UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30,2022OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission file number 001-00035GENERAL ELECTRIC COMPANY(Exact name of registrant as specified in its charter)New York14-0689340(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)5 Necco Street BostonMA02210(Address of principal executive offices)(Zip Code)(Registrants telephone number,including area code)(617)443-3000Securities 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$0.01 per shareGENew York Stock Exchange1.250%Notes due 2023GE 23ENew York Stock Exchange0.875%Notes due 2025GE 25New York Stock Exchange1.875%Notes due 2027GE 27ENew York Stock Exchange1.500%Notes due 2029GE 29New York Stock Exchange7 1/2%Guaranteed Subordinated Notes due 2035GE/35New York Stock Exchange2.125%Notes due 2037GE 37New 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 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and emerging growth company inRule 12b-2 of the Exchange Act.(Check one):Large accelerated filerAccelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No There were 1,092,668,140 shares of common stock with a par value of$0.01 per share outstanding at September 30,2022.TABLE OF CONTENTSPageForward-Looking Statements3About General Electric4Managements Discussion and Analysis of Financial Condition and Results of Operations(MD&A)4Consolidated Results4Segment Operations6Corporate11Other Consolidated Information12Capital Resources and Liquidity13Critical Accounting Estimates16Other Items16Non-GAAP Financial Measures18Controls and Procedures23Other Financial Data23Legal Proceedings23Financial Statements and Notes24Statement of Earnings(Loss)24Statement of Financial Position26Statement of Cash Flows27Statement of Comprehensive Income(Loss)28Statement of Changes in Shareholders Equity28Note 1 Basis of Presentation and Summary of Significant Accounting Policies29Note 2 Businesses Held for Sale and Discontinued Operations29Note 3 Investment Securities30Note 4 Current and Long-Term Receivables32Note 5 Inventories,Including Deferred Inventory Costs33Note 6 Property,Plant and Equipment and Operating Leases33Note 7 Goodwill and Other Intangible Assets33Note 8 Revenues34Note 9 Contract and Other Deferred Assets&Progress Collections and Deferred Income34Note 10 All Other Assets35Note 11 Borrowings36Note 12 Insurance Liabilities and Annuity Benefits36Note 13 Postretirement Benefit Plans37Note 14 Current and All Other Liabilities38Note 15 Income Taxes38Note 16 Shareholders Equity38Note 17 Earnings Per Share Information39Note 18 Other Income(Loss)39Note 19 Financial Instruments40Note 20 Variable Interest Entities41Note 21 Commitments,Guarantees,Product Warranties and Other Loss Contingencies42Exhibits44Form 10-Q Cross Reference Index44Signatures44FORWARD-LOOKING STATEMENTS.Our public communications and SEC filings may contain statements related to future,not past,events.Theseforward-looking statements often address our expected future business and financial performance and financial condition,and often contain words such asexpect,anticipate,intend,plan,believe,seek,see,will,would,estimate,forecast,target,preliminary,or range.Forward-lookingstatements by their nature address matters that are,to different degrees,uncertain,such as statements about the impacts of macroeconomic and marketconditions and volatility on our business operations,financial results and financial position and on the global supply chain and world economy;our expectedfinancial performance,including cash flows,revenues,organic growth,margins,earnings and earnings per share;impacts related to the COVID-19 pandemic;planned and potential transactions,including our plan to pursue spin-offs of GE HealthCare and our portfolio of energy businesses that are planned to becombined as GE Vernova(Renewable Energy,Power,Digital and Energy Financial Services);our de-leveraging plans,including leverage ratios and targets,thetiming and nature of actions to reduce indebtedness and our credit ratings and outlooks;our funding and liquidity;our businesses cost structures and plans toreduce costs;restructuring,goodwill impairment or other financial charges;or tax rates.For us,particular areas where risks or uncertainties could cause our actual results to be materially different than those expressed in our forward-lookingstatements include:our success in executing and completing asset dispositions or other transactions,including our plan to pursue spin-offs of GE HealthCare and GE Vernova,and sales or other dispositions of our equity interests in Baker Hughes Company(Baker Hughes)and AerCap Holdings N.V.(AerCap)and our expectedequity interest in GE HealthCare after its spin-off,the timing for such transactions,the ability to satisfy any applicable pre-conditions,and the expectedproceeds,consideration and benefits to GE;changes in macroeconomic and market conditions and market volatility,including impacts related to the COVID-19 pandemic,risk of recession,inflation,supply chain constraints or disruptions,rising interest rates,the value of securities and other financial assets(including our equity interests in Baker Hughesand AerCap,and our expected equity interest in GE HealthCare after its spin-off),oil,natural gas and other commodity prices and exchange rates,and theimpact of such changes and volatility on our business operations,financial results and financial position;the continuing severity,magnitude and duration of the COVID-19 pandemic,including impacts of virus variants and resurgences,and of government,business and individual responses,such as continued or new government-imposed lockdowns and travel restrictions and aviation passenger confidence;our capital allocation plans,including de-leveraging actions to reduce GEs indebtedness,the capital structures of the three public companies that we plan toform from our businesses with the planned spin-offs,the timing and amount of dividends,share repurchases,acquisitions,organic investments,and otherpriorities;downgrades of our current short-and long-term credit ratings or ratings outlooks,or changes in rating application or methodology,and the related impact onour funding profile,costs,liquidity and competitive position;the amount and timing of our cash flows and earnings,which may be impacted by macroeconomic,customer,supplier,competitive,contractual and otherdynamics and conditions;capital and liquidity needs associated with our financial services operations,including in connection with our run-off insurance operations and mortgageportfolio in Poland(Bank BPH),the amount and timing of any required capital contributions and any strategic actions that we may pursue;global economic trends,competition and geopolitical risks,including impacts from the ongoing conflict between Russia and Ukraine and the relatedsanctions and other measures,decreases in the rates of investment or economic growth globally or in key markets we serve,or an escalation of sanctions,tariffs or other trade tensions between the U.S.and China or other countries,and related impacts on our businesses global supply chains and strategies;market developments or customer actions that may affect demand and the financial performance of major industries and customers we serve,such aspricing,cost,volume and the timing of customer investment and other factors in renewable energy markets;demand for air travel and other dynamicsrelated to the COVID-19 pandemic;conditions in key geographic markets;and other shifts in the competitive landscape for our products and services;operational execution by our businesses,including the success at our Renewable Energy business in improving product quality and fleet availability,executing on cost reduction initiatives and other aspects of operational performance,as well as the performance of Aerospace amidst the ongoing marketrecovery;changes in law,regulation or policy that may affect our businesses,such as trade policy and tariffs,regulation and incentives related to climate change(including the impact of the Inflation Reduction Act and other policies),and the effects of tax law changes;our decisions about investments in research and development,and new products,services and platforms,and our ability to launch new products in a cost-effective manner;our ability to increase margins through implementation of operational improvements,restructuring and other cost reduction measures;the impact of regulation and regulatory,investigative and legal proceedings and legal compliance risks,including the impact of Alstom,Bank BPH and otherinvestigative and legal proceedings;the impact of actual or potential quality issues or failures of our products or third-party products with which our products are integrated,and related costsand reputational effects;the impact of potential information technology,cybersecurity or data security breaches at GE or third parties;andthe other factors that are described in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31,2021 and ourQuarterly Report on Form 10-Q for the quarter ended March 31,2022,as such descriptions may be updated or amended in any future reports we file withthe SEC.These or other uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements.We do notundertake to update our forward-looking statements.This document includes certain forward-looking projected financial information that is based on currentestimates and forecasts.Actual results could differ materially.2022 3Q FORM 10-Q 3ABOUT GENERAL ELECTRIC.General Electric Company(General Electric,GE or the Company)is a high-tech industrial company that operatesworldwide through its four segments,Aerospace,HealthCare,Renewable Energy,and Power.Our products include commercial and military aircraft engines andsystems;healthcare systems and pharmaceutical diagnostics;wind and other renewable energy generation equipment and grid solutions;and gas,steam,nuclear and other power generation equipment.We have significant global installed bases of equipment across these sectors,and services to support theseproducts are also an important part of our business alongside new equipment sales.In November 2021,we announced a strategic plan to form three industry-leading,global,investment-grade public companies from our(i)Aerospace business,(ii)HealthCare business and(iii)combined Renewable Energy,Power,Digital and Energy Financial Services businesses.In July 2022,we announced the new brand names for our three planned future companies:GE Aerospace,GE HealthCare and GE Vernova.Therefore,for purposes of this report,we refer to our reporting segments as Aerospace(previously Aviation),HealthCare(previously Healthcare),Renewable Energy and Power.The composition of these reporting segments is unchanged.GEs Internet address at ,Investor Relations website at and our corporate blog at ,as well asGEs Facebook page,Twitter accounts and other social media,including GE_Reports,contain a significant amount of information about GE,including financialand other information for investors.GE encourages investors to visit these websites from time to time,as information is updated and new information is posted.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(MD&A).Theconsolidated financial statements of General Electric Company are prepared in conformity with U.S.generally accepted accounting principles(GAAP).Unlessotherwise noted,tables are presented in U.S.dollars in millions.Certain columns and rows within tables may not add due to the use of rounded numbers.Percentages presented in this report are calculated from the underlying numbers in millions.Discussions throughout this MD&A are based on continuingoperations unless otherwise noted.The MD&A should be read in conjunction with the Financial Statements and Notes to the consolidated financial statements.In the accompanying analysis of financial information,we sometimes use information derived from consolidated financial data but not presented in our financialstatements prepared in accordance with GAAP.Certain of these data are considered“non-GAAP financial measures”under SEC rules.See the Non-GAAPFinancial Measures section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financialmeasures.CONSOLIDATED RESULTSTHIRD QUARTER 2022 RESULTS.Total revenues were$19.1 billion,up$0.5 billion for the quarter,driven primarily by increases at Aerospace and HealthCare,partially offset by decreases at Renewable Energy and Power.Continuing earnings(loss)per share was$(0.14).Excluding the results from our run-off Insurance business,separation costs,restructuring costs,non-operatingbenefit costs,gains(losses)on equity securities and gains(losses)on purchases and sales of business interests,Adjusted earnings per share*was$0.35.Forthe three months ended September 30,2022,profit margin was(0.3)%and profit was down$0.6 billion,primarily due to a net loss on the value of equitysecurities of$0.5 billion compared to the prior year gain,a decrease in segment profit of$0.4 billion,a decrease in Insurance profit of$0.4 billion and separationcosts of$0.2 billion,partially offset by a decrease in non-operating benefit costs of$0.6 billion and a net gain on purchases and sales of businesses of$0.2billion compared to the prior year loss.Adjusted organic profit*decreased$0.3 billion(20%),driven primarily by a decrease at Renewable Energy,partially offsetby an increase at Aerospace and lower adjusted total corporate operating costs*.Cash flows from operating activities(CFOA)were$1.3 billion and$(1.5)billion for the nine months ended September 30,2022 and 2021,respectively.Cashflows from operating activities increased primarily due to a decrease in cash collateral paid net of settlements on interest rate derivative contracts,an increase innet income(after adjusting for amortization of intangible assets,non-cash losses related to our interests in AerCap and Baker Hughes and non-operating debtextinguishment costs)and an increase in cash from all other operating activities.Free cash flows*(FCF)were$0.5 billion and$(1.8)billion for the nine monthsended September 30,2022 and 2021,respectively.FCF*increased primarily due to the same reasons as noted for CFOA above,partially offset by an increasein cash used for working capital(after adjusting for the impact from discontinued factoring programs and eliminations related to our receivables factoring andsupply chain finance programs).See the Capital Resources and Liquidity-Statement of Cash Flows section for further information.Remaining performance obligation(RPO)is unfilled customer orders for products and product services(expected life of contract sales for product services)excluding any purchase order that provides the customer with the ability to cancel or terminate without incurring a substantive penalty.See Note 8 for furtherinformation.RPOSeptember 30,2022December 31,2021Equipment$44,734$45,065 Services196,029 194,755 Total RPO$240,763$239,820*Non-GAAP Financial Measure2022 3Q FORM 10-Q 4As of September 30,2022,RPO increased$0.9 billion from December 31,2021,primarily at Aerospace,from engines contracted under long-term serviceagreements that have now been put into service and contract modifications;partially offset by decreases at Power,from the continued wind down of the SteamPower new build coal business and sales outpacing new orders in Gas Power contractual services;at Renewable Energy,from the overall impact of a strongerU.S.dollar and sales exceeding new orders at Onshore Wind;and at HealthCare,from the impact of contract renewal timing in services.REVENUESThree months ended September 30Nine months ended September 302022202120222021Equipment revenues$8,082$8,903$22,549$25,172 Services revenues10,356 8,910 30,041 26,427 Insurance revenues646 756 2,179 2,295 Total revenues$19,084$18,569$54,769$53,893 For the three months ended September 30,2022,total revenues increased$0.5 billion(3%).Equipment revenues decreased,primarily at Renewable Energy,due to fewer wind turbine deliveries at Onshore Wind;and at Power,due to decreases in Gas Power HA turbine and aeroderivative deliveries and decreases inSteam Power equipment on the exit of new build coal;partially offset by increases at HealthCare,due to Imaging and Ultrasound,mainly due to strong growth inthe U.S.and Europe,the Middle East and Africa;and at Aerospace,due to an increase in commercial install and spare engine unit shipments versus the prioryear.Services revenues increased,primarily at Aerospace,due to higher prices,increased shop visit volume and higher volume of commercial spare partshipments;at Renewable Energy,primarily due to higher core services and more repower unit deliveries at Onshore Wind;and at HealthCare,primarily due tothe continued growth of Pharmaceutical Diagnostics(PDx)and Healthcare Systems(HCS);partially offset by a decrease at Power,due to lower plannedcontractual services outages at Gas Power and prior year Steam Power services volume that did not repeat.Insurance revenues decreased$0.1 billion(15%).Excluding the change in Insurance revenues,the net effects of acquisitions of$0.1 billion,the net effects of dispositions of$0.1 billion and the effects of astronger U.S.dollar of$0.6 billion,organic revenues*increased$1.3 billion(7%),with equipment revenues down$0.5 billion(6%)and services revenues up$1.8 billion(20%).Organic revenues*increased at Aerospace and HealthCare,partially offset by decreases at Renewable Energy and Power.For the nine months ended September 30,2022,total revenues increased$0.9 billion(2%).Equipment revenues decreased,primarily at Renewable Energy,due to fewer wind turbine deliveries at Onshore Wind and lower revenue at Grid;at Power,due to a decrease in Steam Power equipment on the exit of new buildcoal;and at Aerospace,due to lower GEnx engine production rates and product transition with fewer engine shipments on legacy programs;partially offset by anincrease at HealthCare,driven by Imaging,mainly due to strong growth in the U.S.and Europe,the Middle East and Africa,partially offset by China.Servicesrevenues increased,primarily at Aerospace,due to higher prices,increased shop visit volume and higher volume of commercial spare part shipments;atRenewable Energy,primarily due to higher services revenue at Onshore Wind from a larger installed base and more repower unit deliveries;and at HealthCare,driven by the continued growth of HCS;partially offset by a decrease at Power,due to prior year Steam Power services volume that did not repeat.Insurancerevenues decreased$0.1 billion(5%).Excluding the change in Insurance revenues,the net effects of acquisitions of$0.2 billion,the net effects of dispositions of$0.2 billion and the effects of astronger U.S.dollar of$1.3 billion,organic revenues*increased$2.3 billion(4%),with equipment revenues down$2.1 billion(8%)and services revenues up$4.4 billion(17%).Organic revenues*increased at Aerospace and HealthCare,partially offset by decreases at Renewable Energy and Power.EARNINGS(LOSS)AND EARNINGS(LOSS)PER SHAREThree months ended September 30Nine months ended September 30(Per-share in dollars and diluted)2022202120222021Continuing earnings(loss)attributable to GE common shareholders$(153)$603$(1,609)$(1)Continuing earnings(loss)per share$(0.14)$0.54$(1.46)$(0.01)For the three months ended September 30,2022,continuing earnings decreased$0.8 billion primarily due to a net loss on the value of equity securities of$0.5 billion compared to the prior year gain,a decrease in segment profit of$0.4 billion,a decrease in Insurance profit of$0.4 billion and separation costs of$0.2billion,partially offset by a decrease in non-operating benefit costs of$0.6 billion and a net gain on purchases and sales of businesses of$0.2 billion comparedto the prior year loss.Adjusted earnings*was$0.4 billion,a decrease of$0.2 billion.Profit margin was(0.3)%,a decrease from 3.1%.Adjusted profit*was$1.1billion,a decrease of$0.3 billion organically*,due to a decrease at Renewable Energy,partially offset by an increase at Aerospace and lower adjusted totalcorporate operating costs*.Adjusted profit margin*was 5.8%,a decrease of 190 basis points organically*.For the nine months ended September 30,2022,continuing earnings decreased$1.6 billion primarily due to a net loss on the value of equity securities of$3.1billion compared to the prior year gain,an increase in provision for income taxes of$0.9 billion,the Steam asset sale impairment of$0.8 billion,separation costsof$0.6 billion and Russia and Ukraine charges of$0.3 billion,partially offset by a decrease in non-operating benefit costs of$1.8 billion,the nonrecurrence ofdebt extinguishment costs of$1.4 billion,lower adjusted total corporate operating costs of$0.5 billion,lower interest and other financial charges of$0.3 billionand an increase in segment profit of$0.2 billion.Adjusted earnings*were$1.5 billion,an increase of$0.5 billion.Profit margin was(1.5)%,a decrease from(0.4)%.Adjusted profit*was$3.7 billion,an increase of$0.7 billion organically*,due to increases at Aerospace and Power,and lower adjusted total corporateoperating costs*,partially offset by decreases Renewable Energy and HealthCare.Adjusted profit margin*was 7.0%,an increase of 100 basis pointsorganically*.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 5We continue to experience inflation pressure in our supply chain,as well as delays in sourcing key materials needed for our products.This has delayed ourability to convert RPO to revenue and negatively impacted our profit margins.While we are taking actions to limit this pressure,we may continue to experienceimpacts in future periods.Also,geopolitical uncertainties with the ongoing Russia and Ukraine conflict,as well as recent COVID-19 impacts in China,areintroducing additional challenges.As of September 30,2022,we have approximately$0.5 billion of remaining assets in Russia and Ukraine,primarily in ourPower and HealthCare businesses,which relate to activity not subject to sanctions or restricted under Company policy.SEGMENT OPERATIONS.Refer to our Annual Report on Form 10-K for the year ended December 31,2021,for further information regarding ourdetermination of segment profit for continuing operations,and for our allocations of corporate costs to our segments.Three months ended September 30Nine months ended September 30SUMMARY OF REPORTABLE SEGMENTS20222021V 222021Vrospace$6,705$5,398 24%$18,434$15,230 21%HealthCare4,613 4,339 6,494 13,100 3%Renewable Energy3,594 4,208(15)%9,564 11,505(17)%Power3,529 4,026(12),233 12,242(8)%Total segment revenues18,440 17,970 3R,725 52,076 1%Corporate643 599 7%2,044 1,816 13%Total revenues$19,084$18,569 3%$54,769$53,893 2rospace$1,284$846 52%$3,341$1,664 FHealthCare712 704 1%1,901 2,203(14)%Renewable Energy(934)(151)U(1,786)(484)UPower141 204(31)R4 416 26%Total segment profit(loss)1,204 1,603(25)%3,980 3,799 5%Corporate(a)(960)(40)U(3,947)361 UInterest and other financial charges(377)(446)15%(1,146)(1,403)18bt extinguishment costs F(1,416)FNon-operating benefit income(cost)125(427)F396(1,374)FBenefit(provision)for income taxes(72)(35)U(701)211 UPreferred stock dividends(73)(52)(40)%(192)(180)(7)rnings(loss)from continuing operations attributable to GEcommon shareholders(153)603 U(1,609)(1)UEarnings(loss)from discontinued operations attributable toGE common shareholders(85)602 U(580)(2,856)80%Net earnings(loss)attributable to GE commonshareholders$(238)$1,205 U$(2,189)$(2,857)23%(a)Includes interest and other financial charges of$13 million and$16 million,and$45 million and$47 million;and benefit for income taxes of$52 million and$33 million,and$160 million and$111 million related to Energy Financial Services(EFS)within Corporate for the three and nine months ended September30,2022 and 2021,respectively.GE AEROSPACE.Our results in the third quarter of 2022 reflect the continued recovery of the commercial markets from the effects of the COVID-19 pandemic.Global industrial supply chain disruptions in material and labor continued to affect performance,however,Aerospace saw signs of improved flow through ourfactories.A key underlying driver of our commercial engine and services business is global commercial air traffic.We regularly track global departures,whichimproved 19%during the third quarter of 2022 compared to the third quarter of 2021,and stand at approximately 85%of 2019 levels as of September 30,2022.Global supply chain constraints and labor shortages,in part driven by the pandemic,are causing disruptions for us and our suppliers,which have impacted ourproduction and delivery.We continue to partner with our airline and leasing customers and collaborate with our airframe partners on future production rates.However,supply chain output improved this quarter,and we increased our Commercial and Military engine sales units by 32%compared to the second quarterof 2022 and 21%compared to the same quarter last year.Government travel restrictions and COVID-19 virus variants have driven varied levels of recovery regionally.We remain confident in the recovery,and currenttrends are in line with our recovery forecast.Consistent with updated industry projections,although overall traffic recovery remains unchanged,we now estimateboth single-aisle and twin-aisle air traffic to recover to 2019 levels in late 2023.We are in frequent dialogue with our airline,airframe,and maintenance,repairand overhaul customers about the outlook for commercial air travel,new aircraft production,fleet retirements,and after-market services,including shop visit andspare parts demand.As it relates to the military environment,we continue to forecast strong military demand creating future growth opportunities for our Military business as the U.S.Department of Defense and foreign governments have continued flight operations,and have allocated budgets to upgrade and modernize their existing fleets.InSeptember 2022,Aerospace and the U.S.Air Force successfully concluded testing on the second XA100 adaptive cycle engine,marking the final major contractmilestone of the Air Forces Adaptive Engine Transition Program(AETP).2022 3Q FORM 10-Q 6Total engineering,comprising company,customer and partner-funded and nonrecurring engineering costs,increased compared to the prior year.We continue tobe committed to investment in developing and maturing technologies that enable a more sustainable future of flight.We continue to take actions to protect our ability to serve our customers now and as the global airline industry recovers.Our deep history of innovation andtechnology leadership,commercial engine installed base of approximately 39,400 units,with approximately 11,500 units under long-term service agreements,and military engine installed base of approximately 26,200 units represents strong long-term fundamentals.We believe Aerospace is well-positioned to drivelong-term profitable growth and cash generation over time.Three months ended September 30Nine months ended September 30Sales in units,except where noted2022202120222021Commercial Engines(a)489 377 1,187 1,119 LEAP Engines(b)347 226 812 625 Military Engines151 154 466 405 Spare Parts Rate(c)$29.4$19.3$25.2$15.8(a)Commercial Engines now includes Business Aviation and Aeroderivative units for all periods presented.(b)LEAP engines are subsets of commercial engines.(c)Commercial externally shipped spare parts and spare parts used in time and material shop visits in millions of dollars per day.RPOSeptember 30,2022December 31,2021Equipment$12,324$11,139 Services117,785 114,133 Total RPO$130,109$125,272 SEGMENT REVENUES AND PROFITThree months ended September 30Nine months ended September 302022202120222021Commercial Engines&Services$4,971$3,602$13,130$10,071 Military1,027 1,107 3,159 3,104 Systems&Other707 689 2,146 2,055 Total segment revenues$6,705$5,398$18,434$15,230 Equipment$1,968$1,837$5,379$5,549 Services4,736 3,562 13,055 9,681 Total segment revenues$6,705$5,398$18,434$15,230 Segment profit$1,284$846$3,341$1,664 Segment profit margin19.1.7.1.9%For the three months ended September 30,2022,segment revenues were up$1.3 billion(24%)and segment profit was up$0.4 billion(52%).Revenues increased$1.3 billion(25%)organically*.Commercial Services revenues increased,primarily due to higher prices,increased shop visit volume andhigher volume of commercial spare part shipments.Commercial Engines revenues increased,primarily driven by 112 more commercial install and spare engineunit shipments,including 121 more LEAP units,versus the prior year.Military revenues decreased,primarily due to product mix and 3 fewer engine shipmentsthan the prior year.Profit increased$0.4 billion(47%)organically*,primarily due to higher prices,increased shop visit volume and higher volume of commercial spare partshipments.These increases in profit were partially offset by lower profit on Commercial Engine shipments driven by product transition with fewer engineshipments on legacy programs and more shipments on newer programs,inflation in our supply chain and additional growth investment.For the nine months ended September 30,2022,segment revenues were up$3.2 billion(21%)and segment profit was up$1.7 billion.RPO as of September 30,2022 increased$4.8 billion(4%)from December 31,2021,due to increases in both equipment and services.Equipment increasedprimarily due to an increase in Commercial orders since December 31,2021.Services increased primarily as a result of engines contracted under long-termservice agreements that have now been put into service and contract modifications.Revenues increased$3.3 billion(21%)organically*.Commercial Services revenues increased,primarily due to higher prices,increased shop visit volume andhigher volume of commercial spare part shipments.Commercial Services revenues also increased due to a net favorable change of$0.1 billion for its long-termservice agreements compared to a net unfavorable change of$0.3 billion for the same period in the prior year.Commercial Engines revenues increased,primarily driven by 68 more commercial install and spare engine unit shipments,including 187 more LEAP units versus the prior year,partially offset by lowerGEnx engine production rates and product transition with fewer engine shipments on legacy programs.Military revenues increased,primarily due to growth inservices and 61 more engine shipments than the prior year,partially offset by product mix.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 7Profit increased$1.6 billion(96%)organically*,primarily due to higher prices,increased shop visit volume and higher volume of commercial spare partshipments.Profit also increased due to the impact of favorable contract margin reviews for long-term service agreements.These increases in profit were partiallyoffset by lower profit on Commercial Engine shipments driven by product transition with fewer engine shipments on legacy programs and more shipments onnewer programs,inflation in our supply chain and additional growth investment.GE HEALTHCARE.Market demand and RPO conversion remain positive despite inflationary and supply challenges continuing to impact the industry.Globalpublic spending in healthcare is solid,particularly in Europe and Asia.In the U.S.,customers are taking a more cautious approach as they monitor the economicenvironment.Overall,continued patient demand is leading providers to invest in products and services that increase productivity and reduce operating costs,animportant dynamic as healthcare systems modernize post-pandemic and prepare for increased demand longer-term.Actions of our supply chain andengineering teams as well as proactive supplier engagement are driving fewer delays in securing key materials.However,shortages are still impacting our abilityto deliver certain products.Our expectation is that supply chain pressures will continue to improve.We have proactively managed inflation across material andlogistics costs.We have continued to adjust pricing of our products,manage discretionary and structural cost in our business,as well as prioritize research anddevelopment investments.Delivering for patients and our customers remains a top priority.We continue to grow and invest in precision health,with a focus on creating new products and digital solutions as well as expanding uses of existing offeringsthat are tailored to the different needs of our global customers.During the third quarter of 2022,we announced an equity investment in AliveCor,furtherdeepening our ability to deliver connected care so clinicians can make faster,more informed decisions,and help improve patient outcomes.We also announceda collaboration with AMC Health allowing clinicians to offer remote monitoring as a virtual care solution that extends patient care to the home.We remaincommitted to innovate and invest to create more integrated,efficient and personalized precision care.RPOSeptember 30,2022December 31,2021Equipment$4,554$4,232 Services9,557 10,375 Total RPO$14,110$14,606 SEGMENT REVENUES AND PROFITThree months ended September 30Nine months ended September 302022202120222021Healthcare Systems(HCS)$4,086$3,832$11,998$11,572 Pharmaceutical Diagnostics(PDx)527 507 1,496 1,528 Total segment revenues$4,613$4,339$13,494$13,100 Equipment$2,352$2,187$6,945$6,671 Services2,261 2,151 6,549 6,429 Total segment revenues$4,613$4,339$13,494$13,100 Segment profit$712$704$1,901$2,203 Segment profit margin15.4.2.1.8%For the three months ended September 30,2022,segment revenues were up$0.3 billion(6%)and segment profit was up 1%.Revenues increased$0.4 billion(10%)organically*.Equipment revenues increased driven by Imaging and Ultrasound mainly due to strong growth in the U.S.and Europe,the Middle East and Africa.Services revenues increased,driven by the continued growth of PDx and HCS.Profit increased 4%organically*,driven by increased volume and HCS price,partially offset by material inflation and logistics cost across all product lines.Wealso continued to make planned research and development and commercial investments.For the nine months ended September 30,2022,segment revenues were up$0.4 billion(3%)and segment profit was down$0.3 billion(14%).RPO as of September 30,2022 decreased$0.5 billion(3%)from December 31,2021,primarily due to an increase in equipment orders,more than offset by theimpact of contract renewal timing in services.Revenues increased$0.7 billion(5%)organically*.Equipment revenues increased,driven by Imaging,mainly due to strong growth in the U.S.and Europe,theMiddle East and Africa,partially offset by China.Services revenues increased,driven by the continued growth of HCS,offset by PDx,primarily due to China.Profit decreased$0.2 billion(8%)organically*,driven by increased material inflation and logistics cost across all product lines,partially offset by increasedvolume and price.We also continued to make planned research and development and commercial investments.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 8RENEWABLE ENERGY will be part of GE Vernova,GEs portfolio of energy businesses.Overall U.S.policy uncertainty,rising inflation and permittingchallenges has resulted in project delays and deferral of customer investments in Onshore Wind.During the third quarter,the Inflation Reduction Act of 2022was signed into law,which includes various tax incentives expected to increase longer term demand in the U.S.for onshore and offshore wind projects.Theoffshore wind industry continues to expect strong global growth through the decade and our Grid business is positioned to support grid expansion andmodernization needs.We have experienced significant cost inflation in materials and logistics costs across the entire business that impact price and customerdemand.At Onshore Wind,based on experience across our fleet,we are deploying repairs and other corrective measures to improve our overall quality andfleet availability resulting in higher warranty and related reserves.Concurrently,we are undertaking a restructuring program reflecting our selectivity strategy tooperate in fewer markets and to simplify and standardize product variants.Our financial results are dependent on costs to address fleet availability,execution ofcost reduction initiatives,the inflationary environment,improved selectivity and pricing,and U.S.Treasury tax implementation guidance.New product introductions account for a large portion of our RPO in Onshore and Offshore Wind driven by significant demand for larger turbines that decreasethe levelized cost of energy,such as our 5 MW Cypress and 3 MW Sierra Onshore units,and our 12-14 MW Haliade-X Offshore units.We expect to startshipping Haliade-X units for our first commercial project in the fourth quarter of this year.Improving fleet availability while reducing the cost of these new productplatforms and blade technologies,remains a key priority.At Grid Solutions,we are securing our position in the high growth offshore interconnection market withproducts meeting the 2GW high voltage direct current(HVDC)solution standard and developing new technology such as flexible transformers and eco-friendlyg switchgears that solve for a denser,more resilient and efficient electric grid and lower greenhouse gas emissions.Three months ended September 30Nine months ended September 30Onshore and Offshore sales in units2022202120222021Wind Turbines640 1,083 1,703 2,748 Wind Turbine Gigawatts2.2 3.6 5.8 8.9 Repower units140 27 415 276 RPOSeptember 30,2022December 31,2021Equipment$17,493$18,639 Services12,221 12,872 Total RPO$29,715$31,511 SEGMENT REVENUES AND PROFITThree months ended September 30Nine months ended September 302022202120222021Onshore Wind$2,445$3,047$6,403$8,048 Grid Solutions equipment and services744 759 2,145 2,330 Hydro,Offshore Wind and Hybrid Solutions405 401 1,016 1,126 Total segment revenues$3,594$4,208$9,564$11,505 Equipment$2,887$3,695$7,505$9,844 Services707 512 2,059 1,661 Total segment revenues$3,594$4,208$9,564$11,505 Segment profit(loss)$(934)$(151)$(1,786)$(484)Segment profit margin(26.0)%(3.6)%(18.7)%(4.2)%For the three months ended September 30,2022,segment revenues were down$0.6 billion(15%)and segment losses were up$0.8 billion.Revenues decreased$0.4 billion(10%)organically*,primarily from 443 fewer wind turbine deliveries,primarily at Onshore Wind in the U.S.,partially offset byhigher core services and 113 more repower unit deliveries at Onshore Wind,and improved pricing across all businesses.Segment losses increased$0.8 billion organically*,primarily from higher warranty and related reserves of$0.5 billion in response to the deployment of correctivemeasures and repair campaigns for operating units within our fleet,and lower U.S.volume at Onshore Wind and cost inflation across all businesses.Theseincreases were partially offset by higher volumes and the impact of cost reduction initiatives at Grid and improved pricing across all businesses.For the nine months ended September 30,2022,segment revenues were down$1.9 billion(17%)and segment losses were up$1.3 billion.RPO as of September 30,2022 decreased$1.8 billion(6%)from December 31,2021 primarily from the overall impact of a stronger U.S.dollar and salesexceeding new orders at Onshore Wind,partially offset by new orders at Grid and Hydro exceeding sales.The decline in new equipment orders at OnshoreWind is primarily attributable to the U.S.market decline and inflation-related pricing increases negatively impacting near-term demand.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 9Revenues decreased$1.5 billion(13%)organically*,primarily from 1,045 fewer wind turbine deliveries,primarily at Onshore Wind and lower revenue at Grid dueto increased commercial selectivity,partially offset by higher services revenue at Onshore Wind from a larger installed base and 139 more repower unitdeliveries.Segment losses increased$1.4 billion organically*,primarily from lower U.S.volume and higher warranty and related reserves of$0.5 billion in the third quarterof 2022 in response to the deployment of corrective measures and repair campaigns for operating units within our fleet at Onshore Wind and cost inflationacross all businesses,partially offset by the impact of cost reduction initiatives.Onshore Wind results were also adversely impacted by execution of lower marginRPO and the impact of transitioning to newer product offerings internationally.POWER will be part of GE Vernova,GEs portfolio of energy businesses.During the nine months ended September 30,2022,global gas generation andGE utilization grew mid-single digits with strength in Europe and the U.S.The fleet continues to follow growing gas generation,capturing shortfalls coming fromnuclear outages,coal retirements and hydro and supply disruptions.Looking ahead,we anticipate the power market to continue to be impacted by overcapacityin the industry,continued price pressure from competition on servicing the installed base,and the uncertain timing of deal closures due to financing and thecomplexities of working in emerging markets,as well as the ongoing impacts of COVID-19.Although market factors related to the energy transition such asgreater renewable energy penetration and the adoption of climate change-related policies continue to impact long-term demand(and related financing),weexpect the gas market to remain stable over the next decade with gas generation continuing to grow low-single-digits.We believe gas will play a critical role inthe energy transition.We remain focused on our underwriting discipline and risk management to ensure we are securing deals that meet our financial hurdlesand we have high confidence to deliver for our customers.In the first quarter of 2022,we signed a non-binding memorandum of understanding for GE Steam Power to sell a portion of its business to lectricit de FranceS.A.(EDF),which resulted in a reclassification of that business to held for sale.We expect to complete the sale,subject to regulatory approval,in the first half of2023.In the second quarter of 2022,we announced that Gas Power intends to acquire Nexus Controls,a business specializing in aftermarket control systemupgrades and controls field services.The deal,which is subject to customary closing conditions including regulatory approval and mandatory information andconsultation processes with employees and their representatives,is expected to close in the second quarter of 2023.We continue to invest in new product development,such as our HA-Turbines and Nuclear small modular reactors.Our fundamentals remain strong withapproximately$67.5 billion in RPO and a gas turbine installed base greater than 7,000 units,including approximately 1,800 units under long-term serviceagreements.Three months ended September 30Nine months ended September 30Sales in units2022202120222021GE Gas Turbines20 22 69 47 Heavy-Duty Gas Turbines(a)14 14 37 34 HA-Turbines(b)3 5 6 11 Aeroderivatives(a)6 8 32 13(a)Heavy-Duty Gas Turbines and Aeroderivatives are subsets of GE Gas Turbines.(b)HA-Turbines are a subset of Heavy-Duty Gas Turbines.RPOSeptember 30,2022December 31,2021Equipment$11,611$12,169 Services55,848 56,569 Total RPO$67,459$68,738 SEGMENT REVENUES AND PROFITThree months ended September 30Nine months ended September 302022202120222021Gas Power$2,612$2,861$8,234$8,739 Steam Power571 790 1,898 2,327 Power Conversion,Nuclear and other346 376 1,101 1,176 Total segment revenues$3,529$4,026$11,233$12,242 Equipment$954$1,368$3,116$3,680 Services2,575 2,658 8,117 8,561 Total segment revenues$3,529$4,026$11,233$12,242 Segment profit(loss)$141$204$524$416 Segment profit margin4.0%5.1%4.7%3.4%*Non-GAAP Financial Measure2022 3Q FORM 10-Q 10For the three months ended September 30,2022,segment revenues were down$0.5 billion(12%)and segment profit was down$0.1 billion(31%).Revenues decreased$0.2 billion(5%)organically*,primarily due to decreases in Gas Power HA turbine and aeroderivative deliveries,lower planned contractualservices outages at Gas Power and decreases in Steam Power equipment on the exit of new build coal and prior year Steam Power services volume that did notrepeat,partially offset by favorable price escalation in our long-term service agreements.Profit decreased 23%organically*primarily due to lower planned contractual services outages and unfavorable equipment mix at Gas Power,partially offset byfavorable price escalation in our long-term service agreements.For the nine months ended September 30,2022,segment revenues were down$1.0 billion(8%)and segment profit was up$0.1 billion(26%).RPO as of September 30,2022 decreased$1.3 billion(2%)from December 31,2021,primarily driven by the continued wind down of the Steam Power newbuild coal business,sales outpacing new orders in Gas Power contractual services and the impact of the Russia and Ukraine conflict at Power Conversion.Revenues decreased$0.2 billion(2%)organically*,primarily due to a reduction in Steam Power equipment on the exit of new build coal and prior year SteamPower services volume that did not repeat,partially offset by higher Gas Power aeroderivative deliveries and favorable price escalation in our long-term serviceagreements.Profit increased$0.1 billion(27%)organically*primarily due to prior year project and legal charges at Steam Power that did not repeat,favorable priceescalation in our long-term service agreements and higher Gas Power aeroderivative deliveries,partially offset by lower planned contractual services outagesand unfavorable equipment mix at Gas Power.CORPORATE.The Corporate amounts related to revenues and earnings include the results of disposed businesses,certain amounts not included in operatingsegment results because they are excluded from measurement of their operating performance for internal and external purposes and the elimination ofintersegment activities.In addition,the Corporate amounts related to earnings include certain costs of our principal retirement plans,significant,higher-costrestructuring programs,separation costs,and other costs reported in Corporate.Corporate includes the results of the GE Digital business and our remaining GE Capital businesses,our former financial services business,including our run-offInsurance business(see Other Items-Insurance for further information).REVENUES AND OPERATING PROFIT(COST)Three months ended September 30Nine months ended September 302022202120222021Corporate revenues$210$237$635$693 Insurance revenues646 756 2,179 2,295 Eliminations and other(212)(394)(769)(1,171)Total Corporate revenues$643$599$2,044$1,816 Gains(losses)on purchases and sales of business interests$22$(156)$28$(159)Gains(losses)on equity securities(89)412(1,859)1,256 Restructuring and other charges(183)(64)(253)(395)Separation costs(227)(553)Steam asset sale impairment(Notes 6 and 7)(825)Russia and Ukraine charges(33)(263)Insurance profit(loss)(Note 12)(310)55 87 426 Adjusted total corporate operating costs(Non-GAAP)(140)(287)(307)(767)Total Corporate operating profit(cost)(GAAP)$(960)$(40)$(3,947)$361 Less:gains(losses),impairments,Insurance,and restructuring&other(820)247(3,640)1,128 Adjusted total corporate operating costs(Non-GAAP)$(140)$(287)$(307)$(767)Functions&operations$(127)$(173)$(258)$(541)Environmental,health and safety(EHS)and other items(22)(100)(81)(184)Eliminations9(13)32(42)Adjusted total corporate operating costs(Non-GAAP)$(140)$(287)$(307)$(767)Adjusted total corporate operating costs*excludes gains(losses)on purchases and sales of business interests,significant,higher-cost restructuring programs,separation costs,gains(losses)on equity securities,impairments and our run-off Insurance business profit.We believe that adjusting corporate costs to excludethe effects of items that are not closely associated with ongoing corporate operations provides management and investors with a meaningful measure thatincreases the period-to-period comparability of our ongoing corporate costs.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 11For the three months ended September 30,2022,revenues remained relatively flat due to$0.2 billion of lower inter-segment eliminations offset by$0.1 billion of lower revenue in our run-off insurance business.Corporate operating profit decreased by$0.9 billion due to a$0.5 billion change in gains(losses)on equity securities,primarily related to$0.6 billion of higher mark-to-market losses on our Baker Hughes shares partially offset by$0.1 billion of mark-to-market gains on our AerCap shares.Operating profit also decreased due to$0.2 billion of separation costs and$0.1 billion of higher restructuring and othercharges primarily related to our Renewable Energy and HealthCare segments.Corporate operating profit also decreased by$0.4 billion in our run-off Insurancebusiness,primarily due to a charge related to terminating several reinsurance contracts(see Other Items-Insurance).These decreases were partially offset by$0.2 billion of lower losses on purchases and sales of business interests due to a$0.2 billion held for sale loss within our Power segment in 2021.Adjusted total corporate operating costs*decreased by$0.1 billion due to cost favorability in our functions and lower costs associated with EHS and other items.For the nine months ended September 30,2022,revenues increased by$0.2 billion due to$0.4 billion of lower intersegment eliminations partiallyoffset by$0.1 billion of lower revenue in our run-off Insurance business and$0.1 billion of lower revenue in our Digital business.Corporate operatingprofit decreased by$4.3 billion due to a$3.1 billion change in gains(losses)on equity securities,primarily related to$2.7 billion of mark-to-market losses on ourAerCap shares and note and$0.3 billion of lower mark-to-market gains on our Baker Hughes shares.In addition,operating profit decreased due to$0.8 billion ofnon-cash impairment charges related to property,plant and equipment and intangible assets as a result of reclassification of a portion of our Steam Powerbusiness to held for sale in the first quarter of 2022(see Note 2)and$0.3 billion of lower operating profit in our run-off Insurance business,primarily due to acharge related to terminating several reinsurance contracts(see Other Items-Insurance).Corporate operating profit also decreased as the result of$0.6 billionof separation costs and$0.3 billion of charges from contracts and recoverability of assets in connection with the conflict between Russia and Ukraine andresulting sanctions,primarily within our Aerospace and Power businesses.These decreases were partially offset by$0.2 billion of lower losses on purchasesand sales of business interests due to a$0.2 billion held for sale loss within our Power segment in 2021 and$0.1 billion of lower restructuring and other charges.Adjusted total corporate operating costs*decreased by$0.5 billion primarily as the result of$0.3 billion of lower functional costs,including favorability frommarket and foreign exchange dynamics,$0.1 billion of lower costs associated with EHS and other items and$0.1 billion due to lower intercompany eliminations.OTHER CONSOLIDATED INFORMATIONRESTRUCTURING.This table is inclusive of all restructuring charges in our segments and at Corporate,and the charges are shown below for the businesswhere they originated.Separately,in our reported segment results,significant,higher-cost restructuring programs are excluded from measurement of segmentoperating performance for internal and external purposes;those excluded amounts are reported in Restructuring and other charges for Corporate(see theCorporate section).RESTRUCTURING AND OTHER CHARGESThree months ended September 30Nine months ended September 302022202120222021Workforce reductions$76$132$113$634 Plant closures&associated costs and other asset write-downs110 23 165 87 Acquisition/disposition net charges and other14 9 41 16 Other (3)Total restructuring and other charges$200$164$316$736 Cost of equipment/services$86$61$135$349 Selling,general and administrative expenses114 103 184 393 Other(income)loss (3)(7)Total restructuring and other charges$200$164$316$736 Aerospace$6$3$16$64 HealthCare88 68 110 127 Renewable Energy66 14 78 149 Power30 65 97 341 Corporate10 14 15 55 Total restructuring and other charges$200$164$316$736 Restructuring and other charges cash expenditures$76$152$332$565 Liabilities associated with restructuring activities were approximately$0.9 billion and$1.0 billion,including actuarial determined post-employment severancebenefits of$0.5 billion and$0.5 billion as of September 30,2022 and December 31,2021,respectively.During the third quarter of 2022,we announced plans to undertake a restructuring program across our businesses planned to be part of GE Vernova,primarilyreflecting the selectivity strategy to operate in fewer markets and to simplify and standardize product variants at Renewable Energy.The estimated cost of thismulti-year restructuring program is approximately$0.6 billion,with the majority to be recognized in the first half of 2023.In October 2022,the companyannounced restructuring plans to reflect lower Corporate shared-service and footprint needs as GE HealthCare becomes independent.The estimated cost of thismulti-year restructuring program is approximately$0.7 billion,with the majority to be recognized in the fourth quarter of 2022.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 12SEPARATION COSTS.In November 2021,the company announced its plan to form three industry-leading,global public companies focused on the growthsectors of aviation,healthcare,and energy.As a result of this plan,we expect to incur separation,transition,and operational costs of approximately$2 billionand net tax costs of less than$0.5 billion,which will depend on specifics of the transactions.We incurred pre-tax separation costs of$227 million and$553 million,primarily related to employee costs,costs to establish certain stand-alone functions andinformation technology systems,professional fees,and other transformation and transaction costs to transition to three stand-alone public companies,for thethree and nine months ended September 30,2022,respectively.These costs are presented as separation costs in our consolidated Statement of Earnings(Loss).In addition,we incurred$51 million and$59 million of net tax benefit,including taxes associated with planned legal entity restructuring and changes toindefinite reinvestment of foreign earnings,for the three and nine months ended September 30,2022,respectively.We spent$96 million and$118 million incash for the three and nine months ended September 30,2022,respectively.INTEREST AND OTHER FINANCIAL CHARGES were$0.4 billion and$0.5 billion for the three months ended and$1.2 billion and$1.4 billion for the ninemonths ended September 30,2022 and 2021,respectively.The decrease was primarily due to lower average borrowings balances,partially offset by a lowerallocation of interest expense to discontinued operations.Inclusive of interest expense in discontinued operations,total interest and other financial charges were$0.4 billion and$0.6 billion for the three months ended and$1.2 billion and$2.0 billion for the nine months ended September 30,2022 and 2021,respectively.The primary components of interest and other financial charges are interest on short-and long-term borrowings.POSTRETIREMENT BENEFIT PLANS.Refer to Note 13 for information about our pension and retiree benefit plans.INCOME TAXES.For the three months ended September 30,2022,the income tax rate was(38.2)%compared to 0.3%for the three months endedSeptember 30,2021.The tax rate for 2022 reflects a tax expense on a pre-tax loss.The provision for income taxes was an insignificant amount for both the three months ended September 30,2022 and 2021.The increase in tax was primarilydue to the nonrecurrence of the tax benefit associated with an internal restructuring to recognize stock losses in the third quarter of 2021,partially offset by thedecrease in pre-tax income excluding the net loss in 2022 on our interest in AerCap and Baker Hughes.There was an insignificant tax effect on the net loss in2022 on AerCap and Baker Hughes because of our excess capital loss position.For the three months ended September 30,2022,the adjusted income tax rate*was 27.7%compared to 25.3%for the three months ended September 30,2021.The adjusted income tax rate*increased primarily due to higher tax expense related to stock-based compensation.For the nine months ended September 30,2022,the income tax rate was(65.6)%compared to 149.5%for the nine months ended September 30,2021.Thetax rate for 2022 reflects a tax expense on a pre-tax loss.The tax rate for 2021 reflects a tax benefit on a pre-tax loss.The provision(benefit)for income taxes was$0.5 billion for the nine months ended September 30,2022 compared to$(0.3)billion for the nine months endedSeptember 30,2021.The increase in tax was primarily due to the nonrecurrence of tax benefits associated with internal restructurings to recognize deductiblestock and loan losses in 2021 and the increase in pre-tax income excluding the net loss in 2022 on our interest in AerCap and Baker Hughes and assetimpairments.There was an insignificant tax effect on the net loss in 2022 on AerCap and Baker Hughes because of our excess capital loss position.For the nine months ended September 30,2022,the adjusted income tax rate*was 27.4%compared to 24.5%for the nine months ended September 30,2021.The adjusted income tax rate*increased primarily due to the nonrecurrence of a 2021 benefit from planning to utilize non-U.S.loss carryovers.DISCONTINUED OPERATIONS primarily comprise our GE Capital Aviation Services(GECAS)business,discontinued in 2021,our mortgage portfolio in Poland,and other trailing assets and liabilities associated with prior dispositions.Results of operations,financial position and cash flows for these businesses arereported as discontinued operations for all periods presented and the notes to the financial statements have been adjusted on a retrospective basis.See Note 2for further information regarding our businesses in discontinued operations.CAPITAL RESOURCES AND LIQUIDITYFINANCIAL POLICY.We intend to maintain a disciplined financial policy with a sustainable investment-grade long-term credit rating.In the fourth quarter of2021,the Company announced plans to form three industry-leading,global,investment-grade companies,each of which will determine their own financialpolicies,including capital allocation,dividend,mergers and acquisitions and share buyback decisions.LIQUIDITY POLICY.We maintain a strong focus on liquidity and define our liquidity risk tolerance based on sources and uses to maintain a sufficient liquidityposition to meet our business needs and financial obligations under both normal and stressed conditions.We believe that our consolidated liquidity andavailability under our revolving credit facilities will be sufficient to meet our liquidity needs.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 13CONSOLIDATED LIQUIDITY.Our primary sources of liquidity consist of cash and cash equivalents,free cash flows*from our operating businesses,cashgenerated from asset sales and dispositions,and short-term borrowing facilities,including revolving credit facilities.Cash generation can be subject to variabilitybased on many factors,including seasonality,receipt of down payments on large equipment orders,timing of billings on long-term contracts,timing ofAerospace-related customer allowances,market conditions and our ability to execute dispositions.Total cash,cash equivalents and restricted cash was$12.6billion at September 30,2022,of which$7.8 billion was held in the U.S.and$4.8 billion was held outside the U.S.Cash held in non-U.S.entities has generally been reinvested in active foreign business operations;however,substantially all of our unrepatriated earnings weresubject to U.S.federal tax and,if there is a change in reinvestment,we would expect to be able to repatriate available cash(excluding amounts held in countrieswith currency controls)without additional federal tax cost.Any foreign withholding tax on a repatriation to the U.S.would potentially be partially offset by a U.S.foreign tax credit.With regards to our announcement to form three public companies,we expect that planning for and execution of this separation will impactindefinite reinvestment.The impact of that change will be recorded when there is a specific change in ability and intent to reinvest earnings.Cash,cash equivalents and restricted cash at September 30,2022 included$2.3 billion of cash held in countries with currency control restrictions(including atotal of$0.1 billion in Russia and Ukraine)and$0.4 billion of restricted use cash.Cash held in countries with currency controls represents amounts held incountries that may restrict the transfer of funds to the U.S.or limit our ability to transfer funds to the U.S.without incurring substantial costs.Restricted use cashrepresents amounts that are not available to fund operations,and primarily comprised funds restricted in connection with certain ongoing litigation matters.Excluded from cash,cash equivalents and restricted cash was$0.4 billion of cash in our run-off Insurance business,which was classified as All other assets inthe Statement of Financial Position.In connection with the program we launched in 2020 to fully monetize our Baker Hughes position over approximately three years,we received proceeds of$4.1billion during the first nine months of 2022.In addition,we expect to fully monetize our stake in AerCap over time.We provided a total of$11.4 billion of capital contributions to our insurance subsidiaries since 2018,including$2.0 billion in the first quarter of 2022,and expectto provide further capital contributions of approximately$3.6 billion through 2024.These contributions are subject to ongoing monitoring by the KansasInsurance Department(KID),and the total amount to be contributed could increase or decrease,or the timing could be accelerated,based upon the results ofreserve adequacy testing or a decision by KID to modify the schedule of contributions set forth in January 2018.We are required to maintain specified capitallevels at these insurance subsidiaries under capital maintenance agreements.On March 6,2022,the Board of Directors authorized the repurchase of up to$3 billion of our common stock.In connection with this authorization,werepurchased 4.5 million shares for$0.3 billion and 9.1 million shares for$0.6 billion for the three months and nine months ended September 30,2022,respectively.BORROWINGS.Consolidated total borrowings were$30.4 billion and$35.2 billion at September 30,2022 and December 31,2021,respectively,a decrease of$4.8 billion.The reduction in borrowings was driven primarily by$2.9 billion of net maturities and repayments of debt and$1.7 billion related to changes inforeign exchange rates.We have in place committed revolving credit facilities totaling$14.3 billion at September 30,2022,comprising a$10.0 billion unused back-up revolvingsyndicated credit facility and a total of$4.3 billion of bilateral revolving credit facilities.CREDIT RATINGS AND CONDITIONS.We have relied,and may continue to rely,on the short-and long-term debt capital markets to fund,among other things,a significant portion of our operations.The cost and availability of debt financing is influenced by our credit ratings.Moodys Investors Service(Moodys),Standard and Poors Global Ratings(S&P),and Fitch Ratings(Fitch)currently issue ratings on our short-and long-term debt.Our credit ratings as of the date ofthis filing are set forth in the table below.MoodysS&PFitchOutlookNegativeCreditWatch NegativeStableShort termP-2A-2F3Long termBaa1BBB BBBWe are disclosing our credit ratings and any current quarter updates to these ratings to enhance understanding of our sources of liquidity and the effects of ourratings on our costs of funds and access to liquidity.Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization,andeach rating should be evaluated independently of any other rating.In connection with the planned spin-off of GE HealthCare,rating agencies are reviewingratings for both GE HealthCare and GE.For a description of some of the potential consequences of a reduction in our credit ratings,see the Financial Riskssection of Risk Factors in our Annual Report on Form 10-K for the year ended December 31,2021.Substantially all of the Companys debt agreements in place at September 30,2022 do not contain material credit rating covenants.Our unused back-uprevolving syndicated credit facility and certain of our bilateral revolving credit facilities contain a customary net debt-to-EBITDA financial covenant,which wesatisfied at September 30,2022.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 14The Company may from time to time enter into agreements that contain minimum ratings requirements.The following table provides a summary of the maximumestimated liquidity impact in the event of further downgrades below each stated ratings level.Triggers BelowAt September 30,2022BBB /A-2/P-2$215 BBB/A-3/P-3650 BBB-1,224 BB and below592 Our most significant contractual ratings requirements are related to ordinary course commercial activities.The timing within the quarter of the potential liquidityimpact of these areas may differ,as can the remedies to resolving any potential breaches of required ratings levels.FOREIGN EXCHANGE.As a result of our global operations,we generate and incur a significant portion of our revenues and expenses in currencies other thanthe U.S.dollar.Such principal currencies include the euro,the Chinese renminbi,the Indian rupee and the Japanese yen,among others.The effects of foreigncurrency fluctuations on earnings was less than$0.1 billion for both the three and nine months ended September 30,2022 and 2021.See Note 19 for furtherinformation about our risk exposures,our use of derivatives,and the effects of this activity on our financial statements.STATEMENT OF CASH FLOWSCASH FLOWS FROM CONTINUING OPERATIONS.The most significant source of cash in CFOA is customer-related activities,the largest of which iscollecting cash resulting from product or services sales.The most significant operating use of cash is to pay our suppliers,employees,tax authorities and postretirement plans.Cash from operating activities was$1.3 billion in 2022,an increase of$2.8 billion compared to 2021,primarily due to:a decrease in financial services-relatedcash collateral paid net of settlements on interest rate derivative contracts of$1.3 billion,which is a standard market practice to minimize derivative counterpartyexposures;an increase in net income(after adjusting for amortization of intangible assets,non-cash losses related to our interests in AerCap and Baker Hughesand non-operating debt extinguishment costs)primarily in our Aerospace business;a decrease in cash used for working capital of$0.2 billion;and an increase incash from All other operating activities of$1.3 billion.The components of All other operating activities were as follows:Nine months ended September 3020222021Increase(decrease)in Aerospace-related customer allowance accruals$565$543 Net interest and other financial charges/(cash paid)7(474)Increase(decrease)in employee benefit liabilities(170)(111)Net restructuring and other charges/(cash expenditures)(70)144 Decrease in factoring related liabilities(26)(501)Cash settlement of Alstom legacy legal matter(175)Other(117)(543)All other operating activities$189$(1,117)The cash impacts from changes in working capital compared to prior year were as follows:current receivables of$(3.6)billion,driven by higher volume andlower collections,partially offset by the impact of decreases in sales of receivables to third parties in 2021;inventories,including deferred inventory,of$(1.6)billion,driven by higher material purchases and lower liquidations;current contract assets of$0.3 billion,driven by higher billings on our long-term serviceagreements,partially offset by lower revenue recognition on those agreements and net favorable changes in estimated profitability;accounts payable andequipment project accruals of$2.3 billion,driven by lower disbursements related to purchases of materials in prior periods and higher volume;and progresscollections and current deferred income of$2.8 billion,driven by lower liquidations and higher collections,including$0.6 billion of increased customer collectionson equipment orders to support production at our Aerospace business.Cash from investing activities was$1.2 billion in 2022,a decrease of$1.7 billion compared to 2021,primarily due to:cash paid related to net settlementsbetween our continuing operations and businesses in discontinued operations of$0.3 billion in 2022,primarily related to a capital contribution to Bank BPH,ascompared to cash received of$1.8 billion in 2021,primarily from our GECAS business(both components of All other investing activities);the nonrecurrence ofdeferred purchase price collections on our receivable facilities of$0.4 billion;partially offset by an increase in proceeds of$1.1 billion from the sales of ourretained ownership interest in Baker Hughes.Cash used for additions to property,plant and equipment and internal-use software,which are components of freecash flows*,was$1.0 billion in both 2022 and 2021.Cash used for financing activities was$5.1 billion in 2022,a decrease of$7.4 billion compared to 2021,primarily due to:the nonrecurrence of cash paid torepurchase long term debt of$8.7 billion,including cash paid for debt extinguishment costs of$1.7 billion in 2021;partially offset by higher cash paid onderivatives hedging foreign currency debt of$0.6 billion(a component of All other financing activities);and an increase in purchases of GE common stock fortreasury of$0.6 billion.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 15CASH FLOWS FROM DISCONTINUED OPERATIONS.Cash from investing activities in 2022 was primarily due to a capital contribution to Bank BPH fromcontinuing operations.Cash from operating activities and cash used for investing activities in 2021 was primarily due to cash generated from earnings in ourGECAS business and net settlements from GECAS to continuing operations,respectively.SUPPLY CHAIN FINANCE PROGRAMS.We facilitate voluntary supply chain finance programs with third parties,which provide participating suppliers theopportunity to sell their GE receivables to third parties at the sole discretion of both the suppliers and the third parties.At September 30,2022 and December 31,2021,included in accounts payable was$4.0 billion and$3.4 billion,respectively,of supplier invoices that are subject to the third-party programs.Total supplierinvoices paid through these third-party programs were$5.6 billion and$4.9 billion for the nine months ended September 30,2022 and 2021,respectively.CRITICAL ACCOUNTING ESTIMATES.Please refer to the Critical Accounting Estimates and Other Items sections within MD&A and Note 1 to theconsolidated financial statements of our Annual Report on Form 10-K for the year ended December 31,2021 for a discussion of our accounting policies andcritical accounting estimates.OTHER ITEMS INSURANCE.Premium Deficiency Testing.We completed our annual premium deficiency testing in the aggregate across our run-off insurance portfolio in thethird quarter of 2022.These procedures included updating certain experience studies since our last test completed in the third quarter of 2021,independentactuarial analysis(principally on long-term care insurance exposures)and review of industry benchmarks.Using updated assumptions,the 2022 premiumdeficiency testing results indicated a positive margin of about 10%of the related future policy benefit reserves recorded at September 30,2022,or approximatelyequivalent to the 2021 premium deficiency testing results.The premium deficiency testing margin in 2022 was impacted by a lower discount rate in ourEmployers Reassurance Corporation(ERAC)portfolio due to the recapture transaction,as explained below,partially offset by higher prevailing benchmarkinterest rates in the U.S.The portfolio of investment securities expected to be received from the recapture transaction were assumed to be invested at yieldsbelow ERACs current portfolio yield before ultimately grading to the long-term average investment yield as we realign the portfolio over time.This effect waspartially offset by the net impact from assumed moderately higher near-term mortality related to COVID-19 in the aggregate across our run-off insuranceproducts(i.e.,for life insurance products,higher mortality increases the present value of expected future benefit payments,while for annuity and long-term careinsurance contracts,higher mortality decreases the present value of expected future benefit payments).Excluding the net impact from assumed moderatelyhigher near-term mortality related to COVID-19,we have made no substantial change to our assumptions concerning morbidity,morbidity improvement,mortality,mortality improvement,terminations,or long-term care insurance premium rate increases in 2022.As with all assumptions underlying our premiumdeficiency testing,we will continue to monitor these factors,which may result in future changes in our assumptions.As noted below in Other Items-New Accounting Standards,we are in process of converting our long-term care insurance claim cost projection models to firstprinciples models and expect to maintain a positive margin in connection with these changes.In third quarter of 2022,we agreed to terminate substantially all long-term care insurance exposures previously ceded to a single reinsurance company(recapture transaction).In connection with the recapture transaction,which is effective in the fourth quarter of 2022,we expect to receive a portfolio ofinvestment securities in complete settlement of reinsurance recoverables previously recognized under retrocession agreements with the reinsurance company,which represent substantially all of our reinsurance recoverables balance as of September 30,2022.In the third quarter of 2022,we recorded an increase to ourallowance for credit losses on such reinsurance recoverables of$0.4 billion(pre-tax)($0.3 billion(after-tax),reflecting terms of the recapture transaction and the$2.5 billion estimated fair value of the portfolio of investment securities expected to be received in the fourth quarter of 2022,and is unrelated to changes inclaim experience or projections of future policy benefit reserves.We expect to recoup this over time as the investment securities mature to par value.The recapture transaction reduces both our financial and operational risks by removing the future inherent risk of collectability of reinsurance recoverables,eliminating retrocession contracts having complex terms and conditions,assuming direct control of the portfolio of investment securities held in a trust for ourbenefit and redeploying those assets consistent with our portfolio realignment strategy and establishing administration service standards intended to enhanceclaim administration and innovation efforts.The effect of the recapture agreement does not increase our long-term care insurance liabilities as under the existingretrocession agreements we were not previously relieved of our primary obligation to companies from which we originally assumed the liabilities.In addition,wedo not expect changes to projected statutory funding as a result of the recapture transaction.GAAP Reserve Sensitivities.The following table provides sensitivities with respect to the impact of changes of key assumptions underlying our 2022 premiumdeficiency testing,exclusive of the impacts of converting our long-term care insurance claim cost projection models to first principles models as the conversionremains incomplete at the time of our 2022 premium deficiency testing.Many of our assumptions are interdependent and require evaluation individually and inthe aggregate across all insurance products.Small changes in the amounts used in the sensitivities could result in materially different outcomes from thosereflected below.2022 3Q FORM 10-Q 162021 assumption2022 assumptionHypothetical change in 2022assumptionEstimated adverse impact toprojected present value offuture cash flows(In millions,pre-tax)Long-term care insurancemorbidity improvement1.25%per year over 12 to 20years1.25%per year over 12 to 20years25 basis point reductionNo morbidity improvement$500$2,500Long-term care insurancemorbidityBased on companyexperienceBased on companyexperience5%increase in dollar amount ofpaid claims$900Long-term care insurancemortality improvement0.5%per year for 10 yearswith annual improvementgraded to 0%over next 10years0.5%per year for 10 yearswith annual improvementgraded to 0%over next 10years1.0%per year for 10 years withannual improvement graded to0%over next 10 years$400Total terminations:Long-term care insurancemortalityBased on companyexperienceBased on companyexperienceAny change in terminationassumptions that reduce totalterminations by 10%$900Long-term care insurancelapse rateVaries by block,attained ageand benefit period;average0.5%-1.15%Varies by block,attained ageand benefit period;average0.5%-1.15%Long-term care insurancebenefit exhaustionBased on companyexperienceBased on companyexperienceLong-term care insurance futurepremium rate increasesVaries by block based on filingexperienceVaries by block based on filingexperience25verse change insuccess rate on premium rateincrease actions not yetapproved$200Overall discount rate6.15%6.20% basis point reduction$700Life insurance mortalityBased on companyexperienceBased on companyexperience5%increase in mortality$300While higher assumed inflation,holding all other assumptions constant,would result in unfavorable impacts to the projected present value of future cash flows,itwould be expected to be mitigated by a higher discount rate and contractual daily or monthly benefit caps.See Other Items-New Accounting Standards,Note 12 and Other Items within MD&A in our Annual Report on Form 10-K for the year ended December 31,2021for further information related to our run-off insurance operations.NEW ACCOUNTING STANDARDS.The Financial Accounting Standards Board issued new guidance on accounting for long-duration insurance contracts that iseffective for our interim and annual periods beginning January 1,2023 and applied retrospectively to January 1,2021(i.e.,the transition date).We will adopt thenew guidance using the modified retrospective transition method where permitted.We expect adoption of the new guidance will significantly change theaccounting for measurements of our long-duration insurance liabilities and reinsurance recoverables and materially affect our consolidated financial statementsand require changes to our actuarial,accounting and financial reporting processes,systems,and internal controls.The new guidance requires cash flowassumptions used in the measurement of various insurance liabilities to be reviewed at least annually and updated if actual experience or other evidenceindicates previous assumptions warrant revision with any required changes recorded in earnings.These changes will result in the elimination of premiumdeficiency testing and shadow adjustments.Under the new guidance,the discount rate will be equivalent to the upper-medium grade(i.e.,single A)fixed-incomeinstrument yield reflecting the duration characteristics of our insurance liabilities and is required to be updated in each reporting period with changes recorded inAccumulated other comprehensive income(AOCI).As reinsurance recoverables are recognized in a manner consistent with the liabilities relating to theunderlying reinsurance contracts,changes in reinsurance recoverables from updating the single A discount rate in each reporting period are also recognized inAOCI.The allowance for credit losses on reinsurance recoverables will continue to be based on the locked-in discount rate for purposes of assessing changes ineach reporting period.As such,movements in the gross reinsurance recoverable balance resulting from changes in the single A discount rate will not impact theallowance for credit losses.Following the recapture transaction effective in the fourth quarter of 2022,as explained in Other Items Insurance above,theremaining reinsurance recoverables are not expected to be material.In conjunction with the adoption of the new guidance,we are in process of converting our long-term care insurance claim cost projection models to first principlesmodels that are based on more granular assumptions of expected future experience and will facilitate the new guidances requirements.2022 3Q FORM 10-Q 17As we are approaching the effective date for the new accounting guidance,as well as our implementation of the first principles models,we have estimated theimpact of those changes on Shareholders equity as of the new guidances transition date of January 1,2021.We currently estimate a decrease in Shareholdersequity at the transition date from adoption of the new guidance to be in an after-tax range of$7.0 billion to$8.0 billion,including approximately$5.5 billion to$6.0 billion in AOCI and$1.5 billion to$2.0 billion in Retained earnings.The decrease in AOCI is primarily attributable to remeasuring our insurance liabilities andreinsurance recoverables using the single A rate required under the new guidance,which is lower than our current locked-in discount rate,and the removal ofshadow adjustments.The decrease in Retained earnings at the transition date is primarily attributable to certain long-term care insurance exposures where theprojected present value of future cash flows exceeds the reserves at the transition date,based on the required lower level of grouping of contracts,combinedwith converting our long-term care insurance claim cost projection models to first principles models.To demonstrate the sensitivity of market interest rates on both our insurance liabilities and related assets,if the January 1,2021 transition date adjustment usedrates as of September 30,2022,while holding everything else constant,we estimate the decrease in Shareholders equity at the transition date would be in anafter-tax range of$4.0 billion to$5.0 billion.The new guidance is only applicable to the measurements of our long-duration insurance liabilities under GAAP.In addition,we do not expect changes tostatutory insurance reserves,regulatory capital requirements or projected funding as a result of the implementation of the first principles models.NON-GAAP FINANCIAL MEASURES.We believe that presenting non-GAAP financial measures provides management and investors useful measures toevaluate performance and trends of the total company and its businesses.This includes adjustments in recent periods to GAAP financial measures to increaseperiod-to-period comparability following actions to strengthen our overall financial position and how we manage our business.In addition,managementrecognizes that certain non-GAAP terms may be interpreted differently by other companies under different circumstances.In various sections of this report wehave made reference to the following non-GAAP financial measures in describing our(1)revenues,specifically organic revenues by segment;organic revenues;and equipment and services organic revenues(2)profit,specifically organic profit and profit margin by segment;Adjusted profit and profit margin;Adjustedorganic profit and profit margin;Adjusted earnings(loss);Adjusted income tax rate;and Adjusted earnings(loss)per share(EPS),and(3)cash flows,specificallyfree cash flows(FCF).The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financialmeasures follow.ORGANIC REVENUES,PROFIT(LOSS)AND PROFIT MARGIN BY SEGMENT(NON-GAAP)RevenuesSegment profit(loss)Profit marginThree months ended September 3020222021V 222021V 222021V ptsAerospace(GAAP)$6,705$5,398 24%$1,284$846 52.1.7%3.4ptsLess:acquisitions Less:business dispositions Less:foreign currency effect(22)39(2)Aerospace organic(Non-GAAP)$6,726$5,398 25%$1,245$848 47.5.7%2.8ptsHealthCare(GAAP)$4,613$4,339 6%$712$704 1.4.2%(0.8)ptsLess:acquisitions61 2 Less:business dispositions Less:foreign currency effect(232)(20)2 HealthCare organic(Non-GAAP)$4,784$4,339 10%$731$702 4.3.2%(0.9)ptsRenewable Energy(GAAP)$3,594$4,208(15)%$(934)$(151)U(26.0)%(3.6)%(22.4)ptsLess:acquisitions(21)(5)Less:business dispositions Less:foreign currency effect(231)(3)16(23)Renewable Energy organic(Non-GAAP)$3,825$4,231(10)%$(950)$(123)U(24.8)%(2.9)%(21.9)ptsPower(GAAP)$3,529$4,026(12)%$141$204(31)%4.0%5.1%(1.1)ptsLess:acquisitions Less:business dispositions 158 Less:foreign currency effect(145)5(6)13 Power organic(Non-GAAP)$3,675$3,863(5)%$148$192(23)%4.0%5.0%(1.0)pts2022 3Q FORM 10-Q 18ORGANIC REVENUES,PROFIT(LOSS)AND PROFIT MARGIN BY SEGMENT(NON-GAAP)RevenueSegment profit(loss)Profit marginNine months ended September 3020222021V 222021V 222021V ptsAerospace(GAAP)$18,434$15,230 21%$3,341$1,664 F18.1.9%7.2ptsLess:acquisitions Less:business dispositions Less:foreign currency effect(50)1 88 5 Aerospace organic(Non-GAAP)$18,485$15,229 21%$3,253$1,658 96.6.9%6.7ptsHealthCare(GAAP)$13,494$13,100 3%$1,901$2,203(14).1.8%(2.7)ptsLess:acquisitions175 (56)(5)Less:business dispositions Less:foreign currency effect(484)(90)(17)HealthCare organic(Non-GAAP)$13,803$13,100 5%$2,047$2,225(8).8.0%(2.2)ptsRenewable Energy(GAAP)$9,564$11,505(17)%$(1,786)$(484)U(18.7)%(4.2)%(14.5)ptsLess:acquisitions(43)(13)Less:business dispositions Less:foreign currency effect(442)73(29)Renewable Energy organic(Non-GAAP)$10,006$11,547(13)%$(1,860)$(442)U(18.6)%(3.8)%(14.8)ptsPower(GAAP)$11,233$12,242(8)%$524$416 26%4.7%3.4%1.3ptsLess:acquisitions Less:business dispositions 476 Less:foreign currency effect(321)(4)(24)(15)Power organic(Non-GAAP)$11,553$11,770(2)%$548$432 27%4.7%3.7%1.0ptsWe believe these measures provide management and investors with a more complete understanding of underlying operating results and trends of established,ongoing operations by excluding the effect of acquisitions,dispositions and foreign currency,which includes translational and transactional impacts,as theseactivities can obscure underlying trends.ORGANIC REVENUES(NON-GAAP)Three months ended September 30Nine months ended September 3020222021V 222021V%Total revenues(GAAP)$19,084$18,569 3%$54,769$53,893 2%Less:Insurance revenues646 756 2,179 2,295 Adjusted revenues(Non-GAAP)$18,438$17,813 4%$52,591$51,598 2%Less:acquisitions61(21)177(42)Less:business dispositions 70 179 Less:foreign currency effect(a)(638)2(1,314)(3)Organic revenues(Non-GAAP)$19,015$17,762 7%$53,728$51,465 4%(a)Foreign currency impact in 2022 was primarily driven by U.S.dollar appreciation against the euro,British pound and Japanese yen.We believe these measures provide management and investors with a more complete understanding of underlying operating results and trends of established,ongoing operations by excluding the effect of revenues from our run-off Insurance business,acquisitions,dispositions and foreign currency,which includestranslational and transactional impacts,as these activities can obscure underlying trends.EQUIPMENT AND SERVICESThree months ended September 30Nine months ended September 30ORGANIC REVENUES(NON-GAAP)20222021V 222021V%Total equipment revenues(GAAP)$8,082$8,903(9)%$22,549$25,172(10)%Less:acquisitions61 174 Less:business dispositions(45)(146)Less:foreign currency effect(401)(811)(1)Equipment organic revenues(Non-GAAP)$8,423$8,947(6)%$23,187$25,319(8)%Total services revenues(GAAP)$10,356$8,910 16%$30,041$26,427 14%Less:acquisitions(21)3(42)Less:business dispositions 114 324 Less:foreign currency effect(236)2(503)(2)Services organic revenues(Non-GAAP)$10,592$8,815 20%$30,541$26,146 17%We believe this measure provides management and investors with a more complete understanding of underlying operating results and trends of established,ongoing operations by excluding the effect of acquisitions,dispositions and foreign currency,which includes translational and transactional impacts,as theseactivities can obscure underlying trends.2022 3Q FORM 10-Q 19ADJUSTED PROFIT AND PROFIT MARGIN(NON-GAAP)Three months ended September 30Nine months ended September 3020222021V 222021V%Total revenues(GAAP)$19,084$18,5693%$54,769$53,8932%Less:Insurance revenues(Note 12)6467562,1792,295Adjusted revenues(Non-GAAP)$18,438$17,8134%$52,591$51,5982%Total costs and expenses(GAAP)$19,334$18,3375%$54,653$55,866(2)%Less:Insurance cost and expenses(Note 12)9567012,0921,869Less:interest and other financial charges(a)3774461,1461,403Less:non-operating benefit cost(income)(125)427(396)1,374Less:restructuring&other(a)18364256402Less:debt extinguishment costs(Note 11)1,416Less:separation costs(a)227553Less:Steam asset sale impairment(a)825Less:Russia and Ukraine charges(a)33263Add:noncontrolling interests4(73)51(72)Add:EFS benefit from taxes(52)(33)(160)(111)Adjusted costs(Non-GAAP)$17,637$16,5926%$49,805$49,2191%Other income(loss)(GAAP)$195$351(44)%$(941)$1,757ULess:gains(losses)on equity securities(a)(89)412(1,859)1,256Less:restructuring&other(a)37Less:gains(losses)on purchases and sales of business interests(a)22(156)28(159)Adjusted other income(loss)(Non-GAAP)$263$95F$888$65336%Profit(loss)(GAAP)$(55)$584U$(825)$(216)UProfit(loss)margin(GAAP)(0.3)%3.1%(3.4)pts(1.5)%(0.4)%(1.1)ptsAdjusted profit(loss)(Non-GAAP)$1,064$1,316(19)%$3,673$3,03321justed profit(loss)margin(Non-GAAP)5.8%7.4%(1.6)pts7.0%5.9%1.1pts(a)See the Corporate and Other Consolidated Information sections for further information.We believe that adjusting profit to exclude the effects of items that are not closely associated with ongoing operations provides management and investors witha meaningful measure that increases the period-to-period comparability.Gains(losses)and restructuring and other items are impacted by the timing andmagnitude of gains associated with dispositions,and the timing and magnitude of costs associated with restructuring and other activities.ADJUSTED ORGANIC PROFIT(NON-GAAP)Three months ended September 30Nine months ended September 3020222021V 222021Vjusted profit(loss)(Non-GAAP)$1,064$1,316(19)%$3,673$3,033 21%Less:acquisitions(5)(5)(74)(17)Less:business dispositions 5 13 Less:foreign currency effect(a)21 2 35(21)Adjusted organic profit(loss)(Non-GAAP)$1,048$1,314(20)%$3,712$3,058 21justed profit(loss)margin(Non-GAAP)5.8%7.4%(1.6)pts7.0%5.9%1.1 ptsAdjusted organic profit(loss)margin(Non-GAAP)5.5%7.4%(1.9)pts6.9%5.9%1.0 pts(a)Included foreign currency negative effect on revenues of$638 million and$1,314 million and positive effect on operating costs and other income(loss)of$658 million and$1,349 million for the three and nine months ended September 30,2022,respectively.We believe this measure provides management and investors with a more complete understanding of underlying operating results and trends of established,ongoing operations by excluding the effect of acquisitions,dispositions and foreign currency,which includes translational and transactional impacts,as theseactivities can obscure underlying trends.2022 3Q FORM 10-Q 20ADJUSTED EARNINGS(LOSS)ANDThree months ended September 30Nine months ended September 30ADJUSTED INCOME TAX RATE(NON-GAAP)20222021V 222021Vrnings(loss)from continuing operations(GAAP)(Note 17)$(150)$593 U$(1,606)$(11)UInsurance earnings(loss)(pre-tax)(310)56 92 430 Tax effect on Insurance earnings(loss)63(14)(24)(95)Less:Insurance earnings(loss)(net of tax)(Note 12)(247)42 68 334 Earnings(loss)excluding Insurance(Non-GAAP)$97$551(82)%$(1,674)$(345)UNon-operating benefit(cost)income(pre-tax)(GAAP)125(427)396(1,374)Tax effect on non-operating benefit(cost)income(26)90(83)289 Less:Non-operating benefit(cost)income(net of tax)99(337)313(1,085)Gains(losses)on purchases and sales of business interests(pre-tax)(a)22(156)28(159)Tax effect on gains(losses)on purchases and sales of businessinterests39 30 68 31 Less:Gains(losses)on purchases and sales of business interests(net oftax)61(126)95(128)Gains(losses)on equity securities(pre-tax)(a)(89)412(1,859)1,256 Tax effect on gains(losses)on equity securities(b)(c)(9)78(15)155 Less:Gains(losses)on equity securities(net of tax)(98)490(1,874)1,411 Restructuring&other(pre-tax)(a)(183)(64)(253)(395)Tax effect on restructuring&other38 7 54 36 Less:Restructuring&other(net of tax)(144)(57)(199)(359)Debt extinguishment costs(pre-tax)(Note 11)(1,416)Tax effect on debt extinguishment costs 298 Less:Debt extinguishment costs(net of tax)(1,119)Separation costs(pre-tax)(a)(227)(553)Tax effect on separation costs51 59 Less:Separation costs(net of tax)(176)(495)Steam asset sale impairment(pre-tax)(a)(825)Tax effect on Steam asset sale impairment 84 Less:Steam asset sale impairment(net of tax)(741)Russia and Ukraine charges(pre-tax)(a)(33)(263)Tax effect on Russia and Ukraine charges 15 Less:Russia and Ukraine charges(net of tax)(33)(248)Less:Accretion of redeemable noncontrolling interest(pre-tax and net oftax)(Note 17)(9)(9)Less:Accretion of preferred share repurchase(pre-tax and net of tax)(Note 17)3 3 Less:U.S.and foreign tax law change enactment (37)8 Less:Tax loss related to GECAS transaction (44)Adjusted earnings(loss)(Non-GAAP)$385$591(35)%$1,509$980 54rnings(loss)from continuing operations before taxes(GAAP)$(55)$584$(825)$(216)Less:Total adjustments above(pre-tax)(695)(180)(3,239)(1,659)Adjusted earnings before taxes(Non-GAAP)$640$763$2,414$1,443 Provision(benefit)for income taxes(GAAP)$21$2$541$(323)Less:Tax effect on adjustments above(157)(191)(121)(677)Adjusted provision(benefit)for income taxes(Non-GAAP)$177$193$662$354 Income tax rate(GAAP)(38.2)%0.3%(65.6)9.5justed income tax rate(Non-GAAP)27.7%.3.4$.5%(a)See the Corporate and Other Consolidated Information sections for further information.(b)Includes tax benefits available to offset the tax on gains(losses)on equity securities.(c)Includes related tax valuation allowances.The service cost for our pension and other benefit plans are included in Adjusted earnings*,which represents the ongoing cost of providing pension benefits toour employees.The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance.We believe theretained costs in Adjusted earnings*and the Adjusted income tax rate*provides management and investors a useful measure to evaluate the performance ofthe total company and increases period-to-period comparability.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 21ADJUSTED EARNINGS(LOSS)PER SHARE(EPS)(NON-GAAP)Three months ended September 30Nine months ended September 30(In dollars)20222021V 222021Vrnings(loss)per share from continuing operations(GAAP)(Note 17)$(0.14)$0.54 U$(1.46)$(0.01)UInsurance earnings(loss)(pre-tax)(0.28)0.05 0.08 0.39 Tax effect on Insurance earnings(loss)0.06(0.01)(0.02)(0.09)Less:Insurance earnings(loss)(net of tax)(Note 12)(0.23)0.04 0.06 0.30 Earnings(loss)per share excluding Insurance(Non-GAAP)$0.09$0.50(82)%$(1.53)$(0.31)UNon-operating benefit(cost)income(pre-tax)(GAAP)0.11(0.39)0.36(1.25)Tax effect on non-operating benefit(cost)income(0.02)0.08(0.08)0.26 Less:Non-operating benefit(cost)income(net of tax)0.09(0.31)0.29(0.99)Gains(losses)on purchases and sales of business interests(pre-tax)(a)0.02(0.14)0.03(0.14)Tax effect on gains(losses)on purchases and sales of business interests0.04 0.03 0.06 0.03 Less:Gains(losses)on purchases and sales of business interests(net of tax)0.06(0.11)0.09(0.12)Gains(losses)on equity securities(pre-tax)(a)(0.08)0.37(1.69)1.14 Tax effect on gains(losses)on equity securities(b)(c)(0.01)0.07(0.01)0.14 Less:Gains(losses)on equity securities(net of tax)(0.09)0.44(1.71)1.29 Restructuring&other(pre-tax)(a)(0.17)(0.06)(0.23)(0.36)Tax effect on restructuring&other0.04 0.01 0.05 0.03 Less:Restructuring&other(net of tax)(0.13)(0.05)(0.18)(0.33)Debt extinguishment costs(pre-tax)(Note 11)(1.29)Tax effect on debt extinguishment costs 0.27 Less:Debt extinguishment costs(net of tax)(1.02)Separation costs(pre-tax)(a)(0.21)(0.50)Tax effect on separation costs0.05 0.05 Less:Separation costs(net of tax)(0.16)(0.45)Steam asset sale impairment(pre-tax)(a)(0.75)Tax effect on Steam asset sale impairment 0.08 Less:Steam asset sale impairment(net of tax)(0.68)Russia and Ukraine charges(pre-tax)(a)(0.03)(0.24)Tax effect on Russia and Ukraine charges 0.01 Less:Russia and Ukraine charges(net of tax)(0.03)(0.23)Less:Accretion of redeemable noncontrolling interest(pre-tax and net of tax)(Note 17)(0.01)(0.01)Less:Accretion of preferred share repurchase(pre-tax and net of tax)(Note17)Less:U.S.and foreign tax law change enactment (0.03)0.01 Less:Tax loss related to GECAS transaction (0.04)Adjusted earnings(loss)per share(Non-GAAP)$0.35$0.53(34)%$1.38$0.89 55%(a)See the Corporate and Other Consolidated Information sections for further information.(b)Includes tax benefits available to offset the tax on gains(losses)on equity securities.(c)Includes related tax valuation allowances.Earnings-per-share amounts are computed independently.As a result,the sum of per-share amounts may not equal the total.The service cost for our pension and other benefit plans are included in Adjusted earnings*,which represents the ongoing cost of providing pension benefits toour employees.The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance.We believe theretained costs in Adjusted earnings*and Adjusted EPS*provides management and investors a useful measure to evaluate the performance of the totalcompany and increases period-to-period comparability.We also use Adjusted EPS*as a performance metric at the company level for our annual executiveincentive plan for 2022.*Non-GAAP Financial Measure2022 3Q FORM 10-Q 22FREE CASH FLOWS(FCF)(NON-GAAP)Nine months ended September 3020222021V$CFOA(GAAP)$1,293$(1,527)$2,820 Less:Insurance CFOA48 40 CFOA excluding Insurance(Non-GAAP)$1,245$(1,568)$2,813 Add:gross additions to property
2023-06-21
