UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549_FORM 10-Q_QUARTERLY REPORT PURSU.
2024-04-29
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-1-UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,D.C.20549 FORM 10-Q QUARTERLY REPORT .
2024-04-29
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549 FORM 10-Q (Mark One)QUARTERLY RE.
2024-04-29
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPO.
2024-04-29
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2024 WellsFargo Bank,N.A.All rights reserved.1Q24 Financial Results April12,2024 21Q24 Financial Results 1Q24 results Financial Results ROE:10.5%ROTCE:12.3%1 Efficiency ratio:69%2 Credit Quality Capital and Liquidity CET1 ratio:11.2%7 LCR:126%8 TLAC ratio:25.1%9 Provision for credit losses6 of$938 million Total net loan charge-offs of$1.1 billion,up$545 million,with net loan charge-offs of 0.50%of average loans(annualized)Allowance for credit losses for loans of$14.9 billion,up$1.2 billion Common Equity Tier 1(CET1)capital7 of$136.7 billion CET1 ratio7 of 11.2%under the Standardized Approach and 12.4%under the Advanced Approach Liquidity coverage ratio(LCR)8 of 126%Net income of$4.6 billion,or$1.20 per diluted common share,included:($284)million,or($0.06)per share,of additional expense for the estimated Federal Deposit Insurance Corporation(FDIC)special assessment3 Revenue of$20.9 billion,up 1%Net interest income of$12.2 billion,down 8%Noninterest income of$8.6 billion,up 17%Noninterest expense of$14.3 billion,up 5%Pre-tax pre-provision profit4 of$6.5 billion,down 7fective income tax rate of 17.3%5 Average loans of$928.1 billion,down 2%Average deposits of$1.3 trillion,down 1%Comparisons in the bullet points are for 1Q24 versus 1Q23,unless otherwise noted.Endnotes are presented starting on page 17.3 1Q24 Financial Results 1Q24 earnings Quarter ended$Change from$in millions,except per share data 1Q24 4Q23 1Q23 4Q23 1Q23 Net interest income$12,227 12,771 13,336($544)(1,109)Noninterest income 8,636 7,707 7,393 929 1,243 Total revenue 20,863 20,478 20,729 385 134 Net charge-offs 1,157 1,258 564(101)593 Change in the allowance for credit losses(219)24 643(243)(862)Provision for credit losses1 938 1,282 1,207(344)(269)Noninterest expense 14,338 15,786 13,676(1,448)662 Pre-tax income 5,587 3,410 5,846 2,177(259)Income tax expense(benefit)964(100)966 1,064(2)Effective income tax rate(%)17.3%(3.0)16.2 2,026 bps 105 Net income$4,619 3,446 4,991$1,173(372)Diluted earnings per common share$1.20 0.86 1.23$0.34(0.03)Diluted average common shares(#mm)3,600.1 3,657.0 3,818.7(57)(219)Return on equity(ROE)10.5%7.6 11.7 286 bps(127)Return on average tangible common equity(ROTCE)2 12.3 9.0 14.0 336(170)Efficiency ratio 69 77 66(836)275 Endnotes are presented starting on page 17.4 1Q24 Financial Results 13,336 13,163 13,105 12,771 12,227 Net Interest Margin(NIM)on a taxable-equivalent basis 1Q23 2Q23 3Q23 4Q23 1Q24 2.81%Net interest income Net interest income down$1.1billion,or 8%,from 1Q23 due to the impact of higher interest rates on funding costs,including the impact of customer migration to higher yielding deposit products,as well as lower loan balances,partially offset by higher yields on earning assets Net interest income down$544 million,or 4%,from 4Q23 driven by higher funding costs,including the impact of customer migration to higher yielding deposit products,lower loan balances,as well as one fewer day in the quarter,partially offset by higher cash balances 2024 net interest income is expected to be 7-9%lower than the full year 2023 level of$52.4 billion,unchanged from prior guidance Net Interest Income($in millions)3.20%3.09%3.03%2.92%1 Endnotes are presented starting on page 17.5 1Q24 Financial Results Loans and deposits Average loans down$20.6 billion,or 2%,year-over-year(YoY)driven by declines in most loan categories,partially offset by higher credit card loans Total average loan yield of 6.38%,up 69 bps YoY reflecting the impact of higher interest rates and up 3 bps from 4Q23 Period-end loans of$922.8 billion,down$25.2 billion,or 3%,YoY,and down$13.9billion from 4Q23 Average deposits down$15.1 billion,or 1%,YoY reflecting customer migration to higher yielding alternatives and consumer and small business deposit outflows Period-end deposits up$20.5 billion,or 2%,YoY,and up 2%from 4Q23 Average Loans Outstanding($in billions)Average Deposits($in billions)948.7 945.9 943.2 938.0 928.1 553.2 553.0 551.5 548.3 542.1 395.5 392.9 391.7 389.7 386.0 Commercial Loans Consumer Loans Total Average Loan Yield 1Q23 2Q23 3Q23 4Q23 1Q24 5.69%5.99%6.23%6.35%6.38%Period-End Deposits($in billions)1Q24 vs 4Q23 vs 1Q23 Consumer Banking and Lending$794.1 2%(7)%Commercial Banking 168.5 4(1)Corporate and Investment Banking 196.0 6 24 Wealth and Investment Management 102.5(1)(13)Corporate 122.0(2)86 Total deposits$1,383.1 2%2%Average deposit cost 1.74%0.16 0.91 1,356.7 1,347.4 1,340.3 1,340.9 1,341.6 841.3 823.3 801.1 779.5 773.2 170.5 166.7 160.6 163.3 164.0 157.6 160.3 157.2 173.1 183.3 126.6 112.4 107.5 102.1 101.5 Corporate Wealth and Investment Management Corporate and Investment Banking Commercial Banking Consumer Banking and Lending 1Q23 2Q23 3Q23 4Q23 1Q24 60.7 84.7 113.9 122.9 119.6 Period-End Loans Outstanding($in billions)1Q24 vs 4Q23 vs 1Q23 Commercial$538.3(2)%(3)%Consumer 384.5(1)(2)Total Loans$922.8(1)%(3)%6 1Q24 Financial Results Noninterest Income($in millions)7,393 7,370 7,752 7,707 8,636 455 524 555 799 940 1,033 1,098 1,098 1,027 1,061 326 376 492 455 6271,342 1,122 1,265 1,070 1,454 1,504 1,517 1,551 1,568 1,597 2,733 2,733 2,791 2,788 2,957 Investment advisory fees and brokerage commissions Deposit and lending-related fees Net gains from trading activities Investment banking fees Card fees All other 1Q23 2Q23 3Q23 4Q23 1Q24 Noninterest income increased$1.2 billion,or 17%,from 1Q23 Investment advisory fees and brokerage commissions1 up$224 million,or 8%,as higher market valuations drove higher asset-based fees Deposit and lending-related fees up$93 million,or 6%,driven by higher treasury management fees and one additional business day Net gains from trading activities up$112 million,or 8%,reflecting market conditions,as well as investments in our Markets business Investment banking fees up$301 million,or 92%,on increased activity across all products All other2 up$485 million primarily driven by higher net gains from equity securities on improved results in our affiliated venture capital business on lower impairments Noninterest income up$929 million,or 12%,from 4Q23 Investment advisory fees and brokerage commissions1 up$169 million,or 6%,as higher market valuations drove higher asset-based fees Net gains from trading activities up$384 million,or 36%,on higher trading activity across most asset classes Investment banking fees up$172 million,or 38%,on increased activity across most products All other2 up$141 million Noninterest income 2 1 Endnotes are presented starting on page 17.7 1Q24 Financial Results 13,676 12,987 13,113 15,786 14,338 3,994 4,149 4,157 4,319 3,929 9,415 8,606 8,627 8,212 9,492 1,931 Operating Losses FDIC Special Assessment Personnel Expense Non-personnel Expense 1Q23 2Q23 3Q23 4Q23 1Q24 Noninterest expense Noninterest expense up$662 million,or 5%,from 1Q23 Operating losses up$366 million driven by customer remediation accruals for historical matters 1Q24 FDIC special assessment2 expense of$284 million Personnel expense up$77 million predominantly reflecting higher revenue-related compensation expense predominantly in Wealth and Investment Management,partially offset by the impact of efficiency initiatives Non-personnel expense down$65 million,or 2%,driven by lower professional and outside services expense Noninterest expense down$1.4 billion,or 9%,from 4Q23 Operating losses up$278 million driven by customer remediation accruals 1Q24 FDIC special assessment2 expense of$284 million,compared with$1.9billion in 4Q23 Personnel expense up$311 million on seasonal personnel expense,higher incentive compensation and annual merit increases,partially offset by lower severance expense Non-personnel expense down$390million,or 9%,with declines driven by lower professional and outside services expense and lower advertising and promotion expense 2024 noninterest expense is expected to be$52.6 billion,unchanged from prior guidance Excludes the 1Q24 FDIC special assessment2 expense of$284 million Equity markets have outperformed our expectations and if they remain at current levels we would expect higher revenue-related compensation expense As previously disclosed,we have outstanding litigation,regulatory,and customer remediation matters that could impact operating losses Noninterest Expense($in millions)Headcount(Period-end,000s)1Q23 2Q23 3Q23 4Q23 1Q24 236 234 227 226 225 633 355 329232 267 9691 284 1 Endnotes are presented starting on page 17.8 1Q24 Financial Results 1,207 1,713 1,197 1,282 938 604 764 850 1,252 1,149 Provision for Credit Losses Net Loan Charge-offs Net Loan Charge-off Ratio 1Q23 2Q23 3Q23 4Q23 1Q24 Credit quality:net loan charge-offs Commercial net loan charge-offs down$131 million to 25 bps of average loans(annualized)reflecting a$190 million decrease in commercial real estate(CRE)net loan charge-offs,partially offset by$58 million of higher net loan charge-offs in commercial&industrial loans CRE net loan charge-offs of$187 million,or 50 bps of average loans(annualized),predominantly driven by CRE office net loan charge-offs Consumer net loan charge-offs up$28 million to 84 bps of average loans(annualized)reflecting a$57 million increase in credit card net loan charge-offs,partially offset by$18 million of lower auto net loan charge-offs Nonperforming assets of$8.2 billion,down$203million,or 2%,driven by lower commercial real estate nonaccruals CRE nonaccrual loans of$3.9 billion,down$275 million driven by a$221million decrease in CRE office nonaccruals reflecting losses and paydowns in the quarter Provision for Credit Losses1 and Net Loan Charge-offs($in millions)Comparisons in the bullet points are for 1Q24 versus 4Q23.Endnotes are presented starting on page 17.0.26%0.32%0.53%0.36%1 0.50%9 1Q24 Financial Results Credit quality:allowance for credit losses for loans Allowance for Credit Losses for Loans($in millions)Allowance for credit losses for loans(ACL)down modestly driven by a lower ACL for commercial real estate loans and auto loans,partially offset by a higher ACL for credit card loans CRE Office ACL of$2.4 billion,down$76 million CRE Office ACL as a%of loans of 7.9%,stable compared with 4Q23 Corporate and Investment Banking(CIB)CRE Office ACL as a%of loans of 11.0%,stable compared with 4Q23 13,705 14,786 15,064 15,088 14,862 7,224 8,081 8,310 8,412 8,317 6,481 6,705 6,754 6,676 6,545 Commercial Consumer Allowance coverage for total loans 1Q23 2Q23 3Q23 4Q23 1Q24 1.56%1.45%1.60%1.61%1.61%1 CRE Allowance for Credit Losses(ACL)and Nonaccrual Loans,as of 3/31/24($in millions)Allowance for Credit Losses Loans Outstanding ACL as a%of Loans Nonaccrual Loans CIB CRE Office$2,181 19,795 11.0%$3,024 All other CRE Office 227 10,682 2.1 112 Total CRE Office 2,408 30,477 7.9 3,136 All other CRE 1,374 118,309 1.2 777 Total CRE$3,782 148,786 2.5%$3,913 1 Comparisons in the bullet points are for 1Q24 versus 4Q23.Endnotes are presented starting on page 17.10 1Q24 Financial Results Capital and liquidity Capital Position Common Equity Tier 1(CET1)ratio1 of 11.2%at March31,2024 remained above our regulatory minimum and buffers of 8.9%2 Capital Return$6.1billion in gross common stock repurchases,or 112.5million shares,in 1Q24 with period-end common shares outstanding down 261.5million,or 7%,from 1Q23$1.2 billion in common stock dividends paid in 1Q24 with a common stock dividend of$0.35 per share Total Loss Absorbing Capacity(TLAC)As of March31,2024,our TLAC as a percentage of total risk-weighted assets3 was 25.1%compared with the required minimum of 21.5%Liquidity Position Strong liquidity position with a 1Q24 LCR4 of 126%which remained above our regulatory minimum of 100.8.7.0.4.2%1Q23 2Q23 3Q23 4Q23 1Q24 Estimated 8.9%Regulatory Minimum and Buffers2 Common Equity Tier 1 Ratio under the Standardized Approach1 Endnotes are presented starting on page 17.11 1Q24 Financial Results Total revenue down 3%YoY and down 4%from 4Q23 CSBB down 4%YoY driven by the impact of lower deposit balances,partially offset by higher debit card interchange fees Home Lending stable YoY;up 3%from 4Q23 Credit Card up 6%YoY driven by higher loan balances,including the impact of higher point of sale volume and new account growth Auto down 23%YoY driven by loan spread compression and lower loan balances;down 10%from 4Q23 driven by lower loan balances Personal Lending up 7%YoY on higher net interest income and included the impact of higher loan balances Noninterest expense was stable both YoY and compared with 4Q23 Consumer Banking and Lending Summary Financials$in millions(mm)1Q24 vs.4Q23 vs.1Q23 Revenue by line of business:Consumer,Small and Business Banking(CSBB)1$6,092($462)(282)Consumer Lending:Home Lending 864 25 1 Credit Card1 1,496 47 79 Auto 300(34)(92)Personal Lending 339(4)21 Total revenue 9,091(428)(273)Provision for credit losses 788(2)(79)Noninterest expense 6,024(22)(14)Pre-tax income 2,279(404)(180)Net income$1,706($305)(135)Selected Metrics 1Q24 4Q23 1Q23 Return on allocated capital2 14.5.6 16.5 Efficiency ratio3 66 64 64 Retail bank branches#4,247 4,311 4,525 Digital(online and mobile)active customers4(mm)35.5 34.8 34.3 Mobile active customers4(mm)30.5 29.9 28.8 Average Balances and Selected Credit Metrics$in billions 1Q24 4Q23 1Q23 Balances Loans$329.7 333.5 338.3 Deposits 773.2 779.5 841.3 Credit Performance Net charge-offs as a%of average loans 1.07%1.01 0.71 Endnotes are presented starting on page 17.12 1Q24 Financial Results Consumer Banking and Lending Retail Mortgage Loan Originations($in billions)Auto Loan Originations($in billions)Credit Card POS Volume2($in billions)Debit Card Point of Sale(POS)Volume and Transactions1 5.6 7.7 6.4 4.5 3.5 Refinances as a%of Retail Originations 1Q23 2Q23 3Q23 4Q23 1Q24 117.3 124.9 124.5 126.1 121.5 POS Volume($in billions)POS Transactions(billions)1Q23 2Q23 3Q23 4Q23 1Q24 5.0 4.8 4.1 3.3 4.1 1Q23 2Q23 3Q23 4Q23 1Q24 34.2 38.3 39.4 41.2 39.1 1Q23 2Q23 3Q23 4Q23 1Q24 2.4 2.5 2.6 2.5 2.4 19$%Endnotes are presented starting on page 17.13 1Q24 Financial Results Commercial Banking Total revenue down 5%YoY and down 6%from 4Q23 Middle Market Banking revenue down 4%YoY and down 5%from 4Q23 driven by lower net interest income on higher deposit costs,partially offset by higher deposit-related fees Asset-Based Lending and Leasing revenue down 7%YoY and included lower revenue from equity investments;down 8%from 4Q23 on higher funding costs Noninterest expense down 4%YoY on lower personnel expense reflecting the impact of efficiency initiatives,and lower operating costs;up 3%from 4Q23 on higher operating costs and seasonal personnel expenses,partially offset by lower severance expense Summary Financials$in millions 1Q24 vs.4Q23 vs.1Q23 Revenue by line of business:Middle Market Banking$2,078($118)(77)Asset-Based Lending and Leasing 1,074(98)(78)Total revenue 3,152(216)(155)Provision for credit losses 143 103 186 Noninterest expense 1,679 49(73)Pre-tax income 1,330(368)(268)Net income$986($287)(210)Selected Metrics 1Q24 4Q23 1Q23 Return on allocated capital 14.3.0 18.1 Efficiency ratio 53 48 53 Average loans by line of business($in billions)Middle Market Banking$119.3 119.0 121.6 Asset-Based Lending and Leasing 104.6 104.4 101.2 Total loans$223.9 223.4 222.8 Average deposits 164.0 163.3 170.5 14 1Q24 Financial Results Corporate and Investment Banking Total revenue up 2%YoY and up 5%from 4Q23 Banking revenue up 5%YoY driven by higher investment banking revenue on increased activity across all products,partially offset by lower treasury management revenue driven by higher deposit costs;down 3%from 4Q23 as lower lending and treasury management revenue was partially offset by higher investment banking revenue Commercial Real Estate revenue down 7%YoY and included the impact of lower loan balances,partially offset by higher commercial mortgage-backed securities volumes Markets revenue up 2%YoY driven by higher revenue in structured products,credit products,and foreign exchange,partially offset by lower revenue in rates and commodities;up 16%from 4Q23 driven by higher trading activity across most asset classes Noninterest expense up 5%YoY driven by higher operating costs,partially offset by the impact of efficiency initiatives;up 9%from 4Q23 driven predominantly by seasonal personnel expenses and higher operating costs,partially offset by lower severance expense Summary Financials$in millions 1Q24 vs.4Q23 vs.1Q23 Revenue by line of business:Banking:Lending$681($93)(11)Treasury Management and Payments 686(56)(99)Investment Banking 474 91 194 Total Banking 1,841(58)84 Commercial Real Estate 1,223(68)(88)Markets:Fixed Income,Currencies and Commodities(FICC)1,359 237 74 Equities 450(7)13 Credit Adjustment(CVA/DVA)and Other 19 27(52)Total Markets 1,828 257 35 Other 90 116 49 Total revenue 4,982 247 80 Provision for credit losses 5(493)(247)Noninterest expense 2,330 198 113 Pre-tax income 2,647 542 214 Net income$1,981$399 163 Selected Metrics 1Q24 4Q23 1Q23 Return on allocated capital 17.2.4 15.9 Efficiency ratio 47 45 45 Average Balances($in billions)Loans by line of business 1Q24 4Q23 1Q23 Banking$90.9 94.7 99.1 Commercial Real Estate 131.7 133.9 136.8 Markets 60.6 61.5 58.8 Total loans$283.2 290.1 294.7 Deposits 183.3 173.1 157.6 Trading-related assets 201.2 203.9 188.4 15 1Q24 Financial Results Wealth and Investment Management Summary Financials$in millions 1Q24 vs.4Q23 vs.1Q23 Net interest income$869($37)(175)Noninterest income 2,873 119 236 Total revenue 3,742 82 61 Provision for credit losses 3 22(8)Noninterest expense 3,230 207 169 Pre-tax income 509(147)(100)Net income$381($110)(76)Selected Metrics($in billions)1Q24 4Q23 1Q23 Return on allocated capital 22.70.4 28.9 Efficiency ratio 86 83 83 Average loans$82.5 82.2 83.6 Average deposits 101.5 102.1 126.6 Client assets Advisory assets 939 891 825 Other brokerage assets and deposits 1,247 1,193 1,104 Total client assets$2,186 2,084 1,929 Total revenue up 2%YoY and up 2%from 4Q23 Net interest income down 17%YoY driven by lower deposit balances as customers reallocated cash into higher yielding alternatives Noninterest income up 9%YoY and up 4%from 4Q23 on higher asset-based fees driven by an increase in market valuations Noninterest expense up 6%YoY on higher revenue-related compensation,partially offset by the impact of efficiency initiatives;up 7%from 4Q23 as higher revenue-related compensation,seasonal personnel expenses,and higher operating costs were partially offset by lower severance expense 16 1Q24 Financial Results Corporate Revenue increased YoY reflecting improved results in our affiliated venture capital business on lower impairments;up from 4Q23 on lower crediting rates paid to the operating segments Noninterest expense up YoY driven by higher FDIC assessments,as well as higher operating losses;down from 4Q23 reflecting lower FDIC assessments,partially offset by higher operating losses and seasonally higher personnel expense Summary Financials$in millions 1Q24 vs.4Q23 vs.1Q23 Net interest income$32$576 16 Noninterest income 291 7 286 Total revenue 323 583 302 Provision for credit losses(1)26(121)Noninterest expense 1,075(1,880)467 Pre-tax loss(751)2,437(44)Income tax benefit(317)1,022(45)Less:Net income from noncontrolling interests 1(61)115 Net loss($435)$1,476(114)17 1Q24 Financial Results Endnotes Page 2 1Q24 results 1.Tangible common equity and return on average tangible common equity(ROTCE)are non-GAAP financial measures.For additional information,including a corresponding reconciliation to GAAP financial measures,see the“Tangible Common Equity”table on page 19.2.The efficiency ratio is noninterest expense divided by total revenue.3.Federal Deposit Insurance Corporation(FDIC)special assessment expense reflects an update provided by the FDIC in February 2024 on losses to the deposit insurance fund,as well as potential recoveries expected to reduce these estimated losses.4.Pre-tax pre-provision profit(PTPP)is total revenue less noninterest expense.Management believes that PTPP is a useful financial measure because it enables investors and others to assess the Companys ability to generate capital to cover credit losses through a credit cycle.5.In 1Q24,we adopted a new accounting standard to use the proportional amortization method for renewable energy tax credit investments.Under the proportional amortization method,the amortization of the investments and the related tax impacts are both recognized in income tax expense.Previously,we recognized the amortization of the investments in other noninterest income and the related tax impacts were recognized in income tax expense.6.Includes provision for credit losses for loans,debt securities,and other financial assets.7.The Common Equity Tier 1(CET1)ratio calculated under the Standardized Approach is our binding CET1 ratio.See page 20 for additional information regarding CET1 capital and ratios.CET1 is a preliminary estimate.8.Liquidity coverage ratio(LCR)represents average high-quality liquid assets divided by average projected net cash outflows,as each is defined under the LCR rule.LCR is a preliminary estimate.9.Represents total loss absorbing capacity(TLAC)divided by risk-weighted assets(RWAs),which is our binding TLAC ratio,determined by using the greater of RWAs under the Standardized and Advanced Approaches.TLAC is a preliminary estimate.Page 3 1Q24 earnings 1.Includes provision for credit losses for loans,debt securities,and other financial assets.2.Tangible common equity and return on average tangible common equity(ROTCE)are non-GAAP financial measures.For additional information,including a corresponding reconciliation to GAAP financial measures,see the“Tangible Common Equity”table on page 19.Page 4 Net interest income 1.Includes taxable-equivalent adjustments predominantly related to tax-exempt income on certain loans and securities.Page 6 Noninterest income 1.Investment advisory fees and brokerage commissions includes investment advisory and other asset-based fees and commissions and brokerage services fees.2.All other includes mortgage banking,net gains(losses)from debt securities,net gains(losses)from equity securities,lease income,and other.Page 7 Noninterest expense 1.4Q23 total personnel expense of$9.2 billion included$969 million of severance expense for planned actions.2.Federal Deposit Insurance Corporation(FDIC)special assessment expense reflects an update provided by the FDIC in February 2024 on losses to the deposit insurance fund,as well as potential recoveries expected to reduce these estimated losses.18 1Q24 Financial Results Endnotes(continued)Page 8 Credit quality:net loan charge-offs 1.Includes provision for credit losses for loans,debt securities,and other financial assets.Page 9 Credit quality:allowance for credit losses for loans 1.On 1/1/2023,we adopted the Troubled Debt Restructuring(TDR)accounting standard which removed$429 million of allowance for credit losses(ACL)with an offset directly to retained earnings.Page 10 Capital and liquidity 1.The Common Equity Tier 1(CET1)ratio calculated under the Standardized Approach is our binding CET1 ratio.See page 20 for additional information regarding CET1 capital and ratios.1Q24 CET1 is a preliminary estimate.2.Includes a 4.50%minimum requirement,a stress capital buffer of 2.90%,and a G-SIB capital surcharge of 1.50%.3.Represents total loss absorbing capacity(TLAC)divided by risk-weighted assets(RWAs),which is our binding TLAC ratio,determined by using the greater of RWAs under the Standardized and Advanced Approaches.TLAC is a preliminary estimate.4.Liquidity coverage ratio(LCR)represents average high-quality liquid assets divided by average projected net cash outflows,as each is defined under the LCR rule.1Q24 LCR is a preliminary estimate.Page 11 Consumer Banking and Lending 1.In first quarter 2024,we transferred our small business credit card business from Consumer,Small and Business Banking to Credit Card.Prior period balances have been revised to conform with the current period presentation.2.Return on allocated capital is segment net income(loss)applicable to common stock divided by segment average allocated capital.Segment net income(loss)applicable to common stock is segment net income(loss)less allocated preferred stock dividends.3.Efficiency ratio is segment noninterest expense divided by segment total revenue.4.Digital and mobile active customers is the number of consumer and small business customers who have logged on via a digital or mobile device,respectively,in the prior 90 days.Page 12 Consumer Banking and Lending 1.Debit card purchase volume and transactions reflect combined activity for both consumer and business debit card purchases.2.In first quarter 2024,we transferred our small business credit card business from Consumer,Small and Business Banking to Credit Card.Prior period balances have been revised to conform with the current period presentation.19 1Q24 Financial Results Tangible Common Equity Wells Fargo&Company and Subsidiaries TANGIBLE COMMON EQUITY We also evaluate our business based on certain ratios that utilize tangible common equity.Tangible common equity is a non-GAAP financial measure and represents total equity less preferred equity,noncontrolling interests,goodwill,certain identifiable intangible assets(other than MSRs)and goodwill and other intangibles on investments in consolidated portfolio companies,net of applicable deferred taxes.One of these ratios is return on average tangible common equity(ROTCE),which represents our annualized earnings as a percentage of tangible common equity.The methodology of determining tangible common equity may differ among companies.Management believes that return on average tangible common equity,which utilizes tangible common equity,is a useful financial measure because it enables management,investors,and others to assess the Companys use of equity.The table below provides a reconciliation of this non-GAAP financial measure to GAAP financial measures.Quarter ended($in millions)Mar 31,2024 Dec 31,2023 Sep 30,2023 Jun 30,2023 Mar 31,2023 Return on average tangible common equity:Net income applicable to common stock(A)$4,313 3,160 5,450 4,659 4,713 Average total equity 186,669 185,853 184,828 184,443 184,297 Adjustments:Preferred stock(19,291)(19,448)(20,441)(19,448)(19,448)Additional paid-in capital on preferred stock 155 157 171 173 173 Noncontrolling interests(1,710)(1,664)(1,775)(1,924)(2,019)Average common stockholders equity(B)165,823 164,898 162,783 163,244 163,003 Adjustments:Goodwill(25,174)(25,173)(25,174)(25,175)(25,173)Certain identifiable intangible assets(other than MSRs)(112)(124)(137)(140)(145)Goodwill and other intangibles on investments in consolidated portfolio companies(included in other assets)1(879)(878)(2,539)(2,487)(2,440)Applicable deferred taxes related to goodwill and other intangible assets2 924 918 910 903 895 Average tangible common equity(C)$140,582 139,641 135,843 136,345 136,140 Return on average common stockholders equity(ROE)(annualized)(A)/(B)10.5%7.6 13.3 11.4 11.7 Return on average tangible common equity(ROTCE)(annualized)(A)/(C)12.3 9.0 15.9 13.7 14.0 1.In third quarter 2023,we sold investments in certain private equity funds.As a result,we have removed the related goodwill and other intangible assets on investments in consolidated portfolio companies.2.Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period-end.20 1Q24 Financial Results 1.The Basel III capital rules provide for two capital frameworks(the Standardized Approach and the Advanced Approach applicable to certain institutions),and we must calculate our CET1,Tier 1 and total capital ratios under both approaches.2.In third quarter 2023,we sold investments in certain private equity funds.As a result,we have removed the related goodwill and other intangible assets on investments in consolidated portfolio companies.3.Determined by applying the combined federal statutory rate and composite state income tax rates to the difference between book and tax basis of the respective goodwill and intangible assets at period-end.4.Includes a$60 million increase for each period in 2024 and a$120 million increase for each period in 2023 related to a current expected credit loss accounting standard(CECL)transition provision.In second quarter 2020,the Company elected to apply a modified transition provision issued by federal banking regulators related to the impact of CECL on regulatory capital.The rule permits certain banking organizations to exclude from regulatory capital the initial adoption impact of CECL,plus 25%of the cumulative changes in the allowance for credit losses(ACL)under CECL for each period until December 31,2021,followed by a three-year phase-out period in which the benefit is reduced by 25%in year one,50%in year two and 75%in year three.Common Equity Tier 1 under Basel III Wells Fargo&Company and Subsidiaries RISK-BASED CAPITAL RATIOS UNDER BASEL III1 Estimated($in billions)Mar 31,2024 Dec 31,2023 Sep 30,2023 Jun 30,2023 Mar 31,2023 Total equity$182.7 187.4 182.4 182.0 183.2 Adjustments:Preferred stock(18.6)(19.4)(19.4)(19.4)(19.4)Additional paid-in capital on preferred stock 0.1 0.1 0.1 0.1 0.2 Noncontrolling interests(1.7)(1.7)(1.7)(1.8)(2.1)Total common stockholders equity 162.5 166.4 161.4 160.9 161.9 Adjustments:Goodwill(25.2)(25.2)(25.2)(25.2)(25.2)Certain identifiable intangible assets(other than MSRs)(0.1)(0.1)(0.1)(0.1)(0.1)Goodwill and other intangibles on investments in consolidated portfolio companies(included in other assets)2(1.0)(0.9)(0.9)(2.5)(2.5)Applicable deferred taxes related to goodwill and other intangible assets3 0.9 0.9 0.9 0.9 0.9 Other4(0.4)(0.3)0.1 0.2(0.5)Common Equity Tier 1(A)$136.7 140.8 136.2 134.2 134.5 Total risk-weighted assets(RWAs)under Standardized Approach(B)1,220.7 1,231.7 1,237.1 1,250.7 1,243.8 Total RWAs under Advanced Approach(C)1,098.6 1,114.3 1,130.8 1,118.4 1,117.9 Common Equity Tier 1 to total RWAs under Standardized Approach(A)/(B)11.2.4 11.0 10.7 10.8 Common Equity Tier 1 to total RWAs under Advanced Approach(A)/(C)12.4 12.6 12.0 12.0 12.0 21 1Q24 Financial Results Disclaimer and forward-looking statements Financial results reported in this document are preliminary.Final financial results and other disclosures will be reported in our Quarterly Report on Form 10-Q for the quarter ended March 31,2024,and may differ materially from the results and disclosures in this document due to,among other things,the completion of final review procedures,the occurrence of subsequent events,or the discovery of additional information.This document contains forward-looking statements.In addition,we may make forward-looking statements in our other documents filed or furnished with the Securities and Exchange Commission,and our management may make forward-looking statements orally to analysts,investors,representatives of the media and others.Forward-looking statements can be identified by words such as“anticipates,”“intends,”“plans,”“seeks,”“believes,”“estimates,”“expects,”“target,”“projects,”“outlook,”“forecast,”“will,”“may,”“could,”“should,”“can”and similar references to future periods.In particular,forward-looking statements include,but are not limited to,statements we make about:(i)the future operating or financial performance of the Company,including our outlook for future growth;(ii)our expectations regarding noninterest expense and our efficiency ratio;(iii)future credit quality and performance,including our expectations regarding future loan losses,our allowance for credit losses,and the economic scenarios considered to develop the allowance;(iv)our expectations regarding net interest income and net interest margin;(v)loan growth or the reduction or mitigation of risk in our loan portfolios;(vi)future capital or liquidity levels,ratios or targets;(vii)our expectations regarding our mortgage business and any related commitments or exposures;(viii)the expected outcome and impact of legal,regulatory and legislative developments,as well as our expectations regarding compliance therewith;(ix)future common stock dividends,common share repurchases and other uses of capital;(x)our targeted range for return on assets,return on equity,and return on tangible common equity;(xi)expectations regarding our effective income tax rate;(xii)the outcome of contingencies,such as legal actions;(xiii)environmental,social and governance related goals or commitments;and(xiv)the Companys plans,objectives and strategies.Forward-looking statements are not based on historical facts but instead represent our current expectations and assumptions regarding our business,the economy and other future conditions.Investors are urged to not unduly rely on forward-looking statements as actual results may differ materially from expectations.Forward-looking statements speak only as of the date made,and we do not undertake to update them to reflect changes or events that occur after that date.For additional information about factors that could cause actual results to differ materially from our expectations,refer to the“Forward-Looking Statements”discussion in Wells Fargos press release announcing our first quarter 2024 results and in our most recent Quarterly Report on Form 10-Q,as well as to Wells Fargos other reports filed with the Securities and Exchange Commission,including the discussion under“Risk Factors”in our Annual Report on Form 10-K for the year ended December 31,2023.
2024-04-29
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2024 First Quarter Earnings(unaudited)Mike RomanChairman of the Board and Chief Executive OfficerMon.
2024-04-29
28页
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 FORM 10-Q QUARTERLY REPORT PURS.
2024-04-28
73页
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 FORM 10-QQUARTERLY REPORT PURSU.
2024-04-28
67页
5星级
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549 FORM 10-Q QUARTERLY REPORT PURS.
2024-04-28
73页
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Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31,2024oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission file number:1-32853M COMPANY(Exact name of registrant as specified in its charter)Delaware41-0417775(State or other jurisdiction of incorporation)(IRS Employer Identification No.)3M Center,St.Paul,Minnesota55144-1000(Address of Principal Executive Offices)(Zip Code)(Registrants Telephone Number,Including Area Code)(651)733-1110Not Applicable(Former Name or Former Address,if Changed Since Last Report)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock,Par Value$.01 Per ShareMMMNew York Stock ExchangeMMMChicago Stock Exchange,Inc.1.500%Notes due 2026MMM26New York Stock Exchange1.750%Notes due 2030MMM30New York Stock Exchange1.500%Notes due 2031MMM31New York Stock ExchangeNote:The common stock of the Registrant is also traded on the SIX Swiss Exchange.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 the preceding 12 months(orfor 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 thischapter)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 thedefinitions 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 accountingstandards 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 Indicate the number of shares outstanding of each of the issuers classes of common stock,as of the latest practicable date.ClassOutstanding at March 31,2024Common Stock,$0.01 par value per share553,361,257 shares1Table of Contents3M COMPANYForm 10-Q for the Quarterly Period Ended March 31,2024TABLE OF CONTENTSPAGEPART I.Financial Information3Item 1.Financial Statements3Consolidated Statement of Income(Loss)3Consolidated Statement of Comprehensive Income(Loss)4Consolidated Balance Sheet5Consolidated Statement of Cash Flows6Notes to Consolidated Financial Statements7NOTE 1.Significant Accounting Policies7NOTE 2.Revenue8NOTE 3.Divestitures9NOTE 4.Goodwill and Intangible Assets9NOTE 5.Restructuring Actions10NOTE 6.Supplemental Income(Loss)Statement Information11NOTE 7.Supplemental Equity and Comprehensive Income(Loss)Information12NOTE 8.Income Taxes13NOTE 9.Earnings(Loss)Per Share13NOTE 10.Marketable Securities14NOTE 11.Long-Term Debt and Short-Term Borrowings14NOTE 12.Pension and Postretirement Benefit Plans15NOTE 13.Supplier Finance Program Obligations15NOTE 14.Derivatives16NOTE 15.Fair Value Measurements19NOTE 16.Commitments and Contingencies20NOTE 17.Business Segments42Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations44Overview44Results of Operations49Performance by Business Segment50Financial Condition and Liquidity55Item 3.Quantitative and Qualitative Disclosures About Market Risk60Item 4.Controls and Procedures60PART II.Other Information61Item 1.Legal Proceedings61Item 1A.Risk Factors61Item 2.Unregistered Sales of Equity Securities and Use of Proceeds69Item 3.Defaults Upon Senior Securities69Item 4.Mine Safety Disclosures69Item 5.Other Information69Item 6.Exhibits702Table of Contents3M COMPANYFORM 10-QFor the Quarterly Period Ended March 31,2024PART I.Financial InformationItem 1.Financial Statements3M Company and SubsidiariesConsolidated Statement of Income(Loss)(Unaudited)Three months endedMarch 31,(Millions,except per share amounts)20242023Net sales$8,003$8,031 Operating expensesCost of sales4,329 4,613 Selling,general and administrative expenses1,736 1,705 Research,development and related expenses437 472 Total operating expenses6,502 6,790 Operating income(loss)1,501 1,241 Other expense(income),net264 52 Income(loss)before income taxes1,237 1,189 Provision(benefit)for income taxes305 210 Income(loss)of consolidated group932 979 Income(loss)from unconsolidated subsidiaries,net of taxes1 2 Net income(loss)including noncontrolling interest933 981 Less:Net income(loss)attributable to noncontrolling interest5 5 Net income(loss)attributable to 3M$928$976 Weighted average 3M common shares outstanding basic555.0 552.7 Earnings(loss)per share attributable to 3M common shareholders basic$1.67$1.77 Weighted average 3M common shares outstanding diluted555.9 553.2 Earnings(loss)per share attributable to 3M common shareholders diluted$1.67$1.76 The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.3Table of Contents3M Company and SubsidiariesConsolidated Statement of Comprehensive Income(Loss)(Unaudited)Three months endedMarch 31,(Millions)20242023Net income(loss)including noncontrolling interest$933$981 Other comprehensive income(loss),net of tax:Cumulative translation adjustment(208)116 Defined benefit pension and postretirement plans adjustment135 51 Cash flow hedging instruments26(24)Total other comprehensive income(loss),net of tax(47)143 Comprehensive income(loss)including noncontrolling interest886 1,124 Comprehensive(income)loss attributable to noncontrolling interest(6)(5)Comprehensive income(loss)attributable to 3M$880$1,119 The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.4Table of Contents3M Company and SubsidiariesConsolidated Balance Sheet(Unaudited)(Dollars in millions,except per share amount)March 31,2024December 31,2023AssetsCurrent assetsCash and cash equivalents$10,911$5,933 Marketable securities current60 53 Accounts receivable net of allowances of$133 and$1414,750 4,750 InventoriesFinished goods2,372 2,293 Work in process1,388 1,424 Raw materials and supplies1,137 1,105 Total inventories4,897 4,822 Prepaids655 485 Other current assets340 336 Total current assets21,613 16,379 Property,plant and equipment26,675 26,870 Less:Accumulated depreciation(17,603)(17,711)Property,plant and equipment net9,072 9,159 Operating lease right of use assets744 759 Goodwill12,809 12,927 Intangible assets net4,105 4,226 Other assets6,900 7,130 Total assets$55,243$50,580 LiabilitiesCurrent liabilitiesShort-term borrowings and current portion of long-term debt$820$2,947 Accounts payable3,372 3,245 Accrued payroll607 904 Accrued income taxes383 365 Operating lease liabilities current227 225 Other current liabilities7,747 7,611 Total current liabilities13,156 15,297 Long-term debt20,593 13,088 Pension and postretirement benefits2,320 2,471 Operating lease liabilities517 534 Other liabilities13,724 14,322 Total liabilities50,310 45,712 Commitments and contingencies(Note 16)Equity3M Company shareholders equity:Common stock par value,$.01 par value;944,033,056 shares issued9 9 Shares outstanding-March 31,2024:553,361,257Shares outstanding-December 31,2023:552,581,136Additional paid-in capital6,973 6,956 Retained earnings37,472 37,479 Treasury stock,at cost:(32,762)(32,859)Shares at March 31,2024:390,671,799Shares at December 31,2023:391,451,920Accumulated other comprehensive income(loss)(6,826)(6,778)Total 3M Company shareholders equity4,866 4,807 Noncontrolling interest67 61 Total equity4,933 4,868 Total liabilities and equity$55,243$50,580 The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.5Table of Contents3M Company and SubsidiariesConsolidated Statement of Cash Flows(Unaudited)Three months endedMarch 31,(Millions)20242023Cash Flows from Operating ActivitiesNet income(loss)including noncontrolling interest$933$981 Adjustments to reconcile net income(loss)including noncontrolling interest to net cash provided byoperating activitiesDepreciation and amortization430 466 Company pension and postretirement contributions(48)(27)Company pension and postretirement expense54 37 Stock-based compensation expense29 135 Deferred income taxes144(93)Changes in assets and liabilitiesAccounts receivable(76)(73)Inventories(141)91 Accounts payable220 36 Accrued income taxes(current and long-term)(21)(37)Other net(757)(241)Net cash provided by(used in)operating activities767 1,275 Cash Flows from Investing ActivitiesPurchases of property,plant and equipment(PP&E)(375)(475)Proceeds from sale of PP&E and other assets21 3 Purchases of marketable securities and investments(399)(364)Proceeds from maturities and sale of marketable securities and investments388 450 Other net(28)Net cash provided by(used in)investing activities(393)(386)Cash Flows from Financing ActivitiesChange in short-term debt net(205)Repayment of debt(maturities greater than 90 days)(2,653)(1,150)Proceeds from debt(maturities greater than 90 days)8,367 1,107 Purchases of treasury stock(21)(29)Proceeds from issuance of treasury stock pursuant to stock option and benefit plans18 187 Dividends paid to shareholders(835)(827)Other net(50)(4)Net cash provided by(used in)financing activities4,621(716)Effect of exchange rate changes on cash and cash equivalents(17)(4)Net increase(decrease)in cash and cash equivalents4,978 169 Cash and cash equivalents at beginning of year5,933 3,655 Cash and cash equivalents at end of period$10,911$3,824 The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.6Table of Contents3M Company and SubsidiariesNotes to Consolidated Financial Statements(Unaudited)NOTE 1.Significant Accounting PoliciesBasis of Presentation:The interim consolidated financial statements are unaudited but,in the opinion of management,reflect all adjustments necessary for a fair statement ofthe Companys consolidated financial position,results of operations and cash flows for the periods presented.These adjustments consist of normal,recurring items.The resultsof operations for any interim period are not necessarily indicative of results for the full year.The interim consolidated financial statements and notes are presented as permittedby the requirements for Quarterly Reports on Form 10-Q.This Quarterly Report on Form 10-Q should be read in conjunction with the Companys consolidated financialstatements and notes included in its Annual Report on Form 10-K.Effective in the first quarter of 2024,3M made certain changes within its business segments.The changes are described in Note 17.While they impacted the composition andnames of certain divisions within 3Ms business segments,they did not change the overall composition of segments or the measure of segment operating performance used by3Ms chief operating decision maker(CODM).3Ms disclosed disaggregated revenue was also updated as a result of these changes(see Note 2).Information provided hereinreflects the impact of these changes for all periods presented.New Accounting Pronouncements:Refer to Note 1 to the Consolidated Financial Statements in 3Ms 2023 Annual Report on Form 10-K for a discussion of applicablestandards issued and not yet adopted by 3M.Relevant New Standards Issued Subsequent to Most Recent Annual ReportIn March 2024,the SEC adopted rules under SEC Release No.33-11275,The Enhancement and Standardization of Climate-Related Disclosures for Investors,which require aregistrant to disclose information in annual reports and registration statements about climate-related risks that are reasonably likely to have a material impact on its business,results of operations,or financial condition.The information would include disclosure of a registrants greenhouse gas emissions.In addition,certain disclosures related tosevere weather events and other natural conditions will be required in a registrants audited financial statements.Annual disclosure requirements would be effective for 3M asearly as the fiscal year beginning January 1,2025.However,in April 2024,the SEC voluntarily stayed the final rules pending certain legal challenges.The Company isevaluating the impact of these rules on its disclosures.7Table of ContentsNOTE 2.RevenueContract Balances:Deferred revenue primarily relates to revenue that is recognized over time for one-year software license contracts.Deferred revenue(current portion)as ofMarch 31,2024 and December 31,2023 was$565 million and$572 million,respectively.Approximately$210 million of the December 31,2023 balance and$200 million ofthe December 31,2022 balance was recognized as revenue during the three months ended March 31,2024 and 2023,respectively.Operating Lease Revenue:Net sales includes rental revenue from durable medical devices as part of operating lease arrangements(reported within the Medical SurgicalDivision),which was$139 million and$139 million during the three months ended March 31,2024 and 2023,respectively.Disaggregated Revenue Information:The Company views the following disaggregated disclosures as useful to understanding the composition of revenue recognized duringthe respective reporting periods:Three months endedMarch 31,Net Sales by Division(millions)20242023Abrasives$328$341Automotive Aftermarket306312Electrical Markets311324Industrial Adhesives and Tapes518516Industrial Specialties Division284308Personal Safety857868Roofing Granules128110Total Safety and Industrial Business Segment2,7322,779Advanced Materials263301Automotive and Aerospace506462Commercial Branding and Transportation610615Electronics725672Total Transportation and Electronics Business Segment2,1042,050Health Information Systems300300Medical Surgical(MedSurg)1,1231,123Dental Solutions335341Purification and Filtration245232Other Health Care14 14Total Health Care Business Group2,0172,010Consumer Safety and Well-Being266270Home and Auto Care305318Home Improvement330341Packaging and Expression239263Total Consumer Business Group1,1401,192Corporate and Unallocated10Total Company$8,003$8,031Three months endedMarch 31,Net Sales by Geographic Area(millions)20242023Americas$4,375$4,399 Asia Pacific2,106 2,180 Europe,Middle East and Africa1,522 1,452 Worldwide$8,003$8,031 Americas included United States net sales to customers of$3.6 billion and$3.6 billion for the three months ended March 31,2024 and 2023,respectively.8Table of ContentsNOTE 3.DivestituresRefer to Note 3 to the Consolidated Financial Statements in 3Ms 2023 Annual Report on Form 10-K for more information on relevant pre-2024 divestitures.Previously Announced Divestitures:On April 1,2024,3M completed the previously announced separation of its Health Care business(the Separation)through a pro ratadistribution of 80.1%of the outstanding shares of Solventum Corporation(Solventum)to 3M stockholders.This spin-off transaction was intended to be tax-free for U.S.federalincome tax purposes.On the April 1,2024 distribution date,each 3M stockholder of record received one share of Solventum common stock for every four shares of 3Mcommon stock held.As a result of the Separation,Solventum became an independent public company whose common stock is listed under the symbol“SOLV”on the NewYork Stock Exchange and 3M will no longer consolidate Solventum into 3Ms financial results.3M expects,after completion of accounting for the transaction,to retainapproximately$7.7 billion of the proceeds from Solventums debt and term loan issuances(see Note 11),while the obligations for repayment of those underlying borrowingsremained with Solventum after the Separation.In connection with the Separation,the historical net income of Solventum and applicable assets and liabilities included in theSeparation will be reported in 3Ms consolidated financial statements as discontinued operations beginning in the second quarter of 2024.3M will prospectively measure,at fairvalue on a recurring basis,its retained equity ownership interest of approximately 19.9%in Solventum common stock,with related earnings impact from changes in valuebeing recognized in continuing operations.3M expects to monetize its stake in Solventum over time.The Company entered into various agreements to effect the Separation andprovide for the relationship between 3M and Solventum,including,among others,a separation and distribution agreement,a tax matters agreement,and a transition servicesagreement,as well as certain commercial agreements.With respect to the business above,operating income information of the Health Care business segment,is included in Note 17.NOTE 4.Goodwill and Intangible AssetsGoodwill:The change in the carrying amount of goodwill by business segment was as follows:(Millions)Safety and IndustrialTransportation andElectronicsHealth CareConsumerTotal CompanyBalance as of December 31,2023$4,542$1,512$6,603$270$12,927Translation and other(33)(7)(71)(7)(118)Balance as of March 31,2024$4,509$1,505$6,532$263$12,809The amounts in the“Translation and other”row in the above table primarily relate to changes in foreign currency exchange rates.As of March 31,2024,the Companys accumulated goodwill impairment loss is$0.3 billion.Acquired Intangible Assets:The carrying amount and accumulated amortization of acquired finite-lived intangible assets,in addition to the balance of non-amortizableintangible assets follow:(Millions)March 31,2024December 31,2023Customer related$4,061$4,073 Patents419 420 Other technology-based2,075 2,077 Definite-lived tradenames1,165 1,166 Other75 78 Total gross carrying amount7,795 7,814 Accumulated amortization customer related(2,009)(1,966)Accumulated amortization patents(418)(419)Accumulated amortization other technology-based(1,222)(1,178)Accumulated amortization definite-lived tradenames(591)(575)Accumulated amortization other(56)(57)Total accumulated amortization(4,296)(4,195)Total finite-lived intangible assets net3,499 3,619 Indefinite lived intangible assets(primarily tradenames)606 607 Total intangible assets net$4,105$4,226 Certain tradenames acquired by 3M are not amortized because they have been in existence for over 60 years,have a history of leading-market share positions,have been andare intended to be continuously renewed,and the associated products of which are expected to generate cash flows for 3M for an indefinite period of time.9Table of ContentsAmortization expense follows:Three months endedMarch 31,(Millions)20242023Amortization expense$114$122 Expected amortization expense for acquired amortizable intangible assets recorded as of March 31,2024 follows:(Millions)Remainder of 202420252026202720282029After 2029Amortization expense$339$422$417$393$366$329$1,233 3M expenses the costs incurred to renew or extend the term of intangible assets.NOTE 5.Restructuring Actions2023 to 2025 Structural Reorganization Actions:As described in Note 5 in 3Ms 2023 Annual Report on Form 10-K,in the first quarter of 2023,3M announced it wouldundertake structural reorganization actions to reduce the size of the corporate center of the Company,simplify supply chain,streamline 3Ms geographic footprint,reduce layersof management,further align business go-to-market models to customers,and reduce manufacturing roles to align with production volumes.This aggregate initiative,beginningin the first quarter of 2023 and continuing through 2025,is expected to impact approximately 8,500 positions worldwide with an expected pre-tax charge of$700 million to$900 million over that period.During 2023,management approved and committed to undertake associated actions resulting in a 2023 pre-tax charge of$437 million.In thefirst quarter of 2024,management approved and committed to undertake additional actions under this initiative impacting approximately 500 positions resulting in a pre-taxcharge of$104 million.Since its beginning in 2023 through committed first quarter 2024 actions,this initiative has impacted approximately 6,500 positions worldwide.Remaining activities related to the restructuring actions approved and committed through March 31,2024 under this initiative are expected to be completed in 2025.3Mexpects to commit to further actions under this initiative.The related restructuring charges for periods presented were recorded in the income(loss)statement as follows:Three months endedMarch 31,(Millions)20242023Cost of sales$2$16 Selling,general and administrative expenses92 32 Research,development and related expenses10 4 Total operating income impact$104$52 The business segment operating income(loss)impact of these restructuring charges is summarized as follows:Three months ended March 31,20242023(Millions)Employee RelatedAsset-Related and OtherTotalEmployee RelatedSafety and Industrial$26$20$46$10 Transportation and Electronics9 15 24 12 Health Care7 14 21 2 Consumer5 8 13 3 Corporate and unallocated 25 Total operating expense$47$57$104$52 Restructuring actions,including cash and non-cash impacts,follow:(Millions)Employee-RelatedAsset-Related and OtherTotalAccrued restructuring action balance as of December 31,2023$99$99 Incremental expense incurred in the first quarter of 202447 57 104 Non-cash changes(57)(57)Adjustments11 11 Cash payments(53)(53)Accrued restructuring action balance as of March 31,2024$104$104 10Table of Contents2023 to 2025 PFAS Exit Actions:As described in Note 5 in 3Ms 2023 Annual Report on Form 10-K,3M announced in 2022 that it will exit all PFAS manufacturing by theend of 2025.In 2023,3M management approved and committed to undertake certain related workforce actions resulting in a pre-tax charge of$64 million primarily impactingcost of sales.In the first quarter of 2024,management approved and committed to undertake additional related workforce actions impacting approximately 20 positionsresulting in a 2024 pre-tax charge of$4 million primarily impacting cost of sales.These charges are reflected within the Transportation and Electronics business segment.Thisinitiative,beginning in 2023 through committed first quarter 2024 actions,has impacted approximately 570 positions worldwide.The remaining period of activities related tothese approved and committed actions aligns with 3Ms PFAS exit timeframe.(Millions)Employee-RelatedAccrued restructuring action balance as of December 31,2023$60 Incremental expense incurred in the first quarter of 20244 Cash payments(13)Accrued restructuring action balance as of March 31,2024$51 NOTE 6.Supplemental Income(Loss)Statement InformationOther expense(income),net consists of the following:Three months endedMarch 31,(Millions)20242023Interest expense$385$123 Interest income(110)(40)Pension and postretirement net periodic benefit cost(benefit)(11)(31)Total$264$52 Interest expense includes$181 million and$123 million during the three months ended March 31,2024 and 2023,respectively,related to outstanding debt.Beginning in thesecond quarter of 2023,interest expense also includes imputed interest associated with the obligations resulting from the PWS Settlement and the CAE Settlement(discussed inNote 16).In the first quarter of 2024,3M incurred$44 million of interest expense associated with the debt issued by Solventum prior to the Separation discussed in Note 3 andfurther discussed in Note 11.Pension and postretirement net periodic benefit income described in the table above include all components of defined benefit plan net periodic benefit cost(benefit)exceptservice cost,which is reported in various operating expense lines.Refer to Note 12 for additional details on the components of pension and postretirement net periodic benefitcost(benefit).11Table of ContentsNOTE 7.Supplemental Equity and Comprehensive Income(Loss)InformationCash dividends declared and paid totaled$1.51 and$1.50 per share for the first quarter of 2024 and 2023,respectively.The table below presents the consolidated changes in equity for three months ended March 31,2024 and 2023:3M Company Shareholders(Millions)TotalCommon Stock andAdditional Paid-inCapitalRetainedEarningsTreasury StockAccumulated OtherComprehensive Income(Loss)Non-controllingInterestBalance at December 31,2023$4,868$6,965$37,479$(32,859)$(6,778)$61 Net income(loss)933 928 5 Other comprehensive income(loss),net of tax(47)(48)1 Dividends declared(835)(835)Stock-based compensation17 17 Reacquired stock(21)(21)Issuances pursuant to stock option and benefit plans18(100)118 Balance at March 31,2024$4,933$6,982$37,472$(32,762)$(6,826)$67 Balance at December 31,2022$14,770$6,700$47,950$(33,255)$(6,673)$48 Net income981 976 5 Other comprehensive income(loss),net of tax143 143 Dividends declared(827)(827)Stock-based compensation125 125 Reacquired stock(29)(29)Issuances pursuant to stock option and benefit plans188(133)321 Balance at March 31,2023$15,351$6,825$47,966$(32,963)$(6,530)$53 The table below presents the changes in accumulated other comprehensive income(loss)attributable to 3M(AOCI),including the reclassifications out of AOCI by componentfor three months ended March 31,2024 and 2023:(Millions)Cumulative TranslationAdjustmentDefined Benefit Pension andPostretirement PlansAdjustmentCash Flow HedgingInstruments,UnrealizedGain(Loss)Total Accumulated OtherComprehensive Income(Loss)Balance at December 31,2023,net of tax:$(2,506)$(4,218)$(54)$(6,778)Other comprehensive income(loss),before tax:Amounts before reclassifications(253)67 61(125)Amounts reclassified out57 96(27)126 Total other comprehensive income(loss),before tax(196)163 34 1 Tax effect(13)(28)(8)(49)Total other comprehensive income(loss),net of tax(209)135 26(48)Balance at March 31,2024,net of tax:$(2,715)$(4,083)$(28)$(6,826)Balance at December 31,2022,net of tax:$(2,828)$(3,838)$(7)$(6,673)Other comprehensive income(loss),before tax:Amounts before reclassifications105 6 111 Amounts reclassified out 64(41)23 Total other comprehensive income(loss),before tax105 64(35)134 Tax effect 11(13)11 9 Total other comprehensive income(loss),net of tax116 51(24)143 Balance at March 31,2023,net of tax:$(2,712)$(3,787)$(31)$(6,530)Includes tax expense(benefit)reclassified out of AOCI related to the following:Three months ended March 31,(millions)20242023Cumulative Translation Adjustment Defined benefit pension and postretirement plans adjustment(13)(13)Cash flow hedging instruments,unrealized gain/loss6 10(1)(1)(1)12Table of ContentsIncome taxes are not provided for foreign translation relating to permanent investments in international subsidiaries,but tax effects within cumulative translation do includeimpacts from items such as net investment hedge transactions.The Company uses the portfolio approach for releasing income tax effects from accumulated othercomprehensive income.Additional details on the amounts reclassified from accumulated other comprehensive income(loss)into consolidated income(loss)include:Cumulative translation adjustment:amounts were reclassified into selling,general and administrative expense.In 2024,this was associated with country exits as partof streamlining 3Ms geographic footprint(see Note 5).Defined benefit pension and postretirement plan adjustments:amounts were reclassified into other(expense)income,net(see Note 12).Cash flow hedging instruments,unrealized gain(loss):foreign currency forward/option contacts amounts were reclassified into cost of sales;interest rate contractamounts were reclassified into interest expense(see Note 14).The tax effects,if applicable,associated with these reclassifications were reflected in provision for income taxes.NOTE 8.Income TaxesThe effective tax rate for the first quarter of 2024 was 24.7 percent,an increase from 17.7 percent in the prior year.The primary factors that increased the Companys effectivetax rate for first quarter 2024 were nonrecurring deferred tax benefits in 2023 as compared to 2024s decreased tax benefits related to significant litigation and stock-basedcompensation,as well as tax costs of entity structuring associated with the separation of Solventum.The total amounts of unrecognized tax benefits that,if recognized,would affect the effective tax rate as of March 31,2024 and December 31,2023 are$883 million and$884million,respectively.It is reasonably possible that the amount of unrecognized tax benefits could significantly change within the next 12 months.At this time,the Company isnot able to estimate the range by which these potential events could impact 3Ms unrecognized tax benefits in the next 12 months.As of March 31,2024 and December 31,2023,the Company had valuation allowances of$703 million and$706 million on its deferred tax assets,respectively.In 2021,the Organization for Economic Cooperation and Development(OECD)published Pillar Two Model Rules defining a global minimum tax,which calls for the taxationof large corporations at a minimum rate of 15%.The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation ofthe Pillar Two global minimum tax.Effective January 1,2024,a number of countries have proposed or enacted legislation to implement core elements of the Pillar Twoproposal.Pillar Two did not have a significant impact on 3Ms first quarter 2024 results.While 3M is monitoring developments and evaluating the potential impact on futureperiods,3M does not expect Pillar Two to have a significant impact on its 2024 financial results.NOTE 9.Earnings(Loss)Per ShareThe difference in the weighted average 3M shares outstanding for calculating basic and diluted earnings per share attributable to 3M common shareholders is the result of thedilution associated with the Companys stock-based compensation plans.Certain awards outstanding under these stock-based compensation plans were not included in thecomputation of diluted earnings per share attributable to 3M common shareholders because they would have had an anti-dilutive effect of 32.8 million and 35.6 million averageoptions for the three months ended March 31,2024 and 2023,respectively.The computations for basic and diluted earnings per share follow:Three months endedMarch 31,(Amounts in millions,except per share amounts)20242023Numerator:Net income(loss)attributable to 3M$928$976 Denominator:Denominator for weighted average 3M common shares outstanding basic555.0 552.7 Dilution associated with stock-based compensation plans0.9 0.5 Denominator for weighted average 3M common shares outstanding diluted555.9 553.2 Earnings(loss)per share attributable to 3M common shareholders basic$1.67$1.77 Earnings(loss)per share attributable to 3M common shareholders diluted$1.67$1.76 13Table of ContentsNOTE 10.Marketable SecuritiesThe Company invests in certificates of deposit/time deposits,commercial paper,and other securities.The following is a summary of amounts recorded on the ConsolidatedBalance Sheet for marketable securities(current and non-current).(Millions)March 31,2024December 31,2023Certificates of deposit/time deposits$56$49 U.S.municipal securities4 4 Current marketable securities60 53 U.S.municipal securities20 20 Non-current marketable securities20 20 Total marketable securities$80$73 At March 31,2024 and December 31,2023,gross unrealized,gross realized,and net realized gains and/or losses(pre-tax)were not material.The balances at March 31,2024 for marketable securities by contractual maturity are shown below.Actual maturities may differ from contractual maturities because the issuersof the securities may have the right to prepay obligations without prepayment penalties.(Millions)Due in one year or less$60 Due after one year through five years11 Due after five years through ten years9 Total marketable securities$80 NOTE 11.Long-Term Debt and Short-Term Borrowings2023 issuances,maturities,and extinguishments of short-and long-term debt are described in Note 13 to the Consolidated Financial Statements in 3Ms 2023 Annual Report onForm 10-K.The Company had no commercial paper outstanding at March 31,2024,compared to$1.8 billion commercial paper outstanding as of December 31,2023.In the first quarter of 2024,Solventum,prior to the Separation discussed in Note 3,issued a total of$8.4 billion in aggregate principal amount of senior unsecured debt andterm loans comprised of:$6.9 billion in aggregate principal amount of senior unsecured debt comprised of$1 billion of 5.45%notes due 2027,$1.5 billion of 5.40%notes due 2029,$1.0 billion of 5.45%notes due 2031,$1.65 billion of 5.60%notes due 2034,$1.25 billion of 5.90%due 2054,and$0.5 billion of 6.0%notes due 2064.