25 7%Total 2,632 2,276 356 16%Premium cost of revenueFor the three months ended March 31,2024 as compared to the three months ended March 31,2023,Premium cost of revenue increased 331 million,or 17%,and Premium cost of revenue as a percentage of Premium revenue decreased from 71%to 70%.The increase in Premium cost of revenue was driven primarily by increases in Premium revenue and audiobook licensing costs,partially offset by benefits from certain marketplace programs.These collectively resulted in higher content costs of 343 million.Additionally,there was an increase in payment processing fees of 11 million,partially offset by a 7 million decrease in streaming delivery costs during the three months ended March 31,2024.Table of Contents-30-Ad-Supported cost of revenueFor the three months ended March 31,2024 as compared to the three months ended March 31,2023,Ad-Supported cost of revenue increased 25 million,or 7%,and Ad-Supported cost of revenue as a percentage of Ad-Supported revenue decreased from 103%to 94%.The increase in Ad-Supported cost of revenue was driven primarily by an increase in content costs of 26 million due to growth in both advertising revenue and the volume of streams during the three months ended March 31,2024.Foreign exchange impact on total cost of revenueThe general movement of the Euro relative to certain foreign currencies,primarily the U.S.Dollar,for the three months ended March 31,2024,as compared to the same period in 2023,had a favorable net impact on our cost of revenue.We estimate that total cost of revenue for the three months ended March 31,2024 would have been approximately 41 million higher,if foreign exchange rates had remained consistent with foreign exchange rates for the comparable period in 2023.Gross profit/(loss)and gross marginThree months ended March 31,20242023Change(in millions,except percentages)Gross profit/(loss)Premium 979 776 203 26-Supported 25 (10)35 N/M*Consolidated 1,004 766 238 31%Gross marginPremium 30)-Supported 6%(3)%Consolidated 28%*Percentage change is not meaningful for presentation purpose.Premium gross profit and gross marginFor the three months ended March 31,2024 as compared to the three months ended March 31,2023,Premium gross profit increased by 203 million,and Premium gross margin increased from 29%to 30%.Premium gross margin increased due primarily to revenue growth outpacing music royalty costs,benefits from certain marketplace programs and reduced streaming delivery costs,partially offset by increases in audiobook licensing costs during the three months ended March 31,2024.Ad-Supported gross profit/(loss)and gross marginFor the three months ended March 31,2024 as compared to the three months ended March 31,2023,Ad-Supported gross profit increased by 35 million,and gross margin increased from(3)%to 6%.The increase in Ad-Supported gross margin was due primarily to revenue growth outpacing the growth in content costs during the three months ended March 31,2024.Consolidated Operating ExpensesResearch and developmentThree months ended March 31,20242023Change(in millions,except percentages)Research and development 389 435 (46)(11)%As a percentage of revenue 11%For the three months ended March 31,2024 as compared to the three months ended March 31,2023,research and development costs decreased by 46 million,or 11%.The decrease was due primarily to a decrease in personnel-related costs of 73 million that included salaries and share-based compensation as a result of decreased headcount.In addition,there was a 10 million decrease in costs for external contractors and information technology.These decreases were partially offset by an increase in social costs of 48 million due primarily to changes in share price movements.Table of Contents-31-Sales and marketingThree months ended March 31,20242023Change(in millions,except percentages)Sales and marketing 324 347 (23)(7)%As a percentage of revenue 9%For the three months ended March 31,2024 as compared to the three months ended March 31,2023,sales and marketing expense decreased by 23 million,or 7%.The decrease was due primarily to a decrease in personnel-related costs of 18 million that included salaries and share-based compensation as a result of decreased headcount.There was also a decrease in advertising costs of 15 million for marketing campaigns.These decreases were partially offset by an increase in social costs of 13 million due primarily to changes in share price movements.General and administrativeThree months ended March 31,20242023Change(in millions,except percentages)General and administrative 123 140 (17)(12)%As a percentage of revenue 3%5%For the three months ended March 31,2024 as compared to the three months ended March 31,2023,general and administrative expense decreased by 17 million,or 12%.The decrease was due primarily to a decrease in personnel-related costs of 23 million that included salaries and share-based compensation as a result of decreased headcount.This decrease was partially offset by an increase in social costs of 9 million due primarily to changes in share price movements.Finance incomeFinance income consists of fair value adjustment gains on certain financial instruments,interest income earned on our cash and cash equivalents and short term investments,interest income on our finance lease receivables,and foreign currency gains.Three months ended March 31,20242023Change(in millions,except percentages)Finance income 59 27 32 119%As a percentage of revenue 2%1%For the three months ended March 31,2024 as compared to the three months ended March 31,2023,finance income increased 32 million due primarily to an increase in interest income earned on cash and cash equivalents and short term investments of 19 million.Finance income for the three months ended March 31,2024 also includes 8 million of foreign exchange gains on the remeasurement of monetary assets and liabilities in a transaction currency other than the functional currency,with no such activity recognized within finance income during the three months ended March 31,2023.Table of Contents-32-Finance costsFinance costs consist of fair value adjustment losses on certain financial instruments,interest expense,and foreign currency losses.Three months ended March 31,20242023Change(in millions,except percentages)Finance costs(53)(77)24 (31)%As a percentage of revenue(1)%(3)%For the three months ended March 31,2024 as compared to the three months ended March 31,2023,finance costs decreased 24 million.The decrease was due primarily to 13 million in foreign exchange losses on the remeasurement of monetary assets and liabilities in a transaction currency other than the functional currency recognized during the three months ended March 31,2023 with no such activity recognized within finance costs during the three months ended March 31,2024.There was also a decrease in fair value movements on the Exchangeable Notes of 8 million.Income tax(benefit)/expense Three months ended March 31,20242023Change(in millions,except percentages)Income tax(benefit)/expense(23)19 (42)(221)%As a percentage of revenue(1)%1%For the three months ended March 31,2024,income tax benefit was 23 million,compared to an income tax expense of 19 million for the three months ended March 31,2023.The change from expense to benefit is due primarily to an additional tax benefit of 62 million resulting from changes in the recognition of deferred taxes related to unrealized increases in the fair value of the Groups long term investment in Tencent Music Entertainment Group(“TME”).This benefit was partially offset by additional tax expense of 19 million from increased utilization of share-based compensation deductions recognized in equity to offset current taxable income.Non-IFRS financial measureWe have reported our financial results in accordance with IFRS as issued by IASB.In addition,we have discussed our results using the non-IFRS measure of Free Cash Flow as discussed below.We define“Free Cash Flow”as net cash flows from operating activities less capital expenditures and change in restricted cash.We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments and to service our debt.Free Cash Flow is not a measure of our liquidity under IFRS and should not be considered as an alternative to net cash flows from operating activities.Free Cash Flow is a non-IFRS measure and is not a substitute for IFRS measures in assessing our overall financial performance.Because Free Cash Flow is not a measurement determined in accordance with IFRS,and is susceptible to varying calculations,it may not be comparable to other similarly titled measures presented by other companies.You should not consider Free Cash Flow in isolation,or as a substitute for an analysis of our results as reported on our interim condensed consolidated financial statements appearing elsewhere in this document.Set forth below is a reconciliation of Free Cash Flow to net cash flows from operating activities for the periods presented.Three months ended March 31,20242023(in millions)Net cash flows from operating activities 211 59 Capital expenditures(5)(2)Change in restricted cash 1 Free Cash Flow 207 57 Table of Contents-33-Liquidity and Capital ResourcesOur principal sources of liquidity are our cash and cash equivalents,short term investments,and cash generated from operating activities.Cash and cash equivalents and short term investments consist mostly of cash on deposit with banks,time deposits,investments in money market funds,and investments in government securities,corporate notes,fixed income funds,and collateralized reverse purchase agreements.Cash and cash equivalents and short term investments increased by 457 million from 4,214 million as of December 31,2023 to 4,671 million as of March 31,2024.We believe our existing cash and cash equivalents,short term investments,and the cash flow we generate from our operations will be sufficient to meet our working capital and capital expenditure needs and other liquidity requirements for at least the next 12 months.However,our future capital requirements may be materially different than those currently planned in our budgeting and forecasting activities and depend on many factors,including our rate of revenue growth,the timing of new product introductions,market acceptance of our products,the acquisition of other companies,competitive factors,and global economic conditions.To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements,we may be required to seek additional equity or debt financing.The sale of additional equity would result in additional dilution to our shareholders,while the incurrence of debt financing would result in debt service obligations.Such debt instruments also could introduce covenants that might restrict our operations.We cannot assure you that we could obtain additional financing on favorable terms,or at all.For additional information,refer to Part I,Item 3.D.“Risk Factors”in our Annual Report on Form 20-F.We continue to evaluate our real estate footprint to optimize our global office space while making necessary investments in offices and information technology infrastructure to grow our business.We fund these investments using current cash and cash equivalents and the cash flow we generate from operations.Given the impact of our Work From Anywhere program and in conjunction with a strategic review of our real estate footprint and space utilization trends,our focus has shifted more towards optimizing our current portfolio and reviewing our real estate needs around the world as opposed to significant expansion of our presence in current markets.This has resulted in a reduction of our real estate footprint as we have decided to sublease certain leased office space.See Note 7 to our interim condensed consolidated financial statements for further details.Share repurchase programOn August 20,2021,the Company announced that the board of directors had approved a program to repurchase up to$1.0 billion of the Companys ordinary shares.Repurchases of up to 10,000,000 of the Companys ordinary shares were authorized at the Companys general meeting of shareholders on April 21,2021.The repurchase program will expire on April 21,2026.Since the commencement of this repurchase program and through March 31,2024,469,274 ordinary shares were repurchased for 91 million under this program.The timing and actual number of shares repurchased depends on a variety of factors,including price,general business and market conditions,and alternative investment opportunities.The repurchase program is executed consistent with the Companys capital allocation strategy of prioritizing investment to grow the business over the long term.The repurchase program does not obligate the Company to acquire any particular amount of ordinary shares,and the repurchase program may be suspended or discontinued at any time at the Companys discretion.The Company uses current cash and cash equivalents and the cash flow it generates from operations to fund the share repurchase program.Exchangeable notesOn March 2,2021,Spotify USA Inc.issued US$1,500 million in aggregate principal amount of the Exchangeable Notes.Net proceeds from the issuance of the Exchangeable Notes were 1,223 million after deducting the transaction costs.See Note 15 to our interim condensed consolidated financial statements for further information regarding our Exchangeable Notes.Cash flow Three months ended March 31,20242023(in millions)Net cash flows from operating activities 211 59 Net cash flows used in investing activities(114)(122)Net cash flows from financing activities 202 49 Free Cash Flow(1)207 57(1)For a discussion of the limitations associated with using Free Cash Flow rather than IFRS measures,and a reconciliation of Free Cash Flow to net cash flows from operating activities,see“Non-IFRS Financial Measure”above.Table of Contents-34-Operating activitiesNet cash flows from operating activities increased by 152 million to 211 million for the three months ended March 31,2024 as compared to the three months ended March 31,2023.The increase was due primarily to an increase in operating income adjusted for non-cash items including depreciation,amortization,impairment charge on real estate assets,and share-based compensation expense,resulting in an increase in cash flows from operating activities of 279 million.There was also an increase in interest received on cash and cash equivalents and short term investments of 14 million.These changes were partially offset by unfavorable changes in working capital movements of 152 million,principally due to unfavorable movements in trade and other liabilities and trade receivables and other assets.Investing activitiesNet cash flows used in investing activities decreased by 8 million for the three months ended March 31,2024 as compared to the three months ended March 31,2023.The decrease was due primarily to a decrease in net cash outflows from purchases and sales and maturities of short term investments of 28 million partially offset by an increase in cash outflows for other investing activities of 18 million.Financing activitiesNet cash flows from financing activities increased by 153 million for the three months ended March 31,2024 as compared to the three months ended March 31,2023.The increase was due primarily to an increase in cash proceeds from the exercise of stock options of 167 million,partially offset by an increase in payments for employee taxes withheld from restricted stock unit releases of 12 million.Free Cash FlowFree Cash Flow increased by 150 million to 207 million for the three months ended March 31,2024 as compared to the three months ended March 31,2023,due primarily to an increase in net cash flows from operating activities of 152 million,as described above.Restrictions on subsidiaries to transfer fundsThe payment of dividends and the making,or repayment,of loans and advances to the Company by the Companys direct subsidiaries and by its indirect subsidiaries to their respective parent entities are subject to various restrictions.Future indebtedness of these subsidiaries may prohibit the payment of dividends or the making,or repayment,of loans or advances to the Company.In addition,the ability of any of the Companys direct or indirect subsidiaries to make certain distributions may be limited by the laws of the relevant jurisdiction in which the subsidiaries are organized or located.Since the Company is expected to rely primarily on dividends from its direct and indirect subsidiaries to fund its financial and other obligations,restrictions on its ability to receive such funds may adversely impact the Companys ability to fund its financial and other obligations.IndebtednessAs of March 31,2024,our outstanding indebtedness,other than lease liabilities,consisted primarily of the Exchangeable Notes that mature on March 15,2026 and bear no interest.See Note 15 to our interim condensed consolidated financial statements for further information regarding our Exchangeable Notes.We may from time to time seek to incur additional indebtedness.Such indebtedness,if any,will depend on prevailing market conditions,our liquidity requirements,contractual restrictions,and other factors.Off-Balance Sheet ArrangementsAs of March 31,2024,we do not have transactions with unconsolidated entities,such as entities often referred to as structured finance or special purpose entities,whereby we have financial guarantees,subordinated retained interests,derivative instruments,or other contingent arrangements that expose us to material continuing risks,contingent liabilities,or any other obligation under a variable interest in an unconsolidated entity that provides financing,liquidity,market risk,or credit risk support to us.Table of Contents-35-The following table sets forth our contractual obligations and commercial commitments as of March 31,2024:Payments due by periodContractual obligations:TotalLess than1 year1-3 years3-5 yearsMore than5 years(in millions)Minimum guarantees(1)3,721 820 2,875 26 Exchangeable Notes(2)1,390 1,390 Lease obligations(3)784 112 204 157 311 Purchase obligations(4)1,935 357 1,209 294 75 Deferred consideration(5)17 14 3 Total 7,847 1,303 5,681 477 386 (1)We are subject to minimum royalty payments associated with our license agreements for the use of licensed content.See Part I,Item 3.D.“Risk Factors”in our Annual Report on Form 20-F.(2)Consists of principal on our 0.00%Exchangeable Notes due March 15,2026.(3)Included in the lease obligations are short term leases and certain lease agreements that the Group has entered into,but had not yet commenced as of March 31,2024.Lease obligations primarily relate to our office space.The expected remaining lease terms are up to 10 years.See Note 7 to the interim condensed consolidated financial statements for further details regarding leases.(4)We are subject to various non-cancelable purchase obligations and service agreements with minimum spend commitments,including a service agreement with Google for the use of Google Cloud Platform and certain podcast and marketing commitments.(5)Included in deferred consideration are obligations to transfer 17 million of cash consideration over the next two years to former owners of certain entities we have acquired.Item 3.Quantitative and Qualitative Disclosures About Market RiskOur activities expose us to a variety of market risks.Our primary market risk exposures relate to currency,interest rate,share price,and investment risks.To manage these risks and our exposure to the unpredictability of financial markets,we seek to minimize potential adverse effects on our financial performance and capital.Volatile market conditions caused by significant events with macroeconomic impacts,including,but not limited to,inflation,changes in interest rates,geopolitical conflicts in Europe and the Middle East,and related market uncertainty,may result in significant changes in foreign exchange rates,interest rates,and share prices,both our own and those of third parties we use to value certain of our long term investments.Refer to Part I,Item 3.D.“Risk Factors”in our Annual Report on Form 20-F for further discussion on the impact of worldwide economic conditions on our business,operating results,and financial condition.Currency riskCurrency risk manifests itself in transaction exposure,which relates to business transactions denominated in foreign currency required by operations(purchasing and selling)and/or financing(interest and amortization).The volatility in foreign exchange rates,in particular a weakening of foreign currencies relative to the Euro,may negatively affect our revenue.Our general policy is to hedge transaction exposure on a case-by-case basis.Translation exposure relates to net investments in foreign operations.We do not conduct translation risk hedging.Transaction exposure sensitivityIn most cases,our customers are billed in their respective local currency.Major payments,such as salaries,consultancy fees,and rental fees are settled in local currencies.Royalty payments are primarily settled in Euros and U.S.dollars.Hence,the operational need to net purchase foreign currency is due primarily to a deficit from such settlements.The table below shows the immediate impact on Income/(loss)before tax of a 10%strengthening of foreign currencies relative to the Euro in the closing exchange rate of significant currencies to which we have transaction exposure,at March 31,2024.The sensitivity associated with a 10%weakening of a particular currency would be equal and opposite.This assumes that each currency moves in isolation.Swedish krona(SEK)British pound(GBP)U.S.dollar(USD)(in millions)(Decrease)/increase in income before tax(16)(15)63 Table of Contents-36-Translation Exposure SensitivityThe impact on our equity would be approximately 136 million if the Euro weakened by 10%against all translation exposure currencies,based on the exposure at March 31,2024.Interest rate riskInterest rate risk is the risk that changes in interest rates will have a negative impact on earnings and cash flow.Our exposure to interest rate risk is related to our interest-bearing assets,including our cash and cash equivalents and our short term debt securities.Fluctuations in interest rates impact the yield of the investment.The sensitivity analysis considered the historical volatility of short term interest rates and we determined that it was reasonably possible that a change of 100 basis points could be experienced in the near term.A hypothetical 100 basis point decrease or increase in interest rates would have resulted in a change in interest income earned on our cash and cash equivalents and short term investments of 11 million for the three months ended March 31,2024.Share price riskShare price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in the fair value of the Companys ordinary share price.Our exposure to this risk relates primarily to the Exchangeable Notes,outstanding warrants,and accrual for social costs on outstanding share-based compensation awards.A 10crease or increase in the Companys ordinary share price would have resulted in a fair value of the Exchangeable Notes ranging from 1,259 million to 1,285 million at March 31,2024.A 10crease or increase in the Companys ordinary share price would have resulted in a fair value of the warrants ranging from 4 million to 21 million at March 31,2024.A 10crease or increase in the Companys ordinary share price would have resulted in a change in the accrual for social costs on outstanding share-based compensation awards of 24 million at March 31,2024.Investment riskWe are exposed to investment risk as it relates to changes in the market value of our long term investments,due primarily to volatility in the share price used to measure the investment and exchange rates.The majority of our long term investments relate to TME.A 10crease or increase in TMEs share price would have resulted in a fair value of the Groups long term investment in TME ranging from 1,320 million to 1,613 million at March 31,2024.Inflation riskInflationary factors,such as increases in costs,may adversely affect our results of operations.If our costs were to become subject to significant inflationary pressures,we may not be able to fully offset such higher costs through price increases for our Premium Service or sale of advertisements.Our inability or failure to do so could harm our business,operating results,and financial condition.Critical accounting policies and estimatesWe prepare our interim condensed consolidated financial statements in accordance with IFRS as issued by the IASB.Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets,liabilities,equity,revenue,expenses,and related disclosures.We evaluate our estimates and assumptions on an ongoing basis.Our
2024-05-06
43页
5星级
