diff --git a/3M CO_10-Q_2023-10-24_66740-0000066740-23-000092.html b/3M CO_10-Q_2023-10-24_66740-0000066740-23-000092.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/3M CO_10-Q_2023-10-24_66740-0000066740-23-000092.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/AFLAC INC_10-Q_2023-11-02_4977-0000004977-23-000177.html b/AFLAC INC_10-Q_2023-11-02_4977-0000004977-23-000177.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/AFLAC INC_10-Q_2023-11-02_4977-0000004977-23-000177.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/ALLIANT ENERGY CORP_10-Q_2023-11-03_352541-0000352541-23-000108.html b/ALLIANT ENERGY CORP_10-Q_2023-11-03_352541-0000352541-23-000108.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/ALLIANT ENERGY CORP_10-Q_2023-11-03_352541-0000352541-23-000108.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/ALTRIA GROUP, INC._10-Q_2023-10-26_764180-0000764180-23-000126.html b/ALTRIA GROUP, INC._10-Q_2023-10-26_764180-0000764180-23-000126.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/ALTRIA GROUP, INC._10-Q_2023-10-26_764180-0000764180-23-000126.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/AMERICAN ELECTRIC POWER CO INC_10-Q_2023-11-02_4904-0000004904-23-000121.html b/AMERICAN ELECTRIC POWER CO INC_10-Q_2023-11-02_4904-0000004904-23-000121.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/AMERICAN ELECTRIC POWER CO INC_10-Q_2023-11-02_4904-0000004904-23-000121.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/AMERICAN EXPRESS CO_10-Q_2023-10-20_4962-0000004962-23-000038.html b/AMERICAN EXPRESS CO_10-Q_2023-10-20_4962-0000004962-23-000038.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/AMERICAN EXPRESS CO_10-Q_2023-10-20_4962-0000004962-23-000038.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/AMERICAN INTERNATIONAL GROUP, INC._10-Q_2023-11-02_5272-0000005272-23-000045.html b/AMERICAN INTERNATIONAL GROUP, INC._10-Q_2023-11-02_5272-0000005272-23-000045.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/AMERICAN INTERNATIONAL GROUP, INC._10-Q_2023-11-02_5272-0000005272-23-000045.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/AMERIPRISE FINANCIAL INC_10-Q_2023-11-02_820027-0000820027-23-000105.html b/AMERIPRISE FINANCIAL INC_10-Q_2023-11-02_820027-0000820027-23-000105.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/AMERIPRISE FINANCIAL INC_10-Q_2023-11-02_820027-0000820027-23-000105.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/AMGEN INC_10-Q_2023-10-31_318154-0000318154-23-000064.html b/AMGEN INC_10-Q_2023-10-31_318154-0000318154-23-000064.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/AMGEN INC_10-Q_2023-10-31_318154-0000318154-23-000064.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/AMPHENOL CORP -DE-_10-Q_2023-10-27_820313-0001558370-23-016952.html b/AMPHENOL CORP -DE-_10-Q_2023-10-27_820313-0001558370-23-016952.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/AMPHENOL CORP -DE-_10-Q_2023-10-27_820313-0001558370-23-016952.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/ANALOG DEVICES INC_10-K_2023-11-21_6281-0000006281-23-000203.html b/ANALOG DEVICES INC_10-K_2023-11-21_6281-0000006281-23-000203.html new file mode 100644 index 0000000000000000000000000000000000000000..268d1334faa7818d61164190f882537a3e0155fe --- /dev/null +++ b/ANALOG DEVICES INC_10-K_2023-11-21_6281-0000006281-23-000203.html @@ -0,0 +1 @@ +ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (all tabular amounts in thousands except per share amounts)The following discussion includes results of operations and financial condition for the fiscal year ended October 28, 2023 (fiscal 2023) and the fiscal year ended October 29, 2022 (fiscal 2022) and year-over-year comparisons between fiscal 2023 and fiscal 2022. For discussion on results of operations and financial condition for fiscal 2022 and the fiscal year ended October 30, 2021 (fiscal 2021) and year-over-year comparisons between fiscal 2022 and fiscal 2021, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for fiscal 2022 filed with the Securities and Exchange Commission on November 22, 2022. Our fiscal year is the 52-week or 53-week period ending on the Saturday closest to the last day in October. Fiscal 2023 and fiscal 2022 were 52-week fiscal periods. Results of OperationsOverview Fiscal Year2023 over 2022 20232022 $ Change% ChangeRevenue$12,305,539 $12,013,953 $291,586 2 %Gross margin %64.0 %62.7 %Net income$3,314,579 $2,748,561 $566,018 21 %Net income as a % of revenue26.9 %22.9 %Diluted EPS$6.55 $5.25 $1.30 25 %Revenue Trends by End MarketThe following table summarizes revenue by end market. The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the "ship to" customer information and the end customer product or application into which our product will be incorporated. As data systems for capturing and tracking this data and our methodology evolves and improves, the categorization of products by end market can vary over time. When this occurs, we reclassify revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market. Fiscal 2023Fiscal 2022Revenue% ofTotalRevenue (1)Y/Y%Revenue% ofTotalRevenue (1)Industrial$6,555,222 53 %6 %$6,186,114 51 %Automotive2,915,199 24 %19 %2,442,705 20 %Communications1,619,517 13 %(13)%1,863,156 16 %Consumer1,215,601 10 %(20)%1,521,978 13 %Total Revenue$12,305,539 100 %2 %$12,013,953 100 %_______________________________________(1)The sum of the individual percentages may not equal the total due to rounding.Revenue increased 2% in fiscal 2023 as compared to fiscal 2022 primarily as a result of broad-based demand for our products sold into the Industrial end market, namely aerospace and defense and instrumentation, as well as the Automotive end market, namely cabin electronics and battery management systems. These increases were partially offset by a decrease in revenue in the Consumer end market primarily due to weakening market trends and a decrease in revenue in the Communications end market due to the timing of infrastructure deployment cycles.Revenue by Sales ChannelThe following table summarizes revenue by sales channel. We sell our products globally through a direct sales force, third party distributors, independent sales representatives and via our website. Distributors are customers that buy products with the intention of reselling them. Direct customers are non-distributor customers and consist primarily of original equipment manufacturers (OEMs). Other customers include the U.S. government, government prime contractors and certain commercial customers for which revenue is recorded over time. 28Fiscal 2023Fiscal 2022Revenue% ofTotalRevenue (1)Revenue% ofTotalRevenue (1)Distributors$7,534,894 61 %$7,458,478 62 %Direct customers4,603,166 37 %4,423,883 37 %Other167,479 1 %131,592 1 %Total Revenue$12,305,539 100 %$12,013,953 100 %_______________________________________(1)The sum of the individual percentages may not equal the total due to rounding.As indicated in the table above, the percentage of total revenue sold via each channel has remained relatively consistent in the periods presented, but can fluctuate from time to time based on end customer demand.Revenue Trends by Geographic RegionRevenue by geographic region, based upon the geographic location of the distributors or OEMs who purchased the Company's products, for fiscal 2023 and fiscal 2022 was as follows:Fiscal Year2023 over 202220232022 $ Change% Change (1)United States$4,165,296 $4,025,398 $139,898 3 %Rest of North and South America88,579 72,497 16,082 22 %Europe3,001,871 2,534,423 467,448 18 %Japan1,397,119 1,221,549 175,570 14 %China2,229,631 2,563,536 (333,905)(13)%Rest of Asia1,423,043 1,596,550 (173,507)(11)%Total Revenue$12,305,539 $12,013,953 $291,586 2 %_______________________________________(1)The sum of the individual percentages may not equal the total due to rounding.In all periods presented, the predominant regions comprising “Rest of North and South America” are Canada and Mexico; the predominant regions comprising “Europe” are Germany, Sweden and the Netherlands; and the predominant regions comprising “Rest of Asia” are Taiwan, Malaysia, South Korea and Singapore.Total revenue increased in fiscal 2023 as compared to fiscal 2022 due to the revenue trends discussed above, partially offset by weaker customer demand in China and Rest of Asia primarily due to deteriorating macroeconomic conditions in those regions. Gross Margin Fiscal Year2023 over 2022 20232022$ Change% ChangeGross margin$7,877,218 $7,532,474 $344,744 5 %Gross margin %64.0 %62.7 %Gross margin percentage in fiscal 2023 increased by 130 basis points compared to fiscal 2022. Fiscal 2022 included $271.4 million of additional cost of goods sold that did not repeat in fiscal 2023 related to a nonrecurring fair value adjustment recorded to inventory. This increase in gross margin percentage was partially offset by lower utilization of our factories due to decreasing customer demand during fiscal 2023.Research and Development (R&D) Fiscal Year2023 over 2022 20232022$ Change% ChangeR&D expenses$1,660,194 $1,700,518 $(40,324)(2)%R&D expenses as a % of revenue13 %14 %R&D expenses decreased in fiscal 2023 as compared to fiscal 2022 primarily as a result of lower employee related variable compensation expenses, partially offset by higher salary and benefit expenses.29R&D expenses as a percentage of revenue will fluctuate from year-to-year depending on the amount of revenue and the success of new product development efforts, which we view as critical to our future growth. We expect to continue the development of innovative technologies and processes for new products. We believe that a continued commitment to R&D is essential to maintain product leadership with our existing products as well as to provide innovative new product offerings. Selling, Marketing, General and Administrative (SMG&A) Fiscal Year2023 over 2022 20232022$ Change% ChangeSMG&A expenses$1,273,584 $1,266,175 $7,409 1 %SMG&A expenses as a % of revenue10 %11 %SMG&A expenses increased in fiscal 2023 as compared to fiscal 2022, primarily as a result of higher employee related salary and benefit expenses and discretionary spending, partially offset by lower variable compensation expenses and acquisition-related transaction costs.Amortization of Intangibles Fiscal Year2023 over 2022 20232022$ Change% ChangeAmortization expenses$959,618 $1,012,572 $(52,954)(5)%Amortization expenses as a % of revenue8 %8 %Amortization expenses decreased in fiscal 2023 as compared to fiscal 2022, primarily as a result of a portion of our acquired intangible assets becoming fully amortized during fiscal 2023. Special Charges, Net Fiscal Year2023 over 2022 20232022$ Change% ChangeSpecial charges, net$160,710 $274,509 $(113,799)(41)%Special charges, net as a % of revenue1 %2 %Special charges, net decreased in fiscal 2023 as compared to fiscal 2022, primarily due to increased charges recorded in fiscal 2022 related to our Global Repositioning Actions offset by $160.7 million of charges recorded in fiscal 2023 primarily related to $114.0 million recorded for our plan committed to during the three months ended October 28, 2023, to reorganize our business (the Q4 2023 Plan). The Q4 2023 Plan, consisting of voluntary and involuntary reductions-in-force, and other cost-savings initiatives, was commenced to adjust our cost structure and business activities to better align with weaker market demand and continued economic uncertainty in our end markets, as well as make certain strategic shifts in our workforce necessary to achieve our long-term vision. See Note 5, Special Charges, Net, of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for more information. Operating Income Fiscal Year2023 over 2022 20232022$ Change% ChangeOperating income$3,823,112 $3,278,700 $544,412 17 %Operating income as a % of revenue31.1 %27.3 %The increase in operating income in fiscal 2023 as compared to fiscal 2022 was primarily the result of a $344.7 million increase in gross margin, a $113.8 million decrease in special charges, net, a $53.0 million decrease in amortization expenses and a $40.3 million decrease in R&D expenses, partially offset by a $7.4 million increase in SMG&A expenses, as more fully described above under the headings Gross Margin, Special Charges, Net, Amortization of Intangibles, Research and Development (R&D) and Selling, Marketing, General and Administrative (SMG&A).Nonoperating Expense (Income) Fiscal Year2023 over 2022 20232022$ Change% ChangeNonoperating expense (income)$215,109 $179,951 $35,158 20 %The year-over-year increase in nonoperating expense in fiscal 2023 as compared to fiscal 2022 was primarily the result of 30higher interest expense related to our debt obligations and lower net gains from other investments, partially offset by higher interest income.Provision for (Benefit From) Income Taxes Fiscal Year2023 over 2022 20232022$ Change% ChangeProvision for (benefit from) income taxes$293,424 $350,188 $(56,764)(16)%Effective income tax rate8.1 %11.3 %Our effective tax rates for fiscal 2023 and fiscal 2022 were below the U.S. statutory rate of 21% due to lower statutory tax rates applicable to our operations in the foreign jurisdictions in which we earn income. For fiscal 2023 and fiscal 2022 our pretax income was primarily generated in Ireland at a tax rate of 12.5%. Our effective tax rate for fiscal 2023 also included the effects of the mandatory capitalization and amortization of research and development expenses which began in fiscal 2023 under the Tax Cuts and Jobs Act of 2017. The mandatory capitalization requirement decreased our effective tax rate primarily by increasing the foreign-derived intangible income deduction. Our effective tax rate for fiscal 2023 was also impacted by a discrete income tax benefit recorded of $81.7 million resulting from the approval granted by the Joint Committee on Taxation of our federal corporate income tax relief claim which reduced the amount of transition tax owed under the Tax Cuts and Jobs Act of 2017.See Note 12, Income Taxes, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion. Net Income Fiscal Year2023 over 2022 20232022$ Change% ChangeNet income$3,314,579 $2,748,561 $566,018 21 %Net income, as a % of revenue26.9 %22.9 %Diluted EPS$6.55 $5.25 $1.30 25 %The increase in net income in fiscal 2023 as compared to fiscal 2022 was a result of a $544.4 million increase in operating income and a $56.8 million decrease in provision for income taxes, partially offset by a $35.2 million increase in nonoperating expense, as more fully described above under the headings Operating Income, Provision for (Benefit From) Income Taxes and Nonoperating (Income) Expense.Liquidity and Capital ResourcesAt October 28, 2023, our principal source of liquidity was $958.1 million of cash and cash equivalents, of which approximately $201.1 million was held in the United States and the balance of our cash and cash equivalents was held outside the United States in various foreign subsidiaries. We manage our worldwide cash requirements by, among other things, reviewing available funds held by our foreign subsidiaries and the cost effectiveness by which those funds can be accessed in the United States. We do not expect current regulatory restrictions or taxes on repatriation to have a material adverse effect on our overall liquidity, financial condition or results of operations. Our cash and cash equivalents consist of highly liquid investments with maturities of three months or less, including money market funds. We maintain these balances with counterparties with high credit ratings, and continually monitor the amount of credit exposure to any one issuer and diversify our investments in order to minimize our credit risk.We believe that our existing sources of liquidity and cash expected to be generated from future operations, together with existing and anticipated available short- and long-term financing, will be sufficient to fund operations, capital expenditures, research and development efforts and dividend payments (if any) in the immediate future and for at least the next twelve months. Fiscal Year 20232022Net cash provided by operating activities$4,817,634 $4,475,402 Net cash provided by operating activities as a % of revenue39 %37 %Net cash used for investing activities$(1,266,385)$(657,368)Net cash used for financing activities$(4,063,760)$(4,290,720)The following changes contributed to the net change in cash and cash equivalents from fiscal 2022 to fiscal 2023. 31Operating ActivitiesCash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. The increase in cash provided by operating activities during fiscal 2023 as compared to fiscal 2022 was primarily a result of higher net income adjusted for noncash items offset by changes in working capital. Investing ActivitiesInvesting cash flows generally consist of capital expenditures and cash used for acquisitions. The increase in cash used for investing activities during fiscal 2023 as compared to fiscal 2022 was primarily the result of an increase in cash used for capital expenditures.Financing ActivitiesFinancing cash flows generally consist of payments of dividends to shareholders, repurchases of common stock, issuance and repayment of debt and proceeds from the sale of shares of common stock pursuant to employee equity incentive plans. The decrease in cash used for financing activities during fiscal 2023 as compared to fiscal 2022 was primarily the result of the net proceeds from the issuance of commercial paper notes during fiscal 2023 and lower debt repayments, partially offset by higher common stock repurchases.Working Capital Fiscal Year 20232022$ Change% ChangeAccounts receivable, net$1,469,734 $1,800,462 $(330,728)(18)%Days sales outstanding (1)48 50 Inventory$1,642,214 $1,399,914 $242,300 17 %Days cost of sales in inventory (1)125 106 _______________________________________(1)We use the average of the current year and prior year ending net accounts receivable and ending inventory balance in our calculation of days sales outstanding and days cost of sales in inventory, respectively. Cost of sales amounts used in the calculation of days cost of sales in inventory include accounting adjustments related to amortization of developed technology intangible assets acquired and depreciation related to the write-up of fixed assets to fair value as a result of the acquisition of Maxim. The decrease in accounts receivable for fiscal 2023 compared to fiscal 2022 was primarily the result of variations in the timing of collections and billings and decreased revenue levels in the fourth quarter of fiscal 2023 as compared to the fourth quarter of fiscal 2022.Inventory increased in fiscal 2023 as compared to fiscal 2022, primarily as a result of our efforts to balance manufacturing production, demand and inventory levels. Our inventory levels are impacted by our need to support forecasted sales demand and variations between those forecasts and actual demand. Current liabilities increased to $3.2 billion at October 28, 2023 from $2.4 billion recorded at the end of fiscal 2022, primarily due to increases in commercial paper notes and current debt, partially offset by lower accrued liabilities.Revolving Credit Facility Our Third Amended and Restated Revolving Credit Agreement, dated as of June 23, 2021, with Bank of America N.A. as administrative agent and the other banks identified therein as lenders, which was subsequently amended on December 20, 2022 and July 24, 2023 (as amended, the Revolving Credit Agreement) provides for a five year unsecured revolving credit facility in an aggregate principal amount not to exceed $2.5 billion (subject to certain terms and conditions). We may borrow under this revolving credit facility in the future and use the proceeds for repayment of existing indebtedness, stock repurchases, acquisitions, capital expenditures, working capital and other lawful corporate purposes. The terms of the Revolving Credit Agreement impose restrictions on our ability to undertake certain transactions, to create certain liens on assets and to incur certain subsidiary indebtedness. In addition, the Revolving Credit Agreement contains a consolidated leverage ratio covenant of total consolidated funded debt to consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) of not greater than 3.5 to 1.0. As of October 28, 2023, we were in compliance with these covenants. See Note 13, Revolving Credit Facility, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on our revolving credit facility.32DebtAs of October 28, 2023, we had approximately $6.4 billion of carrying value outstanding on our senior notes. The difference in the carrying value of the debt and the principal is due to the unamortized discount and issuance fees and other adjustments on these instruments. The indentures governing certain of our debt instruments contain covenants that may limit our ability to: incur, create, assume or guarantee any debt or borrowed money secured by a lien upon a principal property; enter into sale and lease-back transactions with respect to a principal property; and consolidate with or merge into, or transfer or lease all or substantially all of our assets to, any other party. As of October 28, 2023, we were compliant with these covenants. See Note 14, Debt of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information on our outstanding debt.Commercial Paper ProgramDuring fiscal 2023, we established a commercial paper program under which we may issue short-term, unsecured commercial paper notes in amounts up to a maximum aggregate face amount of $2.5 billion outstanding at any time, with maturities of up to 397 days from the date of issuance. As of October 28, 2023, we had $547.2 million of outstanding borrowings under the commercial paper program recorded in the Consolidated Balance Sheet. We intend to use the net proceeds of the commercial paper program for general corporate purposes, including without limitation, repayment of indebtedness, stock repurchases, acquisitions, capital expenditures and working capital.Stock Repurchase ProgramOur common stock repurchase program has been in place since August 2004. Since inception, our Board of Directors has authorized us to repurchase $16.7 billion of our common stock under the program, which includes the $8.5 billion authorization approved by the Board of Directors on August 25, 2021. Under the program, we may repurchase outstanding shares of our common stock from time to time in the open market and through privately negotiated transactions. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized under the program. As of October 28, 2023, $2.1 billion remained available for repurchase under the current authorized program. The repurchased shares are held as authorized but unissued shares of common stock. We also repurchase shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock units/awards or the exercise of stock options. Future repurchases of common stock will be dependent upon our financial position, results of operations, outlook, liquidity and other factors we deem relevant.Capital ExpendituresNet additions to property, plant and equipment were $1.3 billion in fiscal 2023 as we invested to enhance our global resiliency. We expect capital expenditures for fiscal 2024 to be between approximately $600.0 million and $800.0 million. These capital expenditures will be funded with a combination of cash on hand and cash expected to be generated from future operations, together with existing and anticipated available short- and long-term financing. DividendsOn November 20, 2023, our Board of Directors declared a cash dividend of $0.86 per outstanding share of common stock. The dividend will be paid on December 14, 2023 to all shareholders of record at the close of business on December 4, 2023 and is expected to total approximately $426.8 million. We currently expect quarterly dividends to continue in future periods, although they remain subject to determination and declaration by our Board of Directors. The payment of future dividends, if any, will be based on several factors, including our financial performance, outlook and liquidity.33Contractual ObligationsThe table below summarizes our material contractual obligations in specified periods as of October 28, 2023: Payment due by period Less than More than(thousands)Total1 Year1-3 Years3-5 Years5 YearsDebt obligations (1)$7,064,301 $1,047,224 $400,000 $2,090,212 $3,526,865 Interest payments associated with debt obligations2,253,446 209,595 341,514 273,176 1,429,161 Transition tax (2)484,244 196,066 288,178 — — Operating leases (3)494,662 80,998 148,565 118,203 146,896 Inventory-related purchase commitments (4)705,607 170,042 361,255 130,977 43,333 Total$11,002,260 $1,703,925 $1,539,512 $2,612,568 $5,146,255 _______________________________________(1)Debt obligations are assumed to be held to maturity. (2)Tax obligation relates to the one-time tax on deemed repatriated earnings under the Tax Cuts and Jobs Act and includes a reduction resulting from the approval granted by the Joint Committee on Taxation of our federal corporate income tax relief claim which reduced the amount of transition tax owed.(3)Certain of our operating lease obligations include escalation clauses. These escalating payment requirements are reflected in the table.(4)We have supplier commitments for the purchase of materials and supplies in advance or with minimum purchase quantities. As of October 28, 2023, our total liabilities associated with uncertain tax positions was $186.2 million, which are included in non-current income taxes payable in our Consolidated Balance Sheets contained in Item 8 of this Annual Report on Form 10-K. Due to the complexity associated with our tax uncertainties, we cannot make a reasonably reliable estimate of the period in which we expect to settle the non-current liabilities associated with these uncertain tax positions. Therefore, we have not included these uncertain tax positions in the above contractual obligations table.New Accounting PronouncementsFrom time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) and are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards will not have a material impact on our future financial condition and results of operations. See Note 2s, New Accounting Pronouncements, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for a description of recently issued and adopted accounting pronouncements, including the dates of adoption and impact on our historical financial condition and results of operations.Critical Accounting Policies and EstimatesManagement’s discussion and analysis of the financial condition and results of operations is based upon the Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future based on available information. We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements. We also have other policies that we consider key accounting policies; however, the application of these policies does not require us to make significant estimates or judgments that are difficult or subjective.Revenue RecognitionRecognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the providing entity expects to be entitled in exchange for those goods or services. We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products or services. We recognize revenue when all of the following criteria are met: (1) we have entered into a binding agreement, (2) the performance obligations have been identified, (3) the transaction price to the customer has been determined, (4) the transaction price has been allocated to the performance obligations in the contract, and (5) the performance obligations have been satisfied. The majority of our shipping terms permit us to recognize revenue at point of shipment or delivery. Certain shipping terms require the goods to be through customs or be received by the customer before title passes. In those instances, we defer the revenue recognized until title and control of the promised goods have passed to the customer. Shipping costs are charged to selling, marketing, general and administrative expense as incurred. Sales taxes are excluded from revenue.34Revenue from contracts with the United States government, government prime contractors and certain commercial customers is recorded over time using either units delivered or costs incurred as the measurement basis for progress toward completion. These measures are used to measure results directly and is generally the best measure of progress toward completion in circumstances in which a reliable measure of output can be established. Estimated revenue in excess of amounts billed is reported as unbilled receivables. Contract accounting requires judgment in estimating costs and assumptions related to technical issues and delivery schedule. Contract costs include material, subcontract costs, labor and an allocation of indirect costs. The estimation of costs at completion of a contract is subject to numerous variables involving contract costs and estimates as to the length of time to complete the contract. Changes in contract performance, estimated gross margin, including the impact of final contract settlements, and estimated losses are recognized in the period in which the changes or losses are determined.Performance Obligations: Substantially all of our contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit (IC) products. Such sales represent a single performance obligation because the sale is one type of good or includes multiple goods that are neither capable of being distinct nor separable from the other promises in the contract. This performance obligation is satisfied when control of the product is transferred to the customer, which occurs upon shipment or delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates and with an original expected duration of one year or less. We generally warrant that our products will meet their published specifications, and that we will repair or replace defective products, for one year from the date title passes from us to the customer. Specific accruals are recorded for known product warranty issues. Transaction Price: The transaction price reflects our expectations about the consideration we will be entitled to receive from the customer and may include fixed or variable amounts. Fixed consideration primarily includes sales to direct customers and sales to distributors in which both the sale to the distributor and the sale to the end customer occur within the same reporting period. Variable consideration includes sales in which the amount of consideration that we will receive is unknown as of the end of a reporting period. The vast majority of such consideration are credits issued to the distributor due to price protection, but also include sales made to distributors under agreements that allow certain rights of return, referred to as stock rotation. Price protection represents price discounts granted to certain distributors to allow the distributor to earn an appropriate margin on sales negotiated with certain customers and in the event of a price decrease subsequent to the date the product was shipped and billed to the distributor. Stock rotation allows distributors limited levels of returns in order to reduce the amounts of slow-moving, discontinued or obsolete product from their inventory. A liability for distributor credits covering variable consideration is made based on management's estimate of historical experience rates as well as considering economic conditions and contractual terms. To date, actual distributor claims activity has been materially consistent with the provisions we have made based on our historical estimates.Contract Balances: Accounts receivable represents our unconditional right to receive consideration from our customers. Payments are typically due within 30 to 45 days of invoicing and do not include a significant financing component. To date, there have been no material impairment losses on accounts receivable. There were no material contract assets or contract liabilities recorded on the Consolidated Balance Sheets in any of the periods presented.Inventory ValuationWe value inventories at the lower of cost (first-in, first-out method) or net realizable value. Because of the cyclical nature of the semiconductor industry, changes in inventory levels, obsolescence of technology, and product life cycles, we write down inventories to net realizable value. We employ a variety of methodologies to determine the net realizable value of inventory. While a portion of the calculation is determined via reference to the age of inventory and lower of cost or net realizable value calculations, an element of the calculation is subject to significant judgments made by us about future demand for our inventory. If actual demand for our products is less than our estimates, additional adjustments to existing inventories may need to be recorded in future periods. To date, our actual results have not been materially different than our estimates.Long-Lived AssetsWe review property, plant, and equipment and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable. Recoverability of these assets is determined by comparison of their carrying value to the estimated future undiscounted cash flows that the assets are expected to generate over their remaining estimated lives. If such assets are considered to be impaired, the impairment to be recognized in earnings equals the amount by which the carrying value of the assets exceeds their fair value determined by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow technique. Material impairment adjustments related to our property, plant, and equipment are reflected in our financial statements for the periods presented. Any deterioration in our business in the future could lead to such impairment adjustments in future periods. Evaluation of impairment of long-lived assets requires estimates of future operating results that are used in the preparation of the expected future undiscounted cash flows. Actual future operating results and the remaining economic lives of our long-lived assets could differ from the estimates used in assessing the recoverability of these assets. These differences could 35result in impairment charges, which could have a material adverse impact on our results of operations. In addition, in certain instances, assets may not be impaired but their estimated useful lives may have decreased. In these situations, we amortize the remaining net book values over the revised useful lives. GoodwillGoodwill is subject to impairment tests annually or more frequently if events or changes in circumstances suggest that the carrying value of goodwill may not be recoverable, utilizing either the qualitative or quantitative method. We test goodwill for impairment at the reporting unit level, which we determined is consistent with our identified operating segments, on an annual basis on the first day of the fourth quarter (on or about July 30) or more frequently if we believe indicators of impairment exist or we reorganize our operating segments or reporting units. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its net book value. When using the qualitative method, we consider several factors, including the following:–the amount by which the fair values of each reporting unit exceeded their carrying values as of the date of the most recent quantitative impairment analysis, which indicated there would need to be substantial negative developments in the markets in which these reporting units operate in order for there to be potential impairment;–the carrying values of these reporting units as of the assessment date compared to their previously calculated fair values as of the date of the most recent quantitative impairment analysis;–the current forecasts as compared to the forecasts included in the most recent quantitative impairment analysis;–public information from competitors and other industry information to determine if there were any significant adverse trends in our competitors' businesses;–changes in the value of major U.S. stock indices that could suggest declines in overall market stability that could impact the valuation of our reporting units;–changes in our market capitalization and overall enterprise valuation to determine if there were any significant decreases that could be an indication that the valuation of our reporting units had significantly decreased; and–whether there had been any significant increases to the weighted-average cost of capital rates for each reporting unit, which could materially lower our prior valuation conclusions under a discounted cash flow approach.If we elect not to use this option, or we determine that it is more likely than not that the fair value of a reporting unit is less than its net book value, then we perform the quantitative goodwill impairment test. The quantitative goodwill impairment test requires an entity to compare the fair value of a reporting unit with its carrying amount. If fair value is determined to be less than carrying value, an impairment loss is recognized for the amount of the carrying value that exceeds the amount of the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Additionally, we consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. We determine the fair value of our reporting units using a weighting of the income and market approaches. Under the income approach, we use a discounted cash flow methodology which requires management to make significant estimates and assumptions related to forecasted revenues, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, among others. For the market approach, we use the guideline public company method. Under this method we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, to create valuation multiples that are applied to the operating performance of the reporting unit being tested, in order to obtain their respective fair values. In order to assess the reasonableness of the calculated reporting unit fair values, we reconcile the aggregate fair values of our reporting units determined, as described above, to our total company market capitalization, allowing for a reasonable control premium. In fiscal 2023, we used the qualitative method of assessing goodwill for our reporting units. In fiscal 2022, we used a combination of the qualitative and quantitative methods of assessing goodwill for all reporting units. In all periods presented, we concluded the reporting units' fair values exceeded their carrying amounts as of the assessment dates and no risk of impairment existed.Business CombinationsUnder the acquisition method of accounting, we recognize tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. We record the excess of the fair value of the purchase consideration over the value of the net assets acquired as goodwill. The accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to intangible assets and the fair value of contingent payment obligations. Critical estimates in valuing purchased technology, customer lists and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges which could be material. In addition, we have estimated the economic lives of certain acquired 36assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.We record contingent consideration resulting from a business combination at its fair value on the acquisition date. We generally determine the fair value of the contingent consideration using the income approach methodology of valuation. Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value as an adjustment to operating expenses within the Consolidated Statements of Income. Changes in the fair value of the contingent consideration can result from changes in assumed discount periods and rates, and from changes pertaining to the achievement of the defined milestones. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense we record in any given period.Accounting for Income TaxesWe make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of income tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of the recognition of certain expenses for tax and financial statement purposes. We assess the likelihood of the realization of deferred tax assets and record a corresponding valuation allowance as necessary if we determine those deferred tax assets may not be realized due to the uncertainty of the timing and amount to be realized of certain state and international tax credit carryovers. In reaching our conclusion, we evaluate certain relevant criteria including the existence of deferred tax liabilities that can be used to realize deferred tax assets, the taxable income in prior carryback years in the impacted state and international jurisdictions that can be used to absorb net operating losses and taxable income in future years. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to these deferred tax assets, which may result in an increase or decrease to our income tax provision in future periods.We account for uncertain tax positions by first determining if it is “more likely than not” that a tax position will be sustained by the appropriate taxing authorities prior to recording any benefit in the financial statements. An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained. For those tax positions where it is more likely than not that a tax position will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. We classify interest and penalties related to uncertain tax positions within the provision for (benefit from) income taxes line of the Consolidated Statements of Income. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in known facts or circumstances, changes in tax law, effectively settled issues under audit, and new guidance on legislative interpretations. A change in these factors could result in the recognition of an increase or decrease to our income tax provision, which could materially impact our consolidated financial position and results of operations.In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement and royalty arrangements among related entities. Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our historical income tax provisions and income tax liabilities. In the event our assumptions are incorrect, the differences could have a material impact on our income tax provision and operating results in the period in which such determination is made. In addition to the factors described above, our current and expected effective tax rate is based on then-current tax law. Significant changes during the year in enacted tax law could affect these estimates.See Note 12, Income Taxes, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further discussion.Stock-Based CompensationStock-based compensation expense associated with stock related awards is recognized in the Consolidated Statements of Income. Determining the amount of stock-based compensation to be recorded requires us to develop estimates to be used in calculating the grant-date fair value of restricted stock units and market-based and performance-based awards. The grant-date fair value of restricted stock units with a service condition and restricted stock units with both service and performance conditions is calculated using the value of our common stock on the date of grant, reduced by the present value of dividends expected to be paid on our common stock prior to vesting. For restricted stock units with both service and performance conditions, this grant-date fair value is also impacted by the number of units that are expected to vest during the performance period and is adjusted through the related stock-based compensation expense at each reporting period based on the probability 37of achievement of that performance condition. If we determine that an award is unlikely to vest, any previously recorded stock-based compensation expense is reversed in the period of that determination. The grant date fair value of restricted stock units and performance-based stock options with both service and market conditions are calculated using the Monte Carlo simulation model to estimate the probability of satisfying the performance condition stipulated in the award grant, including the possibility that the market condition may not be satisfied.The use of valuation models requires us to make estimates of key assumptions which are based on historical information and judgment regarding market factors and trends. We recognize the expense related to equity awards on a straight-line basis over the vesting period. See Note 2r, Stock-Based Compensation, and Note 3, Stock-Based Compensation and Shareholders' Equity, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for more information related to stock-based compensation.ContingenciesFrom time to time, in the ordinary course of business, various claims, charges and litigation are asserted or commenced against us arising from, or related to, among other things, contractual matters, patents, trademarks, personal injury, environmental matters, product liability, insurance coverage, employment or employment benefits. We periodically assess each matter to determine if a contingent liability should be recorded. In making this determination, we may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. Based on the information we obtain, combined with our judgment regarding all the facts and circumstances of each matter, we determine whether it is probable that a contingent loss may be incurred and whether the amount of such loss can be reasonably estimated. If a loss is probable and reasonably estimable, we record a contingent loss. In determining the amount of a contingent loss, we consider advice received from experts in the specific matter, current status of legal proceedings, settlement negotiations that may be ongoing, prior case history and other factors. If the judgments and estimates made by us are incorrect, we may need to record additional contingent losses that could materially adversely impact our results of operations.38 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKInterest Rate ExposureOur interest income and expense are sensitive to changes in the general level of interest rates. In this regard, changes in interest rates affect the interest earned or paid on our marketable securities and debt, as well as the fair value of our investments and debt.Based on our floating rate debt outstanding as of October 28, 2023 and October 29, 2022, inclusive of our commercial paper notes and interest rate swap outstanding, as applicable, our annual interest expense would change by approximately $20.5 million and $5.0 million, respectively, for each 100 basis point increase in interest rates. Based on our cash and marketable securities outstanding as of October 28, 2023 and October 29, 2022, our annual interest income would change by approximately $9.6 million and $14.7 million, respectively, for each 100 basis point increase in interest rates.To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of our investment portfolio assuming an immediate 100 basis point parallel shift in the yield curve. Based on investment positions as of October 28, 2023 and October 29, 2022, a hypothetical 100 basis point increase in interest rates across all maturities would not materially impact the fair market value of the portfolio in either period. If significant, such losses would only be realized if we sold the investments prior to maturity.As of October 28, 2023 we had $1.0 billion notional of fixed for floating interest rate swaps outstanding, with the swap payable having a fair value of $81.6 million. A hypothetical 100 basis point increase in interest rates would increase the swap payable by approximately $57.0 million with a corresponding adjustment to the carrying value of the related debt.As of October 28, 2023, we had $6.5 billion in principal amount of senior unsecured notes outstanding, with a fair value of $5.3 billion. We also had $547.2 million of commercial paper notes outstanding. As commercial paper notes issuances are at then-current rates and with very short maturities, the carrying value will approximate the fair value. The fair value of our notes is subject to interest rate risk, market risk and other factors. Generally, the fair value of our notes will increase as interest rates fall and decrease as interest rates rise. The fair values of our notes as of October 28, 2023 and October 29, 2022, assuming a hypothetical 100 basis point increase in market interest rates, are as follows:October 28, 2023October 29, 2022(thousands)Principal Amount OutstandingFair Value Fair Value given an increase in interest rates of 100 basis pointsPrincipal Amount OutstandingFair Value Fair Value given an increase in interest rates of 100 basis pointsCommercial paper notes$547,225 $547,185 $546,875 $— $— $— 2024 Notes, due October 2024500,000 499,473 495,058 500,000 491,982 483,035 2025 Notes, due April 2025400,000 385,231 380,013 400,000 383,378 374,686 2026 Notes, due December 2026900,000 851,023 826,888 900,000 851,479 820,203 Maxim Notes, due June 2027— — — 59,788 54,771 52,534 2027 Notes, due June 2027440,212 408,595 395,208 440,212 410,091 393,294 2028 Notes, due October 2028750,000 628,999 600,812 750,000 621,093 588,044 2031 Notes, due October 20311,000,000 773,404 721,064 1,000,000 786,772 727,579 2032 Notes, due October 2032300,000 269,828 251,153 300,000 278,359 257,337 2036 Notes, due December 2036144,278 118,554 108,085 144,278 126,274 114,389 2041 Notes, due October 2041750,000 479,078 422,949 750,000 513,709 450,337 2045 Notes, due December 2045332,587 292,248 259,323 332,587 313,931 276,820 2051 Notes, due October 20511,000,000 590,666 507,297 1,000,000 640,766 545,958 39Foreign Currency ExposureAs more fully described in Note 2i, Derivative and Hedging Agreements, of the Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K, we regularly hedge our non-U.S. dollar-based exposures by entering into forward foreign currency exchange contracts. The terms of these contracts are for periods matching the duration of the underlying exposure and generally range from one to twelve months. Currently, our largest foreign currency exposure is the Euro, primarily because our European operations have the highest proportion of our local currency denominated expenses. Relative to the net unhedged foreign currency exposures existing at October 28, 2023 and October 29, 2022, an immediate 10% unfavorable movement in foreign currency exchange rates would result in approximately $66.5 million of losses and $69.5 million of losses, respectively, in changes in earnings or cash flows over the course of the year.The market risk associated with our derivative instruments results from currency exchange rates that are expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. The counterparties to the agreements relating to our foreign exchange instruments consist of a number of major international financial institutions with high credit ratings. Based on the credit ratings of our counterparties as of October 28, 2023, we do not believe that there is significant risk of nonperformance by them. While the contract or notional amounts of derivative financial instruments provide one measure of the volume of these transactions, they do not represent the amount of our exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed our obligations to the counterparties.The following table illustrates the effect that an immediate 10% unfavorable or favorable movement in foreign currency exchange rates, relative to the U.S. dollar, would have on the fair value of our forward exchange contracts as of October 28, 2023 and October 29, 2022:October 28, 2023October 29, 2022Fair value of forward exchange contracts$(11,575)$(16,984)Fair value of forward exchange contracts after a 10% unfavorable movement in foreign currency exchange rates asset$49,284 $21,193 Fair value of forward exchange contracts after a 10% favorable movement in foreign currency exchange rates liability$(70,461)$(51,604)The calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, such changes typically affect the volume of sales or the foreign currency sales price as competitors’ products become more or less attractive. Our sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency selling prices.40REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders and the Board of Directors of Analog Devices, Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Analog Devices, Inc. (the Company) as of October 28, 2023 and October 29, 2022, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended October 28, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 28, 2023 and October 29, 2022, and the results of its operations and its cash flows for each of the three years in the period ended October 28, 2023, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 28, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 21, 2023 expressed an unqualified opinion thereon.Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.Revenue Recognition – Measuring Price Protection CreditsDescription of the MatterAs described in Note 2n to the consolidated financial statements, the Company's sales contracts provide certain distributors with credits for price protection and rights of return, which results in variable consideration. During 2023, sales to distributors were $7.5 billion net of expected price protection credits and rights of return for which the liability balance as of October 28, 2023 was $525.4 million, of which the vast majority relates to the price protection credits.Auditing the Company's measurement for price protection credits under distributor contracts involved especially challenging judgment because the calculation involves subjective management assumptions about estimates of expected price protection credits. For example, estimated price protection credits included in the transaction price reflects management's evaluation of contractual terms, historical experience and assumptions about future economic conditions. Changes in those assumptions can have a material effect on the amount recognized for price protection credits.41How We Addressed the Matter in Our AuditWe obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's process to calculate the price protection credits. For example, we tested controls over the appropriateness of assumptions management used as well as controls over the completeness and accuracy of the data underlying estimates of expected price protection credits.Our audit procedures included, among others, inspecting contractual terms in distributor agreements and testing the underlying data used in management’s calculation for completeness and accuracy as well as evaluating the significant assumptions used in the estimation of the price protection credits. We evaluated the Company’s methods and assumptions used in the estimates, which included comparing the assumptions to historical trends. We inspected and tested the results of the Company's retrospective review analysis of actual price protection credits claimed by distributors, evaluated the estimates made based on historical experience and performed sensitivity analyses of the Company’s significant assumptions to assess the impact on the price protection credits. We also evaluated whether the Company appropriately considered new information that could significantly change the estimated future price protection credits./s/ Ernst & Young LLPWe have served as the Company’s auditor since 1967. Boston, MassachusettsNovember 21, 202342 \ No newline at end of file diff --git a/APPLIED MATERIALS INC -DE_10-K_2023-12-15_6951-0000006951-23-000041.html b/APPLIED MATERIALS INC -DE_10-K_2023-12-15_6951-0000006951-23-000041.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/APPLIED MATERIALS INC -DE_10-K_2023-12-15_6951-0000006951-23-000041.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/AT&T INC._10-Q_2023-10-31_732717-0000732717-23-000057.html b/AT&T INC._10-Q_2023-10-31_732717-0000732717-23-000057.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/AT&T INC._10-Q_2023-10-31_732717-0000732717-23-000057.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/ATMOS ENERGY CORP_10-K_2023-11-14_731802-0000731802-23-000028.html b/ATMOS ENERGY CORP_10-K_2023-11-14_731802-0000731802-23-000028.html new file mode 100644 index 0000000000000000000000000000000000000000..3ef80e3441865dfac421880b883c5d9b89c6cdce --- /dev/null +++ b/ATMOS ENERGY CORP_10-K_2023-11-14_731802-0000731802-23-000028.html @@ -0,0 +1 @@ +ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.INTRODUCTIONThis section provides management’s discussion of the financial condition, changes in financial condition and results of operations of Atmos Energy Corporation and its consolidated subsidiaries with specific information on results of operations and liquidity and capital resources. It includes management’s interpretation of our financial results, the factors affecting these results, the major factors expected to affect future operating results and future investment and financing plans. This discussion should be read in conjunction with our consolidated financial statements and notes thereto.Several factors exist that could influence our future financial performance, some of which are described in Item 1A above, “Risk Factors”. They should be considered in connection with evaluating forward-looking statements contained in this report or otherwise made by or on behalf of us since these factors could cause actual results and conditions to differ materially from those set out in such forward-looking statements.Cautionary Statement for the Purposes of the Safe Harbor under the Private Securities Litigation Reform Act of 1995The statements contained in this Annual Report on Form 10-K may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report are forward-looking statements made in good faith by us and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report, or any other of our documents or oral presentations, the words “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “objective”, “plan”, “projection”, “seek”, “strategy” or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to our strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. These risks and uncertainties include the following: federal, state and local regulatory and political trends and decisions, including the impact of rate proceedings before various state regulatory commissions; increased federal regulatory oversight and potential penalties; possible increased federal, state and local regulation of the safety of our operations; possible significant costs and liabilities resulting from pipeline integrity and other similar programs and related repairs; the inherent hazards and risks involved in distributing, transporting and storing natural gas; the availability and accessibility of contracted gas supplies, interstate pipeline and/or storage services; increased competition from energy suppliers and alternative forms of energy; failure to attract and retain a qualified workforce; natural disasters, terrorist activities or other events and other risks and uncertainties discussed herein, all of which are difficult to predict and many of which are beyond our control; increased dependence on technology that may hinder the Company's business if such technologies fail; the threat of cyber-attacks or acts of cyber-terrorism that could disrupt our business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee 22Table of Contentsor Company information; the impact of new cybersecurity compliance requirements; adverse weather conditions; the impact of greenhouse gas emissions or other legislation or regulations intended to address climate change; the impact of climate change; the capital-intensive nature of our business; our ability to continue to access the credit and capital markets to execute our business strategy; market risks beyond our control affecting our risk management activities, including commodity price volatility, counterparty performance or creditworthiness and interest rate risk; the concentration of our operations in Texas; the impact of adverse economic conditions on our customers; changes in the availability and price of natural gas; and increased costs of providing health care benefits, along with pension and postretirement health care benefits and increased funding requirements. Accordingly, while we believe these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, we undertake no obligation to update or revise any of our forward-looking statements whether as a result of new information, future events or otherwise.CRITICAL ACCOUNTING POLICIESOur consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from estimates.Our significant accounting policies are discussed in Note 2 to our consolidated financial statements. The accounting policies discussed below are both important to the presentation of our financial condition and results of operations and require management to make difficult, subjective or complex accounting estimates. Accordingly, these critical accounting policies are reviewed periodically by the Audit Committee of the Board of Directors.Critical Accounting PolicySummary of PolicyFactors Influencing Application of the PolicyRegulationOur distribution and pipeline operations meet the criteria of a cost-based, rate-regulated entity under accounting principles generally accepted in the United States. Accordingly, the financial results for these operations reflect the effects of the ratemaking and accounting practices and policies of the various regulatory commissions to which we are subject.As a result, certain costs that would normally be expensed under accounting principles generally accepted in the United States are permitted to be capitalized or deferred on the balance sheet because it is probable they can be recovered through rates. Further, regulation may impact the period in which revenues or expenses are recognized. The amounts expected to be recovered or recognized are based upon historical experience and our understanding of the regulations.Discontinuing the application of this method of accounting for regulatory assets and liabilities or changes in the accounting for our various regulatory mechanisms could significantly increase our operating expenses as fewer costs would likely be capitalized or deferred on the balance sheet, which could reduce our net income.Decisions of regulatory authoritiesIssuance of new regulations or regulatory mechanismsAssessing the probability of the recoverability of deferred costsContinuing to meet the criteria of a cost-based, rate regulated entity for accounting purposes23Table of ContentsCritical Accounting PolicySummary of PolicyFactors Influencing Application of the PolicyPension and other postretirement plansPension and other postretirement plan costs and liabilities are determined on an actuarial basis using a September 30 measurement date and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets, assumed discount rates and current demographic and actuarial mortality data. The assumed discount rate and the expected return are the assumptions that generally have the most significant impact on our pension costs and liabilities. The assumed discount rate, the assumed health care cost trend rate and assumed rates of retirement generally have the most significant impact on our postretirement plan costs and liabilities.The discount rate is utilized principally in calculating the actuarial present value of our pension and postretirement obligations and net periodic pension and postretirement benefit plan costs. When establishing our discount rate, we consider high quality corporate bond rates based on bonds available in the marketplace that are suitable for settling the obligations, changes in those rates from the prior year and the implied discount rate that is derived from matching our projected benefit disbursements with currently available high quality corporate bonds.The expected long-term rate of return on assets is utilized in calculating the expected return on plan assets component of our annual pension and postretirement plan costs. We estimate the expected return on plan assets by evaluating expected bond returns, equity risk premiums, asset allocations, the effects of active plan management, the impact of periodic plan asset rebalancing and historical performance. We also consider the guidance from our investment advisors in making a final determination of our expected rate of return on assets. To the extent the actual rate of return on assets realized over the course of a year is greater than or less than the assumed rate, that year’s annual pension or postretirement plan costs are not affected. Rather, this gain or loss reduces or increases future pension or postretirement plan costs over a period of approximately ten to twelve years.The market-related value of our plan assets represents the fair market value of the plan assets, adjusted to smooth out short-term market fluctuations over a five-year period. The use of this methodology will delay the impact of current market fluctuations on the pension expense for the period.We estimate the assumed health care cost trend rate used in determining our postretirement net expense based upon our actual health care cost experience, the effects of recently enacted legislation and general economic conditions. Our assumed rate of retirement is estimated based upon our annual review of our participant census information as of the measurement date.General economic and market conditionsAssumed investment returns by asset classAssumed future salary increasesAssumed discount rateProjected timing of future cash disbursementsHealth care cost experience trendsParticipant demographic informationActuarial mortality assumptionsImpact of legislationImpact of regulationImpairment assessmentsWe review the carrying value of our long-lived assets, including goodwill and identifiable intangibles, whenever events or changes in circumstance indicate that such carrying values may not be recoverable, and at least annually for goodwill, as required by U.S. accounting standards.The evaluation of our goodwill balances and other long-lived assets or identifiable assets for which uncertainty exists regarding the recoverability of the carrying value of such assets involves the assessment of future cash flows and external market conditions and other subjective factors that could impact the estimation of future cash flows including, but not limited to the commodity prices, the amount and timing of future cash flows, future growth rates and the discount rate. Unforeseen events and changes in circumstances or market conditions could adversely affect these estimates, which could result in an impairment charge.General economic and market conditionsProjected timing and amount of future discounted cash flowsJudgment in the evaluation of relevant data24Table of ContentsRESULTS OF OPERATIONSOverviewAtmos Energy strives to operate its businesses safely and reliably while delivering superior financial results. Our commitment to modernizing our natural gas distribution and transmission systems requires a significant level of capital spending. We have the ability to begin recovering a significant portion of these investments timely through rate designs and mechanisms that reduce or eliminate regulatory lag and separate the recovery of our approved rate from customer usage patterns. The execution of our capital spending program, the ability to recover these investments timely and our ability to access the capital markets to satisfy our financing needs are the primary drivers that affect our financial performance.The following table details our consolidated net income by segment during the last three fiscal years: For the Fiscal Year Ended September 30 202320222021 (In thousands)Distribution segment$580,397 $521,977 $445,862 Pipeline and storage segment305,465 252,421 219,701 Net income$885,862 $774,398 $665,563 During fiscal 2023, we recorded net income of $885.9 million, or $6.10 per diluted share, compared to net income of $774.4 million, or $5.60 per diluted share in the prior year. The year-over-year increase in net income of $111.5 million largely reflects positive rate outcomes driven by safety and reliability spending, partially offset by increased line locating costs, system maintenance activities and an increase in depreciation expense and property taxes associated with increased capital investments.During the year ended September 30, 2023, we implemented ratemaking regulatory actions which resulted in an increase in annual operating income of $263.1 million. Excluding the impact of the refund of excess deferred income taxes resulting from previously enacted tax reform legislation, our total fiscal 2023 rate outcomes were $268.8 million. Additionally, we had ratemaking efforts in progress at September 30, 2023, seeking a total increase in annual operating income of $264.6 million. During fiscal year 2023, we refunded $160.3 million in excess deferred tax liabilities to customers. These refunds also reduced our income tax expense, resulting in an immaterial impact to our fiscal 2023 and 2022 results.Capital expenditures for fiscal 2023 were $2.8 billion. Over 85 percent was invested to improve the safety and reliability of our distribution and transportation systems, with a significant portion of this investment incurred under regulatory mechanisms that reduce regulatory lag to six months or less. During fiscal 2023, we completed approximately $1.6 billion of long-term debt and equity financing. As of September 30, 2023, our equity capitalization was 61.5 percent. As of September 30, 2023, we had approximately $2.7 billion in total liquidity, consisting of $15.4 million in cash and cash equivalents, $466.8 million in funds available through equity forward sales agreements and $2,252.5 million in undrawn capacity under our credit facilities.Distribution SegmentThe distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states. The primary factors that impact the results of our distribution operations are our ability to earn our authorized rates of return, competitive factors in the energy industry and economic conditions in our service areas.Our ability to earn our authorized rates is based primarily on our ability to improve the rate design in our various ratemaking jurisdictions to minimize regulatory lag and, ultimately, separate the recovery of our approved rates from customer usage patterns. Improving rate design is a long-term process and is further complicated by the fact that we operate in multiple rate jurisdictions. The “Ratemaking Activity” section of this Form 10-K describes our current rate strategy, progress towards implementing that strategy and recent ratemaking initiatives in more detail. During fiscal 2023, we completed regulatory proceedings in our distribution segment resulting in a $178.2 million increase in annual operating income. Excluding the impact of the refund of excess deferred income taxes resulting from previously enacted tax reform legislation, our total fiscal 2023 annualized rate outcomes in our distribution segment were $183.8 million.Our distribution operations are also affected by the cost of natural gas. We are generally able to pass the cost of gas through to our customers without markup under purchased gas cost adjustment mechanisms; therefore, increases in the cost of gas are offset by a corresponding increase in revenues. Revenues in our Texas and Mississippi service areas include franchise fees and gross receipts taxes, which are calculated as a percentage of revenue (inclusive of gas costs). Therefore, the amount of 25Table of Contentsthese taxes included in revenues is influenced by the cost of gas and the level of gas sales volumes. We record the associated tax expense as a component of taxes, other than income.The cost of gas typically does not have a direct impact on our operating income because these costs are recovered through our purchased gas cost adjustment mechanisms. However, higher gas costs may adversely impact our accounts receivable collections, resulting in higher bad debt expense. This risk is currently mitigated by rate design that allows us to collect from our customers the gas cost portion of our bad debt expense on approximately 80 percent of our residential and commercial revenues. Additionally, higher gas costs may require us to increase borrowings under our credit facilities, resulting in higher interest expense. Finally, higher gas costs, as well as competitive factors in the industry and general economic conditions may cause customers to conserve or, in the case of industrial consumers, to use alternative energy sources. Review of Financial and Operating ResultsFinancial and operational highlights for our distribution segment for the fiscal years ended September 30, 2023, 2022 and 2021 are presented below. For the Fiscal Year Ended September 30 2023202220212023 vs. 20222022 vs. 2021 (In thousands, unless otherwise noted)Operating revenues$4,099,690 $4,035,194 $3,241,973 $64,496 $793,221 Purchased gas cost2,061,920 2,210,302 1,501,695 (148,382)708,607 Operating expenses1,345,144 1,220,347 1,121,764 124,797 98,583 Operating income692,626 604,545 618,514 88,081 (13,969)Other non-operating income (expense)24,988 6,946 (20,694)18,042 27,640 Interest charges77,185 49,921 36,629 27,264 13,292 Income before income taxes640,429 561,570 561,191 78,859 379 Income tax expense60,032 39,593 115,329 20,439 (75,736)Net income$580,397 $521,977 $445,862 $58,420 $76,115 Consolidated distribution sales volumes — MMcf289,948 292,266 308,833 (2,318)(16,567)Consolidated distribution transportation volumes — MMcf152,963 152,709 152,513 254 196 Total consolidated distribution throughput — MMcf442,911 444,975 461,346 (2,064)(16,371)Consolidated distribution average cost of gas per Mcf sold$7.11 $7.56 $4.86 $(0.45)$2.70 Fiscal year ended September 30, 2023 compared with fiscal year ended September 30, 2022 Operating income for our distribution segment increased 14.6 percent. Key drivers for the change in operating income include:•a $166.4 million increase in rate adjustments, primarily in our Mid-Tex Division.•an $18.4 million increase related to residential customer growth, primarily in our Mid-Tex Division, and increased industrial load.•an $11.7 million increase in consumption, net of WNA.•a $7.5 million decrease in refunds of excess deferred taxes to customers, which is substantially offset in income tax expense.Partially offset by:•a $65.4 million increase in depreciation expense and property taxes associated with increased capital investments.•a $20.2 million increase in line locate spending, primarily in our Mid-Tex Division.•a $4.9 million increase in bad debt expense primarily due to higher customer bills.•a $21.6 million increase in other operation and maintenance expense primarily due to increased insurance premiums, travel spending, information technology spending and other administrative costs.Other non-operating income increased $18.0 million primarily due to a higher allowance for funds used during construction (AFUDC) related to increased capital spending as well as unrealized gains on equity investments in the current 26Table of Contentsperiod compared to unrealized losses on equity investments in the prior period. Interest charges increased $27.3 million primarily due to the issuance of long-term debt during the first quarter of fiscal 2023.The fiscal year ended September 30, 2022 compared with fiscal year ended September 30, 2021 for our distribution segment is described in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.The following table shows our operating income by distribution division, in order of total rate base, for the fiscal years ended September 30, 2023, 2022 and 2021. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for ratemaking purposes. For the Fiscal Year Ended September 30 2023202220212023 vs. 20222022 vs. 2021 (In thousands)Mid-Tex$345,545 $315,644 $310,293 $29,901 $5,351 Kentucky/Mid-States87,258 84,098 73,259 3,160 10,839 Louisiana80,942 73,486 72,388 7,456 1,098 West Texas62,351 53,604 51,104 8,747 2,500 Mississippi78,517 65,947 65,337 12,570 610 Colorado-Kansas40,674 26,000 32,778 14,674 (6,778)Other(2,661)(14,234)13,355 11,573 (27,589)Total$692,626 $604,545 $618,514 $88,081 $(13,969)Pipeline and Storage SegmentOur pipeline and storage segment consists of the pipeline and storage operations of our Atmos Pipeline–Texas Division (APT) and our natural gas transmission operations in Louisiana. APT is one of the largest intrastate pipeline operations in Texas with a heavy concentration in the established natural gas producing areas of central, northern and eastern Texas, extending into or near the major producing areas of the Barnett Shale, the Texas Gulf Coast and the Permian Basin of West Texas. APT provides transportation and storage services to our Mid-Tex Division, other third-party local distribution companies, industrial and electric generation customers, as well as marketers and producers. Over 80 percent of this segment's revenues are derived from these APT services. As part of its pipeline operations, APT owns and operates five underground storage facilities in Texas.Our natural gas transmission operations in Louisiana are comprised of a 21-mile pipeline located in the New Orleans, Louisiana area that is primarily used to aggregate gas supply for our distribution division in Louisiana under a long-term contract and, on a more limited basis, to third parties. The demand fee charged to our Louisiana distribution division for these services is subject to regulatory approval by the Louisiana Public Service Commission. We also manage two asset management plans, which have been approved by applicable state regulatory commissions. Generally, these asset management plans require us to share with our distribution customers a significant portion of the cost savings earned from these arrangements.Our pipeline and storage segment is impacted by seasonal weather patterns, competitive factors in the energy industry and economic conditions in our Texas and Louisiana service areas. Natural gas prices do not directly impact the results of this segment as revenues are derived from the transportation and storage of natural gas. However, natural gas prices and demand for natural gas could influence the level of drilling activity in the supply areas that we serve, which may influence the level of throughput we may be able to transport on our pipelines. Further, natural gas price differences between the various hubs that we serve in Texas could influence the volumes of gas transported for shippers through our Texas pipeline system and rates for such transportation.The results of APT are also significantly impacted by the natural gas requirements of its local distribution company customers. Additionally, its operations may be impacted by the timing of when costs and expenses are incurred and when these costs and expenses are recovered through its tariffs. APT annually uses GRIP to recover capital costs incurred in the prior calendar year. On February 10, 2023, APT made a GRIP filing that covered changes in net property, plant and equipment investment from January 1, 2022 through December 31, 2022 with a requested increase in operating income of $84.9 million. On May 17, 2023, the Texas Railroad Commission (RRC) approved the Company's GRIP filing. Additionally, GRIP requires a utility to file a statement of intent at least once every five years to review its costs and expenses, including capital costs filed for recovery under GRIP. On May 19, 2023, APT filed its statement of intent seeking $107.4 million in additional annual operating income. On October 24, 2023, APT and the intervening parties in its general rate case filed a Joint Notice of Settlement and Proposed Order. See "Ratemaking Activity" above for further information.27Table of ContentsThe demand fee our Louisiana natural gas transmission pipeline charges to our Louisiana distribution division increases five percent annually and has been approved by the Louisiana Public Service Commission until September 30, 2027.Review of Financial and Operating ResultsFinancial and operational highlights for our pipeline and storage segment for the fiscal years ended September 30, 2023, 2022 and 2021 are presented below. For the Fiscal Year Ended September 30 2023202220212023 vs. 20222022 vs. 2021 (In thousands, unless otherwise noted)Mid-Tex / Affiliate transportation revenue$621,987 $546,038 $497,730 $75,949 $48,308 Third-party transportation revenue154,018 136,907 127,874 17,111 9,033 Other revenue9,169 10,715 11,743 (1,546)(1,028)Total operating revenues785,174 693,660 637,347 91,514 56,313 Total purchased gas cost(1,220)(1,583)1,582 363 (3,165)Operating expenses411,873 378,806 349,281 33,067 29,525 Operating income374,521 316,437 286,484 58,084 29,953 Other non-operating income44,787 26,791 18,549 17,996 8,242 Interest charges60,096 52,890 46,925 7,206 5,965 Income before income taxes359,212 290,338 258,108 68,874 32,230 Income tax expense53,747 37,917 38,407 15,830 (490)Net income$305,465 $252,421 $219,701 $53,044 $32,720 Gross pipeline transportation volumes — MMcf834,847 776,608 799,724 58,239 (23,116)Consolidated pipeline transportation volumes — MMcf635,508 580,488 585,857 55,020 (5,369)Fiscal year ended September 30, 2023 compared with fiscal year ended September 30, 2022Operating income for our pipeline and storage segment increased 18.4 percent. Key drivers for the change in operating income include:•an $87.3 million increase due to rate adjustments from GRIP filings approved in May 2022 and 2023. The increase in rates was driven by increased safety and reliability spending.•a $5.2 million net increase in APT's through-system activities primarily associated with increased volumes.Partially offset by:•a $33.1 million increase in operating expenses primarily attributable to increased depreciation expense and property taxes associated with increased capital investments, employee-related costs, and pipeline inspection activities.Other non-operating income increased $18.0 million primarily due to higher AFUDC largely as a result of increased capital spending. Interest charges increased $7.2 million primarily due to the issuance of long-term debt during the first quarter of fiscal 2023.The fiscal year ended September 30, 2022 compared with fiscal year ended September 30, 2021 for our pipeline and storage segment is described in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.INFLATION REDUCTION ACT OF 2022In August 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the Inflation Reduction Act) into law. The Inflation Reduction Act includes a new corporate alternative minimum tax (the Corporate AMT) of 15% on the adjusted financial statement income (AFSI) of corporations with average AFSI exceeding $1.0 billion over a three-year period. We currently anticipate this tax will apply to us within the next three years, and it could materially impact our cash tax payments. However, we don't anticipate any impact to our results of operations. Also, the Inflation Reduction Act imposes a methane emissions charge for methane emissions in excess of 25,000 metric tons carbon dioxide equivalent per year. Based on our preliminary evaluation of the regulations, we currently do not anticipate this provision of the Inflation Reduction Act will have a material impact on our financial position, results of operations or cash flows. Additionally, the Inflation Reduction Act 28Table of Contentsimposes an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022. The impact of this provision will be dependent on the extent of share repurchases made in future periods.LIQUIDITY AND CAPITAL RESOURCESThe liquidity required to fund our working capital, capital expenditures and other cash needs is provided from a combination of internally generated cash flows and external debt and equity financing. Additionally, we have a $1.5 billion commercial paper program and four committed revolving credit facilities with $2.5 billion in total availability from third-party lenders. The commercial paper program and credit facilities provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves the Company's desired capital structure. Additionally, we have various uncommitted trade credit lines with our gas suppliers that we utilize to purchase natural gas on a monthly basis. We have a shelf registration statement on file with the Securities and Exchange Commission (SEC) that allows us to issue up to $5.0 billion in common stock and/or debt securities. As of the date of this report, $3.1 billion of securities remained available for issuance under the shelf registration statement, which expires March 31, 2026.We also have an at-the-market (ATM) equity sales program that allows us to issue and sell shares of our common stock up to an aggregate offering price of $1.0 billion (including shares of common stock that may be sold pursuant to forward sale agreements entered into in connection with the ATM equity sales program), which expires March 31, 2026. At September 30, 2023, $760.5 million of equity is available for issuance under this ATM equity sales program. Additionally, as of September 30, 2023, we had $466.8 million in available proceeds from outstanding forward sale agreements.On September 26, 2023, we settled $700 million of forward starting interest rate swaps associated with a debt issuance that was completed on October 10, 2023. The following table summarizes our existing forward starting interest rate swaps as of September 30, 2023.Planned Debt Issuance DateAmount HedgedEffective Interest Rate(In thousands)Fiscal 2025$600,000 1.75 %Fiscal 2026300,000 2.16 %$900,000 The liquidity provided by these sources is expected to be sufficient to fund the Company's working capital needs and capital expenditures program. Additionally, we expect to continue to be able to obtain financing upon reasonable terms as necessary.The following table presents our capitalization as of September 30, 2023 and 2022: September 30 20232022 (In thousands, except percentages)Short-term debt$241,933 1.4 %$184,967 1.1 %Long-term debt (1)6,555,701 37.1 %7,962,104 45.3 %Shareholders’ equity (2)10,870,064 61.5 %9,419,091 53.6 %Total capitalization, including short-term debt$17,667,698 100.0 %$17,566,162 100.0 %(1)Inclusive of our finance leases, but exclusive of AEK's securitized long-term debt.(2)Excluding the $2.2 billion of incremental financing issued to pay for the purchased gas costs incurred during Winter Storm Uri, our equity capitalization ratio would have been 61.3% at September 30, 2022.Cash FlowsOur internally generated funds may change in the future due to a number of factors, some of which we cannot control. These factors include regulatory changes, the price for our services, the demand for such products and services, margin requirements resulting from significant changes in commodity prices, operational risks and other factors.Cash flows from operating, investing and financing activities for the years ended September 30, 2023, 2022 and 2021 are presented below.29Table of Contents For the Fiscal Year Ended September 30 2023202220212023 vs. 20222022 vs. 2021 (In thousands)Total cash provided by (used in)Operating activities$3,459,743 $977,584 $(1,084,251)$2,482,159 $2,061,835 Investing activities(2,795,280)(2,429,958)(1,963,655)(365,322)(466,303)Financing activities(696,769)1,387,205 3,143,821 (2,083,974)(1,756,616)Change in cash and cash equivalents and restricted cash and cash equivalents(32,306)(65,169)95,915 32,863 (161,084)Cash and cash equivalents and restricted cash and cash equivalents at beginning of period51,554 116,723 20,808 (65,169)95,915 Cash and cash equivalents and restricted cash and cash equivalents at end of period$19,248 $51,554 $116,723 $(32,306)$(65,169)Cash flows for the fiscal year ended September 30, 2022 compared with fiscal year ended September 30, 2021 is described in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.Cash flows from operating activitiesFor the fiscal year ended September 30, 2023, cash flow provided by operating activities was $3,459.7 million compared with $977.6 million in the prior year. Fiscal 2023 operating cash flow included $2,021.9 million of cash received as a result of the conclusion of Texas securitization proceedings. Excluding this cash inflow, operating cash flow in fiscal 2023 was $1,437.8 million. The year-over-year increase in operating cash flow reflects the positive effects of successful rate case outcomes achieved in fiscal 2022 and 2023 and decreased purchases of gas stored underground.Cash flows from investing activitiesOur capital expenditures are primarily used to improve the safety and reliability of our distribution and transmission system through pipeline replacement and system modernization and to enhance and expand our system to meet customer needs. Over the last three fiscal years, approximately 87 percent of our capital spending has been committed to improving the safety and reliability of our system. For the fiscal year ended September 30, 2023, we had $2.8 billion in capital expenditures compared with $2.4 billion for the fiscal year ended September 30, 2022. Capital spending increased by $361.6 million, or 15 percent, as a result of planned increases to modernize our system and improve pipeline system safety and reliability in Texas and further enhance the safety, reliability, versatility and supply diversification of APT's system.Cash flows from financing activitiesOur financing activities used $696.8 million of cash for fiscal year 2023 compared with $1,387.2 million of cash provided by financing activities for fiscal year 2022.During the fiscal year ended September 30, 2023, we repaid $2.2 billion in long-term debt, and we received approximately $1.6 billion in net proceeds from the issuance of long-term debt and equity. We completed a public offering of $500 million of 5.75% senior notes due October 2052 and $300 million of 5.45% senior notes due October 2032, and received net proceeds from the offering, after the underwriting discount and offering expenses, of $789.4 million. Additionally, during the fiscal year ended September 30, 2023, we settled 7,272,261 shares that had been sold on a forward basis for net proceeds of $806.9 million. The net proceeds were used primarily to support capital spending and for other general corporate purposes. We also received $171.1 million from the settlement of forward starting interest rate swaps related to a debt issuance completed in October 2023. Cash dividends increased due to an 8.8 percent increase in our dividend rate and an increase in shares outstanding. Finally, Atmos Energy Kansas Securitization I, LLC, a special-purpose, wholly-owned subsidiary of Atmos Energy, issued $95 million in securitized long-term debt.During the fiscal year ended September 30, 2022, we received $1.6 billion in net proceeds from the issuance of long-term debt and equity. We completed a public offering of $600 million of 2.85% senior notes due February 2052. We also completed a public offering of $200 million of 2.625% senior notes due September 2029 that were used to repay our $200 million floating-rate term loan. Additionally, during the year ended September 30, 2022, we settled 7,907,833 shares that had been sold on a forward basis for net proceeds of $776.8 million. The net proceeds were used primarily to support capital spending and for other general corporate purposes. We also received $197.1 million from the settlement of forward starting interest rate swaps related to a debt issuance completed in October 2022. Additionally, cash dividends increased due to an 8.8 percent increase in our dividend rate and an increase in shares outstanding.30Table of ContentsThe following table shows the number of shares issued for the fiscal years ended September 30, 2023, 2022 and 2021: For the Fiscal Year Ended September 30 202320222021Shares issued:Direct Stock Purchase Plan64,871 68,693 79,921 Retirement Savings Plan and Trust69,716 72,339 84,265 1998 Long-Term Incentive Plan (LTIP)189,337 427,929 242,216 Equity Issuance (1)7,272,261 7,907,883 6,130,875 Total shares issued7,596,185 8,476,844 6,537,277 (1)Share amounts do not include shares issued under forward sale agreements until the shares have been settled.Credit RatingsOur credit ratings directly affect our ability to obtain short-term and long-term financing, in addition to the cost of such financing. In determining our credit ratings, the rating agencies consider a number of quantitative factors, including but not limited to, debt to total capitalization, operating cash flow relative to outstanding debt, operating cash flow coverage of interest and operating cash flow less dividends to debt. In addition, the rating agencies consider qualitative factors such as consistency of our earnings over time, the risks associated with our business and the regulatory structures that govern our rates in the states where we operate.Our debt is rated by two rating agencies: Standard & Poor’s Corporation (S&P) and Moody’s Investors Service (Moody’s). As of September 30, 2023, our outlook and current debt ratings, which are all considered investment grade are as follows: S&PMoody’s Senior unsecured long-term debt A-A1 Short-term debt A-2P-1 OutlookStableStable A significant degradation in our operating performance or a significant reduction in our liquidity caused by more limited access to the private and public credit markets as a result of deteriorating global or national financial and credit conditions could trigger a negative change in our ratings outlook or even a reduction in our credit ratings by the two credit rating agencies. This would mean more limited access to the private and public credit markets and an increase in the costs of such borrowings.A credit rating is not a recommendation to buy, sell or hold securities. The highest investment grade credit rating is AAA for S&P and Aaa for Moody’s. The lowest investment grade credit rating is BBB- for S&P and Baa3 for Moody’s. Our credit ratings may be revised or withdrawn at any time by the rating agencies, and each rating should be evaluated independently of any other rating. There can be no assurance that a rating will remain in effect for any given period of time or that a rating will not be lowered, or withdrawn entirely, by a rating agency if, in its judgment, circumstances so warrant.Debt CovenantsWe were in compliance with all of our debt covenants as of September 30, 2023. Our debt covenants are described in Note 8 to the consolidated financial statements.31Table of ContentsContractual Obligations and Commercial CommitmentsThe following table provides information about contractual obligations and commercial commitments at September 30, 2023. Payments Due by PeriodTotalLess than 1year1-3 years 3-5 yearsMore than 5years (In thousands) Contractual ObligationsLong-term debt (1)$6,560,000 $— $10,000 $650,000 $5,900,000 Short-term debt (1)241,933 241,933 — — — Securitized long-term debt95,000 9,922 16,842 18,647 49,589 Interest charges (2)4,981,621 265,077 532,354 514,413 3,669,777 Interest charges on securitized long-term debt26,779 5,709 8,134 6,329 6,607 Finance leases (3)69,880 3,375 6,940 7,203 52,362 Operating leases (4)277,989 41,325 59,035 44,721 132,908 Financial instrument obligations (5)15,408 14,584 824 — — Pension and postretirement benefit plan contributions (6)310,710 31,784 80,759 52,600 145,567 Uncertain tax positions (7)58,638 — 58,638 — — Total contractual obligations $12,637,958 $613,709 $773,526 $1,293,913 $9,956,810 (1)Long-term and short-term debt excludes our finance lease obligations, which are separately reported within this table. See Note 8 to the consolidated financial statements for further details. (2)Interest charges were calculated using the coupon rate for each debt issuance through the contractual maturity date.(3)Finance lease payments shown above include interest totaling $19.5 million. See Note 7 to the consolidated financial statements.(4)Operating lease payments shown above include interest totaling $47.7 million. See Note 7 to the consolidated financial statements.(5)Represents liabilities for natural gas commodity financial instruments that were valued as of September 30, 2023. The ultimate settlement amounts of these remaining liabilities are unknown because they are subject to continuing market risk until the financial instruments are settled.(6)Represents expected contributions to our defined benefit and postretirement benefit plans, which are discussed in Note 11 to the consolidated financial statements.