$1.5 billion in aggregate principal amount of variable rate term loans initially at 6.79%,of which$0.5 billion is due in 2025 and$1.0 billion is due in 2027.Also during the first quarter of 2024,Solventum further entered into a revolving credit facility of$2 billion which was undrawn as of March 31,2024.These Solventum itemswere guaranteed by 3M until the completion of the Separation on April 1,2024 and obligations under these notes,loans and facilities became the sole responsibility ofSolventum after the Separation.In February 2024,3M repaid$1.1 billion aggregate principal amount of medium-term notes that matured.Future Maturities of Long-term Debt:Maturities of long-term debt in the table below reflect the impact of put provisions associated with certain debt instruments and are netof the unamortized debt issue costs such that total maturities equal the carrying value of long-term debt as of March 31,2024.Note,as discussed above,obligations associatedwith Solventums borrowings remained with Solventum after the April 1,2024 Separation.The maturities of long-term debt for the periods subsequent to March 31,2024 are asfollows(in millions):Remainder of 202420252026202720282029After 2029TotalDebt issued by 3M$53$1,868$1,545$847$818$1,790$6,171$13,092 Debt issued by Solventum 499 1,972 1,485 4,347 8,303 14Table of ContentsNOTE 12.Pension and Postretirement Benefit PlansThe service cost component of defined benefit net periodic benefit cost is recorded in cost of sales;selling,general and administrative expenses;and research,development andrelated expenses.The other components of net periodic benefit cost are reflected in other expense(income),net.Components of net periodic benefit cost and othersupplemental information for the three months ended March 31,2024 and 2023 follow:Three months ended March 31,Qualified and Non-qualified Pension BenefitsPostretirement BenefitsUnited StatesInternational(Millions)202420232024202320242023Net periodic benefit cost(benefit)Operating expenseService cost$37$43$21$19$7$6 Non-operating expenseInterest cost160 166 54 55 22 22 Expected return on plan assets(237)(244)(87)(75)(19)(19)Amortization of transition asset 1 Amortization of prior service benefit(4)(6)1 1(6)(8)Amortization of net actuarial loss95 73 3 2 6 2 Total non-operating expense(benefit)14(11)(28)(17)3(3)Total net periodic benefit cost(benefit)$51$32$(7)$2$10$3 For the three months ended March 31,2024 contributions totaling$45 million were made to the Companys U.S.and international pension plans and$3 million to itspostretirement plans.Future contributions will depend on market conditions,interest rates and other factors.3M does not expect the previously disclosed range of$100 millionto$200 million of expected 2024 cash contributions to its U.S.and international retirement plans to be materially impacted by the April 1,2024 separation of Solventum(seeNote 3).3Ms annual measurement date for pension and postretirement assets and liabilities is December 31 each year,which is also the date used for the related annualmeasurement assumptions.As of March 31,2024,3M transferred eligible U.S.Solventum employees and retirees to new U.S.defined benefit pension and postretirement plans with the same benefits oftheir current plans.The transfer required remeasurement of the plans prior to the calculation of this split.The net impact of the remeasurement was a decrease of approximately$70 million in the non-current liability for pension and postretirement benefits(and corresponding decrease in accumulated comprehensive loss,before deferred taxes).Assumptions used for this remeasurement included discount rates determined using March 31,2024 market conditions and calculated using the same methodology as disclosedin Note 14 to the Consolidated Financial Statements in 3Ms 2023 Annual Report on Form 10-K.All other assumptions were consistent with the December 31,2023disclosures.Using this methodology,the Company determined a discount rate of 5.22%for the U.S.pension plans and 5.19%for the U.S.postretirement benefit plans as ofMarch 31,2024,which are increases of 0.24 percentage points and 0.25 percentage points,respectively,from the rates used as of December 31,2023.This remeasurement didnot impact consolidated income for the three months ended March 31,2024,but will impact net periodic benefit cost for the remainder of 2024.As of March 31,2024,therewere several small international pension plans remeasured for purposes of transferring Solventum employees to new pension plans,the impact of which was not material.NOTE 13.Supplier Finance Program ObligationsUnder supplier finance programs,3M agrees to pay participating banks the stated amount of confirmed invoices from its designated suppliers on the original maturity dates ofthe invoices,generally within 90 days of the invoice date.3M or the banks may terminate the agreements with advance notice.Separately,the banks may have arrangementswith the suppliers that provide them the option to request early payment from the banks for invoices confirmed by 3M.3Ms outstanding balances of confirmed invoices in theprograms as of March 31,2024 and December 31,2023 were approximately$280 million and$270 million,respectively.These amounts are included within accounts payableon 3Ms consolidated balance sheet.15Table of ContentsNOTE 14.DerivativesThe Company uses interest rate swaps and forward and option contracts to manage risks generally associated with foreign exchange rate and interest rate fluctuations.Note 16to the Consolidated Financial Statements in 3Ms 2023 Annual Report on Form 10-K explains the types of derivatives and financial instruments used by 3M,how and why 3Muses such instruments,and how such instruments are accounted for.It also contains information regarding previously initiated contracts or instruments.Additional information with respect to derivatives is included elsewhere as follows:Impact on other comprehensive income of nonderivative hedging and derivative instruments is included in Note 7.Fair value of derivative instruments is included in Note 15.Derivatives and/or hedging instruments associated with the Companys long-term debt are described in Note 13 to the Consolidated Financial Statements in 3Ms 2023Annual Report on Form 10-K.Refer to the section below titled Statement of Income(Loss)Location and Impact of Cash Flow and Fair Value Derivative Instruments and Derivatives Not Designated asHedging Instruments for details on the location within the consolidated statements of income(loss)for amounts of gains and losses related to derivative instruments designatedas cash flow or fair value hedges(along with similar information relative to the hedged items)and derivatives not designated as hedging instruments.Additional informationrelative to cash flow hedges,fair value hedges,net investment hedges and derivatives not designated as hedging instruments is included below as applicable.Cash Flow Hedges:As of March 31,2024,the Company had a balance of$28 million associated with the after-tax net unrealized loss associated with cash flow hedginginstruments recorded in accumulated other comprehensive income(loss).This includes a remaining balance of$85 million(after-tax loss)related to forward starting interestrate swap and treasury rate lock contracts terminated in 2019 concurrent with associated debt issuances,which is being amortized over the respective lives of the underlyingnotes.Based on exchange rates as of March 31,2024 of the total after-tax net unrealized balance as of March 31,2024,3M expects to reclassify approximately$44 millionafter-tax net unrealized gain over the next 12 months(with the impact offset by earnings/losses from underlying hedged items).The amount of pretax gain(loss)recognized in other comprehensive income(loss)related to derivative instruments designated as cash flow hedges is provided in the followingtable.Pretax Gain(Loss)Recognized in Other Comprehensive Income(Loss)onDerivativeThree months endedMarch 31,(Millions)20242023Foreign currency forward/option contracts$61$6 Fair Value Hedges:The following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for active fair value hedges,as well asremaining amounts for discontinued fair value hedges:Location on the Consolidated Balance Sheet(Millions)Carrying Value of the Hedged LiabilitiesCumulative Amount of Fair Value Hedging Adjustment Included in theCarrying Value of the Hedged LiabilitiesMarch 31,2024December 31,2023March 31,2024December 31,2023Long-term debt$907$918$(96)$(84)Net Investment Hedges:At March 31,2024,the total notional amount of foreign exchange forward contracts designated in net investment hedges was approximately 150million euros,along with a principal amount of long-term debt instruments designated in net investment hedges totaling 1.8 billion euros.The maturity dates of these derivativeand nonderivative instruments designated in net investment hedges range from 2024 to 2031.The amount of gain(loss)excluded from effectiveness testing recognized in income relative to instruments designated in net investment hedge relationships is not material.Theamount of pre-tax gain(loss)recognized in other comprehensive income(loss)related to derivative and nonderivative instruments designated as net investment hedges are asfollows.Pretax Gain(Loss)Recognized as Cumulative Translation within OtherComprehensive Income(Loss)Three months endedMarch 31,(Millions)20242023Foreign currency denominated debt$43$(43)Foreign currency forward contracts3(2)Total$46$(45)16Table of ContentsDerivatives Not Designated as Hedging Instruments:Derivatives not designated as hedging instruments include de-designated foreign currency forward and option contractsthat formerly were designated in cash flow hedging relationships(as referenced in the Cash Flow Hedges section above).In addition,3M enters into foreign currency contractsthat are not designated in hedging relationships to offset,in part,the impacts of changes in value of various non-functional currency denominated items including certainintercompany financing balances.These derivative instruments are not designated in hedging relationships;therefore,fair value gains and losses on these contracts are recordedin earnings.The Company does not hold or issue derivative financial instruments for trading purposes.Statement of Income(Loss)Location and Impact of Cash Flow and Fair Value Derivative Instruments and Derivatives Not Designated as Hedging Instruments:Three months ended March 31,Cost of salesOther expense(income),net(Millions)2024202320242023Total consolidated financial statement line item amount$4,329$4,613$264$52 Pre-tax amounts recognized in income related to derivative instruments Information regarding cash flow and fair value hedging relationships:(Gain)or loss on cash flow hedging relationships:Foreign currency forward/option contracts:Amount of(gain)or loss reclassified from accumulated other comprehensive income(loss)into income(29)(43)Interest rate contracts:Amount of(gain)or loss reclassified from accumulated other comprehensive income(loss)into income 2 2(Gain)or loss on fair value hedging relationships:Interest rate contracts:Hedged items (11)12 Derivatives designated as hedging instruments 11(12)Information regarding derivatives not designated as hedging instruments:(Gain)or loss on derivatives not designated as instruments:Foreign currency forward/option contracts5(8)2 26 Location,Fair Value,and Gross Notional Amounts of Derivative Instruments:The following tables summarize the fair value of 3Ms derivative instruments,excludingnonderivative instruments used as hedging instruments,and their location in the consolidated balance sheet.Notional amounts below are presented at period end foreignexchange rates,except for certain interest rate swaps,which are presented using the inception dates foreign exchange rate.Gross Notional AmountAssetsLiabilities(Millions)LocationFair Value AmountLocationFair Value AmountMarch 31,2024December 31,2023March 31,2024December 31,2023March 31,2024December 31,2023Derivatives designated as hedging instrumentsForeign currency forward/optioncontracts$2,070$2,109 Other current assets$80$68 Other currentliabilities$7$27 Foreign currency forward/optioncontracts253 342 Other assets11 11 Other liabilities2 5 Interest rate contracts800 800 Other assets Other liabilities99 88 Total derivatives designated ashedging instruments91 79 108 120 Derivatives not designated as hedging instrumentsForeign currency forward/optioncontracts861 1,023 Other current assets2 5 Other currentliabilities6 7 Total derivatives not designatedas hedging instruments2 5 6 7 Total derivative instruments$93$84$114$127 17Table of ContentsCredit Risk and Offsetting of Assets and Liabilities of Derivative Instruments:The Company is exposed to credit loss in the event of nonperformance by counterparties ininterest rate swaps,currency swaps,and forward and option contracts.However,the Companys risk is limited to the fair value of the instruments.The Company activelymonitors its exposure to credit risk through the use of credit approvals and credit limits,and by selecting major international banks and financial institutions as counterparties.3M enters into master netting arrangements with counterparties when possible to mitigate credit risk in derivative transactions.A master netting arrangement may allow eachcounterparty to net settle amounts owed between a 3M entity and the counterparty as a result of multiple,separate derivative transactions.The Company does not anticipatenonperformance by any of these counterparties.3M has elected to present the fair value of derivative assets and liabilities within the Companys consolidated balance sheet on a gross basis even when derivative transactionsare subject to master netting arrangements and may otherwise qualify for net presentation.However,the following tables provide information as if the Company had elected tooffset the asset and liability balances of derivative instruments,netted in accordance with various criteria in the event of default or termination as stipulated by the terms ofnetting arrangements with each of the counterparties.For each counterparty,if netted,the Company would offset the asset and liability balances of all derivatives at the end ofthe reporting period based on the 3M entity that is a party to the transactions.Derivatives not subject to master netting agreements are not eligible for net presentation.For theperiods presented,3M has not received cash collateral from derivative counterparties.Offsetting of Financial Assets under Master Netting Agreements with Derivative Counterparties Gross Amount of Derivative Assets Presentedin the Consolidated Balance Sheet Gross Amount of Eligible OffsettingRecognized Derivative LiabilitiesNet Amount of Derivative Assets(Millions)March 31,2024December 31,2023March 31,2024December 31,2023March 31,2024December 31,2023Derivatives subject to master netting agreements$93$84$15$30$78$54 Offsetting of Financial Liabilities under Master Netting Agreements with Derivative Counterparties Gross Amount of Derivative LiabilitiesPresented in the Consolidated Balance Sheet Gross Amount of Eligible OffsettingRecognized Derivative AssetsNet Amount of Derivative Liabilities(Millions)March 31,2024December 31,2023March 31,2024December 31,2023March 31,2024December 31,2023Derivatives subject to master netting agreements$114$127$15$30$99$97 Currency Effects:3M estimates that year-on-year foreign currency transaction effects,including hedging impacts,decreased pre-tax income by approximately$26 million andincreased pre-tax income by approximately$36 million for the three months ended March 31,2024 and 2023,respectively.These estimates include transaction gains andlosses,including derivative instruments designed to reduce foreign currency exchange rate risks.18Table of ContentsNOTE 15.Fair Value Measurements3M follows ASC 820,Fair Value Measurements and Disclosures,with respect to assets and liabilities that are measured at fair value on a recurring basis and nonrecurring basis.Refer to Note 17 to the Consolidated Financial Statements in 3Ms 2023 Annual Report on Form 10-K for a qualitative discussion of the assets and liabilities that are measuredat fair value on a recurring and nonrecurring basis,a description of the valuation methodologies used by 3M,and categorization within the valuation framework of ASC 820.The following table provide information by level for assets and liabilities that are measured at fair value on a recurring basis at March 31,2024 and December 31,2023.Fair Value atFair Value Measurements Using Inputs Considered asLevel 1Level 2Level 3Description(Millions)March 31,2024December 31,2023March 31,2024December 31,2023March 31,2024December 31,2023March 31,2024December 31,2023Assets:Available-for-sale:Marketable securities:Certificates of deposit/time deposits$56$49$56$49$U.S.municipal securities24 24 24 24 Derivative instruments assets:Foreign currency forward/optioncontracts93 84 93 84 Liabilities:Derivative instruments liabilities:Foreign currency forward/optioncontracts15 39 15 39 Interest rate contracts99 88 99 88 The Company had no material activity with level 3 assets and liabilities during the periods presented.In addition,the plan assets of 3Ms pension and postretirement benefit plans are measured at fair value on a recurring basis(at least annually).Refer to Note 14 to theConsolidated Financial Statements in 3Ms 2023 Annual Report on Form 10-K.Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis:3M had no material measurements at fair value on a nonrecurring basis of applicableassets or liabilities for first quarters of 2024 and 2023.Fair Value of Financial Instruments:The Companys financial instruments include cash and cash equivalents,marketable securities,accounts receivable,certain investments,accounts payable,borrowings,and derivative contracts.The fair values of cash equivalents,accounts receivable,accounts payable,and short-term borrowings and currentportion of long-term debt approximated carrying values because of the short-term nature of these instruments.Available-for-sale marketable securities,in addition to certainderivative instruments,are recorded at fair values as indicated in the preceding disclosures.To estimate fair values(classified as level 2)for its long-term debt,the Companyutilized third-party quotes,which are derived all or in part from model prices,external sources,market prices,or the third-partys internal records.Information with respect tothe carrying amounts and estimated fair values of these financial instruments follow:March 31,2024December 31,2023(Millions)Carrying ValueFair ValueCarrying ValueFair ValueLong-term debt,excluding current portion$20,593$19,267$13,088$11,859 The fair values reflected in the sections above consider the terms of the related debt absent the impacts of derivative/hedging activity.The carrying amount of long-term debtreferenced above is impacted by certain fixed-to-floating interest rate swaps that are designated as fair value hedges and by the designation of certain fixed rate Eurobondsecurities issued by the Company as hedging instruments of the Companys net investment in its European subsidiaries.19Table of ContentsNOTE 16.Commitments and ContingenciesLegal Proceedings:The Company and some of its subsidiaries are involved in numerous claims and lawsuits,principally in the United States,and regulatory proceedingsworldwide.These claims,lawsuits and proceedings relate to matters including,but not limited to,products liability(involving products that the Company now or formerlymanufactured and sold),intellectual property,commercial,antitrust,federal healthcare program related laws and regulations,such as the False Claims Act and anti-kickbacklaws,securities,and environmental laws in the United States and other jurisdictions.Unless otherwise stated,the Company is vigorously defending all such litigation andproceedings.From time to time,the Company also receives subpoenas,investigative demands or requests for information from various government agencies in the UnitedStates and foreign countries.The Company generally responds in a cooperative,thorough and timely manner.These responses sometimes require time and effort and can resultin considerable costs being incurred by the Company.Such requests can also lead to the assertion of claims or the commencement of administrative,civil,or criminal legalproceedings against the Company and others,as well as to settlements.The outcomes of legal proceedings and regulatory matters are often difficult to predict.Anydetermination that the Companys operations or activities are not,or were not,in compliance with applicable laws or regulations could result in the imposition of fines,civil orcriminal penalties,and equitable remedies,including disgorgement,suspension or debarment or injunctive relief.Process for Disclosure and Recording of Liabilities Related to Legal Proceedings:Many lawsuits and claims involve highly complex issues relating to causation,scientificevidence,and alleged actual damages,all of which are otherwise subject to substantial uncertainties.Assessments of lawsuits and claims can involve a series of complexjudgments about future events and can rely heavily on estimates and assumptions.The categories of legal proceedings in which the Company is involved may include multiplelawsuits and claims,may be spread across multiple jurisdictions and courts which may handle the lawsuits and claims differently,may involve numerous and different types ofplaintiffs,raising claims and legal theories based on specific allegations that may not apply to other matters,and may seek substantial compensatory and,in some cases,punitive,damages.These and other factors contribute to the complexity of these lawsuits and claims and make it difficult for the Company to predict outcomes and makereasonable estimates of any resulting losses.The Companys ability to predict outcomes and make reasonable estimates of potential losses is further influenced by the fact that aresolution of one or more matters within a category of legal proceedings may impact the resolution of other matters in that category in terms of timing,amount of liability,orboth.When making determinations about recording liabilities related to legal proceedings,the Company complies with the requirements of ASC 450,Contingencies,and relatedguidance,and records liabilities in those instances where it can reasonably estimate the amount of the loss and when the loss is probable.Where the reasonable estimate of theprobable loss is a range,the Company records as an accrual in its financial statements the most likely estimate of the loss,or the low end of the range if there is no one bestestimate.The Company either discloses the amount of a possible loss or range of loss in excess of established accruals if estimable,or states that such an estimate cannot bemade.The Company discloses significant legal proceedings even where liability is not probable or the amount of the liability is not estimable,or both,if the Company believesthere is at least a reasonable possibility that a loss may be incurred.Based on experience and developments,the Company reexamines its estimates of probable liabilities andassociated expenses and receivables each period,and whether a loss previously determined to not be reasonably estimable and/or not probable is now able to be reasonablyestimated or has become probable.Where appropriate,the Company makes additions to or adjustments of its reasonably estimated losses and/or accruals.As a result,thecurrent accruals and/or estimates of loss and the estimates of the potential impact on the Companys consolidated financial position,results of operations and cash flows for thelegal proceedings and claims pending against the Company will likely change over time.Because litigation is subject to inherent uncertainties,and unfavorable rulings or developments could occur,the Company may ultimately incur charges substantially in excessof presently recorded liabilities,including with respect to matters for which no accruals are currently recorded because losses are not currently probable and reasonablyestimable.Many of the matters described herein are at varying stages,seek an indeterminate amount of damages or seek damages in amounts that the Company believes are notindicative of the ultimate losses that may be incurred.It is not uncommon for claims to be resolved over many years.As a matter progresses,the Company may receiveinformation,through plaintiff demands,through discovery,in the form of reports of purported experts,or in the context of settlement or mediation discussions that purport toquantify an amount of alleged damages,but with which the Company may not agree.Such information may or may not lead the Company to determine that it is able to make areasonable estimate as to a probable loss or range of loss in connection with a matter.However,even when a loss or range of loss is not probable and reasonably estimable,developments in,or the ultimate resolution of,a matter could be material to the Company and could have a material adverse effect on the Company,its consolidated financialposition,results of operations and cash flows.In addition,future adverse rulings or developments,or settlements in,one or more matters could result in future changes todeterminations of probable and reasonably estimable losses in other matters.20Table of ContentsProcess for Disclosure and Recording of Insurance Receivables Related to Legal Proceedings:The Company estimates insurance receivables based on an analysis of theterms of its numerous policies,including their exclusions,pertinent case law interpreting comparable policies,its experience with similar claims,and assessment of the natureof the claim and remaining coverage,and records an amount it has concluded is recognizable and expects to receive in light of the loss recovery and/or gain contingencymodels under ASC 450,ASC 610-30,and related guidance.For those insured legal proceedings where the Company has recorded an accrued liability in its financial statements,the Company also records receivables for the amount of insurance that it concludes as recognizable from the Companys insurance program.For those insured matters wherethe Company has not recorded an accrued liability because the liability is not probable or the amount of the liability is not estimable,or both,but where the Company hasincurred an expense in defending itself,the Company records receivables for the amount of insurance that it concludes as recognizable for the expense incurred.Impact of Solventum Spin-Off:On April 1,2024,the Company completed the planned spin-off of its Health Care business,known as Solventum,as an independent company.Concurrent with the spin-off,the Company and Solventum entered into various agreements,including transition agreements and a separation and distribution agreement that,among other things,identified the assets to be transferred,the liabilities to be assumed,indemnification and defense obligations,and the contracts to be transferred toSolventum and 3M as part of the spin-off.In general,and except as noted below and as set forth in the separation and distribution agreement,certain liabilities related toSolventum or the assets that are transferred to Solventum in connection with the spin-off will be retained by or transferred to Solventum.The separation and distribution agreement governs the allocation of liabilities related to PFAS(as defined below)between the Company and Solventum,which liabilities willnot be subject to the general allocation principles otherwise set forth in the separation and distribution agreement.The Company will retain all PFAS-related liabilities resultingfrom the business,operations,and activities of(x)the Companys business(as defined in the separation and distribution agreement)and(y)Solventums business(as defined inthe separation and distribution agreement)prior to April 1,2024.Solventum will retain liability for all PFAS-related liabilities resulting from the business,operations,andactivities of its business at or after April 1,2024,other than liabilities from product claims alleging harm from the presence of PFAS in certain products of Solventums businesssold at or after April 1,2024,and prior to January 1,2026(subject to exceptions described in further detail below).The Company will retain liabilities related to site-basedPFAS contamination at any real property owned,leased or operated by the Company and liabilities for site-based PFAS contamination arising from third-party claims at sitesallocated to the Solventum group in the separation to the extent such liabilities relate to PFAS contamination existing at or prior to April 1,2024.Solventum assumes PFASliabilities from the Solventum sites to the extent resulting from an action taken by any member of the Solventum group following April 1,2024 or from any failure bySolventum following April 1,2024,to use commercially reasonable efforts that are consistent with then-current industry standards to avoid contamination.The Company willalso retain PFAS liabilities for product claims(x)arising from the Companys products,(y)arising from Solventums products sold prior to April 1,2024,and(z)arising fromcertain products sold by Solventum at or after April 1,2024,and prior to January 1,2026(subject to the exceptions described below).Clause(z)in the immediately precedingsentence will not extend to PFAS liabilities for product claims resulting from(i)new products introduced by Solventum following April 1,2024,that contain or are enabled byPFAS that is not supplied by the Company,(ii)products that are modified by Solventum after April 1,2024,to add,contain or become enabled by PFAS that is not supplied bythe Company,or with respect to which any modification made after April 1,2024,in the formulation or production of the product that changes the amount or type of PFAScontained in the product or the amount or type of PFAS enabling the product,in each case from and after the date of such modification,(iii)PFAS that is added to a Solventumproduct after it is sold by Solventum and(iv)PFAS that has accumulated in or on a Solventum product as a result of the use of the product(whether or not the product is beingused as directed),including through filtration,purification or similar application.Solventum will be responsible for the maintenance of certain PFAS containment measures atits properties after the effective time of the distribution.In addition,and consistent with the allocation described above,the Company will retain specifically identified PFAS-related liabilities,including those resulting from specified PFAS-related litigation matters and liabilities under the Companys settlement agreement with public water systemsin the United States,as described below.The following sections first describe the significant legal proceedings in which the Company is involved,and then describe the liabilities and associated insurance receivablesthe Company has accrued relating to its significant legal proceedings.Respirator Mask/Asbestos Litigation:As of March 31,2024,the Company is a named defendant,with multiple co-defendants,in numerous lawsuits in various courts thatpurport to represent approximately 4,060 individual claimants,compared to approximately 4,042 individual claimants with actions pending December 31,2023.The vast majority of the lawsuits and claims resolved by and currently pending against the Company allege use of some of the Companys mask and respirator products andseek damages from the Company and other defendants for alleged personal injury from workplace exposures to asbestos,silica,coal mine dust or other occupational dustsfound in products manufactured by other defendants or generally in the workplace.A minority of the lawsuits and claims resolved by and currently pending against theCompany generally allege personal injury from occupational exposure to asbestos from products previously manufactured by the Company,which are often unspecified,as wellas products manufactured by other defendants,or occasionally at Company premises.21Table of ContentsThe Companys current volume of new and pending matters is substantially lower than it experienced at the peak of filings in 2003.The Company expects that the filing ofclaims in the future will continue to be at much lower levels than in the past.Accordingly,the number of claims alleging more serious injuries,including mesothelioma,othermalignancies,and black lung disease,will represent a greater percentage of total claims than in the past.Over the past twenty plus years,the Company has prevailed inseventeen of the eighteen cases tried to a jury(including the lawsuits described below).In 2018,3M received a jury verdict in its favor in two lawsuits one in California statecourt in February and the other in Massachusetts state court in December both involving allegations that 3M respirators were defective and failed to protect the plaintiffsagainst asbestos fibers.In April 2018,a jury in state court in Kentucky found 3Ms 8710 respirators failed to protect two coal miners from coal mine dust and awardedcompensatory damages of approximately$2 million and punitive damages totaling$63 million.In August 2018,the trial court entered judgment and the Company appealed.In2019,the Company settled a substantial majority of the then-pending coal mine dust lawsuits in Kentucky and West Virginia for$340 million,including the jury verdict in April2018 in the Kentucky case mentioned above,and the appeal was dismissed.In October 2020,3M defended a respirator case before a jury in King County,Washington,involving a former shipyard worker who alleged 3Ms 8710 respirator was defective and that 3M acted negligently in failing to protect him against asbestos fibers.The jurydelivered a complete defense verdict in favor of 3M,concluding that the 8710 respirator was not defective in design or warnings and any conduct by 3M was not a cause ofplaintiffs mesothelioma.The plaintiff appealed the verdict.In May 2022,the First Division intermediate appellate court in Washington affirmed in part and reversed in part3Ms trial victory,concluding that the trial court misapplied Washington law in instructing the jury about factual causation.The Washington Supreme Court declined to reviewthe matter.More recently,in November 2023,a jury in Hawaii delivered a complete defense verdict in favor of 3M,concluding that 3Ms 8710 respirator was not a cause ofplaintiffs mesothelioma.In addition,in February 2024,a jury in Kentucky delivered a complete defense verdict in favor of 3M,concluding that 3Ms 8710 and 8210respirators that the plaintiff claims to have used were not defective.In April 2024,another jury in Kentucky returned a complete defense verdict in 3Ms favor and concludedthat 3Ms 8710 respirator that the plaintiff claims to have used was not defective.The Company has demonstrated in these past trial proceedings that its respiratory protection products are effective as claimed when used in the intended manner and in theintended circumstances.Consequently,the Company believes that claimants are unable to establish that their medical conditions,even if significant,are attributable to theCompanys respiratory protection products.Nonetheless,the Companys litigation experience indicates that claims of persons alleging more serious injuries,includingmesothelioma,other malignancies,and black lung disease,are costlier to resolve than the claims of unimpaired persons,and it therefore believes the average cost of resolvingpending and future claims on a per-claim basis will continue to be higher than it experienced in prior periods when the vast majority of claims were asserted by medicallyunimpaired claimants.In the second half of 2020 and into 2021,the Company experienced an increase in the number of cases filed that allege injuries from exposures to coalmine dust,but the rate of coal mine dust-related case filings decelerated in 2022 and continues to stay significantly lower than in 2021.3M moved two cases involving over 400plaintiffs to federal court based on,among others,the Class Action Fairness Act.The federal district court remanded the cases to state court.In March 2023,the Sixth CircuitCourt of Appeals granted 3Ms petition to review the remand order,and in April 2023 reversed the district courts remand order;accordingly,those cases will remain in federalcourt.As previously reported,the State of West Virginia,through its Attorney General,filed a complaint in 2003 against the Company and two other manufacturers of respiratoryprotection products in the Circuit Court of Lincoln County,West Virginia,and amended its complaint in 2005.The amended complaint seeks substantial,but unspecified,compensatory damages primarily for reimbursement of the costs allegedly incurred by the State for workers compensation and healthcare benefits provided to all workers withoccupational pneumoconiosis and unspecified punitive damages.In October 2019,the court granted the States motion to sever its unfair trade practices claim,which seekscivil penalties of up to$5,000 per violation under the states Consumer Credit Protection Act relating to statements that the State contends were misleading about 3Msrespirators.In April 2024,the court set a trial date for the unfair trade practices claims in December 2024.An expert witness retained by the State has estimated that 3M soldover five million respirators into the state during the relevant time period,and the State alleges that each respirator sold constitutes a separate violation under the Act.3Mdisputes the experts estimates and the States position regarding what constitutes a separate violation of the Act.3M has asserted various additional defenses,including that theCompanys marketing did not violate the Act at any time,and that the States claims are barred under the applicable statute of limitations.No liability has been recorded for anyportion of this matter because the Company believes that liability is not probable and reasonably estimable at this time.In addition,the Company is not able to estimate apossible loss or range of loss given the lack of any meaningful discovery responses by the State of West Virginia as to key issues,and the assertions of claims against two othermanufacturers where a defendants share of liability may turn on the law of joint and several liability and by the amount of fault,if any,a factfinder may allocate to eachdefendant if the case were ultimately tried.22Table of ContentsRespirator Mask/Asbestos Liabilities and Insurance ReceivablesThe Company regularly conducts a comprehensive legal review of its respirator mask/asbestos liabilities.The Company reviews recent and historical claims data,includingwithout limitation,(i)the number of pending claims filed against the Company,(ii)the nature and mix of those claims(i.e.,the proportion of claims asserting usage of theCompanys mask or respirator products and alleging exposure to each of asbestos,silica,coal or other occupational dusts,and claims pleading use of asbestos-containingproducts allegedly manufactured by the Company),(iii)the costs to defend and resolve pending claims,and(iv)trends in filing rates and in costs to defend and resolve claims(collectively,the“Claims Data”).As part of its comprehensive legal review,the Company regularly provides the Claims Data to a third party with expertise in determining theimpact of Claims Data on future filing trends and costs.The third party assists the Company in estimating the costs to defend and resolve pending and future claims.TheCompany uses this analysis to develop its estimate of probable liability.Developments may occur that could affect the Companys estimate of its liabilities.These developments include,but are not limited to,significant changes in(i)the keyassumptions underlying the Companys accrual,including the number of future claims,the nature and mix of those claims,and the average cost of defending and resolvingclaims and in maintaining trial readiness(ii)trial and appellate outcomes,(iii)the law and procedure applicable to these claims,and(iv)the financial viability of other co-defendants and insurers.As a result of its review of its respirator mask/asbestos liabilities,of pending and expected lawsuits and of the cost of resolving claims of persons who claim more seriousinjuries,including mesothelioma,other malignancies,and black lung disease,the Company increased its accruals in the first quarter of 2024 for respirator mask/asbestosliabilities by$7 million.In the first quarter of 2024,the Company made payments for legal defense costs and settlements of$23 million related to the respirator mask/asbestoslitigation.As of March 31,2024,the Company had an accrual for respirator mask/asbestos liabilities(excluding Aearo accruals)of$558 million.This accrual represents theCompanys estimate of probable loss and reflects an estimation period for future claims that may be filed against the Company approaching the year 2050.The Companycannot estimate the amount or upper end of the range of amounts by which the liability may exceed the accrual the Company has established because of(i)the inherentdifficulty in projecting the number of claims that have not yet been asserted or the time period in which future claims may be asserted,(ii)the fact that complaints nearly alwaysassert claims against multiple defendants where the damages alleged are typically not attributed to individual defendants so that a defendants share of liability may turn on thelaw of joint and several liability,which can vary by state,(iii)the multiple factors described above that the Company considers in estimating its liabilities,and(iv)the severalpossible developments described above that may occur that could affect the Companys estimate of liabilities.As of March 31,2024,the Company had an immaterial receivable for insurance recoveries related to the respirator mask/asbestos litigation.In addition,the Company continuesto seek coverage under the policies of certain insolvent and other insurers.Once those claims for coverage are resolved,the Company will have collected substantially all of itsremaining insurance coverage for respirator mask/asbestos claims.Respirator Mask/Asbestos Litigation Aearo Technologies:On April 1,2008,a subsidiary of the Company acquired the stock of Aearo Holding Corp.,the parent of AearoTechnologies(“Aearo”).Aearo manufactured and sold various products,including personal protection equipment,such as eye,ear,head,face,fall and certain respiratoryprotection products.Aearo and/or other companies that previously owned and operated Aearos respirator business(American Optical Corporation,Warner-Lambert LLC,AOCorp.and Cabot Corporation(“Cabot”)are named defendants,with multiple co-defendants,including the Company,in numerous lawsuits in various courts in which plaintiffsallege use of mask and respirator products and seek damages from Aearo and other defendants for alleged personal injury from workplace exposures to asbestos,silica-related,coal mine dust,or other occupational dusts found in products manufactured by other defendants or generally in the workplace.In July 2022,Aearo Technologies and certain ofits related entities(collectively,the Aearo Entities)voluntarily initiated chapter 11 proceedings under the U.S.Bankruptcy Code seeking court supervision to establish a trust,funded by the Company,to efficiently and equitably satisfy all claims determined to be entitled to compensation(including the Aearo respirator mask/asbestos matters).TheU.S.Bankruptcy Court had stayed the Aearo respirator mask/asbestos litigation matters during the chapter 11 proceedings.During the voluntary chapter 11 proceedings,3Msaccrual relating to the commitments associated with funding that trust included Aearo respirator mask/asbestos matters.With the June 2023 dismissal of the Aearo bankruptcythat is described in the Product Liability Litigation section below,the stay of respirator mask/asbestos litigation is no longer in effect.For additional information,see thediscussion within the section Product Liability Litigation with respect to Aearo Technologies Dual-Ended Combat Arms Earplugs.23Table of ContentsAs of March 31,2024,the Company,through its Aearo subsidiary,had accruals of$54 million for product liabilities and defense costs related to current and future Aearo-related asbestos,silica-related and coal mine dust claims.Responsibility for legal costs,as well as for settlements and judgments,is shared in an informal arrangement amongAearo,Cabot,American Optical Corporation and a subsidiary of Warner Lambert and their respective insurers(the“Payor Group”).Liability is allocated among the partiesbased on the number of years each company sold respiratory products under the“AO Safety”brand and/or owned the AO Safety Division of American Optical Corporation andthe alleged years of exposure of the individual plaintiff.Aearos share of the contingent liability is further limited by an agreement entered into between Aearo and Cabot onJuly 11,1995.This agreement provides that,so long as Aearo pays to Cabot a quarterly fee of$100,000,Cabot will retain responsibility and liability for,and indemnify Aearoagainst,any product liability claims involving exposure to asbestos,silica,or silica products for respirators sold prior to July 11,1995.Because of the difficulty in determininghow long a particular respirator remains in the stream of commerce after being sold,Aearo and Cabot have applied the agreement to claims arising out of the alleged use ofrespirators involving exposure to asbestos,silica or silica products prior to January 1,1997.With these arrangements in place,Aearos potential liability is limited to exposuresalleged to have arisen from the use of respirators involving exposure to asbestos,silica,or silica products on or after January 1,1997.To date,Aearo has elected to pay thequarterly fee.Aearo could potentially be exposed to additional claims for some part of the pre-July 11,1995,period covered by its agreement with Cabot if Aearo elects todiscontinue its participation in this arrangement,or if Cabot is no longer able to meet its obligations in these matters.Developments may occur that could affect the estimate of Aearos liabilities.These developments include,but are not limited to:(i)significant changes in the number of futureclaims,(ii)significant changes in the average cost of resolving claims,(iii)significant changes in the legal costs of defending these claims,(iv)significant changes in the mixand nature of claims received,(v)trial and appellate outcomes,(vi)significant changes in the law and procedure applicable to these claims,(vii)significant changes in theliability allocation among the co-defendants,(viii)the financial viability of members of the Payor Group including exhaustion of available insurance coverage limits,and/or(ix)a determination that the interpretation of the contractual obligations on which Aearo has estimated its share of liability is inaccurate.The Company cannot determine theimpact of these potential developments on its current estimate of Aearos share of liability for these existing and future claims.If any of the developments described above wereto occur,the actual amount of these liabilities for existing and future claims could be significantly larger than the amount accrued.Because of the inherent difficulty inprojecting the number of claims that have not yet been asserted,the complexity of allocating responsibility for future claims among the Payor Group,and the several possibledevelopments that may occur that could affect the estimate of Aearos liabilities,the Company cannot estimate the amount or range of amounts by which Aearos liability mayexceed the accrual the Company has established.Environmental Matters and Litigation:The Companys operations are subject to environmental laws and regulations including those pertaining to air emissions,wastewaterdischarges,toxic or hazardous substances,and the handling and disposal of solid and hazardous wastes,which are enforceable by national,state,and local authorities aroundthe world,and many for which private parties in the United States and abroad may have rights of action.These laws and regulations can form the basis of,under certaincircumstances,claims for the investigation and remediation of contamination,for capital investment in pollution control equipment,for restoration of and/or compensation fordamages to natural resources,and for personal injury and property damages.The Company has incurred,and will continue to incur,costs and capital expenditures in complyingwith these laws and regulations,defending personal injury,natural resource,and property damage claims,and modifying its business operations in light of its environmentalresponsibilities.In its effort to satisfy its environmental responsibilities and comply with environmental laws and regulations,the Company has established,and periodicallyupdates,policies relating to environmental standards of performance for its operations worldwide.Under certain environmental laws,including the United States Comprehensive Environmental Response,Compensation and Liability Act of 1980(CERCLA)and similarstate laws,the Company may be jointly and severally liable,sometimes with other potentially responsible parties,for the costs of investigation and remediation ofenvironmental contamination at current or former facilities and at off-site locations where hazardous substances have been released or disposed of.The Company has identifiednumerous locations,many of which are in the United States,at which it may have some liability for remediation of contamination.Please refer to the section entitled“Environmental Liabilities and Insurance Receivables”that follows for information on the amount of the accrual for such liabilities.Environmental MattersAs previously reported,the Company has been voluntarily cooperating with ongoing reviews by local,state,federal(primarily the U.S.Environmental Protection Agency(EPA),and international agencies of possible environmental and health effects of various perfluorinated compounds,including perfluorooctanoate(PFOA),perfluorooctane sulfonate(PFOS),perfluorohexane sulfonic acid(PFHxS),perfluorobutane sulfonate(PFBS),hexafluoropropylene oxide dimer acid(HFPO-DA)andother per-and polyfluoroalkyl substances(collectively,PFAS).24Table of ContentsAs a result of a phase-out decision in May 2000,the Company no longer manufactures certain PFAS compounds including PFOA,PFOS,PFHxS,and their precursorcompounds.The Company ceased manufacturing and using the vast majority of those compounds within approximately two years of the phase-out announcement and ceasedall manufacturing and the last significant use of those compounds by the end of 2008.The Company continues to manufacture a variety of shorter chain length PFAScompounds,including,but not limited to,precursor compounds to PFBS.These compounds are used as input materials to a variety of products,including engineeredfluorinated fluids,fluoropolymers and fluorelastomers,as well as surfactants,additives,and coatings.Through its ongoing life cycle management and its raw materialcomposition identification processes associated with the Companys policies covering the use of all persistent and bio-accumulative materials,the Company continues toreview,control or eliminate the presence of certain PFAS in purchased materials,as intended substances in products,or as byproducts in some of 3Ms current manufacturingprocesses,products,and waste streams.3M announced in December 2022 it will take two actions with respect to PFAS:exiting all PFAS manufacturing by the end of 2025;and working to discontinue the use ofPFAS across its product portfolio by the end of 2025.3M is progressing toward the exit of all PFAS manufacturing by the end of 2025.3M is also working to discontinue theuse of PFAS across its product portfolio by the end of 2025.3M has made progress in eliminating the use of PFAS across its product portfolio in a variety of applications.Withrespect to PFAS-containing products not manufactured by 3M in the Companys supply chains,the Company continues to evaluate the availability and feasibility of third-partyproducts that do not contain PFAS.Depending on the availability and feasibility of such third-party products not containing PFAS,the Company continues to evaluatecircumstances in which the use of PFAS-containing materials manufactured by third parties and used in certain applications in 3Ms product portfolios,such as lithium ionbatteries,printed circuit boards and certain seals and gaskets,all widely used in commerce across a variety of industries,and in some cases required by regulatory or industrystandards,may or are expected to,depending on applications,continue beyond 2025.In other cases,regulatory approval,customer re-certification or re-qualification ofsubstitutes or replacements to eliminate the use of PFAS manufactured by third parties may not be completed,or,depending on circumstances,are not expected to becompleted,by the end of 2025.With respect to PFAS-containing materials manufactured by third parties,the Company intends to continue to evaluate beyond the end of 2025the adoption of third-party products that do not contain PFAS to the extent such products are available and such adoption is feasible.PFAS Regulatory and Legislative ActivityRegulatory and legislative activities concerning PFAS are accelerating in the United States,Europe and elsewhere,and before certain international bodies.These activitiesinclude gathering of exposure and use information,risk assessment activities,and increasingly stringent restrictions on various uses of PFAS in products and on PFAS inmanufacturing emissions and environmental media,in some cases moving towards non-detectable limits for certain PFAS compounds.Regulatory limits for PFAS in emissionsand in environmental media such as soil and water(including drinking water)are being set at increasingly low levels.Global regulations also appear to be increasingly focusedon a broader group of PFAS,including PFAS compounds manufactured by 3M,used in current 3M products or generated as byproducts or degradation products from certain3M production processes.Finally,in certain jurisdictions,legislation is being considered that,if enacted,might authorize the recovery from individuals or entities costs allegedto have been imposed on the jurisdictions healthcare system,as well as related costs.If such activity continues,including as regulations become final and enforceable,3M mayincur material costs to comply with new regulatory requirements or as a result of regulation-related litigation or additional enforcement actions.Such regulatory changes mayalso have an impact on 3Ms reputation and may also increase its costs and potential litigation exposure to the extent legal defenses rely on regulatory thresholds,or changes inregulation influence public perception.Given divergent and rapidly evolving regulatory drinking water and other environmental standards,there is currently significantuncertainty about the potential costs to industry and communities associated with remediation and control technologies that may be required.EuropeIn the European Union,where 3M has PFAS manufacturing facilities in Germany and Belgium,recent regulatory activities have included various proposed and enactedrestrictions of PFAS or certain PFAS compounds,including under the EUs Registration,Evaluation,Authorization and Restriction of Chemicals(REACH)and the EUsPersistent Organic Pollutants(POPs)Regulation.PFOA,PFOS and PFHxS(and their related compounds)are listed under several Annexes of the POPs Regulation,resultingin a ban in manufacture,placing on the market and use as well as some waste management requirements of these substances in EU Member States.These substances have alsobeen listed in the Stockholm Convention,which has been ratified by more than 180 countries and aims for global elimination of certain listed substances(with narrowexceptions).In February 2023,an EU-wide restriction on the manufacturing,use,placing on the market and import of certain perfluorocarboxylic acids(C9-C14 PFCAs),which are PFAS substances,also went into effect.With respect to the applicability of the amendment of the EU POPs Regulation to include PFOA,which has been applicable since 2021,Dyneon,a 3M subsidiary that operatesthe Gendorf facility in Germany,proactively consulted with the relevant German competent authority regarding improvements necessary to meet applicable limits for arecycling process for a critical emulsifier for which small amounts of PFOA are present after recycling as an unintended contaminant.In consultation with German regulatoryauthorities,to achieve the applicable limits for the use of the emulsifier until the exit of PFAS manufacturing,Dyneon has started to use a method containing a mix of recycledand virgin emulsifier.25Table of ContentsIn February 2023,the European Chemicals Agency published a proposal to restrict the manufacture,placing on the market and use of PFAS under REACH,subject to certainproposed exceptions.In March 2023,the six-month consultation phase on the PFAS Restriction Proposal started and,in September 2023,the Company submitted comments onthe proposal.Depending on the timing,scope and obligations contained in any final restriction,PFAS manufacturers and manufacturers of PFAS-containing products including3M could incur additional costs and potential exposures,including costs of having to discontinue or modify products,future compliance costs,possible litigation and/orenforcement actions.Effective January 2023,the EU Food Contaminants Regulation targeting four PFAS(PFOS,PFOA,perfluorononanoic acid(PFNA),and PFHxS)in foodstuff(eggs andanimal derived meat)prohibits the sale in all member states of foods containing levels of these chemicals exceeding certain regulatory thresholds.As member states implementthe regulation,Dyneon,in coordination with local authorities and farmers,has proposed a pilot program of food sampling to determine if any remedial action is necessary.Sampling and further assessment of results is ongoing.The EU regulates PFAS in drinking water via a Drinking Water Directive,which includes a limit of 0.1 micrograms per liter(g/l)(or 0.1 parts per billion(ppb)for a sum of20 PFAS in drinking water.January 2023 was the deadline for Member States to implement the Directive in their countries.A majority of Member States have implemented theEU Directive.Some Member States,including Germany,adopted more restrictive limits for certain PFAS substances.Dyneon and the predecessor operators of the Gendorf facility have commissioned a voluntary feasibility study by an independent soil consultant.The study discusses thefeasibility of various options to treat PFOA in soil and groundwater as well as associated costs and the environmental impact of such treatment or disposal.The study has beenshared with the competent authority.3M Belgium,a subsidiary of the Company,has been working with the Public Flemish Waste Agency(OVAM)for several years to investigate and remediate historical PFAScontamination at and near the 3M Belgium facility in Zwijndrecht,Antwerp,Belgium.In connection with a ring road construction project(the Oosterweel Project)in Antwerpthat involved extensive soil work,an investigative committee with judicial investigatory powers was formed in June 2021 by the Flemish Parliament to investigate PFAS foundin the soil and groundwater near the Zwijndrecht facility.3M Belgium testified at Flemish parliamentary committee hearings in September and December 2021 on PFAS-related matters.As discussed in greater detail below,the Flemish Parliament,the Minister of the Environment,and regulatory authorities initiated investigations and demandsfor information related to the release of PFAS from the Zwijndrecht facility.3M Belgium has cooperated with the authorities with respect to the investigations and informationrequests and is working with the authorities on an ongoing basis.Short-chain PFAS compounds in wastewater:As previously disclosed,in August 2021,the Flemish Government served 3M Belgium with a safety measure requiring the capture of certain process wastewaters to preventtheir entry into the site wastewater treatment plant.While 3M Belgium appealed the safety measure due to the belief it lacked adequate legal and factual foundation,3MBelgium promptly implemented the required actions.In October 2021,the Province of Antwerp unilaterally adopted lower discharge limits for the nine PFAS compounds specifically identified in the water discharge permit for theZwijndrecht facility and added a special condition that essentially prohibits discharge of any PFAS chemistry without a specific limit in the permit.3M Belgium received a newtwo-year permit in May 2022 which contained strict limits for 24 different PFAS,effective July 1,2022.3M Belgium installed additional control systems that it believes allowsthe system to meet those limits.During 2022,3M Belgium identified certain short chain PFAS compounds in the wastewater from the Zwijndrecht facility and shared the results with the Inspectorate.Thecompounds at issue did not have specific discharge limits in the applicable wastewater discharge permit,however according to Belgian authorities a special condition in theenvironmental permit prohibits detectable discharge of PFAS compounds that do not have a specific discharge limit in the permit.In December 2022,3M Belgium received anofficial infraction report from the Flemish Environmental Inspectorate regarding the discharge of certain short chain PFAS compounds in wastewater from the Zwijndrechtfacility.Moreover,3M Belgium instituted a capturing process to reduce or prevent wastewaters containing short chain PFAS identified in the infraction report from entering thetreatment system or its discharge.3M Belgium notified the Inspectorate that complying with the special condition would mean ceasing the legally required extraction andtreatment of contaminated groundwater.The Inspectorate acknowledged this fact but insisted that 3M Belgium continue to extract and treat groundwater.Groundwatertreatment continues,and 3M Belgium will continue its efforts to comply with the special condition and to minimize discharge of all PFAS,including the PFAS identified in theinfraction report.26Table of ContentsIn February 2023,3M Belgium applied for a modification of the water discharge permit to add parameters for certain short chain PFAS.In September 2023,the permittingauthority rejected the application to add the additional short chain PFAS to 3M Belgiums discharge permit.3M Belgium has appealed this decision.In February 2024,3MBelgium submitted a new permit application which includes ultra-short chain PFAS under the plants integrated environmental permit.In turn,3M Belgium withdrew its appealof the rejection of the previously submitted permit modification.A negative development relating to the facilitys integrated environmental permit could have an adverse impacton 3M Belgiums normal operations and the Companys businesses that receive products and other materials from the Zwijndrecht facility,some of which may not be availableor in similar quantities from other 3M facilities.3M Belgium cannot at this time predict whether the current Zwijndrecht wastewater treatment system,or currently conceivedadditional treatment technology,will meet any discharge limits imposed with respect to manufacturing at the Zwijndrecht facility.Safety measure emissions:As previously disclosed,in October 2021,the Flemish environmental enforcement agency issued a safety measure prohibiting,with limited exceptions,all emissions of allforms of PFAS from the facility unless specifically approved on a process-by-process basis.3M Belgium appealed the safety measure to the Belgian Council of State,whilealso complying with the safety measure by idling the affected production at the facility.The agency subsequently clarified that the safety measure also applies to release ofPFAS into water,and as such,reviews have been expanded as requested.In mid-2022 Flemish authorities approved the restart of key production processes.3M Belgiumcontinued to conduct required monitoring and reporting activities.In September 2022,the environmental enforcement agency issued an infraction report alleging that 3MBelgium had not fully complied with the safety measure in the operation of certain production lines because it had not received a required report regarding safety of theoperation.These reports were submitted in late 2023.In October 2022,3M Belgium received a report from the Flemish Inspectorate regarding certain health and safety issues noted during inspections of the Zwijndrecht facility inMarch 2022,alleging certain related deficiencies,some dating back to 2010.In July 2023,the Environmental Inspectorate issued an infraction report stating the actions takenby 3M Belgium to address the September 2022 infraction report were insufficient to reduce dust formation from the facility.3M Belgium implemented additional controlmeasures to address potential dust formation and is working to outline further actions to reduce potential dust formation.In the third quarter of 2023,Flemish authorities responsible for maintaining oversight of 3M Belgiums operations at the Zwijndrecht facility requested analyses of the projectedcumulative impacts of continued PFAS-related manufacturing(rather than the analysis previously accepted on a process-by-process basis).In September 2023,the authoritiesexpressed concerns based upon new information from the process identified in the September 2022 infraction report and stated their intention to investigate compliance with thesafety measure further.As previously disclosed in the Companys Form 8-K,on September 22,2023,3M Belgium idled all PFAS manufacturing processes at the Zwijndrechtfacility as instructed by the Flemish authorities.Subsequently,in September 2023,the Environmental Inspectorate issued an infraction report to 3M Belgium and instructed 3M Belgium to discontinue PFAS-relatedoperations until specifically authorized to continue.3M Belgium complied and then submitted a plan to accelerate the phase out of its PFAS-related production processes at theZwijndrecht site.In December 2023,Flemish authorities gave 3M Belgium approval to complete a PFAS-related production process for existing raw materials.In January2024,3M Belgium also received approval from the relevant Fle
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Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-K(Mark O.