onsemi First Quarter 2024 Results Exceed ExpectationsIncreased free cash flow approximately 3x year-over-yearSCOTTSDALE,Ariz,Apr 29,2024 onsemi(the“Company”)(Nasdaq:ON)today announced results for the first quarter of 2024 with the following highlights:Revenue of$1,862.7 millionGAAP gross margin and non-GAAP gross margin of 45.8 percent and 45.9 percent,respectivelyGAAP operating margin and non-GAAP operating margin of 28.2 percent and 29.0 percent,respectivelyGAAP diluted earnings per share and non-GAAP diluted earnings per share of$1.04 and$1.08,respectivelyReturned 100%of free cash flow over last twelve months to shareholders through stock repurchases“The structural changes we have made to the business over the last three years have enabled us to sustain our gross margin despite challenging market conditions,”said Hassane El-Khoury,president and chief executive officer of onsemi.“In the current environment,we remain focused on execution while investing for our long-term growth.As power continues to play a critical role in the worlds increasing energy demands,efficiency is paramount,and we are positioned to continue to gain share with our portfolio of industry-leading power and sensing technologies.”Selected financial results for the quarter are shown below with comparable periods(unaudited):GAAPNon-GAAP(Revenue and Net Income in millions)Q1 2024Q4 2023Q1 2023Q1 2024Q4 2023Q1 2023Revenue$1,862.7$2,018.1$1,959.7$1,862.7$2,018.1$1,959.7Gross Margin 45.8F.7F.8E.9F.7F.8%Operating Margin 28.20.3(.8).01.62.2%Net Income attributable to ON Semiconductor Corporation$453.0$562.7$461.7$464.5$540.9$523.7Diluted Earnings Per Share$1.04$1.28$1.03$1.08$1.25$1.191Revenue Summary(in millions)(Unaudited)Three Months EndedBusiness Segment(1)Q1 2024Q4 2023Q1 2023Sequential ChangeYear-over-Year ChangePSG$874.2$965.5$860.9 (9)%2%AMG 697.0 744.9 744.7 (6)%(6)%ISG 291.5 307.7 354.1 (5)%(18)%Total$1,862.7$2,018.1$1,959.7 (8)%(5)%(1)During the first quarter of 2024,the Company reorganized certain reporting units and its segment reporting structure.As a result of the reorganization of divisions within PSG and AMG,the prior-period amounts have been reclassified to conform to current-period presentation.SECOND QUARTER 2024 OUTLOOKThe following table outlines onsemis projected second quarter of 2024 GAAP and non-GAAP outlook.Total onsemiGAAPSpecialItems*Total onsemiNon-GAAP*Revenue$1,680 to$1,780 million-$1,680 to$1,780 millionGross Margin44.1%to 46.1%0.1D.2%to 46.2%Operating Expenses$327 to$342 million$14 million$313 to$328 millionOther Income and Expense(including interest),net($12 million)-($12 million)Diluted Earnings Per Share$0.82 to$0.94$0.04$0.86 to$0.98Diluted Shares Outstanding*436 million4 million432 million*Diluted shares outstanding can vary as a result of,among other things,the vesting of restricted stock units,the incremental dilutive shares from the convertible senior subordinated notes,and the repurchase or the issuance of stock or convertible notes or the sale of treasury shares.In periods when the quarterly average stock price per share exceeds$52.97 for the 0%Notes,and$103.87 for the 0.50%Notes,the non-GAAP diluted share count and non-GAAP net income per share include the anti-dilutive impact of the hedge transactions entered concurrently with the 0%Notes,and the 0.50%Notes,respectively.At an average stock price per share between$52.97 and$74.34 for the 0%Notes,and$103.87 and$156.78 for the 0.50%Notes,the hedging activity offsets the potentially dilutive effect of the 0%Notes,and the 0.50%Notes,respectively.In periods when the quarterly average stock price exceeds$74.34 for the 0%Notes,and$156.78 for the 0.50%Notes,the dilutive impact of the warrants issued concurrently with such notes is included in the diluted shares outstanding.GAAP and non-GAAP diluted share counts are based on either the previous quarters average stock price or the stock price as of the last day of the previous quarter,whichever is higher.*Special items may include:amortization of acquisition-related intangibles;expensing of appraised inventory fair market value step-up;non-recurring facility costs;in-process research and development expenses;restructuring,asset impairments and other,net;goodwill impairment charges;gains and losses on debt prepayment;actuarial(gains)losses on pension plans and other pension benefits;and certain other special items,as necessary.These special items are out of our control and could change significantly from period to period.As a result,we are not able to reasonably estimate and separately present the individual impact or probable significance of these special items,and we are similarly unable to provide a reconciliation of the non-GAAP measures.The reconciliation that is unavailable would include a forward-looking income statement,balance sheet and statement of cash flows in accordance with GAAP.For this reason,we use a projected range of the aggregate amount of special items in order to calculate our projected non-GAAP operating expense outlook.2*We believe these non-GAAP measures provide important supplemental information to investors.We use these measures,together with GAAP measures,for internal managerial purposes and as a means to evaluate period-to-period comparisons.However,we do not,and you should not,rely on non-GAAP financial measures alone as measures of our performance.We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that,when taken together with GAAP results and the reconciliations to corresponding GAAP financial measures that we also provide in our releases,provide a more complete understanding of factors and trends affecting our business.Because non-GAAP financial measures are not standardized,it may not be possible to compare these financial measures with other companies non-GAAP financial measures,even if they have similar names.TELECONFERENCEonsemi will host a conference call for the financial community at 9 a.m.Eastern Time(ET)on April 29,2024 to discuss this announcement and onsemis 2024 first quarter results.The Company will also provide a real-time audio webcast of the teleconference on the Investor Relations page of its website at http:/.The webcast replay will be available at this site approximately one hour following the live broadcast and will continue to be available for approximately 30 days following the conference call.Investors and interested parties can also access the conference call by pre-registering here.3About onsemionsemi(Nasdaq:ON)is driving disruptive innovations to help build a better future.With a focus on automotive and industrial end-markets,the company is accelerating change in megatrends such as vehicle electrification and safety,sustainable energy grids,industrial automation,and 5G and cloud infrastructure.onsemi offers a highly differentiated and innovative product portfolio,delivering intelligent power and sensing technologies that solve the worlds most complex challenges and leads the way to creating a safer,cleaner,and smarter world.onsemi is recognized as a Fortune 500 company and included in the Nasdaq-100 Index and S&P 500 index.Learn more about onsemi at .#onsemi and the onsemi logo are trademarks of Semiconductor Components Industries,LLC.All other brand and product names appearing in this document are registered trademarks or trademarks of their respective holders.Although the Company references its website in this news release,information on the website is not to be incorporated herein.Krystal Heaton Parag AgarwalDirector,Head of Public Relations Vice President-Investor Relations&Corporate Developmentonsemi onsemi(480)242-6943(602)244-3437Krystal.H This document includes“forward-looking statements,”as that term is defined in Section 27A of the Securities Act of 1933,as amended,and Section 21E of the Securities Exchange Act of 1934,as amended.All statements,other than statements of historical facts,included or incorporated in this document could be deemed forward-looking statements,particularly statements about the future financial performance of onsemi,including financial guidance for the second quarter of 2024.Forward-looking statements are often characterized by the use of words such as“believes,”“estimates,”“expects,”“projects,”“may,”“will,”“intends,”“plans,”“anticipates,”“should”or similar expressions or by discussions of strategy,plans or intentions.All forward-looking statements in this document are made based on our current expectations,forecasts,estimates and assumptions and involve risks,uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements.Certain factors that could affect our future results or events are described under Part I,Item 1A“Risk Factors”in the 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission(“SEC”)on February 5,2024(the“2023 Form 10-K”)and from time to time in our other SEC reports.Readers are cautioned not to place undue reliance on forward-looking statements.We assume no obligation to update such information,which speaks only as of the date made,except as may be required by law.Investing in our securities involves a high degree of risk and uncertainty,and you should carefully consider the trends,risks and uncertainties described in this document,our 2023 Form 10-K and other reports filed with or furnished to the SEC before making any investment decision with respect to our securities.If any of these trends,risks or uncertainties actually occurs or continues,our business,financial condition or operating results could be materially adversely affected,the trading prices of our securities could decline,and you could lose all or part of your investment.All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.4ON SEMICONDUCTOR CORPORATIONUNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS(in millions,except per share data)Quarters Ended March 29,2024December 31,2023March 31,2023Revenue$1,862.7$2,018.1$1,959.7 Cost of revenue 1,009.1 1,076.2 1,042.2 Gross profit 853.6 941.9 917.5 Gross margin 45.8F.7F.8%Operating expenses:Research and development 150.0 150.2 138.4 Selling and marketing 69.1 67.5 71.8 General and administrative 95.3 88.6 75.9 Amortization of acquisition-related intangible assets 12.6 12.1 15.0 Restructuring,asset impairments and other charges,net 1.4 11.4 51.5 Total operating expenses 328.4 329.8 352.6 Operating income 525.2 612.1 564.9 Other income(expense),net:Interest expense(15.6)(15.8)(26.4)Interest income 27.6 26.3 17.1 Loss on debt prepayment (13.3)Loss on divestiture of business (1.1)Other income(expense)1.0 (11.7)4.7 Other income(expense),net 13.0 (1.2)(19.0)Income before income taxes 538.2 610.9 545.9 Income tax provision(84.5)(47.5)(83.7)Net income 453.7 563.4 462.2 Less:Net income attributable to non-controlling interest(0.7)(0.7)(0.5)Net income attributable to ON Semiconductor Corporation$453.0$562.7$461.7 Net income for diluted earnings per share of common stock$453.0$562.8$462.1 Net income per share of common stock:Basic$1.06$1.31$1.07 Diluted$1.04$1.28$1.03 Weighted average common shares outstanding:Basic 428.1 428.1 431.9 Diluted 436.5 439.5 448.5 5ON SEMICONDUCTOR CORPORATIONUNAUDITED CONSOLIDATED BALANCE SHEETS(in millions)March 29,2024December 31,2023March 31,2023AssetsCash and cash equivalents$2,614.4$2,483.0$2,702.4 Receivables,net 873.3 935.4 880.9 Inventories 2,147.1 2,111.8 1,814.9 Other current assets 514.1 382.1 318.1 Total current assets 6,148.9 5,912.3 5,716.3 Property,plant and equipment,net 4,384.3 4,401.5 3,692.9 Goodwill 1,577.6 1,577.6 1,577.6 Intangible assets,net 289.4 299.3 339.8 Deferred tax assets 648.4 600.8 473.1 ROU financing lease assets 41.8 42.4 45.2 Other assets 392.5 381.3 429.4 Total assets$13,482.9$13,215.2$12,274.3 Liabilities and Stockholders EquityAccounts payable$665.8$725.6$976.2 Accrued expenses and other current liabilities 678.1 663.2 666.0 Current portion of financing lease liabilities 0.3 0.8 11.6 Current portion of long-term debt 794.8 794.0 926.2 Total current liabilities 2,139.0 2,183.6 2,580.0 Long-term debt 2,544.1 2,542.6 2,538.0 Deferred tax liabilities 37.3 38.7 36.6 Long-term financing lease liabilities 21.3 22.4 24.0 Other long-term liabilities 598.6 627.3 628.7 Total liabilities 5,340.3 5,414.6 5,807.3 ON Semiconductor Corporation stockholders equity:Common stock 6.2 6.2 6.1 Additional paid-in capital 5,243.9 5,210.9 4,633.6 Accumulated other comprehensive loss(52.2)(45.2)(29.6)Accumulated earnings 7,001.1 6,548.1 4,826.1 Less:Treasury stock,at cost(4,075.1)(3,937.4)(2,988.2)Total ON Semiconductor Corporation stockholders equity 8,123.9 7,782.6 6,448.0 Non-controlling interest 18.7 18.0 19.0 Total stockholders equity 8,142.6 7,800.6 6,467.0 Total liabilities and stockholders equity$13,482.9$13,215.2$12,274.3 6 Quarters Ended March 29,2024December 31,2023March 31,2023Cash flows from operating activities:Net income$453.7$563.4$462.2 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 154.9 160.3 145.0 Loss on sale and disposal of fixed assets 0.1 4.3 1.2 Loss on divestiture of businesses 1.1 Loss on debt prepayment 13.3 Amortization of debt discount and issuance costs 2.7 2.6 2.9 Share-based compensation 33.0 30.7 27.7 Non-cash asset impairment charges 6.8 12.7 Change in deferred tax balances(48.6)(18.7)(1.5)Other 1.8 (6.2)(7.0)Changes in assets and liabilities(98.9)(132.0)(248.7)Net cash provided by operating activities 498.7 611.2 408.9 Cash flows from investing activities:Purchase of Property,Plant and Equipment(“PP&E”)(222.4)(390.5)(321.5)Deposits and proceeds from sale of PP&E 0.1 1.2 1.7 Deposits utilized(made)for purchase of PP&E(11.5)4.1 (16.7)Proceeds from sale or maturity of available-for-sale securities 10.8 Payments related to acquisition of business (236.3)Other(1.5)Net cash used in investing activities(235.3)(385.2)(562.0)Cash flows from financing activities:Proceeds for the issuance of common stock under the ESPP 7.6 5.9 7.3 Payment of tax withholding for RSUs(37.5)(4.4)(47.6)Repurchase of common stock(100.0)(300.2)(104.0)Issuance and borrowings under debt agreements 1,470.0 Reimbursement of debt issuance costs 4.5 Payment of debt issuance and other financing costs (0.7)(4.8)Repayment of borrowings under debt agreements (119.6)(1,213.7)Payment for purchase of bond hedges (414.0)Proceeds from issuance of warrants 242.5 Payments related to prior acquisition (5.8)Payment of finance lease obligations(0.9)(5.0)(3.6)Dividend to non-controlling shareholder (2.4)Net cash used in financing activities(130.8)(432.2)(63.4)Effect of exchange rate changes on cash,cash equivalents and restricted cash(0.9)0.4 0.1 Net increase(decrease)in cash,cash equivalents and restricted cash 131.7 (205.8)(216.4)Beginning cash,cash equivalents and restricted cash 2,485.0 2,690.8 2,933.0 Ending cash,cash equivalents and restricted cash$2,616.7$2,485.0$2,716.6 ON SEMICONDUCTOR CORPORATIONUNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS(in millions)7Reconciliation of GAAP to non-GAAP gross profit:GAAP gross profit$853.6$941.9$917.5 Special items:a)Impact of business wind down (2.1)b)Amortization of acquisition-related intangible assets 1.5 1.5 1.4 Total special items 1.5 1.5 (0.7)Non-GAAP gross profit$855.1$943.4$916.8 Reconciliation of GAAP to non-GAAP gross margin:GAAP gross margin 45.8F.7F.8%Special items:a)Impact of business wind down%(0.1)%b)Amortization of acquisition-related intangible assets 0.1%0.1%0.1%Total special items 0.1%0.1%Non-GAAP gross margin 45.9F.7F.8%Reconciliation of GAAP to non-GAAP operating expenses:GAAP operating expenses$328.4$329.8$352.6 Special items:a)Amortization of acquisition-related intangible assets(12.6)(12.1)(15.0)b)Restructuring,asset impairments and other,net(1.4)(11.4)(51.5)c)Third party acquisition and divestiture-related costs(0.1)0.1 (0.1)Total special items(14.1)(23.4)(66.6)Non-GAAP operating expenses$314.3$306.4$286.0 Reconciliation of GAAP to non-GAAP operating income:GAAP operating income$525.2$612.1$564.9 Special items:a)Impact of business wind down (2.1)b)Amortization of acquisition-related intangible assets 14.1 13.6 16.4 c)Restructuring,asset impairments and other,net 1.4 11.4 51.5 d)Third party acquisition and divestiture-related costs 0.1 (0.1)0.1 Total special items 15.6 24.9 65.9 Non-GAAP operating income$540.8$637.0$630.8 Reconciliation of GAAP to non-GAAP operating margin(operating income/revenue):GAAP operating margin 28.20.3(.8%Special items:a)Impact of business wind down%(0.1)%b)Amortization of acquisition-related intangible assets 0.8%0.7%0.8%c)Restructuring,asset impairments and other,net 0.1%0.6%2.6%Total special items 0.8%1.2%3.4%Non-GAAP operating margin 29.01.62.2%Reconciliation of GAAP to non-GAAP income before income taxes:GAAP income before income taxes$538.2$610.9$545.9 Special items:a)Impact of business wind down (2.1)b)Amortization of acquisition-related intangible assets 14.1 13.6 16.4 c)Restructuring,asset impairments and other,net 1.4 11.4 51.5 d)Third party acquisition and divestiture-related costs 0.1 (0.1)0.1 e)Loss on debt prepayment 13.3 f)Actuarial gains on pension plans and other pension benefits 4.0 g)Loss on divestiture of business 1.1 Total special items 15.6 28.9 80.3 Quarters Ended March 29,2024December 31,2023March 31,2023ON SEMICONDUCTOR CORPORATIONRECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES(in millions,except per share and percentage data)8Non-GAAP income before income taxes$553.8$639.8$626.2 Reconciliation of GAAP to non-GAAP net income attributable to ON Semiconductor Corporation:GAAP net income attributable to ON Semiconductor Corporation$453.0$562.7$461.7 Special items:a)Impact of business wind down (2.1)b)Amortization of acquisition-related intangible assets 14.1 13.6 16.4 c)Restructuring,asset impairments and other,net 1.4 11.4 51.5 d)Third party acquisition and divestiture-related costs 0.1 (0.1)0.1 e)Actuarial gains on pension plans and other pension benefits 4.0 f)Loss on debt prepayment 13.3 g)Loss on divestiture of a business 1.1 h)Income taxes(4.1)(50.7)(18.3)Total special items 11.5 (21.8)62.0 Non-GAAP net income attributable to ON Semiconductor Corporation$464.5$540.9$523.7 GAAP net income for diluted earnings per share$453.0$562.8$462.1 Non-GAAP net income for diluted earnings per share$464.5$541.0$524.1 Reconciliation of GAAP to non-GAAP diluted shares outstanding:GAAP diluted shares outstanding 436.5 439.5 448.5 Special items:a)Less:dilutive shares attributable to convertible notes(4.7)(5.6)(9.4)Total special items(4.7)(5.6)(9.4)Non-GAAP diluted shares outstanding 431.8 433.9 439.1 Non-GAAP diluted earnings per share:Non-GAAP net income for diluted earnings per share$464.5$541.0$524.1 Non-GAAP diluted shares outstanding 431.8 433.9 439.1 Non-GAAP diluted earnings per share$1.08$1.25$1.19 Reconciliation of net cash provided by operating activities to free cash flow:Net cash provided by operating activities$498.7$611.2$408.9 Special items:a)Purchase of property,plant and equipment(222.4)(390.5)(321.5)Total special items(222.4)(390.5)(321.5)Free cash flow$276.3$220.7$87.4 Quarters Ended March 29,2024December 31,2023March 31,2023 Quarters Ended June 30,2023September 29,2023December 31,2023March 29,2024Last Twelve MonthsNet cash provided by operating activities$390.8$566.6$611.2$498.7$2,067.3 Purchase of property,plant and equipment(430.6)(433.0)(390.5)(222.4)(1,476.5)Free cash flow$(39.8)$133.6$220.7$276.3$590.8 Revenue$2,094.4$2,180.8$2,018.1$1,862.7$8,156.0 Certain of the amounts in the above tables may not total due to rounding of individual amounts.Total share-based compensation related to restricted stock units,stock grant awards and the employee stock purchase plan is included below:ON SEMICONDUCTOR CORPORATIONRECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES(Continued)(in millions,except per share and percentage data)9 Quarters Ended March 29,2024December 31,2023March 31,2023Cost of revenue$5.4$4.7$3.7 Research and development 5.7 5.5 4.5 Selling and marketing 5.2 4.8 4.1 General and administrative 16.7 15.7 15.4 Total share-based compensation$33.0$30.7$27.7 SUPPLEMENTAL FINANCIAL DATAQuarters EndedMarch 29,2024December 31,2023March 31,2023Net cash provided by operating activities$498.7$611.2$408.9 Free cash flow 276.3 220.7 87.4 Cash paid for income taxes 23.6 100.8 35.2 Depreciation and amortization$154.9$160.3$145.0 Less:Amortization of acquisition-related intangible assets 14.1 13.6 16.4 Depreciation and amortization(excl.amortization of acquisition-related intangible assets)$140.8$146.7$128.6 ON SEMICONDUCTOR CORPORATIONRECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES(Continued)(in millions,except per share and percentage data)10To supplement the consolidated financial results prepared in accordance with GAAP,onsemi uses certain non-GAAP measures,which are adjusted from the most directly comparable GAAP measures to exclude items related to the amortization of acquisition-related intangibles,expensing of appraised inventory fair market value step-up,inventory valuation adjustments,in-process research and development expenses,restructuring,asset impairments and other,net,goodwill impairment charges,gains and losses on debt prepayment,non-cash interest expense,actuarial(gains)losses on pension plans and other pension benefits,third party acquisition and divestiture-related costs,tax impact of these items and certain other non-recurring items,as necessary.Management does not consider the effects of these items in evaluating the core operational activities of onsemi.Management uses these non-GAAP measures internally to make strategic decisions,forecast future results and evaluate onsemis current performance.In addition,the Company believes that most analysts covering onsemi use the non-GAAP measures to evaluate onsemis performance.Given managements and other relevant parties use of these non-GAAP measures,onsemi believes these measures are important to investors in understanding onsemis current and future operating results as seen through the eyes of management.In addition,management believes these non-GAAP measures are useful to investors in enabling them to better assess changes in onsemis core business across different time periods.These non-GAAP measures are not prepared in accordance with,and should not be considered alternatives or necessarily superior to,GAAP financial data and may be different from non-GAAP measures used by other companies.Because non-GAAP financial measures are not standardized,it may not be possible to compare these financial measures with other companies non-GAAP financial measures,even if they have similar names.Non-GAAP RevenueThe use of non-GAAP revenue allows management to evaluate,among other things,the revenue from the Companys core businesses and trends across different reporting periods on a consistent basis,independent of special items.In addition,non-GAAP revenue is an important component of managements internal performance measurement and incentive and reward process as it is used to assess the current and historical financial results of the business and for strategic decision making,preparing budgets,obtaining targets and forecasting future results.Management presents this non-GAAP financial measure to enable investors and analysts to evaluate the Companys revenue generation performance relative to the direct costs of operations of onsemis core businesses.Non-GAAP Gross Profit and Gross MarginThe use of non-GAAP gross profit and gross margin allows management to evaluate,among other things,the gross margin and gross profit of the Companys core businesses and trends across different reporting periods on a consistent basis,independent of non-cash items including,generally speaking,expensing of appraised inventory fair market value step-up,impact of business wind down and non-recurring facility costs.In addition,it is an important component of managements internal performance measurement and incentive and reward process as it is used to assess the current and historical financial results of the business and for strategic decision making,preparing budgets,obtaining targets and forecasting future results.Management presents this non-GAAP financial measure to enable investors and analysts to evaluate our revenue generation performance relative to the direct costs of revenue of onsemis core businesses.Non-GAAP Operating Income and Operating MarginThe use of non-GAAP operating income and operating margin allows management to evaluate,among other things,the operating margin and operating income of the Companys core businesses and trends across different reporting periods on a consistent basis,independent of non-cash items including,generally speaking,expensing of appraised inventory fair market value step-up,impact of business wind down,non-recurring facility costs,amortization and impairments of intangible assets,third party acquisition and divestiture-related costs,restructuring charges and certain other special items as necessary.In addition,it is an important component of managements internal performance measurement and incentive and reward process as it is used to assess the current and historical financial results of the business and for strategic decision making,preparing budgets,obtaining targets and forecasting future results.Management presents this non-GAAP financial measure to enable investors and analysts to evaluate the Companys revenue generation performance relative to the direct costs of operations of onsemis core businesses.Non-GAAP Net Income Attributable to ON Semiconductor Corporation and Non-GAAP Diluted Earnings Per ShareThe use of non-GAAP net income attributable to onsemi and non-GAAP diluted earnings per share allows management to evaluate the operating results of onsemis core businesses and trends across different reporting periods on a consistent basis,independent of non-cash items including,generally,the amortization and impairments of intangible assets,expensing of appraised inventory fair market value step-up,impact of business wind down,non-recurring facility costs,restructuring,gains and losses on debt prepayment,actuarial(gains)losses on pension plans and other pension benefits,third party acquisition and NON-GAAP MEASURES11divestiture-related costs,discrete tax items and other non-GAAP tax adjustments and certain other special items,as necessary.In addition,these items are important components of managements internal performance measurement and incentive and reward process,as they are used to assess the current and historical financial results of the business and for strategic decision making,preparing budgets,setting targets and forecasting future results.For our non-GAAP reporting,we are utilizing a projected and normalized non-GAAP effective tax rate of 16%.We calculate this non-GAAP effective tax rate on an annual basis.We expect to use this normalized non-GAAP effective tax rate of 16%through 2025,however,we may update this non-GAAP effective tax rate at any time for a variety of reasons,including,but not limited to,the rapidly evolving global tax environment,significant changes in our geographic earnings mix or changes to our strategy or business operations.Management presents these non-GAAP financial measures to enable investors and analysts to understand the results of operations of onsemis core businesses and,to the extent comparable,to compare our results of operations on a more consistent basis against those of other companies in our industry.Free Cash FlowThe use of free cash flow allows management to evaluate,among other things,the ability of the Company to make interest or principal payments on its debt.Free cash flow is defined as the difference between cash flow from operating activities and capital expenditures disclosed under investing activities in the consolidated statement of cash flows.Free cash flow is not an alternative to cash flow from operating activities as a measure of liquidity.It is an important component of managements internal performance measurement and incentive and reward process as it is used to assess the current and historical financial results of the business and for strategic decision making,preparing budgets,obtaining targets and forecasting future results.Management presents this non-GAAP financial measure to enable investors and analysts to evaluate our revenue generation performance relative to the direct costs of operations of onsemis core businesses.Non-GAAP Diluted Share CountThe use of non-GAAP diluted share count allows management to evaluate,among other things,the potential dilution due to the outstanding restricted stock units excluding the dilution from the convertible notes that is covered by hedging activity up to a certain threshold.In periods when the quarterly average stock price per share exceeds$52.97 for the 0%Notes and$103.87 for the 0.50%Notes,the non-GAAP diluted share count includes the anti-dilutive impact of the Companys hedge transactions issued concurrently with the 0%Notes and the 0.50%Notes,respectively.At an average stock price per share between$52.97 and$74.34 for the 0%Notes and$103.87 and$156.78 for the 0.50%Notes,the hedging activity offsets the potentially dilutive effect of the 0%Notes and the 0.50%Notes,respectively.In periods when the quarterly average stock price exceeds$74.34 for the 0%Notes and$156.78 for the 0.50%Notes,the dilutive impact of the warrants issued concurrently with such notes are included in the diluted shares outstanding.NON-GAAP MEASURES(Continued)12
2024-05-06
12页
5星级
Fiscal Year 2024 Interim ReportNYSE:BABA HKEX:9988(HKD Counter)89988(RMB Counter)1ALIBABA GROUP HOLD.