(7)Represents liabilities associated with uncertain tax positions claimed or expected to be claimed on tax returns. The amount does not include interest and penalties that may be applied to these positions. See Note 15 to the consolidated financial statements for further details.We maintain supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated base gas volumes are established under these contracts on a monthly basis at contractually negotiated prices. Commitments for incremental daily purchases are made as necessary during the month in accordance with the terms of individual contracts. Our Mid-Tex Division also maintains a limited number of long-term supply contracts to ensure a reliable source of gas for our customers in its service area which obligate it to purchase specified volumes at market and fixed prices. At September 30, 2023, we were committed to purchase 65.5 Bcf within one year and 72.3 Bcf within two to three years under indexed contracts. At September 30, 2023, we were committed to purchase 20.6 Bcf within one year under fixed price contracts with a weighted average price of $2.80 per Mcf. Risk Management ActivitiesIn our distribution and pipeline and storage segments, we use a combination of physical storage, fixed physical contracts and fixed financial contracts to reduce our exposure to unusually large winter-period gas price increases. Additionally, we manage interest rate risk by entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings. We record our financial instruments as a component of risk management assets and liabilities, which are classified as current or noncurrent based upon the anticipated settlement date of the underlying financial instrument. Substantially all of our financial instruments are valued using external market quotes and indices.32Table of ContentsThe following table shows the components of the change in fair value of our financial instruments for the fiscal year ended September 30, 2023 (in thousands):Fair value of contracts at September 30, 2022$377,862 Contracts realized/settled(174,107)Fair value of new contracts5,379 Other changes in value161,122 Fair value of contracts at September 30, 2023370,256 Netting of cash collateral— Cash collateral and fair value of contracts at September 30, 2023$370,256 The fair value of our financial instruments at September 30, 2023, is presented below by time period and fair value source: Fair Value of Contracts at September 30, 2023 Maturity in years Source of Fair ValueLessthan 11-34-5Greaterthan 5TotalFairValue (In thousands)Prices actively quoted$(10,513)$380,769 $— $— $370,256 Prices based on models and other valuation methods— — — — — Total Fair Value$(10,513)$380,769 $— $— $370,256 RECENT ACCOUNTING DEVELOPMENTSRecent accounting developments and their impact on our financial position, results of operations and cash flows are described in Note 2 to the consolidated financial statements. ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk.We are exposed to risks associated with commodity prices and interest rates. Commodity price risk is the potential loss that we may incur as a result of changes in the fair value of a particular instrument or commodity. Interest-rate risk is the potential increased cost we could incur when we issue debt instruments or to provide financing and liquidity for our business activities. Additionally, interest-rate risk could affect our ability to issue cost effective equity instruments.We conduct risk management activities in our distribution and pipeline and storage segments. In our distribution segment, we use a combination of physical storage, fixed-price forward contracts and financial instruments, primarily over-the-counter swap and option contracts, in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season. Our risk management activities and related accounting treatment are described in further detail in Note 16 to the consolidated financial statements. Additionally, our earnings are affected by changes in short-term interest rates as a result of our issuance of short-term commercial paper and our other short-term borrowings.Commodity Price RiskWe purchase natural gas for our distribution operations. Substantially all of the costs of gas purchased for distribution operations are recovered from our customers through purchased gas cost adjustment mechanisms. Therefore, our distribution operations have limited commodity price risk exposure.Interest Rate RiskOur earnings are exposed to changes in short-term interest rates associated with our short-term commercial paper program and other short-term borrowings. We use a sensitivity analysis to estimate our short-term interest rate risk. For purposes of this analysis, we estimate our short-term interest rate risk as the difference between our actual interest expense for the period and estimated interest expense for the period assuming a hypothetical average one percent increase in the interest rates associated with our short-term borrowings. Had interest rates associated with our short-term borrowings increased by an average of one percent, our interest expense would not have materially increased during 2023.33Table of Contents \ No newline at end of file diff --git a/Air Products & Chemicals, Inc._10-K_2023-11-16_2969-0000002969-23-000047.html b/Air Products & Chemicals, Inc._10-K_2023-11-16_2969-0000002969-23-000047.html new file mode 100644 index 0000000000000000000000000000000000000000..a2d955c5a9e14285f8b672a7d72b1b9e2f884fb6 --- /dev/null +++ b/Air Products & Chemicals, Inc._10-K_2023-11-16_2969-0000002969-23-000047.html @@ -0,0 +1 @@ +Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsBusiness Overview232023 in Summary23Outlook26Results of Operations26Reconciliations of Non-GAAP Financial Measures33Liquidity and Capital Resources39Pension Benefits43Critical Accounting Policies and Estimates44This Management’s Discussion and Analysis contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about business outlook. These forward-looking statements are based on management’s expectations and assumptions as of the date of this Annual Report on Form 10-K and are not guarantees of future performance. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management, including, without limitation, those described in "Forward-Looking Statements" and Item 1A, Risk Factors, of this Annual Report on Form 10-K.This discussion should be read in conjunction with the consolidated financial statements and the accompanying notes contained in this Annual Report on Form 10-K. Unless otherwise stated, financial information is presented in millions of U.S. Dollars, except for per share data. Except for net income, which includes the results of discontinued operations, financial information is presented on a continuing operations basis.The financial measures discussed below are presented in accordance with U.S. generally accepted accounting principles ("GAAP"), except as noted. We present certain financial measures on an "adjusted," or "non-GAAP," basis because we believe such measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance. For each non-GAAP financial measure, including adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate, and capital expenditures, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These reconciliations and explanations regarding the use of non-GAAP measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 33.Comparisons included in the discussion that follows are for fiscal year 2023 versus ("vs.") fiscal year 2022. A discussion of changes from fiscal year 2021 to fiscal year 2022 and other financial information related to fiscal year 2021 is available in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended 30 September 2022, which was filed with the SEC on 22 November 2022.For information concerning activity with our related parties, refer to Note 24, Supplemental Information, to the consolidated financial statements.22Table of ContentsBUSINESS OVERVIEWFounded in 1940, Air Products and Chemicals, Inc. is a world-leading industrial gases company that has built a reputation for its innovative culture, operational excellence, and commitment to safety and the environment. Approximately 23,000 passionate, talented, and committed employees from diverse backgrounds together are driven by Air Products’ higher purpose to create innovative solutions that benefit the environment, enhance sustainability, and reimagine what is possible to address the challenges facing customers, communities, and the world. Our products and services enable our customers to improve their environmental performance, product quality, and productivity. Our core business provides essential gases, related equipment, and applications expertise to customers in dozens of industries, including refining, chemicals, metals, electronics, manufacturing, medical, and food. We also develop, engineer, build, own, and operate some of the world’s largest clean hydrogen projects that will support the transition to low- and zero-carbon energy in the heavy-duty transportation and industrial sectors. Additionally, we are the world leader in the supply of LNG process technology and equipment and provide turbomachinery, membrane systems, and cryogenic containers globally. For additional information on our product and service offerings, including production, distribution, and end use, refer to Item 1, Business, of this Annual Report on Form 10-K.Air Products conducts business in approximately 50 countries and regions throughout the world. Our industrial gases business is organized and operated regionally in the Americas, Asia, Europe, and Middle East and India segments and generates the majority of our sales via our on-site and merchant supply modes. Approximately half our total revenue is generated through the on-site supply mode, which is governed by contracts that are generally long-term in nature with provisions that allow us to pass through changes in energy costs to our customers. Our Corporate and other segment includes the results of our sale of equipment businesses, costs for corporate support functions and global management activities, and other income and expenses not directly associated with the regional segments, such as foreign exchange gains and losses. For additional information regarding our supply modes and business segments, refer to Note 6, Revenue Recognition, and Note 25, Business Segment and Geographic Information, to the consolidated financial statements.2023 IN SUMMARYIn fiscal year 2023, we achieved earnings growth through pricing discipline in our merchant business as well as improved on-site volumes, including higher demand for hydrogen, despite inflation, higher maintenance activities, and higher costs to support our long-term strategy. Due to the structure of our contracts, which generally contain fixed monthly charges and/or minimum purchase requirements, our on-site business generates stable cash flow and consistently contributes about half our total sales, regardless of the economic environment. We also recognized higher income from our equity affiliates due to the contribution of the second phase of the Jazan gasification and power project and positive results from other unconsolidated joint ventures across the regions.Additionally, we successfully secured capital to fund low- and zero-carbon hydrogen growth projects. In March, we issued our inaugural green bonds in concurrent $600 and €700 million debt offerings, making Air Products the first U.S. chemical company to qualify green and blue hydrogen projects as an eligible expenditure category. Additionally, in May, our NEOM Green Hydrogen Company joint venture completed financial close on the world’s largest green hydrogen-based ammonia production facility, securing $6.1 billion of non-recourse financing from local, regional, and international banks and financial institutions. This funding is an important strategic milestone that will allow us to continue executing projects that will accelerate the energy transition while creating long-term value for our shareholders.In addition to investing in high return projects, we believe creating shareholder value includes paying quarterly cash dividends on our common stock, which we have increased for 41 consecutive years. In fiscal year 2023, we increased our dividend to $1.75 per share, representing an 8% increase, or $0.13 per share, from the previous dividend of $1.62 per share.23Table of ContentsFiscal Year 2023 Highlights•Sales of $12.6 billion decreased 1%, or $98.6, as lower energy cost pass-through to customers of 6% and unfavorable currency of 3% were mostly offset by higher pricing of 5% and higher volumes of 3%.•Operating income of $2.5 billion increased 7%, or $155.8, as our pricing actions and higher volumes were partially offset by higher costs and unfavorable currency. Additionally, we recorded higher charges for business and asset actions in fiscal year 2023 compared to fiscal year 2022. Operating margin of 19.8% increased 140 basis points ("bp") from 18.4% in the prior year, which included a positive impact from lower energy cost pass-through to customers in 2023.•Equity affiliates' income of $604.3 increased 26%, or $122.8, primarily due to a higher contribution from the Jazan Integrated Gasification and Power Company ("JIGPC") joint venture, which completed the second phase of the asset purchase associated with the Jazan gasification and power project in January 2023, as well as higher income from our affiliates in Italy and Mexico. The prior year included recognition of the remaining deferred profit associated with air separation units previously sold to Jazan Gas Project Company, which was partially offset by an impairment charge related to two small affiliates in our Asia segment. •Net income of $2.3 billion increased 3%, or $72.1, primarily due to favorable pricing, net of power and fuel costs, partially offset by a charge for business and asset actions, higher non-service pension costs, and higher other costs. Net income margin of 18.6% increased 80 bp from 17.8% in the prior year, which included a positive impact from lower energy cost pass-through.•Adjusted EBITDA of $4.7 billion increased 11%, or $454.8, and adjusted EBITDA margin of 37.3% increased 390 bp from 33.4% in the prior year.•Diluted EPS of $10.30 increased 2%, or $0.22 per share, and adjusted diluted EPS of $11.51 increased 12%, or $1.26 per share. A summary table of changes in diluted EPS is presented below.24Table of ContentsChanges in Diluted EPS Attributable to Air ProductsThe per share impacts presented in the table below were calculated independently and may not sum to the total change in diluted EPS due to rounding.Fiscal Year Ended 30 September20232022Increase (Decrease)Total Diluted EPS$10.33 $10.14 $0.19 Less: Diluted EPS from income from discontinued operations0.03 0.06 (0.03)Diluted EPS From Continuing Operations$10.30 $10.08 $0.22 % Change from prior year2 %Operating ImpactsUnderlying businessVolume$0.22 Price, net of variable costs2.39 Other costs(1.11)Currency(0.29)Business and asset actions(0.65)Total Operating Impacts$0.56 Other ImpactsEquity affiliates' income$0.40 Equity method investment impairment charge0.05 Interest expense(0.18)Other non-operating income/expense, net, excluding discrete item below0.11 Non-service pension cost/benefit, net(0.44)Change in effective tax rate(0.12)Noncontrolling interests(0.15)Weighted average diluted shares(0.01)Total Other Impacts($0.34)Total Change in Diluted EPS From Continuing Operations$0.22 % Change from prior year2 %The table below summarizes the diluted per share impact of our non-GAAP adjustments in fiscal years 2023 and 2022:Fiscal Year Ended 30 September20232022Increase (Decrease)Diluted EPS From Continuing Operations$10.30 $10.08 $0.22 Business and asset actions0.92 0.27 0.65 Equity method investment impairment charge— 0.05 (0.05)Non-service pension cost (benefit), net0.29 (0.15)0.44 Adjusted Diluted EPS From Continuing Operations$11.51 $10.25 $1.26 % Change from prior year12 %25Table of ContentsOUTLOOKThe guidance below should be read in conjunction with the Forward-Looking Statements of this Annual Report on Form 10-K.The first pillar of our two-pillar growth strategy is our core industrial gas business, which is supported by a consistent stream of revenue due to the structure of our on-site contracts. We expect new on-site projects, including the natural gas-to-syngas processing facility in Uzbekistan, as well as several new LNG sale of equipment projects to contribute to our results in 2024. To mitigate the impact of ongoing inflationary pressures, we are focused on actions we can control, such as maintaining pricing discipline in our merchant business. Additionally, we expect to see cost improvement in certain areas of our organization as a result of strategic business actions taken earlier in 2023.The second pillar of our strategy is our blue and green hydrogen projects, many of which are already under execution. We anticipate benefits from tax incentives created by the U.S. Inflation Reduction Act of 2022 for carbon sequestration and clean hydrogen production in future years once our projects in these areas come on-stream, such as our blue hydrogen and blue ammonia clean energy complex in Louisiana. We are also gaining support from foreign regulators for our projects outside the U.S., including the recently announced blue hydrogen project in the Netherlands. We believe the infrastructure readiness we are preparing now will continue to be a competitive advantage for Air Products, allowing us to create sustainable growth opportunities that deliver value to our shareholders, customers, employees, and communities around the world.RESULTS OF OPERATIONSDISCUSSION OF CONSOLIDATED RESULTSChange vs. Prior YearFiscal Year Ended 30 September20232022$%/bpGAAP MeasuresSales$12,600.0$12,698.6($98.6)(1 %)Operating income2,494.62,338.8155.8 7 %Operating margin19.8 %18.4 %140 bpEquity affiliates’ income$604.3$481.5$122.8 26 %Net income2,338.62,266.572.1 3 %Net income margin18.6 %17.8 %80 bpNon-GAAP MeasuresAdjusted EBITDA$4,701.8$4,247.0$454.8 11 %Adjusted EBITDA margin37.3 %33.4 %390 bpSalesThe table below summarizes the major factors that impacted consolidated sales for the periods presented:Volume3 %Price5 %Energy cost pass-through to customers(6 %)Currency(3 %)Total Consolidated Sales Change(1 %)Sales of $12.6 billion decreased 1%, or $98.6, as lower energy cost pass-through to customers of 6% and unfavorable currency of 3% were mostly offset by higher pricing of 5% and higher volumes of 3%. Lower natural gas prices in the Americas and Europe segments drove the lower energy cost pass-through to our on-site customers. Unfavorable currency was primarily attributable to strengthening of the U.S. Dollar against the Chinese Renminbi. Pricing actions in our merchant business improved sales across each of our regional segments, while the volume improvement was primarily attributable to our on-site business in the Americas and Asia segments.26Table of ContentsCost of Sales and Gross MarginCost of sales of $8.8 billion decreased 5%, or $505.5, due to lower energy cost pass-through to customers of $791 and a favorable impact from currency of $213, partially offset by higher costs associated with sales volumes of $311 and unfavorable other costs of $188. The unfavorable costs were driven by inflation, project development activities, and planned maintenance. Gross margin of 29.9% increased 340 bp from 26.5% in the prior year primarily due to favorable pricing and lower energy cost pass-through to customers, partially offset by the impact of higher costs. The favorable impact from lower energy cost pass-through to customers was about 200 bp. Selling and Administrative ExpenseSelling and administrative expense of $957.0 increased 6%, or $56.4, primarily due to higher employee compensation, inflation, and additional costs to support growth, partially offset by a favorable impact from currency. Selling and administrative expense as a percentage of sales increased to 7.6% from 7.1% in the prior year.Research and Development ExpenseResearch and development expense of $105.6 increased 3%, or $2.7. Research and development expense as a percentage of sales of 0.8% was flat versus the prior year.Business and Asset ActionsIn fiscal year 2023, we recorded a charge of $244.6 ($204.9 attributable to Air Products after tax, or $0.92 per share) for strategic actions intended to optimize costs and focus resources on our growth projects. Of the expense, $217.6 resulted from noncash charges to write off assets associated with exited projects that were previously under construction. The remaining expense included $27.0 for severance and other benefits associated with position eliminations and restructuring of certain organizations globally. Refer to Note 4, Business and Asset Actions, for additional information.In fiscal year 2022, we divested our small industrial gas business in Russia due to Russia's invasion of Ukraine. As a result, we recorded a noncash charge of $73.7 ($61.0 after tax, or $0.27 per share), which included transaction costs and cumulative currency translation losses.Other Income (Expense), NetOther income of $34.8 decreased 38%, or $21.1, primarily due to lower income from the sale of assets and fees charged to our equity affiliates for use of patents and technology as well as an unfavorable foreign exchange impact.Operating Income and MarginOperating income of $2.5 billion increased 7%, or $155.8. Positive pricing, net of power and fuel costs, of $649 and higher volumes of $58 were partially offset by higher costs of $302 and an unfavorable currency impact of $78. The higher costs were driven by inflation, planned maintenance, and incentive compensation, as well as project development and other costs related to the execution of our growth strategy. Additionally, as discussed above, we recorded higher charges for business and asset actions in fiscal year 2023 compared to fiscal year 2022. Operating margin of 19.8% increased 140 bp from 18.4% in the prior year, primarily due to the impact of pricing as well as lower energy cost pass-through to customers, which positively impacted margin by about 100 basis points, partially offset by higher charges for business and asset actions and higher other costs.Equity Affiliates’ IncomeEquity affiliates' income of $604.3 increased 26%, or $122.8, primarily due to a higher contribution from the JIGPC joint venture, which completed the second phase of the asset purchase associated with the Jazan gasification and power project in January 2023, as well as higher income from our affiliates in Italy and Mexico. Additionally, the prior year included an impairment charge of $14.8 ($11.1 after tax, or $0.05 per share) related to two small affiliates in the Asia segment. These impacts were partially offset by the prior year recognition of the remaining deferred profit associated with air separation units previously sold to Jazan Gas Project Company, net of other project finalization costs.For additional information on our equity affiliates, refer to Note 9, Equity Affiliates, to the consolidated financial statements.27Table of ContentsInterest ExpenseFiscal Year Ended 30 September20232022Interest incurred$292.9 $169.0 Less: Capitalized interest115.4 41.0 Interest expense$177.5 $128.0 Interest incurred increased 73%, or $123.9, driven by a higher average interest rate on variable-rate instruments in our debt portfolio as well as a higher debt balance, which is largely attributable to the U.S. Dollar- and Euro-denominated fixed-rate notes issued in March 2023 under our new Green Finance Framework as well as borrowings on our foreign credit facilities. Capitalized interest increased $74.4 due to a higher carrying value of projects under construction.Other Non-Operating Income (Expense), NetOther non-operating expense was $39.0 versus income of $62.4 in the prior year primarily due to higher non-service pension costs in 2023, which were driven by higher interest cost and lower expected returns on plan assets for the U.S. salaried pension plan and the U.K. pension plan. This impact was partially offset by higher interest income on cash and cash items due to higher interest rates.Discontinued OperationsIncome from discontinued operations, net of tax, was $7.4 ($0.03 per share) and $12.6 ($0.06 per share) in fiscal years 2023 and 2022, respectively. This primarily resulted from the release of unrecognized tax benefits on uncertain tax positions taken with respect to the sale of our former Performance Materials Division for which the statute of limitations expired. Net Income and Net Income MarginNet income of $2.3 billion increased 3%, or $72.1, primarily due to favorable pricing, net of power and fuel costs, partially offset by the charge for business and asset actions, higher non-service pension costs, and higher other costs. Net income margin of 18.6% increased 80 bp from 17.8% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by about 100 bp.Adjusted EBITDA and Adjusted EBITDA MarginAdjusted EBITDA of $4.7 billion increased 11%, or $454.8, primarily due to higher pricing, net of power and fuel costs, partially offset by higher costs. Adjusted EBITDA margin of 37.3% increased 390 bp from 33.4% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by about 200 bp.Effective Tax RateThe effective tax rate equals the income tax provision divided by income from continuing operations before taxes. Refer to Note 23, Income Taxes, to the consolidated financial statements for details on factors affecting the effective tax rate.Our effective tax rate was 19.1% and 18.2% for the fiscal years ended 30 September 2023 and 2022, respectively. During fiscal year 2023, we recorded a charge for business and asset actions of $244.6 ($204.9 attributable to Air Products after tax). Refer to Note 4, Business and Asset Actions, to the consolidated financial statements for additional information. The charge included certain losses for which we could not recognize an income tax benefit and were subject to a valuation allowance of $36.0. Partially offsetting the valuation allowance cost was a $15.9 income tax benefit from a tax election related to a non-U.S. subsidiary.Our effective tax rate for the current year was higher due to lower excess tax benefits on share-based compensation and the discrete tax impact of our business and asset actions discussed above. In addition, certain recurring income tax benefits had less of an impact on our effective tax rate in the current year as they did not increase in proportion to the increase in income. Our current rate is also higher due to nonrecurring benefits in several foreign jurisdictions due to the impact of tax rate changes and productivity credit claims in the prior year.Our adjusted effective tax rate, which does not include the impact of our business and asset actions discussed above, was 18.9% and 18.1% for the fiscal years ended 30 September 2023 and 2022, respectively. 28Table of ContentsDISCUSSION OF RESULTS BY BUSINESS SEGMENTAmericasChange vs. Prior YearFiscal Year Ended 30 September20232022$%/bpSales$5,369.3$5,368.9$0.4 —%Operating income1,439.71,174.4265.3 23%Operating margin26.8 %21.9 %490 bpEquity affiliates’ income$109.2$98.2$11.011%Adjusted EBITDA2,198.21,902.1296.1 16%Adjusted EBITDA margin40.9 %35.4 %550 bpThe table below summarizes the major factors that impacted sales in the Americas segment for the periods presented:Volume6 %Price6 %Energy cost pass-through to customers(11 %)Currency(1 %)Total Americas Sales Change— %Sales of $5.4 billion were flat as higher volumes of 6% and higher pricing of 6% were offset by lower energy cost pass-through to customers of 11% and an unfavorable currency impact of 1%. The volume improvement was primarily attributable to our on-site business, including better demand for hydrogen. Additionally, we recovered higher costs in our merchant business through continued focus on pricing actions. Energy cost pass-through to our on-site customers was lower due to lower natural gas prices.Operating income of $1.4 billion increased 23%, or $265.3, due to positive pricing, net of power and fuel costs, of $306 and favorable volumes of $78, partially offset by higher costs of $112 and an unfavorable currency impact of $7. Higher costs were driven by inflation, planned maintenance, and higher incentive compensation. Operating margin of 26.8% increased 490 bp from 21.9% in the prior year primarily due to favorable pricing and lower energy cost pass-through to customers, partially offset by higher costs. The favorable impact from lower energy cost pass-through to customers was about 250 bp.Equity affiliates’ income of $109.2 increased 11%, or $11.0, driven by an affiliate in Mexico.29Table of ContentsAsiaChange vs. Prior YearFiscal Year Ended 30 September20232022$%/bpSales$3,216.1$3,143.3$72.8 2%Operating income906.5898.38.2 1%Operating margin28.2 %28.6 %(40 bp)Equity affiliates’ income$29.7$22.1$7.634%Adjusted EBITDA1,369.71,356.912.8 1%Adjusted EBITDA margin42.6 %43.2 %(60 bp)The table below summarizes the major factors that impacted sales in the Asia segment for the periods presented:Volume3 %Price3 %Energy cost pass-through to customers2 %Currency(6 %)Total Asia Sales Change2 %Sales of $3.2 billion increased 2%, or $72.8, due to higher volumes of 3%, positive pricing of 3%, and higher energy cost pass-through to customers of 2%, partially offset by unfavorable currency impacts of 6%. Positive volume contributions from several new traditional industrial gas plants in our on-site business were partially offset by weak economic growth in China and lower activity in the electronics manufacturing industry. Higher power costs across the region were recovered by our merchant pricing actions. In our on-site business, the higher power costs increased energy cost pass-through to our customers. The unfavorable currency impact was primarily attributable to the strengthening of the U.S. Dollar against the Chinese Renminbi.Operating income of $906.5 increased 1%, or $8.2, due to positive pricing, net of power and fuel costs, of $59 and higher volumes of $31, partially offset by an unfavorable currency impact of $56 and higher costs of $26. The higher costs were driven by project development, higher planned maintenance, and inflation. Operating margin of 28.2% decreased 40 bp from 28.6% in the prior year as higher costs were partially offset by our pricing actions.Equity affiliates’ income of $29.7 increased 34%, or $7.6, driven by an affiliate in Thailand.30Table of ContentsEuropeChange vs. Prior YearFiscal Year Ended 30 September20232022$%/bpSales$2,963.1$3,086.1($123.0)(4%)Operating income663.4503.4160.0 32%Operating margin22.4 %16.3 %610 bpEquity affiliates’ income$102.5$78.2$24.331%Adjusted EBITDA962.1776.8185.3 24%Adjusted EBITDA margin32.5 %25.2 %730 bpThe table below summarizes the major factors that impacted sales in the Europe segment for the periods presented:Volume— %Price7 %Energy cost pass-through to customers(9 %)Currency(2 %)Total Europe Sales Change(4 %)Sales of $3.0 billion decreased 4%, or $123.0, due to lower energy cost pass-through to customers of 9% and an unfavorable currency impact of 2%, partially offset by higher pricing of 7%. Energy cost pass-through to our on-site customers was lower, reflecting lower natural gas prices across the region. Currency negatively impacted sales due to the strengthening of the U.S. Dollar against the Euro and the British Pound Sterling. The pricing improvement was attributable to our merchant business. Volumes were flat as improvement in hydrogen in our on-site business was offset by lower demand for merchant products. Operating income of $663.4 increased 32%, or $160.0, as higher pricing, net of power and fuel costs, of $275 was partially offset by higher costs of $100 driven by inflation, higher incentive compensation, and planned maintenance, unfavorable business mix of $8, and an unfavorable currency impact of $7. Operating margin of 22.4% increased 610 bp from 16.3% in the prior year due to the factors noted above as well as lower energy cost pass-through to customers, which positively impacted margin by about 100 bp.Equity affiliates’ income of $102.5 increased 31%, or $24.3, driven by an affiliate in Italy.31Table of ContentsMiddle East and IndiaChange vs. Prior YearFiscal Year Ended 30 September20232022$%Sales$162.5 $129.5 $33.0 25 %Operating income16.9 21.1 (4.2)(20 %)Equity affiliates’ income349.8 293.9 55.9 19 %Adjusted EBITDA394.2 341.9 52.3 15 %Sales of $162.5 increased 25%, or $33.0, driven by higher merchant volumes. Despite higher sales, operating income of $16.9 decreased 20%, or $4.2, primarily due to higher costs for business development and planned maintenance.Equity affiliates' income of $349.8 increased 19%, or $55.9. In January 2023, we made an additional investment in the JIGPC joint venture, which completed the second phase of the asset purchase associated with the Jazan gasification and power project. The resulting higher contribution from JIGPC was partially offset by a prior year net benefit recognized for the remaining deferred profit associated with air separation units previously sold to Jazan Gas Project Company, net of other project finalization costs.Corporate and otherChange vs. Prior YearFiscal Year Ended 30 September20232022$%Sales$889.0 $970.8($81.8)(8 %)Operating loss(287.3)(184.7)(102.6)(56 %)Adjusted EBITDA(222.4)(130.7)(91.7)(70 %)Sales of $889.0 decreased 8%, or $81.8, and operating loss of $287.3 increased $102.6, primarily due to lower contributions from our sale of equipment businesses. Our Corporate and other segment also incurs costs to provide corporate support functions and global management activities that benefit all segments, which have increased to support our growth strategy.32Table of ContentsRECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES(Millions of U.S. Dollars unless otherwise indicated, except for per share data)We present certain financial measures, other than in accordance with U.S. generally accepted accounting principles ("GAAP"), on an "adjusted" or "non-GAAP" basis. On a consolidated basis, these measures include adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, the adjusted effective tax rate, and capital expenditures. On a segment basis, these measures include adjusted EBITDA and adjusted EBITDA margin. In addition to these measures, we also present certain supplemental non-GAAP financial measures to help the reader understand the impact that certain disclosed items, or "non-GAAP adjustments," have on the calculation of our adjusted diluted EPS. For each non-GAAP financial measure, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. In many cases, non-GAAP financial measures are determined by adjusting the most directly comparable GAAP measure to exclude non-GAAP adjustments that we believe are not representative of our underlying business performance. For example, we exclude the impact of the non-service components of net periodic benefit/cost for our defined benefit pension plans as further discussed below. Additionally, we may exclude certain expenses associated with cost reduction actions, impairment charges, and gains on disclosed transactions. The reader should be aware that we may recognize similar losses or gains in the future. When applicable, the tax impact of our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax impact of our non-GAAP adjustments. These tax impacts are primarily driven by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions.We provide these non-GAAP financial measures to allow investors, potential investors, securities analysts, and others to evaluate the performance of our business in the same manner as our management. We believe these measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results. However, we caution readers not to consider these measures in isolation or as a substitute for the most directly comparable measures calculated in accordance with GAAP. Readers should also consider the limitations associated with these non-GAAP financial measures, including the potential lack of comparability of these measures from one company to another. NON-GAAP ADJUSTMENT FOR NON-SERVICE PENSION COST (BENEFIT), NETOur adjusted EPS and the adjusted effective tax rate exclude the impact of non-service related components of net periodic benefit/cost for our defined benefit pension plans. The prior year non-GAAP financial measures presented above and reconciled below have been recast accordingly to conform to the fiscal year 2023 presentation. Non-service related components are recurring, non-operating items that include interest cost, expected returns on plan assets, prior service cost amortization, actuarial loss amortization, as well as special termination benefits, curtailments, and settlements. The net impact of non-service related components is reflected within “Other non-operating income (expense), net” on our consolidated income statements. Adjusting for the impact of non-service pension components provides management and users of our financial statements with a more accurate representation of our underlying business performance because these components are driven by factors that are unrelated to our operations, such as recent changes to the allocation of our pension plan assets associated with de-risking as well as volatility in equity and debt markets. Further, non-service related components are not indicative of our defined benefit plans’ future contribution needs due to the funded status of the plans. 33Table of ContentsADJUSTED DILUTED EPSThe table below provides a reconciliation to the most directly comparable GAAP measure for each of the major components used to calculate adjusted diluted EPS from continuing operations, which we view as a key performance metric. In periods that we have non-GAAP adjustments, we believe it is important for the reader to understand the per share impact of each such adjustment because management does not consider these impacts when evaluating underlying business performance. Per share impacts are calculated independently and may not sum to total diluted EPS and total adjusted diluted EPS due to rounding.2023 vs. 2022Operating IncomeEquity Affiliates' IncomeOther Non-Operating Income/Expense, NetIncome Tax ProvisionNet Income Attributable to Air ProductsDiluted EPS2023 GAAP$2,494.6 $604.3 ($39.0)$551.2 $2,292.8 $10.30 2022 GAAP2,338.8 481.5 62.4 500.8 2,243.5 10.08 $ Change GAAP$0.22 % Change GAAP2 %2023 GAAP$2,494.6 $604.3 ($39.0)$551.2 $2,292.8 $10.30 Business and asset actions(A)244.6 — — 34.7 204.9 0.92 Non-service pension cost, net— — 86.8 21.6 65.2 0.29 2023 Non-GAAP ("Adjusted")$2,739.2 $604.3 $47.8 $607.5 $2,562.9 $11.51 2022 GAAP$2,338.8 $481.5 $62.4 $500.8 $2,243.5 $10.08 Business and asset actions73.7 — — 12.7 61.0 0.27 Equity method investment impairment charge— 14.8 — 3.7 11.1 0.05 Non-service pension benefit, net— — (44.7)(10.8)(33.9)(0.15)2022 Non-GAAP ("Adjusted")$2,412.5 $496.3 $17.7 $506.4 $2,281.7 $10.25 $ Change Non-GAAP ("Adjusted")$1.26 % Change Non-GAAP ("Adjusted")12 %(A ) Charge includes $5.0 attributable to noncontrolling interests.34Table of ContentsADJUSTED EBITDA AND ADJUSTED EBITDA MARGINWe define adjusted EBITDA as net income less income from discontinued operations, net of tax, and excluding non-GAAP adjustments, which we do not believe to be indicative of underlying business trends, before interest expense, other non-operating income (expense), net, income tax provision, and depreciation and amortization expense. Adjusted EBITDA and adjusted EBITDA margin provide useful metrics for management to assess operating performance. Margins are calculated independently for each period by dividing each line item by consolidated sales for the respective period and may not sum to total margin due to rounding. The tables below present consolidated sales and a reconciliation of net income on a GAAP basis to adjusted EBITDA and net income margin on a GAAP basis to adjusted EBITDA margin:20232022$Margin$MarginSales$12,600.0 $12,698.6 Net income and net income margin$2,338.6 18.6 %$2,266.5 17.8 %Less: Income from discontinued operations, net of tax7.4 0.1 %12.6 0.1 %Add: Interest expense177.5 1.4 %128.0 1.0 %Less: Other non-operating income (expense), net(39.0)(0.3 %)62.4 0.5 %Add: Income tax provision551.2 4.4 %500.8 3.9 %Add: Depreciation and amortization1,358.3 10.8 %1,338.2 10.5 %Add: Business and asset actions244.6 1.9 %73.7 0.6 %Add: Equity method investment impairment charge— — %14.8 0.1 %Adjusted EBITDA and adjusted EBITDA margin$4,701.8 37.3 %$4,247.0 33.4 %2023vs. 2022Change GAAPNet income $ change$72.1Net income % change3%Net income margin change80 bpChange Non-GAAPAdjusted EBITDA $ change$454.8Adjusted EBITDA % change11%Adjusted EBITDA margin change390 bp35Table of ContentsThe tables below present sales and a reconciliation of operating income and operating margin by segment to adjusted EBITDA and adjusted EBITDA margin by segment for the fiscal years ended 30 September 2023 and 2022:AmericasChange vs. Prior YearFiscal Year Ended 30 September20232022$%/bpSales$5,369.3 $5,368.9 $0.4 — %Operating income$1,439.7 $1,174.4 $265.3 23 %Operating margin26.8 %21.9 %490 bpReconciliation of GAAP to Non-GAAP:Operating income$1,439.7 $1,174.4 Add: Depreciation and amortization649.3 629.5 Add: Equity affiliates' income109.2 98.2 Adjusted EBITDA$2,198.2 $1,902.1 $296.1 16 %Adjusted EBITDA margin40.9 %35.4 %550 bpAsiaChange vs. Prior YearFiscal Year Ended 30 September20232022$%/bpSales$3,216.1 $3,143.3 $72.8 2 %Operating income$906.5 $898.3 $8.2 1 %Operating margin28.2 %28.6 %(40) bpReconciliation of GAAP to Non-GAAP:Operating income$906.5 $898.3 Add: Depreciation and amortization433.5 436.5 Add: Equity affiliates' income29.7 22.1 Adjusted EBITDA$1,369.7 $1,356.9 $12.8 1 %Adjusted EBITDA margin42.6 %43.2 %(60) bpEuropeChange vs. Prior YearFiscal Year Ended 30 September20232022$%/bpSales$2,963.1 $3,086.1 ($123.0)(4 %)Operating income$663.4 $503.4 $160.0 32 %Operating margin22.4 %16.3 %610 bpReconciliation of GAAP to Non-GAAP:Operating income$663.4 $503.4 Add: Depreciation and amortization196.2 195.2 Add: Equity affiliates' income102.5 78.2 Adjusted EBITDA$962.1 $776.8 $185.3 24 %Adjusted EBITDA margin32.5 %25.2 %730 bp36Table of ContentsMiddle East and IndiaChange vs. Prior YearFiscal Year Ended 30 September20232022$%/bpSales$162.5 $129.5 $33.0 25 %Operating income$16.9 $21.1 ($4.2)(20 %)Reconciliation of GAAP to Non-GAAP:Operating income$16.9 $21.1 Add: Depreciation and amortization27.5 26.9 Add: Equity affiliates' income349.8 293.9 Adjusted EBITDA$394.2 $341.9 $52.3 15 %Corporate and otherChange vs. Prior YearFiscal Year Ended 30 September20232022$%/bpSales$889.0 $970.8 ($81.8)(8 %)Operating loss($287.3)($184.7)($102.6)(56 %)Reconciliation of GAAP to Non-GAAP:Operating loss($287.3)($184.7)Add: Depreciation and amortization51.8 50.1 Add: Equity affiliates' income13.1 3.9 Adjusted EBITDA($222.4)($130.7)($91.7)(70 %)37Table of ContentsADJUSTED EFFECTIVE TAX RATEThe effective tax rate equals the income tax provision divided by income from continuing operations before taxes. We calculate our adjusted effective tax rate by adjusting the numerator and denominator to exclude the tax and before tax impacts of our non-GAAP adjustments, respectively. The table below presents a reconciliation of the GAAP effective tax rate to our adjusted effective tax rate:Fiscal Year Ended 30 September20232022Income tax provision$551.2 $500.8 Income from continuing operations before taxes2,882.4 2,754.7 Effective tax rate19.1 %18.2 %Income tax provision$551.2 $500.8 Business and asset actions34.7 12.7 Equity method investment impairment charge— 3.7 Non-service pension tax impact21.6 (10.8)Adjusted income tax provision$607.5 $506.4 Income from continuing operations before taxes$2,882.4 $2,754.7 Business and asset actions244.6 73.7 Equity method investment impairment charge— 14.8 Non-service pension cost (benefit), net86.8 (44.7)Adjusted income from continuing operations before taxes$3,213.8 $2,798.5 Adjusted effective tax rate18.9 %18.1 %CAPITAL EXPENDITURESCapital expenditures is a non-GAAP financial measure that we define as the sum of cash flows for additions to plant and equipment, including long-term deposits, acquisitions (less cash acquired), investment in and advances to unconsolidated affiliates, and investment in financing receivables on our consolidated statements of cash flows. Additionally, we adjust additions to plant and equipment to exclude NEOM Green Hydrogen Company (“NGHC”) expenditures funded by the joint venture's non-recourse project financing as well as our partners’ equity contributions to arrive at a measure that we believe is more representative of our investment activities. Substantially all the funding we provide to NGHC is limited for use by the venture for capital expenditures. A reconciliation of cash used for investing activities to our reported capital expenditures is provided below:Fiscal Year Ended 30 September20232022Cash used for investing activities$5,916.4 $3,857.2 Proceeds from sale of assets and investments25.4 46.2 Purchases of investments(640.1)(1,637.8)Proceeds from investments897.0 2,377.4 Other investing activities4.8 7.0 NGHC expenditures not funded by Air Products' equity(A)(979.1)— Capital expenditures$5,224.4 $4,650.0 (A)Reflects the portion of "Additions to plant and equipment, including long-term deposits" that is associated with NGHC, less our approximate cash investment in the joint venture.38Table of ContentsLIQUIDITY AND CAPITAL RESOURCESWe believe we have sufficient cash, cash flows from operations, and funding sources to meet our liquidity needs. As further discussed in the "Cash Flows From Financing Activities" section below, we have the ability to raise capital through a variety of financing activities, including accessing capital or commercial paper markets or drawing upon our credit facilities.As of 30 September 2023, we had $1,497.1 of foreign cash and cash items compared to total cash and cash items of $1,617.0. We do not expect that a significant portion of the earnings of our foreign subsidiaries and affiliates will be subject to U.S. income tax upon repatriation to the U.S. Depending on the country in which the subsidiaries and affiliates reside, the repatriation of these earnings may be subject to foreign withholding and other taxes. However, since we have significant current investment plans outside the U.S., it is our intent to permanently reinvest the majority of our foreign cash and cash items that would be subject to additional taxes outside the U.S.Cash Flows From OperationsFiscal Year Ended 30 September20232022Net income from continuing operations attributable to Air Products$2,292.8 $2,243.5 Adjustments to reconcile income to cash provided by operating activities:Depreciation and amortization1,358.3 1,338.2 Deferred income taxes(24.7)32.3 Business and asset actions244.6 73.7 Undistributed earnings of equity method investments(261.2)(214.7)Gain on sale of assets and investments(15.8)(24.1)Share-based compensation59.9 48.4 Noncurrent lease receivables79.6 94.0 Other adjustments(103.0)(304.9)Working capital changes that provided (used) cash, excluding effects of acquisitions:Trade receivables130.7 (475.2)Inventories(129.4)(94.3)Other receivables(93.8)(1.8)Payables and accrued liabilities(213.3)532.5 Other working capital(119.0)(77.0)Cash Provided by Operating Activities$3,205.7 $3,170.6 In fiscal year 2023, cash provided by operating activities was $3,205.7. Business and asset actions of $244.6 included noncash charges to write off assets related to our exit from certain projects previously under construction as well as an expense for severance and other benefits. Refer to Note 4, Business and Asset Actions, to the consolidated financial statements for additional information. The impacts associated with our operating leases are reflected within "Other adjustments," which included a lump-sum payment of $209 for a land lease associated with the NGHC joint venture. Working capital accounts resulted in a net use of cash of $424.8. The use of cash of $213.3 within payables and accrued liabilities primarily resulted from lower prices for the purchase of natural gas, a decrease in value of derivatives that hedge intercompany loans, and payments for incentive compensation under the fiscal year 2022 plan. Inventories resulted in a use of cash of $129.4 primarily due to additional packaged gases inventory, including helium. The use of cash of $119.0 within other working capital was primarily driven by the timing of income tax payments. The source of cash of $130.7 from trade receivables was primarily attributable to collection of higher natural gas costs contractually passed through to on-site customers in fiscal year 2023.39Table of ContentsIn fiscal year 2022, cash provided by operating activities was $3,170.6. Undistributed earnings of equity method investments of $214.7 reflects activity from the JIGPC joint venture, which began contributing to our results in late October 2021. We received cash distributions of approximately $155 from this joint venture during fiscal year 2022. Other adjustments of $304.9 included adjustments for noncash currency impacts of intercompany balances, deferred costs associated with new projects, contributions to pension plans, and payments made for leasing activities. Working capital accounts resulted in a net use of cash of $115.8. The use of cash of $475.2 within trade receivables included the impacts of higher underlying sales and higher natural gas costs passed through to our on-site customers. The source of cash of $532.5 within payables and accrued liabilities primarily resulted from higher natural gas costs and customer advances for sale of equipment projects. Other working capital accounts resulted in a use of cash of $77.0 primarily due to contract fulfillment costs and the timing of income tax payments.Cash Flows From Investing ActivitiesFiscal Year Ended 30 September20232022Additions to plant and equipment, including long-term deposits($4,626.4)($2,926.5)Acquisitions, less cash acquired— (65.1)Investment in and advances to unconsolidated affiliates(912.0)(1,658.4)Investment in financing receivables(665.1)— Proceeds from sale of assets and investments25.4 46.2 Purchases of investments(640.1)(1,637.8)Proceeds from investments897.0 2,377.4 Other investing activities4.8 7.0 Cash Used for Investing Activities($5,916.4)($3,857.2)In fiscal year 2023, cash used for investing activities was $5,916.4. The use of cash primarily resulted from capital expenditures of $4,626.4 for additions to plant and equipment, including long-term deposits, investments in and advances to unconsolidated affiliates of $912.0, and investments in financing receivables of $665.1. Refer to the Capital Expenditures section below for further detail. Maturities of time deposits and short-term treasury securities provided cash of $897.0, which exceeded purchases of investments of $640.1.In fiscal year 2022, cash used for investing activities was $3,857.2. Capital expenditures primarily included $2,926.5 for additions to plant and equipment, including long-term deposits, and $1,658.4 for investments in and advances to unconsolidated affiliates. Proceeds from investments of $2,377.4 resulted from maturities of time deposits and short-term treasury securities and exceeded purchases of investments of $1,637.8.Capital ExpendituresThe components of our capital expenditures are detailed in the table below. Refer to page 38 for a definition of this non-GAAP measure as well as a reconciliation to cash used for investing activities.Fiscal Year Ended 30 September20232022Additions to plant and equipment, including long-term deposits$4,626.4 $2,926.5 Acquisitions, less cash acquired— 65.1 Investment in and advances to unconsolidated affiliates(A)912.0 1,658.4 Investment in financing receivables665.1 — NGHC expenditures not funded by Air Products' equity(B)(979.1)— Capital Expenditures$5,224.4 $4,650.0 (A)Includes contributions from noncontrolling partners in consolidated subsidiaries as discussed below.