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29,2024OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO .Commission File No.1-10635NIKE,Inc.(Exact name of Registrant as specified in its charter)Oregon93-0584541(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)One Bowerman Drive,Beaverton,Oregon 97005-6453(Address of principal executive offices and zip code)(503)671-6453(Registrants telephone number,including area code)SECURITIES REGISTERED PURSUANT TO SECTION 12(B)OF THE ACT:Class B Common StockNKENew York Stock Exchange(Title of each class)(Trading symbol)(Name of each exchange on which registered)Indicate by check mark:YESNOwhether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for thepast 90 days.whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growth company.See the definitions of large accelerated filer,accelerated filer,smaller reporting company,and emerging growth company in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filer Non-accelerated filerSmaller reporting companyEmerging growth companyif an emerging growth company,if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a)of the Exchange Act.whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).As of March 29,2024,the number of shares of the Registrants Common Stock outstanding were:Class A297,897,252 Class B1,211,461,555 1,509,358,807 Table of ContentsNIKE,INC.FORM 10-QTABLE OF CONTENTSPAGEPART I-FINANCIAL INFORMATION1ITEM 1.Financial Statements1Unaudited Condensed Consolidated Statements of Income1Unaudited Condensed Consolidated Statements of Comprehensive Income2Unaudited Condensed Consolidated Balance Sheets3Unaudited Condensed Consolidated Statements of Cash Flows4Unaudited Condensed Consolidated Statements of Shareholders Equity5Notes to the Unaudited Condensed Consolidated Financial Statements7ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations25ITEM 3.Quantitative and Qualitative Disclosures about Market Risk45ITEM 4.Controls and Procedures45PART II-OTHER INFORMATION47ITEM 1.Legal Proceedings47ITEM 1A.Risk Factors47ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds48ITEM 5.Other Information49ITEM 6.Exhibits50Signatures51Table of ContentsPART I-FINANCIAL INFORMATIONITEM 1.FINANCIAL STATEMENTSNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOMETHREE MONTHS ENDEDNINE MONTHS ENDED(In millions,except per share data)FEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023Revenues$12,429$12,390$38,756$38,392 Cost of sales6,867 7,019 21,503 21,695 Gross profit5,562 5,371 17,253 16,697 Demand creation expense1,011 923 3,194 2,968 Operating overhead expense3,215 3,036 9,294 9,035 Total selling and administrative expense4,226 3,959 12,488 12,003 Interest expense(income),net(52)(7)(108)22 Other(income)expense,net(16)(58)(101)(283)Income before income taxes1,404 1,477 4,974 4,955 Income tax expense232 237 774 916 NET INCOME$1,172$1,240$4,200$4,039 Earnings per common share:Basic$0.77$0.80$2.76$2.59 Diluted$0.77$0.79$2.74$2.57 Weighted average common shares outstanding:Basic1,513.2 1,543.8 1,520.8 1,556.7 Diluted1,526.5 1,564.8 1,534.0 1,574.4 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.1Table of ContentsNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMETHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023Net income$1,172$1,240$4,200$4,039 Other comprehensive income(loss),net of tax:Change in net foreign currency translation adjustment(57)153 18 281 Change in net gains(losses)on cash flow hedges50(433)(139)(279)Change in net gains(losses)on other11 23 15(18)Total other comprehensive income(loss),net of tax4(257)(106)(16)TOTAL COMPREHENSIVE INCOME$1,176$983$4,094$4,023 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.2Table of ContentsNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETSFEBRUARY 29,MAY 31,(In millions)20242023ASSETSCurrent assets:Cash and equivalents$8,960$7,441 Short-term investments1,613 3,234 Accounts receivable,net4,526 4,131 Inventories7,726 8,454 Prepaid expenses and other current assets1,928 1,942 Total current assets24,753 25,202 Property,plant and equipment,net5,082 5,081 Operating lease right-of-use assets,net2,856 2,923 Identifiable intangible assets,net259 274 Goodwill240 281 Deferred income taxes and other assets4,166 3,770 TOTAL ASSETS$37,356$37,531 LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt$Notes payable6 6 Accounts payable2,340 2,862 Current portion of operating lease liabilities474 425 Accrued liabilities5,818 5,723 Income taxes payable391 240 Total current liabilities9,029 9,256 Long-term debt8,930 8,927 Operating lease liabilities2,691 2,786 Deferred income taxes and other liabilities2,480 2,558 Commitments and contingencies(Note 12)Redeemable preferred stock Shareholders equity:Common stock at stated value:Class A convertible 298 and 305 shares outstanding Class B 1,213 and 1,227 shares outstanding3 3 Capital in excess of stated value13,128 12,412 Accumulated other comprehensive income(loss)125 231 Retained earnings970 1,358 Total shareholders equity14,226 14,004 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$37,356$37,531 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.3Table of ContentsNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023Cash provided(used)by operations:Net income$4,200$4,039 Adjustments to reconcile net income to net cash provided(used)by operations:Depreciation589 516 Deferred income taxes(281)(216)Stock-based compensation618 556 Amortization,impairment and other51 107 Net foreign currency adjustments(81)(197)Changes in certain working capital components and other assets and liabilities:(Increase)decrease in accounts receivable(429)109(Increase)decrease in inventories698(527)(Increase)decrease in prepaid expenses,operating lease right-of-use assets and other current and non-currentassets(342)(273)Increase(decrease)in accounts payable,accrued liabilities,operating lease liabilities and other current and non-current liabilities(213)(526)Cash provided(used)by operations4,810 3,588 Cash provided(used)by investing activities:Purchases of short-term investments(3,337)(4,844)Maturities of short-term investments2,036 2,470 Sales of short-term investments3,093 3,149 Additions to property,plant and equipment(599)(700)Other investing activities(9)62 Cash provided(used)by investing activities1,184 137 Cash provided(used)by financing activities:Increase(decrease)in notes payable,net 4 Proceeds from exercise of stock options and other stock issuances477 413 Repurchase of common stock(3,214)(4,101)Dividends common and preferred(1,609)(1,488)Other financing activities(122)(94)Cash provided(used)by financing activities(4,468)(5,266)Effect of exchange rate changes on cash and equivalents(7)(78)Net increase(decrease)in cash and equivalents1,519(1,619)Cash and equivalents,beginning of period7,441 8,574 CASH AND EQUIVALENTS,END OF PERIOD$8,960$6,955 Supplemental disclosure of cash flow information:Non-cash additions to property,plant and equipment$177$145 Dividends declared and not paid561 527 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.4Table of ContentsNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITYCOMMON STOCKCAPITAL INEXCESSOF STATEDVALUEACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS)RETAINEDEARNINGSTOTALCLASS ACLASS B(In millions,except per share data)SHARESAMOUNTSHARESAMOUNTBalance at November 30,2023298$1,219$3$12,871$121$1,151$14,146 Stock options exercised2 135 135 Repurchase of Class B Common Stock(8)(67)(799)(866)Dividends on common stock($0.370 per share)(561)(561)Issuance of shares to employees,net of shareswithheld for employee taxes(27)7(20)Stock-based compensation216 216 Net income1,172 1,172 Other comprehensive income(loss)4 4 Balance at February 29,2024298$1,213$3$13,128$125$970$14,226 COMMON STOCKCAPITAL INEXCESSOF STATEDVALUEACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS)RETAINEDEARNINGSTOTALCLASS ACLASS B(In millions,except per share data)SHARESAMOUNTSHARESAMOUNTBalance at November 30,2022305$1,245$3$11,851$559$2,859$15,272 Stock options exercised3 153 153 Repurchase of Class B Common Stock(13)(99)(1,420)(1,519)Dividends on common stock($0.340 per share)(527)(527)Issuance of shares to employees,net of shareswithheld for employee taxes(23)(23)Stock-based compensation192 192 Net income1,240 1,240 Other comprehensive income(loss)(257)(257)Balance at February 28,2023305$1,235$3$12,074$302$2,152$14,531 COMMON STOCKCAPITAL INEXCESSOF STATEDVALUEACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS)RETAINEDEARNINGSTOTALCLASS ACLASS B(In millions,except per share data)SHARESAMOUNTSHARESAMOUNTBalance at May 31,2023305$1,227$3$12,412$231$1,358$14,004 Stock options exercised6 347 347 Conversion to Class B Common Stock(7)7 Repurchase of Class B Common Stock(30)(251)(2,956)(3,207)Dividends on common stock($1.080 per share)and preferred stock($0.10 per share)(1,645)(1,645)Issuance of shares to employees,net of shareswithheld for employee taxes3 2 13 15 Stock-based compensation618 618 Net income4,200 4,200 Other comprehensive income(loss)(106)(106)Balance at February 29,2024298$1,213$3$13,128$125$970$14,226 5Table of ContentsCOMMON STOCKCAPITAL INEXCESSOF STATEDVALUEACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS)RETAINEDEARNINGSTOTALCLASS ACLASS B(In millions,except per share data)SHARESAMOUNTSHARESAMOUNTBalance at May 31,2022305$1,266$3$11,484$318$3,476$15,281 Stock options exercised6 302 302 Repurchase of Class B Common Stock(39)(288)(3,829)(4,117)Dividends on common stock($0.985 per share)and preferred stock($0.10 per share)(1,535)(1,535)Issuance of shares to employees,net of shareswithheld for employee taxes2 20 1 21 Stock-based compensation556 556 Net income4,039 4,039 Other comprehensive income(loss)(16)(16)Balance at February 28,2023305$1,235$3$12,074$302$2,152$14,531 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.6Table of ContentsNOTES TO THE UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTSNOTE 1Summary of Significant Accounting Policies8NOTE 2Accrued Liabilities9NOTE 3Fair Value Measurements9NOTE 4Short-Term Borrowings and Credit Lines11NOTE 5Income Taxes11NOTE 6Stock-Based Compensation12NOTE 7Earnings Per Share13NOTE 8Risk Management and Derivatives14NOTE 9Accumulated Other Comprehensive Income(Loss)17NOTE 10Revenues19NOTE 11Operating Segments21NOTE 12Contingencies23NOTE 13Acquisitions and Divestitures23NOTE 14Restructuring247Table of ContentsNOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBASIS OF PRESENTATIONThe Unaudited Condensed Consolidated Financial Statements include the accounts of NIKE,Inc.and its subsidiaries(the Company or NIKE)and reflect all normalrecurring adjustments which are,in the opinion of management,necessary for a fair statement of the results of operations for the interim period.The year-end CondensedConsolidated Balance Sheet data as of May 31,2023,was derived from audited financial statements,but does not include all disclosures required by accountingprinciples generally accepted in the United States of America(U.S.GAAP).The interim financial information and notes thereto should be read in conjunction with theCompanys latest Annual Report on Form 10-K for the fiscal year ended May 31,2023(the Annual Report).The results of operations for the three and nine monthsended February 29,2024,are not necessarily indicative of results to be expected for the entire fiscal year.RECENTLY ISSUED ACCOUNTING STANDARDS AND DISCLOSURE RULESIn November 2023,the Financial Accounting Standards Board(the FASB)issued Accounting Standards Update(ASU)2023-07,Segment Reporting(Topic 280):Improvements to Reportable Segment Disclosures,which is intended to improve reportable segment disclosure requirements,primarily through enhanced disclosuresabout significant expenses.The amendments will require public entities to disclose significant segment expenses that are regularly provided to the chief operatingdecision maker and included within segment profit and loss.The amendments are effective for the Companys annual periods beginning June 1,2024,and interim periodsbeginning June 1,2025,with early adoption permitted,and will be applied retrospectively to all prior periods presented in the financial statements.The Company iscurrently evaluating the ASU to determine its impact on the Companys disclosures.In December 2023,the FASB issued ASU 2023-09,Income Taxes(Topic 740):Improvements to Income Tax Disclosures,which includes amendments that furtherenhance income tax disclosures,primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction.Theamendments are effective for the Companys annual periods beginning June 1,2025,with early adoption permitted,and should be applied either prospectively orretrospectively.The Company is currently evaluating the ASU to determine its impact on the Companys disclosures.In March 2024,the U.S.Securities and Exchange Commission(SEC)adopted the final rule under SEC Release No.33-11275,The Enhancement and Standardizationof Climate-Related Disclosures for Investors.This rule will require registrants to disclose certain climate-related information in registration statements and annual reports.The disclosure requirements will apply to the Companys fiscal year beginning June 1,2025.The Company is currently evaluating the final rule to determine its impact onthe Companys disclosures.RECENTLY ADOPTED ACCOUNTING STANDARDSIn September 2022,the FASB issued ASU 2022-04,Liabilities Supplier Finance Programs(Subtopic 405-50):Disclosure of Supplier Finance Program Obligations.Thenew guidance requires qualitative and quantitative disclosure sufficient to enable users of the financial statements to understand the nature,activity during the period,changes from period to period and potential magnitude of such programs.The Company adopted the required guidance in the first quarter of fiscal 2024.Certain financial institutions offer voluntary supplier finance programs facilitated through a third-party platform that provide participating suppliers the option to financevalid payment obligations from the Company.The Company is not a party to agreements negotiated between participating suppliers and third-party financial institutions.The Companys obligations to its suppliers,including amounts due and payment terms,are not affected by a suppliers decision to participate in these programs and theCompany does not provide guarantees to third parties in connection with these programs.As of February 29,2024 and May 31,2023,the Company had$704 million and$834 million,respectively,of outstanding supplier obligations confirmed as valid under these programs.These amounts are included within Accounts payable on theUnaudited Condensed Consolidated Balance Sheets.8Table of ContentsNOTE 2 ACCRUED LIABILITIESAccrued liabilities included the following:FEBRUARY 29,MAY 31,(Dollars in millions)20242023Compensation and benefits,excluding taxes$1,254$1,737 Sales-related reserves1,227 994 Dividends payable566 529 Endorsement compensation493 552 Other2,278 1,911TOTAL ACCRUED LIABILITIES$5,818$5,723 NOTE 3 FAIR VALUE MEASUREMENTSThe Company measures certain financial assets and liabilities at fair value on a recurring basis,including derivatives,equity securities and available-for-sale debtsecurities.For additional information about the Companys fair value policies,refer to Note 1 Summary of Significant Accounting Policies within the Annual Report.The following tables present information about the Companys financial assets measured at fair value on a recurring basis as of February 29,2024 and May 31,2023,andindicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:FEBRUARY 29,2024(Dollars in millions)ASSETS AT FAIR VALUECASH AND EQUIVALENTSSHORT-TERM INVESTMENTSCash$1,118$1,118$Level 1:U.S.Treasury securities1,002 1 1,001 Level 2:Commercial paper and bonds580 18 562 Money market funds7,272 7,272 Time deposits560 551 9 U.S.Agency securities41 41 Total Level 28,453 7,841 612 TOTAL$10,573$8,960$1,613 MAY 31,2023(Dollars in millions)ASSETS AT FAIR VALUECASH AND EQUIVALENTSSHORT-TERM INVESTMENTSCash$1,767$1,767$Level 1:U.S.Treasury securities2,655 2,655 Level 2:Commercial paper and bonds543 15 528 Money market funds5,157 5,157 Time deposits507 502 5 U.S.Agency securities46 46 Total Level 26,253 5,674 579 TOTAL$10,675$7,441$3,234 9Table of ContentsAs of February 29,2024,the Company held$867 million of available-for-sale debt securities with maturity dates within one year and$746 million with maturity datesgreater than one year and less than five years in Short-term investments on the Unaudited Condensed Consolidated Balance Sheets.The fair value of the Companysavailable-for-sale debt securities approximates their amortized cost.Included in Interest expense(income),net was interest income related to the Companys investment portfolio of$113 million and$83 million for the three months endedFebruary 29,2024 and February 28,2023,respectively,and$304 million and$196 million for the nine months ended February 29,2024 and February 28,2023,respectively.The following tables present information about the Companys derivative assets and liabilities measured at fair value on a recurring basis and indicate the level in the fairvalue hierarchy in which the Company classifies the fair value measurement:FEBRUARY 29,2024DERIVATIVE ASSETSDERIVATIVE LIABILITIES(Dollars in millions)ASSETS ATFAIR VALUEOTHERCURRENTASSETSOTHER LONG-TERM ASSETSLIABILITIESAT FAIRVALUEACCRUEDLIABILITIESOTHER LONG-TERMLIABILITIESLevel 2:Foreign exchange forwards and options$390$324$66$149$132$17 Interest rate swap contracts2 2 4 4 TOTAL$392$324$68$153$132$21(1)If the derivative instruments had been netted on the Unaudited Condensed Consolidated Balance Sheets,the asset and liability positions each would have been reduced by$149 million as ofFebruary 29,2024.As of that date,the Company received$48 million of cash collateral from counterparties related to derivative instruments.No amount of collateral was posted on the derivativeliability balance as of February 29,2024.MAY 31,2023DERIVATIVE ASSETSDERIVATIVE LIABILITIES(Dollars in millions)ASSETS ATFAIR VALUEOTHERCURRENTASSETSOTHER LONG-TERM ASSETSLIABILITIESAT FAIRVALUEACCRUEDLIABILITIESOTHER LONG-TERMLIABILITIESLevel 2:Foreign exchange forwards and options$557$493$64$180$128$52(1)If the derivative instruments had been netted on the Consolidated Balance Sheets,the asset and liability positions each would have been reduced by$178 million as of May 31,2023.As of that date,the Company received$36 million of cash collateral from counterparties related to derivative instruments.No amount of collateral was posted on the derivative liability balance as of May 31,2023.For additional information related to the Companys derivative financial instruments and credit risk,refer to Note 8 Risk Management and Derivatives.The carrying amounts of other current financial assets and other current financial liabilities approximate fair value.FINANCIAL ASSETS AND LIABILITIES NOT RECORDED AT FAIR VALUEThe Companys Long-term debt is recorded at adjusted cost,net of unamortized premiums,discounts,debt issuance costs and interest rate swap fair value adjustments.The fair value of long-term debt is estimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets(Level 2).Thefair value of the Companys Long-term debt was approximately$7,764 million at February 29,2024 and$7,889 million at May 31,2023.(1)(1)(1)10Table of ContentsNOTE 4 SHORT-TERM BORROWINGS AND CREDIT LINESThe carrying amounts reflected on the Unaudited Condensed Consolidated Balance Sheets for Notes payable approximate fair value.As of February 29,2024 and May 31,2023,the Company had no borrowings outstanding under its$3 billion commercial paper program.On March 8,2024,subsequent to the end of the third quarter of fiscal 2024,the Company entered into a 364-day committed credit facility agreement with a syndicate ofbanks,which provides for up to$1 billion of borrowings,with an option to increase borrowings up to$1.5 billion in total with lender approval.The facility matures on March7,2025,with an option to extend the maturity date an additional 364 days.This facility replaces the prior$1 billion 364-day credit facility agreement entered into on March10,2023,which matured on March 8,2024.Based on the Companys current long-term senior unsecured debt ratings of AA-and A1 from Standard and PoorsCorporation and Moodys Investor Services,respectively,the interest rate charged on any outstanding borrowings would be the prevailing Term Secured OvernightFinancing Rate(Term SOFR)for the applicable interest period plus 0.60%.The facility fee is 0.02%of the total undrawn commitment.As of April 4,2024,no amountswere outstanding under this committed credit facility.There have been no other changes to the credit lines reported in the Annual Report for the fiscal year ended May 31,2023.NOTE 5 INCOME TAXESThe effective tax rate was 15.6%and 18.5%for the nine months ended February 29,2024 and February 28,2023,respectively.The decrease in the Companys effectivetax rate was primarily due to one-time benefits including the impact of temporary relief provided by the Internal Revenue Service(IRS)relating to U.S.foreign tax creditregulations.On July 21,2023,the IRS issued Notice 2023-55 which specifically delayed the application of certain U.S.foreign tax credit regulations that had previouslylimited the Companys ability to claim credits on certain foreign taxes for the fiscal year ended May 31,2023.As a result of this new guidance,the Company recognized aone-time tax benefit related to prior year tax positions in the first three months of fiscal 2024.Other one-time benefits included a reduction in accrued withholding taxes onundistributed foreign earnings recognized in the second quarter of fiscal 2024.On August 16,2022,the U.S.government enacted the Inflation Reduction Act of 2022 that included,among other provisions,changes to the U.S.corporate income taxsystem,including a fifteen percent minimum tax based on adjusted financial statement income,which was effective for the Company beginning June 1,2023.Based onthe Companys current analysis of the provisions,these tax law changes are not expected to have a material impact on the Companys financial statements for fiscal2024.As of February 29,2024,total gross unrecognized tax benefits,excluding related interest and penalties,were$988 million,$701 million of which would affect theCompanys effective tax rate if recognized in future periods.The majority of the total gross unrecognized tax benefits are long-term in nature and included within Deferredincome taxes and other liabilities on the Unaudited Condensed Consolidated Balance Sheets.As of May 31,2023,total gross unrecognized tax benefits,excluding relatedinterest and penalties,were$936 million.As of February 29,2024 and May 31,2023,accrued interest and penalties related to uncertain tax positions were$314 millionand$268 million,respectively,(excluding federal benefit)and included within Deferred income taxes and other liabilities on the Unaudited Condensed ConsolidatedBalance Sheets.The Company is subject to taxation in the U.S.,as well as various state and foreign jurisdictions.The Company is currently under audit by the U.S.IRS for fiscal years2017 through 2019.The Company has closed all U.S.federal income tax matters through fiscal 2016,with the exception of certain transfer pricing adjustments.Tax years after 2011 remain open in certain major foreign jurisdictions.Although the timing of resolution of audits is not certain,the Company evaluates all domestic andforeign audit issues in the aggregate,along with the expiration of applicable statutes of limitations,and estimates that it is reasonably possible the total grossunrecognized tax benefits could decrease by up to$20 million within the next 12 months.In January 2019,the European Commission opened a formal investigation toexamine whether the Netherlands has breached State Aid rules when granting certain tax rulings to the Company.The Company believes the investigation is withoutmerit.If this matter is adversely resolved,the Netherlands may be required to assess additional amounts with respect to prior periods,and the Companys income taxesrelated to prior periods in the Netherlands could increase.11Table of ContentsNOTE 6 STOCK-BASED COMPENSATIONSTOCK-BASED COMPENSATIONThe NIKE,Inc.Stock Incentive Plan(the Stock Incentive Plan)provides for the issuance of up to 798 million previously unissued shares of Class B Common Stock inconnection with equity awards granted under the Stock Incentive Plan.The Stock Incentive Plan authorizes the grant of non-statutory stock options,incentive stockoptions,stock appreciation rights and stock awards,including restricted stock and restricted stock units.Restricted stock units include both time-vesting restricted stockunits(RSUs)as well as performance-based restricted stock units(PSUs).In addition to the Stock Incentive Plan,the Company gives employees the right to purchaseshares at a discount from the market price under employee stock purchase plans(ESPPs).For additional information,refer to Note 9 Common Stock and Stock-Based Compensation within the Annual Report.The following table summarizes the Companys total stock-based compensation expense recognized in Cost of sales or Operating overhead expense,as applicable:THREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023Stock options$89$78$253$232 ESPPs17 20 55 53 Restricted stock and restricted stock units110 94 310 271 TOTAL STOCK-BASED COMPENSATION EXPENSE$216$192$618$556(1)Expense for stock options includes the expense associated with stock appreciation rights.(2)Restricted stock units include RSUs and PSUs.The income tax benefit related to stock-based compensation expense was$12 million and$22 million for the three months ended February 29,2024 and February 28,2023,respectively,and$30 million and$44 million for the nine months ended February 29,2024 and February 28,2023,respectively,and reported within Income taxexpense.STOCK OPTIONSAs of February 29,2024,the Company had$478 million of unrecognized compensation costs from stock options,net of estimated forfeitures,to be recognized in Cost ofsales or Operating overhead expense,as applicable,over a weighted average remaining period of 2.6 years.RESTRICTED STOCK AND RESTRICTED STOCK UNITSAs of February 29,2024,the Company had$699 million of unrecognized compensation costs from restricted stock and restricted stock units,net of estimated forfeitures,to be recognized in Cost of sales or Operating overhead expense,as applicable,over a weighted average remaining period of 2.5 years.(1)(2)12Table of ContentsNOTE 7 EARNINGS PER SHAREThe following is a reconciliation from basic earnings per common share to diluted earnings per common share.The computations of diluted earnings per common shareexclude restricted stock,restricted stock units and options,including shares under ESPPs,to purchase an estimated additional 40.9 million and 29.5 million shares ofcommon stock outstanding for the three months ended February 29,2024 and February 28,2023,respectively,and 42.6 million and 31.8 million shares of common stockoutstanding for the nine months ended February 29,2024 and February 28,2023,respectively,because the awards were assumed to be anti-dilutive.THREE MONTHS ENDEDNINE MONTHS ENDED(In millions,except per share data)FEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023Net income available to common stockholders$1,172$1,240$4,200$4,039 Determination of shares:Weighted average common shares outstanding1,513.2 1,543.8 1,520.8 1,556.7 Assumed conversion of dilutive stock options and awards13.3 21.0 13.2 17.7 DILUTED WEIGHTED AVERAGE COMMON SHARESOUTSTANDING1,526.5 1,564.8 1,534.0 1,574.4 Earnings per common share:Basic$0.77$0.80$2.76$2.59 Diluted$0.77$0.79$2.74$2.57 13Table of ContentsNOTE 8 RISK MANAGEMENT AND DERIVATIVESThe Company is exposed to global market risks,including the effect of changes in foreign currency exchange rates and interest rates,and uses derivatives to managefinancial exposures that occur in the normal course of business.As of and for the nine months ended February 29,2024,there have been no material changes to theCompanys hedging program or strategy from what was disclosed within the Annual Report.For additional information about the Companys derivatives and hedgingpolicies,refer to Note 1 Summary of Significant Accounting Policies and Note 12 Risk Management and Derivatives within the Annual Report.The majority of derivatives outstanding as of February 29,2024,are designated as foreign currency cash flow hedges,primarily for Euro/U.S.Dollar,British Pound/Euro,Chinese Yuan/U.S.Dollar and Japanese Yen/U.S.Dollar currency pairs.All derivatives are recognized on the Unaudited Condensed Consolidated Balance Sheets at fairvalue and classified based on the instruments maturity date.The following tables present the fair values of derivative instruments included within the Unaudited Condensed Consolidated Balance Sheets:DERIVATIVE ASSETSBALANCE SHEET LOCATIONFEBRUARY 29,MAY 31,(Dollars in millions)20242023Derivatives formally designated as hedging instruments:Foreign exchange forwards and optionsPrepaid expenses and other current assets$312$480 Foreign exchange forwards and optionsDeferred income taxes and other assets66 64 Interest rate swap contractsDeferred income taxes and other assets2 Total derivatives formally designated as hedging instruments380 544 Derivatives not designated as hedging instruments:Foreign exchange forwards and optionsPrepaid expenses and other current assets12 13 Total derivatives not designated as hedging instruments12 13 TOTAL DERIVATIVE ASSETS$392$557 DERIVATIVE LIABILITIESBALANCE SHEET LOCATIONFEBRUARY 29,MAY 31,(Dollars in millions)20242023Derivatives formally designated as hedging instruments:Foreign exchange forwards and optionsAccrued liabilities$121$93 Foreign exchange forwards and optionsDeferred income taxes and other liabilities17 52 Interest rate swap contractsDeferred income taxes and other liabilities4 Total derivatives formally designated as hedging instruments142 145 Derivatives not designated as hedging instruments:Foreign exchange forwards and optionsAccrued liabilities11 35 Total derivatives not designated as hedging instruments11 35 TOTAL DERIVATIVE LIABILITIES$153$180 14Table of ContentsThe following tables present the amounts affecting the Unaudited Condensed Consolidated Statements of Income:(Dollars in millions)AMOUNT OF GAIN(LOSS)RECOGNIZED IN OTHERCOMPREHENSIVE INCOME(LOSS)ON DERIVATIVESAMOUNT OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVEINCOME(LOSS)INTO INCOMETHREE MONTHS ENDEDLOCATION OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVE INCOME(LOSS)INTO INCOMETHREE MONTHS ENDEDFEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023Derivatives designated as cash flowhedges:Foreign exchange forwards and options$(32)$30 Revenues$(10)$14 Foreign exchange forwards and options135(141)Cost of sales70 182 Foreign exchange forwards and options 1 Demand creation expense1(1)Foreign exchange forwards and options49(65)Other(income)expense,net52 90 Interest rate swaps Interest expense(income),net(2)(2)TOTAL DESIGNATED CASH FLOWHEDGES$152$(175)$111$283(1)For the three months ended February 29,2024 and February 28,2023,the amounts recorded in Other(income)expense,net as a result of the discontinuance of cash flow hedges because theforecasted transactions were no longer probable of occurring were immaterial.(2)Gains and losses associated with terminated interest rate swaps,which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income(loss),will bereleased through Interest expense(income),net over the term of the issued debt.(Dollars in millions)AMOUNT OF GAIN(LOSS)RECOGNIZED IN OTHERCOMPREHENSIVE INCOME(LOSS)ON DERIVATIVESAMOUNT OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVEINCOME(LOSS)INTO INCOMENINE MONTHS ENDEDLOCATION OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVE INCOME(LOSS)INTO INCOMENINE MONTHS ENDEDFEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023Derivatives designated as cash flowhedges:Foreign exchange forwards andoptions$(55)$52 Revenues$(7)$9 Foreign exchange forwards andoptions154 245 Cost of sales221 464 Foreign exchange forwards andoptions2(2)Demand creation expense1(4)Foreign exchange forwards andoptions78 181 Other(income)expense,net138 297 Interest rate swaps Interest expense(income),net(6)(6)TOTAL DESIGNATED CASH FLOWHEDGES$179$476$347$760(1)For the nine months ended February 29,2024 and February 28,2023,the amounts recorded in Other(income)expense,net as a result of the discontinuance of cash flow hedges because theforecasted transactions were no longer probable of occurring were immaterial.(2)Gains and losses associated with terminated interest rate swaps,which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income(loss),will bereleased through Interest expense(income),net over the term of the issued debt.(1)(1)(2)(1)(1)(2)15Table of ContentsAMOUNT OF GAIN(LOSS)RECOGNIZEDIN INCOME ON DERIVATIVESLOCATION OF GAIN(LOSS)RECOGNIZED ININCOMEON DERIVATIVESTHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023Derivatives not designated as hedginginstruments:Foreign exchange forwards and options andembedded derivatives$9$(26)$(1)$52 Other(income)expense,netCASH FLOW HEDGESThe total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately$17.6 billion as of February 29,2024.Approximately$250 million of deferred net gains(net of tax)on both outstanding and matured derivatives in Accumulated other comprehensive income(loss)as ofFebruary 29,2024,are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded inNet income.Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature.As of February 29,2024,the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months.FAIR VALUE HEDGESThe total notional amount of outstanding interest rate swap contracts designated as fair value hedges was$901 million as of February 29,2024.UNDESIGNATED DERIVATIVE INSTRUMENTSThe total notional amount of outstanding undesignated derivative instruments was$3.9 billion as of February 29,2024.CREDIT RISKAs of February 29,2024,the Company was in compliance with all credit risk-related contingent features,and derivative instruments with such features were in a net assetposition of approximately$239 million.Accordingly,the Company was not required to post cash collateral as a result of these contingent features.Further,$48 million ofcollateral was received on the Companys derivative asset balance as of February 29,2024.The Company considers the impact of the risk of counterparty default to beimmaterial.For additional information related to the Companys derivative financial instruments and collateral,refer to Note 3 Fair Value Measurements.16Table of ContentsNOTE 9 ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS)The changes in Accumulated other comprehensive income(loss),net of tax,were as follows:(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at November 30,2023$(178)$242$115$(58)$121 Other comprehensive income(loss):Other comprehensive gains(losses)before reclassifications(57)150 4 97 Reclassifications to net income of previously deferred(gains)losses(100)7(93)Total other comprehensive income(loss)(57)50 11 4 Balance at February 29,2024$(235)$292$115$(47)$125(1)The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or uponcomplete or substantially complete liquidation of the respective entity.(2)Net of immaterial tax impact.(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at November 30,2022$(392)$933$115$(97)$559 Other comprehensive income(loss):Other comprehensive gains(losses)before reclassifications150(179)(29)Reclassifications to net income of previously deferred(gains)losses3(254)23(228)Total other comprehensive income(loss)153(433)23(257)Balance at February 28,2023$(239)$500$115$(74)$302(1)The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or uponcomplete or substantially complete liquidation of the respective entity.(2)Net of immaterial tax impact.(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at May 31,2023$(253)$431$115$(62)$231 Other comprehensive income(loss):Other comprehensive gains(losses)before reclassifications16 175 15 206 Reclassifications to net income of previously deferred(gains)losses2(314)(312)Total other comprehensive income(loss)18(139)15(106)Balance at February 29,2024$(235)$292$115$(47)$125(1)The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or uponcomplete or substantially complete liquidation of the respective entity.(2)Net of immaterial tax impact.(1)(1)(2)(2)(1)(1)(2)(2)(1)(1)(2)(2)17Table of Contents(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at May 31,2022$(520)$779$115$(56)$318 Other comprehensive income(loss):Other comprehensive gains(losses)before reclassifications(77)399 (27)295 Reclassifications to net income of previously deferred(gains)losses358(678)9(311)Total other comprehensive income(loss)281(279)(18)(16)Balance at February 28,2023$(239)$500$115$(74)$302(1)The accumulated foreign currency translation adjustment and net investment hedge gains/losses related to an investment in a foreign subsidiary are reclassified to Net income upon sale or uponcomplete or substantially complete liquidation of the respective entity.(2)Net of immaterial tax impact.The following table summarizes the reclassifications from Accumulated other comprehensive income(loss)to the Unaudited Condensed Consolidated Statements ofIncome:AMOUNT OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVE INCOME(LOSS)INTO INCOMELOCATION OF GAIN(LOSS)RECLASSIFIED FROMACCUMULATEDOTHER COMPREHENSIVEINCOME(LOSS)INTO INCOMETHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023Gains(losses)on foreign currency translationadjustment$(3)$(2)$(374)Other(income)expense,netTotal before tax(3)(2)(374)Tax(expense)benefit 16 Gain(loss)net of tax(3)(2)(358)Gains(losses)on cash flow hedges:Foreign exchange forwards and options(10)14(7)9 RevenuesForeign exchange forwards and options70 182 221 464 Cost of salesForeign exchange forwards and options1(1)1(4)Demand creation expenseForeign exchange forwards and options52 90 138 297 Other(income)expense,netInterest rate swaps(2)(2)(6)(6)Interest expense(income),netTotal before tax111 283 347 760 Tax(expense)benefit(11)(29)(33)(82)Gain(loss)net of tax100 254 314 678 Gains(losses)on other(9)(32)1(12)Other(income)expense,netTotal before tax(9)(32)1(12)Tax(expense)benefit2 9(1)3 Gain(loss)net of tax(7)(23)(9)Total net gain(loss)reclassified for the period$93$228$312$311(1)(1)(2)(2)18Table of ContentsNOTE 10 REVENUESDISAGGREGATION OF REVENUESThe following tables present the Companys Revenues disaggregated by reportable operating segment,major product line and distribution channel:THREE MONTHS ENDED FEBRUARY 29,2024(Dollars in millions)NORTHAMERICAEUROPE,MIDDLEEAST&AFRICAGREATERCHINAASIAPACIFIC&LATINAMERICAGLOBALBRANDDIVISIONSTOTALNIKEBRANDCONVERSECORPORATETOTALNIKE,INC.Revenues by:Footwear$3,460$1,960$1,547$1,195$8,162$426$8,588 Apparel1,408 994 498 390 3,290 25 3,315 Equipment202 184 39 62 487 9 496 Other 9 9 35(14)30 TOTAL REVENUES$5,070$3,138$2,084$1,647$9$11,948$495$(14)$12,429 Revenues by:Sales to Wholesale Customers$2,440$1,966$1,243$939$6,588$257$6,845 Sales through Direct to Consumer2,630 1,172 841 708 5,351 203 5,554 Other 9 9 35(14)30 TOTAL REVENUES$5,070$3,138$2,084$1,647$9$11,948$495$(14)$12,429 THREE MONTHS ENDED FEBRUARY 28,2023(Dollars in millions)NORTHAMERICAEUROPE,MIDDLEEAST&AFRICAGREATERCHINAASIAPACIFIC&LATINAMERICAGLOBALBRANDDIVISIONSTOTALNIKEBRANDCONVERSECORPORATETOTALNIKE,INC.Revenues by:Footwear$3,322$2,011$1,496$1,141$7,970$540$8,510 Apparel1,419 1,094 461 407 3,381 29 3,410 Equipment172 141 37 53 403 6 409 Other 12 12 37 12 61 TOTAL REVENUES$4,913$3,246$1,994$1,601$12$11,766$612$12$12,390 Revenues by:Sales to Wholesale Customers$2,323$2,061$1,126$913$6,423$323$6,746 Sales through Direct to Consumer2,590 1,185 868 688 5,331 252 5,583 Other 12 12 37 12 61 TOTAL REVENUES$4,913$3,246$1,994$1,601$12$11,766$612$12$12,390 19Table of ContentsNINE MONTHS ENDED FEBRUARY 29,2024(Dollars in millions)NORTHAMERICAEUROPE,MIDDLEEAST&AFRICAGREATERCHINAASIAPACIFIC&LATINAMERICAGLOBALBRANDDIVISIONSTOTALNIKEBRANDCONVERSECORPORATETOTALNIKE,INC.Revenues by:Footwear$10,950$6,406$4,195$3,639$25,190$1,390$26,580 Apparel4,555 3,331 1,368 1,198 10,452 75 10,527 Equipment613 578 119 187 1,497 27 1,524 Other 34 34 110(19)125 TOTAL REVENUES$16,118$10,315$5,682$5,024$34$37,173$1,602$(19)$38,756 Revenues by:Sales to Wholesale Customers$8,114$6,483$3,165$2,927$20,689$843$21,532 Sales through Direct to Consumer8,004 3,832 2,517 2,097 16,450 649 17,099 Other 34 34 110(19)125 TOTAL REVENUES$16,118$10,315$5,682$5,024$34$37,173$1,602$(19)$38,756 NINE MONTHS ENDED FEBRUARY 28,2023(Dollars in millions)NORTHAMERICAEUROPE,MIDDLEEAST&AFRICAGREATERCHINAASIAPACIFIC&LATINAMERICAGLOBALBRANDDIVISIONSTOTALNIKEBRANDCONVERSECORPORATETOTALNIKE,INC.Revenues by:Footwear$11,090$6,086$4,099$3,313$24,588$1,633$26,221 Apparel4,598 3,528 1,228 1,255 10,609 70 10,679 Equipment565 454 111 167 1,297 21 1,318 Other 44 44 117 13 174 TOTAL REVENUES$16,253$10,068$5,438$4,735$44$36,538$1,841$13$38,392 Revenues by:Sales to Wholesale Customers$8,533$6,506$2,862$2,792$20,693$971$21,664 Sales through Direct to Consumer7,720 3,562 2,576 1,943 15,801 753 16,554 Other 44 44 117 13 174 TOTAL REVENUES$16,253$10,068$5,438$4,735$44$36,538$1,841$13$38,392 For the three and nine months ended February 29,2024 and three and nine months ended February 28,2023,Global Brand Divisions revenues included NIKE Brandlicensing and other miscellaneous revenues that are not part of a geographic operating segment.Converse Other revenues were primarily attributable to licensingbusinesses.Corporate revenues primarily consisted of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brandgeographic operating segments and Converse,but managed through the Companys central foreign exchange risk management program.As of February 29,2024 and May 31,2023,the Company did not have any contract assets and had an immaterial amount of contract liabilities recorded in Accruedliabilities on the Unaudited Condensed Consolidated Balance Sheets.20Table of ContentsNOTE 11 OPERATING SEGMENTSThe Companys operating segments are evidence of the structure of the Companys internal organization.The NIKE Brand segments are defined by geographic regionsfor operations participating in NIKE Brand sales activity.Each NIKE Brand geographic segment operates predominantly in one industry:the design,development,marketing and selling of athletic footwear,apparel andequipment.The Companys reportable operating segments for the NIKE Brand are:North America;Europe,Middle East&Africa(EMEA);Greater China;and AsiaPacific&Latin America(APLA),and include results for the NIKE and Jordan brands.The Companys NIKE Direct operations are managed within each NIKE Brand geographic operating segment.Converse is also a reportable segment for the Companyand operates in one industry:the design,marketing,licensing and selling of athletic lifestyle sneakers,apparel and accessories.Global Brand Divisions is included within the NIKE Brand for presentation purposes to align with the way management views the Company.Global Brand Divisionsrevenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.Global Brand Divisions costs representdemand creation and operating overhead expense that include product creation and design expenses centrally managed for the NIKE Brand,as well as costs associatedwith NIKE Direct global digital operations and enterprise technology.Corporate consists primarily of unallocated general and administrative expenses,including expenses associated with centrally managed departments;depreciation andamortization related to the Companys headquarters;unallocated insurance,benefit and compensation programs,including stock-based compensation;and certainforeign currency gains and losses,including certain hedge gains and losses.For the three and nine months ended February 29,2024,Corporate also includes pre-taxrestructuring charges recognized as a result of the Company taking steps to streamline the organization.These pre-tax charges primarily reflect employee severancecosts and accelerated stock-based compensation expense.For more information,refer to Note 14 Restructuring.The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes(EBIT),whichrepresents Net income before Interest expense(income),net,and Income taxes in the Unaudited Condensed Consolidated Statements of Income.As part of the Companys centrally managed foreign exchange risk management program,standard foreign currency rates are assigned twice per year to each NIKEBrand entity in the Companys geographic operating segments and to Converse.These rates are set approximately nine and twelve months in advance of the futureselling seasons to which they relate(specifically,for each currency,one standard rate applies to the fall and holiday selling seasons,and one standard rate applies to thespring and summer selling seasons)based on average market spot rates in the calendar month preceding the date they are established.Inventories and Cost of sales forgeographic operating segments and Converse reflect the use of these standard rates to record non-functional currency product purchases in the entitys functionalcurrency.Differences between assigned standard foreign currency rates and actual market rates are included in Corporate,together with foreign currency hedge gainsand losses generated from the Companys centrally managed foreign exchange risk management program and other conversion gains and losses.Accounts receivable,net,Inventories and Property,plant and equipment,net for operating segments are regularly reviewed by management and are therefore providedbelow.21Table of Contents THREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023REVENUESNorth America$5,070$4,913$16,118$16,253 Europe,Middle East&Africa3,138 3,246 10,315 10,068 Greater China2,084 1,994 5,682 5,438 Asia Pacific&Latin America1,647 1,601 5,024 4,735 Global Brand Divisions9 12 34 44 Total NIKE Brand11,948 11,766 37,173 36,538 Converse495 612 1,602 1,841 Corporate(14)12(19)13 TOTAL NIKE,INC.REVENUES$12,429$12,390$38,756$38,392 EARNINGS BEFORE INTEREST AND TAXESNorth America$1,400$1,190$4,360$4,064 Europe,Middle East&Africa734 785 2,591 2,750 Greater China722 702 1,761 1,754 Asia Pacific&Latin America471 485 1,406 1,470 Global Brand Divisions(1,199)(1,160)(3,572)(3,573)Converse98 164 380 526 Corporate(874)(696)(2,060)(2,014)Interest expense(income),net(52)(7)(108)22 TOTAL NIKE,INC.INCOME BEFORE INCOME TAXES$1,404$1,477$4,974$4,955 FEBRUARY 29,MAY 31,(Dollars in millions)20242023ACCOUNTS RECEIVABLE,NETNorth America$1,872$1,653 Europe,Middle East&Africa1,336 1,197 Greater China197 162 Asia Pacific&Latin America750 700 Global Brand Divisions96 96 Total NIKE Brand4,251 3,808 Converse219 235 Corporate56 88 TOTAL ACCOUNTS RECEIVABLE,NET$4,526$4,131 INVENTORIESNorth America$3,201$3,806 Europe,Middle East&Africa2,046 2,167 Greater China1,121 973 Asia Pacific&Latin America889 894 Global Brand Divisions180 232 Total NIKE Brand7,437 8,072 Converse289 305 Corporate 77 TOTAL INVENTORIES$7,726$8,454(1)Inventories as of February 29,2024 and May 31,2023,were substantially all finished goods.(1)22Table of ContentsFEBRUARY 29,MAY 31,(Dollars in millions)20242023PROPERTY,PLANT AND EQUIPMENT,NETNorth America$760$794 Europe,Middle East&Africa1,068 1,009 Greater China264 292 Asia Pacific&Latin America292 279 Global Brand Divisions886 840 Total NIKE Brand3,270 3,214 Converse30 38 Corporate1,782 1,829 TOTAL PROPERTY,PLANT AND EQUIPMENT,NET$5,082$5,081 NOTE 12 CONTINGENCIESIn the ordinary course of business,the Company is subject to various legal proceedings,claims and government investigations relating to its business,products andactions of its employees and representatives,including contractual and employment relationships,product liability,antitrust,customs,tax,intellectual property and othermatters.The outcome of these legal matters is inherently uncertain,and the Company cannot predict the eventual outcome of currently pending matters,the timing oftheir ultimate resolution or the eventual losses,fines,penalties or consequences relating to those matters.When a loss related to a legal proceeding or claim is probableand reasonably estimable,the Company accrues its best estimate for the ultimate resolution of the matter.If one or more legal matters were to be resolved against theCompany in a reporting period for amounts above managements expectations,the Companys financial position,operating results and cash flows for that reporting periodcould be materially adversely affected.In the opinion of management,based on its current knowledge and after consultation with counsel,the Company does not believeany currently pending legal matters will have a material adverse impact on the Companys results of operations,financial position or cash flows,except as describedbelow.BELGIAN CUSTOMS CLAIMThe Company has received claims for certain years from Belgian Customs and other government authorities for alleged underpaid duties related to products importedbeginning in fiscal 2018.The Company disputes these claims and has engaged in the appellate process.The Company has issued bank guarantees in order to appealthe claims.At this time,the Company is unable to estimate the range of loss and cannot predict the final outcome as it could take several years to reach a resolution onthis matter.If this matter is ultimately resolved against the Company,the amounts owed,including fines,penalties and other consequences relating to the matter,couldhave a material adverse effect on the Companys results of operations,financial position and cash flows.NOTE 13 ACQUISITIONS AND DIVESTITURESDuring the second quarter of fiscal 2023,the sale of the Companys entities in Argentina and Uruguay to a third-party distributor was completed and the net loss on thesale of these entities totaled approximately$550 million.This loss included$389 million,recognized primarily in fiscal 2020,largely due to the anticipated release of thecumulative foreign currency translation losses.The remaining loss recognized in fiscal 2023 was due to the devaluation of local currency and cash equivalents included inthe transferred assets.Upon completion of the sale,the foreign currency translation losses recorded in Accumulated other comprehensive income(loss)were reclassifiedto Net income within Other(income)expense,net,on the Unaudited Condensed Consolidated Statements of Comprehensive Income along with the allowance forpreviously recognized losses recorded in Accrued liabilities.The net loss was classified within Corporate.The net cash proceeds received are reflected within Other investing activities on the Unaudited Condensed Consolidated Statements of Cash Flows.23Table of ContentsNOTE 14 RESTRUCTURINGDuring the third quarter of fiscal 2024,the Company announced a multi-year enterprise initiative designed to accelerate its future growth.As part of this initiative,management is taking steps to streamline the organization which will include a net reduction in the Companys global workforce.As of February 29,2024,the Companyexpects to recognize pre-tax restructuring charges of approximately$450 million,primarily associated with employee severance costs and accelerated stock-basedcompensation expense,the majority of which are expected to be recognized by the end of fiscal 2024.The related cash payments are expected to take place through thefirst half of fiscal 2025.The expected pre-tax charges are estimates and are subject to a number of assumptions and actual results may vary from the estimates provided.During the third quarter of fiscal 2024,the Company recognized pre-tax restructuring charges of$403 million.These charges were classified within Corporate as follows:THREE MONTHS ENDED FEBRUARY 29,2024(Dollars in millions)OPERATING OVERHEADEXPENSECOST OF SALESTOTALEmployee severance and related costs$319$60$379 Stock-based compensation expense21 3 24 Total pre-tax restructuring charges$340$63$403(1)Employee severance costs are recognized when a future related expense is considered probable and reasonably estimable.(2)Non-cash restructuring related stock-based compensation expense is accelerated over the requisite service period,which for certain impacted employees could extend through the first half of fiscal2025.As of February 29,2024,a majority of the$379 million of employee severance and related costs are reflected within Accrued liabilities on the Unaudited CondensedConsolidated Balance Sheets,classified within Other in Note 2 Accrued Liabilities,and an immaterial amount is reflected within Accounts payable.As of February 29,2024,the Company has not made any cash payments related to this activity.(1)(2)24Table of ContentsITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSOVERVIEWNIKE designs,develops,markets and sells athletic footwear,apparel,equipment,accessories and services worldwide.We are the largest seller of athletic footwear andapparel in the world.We sell our products through NIKE Direct operations,which is comprised of both NIKE-owned retail stores and sales through our digital platforms(also referred to as NIKE Brand Digital),to wholesale accounts and to a mix of independent distributors,licensees and sales representatives in nearly all countriesaround the world.Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear,apparel,equipment and accessoriesbusinesses.Our strategy is to achieve long-term revenue growth by creating innovative,must-have products,building deep personal consumer connections with ourbrands and delivering compelling consumer experiences through digital platforms and at retail.The Consumer Direct Acceleration strategy,which launched in July 2020,has driven revenue growth and millions of new connections with our consumers,and shifted themix of our business toward our owned stores and digital platforms.To holistically serve all of our consumers across the marketplace,we expect to continue to invest in ourNIKE Direct operations while also increasing investment to elevate and differentiate our brand experience within our wholesale partners.In addition,our product creationand marketing organizations are aligned to a consumer construct focused on sports dimensions through Mens,Womens and Kids,which allows us to better serveconsumer needs.We also remain focused on accelerating our pace of innovation and maximizing the impact of our storytelling.We continue to invest in a global Enterprise Resource Planning Platform,data and analytics,demand sensing,insight gathering and other areas to create an end-to-endtechnology foundation.We believe this approach will accelerate growth and unlock more efficiency for our business,while driving speed and responsiveness as we serveconsumers globally across the marketplace.QUARTERLY FINANCIAL HIGHLIGHTS NIKE,Inc.Revenues for the third quarter of fiscal 2024 were$12.43 billion compared to$12.39 billion for the third quarter of fiscal 2023 NIKE Direct revenues were$5.4 billion for the third quarter of fiscal 2024 compared to$5.3 billion for the third quarter of fiscal 2023,and represented approximately45%of total NIKE Brand revenues Gross margin for the third quarter of fiscal 2024 increased 150 basis points to 44.8%,primarily driven by strategic pricing actions and lower ocean freight rates andlogistics costs,partially offset by higher product input costs and restructuring charges Inventories as of February 29,2024,were$7.7 billion,a decrease of 9%compared to May 31,2023,primarily driven by a decrease in units We returned approximately$1.4 billion to our shareholders in the third quarter of fiscal 2024 through share repurchases and dividendsECONOMIC CONDITIONS AND MARKET DYNAMICS Consumer Spending:During the third quarter of fiscal 2024,consumers continued to spend more cautiously and promotional activity remained high across ourindustry.In this environment,we continue to experience lower digital traffic and moderation in our revenue growth.We will continue to monitor macroeconomicconditions,including the potential impacts of inflation and higher interest rates on consumer behavior.Cost Inflationary Pressures:Inflationary pressures,including higher product input costs,continued to negatively impact our gross margin.These negative impactson gross margin were more than offset by strategic pricing actions we have taken through the third quarter of fiscal 2024,as well as improvements in ocean freightrates and logistics costs we started to realize at the beginning of the second quarter of fiscal 2024.Supply Chain Conditions:During the first nine months of fiscal 2024 and as of February 29,2024,our inventory levels were healthy and reflected our proactiveactions taken to manage our inventory supply.In addition,we continued to experience normalized inventory transit times and flow of seasonal product.Foreign Currency Impacts:As a global company with significant operations outside the United States,we are exposed to risk arising from changes in foreigncurrency exchange rates.For additional information,refer to Foreign Currency Exposures and Hedging Practices.25Table of ContentsThe operating environment could remain volatile in the fourth quarter of fiscal 2024,and the risk exists that the worsening of macroeconomic conditions could have amaterial adverse impact on our revenue growth as well as overall profitability.We continue to be confident in our brand strength and deep consumer connections.We willalso continue to focus on driving gross margin expansion and disciplined cost control while managing the health of our most iconic franchises.RECENT DEVELOPMENTSIn December 2023,we announced an enterprise initiative designed to accelerate our future growth.As part of this initiative,we are taking steps to streamline theorganization.These changes will result in a net reduction of our global workforce.We expect a majority of the future annual wage savings from these actions will bereinvested in consumer facing activities to drive greater impact for our consumers,sports dimensions and the total marketplace.As of February 29,2024,we expect to recognize pre-tax charges of approximately$450 million,primarily associated with employee severance costs and acceleratedstock-based compensation expense,the majority of which will be recognized by the end of fiscal 2024.The related cash payments are expected to take place through thefirst half of fiscal 2025.The expected pre-tax charges are estimates and subject to a number of assumptions.Actual results may differ from current estimates.During the third quarter of fiscal 2024,we incurred pre-tax charges of$403 million,primarily associated with employee severance costs and accelerated stock-basedcompensation expense.For more information,refer to Note 14 Restructuring within the accompanying Notes to the Unaudited Condensed Consolidated FinancialStatements.26Table of ContentsRESULTS OF OPERATIONSTHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions,except per share data)FEBRUARY 29,2024FEBRUARY 28,2023%CHANGEFEBRUARY 29,2024FEBRUARY 28,2023%CHANGERevenues$12,429$12,390 0%$38,756$38,392 1%Cost of sales6,867 7,019-2!,503 21,695-1%Gross profit5,562 5,371 4,253 16,697 3%Gross margin44.8C.3D.5C.5mand creation expense1,011 923 10%3,194 2,968 8%Operating overhead expense3,215 3,036 6%9,294 9,035 3%Total selling and administrative expense4,226 3,959 7,488 12,003 4%of revenues34.02.02.21.3%Interest expense(income),net(52)(7)(108)22 Other(income)expense,net(16)(58)(101)(283)Income before income taxes1,404 1,477-5%4,974 4,955 0%Income tax expense232 237-2w4 916-16fective tax rate16.5.0.6.5%NET INCOME$1,172$1,240-5%$4,200$4,039 4%Diluted earnings per common share$0.77$0.79-3%$2.74$2.57 7%CONSOLIDATED OPERATING RESULTSREVENUESTHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESFEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESNIKE,Inc.Revenues:NIKE Brand Revenues by:Footwear$8,162$7,970 2%3%$25,190$24,588 2%2%Apparel3,290 3,381-3%-3,452 10,609-1%-2%Equipment487 403 21 %1,497 1,297 15%Global Brand Divisions9 12-25%-224 44-23%-24%Total NIKE Brand Revenues11,948 11,766 2%27,173 36,538 2%2%Converse495 612-19%-20%1,602 1,841-13%-14%Corporate(14)12 (19)13 TOTAL NIKE,INC.REVENUES$12,429$12,390 0%0%$38,756$38,392 1%1%Supplemental NIKE Brand RevenuesDetails:NIKE Brand Revenues by:Sales to Wholesale Customers$6,588$6,423 3%3%$20,689$20,693 0%0%Sales through NIKE Direct5,351 5,331 0%0,450 15,801 4%4%Global Brand Divisions9 12-25%-224 44-23%-24%TOTAL NIKE BRAND REVENUES$11,948$11,766 2%2%$37,173$36,538 2%2%(1)The percent change excluding currency changes represents a non-GAAP financial measure.For additional information,see Use of Non-GAAP Financial Measures.(2)Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.(3)Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse,butmanaged through our central foreign exchange risk management program.