2024-05-06
35页
5星级
Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 _FORM 10-Q_(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934For the quarterly period ended March 31,2024orTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to .Commission File No.000-22513_AMAZON.COM,INC.(Exact name of registrant as specified in its charter)_Delaware 91-1646860(State or other jurisdiction ofincorporation or organization)(I.R.S.EmployerIdentification No.)410 Terry Avenue North,Seattle,Washington 98109-5210(206)266-1000(Address and telephone number,including area code,of registrants principal executive offices)Securities registered pursuant to Section 12(b)of the Act:Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which RegisteredCommon Stock,par value$.01 per shareAMZNNasdaq Global Select Market_Indicate 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 thepreceding 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 past90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-Tduring the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growthcompany.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 revisedfinancial 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 10,406,627,415 shares of common stock,par value$0.01 per share,outstanding as of April 24,2024Table of ContentsAMAZON.COM,INC.FORM 10-QFor the Quarterly Period Ended March 31,2024INDEX PagePART I.FINANCIAL INFORMATIONItem 1.Financial Statements3Consolidated Statements of Cash Flows3Consolidated Statements of Operations4Consolidated Statements of Comprehensive Income5Consolidated Balance Sheets6Notes to Consolidated Financial Statements7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations22Item 3.Quantitative and Qualitative Disclosures About Market Risk33Item 4.Controls and Procedures34PART II.OTHER INFORMATIONItem 1.Legal Proceedings35Item 1A.Risk Factors35Item 2.Unregistered Sales of Equity Securities and Use of Proceeds46Item 3.Defaults Upon Senior Securities46Item 4.Mine Safety Disclosures46Item 5.Other Information46Item 6.Exhibits47Signatures482Table of ContentsPART I.FINANCIAL INFORMATIONItem 1.Financial StatementsAMAZON.COM,INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in millions)(unaudited)Three Months EndedMarch 31,Twelve Months EndedMarch 31,2023202420232024CASH,CASH EQUIVALENTS,AND RESTRICTED CASH,BEGINNING OF PERIOD$54,253$73,890$36,599$49,734 OPERATING ACTIVITIES:Net income3,172 10,431 4,294 37,684 Adjustments to reconcile net income to net cash from operating activities:Depreciation and amortization of property and equipment and capitalized content costs,operating lease assets,and other11,123 11,684 43,851 49,224 Stock-based compensation4,748 4,961 21,119 24,236 Non-operating expense(income),net534 2,734 8,811 1,452 Deferred income taxes(472)(938)(6,619)(6,342)Changes in operating assets and liabilities:Inventories371 1,776 393 2,854 Accounts receivable,net and other4,724 3,684(4,361)(9,388)Other assets(3,203)(2,701)(14,499)(11,763)Accounts payable(11,264)(11,282)1,061 5,455 Accrued expenses and other(5,763)(2,928)(1,418)407 Unearned revenue818 1,568 1,698 5,328 Net cash provided by(used in)operating activities4,788 18,989 54,330 99,147 INVESTING ACTIVITIES:Purchases of property and equipment(14,207)(14,925)(62,901)(53,447)Proceeds from property and equipment sales and incentives1,137 990 5,252 4,449 Acquisitions,net of cash acquired,non-marketable investments,and other(3,513)(3,354)(5,488)(5,680)Sales and maturities of marketable securities1,115 1,392 9,963 5,904 Purchases of marketable securities(338)(1,965)(1,139)(3,115)Net cash provided by(used in)investing activities(15,806)(17,862)(54,313)(51,889)FINANCING ACTIVITIES:Common stock repurchased (3,334)Proceeds from short-term debt,and other12,780 338 40,590 5,687 Repayments of short-term debt,and other(3,603)(404)(34,926)(22,478)Proceeds from long-term debt 21,166 Repayments of long-term debt(1,386)(330)(2,644)(2,620)Principal repayments of finance leases(1,380)(770)(6,544)(3,774)Principal repayments of financing obligations(57)(90)(226)(304)Net cash provided by(used in)financing activities6,354(1,256)14,082(23,489)Foreign currency effect on cash,cash equivalents,and restricted cash145(429)(964)(171)Net increase(decrease)in cash,cash equivalents,and restricted cash(4,519)(558)13,135 23,598 CASH,CASH EQUIVALENTS,AND RESTRICTED CASH,END OF PERIOD$49,734$73,332$49,734$73,332 See accompanying notes to consolidated financial statements.3Table of ContentsAMAZON.COM,INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in millions,except per share data)(unaudited)Three Months EndedMarch 31,20232024Net product sales$56,981$60,915 Net service sales70,377 82,398 Total net sales127,358 143,313 Operating expenses:Cost of sales67,791 72,633 Fulfillment20,905 22,317 Technology and infrastructure20,450 20,424 Sales and marketing10,172 9,662 General and administrative3,043 2,742 Other operating expense(income),net223 228 Total operating expenses122,584 128,006 Operating income4,774 15,307 Interest income611 993 Interest expense(823)(644)Other income(expense),net(443)(2,673)Total non-operating expense(655)(2,324)Income before income taxes4,119 12,983 Provision for income taxes(948)(2,467)Equity-method investment activity,net of tax1(85)Net income$3,172$10,431 Basic earnings per share$0.31$1.00 Diluted earnings per share$0.31$0.98 Weighted-average shares used in computation of earnings per share:Basic10,250 10,393 Diluted10,347 10,670 See accompanying notes to consolidated financial statements.4Table of ContentsAMAZON.COM,INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in millions)(unaudited)Three Months EndedMarch 31,20232024Net income$3,172$10,431 Other comprehensive income(loss):Foreign currency translation adjustments,net of tax of$(10)and$30386(1,096)Available-for-sale debt securities:Change in net unrealized gains(losses),net of tax of$(29)and$(158)95 536 Less:reclassification adjustment for losses(gains)included in“Other income(expense),net,”net of tax of$(10)and$033 1 Net change128 537 Other,net of tax of$0 and$(1)1 Total other comprehensive income(loss)514(558)Comprehensive income$3,686$9,873 See accompanying notes to consolidated financial statements.5Table of ContentsAMAZON.COM,INC.CONSOLIDATED BALANCE SHEETS(in millions,except per share data)December 31,2023March 31,2024(unaudited)ASSETSCurrent assets:Cash and cash equivalents$73,387$72,852 Marketable securities13,393 12,222 Inventories33,318 31,147 Accounts receivable,net and other52,253 47,768 Total current assets172,351 163,989 Property and equipment,net204,177 209,950 Operating leases72,513 73,313 Goodwill22,789 22,770 Other assets56,024 60,947 Total assets$527,854$530,969 LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable$84,981$73,068 Accrued expenses and other64,709 63,970 Unearned revenue15,227 15,927 Total current liabilities164,917 152,965 Long-term lease liabilities77,297 77,052 Long-term debt58,314 57,634 Other long-term liabilities25,451 26,657 Commitments and contingencies(Note 4)Stockholders equity:Preferred stock($0.01 par value;500 shares authorized;no shares issued or outstanding)Common stock($0.01 par value;100,000 shares authorized;10,898 and 10,918 shares issued;10,383 and10,403 shares outstanding)109 109 Treasury stock,at cost(7,837)(7,837)Additional paid-in capital99,025 103,938 Accumulated other comprehensive income(loss)(3,040)(3,598)Retained earnings113,618 124,049 Total stockholders equity201,875 216,661 Total liabilities and stockholders equity$527,854$530,969 See accompanying notes to consolidated financial statements.6Table of ContentsAMAZON.COM,INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)Note 1 ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURESUnaudited Interim Financial InformationWe have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission(the“SEC”)for interim financial reporting.These consolidated financial statements are unaudited and,in our opinion,include all adjustments,consisting ofnormal recurring adjustments and accruals necessary for a fair presentation of our consolidated cash flows,operating results,and balance sheets for the periodspresented.Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2024 due to seasonal and otherfactors.Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generallyaccepted in the United States(“GAAP”)have been omitted in accordance with the rules and regulations of the SEC.These consolidated financial statementsshould be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II,“Financial Statements andSupplementary Data,”of our 2023 Annual Report on Form 10-K.Prior Period ReclassificationsCertain prior period amounts have been reclassified to conform to the current period presentation.“Other assets”were reclassified out of“Accountsreceivable,net and other”on our consolidated statements of cash flows.Principles of ConsolidationThe consolidated financial statements include the accounts of A,Inc.and its consolidated entities(collectively,the“Company”),consisting ofits wholly-owned subsidiaries and those entities in which we have a variable interest and of which we are the primary beneficiary,including certain entities inIndia and certain entities that support our health care services and seller lending financing activities.Intercompany balances and transactions betweenconsolidated entities are eliminated.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets andliabilities,revenues and expenses,and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes.Estimatesare used for,but not limited to,income taxes,useful lives of equipment,commitments and contingencies,valuation of acquired intangibles and goodwill,stock-based compensation forfeiture rates,vendor funding,inventory valuation,collectability of receivables,impairment of property and equipment and operatingleases,valuation and impairment of investments,self-insurance liabilities,and viewing patterns of capitalized video content.Actual results could differmaterially from these estimates.We review the useful lives of equipment on an ongoing basis,and effective January 1,2024 we changed our estimate of the useful lives for our serversfrom five to six years.The longer useful lives are due to continuous improvements in our hardware,software,and data center designs.The effect of this changein estimate for Q1 2024,based on servers that were included in“Property and equipment,net”as of December 31,2023 and those acquired during the threemonths ended March 31,2024,was a reduction in depreciation and amortization expense of$897 million and a benefit to net income of$695 million,or$0.07per basic share and$0.07 per diluted share.7Table of ContentsSupplemental Cash Flow InformationThe following table shows supplemental cash flow information(in millions):Three Months EndedMarch 31,Twelve Months EndedMarch 31,2023202420232024SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest on debt,net of capitalized interest$402$269$1,684$2,475 Cash paid for operating leases2,467 3,332 8,733 11,318 Cash paid for interest on finance leases81 74 348 301 Cash paid for interest on financing obligations59 64 208 201 Cash paid for income taxes,net of refunds619 458 6,201 11,018 Assets acquired under operating leases3,626 3,753 20,251 14,179 Property and equipment acquired under finance leases,net of remeasurements and modifications8 42 517 676 Property and equipment recognized during the construction period of build-to-suit lease arrangements131 37 1,953 263 Property and equipment derecognized after the construction period of build-to-suit lease arrangements,with theassociated leases recognized as operating720 5,845 654 Earnings Per ShareBasic earnings per share is calculated using our weighted-average outstanding common shares.Diluted earnings per share is calculated using ourweighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method.In periods when wehave a net loss,stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.The following table shows the calculation of diluted shares(in millions):Three Months EndedMarch 31,20232024Shares used in computation of basic earnings per share10,250 10,393 Total dilutive effect of outstanding stock awards97 277 Shares used in computation of diluted earnings per share10,347 10,670 Other Income(Expense),Net“Other income(expense),net”is as follows(in millions):Three Months EndedMarch 31,20232024Marketable equity securities valuation gains(losses)$(480)$(2,126)Equity warrant valuation gains(losses)59(230)Upward adjustments relating to equity investments in private companies16 5 Foreign currency gains(losses)70(74)Other,net(108)(248)Total other income(expense),net(443)(2,673)Included in“Other income(expense),net”is a marketable equity securities valuation gain(loss)of$(467)million and$(2.0)billion in Q1 2023 and Q12024,from our equity investment in Rivian Automotive,Inc.(“Rivian”).As of March 31,2024,we held 158 million shares of Rivians Class A common stock,representing an approximate 16%ownership interest,and an approximate 15%voting interest.We determined that we have the ability to exercise significantinfluence over Rivian through our equity investment,our commercial arrangement for the purchase of electric vehicles and jointly-owned intellectual property,and one of our employees serving on Rivians board of directors.We elected the fair value option to account for our equity investment in Rivian,which isincluded in“Marketable securities”on our consolidated balance sheets,and had a fair value of$3.7 billion and$1.7 billion as of December 31,2023 andMarch 31,2024.8Table of ContentsRequired summarized financial information of Rivian as disclosed in its most recent SEC filings is as follows(in millions):Twelve Months Ended December 31,20222023Revenues$1,658$4,434 Gross profit(3,123)(2,030)Loss from operations(6,856)(5,739)Net loss(6,752)(5,432)InventoriesInventories,consisting of products available for sale,are primarily accounted for using the first-in,first-out method,and are valued at the lower of costand net realizable value.This valuation requires us to make judgments,based on currently available information,about the likely method of disposition,suchas through sales to individual customers,returns to product vendors,or liquidations,and expected recoverable values of each disposition category.Theinventory valuation allowance,representing a write-down of inventory,was$3.0 billion and$2.6 billion as of December 31,2023 and March 31,2024.Accounts Receivable,Net and OtherIncluded in“Accounts receivable,net and other”on our consolidated balance sheets are receivables primarily related to customers,vendors,and sellers,as well as prepaid expenses and other current assets.As of December 31,2023 and March 31,2024,customer receivables,net,were$34.1 billion and$31.8billion,vendor receivables,net,were$8.5 billion and$6.7 billion,seller receivables,net,were$1.0 billion and$0.6 billion,and other receivables,net,were$3.3 billion and$3.1 billion.Seller receivables are amounts due from sellers related to our seller lending program,which provides funding to sellers primarilyto procure inventory.Prepaid expenses and other current assets were$5.4 billion and$5.6 billion as of December 31,2023 and March 31,2024.We estimate losses on receivables based on expected losses,including our historical experience of actual losses.The allowance for doubtful accounts was$1.7 billion as of December 31,2023 and March 31,2024.Digital Video and Music ContentThe total capitalized costs of video,which is primarily released content,and music as of December 31,2023 and March 31,2024 were$17.4 billion and$17.9 billion.Total video and music expense was$4.0 billion and$4.6 billion in Q1 2023 and Q1 2024.Unearned RevenueUnearned revenue is recorded when payments are received or due in advance of performing our service obligations and is recognized over the serviceperiod.Unearned revenue primarily relates to prepayments of AWS services and Amazon Prime memberships.Our total unearned revenue as of December 31,2023 was$20.9 billion,of which$6.1 billion was recognized as revenue during the three months ended March 31,2024.Included in“Other long-termliabilities”on our consolidated balance sheets was$5.7 billion and$6.4 billion of unearned revenue as of December 31,2023 and March 31,2024.Additionally,we have performance obligations,primarily related to AWS,associated with commitments in customer contracts for future services thathave not yet been recognized in our consolidated financial statements.For contracts with original terms that exceed one year,those commitments not yetrecognized were$157.7 billion as of March 31,2024.The weighted-average remaining life of our long-term contracts is 4.1 years.However,the amount andtiming of revenue recognition is largely driven by customer usage,which can extend beyond the original contractual term.Accounting Pronouncements Not Yet AdoptedIn December 2023,the Financial Accounting Standards Board issued an Accounting Standards Update(“ASU”)amending existing income tax disclosureguidance,primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation.The ASU is effective for annual reportingperiods beginning after December 15,2024,with early adoption permitted,and can be applied on either a prospective or retroactive basis.We are currentlyevaluating the ASU to determine its impact on our income tax disclosures.9Table of ContentsNote 2 FINANCIAL INSTRUMENTSCash,Cash Equivalents,Restricted Cash,and Marketable SecuritiesAs of December 31,2023 and March 31,2024,our cash,cash equivalents,restricted cash,and marketable securities primarily consisted of cash,AAA-rated money market funds,U.S.and foreign government and agency securities,other investment grade securities,and marketable equity securities.Cashequivalents and marketable securities are recorded at fair value.Fair value is defined as the price that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants at the measurement date.To increase the comparability of fair value measures,the followinghierarchy prioritizes the inputs to valuation methodologies used to measure fair value:Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.Level 2Valuations based on observable inputs other than quoted prices included in Level 1,such as quoted prices for similar assets and liabilities inactive markets,quoted prices for identical or similar assets and liabilities in markets that are not active,or other inputs that are observable or can becorroborated by observable market data.Level 3Valuations based on unobservable inputs reflecting our own assumptions,consistent with reasonably available assumptions made by othermarket participants.These valuations require significant judgment.We measure the fair value of money market funds and certain marketable equity securities based on quoted prices in active markets for identical assets orliabilities.Other marketable securities were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similarinstruments and other significant inputs derived from or corroborated by observable market data.10Table of ContentsThe following table summarizes,by major security type,our cash,cash equivalents,restricted cash,and marketable securities that are measured at fairvalue on a recurring basis and are categorized using the fair value hierarchy(in millions):December 31,2023March 31,2024 TotalEstimatedFair ValueCost orAmortizedCostGrossUnrealizedGainsGrossUnrealizedLossesTotalEstimatedFair ValueCash$11,706$11,633$11,633 Level 1 securities:Money market funds39,160 28,676 28,676 Equity securities(1)4,658 2,575 Level 2 securities:Foreign government and agency securities505 19 19 U.S.government and agency securities1,699 2,641 1(89)2,553 Corporate debt securities27,805 38,636 (146)38,490 Asset-backed securities1,646 1,554 (45)1,509 Other debt securities104 102 (3)99$87,283$83,261$1$(283)$85,554 Less:Restricted cash,cash equivalents,and marketablesecurities(2)(503)(480)Total cash,cash equivalents,and marketable securities$86,780$85,074 _(1)The related unrealized gain(loss)recorded in“Other income(expense),net”was$(479)million and$(2.1)billion in Q1 2023 and Q1 2024.(2)We are required to pledge or otherwise restrict a portion of our cash,cash equivalents,and marketable debt securities primarily as collateral for real estate,amounts due to third-party sellers in certain jurisdictions,debt,and standby and trade letters of credit.We classify cash,cash equivalents,and marketabledebt securities with use restrictions of less than twelve months as“Accounts receivable,net and other”and of twelve months or longer as non-current“Other assets”on our consolidated balance sheets.See“Note 4 Commitments and Contingencies.”The following table summarizes the remaining contractual maturities of our cash equivalents and marketable debt securities as of March 31,2024(inmillions):AmortizedCostEstimatedFair ValueDue within one year$66,539$66,481 Due after one year through five years3,810 3,652 Due after five years through ten years404 389 Due after ten years875 824 Total$71,628$71,346 Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.Non-Marketable InvestmentsWe hold equity warrants giving us the right to acquire stock of other companies.As of December 31,2023 and March 31,2024,these warrants had a fairvalue of$2.2 billion and$2.1 billion,with gains and losses recognized in“Other income(expense),net”on our consolidated statements of operations.Thesewarrants are classified as Level 2 and 3 assets.As of December 31,2023 and March 31,2024,equity investments not accounted for under the equity-method and without readily determinable fairvalues had a carrying value of$754 million and$801 million,with adjustments recognized in“Other income(expense),net”on our consolidated statements ofoperations.In Q3 2023,we invested in a$1.25 billion note from Anthropic,PBC,which is convertible to equity.In Q1 2024,we invested$2.75 billion in a secondconvertible note.The notes are classified as available for sale and reported at fair value with unrealized gains and losses included in“Accumulated othercomprehensive income(loss).”The notes are classified as Level 3 assets.We also have a commercial arrangement primarily for the provision of AWS cloudservices,which includes the use of AWS chips.11Table of ContentsAll non-marketable investments are recorded within“Other assets”on our consolidated balance sheets.Consolidated Statements of Cash Flows ReconciliationThe following table provides a reconciliation of the amount of cash,cash equivalents,and restricted cash reported within the consolidated balance sheetsto the total of the same such amounts shown in the consolidated statements of cash flows(in millions):December 31,2023March 31,2024Cash and cash equivalents$73,387$72,852 Restricted cash included in accounts receivable,net and other497 474 Restricted cash included in other assets6 6 Total cash,cash equivalents,and restricted cash shown in the consolidated statements of cash flows$73,890$73,332 Note 3 LEASESWe have entered into non-cancellable operating and finance leases for fulfillment network,data center,office,and physical store facilities as well asserver and networking equipment,aircraft,and vehicles.Gross assets acquired under finance leases,including those where title transfers at the end of the lease,are recorded in“Property and equipment,net”and were$62.5 billion and$60.9 billion as of December 31,2023 and March 31,2024.Accumulatedamortization associated with finance leases was$44.7 billion and$44.0 billion as of December 31,2023 and March 31,2024.Lease cost recognized in our consolidated statements of operations is summarized as follows(in millions):Three Months Ended March 31,20232024Operating lease cost$2,512$2,829 Finance lease cost:Amortization of lease assets1,546 941 Interest on lease liabilities80 73 Finance lease cost1,626 1,014 Variable lease cost518 635 Total lease cost$4,656$4,478 Other information about lease amounts recognized in our consolidated financial statements is as follows:December 31,2023March 31,2024Weighted-average remaining lease term operating leases11.3 years11.2 yearsWeighted-average remaining lease term finance leases11.9 years12.0 yearsWeighted-average discount rate operating leases3.3%3.3%Weighted-average discount rate finance leases2.7%2.8Table of ContentsOur lease liabilities were as follows(in millions):December 31,2023 Operating LeasesFinance LeasesTotalGross lease liabilities$90,777$14,106$104,883 Less:imputed interest(15,138)(1,997)(17,135)Present value of lease liabilities75,639 12,109 87,748 Less:current portion of lease liabilities(8,419)(2,032)(10,451)Total long-term lease liabilities$67,220$10,077$77,297 March 31,2024 Operating LeasesFinance LeasesTotalGross lease liabilities$91,419$13,262$104,681 Less:imputed interest(15,400)(2,022)(17,422)Present value of lease liabilities76,019 11,240 87,259 Less:current portion of lease liabilities(8,581)(1,626)(10,207)Total long-term lease liabilities$67,438$9,614$77,052 13Table of ContentsNote 4 COMMITMENTS AND CONTINGENCIESCommitmentsThe following summarizes our principal contractual commitments,excluding open orders for purchases that support normal operations and are generallycancellable,as of March 31,2024(in millions):Nine MonthsEnded December31,Year Ended December 31,20242025202620272028ThereafterTotalLong-term debt principal and interest$10,335$7,011$4,679$10,403$3,644$60,176$96,248 Operating lease liabilities8,202 10,276 9,531 8,708 7,908 46,794 91,419 Finance lease liabilities,including interest1,478 1,460 1,376 1,156 1,024 6,768 13,262 Financing obligations,including interest(1)319 466 473 481 488 6,330 8,557 Leases not yet commenced1,692 2,579 2,712 2,759 2,893 24,187 36,822 Unconditional purchase obligations(2)7,322 8,278 6,336 4,862 2,341 10,730 39,869 Other commitments(3)2,690 1,634 1,168 767 689 9,436 16,384 Total commitments$32,038$31,704$26,275$29,136$18,987$164,421$302,561 _(1)Includes non-cancellable financing obligations for fulfillment network and data center facilities.Excluding interest,current financing obligations of$271million and$269 million are recorded within“Accrued expenses and other”and$6.6 billion and$6.5 billion are recorded within“Other long-termliabilities”as of December 31,2023 and March 31,2024.The weighted-average remaining term of the financing obligations was 17.0 years and 16.7 yearsand the weighted-average imputed interest rate was 3.1%as of December 31,2023 and March 31,2024.(2)Includes unconditional purchase obligations related to long-term agreements to acquire and license digital media content that are not reflected on theconsolidated balance sheets,and certain products offered in our Whole Foods Market stores.For those digital media content agreements with variableterms,we do not estimate the total obligation beyond any minimum quantities and/or pricing as of the reporting date.Purchase obligations associated withrenewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified.Renewable energy agreements based on actual generation without a fixed or minimum volume commitment are not included.These agreements alsoprovide the right to receive renewable energy certificates for no additional consideration.