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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549FORM 10-Q(Mark One)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31,2023OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _ to _Commission file number 001-00035GENERAL ELECTRIC COMPANY(Exact name of registrant as specified in its charter)New York14-0689340(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)5 Necco Street BostonMA02210(Address of principal executive offices)(Zip Code)(Registrants telephone number,including area code)(617)443-3000Securities 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$0.01 per shareGENew York Stock Exchange1.250%Notes due 2023GE 23ENew York Stock Exchange0.875%Notes due 2025GE 25New York Stock Exchange1.875%Notes due 2027GE 27ENew York Stock Exchange1.500%Notes due 2029GE 29New York Stock Exchange7 1/2%Guaranteed Subordinated Notes due 2035GE/35New York Stock Exchange2.125%Notes due 2037GE 37New 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 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and emerging growth company inRule 12b-2 of the Exchange Act.(Check one):Large accelerated filerAccelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No There were 1,088,960,029 shares of common stock with a par value of$0.01 per share outstanding at March 31,2023.TABLE OF CONTENTSPageForward-Looking Statements3About General Electric4Managements Discussion and Analysis of Financial Condition and Results of Operations(MD&A)4Consolidated Results4Segment Operations6Corporate9Other Consolidated Information10Capital Resources and Liquidity11Critical Accounting Estimates13Non-GAAP Financial Measures15Controls and Procedures19Other Financial Data19Financial Statements and Notes20Statement of Earnings(Loss)20Statement of Financial Position21Statement of Cash Flows22Statement of Comprehensive Income(Loss)23Statement of Changes in Shareholders Equity23Note 1 Basis of Presentation and Summary of Significant Accounting Policies24Note 2 Businesses Held for Sale and Discontinued Operations26Note 3 Investment Securities28Note 4 Current and Long-Term Receivables29Note 5 Inventories,Including Deferred Inventory Costs30Note 6 Property,Plant and Equipment and Operating Leases30Note 7 Goodwill and Other Intangible Assets30Note 8 Revenues31Note 9 Contract and Other Deferred Assets&Progress Collections and Deferred Income31Note 10 All Other Assets32Note 11 Borrowings33Note 12 Accounts Payable and Equipment Project Payables33Note 13 Insurance Liabilities and Annuity Benefits33Note 14 Postretirement Benefit Plans37Note 15 Current and All Other Liabilities38Note 16 Income Taxes38Note 17 Shareholders Equity39Note 18 Earnings Per Share Information39Note 19 Other Income(Loss)40Note 20 Restructuring Charges and Separation Costs40Note 21 Financial Instruments41Note 22 Variable Interest Entities43Note 23 Commitments,Guarantees,Product Warranties and Other Loss Contingencies43Exhibits45Form 10-Q Cross Reference Index45Signatures45FORWARD-LOOKING STATEMENTS.Our public communications and SEC filings may contain statements related to future,not past,events.Theseforward-looking statements often address our expected future business and financial performance and financial condition,and often contain words such asexpect,anticipate,intend,plan,believe,seek,see,will,would,estimate,forecast,target,preliminary,or range.Forward-lookingstatements by their nature address matters that are,to different degrees,uncertain,such as statements about planned and potential transactions,including ourplan to pursue a spin-off of our portfolio of energy businesses that are planned to be combined as GE Vernova(Renewable Energy,Power,Digital and EnergyFinancial Services);the impacts of macroeconomic and market conditions and volatility on our business operations,financial results and financial position andon the global supply chain and world economy;our expected financial performance,including cash flows,revenues,organic growth,margins,earnings andearnings per share;impacts related to the COVID-19 pandemic;our de-leveraging plans,including leverage ratios and targets,the timing and nature of actionsto reduce indebtedness and our credit ratings and outlooks;our funding and liquidity;our businesses cost structures and plans to reduce costs;restructuring,goodwill impairment or other financial charges;or tax rates.For us,particular areas where risks or uncertainties could cause our actual results to be materially different than those expressed in our forward-lookingstatements include:our success in executing planned and potential transactions,including our plan to pursue a spin-off of GE Vernova,and sales or other dispositions of ourequity interests in AerCap Holdings N.V.(AerCap)and GE HealthCare,the timing for such transactions,the ability to satisfy any applicable pre-conditions,and the expected proceeds,consideration and benefits to GE;changes in macroeconomic and market conditions and market volatility,including impacts related to the COVID-19 pandemic,risk of recession,inflation,supply chain constraints or disruptions,rising interest rates,perceived weakness or failures of banks,the value of securities and other financial assets(including our equity interests in AerCap and GE HealthCare),oil,natural gas and other commodity prices and exchange rates,and the impact of suchchanges and volatility on our business operations,financial results and financial position;global economic trends,competition and geopolitical risks,including impacts from the ongoing conflict between Russia and Ukraine and the relatedsanctions and other measures,decreases in the rates of investment or economic growth globally or in key markets we serve,or an escalation of sanctions,tariffs or other trade tensions between the U.S.and China or other countries,and related impacts on our businesses global supply chains and strategies;the continuing severity,magnitude and duration of the COVID-19 pandemic,including impacts of virus variants and resurgences,and of government,business and individual responses,such as continued or new government-imposed lockdowns and travel restrictions,and in particular any adverse impactsto the aviation industry and its participants;our capital allocation plans,including de-leveraging actions to reduce GEs indebtedness,the capital structures of the public companies that we plan to formfrom our businesses with the planned spin-off,the timing and amount of dividends,share repurchases,acquisitions,organic investments,and otherpriorities;downgrades of our current short-and long-term credit ratings or ratings outlooks,or changes in rating application or methodology,and the related impact onour funding profile,costs,liquidity and competitive position;the amount and timing of our cash flows and earnings,which may be impacted by macroeconomic,customer,supplier,competitive,contractual and otherdynamics and conditions;capital and liquidity needs associated with our financial services operations,including in connection with our run-off insurance operations and mortgageportfolio in Poland(Bank BPH),the amount and timing of any required capital contributions and any strategic actions that we may pursue;market developments or customer actions that may affect demand and the financial performance of major industries and customers we serve,such asdemand for air travel and other aviation industry dynamics related to the COVID-19 pandemic;pricing,cost,volume and the timing of investment bycustomers or industry participants and other factors in renewable energy markets;conditions in key geographic markets;technology developments;andother shifts in the competitive landscape for our products and services;operational execution by our businesses,including the success at our Renewable Energy business in improving product quality and fleet availability,executing on cost reduction initiatives and other aspects of operational performance,as well as the performance of GE Aerospace amidst the ongoingmarket recovery;changes in law,regulation or policy that may affect our businesses,such as trade policy and tariffs,regulation and incentives related to climate change(including the impact of the Inflation Reduction Act and other policies),and the effects of tax law changes;our decisions about investments in research and development,and new products,services and platforms,and our ability to launch new products in a cost-effective manner;our ability to increase margins through implementation of operational improvements,restructuring and other cost reduction measures;the impact of regulation and regulatory,investigative and legal proceedings and legal compliance risks,including the impact of Alstom,Bank BPH and otherinvestigative and legal proceedings;the impact of actual or potential quality issues or failures of our products or third-party products with which our products are integrated,and related costsand reputational effects;the impact of potential information technology,cybersecurity or data security breaches at GE or third parties;andthe other factors that are described in the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31,2022,as suchdescriptions may be updated or amended in any future reports we file with the SEC.These or other uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements.We do notundertake to update our forward-looking statements.This document includes certain forward-looking projected financial information that is based on currentestimates and forecasts.Actual results could differ materially.2023 1Q FORM 10-Q 3ABOUT GENERAL ELECTRIC.General Electric Company(General Electric,GE or the Company)is a high-tech industrial company that operatesworldwide through its three segments,Aerospace,Renewable Energy,and Power.Our products include commercial and military aircraft engines and systems;wind and other renewable energy generation equipment and grid solutions;and gas,steam,nuclear and other power generation equipment.We have significantglobal installed bases of equipment across these sectors,and services to support these products are also an important part of our business alongside newequipment sales.In November 2021,we announced a strategic plan to form three industry-leading,global,investment-grade public companies from(i)our Aerospace business,(ii)our Renewable Energy,Power,Digital and Energy Financial Services businesses,which we plan to combine and refer to as GE Vernova,and(iii)our formerHealthCare business.In July 2022,we announced the new brand names for our three planned future companies:GE Aerospace,GE HealthCare and GEVernova.For purposes of this report,we refer to our reporting segments as Aerospace,Renewable Energy and Power.The composition of these reportingsegments is unchanged.On January 3,2023,we completed the separation of the HealthCare business from GE through the spin-off of GE HealthCareTechnologies Inc.(GE HealthCare).In the spin-off,GE made a pro-rata distribution of approximately 80.1%of the shares of GE HealthCares common stock toGE shareholders,retaining approximately 19.9%of GE HealthCare common stock.The historical results of GE HealthCare and certain assets and liabilities included in the spin-off are now reported in GEs consolidated financial statements asdiscontinued operations.We continue to refer to our reporting segments of Renewable Energy and Power,each of which are expected to become GE Vernovabusinesses,reflecting the organization and management of these businesses within GE today.Additionally,on January 1,2023,we retrospectively adoptedAccounting Standards Update No.2018-12,Financial Services Insurance(Topic 944):Targeted Improvements to the Accounting for Long-Duration Contracts.See Note 1 for further information.GEs Internet address at ,Investor Relations website at and our corporate blog at ,as well asGEs LinkedIn and other social media accounts,including GE_Reports,contain a significant amount of information about GE,including financial and otherinformation for investors.GE encourages investors to visit these websites from time to time,as information is updated and new information is posted.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(MD&A).Theconsolidated financial statements of General Electric Company are prepared in conformity with U.S.generally accepted accounting principles(GAAP).Unlessotherwise noted,tables are presented in U.S.dollars in millions.Certain columns and rows within tables may not add due to the use of rounded numbers.Percentages presented in this report are calculated from the underlying numbers in millions.Discussions throughout this MD&A are based on continuingoperations unless otherwise noted.The MD&A should be read in conjunction with the Financial Statements and Notes to the consolidated financial statements.In the accompanying analysis of financial information,we sometimes use information derived from consolidated financial data but not presented in our financialstatements prepared in accordance with GAAP.Certain of these data are considered“non-GAAP financial measures”under SEC rules.See the Non-GAAPFinancial Measures section for the reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financialmeasures.CONSOLIDATED RESULTSFIRST QUARTER 2023 RESULTS.Total revenues were$14.5 billion,up$1.8 billion for the quarter,driven primarily by increases at Aerospace and Power.Continuing earnings(loss)per share was$5.56.Excluding the results from our run-off Insurance business,non-operating benefit costs,gains(losses)onpurchases and sales of business interests,gains(losses)on equity securities,restructuring costs and separation costs,Adjusted earnings per share*was$0.27.For the three months ended March 31,2023,profit margin was 44.8%and profit was up$7.7 billion,primarily due to an increase in gains on equity securities of$6.1 billion,the nonrecurrence of the Steam asset sale impairment of$0.8 billion,an increase in segment profit of$0.4 billion,an increase in non-operatingbenefit income of$0.3 billion and the nonrecurrence of Russia and Ukraine charges of$0.2 billion.These increases were partially offset by an increase inrestructuring and other charges and separation costs of$0.2 billion.Adjusted organic profit*increased$0.5 billion,driven primarily by increases at Aerospace,Renewable Energy and Power.Cash flows from operating activities(CFOA)were$0.2 billion and$(0.9)billion for the three months ended March 31,2023 and 2022,respectively.Cash flowsfrom operating activities increased primarily due to an increase in net income(after adjusting for depreciation of property,plant,and equipment,amortization ofintangible assets and non-cash(gains)losses related to our retained ownership interests in GE HealthCare,AerCap and Baker Hughes)and a decrease in cashused for working capital.Free cash flows*(FCF)were$0.1 billion and$(1.2)billion for three months ended March 31,2023 and 2022,respectively.FCF*increased primarily due to the same reasons as noted for CFOA above.See the Capital Resources and Liquidity-Statement of Cash Flows section for furtherinformation.*Non-GAAP Financial Measure2023 1Q FORM 10-Q 4Remaining performance obligation(RPO)is unfilled customer orders for products and product services(expected life of contract sales for product services)excluding any purchase order that provides the customer with the ability to cancel or terminate without incurring a substantive penalty.See Note 8 for furtherinformation.RPOMarch 31,2023December 31,2022Equipment$47,991$44,198 Services194,063 192,385 Total RPO$242,054$236,582 As of March 31,2023,RPO increased$5.5 billion(2%)from December 31,2022,primarily at Renewable Energy,from new orders at Grid and Onshore Windexceeding sales;at Aerospace,from engines contracted under long-term service agreements that have now been put into service and an increase inCommercial orders;and at Power,driven by Gas Power equipment.REVENUESThree months ended March 3120232022Equipment revenues$5,287$4,608 Services revenues8,407 7,302 Insurance revenues791 764 Total revenues$14,486$12,675 For the three months ended March 31,2023,total revenues increased$1.8 billion(14%).Equipment revenues increased,primarily at Aerospace,due to anincrease in commercial install and spare engine unit shipments;at Renewable Energy,due to higher revenue at Grid and Offshore Wind;and at Power,due tohigher Gas Power Heavy-duty gas turbine deliveries.Services revenues increased,primarily at Aerospace,due to increased internal shop visit volume andcommercial spare part shipments and higher prices,and at Power,due to growth in Gas Power non-contractual services,partially offset by a decrease atRenewable Energy,due to fewer repower unit deliveries at Onshore Wind.Excluding the change in Insurance revenues,the net effects of acquisitions and dispositions and the effects of a weaker U.S.dollar of$0.2 billion,organicrevenues*increased$2.0 billion(17%),with equipment revenues up$0.8 billion(18%)and services revenues up$1.2 billion(16%).Organic revenues*increased at Aerospace,Power and Renewable Energy.EARNINGS(LOSS)AND EARNINGS(LOSS)PER SHAREThree months ended March 31(Per-share in dollars and diluted)20232022Continuing earnings(loss)attributable to GE common shareholders$6,103$(1,276)Continuing earnings(loss)per share$5.56$(1.16)For the three months ended March 31,2023,continuing earnings increased$7.4 billion,primarily due to an increase in gains on equity securities of$6.1billion,the nonrecurrence of the Steam asset sale impairment of$0.8 billion,an increase in segment profit of$0.4 billion,an increase in non-operating benefitincome of$0.3 billion and the nonrecurrence of Russia and Ukraine charges of$0.2 billion.These increases were partially offset by an increase in provision forincome tax of$0.2 billion and an increase in restructuring and other charges and separation costs of$0.2 billion.Adjusted earnings*were$0.3 billion,anincrease of$0.4 billion.Profit margin was 44.8%,an increase from(9.3)%.Adjusted profit*was$0.9 billion,an increase of$0.5 billion organically*,due toincreases at Aerospace,Renewable Energy and Power.Adjusted profit margin*was 6.4%,an increase of 330 basis points organically*.We continue to experience inflation pressure in our supply chain,as well as delays in sourcing key materials needed for our products and skilled labor shortages.This has delayed our ability to convert RPO to revenue and negatively impacted our profit margins.While the impact of inflation is expected to be challenging,we continue to take actions to limit this pressure,including lean initiatives to drive cost productivity,partnering with our suppliers and adjusting the pricing of ourproducts and services.Also,geopolitical uncertainties,including the ongoing Russia and Ukraine conflict,are introducing additional challenges.As of March 31,2023,we had approximately$0.3 billion of remaining assets in Russia and Ukraine,mainly in our Power business,which primarily relate to activity not subject tosanctions or restricted under Company policy.*Non-GAAP Financial Measure2023 1Q FORM 10-Q 5SEGMENT OPERATIONS.Refer to our Annual Report on Form 10-K for the year ended December 31,2022 for further information regarding ourdetermination of segment profit for continuing operations and for our allocations of corporate costs to our segments.SUMMARY OF REPORTABLE SEGMENTSThree months ended March 3120232022Vrospace$6,981$5,603 25%Renewable Energy2,837 2,871(1)%Power3,820 3,501 9%Total segment revenues13,638 11,975 14%Corporate848 700 21%Total revenues$14,486$12,675 14rospace$1,326$908 46%Renewable Energy(414)(434)5%Power75 63 19%Total segment profit(loss)987 538 83%Corporate(a)5,456(1,419)FInterest and other financial charges(257)(371)31%Non-operating benefit income(cost)385 105 FBenefit(provision)for income taxes(322)(76)UPreferred stock dividends(145)(52)UEarnings(loss)from continuing operations attributable to GE common shareholders6,103(1,276)FEarnings(loss)from discontinued operations attributable to GE common shareholders1,257 88 FNet earnings(loss)attributable to GE common shareholders$7,360$(1,188)F(a)Includes interest and other financial charges of$12 million and$16 million and benefit for income taxes of$51 million and$47 million related to EFS withinCorporate for the three months ended March 31,2023 and 2022,respectively.GE AEROSPACE.Our results in the first quarter of 2023 reflect continued growth in demand for commercial air travel.A key underlying driver of our commercialengine and services business is global commercial departures,which improved 21%during the first quarter of 2023 compared to the first quarter of 2022,andnow stands at approximately 97%of 2019 levels.The air traffic growth trends vary by region given economic conditions,airline competition and government regulations.Consistent with industry projections,weestimate both narrowbody and widebody air traffic to return to 2019 levels in late 2023 and grow in line with the global economic conditions.We are in frequentdialogue with our airline,airframe,and maintenance,repair and overhaul customers about the outlook for commercial air travel,new aircraft production,fleetretirements,and after-market services,including shop visit and spare parts demand.As it relates to the military environment,we continue to forecast strong military demand creating future growth opportunities for our Military business.The U.S.Department of Defense and foreign governments have continued flight operations,and have allocated budgets to upgrade and modernize their existing fleets.We increased our Commercial engine sales units in the first quarter of 2023,however,Military engine sales units decreased compared to the first quarter of 2022partly due to material availability and supplier challenges.Global material availability and labor shortages continue to cause disruptions for us and our suppliers,and have impacted our production and delivery.We continue to partner with our customers on future production rates.Aerospace is proactively managing theimpact of inflationary pressure by deploying lean initiatives to drive cost productivity,partnering with our suppliers and adjusting the pricing of our products andservices.We expect the impact of inflation will continue and we are taking actions to mitigate the impact.Total engineering,comprising company,customer and partner-funded and nonrecurring engineering costs,increased compared to the prior year.We remaincommitted to investing in developing and maturing technologies that enable a more sustainable future of flight.We continue to take actions to serve our customers now and as demand in the global airline industry increases.Our deep history of innovation and technologyleadership and a commercial and military engine installed base,including units produced by joint ventures,of approximately 67,000 units,with approximately11,800 units under long-term service agreements,represents strong long-term fundamentals.We believe Aerospace is well-positioned to drive long-termprofitable growth and higher cash generation over time.2023 1Q FORM 10-Q 6Three months ended March 31Sales in units,except where noted20232022Commercial Engines(a)481 343 LEAP Engines(b)366 239 Military Engines80 184 Spare Parts Rate(c)$31.1$22.8(a)Commercial Engines now includes Business Aviation and Aeroderivative units for all periods presented.(b)LEAP engines are subsets of commercial engines.(c)Commercial externally shipped spare parts and spare parts used in time and material shop visits in millions of dollars per day.RPOMarch 31,2023December 31,2022Equipment$14,316$13,748 Services123,114 121,511 Total RPO$137,430$135,260 SEGMENT REVENUES AND PROFITThree months ended March 3120232022Commercial Engines&Services$5,194$3,853 Military1,018 1,036 Systems&Other770 714 Total segment revenues$6,981$5,603 Equipment$1,974$1,654 Services5,007 3,949 Total segment revenues$6,981$5,603 Segment profit$1,326$908 Segment profit margin19.0.2%For the three months ended March 31,2023,segment revenues were up$1.4 billion(25%)and segment profit was up$0.4 billion(46%).RPO as of March 31,2023 increased$2.2 billion(2%)from December 31,2022,due to increases in both equipment and services.Equipment increasedprimarily due to an increase in Commercial orders since December 31,2022.Services increased primarily as a result of engines contracted under long-termservice agreements that have now been put into service and contract modifications.Revenues increased$1.4 billion(25%)organically*.Commercial Services revenues increased,primarily due to increased internal shop visit volume andcommercial spare part shipments,and higher prices.Commercial Engines revenues increased,primarily driven by 138 more commercial install and spareengine unit shipments,including 127 more LEAP units versus the prior year.Military revenues decreased,primarily due to 104 fewer engine shipments than theprior year,partially offset by product mix and growth in services.Profit increased$0.4 billion(43%)organically*,primarily due to increased internal shop visit volume and commercial spare part shipments,higher prices,andcost productivity.These increases in profit were partially offset by inflation in our supply chain,product mix and additional growth investment.RENEWABLE ENERGY will be part of GE Vernova.The recently enacted Inflation Reduction Act of 2022(IRA)introduces new and extends existing taxincentives for at least 10 years.The IRA is expected to resolve recent U.S.policy uncertainty that resulted in project delays and deferral of customer investmentsin Onshore Wind and significantly increase near-and longer-term demand in the U.S.for onshore and offshore wind projects.While the offshore wind industrycontinues to expect global growth through the decade,cost pressures and the ability to compete with the rapid pace of innovation remain key challenges.Finally,our Grid Solutions business is positioned to support grid expansion and modernization needs.At Onshore Wind,we are focused on improving our overall quality and fleet availability through reducing product variants and deploying repairs and othercorrective measures across the fleet.We intend to operate in fewer markets and focus on those markets with better pricing and margins.Approximately half ofOnshore Winds equipment RPO is associated with U.S.projects where we expect to receive IRA benefits that would reduce product costs as qualifying turbinesmanufactured in the U.S.in 2023 are delivered.Concurrently,we are undertaking a restructuring program to reduce our fixed costs.Our financial results aredependent on costs to address fleet availability and quality at Onshore Wind and the execution of cost reduction initiatives and pricing actions to mitigate theinflationary environment across all our businesses.*Non-GAAP Financial Measure2023 1Q FORM 10-Q 7New product introductions account for a large portion of our RPO in Onshore and Offshore Wind,such as our 3 MW and 5 MW Onshore units,and our 12-14MW Haliade-X Offshore units.Improving Onshore fleet availability and reducing the cost of new product platforms and blade technologies remain key priorities.We are also focused on our production capabilities and execution of our initial Haliade-X projects given the complexity and challenging nature of these newproduct introductions.At Grid,we observed strong European demand for High Voltage Direct Current(HVDC)solutions and are securing our position in the rapid growth offshore andonshore interconnection markets with products meeting the 2GW HVDC solution standard and developing new technology that solves for a denser,moreresilient,stable and efficient electric grid and lower greenhouse gas emissions.Three months ended March 31Onshore and Offshore sales in units20232022Wind Turbines405 502 Wind Turbine Gigawatts1.5 1.7 Repower units50 151 RPOMarch 31,2023December 31,2022Equipment$23,019$20,142 Services12,775 12,688 Total RPO$35,795$32,830 SEGMENT REVENUES AND PROFITThree months ended March 3120232022Onshore Wind$1,502$1,906 Grid Solutions equipment and services824 668 Offshore Wind,Hydro and Hybrid Solutions511 297 Total segment revenues$2,837$2,871 Equipment$2,311$2,173 Services527 698 Total segment revenues$2,837$2,871 Segment profit(loss)$(414)$(434)Segment profit margin(14.6)%(15.1)%For the three months ended March 31,2023,segment revenues were down 1%and segment losses were down 5%.RPO as of March 31,2023 increased$3.0 billion(9%)from December 31,2022 primarily from new HVDC orders at Grid and orders exceeding revenue atOnshore Wind,primarily in North America.Revenues increased$0.1 billion(5%)organically*,primarily from higher revenue at Grid and Offshore Wind,partially offset by fewer wind turbine and repowerunit deliveries at Onshore Wind,primarily attributable to customer delays and deferrals during 2022 due to U.S.tax policy uncertainty.Segment losses decreased 10%organically*,primarily attributable to higher volume at Grid and improved pricing and impact of cost reduction initiatives atOnshore Wind and Grid,partially offset by higher losses at Offshore Wind associated with Haliade-X ramp up and lower volume at Onshore Wind.POWER will be part of GE Vernova.During the three months ended March 31,2023,GE gas turbine utilization grew low-single digits with strength in theU.S.,while global electricity demand was down mid-single digits due to a milder winter.Utilization of the fleet continues to follow growing gas power generationdespite lower demand,capturing decreases coming from coal and resilient asset usage with a dynamic Europe environment.Looking ahead,we anticipate H-class units to be commissioned into the serviceable installed base.As we continue to work in emerging markets,there could be uncertainty in the timing of dealclosures due to financing and other complexities.Power has proactively managed the impact of inflationary pressure by deploying lean initiatives to drive costproductivity,partnering with our suppliers and adjusting the pricing of our products and services.We expect the impact of inflation will continue to be challengingand we will continue to take actions to manage.Although market factors related to the energy transition such as greater renewable energy penetration and theadoption of climate change-related policies continue to impact long-term demand(and related financing),we expect the gas power market to remain stable overthe next decade with gas power generation continuing to grow low-single-digits.We believe gas power will play a critical role in the energy transition.We remainfocused on our underwriting discipline and risk management to ensure we are securing deals that meet our financial hurdles and we have high confidence todeliver for our customers.In the first quarter of 2022,we signed a non-binding memorandum of understanding for GE Steam Power to sell a portion of its business to lectricit de FranceS.A.(EDF),which resulted in a reclassification of that business to held for sale.In the fourth quarter of 2022,we signed a binding agreement and expect tocomplete the sale,subject to regulatory approvals and other customary closing conditions,in the second half of 2023.On April 3,2023,our Gas Power businessacquired Nexus Controls,a business specializing in aftermarket control system upgrades and controls field services that is expected to strengthen our quality,service,and delivery of our customers assets.*Non-GAAP Financial Measure2023 1Q FORM 10-Q 8We continue to invest in new product development.In Nuclear we are investing in the design of small modular reactors where we signed an agreement in theperiod for the deployment of the technology.In Gas Power,our HA-Turbines have over 1.8 million operating hours across the installed base.Our fundamentalsremain strong with approximately$69.4 billion in RPO,including 28 HA-Turbines,and a gas turbine installed base of approximately 7,000 units,including 80 HA-Turbines,which has nearly doubled since 2019,and approximately 1,800 units under long-term service agreements.We also continue to invest for the long-term,including decarbonization pathways that will provide customers with cleaner,more reliable power.Three months ended March 31Sales in units20232022GE Gas Turbines23 20 Heavy-Duty Gas Turbines(a)18 13 HA-Turbines(b)4 2 Aeroderivatives(a)5 7(a)Heavy-Duty Gas Turbines and Aeroderivatives are subsets of GE Gas Turbines.(b)HA-Turbines are a subset of Heavy-Duty Gas Turbines.RPOMarch 31,2023December 31,2022Equipment$12,056$11,561 Services57,382 57,420 Total RPO$69,438$68,981 SEGMENT REVENUES AND PROFITThree months ended March 3120232022Gas Power$2,867$2,489 Steam Power541 636 Power Conversion,Nuclear and other412 377 Total segment revenues$3,820$3,501 Equipment$1,102$965 Services2,718 2,536 Total segment revenues$3,820$3,501 Segment profit(loss)$75$63 Segment profit margin2.0%1.8%For the three months ended March 31,2023,segment revenues were up$0.3 billion(9%)and segment profit was up 19%.RPO as of March 31,2023 increased$0.5 billion(1%)from December 31,2022,primarily driven by Gas Power equipment.Revenues increased$0.4 billion(11%)organically*,primarily due to growth in Gas Power non-contractual services and Aeroderivatives and higher Gas PowerHeavy-duty gas turbine deliveries,partially offset by a reduction in Steam Power equipment on the exit of new build coal.Profit increased 35%organically*primarily due to growth in Gas Power non-contractual services.CORPORATE.The Corporate amounts related to revenues and earnings include the results of disposed businesses,certain amounts not included in operatingsegment results because they are excluded from measurement of their operating performance for internal and external purposes and the elimination ofintersegment activities.In addition,the Corporate amounts related to earnings include certain costs of our principal retirement plans,significant,higher-costrestructuring programs,separation costs,and other costs reported in Corporate.Corporate includes the results of the GE Digital business and our remaining GE Capital businesses,our former financial services business,including our run-offInsurance business(see Note 13 for further information).*Non-GAAP Financial Measure2023 1Q FORM 10-Q 9REVENUES AND OPERATING PROFIT(COST)Three months ended March 3120232022GE Digital revenues$237$220 Insurance revenues(Note 13)791 764 Eliminations and other(181)(284)Total Corporate revenues$848$700 Gains(losses)on purchases and sales of business interests$(55)$4 Gains(losses)on equity securities5,906(219)Restructuring and other charges(Note 20)(151)(35)Separation costs(Note 20)(205)(99)Steam asset sale impairment(824)Russia and Ukraine charges(230)Insurance profit(loss)(Note 13)70 106 Adjusted total Corporate operating costs(Non-GAAP)(109)(122)Total Corporate operating profit(cost)(GAAP)$5,456$(1,419)Less:gains(losses),impairments,Insurance,and restructuring&other5,565(1,297)Adjusted total Corporate operating costs(Non-GAAP)$(109)$(122)Functions&operations$(145)$(71)Environmental,health and safety(EHS)and other items30(51)Eliminations6(1)Adjusted total Corporate operating costs(Non-GAAP)$(109)$(122)Adjusted total corporate operating costs*excludes gains(losses)on purchases and sales of business interests,significant,higher-cost restructuring programs,separation costs,gains(losses)on equity securities,impairments and our run-off Insurance business profit.We believe that adjusting corporate costs to excludethe effects of items that are not closely associated with ongoing corporate operations provides management and investors with a meaningful measure thatincreases the period-to-period comparability of our ongoing corporate costs.For the three months ended March 31,2023,revenues increased by$0.1 billion due to lower intersegment eliminations.Corporate operating profit increasedby$6.9 billion due to$6.1 billion of higher gains on equity securities,primarily related to a gain on our GE HealthCare investment,lower losses on our AerCapinvestments,partially offset by lower gains on our Baker Hughes investments.Corporate operating profit increased as the result of a$0.8 billion non-cashimpairment charges related to property,plant and equipment and intangible assets as a result of reclassification of a portion of our Steam Power business toheld for sale in the first quarter of 2022.Corporate operating profit also increased due to$0.2 billion of charges from contracts and recoverability of assets inconnection with the conflict between Russia and Ukraine and resulting sanctions,primarily within our Aerospace and Power businesses in the first quarter of2022.These decreases were partially offset by$0.1 billion of higher separation costs and$0.1 billion of higher restructuring and other charges.Adjusted total corporate operating costs*remained relatively flat due to core reductions and favorability from higher bank interest,partially offset by foreignexchange dynamics.OTHER CONSOLIDATED INFORMATIONRESTRUCTURING AND SEPARATION COSTS.Significant,higher-cost restructuring programs are excluded from measurement of segment operatingperformance for internal and external purposes;those excluded amounts are reported in Restructuring and other charges for Corporate.In addition,we incurcosts associated with separation activities,which are also excluded from measurement of segment operating performance for internal and external purposes.See Note 20 for further information on restructuring and separation costs.INTEREST AND OTHER FINANCIAL CHARGES were$0.3 billion and$0.4 billion for the three months ended March 31,2023 and 2022,respectively.Thedecrease was primarily due to lower average borrowings balances.The primary components of interest and other financial charges are interest on short-andlong-term borrowings.POSTRETIREMENT BENEFIT PLANS.Refer to Note 14 for information about our pension and retiree benefit plans.INCOME TAXES.For the three months ended March 31,2023,the income tax rate was 4.2%compared to(2.5)%for the three months ended March 31,2022.The negative tax rate for 2022 reflects a tax expense on a pre-tax loss.The provision for income taxes was$0.3 billion for the three months ended March 31,2023 and an insignificant amount for the three months ended March 31,2022.The increase in tax was primarily due to the tax effect of the increase in pre-tax income excluding gains(losses)on our interests in GE HealthCare,AerCap and Baker Hughes and separation costs.For the three months ended March 31,2023,the adjusted income tax rate*was 28.0%compared to 500.0%for the three months ended March 31,2022.Theadjusted provision(benefit)for income taxes*was$0.2 billion in 2023 and an insignificant amount in 2022.The increase in tax was primarily due to the tax effectof the increase in adjusted earnings before taxes*.*Non-GAAP Financial Measure2023 1Q FORM 10-Q 10DISCONTINUED OPERATIONS primarily comprise our former GE HealthCare business,our mortgage portfolio in Poland,our GE Capital Aviation Services(GECAS)business,and other trailing assets and liabilities associated with prior dispositions.Results of operations,financial position and cash flows for thesebusinesses are reported as discontinued operations for all periods presented and the notes to the financial statements have been adjusted on a retrospectivebasis.See Note 2 for further information regarding our businesses in discontinued operations.CAPITAL RESOURCES AND LIQUIDITYFINANCIAL POLICY.We intend to maintain a disciplined financial policy with a sustainable investment-grade long-term credit rating.In the fourth quarter of2021,the Company announced plans to form three industry-leading,global,investment-grade companies,each of which will determine their own financialpolicies,including capital allocation,dividend,mergers and acquisitions and share buyback decisions.During the first quarter of 2023,the financial markets experienced disruption due to certain bank failures.Given the diversification and credit profile of GEsexposure to banking counterparties,we do not foresee any material financial impact from this disruption at this time,we will continue to monitor and will takeaction as needed.LIQUIDITY POLICY.We maintain a strong focus on liquidity and define our liquidity risk tolerance based on sources and uses to maintain a sufficient liquidityposition to meet our business needs and financial obligations under both normal and stressed conditions.We believe that our consolidated liquidity andavailability under our revolving credit facilities will be sufficient to meet our liquidity needs.CONSOLIDATED LIQUIDITY.Our primary sources of liquidity consist of cash and cash equivalents,free cash flows*from our operating businesses,cashgenerated from asset sales and dispositions,and short-term borrowing facilities,including revolving credit facilities.Cash generation can be subject to variabilitybased on many factors,including seasonality,receipt of down payments on large equipment orders,timing of billings on long-term contracts,timing ofAerospace-related customer allowances,market conditions and our ability to execute dispositions.Total cash,cash equivalents and restricted cash was$12.0billion at March 31,2023,of which$8.0 billion was held in the U.S.and$4.0 billion was held outside the U.S.Cash held in non-U.S.entities has generally been reinvested in active foreign business operations;however,substantially all of our unrepatriated earnings weresubject to U.S.federal tax and,if there is a change in reinvestment,we would expect to be able to repatriate available cash(excluding amounts held in countrieswith currency controls)without additional federal tax cost.Any foreign withholding tax on a repatriation to the U.S.would potentially be partially offset by a U.S.foreign tax credit.With regards to our announcement to form three public companies,the planning for and execution of the separations has impacted and isexpected to continue to impact indefinite reinvestment.The impact of such changes will be recorded when there is a specific change in ability and intent toreinvest earnings.Cash,cash equivalents and restricted cash at March 31,2023 included$1.6 billion of cash held in countries with currency control restrictions(including a total of$0.1 billion in Russia and Ukraine)and$0.8 billion of restricted use cash.Cash held in countries with currency controls represents amounts held in countries thatmay restrict the transfer of funds to the U.S.or limit our ability to transfer funds to the U.S.without incurring substantial costs.Restricted use cash representsamounts that are not available to fund operations,and primarily comprised funds restricted in connection with certain ongoing litigation matters.Excluded fromcash,cash equivalents and restricted cash was$0.7 billion of cash in our run-off Insurance business,which was classified as All other assets in the Statement ofFinancial Position.During the first quarter of 2023,we received total proceeds of$1.8 billion from the sale of AerCap shares.We expect to fully monetize our stake in AerCap overtime.We received proceeds of$0.2 billion in the first quarter of 2023,and have now fully monetized our Baker Hughes position.As part of the spin-off of GEHealthCare completed in the first quarter of 2023,we retained an approximately 19.9%stake of GE HealthCare common stock.We intend to exit our stake in GEHealthCare over time,in an orderly manner.Following approval of a statutory permitted accounting practice in 2018 by our primary insurance regulator,the Kansas Insurance Department(KID),we provideda total of$13.2 billion of capital contributions to our insurance subsidiaries,including$1.8 billion in the first quarter of 2023.We expect to provide the final capitalcontribution of approximately$1.8 billion in the first quarter of 2024,pending completion of our December 31,2023 statutory reporting process.See Note 13 forfurther information.On March 6,2022,the Board of Directors authorized the repurchase of up to$3 billion of our common stock.In connection with this authorization,werepurchased 3.2 million shares for$0.3 billion during the three months ended March 31,2023.Additionally,during the first quarter of 2023,we elected to redeem3 million of our outstanding shares of GE series D preferred stock for total cash spend of$3.0 billion.BORROWINGS.Consolidated total borrowings were$22.4 billion and$24.1 billion at March 31,2023 and December 31,2022,respectively,a decrease of$1.6billion.The reduction in borrowings was driven by$1.8 billion of net maturities and repayments of debt,partially offset by$0.2 billion primarily related to changesin foreign exchange rates.We have in place committed revolving credit facilities totaling$13.9 billion at March 31,2023,comprising a$10.0 billion unused back-up revolving syndicatedcredit facility and a total of$3.9 billion of bilateral revolving credit facilities.*Non-GAAP Financial Measure2023 1Q FORM 10-Q 11CREDIT RATINGS AND CONDITIONS.We have relied,and may continue to rely,on the short-and long-term debt capital markets to fund,among other things,a significant portion of our operations.The cost and availability of debt financing is influenced by our credit ratings.Moodys Investors Service(Moodys),Standard and Poors Global Ratings(S&P),and Fitch Ratings(Fitch)currently issue ratings on our short-and long-term debt.Our credit ratings as of the date ofthis filing are set forth in the following table.MoodysS&PFitchOutlookNegativeStableStableShort termP-2A-2F2Long termBaa1BBB BBBWe are disclosing our credit ratings and any current quarter updates to these ratings to enhance understanding of our sources of liquidity and the effects of ourratings on our costs of funds and access to liquidity.Our ratings may be subject to a revision or withdrawal at any time by the assigning rating organization,andeach rating should be evaluated independently of any other rating.For a description of some of the potential consequences of a reduction in our credit ratings,see the Financial Risks section of Risk Factors in our Annual Report on Form 10-K for the year ended December 31,2022.Substantially all of the Companys debt agreements in place at March 31,2023 do not contain material credit rating covenants.Our unused back-up revolvingsyndicated credit facility and certain of our bilateral revolving credit facilities contain a customary net debt-to-EBITDA financial covenant,which we satisfied atMarch 31,2023.The Company may from time to time enter into agreements that contain minimum ratings requirements.The following table provides a summary of the maximumestimated liquidity impact in the event of further downgrades below each stated ratings level.Triggers BelowMarch 31,2023BBB /A-2/P-2$18 BBB/A-3/P-3167 BBB-1,197 BB and below577 Our most significant contractual ratings requirements are related to ordinary course commercial activities.The timing within the quarter of the potential liquidityimpact of these areas may differ,as can the remedies to resolving any potential breaches of required ratings levels.FOREIGN EXCHANGE AND INTEREST RATE RISK.As a result of our global operations,we generate and incur a significant portion of our revenues andexpenses in currencies other than the U.S.dollar.Such principal currencies include the euro,the Chinese renminbi,the Indian rupee and the British poundsterling,among others.The effects of foreign currency fluctuations on earnings was less than$0.1 billion for both the three months ended March 31,2023 and2022.See Note 21 for further information about our risk exposures,our use of derivatives,and the effects of this activity on our financial statements.STATEMENT OF CASH FLOWSCASH FLOWS FROM CONTINUING OPERATIONS.The most significant source of cash in CFOA is customer-related activities,the largest of which iscollecting cash resulting from product or services sales.The most significant operating use of cash is to pay our suppliers,employees,tax authorities and postretirement plans.Cash from operating activities was$0.2 billion in 2023,an increase of$1.1 billion compared to 2022,primarily due to:an increase in net income(afteradjusting for depreciation of property,plant,and equipment,amortization of intangible assets and non-cash(gains)losses related to our retained ownershipinterests in GE HealthCare,AerCap,and Baker Hughes)primarily in our Aerospace business;and a decrease in cash used for working capital of$0.5 billion.The components of All other operating activities were as follows:Three months ended March 3120232022Increase(decrease)in Aerospace-related customer allowance accruals$135$282 Net interest and other financial charges/(cash paid)(79)31 Increase(decrease)in employee benefit liabilities125(113)Net restructuring and other charges/(cash expenditures)(1)(106)Other(54)(5)All other operating activities$125$89 The cash impacts from changes in working capital compared to prior year were as follows:current receivables of$1.1 billion,driven by higher collections,partially offset by higher volume;inventories,including deferred inventory,of$(0.5)billion,driven by higher material purchases,partially offset by higherliquidations;current contract assets of$(0.2)billion,driven by higher billings on our long-term service agreements,partially offset by higher revenue recognitionon those agreements;accounts payable and equipment project payables of$0.1 billion,driven by higher volume,partially offset by higher disbursements relatedto purchases of materials in prior periods;and progress collections and current deferred income of less than$0.1 billion.2023 1Q FORM 10-Q 12Cash from investing activities was$1.3 billion in 2023,an increase of$1.3 billion compared to 2022,primarily due to:higher cash received related to netsettlements between our continuing operations and businesses in discontinued operations of$0.9 billion,which primarily related to GE HealthCare in connectionwith the spin-off(a component of All other investing activities);and an increase in proceeds of$0.7 billion from the sales of our retained ownership interests inAerCap and Baker Hughes.Cash used for additions to property,plant and equipment and internal-use software,which are components of free cash flows*,was$0.3 billion in both 2023 and 2022.Cash used for financing activities was$5.2 billion in 2023,an increase of$3.8 billion compared to 2022,primarily due to:cash paid for redemption of GEpreferred stock of$3.0 billion in 2023;higher net debt maturities of$0.6 billion;and an increase in purchases of GE common stock for treasury of$0.3 billion.CASH FLOWS FROM DISCONTINUED OPERATIONSCash used for operating activities of discontinued operations was$0.4 billion in 2023,an increase of$0.8 billion compared with 2022,primarily driven byhigher disbursements related to purchases of materials in prior periods,a decrease in net income and higher separation costs related to our former GEHealthCare business.Cash used for investing activities of discontinued operations was$3.1 billion in 2023,an increase of$2.7 billion compared with 2022,primarily driven bythe deconsolidation of GE HealthCare cash and equivalents of$1.8 billion and higher net settlements between our discontinued operations and businesses incontinuing operations of$0.9 billion.Cash from financing activities of discontinued operations was$2.0 billion in 2023,an increase of$2.0 billion compared with 2022,primarily driven by GEHealthCares long-term debt issuance in connection with the spin-off of$2.0 billion.CRITICAL ACCOUNTING ESTIMATES.Refer to the Other Items-Insurance section for further discussion of the accounting estimates and assumptions inour insurance reserves and their sensitivity to change.See Notes 1 and 13 for further information.Please refer to the Critical Accounting Estimates and Note 1 tothe consolidated financial statements of our Annual Report on Form 10-K for the year ended December 31,2022 for additional discussion of accounting policiesand critical accounting estimates.OTHER ITEMS INSURANCE.The run-off insurance operations of North American Life and Health(NALH)include Employers Reassurance Corporation(ERAC)and UnionFidelity Life Insurance Company(UFLIC).ERAC primarily assumed long-term care insurance and life insurance from numerous cedents under various types ofreinsurance treaties and stopped accepting new policies after 2008.UFLIC primarily assumed long-term care insurance,structured settlement annuities with andwithout life contingencies and variable annuities from Genworth Financial Inc.(Genworth)and has been closed to new business since 2004.On January 1,2023,we adopted Accounting Standards Update No.2018-12,Financial Services Insurance(Topic 944):Targeted Improvements to theAccounting for Long-Duration Contracts(ASU 2018-12).See Notes 1 and 13 for further information.Key Portfolio CharacteristicsLong-term care insurance contracts.The long-term care insurance contracts we reinsure provide coverage at varying levels of benefits to policyholders and mayinclude attributes(e.g.,lifetime benefit periods,inflation protection options,and joint life policies)that could result in claimants being on claim for longer periodsor at higher daily claim costs,or alternatively limiting the premium paying period,compared to contracts with a lower level of benefits.Presented in the table below are reserve balances and key attributes of our long-term care insurance portfolio.December 31,2022ERACUFLICTotalGAAP:Ending balance of reserves at locked-in rate$17,750$5,318$23,068 Gross statutory reserves(a)24,670 6,354 31,024 Number of policies in force181,700 52,600 234,300 Number of covered lives in force241,500 52,600 294,100 Average policyholder attained age77 84 79 GAAP:Ending balance of reserves at locked-in rate per policy(in actual dollars)$97,700$101,100$98,500 GAAP:Ending balance of reserves at locked-in rate per covered life(in actual dollars)73,500 101,100 78,400 Statutory:Gross reserves per policy(in actual dollars)(a)135,800 120,800 132,400 Statutory:Gross reserves per covered life(in actual dollars)(a)102,200 120,800 105,500 Percentage of policies with:Lifetime benefit period692a%Inflation protection option80%Joint lives33&%Percentage of policies that are premium paying69up%Policies on claim9,700 8,200 17,900(a)Statutory balances reflect recognition of the estimated remaining statutory increase in reserves of approximately$1.8 billion through 2023 under thepermitted accounting practice discussed further in Note 13.*Non-GAAP Financial Measure2023 1Q FORM 10-Q 13Structured settlement annuities.We reinsure approximately 26,000 structured settlement annuities with an average attained age of 55.These structuredsettlement annuities were primarily underwritten on impaired lives(i.e.,shorter-than-average life expectancies)at origination and have projected paymentsextending decades into the future.Our primary risks associated with these contracts include mortality(i.e.,life expectancy or longevity),mortality improvement(i.e.,assumed rate that mortality is expected to reduce over time),which may extend the duration of payments on life contingent contracts beyond our estimates,and reinvestment risk(i.e.,a low interest rate environment).Unlike long-term care insurance,structured settlement annuities offer no ability to require additionalpremiums or reduce benefits.Life Insurance contracts.Our life reinsurance business typically covers the mortality risk associated with various types of life insurance policies that we reinsurefrom approximately 150 ceding company relationships where we pay a benefit based on the death of a covered life.At December 31,2022,across our U.S.andCanadian life insurance portfolio,we reinsure approximately$59 billion of net amount at risk(i.e.,difference between the death benefit and any accrued cashvalue)from approximately 1.4 million policies with an average attained age of 61.In 2022,our incurred claims were approximately$0.5 billion with an averageindividual claim of approximately$46,000.The covered products primarily include permanent life insurance and 20-and 30-year level term insurance.Weanticipate a significant portion of the 20-year level term policies,which represent approximately 17%of the net amount of risk,to lapse through 2024 as thepolicies reach the end of their 20-year level premium period.Critical Accounting Estimates.Our insurance reserves include the following key accounting estimates and assumptions described below.Future policy benefit reserves.Future policy benefit reserves represent the present value of future benefits to be paid to or on behalf of policyholders and relatedexpenses less the present value of future net premiums and are estimated based on actuarial assumptions such as mortality,morbidity,terminations,andexpenses.The liability is measured for each group of contracts(i.e.cohorts)using current cash flow assumptions.We regularly monitor emerging experience in our run-off insurance operations and industry developments to identify trends that may help us refine our reserveassumptions.We review at least annually in the third quarter,future policy benefit reserves cash flow assumptions,except related claim expenses which remainlocked-in,and if the review concludes that the assumptions need to be updated,future policy benefit reserves are adjusted retroactively to the ASU2018-12transition date based on the revised net premium ratio using actual historical experience,updated cash flow assumptions,and the locked-in discount rate withthe effect of those changes recognized in current period earnings.Our annual review procedures include updating certain experience studies since our lastcompleted review,independent actuarial analysis(principally on long-term care insurance exposures)and review of industry benchmarks.The review ofexperience and assumptions is a comprehensive and complex process that depends on a number of factors,many of which are interdependent and requireevaluation individually and in the aggregate across all insurance products.The vast majority of our run-off insurance operations consists of reinsurance frommultiple ceding insurance entities pursuant to treaties having complex terms and conditions.The review relies on claim and policy information provided by theseceding entities and considers the reinsurance treaties and underlying policies.In order to utilize that information for purposes of completing experience studiescovering all key assumptions,we perform detailed procedures to conform and validate the data received from the ceding entities.Our long-term care insuranceportfolio includes coverage where credible claim experience for higher attained ages is still emerging,and to the extent future experience deviates from currentexpectations,new projections of claim costs extending over the expected life of the policies may be required.Significant uncertainties exist in making projectionsfor these long-term care insurance contracts,which requires that we consider a wide range of possible outcomes.The primary cash flow assumptions used in the annual review include:Morbidity.Morbidity assumptions used in estimating future policy benefit reserves are based on estimates of expected incidences of disability amongpolicyholders and the costs associated with these policyholders asserting claims under their contracts,and these estimates account for any expected futuremorbidity improvement.For long-term care insurance exposures,estimating expected future costs includes assessments of incidence(probability of a claim),utilization(amount of available benefits expected to be incurred)and continuance(how long the claim will last,including claim terminations due to death orrecovery).Rate of Change in Morbidity.Our review incorporates our best estimates of projected future changes in the morbidity rates reflected in our base claim incidencerates.These estimates draw upon a number of inputs,some of which are subjective,and all of which are interpreted and applied in the exercise of professionalactuarial judgment in the context of the characteristics specific to our portfolios.This exercise of actuarial judgment considers factors such as the work performedby internal and external independent actuarial experts engaged to advise us in our annual review,the observed actual experience in our portfolios measuredagainst our base assumptions,industry developments,and other trends,including advances in the state of medical care and health-care technologydevelopment.Terminations.Terminations include active life mortality and lapse.Mortality assumptions used in estimating future policy benefit reserves are based on publishedmortality tables as adjusted for the results of our experience studies and estimates of expected future mortality improvement.Lapse refers to the rate at whichthe underlying policies are cancelled due to non-payment of premiums by a policyholder.Lapse rate assumptions used in estimating the present value of futurepolicy benefit reserves are based on the results of our experience studies and reflect actuarial judgment.Future long-term care premium rate increases.Substantially all long-term care insurance policies that are currently premium paying allow the issuing insuranceentity to increase premiums,or alternatively allow the policyholder the option to decrease benefits,with approval by state regulators,should actual experienceemerge worse than what was projected when such policies were initially underwritten.As a reinsurer,we rely upon the primary insurers that issued theunderlying policies to file proposed premium rate increases on those policies with the relevant state insurance regulators.While we have no direct ability to seekor to institute such premium rate increases,we often collaborate with the primary insurers in accordance with reinsurance contractual terms to file proposedpremium rate increases.The amount of times that rate increases have occurred varies by ceding company.We consider recent experience of rate increasefilings made by our ceding companies along with state insurance regulatory processes and precedents in establishing our current expectations.2023 1Q FORM 10-Q 14Included in Insurance losses and annuity benefits in our Statement of Earnings(Loss)for the years ended December 31,2022 and 2021,are favorable pre-taxadjustments of$404 million and$408 million,respectively,from updating the net premium ratio after updating for actual historical experience each quarter andupdating of future cash flow assumptions in the third quarter of each year.Sensitivities.The following table provides sensitivities with respect to the impact of changes of key cash flow assumptions underlying our future policy benefitreserves using the locked-in discount rate assumption and have been estimated across the entire product line rather than at an individual cohort level.As ourinsurance operations are in run-off,the locked-in discount rate at the ASU 2018-12 transition date is the discount rate used for the computation of interestaccretion on future policy benefit reserves.Many of our assumptions are interdependent and require evaluation individually and in the aggregate across allinsurance products.Small changes in the amounts used in the sensitivities could result in materially different outcomes from those reflected below.In addition,the effects of changes to cash flow assumptions underlying our future policy benefit reserves may be partially or wholly reflected in the period in which theassumptions are changed and/or over future periods and may vary across cohorts.2021 assumption2022 assumptionHypothetical change in 2022assumptionEstimated adverse impactto projected present valueof future cash flows(In millions,pre-tax)Morbidity:Long-term care insuranceincidence ratesBased on companyexperienceBased on companyexperience5%increase in incidence rates$600Long-term care insurance claimcontinuanceBased on companyexperienceBased on companyexperience5%reduction in disabled lifedeaths$1,200Long-term care insuranceutilizationBased on companyexperience and affected byfuture cost of care inflationBased on companyexperience and affected byfuture cost of care inflation5%increase in utilization$1,100Long-term care insurance morbidityimprovementDecreases with attainedage,ends at age 100Decreases with attained age,ends at age 10025 basis point reduction by agewith 0%floorNo morbidity improvement$300$1,300Active life terminations:Long-term care insurancemortalityBased on companyexperienceBased on companyexperience5%reduction in mortality$300Long-term care insurance futurepremium rate increasesVaries by block based onfiling experienceVaries by block based onfiling experience25verse change insuccess rate on premium rateincrease actions not yetapproved$200Life insurance mortalityBased on companyexperienceBased on companyexperience5%increase in mortality$300While higher assumed inflation,holding all other assumptions constant,would result in unfavorable impacts to the projected present value of future cash flows inthe table above,it would be expected to be mitigated by more long-term care insurance policies reaching contractual daily or monthly benefit caps and byincreased investment income from higher portfolio yields.Our run-off insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory accounting practices.Statutory accountingpractices are set forth by the National Association of Insurance Commissioners(NAIC)as well as state laws,regulation and general administrative rules and candiffer in certain respects from GAAP and would result in several of the sensitivities described in the table above being less impactful on our statutory reserves.See Capital Resources and Liquidity and Notes 1,3 and 13 for further information related to our run-off insurance operations.NON-GAAP FINANCIAL MEASURES.We believe that presenting non-GAAP financial measures provides management and investors useful measures toevaluate performance and trends of the total company and its businesses.This includes adjustments in recent periods to GAAP financial measures to increaseperiod-to-period comparability following actions to strengthen our overall financial position and how we manage our business.In addition,managementrecognizes that certain non-GAAP terms may be interpreted differently by other companies under different circumstances.In various sections of this report wehave made reference to the following non-GAAP financial measures in describing our(1)revenues,specifically organic revenues by segment;organic revenues;and equipment and services organic revenues and(2)profit,specifically organic profit and profit margin by segment;Adjusted profit and profit margin;Adjustedorganic profit and profit margin;Adjusted earnings(loss);Adjusted income tax rate;and Adjusted earnings(loss)per share(EPS),and(3)cash flows,specificallyfree cash flows(FCF).The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financialmeasures follow.2023 1Q FORM 10-Q 15ORGANIC REVENUES,PROFIT(LOSS)AND PROFIT MARGIN BY SEGMENT(NON-GAAP)RevenuesSegment profit(loss)Profit marginThree months ended March 3120232022V 232022V 232022V ptsAerospace(GAAP)$6,981$5,603 25%$1,326$908 46.0.2%2.8ptsLess:acquisitions Less:business dispositions Less:foreign currency effect(6)(1)30 4 Aerospace organic(Non-GAAP)$6,987$5,604 25%$1,295$904 43.5.1%2.4ptsRenewable Energy(GAAP)$2,837$2,871(1)%$(414)$(434)5%(14.6)%(15.1)%0.5ptsLess:acquisitions Less:business dispositions Less:foreign currency effect(159)7(22)Renewable Energy organic(Non-GAAP)$2,997$2,863 5%$(392)$(434)10%(13.1)%(15.2)%2.1ptsPower(GAAP)$3,820$3,501 9%$75$63 19%2.0%1.8%0.2ptsLess:acquisitions Less:business dispositions Less:foreign currency effect(67)(16)(37)(20)Power organic(Non-GAAP)$3,887$3,517 11%$112$83 35%2.9%2.4%0.5ptsWe believe these measures provide management and investors with a more complete understanding of underlying operating results and trends of established,ongoing operations by excluding the effect of acquisitions,dispositions and foreign currency,which includes translational and transactional impacts,as theseactivities can obscure underlying trends.ORGANIC REVENUES(NON-GAAP)Three months ended March 3120232022V%Total revenues(GAAP)$14,486$12,675 14%Less:Insurance revenues791 764 Adjusted revenues(Non-GAAP)$13,695$11,910 15%Less:acquisitions 1 Less:business dispositions Less:foreign currency effect(a)(235)(9)Organic revenues(Non-GAAP)$13,929$11,919 17%(a)Foreign currency impact in 2023 was primarily driven by U.S.dollar appreciation against the euro,Chinese renminbi and British pound.We believe these measures provide management and investors with a more complete understanding of underlying operating results and trends of established,ongoing operations by excluding the effect of revenues from our run-off Insurance business,acquisitions,dispositions and foreign currency,which includestranslational and transactional impacts,as these activities can obscure underlying trends.EQUIPMENT AND SERVICES ORGANIC REVENUES(NON-GAAP)Three months ended March 3120232022V%Total equipment revenues(GAAP)$5,287$4,608 15%Less:acquisitions Less:business dispositions Less:foreign currency effect(170)(1)Equipment organic revenues(Non-GAAP)$5,458$4,609 18%Total services revenues(GAAP)$8,407$7,302 15%Less:acquisitions 1 Less:business dispositions Less:foreign currency effect(64)(8)Services organic revenues(Non-GAAP)$8,471$7,309 16%We believe these measures provide management and investors with a more complete understanding of underlying operating results and trends of established,ongoing operations by excluding the effect of acquisitions,dispositions and foreign currency,which includes translational and transactional impacts,as theseactivities can obscure underlying trends.2023 1Q FORM 10-Q 16ADJUSTED PROFIT AND PROFIT MARGIN(NON-GAAP)Three months ended March 3120232022V%Total revenues(GAAP)$14,486$12,67514%Less:Insurance revenues(Note 13)791764Adjusted revenues(Non-GAAP)$13,695$11,91015%Total costs and expenses(GAAP)$14,075$13,9041%Less:Insurance cost and expenses(Note 13)722658Less:interest and other financial charges(a)257371Less:non-operating benefit cost(income)(385)(105)Less:restructuring&other(a)15138Less:separation costs(a)20599Less:Steam asset sale impairment(a)824Less:Russia and Ukraine charges(a)230Add:noncontrolling interests(27)14Add:EFS benefit from taxes(51)(47)Adjusted costs(Non-GAAP)$13,047$11,75511%Other income(loss)(GAAP)$6,081$49FLess:gains(losses)on equity securities(a)5,906(219)Less:restructuring&other(a)3Less:gains(losses)on purchases and sales of business interests(a)(55)4Adjusted other income(loss)(Non-GAAP)$230$260(12)%Profit(loss)(GAAP)$6,492$(1,180)FProfit(loss)margin(GAAP)44.8%(9.3)T.1ptsAdjusted profit(loss)(Non-GAAP)$877$415FAdjusted profit(loss)margin(Non-GAAP)6.4%3.5%2.9pts(a)See the Corporate and Other Consolidated Information sections for further information.We believe that adjusting profit to exclude the effects of items that are not closely associated with ongoing operations provides management and investors witha meaningful measure that increases the period-to-period comparability.Gains(losses)and restructuring and other items are impacted by the timing andmagnitude of gains associated with dispositions,and the timing and magnitude of costs associated with restructuring and other activities.ADJUSTED ORGANIC PROFIT(NON-GAAP)Three months ended March 3120232022Vjusted profit(loss)(Non-GAAP)$877$415 FLess:acquisitions(6)(5)Less:business dispositions Less:foreign currency effect(a)(81)(14)Adjusted organic profit(loss)(Non-GAAP)$964$434 FAdjusted profit(loss)margin(Non-GAAP)6.4%3.5%2.9 ptsAdjusted organic profit(loss)margin(Non-GAAP)6.9%3.6%3.3 pts(a)Included foreign currency negative effect on revenues of$235 million and positive effect on operating costs and other income(loss)of$154 million for thethree months ended March 31,2023.We believe these measures provide management and investors with a more complete understanding of underlying operating results and trends of established,ongoing operations by excluding the effect of acquisitions,dispositions and foreign currency,which includes translational and transactional impacts,as theseactivities can obscure underlying trends.2023 1Q FORM 10-Q 17ADJUSTED EARNINGS(LOSS)ANDADJUSTED INCOME TAX RATE(NON-GAAP)(Per-share amounts in dollars)20232022Three months ended March 31EarningsEPSEarningsEPSEarnings(loss)from continuing operations(GAAP)(Note 18)$6,097$5.56$(1,276)$(1.16)Insurance earnings(loss)(pre-tax)710.061080.10Tax effect on Insurance earnings(loss)(16)(0.01)(24)(0.02)Less:Insurance earnings(loss)(net of tax)(Note 13)540.05840.08Earnings(loss)excluding Insurance(Non-GAAP)$6,043$5.51$(1,360)$(1.24)Non-operating benefit(cost)income(pre-tax)(GAAP)3850.351050.10Tax effect on non-operating benefit(cost)income(81)(0.07)(22)(0.02)Less:Non-operating benefit(cost)income(net of tax)3040.28830.08Gains(losses)on purchases and sales of business interests(pre-tax)(a)(55)(0.05)4Tax effect on gains(losses)on purchases and sales of business interests1(1)Less:Gains(losses)on purchases and sales of business interests(net of tax)(53)(0.05)3Gains(losses)on equity securities(pre-tax)(a)5,9065.39(219)(0.20)Tax effect on gains(losses)on equity securities(b)(c)(20)(0.02)Less:Gains(losses)on equity securities(net of tax)5,9065.39(239)(0.22)Restructuring&other(pre-tax)(a)(151)(0.14)(35)(0.03)Tax effect on restructuring&other320.0380.01Less:Restructuring&other(net of tax)(119)(0.11)(27)(0.02)Separation costs(pre-tax)(a)(205)(0.19)(99)(0.09)Tax effect on separation costs(56)(0.05)(24)(0.02)Less:Separation costs(net of tax)(261)(0.24)(123)(0.11)Steam asset sale impairment(pre-tax)(a)(824)(0.75)Tax effect on Steam asset sale impairment840.08Less:Steam asset sale impairment(net of tax)(740)(0.67)Russia and Ukraine charges(pre-tax)(a)(230)(0.21)Tax effect on Russia and Ukraine charges150.01Less:Russia and Ukraine charges(net of tax)(215)(0.20)Less:Excise tax on preferred stock redemption(30)(0.03)Adjusted earnings(loss)(Non-GAAP)$296$0.27$(102)$(0.09)Earnings(loss)from continuing operations before taxes(GAAP)$6,492$(1,180)Less:Total adjustments above(pre-tax)5,950(1,190)Adjusted earnings before taxes(Non-GAAP)$542$9Provision(benefit)for income taxes(GAAP)$271$29Less:Tax effect on adjustments above119(16)Adjusted provision(benefit)for income taxes(Non-GAAP)$152$45Income tax rate(GAAP)4.2%(2.5)justed income tax rate(Non-GAAP)28.0P0.0%(a)See the Corporate and Other Consolidated Information sections for further information.(b)Includes tax benefits available to offset the tax on gains(losses)on equity securities.(c)Includes related tax valuation allowances.Earnings-per-share amounts are computed independently.As a result,the sum of per-share amounts may not equal the total.The service cost for our pension and other benefit plans are included in Adjusted earnings*,which represents the ongoing cost of providing pension benefits toour employees.The components of non-operating benefit costs are mainly driven by capital allocation decisions and market performance.We believe theretained cost in Adjusted earnings*and the Adjusted tax rate*provides management and investors a useful measure to evaluate the performance of the totalcompany and increases period-to-period comparability.We also use Adjusted EPS*as a performance metric at the company level for our annual executiveincentive plan for 2023.*Non-GAAP Financial Measure2023 1Q FORM 10-Q 18FREE CASH FLOWS(FCF)(NON-GAAP)Three months ended March 3120232022CFOA(GAAP)$155$(924)Less:Insurance CFOA6(15)CFOA excluding Insurance(Non-GAAP)$149$(909)Add:gross additions to property,plant and equipment(279)(239)Add:gross additions to internal-use software(20)(22)Less:separation cash expenditures(204)(3)Less:Corporate restructuring cash expenditures(32)Less:taxes related to business sales(16)Free cash flows(Non-GAAP)$102$(1,169)We believe investors may find it useful to compare free cash flows*performance without the effects of CFOA related to our run-off Insurance business,separation cash expenditures,Corporate restructuring cash expenditures(associated with the separation-related program announced in October 2022)andtaxes related to business sales.We believe this measure will better allow management and investors to evaluate the capacity of our operations to generate freecash flows.CONTROLS AND PROCEDURES.Under the direction of our Chief Executive Officer and Chief Financial Officer,we evaluated our disclosure controls andprocedures and internal control over financial reporting and concluded that(i)our disclosure controls and procedures were effective as of March 31,2023,and(ii)no change in internal control over financial reporting occurred during the quarter ended March 31,2023,that has materially affected,or is reasonably likely tomaterially affect,such internal control over financial reporting.OTHER FINANCIAL DATAPURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.On March 6,2022,the Board of Directors authorized up to$3billion of common share repurchases.We repurchased 3,225 thousand shares for$276 million during the three months ended March 31,2023 under thisauthorization.PeriodTotal number ofshares purchasedAverage price paidper shareTotal number ofshares purchasedas part of our sharerepurchaseauthorizationApproximate dollarvalue of shares thatmay yet bepurchased underour sharerepurchaseauthorization(Shares in thousands)2023January$February1,786 84.23 1,786 March1,438 87.62 1,438 Total3,225$85.74 3,225$1,749*Non-GAAP Financial Measure2023 1Q FORM 10-Q 19STATEMENT OF EARNINGS(LOSS)(UNAUDITED)Three months ended March 31(In millions,per-share amounts in dollars)20232022Sales of equipment$5,287$4,608 Sales of services8,407 7,302 Insurance revenues(Note 13)791 764 Total revenues(Note 8)14,486 12,675 Cost of equipment sold5,605 5,148 Cost of services sold5,124 4,626 Selling,general and administrative expenses2,142 2,725 Separation costs(Note 20)205 99 Research and development431 403 Interest and other financial charges269 387 Insurance losses,annuity benefits and other costs(Note 13)684 620 Non-operating benefit cost(income)(385)(105)Total costs and expenses14,075 13,904 Other income(loss)(Note 19)6,081 49 Earnings(loss)from continuing operations before income taxes6,492(1,180)Benefit(provision)for income taxes(Note 16)(271)(29)Earnings(loss)from continuing operations6,221(1,209)Earnings(loss)from discontinued operations,net of taxes(Note 2)1,257 101 Net earnings(loss)7,478(1,108)Less net earnings(loss)attributable to noncontrolling interests(27)28 Net earnings(loss)attributable to the Company7,506(1,136)Preferred stock dividends and other(145)(52)Net earnings(loss)attributable to GE common shareholders$7,360$(1,188)Amounts attributable to GE common shareholdersEarnings(loss)from continuing operations$6,221$(1,209)Less net earnings(loss)attributable to noncontrolling interests,continuing operations(27)14 Earnings(loss)from continuing operations attributable to the Company6,248(1,224)Preferred stock dividends and other(145)(52)Earnings(loss)from continuing operations attributable to GE common shareholders6,103(1,276)Earnings(loss)from discontinued operations attributableto GE common shareholders1,257 88 Net earnings(loss)attributable to GE common shareholders$7,360$(1,188)Earnings(loss)per share from continuing operations(Note 18)Diluted earnings(loss)per share$5.56$(1.16)Basic earnings(loss)per share$5.60$(1.16)Net earnings(loss)per share(Note 18)Diluted earnings(loss)per share$6.71$(1.08)Basic earnings(loss)per share$6.76$(1.08)2023 1Q FORM 10-Q 20STATEMENT OF FINANCIAL POSITION(UNAUDITED)(In millions)March 31,2023December 31,2022Cash,cash equivalents and restricted cash$12,001$15,810 Investment securities(Note 3)12,814 7,609 Current receivables(Note 4)14,212 14,831 Inventories,including deferred inventory costs(Note 5)16,198 14,891 Current contract assets(Note 9)2,244 2,467 All other current assets(Note 10)1,464 1,400 Assets of businesses held for sale(Note 2)1,353 1,374 Current assets60,286 58,384 Investment securities(Note 3)38,262 36,027 Property,plant and equipment net(Note 6)12,170 12,192 Goodwill(Note 7)13,107 12,999 Other intangible assets net(Note 7)5,990 6,105 Contract and other deferred assets(Note 9)5,631 5,776 All other assets(Note 10)15,888 15,477 Deferred income taxes(Note 16)10,344 10,001 Assets of discontinued operations(Note 2)2,793 31,890 Total assets$164,472$188,851 Short-term borrowings(Note 11)$2,262$3,739 Accounts payable and equipment project payables(Note 12)15,063 15,399 Progress collections and deferred income(Note 9)16,586 16,216 All other current liabilities(Note 15)12,313 12,130 Liabilities of businesses held for sale(Note 2)1,953 1,944 Current liabilities48,177 49,428 Deferred income(Note 9)1,500 1,409 Long-term borrowings(Note 11)20,159 20,320 Insurance liabilities and annuity benefits(Note 13)39,082 36,845 Non-current compensation and benefits10,244 10,400 All other liabilities(Note 15)10,937 11,063 Liabilities of discontinued operations(Note 2)1,551 24,474 Total liabilities131,649 153,938 Preferred stock(Note 17)3 6 Common stock(Note 17)15 15 Accumulated other comprehensive income(loss)net attributable to GE(Note 17)(3,289)(2,272)Other capital30,729 34,173 Retained earnings84,955 82,983 Less common stock held in treasury(80,762)(81,209)Total GE shareholders equity31,652 33,696 Noncontrolling interests1,171 1,216 Total equity32,823 34,912 Total liabilities and equity$164,472$188,851 2023 1Q FORM 10-Q 21STATEMENT OF CASH FLOWS(UNAUDITED)Three months ended March 31(In millions)20232022Net earnings(loss)$7,478$(1,108)(Earnings)loss from discontinued operations activities(1,257)(101)Adjustments to reconcile net earnings(loss)to cash from(used for)operating activitiesDepreciation and amortization of property,plant and equipment367 403 Amortization of intangible assets(Note 7)140 922(Gains)losses on purchases and sales of business interests52(15)(Gains)losses on equity securities(5,906)206 Principal pension plans cost(Note 14)(271)94 Principal pension plans employer contributions(52)(49)Other postretirement benefit plans(net)(181)(224)Provision(benefit)for income taxes271 29 Cash recovered(paid)during the year for income taxes(172)(24)Changes in operating working capital:Decrease(increase)in current receivables536(610)Decrease(increase)in inventories,including deferred inventory costs(1,275)(732)Decrease(increase)in current contract assets294 473 Increase(decrease)in accounts payable and equipment project payables(201)(293)Increase(decrease)in progress collections and current deferred income205 173 Financial services derivatives net collateral/settlement3(155)All other operating activities125 89 Cash from(used for)operating activities continuing operations155(924)Cash from(used for)operating activities discontinued operations(413)369 Cash from(used for)operating activities(259)(556)Additions to property,plant and equipment(279)(239)Dispositions of property,plant and equipment7 28 Additions to internal-use software(20)(22)Sales of retained ownership interests2,025 1,302 Net(purchases)dispositions of insurance investment securities(1,556)(1,344)All other investing activities1,096 239 Cash from(used for)investing activities continuing operations1,273(37)Cash from(used for)investing activities discontinued operations(3,068)(407)Cash from(used for)investing activities(1,796)(444)Net increase(decrease)in borrowings(maturities of 90 days or less)1 45 Newly issued debt(maturities longer than 90 days)9 Repayments and other debt reductions(maturities longer than 90 days)(1,815)(1,267)Dividends paid to shareholders(203)(140)Redemption of GE preferred stock(3,000)Purchases of GE common stock for treasury(309)(39)All other financing activities87(30)Cash from(used for)financing activities continuing operations(5,230)(1,431)Cash from(used for)financing activities discontinued operations1,999(28)Cash from(used for)financing activities(3,232)(1,459)Effect of currency exchange rate changes on cash,cash equivalents and restricted cash65(75)Increase(decrease)in cash,cash equivalents and restricted cash(5,220)(2,534)Cash,cash equivalents and restricted cash at beginning of year19,092 16,859 Cash,cash equivalents and restricted cash at March 3113,871 14,325 Less cash,cash equivalents and restricted cash of discontinued operations at March 311,180 1,223 Cash,cash equivalents and restricted cash of continuing operations at March 31$12,691$13,101 2023 1Q FORM 10-Q 22STATEMENT OF COMPREHENSIVE INCOME(LOSS)(UNAUDITED)Three months ended March 31(In millions)20232022Net earnings(loss)$7,478$(1,108)Less:net earnings(loss)attributable to noncontrolling interests(27)28 Net earnings(loss)attributable to the Company$7,506$(1,136)Currency translation adjustments2,387(181)Benefit plans(2,319)240 Investment securities and cash flow hedges706(2,998)Long-duration insurance contracts(a)(1,793)3,682 Less:other comprehensive income(loss)attributable to noncontrolling interests(3)(2)Other comprehensive income(loss)attributable to the Company$(1,017)$745 Comprehensive income(loss)$6,458$(365)Less:comprehensive income(loss)attributable to noncontrolling interests(30)26 Comprehensive income(loss)attributable to the Company$6,489$(391)(a)Represents the net after-tax change in future policy benefit reserves and related reinsurance recoverables from updating the discount rate.See Notes 1 and13 for further information.STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY(UNAUDITED)Three months ended March 31(In millions)20232022Preferred stock issued(a)$3$6 Common stock issued$15$15 Beginning balance(2,272)(4,860)Currency translation adjustments2,388(177)Benefit plans(2,317)238 Investment securities and cash flow hedges706(2,998)Long-duration insurance contracts(1,793)3,682 Accumulated other comprehensive income(loss)$(3,289)$(4,115)Beginning balance34,173 34,691 Gains(losses)on treasury stock dispositions(619)(396)Stock-based compensation73 91 Other changes(a)(2,898)5 Other capital$30,729$34,391 Beginning balance82,983 83,286 Net earnings(loss)attributable to the Company7,506(1,136)Dividends and other transactions with shareholders(b)(5,534)(141)Retained earnings$84,955$82,009 Beginning balance(81,209)(81,093)Purchases(311)(39)Dispositions759 459 Common stock held in treasury$(80,762)$(80,673)GE shareholders equity balance31,652 31,631 Noncontrolling interests balance1,171 1,278 Total equity balance at March 31$32,823$32,909(a)Included$3,000 million decrease substantially all in Other capital related to our redemption of GE Series D preferred stock in the first quarter of 2023.(b)Included$5,300 million decrease in Retained earnings reflecting a pro-rata distribution of approximately 80.1%of the shares of GE HealthCare on January 3,2023.2023 1Q FORM 10-Q 23NOTE 1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.Our financial statements are prepared inconformity with U.S.generally accepted accounting principles(GAAP),which requires us to make estimates based on assumptions about current,and for someestimates,future,economic and market conditions which affect reported amounts and related disclosures in our financial statements.Although our currentestimates contemplate current and expected future conditions,as applicable,it is reasonably possible that actual conditions could differ from our expectations,which could materially affect our results of operations,financial position and cash flows.Such changes could result in future impairments of goodwill,intangibles,long-lived assets and investment securities,revisions to estimated profitability on long-term product service agreements,incremental credit losses onreceivables and debt securities,a change in the carrying amount of our tax assets and liabilities,or a change in our insurance liabilities and pension obligationsas of the time of a relevant measurement event.In preparing our Statement of Cash Flows,we make certain adjustments to reflect cash flows that cannot otherwise be calculated by changes in our Statementof Financial Position.These adjustments may include,but are not limited to,the effects of currency exchange,acquisitions and dispositions of businesses,businesses classified as held for sale,the timing of settlements to suppliers for property,plant and equipment,non-cash gains/losses and other balance sheetreclassifications.We have reclassified certain prior-year amounts to conform to the current-years presentation.Unless otherwise noted,tables are presented in U.S.dollars inmillions.Certain columns and rows may not add due to the use of rounded numbers.Percentages presented are calculated from the underlying numbers inmillions.Earnings per share amounts are computed independently for earnings from continuing operations,earnings from discontinued operations and netearnings.As a result,the sum of per-share amounts may not equal the total.Unless otherwise indicated,information in these notes to consolidated financialstatements relates to continuing operations.Certain of our operations have been presented as discontinued.We present businesses whose disposal representsa strategic shift that has,or will have,a major effect on our operations and financial results as discontinued operations when the components meet the criteria forheld for sale,are sold,or spun-off.See Note 2 for further information.On January 3,2023,General Electric Company(the Company or GE)completed the previously announced separation(the Separation)of its HealthCarebusiness,into a separate,independent publicly traded company.The historical results of GE HealthCare and certain assets and liabilities included in the spin-offare now reported in GEs consolidated financial statements as discontinued operations.See Note 2 for further information.The accompanying consolidated financial statements and notes are unaudited.The results reported in these financial statements should not be regarded asnecessarily indicative of results that may be expected for the entire year.These financial statements should be read in conjunction with the financial statements,notes and significant accounting policies included in our Annual Report on Form 10-K for the year ended December 31,2022.INSURANCE.Our run-off insurance operations include providing insurance and reinsurance for life and health risks and providing certain annuity products.Primary product types include long-term care,structured settlement annuities,life and disability insurance contracts and investment contracts.Insurancecontracts are contracts with significant mortality and/or morbidity risks,while investment contracts are contracts without such risks.Insurance revenues arecomprised primarily of premiums and investment income.For traditional long-duration insurance contracts,we report premiums as revenue when due.Premiumsreceived on non-traditional long-duration insurance contracts and investment contracts,including annuities without significant mortality risk,are not reported asrevenues but rather as deposit liabilities.We recognize revenues for charges and assessments on these contracts,mostly for mortality,administration andsurrender.Interest credited to policyholder accounts is charged to expense.Future policy benefit reserves represent the present value of future benefits to be paid to or on behalf of policyholders and related expenses less the presentvalue of future net premiums.The liability is measured by each group of contracts(i.e.,cohorts)using current cash flow assumptions.As a run-off insuranceoperation consisting substantially all of reinsurance,contracts are grouped into cohorts by legal entity and product type,based on the date the reinsurancecontract was consummated.Future policy benefit reserves are adjusted each period as a result of updating lifetime net premium ratios for differences betweenactual and expected experience with the retroactive effect of those variances recognized in current period earnings.We review at least annually in the thirdquarter,future policy benefit reserves cash flow assumptions,except related claim expenses which remain locked-in,and if the review concludes that theassumptions need to be updated,future policy benefit reserves are adjusted retroactively based on the revised net premium ratio using actual historicalexperience,updated cash flow assumptions,and the locked-in discount rate with the effect of those changes recognized in current period earnings.As our insurance operations are in run-off,the locked-in discount rate is the discount rate used for the computation of interest accretion on future policy benefitreserves recognized in earnings.However,cash flows used to estimate future policy benefit reserves are also discounted using an upper-medium grade(i.e.,low credit risk)fixed-income instrument yield reflecting the duration characteristics of the liabilities and is updated each reporting period with changes recorded inAOCI.As a result,changes in the current discount rate at each reporting period will be recognized as an adjustment to AOCI and not earnings each period,whereas changes relating to cash flow assumptions will be recognized in the Statement of Earnings(Loss).2023 1Q FORM 10-Q 24Reinsurance recoverables are recorded when we cede insurance risk to third parties but are not relieved from our primary obligation to policyholders andcedents.As reinsurance recoverables are recognized in a manner consistent with the future policy benefit reserves relating to the underlying reinsurancecontracts,changes in reinsurance recoverables from updating the discount rate in each reporting period are also recognized in AOCI.The allowance for creditlosses on reinsurance recoverables is based on the locked-in future policy benefit reserves discount rate for purposes of assessing changes in each reportingperiod.As such,movements in the gross reinsurance recoverable balance resulting from changes in the discount rate do not impact the allowance for creditlosses.Following the recapture transaction effective in the fourth quarter of 2022,the remaining reinsurance recoverables are not material.Liabilities for investment contracts equal the account value,that is,the amount that accrues to the benefit of the contract or policyholder including creditedinterest and assessments through the financial statement date.See Note 13 for further information.ADOPTIONS OF NEW ACCOUNTING STANDARDS.On January 1,2023,we adopted Accounting Standards Update No.2018-12,Financial Services Insurance(Topic 944):Targeted Improvements to the Accounting for Long-Duration Contracts.The new guidance for measuring the liability for future policybenefits and related reinsurance recoverable asset was adopted on a modified retrospective basis such that those balances were adjusted to conform to the newguidance at the January 1,2021 transition date.We recognized a$7,285 million after-tax decrease in Total equity at January 1,2021 from the effect of transition date adjustments due to adoption of the newguidance,as presented in the following table.Retained EarningsAOCIDecember 31,2020$92,247$(9,749)Liability for future policy benefits,including removal of related balances in AOCI(1,853)(8,806)Reinsurance recoverables,net of allowance for credit losses48 3,542 Other contracts,including market risk benefits(202)(14)Effect of transition adjustments$(2,007)$(5,278)Adjusted balance,January 1,2021$90,240$(15,027)The following table summarizes the balance of and pre-tax changes to total Insurance liabilities and annuity benefits attributable to changes in the liability forfuture policy benefits and market risk benefits at the transition date,due to adoption of the new guidance.Long-termcareStructuredsettlementannuitiesLifeOthercontracts(a)OtheradjustmentsTotalDecember 31,2020$21,378$9,124$517$3,012$8,160$42,191 Change in discount rate assumptions14,654 4,369 283 19,306 Change in cash flow assumptions(effect of insufficientgross premiums)and elimination of negative reserves1,545 39 761 2,345 Adjustment for removal of related balances in AOCI (8,160)(8,160)Market risk benefits and other 269 269 Adjusted balance,January 1,202137,577 13,532 1,561 3,281 55,951 Less:reinsurance recoverables,net7,036 15 44 7,095 Adjusted balance,January 1,2021,net of reinsurancerecoverables$30,541$13,532$1,546$3,237$48,856(a)As of December 31,2020,includes investment contracts($2,049 million),claim reserves related to short-duration contracts at Electric Insurance Company(EIC),net of eliminations($399 million),and other($564 million).EIC is a property and casualty insurance company primarily providing insurance to GE andits employees.For the liability for future policy benefits and related reinsurance recoverables,the new guidance transition adjustments are reflected in both AOCI and Retainedearnings.The transition adjustment reflected in AOCI is related to the difference in the discount rate used pre-transition and the discount rate required under thenew guidance,which is equivalent to an upper-medium grade fixed-income instrument yield reflecting the duration characteristics of our insurance liabilities,atJanuary 1,2021,and does not represent a change in our ultimate expected cash flows associated with the liability for future policy benefits or relatedreinsurance recoverables.The transition adjustment in AOCI also reflects removal of certain Other adjustments previously recorded in the liability for futurepolicy benefits related to changes in net unrealized gains on investment securities.Whereas pre-transition,we annually performed premium deficiency testing in the aggregate across our run-off insurance portfolio,the new guidance requires thegrouping of contracts(i.e.,cohorts)at a more granular level.Due to this lower level of aggregation,combined with the conversion of our long-term careinsurance claim cost projection models to first principles models,we identified certain cohorts at transition having insufficient gross premiums in our long-termcare insurance portfolio.A first principles model separates morbidity assumptions such as incidence(probability of a claim),continuance(length of a claim)andutilization(percentage of the d
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Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549FORM 10-Q(Mark One)xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31,2023ORoTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission File No.1-2189ABBOTT LABORATORIESAn Illinois CorporationI.R.S.Employer Identification No.36-0698440100 Abbott Park RoadAbbott Park,Illinois 60064-6400Telephone:(224)667-6100Securities Registered Pursuant to Section 12(b)of the Act:Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which RegisteredCommon Shares,Without Par ValueABTNew York Stock ExchangeChicago Stock Exchange,Inc.Indicate by check mark whether the registrant:(l)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of l934 during the preceding 12 months(or for suchshorter 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 x No oIndicate 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(229.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).Yes x No oIndicate 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 definitionsof“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large Accelerated Filer xAccelerated Filer oNon-Accelerated Filer oSmaller reporting company oEmerging growth company oIf 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 standardsprovided pursuant to Section 13(a)of the Exchange Act.oIndicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes o No xAs of March 31,2023,Abbott Laboratories had 1,738,946,799 common shares without par value outstanding.Table of Contents Abbott LaboratoriesTable of ContentsPart I-Financial InformationPageItem 1.Financial Statements and Supplementary DataCondensed Consolidated Statement of Earnings3Condensed Consolidated Statement of Comprehensive Income4Condensed Consolidated Balance Sheet5Condensed Consolidated Statement of Shareholders Investment6Condensed Consolidated Statement of Cash Flows7Notes to the Condensed Consolidated Financial Statements8Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations20Item 4.Controls and Procedures25Part II-Other Information25Item 1.Legal Proceedings25Item 2.Unregistered Sales of Equity Securities and Use of Proceeds25Item 6.Exhibits26Signature272Table of Contents Abbott Laboratories and SubsidiariesCondensed Consolidated Statement of Earnings(Unaudited)(dollars in millions except per share data;shares in thousands)Three Months EndedMarch 3120232022Net sales$9,747$11,895 Cost of products sold,excluding amortization of intangible assets4,331 4,987 Amortization of intangible assets491 512 Research and development654 697 Selling,general and administrative2,762 2,787 Total operating cost and expenses8,238 8,983 Operating earnings1,509 2,912 Interest expense153 131 Interest(income)(101)(14)Net foreign exchange(gain)loss6(3)Other(income)expense,net(111)(78)Earnings before taxes1,562 2,876 Taxes on earnings244 429 Net Earnings$1,318$2,447 Basic Earnings Per Common Share$0.75$1.38 Diluted Earnings Per Common Share$0.75$1.37 Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share1,741,738 1,761,911 Dilutive Common Stock Options9,977 12,631 Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options1,751,715 1,774,542 Outstanding Common Stock Options Having No Dilutive Effect7,332 2,655 The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.3Table of Contents Abbott Laboratories and SubsidiariesCondensed Consolidated Statement of Comprehensive Income(Unaudited)(dollars in millions)Three Months EndedMarch 3120232022Net Earnings$1,318$2,447 Foreign currency translation gain(loss)adjustments139(106)Net actuarial gains(losses)and amortization of net actuarial losses and prior service costs and credits,net of taxes of$in 2023 and$13 in20222 62 Net gains(losses)for derivative instruments designated as cash flow hedges and other,net of taxes of$(58)in 2023 and$(15)in 2022(129)(56)Other comprehensive income(loss)12(100)Comprehensive Income$1,330$2,347 March 31,2023December 31,2022Supplemental Accumulated Other Comprehensive Income(Loss)Information,net of tax:Cumulative foreign currency translation(loss)adjustments$(6,594)$(6,733)Net actuarial(losses)and prior service(costs)and credits(1,491)(1,493)Cumulative gains(losses)on derivative instruments designated as cash flow hedges46 175 Accumulated Other Comprehensive Income(Loss)$(8,039)$(8,051)The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.4Table of Contents Abbott Laboratories and SubsidiariesCondensed Consolidated Balance Sheet(Unaudited)(dollars in millions)March 31,2023December 31,2022AssetsCurrent Assets:Cash and cash equivalents$9,161$9,882 Short-term investments371 288 Trade receivables,less allowances of$503 in 2023 and$500 in 20226,020 6,218 Inventories:Finished products3,944 3,805 Work in process805 680 Materials1,924 1,688 Total inventories6,673 6,173 Prepaid expenses and other receivables2,152 2,663 Total Current Assets24,377 25,224 Investments776 766 Property and equipment,at cost20,605 20,212 Less:accumulated depreciation and amortization11,323 11,050 Net property and equipment9,282 9,162 Intangible assets,net of amortization10,006 10,454 Goodwill22,927 22,799 Deferred income taxes and other assets6,426 6,033$73,794$74,438 Liabilities and Shareholders InvestmentCurrent Liabilities:Trade accounts payable$4,167$4,607 Salaries,wages and commissions1,098 1,556 Other accrued liabilities5,758 5,845 Dividends payable888 887 Income taxes payable334 343 Current portion of long-term debt2,285 2,251 Total Current Liabilities14,530 15,489 Long-term debt14,615 14,522 Post-employment obligations,deferred income taxes and other long-term liabilities7,417 7,522 Commitments and ContingenciesShareholders Investment:Preferred shares,one dollar par value Authorized 1,000,000 shares,none issued Common shares,without par value Authorized 2,400,000,000 sharesIssued at stated capital amount Shares:2023:1,986,904,170;2022:1,986,519,27824,488 24,709 Common shares held in treasury,at cost Shares:2023:247,957,371;2022:248,724,257(15,307)(15,229)Earnings employed in the business35,868 35,257 Accumulated other comprehensive income(loss)(8,039)(8,051)Total Abbott Shareholders Investment37,010 36,686 Noncontrolling Interests in Subsidiaries222 219 Total Shareholders Investment37,232 36,905$73,794$74,438 The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.5Table of Contents Abbott Laboratories and SubsidiariesCondensed Consolidated Statement of Shareholders Investment(Unaudited)(in millions except shares and per share data)Three Months Ended March 3120232022Common Shares:Balance at January 1Shares:2023:1,986,519,278;2022:1,985,273,421$24,709$24,470 Issued under incentive stock programs Shares:2023:384,892;2022:251,63216 14 Share-based compensation296 324 Issuance of restricted stock awards(533)(504)Balance at March 31 Shares:2023:1,986,904,170;2022:1,985,525,053$24,488$24,304 Common Shares Held in Treasury:Balance at January 1Shares:2023:248,724,257;2022:221,191,228$(15,229)$(11,822)Issued under incentive stock programs Shares:2023:3,933,165;2022:4,144,476242 223 Purchased Shares:2023:3,166,279;2022:17,536,012(320)(2,127)Balance at March 31 Shares:2023:247,957,371;2022:234,582,764$(15,307)$(13,726)Earnings Employed in the Business:Balance at January 1$35,257$31,528 Net earnings1,318 2,447 Cash dividends declared on common shares(per share 2023:$0.51;2022:$0.47)(890)(826)Effect of common and treasury share transactions183 146 Balance at March 31$35,868$33,295 Accumulated Other Comprehensive Income(Loss):Balance at January 1$(8,051)$(8,374)Other comprehensive income(loss)12(100)Balance at March 31$(8,039)$(8,474)Noncontrolling Interests in Subsidiaries:Balance at January 1$219$222 Noncontrolling Interests share of income,business combinations,net of distributions and share repurchases3 8 Balance at March 31$222$230 The accompanying notes to condensed consolidated financial statements are an integral part of this statement.6Table of Contents Abbott Laboratories and SubsidiariesCondensed Consolidated Statement of Cash Flows(Unaudited)(dollars in millions)Three Months Ended March 3120232022Cash Flow From(Used in)Operating Activities:Net earnings$1,318$2,447 Adjustments to reconcile net earnings to net cash from operating activities Depreciation315 311 Amortization of intangible assets491 512 Share-based compensation281 305 Trade receivables233(751)Inventories(419)(554)Other,net(1,076)(205)Net Cash From Operating Activities1,143 2,065 Cash Flow From(Used in)Investing Activities:Acquisitions of property and equipment(380)(321)Sales(purchases)of other investment securities,net(86)(41)Other4 2 Net Cash From(Used in)Investing Activities(462)(360)Cash Flow From(Used in)Financing Activities:Net borrowings(repayments)of short-term debt and other(42)8 Repayments of long-term debt(751)Purchases of common shares(540)(2,307)Proceeds from stock options exercised62 59 Dividends paid(890)(832)Net Cash From(Used in)Financing Activities(1,410)(3,823)Effect of exchange rate changes on cash and cash equivalents8(6)Net Increase(Decrease)in Cash and Cash Equivalents(721)(2,124)Cash and Cash Equivalents,Beginning of Year9,882 9,799 Cash and Cash Equivalents,End of Period$9,161$7,675 The accompanying notes to the condensed consolidated financial statements are an integral part of this statement.7Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 1 Basis of PresentationThe accompanying unaudited,condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission and,therefore,do notinclude all information and footnote disclosures normally included in audited financial statements.However,in the opinion of management,all adjustments(which include only normal adjustments)necessary to present fairly the results of operations,financial position and cash flows have been made.It is suggested that these statements be read in conjunction with the financial statementsincluded in Abbotts Annual Report on Form 10-K for the year ended December 31,2022.The condensed consolidated financial statements include the accounts of the parent company andsubsidiaries,after elimination of intercompany transactions.Note 2 New Accounting StandardsRecent Adopted Accounting StandardsIn September 2022,the Financial Accounting Standards Board(FASB)issued Accounting Standards Update 2022-04,Disclosure of Supplier Finance Program Obligations,which requires an entity toreport information about its supplier finance program.Abbott adopted the standard on January 1,2023.The new standard did not have an impact on Abbotts condensed consolidated financialstatements.8Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 3 RevenueAbbotts revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements.Abbott has four reportable segments:EstablishedPharmaceutical Products,Diagnostic Products,Nutritional Products,and Medical Devices.The following tables provide detail by sales category:Three Months Ended March 31,2023Three Months Ended March 31,2022(in millions)U.S.IntlTotalU.S.IntlTotalEstablished Pharmaceutical Products Key Emerging Markets$912$912$906$906 Other 277 277 241 241 Total 1,189 1,189 1,147 1,147 Nutritionals Pediatric Nutritionals459 465 924 338 509 847 Adult Nutritionals353 690 1,043 339 708 1,047 Total812 1,155 1,967 677 1,217 1,894 Diagnostics Core Laboratory289 893 1,182 268 916 1,184 Molecular47 100 147 172 248 420 Point of Care93 41 134 91 37 128 Rapid Diagnostics906 319 1,225 2,181 1,344 3,525 Total1,335 1,353 2,688 2,712 2,545 5,257 Medical Devices Rhythm Management260 267 527 248 276 524 Electrophysiology238 267 505 216 269 485 Heart Failure218 63 281 196 54 250 Vascular218 399 617 209 410 619 Structural Heart210 251 461 190 221 411 Neuromodulation155 41 196 143 36 179 Diabetes Care479 834 1,313 343 783 1,126 Total1,778 2,122 3,900 1,545 2,049 3,594 Other3 3 3 3 Total$3,928$5,819$9,747$4,937$6,958$11,895 Note:The Acelis Connected Health business was internally transferred from Rapid Diagnostics to Heart Failure on January 1,2023.As a result,$29 million of sales for the first quarter of 2022 were moved from RapidDiagnostics to Heart Failure.Remaining Performance ObligationsAs of March 31,2023,the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied(or partially unsatisfied)was approximately$4.1 billion inthe Diagnostics segment and approximately$450 million in the Medical Devices segment.Abbott expects to recognize revenue on approximately 60 percent of these remaining performanceobligations over the next 24 months,approximately 17 percent over the subsequent 12 months and the remainder thereafter.9Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 3 Revenue(Continued)These performance obligations primarily reflect the future sale of reagents/consumables in contracts with minimum purchase obligations,extended warranty or service obligations related topreviously sold equipment,and remote monitoring services related to previously implanted devices.Abbott has applied the practical expedient described in FASB Accounting Standards Codification(ASC)606-10-50-14 and has not included remaining performance obligations related to contracts with original expected durations of one year or less in the amounts above.Other Contract Assets and LiabilitiesAbbott discloses Trade receivables separately in the Condensed Consolidated Balance Sheet at the net amount expected to be collected.Contract assets primarily relate to Abbotts conditional right toconsideration for work completed but not billed at the reporting date.Contract assets at the beginning and end of the period,as well as the changes in the balance,were not significant.Contract liabilities primarily relate to payments received from customers in advance of performance under the contract.Abbotts contract liabilities arise primarily in the Medical Devices reportablesegment when payment is received upfront for various multi-period extended service arrangements.Changes in the contract liabilities during the period are as follows:(in millions)Contract Liabilities:Balance at December 31,2022$500 Unearned revenue from cash received during the period122 Revenue recognized related to contract liability balance(93)Balance at March 31,2023$529 Note 4 Supplemental Financial InformationShares of unvested restricted stock that contain non-forfeitable rights to dividends are treated as participating securities and are included in the computation of earnings per share under the two-classmethod.Under the two-class method,net earnings are allocated between common shares and participating securities.Net earnings allocated to common shares for the three months ended March 31,2023 and 2022 were$1.313 billion and$2.438 billion,respectively.Other,net in Net cash from operating activities in the Condensed Consolidated Statement of Cash Flows for the first three months of 2023 includes$282 million of pension contributions and thepayment of cash taxes of approximately$122 million.The first three months of 2022 includes$334 million of pension contributions and the payment of cash taxes of approximately$195 million.The following summarizes the activity for the first three months of 2023 related to the allowance for doubtful accounts as of March 31,2023:(in millions)Allowance for Doubtful Accounts:Balance at December 31,2022$262 Provisions/charges to income8 Amounts charged off and other adjustments2 Balance at March 31,2023$272 10Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 4 Supplemental Financial Information(Continued)The allowance for doubtful accounts reflects the current estimate of credit losses expected to be incurred over the life of the accounts receivable.Abbott considers various factors in establishing,monitoring,and adjusting its allowance for doubtful accounts,including the aging of the accounts and aging trends,the historical level of charge-offs,and specific exposures related to particularcustomers.Abbott also monitors other risk factors and forward-looking information,such as country risk,when determining credit limits for customers and establishing adequate allowances.The components of long-term investments as of March 31,2023 and December 31,2022 are as follows:(in millions)March 31,2023December 31,2022Long-term Investments:Equity securities$565$558 Other211 208 Total$776$766 The increase in Abbotts long-term investments as of March 31,2023 versus the balance as of December 31,2022 primarily relates to an increase in the value of securities held in a rabbi trust andadditional investments,partially offset by equity method investment losses.Abbotts equity securities as of March 31,2023,include$305 million of investments in mutual funds that are held in a rabbi trust and were acquired as part of the St.Jude Medical,Inc.(St.JudeMedical)business acquisition.These investments,which are specifically designated as available for the purpose of paying benefits under a deferred compensation plan,are not available for generalcorporate purposes and are subject to creditor claims in the event of insolvency.Abbott also holds certain investments as of March 31,2023 with a carrying value of$162 million that are accounted for under the equity method of accounting and other equity investments with acarrying value of approximately$88 million that do not have a readily determinable fair value.Note 5 Changes In Accumulated Other Comprehensive Income(Loss)The changes in accumulated other comprehensive income(loss),net of income taxes,are as follows:Three Months Ended March 31Cumulative Foreign Currency Translation(Loss)AdjustmentsNet Actuarial(Losses)and Prior Service(Costs)and CreditsCumulative Gains(Losses)on Derivative Instruments Designated as Cash Flow Hedges and Other(in millions)202320222023202220232022Balance at January 1$(6,733)$(5,839)$(1,493)$(2,670)$175$135 Other comprehensive income(loss)beforereclassifications139(106)2 17(42)(34)Amounts reclassified from accumulated othercomprehensive income 45(87)(22)Net current period comprehensive income(loss)139(106)2 62(129)(56)Balance at March 31$(6,594)$(5,945)$(1,491)$(2,608)$46$79 11Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 5 Changes In Accumulated Other Comprehensive Income(Loss)(Continued)Reclassified amounts for cash flow hedges are recorded as Cost of products sold.Net actuarial losses and prior service cost are included as a component of net periodic benefit costs;see Note 12 foradditional details.Note 6 Goodwill and Intangible AssetsThe total amount of goodwill reported was$22.9 billion at March 31,2023 and$22.8 billion at December 31,2022.Foreign currency translation adjustments increased goodwill by approximately$128 million in the first three months of 2023.The amount of goodwill related to reportable segments at March 31,2023 was$2.7 billion for the Established Pharmaceutical Products segment,$286million for the Nutritional Products segment,$3.5 billion for the Diagnostic Products segment,and$16.4 billion for the Medical Devices segment.There was no reduction of goodwill relating toimpairments in the first three months of 2023.The gross amount of amortizable intangible assets,primarily product rights and technology,was$27.4 billion and$27.2 billion as of March 31,2023 and December 31,2022,respectively.Accumulated amortization was$18.2 billion and$17.6 billion as of March 31,2023 and December 31,2022,respectively.Foreign currency translation adjustments increased intangible assets by$43million in the first three months of 2023.Abbotts estimated annual amortization expense for intangible assets is approximately$2.0 billion in 2023,$1.9 billion in 2024,$1.7 billion in 2025,$1.5billion in 2026 and$1.2 billion in 2027.Indefinite-lived intangible assets,which relate to in-process R&D(IPR&D)acquired in a business combination,were approximately$807 million as of March 31,2023 and December 31,2022.Note 7 Restructuring PlansIn 2022 and 2023,Abbott management approved various plans to streamline operations in order to reduce costs and improve efficiencies in its medical devices,nutritional,diagnostic,and establishedpharmaceutical businesses.In the first three months of 2023,Abbott recorded employee related severance and other charges of approximately$17 million,of which approximately$6 million wasrecorded in Cost of products sold,and approximately$11 million was recorded in Selling,general and administrative expenses.The following summarizes the activity related to these restructuring actions and the status of the related accruals as of March 31,2023:(in millions)Accrued balance at December 31,2022$228 Restructuring charges in 202317 Payments and other adjustments(61)Accrued balance at March 31,2023$184 12Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 8 Incentive Stock ProgramsIn the first three months of 2023,Abbott granted 1,887,093 stock options,445,278 restricted stock awards and 4,761,433 restricted stock units under its incentive stock program.At March 31,2023,approximately 74 million shares were reserved for future grants.Information regarding the number of options outstanding and exercisable at March 31,2023 is as follows:OutstandingExercisableNumber of shares29,760,644 25,107,006 Weighted average remaining life(years)5.44.7Weighted average exercise price$73.33$65.76 Aggregate intrinsic value(in millions)$947$946 The total unrecognized share-based compensation cost at March 31,2023 amounted to approximately$760 million,which is expected to be recognized over the next three years.Note 9 Debt and Lines of CreditOn March 15,2022,Abbott repaid the$750 million outstanding principal amount of its 2.55%Notes upon maturity.Note 10 Financial Instruments,Derivatives and Fair Value MeasuresCertain Abbott foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates,primarily for anticipated intercompanypurchases by those subsidiaries whose functional currencies are not the U.S.dollar.These contracts,with gross notional amounts totaling$7.1 billion at March 31,2023 and$7.7 billion atDecember 31,2022,are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates and are recorded at fair value.Accumulated gains and losses as ofMarch 31,2023 will be included in Cost of products sold at the time the products are sold,generally through the next twelve to eighteen months.Abbott enters into foreign currency forward exchange contracts to manage currency exposures for foreign currency denominated third-party trade payables and receivables,and for intercompanyloans and trade accounts payable where the receivable or payable is denominated in a currency other than the functional currency of the entity.For intercompany loans,the contracts require Abbott tosell or buy foreign currencies,primarily European currencies,in exchange for primarily U.S.dollars and other European currencies.For intercompany and trade payables and receivables,the currencyexposures are primarily the U.S.dollar and European currencies.At March 31,2023 and December 31,2022,Abbott held the gross notional amounts of$11.4 billion and$12.0 billion,respectively,of such foreign currency forward exchange contracts.Abbott has designated a yen-denominated,5-year term loan of approximately$451 million and$446 million as of March 31,2023 and December 31,2022,respectively,as a hedge of the netinvestment in certain foreign subsidiaries.The change in the value of the debt,which is due to changes in foreign exchange rates,is recorded in Accumulated other comprehensive income(loss),netof tax.Abbott is a party to interest rate hedge contracts with a notional amount totaling approximately$2.9 billion at March 31,2023 and December 31,2022 to manage its exposure to changes in the fairvalue of fixed-rate debt.These contracts are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates.The effect ofthe hedge is to change a fixed-rate interest obligation to a variable rate for that portion of the debt.Abbott records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt byan offsetting amount.13Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 10 Financial Instruments,Derivatives and Fair Value Measures(Continued)The following table summarizes the amounts and location of certain derivative financial instruments as of March 31,2023 and December 31,2022:Fair Value-AssetsFair Value-Liabilities(in millions)March 31,2023December 31,2022Balance Sheet CaptionMarch 31,2023December 31,2022Balance Sheet CaptionInterest rate swaps designated as fair value hedges:Non-current$Deferred income taxes andother assets$126$136 Post-employmentobligations,deferredincome taxes and otherlong-term liabilitiesCurrent Prepaid expenses and otherreceivables21 20 Other accrued liabilitiesForeign currency forward exchange contracts:Hedging instruments76 304 Prepaid expenses and otherreceivables139 96 Other accrued liabilitiesOthers not designated as hedges78 108 Prepaid expenses and otherreceivables96 130 Other accrued liabilitiesDebt designated as a hedge of net investment in aforeign subsidiary n/a451 446 Long-term debt$154$412$833$828 The following table summarizes the activity for foreign currency forward exchange contracts designated as cash flow hedges and certain other derivative financial instruments,as well as the amountsand location of income(expense)and gain(loss)reclassified into income for the three months ended March 31,2023 and 2022.Gain(loss)Recognized in OtherComprehensive Income(loss)Income(expense)and Gain(loss)Reclassified into IncomeThree Months Ended March 31Three Months Ended March 31(in millions)2023202220232022Income Statement CaptionForeign currency forward exchange contracts designated as cash flow hedges$(63)$(49)$126$27 Cost of products soldDebt designated as a hedge of net investment in a foreign subsidiary(5)30 n/aInterest rate swaps designated as fair value hedgesn/an/a9(121)Interest expense14Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 10 Financial Instruments,Derivatives and Fair Value Measures(Continued)Losses of$103 million and$51 million were recognized in the three months ended March 31,2023 and 2022,respectively,related to foreign currency forward exchange contracts not designated as ahedge.These amounts are reported in the Condensed Consolidated Statement of Earnings on the Net foreign exchange(gain)loss line.The carrying values and fair values of certain financial instruments as of March 31,2023 and December 31,2022 are shown in the following table.The carrying values of all other financialinstruments approximate their estimated fair values.The counterparties to financial instruments consist of select major international financial institutions.Abbott does not expect any losses from non-performance by these counterparties.March 31,2023December 31,2022(in millions)CarryingValueFairValueCarryingValueFairValueLong-term Investment Securities:Equity securities$565$565$558$558 Other211 211 208 208 Total Long-term Debt(16,900)(16,927)(16,773)(16,313)Foreign Currency Forward Exchange Contracts:Receivable position154 154 412 412(Payable)position(235)(235)(226)(226)Interest Rate Hedge Contracts:(Payable)position(147)(147)(156)(156)The fair value of the debt was determined based on significant other observable inputs,including current interest rates.15Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 10 Financial Instruments,Derivatives and Fair Value Measures(Continued)The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet:Basis of Fair Value Measurement(in millions)OutstandingBalancesQuotedPrices in Active MarketsSignificantOther Observable InputsSignificantUnobservable InputsMarch 31,2023:Equity securities$315$315$Foreign currency forward exchange contracts154 154 Total Assets$469$315$154$Fair value of hedged long-term debt$2,720$2,720$Interest rate swap derivative financial instruments147 147 Foreign currency forward exchange contracts235 235 Contingent consideration related to business combinations133 133 Total Liabilities$3,235$3,102$133 December 31,2022:Equity securities$307$307$Foreign currency forward exchange contracts412 412 Total Assets$719$307$412$Fair value of hedged long-term debt$2,691$2,691$Interest rate swap derivative financial instruments156 156 Foreign currency forward exchange contracts226 226 Contingent consideration related to business combinations130 130 Total Liabilities$3,203$3,073$130 The fair value of foreign currency forward exchange contracts is determined using a market approach,which utilizes values for comparable derivative instruments.The fair value of debt wasdetermined based on the face value of the debt adjusted for the fair value of the interest rate swaps,which is based on a discounted cash flow analysis using significant other observable inputs.Thefair value of the contingent consideration was determined based on independent appraisals at the time of acquisition,adjusted for the time value of money and other changes in fair value.Note 11 Litigation and Environmental MattersAbbott has been identified as a potentially responsible party for investigation and cleanup costs at a number of locations in the United States and Puerto Rico under federal and state remediation lawsand is investigating potential contamination at a number of company-owned locations.Abbott has recorded an estimated cleanup cost for each site for which management believes Abbott has aprobable loss exposure.No individual site cleanup exposure is expected to exceed$4 million,and the aggregate cleanup exposure is not expected to exceed$10 million.16Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 11 Litigation and Environmental Matters(Continued)Abbott is involved in various claims and legal proceedings,and Abbott estimates the range of possible loss for its legal proceedings and environmental exposures to be from approximately$25million to$35 million.The recorded accrual balance at March 31,2023 for these proceedings and exposures was approximately$30 million.This accrual represents managements best estimate ofprobable loss,as defined by FASB ASC No.450,“Contingencies.”Within the next year,legal proceedings may occur that may result in a change in the estimated loss accrued by Abbott.While it isnot feasible to predict the outcome of all such proceedings and exposures with certainty,management believes that their ultimate disposition should not have a material adverse effect on Abbottsfinancial position,cash flows,or results of operations.Note 12 Post-Employment BenefitsRetirement plans consist of defined benefit,defined contribution,and medical and dental plans.Net periodic benefit costs,other than service costs,are recognized in the Other(income)expense,netline of the Condensed Consolidated Statement of Earnings.Net cost recognized for the three months ended March 31 for Abbotts major defined benefit plans and post-employment medical anddental benefit plans is as follows:Defined Benefit PlansMedical and Dental PlansThree MonthsEnded March 31Three MonthsEnded March 31(in millions)2023202220232022Service cost-benefits earned during the period$60$96$9$13 Interest cost on projected benefit obligations114 76 14 10 Expected return on plan assets(242)(236)(6)(7)Net amortization of:Actuarial loss,net3 59 5 Prior service cost(credit)(3)(6)Net cost(credit)$(65)$(5)$14$15 Abbott funds its domestic defined benefit plans according to Internal Revenue Service funding limitations.International pension plans are funded according to similar regulations.In the first threemonths of 2023 and 2022,$282 million and$334 million,respectively,were contributed to defined benefit plans.In the first three months of 2023 and 2022,$28 million was contributed in each yearto the post-employment medical and dental plans.Note 13 Taxes on EarningsTaxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties.In the first three months of 2023 and 2022,taxes on earnings include approximately$3million and$30 million,respectively,in excess tax benefits associated with share-based compensation.In the first three months of 2023 and 2022,taxes on earnings also include approximately$22million and$30 million,respectively,of tax expense as the result of the resolution of various tax positions related to prior years.Tax authorities in various jurisdictions regularly review Abbotts income tax filings.Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits maydecrease approximately$75 million to$80 million,including cash adjustments,within the next twelve months as a result of concluding various domestic and international tax matters.17Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 14 Segment InformationAbbotts principal business is the discovery,development,manufacture and sale of a broad line of health care products.Abbotts products are generally sold directly to retailers,wholesalers,hospitals,health care facilities,laboratories,physicians offices and government agencies throughout the world.Abbotts reportable segments are as follows:Established Pharmaceutical Products International sales of a broad line of branded generic pharmaceutical products.Nutritional Products Worldwide sales of a broad line of adult and pediatric nutritional products.Diagnostic Products Worldwide sales of diagnostic systems and tests for blood banks,hospitals,commercial laboratories and alternate-care testing sites.For segment reporting purposes,the CoreLaboratories Diagnostics,Rapid Diagnostics,Molecular Diagnostics and Point of Care Diagnostics divisions are aggregated and reported as the Diagnostic Products segment.Medical Devices Worldwide sales of rhythm management,electrophysiology,heart failure,vascular,structural heart,neuromodulation and diabetes care products.For segment reporting purposes,the Cardiac Rhythm Management,Electrophysiology,Heart Failure,Vascular,Structural Heart,Neuromodulation and Diabetes Care divisions are aggregated and reported as the Medical Devicessegment.Abbotts underlying accounting records are maintained on a legal entity basis for government and public reporting requirements.Segment disclosures are on a performance basis consistent withinternal management reporting.Intersegment transfers of inventory are recorded at standard cost and are not a measure of segment operating earnings.The cost of some corporate functions and thecost of certain employee benefits are charged to segments at predetermined rates that approximate cost.Remaining costs,if any,are not allocated to segments.In addition,intangible assetamortization is not allocated to operating segments,and intangible assets and goodwill are not included in the measure of each segments assets.18Table of ContentsAbbott Laboratories and SubsidiariesNotes to the Condensed Consolidated Financial StatementsMarch 31,2023(Unaudited)Note 14 Segment Information(Continued)The following segment information has been prepared in accordance with the internal accounting policies of Abbott,as described above,and is not presented in accordance with generally acceptedaccounting principles applied to the consolidated financial statements.Net Sales to External CustomersOperating EarningsThree Months Ended March 31Three Months Ended March 31(in millions)202320222023 2022Established Pharmaceutical Products$1,189$1,147$300$242 Nutritional Products1,967 1,894 380 251 Diagnostic Products2,688 5,257 651 2,564 Medical Devices3,900 3,594 1,078 1,083 Total Reportable Segments9,744 11,892 2,409 4,140 Other3 3 Net sales$9,747$11,895 Corporate functions and benefit plan costs(77)(114)Net interest expense(52)(117)Share-based compensation(a)(281)(305)Amortization of intangible assets(491)(512)Other,net(b)54(216)Earnings before taxes$1,562$2,876 _Notes:2022 Sales and Operating Earnings for the Diagnostic Products and Medical Devices reportable segments have been updated to reflect the internal transfer of the Acelis Connected Health business fromDiagnostic Products to Medical Devices on January 1,2023.(a)Approximately 45 percent of the annual net cost of share-based awards will typically be recognized in the first quarter due to the timing of the granting of share-based awards.(b)Other,net for the three months ended March 31,2022 includes$120 million of charges related to a voluntary recall within the Nutritional Products segment.Note 15 Subsequent EventOn April 27,2023,Abbott completed the acquisition of Cardiovascular Systems,Inc.(CSI)for$20 per common share,which equated to a purchase price of approximately$850 million.Theacquisition was funded with cash on hand.CSI sells an atherectomy system used in treating peripheral and coronary artery disease.The acquisition adds complementary technologies to Abbottsportfolio of vascular device offerings.The transaction will be accounted for as a business combination.Abbott has begun the process of measuring,as of the acquisition date,the acquired assets andassumed liabilities.Preliminary purchase price allocation estimates will be disclosed in Abbotts Form 10-Q for the period ending June 30,2023.19Table of ContentsItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsFinancial Review Results of OperationsAbbotts revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements.Patent protection and licenses,technological and performancefeatures,and inclusion of Abbotts products under a contract most impact which products are sold;price controls,competition and rebates most impact the net selling prices of products;and foreigncurrency translation impacts the measurement of net sales and costs.Abbotts primary products are medical devices,diagnostic testing products,nutritional products and branded genericpharmaceuticals.The following tables detail sales by reportable segment for the three months ended March 31.Percent changes are versus the prior year and are based on unrounded numbers.Net Sales to External Customers(in millions)Three Months EndedMarch 31,2023Three Months EndedMarch 31,2022TotalChangeImpact ofForeign ExchangeTotal Change Excl.Foreign ExchangeEstablished Pharmaceutical Products$1,189$1,147 3.7%(7.4).1%Nutritional Products1,967 1,894 3.8(3.9)7.7 Diagnostic Products2,688 5,257(48.9)(1.8)(47.1)Medical Devices3,900 3,594 8.5(3.9)12.4 Total Reportable Segments9,744 11,892(18.1)(3.3)(14.8)Other3 3 n/mn/mn/mNet Sales$9,747$11,895(18.1)(3.3)(14.8)Total U.S.$3,928$4,937(20.4)(20.4)Total International$5,819$6,958(16.4)(5.7)(10.7)_Notes:The Acelis Connected Health business was internally transferred from Diagnostic Products to Medical Devices on January 1,2023.As a result,$29 million of sales for the first quarter of 2022 were movedfrom Diagnostic Products to Medical Devices.In order to compute results excluding the impact of exchange rates,current year U.S.dollar sales are multiplied or divided,as appropriate,by the current year average foreign exchange rates and then thoseamounts are multiplied or divided,as appropriate,by the prior year average foreign exchange rates.n/m=Percent change is not meaningfulThe 14.8 percent decrease in total net sales during the first three months of 2023,excluding the impact of foreign exchange,reflected the decrease in demand for Abbotts rapid diagnostic tests todetect COVID-19,partially offset by higher growth across other businesses.Abbotts COVID-19 testing-related sales totaled approximately$730 million during the first quarter of 2023 andapproximately$3.3 billion during the first quarter of 2022.Excluding the impact of COVID-19 testing-related sales,Abbotts total net sales increased 4.9 percent.Excluding the impacts of COVID-19 testing-related sales and foreign exchange,Abbotts total net sales increased 9.4 percent.Abbotts net sales were unfavorably impacted by changes in foreign exchange rates in the first quarter asthe relatively stronger U.S.dollar decreased total international sales by 5.7 percent and total sales by 3.3 percent.Due to the unpredictability of demand for COVID-19 tests,the future extent to which COVID-19 will have a material effect on Abbotts business,financial condition or results of operations isuncertain.20Table of ContentsThe table below provides detail by sales category for the three months ended March 31.Percent changes are versus the prior year and are based on unrounded numbers.(in millions)March 31,2023March 31,2022TotalChangeImpact of Foreign ExchangeTotal Change Excl.Foreign ExchangeEstablished Pharmaceutical Products Key Emerging Markets$912$906 0.7%(7.6)%8.3%Other Emerging Markets277 241 15.0(6.8)21.8 Nutritionals International Pediatric Nutritionals465 509(8.6)(4.7)(3.9)U.S.Pediatric Nutritionals459 338 36.1 36.1 International Adult Nutritionals690 708(2.6)(7.0)4.4 U.S.Adult Nutritionals353 339 3.9 3.9 Diagnostics Core Laboratory1,182 1,184(0.2)(5.3)5.1 Molecular147 420(65.0)(1.0)(64.0)Point of Care134 128 4.7(1.0)5.7 Rapid Diagnostics1,225 3,525(65.3)(0.8)(64.5)Medical Devices Rhythm Management527 524 0.4(3.6)4.0 Electrophysiology505 485 3.9(4.9)8.8 Heart Failure281 250 12.4(1.2)13.6 Vascular617 619(0.2)(4.1)3.9 Structural Heart461 411 12.2(4.2)16.4 Neuromodulation196 179 9.4(1.8)11.2 Diabetes Care1,313 1,126 16.6(4.4)21.0 Note:The Acelis Connected Health business was internally transferred from Rapid Diagnostics to Heart Failure on January 1,2023.As a result,$29 million of sales for the first quarter of 2022 were moved from RapidDiagnostics to Heart Failure.21Table of ContentsExcluding the unfavorable effect of foreign exchange,sales in the Key Emerging Markets for Established Pharmaceutical Products increased 8.3 percent in the first three months of 2023,led bygrowth in several countries,including Brazil,China and southeast Asia,and across several therapeutic areas,including cardio-metabolic,respiratory,and central nervous system/pain management.Other Emerging Markets,excluding the effect of foreign exchange,increased by 21.8 percent in the first three months of 2023.Excluding the impact of foreign exchange,total Nutritional Products sales in the first three months of 2023 increased 7.7 percent.In U.S.Pediatric Nutritionals,the 36.1 percent increase in sales inthe first three months of 2023 reflects the impact of the unfavorable effects of the voluntary recall of certain infant formula products in the first quarter of 2022,partially offset by a decrease in 2023Pedialyte sales.Excluding the effect of foreign exchange,the 3.9 percent decrease in International Pediatric Nutritional sales in the first three months of 2023 primarily reflects the impact of exitingthe pediatric nutrition business in China,partially offset by growth in several other markets.Excluding the effect of foreign exchange,the increases of 3.9 percent in U.S.Adult Nutritionals and 4.4 percent in International Adult Nutritionals in the first three months of 2023 were led bygrowth of Ensure products.The 47.1 percent decrease in Diagnostic Products sales in the first three months of 2023,excluding the impact of foreign exchange,was driven by lower demand for COVID-19 tests.In RapidDiagnostics,sales decreased 64.5 percent in the first three months of 2023,excluding the effect of foreign exchange,due to lower demand for COVID-19 tests.In the first three months of 2023 and2022,Rapid Diagnostics COVID-19 testing-related sales were$704 million and$3.0 billion,respectively.In the first three months of 2023,Rapid Diagnostics sales increased 5.1 percent,excludingCOVID-19 testing-related sales,and increased 8.0 percent,excluding the impact of foreign exchange and COVID-19 testing-related sales.In Core Laboratory Diagnostics,sales increased 5.1 percent in the first three months of 2023,excluding the effect of foreign exchange,due to the higher volume of routine diagnostic testingperformed in hospitals and other laboratories,partially offset by lower test sales for the detection of COVID-19 IgG and IgM antibodies.In the first three months of 2023 and 2022,Core LaboratoryDiagnostics COVID-19 testing-related sales were$6 million and$28 million,respectively.In the first three months of 2023,Core Laboratory Diagnostics sales increased 1.7 percent,excludingCOVID-19 testing-related sales,and increased 7.1 percent,excluding the impact of foreign exchange and COVID-19 testing-related sales.The 64.0 percent decrease in Molecular Diagnostics sales in the first three months of 2023,excluding the effect of foreign exchange,was driven by lower demand for laboratory-based molecular testsfor COVID-19 as well as lower demand for respiratory testing compared to significantly higher-than-usual demand in the first quarter of 2022.In the first three months of 2023 and 2022,MolecularDiagnostics COVID-19 testing-related sales were$20 million and$246 million,respectively.In the first three months of 2023,Molecular Diagnostics sales decreased 27.1 percent,excludingCOVID-19 testing-related sales,and decreased 24.8 percent,excluding the impact of foreign exchange and COVID-19 testing-related sales.Excluding the effect of foreign exchange,total Medical Devices sales grew 12.4 percent in the first three months of 2023,led by double-digit growth in Diabetes Care,Structural Heart,Heart Failureand Neuromodulation.Higher Diabetes Care sales were driven by continued growth of FreeStyle Libre,Abbotts continuous glucose monitoring system,in the U.S.and internationally.FreeStyleLibre sales totaled$1.2 billion in the first three months of 2023,which reflected a 25.4 percent increase,excluding the effect of foreign exchange,over the first three months of 2022 when FreeStyleLibre sales totaled$1.0 billion.During the first three months of 2023,procedure volumes increased across the cardiovascular and neuromodulation businesses.In Structural Heart,the 16.4 percent increase in sales,excluding theeffect of foreign exchange,reflects an acceleration in the growth of the MitraClip product along with contributions from recently launched products,including Amulet,Navitor,and TriClip.InVascular,the 3.9 percent increase in sales,excluding the impact of foreign exchange,during the first three months of 2023 primarily reflects double-digit growth in endovascular sales.22Table of ContentsIn Electrophysiology,the 8.8 percent increase in sales,excluding the effect of foreign exchange,primarily reflects higher procedure volumes in various European countries and the U.S.InNeuromodulation the 11.2 percent increase in sales,excluding the effect of foreign exchange,was driven by the recent launch of the Eterna rechargeable spinal cord stimulation system for thetreatment of chronic pain along with market growth compared to the prior year period.In the first three months of 2023,Medical Devices received various product approvals.In January 2023,Abbott announced that the U.S.Food and Drug Administration(FDA)had approved Navitor,Abbotts second-generation transcatheter aortic valve implantation system to treat people with severe aortic stenosis who are at high or extreme risk for open-heart surgery.In March 2023,AbbottsFreestyle Libre continuous glucose monitoring system received U.S.FDA clearance for integration with automated insulin delivery systems.In March 2023,the U.S.FDA approved Abbotts EpicMax stented tissue valve to treat people with aortic regurgitation or stenosis.The gross profit margin percentage was 50.5 percent for the first quarter of 2023 compared to 53.8 percent for the first quarter of 2022.The decrease in the first quarter of 2023 reflects theunfavorable effects of lower sales of COVID-19 tests,foreign exchange,and higher costs for various manufacturing inputs,partially offset by the impact in 2022 of the voluntary product recall in theNutritional business and the impact in 2023 of gross margin improvement initiatives.Research and development(R&D)expenses decreased$43 million,or 6.2 percent,in the first quarter of 2023 compared to the prior year.The decrease in R&D expenses in the first quarter of 2023was primarily driven by the timing of spending on various projects and the favorable impact of foreign exchange.Selling,general and administrative expenses decreased$25 million,or 0.9 percent,in the first quarter of 2023 compared to the prior year as higher selling and marketing spending to drive growthacross various businesses was offset by the favorable impact of foreign exchange and the nonrecurrence of 2022 expenses related to the product recall in the Nutritional segment.Other(Income)Expense,netOther income,net increased from$78 million of income in the first quarter of 2022 to$111 million of income in the first quarter of 2023.The increase in the first quarter of 2023 reflects higherincome in 2023 related to the non-service cost components of net pension and post-retirement medical benefit costs.Interest Expense,netInterest expense,net decreased$65 million in the first quarter of 2023 due to the impact of higher interest rates on interest income,partially offset by the impact of interest rate hedge contracts relatedto certain fixed-rate debt.Taxes on EarningsTaxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties.In the first three months of 2023 and 2022,taxes on earnings include approximately$3million and$30 million,respectively,in excess tax benefits associated with share-based compensation.In the first three months of 2023 and 2022,taxes on earnings also include approximately$22million and$30 million,respectively,of tax expense as the result of the resolution of various tax positions related to prior years.Tax authorities in various jurisdictions regularly review Abbotts income tax filings.Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits maydecrease approximately$75 million to$80 million,including cash adjustments,within the next twelve months as a result of concluding various domestic and international tax matters.TM23Table of ContentsLiquidity and Capital Resources March 31,2023 Compared with December 31,2022The decrease in cash and cash equivalents from$9.9 billion at December 31,2022 to$9.2 billion at March 31,2023 primarily reflects the payment of dividends,share repurchases and capitalexpenditures,partially offset by the cash generated from operations in the first three months of 2023.Working capital was$9.8 billion at March 31,2023 and$9.7 billion at December 31,2022.Theincrease in working capital in 2023 primarily reflects an increase in inventory and a decrease in accounts payable,partially offset by a decrease in cash and cash equivalents.In the Condensed Consolidated Statement of Cash Flows,Net cash from operating activities for the first three months of 2023 totaled approximately$1.1 billion,which reflects a decrease of$922million from the prior year.The decrease is primarily due to a decline in operating earnings,partially offset by the timing of the collection of trade receivables and a reduction in cash taxes paid.Inthe first three months of 2023,Net cash from operating activities includes$282 million of pension contributions and the payment of cash taxes of approximately$122 million.In the first three monthsof 2022,Net cash from operating activities includes$334 million of pension contributions and the payment of cash taxes of approximately$195 million.On March 15,2022,Abbott repaid the$750 million outstanding principal amount of its 2.55%Notes upon maturity.In September 2019,the board of directors authorized the early redemption of up to$5 billion of outstanding long-term notes.As of March 31,2023,$2.15 billion of the$5 billion authorizationremains available.At March 31,2023,Abbotts long-term debt rating was AA-by Standard&Poors Corporation and A1 by Moodys Investors Service.Abbott expects to maintain an investment grade rating.Abbotthas readily available financial resources,including lines of credit of$5.0 billion which expire in 2025.In the first quarter of 2023,Abbott repurchased approximately 3 million of its common shares for$300 million.As of March 31,2023,$2.134 billion remains available for repurchase under the sharerepurchase program authorized by the board of directors in December 2021.In the first quarter of 2023,Abbott declared a quarterly dividend of$0.51 per share on its common shares,which represents an increase of 8.5 percent over the$0.47 per share dividend declared in thefirst quarter of 2022.Business AcquisitionOn April 27,2023,Abbott completed the acquisition of Cardiovascular Systems,Inc.(CSI)for$20 per common share,which equated to a purchase price of approximately$850 million.Theacquisition was funded with cash on hand.CSI sells an atherectomy system used in treating peripheral and coronary artery disease.The acquisition adds complementary technologies to Abbottsportfolio of vascular device offerings.The transaction will be accounted for as a business combination.Legislative IssuesAbbotts primary markets are highly competitive and subject to substantial government regulations throughout the world.Abbott expects debate to continue over the availability,method of delivery,and payment for health care products and services.It is not possible to predict the extent to which Abbott or the health care industry in general might be adversely affected by these factors in thefuture.A more complete discussion of these factors is contained in Item 1,Business,and Item 1A,Risk Factors,in the 2022 Annual Report on Form 10-K.Private Securities Litigation Reform Act of 1995 A Caution Concerning Forward-Looking StatementsUnder the safe harbor provisions of the Private Securities Litigation Reform Act of 1995,Abbott cautions that any forward-looking statements made by Abbott are subject to risks and uncertaintiesthat may cause actual results to differ materially from those indicated in the forward-looking statements.Economic,competitive,governmental,technological and other factors that may affectAbbotts operations are discussed in Item 1A,Risk Factors in our Annual Report on Form 10-K for the year ended December 31,2022,and are incorporated herein by reference.Abbott undertakesno obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments,except as required by law.24Table of ContentsPART I.FINANCIAL INFORMATIONItem 4.Controls and Procedures(a)Evaluation of disclosure controls and procedures.The Chief Executive Officer,Robert B.Ford,and Chief Financial Officer,Robert E.Funck,Jr.,evaluated the effectiveness of AbbottLaboratories disclosure controls and procedures as of the end of the period covered by this report,and concluded that Abbott Laboratories disclosure controls and procedures wereeffective to ensure that information Abbott is required to disclose in the reports that it files or submits with the Securities and Exchange Commission(the“Commission”)under theSecurities Exchange Act of 1934(the“Exchange Act”)is recorded,processed,summarized and reported,within the time periods specified in the Commissions rules and forms,and toensure that information required to be disclosed by Abbott in the reports that it files or submits under the Exchange Act is accumulated and communicated to Abbotts management,including its principal executive officer and principal financial officer,as appropriate to allow timely decisions regarding required disclosure.(b)Changes in internal control over financial reporting.During the quarter ended March 31,2023,there were no changes in Abbotts internal control over financial reporting(as defined inRule 13a-15(f)under the Exchange Act)that have materially affected,or are reasonably likely to materially affect,Abbotts internal control over financial reporting.PART II.OTHER INFORMATIONItem 1.Legal ProceedingsAbbott is involved in various claims,legal proceedings and investigations,including those described in our Annual Report on Form 10-K for the year ended December 31,2022.Item 2.Unregistered Sales of Equity Securities and Use of Proceeds(c)Issuer Purchases of Equity SecuritiesPeriod(a)TotalNumber of Shares(or Units)Purchased(b)AveragePrice Paid per Share(or Unit)(c)Total Numberof Shares(or Units)Purchased as Part of Publicly Announced Plans or Programs(d)MaximumNumber(or Approximate Dollar Value)of Shares(or Units)that May Yet Be Purchased Under the Plans or ProgramsJanuary 1,2023-January 31,2023$2,434,092,348 February 1,2023-February 28,2023600,000 100.933 600,000 2,373,532,278 March 1,2023-March 31,20232,369,830 101.037 2,369,830 2,134,092,391 Total2,969,830 101.016 2,969,830$2,134,092,391 _1.These shares do not include the shares surrendered to Abbott to satisfy tax withholding obligations in connection with the vesting of restricted stock or restricted stock units.2.On December 10,2021,the board of directors authorized the repurchase of up to$5 billion of Abbott common shares,from time to time.(1)(2)(1)(2)(1)(2)(1)(2)25Table of ContentsItem 6.ExhibitsExhibit No.Exhibit3.1By-Laws of Abbott Laboratories,as amended and restated,effective April 28,2023,filed as Exhibit 3.1 to the Abbott Laboratories Current Report on Form 8-K filed onFebruary 17,2023.10.1Abbott Laboratories Non-Employee Directors Fee Plan,as amended and restated.31.1Certification of Chief Executive Officer Required by Rule 13a-14(a)(17 CFR 240.13a-14(a).31.2Certification of Chief Financial Officer Required by Rule 13a-14(a)(17 CFR 240.13a-14(a).Exhibits 32.1 and 32.2 are furnished herewith and should not be deemed to be“filed”under the Securities Exchange Act of 1934.32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C.Section 1350,as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C.Section 1350,as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101The following financial statements and notes from the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended March 31,2023,formatted in InlineXBRL:(i)Condensed Consolidated Statement of Earnings;(ii)Condensed Consolidated Statement of Comprehensive Income;(iii)Condensed Consolidated BalanceSheet;(iv)Condensed Consolidated Statement of Shareholders Investment;(v)Condensed Consolidated Statement of Cash Flows;and(vi)Notes to the CondensedConsolidated Financial Statements.104Cover Page Interactive Data File(the cover page XBRL tags are embedded in the Inline XBRL document and included in Exhibit 101).26Table of ContentsSIGNATUREPursuant 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.ABBOTT LABORATORIESBy:/s/ROBERT E.FUNCK,JR.Robert E.Funck,Jr.Executive Vice President,Finance and Chief Financial OfficerDate:May 4,202327Exhibit 10.1 As Amended and Restated effective May 1,2023 ABBOTT LABORATORIES NON-EMPLOYEE DIRECTORS FEE PLAN SECTION 1.PURPOSE ABBOTT LABORATORIES NON-EMPLOYEE DIRECTORS FEE PLAN-referred to below as the“Plan”-has been established by ABBOTT LABORATORIES-referred to below as the“Company”-to attract and retain as members of its Board of Directors persons who are not full-time employees of the Company or any of its subsidiaries but whose business experience and judgment are a valuable asset to the Company and its subsidiaries.SECTION 2.DIRECTORS COVERED As used in the Plan,the term“Director”means any person who is elected to the Board of Directors of the Company in April,1962 or at any time thereafter,and is not a full-time employee of the Company or any of its subsidiaries.SECTION 3.FEES PAYABLE TO DIRECTORS 3.1 Each Director shall be entitled to a deferred monthly fee of Ten Thousand Five Hundred Dollars($10,500.00)for each calendar month or portion thereof(excluding the month in which he is first elected a Director)that he holds such office with the Company.3.2 A Director who serves as Chairman of the Executive Committee of the Board of Directors shall be entitled to a deferred monthly fee of One Thousand Six Hundred Dollars($1,600.00)for each calendar month or portion thereof(excluding the month in which he is first elected to such position)that he holds such position.3.3 A Director who serves as Lead Director of the Board of Directors shall be entitled to a deferred monthly fee of Three Thousand Three Hundred Thirty-Three Dollars and Thirty-Three Cents($3,333.33)for each calendar month or portion thereof(excluding the month in which he is first elected to such position)that he holds such position.The Lead Director shall not be entitled to any fees under Section 3.6.3.4 Audit Committee Fees(a)A Director whoserves as Chairman of the Audit Committee of the Board of Directors shall be entitled to a deferred monthly fee of Two Thousand Five Hundred Dollars($2,500.00)for each calendar month or portion thereof(excluding the month in which he is first elected to such position)that he holds such position.2(b)Each Director who serves on the Audit Committee of the Board of Directors(other than the Chairman of the Audit Committee)shall be entitled to a deferred monthly fee of Five Hundred Dollars($500.00)for each calendar month or portion thereof(excluding the month in which he is first elected to such position)that he holds such position.3.5 A Director who serves as Chairman of the Compensation Committee of the Board of Directors shall be entitled to a deferred monthly fee of Two Thousand Eighty-Three Dollars and Thirty-Three Cents($2,083.33)for each calendar month or portion thereof(excluding the month in which he is first elected to such position)that he holds such position.3.6 Except as provided in Section 3.3,a Director who serves as Chairman of the Nominations and Governance Committee of the Board of Directors shall be entitled to a deferred monthly fee of One Thousand Two Hundred Fifty Dollars($1,250.00)for each calendar month or portion thereof(excluding the month in which he is first elected to such position)that he holds such position.3.7 A Director who serves as Chairman of the Public Policy Committee of the Board of Directors shall be entitled to a deferred monthly fee of One Thousand Two Hundred Fifty Dollars($1,250.00)for each calendar month or portion thereof(excluding the month in which he is first elected to such position)that he holds such position.3.8 A Director who serves as Chairman of any other Committee created by this Board of Directors shall be entitled to a deferred monthly fee of One Thousand Two Hundred Fifty Dollars($1,250.00)for each calendar month or portion thereof(excluding the month in which he is first elected to such position)that he holds such position.3.9 A Directors Deferred Fee Account shall be credited with interest annually.During the calendar years 1968 and prior,the rate of interest credited to deferred fees shall be four(4)percent per annum.During the calendayears 1969 through 1992,the rate of interest credited to deferred fees shall be the average of the prime rates being charged by the two largest commercial banks in the City of Chicago as of the end of the month coincident with or last preceding the date upon which said interest is so credited.During the calendar years 1993 through 2007,the rate of interest credited to deferred fees shall be equal to:(a)the average of the prime rates being charged by the two largest commercial banks in the City of Chicago as of the end of the month coincident with or last preceding the date upon which said interest is so credited;plus(b)two hundred twenty-five(225)basis points.For the calendar year 2008 and subsequent years,the rate of interest credited to deferred fees shall be equal to:(a)the average of the“prime rate”of interest published by The Wall Street Journal(Mid-West Edition)or comparable successor quotation service on the first business day of January and the last business day of each month of the fiscal year;plus(b)two hundred twenty-five(225)basis points.For purposes of this provision,the term“deferred fees”shall include“deferred monthly fees,”and“deferred meeting fees,”and shall also include any such interest credited thereon.3.10 For purposes of Sections 3.1,3.2,3.3,3.4,3.5,3.6,3.7,and 3.8,the automatic deferral of the fees specified therein shall be subject to a Directors election to receive such fees currently pursuant to Section 4.1 or Section 8.1 of the Plan.SECTION 4.PAYMENT OF DIRECTORS FEES 4.1 Any Director may,by written notice filed with the Secretary of the Company no later than December 31 in a calendar year,elect to receive current payment of all or any portion of the monthly and meeting fees earned by him in calendar years subsequent to the calendar year in which he files such 3 notice,in which case such fees shall not be deferred but shall be paid quarterly as earned and no interest shall be credited thereon.Such election shall be irrevocable as of December 31 of the year prior to the year in which the fees will be earned.Notwithstanding the timing requirements described above,an individual who is newly elected as a Director may make the election described above by filing it with the Secretary of the Company within the thirty(30)day period immediately following the date he or she first becomes a Director eligible to participate in the Plan(and all plans that would be aggregated with the Plan pursuant to Treasury Regulation 1.409A-1(c)(2)(i),provided,that the compensation subject to such election relates solely to services performed after the date of such election and provided further,that such election shall become irrevocable on the thirtieth day following the date he or she first becomes a Director eligible to participate in the Plan.In no event shall the fees subject to an election under this Section 4.1 be paid later than the last day of the“applicable 2 month period”,as such term is defined in Treasury Regulation 1.409A-1(b)(4)(i)(A).Any Director who has previously provided notice pursuant to this Section 4.1 may,by written notice filed with the Secretary of the Company no later than December 31 in a calendar year,elect to defer payment of all or a portion of the monthly and meeting fees earned by him in calendar years subsequent to the year in which he files such notice,in which case such fees shall be paid to him in accordance with Section 4.2 below.4.2 A Directors deferred fees earned pursuant to the Plan shall commence to be paid on the first day of the calendar month next following the earlier of his death or his attainment of age sixty-five(65)if he is not then serving as a Director,or the termination of his service as a Director if he serves as a Director after the attainment of age sixty-five(65).4.3 A Directorsdeferred fees that have commenced to be payable pursuant to Section 4.2 shall be payable in annual installments in the order in which they shall have been deferred(i.e.,the deferred fees and earnings thereon for the earliest year of service as a Director will be paid on the date provided for in Section 4.2,the deferred fees for the next earliest year of service as a Director will be paid on the anniversary of the payment of the first installment,etc.).4.4 A Directors deferred fees shall continue to be paid until all deferred fees which he is entitled to receive under the Plan shall have been paid to him(or,in case of his death,to his beneficiary).4.5 If a Director incurs a termination of service as a Director within two(2)years following the occurrence of a Change in Control(as defined below),the aggregate unpaid balance of such Directors deferred fees plus all unpaid interest credited thereon,shall be paid to such Director in a lump sum within thirty(30)days following the date of such termination of service;provided,however,that if such Change in Control does not constitute a“change in control event”(as defined in Treasury Regulation 1.409A-3(i)(5),then the aggregate unpaid balance of such Directors deferred fees shall be paid in accordance with Sections 4.2 and 4.3.Notwithstanding any other provision of the Plan,if a Director has made the alternative election set forth in Section 8.1,and if such Director incurs a termination of service as a Director within five(5)years following the occurrence of a Change in Control,the aggregate unpaid balance of such Directors fees deposited to the Directors Grantor Trust(as defined below)plus all unpaid interest credited thereon,shall be paid to such Director from the Directors Grantor Trust in a lump sum within thirty(30)days following the date of such termination of service.4.6 A“Change in Control”shall be deemed to have occurred on the earliest of the following dates:(i)the date any Person is or becomesthe Beneficial Owner,directly or indirectly,of securities of the Company(not including in the securities beneficially owned by such Person any securities acquired directly from 4 the Company or its Affiliates)representing 20%or more of the combined voting power of the Companys then outstanding securities,excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause(a)of paragraph(iii)below;or(ii)the date the following individuals cease for any reason to constitute a majority of the number of directors then serving:individuals who,on the date hereof,constitute the Board of Directors and any new director(other than a director whose initial assumption of office is in connection with an actual or threatened election contest,including but not limited to a consent solicitation,relating to the election of directors of the Company)whose appointment or election by the Board of Directors or nomination for election by the Companys shareholders was approved or recommended by a vote of at least two-thirds(2/3)of the directors then still in office who either were directors on the date hereof or whose appointment,election or nomination for election was previously so approved or recommended;or(iii)the date on which there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation or other entity,other than(a)a merger or consolidation(I)immediately following which the individuals who comprise the Board of Directors immediately prior thereto constitute at least a majority of the Board of Directors of the Company,the entity surviving such merger or consolidation or,if the Company or the entity surviving such merger or consolidation is then a subsidiary,the ultimate parent thereof and(II)which results in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent(either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof),in combination with the ownership of anytrustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company,at least 50%of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation,or(b)a merger or consolidation effected to implement a recapitalization of the Company(or similar transaction)in which no Person is or becomes the Beneficial Owner,directly or indirectly,of securities of the Company(not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates)representing 20%or more of the combined voting power of the Companys then outstanding securities;or(iv)the date the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Companys assets,other than a sale or disposition by the Company of all or substantially all of the Companys assets to an entity,at least 50%of the combined voting power of the voting securities of which are owned by shareholders of the Company,in combination with the ownership of any trustee or other fiduciary holding securities 5 under an employee benefit plan of the Company or any subsidiary of the Company,in substantially the same proportions as their ownership of the Company immediately prior to such sale.(1)Notwithstanding the foregoing,a“Change in Control”shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.(2)For purposes of this Plan:“Affiliate”shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act;“Beneficial Owner”shall have the meaning set forth in Rule 13d-3 under the Exchange Act;“Exchange Act”shall mean the Securities Exchange Act of 1934,as amended from time to time;and“Person”shall have the meaning given in Section 3(a)(9)of the Exchange Act,as modified and used in Sections 13(d)and 14(d)thereof,except that such term shall not include(i)the Company or any of its subsidiaries,(ii)a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates,(iii)an underwriter temporarily holding securities pursuant to an offering of such securities,or(iv)a corporation owned,directly or indirectly,by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.4.7 A“Potential Change in Control”shall exist during any period in which the circumstances described in paragraphs(i),(ii),(iii)or(iv),below,exist(provided,however,that a Potential Change in Control shall cease to exist not later than the occurrence of a Change in Control):(i)The Company enters into anagreement,the consummation of which would result in the occurrence of a Change in Control,provided that a Potential Change in Control described in this paragraph(i)shall cease to exist upon the expiration or other termination of all such agreements.(ii)Any Person(without regard to the exclusions set forth in subsections(i)through(iv)of such definition)publicly announces an intention to take or to consider taking actions the consummation of which would constitute a Change in Control;provided that a Potential Change in Control described in this paragraph(ii)shall cease to exist upon the withdrawal of such intention,or upon a determination by the Board of Directors that there is no reasonable chance that such actions would be consummated.(iii)Any Person becomes the Beneficial Owner,directly or indirectly,of securities of the Company representing 10%or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Companys then outstanding securities(not 6 including any securities beneficially owned by such Person which are or were acquired directly from the Company or its Affiliates).(iv)The Board of Directors adopts a resolution to the effect that,for purposes of this Agreement,a Potential Change in Control exists;provided that a Potential Change in Control described in this paragraph(iv)shall cease to exist upon a determination by the Board of Directors that the reasons that gave rise to the resolution providing for the existence of a Potential Change in Control have expired or no longer exist.4.8 The provisions of Sections 4.5,4.6,4.7 and this Section 4.8 may not be amended or deleted,nor superseded by any other provision of this Plan,(i)during the pendency of a Potential Change in Control and(ii)during the period beginning on the date of a Change in Control and ending on the date five(5)years following such Change in Control.SECTION 5.CONVERSION TO COMMON STOCK UNITS 5.1 Any Director who is then serving as a director may,by written notice filed with the Secretary of the Company,irrevocably elect to have all or any portion of deferred fees previously earned but not yet paid,transferred from the Directors Deferred Fee Account to a stock account established under this Section 5(“Stock Account”).Any election as to a portion of such fees shall be expressed as a percentage and the same percentage shall be applied to all such fees regardless of the calendar year in which earned or to all deferred fees earned in designated calendar years,as specified by the Director.A Director may make no more than one notional investment election under this Section 5.l in any calendar year.All such elections may apply only to deferred fees for which an election has not previously been made and shall be irrevocable.5.2 Any Director may,by written notice filed with the Secretary of the Company,elect to have all or any portion of deferred fees earned subsequent to the date such notice isfiled credited to a Stock Account established under this Section 5.Fees covered by such election shall be credited to such account at the end of each calendar quarter in,or for which,such fees are earned.Such election may be revoked or modified by such Director,by written notice filed with the Secretary of the Company,as to deferred fees to be earned in calendar years subsequent to the calendar year such notice is filed,but shall be irrevocable as to deferred fees earned prior to such year.5.3 Deferred fees credited to a Stock Account under Section 5.1 shall be converted to Common Stock Units by dividing the deferred fees so credited by the closing price of common shares of the Company on the date the notice of election under Section 5 is received by the Company(or the next business day,if there are no sales on such date)as reported on the New York Stock Exchange Composite Reporting System.Deferred fees credited to a Stock Account under Section 5.2 shall be converted to Common Stock Units by dividing the deferred fees so credited by the closing price of common shares of the Company as of the last business day of the calendar quarter for which the credit is made,as reported on the New York Stock Exchange Composite Reporting System.5.4 Each Common Stock Unit shall be credited with(or adjusted for)the same cash and stock dividends,stock splits and other distributions and adjustments as are received by or applicable to one common share of the Company.All cash dividends and other cash distributions credited to Common Stock Units shall be converted to additional Common Stock Units by dividing each such dividend or distribution by the closing price of common shares of the Company on the payment date for such dividend or distribution,as reported by the New York Stock Exchange Composite Reporting System.7 5.5 The value of the Common Stock Units credited each Director shall be paid to the Director in cash on the dates specified in Section 4.3(or,if applicable,Section 4.5).The amount of each payment shall be determined by multiplying the Common Stock Units payable on each date specified in Section 4.3(or,if applicable,Section 4.5)by the closing price of common shares of the Company on the day prior to the payment date(or the next preceding business day if there are no sales on such date),as reported by the New York Stock Exchange Composite Reporting System.SECTION 6.MISCELLANEOUS 6.1 Each Director or former Director entitled to payment of deferred fees hereunder,from time to time may name any person or persons(who may be named contingently or successively)to whom any deferred Directors fees earned by him and payable to him are to be paid in case of his death before he receives any or all of such deferred Directors fees.Each designation will revoke all prior designations by the same Director or former Director,shall be in a form prescribed by the Company,and will be effective only when filed by the Director or former Director in writing with the Secretary of the Company during his lifetime.If a deceased Director or former Director shall have failed to name a beneficiary in the manner provided above,or if the beneficiary named by a deceased Director or former Director dies before him or before payment of all the Directors or former Directors deferred Directors fees,the Company,in its discretion,may direct payment of the remaining installments required by Section 4.3 to either:(a)any one or more or all of the next of kin(including the surviving spouse)of the Director or former Director,and in such proportions as the Company determines;or(b)the legal representative or representatives of the estate of the last to die of the Director or former Director and his last surviving beneficiary.The person or persons towhom any deceased Directors or former Directors deferred Directors fees are payable under this Section will be referred to as his“beneficiary.”6.2 Establishment of the Plan and coverage thereunder of any person shall not be construed to confer any right on the part of such person to be nominated for reelection to the Board of Directors of the Company,or to be reelected to the Board of Directors.6.3 Payment of deferred Directors fees will be made only to the person entitled thereto in accordance with the terms of the Plan,and deferred Directors fees are not in any way subject to the debts or other obligations of persons entitled thereto,and may not be voluntarily or involuntarily sold,transferred or assigned.When a person entitled to a payment under the Plan is under legal disability or,in the Companys opinion,is in any way incapacitated so as to be unable to manage his financial affairs,the Company may direct that payment be made to such persons legal representative,or to a relative or friend of such person for his benefit.Any payment made in accordance with the preceding sentence shall be in complete discharge of the Companys obligation to make such payment under the Plan.6.4 Any action required or permitted to be taken by the Company under the terms of the Plan shall be by affirmative vote of a majority of the members of the Board of Directors then in office.6.5 Notwithstanding anything in the Plan to the contrary,any amounts under the Plan that were earned and vested before January 1,2005(as determined in accordance with Code Section 409A)with respect to a Director who retired before January 1,2005(“Grandfathered Amounts”)shall be subject to the terms and conditions of the Plan as administered and as in effect on December 31,2004.Amendments made to the Plan pursuant to this amendment and restatement or otherwise shall not affect 8 the Grandfathered Amounts unless expressly provided for in the amendment.The terms and conditions applicable to the Grandfathered Amounts are set forth in Exhibit A attached hereto.6.6 To the extent applicable,it is intended that the Plan comply with the provisions of Section 409A of the Code.The Plan will be administered and interpreted in a manner consistent with this intent,and any provision that would cause the Plan to fail to satisfy Section 409A of the Code will have no force and effect until amended to comply therewith(which amendment may be retroactive to the extent permitted by Section 409A of the Code).Notwithstanding anything contained herein to the contrary,for all purposes of this Plan,a Director shall not be deemed to have had a termination of service as a Director until the Director has incurred a separation from service as defined in Treasury Regulation 1.409A-1(h)and,to the extent required to avoid accelerated taxation and/or tax penalties under Code Section 409A and applicable guidance issued thereunder,payment of the amounts payable under the Plan that would otherwise be payable during the six-month period after the date of termination shall instead be paid on the first business day after the expiration of such six-month period,plus interest thereon,at a rate equal to the rate specified in Section 8.8(to the extent that such interest is not already provided to the Director under Section 8.10),from the respective dates on which such amounts would otherwise have been paid until the actual date of payment.In addition,for purposes of the Plan,each amount to be paid and each installment payment shall be construed as a separate identified payment for purposes of Section 409A of the Code.6.7 Except as expressly provided herein,the provisions of the Plan as they were in effect immediately prior to the January 1,2013 amendment shall continue to apply to any Director who retired or otherwise terminated service as aDirector prior to January 1,2013.SECTION 7.AMENDMENT AND DISCONTINUANCE While the Company expects to continue the Plan,it must necessarily reserve,and does hereby reserve,the right to amend or discontinue the Plan at any time;provided,however,that any amendment or discontinuance of the Plan shall be prospective in operation only,and shall not affect the payment of any deferred Directors fees theretofore earned by any Director,or the conditions under which any such fees are to be paid or forfeited under the Plan.Any discontinuance of the Plan by the Company shall comply with the requirements of Section 409A of the Code.SECTION 8.ALTERNATE PAYMENT OF FEES 8.1 By written notice filed with the Secretary of the Company prior to each calendar year beginning after December 31,1988,a Director may elect to receive all or a portion of his fees earned in the following calendar year in accordance with the provisions of Section 8.An election under this Section 8.1 shall become irrevocable as of December 31 of the calendar year prior to the year in which such monthly and meeting fees will be earned(or,in the case of a new Director,on the 30th day following the Directors first participation in the Plan and all plans that would be aggregated with the Plan pursuant to Treasury Regulation 1.409A-1(c)(2)(i),provided,that the compensation subject to such election relates solely to services performed after the date of such election).8.2 If payment of a Directors fees is made pursuant to Section 8.1,such fees shall not be deferred and a portion of the gross amount of such fees shall be paid currently in cash for the Director directly to a“Grantor Trust”established by the Director,provided such trust is in a form which the Company determines to be substantially similar to the trust attached to this plan as Exhibit B;and the balance of the gross amount of such fees shall be paid currently in cash directly to the Director,provided that the portion paid directly to the Director shall be an amount equal to the aggregate federal,state and 9 local individual income taxes attributable to the gross fees paid pursuant to this Section 8.2(determined in accordance with Section 8.14).In no event shall such fees be paid to the Grantor Trust or directly to the Director later than the last day of the“applicable 2 month period,”as such term is defined in Treasury Regulation 1.409A-1(b)(4)(i)(A).8.3 The Company will establish and maintain four separate accounts in the name of each Director who has made an election under Section 8.1 as follows:a“Pre-Tax Fee Account,”an“After-Tax Fee Account,”a“Pre-Tax Stock Account”and an“After-Tax Stock Account”(collectively,the“Accounts”).(a)The Pre-Tax Fee Account shall reflect the total amount of any fees paid in cash to a Director or deposited to a Directors Grantor Trust,including the amount equal to the aggregate federal,state and local individual income taxes attributable to the fees paid pursuant to Section 8.2,and Interest to be credited to a Director pursuant to Section 8.8.The After-Tax Fee Account shall reflect such gross amounts but shall be maintained on an after-tax basis.(b)The Pre-Tax Stock Account shall reflect the total amount of fees converted to Common Stock Units pursuant to Section 5,including the amount equal to the aggregate federal,state and local individual income taxes attributable to the fees paid pursuant to Section 8.2,and any adjustments made pursuant to Section 8.9.The After-Tax Stock Account shall reflect such gross amounts but shall be maintained on an after-tax basis.(c)The Accounts established pursuant to this Section 8.3 are for the convenience of the administration of the Plan and no trust relationship with respect to such Accounts is intended or should be implied.8.4 As of the end of each calendar year,the Company shall adjust each Directors Pre-Tax Fee Account as follows:(a)FIRST,charge,in any year in which the Director is entitled to receive a distribution from his or her Grantor Trust,anamount equal to the distribution from the fee account maintained thereunder that would have been made to the Director if the aggregate amounts paid according to Section 8.2 had instead been deferred under Section 3;(b)NEXT,credit an amount equal to the gross amount of any fees paid for that year,not converted to Common Stock Units,that are paid to the Director(including the amount deposited in the Directors Grantor Trust and the amount equal to the aggregate federal,state and local individual income taxes attributable to the fees paid pursuant to Section 8.2)according to Section 8.2;and(c)FINALLY,credit an amount equal to the Interest earned for that year according to Section 8.8.8.5 As of the end of each calendar year,the Company shall adjust each Directors After-Tax Fee Account as follows:10(a)FIRST,charge,in any year in which the Director is in receipt of a benefit distribution from his or her Grantor Trust,an amount equal to the product of(i)the distribution that would have been made to the Director if the aggregate amounts paid according to Section 8.2 had instead been deferred under Section 3,multiplied by(ii)a fraction,the numerator of which is the balance in the Directors After-Tax Fee Account as of the end of the prior fiscal year and the denominator of which is the balance of the Directors Pre-Tax Fee Account as of that same date;(b)NEXT,credit an amount equal to the fees not converted to Common Stock Units that are paid that year to the Director directly to the Directors Grantor Trust according to Section 8.2;and(c)FINALLY,credit an amount equal to the After-Tax Interest earned for that year according to Section 8.8.8.6 As of the end of each calendar year,the Company shall adjust each Directors Pre-Tax Stock Account as follows:(a)FIRST,charge,in any year in which the Director is entitled to receive a distribution from his or her Grantor Trust,an amount equal to the distribution that would have been made to the Director if the aggregate amount of fees paid according to Section 8.2 had instead been deferred under Section 3 and the adjustments had been made under Section 5;(b)NEXT,credit an amount equal to the total amount of any fees for that year that are converted to Common Stock Units and paid to the Director(including the amount deposited in the Directors Grantor Trust and the amount equal to the aggregate federal,state and local individual income taxes attributable to the fees paid pursuant to Section 8.2)and allocated to the Stock Account maintained thereunder)according to Section 8.2;and(c)NEXT,credit an amount equal to the net earnings of the Directors Grantor Trust for the year;and(d)FINALLY,credit an amount equal to the Book Value Adjustments to be made for that year according toSection 8.9.8.7 As of the end of each calendar year,the Company shall adjust each Directors After-Tax Stock Account as follows:(a)FIRST,charge,in any year in which the Director is entitled to receive a distribution from his or her Grantor Trust,an amount equal to the product of(i)the distribution that would have been made to the Director if the aggregate amounts paid according to Section 8.2 had instead been deferred under Section 3 and the adjustments had been made under Section 5,multiplied by(ii)a fraction,the numerator of which is the balance in the Directors After-Tax Stock Account as of the end of the prior fiscal year and the denominator of which is the balance of the Directors Pre-Tax Stock Account as of that same date;(b)NEXT,credit an amount equal to the fees converted to Common Stock Units that are paid that year to the Director directly to the Directors Grantor Trust and 11 allocated to the Stock Account maintained thereunder according to Section 8.2;and(c)NEXT,credit an amount equal to the net earnings of the Directors Grantor Trust for the year;and(d)FINALLY,credit an amount equal to the Book Value Adjustments to be made for that year according to Section 8.9.8.8 The Directors Pre-Tax Fee Account and After-Tax Fee Account shall be credited with interest as follows:(a)As of the end of each calendar year,a Directors Pre-Tax Fee Account shall be credited with interest(“Interest”)at the following rate:(i)the average of the“prime rate”of interest published by the Wall Street Journal(Mid-West Edition)or comparable successor quotation service on the first business day of January and the last business day of each month of the fiscal year;(ii)plus two hundred twenty-five(225)basis points.(b)As of the end of each calendar year,a Directors After-Tax Fee Account shall be credited with the amount of Interest set forth above,multiplied by(one minus the aggregate of the applicable federal,state and local individual income tax rates and employment tax rate,determined in accordance with subsection 7.5)(the“After-Tax Interest”).8.9 As of the end of each calendar year,a Directors Pre-Tax Stock Account and After-Tax Stock Account shall be adjusted as provided in Section 5.4,to the extent applicable,and shall also be adjusted to reflect the increase or decrease in the fair market value of the Companys common stock determined in accordance with Section 5.5,except that(i)any reference to the payment date in such Section shall mean December 31 of the applicable calendar year for purposes of this Section,and(ii)adjustments to the After-Tax Stock Account shall be made on an after-tax basis.Such adjustments shall be referred to as“Book Value Adjustments.”8.10 In addition to any fees paid to a Directors Grantor Trust under Section 8.2 during the year,the Company shall also make a payment(an“Interest Payment”)with respect to each Director who has established a Grantor Trust for each year in which the Grantor Trust is in effect.The Interest Payment shall equal the excess,if any,of the gross amount of the Interest credited to the Director(as defined in Section 8.8(a),over the net earnings of the Directors Grantor Trust for the year,and shall be paid within thirty(30)days beginning April 1 of the following calendar year.A portion of such gross Interest Payment,equal to the excess,if any,of the Net Interest Accrual over the net earnings of the Directors Grantor Trust(i.e.,the Pre-Amendment Amount),shall be deposited in the Directors Grantor Trust,with the balance paid to the Director;provided,however,in the event that the net earnings of the Directors Grantor Trust exceeds the Net Interest Accrual,a distribution from the Grantor Trust shall be required in accordance with Section 8.15.A Directors Net Interest Accrual for a year is an amount equal to the After-Tax Interest credited to the Directors After-Tax Fee Account for that year in accordance with Section 8.8(b).8.11 In addition to the fees paid under Section 8.2 during the year and the Interest Payment described above,the Company shall also make a payment(a“Principal Payment”)with respect to each 12 Director who has established a Grantor Trust for each year in which the Grantor Trust is in effect,to be credited to the Stock Account maintained thereunder.Prior to January 1,2013,the Principal Payment equaled the excess,if any,of 75 percent of the fair market value(as determined in accordance with Section 5.5)of the balance of the Directors After-Tax Stock Account on December 31 over the balance in the Stock Account maintained under the Directors Grantor Trust as of that same date,and was paid within the thirty(30)-day period beginning April 1 of the following calendar year.Effective as of January 1,2013,the Principal Payment shall equal the excess,if any,of 75 percent of the fair market value(as determined in accordance with Section 5.5)of the balance of the Directors Pre-Tax Stock Account on December 31 over the balance in the Stock Account maintained under the Directors Grantor Trust as of that same date,and shall be paid within the thirty(30)-day period beginning April 1 of the following calendar year.For the calendar year in which the last installment distribution is made from the Directors Grantor Trust(meaning,the year that is X years following the year of the event triggering the payments,where X is the same number of years served by the Director),the payment made under this Section 8.11 shall equal the excess,if any,of 100 percent of the balance of the Directors After-Tax Stock Account over the balance in the Stock Account maintained under the Directors Grantor Trust as of that same date.8.12 Each Directors Grantor Trust assets shall be invested solely in the instruments specified by investment guidelines established by the Committee.Such investment guidelines,once established,may be changed by the Committee,provided that any change shall not take effect until the year following the year in which the change is made and provided further that the instruments specified shall be consistent with theprovisions of Section 3(b)of the form of Grantor Trust attached hereto as Exhibit B.8.13 For purposes of Section 8,a Directors federal income tax rate shall be deemed to be the highest marginal rate of federal individual income tax in effect in the calendar year in which a calculation under this Section is to be m
2023-06-19
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Earnings Results PresentationFirst Quarter 2023April 14,20232ConfidentialFirst Quarter Results Snaps.
2023-06-05
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Table of ContentsUnited StatesSecurities and Exchange CommissionWashington,D.C.20549_ Form 10-Q(Mark.
2023-06-05
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JD.com Announces First Quarter 2023 ResultsBEIJING,May 11,2023(GLOBE NEWSWIRE)-JD.com,Inc.(NASDAQ:JD and HKEX:9618),a leading supply chain-based technology and serviceprovider,today announced its unaudited financial results for the quarter ended March 31,2023.First Quarter 2023 HighlightsNet revenues for the first quarter of 2023 were RMB243.0 billion(US$135.4 billion),an increase of 1.4%from the firstquarter of 2022.Net service revenues for the first quarter of 2023 were RMB47.4 billion(US$6.9 billion),an increase of34.5%from the first quarter of 2022.Income from operations for the first quarter of 2023 was RMB6.4 billion(US$0.9 billion),compared to RMB2.4 billion forthe same period last year.Non-GAAP2 income from operations was RMB7.9 billion(US$1.1 billion)for the first quarterof 2023,as compared to RMB4.7 billion for the first quarter of 2022.Operating margin of JD Retail before unallocateditems for the first quarter of 2023 was 4.6%,compared to 3.6%for the first quarter of 2022.Net income attributable to the companys ordinary shareholders for the first quarter of 2023 was RMB6.3 billion(US$0.9 billion),compared to a net loss of RMB3.0 billion for the same period last year.Non-GAAP net incomeattributable to the companys ordinary shareholders for the first quarter of 2023 was RMB7.6 billion(US$1.1 billion),ascompared to RMB4.0 billion for the same period last year.Diluted net income per ADS for the first quarter of 2023 was RMB3.93(US$0.57),compared to a diluted net loss perADS of RMB1.92 for the first quarter of 2022.Non-GAAP diluted net income per ADS for the first quarter of 2023 wasRMB4.76(US$0.69),compared to RMB2.53 for the same period last year.“JD saw strong growth in profitability in the first quarter as we continued to streamline our operations,optimize our product portfolio and expand ourservice offerings,”said Lei Xu,CEO of JD.com.“In the quarters ahead,we will further enhance our business structure in order to drive the expansionof our user base throughout China.JD.com has built Chinas most trusted brand in retail,and is uniquely positioned to provide our loyal user base withthe superior quality,value,speed and selection they have come to expect,while maintaining the flexibility to seize upon multiple growth opportunitiesacross our businesses.”“During the first quarter,we were pleased to see service revenues grow to account for 20%of our total revenues,helping deliver strong margins andreflecting our success in attracting a record number of third-party merchants to the JD.com platform,”said Sandy Xu,Chief Financial Officer ofJD.com.“We also see more encouraging trends in Q2,both financially and operationally,as we push forward our proactive adjustment.Lookingahead,we will continue to focus on the quality of our businesses while providing a superior platform for our merchants and suppliers in terms ofexposure,traffic and lower costs,in order to drive sustainable growth for the long term.”Business HighlightsEnvironment,Social and GovernanceIn January,JD Health actively contributed to support the epidemic prevention in rural areas.Together with the NationalRural Revitalization Administration and the Peoples Daily,JD Health launched an anti-epidemic project that providedapproximately six million packs of anti-epidemic medication to over 20,000 clinics,pharmacies,and other medical channelsat county and village level across the country.JD Health endeavors to enhance the medicine supply capabilities in ruralareas,and enable more people there to have easy access to medicines anytime at nearby locations.On May 5,2023,Fortune released the“2023 China ESG Impact List.”JD.com was named on the list for two consecutiveyears,together with other 39 companies.This is a testament to JDs outstanding ESG efforts in the past year in buildinggreen supply chain,fighting against COVID and ensuring supplies,and supporting employee well-being.JD RetailIn March,JD.com launched its first county-level home appliance and home goods store in Jintang county,Sichuanprovince.Targeting a differentiated“home scenario,”the store provides a diversified product portfolio of home appliancesand home goods and creates an integrated home solution better adapted to the needs of consumers in lower-tier markets.In addition,JD.com launched a new home appliance and electronics flagship store in Chengdu,offering more than 100,000SKUs.Through its innovative online and offline integration model,JD MALL,JD home appliance and electronics city-levelflagship stores,JD Home Appliance Stores and other offline stores have achieved equal SKU selection,price and servicecompared to its online channel.In February,Tesla launched its official flagship store on JD.com,offering a variety of auto products,including chargingequipment,premium accessories,selected apparel and other products totaling over 200 SKUs.Going forward,JD willfurther leverage its omnichannel advantages to promote the development of Teslas online store on its platform.In March,Longines,a renowned Swiss watchmaking brand,launched its official flagship store on JD.com,offeringconsumers a diverse collection of new and classic products.By leveraging JDs intelligent supply chain capabilities,theecosystem of authentic products,logistics fulfillment,and high-quality service assurance,JD will continue to build anefficient operating environment for business partners,while providing consumers best-in-class shopping experience.JD HealthIn February,JD Health further enhanced its service capability for rare diseases,and expand the aid scale to approximately20 million patients in China by launching the new“doctor-searching map for rare diseases.”JD Health also formed astrategic collaboration with Boao Winhealth Rare Disease Medical Center to effectively reduce the financial burden for raredisease patients.In February,JD Health officially announced the establishment of the intelligent medical engine on its online healthcareservice platform,which leverages the latest internet and AI technologies and places medical values as fundamentals.Theengine aims to improve the efficiency and quality of doctors online diagnosis and treatment,and establishes JD HealthInternet Hospital as the first“integrated medical education and research”internet hospital in China.During the first quarter,JD Health signed strategic cooperation agreements for 2023 with global pharmaceutical andhealthcare brands including H&H Group,Tongrentang Health,and Abbott Medical Nutrition.JD Health also reached astrategic partnership with Zoetis Inc.,a leading global animal healthcare company,to delve more deeply into the pethealthcare market through comprehensive cooperation and provide quality pet vaccines and medications to customers inChina.Going forward,JD Health will further strengthen its supply chain capabilities,optimize and open up its ecosystem,and continue to promote its omnichannel initiative,with the goal of achieving quality growth together with its partners andmerchants.JD LogisticsIn February,JD Logistics and Master Kong Holdings Limited signed a strategic cooperation agreement on“IntelligentSupply Chain Transformation.”Under the agreement,the two parties will leverage technological and digital tools tocooperate closely on supply chain consultation and planning,warehouse network planning,intelligent logistics,refinedmanagement,and exploration of differentiated service models,among others.The cooperation aims to improve the servicequality and customer experience across omnichannels and diversified scenarios along the supply chain,and drive thetransformation of integrated supply chain for the FMCG industry.In the first quarter,JD Logistics announced the opening of its third self-operating warehouse and distribution center inCalifornia,United States.The new warehouse,together with the other existing ones,each of which with different functionalpositioning,have expanded JD Logisticss warehousing footprint to 1.3 million square feet in the U.S.,and furtherenhanced JD Logisticss supply chain service capabilities overseas.As of March 31,2023,JD Logistics operated over 1,500 warehouses.Including warehouse space managed through theOpen Warehouse Platform,JD Logisticss warehouse network had an aggregate gross floor area of over 31 million squaremeters.3JD IndustrialsIn the first quarter,JD Industrials continued to drive the application of intelligent supply chain for industrial enterprises,byleveraging its Industrial Performance Neuroscience Programme(“IPNP”)that consists of a set of technological productsand aims to integrate the up-and down-stream along the industrial supply chain to act as a“neural network.”For example,in the cooperation JD Industrials IPNP helps Foxconn to standardize massive SKU parameters,mitigate inventory risk andrelated cost of capital,and enable Foxconns suppliers with intelligent decision-making capabilities and improve theefficiency of the supply chain.DadaOn March 30,2023,JDDJ were among the first sales channels to launch the new Huawei P60 models.As Huaweis officialon-demand retail partner,JDDJ has had more than 2,000 Huawei authorized stores joining its platform that cover morethan 260 cities in China to ensure adequate inventories to better address customer demands.JD.coms on-demand retailhas become an important sales channel for new mobile phone models and digital products with high recognition amongbrands and merchants.In April,YeeHoO,a high-end daily necessities brand for infants and children in China,initiated an in-depth collaborationwith JDDJ.There have been more than 200 YeeHoO offline stores in China launched on JD App and JDDJ App,providingone-hour delivery services.The two parties will also work together to drive the digital transformation of offline stores,explore new growth models for omni-channel business,and provide consumers on-demand shopping experience of“onlineordering,offline shipping,and one-hour or faster delivery of apparel for infants and youngsters.”Since its launch in July 2021,Dadas autonomous delivery service platform has leveraged its advantages as astandardized open platform and built numerous on-demand delivery scenarios and strong capabilities in order distribution,route planning,human-vehicle interaction,and last-mile delivery.In collaboration with unmanned vehicle developers,theplatform has been applied by 7Fresh,Yonghui and Sams Club.As of March 31,2023,the platform has supporteddeliveries of over 100,000 supermarket orders,further strengthening its leading position in autonomous delivery forsupermarkets in China.First Quarter 2023 Financial ResultsNet Revenues.For the first quarter of 2023,JD.com reported net revenues of RMB243.0 billion(US$35.4 billion),representing a 1.4%increase fromthe same period of 2022.Net product revenues decreased by 4.3%,while net service revenues increased by 34.5%for the first quarter of 2023,ascompared to the same period of 2022.Cost of Revenues.Cost of revenues increased by 0.4%to RMB206.9 billion(US$30.1 billion)for the first quarter of 2023 from RMB206.2 billion forthe first quarter of 2022.Fulfillment Expenses.Fulfillment expenses,which primarily include procurement,warehousing,delivery,customer service and payment processingexpenses,decreased by 0.7%to RMB15.4 billion(US$2.2 billion)for the first quarter of 2023 from RMB15.5 billion for the first quarter of 2022.Fulfillment expenses as a percentage of net revenues was 6.3%for the first quarter of 2023,compared to 6.5%for the same period last year.Marketing Expenses.Marketing expenses decreased by 8.0%to RMB8.0 billion(US$1.2 billion)for the first quarter of 2023 from RMB8.7 billion forthe first quarter of 2022.Research and Development Expenses.Research and development expenses decreased by 4.5%to RMB4.2 billion(US$0.6 billion)for the firstquarter of 2023 from RMB4.4 billion for the first quarter of 2022.General and Administrative Expenses.General and administrative expenses was RMB2.5 billion(US$0.4 billion)for the first quarter of 2023,keptrelatively steady as compared to RMB2.5 billion for the first quarter of 2022.Income from Operations and Non-GAAP Income from Operations.Income from operations for the first quarter of 2023 was RMB6.4 billion(US$0.9 billion),compared to RMB2.4 billion for the same period last year.Non-GAAP income from operations was RMB7.9 billion(US$1.1 billion)forthe first quarter of 2023,as compared to RMB4.7 billion for the first quarter of 2022.Operating margin of JD Retail before unallocated items for the firstquarter of 2023 was 4.6%,compared to 3.6%for the first quarter of 2022.Non-GAAP EBITDA.Non-GAAP EBITDA increased by 56.6%to RMB9.5 billion(US$1.4 billion)for the first quarter of 2023 from RMB6.1 billion forthe first quarter of 2022.Share of Results of Equity Investees.Share of results of equity investees was a loss of RMB0.8 billion(US$0.1 billion)for the first quarter of 2023,as compared to RMB1.1 billion for the first quarter of 2022.The loss for the first quarter of 2022 and 2023 was primarily due to share of losses fromcertain equity investees.Others,net.Other non-operating income was RMB2.8 billion(US$0.4 billion)for the first quarter of 2023,as compared to other non-operating loss ofRMB3.9 billion for the first quarter of 2022.The increase was primarily due to a loss of RMB3.6 billion recognized resulting from the change of Dadasshare price prior to the closing of the acquisition of Dada in the first quarter of 2022,and the fair value change of investment securities.Net Income/(Loss)Attributable to the Companys Ordinary Shareholders and Non-GAAP Net Income Attributable to the Companys OrdinaryShareholders.Net income attributable to the companys ordinary shareholders for the first quarter of 2023 was RMB6.3 billion(US$0.9 billion),compared to a net loss of RMB3.0 billion for the same period last year.Non-GAAP net income attributable to the companys ordinary shareholders forthe first quarter of 2023 was RMB7.6 billion(US$1.1 billion),as compared to RMB4.0 billion for the same period last year.Diluted EPS and Non-GAAP Diluted EPS.Diluted net income per ADS for the first quarter of 2023 was RMB3.93(US$0.57),compared to a dilutednet loss per ADS of RMB1.92 for the first quarter of 2022.Non-GAAP diluted net income per ADS for the first quarter of 2023 was RMB4.76(US$0.69),compared to RMB2.53 for the first quarter of 2022.Cash Flow and Working CapitalAs of March 31,2023,the companys cash and cash equivalents,restricted cash and short-term investments totaled RMB203.2 billion(US$29.6billion),compared to RMB226.2 billion as of December 31,2022.For the first quarter of 2023,free cash flow of the company was as follows:For the three months ended March 31,2022March 31,2023March 31,2023 RMBRMBUS$(In millions)Net cash used in operating activities(3,485)(21,607)(3,146)Less:Impact from JD Baitiao receivables included in the operating cash flow(1,734)(582)(85)Less:Capital expenditures,net of related sales proceeds Capital expenditures for development properties(2,676)(2,145)(312)Other capital expenditures*(902)(1,068)(156)Free cash flow(8,797)(25,402)(3,699)*Including capital expenditures related to the companys headquarters in Beijing and all other CAPEX.Net cash provided by investing activities was RMB16.7 billion(US$2.4 billion)for the first quarter of 2023,consisting primarily of the decrease inshort-term investments,partially offset by cash paid for capital expenditures.Net cash provided by financing activities was RMB1.3 billion(US$0.2 billion)for the first quarter of 2023,consisting primarily of proceeds from JDIndustrials non-redeemable series B preferred share financing and net proceeds from bank loans,partly offset by cash paid for share repurchase.Inthe first quarter of 2023,the company has repurchased approximately 3.8 million of its ADSs for approximately RMB1.1 billion(US$0.2 billion)underits share repurchase program.For the twelve months ended March 31,2023,free cash flow of the company was as follows:For the twelve months ended March 31,2022March 31,2023March 31,2023 RMBRMBUS$(In millions)Net cash provided by operating activities 46,325 39,697 5,780(Less)/Add:Impact from JD Baitiao receivables included in the operating cash flow(467)908 132 Less:Capital expenditures,net of related sales proceeds Capital expenditures for development properties(14,563)(16,974)(2,471)Other capital expenditures(4,122)(4,641)(676)Free cash flow 27,173 18,990 2,765 Supplemental InformationThe company reports four segments,JD Retail,JD Logistics,Dada and New businesses.JD Retail,including JD Health and JD Industrials,amongother components,mainly engage in online retail,online marketplace and marketing services in China.JD Logistics includes both internal and externallogistics businesses.Dada is a local on-demand delivery and retail platform in China.New businesses mainly include JD Property,Jingxi and overseasbusinesses.The table below sets forth the segment operating results:For the three months ended March 31,2022March 31,2023March 31,2023 RMBRMBUS$(In millions)Net revenues:JD Retail217,524 212,358 30,922 JD Logistics27,351 36,728 5,348 Dada688 2,576 375 New businesses5,756 3,450 502 Inter-segment eliminations*(11,664)(12,156)(1,770)Total consolidated net revenues239,655 242,956 35,377 Operating income/(loss):JD Retail7,891 9,844 1,433 JD Logistics(661)(1,123)(164)Dada(191)(217)(32)New businesses(2,386)(157)(21)Including:gain on sale of development properties 472 69 Total segment operating income4,653 8,347 1,216 Unallocated items*(2,244)(1,920)(280)Total consolidated operating income2,409 6,427 936 *The inter-segment eliminations mainly consist of revenues from supply chain solutions and logistics services provided by JD Logistics to JD Retail,on-demand delivery and retail services provided by Dada to JD Retail and JD Logistics,and property leasing services provided by JD Property to JDLogistics.*Unallocated items include share-based compensation,amortization of intangible assets resulting from assets and business acquisitions,effects ofbusiness cooperation arrangements,and impairment of goodwill and intangible assets,which are not allocated to segments.The table below sets forth the revenue information:For the three months ended March 31,2022March 31,2023March 31,2023 RMBRMBUS$(In millions)Electronics and home appliances revenues118,368116,99917,036General merchandise revenues86,04878,56511,440Net product revenues204,416195,56428,476 Marketplace and marketing revenues17,67619,0622,776Logistics and other service revenues17,56328,3304,125Net service revenues35,23947,3926,901 Total net revenues239,655242,95635,377 Conference CallJD.coms management will hold a conference call at 8:00 am,Eastern Time on May 11,2023,(8:00 pm,Beijing/Hong Kong Time on May 11,2023)todiscuss the first quarter of 2023 financial results.Please register in advance of the conference using the link provided below and dial in 15 minutes prior to the call,using participant dial-in numbers,thePasscode and unique access PIN which would be provided upon registering.You will be automatically linked to the live call after completion of thisprocess,unless required to provide the conference ID below due to regional restrictions.PRE-REGISTER LINK:https:/s1.c- ID:10030318A telephone replay will be available for one week until May 18,2023.The dial-in details are as follows:US: 1-855-883-1031International: 61-7-3107-6325Hong Kong:800-930-639Mainland China:400-120-9216Passcode:10030318Additionally,a live and archived webcast of the conference call will also be available on the JD.coms investor relations website at http:/.About JD.comJD.com is a leading supply chain-based technology and service provider.The companys cutting-edge retail infrastructure seeks to enable consumersto buy whatever they want,whenever and wherever they want it.The company has opened its technology and infrastructure to partners,brands andother sectors,as part of its Retail as a Service offering to help drive productivity and innovation across a range of industries.Non-GAAP MeasuresIn evaluating the business,the company considers and uses non-GAAP measures,such as non-GAAP income/(loss)from operations,non-GAAPoperating margin,non-GAAP net income/(loss)attributable to the companys ordinary shareholders,non-GAAP net margin,free cash flow,non-GAAPEBITDA,non-GAAP EBITDA margin,non-GAAP net income/(loss)per share and non-GAAP net income/(loss)per ADS,as supplemental measures toreview and assess operating performance.The presentation of these non-GAAP financial measures is not intended to be considered in isolation or asa substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States ofAmerica(“U.S.GAAP”).The company defines non-GAAP income/(loss)from operations as income/(loss)from operations excluding share-basedcompensation,amortization of intangible assets resulting from assets and business acquisitions,effects of business cooperation arrangements,gainon sale of development properties and impairment of goodwill and intangible assets.The company defines non-GAAP net income/(loss)attributable tothe companys ordinary shareholders as net income/(loss)attributable to the companys ordinary shareholders excluding share-based compensation,amortization of intangible assets resulting from assets and business acquisitions,effects of business cooperation arrangements and non-competeagreements,gain/(loss)on disposals/deemed disposals of investments and others,reconciling items on the share of equity method investments,loss/(gain)from fair value change of long-term investments,impairment of goodwill,intangible assets and investments,gain in relation to sale ofdevelopment properties and tax effects on non-GAAP adjustments.The company defines free cash flow as operating cash flow adjusting the impactfrom JD Baitiao receivables included in the operating cash flow and capital expenditures,net of the proceeds from sale of development properties.Capital expenditures include purchase of property,equipment and software,cash paid for construction in progress,purchase of intangible assets andland use rights.The company defines non-GAAP EBITDA as non-GAAP income/(loss)from operations plus depreciation and amortization excludingamortization of intangible assets resulting from assets and business acquisitions.Non-GAAP basic net income/(loss)per share is calculated bydividing non-GAAP net income/(loss)attributable to the companys ordinary shareholders by the weighted average number of ordinary sharesoutstanding during the periods.Non-GAAP diluted net income/(loss)per share is calculated by dividing non-GAAP net income/(loss)attributable to thecompanys ordinary shareholders by the weighted average number of ordinary shares and dilutive potential ordinary shares outstanding during theperiods,including the dilutive effect of share-based awards as determined under the treasury stock method.Non-GAAP net income/(loss)per ADS isequal to non-GAAP net income/(loss)per share multiplied by two.The company presents these non-GAAP financial measures because they are used by management to evaluate operating performance and formulatebusiness plans.Non-GAAP income/(loss)from operations,non-GAAP net income/(loss)attributable to the companys ordinary shareholders andnon-GAAP EBITDA reflect the companys ongoing business operations in a manner that allows more meaningful period-to-period comparisons.Freecash flow enables management to assess liquidity and cash flow while taking into account the impact from JD Baitiao receivables included in theoperating cash flow and the demands that the expansion of fulfillment infrastructure and technology platform has placed on financial resources.Thecompany believes that the use of the non-GAAP financial measures facilitates investors to understand and evaluate the companys current operatingperformance and future prospects in the same manner as management does,if they so choose.The company also believes that the non-GAAPfinancial measures provide useful information to both management and investors by excluding certain expenses,gain/loss and other items that are notexpected to result in future cash payments or that are non-recurring in nature or may not be indicative of the companys core operating results andbusiness outlook.The non-GAAP financial measures have limitations as analytical tools.The companys non-GAAP financial measures do not reflect all items of incomeand expense that affect the companys operations or not represent the residual cash flow available for discretionary expenditures.Further,thesenon-GAAP measures may differ from the non-GAAP information used by other companies,including peer companies,and therefore theircomparability may be limited.The company compensates for these limitations by reconciling the non-GAAP financial measures to the nearest U.S.GAAP performance measure,all of which should be considered when evaluating performance.The company encourages you to review the companysfinancial information in its entirety and not rely on a single financial measure.CONTACTS:Investor RelationsSean Zhang 86(10)8912-6804IRJD.comMedia Relations 86(10)8911-6155PressJD.comSafe Harbor StatementThis announcement contains forward-looking statements.These statements are made under the“safe harbor”provisions of the U.S.Private SecuritiesLitigation Reform Act of 1995.These forward-looking statements can be identified by terminology such as“will,”“expects,”“anticipates,”“future,”“intends,”“plans,”“believes,”“estimates,”“confident”and similar statements.Among other things,the business outlook and quotations frommanagement in this announcement,as well as JD.coms strategic and operational plans,contain forward-looking statements.JD.com may also makewritten or oral forward-looking statements in its periodic reports to the U.S.Securities and Exchange Commission(the“SEC”),in announcementsmade on the website of the Hong Kong Stock Exchange,in its annual report to shareholders,in press releases and other written materials and in oralstatements made by its officers,directors or employees to third parties.Statements that are not historical facts,including statements about JD.comsbeliefs and expectations,are forward-looking statements.Forward-looking statements involve inherent risks and uncertainties.A number of factorscould cause actual results to differ materially from those contained in any forward-looking statement,including but not limited to the following:JD.coms growth strategies;its future business development,results of operations and financial condition;its ability to attract and retain newcustomers and to increase revenues generated from repeat customers;its expectations regarding demand for and market acceptance of its productsand services;trends and competition in Chinas e-commerce market;changes in its revenues and certain cost or expense items;the expected growthof the Chinese e-commerce market;laws,regulations and governmental policies relating to the industries in which JD.com or its business partnersoperate;potential changes in laws,regulations and governmental policies or changes in the interpretation and implementation of laws,regulations andgovernmental policies that could adversely affect the industries in which JD.com or its business partners operate,including,among others,initiativesto enhance supervision of companies listed on an overseas exchange and tighten scrutiny over data privacy and data security;risks associated withJD.coms acquisitions,investments and alliances,including fluctuation in the market value of JD.coms investment portfolio;impact of the COVID-19pandemic;natural disasters and geopolitical events;change in tax rates and financial risks;intensity of competition;and general market and economicconditions in China and globally.Further information regarding these and other risks is included in JD.coms filings with the SEC and theannouncements on the website of the Hong Kong Stock Exchange.All information provided herein is as of the date of this announcement,and JD.comundertakes no obligation to update any forward-looking statement,except as required under applicable law.JD.com,Inc.Unaudited Interim Condensed Consolidated Balance Sheets(In millions,except otherwise noted)As of December 31,2022March 31,2023March 31,2023 RMBRMBUS$ASSETS Current assets Cash and cash equivalents 78,86174,37310,830Restricted cash 6,2546,397931Short-term investments 141,095122,44017,829Accounts receivable,net(including JD Baitiao of RMB3.1 billion and RMB1.8 billion as ofDecember 31,2022 and March 31,2023,respectively)(1)20,57615,5832,269Advance to suppliers 3,8382,914424Inventories,net 77,94963,2999,217Prepayments and other current assets 15,15614,7622,149Amount due from related parties 6,1425,347779Assets held for sale 1,203Total current assets 351,074305,11544,428Non-current assets Property,equipment and software,net 55,08057,2968,343Construction in progress 11,1619,8051,428Intangible assets,net 9,1398,7981,281Land use rights,net 33,84833,9394,942Operating lease right-of-use assets 22,26721,9833,201Goodwill 23,12323,1233,367Investment in equity investees 57,64157,1218,317Investment securities 11,61110,4761,525Deferred tax assets 1,5361,460213Other non-current assets 18,77021,9203,192Total non-current assets 244,176245,92135,809Total assets 595,250551,03680,237 JD.com,Inc.Unaudited Interim Condensed Consolidated Balance Sheets(In millions,except otherwise noted)As of December 31,2022March 31,2023March 31,2023 RMBRMBUS$LIABILITIES Current liabilities Short-term debts 12,14614,2802,079Accounts payable 160,607121,43217,682Advance from customers 33,71329,9384,359Deferred revenues 3,3512,355343Taxes payable 5,9263,592523Amount due to related parties 48825938Accrued expenses and other current liabilities 42,57044,3616,459Operating lease liabilities 7,6887,9641,160Liabilities held for sale 72Total current liabilities 266,561224,18132,643Non-current liabilities Deferred revenues 1,1071,001146Unsecured senior notes 10,22410,0911,469Deferred tax liabilities 6,5116,344924Long-term borrowings 20,00919,2452,802Operating lease liabilities 14,97814,4932,110Other non-current liabilities 1,7371,676245Total non-current liabilities 54,56652,8507,696Total liabilities 321,127277,03140,339 MEZZANINE EQUITY 59059286 SHAREHOLDERS EQUITY Total JD.com,Inc.shareholders equity(US$0.00002 par value,100,000 million sharesauthorized,3,180 million shares issued and 3,133 million shares outstanding as of March 31,2023)213,366211,50630,798Non-controlling interests 60,16761,9079,014Total shareholders equity 273,533273,41339,812Total liabilities,mezzanine equity and shareholders equity 595,250551,03680,237 (1)JD Technology performs credit risk assessment services for JD Baitiao business and absorbs the credit risk of the underlying Baitiao receivables.Facilitated by JD Technology,the company periodically securitizes Baitiao receivables through the transfer of those assets to securitization plans andderecognizes the related Baitiao receivables through sales type arrangements.JD.com,Inc.Unaudited Interim Condensed Consolidated Statements of Operations(In millions,except per share data)For the three months ended March 31,2022March 31,2023March 31,2023 RMBRMBUS$Net revenues Net product revenues204,416 195,564 28,476 Net service revenues35,239 47,392 6,901 Total net revenues239,655 242,956 35,377 Cost of revenues(206,209)(206,938)(30,133)Fulfillment(15,486)(15,371)(2,237)Marketing(8,705)(8,005)(1,166)Research and development(4,384)(4,186)(610)General and administrative(2,462)(2,501)(364)Gain on sale of development properties 472 69 Income from operations(2)(3)2,409 6,427 936 Other income/(expenses)Share of results of equity investees(1,081)(821)(120)Interest expense(345)(590)(86)Others,net(4)(3,898)2,792 407 Income/(Loss)before tax(2,915)7,808 1,137 Income tax expenses(603)(1,609)(234)Net income/(loss)(3,518)6,199 903 Net loss attributable to non-controlling interests shareholders(532)(62)(9)Net income attributable to mezzanine equity classified as non-controlling interestsshareholders5 Net income/(loss)attributable to the companys ordinary shareholders(2,991)6,261 912 Net income/(loss)per share:Basic(0.96)1.99 0.29 Diluted(0.96)1.96 0.29 Net income/(loss)per ADS:Basic(1.92)3.99 0.58 Diluted(1.92)3.93 0.57 JD.com,Inc.Unaudited Interim Condensed Consolidated Statements of Operations(In millions,except per share data)For the three months ended March 31,2022March 31,2023March 31,2023 RMBRMBUS$(2)Includes share-based compensation expenses as follows:Cost of revenues(32)(37)(5)Fulfillment(227)(199)(29)Marketing(149)(135)(20)Research and development(415)(332)(48)General and administrative(1,028)(771)(113)(3)Includes amortization of business cooperation arrangement and intangible assets resulting from assets and business acquisitions as follows:Fulfillment(73)(105)(15)Marketing(217)(219)(32)Research and development(38)(90)(13)General and administrative(64)(32)(5)(4)Others are other non-operating income/(loss),primarily consist of gains/(losses)from fair value change of long-term investments,gains/(losses)from business and investment disposals,impairment of investments,government incentives,foreign exchange gains/(losses),interest income andgains/(losses)from fair value change of short-term investments.JD.com,Inc.Unaudited Non-GAAP Net Income Per Share and Per ADS(In millions,except per share data)For the three months ended March 31,2022March 31,2023March 31,2023 RMBRMBUS$Non-GAAP net income attributable to the companys ordinary shareholders 4,0327,5911,105 Weighted average number of shares:Basic 3,1163,1393,139Diluted 3,1163,1803,180Diluted(Non-GAAP)3,1883,1803,180 Non-GAAP net income per share:Basic 1.292.420.35Diluted 1.262.380.35 Non-GAAP net income per ADS:Basic 2.594.840.70Diluted 2.534.760.69JD.com,Inc.Unaudited Interim Condensed Consolidated Statements of Cash Flows and Free Cash Flow(In millions)For the three months ended March 31,2022March 31,2023March 31,2023 RMBRMBUS$Net cash used in operating activities(3,485)(21,607)(3,146)Net cash provided by investing activities 4,562 16,692 2,431 Net cash provided by financing activities 12,695 1,255 183 Effect of exchange rate changes on cash,cash equivalents and restricted cash(459)(726)(106)Net increase/(decrease)in cash,cash equivalents and restricted cash 13,313(4,386)(638)Cash,cash equivalents and restricted cash at beginning of period,including cash andcash equivalents classified within assets held for sale 76,693 85,156 12,399 Less:cash,cash equivalents,and restricted cash classified within assets held for sale atbeginning of period (41)(5)Cash,cash equivalents,and restricted cash at beginning of period 76,693 85,115 12,394 Cash,cash equivalents and restricted cash at end of period 90,006 80,770 11,761 Net cash used in operating activities(3,485)(21,607)(3,146)Less:Impact from JD Baitiao receivables included in the operating cash flow(1,734)(582)(85)Less:Capital expenditures,net of related sales proceeds Capital expenditures for development properties(2,676)(2,145)(312)Other capital expenditures(902)(1,068)(156)Free cash flow(8,797)(25,402)(3,699)JD.com,Inc.Supplemental Financial Information and Business Metrics Q1 2022Q2 2022Q3 2022Q4 2022Q1 2023 Free cash flow(in RMB billions)trailing twelve months(“TTM”)27.227.725.835.619.0Inventory turnover days(5)TTM 30.231.531.733.232.4Accounts payable turnover days(6)TTM 45.049.450.452.551.3Accounts receivable turnover days(7)TTM 3.23.64.04.54.8(5)TTM inventory turnover days are the quotient of average inventory over the immediately preceding five quarters,up to and including the lastquarter of the period,to cost of revenues of retail business for the last twelve months,and then multiplied by 360 days.(6)TTM accounts payable turnover days are the quotient of average accounts payable for retail business over the immediately preceding fivequarters,up to and including the last quarter of the period,to cost of revenues of retail business for the last twelve months,and then multiplied by360 days.(7)TTM accounts receivable turnover days are the quotient of average accounts receivable over the immediately preceding five quarters,up to andincluding the last quarter of the period,to total net revenues for the last twelve months and then multiplied by 360 days.Presented are the accountsreceivable turnover days excluding the impact from JD Baitiao.JD.com,Inc.Unaudited Reconciliation of GAAP and Non-GAAP Results(In millions,except percentage data)For the three months ended March 31,2022March 31,2023March 31,2023 RMBRMBUS$Income from operations 2,409 6,427 936 Add:Share-based compensation 1,851 1,474 215 Add:Amortization of intangible assets resulting from assets and business acquisitions 258 336 49 Add:Effects of business cooperation arrangements 134 110 16 Reversal of:Gain on sale of development properties (472)(69)Non-GAAP income from operations 4,652 7,875 1,147 Add:Depreciation and other amortization 1,414 1,624 236 Non-GAAP EBITDA 6,066 9,499 1,383 Total net revenues 239,655 242,956 35,377 Non-GAAP operating margin 1.9%3.2%3.2%Non-GAAP EBITDA margin 2.5%3.9%3.9%JD.com,Inc.Unaudited Reconciliation of GAAP and Non-GAAP Results(In millions,except percentage data)For the three months ended March 31,2022March 31,2023March 31,2023 RMBRMBUS$Net income/(loss)attributable to the companys ordinary shareholders(2,991)6,261 912 Add:Share-based compensation 1,593 1,256 183 Add:Amortization of intangible assets resulting from assets and business acquisitions 198 222 32 Add:Reconciling items on the share of equity method investments(8)389 840 122 Add:Impairment of goodwill,intangible assets,and investments 26 4 Add/(Reversal of):Loss/(Gain)from fair value change of long-term investments 1,234(876)(128)Reversal of:Gain on sale of development properties (364)(53)Add/(Reversal of):Net loss/(gain)on disposals/deemed disposals of investments andothers 3,549(21)(3)Add:Effects of business cooperation arrangements and non-compete agreements 123 110 16(Reversal of)/Add:Tax effects on non-GAAP adjustments(63)137 20 Non-GAAP net income attributable to the companys ordinary shareholders 4,032 7,591 1,105 Total net revenues 239,655 242,956 35,377 Non-GAAP net margin 1.7%3.1%3.1%(8)To exclude the GAAP to non-GAAP reconciling items on the share of equity method investments,and share of amortization of intangibles not ontheir books._1 The U.S.dollar(US$)amounts disclosed in this announcement,except for those transaction amounts that were actually settled in U.S.dollars,arepresented solely for the convenience of the readers.The conversion of Renminbi(RMB)into US$in this announcement is based on the exchange rateset forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System as of March 31,2023,which was RMB6.8676 toUS$1.00.The percentages stated in this announcement are calculated based on the RMB amounts.2 See the sections entitled“Non-GAAP Measures”and“Unaudited Reconciliation of GAAP and Non-GAAP Results”for more information about thenon-GAAP measures referred to in this announcement.3 The numbers also include warehouses managed by Deppon Logistics Co.,Ltd.(“Deppon”,Shanghai Stock Exchange code:603056)and itssubsidiaries(collectively,“Deppon Group”).In the third quarter of 2022,JD Logistics completed the acquisition of the controlling interest in Deppon andbegan to consolidate its financial results.