(B)Reflects the portion of "Additions to plant and equipment, including long-term deposits" that is associated with NGHC, less our approximate cash investment in the joint venture.40Table of ContentsCapital expenditures in fiscal year 2023 totaled $5,224.4 compared to $4,650.0 in fiscal year 2022. The increase of $574.4 was driven by spending for plant and equipment, which was largely attributable to purchases associated with our low- and zero-carbon hydrogen projects, as well as ongoing maintenance capital spending. Higher spending for plant and equipment was partially offset by lower investments in and advances to unconsolidated affiliates, as the second phase of our investment in JIGPC of $908 in fiscal year 2023 was lower than the initial investment of $1.6 billion completed in fiscal year 2022. These investments included approximately $130 and $73 in fiscal years 2023 and 2022, respectively, received from a noncontrolling partner in one of our subsidiaries. We expect to complete a remaining investment of approximately $115. Refer to Note 9, Equity Affiliates, to the consolidated financial statements for additional information. Fiscal year 2023 also included an investment in financing receivables of $665.1, primarily for progress payments towards the purchase of a natural gas-to-syngas processing facility in Uzbekistan. Refer to Note 5, Acquisitions, to the consolidated financial statements for additional information.Outlook for Investing ActivitiesIt is not possible, without unreasonable efforts, to reconcile our forecasted capital expenditures to future cash used for investing activities because we are unable to identify the timing or occurrence of our future investment activity, which is driven by our assessment of competing opportunities at the time we enter into transactions. These decisions, either individually or in the aggregate, could have a significant effect on our cash used for investing activities.We expect capital expenditures for fiscal year 2024 to be approximately $5.0 billion to $5.5 billion, which is driven by clean hydrogen and sustainable aviation fuel projects such as those being executed in California and Louisiana, United States, as well as Alberta, Canada. We anticipate capital expenditures to be funded with our current cash balance, cash generated from continuing operations, and additional financing activities.As of the end of fiscal year 2023, we have committed capital of approximately $15 billion to projects intended to accelerate the energy transition. These low- and zero-carbon hydrogen and other first mover projects demonstrate our commitment to making investments that will make a meaningful difference on climate issues, allowing us to support our customers’ sustainability journeys, conserve resources, and care for our employees and communities.Cash Flows From Financing ActivitiesFiscal Year Ended 30 September20232022Long-term debt proceeds$3,516.2 $766.2 Payments on long-term debt(615.4)(400.0)Net increase in commercial paper and short-term borrowings268.2 17.9 Dividends paid to shareholders(1,496.6)(1,383.3)Proceeds from stock option exercises 24.0 19.3 Investments by noncontrolling interests234.9 21.0 Distributions to noncontrolling interests(115.9)(4.8)Other financing activities(205.8)(36.9)Cash Provided by (Used for) Financing Activities$1,609.6 ($1,000.6)In fiscal year 2023, cash provided by financing activities was $1,609.6. As further discussed below, the source of cash was primarily attributable to long-term debt proceeds of $3,516.2 as well as an increase in commercial paper and short-term borrowings of $268.2. These cash inflows were partially offset by dividend payments to shareholders of $1,496.6 and payments on long-term debt of $615.4.The long-term debt proceeds included proceeds from our inaugural multi-currency green bonds that were issued during the second quarter in concurrent U.S. Dollar- and Euro-denominated fixed-rate note offerings with aggregate principal amounts of $600 and €700 million, respectively. Consistent with our Green Finance Framework, we have allocated the net proceeds to finance or refinance, in whole or in part, existing or future projects that are expected to have environmental benefits, including those related to pollution prevention and control, renewable energy generation and procurement, and sustainable aviation fuel. We expect to issue our first allocation report in 2024. Additionally, as further discussed below, the NGHC joint venture borrowed approximately $1.4 billion. These proceeds were partially offset by financing fees of approximately $150, which are reflected within "Other financing activities". Refer to the Credit Facilities section below as well as Note 16, Debt, to the consolidated financial statements for additional information.41Table of ContentsIn fiscal year 2022, cash used for financing activities was $1,000.6. The use of cash was primarily driven by dividend payments to shareholders of $1,383.3 and payments on long-term debt of $400.0 for the repayment of a 3.0% Senior Note. These uses of cash were partially offset by long-term debt proceeds and short-term borrowings of $766.2 and $17.9, respectively. Financing and Capital StructureTotal debt increased from $7,644.8 as of 30 September 2022 to $10,305.8 as of 30 September 2023, primarily due to non-recourse project financing secured by the NGHC joint venture for construction of the NEOM Green Hydrogen project, issuance of our inaugural green U.S. Dollar- and Euro-denominated fixed-rate notes, and an increase in outstanding commercial paper. Total debt includes related party debt of $328.3 and $781.0 as of 30 September 2023 and 30 September 2022, respectively. Various debt agreements to which we are a party include financial covenants and other restrictions, including restrictions pertaining to the ability to create property liens and enter into certain sale and leaseback transactions. As of 30 September 2023, we were in compliance with all of the financial and other covenants under our debt agreements.2021 Credit AgreementWe have a five-year $2.75 billion revolving credit agreement maturing 31 March 2026 with a syndicate of banks (the “2021 Credit Agreement”), under which senior unsecured debt is available to us and certain of our subsidiaries. The 2021 Credit Agreement provides a source of liquidity and supports our commercial paper program. No borrowings were outstanding under the 2021 Credit Agreement as of 30 September 2023. At this time, we do not expect to access the facility for additional liquidity.The only financial covenant in the 2021 Credit Agreement is a maximum ratio of total debt to total capitalization (equal to total debt plus total equity) not to exceed 70%. The 2021 Credit Agreement defines total debt as the aggregate principal amount of all indebtedness, excluding limited recourse debt of any project finance subsidiary. Accordingly, this calculation does not consider borrowings associated with NGHC. Total debt to total capitalization was 36.6% and 35.8% as of 30 September 2023 and 30 September 2022, respectively. Foreign Credit FacilitiesWe also have credit facilities available to certain of our foreign subsidiaries totaling $1,596.8, of which $1,041.4 was borrowed and outstanding as of 30 September 2023. The amount borrowed and outstanding as of 30 September 2022 was $457.5. The increase from 30 September 2022 was driven by borrowings on a new variable-rate Saudi Riyal loan facility that matures in October 2026. The interest rate on the facility is based on the Saudi Arabian Interbank Offered Rate plus an annual margin of 1.35%. We entered into this facility in October 2022 and utilized a portion of the proceeds to repay a variable-rate 4.10% Saudi Riyal Loan Facility of $195.6, which was presented within long-term debt on our consolidated balance sheet as of 30 September 2022.NEOM Green Hydrogen Project FinancingIn May 2023, NGHC secured non-recourse project financing of approximately $6.1 billion, which is expected to fund approximately 73% of the NEOM Green Hydrogen Project and will be drawn over the construction period. At the same time, NGHC secured additional non-recourse credit facilities totaling approximately $500 primarily for working capital needs. As of 30 September 2023, the joint venture had borrowed $1.4 billion of the available financing. Refer to Note 3, Variable Interest Entities, to the consolidated financial statements for additional information. DividendsThe Board of Directors determines whether to declare cash dividends on our common stock and the timing and amount based on financial condition and other factors it deems relevant. In fiscal year 2023, the Board of Directors increased the quarterly dividend to $1.75 per share, representing an 8% increase, or $0.13 per share, from the previous dividend of $1.62 per share. We expect to continue increasing our quarterly dividend as we have done for the last 41 consecutive years.Dividends are paid quarterly, usually during the sixth week after the close of the fiscal quarter. On 21 July 2023, the Board of Directors declared a quarterly dividend of $1.75 per share that was payable on 13 November 2023 to shareholders of record at the close of business on 2 October 2023. On 15 November 2023, the Board of Directors declared a quarterly dividend of $1.75 per share that is payable on 12 February 2024 to shareholders of record at the close of business on 2 January 2024.Discontinued OperationsIn fiscal years 2023 and 2022, cash provided by operating activities of discontinued operations of $0.6 and $59.6, respectively, resulted from cash received as part of state tax refunds related to the sale of our former Performance Materials Division in fiscal year 2017.42Table of ContentsPENSION BENEFITSWe and certain of our subsidiaries sponsor defined benefit pension plans and defined contribution plans that cover a substantial portion of our worldwide employees. The principal defined benefit pension plans are the U.S. salaried pension plan and the U.K. pension plan. These plans were closed to new participants in 2005, after which defined contribution plans were offered to new employees. The shift to defined contribution plans is expected to continue to reduce volatility of both plan expense and contributions. For additional information, refer to Note 17, Retirement Benefits, to the consolidated financial statements.Net Periodic Cost (Benefit)The table below summarizes the components of net periodic cost/benefit for our U.S. and international defined benefit pension plans for the fiscal years ended 30 September:20232022Service cost$23.2 $39.8 Non-service related costs (benefits)86.8 (44.7)Other0.9 1.3 Net Periodic Cost (Benefit)$110.9 ($3.6)Net periodic cost was $110.9 in fiscal year 2023 versus a benefit of $3.6 in the prior year. The increased costs from the prior year were primarily attributable to higher non-service costs, which were driven by higher interest cost and lower expected returns on plan assets due to a smaller beginning balance of plan assets. The net impact of non-service related items are reflected within "Other non-operating income (expense), net" on our consolidated income statements.Service costs result from benefits earned by active employees and are reflected as operating expenses primarily within "Cost of sales" and "Selling and administrative expense" on our consolidated income statements. The amount of service costs capitalized in fiscal years 2023 and 2022 was not material.The table below summarizes the assumptions used in the calculation of net periodic cost/benefit for the fiscal years ended 30 September:20232022Weighted average discount rate – Service cost5.1 %2.4 %Weighted average discount rate – Interest cost 5.3 %2.0 %Weighted average expected rate of return on plan assets5.3 %5.1 %Weighted average expected rate of compensation increase3.5 %3.4 %2024 OutlookIn fiscal year 2024, we expect to recognize pension expense of approximately $120 to $130 primarily driven by approximately $100 to $110 of non-service related costs, including lower estimated expected returns on plan assets due to a smaller beginning balance of plan assets and higher interest cost, partially offset by a decrease in actuarial loss amortization.In fiscal year 2023, we recognized net actuarial losses of $4.4 in other comprehensive income. Actuarial gains and losses are amortized into pension expense over prospective periods to the extent they are not offset by future gains or losses. Future changes in the discount rate and actual returns on plan assets could impact the actuarial gain or loss and resulting amortization in years beyond fiscal year 2024.43Table of ContentsPension FundingFunded StatusThe projected benefit obligation represents the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future salary increases. The plan funded status is calculated as the difference between the projected benefit obligation and the fair value of plan assets at the end of the period.The table below summarizes the projected benefit obligation, the fair value of plan assets, and the funded status for our U.S. and international plans as of 30 September:20232022Projected benefit obligation$3,511.2 $3,588.3 Fair value of plan assets at end of year3,433.0 3,526.0 Plan Funded Status($78.2)($62.3)The net unfunded liability of $78.2 as of 30 September 2023 increased $15.9 from $62.3 as of 30 September 2022, as increases to the projected benefit obligation from the service and interest cost components of net period pension cost were greater than actuarial gains from higher discount rates. Company ContributionsPension funding includes both contributions to funded plans and benefit payments for unfunded plans, which are primarily non-qualified plans. With respect to funded plans, our funding policy is that contributions, combined with appreciation and earnings, will be sufficient to pay benefits without creating unnecessary surpluses.In addition, we make contributions to satisfy all legal funding requirements while managing our capacity to benefit from tax deductions attributable to plan contributions. With the assistance of third-party actuaries, we analyze the liabilities and demographics of each plan, which help guide the level of contributions. During 2023 and 2022, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $32.6 and $44.7, respectively.For fiscal year 2024, cash contributions to defined benefit plans are estimated to be $35 to $45. The estimate is based on expected contributions to certain international plans and anticipated benefit payments for unfunded plans, which are dependent upon the timing of retirements. Actual future contributions will depend on future funding legislation, discount rates, investment performance, plan design, and various other factors.CRITICAL ACCOUNTING POLICIES AND ESTIMATESRefer to Note 1, Basis of Presentation and Major Accounting Policies, and Note 2, New Accounting Guidance, to the consolidated financial statements for a description of our major accounting policies and information concerning implementation and impact of new accounting guidance.The accounting policies discussed below are those policies that we consider to be the most critical to understanding our financial statements because they require management's most difficult, subjective, or complex judgments, often as the result of the need to make estimates about the effects of matters that are inherently uncertain. These estimates reflect our best judgment about current and/or future economic and market conditions and their effect based on information available as of the date of our consolidated financial statements. If conditions change, actual results may differ materially from these estimates. Our management has reviewed these critical accounting policies and estimates and related disclosures with the Audit and Finance Committee of our Board of Directors.Depreciable Lives of Plant and EquipmentPlant and equipment, net at 30 September 2023 totaled $17,472.1, and depreciation expense totaled $1,325.8 during fiscal year 2023. Plant and equipment is recorded at cost and depreciated using the straight-line method, which deducts equal amounts of the cost of each asset from earnings every year over its estimated economic useful life.Economic useful life is the duration of time an asset is expected to be productively employed by us, which may be less than its physical life. Assumptions on the following factors, among others, affect the determination of estimated economic useful life: wear and tear, obsolescence, technical standards, contract life, market demand, competitive position, raw material availability, and geographic location.44Table of ContentsThe estimated economic useful life of an asset is monitored to determine its appropriateness, especially when business circumstances change. For example, changes in technology, changes in the estimated future demand for products, excessive wear and tear, or unanticipated government actions may result in a shorter estimated useful life than originally anticipated. In these cases, we would depreciate the remaining net book value over the new estimated remaining life, thereby increasing depreciation expense per year on a prospective basis. Likewise, if the estimated useful life is increased, the adjustment to the useful life decreases depreciation expense per year on a prospective basis.Our regional segments have numerous long-term customer supply contracts for which we construct an on-site plant adjacent to or near the customer’s facility. These contracts typically have initial contract terms of 10 to 20 years. Depreciable lives of the production assets related to long-term supply contracts are generally matched to the contract lives. Extensions to the contract term of supply frequently occur prior to the expiration of the initial term. As contract terms are extended, the depreciable life of the associated production assets is adjusted to match the new contract term, as long as it does not exceed the remaining physical life of the asset.Our regional segments also have contracts for liquid or gaseous bulk supply and, for smaller customers, packaged gases. The depreciable lives of production facilities associated with these contracts are generally 15 years. These depreciable lives have been determined based on historical experience combined with judgment on future assumptions such as technological advances, potential obsolescence, competitors’ actions, etc. In addition, we may purchase assets through transactions accounted for as either an asset acquisition or a business combination. Depreciable lives are assigned to acquired assets based on the age and condition of the assets, the remaining duration of long-term supply contracts served by the assets, and our historical experience with similar assets. Management monitors its assumptions and may potentially need to adjust depreciable life as circumstances change. Impairment of AssetsThere were no triggering events in fiscal year 2023 that would require impairment testing for any of our asset groups, reporting units that contain goodwill, or indefinite-lived intangibles assets. We completed our annual impairment tests for goodwill and other indefinite-lived intangible assets and concluded there were no indications of impairment. Refer to the “Impairment of Assets” subsections below for additional detail. Impairment of Assets: Plant and EquipmentPlant and equipment meeting the held for sale criteria are reported at the lower of carrying amount or fair value less cost to sell. Plant and equipment to be disposed of other than by sale may be reviewed for impairment upon the occurrence of certain triggering events, such as unexpected contract terminations or unexpected foreign government-imposed restrictions or expropriations. Plant and equipment held for use is grouped for impairment testing at the lowest level for which there is identifiable cash flows. Impairment testing of the asset group occurs whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Such circumstances may include:•a significant decrease in the market value of a long-lived asset grouping;•a significant adverse change in the manner in which the asset grouping is being used or in its physical condition;•an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the long-lived asset;•a reduction in revenues that is other than temporary;•a history of operating or cash flow losses associated with the use of the asset grouping; or•changes in the expected useful life of the long-lived assets.If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by that asset group is compared to the carrying value to determine whether impairment exists. If an asset group is determined to be impaired, the loss is measured based on the difference between the asset group’s fair value and its carrying value. An estimate of the asset group’s fair value is based on the discounted value of its estimated cash flows.45Table of ContentsThe assumptions underlying the undiscounted future cash flow projections require significant management judgment. Factors that management must estimate include industry and market conditions, sales volume and prices, costs to produce, inflation, etc. The assumptions underlying the cash flow projections represent management’s best estimates at the time of the impairment review and could include probability weighting of cash flow projections associated with multiple potential future scenarios. Changes in key assumptions or actual conditions that differ from estimates could result in an impairment charge. We use reasonable and supportable assumptions when performing impairment reviews and cannot predict the occurrence of future events and circumstances that could result in impairment charges.In fiscal year 2023, there was no need to test for impairment on any of our asset groupings as no events or changes in circumstances indicated that the carrying amount of our asset groupings may not be recoverable.Impairment of Assets: GoodwillThe acquisition method of accounting for business combinations requires us to make use of estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the net tangible and identifiable intangible assets. Goodwill represents the excess of the aggregate purchase price (plus the fair value of any noncontrolling interest and previously held equity interest in the acquiree) over the fair value of identifiable net assets of an acquired entity. Goodwill was $861.7 as of 30 September 2023. Disclosures related to goodwill are included in Note 11, Goodwill, to the consolidated financial statements.We review goodwill for impairment annually in the fourth quarter of the fiscal year and whenever events or changes in circumstances indicate that the carrying value of goodwill might not be recoverable. The tests are done at the reporting unit level, which is defined as being equal to or one level below the operating segment for which discrete financial information is available and whose operating results are reviewed by segment managers regularly. We have five reportable business segments, seven operating segments and 11 reporting units, eight of which include a goodwill balance. Refer to Note 25, Business Segment and Geographic Information, for additional information. Reporting units are primarily based on products and subregions within each reportable segment. The majority of our goodwill is assigned to reporting units within our regional industrial gases segments.As part of the goodwill impairment testing, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. However, we choose to bypass the qualitative assessment and conduct quantitative testing to determine if the carrying value of the reporting unit exceeds its fair value. An impairment loss will be recognized for the amount by which the carrying value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. To determine the fair value of a reporting unit, we initially use an income approach valuation model, representing the present value of estimated future cash flows. Our valuation model uses a discrete growth period and an estimated exit trading multiple. The income approach is an appropriate valuation method due to our capital-intensive nature, the long-term contractual nature of our business, and the relatively consistent cash flows generated by our reporting units. The principal assumptions utilized in our income approach valuation model include revenue growth rates, operating profit and/or adjusted EBITDA margins, discount rate, and exit multiple. Projected revenue growth rates and operating profit and/or adjusted EBITDA assumptions are consistent with those utilized in our operating plan and/or revised forecasts and long-term financial planning process. The discount rate assumption is calculated based on an estimated market-participant risk-adjusted weighted-average cost of capital, which includes factors such as the risk-free rate of return, cost of debt, and expected equity premiums. The exit multiple is determined from comparable industry transactions and where appropriate, reflects expected long-term growth rates. If our initial review under the income approach indicates there may be impairment, we incorporate results under the market approach to further evaluate the existence of impairment. When the market approach is utilized, fair value is estimated based on market multiples of revenue and earnings derived from comparable publicly-traded industrial gases companies and/or regional manufacturing companies engaged in the same or similar lines of business as the reporting unit, adjusted to reflect differences in size and growth prospects. When both the income and market approach are utilized, we review relevant facts and circumstances and make a qualitative assessment to determine the proper weighting. Management judgment is required in the determination of each assumption utilized in the valuation model, and actual results could differ from the estimates.In the fourth quarter of fiscal year 2023, we conducted our annual goodwill impairment test, noting no indications of impairment. The fair value of all our reporting units substantially exceeded their carrying value.46Table of ContentsFuture events that could have a negative impact on the level of excess fair value over carrying value of the reporting units include, but are not limited to: long-term economic weakness, decline in market share, pricing pressures, inability to successfully implement cost improvement measures, increases to our cost of capital, changes in the strategy of the reporting unit, and changes to the structure of our business as a result of future reorganizations or divestitures of assets or businesses. Negative changes in one or more of these factors, among others, could result in impairment charges.Impairment of Assets: Intangible AssetsIntangible assets, net with determinable lives at 30 September 2023 totaled $297.5 and consisted primarily of customer relationships, purchased patents and technology, and land use rights. These intangible assets are tested for impairment as part of the long-lived asset grouping impairment tests. Impairment testing of the asset group occurs whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. See the impairment discussion above under "Impairment of Assets – Plant and Equipment" for a description of how impairment losses are determined.Indefinite-lived intangible assets at 30 September 2023 totaled $37.1 and consisted of trade names and trademarks. Indefinite-lived intangibles are subject to impairment testing at least annually or more frequently if events or changes in circumstances indicate that potential impairment exists. The impairment test for indefinite-lived intangible assets involves calculating the fair value of the indefinite-lived intangible assets and comparing the fair value to their carrying value. If the fair value is less than the carrying value, the difference is recorded as an impairment loss. To determine fair value, we utilize the royalty savings method, a form of the income approach. This method values an intangible asset by estimating the royalties avoided through ownership of the asset.Disclosures related to intangible assets other than goodwill are included in Note 12, Intangible Assets, to the consolidated financial statements.In the fourth quarter of fiscal year 2023, we conducted our annual impairment test of indefinite-lived intangibles, noting no indications of impairment.Impairment of Assets: Equity Method InvestmentsInvestments in and advances to equity affiliates totaled $4,617.8 at 30 September 2023. The majority of our equity method investments are ventures with other industrial gas companies. Summarized financial information of our equity affiliates is included in Note 9, Equity Affiliates, to the consolidated financial statements. We review our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. An impairment loss is recognized in the event that an other-than-temporary decline in fair value below the carrying value of an investment occurs. We estimate the fair value of our investments under the income approach, which considers the estimated discounted future cash flows expected to be generated by the investee, and/or the market approach, which considers market multiples of revenue and earnings derived from comparable publicly-traded industrial gas companies. Changes in key assumptions about the financial condition of an investee or actual conditions that differ from estimates could result in an impairment charge.In fiscal year 2023, there was no need to test any of our equity affiliate investments for impairment as no events or changes in circumstances indicated that the carrying amount of the investments may not be recoverable.Revenue Recognition: Cost Incurred Input MethodRevenue from equipment sale contracts is generally recognized over time as we have an enforceable right to payment for performance completed to date and our performance under the contract terms does not create an asset with alternative use. We use a cost incurred input method to recognize revenue by which costs incurred to date relative to total estimated costs at completion are used to measure progress toward satisfying performance obligations. Costs incurred include material, labor, and overhead costs and represent work contributing and proportionate to the transfer of control to the customer. Accounting for contracts using the cost incurred input method requires management judgment relative to assessing risks and their impact on the estimates of revenues and costs. Our estimates are impacted by factors such as the potential for incentives or penalties on performance, schedule delays, technical issues, cost inflation, labor productivity, the complexity of work performed, the availability of materials, and performance of subcontractors. When adjustments in estimated total contract revenues or estimated total costs are required, any changes in the estimated profit from prior estimates are recognized in the current period for the inception-to-date effect of such change. When estimates of total costs to be incurred on a contract exceed estimates of total revenues to be earned, a provision for the entire estimated loss on the contract is recorded in the period in which the loss is determined.47Table of ContentsIn addition to the typical risks associated with underlying performance of engineering, project procurement, and construction activities, our sale of equipment projects within our Corporate and other segment require monitoring of risks associated with schedule, geography, and other aspects of the contract and their effects on our estimates of total revenues and total costs to complete the contract. Changes in estimates on projects accounted for under the cost incurred input method unfavorably impacted operating income by approximately $115 in fiscal year 2023 and $30 in fiscal year 2022. We assess the performance of our sale of equipment projects as they progress. Our earnings could be positively or negatively impacted by changes to our contractual revenues and cost forecasts on these projects.Revenue Recognition: On-site Customer ContractsFor customers who require large volumes of gases on a long-term basis, we produce and supply gases under long-term contracts from large facilities that we build, own, and operate on or near the customer’s facilities. Certain of these on-site contracts contain complex terms and provisions regarding tolling arrangements, minimum payment requirements, variable components, pricing provisions, and amendments, which require significant judgment to determine the amount and timing of revenue recognition.Income TaxesWe account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax basis of assets and liabilities measured using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. As of 30 September 2023, accrued income taxes, including the amount recorded as noncurrent, was $240.6, and net deferred tax liabilities were $1,106.4. Tax liabilities related to uncertain tax positions as of 30 September 2023 were $96.5, excluding interest and penalties. Income tax expense for the fiscal year ended 30 September 2023 was $551.2.Management judgment is required concerning the ultimate outcome of tax contingencies and the realization of deferred tax assets.Actual income taxes paid may vary from estimates, depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. We believe that our recorded tax liabilities adequately provide for these assessments.Deferred tax assets are recorded for operating losses and tax credit carryforwards. However, when we do not expect sufficient sources of future taxable income to realize the benefit of the operating losses or tax credit carryforwards, these deferred tax assets are reduced by a valuation allowance. A valuation allowance is recognized if, based on the weight of available evidence, it is considered more likely than not that some portion or all of the deferred tax asset will not be realized. The factors used to assess the likelihood of realization include forecasted future taxable income and available tax planning strategies that could be implemented to realize or renew net deferred tax assets in order to avoid the potential loss of future tax benefits. The effect of a change in the valuation allowance is reported in income tax expense.A 1% increase or decrease in our effective tax rate may result in a decrease or increase to net income, respectively, of approximately $29.Disclosures related to income taxes are included in Note 23, Income Taxes, to the consolidated financial statements.48Table of ContentsPension and Other Postretirement BenefitsThe amounts recognized in the consolidated financial statements for pension and other postretirement benefits are determined on an actuarial basis utilizing numerous assumptions. The discussion that follows provides information on the significant assumptions, expense, and obligations associated with the defined benefit plans.Actuarial models are used in calculating the expense and liability related to the various defined benefit plans. These models have an underlying assumption that the employees render service over their service lives on a relatively consistent basis; therefore, the expense of benefits earned should follow a similar pattern.Several assumptions and statistical variables are used in the models to calculate the expense and liability related to the plans. We determine assumptions about the discount rate, the expected rate of return on plan assets, and the rate of compensation increase. Note 17, Retirement Benefits, to the consolidated financial statements includes disclosure of these rates on a weighted-average basis for both the U.S. and international plans. The actuarial models also use assumptions about demographic factors such as retirement age, mortality, and turnover rates. Mortality rates are based on the most recent U.S. and international mortality tables. We believe the actuarial assumptions are reasonable. However, actual results could vary materially from these actuarial assumptions due to economic events and differences in rates of retirement, mortality, and turnover. One of the assumptions used in the actuarial models is the discount rate used to measure benefit obligations. This rate reflects the prevailing market rate for high-quality, fixed-income debt instruments with maturities corresponding to the expected timing of benefit payments as of the annual measurement date for each of the various plans. We measure the service cost and interest cost components of pension expense by applying spot rates along the yield curve to the relevant projected cash flows. The rates along the yield curve are used to discount the future cash flows of benefit obligations back to the measurement date. These rates change from year to year based on market conditions that affect corporate bond yields. A higher discount rate decreases the present value of the benefit obligations and results in lower pension expense. With respect to impacts on pension benefit obligations, a 50 bp increase or decrease in the discount rate may result in a decrease or increase, respectively, to pension expense of approximately $15 per year.The expected rate of return on plan assets represents an estimate of the long-term average rate of return to be earned by plan assets reflecting current asset allocations. In determining estimated asset class returns, we take into account historical and future expected long-term returns and the value of active management, as well as the interest rate environment. Asset allocation is determined based on long-term return, volatility and correlation characteristics of the asset classes, the profiles of the plans’ liabilities, and acceptable levels of risk. Lower returns on the plan assets result in higher pension expense. A 50 bp increase or decrease in the estimated rate of return on plan assets may result in a decrease or increase, respectively, to pension expense of approximately $17 per year.We use a market-related valuation method for recognizing certain investment gains or losses for our significant pension plans. Investment gains or losses are the difference between the expected return and actual return on plan assets. The expected return on plan assets is determined based on a market-related value of plan assets. This is a calculated value that recognizes investment gains and losses on equities over a five-year period from the year in which they occur and reduces year-to-year volatility. The market-related value for non-equity investments equals the actual fair value. Expense in future periods will be impacted as gains or losses are recognized in the market-related value of assets.The expected rate of compensation increase is another key assumption. We determine this rate based on review of the underlying long-term salary increase trend characteristic of labor markets and historical experience, as well as comparison to peer companies. A 50 bp increase or decrease in the expected rate of compensation may result in an increase or decrease to pension expense, respectively, of approximately $4 per year.49Table of ContentsLoss ContingenciesIn the normal course of business, we encounter contingencies, or situations involving varying degrees of uncertainty as to the outcome and effect on our company. We accrue a liability for loss contingencies when it is considered probable that a liability has been incurred and the amount of loss can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued.Contingencies include those associated with litigation and environmental matters, for which our accounting policy is discussed in Note 1, Basis of Presentation and Major Accounting Policies, to the consolidated financial statements, and details are provided in Note 18, Commitments and Contingencies, to the consolidated financial statements. Significant judgment is required to determine both the probability and whether the amount of loss associated with a contingency can be reasonably estimated. These determinations are made based on the best available information at the time. As additional information becomes available, we reassess probability and estimates of loss contingencies. Revisions to the estimates associated with loss contingencies could have a significant impact on our results of operations in the period in which an accrual for loss contingencies is recorded or adjusted. For example, due to the inherent uncertainties related to environmental exposures, a significant increase to environmental liabilities could occur if a new site is designated, the scope of remediation is increased, a different remediation alternative is identified, or our proportionate share of the liability increases. Similarly, a future charge for regulatory fines or damage awards associated with litigation could have a significant impact on our net income in the period in which it is recorded.Item 7A. Quantitative and Qualitative Disclosures About Market RiskOur earnings, cash flows, and financial position are exposed to market risks arising from fluctuations in interest rates and foreign currency exchange rates. It is our policy to minimize our cash flow exposure to adverse changes in currency exchange rates and to manage the financial risks inherent in funding with debt capital.We address these financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. We have established counterparty credit guidelines and generally enter into transactions with financial institutions of investment grade or better, thereby minimizing the risk of credit loss. All instruments are entered into for other than trading purposes. For details on the types and use of these derivative instruments and related major accounting policies, refer to Note 1, Basis of Presentation and Major Accounting Policies, and Note 14, Financial Instruments, to the consolidated financial statements. Additionally, we mitigate adverse energy price impacts through our cost pass-through contracts with customers and price increases.Our derivative and other financial instruments consist of long-term debt, including the current portion and amounts owed to related parties; interest rate swaps; cross currency interest rate swaps; and foreign exchange-forward contracts. The net market value of these financial instruments combined is referred to below as the "net financial instrument position" and is disclosed in Note 15, Fair Value Measurements, to the consolidated financial statements. Our net financial instrument position increased from a liability of $6,898.6 at 30 September 2022 to a liability of $8,990.8 at 30 September 2023. The increase was primarily due to NEOM Green Hydrogen Project financing and the issuance of U.S. Dollar- and Euro-denominated fixed-rate notes during the fiscal year.The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market rates and prices. Market values are the present values of projected future cash flows based on the market rates and prices chosen. The market values for interest rate risk and foreign currency risk are calculated by us using a third-party software model that utilizes standard pricing models to determine the present value of the instruments based on market conditions as of the valuation date, such as interest rates, spot and forward exchange rates, and implied volatility.50Table of ContentsInterest Rate RiskOur debt portfolio as of 30 September 2023, including the effect of currency and interest rate swap agreements, was composed of 80% fixed-rate debt and 20% variable-rate debt. Our debt portfolio as of 30 September 2022, including the effect of currency and interest rate swap agreements, was composed of 79% fixed-rate debt and 21% variable-rate debt.The sensitivity analysis related to the interest rate risk on the fixed portion of our debt portfolio assumes an instantaneous 100 bp parallel move in interest rates from the level at 30 September 2023, with all other variables held constant. A 100 bp increase in market interest rates would result in a decrease of $728 and $364 in the net liability position of financial instruments at 30 September 2023 and 2022, respectively. A 100 bp decrease in market interest rates would result in an increase of $845 and $425 in the net liability position of financial instruments at 30 September 2023 and 2022, respectively.Based on the variable-rate debt included in our debt portfolio, including the interest rate swap agreements, a 100 bp increase in interest rates would result in an additional $21 and $16 of interest incurred per year at 30 September 2023 and 2022, respectively. A 100 bp decline in interest rates would lower interest incurred by $21 and $16 per year at 30 September 2023 and 2022, respectively.Foreign Currency Exchange Rate RiskThe sensitivity analysis related to foreign currency exchange rates assumes an instantaneous 10% change in the foreign currency exchange rates from their levels at 30 September 2023 and 2022, with all other variables held constant. A 10% strengthening or weakening of the functional currency of an entity versus all other currencies would result in a decrease or increase, respectively, of $308 and $165 in the net liability position of financial instruments at 30 September 2023 and 2022, respectively. The increase in sensitivity is primarily due to the issuance of Euro-denominated fixed-rate notes during the fiscal year.The primary currency pairs for which we have exchange rate exposure are the Euro and U.S. Dollar and Chinese Renminbi and U.S. Dollar. Foreign currency debt, cross currency interest rate swaps, and foreign exchange-forward contracts are used in countries where we do business, thereby reducing our net asset exposure. Foreign exchange-forward contracts and cross currency interest rate swaps are also used to hedge our firm and highly anticipated foreign currency cash flows. Thus, there is either an asset or liability or cash flow exposure related to all of the financial instruments in the above sensitivity analysis for which the impact of a movement in exchange rates would be in the opposite direction and materially equal to the impact on the instruments in the analysis.The majority of our sales are denominated in foreign currencies as they are derived outside the United States. Therefore, financial results will be affected by changes in foreign currency rates. The Chinese Renminbi and the Euro represent the largest exposures in terms of our foreign earnings. We estimate that a 10% reduction in either the Chinese Renminbi or the Euro versus the U.S. Dollar would lower our annual operating income by approximately $55 and $20, respectively.51Table of Contents \ No newline at end of file diff --git a/Aon plc_10-Q_2023-10-27_315293-0001628280-23-035412.html b/Aon plc_10-Q_2023-10-27_315293-0001628280-23-035412.