(3)Includes asset retirement obligations,liabilities associated with digital media content agreements with initial terms greater than one year,and the estimatedtiming and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that are under construction.Excludesapproximately$5.5 billion of income tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment,ifany.Other ContingenciesWe are disputing claims and denials of refunds or credits,and monitoring or evaluating potential claims,related to various non-income taxes(such assales,value added,consumption,service,and similar taxes),including in jurisdictions in which we already collect and remit these taxes.These non-income taxcontroversies typically include(i)the taxability of products and services,including cross-border intercompany transactions,(ii)collection and withholding ontransactions with third parties,including as a result of evolving requirements imposed on marketplaces with respect to third-party sellers,and(iii)the adequacyof compliance with reporting obligations,including evolving documentation requirements.Due to the inherent complexity and uncertainty of these matters andthe judicial and regulatory processes in certain jurisdictions,the final outcome of any such controversies may be materially different from our expectations.Legal ProceedingsThe Company is involved from time to time in claims,proceedings,and litigation,including the matters described in Item 8 of Part II,“FinancialStatements and Supplementary Data Note 7 Commitments and Contingencies Legal Proceedings”of our 2023 Annual Report on Form 10-K,assupplemented by the following:In May 2018,Rensselaer Polytechnic Institute and CF Dynamic Advances LLC filed a complaint against A,Inc.in the United States DistrictCourt for the Northern District of New York.The complaint alleged,among other things,that“Alexa Voice Software and Alexa enabled devices”infringe U.S.Patent No.7,177,798,entitled“Natural Language Interface Using Constrained Intermediate Dictionary of Results.”The complaint sought an injunction,anunspecified amount of damages,enhanced damages,an ongoing royalty,interest,attorneys fees,and costs.In March 2023,the plaintiffs alleged in14Table of Contentstheir damages report that in the event of a finding of liability Amazon could be subject to$140 million to$267 million in damages.In March 2024,the districtcourt granted summary judgment ruling that the patent is invalid and dismissed the case.In April 2024,the plaintiffs filed a notice of appeal.We dispute theallegations of wrongdoing and will continue to defend ourselves vigorously in this matter.In December 2018,Kove IO,Inc.filed a complaint against Amazon Web Services,Inc.in the United States District Court for the Northern District ofIllinois.The complaint alleged,among other things,that Amazon S3 and DynamoDB infringe U.S.Patent Nos.7,814,170 and 7,103,640,each entitled“Network Distributed Tracking Wire Transfer Protocol”;and 7,233,978,entitled“Method and Apparatus for Managing Location Information in a NetworkSeparate from the Data to Which the Location Information Pertains.”The complaint sought an unspecified amount of damages,enhanced damages,attorneysfees,costs,interest,and injunctive relief.In April 2024,a jury found that Amazon infringed the asserted patents and awarded Kove$525 million in damages.We disagree with the jurys findings,intend to appeal the jury verdict,and will continue to defend ourselves vigorously in this matter.In addition,we are regularly subject to claims,litigation,and other proceedings,including potential regulatory proceedings,involving patent and otherintellectual property matters,taxes,labor and employment,competition and antitrust,privacy and data protection,consumer protection,commercial disputes,goods and services offered by us and by third parties,and other matters.The outcomes of our legal proceedings and other contingencies are inherently unpredictable,subject to significant uncertainties,and could be material toour operating results and cash flows for a particular period.We evaluate,on a regular basis,developments in our legal proceedings and other contingencies thatcould affect the amount of liability,including amounts in excess of any previous accruals and reasonably possible losses disclosed,and make adjustments andchanges to our accruals and disclosures as appropriate.For the matters we disclose that do not include an estimate of the amount of loss or range of losses,suchan estimate is not possible or is immaterial,and we may be unable to estimate the possible loss or range of losses that could potentially result from theapplication of non-monetary remedies.Until the final resolution of such matters,if any of our estimates and assumptions change or prove to have beenincorrect,we may experience losses in excess of the amounts recorded,which could have a material effect on our business,consolidated financial position,results of operations,or cash flows.See also“Note 7 Income Taxes.”Note 5 DEBTAs of March 31,2024,we had$66.5 billion of unsecured senior notes outstanding(the“Notes”)and$352 million of borrowings under our securedrevolving credit facility.Our total long-term debt obligations are as follows(in millions):Maturities(1)Stated Interest RatesEffective Interest RatesDecember 31,2023March 31,20242014 Notes issuance of$6.0 billion2024-20443.80%-4.95%3.90%-5.12%4,000 4,000 2017 Notes issuance of$17.0 billion2024-20572.80%-5.20%2.95%-4.33,000 15,000 2020 Notes issuance of$10.0 billion2025-20600.80%-2.70%0.88%-2.77%9,000 9,000 2021 Notes issuance of$18.5 billion2024-20610.45%-3.25%0.57%-3.31,500 17,500 April 2022 Notes issuance of$12.8 billion2024-20622.73%-4.10%2.83%-4.15,750 12,750 December 2022 Notes issuance of$8.3 billion2024-20324.55%-4.70%4.61%-4.83%8,250 8,250 Credit Facility682 352 Total face value of long-term debt67,182 66,852 Unamortized discount and issuance costs,net(374)(370)Less:current portion of long-term debt(8,494)(8,848)Long-term debt$58,314$57,634 _(1)The weighted-average remaining lives of the 2014,2017,2020,2021,April 2022,and December 2022 Notes were 11.3,13.9,17.3,12.8,12.0,and 4.6 yearsas of March 31,2024.The combined weighted-average remaining life of the Notes was 12.4 years as of March 31,2024.15Table of ContentsInterest on the Notes is payable semi-annually in arrears.We may redeem the Notes at any time in whole,or from time to time,in part at specifiedredemption prices.We are not subject to any financial covenants under the Notes.The estimated fair value of the Notes was approximately$60.6 billion and$59.4 billion as of December 31,2023 and March 31,2024,which is based on quoted prices for our debt as of those dates.We have a$352 million secured revolving credit facility with a lender that is secured by certain seller receivables,which we decreased from$1.5 billionto$352 million in March 2024 and we may from time to time increase in the future subject to lender approval(the“Credit Facility”).The Credit Facility isavailable until August 2025,bears interest based on the daily Secured Overnight Financing Rate plus 1.25%,and has a commitment fee of up to 0.45%on theundrawn portion.There were$682 million and$352 million of borrowings outstanding under the Credit Facility as of December 31,2023 and March 31,2024,which had an interest rate of 6.6%.We reclassified all of the$352 million outstanding as of March 31,2024 to be included with the current portion of long-term debt within“Accrued expenses and other”on our consolidated balance sheets.As of December 31,2023 and March 31,2024,we have pledged$806million and$466 million of our cash and seller receivables as collateral for debt related to our Credit Facility.The estimated fair value of the Credit Facility,which is based on Level 2 inputs,approximated its carrying value as of December 31,2023 and March 31,2024.In January 2023,we entered into an$8.0 billion unsecured 364-day term loan with a syndicate of lenders(the“Term Loan”),maturing in January 2024and bearing interest at the Secured Overnight Financing Rate specified in the Term Loan plus 0.75%.The Term Loan was classified as short-term debt andincluded within“Accrued expenses and other”on our consolidated balance sheets.As of December 31,2023,the entire amount of the Term Loan had beenrepaid.We have U.S.Dollar and Euro commercial paper programs(the“Commercial Paper Programs”)under which we may from time to time issue unsecuredcommercial paper up to a total of$20.0 billion(including up to 3.0 billion)at the date of issue,with individual maturities that may vary but will not exceed397 days from the date of issue.There were no borrowings outstanding under the Commercial Paper Programs as of December 31,2023 and March 31,2024.We use the net proceeds from the issuance of commercial paper for general corporate purposes.We have a$15.0 billion unsecured revolving credit facility with a syndicate of lenders(the“Credit Agreement”),with a term that extends to November2028 and may be extended for one or more additional one-year terms if approved by the lenders.The interest rate applicable to outstanding balances under theCredit Agreement is the applicable benchmark rate specified in the Credit Agreement plus 0.45%,with a commitment fee of 0.03%on the undrawn portion ofthe credit facility.There were no borrowings outstanding under the Credit Agreement as of December 31,2023 and March 31,2024.We have a$5.0 billion unsecured 364-day revolving credit facility with a syndicate of lenders(the“Short-Term Credit Agreement”),which matures inOctober 2024 and may be extended for one additional period of 364 days if approved by the lenders.The interest rate applicable to outstanding balances underthe Short-Term Credit Agreement is the Secured Overnight Financing Rate specified in the Short-Term Credit Agreement plus 0.45%,with a commitment feeof 0.03%on the undrawn portion.There were no borrowings outstanding under the Short-Term Credit Agreement as of December 31,2023 and March 31,2024.We also utilize other short-term credit facilities for working capital purposes.There were$147 million and$50 million of borrowings outstanding underthese facilities as of December 31,2023 and March 31,2024,which were included in“Accrued expenses and other”on our consolidated balance sheets.Inaddition,we had$8.5 billion of unused letters of credit as of March 31,2024.Note 6 STOCKHOLDERS EQUITYStock Repurchase ActivityIn March 2022,the Board of Directors authorized a program to repurchase up to$10.0 billion of our common stock,with no fixed expiration.There wereno repurchases of our common stock during the three months ended March 31,2023 or 2024.As of March 31,2024,we have$6.1 billion remaining under therepurchase program.Stock Award PlansEmployees vest in restricted stock unit awards over the corresponding service term,generally between two and five years.The majority of restrictedstock unit awards are granted at the date of hire or in Q2 as part of the annual compensation review and primarily vest semi-annually in Q2 and Q4 of therelevant compensation year.16Table of ContentsStock Award ActivityCommon shares outstanding plus shares underlying outstanding stock awards totaled 10.8 billion as of December 31,2023 and March 31,2024.Thesetotals include all vested and unvested stock awards outstanding,including those awards we estimate will be forfeited.Stock-based compensation expense is asfollows(in millions):Three Months EndedMarch 31,20232024Cost of sales$165$174 Fulfillment603 636 Technology and infrastructure2,574 2,772 Sales and marketing993 932 General and administrative413 447 Total stock-based compensation expense$4,748$4,961 The following table summarizes our restricted stock unit activity for the three months ended March 31,2024(in millions):Number of UnitsWeighted-AverageGrant-DateFair ValueOutstanding as of December 31,2023405.8$125 Units granted10.7 166 Units vested(20.0)140 Units forfeited(11.6)126 Outstanding as of March 31,2024384.9 126 Scheduled vesting for outstanding restricted stock units as of March 31,2024,is as follows(in millions):Nine Months EndedDecember 31,Year Ended December 31,20242025202620272028ThereafterTotalScheduled vesting restricted stock units195.0 122.0 50.1 14.0 2.1 1.7 384.9 As of March 31,2024,there was$14.7 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements.Thiscompensation is recognized on an accelerated basis with more than half of the compensation expected to be expensed in the next twelve months,and has aremaining weighted-average recognition period of 0.9 years.The estimated forfeiture rate as of December 31,2023 and March 31,2024 was 26.1%.17Table of ContentsChanges in Stockholders EquityThe following table shows changes in stockholders equity(in millions):Three Months EndedMarch 31,20232024Total beginning stockholders equity$146,043$201,875 Beginning and ending common stock108 109 Beginning and ending treasury stock(7,837)(7,837)Beginning additional paid-in capital75,066 99,025 Stock-based compensation and issuance of employee benefit plan stock4,797 4,913 Ending additional paid-in capital79,863 103,938 Beginning accumulated other comprehensive income(loss)(4,487)(3,040)Other comprehensive income(loss)514(558)Ending accumulated other comprehensive income(loss)(3,973)(3,598)Beginning retained earnings83,193 113,618 Net income3,172 10,431 Ending retained earnings86,365 124,049 Total ending stockholders equity$154,526$216,661 Note 7 INCOME TAXESOur tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate,adjusted for discreteitems,if any,that are taken into account in the relevant period.Each quarter we update our estimate of the annual effective tax rate,and if our estimated tax ratechanges,we make a cumulative adjustment.Our quarterly tax provision,and our quarterly estimate of our annual effective tax rate,is subject to significant variation due to several factors,includingvariability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate,intercompany transactions,theapplicability of special tax regimes,changes in how we do business,acquisitions,investments,developments in tax controversies,changes in our stock price,changes in our deferred tax assets and liabilities and their valuation,foreign currency gains(losses),changes in statutes,regulations,case law,andadministrative practices,principles,and interpretations related to tax,including changes to the global tax framework,competition,and other laws andaccounting rules in various jurisdictions,and relative changes of expenses or losses for which tax benefits are not recognized.Our effective tax rate can bemore or less volatile based on the amount of pre-tax income or loss.For example,the impact of discrete items and non-deductible expenses on our effective taxrate is greater when our pre-tax income is lower.In addition,we record valuation allowances against deferred tax assets when there is uncertainty about ourability to generate future income in relevant jurisdictions.For 2024,we estimate that our effective tax rate will be favorably impacted by the U.S.federal research and development credit and foreign incomededuction and adversely affected by state income taxes.In addition,valuation gains and losses from our equity investment in Rivian impact our pre-tax incomeand may cause variability in our effective tax rate.Our income tax provision for the three months ended March 31,2023 was$948 million,which included$48 million of net discrete tax expense.Ourincome tax provision for the three months ended March 31,2024 was$2.5 billion,which included$558 million of net discrete tax benefits.Cash paid for income taxes,net of refunds was$619 million and$458 million in Q1 2023 and Q1 2024.As of December 31,2023 and March 31,2024,income tax contingencies were approximately$5.2 billion and$5.5 billion.Changes in tax laws,regulations,administrative practices,principles,and interpretations may impact our tax contingencies.Due to various factors,including the inherentcomplexities and uncertainties of the judicial,administrative,and regulatory processes in certain jurisdictions,the timing of the resolution of income taxcontroversies is highly uncertain,and the amounts ultimately paid,if any,upon resolution of the issues raised by the taxing authorities may differ from theamounts18Table of Contentsaccrued.It is reasonably possible that within the next twelve months we will receive additional assessments by various tax authorities or possibly reachresolution of income tax controversies in one or more jurisdictions.These assessments or settlements could result in changes to our contingencies related topositions on prior years tax filings.We are under examination,or may be subject to examination,by the Internal Revenue Service for the calendar year 2016 and thereafter.Theseexaminations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examinationas well as subsequent periods.We are also subject to taxation in various states and other foreign jurisdictions including China,France,Germany,India,Japan,Luxembourg,and theUnited Kingdom.We are under,or may be subject to,audit or examination and additional assessments by the relevant authorities in respect of these particularjurisdictions primarily for 2011 and thereafter.We are currently disputing tax assessments in multiple jurisdictions,including with respect to the allocation andcharacterization of income.In September 2022,the Luxembourg tax authority(“LTA”)denied the tax basis of certain intangible assets that we distributed from Luxembourg to theU.S.in 2021.When we are assessed by the LTA,we will need to remit taxes related to this matter.We believe the LTAs position is without merit,we intend todefend ourselves vigorously in this matter,and we expect to recoup taxes paid.The Indian tax authority(“ITA”)has asserted that tax applies to cloud services fees paid to Amazon in the U.S.We will need to remit taxes related to thismatter until it is resolved,which payments could be significant in the aggregate.We believe the ITAs position is without merit,we are defending our positionvigorously,and we expect to recoup taxes paid.If this matter is adversely resolved,we could recognize significant additional tax expense,including for taxespreviously paid.Note 8 SEGMENT INFORMATIONWe have organized our operations into three segments:North America,International,and AWS.We allocate to segment results the operating expenses“Fulfillment,”“Technology and infrastructure,”“Sales and marketing,”and“General and administrative”based on usage,which is generally reflected in thesegment in which the costs are incurred.The majority of technology costs recorded in“Technology and infrastructure”are incurred in the U.S.and are includedin our North America and AWS segments.The majority of infrastructure costs recorded in“Technology and infrastructure”are allocated to the AWS segmentbased on usage.There are no internal revenue transactions between our reportable segments.Our chief operating decision maker(“CODM”)regularly reviewsconsolidated net sales,consolidated operating expenses,and consolidated operating income(loss)by segment.Amounts included in consolidated operatingexpenses include“Cost of sales,”“Fulfillment,”“Technology and infrastructure,”“Sales and marketing,”“General and administrative,”and“Other operatingexpense(income),net.”Our CODM manages our business by reviewing annual forecasts and consolidated results by segment on a quarterly basis.North AmericaThe North America segment primarily consists of amounts earned from retail sales of consumer products(including from sellers)and advertising andsubscription services through North America-focused online and physical stores.This segment includes export sales from these online stores.InternationalThe International segment primarily consists of amounts earned from retail sales of consumer products(including from sellers)and advertising andsubscription services through internationally-focused online stores.This segment includes export sales from these internationally-focused online stores(including export sales from these online stores to customers in the U.S.,Mexico,and Canada),but excludes export sales from our North America-focusedonline stores.AWSThe AWS segment consists of amounts earned from global sales of compute,storage,database,and other services for start-ups,enterprises,governmentagencies,and academic institutions.19Table of ContentsInformation on reportable segments and reconciliation to consolidated net income is as follows(in millions):Three Months EndedMarch 31,20232024North AmericaNet sales$76,881$86,341 Operating expenses75,983 81,358 Operating income$898$4,983 InternationalNet sales$29,123$31,935 Operating expenses30,370 31,032 Operating income(loss)$(1,247)$903 AWSNet sales$21,354$25,037 Operating expenses16,231 15,616 Operating income$5,123$9,421 ConsolidatedNet sales$127,358$143,313 Operating expenses122,584 128,006 Operating income4,774 15,307 Total non-operating expense(655)(2,324)Provision for income taxes(948)(2,467)Equity-method investment activity,net of tax1(85)Net income$3,172$10,431 20Table of ContentsNet sales by groups of similar products and services,which also have similar economic characteristics,is as follows(in millions):Three Months EndedMarch 31,20232024Net Sales:Online stores(1)$51,096$54,670 Physical stores(2)4,895 5,202 Third-party seller services(3)29,820 34,596 Advertising services(4)9,509 11,824 Subscription services(5)9,657 10,722 AWS21,354 25,037 Other(6)1,027 1,262 Consolidated$127,358$143,313 _(1)Includes product sales and digital media content where we record revenue gross.We leverage our retail infrastructure to offer a wide selection ofconsumable and durable goods that includes media products available in both a physical and digital format,such as books,videos,games,music,andsoftware.These product sales include digital products sold on a transactional basis.Digital media content subscriptions that provide unlimited viewing orusage rights are included in“Subscription services.”(2)Includes product sales where our customers physically select items in a store.Sales to customers who order goods online for delivery or pickup at ourphysical stores are included in“Online stores.”(3)Includes commissions and any related fulfillment and shipping fees,and other third-party seller services.(4)Includes sales of advertising services to sellers,vendors,publishers,authors,and others,through programs such as sponsored ads,display,and videoadvertising.(5)Includes annual and monthly fees associated with Amazon Prime memberships,as well as digital video,audiobook,digital music,e-book,and other non-AWS subscription services.(6)Includes sales related to various other offerings,such as health care services,certain licensing and distribution of video content,and shipping services,andour co-branded credit card agreements.21Table of ContentsItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsForward-Looking StatementsThis Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.Allstatements other than statements of historical fact,including statements regarding guidance,industry prospects,or future results of operations or financialposition,made in this Quarterly Report on Form 10-Q are forward-looking.We use words such as anticipates,believes,expects,future,intends,and similarexpressions to identify forward-looking statements.Forward-looking statements reflect managements current expectations and are inherently uncertain.Actualresults and outcomes could differ materially for a variety of reasons,including,among others,fluctuations in foreign exchange rates,changes in globaleconomic conditions and customer demand and spending,inflation,interest rates,regional labor market constraints,world events,the rate of growth of theinternet,online commerce,cloud services,and new and emerging technologies,the amount that A invests in new business opportunities and thetiming of those investments,the mix of products and services sold to customers,the mix of net sales derived from products as compared with services,the extentto which we owe income or other taxes,competition,management of growth,potential fluctuations in operating results,international growth and expansion,the outcomes of claims,litigation,government investigations,and other proceedings,fulfillment,sortation,delivery,and data center optimization,risks ofinventory management,variability in demand,the degree to which we enter into,maintain,and develop commercial agreements,proposed and completedacquisitions and strategic transactions,payments risks,and risks of fulfillment throughput and productivity.In addition,global economic and geopoliticalconditions and additional or unforeseen circumstances,developments,or events may give rise to or amplify many of these risks.These risks and uncertainties,as well as other risks and uncertainties that could cause our actual results or outcomes to differ significantly from managements expectations,are described ingreater detail in Item 1A of Part II,“Risk Factors.”For additional information,see Item 7 of Part II,“Managements Discussion and Analysis of Financial Condition and Results of Operations Overview”of our 2023 Annual Report on Form 10-K.Critical Accounting EstimatesThe preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets andliabilities,revenues and expenses,and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes.Criticalaccounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or arereasonably likely to have a material impact on the financial condition or results of operations of the Company.Based on this definition,we have identified thecritical accounting estimates addressed below.We also have other key accounting policies,which involve the use of estimates,judgments,and assumptions thatare significant to understanding our results.For additional information,see Item 8 of Part II,“Financial Statements and Supplementary Data Note 1 Description of Business,Accounting Policies,and Supplemental Disclosures”of our 2023 Annual Report on Form 10-K and Item 1 of Part I,“FinancialStatements Note 1 Accounting Policies and Supplemental Disclosures,”of this Form 10-Q.Although we believe that our estimates,assumptions,andjudgments are reasonable,they are based upon information presently available.Actual results may differ significantly from these estimates under differentassumptions,judgments,or conditions.InventoriesInventories,consisting of products available for sale,are primarily accounted for using the first-in first-out method,and are valued at the lower of costand net realizable value.This valuation requires us to make judgments,based on currently available information,about the likely method of disposition,suchas through sales to individual customers,returns to product vendors,or liquidations,and expected recoverable values of each disposition category.Theseassumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future.As a measure of sensitivity,for every 1%of additional inventory valuation allowance as of March 31,2024,we would have recorded anadditional cost of sales of approximately$330 million.In addition,we enter into supplier commitments for certain electronic device components and certain products.These commitments are based onforecasted customer demand.If we reduce these commitments,we may incur additional costs.Income TaxesWe are subject to income taxes in the U.S.