2023-06-02
11页
5星级
PRESS RELEASE 1 First quarter 2023 results TotalEnergies once again demonstrates its ability to generate strong results in a softening oil&gas price environment As part of its multi-energy strategy,TotalEnergies presents for the first time the results of the Integrated Power segment 12Paris,April 27,2023 The Board of Directors of TotalEnergies SE,chaired by CEO Patrick Pouyann,met on April 26,2023,to approve the first quarter 2023 financial statements.On the occasion,Patrick Pouyann said:“TotalEnergies once again demonstrates its ability to generate strong results,posting in the first quarter 2023 adjusted net income of$6.5 billion,cash flow of$9.6 billion,and return on average capital employed of 25%,in an environment of lower oil and gas prices.IFRS net income was$5.6 billion for the quarter.In an environment with Brent prices averaging$81/b,Exploration&Production generated adjusted net operating income of$2.7 billion and cash flow of$4.9 billion with production growth of 2%compared to the previous quarter*,benefiting in particular from the start-up of gas production on Block 10 in Oman and the acquisition of a 20%interest in the SARB/Umm Lulu oil fields in the United Arab Emirates.Integrated LNG delivered adjusted net operating income and cash flow of$2.1 billion,leveraging its integrated global portfolio,in an environment of European and Asian gas prices returning to levels close to Brent parity at$16-17/Mbtu,given the mild winter and high inventories in Europe.The Company launched this quarter the integrated engineering studies(FEED)on the Papua LNG project,which will contribute to the future growth of the LNG portfolio.The Integrated Power segment generated adjusted net operating income and cash flow of$0.4 billion in the first quarter.ROACE was nearly 10%over 12 months,confirming the Companys ability to profitably grow this business.TotalEnergies closed this quarter the acquisition of a 34%interest in Casa Dos Ventos in Brazil,contributing to the growth of its installed renewable power generation capacity to 18 GW.Downstream posted adjusted net operating income of$1.9 billion and cash flow of$2.2 billion,benefiting from strong refining margins.TotalEnergies announced the sale for 3.1 billion to Alimentation Couche-Tard of its retail networks in Germany and the Netherlands as well as a 40%/60%partnership with them to operate the stations in Belgium and Luxembourg.Given these strong results,the Board of Directors confirmed the increase of 7.25%in the first interim dividend for the 2023 financial year,to 0.74 per share,as well as the repurchase of up to$2 billion of shares in the second quarter of 2023.(1)Definition on page 3.(2)Excluding leases.*Restated for the production related to TotalEnergies stake in Novatek.1Q234Q22Changevs 4Q221Q22Changevs 1Q22 Net income(TotalEnergies share)(B$)5.63.3 70%4.9 12justed net income(TotalEnergies share)(1)-in billions of dollars(B$)6.57.6-13%9.0-27%-in dollars per share2.612.97-12%3.40-23justed EBITDA(1)(B$)14.216.0-11.4-19CF(1)(B$)9.89.4 4.0-19sh Flow from operations(B$)5.15.6-9%7.6-33%Net-debt-to-capital ratio(2)of 11.5%at March 31,2023 vs.7.0%at December 31,2022First 2023 interim dividend set at 0.74/share 2 1.Highlights(3)Social and environmental responsibility Publication of the Sustainability&Climate 2023 Progress Report presenting the progress made on TotalEnergies transformation strategy and the update of its climate ambition TotalEnergies ranked Number 2 in employee share ownership in Europe according to the report of the European Federation of Employee Share Ownership TotalEnergies guarantees customers that its fuel price will not exceed 1.99/l in its stations in France Upstream Acquisition of CEPSAs upstream assets in the United Arab Emirates,representing a share of 50 kboe/d Agreement with the Iraqi Government to move forward with the multi-energy project in Iraq Launch of the Lapa South-West project in Brazil Downstream Sale to Alimentation Couche-Tard of retail networks in Germany and the Netherlands and 40%/60%partnership in Belgium and Luxembourg Agreement with waste recycling company Paprec to develop chemical plastic recycling projects in France Creation of a joint venture with Air Liquide to develop a network of more than 100 hydrogen stations for trucks in Europe Integrated LNG Production start-up on Block 10 and signed a long-term LNG contract for 0.8 Mt/year in Oman Launch of Papua LNG Integrated Engineering Studies in Papua New Guinea Delivery of the first LNG cargo to the Dhamra LNG terminal in India Commissioning of the floating LNG regasification terminal in Lubmin,Germany Authorization by the French and European authorities for the installation of the floating LNG regasification terminal in Le Havre in France Integrated Power Closing of the acquisition of a 34%interest in Casa dos Ventos,leading renewable developer in Brazil Acquisition from Corio Generation a 50%interest(minus 10 shares)in the 600 MW Formosa 3 offshore wind project in Taiwan Signature of renewable power purchase agreements with Sasol and Air Liquide in South Africa Decarbonization&new molecules Acquisition of PGB,Polands leading biogas producer Entry on two permits for the storage of CO2 in the North Sea,Denmark(3)Some of the transactions mentioned in the highlights remain subject to the agreement of the authorities or to the fulfilment of conditions precedent under the terms of the agreements.3 2.Key figures from TotalEnergies consolidated financial statements(4)*Average-$exchange rate:1.0730 in the first quarter 2023,1.0205 in the fourth quarter 2022 and 1.1217 in the first quarter 2022.(4)Adjusted results are defined as income using replacement cost,adjusted for special items,excluding the impact of changes for fair value;adjustment items are on page 19.(5)Adjusted EBITDA(Earnings Before Interest,Tax,Depreciation and Amortization)corresponds to the adjusted earnings before depreciation,depletion and impairment of tangible and intangible assets and mineral interests,income tax expense and cost of net debt,i.e.,all operating income and contribution of equity affiliates to net income.(6)Effective tax rate=(tax on adjusted net operating income)/(adjusted net operating income income from equity affiliates dividends received from investments impairment of goodwill tax on adjusted net operating income).(7)In accordance with IFRS rules,adjusted fully-diluted earnings per share is calculated from the adjusted net income less the interest on the perpetual subordinated bonds.(8)Organic investments=net investments excluding acquisitions,asset sales and other operations with non-controlling interests.(9)Net acquisitions=acquisitions assets sales other transactions with non-controlling interests(see page 21).(10)Net investments=organic investments net acquisitions(see page 21).(11)Operating cash flow before working capital changes,is defined as cash flow from operating activities before changes in working capital at replacement cost,excluding the mark-to-market effect of Integrated LNG and Integrated Power contracts and including capital gains from renewable projects sale.The inventory valuation effect is explained on page 25.The reconciliation table for different cash flow figures is on page 21.(12)DACF=debt adjusted cash flow,is defined as operating cash flow before working capital changes and financial charges.In millions of dollars,except effective tax rate,earnings per share and number of shares1Q234Q221Q23 vs 4Q221Q221Q23vs1Q22Adjusted EBITDA(5)14,16715,997-11,424-19justed net operating income from business segments6,9938,238-15%9,458-26%Exploration&Production2,6533,528-25%5,015-47%Integrated LNG2,0722,408-14%3,133-34%Integrated Power370481-23%(82)nsRefining&Chemicals1,6181,487 9%1,120 44%Marketing&Services280334-162 3%Contribution of equity affiliates to adjusted net income1,0791,873-42%1,861-42fective tax rate(6)41.4A.48.7justed net income(TotalEnergies share)6,5417,561-13%8,977-27justed fully-diluted earnings per share(dollars)(7)2.612.97-12%3.40-23justed fully-diluted earnings per share(euros)*2.432.93-17%3.03-20%Fully-diluted weighted-average shares(millions)2,4792,522-2%2,614-5%Net income(TotalEnergies share)5,5573,264 70%4,944 12%Organic investments(8)3,4333,935-13%1,981 73%Net acquisitions(9)2,987(133)ns922x3.2Net investments(10)6,4203,802 69%2,903x2.2Operating cash flow before working capital changes(11)9,6219,135 5,626-17%Operating cash flow before working capital changes w/o financial charges(DACF)(12)9,7749,361 4,995-19sh flow from operations5,1335,618-9%7,617-33C.Key figures of environment,greenhouse gas emissions and production 3.1 Environment*liquids and gas price realizations,refining margins*The indicators are shown on page 26.*This indicator represents TotalEnergies average margin on variable cost for refining in Europe(equal to the difference between TotalEnergies European refined product sales and crude oil purchases with associated variable costs divided by volumes refined in tons).3.2 Greenhouse gas emissions(13)Estimated 1Q23 emissions.Scope 1 2 emissions from operated installations were down in the first quarter 2023,as a result of the decrease in the use of gas-fired power plants in a context of lower demand in Europe and given the decline in flaring on Exploration&Production facilities.Estimated 1Q23 emissions.(13)The six greenhouse gases in the Kyoto protocol,namely CO2,CH4,N2O,HFCs,PFCs and SF6,with their respective GWP(Global Warming Potential)as described in the 2007 IPCC report.HFCs,PFCs and SF6 are virtually absent from the Companys emissions or are considered as non-material and are therefore not counted.(14)Scope 1 2 GHG emissions of operated facilities are defined as the sum of direct emissions of greenhouse gases from sites or activities that are included in the scope of reporting(as defined in the Companys 2022 Universal Registration Document)and indirect emissions attributable to brought-in energy(electricity,heat,steam),excluding purchased industrial gases(H2).(15)TotalEnergies reports Scope 3 GHG emissions,category 11,which correspond to indirect GHG emissions related to the use by customers of energy products,i.e.,combustion of the products to obtain energy.The Company follows the oil&gas industry reporting guidelines published by IPIECA,which comply with the GHG Protocol methodologies.In order to avoid double counting,this methodology accounts for the largest volume in the oil,biofuels and gas value chains,i.e.,the higher of the two production volumes or sales to end customers.The highest point for each value chain for 2023 will be evaluated considering realizations over the full year,TotalEnergies gradually providing quarterly estimates.1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Brent($/b)81.288.8-92.2-21%Henry Hub($/Mbtu)2.76.1-55%4.6-40%NBP($/Mbtu)16.132.3-502.3-50%JKM($/Mbtu)16.530.5-461.1-47%Average price of liquids($/b)Consolidated subsidiaries73.480.6-9.1-19%Average price of gas($/Mbtu)Consolidated subsidiaries8.8912.74-30.27-28%Average price of LNG($/Mbtu)Consolidated subsidiaries and equity affiliates 13.2714.83-11.60-2%Variable cost margin-Refining Europe,VCM($/t)*87.873.6 19F.3 90%GHG emissions(MtCO2e)1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Scope 1 2 from operated facilities(14)9.110.1-10%9.6-6%of which Oil&Gas7.68.3-8%7.9-4%of which CCGT1.51.8-17%1.7-15%Scope 1 2-equity share12.814.7-13.0-9%Methane emissions(ktCH4)1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Methane emissions from operated facilities911-17-8%Methane emissions-equity share1110 12-7%Scope 3 emissions(MtCO2e)1Q232022Scope 3 from Oil,Biofuels and Gas Worldwide(15)est.903895 3.3 Production*Company production=E&P production Integrated LNG production.Hydrocarbon production was 2,524 thousand barrels of oil equivalent per day(kboe/d)in the first quarter of 2023,up 1%year-on-year(excluding Novatek),comprised of: 4%due to start-ups and ramp-ups,notably Mero 1 in Brazil and Ikike in Nigeria, 1%due to the increase in OPEC production quotas,-1%portfolio effect,notably related to the end of the Bongkot operating licenses in Thailand,the exit from Termokarstovoye and Kharyaga in Russia and the effective withdrawal from Myanmar,partially offset by the entry into the producing fields of Spia and Atapu in Brazil and SARB/Umm Lulu in the United Arab Emirates,as well as the increased participation in the Waha concessions in Libya,-3%due to the natural decline of the fields.Production was up 2%quarter-on-quarter(excluding Novatek),benefiting in particular from the start-up of gas production from Block 10 in Oman,the acquisition of an interest in the SARB/Umm Lulu oil fields in the United Arab Emirates,and the ramp-up of Johan Sverdrup Phase 2 project in Norway.Hydrocarbon production1Q234Q221Q23 vs 4Q221Q221Q23vs1Q22Hydrocarbon production(kboe/d)2,5242,812-10%2,843-11%Oil(including bitumen)(kb/d)1,3981,357 3%1,305 7%Gas(including condensates and associated NGL)(kboe/d)1,1261,455-23%1,538-27%Hydrocarbon production(kboe/d)2,5242,812-10%2,843-11%Liquids(kb/d)1,5621,570-1,527 2%Gas(Mcf/d)5,1916,681-22%7,162-28%Hydrocarbon production excluding Novatek(kboe/d)2,5242,475 2%2,508 1%6 4.Analysis of business segments 4.1 Integrated LNG 4.1.1 Production*The Companys equity production may be sold by TotalEnergies or by the joint ventures.Hydrocarbon production for LNG was up 7%year-on-year(excluding Novatek),due to the restart of Snhvit in Norway during the second quarter 2022.Overall LNG sales in the first quarter of 2023 were down 17%year-on-year,mainly as a result of lower spot volumes,linked to lower demand for LNG in Europe due to the mild winter weather and high inventories.Hydrocarbon production for LNG1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Integrated LNG(kboe/d)463503-8I2-6%Liquids(kb/d)6258 6 3%Gas(Mcf/d)2,1792,420-10%2,349-7%Integrated LNG excluding Novatek(kboe/d)463445 4C3 7%Liquefied Natural Gas in Mt1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Overall LNG sales11.012.7-13.3-17%incl.Sales from equity production*4.04.4-11%4.4-11%incl.Sales by TotalEnergies from equity production and third party purchases9.911.4-14.9-17%7 4.1.2 Results*Detail of adjustment items shown in the business segment information annex to financial statements.*Excluding financial charges,except those related to lease contracts,excluding the impact of contracts recognized at fair value.*Excluding financial charges,except those related to leases.Integrated LNG adjusted net operating income was$2,072 million in the first quarter 2023:down 10%quarter-on-quarter(excluding Novatek),mainly due to lower hydrocarbon prices;down 25%year-on-year(excluding Novatek)due to lower LNG sales and prices,as well as exceptional trading results in the first quarter of 2022.Operating cash flow before working capital changes for Integrated LNG was$2,081 million in the first quarter 2023:down 23%quarter-on-quarter(excluding Novatek),due to lower prices and a lag effect on dividend payments received from equity affiliates;down 16%year-on-year(excluding Novatek),due to lower prices.Cash flow from operations was$3,536 million for the quarter,linked to the positive impact on working capital of the decrease in margin calls and receivables.In millions of dollars1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Adjusted net operating income*2,0722,408-14%3,133-34%including adjusted income from equity affiliates7861,213-35%1,404-44%Organic investments396195x2(61)nsNet acquisitions75919x39.9(20)nsNet investments1,155214x5.4(81)nsOperating cash flow before working capital changes*2,0812,688-23%2,492-16sh flow from operations*3,536134x26.42,219 59%8 4.2 Integrated Power 4.2.1 Capacities,productions,clients and sales(1)Includes 20%of Adani Green Energy Ltds gross capacity effective first quarter 2021,50%of Clearway Energy Groups gross capacity effective third quarter 2022 and 49%of Casa dos Ventos gross capacity effective first quarter 2023.(2)End of period data.(3)Solar,wind,hydroelectric and combined-cycle gas turbine(CCGT)plants.Gross installed renewable power generation capacity was close to 18 GW at the end of the first quarter 2023,up by more than 1 GW quarter-on-quarter,including 0.6 GW from the acquisition of an interest in the Casa dos Ventos portfolio of renewable projects in Brazil and the connection of 0.3 GW from the Seagreen offshore wind project in the UK.Net electricity generation was 8.4 TWh in the quarter:up 10%year-on-year,due to growing electricity generation from renewables,offsetting the lower generation from flexible capacity,down 11%quarter-on-quarter due to lower flexible capacity generation in the context of lower demand,partially offset by growing renewable power generation.Integrated Power1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Portfolio of renewable power generation gross capacity(GW)(1),(2)70.469.0 2F.8 50%o/w installed capacity 17.916.8 7.7 68%o/w capacity in construction 6.26.1 1%6.1 2%o/w capacity in development 46.346.0 10.1 54%Portfolio of renewable power generation net capacity(GW)(2)44.445.5-24.4 29%o/w installed capacity 8.47.7 9%5.4 55%o/w capacity in construction 4.04.1-2%4.2-3%o/w capacity in development 32.033.6-5$.8 29%Gas-fired power generation gross installed capacity(GW)(2)5.85.8-5.8-Gas-fired power generation net installed capacity(GW)(2)4.34.3-4.5-5%Net power production(TWh)(3)8.49.4-11%7.6 10%incl.power production from renewables3.83.3 16%2.2 72%Clients power-BtB and BtC(Million)(2)6.06.1-2%6.1-1%Clients gas-BtB and BtC(Million)(2)2.82.7-2.7 1%Sales power-BtB and BtC(TWh)15.514.6 6.3-5%Sales gas-BtB and BtC(TWh)37.328.1 335.0 7%9 4.2.2 Results*Detail of adjustment items shown in the business segment information annex to financial statements.*Excluding financial charges,except those related to lease contracts,excluding the impact of contracts recognized at fair value for the sector and including capital gains on the sale of renewable projects.*Excluding financial charges,except those related to leases.Excluding margin calls,reported in the Integrated LNG segment since the implementation in 2022 of its centralized management.Integrated Power adjusted net operating income was$370 million in the first quarter 2023:up significantly year-on-year,due to the contribution from gas-fired power plants and the performance of power trading,which offset the impact of seasonality in the power marketing business,down 23%quarter-on-quarter,notably due to the impact of seasonality in the power marketing business.Cash flow from operations was($1,285)million in the first quarter 2023,mainly due to the negative impact on working capital of the seasonality of the power&gas marketing business(gap between a seasonal monthly cost of supply and a fixed monthly B2C clients payment estimated on the year-n-1 consumption).In millions of dollars1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Adjusted net operating income*370481-23%(82)nsincluding adjusted income from equity affiliates5688-36&x2.2Organic investments577455 2719 81%Net acquisitions519(230)ns661-22%Net investments1,096225x4.9980 12%Operating cash flow before working capital changes*440439-93x4.7Cash flow from operations*(1,285)861ns(1,904)ns10 4.3 Exploration&Production 4.3.1 Production 4.3.2 Results*Details on adjustment items are shown in the business segment information annex to financial statements.*Tax on adjusted net operating income/(adjusted net operating income-income from equity affiliates-dividends received from investments-impairment of goodwill tax on adjusted net operating income).*Excluding financial charges,except those related to leases.Exploration&Production adjusted net operating income was$2,653 million in the first quarter 2023:down 22%quarter-on-quarter(excluding Novatek),due to lower oil and gas prices,down 45%year-on-year(excluding Novatek)for the same reasons,as well as higher taxation,particularly in the UK.Operating cash flow before working capital changes in the first quarter 2023 was$4,907 million,down 3%quarter-on-quarter(excluding Novatek),reflecting lower gas and oil prices in the first quarter 2023 and exceptional taxes during the fourth quarter 2022,notably taxes related to the European solidarity contribution.Hydrocarbon production1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22EP(kboe/d)2,0612,309-11%2,351-12%Liquids(kb/d)1,5001,512-1%1,467 2%Gas(Mcf/d)3,0124,261-29%4,813-37%EP excluding Novatek(kboe/d)2,0612,030 2%2,075-1%In millions of dollars,except effective tax rate1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Adjusted net operating income*2,6533,528-25%5,015-47%including adjusted income from equity affiliates135316-5755-62fective tax rate*57.1T.4G.0%Organic investments2,1342,219-4%1,426 50%Net acquisitions1,938105x18.5316x6.1Net investments 4,0722,324 75%1,742x2.3Operating cash flow before working capital changes*4,9074,988-2%7,303-33sh flow from operations*4,5364,035 12%5,768-21 4.4 Downstream(Refining&Chemicals and Marketing&Services)4.4.1 Results*Detail of adjustment items shown in the business segment information annex to financial statements.*Excluding financial charges,except those related to leases.4.5 Refining&Chemicals 4.5.1 Refinery and petrochemicals throughput and utilization rates*Includes refineries in Africa reported in the Marketing&Services segment.*Based on distillation capacity at the beginning of the year.*Olefins.*Based on olefins production from steam crackers and their treatment capacity at the start of the year.Refined volumes were up 6%year-on-year,notably due to the restart of the Donges refinery in France in the second quarter 2022.Petrochemical production was down 8%year-on-year for monomers and 13%for polymers,due to slowing global demand.In millions of dollars1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Adjusted net operating income*1,8981,821 4%1,392 36%Organic investments2901,023-72)2-1%Net acquisitions(229)(28)ns(34)nsNet investments61995-94%8-76%Operating cash flow before working capital changes*2,1891,681 30%1,896 15sh flow from operations*(1,524)939ns2,005nsRefinery throughput and utilization rate*1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Total refinery throughput(kb/d)1,4031,389 1%1,317 6%France357312 14%2 42%Rest of Europe596580 35-1%Rest of world450497-10F0-2%Utlization rate based on crude only*78wt%Petrochemicals production and utilization rate1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Monomers*(kt)1,2951,095 18%1,404-8%Polymers (kt)1,111917 21%1,274-13%Steamcracker utilization rate*75f 4.5.2 Results*Detail of adjustment items shown in the business segment information annex to financial statements.*Excluding financial charges,except those related to leases.Refining&Chemicals adjusted net operating income was$1,618 million in the first quarter 2023:up 9%quarter-on-quarter,due to strong margins,up 44%year-on-year for the same reason as well as higher refined volumes.Operating cash flow before working capital changes was$1,733 million in the first quarter of 2023,up 51%quarter-on-quarter,taking into account the fourth quarter 2022 negative impact of the European solidarity contribution for refining activities of$0.7 billion.Cash flow from operations was($851)million in the first quarter of 2023,due to the negative impact on working capital of an increase in inventories linked to strikes in France in March.In millions of dollars1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Adjusted net operating income*1,6181,487 9%1,120 44%Organic investments198585-667 1%Net acquisitions5(5)ns-nsNet investments203580-657 3%Operating cash flow before working capital changes*1,7331,144 51%1,433 21sh flow from operations*(851)232ns1,107ns13 4.6 Marketing&Services 4.6.1 Petroleum product sales*Excludes trading and bulk refining sales.In the first quarter 2023,sales of petroleum products were down 6%quarter-on-quarter and year-on-year,due to lower industrial demand in Europe linked to higher prices for petroleum products,partially offset by the recovery in aviation activities.4.6.2 Results*Detail of adjustment items shown in the business segment information annex to financial statements.*Excluding financial charges,except those related to leases.Marketing&Services adjusted net operating income was$280 million in the first quarter 2023,up 3%year-on-year,mainly thanks to the strong performance of the retail network activities.Cash flow from operations was($673)million in the first quarter of 2023,due to the negative impact of lower prices on working capital.Sales in kb/d*1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Total Marketing&Services sales1,3601,450-6%1,452-6%Europe757816-7y0-4%Rest of world602634-5f2-9%In millions of dollars1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Adjusted net operating income*280334-162 3%Organic investments92438-79-3%Net acquisitions(234)(23)ns(34)nsNet investments(142)415ns61nsOperating cash flow before working capital changes*456537-15F3-2sh flow from operations*(673)707ns898ns145.TotalEnergies results 5.1 Adjusted net operating income from business segments Adjusted net operating income from business segments was$6,993 million in the first quarter 2023,compared to$9,458 million in the first quarter of 2022,mainly due to lower oil and gas prices.5.2 Adjusted net income(TotalEnergies share)TotalEnergies adjusted net income was$6,541 million in the first quarter 2023 versus$8,977 million in the first quarter of 2022,mainly due to lower oil and gas prices.Adjusted net income excludes the after-tax inventory effect,special items and the impact of changes in fair value(16).Adjustments to net income(17)were($984)million in the first quarter 2023,consisting mainly of:($0.4)billion of inventory effect,($0.4)billion effects of changes in fair value,($0.2)billion related to the impacts of the European solidarity contribution and the inframarginal income contribution in France.TotalEnergies average tax rate of 41.4%in the first quarter 2023 was stable compared to the previous quarter,versus 38.7%in the first quarter 2022,mainly as a result of the higher tax rate for Exploration&Production,related notably to the Energy Profits Levy in the UK.5.3 Adjusted earnings per share Adjusted diluted net earnings per share were$2.61 in the first quarter 2023,based on 2,479 million weighted average diluted shares,compared to$3.40 a year earlier.As of March 31,2023,the number of diluted shares was 2,468 million.As part of its shareholder return policy,TotalEnergies repurchased 32.2 million shares for cancellation in the first quarter of 2023 for$2 billion.5.4 Acquisitions-asset sales Acquisitions were$3,256 million in the first quarter 2023,notably for:the acquisition of a 20%interest in the SARB/Umm Lulu concession in the United Arab Emirates,payments related to the acquisition of a 6.25%stake in the NFE LNG project in Qatar,a 34%stake in a joint venture with Casa dos Ventos in Brazil.Divestments were$269 million in the first quarter 2023,mainly related to the sale of 50%of the Marketing&Services subsidiary in Egypt.5.5 Net cash flow TotalEnergies net cash flow(18)was$3,201 million in the first quarter 2023 compared to$8,723 million a year earlier,given the$2,005 million decrease in cash flow and the$3,517 million increase in net investments to$6,420 million this quarter.In the first quarter,cash flow from operations was$5,133 million compared to$9,621 million of operating cash flow before working capital changes,reflecting the$4.5 billion increase in working capital requirements,mainly due to the effects of lower prices on tax and trade payables,higher crude and petroleum product inventories notably due to the strikes in France,and the seasonality of the gas and power marketing business.(16)These adjustment elements are explained page 25.(17)Total net income adjustment items are detailed page 19 as well as in the annexes to the accounts.(18)Net cash flow=operating cash flow before working capital changes-net investments(including other transactions with non-controlling interest).15 5.6 Profitability Return on equity was 29.7%for the twelve months ended March 31,2023.Return on average capital employed was 25.4%for the twelve months ended March 31,2023.6.TotalEnergies SE statutory accounts Net income for TotalEnergies SE,the parent company,amounted to 2,189 million in the first quarter 2023,compared to 1,035 million in the first quarter 2022.7.Annual 2023 Sensitivities*Sensitivities are revised once per year upon publication of the previous years fourth quarter results.Sensitivities are estimates based on assumptions about TotalEnergies portfolio in 2023.Actual results could vary significantly from estimates based on the application of these sensitivities.The impact of the$-sensitivity on adjusted net operating income is essentially attributable to Refining&Chemicals.*In a 80$/b Brent environment.Adjusted net incomeAverage adjusted shareholders equityReturn on equity(ROE)29.72.5!.8%In millions of dollarsApril 1,2022January 1,2022April 1,2021March 31,2022March 31,2023December 31,202224,382111,79434,21936,657115,233112,831Adjusted net operating incomeAverage capital employedROACE35,71238,21225,803In millions of dollarsApril 1,2022January 1,2022April 1,2021March 31,2023December 31,2022March 31,2022140,842135,312143,51725.4(.2.0%ChangeEstimated impact on adjustednet operating incomeEstimated impact on cash flow from operationsDollar /-0.1$per-/ 0.1 B$0 B$Average liquids price* /-10$/b /-2.5 B$ /-3.0 B$European gas price-NBP/TTF /-2$/Mbtu /-0.4 B$ /-0.4 B$Variable cost margin,European refining(VCM) /-10$/t /-0.4 B$ /-0.5 B$16 8.Outlook After briefly falling below$75/b in mid-March,oil prices rose above$80/b in April,notably due to the decision by some OPEC countries to reduce their production quotas to stabilize a market marked by fears of financial crisis and recession.After several quarters of exceptionally high diesel cracks,European refining margins are easing down because of lower economic growth expectations and high products inventories fueled by Chinese exports and the quicker than anticipated reorganization of Russian flows following the European embargo.Demand for petroleum products could be supported in the coming weeks by the entry into the driving season in the US for gasoline,as well as the global recovery of air traffic for aviation fuel.Given the evolution of oil and gas prices in recent months and the lag effect on price formulas,TotalEnergies anticipates that its average LNG selling price should be between$10-12/Mbtu in the second quarter 2023.Given the high inventory levels at the end of winter,European and Asian gas prices are expected to remain stable in the second quarter before rebounding in the second half 2023,driven by restocking gas in Europe before winter and the demand recovery in China,in a context of limited LNG production growth.Futures markets anticipate prices in the range of$18/Mbtu for winter 2023-24.For the second quarter 2023,TotalEnergies anticipates a hydrocarbon production around 2.5 Mboe/d,LNG sales that should benefit from the restart of Freeport LNG and a utilization rate in refineries up to more than 80%given the end of strikes in France.The Company confirms its guidance for net investments between$16-18 billion in 2023,including$5 billion in low-carbon energies.*To listen to the conference call with CEO Patrick Pouyann and CFO Jean-Pierre Sbraire today at 13:30(Paris time),please log on to or dial 44(0)121 281 8004 or 1(718)705-8796.The conference replay will be available on the Companys website after the event.*TotalEnergies contacts Media Relations: 33(0)1 47 44 46 99 l l TotalEnergiesPRInvestor Relations: 33(0)1 47 44 46 46 l 17 9.Operating information by segment 9.1 Companys production(Exploration&Production Integrated LNG)Combined liquids and gasproduction by region(kboe/d)1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Europe583918-379-39rica494477 4I8-1%Middle East and North Africa718703 2g0 7%Americas441442-386 14%Asia-Pacific288272 630-13%Total production2,5242,812-10%2,843-11%includes equity affiliates344670-49q5-52%Liquids production by region(kb/d)1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Europe235282-17)8-21rica371358 471-Middle East and North Africa578565 2S8 7%Americas263259 2 1 31%Asia-Pacific116106 99-3%Total production1,5621,570-1,527 2%includes equity affiliates150199-24!0-29%Gas production by region(Mcf/d)1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Europe1,8793,412-45%3,557-47rica615592 4d3-4%Middle East and North Africa772745 4r7 6%Americas9941,030-3%1,041-5%Asia-Pacific931902 3%1,194-22%Total production5,1916,681-22%7,162-28%includes equity affiliates1,0542,535-58%2,714-61 9.2 Downstream(Refining&Chemicals and Marketing&Services)*Olefins,polymers.9.3 Renewables(1)Includes 20%of the gross capacities of Adani Green Energy Limited,50%of Clearway Energy Group and,from 1Q23,49%of Casa dos Ventos.(2)End-of-period data.Petroleum product sales by region(kb/d)1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Europe1,7361,665 4%1,635 6rica667743-10v1-12%Americas849740 15w5 9%Rest of world623558 12S1 17%Total consolidated sales3,8753,706 5%3,701 5%Includes bulk sales387388-409-5%Includes trading2,1271,868 14%1,840 16%Petrochemicals production*(kt)1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Europe1,047835 25%1,260-17%Americas607477 27c8-5%Middle East and Asia753700 7x1-4%Installed power generation gross capacity(GW)(1),(2)SolarOnshore WindOffshore WindOther Total SolarOnshore WindOffshore WindOtherTotal France0.80.60.00.21.50.80.60.00.11.5Rest of Europe0.21.10.50.01.80.21.10.30.01.6Africa 0.10.00.00.00.20.10.00.00.00.1Middle East 1.20.00.00.01.21.20.00.00.01.2North America3.02.10.00.15.12.92.10.00.15.1South America0.40.90.00.01.30.40.30.00.00.7India5.00.40.00.05.44.90.40.00.05.3Asia-Pacific1.30.00.10.01.51.20.00.10.01.4Total 12.05.00.70.317.911.74.50.40.216.8Power generation gross capacity from renewables in construction(GW)(1),(2)SolarOnshore WindOffshore WindOther Total SolarOnshore WindOffshore WindOther Total France0.20.10.00.00.40.20.10.00.10.4Rest of Europe0.10.00.60.00.70.10.00.90.01.0Africa 0.00.00.00.00.00.00.00.00.00.0Middle East 0.00.00.00.00.00.00.00.00.00.0North America2.70.10.00.53.42.60.00.00.53.1South America0.10.60.00.00.70.00.00.00.00.0India0.40.10.00.00.50.80.20.00.01.0Asia-Pacific0.00.00.50.00.60.10.00.50.00.6Total 3.60.91.20.56.23.80.31.40.66.1Power generation gross capacity from renewables in development(GW)(1),(2)SolarOnshore WindOffshore WindOther Total SolarOnshore WindOffshore WindOther Total France0.90.20.00.01.21.60.40.00.02.0Rest of Europe3.60.44.40.18.43.80.44.40.18.6Africa 0.70.30.00.11.10.60.10.00.10.9Middle East 0.50.00.00.00.50.60.00.00.00.6North America10.72.84.14.522.110.83.44.14.122.4South America1.30.50.00.01.80.81.10.00.22.0India4.60.20.00.04.84.40.10.00.04.5Asia-Pacific2.40.42.90.76.42.20.12.30.45.0Total 24.74.811.45.446.324.85.510.84.946.01Q234Q221Q234Q221Q234Q2219 10.Adjustment items to net income(TotalEnergies share)In millions of dollars1Q234Q221Q22Special items affecting net income(TotalEnergies share)(159)(5,585)(4,993)Gain(loss)on asset sales203-Restructuring charges-(14)(3)Impairments(60)(3,845)(5,061)Other(302)(1,726)71After-tax inventory effect:FIFO vs.replacement cost(391)(705)1,040Effect of changes in fair value(434)1,993(80)Total adjustments affecting net income(984)(4,297)(4,033)20 11.Reconciliation of adjusted EBITDA with consolidated financial statements 11.1 Reconciliation of net income(TotalEnergies share)to adjusted EBITDA 11.2 Reconciliation of revenues from sales to adjusted EBITDA and net income(TotalEnergies share)In millions of dollars1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Net income-TotalEnergies share5,5573,264 70%4,944 12%Less:adjustment items to net income(TotalEnergies share)984 4,297-77%4,033-76justed net income-TotalEnergies share6,541 7,561-13%8,977-27justed itemsAdd:non-controlling interests74 210-65v-3d:income taxes4,090 4,530-10%4,724-13d:depreciation,depletion and impairment of tangible assets and mineral interests3,026 3,204-6%3,148-4d:amortization and impairment of intangible assets99 111-11 3d:financial interest on debt710 719-1F2 54%Less:financial income and expense from cash&cash equivalents(373)(338)ns(59)nsAdjusted EBITDA14,167 15,997-11,424-19%In millions of dollars1Q234Q221Q23 vs 4Q221Q221Q23 vs 1Q22Adjusted itemsRevenues from sales58,309 63,884-9c,938-9%Purchases,net of inventory variation(37,479)(42,755)ns(40,762)nsOther operating expenses(7,752)(7,027)ns(7,409)nsExploration costs(94)(250)ns(136)nsOther income77 636-881-36%Other expense,excluding amortization and impairment of intangible assets(38)(480)ns(173)nsOther financial income248 266-79 x2.1Other financial expense(183)(150)ns(135)nsNet income(loss)from equity affiliates1,079 1,873-42%1,861-42justed EBITDA14,167 15,997-11,424-19justed itemsLess:depreciation,depletion and impairment of tangible assets and mineral interests(3,026)(3,204)ns(3,148)nsLess:amortization of intangible assets(99)(111)ns(96)nsLess:financial interest on debt(710)(719)ns(462)nsAdd:financial income and expense from cash&cash equivalents373 338 10Y x6.3Less:income taxes(4,090)(4,530)ns(4,724)nsLess:non-controlling interests(74)(210)ns(76)nsAdd:adjustment-TotalEnergies share(984)(4,297)ns(4,033)nsNet income-TotalEnergies share5,557 3,264 70%4,944 12! 12.Investments-Divestments*Change in debt from renewable projects(TotalEnergies share and partner share).13.Cash flow*Operating cash flow before working capital changes,is defined as cash flow from operating activities before changes in working capital at replacement cost,excluding the mark-to-market effect of Integrated LNG and Integrated Power sectors contracts and including capital gain from renewable projects sale.Historical data have been restated to cancel the impact of fair valuation of Integrated LNG and Integrated Power sectors contracts.*Changes in working capital are presented excluding the mark-to-market effect of Integrated LNG and Integrated Power sectors contracts.In millions of dollars1Q234Q221Q23 vs 4Q221Q221Q23vs1Q22Organic investments(a)3,4333,935-13%1,981 73pitalized exploration205 287-294 80%Increase in non-current loans374 210 78#4 60%Repayment of non-current loans,excluding organic loan repayment from equity affiliates(229)(259)ns(435)nsChange in debt from renewable projects(TotalEnergies share)-(124)-100%-nsAcquisitions(b)3,256 292 x11.21,400 x2.3Asset sales(c)269 425-37G8-44%Change in debt from renewable projects(partner share)(3)109 ns(2)nsNet acquisitions2,987(133)ns922 x3.2Net investments(a b-c)6,420 3,802 69%2,903 x2.2Other transactions with non-controlling interests(d)-50-100%-nsOrganic loan repayment from equity affiliates(e)6(335)ns(487)nsChange in debt from renewable projects financing*(f)(3)233 ns(2)nsCapex linked to capitalized leasing contracts(g)60 61-26 67%Expenditures related to carbon credits(h)1 8-88%-nsCash flow used in investing activities(a b-c d e f-g-h)6,362 3,681 73%2,378 x2.7In millions of dollars1Q234Q221Q23 vs 4Q221Q221Q23vs1Q22Operating cash flow before working capital changes w/o financial charges(DACF)9,774 9,361 4,995-19%Financial charges(153)(226)ns(369)nsOperating cash flow before working capital changes(a)*9,621 9,135 5,626-17%(Increase)decrease in working capital*(3,989)(2,247)ns(4,775)nsInventory effect(502)(895)ns1,255 nsCapital gain from renewable project sales(3)(40)ns(2)nsOrganic loan repayments from equity affiliates6(335)ns(487)nsCash flow from operations5,133 5,618-9%7,617-33%Organic investments(b)3,433 3,935-13%1,981 73%Free cash flow after organic investments,w/o net asset sales(a-b)6,188 5,200 19%9,645-36%Net investments(c)6,420 3,802 69%2,903 x2.2Net cash flow(a-c)3,201 5,333-40%8,723-63 14.Gearing ratio(1)Excludes leases receivables and leases debts.(2)Including initial margins held as part of the Companys activities on organized markets.15.Return on average capital employedTwelve months ended March 31,2023 Full year 2022*At replacement cost(excluding after-tax inventory effect).In millions of dollars03/31/202312/31/202303/31/2022Current borrowings(1)16,28014,06516,759Other current financial liabilities597488502Current financial assets(1),(2)(7,223)(8,556)(7,231)Net financial assets classified as held for sale(38)(38)(38)Non-current financial debt(1)34,82036,98738,924Non-current financial assets(1)(1,101)(1,303)(587)Cash and cash equivalents(27,985)(33,026)(31,276)Net debt(a)15,3508,61717,053Shareholders equity-TotalEnergies share115,581111,724116,480Non-controlling interests2,8632,8463,375Shareholders equity(b)118,444114,570119,855Net-debt-to-capital ratio=a/(a b)11.5%7.0.5%Leases(c)8,1318,0968,028Net-debt-to-capital ratio including leases(a c)/(a b c)16.5.7.3%In millions of dollarsIntegrated LNGIntegrated PowerExploration&ProductionRefining&ChemicalsMarketing&ServicesCompanyAdjusted net operating income10,1081,42715,1177,8001,55835,712Capital employed at 03/31/2022*44,8039,93771,5188,8477,751141,853Capital employed at 03/31/2023*34,18318,98267,65810,1158,811139,830ROACE25.6%9.9!.7.3.8%.4%In millions of dollarsIntegrated LNGIntegrated PowerExploration&ProductionRefining&ChemicalsMarketing&ServicesCompanyAdjusted net operating income11,16997517,4797,3021,55038,212Capital employed at 12/31/2021*46,6549,32471,6758,0698,783141,813Capital employed at 12/31/2022*33,67116,22565,7847,4387,593128,811ROACE27.8%7.6%.4.2.9(.2# 16.Restated key figures for 2021 and 2022 for Integrated LNG and Integrated Power segments16.1 Integrated LNG 16.1.1 Operational data*The Companys equity production may be sold by TotalEnergies or by the joint-ventures.16.1.2 Restated key figures Including the centralized management of balance sheet positions(including margin calls)related to single market access for LNG,gas and power activities since 2022.Effects of changes in fair value in gas and LNG positions are allocated to the operating income of Integrated LNG sector Effects of changes in fair value in power positions are allocated to the operating income of Integrated Power sector.*Excluding financial charges,except those related to lease contracts,excluding the impact of contracts recognized at fair value for the sector.*Excluding financial charges,except those related to leases.Hydrocarbon production for LNG202120221Q222Q223Q224Q22Integrated LNG(kboe/d)529469492462418503Liquids(kb/d)635360534058Gas(Mcf/d)2,5412,2672,3492,2332,0672,420Liquefied Natural Gas in Mt202120221Q222Q223Q224Q22Overall LNG sales42.048.113.311.710.412.7incl.Sales from equity production*17.417.04.44.14.04.4incl.Sales by TotalEnergies from equity production and third party purchases35.142.811.910.29.211.4In millions of dollars202120221Q222Q223Q224Q22Adjusted net operating income5,59111,1693,1332,2153,4132,408including adjusted income from equity affiliates2,6595,6371,4041,1921,8281,213Organic investments2,061519(61)171213195Net acquisitions(910)(47)(20)(36)(10)19Net investments1,151472(81)135203214Operating cash flow before working capital changes*5,4049,7842,4922,1122,4922,688Cash flow from operations*(2,765)9,6042,2193,8023,449134Capital employed end of period46,65433,67144,80341,60637,74233,67124 16.2 Integrated Power 16.2.1 Operational data(1)Includes 20%of Adani Green Energy Ltds gross capacity effective first quarter 2021.(2)Includes 50%of Clearway Energy Groups gross capacity effective third quarter 2022.(3)End of period data.(4)Solar,wind,hydroelectric and combined-cycle gas turbine(CCGT)plants.16.2.2 Restated key figures Excluding the centralized management of balance sheet positions(including margin calls)related to single market access for LNG,gas and power activities since 2022.Effects of changes in fair value in gas and LNG positions are allocated to the operating income of Integrated LNG sector Effects of changes in fair value in power positions are allocated to the operating income of Integrated Power sector.*Excluding financial charges,except those related to lease contracts,excluding the impact of contracts recognized at fair value for the sector and including capital gains on the sale of renewable projects.*Excluding financial charges,except those related to leases.Integrated Power202120221Q222Q223Q224Q22Portfolio of renewable power generation gross capacity(GW)(1),(2),(3)43.069.046.850.767.869.0o/w installed capacity 10.316.810.711.616.016.8o/w capacity in construction 6.56.16.15.25.46.1o/w capacity in development 26.246.030.133.946.446.0Portfolio of renewable power generation net capacity(GW)(3)31.745.534.438.445.245.5o/w installed capacity 5.17.75.45.87.47.7o/w capacity in construction 4.64.14.23.73.54.1o/w capacity in development 22.033.624.828.934.233.6Gas-fired power generation gross installed capacity(GW)(3)5.85.85.85.85.85.8Gas-fired power generation net installed capacity(CCGT)(GW)(3)4.54.34.54.34.34.3Net power production(TWh)(4)21.233.27.67.78.59.4incl.power production from renewables6.810.42.22.52.43.3Clients power-BtB and BtC(Million)(3)6.16.16.16.26.36.1Clients gas-BtB and BtC(Million)(3)2.72.72.72.72.82.7Sales power-BtB and BtC(TWh)56.655.316.312.312.114.6Sales gas-BtB and BtC(TWh)101.296.335.019.114.228.1In millions of dollars202120221Q222Q223Q224Q22Adjusted net operating income652975(82)340236481including adjusted income from equity affiliates3720126276088Organic investments1,2801,385319170440455Net acquisitions2,0752,136661(22)1,728(230)Net investments3,3553,5219801482,168225Operating cash flow before working capital changes*72097093248191439Cash flow from operations*3,59266(1,904)168941861Capital employed end of period9,32416,2259,93712,56817,18116,22525 Disclaimer:The terms“TotalEnergies”,“TotalEnergies company”and“Company”in this document are used to designate TotalEnergies SE and the consolidated entities directly or indirectly controlled by TotalEnergies SE.Likewise,the words“we”,“us”and“our”may also be used to refer to these entities or their employees.The entities in which TotalEnergies SE directly or indirectly owns a shareholding are separate and independent legal entities.This press release presents the results for the first quarter 2023 from the consolidated financial statements of TotalEnergies SE as of March 31,2023(unaudited).The limited review procedures by the Statutory Auditors are underway.The notes to the consolidated financial statements(unaudited)are available on the website .This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995,notably with respect to the financial condition,results of operations,business activities and industrial strategy of TotalEnergies.This document may also contain statements regarding the perspectives,objectives,areas of improvement and goals of TotalEnergies,including with respect to climate change and carbon neutrality(net zero emissions).An ambition expresses an outcome desired by TotalEnergies,it being specified that the means to be deployed do not depend solely on TotalEnergies.These forward-looking statements may generally be identified by the use of the future or conditional tense or forward-looking words such as“envisions”,“intends”,“anticipates”,“believes”,“considers”,“plans”,“expects”,“thinks”,“targets”,“aims”or similar terminology.Such forward-looking statements included in this document are based on economic data,estimates and assumptions prepared in a given economic,competitive and regulatory environment and considered to be reasonable by TotalEnergies as of the date of this document.These forward-looking statements are not historical data and should not be interpreted as assurances that the perspectives,objectives or goals announced will be achieved.They may prove to be inaccurate in the future,and may evolve or be modified with a significant difference between the actual results and those initially estimated,due to the uncertainties notably related to the economic,financial,competitive and regulatory environment,or due to the occurrence of risk factors,such as,notably,the price fluctuations in crude oil and natural gas,the evolution of the demand and price of petroleum products,the changes in production results and reserves estimates,the ability to achieve cost reductions and operating efficiencies without unduly disrupting business operations,changes in laws and regulations including those related to the environment and climate,currency fluctuations,as well as economic and political developments,changes in market conditions,loss of market share and changes in consumer preferences,or pandemics such as the COVID-19 pandemic.Additionally,certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto.Neither TotalEnergies SE nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement,objectives or trends contained in this document whether as a result of new information,future events or otherwise.The information on risk factors that could have a significant adverse effect on TotalEnergies business,financial condition,including its operating income and cash flow,reputation,outlook or the value of financial instruments issued by TotalEnergies is provided in the most recent version of the Universal Registration Document which is filed by TotalEnergies SE with the French Autorit des Marchs Financiers and the annual report on Form 20-F filed with the United States Securities and Exchange Commission(“SEC”).Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TotalEnergies.In addition to IFRS measures,certain alternative performance indicators are presented,such as performance indicators excluding the adjustment items described below(adjusted operating income,adjusted net operating income,adjusted net income),return on equity(ROE),return on average capital employed(ROACE),gearing ratio,operating cash flow before working capital changes,the shareholder rate of return.These indicators are meant to facilitate the analysis of the financial performance of TotalEnergies and the comparison of income between periods.They allow investors to track the measures used internally to manage and measure the performance of TotalEnergies.These adjustment items include:(i)Special items Due to their unusual nature or particular significance,certain transactions qualified as special items are excluded from the business segment figures.In general,special items relate to transactions that are significant,infrequent or unusual.However,in certain instances,transactions such as restructuring costs or asset disposals,which are not considered to be representative of the normal course of business,may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years.(ii)Inventory valuation effect The adjusted results of the Refining&Chemicals and Marketing&Services segments are presented according to the replacement cost method.This method is used to assess the segments performance and facilitate the comparability of the segments performance with those of TotalEnergies principal competitors.In the replacement cost method,which approximates the LIFO(Last-In,First-Out)method,the variation of inventory values in the statement of income is,depending on the nature of the inventory,determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value.The inventory valuation effect is the difference between the results according to the FIFO(First-In,First-Out)and the replacement cost.(iii)Effect of changes in fair value The effect of changes in fair value presented as an adjustment item reflects,for some transactions,differences between internal measures of performance used by TotalEnergies management and the accounting for these transactions under IFRS.IFRS requires that trading inventories be recorded at their fair value using period-end spot prices.In order to best reflect the management of economic exposure through derivative transactions,internal indicators used to measure performance include valuations of trading inventories based on forward prices.TotalEnergies,in its trading activities,enters into storage contracts,whose future effects are recorded at fair value in TotalEnergies internal economic performance.IFRS precludes recognition of this fair value effect.Furthermore,TotalEnergies enters into derivative instruments to risk manage certain operational contracts or assets.Under IFRS,these derivatives are recorded at fair value while the underlying operational transactions are recorded as they occur.Internal indicators defer the fair value on derivatives to match with the transaction occurrence.The adjusted results(adjusted operating income,adjusted net operating income,adjusted net income)are defined as replacement cost results,adjusted for special items,excluding the effect of changes in fair value.Euro amounts presented for the fully adjusted-diluted earnings per share represent dollar amounts converted at the average euro-dollar(-$)exchange rate for the applicable period and are not the result of financial statements prepared in euros.Cautionary Note to U.S.Investors The SEC permits oil and gas companies,in their filings with the SEC,to separately disclose proved,probable and possible reserves that a company has determined in accordance with SEC rules.We may use certain terms in this press release,such as“potential reserves”or“resources”,that the SECs guidelines strictly prohibit us from including in filings with the SEC.U.S.investors are urged to consider closely the disclosure in the Form 20-F of TotalEnergies SE,File N 1-10888,available from us at 2,place Jean Millier Arche Nord Coupole/Regnault-92078 Paris-La Dfense Cedex,France,or at our website .You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SECs website sec.gov.26 First Quarter 2023:Main Indicators Paris,April 18,2023 The main indicators,estimated financial information and key elements impacting TotalEnergies first quarter 2023 aggregates are shown below:*Sales in$/Sales in volume for consolidated affiliates.*Sales in$/Sales in volume for consolidated and equity affiliates.*This indicator represents the average margin on variable costs realized by TotalEnergies European refining business(equal to the difference between the sales of refined products realized by TotalEnergies European refining and the crude purchases as well as associated variable costs,divided by refinery throughput in tons).(1)Does not take include oil,gas and LNG trading activities,respectively.Main elements impacting the quarter aggregates Hydrocarbon production is expected to exceed 2.5 Mboe/d this quarter,up by close to 50 kboe/d compared to the previous quarter*,benefiting in particular from the start-up of gas production on Block 10 in Oman and the acquisition of an interest in the SARB/Umm Lulu oil fields in the United Arab Emirates.Besides the effect of the deconsolidation of Novatek as of January 1,2023,the results of the Integrated LNG segment,while remaining very significant,will be impacted by the lower demand for LNG in Europe due to the mild winter weather and high inventory levels.Refining&Chemicals results are expected to be higher given the sustained refining margins during the quarter.To be recalled that TotalEnergies will publish the results of the Integrated LNG and Integrated Power segments separately on April 27,2023 and will provide on that occasion the restatement of the annual 2021 and quarterly 2022 accounts.2023 Sensitivities*Sensitivities are revised once per year upon publication of the previous years fourth quarter results.Sensitivities are estimates based on assumptions about TotalEnergies portfolio in 2023.Actual results could vary significantly from estimates based on the application of these sensitivities.The impact of the$-sensitivity on adjusted net operating income is essentially attributable to Refining&Chemicals.*In a 80$/b Brent environment.*Restated for production related to TotalEnergies stake in Novatek.Main indicators1Q234Q223Q222Q221Q22/$1.071.021.011.061.12 Brent($/b)81.288.8100.8113.9102.2 Average liquids price*(1)($/b)73.480.693.6102.990.1 Average gas price*(1)($/Mbtu)8.8912.7416.8311.0112.27 Average LNG price*(1)($/Mbtu)13.2714.8321.5113.9613.60 Variable Cost Margin,European refining*($/t)87.873.699.2145.746.3ChangeEstimated impact on adjustednet operating incomeEstimated impact on cash flow from operationsDollar /-0.1$per-/ 0.1 B$0 B$Average liquids price* /-10$/b /-2.5 B$ /-3.0 B$European gas price-NBP/TTF /-2$/Mbtu /-0.4 B$ /-0.4 B$Variable cost margin,European refining(VCM) /-10$/t /-0.4 B$ /-0.5 B$27 Disclaimer The terms“TotalEnergies”,“TotalEnergies company”and“Company”in this document are used to designate TotalEnergies SE and the consolidated entities directly or indirectly controlled by TotalEnergies SE.Likewise,the words“we”,“us”and“our”may also be used to refer to these entities or their employees.The entities in which TotalEnergies SE directly or indirectly owns a shareholding are separate and independent legal entities.The data presented in this document is based on TotalEnergies internal preliminary reporting and is not audited.This data is not intended to be a comprehensive summary of all items that will affect TotalEnergies SEs results or to provide an estimate of the first quarter 2023 results.Actual results may vary.To the extent permitted by law,TotalEnergies SE disclaims all liability from the use of this data.This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995,notably with respect to the financial condition,results of operations,business activities and industrial strategy of TotalEnergies.This document may also contain statements regarding the perspectives,objectives,areas of improvement and goals of TotalEnergies,including with respect to climate change and carbon neutrality(net zero emissions).An ambition expresses an outcome desired by TotalEnergies,it being specified that the means to be deployed do not depend solely on TotalEnergies.These forward-looking statements may generally be identified by the use of the future or conditional tense or forward-looking words such as“envisions”,“intends”,“anticipates”,“believes”,“considers”,“plans”,“expects”,“thinks”,“targets”,“aims”or similar terminology.Such forward-looking statements included in this document are based on economic data,estimates and assumptions prepared in a given economic,competitive and regulatory environment and considered to be reasonable by TotalEnergies as of the date of this document.These forward-looking statements are not historical data and should not be interpreted as assurances that the perspectives,objectives or goals announced will be achieved.They may prove to be inaccurate in the future,and may evolve or be modified with a significant difference between the actual results and those initially estimated,due to the uncertainties notably related to the economic,financial,competitive and regulatory environment,or due to the occurrence of risk factors,such as,notably,the price fluctuations in crude oil and natural gas,the evolution of the demand and price of petroleum products,the changes in production results and reserves estimates,the ability to achieve cost reductions and operating efficiencies without unduly disrupting business operations,changes in laws and regulations including those related to the environment and climate,currency fluctuations,as well as economic and political developments,changes in market conditions,loss of market share and changes in consumer preferences,or pandemics such as the COVID-19 pandemic.Additionally,certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto.Neither TotalEnergies SE nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement,objectives or trends contained in this document whether as a result of new information,future events or otherwise.The information on risk factors that could have a significant adverse effect on TotalEnergies business,financial condition,including its operating income and cash flow,reputation,outlook or the value of financial instruments issued by TotalEnergies is provided in the most recent version of the Universal Registration Document which is filed by TotalEnergies SE with the French Autorit des Marchs Financiers and the annual report on Form 20-F filed with the United States Securities and Exchange Commission(“SEC”).Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TotalEnergies.In addition to IFRS measures,certain alternative performance indicators are presented,such as performance indicators excluding certain adjustment items(i.e.,special items,inventory valuation effect and effect of changes in fair value)-adjusted net operating income,adjusted net income).These indicators are meant to facilitate the analysis of the financial performance of TotalEnergies and the comparison of income between periods.They allow investors to track the measures used internally to manage and measure the performance of TotalEnergies.The adjusted results(adjusted net operating income,adjusted net income)are defined as replacement cost results,adjusted for special items,excluding the effect of changes in fair value.For further details on the adjustment items,please refer to the last published earnings statement and notes to the consolidated financial statements.28 TotalEnergies financial statementsFirst quarter 2023 consolidated accounts,IFRS 29 CONSOLIDATED STATEMENT OF INCOME TotalEnergies(unaudited)1stquarter4thquarter1stquarter(M$)(a)202320222022Sales62,60368,58268,606Excise taxes(4,370)(4,629)(4,656)Revenues from sales 58,23363,95363,950Purchases,net of inventory variation(38,351)(41,555)(39,648)Other operating expenses(7,785)(7,354)(7,623)Exploration costs(92)(250)(861)Depreciation,depletion and impairment of tangible assets and mineral interests(3,062)(2,505)(3,679)Other income 341584143Other expense(300)(2,828)(2,290)Financial interest on debt(710)(719)(462)Financial income and expense from cash&cash equivalents 393357214Cost of net debt(317)(362)(248)Other financial income 258266203Other financial expense(183)(150)(135)Net income(loss)from equity affiliates 960(281)43Income taxes(4,071)(6,077)(4,804)Consolidated net income 5,6313,4415,051TotalEnergies share 5,5573,2644,944Non-controlling interests 74177107Earnings per share($)2.231.271.87Fully-diluted earnings per share($)2.211.261.85(a)Except for per share amounts.30 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME TotalEnergies(unaudited)1stquarter4thquarter1stquarter(M$)202320222022Consolidated net income5,6313,4415,051Other comprehensive incomeActuarial gains and losses 3387-Change in fair value of investments in equity instruments 4(2)3Tax effect(8)(56)11Currency translation adjustment generated by the parent company 1,4666,800(1,750)Items not potentially reclassifiable to profit and loss 1,4657,129(1,736)Currency translation adjustment(1,250)(3,672)1,012Cash flow hedge 1,202(9,669)(263)Variation of foreign currency basis spread(3)(14)49share of other comprehensive income of equity affiliates,net amount(98)842(84)Other 33-Tax effect(336)2,93253Items potentially reclassifiable to profit and loss(482)(9,578)767Total other comprehensive income(net amount)983(2,449)(969)Comprehensive income 6,6149924,082TotalEnergies share 6,5507923,953Non-controlling interests6420012931 CONSOLIDATED BALANCE SHEETTotalEnergies March 31,2023December 31,2022March 31,2022(M$)(unaudited)(unaudited)(unaudited)ASSETS Non-current assetsIntangible assets,net 33,23431,93132,504Property,plant and equipment,net 107,499107,101104,450Equity affiliates:investments and loans 29,99727,88929,334Other investments 1,2091,0511,490Non-current financial assets 2,3572,7311,490Deferred income taxes 4,7725,0495,299Other non-current assets 2,7092,3883,033Total non-current assets 181,777178,140177,600Current assetsInventories,net 22,78622,93624,456Accounts receivable,net 24,12824,37832,000Other current assets 28,15336,07050,976Current financial assets 7,5358,7467,415Cash and cash equivalents 27,98533,02631,276Assets classified as held for sale 668568856Total current assets 111,255125,724146,979Total assets 293,032303,864324,579LIABILITIES&SHAREHOLDERS EQUITY Shareholders equityCommon shares 7,8288,1638,137Paid-in surplus and retained earnings 123,357123,951123,008Currency translation adjustment(12,784)(12,836)(13,643)Treasury shares(2,820)(7,554)(1,022)Total shareholders equity-TotalEnergies Share 115,581111,724116,480Non-controlling interests 2,8632,8463,375Total shareholders equity 118,444114,570119,855Non-current liabilitiesDeferred income taxes 11,30011,02111,281Employee benefits 1,8401,8292,610Provisions and other non-current liabilities 21,27021,40221,649Non-current financial debt 42,91545,26446,546Total non-current liabilities 77,32579,51682,086Current liabilitiesAccounts payable 36,03741,34646,869Other creditors and accrued liabilities 42,57852,27556,972Current borrowings 17,88415,50218,252Other current financial liabilities 597488502Liabilities directly associated with the assets classified as held for sale 16716743Total current liabilities 97,263109,778122,638Total liabilities&shareholders equity 293,032303,864324,57932 CONSOLIDATED STATEMENT OF CASH FLOWTotalEnergies(unaudited)1stquarter4thquarter1stquarter(M$)202320222022CASH FLOW FROM OPERATING ACTIVITIES Consolidated net income 5,6313,4415,051Depreciation,depletion,amortization and impairment 3,1872,7494,578Non-current liabilities,valuation allowances and deferred taxes 314(75)2,538(Gains)losses on disposals of assets(252)2,192(13)Undistributed affiliates equity earnings(349)1,506262(Increase)decrease in working capital(3,419)(3,791)(4,923)Other changes,net 21(404)124Cash flow from operating activities 5,1335,6187,617CASH FLOW USED IN INVESTING ACTIVITIES Intangible assets and property,plant and equipment additions(4,968)(4,097)(3,457)Acquisitions of subsidiaries,net of cash acquired(136)(4)-Investments in equity affiliates and other securities(1,407)(260)(89)Increase in non-current loans(389)(211)(241)Total expenditures(6,900)(4,572)(3,787)Proceeds from disposals of intangible assets and property,plant and equipment 68113177Proceeds from disposals of subsidiaries,net of cash sold 18316088Proceeds from disposals of non-current investments 4923215Repayment of non-current loans 238595929Total divestments 5388911,409Cash flow used in investing activities(6,362)(3,681)(2,378)CASH FLOW USED IN FINANCING ACTIVITIES Issuance(repayment)of shares:-Parent company shareholders-Treasury shares(2,103)(2,551)(1,176)Dividends paid:-Parent company shareholders(1,844)(4,356)(1,928)-Non-controlling interests(21)(12)(22)Net issuance(repayment)of perpetual subordinated notes-1,958Payments on perpetual subordinated notes(158)(51)(136)Other transactions with non-controlling interests(86)(82)5Net issuance(repayment)of non-current debt 11842534Increase(decrease)in current borrowings(1,274)(3,500)657Increase(decrease)in current financial assets and liabilities 1,3943,5545,594Cash flow from(used in)financing activities(3,974)(6,573)4,986Net increase(decrease)in cash and cash equivalents(5,203)(4,636)10,225Effect of exchange rates 1621,721(291)Cash and cash equivalents at the beginning of the period 33,02635,94121,342Cash and cash equivalents at the end of the period 27,98533,02631,27633 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITYTotalEnergies(unaudited)Common shares issuedPaid-in surplus and retained earningsCurrency translation adjustmentTreasury shares Shareholders equity-TotalEnergiesShareNon-controlling interestsTotal shareholders equity(M$)NumberAmountNumberAmountAs of January 1,2022 2,640,429,3298,224117,849(12,671)(33,841,104)(1,666)111,7363,263114,999Net income of the first quarter 2022-4,944-4,9441075,051Other comprehensive income-(19)(972)-(991)22(969)Comprehensive Income-4,925(972)-3,9531294,082Dividend-(22)(22)Issuance of common shares-Purchase of treasury shares-(22,378,128)(1,176)(1,176)-(1,176)Sale of treasury shares(a)-(315)-6,168,047315-Share-based payments-92-92-92Share cancellation(30,665,526)(87)(1,418)-30,665,5261,505-Net issuance(repayment)of perpetual subordinated notes-1,958-1,958-1,958Payments on perpetual subordinated notes-(96)-(96)-(96)Other operations with non-controlling interests-(1)-(1)65Other items-14-14(1)13As of March 31,2022 2,609,763,8038,137123,008(13,643)(19,385,659)(1,022)116,4803,375119,855Net income from April 1 to December 31,2022-15,582-15,58241115,993Other comprehensive income-(2,914)798-(2,116)(24)(2,140)Comprehensive Income-12,668798-13,46638713,853Dividend-(9,989)-(9,989)(514)(10,503)Issuance of common shares 9,367,48226344-370-370Purchase of treasury shares-(117,829,615)(6,535)(6,535)-(6,535)Sale of treasury shares(a)-(3)-27,6073-Share-based payments-137-137-137Share cancellation-Net issuance(repayment)of perpetual subordinated notes-(2,002)-(2,002)-(2,002)Payments on perpetual subordinated notes-(235)-(235)-(235)Other operations with non-controlling interests-469-553186Other items-(23)-(23)(433)(456)As of December 31,2022 2,619,131,2858,163123,951(12,836)(137,187,667)(7,554)111,7242,846114,570Net income of the first quarter 2023-5,557-5,557745,631Other comprehensive income-91380-993(10)983Comprehensive Income-6,47080-6,550646,614Dividend-(21)(21)Issuance of common shares-Purchase of treasury shares-(33,842,858)(2,703)(2,703)-(2,703)Sale of treasury shares(a)-(395)-6,446,384395-Share-based payments-54-54-54Share cancellation(128,869,261)(335)(6,707)-128,869,2617,042-Net issuance(repayment)of perpetual subordinated notes-Payments on perpetual subordinated notes-(77)-(77)-(77)Other operations with non-controlling interests-39(28)-11(25)(14)Other items-22-22(1)21As of March 31,2023 2,490,262,0247,828123,357(12,784)(35,714,880)(2,820)115,5812,863118,444(a)Treasury shares related to the performance share grants.34 INFORMATION BY BUSINESS SEGMENT TotalEnergies(unaudited)1st quarter 2023Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&ServicesCorporate IntercompanyTotal(M$)External sales4,8728,5551,95424,85522,3598-62,603Intersegment sales5,9991,68510,7289,06112057(27,650)-Excise taxes-(184)(4,186)-(4,370)Revenues from sales10,87110,24012,68233,73218,29365(27,650)58,233Operating expenses(9,445)(9,831)(4,762)(31,892)(17,787)(161)27,650(46,228)Depreciation,depletion and impairment of tangible assets and mineral interests(288)(47)(2,066)(414)(224)(23)-(3,062)Operating income 1,1383625,8541,426282(119)-8,943Net income(loss)from equity affiliates and other items804(70)6852243(21)-1,076Tax on net operating income(205)(111)(3,398)(325)(119)63-(4,095)Net operating income 1,7371812,5241,153406(77)-5,924Net cost of net debt(293)Non-controlling interests(74)Net income-TotalEnergies share5,5571st quarter 2023(adjustments)(a)Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&ServicesCorporate IntercompanyTotal(M$)External sales(76)-(76)Intersegment sales-Excise taxes-Revenues from sales(76)-(76)Operating expenses(300)(70)(8)(424)(101)-(903)Depreciation,depletion and impairment of tangible assets and mineral interests-(36)-(36)Operating income(b)(376)(70)(8)(460)(101)-(1,015)Net income(loss)from equity affiliates and other items(4)(111)(73)(37)217-(8)Tax on net operating income45(8)(48)3210-31Net operating income(b)(335)(189)(129)(465)126-(992)Net cost of net debt8Non-controlling interests-Net income-TotalEnergies share(984)(a)Adjustments include special items,inventory valuation effect and the effect of changes in fair value.(b)Of which inventory valuation effect -On operating income-(415)(87)-On net operating income-(327)(64)-1st quarter 2023(adjusted)Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&ServicesCorporate IntercompanyTotal(M$)External sales4,9488,5551,95424,85522,3598-62,679Intersegment sales5,9991,68510,7289,06112057(27,650)-Excise taxes-(184)(4,186)-(4,370)Revenues from sales10,94710,24012,68233,73218,29365(27,650)58,309Operating expenses(9,145)(9,761)(4,754)(31,468)(17,686)(161)27,650(45,325)Depreciation,depletion and impairment of tangible assets and mineral interests(288)(47)(2,066)(378)(224)(23)-(3,026)Adjusted operating income 1,5144325,8621,886383(119)-9,958Net income(loss)from equity affiliates and other items808411418926(21)-1,084Tax on net operating income(250)(103)(3,350)(357)(129)63-(4,126)Adjusted net operating income 2,0723702,6531,618280(77)-6,916Net cost of net debt(301)Non-controlling interests(74)Adjusted net income-TotalEnergies share6,5411st quarter 2023Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&ServicesCorporate IntercompanyTotal(M$)Total expenditures1,1951,2344,05222515935-6,900Total divestments49149318301-538Cash flow from operating activities 3,536(1,285)4,536(851)(673)(130)-5,13335 INFORMATION BY BUSINESS SEGMENT TotalEnergies(unaudited)4th quarter 2022Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&Services CorporateIntercompanyTotal(M$)External sales4,62810,0552,60026,65024,63712-68,582Intersegment sales5,7831,80712,86611,73027463(32,523)-Excise taxes-(199)(4,430)-(4,629)Revenues from sales10,41111,86215,46638,18120,48175(32,523)63,953Operating expenses(8,361)(9,836)(6,173)(37,107)(19,939)(266)32,523(49,159)Depreciation,depletion and impairment of tangible assets and mineral interests(405)(54)(1,343)(393)(276)(34)-(2,505)Operating income 1,6451,9727,950681266(225)-12,289Net income(loss)from equity affiliates and other items1,150103(3,874)161(62)113-(2,409)Tax on net operating income(269)(112)(4,635)(898)(113)22-(6,005)Net operating income 2,5261,963(559)(56)91(90)-3,875Net cost of net debt(434)Non-controlling interests(177)Net income-TotalEnergies share3,2644th quarter 2022(adjustments)(a)Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&Services CorporateIntercompanyTotal(M$)External sales69-69Intersegment sales-Excise taxes-Revenues from sales69-69Operating expenses3821,719(108)(821)(211)(88)-873Depreciation,depletion and impairment of tangible assets and mineral interests(108)-844-(37)-699Operating income(b)3431,719736(821)(248)(88)-1,641Net income(loss)from equity affiliates and other items(195)(113)(4,025)(101)(9)-(4,443)Tax on net operating income(30)(124)(798)(621)1423-(1,536)Net operating income(b)1181,482(4,087)(1,543)(243)(65)-(4,338)Net cost of net debt8Non-controlling interests33Net income-TotalEnergies share(4,297)(a)Adjustments include special items,inventory valuation effect and the effect of changes in fair value.(b)Of which inventory valuation effect -On operating income-(712)(184)-On net operating income-(586)(137)-4th quarter 2022(adjusted)Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&Services CorporateIntercompanyTotal(M$)External sales4,55910,0552,60026,65024,63712-68,513Intersegment sales5,7831,80712,86611,73027463(32,523)-Excise taxes-(199)(4,430)-(4,629)Revenues from sales10,34211,86215,46638,18120,48175(32,523)63,884Operating expenses(8,743)(11,555)(6,065)(36,286)(19,728)(178)32,523(50,032)Depreciation,depletion and impairment of tangible assets and mineral interests(297)(54)(2,187)(393)(239)(34)-(3,204)Adjusted operating income 1,3022537,2141,502514(137)-10,648Net income(loss)from equity affiliates and other items1,345216151262(53)113-2,034Tax on net operating income(239)12(3,837)(277)(127)(1)-(4,469)Adjusted net operating income 2,4084813,5281,487334(25)-8,213Net cost of net debt(442)Non-controlling interests(210)Adjusted net income-TotalEnergies share7,5614th quarter 2022Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&Services CorporateIntercompanyTotal(M$)Total expenditures3106402,47858850749-4,572Total divestments319186215125424-891Cash flow from operating activities 1348614,035232707(351)-5,61836 INFORMATION BY BUSINESS SEGMENT TotalEnergies(unaudited)1st quarter 2022Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&Services CorporateIntercompanyTotal(M$)External sales5,5076,7872,15131,00823,1494-68,606Intersegment sales3,49852113,8189,27726763(27,444)-Excise taxes-(192)(4,464)-(4,656)Revenues from sales9,0057,30815,96940,09318,95267(27,444)63,950Operating expenses(6,886)(7,294)(5,708)(37,411)(17,984)(293)27,444(48,132)Depreciation,depletion and impairment of tangible assets and mineral interests(278)(43)(2,661)(380)(273)(44)-(3,679)Operating income 1,841(29)7,6002,302695(270)-12,139Net income(loss)from equity affiliates and other items(2,495)(5)242156(42)108-(2,036)Tax on net operating income(261)(33)(3,863)(525)(225)105-(4,802)Net operating income(915)(67)3,9791,933428(57)-5,301Net cost of net debt(250)Non-controlling interests(107)Net income-TotalEnergies share4,9441st quarter 2022(adjustments)(a)Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&Services CorporateIntercompanyTotal(M$)External sales(3)15-12Intersegment sales-Excise taxes-Revenues from sales(3)15-12Operating expenses(107)(10)(791)947268(132)-175Depreciation,depletion and impairment of tangible assets and mineral interests-(493)-(29)(9)-(531)Operating income(b)(110)5(1,284)947239(141)-(344)Net income(loss)from equity affiliates and other items(3,948)9(14)117(3)106-(3,733)Tax on net operating income101262(251)(80)20-(38)Net operating income(b)(4,048)15(1,036)813156(15)-(4,115)Net cost of net debt113Non-controlling interests(31)Net income-TotalEnergies share(4,033)(a)Adjustments include special items,inventory valuation effect and the effect of changes in fair value.(b)Of which inventory valuation effect -On operating income-947308-On net operating income-845228-1st quarter 2022(adjusted)Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&Services CorporateIntercompanyTotal(M$)External sales5,5106,7722,15131,00823,1494-68,594Intersegment sales3,49852113,8189,27726763(27,444)-Excise taxes-(192)(4,464)-(4,656)Revenues from sales9,0087,29315,96940,09318,95267(27,444)63,938Operating expenses(6,779)(7,284)(4,917)(38,358)(18,252)(161)27,444(48,307)Depreciation,depletion and impairment of tangible assets and mineral interests(278)(43)(2,168)(380)(244)(35)-(3,148)Adjusted operating income 1,951(34)8,8841,355456(129)-12,483Net income(loss)from equity affiliates and other items1,453(14)25639(39)2-1,697Tax on net operating income(271)(34)(4,125)(274)(145)85-(4,764)Adjusted net operating income 3,133(82)5,0151,120272(42)-9,416Net cost of net debt(363)Non-controlling interests(76)Adjusted net income-TotalEnergies share8,9771st quarter 2022Integrated LNG Integrated Power Exploration&ProductionRefining&ChemicalsMarketing&Services CorporateIntercompanyTotal(M$)Total expenditures2901,1491,9712281409-3,787Total divestments84417128327795-1,409Cash flow from operating activities 2,219(1,904)5,7681,107898(471)-7,61737 Reconciliation of the information by business segment with Consolidated Financial Statements TotalEnergies(unaudited)Consolidated 1stquarter 2023statement(M$)AdjustedAdjustments(a)of incomeSales62,679(76)62,603Excise taxes(4,370)-(4,370)Revenues from sales 58,309(76)58,233Purchases net of inventory variation(37,479)(872)(38,351)Other operating expenses(7,752)(33)(7,785)Exploration costs(94)2(92)Depreciation,depletion and impairment of tangible assets and mineral interests(3,026)(36)(3,062)Other income 77264341Other expense(137)(163)(300)Financial interest on debt(710)-(710)Financial income and expense from cash&cash equivalents 37320393 Cost of net debt(337)20(317)Other financial income 24810258Other financial expense(183)-(183)Net income(loss)from equity affiliates 1,079(119)960Income taxes(4,090)19(4,071)Consolidated net income 6,615(984)5,631TotalEnergies share 6,541(984)5,557Non-controlling interests 74-74(a)Adjustments include special items,inventory valuation effect and the effect of changes in fair value.Consolidated 1stquarter 2022statement(M$)AdjustedAdjustments(a)of incomeSales68,5941268,606Excise taxes(4,656)-(4,656)Revenues from sales 63,9381263,950Purchases net of inventory variation(40,762)1,114(39,648)Other operating expenses(7,409)(214)(7,623)Exploration costs(136)(725)(861)Depreciation,depletion and impairment of tangible assets and mineral interests(3,148)(531)(3,679)Other income 12122143Other expense(269)(2,021)(2,290)Financial interest on debt(462)-(462)Financial income and expense from cash&cash equivalents 59155214 Cost of net debt(403)155(248)Other financial income 11984203Other financial expense(135)-(135)Net income(loss)from equity affiliates 1,861(1,818)43Income taxes(4,724)(80)(4,804)Consolidated net income 9,053(4,002)5,051TotalEnergies share 8,977(4,033)4,944Non-controlling interests 7631107(a)Adjustments include special items,inventory valuation effect and the effect of changes in fair value.
2023-06-02
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Deutsche TelekomJanuary 1 to March 31Interim Group ReportQ1 2023Contents Deutsche Telekom at a glance To our shareholders 4 Development of selected financial data 6 Highlights in the first quarter of 2023 Interim Group management report 8 Group organization,strategy,and management 9 The economic environment 11 Development of business in the Group 21 Development of business in the operating segments 33 Events after the reporting period 33 Forecast 33 Risks and opportunities Interim consolidated financial statements 35 Consolidated statement of financial position 36 Consolidated income statement 37 Consolidated statement of comprehensive income 38 Consolidated statement of changes in equity 40 Consolidated statement of cash flows 41 Significant events and transactions 52 Other disclosures 66 Events after the reporting period Responsibility statement Review report Additional information 69 Reconciliation for the change in disclosure of key figures for the prior-year period 70 Reconciliation for the organic development of key figures for the prior-year period 71 Glossary 71 Disclaimer 72 Financial calendar In the interest of clarity,we have tended to avoid using a combination of pronouns such as“he/she/they,”etc.with regard to gender.All references to individuals refer equally to all genders.=pq2Deutsche Telekom.Interim Group Report Q1 2023.Deutsche Telekom at a glance millions of Q1 2023 Q1 2022 Change%FY 2022 Revenue and earnings(according to the management approach)a Net revenueb 27,839 27,746 0.3 114,413 Of which:domestic.6 23.2 22.1 Of which:internationalw.4 76.8 77.9 Service revenueb,c 22,814 22,033 3.5 91,988 EBITDA 24,046 13,092 83.7 43,986 EBITDA(adjusted for special factors)11,516 11,436 0.7 46,410 EBITDA AL 22,364 11,087 n.a.35,989 EBITDA AL(adjusted for special factors)9,963 9,873 0.9 40,208 EBITDA AL margin(adjusted for special factors)5.8 35.6 35.1 Profit(loss)from operations(EBIT)18,015 6,327 n.a.16,159 Revenue and earnings from continuing operations(according to financial statements)a Net revenueb 27,824 27,693 0.5 114,197 EBITDA 11,044 12,863(14.1)43,049 Profit(loss)from operations(EBIT)5,014 6,194(19.1)15,414 Net profit(loss)15,360 3,949 n.a.8,001 Net profit(loss)(adjusted for special factors)1,959 2,238(12.5)9,081 Earnings per share(basic and diluted)3.09 0.79 n.a.1.61 Adjusted earnings per share(basic and diluted)0.39 0.45(13.3)1.83 Statement of financial position Total assets 303,793 292,422 3.9 298,590 Shareholders equity 98,685 87,656 12.6 87,320 Equity ratio2.5 30.0 29.2 Net debtd 133,517 135,947(1.8)142,425 Cash flows Net cash from operating activities 9,558 9,358 2.1 35,819 Cash capex (4,826)(7,173)32.7(24,114)Cash capex(before spectrum investment)(4,759)(4,658)(2.2)(21,019)Free cash flow(before dividend payments and spectrum investment)4,822 4,750 1.5 15,239 Free cash flow AL(before dividend payments and spectrum investment)3,579 3,781(5.3)11,470 Net cash from(used in)investing activities 2,005(4,512)n.a.(22,306)Net cash(used in)from financing activities (6,340)(2,653)n.a.(15,438)a The GD Towers business entity,which operated the cell tower business in Germany and Austria and was assigned to the Group Development operating segment,was recognized as a discontinued operation in the interim consolidated financial statements from the third quarter of 2022 until its sale on February 1,2023.Prior-year comparatives were adjusted retrospectively.In the interim Group management report,we include the contributions by GD Towers in the results of operations according to the management approach for the period mentioned.The prior-year comparatives were not adjusted retrospectively.For information on the sale of GD Towers,please refer to the section“Group organization,strategy,and management”in the interim Group management report and the section“Changes in the composition of the Group and other transactions”in the interim consolidated financial statements.b As of the third quarter of 2022 the principal/agent consideration regarding the recognition of gross and net revenues was changed.Prior-year comparatives were adjusted retrospectively.c As of January 1,2023,the definition of service revenue was extended.Prior-year comparatives were adjusted retrospectively.d Including net debt reported under liabilities directly associated with non-current assets and disposal groups held for sale.millions Mar.31,2023 Dec.31,2022 Change Mar.31,2023/Dec.31,2022%Mar.31,2022 Change Mar.31,2023/Mar.31,2022%Fixed-network and mobile customers Mobile customersa 248.1 245.4 1.1 248.3(0.1)Fixed-network lines 25.7 25.3 1.7 26.0(1.4)Broadband customersb 21.6 21.4 0.7 21.7(0.8)a Including T-Mobile US wholesale customers(Mar.31,2023:29.7 million;Dec.31,2022:30.2 million;Mar.31,2022:32.3 million).b Excluding wholesale.The figures shown in this report were rounded in accordance with standard business rounding principles.As a result,the total indicated may not be equal to the precise sum of the individual figures.Changes were calculated on the basis of millions for greater precision.For information on the development of business in the operating segments,please refer to the section“Development of business in the operating segments”in the interim Group management report and in the IR back-up on our Investor Relations website.=pqDeutsche Telekom at a glance 3Deutsche Telekom.Interim Group Report Q1 2023.To our shareholders Development of selected financial data Net revenue,service revenuea,b billions of 040302010Q1 2022Q1 202327.727.822.0Servicerevenue22.8ServicerevenueEBITDA AL(adjusted for special factors)a billions of 01551020Q1 2022Q1 20239.910.0Profit/loss from operations(EBIT)a billions of 01551020Q1 2022Q1 20236.318.0Net profit billions of 01551020Q1 2022Q1 20233.915.4For a reconciliation for the organic development of key figures for the prior-year comparative period,please refer to the section“Additional information.”Net revenue increased slightly by 0.3%to EUR 27.8 billion;in organic terms,it decreased slightly by 0.5%.Service revenue increased by 3.5%to EUR 22.8 billion;in organic terms,the increase was 2.6%.Our Germany segment increased revenue by 3.0%year-on-year,on the back of strong development of service revenues.The United States segment recorded revenue growth of 2.1%,mainly due to exchange rate effects,but on an organic basis,revenue was down 2.3%against the prior year.Revenue in our Europe segment grew by 3.8%on account of the positive trend in mobile business and by 4.9%in organic terms.Revenue in Systems Solutions was up 2.0%year-on-year on the back of growth in the Digital,Road Charging,and Advisory portfolio areas.In Group Development,revenue declined by 87.6%due to the sale of TMobile Netherlands and GD Towers,but was up 4.2%against the prior year on an organic basis.Adjusted EBITDA AL grew slightly by 0.9%to EUR 10.0 billion.In organic terms,it increased by 1.0%.In our Germany segment,adjusted EBITDA AL was up 4.0%,driven by high-value revenue growth and enhanced cost efficiency.In the United States,adjusted EBITDA AL increased by 5.9%,mainly due to exchange rate effects.In organic terms,it increased by 1.3%.Adjusted core EBITDA AL grew by 11.5%to EUR 6.4 billion.Adjusted EBITDA AL in the Europe segment increased slightly by 0.7%.In organic terms,it increased by 1.2%.In Systems Solutions,adjusted EBITDA AL grew by 10.3%due to efficiency effects and increased revenue in our Digital and Road Charging portfolio areas.In Group Development,adjusted EBITDA AL declined by 81.7%due to the sale of TMobile Netherlands and GD Towers.In organic terms,it increased by 32.0%.At 35.8%,the Groups adjusted EBITDA AL margin remained at the same high level posted in the prior year.The adjusted EBITDA AL margin was 40.5%in the Germany segment,35.3%in the Europe segment,and 35.8%in the United States segment.EBIT increased substantially to EUR 18.0 billion,mainly as a result of the gain on deconsolidation from the sale of GD Towers.Special factors had a positive effect of EUR 12.4 billion on EBITDA AL.Deconsolidations,disposals and acquisitions generated proceeds of EUR 12.6 billion,most of which was attributable to the sale of GD Towers.In the prior-year period,the special factors affecting EBITDA AL totaled EUR 1.2 billion.EBITDA AL thus increased by EUR 11.3 billion to EUR 22.4 billion.At EUR 6.0 billion,depreciation,amortization and impairment losses were lower than in the prior-year period,with the decrease being almost exclusively attributable to the United States and Group Development operating segments.Our net profit also increased significantly to EUR 15.4 billion due to the sale of GD Towers.The loss from financial activities increased by EUR 0.4 billion to EUR 1.3 billion,with other financial income decreasing in particular in connection with the measurement of provisions and liabilities.Finance costs increased by EUR 0.1 billion.The tax expense decreased by EUR 0.8 billion to EUR 0.3 billion.Profit attributable to non-controlling interests increased by EUR 0.6 billion to EUR 1.1 billion,a trend mainly attributable to the United States segment.Adjusted earnings per share decreased from EUR 0.45 to EUR 0.39.The GD Towers business entity,which operated the cell tower business in Germany and Austria and was assigned to the Group Development operating segment,was recognized as a discontinued operation in the interim consolidated financial statements from the third quarter of 2022 until its sale on February 1,2023.In the interim Group management report,we include the contributions by GD Towers in the results of operations according to the management approach for the period mentioned.For information on the sale of GD Towers,please refer to the section“Group organization,strategy,and management”in the interim Group management report and the section“Changes in the composition of the Group and other transactions”in the interim consolidated financial statements.a As of the third quarter of 2022 the principal/agent consideration regarding the recognition of gross and net revenues was changed.Prior-year comparatives were adjusted retrospectively.b=pqTo our shareholders 4Deutsche Telekom.Interim Group Report Q1 2023.Equity ratio0302010Dec.31,2022Mar.31,202329.232.5Net debtc billions of 015010050200Dec.31,2022Mar.31,2023142.4133.5Cash capex(before spectrum investment)billions of 0108624Q1 2022Q1 20234.84.7Free cash flow AL(before dividend payments and spectrum investment)billions of 0108624Q1 2022Q1 20233.63.8For further information,please refer to the section“Development of business in the Group”in the interim Group management report.For further information on the development of business in the operating segments,please refer to the section“Development of business in the operating segments”in the interim Group management report and to the IR back-up on our Investor Relations website.The equity ratio increased by 3.3 percentage points against December 31,2022 to 32.5%.The increase in shareholders equity from EUR 87.3 billion to EUR 98.7 billion is primarily attributable to profit of EUR 16.4 billion.Shareholders equity was reduced in particular by transactions with owners(EUR 4.5 billion),mainly in connection with the share buy-back program at TMobile US.Other comprehensive income also decreased the carrying amount(EUR 0.7 billion).This mainly includes effects from currency translations recognized directly in equity(EUR 1.1 billion)and positive effects from the remeasurement of defined benefit plans(EUR 0.4 billion).Net debt decreased by EUR 8.9 billion compared with the end of 2022 to EUR 133.5 billion.The main reducing factor was cash proceeds of EUR 10.7 billion from the sale of GD Towers.It was further reduced by free cash flow(before dividend payments and spectrum investment)of EUR 4.8 billion and exchange rate effects of EUR 1.9 billion.The main factors increasing net debt were the share buy-back program at TMobile US(EUR 4.3 billion)and the sale-and-leaseback transaction in connection with the sale of the GD Towers(EUR 3.0 billion).Additions of lease liabilities and right-of-use assets(EUR 0.8 billion)and other effects(EUR 0.3 billion)also had an increasing impact.Cash capex(before spectrum investment)increased slightly by EUR 0.1 billion to EUR 4.8 billion.The increase resulted mainly from higher capital expenditure in the Germany and Europe operating segments.In the United States,cash capex decreased as a result of higher cash outflows in the prior year for the accelerated build-out of the 5G network and the integration of Sprint.By contrast,cash capex(including spectrum investment)decreased by EUR 2.3 billion to EUR 4.8 billion.Spectrum licenses were purchased for EUR 0.1 billion in the reporting period,in particular in the United States segment.In the prior-year period,the United States segment had acquired spectrum licenses for a total amount of EUR 2.5 billion.Free cash flow AL was down by EUR 0.2 billion to EUR 3.6 billion.It was reduced by a net increase of EUR 0.3 billion in interest payments,EUR 0.3 billion higher cash outflows for the repayment of lease liabilities,mainly in the United States operating segment,an increase of EUR 0.1 billion in cash capex(before spectrum investment),and an increase of EUR 0.1 billion in tax payments.The sound business performance in the operating segments had an increasing effect on net cash from operating activities.Lower cash outflows in connection with the integration of Sprint in the United States and exchange rate effects also had a positive impact.Including net debt reported under liabilities directly associated with non-current assets and disposal groups held for sale.c=pqTo our shareholders 5Deutsche Telekom.Interim Group Report Q1 2023.Highlights in the first quarter of 2023 For further information on these and other events,please refer to our media information.For comprehensive information on the T-Share,please visit our Investor Relations website.Guidance raised for the 2023 financial year In view of the sound business performance in our United States operating segment,we are raising our guidance for adjusted EBITDA AL of the Group for the 2023 financial year.Instead of around EUR 40.8 billion,we now expect to post adjusted EBITDA AL of around EUR 40.9 billion.Transactions Sale of GD Towers.On July 13,2022,Deutsche Telekom agreed to sell a 51.0%stake in the cell tower business companies in Germany and Austria(GD Towers),hitherto assigned to the Group Development operating segment,to DigitalBridge and Brookfield.After all necessary regulatory approvals had been duly granted and all other closing conditions met,the transaction was closed on February 1,2023.Deutsche Telekom retains a 49.0%stake,benefiting from future value upside at GD Towers.We have largely leased back the sold passive network infrastructure in Germany and Austria,enabling Telekom Deutschland and TMobile Austria to maintain their mobile network leadership.Agreement on the acquisition of Kaena in the United States.On March 9,2023,TMobile US entered into a Merger and Unit Purchase Agreement for the acquisition of 100%of the outstanding equity of Kaena Corporation and its subsidiaries including,among others,Mint Mobile,for a maximum purchase price of USD 1.35 billion.The upfront payment is expected to be approximately USD 950 million,before working capital adjustments.The acquisition is subject to certain customary closing conditions,including certain regulatory approvals and is expected to close by the end of 2023.Share buy-back program continued and majority stake in TMobile US secured.In the first quarter of 2023,TMobile US bought back around 33 million additional shares with a total volume of USD 4.8 billion(EUR 4.4 billion)under its share buy-back program.Taking the treasury shares held by TMobile US into account,Deutsche Telekoms stake in TMobile US stood at 50.2%as of March 31,2023.For further information on these corporate transactions,please refer to the section“Group organization,strategy,and management”in the interim Group management report and the section“Changes in the composition of the Group and other transactions”in the interim consolidated financial statements.Network build-out Germany.As of the end of the first quarter of 2023,our 5G network was available to 95.1%of the German population,and a total of around 5.7 million households have the option of a direct connection to our fiber-optic network.United States.As of the end of the first quarter of 2023,TMobile US 5G network covered around 98%of the U.S.population,with 275 million people already benefiting from Ultra Capacity 5G.Europe.As of the end of the first quarter of 2023,our national companies covered 51.1%of the population in our European footprint with 5G,and a total of around 8.2 million households have the option of a direct connection to our fiber-optic network.Sustainability 2022 Corporate Responsibility Report.Our CR Report illustrates the progress we made in 2022 with our activities and efforts to become more sustainable,focusing on the ESG pillars of the environment,social commitment,and governance.The report also contains a special section entitled“Experiencing sustainability,”an interactive special on the circular economy,and practical tips for saving resources in daily life.=pqTo our shareholders 6Deutsche Telekom.Interim Group Report Q1 2023.Cooperations,partnerships,and major deals Fiber-optic cooperations.Consistent with our strategy regarding the shared use of networks,in the first quarter of 2023 we both agreed and finalized further fiber-optic cooperations.In addition to regional partnerships in the Stuttgart region(Stadtwerke Nrtingen),Upper Franconia(Stdtische Werke berlandwerke Coburg),and Bavaria(Stadtnetz Bamberg),the fiber-optic partnership of Magenta Telekom and Meridiam,Alpen Glasfaser GmbH,started operations in Austria in March 2023.Major deal for TSystems.The European Space Agency(ESA)has chosen TSystems as a service provider for the Copernicus Data Space Ecosystem,one of the worlds largest public platforms for Earth observation data.The data can be used to conduct trend analyses for science,industry,and politics.The public,including more than 600 thousand registered users,have had access to the new Copernicus Data Space Ecosystem since January 24,2023.For further information,please refer to our media report.Products,rate plans,and services Mobile World Congress(MWC)2023.“Giving technology a heartbeat”was our motto at MWC Barcelona from February 27 to March 2,2023,where we showcased technology and innovations for people,the environment,and businesses.The focus was on resilient and sustainable networks,e.g.,for seamless connectivity across space via 5G(joint commitment with ESA)and IoT(in collaboration with Intelsat and Skylo),for the commercial deployment of Open RAN(with partners Nokia,Fujitsu,and Mavenir),and for easy access to application programming interfaces(APIs)via a cross-country and cross-network platform(e.g.,T DevEdge in collaboration with TMobile US).For further information,please refer to our media report.Awards Brand.For the first time,BrandZ rates Deutsche Telekom the most valuable German brand with a brand value of USD 67.2 billion in its March 2023 study Top50 Most Valuable German Brands.Deutsche Telekom is already ranked Europes most valuable company brand for the first time with a brand value of USD 62.9 billion,according to the study Brand Finance Global 500 published in January 2023.Networks.Both TMobile US and our national companies in Europe once again received accolades for their networks in the first quarter of 2023,including the Ookla Speedtest Award for the best mobile network in Croatia and the Czech Republic,and for the fastest fixed-network internet in Austria.Business Customers.TSystems is a recognized Amazon Web Services(AWS)Networking Competency Partner,successfully meeting AWSs high technical bar and quality requirements for connecting customers existing infrastructure to the cloud.In addition,together with its consulting company Detecon,TSystems has been rated as a leading provider in all German categories by the analyst firm Information Services Group(ISG)in its survey Digital Business Enablement and ESG Services 2022,and by Pierre Audoin Consultants(PAC)in its Innovation Radar Leaders in Sustainability-related IT Consulting&Services in Europe 2023.For information on awards for responsible corporate governance,please refer to our website.=pqTo our shareholders 7Deutsche Telekom.Interim Group Report Q1 2023.Interim Group management report Group organization,strategy,and management With regard to our Group organization,strategy,and management,please refer to the explanations in the 2022 combined management report(2022 Annual Report).From the Groups point of view,the following significant events in the first three months of 2023 resulted in changes and/or additions.Group organization Sale of GD Towers.On July 13,2022,Deutsche Telekom agreed to sell a 51.0%stake in the cell tower business companies in Germany and Austria(GD Towers),hitherto assigned to the Group Development operating segment,to DigitalBridge and Brookfield.After all necessary regulatory approvals had been duly granted and all other closing conditions met,the transaction was closed on February 1,2023.The sale price is based on an enterprise value of EUR 17.5 billion.The total preliminary gain on deconsolidation resulting from the sale amounts to EUR 15.9 billion,of which EUR 12.9 billion is included in profit/loss from discontinued operation as other operating income in the consolidated income statement as of the deconsolidation date.As Deutsche Telekom has largely leased back the sold passive network infrastructure in Germany and Austria under a sale and leaseback transaction,a further EUR 3.0 billion will be recognized pro rata in subsequent periods.Overall,right-of-use assets were recognized in the amount of EUR 2.0 billion and lease liabilities in the amount of EUR 5.0 billion.The transaction resulted in preliminary cash proceeds of EUR 10.7 billion.The stake retained by Deutsche Telekom of 49.0%has been included in the consolidated financial statements using the equity method since February 1,2023.The carrying amount of the investment amounted to EUR 6.0 billion as of March 31,2023.For further information on the sale of the GD tower companies,please refer to the section“Changes in the composition of the Group and other transactions”in the interim consolidated financial statements.Share buy-back program continued and majority stake in TMobile US secured.In the first quarter of 2023,TMobile US bought back around 33 million additional shares with a total volume of USD 4.8 billion(EUR 4.4 billion)under its share buy-back program.Taking the treasury shares held by TMobile US into account,Deutsche Telekoms stake in TMobile US stood at 50.2%as of March 31,2023.Furthermore,the transactions described below will affect the segment and organizational structure of Deutsche Telekom in the future:Agreement to sell the U.S.wireline business.On September 6,2022,TMobile US reached an agreement with Cogent Infrastructure(Cogent)on the sale of TMobile US fiber-optic-based wireline business.Under the agreement,Cogent will take over all shares in the entity that holds all of the assets and liabilities related to the former Sprints fiber-optic-based wireline network.The sale price is USD 1 and is subject to customary adjustments laid down in the purchase agreement.In addition,upon completion of the transaction,TMobile US undertakes to enter into a separate agreement on IP transit services,according to which TMobile US will pay a total of USD 700 million to Cogent.The assets and liabilities of the wireline business have been reported in the consolidated statement of financial position as held for sale since September 30,2022.The transaction was closed on May 1,2023.All necessary regulatory approvals had been duly granted and all other closing conditions met.Agreement on the acquisition of Kaena in the United States.On March 9,2023,TMobile US entered into a Merger and Unit Purchase Agreement for the acquisition of 100%of the outstanding equity of Kaena Corporation and its subsidiaries including,among others,Mint Mobile,for a maximum purchase price of USD 1.35 billion to be paid out 39%in cash and 61%in shares of TMobile US common stock.Kaena Corporation is currently one of the wholesale partners of TMobile US,offering wireless telecommunications services to customers.The purchase price is variable dependent upon specified performance indicators of Kaena Corporation during certain periods before and after closing and consists of an upfront payment at deal close,subject to certain agreed-upon adjustments,and a variable earnout payable 24 months after the close of the transaction.The upfront payment is expected to be approximately USD 950 million,before working capital adjustments.The acquisition is subject to certain customary closing conditions,including certain regulatory approvals and is expected to close by the end of 2023.=pqInterim Group management report 8Deutsche Telekom.Interim Group Report Q1 2023.Management of the Group Presentation of GD Towers according to the management approach.The GD Towers business entity had been recognized in the interim consolidated financial statements as a discontinued operation from the third quarter of 2022 until its sale on February 1,2023.In the interim Group management report,we include the contributions by GD Towers in the results of operations according to the management approach for the period mentioned.The following table provides a reconciliation of the amounts recognized in the consolidated income statement to the financial performance indicators relevant for the management approach:millions of Q1 2023 Of which:continuing operations Of which:discontinued operation Q1 2022 Of which:continuing operations Of which:discontinued operation Net revenuea 27,839 27,824 15 27,746 27,693 53 Service revenuea 22,814 22,818(4)22,033 22,036(4)EBITDA 24,046 11,044 13,001 13,092 12,863 229 Depreciation of right-of-use assets (1,246)(1,246)0(1,654)(1,604)(50)Interest expenses on recognized lease liabilities (435)(430)(5)(351)(345)(6)EBITDA AL 22,364 9,368 12,996 11,087 10,914 173 Special factors affecting EBITDA AL 12,401(523)12,924 1,214 1,215 0 EBITDA AL(adjusted for special factors)9,963 9,891 73 9,873 9,699 173 Depreciation,amortization and impairment losses (6,030)(6,030)0(6,765)(6,669)(96)Profit(loss)from operations(EBIT)18,015 5,014 13,001 6,327 6,194 133 Profit(loss)from financial activities (1,331)(1,315)(16)(890)(898)8 Profit(loss)before income taxes 16,685 3,699 12,986 5,438 5,296 141 Earnings per share(basic and diluted)3.09 0.34 2.75 0.79 0.77 0.02 Adjusted earnings per share(basic and diluted)0.39 0.39 0.01 0.45 0.43 0.02 a As of the third quarter of 2022 the principal/agent consideration regarding the recognition of gross and net revenues was changed.Prior-year comparatives were adjusted retrospectively.Broader definition of service revenue.Since January 1,2023,service revenue additionally includes certain software revenues generated with ICT business in the Systems Solutions and Europe operating segments,as well as in the Group Headquarters&Group Services segment.Comparative figures have been adjusted retrospectively.The economic environment This section provides additional information on,and explains recent changes to,the economic situation as described in the 2022 combined management report(2022 Annual Report),focusing on macroeconomic developments,the overall economic outlook,the currently prevailing economic risks,and the regulatory environment in the first three months of 2023.Macroeconomic development The development of the global economy was rather weak in spring 2023.While its gradual recovery from both the coronavirus pandemic and the consequences of the war in Ukraine is stimulating economic activity,persistent inflation and the tight monetary policy of central banks around the globe will continue to have a negative impact.The interest rate hikes worldwide since spring 2022 contributed to turbulences in the finance sector in the first quarter of 2023.The inflation-induced loss of purchasing power is stifling macroeconomic demand,while higher interest rates are negatively affecting financing terms for households and businesses.In light of current developments,in its April 2023 forecast,the International Monetary Fund(IMF)expects global economic output to grow by 2.8%in the current year compared to growth of 3.4%in the prior year.The IMF expects German economic output to decline by 0.1%and consumer prices to increase by 6.2%in the current year.According to the Bitkom-ifo-Digitalindex,the business climate in the digital sector remains significantly brighter than in the economy as a whole.In March 2023,the business expectations of IT and telecommunications companies for the coming months reached their highest level since the war broke out in Ukraine in February 2022.The national economies in our core markets in North America and Europe are set to grow this year.According to the IMF forecast,economic output is expected to grow this year by 1.6%in the United States and by 0.8%in the eurozone.=pqInterim Group management report 9Deutsche Telekom.Interim Group Report Q1 2023.Overall economic outlook In particular Chinas U-turn on its strict zero-Covid policy is likely to stimulate steady global economic growth and revive global trade in goods.This should also help further alleviate supply shortages.With energy prices falling in Europe,the growth outlooks are brightening.However,an easing of consumer price inflation in the U.S.economic area and the eurozone is likely to be slow.High inflation is expected to continue to curb consumer spending in the coming quarters.Significant downside risks continue to weigh on the economic outlook.If inflation falls at a slower rate than expected,it could result in the need for a more aggressive tightening of monetary policy.This would further dampen consumer demand.At the same time,the recent rise in financial market risks has hindered the central banks efforts to combat inflation.Europe avoided a gas shortage in winter 2022/23,but the supply situation for winter 2023/24 is still uncertain and energy prices could rise if demand for natural gas increases in Asia.A possible escalation of the war in Ukraine could also lead to a renewed rise in energy prices.Geopolitical tensions between the United States and China present a further risk,and could put significant pressure on global trade in goods and international supply chains.Regulation Awarding of spectrum At the multi-band auction in Croatia,which began with a bidding phase on January 17,2023,Hrvatski Telekom secured an above-average package of spectrum,comprising the largest share of spectrum(2x 105 MHz),for around EUR 135 million.The Polish regulatory authority UKE concluded an initial consultation on a draft award procedure for the 3,400 to 3,800 MHz band,and announced a further consultation which began on April 6,2023.The procedure is now expected to conclude by the end of 2023.Awards for the 700/800 MHz and 26,000 MHz bands could follow in the course of 2023.In the Czech Republic,the procedure to extend the 900/1,800 MHz GSM license,which expires in 2024,is expected to begin in the course of 2023.Meanwhile,the Slovakian regulator announced a procedure(auction)to re-award spectrum in the 900 MHz and 2,100 MHz bands at the end of 2023.In Austria and Hungary,the millimeter wave spectrum in the 26,000 MHz band is also expected to come up for award in 2023.In order to free up this band,Hungary has already begun awarding substitute frequencies in the 32,000 MHz band.In the United States,on August 8,2022,TMobile US reached agreements with Channel 51 License and LB License on the acquisition of licenses in the 600 MHz spectrum for an aggregate purchase price of USD 3.5 billion(EUR 3.4 billion).On March 30,2023,the contractual parties further agreed that the transaction be divided into two separate tranches.The transfer of the licenses in accordance with the agreements is subject to regulatory approvals and certain other customary closing conditions.The first tranche is expected to be concluded between the middle and end of 2023,while the second tranche is expected to be concluded in 2024.The following table provides an overview of the main ongoing and planned spectrum awards and auctions as well as license extensions.It also indicates spectrum to be awarded in the near future in various countries.Main spectrum awards Expected start of award procedure Expected end of award procedure Frequency ranges(MHz)Planned award procedures Updated information Austria Q2 2023 Q3 2023 26,000/3,400-3,800(residual spectrum)Details tbd Poland Q3 2023 Q4 2023 3,400-3,800 Auction(SMRAa),4 blocks of 100 MHz,cap set at 100 MHz in consultation draft Start of procedure with first consultation in December 2022.Second consultation started in April 2023.Bidding process expected in H2 2023.Poland Q3 2023 Q4 2023 700/800 Auction or tender procedureb,details and timeline tbd Plans for all bands still unclear due to discussions on award models,dependency on the adoption of the Cyber Security Act,and standstill in 700 MHz border coordination talks with Russia.Poland Q3 2023 Q4 2023 26,000 Details tbd Regulatory authority announced plans for award procedures in 2023 without giving details.Slovakia Q3 2023 Q4 2023 900/2,100 New award proceedings(auction)Czech Republic Q2 2023 Q4 2023 900/1,800 Extension procedure 900/1,800 MHz GSM license of TMobile Czech Republic will expire in 2024.Extension procedure expected in 2023.Hungary Q3 2023 Q4 2023 26,000 Details tbd Regulatory authority announced plans for award procedures in 2023 without giving details.a SMRA:simultaneous(electronic)multi-round auction with ascending,parallel bids for all available frequency bands.b Tender procedure(beauty contest auction)offering a competitive selection process for assigning scarce frequencies.=pqInterim Group management report 10Deutsche Telekom.Interim Group Report Q1 2023.Development of business in the Group This section provides additional information on,and explains recent changes to,the significant events as described in the 2022 combined management report(2022 Annual Report),and looks at the effects of these changes on the development of business in the Group.In the section“The economic environment,”we also focus on macroeconomic developments in the first three months of 2023.For more information on global economic developments and the associated business risks,please refer to the section“Risks and opportunities.”For further information on significant events in the 2022 financial year,please refer to the sections“Group organization,”“Management of the Group,”and“Development of business in the Group”in the 2022 combined management report(2022 Annual Report).Presentation of GD Towers according to the management approach.The GD Towers business entity had been recognized in the interim consolidated financial statements as a discontinued operation from the third quarter of 2022 until its sale on February 1,2023.In the interim Group management report,we include the contributions by GD Towers in the results of operations according to the management approach for the period mentioned.For further information on the sale and the presentation of GD Towers according to the management approach,including a reconciliation to the consolidated income statement,please refer to the section“Group organization,strategy,and management.”Results of operations of the Group millions of Q1 2023 Q1 2022 Change Change%FY 2022 Net revenuea 27,839 27,746 93 0.3 114,413 Service revenuea,b 22,814 22,033 781 3.5 91,988 EBITDA AL(adjusted for special factors)9,963 9,873 90 0.9 40,208 EBITDA AL 22,364 11,087 11,277 n.a.35,989 Depreciation,amortization and impairment losses (6,030)(6,765)735 10.9(27,827)Profit(loss)from operations(EBIT)18,015 6,327 11,688 n.a.16,159 Profit(loss)from financial activities (1,331)(890)(441)(49.6)(4,455)Profit(loss)before income taxes 16,685 5,438 11,247 n.a.11,703 Net profit(loss)15,360 3,949 11,411 n.a.8,001 Net profit(loss)(adjusted for special factors)1,959 2,238(279)(12.5)9,081 Earnings per share(basic and diluted)3.09 0.79 2.30 n.a.1.61 Adjusted earnings per share(basic and diluted)0.39 0.45(0.06)(13.3)1.83 a As of the third quarter of 2022 the principal/agent consideration regarding the recognition of gross and net revenues was changed.Prior-year comparatives were adjusted retrospectively.b As of January 1,2023,the definition of service revenue was extended.Prior-year comparatives were adjusted retrospectively.In order to increase the informative value of the prior-year comparatives based on changes to the Companys structure or exchange rate effects,we also describe selected figures in organic terms,by adjusting the figures for the prior-year period for changes in the composition of the Group,exchange rate effects,and other effects.Due to changes in the composition of the Group,the figures for the prior-year period presented on an organic basis were reduced in the Group Development operating segment in connection with the sale of TMobile Netherlands as of March 31,2022,and of GD Towers as of February 1,2023.The net positive exchange rate effects were primarily attributable to the translation of U.S.dollars to euros.Revenue,service revenue In the first quarter of 2023,we generated net revenue of EUR 27.8 billion,which was up EUR 0.1 billion or 0.3%year-on-year.In organic terms,revenue decreased slightly by EUR 0.1 billion or 0.5%,including positive net exchange rate effects of EUR 0.8 billion,with changes in the composition of the Group having a reducing effect of EUR 0.6 billion.Service revenue in the Group increased by EUR 0.8 billion or 3.5%year-on-year to EUR 22.8 billion.In organic terms,service revenue increased by EUR 0.6 billion or 2.6%.