(1)(1)(2)(3)(2)27Table of ContentsTHIRD QUARTER OF FISCAL 2024 COMPARED TO THIRD QUARTER OF FISCAL 2023 NIKE,Inc.Revenues for the third quarter of fiscal 2024 were$12.43 billion compared to$12.39 billion for the third quarter of fiscal 2023.On a currency-neutral basis,NIKE,Inc.revenues were flat,as higher revenues in North America and Greater China,which each increased NIKE,Inc.Revenues by approximately 1 percentagepoint,were offset by lower revenues in Europe,Middle East&Africa(EMEA)and Converse,which each reduced NIKE,Inc.Revenues by approximately 1percentage point.NIKE Brand revenues,which represented over 90%of NIKE,Inc.Revenues,increased 2%on a reported and currency-neutral basis.The increase,on a currency-neutral basis,was due to higher revenues in Mens,Kids,Womens and the Jordan Brand.NIKE Brand footwear revenues increased 3%on a currency-neutral basis due to higher revenues in Mens,Womens,Kids and the Jordan Brand.Unit salesof footwear increased 2%,while higher average selling price(ASP)per pair contributed approximately 1 percentage point of footwear revenue growth.Higher ASP per pair was primarily due to higher full-price ASP,net of discounts,on a wholesale equivalent basis,partially offset by lower NIKE Direct ASP.NIKE Brand apparel revenues decreased 3%on a currency-neutral basis due to lower revenues in Mens and Womens,partially offset by higher revenues inKids.Unit sales of apparel decreased 8%,while higher ASP per unit contributed approximately 5 percentage points of apparel revenue growth.Higher ASPper unit was primarily due to higher full-price,off-price and NIKE Direct ASPs.NIKE Brand wholesale revenues increased 3%compared to the third quarter of fiscal 2023,on a reported and currency-neutral basis.The increase,on a currency-neutral basis,was driven by higher revenues in Greater China,North America and Asia Pacific&Latin America(APLA),partially offset by lower revenues in EMEA.NIKE Direct revenues were$5.4 billion in the third quarter of fiscal 2024,compared to$5.3 billion for the third quarter of fiscal 2023.On a currency-neutral basis,NIKE Direct revenues were flat,driven by comparable store sales growth of 3%and the addition of new stores,offset by NIKE Brand Digital sales declines of 4%.Foradditional information regarding comparable store sales,including the definition,see Comparable Store Sales.NIKE Brand Digital sales were$3.0 billion for thethird quarter of fiscal 2024 compared to$3.1 billion for the third quarter of fiscal 2023.Within NIKE Direct revenues,there were certain reclassifications madebetween NIKE-owned retail stores and NIKE Brand Digital in the prior period to conform to current period presentation.The reclassifications did not have a materialimpact on our Unaudited Condensed Consolidated Financial Statements.FIRST NINE MONTHS OF FISCAL 2024 COMPARED TO FIRST NINE MONTHS OF FISCAL 2023 NIKE,Inc.Revenues were$38.8 billion for the first nine months of fiscal 2024,which increased 1%compared to the first nine months of fiscal 2023 on a reported andcurrency-neutral basis.The increase,on a currency-neutral basis,was driven by higher revenues in Greater China and APLA,which each contributed approximately1 percentage point to NIKE,Inc.Revenues.Lower revenues for Converse reduced NIKE,Inc.Revenues by approximately 1 percentage point.NIKE Brand revenues,which represented over 90%of NIKE,Inc.Revenues,increased 2%on a reported and currency-neutral basis.The increase,on a currency-neutral basis,was primarily due to higher revenues in the Jordan Brand,partially offset by lower revenues in Mens and Kids.NIKE Brand footwear revenues increased 2%on a currency-neutral basis,primarily due to higher revenues in the Jordan Brand and Womens,partially offsetby lower revenues in Kids.Unit sales of footwear decreased 2%,while higher ASP per pair contributed approximately 4 percentage points of footwearrevenue growth.Higher ASP per pair was primarily due to higher full-price ASP and a higher mix of NIKE Direct sales,partially offset by lower NIKE DirectASP.NIKE Brand apparel revenues decreased 2%on a currency-neutral basis,primarily due to lower revenues in Mens and Womens.Unit sales of appareldecreased 12%,while higher ASP per unit contributed approximately 10 percentage points of apparel revenue growth.Higher ASP per unit was primarily dueto higher full-price and NIKE Direct ASPs.NIKE Brand wholesale revenues were flat compared to the first nine months of fiscal 2023,on a reported and currency-neutral basis,as higher revenues in GreaterChina and APLA were offset by lower revenues in North America and EMEA.28Table of Contents NIKE Direct revenues increased 4%,on a reported basis,from$15.8 billion for the first nine months of fiscal 2023 to$16.5 billion for the first nine months of fiscal2024.On a currency-neutral basis,NIKE Direct revenues increased 4%,primarily driven by comparable store sales growth of 6%and the addition of new stores.NIKE Brand Digital sales were$9.4 billion for the first nine months of fiscal 2024 compared to$9.3 billion for the first nine months of fiscal 2023.Within NIKE Directrevenues,there were certain reclassifications made between NIKE-owned retail stores and NIKE Brand Digital in the prior period to conform to current periodpresentation.The reclassifications did not have a material impact on our Unaudited Condensed Consolidated Financial Statements.GROSS MARGINTHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023%CHANGEFEBRUARY 29,2024FEBRUARY 28,2023%CHANGEGross profit$5,562$5,371 4%$17,253$16,697 3%Gross margin44.8C.30 bps44.5C.50 bpsTHIRD QUARTER OF FISCAL 2024 COMPARED TO THIRD QUARTER OF FISCAL 2023For the third quarter of fiscal 2024,our consolidated gross margin was 150 basis points higher than the prior year due to:Higher NIKE Brand full-price ASP,net of discounts,on a wholesale equivalent basis(increasing gross margin approximately 180 basis points),primarily due tostrategic pricing actions;Lower NIKE Brand product costs,on a wholesale equivalent basis(increasing gross margin approximately 50 basis points),primarily due to lower ocean freight ratesand logistics costs,partially offset by higher product input costs;Lower other costs,including warehousing costs(increasing gross margin approximately 50 basis points);and Favorable changes in net foreign currency exchange rates,including hedges(increasing gross margin approximately 10 basis points).This was partially offset by:Lower margin in our NIKE Direct business(decreasing gross margin approximately 50 basis points);Lower off-price margin,on a wholesale equivalent basis(decreasing gross margin approximately 40 basis points);and Restructuring charges(decreasing gross margin approximately 50 basis points).FIRST NINE MONTHS OF FISCAL 2024 COMPARED TO FIRST NINE MONTHS OF FISCAL 2023For the first nine months of fiscal 2024,our consolidated gross margin was 100 basis points higher than the prior year due to:Higher NIKE Brand full-price ASP,net of discounts,on a wholesale equivalent basis(increasing gross margin approximately 270 basis points),primarily due tostrategic pricing actions;and Lower other costs(increasing gross margin approximately 10 basis points).This was partially offset by:Higher NIKE Brand product costs,on a wholesale equivalent basis(decreasing gross margin approximately 60 basis points),primarily due to higher product inputcosts largely offset by lower ocean freight rates and logistics costs;and Unfavorable changes in net foreign currency exchange rates,including hedges(decreasing gross margin approximately 50 basis points);and Lower off-price margin,on a wholesale equivalent basis(decreasing gross margin approximately 30 basis points);Restructuring charges(decreasing gross margin approximately 20 basis points);and Lower margin in our NIKE Direct business(decreasing gross margin approximately 20 basis points).29Table of ContentsTOTAL SELLING AND ADMINISTRATIVE EXPENSETHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023%CHANGEFEBRUARY 29,2024FEBRUARY 28,2023%CHANGEDemand creation expense$1,011$923 10%$3,194$2,968 8%Operating overhead expense3,215 3,036 6%9,294 9,035 3%Total selling and administrative expense$4,226$3,959 7%$12,488$12,003 4%of revenues34.02.0 0 bps32.21.3 bps(1)Demand creation expense consists of advertising and promotion costs,including costs of endorsement contracts,complimentary products,television,digital and print advertising and media costs,brandevents and retail brand presentation.THIRD QUARTER OF FISCAL 2024 COMPARED TO THIRD QUARTER OF FISCAL 2023Demand creation expense increased 10%reflecting an increase in marketing expense,primarily due to higher advertising and marketing expense and higher sportsmarketing expense.Changes in foreign currency exchange rates did not have a material impact on Demand creation expense.Operating overhead expense increased 6%primarily due to restructuring charges,partially offset by lower wage-related expenses and technology spend.Changes inforeign currency exchange rates did not have a material impact on Operating overhead expense.FIRST NINE MONTHS OF FISCAL 2024 COMPARED TO FIRST NINE MONTHS OF FISCAL 2023Demand creation expense increased 8%reflecting an increase in marketing expense,primarily due to higher advertising and marketing expense,higher sports marketingexpense and higher digital marketing.Changes in foreign currency exchange rates did not have a material impact on Demand creation expense.Operating overhead expense increased 3%primarily due to restructuring charges,partially offset by lower technology spend and wage-related expenses.Changes inforeign currency exchange rates did not have a material impact on Operating overhead expense.For more information related to our organizational realignment and related costs,refer to Note 14 Restructuring within the accompanying Notes to the UnauditedCondensed Consolidated Financial Statements.OTHER(INCOME)EXPENSE,NETTHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023Other(income)expense,net$(16)$(58)$(101)$(283)Other(income)expense,net comprises foreign currency conversion gains and losses from the remeasurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments,as well as unusual or non-operating transactions that are outside the normalcourse of business.For the third quarter of fiscal 2024,Other(income)expense,net decreased from$58 million of other income,net,to$16 million of other income,net,primarily due togoodwill impairment in the current year and a net unfavorable change in foreign currency conversion gains and losses,including hedges.For the first nine months of fiscal 2024,Other(income)expense,net decreased from$283 million of other income,net,to$101 million of other income,net,primarily dueto a net unfavorable change in foreign currency conversion gains and losses,including hedges,as well as net favorable settlements of legal matters in the prior year andgoodwill impairment in the current year.These items were partially offset by the loss recognized in the prior year upon completion of the sale of our entities in Argentinaand Uruguay to a third-party distributor.We estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreigncurrency-related gains and losses included in Other(income)expense,net had a favorable impact of$16 million and an unfavorable impact of$86 million on our Incomebefore income taxes for the third quarter and first nine months of fiscal 2024.(1)30Table of ContentsINCOME TAXESTHREE MONTHS ENDEDNINE MONTHS ENDEDFEBRUARY 29,2024FEBRUARY 28,2023%CHANGEFEBRUARY 29,2024FEBRUARY 28,2023%CHANGEEffective tax rate16.5.0P bps15.6.5%(290)bpsOur effective tax rate was 16.5%for the third quarter of fiscal 2024,substantially consistent with 16.0%for the third quarter of fiscal 2023.Our effective tax rate was 15.6%for the first nine months of fiscal 2024,compared to 18.5%for the first nine months of fiscal 2023,primarily due to one-time benefitsprovided by the delay of the effective date of certain U.S.foreign tax credit regulations and a reduction in accrued withholding taxes on undistributed foreign earnings.For additional information,refer to Note 5 Income Taxes within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.USE OF NON-GAAP FINANCIAL MEASURESThroughout this Quarterly Report on Form 10-Q,we discuss non-GAAP financial measures,which should be considered in addition to,and not in lieu of,the financialmeasures calculated and presented in accordance with U.S.GAAP.References to these measures should not be considered in isolation or as a substitute for otherfinancial measures calculated and presented in accordance with U.S.GAAP and may not be comparable to similarly titled measures used by other companies.Management uses these non-GAAP measures when evaluating the Companys performance,including when making financial and operating decisions.Additionally,management believes these non-GAAP financial measures provide investors with additional financial information that should be considered when assessing ourunderlying business performance and trends.Earnings Before Interest and Taxes(EBIT):Calculated as Net income before Interest expense(income),net and Income tax expense in the Unaudited CondensedConsolidated Statements of Income.Total NIKE,Inc.EBIT for the three and nine months ended February 29,2024 and February 28,2023 are as follows:THREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023Net income$1,172$1,240$4,200$4,039 Add:Interest expense(income),net(52)(7)(108)22 Add:Income tax expense232 237 774 916 Earnings before interest and taxes$1,352$1,470$4,866$4,977 EBIT margin:Calculated as total NIKE,Inc.EBIT divided by total NIKE,Inc.Revenues.Our EBIT margin calculation for the three and nine months ended February 29,2024 and February 28,2023 are as follows:THREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023FEBRUARY 29,2024FEBRUARY 28,2023NumeratorEarnings before interest and taxes$1,352$1,470$4,866$4,977 DenominatorTotal NIKE,Inc.Revenues$12,429$12,390$38,756$38,392 EBIT margin10.9.9.6.0%Currency-neutral revenues:Currency-neutral revenues enhance visibility to underlying business trends,excluding the impact of translation arising from foreign currencyexchange rate fluctuations.Currency-neutral revenues are calculated using actual exchange rates in use during the comparative prior year period in place of theexchange rates in use during the current period.Wholesale equivalent revenues:References to wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint ifwe had no NIKE Direct operations.NIKE Brand wholesale equivalent revenues consist of(1)sales to external wholesale customers and(2)internal sales from ourwholesale operations to our NIKE Direct operations,which are charged at prices comparable to those charged to external wholesale customers.31Table of ContentsCOMPARABLE STORE SALESComparable store sales:This key metric,which excludes NIKE Brand Digital sales,comprises revenues from NIKE-owned in-line and factory stores for which all three ofthe following requirements have been met:(1)the store has been open at least one year,(2)square footage has not changed by more than 15%within the past year and(3)the store has not been permanently repositioned within the past year.Comparable store sales includes revenues from stores that were temporarily closed during theperiod as a result of COVID-19.Comparable store sales represents a performance metric that we believe is useful information for management and investors inunderstanding the performance of our established NIKE-owned in-line and factory stores.Management considers this metric when making financial and operatingdecisions.The method of calculating comparable store sales varies across the retail industry.As a result,our calculation of this metric may not be comparable to similarlytitled metrics used by other companies.OPERATING SEGMENTSAs discussed in Note 11 Operating Segments in the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements,our operating segments areevidence of the structure of the Companys internal organization.The NIKE Brand segments are defined by geographic regions for operations participating in NIKE Brandsales activity.The breakdown of Revenues is as follows:THREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESFEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESNorth America$5,070$4,913 3%3%$16,118$16,253-1%-1%Europe,Middle East&Africa3,138 3,246-3%-4,315 10,068 2%0%Greater China2,084 1,994 5%6%5,682 5,438 4%8%Asia Pacific&Latin America1,647 1,601 3%4%5,024 4,735 6%6%Global Brand Divisions9 12-25%-224 44-23%-24%TOTAL NIKE BRAND11,948 11,766 2%27,173 36,538 2%2%Converse495 612-19%-20%1,602 1,841-13%-14%Corporate(14)12 (19)13 TOTAL NIKE,INC.REVENUES$12,429$12,390 0%0%$38,756$38,392 1%1%(1)The percent change excluding currency changes represents a non-GAAP financial measure.For additional information,see Use of Non-GAAP Financial Measures.(2)Global Brand Divisions revenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.(3)Corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse,butmanaged through our central foreign exchange risk management program.The primary financial measure used by the Company to evaluate performance of individual operating segments is EBIT.As discussed in Note 11 Operating Segmentsin the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements,certain corporate costs are not included in EBIT of our operating segments.(1)(1)(2)(3)32Table of ContentsThe breakdown of EBIT is as follows:THREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY 29,2024FEBRUARY 28,2023%CHANGEFEBRUARY 29,2024FEBRUARY 28,2023%CHANGENorth America$1,400$1,190 18%$4,360$4,064 7%Europe,Middle East&Africa734 785-6%2,591 2,750-6%Greater China722 702 3%1,761 1,754 0%Asia Pacific&Latin America471 485-3%1,406 1,470-4%Global Brand Divisions(1,199)(1,160)-3%(3,572)(3,573)0%TOTAL NIKE BRAND2,128 2,002 6%6,546 6,465 1%Converse98 164-4080 526-28%Corporate(874)(696)-26%(2,060)(2,014)-2%TOTAL NIKE,INC.EARNINGS BEFORE INTERESTAND TAXES1,352 1,470-8%4,866 4,977-2IT margin10.9.9.6.0%Interest expense(income),net(52)(7)(108)22 TOTAL NIKE,INC.INCOME BEFORE INCOMETAXES$1,404$1,477-5%$4,974$4,955 0%(1)Total NIKE Brand EBIT,Total NIKE,Inc.EBIT and EBIT margin represent non-GAAP financial measures.For additional information,see Use of Non-GAAP Financial Measures.NORTH AMERICATHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESFEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$3,460$3,322 4%4%$10,950$11,090-1%-1%Apparel1,408 1,419-1%-1%4,555 4,598-1%-1%Equipment202 172 17a3 565 8%9%TOTAL REVENUES$5,070$4,913 3%3%$16,118$16,253-1%-1%Revenues by:Sales to Wholesale Customers$2,440$2,323 5%5%$8,114$8,533-5%-5%Sales through NIKE Direct2,630 2,590 2%2%8,004 7,720 4%4%TOTAL REVENUES$5,070$4,913 3%3%$16,118$16,253-1%-1RNINGS BEFORE INTEREST ANDTAXES$1,400$1,190 18%$4,360$4,064 7%THIRD QUARTER OF FISCAL 2024 COMPARED TO THIRD QUARTER OF FISCAL 2023 North America revenues increased 3%on a currency-neutral basis due to higher revenues in Kids,Mens,Womens and the Jordan Brand.Wholesale revenuesincreased 5%.NIKE Direct revenues increased 2%,driven by comparable store sales growth of 1%and the addition of new stores,as well as digital sales growth of1%.Footwear revenues increased 4%on a currency-neutral basis,primarily due to higher revenues in Kids,Womens and Mens.Unit sales of footwear increased 7%,while lower ASP per pair reduced footwear revenues by approximately 3 percentage points.Lower ASP per pair was primarily due to a lower mix of NIKE Direct salesand lower NIKE Direct ASP.Apparel revenues decreased 1%on a currency-neutral basis due to lower revenues in the Jordan Brand and Mens,largely offset by higher revenues in Kids andWomens.Unit sales of apparel decreased 5%,while higher ASP per unit contributed approximately 4 percentage points of apparel revenue growth.Higher ASP perunit was primarily due to higher full-price and NIKE Direct ASPs,partially offset by a lower mix of NIKE Direct sales.(1)(1)(1)33Table of ContentsReported EBIT increased 18%reflecting higher revenues and the following:Gross margin expansion of 290 basis points primarily due to higher full-price ASP,net of discounts,largely due to strategic pricing actions and lower discounts,aswell as lower product costs,reflecting lower ocean freight rates and logistics costs,partially offset by higher product input costs.Selling and administrative expense was flat as higher demand creation expense was offset by lower operating overhead expense.The increase in demand creationexpense was primarily due to higher advertising and marketing expense and higher sports marketing expense.The decrease in operating overhead expense wasprimarily due to lower wage-related expenses.FIRST NINE MONTHS OF FISCAL 2024 COMPARED TO FIRST NINE MONTHS OF FISCAL 2023 North America revenues decreased 1%on a currency-neutral basis due to lower revenues in Mens,Womens and Kids,partially offset by higher revenues in theJordan Brand.Wholesale revenues decreased 5%,reflecting our proactive decisions to prioritize marketplace health in the current year coupled with our liquidation ofexcess inventory in the prior year.NIKE Direct revenues increased 4%,driven by comparable sales growth of 3%and the addition of new stores,as well as digitalsales growth of 2%.Footwear revenues decreased 1%on a currency-neutral basis due to lower revenues in Mens,Kids and Womens,partially offset by higher revenues in the JordanBrand.Unit sales of footwear decreased 8%,while higher ASP per pair contributed approximately 7 percentage points of footwear revenue growth.Higher ASP perpair was primarily due to higher full-price ASP and a higher mix of NIKE Direct sales,partially offset by lower NIKE Direct ASP.Apparel revenues decreased 1%on a currency-neutral basis due to lower revenues in Mens,Womens and the Jordan Brand,partially offset by higher revenues inKids.Unit sales of apparel decreased 10%,while higher ASP per unit contributed approximately 9 percentage points of apparel revenue growth.Higher ASP per unitwas primarily due to higher full-price and NIKE Direct ASPs.Reported EBIT increased 7%reflecting lower revenues and the following:Gross margin expansion of 250 basis points primarily due to higher full-price ASP,net of discounts,largely due to strategic pricing actions and lower discounts.Thiswas partially offset by higher product costs,reflecting higher product input costs,partially offset by lower ocean freight rates and logistics costs.Selling and administrative expense increase of 2%driven by higher operating overhead expense and demand creation expense.The increase in operating overheadexpense was primarily due to higher other administrative costs,partially offset by lower wage-related expenses.Demand creation expense increased primarily due tohigher digital marketing.EUROPE,MIDDLE EAST&AFRICATHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESFEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$1,960$2,011-3%-3%$6,406$6,086 5%3%Apparel994 1,094-9%-10%3,331 3,528-6%-8%Equipment184 141 30W8 454 27#%TOTAL REVENUES$3,138$3,246-3%-4%$10,315$10,068 2%0%Revenues by:Sales to Wholesale Customers$1,966$2,061-5%-5%$6,483$6,506 0%-2%Sales through NIKE Direct1,172 1,185-1%-4%3,832 3,562 8%3%TOTAL REVENUES$3,138$3,246-3%-4%$10,315$10,068 2%0RNINGS BEFORE INTEREST ANDTAXES$734$785-6%$2,591$2,750-64Table of ContentsTHIRD QUARTER OF FISCAL 2024 COMPARED TO THIRD QUARTER OF FISCAL 2023 EMEA revenues decreased 4%on a currency-neutral basis,primarily due to lower revenues in Womens,Mens and Kids.Wholesale revenues decreased 5%.NIKEDirect revenues decreased 4%,driven by digital sales declines of 10%,reflecting reduced digital traffic,partially offset by comparable store sales growth of 6%andthe addition of new stores.Footwear revenues decreased 3%on a currency-neutral basis,primarily due to lower revenues in Kids and Womens.Unit sales of footwear decreased 9%,whilehigher ASP per pair contributed approximately 6 percentage points of footwear revenue growth.Higher ASP per pair was primarily due to higher full-price ASP and ahigher mix of NIKE Direct sales,partially offset by lower NIKE Direct ASP.Apparel revenues decreased 10%on a currency-neutral basis,primarily due to lower revenues in Mens and Womens.Unit sales of apparel decreased 19%,whilehigher ASP per unit contributed approximately 9 percentage points of apparel revenue growth.Higher ASP per unit was primarily due to higher full-price and NIKEDirect ASPs.Reported EBIT decreased 6%reflecting lower revenues and the following:Gross margin was flat,as lower product costs,reflecting lower ocean freight rates and logistics costs,and higher full-price ASP,net of discounts,primarily due tostrategic pricing actions,were offset by unfavorable changes in standard foreign currency exchange rates,lower margin in NIKE Direct and lower off-price margins.Selling and administrative expense increase of 1%driven by higher demand creation expense,partially offset by lower operating overhead expense.The increase indemand creation expense was primarily due to higher advertising and marketing expense.The decrease in operating overhead expense was primarily due to lowerother administrative costs and wage-related expenses,largely offset by unfavorable changes in foreign currency exchange rates.FIRST NINE MONTHS OF FISCAL 2024 COMPARED TO FIRST NINE MONTHS OF FISCAL 2023 EMEA revenues were flat on a currency-neutral basis,primarily due to lower revenues in Kids and Womens,partially offset by higher revenues in Mens.Wholesalerevenues decreased 2%.NIKE Direct revenues increased 3%,driven by comparable store sales growth of 10%and the addition of new stores,partially offset bydigital sales declines of 1%.Footwear revenues increased 3%on a currency-neutral basis,primarily due to higher revenues in Mens,partially offset by Kids.Unit sales of footwear decreased4%,while higher ASP per pair contributed approximately 7 percentage points of footwear revenue growth.Higher ASP per pair was primarily due to higher full-priceASP and a higher mix of NIKE Direct sales.Apparel revenues decreased 8%on a currency-neutral basis,primarily due to lower revenues in Mens and Womens.Unit sales of apparel decreased 19%,whilehigher ASP per unit contributed approximately 11 percentage points of apparel revenue growth.Higher ASP per unit was primarily due to higher full-price and NIKEDirect ASPs.Reported EBIT decreased 6%reflecting higher revenues and the following:Gross margin contraction of 150 basis points largely due to unfavorable changes in standard foreign currency exchange rates,partially offset by higher full-price ASP,net of discounts,primarily due to strategic pricing actions and lower product costs,reflecting ocean freight rates and logistics costs.Selling and administrative expense increase of 6%driven by higher operating overhead expense and demand creation expense.Operating overhead expenseincreased primarily due to unfavorable changes in foreign currency exchange rates,higher wage-related expenses and higher other administrative costs.Demandcreation expense increased primarily due to higher sports marketing expense and unfavorable changes in foreign currency exchange rates.35Table of ContentsGREATER CHINATHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESFEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$1,547$1,496 3%5%$4,195$4,099 2%6%Apparel498 461 8%1,368 1,228 11%Equipment39 37 5%99 111 7%TOTAL REVENUES$2,084$1,994 5%6%$5,682$5,438 4%8%Revenues by:Sales to Wholesale Customers$1,243$1,126 10%$3,165$2,862 11%Sales through NIKE Direct841 868-3%-1%2,517 2,576-2%1%TOTAL REVENUES$2,084$1,994 5%6%$5,682$5,438 4%8RNINGS BEFORE INTEREST ANDTAXES$722$702 3%$1,761$1,754 0%THIRD QUARTER OF FISCAL 2024 COMPARED TO THIRD QUARTER OF FISCAL 2023 Greater China revenues increased 6%on a currency-neutral basis due to higher revenues in Mens,Womens,Kids and the Jordan Brand.Wholesale revenuesincreased 12%.NIKE Direct revenues decreased 1%due to digital sales declines of 13%,reflecting reduced digital traffic,partially offset by comparable store salesgrowth of 1%and growth in non-comparable store sales.Footwear revenues increased 5%on a currency-neutral basis due to higher revenues in Mens,Womens,Kids and the Jordan Brand.Unit sales of footwearincreased 9%,while lower ASP per pair reduced footwear revenues by approximately 4 percentage points.Lower ASP per pair was primarily due to lower NIKEDirect ASP.Apparel revenues increased 10%on a currency-neutral basis,primarily due to higher revenues in Mens.Unit sales of apparel increased 10%,while ASP per unit wasflat,as higher NIKE Direct ASP was offset by lower off-price and full-price ASPs.Reported EBIT increased 3%reflecting higher revenues and the following:Gross margin contraction of approximately 180 basis points,largely due to unfavorable changes in standard foreign currency exchange rates,lower off-price marginsand higher product costs.This was partially offset by higher full-price ASP,net of discounts,primarily due to strategic pricing actions.Selling and administrative expense decrease of 4%primarily due to lower operating overhead expense.Operating overhead expense decreased due to lower otheradministrative costs,favorable changes in foreign currency exchange rates and lower wage-related expenses.FIRST NINE MONTHS OF FISCAL 2024 COMPARED TO FIRST NINE MONTHS OF FISCAL 2023 Greater China revenues increased 8%on a currency-neutral basis due to higher revenues in Mens,Womens,the Jordan Brand and Kids.Wholesale revenuesincreased 15%.NIKE Direct revenues increased 1%due to comparable store sales growth of 5%and growth in non-comparable store sales,partially offset by digitalsales declines of 11%,reflecting reduced digital traffic.Footwear revenues increased 6%on a currency-neutral basis due to higher revenues in Mens,the Jordan Brand,Womens and Kids.Unit sales of footwearincreased 7%,while lower ASP per pair reduced footwear revenues by approximately 1 percentage point.Lower ASP per pair was primarily due to lower NIKE DirectASP,partially offset by higher full-price ASP.Apparel revenues increased 16%on a currency-neutral basis,primarily due to higher revenues in Mens and Womens.Unit sales of apparel increased 6%,whilehigher ASP per unit contributed approximately 10 percentage points of apparel revenue growth.Higher ASP per unit was primarily due to higher NIKE Direct,full-price and off-price ASPs as well as a higher mix of full-price sales.36Table of ContentsReported EBIT was flat reflecting higher revenues and the following:Gross margin contraction of approximately 70 basis points,primarily due to unfavorable changes in standard foreign currency exchange rates and lower off-pricemargins,partially offset by higher full-price ASP,net of discounts,largely due to strategic pricing actions,partially offset by product mix.Selling and administrative expense increase of 3%primarily due to higher operating overhead and demand creation expense.Operating overhead expenseincreased primarily due to higher other administrative costs,partially offset by favorable changes in foreign currency exchange rates.Demand creation expenseincreased primarily due to higher advertising and marketing expense,partially offset by favorable changes in foreign currency exchange rates.ASIA PACIFIC&LATIN AMERICATHREE MONTHS ENDEDNINE MONTHS ENDED(Dollars in millions)FEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESFEBRUARY29,2024FEBRUARY28,2023%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$1,195$1,141 5%5%$3,639$3,313 10%9%Apparel390 407-4%-3%1,198 1,255-5%-4%Equipment62 53 177 167 12%TOTAL REVENUES$1,647$1,601 3%4%$5,024$4,735 6%6%Revenues by:Sales to Wholesale Customers$939$913 3%3%$2,927$2,792 5%4%Sales through NIKE Direct708 688 3%4%2,097 1,943 8%7%TOTAL REVENUES$1,647$1,601 3%4%$5,024$4,735 6%6RNINGS BEFORE INTEREST ANDTAXES$471$485-3%$1,406$1,470-4%We completed the sale of our entity in Chile and our entities in Argentina and Uruguay to third-party distributors in the first and second quarters of fiscal 2023,respectively.The impacts from closing these transactions are included within Corporate and are not reflected in the Asia Pacific&Latin America operating segment results.Thiscompleted the transition of our NIKE Brand businesses within our Central and South America(CASA)marketplace,which now reflects a full distributor operating model.THIRD QUARTER OF FISCAL 2024 COMPARED TO THIRD QUARTER OF FISCAL 2023 APLA revenues increased 4%on a currency-neutral basis due to higher revenues across most territories,led by CASA,Mexico,Japan and Southeast Asia&India,partially offset by lower revenues in the Pacific territory.Revenues increased due to overall growth in Womens,Mens,Kids and the Jordan Brand.Wholesalerevenues increased 3%.NIKE Direct revenues increased 4%,driven by comparable store sales growth of 12%and the addition of new stores,partially offset bydigital sales declines of 6%,reflecting reduced digital traffic.Footwear revenues increased 5%on a currency-neutral basis due to higher revenues in Womens,Mens,Kids and the Jordan Brand.Unit sales of footwearincreased 4%,while higher ASP per pair contributed approximately 1 percentage point of footwear revenue growth.Higher ASP per pair was primarily due to higherfull-price ASP,a higher mix of NIKE Direct sales and higher off-price ASP,partially offset by lower NIKE Direct ASP.Apparel revenues decreased 3%on a currency-neutral basis,primarily due to lower revenues in Mens,partially offset by higher revenues in the Jordan Brand.Unitsales of apparel decreased 6%,while higher ASP per unit contributed approximately 3 percentage points of apparel revenue growth.Higher ASP per unit wasprimarily due to higher off-price ASP,higher full-price ASP and a higher mix of NIKE Direct sales,partially offset by lower NIKE Direct ASP.Reported EBIT decreased 3%reflecting higher revenues and the following:G
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Interimreport 1st quarter2023/2024October 1,2023 December 31,2023 thyssenkrupp interim report 1st quarter 2023/2024 thyssenkrupp in figures 2 thyssenkrupp in figures Group 1st quarter ended Dec.31,2022 1st quarterendedDec.31,2023Changein%Order intake million 9,177 7,973(1,204)(13)Sales million 9,018 8,181(837)(9)EBITDA million 485 238(247)(51)EBIT2)million 246(185)(431)-EBIT margin%2.7(2.3)(5.0)-Adjusted EBIT1),2)million 168 84(84)(50)Adjusted EBIT margin%1.9 1.0(0.8)(45)Income/(loss)before tax million 167(232)(399)-Net income/(loss)or earnings after tax million 98(305)(402)-attributable to thyssenkrupp AGs shareholders million 75(314)(389)-Earnings per share(EPS)0.12(0.50)(0.62)-Operating cash flows million(137)(424)(287)-Cash flow for investments million(227)(107)12053 Cash flow from divestments million 14 3218 Free cash flow3)million(350)(499)(149)(43)Free cash flow before M&A3)million(365)(531)(166)(45)Net financial assets(Dec.31)million 3,258 3,79653817 Total equity(Dec.31)million 14,476 11,607(2,869)(20)Gearing(Dec.31)%4)4)Employees(Dec.31)97,323 99,9732,6503 1)See preliminary remarks.2)See reconciliation in segment reporting(Note 08).3)See reconciliation in the analysis of the statement of cash flows.4)Due to the strongly positive total equity and the reported net financial assets,the gearing key ratio is negative and the significance of the gearing key ratio is thus of no relevance.THYSSENKRUPP STOCK/ADR MASTER DATA AND KEY FIGURES ISIN Number of shares(total)shares 622,531,741Shares(Frankfurt,Dsseldorf stock exchanges)DE 000 750 0001Closing price end Dec.2023 6.31ADR(over-the-counter-trading)US88629Q2075Stock exchange value end Dec.2023million 3,928Symbols Shares TKA ADR TKAMY thyssenkrupp interim report 1st quarter 2023/2024 Contents 3 Contents 02 thyssenkrupp in figures 04 Interim management report 04 Preliminary remarks 05 Report on the economic position 05 Summary 06 Macro and sector environment 10 Segment reporting 16 Results of operations and financial position 20 Compliance 21 Forecast,opportunity and risk report 21 2023/2024 forecast 23 Opportunities and risks 24 Condensed interim financial statements 25 thyssenkrupp group statement of financial position 27 thyssenkrupp group statement of income 28 thyssenkrupp group statement of comprehensive income 30 thyssenkrupp group statement of changes in equity 32 thyssenkrupp group statement of cash flows 34 thyssenkrupp group selected notes to the financial statements 49 Review report 50 Additional information 50 Contact and 2024/2025 financial calendar Our fiscal year begins on October 1 and ends on September 30 of the following year.thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Preliminary remarks 4 Preliminary remarks This report follows the internal management model applied by thyssenkrupp in fiscal year 2023/2024.As a consequence of the thyssenkrupp Groups new segment structure,which was resolved in the 4th quarter of fiscal year 2022/2023 and introduced effective October 1,2023,there have been the following reporting changes compared with the prior year:The former Multi Tracks segment was dissolved as of October 1,2023.Since October 1,2023,the bearings business Rothe Erde(reported separately as the Bearings segment as of September 30,2023),Uhde,Polysius and thyssenkrupp nucera(all three reported in the Multi Tracks segment until September 30,2023)have been bundled in the new Decarbon Technologies segment.In addition,the new Decarbon Technologies segment contains thyssenkrupp Immobilien Verwaltungs GmbH,which was previously assigned to the Steel Europe segment.Since October 1,2023,the Automation Engineering and Springs&Stabilizers businesses(assigned to the former Multi Tracks segment until September 30,2023)have been part of the Automotive Technology segment.The same applies to the Forged Technologies business(reported as a separate segment as of September 30,2023).Since October 1,2023,the investment in TK Elevator held by thyssenkrupp since the sale of the Elevator Technology business at the end of July 2020 has been assigned to“reconciliation”in the segment reporting(included in the former Multi Tracks segment in the 2022/2023 fiscal year).thyssenkrupp Transrapid GmbH,which was previously part of the Marine Systems segment,has also been assigned to“reconciliation”in the segment reporting since October 1,2023.Corresponding adjustments have been made for these changes in the recognition and presentation of the data for the prior-year quarter.For further details of the investment in TK Elevator,see also Note 08(Segment reporting)and Note 07(Financial instruments).In fiscal year 2022/2023,a divestment process was initiated for the activities of thyssenkrupp Industries India,which is part of the Decarbon Technologies segment.These activities met the criteria set forth in IFRS 5 for recognition as a disposal group for the first time in the 1st quarter of 2023/2024.Therefore,the assets and liabilities relating to these activities have to be presented separately in the statement of financial position as of December 31,2023.Hedge accounting for CO2 forward contracts in the Steel Europe segment was discontinued at the start of the 2022/2023 fiscal year.Since then,changes in fair value have no longer been recognized directly in equity and thus outside of profit and loss but in cost of sales in the statement of income.The resulting effects were recognized as a special item for the first time for the 1st half of fiscal year 2022/2023 fiscal year;since then they have no longer had any impact on the key performance indicator adjusted EBIT.The adjusted EBIT for the Steel Europe segment and the thyssenkrupp group for the 1st quarter of the 2022/2023 fiscal year was therefore amended retrospectively;in both cases,this amendment reduced adjusted EBIT by a total of 87 million compared with the amount previously reported.The business performance is presented by segment.Interim management report thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 5 Report on the economic position Order intakemillion Salesmillion EBIT1)million Adjusted EBIT1),2)million Employees 1st quarterendedDec.31,20221st quarterendedDec.31,20231st quarterendedDec.31,20221st quarterendedDec.31,20231st quarterendedDec.31,20221st quarter ended Dec.31,2023 1st quarterendedDec.31,20221st quarterendedDec.31,2023Dec.31,2022Dec.31,2023Automotive Technology2)2,0471,8541,8841,8633142 464830,89331,753Decarbon Technologies2)1,02164484890018(25)19(17)14,82914,981Materials Services 3,3482,8573,2462,86022(13)202616,04016,233Steel Europe2)3,0352,3972,9452,446186(143)906926,22226,923Marine Systems2)1285295074331718 19177,1317,793Corporate Headquarters 2122(44)(61)(43)(57)609631Reconciliation2)(404)(309)(414)(323)16(3)17(3)1,5991,659Group 9,1777,9739,0188,181246(185)1688497,32399,973 1)See reconciliation in segment reporting(Note 08).2)See preliminary remarks.Summary In the 1st quarter,adjusted EBIT and FCF before M&A were in line with the expectations for the full year Performance of the group in the 1st quarter compared with the prior year Order intake and sales lower than in the prior year,mainly due to price-and demand-induced declines at Materials Services and Steel Europe;increase in submarine orders at Marine Systems Adjusted EBIT down year-on-year,mainly due to declines at Decarbon Technologies and Steel Europe;earnings increases at Automotive Technology and Materials Services Net income down year-on-year,mainly due to the operating performance and impairment losses,e.g.,as a result of higher capital costs FCF before M&A below prior year and negative due to stronger increase in net working capital “APEX”performance program,which bundles the groups established and new transformation and performance measures;implementation on schedule:initial positive earnings effects from these measures 1st quarter performance of the segments compared with the prior year:Automotive Technology:lower order intake,especially in the construction machinery business and at Automotive Body Solutions;stable sales and improvement in adjusted EBIT,partly due to lower material costs and the positive effects of price negotiations and measures to improve efficiency;countered by inflation-driven increase in personnel expenses Decarbon Technologies:lower order intake overall but higher sales,principally due to high order intake in prior periods;adjusted EBIT down year-on-year,driven mainly by different effects in the individual businesses thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 6 Material Services:drop in sales driven principally by prices and demand;adjusted EBIT higher than in the prior year,mainly due to positive effects from cost-cutting measures;volumes below the prior-year level as a consequence of the downward trend in the direct-to-customer business Steel Europe:price-driven reduction in sales;adjusted EBIT also down year-on-year due to lower sales revenues,despite reduction in raw material and energy costs Marine Services:higher order intake driven principally by extension of existing orders in the submarine business;sales and adjusted EBIT down year-on-year as a consequence of typical fluctuations in business Corporate Headquarters:lower adjusted EBIT,mainly as a result of expenses in connection with the“APEX”performance program and shifts in the timing of internal cross-charging and general and administrative expenses Full-year forecast for the groups adjusted EBIT and FCF before M&A confirmed;altered for,e.g.,sales and net income In the Annual Report 2022/2023,the group confirmed its medium-term targets:adjusted EBIT margin of between 4%and 6%,significantly positive FCF before M&A,and resumption of a reliable dividend payment for the company as a whole Macro and sector environment Tentative economic recovery driven by Asia with inflation declining slightly but increasing uncertainty resulting from geopolitical crises and the US elections Global economic development still sluggish,especially in North America and Europe,with some bright spots in other parts of Asia outside of China;sluggish economic recovery in China following bottoming out of the crisis in the local real estate sector;central banks in the USA and the euro zone not expected to return to target interest rate levels before 2025;political uncertainty due to upcoming presidential elections in the USA Growth in global economic output projected to slow to 2.7%in 2023;growth expectation for 2024 lower at 2.3%Continued low growth momentum expected in 2024 with increases of 0.3%in Germany and 0.7%in the European Union;slightly better outlook for the USA in 2024(1.7%growth);subdued momentum in China(4.7%);projected robust growth of 6.9%in India in 2024 Risks and uncertainties:continued economic pressure due to continuation of the central banks policy of higher interest rates than in recent years;risk of disruption of global logistics flows due to armed conflicts in the Middle East;possibility of further escalation and prolongation of the war in Ukraine;uncertainty about the future development of many other geopolitical trouble spots and trade conflicts;risk of recurrent floods and natural catastrophes,for example,as a result of climate change;ongoing risks resulting from high energy,material and raw material prices,especially in industrialized regions thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 7 GROSS DOMESTIC PRODUCT Real change compared to previous year in 231)20241)European Union 0.50.7 Germany(0.2)0.3 USA 2.41.7 Brazil 3.01.9 Japan 1.90.7 China 5.44.7 India 6.96.5 Middle East&North Africa 1.52.0 World 2.72.3 1)Calendar year,forecast(partly)Source:S&P Global Market Intelligence,Global Economy(January 2024)Automotive Global volume sales of cars and light trucks up significantly year-on-year in 2023;production also clearly positive and back around the pre-Covid level of 2019 for the first time Positive global volume sales forecast for 2024,with worldwide production slightly below the prior-year level Europe:production and volumes sales significantly positive year-on-year in 2023;production expected to be slightly lower in 2024,volume sales around the prior-year level North America:significant increase in production and volume sales in 2023;positive volume sales anticipated for 2024,with production around the prior-year level China:significant year-on-year rise in production and volumes sales in 2023;volume sales expected to be positive in 2024,with production around the prior-year level Machinery Germany:real sales growth of only about 1.0%projected for 2023 due to weak global demand for exports and,as a consequence,a substantial drop in order backlogs;even weaker growth in sector sales of 0.6%expected in 2024 USA:projected reduction of around 2.9%in machinery production in 2023 as a result of the economically induced investment restraint;potential tailwind from fiscal support measures(especially the Inflation Reduction Act)and possible pause in interest rate hikes by the Fed;nevertheless further 2.4%drop in sales forecast for 2024 China:4.1%growth in machinery production in 2023;order intake and capacity utilization below expectations;slightly more positive outlook for 2024 with 4.9%growth driven by rising export orders and domestic investment thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 8 Construction Germany:stabilization of construction activity at a low level expected from the 2nd half of 2024,with slight real sales growth of 1.3%in 2024 following contraction of 0.4%in 2023;weak order intake for residential and commercial real estate;partly offset by investment in infrastructure USA:no recovery from the sharp downturns since 2022,with real sales growth of 1.0%in 2023;investment in infrastructure is the main driver,while residential construction remained weak despite lower interest rates:further recovery with growth of 2.7%expected for 2024 China:growth of 7.0%expected for 2023 due to catch-up effects following weak prior year;stagnation forecast for 2024 with only 0.1%growth as a consequence of the downward trend in residential construction,with investment in infrastructure remaining stable;risks from the possible impact of forced insolvency of the Evergrande group Steel Global demand for finished steel expected to be up 1.8%in 2023;high inflation rates and interest rates continue to weigh on economic development and demand for steel in many economies;increase in demand in 2023 in,for example,China( 2.0%),India( 8.6%)and Turkey( 19%)but drop in demand in,for example,the EU 27(5.5%),the USA(1.1%)and Japan(2.0%);moderate growth of 1.9%in global demand for finished steel forecast for 2024;China,in particular,is holding back the development due to stagnation at the prior-year level;growth of around 6%expected in the EU 27 EU demand for high quality flat carbon steel at prior-year level overall in Q4 2022/2023;low demand momentum coinciding with high import volumes at start of the new fiscal year Continuous decline in spot market prices for flat steel since May 2023;declining demand and high import volumes kept flat steel prices low in Q4 2022/2023;slight recovery in prices since October;higher raw material prices,in Q1 2022/2024 significantly above the level in the previous quarter and prior-year period Market environment still extremely challenging as a result of the ongoing global economic weakness,high albeit declining inflation,various geopolitical crisis and increasing protectionism on international markets thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 9 IMPORTANT SALES MARKETS 20231)20241)Vehicle production,million cars and light trucks2)World 90.189.6 Western Europe(incl.Germany)11.210.9 Germany 4.34.4 North America(USA,Mexico,Canada)15.615.8 USA 10.310.7 Mexico 3.83.8 Japan 8.68.1 China 28.628.7 India 5.45.6 Brazil 2.22.3 Machinery production,real,in%versus prior year World 1.52.9 European Union 0.31.2 Germany 1.00.6 USA(2.9)(2.4)Japan(6.0)(0.4)China 4.14.9 India 5.46.3 Construction output,real,in%versus prior year World 4.31.2 European Union 1.00.8 Germany(0.4)1.3 USA 1.02.7 Japan 5.20.1 China 7.00.1 India 11.00.3 Demand for steel,in%versus prior year World 1.81.9 European Union(5.5)6.0 Germany(10.0)10.6 USA(1.1)1.6 China 2.00.0 1)Calendar year,forecast(partly)2)Passenger cars and light commercial vehicles up to 6t Sources:S&P Global Market Intelligence,Comparative Industry(January 2024),S&P Global Mobility,LV Production(January 2024),Oxford Economics,worldsteel thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 10 Segment reporting Automotive Technology Performance in the 1st quarter AUTOMOTIVE TECHNOLOGY IN FIGURES1)1st quarterendedDec.31,20221st quarterendedDec.31,2023Change in%Order intake million 2,0471,854(9)Sales million 1,8841,863(1)EBITDA million 1181212 EBIT million 314236 Adjusted EBIT million 46486 Adjusted EBIT margin%2.42.6 Investments million 718216 Employees(Dec.31)30,89331,7533 1)See preliminary remarks.Order intake Lower than in the prior year due to declines in the construction machinery business and at Automotive Body Solutions;automotive serial business largely stable given overall robust development of the global automotive industry Negative USD and CNY exchange rate effects Sales At prior-year level;sales reflect order intake in the automotive serial business;declining development in the construction machinery business Adjusted EBIT Above the prior year,mainly due to cost reductions on the materials side(e.g.,electronic starting products);by contrast,inflation-driven increase in personnel expenses Positive effects from“APEX”measures,principally from negotiation of new prices and a large number of measures to improve efficiency(e.g.,optimization of cycle times,shorter tooling times,reduction in reject costs,etc.)Main special items Mainly impairment losses in the Steering unit due to higher cost of capital Investments Focus on investments for order-related projects,with the goal of supporting cost and profitability targets and leveraging growth opportunities thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 11 Decarbon Technologies Performance in the 1st quarter DECARBON TECHNOLOGIES IN FIGURES1)1st quarterendedDec.31,20221st quarterendedDec.31,2023Change in%Order intake million 1,021644(37)Sales million 8489006 EBITDA million 4412(73)EBIT million 18(25)-Adjusted EBIT million 19(17)-Adjusted EBIT margin%2.2(1.9)Investments million 1412(12)Employees(Dec.31)14,82914,9811 1)See preliminary remarks.Order intake Down year-on-year in all businesses except thyssenkrupp nucera Significant decline in orders from the wind energy and construction machinery sectors at Rothe Erde,mainly attributable to lower order intake in China Temporary low level at Uhde,significantly below the prior year Significantly below prior year at Polysius,mainly due to lower order intake in India thyssenkrupp nucera still on a growth track,with higher order intake Sales Above the prior year,with heterogeneous developments in the various businesses Rothe Erde down on prior year,mainly due to declines in the wind energy and construction machinery sectors;party offset by tunnel boring machines Uhde at the prior-year level Significant rise at Polysius compared with the prior year driven by the production of new installation businesses in India and a major project in France Significant increase in sales at thyssenkrupp nucera as a result of two major alkali water electrolysis(AWE)projects Adjusted EBIT Lower than in the prior year with declines in all businesses Rothe Erde down on prior year due to lower volumes and price pressure in the wind energy business,partly offset by measures to improve efficiency Uhde significantly lower than in the prior year due to non-conformity costs Polysius almost at prior-year level;sales increase had low earnings impact due to simultaneous inflation-driven rise in costs thyssenkrupp nucera down year-on-year with negative earnings contribution attributable to expansion of the AWE business and the expected increase in costs for growth plans Support from“APEX”measures,especially efficiency improvements and optimization of procurement thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 12 Main special items Mainly impairment losses at thyssenkrupp Industries India in connection with the sale process;partly offset by the reversal of a restructuring provision at Uhde Investments Low level normal for the season;Rothe Erde as main driver with predominantly growth-related investment to increase production capacity in the wind energy business thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 13 Materials Services Performance in the 1st quarter MATERIALS SERVICES IN FIGURES 1st quarterendedDec.31,20221st quarterendedDec.31,2023Change in%Order intake million 3,3482,857(15)Sales million 3,2462,860(12)EBITDA million 56595 EBIT million 22(13)-Adjusted EBIT million 202630 Adjusted EBIT margin%0.60.9 Investments million 1712(31)Employees(Dec.31)16,04016,2331 Order intake Below the prior-year level,principally due to lower prices,especially for finished steel and stainless steel,and lower demand in Europe Substantial drop in orders in the warehousing and direct-to-customer business;less pronounced declines at the automotive-related service centers Sales Year-on-year drop due to lower prices and volumes Significant reduction in sales in materials distribution;decline in service center business less pronounced;stable sales from direct-to-customer business despite lower volumes Overall reduction in volumes of materials and raw materials versus prior year(1.8 million tons vs.2.1 million tons);direct-to-customer business below the high prior-year level;warehousing volumes constant with increases in the automotive-related service center business and declines in the warehousing business Adjusted EBIT Above the prior year and still positive,mainly because of lower freight costs and cost-cutting measures Significantly positive earnings contributions from service centers,Aerospace and direct-to-customer business Support from ongoing efficiency measures bundled in the“APEX”program,e.g.,lower costs for external services in the field of digital services and further network optimization Main special items Mainly asset impairments in the warehousing business Investments Progress payments in connection with the construction of the new sites in Mexico and the USA(Texas)and for expansion of our processing capacities in the USA(Wisconsin)Modernization and replacement investment at warehousing and service units;continuing digital transformation thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 14 Steel Europe Performance in the 1st quarter STEEL EUROPE IN FIGURES1)1st quarterendedDec.31,20221st quarterendedDec.31,2023Change in%Order intake million 3,0352,397(21)Sales million 2,9452,446(17)EBITDA million 25669(73)EBIT million 186(143)-Adjusted EBIT1)million 9069(23)Adjusted EBIT margin%3.12.8 Investments million 110(9)-Employees(Dec.31)26,22226,9233 1)See preliminary remarks.Order intake Down year-on-year due to declining spot market prices;slight drop in order volume to 2.1 million tons,mainly driven by lower demand from automotive customers Sales Below the prior year,mainly as a result of a sharp drop in prices Shipment volumes 1.9 million tons,stable compared with prior-year level Adjusted EBIT Down year-on-year;lower raw material and energy costs more than negated by significantly lower sales Support from“APEX”measures,e.g.,efficiency improvements in production,energy and logistics and further cost improvements and procurement successes Main special items Impairment losses of 183 million due to the higher cost of capital Expenses of 29 million,mainly due to the measurement of CO2 forward contracts Investments Progress with dismantling work and preparation of the site for construction of the direct reduction plant with two integrated electric smelters in Duisburg;initial construction work planned for the 2nd quarter of 2023/2024 Major investment in Bochum as part of the Steel Strategy 20-30 to support rising demand for high-quality electrical steel:new double-reversing mill taken into service in the 1st quarter;new annealing and isolating line being assembled In all,positive investment balance thanks to receipt of funding for construction of the direct reduction plant in the reporting period thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 15 Marine Systems Performance in the 1st quarter MARINE SYSTEMS IN FIGURES1)1st quarterendedDec.31,20221st quarterendedDec.31,2023Change in%Order intake million 128529 Sales million 507433(15)EBITDA million 32335 EBIT million 17183 Adjusted EBIT million 1917(11)Adjusted EBIT margin%3.84.0 Investments million 1510(36)Employees(Dec.31)7,1317,7939 1)See preliminary remarks.Order intake Higher than in the prior year,mainly due to substantial extension of two existing orders in the submarine business and higher order intake for maintenance,service and marine electronics Sales Below prior year,mainly due to typical fluctuations in project business Adjusted EBIT Below prior year,reflecting the development of sales Stabilization of older low-margin orders,new orders secured Positive effects of“APEX”measures,including efficiency improvements in the areas of materials,processes and human resources Main special items No material special items Investments Continued modernization of the Kiel shipyard to optimize project execution,increase efficiency,create technical conditions for building larger boats in line with the market trend and sustainably improve profitability Continued development of the Wismar site for possible expansion of capacity thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 16 Corporate Headquarters Performance in the 1st quarter Adjusted EBIT Below the prior year,mainly as a result of expenses in connection with the“APEX”performance program and timing shifts in internal accounting and general and administrative expenses By contrast,lower expenses for adjustments of provisions for share-based compensation Main special items Higher expenditure in connection with M&A transactions Investments No material investments Results of operations and financial position Analysis of the statement of income Income/(loss)from operations Significant drop in sales overall in the first 3 months of the reporting year compared with the prior-year period;declines predominantly in the materials businesses in the Materials Services and Steel Europe segments;cost of sales also lower,mainly as a result of the reduced cost of materials and lower depreciation and amortization as a result of impairment losses recognized in the previous year;countered mainly by the recognition of higher impairment losses in the Steel Europe segment in the reporting period(154 million)and higher personnel expenses;gross profit of 797 million in the reporting period and gross margin of 9.7%therefore lower than in the prior year Overall increase in selling expenses,mainly due to recognition in the reporting period of impairment losses in the Materials Services segment(36 million)and the Steel Europe segment(6 million),higher impairment losses on financial assets,and higher personnel expenses;offset in particular by sales-related drop in costs for freight,insurance and customs duties Increase in general and administrative expenses mainly influenced by impairment losses recognized in the Steel Europe segment(21 million)in the reporting segment,an increase in consultancy and IT expenses and higher personnel expenses.Increase in other income,mainly as a result of higher income in connection with compensation for electricity prices in the Steel Europe segment Increase in other expenses principally as a result of the impairment loss recognized on goodwill in the reporting period in connection with the thyssenkrupp Industries India disposal group(9 million)Deterioration in other gains and losses,mainly due to losses from the sale of property,plant and equipment in the reporting period thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 17 Financial income/(expense),net and income tax(expense)/income Overall reduction in the net negative financial income/(expense),principally as a result of improvement in interest on net financial assets;by contrast,lower income from investments accounted for using the equity method,mainly due to higher losses resulting from the valuation of the Elevator investment and an overall reduction in income related to the interest-free loans acquired in connection with the sale of the Elevator activities Slight increase in income tax expense overall;tax expense in the reporting quarter despite negative earnings mainly attributable to tax expense on positive earnings in foreign countries,whereas negative earnings,especially in Germany as a result of impairment losses in the Steel Europe segment,do not result in lower taxes Earnings per share(EPS)Net income in the first 3 months of the reporting year down 402 million,giving a loss of 305 million Earnings per share(taking into account the earnings attributable to thyssenkrupp AGs shareholders)therefore decreased by 0.62 to(0.50)in the first 3 months of the reporting year Analysis of the statement of cash flows Operating cash flow Operating cash flow negative in the first 3 months of the reporting year and also lower than in the prior year,mainly due to the overall increase in net working capital and the significant reduction in net income for the period before depreciation,amortization,and impairment losses Cash flows from investing activities Net cash outflows for investing activities lower than in the prior-year period overall,mainly as result of proceeds from government grants in the reporting period in connection with construction of the direct reduction plant in the Steel Europe segment,which started in the prior year Cash inflows from disposals in line with the prior-year level overall in the reporting period Cash flows from financing activities Cash flows from financing activities down slightly year-on-year in the reporting period Free cash flow and net financial assets RECONCILIATION TO FREE CASH FLOW BEFORE M&A million 1st quarterendedDec.31,20221st quarterendedDec.31,2023Change Operating cash flows(consolidated statement of cash flows)(137)(424)(287)Cash flow from investing activities(consolidated statement of cash flows)(213)(75)138 Free cash flow(FCF)(350)(499)(149)/ Cash inflow/cash outflow resulting from material M&A transactions 9(21)(30)Adjustment due to IFRS 16(24)(11)13 Free cash flow before M&A(FCF before M&A)(365)(531)(166)thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 18 FCF before M&A below prior year and negative due to stronger increase in net working capital Decrease in net financial assets at December 31,2023 to 3.8 billion compared with September 30,2023 mainly due to negative FCF Available liquidity of 7.9 billion(6.7 billion cash and cash equivalents and 1.2 billion undrawn committed credit lines)Rating RATING Long-term ratingShort-term ratingOutlook Standard&Poors BBBstable Moodys Ba3Not Primepositive Fitch BB-Bpositive In December 2023,Moodys rating agency left its rating unchanged but raised the outlook from stable to positive thyssenkrupp discontinued rating by Fitch as of December 31,2023 Analysis of the statement of financial positionTotal non-current assets Reduction in intangible assets,mainly due to reclassifications to assets held for sale in connection with the thyssenkrupp Industries India disposal group and the impairment losses recognized in the Steel Europe segment in the reporting period Overall decline in property,plant and equipment mainly due to impairment losses recognized in the reporting period in the Steel Europe segment(180 million)and currency translation;by contrast,additions exceeded depreciation Decrease in investments accounted for using the equity method,mainly due to the subsequent measurement in the first 3 months of the reporting period of the ordinary shares recognized here in connection with the Elevator investment Overall reduction in other financial assets mainly due to reclassification to assets held for sale in connection with the thyssenkrupp Industries India disposal group;countered,above all,by subsequent measurement of the interest-free loans recognized here in connection with the Elevator investment Reduction in other non-financial assets primarily due to lower advance payments on property,plant and equipment Current assets Significant rise in inventories,mainly caused by the development of business and sales in the materials business in the Steel Europe segment and the automotive businesses in the Automotive Technology segment;reduced by reclassifications to assets held for sale in connection with the thyssenkrupp Industries India disposal group Significant reduction in trade accounts receivable,mainly attributable to the development of business and sales in the materials businesses in the Materials Services and Steel Europe segments and in the Automotive Technology segment;increases at Marine Systems Decline in contract assets,mainly as a result of the execution of construction contracts by Marine Systems and reclassification to assets held for sale in connection with the thyssenkrupp Industries India disposal group thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Report on the economic position 19 Reduction in other financial assets,mainly due to lower claims in the Automotive Technology segment in connection with materials and components passed through to customers as part of agent activities and the recognition of commodity derivatives to hedge recognized assets again future cash flow fluctuations affecting earnings Overall reduction in other non-financial assets,principally as a result of the decrease in advance payments in connection with the operating business and reclassifications to assets held for sale in connection with the thyssenkrupp Industries India disposal group;by contrast,in particular,higher refund claims in connection with non-income taxes Significant reduction in cash and cash equivalents in the first 3 months of the reporting year,mainly as a consequence of the negative free cash flow;in addition,mainly reclassifications to assets held for sale in connection with the thyssenkrupp Industries India disposal group and repayments of financial debt Increase in assets held for sale as of December 31,2023 due to reclassifications of non-current assets and,above all,current assets in connection with the thyssenkrupp Industries India disposal group Total equity Considerable decline compared with September 30,2023,mainly due to losses recognized in cumulative other comprehensive income resulting from remeasurement of pensions and similar obligations,currency translation,cash flow hedges and the net loss in the reporting period.Non-current liabilities Increase in provisions for pensions and similar obligations primarily due to losses resulting from the remeasurement of pensions mainly as a result of the lower pension discount rate in Germany Slight reduction in financial debt,principally as a result of the reclassification of lease liabilities to current financial liabilities Current liabilities Lower provisions for current employee benefits and other provisions,influenced in particular by lower additions than utilizations and reversals Overall reduction in financial debt principally attributable to repayments;offset by the reclassification of lease liabilities outlined above Decrease in trade accounts payable mainly related to the materials businesses in the Materials Services segment and reclassification to liabilities associated with assets held for sale in connection with the thyssenkrupp Industries India disposal group Overall reduction in other financial liabilities mainly related to accounting for currency and commodity derivatives;countered above all by higher interest payables Overall decline in contract liabilities,mainly as a result of the execution of construction contracts by Marine Systems and the plant engineering businesses in the Decarbon Technologies segment;further reductions attributable to reclassification to liabilities associated with assets held for sale in connection with the thyssenkrupp Industries India disposal group Overall decline in other non-financial liabilities mainly due to reduction in personnel-related liabilities and higher liabilities in connection with non-income taxes Increase in liabilities associated with assets held for sale as a result of the reclassification as of December 31 2023 of non-current and,above all,current liabilities in connection with the thyssenkrupp Industries India disposal group thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Compliance 20 Compliance Strong values as foundation of our work particularly in difficult economic environment;anchored in Mission Statement,Code of Conduct and Compliance Commitment Continuous implementation and enhancement of the thyssenkrupp compliance management system in the core compliance areas corruption prevention,antitrust law,data protection,prevention of money laundering,and trade compliance Close involvement of Compliance in various questions relating to legal sanctions and implementation of the German Act on Corporate Due Diligence Obligations in Supply Chains and,as in the past,in M&A activities to advise on various antitrust issues More information on compliance at thyssenkrupp in the 2022/2023 Annual Report and on the website thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Forecast,opportunity and risk report 21 Forecast,opportunity and risk report 2023/2024 forecast Basic conditions and key assumptions The realignment of the portfolio was implemented at the beginning of fiscal year 2023/2024 and the structure of thyssenkrupp was simplified(see Preliminary remarks in the management report).The prior-year sales and adjusted EBIT figures for the Automotive Technology and Decarbon Technologies segments are therefore presented on a pro forma basis.The forecast assumes no effects from additional portfolio measures.The expected economic conditions and the main assumptions on which our forecast is based can be found in the section headed“Macro and sector environment”in the“Report on the economic position.”For the corresponding opportunities and risks see the“Opportunity and risk report,”which follows this section.We also expect a continuation of the challenging market environment and further volatile price levels on sales and procurement markets(e.g.,for raw materials and energy).The development of sales and earnings could therefore be exposed to corresponding fluctuations.Expectations for 2023/2024 Based on the expected economic conditions as of the date of this forecast and the underlying assumptions,we consider the following view on fiscal year 2023/2024 to be appropriate.Compared with the previous forecast in the Annual Report 2022/2023,the expectations for the group have been amended as follows:Sales are now expected to be at the prior-year level(previously:slightly above the prior year),mainly because of the reduction in expected volumes at Steel Europe and Materials Services.For net income,we now anticipate an increase to around break-even(previously:increase to a positive figure in the low to mid three-digit million euro range),principally as a result of interest rate-induced impairment losses in the 1st quarter of 2023/2024.In line with this,we have also adjusted our expectations for tkVA to an increase to a negative figure of around 1 billion(previously:increase to a negative figure in the high three-digit million euro range)and for ROCE to an increase to a figure in the low to mid single-digit percentage range(previously:increase to a figure in the mid single-digit percentage range).For further information on the expected development of our key performance indicators,please refer to the Forecast,opportunity and risk report in the Annual Report 2022/2023.thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Forecast,opportunity and risk report 22 EXPECTATIONS FOR THE SEGMENTS AND THE GROUP Fiscal year 2022/2023 Forecast for fiscal year 2023/2024 Steel Europe Sales million 12,375 Significantly below the prior year(previously:slightly below the prior year)Adjusted EBIT million 320 Increase;figure in the mid three-digit million euro range Marine Systems Sales million 1,8321)Significantly above the prior year Adjusted EBIT million 731)Increase;figure in the high two-digit million euro range Automotive Technology Sales million 7,9102)At the prior-year level(previously:slightly above the prior year)Adjusted EBIT million 2662)Increase;figure in the low to mid three-digit million euro range Decarbon Technologies Sales million 3,4382)Significantly above the prior year Adjusted EBIT million 282)Largely stable Materials Services Sales million 13,613 Slightly below the prior year(previously:at the prior-year level)Adjusted EBIT million 178 Increase;figure in the low three-digit million euro range Corporate Headquarters Adjusted EBIT million (169)Decrease;negative figure in the low three-digit million euro range Group Sales million 37,536 At the prior-year level(previously:slightly above the prior year)Adjusted EBIT million 703 Increase to a figure in the high three-digit million euro range Capital spending including IFRS 16 million 1,823 Significantly below the prior year Free cash flow before M&A million 363 Decrease;figure in the low three-digit million euro range Net income million (1,986)Increase to around break-even(previously:increase to a positive figure in the low to mid three-digit million euro range)tkVA million (2,818)Increase to a negative figure of around 1 billion(previously:increase to a negative figure in the high three-digit million euro range)ROCE%(9.3)%Increase to a figure in the low to mid single-digit percentage range(previously:increase to a figure in the mid single-digit percentage range)Note on the forecast for sales and capital spending including IFRS 16:“Significantly”indicates a change of at least /5%1)Excluding Transrapid GmbH,which has been allocated to“Reconciliation”in the segment reporting since October 1,2023 2)Pro forma thyssenkrupp interim report 1st quarter 2023/2024 Interim management report|Forecast,opportunity and risk report 23 Opportunities and risks Opportunities Opportunities arising from the transformation of our company through the specific alignment with future-oriented areas for our technologies In particular,enormous potential for further growth in connection with the green transformation,for example,in the areas of hydrogen,green chemicals,renewable energies,e-mobility,and sustainable supply chains.Risks No risks that threaten ability to continue operating as a going concern Risk of disruption of global logistics flows as a result of armed conflicts in the Middle East;possible further escalation and prolongation of the war in Ukraine Continued risks from high energy,material and raw material prices,especially in industrial regions Uncertainty about the future development of many geopolitical crises and trade conflicts Ongoing economic pressure from continuation of the central banks policy of higher interest rates than in recent years Risk of recurrent floods and natural catastrophes,for example,as a result of climate change Risks from new or altered legal framework affecting business activities in the markets of relevance to us Risks resulting from temporary efficiency losses in production as a result of restructurings in connection with our company transformation Risks of cost and schedule overruns in the execution of major projects and long-term orders Risks from a rising number of attacks on IT infrastructure;countermeasure:further continuous expansion of information security management and security technologies In addition,the detailed comments on opportunities and risks in the 2022/2023 Annual Report remain valid.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group 24 Condensed interim financial statements of the thyssenkrupp group 25 thyssenkrupp group statement of financial position 27 thyssenkrupp group statement of income 28 thyssenkrupp group statement of comprehensive income 30 thyssenkrupp group statement of changes in equity 32 thyssenkrupp group statement of cash flows 34 thyssenkrupp group selected notes 49 Review report thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group statement of financial position 25 thyssenkrupp group statement of financial position ASSETS million Note Sept.30,2023Dec.31,2023Intangible assets 1,8281,784Property,plant and equipment(inclusive of investment property)4,9544,814Investments accounted for using the equity method 382354Other financial assets 980961Other non-financial assets 634426Deferred tax assets 495495Total non-current assets 9,2728,833Inventories 7,5537,986Trade accounts receivable 4,7654,244Contract assets 1,7581,523Other financial assets 568469Other non-financial assets 1,8671,838Current income tax assets 168196Cash and cash equivalents 13 7,3396,629Assets held for sale 02 0350Total current assets 24,01923,235Total assets 33,29132,068 See accompanying notes to financial statements.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group statement of financial position 26 EQUITY AND LIABILITIES million Note Sept.30,2023Dec.31,2023Capital stock 1,5941,594Additional paid-in capital 6,6646,664Retained earnings 2,9722,117Cumulative other comprehensive income 608402thereof relating to disposal groups (1)Equity attributable to thyssenkrupp AGs stockholders 11,83810,778Non-controlling interest 854829Total equity 12,69311,607Provisions for pensions and similar obligations 03 5,4746,050Provisions for other non-current employee benefits 258245Other provisions 04 407414Deferred tax liabilities 1642Financial debt 05 1,3131,276Other financial liabilities 1314Other non-financial liabilities 00Total non-current liabilities 7,4828,041Provisions for current employee benefits 159140Other provisions 04 1,1121,018Current income tax liabilities 144165Financial debt 05 1,7121,653Trade accounts payable 4,2703,926Other financial liabilities 906884Contract liabilities 3,2552,980Other non-financial liabilities 1,5581,502Liabilities associated with assets held for sale 02 0152Total current liabilities 13,11712,420Total liabilities 20,59920,461Total equity and liabilities 33,29132,068 See accompanying notes to financial statements.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group statement of income 27 thyssenkrupp group statement of income million,earnings per share in Note 1st quarter endedDec.31,20221st quarter endedDec.31,2023Sales 08,09 9,0188,181Cost of sales (7,851)(7,383)Gross Margin 1,167797Research and development cost (54)(55)Selling expenses (591)(627)General and administrative expenses (350)(397)Other income 10 98153Other expenses (33)(47)Other gains/(losses),net 4(8)Income/(loss)from operations 242(184)Income from companies accounted for using the equity method 11(19)(31)Finance income 204246Finance expense (261)(263)Financial income/(expense),net (75)(49)Income/(loss)before tax 167(232)Income tax(expense)/income (69)(72)Net income/(loss)98(305)Thereof:thyssenkrupp AGs shareholders 75(314)Non-controlling interest 229Net income/(loss)98(305)Basic and diluted earnings per share based on 12 Net income/(loss)(attributable to thyssenkrupp AGs shareholders)0.12(0.50)See accompanying notes to financial statements.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group statement of comprehensive income 28 thyssenkrupp group statement of comprehensive income million 1st quarter endedDec.31,20221st quarter endedDec.31,2023Net income/(loss)98(305)Items of other comprehensive income that will not be reclassified to profit or loss in future periods:Other comprehensive income from remeasurements of pensions and similar obligations Change in unrealized gains/(losses),net 58(547)Tax effect 12Other comprehensive income from remeasurements of pensions and similar obligations,net 59(545)Unrealized gains/(losses)from fair value measurement of equity instruments Change in unrealized gains/(losses),net 61Tax effect 00Net unrealized gains/(losses)61Share of unrealized gains/(losses)of investments accounted for using the equity-method 22Subtotals of items of other comprehensive income that will not be reclassified to profit or loss in future periods 67(542)Items of other comprehensive income that could be reclassified to profit or loss in future periods:Foreign currency translation adjustment Change in unrealized gains/(losses),net(336)(118)Net realized(gains)/losses 00Net unrealized gains/(losses)(336)(118)Unrealized gains/(losses)from fair value measurement of debt instruments Change in unrealized gains/(losses),net(1)6Net realized(gains)/losses 00Tax effect 00Net unrealized gains/(losses)(1)6Unrealized gains/(losses)from impairment of financial instruments Change in unrealized gains/(losses),net 00Net realized(gains)/losses(3)0Tax effect 20Net unrealized gains/(losses)(1)0Unrealized gains/(losses)on cash flow hedges Change in unrealized gains/(losses),net 7660Net realized(gains)/losses 171Tax effect 5(1)Net unrealized gains/(losses)9861Share of unrealized gains/(losses)of investments accounted for using the equity-method(102)2Subtotals of items of other comprehensive income that could be reclassified to profit or loss in future periods(342)(49)thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group statement of comprehensive income 29 million 1st quarter endedDec.31,20221st quarter endedDec.31,2023Other comprehensive income(274)(591)Total comprehensive income(177)(895)Thereof:thyssenkrupp AGs shareholders(171)(899)Non-controlling interest(5)4 See accompanying notes to financial statements.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group statement of changes in equity 30 thyssenkrupp group statement of changes in equity Equity attributable to thyssenkrupp AGs stockholders million,(except number of shares)Number of sharesoutstandingCapital stock Additional paid-in capitalRetained earningsBalance as of Sept.30,2022 622,531,7411,594 6,6644,777Net income/(loss)75Other comprehensive income 61Total comprehensive income 136Gains/(losses)resulting from basis adjustment Profit attributable to non-controlling interest Balance as of Dec.31,2022 622,531,7411,594 6,6644,914 Balance as of Sept.30,2023 622,531,7411,594 6,6642,972Net income/(loss)(314)Other comprehensive income (543)Total comprehensive income (857)Gains/(losses)resulting from basis adjustment Profit attributable to non-controlling interest Other changes 2Balance as of Dec.31,2023 622,531,7411,594 6,6642,117 See accompanying notes to financial statements.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group statement of changes in equity 31 Equity attributable to thyssenkrupp AGs stockholders Cumulative other comprehensive income Cash flow hedges Foreign currencytranslationadjustmentFair value measurement of debt instruments Fair value measurement of equity instrumentsImpairment offinancial instrumentsDesignated risk component Hedging costsShare of investments accounted for using the equity methodTotal Non-controlling interestTotal equity52415 779215(26)35214,202 54014,742 75 2298(305)0 6(1)71 24(102)(247)(28)(274)(305)0 6(1)71 24(102)(171)(5)(177)(73)(73)(73)0(17)(17)21815 1379213(2)25013,958 51814,476 21121 210253(43)14411,838 85412,693 (314)9(305)(109)3 1047 132(585)(6)(591)(109)3 1047 132(899)4(895)(163)(163)(163)0(27)(27)2(1)010324 220137(30)14710,778 82911,607 thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group statement of cash flows 32 thyssenkrupp group statement of cash flows million 1st quarter endedDec.31,20221st quarter endedDec.31,2023Net income/(loss)98(305)Adjustments to reconcile net income/(loss)to operating cash flows:Deferred income taxes,net 1614Depreciation,amortization and impairment of non-current assets 239430Reversals of impairment losses of non-current assets(19)(22)(Income)/loss from companies accounted for using the equity method,net of dividends received 1931(Gain)/loss on disposal of non-current assets(2)12Changes in assets and liabilities,net of effects of acquisitions and divestitures and other non-cash changes Inventories(476)(531)Trade accounts receivable 495492 Contract assets 80127 Provisions for pensions and similar obligations(16)34 Other provisions(45)(97)Trade accounts payable(638)(267)Contract liabilities 246(207)Other assets/liabilities not related to investing or financing activities(134)(137)Operating cash flows(137)(424)Purchase of investments accounted for using the equity method and non-current financial assets 00Expenditures for acquisitions of consolidated companies net of cash acquired(3)0Capital expenditures for property,plant and equipment(inclusive of advance payments)and investment property(217)(293)Capital expenditures for intangible assets(inclusive of advance payments)(7)(7)Proceeds from government grants 0193Proceeds from disposals of investments accounted for using the equity method and non-current financial assets 10Proceeds from disposals of previously consolidated companies net of cash disposed 027Proceeds from disposals of property,plant and equipment and investment property 145Cash flows from investing activities(213)(75)Proceeds from liabilities to financial institutions 1647Repayments of liabilities to financial institutions(77)(67)Lease liabilities(34)(34)Proceeds from/(repayments on)loan notes and other loans(10)(57)Proceeds from capital increase 0(4)Profit attributable to non-controlling interest(17)(27)Other financial activities 5232Cash flows from financing activities(70)(109)thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group statement of cash flows 33 million 1st quarter endedDec.31,20221st quarter endedDec.31,2023Net increase/(decrease)in cash and cash equivalents(420)(608)Effect of exchange rate changes on cash and cash equivalents(57)(17)Cash and cash equivalents at beginning of reporting period 7,6387,339Cash and cash equivalents at end of reporting period 7,1606,715thereof cash and cash equivalents within the disposal groups 85 Additional information regarding cash flows from interest,dividends and income taxes which are included in operating cash flows:Interest received 2766Interest paid(7)(8)Dividends received 01Income taxes(paid)/received(67)(67)See accompanying notes to financial statements.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 34 thyssenkrupp group selected notes Corporate information thyssenkrupp Aktiengesellschaft(“thyssenkrupp AG”or“Company”)is a publicly traded corporation domiciled in Duisburg and Essen in Germany.The condensed interim consolidated financial statements of thyssenkrupp AG and its subsidiaries for the period from October 1,2023 to December 31,2023,were reviewed and authorized for issue in accordance with a resolution of the Executive Board on February 12,2024.Basis of presentation The accompanying groups condensed interim consolidated financial statements have been prepared pursuant to section 115 of the German Securities Trading Act(WpHG)and in conformity with IAS 34“Interim financial reporting”.They are in line with the International Financial Reporting Standards(IFRS)and its interpretations adopted by the International Accounting Standards Board(IASB)for interim financial information effective within the European Union.Accordingly,these financial statements do not include all of the information and footnotes required by IFRS for complete financial statements for year-end reporting purposes.The accounting principles and practices as applied in the groups condensed interim consolidated financial statements as of December 31,2023 correspond to those pertaining to the most recent annual consolidated financial statements with the exception of the recently adopted accounting standards.A detailed description of the accounting policies is published in the notes to the consolidated financial statements of our annual report 2022/2023.Review of estimates and judgments The preparation of the group financial statements requires management to make judgments,estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities,income and expenses.All estimates and assumptions are made to the best of managements knowledge and belief in order to fairly present the groups financial position and results of operations;they are reviewed on an ongoing basis.This applies in particular to the possible impacts of the war in Ukraine and possible disruption of global logistics flows due to armed conflicts in the Middle East.In view of this and given the ratio of market capitalization to the thyssenkrupp groups equity,material goodwill and other intangible assets and property,plant and equipment were tested for impairment.In the 1st quarter ended December 31,2023,an impairment loss of 5.0 million was recognized on technical machinery and equipment in the electric steering gear product area in the Automotive Technology segments Steering business unit and an impairment loss of 3 million was recognized in the column EPS product area.The main reason for these impairment losses was the increase in the cost of capital.In the steering gear product area,the recoverable amount relevant for the determination of the impairment loss is the value in use,which amounts to 386 million,calculated by applying a discount rate(after tax)of 9.08%.In the column EPS product area,too,the recoverable amount relevant for determining the impairment loss is the value in use,which amounts to a total of 166 million and was calculated by applying a discount rate(after tax)of 9.06%.However,6 million of the impairment losses calculated in this way could not be recognized as the minimum carrying amount specified in IAS 36.105 had already been reached.Due to the fall in demand in the warehousing business,particularly due to the weak economy in Germany and the associated lower expectations of future earnings,an impairment loss of 37 million had to be recognized in the Materials Germany business field of the Distribution Services business unit in the Materials Services segment in the 1st quarter ended December 31,2023.Of this amount,thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 35 6 million relate to development costs,15 million to buildings and 16 million to technical machinery and equipment.The recoverable amount relevant for determining the impairment loss is the value in use,which was calculated by applying a discount rate(after tax)of 7.32%.The total value in use was 421 million.In the 1st quarter ended December 31,2023,an impairment loss had to be recognized in the Steel Europe segment mainly due to the increase in the cost of capital.Applying a discount rate(after tax)of 8.54%to future cash flows,the total carrying amount of 3,841 million as of December 31,2023 resulted in a relevant value in use of 3,655 million.The resulting impairment loss required to be recognized at Steel Europe amounts to approximately 183 million.Of this amount,81 million relates to technical machinery and equipment,60 million to construction in progress,17 million to buildings,13 million to land,9 million to other equipment,factory and office equipment,2 million to development costs and 1 million to other intangible assets.The underlying value in use is based on the current assumptions for the course of business up to 2034/2035,taking into account the effects of the green transformation that has been initiated.Thereafter,a simple projection is used for the period to 2063.The current measurement environment remains characterized by uncertainties regarding the economic environment and the dynamic development of the cost of capital.In addition to the items mentioned above,uncertainties arise from numerous other geopolitical crises and trade conflicts on current business performance,including the earnings outlook that already existed on September 30,2023.Going forward,the developments and impacts on business performance,for example continued high inflation rates and a continuation of the central banks high interest rate policy compared to the last few years,recurrent flooding or natural catastrophes,for example,as a consequence of climate change,and persistently high energy,material and raw material prices,especially in the industrialized regions,are subject to considerable uncertainty from todays perspective;for further details see the presentation of economic conditions in the report on the economic position in the interim management report.01 Recently adopted accouting standards In fiscal year 2023/2024,thyssenkrupp adopted the following standards and amendments to existing standards that do not have a material impact on the groups consolidated financial statements:IFRS 17“Insurance Contracts”,issued in May 2017,including Amendments to IFRS 17“Amendments to IFRS 17”,issued in June 2020 Amendments to IAS 1“Presentation of Financial Statements and IFRS Practice Statement 2:Disclosure of Accounting Policies”,issued in February 2021 Amendments to IAS 8“Accounting policies,Changes in Accounting Estimates and Errors:Definition of Accounting Estimates”,issued in February 2021 Amendments to IAS 12“Income Taxes:Deferred Tax related to Assets and Liabilities arising from a Single Transaction”,issued in May 2021 Amendments to IFRS 17“Insurance Contracts.Initial Application of IFRS 17 and IFRS 9 Comparative Information”,issued in December 2021 Amendments to IAS 12“Income Taxes:International Tax Reform Pillar Two Model Rules”,issued in May 2023 thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 36 02 thyssenkrupp Industries India disposal group In connection with the refocusing of thyssenkrupps portfolio,in the 2022/2023 fiscal year a divestment process was initiated by the Decarbon Technologies segment for thyssenkrupps approximately 55%interest in thyssenkrupp Industries India Ltd.,which meets the criteria set out in IFRS 5 for recognition as a disposal group for the first time in the 1st quarter ended December 31,2023.Therefore,the assets and liabilities attributable to these operations are presented separately in the statement of the financial position as of December 31,2023 in the line items“assets held for sale”and“liabilities associated with assets held for sale”,respectively.thyssenkrupp Industries India operates in the mining,cement,energy,and sugar plants business areas.An agreement to sell thyssenkrupps shares to a consortium of co-owners who are already invested in this company was signed on January 22,2024.Closing of this disposal is expected in the 3rd quarter of the present fiscal year after fulfillment of the necessary closing conditions,especially after the transaction was approved by the Competition Control Authority of India.In connection with the initiated sale immediately before the initial classification as a disposal group it has been ensured that the measurement of the assets is in accordance with IAS 36.This has not resulted in any impairment.Following initial classification as a disposal group,the measurement of the disposal group at fair value less costs to sell resulted in impairment loss of 9 million relating to intangible assets.The impairment loss was recognized in other expenses in the 1st quarter ended December 31,2023.The non-recurring measurement at fair value less costs to sell is based on the negotiated purchase price.The assets and liabilities of the disposal group as of December 31,2023 are presented in the following table;(1)million of cumulative other comprehensive income presented within equity is attributable to the disposal group.THYSSENKRUPP INDUSTRIES INDIA DISPOSAL GROUP million Dec.31,2023Intangible assets 20Property,plant and equipment(inclusive of investment property)8Other financial assets 41Deferred tax assets 3Inventories 38Trade accounts receivable 29Contract assets 88Other current financial assets 2Other current non-financial assets 38Cash and cash equivalents 85Assets held for sale 350Provisions for pensions and similar obligations 3Provisions for current employee benefits 1Other current provisions 13Current income tax liabilities 1Trade accounts payable 65Contract liabilities 55Other current non-financial liabilities 13Liabilities associated with assets held for sale 152 thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 37 03 Provision for pensions and similar obligations Based on updated interest rates and fair value of plan assets,an updated valuation of pension obligations was performed as of December 31,2023:PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS million Sept.30,2023Dec.31,2023Pension obligations 5,2945,868Partial retirement 150159Other pension-related obligations 3026Reclassification due to the presentation as liabilities associated with assets held for sale 0(3)Total 5,4746,050 The Group applied the following weighted average assumptions to determine pension obligations:WEIGHTED AVERAGE ASSUMPTIONS Sept.30,2023 Dec.31,2023 in%Germany Other countriesTotalGermany Other countriesTotalDiscount rate for accrued pension obligations 4.20 3.834.113.30 3.313.30 04 Other provisions The restructuring provisions included in other provisions decreased by 15 million to 79 million compared with September 30,2023.Additions in the amount of 3 million,mainly relating to the Steel Europe and Material Services segments,were outweighed mainly by amounts utilized.05 Financial debt In December 2023,Moodys rating agency left its rating unchanged but raised the outlook from stable to positive.thyssenkrupp discontinued rating by Fitch as of December 31,2023.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 38 06 Contingencies and commitments Contingencies thyssenkrupp AG as well as,in individual cases,its subsidiaries have issued or have had guarantees in favor of business partners or lenders.The following table shows obligations under guarantees where the principal debtor is not a consolidated group company:CONTINGENCIES Maximum potential amount of future payments as ofProvision as ofmillion Dec.31,2023Dec.31,2023Performance bonds 140Payment guarantees 201Other guarantees 50Total 391 The thyssenkrupp group has issued or has had issued guarantees for TK Elevator GmbH and its subsidiaries in favor of their customers which decreased by 5 million to 9 million as of December 31,2023 compared to September 30,2023.The buyer consortium has undertaken to indemnify thyssenkrupp against expenses in connection with the guarantees until they are fully discharged.As additional security,thyssenkrupp has received guarantees in the same amount from the buyer.The basis for possible payments under the guarantees is always the non-performance of the principal debtor under a contractual agreement,e.g.late delivery,delivery of non-conforming goods under a contract or non-performance with respect to the warranted quality.All guarantees are issued by or issued by instruction of thyssenkrupp AG or subsidiaries upon request of the principal debtor obligated by the underlying contractual relationship and are subject to recourse provisions in case of default.If such a principal debtor is a company owned fully or partially by a foreign third party,the third party is generally requested to provide additional collateral in a corresponding amount.Commitments and other contingencies The groups existing purchasing commitments from energy supply contracts decreased to 1.3 billion as of December 31,2023,a drop of 0.5 billion compared with September 30,2023.Furthermore due to the high volatility of iron ore prices,in the Steel Europe segment the existing long-term iron ore and iron ore pellets supply contracts are measured for the entire contract period at the iron ore prices applying as of the respective balance sheet date.Compared with September 30,2023,purchasing commitments remain unchanged at 0.9 billion.In the Steel Europe segment,there was a purchase commitment of 1,488 million as of December 31,2023(September 30,2023:1,450 million)relating to the construction of the direct reduction plant.This is covered to a significant extent by grants from the federal government and the state of North Rhine-Westphalia.In this context,the thyssenkrupp group received payments under government grants totaling 193 million in the 1st quarter ended December 31,2023.In the arbitration proceedings filed by the Greek government against thyssenkrupp Industrial Solutions AG,thyssenkrupp Marine Systems GmbH and the Greek shipyard Hellenic Shipyards(HSY),in which Industrial Solutions previously held a majority interest,and against the present majority shareholder of HSY,the arbitration court dismissed the claims against the thyssenkrupp companies in a partial ruling in September 2023.The Greek government has not appealed this partial ruling and the deadline for appeal has now passed.The arbitration proceedings in this matter therefore now only relate to claims against the other defendants.The thyssenkrupp thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 39 companies are still formally party to the proceedings only because a decision on the allocation of the legal costs will only be taken uniformly at the end of the proceedings.A provision of a low six-digit amount has been recognized for this.As a result,the proceedings no longer meet the criteria for contingencies that have to be specified individually and will consequently not be included in future reporting.There have been no material changes to the other commitments and contingencies since the end of fiscal year 2022/2023.07 Financial instruments The carrying amounts of trade accounts receivable measured at amortized cost,other current receivables as well as cash and cash equivalents equal their fair values due to the short remaining terms.For money market funds and trade accounts receivable measured at fair value,the carrying amount equals the fair value.For the preference shares in connection with the Elevator investment,which are classified as equity instruments,the option was exercised to recognize them at fair value in equity(without recycling)due to their significance.Miscellaneous other financial assets include the loans from the elevator transaction,which are measured at amortized cost;see also Note 08.The other equity and debt instruments are in general measured at fair value income-effective,which is based to the extent available on market prices as of the balance sheet date.When no quoted market prices in an active market are available,equity and debt instruments are measured by discounting future cash flows based on current market interest rates over the remaining term of the financial instruments.The fair value of foreign currency forward transactions is determined on the basis of the middle spot exchange rate applicable as of the interim balance sheet date,and taking account of forward premiums or discounts arising for the respective remaining contract term compared to the contracted forward exchange rate.Common methods for calculating option prices are used for foreign currency options.The fair value of an option is influenced not only by the remaining term of an option,but also by other factors,such as current amount and volatility of the underlying exchange or base rate.Interest rate swaps and cross currency swaps are measured at fair value by discounting expected cash flows on the basis of market interest rates applicable for the remaining contract term.In the case of cross currency swaps,the exchange rates for each foreign currency,in which cash flows occur,are also included.The fair value of commodity futures is based on published price quotations.It is measured as of the interim balance sheet date,both internally and by external financial partners.Since the beginning of the fiscal year 2022/2023,fluctuations in the fair value of CO2 forward contracts have no longer been recognized directly in equity in other comprehensive income as part of hedge accounting but income effective in the statement of income under cost of sales.The carrying amounts of trade accounts payable and other current liabilities equal their fair values due to the short remaining term.The fair value of fixed rate non-current liabilities equals the present value of expected cash flows.Discounting is based on interest rates applicable as of the balance sheet date.The carrying amounts of floating rate liabilities approximately correspond to their fair values.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 40 Financial liabilities measured at amortized cost with a carrying amount of 7,024 million as of December 31,2023(September 30,2023:7,405 million)have a fair value of 7,011 million(September 30,2023:7,382 million)that was determined based on fair value measurement attributable to level 2.Financial assets and liabilities measured at fair value could be categorized in the following three level fair value hierarchy:FAIR VALUE HIERARCHY AS OF SEPT.30,2023 million Sept.30,2023Level 1 Level 2Level 3Financial assets at fair value Fair value recognized in profit or loss Derivatives not qualifying for hedge accounting 480 480Equity instruments 138 50Fair value recognized in equity Trade accounts receivable 1,181 1,181 Equity instruments 72 72Debt instruments(measured at fair value)4848 00Derivatives qualifying for hedge accounting 320 320Total 1,39456 1,26672Financial liabilities at fair value Fair value recognized in profit or loss Derivatives not qualifying for hedge accounting 1110 1110Cash equivalents 2,6602,660 Fair value recognized in equity Derivatives qualifying for hedge accounting 210 210Total 2,7922,660 1320 FAIR VALUE HIERARCHY AS OF DEC.31,2023 million Dec.31,2023Level 1 Level 2Level 3Financial assets at fair value Fair value recognized in profit or loss Derivatives not qualifying for hedge accounting 660 660Equity instruments 138 50Fair value recognized in equity Trade accounts receivable 879 879 Equity instruments 73 73Debt instruments(measured at fair value)1111 00Derivatives qualifying for hedge accounting 90 90Total 1,05119 95973Financial liabilities at fair value Fair value recognized in profit or loss Derivatives not qualifying for hedge accounting 720 720Cash equivalents 2,3602,360 Fair value recognized in equity Derivatives qualifying for hedge accounting 80 80Total 2,4402,360 800 thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 41 The fair value hierarchy reflects the significance of the inputs used to determine fair values.Financial instruments with fair value measurement based on quoted prices in active markets are disclosed in level 1.In level 2 determination of fair values is based on observable inputs,e.g.foreign exchange rates.Level 3 comprises financial instruments for which the fair value measurement is based on unobservable inputs using recognized valuation models.In the reporting quarter there were no reclassifications between level 1 and level 2.Changes of the equity instruments included in level 3 were as follows:RECONCILIATION LEVEL 3 FINANCIAL INSTRUMENTS million Balance as of Sept.30,2023 72Changes income non-effective 1Balance as of Dec.31,2023 73 The equity instruments based on individual measurement parameters and recognized at fair value solely comprise the preference shares in Vertical Topco I S.A.,Luxembourg,from the investment in TK Elevator.The fair value of the preference shares is determined on the basis of a financial valuation model(discounted cash flow method),which takes account of the contractually-based expected future cash flows from the preference shares.The value of the preference shares is determined by discounting the fixed interest rate with a capitalization interest rate,the amount of which is based on the risk/return structure observable on the capital market on the reporting date.The value of the preference shares is therefore subject to capital market-related fluctuations.As of December 31,2023,a risk-adjusted discount rate of 11.40%was applied(Sept.30,2023:11.05%).The measurement result is reported directly in equity under other comprehensive income under the item“Fair value measurement of equity instruments”.Impairment of trade accounts receivable and contract assets The expected default rates for trade accounts receivable are mainly derived from external credit information and ratings for each counterparty,which allows more accurate calculation of the probability of default compared with the formation of rating classes.The customer risk numbers assigned by trade credit insurers and the creditworthiness information provided by credit agencies are translated into an individual probability of default per customer using a central allocation system.This individual probability of default per customer is used uniformly throughout the thyssenkrupp group.The information is updated quarterly.If no rating information is available at counterparty level,an assessment is made based on the average probability of default for each segment plus an appropriate risk premium.For the group financial statements as of December 31,2023,the latest external credit information and ratings were used,which already take into account current expectations of the possible effects of the war in the Ukraine.Therefore,no additional adjustment of impairment is necessary in this model.The defaults refer in particular to insolvency cases that could not be derived from the rating information in the prior year.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 42 08 Segment reporting Segment reporting follows thyssenkrupps internal control concept.As a consequence of the thyssenkrupp groups new segment structure,which was resolved in the 4th quarter of fiscal year 2022/2023 and introduced effective October 1,2023,there have been the following reporting changes compared with the prior year:The former Multi Tracks segment was dissolved effective October 1,2023.The bearings business Rothe Erde(reported separately as the Bearings segment as of September 30,2023),Uhde,Polysius,and thyssenkrupp nucera(all three allocated to the former Multi Tracks segment until September 30,2023)have been bundled in the new Decarbon Technologies segment since October 1,2023.In addition,the new Decarbon Technologies segment contains thyssenkrupp Immobilien Verwaltungs GmbH,which was previously assigned to the Steel Europe segment.Since October 1,2023,the Automation Engineering and Springs&Stabilizers businesses(assigned to the former Multi Tracks segment until September 30,2023)have been part of the Automotive Technology segment.The same applies to the Forged Technologies business(reported as a separate segment as of September 30,2023).Since October 1,2023,the investment in TK Elevator held by thyssenkrupp since the sale of the Elevator Technology business at the end of July 2020 has been assigned to Special Units within the“Reconciliation”in the segment reporting(included in the former Multi Tracks segment in the 2022/2023 fiscal year).For information on the components of this investment,please see below in this Note.thyssenkrupp Transrapid GmbH,which was previously part of the Marine Systems segment,has been reported within Service Units within the“Reconciliation”in the segment reporting since October 1,2023.Prior-year figures have been adjusted accordingly.Segment information for the 1st quarter ended December 31,2022 and 2023,respectively is as follows:SEGMENT INFORMATION million AutomotiveTechnologyDecarbonTechnologiesMaterials Services SteelEuropeMarineSystemsCorporate Headquarters ReconciliationGroup1st quarter ended Dec.31,2022 External sales 1,8838403,175 2,6055090 79,018Internal sales within the group 2871 340(2)2(421)0Sales 1,8848483,246 2,9455072(414)9,018EBIT 311822 18617(44)16246Adjusted EBIT1)461920 9019(43)17168 1st quarter ended Dec.31,2023 External sales 1,8618952,795 2,1914330 48,181Internal sales within the group 1564 25502(327)0Sales 1,8639002,860 2,4464332(323)8,181EBIT 42(25)(13)(143)18(61)(3)(185)Adjusted EBIT 48(17)26 6917(57)(3)84 1)The presentation of the 1st quarter ended December 31,2022 has been adjusted for Steel Europe and for the Group.In the 1st half ended March 31,2023 the definition of the key performance indicator adjusted EBIT was amended in respect of the special items to be taken into account.This was due to the fact that hedge accounting for CO2 forward contracts in the Steel Europe segment was discontinued at the beginning of the 2022/2023 fiscal year.As a result,changes in fair value are no longer recognized directly in equity but in the statement of income under cost of sales.The resulting effects are treated as a special item in the thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 43 statement of income and therefore no longer impact the key performance indicator adjusted EBIT.The presentation of the 1st quarter ended December 31,2022 has been adjusted for Steel Europe and for the Group retrospectively.Compared with September 30,2023,average capital employed decreased by 148 million to 1,000 million at Decarbon Technologies,by 205 million to 3,463 million at Materials Services and by 1,838 million to 3,563 million at Steel Europe as of December 31,2023.The column“Reconciliation”breaks down as following:BREAKDOWN RECONCILIATION million Service UnitsSpecial Units ConsolidationReconciliation1st quarter ended Dec.31,2022 External sales 61 07Internal sales within the group 557(483)(421)Sales 618(483)(414)EBIT 4(6)1816Adjusted EBIT 5(6)1817 1st quarter ended Dec.31,2023 External sales 41(1)4Internal sales within the group 587(392)(327)Sales 628(393)(323)EBIT 5(6)(1)(3)Adjusted EBIT 4(6)(1)(3)thyssenkrupps investment in TK Elevator comprises of several financing instruments which are accounted for as follows:Ordinary shares(with voting rights)in Vertical Topco I S.A.,Luxembourg.Due to the existence of significant influence,the ordinary shares are treated and reported as an investment accounted for using the equity method in accordance with the requirements of IAS 28.Amortization of the acquisition cost is recognized in financial income from companies accounted for using the equity method in the statement of income.Preference shares(with voting rights)in Vertical Topco I S.A.,Luxembourg.The preference shares are treated as an equity instrument in accordance with IAS 32 and IFRS 9 and reported under other non-current financial assets.Subsequent measurement is at fair value,with changes in fair value recognized directly in equity(without recycling).Interest-free loans(borrower:Vertical Topco I S.A.,Luxembourg).The interest-free loans are treated as debt instruments in accordance with IAS 32 and IFRS 9 and likewise reported under other non-current financial assets.They are measured at amortized cost,with income effects from subsequent measurement recognized in finance income/finance expense under financial income/expense in the statement of income.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 44 The reconciliation of the earnings figure adjusted EBIT to income/(loss)before tax as presented in the statement of income is presented below:RECONCILIATION ADJUSTED EBIT TO INCOME/(LOSS)BEFORE TAX million 1st quarter endedDec.31,20221st quarter endedDec.31,2023Adjusted EBIT as presented in segment reporting 16884Special items 78(269)EBIT as presented in segment reporting 246(185) Non-operating income/(expense)from companies accounted for using the equity method(27)(40) Finance income 204246 Finance expense(261)(263)Items of finance income assigned to EBIT based on economic classification 0(1) Items of finance expense assigned to EBIT based on economic classification 411Income/(loss)group(before tax)167(232)In the 1st quarter ended December 31,2023,the special items mainly comprised impairment losses and losses on the measurement of CO2 forward contracts in the Steel Europe segment,impairment losses in the warehousing business in the Materials Services segment,and impairment losses in the Steering business unit in the Automotive Technology segment.In the 1st quarter ended December 31,2022,the special items mainly comprised gains from the measurement of CO2 forward contracts in the Steel Europe segment and impairment losses in the Steering business unit at Automotive Technology.thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 45 09 Sales Sales and sales from contracts with customers are presented below:SALES million AutomotiveTechnologyDecarbonTechnologiesMaterials Services SteelEuropeMarineSystemsCorporate Headquarters ReconciliationGroup1st quarter ended Dec.31,2022 Sales from sale of finished products 1,396297448 2,70580(305)4,548Sales from sale of merchandise 165352,765 4540(28)2,986Sales from rendering of services 7480185 53122(37)369Sales from construction contracts 2124161 04350(1)1,062Other sales from contracts with customers 30190 139500(2)236Subtotal sales from contracts with customers 1,8778463,399 2,9425092(374)9,201Other sales 72(153)3(2)0(40)(183)Total 1,8848483,246 2,9455072(414)9,0181st quarter ended Dec.31,2023 Sales from sale of finished products 1,389246394 2,26890(234)4,071Sales from sale of merchandise 150372,227 2311(27)2,412Sales from rendering of services 6866185 49121(36)346Sales from construction contracts 2205369 04090(4)1,171Other sales from contracts with customers 33140 10310(3)149Subtotal sales from contracts with customers 1,8628992,814 2,4434322(304)8,149Other sales 1145 310(19)32Total 1,8639002,860 2,4464332(323)8,181 thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 46 SALES FROM CONTRACTS WITH CUSTOMERS BY CUSTOMER GROUP million AutomotiveTechnologyDecarbonTechnologiesMaterials Services SteelEuropeMarineSystemsCorporate Headquarters ReconciliationGroup1st quarter ended Dec.31,2022 Automotive 1,6677518 79501 413,028Trading 11612386 275(1)1 66855Engineering 65286321 7430 0749Steel and related processing 225573 1,00300(452)1,151Construction 07170 1300(6)185Public sector 0320 25010 8534Packaging 0043 41400 8465Energy and utilities 0364 18300 2252Other customer groups 275041,303 18460(42)1,983Total 1,8778463,399 2,9425092(374)9,2011st quarter ended Dec.31,2023 Automotive 1,6488466 74401(4)2,863Trading 886488 51011(192)902Engineering 101271225 5700 0656Steel and related processing 116425 47800(92)828Construction 06137 900 1153Public sector 0314 24290(1)447Packaging 0328 35100(1)382Energy and utilities 0332 14100 0176Other customer groups 23584998 14930(16)1,742Total 1,8628992,814 2,4434322(304)8,149 thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 47 SALES FROM CONTRACTS WITH CUSTOMERS BY REGION million AutomotiveTechnologyDecarbonTechnologiesMaterials Services SteelEuropeMarineSystemsCorporate Headquarters ReconciliationGroup1st quarter ended Dec.31,2022 German-speaking area1)5221211,048 1,6111321(315)3,120Western Europe 271116519 6481090(27)1,636Central and Eastern Europe 7436499 23000(21)818Commonwealth of Independent States 132 100 07North America 5461121,089 27111(34)1,986South America 105147 29770 4237Asia/Pacific 1642113 8460(1)224Greater China 29420248 2200 11576India 159034 1740 2162Middle East&Africa 3310941 1051400 7435Total 1,8778463,399 2,9425092(374)9,2011st quarter ended Dec.31,2023 German-speaking area1)49592932 1,2741451(242)2,697Western Europe 272135429 5971070(39)1,500Central and Eastern Europe 14314369 20000(15)712Commonwealth of Independent States 133 200 09North America 54689904 21531(5)1,753South America 874723 30840(1)271Asia/Pacific 153875 7450 1182Greater China 27411524 1200(1)422India 1214640 2750 0230Middle East&Africa 1822015 77430(1)373Total 1,8628992,814 2,4434322(304)8,149 1)Germany,Austria,Switzerland,Liechtenstein Of the sales from contracts with customers 2,264 million(prior year:1,385 million)results from long-term contracts and 5,885 million(prior year:7,816 million)from short-term contracts in the 1st quarter ended December 31,2023,1,595 million(prior year:1,844 million)relates to sales recognized over time,and 6,554 million(prior year:7,356 million)to sales recognized at a point in time in the 1st quarter ended December 31,2023.10 Other income Other income includes income from electricity price compensation and further income from premiums and from grants.11 Financial income/(expense),net The line item“Income from investments accounted for using the equity method”includes expenses in the amount of 40 million(prior year:27 million)in the 1st quarter ended December 31,2023 from ordinary shares in Vertical Topco I S.A.,Luxembourg,which are part of the Elevator investment(cf.Note 08).thyssenkrupp interim report 1st quarter 2023/2024 Condensed interim financial statements of the thyssenkrupp group|thyssenkrupp group selected notes 48 12 Earnings per share Basic earnings per share are calculated as follows:EARNINGS PER SHARE(EPS)1st quarter ended Dec.31,2022 1st quarter ended Dec.31,2023 Total amountin million Earnings per share in Total amountin million Earnings pershare in Net income/(loss)(attributable to thyssenkrupp AGs shareholders)750.12(314)(0.50)Weighted average shares 622,531,741 622,531,741 There were no dilutive securities in the periods presented.13 Additional information to the statement of cash flows The liquid funds considered in the statement of cash flows can be derived from the balance sheet position“Cash and cash equivalents”as following:RECONCILIATION OF LIQUID FUNDS million Dec.31,2022 Sept.30,2023Dec.31,2023Cash 1,468 2,6412,337Cash equivalents 5,692 4,6994,293Cash and cash equivalents according to the balance sheet 7,160 7,3396,629Cash and cash equivalents of disposal groups 0 085Liquid funds according to statement of cash flows 7,160 7,3396,715 As of December 31,2023 cash and cash equivalents of 37 million(December 31,2022:16 million;September 30,2023:104 million)result from the joint operation HKM.Essen,February 12,2024 thyssenkrupp AG The Executive Board Lpez Burkhard Dinstuhl Henne Keysberg thyssenkrupp interim report 1st quarter 2023/2024 Review report 49 Review report To thyssenkrupp AG,Duisburg and Essen We have reviewed the condensed interim consolidated financial statements of thyssenkrupp AG,Duisburg and Essen comprising the consolidated statement of financial position,the consolidated statement of income and the consolidated statement of comprehensive income,the consolidated statement of changes in equity,the consolidated statement of cash flows and selected notes together with the interim group management report of thyssenkrupp AG,for the period from October 1,2023 to December 31,2023 that are part of the quarterly financial report according to 115 WpHG“Wertpapierhandelsgesetz”:“German Securities Trading Act”.The preparation of the condensed interim consolidated financial statements in accordance with International Accounting Standard IAS 34“Interim Financial Reporting”as adopted by the EU,and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports,is the responsibility of the Companys management.Our responsibility is to issue a report on the condensed interim consolidated financial statements and on the interim group management report based on our review.We performed our review of the condensed interim consolidated financial statements and the interim group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprfer(IDW).Those standards require that we plan and perform the review so that we can preclude through critical evaluation,with a certain level of assurance,that the condensed interim consolidated financial statements have not been prepared,in material respects,in accordance with IAS 34,“Interim Financial Reporting”as adopted by the EU,and that the interim group management report has not been prepared,in material respects,in accordance with the requirements of the WpHG applicable to interim group management reports.A review is limited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit.Since,in accordance with our engagement,we have not performed a financial statement audit,we cannot issue an auditors report.Based on our review,no matters have come to our attention that cause us to presume that the condensed interim consolidated financial statements have not been prepared,in material respects,in accordance with IAS 34,“Interim Financial Reporting”as adopted by the EU,or that the interim group management report has not been prepared,in material respects,in accordance with the requirements of the WpHG applicable to interim group management reports.Dsseldorf,February 13,2024 KPMG AG Wirtschaftsprfungsgesellschaft Marc Ufer Dr.Markus Zeimes Wirtschaftsprfer Wirtschaftsprfer German Public Auditor German Public Auditor thyssenkrupp interim report 1st quarter 2023/2024 Additional information|Contact and 2024/2025 financial calendar 50 Contact and 2024/2025 financial calendar For more information please contact:Communications Phone: 49 201 844536043 Fax: 49 201 844536041 Email: Investor Relations Email: Institutional investors and analysts Phone: 49 201 844536464 Fax: 49 201 8456531000 Private investors Phone: 49 201 844536367 Fax: 49 201 8456531000 Published by thyssenkrupp AG thyssenkrupp Allee 1,45143 Essen,Germany Postfach,45063 Essen,Germany Phone: 49 201 8440 Fax: 49 201 844536000 Email: 2024/2025 financial calendar May 15,2024 Interim report 1st half 2023/2024(October to March)August 14,2024 Interim report 9 months 2023/2024(October to June)November 19,2024 Annual report 2023/2024(October to September)January 31,2025 Annual General Meeting February 13,2025 Interim report 1st quarter 2024/2025(October to December)This interim report was published on February 14,2024.Produced in-house using firesys.Forward-looking statements This document contains forward-looking statements that reflect managements current views with respect to future events.Such statements are subject to risks and uncertainties that are beyond thyssenkrupps ability to control or estimate precisely,such as the future market environment and economic conditions,the behavior of other market participants,the ability to successfully integrate acquired businesses and achieve anticipated synergies and the actions of government regulators.Therefore,the actual results may differ materially from the results explicitly presented or implicitly contained in this financial report.The forward-looking statements contained in this financial report will not be updated in the light of events or developments occurring after the date of the report.Rounding differences and rates of change Percentages and figures in this report may include rounding differences.The signs used to indicate rates of change are based on economic aspects:Improvements are indicated by a plus( )sign,deteriorations are shown in brackets().Very high positive and negative rates of change(100%or(100)%)are indicated by and respectively.Variances for technical reasons Due to statutory disclosure requirements the Company must submit this financial report electronically to the Federal Gazette(Bundesanzeiger).For technical reasons there may be variances in the accounting documents published in the Federal Gazette.German and English versions of the financial report can be downloaded from the internet at .In the event of variances,the German version shall take precedence over the English translation.Additional information