(federal and state)and numerous foreign jurisdictions.Tax laws,regulations,administrative practices,principles,and interpretations in various jurisdictions may be subject to significant change,with or without notice,due to economic,political,and otherconditions,and significant judgment is required in evaluating and estimating our provision and accruals for these taxes.There are many transactions that occurduring the ordinary course of business for which the ultimate tax determination is uncertain.In addition,our actual and forecasted earnings are subject to22Table of Contentschange due to economic,political,and other conditions and significant judgment is required in determining our ability to use our deferred tax assets.Our effective tax rates could be affected by numerous factors,such as changes in our business operations,acquisitions,investments,entry into newbusinesses and geographies,intercompany transactions,the relative amount of our foreign earnings,including earnings being lower than anticipated injurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates,losses incurred injurisdictions for which we are not able to realize related tax benefits,the applicability of special tax regimes,changes in foreign exchange rates,changes in ourstock price,changes to our forecasts of income and loss and the mix of jurisdictions to which they relate,changes in our deferred tax assets and liabilities andtheir valuation,changes in the laws,regulations,administrative practices,principles,and interpretations related to tax,including changes to the global taxframework,competition,and other laws and accounting rules in various jurisdictions.In addition,a number of countries have enacted or are actively pursuingchanges to their tax laws applicable to corporate multinationals.We are also currently subject to tax controversies in various jurisdictions,and these jurisdictions may assess additional income tax liabilities against us.Developments in an audit,investigation,or other tax controversy could have a material effect on our operating results or cash flows in the period or periods forwhich that development occurs,as well as for prior and subsequent periods.We regularly assess the likelihood of an adverse outcome resulting from theseproceedings to determine the adequacy of our tax accruals.Although we believe our tax estimates are reasonable,the final outcome of audits,investigations,and any other tax controversies could be materially different from our historical income tax provisions and accruals.Liquidity and Capital ResourcesCash flow information is as follows(in millions):Three Months EndedMarch 31,Twelve Months EndedMarch 31,2023202420232024Cash provided by(used in):Operating activities$4,788$18,989$54,330$99,147 Investing activities(15,806)(17,862)(54,313)(51,889)Financing activities6,354(1,256)14,082(23,489)Our principal sources of liquidity are cash flows generated from operations and our cash,cash equivalents,and marketable securities balances,which,atfair value,were$86.8 billion and$85.1 billion as of December 31,2023 and March 31,2024.Amounts held in foreign currencies were$23.5 billion and$16.7billion as of December 31,2023 and March 31,2024.Our foreign currency balances include British Pounds,Canadian Dollars,Euros,Indian Rupees,andJapanese Yen.Cash provided by(used in)operating activities was$4.8 billion and$19.0 billion for Q1 2023 and Q1 2024.Our operating cash flows result primarilyfrom cash received from our consumer,seller,developer,enterprise,and content creator customers,and advertisers,offset by cash payments we make forproducts and services,employee compensation,payment processing and related transaction costs,operating leases,and interest payments.Cash received fromour customers and other activities generally corresponds to our net sales.The increase in operating cash flow for the trailing twelve months ended March 31,2024,compared to the comparable prior year period,was due to an increase in net income,excluding non-cash expenses,and changes in working capital.Working capital at any specific point in time is subject to many variables,including variability in demand,inventory management and category expansion,thetiming of cash receipts and payments,customer and vendor payment terms,and fluctuations in foreign exchange rates.Cash provided by(used in)investing activities corresponds with cash capital expenditures,including leasehold improvements,incentives received fromproperty and equipment vendors,proceeds from asset sales,cash outlays for acquisitions,investments in other companies and intellectual property rights,andpurchases,sales,and maturities of marketable securities.Cash provided by(used in)investing activities was$(15.8)billion and$(17.9)billion for Q1 2023 andQ1 2024,with the variability caused primarily by purchases,sales,and maturities of marketable securities and cash capital expenditures.Cash capitalexpenditures were$13.1 billion and$13.9 billion during Q1 2023 and Q1 2024,which primarily reflect investments in technology infrastructure(the majorityof which is to support AWS business growth)and in additional capacity to support our fulfillment network.We expect cash capital expenditures tomeaningfully increase in 2024,primarily driven by investments in technology infrastructure.We made cash payments,net of acquired cash,related toacquisition and other investment activity of$3.5 billion and$3.4 billion during Q1 2023 and Q1 2024.We funded the acquisition of 1Life Healthcare,Inc.(One Medical)in 2023 with cash on hand.In Q3 2023,we invested$1.25 billion in a note from Anthropic,which is convertible to equity.In Q1 2024,weinvested$2.75 billion in a second convertible note.23Table of ContentsCash provided by(used in)financing activities was$6.4 billion and$(1.3)billion for Q1 2023 and Q1 2024.Cash inflows from financing activitiesresulted from proceeds from short-term debt,and other and long-term debt of$12.8 billion and$338 million for Q1 2023 and Q1 2024.Cash outflows fromfinancing activities resulted from payments of short-term debt,and other,long-term debt,finance leases,and financing obligations of$6.4 billion and$1.6billion in Q1 2023 and Q1 2024.Property and equipment acquired under finance leases was$8 million and$42 million during Q1 2023 and Q1 2024.We had no borrowings outstanding under the two unsecured revolving credit facilities or the commercial paper programs,and we had$352 million ofborrowings outstanding under our Credit Facility as of March 31,2024.See Item 1 of Part I,“Financial Statements Note 5 Debt”for additionalinformation.Certain foreign subsidiary earnings and losses are subject to current U.S.taxation and the subsequent repatriation of those earnings is not subject to tax inthe U.S.We intend to invest substantially all of our foreign subsidiary earnings,as well as our capital in our foreign subsidiaries,indefinitely outside of theU.S.in those jurisdictions in which we would incur significant,additional costs upon repatriation of such amounts.Our U.S.taxable income is reduced by accelerated depreciation deductions and increased by the impact of capitalized research and developmentexpenses.U.S.tax rules provide for enhanced accelerated depreciation deductions by allowing us to expense a portion of qualified property,primarilyequipment.These enhanced deductions are scheduled to phase out annually from 2023 through 2026.Additionally,effective January 1,2022,research anddevelopment expenses are required to be capitalized and amortized for U.S.tax purposes,which delays the deductibility of these expenses.Cash paid for U.S.(federal and state)and foreign income taxes(net of refunds)totaled$619 million and$458 million for Q1 2023 and Q1 2024.As of December 31,2023 and March 31,2024,restricted cash,cash equivalents,and marketable securities were$503 million and$480 million.SeeItem 1 of Part I,“Financial Statements Note 4 Commitments and Contingencies”and“Financial Statements Note 5 Debt”for additional discussionof our principal contractual commitments,as well as our pledged assets.Additionally,we have purchase obligations and open purchase orders,including forinventory and capital expenditures,that support normal operations and are primarily due in the next twelve months.These purchase obligations and openpurchase orders are generally cancellable in full or in part through the contractual provisions.We believe that cash flows generated from operations and our cash,cash equivalents,and marketable securities balances,as well as our borrowingarrangements,will be sufficient to meet our anticipated operating cash needs for at least the next twelve months.However,any projections of future cash needsand cash flows are subject to substantial uncertainty.See Item 1A of Part II,“Risk Factors.”We continually evaluate opportunities to sell additional equity ordebt securities,obtain credit facilities,obtain finance and operating lease arrangements,enter into financing obligations,repurchase common stock,paydividends,or repurchase,refinance,or otherwise restructure our debt for strategic reasons or to further strengthen our financial position.The sale of additional equity or convertible debt securities would be dilutive to our shareholders.In addition,we will,from time to time,consider theacquisition of,or investment in,complementary businesses,products,services,capital infrastructure,and technologies,which might affect our liquidityrequirements or cause us to secure additional financing,or issue additional equity or debt securities.There can be no assurance that additional credit lines orfinancing instruments will be available in amounts or on terms acceptable to us,if at all.In addition,economic conditions and actions by policymaking bodiesare contributing to changing interest rates and significant capital market volatility,which,along with any increases in our borrowing levels,could increase ourfuture borrowing costs.24Table of ContentsResults of OperationsWe have organized our operations into three segments:North America,International,and AWS.These segments reflect the way the Company evaluatesits business performance and manages its operations.See Item 1 of Part I,“Financial Statements Note 8 Segment Information.”OverviewMacroeconomic factors,including inflation,increased interest rates,significant capital market and supply chain volatility,and global economic andgeopolitical developments,have direct and indirect impacts on our results of operations that are difficult to isolate and quantify.In addition,changes in fuel,utility,and food costs,interest rates,and economic outlook may impact customer demand and our ability to forecast consumer spending patterns.We expectsome or all of these factors to continue to impact our operations into Q2 2024.Net SalesNet sales include product and service sales.Product sales represent revenue from the sale of products and related shipping fees and digital media contentwhere we record revenue gross.Service sales primarily represent third-party seller fees,which includes commissions and any related fulfillment and shippingfees,AWS sales,advertising services,Amazon Prime membership fees,and certain digital media content subscriptions.Net sales information is as follows(inmillions):Three Months EndedMarch 31,20232024Net Sales:North America$76,881$86,341 International29,123 31,935 AWS21,354 25,037 Consolidated$127,358$143,313 Year-over-year Percentage Growth:North America11%International1 10 AWS16 17 Consolidated9 13 Year-over-year Percentage Growth,excluding the effect of foreign exchange rates:North America11%International9 11 AWS16 17 Consolidated11 13 Net Sales Mix:North America60%International23 22 AWS17 18 Consolidated1000%Sales increased 13%in Q1 2024 compared to the comparable prior year period.Changes in foreign exchange rates reduced net sales by$164 million forQ1 2024.For a discussion of the effect of foreign exchange rates on sales growth,see“Effect of Foreign Exchange Rates”below.North America sales increased 12%in Q1 2024 compared to the comparable prior year period.The sales growth primarily reflects increased unit sales,including sales by third-party sellers,advertising sales,and subscription services.Increased unit sales were driven largely by our continued focus on price,selection,and convenience for our customers,including from our fast shipping offers.International sales increased 10%in Q1 2024 compared to the comparable prior year period.The sales growth primarily reflects increased unit sales,including sales by third-party sellers,advertising sales,and subscription services.Increased unit sales25Table of Contentswere driven largely by our continued focus on price,selection,and convenience for our customers,including from our fast shipping offers.Changes in foreignexchange rates reduced International net sales by$248 million for Q1 2024.AWS sales increased 17%in Q1 2024 compared to the comparable prior year period.The sales growth primarily reflects increased customer usage,partially offset by pricing changes primarily driven by long-term customer contracts.Operating Income(Loss)Operating income(loss)by segment is as follows(in millions):Three Months EndedMarch 31,20232024Operating Income(Loss)North America$898$4,983 International(1,247)903 AWS5,123 9,421 Consolidated$4,774$15,307 Operating income increased from$4.8 billion in Q1 2023 to$15.3 billion in Q1 2024.We believe that operating income is a more meaningful measurethan gross profit and gross margin due to the diversity of our product categories and services.The increase in North America operating income in Q1 2024,compared to the comparable prior year period,is primarily due to increased unit sales andincreased advertising sales,partially offset by increased shipping and fulfillment costs and increased technology and infrastructure costs.The International operating income in Q1 2024,as compared to the operating loss in the comparable prior year period,is primarily due to increased unitsales and increased advertising sales,partially offset by increased shipping and fulfillment costs.Changes in foreign exchange rates did not significantly impactoperating income for Q1 2024.The increase in AWS operating income in Q1 2024,compared to the comparable prior year period,is primarily due to increased sales,decreased payrolland related expenses,and a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers,partially offset byspending on technology infrastructure that was primarily driven by additional investments to support AWS business growth.Changes in foreign exchange ratespositively impacted operating income by$67 million for Q1 2024.26Table of ContentsOperating ExpensesInformation about operating expenses is as follows(in millions):Three Months EndedMarch 31,20232024Operating Expenses:Cost of sales$67,791$72,633 Fulfillment20,905 22,317 Technology and infrastructure20,450 20,424 Sales and marketing10,172 9,662 General and administrative3,043 2,742 Other operating expense(income),net223 228 Total operating expenses$122,584$128,006 Year-over-year Percentage Growth(Decline):Cost of sales2%7%Fulfillment3 7 Technology and infrastructure38 0 Sales and marketing22(5)General and administrative17(10)Other operating expense(income),net(11)2 Percent of Net Sales:Cost of sales53.2P.7%Fulfillment16.4 15.6 Technology and infrastructure16.1 14.3 Sales and marketing8.0 6.7 General and administrative2.4 1.9 Other operating expense(income),net0.2 0.2 Cost of SalesCost of sales primarily consists of the purchase price of consumer products,inbound and outbound shipping costs,including costs related to sortation anddelivery centers and where we are the transportation service provider,and digital media content costs where we record revenue gross,including video andmusic.The increase in cost of sales in Q1 2024,compared to the comparable prior year period,is primarily due to increased product and shipping costs resultingfrom increased sales,partially offset by fulfillment network efficiencies,including lower transportation costs.Changes in foreign exchange rates reduced costof sales by$190 million for Q1 2024.Shipping costs were$19.9 billion and$21.8 billion in Q1 2023 and Q1 2024.Shipping costs to receive products from our suppliers are included in ourinventory and recognized as cost of sales upon sale of products to our customers.We expect our cost of shipping to continue to increase to the extent ourcustomers accept and use our shipping offers at an increasing rate,we use more expensive shipping methods,and we offer additional services.We seek tomitigate costs of shipping over time in part through achieving higher sales volumes,optimizing our fulfillment network,negotiating better terms with oursuppliers,and achieving better operating efficiencies.We believe that offering low prices to our customers is fundamental to our future success,and one waywe offer lower prices is through shipping offers.Costs to operate our AWS segment are primarily classified as“Technology and infrastructure”as we leverage a shared infrastructure that supports bothour internal technology requirements and external sales to AWS customers.FulfillmentFulfillment costs primarily consist of those costs incurred in operating and staffing our North America and International fulfillment centers,physicalstores,and customer service centers and payment processing costs.While AWS payment processing and related transaction costs are included in“Fulfillment,”AWS costs are primarily classified as“Technology and infrastructure.”Fulfillment costs as a percentage of net sales may vary due to several factors,such aspayment processing and related transaction27Table of Contentscosts,our level of productivity and accuracy,changes in volume,size,and weight of units received and fulfilled,the extent to which third-party sellers utilizeFulfillment by Amazon services,timing of fulfillment network and physical store expansion,the extent we utilize fulfillment services provided by third parties,mix of products and services sold,and our ability to affect customer service contacts per unit by implementing improvements in our operations andenhancements to our customer self-service features.Additionally,sales by our sellers have higher payment processing and related transaction costs as apercentage of net sales compared to our retail sales because payment processing costs are based on the gross purchase price of underlying transactions.The increase in fulfillment costs in Q1 2024,compared to the comparable prior year period,is primarily due to increased sales and investments in ourfulfillment network,partially offset by fulfillment network efficiencies.Changes in foreign exchange rates increased fulfillment costs by$14 million for Q12024.We seek to expand our fulfillment network to accommodate a greater selection and in-stock inventory levels and to meet anticipated shipment volumesfrom sales of our own products as well as sales by third parties for which we provide the fulfillment services.We regularly evaluate our facility requirements.Technology and InfrastructureTechnology and infrastructure costs include payroll and related expenses for employees involved in the research and development of new and existingproducts and services,development,design,and maintenance of our stores,curation and display of products and services made available in our online stores,and infrastructure costs.Infrastructure costs include servers,networking equipment,and data center related depreciation and amortization,rent,utilities,andother expenses necessary to support AWS and other Amazon businesses.Collectively,these costs reflect the investments we make in order to offer a widevariety of products and services to our customers,including expenditures related to initiatives to build and deploy innovative and efficient software andelectronic devices and the development of a satellite network for global broadband service and autonomous vehicles for ride-hailing services.We seek to invest efficiently in numerous areas of technology and infrastructure so we may continue to enhance the customer experience and improveour process efficiency through rapid technology developments,while operating at an ever increasing scale.Our technology and infrastructure investment andcapital spending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems andoperations.We expect spending in technology and infrastructure to increase over time as we continue to add employees and infrastructure.These costs areallocated to segments based on usage.The decrease in technology and infrastructure costs in Q1 2024,compared to the comparable prior year period,isprimarily due to a reduction in depreciation and amortization expense from our change in the estimated useful life of our servers and decreased payroll andrelated costs associated with technical teams responsible for expanding our existing products and services and initiatives to introduce new products and serviceofferings,partially offset by an increase in spending on infrastructure.See Item 7 of Part II,“Managements Discussion and Analysis of Financial Conditionand Results of Operations Overview”of our 2023 Annual Report on Form 10-K for a discussion of how management views advances in technology and theimportance of innovation.Sales and MarketingSales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities,including salescommissions related to AWS.We direct customers to our stores primarily through a number of marketing channels,such as our sponsored search,third-partycustomer referrals,social and online advertising,television advertising,and other initiatives.Our marketing costs are largely variable,based on growth in salesand changes in rates.To the extent there is increased or decreased competition for these traffic sources,or to the extent our mix of these channels shifts,wewould expect to see a corresponding change in our marketing costs.The decrease in sales and marketing costs in Q1 2024,compared to the comparable prior year period,is primarily due to decreased payroll and relatedexpenses for personnel engaged in marketing and selling activities,and decreased advertising expenses.While costs associated with Amazon Prime membership benefits and other shipping offers are not included in sales and marketing expense,we viewthese offers as effective worldwide marketing tools,and intend to continue offering them indefinitely.General and AdministrativeThe decrease in general and administrative costs in Q1 2024,compared to the comparable prior year period,is primarily due to a decrease in payroll andrelated expenses.28Table of ContentsOther Operating Expense(Income),NetOther operating expense(income),net was$223 million and$228 million for Q1 2023 and Q1 2024,and was primarily related to asset impairments andthe amortization of intangible assets.Interest Income and ExpenseOur interest income was$611 million and$993 million during Q1 2023 and Q1 2024,primarily due to an increase in prevailing rates.We generallyinvest our excess cash in AAA-rated money market funds and investment grade short-to intermediate-term marketable debt securities.Our interest incomecorresponds with the average balance of invested funds based on the prevailing rates,which vary depending on the geographies and currencies in which theyare invested.Interest expense was$823 million and$644 million during Q1 2023 and Q1 2024,and was primarily related to debt and finance leases.See Item 1 ofPart I,“Financial Statements Note 3 Leases and Note 5 Debt”for additional information.Other Income(Expense),NetOther income(expense),net was$(443)million and$(2.7)billion during Q1 2023 and Q1 2024.The primary components of other income(expense),netare related to equity securities valuations and adjustments,equity warrant valuations,and foreign currency.Included in other income(expense),net is amarketable equity securities valuation gain(loss)of$(467)million and$(2.0)billion in Q1 2023 and Q1 2024,from our equity investment in Rivian.Income TaxesOur income tax provision for the three months ended March 31,2023 was$948 million,which included$48 million of net discrete tax expense.Ourincome tax provision for the three months ended March 31,2024 was$2.5 billion,which included$558 million of net discrete tax benefits.See Item 1 of PartI,“Financial Statements Note 7 Income Taxes”for additional information.Non-GAAP Financial MeasuresRegulation G,Conditions for Use of Non-GAAP Financial Measures,and other SEC regulations define and prescribe the conditions for use of certainnon-GAAP financial information.Our measures of free cash flows and the effect of foreign exchange rates on our consolidated statements of operations meetthe definition of non-GAAP financial measures.We provide multiple measures of free cash flows because we believe these measures provide additional perspective on the impact of acquiring propertyand equipment with cash and through finance leases and financing obligations.Free Cash FlowFree cash flow is cash flow from operations reduced by“Purchases of property and equipment,net of proceeds from sales and incentives.”The followingis a reconciliation of free cash flow to the most comparable GAAP cash flow measure,“Net cash provided by(used in)operating activities,”for the trailingtwelve months ended March 31,2023 and 2024(in millions):Twelve Months EndedMarch 31,20232024Net cash provided by(used in)operating activities$54,330$99,147 Purchases of property and equipment,net of proceeds from sales and incentives(57,649)(48,998)Free cash flow$(3,319)$50,149 Net cash provided by(used in)investing activities$(54,313)$(51,889)Net cash provided by(used in)financing activities$14,082$(23,489)29Table of ContentsFree Cash Flow Less Principal Repayments of Finance Leases and Financing ObligationsFree cash flow less principal repayments of finance leases and financing obligations is free cash flow reduced by“Principal repayments of financeleases”and“Principal repayments of financing obligations.”Principal repayments of finance leases and financing obligations approximates the actualpayments of cash for our finance leases and financing obligations.The following is a reconciliation of free cash flow less principal repayments of financeleases and financing obligations to the most comparable GAAP cash flow measure,“Net cash provided by(used in)operating activities,”for the trailing twelvemonths ended March 31,2023 and 2024(in millions):Twelve Months EndedMarch 31,20232024Net cash provided by(used in)operating activities$54,330$99,147 Purchases of property and equipment,net of proceeds from sales and incentives(57,649)(48,998)Free cash flow(3,319)50,149 Principal repayments of finance leases(6,544)(3,774)Principal repayments of financing obligations(226)(304)Free cash flow less principal repayments of finance leases and financing obligations$(10,089)46,071 Net cash provided by(used in)investing activities$(54,313)$(51,889)Net cash provided by(used in)financing activities$14,082$(23,489)Free Cash Flow Less Equipment Finance Leases and Principal Repayments of All Other Finance Leases and Financing ObligationsFree cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations is free cash flow reduced byequipment acquired under finance leases,which is included in“Property and equipment acquired under finance leases,net of remeasurements andmodifications,”principal repayments of all other finance lease liabilities,which is included in“Principal repayments of finance leases,”and“Principalrepayments of financing obligations.”All other finance lease liabilities and financing obligations consists of property.In this measure,equipment acquiredunder finance leases is reflected as if these assets had been purchased with cash,which is not the case as these assets have been leased.The following is areconciliation of free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations to the mostcomparable GAAP cash flow measure,“Net cash provided by(used in)operating activities,”for the trailing twelve months ended March 31,2023 and 2024(inmillions):Twelve Months EndedMarch 31,20232024Net cash provided by(used in)operating activities$54,330$99,147 Purchases of property and equipment,net of proceeds from sales and incentives(57,649)(48,998)Free cash flow(3,319)50,149 Equipment acquired under finance leases(1)(285)(306)Principal repayments of all other finance leases(2)(625)(761)Principal repayments of financing obligations(226)(304)Free cash flow less equipment finance leases and principal repayments of all other finance leases and financingobligations$(4,455)$48,778 Net cash provided by(used in)investing activities$(54,313)$(51,889)Net cash provided by(used in)financing activities$14,082$(23,489)_(1)For the twelve months ended March 31,2023 and 2024,this amount relates to equipment included in“Property and equipment acquired under financeleases,net of remeasurements and modifications”of$517 million and$676 million.(2)For the twelve months ended March 31,2023 and 2024,this amount relates to property included in“Principal repayments of finance leases”of$6,544million and$3,774 million.30Table of ContentsAll of these free cash flows measures have limitations as they omit certain components of the overall cash flow statement and do not represent theresidual cash flow available for discretionary expenditures.For example,these measures of free cash flows do not incorporate the portion of paymentsrepresenting principal reductions of debt or cash payments for business acquisitions.Additionally,our mix of property and equipment acquisitions with cash orother financing options may change over time.Therefore,we believe it is important to view free cash flows measures only as a complement to our entireconsolidated statements of cash flows.Effect of Foreign Exchange RatesInformation regarding the effect of foreign exchange rates,versus the U.S.Dollar,on our net sales,operating expenses,and operating income is providedto show reported period operating results had the foreign exchange rates remained the same as those in effect in the comparable prior year period.The effect onour net sales,operating expenses,and operating income from changes in our foreign exchange rates versus the U.S.Dollar is as follows(in millions):Three Months Ended March 31,20232024AsReportedExchangeRateEffect(1)At PriorYearRates(2)As ReportedExchangeRateEffect(1)At PriorYearRates(2)Net sales$127,358$2,436$129,794$143,313$164$143,477 Operating expenses122,584 2,575 125,159 128,006 236 128,242 Operating income4,774(139)4,635 15,307(72)15,235 _(1)Represents the change in reported amounts resulting from changes in foreign exchange rates from those in effect in the comparable prior year period foroperating results.