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/Aon plc_10-Q_2023-10-27_315293-0001628280-23-035412.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/Apple Inc._10-K_2023-11-03_320193-0000320193-23-000106.html b/Apple Inc._10-K_2023-11-03_320193-0000320193-23-000106.html new file mode 100644 index 0000000000000000000000000000000000000000..7d7c7520e0c38ebfc402c0b83ffe789c515b66e1 --- /dev/null +++ b/Apple Inc._10-K_2023-11-03_320193-0000320193-23-000106.html @@ -0,0 +1 @@ +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion should be read in conjunction with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this Form 10-K. This Item generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 24, 2022.Fiscal PeriodThe Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. An additional week is included in the first fiscal quarter every five or six years to realign the Company’s fiscal quarters with calendar quarters, which occurred in the first quarter of 2023. The Company’s fiscal year 2023 spanned 53 weeks, whereas fiscal years 2022 and 2021 spanned 52 weeks each.Fiscal Year HighlightsThe Company’s total net sales were $383.3 billion and net income was $97.0 billion during 2023.The Company’s total net sales decreased 3% or $11.0 billion during 2023 compared to 2022. The weakness in foreign currencies relative to the U.S. dollar accounted for more than the entire year-over-year decrease in total net sales, which consisted primarily of lower net sales of Mac and iPhone, partially offset by higher net sales of Services.The Company announces new product, service and software offerings at various times during the year. Significant announcements during fiscal year 2023 included the following:First Quarter 2023:•iPad and iPad Pro;•Next-generation Apple TV 4K; and•MLS Season Pass, a Major League Soccer subscription streaming service.Second Quarter 2023:•MacBook Pro 14”, MacBook Pro 16” and Mac mini; and•Second-generation HomePod.Third Quarter 2023:•MacBook Air 15”, Mac Studio and Mac Pro;•Apple Vision Pro™, the Company’s first spatial computer featuring its new visionOS™, expected to be available in early calendar year 2024; and•iOS 17, macOS Sonoma, iPadOS 17, tvOS 17 and watchOS 10, updates to the Company’s operating systems.Fourth Quarter 2023:•iPhone 15, iPhone 15 Plus, iPhone 15 Pro and iPhone 15 Pro Max; and•Apple Watch Series 9 and Apple Watch Ultra 2.In May 2023, the Company announced a new share repurchase program of up to $90 billion and raised its quarterly dividend from $0.23 to $0.24 per share beginning in May 2023. During 2023, the Company repurchased $76.6 billion of its common stock and paid dividends and dividend equivalents of $15.0 billion.Macroeconomic ConditionsMacroeconomic conditions, including inflation, changes in interest rates, and currency fluctuations, have directly and indirectly impacted, and could in the future materially impact, the Company’s results of operations and financial condition.Apple Inc. | 2023 Form 10-K | 20Segment Operating PerformanceThe following table shows net sales by reportable segment for 2023, 2022 and 2021 (dollars in millions):2023Change2022Change2021Net sales by reportable segment:Americas$162,560 (4)%$169,658 11 %$153,306 Europe94,294 (1)%95,118 7 %89,307 Greater China72,559 (2)%74,200 9 %68,366 Japan24,257 (7)%25,977 (9)%28,482 Rest of Asia Pacific29,615 1 %29,375 11 %26,356 Total net sales$383,285 (3)%$394,328 8 %$365,817 AmericasAmericas net sales decreased 4% or $7.1 billion during 2023 compared to 2022 due to lower net sales of iPhone and Mac, partially offset by higher net sales of Services.EuropeEurope net sales decreased 1% or $824 million during 2023 compared to 2022. The weakness in foreign currencies relative to the U.S. dollar accounted for more than the entire year-over-year decrease in Europe net sales, which consisted primarily of lower net sales of Mac and Wearables, Home and Accessories, partially offset by higher net sales of iPhone and Services.Greater ChinaGreater China net sales decreased 2% or $1.6 billion during 2023 compared to 2022. The weakness in the renminbi relative to the U.S. dollar accounted for more than the entire year-over-year decrease in Greater China net sales, which consisted primarily of lower net sales of Mac and iPhone.JapanJapan net sales decreased 7% or $1.7 billion during 2023 compared to 2022. The weakness in the yen relative to the U.S. dollar accounted for more than the entire year-over-year decrease in Japan net sales, which consisted primarily of lower net sales of iPhone, Wearables, Home and Accessories and Mac.Rest of Asia PacificRest of Asia Pacific net sales increased 1% or $240 million during 2023 compared to 2022. The weakness in foreign currencies relative to the U.S. dollar had a significantly unfavorable year-over-year impact on Rest of Asia Pacific net sales. The net sales increase consisted of higher net sales of iPhone and Services, partially offset by lower net sales of Mac and iPad.Apple Inc. | 2023 Form 10-K | 21Products and Services PerformanceThe following table shows net sales by category for 2023, 2022 and 2021 (dollars in millions):2023Change2022Change2021Net sales by category:iPhone (1)$200,583 (2)%$205,489 7 %$191,973 Mac (1)29,357 (27)%40,177 14 %35,190 iPad (1)28,300 (3)%29,292 (8)%31,862 Wearables, Home and Accessories (1)39,845 (3)%41,241 7 %38,367 Services (2)85,200 9 %78,129 14 %68,425 Total net sales$383,285 (3)%$394,328 8 %$365,817 (1)Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.(2)Services net sales include amortization of the deferred value of services bundled in the sales price of certain products.iPhoneiPhone net sales decreased 2% or $4.9 billion during 2023 compared to 2022 due to lower net sales of non-Pro iPhone models, partially offset by higher net sales of Pro iPhone models.MacMac net sales decreased 27% or $10.8 billion during 2023 compared to 2022 due primarily to lower net sales of laptops.iPadiPad net sales decreased 3% or $1.0 billion during 2023 compared to 2022 due primarily to lower net sales of iPad mini and iPad Air, partially offset by the combined net sales of iPad 9th and 10th generation.Wearables, Home and AccessoriesWearables, Home and Accessories net sales decreased 3% or $1.4 billion during 2023 compared to 2022 due primarily to lower net sales of Wearables and Accessories.ServicesServices net sales increased 9% or $7.1 billion during 2023 compared to 2022 due to higher net sales across all lines of business.Apple Inc. | 2023 Form 10-K | 22Gross MarginProducts and Services gross margin and gross margin percentage for 2023, 2022 and 2021 were as follows (dollars in millions):202320222021Gross margin:Products$108,803 $114,728 $105,126 Services60,345 56,054 47,710 Total gross margin$169,148 $170,782 $152,836 Gross margin percentage:Products36.5 %36.3 %35.3 %Services70.8 %71.7 %69.7 %Total gross margin percentage44.1 %43.3 %41.8 %Products Gross MarginProducts gross margin decreased during 2023 compared to 2022 due to the weakness in foreign currencies relative to the U.S. dollar and lower Products volume, partially offset by cost savings and a different Products mix.Products gross margin percentage increased during 2023 compared to 2022 due to cost savings and a different Products mix, partially offset by the weakness in foreign currencies relative to the U.S. dollar and decreased leverage.Services Gross MarginServices gross margin increased during 2023 compared to 2022 due primarily to higher Services net sales, partially offset by the weakness in foreign currencies relative to the U.S. dollar and higher Services costs.Services gross margin percentage decreased during 2023 compared to 2022 due to higher Services costs and the weakness in foreign currencies relative to the U.S. dollar, partially offset by a different Services mix.The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of this Form 10-K under the heading “Risk Factors.” As a result, the Company believes, in general, gross margins will be subject to volatility and downward pressure.Operating ExpensesOperating expenses for 2023, 2022 and 2021 were as follows (dollars in millions):2023Change2022Change2021Research and development$29,915 14 %$26,251 20 %$21,914 Percentage of total net sales8 %7 %6 %Selling, general and administrative$24,932 (1)%$25,094 14 %$21,973 Percentage of total net sales7 %6 %6 %Total operating expenses$54,847 7 %$51,345 17 %$43,887 Percentage of total net sales14 %13 %12 %Research and DevelopmentThe year-over-year growth in R&D expense in 2023 was driven primarily by increases in headcount-related expenses.Selling, General and AdministrativeSelling, general and administrative expense was relatively flat in 2023 compared to 2022.Apple Inc. | 2023 Form 10-K | 23Provision for Income TaxesProvision for income taxes, effective tax rate and statutory federal income tax rate for 2023, 2022 and 2021 were as follows (dollars in millions):202320222021Provision for income taxes$16,741 $19,300 $14,527 Effective tax rate14.7 %16.2 %13.3 %Statutory federal income tax rate21 %21 %21 %The Company’s effective tax rate for 2023 and 2022 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings, the impact of the U.S. federal R&D credit, and tax benefits from share-based compensation, partially offset by state income taxes.The Company’s effective tax rate for 2023 was lower compared to 2022 due primarily to a lower effective tax rate on foreign earnings and the impact of U.S. foreign tax credit regulations issued by the U.S. Department of the Treasury in 2022, partially offset by lower tax benefits from share-based compensation.Liquidity and Capital ResourcesThe Company believes its balances of cash, cash equivalents and unrestricted marketable securities, which totaled $148.3 billion as of September 30, 2023, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.The Company’s material cash requirements include the following contractual obligations:DebtAs of September 30, 2023, the Company had outstanding fixed-rate notes with varying maturities for an aggregate principal amount of $106.6 billion (collectively the “Notes”), with $9.9 billion payable within 12 months. Future interest payments associated with the Notes total $41.1 billion, with $2.9 billion payable within 12 months.The Company also issues unsecured short-term promissory notes pursuant to a commercial paper program. As of September 30, 2023, the Company had $6.0 billion of commercial paper outstanding, all of which was payable within 12 months.LeasesThe Company has lease arrangements for certain equipment and facilities, including corporate, data center, manufacturing and retail space. As of September 30, 2023, the Company had fixed lease payment obligations of $15.8 billion, with $2.0 billion payable within 12 months.Manufacturing Purchase ObligationsThe Company utilizes several outsourcing partners to manufacture subassemblies for the Company’s products and to perform final assembly and testing of finished products. The Company also obtains individual components for its products from a wide variety of individual suppliers. As of September 30, 2023, the Company had manufacturing purchase obligations of $53.1 billion, with $52.9 billion payable within 12 months. The Company’s manufacturing purchase obligations are primarily noncancelable.Other Purchase ObligationsThe Company’s other purchase obligations primarily consist of noncancelable obligations to acquire capital assets, including assets related to product manufacturing, and noncancelable obligations related to supplier arrangements, licensed intellectual property and content, and distribution rights. As of September 30, 2023, the Company had other purchase obligations of $21.9 billion, with $5.6 billion payable within 12 months.Deemed Repatriation Tax PayableAs of September 30, 2023, the balance of the deemed repatriation tax payable imposed by the U.S. Tax Cuts and Jobs Act of 2017 (the “Act”) was $22.0 billion, with $6.5 billion expected to be paid within 12 months.Apple Inc. | 2023 Form 10-K | 24Capital Return ProgramIn addition to its contractual cash requirements, the Company has an authorized share repurchase program. The program does not obligate the Company to acquire a minimum amount of shares. As of September 30, 2023, the Company’s quarterly cash dividend was $0.24 per share. The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.Critical Accounting EstimatesThe preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.Uncertain Tax PositionsThe Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The evaluation of the Company’s uncertain tax positions involves significant judgment in the interpretation and application of GAAP and complex domestic and international tax laws, including the Act and matters related to the allocation of international taxation rights between countries. Although management believes the Company’s reserves are reasonable, no assurance can be given that the final outcome of these uncertainties will not be different from that which is reflected in the Company’s reserves. Reserves are adjusted considering changing facts and circumstances, such as the closing of a tax examination. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results.Legal and Other ContingenciesThe Company is subject to various legal proceedings and claims that arise in the ordinary course of business, the outcomes of which are inherently uncertain. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment. Resolution of legal matters in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results.Apple Inc. | 2023 Form 10-K | 25Item 7A. Quantitative and Qualitative Disclosures About Market RiskThe Company is exposed to economic risk from interest rates and foreign exchange rates. The Company uses various strategies to manage these risks; however, they may still impact the Company’s consolidated financial statements.Interest Rate RiskThe Company is primarily exposed to fluctuations in U.S. interest rates and their impact on the Company’s investment portfolio and term debt. Increases in interest rates will negatively affect the fair value of the Company’s investment portfolio and increase the interest expense on the Company’s term debt. To protect against interest rate risk, the Company may use derivative instruments, offset interest rate–sensitive assets and liabilities, or control duration of the investment and term debt portfolios.The following table sets forth potential impacts on the Company’s investment portfolio and term debt, including the effects of any associated derivatives, that would result from a hypothetical increase in relevant interest rates as of September 30, 2023 and September 24, 2022 (dollars in millions):Interest RateSensitive InstrumentHypothetical InterestRate IncreasePotential Impact20232022Investment portfolio100 basis points, all tenorsDecline in fair value$3,089 $4,022 Term debt100 basis points, all tenorsIncrease in annual interest expense$194 $201 Foreign Exchange Rate RiskThe Company’s exposure to foreign exchange rate risk relates primarily to the Company being a net receiver of currencies other than the U.S. dollar. Changes in exchange rates, and in particular a strengthening of the U.S. dollar, will negatively affect the Company’s net sales and gross margins as expressed in U.S. dollars. Fluctuations in exchange rates may also affect the fair values of certain of the Company’s assets and liabilities. To protect against foreign exchange rate risk, the Company may use derivative instruments, offset exposures, or adjust local currency pricing of its products and services. However, the Company may choose to not hedge certain foreign currency exposures for a variety of reasons, including accounting considerations or prohibitive cost.The Company applied a value-at-risk (“VAR”) model to its foreign currency derivative positions to assess the potential impact of fluctuations in exchange rates. The VAR model used a Monte Carlo simulation. The VAR is the maximum expected loss in fair value, for a given confidence interval, to the Company’s foreign currency derivative positions due to adverse movements in rates. Based on the results of the model, the Company estimates, with 95% confidence, a maximum one-day loss in fair value of $669 million and $1.0 billion as of September 30, 2023 and September 24, 2022, respectively. Changes in the Company’s underlying foreign currency exposures, which were excluded from the assessment, generally offset changes in the fair values of the Company’s foreign currency derivatives.Apple Inc. | 2023 Form 10-K | 26 \ No newline at end of file diff --git a/Archer-Daniels-Midland Co_10-Q_2023-10-24_7084-0000007084-23-000039.html b/Archer-Daniels-Midland Co_10-Q_2023-10-24_7084-0000007084-23-000039.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/Archer-Daniels-Midland Co_10-Q_2023-10-24_7084-0000007084-23-000039.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/Arthur J. Gallagher & Co._10-Q_2023-10-27_354190-0000950170-23-056014.html b/Arthur J. Gallagher & Co._10-Q_2023-10-27_354190-0000950170-23-056014.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/Arthur J. 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0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/BIOGEN INC._10-Q_2023-11-08_875045-0000875045-23-000038.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/BROWN & BROWN, INC._10-Q_2023-10-26_79282-0000950170-23-055281.html b/BROWN & BROWN, INC._10-Q_2023-10-26_79282-0000950170-23-055281.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/BROWN & BROWN, INC._10-Q_2023-10-26_79282-0000950170-23-055281.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/CADENCE DESIGN SYSTEMS INC_10-Q_2023-10-23_813672-0000813672-23-000068.html b/CADENCE DESIGN SYSTEMS INC_10-Q_2023-10-23_813672-0000813672-23-000068.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/CADENCE DESIGN SYSTEMS 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INC._10-Q_2023-11-21_858877-0000858877-23-000031.html b/CISCO SYSTEMS, INC._10-Q_2023-11-21_858877-0000858877-23-000031.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/CISCO SYSTEMS, INC._10-Q_2023-11-21_858877-0000858877-23-000031.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/CITIGROUP INC_10-Q_2023-11-03_831001-0000831001-23-000132.html b/CITIGROUP INC_10-Q_2023-11-03_831001-0000831001-23-000132.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/CITIGROUP INC_10-Q_2023-11-03_831001-0000831001-23-000132.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/CITIZENS FINANCIAL GROUP INC-RI_10-Q_2023-11-06_759944-0000759944-23-000149.html b/CITIZENS FINANCIAL GROUP INC-RI_10-Q_2023-11-06_759944-0000759944-23-000149.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/CITIZENS FINANCIAL GROUP INC-RI_10-Q_2023-11-06_759944-0000759944-23-000149.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/CMS ENERGY CORP_10-Q_2023-10-26_811156-0000811156-23-000072.html b/CMS ENERGY CORP_10-Q_2023-10-26_811156-0000811156-23-000072.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/CMS ENERGY CORP_10-Q_2023-10-26_811156-0000811156-23-000072.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/COOPER COMPANIES, INC._10-K_2023-12-08_711404-0000711404-23-000072.html b/COOPER COMPANIES, INC._10-K_2023-12-08_711404-0000711404-23-000072.html new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/CVS HEALTH Corp_10-Q_2023-11-01_64803-0000064803-23-000047.html b/CVS HEALTH Corp_10-Q_2023-11-01_64803-0000064803-23-000047.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/CVS HEALTH Corp_10-Q_2023-11-01_64803-0000064803-23-000047.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/Coterra Energy Inc._10-Q_2023-11-07_858470-0000858470-23-000056.html b/Coterra Energy Inc._10-Q_2023-11-07_858470-0000858470-23-000056.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/Coterra Energy Inc._10-Q_2023-11-07_858470-0000858470-23-000056.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/DEERE & CO_10-K_2023-12-15_315189-0001558370-23-019812.html b/DEERE & CO_10-K_2023-12-15_315189-0001558370-23-019812.html new file mode 100644 index 0000000000000000000000000000000000000000..52dd22a0750a7eabd8aba92eeebfdc6b6a3fd052 --- /dev/null +++ b/DEERE & CO_10-K_2023-12-15_315189-0001558370-23-019812.html @@ -0,0 +1 @@ +ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.See the information under the caption “Management’s Discussion and Analysis.”ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.We are exposed to a variety of market risks, including interest rates and currency exchange rates. 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section not found. \ No newline at end of file diff --git a/EDISON INTERNATIONAL_10-Q_2023-11-01_827052-0000827052-23-000084.html b/EDISON INTERNATIONAL_10-Q_2023-11-01_827052-0000827052-23-000084.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/EDISON INTERNATIONAL_10-Q_2023-11-01_827052-0000827052-23-000084.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/ELECTRONIC ARTS INC._10-Q_2023-11-07_712515-0000712515-23-000048.html b/ELECTRONIC ARTS INC._10-Q_2023-11-07_712515-0000712515-23-000048.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/ELECTRONIC ARTS INC._10-Q_2023-11-07_712515-0000712515-23-000048.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/ELI LILLY & Co_10-Q_2023-11-02_59478-0000059478-23-000284.html b/ELI LILLY & Co_10-Q_2023-11-02_59478-0000059478-23-000284.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/ELI LILLY & Co_10-Q_2023-11-02_59478-0000059478-23-000284.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/EMERSON ELECTRIC CO_10-K_2023-11-13_32604-0000032604-23-000044.html b/EMERSON ELECTRIC CO_10-K_2023-11-13_32604-0000032604-23-000044.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/EMERSON ELECTRIC CO_10-K_2023-11-13_32604-0000032604-23-000044.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/ENTERGY CORP -DE-_10-Q_2023-11-02_65984-0000065984-23-000094.html b/ENTERGY CORP -DE-_10-Q_2023-11-02_65984-0000065984-23-000094.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null 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INC_10-Q_2023-10-23_33185-0000033185-23-000045.html b/EQUIFAX INC_10-Q_2023-10-23_33185-0000033185-23-000045.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/EQUIFAX INC_10-Q_2023-10-23_33185-0000033185-23-000045.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/EVERSOURCE ENERGY_10-Q_2023-11-07_72741-0000072741-23-000020.html b/EVERSOURCE ENERGY_10-Q_2023-11-07_72741-0000072741-23-000020.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/EVERSOURCE ENERGY_10-Q_2023-11-07_72741-0000072741-23-000020.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/EXPEDITORS INTERNATIONAL OF WASHINGTON INC_10-Q_2023-11-08_746515-0000950170-23-061159.html b/EXPEDITORS INTERNATIONAL OF WASHINGTON INC_10-Q_2023-11-08_746515-0000950170-23-061159.html new file mode 100644 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CORP_10-K_2023-11-08_814547-0000814547-23-000022.html @@ -0,0 +1 @@ +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOur Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes the following: a business overview that provides a high-level summary of our strategies and initiatives, highlights from fiscal year 2023 and key performance metrics for our Software segment; a more detailed analysis of our results of operations; our capital resources and liquidity, which discusses key aspects of our statements of cash flows, changes in our balance sheets and our financial commitments; and a summary of our critical accounting estimates that involve a significant level of estimation uncertainty. Our MD&A should be read in conjunction with Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. The following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ from those referred to herein due to a number of factors, including but not limited to risks described in Item 1A, Risk Factors, in this Annual Report on Form 10-K.Our MD&A focuses on discussion of year-over-year comparisons between fiscal 2023 and fiscal 2022. Discussion of fiscal 2021 results and year-over-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.BUSINESS OVERVIEWStrategies and InitiativesIn fiscal 2023, our B2B scoring solutions, including the flagship FICO® Score, continued to be the standard measure of consumer credit risk in the U.S. We continued to promote adoption of our most predictive scores, FICO® Score 10 and 10 T. Internationally, we launched FICO® Score 10 in Canada, FICO® Score 6 in South Africa, and FICO® Score 4 and FICO® Extended Score 4 in Mexico, further expanding our financial inclusion initiatives. We also remained committed to expanding usage of the FICO® Resilience Index, a complement to FICO Scores that identifies consumers who are more resilient to economic stress relative to other consumers within the same FICO Score bands. We continued to develop scores that use alternative data to enhance conventional credit bureau data and generate scores for otherwise un-scorable consumers.During fiscal 2023, we continued to advance and drive growth through our platform-first, cloud delivered strategy in our Software segment. This strategic focus has led us to exit non-strategic products and services in the past few years, allowing us to dedicate our resources to expanding the capabilities and market penetration of FICO® Platform. We also continued our transition from private data centers to external service providers to host our technology infrastructure.We also continued to enhance stockholder value by returning cash to stockholders through our stock repurchase programs. During fiscal 2023, we repurchased 0.6 million shares at a total repurchase price of $407.3 million.Highlights from Fiscal 2023•Total revenue was $1.5 billion during fiscal 2023, a 10% increase from fiscal 2022.•Annual Recurring Revenue for our Software segment as of September 30, 2023 was $669.4 million, a 22% increase from September 30, 2022.•Dollar-Based Net Retention Rate for our Software segment during the fourth quarter of fiscal 2023 was 120%.•Operating income was $642.8 million during fiscal 2023, a 19% increase from fiscal 2022.•Net income was $429.4 million during fiscal 2023, a 15% increase from fiscal 2022.•Diluted EPS was $16.93 during fiscal 2023, a 19% increase from fiscal 2022.•Cash flow from operating activities was $468.9 million during fiscal 2023, compared with $509.5 million during fiscal 2022.•Cash and cash equivalents were $136.8 million as of September 30, 2023, compared with $133.2 million as of September 30, 2022.•Total debt balance was $1.9 billion as of September 30, 2023 and September 30, 2022.•Total share repurchases during fiscal 2023 were $407.3 million, compared with $1.1 billion during fiscal 2022.31Table of ContentsKey performance metrics for Software segmentAnnual Contract Value Bookings (“ACV Bookings”)Management regards ACV Bookings as an important indicator of future revenues, but they are not comparable to, nor are they a substitute for, an analysis of our revenues and other U.S. generally accepted accounting principles (“U.S. GAAP”) measures. We define ACV Bookings as the average annualized value of software contracts signed in the current reporting period that generate current and future on-premises and SaaS software revenue. We only include contracts with an initial term of at least 24 months and we exclude perpetual licenses and other software revenues that are non-recurring in nature. For renewals of existing software subscription contracts, we count only incremental annual revenue expected over the current contract as ACV Bookings.ACV Bookings is calculated by dividing the total expected contract value by the contract term in years. The expected contract value equals the fixed amount — including guaranteed minimums, if any — stated in the contract, plus estimates of future usage-based fees. We develop estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements. Differences between estimates and actual results occur due to variability in the estimated usage. This variability can be the result of the economic trends in our customers’ industries; individual performance of our customers relative to their competitors; and regulatory and other factors that affect the business environment in which our customers operate.We disclose estimated revenue expected to be recognized in the future related to remaining performance obligations in Note 11 to the accompanying consolidated financial statements. However, we believe ACV Bookings is a more meaningful measure of our business as it includes estimated revenues and future billings excluded from Note 11, such as usage-based fees and guaranteed minimums derived from our on-premises software licenses, among others.The following table summarizes our ACV Bookings during the periods indicated:Quarter Ended September 30,Year Ended September 30,2023202220232022(In millions)Total on-premises and SaaS software (*)$28.0 $29.2 $93.9 $84.5 (*) During fiscal 2023, we sold certain assets related to our Siron compliance business. The amounts above exclude this product line for all periods presented.Annual Recurring Revenue (“ARR”)Accounting Standards Codification Topic 606, Revenue from Contacts with Customers, requires us to recognize a significant portion of revenue from our on-premises software subscriptions at the point in time when the software is first made available to the customer, or at the beginning of the subscription term, despite the fact that our contracts typically call for billing these amounts ratably over the life of the subscription. The remaining portion of our on-premises software subscription revenue including maintenance and usage-based fees are recognized over the life of the contract. This point-in-time recognition of a portion of our on-premises software subscription revenue creates significant variability in the revenue recognized period to period based on the timing of the subscription start date and the subscription term. Furthermore, this point-in-time revenue recognition can create a significant difference between the timing of our revenue recognition and the actual customer billing under the contract. We use ARR to measure the underlying performance of our subscription-based contracts and mitigate the impact of this variability. ARR is defined as the annualized revenue run-rate of on-premises and SaaS software agreements within a quarterly reporting period, and as such, is different from the timing and amount of revenue recognized. All components of our software licensing and subscription arrangements that are not expected to recur (primarily perpetual licenses) are excluded. We calculate ARR as the quarterly recurring revenue run-rate multiplied by four.32Table of ContentsThe following table summarizes our ARR for on-premises and SaaS software at each of the dates presented:December 31, 2021March 31, 2022June 30, 2022September 30, 2022December 31, 2022March 31, 2023June 30, 2023September 30, 2023ARR (*)(In millions)Platform (**)$90.9$95.4$107.2$113.1$132.8$152.5$164.1$173.2Non-Platform433.4430.6432.3437.0450.1461.0481.8496.2 Total$524.3$526.0$539.5$550.1$582.9$613.5$645.9$669.4PercentagePlatform17 %18 %20 %21 %23 %25 %25 %26 %Non-Platform83 %82 %80 %79 %77 %75 %75 %74 % Total100 %100 %100 %100 %100 %100 %100 %100 %YoY ChangePlatform71 %64 %62 %54 %46 %60 %53 %53 %Non-Platform3 %3 %2 %2 %4 %7 %11 %14 % Total11 %10 %10 %10 %11 %17 %20 %22 %(*) During fiscal 2023, we sold certain assets related to our Siron compliance business. The amounts and percentages above exclude this product line at all dates presented.(**) FICO platform software is a set of interoperable capabilities which use software assets owned and/or governed by FICO for building solutions and services which conform to FICO architectural standards based on key elements of Cloud Native Computing design principles. These standards encompass shared security context and access using FICO standard application programming interfaces.Dollar-Based Net Retention Rate (“DBNRR”)We consider DBNRR to be an important measure of our success in retaining and growing revenue from our existing customers. To calculate DBNRR for any period, we compare the ARR at the end of the prior comparable quarter (“base ARR”) to the ARR from that same cohort of customers at the end of the current quarter (“retained ARR”); we then divide the retained ARR by the base ARR to arrive at the DBNRR. Our calculation includes the positive impact among this cohort of customers of selling additional products, price increases and increases in usage-based fees, and the negative impact of customer attrition, price decreases, and decreases in usage-based fees during the period. However, the calculation does not include the positive impact from sales to any new customers acquired during the period. Our DBNRR may increase or decrease from period to period as a result of various factors, including the timing of new sales and customer renewal rates.The following table summarizes our DBNRR for on-premises and SaaS software for each of the periods presented:Quarter EndedDecember 31, 2021March 31, 2022June 30, 2022September 30, 2022December 31, 2022March 31, 2023June 30, 2023September 30, 2023DBNRR (*)Platform146 %144 %137 %129 %130 %146 %142 %145 %Non-Platform102 %102 %101 %101 %103 %105 %109 %111 % Total109 %109 %109 %109 %110 %114 %117 %120 %(*) During fiscal 2023, we sold certain assets related to our Siron compliance business. The percentages above exclude this product line for all periods presented.33Table of ContentsRESULTS OF OPERATIONSWe are organized into two reportable segments: Scores and Software. Although we sell solutions and services into a large number of end user product and industry markets, our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance. Segment revenues, operating income, and related financial information, including disaggregation of revenue, for the years ended September 30, 2023, 2022 and 2021 are set forth in Note 11 and Note 17 to the accompanying consolidated financial statements.RevenuesThe following tables set forth certain summary information on a segment basis related to our revenues for fiscal 2023, 2022 and 2021: Year Ended September 30,Period-to-Period ChangePeriod-to-PeriodPercentage ChangeSegment2023202220212023 to 20222022 to 20212023 to 20222022 to 2021 (In thousands)(In thousands) Scores$773,828 $706,643 $654,147 $67,185 $52,496 10 %8 %Software739,729 670,627 662,389 69,102 8,238 10 %1 % Total $1,513,557 $1,377,270 $1,316,536 136,287 60,734 10 %5 % Percentage of RevenuesYear Ended September 30,Segment202320222021Scores51 %51 %50 %Software49 %49 %50 % Total100 %100 %100 %Scores Scores segment revenues increased $67.2 million in fiscal 2023 from 2022 due to an increase of $85.6 million in our business-to-business scores revenue, partially offset by a decrease of $18.4 million in our business-to-consumer revenue. The increase in business-to-business scores revenue was primarily attributable to a higher unit price, partially offset by a decrease in mortgage originations volume. The decrease in business-to-consumer revenue was primarily attributable to a decrease in direct sales generated from the myFICO.com website.34Table of ContentsSoftware Year Ended September 30,Period-to-Period ChangePeriod-to-PeriodPercentage Change 2023202220212023 to 20222022 to 20212023 to 20222022 to 2021 (In thousands)(In thousands) On-premises and SaaS software$640,182 $564,751 $517,888 $75,431 $46,863 13 %9 %Professional services99,547 105,876 144,501 (6,329)(38,625)(6)%(27)%Total$739,729 $670,627 $662,389 69,102 8,238 10 %1 %Year Ended September 30,Period-to-Period ChangePeriod-to-PeriodPercentage Change2023202220212023 to 20222022 to 20212023 to 20222022 to 2021(In thousands)(In thousands)Software recognized at a point in time (1)$72,843 $75,647 $59,024 $(2,804)$16,623 (4)%28 %Software recognized over contract term (2)567,339 489,104 458,864 78,235 30,240 16 %7 %Total on-premises and SaaS software$640,182 $564,751 $517,888 $75,431 46,863 13 %9 %(1)Includes license portion of our on-premises subscription software and perpetual license, both of which are recognized when the software is made available to the customer, or at the start of the subscription. (2)Includes maintenance portion and usage-based fees of our on-premises subscription software, maintenance revenue on perpetual licenses, as well as SaaS revenue.Software segment revenues increased $69.1 million in fiscal 2023 from 2022 due to a $75.4 million increase in on-premises and SaaS software revenue, partially offset by a $6.3 million decrease in services revenue. The increase in our on-premises and SaaS software revenue was primarily attributable to an increase in revenue recognized over the contract term largely driven by SaaS growth.35Table of ContentsOperating Expenses and Other Income (Expense), NetThe following tables set forth certain summary information related to our consolidated statements of income and comprehensive income for fiscal 2023, 2022 and 2021: Year Ended September 30,Period-to-Period ChangePeriod-to-PeriodPercentage Change 2023202220212023 to 20222022 to 20212023 to 20222022 to 2021 (In thousands, except employees)(In thousands, exceptemployees) Revenues$1,513,557 $1,377,270 $1,316,536 $136,287 $60,734 10 %5 %Operating expenses:Cost of revenues311,053 302,174 332,462 8,879 (30,288)3 %(9)%Research and development159,950 146,758 171,231 13,192 (24,473)9 %(14)%Selling, general and administrative400,565 383,863 396,281 16,702 (12,418)4 %(3)%Amortization of intangible assets1,100 2,061 3,255 (961)(1,194)(47)%(37)%Restructuring charges— — 7,957 — (7,957)— %(100)%Gains on product line asset sales and business divestiture(1,941)— (100,139)(1,941)100,139 — %(100)%Total operating expenses870,727 834,856 811,047 35,871 23,809 4 %3 %Operating income642,830 542,414 505,489 100,416 36,925 19 %7 %Interest expense, net(95,546)(68,967)(40,092)(26,579)(28,875)39 %72 %Other income (expense), net6,340 (2,138)7,745 8,478 (9,883)(397)%(128)%Income before income taxes553,624 471,309 473,142 82,315 (1,833)17 %— %Provision for income taxes124,249 97,768 81,058 26,481 16,710 27 %21 %Net income$429,375 $373,541 $392,084 55,834 (18,543)15 %(5)%Number of employees at fiscal year-end3,455 3,404 3,650 51 (246)1 %(7)% 36Table of Contents Percentage of RevenuesYear Ended September 30, 202320222021Revenues100 %100 %100 %Operating expenses:Cost of revenues21 %22 %25 %Research and development11 %11 %13 %Selling, general and administrative26 %28 %30 %Amortization of intangible assets— %— %— % Restructuring charges— %— %1 %Gains on product line asset sales and business divestiture— %— %(7)%Total operating expenses58 %61 %62 %Operating income42 %39 %38 %Interest expense, net(6)%(5)%(3)%Other income (expense), net— %— %1 %Income before income taxes36 %34 %36 %Provision for income taxes8 %7 %6 %Net income28 %27 %30 %Cost of RevenuesCost of revenues consists primarily of employee salaries, incentives, and benefits for personnel directly involved in delivering software products, operating SaaS infrastructure, and providing support, implementation and consulting services; overhead, facilities and data center costs; software royalty fees; credit bureau data and processing services; third-party hosting fees related to our SaaS services; travel costs; and outside services.The fiscal 2023 over 2022 increase in cost of revenues of $8.9 million was primarily attributable to a $23.4 million increase in personnel and labor costs, partially offset by a $12.9 million decrease in infrastructure and facilities costs, and a $3.9 million decrease in direct materials costs. The increase in personnel and labor costs was primarily attributable to increases in employee time allocated to cost of revenues, increased stock-based compensation expense, increased incentive expense and increased headcount. The decrease in infrastructure and facilities costs was primarily attributable to a one-time reimbursement from a third-party data center provider for implementation costs previously incurred. The decrease in direct materials costs was primarily attributable to a decrease in credit bureau data costs associated with decreased business-to-consumer scoring solutions revenue through the myFICO.com website. Cost of revenues as a percentage of revenues decreased to 21% during fiscal 2023 from 22% during fiscal 2022, primarily due to increased sales of our higher margin Scores products and the one-time reimbursement from a third-party data center provider for implementation costs previously incurred.Research and DevelopmentResearch and development expenses include personnel and related overhead costs incurred in the development of new products and services, including research of mathematical and statistical models and development of new versions of Software products.The fiscal 2023 over 2022 increase in research and development expenses of $13.2 million was primarily attributable to a $10.7 million increase in personnel and labor costs as a result of increases in time allocated to research and development activities, and a $1.4 million increase in infrastructure and facilities costs primarily attributable to increased third-party data center hosting fees and SaaS costs. Research and development expenses as a percentage of revenues remained consistent at 11% during fiscal 2023 and 2022.Selling, General and AdministrativeSelling, general and administrative expenses consist principally of employee salaries, incentives, commissions and benefits; travel costs; overhead costs; advertising and other promotional expenses; corporate facilities expenses; legal expenses; and business development expenses.37Table of ContentsThe fiscal 2023 over 2022 increase in selling, general and administrative expenses of $16.7 million was primarily attributable to a $10.9 million increase in personnel and labor costs, a $5.2 million increase in marketing and business development costs, a $3.3 million increase in travel costs, and a $2.2 million increase in outside services expenses, partially offset by a $4.9 million decrease in infrastructure and facilities costs. The increase in personnel and labor costs was primarily a result of increased fringe benefit costs related to our supplemental retirement and savings plan. The increases in marketing, business development and travel costs were primarily attributable to increased costs for a company-wide marketing event held during both fiscal 2023 and 2022, with higher costs incurred for the fiscal 2023 event due to the increased scope of the event. In addition, as COVID-19 related restrictions have been relaxed, we held more corporate events, increased advertising and promotional expenses and increased travel costs. The increase in outside services expenses was primarily attributable to increased legal expenses. The decrease in infrastructure and facilities costs was primarily attributable to a decrease in software royalty fees and maintenance allocated to selling, general and administrative expenses, and a favorable adjustment from the termination of an office lease related to our consolidation of office space. Selling, general and administrative expenses as a percentage of revenues decreased to 26% during fiscal 2023 from 28% during fiscal 2022.Amortization of Intangible AssetsAmortization of intangible assets consists of expense related to intangible assets recorded in connection with our acquisitions. Our finite-lived intangible assets, consisting primarily of completed technology and customer contracts and relationships, are amortized using the straight-line method over periods ranging from five to ten years.Amortization expense was $1.1 million and $2.1 million for fiscal 2023 and 2022, respectively. Restructuring ChargesThere were no restructuring charges incurred during fiscal 2023 and 2022.Gains on Product Line Asset Sales and Business DivestitureThe $1.9 million gain on product line asset sale during fiscal 2023 was attributable to the sale of certain assets related to our Siron compliance business in December 2022.Interest Expense, NetInterest expense includes interest on the senior notes issued in December 2021, December 2019, and May 2018, as well as interest and credit agreement fees on the revolving line of credit and term loan. On our consolidated statements of income and comprehensive income, interest expense is netted with interest income, which is derived primarily from the investment of funds in excess of our immediate operating requirements.The fiscal 2023 from 2022 increase in net interest expense of $26.6 million was primarily attributable to a higher average outstanding debt balance, as well as a higher average interest rate on our revolving line of credit and term loan during fiscal 2023.Other Income (Expense), NetOther income (expense), net consists primarily of unrealized investment gains/losses and realized gains/losses on certain investments classified as trading securities, exchange rate gains/losses resulting from remeasurement of foreign-currency-denominated receivable and cash balances held by our various reporting entities into their respective functional currencies at period-end market rates, net of the impact of offsetting foreign currency forward contracts, and other non-operating items.The fiscal 2023 over 2022 change in other income (expense), net of $8.5 million, from $2.1 million in other expense, net to $6.3 million in other income, net, was primarily attributable to net unrealized gains on investments classified as trading securities in our supplemental retirement and savings plan in the current year compared to losses in the prior year, partially offset by an increase in foreign currency exchange losses.Provision for Income TaxesOur effective tax rates were 22.4%, 20.7% and 17.1% in fiscal 2023, 2022 and 2021, respectively.The increase in our effective tax rate in fiscal 2023 compared to fiscal 2022 was due to the increase in pretax income overall, in addition to a one-time increase related to the divestiture of a non-U.S. subsidiary.38Table of ContentsOperating IncomeThe following tables set forth certain summary information on a segment basis related to our operating income for fiscal 2023, 2022 and 2021: Year Ended September 30,Period-to-PeriodChangePeriod-to-PeriodPercentage ChangeSegment2023202220212023 to 20222022 to 20212023 