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Shell plc|February 1,2024Fourth quarter and full year 2023 resultsDelivering strong resultsand shareholder distributionsShell plcFebruary 1,2024Shell plc|February 1,20242Definitions&cautionary note This presentation includes certain measures that are calculated and presented on the basis of methodologies other than in accordance with generally accepted accounting principles(GAAP)such as IFRS,including Adjusted Earnings,Adjusted EBITDA,CFFO excluding working capital movements,Cash capital expenditure,free cash flow,Divestment proceeds and Net debt.This information,along with comparable GAAP measures,is useful to investors because it provides a basis for measuring Shell plcs operating performance and ability to retire debt and invest in new business opportunities.Shell plcs management uses these financial measures,along with the most directly comparable GAAP financial measures,in evaluating the business performance.This presentation contains a forward-looking non-GAAP measure for cash capital expenditure and divestments.We are unable to provide a reconciliation of this forward-looking non-GAAP measure to the most comparable GAAP financial measure because certain information needed to reconcile the non-GAAP measure to the most comparable GAAP financial measure is dependent on future events some of which are outside the control of the company,such as oil and gas prices,interest rates and exchange rates.Moreover,estimating such GAAP measure with the required precision necessary to provide a meaningful reconciliation is extremely difficult and could not be accomplished without unreasonable effort.Non-GAAP measures in respect of future periods which cannot be reconciled to the most comparable GAAP financial measure are estimated in a manner which is consistent with the accounting policies applied in Shell plcs consolidated financial statements.“Adjusted Earnings”is the income attributable to Shell plc shareholders for the period,adjusted for the after-tax effect of oil price changes on inventory and for identified items,and excludes earnings attributable to non-controlling interest.In this presentation,“earnings”refers to“Adjusted Earnings”unless stated otherwise.We define“Adjusted EBITDA“as“Income/(loss)for the period“adjusted for current cost of supplies;identified items;tax charge/(credit);depreciation,amortisation and depletion;exploration well write-offs and net interest expense.All items include the non-controlling interest component.In this presentation,“operating expenses”,“costs”and“underlying costs”refer to“Underlying operating expenses”unless stated otherwise.Underlying operating expenses represent“operating expenses excluding identified items”.Operating expenses consist of the following lines in the Consolidated Statement of Income:(i)production and manufacturing expenses;(ii)selling,distribution and administrative expenses;and(iii)research and development expenses.Cash flow from operating activities excluding working capital movements is defined as“Cash flow from operating activities”less the sum of the following items in the Consolidated Statement of Cash Flows:(i)(increase)/decrease in inventories,(ii)(increase)/decrease in current receivables,and(iii)increase/(decrease)in current payables.In this presentation,“capex”refers to“Cash capital expenditure”unless stated otherwise.Cash capital expenditure comprises the following lines from the Consolidated Statement of Cash Flows:Capital expenditure,Investments in joint ventures and associates and Investments in equity securities.Free cash flow is defined as the sum of“Cash flow from operating activities”and“Cash flow from investing activities”.Organic free cash flow is defined as free cash flow excluding inorganic cash capital expenditure,divestment proceeds,and tax paid on divestments.In this presentation,“divestments”refers to“divestment proceeds”unless stated otherwise.Divestment proceeds are defined as the sum of(i)proceeds from sale of property,plant and equipment and businesses,(ii)proceeds from sale of joint ventures and associates,and(iii)proceeds from sale of equity securities.Net debt is defined as the sum of current and non-current debt,less cash and cash equivalents,adjusted for the fair value of derivative financial instruments used to hedge foreign exchange and interest rate risks relating to debt,and associated collateral balances.Reconciliations of the above non-GAAP measures are included in the Shell plc Unaudited Condensed Financial Report for the fourth quarter and the full year ended December 31,2023.Reserves:Our use of the term“reserves”in this presentation means United States Securities and Exchange Commission(SEC)proved oil and gas reserves.Resources:Our use of the term“resources”in this presentation includes quantities of oil and gas not yet classified as SEC proved oil and gas reserves.Resources are consistent with the Society of Petroleum Engineers(SPE)2P 2C definitions.The companies in which Shell plc directly and indirectly owns investments are separate legal entities.In this presentation“Shell”,“Shell Group”and“Group”are sometimes used for convenience where references are made to Shell plc and its subsidiaries in general.Likewise,the words“we”,“us”and“our”are also used to refer to Shell plc and its subsidiaries in general or to those who work for them.These terms are also used where no useful purpose is served by identifying the particular entity or entities.“Subsidiaries”,“Shell subsidiaries”and“Shell companies”as used in this presentation refer to entities over which Shell plc either directly or indirectly has control.Entities and unincorporated arrangements over which Shell has joint control are generally referred to as“joint ventures”and“joint operations”,respectively.“Joint ventures”and“joint operations”are collectively referred to as“joint arrangements”.Entities over which Shell has significant influence but neither control nor joint control are referred to as“associates”.The term“Shell interest”is used for convenience to indicate the direct and/or indirect ownership interest held by Shell in an entity or unincorporated joint arrangement,after exclusion of all third-party interest.This presentation contains forward-looking statements(within the meaning of the U.S.Private Securities Litigation Reform Act of 1995)concerning the financial condition,results of operations and businesses of Shell.All statements other than statements of historical fact are,or may be deemed to be,forward-looking statements.Forward-looking statements are statements of future expectations that are based on managements current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results,performance or events to differ materially from those expressed or implied in these statements.Forward-looking statements include,among other things,statements concerning the potential exposure of Shell to market risks and statements expressing managements expectations,beliefs,estimates,forecasts,projections and assumptions.These forward-looking statements are identified by their use of terms and phrases such as“aim”,“ambition”,“anticipate”,“believe”,“could”,“estimate”,“expect”,“goals”,“intend”,“may”,“milestones”,“objectives”,“outlook”,“plan”,“probably”,“project”,“risks”,“schedule”,“seek”,“should”,“target”,“will”and similar terms and phrases.There are a number of factors that could affect the future operations of Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation,including(without limitation):(a)price fluctuations in crude oil and natural gas;(b)changes in demand for Shells products;(c)currency fluctuations;(d)drilling and production results;(e)reserves estimates;(f)loss of market share and industry competition;(g)environmental and physical risks;(h)risks associated with the identification of suitable potential acquisition properties and targets,and successful negotiation and completion of such transactions;(i)the risk of doing business in developing countries and countries subject to international sanctions;(j)legislative,judicial,fiscal and regulatory developments including regulatory measures addressing climate change;(k)economic and financial market conditions in various countries and regions;(l)political risks,including the risks of expropriation and renegotiation of the terms of contracts with governmental entities,delays or advancements in the approval of projects and delays in the reimbursement for shared costs;(m)risks associated with the impact of pandemics,such as the COVID-19(coronavirus)outbreak;and(n)changes in trading conditions.No assurance is provided that future dividend payments will match or exceed previous dividend payments.All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.Readers should not place undue reliance on forward-looking statements.Additional risk factors that may affect future results are contained in Shell plcs Form 20-F for the year ended December 31,2022(available at and www.sec.gov).These risk factors also expressly qualify all forward-looking statements contained in this presentation and should be considered by the reader.Each forward-looking statement speaks only as of the date of this presentation,February 1,2024.Neither Shell plc nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information,future events or other information.In light of these risks,results could differ materially from those stated,implied or inferred from the forward-looking statements contained in this presentation.All amounts shown throughout this presentation are unaudited.The numbers presented throughout this presentation may not sum precisely to the totals provided and percentages may not precisely reflect the absolute figures,due to rounding.Also,in this presentation we may refer to Shells“Net Carbon Intensity”,which includes Shells carbon emissions from the production of our energy products,our suppliers carbon emissions in supplying energy for that production and our customers carbon emissions associated with their use of the energy products we sell.Shell only controls its own emissions.The use of the term Shells“Net Carbon Intensity”is for convenience only and not intended to suggest these emissions are those of Shell plc or its subsidiaries.Shells operating plan,outlook and budgets are forecasted for a ten-year period and are updated every year.They reflect the current economic environment and what we can reasonably expect to see over the next ten years.Accordingly,they reflect our Scope 1,Scope 2 and Net Carbon Intensity(NCI)targets over the next ten years.However,Shells operating plans cannot reflect our 2050 net-zero emissions target and 2035 NCI target,as these targets are currently outside our planning period.In the future,as society moves towards net-zero emissions,we expect Shells operating plans to reflect this movement.However,if society is not net zero in 2050,as of today,there would be significant risk that Shell may not meet this target.The content of websites referred to in this presentation does not form part of this presentation.We may have used certain terms,such as resources,in this presentation that the United States Securities and Exchange Commission(SEC)strictly prohibits us from including in our filings with the SEC.Investors are urged to consider closely the disclosure in our Form 20-F,File No 1-32575,available on the SEC website www.sec.gov.The financial information presented in this presentation does not constitute statutory accounts within the meaning of section 434(3)of the Companies Act 2006(“the Act”).Statutory accounts for the year ended December 31,2022,were published in Shells Annual Report and Accounts,a copy of which was delivered to the Registrar of Companies for England and Wales,and in Shells Form 20-F.The auditors report on those accounts was unqualified,did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under sections 498(2)or 498(3)of the Act.The information in this presentation does not constitute the unaudited condensed consolidated financial statements which are contained in Shells fourth quarter 2023 unaudited results available on 207 934 5550;USA 1 832 337 4355Shell plc|February 1,2024NYSE3Fourth quarter and full year 2023 Key messages Performance$7.3 billionQ4 Adjusted Earnings1$12.6 billionQ4 CFFORobust operational performance with exceptional LNG trading and optimisation results in Q4 2023Continued strong cash delivery,supported by working capital releaseFull year 2023:Adjusted Earnings1$28 billion,CFFO$54 billionDiscipline$24.4 billion2023 Cash capex$43.5 billion2023 Net debt2023 cash capex at lower end of$2327 billion range$2225 billion cash capex outlook for 2024Structural cost reduction of$1 billion achievedBalance sheet strength maintainedShareholder returns$0.344Dividend per share$3.5 billionBuyback programme2Progressive 4%dividend per share increase announced20%higher dividend per share than Q4 20222023 shareholder distributions 42%of CFFO1Income attributable to shareholders is$0.5 billion in Q4 2023 and$19.4 billion in full year 2023.APM reconciliations are available in the Q4 2023 Quarterly Databook here.2Expected to be completed by Q1 2024 results announcement.Shell plc|February 1,202420222023203030-40 22202342 2320254Progress on CMD 2023 targetsMore value,enhancing shareholder returns Shareholder distributions 30-40%of CFFO through the cycle%$billionPrice-normalised FCF growth16%p.a.through 2030$billionStructural cost reduction$2-3 billion by end-2025$/sharePrice-normalised FCF growth/share110%p.a.through 20251For price-normalised FCF and FCF/share assumptions see appendix.7%reduction in shares outstanding in 2023 vs 2022.202220232025$2-3 billion$1 billionShell plc|February 1,20245Progress on CMD 2023 targetsDisciplined structural cost reductionUnderlying operating expenses$billion39.539.21.0 Top-down:$0.8 billion reduction in 2023 through divestments(e.g.,Aera Energy JV(California),Baram Delta(Malaysia),Shell home energy retail businesses(UK and Germany)and disciplined growth with sharper portfolio choices focused on value creation.Bottom-up:$0.2 billion reduction in 2023 through a staggered and tailored approach for value in each of the businesses,with faster decision making supported by a leaner corporate centre.1Growth reflects inorganic growth like the Sprng,Landmark and Nature Energy acquisitions.Shell plc|February 1,20246Financial results Robust financial performanceIncome attributable to Shell plc shareholdersAdjusted EarningsAdjusted EBITDACash flow from operationsCash capital expenditureFree cash flow Net debtQ4 2023$0.5 billion$7.3 billion$16.3 billion$12.6 billion$7.1 billion$6.9 billion$43.5 billionFull year 2023$19.4 billion$28.3 billion$68.5 billion$54.2 billion$24.4 billion$36.5 billion$43.5 billionAPM reconciliations are available in the Q4 2023 Quarterly Databook here.Shell plc|February 1,20247Financial results Q4 2023Strong results driven by LNG trading&optimisationAdjusted Earnings Q3 2023 to Q4 2023$billionPrices&margins1:$1.5 billion Volume&mix1:$0.3 billion Other:$(0.7)billion 6.27.302468101.40.9(0.0)(1.3)0.2(0.1)Cash conversion Q4 2023$billion7.316.312.60481216206.20.62.20.2(1.0)(6.3)3.60.5(0.8)1Integrated Gas and Upstream 2Non-controlling interest 3AR/AP&other includes initial margin.Working capital movement$3.3 billion Shell plc|February 1,20248Financial results 2023Delivering in a volatile macro environmentAdjusted Earnings 2022 to 2023$billionPrices&margins1:$(6.8)billion Volume&mix1:$(2.5)billion Other:$(2.3)billion 39.928.301020304050(2.2)(7.5)0.4(1.0)(1.0)(0.2)Cash conversion full year 2023$billionWorking capital movement$7.8 billion28.368.554.202040608024.02.414.00.1(6.1)(16.1)4.71.71.51Integrated Gas and Upstream 2Non-controlling interest 3AR/AP&other includes initial margin.Shell plc|February 1,2024Shareholder distributions:42%of CFFONet debt:$43.5 billion3(Gearing 18.8%)Cash capex:$24.4 billionEnhanced distributions 4%progressive dividend increase for Q4 2023$3.5 billion of share buybacks for the next 3 months2A pragmatic approach to capital allocation1Subject to Board approval.2Expected to be completed by Q1 2024 results announcement.3Includes$27.7 billion of lease liabilities.Financial framework3040%of CFFO through the cycle4%progressive dividend annually1Enhanced Shareholder DistributionsDisciplinedInvestmentCash capex:$2225 billion p.a.for 2024 and 2025AA credit metricsthrough the cycle2023Balanced Capital AllocationStrong Balance SheetShell plc|February 1,202410Investing in the energy transitionA Products for which usage does not cause Scope 3,Category 11 emissions:Lubricants,Chemicals,Convenience Retailing,Agriculture&Forestry,Construction&Road.BE-Mobility and Electric Vehicle Charging Services,Low-Carbon Fuels,Renewable Power Generation,Environmental Solutions,Hydrogen,CCS.We define low-carbon energy products as those that have an average carbon intensity that is lower than conventional hydrocarbon products,assessed on a life-cycle basis.C LNG Production&Trading,Gas&Power Trading,and Energy Marketing.D Upstream segment,GTL,Refining&Trading,Marketing fuel and hydrocarbon sales,Shell Ventures,Corporate segment.Capital expenditure$24.4 billionTotal cash capital expenditure in 2023in low-carbon energy solutions from 2023-2025$10-15 billionLNG,gas and power marketing and trading C$4.0 billionOil,oil products and other D$12.6 billionNon-energy products A$2.3 billionLow-carbon energy solutions B$5.6 billionShell plc|February 1,202411Portfolio updatesClick on the icons on map for further details on the deal/project.2023 deliveryGrowthFor additional portfolio information visit our investors page on Volta acquisitionVito start-upAera Energy divestmentShell home energy retail businesses(UK and Germany)divestmentPierce redevelopmentNature Energy acquisition Shell Pakistan Limited divestment agreedQatarEnergy LNG NFS(2)Aspired divestment of Singapore Energy&Chemicals ParkBaram Delta divestmentLongevityHigh-gradingMap not to scaleSprng Energy investment funnelSavion investment funnel Masela PSC/Abadi divestmentTimi start-upEV growthMero-2 start-upSparta FIDNigerian onshore(SPDC)divestment agreedDeliver 500 kboe/d new peak production by 2025 in Integrated Gas and Upstream2023:New projects on stream with over 200 kboe/d peak productionFID to repurpose Rheinland Energy and Chemicals ParkShell plc|February 1,2024Upcoming events:Corporate reports:Annual Report 2022Energy Transition Progress Report 2022 Payments to Governments Report 2022Sustainability Report 2022Nigeria briefing notes 2022Useful links:Capital Markets DayAnnual and Quarterly DatabookShell Energy Transition StrategyESG performance dataWar in Ukraine:Shells ResponseFeb 14,2024Shell LNG Outlook 2024Mar 27,2024Annual ESG Update Aug 1,2024Q2 2024 resultsOct 31,2024Q3 2024 resultsMay 21,2024Annual General MeetingMay 2,2024Q1 2024 resultsMar 14,2024Publication of Energy Transition Strategy 2024 Shell plc|February 1,2024Performing with purposeGeneratingshareholder valuePoweringlivesAchieving net-zeroemissionsRespectingnatureUnderpinned by our core values and our focus on safetyOur purpose is topower progress together by providing more and cleaner energy solutionsPowering ProgressShell plc|February 1,202415The investment case through the energy transition 12023-2025 2Includes infrastructure&assets($20 billion)and low-carbon energy solutions($10-15 billion).32022 to 2025,for price assumptions see appendix.4Compared with“at least$5 billion”announced at CMD 2023.Providing Energy SecurityEnabling the Energy TransitionPerformance,Discipline,Simplification Committed to Enhancing Shareholder ReturnsReduce structural cost by$2-3 billion by end-2025&lower capital spend to$22-25 billion p.a.in 2024 and 2025Grow FCF/share 10%p.a.through 20253Shareholder returns increased to 30-40%of CFFO through the cycleDividend per share increased by 15%at Q2 2023&second half 2023 buybacks of$6.5 billion4completedProviding molecules to decarbonise the transport and industry sectors,while high-grading the Downstream businessInvesting$35 billion1,2into Downstream and Renewables&Energy Solutions,of which$10-15 billion1 1is directly into low-carbon energy solutionsCommitted to oil and gas,with a focus on LNG growthInvesting$40 billion1 1in Leading Integrated Gas&Advantaged Upstream Shell plc|February 1,202416Continued volatilityData based on monthly averages.Macro environment6080100120140BrentJCC-3020406080Henry HubEU TTF-1000100200300400-10010203040IRMICM(RHS)$/bbl$/MMBtu$/tonne$/bblOilShell Indicative Refining Margin(IRM)and Indicative Chemical Margin(ICM)GasIRM:2023:$122022:$18ICM:2023:$1332022:$48Henry Hub:2023:$2.52022:$6.4EU TTF:2023:$132022:$40Brent:2023:$832022:$101JCC-3:2023:$892022:$98Shell plc|February 1,202417Fourth quarter 20231Non-controlling interestAPM reconciliations are available in the Q4 2023 Quarterly Databook here.Financial resultsAdjusted EarningsAdjusted EBITDACFFO$billionQ4 2023Q3 2023Q4 2023Q3 2023Q4 2023Q3 2023Integrated Gas4.02.56.64.93.64.0Upstream3.12.27.97.45.85.3Marketing0.70.71.31.52.70.9Chemicals&Products0.11.40.82.60.22.4R&ES0.2(0.1)0.20.1(1.3)(0.0)Corporate&NCI1(0.7)(0.6)(0.5)(0.1)1.5(0.2)Total7.36.216.316.312.612.3Shell plc|February 1,202418Full year 20231Non-controlling interestAPM reconciliations are available in the Q4 2023 Quarterly Databook here.Financial resultsAdjusted EarningsAdjusted EBITDACFFO$billion202320222023202220232022Integrated Gas13.916.123.826.617.527.7Upstream9.817.330.642.121.529.6Marketing3.22.86.05.36.12.4Chemicals&Products3.74.77.78.67.012.9R&ES0.71.71.42.53.0(6.4)Corporate&NCI1(3.0)(2.8)(1.0)(0.7)(0.8)2.2Total28.339.968.584.354.268.4Shell plc|February 1,202419HSSE performance*Preliminary results.Final results will be available in the 2023 Annual Report/Energy Transition Strategy 2024 publication.All information on this slide relates to assets and activities under Shells operational control.2023Process safetyOperational spillsInjuries(TRCF)per million working hoursGoal Zero on safetyNumber of incidentsThousand tonnes0350700012Million working hours0100200Number of spills075150012TRCFWorking hours(RHS)Tier 1 Tier 2Volume of spillsNumber of spills(RHS)Shell plc|February 1,202420Significant progress on our path to net zero*Preliminary results.Final results will be available in the 2023 Annual Report/Energy Transition Strategy 2024 publication.All information on this slide relates to assets and activities under Shells operational control.GHG emissions for 2023 were calculated using global warming potential(GWP)factors from the IPCC Fifth Assessment Report(AR5).Methane emissions increased in 2023 due to using AR5 GWP factors and site-specific emission factors as well as annual maintenance and operational issues.Energy Transition Strategy 2024 will update on Shells energy transition strategy as communicated at Capital Markets Day 2023 and will set out Shells climate targets and ambitions for the future.CarbonNet-zero emissions energy business by 2050 including all emissions(Scopes 1,2 and 3)NET ZERO BY 2050We believe Shells total carbon emissions from energy sold peaked in 2018 at around 1.7 gtpa and will be brought down to net-zero by 2050 FROM 1.7 GTPA TO ZEROUN PARIS AGREEMENTStrategy aligns with goal to limit the increase in the global average temperature to 1.5 degrees Celsius above pre-industrial levelsGHG emissions03605010020162017201820192020202120222023E*Million tonnes CO2eMillion tonnes CO2e0.00.81.520162017201820192020202120222023E*Million tonnes of hydrocarbons flaredScope 1Scope 1-Methane only(RHS)Scope 2Routine flaringShell plc|February 1,202421Reserves performance in 2023Proved reserves 2023 vs 2022billion boeSEC proved reserves positionPreliminary results9.69.8024681012billion boe202120222023Production1.21.11.1SEC proved reserves9.49.69.8Reserves/Production(years)7.68.89.2RRR 120% 120% 120%RRR(excl.A&D) 99%RRR 3-year average(excl.A&D) 90%RRR 3-year average 120% 120%Reserves/Production 5%vs 20229.2 yearsRRR(1.1)0.21.1Shell plc|February 1,202422Disciplined,value-focused capital allocation1For price assumptions see appendix.2Includes acquisition of Nature Energy(nearly$2 billion).CMD 2023$billion2022actuals2023actuals24-25Power dilutions24-2520251CMD 2023Integrated Gas4455811%Upstream88881015%Integrated Gas and Upstream1213131317-18Marketing562334Marketing ex.LCF/EV 15%LCF 12%EV 12%Chemicals&Products433-43-4512%R&ES334-5(1-2)3(2)R&ES excl.power 10%Power generation 6-8%Downstream and Renewables&Energy Solutions121110-129-107-8Total252422-2521-2324-26Cash Capex after power dilutionsCash CapexFCFIRR hurdle ratesShell plc|February 1,2024Gulf of Mexico23Deepwater:Decades of disciplined performance1References our US Gulf of Mexico(GoM)production having one of the lowest GHG intensity in the world in comparison to other IOGP(International Association of Oil and Gas Producers)members(2022 IOGP report).2Pre-FIDUpstream VITO 23 WHALE 24 SPARTA 28Capital efficiency focusReplication focused on cycle timeReplication with learningsMaximising value through right-sizing and replicationMaking the most of our heartlands today and tomorrowMajor projects and tie-backs delivering material volumes by 2025Perdido Phase 3Mero-2Mero-3/4VitoWhaleRydbergConsistent performance,continuous improvementHighest production in more than a decade.Consistently delivering top-quartile wells,reservoir and facilities optimisation,along with strong availability Amongst the lowest GHG intensity1in a growing portfolio,with equity deepening in advantaged basinsVito waterflood2Gato do Mato2Namibia2HeartlandsProducing Developing Exploring in Atlantic Margin BasinsSustaining liquids through 2030DoverWell positioned for 2030s Funnel of opportunities into the next decadeSpartaGoM&Brazil InfillBrazilNote:indicates asset is currently operatingMap represents Shells deepwater portfolio and excludes additional deepwater activity in Malaysia Map not to scaleShell plc|February 1,202424Pipeline of major projects Further details are available on our investors page on KEYLow-carbon fuelsMap not to scaleProjects under constructionPeak production/Capacity/Products(100%)Shell share%CountryStart-up 2024-2025Mero-3 A180 kboe/d19.3BrazilMero-4 A180 kboe/d19.3 BrazilWhale100 kboe/d60USALNG Canada T1-214 mtpa40CanadaSprng Energy(multiple)B1,118 MW100IndiaSavion(multiple)B491 MW100USACrossWind/HKN B759 MW79.9NetherlandsShell Bovarius400,000 MMBtu RNG100USAShell Friesian350,000 MMBtu RNG100USANorthern Lights JV(Phase 1)1.5 mtpa CO2captured and/or stored33.3NorwayStart-up 2026 Marjoram/Rosmari100 kboe/d80MalaysiaSparta 90 kboe/d51USANLNG T77.6 mtpa26NigeriaQatarEnergy LNG NFE(2)8 mtpa25*QatarQatarEnergy LNG NFS(2)6 mtpa25*QatarHEFA Biofuels Plant Rotterdam820,000 tonnes of renewable fuels 100NetherlandsHolland Hydrogen I200 MW100NetherlandsEcowende/HKW B760 MW60NetherlandsAtlantic Shores-Project 1 B1,509 MW50USAUpstreamLiquefaction plantsHydrogen electrolyserCCSSolarOffshore windA Subject to unitisation agreements,production shown is FPSO oil capacity as per operator.B Renewable generation capacity under construction and/or committed for sale,with multiple start-up dates.*A 25%share in a JV company which will own 25%of the QatarEnergy LNG NFE(2)expansion project and a 25%share in a JV company which will own 37.5%of the QatarEnergy LNG NFS(2)expansion project.Q4 2023 updates:Mero-2 start-up,Sparta FIDShell plc|February 1,202425Additional definitionsAppendixMetricDefinitionPrice-normalised free cash flow(FCF)FCF 2022 has been normalised to prices of Brent$65/bbl,Henry Hub(and related gas markers)$4/MMBtu and historical average chemical and refining margins.FCF 2023 normalised to prices of$65/bbl Brent and$4/MMBtu Henry Hub(both real 2022),indicative chemical margins of$150 to$250 per tonne(nominal)and indicative refining margins of$4 to$6 per barrel(nominal).2025/2030 projections$65/bbl Brent and$4/MMBtu Henry Hub(both real 2022),indicative chemical margins of$150 to$250 per tonne(nominal)and indicative refining margins of$4 to$6 per barrel(nominal).Price-normalised FCF/sharePrice-normalised FCF divided by shares outstanding at the end of the period.The outstanding number of shares excludes shares held in trust.(2022:6,971 million shares,2023:6,486 million shares).Structural cost reductionStructural cost reduction describes decreases in underlying operating expenses as a result of operational efficiencies,divestments,workforce reductions and other cost saving measures that are expected to be sustainable compared with 2022 levels.The total change between periods in underlying operating expenses will reflect both structural cost reductions and other changes in spend,including market factors,such as inflation and foreign exchange impacts,as well as changes in activity levels and costs associated with new operations.Estimates of cumulative annual structural cost reduction may be revised depending on whether cost reductions realised in prior periods are determined to be sustainable compared to 2022 levels.Structural cost reductions are stewarded internally to support managements oversight of spending over time.2025 target reflects annualised saving achieved by end-2025.
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Lenovo Group Limited 2023/24 Interim ReportSmartertechnologyfor allSmartertechnologyfor all聯想集團有限公司 .
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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended December30,2023or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to.Commission File Number:001-36743Apple Inc.(Exact name of Registrant as specified in its charter)California94-2404110(State or other jurisdictionof incorporation or organization)(I.R.S.Employer Identification No.)One Apple Park WayCupertino,California95014(Address of principal executive offices)(Zip Code)(408)996-1010(Registrants telephone number,including area code)Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading symbol(s)Name of each exchange on which registeredCommon Stock,$0.00001 par value per shareAAPLThe Nasdaq Stock Market 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).YesNo15,441,881,000 shares of common stock were issued and outstanding as of January19,2024.Apple Inc.Form 10-QFor the Fiscal Quarter Ended December30,2023 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 EndedDecember 30,2023December 31,2022Net sales:Products$96,458$96,388 Services 23,117 20,766 Total net sales 119,575 117,154 Cost of sales:Products 58,440 60,765 Services 6,280 6,057 Total cost of sales 64,720 66,822 Gross margin 54,855 50,332 Operating expenses:Research and development 7,696 7,709 Selling,general and administrative 6,786 6,607 Total operating expenses 14,482 14,316 Operating income 40,373 36,016 Other income/(expense),net(50)(393)Income before provision for income taxes 40,323 35,623 Provision for income taxes 6,407 5,625 Net income$33,916$29,998 Earnings per share:Basic$2.19$1.89 Diluted$2.18$1.88 Shares used in computing earnings per share:Basic 15,509,763 15,892,723 Diluted 15,576,641 15,955,718 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q1 2024 Form 10-Q|1Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Unaudited)(In millions)Three Months EndedDecember 30,2023December 31,2022Net income$33,916$29,998 Other comprehensive income/(loss):Change in foreign currency translation,net of tax 308 (14)Change in unrealized gains/losses on derivative instruments,net of tax:Change in fair value of derivative instruments(531)(988)Adjustment for net(gains)/losses realized and included in net income(823)(1,766)Total change in unrealized gains/losses on derivative instruments(1,354)(2,754)Change in unrealized gains/losses on marketable debt securities,net of tax:Change in fair value of marketable debt securities 3,045 900 Adjustment for net(gains)/losses realized and included in net income 75 65 Total change in unrealized gains/losses on marketable debt securities 3,120 965 Total other comprehensive income/(loss)2,074 (1,803)Total comprehensive income$35,990$28,195 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q1 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)December 30,2023September 30,2023ASSETS:Current assets:Cash and cash equivalents$40,760$29,965 Marketable securities 32,340 31,590 Accounts receivable,net 23,194 29,508 Vendor non-trade receivables 26,908 31,477 Inventories 6,511 6,331 Other current assets 13,979 14,695 Total current assets 143,692 143,566 Non-current assets:Marketable securities 99,475 100,544 Property,plant and equipment,net 43,666 43,715 Other non-current assets 66,681 64,758 Total non-current assets 209,822 209,017 Total assets$353,514$352,583 LIABILITIES AND SHAREHOLDERS EQUITY:Current liabilities:Accounts payable$58,146$62,611 Other current liabilities 54,611 58,829 Deferred revenue 8,264 8,061 Commercial paper 1,998 5,985 Term debt 10,954 9,822 Total current liabilities 133,973 145,308 Non-current liabilities:Term debt 95,088 95,281 Other non-current liabilities 50,353 49,848 Total non-current liabilities 145,441 145,129 Total liabilities 279,414 290,437 Commitments and contingenciesShareholders equity:Common stock and additional paid-in capital,$0.00001 par value:50,400,000 shares authorized;15,460,223 and 15,550,061 shares issued and outstanding,respectively 75,236 73,812 Retained earnings/(Accumulated deficit)8,242 (214)Accumulated other comprehensive loss(9,378)(11,452)Total shareholders equity 74,100 62,146 Total liabilities and shareholders equity$353,514$352,583 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q1 2024 Form 10-Q|3Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY(Unaudited)(In millions,except per-share amounts)Three Months EndedDecember 30,2023December 31,2022Total shareholders equity,beginning balances$62,146$50,672 Common stock and additional paid-in capital:Beginning balances 73,812 64,849 Common stock withheld related to net share settlement of equity awards(1,660)(1,434)Share-based compensation 3,084 2,984 Ending balances 75,236 66,399 Retained earnings/(Accumulated deficit):Beginning balances(214)(3,068)Net income 33,916 29,998 Dividends and dividend equivalents declared(3,774)(3,712)Common stock withheld related to net share settlement of equity awards(1,018)(978)Common stock repurchased(20,668)(19,000)Ending balances 8,242 3,240 Accumulated other comprehensive income/(loss):Beginning balances(11,452)(11,109)Other comprehensive income/(loss)2,074 (1,803)Ending balances(9,378)(12,912)Total shareholders equity,ending balances$74,100$56,727 Dividends and dividend equivalents declared per share or RSU$0.24$0.23 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q1 2024 Form 10-Q|4Apple Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In millions)Three Months EndedDecember 30,2023December 31,2022Cash,cash equivalents and restricted cash,beginning balances$30,737$24,977 Operating activities:Net income 33,916 29,998 Adjustments to reconcile net income to cash generated by operating activities:Depreciation and amortization 2,848 2,916 Share-based compensation expense 2,997 2,905 Other(989)(317)Changes in operating assets and liabilities:Accounts receivable,net 6,555 4,275 Vendor non-trade receivables 4,569 2,320 Inventories(137)(1,807)Other current and non-current assets(1,457)(4,099)Accounts payable(4,542)(6,075)Other current and non-current liabilities(3,865)3,889 Cash generated by operating activities 39,895 34,005 Investing activities:Purchases of marketable securities(9,780)(5,153)Proceeds from maturities of marketable securities 13,046 7,127 Proceeds from sales of marketable securities 1,337 509 Payments for acquisition of property,plant and equipment(2,392)(3,787)Other(284)(141)Cash generated by/(used in)investing activities 1,927 (1,445)Financing activities:Payments for taxes related to net share settlement of equity awards(2,591)(2,316)Payments for dividends and dividend equivalents(3,825)(3,768)Repurchases of common stock(20,139)(19,475)Repayments of term debt (1,401)Repayments of commercial paper,net(3,984)(8,214)Other(46)(389)Cash used in financing activities(30,585)(35,563)Increase/(Decrease)in cash,cash equivalents and restricted cash 11,237 (3,003)Cash,cash equivalents and restricted cash,ending balances$41,974$21,974 Supplemental cash flow disclosure:Cash paid for income taxes,net$7,255$828 See accompanying Notes to Condensed Consolidated Financial Statements.Apple Inc.|Q1 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.Certain prior period amounts in the condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current periods presentation.These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Companys annual consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the fiscal year ended 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 months ended December 30,2023 and December31,2022 were as follows(in millions):Three Months EndedDecember 30,2023December 31,2022iPhone$69,702$65,775 Mac 7,780 7,735 iPad 7,023 9,396 Wearables,Home and Accessories 11,953 13,482 Services 23,117 20,766 Total net sales$119,575$117,154 Total net sales include$3.5 billion of revenue recognized in the three months ended December30,2023 that was included in deferred revenue as of September30,2023 and$3.4 billion of revenue recognized in the three months ended December31,2022 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 months ended December 30,2023 and December31,2022,except in Greater China,where iPhone revenue represented a moderately higher proportion of net sales.As of December30,2023 and September30,2023,the Company had total deferred revenue of$12.5 billion and$12.1billion,respectively.As of December30,2023,the Company expects 66%of total deferred revenue to be realized in less than a year,26%within one-to-two years,7%within two-to-three years and 1%in greater than three years.Apple Inc.|Q1 2024 Form 10-Q|6Note 3 Earnings Per ShareThe following table shows the computation of basic and diluted earnings per share for the three months ended December 30,2023 and December 31,2022(net income in millions and shares in thousands):Three Months EndedDecember 30,2023December 31,2022Numerator:Net income$33,916$29,998 Denominator:Weighted-average basic shares outstanding 15,509,763 15,892,723 Effect of dilutive share-based awards 66,878 62,995 Weighted-average diluted shares 15,576,641 15,955,718 Basic earnings per share$2.19$1.89 Diluted earnings per share$2.18$1.88 Approximately 89million restricted stock units(“RSUs”)were excluded from the computation of diluted earnings per share for the three months ended December31,2022 because their effect would have been antidilutive.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 December30,2023 and September30,2023(in millions):December 30,2023AdjustedCostUnrealizedGainsUnrealizedLossesFairValueCash andCashEquivalentsCurrentMarketableSecuritiesNon-CurrentMarketableSecuritiesCash$29,542$29,542$29,542$Level 1:Money market funds 2,000 2,000 2,000 Mutual funds 448 35 (11)472 472 Subtotal 2,448 35 (11)2,472 2,000 472 Level 2(1):U.S.Treasury securities 24,041 12 (920)23,133 7,303 4,858 10,972 U.S.agency securities 5,791 (448)5,343 243 98 5,002 Non-U.S.government securities 17,326 54 (675)16,705 11,175 5,530 Certificates of deposit and time deposits 1,448 1,448 1,119 329 Commercial paper 1,361 1,361 472 889 Corporate debt securities 75,360 112 (3,964)71,508 81 13,909 57,518 Municipal securities 562 (14)548 185 363 Mortgage-and asset-backed securities 22,369 53 (1,907)20,515 425 20,090 Subtotal 148,258 231 (7,928)140,561 9,218 31,868 99,475 Total(2)$180,248$266$(7,939)$172,575$40,760$32,340$99,475 Apple Inc.|Q1 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 December30,2023 and September30,2023,total marketable securities included$13.9billion 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 December30,2023(in millions):Due after 1 year through 5 years$72,994 Due after 5 years through 10 years 9,368 Due after 10 years 17,113 Total fair value$99,475 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 December30,2023,the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for term debtrelated foreign currency transactions is 19 years.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.|Q1 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 December30,2023 and September30,2023 were as follows(in millions):December 30,2023September 30,2023Derivative instruments designated as accounting hedges:Foreign exchange contracts$66,735$74,730 Interest rate contracts$19,375$19,375 Derivative instruments not designated as accounting hedges:Foreign exchange contracts$102,108$104,777 The carrying amounts of the Companys hedged items in fair value hedges as of December30,2023 and September30,2023 were as follows(in millions):December 30,2023September 30,2023Hedged assets/(liabilities):Current and non-current marketable securities$15,102$14,433 Current and non-current term debt$(18,661)$(18,247)Accounts ReceivableTrade ReceivablesThe Companys third-party cellular network carriers accounted for 34%and 41%of total trade receivables as of December30,2023 and September 30,2023,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 December30,2023,the Company had two vendors that individually represented 10%or more of total vendor non-trade receivables,which accounted for 50%and 20%.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 December30,2023 and September30,2023(in millions):Property,Plant and Equipment,NetDecember 30,2023September 30,2023Gross property,plant and equipment$116,176$114,599 Accumulated depreciation(72,510)(70,884)Total property,plant and equipment,net$43,666$43,715 Apple Inc.|Q1 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 December30,2023 and September30,2023,the Company had$2.0 billion and$6.0 billion of commercial paper outstanding,respectively.The following table provides a summary of cash flows associated with the issuance and maturities of commercial paper for the three months ended December30,2023 and December31,2022(in millions):Three Months EndedDecember 30,2023December 31,2022Maturities 90 days or less:Repayments of commercial paper,net$(3,984)$(5,569)Maturities greater than 90 days:Repayments of commercial paper (2,645)Total repayments of commercial paper,net$(3,984)$(8,214)Term DebtAs of December30,2023 and September30,2023,the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of$106.0 billion and$105.1 billion,respectively(collectively the“Notes”).As of December30,2023 and September30,2023,the fair value of the Companys Notes,based on Level 2 inputs,was$96.7 billion and$90.8 billion,respectively.Note 7 Shareholders EquityShare Repurchase ProgramDuring the three months ended December30,2023,the Company repurchased 118 million shares of its common stock for$20.5 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 three months ended December30,2023 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 74,241$171.58 RSUs vested(42,490)$110.75 RSUs canceled(3,026)$109.05 Balance as of December 30,2023 208,972$154.09$40,233 The fair value as of the respective vesting dates of RSUs was$7.7 billion and$6.8 billion for the three months ended December 30,2023 and December31,2022,respectively.Apple Inc.|Q1 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 months ended December 30,2023 and December 31,2022(in millions):Three Months EndedDecember 30,2023December 31,2022Share-based compensation expense$2,997$2,905 Income tax benefit related to share-based compensation expense$(1,235)$(1,178)As of December30,2023,the total unrecognized compensation cost related to outstanding RSUs was$27.4 billion,which the Company expects to recognize over a weighted-average period of 2.9 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 months ended December 30,2023 and December 31,2022(in millions):Three Months EndedDecember 30,2023December 31,2022Americas:Net sales$50,430$49,278 Operating income$20,357$17,864 Europe:Net sales$30,397$27,681 Operating income$12,711$10,017 Greater China:Net sales$20,819$23,905 Operating income$8,622$10,437 Japan:Net sales$7,767$6,755 Operating income$3,819$3,236 Rest of Asia Pacific:Net sales$10,162$9,535 Operating income$4,579$3,851 Apple Inc.|Q1 2024 Form 10-Q|11A reconciliation of the Companys segment operating income to the Condensed Consolidated Statements of Operations for the three months ended December 30,2023 and December 31,2022 is as follows(in millions):Three Months EndedDecember 30,2023December 31,2022Segment operating income$50,088$45,405 Research and development expense(7,696)(7,709)Other corporate expenses,net(2,019)(1,680)Total operating income$40,373$36,016 Apple Inc.|Q1 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.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.Quarterly HighlightsThe Companys first quarter of 2024 included 13 weeks,compared to 14 weeks during the first quarter of 2023.The Companys total net sales increased 2%or$2.4 billion during the first quarter of 2024 compared to the same quarter in 2023,driven primarily by higher net sales of iPhone and Services,partially offset by lower net sales of iPad and Wearables,Home and Accessories.During the first quarter of 2024,the Company announced an updated MacBook Pro 14-in.,MacBook Pro 16-in.and iMac.The Company repurchased$20.5 billion of its common stock and paid dividends and dividend equivalents of$3.8 billion during the first quarter of 2024.Macroeconomic ConditionsMacroeconomic conditions,including inflation,changes in interest rates,and currency fluctuations,have directly and indirectly impacted,and could in the future materially impact,the Companys results of operations and financial condition.Apple Inc.|Q1 2024 Form 10-Q|13Segment Operating PerformanceThe following table shows net sales by reportable segment for the three months ended December 30,2023 and December31,2022(dollars in millions):Three Months EndedDecember 30,2023December 31,2022ChangeNet sales by reportable segment:Americas$50,430$49,278 2%Europe 30,397 27,681 10%Greater China 20,819 23,905 (13)%Japan 7,767 6,755 15%Rest of Asia Pacific 10,162 9,535 7%Total net sales$119,575$117,154 2%AmericasAmericas net sales increased 2%or$1.2 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of Services and iPhone,partially offset by lower net sales of 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 first quarter of 2024.EuropeEurope net sales increased 10%or$2.7 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of iPhone.The strength in foreign currencies relative to the U.S.dollar had a net favorable year-over-year impact on Europe net sales during the first quarter of 2024.Greater ChinaGreater China net sales decreased 13%or$3.1 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to lower net sales of iPhone,iPad and Wearables,Home and Accessories.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 first quarter of 2024.JapanJapan net sales increased 15%or$1.0 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of iPhone.The weakness in the yen relative to the U.S.dollar had an unfavorable year-over-year impact on Japan net sales during the first quarter of 2024.Rest of Asia PacificRest of Asia Pacific net sales increased 7%or$627 million during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of iPhone,partially offset by lower net sales of Wearables,Home and Accessories.Apple Inc.|Q1 2024 Form 10-Q|14Products and Services PerformanceThe following table shows net sales by category for the three months ended December 30,2023 and December31,2022(dollars in millions):Three Months EndedDecember 30,2023December 31,2022ChangeNet sales by category:iPhone$69,702$65,775 6%Mac 7,780 7,735 1%iPad 7,023 9,396 (25)%Wearables,Home and Accessories 11,953 13,482 (11)%Services 23,117 20,766 11%Total net sales$119,575$117,154 2%iPhoneiPhone net sales increased 6%or$3.9 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of Pro models,partially offset by lower net sales of other models.MacMac net sales were relatively flat during the first quarter of 2024 compared to the same quarter in 2023.iPadiPad net sales decreased 25%or$2.4 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to lower net sales of iPad Pro,iPad 9th generation and iPad Air.Wearables,Home and AccessoriesWearables,Home and Accessories net sales decreased 11%or$1.5 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to lower net sales of Wearables and Accessories.ServicesServices net sales increased 11%or$2.4 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales from advertising,video and cloud services.Apple Inc.|Q1 2024 Form 10-Q|15Gross MarginProducts and Services gross margin and gross margin percentage for the three months ended December 30,2023 and December31,2022 were as follows(dollars in millions):Three Months EndedDecember 30,2023December 31,2022Gross margin:Products$38,018$35,623 Services 16,837 14,709 Total gross margin$54,855$50,332 Gross margin percentage:Products 39.47.0%Services 72.8p.8%Total gross margin percentage 45.9C.0%Products Gross MarginProducts gross margin increased during the first quarter of 2024 compared to the same quarter in 2023 due primarily to cost savings and a different Products mix,partially offset by the weakness in foreign currencies relative to the U.S.dollar and lower Products volume.Products gross margin percentage increased during the first quarter of 2024 compared to the same quarter in 2023 due primarily to cost savings and a different Products mix,partially offset by the weakness in foreign currencies relative to the U.S.dollar.Services Gross MarginServices gross margin increased during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher Services net sales and a different Services mix.Services gross margin percentage increased during the first quarter of 2024 compared to the same quarter 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.Apple Inc.|Q1 2024 Form 10-Q|16Operating ExpensesOperating expenses for the three months ended December 30,2023 and December 31,2022 were as follows(dollars in millions):Three Months EndedDecember 30,2023December 31,2022Research and development$7,696$7,709 Percentage of total net sales 6%7%Selling,general and administrative$6,786$6,607 Percentage of total net sales 6%6%Total operating expenses$14,482$14,316 Percentage of total net sales 12%Research and DevelopmentResearch and development(“R&D”)expense was relatively flat during the first quarter of 2024 compared to the same quarter in 2023.Selling,General and AdministrativeSelling,general and administrative expense increased 3%or$179 million during the first quarter of 2024 compared to the same quarter in 2023.Provision for Income TaxesProvision for income taxes,effective tax rate and statutory federal income tax rate for the three months ended December 30,2023 and December31,2022 were as follows(dollars in millions):Three Months EndedDecember 30,2023December 31,2022Provision for income taxes$6,407$5,625 Effective tax rate 15.9.8%Statutory federal income tax rate 21!%The Companys effective tax rate for the first quarter of 2024 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings,tax benefits from share-based compensation,and the impact of the U.S.federal R&D credit,partially offset by state income taxes.The Companys effective tax rate for the first quarter of 2024 was relatively flat compared to the same quarter in 2023.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 December30,2023,the Company had manufacturing purchase obligations of$38.0 billion,with$37.9 billion payable within 12 months.Apple Inc.|Q1 2024 Form 10-Q|17Capital Return ProgramIn addition to its contractual cash requirements,the Company has an authorized share repurchase program.The program does not obligate the Company to acquire a minimum amount of shares.As of December30,2023,the Companys quarterly cash dividend was$0.24 per share.The Company intends to increase its dividend on an annual basis,subject to declaration by the Board of Directors.Recent 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 three 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 December30,2023 to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is(i)recorded,processed,summarized and reported within the time periods specified in the SEC rules and forms and(ii)accumulated and communicated to the Companys management,including its principal executive officer and principal financial officer,as appropriate to allow timely decisions regarding required disclosure.Changes in Internal Control over Financial ReportingThere were no changes in the Companys internal control over financial reporting during the first 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.|Q1 2024 Form 10-Q|18PART II OTHER INFORMATIONItem 1.Legal ProceedingsEpic GamesEpic Games,Inc.(“Epic”)filed a lawsuit in the U.S.District Court for the Northern District of California(the“District Court”)against the Company alleging violations of federal and state antitrust laws and Californias unfair competition law based upon the Companys operation of its App Store.On September 10,2021,the District Court ruled in favor of the Company with respect to nine out of the ten counts included in Epics claim.The District Court found that certain provisions of the Companys App Store Review Guidelines violate Californias unfair competition law and issued an injunction enjoining the Company from prohibiting developers from including in their apps external links that direct customers to purchasing mechanisms other than Apple in-app purchasing.The injunction applies to apps on the U.S.storefront of the iOS and iPadOS App Store.On April 24,2023,the U.S.Court of Appeals for the Ninth Circuit(the“Circuit Court”)affirmed the District Courts ruling.On June 7,2023,the Company and Epic filed petitions with the Circuit Court requesting further review of the decision.On June 30,2023,the Circuit Court denied both petitions.On July 17,2023,the Circuit Court granted Apples motion to stay enforcement of the injunction pending appeal to the U.S.Supreme Court(the“Supreme Court”).On January 16,2024,the Supreme Court denied both the Companys and Epics petitions and the stay terminated.The Supreme Courts denial of Epics petition confirms the District Courts ruling in favor of the Company with respect to all of the antitrust claims.Following termination of the stay,the Company implemented a plan to comply with the injunction and filed a statement of compliance with the District Court.On January 31,2024,Epic filed a notice with the District Court indicating its intent to dispute the Companys compliance plan.MasimoMasimo Corporation and Cercacor Laboratories,Inc.(together,“Masimo”)filed a complaint before the U.S.International Trade Commission(the“ITC”)alleging infringement by the Company of five patents relating to the functionality of the blood oxygen feature in Apple Watch Series 6 and 7.In its complaint,Masimo sought a permanent exclusion order prohibiting importation to the U.S.of certain Apple Watch models that include blood oxygen sensing functionality.On October 26,2023,the ITC entered a limited exclusion order(the“Order”)prohibiting importation and sales in the U.S.of Apple Watch models with blood oxygen sensing functionality,which includes Apple Watch Series 9 and Apple Watch Ultra 2.The Company subsequently proposed a redesign of Apple Watch Series 9 and Apple Watch Ultra 2 to the U.S.Customs and Border Protection(the“CBP”)and appealed the Order.On January 12,2024,the CBP found that the Companys proposed redesign of Apple Watch Series 9 and Apple Watch Ultra 2 falls outside the scope of the Order,permitting the Company to import and sell the models in the U.S.Other Legal ProceedingsThe Company is subject to other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business.The Company settled certain matters during the first quarter of 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.|Q1 2024 Form 10-Q|19In January 2024,the Company announced changes to iOS,the App Store and Safari in the European Union to comply with the Digital Markets Act(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 is still subject to potential challenge by the European Commission or 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 European Union are intended to reduce new privacy and security risks the DMA poses to European Union users,many risks will remain.The Company is also currently subject to antitrust investigations 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 the subject of investigations in Europe and other jurisdictions relating to App Store terms and conditions.If such investigations result in adverse findings against the Company,the Company could be exposed to significant fines and may be required to make further changes to its App Store business,all of which could materially adversely affect the Companys business,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 December30,2023 was as follows(in millions,except number of shares,which are reflected in thousands,and per-share amounts):PeriodsTotal Numberof Shares PurchasedAverage PricePaid Per ShareTotal Number of SharesPurchased as Part of PubliclyAnnounced Plans or ProgramsApproximate Dollar Value ofShares That May Yet Be PurchasedUnder the Plans or Programs(1)October 1,2023 to November 4,2023:August 2023 ASRs 6,498(2)6,498 Open market and privately negotiated purchases 45,970$174.03 45,970 November 5,2023 to December 2,2023:Open market and privately negotiated purchases 33,797$187.14 33,797 December 3,2023 to December 30,2023:Open market and privately negotiated purchases 31,782$194.29 31,782 Total 118,047$53,569(1)As of December30,2023,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$36.4 billion had been utilized.The program does not obligate the Company to acquire a minimum amount of shares.Under the program,shares may be repurchased in privately negotiated or open market transactions,including under plans complying with Rule 10b5-1 under the Exchange Act.(2)In August 2023,the Company entered into accelerated share repurchase agreements(“ASRs”)to purchase up to a total of$5.0 billion of the Companys common stock.In October 2023,the purchase periods for these ASRs ended and an additional 6 million shares were delivered and retired.In total,29 million shares were delivered under these ASRs at an average repurchase price of$174.93 per share.Apple Inc.|Q1 2024 Form 10-Q|20Item 3.Defaults Upon Senior SecuritiesNone.Item 4.Mine Safety DisclosuresNot applicable.Item 5.Other InformationInsider Trading ArrangementsOn November 11,2023 and November 27,2023,respectively,Luca Maestri,the Companys Senior Vice President and Chief Financial Officer,and Katherine L.Adams,the Companys Senior Vice President and General Counsel,each entered into a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)under the Exchange Act.The plans provide for the sale of all shares vested during the duration of the plans pursuant to certain equity awards granted to Mr.Maestri and Ms.Adams,respectively,excluding any shares withheld by the Company to satisfy income tax withholding and remittance obligations.Mr.Maestris plan will expire on December 31,2024,and Ms.Adamss plan will expire on November 1,2024,subject to early termination for certain specified events set forth in the plans.Item 6.ExhibitsIncorporated by ReferenceExhibitNumberExhibit DescriptionFormExhibitFiling Date/Period End Date31.1*Rule 13a-14(a)/15d-14(a)Certification of Chief Executive Officer.31.2*Rule 13a-14(a)/15d-14(a)Certification of Chief Financial Officer.32.1*Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.101*Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I,Item 1,“Financial Statements”of this Quarterly Report on Form 10-Q.104*Inline XBRL for the cover page of this Quarterly Report on Form 10-Q,included in the Exhibit 101 Inline XBRL Document Set.*Filed herewith.*Furnished herewith.Apple Inc.|Q1 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:February1,2024Apple Inc.By:/s/Luca MaestriLuca MaestriSenior Vice President,Chief Financial OfficerApple Inc.|Q1 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:February1,2024By:/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:February1,2024By:/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 December30,2023 fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Apple Inc.at the dates and for the periods indicated.Date:February1,2024By:/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 December30,2023 fully complies with the requirements of Section 13(a)or 15(d)of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Apple Inc.at the dates and for the periods indicated.Date:February1,2024By:/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.