(2)Represents the outcome that would have resulted had foreign exchange rates in the reported period been the same as those in effect in the comparable prioryear period for operating results.31Table of ContentsGuidanceWe provided guidance on April 30,2024,in our earnings release furnished on Form 8-K as set forth below.These forward-looking statements reflectAs expectations as of April 30,2024,and are subject to substantial uncertainty.Our results are inherently unpredictable and may be materiallyaffected by many factors,such as fluctuations in foreign exchange rates,changes in global economic and geopolitical conditions and customer demand andspending(including the impact of recessionary fears),inflation,interest rates,regional labor market constraints,world events,the rate of growth of the internet,online commerce,cloud services,and new and emerging technologies,as well as those outlined in Item 1A of Part II,“Risk Factors.”Second Quarter 2024 GuidanceNet sales are expected to be between$144.0 billion and$149.0 billion,or to grow between 7%and 11%compared with second quarter 2023.Thisguidance anticipates an unfavorable impact of approximately 60 basis points from foreign exchange rates.In first quarter 2024 the impact from LeapYear added approximately 120 basis points to the year-over-year net sales growth rate.Operating income is expected to be between$10.0 billion and$14.0 billion,compared with$7.7 billion in second quarter 2023.This guidance assumes,among other things,that no additional business acquisitions,restructurings,or legal settlements are concluded.32Table of ContentsItem 3.Quantitative and Qualitative Disclosures About Market RiskWe are exposed to market risk for the effect of interest rate changes,foreign currency fluctuations,and changes in the market values of our investments.Information relating to quantitative and qualitative disclosures about market risk is set forth below and in Item 2 of Part I,“Managements Discussion andAnalysis of Financial Condition and Results of Operations Liquidity and Capital Resources.”Interest Rate RiskOur exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our debt.Our long-term debt is carried atamortized cost and fluctuations in interest rates do not impact our consolidated financial statements.However,the fair value of our long-term debt,which paysinterest at a fixed rate,will generally fluctuate with movements of interest rates,increasing in periods of declining rates of interest and declining in periods ofincreasing rates of interest.We generally invest our excess cash in AAA-rated money market funds and investment grade short-to intermediate-termmarketable debt securities.Marketable debt securities with fixed interest rates may have their fair market value adversely affected due to a rise in interest rates,and we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.Foreign Exchange RiskDuring Q1 2024,net sales from our International segment accounted for 22%of our consolidated revenues.Net sales and related expenses generatedfrom our internationally-focused stores,including within Canada and Mexico(which are included in our North America segment),are primarily denominatedin the functional currencies of the corresponding stores and primarily include Euros,British Pounds,and Japanese Yen.The results of operations of,and certainof our intercompany balances associated with,our internationally-focused stores and AWS are exposed to foreign exchange rate fluctuations.Uponconsolidation,as foreign exchange rates vary,net sales and other operating results may differ materially from expectations,and we may record significant gainsor losses on the remeasurement of intercompany balances.For example,as a result of fluctuations in foreign exchange rates throughout the period compared torates in effect the prior year,International segment net sales in Q1 2024 decreased by$248 million in comparison with Q1 2023.We have foreign exchange risk related to foreign-denominated cash,cash equivalents,and marketable securities(“foreign funds”).Based on the balanceof foreign funds as of March 31,2024,of$16.7 billion,an assumed 5%,10%,and 20verse change to foreign exchange would result in declines of$835million,$1.7 billion,and$3.3 billion.We also have foreign exchange risk related to our intercompany balances denominated in various currencies.Based on the intercompany balances as ofMarch 31,2024,an assumed 5%,10%,and 20verse change to foreign exchange rates would result in losses of$280 million,$560 million,and$1.1billion,recorded to“Other income(expense),net.”See Item 2 of Part I,“Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Effect ofForeign Exchange Rates”for additional information on the effect on reported results of changes in foreign exchange rates.Equity Investment RiskAs of March 31,2024,our recorded value in equity,equity warrant,and convertible debt investments in public and private companies was$10.7 billion.Our equity and equity warrant investments in publicly traded companies,which include our equity investment in Rivian,represent$3.4 billion of ourinvestments as of March 31,2024,and are recorded at fair value,which is subject to market price volatility.We record our equity warrant investments inprivate companies at fair value and adjust our equity investments in private companies for observable price changes or impairments.Valuations of privatecompanies are inherently more complex due to the lack of readily available market data.The current global economic conditions provide additional uncertainty.As such,we believe that market sensitivities are not practicable.33Table of ContentsItem 4.Controls and ProceduresWe carried out an evaluation required by the Securities Exchange Act of 1934(the“1934 Act”),under the supervision and with the participation of ourprincipal executive officer and principal financial officer,of the effectiveness of the design and operation of our disclosure controls and procedures,as definedin Rule 13a-15(e)of the 1934 Act,as of the end of the period covered by this report.Based on this evaluation,our principal executive officer and principalfinancial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosedby us in the reports that we file or submit under the 1934 Act is recorded,processed,summarized,and reported within the time periods specified in the SECsrules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management,including our principalexecutive officer and principal financial officer,as appropriate to allow timely decisions regarding required disclosure.During the most recent fiscal quarter,there has not occurred any change in our internal control over financial reporting that has materially affected,or isreasonably likely to materially affect,our internal control over financial reporting.Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above.Management doesnot expect,however,that our disclosure controls and procedures will prevent or detect all error and fraud.Any control system,no matter how well designedand operated,is based upon certain assumptions and can provide only reasonable,not absolute,assurance that its objectives will be met.Further,no evaluationof controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud,if any,withinthe Company have been detected.34Table of ContentsPART II.OTHER INFORMATIONItem 1.Legal ProceedingsSee Item 1 of Part I,“Financial Statements Note 4 Commitments and Contingencies Legal Proceedings.”Item 1A.Risk FactorsPlease carefully consider the following discussion of significant factors,events,and uncertainties that make an investment in our securities risky.Theevents and consequences discussed in these risk factors could,in circumstances we may or may not be able to accurately predict,recognize,or control,have amaterial adverse effect on our business,growth,reputation,prospects,financial condition,operating results(including components of our financial results),cash flows,liquidity,and stock price.These risk factors do not identify all risks that we face;our operations could also be affected by factors,events,oruncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations.In addition to the factorsdiscussed in Item 2 of Part I,“Managements Discussion and Analysis of Financial Condition and Results of Operations,”and in the risk factors below,globaleconomic and geopolitical conditions and additional or unforeseen circumstances,developments,or events may give rise to or amplify many of the risksdiscussed below.Many of the risks discussed below also impact our customers,including third-party sellers,which could indirectly have a material adverseeffect on us.Business and Industry RisksWe Face Intense CompetitionOur businesses are rapidly evolving and intensely competitive,and we have many competitors across geographies,including cross-border competition,and in different industries,including physical,e-commerce,and omnichannel retail,e-commerce services,web and infrastructure computing services,electronic devices,digital content,advertising,grocery,and transportation and logistics services.Some of our current and potential competitors have greaterresources,longer histories,more customers,and/or greater brand recognition,particularly with our newly-launched products and services and in our newergeographic regions.They may secure better terms from vendors,adopt more aggressive pricing,and devote more resources to technology,infrastructure,fulfillment,and marketing.Competition continues to intensify,including with the development of new business models and the entry of new and well-funded competitors,and asour competitors enter into business combinations or alliances and established companies in other market segments expand to become competitive with ourbusiness.In addition,new and enhanced technologies,including search,web and infrastructure computing services,practical applications of artificialintelligence and machine learning,digital content,and electronic devices continue to increase our competition.The internet facilitates competitive entry andcomparison shopping,which enhances the ability of new,smaller,or lesser known businesses to compete against us.As a result of competition,our product andservice offerings may not be successful,we may fail to gain or may lose business,and we may be required to increase our spending or lower prices,any ofwhich could materially reduce our sales and profits.Our Expansion into New Products,Services,Technologies,and Geographic Regions Subjects Us to Additional RisksWe may have limited or no experience in our newer market segments,and our customers may not adopt our product or service offerings.These offerings,which ca
2024-05-06
52页
5星级
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 March30,2024or 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 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).YesNo15,334,082,000 shares of common stock were issued and outstanding as of April19,2024.Apple Inc.Form 10-QFor the Fiscal Quarter Ended March30,2024 TABLE OF CONTENTSPagePart IItem 1.Financial Statements1Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations13Item 3.Quantitative and Qualitative Disclosures About Market Risk18Item 4.Controls and Procedures18Part IIItem 1.Legal Proceedings19Item 1A.Risk Factors19Item 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 EndedMarch 30,2024April 1,2023March 30,2024April 1,2023Net sales:Products$66,886$73,929$163,344$170,317 Services 23,867 20,907 46,984 41,673 Total net sales 90,753 94,836 210,328 211,990 Cost of sales:Products 42,424 46,795 100,864 107,560 Services 6,058 6,065 12,338 12,122 Total cost of sales 48,482 52,860 113,202 119,682 Gross margin 42,271 41,976 97,126 92,308 Operating expenses:Research and development 7,903 7,457 15,599 15,166 Selling,general and administrative 6,468 6,201 13,254 12,808 Total operating expenses 14,371 13,658 28,853 27,974 Operating income 27,900 28,318 68,273 64,334 Other income/(expense),net 158 64 108 (329)Income before provision for income taxes 28,058 28,382 68,381 64,005 Provision for income taxes 4,422 4,222 10,829 9,847 Net income$23,636$24,160$57,552$54,158 Earnings per share:Basic$1.53$1.53$3.72$3.42 Diluted$1.53$1.52$3.71$3.41 Shares used in computing earnings per share:Basic 15,405,856 15,787,154 15,457,810 15,839,939 Diluted 15,464,709 15,847,050 15,520,675 15,901,384 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q2 2024 Form 10-Q|1Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Unaudited)(In millions)Three Months EndedSix Months EndedMarch 30,2024April 1,2023March 30,2024April 1,2023Net income$23,636$24,160$57,552$54,158 Other comprehensive income/(loss):Change in foreign currency translation,net of tax(322)(95)(14)(109)Change in unrealized gains/losses on derivative instruments,net of tax:Change in fair value of derivative instruments 456 (13)(75)(1,001)Adjustment for net(gains)/losses realized and included in net income 232 (191)(591)(1,957)Total change in unrealized gains/losses on derivative instruments 688 (204)(666)(2,958)Change in unrealized gains/losses on marketable debt securities,net of tax:Change in fair value of marketable debt securities(7)1,403 3,038 2,303 Adjustment for net(gains)/losses realized and included in net income 59 62 134 127 Total change in unrealized gains/losses on marketable debt securities 52 1,465 3,172 2,430 Total other comprehensive income/(loss)418 1,166 2,492 (637)Total comprehensive income$24,054$25,326$60,044$53,521 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q2 2024 Form 10-Q|2Apple Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)(In millions,except number of shares,which are reflected in thousands,and par value)March 30,2024September 30,2023ASSETS:Current assets:Cash and cash equivalents$32,695$29,965 Marketable securities 34,455 31,590 Accounts receivable,net 21,837 29,508 Vendor non-trade receivables 19,313 31,477 Inventories 6,232 6,331 Other current assets 13,884 14,695 Total current assets 128,416 143,566 Non-current assets:Marketable securities 95,187 100,544 Property,plant and equipment,net 43,546 43,715 Other non-current assets 70,262 64,758 Total non-current assets 208,995 209,017 Total assets$337,411$352,583 LIABILITIES AND SHAREHOLDERS EQUITY:Current liabilities:Accounts payable$45,753$62,611 Other current liabilities 57,298 58,829 Deferred revenue 8,012 8,061 Commercial paper 1,997 5,985 Term debt 10,762 9,822 Total current liabilities 123,822 145,308 Non-current liabilities:Term debt 91,831 95,281 Other non-current liabilities 47,564 49,848 Total non-current liabilities 139,395 145,129 Total liabilities 263,217 290,437 Commitments and contingenciesShareholders equity:Common stock and additional paid-in capital,$0.00001 par value:50,400,000 shares authorized;15,337,686 and 15,550,061 shares issued and outstanding,respectively 78,815 73,812 Retained earnings/(Accumulated deficit)4,339 (214)Accumulated other comprehensive loss(8,960)(11,452)Total shareholders equity 74,194 62,146 Total liabilities and shareholders equity$337,411$352,583 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q2 2024 Form 10-Q|3Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY(Unaudited)(In millions,except per-share amounts)Three Months EndedSix Months EndedMarch 30,2024April 1,2023March 30,2024April 1,2023Total shareholders equity,beginning balances$74,100$56,727$62,146$50,672 Common stock and additional paid-in capital:Beginning balances 75,236 66,399 73,812 64,849 Common stock issued 752 690 752 690 Common stock withheld related to net share settlement of equity awards(222)(281)(1,882)(1,715)Share-based compensation 3,049 2,760 6,133 5,744 Ending balances 78,815 69,568 78,815 69,568 Retained earnings/(Accumulated deficit):Beginning balances 8,242 3,240 (214)(3,068)Net income 23,636 24,160 57,552 54,158 Dividends and dividend equivalents declared(3,746)(3,684)(7,520)(7,396)Common stock withheld related to net share settlement of equity awards(71)(152)(1,089)(1,130)Common stock repurchased(23,722)(19,228)(44,390)(38,228)Ending balances 4,339 4,336 4,339 4,336 Accumulated other comprehensive income/(loss):Beginning balances(9,378)(12,912)(11,452)(11,109)Other comprehensive income/(loss)418 1,166 2,492 (637)Ending balances(8,960)(11,746)(8,960)(11,746)Total shareholders equity,ending balances$74,194$62,158$74,194$62,158 Dividends and dividend equivalents declared per share or RSU$0.24$0.23$0.48$0.46 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q2 2024 Form 10-Q|4Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In millions)Six Months EndedMarch 30,2024April 1,2023Cash,cash equivalents and restricted cash,beginning balances$30,737$24,977 Operating activities:Net income 57,552 54,158 Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization 5,684 5,814 Share-based compensation expense 5,961 5,591 Other(1,971)(1,732)Changes in operating assets and liabilities:Accounts receivable,net 7,727 9,596 Vendor non-trade receivables 12,164 14,785 Inventories 53 (2,548)Other current and non-current assets(4,438)(4,092)Accounts payable(16,710)(20,764)Other current and non-current liabilities(3,437)1,757 Cash generated by operating activities 62,585 62,565 Investing activities:Purchases of marketable securities(25,042)(11,197)Proceeds from maturities of marketable securities 27,462 17,124 Proceeds from sales of marketable securities 4,314 1,897 Payments for acquisition of property,plant and equipment(4,388)(6,703)Other(729)(247)Cash generated by investing activities 1,617 874 Financing activities:Payments for taxes related to net share settlement of equity awards(2,875)(2,734)Payments for dividends and dividend equivalents(7,535)(7,418)Repurchases of common stock(43,344)(39,069)Repayments of term debt(3,150)(3,651)Repayments of commercial paper,net(3,982)(7,960)Other(132)(455)Cash used in financing activities(61,018)(61,287)Increase in cash,cash equivalents and restricted cash 3,184 2,152 Cash,cash equivalents and restricted cash,ending balances$33,921$27,129 Supplemental cash flow disclosure:Cash paid for income taxes,net$14,531$4,894 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q2 2024 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”).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(“GAAP”)requires the use of management estimates.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 September30,2023(the“2023 Form 10-K”).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 2024 and 2023 span 52 and 53 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.Note 2 RevenueNet sales disaggregated by significant products and services for the three-and six-month periods ended March 30,2024 and April1,2023 were as follows(in millions):Three Months EndedSix Months EndedMarch 30,2024April 1,2023March 30,2024April 1,2023iPhone$45,963$51,334$115,665$117,109 Mac 7,451 7,168 15,231 14,903 iPad 5,559 6,670 12,582 16,066 Wearables,Home and Accessories 7,913 8,757 19,866 22,239 Services 23,867 20,907 46,984 41,673 Total net sales$90,753$94,836$210,328$211,990 Total net sales include$3.3 billion of revenue recognized in the three months ended March30,2024 that was included in deferred revenue as of December30,2023,$3.5 billion of revenue recognized in the three months ended April1,2023 that was included in deferred revenue as of December31,2022,$5.1 billion of revenue recognized in the six months ended March30,2024 that was included in deferred revenue as of September30,2023,and$5.5 billion of revenue recognized in the six months ended April1,2023 that was included in deferred revenue as of September24,2022.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 March 30,2024 and April1,2023,except in Greater China,where iPhone revenue represented a moderately higher proportion of net sales.As of March30,2024 and September30,2023,the Company had total deferred revenue of$12.6 billion and$12.1billion,respectively.As of March30,2024,the Company expects 64%of total deferred revenue to be realized in less than a year,26%within one-to-two years,9%within two-to-three years and 1%in greater than three years.Apple Inc.|Q2 2024 Form 10-Q|6Note 3 Earnings Per ShareThe following table shows the computation of basic and diluted earnings per share for the three-and six-month periods ended March 30,2024 and April 1,2023(net income in millions and shares in thousands):Three Months EndedSix Months EndedMarch 30,2024April 1,2023March 30,2024April 1,2023Numerator:Net income$23,636$24,160$57,552$54,158 Denominator:Weighted-average basic shares outstanding 15,405,856 15,787,154 15,457,810 15,839,939 Effect of dilutive share-based awards 58,853 59,896 62,865 61,445 Weighted-average diluted shares 15,464,709 15,847,050 15,520,675 15,901,384 Basic earnings per share$1.53$1.53$3.72$3.42 Diluted earnings per share$1.53$1.52$3.71$3.41 Approximately 48million restricted stock units(“RSUs”)were excluded from the computation of diluted earnings per share for the six months ended April1,2023 because their effect would have been antidilutive.Note 4 Financial InstrumentsCash,Cash Equivalents and Marketable SecuritiesThe following tables show the Companys cash,cash equivalents and marketable securities by significant investment category as of March30,2024 and September30,2023(in millions):March 30,2024AdjustedCostUnrealizedGainsUnrealizedLossesFairValueCash andCashEquivalentsCurrentMarketableSecuritiesNon-CurrentMarketableSecuritiesCash$28,227$28,227$28,227$Level 1:Money market funds 1,353 1,353 1,353 Mutual funds 464 66 (7)523 523 Subtotal 1,817 66 (7)1,876 1,353 523 Level 2(1):U.S.Treasury securities 18,150 1 (933)17,218 1,895 4,133 11,190 U.S.agency securities 5,775 (446)5,329 233 581 4,515 Non-U.S.government securities 17,319 37 (666)16,690 11,289 5,401 Certificates of deposit and time deposits 976 976 656 320 Commercial paper 1,482 1,482 274 1,208 Corporate debt securities 71,612 90 (3,694)68,008 57 15,096 52,855 Municipal securities 511 (15)496 188 308 Mortgage-and asset-backed securities 24,044 37 (2,046)22,035 1,117 20,918 Subtotal 139,869 165 (7,800)132,234 3,115 33,932 95,187 Total(2)$169,913$231$(7,807)$162,337$32,695$34,455$95,187 Apple Inc.|Q2 2024 Form 10-Q|7September 30,2023AdjustedCostUnrealizedGainsUnrealizedLossesFairValueCash andCashEquivalentsCurrentMarketableSecuritiesNon-CurrentMarketableSecuritiesCash$28,359$28,359$28,359$Level 1:Money market funds 481 481 481 Mutual funds and equity securities 442 12 (26)428 428 Subtotal 923 12 (26)909 481 428 Level 2(1):U.S.Treasury securities 19,406 (1,292)18,114 35 5,468 12,611 U.S.agency securities 5,736 (600)5,136 36 271 4,829 Non-U.S.government securities 17,533 6 (1,048)16,491 11,332 5,159 Certificates of deposit and time deposits 1,354 1,354 1,034 320 Commercial paper 608 608 608 Corporate debt securities 76,840 6 (5,956)70,890 20 12,627 58,243 Municipal securities 628 (26)602 192 410 Mortgage-and asset-backed securities 22,365 6 (2,735)19,636 344 19,292 Subtotal 144,470 18 (11,657)132,831 1,125 31,162 100,544 Total(2)$173,752$30$(11,683)$162,099$29,965$31,590$100,544(1)The valuation techniques used to measure the fair values of the Companys Level 2 financial instruments,which generally have counterparties with high credit ratings,are based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data.(2)As of March 30,2024 and September 30,2023,total marketable securities included$14.0 billion and$13.8 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.The following table shows the fair value of the Companys non-current marketable debt securities,by contractual maturity,as of March30,2024(in millions):Due after 1 year through 5 years$67,987 Due after 5 years through 10 years 9,108 Due after 10 years 18,092 Total fair value$95,187 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 Rate RiskTo protect gross margins from fluctuations in foreign exchange rates,the Company may use forwards,options 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 exchange rates,the Company may use forwards,cross-currency swaps or other instruments.The Company designates these instruments as either cash flow or fair value hedges.As of March30,2024,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 18 years.The Company may also use derivative instruments that are not designated as accounting hedges to protect gross margins from certain fluctuations in foreign exchange rates,as well as to offset a portion of the foreign currency gains and losses generated by the remeasurement of certain assets and liabilities denominated in non-functional currencies.Apple Inc.|Q2 2024 Form 10-Q|8Interest Rate RiskTo protect the Companys term debt or marketable securities from fluctuations in interest rates,the Company may use 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 March30,2024 and September30,2023 were as follows(in millions):March 30,2024September 30,2023Derivative instruments designated as accounting hedges:Foreign exchange contracts$60,265$74,730 Interest rate contracts$17,625$19,375 Derivative instruments not designated as accounting hedges:Foreign exchange contracts$75,552$104,777 The carrying amounts of the Companys hedged items in fair value hedges as of March30,2024 and September30,2023 were as follows(in millions):March 30,2024September 30,2023Hedged assets/(liabilities):Current and non-current marketable securities$15,045$14,433 Current and non-current term debt$(16,817)$(18,247)Accounts ReceivableTrade ReceivablesThe Companys third-party cellular network carriers accounted for 34%and 41%of total trade receivables as of March30,2024 and September30,2023,respectively.The Company requires third-party credit support or collateral from certain customers to limit credit risk.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.The Company does not reflect the sale of these components in products net sales.Rather,the Company recognizes any gain on these sales as a reduction of products cost of sales when the related final products are sold by the Company.As of March30,2024,the Company had two vendors that individually represented 10%or more of total vendor non-trade receivables,which accounted for 47%and 19%.As of September30,2023,the Company had two vendors that individually represented 10%or more of total vendor non-trade receivables,which accounted for 48%and 23%.Note 5 Condensed Consolidated Financial Statement DetailsThe following table shows the Companys condensed consolidated financial statement details as of March 30,2024 and September30,2023(in millions):Property,Plant and Equipment,NetMarch 30,2024September 30,2023Gross property,plant and equipment$115,243$114,599 Accumulated depreciation(71,697)(70,884)Total property,plant and equipment,net$43,546$43,715 Apple Inc.|Q2 2024 Form 10-Q|9Note 6 DebtCommercial PaperThe Company issues unsecured short-term promissory notes 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 March30,2024 and September30,2023,the Company had$2.0 billion and$6.0 billion of commercial paper outstanding,respectively.The following table provides a summary of cash flows associated with the issuance and maturities of commercial paper for the six months ended March30,2024 and April1,2023(in millions):Six Months EndedMarch 30,2024April 1,2023Maturities 90 days or less:Repayments of commercial paper,net$(3,982)$(5,315)Maturities greater than 90 days:Repayments of commercial paper (2,645)Total repayments of commercial paper,net$(3,982)$(7,960)Term DebtAs of March30,2024 and September30,2023,the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of$102.6 billion and$105.1 billion,respectively(collectively the“Notes”).As of March30,2024 and September30,2023,the fair value of the Companys Notes,based on Level 2 inputs,was$91.6 billion and$90.8 billion,respectively.Note 7 Shareholders EquityShare Repurchase ProgramDuring the six months ended March30,2024,the Company repurchased 248 million shares of its common stock for$44.0 billion.The Companys share repurchase 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(the“Exchange Act”).Note 8 Share-Based CompensationRestricted Stock UnitsA summary of the Companys RSU activity and related information for the six months ended March30,2024 is as follows:Number ofRSUs(in thousands)Weighted-AverageGrant Date FairValue Per RSUAggregateFair Value(in millions)Balance as of September 30,2023 180,247$135.91 RSUs granted 75,826$171.78 RSUs vested(47,027)$113.44 RSUs canceled(5,195)$126.83 Balance as of March 30,2024 203,851$154.66$34,956 The fair value as of the respective vesting dates of RSUs was$821 million and$8.6 billion for the three-and six-month periods ended March 30,2024,respectively,and was$1.1 billion and$8.0 billion for the three-and six-month periods ended April 1,2023,respectively.Apple Inc.