=pqInterim Group management report 11Deutsche Telekom.Interim Group Report Q1 2023.Contribution of the segments to net revenue(according to the management approach)millions of Q1 2023 Q1 2022 Change Change%FY 2022 Germany 6,141 5,963 178 3.0 24,505 United States 18,262 17,880 382 2.1 75,436 Europe 2,784 2,682 102 3.8 11,158 Systems Solutions 946 927 19 2.0 3,811 Group Development 102 825(723)(87.6)1,708 Group Headquarters&Group Services 578 604(26)(4.3)2,407 Intersegment revenue(975)(1,134)159 14.0(4,612)Net revenuea 27,839 27,746 93 0.3 114,413 a As of the third quarter of 2022 the principal/agent consideration regarding the recognition of gross and net revenues was changed.Prior-year comparatives were adjusted retrospectively.All of our operating segments with the exception of Group Development contributed to the positive revenue trend.Revenue in our home market of Germany was up on the prior-year level,increasing by 3.0%.In organic terms,revenue grew by 2.3%year-on-year.This increase was primarily driven by growth in service revenues,in both the fixed-network core business,mainly due to broadband,and in mobile communications.Our United States operating segment contributed revenue growth of 2.1%to this trend,mainly due to exchange rate effects.In organic terms,revenue declined by 2.3%year-on-year due to lower terminal equipment revenue,partially offset by higher service revenue.In our Europe operating segment,revenue increased by 3.8%year-on-year.In organic terms,revenue increased by 4.9%,primarily attributable to the increase in high-margin services revenues in the mobile business.Revenue in our Systems Solutions operating segment was up 2.0%year-on-year;in organic terms,it was up 4.5%.This positive revenue trend was mainly driven by growth in the Digital,Road Charging,and Advisory portfolio areas,which more than offset the expected decline in traditional IT infrastructure business.Revenue in our Group Development operating segment declined by 87.6%compared with the prior-year period,due to the sales of TMobile Netherlands and GD Towers.In organic terms,it increased by 4.2%.For further information on revenue development in our segments,please refer to the section“Development of business in the operating segments.”Contribution of the segments to net revenuea,b%Europe0.1Group DevelopmentSystems Solutions21.5Germany65.6United States9.82.8a For further information on net revenue,please refer to the section“Segment reporting”in the interim consolidated financial statements.b As of the third quarter of 2022 the principal/agent consideration regarding the recognition of gross and net revenues was changed.Prior-year comparatives were adjusted retrospectively.Breakdown of revenue by regionbe.6North America0.4Other countries22.6Germany11.4Europe(excluding Germany)At 65.6%,our United States operating segment again provided by far the largest contribution to net revenue of the Group,up 1.2 percentage points above the level in the prior-year period.The proportion of net revenue generated internationally also increased from 76.8%to 77.4%.=pqInterim Group management report 12Deutsche Telekom.Interim Group Report Q1 2023.Adjusted EBITDA AL,EBITDA AL Adjusted EBITDA AL increased year-on-year by EUR 0.1 billion or 0.9%to EUR 10.0 billion in the first quarter of 2023.In organic terms,adjusted EBITDA AL increased by EUR 0.1 billion or 1.0%,including positive net exchange rate effects of EUR 0.3 billion,and with changes in the composition of the Group having a net reducing effect of EUR 0.3 billion.Adjusted core EBITDA AL,i.e.,adjusted EBITDA AL excluding revenue from terminal equipment leases in the United States,thereby presenting operational development undistorted by the strategic withdrawal from the terminal equipment lease business,increased by EUR 0.4 billion or 4.1%to EUR 9.8 billion.Contribution of the segments to adjusted Group EBITDA AL(according to the management approach)millions of Q1 2023 Q1 2022 Change Change%FY 2022 Germany 2,489 2,393 96 4.0 9,837 United States 6,536 6,172 364 5.9 25,614 Europe 983 976 7 0.7 3,964 Systems Solutions 75 68 7 10.3 284 Group Development 65 356(291)(81.7)964 Group Headquarters&Group Services(176)(85)(91)n.a.(437)Reconciliation(9)(7)(2)(28.6)(17)EBITDA AL(adjusted for special factors)9,963 9,873 90 0.9 40,208 All operating segments with the exception of Group Development also made a positive contribution to the adjusted EBITDA AL trend.Our Germany operating segment contributed to the increase thanks to high-value revenue growth and improved cost efficiency with 4.0%higher adjusted EBITDA AL;in organic terms,it increased by 3.1%.In our United States operating segment,adjusted EBITDA AL increased by 5.9%,essentially due to exchange rate effects.In organic terms,adjusted EBITDA AL grew by 1.3%year-on-year.Adjusted core EBITDA AL at TMobile US increased by EUR 0.7 billion or 11.5%to EUR 6.4 billion.Adjusted EBITDA AL in our Europe operating segment increased by 0.7%.In organic terms,adjusted EBITDA AL grew by 1.2%,again making a positive contribution to earnings,with a positive net margin more than sufficient to offset the higher indirect costs.In our Systems Solutions operating segment,adjusted EBITDA AL increased by 10.3%or,in organic terms,by 4.6%.Efficiency effects from our transformation program and increased revenue in our Digital and Road Charging portfolio areas exceeded the decline in earnings in the traditional IT infrastructure business.Adjusted EBITDA AL in our Group Development operating segment declined by 81.7%year-on-year due to the sale of TMobile Netherlands and GD Towers.In organic terms,it increased by 32.0%.EBITDA AL increased by EUR 11.3 billion year-on-year to EUR 22.4 billion,with special factors affecting EBITDA AL changing by EUR 11.2 billion to EUR 12.4 billion.Net income of EUR 12.6 billion was recorded as special factors under effects of deconsolidations,disposals,and acquisitions.The deconsolidation of GD Towers as of February 1,2023 gave rise to income of EUR 12.9 billion.Net expenses of EUR 0.3 billion,mainly in connection with integration costs incurred as a result of the merger of TMobile US and Sprint,had an offsetting effect.These expenses include in particular expenses from the integration of IT systems,expenses in connection with the decommissioning of Sprints wireless network and additional depreciation and impairment losses from reductions in the useful lives of leased network technology for cell sites in the United States.In the prior-year period,net income of EUR 1.3 billion had been recorded as special factors under effects of deconsolidations,disposals,and acquisitions.Of this income,EUR 1.7 billion resulted from the deconsolidation of GlasfaserPlus and a further EUR 0.9 billion from the sale of TMobile Netherlands.Net expenses of EUR 1.2 billion,mainly in connection with integration costs incurred as a result of the merger of TMobile US and Sprint,had an offsetting effect.Expenses incurred in connection with staff restructuring were on a par with the prior-year level at EUR 0.2 billion.No other special factors affecting EBITDA AL were recognized in the reporting period.The prior-year figure included payments on account received from insurance companies in connection with damage sustained in the catastrophic flooding in July 2021.For further information on the development of(adjusted)EBITDA AL in our segments,please refer to the section“Development of business in the operating segments.”=pqInterim Group management report 13Deutsche Telekom.Interim Group Report Q1 2023.Profit/loss from operations(EBIT)Group EBIT increased to EUR 18.0 billion,up EUR 11.7 billion against the level of the prior-year period.This change was primarily due to the deconsolidation gain from the sale of GD Towers.At EUR 6.0 billion,depreciation,amortization and impairment losses on intangible assets,property,plant and equipment,and right-of-use assets were EUR 0.7 billion lower in the first quarter of 2023 than in the prior-year period,with the decrease being almost exclusively attributable to the United States and Group Development operating segments.Depreciation and amortization at TMobile US were lower due to the ongoing strategic withdrawal from the terminal equipment lease business.Depreciation and amortization also decreased due to the complete write-off of certain 4G network components,including assets affected by the decommissioning of the former Sprints legacy CDMA and LTE networks in 2022.The decrease was offset by increased depreciation and amortization in connection with the further build-out of the nationwide 5G network in the United States.In the Group Development operating segment,depreciation of property,plant and equipment and right-of-use assets were down on the prior-year level in connection with the fact that GD Towers had been held for sale until it was sold and accordingly the related depreciation had been suspended,and in connection with its subsequent sale.By contrast,a further reduction in the useful life of leased network technology for cell sites resulted in an increase in depreciation of the corresponding right-of-use assets of EUR 0.1 billion.No significant impairment losses were recorded either in the reporting period or in the prior-year period.For information on the sale and the presentation of GD Towers according to the management approach,including a reconciliation for the consolidated income statement,please refer to the section“Group organization,strategy,and management.”Profit before income taxes Profit before income taxes increased by EUR 11.2 billion to EUR 16.7 billion.Loss from financial activities increased year-on-year from EUR 0.9 billion to EUR 1.3 billion,with other financial income declining from EUR 0.3 billion to EUR 0.1 billion,in particular in connection with the interest component from the measurement of provisions and liabilities.This decrease was mainly attributable to the subsequent measurement using actuarial principles of the present value of the provision recognized for the Civil Service Health Insurance Fund.Finance costs also increased from EUR 1.2 billion to EUR 1.4 billion,mainly due to the sale and leaseback of sold passive network infrastructure in Germany and Austria in connection with the sale of GD Towers and the modification of the arrangements between TMobile US and Crown Castle in 2022,which resulted in an increase in the carrying amounts of the lease liabilities.Net profit,adjusted net profit Net profit increased year-on-year by EUR 11.4 billion to EUR 15.4 billion.The tax expense decreased by EUR 0.8 billion to EUR 0.3 billion.The tax rate was significantly reduced in the first quarter of 2023 by the realization of tax-free income from the sale of GD Towers.Taxes were furthermore reduced by deferred tax effects arising in connection with the sale-and-leaseback transaction concluded.Profit attributable to non-controlling interests increased by EUR 0.6 billion to EUR 1.1 billion.This increase was primarily attributable to our United States operating segment.Excluding special factors,which had a positive overall effect of EUR 13.4 billion on net profit,adjusted net profit in the first quarter of 2023 amounted to EUR 2.0 billion,compared with EUR 2.2 billion in the prior-year period.For further information on tax expense,please refer to the section“Income taxes”in the interim consolidated financial statements.Earnings per share,adjusted earnings per share Earnings per share is calculated as net profit divided by the weighted average number of ordinary shares outstanding,which totaled 4,974 million as of March 31,2023.This resulted in earnings per share of EUR 3.09,which was mainly affected by the gain on deconsolidation of GD Towers.In the prior-year period,earnings per share had been EUR 0.79.Earnings per share adjusted for special factors affecting net profit amounted to EUR 0.39 compared with EUR 0.45 in the prior-year period.Employees Headcount development Mar.31,2023 Dec.31,2022 Change Change%FTEs in the Group 207,789 206,759 1,030 0.5 Of which:civil servants(in Germany,with an active service relationship)8,095 8,381(286)(3.4)Germany 60,800 59,014 1,786 3.0 United States 68,890 67,088 1,802 2.7 Europe 33,729 34,083(354)(1.0)Systems Solutions 25,695 27,392(1,697)(6.2)Group Development 115 828(713)(86.1)Of which:GD Towers 0 762(762)(100.0)Group Headquarters&Group Services 18,560 18,353 207 1.1=pqInterim Group management report 14Deutsche Telekom.Interim Group Report Q1 2023.As of March 31,2023,the Groups headcount was up slightly compared with the end of 2022,by 0.5%.In our Germany operating segment,the number of employees increased by 3.0%against year-end 2022,mainly due to the transfer of employees of Multimedia Solutions GmbH from the Systems Solutions operating segment.The total number of full-time equivalent employees in the United States operating segment increased by 2.7%against the end of 2022,primarily due to hiring and retention initiatives in sales and customer service.In our Europe operating segment,the headcount was down by 1.0%compared with the end of the prior year,in particular in Slovakia,Croatia,and Hungary.The headcount in our Systems Solutions operating segment was down 6.2%year-end 2022,mainly due to the transfer of Multimedia Solutions GmbH into the Germany operating segment.In the Group Development operating segment,the sharp year-on-year decrease in headcount of 86.1%was mainly due to the sale of GD Towers as of February 1,2023.The headcount in the Group Headquarters&Group Services segment was up 1.1%compared with the end of 2022,mainly due to the increase in the number of employees in the Technology and Innovation Board department.The ongoing staff restructuring at Vivento had an offsetting effect.Reconciliations of financial performance indicators from the IFRS consolidated financial statements A reconciliation of the definition of EBITDA to the“after leases”indicator(EBITDA AL)can be found in the following table:millions of Q1 2023 Q1 2022 Change Change%FY 2022 EBITDA 24,046 13,092 10,954 83.7 43,986 Depreciation of right-of-use assetsa(1,246)(1,654)408 24.7(6,507)Interest expenses on recognized lease liabilitiesa(435)(351)(84)(23.9)(1,489)EBITDA AL 22,364 11,087 11,277 n.a.35,989 Special factors affecting EBITDA AL 12,401 1,214 11,187 n.a.(4,219)EBITDA AL(adjusted for special factors)9,963 9,873 90 0.9 40,208 a Excluding finance leases at T-Mobile US.The following table presents the reconciliation of net profit to net profit adjusted for special factors:millions of Q1 2023 Q1 2022 Change Change%FY 2022 Net profit(loss)15,360 3,949 11,411 n.a.8,001 Special factors affecting EBITDA AL 12,401 1,214 11,187 n.a.(4,219)Staff-related measures(232)(183)(49)(26.8)(1,230)Non-staff-related restructuring(10)(9)(1)(11.1)(175)Effects of deconsolidations,disposals and acquisitions 12,623 1,333 11,290 n.a.(2,256)Impairment losses(1)(4)3 75.0(276)Other 21 77(56)(72.7)(283)Special factors affecting net profit 1,000 496 504 n.a.3,139 Impairment losses(17)(30)13 43.3(989)Profit(loss)from financial activities 0 21(21)(100.0)(487)Income taxes 876 4 872 n.a.1,936 Non-controlling interests 141 502(361)(71.9)2,680 Special factors 13,401 1,710 11,691 n.a.(1,080)Net profit(loss)(adjusted for special factors)1,959 2,238(279)(12.5)9,081=pqInterim Group management report 15Deutsche Telekom.Interim Group Report Q1 2023.The following table presents a reconciliation of EBITDA AL,EBIT,and net profit to the respective figures adjusted for special factors:millions of EBITDA AL Q1 2023 EBIT Q1 2023 EBITDA AL Q1 2022 EBIT Q1 2022 EBITDA AL FY 2022 EBIT FY 2022 EBITDA AL/EBIT 22,364 18,015 11,087 6,327 35,989 16,159 Germany(104)(104)1,621 1,621 1,162 1,162 Staff-related measures(98)(98)(100)(100)(523)(523)Non-staff-related restructuring(5)(5)(1)(1)(8)(8)Effects of deconsolidations,disposals and acquisitions 6 6 1,656 1,656 1,608 1,608 Impairment losses 0 0 0 0 0 0 Other(7)(7)66 66 84 84 United States(363)(357)(1,258)(1,255)(5,949)(6,637)Staff-related measures(74)(74)(28)(28)(352)(352)Non-staff-related restructuring 0 0 0 0 0 0 Effects of deconsolidations,disposals and acquisitions(328)(319)(1,229)(1,226)(4,956)(5,084)Impairment losses(1)(4)0 0(275)(836)Other 40 40 0 0(366)(366)Europe(5)(5)(1)(1)(31)(147)Staff-related measures(5)(5)(6)(6)(70)(70)Non-staff-related restructuring 0 0 0 0 0 0 Effects of deconsolidations,disposals and acquisitions 4 4 5 5 12 12 Impairment losses 0 0 0 0 0(117)Other(5)(5)0 0 27 27 Systems Solutions(26)(35)(30)(43)(159)(270)Staff-related measures(20)(20)(20)(20)(107)(107)Non-staff-related restructuring(1)(1)0 0(5)(5)Effects of deconsolidations,disposals and acquisitions 0 0(2)(2)(2)(2)Impairment losses 0(8)(1)(14)0(111)Other(6)(6)(7)(7)(44)(44)Group Development 12,941 12,941 869 869 992 992 Staff-related measures(3)(3)(1)(1)(10)(10)Non-staff-related restructuring 0 0 0 0 0 0 Effects of deconsolidations,disposals and acquisitions 12,944 12,944 871 871 1,003 1,003 Impairment losses 0 0 0 0 0 0 Other 0 0(1)(1)(1)(1)Group Headquarters&Group Services(42)(42)13(3)(234)(270)Staff-related measures(32)(32)(28)(28)(168)(168)Non-staff-related restructuring(5)(5)(8)(8)(162)(162)Effects of deconsolidations,disposals and acquisitions(4)(4)33 33 80 80 Impairment losses 0 0(3)(19)0(36)Other(1)(1)18 18 17 17 Group 12,401 12,398 1,214 1,187(4,219)(5,171)Staff-related measures(232)(232)(183)(183)(1,230)(1,230)Non-staff-related restructuring(10)(10)(9)(9)(175)(175)Effects of deconsolidations,disposals and acquisitions 12,623 12,632 1,333 1,336(2,256)(2,384)Impairment losses(1)(13)(4)(34)(276)(1,100)Other 21 21 77 77(283)(283)EBITDA AL/EBIT(adjusted for special factors)9,963 5,617 9,873 5,140 40,208 21,330 Profit(loss)from financial activities(adjusted for special factors)(1,317)(908)(3,931)Profit(loss)before income taxes(adjusted for special factors)4,301 4,233 17,399 Income taxes(adjusted for special factors)(1,150)(1,086)(4,157)Profit(loss)(adjusted for special factors)3,151 3,146 13,242 Profit(loss)(adjusted for special factors)attributable to Owners of the parent(net profit(loss)(adjusted for special factors)1,959 2,238 9,081 Non-controlling interests(adjusted for special factors)1,192 908 4,161=pqInterim Group management report 16Deutsche Telekom.Interim Group Report Q1 2023.Financial position of the Group Condensed consolidated statement of financial position millions of Mar.31,2023c.31,2022 Change Mar.31,2022 Assets Cash and cash equivalents 10,913 3.6 5,767 5,146 9,875 Trade receivables 15,891 5.2 16,766(875)15,542 Intangible assets 138,142 45.5 140,600(2,458)137,224 Property,plant and equipment 65,532 21.6 65,729(197)63,159 Right-of-use assets 34,524 11.4 33,727 797 37,028 Investments accounted for using the equity method 7,337 2.4 1,318 6,019 1,960 Current and non-current financial assets 10,939 3.6 9,910 1,029 8,348 Deferred tax assets 7,711 2.5 8,316(605)7,416 Non-current assets and disposal groups held for sale 487 0.2 4,683(4,196)71 Miscellaneous assets 12,317 4.1 11,774 543 11,799 Total assets 303,793 100.0 298,590 5,203 292,422 Liabilities and shareholders equity Current and non-current financial liabilities 108,381 35.7 113,030(4,649)110,557 Current and non-current lease liabilities 42,454 14.0 38,792 3,662 40,131 Trade and other payables 11,106 3.7 12,035(929)10,865 Provisions for pensions and other employee benefits 3,676 1.2 4,150(474)5,010 Current and non-current other provisions 7,751 2.6 8,204(453)8,533 Deferred tax liabilities 21,835 7.2 22,800(965)20,517 Liabilities directly associated with non-current assets and disposal groups held for sale 384 0.1 3,347(2,963)0 Miscellaneous liabilities 9,521 3.1 8,912 609 9,153 Shareholders equity 98,685 32.5 87,320 11,365 87,656 Total liabilities and shareholders equity 303,793 100.0 298,590 5,203 292,422 Total assets amounted to EUR 303.8 billion as of March 31,2023,up by EUR 5.2 billion against December 31,2022.The main contributing factors were the cash proceeds from the sale of GD Towers,the sale-and-leaseback transaction concluded in this connection to lease the sold passive network infrastructure in Germany and Austria,and the inclusion of the remaining 49.0%stake.Total assets were reduced in connection with the derecognition of the assets and liabilities that had been fully consolidated until the transaction was closed.Exchange rate effects,primarily from the translation of U.S.dollars into euros,decreased the carrying amount of total assets.On the assets side,trade receivables amounted to EUR 15.9 billion,down by EUR 0.9 billion against the 2022 year-end.This was due to lower receivables in the United States and Germany,operating segments.Exchange rate effects,mainly from the translation of U.S.dollars into euros,also decreased the carrying amount.Intangible assets decreased by EUR 2.5 billion to EUR 138.1 billion,due in particular to exchange rate effects of EUR 2.0 billion,primarily from the translation of U.S.dollars into euros.Amortization and impairment losses of EUR 1.7 billion also reduced it.By contrast,additions had an increasing effect of EUR 1.2 billion on the carrying amount.Property,plant and equipment decreased by EUR 0.2 billion compared with December 31,2022 to EUR 65.5 billion.Depreciation charges of EUR 2.9 billion had a decreasing effect on the carrying amount.Exchange rate effects of EUR 0.5 billion,primarily from the translation of U.S.dollars into euros,and disposals of EUR 0.1 billion also reduced the carrying amount.By contrast,additions for the upgrade and build-out of the network(broadband,fiber-optic,and mobile infrastructure build-out)increased the carrying amount by EUR 3.3 billion.Compared with December 31,2022,right-of-use assets increased by EUR 0.8 billion to EUR 34.5 billion.The carrying amount was increased by additions of EUR 2.8 billion,mainly due to the sale and leaseback of sold passive network infrastructure in Germany and Austria in connection with the sale of the GD Towers.In this connection,retained right-of-use assets of EUR 2.0 billion were recognized.Depreciation,amortization and impairment losses of EUR 1.4 billion and exchange rate effects of EUR 0.5 billion,primarily from the translation of U.S.dollars into euros,decreased the carrying amount.For further information on the sale of GD Towers,please refer to the section“Group organization,strategy,and management.”=pqInterim Group management report 17Deutsche Telekom.Interim Group Report Q1 2023.Investments accounted for using the equity method increased by EUR 6.0 billion compared to December 31,2022,to EUR 7.3 billion,essentially as a result of the sale of the 51.0%stake in GD Towers.Following the loss of control pursuant to the IFRSs as a result of the transaction,the companies were deconsolidated as of February 1,2023.Since this date,the remaining 49.0%of the shares have been included in the consolidated financial statements as an investment accounted for using the equity method.The carrying amount of the investment amounted to EUR 6.0 billion as of March 31,2023.For further information on the sale of GD Towers,please refer to the section“Group organization,strategy,and management.”Current and non-current financial assets increased by EUR 1.0 billion to EUR 10.9 billion.The net total of originated loans and receivables increased by EUR 1.0 billion to EUR 5.3 billion.Under short-term investments,government bonds were bought during the course of the year.As of March 31,2023,they had a carrying amount of EUR 0.8 billion.The carrying amount was also increased by an existing shareholder loan to GD Towers of EUR 0.4 billion,which must be reported in the consolidated statement of financial position as a result of the deconsolidation of the companies.By contrast,the carrying amount of cash collateral deposited was reduced by EUR 0.2 billion.Non-current assets and disposal groups held for sale decreased by EUR 4.2 billion compared with December 31,2022 to EUR 0.5 billion.The sale of GD Towers as of February 1,2023 had a reducing effect of EUR 4.2 billion.Up until this date,the assets had been classified as held for sale on account of the sales agreement concluded.For further information on the sale of GD Towers,please refer to the section“Group organization,strategy,and management.”Other assets increased by EUR 0.5 billion to EUR 12.3 billion.Current and non-current other assets contributed EUR 0.3 billion to this increase,due to an increase in receivables from other taxes.In addition,contract assets and capitalized contract costs each increased by EUR 0.1 billion.On the liabilities and shareholders equity side,current and non-current financial liabilities decreased by EUR 4.6 billion compared with the end of 2022 to a total of EUR 108.4 billion.The carrying amount of bonds and other securitized liabilities decreased by EUR 3.9 billion,with exchange rate effects,in particular from the translation of U.S.dollars into euros,accounting for EUR 1.3 billion of this decrease.Early repayments in the Group by way of early buy-backs in February and March 2023 of EUR,GBP,and USD bonds with a total volume of EUR 3.3 billion,and the scheduled repayment of a EUR bond of EUR 0.2 billion also reduced the carrying amount.Net repayments of commercial paper also decreased the carrying amount by EUR 2.3 billion.The carrying amount was increased by the senior notes issued in the reporting period by TMobile US with a total volume of USD 3.0 billion(EUR 2.8 billion).The carrying amounts of liabilities to banks,liabilities with the right of creditors to priority repayment in the event of default,other interest-bearing liabilities,and derivative financial liabilities all recorded minor decreases.Current and non-current lease liabilities increased by EUR 3.7 billion to EUR 42.5 billion compared with December 31,2022,mainly resulting from the sale and leaseback of sold passive network infrastructure in Germany and Austria in connection with the sale of GD Towers.As a result of this transaction,lease liabilities increased by EUR 5.0 billion.By contrast,lease liabilities in the United States operating segment decreased by EUR 0.6 billion due to a decline in network and build-out investments and the closure of former Sprint shops.Exchange rate effects,in particular from the translation of U.S.dollars into euros,reduced the carrying amount by EUR 0.6 billion.For further information on the sale of GD Towers,please refer to the section“Group organization,strategy,and management.”Trade and other payables decreased by EUR 0.9 billion to EUR 11.1 billion,due in particular to lower liabilities following a sharp decline in procurement volumes in the United States and Europe operating segments owing to seasonal effects.Exchange rate effects,mainly from the translation of U.S.dollars into euros,also decreased the carrying amount.Provisions for pensions and other employee benefits decreased by EUR 0.5 billion compared with December 31,2022 to EUR 3.7 billion,mainly due to an increase in the fair values of plan assets.The decline in the discount rate compared with December 31,2022 had an offsetting effect.Overall,the remeasurement of defined benefit plans resulted in an actuarial gain of EUR 0.4 billion recognized directly in equity.Current and non-current other provisions decreased by EUR 0.5 billion compared with the end of 2022 to EUR 7.8 billion.Other provisions for personnel costs decreased by EUR 0.2 billion,and the provisions for procurement and sales support by EUR 0.1 billion,mainly in connection with the bonuses paid out to employees and sales partners in the United States operating segment.Provisions for restoration obligations also decreased by EUR 0.1 billion,due in particular to the decommissioning of the former Sprint mobile network and shop closures.Exchange rate effects,in particular from the translation of U.S.dollars into euros,also contributed to the decrease in the carrying amount.=pqInterim Group management report 18Deutsche Telekom.Interim Group Report Q1 2023.Liabilities directly associated with non-current assets and disposal groups held for sale decreased by EUR 3.0 billion against December 31,2022 to EUR 0.4 billion.The sale of GD Towers as of February 1,2023 reduced the carrying amount by EUR 3.0 billion.Up until this date,the liabilities had been classified as held for sale on account of the sales agreement concluded.Miscellaneous liabilities increased by EUR 0.6 billion compared to December 31,2022 to EUR 9.5 billion,mainly due to an increase in other liabilities of EUR 0.4 billion,driven by an increase in liabilities from other taxes.In addition,income tax liabilities increased by EUR 0.2 billion and contract liabilities by EUR 0.1 billion.Shareholders equity increased from EUR 87.3 billion as of December 31,2022 to EUR 98.7 billion,with profit of EUR 16.4 billion and capital increases from share-based payments of EUR 0.1 billion having an increasing effect.By contrast,transactions with owners reduced shareholders equity by EUR 4.5 billion,mainly in connection with the share buy-back program at TMobile US.Other comprehensive income also decreased the carrying amount by EUR 0.7 billion.The main factors here were negative currency translation effects recognized directly in equity amounting to EUR 1.1 billion,offset by a positive effect of EUR 0.4 billion from the remeasurement of defined benefit plans.For further information on the statement of financial position,please refer to the section“Selected notes to the consolidated statement of financial position”in the interim consolidated financial statements.Calculation of net debt millions of Mar.31,2023a Dec.31,2022a Change Change%Mar.31,2022a Bonds and other securitized liabilities 89,892 93,802(3,910)(4.2)93,296 Liabilities to banks 3,914 4,122(208)(5.0)3,753 Other financial liabilities 14,575 15,107(532)(3.5)13,508 Lease liabilities 42,736 41,063 1,673 4.1 40,131 Financial liabilities and lease liabilities 151,117 154,093(2,976)(1.9)150,688 Accrued interest(1,039)(999)(40)(4.0)(1,166)Other(967)(805)(162)(20.1)(889)Gross debt 149,111 152,289(3,178)(2.1)148,633 Cash and cash equivalents 10,913 5,767 5,146 89.2 9,875 Derivative financial assets 2,240 2,273(33)(1.5)2,064 Other financial assets 2,441 1,824 617 33.8 747 Net debt 133,517 142,425(8,908)(6.3)135,947 Lease liabilitiesb 40,469 38,692 1,777 4.6 37,818 Net debt AL 93,048 103,733(10,685)(10.3)98,129 a Including net debt reported under liabilities directly associated with non-current assets and disposal groups held for sale.b Excluding finance leases at T-Mobile US.Changes in net debt millions of 320133,517142,425(4,822)(10,667)2,9718374,305(1,852)GD Towers cashproceedsNet debt as of Dec.31,2022Free cash flow(before dividend payments and spectrum investment)Additions of lease liabilities and of right-of-use assetsGD Towers saleand leasebackExchange rate effectsOther effectsNet debt as of Mar.31,2023T-Mobile USshare buy-backprogram=pqInterim Group management report 19Deutsche Telekom.Interim Group Report Q1 2023.Other effects of EUR 0.3 billion include,among other factors,the acquisition of spectrum,the recognition of liabilities for the acquisition of media broadcasting rights,share buy-backs at our subsidiaries,and contrasting measurement effects in connection with derivatives.For further information on the sale of GD Towers,please refer to the section“Group organization,strategy,and management.”Calculation of free cash flow AL millions of Q1 2023 Q1 2022 Change Change%FY 2022 Net cash from operating activities 9,558 9,358 200 2.1 35,819 Cash outflows for investments in intangible assets(1,187)(3,551)2,364 66.6(7,551)Cash outflows for investments in property,plant and equipment(3,639)(3,621)(18)(0.5)(16,563)Cash capex(4,826)(7,173)2,347 32.7(24,114)Spectrum investment 67 2,514(2,447)(97.3)3,096 Cash capex(before spectrum investment)(4,759)(4,658)(101)(2.2)(21,019)Proceeds from the disposal of intangible assets(excluding goodwill)and property,plant and equipment 23 50(27)(54.0)439 Free cash flow(before dividend payments and spectrum investment)4,822 4,750 72 1.5 15,239 Principal portion of repayment of lease liabilitiesa(1,244)(969)(275)(28.4)(3,769)Free cash flow AL(before dividend payments and spectrum investment)3,579 3,781(202)(5.3)11,470 a Excluding finance leases at T-Mobile US Free cash flow AL(before dividend payments and spectrum investment)decreased by EUR 0.2 billion year-on-year to EUR 3.6 billion.The following effects impacted on this development:Net cash from operating activities increased by EUR 0.2 billion to EUR 9.6 billion on the back of the good business performance.Lower cash outflows in connection with the integration of Sprint in the United States and exchange rate effects also had an increasing effect.The increase in net interest payments of EUR 0.3 billion and the increase in tax payments of EUR 0.1 billion,in particular,had a reducing effect.Cash capex(before spectrum investment)increased slightly by EUR 0.1 billion to EUR 4.8 billion.In the Germany operating segment,capital expenditure totaled around EUR 1.2 billion in the first quarter of 2023,EUR 0.3 billion more than in the prior-year period,with much of this figure going towards the fiber-optic build-out.Cash outflows in the Europe operating segment increased by EUR 0.1 billion to EUR 0.4 billion.Here,we also continue to invest in the provision of broadband and fiber-optic technology and in 5G as part of our integrated network strategy.By contrast,cash capex in the United States operating segment decreased by EUR 0.2 billion to EUR 2.8 billion,mainly as a result of higher cash outflows in the prior year for the accelerated build-out of the 5G network and the integration of Sprint.In the Systems Solutions operating segment,our capital expenditure was EUR 0.1 billion.The increase is mainly due to catch-up effects in the Cloud Services and Road Charging portfolio areas following supply shortages in 2022.In the Group Development operating segment,cash capex decreased,mainly due to the sales of TMobile Netherlands and GD Towers.An increase of EUR 0.3 billion in cash outflows for the repayment of lease liabilities reduced free cash flow AL.This mainly related to leases in the United States operating segment.For further information on the statement of cash flows,please refer to the section“Notes to the consolidated statement of cash flows”in the interim consolidated financial statements.=pqInterim Group management report 20Deutsche Telekom.Interim Group Report Q1 2023.Development of business in the operating segments Germany Customer development thousands Mar.31,2023 Dec.31,2022 Change Mar.31,2023/Dec.31,2022%Mar.31,2022 Change Mar.31,2023/Mar.31,2022%Mobile customers 56,067 54,249 3.4 53,968 3.9 Contract customers 24,037 23,791 1.0 23,165 3.8 Prepaid customersa 32,030 30,458 5.2 30,803 4.0 Fixed-network lines 17,349 17,363(0.1)17,480(0.7)Retail broadband lines 14,789 14,715 0.5 14,533 1.8 Of which:optical fiberb 12,238 12,112 1.0 10,584 15.6 Television(IPTV,satellite)4,172 4,122 1.2 4,018 3.8 Unbundled local loop lines(ULLs)3,017 3,136(3.8)3,487(13.5)Wholesale broadband lines 8,086 8,045 0.5 7,970 1.5 Of which:optical fiber 7,020 6,970 0.7 6,837 2.7 a Due to a network switchover,a portion of our prepaid customers had been migrated to another provider by the end of the third quarter of 2022.b From June 1,2022 until December 31,2022,we migrated customers to fiber-optic lines under our“Turn customers into fans”(Kunden zu Fans machen)initiative.Around 1 million lines in total were upgraded as part of this initiative.Total In Germany we continue to be market leader both in terms of fixed-network and mobile revenues.This success is attributable to our high-performance networks,a broad product portfolio,and good service.We want to offer our customers a seamless and technology-neutral telecommunications experience.We regularly adapt our product portfolio to address the needs of our customers.The fixed-network broadband market hosts a large number of players with differing infrastructures from national through to regional providers.In order to consolidate our position on the market as Germanys leading telecommunications provider,we continue to add new offerings to our portfolio.Mobile communications The number of high-value mobile contract customers under the Telekom and congstar brands grew by 274 thousand customers overall.Sustained high demand for mobile rate plans with data volumes continues to drive this trend.The number of prepaid customers grew by 1.6 million compared with December 31,2022,primarily from the automotive industry.Fixed network Demand remained high for our fiber-optic-based lines,with the total number increasing to 19.3 million since the end of 2022.Two key factors are driving this strong growth:demand for higher bandwidths,and the technical migration of customer lines to optical fiber under our“Turn customers into fans”(Kunden zu Fans machen)initiative,which concluded at the end of 2022.The number of broadband lines remained at a high level,increasing by 74 thousand compared with December 31,2022 to 14.8 million.Almost 42%of the customers subscribed to a rate plan with speeds of 100 Mbit/s or higher.We recorded an increase of 50 thousand in the number of TV customers compared with year-end 2022.The number of fixed-network lines stood at 17.3 million.=pqInterim Group management report 21Deutsche Telekom.Interim Group Report Q1 2023.Wholesale As of March 31,2023,fiber-optic-based lines accounted for 63.2%of all lines 0.9 percentage points more than at the end of 2022.This growth is a result of the demand for our commitment agreements.Ongoing demand among retail customers for higher-bandwidth lines also contributed to the increase.The number of unbundled local loop lines decreased by 119 thousand compared with the end of the prior year,partly as a result of the shift to higher-value fiber-optic-based lines and partly from consumers switching to other providers.In addition,our wholesale customers are migrating their retail customers to their own fiber-optic-based lines.The total number of wholesale lines at the end of March 2023 was 11.1 million.Development of operationsa millions of Q1 2023 Q1 2022 Change Change%FY 2022 Revenueb 6,141 5,963 178 3.0 24,505 Consumers 3,077 3,034 43 1.4 12,370 Business Customers 2,269 2,186 83 3.8 9,040 Wholesale 672 679(7)(1.0)2,676 Other 123 63 60 95.2 419 Service revenueb 5,417 5,290 127 2.4 21,533 EBITDA 2,483 4,021(1,538)(38.2)11,025 Special factors affecting EBITDA (104)1,621(1,725)n.a.1,162 EBITDA(adjusted for special factors)2,587 2,400 187 7.8 9,864 EBITDA AL 2,385 4,015(1,630)(40.6)10,998 Special factors affecting EBITDA AL (104)1,621(1,725)n.a.1,162 EBITDA AL(adjusted for special factors)2,489 2,393 96 4.0 9,837 EBITDA AL margin(adjusted for special factors).5 40.1 40.1 Depreciation,amortization and impairment losses (1,036)(998)(38)(3.8)(4,019)Profit(loss)from operations(EBIT)1,447 3,024(1,577)(52.1)7,006 EBIT margin#.6 50.7 28.6 Cash capex (1,187)(902)(285)(31.6)(4,399)Cash capex(before spectrum investment)(1,187)(902)(285)(31.6)(4,399)a As of July 1,2022,the security business was transferred from the Systems Solutions operating segment to the Germany operating segment.Prior-year comparatives were adjusted retrospectively.b As of the third quarter of 2022 the principal/agent consideration regarding the recognition of gross and net revenues was changed.Prior-year comparatives were adjusted retrospectively.Revenue,service revenue In the first quarter of 2023,we generated revenue of EUR 6.1 billion,which was up by 3.0%year-on-year.In organic terms,revenue increased by 2.3%year-on-year.The growth in service revenues of 2.4%was attributable to increased revenue in the fixed-network core business,largely broadband-driven,and in mobile business.Another revenue driver was the partnership business.In organic terms,service revenue increased by 1.6%year-on-year.Revenue from Consumers increased by 1.4%compared with the prior year.Revenue from broadband business continued to grow,due in part to the positive effects from customer appreciation for stable data lines and high bandwidths.Fixed-network terminal equipment business also posted growth on the back of demand on the customer side for terminal equipment lease models.Volume-driven declines in revenue from voice components continued to impact on traditional fixed-network business.Mobile business declined slightly on account of terminal equipment business.Mobile service revenues remained stable,despite a network switchover of a portion of our prepaid customers.Revenue from Business Customers was up by 3.8%year-on-year.This was due in part to the IT business.The mobile business grew thanks to higher service revenues as a result of ongoing growth in the customer base,and from the terminal equipment business.In organic terms,revenue increased by 2.1%year-on-year.Wholesale revenue declined by 1.0%year-on-year in the first quarter of 2023.The positive trend in the number of fiber-optic-based lines held steady,with a year-on-year increase of 2.7%.However,this was not enough to fully offset the decrease in revenues,among other things from declining volumes of unbundled local loop lines.=pqInterim Group management report 22Deutsche Telekom.Interim Group Report Q1 2023.Adjusted EBITDA AL,EBITDA AL Adjusted EBITDA AL increased by EUR 0.1 billion or 4.0%year-on-year to EUR 2.5 billion.In organic terms,adjusted EBITDA AL grew by 3.1%year-on-year.Our adjusted EBITDA AL margin increased to 40.5%.The main reasons for this increase are a sound operational development,driven by high-value revenue growth,and enhanced cost efficiency.Organic factors also include the smaller headcount and ongoing implementation of efficiency enhancement and digitalization measures.EBITDA AL decreased by EUR 1.6 billion to EUR 2.4 billion.In the prior-year quarter,special factors included the gain on deconsolidation of GlasfaserPlus(EUR 1.7 billion)and initial payments on account received from insurance companies in connection with damage sustained in the catastrophic flooding in July 2021(EUR 0.1 billion).Expenses for socially responsible instruments in connection with staff restructuring were at the prior-year level.Profit/loss from operations(EBIT)Profit from operations amounted to EUR 1.4 billion,a decrease of 52.1%year-on-year.This decline is primarily attributable to the gain recognized in the prior year on the deconsolidation of GlasfaserPlus.Depreciation,amortization and impairment losses were up against the prior-year level,mainly resulting from the sale and leaseback of sold passive network infrastructure in Germany in connection with the sale of GD Towers.For further information on the sale of GD Towers,please refer to the section“Group organization,strategy,and management.”Cash capex(before spectrum investment),cash capex Cash capex increased by EUR 285 million or 31.6%compared with the prior year.Capital expenditure totaled around EUR 1.2 billion in the first three months of 2023,in particular for the fiber-optic build-out.The number of households passed by our fiber-optic network had increased to around 5.7 million by the end of March 2023.In mobile communications,95.1%of German households can already use 5G.United States Customer development thousands Mar.31,2023 Dec.31,2022 Change Mar.31,2023/Dec.31,2022%Mar.31,2022 Change Mar.31,2023/Mar.31,2022%Customers 114,917 113,598 1.2 109,541 4.9 Postpaid customers 93,525 92,232 1.4 88,423 5.8 Postpaid phone customersa 73,372 72,834 0.7 70,656 3.8 Other postpaid customersa 20,153 19,398 3.9 17,767 13.4 Prepaid customers 21,392 21,366 0.1 21,118 1.3 a Customers impacted by the decommissioning of the legacy Sprint CDMA and LTE and T-Mobile US UMTS networks have been excluded from our customer base resulting in the removal of 212 thousand postpaid phone customers and 349 thousand postpaid other customers in the first quarter of 2022.In connection with our acquisition of companies,we included a base adjustment in the first quarter of 2022 to increase postpaid phone customers by 17 thousand and reduce postpaid other customers by 14 thousand.Customers At March 31,2023,the United States operating segment(TMobile US)had 114.9 million customers,compared to 113.6 million customers at December 31,2022.Net customer additions were 1.3 million in the first quarter of 2023,compared to 1.4 million in the first quarter of 2022 due to the factors described below.Postpaid net customer additions were 1.3 million in the first quarter of 2023,compared to 1.3 million in the first quarter of 2022.Postpaid net customer additions were relatively flat due to lower postpaid phone net customer additions,primarily due to lower gross additions driven by continued normalizing of industry growth closer to pre-pandemic levels and fewer migrations from prepaid,partially offset by lower churn.This decrease was mostly offset by higher postpaid other net customer additions,primarily due to growth in High Speed Internet,partially offset by lower net additions from mobile internet devices.High Speed Internet net customer additions included in postpaid other net customer additions were 445 thousand and 329 thousand in the first quarter of 2023 and 2022,respectively.Prepaid net customer additions were 26 thousand in the first quarter of 2023,compared to 62 thousand in the first quarter of 2022.This decrease was primarily due to continued normalization of industry growth toward pre-pandemic levels,partially offset by growth in High Speed Internet and fewer migrations to postpaid.High Speed Internet net customer additions included in prepaid net customer additions were 78 thousand and 9 thousand in the first quarter of 2023 and 2022,respectively.=pqInterim Group management report 23Deutsche Telekom.Interim Group Report Q1 2023.Development of operations millions of Q1 2023 Q1 2022 Change Change%FY 2022 Revenuea 18,262 17,880 382 2.1 75,436 Service revenuea 14,475 13,456 1,019 7.6 58,219 EBITDA 7,545 6,647 898 13.5 26,707 Special factors affecting EBITDA (234)(820)586 71.5(4,155)EBITDA(adjusted for special factors)7,779 7,467 312 4.2 30,862 EBITDA AL 6,173 4,914 1,259 25.6 19,665 Special factors affecting EBITDA AL (363)(1,258)895 71.1(5,949)EBITDA AL(adjusted for special factors)6,536 6,172 364 5.9 25,614 Core EBITDA AL(adjusted for special factors)b 6,401 5,741 660 11.5 24,280 EBITDA AL margin(adjusted for special factors)5.8 34.5 34.0 Depreciation,amortization and impairment losses (3,970)(4,604)634 13.8(19,237)Profit(loss)from operations(EBIT)3,575 2,044 1,531 74.9 7,470 EBIT margin.6 11.4 9.9 Cash capex (2,862)(5,535)2,673 48.3(16,340)Cash capex(before spectrum investment)(2,799)(3,025)226 7.5(13,361)a As of the third quarter of 2022 the principal/agent consideration regarding the recognition of gross and net revenues was changed.Prior-year comparatives were adjusted retrospectively.b Adjusted core EBITDA AL is distinguished by excluding revenue from terminal equipment leases from adjusted EBITDA AL,thereby presenting operational development undistorted by the withdrawal from the terminal equipment lease business.Revenue,service revenue Total revenue for the United States operating segment of EUR 18.3 billion in the first quarter of 2023 increased by 2.1%,compared to EUR 17.9 billion in the first quarter of 2022.In U.S.dollars,TMobile US total revenues decreased 2.3%during the same period.Total revenues decreased primarily due to lower equipment revenues partially offset by higher service revenues.The components of these changes are described below.Service revenues increased in the first quarter of 2023 by 7.6%to EUR 14.5 billion.This increase resulted from higher postpaid revenues,primarily due to higher average postpaid accounts and higher postpaid Average Revenue per Account(ARPA).This increase was partially offset by lower wholesale and other service revenues,primarily from lower Lifeline and MVNO revenues and lower prepaid revenues,primarily from lower prepaid Average Revenue per User(ARPU),partially offset by higher average prepaid customers.Equipment revenues decreased in the first quarter of 2023 primarily from a decrease in the number of devices sold primarily driven by higher postpaid upgrades in the prior-year period related to facilitating the migration of Sprint customers to the TMobile US network and an increase in contra-revenue primarily driven by higher imputed interest rates on equipment installment plans(EIP).In addition,equipment revenues decreased due to a decrease in lease revenues and customer purchases of leased devices primarily due to a lower number of customer devices under lease as a result of the continued strategic shift in device financing from leasing to EIP.The decrease in equipment revenues was partially offset by higher average revenue per device sold primarily driven by higher promotions in the prior-year period,which included promotions for Sprint customers to facilitate their migration to the TMobile US network,partially offset by a decrease in the high-end phone mix.Adjusted EBITDA AL,EBITDA AL In euros,adjusted EBITDA AL increased by 5.9%to EUR 6.5 billion in the first quarter of 2023,compared to EUR 6.2 billion in the first quarter of 2022.The adjusted EBITDA AL margin increased to 35.8%in the first quarter of 2023,compared to 34.5%in the first quarter of 2022.In U.S.dollars,adjusted EBITDA AL increased 1.3%during the same period.Adjusted EBITDA AL increased primarily due to lower average cost per device sold driven by a decrease in the high-end phone mix,higher service revenues as discussed above and higher realized Sprint Merger-related synergies.This increase was partially offset by lower equipment revenues as described above and higher site costs related to the continued build-out of our nationwide 5G network.In U.S.dollars,lease revenues decreased as a result of the continued strategic shift in device financing from leasing to EIP by 70.0%in 2023.=pqInterim Group management report 24Deutsche Telekom.Interim Group Report Q1 2023.Adjusted core EBITDA AL increased by 11.5%to EUR 6.4 billion in the first quarter of 2023,compared to EUR 5.7 billion in the first quarter of 2021.In U.S.dollars,adjusted core EBITDA AL increased by 6.6%during the same period.The change was primarily due to the fluctuation in adjusted EBITDA AL,discussed above,excluding the change in lease revenues.EBITDA AL in the first quarter of 2023 included special factors of EUR-0.4 billion compared to EUR-1.3 billion in the first quarter of 2022.The change in special factors was primarily due to lower Sprint Merger-related costs.The change in special factors is also impacted by other special items including certain severance,restructuring and other expenses and income,not directly attributable to the Sprint Merger which are not reflective of TMobile US core business activities.Special factors include Sprint Merger-related costs predominantly associated with the integration of Sprint and are comprised of integration costs to achieve efficiencies in network,retail,information technology and back office operations,migrate customers to the TMobile US network and billing systems and the impact of legal matters assumed as part of the Sprint Merger.In addition,Sprint Merger-related special factors include restructuring costs,including severance,store rationalization and network decommissioning as well as transaction costs,including legal and professional services related to the completion of transactions.Overall,EBITDA AL increased by 25.6%to EUR 6.2 billion in the first quarter of 2023,compared to EUR 4.9 billion in the first quarter of 2022,primarily due to the factors described above,including special factors.Profit/loss from operations(EBIT)EBIT increased by 74.9%to EUR 3.6 billion in the first quarter of 2023,compared to EUR 2.0 billion in the first quarter of 2022.In U.S.dollars,EBIT increased by 67.0%during the same period primarily due to higher EBITDA AL and lower depreciation,amortization and impairment losses.In U.S.dollars,depreciation,amortization and impairment losses decreased 17.5%primarily due to lower depreciation expense on leased devices,resulting from a lower number of total customer devices under lease and certain 4G-related network assets becoming fully depreciated,including assets impacted by the decommissioning of the legacy Sprint CDMA and LTE networks in 2022.These decreases were partially offset by higher depreciation expense(excluding leased devices)from the continued build-out of our nationwide 5G network.Cash capex(before spectrum investment),cash capex Cash capex(before spectrum investment)decreased by 7.5%to EUR 2.8 billion in the first quarter of 2023,compared to EUR 3.0 billion in the first quarter of 2022.In U.S.dollars,cash capex(before spectrum investment)decreased by 11.4%due to decrease in purchases of property and equipment primarily due to increased capital efficiency following our accelerated nationwide 5G network build-out in 2022.Cash capex decreased by 48.3%to EUR 2.9 billion in the first quarter of 2023,compared to EUR 5.5 billion in the first quarter of 2022.In U.S.dollars,cash capex decreased by 50.7%primarily due to USD 2.8 billion paid for spectrum licenses won at the conclusion of Auction 110 in February 2022 compared to no spectrum licenses won during the first quarter of 2023.Europe Customer development thousands Mar.31,2023 Dec.31,2022 Change Mar.31,2023/Dec.31,2022%Mar.31,2022 Change Mar.31,2023/Mar.31,2022%Europe,total Mobile customers 47,357 47,336 0.0 45,584 3.9 Contract customers 26,580 26,476 0.4 25,803 3.0 Prepaid customers 20,777 20,860(0.4)19,781 5.0 Fixed-network lines 8,341 7,907 5.5 7,814 6.7 Broadband customers 6,765 6,682 1.2 6,443 5.0 Television(IPTV,satellite,cable)4,160 4,131 0.7 4,050 2.7 Unbundled local loop lines(ULL)/Wholesale PSTN 1,728 1,768(2.3)1,886(8.4)Wholesale broadband lines 1,044 1,011 3.3 909 14.9 Greece Mobile customers 7,298 7,323(0.3)7,130 2.4 Fixed-network lines 3,031 2,622 15.6 2,619 15.7 Broadband customers 2,375 2,359 0.7 2,315 2.6 a“Other”:national companies of North Macedonia,Montenegro,and the lines of the GTS Central Europe group in Romania.=pqInterim Group management report 25Deutsche Telekom.Interim Group Report Q1 2023.thousands Mar.31,2023 Dec.31,2022 Change Mar.31,2023/Dec.31,2022%Mar.31,2022 Change Mar.31,2023/Mar.31,2022%Romania Mobile customers 4,062 4,166(2.5)3,821 6.3 Hungary Mobile customers 5,987 5,950 0.6 5,727 4.5 Fixed-network lines 1,899 1,886 0.7 1,836 3.4 Broadband customers 1,534 1,507 1.8 1,433 7.0 Poland Mobile customers 12,553 12,512 0.3 11,845 6.0 Fixed-network lines 30 30 0.0 29 3.4 Broadband customers 182 154 18.2 91 100.0 Czech Republic Mobile customers 6,440 6,423 0.3 6,338 1.6 Fixed-network lines 721 704 2.4 659 9.4 Broadband customers 440 430 2.3 401 9.7 Croatia Mobile customers 2,293 2,305(0.5)2,275 0.8 Fixed-network lines 867 868(0.1)872(0.6)Broadband customers 649 648 0.2 637 1.9 Slovakia Mobile customers 2,464 2,446 0.7 2,479(0.6)Fixed-network lines 851 856(0.6)867(1.8)Broadband customers 644 643 0.2 639 0.8 Austria Mobile customers 4,566 4,510 1.2 4,394 3.9 Fixed-network lines 607 605 0.3 598 1.5 Broadband customers 665 663 0.3 659 0.9 Othera Mobile customers 1,693 1,702(0.5)1,574 7.6 Fixed-network lines 336 336 0.0 335 0.3 Broadband customers 277 277 0.0 269 3.0 a“Other”:national companies of North Macedonia,Montenegro,and the lines of the GTS Central Europe group in Romania.Total In the Europe operating segment,almost all key performance indicators for customer development improved compared with the end of 2022.Our convergent product portfolio,in particular,generated growth compared with year-end 2022 of 2.4%in FMC customers thanks to ongoing demand.As a consequence,we are working flat out to build out our fixed-network infrastructure with state-of-the-art optical fiber.The number of broadband customers has increased by 1.2%.The mobile business remained on a par with the year-end level.Our build-out of the 5G network is making good progress.Mobile communications In our Europe operating segment,the overall number of mobile customers as of March 31,2023 remained stable against year-end 2022 at 47.4 million.The number of contract customers increased slightly by 0.4%.The contract customer base grew in almost all of our national companies,but in particular in Greece,the Czech Republic,Slovakia,Austria,and Poland.Overall,contract customers accounted for 56.1%of the total customer base.Our customers benefited from greater coverage with fast mobile broadband a result of our integrated network strategy.The footprint countries of our operating segment are also making excellent headway with 5G.As of March 31,2023,our national companies covered 51.1%of the population(in particular in Greece,Montenegro,North Macedonia,the Czech Republic,and Austria)with 5G.The prepaid customer base declined slightly by 0.4%compared with the end of 2022,especially in Romania and Greece.As part of our ordinary business activities,we offer our prepaid customers high-value contract plans with the resulting number of contract conversions also contributing positively to contract customer business.Fixed network The broadband business increased by 1.2%compared with the end of 2022 to a total of 6.8 million customers.This growth is mainly driven by the national companies in Poland,Hungary,Greece,and the Czech Republic.By continuing to invest in optical fiber,we are systematically building out our fixed-network infrastructure.At the end of the first quarter of 2023,a total of around 8.2 million households(coverage of 32.1%)were provided with the option by our national companies to subscribe to a direct connection to our fiber-optic network with speeds reaching up to 1 Gbit/s.The utilization rate was up slightly at around 33%.The number of fixed-network lines increased further by 5.5%,reaching 8.3 million as of March 31,2023.The TV and entertainment business had a total of 4.2 million customers as of the end of the first quarter of 2023,up slightly by 0.7%compared with the end of the prior year.This was attributable among other things to the acquisition of exclusive rights to broadcast sports events in the prior year.With both telecommunications providers and OTT players offering TV services,the TV market is already saturated in many countries of our segment.=pqInterim Group management report 26Deutsche Telekom.Interim Group Report Q1 2023.FMC fixed-mobile convergence and digitalization Our portfolio of convergent products,MagentaOne,was highly popular with consumers across all of our national companies.As of March 31,2023,we had 7.2 million FMC customers;this corresponds to growth of 2.4%compared with the end of the prior year.Our national companies in particular in the Czech Republic,Greece,Hungary,and Poland contributed to this growth.At the end of the reporting quarter,FMC customers accounted for 61.2%of the broadband customer base.We have also seen slight growth in the marketing of our MagentaOne Business product to business customers.We continue to expand our digital interaction with customers,which means we can meet customer needs in a more personalized and efficient way,and position products and innovative services on the market more quickly.Around 66%of our customers use our service app.Development of operations millions of Q1 2023 Q1 2022 Change Change%FY 2022 Revenuea 2,784 2,682 102 3.8 11,158 Greece 736 743(7)(0.9)3,155 Romania 69 78(9)(11.5)306 Hungary 457 433 24 5.5 1,715 Poland 365 337 28 8.3 1,413 Czech Republic 321 290 31 10.7 1,226 Croatia 222 209 13 6.2 905 Slovakia 202 191 11 5.8 806 Austria 352 341 11 3.2 1,391 Otherb 77 75 2 2.7 320 Service revenuea,c 2,298 2,250 48 2.1 9,296 EBITDA 1,088 1,065 23 2.2 4,296 Special factors affecting EBITDA (5)(1)(4)n.a.(31)EBITDA(adjusted for special factors)1,094 1,066 28 2.6 4,327 EBITDA AL 978 975 3 0.3 3,933 Special factors affecting EBITDA AL (5)(1)(4)n.a.(31)EBITDA AL(adjusted for special factors)983 976 7 0.7 3,964 Greece 319 314 5 1.6 1,310 Romania 4 12(8)(66.7)38 Hungary 110 127(17)(13.4)493 Poland 93 98(5)(5.1)378 Czech Republic 129 125 4 3.2 503 Croatia 80 79 1 1.3 349 Slovakia 84 86(2)(2.3)350 Austria 133 124 9 7.3 506 Otherb 31 11 20 n.a.37 EBITDA AL margin(adjusted for special factors)5.3 36.4 35.5 Depreciation,amortization and impairment losses (610)(619)9 1.5(2,572)Profit(loss)from operations(EBIT)478 446 32 7.2 1,724 EBIT margin.2 16.6 15.5 Cash capex (439)(362)(77)(21.3)(1,872)Cash capex(before spectrum investment)(436)(358)(78)(21.8)(1,755)The contributions of the national companies correspond to their respective unconsolidated financial statements and do not take consolidation effects at operating segment level into account.a As of the third quarter of 2022 the principal/agent consideration regarding the recognition of gross and net revenues was changed.Prior-year comparatives were adjusted retrospectively.b“Other”:national companies in North Macedonia,Montenegro,and the GTS Central Europe group in Romania,as well as the Europe Headquarters.c As of January 1,2023,the definition of service revenue was extended.Prior-year comparatives were adjusted retrospectively.Revenue,service revenue Our Europe operating segment generated revenue of EUR 2.8 billion in the first three months of 2023,a year-on-year increase of 3.8%.In organic terms,i.e.,assuming constant exchange rates,revenue increased by 4.9%year-on-year.Service revenues also grew against the prior year,by 3.0%in organic terms.=pqInterim Group management report 27Deutsche Telekom.Interim Group Report Q1 2023.Organic revenue growth was largely driven by the strong performance of the mobile business,especially the increase in mobile service revenues with higher margins:alongside the larger contra
2023-06-02
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Allianz 2023Group financial results FY 2022 and 1Q 2023IFRS 9/17MunichMay 12,2023Allianz Investor R.
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Q UA RTER LY STATEMEN T3 1 M A RCH 20 23CONTENTS3 BMWGroup ataGlance7 Interim Group Management Repor.
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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 28,2023OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO .Commission File No.1-10635NIKE,Inc.(Exact name of Registrant as specified in its charter)Oregon93-0584541(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)One Bowerman Drive,Beaverton,Oregon 97005-6453(Address of principal executive offices and zip code)(503)671-6453(Registrants telephone number,including area code)SECURITIES REGISTERED PURSUANT TO SECTION 12(B)OF THE ACT:Class B Common StockNKENew York Stock Exchange(Title of each class)(Trading symbol)(Name of each exchange on which registered)Indicate by check mark:YESNOwhether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for thepast 90 days.whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit such files).whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filer Non-accelerated filerSmaller reporting companyEmerging growth companyif an emerging growth company,if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a)of the Exchange Act.whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).As of March 30,2023,the number of shares of the Registrants Common Stock outstanding were:Class A304,897,252 Class B1,232,091,564 1,536,988,816 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 Operations24ITEM 3.Quantitative and Qualitative Disclosures about Market Risk44ITEM 4.Controls and Procedures44PART II-OTHER INFORMATION46ITEM 1.Legal Proceedings46ITEM 1A.Risk Factors46ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds47ITEM 6.Exhibits48Signatures49Table of ContentsPART I-FINANCIAL INFORMATIONITEM 1.FINANCIAL STATEMENTSNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOMETHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(In millions,except per share data)2023202220232022Revenues$12,390$10,871$38,392$34,476 Cost of sales7,019 5,804 21,695 18,500 Gross profit5,371 5,067 16,697 15,976 Demand creation expense923 854 2,968 2,789 Operating overhead expense3,036 2,584 9,035 7,980 Total selling and administrative expense3,959 3,438 12,003 10,769 Interest expense(income),net(7)53 22 165 Other(income)expense,net(58)(94)(283)(235)Income before income taxes1,477 1,670 4,955 5,277 Income tax expense237 274 916 670 NET INCOME$1,240$1,396$4,039$4,607 Earnings per common share:Basic$0.80$0.88$2.59$2.91 Diluted$0.79$0.87$2.57$2.85 Weighted average common shares outstanding:Basic1,543.8 1,579.0 1,556.7 1,581.1 Diluted1,564.8 1,610.7 1,574.4 1,615.8 The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of this statement.1Table of ContentsNIKE,INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMETHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)2023202220232022Net income$1,240$1,396$4,039$4,607 Other comprehensive income(loss),net of tax:Change in net foreign currency translation adjustment153(6)281(289)Change in net gains(losses)on cash flow hedges(433)(29)(279)775 Change in net gains(losses)on other23(11)(18)(7)Total other comprehensive income(loss),net of tax(257)(46)(16)479 TOTAL COMPREHENSIVE INCOME$983$1,350$4,023$5,086 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 28,MAY 31,(In millions)20232022ASSETSCurrent assets:Cash and equivalents$6,955$8,574 Short-term investments3,847 4,423 Accounts receivable,net4,513 4,667 Inventories8,905 8,420 Prepaid expenses and other current assets1,815 2,129 Total current assets26,035 28,213 Property,plant and equipment,net4,939 4,791 Operating lease right-of-use assets,net2,834 2,926 Identifiable intangible assets,net277 286 Goodwill281 284 Deferred income taxes and other assets3,928 3,821 TOTAL ASSETS$38,294$40,321 LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt$500$500 Notes payable14 10 Accounts payable2,675 3,358 Current portion of operating lease liabilities435 420 Accrued liabilities5,594 6,220 Income taxes payable330 222 Total current liabilities9,548 10,730 Long-term debt8,925 8,920 Operating lease liabilities2,692 2,777 Deferred income taxes and other liabilities2,598 2,613 Commitments and contingencies(Note 13)Redeemable preferred stock Shareholders equity:Common stock at stated value:Class A convertible 305 and 305 shares outstanding Class B 1,235 and 1,266 shares outstanding3 3 Capital in excess of stated value12,074 11,484 Accumulated other comprehensive income(loss)302 318 Retained earnings2,152 3,476 Total shareholders equity14,531 15,281 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$38,294$40,321 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 FEBRUARY 28,(Dollars in millions)20232022Cash provided(used)by operations:Net income$4,039$4,607 Adjustments to reconcile net income to net cash provided(used)by operations:Depreciation516 538 Deferred income taxes(216)(234)Stock-based compensation556 467 Amortization,impairment and other107 6 Net foreign currency adjustments(197)3 Changes in certain working capital components and other assets and liabilities:(Increase)decrease in accounts receivable109 466(Increase)decrease in inventories(527)(872)(Increase)decrease in prepaid expenses,operating lease right-of-use assets and other current and non-currentassets(273)(639)Increase(decrease)in accounts payable,accrued liabilities,operating lease liabilities and other current and non-current liabilities(526)(305)Cash provided(used)by operations3,588 4,037 Cash provided(used)by investing activities:Purchases of short-term investments(4,844)(9,229)Maturities of short-term investments2,470 5,152 Sales of short-term investments3,149 2,921 Additions to property,plant and equipment(700)(516)Other investing activities62(39)Cash provided(used)by investing activities137(1,711)Cash provided(used)by financing activities:Increase(decrease)in notes payable4 4 Proceeds from exercise of stock options and other stock issuances413 959 Repurchase of common stock(4,101)(2,923)Dividends common and preferred(1,488)(1,356)Other financing activities(94)(140)Cash provided(used)by financing activities(5,266)(3,456)Effect of exchange rate changes on cash and equivalents(78)(55)Net increase(decrease)in cash and equivalents(1,619)(1,185)Cash and equivalents,beginning of period8,574 9,889 CASH AND EQUIVALENTS,END OF PERIOD$6,955$8,704 Supplemental disclosure of cash flow information:Non-cash additions to property,plant and equipment$145$126 Dividends declared and not paid527 488 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 30,2022305$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 November 30,2021305$1,278$3$10,990$145$3,786$14,924 Stock options exercised1 112 112 Repurchase of Class B Common Stock(8)(57)(1,165)(1,222)Dividends on common stock($0.305 per share)(488)(488)Issuance of shares to employees,net of shareswithheld for employee taxes(20)(8)(28)Stock-based compensation161 161 Net income1,396 1,396 Other comprehensive income(loss)(46)(46)Balance at February 28,2022305$1,271$3$11,186$99$3,521$14,809 COMMON 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 5Table of ContentsCOMMON STOCKCAPITAL INEXCESSOF STATEDVALUEACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS)RETAINEDEARNINGSTOTALCLASS ACLASS B(In millions,except per share data)SHARESAMOUNTSHARESAMOUNTBalance at May 31,2021305$1,273$3$9,965$(380)$3,179$12,767 Stock options exercised14 837 837 Repurchase of Class B Common Stock(19)(126)(2,806)(2,932)Dividends on common stock($0.885 per share)and preferred stock($0.10 per share)(1,406)(1,406)Issuance of shares to employees,net of shareswithheld for employee taxes3 43(53)(10)Stock-based compensation467 467 Net income4,607 4,607 Other comprehensive income(loss)479 479 Balance at February 28,2022305$1,271$3$11,186$99$3,521$14,809 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 2Inventories8NOTE 3Accrued Liabilities8NOTE 4Fair Value Measurements9NOTE 5Short-term Borrowings and Credit Lines10NOTE 6Income Taxes11NOTE 7Stock-Based Compensation11NOTE 8Earnings Per Share12NOTE 9Risk Management and Derivatives13NOTE 10Accumulated Other Comprehensive Income(Loss)17NOTE 11Revenues19NOTE 12Operating Segments21NOTE 13Contingencies23NOTE 14Acquisitions and Divestitures237Table 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 31,2022,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 31,2022.The results of operations for the three and nine months ended February 28,2023,are not necessarily indicative of results to be expected for the entire fiscal year.The uncertain state of the global economy or worsening macroeconomic conditions could affect the Companys business,including,among other things,potential impactsof inflation and rising interest rates on consumer behavior,higher inventory levels in various markets,higher inventory obsolescence reserves,higher promotional activity,reduced demand for product,reduced orders from wholesale customers for products and order cancellations.There could also be new or prolonged COVID-19 relatedrestrictions or disruptions.Any of these factors,among others,could have material adverse impacts on the Companys revenue growth as well as overall profitability infuture periods.RECENTLY ISSUED ACCOUNTING STANDARDSIn September 2022,the Financial Accounting Standards Board(the“FASB”)issued Accounting Standards Update(“ASU”)ASU 2022-04,Liabilities Supplier FinancePrograms(Subtopic 405-50):Disclosure of Supplier Finance Program Obligations,which enhances transparency surrounding the use of supplier finance programs.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 amendments are effective for fiscal years beginning after December 15,2022,includinginterim periods within those fiscal years,except for the amendment on rollforward information,which is effective for fiscal years beginning after December 15,2023.TheCompany is currently evaluating the ASU to determine its impact on the Companys disclosures.NOTE 2 INVENTORIESInventory balances of$8,905 million and$8,420 million at February 28,2023 and May 31,2022,respectively,were substantially all finished goods.NOTE 3 ACCRUED LIABILITIESAccrued liabilities included the following:FEBRUARY 28,MAY 31,(Dollars in millions)20232022Compensation and benefits,excluding taxes$1,445$1,297 Sales-related reserves1,0671,015 Dividends payable531485 Endorsement compensation498496 Allowance for expected loss on sale397 Other2,0532,530TOTAL ACCRUED LIABILITIES$5,594$6,220(1)Refer to Note 14 Acquisitions and Divestitures for additional information.(1)8Table of ContentsNOTE 4 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 of the Annual Report on Form10-K for the fiscal year ended May 31,2022.The following tables present information about the Companys financial assets measured at fair value on a recurring basis as of February 28,2023 and May 31,2022,andindicate the level in the fair value hierarchy in which the Company classifies the fair value measurement:FEBRUARY 28,2023(Dollars in millions)ASSETS AT FAIR VALUECASH AND EQUIVALENTSSHORT-TERM INVESTMENTSCash$1,105$1,105$Level 1:U.S.Treasury securities3,185 1 3,184 Level 2:Commercial paper and bonds583 8 575 Money market funds5,114 5,114 Time deposits781 727 54 U.S.Agency securities34 34 Total Level 26,512 5,849 663 TOTAL$10,802$6,955$3,847 MAY 31,2022(Dollars in millions)ASSETS AT FAIR VALUECASH AND EQUIVALENTSSHORT-TERM INVESTMENTSCash$839$839$Level 1:U.S.Treasury securities3,801 8 3,793 Level 2:Commercial paper and bonds660 37 623 Money market funds6,458 6,458 Time deposits1,237 1,232 5 U.S.Agency securities2 2 Total Level 28,357 7,727 630 TOTAL$12,997$8,574$4,423 As of February 28,2023,the Company held$3,089 million of available-for-sale debt securities with maturity dates within one year and$758 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$83 million and$22 million for the three months endedFebruary 28,2023 and 2022,respectively,and$196 million and$57 million for the nine months ended February 28,2023 and 2022,respectively.9Table of ContentsThe 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 28,2023DERIVATIVE ASSETSDERIVATIVE LIABILITIES(Dollars in millions)ASSETS ATFAIR VALUEOTHERCURRENTASSETSOTHER LONG-TERM ASSETSLIABILITIESAT FAIRVALUEACCRUEDLIABILITIESOTHER LONG-TERMLIABILITIESLevel 2:Foreign exchange forwards and options$651$551$100$176$112$64 Embedded derivatives5 5 2 2 TOTAL$656$556$100$178$114$64(1)If the foreign exchange derivative instruments had been netted on the Unaudited Condensed Consolidated Balance Sheets,the asset and liability positions each would have been reduced by$175million as of February 28,2023.As of that date,the Company received$100 million of cash collateral from counterparties related to foreign exchange derivative instruments.No amount of collateral wasposted on the derivative liability balance as of February 28,2023.MAY 31,2022DERIVATIVE ASSETSDERIVATIVE LIABILITIES(Dollars in millions)ASSETS ATFAIR VALUEOTHERCURRENTASSETSOTHER LONG-TERM ASSETSLIABILITIESAT FAIRVALUEACCRUEDLIABILITIESOTHER LONG-TERMLIABILITIESLevel 2:Foreign exchange forwards and options$875$669$206$76$65$11 Embedded derivatives5 5 1 1 TOTAL$880$674$206$77$66$11(1)If the foreign exchange derivative instruments had been netted on the Consolidated Balance Sheets,the asset and liability positions each would have been reduced by$76 million as of May 31,2022.As of that date,the Company received$486 million of cash collateral from counterparties related to foreign exchange derivative instruments.No amount of collateral was posted on the derivative liabilitybalance as of May 31,2022For additional information related to the Companys derivative financial instruments and credit risk,refer to Note 9 Risk Management and Derivatives.The carrying amounts of other current financial assets and other current financial liabilities approximate fair value.FINANCIAL ASSETS AND LIABILITIES NOT RECORDED AT FAIR VALUEThe Companys Long-term debt is recorded at adjusted cost,net of unamortized premiums,discounts and debt issuance costs.The fair value of long-term debt isestimated based upon quoted prices for similar instruments or quoted prices for identical instruments in inactive markets(Level 2).The fair value of the Companys Long-term debt,including the current portion,was approximately$8,241 million at February 28,2023 and$8,933 million at May 31,2022.For fair value information regarding Notes payable,refer to Note 5 Short-term Borrowings and Credit Lines.NOTE 5 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 28,2023 and May 31,2022,the Company had no borrowings outstanding under its$3 billion commercial paper program.On March 10,2023,subsequent to the end of the third quarter of fiscal 2023,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 March8,2024,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 March11,2022,which matured on March 10,2023.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 6,2023,no amountswere outstanding under this committed credit facility.(1)(1)10Table of ContentsThere have been no other changes to the credit lines reported in the Companys Annual Report on Form 10-K for the fiscal year ended May 31,2022.NOTE 6 INCOME TAXESThe effective tax rate was 18.5%and 12.7%for the nine months ended February 28,2023 and 2022,respectively.The increase in the Companys effective tax rate wasprimarily due to a less favorable impact from stock-based compensation and a shift in the Companys earnings mix.As of February 28,2023,total gross unrecognized tax benefits,excluding related interest and penalties,were$941 million,$657 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 31,2022,total gross unrecognized tax benefits,excluding relatedinterest and penalties,were$848 million.As of February 28,2023 and May 31,2022,accrued interest and penalties related to uncertain tax positions were$282 millionand$248 million,respectively,(excluding federal benefit)and included within Deferred income taxes and other liabilities on the Unaudited Condensed ConsolidatedBalance Sheets.The Company is subject to taxation in the U.S.,as well as various state and foreign jurisdictions.The Company is currently under audit by the U.S.IRS for fiscal years2017 through 2019.The Company has closed all U.S.federal income tax matters through fiscal 2016,with the exception of certain transfer pricing adjustments.Tax years after 2011 remain open in certain major foreign jurisdictions.Although the timing of resolution of audits is not certain,the Company evaluates all domestic andforeign audit issues in the aggregate,along with the expiration of applicable statutes of limitations,and estimates that it is reasonably possible the total grossunrecognized tax benefits could decrease by up to$30 million within the next 12 months.In January 2019,the European Commission opened a formal investigation toexamine whether the Netherlands has breached State Aid rules when granting certain tax rulings to the Company.The Company believes the investigation is withoutmerit.If this matter is adversely resolved,the Netherlands may be required to assess additional amounts with respect to prior periods,and the Companys income taxesrelated to prior periods in the Netherlands could increase.NOTE 7 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).Refer to Note 11 Common Stock and Stock-Based Compensation of theAnnual Report on Form 10-K for the fiscal year ended May 31,2022 for additional information.The following table summarizes the Companys total stock-based compensation expense recognized in Cost of sales or Operating overhead expense,as applicable:THREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)2023202220232022Stock options$78$75$232$221 ESPPs20 15 53 44 Restricted stock and restricted stock units94 71 271 202 TOTAL STOCK-BASED COMPENSATION EXPENSE$192$161$556$467(1)Expense for stock options includes the expense associated with stock appreciation rights.Accelerated stock option expense is primarily recorded for employees meeting certain retirement eligibilityrequirements.(2)Restricted stock units include RSUs and PSUs.The income tax benefit related to stock-based compensation expense was$22 million and$34 million for the three months ended February 28,2023 and 2022,respectively,and$44 million and$307 million for the nine months ended February 28,2023 and 2022,respectively,and reported within Income tax expense.(1)(1)(2)11Table of ContentsSTOCK OPTIONSThe weighted average fair value per share of stock options granted during the nine months ended February 28,2023 and 2022,computed as of the grant date using theBlack-Scholes pricing model,was$31.31 and$37.53,respectively.The weighted average assumptions used to estimate these fair values were as follows:NINE MONTHS ENDED FEBRUARY 28,20232022Dividend yield0.9%0.8%Expected volatility27.1$.9%Weighted average expected life(in years)5.85.8Risk-free interest rate3.3%0.9%Expected volatilities are based on an analysis of the historical volatility of the Companys common stock,the implied volatility in market-traded options on the Companyscommon stock with a term greater than one year,as well as other factors.The weighted average expected life of stock options is based on an analysis of historical andexpected future exercise patterns.The interest rate is based on the U.S.Treasury(constant maturity)risk-free rate in effect at the date of grant for periods correspondingwith the expected term of the stock options.As of February 28,2023,the Company had$502 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 UNITSThe weighted average fair value per share of restricted stock and RSUs granted for the nine months ended February 28,2023 and 2022,computed as of the grant date,was$110.27 and$158.94,respectively.The weighted average fair value per share of PSUs granted for the nine months ended February 28,2023 and 2022,computed as of the grant date,was$134.71 and$250.52,respectively.As of February 28,2023,the Company had$727 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.NOTE 8 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 29.5 million and 9.3 million shares ofcommon stock outstanding for the three months ended February 28,2023 and 2022,respectively,and 31.8 million and 9.4 million shares of common stock outstanding forthe nine months ended February 28,2023 and 2022,respectively,because the awards were assumed to be anti-dilutive.THREE MONTHS ENDEDFEBRUARY 28,NINE MONTHS ENDEDFEBRUARY 28,(In millions,except per share data)2023202220232022Net income available to common stockholders$1,240$1,396$4,039$4,607 Determination of shares:Weighted average common shares outstanding1,543.8 1,579.0 1,556.7 1,581.1 Assumed conversion of dilutive stock options and awards21.0 31.7 17.7 34.7 DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING1,564.8 1,610.7 1,574.4 1,615.8 Earnings per common share:Basic$0.80$0.88$2.59$2.91 Diluted$0.79$0.87$2.57$2.85 12Table of ContentsNOTE 9 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 28,2023,there have been no material changes to theCompanys hedging program or strategy from what was disclosed within the Annual Report on Form 10-K.For additional information about the Companys derivatives andhedging policies,refer to Note 1 Summary of Significant Accounting Policies and Note 14 Risk Management and Derivatives of the Annual Report on Form 10-K forthe fiscal year ended May 31,2022.The majority of derivatives outstanding as of February 28,2023,are designated as foreign currency cash flow hedges,primarily for Euro/U.S.Dollar,Chinese Yuan/U.S.Dollar,British Pound/Euro 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 28,MAY 31,(Dollars in millions)20232022Derivatives formally designated as hedging instruments:Foreign exchange forwards and optionsPrepaid expenses and other current assets$530$639 Foreign exchange forwards and optionsDeferred income taxes and other assets100 206 Total derivatives formally designated as hedging instruments630 845 Derivatives not designated as hedging instruments:Foreign exchange forwards and optionsPrepaid expenses and other current assets21 30 Embedded derivativesPrepaid expenses and other current assets5 5 Total derivatives not designated as hedging instruments26 35 TOTAL DERIVATIVE ASSETS$656$880 DERIVATIVE LIABILITIESBALANCE SHEET LOCATIONFEBRUARY 28,MAY 31,(Dollars in millions)20232022Derivatives formally designated as hedging instruments:Foreign exchange forwards and optionsAccrued liabilities$93$37 Foreign exchange forwards and optionsDeferred income taxes and other liabilities64 11 Total derivatives formally designated as hedging instruments157 48 Derivatives not designated as hedging instruments:Foreign exchange forwards and optionsAccrued liabilities19 28 Embedded derivativesAccrued liabilities2 1 Total derivatives not designated as hedging instruments21 29 TOTAL DERIVATIVE LIABILITIES$178$77 13Table of ContentsThe following tables present the amounts in the Unaudited Condensed Consolidated Statements of Income in which the effects of cash flow hedges are recorded and theeffects of cash flow hedge activity on these line items:THREE MONTHS ENDED FEBRUARY 28,20232022(Dollars in millions)TOTALAMOUNT OF GAIN(LOSS)ON CASH FLOWHEDGE ACTIVITYTOTALAMOUNT OF GAIN(LOSS)ON CASH FLOWHEDGE ACTIVITYRevenues$12,390$14$10,871$(22)Cost of sales7,019 182 5,804 17 Demand creation expense923(1)854 Other(income)expense,net(58)90(94)45 Interest expense(income),net(7)(2)53(2)NINE MONTHS ENDED FEBRUARY 28,20232022(Dollars in millions)TOTALAMOUNT OF GAIN(LOSS)ON CASH FLOWHEDGE ACTIVITYTOTALAMOUNT OF GAIN(LOSS)ON CASH FLOWHEDGE ACTIVITYRevenues$38,392$9$34,476$(63)Cost of sales21,695 464 18,500(79)Demand creation expense2,968(4)2,789 1 Other(income)expense,net(283)297(235)56 Interest expense(income),net22(6)165(5)The 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 ENDEDFEBRUARY 28,LOCATION OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVE INCOME(LOSS)INTO INCOMETHREE MONTHS ENDEDFEBRUARY 28,2023202220232022Derivatives designated as cash flowhedges:Foreign exchange forwards and options$30$(37)Revenues$14$(22)Foreign exchange forwards and options(141)4 Cost of sales182 17 Foreign exchange forwards and options1 Demand creation expense(1)Foreign exchange forwards and options(65)31 Other(income)expense,net90 45 Interest rate swaps Interest expense(income),net(2)(2)TOTAL DESIGNATED CASH FLOWHEDGES$(175)$(2)$283$38(1)For the three months ended February 28,2023 and 2022,the amounts recorded in Other(income)expense,net as a result of the discontinuance of cash flow hedges because the forecastedtransactions were no longer probable of occurring were immaterial.(2)Gains and losses associated with terminated interest rate swaps,which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income(loss),will bereleased through Interest expense(income),net over the term of the issued debt.(1)(1)(2)14Table of Contents(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 ENDEDFEBRUARY 28,LOCATION OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVE INCOME(LOSS)INTO INCOMENINE MONTHS ENDEDFEBRUARY 28,2023202220232022Derivatives designated as cash flowhedges:Foreign exchange forwards and options$52$(74)Revenues$9$(63)Foreign exchange forwards and options245 522 Cost of sales464(79)Foreign exchange forwards and options(2)(3)Demand creation expense(4)1 Foreign exchange forwards and options181 304 Other(income)expense,net297 56 Interest rate swaps Interest expense(income),net(6)(5)TOTAL DESIGNATED CASH FLOWHEDGES$476$749$760$(90)(1)For the nine months ended February 28,2023 and 2022,the amounts recorded in Other(income)expense,net as a result of the discontinuance of cash flow hedges because the forecastedtransactions were no longer probable of occurring were immaterial.(2)Gains and losses associated with terminated interest rate swaps,which were previously designated as cash flow hedges and recorded in Accumulated other comprehensive income(loss),will bereleased through Interest expense(income),net over the term of the issued debt.AMOUNT OF GAIN(LOSS)RECOGNIZEDIN INCOME ON DERIVATIVESLOCATION OF GAIN(LOSS)RECOGNIZED IN INCOMEON DERIVATIVESTHREE MONTHS ENDEDFEBRUARY 28,NINE MONTHS ENDEDFEBRUARY 28,(Dollars in millions)2023202220232022Derivatives not designated as hedging instruments:Foreign exchange forwards and options$(12)$(20)$32$12 Other(income)expense,netEmbedded derivatives(14)20(9)Other(income)expense,netCASH FLOW HEDGESAll changes in fair value of derivatives designated as cash flow hedge instruments are recorded in Accumulated other comprehensive income(loss)until Net income isaffected by the variability of cash flows of the hedged transaction.Effective hedge results are classified in the Unaudited Condensed Consolidated Statements of Incomein the same manner as the underlying exposure.When it is no longer probable the forecasted hedged transaction will occur in the initially identified time period,hedgeaccounting is discontinued and the Company accounts for the associated derivative as an undesignated instrument as discussed below.Additionally,the gains and lossesassociated with derivatives no longer designated as cash flow hedge instruments in Accumulated other comprehensive income(loss)are recognized immediately in Other(income)expense,net,if it is probable the forecasted hedged transaction will not occur by the end of the initially identified time period or within an additional two-monthperiod thereafter.In rare circumstances,the additional period of time may exceed two months due to extenuating circumstances related to the nature of the forecastedtransaction that are outside the control or influence of the Company.The total notional amount of outstanding foreign currency derivatives designated as cash flow hedges was approximately$19.5 billion as of February 28,2023.Approximately$495 million of deferred net gains(net of tax)on both outstanding and matured derivatives in Accumulated other comprehensive income(loss)as ofFebruary 28,2023,are expected to be reclassified to Net income during the next 12 months concurrent with the underlying hedged transactions also being recorded inNet income.Actual amounts ultimately reclassified to Net income are dependent on the exchange rates in effect when derivative contracts currently outstanding mature.As of February 28,2023,the maximum term over which the Company hedges exposures to the variability of cash flows for its forecasted transactions was 27 months.(1)(1)(2)15Table of ContentsUNDESIGNATED DERIVATIVE INSTRUMENTSThe Company may elect to enter into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities on the Unaudited CondensedConsolidated Balance Sheets and/or embedded derivative contracts.These undesignated instruments are recorded at fair value as a derivative asset or liability on theUnaudited Condensed Consolidated Balance Sheets with their corresponding change in fair value recognized in Other(income)expense,net,together with theremeasurement gain or loss from the hedged balance sheet position and/or embedded derivative contract.The total notional amount of outstanding undesignatedderivative instruments was$4.7 billion as of February 28,2023.EMBEDDED DERIVATIVESEmbedded derivative contracts are treated as foreign currency forward contracts that are bifurcated from the related contract and recorded at fair value as a derivativeasset or liability on the Unaudited Condensed Consolidated Balance Sheets with their corresponding change in fair value recognized in Other(income)expense,net,through the date the foreign currency fluctuations cease to exist.As of February 28,2023,the total notional amount of embedded derivatives outstanding was approximately$460 million.CREDIT RISKThe Companys bilateral credit-related contingent features generally require the owing entity,either the Company or the derivative counterparty,to post collateral for theportion of the fair value in excess of$50 million should the fair value of outstanding derivatives per counterparty be greater than$50 million.Additionally,a certain level ofdecline in credit rating of either the Company or the counterparty could trigger collateral requirements.As of February 28,2023,the Company was in compliance with allcredit risk-related contingent features,and derivative instruments with such features were in a net asset position of approximately$475 million.Accordingly,the Companywas not required to post cash collateral as a result of these contingent features.Further,$100 million of collateral was received on the Companys derivative assetbalance as of February 28,2023.The Company considers the impact of the risk of counterparty default to be immaterial.For additional information related to the Companys derivative financial instruments and collateral,refer to Note 4 Fair Value Measurements.16Table of ContentsNOTE 10 ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS)The changes in Accumulated other comprehensive income(loss),net of tax,were as follows:(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at November 30,2022$(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 tax benefit(expense)of$0 million,$(4)million,$0 million,$1 million and$(3)million,respectively.(3)Net of tax(benefit)expense of$0 million,$29 million,$0 million,$(9)million and$20 million,respectively.(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at November 30,2021$(281)$369$115$(58)$145 Other comprehensive income(loss):Other comprehensive gains(losses)before reclassifications(6)4 (7)(9)Reclassifications to net income of previously deferred(gains)losses(33)(4)(37)Total other comprehensive income(loss)(6)(29)(11)(46)Balance at February 28,2022$(287)$340$115$(69)$99(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 tax benefit(expense)of$0 million,$6 million,$0 million,$2 million and$8 million,respectively.(3)Net of tax(benefit)expense of$0 million,$5 million,$0 million,$1 million and$6 million,respectively.(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at May 31,2022$(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 tax benefit(expense)of$0 million,$(77)million,$0 million,$8 million and$(69)million,respectively.(3)Net of tax(benefit)expense of$(16)million,$82 million,$0 million,$(3)million and$63 million,respectively.(1)(1)(2)(3)(1)(1)(2)(3)(1)(1)(2)(3)17Table of Contents(Dollars in millions)FOREIGNCURRENCYTRANSLATIONADJUSTMENTCASH FLOWHEDGESNETINVESTMENTHEDGESOTHERTOTALBalance at May 31,2021$2$(435)$115$(62)$(380)Other comprehensive income(loss):Other comprehensive gains(losses)before reclassifications(289)689 7 407 Reclassifications to net income of previously deferred(gains)losses 86 (14)72 Total other comprehensive income(loss)(289)775 (7)479 Balance at February 28,2022$(287)$340$115$(69)$99(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 tax benefit(expense)of$0 million,$(60)million,$0 million,$(2)million and$(62)million,respectively.(3)Net of tax(benefit)expense of$0 million,$(4)million,$0 million,$5 million and$1 million,respectively.The following table summarizes the reclassifications from Accumulated other comprehensive income(loss)to the Unaudited Condensed Consolidated Statements ofIncome:AMOUNT OF GAIN(LOSS)RECLASSIFIED FROM ACCUMULATEDOTHER COMPREHENSIVE INCOME(LOSS)INTO INCOMELOCATION OF GAIN(LOSS)RECLASSIFIED FROMACCUMULATEDOTHER COMPREHENSIVEINCOME(LOSS)INTO INCOMETHREE MONTHS ENDEDFEBRUARY 28,NINE MONTHS ENDEDFEBRUARY 28,(Dollars in millions)2023202220232022Gains(losses)on foreign currency translationadjustment$(3)$(374)$Other(income)expense,netTotal before tax(3)(374)Tax(expense)benefit 16 Gain(loss)net of tax(3)(358)Gains(losses)on cash flow hedges:Foreign exchange forwards and options$14$(22)$9$(63)RevenuesForeign exchange forwards and options182 17 464(79)Cost of salesForeign exchange forwards and options(1)(4)1 Demand creation expenseForeign exchange forwards and options90 45 297 56 Other(income)expense,netInterest rate swaps(2)(2)(6)(5)Interest expense(income),netTotal before tax283 38 760(90)Tax(expense)benefit(29)(5)(82)4 Gain(loss)net of tax254 33 678(86)Gains(losses)on other(32)5(12)19 Other(income)expense,netTotal before tax(32)5(12)19 Tax(expense)benefit9(1)3(5)Gain(loss)net of tax(23)4(9)14 Total net gain(loss)reclassified for the period$228$37$311$(72)(1)(1)(2)(3)18Table of ContentsNOTE 11 REVENUESDISAGGREGATION OF REVENUESThe following tables present the Companys Revenues disaggregated by reportable operating segment,major product line and distribution channel: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 THREE MONTHS ENDED FEBRUARY 28,2022(Dollars in millions)NORTHAMERICAEUROPE,MIDDLEEAST&AFRICAGREATERCHINAASIAPACIFIC&LATINAMERICAGLOBALBRANDDIVISIONSTOTALNIKEBRANDCONVERSECORPORATETOTALNIKE,INC.Revenues by:Footwear$2,532$1,569$1,554$1,005$6,660$503$7,163 Apparel1,207 1,083 548 394 3,232 29 3,261 Equipment143 127 58 62 390 7 397 Other 41 41 28(19)50 TOTAL REVENUES$3,882$2,779$2,160$1,461$41$10,323$567$(19)$10,871 Revenues by:Sales to Wholesale Customers$1,769$1,858$1,241$860$5,728$303$6,031 Sales through Direct to Consumer2,113 921 919 601 4,554 236 4,790 Other 41 41 28(19)50 TOTAL REVENUES$3,882$2,779$2,160$1,461$41$10,323$567$(19)$10,871 19Table of ContentsNINE 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 NINE MONTHS ENDED FEBRUARY 28,2022(Dollars in millions)NORTHAMERICAEUROPE,MIDDLEEAST&AFRICAGREATERCHINAASIAPACIFIC&LATINAMERICAGLOBALBRANDDIVISIONSTOTALNIKEBRANDCONVERSECORPORATETOTALNIKE,INC.Revenues by:Footwear$8,648$5,358$4,238$2,914$21,158$1,555$22,713 Apparel4,117 3,444 1,588 1,181 10,330 87 10,417 Equipment473 426 160 178 1,237 21 1,258 Other 54 54 90(56)88 TOTAL REVENUES$13,238$9,228$5,986$4,273$54$32,779$1,753$(56)$34,476 Revenues by:Sales to Wholesale Customers$6,774$6,194$3,251$2,571$18,790$975$19,765 Sales through Direct to Consumer6,464 3,034 2,735 1,702 13,935 688 14,623 Other 54 54 90(56)88 TOTAL REVENUES$13,238$9,228$5,986$4,273$54$32,779$1,753$(56)$34,476 For the three and nine months ended February 28,2023 and 2022,Global Brand Divisions revenues included NIKE Brand licensing and other miscellaneous revenuesthat are not part of a geographic operating segment.Converse Other revenues were primarily attributable to licensing businesses.Corporate revenues primarily consistedof foreign currency hedge gains and losses related to revenues generated by entities within the NIKE Brand geographic operating segments and Converse,but managedthrough the Companys central foreign exchange risk management program.As of February 28,2023 and May 31,2022,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 12 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 Asia Pacific&Latin America(APLA),and include results for the NIKE and Jordan brands.The Companys NIKE Direct operations are managed within each NIKE Brand geographic operating segment.Converse is also a reportable segment for the Companyand operates in one industry:the design,marketing,licensing and selling of athletic lifestyle sneakers,apparel and accessories.Global Brand Divisions is included within the NIKE Brand for presentation purposes to align with the way management views the Company.Global Brand Divisionsrevenues include NIKE Brand licensing and other miscellaneous revenues that are not part of a geographic operating segment.Global Brand Divisions costs representdemand creation and operating overhead expense that include product creation and design expenses centrally managed for the NIKE Brand,as well as,costs associatedwith NIKE Direct global digital operations and enterprise technology.Corporate consists primarily of unallocated general and administrative expenses,including expenses associated with centrally managed departments;depreciation andamortization related to the Companys headquarters;unallocated insurance,benefit and compensation programs,including stock-based compensation;and certainforeign currency gains and losses,including certain hedge gains and losses.The primary financial measure used by the Company to evaluate performance of individual operating segments is earnings before interest and taxes(EBIT),whichrepresents Net income before Interest expense(income),net and Income tax expense 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 ENDEDFEBRUARY 28,NINE MONTHS ENDEDFEBRUARY 28,(Dollars in millions)2023202220232022REVENUESNorth America$4,913$3,882$16,253$13,238 Europe,Middle East&Africa3,246 2,779 10,068 9,228 Greater China1,994 2,160 5,438 5,986 Asia Pacific&Latin America1,601 1,461 4,735 4,273 Global Brand Divisions12 41 44 54 Total NIKE Brand11,766 10,323 36,538 32,779 Converse612 567 1,841 1,753 Corporate12(19)13(56)TOTAL NIKE,INC.REVENUES$12,390$10,871$38,392$34,476 EARNINGS BEFORE INTEREST AND TAXESNorth America$1,190$967$4,064$3,636 Europe,Middle East&Africa785 713 2,750 2,394 Greater China702 784 1,754 2,054 Asia Pacific&Latin America485 478 1,470 1,347 Global Brand Divisions(1,160)(975)(3,573)(3,033)Converse164 168 526 504 Corporate(696)(412)(2,014)(1,460)Interest expense(income),net(7)53 22 165 TOTAL NIKE,INC.INCOME BEFORE INCOME TAXES$1,477$1,670$4,955$5,277 FEBRUARY 28,MAY 31,(Dollars in millions)20232022ACCOUNTS RECEIVABLE,NETNorth America$1,718$1,850 Europe,Middle East&Africa1,392 1,351 Greater China294 406 Asia Pacific&Latin America707 664 Global Brand Divisions81 113 Total NIKE Brand4,192 4,384 Converse263 230 Corporate58 53 TOTAL ACCOUNTS RECEIVABLE,NET$4,513$4,667 INVENTORIESNorth America$4,054$4,098 Europe,Middle East&Africa2,066 1,887 Greater China1,060 1,044 Asia Pacific&Latin America957 686 Global Brand Divisions219 197 Total NIKE Brand8,356 7,912 Converse343 279 Corporate206 229 TOTAL INVENTORIES$8,905$8,420(1)(1)22Table of ContentsFEBRUARY 28,MAY 31,(Dollars in millions)20232022PROPERTY,PLANT AND EQUIPMENT,NETNorth America$733$639 Europe,Middle East&Africa966 920 Greater China293 303 Asia Pacific&Latin America272 274 Global Brand Divisions802 789 Total NIKE Brand3,066 2,925 Converse39 49 Corporate1,834 1,817 TOTAL PROPERTY,PLANT AND EQUIPMENT,NET$4,939$4,791(1)Excludes assets held-for-sale as of May 31,2022.See Note 14 Acquisitions and Divestitures for additional information.NOTE 13 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 the Belgian Customs Authorities for alleged underpaid duties related to products imported beginning in fiscal2018.The Company disputes these claims and has engaged in the appellate process.At this time,the Company is unable to estimate the range of loss and cannotpredict the final outcome as it could take several years to reach a resolution on this matter.If this matter is ultimately resolved against the Company,the amounts owed,including fines,penalties and other consequences relating to the matter,could have a material adverse effect on the Companys results of operations,financial positionand cash flows.NOTE 14 ACQUISITIONS AND DIVESTITURESDuring the fourth quarter of fiscal 2022,the Company entered into separate definitive agreements to sell its entities in Argentina and Uruguay,as well as its entity in Chile,to third-party distributors.The sale of the Companys entity in Chile to a third-party distributor was completed during the first quarter of fiscal 2023.The impacts from the transaction were notmaterial to the Companys Unaudited Condensed Consolidated Financial Statements.The sale of the Companys entities in Argentina and Uruguay to a third-party distributor was completed during the second quarter of fiscal 2023 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.The related assets and liabilities of these entities within the Companys APLA operating segment were classified as held-for-sale on the Consolidated Balance Sheetswithin Prepaid expenses and other current assets and Accrued liabilities,respectively,until the transactions closed.As of May 31,2022,held-for-sale assets were$182million and held-for-sale liabilities were$58 million.(1)23Table 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 retail accounts and to a mix of independent distributors,licensees and sales representatives in virtually all countries aroundthe world.Our goal is to deliver value to our shareholders by building a profitable global portfolio of branded footwear,apparel,equipment and accessories businesses.Our strategy is to achieve long-term revenue growth by creating innovative,“must-have”products,building deep personal consumer connections with our brands anddelivering compelling consumer experiences through digital platforms and at retail.Through the Consumer Direct Acceleration,we are focusing on creating the marketplace of the future through more premium,consistent and seamless consumerexperiences,leading with digital and our owned stores,as well as select wholesale partners that share our marketplace vision.Over the last several years,as we haveexecuted against the Consumer Direct Acceleration,we have grown our NIKE Direct revenues,on a reported basis,to be approximately 45%and 43%of total NIKEBrand revenues for the third quarter and first nine months of fiscal 2023,respectively.We have also reduced the number of wholesale accounts globally.Additionally,wehave aligned our product creation and category organizations around a new consumer construct focused on Mens,Womens and Kids and continue to invest in data andanalytics,demand sensing,insight gathering,inventory management and other areas to create an end-to-end technology foundation,which we expect will furtheraccelerate our digital transformation.We believe this unified approach will accelerate growth and unlock more efficiency for our business,while driving speed andresponsiveness as we serve consumers globally.CURRENT ECONOMIC CONDITIONS AND MARKET DYNAMICSRevenues for the third quarter and first nine months of fiscal 2023 grew 14%and 11%,respectively,compared to the prior year,reflecting strong demand for our product,despite ongoing macroeconomic volatility and ongoing supply chain challenges.In the first quarter of fiscal 2022,government mandated shutdowns in Vietnam and Indonesia due to COVID-19 impacted our contract manufacturers operations and oursupply of available product.This,coupled with elevated inventory transit times due to port congestion,transportation delays and labor and container shortages,causedseasonal product to arrive later than planned.We expected these elevated inventory transit times to continue and as a result we purchased product for fiscal 2023 earlierthan normal.However,during the first quarter of fiscal 2023,inventory transit times improved ahead of plan resulting in seasonal product arriving early.This disruption in the flow ofseasonal inventory led to elevated inventory levels at the end of the first quarter of fiscal 2023.Starting in the first quarter of fiscal 2023,we took action to reduce excess inventory by decreasing inventory purchases and increasing promotional activity.These actionsled to Inventories decreasing sequentially in the second and third quarters of fiscal 2023.As inventory transit and product purchase timelines continue to converge towards pre-pandemic levels,we expect that the flow of seasonal product,and our inventorylevels will normalize by the end of fiscal 2023.During the first nine months of fiscal 2023,we experienced higher product input,freight and logistics costs primarily due to inflationary pressures.These costs,combinedwith higher promotional activity,contributed to gross margin contraction of 330 basis points and 280 basis points in the third quarter and first nine months of fiscal 2023,respectively.These impacts were partially offset by strategic pricing actions taken in prior quarters.Fluctuations in currency exchange rates also create volatility in our reported results as we translate the balance sheets,operational results and cash flows of oursubsidiaries into U.S.Dollars for consolidated reporting.During the third quarter of fiscal 2023,foreign currency headwinds increased significantly as the U.S.Dollarstrengthened in relation to most foreign currencies,reducing reported Revenues by$549 million and$2.5 billion for the third quarter and first nine months of fiscal 2023,respectively.We expect unfavorable changes in foreign currency exchange rates,net of hedges,will negatively impact our results of operations in the fourth quarter of fiscal 2023,which could result in continued gross margin contraction.24Table of ContentsMost of our geographies operated with little to no COVID-19 related disruptions during the third quarter of fiscal 2023.In Greater China,however,the shifting of the localgovernments COVID-19 policies in December 2022 led to temporary store closures as well as lower physical traffic during the month.Since January 2023,nearly allstores in Greater China have remained open and are operating on normal hours with improved physical traffic.Across our geographies and Converse,the operating environment remains dynamic,and we expect promotional activity to continue in the fourth quarter of fiscal 2023.Inaddition,we expect product costs to remain elevated due to higher input,freight and logistics costs,which could result in continued gross margin contraction.We also continue to closely monitor macroeconomic conditions,including potential impacts inflation and rising interest rates could have on consumer behavior.While webelieve our Consumer Direct Acceleration Strategy continues to drive our business toward our long-term financial goals,worsening macroeconomic conditions could affectour business,including,among other things,higher inventory levels in various markets,higher inventory obsolescence reserves,higher promotional activity,reduceddemand for our products,reduced orders from our wholesale customers for our products and order cancellations.There could also be new or prolonged COVID-19 relatedrestrictions or disruptions across our geographies.Any of these factors,among others,could have material adverse impacts on our revenue growth as well as overallprofitability in future periods.THIRD QUARTER OVERVIEWFor the third quarter of fiscal 2023,NIKE,Inc.Revenues increased 14%to$12.4 billion compared to the third quarter of fiscal 2022 and increased 19%on a currency-neutral basis.Net income was$1,240 million and diluted earnings per common share was$0.79 for the third quarter of fiscal 2023,compared to Net income of$1,396million and diluted earnings per common share of$0.87 for the third quarter of fiscal 2022.Income before income taxes decreased 12%compared to the third quarter of fiscal 2022 due to higher Selling and administrative expense and gross margin contraction,partially offset by higher revenues.NIKE Brand revenues,which represent over 90%of NIKE,Inc.Revenues,increased 14%compared to the third quarter of fiscal 2022.On a currency-neutral basis,NIKE Brand revenues increased 19%,driven by higher revenues across all geographies,led by increases in North America and Europe,Middle East&Africa(EMEA).Additionally,NIKE Brand currency-neutral revenues were higher across footwear and apparel,as well as across Mens,the Jordan Brand,Womens and Kids.Revenues for Converse increased 8%and 12%compared to the third quarter of fiscal 2022,on a reported and currency-neutral basis,respectively,as revenue growth in North America,Western Europe and licensee markets was partially offset by declines in Asia.Our effective tax rate was 16.0%for the third quarter of fiscal 2023 and substantially consistent compared to 16.4%for the third quarter of fiscal 2022.On August 16,2022,the U.S.government enacted the Inflation Reduction Act of 2022 that includes,among other provisions,changes to the U.S.corporate income taxsystem,including a fifteen percent minimum tax based on adjusted financial statement income,which is effective for NIKE beginning June 1,2023.Based on our currentanalysis of the provisions,we do not expect these tax law changes to have a material impact on our financial statements;however,we will continue to evaluate theirimpact as further information becomes available.During the second quarter of fiscal 2023,we completed the sale of our entities in Argentina and Uruguay to a third party distributor.For more information see Note 14 Acquisitions and Divestitures within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.Now that we have completed the shift froma wholesale and direct to consumer operating model to a distributor model within our Central and South America(CASA)territory,we expect consolidated NIKE,Inc.andAsia Pacific&Latin America(APLA)revenue growth will be reduced due to different commercial terms.However,over time we expect the future operating model to havea favorable impact on our overall profitability as we reduce selling and administrative expenses,as well as reduce exposure to foreign exchange rate volatility.25Table of ContentsUSE OF NON-GAAP FINANCIAL MEASURESThroughout this Quarterly Report on Form 10-Q,we discuss non-GAAP financial measures,including references to wholesale equivalent revenues,currency-neutralrevenues,as well as Total NIKE Brand earnings before interest and taxes(EBIT),Total NIKE,Inc.EBIT and EBIT Margin,which should be considered in addition to,andnot in lieu of,the financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America(“U.S.GAAP”).References to wholesale equivalent revenues are intended to provide context as to the total size of our NIKE Brand market footprint if we had no NIKE Direct operations.NIKE Brand wholesale equivalent revenues consist of(1)sales to external wholesale customers and(2)internal sales from our wholesale operations to our NIKE Directoperations,which are charged at prices comparable to those charged to external wholesale customers.Additionally,currency-neutral revenues are calculated using actualexchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends excluding the impact of translation arising fromforeign currency exchange rate fluctuations.EBIT is calculated as Net income before Interest expense(income),net and Income tax expense in the UnauditedCondensed Consolidated Statements of Income.EBIT Margin is calculated as EBIT divided by total NIKE,Inc.Revenues.Management uses these non-GAAP financial 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 assessingour underlying business performance and trends.However,references to wholesale equivalent revenues,currency-neutral revenues,EBIT and EBIT margin should not beconsidered in isolation or as a substitute for other financial measures calculated and presented in accordance with U.S.GAAP and may not be comparable to similarlytitled non-GAAP measures used by other companies.26Table of ContentsRESULTS OF OPERATIONSTHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions,except per share data)20232022%CHANGE20232022%CHANGERevenues$12,390$10,871 14%$38,392$34,476 11%Cost of sales7,019 5,804 21!,695 18,500 17%Gross profit5,371 5,067 6,697 15,976 5%Gross margin43.3F.6C.5F.3mand creation expense923 854 8%2,968 2,789 6%Operating overhead expense3,036 2,584 17%9,035 7,980 13%Total selling and administrative expense3,959 3,438 15,003 10,769 11%of revenues32.01.61.31.2%Interest expense(income),net(7)53 22 165 Other(income)expense,net(58)(94)(283)(235)Income before income taxes1,477 1,670-12%4,955 5,277-6%Income tax expense237 274-146 670 37fective tax rate16.0.4.5.7%NET INCOME$1,240$1,396-11%$4,039$4,607-12%Diluted earnings per common share$0.79$0.87-9%$2.57$2.85-10%CONSOLIDATED OPERATING RESULTSREVENUESTHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESNIKE,Inc.Revenues:NIKE Brand Revenues by:Footwear$7,970$6,660 20%$24,588$21,158 16$%Apparel3,381 3,232 5,609 10,330 3%Equipment403 390 3%8%1,297 1,237 5%Global Brand Divisions12 41-71%-69D 54-19%-17%Total NIKE Brand Revenues11,766 10,323 146,538 32,779 11%Converse612 567 8%1,841 1,753 5%Corporate12(19)13(56)TOTAL NIKE,INC.REVENUES$12,390$10,871 14%$38,392$34,476 11%Supplemental NIKE Brand RevenuesDetails:NIKE Brand Revenues by:Sales to Wholesale Customers$6,423$5,728 12%$20,693$18,790 10%Sales through NIKE Direct5,331 4,554 17,801 13,935 13 %Global Brand Divisions12 41-71%-69D 54-19%-17%TOTAL NIKE BRAND REVENUES$11,766$10,323 14%$36,538$32,779 11%(1)The percent change excluding currency changes represents a non-GAAP financial measure.See Use of Non-GAAP Financial Measures for further information.