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Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549_FORM 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 28,2024ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number:0-23985 NVIDIA CORPORATION(Exact name of registrant as specified in its charter)Delaware94-3177549(State or other jurisdiction of(I.R.S.Employerincorporation or organization)Identification No.)2788 San Tomas Expressway,Santa Clara,California95051 (Address of principal executive offices)(Zip Code)Registrants telephone number,including area code:(408)486-2000Securities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock,$0.001 par value per shareNVDAThe Nasdaq Global Select MarketSecurities registered pursuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes No 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 the preceding 12 months(or for such shorterperiod 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 thepreceding 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 providedpursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section 404(b)ofthe Sarbanes-Oxley Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issued its audit report.If securities are registered pursuant to Section 12(b)of the Act,indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previouslyissued financial statements.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants executive officers duringthe relevant recovery period pursuant to 240.10D-1(b).Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).Yes No The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 28,2023 was approximately$1.1 trillion(based on the closing sales price of the registrants common stock asreported by the Nasdaq Global Select Market on July 28,2023).This calculation excludes 105 million shares held by directors and executive officers of the registrant.This calculation does not exclude sharesheld by such organizations whose ownership exceeds 5%of the registrants outstanding common stock that have represented to the registrant that they are registered investment advisers or investmentcompanies registered under section 8 of the Investment Company Act of 1940.The number of shares of common stock outstanding as of February 16,2024 was 2.5 billion.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrants Proxy Statement for its 2024 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after theend of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III,Items 10-14 of this Annual Report on Form 10-K.Table of ContentsNVIDIA CorporationTable of Contents Page Part I Item 1.Business 4Item 1A.Risk Factors 13Item 1B.Unresolved Staff Comments 31Item 1CCybersecurity 31Item 2.Properties 32Item 3.Legal Proceedings 32Item 4.Mine Safety Disclosures 32 Part II Item 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities 32Item 6.Reserved33Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations 34Item 7A.Quantitative and Qualitative Disclosures About Market Risk 43Item 8.Financial Statements and Supplementary Data 44Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 44Item 9A.Controls and Procedures 44Item 9B.Other Information 45Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections45 Part III Item 10.Directors,Executive Officers and Corporate Governance 45Item 11.Executive Compensation 46Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters46Item 13.Certain Relationships and Related Transactions,and Director Independence46Item 14.Principal Accountant Fees and Services 46 Part IV Item 15.Exhibit and Financial Statement Schedules 47Item 16.Form 10-K Summary 83Signatures 842Table of ContentsWhere You Can Find More InformationInvestors and others should note that we announce material financial information to our investors using our investor relations website,press releases,SECfilings and public conference calls and webcasts.We also use the following social media channels as a means of disclosing information about the company,ourproducts,our planned financial and other announcements and attendance at upcoming investor and industry conferences,and other matters and for complyingwith our disclosure obligations under Regulation FD:NVIDIA X Account(https:/ Corporate Blog(http:/)NVIDIA Facebook Page(https:/ LinkedIn Page(http:/ Instagram Page(https:/ addition,investors and others can view NVIDIA videos on YouTube(https:/www.YouT information we post through these social media channels may be deemed material.Accordingly,investors should monitor these accounts and the blog,inaddition to following our press releases,SEC filings and public conference calls and webcasts.This list may be updated from time to time.The information wepost through these channels is not a part of this Annual Report on Form 10-K.These channels may be updated from time to time on NVIDIAs investor relationswebsite.Forward-Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements which are based on our managements beliefs and assumptions and on informationcurrently available to our management.In some cases,you can identify forward-looking statements by terms such as“may,”“will,”“should,”“could,”“goal,”“would,”“expect,”“plan,”“anticipate,”“believe,”“estimate,”“project,”“predict,”“potential,”and similar expressions intended to identify forward-lookingstatements.These statements involve known and unknown risks,uncertainties and other factors,which may cause our actual results,performance,time framesor achievements to be materially different from any future results,performance,time frames or achievements expressed or implied by the forward-lookingstatements.We discuss many of these risks,uncertainties,and other factors in this Annual Report on Form 10-K in greater detail under the heading“RiskFactors.”Given these risks,uncertainties,and other factors,you should not place undue reliance on these forward-looking statements.Also,these forward-looking statements represent our estimates and assumptions only as of the date of this filing.You should read this Annual Report on Form 10-K completely andwith the understanding that our actual future results may be materially different from what we expect.We hereby qualify our forward-looking statements by thesecautionary statements.Except as required by law,we assume no obligation to update these forward-looking statements publicly,or to update the reasons actualresults could differ materially from those anticipated in these forward-looking statements,even if new information becomes available in the future.All references to“NVIDIA,”“we,”“us,”“our,”or the“Company”mean NVIDIA Corporation and its subsidiaries.In addition,statements that“we believe”and similar statements reflect our beliefs and opinions on the relevant subject.These statements are based uponinformation available to us as of the filing date of this Annual Report on Form 10-K,and while we believe such information forms a reasonable basis for suchstatements,such information may be limited or incomplete,and our statements should not be read to indicate that we have conducted an exhaustive inquiry into,or review of,all potentially available relevant information.These statements are inherently uncertain and investors are cautioned not to unduly rely upon thesestatements.2024 NVIDIA Corporation.All rights reserved.3Table of ContentsPart IItem 1.BusinessOur CompanyNVIDIA pioneered accelerated computing to help solve the most challenging computational problems.NVIDIA is now a full-stack computing infrastructurecompany with data-center-scale offerings that are reshaping industry.Our full-stack includes the foundational CUDA programming model that runs on all NVIDIA GPUs,as well as hundreds of domain-specific software libraries,software development kits,or SDKs,and Application Programming Interfaces,or APIs.This deep and broad software stack accelerates the performance andeases the deployment of NVIDIA accelerated computing for computationally intensive workloads such as artificial intelligence,or AI,model training andinference,data analytics,scientific computing,and 3D graphics,with vertical-specific optimizations to address industries ranging from healthcare and telecom toautomotive and manufacturing.Our data-center-scale offerings are comprised of compute and networking solutions that can scale to tens of thousands of GPU-accelerated serversinterconnected to function as a single giant computer;this type of data center architecture and scale is needed for the development and deployment of modernAI applications.The GPU was initially used to simulate human imagination,enabling the virtual worlds of video games and films.Today,it also simulates human intelligence,enabling a deeper understanding of the physical world.Its parallel processing capabilities,supported by thousands of computing cores,are essential for deeplearning algorithms.This form of AI,in which software writes itself by learning from large amounts of data,can serve as the brain of computers,robots and self-driving cars that can perceive and understand the world.GPU-powered AI solutions are being developed by thousands of enterprises to deliver services andproducts that would have been immensely difficult or even impossible with traditional coding.Examples include generative AI,which can create new contentsuch as text,code,images,audio,video,and molecule structures,and recommendation systems,which can recommend highly relevant content such asproducts,services,media or ads using deep neural networks trained on vast datasets that capture the user preferences.NVIDIA has a platform strategy,bringing together hardware,systems,software,algorithms,libraries,and services to create unique value for the markets weserve.While the computing requirements of these end markets are diverse,we address them with a unified underlying architecture leveraging our GPUs andnetworking and software stacks.The programmable nature of our architecture allows us to support several multi-billion-dollar end markets with the sameunderlying technology by using a variety of software stacks developed either internally or by third-party developers and partners.The large and growing numberof developers and installed base across our platforms strengthens our ecosystem and increases the value of our platform to our customers.Innovation is at our core.We have invested over$45.3 billion in research and development since our inception,yielding inventions that are essential to moderncomputing.Our invention of the GPU in 1999 sparked the growth of the PC gaming market and redefined computer graphics.With our introduction of the CUDAprogramming model in 2006,we opened the parallel processing capabilities of our GPU to a broad range of compute-intensive applications,paving the way forthe emergence of modern AI.In 2012,the AlexNet neural network,trained on NVIDIA GPUs,won the ImageNet computer image recognition competition,marking the“Big Bang”moment of AI.We introduced our first Tensor Core GPU in 2017,built from the ground-up for the new era of AI,and our first autonomousdriving system-on-chips,or SoC,in 2018.Our acquisition of Mellanox in 2020 expanded our innovation canvas to include networking and led to the introductionof a new processor class the data processing unit,or DPU.Over the past 5 years,we have built full software stacks that run on top of our GPUs and CUDA tobring AI to the worlds largest industries,including NVIDIA DRIVE stack for autonomous driving,Clara for healthcare,and Omniverse for industrial digitalization;and introduced the NVIDIA AI Enterprise software essentially an operating system for enterprise AI applications.In 2023,we introduced our first data centerCPU,Grace,built for giant-scale AI and high-performance computing.With a strong engineering culture,we drive fast,yet harmonized,product and technologyinnovations in all dimensions of computing including silicon,systems,networking,software and algorithms.More than half of our engineers work on software.The worlds leading cloud service providers,or CSPs,and consumer internet companies use our data center-scale accelerated computing platforms to enable,accelerate or enrich the services they deliver to billions of end users,including AI solutions and assistants,search,recommendations,social networking,onlineshopping,live video,and translation.Enterprises and startups across a broad range of industries use our accelerated computing platforms to build new generative AI-enabled products and services,or to dramatically accelerate and reduce the costs of their workloads and workflows.The enterprise software industry uses them for new AI assistants andchatbots;the transportation industry for autonomous driving;the healthcare industry for accelerated and computer-aided drug discovery;and the financialservices industry for customer support and fraud detection.4Table of ContentsResearchers and developers use our computing solutions to accelerate a wide range of important applications,from simulating molecular dynamics to climateforecasting.With support for more than 3,500 applications,NVIDIA computing enables some of the most promising areas of discovery,from climate prediction tomaterials science and from wind tunnel simulation to genomics.Including GPUs and networking,NVIDIA powers over 75%of the supercomputers on the globalTOP500 list,including 24 of the top 30 systems on the Green500 list.Gamers choose NVIDIA GPUs to enjoy immersive,increasingly cinematic virtual worlds.In addition to serving the growing number of gamers,the market for PCGPUs is expanding because of the burgeoning population of live streamers,broadcasters,artists,and creators.With the advent of generative AI,we expect abroader set of PC users to choose NVIDIA GPUs for running generative AI applications locally on their PC,which is critical for privacy,latency,and cost-sensitiveAI applications.Professional artists,architects and designers use NVIDIA partner products accelerated with our GPUs and software platform for a range of creative and designuse cases,such as creating visual effects in movies or designing buildings and products.In addition,generative AI is expanding the market for our workstation-class GPUs,as more enterprise customers develop and deploy AI applications with their data on-premises.Headquartered in Santa Clara,California,NVIDIA was incorporated in California in April 1993 and reincorporated in Delaware in April 1998.Our BusinessesWe report our business results in two segments.The Compute&Networking segment is comprised of our Data Center accelerated computing platforms and end-to-end networking platforms including Quantumfor InfiniBand and Spectrum for Ethernet;our NVIDIA DRIVE automated-driving platform and automotive development agreements;Jetson robotics and otherembedded platforms;NVIDIA AI Enterprise and other software;and DGX Cloud software and services.The Graphics segment includes GeForce GPUs for gaming and PCs,the GeForce NOW game streaming service and related infrastructure;Quadro/NVIDIARTX GPUs for enterprise workstation graphics;virtual GPU,or vGPU,software for cloud-based visual and virtual computing;automotive platforms forinfotainment systems;and Omniverse Enterprise software for building and operating metaverse and 3D internet applications.Our MarketsWe specialize in markets where our computing platforms can provide tremendous acceleration for applications.These platforms incorporate processors,interconnects,software,algorithms,systems,and services to deliver unique value.Our platforms address four large markets where our expertise is critical:DataCenter,Gaming,Professional Visualization,and Automotive.Data CenterThe NVIDIA Data Center platform is focused on accelerating the most compute-intensive workloads,such as AI,data analytics,graphics and scientificcomputing,delivering significantly better performance and power efficiency relative to conventional CPU-only approaches.It is deployed in cloud,hyperscale,on-premises and edge data centers.The platform consists of compute and networking offerings typically delivered to customers as systems,subsystems,ormodules,along with software and services.Our compute offerings include supercomputing platforms and servers,bringing together our energy efficient GPUs,DPUs,interconnects,and fully optimized AIand high-performance computing,or HPC,software stacks.In addition,they include NVIDIA AI Enterprise software;our DGX Cloud service;and a growing bodyof acceleration libraries,APIs,SDKs,and domain-specific application frameworks.Our networking offerings include end-to-end platforms for InfiniBand and Ethernet,consisting of network adapters,cables,DPUs,and switch systems,as well asa full software stack.This has enabled us to architect data center-scale computing platforms that can interconnect thousands of compute nodes with high-performance networking.While historically the server was the unit of computing,as AI and HPC workloads have become extremely large spanning thousands ofcompute nodes,the data center has become the new unit of computing,with networking as an integral part.Our end customers include the worlds leading public cloud and consumer internet companies,thousands of enterprises and startups,and public sector entities.We work with industry leaders to help build or transform their applications and data center infrastructure.Our direct customers include original equipmentmanufacturers,or OEMs,original device manufacturers,or ODMs,system integrators and distributors which we partner with to help bring our products tomarket.We also have partnerships in automotive,healthcare,financial services,manufacturing,and retail among others,to accelerate the adoption of AI.5Table of ContentsAt the foundation of the NVIDIA accelerated computing platform are our GPUs,which excel at parallel workloads such as the training and inferencing of neuralnetworks.They are available in the NVIDIA accelerated computing platform and in industry standard servers from every major cloud provider and server maker.Beyond GPUs,our data center platform expanded to include DPUs in fiscal year 2022 and CPUs in fiscal year 2024.We can optimize across the entirecomputing,networking and storage stack to deliver data center-scale computing solutions.While our approach starts with powerful chips,what makes it a full-stack computing platform is our large body of software,including the CUDA parallelprogramming model,the CUDA-X collection of acceleration libraries,APIs,SDKs,and domain-specific application frameworks.In addition to software delivered to customers as an integral part of our data center computing platform,we offer paid licenses to NVIDIA AI Enterprise,acomprehensive suite of enterprise-grade AI software and NVIDIA vGPU software for graphics-rich virtual desktops and workstations.In fiscal year 2024,we launched the NVIDIA DGX Cloud,an AI-training-as-a-service platform which includes cloud-based infrastructure and software for AI,customizable pretrained AI models,and access to NVIDIA experts.We have partnered with leading cloud service providers to host this service in their datacenters.GamingGaming is the largest entertainment industry,with PC gaming as the predominant platform.Many factors propel its growth,including new high production valuegames and franchises,the continued rise of competitive gaming,or eSports,social connectivity and the increasing popularity of game streamers,modders,orgamers who remaster games,and creators.Our gaming platforms leverage our GPUs and sophisticated software to enhance the gaming experience with smoother,higher quality graphics.We developedNVIDIA RTX to bring next generation graphics and AI to games.NVIDIA RTX features ray tracing technology for real-time,cinematic-quality rendering.Raytracing,which has long been used for special effects in the movie industry,is a computationally intensive technique that simulates the physical behavior of lightto achieve greater realism in computer-generated scenes.NVIDIA RTX also features deep learning super sampling,or NVIDIA DLSS,our AI technology thatboosts frame rates while generating beautiful,sharp images for games.RTX GPUs will also accelerate a new generation of AI applications.With an installedbase of over 100 million AI capable PCs,more than 500 RTX AI-enabled applications and games,and a robust suite of development tools,RTX is already the AIPC leader.Our products for the gaming market include GeForce RTX and GeForce GTX GPUs for gaming desktop and laptop PCs,GeForce NOW cloud gaming forplaying PC games on underpowered devices,as well as SoCs and development services for game consoles.Professional VisualizationWe serve the Professional Visualization market by working closely with independent software vendors,or ISVs,to optimize their offerings for NVIDIA GPUs.OurGPU computing platform enhances productivity and introduces new capabilities for critical workflows in many fields,such as design and manufacturing anddigital content creation.Design and manufacturing encompass computer-aided design,architectural design,consumer-products manufacturing,medicalinstrumentation,and aerospace.Digital content creation includes professional video editing and post-production,special effects for films,and broadcast-television graphics.The NVIDIA RTX platform makes it possible to render film-quality,photorealistic objects and environments with physically accurate shadows,reflections andrefractions using ray tracing in real-time.Many leading 3D design and content creation applications developed by our ecosystem partners now support RTX,allowing professionals to accelerate and transform their workflows with NVIDIA RTX GPUs and software.We offer NVIDIA Omniverse as a development platform and operating system for building virtual world simulation applications,available as a softwaresubscription for enterprise use and free for individual use.Industrial enterprises are adopting Omniverses 3D and simulation technologies to digitalize theircomplex physical assets,processes,and environments building digital twins of factories,real time 3D product configurators,testing and validating autonomousrobots and vehicles,powered by NVIDIA accelerated computing infrastructure on-premises and in the cloud.AutomotiveAutomotive market is comprised of platform solutions for automated driving and in-vehicle cockpit computing.Leveraging our technology leadership in AI andbuilding on our long-standing automotive relationships,we are delivering a complete end-to-end solution for the AV market under the DRIVE Hyperion brand.Wehave demonstrated multiple applications of AI within the car:AI can drive the car itself as a pilot in fully autonomous mode or it can also be a co-pilot,assistingthe human driver while creating a safer driving experience.6Table of ContentsWe are working with several hundred partners in the automotive ecosystem including automakers,truck makers,tier-one suppliers,sensor manufacturers,automotive research institutions,HD mapping companies,and startups to develop and deploy AI systems for self-driving vehicles.Our unified AI computingarchitecture starts with training deep neural networks using our Data Center computing solutions,and then running a full perception,fusion,planning,and controlstack within the vehicle on the NVIDIA DRIVE Hyperion platform.DRIVE Hyperion consists of the high-performance,energy efficient DRIVE AGX computinghardware,a reference sensor set that supports full self-driving capability as well as an open,modular DRIVE software platform for autonomous driving,mapping,and parking services,and intelligent in-vehicle experiences.In addition,we offer a scalable data center-based simulation solution,NVIDIA DRIVE Sim,based on NVIDIA Omniverse software,for digital cockpitdevelopment,as well as for testing and validating a self-driving platform.Our unique end-to-end,software-defined approach is designed for continuousinnovation and continuous development,enabling cars to receive over-the-air updates to add new features and capabilities throughout the life of a vehicle.Business StrategiesNVIDIAs key strategies that shape our overall business approach include:Advancing the NVIDIA accelerated computing platform.Our accelerated computing platform can solve complex problems in significantly less time and withlower power consumption than alternative computational approaches.Indeed,it can help solve problems that were previously deemed unsolvable.We work todeliver continued performance leaps that outpace Moores Law by leveraging innovation across the architecture,chip design,system,interconnect,and softwarelayers.This full-stack innovation approach allows us to deliver order-of-magnitude performance advantages relative to legacy approaches in our target markets,which include Data Center,Gaming,Professional Visualization,and Automotive.While the computing requirements of these end markets are diverse,weaddress them with a unified underlying architecture leveraging our GPUs,CUDA and networking technologies as the fundamental building blocks.Theprogrammable nature of our architecture allows us to make leveraged investments in research and development:we can support several multi-billion-dollar endmarkets with shared underlying technology by using a variety of software stacks developed either internally or by third-party developers and partners.We utilizethis platform approach in each of our target markets.Extending our technology and platform leadership in AI.We provide a complete,end-to-end accelerated computing platform for AI,addressing both trainingand inferencing.This includes full-stack data center-scale compute and networking solutions across processing units,interconnects,systems,and software.Ourcompute solutions include all three major processing units in AI servers GPUs,CPUs,and DPUs.GPUs are uniquely suited to AI,and we will continue to addAI-specific features to our GPU architecture to further extend our leadership position.In addition,we offer DGX Cloud,an AI-training-as-a-service platform,andNeMo a complete solution for building enterprise-ready Large Language Models,or LLMs,using open source and proprietary LLMs created by NVIDIA andthird parties.Our AI technology leadership is reinforced by our large and expanding ecosystem in a virtuous cycle.Our computing platforms are available fromvirtually every major server maker and CSP,as well as on our own AI supercomputers.There are over 4.7 million developers worldwide using CUDA and ourother software tools to help deploy our technology in our target markets.We evangelize AI through partnerships with hundreds of universities and thousands ofstartups through our Inception program.Additionally,our Deep Learning Institute provides instruction on the latest techniques on how to design,train,and deployneural networks in applications using our accelerated computing platform.Extending our technology and platform leadership in computer graphics.We believe that computer graphics infused with AI is fundamental to thecontinued expansion and evolution of computing.We apply our research and development resources to enhance the user experience for consumerentertainment and professional visualization applications and create new virtual world and simulation capabilities.Our technologies are instrumental in drivingthe gaming,design,and creative industries forward,as developers leverage our libraries and algorithms to deliver an optimized experience on our GeForce andNVIDIA RTX platforms.Our computer graphics platforms leverage AI end-to-end,from the developer tools and cloud services to the Tensor Cores included in allRTX-class GPUs.For example,NVIDIA Avatar Cloud Engine,or ACE,is a suite of technologies that help developers bring digital avatars to life with generativeAI,running in the cloud or locally on the PC.GeForce Experience enhances each gamers experience by optimizing their PCs settings,as well as enabling therecording and sharing of gameplay.Our Studio drivers enhance and accelerate a number of popular creative applications.Omniverse is real-time 3D designcollaboration and virtual world simulation software that empowers artists,designers,and creators to connect and collaborate in leading design applications.Wealso enable interactive graphics applications-such as games,movie and photo editing and design software-to be accessed by almost any device,almostanywhere,through our cloud platforms such as vGPU for enterprise and GeForce NOW for gaming.Advancing the leading autonomous vehicle platform.We believe the advent of autonomous vehicles,or AV,and electric vehicles,or EV,is revolutionizingthe transportation industry.The algorithms required for autonomous driving-such as perception,localization,and planning-are too complex for legacy hand-coded approaches and will use multiple neural networks instead.In addition,EV makers are looking for next-generation centralized car computers that integratea wide range of intelligent functions into a single AI compute platform.Therefore,we provide an AI-based hardware and software solution,designed andimplemented from the ground up based on automotive safety standards,for the AV and EV market under the DRIVE brand,which we are bringing to marketthrough our partnerships with automotive OEMs,7Table of Contentstier-1 suppliers,and start-ups.Our AV solution also includes the GPU-based hardware required to train the neural networks before their in-vehicle deployment,as well as to re-simulate their operation prior to any over-the-air software updates.We believe our comprehensive,top-to-bottom and end-to-end approach willenable the transportation industry to solve the complex problems arising from the shift to autonomous driving.Leveraging our intellectual property,or IP.We believe our IP is a valuable asset that can be accessed by our customers and partners through license anddevelopment agreements when they desire to build such capabilities directly into their own products or have us do so through a custom development.Suchlicense and development arrangements can further enhance the reach of our technology.Sales and MarketingOur worldwide sales and marketing strategy is key to achieving our objective of providing markets with our high-performance and efficient computing platformsand software.Our sales and marketing teams,located across our global markets,work closely with end customers and various industry ecosystems through ourpartner network.Our partner network incorporates global,regional and specialized CSPs,OEMs,ODMs,system integrators,independent software vendors,orISVs,add-in board manufacturers,or AIBs,distributors,automotive manufacturers and tier-1 automotive suppliers,and other ecosystem participants.Members of our sales team have technical expertise and product and industry knowledge.We also employ a team of application engineers and solutionarchitects to provide pre-sales assistance to our partner network in designing,testing,and qualifying system designs that incorporate our platforms.Forexample,our solution architects work with CSPs to provide pre-sales assistance to optimize their hardware and software infrastructure for generative AI and LLMtraining and deployment.They also work with foundation model and enterprise software developers to optimize the training and fine-tuning of their models andservices,and with enterprise end-users,often in collaboration with their global system integrator of choice,to fine-tune models and build AI applications.Webelieve that the depth and quality of our design support are key to improving our partner networks time-to-market,maintaining a high level of customersatisfaction,and fostering relationships that encourage our end customers and partner network to use the next generation of our products within each platform.To encourage the development of applications optimized for our platforms and software,we seek to establish and maintain strong relationships in the softwaredevelopment community.Engineering and marketing personnel engage with key software developers to promote and discuss our platforms,as well as toascertain individual product requirements and solve technical problems.Our developer program supports the development of AI frameworks,SDKs,and APIs forsoftware applications and game titles that are optimized for our platforms.Our Deep Learning Institute provides in-person and online training for developers inindustries and organizations around the world to build AI and accelerated computing applications that leverage our platforms.SeasonalityOur computing platforms serve a diverse set of markets such as data centers,gaming,professional visualization,and automotive.Our desktop gaming productstypically see stronger revenue in the second half of our fiscal year.Historical seasonality trends may not repeat.ManufacturingWe utilize a fabless and contracting manufacturing strategy,whereby we employ and partner with key suppliers for all phases of the manufacturing process,including wafer fabrication,assembly,testing,and packaging.We use the expertise of industry-leading suppliers that are certified by the InternationalOrganization for Standardization in such areas as fabrication,assembly,quality control and assurance,reliability,and testing.Additionally,we can avoid many ofthe significant costs and risks associated with owning and operating manufacturing operations.While we may directly procure certain raw materials used in theproduction of our products,such as memory,substrates,and a variety of components,our suppliers are responsible for procurement of most raw materials usedin the production of our products.As a result,we can focus our resources on product design,quality assurance,marketing,and customer support.In periods ofgrowth,we may place non-cancellable inventory orders for certain product components in advance of our historical lead times,pay premiums,or providedeposits to secure future supply and capacity and may need to continue to do so.We have expanded our supplier relationships to build redundancy and resilience in our operations to provide long-term manufacturing capacity aligned withgrowing customer demand.Our supply chain is concentrated in the Asia-Pacific region.We utilize foundries,such as Taiwan Semiconductor ManufacturingCompany Limited,or TSMC,and Samsung Electronics Co.,Ltd.,or Samsung,to produce our semiconductor wafers.We purchase memory from MicronTechnology,Inc.,SK Hynix Inc.,and Samsung.We utilize CoWoS technology for semiconductor packaging.We engage with independent subcontractors andcontract manufacturers such as Hon Hai Precision Industry Co.,Ltd.,Wistron Corporation,and Fabrinet to perform assembly,testing and packaging of our finalproducts.8Table of ContentsCompetitionThe market for our products is intensely competitive and is characterized by rapid technological change and evolving industry standards.We believe that theprincipal competitive factors in this market are performance,breadth of product offerings,access to customers and partners and distribution channels,softwaresupport,conformity to industry standard APIs,manufacturing capabilities,processor pricing,and total system costs.We believe that our ability to remaincompetitive will depend on how well we are able to anticipate the features and functions that customers and partners will demand and whether we are able todeliver consistent volumes of our products at acceptable levels of quality and at competitive prices.We expect competition to increase from both existingcompetitors and new market entrants with products that may be lower priced than ours or may provide better performance or additional features not provided byour products.In addition,it is possible that new competitors or alliances among competitors could emerge and acquire significant market share.A significant source of competition comes from companies that provide or intend to provide GPUs,CPUs,DPUs,embedded SoCs,and other accelerated,AIcomputing processor products,and providers of semiconductor-based high-performance interconnect products based on InfiniBand,Ethernet,Fibre Channel,and proprietary technologies.Some of our competitors may have greater marketing,financial,distribution and manufacturing resources than we do and may bemore able to adapt to customers or technological changes.We expect an increasingly competitive environment in the future.Our current competitors include:suppliers and licensors of hardware and software for discrete and integrated GPUs,custom chips and other accelerated computing solutions,includingsolutions offered for AI,such as Advanced Micro Devices,Inc.,or AMD,Huawei Technologies Co.Ltd.,or Huawei,and Intel Corporation,or Intel;large cloud services companies with internal teams designing hardware and software that incorporate accelerated or AI computing functionality as partof their internal solutions or platforms,such as Alibaba Group,Alphabet Inc.,Amazon,Inc.,or Amazon,Baidu,Inc.,Huawei,and Microsoft Corporation,or Microsoft;suppliers of Arm-based CPUs and companies that incorporate hardware and software for CPUs as part of their internal solutions or platforms,such asAmazon,Huawei,and Microsoft;suppliers of hardware and software for SoC products that are used in servers or embedded into automobiles,autonomous machines,and gamingdevices,such as Ambarella,Inc.,AMD,Broadcom Inc.,or Broadcom,Intel,Qualcomm Incorporated,Renesas Electronics Corporation,and Samsung,or companies with internal teams designing SoC products for their own products and services,such as Tesla,Inc.;andnetworking products consisting of switches,network adapters(including DPUs),and cable solutions(including optical modules)include such as AMD,Arista Networks,Broadcom,Cisco Systems,Inc.,Hewlett Packard Enterprise Company,Huawei,Intel,Lumentum Holdings,and Marvell TechnologyGroup as well as internal teams of system vendors and large cloud services companies.Patents and Proprietary RightsWe rely primarily on a combination of patents,trademarks,trade secrets,employee and third-party nondisclosure agreements,and licensing arrangements toprotect our IP in the United States and internationally.Our currently issued patents have expiration dates from February 2024 to August 2043.We havenumerous patents issued,allowed,and pending in the United States and in foreign jurisdictions.Our patents and pending patent applications primarily relate toour products and the technology used in connection with our products.We also rely on international treaties,organizations,and foreign laws to protect our IP.The laws of certain foreign countries in which our products are or may be manufactured or sold,including various countries in Asia,may not protect our productsor IP rights to the same extent as the laws of the United States.This decreased protection makes the possibility of piracy of our technology and products morelikely.We continuously assess whether and where to seek formal protection for innovations and technologies based on such factors as:the location in which our products are manufactured;our strategic technology or product directions in different countries;the degree to which IP laws exist and are meaningfully enforced in different jurisdictions;andthe commercial significance of our operations and our competitors operations in particular countries and regions.We have licensed technology from third parties and expect to continue entering such license agreements.9Table of ContentsGovernment RegulationsOur worldwide business activities are subject to various laws,rules,and regulations of the United States as well as of foreign governments.During the third quarter of fiscal year 2023,the U.S.government,or the USG,announced licensing requirements that,with certain exceptions,impact exports toChina(including Hong Kong and Macau)and Russia of our A100 and H100 integrated circuits,DGX or any other systems or boards which incorporate A100 orH100 integrated circuits.In July 2023,the USG informed us of an additional licensing requirement for a subset of A100 and H100 products destined to certain customers and otherregions,including some countries in the Middle East.In October 2023,the USG announced new and updated licensing requirements that became effective in our fourth quarter of fiscal year 2024 for exports toChina and Country Groups D1,D4,and D5(including but not limited to Saudi Arabia,the United Arab Emirates,and Vietnam,but excluding Israel)of ourproducts exceeding certain performance thresholds,including A100,A800,H100,H800,L4,L40,L40S and RTX 4090.The licensing requirements also apply tothe export of products exceeding certain performance thresholds to a party headquartered in,or with an ultimate parent headquartered in,Country Group D5,including China.On October 23,2023,the USG informed us the licensing requirements were effective immediately for shipments of our A100,A800,H100,H800,and L40S products.Our competitive position has been harmed,and our competitive position and future results may be further harmed in the long term,if there are further changes inthe USGs export controls.Given the increasing strategic importance of AI and rising geopolitical tensions,the USG has changed and may again change theexport control rules at any time and further subject a wider range of our products to export restrictions and licensing requirements,negatively impacting ourbusiness and financial results.In the event of such change,we may be unable to sell our inventory of such products and may be unable to develop replacementproducts not subject to the licensing requirements,effectively excluding us from all or part of the China market,as well as other impacted markets,including theMiddle East.While we work to enhance the resiliency and redundancy of our supply chain,which is currently concentrated in the Asia-Pacific region,new and existing exportcontrols or changes to existing export controls could limit alternative manufacturing locations and negatively impact our business.Refer to“Item 1A.Risk Factors Risks Related to Regulatory,Legal,Our Stock and Other Matters”for a discussion of this potential impact.Compliance with laws,rules,and regulations has not otherwise had a material effect upon our capital expenditures,results of operations,or competitive positionand we do not currently anticipate material capital expenditures for environmental control facilities.Compliance with existing or future governmental regulations,including,but not limited to,those pertaining to IP ownership and infringement,taxes,import and export requirements and tariffs,anti-corruption,businessacquisitions,foreign exchange controls and cash repatriation restrictions,data privacy requirements,competition and antitrust,advertising,employment,productregulations,cybersecurity,environmental,health and safety requirements,the responsible use of AI,climate change,cryptocurrency,and consumer laws,couldincrease our costs,impact our competitive position,and otherwise may have a material adverse impact on our business,financial condition and results ofoperations in subsequent periods.Refer to“Item 1A.Risk Factors”for a discussion of these potential impacts.Sustainability and GovernanceNVIDIA invents computing technologies that improve lives and address global challenges.Our goal is to integrate sound environmental,social,and corporategovernance principles and practices into every aspect of the Company.The Nominating and Corporate Governance Committee of our Board of Directors isresponsible for reviewing and discussing with management our practices related to sustainability and corporate governance.We assess our programs annuallyin consideration of stakeholder expectations,market trends,and business risks and opportunities.These issues are important for our continued businesssuccess and reflect the topics of highest concern to NVIDIA and our stakeholders.The following section and the Human Capital Management Section below provide an overview of our principles and practices.More information can be found onour website and in our annual Sustainability Report.Information contained on our website or in our annual Sustainability Report is not incorporated by referenceinto this or any other report we file with the Securities and Exchange Commission,or the SEC.Refer to“Item 1A.Risk Factors”for a discussion of risks anduncertainties we face related to sustainability.Climate ChangeIn the area of environmental sustainability,we address our climate impacts across our product lifecycle and assess risks,including current and emergingregulations and market impacts.In May 2023,we published metrics related to our environmental impact for fiscal year 2023.Fiscal year 2024 metrics are expected to be published in the firsthalf of fiscal year 2025.There has been no material impact to our capital expenditures,results of operations or competitive position associated with globalenvironmental sustainability regulations,compliance,or costs from sourcing renewable energy.By the end of fiscal year 2025,our goal is to purchase10Table of Contentsor generate enough renewable energy to match 100%of our global electricity usage for our offices and data centers.In fiscal year 2023,we increased thepercentage of our total electricity use matched by renewable energy purchases to 44%.By fiscal year 2026,we aim to engage manufacturing supplierscomprising at least 67%of NVIDIAs scope 3 category 1 GHG emissions with goal of effecting supplier adoption of science-based targets.Whether it is creation of technology to power next-generation laptops or designs to support high-performance supercomputers,improving energy efficiency isimportant in our research,development,and design processes.GPU-accelerated computing is inherently more energy efficient than traditional computing formany workloads because it is optimized for throughput,performance per watt,and certain AI workloads.The energy efficiency of our products is evidenced byour continued strong presence on the Green500 list of the most energy-efficient systems.We powered 24 of the top 30 most energy efficient systems,includingthe top supercomputer,on the Green500 list.We plan to build Earth-2,a digital twin of the Earth on NVIDIA AI and NVIDIA Omniverse platforms.Earth-2 will enable scientists,companies,and policy makersto do ultra-high-resolution predictions of the impact of climate change and explore mitigation and adaptation strategies.Human Capital ManagementWe believe that our employees are our greatest assets,and they play a key role in creating long-term value for our stakeholders.As of the end of fiscal year2024,we had approximately 29,600 employees in 36 countries,22,200 were engaged in research and development and 7,400 were engaged in sales,marketing,operations,and administrative positions.The Compensation Committee of our Board of Directors assists in the oversight of policies and strategiesrelating to human capital management.To be competitive and execute our business strategy successfully,we must recruit,develop,and retain talented employees,including qualified executives,scientists,engineers,and technical and non-technical staff.RecruitmentAs the demand for global technical talent continues to be competitive,we have grown our technical workforce and have been successful in attracting top talentto NVIDIA.We have attracted talent globally through our strong employer brand and differentiated hiring strategies for college,professional,and leadershiptalent.Our workforce is 83%technical and 49%hold advanced degrees.Additionally,we have increased focus on diversity recruiting,resulting in an increase inglobal female hiring in each channel.Our own employees help to surface top talent,with over 40%of our new hires in fiscal year 2024 coming from employeereferrals.Development and RetentionTo support employee development,we provide opportunities to learn on-the-job through training courses,targeted development programs,mentoring and peercoaching and ongoing feedback.We have a library of live and on-demand learning experiences that include workshops,panel discussions,and speaker forums.We create learning paths focused on our most common development needs and constantly upgrade our offerings to ensure that our employees are exposed tothe most current content and technologies available.We offer tuition reimbursement programs to subsidize educational programs and advanced certifications.We implemented a career coaching service to provide one-on-one guidance to employees,and encourage internal job mobility.We have implementedspecifically designed mentoring and development programs for women and employees from traditionally underrepresented groups to ensure widespreadreadiness for future advancement.To evaluate employee sentiment and engagement,we use pulse surveys,a suggestion box,and an anonymous third-party platform.Pulse surveys help us gaininsight into employee experience and provides employee-generated ideas so that we can take targeted action.The suggestion box is an always-on,interactivetool where employees share their thoughts about making our company a better place to work.The anonymous third-party platform is designed to protect theidentity of the reporter and provide a mechanism for reporters to follow an investigation and receive responses.We want NVIDIA to be a place where people can build their careers over their lifetime.Our employees tend to come and stay.In fiscal year 2024,our overallturnover rate was 2.7%.Compensation,Benefits,and Well-BeingOur compensation program rewards performance and is structured to encourage employees to invest in the Companys future.Employees receive equity,exceptwhere unavailable due to local regulations,that is tied to the value of our stock price and vests over time to retain employees while simultaneously aligning theirinterests with those of our shareholders.We offer comprehensive benefits to support our employees and their families physical health,well-being,and financial health.Programs include 401(k)programs in the U.S.,statutory and supplemental pension programs outside the U.S.,our employee stock purchase program,flexible work hours,and time offpolicies to address mental health,stress,and time-management challenges.We evaluate our benefit offerings globally and aim to provide comparable supportacross the regions where we operate.We are committed to providing tailored benefits based on the needs of our Community Resource Groups and continuingour support for parents,both new birth parents and those who wish to become parents.11Table of ContentsOur support is enhanced during times of crisis,such as war or economic volatility,to take care of our existing team of world-class talent and their families.Diversity,Inclusion,and BelongingWe believe that diverse teams fuel innovation,and we are committed to creating an inclusive culture that supports all employees.When recruiting for new talent or developing our current employees,we strive to build a diverse talent pipeline that includes those underrepresented in thetechnology field,including women,Black/African American,and Hispanic/Latino candidates.To this end,we have been:Partnering with institutions and professional organizations serving historically underrepresented communities;Embedding dedicated recruiting teams to business areas to shepherd underrepresented candidates through the interview process and find internalopportunities;Supporting the development of women employees through programs aimed at building a pipeline of future leaders;Providing peer support and executive sponsors for our internal community resource groups;Providing training and education to managers and peers on fostering supportive environments and recruiting for diversity;Track equity and parity in retention,promotions,pay,and employee engagement scores;andMeasuring year over year progress and providing leadership visibility on diversity efforts.As of the end of fiscal year 2024,our global workforce was 79%male,20male,and 1%not declared,with 6%of our workforce in the United Statescomposed of Black or African American and Hispanic or Latino employees.Flexible Working EnvironmentWe support a flexible work environment,understanding that many employees want the ability to work from home under certain conditions.This flexibilitysupports diverse hiring,retention,and employee engagement,which we believe makes NVIDIA a great place to work.During fiscal year 2025,we will continue to have a flexible work environment and maintain our company wide 2-days off a quarter for employees to rest andrecharge.Information About Our Executive OfficersThe following sets forth certain information regarding our executive officers,their ages,and positions as of February 16,2024:NameAgePositionJen-Hsun Huang60President and Chief Executive OfficerColette M.Kress56Executive Vice President and Chief Financial OfficerAjay K.Puri69Executive Vice President,Worldwide Field OperationsDebora Shoquist69Executive Vice President,OperationsTimothy S.Teter57Executive Vice President and General CounselJen-Hsun Huang co-founded NVIDIA in 1993 and has served as our President,Chief Executive Officer,and a member of the Board of Directors since ourinception.From 1985 to 1993,Mr.Huang was employed at LSI Logic Corporation,a computer chip manufacturer,where he held a variety of positions includingas Director of Coreware,the business unit responsible for LSIs SOC.From 1983 to 1985,Mr.Huang was a microprocessor designer for AMD,a semiconductorcompany.Mr.Huang holds a B.S.E.E.degree from Oregon State University and an M.S.E.E.degree from Stanford University.Colette M.Kress joined NVIDIA in 2013 as Executive Vice President and Chief Financial Officer.Prior to NVIDIA,Ms.Kress most recently served as SeniorVice President and Chief Financial Officer of the Business Technology and Operations Finance organization at Cisco Systems,Inc.,a networking equipmentcompany,since 2010.At Cisco,Ms.Kress was responsible for financial strategy,planning,reporting and business development for all business segments,engineering and operations.From 1997 to 2010 Ms.Kress held a variety of positions at Microsoft,a software company,including,beginning in 2006,ChiefFinancial Officer of the Server and Tools division,where Ms.Kress was responsible for financial12Table of Contentsstrategy,planning,reporting and business development for the division.Prior to joining Microsoft,Ms.Kress spent eight years at Texas Instruments Incorporated,a semiconductor company,where she held a variety of finance positions.Ms.Kress holds a B.S.degree in Finance from University of Arizona and an M.B.A.degree from Southern Methodist University.Ajay K.Puri joined NVIDIA in 2005 as Senior Vice President,Worldwide Sales and became Executive Vice President,Worldwide Field Operations in 2009.Priorto NVIDIA,he held positions in sales,marketing,and general management over a 22-year career at Sun Microsystems,Inc.,a computing systems company.Mr.Puri previously held marketing,management consulting,and product development positions at Hewlett-Packard,an information technology company,Booz AllenHamilton Inc.,a management and technology consulting company,and Texas Instruments Incorporated.Mr.Puri holds a B.S.E.E.degree from the University ofMinnesota,an M.S.E.E.degree from the California Institute of Technology and an M.B.A.degree from Harvard Business School.Debora Shoquist joined NVIDIA in 2007 as Senior Vice President of Operations and in 2009 became Executive Vice President of Operations.Prior to NVIDIA,Ms.Shoquist served from 2004 to 2007 as Executive Vice President of Operations at JDS Uniphase Corp.,a provider of communications test and measurementsolutions and optical products for the telecommunications industry.She served from 2002 to 2004 as Senior Vice President and General Manager of the Electro-Optics business at Coherent,Inc.,a manufacturer of commercial and scientific laser equipment.Previously,she worked at Quantum Corp.,a data protectioncompany,as President of the Personal Computer Hard Disk Drive Division,and at Hewlett-Packard.Ms.Shoquist holds a B.S.degree in Electrical Engineeringfrom Kansas State University and a B.S.degree in Biology from Santa Clara University.Timothy S.Teter joined NVIDIA in 2017 as Senior Vice President,General Counsel and Secretary and became Executive Vice President,General Counsel andSecretary in February 2018.Prior to NVIDIA,Mr.Teter spent more than two decades at the law firm of Cooley LLP,where he focused on litigating patent andtechnology related matters.Prior to attending law school,he worked as an engineer at Lockheed Missiles and Space Company,an aerospace company.Mr.Teter holds a B.S.degree in Mechanical Engineering from the University of California at Davis and a J.D.degree from Stanford Law School.Available InformationOur annual reports on Form 10-K,quarterly reports on Form 10-Q,current reports on Form 8-K and,if applicable,amendments to those reports filed or furnishedpursuant to Section 13(a)or 15(d)of the Securities Exchange Act of 1934,as amended,or the Exchange Act,are available free of charge on or through ourwebsite,http:/,as soon as reasonably practicable after we electronically file such material with,or furnish it to,the Securities and ExchangeCommission,or the SEC.The SECs website,http:/www.sec.gov,contains reports,proxy and information statements,and other information regarding issuersthat file electronically with the SEC.Our web site and the information on it or connected to it are not a part of this Annual Report on Form 10-K.Item 1A.Risk FactorsThe following risk factors should be considered in addition to the other information in this Annual Report on Form 10-K.The following risks could harm ourbusiness,financial condition,results of operations or reputation,which could cause our stock price to decline.Additional risks,trends and uncertainties notpresently known to us or that we currently believe are immaterial may also harm our business,financial condition,results of operations or reputation.Risk Factors SummaryRisks Related to Our Industry and MarketsFailure to meet the evolving needs of our industry may adversely impact our financial results.Competition could adversely impact our market share and financial results.Risks Related to Demand,Supply and ManufacturingFailure to estimate customer demand accurately has led and could lead to mismatches between supply and demand.Dependency on third-party suppliers and their technology to manufacture,assemble,test,or package our products reduces our control over productquantity and quality,manufacturing yields,and product delivery schedules and could harm our business.Defects in our products have caused and could cause us to incur significant expenses to remediate and could damage our business.Risks Related to Our Global Operating BusinessAdverse economic conditions may harm our business.13Table of ContentsInternational sales and operations are a significant part of our business,which exposes us to risks that could harm our business.Product,system security and data breaches and cyber-attacks could disrupt our operations and adversely affect our financial condition,stock price andreputation.Business disruptions could harm our operations and financial results.Climate change may have a long-term impact on our business.We may not be able to realize the potential benefits of business investments or acquisitions,nor successfully integrate acquisition targets.A significant amount of our revenue stems from a limited number of partners and distributors and we have a concentration of sales to end customers,and our revenue could be adversely affected if we lose or are prevented from selling to any of these end customers.We may be unable to attract,retain and motivate our executives and key employees.Modification or interruption of our business processes and information systems may disrupt our business,and internal controls.Our operating results have in the past fluctuated and may in the future fluctuate,and if our operating results are below the expectations of securitiesanalysts or investors,our stock price could decline.Risks Related to Regulatory,Legal,Our Stock and Other MattersWe are subject to complex laws,rules and regulations,and political and other actions,which may adversely impact our business.Increased scrutiny from shareholders,regulators,and others regarding our corporate sustainability practices could result in financial,reputational,oroperational harm and liability.Issues relating to the responsible use of our technologies,including AI,may result in reputational or financial harm and liability.Adequately protecting our IP rights could be costly,and our ability to compete could be harmed if we are unsuccessful or if we are prohibited frommaking or selling our products.We are subject to stringent and changing data privacy and security laws,rules,regulations,and other obligations.These areas could damage ourreputation,deter customers,affect product design,or result in legal or regulatory proceedings and liability.Our operating results may be adversely impacted by additional tax liabilities,higher than expected tax rates,changes in tax laws,and other tax-relatedfactors.Our business is exposed to the risks associated with litigation,investigations,and regulatory proceedings.Our indebtedness could adversely affect our financial position and cash flows from operations and prevent us from implementing our strategy or fulfillingour contractual obligations.Delaware law,provisions in our governing documents and our agreement with Microsoft could delay or prevent a change in control.Risk FactorsRisks Related to Our Industry and MarketsFailure to meet the evolving needs of our industry and markets may adversely impact our financial results.Our accelerated computing platforms experience rapid changes in technology,customer requirements,competitive products,and industry standards.Our success depends on our ability to:timely identify industry changes,adapt our strategies,and develop new or enhance and maintain existing products and technologies that meet theevolving needs of these markets,including due to unexpected changes in industry standards or disruptive technological innovation that could renderour products incompatible with products developed by other companies;14Table of Contentsdevelop or acquire new products and technologies through investments in research and development;launch new offerings with new business models including software,services,and cloud solutions,as well as software-,infrastructure-,or platform-as-a-service solutions;expand the ecosystem for our products and technologies;meet evolving and prevailing customer and industry safety,security,reliability expectations,and compliance standards;manage product and software lifecycles to maintain customer and end-user satisfaction;develop,acquire,maintain,and secure access to the internal and external infrastructure needed to scale our business,including sufficient energy forpowering data centers using our products,acquisition integrations,customer support,e-commerce,IP licensing capabilities and cloud service capacity;andcomplete technical,financial,operational,compliance,sales and marketing investments for the above activities.We have invested in research and development in markets where we have a limited operating history,which may not produce meaningful revenue for severalyears,if at all.If we fail to develop or monetize new products and technologies,or if they do not become widely adopted,our financial results could be adverselyaffected.Obtaining design wins may involve a lengthy process and depends on our ability to anticipate and provide features and functionality that customers willdemand.They also do not guarantee revenue.Failure to obtain a design win may prevent us from obtaining future design wins in subsequent generations.Wecannot ensure that the products and technologies we bring to market will provide value to our customers and partners.If we fail any of these key successcriteria,our financial results may be harmed.We have begun offering enterprise customers NVIDIA DGX Cloud services directly and through our network of partners,which include cloud-basedinfrastructure,software and services for training and deploying AI models,and NVIDIA AI Foundations for customizable pretrained AI models.We have partneredwith CSPs to host such software and services in their data centers,and we entered and may continue to enter into multi-year cloud service agreements tosupport these offerings and our research and development activities.The timing and availability of these cloud services has changed and may continue tochange,impacting our revenue,expenses,and development timelines.NVIDIA DGX Cloud services may not be successful and will take time,resources,andinvestment.We also offer or plan to offer standalone software solutions,including NVIDIA AI Enterprise,NVIDIA Omniverse,NVIDIA DRIVE,and several othersoftware solutions.These new business models or strategies may not be successful,and we may fail to sell any meaningful standalone software or services.Wemay incur significant costs and may not achieve any significant revenue from these offerings.Competition could adversely impact our market share and financial results.Our target markets remain competitive,and competition may intensify with expanding and changing product and service offerings,industry standards,customerneeds,new entrants and consolidations.Our competitors products,services and technologies,including those mentioned above in this Annual Report on Form10-K,may be cheaper or provide better functionality or features than ours,which has resulted and may in the future result in lower-than-expected selling pricesfor our products.Some of our competitors operate their own fabrication facilities,and have longer operating histories,larger customer bases,morecomprehensive IP portfolios and patent protections,more design wins,and greater financial,sales,marketing and distribution resources than we do.Thesecompetitors may be able to acquire market share and/or prevent us from doing so,more effectively identify and capitalize upon opportunities in new markets andend-user trends,more quickly transition their products,and impinge on our ability to procure sufficient foundry capacity and scarce input materials during asupply-constrained environment,which could harm our business.Some of our customers have in-house expertise and internal development capabilities similarto some of ours and can use or develop their own solutions to replace those we are providing.For example,others may offer cloud-based services that competewith our AI cloud service offerings,and we may not be able to establish market share sufficient to achieve the scale necessary to meet our business objectives.Ifwe are unable to successfully compete in this environment,demand for our products,services and technologies could decrease and we may not establishmeaningful revenue.Risks Related to Demand,Supply and ManufacturingFailure to estimate customer demand accurately has led and could lead to mismatches between supply and demand.We use third parties to manufacture and assemble our products,and we have long manufacturing lead times.We are not provided guaranteed wafer,componentand capacity supply,and our supply deliveries and production may be non-linear within a quarter or year.If our estimates of customer demand are inaccurate,aswe have experienced in the past,there could be a significant mismatch between supply and demand.This mismatch has resulted in both product shortages andexcess inventory,has varied across our market platforms,and has significantly harmed our financial results.We build finished products and maintain inventory in advance of anticipated demand.While we have in the past entered and may in the future enter into long-term supply and capacity commitments,we may not be able to secure sufficient15Table of Contentscommitments for capacity to address our business needs,or our long-term demand expectations may change.These risks may increase as we shorten ourproduct development cycles,enter new lines of business,or integrate new suppliers or components into our supply chain,creating additional supply chaincomplexity.Additionally,our ability to sell certain products has been and could be impeded if components necessary for the finished products are not availablefrom third parties.This risk may increase as a result of our platform strategy.In periods of shortages impacting the semiconductor industry and/or limited supplyor capacity in our supply chain,the lead times on our orders may be extended.We have previously experienced and may continue to experience extended leadtimes of more than 12 months.We have paid premiums and provided deposits to secure future supply and capacity,which have increased our product