|Q2 2024 Form 10-Q|10Share-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 March 30,2024 and April 1,2023(in millions):Three Months EndedSix Months EndedMarch 30,2024April 1,2023March 30,2024April 1,2023Share-based compensation expense$2,964$2,686$5,961$5,591 Income tax benefit related to share-based compensation expense$(663)$(620)$(1,898)$(1,798)As of March30,2024,the total unrecognized compensation cost related to outstanding RSUs was$24.7 billion,which the Company expects to recognize over a weighted-average period of 2.7 years.Note 9 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 10 Segment Information and Geographic DataThe following table shows information by reportable segment for the three-and six-month periods ended March 30,2024 and April 1,2023(in millions):Three Months EndedSix Months EndedMarch 30,2024April 1,2023March 30,2024April 1,2023Americas:Net sales$37,273$37,784$87,703$87,062 Operating income$15,074$13,927$35,431$31,791 Europe:Net sales$24,123$23,945$54,520$51,626 Operating income$9,991$9,368$22,702$19,385 Greater China:Net sales$16,372$17,812$37,191$41,717 Operating income$6,700$7,531$15,322$17,968 Japan:Net sales$6,262$7,176$14,029$13,931 Operating income$3,135$3,394$6,954$6,630 Rest of Asia Pacific:Net sales$6,723$8,119$16,885$17,654 Operating income$2,806$3,268$7,385$7,119 Apple Inc.|Q2 2024 Form 10-Q|11A reconciliation of the Companys segment operating income to the Condensed Consolidated Statements of Operations for the three-and six-month periods ended March 30,2024 and April 1,2023 is as follows(in millions):Three Months EndedSix Months EndedMarch 30,2024April 1,2023March 30,2024April 1,2023Segment operating income$37,706$37,488$87,794$82,893 Research and development expense(7,903)(7,457)(15,599)(15,166)Other corporate expenses,net(1,903)(1,713)(3,922)(3,393)Total operating income$27,900$28,318$68,273$64,334 Apple Inc.|Q2 2024 Form 10-Q|12Item 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsThis Item and other sections 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 2023 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.The following discussion should be read in conjunction with the 2023 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.During the second quarter of 2024,the Company announced an updated MacBook Air 13-in.and MacBook Air 15-in.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 2024 and 2023 span 52 and 53 weeks,respectively.Macroeconomic ConditionsMacroeconomic conditions,including inflation,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.Apple Inc.|Q2 2024 Form 10-Q|13Segment Operating PerformanceThe following table shows net sales by reportable segment for the three-and six-month periods ended March 30,2024 and April1,2023(dollars in millions):Three Months EndedSix Months EndedMarch 30,2024April 1,2023ChangeMarch 30,2024April 1,2023ChangeNet sales by reportable segment:Americas$37,273$37,784 (1)%$87,703$87,062 1%Europe 24,123 23,945 1T,520 51,626 6%Greater China 16,372 17,812 (8)7,191 41,717 (11)%Japan 6,262 7,176 (13),029 13,931 1%Rest of Asia Pacific 6,723 8,119 (17),885 17,654 (4)%Total net sales$90,753$94,836 (4)%$210,328$211,990 (1)%AmericasAmericas net sales were relatively flat during the second quarter of 2024 compared to the second quarter of 2023,with lower net sales of iPhone and iPad offset by higher net sales of Services.Year-over-year Americas net sales were relatively flat during the first six months of 2024,with higher net sales of Services offset by lower net sales of iPhone and iPad.The strength in foreign currencies relative to the U.S.dollar had a net favorable year-over-year impact on Americas net sales during the second quarter and first six months of 2024.EuropeEurope net sales were relatively flat during the second quarter of 2024 compared to the second quarter of 2023,with higher net sales of Services offset by lower net sales of iPhone.The 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 of 2024.Year-over-year Europe net sales increased during the first six months of 2024 due primarily to higher net sales of iPhone and Services,partially offset by lower net sales of iPad.Greater ChinaGreater China net sales decreased during the second quarter and first six months of 2024 compared to the same periods in 2023 due primarily to lower net sales of iPhone and iPad.The 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 2024.JapanJapan net sales decreased during the second quarter of 2024 compared to the second quarter of 2023 due primarily to lower net sales of iPhone.Year-over-year Japan net sales during the first six months of 2024 were relatively flat.The 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 2024.Rest of Asia PacificRest of Asia Pacific net sales decreased during the second quarter of 2024 compared to the second quarter of 2023 due primarily to lower net sales of iPhone.Year-over-year Rest of Asia Pacific net sales decreased during the first six months of 2024 due primarily to lower net sales of Wearables,Home and Accessories and iPad.Apple Inc.|Q2 2024 Form 10-Q|14Products and Services PerformanceThe following table shows net sales by category for the three-and six-month periods ended March 30,2024 and April1,2023(dollars in millions):Three Months EndedSix Months EndedMarch 30,2024April 1,2023ChangeMarch 30,2024April 1,2023ChangeNet sales by category:iPhone$45,963$51,334 (10)%$115,665$117,109 (1)%Mac 7,451 7,168 4,231 14,903 2%iPad 5,559 6,670 (17),582 16,066 (22)%Wearables,Home and Accessories 7,913 8,757 (10),866 22,239 (11)%Services 23,867 20,907 14F,984 41,673 13%Total net sales$90,753$94,836 (4)%$210,328$211,990 (1)%iPhoneiPhone net sales decreased during the second quarter of 2024 compared to the second quarter of 2023 due to lower net sales of Pro models.Year-over-year iPhone net sales were relatively flat during the first six months of 2024.MacMac net sales increased during the second quarter and first six months of 2024 compared to the same periods in 2023 due to higher net sales of laptops.iPadiPad net sales decreased during the second quarter and first six months of 2024 compared to the same periods in 2023 due primarily to lower net sales of iPad Pro and iPad 9th generation.Wearables,Home and AccessoriesWearables,Home and Accessories net sales decreased during the second quarter and first six months of 2024 compared to the same periods in 2023 due primarily to lower net sales of Wearables and Accessories.ServicesServices net sales increased during the second quarter and first six months of 2024 compared to the same periods in 2023 due primarily to higher net sales from advertising,the App Store and cloud services.Apple Inc.|Q2 2024 Form 10-Q|15Gross MarginProducts and Services gross margin and gross margin percentage for the three-and six-month periods ended March 30,2024 and April1,2023 were as follows(dollars in millions):Three Months EndedSix Months EndedMarch 30,2024April 1,2023March 30,2024April 1,2023Gross margin:Products$24,462$27,134$62,480$62,757 Services 17,809 14,842 34,646 29,551 Total gross margin$42,271$41,976$97,126$92,308 Gross margin percentage:Products 36.66.78.36.8%Services 74.6q.0s.7p.9%Total gross margin percentage 46.6D.3F.2C.5%Products Gross MarginProducts gross margin decreased during the second quarter of 2024 compared to the second quarter of 2023 due primarily to lower Products volume and the weakness in foreign currencies relative to the U.S.dollar.Year-over-year Products gross margin was relatively flat during the first six months of 2024.Products gross margin percentage was relatively flat during the second quarter of 2024 compared to the second quarter of 2023.Year-over-year Products gross margin percentage increased during the first six months of 2024 due primarily to cost savings,partially offset by the weakness in foreign currencies relative to the U.S.dollar.Services Gross MarginServices gross margin and Services gross margin percentage increased during the second quarter and first six months of 2024 compared to the same periods in 2023 due primarily to a different Services mix.The Companys future gross margins can be impacted by a variety of factors,as discussed in Part I,Item 1A of the 2023 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.Operating ExpensesOperating expenses for the three-and six-month periods ended March 30,2024 and April1,2023 were as follows(dollars in millions):Three Months EndedSix Months EndedMarch 30,2024April 1,2023March 30,2024April 1,2023Research and development$7,903$7,457$15,599$15,166 Percentage of total net sales 9%8%7%7%Selling,general and administrative$6,468$6,201$13,254$12,808 Percentage of total net sales 7%7%6%6%Total operating expenses$14,371$13,658$28,853$27,974 Percentage of total net sales 16%Research and DevelopmentThe growth in research and development(“R&D”)expense during the second quarter and first six months of 2024 compared to the same periods in 2023 was driven primarily by increases in headcount-related expenses.Apple Inc.|Q2 2024 Form 10-Q|16Selling,General and AdministrativeThe growth in selling,general and administrative expense during the second quarter and first six months of 2024 compared to the same periods in 2023 was driven in part by higher infrastructure-related costs.Provision for Income TaxesProvision for income taxes,effective tax rate and statutory federal income tax rate for the three-and six-month periods ended March 30,2024 and April1,2023 were as follows(dollars in millions):Three Months EndedSix Months EndedMarch 30,2024April 1,2023March 30,2024April 1,2023Provision for income taxes$4,422$4,222$10,829$9,847 Effective tax rate 15.8.9.8.4%Statutory federal income tax rate 21!%The Companys effective tax rate for the second quarter and first six months of 2024 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings,the impact of 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 and first six months of 2024 was higher compared to the same periods in 2023 due primarily to a higher effective tax rate on foreign earnings and a lower tax benefit from the U.S.federal R&D credit.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 2023 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.As of March30,2024,the Company had manufacturing purchase obligations of$34.2 billion,with$34.1 billion payable within 12 months.Capital Return ProgramIn addition to its contractual cash requirements,the Company has an authorized share repurchase program,under which the remaining availability was$30.1 billion as of March30,2024.On May2,2024,the Company announced the Board of Directors had authorized an additional program to repurchase up to$110 billion of the Companys common stock.The programs do not obligate the Company to acquire a minimum amount of shares.On May2,2024,the Company also announced the Board of Directors raised the Companys quarterly cash dividend from$0.24 to$0.25 per share,beginning with the dividend to be paid during the third quarter of 2024.The Company intends to increase its dividend on an annual basis,subject to declaration by the Board of Directors.During the second quarter of 2024,the Company repurchased$23.5 billion of its common stock and paid dividends and dividend equivalents of$3.7 billion.Apple Inc.|Q2 2024 Form 10-Q|17Recent Accounting PronouncementsIncome TaxesIn December 2023,the Financial Accounting Standards Board(the“FASB”)issued Accounting Standards Update(“ASU”)No.2023-09,Income Taxes(Topic 740):Improvements to Income Tax Disclosures(“ASU 2023-09”),which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal,state and foreign taxes,with further disaggregation required for significant individual jurisdictions.The Company will adopt ASU 2023-09 in its fourth quarter of 2026.ASU 2023-09 allows for adoption using either a prospective or retrospective transition method.Segment ReportingIn November 2023,the FASB issued ASU No.2023-07,Segment Reporting(Topic 280):Improvements to Reportable Segment Disclosures(“ASU 2023-07”),which will require the Company to disclose segment expenses that are significant and regularly provided to the Companys chief operating decision maker(“CODM”).In addition,ASU 2023-07 will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources.The Company will adopt ASU 2023-07 in its fourth quarter of 2025 using a retrospective transition method.Critical Accounting EstimatesThe preparation of financial statements and related disclosures in conformity with GAAP 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 2023 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 2023 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 2024.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 2023 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 Exchange Act were effective as of March30,2024 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 2024,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 2024 Form 10-Q|18PART II OTHER INFORMATIONItem 1.Legal ProceedingsDigital Markets Act InvestigationsOn March 25,2024,the European Commission(the“Commission”)announced that it had opened two formal noncompliance investigations against the Company under the European Union(“EU”)Digital Markets Act(the“DMA”).The Commissions investigations concern(1)Article 5(4)of the DMA,which relates to how developers may communicate and promote offers to end users for apps distributed through the App Store as well as how developers may conclude contracts with those end users;and(2)Article 6(3)of the DMA,which relates to default settings,uninstallation of apps,and a web browser choice screen on iOS.If the Commission concludes that there has been a violation,it can issue a cease and desist order and may impose fines up to 10%of the Companys annual worldwide net sales.Although any decision by the Commission can be appealed to the General Court of the EU,the effectiveness of the Commissions order would apply immediately while the appeal is pending,unless a stay of the order is granted.The Company believes that it complies with the DMA and will continue to engage with the Commission as it conducts its investigations.Department of Justice LawsuitOn March 21,2024,the U.S.Department of Justice(the“DOJ”)and 16 state and district attorneys general filed a civil antitrust lawsuit in the U.S.District Court for the District of New Jersey against the Company alleging monopolization or attempted monopolization in the markets for“performance smartphones”and“smartphones”in violation of U.S.antitrust laws.The DOJ is seeking equitable relief to redress the alleged anticompetitive behavior.In addition,various civil litigation matters have been filed in state and federal courts in the U.S.alleging similar violations of U.S.antitrust laws and seeking monetary damages and other nonmonetary relief.The Company believes it has substantial defenses and intends to vigorously defend itself.Epic GamesEpic Games,Inc.(“Epic”)filed a lawsuit in the U.S.District Court for the Northern District of California(the“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 California 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 January 16,2024,the Company implemented a plan to comply with the injunction and filed a statement of compliance with the California District Court.On March 13,2024,Epic filed a motion with the California District Court disputing the Companys compliance plan and seeking to enforce the injunction.The Company has filed an opposition to Epics motion.The Company believes it has substantial defenses and intends to vigorously defend itself.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 2024 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 2023 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.Except as set forth below,there have been no material changes to the Companys risk factors since the 2023 Form 10-K.The technology industry,including,in some instances,the Company,is subject to intense media,political and regulatory scrutiny,which exposes the Company to increasing regulation,government investigations,legal actions and penalties.From time to time,the Company has made changes to its App Store,including actions taken in response to litigation,competition,market conditions and legal and regulatory requirements.The Company expects to make further business changes in the future.For example,in the U.S.the Company has implemented changes to how developers communicate with consumers within apps on the U.S.storefront of the iOS and iPadOS App Store regarding alternative purchasing mechanisms.Apple Inc.|Q2 2024 Form 10-Q|19In January 2024,the Company announced changes to iOS,the App Store and Safari in the EU to comply with the DMA,including new business terms and alternative fee structures for iOS apps,alternative methods of distribution for iOS apps,alternative payment processing for apps across the Companys operating systems,and additional tools and application programming interfaces(“APIs”)for developers.Although the Companys compliance plan is intended to address the DMAs obligations,it has been challenged by the Commission and may be challenged further by private litigants.In addition,other jurisdictions may seek to require the Company to make changes to its business.While the changes introduced by the Company in the EU are intended to reduce new privacy and security risks the DMA poses to EU users,many risks will remain.The Company is also currently subject to antitrust investigations and litigation in various jurisdictions around the world,which can result in legal proceedings and claims against the Company that could,individually or in the aggregate,have a materially adverse impact on the Companys business,results of operations and financial condition.For example,the Company is subject to civil antitrust lawsuits in the U.S.alleging monopolization or attempted monopolization in the markets for“performance smartphones”and“smartphones”generally in violation of U.S.antitrust laws.In addition,the Company is the subject of investigations in Europe and other jurisdictions relating to App Store terms and conditions.If such investigations or litigation are resolved against the Company,the Company can be exposed to significant fines and may be required to make further changes to its business practices,all of which could materially adversely affect the Companys business,reputation,results of operations and financial condition.Further,the Company has commercial relationships with other companies in the technology industry that are or may become subject to investigations and litigation that,if resolved against those other companies,could materially adversely affect the Companys commercial relationships with those business partners and materially adversely affect the Companys business,results of operations and financial condition.For example,the Company earns revenue from licensing arrangements with other companies to offer their search services on the Companys platforms and applications,and certain of these arrangements are currently subject to government investigations and legal proceedings.There can be no assurance the Companys business will not be materially adversely affected,individually or in the aggregate,by the outcomes of such investigations,litigation or changes to laws and regulations in the future.Changes to the Companys business practices to comply with new laws and regulations or in connection with other legal proceedings can negatively impact the reputation of the Companys products for privacy and security and otherwise adversely affect the experience for users of the Companys products and services,and result in harm to the Companys reputation,loss of competitive advantage,poor market acceptance,reduced demand for products and services,and lost sales.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 March30,2024 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)December 31,2023 to February 3,2024:Open market and privately negotiated purchases 40,119$186.95 40,119 February 4,2024 to March 2,2024:Open market and privately negotiated purchases 40,120$183.88 40,120 March 3,2024 to March 30,2024:Open market and privately negotiated purchases 50,053$172.27 50,053 Total 130,292$30,069(1)As of March30,2024,the Company was authorized by the Board of Directors to purchase up to$90 billion of the Companys common stock under a share repurchase program announced on May 4,2023,of which$59.9 billion had been utilized.On May2,2024,the Company announced the Board of Directors had authorized an additional program to repurchase up to$110 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 2024 Form 10-Q|20Item 3.Defaults Upon Senior SecuritiesNone.Item 4.Mine Safety DisclosuresNot applicable.Item 5.Other InformationInsider Trading ArrangementsNone.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 2024 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:May2,2024Apple Inc.By:/s/Luca MaestriLuca MaestriSenior Vice President,Chief Financial OfficerApple Inc.|Q2 2024 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:May2,2024By:/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:May2,2024By:/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 March30,2024 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:May2,2024By:/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 March30,2024 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:May2,2024By:/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.
2024-05-06
28页
5星级
INTERNAL&PARTNERS5acXjzUkQ1 2024SALESAPRIL 18,2024INTERNAL&PARTNERS5acXjzUk01Q1 2024 REVIEW02DISPOSA.
2024-05-03
31页
5星级
Q1 2024 Update1Highlights 03Financial Summary 04Operational Summary 06Vehicle Capacity 07Core Technology 08Other Highlights 09Outlook 10Photos&Charts 11Key Metrics 22Financial Statements 24Additional Information 30S U M M A R YH I G H L I G H T S(1)Excludes SBC(stock-based compensation),net of tax;(2)Free cash flow=operating cash flow less capex;(3)Includes cash,cash equivalents and investments;(4)Calculated by dividing Cost of Automotive Sales Revenue by respective quarters new deliveries(ex-operating leases);(5)Active driver supervision required;does not make the vehicle autonomous.ProfitabilityProfitability$1.2B GAAP operating income in Q1$1.1B GAAP net income in Q1$1.5B non-GAAP net income1 in Q1We experienced numerous challenges in Q1,from the Red Sea conflict and the arson attack at Gigafactory Berlin,to the gradual ramp of the updated Model 3 in Fremont.Excluding Cybertruck and unscheduled downtime,our COGS4 per unit declined sequentially,driven primarily by lower raw material costs.Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs.While positive for our regulatory credits business,we prefer the industry to continue pushing EV adoption,which is in-line with our mission.To support our growth,we have been increasing awareness and expanding vehicle financing programs,including attractive leasing terms for our customers.While many are pulling back on their investments,we are investing in future growth including our AI infrastructure,production capacity,our Supercharger and service networks and new products infrastructure with$2.8B of capital expenditures in Q1.We recently undertook a cost-cutting exercise to increase operational efficiency.We also remain committed to company-wide cost reduction,including reducing COGS per vehicle.Ultimately,we are focused on profitable growth,including by leveraging existing factories and production lines to introduce new and more affordable products.The future is not only electric,but also autonomous.We believe scaled autonomy is only possible with data from millions of vehicles and an immense AI training cluster.We have,and continue to expand,both.To make FSD(Supervised)5 more accessible,we reduced the price of subscription to$99/month and the purchase price to$8,000 in the US.CashCashOperating cash flow of$0.2B in Q1Free cash flow2 of negative$2.5B in Q1(AI infrastructure capex was$1.0B in Q1)$2.2B decrease in our cash and investments3 in Q1 to$26.9BOperationsOperationsIncreased AI training compute by more than 130%in Q1Record energy storage deployment of 4.1 GWh in Q1Produced over 1,000 Cybertrucks in a single week in AprilF I N A N C I A L S U M M A R Y(Unaudited)($in millions,except percentages and per share data)Q1-2023Q2-2023Q3-2023Q4-2023Q1-2024YoYTotal automotive revenues19,96321,26819,62521,56317,378-13%Energy generation and storage revenue1,5291,5091,5591,4381,6357%Services and other revenue1,8372,1502,1662,1662,28825%Total revenues23,32924,92723,35025,16721,301-9%Total gross profit4,5114,5334,1784,4383,696-18%Total GAAP gross margin19.3.2.9.6.4%-199 bpOperating expenses1,8472,134 2,4142,374 2,52537%Income from operations2,6642,399 1,7642,064 1,171-56%Operating margin11.4%9.6%7.6%8.2%5.5%-592 bpAdjusted EBITDA4,267 4,653 3,7583,953 3,384-21justed EBITDA margin18.3.7.1.7.9%-240 bpNet income attributable to common stockholders(GAAP)2,513 2,703 1,8537,928 1,129-55%Net income attributable to common stockholders(non-GAAP)2,931 3,148 2,3182,485 1,536-48%EPS attributable to common stockholders,diluted(GAAP)0.73 0.78 0.532.27 0.34-53%EPS attributable to common stockholders,diluted(non-GAAP)0.85 0.91 0.660.71 0.45-47%Net cash provided by operating activities2,513 3,065 3,3084,370 242-90pital expenditures(2,072)(2,060)(2,460)(2,306)(2,773)34%Free cash flow441 1,005 8482,064(2,531)-674sh,cash equivalents and investments22,402 23,075 26,07729,094 26,86320O I N A N C I A LS U M M A R Y5RevenueRevenueTotal revenue declined 9%YoY in Q1 to$21.3B.YoY,revenue was impacted by the following items:-reduced vehicle average selling price(ASP)YoY(excl.FX impact),including unfavorable impact of mix-decline in vehicle deliveries,partially due to the Model 3 update in the Fremont factory and Giga Berlin production disruptions-negative FX impact of$0.2B1 growth in other parts of the business higher FSD revenue recognition YoY due to release of Autopark feature in North America ProfitabilityProfitabilityOur operating income decreased YoY to$1.2B in Q1,resulting in a 5.5%operating margin.YoY,operating income was primarily impacted by the following items:-reduced vehicle ASP due to pricing and mix-increase in operating expenses partly driven by AI,cell advancements and other R&D projects-cost of Cybertruck production ramp-decline in vehicle deliveries,partially due to the Model 3 update in the Fremont factory and Giga Berlin production disruptions lower cost per vehicle,including lower raw material costs,freight and duties gross profit growth in Energy Generation and Storage including IRA credit benefit higher FSD revenue recognition YoY due to release of Autopark feature in North America CashCashQuarter-end cash,cash equivalents and investments in Q1 was$26.9B.The sequential decrease of$2.2B was a result of negative free cash flow of$2.5B,driven by an inventory increase of$2.7B and AI infrastructure capex of$1.0B in Q1.