(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 2023 COMPARED TO THIRD QUARTER OF FISCAL 2022On a currency-neutral basis,NIKE,Inc.Revenues increased 19%the third quarter of fiscal 2023,driven by higher revenues in both the NIKE Brand and Converse.Higherrevenues in North America,EMEA,APLA and Converse contributed approximately 9,7,2 and 1 percentage points to NIKE,Inc.Revenues,respectively.On a currency-neutral basis,NIKE Brand footwear revenues increased 25%in the third quarter of fiscal 2023,driven by higher revenues in Mens,the Jordan Brand andWomens.Unit sales of footwear increased 19%,while higher average selling price(ASP)per pair contributed approximately 6 percentage points of footwear revenuegrowth,primarily due to higher full-price ASP,net of discounts,on a wholesale equivalent basis,and growth in NIKE Direct.This was partially offset by lower NIKE DirectASP.Currency-neutral NIKE Brand apparel revenues for the third quarter of fiscal 2023 increased 10%,driven by higher revenues in Mens.Unit sales of apparel increased 5%and higher ASP per unit contributed approximately 5 percentage points of apparel revenue growth,primarily due to higher full-price ASP and growth in NIKE Direct,partially offset by lower NIKE Direct ASP.NIKE Brand wholesale revenues increased 12%and 18%compared to the third quarter of fiscal 2022,on a reported and currency-neutral basis,respectively.On areported basis,NIKE Direct revenues represented approximately 45%of our total NIKE Brand revenues for the third quarter of fiscal 2023 compared to 44%for the thirdquarter of fiscal 2022.NIKE Brand Digital sales were$3.1 billion for the third quarter of fiscal 2023 compared to$2.7 billion for the third quarter of fiscal 2022.On acurrency-neutral basis,NIKE Direct revenues increased 22%,primarily driven by NIKE Brand Digital sales growth of 24%and comparable store sales growth of 20%.Comparable store sales,which exclude NIKE Brand Digital sales,comprises revenues from NIKE-owned in-line and factory stores for which all three of the followingrequirements 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 storehas not been permanently repositioned within the past year.Comparable store sales includes revenues from stores that were temporarily closed during the period as aresult of COVID-19.Comparable store sales represents a performance measure that we believe is useful information for management and investors in understanding theperformance of our established NIKE-owned in-line and factory stores.Management considers this metric when making financial and operating decisions.The method ofcalculating comparable store sales varies across the retail industry.As a result,our calculation of this metric may not be comparable to similarly titled measures used byother companies.FIRST NINE MONTHS OF FISCAL 2023 COMPARED TO FIRST NINE MONTHS OF FISCAL 2022On a currency-neutral basis,NIKE,Inc.Revenues increased 19%for the first nine months of fiscal 2023,driven by higher revenues in North America,EMEA,APLA andConverse,which contributed approximately 9,7,3 and 1 percentage points to NIKE,Inc.Revenues,respectively.Lower revenues in Greater China reduced NIKE,Inc.Revenues by approximately 1 percentage point.On a currency-neutral basis,NIKE Brand footwear revenues increased 24%,driven by growth in Mens and the Jordan Brand.Unit sales of footwear increased 15%,whilehigher ASP per pair contributed approximately 9 percentage points of footwear revenue growth,primarily due to higher full-price ASP and growth in NIKE Direct.Currency-neutral NIKE Brand apparel revenues increased 10%,driven by growth in Mens.Unit sales of apparel increased 7%and higher ASP per unit contributedapproximately 3 percentage points of apparel revenue growth.Higher ASP per unit was primarily due to higher full-price ASP and growth in NIKE Direct,partially offset bylower NIKE Direct ASP.NIKE Brand wholesale revenues increased 10%and 18%compared to the first nine months of fiscal 2022,on a reported and currency-neutral basis,respectively.On areported basis,NIKE Direct revenues represented approximately 43%of our total NIKE Brand revenues for the first nine months of fiscal 2023 and the first nine months offiscal 2022.NIKE Brand Digital sales were$9.4 billion for the first nine months of fiscal 2023 compared to$7.9 billion for the first nine months of fiscal 2022.On acurrency-neutral basis,NIKE Direct revenues increased 20%,primarily driven by NIKE Brand Digital sales growth of 27%and comparable store sales growth of 11%.GROSS MARGINTHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)20232022%CHANGE20232022%CHANGEGross profit$5,371$5,067 6%$16,697$15,976 5%Gross margin43.3F.6%(330)bps43.5F.3%(280)bpsFor the third quarter of fiscal 2023,our consolidated gross margin was 330 basis points lower than the prior year and primarily reflected the following factors:Higher NIKE Brand product costs,on a wholesale equivalent basis,(decreasing gross margin approximately 360 basis points)primarily due to higher input costsand elevated inbound freight and logistics costs as well as product mix;28Table of ContentsLower margin in NIKE Direct,driven by higher promotional activity to liquidate inventory in the current period compared to lower promotional activity in the priorperiod resulting from lower available inventory supply(decreasing gross margin approximately 140 basis points);Unfavorable changes in net foreign currency exchange rates,including hedges(decreasing gross margin approximately 140 basis points);Lower off-price margin,on a wholesale equivalent basis(decreasing gross margin approximately 30 basis points);andHigher NIKE Brand full-price ASP,net of discounts,on a wholesale equivalent basis,(increasing gross margin approximately 370 basis points)due primarily tostrategic pricing actions and product mix.For the first nine months of fiscal 2023,our consolidated gross margin was 280 basis points lower than the prior year and primarily reflected the following factors:Higher NIKE Brand product costs,on a wholesale equivalent basis,(decreasing gross margin approximately 360 basis points)primarily due to higher input costsand elevated inbound freight and logistics costs as well as product mix;Lower margin in NIKE Direct,driven by higher promotional activity to liquidate inventory in the current period compared to lower promotional activity in the priorperiod resulting from lower available inventory supply(decreasing gross margin approximately 130 basis points);Unfavorable changes in net foreign currency exchange rates,including hedges(decreasing gross margin approximately 100 basis points);andHigher NIKE Brand full-price ASP,net of discounts,on a wholesale equivalent basis,(increasing gross margin approximately 320 basis points)due primarily tostrategic pricing actions and product mix.TOTAL SELLING AND ADMINISTRATIVE EXPENSETHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)20232022%CHANGE20232022%CHANGEDemand creation expense$923$854 8%$2,968$2,789 6%Operating overhead expense3,036 2,584 17%9,035 7,980 13%Total selling and administrative expense$3,959$3,438 15%$12,003$10,769 11%of revenues32.01.6 bps31.31.2 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 2023 COMPARED TO THIRD QUARTER OF FISCAL 2022Demand creation expense increased 8%for the third quarter of fiscal 2023 primarily due to an increase in advertising and marketing expense.Changes in foreigncurrency exchange rates decreased Demand creation expense by approximately 3 percentage points.Operating overhead expense increased 17%primarily due to higher wage-related expenses,higher strategic technology enterprise investments and NIKE Direct variablecosts.Changes in foreign currency exchange rates decreased Operating overhead expense by approximately 3 percentage points.Foreign exchange rate fluctuations had a similar impact on the translation of our consolidated Revenues,resulting in an unfavorable impact of approximately 5 percentagepoints.FIRST NINE MONTHS OF FISCAL 2023 COMPARED TO FIRST NINE MONTHS OF FISCAL 2022Demand creation expense increased 6%for the first nine months of fiscal 2023 primarily due to higher advertising and marketing expense and higher sports marketingexpense.Changes in foreign currency exchange rates decreased Demand creation expense by approximately 5 percentage points.Operating overhead expense increased 13%primarily due to an increase in wage-related expenses,higher strategic technology enterprise investments and NIKE Directvariable costs.Changes in foreign currency exchange rates decreased Operating overhead expense by approximately 4 percentage points.Foreign exchange rate fluctuations had a similar impact on the translation of our consolidated Revenues,resulting in an unfavorable impact of approximately 8 percentagepoints.(1)29Table of ContentsOTHER(INCOME)EXPENSE,NETTHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)2023202220232022Other(income)expense,net$(58)$(94)$(283)$(235)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 2023,Other(income)expense,net decreased from$94 million of other income,net to$58 million in the current year,largely due to netfavorable settlements of legal and insurance matters in the prior year and favorable activity in the prior year related to our strategic distributor partnership transition withinAPLA,partially offset by a net favorable change in foreign currency conversion gains and losses,including hedges.For the first nine months of fiscal 2023,Other(income)expense,net increased from$235 million of other income,net to$283 million in the current year,primarily due to anet favorable change in foreign currency conversion gains and losses,including hedges,and settlements of legal matters.This increase was partially offset by netunfavorable activity related to our strategic distributor partnership transition within APLA,including the loss recognized upon the completion of the sale of our entities inArgentina and Uruguay to a third-party distributor in the second quarter of fiscal 2023.For more information related to our distributor partnership transition within APLA,see Note 14 Acquisitions and Divestitures within the accompanying Notes to theUnaudited Condensed Consolidated Financial Statements.We estimate the combination of the translation of foreign currency-denominated profits from our international businesses and the year-over-year change in foreigncurrency-related gains and losses included in Other(income)expense,net had unfavorable impacts of approximately$147 million and$508 million on our Income beforeincome taxes for the third quarter and first nine months of fiscal 2023,respectively.INCOME TAXESTHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,20232022%CHANGE20232022%CHANGEEffective tax rate16.0.4%(40)bps18.5.7X0 bpsOur effective tax rate was 16.0%for the third quarter of fiscal 2023 and substantially consistent compared to 16.4%for the third quarter of fiscal 2022.Our effective tax rate was 18.5%for the first nine months of fiscal 2023,compared to 12.7%for the first nine months of fiscal 2022,primarily due to decreased benefitsfrom stock-based compensation and a shift in our earnings mix.Refer to Note 6 Income Taxes within the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.30Table of ContentsOPERATING SEGMENTSOur operating segments are evidence of the structure of the Companys internal organization.The NIKE Brand segments are defined by geographic regions for operationsparticipating 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 Asia Pacific&Latin America(APLA),and include results for the NIKE and Jordan brands.The Companys NIKE Direct operations are managed within each geographic operatingsegment.Converse is also a reportable operating segment for the Company and operates predominately in one industry:the design,marketing,licensing and selling ofathletic lifestyle sneakers,apparel and accessories.As part of our centrally managed foreign exchange risk management program,standard foreign currency exchange rates are assigned twice per year to each NIKE Brandentity in our geographic operating segments and Converse.These rates are set approximately nine and twelve months in advance of the future selling seasons to whichthey relate(specifically,for each currency,one standard rate applies to the fall and holiday selling seasons and one standard rate applies to the spring and summer sellingseasons)based on average market spot rates in the calendar month preceding the date they are established.Inventories and Cost of sales for geographic operatingsegments and Converse reflect the use of these standard rates to record non-functional currency product purchases into the entitys functional currency.Differencesbetween assigned standard foreign currency exchange rates and actual market rates are included in Corporate,together with foreign currency hedge gains and lossesgenerated from our centrally managed foreign exchange risk management program and other conversion gains and losses.The breakdown of Revenues is as follows:THREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESNorth America$4,913$3,882 27%$16,253$13,238 23#%Europe,Middle East&Africa3,246 2,779 17&,068 9,228 9%Greater China1,994 2,160-8%1%5,438 5,986-9%-2%Asia Pacific&Latin America1,601 1,461 10%4,735 4,273 11%Global Brand Divisions12 41-71%-69D 54-19%-17%TOTAL NIKE BRAND11,766 10,323 146,538 32,779 11%Converse612 567 8%1,841 1,753 5%Corporate12(19)13(56)TOTAL NIKE,INC.REVENUES$12,390$10,871 14%$38,392$34,476 11%(1)The percent change excluding currency changes represents a non-GAAP financial measure.See Use of Non-GAAP Financial Measures for further information.(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,which represents Net income before Interestexpense(income),net and Income tax expense in the Unaudited Condensed Consolidated Statements of Income.As discussed in Note 12 Operating Segments in theaccompanying Notes to the Unaudited Condensed Consolidated Financial Statements,certain corporate costs are not included in EBIT of our operating segments.(1)(1)(2)(3)31Table of ContentsThe breakdown of earnings before interest and taxes is as follows:THREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)20232022%CHANGE20232022%CHANGENorth America$1,190$967 23%$4,064$3,636 12%Europe,Middle East&Africa785 713 10%2,750 2,394 15%Greater China702 784-10%1,754 2,054-15%Asia Pacific&Latin America485 478 1%1,470 1,347 9%Global Brand Divisions(1,160)(975)-19%(3,573)(3,033)-18%TOTAL NIKE BRAND2,002 1,967 2%6,465 6,398 1%Converse164 168-2R6 504 4%Corporate(696)(412)-69%(2,014)(1,460)-38%TOTAL NIKE,INC.EARNINGS BEFOREINTEREST AND TAXES1,470 1,723-15%4,977 5,442-9IT margin11.9.8.0.8%Interest expense(income),net(7)53 22 165 TOTAL NIKE,INC.INCOME BEFORE INCOMETAXES$1,477$1,670-12%$4,955$5,277-6%(1)Total NIKE Brand EBIT,Total NIKE,Inc.EBIT and EBIT margin represent non-GAAP financial measures.See Use of Non-GAAP Financial Measures for further information.NORTH AMERICATHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$3,322$2,532 311%$11,090$8,648 28(%Apparel1,419 1,207 18%4,598 4,117 12%Equipment172 143 20!V5 473 19 %TOTAL REVENUES$4,913$3,882 27%$16,253$13,238 23#%Revenues by:Sales to Wholesale Customers$2,323$1,769 312%$8,533$6,774 26&%Sales through NIKE Direct2,590 2,113 23#%7,720 6,464 19 %TOTAL REVENUES$4,913$3,882 27%$16,253$13,238 23#RNINGS BEFORE INTEREST ANDTAXES$1,190$967 23%$4,064$3,636 12%THIRD QUARTER OF FISCAL 2023 COMPARED TO THIRD QUARTER OF FISCAL 2022On a currency-neutral basis,North America revenues for the third quarter of fiscal 2023 increased 27%,due primarily to higher revenues in Mens and the Jordan Brand.NIKE Direct revenues increased 23%,primarily driven by strong digital sales growth of 25%,comparable store sales growth of 17%and the addition of new stores.Currency-neutral footwear revenues increased 31%,primarily driven by higher revenues in the Jordan Brand and Mens.Unit sales of footwear increased 26%,whilehigher ASP per pair contributed approximately 5 percentage points of footwear revenue growth.Higher ASP per pair was primarily due to higher full-price ASP and growthin NIKE Direct,partially offset by lower NIKE Direct ASP,reflecting higher promotional activity.Currency-neutral apparel revenues increased 18%,primarily driven by higher revenues in Mens.Unit sales of apparel increased 20%,while lower ASP per unit reducedapparel revenues by approximately 2 percentage points.Lower ASP was primarily due to lower NIKE Direct ASP,reflecting higher promotional activity,and a lower mix offull-price sales.This activity was partially offset by higher ASP in both full and off-price.(1)(1)(1)32Table of ContentsReported EBIT increased 23%primarily due to higher revenues,partially offset by higher selling and administrative expense and gross margin contraction.Gross margindecreased approximately 200 basis points largely driven by lower margin in NIKE Direct in part due to higher promotional activity,higher product costs reflecting higherinput costs and inbound freight and logistics costs,including supply chain network costs,and a lower mix of full-price sales.This was partially offset by higher full-priceASP,net of discounts,driven by strategic pricing actions and product mix.Selling and administrative expense increased due to higher operating overhead and demandcreation expense.Operating overhead expense increased primarily due to higher wage-related expenses and NIKE Direct variable costs,in part due to new storeadditions.The increase in demand creation expense was primarily due to an increase in digital marketing.FIRST NINE MONTHS OF FISCAL 2023 COMPARED TO FIRST NINE MONTHS OF FISCAL 2022On a currency-neutral basis,North America revenues for the first nine months of fiscal 2023 increased 23%,due primarily to higher revenues in Mens and the JordanBrand.NIKE Direct revenues increased 20%,primarily driven by strong digital sales growth of 25%,comparable store sales growth of 9%and the addition of new stores.Currency-neutral footwear revenues increased 28%,largely driven by higher revenues in Mens and the Jordan Brand.Unit sales of footwear increased 23%,while higherASP per pair contributed approximately 5 percentage points of footwear revenue growth.Higher ASP per pair was primarily due to higher full-price ASP and growth inNIKE Direct,partially offset by lower NIKE Direct ASP,reflecting higher promotional activity.Currency-neutral apparel revenues increased 12%,driven primarily by higher revenues in Mens.Unit sales of apparel increased 12%,while ASP per unit remained flat,as lower NIKE Direct ASP,reflecting higher promotional activity,was offset by higher full-price ASP and growth in NIKE Direct.Reported EBIT increased 12%primarily due to higher revenues,partially offset by gross margin contraction and higher selling and administrative expense.Gross margindecreased approximately 340 basis points primarily due to higher product costs,reflecting higher input costs and inbound freight and logistics costs,lower margins inNIKE Direct due to higher promotional activity and a lower mix of full-price sales.This was partially offset by higher full-price ASP,net of discounts,largely due to productmix and strategic pricing actions.Selling and administrative expense increased due to higher operating overhead and demand creation expense.Operating overheadexpense increased primarily as a result of higher wage-related costs and NIKE Direct variable costs.The increase in demand creation expense reflected higher sportsmarketing expenses and an increase in digital marketing.EUROPE,MIDDLE EAST&AFRICATHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$2,011$1,569 289%$6,086$5,358 140%Apparel1,094 1,083 1%3,528 3,444 2%Equipment141 127 11 E4 426 7%TOTAL REVENUES$3,246$2,779 17&%$10,068$9,228 9%Revenues by:Sales to Wholesale Customers$2,061$1,858 11 %$6,506$6,194 5!%Sales through NIKE Direct1,185 921 299%3,562 3,034 174%TOTAL REVENUES$3,246$2,779 17&%$10,068$9,228 9%RNINGS BEFORE INTEREST ANDTAXES$785$713 10%$2,750$2,394 15%THIRD QUARTER OF FISCAL 2023 COMPARED TO THIRD QUARTER OF FISCAL 2022On a currency-neutral basis,EMEA revenues for the third quarter of fiscal 2023 increased 26%,primarily driven by growth in Mens.NIKE Direct revenues increased 39%,driven by strong digital sales growth of 43%and comparable store sales growth of 36%.Currency-neutral footwear revenues increased 39%,driven by higher revenues in Mens and Womens.Unit sales of footwear increased 24%,while higher ASP per paircontributed approximately 15 percentage points of footwear revenue growth.Higher ASP per pair was primarily due to higher full-price ASP,growth in NIKE Direct andhigher NIKE Direct ASP.33Table of ContentsCurrency-neutral apparel revenues increased 10%due primarily to higher revenues in Mens.Unit sales of apparel decreased 2%,while higher ASP per unit contributedapproximately 12 percentage points of apparel revenue growth,primarily due to growth in NIKE Direct and higher full-price ASP,partially offset by lower NIKE Direct ASP,reflecting higher promotional activity.Reported EBIT increased 10%primarily due to higher revenues,partially offset by gross margin contraction and higher selling and administrative expenses.Gross margindecreased approximately 250 basis points primarily due to higher product costs reflecting higher input costs and inbound freight and logistics costs as well as product mixand unfavorable changes in standard foreign currency exchange rates.This activity was partially offset by higher full-price ASP,net of discounts,in part due to strategicpricing actions and product mix.Selling and administrative expense increased due to higher operating overhead and demand creation expense.Operating overheadexpense increased primarily due to wage-related expenses and other administrative costs,partially offset by favorable changes in foreign currency exchange rates.Higher demand creation expense was driven by higher advertising and marketing expense,partially offset by favorable changes in foreign currency exchange rates.FIRST NINE MONTHS OF FISCAL 2023 COMPARED TO FIRST NINE MONTHS OF FISCAL 2022On a currency-neutral basis,EMEA revenues for the first nine months of fiscal 2023 increased 25%,due primarily to higher revenues in Mens.NIKE Direct revenuesincreased 34%primarily due to strong digital sales growth of 51%and comparable store sales growth of 18%.Currency-neutral footwear revenues increased 30%,driven by higher revenues led by Mens,the Jordan Brand and Womens.Unit sales of footwear increased 13%,whilehigher ASP per pair contributed approximately 17 percentage points of footwear revenue growth.Higher ASP per pair was primarily due to higher full-price and NIKEDirect ASPs,as well as growth in NIKE Direct.Currency-neutral apparel revenues increased 18%due primarily to higher revenues in Mens.Unit sales of apparel increased 5%,while higher ASP per unit contributedapproximately 13 percentage points of apparel revenue growth,primarily due to higher full-price ASP and growth in NIKE Direct,partially offset by lower NIKE Direct ASP,reflecting higher promotional activity.Reported EBIT increased 15%due to higher revenues and gross margin expansion,partially offset by higher selling and administrative expense.Gross margin increasedapproximately 30 basis points primarily due to higher full-price ASP,net of discounts,in part due to strategic pricing actions and product mix.This activity was partiallyoffset by higher product costs reflecting higher input costs,inbound freight and logistics costs as well as product mix.Selling and administrative expense increased due tohigher demand creation and operating overhead expense.Higher demand creation expense was primarily due to higher advertising and marketing expense,partiallyoffset by favorable changes in foreign currency exchange rates.Operating overhead expense increased primarily due to other administrative costs and higher wage-related expenses,partially offset by favorable changes in foreign currency exchange rates.GREATER CHINATHREE MONTHS ENDED FEBRUARY 28,NINE MONTHS ENDED FEBRUARY 28,(Dollars in millions)20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGES20232022%CHANGE%CHANGEEXCLUDINGCURRENCYCHANGESRevenues by:Footwear$1,496$1,554-4%5%$4,099$4,238-3%4%Apparel461 548-16%-8%1,228 1,588-23%-17%Equipment37 58-36%-311 160-31%-26%TOTAL REVENUES$1,994$2,160-8%1%$5,438$5,986-9%-2%Revenues by:Sales to Wholesale Customers$1,126$1,241-9%-1%$2,862$3,251-12%-5%Sales through NIKE Direct868 919-6%3%2,576 2,735-6%2%TOTAL REVENUES$1,994$2,160-8%1%$5,438$5,986-9%-2RNINGS BEFORE INTEREST ANDTAXES$702$784-10%$1,754$2,054-15%THIRD QUARTER OF FISCAL 2023 COMPARED TO THIRD QUARTER OF FISCAL 2022On a currency-neutral basis,Greater China revenues for the third quarter of fiscal 2023 increased 1%.The increase in revenues was primarily due to higher revenues inMens,the Jordan Brand and Kids,largely offset by lower revenues in Womens.NIKE Direct revenues increased 3%due to comparable store sales growth of 9%,in partdue to improved physical traffic,and growth in non-comparable store sales,partially offset by digital sales declines of 11%.34Table of ContentsCurrency-neutral footwear revenues increased 5%,driven primarily by higher revenues in Mens.Unit sales of footwear increased 6%,while lower ASP per unit reducedfootwear revenues by approximately 1 percentage point.Currency-neutral apparel revenues decreased 8%,due primarily to lower revenues in Mens and Womens.Unit sales of apparel decreased 16%,partially offset byapproximately 8 percentage points of growth due to higher ASP per unit.Higher ASP was primarily due to higher full-price,NIKE Direct and off-price ASPs as well as ahigher mix of full-price sales.Reported EBIT decreased 10%as lower revenues and gross margin contraction were partially offset by lower selling and administrative expense.Gross margindecreased approximately 80 basis points,primarily due to higher product costs reflecting higher input costs and product mix.This activity was partially offset by favorablechanges in standard foreign currency exchange rates and higher full-price ASP,net of discounts,in part due to product mix.Selling and administrative expense decreaseddue to lower demand creation and operating overhead expense.The decrease in demand creation expense was primarily due to lower retail brand presentation expense,favorable changes in foreign
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Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,DC 20549FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended April 2,2023OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to .Commission File Number:000-20322Starbucks Corporation(Exact Name of Registrant as Specified in its Charter)Washington91-1325671(State or Other Jurisdiction ofIncorporation or Organization)(IRS EmployerIdentification No.)2401 Utah Avenue South,Seattle,Washington 98134(Address of principal executive offices)(206)447-1575(Registrants Telephone Number,including Area Code)Securities registered pursuant to Section 12(b)of the Act:TitleTrading SymbolName of each exchange on which registeredCommon Stock,par value$0.001 per shareSBUXNasdaq Global Select MarketIndicate by check mark whether the registrant:(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes x No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit suchfiles).Yes x No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,smaller reporting company,or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerxAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act):Yes No x Indicate the number of shares outstanding of each of the issuers classes of common stock,as of the latest practicable date.Shares Outstanding as of April 26,20231,146.4 millionTable of ContentsSTARBUCKS CORPORATIONFORM 10-QFor the Quarterly Period Ended April 2,2023Table of Contents PART I.FINANCIAL INFORMATIONItem 1Financial Statements(Unaudited)3Consolidated Statements of Earnings3Consolidated Statements of Comprehensive Income4Consolidated Balance Sheets5Consolidated Statements of Cash Flows6Consolidated Statements of Equity7Index for Notes to Consolidated Financial Statements9Notes to Consolidated Financial Statements10Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations27Item 3Quantitative and Qualitative Disclosures About Market Risk40Item 4Controls and Procedures40PART II.OTHER INFORMATIONItem 1Legal Proceedings41Item 1ARisk Factors41Item 2Unregistered Sales of Equity Securities and Use of Proceeds41Item 3Defaults Upon Senior Securities41Item 4Mine Safety Disclosures41Item 5Other Information41Item 6Exhibits42Signatures43 Table of ContentsPART I FINANCIAL INFORMATIONItem 1.Financial StatementsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EARNINGS(in millions,except per share data)(unaudited)Quarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Net revenues:Company-operated stores$7,142.3$6,276.7$14,225.7$12,999.1 Licensed stores1,069.5 849.5 2,189.0 1,700.3 Other508.0 509.4 1,019.1 986.6 Total net revenues8,719.8 7,635.6 17,433.8 15,686.0 Product and distribution costs2,801.7 2,465.8 5,611.9 4,992.7 Store operating expenses3,636.0 3,314.7 7,301.3 6,714.6 Other operating expenses126.2 101.7 255.4 203.4 Depreciation and amortization expenses341.9 367.7 669.0 733.8 General and administrative expenses620.4 481.5 1,201.3 1,007.3 Restructuring and impairments8.8 4.4 14.7(3.1)Total operating expenses7,535.0 6,735.8 15,053.6 13,648.7 Income from equity investees51.4 49.1 109.2 89.4 Gain from sale of assets91.3 91.3 Operating income1,327.5 948.9 2,580.7 2,126.7 Interest income and other,net18.4 46.3 30.0 46.2 Interest expense(136.3)(119.1)(266.0)(234.4)Earnings before income taxes1,209.6 876.1 2,344.7 1,938.5 Income tax expense301.3 201.1 581.1 447.4 Net earnings including noncontrolling interests908.3 675.0 1,763.6 1,491.1 Net earnings attributable to noncontrolling interests0.0 0.5 0.0 0.7 Net earnings attributable to Starbucks$908.3$674.5$1,763.6$1,490.4 Earnings per share-basic$0.79$0.59$1.54$1.29 Earnings per share-diluted$0.79$0.58$1.53$1.28 Weighted average shares outstanding:Basic1,148.5 1,149.2 1,148.4 1,159.4 Diluted1,152.7 1,153.9 1,152.8 1,165.2 See Notes to Consolidated Financial Statements.3Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in millions,unaudited)Quarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Net earnings including noncontrolling interests$908.3$675.0$1,763.6$1,491.1 Other comprehensive income/(loss),net of tax:Unrealized holding gains/(losses)on available-for-sale debt securities3.6(10.5)5.6(13.9)Tax(expense)/benefit(0.8)2.6(1.3)3.4 Unrealized gains/(losses)on cash flow hedging instruments(1.2)67.1(181.9)155.8 Tax(expense)/benefit0.1(14.2)29.6(26.0)Unrealized gains/(losses)on net investment hedging instruments(2.7)38.1(67.3)79.6 Tax(expense)/benefit0.7(9.6)17.0(20.1)Translation adjustment and other74.7(38.5)283.6(24.3)Tax(expense)/benefit Reclassification adjustment for net(gains)/losses realized in netearnings for available-for-sale debt securities,hedging instruments,and translation adjustment(66.6)(34.2)(165.0)(50.3)Tax expense/(benefit)9.5 6.0 21.3 8.9 Other comprehensive income/(loss)17.3 6.8(58.4)113.1 Comprehensive income including noncontrolling interests925.6 681.8 1,705.2 1,604.2 Comprehensive income attributable to noncontrolling interests 0.5 0.7 Comprehensive income attributable to Starbucks$925.6$681.3$1,705.2$1,603.5 See Notes to Consolidated Financial Statements.4Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED BALANCE SHEETS(in millions,except per share data)(unaudited)Apr 2,2023Oct 2,2022ASSETSCurrent assets:Cash and cash equivalents$3,071.8$2,818.4 Short-term investments379.4 364.5 Accounts receivable,net1,185.8 1,175.5 Inventories2,000.6 2,176.6 Prepaid expenses and other current assets408.6 483.7 Total current assets7,046.2 7,018.7 Long-term investments251.2 279.1 Equity investments360.5 311.2 Property,plant and equipment,net6,818.6 6,560.5 Operating lease,right-of-use asset8,251.6 8,015.6 Deferred income taxes,net1,811.1 1,799.7 Other long-term assets526.7 554.2 Other intangible assets130.8 155.9 Goodwill3,412.3 3,283.5 TOTAL ASSETS$28,609.0$27,978.4 LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIT)Current liabilities:Accounts payable$1,434.0$1,441.4 Accrued liabilities1,970.0 2,137.1 Accrued payroll and benefits710.9 761.7 Current portion of operating lease liability1,269.5 1,245.7 Stored value card liability and current portion of deferred revenue1,795.9 1,641.9 Short-term debt52.8 175.0 Current portion of long-term debt1,888.7 1,749.0 Total current liabilities9,121.8 9,151.8 Long-term debt13,544.8 13,119.9 Operating lease liability7,753.5 7,515.2 Deferred revenue6,200.2 6,279.7 Other long-term liabilities488.1 610.5 Total liabilities37,108.4 36,677.1 Shareholders deficit:Common stock($0.001 par value)authorized,2,400.0 shares;issued and outstanding,1,147.0 and 1,147.9shares,respectively1.1 1.1 Additional paid-in capital38.2 205.3 Retained deficit(8,024.6)(8,449.8)Accumulated other comprehensive income/(loss)(521.6)(463.2)Total shareholders deficit(8,506.9)(8,706.6)Noncontrolling interests7.5 7.9 Total deficit(8,499.4)(8,698.7)TOTAL LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIT)$28,609.0$27,978.4 See Notes to Consolidated Financial Statements.5Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in millions,unaudited)Two Quarters EndedApr 2,2023Apr 3,2022OPERATING ACTIVITIES:Net earnings including noncontrolling interests$1,763.6$1,491.1 Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization709.3 777.7 Deferred income taxes,net2.6 28.4 Income earned from equity method investees(109.9)(118.7)Distributions received from equity method investees88.0 100.8 Gain on sale of assets(91.3)Stock-based compensation159.3 149.2 Non-cash lease costs584.7 670.7 Loss on retirement and impairment of assets75.6 77.3 Other22.6(17.9)Cash provided by/(used in)changes in operating assets and liabilities:Accounts receivable26.2(62.1)Inventories194.6(324.9)Accounts payable(51.2)133.0 Deferred revenue54.0 110.2 Operating lease liability(621.8)(766.3)Other operating assets and liabilities(445.5)(215.7)Net cash provided by operating activities2,360.8 2,032.8 INVESTING ACTIVITIES:Purchases of investments(247.7)(67.5)Sales of investments1.9 72.6 Maturities and calls of investments270.0 55.7 Additions to property,plant and equipment(1,002.0)(871.9)Proceeds from sale of assets110.0 Other(39.2)(69.8)Net cash used in investing activities(907.0)(880.9)FINANCING ACTIVITIES:Net(payments)/proceeds from issuance of commercial paper(175.0)Net proceeds from issuance of short-term debt52.8 17.4 Repayments of short-term debt(12.6)Net proceeds from issuance of long-term debt1,497.8 1,498.1 Repayments of long-term debt(1,000.0)Proceeds from issuance of common stock129.8 56.3 Cash dividends paid(1,217.4)(1,139.2)Repurchase of common stock(479.3)(3,997.5)Minimum tax withholdings on share-based awards(81.4)(122.1)Other(10.7)(9.2)Net cash provided by/(used in)financing activities(1,283.4)(3,708.8)Effect of exchange rate changes on cash and cash equivalents83.0 14.6 Net increase/(decrease)in cash and cash equivalents253.4(2,542.3)CASH AND CASH EQUIVALENTS:Beginning of period2,818.4 6,455.7 End of period$3,071.8$3,913.4 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for:Interest,net of capitalized interest$250.4$236.0 Income taxes$636.8$783.2 See Notes to Consolidated Financial Statements.6Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EQUITYFor the Quarter Ended April 2,2023 and April 3,2022(in millions,except per share data,unaudited)Common StockAdditionalPaid-inCapitalRetainedEarnings/(Deficit)AccumulatedOtherComprehensiveIncome/(Loss)ShareholdersEquity/(Deficit)NoncontrollingInterestsTotal SharesAmountBalance,January 1,20231,148.5$1.1$67.2$(8,203.2)$(538.9)$(8,673.8)$7.9$(8,665.9)Net earnings 908.3 908.3 908.3 Other comprehensive loss 17.3 17.3 17.3 Stock-based compensation expense 75.0 75.0 75.0 Exercise of stock options/vesting ofRSUs1.3 68.2 68.2 68.2 Sale of common stock0.2 13.3 13.3 13.3 Repurchase of common stock(3.0)(182.5)(121.5)(304.0)(304.0)Cash dividends declared,$0.53 pershare (608.2)(608.2)(608.2)Purchase of noncontrolling interests(3.0)(3.0)(0.4)(3.4)Balance,April 2,20231,147.0$1.1$38.2$(8,024.6)$(521.6)$(8,506.9)$7.5$(8,499.4)Balance,January 2,20221,151.6$1.2$41.1$(8,753.0)$253.5$(8,457.2)$6.9$(8,450.3)Net earnings 674.5 674.5 0.5 675.0 Other comprehensive income 6.8 6.8 6.8 Stock-based compensation expense 54.4 54.4 54.4 Exercise of stock options/vesting ofRSUs0.4(0.1)(4.4)(4.5)(4.5)Sale of common stock0.1 11.0 11.0 11.0 Repurchase of common stock(5.2)(61.0)(431.1)(492.1)(492.1)Cash dividends declared,$0.49 pershare (560.9)(560.9)(560.9)Net distributions to noncontrollinginterests (0.6)(0.6)Balance,April 3,20221,146.9$1.1$41.1$(9,070.5)$260.3$(8,768.0)$6.8$(8,761.2)See Notes to Consolidated Financial Statements.7Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EQUITYFor the Two Quarters Ended April 2,2023 and April 3,2022(in millions,except per share data,unaudited)Common StockAdditionalPaid-inCapitalRetainedEarnings/(Deficit)AccumulatedOtherComprehensiveIncome/(Loss)ShareholdersEquity/(Deficit)NoncontrollingInterestsTotal SharesAmountBalance,October 2,20221,147.9$1.1$205.3$(8,449.8)$(463.2)$(8,706.6)$7.9$(8,698.7)Net earnings 1,763.6 1,763.6 1,763.6 Other comprehensive loss (58.4)(58.4)(58.4)Stock-based compensation expense 161.4 161.4 161.4 Exercise of stock options/vesting ofRSUs3.7 23.5 23.5 23.5 Sale of common stock0.3 24.9 24.9 24.9 Repurchase of common stock(4.9)(373.9)(121.5)(495.4)(495.4)Cash dividends declared,$1.06 pershare (1,216.9)(1,216.9)(1,216.9)Purchase of noncontrolling interests(3.0)(3.0)(0.4)(3.4)Balance,April 2,20231,147.0$1.1$38.2$(8,024.6)$(521.6)$(8,506.9)$7.5$(8,499.4)Balance,October 3,20211,180.0$1.2$846.1$(6,315.7)$147.2$(5,321.2)$6.7$(5,314.5)Net earnings 1,490.4 1,490.4 0.7 1,491.1 Other comprehensive income 113.1 113.1 113.1 Stock-based compensation expense 151.5 151.5 151.5 Exercise of stock options/vesting ofRSUs3.0(0.1)(88.5)(88.6)(88.6)Sale of common stock0.2 22.8 22.8 22.8 Repurchase of common stock(36.3)(890.8)(3,122.2)(4,013.0)(4,013.0)Cash dividends declared,$0.98 pershare (1,123.0)(1,123.0)(1,123.0)Net distributions to noncontrollinginterests (0.6)(0.6)Balance,April 3,20221,146.9$1.1$41.1$(9,070.5)$260.3$(8,768.0)$6.8$(8,761.2)See Notes to Consolidated Financial Statements.8Table of ContentsSTARBUCKS CORPORATIONINDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1Summary of Significant Accounting Policies and Estimates10Note 2Acquisitions,Divestitures and Strategic Alliance10Note 3Derivative Financial Instruments11Note 4Fair Value Measurements15Note 5Inventories17Note 6Supplemental Balance Sheet and Statement of Earnings Information17Note 7Other Intangible Assets and Goodwill18Note 8Debt19Note 9Leases21Note 10Deferred Revenue22Note 11Equity23Note 12Employee Stock Plans24Note 13Earnings per Share25Note 14Commitments and Contingencies25Note 15Segment Reporting259Table of ContentsSTARBUCKS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)Note 1:Summary of Significant Accounting Policies and EstimatesFinancial Statement PreparationThe unaudited consolidated financial statements as of April 2,2023,and for the quarters and two quarters ended April 2,2023 and April 3,2022,have beenprepared by Starbucks Corporation under the rules and regulations of the Securities and Exchange Commission(“SEC”).In the opinion of management,thefinancial information for the quarters and two quarters ended April 2,2023 and April 3,2022 reflects all adjustments and accruals,which are of a normalrecurring nature,necessary for a fair presentation of the financial position,results of operations and cash flows for the interim periods.In this Quarterly Reporton Form 10-Q(“10-Q”),Starbucks Corporation is referred to as“Starbucks,”the“Company,”“we,”“us”or“our.”Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes.Certain prior period information on the consolidated statements of cash flows have been reclassified to conform to the current presentation.The financial information as of October 2,2022 is derived from our audited consolidated financial statements and notes for the fiscal year ended October 2,2022(“fiscal 2022”)included in Item 8 in the Fiscal 2022 Annual Report on Form 10-K(“10-K”).The information included in this 10-Q should be read inconjunction with the footnotes and managements discussion and analysis of the consolidated financial statements in the 10-K.The results of operations for the quarter and two quarters ended April 2,2023 are not necessarily indicative of the results of operations that may be achieved forthe entire fiscal year ending October 1,2023(“fiscal 2023”).The novel coronavirus,known as the global COVID-19 pandemic,was first identified in December 2019 before spreading to markets where we have company-operated or licensed stores.We have since established the necessary protocols to operate safely,and in many of our markets,our businesses demonstratedpowerful momentum beyond recovery from the COVID-19 pandemic.During the quarter ended April 2,2023,our China market began recovering frompandemic-related business interruptions in previous quarters that had suppressed customer mobility.We continue to monitor the COVID-19 pandemic and itseffect on our business and results of operations;however,we cannot predict the duration,scope or severity of the COVID-19 pandemic or its future impact onour business,results of operations,cash flows and financial condition.RestructuringIn fiscal 2022,we announced our plan in the U.S.market to increase efficiency while elevating the partner and customer experience(the“Reinvention Plan”).We believe the company-operated market investments in partner wages and trainings have increased retention and productivity while the acceleration ofpurpose-built store concepts and innovations in technologies will provide additional convenience and connection with our customers.As a result of therestructuring efforts in connection with the Reinvention Plan,we recorded an immaterial charge on our consolidated statements of earnings during the quarterand two quarters ended April 2,2023.Future restructuring and impairment costs attributable to our Reinvention Plan are not expected to be material.As of April 2,2023 and October 2,2022,there were no material restructuring-related accrued liabilities on our consolidated balance sheets.Recently Adopted Accounting PronouncementsIn the first quarter of fiscal 2022,we adopted the Financial Accounting Standards Board(“FASB”)issued guidance related to reference rate reform.Thepronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease thefinancial reporting burden related to the expected market transition from the London Interbank Offered Rate(“LIBOR”)and other interbank offered rates toalternative reference rates.The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31,2024.The adoption of the new guidance did not have a material impact on our financial statements.Note 2:Acquisitions,Divestitures and Strategic AllianceFiscal 2023On January 13,2023,we sold the assets,primarily consisting of intellectual properties associated with the Seattles Best Coffee brand,to Nestl for$110.0million.The transaction resulted in a pre-tax gain of$91.3 million,which was included in gain from sale of assets on our consolidated statements of earnings.Results from Seattles Best Coffee operations prior to the sale are reported in our Channel Development operating segment.10Table of ContentsFiscal 2022In the fourth quarter of fiscal 2022,we sold our Evolution Fresh brand and business to Bolthouse Farms.This transaction did not have a material impact on ourconsolidated financial statements.Note 3:Derivative Financial InstrumentsInterest RatesFrom time to time,we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates.We enter intointerest rate swap agreements and treasury locks,which are synthetic forward sales of U.S.Treasury securities settled in cash based upon the differencebetween an agreed-upon treasury rate and the prevailing treasury rate at settlement.These agreements are cash settled at the time of the pricing of the relateddebt.Each derivative agreements gain or loss is recorded in accumulated other comprehensive income(“AOCI”)and is subsequently reclassified to interestexpense over the life of the related debt.To hedge the exposure to changes in the fair value of our fixed-rate debt,we enter into interest rate swap agreements,which are designated as fair value hedges.The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevantbenchmark interest rates are recorded in interest expense.Refer to Note 8,Debt,for additional information on our long-term debt.Foreign CurrencyTo reduce cash flow volatility from foreign currency fluctuations,we enter into forward and swap contracts to hedge portions of cash flows of anticipatedintercompany royalty payments,inventory purchases,and intercompany borrowing and lending activities.The resulting gains and losses from these derivativesare recorded in AOCI and subsequently reclassified to revenue,product and distribution costs,or interest income and other,net,respectively,when the hedgedexposures affect net earnings.From time to time,we may enter into financial instruments,including,but not limited to,forward and swap contracts or foreign currency-denominated debt,tohedge the currency exposure of our net investments in certain international operations.The resulting gains and losses from these derivatives are recorded inAOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balancesheet items.Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency-denominated payables andreceivables,and these gains and losses are recorded in interest income and other,net.CommoditiesDepending on market conditions,we may enter into coffee forward contracts,futures contracts and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts,which are described further in Note 5,Inventories,or our longer-dated forecasted coffee demand where underlying fixed priceand price-to-be-fixed contracts are not yet available.The resulting gains and losses are recorded in AOCI and are subsequently reclassified to product anddistribution costs when the hedged exposure affects net earnings.Depending on market conditions,we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under ourdairy purchase contracts and our forecasted dairy demand.The resulting gains or losses are recorded in AOCI and are subsequently reclassified to product anddistribution costs when the hedged exposure affects net earnings.Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge.Cash flows from hedging transactions areclassified in the same categories as the cash flows from the respective hedged items.For de-designated cash flow hedges in which the underlying transactionsare no longer probable of occurring,the related accumulated derivative gains or losses are recognized in interest income and other,net on our consolidatedstatements of earnings.These derivatives may be accounted for prospectively as non-designated derivatives until maturity,re-designated to new hedgingrelationships or terminated early.We continue to believe transactions related to our other designated cash flow hedges are probable to occur.To mitigate the price uncertainty of a portion of our future purchases,including diesel fuel and other commodities,we enter into swap contracts,futures andcollars that are not designated as hedging instruments.The resulting gains and losses are recorded in interest income and other,net to help offset pricefluctuations on our beverage,food,packaging and transportation costs,which are included in product and distribution costs on our consolidated statements ofearnings.11Table of ContentsGains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to bereclassified into earnings within 12 months,net of tax(in millions):Net Gains/(Losses)Included in AOCINet Gains/(Losses)Expectedto be Reclassified from AOCIinto Earnings within 12MonthsOutstanding Contract/DebtRemaining Maturity(Months)Apr 2,2023Oct 2,2022Cash Flow Hedges:Coffee$(89.8)$153.9$(87.7)4Cross-currency swaps(1.3)(1.9)20Dairy(3.4)(2.6)(3.4)10Foreign currency-other11.7 55.3 11.7 33Interest rates(5.3)(5.8)0.2 0Net Investment Hedges:Cross-currency swaps46.7 67.3 108Foreign currency16.1 16.1 0Foreign currency debt86.8 125.7 1212Table of ContentsPre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in othercomprehensive income(“OCI”)and reclassifications from AOCI to earnings(in millions):Quarter EndedGains/(Losses)Recognized inOCI Before ReclassificationsGains/(Losses)Reclassified fromAOCI to EarningsLocation of gain/(loss)Apr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Cash Flow Hedges:Coffee$(0.5)$24.0$59.9$17.8 Product and distribution costsCross-currency swaps(2.5)4.9(3.0)(0.8)Interest expense(0.1)9.4 Interest income and other,netDairy(2.3)3.4(3.3)2.9 Product and distribution costsForeign currency-other3.8 0.7 4.0 2.4 Licensed stores revenue2.2(0.3)Product and distribution costsInterest rates0.3 34.1 0.2(0.5)Interest expenseNet Investment Hedges:Cross-currency swaps(1.1)(2.1)7.0 3.5 Interest expenseForeign currency debt(1.6)40.2 Two Quarters EndedGains/(Losses)Recognized inOCI Before ReclassificationsGains/(Losses)Reclassified fromAOCI to EarningsLocation of gain/(loss)Apr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Cash Flow Hedges:Coffee$(119.9)$95.5$156.6$24.3 Product and distribution costsCross-currency swaps(14.2)9.4(5.7)(1.6)Interest expense(9.2)16.3 Interest income and other,netDairy(5.9)8.0(4.8)2.5 Product and distribution costsForeign currency-other(42.2)7.6 11.9 4.5 Licensed stores revenue4.4(1.7)Product and distribution costs0.2 Interest income and other,netInterest rates0.3 35.3(0.3)(0.9)Interest expenseNet Investment Hedges:Cross-currency swaps(15.1)14.2 12.3 6.9 Interest expenseForeign currency debt(52.2)65.4 Pre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized inearnings(in millions):Gains/(Losses)Recognized in EarningsLocation of gain/(loss)recognized in earningsQuarter EndedTwo Quarters Ended Apr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Non-Designated Derivatives:DairyInterest income and other,net$0.1$0.1 Foreign currency-otherInterest income and other,net1.6 11.6(10.0)21.8 CoffeeInterest income and other,net 6.2(5.5)9.3 Diesel fuel and other commoditiesInterest income and other,net(1.7)0.7(1.9)0.7 Fair Value Hedges:Interest rate swapInterest expense4.7(21.3)3.1(26.1)Long-term debt(hedged item)Interest expense(12.1)24.8(15.4)33.0 13Table of ContentsNotional amounts of outstanding derivative contracts(in millions):Apr 2,2023Oct 2,2022Coffee$186$649 Cross-currency swaps1,108 741 Dairy77 94 Diesel fuel and other commodities25 33 Foreign currency-other1,194 1,269 Interest rate swaps1,100 1,100 Fair value of outstanding derivative contracts(in millions)including the location of the asset and/or liability on the consolidated balance sheets:Derivative AssetsBalance Sheet LocationApr 2,2023Oct 2,2022Designated Derivative Instruments:Cross-currency swapsOther long-term assets$81.9$115.4 DairyPrepaid expenses and other current assets0.1 0.5 Foreign currency-otherPrepaid expenses and other current assets19.9 39.9 Other long-term assets10.9 33.5 Non-designated Derivative Instruments:Diesel fuel and other commoditiesPrepaid expenses and other current assets0.1 0.4 Foreign currencyPrepaid expenses and other current assets4.1 34.3 Other long-term assets 7.3 Derivative LiabilitiesBalance Sheet LocationApr 2,2023Oct 2,2022Designated Derivative Instruments:Cross-currency swapsOther long-term liabilities$8.8$DairyAccrued liabilities1.8 2.9 Foreign currency-otherAccrued liabilities7.9 0.3 Other long-term liabilities8.1 Interest rate swapsAccrued liabilities10.0 12.0 Other long-term liabilities25.9 34.0 Non-designated Derivative Instruments:Diesel fuel and other commoditiesAccrued liabilities1.3 Foreign currencyAccrued liabilities1.6 5.8 The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedgingrelationships(in millions):Carrying amount of hedged itemCumulative amount of fair value hedging adjustmentincluded in the carrying amountApr 2,2023Oct 2,2022Apr 2,2023Oct 2,2022Location on the balance sheetLong-term debt$1,063.1$1,047.7$(36.9)$(52.3)Additional disclosures related to cash flow gains and losses included in AOCI,as well as subsequent reclassifications to earnings,are included in Note 11,Equity.14Table of ContentsNote 4:Fair Value MeasurementsAssets and liabilities measured at fair value on a recurring basis(in millions):Fair Value Measurements at Reporting Date Using Balance atApril 2,2023Quoted Prices in ActiveMarkets for Identical Assets(Level 1)Significant OtherObservable Inputs(Level 2)Significant Unobservable Inputs(Level 3)Assets:Cash and cash equivalents$3,071.8$3,071.8$Short-term investments:Available-for-sale debt securitiesCommercial paper0.1 0.1 Corporate debt securities53.2 53.2 U.S.government treasury securities5.4 5.4 Foreign government obligations3.8 3.8 Mortgage and other asset-backedsecurities0.7 0.7 Total available-for-sale debt securities63.2 5.4 57.8 Structured deposits248.4 248.4 Marketable equity securities67.8 67.8 Total short-term investments379.4 73.2 306.2 Prepaid expenses and other current assets:Derivative assets24.2 24.2 Long-term investments:Available-for-sale debt securitiesCorporate debt securities101.0 101.0 Mortgage and other asset-backedsecurities50.7 50.7 State and local government obligations1.3 1.3 U.S.government treasury securities98.2 98.2 Total long-term investments251.2 98.2 153.0 Other long-term assets:Derivative assets92.8 92.8 Total assets$3,819.4$3,243.2$576.2$Liabilities:Accrued liabilities:Derivative liabilities$22.6$22.6$Other long-term liabilities:Derivative liabilities42.8 42.8 Total liabilities$65.4$65.4$15Table of Contents Fair Value Measurements at Reporting Date Using Balance atOctober 2,2022Quoted Prices in ActiveMarkets for Identical Assets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs(Level 3)Assets:Cash and cash equivalents$2,818.4$2,797.3$21.1$Short-term investments:Available-for-sale debt securitiesCorporate debt securities22.4 22.4 U.S.government treasury securities9.3 9.3 Total available-for-sale debt securities31.7 9.3 22.4 Structured deposits275.1 275.1 Marketable equity securities57.7 57.7 Total short-term investments364.5 67.0 297.5 Prepaid expenses and other current assets:Derivative assets75.1 75.1 Long-term investments:Available-for-sale debt securitiesCorporate debt securities134.7 134.7 Foreign government obligations3.8 3.8 Mortgage and other asset-backedsecurities56.5 56.5 State and local government obligations1.3 1.3 U.S.government treasury securities82.8 82.8 Total long-term investments279.1 82.8 196.3 Other long-term assets:Derivative assets156.2 156.2 Total assets$3,693.3$2,947.1$746.2$Liabilities:Accrued liabilities:Derivative liabilities$21.0$21.0$Other long-term liabilities:Derivative liabilities34.0 34.0 Total liabilities$55.0$55.0$There were no material transfers between levels and there was no significant activity within Level 3 instruments during the periods presented.The fair valuesof any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists.Gross unrealized holding gains and losses on available-for-sale debt securities,structured deposits and marketable equity securities were not material as ofApril 2,2023 and October 2,2022.Assets and Liabilities Measured at Fair Value on a Nonrecurring BasisAssets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property,plantand equipment,ROU assets,goodwill and other intangible assets and other assets.These assets are measured at fair value if determined to be impaired.16Table of ContentsThe estimated fair value of our long-term debt based on the quoted market price(Level 2)is included at Note 8,Debt.There were no material fair valueadjustments during the two quarters ended April 2,2023 and April 3,2022.Note 5:Inventories(in millions):Apr 2,2023Oct 2,2022Coffee:Unroasted$944.2$1,018.6 Roasted279.4 310.3 Other merchandise held for sale376.1 430.9 Packaging and other supplies400.9 416.8 Total$2,000.6$2,176.6 Other merchandise held for sale includes,among other items,serveware,food and tea.Inventory levels vary due to seasonality,commodity market supply andprice fluctuations.As of April 2,2023,we had committed to purchasing green coffee totaling$408.4 million under fixed-price contracts and an estimated$828.3 million underprice-to-be-fixed contracts.A portion of our price-to-be-fixed contracts are effectively fixed through the use of futures.See Note 3,Derivative FinancialInstruments,for further discussion.Price-to-be-fixed contracts are purchase commitments whereby the quality,quantity,delivery period and other negotiatedterms are agreed upon,but the date,and therefore the price,at which the base“C”coffee commodity price component will be fixed has not yet beenestablished.For most contracts,either Starbucks or the seller has the option to“fix”the base“C”coffee commodity price prior to the delivery date.For othercontracts,Starbucks and the seller may agree upon pricing parameters determined by the base“C”coffee commodity price.Until prices are fixed,we estimatethe total cost of these purchase commitments.We believe,based on established relationships with our suppliers and continuous monitoring,the risk of non-delivery on these purchase commitments is remote.Note 6:Supplemental Balance Sheet and Statement of Earnings Information(in millions):Property,Plant and Equipment,netApr 2,2023Oct 2,2022Land$46.1$46.1 Buildings567.3 555.4 Leasehold improvements9,578.2 9,066.8 Store equipment3,179.2 3,018.2 Roasting equipment816.3 838.5 Furniture,fixtures and other1,609.4 1,526.1 Work in progress654.4 558.7 Property,plant and equipment,gross16,450.9 15,609.8 Accumulated depreciation(9,632.3)(9,049.3)Property,plant and equipment,net$6,818.6$6,560.5 Accrued LiabilitiesApr 2,2023Oct 2,2022Accrued occupancy costs$82.8$84.6 Accrued dividends payable607.8 608.3 Accrued capital and other operating expenditures686.3 878.1 Self-insurance reserves248.7 232.3 Income taxes payable150.6 139.2 Accrued business taxes193.8 194.6 Total accrued liabilities$1,970.0$2,137.1 17Table of ContentsStore Operating ExpensesQuarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Wages and benefits$2,174.3$2,018.3$4,389.9$4,029.0 Occupancy costs703.4 664.9 1,374.9 1,330.2 Other expenses758.3 631.5 1,536.5 1,355.4 Total store operating expenses$3,636.0$3,314.7$7,301.3$6,714.6 Note 7:Other Intangible Assets and GoodwillIndefinite-Lived Intangible Assets(in millions)Apr 2,2023Oct 2,2022Trade names,trademarks and patents$79.7$97.5 Finite-Lived Intangible AssetsApr 2,2023Oct 2,2022(in millions)Gross CarryingAmountAccumulatedAmortizationNet CarryingAmountGross CarryingAmountAccumulatedAmortizationNet CarryingAmountAcquired and reacquired rights$1,025.9$(1,025.9)$990.0$(990.0)$Acquired trade secrets and processes27.6(27.6)27.6(27.3)0.3 Trade names,trademarks and patents130.9(82.6)48.3 124.6(69.6)55.0 Licensing agreements18.4(15.6)2.8 19.3(16.2)3.1 Other finite-lived intangible assets21.3(21.3)20.6(20.6)Total finite-lived intangible assets$1,224.1$(1,173.0)$51.1$1,182.1$(1,123.7)$58.4 Amortization expense for finite-lived intangible assets was$5.3 million and$10.9 million for the quarter and two quarters ended April 2,2023,respectivelyand$49.2 million and$99.4 million for the quarter and two quarters ended April 3,2022,respectively.Estimated future amortization expense as of April 2,2023(in millions):Fiscal YearTotal2023(excluding the two quarters ended April 2,2023)$10.3 202420.5 202514.5 20261.8 20271.5 Thereafter2.5 Total estimated future amortization expense$51.1 GoodwillChanges in the carrying amount of goodwill by reportable operating segment(in millions):North AmericaInternationalChannel DevelopmentCorporate and OtherTotalGoodwill balance at October 2,2022$491.1$2,756.7$34.7$1.0$3,283.5 Other0.3 128.5 128.8 Goodwill balance at April 2,2023$491.4$2,885.2$34.7$1.0$3,412.3“Other”consists of changes in the goodwill balance resulting from foreign currency translation.(1)(1)18Table of ContentsNote 8:DebtRevolving Credit FacilityOur$3.0 billion unsecured five-year revolving credit facility(the“2021 credit facility”),of which$150 million may be used for issuances of letters of credit,iscurrently set to mature on September 16,2026.The 2021 credit facility is available for working capital,capital expenditures and other corporate purposes,including acquisitions and share repurchases.We have the option,subject to negotiation and agreement with the related banks,to increase the maximumcommitment amount by an additional$1.0 billion.Borrowings under the 2021 credit facility bear interest at a variable rate based on LIBOR,and,for U.S.dollar-denominated loans under certain circumstances,a Base Rate(as defined in the 2021 credit facility),in each case plus an applicable margin.The applicable margin is based on the Companys long-term creditratings assigned by the Moodys and Standard&Poors rating agencies.The 2021 credit facility contains alternative interest rate provisions specifying ratecalculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform.The“Base Rate”is the highest of(i)the FederalFunds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americas prime rate,and(iii)the Eurocurrency Rate(as defined in the 2021 creditfacility)plus 1.000%.On April 17,2023,Starbucks amended the 2021 credit facility to replace LIBOR with Term SOFR(Secured Overnight Financing Rate)as a successor rate.Allother material terms and conditions of the 2021 credit facility were unchanged.Borrowings under the amended 2021 credit facility will bear interest at avariable rate based on Term SOFR,and,for U.S.dollar-denominated loans under certain circumstances,a Base Rate(as defined in the 2021 credit facility),ineach case plus an applicable margin.The applicable margin is based on the Companys long-term credit ratings assigned by the Moodys and Standard&Poors rating agencies.The“Base Rate”is the highest of(i)the Federal Funds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americasprime rate,and(iii)Term SOFR plus 1.000%.Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plusa SOFR Adjustment of 0.100%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants,including a minimum fixed charge coverage ratio,which measures our ability to cover financing expenses.As of April 2,2023,we were in compliance with all applicable covenants.No amounts wereoutstanding under our 2021 credit facility as of April 2,2023 or October 2,2022.Short-term DebtUnder our commercial paper program,we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0billion,with individual maturities that may vary but not exceed 397 days from the date of issue.Amounts outstanding under the commercial paper program arerequired to be backstopped by available commitments under our 2021 credit facility.The proceeds from borrowings under our commercial paper program maybe used for working capital needs,capital expenditures and other corporate purposes,including,but not limited to,business expansion,payment of cashdividends on our common stock and share repurchases.As of April 2,2023,we had no borrowings outstanding under the program.As of October 2,2022,wehad$175.0 million in borrowings outstanding under this program.Additionally,we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within ourJapanese market:A 5 billion,or$37.7 million,credit facility is currently set to mature on January 4,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on Tokyo Interbank Offered Rate(TIBOR)plus an applicable margin of0.400%.A 10 billion,or$75.4 million,credit facility is currently set to mature on March 27,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.As of April 2,2023,we had 7 billion,or$52.8 million,of borrowings outstanding under these credit facilities.As of October 2,2022,we had no borrowingsoutstanding under these credit facilities.19Table of ContentsLong-term DebtComponents of long-term debt including the associated interest rates and related estimated fair values by calendar maturity(in millions,except interest rates):Apr 2,2023Oct 2,2022Stated Interest RateEffective InterestRateIssuanceAmountEstimated FairValueAmountEstimated FairValueMarch 2023 notes$1,000.0$996.5 3.100%3.107%October 2023 notes750.0 746.4 750.0 744.8 3.850%2.859bruary 2024 notes500.0 497.0 500.0 497.3 5.147%5.378%March 2024 notes640.6 643.3 588.4 584.7 0.372%0.462%August 2025 notes1,250.0 1,230.2 1,250.0 1,209.6 3.800%3.721bruary 2026 notes1,000.0 1,008.8 4.750%4.788%June 2026 notes500.0 469.2 500.0 458.3 2.450%2.511%March 2027 notes500.0 455.1 500.0 437.9 2.000%2.058%March 2028 notes600.0 578.0 600.0 554.8 3.500%3.529%November 2028 notes750.0 731.6 750.0 704.7 4.000%3.958%August 2029 notes1,000.0 947.8 1,000.0 900.3 3.550%3.840%March 2030 notes750.0 647.3 750.0 607.7 2.250%3.084%November 2030 notes1,250.0 1,087.3 1,250.0 1,017.9 2.550%2.582bruary 2032 notes1,000.0 889.3 1,000.0 827.1 3.000%3.155bruary 2033 notes500.0 508.8 4.800%3.798%June 2045 notes350.0 310.3 350.0 281.5 4.300%4.348cember 2047 notes500.0 403.7 500.0 369.6 3.750%3.765%November 2048 notes1,000.0 905.5 1,000.0 824.6 4.500%4.504%August 2049 notes1,000.0 904.8 1,000.0 817.8 4.450%4.447%March 2050 notes500.0 374.2 500.0 342.0 3.350%3.362%November 2050 notes1,250.0 974.1 1,250.0 874.9 3.500%3.528%Total15,590.6 14,312.7 15,038.4 13,052.0 Aggregate debt issuance costs andunamortized premium/(discount),net(120.2)(117.2)Hedge accounting fair value adjustment(36.9)(52.3)Total$15,433.5$14,868.9 Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-startinginterest rate swaps utilized to hedge interest rate risk prior to the debt issuance.Amount includes the change in fair value due to changes in benchmark interest rates related to hedging our October 2023 notes and$350 million of ourAugust 2029 notes.Refer to Note 3,Derivative Financial Instruments,for additional information on our interest rate swaps designated as fair value hedges.Floating rate notes which bear interest at a rate equal to Compounded SOFR(as defined in the February 2024 notes)plus 0.420%,resulting in a statedinterest rate of 5.147%at April 2,2023.Japanese yen-denominated long-term debt.(1)(2)(3)(4)(2)(2)(1)(2)(3)(4)20Table of ContentsThe following table summarizes our long-term debt maturities as of April 2,2023 by fiscal year(in millions):Fiscal YearTotal2023$750.0 20241,140.6 20251,250.0 20261,500.0 2027500.0 Thereafter10,450.0 Total$15,590.6 Note 9:LeasesThe components of lease costs(in millions):Quarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Operating lease costs$401.7$393.4$786.5$779.5 Variable lease costs253.9 235.8 489.2 465.6 Short-term lease costs7.0 7.1 14.0 14.2 Total lease costs$662.6$636.3$1,289.7$1,259.3 Includes immaterial amounts of sublease income and rent concessions.The following table includes supplemental information(in millions):Two Quarters EndedApr 2,2023Apr 3,2022Cash paid related to operating lease liabilities$819.0$845.5 Operating lease liabilities arising from obtaining ROU assets828.0 710.6 Apr 2,2023Apr 3,2022Weighted-average remaining operating lease term8.5 years8.5 yearsWeighted-average operating lease discount rate2.9%2.5%Finance lease assets are recorded in property,plant and equipment,net with the corresponding lease liabilities included in accrued liabilities and other long-term liabilities on the consolidated balance sheet.There were no material finance leases as of April 2,2023 and October 2,2022.Minimum future maturities of operating lease liabilities(in millions):Fiscal YearTotal2023(excluding the two quarters ended April 2,2023)$771.8 20241,522.4 20251,432.2 20261,279.2 20271,090.0 Thereafter4,183.1 Total lease payments10,278.7 Less imputed interest(1,255.7)Total$9,023.0 As of April 2,2023,we have entered into operating leases that have not yet commenced of$1.3 billion,primarily related to real estate leases.These leases willcommence between fiscal year 2023 and fiscal year 2029 with lease terms ranging from three to twenty years.(1)(1)21Table of ContentsNote 10:Deferred RevenueOur deferred revenue primarily consists of the prepaid royalty from Nestl,for which we have continuing performance obligations to support the Global CoffeeAlliance,our unredeemed stored value card liability and unredeemed loyalty points(“Stars”)associated with our loyalty program.As of April 2,2023,the current and long-term deferred revenue related to Nestl was$177.0 million and$6.1 billion,respectively.As of October 2,2022,thecurrent and long-term deferred revenue related to the Nestl up-front payment was$177.0 million and$6.2 billion,respectively.During the quarter and twoquarters ended April 2,2023,we recognized$44.1 million and$88.2 million of prepaid royalty revenue related to Nestl.During the quarter and two quartersended April 3,2022,we recognized$44.2 million and$88.4 million of prepaid royalty revenue related to Nestl.Changes in our deferred revenue balance related to our stored value cards and loyalty program(in millions):Quarter Ended April 2,2023TotalStored value cards and loyalty program at January 1,2023$2,025.6 Revenue deferred-card activations,card reloads and Stars earned3,416.0 Revenue recognized-card and Stars redemptions and breakage(3,778.4)Other1.3 Stored value cards and loyalty program at April 2,2023$1,664.5 Quarter Ended April 3,2022TotalStored value cards and loyalty program at January 2,2022$1,952.5 Revenue deferred-card activations,card reloads and Stars earned3,124.0 Revenue recognized-card and Stars redemptions and breakage(3,426.3)Other(5.0)Stored value cards and loyalty program at April 3,2022$1,645.2 Two Quarters Ended April 2,2023TotalStored value cards and loyalty program at October 2,2022$1,503.0 Revenue deferred-card activations,card reloads and Stars earned7,639.4 Revenue recognized-card and Stars redemptions and breakage(7,492.5)Other14.6 Stored value cards and loyalty program at April 2,2023$1,664.5 Two Quarters Ended April 3,2022TotalStored value cards and loyalty program at October 3,2021$1,448.5 Revenue deferred-card activations,card reloads and Stars earned7,041.5 Revenue recognized-card and Stars redemptions and breakage(6,837.1)Other(7.7)Stored value cards and loyalty program at April 3,2022$1,645.2“Other”primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation.As of April 2,2023 and April 3,2022,approximately$1.6 billion and$1.5 billion of these amounts were current,respectively.(1)(2)(1)(2)(1)(2)(1)(2)(1)(2)22Table of ContentsNote 11:EquityChanges in AOCI by component,net of tax(in millions):Quarter Ended Available-for-SaleDebt Securities Cash Flow Hedges Net InvestmentHedgesTranslationAdjustment andOtherTotalApril 2,2023Net gains/(losses)in AOCI,beginning of period$(13.9)$(34.9)$156.8$(646.9)$(538.9)Net gains/(losses)recognized in OCI beforereclassifications2.8(1.1)(2.0)74.7 74.4 Net(gains)/losses reclassified from AOCI to earnings0.2(52.1)(5.2)(57.1)Other comprehensive income/(loss)attributable toStarbucks3.0(53.2)(7.2)74.7 17.3 Net gains/(losses)in AOCI,end of period$(10.9)$(88.1)$149.6$(572.2)$(521.6)April 3,2022Net gains/(losses)in AOCI,beginning of period$(1.2)$224.6$77.1$(47.0)$253.5 Net gains/(losses)recognized in OCI beforereclassifications(7.9)52.9 28.5(38.5)35.0 Net(gains)/losses reclassified from AOCI to earnings0.1(25.8)(2.6)0.1(28.2)Other comprehensive income/(loss)attributable toStarbucks(7.8)27.1 25.9(38.4)6.8 Net gains/(losses)in AOCI,end of period$(9.0)$251.7$103.0$(85.4)$260.3 Two Quarters EndedAvailable-for-SaleDebt SecuritiesCash Flow HedgesNet InvestmentHedgesTranslationAdjustment andOtherTotalApril 2,2023Net gains/(losses)in AOCI,beginning of period$(15.5)$199.0$209.1$(855.8)$(463.2)Net gains/(losses)recognized in OCI beforereclassifications4.3(152.3)(50.3)283.6 85.3 Net(gains)/losses reclassified from AOCI to earnings0.3(134.8)(9.2)(143.7)Other comprehensive income/(loss)attributable toStarbucks4.6(287.1)(59.5)283.6(58.4)Net gains/(losses)in AOCI,end of period$(10.9)$(88.1)$149.6$(572.2)$(521.6)April 3,2022Net gains/(losses)in AOCI,beginning of period$1.5$158.3$48.6$(61.2)$147.2 Net gains/(losses)recognized in OCI beforereclassifications(10.5)129.8 59.5(24.3)154.5 Net(gains)/losses reclassified from AOCI to earnings(36.4)(5.1)0.1(41.4)Other comprehensive income/(loss)attributable toStarbucks(10.5)93.4 54.4(24.2)113.1 Net gains/(losses)in AOCI,end of period$(9.0)$251.7$103.0$(85.4)$260.3 23Table of ContentsImpact of reclassifications from AOCI on the consolidated statements of earnings(in millions):Quarter EndedAOCIComponentsAmounts Reclassified from AOCIAffected Line Item inthe Statements of EarningsApr 2,2023Apr 3,2022Gains/(losses)on available-for-sale debt securities$(0.3)$(0.2)Interest income and other,netGains/(losses)on cash flow hedges59.9 30.9 Please refer to Note 3,Derivative Financial Instrumentsfor additional information.Gains/(losses)on net investment hedges7.0 3.5 Interest expense66.6 34.2 Total before tax(9.5)(6.0)Tax expense$57.1$28.2 Net of taxTwo Quarters EndedAOCIComponentsAmounts Reclassified from AOCIAffected Line Item inthe Statements of EarningsApr 2,2023Apr 3,2022Gains/(losses)on available-for-sale debt securities$(0.4)$Interest income and other,netGains/(losses)on cash flow hedges153.1 43.4 Please refer to Note 3,Derivative Financial Instrumentsfor additional information.Gains/(losses)on net investment hedges12.3 6.9 Interest expense165.0 50.3 Total before tax(21.3)(8.9)Tax expense$143.7$41.4 Net of taxIn addition to 2.4 billion shares of authorized common stock with$0.001 par value per share,the Company has authorized 7.5 million shares of preferred stock,none of which was outstanding as of April 2,2023.During the two quarters ended April 2,2023 and April 3,2022,we repurchased 4.9 million and 36.3 million shares of common stock for$495.3 million and$4,013.0 million,respectively.As of April 2,2023,47.7 million shares remained available for repurchase under current authorizations.During the second quarter of fiscal 2023,our Board of Directors approved a quarterly cash dividend to shareholders of$0.53 per share to be paid on May 26,2023 to shareholders of record as of the close of business on May 12,2023.Note 12:Employee Stock PlansAs of April 2,2023,there were 92.3 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 10.5million shares available for issuance under our employee stock purchase plan.Stock-based compensation expense recognized in the consolidated statements of earnings(in millions):Quarter EndedTwo Quarters Ended Apr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Restricted Stock Units(“RSUs”)$74.1$54.1$159.2$149.8 Options0.0(0.6)0.1(0.5)Total stock-based compensation expense$74.1$53.5$159.3$149.3 Stock option and RSU transactions from October 2,2022 through April 2,2023(in millions):Stock OptionsRSUsOptions outstanding/Nonvested RSUs,October 2,20224.1 7.0 Granted 4.1 Options exercised/RSUs vested(1.9)(2.7)Forfeited/expired(0.6)Options outstanding/Nonvested RSUs,April 2,20232.2 7.8 Total unrecognized stock-based compensation expense,net of estimated forfeitures,as of April 2,2023$278.5 24Table of ContentsNote 13:Earnings per ShareCalculation of net earnings per common share(“EPS”)basic and diluted(in millions,except EPS):Quarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Net earnings attributable to Starbucks$908.3$674.5$1,763.6$1,490.4 Weighted average common shares outstanding(for basiccalculation)1,148.5 1,149.2 1,148.4 1,159.4 Dilutive effect of outstanding common stock options andRSUs4.2 4.7 4.4 5.8 Weighted average common and common equivalent sharesoutstanding(for diluted calculation)1,152.7 1,153.9 1,152.8 1,165.2 EPS basic$0.79$0.59$1.54$1.29 EPS diluted$0.79$0.58$1.53$1.28 Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options(both vested and non-vested)andunvested RSUs,calculated using the treasury stock method.The calculation of dilutive shares outstanding excludes anti-dilutive stock options or unvestedRSUs,which were immaterial in the periods presented.Note 14:Commitments and ContingenciesLegal ProceedingsIn 2010 and 2011,an organization named Council for Education and Research on Toxics(“Plaintiff”)filed lawsuits in the Superior Court of the State ofCalifornia,County of Los Angeles,against the Company and other companies who manufacture,package,distribute or sell brewed coffee.The suits were laterconsolidated into a single action.Plaintiff alleged that the Company and the other defendants failed to provide warnings for their coffee products of exposure tothe chemical acrylamide as required under California Health and Safety Code section 25249.5,the California Safe Drinking Water and Toxic Enforcement Actof 1986,better known as Proposition 65.In 2020,the trial court granted defendants motion for summary judgment,which was affirmed by the CaliforniaCourt of Appeal.The California Supreme Court denied Plaintiffs petition for review on February 15,2023,concluding the matter.Starbucks is involved in various other legal proceedings arising in the ordinary course of business,including certain employment litigation cases that have beencertified as class or collective actions,but is not currently a party to any legal proceeding that management believes could have a material adverse effect on ourconsolidated financial position,results of operations or cash flows.Note 15:Segment ReportingSegment information is prepared on the same basis that our chief executive officer,who is our chief operating decision maker,manages the segments,evaluatesfinancial results and makes key operating decisions.Consolidated revenue mix by product type(in millions):Quarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Beverage$5,226.9 60%$4,599.0 60%$10,401.4 60%$9,497.4 60%Food1,590.9 18%1,364.3 18%3,157.0 18%2,798.9 18%Other1,902.0 22%1,672.3 22%3,875.4 22%3,389.7 22%Total$8,719.8 100%$7,635.6 100%$17,433.8 100%$15,686.0 100verage represents sales within our company-operated stores.Food includes sales within our company-operated stores.Other primarily consists of packaged and single-serve coffees and teas,royalty and licensing revenues,beverage-related ingredients,serveware and ready-to-drink beverages,among other items.(1)(2)(3)(1)(2)(3)25Table of ContentsThe tables below present financial information for our reportable operating segments and Corporate and Other segment(in millions):Quarter EndedNorth AmericaInternationalChannelDevelopmentCorporate andOtherTotalApril 2,2023Total net revenues$6,380.6$1,854.8$480.7$3.7$8,719.8 Depreciation and amortization expenses226.3 86.3 0.0 29.3 341.9 Income from equity investees 0.8 50.6 51.4 Operating income/(loss)1,217.9 314.7 262.1(467.2)1,327.5 April 3,2022Total net revenues$5,445.7$1,702.4$463.1$24.4$7,635.6 Depreciation and amortization expenses202.0 133.4 32.3 367.7 Income from equity investees 0.6 48.5 49.1 Operating income/(loss)931.5 180.7 197.9(361.2)948.9 Two Quarters EndedNorth AmericaInternationalChannelDevelopmentCorporate andOtherTotalApril 2,2023Total net revenues$12,931.8$3,534.9$958.9$8.2$17,433.8 Depreciation and amortization expenses443.1 167.7 0.1 58.1 669.0 Income from equity investees 1.2 108.0 109.2 Operating income/(loss)2,430.4 555.1 488.4(893.2)2,580.7 April 3,2022Total net revenues$11,178.0$3,578.4$880.1$49.5$15,686.0 Depreciation and amortization expenses402.1 266.5 65.2 733.8 Income from equity investees 1.3 88.1 89.4 Operating income/(loss)2,014.6 480.3 381.1(749.3)2,126.7 26Table of ContentsItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsCAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995Certain statements contained herein are“forward-looking”statements within the meaning of applicable securities laws and regulations.Generally,thesestatements can be identified by the use of words such as“aim,”“anticipate,”“believe,”“continue,”“could,”“estimate,”“expect,”“feel,”“forecast,”“intend,”“may,”“outlook,”“plan,”“potential,”“predict,”“project,”“seek,”“should,”“will,”“would,”and similar expressions intended to identifyforward-looking statements,although not all forward-looking statements contain these identifying words.These statements include statements relating to trendsin,or expectations relating to,the effects of our existing and any future initiatives,strategies,investments and plans,including our Reinvention Plan,as well astrends in,or expectations regarding,our financial results and long-term growth model and drivers;our operations in the U.S.and China;our environmental,social and governance efforts;our partners;economic and consumer trends,including the impact of inflationary pressures;impact of foreign currencytranslation;strategic pricing actions;the conversion of certain market operations to fully licensed models;our plans for streamlining our operations,including store openings,closures and changes in store formats and models;the success of our licensing relationship with Nestl,of our consumer packagedgoods and foodservice business and its effects on our Channel Development segment results;tax rates;business opportunities,expansions and new initiatives,including Starbucks Odyssey;strategic acquisitions;our dividends programs;commodity costs and our mitigation strategies;our liquidity,cash flow fromoperations,investments,borrowing capacity and use of proceeds;continuing compliance with our covenants under our credit facilities and commercial paperprogram;repatriation of cash to the U.S.;the likelihood of the issuance of additional debt and the applicable interest rate;the continuing impact of theCOVID-19 pandemic or other public health events on our financial results;our ceo transition;our share repurchase program;our use of cash and cashrequirements;the expected effects of new accounting pronouncements and the estimated impact of changes in U.S.tax law,including on tax rates,investmentsfunded by these changes and potential outcomes;and effects of legal proceedings.Such statements are based on currently available operating,financial andcompetitive information and are subject to various risks and uncertainties.Actual future results and trends may differ materially depending on a variety offactors,including,but not limited to:the continuing impact of COVID-19 on our business;regulatory measures or voluntary actions that may be put in place tolimit the spread of COVID-19,including restrictions on business operations or social distancing requirements,and the duration and efficacy of suchrestrictions;the resurgence of COVID-19 infections and the circulation of novel variants of COVID-19;fluctuations in U.S.and international economies andcurrencies;our ability to preserve,grow and leverage our brands;the ability of our business partners and third-party providers to fulfill their responsibilitiesand commitments;potential negative effects of incidents involving food or beverage-borne illnesses,tampering,adulteration,contamination or mislabeling;potential negative effects of material breaches of our information technology systems to the extent we experience a material breach;material failures of ourinformation technology systems;costs associated with,and the successful execution of,the Companys initiatives and plans;new initiatives and plans orrevisions to existing initiatives or plans;our ability to obtain financing on acceptable terms;the acceptance of the Companys products by our customers,evolving consumer preferences and tastes and changes in consumer spending behavior;partner investments,changes in the availability and cost of laborincluding any union organizing efforts and our responses to such efforts;failure to attract or retain key executive or employee talent or successfully transitionexecutives;significant increased logistics costs;inflationary pressures;the impact of competition;inherent risks of operating a global business including anypotential negative effects stemming from the Russian invasion of Ukraine;the prices and availability of coffee,dairy and other raw materials;the effect oflegal proceedings;and the effects of changes in tax laws and related guidance and regulations that may be implemented,including the Inflation Reduction Actof 2022 and other risks detailed in our filings with the SEC,including in the Risk Factors”and“Managements Discussion and Analysis of FinancialCondition and Results of Operations”sections of the companys most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings.A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances,and those future events or circumstances may not occur.You should not place undue reliance on the forward-looking statements,which speak only as of the date of this report.We are under no obligation to update oralter any forward-looking statements,whether as a result of new information,future events or otherwise.This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the auditedconsolidated financial statements and notes,and Managements Discussion and Analysis of Financial Condition and Results of Operations(“MD&A”),contained in the 10-K filed with the SEC on November 18,2022.Introduction and OverviewStarbucks is the premier roaster,marketer and retailer of specialty coffee in the world,operating in 84 markets.As of April 2,2023,Starbucks had more than36,600 company-operated and licensed stores,an increase of 6%from the prior year.Additionally,we sell a variety of consumer-packaged goods,primarilythrough the Global Coffee Alliance established with Nestl and other partnerships and joint ventures.27Table of ContentsWe have three reportable operating segments:1)North America,which is inclusive of the U.S.and Canada,2)International,which is inclusive of China,Japan,Asia Pacific,Europe,Middle East,Africa,Latin America and the Caribbean;and 3)Channel Development.Non-reportable operating segments and unallocatedcorporate expenses are reported within Corporate and Other.We believe our financial results and long-term growth model will continue to be driven by new store openings,comparable store sales growth and operatingmargin management,underpinned by disciplined capital allocation.We believe these key operating metrics are useful to investors because management usesthese metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.Throughout this MD&A,we commonlydiscuss the following key operating metrics:New store openings and store countComparable store sales growthOperating marginComparable store sales growth represents the percentage change in sales in one period from the same prior year period for company-operated stores open for13 months or longer and exclude the impact of foreign currency translation.We analyze comparable store sales growth on a constant currency basis as thishelps identify underlying business trends,without distortion from the effects of currency movements.Stores that are temporarily closed or operating at reducedhours due to the COVID-19 pandemic remain in comparable store sales while stores identified for permanent closure have been removed.Our fiscal year ends on the Sunday closest to September 30.Fiscal 2023 and 2022 included 52 weeks.All references to store counts,including data for newstore openings,are reported net of store closures,unless otherwise noted.Starbucks results for the second quarter of fiscal 2023 demonstrate the overall strength of our brand.Consolidated net revenues increased 14%to$8.7 billion inthe second quarter of fiscal 2023 compared to$7.6 billion in the second quarter of fiscal 2022,primarily driven by strength in our U.S.business and growth inour international licensed markets and the beginning of a recovery from COVID-19 pandemic-related business interruptions in China.During the quarter endedApril 2,2023,our global comparable store sales grew 11%,primarily driven by 12%growth in the U.S.market and 7%growth internationally,as evidenced bythe strength of the Starbucks brand in global markets.Consolidated operating margin increased 280 basis points from the prior year to 15.2%,primarily drivenby sales leverage,pricing,productivity improvement and the gain from sale of our Seattles Best Coffee brand.These were partially offset by previously-committed investments in labor,including enhancements in retail store partner wages and benefits,increased general and administrative costs related to ourReinvention Plan and higher supply chain costs driven by inflationary pressures.We anticipate continued recovery in China,coupled with sales leverage,pricing and productivity gains from the Reinvention Plan,will position us to meet ourexpected financial results in the remainder of the fiscal year.Absent significant and prolonged COVID-19 relapses or global economic disruptions,we believeour strategy will result in sustainable and profitable growth over the long-term.Results of Operations(in millions)Revenues Quarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022$Change%ChangeApr 2,2023Apr 3,2022$Change%ChangeCompany-operated stores$7,142.3$6,276.7$865.6 13.8%$14,225.7$12,999.1$1,226.6 9.4%Licensed stores1,069.5 849.5 220.0 25.9 2,189.0 1,700.3 488.7 28.7 Other508.0 509.4(1.4)(0.3)1,019.1 986.6 32.5 3.3 Total net revenues$8,719.8$7,635.6$1,084.2 14.2%$17,433.8$15,686.0$1,747.8 11.1%For the quarter ended April 2,2023 compared with the quarter ended April 3,2022Total net revenues for the second quarter of fiscal 2023 increased$1.1 billion,primarily due to higher revenues from company-operated stores($866 million).The growth of company-operated stores revenue was driven by an 11%increase in comparable store sales($669 million),attributable to a 6%increase incomparable transactions and a 4%increase in average ticket.Also contributing was incremental revenues from 1,114 net new Starbucks company-operatedstores,or a 6%increase,over the past 12 months($312 million).Partially offsetting these increases was unfavorable foreign currency translation($163million).Licensed stores revenue increased$220 million contributing to the increase in total net revenues,driven by higher product and equipment sales to and royaltyrevenues from our licensees($233 million).Partially offsetting this increase was unfavorable foreign currency translation($21 million).28Table of ContentsFor the two quarters ended April 2,2023 compared with the two quarters ended April 3,2022Total net revenues for the first two quarters of fiscal 2023 increased$1.7 billion,primarily due to higher revenues from company-operated stores($1.2 billion).The growth of company-operated stores revenue was driven by a 8%increase in comparable store sales($1.0 billion)attributed to a 6%increase in averageticket and a 2%increase in transactions.Also contributing to the increase were incremental revenues from 1,114 net new Starbuckscompany-operated stores,or a 6%increase,over the past 12 months($571 million).Partially offsetting these increases was unfavorable foreign currency translation($388 million).Licensed stores revenue increased$489 million contributing to the increase in total net revenues,driven by higher product and equipment sales to and royaltyrevenues from our licensees($532 million).Partially offsetting this increase was unfavorable foreign currency translation($57 million).Other revenues increased$33 million,primarily due to higher product sales and royalty revenue in the Global Coffee Alliance($63 million),partially offset bythe absence of revenues from the Evolution Fresh business following its sale in the fourth quarter of fiscal 2022($37 million).Operating Expenses Quarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022$ChangeApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022$ChangeApr 2,2023Apr 3,2022As a%ofTotal Net RevenuesAs a%ofTotal Net RevenuesProduct and distributioncosts$2,801.7$2,465.8$335.9 32.12.3%$5,611.9$4,992.7$619.2 32.21.8%Store operating expenses3,636.0 3,314.7 321.3 41.7 43.4 7,301.3 6,714.6 586.7 41.9 42.8 Other operating expenses126.2 101.7 24.5 1.4 1.3 255.4 203.4 52.0 1.5 1.3 Depreciation andamortization expenses341.9 367.7(25.8)3.9 4.8 669.0 733.8(64.8)3.8 4.7 General andadministrative expenses620.4 481.5 138.9 7.1 6.3 1,201.3 1,007.3 194.0 6.9 6.4 Restructuring andimpairments8.8 4.4 4.4 0.1 0.1 14.7(3.1)17.8 0.1 0.0 Total operating expenses7,535.0 6,735.8 799.2 86.4 88.2,053.6 13,648.7 1,404.9 86.3 87.0 Income from equityinvestees51.4 49.1 2.3 0.6 0.6 109.2 89.4 19.8 0.6 0.6 Gain from sale of assets91.3 91.3 1.0 nm91.3 91.3 0.5 nmOperating income1,327.5 948.9 378.6 15.2 12.4%2,580.7 2,126.7 454.0 14.8 13.6 Store operating expenses as a%of company-operated stores revenue50.9R.8Q.3Q.7%For the quarter ended April 2,2023 compared with the quarter ended April 3,2022Product and distribution costs as a percentage of total net revenues decreased 20 basis points for the second quarter of fiscal 2023,primarily due to pricing(approximately 120 basis points),partially offset by higher supply chain costs driven by inflationary pressures(approximately 100 basis points).Store operating expenses as a percentage of total net revenues decreased 170 basis points for the second quarter of fiscal 2023.Store operating expenses as apercentage of company-operated stores revenue decreased 190 basis points,primarily due to sales leverage(approximately 260 basis points),pricing(approximately 160 basis points)and productivity improvement(approximately 160 basis points).These were partially offset by previously-committedinvestments in labor,including enhancements in retail store partner wages and benefits(approximately 340 basis points).Other operating expenses increased$25 million for the second quarter of fiscal 2023,primarily due to higher support costs for our growing licensed markets($9 million)and strategic investments in technology and other initiatives($6 million).29Table of ContentsDepreciation and amortization expenses as a percentage of total net revenues decreased 90 basis points,primarily due to lapping amortization expenses ofacquisition-related intangibles assets that are now fully amortized.General and administrative expenses increased$139 million,primarily due to incremental investments in technology($36 million),higher performance-basedcompensation($30 million),increased support costs of strategic initiatives including the Reinvention Plan($18 million),a donation to the StarbucksFoundation($15 million)and higher partner wages and benefits($13 million).Gain from sale of assets includes the sale of our Seattles Best Coffee brand to Nestl in the second quarter of fiscal 2023.The combination of these changes resulted in an overall increase in operating margin of 280 basis points for the second quarter of fiscal 2023.For the two quarters ended April 2,2023 compared with the two quarters ended April 3,2022Product and distribution costs as a percentage of total net revenues increased 40 basis points for the first two quarters of fiscal 2023,primarily due to highersupply chain costs driven by inflationary pressures(approximately 130 basis points)and business mix shift(approximately 60 basis points),partially offset bypricing(approximately 160 basis points).Store operating expenses as a percentage of total net revenues decreased 90 basis points for the first two quarters of fiscal 2023.Store operating expenses as apercentage of company-operated stores revenue decreased 40 basis points,primarily due to pricing(approximately 210 basis points),sales leverage(approximately 120 basis points)and productivity improvement(approximately 110 basis points).These were partially offset by previously-committedinvestments in labor,including enhancements in retail store partner wages and benefits(approximately 340 basis points).Other operating expenses increased$52 million for the first two quarters of fiscal 2023,primarily due to higher support costs for our growing licensed markets($17 million)and strategic investments in technology and other initiatives($13 million).Depreciation and amortization expenses as a percentage of total net revenues decreased 90 basis points,primarily due to lapping amortization expenses ofacquisition-related intangibles assets that are now fully amortized.General and administrative expenses increased$194 million,primarily due to incremental investments in technology($64 million),increased support costs toaddress labor market conditions and leadership training($28 million),higher performance-based compensation($24 million),increased support costs ofstrategic initiatives including the Reinvention Plan($24 million)and higher partner wages and benefits($20 million).Income from equity investees increased$20 million,primarily due to higher income from our North American Coffee Partnership joint venture.Gain from sale of assets includes the sale of our Seattles Best Coffee brand to Nestl in the second quarter of fiscal 2023.The combination of these changes resulted in an overall increase in operating margin of 120 basis points for the first two quarters of fiscal 2023.30Table of ContentsOther Income and Expenses Quarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022$ChangeApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022$ChangeApr 2,2023Apr 3,2022As a%of TotalNet RevenuesAs a%of TotalNet RevenuesOperating income$1,327.5$948.9$378.6 15.2.4%$2,580.7$2,126.7$454.0 14.8.6%Interest income and other,net18.4 46.3(27.9)0.2 0.6 30.0 46.2(16.2)0.2 0.3 Interest expense(136.3)(119.1)(17.2)(1.6)(1.6)(266.0)(234.4)(31.6)(1.5)(1.5)Earnings before incometaxes1,209.6 876.1 333.5 13.9 11.5 2,344.7 1,938.5 406.2 13.4 12.4 Income tax expense301.3 201.1 100.2 3.5 2.6 581.1 447.4 133.7 3.3 2.9 Net earnings includingnoncontrolling interests908.3 675.0 233.3 10.4 8.8 1,763.6 1,491.1 272.5 10.1 9.5 Net earningsattributable tononcontrolling interests 0.5(0.5)0.7(0.7)Net earningsattributable toStarbucks$908.3$674.5$233.8 10.4%8.8%$1,763.6$1,490.4$273.2 10.1%9.5fective tax rate includingnoncontrolling interests24.9#.0$.8#.1%For the quarter ended April 2,2023 compared with the quarter ended April 3,2022Interest income and other,net decreased$28 million,primarily due to lapping higher investment gains in the prior year.Interest expense increased$17 million,primarily due to additional interest incurred on floating rate debt.The effective tax rate for the quarter ended April 2,2023 was 24.9%compared to 23.0%for the same period in fiscal 2022.The increase was primarily due tolapping a beneficial return-to-provision adjustment recorded related to the divestiture of certain joint venture operations(approximately 260 basis points).For the two quarters ended April 2,2023 compared with the two quarters ended April 3,2022Interest income and other,net decreased$16 million,primarily due to lapping higher investment gains in the prior year.Interest expense increased$32 million,primarily due to additional interest incurred on floating rate debt.The effective tax rate for the first two quarters ended April 2,2023 was 24.8%compared to 23.1%for the same period in fiscal 2022.The increase wasprimarily due to lapping a beneficial return-to-provision adjustment recorded related to the divestiture of certain joint venture operations(approximately 120basis points)and a decrease in stock-based compensation excess tax benefits(approximately 80 basis points).31Table of ContentsSegment InformationResults of operations by segment(in millions):North America Quarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022$ChangeApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022$ChangeApr 2,2023Apr 3,2022As a%of North AmericaTotal Net RevenuesAs a%of North AmericaTotal Net RevenuesNet revenues:Company-operatedstores$5,742.7$4,936.3$806.4 90.0.6%$11,613.2$10,150.4$1,462.8 89.8.8%Licensed stores637.4 507.0 130.4 10.0 9.3 1,317.4 1,022.9 294.5 10.2 9.2 Other0.5 2.4(1.9)0.0 0.0 1.2 4.7(3.5)0.0 0.0 Total net revenues6,380.6 5,445.7 934.9 100.0 100.0 12,931.8 11,178.0 1,753.8 100.0 100.0 Product and distributioncosts1,821.7 1,564.0 257.7 28.6 28.7 3,739.3 3,193.4 545.9 28.9 28.6 Store operating expenses2,951.6 2,625.4 326.2 46.3 48.2 5,983.0 5,327.7 655.3 46.3 47.7 Other operating expenses63.4 47.1 16.3 1.0 0.9 128.9 95.3 33.6 1.0 0.9 Depreciation andamortization expenses226.3 202.0 24.3 3.5 3.7 443.1 402.1 41.0 3.4 3.6 General andadministrative expenses91.2 71.3 19.9 1.4 1.3 193.5 148.0 45.5 1.5 1.3 Restructuring andimpairments8.5 4.4 4.1 0.1 0.1 13.6(3.1)16.7 0.1 0.0 Total operating expenses5,162.7 4,514.2 648.5 80.9 82.9 10,501.4 9,163.4 1,338.0 81.2 82.0 Operating income$1,217.9$931.5$286.4 19.1.1%$2,430.4$2,014.6$415.8 18.8.0%Store operating expenses as a%ofcompany-operated stores revenue51.4S.2Q.5R.5%For the quarter ended April 2,2023 compared with the quarter ended April 3,2022RevenuesNorth America total net revenues for the second quarter of fiscal 2023 increased$935 million,or 17%,primarily due to a 12%increase in comparable storesales($584 million)driven by a 6%increase in transactions and a 5%increase in average ticket.Also contributing to these increases were the performance ofnet new company-operated store openings over the past 12 months($205 million)and higher product and equipment sales to and royalty revenues from ourlicensees($122 million).Operating MarginNorth America operating income for the second quarter of fiscal 2023 increased 31%to$1.2 billion,compared to$0.9 billion in the second quarter of fiscal2022.Operating margin increased 200 basis points to 19.1%,primarily due to pricing(approximately 320 basis points)and sales leverage(approximately 270basis points).Also contributing were productivity improvement(approximately 170 basis points)and lower COVID-19 pandemic related catastrophe pay forstore partners(approximately 120 basis points).These increases were partially offset by previously-committed investments in labor,including enhancements inretail store partner wages and benefits(approximately 360 basis points)and inflationary pressures on commodities and our supply chain(approximately 120basis points).32Table of ContentsFor the two quarters ended April 2,2023 compared with the two quarters ended April 3,2022RevenuesNorth America total net revenues for the first two quarters of fiscal 2023 increased$1.8 billion,or 16%,primarily due to a 11%increase in comparable storesales($1.1 billion)driven by a 7%increase in average ticket and a 4%increase in transactions.Also contributing to these increases were net new company-operated store openings over the past 12 months($388 million)and higher product and equipment sales to and royalty revenues from our licensees($282million).Operating MarginNorth America operating income for the first two quarters of fiscal 2023 increased 21%to$2.4 billion,compared to$2.0 billion for the same period in fiscal2022.Operating margin increased 80 basis points to 18.8%,primarily due to pricing(approximately 420 basis points)and sales leverage(approximately 230basis points).Also contributing was productivity improvement(approximately 120 basis points).These increases were partially offset by previously-committedinvestments in labor,including enhancements in retail store partner wages and benefits(approximately 380 basis points)and inflationary pressures oncommodities and our supply chain(approximately 170 basis points).International Quarter EndedTwo Quarters Ended Apr 2,2023Apr 3,2022$ChangeApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022$ChangeApr 2,2023Apr 3,2022As a%of InternationalTotal Net RevenuesAs a%of InternationalTotal Net RevenuesNet revenues:Company-operatedstores$1,399.6$1,340.4$59.2 75.5x.7%$2,612.5$2,848.7$(236.2)73.9y.6%Licensed stores432.1 342.5 89.6 23.3 20.1 871.6 677.4 194.2 24.7 18.9 Other23.1 19.5 3.6 1.2 1.1 50.8 52.3(1.5)1.4 1.5 Total net revenues1,854.8 1,702.4 152.4 100.0 100.0 3,534.9 3,578.4(43.5)100.0 100.0 Product and distributioncosts632.9 580.5 52.4 34.1 34.1 1,226.5 1,196.4 30.1 34.7 33.4 Store operating expenses684.4 689.3(4.9)36.9 40.5 1,318.3 1,386.9(68.6)37.3 38.8 Other operating expenses49.9 39.5 10.4 2.7 2.3 100.6 78.7 21.9 2.8 2.2 Depreciation andamortization expenses86.3 133.4(47.1)4.7 7.8 167.7 266.5(98.8)4.7 7.4 General andadministrative expenses87.4 79.6 7.8 4.7 4.7 167.9 170.9(3.0)4.7 4.8 Total operating expenses1,540.9 1,522.3 18.6 83.1 89.4 2,981.0 3,099.4(118.4)84.3 86.6 Income from equityinvestees0.8 0.6 0.2 1.2 1.3(0.1)Operating income$314.7$180.7$134.0 17.0.6%$555.1$480.3$74.8 15.7.4%Store operating expenses as a%of company-operated stores revenue48.9Q.4P.5H.7%For the quarter ended April 2,2023 compared with the quarter ended April 3,2022RevenuesInternational total net revenues for the second quarter of fiscal 2023 increased$152 million,or 9%,primarily due to higher product and equipment sales to androyalty revenues from our licensees($111 million),721 net new company-operated store openings,or a 10%increase,over the past 12 months($107 million).Also contributing was a 7%increase in comparable store sales($85 million),driven by a 7%increase in customer transactions,primarily attributable tobusiness recovery from COVID-19 pandemic related disruptions in China.These increases were partially offset by unfavorable foreign currency translation($163 million).33Table of ContentsOperating MarginInternational operating income for the second quarter of fiscal 2023 increased 74%to$315 million,compared to$181 million in the second quarter of fiscal2022.Operating margin increased 640 basis points to 17.0%,primarily due to sales leverage(approximately 470 basis points)and lapping amortizationexpenses of acquisition-related intangibles assets that are now fully amortized(approximately 250 basis points).These decreases were partially offset by higherpartner wages and benefits(approximately 100 basis points).For the two quarters ended April 2,2023 compared with the two quarters ended April 3,2022RevenuesInternational total net revenues for the first two quarters of fiscal 2023 decreased$44 million,or 1%,primarily due to unfavorable foreign currency translation($399 million),as well as a 3cline in comparable store sales($85 million),driven by a 3crease in customer transactions primarily due to COVID-19pandemic related disruptions in China during the first quarter of fiscal 2023.These were partially offset by higher product and equipment sales to and royaltyrevenues from our licensees($250 million),as well as 721 net new company-operated store openings,or a 10%increase,over the past 12 months($183million).Operating MarginInternational operating income for the first two quarters of fiscal 2023 increased 16%to$555 million,compared to$480 million for the same period in fiscal2022.Operating margin increased 230 basis points to 15.7%,primarily due to lapping amortization expenses of acquisition-related intangibles assets that arenow fully amortized(approximately 240 basis points)and sales leverage across markets outside of China(approximately 190 basis points).These increaseswere partially offset by sales deleverage related to COVID-19 pandemic related impacts in our China market during the first quarter of fiscal 2023(approximately 160 basis points)and higher partner wages and benefits(approximately 100 basis points).34Table of ContentsChannel Development Quarter EndedTwo Quarters Ended Apr 2,2023Apr 3,2022$ChangeApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022$ChangeApr 2,2023Apr 3,2022As a%of ChannelDevelopmentTotal Net RevenuesAs a%of ChannelDevelopmentTotal Net RevenuesNet revenues$480.7$463.1$17.6$958.9$880.1$78.8 Product and distribution costs345.6 300.5 45.1 71.9d.9c9.8 559.3 80.5 66.7c.5%Other operating expenses12.8 10.7 2.1 2.7 2.3 25.8 22.0 3.8 2.7 2.5 General and administrativeexpenses2.1 2.5(0.4)0.4 0.5 4.1 5.8(1.7)0.4 0.7 Total operating expenses360.5 313.7 46.8 75.0 67.7 669.8 587.1 82.7 69.9 66.7 Income from equity investees50.6 48.5 2.1 10.5 10.5 108.0 88.1 19.9 11.3 10.0 Gain from sale of assets91.3 91.3 19.0 nm91.3 91.3 9.5%nmOperating income$262.1$197.9$64.2 54.5B.7%$488.4$381.1$107.3 50.9C.3%For the quarter ended April 2,2023 compared with the quarter ended April 3,2022RevenuesChannel Development total net revenues for the second quarter of fiscal 2023 increased$18 million,or 4%,primarily due to higher Global Coffee Allianceproduct sales and royalty revenue($20 million).Operating MarginChannel Development operating income for the second quarter of fiscal 2023 increased 32%to$262 million,compared to$198 million in the second quarterof fiscal 2022.Operating margin increased 1,180 basis points to 54.5%,primarily due to the gain from sale of our Seattles Best Coffee brand(approximately1,900 basis points),partially offset by impairment charges against certain manufacturing assets(approximately 360 basis points).For the two quarters ended April 2,2023 compared with the two quarters ended April 3,2022RevenuesChannel Development total net revenues for the first two quarters of fiscal 2023 increased$79 million,or 9%,primarily due to higher Global Coffee Allianceproduct sales and royalty revenue($63 million)and growth in our global ready-to-drink business($27 million).Operating MarginChannel Development operating income for the first two quarters of fiscal 2023 increased 28%to$488 million,compared to$381 million for the same periodin fiscal 2022.Operating margin increased 760 basis points to 50.9%,primarily due to the gain from sale of our Seattles Best Coffee brand(approximately 950basis points)and growth in our North American Coffee Partnership joint venture income(approximately 110 basis points),partially offset by impairmentcharges against certain manufacturing assets(approximately 190 basis points)and business mix shift(approximately 160 basis points).35Table of ContentsCorporate and Other Quarter EndedTwo Quarters EndedApr 2,2023Apr 3,2022$Change%ChangeApr 2,2023Apr 3,2022$Change%ChangeNet revenues:Other$3.7$24.4$(20.7)(84.8)%$8.2$49.5$(41.3)(83.4)%Total net revenues3.7 24.4(20.7)(84.8)8.2 49.5(41.3)(83.4)Product and distribution costs1.5 20.8(19.3)(92.8)6.3 43.6(37.3)(85.6)Other operating expenses0.1 4.4(4.3)(97.7)0.1 7.4(7.3)(98.6)Depreciation and amortizationexpenses29.3 32.3(3.0)(9.3)58.1 65.2(7.1)(10.9)General and administrativeexpenses439.7 328.1 111.6 34.0 835.8 682.6 153.2 22.4 Restructuring and impairments0.3 0.3 nm1.1 1.1 nmTotal operating expenses470.9 385.6 85.3 22.1 901.4 798.8 102.6 12.8 Operating loss$(467.2)$(361.2)$(106.0)29.3%$(893.2)$(749.3)$(143.9)19.2%Corporate and Other primarily consists of our unallocated corporate expenses and Evolution Fresh,prior to its sale in the fourth quarter of fiscal 2022.Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to ormanaged by any segment and are not included in the reported financial results of the operating segments.For the quarter ended April 2,2023 compared with the quarter ended April 3,2022Corporate and Other operating loss increased by 29%to$467 million for the second quarter of fiscal 2023 compared to$361 million for the second quarter offiscal 2022.This increase was primarily driven by incremental investments in technology($34 million),higher performance-based compensation($25 million),increased support costs of strategic initiatives including the Reinvention Plan($18 million)and a donation to the Starbucks Foundation($15 million).For the two quarters ended April 2,2023 compared with the two quarters ended April 3,2022Corporate and Other operating loss increased by 19%to$893 million for the first two quarters of fiscal 2023 compared to$749 million for the same period infiscal 2022.This increase was primarily driven by incremental investments in technology($62 million),increased support costs of strategic initiativesincluding the Reinvention Plan($24 million),increased support costs to address labor market conditions($16 million),higher performance-basedcompensation($16 million)and a donation to the Starbucks Foundation($15 million).36Table of ContentsQuarterly Store DataOur store data for the periods presented is as follows:Net stores opened/(closed)and transferred during the period Quarter EndedTwo Quarters EndedStores open as ofApr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022Apr 2,2023Apr 3,2022North AmericaCompany-operated stores91 54 131 93 10,347 9,954 Licensed stores10(16)56 7 7,135 6,972 Total North America101 38 187 100 17,482 16,926 InternationalCompany-operated stores174 102 271 315 8,308 7,587 Licensed stores189 173 465 382 10,844 10,117 Total International363 275 736 697 19,152 17,704 Total Company464 313 923 797 36,634 34,630 Financial Condition,Liquidity and Capital ResourcesCash and Investment OverviewOur cash and investments totaled$3.7 billion as of April 2,2023 and$3.5 billion as of October 2,2022.We actively manage our cash and investments in orderto internally fund operating needs,make scheduled interest and principal payments on our borrowings,make acquisitions and return cash to shareholdersthrough common stock cash dividend payments and share repurchases.Our investment portfolio primarily includes highly liquid available-for-sale securities,including corporate debt securities,government treasury securities(foreign and domestic)and commercial paper as well as principal-protected structureddeposits.As of April 2,2023,approximately$2.6 billion of cash and short-term investment were held in foreign subsidiaries.Borrowing CapacityRevolving Credit FacilityOur$3.0 billion unsecured five-year revolving credit facility(the“2021 credit facility”),of which$150 million may be used for issuances of letters of credit,iscurrently set to mature on September 16,2026.The 2021 credit facility is available for working capital,capital expenditures and other corporate purposes,including acquisitions and share repurchases.We have the option,subject to negotiation and agreement with the related banks,to increase the maximumcommitment amount by an additional$1.0 billion.Borrowings under the 2021 credit facility bear interest at a variable rate based on LIBOR,and,for U.S.dollar-denominated loans under certain circumstances,a Base Rate(as defined in the 2021 credit facility),in each case plus an applicable margin.The applicable margin is based on the Companys long-term creditratings assigned by the Moodys and Standard&Poors rating agencies.The 2021 credit facility contains alternative interest rate provisions specifying ratecalculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform.The“Base Rate”is the highest of(i)the FederalFunds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americas prime rate and(iii)the Eurocurrency Rate(as defined in the 2021 creditfacility)plus 1.000%.On April 17,2023,Starbucks amended the 2021 credit facility to replace LIBOR with Term SOFR(Secured Overnight Financing Rate)as a successor rate.Allother material terms and conditions of the 2021 credit facility were unchanged.Borrowings under the amended 2021 credit facility will bear interest at avariable rate based on Term SOFR,and,for U.S.dollar-denominated loans under certain circumstances,a Base Rate(as defined in the 2021 credit facility),ineach case plus an applicable margin.The applicable margin is based on the Companys long-term credit ratings assigned by the Moodys and Standard&Poors rating agencies.The“Base Rate”is the highest of(i)the Federal Funds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americasprime rate,and(iii)Term SOFR plus 1.000%.Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plusa SOFR Adjustment of 0.100%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants,including a minimum fixed charge coverage ratio,which measures our ability to cover financing expenses.As of April 2,2023,we were in compliance with all applicable covenants.No amounts wereoutstanding under our 2021 credit facility as of April 2,2023 or October 2,2022.37Table of ContentsCommercial PaperUnder our commercial paper program,we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0billion,with individual maturities that may vary but not exceed 397 days from the date of issue.Amounts outstanding under the commercial paper program arerequired to be backstopped by available commitments under the 2021 credit facility discussed above.The proceeds from borrowings under our commercialpaper program may be used for working capital needs,capital expenditures and other corporate purposes,including,but not limited to,business expansion,payment of cash dividends on our common stock and share repurchases.As of April 2,2023,we had no borrowings outstanding under our commercial paperprogram.As of October 2,2022,we had$175.0 million in borrowings outstanding under this program.Our total contractual borrowing capacity for generalcorporate purposes was$3.0 billion as of the end of our second quarter of fiscal 2023.Credit facilities in JapanAdditionally,we hold Japanese yen-denominated credit facilities for the use of our Japan subsidiary.These are available for working capital needs and capitalexpenditures within our Japanese market.A 5 billion,or$37.7 million,credit facility is currently set to mature on January 4,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%.A 10 billion,or$75.4 million,credit facility is currently set to mature on March 27,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.As of April 2,2023,we had 7 billion,or$52.8 million,of borrowings outstanding under these credit facilities.As of October 2,2022,we had no borrowingsoutstanding under these credit facilities.See Note 8,Debt,to the consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt.Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indenturesunder which the long-term notes were issued.As of April 2,2023,we were in compliance with all applicable covenants.Use of CashWe expect to use our available cash and investments,including,but not limited to,additional potential future borrowings under the credit facilities,commercialpaper program and the issuance of debt to support and invest in our core businesses,including investing in new ways to serve our customers and supporting ourstore partners,repaying maturing debts,as well as returning cash to shareholders through common stock cash dividend payments and discretionary sharerepurchases and investing in new business opportunities related to our core and developing businesses.Furthermore,we may use our available cash resourcesto make proportionate capital contributions to our investees.We may also seek strategic acquisitions to leverage existing capabilities and further build ourbusiness.Acquisitions may include increasing our ownership interests in our investees.Any decisions to increase such ownership interests will be driven byvaluation and fit with our ownership strategy.We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally combined with ourability to leverage our balance sheet through the issuance of debt will be sufficient to finance capital requirements for our core businesses as well asshareholder distributions for at least the next 12 months.We are currently not aware of any trends or demands,commitments,events or uncertainties that willresult in,or that are reasonably likely to result in,our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyondthe next 12 months.We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates;however,additional borrowingswould result in increased interest expense in the future.In this regard,we may incur additional debt,within targeted levels,as part of our plans to fund ourcapital programs,including cash returns to shareholders through future dividends and discretionary share repurchases as well as investing in new businessopportunities.If necessary,we may pursue additional sources of financing,including both short-term and long-term borrowings and debt issuances.We regularly review our cash positions and our determination of indefinite reinvestment of foreign earnings.In the event we determine that all or a portion ofsuch foreign earnings are no longer indefinitely reinvested,we may be subject to additional foreign withholding taxes and U.S.state income taxes,which couldbe material.While we do not anticipate the need for repatriated funds to the U.S.to satisfy domestic liquidity requirements,any foreign earnings which are notindefinitely reinvested may be repatriated at managements discretion.During the second quarter of fiscal 2023,our Board of Directors approved a quarterly cash dividend to shareholders of$0.53 per share to be paid on May 26,2023 to shareholders of record as of the close of business on May 12,2023.38Table of ContentsDuring the first quarter of fiscal 2023,we resumed our share repurchase program which was temporarily suspended in April 2022.During the two quartersended April 2,2023,we repurchased 4.9 million shares of common stock for$495.3 million.As of April 2,2023,47.7 million shares remained available forrepurchase under current authorizations.Other than normal operating expenses,cash requirements for the remainder of fiscal 2023 are expected to consist primarily of capital expenditures forinvestments in our new and existing stores,our supply chain and corporate facilities.Total capital expenditures for fiscal 2023 are expected to be approximately$2.5 billion.In the MD&A included in the 10-K,we disclosed that we had$33.2 billion of current and long-term material cash requirements as of October 2,2022.Therehave been no material changes to our material cash requirements during the period covered by this 10-Q outside of the normal course of our business.Cash FlowsCash provided by operating activities was$2.