costs andmay continue to do so.If our existing suppliers are unable to scale their capabilities to meet our supply needs,we may require additional sources of capacity,which may require additional deposits.We may not have the ability to reduce our supply commitments at the same rate or at all if our revenue declines.Many additional factors have caused and/or could in the future cause us to either underestimate or overestimate our customers future demand for our products,or otherwise cause a mismatch between supply and demand for our products and impact the timing and volume of our revenue,including:changes in product development cycles and time to market;competing technologies and competitor product releases and announcements;changes in business and economic conditions resulting in decreased end demand;sudden or sustained government lockdowns or actions to control case spread of global or local health issues;rapidly changing technology or customer requirements;the availability of sufficient data center capacity and energy for customers to procure;new product introductions and transitions resulting in less demand for existing products;new or unexpected end-use cases;increase in demand for competitive products,including competitive actions;business decisions made by third parties;the demand for accelerated or AI-related cloud services,including our own software and NVIDIA DGX Cloud services;changes that impact the ecosystem for the architectures underlying our products and technologies;the demand for our products;orgovernment actions or changes in governmental policies,such as export controls or increased restrictions on gaming usage.Demand for our data center systems and products surged in fiscal year 2024.Entering fiscal year 2025,we are gathering customer demand indications acrossseveral product transitions.We have demand visibility for our new data center products ramping later in fiscal year 2025.We have increased our supply andcapacity purchases with existing suppliers,added new vendors and entered into prepaid manufacturing and capacity agreements.These increased purchasevolumes,the number of suppliers,and the integration of new vendors into our supply chain may create more complexity and execution risk.We may continue toenter into new supplier and capacity arrangements.Our purchase commitments and obligations for inventory and manufacturing capacity at the end of fiscalyear 2024 were impacted by shortening lead times for certain components.Supply of Hopper architecture products is improving,and demand remains verystrong.We expect our next-generation products to be supply-constrained based upon demand indications.We may incur inventory provisions or impairments ifour inventory or supply or capacity commitments exceed demand for our products or demand declines.Our customer orders and longer-term demand estimates may change or may not be correct,as we have experienced in the past.Product transitions arecomplex and can impact our revenue as we often ship both new and prior architecture products simultaneously and we and our channel partners prepare to shipand support new products.Due to our product introduction cycles,we are almost always in various stages of transitioning the architecture of our Data Center,Professional Visualization,and Gaming products.We will have a broader and faster Data Center product launch cadence to meet a growing and diverse set of AIopportunities.The increased frequency of these transitions may magnify the challenges associated with managing our supply and demand due to longmanufacturing lead times.Qualification time for new products,customers anticipating product transitions and channel partners reducing channel inventory ofprior architectures ahead of new product introductions can create reductions or volatility in our revenue.We have experienced and may in the future experiencereduced demand for current generation architectures when customers anticipate16Table of Contentstransitions,and we may be unable to sell multiple product architectures at the same time for current and future architecture transitions.If we are unable toexecute our architectural transitions as planned for any reason,our financial results may be negatively impacted.The increasing frequency and complexity ofnewly introduced products may result in unanticipated quality or production issues that could increase the magnitude of inventory provisions,warranty or othercosts or result in product delays.Deployment of new products to customers creates additional challenges due to the complexity of our technologies,which hasimpacted and may in the future impact the timing of customer purchases or otherwise impact our demand.While we have managed prior product transitions andhave previously sold multiple product architectures at the same time,these transitions are difficult,may impair our ability to predict demand and impact oursupply mix,and we may incur additional costs.Many end customers often do not purchase directly from us but instead purchase indirectly through multiple OEMs,ODMs,system integrators,distributors,andother channel partners.As a result,the decisions made by our multiple OEMs,ODMs,system integrators,distributors,and other channel partners,and inresponse to changing market conditions and changes in end-user demand for our products,have impacted and could in the future continue to impact our abilityto properly forecast demand,particularly as they are based on estimates provided by various downstream parties.If we underestimate our customers future demand for our products,our foundry partners may not have adequate lead-time or capacity to increase productionand we may not be able to obtain sufficient inventory to fill orders on a timely basis.Even if we are able to increase supply to meet customer demand,we maynot be able to do so in a timely manner,or our contract manufacturers may experience supply constraints.If we cannot procure sufficient supply to meet demandor otherwise fail to fulfill our customers orders on a timely basis,or at all,our customer relationships could be damaged,we could lose revenue and marketshare and our reputation could be harmed.Additionally,since some of our products are part of a complex data center buildout,supply constraints or availabilityissues with respect to any one component have had and may have a broader revenue impact.If we overestimate our customers future demand for our products,or if customers cancel or defer orders or choose to purchase from our competitors,we maynot be able to reduce our inventory or other contractual purchase commitments.In the past,we have experienced a reduction in average selling prices,includingdue to channel pricing programs that we have implemented and may continue to implement,as a result of our overestimation of future demand,and we mayneed to continue these reductions.We have had to increase prices for certain of our products as a result of our suppliers increase in prices,and we may need tocontinue to do so for other products in the future.We have also written down our inventory,incurred cancellation penalties,and recorded impairments and mayhave to do so in the future.These impacts were amplified by our placement of non-cancellable and non-returnable purchasing terms well in advance of ourhistorical lead times and could be exacerbated if we need to make changes to the design of future products.The risk of these impacts has increased and maycontinue to increase as our purchase obligations and prepaids have grown and are expected to continue to grow and become a greater portion of our totalsupply.All of these factors may negatively impact our gross margins and financial results.We build technology and introduce products for new and innovative use cases and applications,such as NVIDIA DGX Cloud services,NVIDIA AI Foundations,Omniverse platform,LLMs,and generative AI models.Our demand estimates for new use cases,applications,and services can be incorrect and create volatilityin our revenue or supply levels,and we may not be able to generate significant revenue from these use cases,applications,and services.Recent technologies,such as generative AI models,have emerged,and while they have driven increased demand for Data Center,the long-term trajectory is unknown.Because ourproducts may be used in multiple use cases and applications,it is difficult for us to estimate with any reasonable degree of precision the impact of generative AImodels on our reported revenue or forecasted demand.Additionally,we started shipping our CPU product offerings,the Grace CPU and Grace HopperSuperchips,in the third quarter of fiscal year 2024.Our ability to adequately predict our CPU demand may create volatility in our revenue or supply levels.Challenges in estimating demand could become more pronounced or volatile in the future on both a global and regional basis.Extended lead times may occur ifwe experience other supply constraints caused by natural disasters,pandemics or other events.In addition,geopolitical tensions,such as those involving Taiwanand China,which comprise a significant portion of our revenue and where we have suppliers,contract manufacturers,and assembly partners who are critical toour supply continuity,could have a material adverse impact on us.The use of our GPUs other than that for which they were designed and marketed,including new and unexpected use cases,has impacted and can in the futureimpact demand for our products,including by leading to inconsistent spikes and drops in demand.For example,several years ago,our Gaming GPUs began tobe used for mining digital currencies,such as Ethereum.It is difficult for us to estimate with any reasonable degree of precision the past or current impact ofcryptocurrency mining,or forecast the future impact of cryptocurrency mining,on demand for our products.Volatility in the cryptocurrency market,including newcompute technologies,price changes in cryptocurrencies,government cryptocurrency policies and regulations,new cryptocurrency standards and changes inthe method of verifying blockchain transactions,has impacted and can in the future impact cryptocurrency mining and demand for our products and can furtherimpact our ability to estimate demand for our products.Changes to cryptocurrency standards and processes including,but not limited to,the Ethereum 2.0merge in 2022,have reduced and may in the future decrease the usage of GPUs for Ethereum mining.This has created and may in the future create increasedaftermarket sales of our17Table of ContentsGPUs,which could negatively impact retail prices for our GPUs and reduce demand for our new GPUs.In general,our new products or previously sold productsmay be resold online or on the unauthorized“gray market,”which also makes demand forecasting difficult.Gray market products and reseller marketplacescompete with our new products and distribution channels.Additionally,we depend on developers,customers and other third parties to build,enhance,and maintain accelerated computing applications that leverage ourplatforms.We also rely on third-party content providers and publishers to make their content available on our platforms,such as GeForce NOW.Failure bydevelopers,customers,and other third parties to build,enhance,and maintain applications that leverage our platforms,or failure by third-party content providersor publishers to make their content available on reasonable terms or at all for use by our customers or end users on our platforms,could adversely affectcustomer demand.Dependency on third-party suppliers and their technology to manufacture,assemble,test,or package our products reduces our control over productquantity and quality,manufacturing yields,and product delivery schedules and could harm our business.We depend on foundries to manufacture our semiconductor wafers using their fabrication equipment and techniques.We do not assemble,test,or package ourproducts,but instead contract with independent subcontractors.These subcontractors assist with procuring components used in our systems,boards,andproducts.We face several risks which have adversely affected or could adversely affect our ability to meet customer demand and scale our supply chain,negatively impact longer-term demand for our products and services,and adversely affect our business operations,gross margin,revenue and/or financialresults,including:lack of guaranteed supply of wafer,component and capacity or decommitment and potential higher wafer and component prices,from incorrectlyestimating demand and failing to place orders with our suppliers with sufficient quantities or in a timely manner;failure by our foundries or contract manufacturers to procure raw materials or provide adequate levels of manufacturing or test capacity for ourproducts;failure by our foundries to develop,obtain or successfully implement high quality process technologies,including transitions to smaller geometryprocess technologies such as advanced process node technologies and memory designs needed to manufacture our products;failure by our suppliers to comply with our policies and expectations and emerging regulatory requirements;limited number and geographic concentration of global suppliers,foundries,contract manufacturers,assembly and test providers and memorymanufacturers;loss of a supplier and additional expense and/or production delays as a result of qualifying a new foundry or subcontractor and commencing volumeproduction or testing in the event of a loss,addition or change of a supplier;lack of direct control over product quantity,quality and delivery schedules;suppliers or their suppliers failing to supply high quality products and/or making changes to their products without our qualification;delays in product shipments,shortages,a decrease in product quality and/or higher expenses in the event our subcontractors or foundries prioritize ourcompetitors or other customers orders over ours;requirements to place orders that are not cancellable upon changes in demand or requirements to prepay for supply in advance;low manufacturing yields resulting from a failure in our product design or a foundrys proprietary process technology;anddisruptions in manufacturing,assembly and other processes due to closures related to heat waves,earthquakes,fires,or other natural disasters andelectricity conservation efforts.Defects in our products have caused and could cause us to incur significant expenses to remediate,which can damage our reputation and cause usto lose market share.Our hardware and software product and service offerings are complex.They have in the past and may in the future contain defects or security vulnerabilities orexperience failures or unsatisfactory performance due to any number of issues in design,fabrication,packaging,materials,bugs and/or use within a system.These risks may increase as our products are introduced into new devices,markets,technologies and applications or as new versions are released.These risksfurther increase when we rely on partners to supply and manufacture components that are used in our products,as these arrangements reduce our direct controlover production.AI software products we or our partners offer rely on18Table of Contentstraining data that may originate from third parties and new training methods,and the resulting products may contain unknown or undetected defects and errors,or reflect unintended bias.Although arrangements with component providers may contain provisions for product defect expense reimbursement,we generallyremain responsible to the customer for warranty product defects that may occur from time to time.Some failures in our products or services have been in thepast and may in the future be only discovered after a product or service has been shipped or used.Undiscovered vulnerabilities in our products or services couldresult in loss of data or intangible property,or expose our customers to unscrupulous third parties who develop and deploy malicious software programs thatcould attack our products or services.Defects or failure of our offerings to perform to specifications could lead to substantial damage to the products in which ourofferings have been integrated by OEMs,ODMs,AIBs and automotive manufacturers and tier 1 automotive suppliers,and to the user of such end product.Anysuch defect may cause us to incur significant warranty,support and repair or replacement costs as part of a product recall or otherwise,write-off the value ofrelated inventory,and divert the attention of our engineering and management personnel from our product development efforts to find and correct the issue.Ourefforts to remedy these issues may not be timely or satisfactory to our customers.An error or defect in new products,releases or related software drivers aftercommencement of commercial shipments could result in failure to achieve market acceptance,loss of design wins,temporary or permanent withdrawal from aproduct or market and harm to our relationships with existing and prospective customers and partners and consumers perceptions of our brand,which would inturn negatively impact our business operations,gross margin,revenue and/or financial results.We may be required to reimburse our customers,partners orconsumers,including for costs to repair or replace products in the field or in connection with indemnification obligations,or pay fines imposed by regulatoryagencies.For example,in fiscal year 2023,a defect was identified in a third-party component embedded in certain Data Center products.This defect has had,and otherdefects may in the future have,an adverse effect on our cost and supply of components and finished goods.These costs could be significant in future periods.We recorded a net warranty liability during fiscal year 2023 primarily in connection with this defect.While we believe we have accurately recorded for warrantyobligations,we may need to record additional amounts in the future if our estimate proves to be incorrect.In general,if a product liability claim regarding any ofour products is brought against us,even if the alleged damage is due to the actions or inactions of a third party,such as within our supply chain,the cost ofdefending the claim could be significant and would divert the efforts of our technical and management personnel and harm our business.Further,our businessliability insurance may be inadequate or future coverage may be unavailable on acceptable terms,which could adversely impact our financial results.Risks Related to Our Global Operating BusinessAdverse economic conditions may harm our business.Economic and industry uncertainty or changes,including recession or slowing growth,inflation,changes or uncertainty in fiscal,monetary or trade policy,disruptions to capital markets and the banking system,currency fluctuations,higher interest rates,tighter credit,lower capital expenditures by businesses,including on IT infrastructure,increases in unemployment,labor shortages,and lower consumer confidence and spending,global supply chain constraints andglobal economic and geopolitical developments have in the past and/or could in the future have adverse,wide-ranging effects on our business and financialresults,including:increased costs for wafers,components,logistics,and other supply chain expenses,which have negatively impacted our gross margin in the past andmay do so in the future;increased supply,employee,facilities and infrastructure costs and volatility in the financial markets,which have reduced and may in the future reduceour margins;decrease in demand for our products,services and technologies and those of our customers,partners or licensees;the inability of our suppliers to deliver on their supply commitments to us and our customers or our licensees inability to supply products to customersand/or end users;limits on our ability to forecast operating results and make business decisions;the insolvency of key suppliers,distributors,customers,cloud service providers,data center providers,licensing parties or other third parties we rely on;reduced profitability of customers,which may cause them to scale back operations,exit businesses,file for bankruptcy protection and potentially ceaseoperations,or lead to mergers,consolidations or strategic alliances among other companies,which could adversely affect our ability to competeeffectively;andincreased credit and collectability risks,higher borrowing costs or reduced availability of capital markets,reduced liquidity,adverse impacts on ourcustomers and suppliers,failures of counterparties,including financial institutions and insurers,asset impairments,and declines in the value of ourfinancial instruments.19Table of ContentsAdverse developments affecting financial institutions,such as bank failures or instability,or concerns or speculation about similar events or risks,could lead tomarket-wide liquidity problems and other disruptions,which could impact our customers ability to fulfill their payment obligations to us,our vendors ability tofulfill their contractual obligations to us,or our ability to fulfill our own obligations.Additionally,we maintain an investment portfolio of various holdings,types,and maturities.These investments are subject to general credit,liquidity,market andinterest rate risks,which may be exacerbated by market downturns or events that affect global financial markets,as described above.A majority of ourinvestment portfolio comprises USG securities.A decline in global financial markets for long periods or a downgrade of the USG credit rating due to an actual orthreatened default on government debt could result in higher interest rates,a decline in the value of the U.S.dollar,reduced market liquidity or other adverseconditions.These factors could cause an unrealized or realized loss position in our investments or require us to record impairment charges.International sales and operations are a significant part of our business,which exposes us to risks that could harm our business.We sell our products internationally,and we also have operations and conduct business internationally.Our semiconductor wafers are manufactured,assembled,tested and packaged by third parties located outside of the United States,and we generated 56%of our revenue in fiscal year 2024 from salesoutside of the United States.Our sales to China decreased as a percentage of total Data Center revenue from 19%in fiscal year 2023 to 14%in fiscal year2024.Although we have not received licenses from the USG to ship restricted products to China,we have started to ship alternatives to the China market insmall volumes.China represented a mid-single digit percentage of our Data Center revenue in the fourth quarter of fiscal year 2024 due to USG licensingrequirements and we expect China to be in a similar range in the first quarter of fiscal year 2025.The global nature of our business subjects us to a number ofrisks and uncertainties,which have had in the past and could in the future have a material adverse effect on our business,financial condition and results ofoperations.These include domestic and international economic and political conditions in countries in which we and our suppliers and manufacturers dobusiness,government lockdowns to control case spread of global or local health issues,differing legal standards with respect to protection of IP and employmentpractices,different domestic and international business and cultural practices,disruptions to capital markets,counter-inflation policies,currency fluctuations,natural disasters,acts of war or other military actions,terrorism,public health issues and other catastrophic events.Product,system security,and data protection breaches,as well as cyber-attacks,could disrupt our operations,reduce our expected revenue,increase our expenses,and significantly harm our business and reputation.Security breaches,computer malware,social-engineering attacks,denial-of-service attacks,software bugs,server malfunctions,software or hardware failures,loss of data or other information technology assets,and other cyber-attacks are becoming increasingly sophisticated,making it more difficult to successfullydetect,defend against them or implement adequate preventative measures.Cyber-attacks,including ransomware attacks by organized criminal threat actors,nation-states,and nation-state-supported actors,may become more prevalentand severe.Our ability to recover from ransomware attacks may be limited if our backups have been affected by the attack,or if restoring from backups isdelayed or not feasible.Individuals,groups of hackers and sophisticated organizations,including nation-states and nation-state-supported actors,and other threat actors have engagedand are expected to continue to engage in cyber-attacks.Additionally,some actors are using AI technology to launch more automated,targeted and coordinatedattacks.Due to geopolitical conflicts and during times of war or other major conflicts,we and the third parties we rely upon may be vulnerable to a heightenedrisk of cyber-attacks that could materially disrupt our ability to provide services and products.We may also face cybersecurity threats due to error or intentionalmisconduct by employees,contractors or other third-party service providers.Certain aspects of effective cybersecurity are dependent upon our employees,contractors and/or other third-party service providers safeguarding our sensitive information and adhering to our security policies and access controlmechanisms.We have in the past experienced,and may in the future experience,security incidents arising from a failure to properly handle sensitive informationor adhere to our security policies and access control mechanisms and,although no such events have had a material adverse effect on our business,there canbe no assurance that an insider threat will not result in an incident that is material to us.Furthermore,we rely on products and services provided by third-partysuppliers to operate certain critical business systems,including without limitation,cloud-based infrastructure,encryption and authentication technology,employee email and other functions,which exposes us to supply-chain attacks or other business disruptions.We cannot guarantee that third parties andinfrastructure in our supply chain or our partners supply chains have not been compromised or that they do not contain exploitable vulnerabilities,defects orbugs that could result in a breach of or disruption to our information technology systems,including our products and services,or the third-party informationtechnology systems that support our services.We may also incorporate third-party data into our AI algorithms or use open-source datasets to train ouralgorithms.These datasets may be flawed,insufficient,or contain certain biased information,and may otherwise be vulnerable to security incidents.We mayhave limited insight into the data privacy or security practices of third-party suppliers,including for our AI algorithms.Our ability to monitor these third partiesinformation security practices is limited,and they may not have adequate information security measures in place.In addition,if one of our third-party supplierssuffers a security incident(which has happened in the20Table of Contentspast and may happen in the future),our response may be limited or more difficult because we may not have direct access to their systems,logs and otherinformation related to the security incident.Additionally,we are incorporated into the supply chain of a large number of entities worldwide and,as a result,if ourproducts or services are compromised,a significant number of our customers and their data could be affected,which could result in potential liability and harmour business.To defend against security incidents,we must continuously engineer more secure products and enhance security and reliability features,which is expected toresult in increased expenses.We must also continue to develop our security measures,including training programs and security awareness initiatives,designedto ensure our suppliers have appropriate security measures in place,and continue to meet the evolving security requirements of our customers,applicableindustry standards,and government regulations.While we invest in training programs and security awareness initiatives and take steps to detect and remediatecertain vulnerabilities that we have identified,we may not always be able to prevent threats or detect and mitigate all vulnerabilities in our security controls,systems or software,including third-party software we have installed,as such threats and techniques change frequently and may not be detected until after asecurity incident has occurred.Further,we may experience delays in developing and deploying remedial measures
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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 June 30,2023 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 July 31,2023,there were 926,305,139 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 June 30,2023 and December 31,2022 .1Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30,2023 and 2022 .2Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30,2023 and 2022 .3Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30,2023 and 2022 .4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30,2023 and 2022 .6Notes to the Condensed Consolidated Financial Statements .71.Basis of Presentation .72.Investments .83.Fair Value .104.Medical Costs Payable .115.Short-Term Borrowings and Long-Term Debt .116.Dividends .127.Commitments and Contingencies .128.Business Combinations .139.Segment Financial Information .14Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations .16Item 3.Quantitative and Qualitative Disclosures About Market Risk .24Item 4.Controls and Procedures .24Part II.Other InformationItem 1.Legal Proceedings .24Item 1A.Risk Factors .24Item 2.Unregistered Sales of Equity Securities and Use of Proceeds .25Item 5.Other Information .25Item 6.Exhibits .26Signatures .27PART I ITEM 1.FINANCIAL STATEMENTSUnitedHealth GroupCondensed Consolidated Balance Sheets(Unaudited)(in millions,except per share data)June 30,2023December 31,2022AssetsCurrent assets:Cash and cash equivalents .$41,813$23,365 Short-term investments .4,466 4,546 Accounts receivable,net .17,952 17,681 Other current receivables,net .16,131 12,769 Assets under management .3,623 4,087 Prepaid expenses and other current assets .5,884 6,621 Total current assets .89,869 69,069 Long-term investments .45,988 43,728 Property,equipment and capitalized software,net .10,926 10,128 Goodwill .101,669 93,352 Other intangible assets,net .15,643 14,401 Other assets .16,069 15,027 Total assets .$280,164$245,705 Liabilities,redeemable noncontrolling interests and equityCurrent liabilities:Medical costs payable .$31,947$29,056 Accounts payable and accrued liabilities .29,516 27,715 Short-term borrowings and current maturities of long-term debt .6,321 3,110 Unearned revenues .14,852 3,075 Other current liabilities .30,345 26,281 Total current liabilities .112,981 89,237 Long-term debt,less current maturities .59,268 54,513 Deferred income taxes .2,498 2,769 Other liabilities .13,261 12,839 Total liabilities .188,008 159,358 Commitments and contingencies(Note 7)Redeemable noncontrolling interests .4,788 4,897 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;927 and 934 issued and outstanding.9 9 Retained earnings .89,994 86,156 Accumulated other comprehensive loss .(7,650)(8,393)Nonredeemable noncontrolling interests .5,015 3,678 Total equity .87,368 81,450 Total liabilities,redeemable noncontrolling interests and equity .$280,164$245,705 See Notes to the Condensed Consolidated Financial Statements 1UnitedHealth GroupCondensed Consolidated Statements of Operations(Unaudited)Three Months Ended June 30,Six Months Ended June 30,(in millions,except per share data)2023202220232022Revenues:Premiums .$72,474$63,896$145,260$127,966 Products .10,651 9,496 20,918 18,836 Services .8,663 6,645 16,743 13,017 Investment and other income .1,115 295 1,913 662 Total revenues .92,903 80,332 184,834 160,481 Operating costs:Medical costs .60,268 52,093 120,113 104,616 Operating costs .13,809 11,709 27,434 23,110 Cost of products sold .9,748 8,596 19,153 17,083 Depreciation and amortization .1,021 802 1,991 1,590 Total operating costs .84,846 73,200 168,691 146,399 Earnings from operations .8,057 7,132 16,143 14,082 Interest expense .(828)(467)(1,582)(900)Earnings before income taxes .7,229 6,665 14,561 13,182 Provision for income taxes .(1,572)(1,466)(3,130)(2,835)Net earnings .5,657 5,199 11,431 10,347 Earnings attributable to noncontrolling interests .(183)(129)(346)(250)Net earnings attributable to UnitedHealth Group common shareholders .$5,474$5,070 11,085$10,097 Earnings per share attributable to UnitedHealth Group common shareholders:Basic .$5.89$5.41$11.91$10.75 Diluted .$5.82$5.34$11.77$10.61 Basic weighted-average number of common shares outstanding .930 937 931 939 Dilutive effect of common share equivalents .10 13 11 13 Diluted weighted-average number of common shares outstanding .940 950 942 952 Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents .7 3 6 3 See Notes to the Condensed Consolidated Financial Statements 2UnitedHealth GroupCondensed Consolidated Statements of Comprehensive Income(Unaudited)Three Months Ended June 30,Six Months Ended June 30,(in millions)2023202220232022Net earnings .$5,657$5,199$11,431$10,347 Other comprehensive(loss)income:Gross unrealized(losses)gains on investment securities during the period .(431)(1,331)209 (3,354)Income tax effect .99 304 (48)769 Total unrealized(losses)gains,net of tax .(332)(1,027)161 (2,585)Gross reclassification adjustment for net realized gains included in net earnings .(47)(1)(34)(4)Income tax effect .11 8 1 Total reclassification adjustment,net of tax .(36)(1)(26)(3)Total foreign currency translation gains(losses).267 (676)608 242 Other comprehensive(loss)income .(101)(1,704)743 (2,346)Comprehensive income .5,556 3,495 12,174 8,001 Comprehensive income attributable to noncontrolling interests .(183)(129)(346)(250)Comprehensive income attributable to UnitedHealth Group common shareholders .$5,373$3,366$11,828$7,751 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(Loss)IncomeNonredeemable Noncontrolling InterestsTotal EquityThree months ended June 30,(in millions)SharesAmountNet Unrealized(Losses)Gains on InvestmentsForeign Currency Translation(Losses)GainsBalance at March 31,2023.932$9$88,852$(2,275)$(5,274)$4,509$85,821 Net earnings.5,474 139 5,613 Other comprehensive(loss)income (368)267 (101)Issuances of common stock,and related tax effects .1 218 218 Share-based compensation .232 232 Common share repurchases .(6)(442)(2,585)(3,027)Cash dividends paid on common shares($1.88 per share).(1,747)(1,747)Redeemable noncontrolling interests fair value and other adjustments .(8)(8)Acquisition and other adjustments of nonredeemable noncontrolling interests.478 478 Distribution to nonredeemable noncontrolling interests .(111)(111)Balance at June 30,2023 .927$9$89,994$(2,643)$(5,007)$5,015$87,368 Balance at March 31,2022.939$10$78,782$(1,137)$(4,889)$3,362$76,128 Net earnings.5,070 94 5,164 Other comprehensive loss .(1,028)(676)(1,704)Issuances of common stock,and related tax effects .1 174 174 Share-based compensation .194 194 Common share repurchases .(5)(733)(1,767)(2,500)Cash dividends paid on common shares($1.65 per share).(1,545)(1,545)Redeemable noncontrolling interests fair value and other adjustments .365 365 Acquisition and other adjustments of nonredeemable noncontrolling interests.12 12 Distribution to nonredeemable noncontrolling interests .(83)(83)Balance at June 30,2022 .935$10$80,540$(2,165)$(5,565)$3,385$76,205 See Notes to the Condensed Consolidated Financial Statements 4UnitedHealth GroupCondensed Consolidated Statements of Changes in Equity(Unaudited)Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive(Loss)IncomeNonredeemable Noncontrolling InterestsTotal EquitySix months ended March 31,(in millions)SharesAmountNet Unrealized(Losses)Gains on InvestmentsForeign Currency Translation(Losses)GainsBalance at January 1,2023.934$9$86,156$(2,778)$(5,615)$3,678$81,450 Net earnings.11,085 252 11,337 Other comprehensive income .135 608 743 Issuances of common stock,and related tax effects .3 568 568 Share-based compensation .598 598 Common share repurchases .(10)(1,075)(3,963)(5,038)Cash dividends paid on common shares($3.53 per share).(3,284)(3,284)Redeemable noncontrolling interests fair value and other adjustments .(91)(91)Acquisition and other adjustments of nonredeemable noncontrolling interests.1,297 1,297 Distribution to nonredeemable noncontrolling interests .(212)(212)Balance at June 30,2023 .927$9$89,994$(2,643)$(5,007)$5,015$87,368 Balance at January 1,2022.941$10$77,134$423$(5,807)$3,285$75,045 Net earnings.10,097 182 10,279 Other comprehensive(loss)income (2,588)242 (2,346)Issuances of common stock,and related tax effects .4 507 507 Share-based compensation .476 476 Common share repurchases .(10)(1,217)(3,783)(5,000)Cash dividends paid on common shares($3.10 per share).(2,908)(2,908)Redeemable noncontrolling interests fair value and other adjustments .234 234 Acquisition and other adjustments of nonredeemable noncontrolling interests.103 103 Distribution to nonredeemable noncontrolling interests .(185)(185)Balance at June 30,2022 .935$10$80,540$(2,165)$(5,565)$3,385$76,205 See Notes to the Condensed Consolidated Financial Statements 5UnitedHealth GroupCondensed Consolidated Statements of Cash Flows(Unaudited)Six Months Ended June 30,(in millions)20232022Operating activitiesNet earnings.$11,431$10,347 Noncash items:Depreciation and amortization .1,991 1,590 Deferred income taxes .(482)(15)Share-based compensation .604 504 Other,net .(91)215 Net change in other operating items,net of effects from acquisitions and changes in AARP balances:Accounts receivable .197 (4,204)Other assets .(2,001)(643)Medical costs payable .2,408 4,029 Accounts payable and other liabilities .1,547 807 Unearned revenues .11,755 (440)Cash flows from operating activities .27,359 12,190 Investing activitiesPurchases of investments .(9,225)(8,903)Sales of investments .3,188 2,348 Maturities of investments .4,463 3,189 Cash paid for acquisitions,net of cash assumed .(8,161)(7,150)Purchases of property,equipment and capitalized software .(1,589)(1,212)Other,net .(424)(532)Cash flows used for investing activities .(11,748)(12,260)Financing activitiesCommon share repurchases .(5,000)(5,000)Cash dividends paid .(3,284)(2,908)Proceeds from common stock issuances .628 756 Repayments of long-term debt .(2,125)(1,100)Proceeds from short-term borrowings,net .3,426 1,340 Proceeds from issuance of long-term debt .6,394 5,922 Customer funds administered .4,069 5,786 Other,net .(1,377)(1,546)Cash flows from financing activities .2,731 3,250 Effect of exchange rate changes on cash and cash equivalents .106 57 Increase in cash and cash equivalents .18,448 3,237 Cash and cash equivalents,beginning of period.23,365 21,375 Cash and cash equivalents,end of period .$41,813$24,612 See Notes to the Condensed Consolidated Financial Statements 6UnitedHealth 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.Our two distinct,yet complementary business platforms 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 31,2022 as filed with the SEC(2022 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 June 30,2023 and December 31,2022,accounts receivable related to products and services were$7.7 billion and$7.1 billion,respectively.As of June 30,2023,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 recognized as invoiced and contracts with variable consideration related to undelivered performance obligations,was$12.2 billion,of which approximately half is expected to be recognized in the next three years.72.InvestmentsA summary of debt securities by major security type is as follows:(in millions)AmortizedCostGrossUnrealizedGainsGrossUnrealizedLossesFairValueJune 30,2023Debt securities-available-for-sale:U.S.government and agency obligations .$4,990$(283)$4,707 State and municipal obligations .7,334 10 (427)6,917 Corporate obligations .23,582 11 (1,643)21,950 U.S.agency mortgage-backed securities .8,504 5 (799)7,710 Non-U.S.agency mortgage-backed securities .3,148 (304)2,844 Total debt securities-available-for-sale .47,558 26 (3,456)44,128 Debt securities-held-to-maturity:U.S.government and agency obligations .466 (11)455 State and municipal obligations .28 (3)25 Corporate obligations .246 246 Total debt securities-held-to-maturity .740 (14)726 Total debt securities.$48,298$26$(3,470)$44,854 December 31,2022Debt securities-available-for-sale:U.S.government and agency obligations .$4,093$1$(285)$3,809 State and municipal obligations .7,702 25 (479)7,248 Corporate obligations .23,675 17 (1,798)21,894 U.S.agency mortgage-backed securities .7,379 15 (808)6,586 Non-U.S.agency mortgage-backed securities .3,077 1 (294)2,784 Total debt securities-available-for-sale .45,926 59 (3,664)42,321 Debt securities-held-to-maturity:U.S.government and agency obligations .578 (14)564 State and municipal obligations .29 (3)26 Corporate obligations .89 89 Total debt securities-held-to-maturity .696 (17)679 Total debt securities.$46,622$59$(3,681)$43,000 The Company held$4.2 billion and$3.7 billion of equity securities as of June 30,2023 and December 31,2022,respectively.The Companys investments in equity securities primarily consist of employee savings plan related investments,venture investments and shares of Brazilian real denominated fixed-income funds with readily determinable fair values.Additionally,the Companys investments included$1.4 billion and$1.5 billion of equity method investments in operating businesses in the health care sector as of June 30,2023 and December 31,2022,respectively.The allowance for credit losses on held-to-maturity securities at June 30,2023 and December 31,2022 was not material.8The amortized cost and fair value of debt securities as of June 30,2023,by contractual maturity,were as follows:Available-for-SaleHeld-to-Maturity(in millions)AmortizedCostFairValueAmortizedCostFairValueDue in one year or less .$4,646$4,613$466$461 Due after one year through five years .14,748 13,935 225 219 Due after five years through ten years .11,332 10,206 31 30 Due after ten years .5,180 4,820 18 16 U.S.agency mortgage-backed securities .8,504 7,710 Non-U.S.agency mortgage-backed securities .3,148 2,844 Total debt securities .$47,558$44,128$740$726 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)FairValueGrossUnrealizedLossesFairValueGrossUnrealizedLossesFairValueGrossUnrealizedLossesJune 30,2023Debt securities-available-for-sale:U.S.government and agency obligations .$2,300$(28)$1,902$(255)$4,202$(283)State and municipal obligations .2,769 (46)3,324 (381)6,093 (427)Corporate obligations .6,346 (122)13,974 (1,521)20,320 (1,643)U.S.agency mortgage-backed securities .3,111 (79)4,314 (720)7,425 (799)Non-U.S.agency mortgage-backed securities .577 (15)2,239 (289)2,816 (304)Total debt securities-available-for-sale .$15,103$(290)$25,753$(3,166)$40,856$(3,456)December 31,2022Debt securities-available-for-sale:U.S.government and agency obligations .$2,007$(96)$1,290$(189)$3,297$(285)State and municipal obligations .4,630 (288)1,178 (191)5,808 (479)Corporate obligations .13,003 (893)6,637 (905)19,640 (1,798)U.S.agency mortgage-backed securities .3,561 (345)2,239 (463)5,800 (808)Non-U.S.agency mortgage-backed securities .1,698 (128)976 (166)2,674 (294)Total debt securities-available-for-sale .$24,899$(1,750)$12,320$(1,914)$37,219$(3,664)The Companys unrealized losses from debt securities as of June 30,2023 were generated from approximately 35,000 positions out of a total of 41,000 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 June 30,2023,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 June 30,2023 and December 31,2022 was not material.93.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 2022 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 CarryingValueJune 30,2023Cash and cash equivalents .$41,763$50$41,813 Debt securities-available-for-sale:U.S.government and agency obligations .4,318 389 4,707 State and municipal obligations .6,917 6,917 Corporate obligations .36 21,732 182 21,950 U.S.agency mortgage-backed securities .7,710 7,710 Non-U.S.agency mortgage-backed securities .2,844 2,844 Total debt securities-available-for-sale .4,354 39,592 182 44,128 Equity securities .2,270 37 70 2,377 Assets under management .1,332 2,190 101 3,623 Total assets at fair value .$49,719$41,869$353$91,941 Percentage of total assets at fair value .54E%10cember 31,2022Cash and cash equivalents .$23,202$163$23,365 Debt securities-available-for-sale:U.S.government and agency obligations .3,505 304 3,809 State and municipal obligations .7,248 7,248 Corporate obligations .7 21,695 192 21,894 U.S.agency mortgage-backed securities .6,586 6,586 Non-U.S.agency mortgage-backed securities .2,784 2,784 Total debt securities-available-for-sale .3,512 38,617 192 42,321 Equity securities .2,043 35 70 2,148 Assets under management .1,788 2,203 96 4,087 Total assets at fair value .$30,545$41,018$358$71,921 Percentage of total assets at fair value .42W%10%There were no transfers in or out of Level 3 financial assets or liabilities during the six months ended June 30,2023 or 2022.10The 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 ValueJune 30,2023Debt securities-held-to-maturity .$651$75$726$740 Long-term debt and other financing obligations .$58,644$58,644$61,217 December 31,2022Debt securities-held-to-maturity .$577$102$679$696 Long-term debt and other financing obligations .$53,626$53,626$56,823 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 six months ended June 30,2023 or 2022.4.Medical Costs PayableThe following table shows the components of the change in medical costs payable for the six months ended June 30:(in millions)20232022Medical costs payable,beginning of period .$29,056$24,483 Acquisitions .1 171 Reported medical costs:Current year .120,773 104,936 Prior years .(660)(320)Total reported medical costs .120,113 104,616 Medical payments:Payments for current year .(91,621)(78,937)Payments for prior years .(25,602)(21,355)Total medical payments .(117,223)(100,292)Medical costs payable,end of period .$31,947$28,978 For the six months ended June 30,2023 and 2022,prior years medical cost reserve development included no individual factors that were significant.Medical costs payable included reserves for claims incurred by insured customers but not yet reported to the Company of$22.0 billion and$20.0 billion at June 30,2023 and December 31,2022,respectively.5.Short-Term Borrowings and Long-Term Debt In March 2023,the Company issued$6.5 billion of senior unsecured notes consisting of the following:(in millions,except percentages)Par Value4.250%notes due January 2029 .$1,250 4.500%notes due April 2033 .1,500 5.050%notes due April 2053 .2,000 5.200%notes due April 2063 .1,750 As of June 30,2023,the Company had$4.4 billion of commercial paper outstanding,with a weighted-average annual interest rate of 5.1%.For 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 2022 10-K.116.DividendsIn June 2023,the Companys Board of Directors increased the Companys quarterly cash dividend to shareholders to an annual rate of$7.52 compared to$6.60 per share,which the Company had paid since June 2022.Declaration and payment of future quarterly dividends is at the discretion of the Board of Directors and may be adjusted as business needs or market conditions change.The following table provides details of the Companys dividend payments during the six months ended June 30,2023:Payment DateAmount per ShareTotal Amount Paid(in millions)March 21 .$1.65$1,537 June 27 .1.88 1,747 7.Commitments and ContingenciesPending AcquisitionsAs of June 30,2023,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$5 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,our international businesses are also subject to investigations,audits and reviews by applicable foreign governments,including South American and other non-U.S.governmental authorities.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.128.Business CombinationsDuring the six months ended June 30,2023,the Company completed several business combinations for total consideration of$8.2 billion.Acquired assets(liabilities)at acquisition date were:(in millions)Cash and cash equivalents .$104 Accounts receivable and other current assets .550 Property,equipment and other long-term assets .542 Other intangible assets .1,795 Total identifiable assets acquired .2,991 Medical costs payable .(1)Accounts payable and other current liabilities .(473)Other long-term liabilities .(617)Total identifiable liabilities acquired .(1,091)Total net identifiable assets .1,900 Goodwill .7,734 Redeemable noncontrolling interests .(113)Nonredeemable noncontrolling interests .(1,297)Net assets acquired .$8,224 The majority of goodwill is not deductible for income tax purposes.The preliminary purchase price allocations for the various business combinations are subject to adjustment as valuation analyses,primarily related to intangible assets and contingent liabilities,are finalized.The acquisition date fair values and weighted-average useful lives assigned to intangible assets were:(in millions,except years)Fair ValueWeighted-Average Useful LifeAcquired finite-lived intangible assets:Customer-related .$223 12 yearsTrademarks and technology .171 5 yearsOther .38 6 yearsTotal acquired finite-lived intangible assets .432 9 yearsTotal acquired indefinite-lived intangible assets-operating licenses and certificates .1,363 Total acquired intangible assets .$1,795 The results of operations and financial condition of acquired entities have been included in the Companys consolidated results and the results of the corresponding operating segment as of the date of acquisition.Through June 30,2023,acquired entities impact on revenues and net earnings was not material.Unaudited pro forma revenues and net earnings for the six months ended June 30,2023 and 2022,as if the business combinations had occurred on January 1,2022,were immaterial for both periods.139.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 2022 10-K.Total assets at Optum Health increased to$80.8 billion as of June 30,2023 compared to$69.0 billion as of December 31,2022,primarily due to goodwill from business combinations of$7.0 billion.The following tables present reportable segment financial information:Optum (in millions)UnitedHealthcareOptum HealthOptum InsightOptum RxOptum EliminationsOptumCorporate andEliminationsConsolidatedThree Months Ended June 30,2023Revenues-unaffiliated customers:Premiums .$67,047$5,427$5,427$72,474 Products .51 39 10,561 10,651 10,651 Services .2,584 3,541 1,995 543 6,079 8,663 Total revenues-unaffiliated customers .69,631 9,019 2,034 11,104 22,157 91,788 Total revenues-affiliated customers .14,454 2,615 17,496 (893)33,672 (33,672)Investment and other income.600 444 25 46 515 1,115 Total revenues .$70,231$23,917$4,674$28,646$(893)$56,344$(33,672)$92,903 Earnings from operations .$4,358$1,525$968$1,206$3,699$8,057 Interest expense .(828)(828)Earnings before income taxes .$4,358$1,525$968$1,206$3,699$(828)$7,229 Three Months Ended June 30,2022Revenues-unaffiliated customers:Premiums .$59,368$4,528$4,528$63,896 Products .6 58 9,432 9,496 9,496 Services .2,542 2,740 1,034 329 4,103 6,645 Total revenues-unaffiliated customers .61,910 7,274 1,092 9,761 18,127 80,037 Total revenues-affiliated customers .10,224 2,181 15,038 (588)26,855 (26,855)Investment and other income.195 85 9 6 100 295 Total revenues .$62,105$17,583$3,282$24,805$(588)$45,082$(26,855)$80,332 Earnings from operations .$3,850$1,399$839$1,044$3,282$7,132 Interest expense .(467)(467)Earnings before income taxes .$3,850$1,399$839$1,044$3,282$(467)$6,665 14 Optum (in millions)UnitedHealthcareOptum HealthOptum InsightOptum RxOptum EliminationsOptumCorporate andEliminationsConsolidatedSix Months Ended June 30,2023Revenues-unaffiliated customers:Premiums .$134,505$10,755$10,755$145,260 Products .95 79 20,744 20,918 20,918 Services .5,139 6,630 3,921 1,053 11,604 16,743 Total revenues-unaffiliated customers .139,644 17,480 4,000 21,797 43,277 182,921 Total revenues-affiliated customers 28,720 5,125 34,175 (1,752)66,268 (66,268)Investment and other income .1,055 721 45 92 858 1,913 Total revenues .$140,699$46,921$9,170$56,064$(1,752)$110,403$(66,268)$184,834 Earnings from operations .$8,701$3,301$1,875$2,266$7,442$16,143 Interest expense .(1,582)(1,582)Earnings before income taxes .$8,701$3,301$1,875$2,266$7,442$(1,582)$14,561 Six Months Ended June 30,2022Revenues-unaffiliated customers:Premiums .$119,305$8,661$8,661$127,966 Products .12 98 18,726 18,836 18,836 Services .5,057 5,298 2,008 654 7,960 13,017 Total revenues-unaffiliated customers .124,362 13,971 2,106 19,380 35,457 159,819 Total revenues-affiliated customers 20,053 4,319 29,329 (1,141)52,560 (52,560)Investment and other income .338 241 76 7 324 662 Total revenues .$124,700$34,265$6,501$48,716$(1,141)$88,341$(52,560)$160,481 Earnings from operations .$7,648$2,765$1,686$1,983$6,434$14,082 Interest expense .(900)(900)Earnings before income taxes .$7,648$2,765$1,686$1,983$6,434$(900)$13,182 15ITEM 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 2022 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 2022 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 business platforms 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 2022 10-K and additional information on our segments can be found in this Item 2 and in Note 9 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report.Business TrendsOur businesses participate in the United States,South America 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.16Medical Cost Trends.Our medical cost trends primarily relate to changes in unit costs,care activity and prescription drug costs.During the second quarter,we observed 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.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 Notice for 2024 rates resulted in an industry base rate decrease,well short of what is 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 second quarter 2023 year-over-year operating comparisons to second quarter 2022 and other financial results.Consolidated revenues grew 16%,UnitedHealthcare revenues grew 13%and Optum revenues grew 25%.UnitedHealthcare served 1.6 million more people,driven by growth across our U.S.businesses.Consolidated earnings from operations of$8.1 billion compared to$7.1 billion last year,included growth of 13%at both UnitedHealthcare and Optum.Diluted earnings per common share were$5.82.Cash flows from operations for the six months ended June 30,2023 were$27.4 billion.Return on equity was 26.8%.17RESULTS SUMMARYThe following table summarizes our consolidated results of operations and other financial information:(in millions,except percentages and per share data)Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)202320222023 vs.2022202320222023 vs.2022Revenues:Premiums .$72,474$63,896$8,578 13%$145,260$127,966$17,294 14%Products .10,651 9,496 1,155 12 20,918 18,836 2,082 11 Services .8,663 6,645 2,018 30 16,743 13,017 3,726 29 Investment and other income .1,115 295 820 278 1,913 662 1,251 189 Total revenues .92,903 80,332 12,571 16 184,834 160,481 24,353 15 Operating costs:Medical costs .60,268 52,093 8,175 16 120,113 104,616 15,497 15 Operating costs .13,809 11,709 2,100 18 27,434 23,110 4,324 19 Cost of products sold .9,748 8,596 1,152 13 19,153 17,083 2,070 12 Depreciation and amortization .1,021 802 219 27 1,991 1,590 401 25 Total operating costs .84,846 73,200 11,646 16 168,691 146,399 22,292 15 Earnings from operations .8,057 7,132 925 13 16,143 14,082 2,061 15 Interest expense .(828)(467)(361)77 (1,582)(900)(682)76 Earnings before income taxes .7,229 6,665 564 8 14,561 13,182 1,379 10 Provision for income taxes .(1,572)(1,466)(106)7 (3,130)(2,835)(295)10 Net earnings.5,657 5,199 458 9 11,431 10,347 1,084 10 Earnings attributable to noncontrolling interests.(183)(129)(54)42 (346)(250)(96)38 Net earnings attributable to UnitedHealth Group common shareholders .$5,474$5,070$404 8%$11,085$10,097$988 10%Diluted earnings per share attributable to UnitedHealth Group common shareholders .$5.82$5.34$0.48$11.77$10.61$1.16 Medical care ratio(a).83.2.5%1.7.7.8%0.9%Operating cost ratio .14.9 14.6 0.3 14.8 14.4 0.4 Operating margin .8.7 8.9 (0.2)8.7 8.8 (0.1)Tax rate .21.7 22.0 (0.3)21.5 21.5 Net earnings margin(b).5.9 6.3 (0.4)6.0 6.3 (0.3)Return on equity(c).26.8.9%(1.1).5.9%(0.4)%(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.182023 RESULTS OF OPERATIONS COMPARED TO 2022 RESULTS OF OPERATIONSConsolidated Financial ResultsRevenuesThe increases in revenues were primarily driven by growth in the number of people served through Medicare Advantage and Medicaid,pricing trends and growth across the Optum businesses.Revenues also increased due to increased investment income,primarily driven by increased interest rates.Medical Costs and MCRMedical costs increased primarily due to growth in people served through Medicare Advantage and Medicaid.The MCR increased as a result of elevated care activity,primarily relating to outpatient care for seniors,and business mix.For the three months ended June 30,2023,the MCR also increased due to decreased favorable reserve development.Operating Cost RatioThe operating cost ratio increased primarily due to business mix and investments to support future growth,partially offset by continued productivity advances.Reportable SegmentsSee Note 9 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 June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)(in millions,except percentages)202320222023 vs.2022202320222023 vs.2022RevenuesUnitedHealthcare .$70,231$62,105$8,126 13%$140,699$124,700$15,999 13%Optum Health .23,917 17,583 6,334 36 46,921 34,265 12,656 37 Optum Insight .4,674 3,282 1,392 42 9,170 6,501 2,669 41 Optum Rx .28,646 24,805 3,841 15 56,064 48,716 7,348 15 Optum eliminations .(893)(588)(305)52 (1,752)(1,141)(611)54 Optum .56,344 45,082 11,262 25 110,403 88,341 22,062 25 Eliminations .(33,672)(26,855)(6,817)25 (66,268)(52,560)(13,708)26 Consolidated revenues .$92,903$80,332$12,571 16%$184,834$160,481$24,353 15rnings from operationsUnitedHealthcare .$4,358$3,850$508 13%$8,701$7,648$1,053 14%Optum Health .1,525 1,399 126 9 3,301 2,765 536 19 Optum Insight .968 839 129 15 1,875 1,686 189 11 Optum Rx .1,206 1,044 162 16 2,266 1,983 283 14 Optum .3,699 3,282 417 13 7,442 6,434 1,008 16 Consolidated earnings from operations .$8,057$7,132$925 13%$16,143$14,082$2,061 15%Operating marginUnitedHealthcare .6.2%6.2%6.2%6.1%0.1%Optum Health .6.4 8.0 (1.6)7.0 8.1 (1.1)Optum Insight .20.7 25.6 (4.9)20.4 25.9 (5.5)Optum Rx .4.2 4.2 4.0 4.1 (0.1)Optum .6.6 7.3 (0.7)6.7 7.3 (0.6)Consolidated operating margin .8.7%8.9%(0.2)%8.7%8.8%(0.1)UnitedHealthcareThe following table summarizes UnitedHealthcare revenues by business:Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)(in millions,except percentages)202320222023 vs.2022202320222023 vs.2022UnitedHealthcare Employer&Individual-Domestic .$16,759$15,567$1,192 8%$33,303$31,389$1,914 6%UnitedHealthcare Employer&Individual-Global .2,325 2,247 78 3 4,488 4,380 108 2 UnitedHealthcare Employer&Individual-Total .19,084 17,814 1,270 7 37,791 35,769 2,022 6 UnitedHealthcare Medicare&Retirement .32,440 28,625 3,815 13 65,446 57,725 7,721 13 UnitedHealthcare Community&State .18,707 15,666 3,041 19 37,462 31,206 6,256 20 Total UnitedHealthcare revenues .$70,231$62,105$8,126 13%$140,699$124,700$15,999 13%The following table summarizes the number of people served by our UnitedHealthcare businesses,by major market segment and funding arrangement:June 30,Increase/(Decrease)(in thousands,except percentages)202320222023 vs.2022Commercial-Domestic:Risk-based .8,035 8,010 25e-based .19,140 18,480 660 4 Total Commercial-Domestic .27,175 26,490 685 3 Medicare Advantage .7,590 6,945 645 9 Medicaid .8,355 7,990 365 5 Medicare Supplement(Standardized).4,330 4,355 (25)(1)Total Community and Senior .20,275 19,290 985 5 Total UnitedHealthcare-Domestic Medical .47,450 45,780 1,670 4 Commercial-Global .5,385 5,465 (80)(1)Total UnitedHealthcare-Medical.52,835 51,245 1,590 3%Supplemental Data:Medicare Part D stand-alone .3,355 3,330 25 1%UnitedHealthcares revenues increased due to growth in the number of people served through individual and group Medicare Advantage plans;growth in existing Medicaid markets,including a greater mix of people with higher acuity needs;and an increase in the number of people served through commercial offerings.Earnings from operations increased due to increased investment income and the factors impacting revenue,partially offset by elevated care activity,primarily relating to outpatient care for seniors.OptumTotal revenues and earnings from operations increased due to growth across the Optum businesses.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 and business combinations.Earnings from operations increased due to increased investment income and cost management initiatives,partially offset by higher senior outpatient and behavioral health care activity and costs associated with serving newly added patients under value-based care arrangements.Optum Health served approximately 103 million people as of June 30,2023 compared to 101 million people as of June 30,2022.Optum InsightRevenues and earnings from operations at Optum Insight increased due to growth in business services as a result of business combinations and growth in technology services.20Optum RxRevenues and earnings from operations at Optum Rx increased due to growth in specialty pharmacy offerings and higher script volumes from growth in people served.Earnings from operations also increased as a result of continued supply chain management initiatives.Optum Rx fulfilled 381 million and 357 million adjusted scripts in the second quarters of 2023 and 2022,respectively.LIQUIDITY,FINANCIAL CONDITION AND CAPITAL RESOURCESLiquiditySummary of our Major Sources and Uses of Cash and Cash Equivalents Six Months Ended June 30,Increase/(Decrease)(in millions)202320222023 vs.2022Sources of cash:Cash provided by operating activities .$27,359$12,190$15,169 Issuances of short-term borrowings and long-term debt,net of repayments .7,695 6,162 1,533 Proceeds from common stock issuances .628 756 (128)Customer funds administered .4,069 5,786 (1,717)Total sources of cash.39,751 24,894 Uses of cash:Common stock repurchases .(5,000)(5,000)Cash paid for acquisitions,net of cash assumed .(8,161)(7,150)(1,011)Purchases of investments,net of sales and maturities .(1,574)(3,366)1,792 Purchases of property,equipment and capitalized software .(1,589)(1,212)(377)Cash dividends paid .(3,284)(2,908)(376)Other .(1,801)(2,078)277 Total uses of cash .(21,409)(21,714)Effect of exchange rate changes on cash and cash equivalents .106 57 49 Net increase in cash and cash equivalents .$18,448$3,237$15,211 2023 Cash Flows Compared to 2022 Cash FlowsIncreased cash flows provided by operating activities were primarily driven by an increase in unearned revenue due to the June receipt of our July CMS premium payment of$11.8 billion and changes in working capital accounts.Other significant changes in sources or uses of cash year-over-year included increased net issuances of short-term borrowings and long-term debt and decreased net purchases of investments,partially offset by decreased customer funds administered and increased cash paid for acquisitions.Financial ConditionAs of June 30,2023,our cash,cash equivalent,available-for-sale debt securities and equity securities balances of$90.1 billion included approximately$41.8 billion of cash and cash equivalents(of which$1.2 billion was available for general corporate use),$44.1 billion of debt securities and$4.2 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 3.9 years and a weighted-average credit rating of“Double A”as of June 30,2023.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.21Capital 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 31,2022 was disclosed in Part II,Item 7,“Managements Discussion and Analysis of Financial Condition and Results of Operations”in our 2022 10-K.During the six months ended June 30,2023,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 2022 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 June 30,2023,our debt to debt-plus-shareholders equity ratio,as defined and calculated under the credit facilities,was approximately 40%.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 2022 10-K.Credit Ratings.Our credit ratings as of June 30,2023 were as follows:Moodys(a)S&P GlobalFitchA.M.Best RatingsOutlookRatingsOutlookRatingsOutlookRatingsOutlookSenior unsecured debt .A3PositiveA StableAStableAStableCommercial paper .P-2n/aA-1n/aF1n/aAMB-1 n/a(a)On July 27,2023,Moodys upgraded the credit rating on our senior unsecured debt to A2 with an outlook of Stable and the credit rating on our commercial paper to P-1.The 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 six months ended June 30,2023,we repurchased approximately 10 million shares at an average price of$483.78 per share.As of June 30,2023,we had Board of Directors authorization to purchase up to 21 million shares of our common stock.Dividends.In June 2023,the Companys Board of Directors increased our quarterly cash dividend to shareholders to an annual rate of$7.52 compared to$6.60 per share.For more information on our dividend,see Note 6 of Notes to the Condensed Consolidated Financial Statements included in Part I,Item 1 of this report.Pending Acquisitions.As of June 30,2023,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$5 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 2022 10-K.RECENTLY ISSUED ACCOUNTING STANDARDS There are no recently issued accounting standards that are expected to have a material impact on our Condensed Consolidated Financial Statements.22CRITICAL 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 2022 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 2022 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 law.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;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;cyberattacks,other privacy/data security incidents,or our failure to comply with related regulations;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,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.23ITEM 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 June 30,2023 on our investment income and interest expense per annum,and the fair value of our investments and debt(in millions,except percentages):June 30,2023Increase(Decrease)in Market Interest RateInvestmentIncome PerAnnumInterestExpense PerAnnumFair Value ofFinancial AssetsFair Value ofFinancial Liabilities2%.$1,025$469$(3,500)$(8,164)1 .512 234 (1,799)(4,458)(1).(512)(207)1,882 5,415(2).(1,025)(410)3,817 12,059 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 June 30,2023.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 June 30,2023.CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGThere have been no changes in our internal control over financial reporting during the quarter ended June 30,2023 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 7 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 2022 10-K,which could materially affect our business,financial condition or future results.The risks described in our 2022 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 2022 10-K.24ITEM 2.UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDSIssuer Purchases of Equity Securities(a)Second Quarter 2023For 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)April 30,2023 .1.2$499.99 1.2 25.8May 31,2023 .1.5 486.68 1.5 24.3June 30,2023 .3.5 475.99 3.5 20.8Total .6.2$483.07 6.2 (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.ITEM 5.OTHER INFORMATIONTrading Arrangements During the quarter ended June 30,2023,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.25ITEM 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.26SIGNATURES 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:August 2,2023Andrew Witty /s/JOHN REXExecutive Vice President and Chief Financial Officer(principal financial officer)Dated:August 2,2023John Rex /s/THOMAS ROOSSenior Vice President and Chief Accounting Officer(principal accounting officer)Dated:August 2,2023Thomas Roos 27
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