(1)Impact is calculated on a constant currency basis.Actuals are compared against current results converted into USD using average exchange rates from Q123.Q1-2023Q2-2023Q3-2023Q4-2023Q1-2024YoYModel 3/Y production421,371460,211416,800476,777412,376-2%Other models production19,43719,48913,68818,21220,9958%Total production440,808479,700430,488494,989433,371-2%Model 3/Y deliveries412,180446,915419,074461,538369,783-10%Other models deliveries10,69519,22515,98522,96917,02759%Total deliveries422,875466,140435,059484,507386,810-9%of which subject to operating lease accounting22,35721,88317,42310,5638,365-63%Total end of quarter operating lease vehicle count153,988168,058176,231176,564173,13112%Global vehicle inventory(days of supply)(1)151616152887%Storage deployed(MWh)3,8893,6533,9803,2024,0534%Tesla locations1,0001,0681,1291,2081,25826%Mobile service fleet1,6921,7691,8461,9091,89712%Supercharger stations4,9475,2655,5955,9526,24926%Supercharger connectors45,16948,08251,10554,89257,57927%(1)Days of supply is calculated by dividing new vehicle ending inventory by the relevant quarters deliveries and using 75 trading days(aligned with Automotive News definition).O P E R A T I O N A L S U M M A R Y(Unaudited)6V E H I C L EC A P A C I T YCurrent Installed Annual Vehicle CapacityCurrent Installed Annual Vehicle CapacityRegionRegionModelModelCapacityCapacityStatusStatusCaliforniaModel S/Model XModel S/Model X100,000ProductionModel 3/ModelModel 3/Model Y Y550,000ProductionShanghaiModel 3/ModelModel 3/Model Y Y950,000ProductionBerlinModel YModel Y375,000ProductionTexasModel YModel Y250,000ProductionCybertruckCybertruck125,000ProductionNevadaTesla SemiTesla Semi-Pilot productionVariousNext Gen PlatformNext Gen Platform-In developmentTBDRoadsterRoadster-In developmentInstalled capacity current production rate and there may be limitations discovered as production rates approach capacity.Production rates depend on a variety of factors,including equipment uptime,component supply,downtime related to factory upgrades,regulatory considerations and other factors.Market share of Tesla vehicles by region(TTM)Source:Tesla estimates based on latest available data from ACEA;A;CAAM light-duty vehicles only;TTM=Trailing twelve months7A sequential decline in volumes was partially caused by the early phase of the production ramp of the updated Model 3 at our Fremont factory and factory shutdowns at Gigafactory Berlin resulting from shipping diversions caused by the Red Sea conflict and from an arson attack.US:California,Nevada and TexasUS:California,Nevada and TexasModel 3 production in Fremont was down sequentially as we changed the production line to the updated model.Sequentially,Model Y production at Gigafactory Texas increased to an all-time high,while COGS per unit improved to an all-time low.The Cybertruck ramp continued successfully at Gigafactory Texas,with a sequential cost improvement in Q1.We produced over 1,000 Cybertrucks in a single week in April.China:ShanghaiChina:ShanghaiProduction at Gigafactory Shanghai was down sequentially due to seasonality and planned shutdowns around Chinese New Year in Q1.Demand typically improves throughout the year.As we enter new markets,such as Chile,many of them will be supplied from Gigafactory Shanghai.Europe:BerlinEurope:Berlin-BrandenburgBrandenburgModel Y production in Berlin was down sequentially due to impacts from the Red Sea conflict and the arson attack that impacted the factory.Despite idle capacity charges and other costs from production disruptions,COGS per unit continued to decline sequentially.0%1%2%3%4%US/CanadaEuropeChina0.00.20.40.60.81.01.21.4FSD V12 MilesFSD MilesTesla AI Training Capacity(H100 Equivalent GPUs)C O R E T E C H N O L O G YCumulative miles driven with FSD Beta(billions;as of Apr-21-24)8Artificial Intelligence Software and HardwareArtificial Intelligence Software and HardwareWe have been investing in the hardware and software ecosystems necessary to achieve vehicle autonomy and a ride-hailing service.We believe a scalable and profitable autonomy business can be realized through a vision-only architecture with end-to-end neural networks,trained on billions of miles of real-world data.Since the launch of FSD(Supervised)V12 earlier this year,it has become clear that this architecture long pursued by Tesla is the right solution for scalable autonomy.To further improve our end-to-end training capability,we will continue to increase our core AI infrastructure capacity in the coming months.In Q1,we completed the transition to Hardware 4.0,our latest in-vehicle computer with increased inference processing power and improved cameras.Vehicle and Other SoftwareVehicle and Other SoftwareWe rolled out FSD(Supervised)with a 30-day free trial to eligible cars in U.S.and Canada.FSD(Supervised)can change lanes,select forks to follow routes,navigate around vehicles and objects and make turns.We released Autopark to existing eligible FSD(Supervised)and Enhanced Autopilot customers.We are currently working on ride-hailing functionality that will be available in the future.We believe the Tesla software experience is best-in-class across all our products,and plan to seamlessly layer ride-hailing into the Tesla App.Battery,Powertrain&ManufacturingBattery,Powertrain&Manufacturing4680 ramp continued successfully in Q1 and continues to stay ahead of the Cybertruck ramp.Costs continued to come down sequentially as scrap,yield and production rate improved.05,00010,00015,00020,00025,00030,00035,00040,000-200-1000100200300400500600O T H E R H I G H L I G H T S9Energy Storage deployments(GWh)Non-Automotive gross profit($M)01234Our non-automotive business is becoming an increasingly profitable part of Tesla.As Megapack continues to ramp and as our fleet continues to grow,we are expecting consistent profit growth of our non-automotive business.Energy Generation and StorageEnergy Generation and StorageEnergy storage deployments increased sequentially in Q1 to a record 4.1 GWh.Energy Generation and Storage revenue and gross profit also achieved an all-time high in Q1.Revenues were up 7%YoY and gross profit was up 140%YoY,driven by increased Megapack deployments,partially offset by a decrease in solar deployments.Energy Generation and Storage remains our highest margin business.Our second general assembly line is now commissioned,and we continue to ramp our 40 GWh Megafactory in Lathrop,CA toward full capacity.Services and OtherServices and OtherServices and Other revenue grew 25%YoY in Q1,while gross profit was down 40%YoY.The biggest driver of gross profit reduction YoY was lower used vehicle profit,partially offset by growth in gross profit from part sales.Starting at the end of February,we began opening our North American Supercharger Network to more non-Tesla EV owners.We will continue to onboard OEMs who have committed to NACS over the coming quarters,while also opening more sites to other EVs in regions outside North America,both of which should drive incremental revenue and profit generation.O U T L O O K10VolumeVolumeOur company is currently between two major growth waves:the first one began with the global expansion of the Model 3/Y platform and we believe the next one will be initiated by advances in autonomy and introduction of new products,including those built on our next generation vehicle platform.In 2024,our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023,as our teams work on the launch of the next generation vehicle and other products.In 2024,the growth rates of energy storage deployments and revenue in our Energy Generation and Storage business should outpace the Automotive business.CashCashWe have sufficient liquidity to fund our product roadmap,long-term capacity expansion plans and other expenses.Furthermore,we will manage the business such that we maintain a strong balance sheet during this uncertain period.ProfitProfitWhile we continue to execute on innovations to reduce the cost of manufacturing and operations,over time,we expect our hardware-related profits to be accompanied by an acceleration of AI,software and fleet-based profits.ProductProductWe have updated our future vehicle line-up to accelerate the launch of new models ahead of our previously communicated start of production in the second half of 2025.These new vehicles,including more affordable models,will utilize aspects of the next generation platform as well as aspects of our current platforms,and will be able to be produced on the same manufacturing lines as our current vehicle line-up.This update may result in achieving less cost reduction than previously expected but enables us to prudently grow our vehicle volumes in a more capex efficient manner during uncertain times.This would help us fully utilize our current expected maximum capacity of close to three million vehicles,enabling more than 50%growth over 2023 production before investing in new manufacturing lines.Our purpose-built robotaxi product will continue to pursue a revolutionary“unboxed”manufacturing strategy.P H O T O S&C H A R T SE L E C T R I C V E H I C L E A D O P T I O N R A T E R E M A I N S U N D E R P R E S S U R E,E S P E C I A L L Y O U T S I D E O F C H I N A 120%2%4%6%8%Global BEV market share*(12Global BEV market share*(12-months trailing)months trailing)ChinaWorld ex-China*Source:ev- and https:/ H E T E S L A E C O S Y S T E M -M O R E T H A N J U S T V E H I C L E S13M O D E L 3 -L E A S E S T A R T I N G A T$2 9 9/M O I N T H E U.S.($1 6 0/M O A F T E R P R O B A B L E G A S S A V I N G S)14C Y B E R T R U C K -F I N A L A S S E M B L Y L I N E15S U P E R C H A R G E R N E T W O R K-O P E N I N G U P I N N O R T H A M E R I C A16P R E V I E W O F R I D E H A I L I N G I N T H E T E S L A A P P17Demonstrative only.Actual look and features subject to change.D O J O T R A I N I N G C L U S T E R (N O T A R E N D E R)18M E G A P A C K -P L U S P O W E R S K A P O L E I E N E R G Y S T O R A G E F A C I L I T Y19T E S L A S E M I -S T A R T O F C O N S T R U C T I O N N E A R G I G A F A C T O R Y N E V A D A20C O S T G R I N D -S Q U E E Z I N G E V E R Y P E N N Y O U T O F T H E V E H I C L E C O S T 21Vehicle Deliveries Vehicle Deliveries(millions of units)(millions of units)K E YM E T R I C SQ U A R T E R L Y(Unaudited)Operating Cash Flow($B)Operating Cash Flow($B)Free Cash Flow($B)Free Cash Flow($B)Net Income($B)Net Income($B)Adjusted EBITDA($B)Adjusted EBITDA($B)220.00.10.20.30.40.52Q-20213Q-20214Q-20211Q-20222Q-20223Q-20224Q-20221Q-20232Q-20233Q-20234Q-20231Q-2024-3-2-101234562Q-20213Q-20214Q-20211Q-20222Q-20223Q-20224Q-20221Q-20232Q-20233Q-20234Q-20231Q-20240123456782Q-20213Q-20214Q-20211Q-20222Q-20223Q-20224Q-20221Q-20232Q-20233Q-20234Q-20231Q-2024Operating Cash Flow($B)Operating Cash Flow($B)Free Cash Flow($B)Free Cash Flow($B)K E YM E T R I C ST R A I L I N G1 2M O N T H S(T T M)(Unaudited)Net Income($B)Net Income($B)Adjusted EBITDA($B)Adjusted EBITDA($B)23Vehicle Deliveries Vehicle Deliveries(millions of units)(millions of units)0.00.20.40.60.81.01.21.41.61.82.02Q-20213Q-20214Q-20211Q-20222Q-20223Q-20224Q-20221Q-20232Q-20233Q-20234Q-20231Q-2024024681012141618202Q-20213Q-20214Q-20211Q-20222Q-20223Q-20224Q-20221Q-20232Q-20233Q-20234Q-20231Q-2024024681012141618202Q-20213Q-20214Q-20211Q-20222Q-20223Q-20224Q-20221Q-20232Q-20233Q-20234Q-20231Q-2024F I N A N C I A L S T A T E M E N T SIn millions of USD or shares as applicable,except per share dataQ1-2023Q2-2023Q3-2023Q4-2023Q1-2024REVENUESAutomotive sales18,878 20,419 18,58220,63016,460 Automotive regulatory credits521 282 554433442 Automotive leasing564 567 489500476 Total automotive revenues19,963 21,268 19,62521,56317,378 Energy generation and storage1,529 1,509 1,5591,4381,635 Services and other1,837 2,150 2,1662,1662,288 Total revenues23,329 24,927 23,35025,16721,301 COST OF REVENUESAutomotive sales15,422 16,841 15,65617,20213,897 Automotive leasing333 338 301296269 Total automotive cost of revenues15,755 17,179 15,95717,49814,166 Energy generation and storage1,361 1,231 1,1781,1241,232 Services and other1,702 1,984 2,0372,1072,207 Total cost of revenues18,818 20,394 19,17220,72917,605 Gross profit4,511 4,533 4,1784,4383,696 OPERATING EXPENSESResearch and development771 943 1,1611,0941,151 Selling,general and administrative1,076 1,191 1,2531,2801,374 Total operating expenses1,847 2,134 2,4142,3742,525 INCOME FROM OPERATIONS2,664 2,399 1,7642,0641,171 Interest income213 238 282333350 Interest expense(29)(28)(38)(61)(76)Other(expense)income,net(48)328 37(145)108INCOME BEFORE INCOME TAXES2,800 2,937 2,0452,1911,553 Provision for(benefit from)income taxes261 323 167(5,752)409NET INCOME2,539 2,614 1,8787,9431,144 Net income(loss)attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries26(89)251515 NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS2,513 2,703 1,8537,9281,129 Net income per share of common stock attributable to common stockholdersBasic$0.80$0.85$0.58$2.49$0.37 Diluted$0.73$0.78$0.53$2.27$0.34 Weighted average shares used in computing net income per share of common stockBasic3,1663,1713,1763,1813,186Diluted3,4683,4783,4933,4923,484S T A T E M E N T O F O P E R A T I O N S(Unaudited)25B A L A N C E S H E E T(Unaudited)In millions of USD31-Mar-2330-Jun-2330-Sep-2331-Dec-2331-Mar-24ASSETSCurrent assets Cash,cash equivalents and investments22,402 23,075 26,077 29,094 26,863 Accounts receivable,net2,993 3,447 2,520 3,508 3,887 Inventory14,375 14,356 13,721 13,626 16,033 Prepaid expenses and other current assets3,227 2,997 2,708 3,388 3,752 Total current assets42,997 43,875 45,026 49,616 50,535 Operating lease vehicles,net5,473 5,935 6,119 5,989 5,736 Solar energy systems,net5,427 5,365 5,293 5,229 5,162 Property,plant and equipment,net24,969 26,389 27,744 29,725 31,436 Operating lease right-of-use assets2,800 3,352 3,637 4,180 4,367 Digital assets,net184 184 184 184 184 Goodwill and intangible assets,net399 465 441 431 421 Deferred tax assets399 537 648 6,733 6,769 Other non-current assets4,185 4,489 4,849 4,531 4,616 Total assets86,833 90,591 93,941 106,618 109,226 LIABILITIES AND EQUITYCurrent liabilities Accounts payable15,904 15,273 13,937 14,431 14,725 Accrued liabilities and other8,378 8,684 8,530 9,080 9,243 Deferred revenue1,750 2,176 2,206 2,864 3,024 Current portion of debt and finance leases(1)1,404 1,459 1,967 2,373 2,461 Total current liabilities27,436 27,592 26,640 28,748 29,453 Debt and finance leases,net of current portion(1)1,272 872 2,426 2,857 2,899 Deferred revenue,net of current portion2,911 3,021 3,059 3,251 3,214 Other long-term liabilities5,979 6,924 7,321 8,153 8,480 Total liabilities37,598 38,409 39,446 43,009 44,046 Redeemable noncontrolling interests in subsidiaries407 288 277 242 73 Total stockholders equity48,054 51,130 53,466 62,634 64,378 Noncontrolling interests in subsidiaries774 764 752 733 729 Total liabilities and equity86,833 90,591 93,941 106,618 109,226(1)Breakdown of our debt is as follows:Vehicle and energy product financing(nonVehicle and energy product financing(non-recourse)recourse)1,708 1,708 1,475 1,475 3,660 3,660 4,613 4,613 4,820 4,820 Recourse debt44 44 44 44 54 Total debt excluding vehicle and energy product financing44 44 44 44 54 Days sales outstanding11 12 12 11 16 Days payable outstanding75 70 70 63 75 26In millions of USDQ1-2023Q2-2023Q3-2023Q4-2023Q1-2024CASH FLOWS FROM OPERATING ACTIVITIESNet income2,539 2,614 1,878 7,943 1,144Adjustments to reconcile net income to net cash provided by operating activities:Depreciation,amortization and impairment1,046 1,154 1,235 1,232 1,246Stock-based compensation418 445 465 484 524Deferred income taxes(55)(148)(113)(6,033)(11)Other40(47)145 262 Changes in operating assets and liabilities(1,475)(953)(302)482(2,661)Net cash provided by operating activities2,513 3,065 3,308 4,370 242CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures(2,072)(2,060)(2,460)(2,306)(2,773)Purchases of solar energy systems,net of sales(1)(0)1(1)(4)Purchases of investments(2,015)(5,075)(6,131)(5,891)(6,622)Proceeds from maturities of investments1,604 3,539 3,816 3,394 4,315Proceeds from sales of investments 138 Business combinations,net of cash acquired(76)12 Net cash used in investing activities(2,484)(3,534)(4,762)(4,804)(5,084)CASH FLOWS FROM FINANCING ACTIVITIESNet cash flows from other debt activities(127)(124)(140)(141)(140)Net(repayments)borrowings under vehicle and energy product financing(294)(233)2,194952 216Net cash flows from noncontrolling interests Solar(43)(34)(45)(76)(131)Other231 63 254 152 251Net cash(used in)provided by financing activities(233)(328)2,263887 196Effect of exchange rate changes on cash and cash equivalents and restricted cash50(94)(98)146(79)Net(decrease)increase in cash and cash equivalents and restricted cash(154)(891)711599(4,725)Cash and cash equivalents and restricted cash at beginning of period16,924 16,770 15,879 16,590 17,189Cash and cash equivalents and restricted cash at end of period16,770 15,879 16,590 17,189 12,464S T A T E M E N T O F C A S H F L O W S(Unaudited)27In millions of USD or shares as applicable,except per share dataQ1-2023Q2-2023Q3-2023Q4-2023Q1-2024Net income attributable to common stockholders(GAAP)2,513 2,703 1,853 7,928 1,129Stock-based compensation expense,net of tax418 445 465 484 407Release of valuation allowance on deferred tax assets (5,927)Net income attributable to common stockholders(non-GAAP)2,931 3,148 2,318 2,485 1,536Less:Buy-out of noncontrolling interest(5)2 1(42)Net income used in computing diluted EPS attributable to common stockholders(non-GAAP)2,936 3,148 2,316 2,484 1,578EPS attributable to common stockholders,diluted(GAAP)0.73 0.78 0.53 2.27 0.34Stock-based compensation expense per share,net of tax0.12 0.13 0.13 0.14 0.11Release of valuation allowance on deferred tax assets per share (1.70)EPS attributable to common stockholders,diluted(non-GAAP)0.85 0.91 0.66 0.71 0.45Shares used in EPS calculation,diluted(GAAP and non-GAAP)3,468 3,478 3,493 3,492 3,484Net income attributable to common stockholders(GAAP)2,513 2,703 1,853 7,928 1,129Interest expense29 28 38 61 76Provision for(benefit from)income taxes261 323 167(5,752)409Depreciation,amortization and impairment1,046 1,154 1,235 1,232 1,246Stock-based compensation expense418 445 465 484 524Adjusted EBITDA(non-GAAP)4,267 4,653 3,758 3,953 3,384Total revenues23,329 24,927 23,350 25,167 21,301Adjusted EBITDA margin(non-GAAP)18.3.7.1.7.9%R E C O N C I L I A T I O N O F G A A P T O N O N G A A P F I N A N C I A L I N F O R M A T I O N(Unaudited)28R E C O N C I L I A T I O N O F G A A P T O N O N G A A P F I N A N C I A L I N F O R M A T I O N(Unaudited)In millions of USD2Q-2021 3Q-2021 4Q-2021 1Q-2022 2Q-2022 3Q-2022 4Q-2022 1Q-2023 2Q-2023 3Q-2023 4Q-2023 1Q-2024Net cash provided by operating activities TTM(GAAP)9,184 9,931 11,497 13,851 14,078 16,031 14,724 13,242 13,956 12,164 13,256 10,985Capital expenditures TTM(5,009)(5,823)(6,482)(6,901)(7,126)(7,110)(7,158)(7,463)(7,793)(8,450)(8,898)(9,599)Free cash flow TTM(non-GAAP)4,175 4,108 5,015 6,950 6,952 8,921 7,566 5,779 6,163 3,714 4,358 1,386In millions of USD2Q-2021 3Q-2021 4Q-2021 1Q-2022 2Q-2022 3Q-2022 4Q-2022 1Q-2023 2Q-2023 3Q-2023 4Q-2023 1Q-2024Net income attributable to common stockholders TTM(GAAP)2,181 3,468 5,519 8,399 9,516 11,190 12,556 11,751 12,195 10,756 14,997 13,613Interest expense TTM583 546 371 333 302 229 191 159 143 128 156 203Provision for(benefit from)income taxes TTM453 490 699 976 1,066 1,148 1,132 1,047 1,165 1,027(5,001)(4,853)Depreciation,amortization and impairment TTM2,504 2,681 2,911 3,170 3,411 3,606 3,747 3,913 4,145 4,424 4,667 4,867Stock-based compensation expense TTM2,264 2,196 2,121 1,925 1,812 1,699 1,560 1,560 1,644 1,747 1,812 1,918Adjusted EBITDA TTM(non-GAAP)7,985 9,381 11,621 14,803 16,107 17,872 19,186 18,430 19,292 18,082 16,631 15,748TTM=Trailing twelve monthsIn millions of USD3Q-2020 4Q-20201Q-2021 2Q-2021 3Q-2021 4Q-2021 1Q-2022 2Q-2022 3Q-2022 4Q-2022 1Q-2023 2Q-2023 3Q-2023 4Q-2023 1Q-2024Net cash provided by operating activities(GAAP)2,400 3,019 1,641 2,124 3,147 4,585 3,995 2,351 5,100 3,278 2,513 3,065 3,308 4,370 242Capital expenditures(1,005)(1,151)(1,348)(1,505)(1,819)(1,810)(1,767)(1,730)(1,803)(1,858)(2,072)(2,060)(2,460)(2,306)(2,773)Free cash flow(non-GAAP)1,395 1,868 293 619 1,328 2,775 2,228 621 3,297 1,420 441 1,005 848 2,064(2,531)In millions of USD3Q-2020 4Q-20201Q-2021 2Q-2021 3Q-2021 4Q-2021 1Q-2022 2Q-2022 3Q-2022 4Q-2022 1Q-2023 2Q-2023 3Q-2023 4Q-2023 1Q-2024Net income attributable to common stockholders(GAAP)331 270 438 1,142 1,618 2,321 3,318 2,259 3,292 3,687 2,513 2,703 1,853 7,928 1,129Interest expense163 246 99 75 126 71 61 44 53 33 29 28 38 61 76Provision for(benefit from)income taxes186 83 69 115 223 292 346 205 305 276 261 323 167(5,752)409Depreciation,amortization and impairment584 618 621 681 761 848 880 922 956 989 1,046 1,154 1,235 1,232 1,246Stock-based compensation expense543 633 614 474 475 558 418 361 362 419 418 445 465 484 524Adjusted EBITDA(non-GAAP)1,807 1,850 1,841 2,487 3,203 4,090 5,023 3,791 4,968 5,404 4,267 4,653 3,758 3,953 3,38429A D D I T I O N A L I N F O R M A T I O NWEBCASTWEBCAST INFORMATIONINFORMATIONTesla will provide a live webcast of its first quarter 2024 financial results conference call beginning at 4:30 p.m.CT on April 23,2024 at .This webcast will also be available for replay for approximately one year thereafter.CERTAINCERTAIN TERMSTERMSWhen used in this update,certain terms have the following meanings.Our vehicle deliveries include only vehicles that have been transferred to end customers with all paperwork correctly completed.Our energy product deployment volume includes both customer units installed and equipment sales;we report installations at time of commissioning for storage projects or inspection for solar projects,and equipment sales at time of delivery.Adjusted EBITDA is equal to(i)net income(loss)attributable to common stockholders before(ii)(a)interest expense,(b)provision for income taxes,(c)depreciation,amortization and impairment and(d)stock-based compensation expense.Free cash flow is operating cash flow less capital expenditures.Average cost per vehicle is cost of automotive sales divided by new vehicle deliveries(excluding operating leases).“Days sales outstanding”is equal to(i)average accounts receivable,net for the period divided by(ii)total revenues and multiplied by(iii)the number of days in the period.“Days payable outstanding”is equal to(i)average accounts payable for the period divided by(ii)total cost of revenues and multiplied by(iii)the number of days in the period.“Days of supply”is calculated by dividing new car ending inventory by the relevant quarters deliveries and using 75 trading days.Constant currency impacts are calculated by comparing actuals against current results converted into USD using average exchange rates from the prior period.NONNON-GAAPGAAP FINANCIALFINANCIAL INFORMATIONINFORMATIONConsolidated financial information has been presented in accordance with GAAP as well as on a non-GAAP basis to supplement our consolidated financial results.Our non-GAAP financial measures include non-GAAP net income(loss)attributable to common stockholders,non-GAAP net income(loss)attributable to common stockholders on a diluted per share basis(calculated using weighted average shares for GAAP diluted net income(loss)attributable to common stockholders),Adjusted EBITDA,Adjusted EBITDA margin and free cash flow.These non-GAAP financial measures also facilitate managements internal comparisons to Teslas historical performance as well as comparisons to the operating results of other companies.Management believes that it is useful to supplement its GAAP financial statements with this non-GAAP information because management uses such information internally for its operating,budgeting and financial planning purposes.Management also believes that presentation of the non-GAAP financial measures provides useful information to our investors regarding our financial condition and results of operations,so that investors can see through the eyes of Tesla management regarding important financial metrics that Tesla uses to run the business and allowing investors to better understand Teslas performance.Non-GAAP information is not prepared under a comprehensive set of accounting rules and therefore,should only be read in conjunction with financial information reported under U.S.GAAP when understanding Teslas operating performance.A reconciliation between GAAP and non-GAAP financial information is provided above.FORWARDFORWARD-LOOKINGLOOKING STATEMENTSSTATEMENTSCertain statements in this update,including statements in the“Outlook”section;statements relating to the future development,strategy,ramp,production and capacity,demand and market growth,cost,pricing and profitability,investment,deliveries,deployment,availability and other features and improvements and timing of existing and future Tesla products;statements regarding operating margin,operating profits,spending and liquidity;and statements regarding expansion,improvements and/or ramp and related timing at our factories are“forward-looking statements”that are subject to risks and uncertainties.These forward-looking statements are based on managements current expectations,and as a result of certain risks and uncertainties,actual results may differ materially from those projected.The following important factors,without limitation,could cause actual results to differ materially from those in the forward-looking statements:the risk of delays in launching and manufacturing our products and features cost-effectively;our ability to grow our sales,delivery,installation,servicing and charging capabilities and effectively manage this growth;consumers demand for electric vehicles generally and our vehicles specifically;the ability of suppliers to deliver components according to schedules,prices,quality and volumes acceptable to us,and our ability to manage such components effectively;any issues with lithium-ion cells or other components manufactured at our factories;our ability to ramp our factories in accordance with our plans;our ability to procure supply of battery cells,including through our own manufacturing;risks relating to international expansion;any failures by Tesla products to perform as expected or if product recalls occur;the risk of product liability claims;competition in the automotive and energy product markets;our ability to maintain public credibility and confidence in our long-term business prospects;our ability to manage risks relating to our various product financing programs;the status of government and economic incentives for electric vehicles and energy products;our ability to attract,hire and retain key employees and qualified personnel;our ability to maintain the security of our information and production and product systems;our compliance with various regulations and laws applicable to our operations and products,which may evolve from time to time;risks relating to our indebtedness and financing strategies;and adverse foreign exchange movements.More information on potential factors that could affect our financial results is included from time to time in our Securities and Exchange Commission filings and reports,including the risks identified under the section captioned“Risk Factors”in our annual report on Form 10-K filed with the SEC on January 26,2024.Tesla disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information,future events or otherwise.30
2024-04-30
31页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549_FORM 10-Q_(Mark One)QUARTERLY RE.
2024-04-30
101页
5星级
First Quarter 2024 ResultsApril 25,2024 1This presentation and related communications should be read.
2024-04-29
17页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSION WASHINGTON,D.C.20549 FORM 10-Q(Mark One)QUARTERLY R.
2024-04-29
71页
5星级
十五五规划建议全文（25页）.pdf
三个皮匠报告：2025银发经济生态：中国与全球实践白皮书（150页）.pdf
2025刘润年度演讲PPT：进化的力量.pdf
三个皮匠报告：2025中国情绪消费市场洞察报告（24页）.pdf
清华大学：2025年AIGC发展研究报告4.0版（152页）.pdf
三个皮匠报告：2025中国AI芯片市场洞察报告（24页）.pdf
三个皮匠报告：2025银发经济生态：中国与全球实践白皮书（PPT版）（55页）.pdf
三个皮匠报告：2025中国稀土产业市场洞察报告-从资源到战略武器，中美博弈的稀土战场（25页）.pdf
麦肯锡：2025年人工智能发展态势报告：智能体、创新与转型（英文版）（32页）.pdf
Gartner：2026年十大战略技术趋势报告（28页）.pdf
0731-84720580
商务合作：really158d
友链申请 (QQ)：1737380874
最新报告
中英对照
全文搜索
报告精选
PDF上传翻译
多格式文档互转
入驻&报告售卖
会员权益
机构报告
券商研报
财报库
专题合集
英文报告
数据图表
会议报告
其他资源
研报
新质生产力
DeepSeek
低空经济
大模型
AI Agent
AI Infra
具身智能
自动驾驶
宠物
银发经济
人形机器人
企业出海
算力
微短剧
薪酬
白皮书
创新药
行业分析
个股研究
年报财报
IPO招股书
会议纪要
宏观策略
政策法规
其他
人工智能
信息科技
互联网
消费经济
汽车交通
电商零售
传媒娱乐
医疗健康
投资金融
能源环境
地产建筑
传统产业
英文报告
其它
行业聚焦
芯片产业
热点概念
全球咨询智库
人工智能
500强
新质生产力
会议峰会
新能源汽车
企业年报
互联网
公司研究
行业综观
消费教育
科技通信
医药健康
人力资源
投资金融
汽车产业
物流地产
电子商务
传统产业
传媒营销
其它
2025年养老经济/银发经济/长寿经济/银发族/老龄化报告合集（共50套打包）
2025年商业航天行业报告合集（共41套打包）
AI、科技与通信
广告、传媒与营销
消费、零售与支付
HR、文化与旅游
金融、保险与投资
能源、环境与工业
医疗制药与大健康
物流、地产与建筑
其他行业
AI ▪ 科技 ▪ 通信
数字化
金融财经
智能制造
电商传媒
地产建筑
医疗医学
能源化工
其他行业
收藏
下载
2025-11-19
AI查数
行业数据
政策法规
商业模式
产业链
竞争格局
市场规模
产业概述
其它
2025年
AI读财报
年报
一季报
半年报
三季报
IPO招股书
社会责任报告
A股
IPO申报
港股
美股&全球
新三板
微信扫码登录
手机快捷登录
账号登录