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Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,DC 20549FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended January 1,2023OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to .Commission File Number:000-20322Starbucks Corporation(Exact Name of Registrant as Specified in its Charter)Washington91-1325671(State or Other Jurisdiction ofIncorporation or Organization)(IRS EmployerIdentification No.)2401 Utah Avenue South,Seattle,Washington 98134(Address of principal executive offices)(206)447-1575(Registrants Telephone Number,including Area Code)Securities registered pursuant to Section 12(b)of the Act:TitleTrading SymbolName of each exchange on which registeredCommon Stock,par value$0.001 per shareSBUXNasdaq Global Select MarketIndicate by check mark whether the registrant:(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes x No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit suchfiles).Yes x No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,smaller reporting company,or anemerging growth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filerxAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act):Yes No x Indicate the number of shares outstanding of each of the issuers classes of common stock,as of the latest practicable date.Shares Outstanding as of January 27,20231,149.3 millionTable of ContentsSTARBUCKS CORPORATIONFORM 10-QFor the Quarterly Period Ended January 1,2023Table of Contents PART I.FINANCIAL INFORMATIONItem 1Financial Statements(Unaudited)3Consolidated Statements of Earnings3Consolidated Statements of Comprehensive Income4Consolidated Balance Sheets5Consolidated Statements of Cash Flows6Consolidated Statements of Equity7Index for Notes to Consolidated Financial Statements8Notes to Consolidated Financial Statements9Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations25Item 3Quantitative and Qualitative Disclosures About Market Risk35Item 4Controls and Procedures36PART II.OTHER INFORMATIONItem 1Legal Proceedings37Item 1ARisk Factors37Item 2Unregistered Sales of Equity Securities and Use of Proceeds37Item 3Defaults Upon Senior Securities37Item 4Mine Safety Disclosures37Item 5Other Information37Item 6Exhibits38Signatures39 Table of ContentsPART I FINANCIAL INFORMATIONItem 1.Financial StatementsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EARNINGS(in millions,except per share data)(unaudited)Quarter EndedJan 1,2023Jan 2,2022Net revenues:Company-operated stores$7,083.5$6,722.4 Licensed stores1,119.5 850.8 Other510.9 477.2 Total net revenues8,713.9 8,050.4 Product and distribution costs2,810.2 2,526.9 Store operating expenses3,665.3 3,400.0 Other operating expenses129.3 101.7 Depreciation and amortization expenses327.1 366.0 General and administrative expenses580.9 525.8 Restructuring and impairments5.8(7.5)Total operating expenses7,518.6 6,912.9 Income from equity investees57.8 40.3 Operating income1,253.1 1,177.8 Interest income and other,net11.6(0.1)Interest expense(129.7)(115.3)Earnings before income taxes1,135.0 1,062.4 Income tax expense279.8 246.3 Net earnings including noncontrolling interests855.2 816.1 Net earnings attributable to noncontrolling interests 0.2 Net earnings attributable to Starbucks$855.2$815.9 Earnings per share-basic$0.74$0.70 Earnings per share-diluted$0.74$0.69 Weighted average shares outstanding:Basic1,148.5 1,169.6 Diluted1,152.9 1,176.6 See Notes to Consolidated Financial Statements.3Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in millions,unaudited)Quarter EndedJan 1,2023Jan 2,2022Net earnings including noncontrolling interests$855.2$816.1 Other comprehensive income/(loss),net of tax:Unrealized holding gains/(losses)on available-for-sale debt securities2.0(3.4)Tax(expense)/benefit(0.5)0.8 Unrealized gains/(losses)on cash flow hedging instruments(180.7)88.7 Tax(expense)/benefit29.5(11.8)Unrealized gains/(losses)on net investment hedging instruments(64.6)41.5 Tax(expense)/benefit16.3(10.5)Translation adjustment and other208.9 14.2 Tax(expense)/benefit Reclassification adjustment for net(gains)/losses realized in net earnings for available-for-sale debt securities,hedging instruments,and translation adjustment(98.4)(16.1)Tax expense/(benefit)11.8 2.9 Other comprehensive income/(loss)(75.7)106.3 Comprehensive income including noncontrolling interests779.5 922.4 Comprehensive income attributable to noncontrolling interests 0.2 Comprehensive income attributable to Starbucks$779.5$922.2 See Notes to Consolidated Financial Statements.4Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED BALANCE SHEETS(in millions,except per share data)(unaudited)Jan 1,2023Oct 2,2022ASSETSCurrent assets:Cash and cash equivalents$3,186.5$2,818.4 Short-term investments123.9 364.5 Accounts receivable,net1,162.9 1,175.5 Inventories2,088.1 2,176.6 Prepaid expenses and other current assets373.5 483.7 Total current assets6,934.9 7,018.7 Long-term investments283.6 279.1 Equity investments330.5 311.2 Property,plant and equipment,net6,699.5 6,560.5 Operating lease,right-of-use asset8,133.8 8,015.6 Deferred income taxes,net1,811.8 1,799.7 Other long-term assets527.6 554.2 Other intangible assets151.4 155.9 Goodwill3,383.0 3,283.5 TOTAL ASSETS$28,256.1$27,978.4 LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIT)Current liabilities:Accounts payable$1,348.2$1,441.4 Accrued liabilities2,089.6 2,137.1 Accrued payroll and benefits664.6 761.7 Current portion of operating lease liability1,257.5 1,245.7 Stored value card liability and current portion of deferred revenue2,137.0 1,641.9 Short-term debt 175.0 Current portion of long-term debt1,749.3 1,749.0 Total current liabilities9,246.2 9,151.8 Long-term debt13,176.7 13,119.9 Operating lease liability7,635.4 7,515.2 Deferred revenue6,263.2 6,279.7 Other long-term liabilities600.5 610.5 Total liabilities36,922.0 36,677.1 Shareholders deficit:Common stock($0.001 par value)authorized,2,400.0 shares;issued and outstanding,1,148.5 and 1,147.9shares,respectively1.1 1.1 Additional paid-in capital67.2 205.3 Retained deficit(8,203.2)(8,449.8)Accumulated other comprehensive income/(loss)(538.9)(463.2)Total shareholders deficit(8,673.8)(8,706.6)Noncontrolling interests7.9 7.9 Total deficit(8,665.9)(8,698.7)TOTAL LIABILITIES AND SHAREHOLDERS EQUITY/(DEFICIT)$28,256.1$27,978.4 See Notes to Consolidated Financial Statements.5Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(in millions,unaudited)Quarter EndedJan 1,2023Jan 2,2022OPERATING ACTIVITIES:Net earnings including noncontrolling interests$855.2$816.1 Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization342.5 386.4 Deferred income taxes,net15.8(0.3)Income earned from equity method investees(56.9)(46.6)Distributions received from equity method investees45.7 44.9 Stock-based compensation85.2 95.8 Non-cash lease costs263.7 330.4 Loss on retirement and impairment of assets21.1 50.7 Other6.7(4.9)Cash provided by/(used in)changes in operating assets and liabilities:Accounts receivable42.0(91.6)Inventories108.5(36.0)Accounts payable(117.3)84.0 Deferred revenue461.0 461.3 Operating lease liability(281.4)(363.3)Other operating assets and liabilities(198.6)144.0 Net cash provided by operating activities1,593.2 1,870.9 INVESTING ACTIVITIES:Purchases of investments(10.5)(61.0)Sales of investments0.8 72.6 Maturities and calls of investments253.3 45.6 Additions to property,plant and equipment(516.8)(416.8)Other(6.1)(41.4)Net cash used in investing activities(279.3)(401.0)FINANCING ACTIVITIES:Net proceeds/(payments)from issuance of commercial paper(175.0)200.0 Proceeds from issuance of common stock45.9 41.3 Cash dividends paid(608.3)(576.0)Repurchase of common stock(191.4)(3,520.9)Minimum tax withholdings on share-based awards(79.0)(113.6)Net cash provided by/(used in)financing activities(1,007.8)(3,969.2)Effect of exchange rate changes on cash and cash equivalents62.0 13.0 Net increase/(decrease)in cash and cash equivalents368.1(2,486.3)CASH AND CASH EQUIVALENTS:Beginning of period2,818.4 6,455.7 End of period$3,186.5$3,969.4 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for:Interest,net of capitalized interest$116.7$108.3 Income taxes$106.2$161.4 See Notes to Consolidated Financial Statements.6Table of ContentsSTARBUCKS CORPORATIONCONSOLIDATED STATEMENTS OF EQUITYFor the Quarters Ended January 1,2023 and January 2,2022(in millions,except per share data,unaudited)Common StockAdditionalPaid-inCapitalRetainedEarnings/(Deficit)AccumulatedOtherComprehensiveIncome/(Loss)ShareholdersEquity/(Deficit)NoncontrollingInterestsTotal SharesAmountBalance,October 2,20221,147.9$1.1$205.3$(8,449.8)$(463.2)$(8,706.6)$7.9$(8,698.7)Net earnings 855.2 855.2 855.2 Other comprehensive loss (75.7)(75.7)(75.7)Stock-based compensation expense 86.4 86.4 86.4 Exercise of stock options/vesting ofRSUs2.4(44.7)(44.7)(44.7)Sale of common stock0.1 11.6 11.6 11.6 Repurchase of common stock(1.9)(191.4)(191.4)(191.4)Cash dividends declared,$0.53 pershare (608.6)(608.6)(608.6)Balance,January 1,20231,148.5$1.1$67.2$(8,203.2)$(538.9)$(8,673.8)$7.9$(8,665.9)Balance,October 3,20211,180.0$1.2$846.1$(6,315.7)$147.2$(5,321.2)$6.7$(5,314.5)Net earnings 815.9 815.9 0.2 816.1 Other comprehensive income 106.3 106.3 106.3 Stock-based compensation expense 97.1 97.1 97.1 Exercise of stock options/vesting ofRSUs2.6(84.1)(84.1)(84.1)Sale of common stock0.1 11.8 11.8 11.8 Repurchase of common stock(31.1)(829.8)(2,691.1)(3,520.9)(3,520.9)Cash dividends declared,$0.49 pershare (562.1)(562.1)(562.1)Balance,January 2,20221,151.6$1.2$41.1$(8,753.0)$253.5$(8,457.2)$6.9$(8,450.3)See Notes to Consolidated Financial Statements.7Table of ContentsSTARBUCKS CORPORATIONINDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1Summary of Significant Accounting Policies and Estimates9Note 2Acquisitions,Divestitures and Strategic Alliance9Note 3Derivative Financial Instruments10Note 4Fair Value Measurements13Note 5Inventories15Note 6Supplemental Balance Sheet and Statement of Earnings Information16Note 7Other Intangible Assets and Goodwill16Note 8Debt18Note 9Leases20Note 10Deferred Revenue21Note 11Equity22Note 12Employee Stock Plans22Note 13Earnings per Share23Note 14Commitments and Contingencies23Note 15Segment Reporting24Note 16Subsequent Event248Table of ContentsSTARBUCKS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)Note 1:Summary of Significant Accounting Policies and EstimatesFinancial Statement PreparationThe unaudited consolidated financial statements as of January 1,2023,and for the quarters ended January 1,2023 and January 2,2022,have been prepared byStarbucks Corporation under the rules and regulations of the Securities and Exchange Commission(“SEC”).In the opinion of management,the financialinformation for the quarters ended January 1,2023 and January 2,2022 reflects all adjustments and accruals,which are of a normal recurring nature,necessaryfor a fair presentation of the financial position,results of operations and cash flows for the interim periods.In this Quarterly Report on Form 10-Q(“10-Q”),Starbucks Corporation is referred to as“Starbucks,”the“Company,”“we,”“us”or“our.”Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes.Certain prior period information on the consolidated statements of cash flows have been reclassified to conform to the current presentation.The financial information as of October 2,2022 is derived from our audited consolidated financial statements and notes for the fiscal year ended October 2,2022(“fiscal 2022”)included in Item 8 in the Fiscal 2022 Annual Report on Form 10-K(“10-K”).The information included in this 10-Q should be read inconjunction with the footnotes and managements discussion and analysis of the consolidated financial statements in the 10-K.The results of operations for the quarter ended January 1,2023 are not necessarily indicative of the results of operations that may be achieved for the entirefiscal year ending October 1,2023(“fiscal 2023”).The novel coronavirus,known as the global COVID-19 pandemic,was first identified in December 2019 before spreading to markets where we have company-operated or licensed stores.We have since established the necessary protocols to operate safely,and in many of our markets,our businesses demonstratedpowerful momentum beyond recovery from the COVID-19 pandemic.During the first quarter of fiscal 2023,our China market continued to experiencepandemic-related business interruptions,including escalating COVID outbreaks that suppressed customer mobility.We continue to monitor the COVID-19pandemic and its effect on our business and results of operations;however,we cannot predict the duration,scope or severity of the COVID-19 pandemic or itsfuture impact on our business,results of operations,cash flows and financial condition.RestructuringIn fiscal 2022,we announced our plan in the U.S.market to increase efficiency while elevating the partner and customer experience(the“Reinvention Plan”).We believe the investments in partner wages and trainings will increase retention and productivity while the acceleration of purpose-built store concepts andinnovations in technologies will provide additional convenience and connection with our customers.As a result of the restructuring efforts in connection withthe Reinvention Plan,we recorded an immaterial charge on our consolidated statements of earnings during the quarter ended January 1,2023.Futurerestructuring and impairment costs attributable to our Reinvention Plan are not expected to be material.As of January 1,2023 and October 2,2022,there were no material restructuring-related accrued liabilities on our consolidated balance sheets.Recently Adopted Accounting PronouncementsIn the first quarter of fiscal 2022,we adopted the Financial Accounting Standards Board(“FASB”)issued guidance related to reference rate reform.Thepronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease thefinancial reporting burden related to the expected market transition from the London Interbank Offered Rate(“LIBOR”)and other interbank offered rates toalternative reference rates.The guidance was effective upon issuance and generally can be applied to applicable contract modifications through December 31,2024.The adoption of the new guidance did not have a material impact on our financial statements.Note 2:Acquisitions,Divestitures and Strategic AllianceIn the fourth quarter of fiscal 2022,we sold our Evolution Fresh brand and business to Bolthouse Farms.This transaction did not have a material impact on ourconsolidated financial statements.9Table of ContentsNote 3:Derivative Financial InstrumentsInterest RatesFrom time to time,we enter into designated cash flow hedges to manage the variability in cash flows due to changes in benchmark interest rates.We enter intointerest rate swap agreements and treasury locks,which are synthetic forward sales of U.S.Treasury securities settled in cash based upon the differencebetween an agreed-upon treasury rate and the prevailing treasury rate at settlement.These agreements are cash settled at the time of the pricing of the relateddebt.Each derivative agreements gain or loss is recorded in accumulated other comprehensive income(“AOCI”)and is subsequently reclassified to interestexpense over the life of the related debt.To hedge the exposure to changes in the fair value of our fixed-rate debt,we enter into interest rate swap agreements,which are designated as fair value hedges.The changes in fair values of these derivative instruments and the offsetting changes in fair values of the underlying hedged debt due to changes in the relevantbenchmark interest rates are recorded in interest expense.Refer to Note 8,Debt,for additional information on our long-term debt.Foreign CurrencyTo reduce cash flow volatility from foreign currency fluctuations,we enter into forward and swap contracts to hedge portions of cash flows of anticipatedintercompany royalty payments,inventory purchases,and intercompany borrowing and lending activities.The resulting gains and losses from these derivativesare recorded in AOCI and subsequently reclassified to revenue,product and distribution costs,or interest income and other,net,respectively,when the hedgedexposures affect net earnings.From time to time,we may enter into financial instruments,including,but not limited to,forward and swap contracts or foreign currency-denominated debt,tohedge the currency exposure of our net investments in certain international operations.The resulting gains and losses from these derivatives are recorded inAOCI and are subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.Foreign currency forward and swap contracts not designated as hedging instruments are used to mitigate the foreign exchange risk of certain other balancesheet items.Gains and losses from these derivatives are largely offset by the financial impact of translating foreign currency-denominated payables andreceivables,and these gains and losses are recorded in interest income and other,net.CommoditiesDepending on market conditions,we may enter into coffee forward contracts,futures contracts and collars to hedge anticipated cash flows under our price-to-be-fixed green coffee contracts,which are described further in Note 5,Inventories,or our longer-dated forecasted coffee demand where underlying fixed priceand price-to-be-fixed contracts are not yet available.The resulting gains and losses are recorded in AOCI and are subsequently reclassified to product anddistribution costs when the hedged exposure affects net earnings.Depending on market conditions,we may also enter into dairy forward contracts and futures contracts to hedge a portion of anticipated cash flows under ourdairy purchase contracts and our forecasted dairy demand.The resulting gains or losses are recorded in AOCI and are subsequently reclassified to product anddistribution costs when the hedged exposure affects net earnings.Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge.Cash flows from hedging transactions areclassified in the same categories as the cash flows from the respective hedged items.For de-designated cash flow hedges in which the underlying transactionsare no longer probable of occurring,the related accumulated derivative gains or losses are recognized in interest income and other,net on our consolidatedstatements of earnings.These derivatives may be accounted for prospectively as non-designated derivatives until maturity,re-designated to new hedgingrelationships or terminated early.We continue to believe transactions related to our other designated cash flow hedges are probable to occur.To mitigate the price uncertainty of a portion of our future purchases,including diesel fuel and other commodities,we enter into swap contracts,futures andcollars that are not designated as hedging instruments.The resulting gains and losses are recorded in interest income and other,net to help offset pricefluctuations on our beverage,food,packaging and transportation costs,which are included in product and distribution costs on our consolidated statements ofearnings.10Table of ContentsGains and losses on derivative contracts and foreign currency-denominated debt designated as hedging instruments included in AOCI and expected to bereclassified into earnings within 12 months,net of tax(in millions):Net Gains/(Losses)Included in AOCINet Gains/(Losses)Expectedto be Reclassified from AOCIinto Earnings within 12MonthsOutstanding Contract/DebtRemaining Maturity(Months)Jan 1,2023Oct 2,2022Cash Flow Hedges:Coffee$(36.4)$153.9$(20.7)5Cross-currency swaps(1.7)(1.9)23Dairy(4.2)(2.6)(4.2)8Foreign currency-other12.8 55.3 12.1 33Interest rates(5.4)(5.8)0.7 0Net Investment Hedges:Cross-currency swaps52.7 67.3 111Foreign currency16.1 16.1 0Foreign currency debt88.1 125.7 15Pre-tax gains and losses on derivative contracts and foreign currency-denominated long-term debt designated as hedging instruments recognized in othercomprehensive income(“OCI”)and reclassifications from AOCI to earnings(in millions):Quarter EndedGains/(Losses)Recognized inOCI Before ReclassificationsGains/(Losses)Reclassified fromAOCI to EarningsLocation of gain/(loss)Jan 1,2023Jan 2,2022Jan 1,2023Jan 2,2022Cash Flow Hedges:Coffee$(119.4)$71.5$96.7$6.5 Product and distribution costsCross-currency swaps(11.7)4.5(2.7)(0.8)Interest expense(9.1)6.9 Interest income and other,netDairy(3.6)4.6(1.5)(0.4)Product and distribution costsForeign currency-other(46.0)6.9 8.0 2.2 Licensed stores revenue2.2(1.5)Product and distribution costs0.2 Interest income and other,netInterest rates 1.2(0.5)(0.4)Interest expenseNet Investment Hedges:Cross-currency swaps(14.0)16.3 5.3 3.4 Interest expenseForeign currency debt(50.6)25.2 Pre-tax gains and losses on non-designated derivatives and designated fair value hedging instruments and the related fair value hedged item recognized inearnings(in millions):Gains/(Losses)Recognized in EarningsLocation of gain/(loss)recognized in earningsQuarter Ended Jan 1,2023Jan 2,2022Non-Designated Derivatives:Foreign currency-otherInterest income and other,net$(11.6)$10.2 CoffeeInterest income and other,net(5.5)3.1 Diesel fuel and other commoditiesInterest income and other,net(0.2)Fair Value Hedges:Interest rate swapInterest expense(1.6)(4.8)Long-term debt(hedged item)Interest expense(3.3)8.2 11Table of ContentsNotional amounts of outstanding derivative contracts(in millions):Jan 1,2023Oct 2,2022Coffee$401$649 Cross-currency swaps1,124 741 Dairy68 94 Diesel fuel and other commodities25 33 Foreign currency-other1,305 1,269 Interest rate swaps1,100 1,100 Fair value of outstanding derivative contracts(in millions)including the location of the asset and/or liability on the consolidated balance sheets:Derivative AssetsBalance Sheet LocationJan 1,2023Oct 2,2022Designated Derivative Instruments:Cross-currency swapsOther long-term assets$85.4$115.4 DairyPrepaid expenses and other current assets0.2 0.5 Foreign currency-otherPrepaid expenses and other current assets22.4 39.9 Other long-term assets13.8 33.5 Non-designated Derivative Instruments:Diesel fuel and other commoditiesPrepaid expenses and other current assets0.1 0.4 Foreign currencyPrepaid expenses and other current assets15.8 34.3 Other long-term assets 7.3 Derivative LiabilitiesBalance Sheet LocationJan 1,2023Oct 2,2022Designated Derivative Instruments:Cross-currency swapsOther long-term liabilities$1.6$DairyAccrued liabilities3.1 2.9 Foreign currency-otherAccrued liabilities10.0 0.3 Other long-term liabilities10.1 Interest rateAccrued liabilities20.4 12.0 Interest rate swapOther long-term liabilities33.6 34.0 Non-designated Derivative Instruments:Diesel fuel and other commoditiesAccrued liabilities0.4 Foreign currencyAccrued liabilities1.3 5.8 The following amounts were recorded on the consolidated balance sheets related to fixed-to-floating interest rate swaps designated in fair value hedgingrelationships(in millions):Carrying amount of hedged itemCumulative amount of fair value hedging adjustmentincluded in the carrying amountJan 1,2023Oct 2,2022Jan 1,2023Oct 2,2022Location on the balance sheetLong-term debt$1,051.0$1,047.7$(49.0)$(52.3)Additional disclosures related to cash flow gains and losses included in AOCI,as well as subsequent reclassifications to earnings,are included in Note 11,Equity.12Table of ContentsNote 4:Fair Value MeasurementsAssets and liabilities measured at fair value on a recurring basis(in millions):Fair Value Measurements at Reporting Date Using Balance atJanuary 1,2023Quoted Prices in ActiveMarkets for Identical Assets(Level 1)Significant OtherObservable Inputs(Level 2)Significant Unobservable Inputs(Level 3)Assets:Cash and cash equivalents$3,186.5$3,042.5$144.0$Short-term investments:Available-for-sale debt securitiesCommercial paper0.2 0.2 Corporate debt securities23.2 23.2 U.S.government treasury securities8.9 8.9 Total available-for-sale debt securities32.3 8.9 23.4 Structured deposits28.8 28.8 Marketable equity securities62.8 62.8 Total short-term investments123.9 71.7 52.2 Prepaid expenses and other current assets:Derivative assets38.5 38.5 Long-term investments:Available-for-sale debt securitiesCorporate debt securities136.4 136.4 Foreign government obligations3.8 3.8 Mortgage and other asset-backedsecurities53.3 53.3 State and local government obligations1.3 1.3 U.S.government treasury securities88.8 88.8 Total long-term investments283.6 88.8 194.8 Other long-term assets:Derivative assets99.2 99.2 Total assets$3,731.7$3,203.0$528.7$Liabilities:Accrued liabilities:Derivative liabilities$35.2$35.2$Other long-term liabilities:Derivative liabilities45.3 45.3 Total liabilities$80.5$80.5$13Table of Contents Fair Value Measurements at Reporting Date Using Balance atOctober 2,2022Quoted Prices in ActiveMarkets for Identical Assets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservable Inputs(Level 3)Assets:Cash and cash equivalents$2,818.4$2,797.3$21.1$Short-term investments:Available-for-sale debt securitiesCorporate debt securities22.4 22.4 U.S.government treasury securities9.3 9.3 Total available-for-sale debt securities31.7 9.3 22.4 Structured deposits275.1 275.1 Marketable equity securities57.7 57.7 Total short-term investments364.5 67.0 297.5 Prepaid expenses and other current assets:Derivative assets75.1 75.1 Long-term investments:Available-for-sale debt securitiesCorporate debt securities134.7 134.7 Foreign government obligations3.8 3.8 Mortgage and other asset-backedsecurities56.5 56.5 State and local government obligations1.3 1.3 U.S.government treasury securities82.8 82.8 Total long-term investments279.1 82.8 196.3 Other long-term assets:Derivative assets156.2 156.2 Total assets$3,693.3$2,947.1$746.2$Liabilities:Accrued liabilities:Derivative liabilities$21.0$21.0$Other long-term liabilities:Derivative liabilities34.0 34.0 Total liabilities$55.0$55.0$There were no material transfers between levels and there was no significant activity within Level 3 instruments during the periods presented.The fair valuesof any financial instruments presented above exclude the impact of netting assets and liabilities when a legally enforceable master netting agreement exists.Gross unrealized holding gains and losses on available-for-sale debt securities,structured deposits and marketable equity securities were not material as ofJanuary 1,2023 and October 2,2022.Assets and Liabilities Measured at Fair Value on a Nonrecurring BasisAssets and liabilities recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property,plantand equipment,ROU assets,goodwill and other intangible assets and other assets.These assets are measured at fair value if determined to be impaired.14Table of ContentsThe estimated fair value of our long-term debt based on the quoted market price(Level 2)is included at Note 8,Debt.There were no material fair valueadjustments during the quarters ended January 1,2023 and January 2,2022.Note 5:Inventories(in millions):Jan 1,2023Oct 2,2022Coffee:Unroasted$1,015.1$1,018.6 Roasted293.2 310.3 Other merchandise held for sale383.5 430.9 Packaging and other supplies396.3 416.8 Total$2,088.1$2,176.6 Other merchandise held for sale includes,among other items,serveware,food and tea.Inventory levels vary due to seasonality,commodity market supply andprice fluctuations.As of January 1,2023,we had committed to purchasing green coffee totaling$333.3 million under fixed-price contracts and an estimated$773.2 million underprice-to-be-fixed contracts.A portion of our price-to-be-fixed contracts are effectively fixed through the use of futures.See Note 3,Derivative FinancialInstruments,for further discussion.Price-to-be-fixed contracts are purchase commitments whereby the quality,quantity,delivery period and other negotiatedterms are agreed upon,but the date,and therefore the price,at which the base“C”coffee commodity price component will be fixed has not yet beenestablished.For most contracts,either Starbucks or the seller has the option to“fix”the base“C”coffee commodity price prior to the delivery date.For othercontracts,Starbucks and the seller may agree upon pricing parameters determined by the base“C”coffee commodity price.Until prices are fixed,we estimatethe total cost of these purchase commitments.We believe,based on established relationships with our suppliers and continuous monitoring,the risk of non-delivery on these purchase commitments is remote.15Table of ContentsNote 6:Supplemental Balance Sheet and Statement of Earnings Information(in millions):Prepaid Expenses and Other Current AssetsJan 1,2023Oct 2,2022Income tax receivable$10.0$27.7 Government subsidies receivable28.4 69.4 Other prepaid expenses and current assets335.1 386.6 Total prepaid expenses and current assets$373.5$483.7 Property,Plant and Equipment,netJan 1,2023Oct 2,2022Land$46.1$46.1 Buildings566.6 555.4 Leasehold improvements9,368.6 9,066.8 Store equipment3,086.6 3,018.2 Roasting equipment809.3 838.5 Furniture,fixtures and other1,578.4 1,526.1 Work in progress603.0 558.7 Property,plant and equipment,gross16,058.6 15,609.8 Accumulated depreciation(9,359.1)(9,049.3)Property,plant and equipment,net$6,699.5$6,560.5 Accrued LiabilitiesJan 1,2023Oct 2,2022Accrued occupancy costs$77.9$84.6 Accrued dividends payable608.6 608.3 Accrued capital and other operating expenditures683.8 878.1 Self-insurance reserves243.6 232.3 Income taxes payable280.1 139.2 Accrued business taxes195.6 194.6 Total accrued liabilities$2,089.6$2,137.1 Store Operating ExpensesQuarter EndedJan 1,2023Jan 2,2022Wages and benefits$2,215.7$2,010.7 Occupancy costs671.5 665.3 Other expenses778.1 724.0 Total store operating expenses$3,665.3$3,400.0 Note 7:Other Intangible Assets and GoodwillIndefinite-Lived Intangible Assets(in millions)Jan 1,2023Oct 2,2022Trade names,trademarks and patents$97.8$97.5 16Table of ContentsFinite-Lived Intangible AssetsJan 1,2023Oct 2,2022(in millions)Gross CarryingAmountAccumulatedAmortizationNet CarryingAmountGross CarryingAmountAccumulatedAmortizationNet CarryingAmountAcquired and reacquired rights$1,030.4$(1,030.4)$990.0$(990.0)$Acquired trade secrets and processes27.6(27.6)27.6(27.3)0.3 Trade names,trademarks and patents125.0(74.5)50.5 124.6(69.6)55.0 Licensing agreements18.4(15.3)3.1 19.3(16.2)3.1 Other finite-lived intangible assets21.0(21.0)20.6(20.6)Total finite-lived intangible assets$1,222.4$(1,168.8)$53.6$1,182.1$(1,123.7)$58.4 Amortization expense for finite-lived intangible assets was$5.6 million for the quarter ended January 1,2023 and$50.2 million for the quarter endedJanuary 2,2022,respectively.Estimated future amortization expense as of January 1,2023(in millions):Fiscal YearTotal2023(excluding the quarter ended January 1,2023)$15.2 202420.0 202514.0 20261.3 20271.0 Thereafter2.1 Total estimated future amortization expense$53.6 GoodwillChanges in the carrying amount of goodwill by reportable operating segment(in millions):North AmericaInternationalChannel DevelopmentCorporate and OtherTotalGoodwill balance at October 2,2022$491.1$2,756.7$34.7$1.0$3,283.5 Other0.3 99.2 99.5 Goodwill balance at January 1,2023$491.4$2,855.9$34.7$1.0$3,383.0“Other”consists of changes in the goodwill balance resulting from foreign currency translation.(1)(1)17Table of ContentsNote 8:DebtRevolving Credit FacilityOur$3.0 billion unsecured five-year revolving credit facility(the“2021 credit facility”),of which$150 million may be used for issuances of letters of credit,iscurrently set to mature on September 16,2026.The 2021 credit facility is available for working capital,capital expenditures and other corporate purposes,including acquisitions and share repurchases.We have the option,subject to negotiation and agreement with the related banks,to increase the maximumcommitment amount by an additional$1.0 billion.Borrowings under the 2021 credit facility will bear interest at a variable rate based on LIBOR,and,for U.S.dollar-denominated loans under certaincircumstances,a Base Rate(as defined in the 2021 credit facility),in each case plus an applicable margin.The applicable margin is based on the Companyslong-term credit ratings assigned by the Moodys and Standard&Poors rating agencies.The 2021 credit facility contains alternative interest rate provisionsspecifying rate calculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform.The“Base Rate”is the highestof(i)the Federal Funds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americas prime rate,and(iii)the Eurocurrency Rate(as definedin the 2021 credit facility)plus 1.000%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants,including a minimum fixed charge coverage ratio,which measures our ability to cover financing expenses.As of January 1,2023,we were in compliance with all applicable covenants.No amounts wereoutstanding under our 2021 credit facility as of January 1,2023 or October 2,2022.Short-term DebtUnder our commercial paper program,we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0billion,with individual maturities that may vary but not exceed 397 days from the date of issue.Amounts outstanding under the commercial paper program arerequired to be backstopped by available commitments under our 2021 credit facility.The proceeds from borrowings under our commercial paper program maybe used for working capital needs,capital expenditures and other corporate purposes,including,but not limited to,business expansion,payment of cashdividends on our common stock and share repurchases.As of January 1,2023,we had no borrowings outstanding under the program.As of October 2,2022,we had$175.0 million in borrowings outstanding under this program.Additionally,we hold the following Japanese yen-denominated credit facilities that are available for working capital needs and capital expenditures within ourJapanese market:A 5 billion,or$37.6 million,credit facility is currently set to mature on January 4,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on Tokyo Interbank Offered Rate(TIBOR)plus an applicable margin of0.400%.A 10 billion,or$75.2 million,credit facility is currently set to mature on March 27,2023.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.350%.As of January 1,2023 and October 2,2022,we had no borrowings outstanding under these Japanese yen-denominated credit facilities.18Table of ContentsLong-term DebtComponents of long-term debt including the associated interest rates and related estimated fair values by calendar maturity(in millions,except interest rates):Jan 1,2023Oct 2,2022Stated Interest RateEffective InterestRateIssuanceAmountEstimated FairValueAmountEstimated FairValueMarch 2023 notes$1,000.0$996.6$1,000.0$996.5 3.100%3.107%October 2023 notes750.0 745.0 750.0 744.8 3.850%2.859bruary 2024 notes500.0 496.8 500.0 497.3 4.590%4.821%March 2024 notes639.0 653.5 588.4 584.7 0.372%0.462%August 2025 notes1,250.0 1,225.3 1,250.0 1,209.6 3.800%3.721%June 2026 notes500.0 465.6 500.0 458.3 2.450%2.511%March 2027 notes500.0 447.5 500.0 437.9 2.000%2.058%March 2028 notes600.0 565.2 600.0 554.8 3.500%3.529%November 2028 notes750.0 713.8 750.0 704.7 4.000%3.958%August 2029 notes1,000.0 924.7 1,000.0 900.3 3.550%3.840%March 2030 notes750.0 625.2 750.0 607.7 2.250%3.084%November 2030 notes1,250.0 1,052.7 1,250.0 1,017.9 2.550%2.582bruary 2032 notes1,000.0 857.8 1,000.0 827.1 3.000%3.155%June 2045 notes350.0 296.4 350.0 281.5 4.300%4.348cember 2047 notes500.0 381.5 500.0 369.6 3.750%3.765%November 2048 notes1,000.0 866.6 1,000.0 824.6 4.500%4.504%August 2049 notes1,000.0 857.0 1,000.0 817.8 4.450%4.447%March 2050 notes500.0 356.1 500.0 342.0 3.350%3.362%November 2050 notes1,250.0 906.3 1,250.0 874.9 3.500%3.528%Total15,089.0 13,433.6 15,038.4 13,052.0 Aggregate debt issuance costs andunamortized premium/(discount),net(114.0)(117.2)Hedge accounting fair value adjustment(49.0)(52.3)Total$14,926.0$14,868.9 Includes the effects of the amortization of any premium or discount and any gain or loss upon settlement of related treasury locks or forward-startinginterest rate swaps utilized to hedge interest rate risk prior to the debt issuance.Amount includes the change in fair value due to changes in benchmark interest rates related to hedging our October 2023 notes and$350 million of ourAugust 2029 notes.Refer to Note 3,Derivative Financial Instruments,for additional information on our interest rate swaps designated as fair value hedges.Floating rate notes which bear interest at a rate equal to Compounded SOFR(as defined in the February 2024 notes)plus 0.420%,resulting in a statedinterest rate of 4.590%at January 1,2023.Japanese yen-denominated long-term debt.(1)(2)(3)(4)(2)(2)(1)(2)(3)(4)19Table of ContentsThe following table summarizes our long-term debt maturities as of January 1,2023 by fiscal year(in millions):Fiscal YearTotal2023$1,750.0 20241,139.0 20251,250.0 2026500.0 2027500.0 Thereafter9,950.0 Total$15,089.0 Note 9:LeasesThe components of lease costs(in millions):Quarter EndedJan 1,2023Jan 2,2022Operating lease costs$384.8$386.1 Variable lease costs235.3 229.8 Short-term lease costs7.0 7.1 Total lease costs$627.1$623.0 Includes immaterial amounts of sublease income and rent concessions.The following table includes supplemental information(in millions):Quarter EndedJan 1,2023Jan 2,2022Cash paid related to operating lease liabilities$404.1$410.0 Operating lease liabilities arising from obtaining ROU assets367.3 346.8 Jan 1,2023Jan 2,2022Weighted-average remaining operating lease term8.5 years8.6 yearsWeighted-average operating lease discount rate2.7%2.5%Finance lease assets are recorded in property,plant and equipment,net with the corresponding lease liabilities included in accrued liabilities and other long-term liabilities on the consolidated balance sheet.There were no material finance leases as of January 1,2023 and October 2,2022.Minimum future maturities of operating lease liabilities(in millions):Fiscal YearTotal2023(excluding the quarter ended January 1,2023)$1,511.5 20241,472.9 20251,332.8 20261,177.8 2027975.4 Thereafter3,600.2 Total lease payments10,070.6 Less imputed interest(1,177.7)Total$8,892.9 As of January 1,2023,we have entered into operating leases that have not yet commenced of$1.2 billion,primarily related to real estate leases.These leaseswill commence between fiscal year 2023 and fiscal year 2028 with lease terms ranging from three to twenty years.(1)(1)20Table of ContentsNote 10:Deferred RevenueOur deferred revenue primarily consists of the prepaid royalty from Nestl,for which we have continuing performance obligations to support the Global CoffeeAlliance,our unredeemed stored value card liability and unredeemed loyalty points(“Stars”)associated with our loyalty program.As of January 1,2023,the current and long-term deferred revenue related to Nestl was$177.0 million and$6.1 billion,respectively.As of October 2,2022,the current and long-term deferred revenue related to the Nestl up-front payment was$177.0 million and$6.2 billion,respectively.During the quarter endedJanuary 1,2023,we recognized$44.1 million of prepaid royalty revenue related to Nestl.During the quarter ended January 2,2022,we recognized$44.2million of prepaid royalty revenue related to Nestl.Changes in our deferred revenue balance related to our stored value cards and loyalty program(in millions):Quarter Ended January 1,2023TotalStored value cards and loyalty program at October 2,2022$1,503.0 Revenue deferred-card activations,card reloads and Stars earned4,223.4 Revenue recognized-card and Stars redemptions and breakage(3,714.1)Other13.3 Stored value cards and loyalty program at January 1,2023$2,025.6 Quarter Ended January 2,2022TotalStored value cards and loyalty program at October 3,2021$1,448.5 Revenue deferred-card activations,card reloads and Stars earned3,917.5 Revenue recognized-card and Stars redemptions and breakage(3,410.8)Other(2.7)Stored value cards and loyalty program at January 2,2022$1,952.5“Other”primarily consists of changes in the stored value cards and loyalty program balances resulting from foreign currency translation.As of January 1,2023 and January 2,2022,approximately$1.9 billion and$1.8 billion of these amounts were current,respectively.(1)(2)(1)(2)(1)(2)21Table of ContentsNote 11:EquityChanges in AOCI by component,net of tax(in millions):Quarter Ended Available-for-SaleDebt Securities Cash Flow Hedges Net InvestmentHedgesTranslationAdjustment andOtherTotalJanuary 1,2023Net gains/(losses)in AOCI,beginning of period$(15.5)$199.0$209.1$(855.8)$(463.2)Net gains/(losses)recognized in OCI beforereclassifications1.5(151.2)(48.3)208.9 10.9 Net(gains)/losses reclassified from AOCI to earnings0.1(82.7)(4.0)(86.6)Other comprehensive income/(loss)attributable toStarbucks1.6(233.9)(52.3)208.9(75.7)Net gains/(losses)in AOCI,end of period$(13.9)$(34.9)$156.8$(646.9)$(538.9)January 2,2022Net gains/(losses)in AOCI,beginning of period$1.5$158.3$48.6$(61.2)$147.2 Net gains/(losses)recognized in OCI beforereclassifications(2.6)76.9 31.0 14.2 119.5 Net(gains)/losses reclassified from AOCI to earnings(0.1)(10.6)(2.5)(13.2)Other comprehensive income/(loss)attributable toStarbucks(2.7)66.3 28.5 14.2 106.3 Net gains/(losses)in AOCI,end of period$(1.2)$224.6$77.1$(47.0)$253.5 Impact of reclassifications from AOCI on the consolidated statements of earnings(in millions):Quarter EndedAOCIComponentsAmounts Reclassified from AOCIAffected Line Item inthe Statements of EarningsJan 1,2023Jan 2,2022Gains/(losses)on available-for-sale debt securities$(0.2)$0.2 Interest income and other,netGains/(losses)on cash flow hedges93.3 12.5 Please refer to Note 3,Derivative Financial Instrumentsfor additional information.Gains/(losses)on net investment hedges5.3 3.4 Interest expense98.4 16.1 Total before tax(11.8)(2.9)Tax expense$86.6$13.2 Net of taxIn addition to 2.4 billion shares of authorized common stock with$0.001 par value per share,the Company has authorized 7.5 million shares of preferred stock,none of which was outstanding as of January 1,2023.During the quarters ended January 1,2023 and January 2,2022,we repurchased 1.9 million and 31.1 million shares of common stock for$191.4 million and$3.5 billion,respectively.As of January 1,2023,50.6 million shares remained available for repurchase under current authorizations.During the first quarter of fiscal 2023,our Board of Directors approved a quarterly cash dividend to shareholders of$0.53 per share to be paid on February 24,2023 to shareholders of record as of the close of business on February 10,2023.Note 12:Employee Stock PlansAs of January 1,2023,there were 91.8 million shares of common stock available for issuance pursuant to future equity-based compensation awards and 10.7million shares available for issuance under our employee stock purchase plan.22Table of ContentsStock-based compensation expense recognized in the consolidated statements of earnings(in millions):Quarter Ended Jan 1,2023Jan 2,2022Restricted Stock Units(“RSUs”)$85.0$95.7 Options0.1 0.1 Total stock-based compensation expense$85.1$95.8 Stock option and RSU transactions from October 2,2022 through January 1,2023(in millions):Stock OptionsRSUsOptions outstanding/Nonvested RSUs,October 2,20224.1 7.0 Granted 4.0 Options exercised/RSUs vested(0.7)(2.7)Forfeited/expired(0.2)Options outstanding/Nonvested RSUs,January 1,20233.4 8.1 Total unrecognized stock-based compensation expense,net of estimated forfeitures,as of January 1,2023$345.3 Note 13:Earnings per ShareCalculation of net earnings per common share(“EPS”)basic and diluted(in millions,except EPS):Quarter EndedJan 1,2023Jan 2,2022Net earnings attributable to Starbucks$855.2$815.9 Weighted average common shares outstanding(for basic calculation)1,148.5 1,169.6 Dilutive effect of outstanding common stock options and RSUs4.4 7.0 Weighted average common and common equivalent shares outstanding(for diluted calculation)1,152.9 1,176.6 EPS basic$0.74$0.70 EPS diluted$0.74$0.69 Potential dilutive shares consist of the incremental common shares issuable upon the exercise of outstanding stock options(both vested and non-vested)andunvested RSUs,calculated using the treasury stock method.The calculation of dilutive shares outstanding excludes anti-dilutive stock options or RSUs,whichwere immaterial in the periods presented.Note 14:Commitments and ContingenciesLegal ProceedingsIn 2010 and 2011,an organization named Council for Education and Research on Toxics(“Plaintiff”)filed lawsuits in the Superior Court of the State ofCalifornia,County of Los Angeles,against the Company and other companies who manufacture,package,distribute or sell brewed coffee.The suits were laterconsolidated into a single action.Plaintiff alleged that the Company and the other defendants failed to provide warnings for their coffee products of exposure tothe chemical acrylamide as required under California Health and Safety Code section 25249.5,the California Safe Drinking Water and Toxic Enforcement Actof 1986,better known as Proposition 65.Plaintiff sought equitable relief,including providing warnings to consumers of coffee products,as well as civilpenalties in the amount of the statutory maximum of two thousand five hundred dollars per day per alleged violation of Proposition 65,which the Plaintiffclaimed was every day coffee is sold without a compliant warning.The Company denied the claims.During the pendency of the litigation,the California Office of Environmental Health Hazard Assessment(“OEHHA”)proposed a new regulation clarifying thatcancer warnings are not required for coffee under Proposition 65.The regulation was approved by the Office of Administrative Law and became effective onOctober 1,2019.In 2020,the trial court granted the defendants motion for summary judgment,ruling that the coffee exemption regulation is a completedefense to the Plaintiffs complaint.On October 26,2022,the California Court of Appeal affirmed the trial courts dismissal of the case.The Plaintiffssubsequent request for a rehearing before the California Court of Appeals was denied.On December 2,2022 Plaintiff filed a petition for review in theCalifornia Supreme Court and Starbucks filed a response brief on December 22,2022.Starbucks believes that the likelihood that the Company will ultimatelyincur a material loss in connection with this litigation is less than reasonably possible.Accordingly,as of January 1,2023,no loss contingency has beenrecorded for this matter.23Table of ContentsStarbucks is involved in various other legal proceedings arising in the ordinary course of business,including certain employment litigation cases that have beencertified as class or collective actions,but,except as noted above,is not currently a party to any legal proceeding that management believes could have amaterial adverse effect on our consolidated financial position,results of operations or cash flows.Note 15:Segment ReportingSegment information is prepared on the same basis that our interim chief executive officer,who is our chief operating decision maker,manages the segments,evaluates financial results and makes key operating decisions.Consolidated revenue mix by product type(in millions):Quarter EndedJan 1,2023Jan 2,2022Beverage$5,173.0 59%$4,898.4 61%Food1,565.9 18%1,434.6 18%Other1,975.0 23%1,717.4 21%Total$8,713.9 100%$8,050.4 100verage represents sales within our company-operated stores.Food includes sales within our company-operated stores.Other primarily consists of packaged and single-serve coffees and teas,royalty and licensing revenues,serveware,beverage-related ingredients and ready-to-drink beverages,among other items.The tables below present financial information for our reportable operating segments and Corporate and Other segment(in millions):Quarter EndedNorth AmericaInternationalChannelDevelopmentCorporate andOtherTotalJanuary 1,2023Total net revenues$6,551.3$1,680.1$478.2$4.3$8,713.9 Depreciation and amortization expenses216.9 81.5 28.7 327.1 Income from equity investees 0.5 57.3 57.8 Operating income/(loss)1,212.4 240.4 226.3(426.0)1,253.1 January 2,2022Total net revenues$5,732.3$1,875.9$417.1$25.1$8,050.4 Depreciation and amortization expenses200.0 133.1 32.9 366.0 Income from equity investees 0.7 39.6 40.3 Operating income/(loss)1,083.1 299.6 183.2(388.1)1,177.8 Note 16:Subsequent EventOn January 13,2023,Starbucks finalized the sale of the Seattles Best Coffee brand to Nestl and will recognize a pre-tax gain of approximately$90 million inthe second quarter of fiscal 2023.With the exception of recognizing the sale to Nestl,we do not expect the transaction will have a material impact on ourongoing operations and future financial results.(1)(2)(3)(1)(2)(3)24Table of ContentsItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsCAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995Certain statements contained herein are“forward-looking”statements within the meaning of applicable securities laws and regulations.Generally,thesestatements can be identified by the use of words such as“aim,”“anticipate,”“believe,”“continue,”“could,”“estimate,”“expect,”“feel,”“forecast,”“intend,”“may,”“outlook,”“plan,”“potential,”“predict,”“project,”“seek,”“should,”“will,”“would,”and similar expressions intended to identifyforward-looking statements,although not all forward-looking statements contain these identifying words.These statements include statements relating to trendsin or expectations relating to the effects of our existing and any future initiatives,strategies,investments and plans,including our Reinvention Plan,as well astrends in or expectations regarding our financial results and long-term growth model and drivers;our operations in the U.S.and China;our environmental,social and governance efforts;our partners;economic and consumer trends,including the impact of inflationary pressures;impact of foreign currencytranslation;strategic pricing actions;the conversion of certain market operations to fully licensed models;our plans for streamlining our operations,including store openings,closures and changes in store formats and models;the success of our licensing relationship with Nestl,of our consumer packagedgoods and foodservice business and its effects on our Channel Development segment results;tax rates;business opportunities,expansions and new initiatives,including Starbucks Odyssey;strategic acquisitions;our dividends programs;commodity costs and our mitigation strategies;our liquidity,cash flow fromoperations,investments,borrowing capacity and use of proceeds;continuing compliance with our covenants under our credit facilities and commercial paperprogram;repatriation of cash to the U.S.;the likelihood of the issuance of additional debt and the applicable interest rate;the continuing impact of theCOVID-19 pandemic on our financial results and future availability of governmental subsidies for COVID-19 or other public health events;our ceo transition;our share repurchase program;our use of cash and cash requirements;the expected effects of new accounting pronouncements and the estimated impact ofchanges in U.S.tax law,including on tax rates,investments funded by these changes and potential outcomes;and effects of legal proceedings.Such statementsare based on currently available operating,financial and competitive information and are subject to various risks and uncertainties.Actual future results andtrends may differ materially depending on a variety of factors,including,but not limited to:the continuing impact of COVID-19 on our business;regulatorymeasures or voluntary actions that may be put in place to limit the spread of COVID-19,including restrictions on business operations or social distancingrequirements,and the duration and efficacy of such restrictions;the resurgence of COVID-19 infections and the circulation of novel variants of COVID-19;fluctuations in U.S.and international economies and currencies;our ability to preserve,grow and leverage our brands;the ability of our business partnersand third-party providers to fulfill their responsibilities and commitments;potential negative effects of incidents involving food or beverage-borne illnesses,tampering,adulteration,contamination or mislabeling;potential negative effects of material breaches of our information technology systems to the extent weexperience a material breach;material failures of our information technology systems;costs associated with,and the successful execution of,the Companysinitiatives and plans;new initiatives and plans or revisions to existing initiatives or plans;our ability to obtain financing on acceptable terms;the acceptanceof the Companys products by our customers,evolving consumer preferences and tastes and changes in consumer spending behavior;partner investments,changes in the availability and cost of labor including any union organizing efforts and our responses to such efforts;failure to attract or retain key executiveor employee talent or successfully transition executives;significant increased logistics costs;inflationary pressures;the impact of competition;inherent risks ofoperating a global business including any potential negative effects stemming from the Russian invasion of Ukraine;the prices and availability of coffee,dairyand other raw materials;the effect of legal proceedings;and the effects of changes in tax laws and related guidance and regulations that may be implemented,including the Inflation Reduction Act of 2022 and other risks detailed in our filings with the SEC,including in the Risk Factors”and“ManagementsDiscussion and Analysis of Financial Condition and Results of Operations”sections of the companys most recently filed periodic reports on Form 10-K andForm 10-Q and subsequent filings.A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances,and those future events or circumstances may not occur.You should not place undue reliance on the forward-looking statements,which speak only as of the date of this report.We are under no obligation to update oralter any forward-looking statements,whether as a result of new information,future events or otherwise.This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this 10-Q and the auditedconsolidated financial statements and notes,and Managements Discussion and Analysis of Financial Condition and Results of Operations(“MD&A”),contained in the 10-K filed with the SEC on November 18,2022.Introduction and OverviewStarbucks is the premier roaster,marketer and retailer of specialty coffee in the world,operating in 84 markets.As of January 1,2023,Starbucks had more than36,100 company-operated and licensed stores,an increase of 5%from the prior year.Additionally,we sell a variety of consumer-packaged goods,primarilythrough the Global Coffee Alliance established with Nestl and other partnerships and joint ventures.During the quarter ended January 1,2023,our globalcomparable store sales25Table of Contentsgrew 5%,primarily driven by 10%growth in the U.S.market,partially offset by COVID-19 pandemic-related business conditions in China,leading to a 29crease in China comparable store sales.We have three reportable operating segments:1)North America,which is inclusive of the U.S.and Canada,2)International,which is inclusive of China,Japan,Asia Pacific,Europe,Middle East,Africa,Latin America and the Caribbean;and 3)Channel Development.Non-reportable operating segments and unallocatedcorporate expenses are reported within Corporate and Other.We believe our financial results and long-term growth model will continue to be driven by new store openings,comparable store sales growth and operatingmargin management,underpinned by disciplined capital allocation.We believe these key operating metrics are useful to investors because management usesthese metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.Throughout this MD&A,we commonlydiscuss the following key operating metrics:New store openings and store countComparable store sales growthOperating marginComparable store sales growth represents the percentage change in sales in one period from the same prior year period for company-operated stores open for13 months or longer and exclude the impact of foreign currency translation.We analyze comparable store sales growth on a constant currency basis as thishelps identify underlying business trends,without distortion from the effects of currency movements.Stores that are temporarily closed or operating at reducedhours due to the COVID-19 pandemic remain in comparable store sales while stores identified for permanent closure have been removed.Our fiscal year ends on the Sunday closest to September 30.Fiscal 2023 and 2022 included 52 weeks.All references to store counts,including data for newstore openings,are reported net of store closures,unless otherwise noted.Starbucks results for the first quarter of fiscal 2023 demonstrate the overall strength and resilience of our brand,despite continued COVID-19 pandemic relateddisruptions in our China market and continued inflationary pressures.Consolidated net revenues increased 8%to$8.7 billion in the first quarter of fiscal 2023compared to$8.1 billion in the first quarter of fiscal 2022,primarily driven by strength in our U.S.business and growth in our International segment excludingChina,partially offset by COVID-19 pandemic related disruptions in China and unfavorable foreign currency translation.Consolidated operating margindecreased 20 basis points from the prior year to 14.4%,primarily driven by previously committed investments in labor including enhanced store partner wagesand benefits,inflationary pressures and sales deleverage in China,partially offset by strategic pricing in North America and sales leverage across marketsoutside of China.For both the North America segment and our U.S.market,comparable store sales increased 10%for the first quarter of fiscal 2023 compared to an increase of18%in the first quarter of fiscal 2022.Average ticket for both the North America segment and the U.S.market grew 9%,primarily driven by strategic pricing.The segment also experienced higher costs,primarily related to enhancements in retail store partner wages and benefits,as well as increased supply chain costsdue to inflationary pressures.For the International segment,comparable store sales declined 13%for the first quarter of fiscal 2023,driven by comparable store sales decline of 29%in ourChina market,which experienced suppressed customer mobility and store closures due to pandemic-related restrictions and a spike in infections.Thesecontributed to a decline in both revenue and operating margin for the segment.The unfavorable impacts were partially offset by strong growth in our majorinternational markets outside of China.Net revenues for our Channel Development segment increased$61 million,or 15%,when compared with the first quarter of fiscal 2022.This was due tohigher product sales to and royalty revenue from the Global Coffee Alliance and growth in our ready-to-drink business.Despite COVID-19 induced business interruptions in our China market,we have seen the strength and resilience of our brand as well as strong customerdemand across our portfolio.While we anticipate continued inflationary pressure,albeit to a lesser extent than in fiscal 2022,and COVID-related interruptionsin the China market,we expect improved financial performance in the second half of fiscal 2023,driven by sales leverage,pricing,productivity gains fromReinvention,as well as recovery in China.Absent significant and prolonged COVID-19 relapses or global economic disruptions,we believe our strategy willresult in sustainable and profitable growth over the long-term.26Table of ContentsResults of Operations(in millions)Revenues Quarter EndedJan 1,2023Jan 2,2022$Change%ChangeCompany-operated stores$7,083.5$6,722.4$361.1 5.4%Licensed stores1,119.5 850.8 268.7 31.6 Other510.9 477.2 33.7 7.1 Total net revenues$8,713.9$8,050.4$663.5 8.2%For the quarter ended January 1,2023 compared with the quarter ended January 2,2022Total net revenues for the first quarter of fiscal 2023 increased$664 million,primarily due to higher revenues from company-operated stores($361 million).The growth of company-operated stores revenue was driven by a 5%increase in comparable store sales($328 million),attributable to a 7%increase in averageticket offset by a 2crease in comparable transactions.Also contributing was incremental revenues from 1,005 net new Starbucks company-operatedstores,or a 6%increase,over the past 12 months($259 million).Partially offsetting these increases was unfavorable foreign currency translation($225million).Licensed stores revenue increased$269 million contributing to the increase in total net revenues,driven by higher product and equipment sales to and royaltyrevenues from our licensees($299 million).Partially offsetting this increase was unfavorable foreign currency translation($35 million).Other revenues increased$34 million,primarily due to higher product sales and royalty revenue in the Global Coffee Alliance.Operating Expenses Quarter EndedJan 1,2023Jan 2,2022$ChangeJan 1,2023Jan 2,2022 As a%of TotalNet RevenuesProduct and distribution costs$2,810.2$2,526.9$283.3 32.21.4%Store operating expenses3,665.3 3,400.0 265.3 42.1 42.2 Other operating expenses129.3 101.7 27.6 1.5 1.3 Depreciation and amortization expenses327.1 366.0(38.9)3.8 4.5 General and administrative expenses580.9 525.8 55.1 6.7 6.5 Restructuring and impairments5.8(7.5)13.3 0.1(0.1)Total operating expenses7,518.6 6,912.9 605.7 86.3 85.9 Income from equity investees57.8 40.3 17.5 0.7 0.5 Operating income$1,253.1$1,177.8$75.3 14.4.6%Store operating expenses as a%of company-operated stores revenue51.7P.6%For the quarter ended January 1,2023 compared with the quarter ended January 2,2022Product and distribution costs as a percentage of total net revenues increased 80 basis points for the first quarter of fiscal 2023,primarily due to higher supplychain costs driven by inflationary pressures.Store operating expenses as a percentage of total net revenues decreased 10 basis points for the first quarter of fiscal 2023.Store operating expenses as apercentage of company-operated stores revenue increased 110 basis points,primarily due to enhancements in retail store partner wages and benefits(approximately 350 basis points)and increased spend on new partner training(approximately 60 basis points),partially offset by sales leverage.Other operating expenses increased$28 million for the first quarter of fiscal 2023,primarily due to higher support costs for our growing licensed markets($8million)and strategic investments in technology and other initiatives($8 million).Depreciation and amortization expenses as a percentage of total net revenues decreased 70 basis points,primarily due to lapping amortization expenses ofacquisition-related intangibles assets.27Table of ContentsGeneral and administrative expenses increased$55 million,primarily due to incremental investments in technology($28 million)and increased support coststo address labor market conditions and leadership training($17 million).Income from equity investees increased$18 million,primarily due to higher income from our North American Coffee Partnership joint venture.The combination of these changes resulted in an overall decrease in operating margin of 20 basis points for the first quarter of fiscal 2023.Other Income and Expenses Quarter EndedJan 1,2023Jan 2,2022$ChangeJan 1,2023Jan 2,2022As a%of TotalNet RevenuesOperating income$1,253.1$1,177.8$75.3 14.4.6%Interest income and other,net11.6(0.1)11.7 0.1 Interest expense(129.7)(115.3)(14.4)(1.5)(1.4)Earnings before income taxes1,135.0 1,062.4 72.6 13.0 13.2 Income tax expense279.8 246.3 33.5 3.2 3.1 Net earnings including noncontrolling interests855.2 816.1 39.1 9.8 10.1 Net earnings attributable to noncontrolling interests 0.2(0.2)Net earnings attributable to Starbucks$855.2$815.9$39.3 9.8.1fective tax rate including noncontrolling interests24.6#.2%For the quarter ended January 1,2023 compared with the quarter ended January 2,2022Interest income and other,net increased$12 million,primarily due to lower net losses from certain investments.Interest expense increased$14 million,primarily due to rising interest rates on floating rate debt and additional interest incurred on long-term debt issued inFebruary 2022.The effective tax rate for the quarter ended January 1,2023 was 24.6%compared to 23.2%for the same period in fiscal 2022.The increase was primarily dueto a decrease in stock-based compensation excess tax benefits(approximately 150 basis points).28Table of ContentsSegment InformationResults of operations by segment(in millions):North America Quarter EndedJan 1,2023Jan 2,2022$ChangeJan 1,2023Jan 2,2022As a%ofNorth AmericaTotal Net RevenuesNet revenues:Company-operated stores$5,870.6$5,214.1$656.5 89.6.0%Licensed stores680.0 515.9 164.1 10.4 9.0 Other0.7 2.3(1.6)Total net revenues6,551.3 5,732.3 819.0 100.0 100.0 Product and distribution costs1,917.6 1,629.4 288.2 29.3 28.4 Store operating expenses3,031.4 2,702.4 329.0 46.3 47.1 Other operating expenses65.6 48.2 17.4 1.0 0.8 Depreciation and amortization expenses216.9 200.0 16.9 3.3 3.5 General and administrative expenses102.3 76.7 25.6 1.6 1.3 Restructuring and impairments5.1(7.5)12.6 0.1(0.1)Total operating expenses5,338.9 4,649.2 689.7 81.5 81.1 Operating income$1,212.4$1,083.1$129.3 18.5.9%Store operating expenses as a%of company-operated stores revenue51.6Q.8%For the quarter ended January 1,2023 compared with the quarter ended January 2,2022RevenuesNorth America total net revenues for the first quarter of fiscal 2023 increased$819 million,or 14%,primarily due to a 10%increase in comparable store sales($498 million)driven by a 9%increase in average ticket and a 1%increase in transactions.Also contributing to these increases were the performance of netnew company-operated store openings over the past 12 months($183 million)and higher product and equipment sales to and royalty revenues from ourlicensees($160 million).Operating MarginNorth America operating income for the first quarter of fiscal 2023 increased 12%to$1.2 billion,compared to$1.1 billion in the first quarter of fiscal 2022.Operating margin decreased 40 basis points to 18.5%,primarily due to investments in labor,including enhancements in retail store partner wages and benefits(approximately 390 basis points),inflationary pressures on commodities and our supply chain(approximately 210 basis points),as well as increased spend onnew partner training(approximately 70 basis points).These were partially offset by strategic pricing(approximately 510 basis points)and sales leverage.29Table of ContentsInternational Quarter Ended Jan 1,2023Jan 2,2022$ChangeJan 1,2023Jan 2,2022As a%of InternationalTotal Net RevenuesNet revenues:Company-operated stores$1,212.9$1,508.3$(295.4)72.2.4%Licensed stores439.5 334.9 104.6 26.2 17.9 Other27.7 32.7(5.0)1.6 1.7 Total net revenues1,680.1 1,875.9(195.8)100.0 100.0 Product and distribution costs593.6 615.8(22.2)35.3 32.8 Store operating expenses633.9 697.6(63.7)37.7 37.2 Other operating expenses50.7 39.2 11.5 3.0 2.1 Depreciation and amortization expenses81.5 133.1(51.6)4.9 7.1 General and administrative expenses80.5 91.3(10.8)4.8 4.9 Total operating expenses1,440.2 1,577.0(136.8)85.7 84.1 Income from equity investees0.5 0.7(0.2)Operating income$240.4$299.6$(59.2)14.3.0%Store operating expenses as a%of company-operated stores revenue52.3F.3%For the quarter ended January 1,2023 compared with the quarter ended January 2,2022RevenuesInternational total net revenues for the first quarter of fiscal 2023 decreased$196 million,or 10%,primarily due to unfavorable foreign currency translation($236 million),as well as a 13cline in comparable store sales($170 million),driven by a 12crease in customer transactions and a 1crease inaverage ticket,primarily attributable to COVID-19 pandemic related disruptions in China.These decreases were partially offset by higher product andequipment sales to and royalty revenues from our licensees($139 million),as well as 649 net new company-operated store openings,or 9%increase,over thepast 12 months($76 million).Operating MarginInternational operating income for the first quarter of fiscal 2023 decreased 20%to$240 million,compared to$300 million in the first quarter of fiscal 2022.Operating margin decreased 170 basis points to 14.3%,primarily due to sales deleverage related to COVID-19 pandemic related impacts in our China market(approximately 650 basis points)and higher commodity and supply chain costs due to inflationary pressures(approximately 70 basis points).These decreaseswere partially offset by sales leverage across markets outside of China(approximately 240 basis points)the resulting business mix(approximately 140 basispoints),as well as lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized(approximately 230 basis points).30Table of ContentsChannel Development Quarter Ended Jan 1,2023Jan 2,2022$ChangeJan 1,2023Jan 2,2022As a%of Channel DevelopmentTotal Net RevenuesNet revenues$478.2$417.1$61.1 Product and distribution costs294.2 258.8 35.4 61.5b.0%Other operating expenses13.0 11.4 1.6 2.7 2.7 General and administrative expenses2.0 3.3(1.3)0.4 0.8 Total operating expenses309.2 273.5 35.7 64.7 65.6 Income from equity investees57.3 39.6 17.7 12.0 9.5 Operating income$226.3$183.2$43.1 47.3C.9%For the quarter ended January 1,2023 compared with the quarter ended January 2,2022RevenuesChannel Development total net revenues for the first quarter of fiscal 2023 increased$61 million,or 15%,primarily due to higher Global Coffee Allianceproduct sales and royalty revenue($43 million)and growth in our ready-to-drink business($26 million).Operating MarginChannel Development operating income for the first quarter of fiscal 2023 increased 24%to$226 million,compared to$183 million in the first quarter offiscal 2022.Operating margin increased 340 basis points to 47.3%,primarily due to growth in our North American Coffee Partnership joint venture income.31Table of ContentsCorporate and Other Quarter EndedJan 1,2023Jan 2,2022$Change%ChangeNet revenues:Other$4.3$25.1$(20.8)(82.9)%Total net revenues4.3 25.1(20.8)(82.9)Product and distribution costs4.8 22.9(18.1)(79.0)Other operating expenses 2.9(2.9)nmDepreciation and amortization expenses28.7 32.9(4.2)(12.8)General and administrative expenses396.1 354.5 41.6 11.7 Restructuring and impairments0.7 0.7 nmTotal operating expenses430.3 413.2 17.1 4.1 Operating loss$(426.0)$(388.1)$(37.9)9.8%Corporate and Other primarily consists of our unallocated corporate expenses and Evolution Fresh,prior to its sale in the fourth quarter of fiscal 2022.Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to ormanaged by any segment and are not included in the reported financial results of the operating segments.For the quarter ended January 1,2023 compared with the quarter ended January 2,2022Corporate and Other operating loss increased to$426 million for the first quarter of fiscal 2023,or 10%,compared to$388 million for the first quarter of fiscal2022.This increase was primarily driven by incremental investments in technology($28 million)and increased support costs to address labor marketconditions($9 million).These increases were partially offset by lower performance based compensation($12 million).32Table of ContentsQuarterly Store DataOur store data for the periods presented is as follows:Net stores opened/(closed)and transferredduring the period Quarter EndedStores open as ofJan 1,2023Jan 2,2022Jan 1,2023Jan 2,2022North AmericaCompany-operated stores40 39 10,256 9,900 Licensed stores46 23 7,125 6,988 Total North America86 62 17,381 16,888 InternationalCompany-operated stores97 213 8,134 7,485 Licensed stores276 209 10,655 9,944 Total International373 422 18,789 17,429 Total Company459 484 36,170 34,317 Financial Condition,Liquidity and Capital ResourcesCash and Investment OverviewOur cash and investments totaled$3.6 billion as of January 1,2023 and$3.5 billion as of October 2,2022.We actively manage our cash and investments inorder to internally fund operating needs,make scheduled interest and principal payments on our borrowings,make acquisitions and return cash to shareholdersthrough common stock cash dividend payments and share repurchases.Our investment portfolio primarily includes highly liquid available-for-sale securities,including corporate debt securities,government treasury securities(foreign and domestic)and commercial paper as well as principal-protected structureddeposits.As of January 1,2023,approximately$2.7 billion of cash and short-term investment were held in foreign subsidiaries.Borrowing CapacityRevolving Credit FacilityOur$3.0 billion unsecured five-year revolving credit facility(the“2021 credit facility”),of which$150 million may be used for issuances of letters of credit,iscurrently set to mature on September 16,2026.The 2021 credit facility is available for working capital,capital expenditures and other corporate purposes,including acquisitions and share repurchases.We have the option,subject to negotiation and agreement with the related banks,to increase the maximumcommitment amount by an additional$1.0 billion.Borrowings under the 2021 credit facility will bear interest at a variable rate based on LIBOR,and,for U.S.dollar-denominated loans under certaincircumstances,a Base Rate(as defined in the 2021 credit facility),in each case plus an applicable margin.The applicable margin is based on the Companyslong-term credit ratings assigned by the Moodys and Standard&Poors rating agencies.The 2021 credit facility contains alternative interest rate provisionsspecifying rate calculations to be used at such time LIBOR ceases to be available as a benchmark due to reference rate reform.The“Base Rate”is the highestof(i)the Federal Funds Rate(as defined in the 2021 credit facility)plus 0.500%,(ii)Bank of Americas prime rate and(iii)the Eurocurrency Rate(as definedin the 2021 credit facility)plus 1.000%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants,including a minimum fixed charge coverage ratio,which measures our ability to cover financing expenses.As of January 1,2023,we were in compliance with all applicable covenants.No amounts wereoutstanding under our 2021 credit facility as of January 1,2023 or October 2,2022.Commercial PaperUnder our commercial paper program,we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of$3.0billion,with individual maturities that may vary but not exceed 397 days from the date of issue.Amounts outstanding under the commercial paper program arerequired to be backstopped by available commitments under the 2021 credit facility discussed above.The proceeds from borrowings under our commercialpaper program may be used for working capital needs,capital expenditures and other corporate purposes,including,but not limited to,business expansion,payment of cash dividends on our common stock and share repurchases.As of January 1,2023,we had no borrowings outstanding under our commercial paperprogram.As of October 2,2022,we had$175.0 million in borrowings outstanding33Table of Contentsunder this program.Our total contractual borrowing capacity for general corporate purposes was$3.0 billion as of the end of our first quarter of fiscal 2023.Credit facilities in JapanAdditionally,we hold Japanese yen-denominated credit facilities for the use of our Japan subsidiary.These are available for working capital needs and capitalexpenditures within our Japanese market.A 5 billion,or$37.6 million,credit facility is currently set to mature on January 4,2024.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.400%.A 10 billion,or$75.2 million,credit facility is currently set to mature on March 27,2023.Borrowings under this credit facility are subject to termsdefined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.350%.As of January 1,2023 and October 2,2022,we had no borrowings outstanding under these Japanese yen-denominated credit facilities.See Note 8,Debt,to the consolidated financial statements included in Item 1 of Part I of this 10-Q for details of the components of our long-term debt.Our ability to incur new liens and conduct sale and leaseback transactions on certain material properties is subject to compliance with terms of the indenturesunder which the long-term notes were issued.As of January 1,2023,we were in compliance with all applicable covenants.Use of CashWe expect to use our available cash and investments,including,but not limited to,additional potential future borrowings under the credit facilities,commercialpaper program and the issuance of debt to support and invest in our core businesses,including investing in new ways to serve our customers and supporting ourstore partners,repaying maturing debts,as well as returning cash to shareholders through common stock cash dividend payments and discretionary sharerepurchases and investing in new business opportunities related to our core and developing businesses.Furthermore,we may use our available cash resourcesto make proportionate capital contributions to our investees.We may also seek strategic acquisitions to leverage existing capabilities and further build ourbusiness.Acquisitions may include increasing our ownership interests in our investees.Any decisions to increase such ownership interests will be driven byvaluation and fit with our ownership strategy.We believe that net future cash flows generated from operations and existing cash and investments both domestically and internationally combined with ourability to leverage our balance sheet through the issuance of debt will be sufficient to finance capital requirements for our core businesses as well asshareholder distributions for at least the next 12 months.We are currently not aware of any trends or demands,commitments,events or uncertainties that willresult in,or that are reasonably likely to result in,our liquidity increasing or decreasing in any material way that will impact our capital needs during or beyondthe next 12 months.We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates;however,additional borrowingswould result in increased interest expense in the future.In this regard,we may incur additional debt,within targeted levels,as part of our plans to fund ourcapital programs,including cash returns to shareholders through future dividends and discretionary share repurchases as well as investing in new businessopportunities.If necessary,we may pursue additional sources of financing,including both short-term and long-term borrowings and debt issuances.We regularly review our cash positions and our determination of indefinite reinvestment of foreign earnings.In the event we determine that all or a portion ofsuch foreign earnings are no longer indefinitely reinvested,we may be subject to additional foreign withholding taxes and U.S.state income taxes,which couldbe material.While we do not anticipate the need for repatriated funds to the U.S.to satisfy domestic liquidity requirements,any foreign earnings which are notindefinitely reinvested may be repatriated at managements discretion.During the first quarter of fiscal 2023,our Board of Directors approved a quarterly cash dividend to shareholders of$0.53 per share to be paid on February 24,2023 to shareholders of record as of the close of business on February 10,2023.During the first quarter of fiscal 2023,we resumed our share repurchase program which was temporarily suspended in April 2022.During the quarter endedJanuary 1,2023,we repurchased 1.9 million shares of common stock for$191.4 million.As of January 1,2023,50.6 million shares remained available forrepurchase under current authorizations.Other than normal operating expenses,cash requirements for the remainder of fiscal 2023 are expected to consist primarily of capital expenditures forinvestments in our new and existing stores,our supply chain and corporate facilities.Total capital expenditures for fiscal 2023 are expected to be approximately$2.5 billion.34Table of ContentsIn the MD&A included in the 10-K,we disclosed that we had$33.2 billion of current and long-term material cash requirements as of October 2,2022.Therehave been no material changes to our material cash requirements during the period covered by this 10-Q outside of the normal course of our business.Cash FlowsCash provided by operating activities was$1.6 billion for the first quarter of fiscal 2023,compared to$1.9 billion for the same period in fiscal 2022.Thechange was primarily due to the timing of payments,lower non-cash depreciation and amortization expenses in current year,and net cash used by changes inother operating assets and liabilities.Cash used in investing activities for the first quarter of fiscal 2023 totaled$279 million,compared to cash used in investing activities of$401 million for thesame period in fiscal 2022.The change was primarily due to an increase in maturities and calls of investments,partially offset by higher spend on capitalexpenditures.Cash used in financing activities for the first quarter of fiscal 2023 totaled$1.0 billion compared to cash used in financing activities of$4.0 billion for the sameperiod in fiscal 2022.The change is primarily due to a decrease in share repurchase activities.Commodity Prices,Availability and General Risk ConditionsCommodity price risk represents our primary market risk,generated by our purchases of green coffee and dairy products,among other items.We purchase,roast and sell high-quality arabica coffee and related products and risk arises from the price volatility of green coffee.In addition to coffee,we also purchasesignificant amounts of dairy products to support the needs of our company-operated stores.The price and availability of these commodities directly impact ourresults of operations,and we expect commodity prices,particularly coffee,to impact future results of operations.For additional details,see Product Supply inItem 1 of the 10-K,as well as Risk Factors in Item 1A of the 10-K.Seasonality and Quarterly ResultsOur business is subject to moderate seasonal fluctuations,of which our fiscal second quarter typically experiences lower revenues and operating income.However,the COVID-19 pandemic may have an impact on consumer behaviors and customer traffic that result in changes in the seasonal fluctuations of ourbusiness.Additionally,as our stored value cards are issued to and loaded by customers during the holiday season,we tend to have higher cash flows fromoperations during the first quarter of the fiscal year.However,since revenues from our stored value cards are recognized upon redemption and not when cash isloaded,the impact of seasonal fluctuations on the consolidated statements of earnings is much less pronounced.As a result of moderate seasonal fluctuations,results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.Critical Accounting EstimatesThe preparation of financial statements and related disclosures in conformity with U.S.generally accepted accounting principles and the Companys discussionand analysis of its financial condition and operating results require the Companys management to make judgments,assumptions and estimates that affect theamounts reported.Note 1,Summary of Significant Accounting Policies and Estimates,to the consolidated financial statements included in Item 1 of Part I ofthis 10-Q and in the Notes to Consolidated Financial Statements in Part II,Item 8 of the 10-K describe the significant accounting policies and methods used inthe preparation of the Companys consolidated financial statements.There have been no material changes to the Companys critical accounting estimates sincethe 10-K.RECENT ACCOUNTING PRONOUNCEMENTSSee Note 1,Summary of Significant Accounting Policies and Estimates,to the consolidated financial statements included in Item 1 of Part I of this 10-Q,for adetailed description of recent accounting pronouncements.Item 3.Quantitative and Qualitative Disclosures About Market RiskThere has been no material change in the commodity price risk,foreign currency exchange risk,equity security price risk or interest rate risk discussed inItem 7A of the 10-K.35Table of ContentsItem 4.Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed orsubmitted under the Securities Exchange Act of 1934,as amended(the“Exchange Act”),is recorded,processed,summarized and reported within the timeperiods specified in the SECs rules and forms.Our disclosure controls and procedures are also designed to ensure that information required to be disclosed inthe reports we file or submit under the Exchange Act is accumulated and communicated to our management,including our principal executive officer andprincipal financial officer as appropriate,to allow timely decisions regarding required disclosure.During the first quarter of fiscal 2023,we carried out an evaluation,under the supervision and with the participation of our management,including our interimchief executive officer and our chief financial officer,of the effectiveness of the design and operation of the disclosure controls and procedures,as defined inRules 13a-15(e)and 15d-15(e)under the Exchange Act.Based upon that evaluation,our interim chief executive officer and chief financial officer concludedthat our disclosure controls and procedures were effective,as of the end of the period covered by this report(January 1,2023).There were no changes in our internal control over financial reporting(as defined in Rules 13a-15(f)and 15d-15(f)of the Exchange Act)during our mostrecently completed fiscal quarter that materially affected,or are reasonably likely to materially affect,our internal control over financial reporting.36Table of ContentsPART II OTHER INFORMATIONItem 1.Legal ProceedingsSee Note 14,Commitments and Contingencies,to the consolidated financial statements included in Item 1 of Part I of this 10-Q for information regardingcertain legal proceedings in which we are involved.Item 1A.Risk FactorsIn addition to the other information set forth in this 10-Q,you should carefully consider the risks and uncertainties discussed in Part I,Item 1A.Risk Factors inour 10-K and Part II,Item 1A.There have been no material changes to the risk factors disclosed in our 10-K.Item 2.Unregistered Sales of Equity Securities and Use of ProceedsInformation regarding repurchases of our common stock during the quarter ended January 1,2023:TotalNumber ofSharesPurchasedAveragePricePaid perShareTotal Numberof SharesPurchased asPart of PubliclyAnnouncedPlans orProgramsMaximumNumber ofShares that MayYet BePurchasedUnder the Plansor ProgramsPeriod October 3,2022-October 30,2022 52,572,178 October 31,2022-November 27,2022826,522$95.83 826,522 51,745,656 November 28,2022-January 1,20231,107,480 101.32 1,107,480 50,638,176 Total1,934,002$98.97 1,934,002 Monthly information is presented by reference to our fiscal months during the first quarter of fiscal 2023.Share repurchases are conducted under our ongoing share repurchase program announced in September 2001,which has no expiration date,and for whichthe authorized number of shares has been increased by our Board numerous times,with our Board most recently authorizing the repurchase of up to anadditional 40 million shares in March 2022.This column includes the total number of shares available for repurchase under the Companys ongoing share repurchase program.Shares under ourongoing share repurchase program may be repurchased in open market transactions,including pursuant to a trading plan adopted in accordance with Rule10b5-1 of the Securities Exchange Act of 1934,or through privately negotiated transactions.The timing,manner,price and amount of repurchases will bedetermined at our discretion and the share repurchase program may be suspended,terminated or modified at any time for any reason.Item 3.Defaults upon Senior SecuritiesNone.Item 4.Mine Safety DisclosuresNot applicable.Item 5.Other InformationNone.(2)(3)(1)(1)(2)(3)37Table of ContentsItem 6.Exhibits Incorporated by Reference ExhibitNo.Exhibit DescriptionFormFile No.Date ofFilingExhibitNumberFiledHerewith3.1Restated Articles of Incorporation of Starbucks Corporation10-Q000-2032204/28/20153.13.2Amended and Restated Bylaws of Starbucks Corporation(Asamended and restated through March 17,2021)8-K000-2032203/19/20213.131.1Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)of the Securities Exchange Act of 1934,as Adopted Pursuantto Section 302 of the Sarbanes-Oxley Act of 2002X31.2Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)of the Securities Exchange Act of 1934,as Adopted Pursuantto Section 302 of the Sarbanes-Oxley Act of 2002X32*Certifications of Principal Executive Officer and Principal FinancialOfficer Pursuant to 18 U.S.C.Section 1350,as Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002101The following financial statements from the Companys 10-Q forthe fiscal quarter ended January 1,2023,formatted in iXBRL:(i)Consolidated Statements of Earnings,(ii)Consolidated Statementsof Comprehensive Income,(iii)Consolidated Balance Sheets,(iv)Consolidated Statements of Cash Flows,(v)ConsolidatedStatements of Equity and(vi)Notes to Consolidated FinancialStatementsX104Cover Page Interactive Data File(formatted in iXBRL andcontained in Exhibit 101)X*Furnished herewith.38Table of ContentsSIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.February 2,2023 STARBUCKS CORPORATIONBy:/s/Rachel RuggeriRachel Ruggeriexecutive vice president,chief financial officerSigning on behalf of the registrant and asprincipal financial officer39Exhibit 31.1CERTIFICATION PURSUANT TO RULE 13a-14(a)OF THE SECURITIES EXCHANGE ACT OF 1934AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I,Howard Schultz,certify that:1.I have reviewed this Annual Report on Form 10-Q for the fiscal year ended January 1,2023,of Starbucks Corporation;2.Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made,in light of the circumstances under which such statements were made,not misleading with respect to the period covered by thisreport;3.Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all material respects thefinancial condition,results of operations and cash flows of the registrant as of,and for,the periods presented in this report;4.The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined inExchange Act Rules 13a-15(e)and 15d-15(e)and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)for the registrant and have:(a)Designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed under our supervision,toensure that material information relating to the registrant,including its consolidated subsidiaries,is made known to us by others within thoseentities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting,or caused such internal control over financial reporting to be designed under oursupervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures,as of the end of the period covered by this report based on such evaluation;and(d)Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recentfiscal quarter(the registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or is reasonably likely tomaterially affect,the registrants internal control over financial reporting;and5.The registrants other certifying officer and I have disclosed,based on our most recent evaluation of internal control over financial reporting,to theregistrants auditors and the audit committee of the registrants board of directors(or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrants ability to record,process,summarize and report financial information;and(b)Any fraud,whether or not material,that involves management or other employees who have a significant role in the registrants internalcontrol over financial reporting.Date:February 2,2023/s/Howard SchultzHoward Schultzinterim chief executive officerExhibit 31.2CERTIFICATION PURSUANT TO RULE 13a-14(a)OF THE SECURITIES EXCHANGE ACT OF 1934AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I,Rachel Ruggeri,certify that:1.I have reviewed this Annual Report on Form 10-Q for the fiscal year ended January 1,2023,of Starbucks Corporation;2.Based on my knowledge,this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made,in light of the circumstances under which such statements were made,not misleading with respect to the period covered by thisreport;3.Based on my knowledge,the financial statements,and other financial information included in this report,fairly present in all material respects thefinancial condition,results of operations and cash flows of the registrant as of,and for,the periods presented in this report;4.The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(as defined inExchange Act Rules 13a-15(e)and 15d-15(e)and internal control over financial reporting(as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)for the registrant and have:(a)Designed such disclosure controls and procedures,or caused such disclosure controls and procedures to be designed under our supervision,toensure that material information relating to the registrant,including its consolidated subsidiaries,is made known to us by others within thoseentities,particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting,or caused such internal control over financial reporting to be designed under oursupervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures,as of the end of the period covered by this report based on such evaluation;and(d)Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recentfiscal quarter(the registrants fourth fiscal quarter in the case of an annual report)that has materially affected,or is reasonably likely tomaterially affect,the registrants internal control over financial reporting;and5.The registrants other certifying officer and I have disclosed,based on our most recent evaluation of internal control over financial reporting,to theregistrants auditors and the audit committee of the registrants board of directors(or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrants ability to record,process,summarize and report financial information;and(b)Any fraud,whether or not material,that involves management or other employees who have a significant role in the registrants internalcontrol over financial reporting.Date:February 2,2023/s/Rachel RuggeriRachel Ruggeriexecutive vice president,chief financial officerExhibit 32CERTIFICATIONS PURSUANT TO 18 U.S.C.SECTION 1350AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Quarterly Report of Starbucks Corporation(“Starbucks”)on Form 10-Q for the fiscal quarter ended January 1,2023,as filed with theSecurities and Exchange Commission on February 2,2023(the“Report”),Howard Schultz,interim chief executive officer of Starbucks,and Rachel Ruggeri,executive vice president,chief financial officer of Starbucks,each hereby certifies,pursuant to 18 U.S.C.Section 1350,as adopted pursuant to Section 906
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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington,DC 20549Form 10-QQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31,2023ORTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission file number 001-34960GENERAL MOTORS COMPANY(Exact name of registrant as specified in its charter)Delaware27-0756180(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)300 Renaissance Center,Detroit,Michigan 48265-3000(Address of principal executive offices)(Zip Code)(313)667-1500(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,$0.01 par valueGMNew 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 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements forthe past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to submit suchfiles).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 emerginggrowth company.See the definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and emerging growth company in Rule 12b-2of the Exchange Act.Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No As of April 14,2023 there were 1,390,123,499 shares of common stock outstanding.INDEX PagePART IItem 1.Condensed Consolidated Financial Statements1Condensed Consolidated Income Statements(Unaudited)1Condensed Consolidated Statements of Comprehensive Income(Unaudited)1Condensed Consolidated Balance Sheets(Unaudited)2Condensed Consolidated Statements of Cash Flows(Unaudited)3Condensed Consolidated Statements of Equity(Unaudited)4Notes to Condensed Consolidated Financial Statements5Note 1.Nature of Operations and Basis of Presentation5Note 2.Revenue6Note 3.Marketable and Other Securities7Note 4.GM Financial Receivables and Transactions8Note 5.Inventories11Note 6.Equipment on Operating Leases11Note 7.Equity in Net Assets of Nonconsolidated Affiliates12Note 8.Variable Interest Entities12Note 9.Debt13Note 10.Derivative Financial Instruments14Note 11.Product Warranty and Related Liabilities16Note 12.Pensions and Other Postretirement Benefits16Note 13.Commitments and Contingencies17Note 14.Income Taxes20Note 15.Restructuring and Other Initiatives20Note 16.Stockholders Equity and Noncontrolling Interests20Note 17.Earnings Per Share22Note 18.Stock Incentive Plans22Note 19.Segment Reporting22Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations25Item 3.Quantitative and Qualitative Disclosures About Market Risk41Item 4.Controls and Procedures42PART IIItem 1.Legal Proceedings43Item 1A.Risk Factors43Item 2.Unregistered Sales of Equity Securities and Use of Proceeds44Item 6.Exhibits45Signature46Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESPART IItem 1.Condensed Consolidated Financial StatementsCONDENSED CONSOLIDATED INCOME STATEMENTS(In millions,except per share amounts)(Unaudited)Three Months Ended March 31,2023March 31,2022Net sales and revenueAutomotive$36,646$32,824 GM Financial3,339 3,155 Total net sales and revenue(Note 2)39,985 35,979 Costs and expensesAutomotive and other cost of sales32,247 29,353 GM Financial interest,operating and other expenses2,612 1,926 Automotive and other selling,general and administrative expense2,547 2,504 Total costs and expenses37,407 33,783 Operating income(loss)2,578 2,196 Automotive interest expense234 226 Interest income and other non-operating income,net409 517 Equity income(loss)(Note 7)21 292 Income(loss)before income taxes2,775 2,779 Income tax expense(benefit)(Note 14)428(28)Net income(loss)2,346 2,807 Net loss(income)attributable to noncontrolling interests49 131 Net income(loss)attributable to stockholders$2,395$2,939 Net income(loss)attributable to common stockholders$2,369$1,987 Earnings per share(Note 17)Basic earnings per common share$1.70$1.36 Weighted-average common shares outstanding basic1,396 1,458 Diluted earnings per common share$1.69$1.35 Weighted-average common shares outstanding diluted1,402 1,470 Dividends declared per common share$0.09$CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(In millions)(Unaudited)Three Months Ended March 31,2023March 31,2022Net income(loss)$2,346$2,807 Other comprehensive income(loss),net of tax(Note 16)Foreign currency translation adjustments and other148 340 Defined benefit plans(35)103 Other comprehensive income(loss),net of tax113 442 Comprehensive income(loss)2,460 3,250 Comprehensive loss(income)attributable to noncontrolling interests58 145 Comprehensive income(loss)attributable to stockholders$2,518$3,394 Reference should be made to the notes to condensed consolidated financial statements.Amounts may not add due to rounding.1Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In millions,except per share amounts)(Unaudited)March 31,2023December 31,2022ASSETSCurrent AssetsCash and cash equivalents$18,227$19,153 Marketable debt securities(Note 3)9,981 12,150 Accounts and notes receivable,net of allowance of$261 and$26013,702 13,333 GM Financial receivables,net of allowance of$801 and$869(Note 4;Note 8 at VIEs)32,283 33,623 Inventories(Note 5)17,758 15,366 Other current assets(Note 3;Note 8 at VIEs)6,881 6,825 Total current assets98,832 100,451 Non-current AssetsGM Financial receivables,net of allowance of$1,351 and$1,227(Note 4;Note 8 at VIEs)43,582 40,591 Equity in net assets of nonconsolidated affiliates(Note 7)10,542 10,176 Property,net46,895 45,248 Goodwill and intangible assets,net4,968 4,945 Equipment on operating leases,net(Note 6;Note 8 at VIEs)31,848 32,701 Deferred income taxes20,676 20,539 Other assets(Note 3;Note 8 at VIEs)9,661 9,386 Total non-current assets168,173 163,586 Total Assets$267,004$264,037 LIABILITIES AND EQUITYCurrent LiabilitiesAccounts payable(principally trade)$28,931$27,486 Short-term debt and current portion of long-term debt(Note 9)Automotive425 1,959 GM Financial(Note 8 at VIEs)36,585 36,819 Accrued liabilities24,244 24,910 Total current liabilities90,185 91,173 Non-current LiabilitiesLong-term debt(Note 9)Automotive15,929 15,885 GM Financial(Note 8 at VIEs)61,482 60,036 Postretirement benefits other than pensions(Note 12)4,162 4,193 Pensions(Note 12)5,697 5,698 Other liabilities15,318 14,767 Total non-current liabilities102,588 100,579 Total Liabilities192,773 191,752 Commitments and contingencies(Note 13)Noncontrolling interest-Cruise stock incentive awards271 357 Equity(Note 16)Common stock,$0.01 par value14 14 Additional paid-in capital26,323 26,428 Retained earnings51,318 49,251 Accumulated other comprehensive loss(7,778)(7,901)Total stockholders equity69,877 67,792 Noncontrolling interests4,084 4,135 Total Equity73,961 71,927 Total Liabilities and Equity$267,004$264,037 Reference should be made to the notes to condensed consolidated financial statements.Amounts may not add due to rounding.2Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions)(Unaudited)Three Months EndedMarch 31,2023March 31,2022Cash flows from operating activitiesNet income(loss)$2,346$2,807 Depreciation and impairment of Equipment on operating leases,net1,241 1,223 Depreciation,amortization and impairment charges on Property,net1,571 1,668 Foreign currency remeasurement and transaction(gains)losses135 56 Undistributed earnings of nonconsolidated affiliates,net(61)(274)Pension contributions and OPEB payments(236)(213)Pension and OPEB income,net(20)(300)Provision(benefit)for deferred taxes46(81)Change in other operating assets and liabilities(1,936)(2,784)Net cash provided by(used in)operating activities3,086 2,104 Cash flows from investing activitiesExpenditures for property(2,431)(1,661)Available-for-sale marketable securities,acquisitions(643)(3,451)Available-for-sale marketable securities,liquidations2,947 1,960 Purchases of finance receivables,net(8,963)(8,189)Principal collections and recoveries on finance receivables7,282 6,845 Purchases of leased vehicles,net(3,154)(2,990)Proceeds from termination of leased vehicles3,264 3,732 Other investing activities(563)(154)Net cash provided by(used in)investing activities(2,262)(3,909)Cash flows from financing activitiesNet increase(decrease)in short-term debt(167)722 Proceeds from issuance of debt(original maturities greater than three months)11,487 10,685 Payments on debt(original maturities greater than three months)(12,127)(10,827)Payments to purchase common stock(369)Issuance(redemption)of subsidiary stock(Note 16)(2,124)Dividends paid(185)(73)Other financing activities(324)(235)Net cash provided by(used in)financing activities(1,685)(1,852)Effect of exchange rate changes on cash,cash equivalents and restricted cash54 93 Net increase(decrease)in cash,cash equivalents and restricted cash(807)(3,564)Cash,cash equivalents and restricted cash at beginning of period21,948 23,542 Cash,cash equivalents and restricted cash at end of period$21,141$19,978 Significant Non-cash Investing and Financing ActivityNon-cash property additions$3,041$1,931 Reference should be made to the notes to condensed consolidated financial statements.Amounts may not add due to rounding.3Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF EQUITY(In millions)(Unaudited)Common StockholdersNoncontrollingInterestsTotal Equity(PermanentEquity)NoncontrollingInterest Cruise Stock IncentiveAwards(Temporary Equity)CommonStockAdditionalPaid-inCapitalRetainedEarningsAccumulated OtherComprehensiveLossBalance at January 1,2022$15$27,061$41,937$(9,269)$6,071$65,815$Net income(loss)2,939 (131)2,807 Other comprehensive income(loss)456(13)442 Issuance(redemption)of subsidiary stock(Note 16)(909)(1,215)(2,124)Stock based compensation(31)(1)(32)289 Dividends to noncontrolling interests (12)(1)(14)Other(15)(74)(31)(120)Balance at March 31,2022$15$27,015$43,879$(8,814)$4,679$66,774$289 Balance at January 1,2023$14$26,428$49,251$(7,901)$4,135$71,927$357 Net income(loss)2,395 (49)2,346 Other comprehensive income(loss)123(9)113 Purchase of common stock(168)(201)(369)Stock based compensation(34)(2)(35)7 Cash dividends paid on common stock (126)(126)Other 97 7 103(93)Balance at March 31,2023$14$26,323$51,318$(7,778)$4,084$73,961$271 Reference should be made to the notes to condensed consolidated financial statements.Amounts may not add due to rounding.4Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNote 1.Nature of Operations and Basis of PresentationGeneral Motors Company(sometimes referred to in this Quarterly Report on Form 10-Q as we,our,us,ourselves,the Company,General Motors or GM)designs,builds and sells trucks,crossovers,cars and automobile parts and provides software-enabled services and subscriptions worldwide.Additionally,weare investing in and growing an autonomous vehicle(AV)business.We also provide automotive financing services through General Motors FinancialCompany,Inc.(GM Financial).We analyze the results of our operations through the following segments:GM North America(GMNA),GM International(GMI),Cruise,and GM Financial.Cruise is our global segment responsible for the development and commercialization of AV technology.Nonsegmentoperations are classified as Corporate.Corporate includes certain centrally recorded income and costs such as interest,income taxes,corporate expendituresand certain nonsegment-specific revenues and expenses.The condensed consolidated financial statements are prepared in conformity with U.S.GAAP pursuant to the rules and regulations of the Securities andExchange Commission(SEC)for interim financial information.Accordingly,they do not include all of the information and notes required by U.S.GAAPfor complete financial statements.The condensed consolidated financial statements include all adjustments,which consist of normal recurring adjustmentsand transactions or events discretely impacting the interim periods,considered necessary by management to fairly state our results of operations,financialposition and cash flows.The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim periodor for the full year.These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements andnotes thereto included in our 2022 Form 10-K.Except for per share amounts or as otherwise specified,amounts presented within tables are stated inmillions.Certain columns and rows may not add due to rounding.Throughout this report,we refer to General Motors Company and its consolidated subsidiaries in a simplified manner and on a collective basis,usingwords like we,our,us and the Company.This drafting style is suggested by the SEC and is not meant to indicate that General Motors Company,thepublicly traded parent company,or any particular subsidiary of the parent company,owns or operates any particular asset,business or property.Theoperations and businesses described in this report are owned and operated by distinct subsidiaries of General Motors Company.Principles of Consolidation We consolidate entities that we control due to ownership of a majority voting interest and we consolidate variable interestentities(VIEs)when we are the primary beneficiary.All intercompany balances and transactions are eliminated in consolidation.Our share of earnings orlosses of nonconsolidated affiliates is included in our consolidated operating results using the equity method of accounting when we are able to exercisesignificant influence over the operating and financial decisions of the affiliate.GM Financial The amounts presented for GM Financial are adjusted to reflect the impact on GM Financials deferred tax positions and provision forincome taxes resulting from the inclusion of GM Financial in our consolidated tax return and to eliminate the effect of transactions between GM Financialand the other members of the consolidated group.Accordingly,the amounts presented will differ from those presented by GM Financial on a stand-alonebasis.5Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 2.RevenueThe following table disaggregates our revenue by major source:Three Months Ended March 31,2023GMNAGMICorporateTotalAutomotiveCruiseGMFinancialEliminations/ReclassificationsTotalVehicle,parts and accessories$31,876$3,342$9$35,227$35,227 Used vehicles175 5 180 180 Services and other837 380 22 1,239 25 (25)1,239 Automotive net sales and revenue32,889 3,727 31 36,646 25 (25)36,646 Leased vehicle income 1,818 1,818 Finance charge income 1,368(3)1,366 Other income 156(1)155 GM Financial net sales and revenue 3,343(4)3,339 Net sales and revenue$32,889$3,727$31$36,646$25$3,343$(29)$39,985 Three Months Ended March 31,2022GMNAGMICorporateTotalAutomotiveCruiseGMFinancialEliminations/ReclassificationsTotalVehicle,parts and accessories$28,572$3,014$5$31,591$31,591 Used vehicles75 5 80 80 Services and other809 295 48 1,152 26 (25)1,153 Automotive net sales and revenue29,456 3,313 53 32,823 26 (25)32,824 Leased vehicle income 2,066 2,066 Finance charge income 1,010 1,010 Other income 80(1)79 GM Financial net sales and revenue 3,156(1)3,155 Net sales and revenue$29,456$3,313$53$32,823$26$3,156$(26)$35,979 Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.Adjustments to salesincentives for previously recognized sales increased revenue by an insignificant amount in the three months ended March 31,2023 and 2022.Contract liabilities in our Automotive segments primarily consist of maintenance,extended warranty and other service contracts of$4.0 billion and$3.3 billion at March 31,2023 and December 31,2022,which are included in Accrued liabilities and Other liabilities.We recognized revenue of$408million and$444 million related to contract liabilities in the three months ended March 31,2023 and 2022.We expect to recognize revenue of$1.2 billionin the nine months ending December 31,2023 and$989 million,$750 million and$1.1 billion in the years ending December 31,2024,2025 and thereafterrelated to contract liabilities at March 31,2023.6Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 3.Marketable and Other SecuritiesThe following table summarizes the fair value of cash equivalents and marketable debt securities,which approximates cost:Fair ValueLevelMarch 31,2023December 31,2022Cash and cash equivalentsCash and time deposits$9,521$8,921 Available-for-sale debt securitiesU.S.government and agencies2126 1,012 Corporate debt21,712 2,778 Sovereign debt2823 1,828 Total available-for-sale debt securities cash equivalents2,661 5,618 Money market funds16,045 4,613 Total cash and cash equivalents(a)$18,227$19,153 Marketable debt securitiesU.S.government and agencies2$4,174$4,357 Corporate debt24,375 5,147 Mortgage and asset-backed2552 538 Sovereign debt2880 2,108 Total available-for-sale debt securities marketable securities(b)$9,981$12,150 Restricted cashCash and cash equivalents$335$341 Money market funds12,579 2,455 Total restricted cash$2,914$2,796 Available-for-sale debt securities included above with contractual maturities(c)Due in one year or less$6,079 Due between one and five years5,901 Total available-for-sale debt securities with contractual maturities$11,979 _(a)Includes$1.9 billion and$1.5 billion in Cruise at March 31,2023 and December 31,2022.(b)Includes$612 million and$1.4 billion in Cruise at March 31,2023 and December 31,2022.(c)Excludes mortgage and asset-backed securities of$552 million at March 31,2023 as these securities are not due at a single maturity date.Proceeds from the sale of available-for-sale debt securities sold prior to maturity were$380 million and$464 million in the three months ended March 31,2023 and 2022.Net unrealized gains and losses on available-for-sale debt securities were insignificant in the three months ended March 31,2023 and 2022.Cumulative unrealized losses on available-for-sale debt securities were$275 million and$344 million at March 31,2023 and December 31,2022.The following table provides a reconciliation of cash,cash equivalents and restricted cash reported within the condensed consolidated balance sheets tothe total shown in the condensed consolidated statement of cash flows:March 31,2023Cash and cash equivalents$18,227 Restricted cash included in Other current assets2,467 Restricted cash included in Other assets447 Total$21,141 7Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 4.GM Financial Receivables and TransactionsMarch 31,2023December 31,2022RetailCommercial(a)TotalRetailCommercial(a)TotalGM Financial receivables,net of fees$67,704$10,313$78,017$65,322$10,988$76,310 Less:allowance for loan losses(2,123)(29)(2,152)(2,062)(34)(2,096)GM Financial receivables,net$65,581$10,283$75,865$63,260$10,954$74,214 Fair value of GM Financial receivables utilizing Level 2inputs$10,283$10,954 Fair value of GM Financial receivables utilizing Level 3inputs$65,165$62,150 _(a)Net of dealer cash management balances of$2.2 billion and$1.9 billion at March 31,2023 and December 31,2022.Under the cash management program,subject tocertain conditions,a dealer may choose to reduce the amount of interest on its floorplan line by making principal payments to GM Financial in advance.Three Months EndedMarch 31,2023March 31,2022Allowance for loan losses at beginning of period$2,096$1,886 Provision for loan losses131 122 Charge-offs(322)(275)Recoveries187 177 Effect of foreign currency and other61 18 Allowance for loan losses at end of period$2,152$1,928 Retail Finance Receivables GM Financials retail finance receivable portfolio includes loans made to consumers and businesses to finance the purchaseof vehicles for personal and commercial use.The following tables are consolidated summaries of the retail finance receivables by FICO score or itsequivalent,determined at origination,for each vintage of the retail finance receivables portfolio at March 31,2023 and December 31,2022:Year of OriginationMarch 31,202320232022202120202019PriorTotalPercentPrime FICO score 680 and greater$6,996$20,633$12,223$7,149$1,915$914$49,829 73.6%Near-prime FICO score 620 to 679832 3,012 2,389 1,345 599 322 8,498 12.6%Sub-prime FICO score less than 620835 3,054 2,525 1,443 916 603 9,377 13.8%Retail finance receivables,net of fees$8,663$26,699$17,138$9,936$3,429$1,839$67,704 100.0%Year of OriginationDecember 31,202220222021202020192018PriorTotalPercentPrime FICO score 680 and greater$22,677$13,399$7,991$2,254$1,019$205$47,543 72.8%Near-prime FICO score 620 to 6793,202 2,601 1,487 688 310 104 8,392 12.8%Sub-prime FICO score less than 6203,211 2,746 1,604 1,051 496 280 9,388 14.4%Retail finance receivables,net of fees$29,090$18,745$11,081$3,992$1,824$589$65,322 100.0%8Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)GM Financial reviews the ongoing credit quality of retail finance receivables based on customer payment activity.A retail account is considereddelinquent if a substantial portion of a scheduled payment has not been received by the date the payment was contractually due.Retail finance receivablesare collateralized by vehicle titles and,subject to local laws,GM Financial generally has the right to repossess the vehicle in the event the customer defaultson the payment terms of the contract.The accrual of finance charge income had been suspended on delinquent retail finance receivables with contractualamounts due of$585 million and$685 million at March 31,2023 and December 31,2022.The following tables are consolidated summaries of theamortized cost of retail finance receivables by delinquency status,for each vintage of the portfolio at March 31,2023 and December 31,2022,as well assummary totals for March 31,2022:Year of OriginationMarch 31,2023March 31,202220232022202120202019PriorTotalPercentTotalPercent0-to-30 days$8,646$26,262$16,648$9,640$3,236$1,676$66,109 97.6%$58,179 97.81-to-60 days17 316 363 222 146 124 1,188 1.83 1.7%Greater-than-60 days1 104 112 68 43 36 363 0.502 0.5%Finance receivables morethan 30 days delinquent17 420 475 290 190 160 1,551 2.3%1,285 2.2%In repossession 17 15 6 3 2 44 0.19 0.1%Finance receivables morethan 30 days delinquent orin repossession17 437 489 296 193 162 1,595 2.4%1,324 2.2%Retail finance receivables,net of fees$8,663$26,699$17,138$9,936$3,429$1,839$67,704 100.0%$59,503 100.0%Year of OriginationDecember 31,202220222021202020192018PriorTotalPercent0-to-30 days$28,676$18,128$10,702$3,743$1,685$493$63,426 97.11-to-60 days310 452 275 184 103 69 1,393 2.1%Greater-than-60 days93 150 98 62 35 26 465 0.7%Finance receivables more than30 days delinquent403 603 373 246 138 95 1,857 2.8%In repossession11 14 6 4 2 1 39 0.1%Finance receivables more than30 days delinquent or inrepossession414 617 380 249 140 96 1,896 2.9%Retail finance receivables,netof fees$29,090$18,745$11,081$3,992$1,824$589$65,322 100.0%Commercial Finance Receivables GM Financials commercial finance receivables consist of dealer financings,primarily for inventory purchases.Proprietary models are used to assign a risk rating to each dealer.GM Financial performs periodic credit reviews of each dealership and adjusts thedealerships risk rating,if necessary.There were no commercial finance receivables on nonaccrual status at March 31,2023.9Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)GM Financials commercial risk model and risk rating categories are as follows:RatingDescriptionIPerforming accounts with strong to acceptable financial metrics with at least satisfactory capacity to meet financial commitments.IIPerforming accounts experiencing potential weakness in financial metrics and repayment prospects resulting in increased monitoring.IIINon-Performing accounts with inadequate paying capacity for current obligations and have the distinct possibility of creating a loss ifdeficiencies are not corrected.IVNon-Performing accounts with inadequate paying capacity for current obligations and inherent weaknesses that make collection ofliquidation in full highly questionable or improbable.Dealers with III and IV risk ratings are subject to additional monitoring and restrictions on funding,including suspension of lines of credit and liquidationof assets.The following tables summarize the credit risk profile by dealer risk rating of commercial finance receivables at March 31,2023 and December31,2022:Year of Origination(a)March 31,2023Revolving20232022202120202019PriorTotalPercentI$8,823$71$435$336$338$87$42$10,133 98.3%II94 1 96 0.9%III59 15 10 84 0.8%IV%Commercial finance receivables,net of fees$8,976$71$450$338$338$97$42$10,313 100.0%_(a)Floorplan advances comprise 96%of the total revolving balance.Dealer term loans are presented by year of origination.Year of Origination(a)December 31,2022Revolving20222021202020192018PriorTotalPercentI$9,493$438$356$360$91$38$18$10,794 98.2%II89 1 91 0.8%III78 15 10 104 0.9%IV%Commercial finance receivables,net of fees$9,660$453$357$360$102$38$18$10,988 100.0%_(a)Floorplan advances comprise 97%of the total revolving balance.Dealer term loans are presented by year of origination.Transactions with GM Financial The following table shows transactions between our Automotive segments and GM Financial.These amounts arepresented in GM Financials condensed consolidated balance sheets and statements of income.March 31,2023December 31,2022Condensed Consolidated Balance Sheets(a)Commercial finance receivables,net due from GM consolidated dealers$163$187 Receivables from Cruise$151$113 Subvention receivable(b)$594$469 Commercial loan funding payable$72$105 10Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)Three Months EndedMarch 31,2023March 31,2022Condensed Consolidated Statements of IncomeInterest subvention earned on finance receivables$279$221 Leased vehicle subvention earned$393$547 _(a)All balance sheet amounts are eliminated upon consolidation.(b)Our Automotive segments made cash payments to GM Financial for subvention of$749 million and$439 million in the three months ended March 31,2023 and 2022.GM Financials Board of Directors declared and paid dividends of$450 million on its common stock in the three months ended March 31,2023.Note 5.InventoriesMarch 31,2023December 31,2022Total productive material,supplies and work in process$8,822$8,014 Finished product,including service parts8,935 7,353 Total inventories$17,758$15,366 Note 6.Equipment on Operating LeasesEquipment on operating leases consists of leases to retail customers of GM Financial.March 31,2023December 31,2022Equipment on operating leases$39,991$40,919 Less:accumulated depreciation(8,143)(8,218)Equipment on operating leases,net$31,848$32,701 The estimated residual value of our leased assets at the end of the lease term was$24.1 billion and$24.7 billion at March 31,2023 and December 31,2022.Depreciation expense related to Equipment on operating leases,net was$1.2 billion in the three months ended March 31,2023 and 2022.The following table summarizes lease payments due to GM Financial on leases to retail customers:Year Ending December 31,20232024202520262027ThereafterTotalLease receipts under operating leases$3,807$3,293$1,505$243$8$8,855 11Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 7.Equity in Net Assets of Nonconsolidated AffiliatesNonconsolidated affiliates are entities in which we maintain an equity ownership interest and for which we use the equity method of accounting due toour ability to exert significant influence over decisions relating to their operating and financial affairs.Revenue and expenses of our joint ventures are notconsolidated into our financial statements;rather,our proportionate share of the earnings of each joint venture is reflected as Equity income(loss)orAutomotive and other cost of sales.Three Months EndedMarch 31,2023March 31,2022Automotive China equity income(loss)$83$234 Other joint ventures equity income(loss)(a)(8)59 Total Equity income(loss)$75$292 _(a)Equity earnings related to Ultium Cells Holdings LLC are presented in Automotive and other cost of sales as this entity is integral to the operations of our business byproviding battery cells for our electric vehicles(EVs).In the three months ended March 31,2023,equity earnings related to Ultium Cells Holdings LLC wereinsignificant.There have been no significant ownership changes in our Automotive China joint ventures(Automotive China JVs)since December 31,2022.Three Months EndedMarch 31,2023March 31,2022Summarized Operating Data of Automotive China JVsAutomotive China JVs net sales$5,833$8,992 Automotive China JVs net income(loss)$123$505 Dividends declared but not paid from our nonconsolidated affiliates were insignificant at March 31,2023 and December 31,2022.Dividends receivedfrom our nonconsolidated affiliates were insignificant in the three months ended March 31,2023 and 2022.Undistributed earnings from ournonconsolidated affiliates were$2.0 billion and$1.9 billion at March 31,2023 and December 31,2022.Note 8.Variable Interest EntitiesConsolidated VIEsAutomotive Financing GM FinancialGM Financial uses special purpose entities(SPEs)that are considered VIEs to issue variable funding notes to third party,bank-sponsored warehousefacilities or asset-backed securities to investors in securitization transactions.The debt issued by these VIEs is backed by finance receivables and leasing-related assets transferred to the VIEs(Securitized Assets).GM Financial determined that it is the primary beneficiary of the SPEs because the servicingresponsibilities for the Securitized Assets give GM Financial the power to direct the activities that most significantly impact the performance of the VIEsand the variable interests in the VIEs give GM Financial the obligation to absorb losses and the right to receive residual returns that could potentially besignificant.The assets of the VIEs serve as the sole source of repayment for the debt issued by these entities.Investors in the notes issued by the VIEs donot have recourse to GM Financial or its other assets,with the exception of customary representation and warranty repurchase provisions and indemnitiesthat GM Financial provides as the servicer.GM Financial is not required to provide additional financial support to these SPEs.While these subsidiaries areincluded in GM Financials condensed consolidated financial statements,they are separate legal entities and the finance receivables,lease-related assets andcash held by them are legally owned by them and are not available to GM Financials creditors or creditors of GM Financials other subsidiaries.12Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)The following table summarizes the assets and liabilities related to GM Financials consolidated VIEs:March 31,2023December 31,2022Restricted cash current$2,271$2,176 Restricted cash non-current$367$360 GM Financial receivables,net of fees current$17,968$19,896 GM Financial receivables,net of fees non-current$20,031$18,748 GM Financial equipment on operating leases,net$16,414$18,456 GM Financial short-term debt and current portion of long-term debt$19,903$21,643 GM Financial long-term debt$21,410$20,545 GM Financial recognizes finance charge,leased vehicle and fee income on the Securitized Assets and interest expense on the secured debt issued in asecuritization transaction and records a provision for loan losses to recognize loan losses expected over the remaining life of the finance receivables.Nonconsolidated VIEsAutomotiveNonconsolidated VIEs principally include automotive related operating entities to which we provided financial support to ensure that our supply needs forproduction are met or are not disrupted.Our variable interests in these nonconsolidated VIEs include equity investments,accounts and loans receivable,committed financial support and other off-balance sheet arrangements.The carrying amounts of assets were approximately$1.9 billion and$1.6 billion andliabilities were insignificant related to our nonconsolidated VIEs at March 31,2023 and December 31,2022.Our maximum exposure to loss as a result ofour involvement with these VIEs was approximately$3.3 billion,inclusive of approximately$1.2 billion and$1.4 billion in committed capital contributionsto Ultium Cells Holdings LLC,at March 31,2023 and December 31,2022.Our maximum exposure to loss,and required capital contributions,could varydepending on Ultium Cells Holdings LLCs requirements and access to capital.We currently lack the power through voting or similar rights to direct theactivities of these entities that most significantly affect their economic performance.Note 9.DebtAutomotive The following table presents debt in our automotive operations:March 31,2023December 31,2022Carrying AmountFair ValueCarrying AmountFair ValueSecured debt$134$134$124$123 Unsecured debt(a)15,799 15,171 17,340 16,323 Finance lease liabilities421 429 381 381 Total automotive debt(b)$16,354$15,734$17,844$16,828 Fair value utilizing Level 1 inputs$14,837$15,971 Fair value utilizing Level 2 inputs$897$857 Available under credit facility agreements(c)$13,526$15,095 Weighted-average interest rate on outstanding short-term debt(d)9.5%6.1%Weighted-average interest rate on outstanding long-term debt(d)5.8%5.8%_(a)Primarily consists of senior notes.(b)Includes net discount and debt issuance costs of$531 million and$525 million at March 31,2023 and December 31,2022.(c)Excludes our 364-day,$2.0 billion facility allocated for exclusive use by GM Financial.(d)Includes coupon rates on debt denominated in various foreign currencies and interest free loans.13Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)In March 2023,we redeemed our$1.5 billion,4.875%senior unsecured notes with a maturity date of October 2023 and recorded an insignificant loss.Also,in March 2023,we renewed and reduced the total borrowing capacity of our five-year,$11.2 billion facility to$10.0 billion,which now maturesMarch 31,2028.We also renewed and reduced the total borrowing capacity of our three-year,$4.3 billion facility to$4.1 billion,which now matures March31,2026,and renewed our 364-day,$2.0 billion revolving credit facility allocated for the exclusive use of GM Financial,which now matures March 30,2024.The renewed credit facilities are based on Term Secured Overnight Financing Rate(Term SOFR)whereas the previous credit facilities were based onthe London Interbank Offered Rate(LIBOR).GM Financial The following table presents debt of GM Financial:March 31,2023December 31,2022Carrying AmountFair ValueCarrying AmountFair ValueSecured debt$41,253$40,773$42,131$41,467 Unsecured debt56,814 55,009 54,723 52,270 Total GM Financial debt$98,067$95,782$96,854$93,738 Fair value utilizing Level 2 inputs$93,799$91,545 Fair value utilizing Level 3 inputs$1,983$2,192 Secured debt consists of revolving credit facilities and securitization notes payable.Most of the secured debt was issued by VIEs and is repayable onlyfrom proceeds related to the underlying pledged assets.Refer to Note 8 to our condensed consolidated financial statements for additional information onGM Financials involvement with VIEs.In the three months ended March 31,2023,GM Financial renewed revolving credit facilities with total borrowingcapacity of$1.8 billion and issued$5.1 billion in aggregate principal amount of securitization notes payable with an initial weighted-average interest rateof 5.25%and maturity dates ranging from 2027 to 2032.Unsecured debt consists of senior notes,credit facilities and other unsecured debt.In the three months ended March 31,2023,GM Financial issued$3.2billion in aggregate principal amount of senior notes with an initial weighted-average interest rate of 5.41%and maturity dates ranging from 2026 to 2033.Note 10.Derivative Financial InstrumentsAutomotive The following table presents the notional amounts of derivative financial instruments in our automotive operations:Fair ValueLevelMarch 31,2023December 31,2022Derivatives not designated as hedges(a)Foreign currency2$3,176$4,072 Commodity2901 1,075 Total derivative financial instruments$4,077$5,148 _(a)The fair value of these derivative instruments at March 31,2023 and December 31,2022 and the gains/losses included in our condensed consolidated income statementsfor the three months ended March 31,2023 and 2022 were insignificant,unless otherwise noted.14Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)GM Financial The following table presents the gross fair value amounts of GM Financials derivative financial instruments and the associated notionalamounts:Fair ValueLevelMarch 31,2023December 31,2022NotionalFair Value ofAssetsFair Value ofLiabilitiesNotionalFair Value ofAssetsFair Value ofLiabilitiesDerivatives designated as hedges(a)Fair value hedgesInterest rate swaps2$16,559$8$334$19,950$821 Cash flow hedgesInterest rate swaps21,637 33 3 1,434 34 1 Foreign currency swaps(b)28,013 3 497 6,852 586 Derivatives not designated as hedges(a)Interest rate contracts2114,353 1,924 2,073 113,975 2,268 1,984 Total derivative financial instruments(c)$140,562$1,968$2,907$142,212$2,302$3,392 _(a)The gains/losses included in our condensed consolidated income statements and statements of comprehensive income for the three months ended March 31,2023 and2022 were insignificant,unless otherwise noted.Amounts accrued for interest payments in a net receivable position are included in Other assets.Amounts accrued forinterest payments in a net payable position are included in Other liabilities.(b)The effect of foreign currency cash flow hedges in the consolidated statements of comprehensive income include an insignificant gain and an insignificant lossrecognized in Accumulated other comprehensive loss,and an insignificant gain and a$149 million loss reclassified from Accumulated other comprehensive loss intoincome for the three months ended March 31,2023 and 2022.(c)GM Financial held$480 million and$553 million of collateral from counterparties available for netting against GM Financials asset positions,and posted$1.2 billionand$1.5 billion of collateral to counterparties available for netting against GM Financials liability positions at March 31,2023 and December 31,2022.The fair value for Level 2 instruments was derived using the market approach based on observable market inputs including quoted prices of similarinstruments and foreign exchange and interest rate forward curves.The following amounts were recorded in the condensed consolidated balance sheets related to items designated and qualifying as hedged items in fairvalue hedging relationships:March 31,2023December 31,2022Carrying Amount of HedgedItemsCumulative Amount of Fair ValueHedging Adjustments(a)Carrying Amount of HedgedItemsCumulative Amount of Fair ValueHedging Adjustments(a)Short-term unsecured debt$3,712$(12)$3,048$2 Long-term unsecured debt25,545 764 25,271 779 GM Financial unsecured debt$29,257$752$28,319$781 _(a)Includes$470 million of unamortized losses and an insignificant amount remaining on hedged items for which hedge accounting has been discontinued at March 31,2023 and December 31,2022.15Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 11.Product Warranty and Related LiabilitiesThree Months EndedMarch 31,2023March 31,2022Product Warranty and Related LiabilitiesWarranty balance at beginning of period$8,530$9,774 Warranties issued and assumed in period recall campaigns236 132 Warranties issued and assumed in period product warranty490 461 Payments(1,058)(1,077)Adjustments to pre-existing warranties279(5)Effect of foreign currency and other5 17 Warranty balance at end of period8,482 9,302 Less:Supplier recoveries balance at end of period(a)1,157 2,025 Warranty balance,net of supplier recoveries at end of period$7,325$7,277 _(a)The current portion of supplier recoveries is recorded in Accounts and notes receivable,net of allowance and the non-current portion is recorded in Other assets.Three Months EndedMarch 31,2023March 31,2022Product Warranty Expense,Net of RecoveriesWarranties issued and assumed in period$726$593 Supplier recoveries accrued in period(44)(57)Adjustments and other284 12 Warranty expense,net of supplier recoveries$966$548 We estimate our reasonably possible loss in excess of amounts accrued for recall campaigns to be insignificant at March 31,2023.Refer to Note 13 to ourcondensed consolidated financial statements for more details.Note 12.Pensions and Other Postretirement BenefitsThree Months Ended March 31,2023Three Months Ended March 31,2022Pension BenefitsGlobal OPEBPlansPension BenefitsGlobal OPEBPlansU.S.Non-U.S.U.S.Non-U.S.Service cost$44$42$2$58$35$4 Interest cost568 161 59 323 76 37 Expected return on plan assets(730)(168)(750)(139)Amortization of prior service cost(credit)(1)1 (1)1(1)Amortization of net actuarial(gains)losses 8(6)5 35 17 Net periodic pension and OPEB(income)expense$(119)$44$55$(365)$8$57 The non-service cost components of net periodic pension and other postretirement benefits(OPEB)income of$86 million and$376 million in the threemonths ended March 31,2023 and 2022 are presented in Interest income and other non-operating income,net.16Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 13.Commitments and ContingenciesLitigation-Related Liability and Tax Administrative Matters In the normal course of our business,we are named from time to time as a defendant invarious legal actions,including arbitrations,class actions and other litigation.We identify below the material individual proceedings and investigationswhere we believe a material loss is reasonably possible or probable.We accrue for matters when we believe that losses are probable and can be reasonablyestimated.At March 31,2023 and December 31,2022,we had accruals of$1.1 billion in Accrued liabilities and Other liabilities.In many matters,it isinherently difficult to determine whether loss is probable or reasonably possible or to estimate the size or range of the possible loss.Accordingly,while webelieve that appropriate accruals have been established for losses that are probable and can be reasonably estimated,it is possible that adverse outcomesfrom such proceedings could exceed the amounts accrued by an amount that could be material to our results of operations or cash flows in any particularreporting period.GM Korea Subcontract Workers Litigation GM Korea Company(GM Korea)is party to litigation with current and former subcontract workers overallegations that they are entitled to the same wages and benefits provided to full-time employees,and to be hired as full-time employees.In May 2018 andSeptember 2020,the Korean labor authorities issued adverse administrative orders finding that GM Korea must hire certain current subcontract workers asfull-time employees.GM Korea appealed the May 2018 and September 2020 orders.Since June 2020,the Seoul High Court(an intermediate-level appellatecourt)ruled against GM Korea in eight subcontract worker cases.Although GM Korea has appealed these decisions to the Supreme Court of the Republicof Korea(Korea Supreme Court),GM Korea has since hired certain of its subcontract workers as full-time employees.At March 31,2023,our accrualcovering certain asserted claims and claims that we believe are probable of assertion and for which liability is probable was approximately$261 million.Weestimate the reasonably possible loss in excess of amounts accrued for other current subcontract workers who may assert similar claims to be approximately$94 million at March 31,2023.We are currently unable to estimate any reasonably possible material loss or range of loss that may result from additionalclaims that may be asserted by former subcontract workers.Other Litigation-Related Liability and Tax Administrative Matters Various other legal actions,including class actions,governmental investigations,claims and proceedings are pending against us or our related companies or joint ventures,including,but not limited to,matters arising out of alleged productdefects;employment-related matters;product and workplace safety,vehicle emissions and fuel economy regulations;product warranties;financial services;dealer,supplier and other contractual relationships;government regulations relating to competition issues;tax-related matters not subject to the provision ofAccounting Standards Codification 740,Income Taxes(indirect tax-related matters);product design,manufacture and performance;consumer protectionlaws;and environmental protection laws,including laws regulating air emissions,water discharges,waste management and environmental remediation fromstationary sources.We also from time to time receive subpoenas and other inquiries or requests for information from agencies or other representatives ofU.S.federal,state and foreign governments on a variety of issues.There are several putative class actions pending against GM in federal courts in the U.S.and in the Provincial Courts in Canada alleging that variousvehicles sold,including model year 2011-2016 Duramax Diesel Chevrolet Silverado and GMC Sierra vehicles,violate federal,state and foreign emissionstandards.We are currently unable to estimate any reasonably possible material loss or range of loss that may result from these actions.GM has also faced aseries of additional lawsuits in the U.S.based on these allegations,including a shareholder demand lawsuit that remains pending.There are several putative class actions and one certified class action pending against GM in federal courts in the U.S.alleging that various 2011-2014model year vehicles are defective because they excessively consume oil.While many of these proceedings have been dismissed or have been settled forinsignificant amounts,several remain outstanding,and in October 2022,we received an adverse jury verdict in the certified class action proceedinginvolving three states.We do not believe that the verdict is supported by the evidence and plan to pursue post-trial motions and,if necessary,appeal.We arecurrently unable to estimate any reasonably possible material loss or range of loss that may result from the putative class action proceedings and havepreviously accrued an immaterial amount related to the certified class action proceeding.There is one putative class action and one certified class action pending against GM in federal court in the U.S.alleging that various 2015-2022 modelyear vehicles are defective because they are equipped with faulty 8-speed transmissions.In March 2023,the judge overseeing the class action concerning2015-2019 model year vehicles certified 26 state subclasses.The putative class action concerning 2020-2022 model year vehicles is pending in front of adifferent judge that has not yet addressed class certification.We are currently unable to estimate any reasonably possible material loss or range of loss thatmay result from these proceedings.17Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)There is a class action pending against GM in federal court in the U.S.,and a putative class action in provincial court in Canada,alleging that 2011-2016model year Duramax Diesel Chevrolet Silverado and GMC Sierra vehicles are equipped with defective fuel pumps that are prone to failure.In March 2023,the federal court certified seven state subclasses.We are currently unable to estimate any reasonably possible material loss or range of loss that may resultfrom these proceedings.Beyond the class action litigations disclosed,we have several other class action litigations pending at any given time.Historically,relatively few classeshave been certified in these types of cases.Therefore,we will generally only disclose specific class actions if a class is certified and we believe there is areasonably possible material exposure to the Company.We are currently in discussions with the Environmental Protection Agency regarding potential adjustments to our balance of greenhouse gas credits.Depending on the outcome of those discussions,it is reasonably possible that the costs associated with these matters could be material,but we are unable toprovide an estimate of the cost at this time.Indirect tax-related matters are being litigated globally pertaining to value added taxes,customs,duties,sales,property taxes and other non-income tax-related tax exposures.The various non-U.S.labor-related matters include claims from current and former employees related to alleged unpaid wage,benefit,severance and other compensation matters.Certain administrative proceedings are indirect tax-related and may require that we deposit funds in escrow orprovide an alternative form of security.Some of the matters may involve compensatory,punitive or other treble damage claims,environmental remediationprograms or sanctions that,if granted,could require us to pay damages or make other expenditures in amounts that could not be reasonably estimated atMarch 31,2023.For indirect tax-related matters,we estimate our reasonably possible loss in excess of amounts accrued to be up to approximately$950million at March 31,2023.Takata Matters In November 2020,the National Highway Traffic Safety Administration(NHTSA)directed that we replace the Takata Corporation(Takata)airbag inflators in our GMT900 vehicles,which are full-size pickup trucks and sport utility vehicles(SUVs),and we decided not to contestNHTSAs decision.While we have already begun the process of executing the recall,given the number of vehicles in this population,the recall will takeseveral years to be completed.Accordingly,in the year ended December 31,2020,we recorded a warranty accrual of$1.1 billion for the expected costs ofcomplying with the recall remedy,and we believe the currently accrued amount remains reasonable.GM has recalled certain vehicles sold outside of the U.S.to replace Takata inflators in those vehicles.There are significant differences in vehicle andinflator design between the relevant vehicles sold internationally and those sold in the U.S.We continue to gather and analyze evidence about these inflatorsand to share our findings with regulators.Any additional recalls relating to these inflators could be material to our results of operations and cash flows.There are several putative class actions that have been filed against GM,including in the federal courts in the U.S.,in the Provincial Courts in Canada,and in Mexico,arising out of allegations that airbag inflators manufactured by Takata are defective.In March 2023,a federal court overseeing a putativeclass action against GM issued a final judgment in favor of GM on all claims in eight states at issue in that proceeding.At this stage of these proceedings,we are unable to provide an estimate of the amounts or range of reasonably possible material loss.Chevrolet Bolt Recall In July 2021,we initiated a voluntary recall for certain 2017-2019 model year Chevrolet Bolt EVs due to the risk that twomanufacturing defects present in the same battery cell could cause a high voltage battery fire in certain of these vehicles.Accordingly,in the three monthsended June 30,2021,we recorded a warranty accrual of$812 million.After further investigation into the manufacturing processes at our battery supplier,LG Energy Solution(LG),and disassembling battery packs,we determined that the risk of battery cell defects was not confined to the initial recallpopulation.As a result,in August 2021,we expanded the recall to include all 2017-2022 model year Chevrolet Bolt EV and Electric Utility Vehicles(EUVs)and recorded an additional warranty accrual of$1.2 billion in the three months ended September 30,2021.In October 2021,we reached anagreement with LG,under which LG will reimburse GM for costs and expenses associated with the recall.As a result,in the three months ended September30,2021,we recognized a receivable of$1.9 billion,which substantially offsets the warranty charges we recognized in connection with the recall.Thesecharges reflect our current best estimate for the cost of the recall remedy.The actual costs of the recall and GMs associated recovery from LG could bematerially higher or lower.For 2017-2019 model year vehicles,the recall remedy will be to replace the high voltage battery modules in these vehicles withnew modules.For 2020-2022 model year vehicles,the recall remedy will be to replace any defective high voltage battery modules in these vehicles withnew modules.18Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)In addition,putative class actions have been filed against GM in federal courts in the U.S.and in the Provincial Courts in Canada alleging that thebatteries contained in the Bolt EVs and EUVs included in the recall population are defective.At this stage of these proceedings,we are unable to provide anestimate of the amounts or range of reasonably possible material loss.Opel/Vauxhall Sale In 2017,we sold the Opel and Vauxhall businesses and certain other assets in Europe(the Opel/Vauxhall Business)to PSA Group,nowStellantis N.V.(Stellantis),under a Master Agreement(the Agreement).We also sold the European financing subsidiaries and branches to Banque PSAFinance S.A.and BNP Paribas Personal Finance S.A.Although the sale reduced our new vehicle presence in Europe,we may still be impacted by actionstaken by regulators related to vehicles sold before the sale.General Motors Holdings LLC agreed,on behalf of our wholly owned subsidiary(the Seller),toindemnify Stellantis for certain losses resulting from any inaccuracy of the representations and warranties or breaches of our covenants included in theAgreement and for certain other liabilities,including costs related to certain emissions claims,product liabilities and recalls.We are unable to estimate anyreasonably possible material loss or range of loss that may result from these actions either directly or through an indemnification claim from Stellantis.Certain of these indemnification obligations are subject to time limitations,thresholds and/or caps as to the amount of required payments.Currently,various consumer lawsuits have been filed against the Seller and Stellantis in Germany,the United Kingdom and the Netherlands alleging thatOpel and Vauxhall vehicles sold by the Seller violated applicable emissions standards.In addition,we indemnified Stellantis for an immaterial amount forcertain recalls that Stellantis has conducted or will conduct,including recalls in certain geographic locations that Stellantis intends to conduct related toTakata inflators in legacy Opel vehicles.We may in the future be required to further indemnify Stellantis relating to its Takata recalls,but we believe suchfurther indemnification to be remote at this time.Product Liability We recorded liabilities of$570 million and$561 million in Accrued liabilities and Other liabilities at March 31,2023 and December 31,2022 for the expected cost of all known product liability claims,plus an estimate of the expected cost for product liability claims that have already beenincurred and are expected to be filed in the future for which we are self-insured.It is reasonably possible that our accruals for product liability claims mayincrease in future periods in material amounts,although we cannot estimate a reasonable range of incremental loss based on currently available information.We believe that any judgment against us involving our products for actual damages will be adequately covered by our recorded accruals and,whereapplicable,excess liability insurance coverage.Guarantees We enter into indemnification agreements for liability claims involving products manufactured primarily by certain joint ventures.Theseguarantees terminate in years ranging from 2023 to 2028,or upon the occurrence of specific events or are ongoing.We believe that the related potentialcosts incurred are adequately covered by our recorded accruals,which are insignificant.The maximum future undiscounted payments mainly based onroyalties received associated with vehicles sold to date were$3.2 billion and$3.1 billion for these guarantees at March 31,2023 and December 31,2022,the majority of which relates to the indemnification agreements.We provide payment guarantees on commercial loans outstanding with third parties such as dealers.In some instances,certain assets of the party or ourpayables to the party whose debt or performance we have guaranteed may offset,to some degree,the amount of any potential future payments.We are alsoexposed to residual value guarantees associated with certain sales to rental car companies.We periodically enter into agreements that incorporate indemnification provisions in the normal course of business.It is not possible to estimate ourmaximum exposure under these indemnifications or guarantees due to the conditional nature of these obligations.Insignificant amounts have been recordedfor such obligations as the majority of them are not probable or estimable at this time and the fair value of the guarantees at issuance was insignificant.Refer to the Opel/Vauxhall Sale section of this note for additional information on our indemnification obligations to Stellantis under the Agreement.Supplier Finance Programs Third-party finance providers offer certain suppliers the option for payment in advance of their invoice due date throughfinancing programs that we established.We retain our obligation to the participating suppliers,and we make payments directly to the third-party financeproviders on the original invoice due date pursuant to the original invoice terms.There are no assets pledged as security or other forms of guaranteesprovided for committed payments.Our outstanding eligible balances under our supplier finance programs are$1.1 billion and$852 million at March 31,2023 and December 31,2022,which are recorded in Accounts payable(principally trade).19Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 14.Income TaxesIn the three months ended March 31,2023,Income tax expense of$428 million was primarily due to tax expense attributable to entities included in oureffective tax rate calculation.In the three months ended March 31,2022,Income tax benefit of$28 million was primarily due to tax expense attributable toentities included in our effective tax rate calculation,offset by the release of a valuation allowance against certain Cruise deferred tax assets that wereconsidered realizable due to the reconsolidation of Cruise for U.S.tax purposes.Note 15.Restructuring and Other InitiativesWe have executed various restructuring and other initiatives and we may execute additional initiatives in the future,if necessary,to streamlinemanufacturing capacity and reduce other costs to improve the utilization of remaining facilities.To the extent these programs involve voluntary separations,a liability is generally recorded at the time offers to employees are accepted.To the extent these programs provide separation benefits in accordance withpre-existing agreements,a liability is recorded once the amount is probable and reasonably estimable.If employees are involuntarily terminated,a liabilityis generally recorded at the communication date.Related charges are recorded in Automotive and other cost of sales and Automotive and other selling,general and administrative expense.The following table summarizes the reserves and charges related to restructuring and other initiatives,including postemployment benefit reserves andcharges:Three Months EndedMarch 31,2023March 31,2022Balance at beginning of period$520$285 Additions,interest accretion and other980(2)Payments(51)(104)Revisions to estimates and effect of foreign currency(9)Balance at end of period$1,450$171 In the three months ended March 31,2023,restructuring and other initiatives included strategic activities in GMNA related to Buick dealerships.Werecorded charges of$99 million,which are included in the table above,and incurred$39 million in net cash outflows resulting from these dealerrestructurings in the three months ended March 31,2023,in addition to the charges of$511 million and net cash outflows of$120 million in the year endedDecember 31,2022.The remaining$451 million is expected to be paid by the end of 2023.Additionally,on March 9,2023,we announced a voluntary separation program(VSP)to accelerate attrition related to the cost reduction programannounced in January 2023.We recorded charges in GMNA of$875 million in the three months ended March 31,2023,primarily related to employeeseparation charges,which are reflected in the table above.We expect cash outflows related to these activities of approximately$875 million to besubstantially complete by the end of 2023.Note 16.Stockholders Equity and Noncontrolling InterestsWe have 2.0 billion shares of preferred stock and 5.0 billion shares of common stock authorized for issuance.We had no shares of preferred stock issuedand outstanding at March 31,2023 and December 31,2022.We had 1.4 billion shares of common stock issued and outstanding at March 31,2023 andDecember 31,2022.Common Stock Holders of our common stock are entitled to dividends at the sole discretion of our Board of Directors.Our dividends declared percommon share were$0.09 and our total dividends paid on common stock were$126 million for the three months ended March 31,2023.Dividends werenot declared or paid on our common stock for the three months ended March 31,2022.In August 2022,our Board of Directors increased the capacity under our previously announced common stock repurchase program to$5.0 billion fromthe$3.3 billion that remained under the program as of June 30,2022.In the three months ended March 31,2023,we purchased 9 million shares of ouroutstanding common stock for$369 million as part of the program,inclusive of an insignificant amount of excise tax related to the Inflation Reduction Actof 2022.We did not purchase shares of our outstanding common stock in the three months ended March 31,2022.20Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)Cruise Preferred Shares In March 2022,under the Share Purchase Agreement,we acquired SoftBank Vision Fund(AIV M2)L.P.s(together with itsaffiliates,SoftBank)Cruise Class A-1,Class F and Class G Preferred Shares for$2.1 billion and made an additional$1.35 billion investment in Cruise inplace of SoftBank.SoftBank no longer has an ownership interest in or has any rights with respect to Cruise.Cruise Common Shares During the three months ended March 31,2023,GM Cruise Holdings LLC(Cruise Holdings)issued$95 million of Class BCommon Shares to net settle vested awards under Cruises 2018 Employee Incentive Plan and issued$56 million of Class B Common Shares to fund thepayment of statutory tax withholding obligations resulting from the settlement or exercise of vested awards.Also,GM conducted a quarterly tender offer,and paid$75 million in cash to purchase tendered Cruise Class B Common Shares during the three months ended March 31,2023.The Class B CommonShares are classified as noncontrolling interests in our condensed consolidated financial statements except for certain shares that are liability classified thathave a recorded value of approximately$60 million at both March 31,2023 and December 31,2022.Refer to Note 18 for additional information on Cruisestock incentive awards.During the three months ended March 31,2023 and 2022,the effect on the equity attributable to us for changes in our ownership interest in Cruise wasinsignificant.For the three months ended March 31,2023 and 2022,net income attributable to shareholders and transfers to the noncontrolling interest inCruise and other subsidiaries was$2.4 billion and$2.0 billion,which in 2022 included a$909 million decrease in retained earnings due to the redemption ofCruise preferred shares.The following table summarizes the significant components of Accumulated other comprehensive loss:Three Months EndedMarch 31,2023March 31,2022Foreign Currency Translation AdjustmentsBalance at beginning of period$(2,776)$(2,653)Other comprehensive income(loss)and noncontrolling interests,net of reclassification adjustment and tax(a)(b)164 397 Balance at end of period$(2,611)$(2,256)Defined Benefit PlansBalance at beginning of period$(4,851)$(6,528)Other comprehensive income(loss)before reclassification adjustment,net of tax(b)(39)52 Reclassification adjustment,net of tax(b)4 51 Other comprehensive income(loss),net of tax(b)(35)103 Balance at end of period(c)$(4,886)$(6,425)_(a)The noncontrolling interests and reclassification adjustment were insignificant in the three months ended March 31,2023 and 2022.(b)The income tax effect was insignificant in the three months ended March 31,2023 and 2022.(c)Primarily consists of unamortized actuarial loss on our defined benefit plans.Refer to Note 2.Significant Accounting Policies of our 2022 Form 10-K for additionalinformation.21Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)Note 17.Earnings Per ShareThree Months EndedMarch 31,2023March 31,2022Basic earnings per shareNet income(loss)attributable to stockholders$2,395$2,939 Less:cumulative dividends on subsidiary preferred stock(a)(27)(952)Net income(loss)attributable to common stockholders$2,369$1,987 Weighted-average common shares outstanding1,396 1,458 Basic earnings per common share$1.70$1.36 Diluted earnings per shareNet income(loss)attributable to common stockholders diluted$2,369$1,987 Weighted-average common shares outstanding basic1,396 1,458 Dilutive effect of awards under stock incentive plans6 12 Weighted-average common shares outstanding diluted1,402 1,470 Diluted earnings per common share$1.69$1.35 Potentially dilutive securities(b)22 6 _(a)Includes a$909 million deemed dividend related to the redemption of Cruise preferred shares from SoftBank in the three months ended March 31,2022.(b)Potentially dilutive securities attributable to outstanding stock options,Restricted Stock Units(RSUs)and Performance Stock Units(PSUs)at March 31,2023 andoutstanding stock options and RSUs at March 31,2022 were excluded from the computation of diluted earnings per share(EPS)because the securities would have hadan antidilutive effect.Note 18.Stock Incentive PlansCruise Stock Incentive Awards In March 2022,Cruise modified its RSUs that settle in Cruise common stock to remove the liquidity vesting conditionsuch that all granted RSU awards vest solely upon satisfactions of a service condition.Total compensation expense related to Cruise Holdings share-basedawards was$103 million in the three months ended March 31,2023 and$1.2 billion in the three months ended March 31,2022,which in 2022 primarilyrepresents the impact of the modification to outstanding awards.GM conducted a quarterly tender offer and paid$75 million in cash to purchase tenderedCruise Class B Common Shares during the three months ended March 31,2023.No cash was paid to settle share-based awards in the three months endedMarch 31,2022.Note 19.Segment ReportingWe analyze the results of our business through the following reportable segments:GMNA,GMI,Cruise and GM Financial.The chief operating decision-maker evaluates the operating results and performance of our automotive segments and Cruise through earnings before interest and income taxes(EBIT)-adjusted,which is presented net of noncontrolling interests.The chief operating decision-maker evaluates GM Financial through earnings before incometaxes(EBT)-adjusted because interest income and interest expense are part of operating results when assessing and measuring the operational and financialperformance of the segment.Each segment has a manager responsible for executing our strategic initiatives.While not all vehicles within a segment areindividually profitable on a fully allocated cost basis,those vehicles attract customers to dealer showrooms and help maintain sales volumes for other,moreprofitable vehicles and contribute towards meeting required fuel efficiency standards.As a result of these and other factors,we do not manage our businesson an individual brand or vehicle basis.Substantially all of the trucks,crossovers,cars and automobile parts produced are marketed through retail dealers in North America and throughdistributors and dealers outside of North America,the substantial majority of which are independently owned.In addition to the products sold to dealers forconsumer retail sales,trucks,crossovers and cars are also sold to fleet customers,including daily rental car companies,commercial fleet customers,leasingcompanies and governments.Fleet sales are completed through the dealer network and in some cases directly with fleet customers.Retail and fleetcustomers can obtain22Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)a wide range of after-sale vehicle services and products through the dealer network,such as maintenance,light repairs,collision repairs,vehicle accessoriesand extended service warranties.GMNA meets the demands of customers in North America and GMI primarily meets the demands of customers outside North America with vehiclesdeveloped,manufactured and/or marketed under the Buick,Cadillac,Chevrolet and GMC brands.We also have equity ownership stakes in entities that meetthe demands of customers in other countries,primarily China,with vehicles developed,manufactured and/or marketed under the Baojun,Buick,Cadillac,Chevrolet and Wuling brands.Cruise is our global segment responsible for the development and commercialization of AV technology,and includes AV-related engineering and other costs.We provide automotive financing services through our GM Financial segment.Our automotive interest income and interest expense,legacy costs from the Opel/Vauxhall Business(primarily pension costs),corporate expenditures andcertain nonsegment specific revenues and expenses are recorded centrally in Corporate.Corporate assets primarily consist of cash and cash equivalents,marketable debt securities and intersegment balances.All intersegment balances and transactions have been eliminated in consolidation.The following tables summarize key financial information by segment:At and For the Three Months Ended March 31,2023GMNAGMICorporateEliminationsTotalAutomotiveCruiseGMFinancialEliminations/ReclassificationsTotalNet sales and revenue$32,889$3,727$31$36,646$25$3,343$(29)$39,985 Earnings(loss)before interest and taxes-adjusted$3,576$347$(327)$3,596$(561)$771$(3)$3,803 Adjustments(a)$(974)$(974)$(974)Automotive interest income229 Automotive interest expense(234)Net income(loss)attributable tononcontrolling interests(49)Income(loss)before income taxes2,775 Income tax benefit(expense)(428)Net income(loss)2,346 Net loss(income)attributable tononcontrolling interests49 Net income(loss)attributable to stockholders$2,395 Equity in net assets of nonconsolidatedaffiliates$2,000$6,817$8,818$1,725$10,542 Goodwill and intangibles$2,154$732$4$2,890$728$1,350$4,968 Total assets$144,903$24,992$40,880$(69,676)$141,098$5,217$122,789$(2,099)$267,004 Depreciation and amortization$1,428$122$5$1,555$4$1,251$2,810 Impairment charges$Equity income(loss)(b)$(46)$81$34$41$75 _(a)Consists of charges for strategic activities related to Buick dealerships and charges related to the VSP in GMNA.(b)Equity earnings related to Ultium Cells Holdings LLC are presented in Automotive and other cost of sales as this entity is integral to the operations of our business by providing battery cells for our EVs.In the threemonths ended March 31,2023,equity earnings related to Ultium Cells Holdings LLC were insignificant.23Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)At and For the Three Months Ended March 31,2022GMNAGMICorporateEliminationsTotalAutomotiveCruiseGMFinancialEliminations/ReclassificationsTotalNet sales and revenue$29,456$3,313$53$32,823$26$3,156$(26)$35,979 Earnings(loss)before interest and taxes-adjusted$3,141$328$(387)$3,082$(325)$1,284$4$4,044 Adjustments(a)$100$100$(1,057)$(957)Automotive interest income50 Automotive interest expense(226)Net income(loss)attributable tononcontrolling interests(131)Income(loss)before income taxes2,779 Income tax benefit(expense)28 Net income(loss)2,807 Net loss(income)attributable tononcontrolling interests131 Net income(loss)attributable to stockholders$2,939 Equity in net assets of nonconsolidatedaffiliates$1,217$7,406$8,623$1,779$10,402 Goodwill and intangibles$2,213$765$2,978$733$1,346$5,058 Total assets$126,454$24,612$35,696$(55,702)$131,060$6,310$115,312$(1,190)$251,492 Depreciation and amortization$1,504$134$5$1,643$12$1,236$2,891 Impairment charges$Equity income(loss)$6$232$238$54$292 _(a)Consists of the resolution of substantially all royalty matters accrued with respect to past-year vehicle sales in GMNA;and charges related to the one-time modification of Cruise stock incentive awards.24Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESItem 2.Managements Discussion and Analysis of Financial Condition and Results of OperationsBasis of Presentation This Managements Discussion and Analysis of Financial Condition and Results of Operations(MD&A)should be read inconjunction with the accompanying condensed consolidated financial statements and the notes thereto,and the audited consolidated financial statements andnotes thereto included in our 2022 Form 10-K.Forward-looking statements in this MD&A are not guarantees of future performance and may involve risks and uncertainties that could cause actualresults to differ materially from those projected.Refer to the Forward-Looking Statements section of this MD&A and Part 1,Item 1A.Risk Factors of our2022 Form 10-K for a discussion of these risks and uncertainties.Except for per share amounts or as otherwise specified,dollar amounts presented withintables are stated in millions.Certain columns and rows may not add due to rounding.Non-GAAP Measures Our non-GAAP measures include:EBIT-adjusted,presented net of noncontrolling interests;EBT-adjusted for our GM Financialsegment;EPS-diluted-adjusted;effective tax rate-adjusted(ETR-adjusted);return on invested capital-adjusted(ROIC-adjusted)and adjusted automotivefree cash flow.Our calculation of these non-GAAP measures may not be comparable to similarly titled measures of other companies due to potentialdifferences between companies in the method of calculation.As a result,the use of these non-GAAP measures has limitations and should not be consideredsuperior to,in isolation from,or as a substitute for,related U.S.GAAP measures.These non-GAAP measures allow management and investors to view operating trends,perform analytical comparisons and benchmark performancebetween periods and among geographic regions to understand operating performance without regard to items we do not consider a component of our coreoperating performance.Furthermore,these non-GAAP measures allow investors the opportunity to measure and monitor our performance against ourexternally communicated targets and evaluate the investment decisions being made by management to improve ROIC-adjusted.Management uses thesemeasures in its financial,investment and operational decision-making processes,for internal reporting and as part of its forecasting and budgetingprocesses.Further,our Board of Directors uses certain of these,and other measures,as key metrics to determine management performance under ourperformance-based compensation plans.For these reasons,we believe these non-GAAP measures are useful for our investors.EBIT-adjusted EBIT-adjusted is presented net of noncontrolling interests and is used by management and can be used by investors to review ourconsolidated operating results because it excludes automotive interest income,automotive interest expense and income taxes as well as certain additionaladjustments that are not considered part of our core operations.Examples of adjustments to EBIT include,but are not limited to,impairment charges onlong-lived assets and other exit costs resulting from strategic shifts in our operations or discrete market and business conditions,and certain costs arisingfrom legal matters.For EBIT-adjusted and our other non-GAAP measures,once we have made an adjustment in the current period for an item,we will alsoadjust the related non-GAAP measure in any future periods in which there is an impact from the item.Our corresponding measure for our GM Financialsegment is EBT-adjusted because interest income and interest expense are part of operating results when assessing and measuring the operational andfinancial performance of the segment.EPS-diluted-adjusted EPS-diluted-adjusted is used by management and can be used by investors to review our consolidated diluted EPS results on aconsistent basis.EPS-diluted-adjusted is calculated as net income attributable to common stockholders-diluted less adjustments noted above for EBIT-adjusted and certain income tax adjustments divided by weighted-average common shares outstanding-diluted.Examples of income tax adjustments includethe establishment or reversal of significant deferred tax asset valuation allowances.ETR-adjusted ETR-adjusted is used by management and can be used by investors to review the consolidated effective tax rate for our core operations ona consistent basis.ETR-adjusted is calculated as Income tax expense less the income tax related to the adjustments noted above for EBIT-adjusted and theincome tax adjustments noted above for EPS-diluted-adjusted divided by Income before income taxes less adjustments.When we provide an expectedadjusted effective tax rate,we do not provide an expected effective tax rate because the U.S.GAAP measure may include significant adjustments that aredifficult to predict.ROIC-adjusted ROIC-adjusted is used by management and can be used by investors to review our investment and capital allocation decisions.We defineROIC-adjusted as EBIT-adjusted for the trailing four quarters divided by ROIC-adjusted average net assets,which is considered to be the average equitybalances adjusted for average automotive debt and interest liabilities,exclusive of finance leases;average automotive net pension and OPEB liabilities;andaverage automotive net income tax assets during the same period.25Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESAdjusted automotive free cash flow Adjusted automotive free cash flow is used by management and can be used by investors to review the liquidity ofour automotive operations and to measure and monitor our performance against our capital allocation program and evaluate our automotive liquidity againstthe substantial cash requirements of our automotive operations.We measure adjusted automotive free cash flow as automotive operating cash flow fromoperations less capital expenditures adjusted for management actions.Management actions can include voluntary events such as discretionary contributionsto employee benefit plans or nonrecurring specific events such as a closure of a facility that are considered special for EBIT-adjusted purposes.Refer to theLiquidity and Capital Resources section of this MD&A for additional information.The following table reconciles Net income attributable to stockholders under U.S.GAAP to EBIT-adjusted:Three Months EndedMarch 31,December 31,September 30,June 30,20232022202220212022202120222021Net income attributable to stockholders$2,395$2,939$1,999$1,741$3,305$2,420$1,692$2,836 Income tax expense(benefit)428(28)580 471 845 152 490 971 Automotive interest expense234 226 267 227 259 230 234 243 Automotive interest income(229)(50)(215)(44)(122)(38)(73)(32)Adjustments Voluntary separation program(a)875 Cruise compensation modifications(b)1,057 Russia exit(c)657 Buick dealer strategy(d)99 511 Patent royalty matters(e)(100)250 GM Brazil indirect tax matters(f)194 Cadillac dealer strategy(g)158 17 GM Korea wage litigation(h)82 Total adjustments974 957 1,168 444 158 99 EBIT-adjusted$3,803$4,044$3,799$2,839$4,287$2,922$2,343$4,117 _(a)This adjustment was excluded because it relates to the acceleration of attrition as part of the cost reduction program announced in January 2023,primarily in the UnitedStates.(b)This adjustment was excluded because it relates to the one-time modification of Cruise stock incentive awards.(c)This adjustment was excluded because it relates to the shutdown of our Russia business including the write off of our net investment and release of accumulatedtranslation losses into earnings.(d)These adjustments were excluded because they relate to strategic activities to transition certain Buick dealers out of our dealer network as part of Buicks EV strategy.(e)These adjustments were excluded because they relate to certain royalties accrued with respect to past-year vehicle sales in the three months ended December 31,2021,and the resolution of substantially all of these matters in the three months ended March 31,2022.(f)This adjustment was excluded because it relates to a settlement with third parties in the three months ended December 31,2021 relating to retrospective recoveries ofindirect taxes in Brazil realized in prior periods.(g)These adjustments were excluded because they relate to strategic activities to transition certain Cadillac dealers from the network as part of Cadillacs EV strategy.(h)This adjustment was excluded because of the unique events associated with Korea Supreme Court decisions related to our salaried workers.26Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESThe following table reconciles diluted earnings per common share under U.S.GAAP to EPS-diluted-adjusted:Three Months EndedMarch 31,2023March 31,2022AmountPer ShareAmountPer ShareDiluted earnings per common share$2,369$1.69$1,987$1.35 Adjustments(a)974 0.69 957 0.65 Tax effect on adjustments(b)(239)(0.17)(296)(0.20)Tax adjustments(c)(482)(0.33)Deemed dividend adjustment(d)909 0.62 EPS-diluted-adjusted$3,104$2.21$3,075$2.09 _(a)Refer to the reconciliation of Net income attributable to stockholders under U.S.GAAP to EBIT-adjusted within this section of MD&A for the details of each individualadjustment.(b)The tax effect of each adjustment is determined based on the tax laws and valuation allowance status of the jurisdiction to which the adjustment relates.(c)This adjustment consists of tax benefit related to the release of a valuation allowance against deferred tax assets considered realizable as a result of Cruise taxreconsolidation in the three months ended March 31,2022.This adjustment was excluded because significant impacts of valuation allowances are not considered part ofour core operations.(d)This adjustment consists of a deemed dividend related to the redemption of Cruise preferred shares from SoftBank in the three months ended March 31,2022.The following table reconciles our effective tax rate under U.S.GAAP to ETR-adjusted:Three Months EndedMarch 31,2023March 31,2022Income before incometaxesIncome tax expense(benefit)Effective tax rateIncome before incometaxesIncome tax expense(benefit)Effective tax rateEffective tax rate$2,775$428 15.4%$2,779$(28)(1.0)justments(a)974 239 1,053 296 Tax adjustments(b)482 ETR-adjusted$3,749$667 17.8%$3,832$750 19.6%_(a)Refer to the reconciliation of Net income attributable to stockholders under U.S.GAAP to EBIT-adjusted within this section of MD&A for adjustment details.Theseadjustments include Net income attributable to noncontrolling interests where applicable.The tax effect of each adjustment is determined based on the tax laws andvaluation allowance status of the jurisdiction to which the adjustment relates.(b)Refer to the reconciliation of diluted earnings per common share under U.S.GAAP to EPS-diluted-adjusted within this section of MD&A for adjustment details.We define return on equity(ROE)as Net income attributable to stockholders for the trailing four quarters divided by average equity for the same period.Management uses average equity to provide comparable amounts in the calculation of ROE.The following table summarizes the calculation of ROE(dollars in billions):Four Quarters EndedMarch 31,2023March 31,2022Net income attributable to stockholders$9.4$9.9 Average equity(a)$68.6$59.6 ROE13.7.7%_(a)Includes equity of noncontrolling interests where the corresponding earnings(loss)are included in Net income attributable to stockholders.27Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESThe following table summarizes the calculation of ROIC-adjusted(dollars in billions):Four Quarters EndedMarch 31,2023March 31,2022EBIT-adjusted(a)$14.2$13.9 Average equity(b)$68.6$59.6 Add:Average automotive debt and interest liabilities(excluding finance leases)17.4 16.9 Add:Average automotive net pension&OPEB liability8.6 14.0 Less:Average automotive and other net income tax asset(20.9)(21.8)ROIC-adjusted average net assets$73.6$68.8 ROIC-adjusted19.3 .2%_(a)Refer to the reconciliation of Net income attributable to stockholders under U.S.GAAP to EBIT-adjusted within this section of MD&A.(b)Includes equity of noncontrolling interests where the corresponding earnings(loss)are included in EBIT-adjusted.Overview Our vision for the future is a world with zero crashes,zero emissions and zero congestion,which guides our growth-focused strategy to invest inEVs and AVs,software-enabled services and subscriptions and new business opportunities,while strengthening our market position in profitable ICEvehicles,such as trucks and SUVs.We will execute our strategy with a diverse team and a steadfast commitment to good citizenship through sustainableoperations and a leading health and safety culture.We continue to monitor the macro-economic environment,including higher interest rates,inflationary pressures and competitor actions.Supply chain andlogistics challenges have begun to ease,leading to increased production,which could result in a gradual increase in incentive activity as the year progresses.We expect pricing performance on our new and refreshed vehicles to partially offset this headwind.U.S.dealer inventories remained flat compared toDecember 2022 as we matched supply with demand and proactively planned some downtime at our facilities.In January 2023,we announced our intention to implement a cost reduction program to reduce fixed costs by$2.0 billion on an annual run rate basis by2024.In March 2023,we took the initial steps and announced performance-based exits and a VSP in an effort to accelerate attrition,which we believe willresult in approximately$1.0 billion towards this target on an annual run rate basis.In addition to people costs,we expect the remaining$1.0 billion willcome from reducing complexity across the vehicle portfolio and throughout the business,prioritizing growth initiatives and reducing overhead anddiscretionary costs.Refer to the Consolidated Results and regional analysis sections of this MD&A for additional information.We also face continuing market,operating and regulatory challenges in several countries across the globe due to,among other factors,competitivepressures,our product portfolio offerings,heightened emission standards,potentially weakening economic conditions,labor disruptions,foreign exchangevolatility,evolving trade policy and political uncertainty.Refer to Part I,Item 1A.Risk Factors of our 2022 Form 10-K for a discussion of these challenges.As we continue to assess our performance and the needs of our evolving business,additional restructuring and rationalization actions could be required.These actions could give rise to future asset impairments or other charges,which may have a material impact on our operating results.On August 16,2022,the Inflation Reduction Act of 2022(the Act)was signed into law.The Act modified climate and clean energy tax provisions,including the consumer credit for EV purchases,and added new corporate tax credits for commercial EV purchases and investments in clean energyproduction,supply chains and manufacturing facilities.We expect to generate credits from our production of battery components and commercial EV taxcredits that will increase net income and impact income tax cash payments.We also expect to benefit from the Act through lower raw material costs.Whilewaiting on pending Department of Treasury regulatory guidance,we are continuing to evaluate the ultimate impact of the tax credits on our financial results,including our net earnings and cash flow.For the year ending December 31,2023,we expect Net income attributable to stockholders of between$8.4 billion and$9.9 billion,EBIT-adjusted ofbetween$11.0 billion and$13.0 billion,EPS-diluted of between$5.83 and$6.83 and EPS-diluted-adjusted of between$6.35 and$7.35.We do not considerthe potential impact of future adjustments on our expected financial results.28Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESThe following table reconciles expected Net income attributable to stockholders under U.S.GAAP to expected EBIT-adjusted(dollars in billions):Year Ending December 31,2023Net income attributable to stockholders$8.4-9.9Income tax expense1.5-2.0Automotive interest expense,net0.1Adjustments(a)1.0EBIT-adjusted$11.0-13.0_(a)Refer to the reconciliation of Net income attributable to stockholders under U.S.GAAP to EBIT-adjusted within the MD&A for the details of each individualadjustment.We do not consider the potential future impact of adjustments on our expected financial results.The following table reconciles expected EPS-diluted under U.S.GAAP to expected EPS-diluted-adjusted:Year Ending December 31,2023Diluted earnings per common share$5.83-6.83Adjustments(a)0.52EPS-diluted-adjusted$6.35-7.35_(a)Refer to the reconciliation of diluted earnings per common share under U.S.GAAP to EPS-diluted-adjusted within the MD&A for the details of each individualadjustment.We do not consider the potential future impact of adjustments on our expected financial results.GMNA Industry sales in North America were 4.5 million units in the three months ended March 31,2023,representing an increase of 9.2%compared tothe corresponding period in 2022.U.S.industry sales were 3.7 million units in the three months ended March 31,2023,representing an increase of 8.3%compared to the corresponding period in 2022.Our total vehicle sales in the U.S.,our largest market in North America,were 0.6 million units for market share of 16.4%in the three months endedMarch 31,2023,representing an increase of 1.3 percentage points compared to the corresponding period in 2022.We expect to sustain relatively strong EBIT-adjusted margins in 2023 on the continued strength of vehicle pricing and healthy U.S.industry demand,partially offset by elevated costs associated with commodities,raw materials and logistics.Our outlook is dependent on the pricing environment,continuingimprovement of supply chain availability and overall economic conditions.As a result of supply chain disruptions,we experienced interruptions to ourplanned production schedules and continue to prioritize production of our most popular and in-demand products,including our full-size trucks,full-sizeSUVs and EVs.In 2023,our collective bargaining agreements with the International Union,United Automobile,Aerospace and Agricultural Implement Workers ofAmerica(UAW)in the United States and Unifor in Canada,as well as collective bargaining agreements in Mexico,will expire,which will requirenegotiation of new agreements.Refer to Part I,Item 1A.Risk Factors of our 2022 Form 10-K for a discussion of the risks related to any significantdisruption at our manufacturing facilities.GMI Industry sales in China were 5.2 million units in the three months ended March 31,2023,representing a decrease of 10.3%compared to thecorresponding period in 2022.Our total vehicle sales in China were 0.5 million units for market share of 9.0%in the three months ended March 31,2023,representing a decrease of 1.7 percentage points compared to the corresponding period in 2022.The ongoing supply chain disruptions,global macro-economic impact and geopolitical tensions continue to place pressure on Chinas automotive industry and our vehicle sales in China.Our Automotive ChinaJVs generated equity income of$0.1 billion in the three months ended March 31,2023.Although price competition,higher costs associated withcommodities and raw materials and a more challenging regulatory environment related to emissions,fuel consumption and new energy vehicles will placepressure on our operations in China,we will continue to build upon our strong brands,network,and partnerships in China as well as drive improvements invehicle mix and cost.Outside of China,industry sales were 6.4 million units in the three months ended March 31,2023,representing an increase of 5.7%compared to thecorresponding period in 2022.Our total vehicle sales outside of China were 0.2 million units for a market share of 3.4%in the three months ended March31,2023,representing a decrease of 0.2 percentage points compared to the corresponding period in 2022.29Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESCruise Gated by safety and regulation,Cruise continues to make significant progress towards commercialization of a network of on-demand AVs.In2021,Cruise received a driverless test permit from the California Public Utilities Commission(CPUC)to provide unpaid rides to the public in driverlessvehicles and received approval of its Autonomous Vehicle Deployment Permit from the California Department of Motor Vehicles to commercially deploydriverless AVs.In June 2022,Cruise received the first ever Driverless Deployment Permit granted by the CPUC,which allows them to charge a fare for thedriverless rides they are providing to members of the public in certain parts of San Francisco.Additionally,in September 2022,Cruise acquired regulatorypermits to operate driverless ride hail services in Phoenix,Arizona and began pursuing ride hail operations in Austin,Texas.GM and Cruise are alsoawaiting a decision on an exemption petition that was filed with NHTSA seeking regulatory approval for the deployment of the Cruise Origin.Vehicle Sales The principal factors that determine consumer vehicle preferences in the markets in which we operate include overall vehicle design,price,quality,available options,safety,reliability,fuel economy and functionality.Market leadership in individual countries in which we compete varies widely.We present both wholesale and total vehicle sales data to assist in the analysis of our revenue and our market share.Wholesale vehicle sales data consistsof sales to GMs dealers and distributors as well as sales to the U.S.Government and excludes vehicles sold by our joint ventures.Wholesale vehicle salesdata correlates to our revenue recognized from the sale of vehicles,which is the largest component of Automotive net sales and revenue.In the three monthsended March 31,2023,28.4%of our wholesale vehicle sales volume was generated outside the U.S.The following table summarizes wholesale vehiclesales by automotive segment(vehicles in thousands):Three Months EndedMarch 31,2023March 31,2022GMNA723 83.7i4 83.5%GMI141 16.37 16.5%Total864 100.01 100.0%Total vehicle sales data represents:(1)retail sales(i.e.,sales to consumers who purchase new vehicles from dealers or distributors);(2)fleet sales(i.e.,sales to large and small businesses,governments,and daily rental car companies);and(3)certain vehicles used by dealers in their business.Total vehiclesales data includes all sales by joint ventures on a total vehicle basis,not based on our percentage ownership interest in the joint venture.Certain jointventure agreements in China allow for the contractual right to report vehicle sales of non-GM trademarked vehicles by those joint ventures,which areincluded in the total vehicle sales we report for China.While total vehicle sales data does not correlate directly to the revenue we recognize during aparticular period,we believe it is indicative of the underlying demand for our vehicles.Total vehicle sales data represents managements good faith estimatebased on sales reported by GMs dealers,distributors,and joint ventures,commercially available data sources such as registration and insurance data,andinternal estimates and forecasts when other data is not available.30Table of ContentsGENERAL MOTORS COMPANY AND SUBSIDIARIESThe following table summarizes industry and GM total vehicle sales and our related competitive position by geographic region(vehicles in thousands):Three Months Ended March 31,2023March 31,2022 IndustryGMMarket ShareIndustryGMMarket ShareNorth AmericaUnited States3,684 603 16.4%3,402 513 15.1%Other786 103 13.2i3 88 12.7%Total North America4,470 707 15.8%4,095 601 14.7%Asia/Pacific,Middle East and AfricaChina(a)5,154 462 9.0%5,745 613 10.7%Other5,547 110 2.0%5,260 123 2.3%Total Asia/Pacific,Middle East and Africa10,701 572 5.3,005 736 6.7%South AmericaBrazil471 71 15.15 50 12.4%Other380 34 9.089 40 10.3%Total South America852 105 12.4y5 90 11.3%Total in GM markets16,023 1,384 8.6,895 1,427 9.0%Total Europe4,012%3,461 1%Total Worldwide(b)(c)20,035 1,384 6.9,357 1,427 7.4%United StatesCars719 61 8.4g2 47 7.0%Trucks993 297 29.94 287 31.8%Crossovers1,972 246 12.5%1,826 179 9.8%Total United States3,684 603 16.4%3,402 513 15.1%China(a)SGMS173 263 SGMW289 350 Total China5,154 462 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