to 20222022 to 2021 (In thousands)(In thousands) Scores$681,071 $619,355 $563,609 $61,716 $55,746 10 %10 %Software241,191 183,122 107,101 58,069 76,021 32 %71 %Unallocated corporate expenses(156,426)(142,647)(141,691)(13,779)(956)10 %1 %Total segment operating income765,836 659,830 529,019 106,006 130,811 16 %25 %Unallocated share-based compensation(123,847)(115,355)(112,457)(8,492)(2,898)7 %3 %Unallocated amortization expense(1,100)(2,061)(3,255)961 1,194 (47)%(37)%Unallocated restructuring charges— — (7,957)— 7,957 — %(100)%Gains on product line asset sales and business divestiture1,941 — 100,139 1,941 (100,139)— %(100)%Operating income$642,830 $542,414 $505,489 100,416 36,925 19 %7 %Scores Year Ended September 30,Percentage of Revenues 202320222021202320222021 (In thousands) Segment revenues$773,828 $706,643 $654,147 100 %100 %100 %Segment operating expenses(92,757)(87,288)(90,538)(12)%(12)%(14)%Segment operating income$681,071 $619,355 $563,609 88 %88 %86 %Software Year Ended September 30,Percentage of Revenues 202320222021202320222021 (In thousands) Segment revenues$739,729 $670,627 $662,389 100 %100 %100 %Segment operating expenses(498,538)(487,505)(555,288)(67)%(73)%(84)%Segment operating income$241,191 $183,122 $107,101 33 %27 %16 %The fiscal 2023 over 2022 increase in operating income of $100.4 million was primarily attributable to a $136.3 million increase in segment revenues, partially offset by a $16.5 million increase in segment operating expenses, a $13.8 million increase in corporate expenses, and an $8.5 million increase in share-based compensation cost.At the segment level, the $106.0 million increase in segment operating income was the result of a $61.7 million increase in our Scores segment operating income and a $58.1 million increase in our Software segment operating income, partially offset by a $13.8 million increase in corporate expenses.39Table of ContentsThe $61.7 million increase in our Scores segment operating income was attributable to a $67.2 million increase in segment revenue, partially offset by a $5.5 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Scores was 88%, consistent with fiscal 2022.The $58.1 million increase in our Software segment operating income was attributable to a $69.1 million increase in segment revenue, partially offset by a $11.0 million increase in segment operating expenses. Segment operating income as a percentage of segment revenue for Software increased to 33% from 27%, primarily attributable to an increase in software revenue recognized over the contract term due to SaaS growth, a one-time reimbursement from a third-party data center provider for implementation costs previously incurred, and a decrease in sales of our lower-margin professional services.CAPITAL RESOURCES AND LIQUIDITYOutlookAs of September 30, 2023, we had $136.8 million in cash and cash equivalents, which included $110.4 million held by our foreign subsidiaries. We believe our cash and cash equivalents balances, including those held by our foreign subsidiaries, as well as available borrowings from our $600 million revolving line of credit and anticipated cash flows from operating activities, will be sufficient to fund our working and other capital requirements for at least the next 12 months and thereafter for the foreseeable future, including the $15.0 million principal payments on our term loan due over the next 12 months. Under our current financing arrangements, we have no other significant debt obligations maturing over the next twelve months. For jurisdictions outside the U.S. where cash may be repatriated in the future, the Company expects the net impact of any repatriations to be immaterial to the Company’s overall tax liability. In the normal course of business, we evaluate the merits of acquiring technology or businesses, or establishing strategic relationships with or investing in these businesses. We may elect to use available cash and cash equivalents to fund such activities in the future. In the event additional needs for cash arise, or if we refinance our existing debt, we may raise additional funds from a combination of sources, including the potential issuance of debt or equity securities. Additional financing might not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable terms, our ability to take advantage of unanticipated opportunities or respond to competitive pressures could be limited.Summary of Cash Flows Year Ended September 30, 202320222021 (In thousands)Cash provided by (used in):Operating activities$468,915 $509,450 $423,817 Investing activities(15,954)(5,671)137,850 Financing activities(455,001)(547,165)(523,571)Effect of exchange rate changes on cash5,616 (18,766)(136)Increase (decrease) in cash and cash equivalents$3,576 $(62,152)$37,960 Cash Flows from Operating ActivitiesOur primary method for funding operations and growth has been through cash flows generated from operating activities. Net cash provided by operating activities totaled $468.9 million in fiscal 2023 compared to $509.5 million in fiscal 2022. The $40.6 million decrease was attributable to a $68.9 million decrease in non-cash items and a $27.5 million decrease that resulted from timing of receipts and payments in our ordinary course of business, partially offset by a $55.8 million increase in net income.Cash Flows from Investing ActivitiesNet cash used in investing activities totaled $16.0 million in fiscal 2023 compared to $5.7 million in fiscal 2022. The $10.3 million increase was primarily attributable to an $8.4 million decrease in cash proceeds from the product line asset sales, net of cash transferred and a $3.0 million decrease in proceeds from sale of marketable securities.40Table of ContentsCash Flows from Financing ActivitiesNet cash used in financing activities totaled $455.0 million in fiscal 2023 compared to $547.2 million in fiscal 2022. The $92.2 million decrease was primarily attributable to a $698.7 million decrease in repurchases of common stock and an $8.8 million decrease in payments on debt issuance costs, partially offset by a $550.0 million decrease in proceeds from the issuance of senior notes, a $45.8 million decrease in proceeds, net of payments, on our revolving line of credit and term loan, and a $25.7 million increase in taxes paid related to net share settlement of equity awards.Repurchases of Common StockIn October 2022, our Board of Directors approved a stock repurchase program replacing our previously authorized program. This program is open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $500.0 million in the open market or in negotiated transactions. As of September 30, 2023, we had $120.5 million remaining under our current stock repurchase program. During fiscal 2023 and 2022, we expended $407.3 million and $1.1 billion, respectively, under our current and previously authorized stock repurchase programs.Revolving Line of Credit and Term LoanWe have a $600 million unsecured revolving line of credit and a $300 million unsecured term loan with a syndicate of banks that mature on August 19, 2026. Borrowings under the revolving line of credit and term loan can be used for working capital and general corporate purposes and may also be used for the refinancing of existing debt, acquisitions, and the repurchase of our common stock. The term loan requires principal payments in consecutive quarterly installments of $3.75 million on the last business day of each quarter. In November 2022, we amended our credit agreement to replace the LIBOR reference rate with the Secured Overnight Financing Rate (“SOFR”) reference rate. Interest rates on amounts borrowed under the revolving line of credit and term loan are based on (i) an adjusted base rate, which is the greatest of (a) the prime rate, (b) the Federal Funds rate plus 0.5%, and (c) one-month adjusted term SOFR rate plus 1%, plus, in each case, an applicable margin, or (ii) an adjusted term SOFR rate plus an applicable margin. The applicable margin for base rate borrowings and for SOFR borrowings is determined based on our consolidated leverage ratio. The applicable margin for base rate borrowings ranges from 0% to 0.75% per annum and for SOFR borrowings ranges from 1% to 1.75% per annum. In addition, we must pay certain credit facility fees. The revolving line of credit and term loan contain certain restrictive covenants including a maximum consolidated leverage ratio of 3.5 to 1.0, subject to a step up to 4.0 to 1.0 following certain permitted acquisitions and subject to certain conditions, and a minimum interest coverage ratio of 3.0 to 1.0. The credit agreement also contains other covenants typical of unsecured credit facilities.As of September 30, 2023, we had $300.0 million in borrowings outstanding under the revolving line of credit at a weighted-average interest rate of 6.678%, of which $35.0 million was classified as a current liability and $265.0 million was classified as a long-term liability. In addition, as of September 30, 2023, we had $273.8 million in outstanding balance under the term loan at an interest rate of 6.752%, of which $15.0 million was classified as a current liability and $258.8 million was classified as a long-term liability. The current and long-term revolving line of credit and term loan liabilities were recorded in current maturities on debt and long-term debt, respectively, within the accompanying consolidated balance sheets. We were in compliance with all financial covenants under this credit agreement as of September 30, 2023.Senior NotesOn May 8, 2018, we issued $400 million of senior notes in a private offering to qualified institutional investors (the “2018 Senior Notes”). The 2018 Senior Notes require interest payments semi-annually at a rate of 5.25% per annum and will mature on May 15, 2026. On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes”). The 2019 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028. On December 17, 2021, we issued $550 million of additional senior notes of the same class as the 2019 Senior Notes in a private offering to qualified institutional investors (the “2021 Senior Notes,” and collectively with the 2018 Senior Notes and the 2019 Senior Notes, the “Senior Notes”). The 2021 Senior Notes require interest payments semi-annually at a rate of 4.00% per annum and will mature on June 15, 2028, the same date as the 2019 Senior Notes. The indentures for the Senior Notes contain certain covenants typical of unsecured obligations. As of September 30, 2023, the carrying value of the Senior Notes was $1.3 billion and we were in compliance with all financial covenants under these obligations.41Table of ContentsContractual ObligationsThe following table presents a summary of our contractual obligations at September 30, 2023: Year Ending September 30,ThereafterTotal 20242025202620272028 (In thousands)Senior Notes (1)$— $— $400,000 $— $900,000 $— $1,300,000 Revolving line of credit and term loan (1)15,000 15,000 543,750 — — — 573,750 Interest due on Senior Notes57,000 57,000 57,000 36,000 36,000 — 243,000 Operating lease obligations17,731 11,872 8,901 3,949 268 160 42,881 Unrecognized tax benefits (2)— — — — — — 13,849 Total commitments$89,731 $83,872 $1,009,651 $39,949 $936,268 $160 $2,173,480 (1)Represents the unpaid principal payments due under the Senior Notes, revolving line of credit, and term loan.(2)Represents unrecognized tax benefits related to uncertain tax positions. As we are not able to reasonably estimate the timing of the payments or the amount by which the liability will increase or decrease over time, the related balances have not been reflected in the section of the table showing payment by fiscal year.CRITICAL ACCOUNTING POLICIES AND ESTIMATESWe prepare our consolidated financial statements in conformity with U.S. GAAP. These accounting principles require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We periodically evaluate our estimates including those relating to revenue recognition, goodwill resulting from business combinations and other long-lived assets — impairment assessment, share-based compensation, income taxes, and contingencies and litigation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable based on the specific circumstances, the results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and such differences could be material to our financial condition and results of operations. Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations.While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements included elsewhere in this report, we believe the following discussion addresses our most critical accounting estimates, which involve significant subjectivity and judgment, and changes to such estimates or assumptions could have a material impact on our financial condition or operating results. Therefore, we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results.Revenue RecognitionContracts with CustomersOur revenue is primarily derived from on-premises software and SaaS subscriptions, professional services and scoring services. For contracts with customers that contain various combinations of products and services, we evaluate whether the products or services are distinct — distinct products or services will be accounted for as separate performance obligations, while non-distinct products or services are combined with others to form a single performance obligation. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation on a relative standalone selling price (“SSP”) basis. Revenue is recognized when control of the promised goods or services is transferred to our customers.42Table of ContentsOur on-premises software is primarily sold on a subscription basis, which includes a term-based license and post-contract support or maintenance, both of which generally represent distinct performance obligations and are accounted for separately. The transaction price is either a fixed fee, or a usage-based fee — sometimes subject to a guaranteed minimum. When the amount is fixed, including the guaranteed minimum in a usage-based fee, license revenue is recognized at the point in time when the software is made available to the customer. Maintenance revenue is recognized ratably over the contract period as customers simultaneously consume and receive benefits. Any usage-based fees not subject to a guaranteed minimum or earned in excess of the minimum amount are recognized when the subsequent usage occurs. We occasionally sell software arrangements consisting of on-premises perpetual licenses and maintenance. License revenue is recognized at a point in time when the software is made available to the customer and maintenance revenue is recognized ratably over the contract term.Our SaaS products provide customers with access to and standard support for our software on a subscription basis, delivered through our own infrastructure or third-party cloud services. The SaaS transaction contracts typically include a guaranteed minimum fee per period that allows up to a certain level of usage and a consumption-based variable fee in excess of the minimum threshold; or a consumption-based variable fee not subject to a minimum threshold. The nature of our SaaS arrangements is to provide continuous access to our hosted solutions in the cloud, i.e., a stand-ready obligation that comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). We estimate the total variable consideration at contract inception — subject to any constraints that may apply — and update the estimates as new information becomes available and recognize the amount ratably over the SaaS service period, unless we determine it is appropriate to allocate the variable amount to each distinct service period and recognize revenue as each distinct service period is performed.Our professional services include software implementation, consulting, model development and training. Professional services are sold either standalone, or together with other products or services and generally represent distinct performance obligations. The transaction price can be a fixed amount or a variable amount based upon the time and materials expended. Revenue on fixed-price services is recognized using an input method based on labor hours expended, which we believe provides a faithful depiction of the transfer of services. Revenue on services provided on a time and materials basis is recognized by applying the “right-to-invoice” practical expedient as the amount to which we have a right to invoice the customer corresponds directly with the value of our performance to the customer. Our scoring services include both business-to-business and business-to-consumer offerings. Our business-to-business scoring services typically include a license that grants consumer reporting agencies the right to use our scoring solutions in exchange for a usage-based royalty. Revenue is generally recognized when the usage occurs. Business-to-consumer offerings provide consumers with access to their FICO® Scores and credit reports, as well as other value-add services. These are provided as either a one-time or ongoing subscription service renewed monthly or annually, all with a fixed consideration. The nature of the subscription service is a stand-ready obligation to generate credit reports, provide credit monitoring, and other services for our customers, which comprises a series of distinct service periods (e.g., a series of distinct daily, monthly or annual periods of service). Revenue from one-time or monthly subscription services is recognized during the period when service is performed. Revenue from annual subscription services is recognized ratably over the subscription period.Significant JudgmentsOur contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct and should be accounted for separately may require significant judgment. Specifically, when implementation service is included in the original software or SaaS offerings, judgment is required to determine if the implementation service significantly modifies or customizes the software or SaaS service in such a way that the risks of providing it and the customization service are inseparable. In rare instances, contracts may include significant modification or customization of the software of SaaS service and will result in the combination of software or SaaS service and implementation service as one performance obligation.We determine the SSPs using data from our historical standalone sales, or, in instances where such information is not available (such as when we do not sell the product or service separately), we consider factors such as the stated contract prices, our overall pricing practices and objectives, go-to-market strategy, size and type of the transactions, and effects of the geographic area on pricing, among others. When the selling price of a product or service is highly variable, we may use the residual approach to determine the SSP of that product or service. Significant judgment may be required to determine the SSP for each distinct performance obligation when it involves the consideration of many market conditions and entity-specific factors discussed above.43Table of ContentsSignificant judgment may be required to determine the timing of satisfaction of a performance obligation in certain professional services contracts with a fixed consideration, in which we measure progress using an input method based on labor hours expended. In order to estimate the total hours of the project, we make assumptions about labor utilization, efficiency of processes, the customer’s specification and IT environment, among others. For certain complex projects, due to the risks and uncertainties inherent with the estimation process and factors relating to the assumptions, actual progress may differ due to the change in estimated total hours. Adjustments to estimates are made in the period in which the facts requiring such revisions become known and, accordingly, recognized revenues are subject to revisions as the contract progresses to completion.Capitalized Commission CostsWe capitalize incremental commission fees paid as a result of obtaining customer contracts. Capitalized commission costs are amortized on a straight-line basis over ten years — determined using a portfolio approach — based on the transfer of goods or services to which the assets relate, taking into consideration both the initial and future contracts as we do not typically pay a commission on a contract renewal. The amortization costs are included in selling, general, and administrative expenses of our consolidated statements of income and comprehensive income.We apply a practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. These costs are recorded within selling, general, and administrative expenses.Goodwill and Other Long-Lived Assets - Impairment AssessmentGoodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. We assess goodwill for impairment for each of our reporting units on an annual basis during our fourth fiscal quarter using a July 1 measurement date unless circumstances require a more frequent measurement. We have determined that our reporting units are the same as our reportable segments. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit's carrying amount exceeds its fair value, referred to as a “step zero” approach. If, based on the review of the qualitative factors, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying value, we would bypass the two-step impairment test. Events and circumstances we consider in performing the “step zero” qualitative assessment include macro-economic conditions, market and industry conditions, internal cost factors, share price fluctuations, and the operational stability and overall financial performance of the reporting units. If we conclude that it is more likely than not that a reporting unit's fair value is less than its carrying amount, we would perform the first step (“step one”) of the two-step impairment test and calculate the estimated fair value of the reporting unit by using discounted cash flow valuation models and by comparing our reporting units to guideline publicly-traded companies. These methods require estimates of our future revenues, profits, capital expenditures, working capital, and other relevant factors, as well as selecting appropriate guideline publicly-traded companies for each reporting unit. We estimate these amounts by evaluating historical trends, current budgets, operating plans, industry data, and other relevant factors. Alternatively, we may bypass the qualitative assessment described above for any reporting unit in any period and proceed directly to performing step one of the goodwill impairment test.For fiscal 2022 and 2023, we performed a step zero qualitative analysis for our annual assessment of goodwill impairment. After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of either of our reporting units was less than their carrying amounts. Consequently, we did not perform a step one quantitative analysis and determined goodwill was not impaired for either of our reporting units for fiscal 2022 and 2023.44Table of ContentsOur other long-lived assets are assessed for potential impairment when there is evidence that events and circumstances related to our financial performance and economic environment indicate the carrying amount of the assets may not be recoverable. When impairment indicators are identified, we test for impairment using undiscounted projected cash flows. If such tests indicate impairment, then we measure and record the impairment as the difference between the carrying value of the asset and the fair value of the asset. Significant management judgment is required in forecasting future operating results used in the preparation of the projected cash flows. Should different conditions prevail, material write downs of our other long-lived assets could occur. We did not recognize any impairment charges on other long-lived assets in fiscal 2023 and 2022. As discussed above, while we believe that the assumptions and estimates utilized were appropriate based on the information available to management, different assumptions, judgments and estimates could materially affect our impairment assessments for our goodwill and other long-lived assets. Historically, there have been no significant changes in our estimates or assumptions that would have had a material impact for our goodwill or other long-lived assets impairment assessment. We believe our projected operating results and cash flows would need to be significantly less favorable to have a material impact on our impairment assessment. However, based upon our historical experience with operations, we do not believe there is a reasonable likelihood of a significant change in our projections.Share-Based CompensationWe measure share-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock award (generally three to four years). We use the Black-Scholes valuation model to determine the fair value of our stock options and a Monte Carlo valuation model to determine the fair value of our market share units. Our valuation models and generally accepted valuation techniques require us to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating the volatility of our stock price, expected dividend yield, employee turnover rates and employee stock option exercise behaviors. Historically, there have been no material changes in our estimates or assumptions. We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions. See Note 15 to the accompanying consolidated financial statements for further discussion of our share-based employee benefit plans.Income TaxesWe estimate our income taxes based on the various jurisdictions where we conduct business, which involves significant judgment in determining our income tax provision. We estimate our current tax liability using currently enacted tax rates and laws and assess temporary differences that result from differing treatments of certain items for tax and accounting purposes. These differences result in deferred tax assets and liabilities recorded on our consolidated balance sheets using the currently enacted tax rates and laws that will apply to taxable income for the years in which those tax assets are expected to be realized or settled. We then assess the likelihood our deferred tax assets will be realized and to the extent we believe realization is not more likely than not, we establish a valuation allowance. When we establish a valuation allowance or increase this allowance in an accounting period, we record a corresponding income tax expense in our consolidated statements of income and comprehensive income. In assessing the need for the valuation allowance, we consider future taxable income in the jurisdictions we operate; our ability to carry back tax attributes to prior years; an analysis of our deferred tax assets and the periods over which they will be realizable; and ongoing prudent and feasible tax planning strategies. An increase in the valuation allowance would have an adverse impact, which could be material, on our income tax provision and net income in the period in which we record the increase.We recognize and measure benefits for uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the technical merits of the tax position indicate it is more likely than not that the tax position will be sustained upon audit, including resolution of any related appeals or litigation processes. For tax positions more likely than not of being sustained upon audit, the second step is to measure the tax benefit as the largest amount more than 50% likely of being realized upon settlement. Significant judgment is required to evaluate uncertain tax positions and they are evaluated on a quarterly basis. Our evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in our income tax expense in the period in which we make the change, which could have a material impact on our effective tax rate and operating results.45Table of ContentsContingencies and LitigationWe are subject to various proceedings, lawsuits and claims relating to products and services, technology, labor, stockholder and other matters. We are required to assess the likelihood of any adverse outcomes and the potential range of probable losses in these matters. If the potential loss is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. If the potential loss is considered less than probable or the amount cannot be reasonably estimated, disclosure of the matter is considered. The amount of loss accrual or disclosure, if any, is determined after analysis of each matter, and is subject to adjustment if warranted by new developments or revised strategies. Due to uncertainties related to these matters, accruals or disclosures are based on the best information available at the time. Significant judgment is required in both the assessment of likelihood and in the determination of a range of potential losses. Revisions in the estimates of the potential liabilities could have a material impact on our consolidated financial position or consolidated results of operations. Historically, there have been no material changes in our estimates or assumptions. We do not believe there is a reasonable likelihood there will be a material change in the future estimates.New Accounting PronouncementsFor information about recent accounting pronouncements not yet adopted and the impact on our consolidated financial statements, refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 1, Nature of Business and Summary of Significant Accounting Policies, in our accompanying Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.Item 7A. Quantitative and Qualitative Disclosures about Market RiskMarket Risk DisclosuresWe are exposed to market risk related to changes in interest rates and foreign exchange rates. We do not use derivative financial instruments for speculative or trading purposes.Interest Rate We maintain an investment portfolio consisting of bank deposits and money market funds. The funds provide daily liquidity and may be subject to interest rate risk and fall in value if market interest rates increase. We do not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates. The following table presents the principal amounts and related weighted-average yields for our investments with interest rate risk at September 30, 2023 and 2022: September 30, 2023September 30, 2022 Cost BasisCarryingAmountAverageYieldCost BasisCarryingAmountAverageYield (Dollars in thousands)Cash and cash equivalents$136,778 $136,778 3.05 %$133,202 $133,202 1.23 %On May 8, 2018, we issued $400 million of senior notes in a private placement to qualified institutional investors (the “2018 Senior Notes”). On December 6, 2019, we issued $350 million of senior notes in a private offering to qualified institutional investors (the “2019 Senior Notes”). On December 17, 2021, we issued $550 million of additional senior notes of the same class as the 2019 Senior Notes in a private placement to qualified institutional investors (the “2021 Senior Notes” and collectively with the 2018 Senior Notes and 2019 Senior Notes, the “Senior Notes”). The fair value of the Senior Notes may increase or decrease due to various factors, including fluctuations in market interest rates and fluctuations in general economic conditions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity” for additional information on the Senior Notes. The following table presents the face values and fair values for the Senior Notes at September 30, 2023 and 2022: September 30, 2023September 30, 2022 Face Value (*)Fair ValueFace Value (*)Fair Value (In thousands)The 2018 Senior Notes400,000 386,000 400,000 381,500 The 2019 Senior Notes and the 2021 Senior Notes900,000 803,250 900,000 767,250 Total$1,300,000 $1,189,250 $1,300,000 $1,148,750 46Table of Contents(*) The carrying value of the Senior Notes was the face value reduced by the net debt issuance costs of $11.5 million and $14.3 million at September 30, 2023 and 2022, respectively. We have interest rate risk with respect to our unsecured revolving line of credit and term loan. Interest rates on amounts borrowed under the revolving line of credit and term loan are based on (i) an adjusted base rate, which is the greatest of (a) the prime rate, (b) the Federal Funds rate plus 0.5%, and (c) one-month adjusted term SOFR rate plus 1%, plus, in each case, an applicable margin, or (ii) an adjusted term SOFR rate plus an applicable margin. The applicable margin for base rate borrowings and for SOFR borrowings is determined based on our consolidated leverage ratio. The applicable margin for base rate borrowings ranges from 0% to 0.75% per annum and for SOFR borrowings ranges from 1% to 1.75% per annum. A change in interest rates on this variable rate debt impacts the interest incurred and cash flows, but does not impact the fair value of the instrument. As of September 30, 2023, we had $300.0 million in borrowings outstanding under the revolving line of credit at a weighted-average interest rate of 6.678% and $273.8 million in outstanding balance of the term loan at an interest rate of 6.752%.Foreign Currency Forward ContractsWe maintain a program to manage our foreign exchange rate risk on existing foreign-currency-denominated receivable and cash balances by entering into forward contracts to sell or buy foreign currencies. At period end, foreign-currency-denominated receivable and cash balances held by our various reporting entities are remeasured into their respective functional currencies at current market rates. The change in value from this remeasurement is then reported as a foreign exchange gain or loss for that period in our accompanying consolidated statements of income and comprehensive income and the resulting gain or loss on the forward contract mitigates the foreign exchange rate risk of the associated assets. All of our foreign currency forward contracts have maturity periods of less than three months. Such derivative financial instruments are subject to market risk.The following tables summarize our outstanding foreign currency forward contracts, by currency, at September 30, 2023 and 2022: September 30, 2023 Contract AmountFair Value ForeignCurrencyUSDUSD (In thousands)Sell foreign currency:Euro (EUR)EUR12,900 $13,621 — Buy foreign currency:British pound (GBP)GBP10,700 $13,100 — Singapore dollar (SGD)SGD8,569 $6,300 — September 30, 2022 Contract AmountFair Value ForeignCurrencyUSDUSD (In thousands)Sell foreign currency:Euro (EUR)EUR13,500 $13,158 — Buy foreign currency:British pound (GBP)GBP11,848 $13,100 — Singapore dollar (SGD)SGD6,169 $4,300 — The foreign currency forward contracts were entered into on September 30, 2023 and 2022; therefore, their fair value was $0 at each of these dates.47Table of Contents \ No newline at end of file diff --git a/FASTENAL CO_10-Q_2023-10-17_815556-0000815556-23-000049.html b/FASTENAL CO_10-Q_2023-10-17_815556-0000815556-23-000049.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/FASTENAL CO_10-Q_2023-10-17_815556-0000815556-23-000049.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/FEDERAL REALTY INVESTMENT TRUST_10-Q_2023-11-02_34903-0000034903-23-000064.html b/FEDERAL REALTY INVESTMENT TRUST_10-Q_2023-11-02_34903-0000034903-23-000064.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/FEDERAL REALTY INVESTMENT TRUST_10-Q_2023-11-02_34903-0000034903-23-000064.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/FIFTH THIRD BANCORP_10-Q_2023-11-07_35527-0000035527-23-000254.html b/FIFTH THIRD BANCORP_10-Q_2023-11-07_35527-0000035527-23-000254.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/FIFTH THIRD BANCORP_10-Q_2023-11-07_35527-0000035527-23-000254.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/FISERV INC_10-Q_2023-10-25_798354-0000798354-23-000018.html b/FISERV INC_10-Q_2023-10-25_798354-0000798354-23-000018.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/FISERV INC_10-Q_2023-10-25_798354-0000798354-23-000018.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/FORD MOTOR CO_10-Q_2023-10-27_37996-0000037996-23-000068.html b/FORD MOTOR CO_10-Q_2023-10-27_37996-0000037996-23-000068.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/FORD MOTOR CO_10-Q_2023-10-27_37996-0000037996-23-000068.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/FRANKLIN RESOURCES INC_10-K_2023-11-14_38777-0000038777-23-000169.html b/FRANKLIN RESOURCES INC_10-K_2023-11-14_38777-0000038777-23-000169.html new file mode 100644 index 0000000000000000000000000000000000000000..48fb7fe1f4828c224de38ae16ceb59adb077194e --- /dev/null +++ b/FRANKLIN RESOURCES INC_10-K_2023-11-14_38777-0000038777-23-000169.html @@ -0,0 +1 @@ +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. FORWARD-LOOKING STATEMENTS The following discussion and analysis of the results of operations and financial condition of Franklin Resources, Inc. (“Franklin”) and its subsidiaries (collectively, the “Company”) should be read in conjunction with the “Forward-looking Statements” disclosure set forth in Part I and the “Risk Factors” set forth in Item 1A of Part I of this Annual Report on Form 10‑K (this “Annual Report”) and in any more recent filings with the U.S. Securities and Exchange Commission (the “SEC”), each of which describe our risks, uncertainties and other important factors in more detail. OVERVIEW Franklin is a holding company with subsidiaries operating under our Franklin Templeton® and/or subsidiary brand names. We are a global investment management organization that derives operating revenues and net income from providing investment management and related services to investors in jurisdictions worldwide. We deliver our investment capabilities through a variety of investment products, which include our sponsored funds, as well as institutional and high-net-worth separate accounts, retail separately managed account programs, sub-advised products and other investment vehicles. Related services include fund administration, sales and distribution, and shareholder servicing. We may perform services directly or through third parties. We offer our services and products under our various distinct brand names, including, but not limited to, Alcentra®, Benefit Street Partners®, Brandywine Global Investment Management®, Clarion Partners®, ClearBridge Investments®, Fiduciary Trust International™, Franklin®, Franklin Bissett®, Franklin Mutual Series®, K2®, Legg Mason®, Lexington Partners®, Martin Currie®, O’Shaughnessy® Asset Management, Royce® Investment Partners, Templeton® and Western Asset Management Company®. We offer a broad product mix of fixed income, equity, alternative, multi-asset and cash management asset classes and solutions that meet a wide variety of specific investment goals and needs for individual and institutional investors. We also provide sub-advisory services to certain investment products sponsored by other companies which may be sold to investors under the brand names of those other companies or on a co-branded basis.30Table of ContentsThe level of our revenues depends largely on the level and relative mix of assets under management (“AUM”). As noted in the “Risk Factors” section set forth above in Item 1A of Part I of this Annual Report, the amount and mix of our AUM are subject to significant fluctuations that can negatively impact our revenues and income. The level of our revenues also depends on the fees charged for our services, which are based on contracts with our funds and customers, fund sales, and the number of shareholder transactions and accounts. These arrangements could change in the future. During the fiscal year ended September 30, 2023 (“fiscal year 2023”), global equity markets provided positive returns driven by moderating inflation, easing of monetary policy and resilient economic activity amid continued concerns about the risk of recession. The S&P 500 Index and MSCI World Index increased 21.6% and 22.6% for the fiscal year. The global bond markets remained positive as the Bloomberg Barclays Global Aggregate Index increased 2.2% for the fiscal year, reflecting moderating inflation and easing of monetary policy.Our total AUM was $1,374.2 billion at September 30, 2023, which was 6% higher than at September 30, 2022 driven by the positive impact of $58.9 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $4.3 billion of cash management net inflows, partially offset by $21.3 billion of long-term net outflows. Simple monthly average AUM (“average AUM”) decreased 5% during fiscal year 2023.On November 1, 2022, we acquired BNY Alcentra Group Holdings, Inc. (together with its subsidiaries, “Alcentra”), one of the largest European credit and private debt managers, with global expertise in senior secured loans, high yield bonds, private credit, structured credit, special situations and multi-strategy credit strategies. Total purchase price included cash consideration of $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s collateralized loan obligations; deferred consideration of $62.0 million which was paid on November 1, 2023; and contingent consideration to be paid upon the achievement of certain performance thresholds over the next four years of up to $350.0 million that had an acquisition-date fair value of $24.6 million.The business and regulatory environments in which we operate globally remain complex, uncertain and subject to change. We are subject to various laws, rules and regulations globally that impose restrictions, limitations, registration, reporting and disclosure requirements on our business, and add complexity to our global compliance operations.Uncertainties regarding the global economy remain for the foreseeable future. As we continue to confront the challenges of the current economic and regulatory environments, we remain focused on the investment performance of our products and on providing high quality service to our clients. We continuously perform reviews of our business model. While we remain focused on expense management, we will also seek to attract, retain and develop personnel and invest strategically in systems and technology that will provide a secure and stable environment. We will continue to seek to protect and further our brand recognition while developing and maintaining broker-dealer and client relationships. The success of these and other strategies may be influenced by the factors discussed in the “Risk Factors” section.31Table of ContentsRESULTS OF OPERATIONS (in millions, except per share data)2023 vs. 20222022 vs. 2021for the fiscal years ended September 30,202320222021Operating revenues$7,849.4$8,275.3$8,425.5(5 %)(2 %)Operating income1,102.31,773.91,875.0(38 %)(5 %)Operating margin114.0 %21.4 %22.3 %Net income attributable to Franklin Resources, Inc.$882.8$1,291.9$1,831.2(32 %)(29 %)Diluted earnings per share$1.72$2.53$3.57(32 %)(29 %)As adjusted (non-GAAP):2Adjusted operating income$1,823.8$2,323.5$2,379.3(22 %)(2 %)Adjusted operating margin29.9 %35.9 %37.7 %Adjusted net income$1,332.2$1,855.6$1,915.2(28 %)(3 %)Adjusted diluted earnings per share$2.60$3.63$3.74(28 %)(3 %)__________________1Defined as operating income divided by total operating revenues.2“Adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share” are based on methodologies other than generally accepted accounting principles. See “Supplemental Non-GAAP Financial Measures” for definitions and reconciliations of these measures.ASSETS UNDER MANAGEMENT AUM by asset class was as follows: (in billions)2023 vs. 20222022 vs. 2021as of September 30,202320222021Fixed Income$483.1 $490.9 $650.3 (2 %)(25 %)Equity430.4 392.3 523.6 10 %(25 %)Alternative254.9 225.1 145.2 13 %55 %Multi-Asset145.0 131.5 152.4 10 %(14 %)Cash Management60.8 57.6 58.6 6 %(2 %)Total$1,374.2 $1,297.4 $1,530.1 6 %(15 %)32Table of ContentsChanges in average AUM are generally more indicative of trends in revenue for providing investment management services than the year-over-year change in ending AUM. Average AUM and the mix of average AUM by asset class are shown below.(in billions)Average AUM2023 vs. 20222022 vs. 2021for the fiscal years ended September 30,202320222021Fixed Income$499.7 $586.5 $657.5 (15 %)(11 %)Equity436.1 491.3 502.9 (11 %)(2 %)Alternative251.9 185.1 132.6 36 %40 %Multi-Asset144.4 146.1 146.4 (1 %)0 %Cash Management68.3 60.2 64.7 13 %(7 %)Total$1,400.4 $1,469.2 $1,504.1 (5 %)(2 %)Mix of Average AUMfor the fiscal years ended September 30,202320222021Fixed Income36 %40 %44 %Equity31 %33 %33 %Alternative18 %13 %9 %Multi-Asset10 %10 %10 %Cash Management5 %4 %4 %Total100 %100 %100 %Components of the change in AUM are shown below. Net market change, distributions and other includes appreciation (depreciation), distributions to investors that represent return on investments and return of capital, and foreign exchange revaluation.(in billions)2023 vs. 20222022 vs. 2021for the fiscal years ended September 30,202320222021Beginning AUM$1,297.4 $1,530.1 $1,418.9 (15 %)8 %Long-term inflows254.9 320.4 364.7 (20 %)(12 %)Long-term outflows(276.2)(348.2)(389.9)(21 %)(11 %)Long-term net flows(21.3)(27.8)(25.2)(23 %)10 %Cash management net flows4.3 (0.8)(15.1)NM(95%)Total net flows(17.0)(28.6)(40.3)(41 %)(29 %)Acquisitions34.9 64.9 3.5 (46 %)NMNet market change, distributions and other58.9 (269.0)148.0 NMNMEnding AUM$1,374.2 $1,297.4 $1,530.1 6 %(15 %)33Table of ContentsComponents of the change in AUM by asset class were as follows: (in billions)for the fiscal year ended September 30, 2023FixedIncomeEquityAlternativeMulti-AssetCashManagementTotalAUM at October 1, 2022$490.9 $392.3 $225.1 $131.5 $57.6 $1,297.4 Long-term inflows112.7 84.4 22.6 35.2 — 254.9 Long-term outflows(128.9)(103.1)(16.8)(27.4)— (276.2)Long-term net flows(16.2)(18.7)5.8 7.8 — (21.3)Cash management net flows— — — — 4.3 4.3 Total net flows(16.2)(18.7)5.8 7.8 4.3 (17.0)Acquisitions— — 34.9 — — 34.9 Net market change, distributions and other8.4 56.8 (10.9)5.7 (1.1)58.9 AUM at September 30, 2023$483.1 $430.4 $254.9 $145.0 $60.8 $1,374.2 AUM increased $76.8 billion or 6% during fiscal year 2023 due to the positive impact of $58.9 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $4.3 billion of cash management net inflows, partially offset by $21.3 billion of long-term net outflows. Net market change, distributions and other primarily consists of $94.4 billion of market appreciation, and a $4.6 billion increase from foreign exchange revaluation, partially offset by $40.1 billion of long-term distributions. The market appreciation occurred in all asset classes with the exception of the alternative asset class, most significantly in the equity asset class and reflected positive returns in the global equity markets. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated was primarily due to a weaker U.S. dollar compared to the Euro, British Pound and Brazilian Real.Long-term inflows decreased 20% to $254.9 billion, as compared to the prior year, driven by lower inflows in equity and fixed income open-end funds, fixed income institutional separate accounts, and equity retail separately managed accounts. Long-term inflows for fiscal years 2023 and 2022 include reinvested distributions of $20.6 billion and $32.0 billion. Long-term outflows decreased 21% to $276.2 billion due to lower outflows in fixed income and equity open-end funds, fixed income institutional separate accounts, multi-asset sub-advised mutual funds, and equity retail separately managed accounts.(in billions)for the fiscal year ended September 30, 2022FixedIncomeEquityAlternativeMulti-AssetCashManagementTotalAUM at October 1, 2021$650.3 $523.6 $145.2 $152.4 $58.6 $1,530.1 Long-term inflows138.4 123.0 22.4 36.6 — 320.4 Long-term outflows(168.6)(131.6)(16.1)(31.9)— (348.2)Long-term net flows(30.2)(8.6)6.3 4.7 — (27.8)Cash management net flows— — — — (0.8)(0.8)Total net flows(30.2)(8.6)6.3 4.7 (0.8)(28.6)Acquisitions— 4.6 58.0 2.3 — 64.9 Net market change, distributions and other(129.2)(127.3)15.6 (27.9)(0.2)(269.0)AUM at September 30, 2022$490.9 $392.3 $225.1 $131.5 $57.6 $1,297.4 AUM decreased $232.7 billion or 15% during fiscal year 2022 due to the negative impact of $269.0 billion of net market change, distributions and other, $27.8 billion of long-term net outflows and $0.8 billion of cash management net outflows, partially offset by acquisitions of $64.9 billion. Net market change, distributions and other primarily consists of $199.2 billion of market depreciation, $48.7 billion of long-term distributions and a $21.1 billion decrease from foreign exchange revaluation. The market depreciation occurred in all asset classes with the exception of the alternative asset class. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated was primarily due to a stronger U.S. dollar compared to the Japanese Yen, Euro, British Pound and Australian dollar.Long-term inflows decreased 12% to $320.4 billion, as compared to the prior year, driven by lower inflows in fixed income institutional separate accounts, open-end funds, and retail separately managed accounts, as well as equity open-end 34Table of Contentsfunds, partially offset by higher alternative inflows for private funds. Long-term outflows decreased 11% to $348.2 billion due to lower outflows in fixed income institutional separate accounts, equity and multi-asset open-end funds, and equity sub-advised mutual funds, partially offset by higher equity outflows in retail separately managed accounts and multi-asset sub-advised mutual funds.(in billions)for the fiscal year ended September 30, 2021FixedIncomeEquityAlternativeMulti-AssetCashManagementTotalAUM at October 1, 2020$656.9 $438.1 $122.1 $129.4 $72.4 $1,418.9 Long-term inflows176.5 132.1 19.8 36.3 — 364.7 Long-term outflows(188.2)(154.2)(11.8)(35.7)— (389.9)Long-term net flows(11.7)(22.1)8.0 0.6 — (25.2)Cash management net flows— — — — (15.1)(15.1)Total net flows(11.7)(22.1)8.0 0.6 (15.1)(40.3)Acquisition3.5 — — — — 3.5 Net market change, distributions and other1.6 107.6 15.1 22.4 1.3 148.0 AUM at September 30, 2021$650.3 $523.6 $145.2 $152.4 $58.6 $1,530.1 AUM by sales region was as follows: (in billions)2023 vs. 20222022 vs. 2021as of September 30,202320222021United States$979.9 $971.3 $1,140.2 1 %(15 %)InternationalEurope, Middle East and Africa156.0 126.6 153.9 23 %(18 %)Asia-Pacific126.7 118.4 155.6 7 %(24 %)Americas, excl. U.S.111.6 81.1 80.4 38 %1 %Total international$394.3 $326.1 $389.9 21 %(16 %)Total$1,374.2 $1,297.4 $1,530.1 6 %(15 %)The region in which investment products are sold may differ from the geographic area in which we provide investment management and related services to the products.Investment Performance OverviewA key driver of our overall success is the long-term investment performance of our investment products. A measure of the performance of these products is the percentage of AUM exceeding peer group medians and benchmarks. We compare the relative performance of our mutual funds against peers, and of our strategy composites against benchmarks.35Table of ContentsThe performance of our mutual fund products against peer group medians and of our strategy composites against benchmarks is presented in the table below.Peer Group Comparison1Benchmark Comparison2% of Mutual Fund AUMin Top Two Peer Group Quartiles% of Strategy Composite AUM Exceeding Benchmarkas of September 30, 20231-Year3-Year5-Year10-Year1-Year3-Year5-Year10-YearFixed Income46 %39 %37 %67 %80 %47 %46 %90 %Equity61 %39 %51 %56 %45 %38 %38 %31 %Total AUM348 %49 %54 %52 %61 %48 %47 %61 % _______________1Mutual fund performance is sourced from Morningstar and measures the percent of ranked AUM in the top two quartiles versus peers. Total mutual fund AUM measured for the 1-, 3-, 5- and 10-year periods represents 35%, 35%, 35% and 33% of our total AUM as of September 30, 2023.2Strategy composite performance measures the percent of composite AUM beating its benchmark. The benchmark comparisons are based on each account’s/composite’s (strategy composites may include retail separately managed accounts and mutual fund assets managed as part of the same strategy) return as compared to a market index that has been selected to be generally consistent with the asset class of the account/composite. Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 50%, 50%, 49% and 46% of our total AUM as of September 30, 2023.3Total mutual fund AUM includes performance of our alternative and multi-asset funds, and total strategy composite AUM includes performance of our alternative composites. Alternative and multi-asset AUM represent 19% and 11% of our total AUM at September 30, 2023.Mutual fund performance data includes U.S. and cross-border domiciled mutual funds and exchange-traded funds, excludes cash management and fund of funds, and assumes the reinvestment of dividends.Past performance is not indicative of future results. For strategy composite AUM included in institutional and retail separately managed accounts and investment funds managed in the same strategy as separate accounts, performance comparisons are based on gross-of-fee performance. For investment funds which are not managed in a separate account format, performance comparisons are based on net-of-fee performance. These performance comparisons do not reflect the actual performance of any specific separate account or investment fund; individual separate account and investment fund performance may differ. The information in this presentation is provided solely for use in connection with this document, and is not directed toward existing or potential clients of Franklin. 36Table of ContentsOPERATING REVENUES The table below presents the percentage change in each operating revenue category. (in millions)2023 vs. 20222022 vs. 2021for the fiscal years ended September 30,202320222021Investment management fees$6,452.9 $6,616.8 $6,541.6 (2 %)1 %Sales and distribution fees1,203.7 1,415.0 1,635.5 (15 %)(13 %)Shareholder servicing fees152.7 193.0 211.2 (21 %)(9 %)Other40.1 50.5 37.2 (21 %)36 %Total Operating Revenues$7,849.4 $8,275.3 $8,425.5 (5 %)(2 %)Investment Management FeesInvestment management fees are generally calculated under contractual arrangements with our investment products and the products for which we provide sub-advisory services as a percentage of AUM. Annual fee rates vary by asset class and type of services provided. Fee rates for products sold outside of the U.S. are generally higher than for U.S. products.Investment management fees decreased $163.9 million in fiscal year 2023 primarily due to a 5% decrease in average AUM, partially offset by higher performance fees. The decrease in average AUM occurred primarily in the fixed income and equity asset classes, partially offset by an increase in the alternative asset class that includes the acquisitions of Lexington Partners L.P. (“Lexington”) on April 1, 2022 and Alcentra on November 1, 2022.Investment management fees increased $75.2 million in fiscal year 2022 primarily due to higher performance fees, partially offset by a 2% decrease in average AUM. The decrease in average AUM occurred primarily in the fixed income and equity asset classes, partially offset by an increase in the alternative asset class that includes the acquisition of Lexington.Our effective investment management fee rate excluding performance fees (investment management fees excluding performance fees divided by average AUM) was 42.1, 41.6 and 41.8 basis points for fiscal years 2023, 2022 and 2021. The rate increase in fiscal year 2023 was primarily due to a shift in AUM from lower-fee fixed income products to higher-fee alternative products, including those from the acquisitions of Lexington and Alcentra, and an increase in certain transaction-related fees received in the current year. The rate decrease in fiscal year 2022 was primarily due to a shift in assets from higher-fee products to lower-fee products in the fixed income and equity asset classes.Performance-based investment management fees were $550.1 million, $498.2 million and $258.6 million for fiscal years 2023, 2022 and 2021. The increase in fiscal year 2023 was primarily due to a $166.0 million increase in performance fees earned by Lexington, which were passed through as compensation expense per the terms of the acquisition agreement, partially offset by lower performance fees earned by our other alternative specialist investment managers, while the increase in fiscal year 2022 was primarily due to strong performance by our alternative specialist investment managers.Our product offerings and global operations are diverse. As such, the impact of future changes in AUM on investment management fees will be affected by the relative mix of asset class, geographic region, distribution channel and investment vehicle of the assets. Sales and Distribution Fees Sales and distribution fees primarily consist of upfront sales commissions and ongoing distribution fees. Sales commissions are earned from the sale of certain classes of sponsored funds at the time of purchase (“commissionable sales”) and may be reduced or eliminated depending on the amount invested and the type of investor. Therefore, sales fees generally will change with the overall level of gross sales, the size of individual transactions, and the relative mix of sales between different share classes and types of investors. Our sponsored mutual funds generally pay us distribution fees in return for sales, marketing and distribution efforts on their behalf. The majority of our U.S. mutual funds, with the exception of certain money market funds and certain other funds specifically designed for purchase through separately managed account programs, have adopted distribution plans under Rule 12b-1 (the “Rule 12b-1 Plans”) promulgated under the Investment Company Act of 1940. The Rule 12b-1 Plans 37Table of Contentspermit the funds to pay us for marketing, marketing support, advertising, printing and sales promotion services relating to the distribution of their shares, subject to the Rule 12b-1 Plans’ limitations on amounts based on daily average AUM. We earn distribution fees from our non-U.S. funds based on daily average AUM.Contingent sales charges are earned from investor redemptions within a contracted period of time. Substantially all of these charges are levied on certain shares sold without a front-end sales charge, and vary with the mix of redemptions of these shares.We pay substantially all of our sales and distribution fees to the financial advisers, broker-dealers and other intermediaries that sell our funds on our behalf. See the description of sales, distribution and marketing expenses below. Sales and distribution fees by revenue driver are presented below.(in millions)2023 vs. 20222022 vs. 2021for the fiscal years ended September 30,202320222021Asset-based fees$998.0 $1,150.2 $1,302.3 (13 %)(12 %)Sales-based fees205.7 264.8 333.2 (22 %)(21 %)Sales and Distribution Fees$1,203.7 $1,415.0 $1,635.5 (15 %)(13 %)Asset-based distribution fees decreased $152.2 million and $152.1 million in fiscal years 2023 and 2022 primarily due to decreases of 11% and 12% in the related average AUM and, in fiscal year 2023, a higher mix of lower-fee assets.Sales-based fees decreased $59.1 million and $68.4 million in fiscal years 2023 and 2022 primarily due to a 20% decrease in commissionable sales in both years.Shareholder Servicing Fees Substantially all shareholder servicing fees are earned from our sponsored funds for providing transfer agency services, which include providing shareholder statements, transaction processing, customer service and tax reporting. These fees are primarily determined based on a percentage of AUM and either the number of transactions in shareholder accounts or the number of shareholder accounts, while fees from certain funds are based only on AUM. Shareholder servicing fees also include fund reimbursements of expenses incurred while providing transfer agency services. Effective October 1, 2023, fees charged to certain of our U.S. sponsored funds are determined based on a contractual margin. Shareholder servicing fees decreased $40.3 million in fiscal year 2023, primarily due to a reduction in fee rates charged for transfer agency services in the U.S., partially related to the outsourcing of our transfer agency services, lower levels of related AUM and fewer transactions. Shareholder servicing fees decreased $18.2 million in fiscal year 2022 primarily due lower levels of related AUM and fewer transactions.Other Other revenue decreased $10.4 million in fiscal year 2023 and increased $13.3 million in fiscal year 2022 driven by the volume of real estate transaction fees earned by certain of our alternative asset managers in each year.38Table of ContentsOPERATING EXPENSES The table below presents the percentage change in each operating expense category.(in millions)2023202220212023 vs. 20222022 vs. 2021for the fiscal years ended September 30,Compensation and benefits$3,494.0 $3,089.8 $2,971.3 13 %4 %Sales, distribution and marketing1,613.1 1,845.6 2,105.8 (13 %)(12 %)Information systems and technology505.0 500.2 486.1 1 %3 %Occupancy228.9 218.9 218.1 5 %0 %Amortization of intangible assets341.1 282.0 232.0 21 %22 %General, administrative and other565.0 564.9 537.2 0 %5 %Total Operating Expenses$6,747.1 $6,501.4 $6,550.5 4 %(1 %)Compensation and Benefits The components of compensation and benefits expenses are presented below.(in millions)2023 vs. 20222022 vs. 2021for the fiscal years ended September 30,202320222021Salaries, wages and benefits$1,499.5 $1,426.4 $1,428.6 5 %0 %Incentive compensation1,532.1 1,500.5 1,303.9 2 %15 %Acquisition-related retention164.9 167.2 163.7 (1 %)2 %Acquisition-related performance fee pass through1169.7 4.2 25.3 NM(83 %)Other1, 2127.8 (8.5)49.8 NMNMCompensation and Benefits Expenses$3,494.0 $3,089.8 $2,971.3 13 %4 %_______________1 See “Supplemental Non-GAAP Financial Measures” for additional information. 2 Includes impact of gains and losses on investments related to deferred compensation plans, which is offset in investment and other income (losses), net; minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests; and special termination benefits.Salaries, wages and benefits increased $73.1 million in fiscal year 2023 primarily due to the recent acquisitions and annual salary increases, partially offset by the impact of headcount reductions. Salaries, wages and benefits decreased $2.2 million in fiscal year 2022 primarily due to a $16.8 million decrease in termination benefits and the impact of headcount reductions which were substantially offset by increases due to annual salary adjustments and the acquisitions of Lexington and OSAM.Incentive compensation increased $31.6 million in fiscal year 2023, primarily due to an increase in expense for deferred compensation awards, due, in part, to an increase in annual acceleration for retirement-eligible employees, and recent acquisitions. These increases were partially offset by lower incentive compensation at specialist investment managers and lower bonus expense based on our annual performance. Incentive compensation increased $196.6 million in fiscal year 2022, primarily due to higher performance fees and the acquisition of Lexington.Acquisition-related retention expenses decreased $2.3 million in fiscal year 2023, primarily due to lower compensation associated with performance-based awards, partially offset by an increase due to the acquisition of Alcentra. Acquisition-related retention expenses increased $3.5 million in fiscal year 2022, primarily due to the acquisition of Lexington.Acquisition-related performance fee pass through expenses increased $165.5 million in fiscal year 2023, due to higher performance fees earned by Lexington, and decreased $21.1 million in fiscal year 2022, due to lower pass through performance fees at Clarion Partners.Other compensation and benefits were $127.8 million, $(8.5) million, and $49.8 million for fiscal years 2023, 2022, 39Table of Contentsand 2021. Fiscal year 2023 included the impact of $20.3 million of market gains on investments related to our deferred compensation plans, while fiscal year 2022 included losses of $36.7 million and fiscal year 2021 included $22.7 million of such gains. Special termination benefits increased $55.0 million in fiscal year 2023 primarily due to workforce optimization initiatives and the acquisition of Alcentra and decreased $18.9 million in fiscal year 2022 primarily due to workforce optimization initiatives related to the acquisition of Legg Mason. Compensation related to minority interests increased $24.3 million in fiscal year 2023 and $20.0 million in fiscal year 2022.We expect to incur acquisition-related retention expenses of approximately $240 million during the fiscal year ending September 30, 2024 (“fiscal year 2024”), and decreasing over the following two fiscal years by approximately $80 million and $20 million. At September 30, 2023, our global workforce had decreased to approximately 9,200 employees from approximately 9,800 at September 30, 2022.We continue to place a high emphasis on our pay for performance philosophy. As such, any changes in the underlying performance of our investment products or changes in the composition of our incentive compensation offerings could have an impact on compensation and benefits expenses going forward. However, in order to attract and retain talented individuals, our level of compensation and benefit expenses may increase more quickly or decrease more slowly than our revenue.Sales, Distribution and Marketing Sales, distribution and marketing expenses primarily relate to services provided by financial advisers, broker-dealers and other intermediaries to our sponsored funds, including marketing support services. Substantially all distribution expenses are incurred from assets that generate distribution fees and are determined as a percentage of AUM. Substantially all sales expenses are incurred from the same commissionable sales transactions that generate sales fee revenues and are determined as a percentage of sales. Marketing support expenses are based on AUM, sales or a combination thereof. Also included is the amortization of deferred sales commissions related to upfront commissions on shares sold without a front-end sales charge. The deferred sales commissions are amortized over the periods in which commissions are generally recovered from related revenues.Sales, distribution and marketing expenses by cost driver are presented below.(in millions)2023202220212023 vs. 20222022 vs. 2021for the fiscal years ended September 30,Asset-based expenses$1,368.1 $1,532.6 $1,714.7 (11 %)(11 %)Sales-based expenses195.0 248.2 312.9 (21 %)(21 %)Amortization of deferred sales commissions50.0 64.8 78.2 (23 %)(17 %)Sales, Distribution and Marketing$1,613.1 $1,845.6 $2,105.8 (13 %)(12 %)Asset-based expenses decreased $164.5 million and $182.1 million in fiscal years 2023 and 2022 primarily due to decreases of 10% and 11% in the related average AUM and in fiscal year 2023, a higher mix of lower-fee assets.Sales-based expenses decreased $53.2 million and $64.7 million in fiscal years 2023 and 2022 primarily due to a 20% decrease in commissionable sales in both years.Information Systems and Technology Information systems and technology expenses increased $4.8 million in fiscal year 2023 primarily due to higher software costs partially offset by lower technology depreciation. Information systems and technology expenses increased $14.1 million in fiscal year 2022 primarily due to higher costs incurred for technology consulting, software and external data services partially offset by lower technology depreciation.40Table of ContentsOccupancy Occupancy expenses increased $10.0 million in fiscal year 2023 primarily due to higher utility costs, reflecting a full year of return to office, and higher leasehold and equipment depreciation. Occupancy expenses remained relatively flat in fiscal year 2022. We expect to incur additional expense of approximately $50 million in fiscal year 2024 primarily related to new leased office space located at One Madison Avenue. This is part of an initiative to consolidate our existing office space in New York City. Amortization of intangible assetsAmortization of intangible assets increased $59.1 million and $50.0 million in fiscal years 2023 and 2022, primarily due to intangible assets recognized as part of the acquisition of Lexington and, in fiscal year 2023, the acquisition of Alcentra.General, Administrative and Other General, administrative and other expenses primarily consist of professional fees, fund-related service fees payable to external parties, advertising and promotion, travel and entertainment, and other miscellaneous expenses.General, administrative and other operating expenses remained relatively flat in fiscal year 2023 as an increase of $35.9 million in travel and entertainment expenses and conference costs, reflecting the resumption of activity post-pandemic, and the impact of net credits of $19.2 million recognized in the prior year to adjust the fair values of our contingent consideration asset and liabilities, were substantially offset by a $17.3 million decrease in third-party sub-advisory service fees, a $20.6 million decrease in acquisition-related costs, primarily due to costs associated with our global brand campaign in the prior year, and a $6.8 million decrease in other taxes at certain European subsidiaries.General, administrative and other operating expenses increased $27.7 million in fiscal year 2022, primarily due to increases of $27.1 million in advertising and promotion expenses, due in part to our global brand campaign, $25.7 million in professional fees, largely related to acquisition costs, and $24.0 million in travel and entertainment expenses. Fiscal year 2022 also included $20.3 million of non-recurring costs incurred in connection with the outsourcing of our transfer agent functions. These increases were partially offset by $43.0 million of closed-end fund product launch costs incurred in the prior year. Fiscal year 2022 also included net credits of $19.2 million to adjust the fair values of our contingent consideration asset and liabilities, as compared to $4.1 million of expense recognized in the prior year. OTHER INCOME (EXPENSES) Other income (expenses) consisted of the following:(in millions)2023 vs. 20222022 vs. 2021for the fiscal years ended September 30,202320222021Investment and other income, net$340.0 $91.1 $264.7 273 %(66 %)Interest expense(123.7)(98.2)(85.4)26 %15 %Investment and other income (losses) of consolidated investment products, net115.8 (17.7)421.1 NMNMExpenses of consolidated investment products(18.7)(19.7)(31.2)(5 %)(37 %)Other income (expenses), net$313.4 $(44.5)$569.2 NMNMInvestment and other income, net consists primarily of gains (losses) on investments held by the Company, income (losses) from equity method investees, foreign currency exchange gains (losses), rental income from excess owned space leased to third parties, gains (losses) on derivatives, and dividend and interest income.Investment and other income, net increased $248.9 million in fiscal year 2023 primarily due to an increase in dividend and interest income, gains on investments held by the Company as compared to losses in the prior year, and higher income from equity method investees, partially offset by net foreign currency exchange losses as compared to gains in the prior year. Investment and other income, net decreased $173.6 million in fiscal year 2022 primarily due to the impact of market declines. 41Table of ContentsDividend and interest income increased $122.0 million in fiscal year 2023, primarily due to higher yields, and increased $20.3 million in fiscal year 2022, primarily due to higher yields on money market funds.Investments held by the Company generated net gains of $39.5 million, as compared to net losses of $75.4 million in the prior year, primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans, partially offset by net losses from investments measured at cost adjusted for observable price changes. Investments held by the Company generated net losses of $75.4 million in fiscal year 2022, as compared to net gains of $90.9 million in fiscal year 2021, primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans. The losses in fiscal year 2022 were partially offset in by net gains from investments measured at cost adjusted for observable price changes.Income from equity method investees generated income of $123.1 million in fiscal year 2023 and income of $36.2 million in fiscal year 2022. The current year income was largely related to various global alternative funds, and included $86.0 million which was fully offset in noncontrolling interest. Income from equity method investees decreased $118.1 million in fiscal year 2022. Fiscal year 2022 included a $52.6 million gain recognized on the sale of our investment in Embark, offset in part by losses from equity method investees, largely related to declines in market valuations of investments held by various global equity and alternative funds, while fiscal year 2021 included gains from equity method investees.Net foreign currency exchange losses were $26.7 million in fiscal year 2023, as compared to net gains of $40.6 million fiscal year 2022 and net losses of $11.9 million in fiscal year 2021. The net losses in fiscal year 2023 compared to fiscal year 2022 were primarily due to the impact of the weakening of the U.S. dollar against the Euro and British Pound on cash and cash equivalents denominated in U.S. dollars held by our European subsidiaries. The net gains in fiscal year 2022 compared to fiscal year 2021 were primarily due to the impact of the strengthening of the U.S. dollar against the Euro and British Pound. Derivatives generated losses of $15.1 million in fiscal year 2023, gains of $20.9 million in fiscal 2022, and losses of $23.2 million in fiscal 2021. Interest expense increased $25.5 million in fiscal year 2023 primarily due to a full year of accretion on Lexington deferred consideration, higher interest on debt and an increase in interest recognized on tax reserves. Interest expense increased $12.8 million in fiscal year 2022 primarily due to accretion on Lexington deferred consideration.Investment and other income (loss) of consolidated investment products, net consists of investment gains (losses) on investments held by consolidated investment products (“CIPs”) and dividend and interest income. Expenses of consolidated investment products primarily consists of fund-related expenses, including professional fees and other administrative expenses, and interest expense. Significant portions of the investment and other income of consolidated investment products, net and expenses of consolidated investment products are offset in noncontrolling interests in our consolidated statements of income.Investments held by CIPs generated investment and other income of $115.8 million in fiscal year 2023, as compared to investment and other losses of $17.7 million in fiscal year 2022 and investment and other income of $421.1 million in fiscal year 2021, largely related to net investment gains (losses) on holdings of various equity, fixed income and alternative funds.Expenses of consolidated investment products decreased $1.0 million in fiscal year 2023 and decreased $11.5 million in fiscal year 2022, due to activity of the funds.Our investments in sponsored funds include initial cash investments made in the course of launching mutual fund and other investment product offerings, as well as investments for other business reasons. The market conditions that impact our AUM similarly affect the investment income earned or losses incurred on our investments in sponsored funds. 42Table of ContentsOur cash, cash equivalents and investments portfolio by asset class and accounting classification at September 30, 2023, excluding third-party assets of CIPs, was as follows:Accounting Classification 1Total(in millions)Cash and Cash EquivalentsInvestments,at Fair ValueEquity Method InvestmentsOtherInvestmentsDirect Investmentsin CIPsCash and Cash Equivalents$3,686.4 $— $— $— $— $3,686.4 InvestmentsAlternative— 299.4 820.7 69.7 505.7 1,695.5 Equity— 314.0 213.1 153.7 103.9 784.7 Fixed Income— 236.8 44.0 36.6 279.1 596.5 Multi-Asset— 22.6 11.4 — 145.2 179.2 Total investments— 872.8 1,089.2 260.0 1,033.9 3,255.9 Total Cash and Cash Equivalents and Investments 2, 3$3,686.4 $872.8 $1,089.2 $260.0 $1,033.9 $6,942.3 ______________1See Note 1 – Significant Accounting Policies and Note 5 – Investments in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report for information on investment accounting classifications.2Total cash and cash equivalents and investments includes $4,084.8 million held for operational activities, including investments in sponsored funds and other products, and $324.2 million necessary to comply with regulatory requirements.3Total cash and cash equivalents and investments includes $295.8 million attributable to employee-owned and other third-party investments made through partnerships which are offset in nonredeemable noncontrolling interests and approximately $380 million of investments that are subject to long-term repurchase agreements and other financing arrangements.TAXES ON INCOME Our effective income tax rate for fiscal year 2023 was 22.1% as compared to 22.9% in fiscal year 2022 and 14.3% in fiscal year 2021. The rate decrease in fiscal year 2023 was primarily due to an increase in foreign earnings and activity of CIPs for which there is no related tax impact, partially offset by additional state tax expense. The rate increase in fiscal year 2022 was primarily due to the release of a tax reserve in the prior year following the close of an IRS audit of the U.S. taxation of deemed foreign dividends for fiscal year 2018, activity of CIPs for which there is no related tax impact, and a decrease in foreign earnings.Our effective income tax rate reflects the relative contributions of earnings in the jurisdictions in which we operate, which have varying tax rates. Changes in our pre-tax income mix, tax rates or tax legislation in such jurisdictions may affect our effective income tax rate and net income.SUPPLEMENTAL NON-GAAP FINANCIAL MEASURESAs supplemental information, we are providing performance measures for “adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share,” each of which is based on methodologies other than generally accepted accounting principles (“non-GAAP measures”). Management believes these non-GAAP measures are useful indicators of our financial performance and may be helpful to investors in evaluating our relative performance against industry peers.“Adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share” are defined below, followed by reconciliations of operating income, operating margin, net income attributable to Franklin Resources, Inc. and diluted earnings per share on a U.S. GAAP basis to these non-GAAP measures. Non-GAAP measures should not be considered in isolation from, or as substitutes for, any financial information prepared in accordance with U.S. GAAP, and may not be comparable to other similarly titled measures of other companies. Additional reconciling items may be added in the future to these non-GAAP measures if deemed appropriate.43Table of ContentsAdjusted Operating IncomeWe define adjusted operating income as operating income adjusted to exclude the following:•Elimination of operating revenues upon consolidation of investment products.•Acquisition-related items:◦Acquisition-related retention compensation.◦Other acquisition-related expenses including professional fees, technology costs and fair value adjustments related to contingent consideration assets and liabilities.◦Amortization of intangible assets. ◦Impairment of intangible assets and goodwill, if any.•Special termination benefits related to workforce optimization initiatives related to past acquisitions and certain initiatives undertaken by the Company.•Impact on compensation and benefits expense from gains and losses on investments related to deferred compensation plans, which is offset in investment and other income (losses), net.•Impact on compensation and benefits expense related to minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests.Adjusted Operating MarginWe calculate adjusted operating margin as adjusted operating income divided by adjusted operating revenues. We define adjusted operating revenues as operating revenues adjusted to exclude the following:•Elimination of operating revenues upon consolidation of investment products.•Acquisition-related performance-based investment management fees which are passed through as compensation and benefits expense.•Sales and distribution fees and a portion of investment management fees allocated to cover sales, distribution and marketing expenses paid to the financial advisers and other intermediaries who sell our funds on our behalf. Adjusted Net Income and Adjusted Diluted Earnings Per ShareWe define adjusted net income as net income attributable to Franklin Resources, Inc. adjusted to exclude the following:•Activities of CIPs.•Acquisition-related items:◦Acquisition-related retention compensation.◦Other acquisition-related expenses including professional fees, technology costs and fair value adjustments related to contingent consideration assets and liabilities.◦Amortization of intangible assets. ◦Impairment of intangible assets and goodwill, if any.◦Write off of noncontrolling interests related to the wind down of an acquired business.◦Interest expense for amortization of Legg Mason debt premium from acquisition-date fair value adjustment.44Table of Contents•Special termination benefits related to workforce optimization initiatives related to past acquisitions and certain initiatives undertaken by the Company.•Net gains or losses on investments related to deferred compensation plans which are not offset by compensation and benefits expense.•Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests.•Unrealized investment gains and losses.•Net income tax expense of the above adjustments based on the respective blended rates applicable to the adjustments.We define adjusted diluted earnings per share as diluted earnings per share adjusted to exclude the per share impacts of the adjustments applied to net income in calculating adjusted net income.In calculating our non-GAAP measures, we adjust for the impact of CIPs because it is not considered reflective of our underlying results of operations. Acquisition-related items and special termination benefits are excluded to facilitate comparability to other asset management firms. We adjust for compensation and benefits expense related to funded deferred compensation plans because it is partially offset in other income (expense), net. We adjust for compensation and benefits expense and net income (loss) attributable to redeemable noncontrolling interests to reflect the economics of certain profits interest arrangements. Sales and distribution fees and a portion of investment management fees generally cover sales, distribution and marketing expenses and, therefore, are excluded from adjusted operating revenues. In addition, when calculating adjusted net income and adjusted diluted earnings per share we exclude unrealized investment gains and losses included in investment and other income (losses) because the related investments are generally expected to be held long term.45Table of ContentsThe calculations of adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share are as follows:(in millions)202320222021for the fiscal years ended September 30,Operating income$1,102.3$1,773.9$1,875.0Add (subtract):Elimination of operating revenues upon consolidation of investment products¹37.548.222.8Acquisition-related retention164.9167.2163.7Compensation and benefits expense from gains (losses) on deferred compensation, net20.3(36.7)22.7Other acquisition-related expenses50.260.736.0Amortization of intangible assets341.1282.0232.0Special termination benefits63.28.227.1Compensation and benefits expense related to minority interests in certain subsidiaries44.320.0—Adjusted operating income$1,823.8$2,323.5$2,379.3Total operating revenues$7,849.4$8,275.3$8,425.5Add (subtract):Acquisition-related pass through performance fees(169.7)(4.2)(25.3)Sales and distribution fees(1,203.7)(1,415.0)(1,635.5)Allocation of investment management fees for sales, distribution and marketing expenses(409.4)(430.6)(470.3)Elimination of operating revenues upon consolidation of investment products¹37.548.222.8Adjusted operating revenues$6,104.1$6,473.7$6,317.2Operating margin14.0 %21.4 %22.3 %Adjusted operating margin29.9 %35.9 %37.7 %46Table of Contents(in millions, except per share data)202320222021for the fiscal years ended September 30,Net income attributable to Franklin Resources, Inc.$882.8 $1,291.9 $1,831.2 Add (subtract):Net (income) loss of consolidated investment products¹8.0 (0.2)(2.8)Acquisition-related retention164.9 167.2 163.7 Other acquisition-related expenses70.4 73.3 34.0 Amortization of intangible assets341.1 282.0 232.0 Special termination benefits63.2 8.2 27.1 Net losses (gains) on deferred compensation plan investments not offset by compensation and benefits expense(15.5)9.0 (1.2)Unrealized investment losses (gains) (2.6)191.9 (285.7)Interest expense for amortization of debt premium(25.4)(25.2)(51.4)Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests0.1 1.4 — Net income tax expense of adjustments(154.8)(143.9)(31.7)Adjusted net income$1,332.2 $1,855.6 $1,915.2 Diluted earnings per share$1.72 $2.53 $3.57 Adjusted diluted earnings per share2.60 3.63 3.74 __________________1The impact of consolidated investment products is summarized as follows:(in millions)202320222021for the fiscal years ended September 30,Elimination of operating revenues upon consolidation$(37.5)$(48.2)$(22.8)Other income, net88.8 24.2 207.4 Less: income (loss) attributable to noncontrolling interests59.3 (24.2)181.8 Net income (loss)$(8.0)$0.2 $2.8 LIQUIDITY AND CAPITAL RESOURCES Cash flows were as follows: (in millions)for the fiscal years ended September 30,202320222021Operating cash flows$1,138.7 $1,956.7 $1,245.4 Investing cash flows(3,582.1)(3,329.2)(2,615.9)Financing cash flows2,029.0 1,585.0 2,030.1 Net cash provided by operating activities decreased in fiscal year 2023 primarily due to higher net purchases of investments by CIPs and lower net income adjusted for non-cash items. Net cash used in investing activities increased as compared to the prior year primarily due to net purchases of our investments as compared to net liquidations in the prior year, higher net purchases of investments by collateralized loan obligations (“CLOs”), payments of deferred consideration liability in the current year, and net deconsolidation of CIPs as compared to net consolidation in the prior year, partially offset by lower cash paid for acquisitions in the current year. Net cash provided by financing activities increased as compared to the prior year primarily due to proceeds from repurchase agreements in the current year and higher net proceeds from debt of CIPs.Net cash provided by operating activities increased in fiscal year 2022 primarily due to lower net purchases of 47Table of Contentsinvestments by CIPs, higher net income adjusted for non-cash items and timing differences in the cash settlement of operating assets and liabilities. Net cash used in investing activities increased as compared to the prior year primarily due to cash paid for acquisitions in the current year, partially offset by net liquidations of our investments as compared to net purchases in the prior year. Net cash provided by financing activities decreased as compared to the prior year primarily due to proceeds from issuance of debt in the prior year, partially offset by higher net proceeds from debt of CIPs.The assets and liabilities of CIPs attributable to third-party investors do not impact our liquidity and capital resources. We have no right to the CIPs’ assets, other than our direct equity investment in them and investment management and other fees earned from them. The debt holders of the CIPs have no recourse to our assets beyond the level of our direct investment, therefore we bear no other risks associated with the CIPs’ liabilities. Accordingly, the assets and liabilities of CIPs, other than our direct investments in them, are excluded from the amounts and discussion below.Our liquid assets and debt consisted of the following: (in millions)as of September 30,202320222021AssetsCash and cash equivalents$3,592.8 $4,086.8 $4,357.8 Receivables1,181.7 1,130.8 1,300.4 Investments1,098.8 830.0 1,042.2 Total Liquid Assets$5,873.3 $6,047.6 $6,700.4 LiabilityDebt$3,052.8 $3,376.4 $3,399.4 Liquidity Liquid assets consist of cash and cash equivalents, receivables and certain investments. Cash and cash equivalents at September 30, 2023 primarily consist of money market funds and deposits with financial institutions. Liquid investments consist of investments in sponsored and other funds, direct investments in redeemable CIPs, other equity and debt securities, and time deposits with maturities greater than three months.We utilize a significant portion of our liquid assets to satisfy operational and regulatory requirements and fund capital contributions to sponsored and other products. Certain of our subsidiaries are required by our internal policy or regulation to maintain minimum levels of cash and/or capital, and may be restricted in their ability to transfer cash to their parent companies. Should we require more capital than is available for use, we could elect to reduce the level of discretionary activities, such as share repurchases or investments in sponsored and other products, we could raise capital through debt or equity issuances, or utilize existing or new credit facilities. These alternatives could result in increased interest expense, decreased dividend or interest income, or other dilution to our earnings.Capital Resources We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets, continuing cash flows from operations, amounts available under the credit facility discussed below, the ability to issue debt or equity securities and borrowing capacity under our uncommitted commercial paper private placement program. In prior fiscal years, we issued senior unsecured unsubordinated notes for general corporate purposes and to redeem outstanding notes. At September 30, 2023, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,600.0 million. The notes have fixed interest rates from 1.600% to 2.950% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized discounts and debt issuance costs, of $1,585.0 million. At September 30, 2023, Legg Mason’s outstanding senior notes had an aggregate principal amount due of $1,250.0 million. The notes have fixed interest rates from 3.950% to 5.625% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized premium, of $1,467.8 million. The senior notes contain an optional redemption feature that allows us to redeem each series of notes prior to maturity in whole or in part at any time, at a make-whole redemption price. The indentures governing the senior notes 48Table of Contentscontain limitations on our ability and the ability of our subsidiaries to pledge voting stock or profit participating equity interests in our subsidiaries to secure other debt without similarly securing the notes equally and ratably. In addition, the indentures include requirements that must be met if we consolidate or merge with, or sell all of our assets to, another entity.On July 25, 2023, we terminated our undrawn 364-day $500.0 million revolving credit facility and our 3-year term loan with an aggregate commitment of $300.0 million. The term loan was repaid with existing cash. Concurrently, the Company entered into a $800.0 million 5-year revolving credit facility which remains undrawn as of the time of this filing. This facility contains a financial performance covenant requiring that the Company maintain a consolidated net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 3.25 to 1.00. We were in compliance with all debt covenants at September 30, 2023.At September 30, 2023, we had $500.0 million of short-term commercial paper available for issuance under an uncommitted private placement program which has been inactive since 2012 and is unrated. Our ability to access the capital markets in a timely manner depends on a number of factors, including our credit rating, the condition of the global economy, investors’ willingness to purchase our securities, interest rates, credit spreads and the valuation levels of equity markets. If we are unable to access capital markets in a timely manner, our business could be adversely impacted. Uses of Capital We expect that our main uses of cash will be to invest in and grow our business including through acquisitions, pay stockholder dividends, invest in our products, pay income taxes and operating expenses of the business, enhance technology infrastructure and business processes, repurchase shares of our common stock, and repay and service debt. While we expect to continue to repurchase shares to offset dilution from stock-based compensation, and expect to continue to repurchase shares opportunistically from time to time, we will likely spend more of our post-dividend free cash flow investing in our business, including seed capital and acquiring resources to help grow our investment teams and operations. In the ordinary course of business, we enter into contracts or purchase obligations with third parties whereby the third parties provide goods or services to or on behalf of the Company. Purchase obligations include contractual amounts that will be due to purchase goods and services to be used in our operations and are recorded as liabilities in the consolidated financial statements when services are provided. At September 30, 2023, we had $779.1 million of purchase obligations.We typically declare cash dividends on a quarterly basis, subject to approval by our Board of Directors. We declared regular dividends of $1.20 per share ($0.30 per share per quarter) in fiscal year 2023, and of $1.16 per share ($0.29 per share per quarter) in fiscal year 2022. We currently expect to continue paying comparable regular dividends on a quarterly basis to holders of our common stock depending upon earnings and other relevant factors. We maintain a stock repurchase program to manage our equity capital with the objective of maximizing shareholder value. Our stock repurchase program is effected through open-market purchases and private transactions in accordance with applicable laws and regulations, and is not subject to an expiration date. The size and timing of these purchases will depend on business conditions, price, market and other factors. During fiscal years 2023 and 2022, we repurchased 9.6 million and 6.5 million shares of our common stock at a cost of $256.3 million and $180.8 million. At September 30, 2023, 14.7 million shares remained available for repurchase under the authorization of 80.0 million shares approved by our Board of Directors in April 2018.While we have no legal or contractual obligation to do so, we routinely make cash investments in the course of launching sponsored funds. At September 30, 2023, we had $305.6 million of committed capital contributions which relate to commitments to invest in sponsored funds and other investment products and entities, including CIPs. These unfunded commitments are not recorded in the consolidated balance sheet.We entered into a lease agreement for office space in New York City located at One Madison Avenue with occupancy expected to begin in early fiscal year 2024 with an aggregate expected commitment of $766.7 million over sixteen years. In the first quarter of fiscal year 2024, we expect to recognize operating lease liabilities of approximately $400 million. This is part of an initiative to consolidate our existing office space in New York City.49Table of ContentsOn May 31, 2023, we entered into a definitive agreement to acquire Putnam Investments from Great-West Lifeco, Inc. (“Great-West”) for approximately 33.3 million shares of our common stock that we will issue to Great-West at closing and $100.0 million paid in cash 180 days after closing. We plan to pay the cash portion with existing cash.On November 1, 2022, we acquired all of the outstanding ownership interests in BNY Alcentra Group Holdings, Inc. from The Bank of New York Mellon Corporation. Total purchase consideration consisted of cash consideration of approximately $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s CLOs; deferred consideration of $62.0 million which was paid on November 1, 2023; and contingent consideration of up to $350.0 million to be paid upon the achievement of certain performance thresholds over the next four years that has an acquisition-date fair value of $24.6 million. We paid the purchase price from our existing cash.On December 15, 2022, we entered into repurchase agreements with a third-party financing company for certain securities held in Alcentra’s CLOs. Under the terms of the repurchase agreements, we received cash proceeds of approximately $175.0 million with pledged collateral consisting of Alcentra investments with a carrying value of $171.3 million at September 30, 2023. The repurchase agreements have contractual maturity dates ranging between 2029 to 2034.On April 1, 2022, we acquired all of the outstanding ownership interests in Lexington for cash consideration of approximately $1.0 billion and additional payments of $750.0 million to be paid in cash over the next three years. The first additional payment of $250.0 million was made during the quarter ended June 30, 2023 from our existing cash. The funds that we manage have their own resources available for purposes of providing liquidity to meet shareholder redemptions, including securities that can be sold or provided to investors as in-kind redemptions, and lines of credit. Increased liquidity risks and redemptions have required, and may continue to require, increased cash in the form of loans or other lines of credit to help settle redemptions and for other related purposes. While we have no legal or contractual obligation to do so, we have in certain instances voluntarily elected to provide the funds with direct or indirect financial support based on our business objectives. We did not provide financial or other support to our sponsored funds during fiscal year 2023 or 2022.CRITICAL ACCOUNTING POLICIES Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. These estimates, judgments, and assumptions are affected by our application of accounting policies. Further, concerns about the global economic outlook have adversely affected and may continue to adversely affect our business, financial condition and results of operations including the estimates and assumptions made by management. Actual results could differ from the estimates. Described below are the accounting policies that we believe are most critical to understanding our financial position and results of operations. For additional information about our accounting policies, see Note 1 – Significant Accounting Policies in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report. Consolidation We consolidate our subsidiaries and investment products in which we have a controlling financial interest. We have a controlling financial interest when we own a majority of the voting interest in a voting interest entity (“VOE”) or are the primary beneficiary of a variable interest entity (“VIE”).A VIE is an entity in which the equity investment holders have not contributed sufficient capital to finance its activities or do not have defined rights and obligations normally associated with an equity investment. The assessment of whether an entity is a VIE or VOE involves judgment and analysis on a structure-by-structure basis. When performing the assessment, we consider factors such as the entity’s legal organization, design and capital structure, the rights of the equity investment holders and our contractual involvement with and ownership interest in the entity. Our VIEs are primarily investment products and our variable interests consist of our equity ownership interests in and investment management fees earned from these products.We are the primary beneficiary of a VIE if we have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of or right to receive benefits from the VIE that could potentially be significant to the VIE. Investment management fees earned from VIEs are excluded from the primary 50Table of Contentsbeneficiary determination if they are deemed to be at market and commensurate with service. The key assumption used in the analysis includes the amount of AUM. These estimates and assumptions are subject to variability. For example, AUM is impacted by market volatility and the level of sales, redemptions, distributions to investors and reinvested distributions. There is judgment involved in assessing whether we have the power to direct the activities that most significantly impact VIEs’ economic performance and the obligation to absorb losses of or right to receive benefits from VIEs that could potentially be significant to the VIEs. As of September 30, 2023, we were the primary beneficiary of 63 investment product VIEs.Business Combinations Business combinations are accounted for by recognizing the acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition-date estimated fair values. Any excess of the purchase consideration over the acquisition-date fair values of these identifiable assets and liabilities is recognized as goodwill. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in earnings.Intangible assets acquired in business combinations consist primarily of investment management contracts and trade names. The fair values of the acquired management contracts are based on the net present value of estimated future cash flows attributable to the contracts, which include significant assumptions about forecasts of the AUM growth rate, pre-tax profit margin, discount rate, average effective fee rate and effective tax rate. The fair value of trade names is determined using the relief from royalty method based on net present value of estimated future cash flows, which include significant assumptions about royalty rate, revenue growth rate, discount rate and effective tax rate. Our estimates are based on assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, may differ from actual results. Our management contract intangible assets are amortized over their estimated useful lives, which range from three to sixteen years, using the straight-line method, unless the asset is determined to have an indefinite useful life. Indefinite-lived intangible assets represent contracts to manage investment assets for which there is no foreseeable limit on the contract period. Trade names are amortized over their estimated useful lives which range from five to twenty years using the straight-line method.Goodwill and indefinite-lived intangible assets are tested for impairment annually and when an event occurs or circumstances change that more likely than not reduce the fair value of the related reporting unit or indefinite-lived intangible asset below its carrying value. We have one reporting unit, investment management and related services, consistent with our single operating segment, to which all goodwill has been assigned. We make significant estimates and assumptions when evaluating goodwill and other intangible assets for impairment.We may first assess goodwill and indefinite-lived intangible assets for qualitative factors to determine whether it is necessary to perform a quantitative impairment test. The qualitative analysis considers entity-specific and macroeconomic factors and their potential impact on key assumptions used in the determination of the fair value of the reporting unit or indefinite-lived intangible asset. A quantitative impairment test is performed if the results of the qualitative assessment indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value or an indefinite-lived intangible asset is impaired, or if a qualitative assessment is not performed. Quantitative tests compare the fair value of the asset to its carrying value. The fair values of the reporting unit and indefinite-lived intangible assets are based on the net present value of estimated future cash flows, which include significant assumptions about the AUM growth rate, pre-tax profit margin, discount rate, average effective fee rate and effective tax rate. The most relevant of these assumptions to the determination of estimated fair value are the AUM growth rate, pre-tax profit margin and the discount rate. We performed a qualitative annual impairment test for goodwill and all indefinite-lived intangible assets as of August 1, 2023 and concluded it is more likely than not that the fair values of the reporting unit and the indefinite-lived intangible assets exceed their carrying values.51Table of ContentsWe subsequently monitored market conditions and their potential impact on the assumptions used in the annual assessment to determine whether circumstances have changed that would more likely than not reduce the fair value of the reporting unit below its carrying value, or indicate that the other indefinite-lived intangible assets might be impaired. We considered, among other things, changes in our AUM and weighted-average cost of capital by assessing whether these changes would impact the reasonableness of our impairment assessment as of August 1, 2023. We also monitored fluctuations of our common stock per share price to evaluate our market capitalization relative to the reporting unit as a whole. Subsequent to August 1, 2023, there were no impairments of goodwill or indefinite-lived intangible assets as no events occurred or circumstances changed that would indicate these assets might be impaired. We test definite-lived intangible assets for impairment quarterly. Impairment is indicated when the carrying value of an asset is not recoverable and exceeds its fair value. Recoverability is evaluated based on estimated undiscounted future cash flows using assumptions about the AUM growth rate, pre-tax profit margin, average effective fee rate and expected useful life as well as royalty rate for trade name intangible assets. The most relevant of these assumptions to determine future cash flows is the AUM growth rate. If the carrying value of an asset is not recoverable through undiscounted cash flows, impairment is recognized in the amount by which the carrying value exceeds the asset’s fair value, as determined by discounted cash flows or other methods as appropriate for the asset type. There were no impairments of definite-lived intangible assets during fiscal year 2023.While we believe that the assumptions used to estimate fair value in our impairment tests are reasonable and appropriate, future changes in the assumptions could result in recognition of impairment.Fair Value Measurements Our investments are primarily recorded at fair value or amounts that approximate fair value on a recurring basis. We use a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on whether the inputs to those valuation techniques are observable or unobservable. The assessment of the hierarchy level of the assets or liabilities measured at fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety. See Note 1 – Significant Accounting Policies in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report for more information on the fair value hierarchy.As of September 30, 2023, Level 3 assets represented 6% of total assets measured at fair value, substantially all of which related to CIPs’ investments in equity and debt securities. There were insignificant transfers into and out of Level 3 during fiscal year 2023.The following are descriptions of the significant assets measured at fair value and their fair value methodologies.Sponsored funds and separate accounts consist primarily of investments in nonconsolidated sponsored funds and to a lesser extent, separate accounts. Changes in the fair value of the investments are recognized as gains and losses in earnings. The fair values of fund products are determined based on their published NAV or estimated using NAV as a practical expedient. The fair values of the underlying investments in the separate accounts are determined using quoted market prices, or independent third-party broker or dealer price quotes if quoted market prices are not available.Investments related to long-term incentive plans consist primarily of investments in sponsored funds related to certain compensation plans that have certain vesting provisions. Changes in fair value are recognized as gains and losses in earnings. The fair values of the investments are determined based on the fund products’ published NAV or estimated using NAV as a practical expedient.Other equity and debt investments consist of other equity and debt securities carried at fair value. Changes in the fair value are recognized as gains and losses in earnings. The fair values of equity securities, excluding fund products, and debt securities are determined using independent third-party broker or dealer price quotes or based on either a market-based or income-based approach using significant unobservable inputs. The fair values of fund products are determined based on their published NAV or estimated using NAV as a practical expedient.52Table of ContentsInvestments of CIPs consist of marketable debt and equity securities and other investments that are not generally traded in active markets. Changes in the fair value of the investments are recognized as gains and losses in earnings. The fair values of marketable securities are determined using quoted market prices, or independent third-party broker or dealer price quotes if quoted market prices are not available. The investments that are not generally traded in active markets consist of loans, other equity and debt securities of entities in emerging markets, fund products and real estate. The fair values are determined using significant unobservable inputs in either a market-based or income-based approach, except for fund products, for which fair values are estimated using NAV as a practical expedient.Noncontrolling interests consist of third-party equity interests in CIPs and minority interests in certain subsidiaries. Noncontrolling interests that are redeemable or convertible for cash or other assets at the option of the noncontrolling interest holders and are classified as temporary equity at fair value, except when the fair value is less than the issuance date fair value, the reported amount is the issuance date fair value. Changes in fair value of redeemable noncontrolling interest is recognized as an adjustment to retained earnings. Nonredeemable noncontrolling interests do not permit the noncontrolling interest holders to request settlement, are reported at their issuance value and undistributed net income (loss) attributable to noncontrolling interests.The fair value of third-party equity interests in CIPs are determined based on the published NAV or estimated using NAV a practical expedient. The fair values of redeemable noncontrolling interests related to minority interest in certain subsidiaries are determined using discounted cash flows and guideline public company methods, which include significant assumptions about forecasts of the AUM growth rate, pre-tax profit margin, discount rate and public company earnings multiples.Revenues We earn revenue primarily from providing investment management and related services to our customers, which are generally investment products or investors in separate accounts. Related services include fund administration, sales and distribution, and shareholder servicing. Revenues are recognized when our obligations related to the services are satisfied and it is probable that a significant reversal of the revenue amount would not occur in future periods. The obligations are satisfied over time as the services are rendered, except for the sales and distribution obligations for the sale of shares of sponsored funds, which are satisfied on trade date. Multiple services included in customer contracts are accounted for separately when the obligations are determined to be distinct. Fees from providing investment management and fund administration services (“investment management fees”), other than performance-based investment management fees, are determined based on a percentage of AUM, primarily on a monthly basis using daily average AUM, and are recognized as the services are performed over time. Performance-based investment management fees are generated when investment products’ performance exceeds targets established in customer contracts. These fees are recognized when significant reversal of the amount is no longer probable and may relate to investment management services that were provided in prior periods. Sales and distribution fees primarily consist of upfront sales commissions and ongoing distribution fees. Sales commissions are based on contractual rates for sales of certain classes of sponsored funds and are recognized on trade date. Distribution service fees are determined based on a percentage of AUM, primarily on a monthly basis using daily average AUM. As the fee amounts are uncertain on trade date, they are recognized over time as the amounts become known and may relate to sales and distribution services provided in prior periods.AUM is generally based on the fair value of the underlying securities held by investment products and is calculated using fair value methods derived primarily from unadjusted quoted market prices, unadjusted independent third-party broker or dealer price quotes in active markets, or market prices or price quotes adjusted for observable price movements after the close of the primary market. The fair values of securities for which market prices are not readily available are valued internally using various methodologies which incorporate significant unobservable inputs as appropriate for each security type. Pricing of the securities is governed by our global valuation and pricing policy, which defines valuation and pricing conventions for each security type, including practices for responding to unexpected or unusual market events.As our AUM is primarily valued based on observable market prices or inputs, market risk is the most significant risk underlying the valuation of our AUM. 53Table of ContentsIncome Taxes Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts in the consolidated financial statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is expected to be recovered or settled, respectively. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying values of deferred tax assets to the amount that is more likely than not to be realized. In assessing whether a valuation allowance should be established against a deferred income tax asset, we consider all positive and negative evidence, which includes timing of expiration, projected sources of taxable income, limitations on utilization under the statute and the effectiveness of prudent and feasible tax planning strategies among other factors. For each tax position taken or expected to be taken in a tax return, we utilize significant judgment related to the range of possible favorable or unfavorable outcomes to determine whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. We operate in numerous countries, states and other taxing jurisdictions. The income tax laws are complex and subject to different interpretations by the taxpayer and the relevant taxing authorities. Significant judgment is required in the determination of our annual income tax provisions, which includes the assessment of deferred tax assets and uncertain tax positions, as well as the interpretation and application of existing and newly enacted tax laws, regulation changes, and new judicial rulings. We repatriate foreign earnings that are in excess of regulatory, capital or operational requirements of all of our non-U.S. subsidiaries.It is possible that actual results will vary from those recognized in our consolidated financial statements due to changes in the interpretation of applicable guidance or as a result of examinations by taxing authorities.Loss Contingencies We are involved in various lawsuits and claims encountered in the normal course of business. When such a matter arises and periodically thereafter, we consult with our legal counsel and evaluate the merits of the claims based on the facts available at that time. In management’s opinion, an adequate accrual has been made as of September 30, 2023 to provide for any probable losses that may arise from such matters for which we could reasonably estimate an amount. See also Note 15 – Commitments and Contingencies in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report. 54Table of ContentsItem 7A. Quantitative and Qualitative Disclosures About Market Risk. In the normal course of business, our financial position is subject to market risk, including, but not limited to, potential loss due to changes in the value of financial instruments including those resulting from adverse changes in interest rates, foreign currency exchange rates and market valuation. Financial instruments include, but are not limited to, investment securities and debt obligations. Management is responsible for managing market risk. Our Enterprise Risk Management Committee is responsible for providing a framework to assist management to identify, assess and manage market and other risks. Our market risk from assets and liabilities of CIPs is limited to that of our direct equity investments in them and investment management fees earned from them. Accordingly, the assets and liabilities of CIPs are excluded from the discussion below.AUM Market Price RiskWe are exposed to market risk through our investment management and distribution fees, which are generally calculated as a percentage of AUM. Changes in market prices, interest rates, credit spreads, foreign exchange rates, or a combination of these factors could cause the value of AUM to decline, which would result in lower investment management and distribution fees. Our exposure to these risks is reduced as we sponsor a broad range of investment products in various global jurisdictions, which serves to mitigate the impact of changes in any particular market or region. Assuming the respective effective fee rates and asset mix remain unchanged, a proportional 10% change in the value of our average AUM would result in corresponding 10% changes in our investment management fees and asset-based distribution fee revenues, excluding performance-based investment management fees. Such a change for the fiscal year ended September 30, 2023 would have resulted in an increase or decrease in operating revenues of $690.1 million.Interest Rate RiskWe are exposed to changes in interest rates primarily through our investments in funds that invest in debt securities, which were $2,471.2 million at September 30, 2023. Our exposure to interest rate risks from these investments is mitigated by the low average duration exposure and a broad range of products in various global jurisdictions. We had minimal exposure to changes in interest rates from debt obligations at September 30, 2023 as substantially all of our outstanding debt was issued at fixed rates. As of September 30, 2023, we have considered the potential impact of a 100 basis point movement in market interest rates on our investments in funds that invest in debt securities. Based on our analysis, we do not expect that such a change would have a material impact on our earnings in the next 12 months. Foreign Currency Exchange RiskWe are subject to foreign currency exchange risk through our international operations. While the majority of our revenues are earned in the U.S., we also provide services and earn revenue in international jurisdictions. Our exposure to foreign currency exchange risk is reduced in relation to our results of operations since a significant portion of these revenues is denominated in U.S. dollars. This situation may change in the future as our business continues to grow outside the U.S. and expenses incurred denominated in foreign currencies increase. The exposure to foreign currency exchange risk in our consolidated balance sheet mostly relates to cash and cash equivalents and investments that are denominated in foreign currencies, primarily in the Euro, Indian Rupee, Pound Sterling and Australian dollar. These assets accounted for 23% of the total cash and cash equivalents and investments at September 30, 2023. A 10% weakening of the U.S. dollar against the various foreign currencies to which we had exposure as described above would result in corresponding 10% increases in the U.S. dollar values of the foreign currency assets and 10% decreases in the foreign currency values of the U.S. dollar assets. Such a weakening as of September 30, 2023 would result in a $134.8 million decrease in accumulated other comprehensive loss and a $24.0 million decrease in pre-tax earnings. We generally do not use derivative financial instruments to manage foreign currency exchange risk exposure. As a result, both positive and negative currency fluctuations against the U.S. dollar may affect our results of operations and accumulated other comprehensive income (loss).55Table of ContentsMarket Valuation RiskWe are exposed to market valuation risks related to securities we hold that are carried at fair value. To mitigate the risks we maintain a diversified investment portfolio and, from time to time, we may enter into derivative agreements.The following is a summary of the effect of a 10% increase or decrease in the carrying values of our financial instruments subject to market valuation risks at September 30, 2023. If such a 10% increase or decrease in carrying values were to occur, the changes from investments measured at fair value and direct investments in CIPs would result in a $190.7 million increase or decrease in our pre-tax earnings.(in millions)Carrying ValueCarrying ValueAssuming a 10% IncreaseCarrying ValueAssuming a 10% DecreaseInvestments, at fair value$872.8 $960.1 $785.5 Direct investments in CIPs1,033.9 1,137.3 930.5 Total$1,906.7 $2,097.4 $1,716.0 56Table of Contents \ No newline at end of file diff --git a/FREEPORT-MCMORAN INC_10-Q_2023-11-03_831259-0000831259-23-000037.html b/FREEPORT-MCMORAN INC_10-Q_2023-11-03_831259-0000831259-23-000037.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/FREEPORT-MCMORAN INC_10-Q_2023-11-03_831259-0000831259-23-000037.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/GARTNER INC_10-Q_2023-11-03_749251-0000749251-23-000052.html b/GARTNER INC_10-Q_2023-11-03_749251-0000749251-23-000052.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/GARTNER INC_10-Q_2023-11-03_749251-0000749251-23-000052.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/GENERAL DYNAMICS CORP_10-Q_2023-10-25_40533-0000040533-23-000070.html b/GENERAL DYNAMICS CORP_10-Q_2023-10-25_40533-0000040533-23-000070.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/GENERAL DYNAMICS CORP_10-Q_2023-10-25_40533-0000040533-23-000070.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/GENERAL ELECTRIC CO_10-Q_2023-10-24_40545-0000040545-23-000238.html b/GENERAL ELECTRIC CO_10-Q_2023-10-24_40545-0000040545-23-000238.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/GENERAL ELECTRIC CO_10-Q_2023-10-24_40545-0000040545-23-000238.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/GENERAL MILLS INC_10-Q_2023-12-20_40704-0001193125-23-299930.html b/GENERAL MILLS INC_10-Q_2023-12-20_40704-0001193125-23-299930.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/GENERAL MILLS INC_10-Q_2023-12-20_40704-0001193125-23-299930.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/GENUINE PARTS CO_10-Q_2023-10-19_40987-0000040987-23-000086.html b/GENUINE PARTS CO_10-Q_2023-10-19_40987-0000040987-23-000086.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/GENUINE PARTS CO_10-Q_2023-10-19_40987-0000040987-23-000086.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/GLOBE LIFE INC._10-Q_2023-11-06_320335-0000320335-23-000054.html b/GLOBE LIFE INC._10-Q_2023-11-06_320335-0000320335-23-000054.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/GLOBE LIFE INC._10-Q_2023-11-06_320335-0000320335-23-000054.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/Gen Digital Inc._10-Q_2023-11-07_849399-0000849399-23-000029.html b/Gen Digital Inc._10-Q_2023-11-07_849399-0000849399-23-000029.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/Gen Digital Inc._10-Q_2023-11-07_849399-0000849399-23-000029.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/HALLIBURTON CO_10-Q_2023-10-25_45012-0000045012-23-000056.html b/HALLIBURTON CO_10-Q_2023-10-25_45012-0000045012-23-000056.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/HALLIBURTON CO_10-Q_2023-10-25_45012-0000045012-23-000056.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/HASBRO, INC._10-Q_2023-11-01_46080-0000046080-23-000095.html b/HASBRO, INC._10-Q_2023-11-01_46080-0000046080-23-000095.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/HASBRO, INC._10-Q_2023-11-01_46080-0000046080-23-000095.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/HCA Healthcare, Inc._10-Q_2023-10-26_860730-0000950170-23-055641.html b/HCA Healthcare, Inc._10-Q_2023-10-26_860730-0000950170-23-055641.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/HCA Healthcare, Inc._10-Q_2023-10-26_860730-0000950170-23-055641.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/HEALTHPEAK PROPERTIES, INC._10-Q_2023-10-30_765880-0001628280-23-035504.html b/HEALTHPEAK PROPERTIES, INC._10-Q_2023-10-30_765880-0001628280-23-035504.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/HEALTHPEAK PROPERTIES, INC._10-Q_2023-10-30_765880-0001628280-23-035504.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/HERSHEY CO_10-Q_2023-10-26_47111-0000047111-23-000065.html b/HERSHEY CO_10-Q_2023-10-26_47111-0000047111-23-000065.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/HERSHEY CO_10-Q_2023-10-26_47111-0000047111-23-000065.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/HOLOGIC INC_10-K_2023-11-21_859737-0000859737-23-000023.html b/HOLOGIC INC_10-K_2023-11-21_859737-0000859737-23-000023.html new file mode 100644 index 0000000000000000000000000000000000000000..4f6b5a0d51b763f604075c4c1d75d14cb8431dbe --- /dev/null +++ b/HOLOGIC INC_10-K_2023-11-21_859737-0000859737-23-000023.html @@ -0,0 +1 @@ +Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis should be read in conjunction with the Consolidated Financial Statements, the information described under the caption “Risk Factors” in Part I, Item 1A of this Annual Report and our Special Note Regarding Forward-Looking Statements at the outset of this Annual Report.OVERVIEWWe are a developer, manufacturer and supplier of premium diagnostics products, medical imaging systems and surgical products focused on women's health and well-being through early detection and treatment. We sell and service our products through a combination of direct sales and service personnel and a network of independent distributors and sales representatives. We operate in four segments: Diagnostics, Breast Health, GYN Surgical and Skeletal Health. Through our Diagnostics segment, we offer a wide range of diagnostic products, which are used primarily to aid in the screening and diagnosis of human diseases. Our primary Diagnostics products include our molecular diagnostic assays, which run on our advanced instrumentation systems (Panther, Panther Fusion and Tigris), our ThinPrep cytology system, and the Rapid Fetal Fibronectin Test. Our Aptima family of molecular diagnostic assays is used to detect, among other things, the infectious microorganisms that cause common sexually transmitted diseases, or STDs, such as chlamydia and gonorrhea, or CT/NG; certain high-risk strains of human papillomavirus, or HPV; Trichomonas vaginalis, the parasite that causes trichomoniasis; Mycoplasma genitalium; and Herpes Simplex viruses 1 and 2. We also offer viral load tests for the quantitation of Hepatitis B virus, Hepatitis C virus, human immunodeficiency virus, or HIV, and human cytomegalo virus, or CMV, for use on our Panther instrument system. In addition, we offer bacterial vaginosis and candida vaginitis assays for the diagnosis of vaginitis, a common and complex ailment affecting millions of women a year. Our assay portfolio also includes diagnostic tests for a range of acute respiratory infections, including SARS-CoV-2, various strains of influenza and parainfluenza, and respiratory syncytial virus, as well as a test for the detection of Group B Streptococcus, or GBS, that are run on the Panther Fusion system, a field upgradeable instrument addition to the base Panther system. In response to the COVID-19 pandemic, we developed and launched the Aptima SARS-CoV-2 assay and the Aptima SARS-CoV-2/Flu assay (each of which runs on our standard Panther system) and the Panther Fusion SARS-CoV-2 assay (which runs on our Panther Fusion system). In May 2022, we CE-marked two new molecular assays, Panther Fusion EBV Quant assay for quantitation of Epstein-Barr virus, and the Panther Fusion BKV Quant assay for quantitation of the BK virus. These two new assays are the first quantitative real-time PCR assays on the Panther Fusion system. These assays, along with the Aptima CMV Quant assay, expand our Panther Fusion menu of transplant monitoring assays. The ThinPrep System is primarily used in cytology applications, such as cervical cancer screening, and the Rapid Fetal Fibronectin Test assists physicians in assessing the risk of pre-term birth. We also generate service revenues from our CLIA-certified laboratory for testing related to breast cancer and all metastatic cancers.Our Breast Health segment offers a broad portfolio of solutions for breast cancer care primarily in the areas of radiology, breast surgery, pathology and treatment. These solutions include 3D digital mammography systems, image analytics software utilizing artificial intelligence, reading workstations, minimally invasive breast biopsy guidance systems, breast biopsy site markers, localization, specimen radiology, connectivity solutions and breast conserving surgery products. Our most advanced breast imaging platforms, Selenia 3D Dimensions and 3Dimensions, utilize tomosynthesis to produce 3D images that show multiple contiguous slice images of the breast, which we refer to as the Genius 3D Mammography exam. Our GYN Surgical products include our MyoSure Hysteroscopic Tissue Removal System, or MyoSure, NovaSure Endometrial Ablation System, or NovaSure, our Fluent Fluid Management system, or Fluent, our Acessa ProVu laparoscopic radiofrequency ablation system, or Acessa ProVu system, as well as our CoolSeal vessel sealing portfolio and our JustRight surgical stapler. The MyoSure suite of devices offers four options to provide incision-less removal of fibroids, polyps, and other pathology within the uterus. The NovaSure portfolio is comprised of the NovaSure CLASSIC and NovaSure ADVANCED devices and most recently, the NovaSure portfolio V5 device for the treatment of abnormal uterine bleeding. The Fluent system is a fluid management system that provides liquid distention during diagnostic and operative hysteroscopic procedures. The Acessa ProVu system is a fully integrated system that uses laparoscopic ultrasound, guidance mapping and radio frequency ablation to treat nearly all types of fibroids. The CoolSeal portfolio includes the Trinity, Reveal, and Mini advanced bipolar vessel sealing devices. The JustRight surgical stapler features a smaller instrument profile and is used for laparoscopic general and pediatric surgery.Our Skeletal Health segment's products includes our Horizon DXA, a dual energy x-ray system, which evaluates bone density and performs body composition assessments, and our Fluoroscan Insight FD mini C-arm, which assists in performing minimally invasive orthopedic surgical procedures on a patient's extremities, such as the hand, wrist, knee, foot, and ankle.Unless the context otherwise requires, references to we, us, Hologic or our company refer to Hologic, Inc. and its consolidated subsidiaries.35Table of ContentsSupply Chain ConsiderationsThe current worldwide supply chain shortages and constraints continue to impact, although to a lesser extent compared to fiscal 2022, our ability to obtain certain critical raw materials and components used primarily in our Breast Health capital equipment products. We are also dependent on a small number of semiconductor manufacturers and their allocation of chips to us. Based on our recent experience and current understanding of their allocation of chips to us, we have been able to and expect that we will continue to be able to increase production to normalized levels. If such allocation does not meet our expectations or we are not able to obtain alternative sources of chips, we believe we will not be able to manufacture sufficient quantities of our capital equipment products, primarily Selenia Dimensions and 3Dimension systems, Trident specimen radiography systems and Affirm Prone biopsy systems to meet customer demand and our results of operations would be adversely affected. In addition, the prices of certain raw materials and components have been rising due to certain supply chain shortages and inflation and could increase our costs further.Acquisitions and DispositionsThe following sets forth a description of certain of our acquisitions and dispositions we have completed in our last two fiscal years:SuperSonic Imagine Ultrasound Imaging On September 28, 2023, we entered into a definitive agreement to sell our SSI ultrasound imaging business to SSH Holdings Limited for a sales price of $1.9 million in cash. The sale was completed on October 3, 2023. We have also agreed to provide certain transition services for up to one year, depending on the nature of the service. The SSI ultrasound imaging asset group met the criteria to be classified as assets held-for-sale in the fourth quarter of fiscal 2023. As a result, we recorded a charge of $51.7 million in the fourth quarter of fiscal 2023 to record the asset group at its fair value less costs to sell pursuant to ASC 360, Property, Plant and Equipment—Impairment or Disposal of Long-Lived Assets. JW MedicalOn July 3, 2023, we completed the acquisition of assets from JW Medical Corporation (“JW Medical”) for a purchase price of $6.7 million. JW Medical was a long-standing distributor of our Breast Health products in South Korea.NormediOn April 3, 2023, we completed the acquisition of Normedi Nordic AS (“Normedi”) for a purchase price of $7.7 million, which includes $1.1 million for contingent consideration. Normedi was a long-standing distributor of our Surgical products in the Nordics region of Europe.Bolder SurgicalOn November 29, 2021, we completed the acquisition of Bolder Surgical Holdings, Inc. (“Bolder”) for a purchase price of $160.1 million. Bolder, located in Louisville, Colorado, is a developer and manufacturer of energy vessel sealing surgical devices used in both laparoscopic and open procedures. Based on our valuation, we allocated $96.7 million of the purchase price to the value of intangible assets and $68.8 million to goodwill. Bolder's results of operations are reported in our GYN Surgical segment. 36Table of ContentsRESULTS OF OPERATIONSFiscal Year Ended September 30, 2023 Compared to Fiscal Year Ended September 24, 2022 Product Revenues Fiscal Years Ended September 30, 2023September 24, 2022Change Amount% of TotalRevenueAmount% of TotalRevenueAmount%Product RevenuesDiagnostics$1,764.4 43.8 %$2,924.6 60.1 %$(1,160.2)(39.7)%Breast Health836.6 20.8 %680.5 14.0 %156.1 22.9 %GYN Surgical600.0 14.9 %521.4 10.7 %78.6 15.1 %Skeletal Health78.9 2.0 %64.7 1.3 %14.2 21.9 %$3,279.9 81.4 %$4,191.2 86.2 %$(911.3)(21.7)%We had a decrease in product revenue of 21.7% in fiscal 2023 compared to fiscal 2022. This decrease was primarily due to the decline in revenues in the Diagnostics business as a result of lower COVID-19 assay sales. This decrease in product revenue was partially offset by an increase in Breast Health and Skeletal Health revenue as supply chain constraints continued to ease, an increase in GYN Surgical revenues, as well as an extra week of activity in the current fiscal year compared to the prior fiscal year. Diagnostics product revenues decreased 39.7% in fiscal 2023 compared to fiscal 2022 primarily due to a decrease in Molecular Diagnostics of $1,173.2 million, partially offset by an increase in Cytology and Perinatal revenue of $6.8 million, and an increase in Blood Screening of $6.2 million. Molecular Diagnostics product revenue was $1,254.3 million in fiscal 2023 compared to $2,427.5 million in fiscal 2022. The decrease was primarily attributable to a reduction of $1,182.3 million in sales of our two SARS-CoV-2 assays (primarily the Aptima SARS-CoV-2 assay and to a lesser extent the Panther Fusion SARS-CoV-2 assay) to $248.2 million in fiscal 2023 compared to $1,430.5 million in fiscal 2022 primarily due to lower demand from an improvement in the COVID-19 pandemic compared to the prior year, the increasing use of rapid tests and a decrease in average selling prices internationally. We also had a decrease in sales of collection devices as a result of lower assay sales, lower Panther instruments sales as demand for those instruments has decreased, which we primarily attribute to our significantly expanded install base and the decline in the COVID-19 pandemic in the current year, and lower Mobidiag product sales. These decreases were partially offset by an increase of $86.3 million in our Aptima assays (exclusive of our SARS-CoV-2 assay), primarily driven by an increase in our CV Candida, Bacterial Vaginosis, and CT/NG assay volumes, which we attribute to an increase in wellness visits and expanded adoption by our laboratory customers. In addition, we had an increase in worldwide sales of our Fusion respiratory products, which we attribute to a strong flu season, and Quant Viral assays, including our HIV assay sold in Africa, in the current fiscal year. Within Cytology & Perinatal, we had an increase in sales of our ThinPrep Pap Test products driven by increased demand which we primarily attribute to the increase in wellness visits following the recovery from the COVID-19 pandemic, partially offset by lower Perinatal volumes in Europe. We also experienced a decline in revenue from international sales denominated in foreign currencies from the unfavorable foreign currency exchange impact of the strengthened U.S. dollar against a number of currencies. Breast Health product revenues increased 22.9% in fiscal 2023 compared to fiscal 2022 primarily due to a significant increase in volumes of our digital mammography systems, primarily Selenia 3D Dimensions and 3Dimensions systems and related workstation and workflow products including software, and to a lesser extent an increase in Trident systems unit sales and higher Faxitron breast conserving surgery products. The increase in volume was primarily driven by the improvement in supply chain constraints related to electronic components, primarily semiconductor chips, which impacted our ability to manufacture sufficient quantities to meet customer demand in the prior year. These increases were slightly offset by a reduction in the volume of our ultrasound imaging products. In addition, we had an increase in sales of our interventional breast solutions products of $8.7 million in the current fiscal year compared to the prior fiscal year primarily driven by higher Brevera systems sales and related disposables, partially offset by lower volumes of Eviva handpieces. We also experienced a decline in revenue from international sales denominated in foreign currencies from the unfavorable foreign currency exchange impact of the strengthened U.S. dollar against a number of currencies. 37Table of ContentsGYN Surgical product revenues increased 15.1% in fiscal 2023 compared to fiscal 2022, primarily due to increases in the sales volume of our MyoSure devices, Fluent Fluid Management disposables and NovaSure devices as procedure rates continue to recover from the impact of the COVID-19 pandemic and to a lesser extent an increase in sales volume of our CoolSeal vessel sealers from the Bolder acquisition as we expand physician adoption. Partially offsetting this increase was the negative effect on revenue from international sales denominated in foreign currencies from the unfavorable foreign currency exchange impact of the strengthened U.S. dollar against a number of currencies. Skeletal Health product revenues increased 21.9% in fiscal 2023 compared to fiscal 2022 primarily due to an increase in sales volume of our Horizon DXA systems and to a lesser extent our InSight FD Fluoroscan systems and system upgrades. The sales volume increase was largely attributable to the easing of supply chain constraints.Product revenues by geography as a percentage of total revenues were as follows: Years ended September 30,2023September 24,2022United States74.0 %69.4 %Europe13.9 %19.7 %Asia-Pacific6.6 %7.7 %Rest of World5.5 %3.2 %100.0 %100.0 %The percentage of product revenue derived from the U.S. increased while Europe and Asia-Pacific decreased, which we primarily attribute to the significant increase in the U.S. of Breast Health capital equipment sales and related workflow products including software, and increases in Aptima assay sales (exclusive of our Aptima SARS-CoV-2 assays), Surgical devices and disposables including MyoSure, Fluent, and CoolSeal, as well as a lesser decline in SARS-CoV-2 assay volume in the U.S. compared to Europe and Asia-Pacific. Product revenue decreased in China in the current year which we primarily attribute to surges of COVID-19 and related shutdowns in the first six months of the current year, which primarily impacted the sale of our Diagnostics products (excluding SARS-CoV-2 assays) and digital mammography systems. The percentage of product revenue increased in Rest of World in the current year primarily due to an increase in Breast Health capital equipment sales and to a lesser extent Surgical sales for Canada, the Middle East, and Latin America, partially offset by a decrease in SARS-CoV-2 assay volumes in the Rest of World.Service and Other Revenues Years Ended September 30, 2023September 24, 2022Change Amount% of TotalRevenueAmount% of TotalRevenueAmount%Service and Other Revenues$750.5 18.6 %$671.6 13.8 %$78.9 11.7 %Service and other revenues are primarily comprised of revenue generated from our field service organization to provide ongoing service, installation and repair of our products. The majority of these revenues are generated within our Breast Health segment. Service and other revenues increased 11.7% in fiscal 2023 compared to fiscal 2022 primarily due to the continued conversion of a high percentage of our installed base of digital mammography systems to service contracts upon expiration of the warranty period, and to a lesser extent an increase in spare parts and installation and training revenue related to an increase in sales of our mammography systems. In the current year, revenues were also higher from the extra week of service contract activity, resulting in $7.9 million of incremental revenue. In our Diagnostics business, service revenue increased as a result of higher lab testing volumes from our Biotheranostics CLIA laboratory, which we primarily attribute to market acceptance from increased marketing efforts and improved customer experience.Cost of Product Revenues38Table of Contents Years Ended September 30, 2023September 24, 2022Change Amount% of ProductSalesAmount% of ProductSalesAmount%Cost of Product Revenues$1,184.3 36.1 %$1,166.1 27.8 %$18.2 1.6 %Amortization of Acquired Intangible Assets205.7 6.3 %295.7 7.1 %(90.0)(30.4)%Impairment of Acquired Intangible Assets and Equipment179.5 5.5 %17.4 0.4 %162.1 **$1,569.5 47.9 %$1,479.2 35.3 %$90.3 6.1 %** Percentage not meaningfulProduct gross margin was 52.1% in fiscal 2023 compared to 64.7% in fiscal 2022. Cost of Product Revenues. The cost of product revenues as a percentage of product revenues was 36.1% in the current year compared to 27.8% in the prior year. Cost of product revenues as a percentage of revenue increased in fiscal 2023 primarily due to a decrease in sales of our SARS-CoV-2 assays, which have higher gross margins compared to our other Diagnostic products and comprised 7.6% and 34.1% of total product revenue in fiscal 2023 and fiscal 2022, respectively. Higher product costs from supply chain constraints and inflation also contributed to the increase in the cost of product revenue. This increase was partially offset by higher sales of our digital mammography systems and related software products.Diagnostics' product costs as a percentage of revenue increased in fiscal 2023 compared to fiscal 2022 primarily due to lower sales of our SARS-CoV-2 assays, a slight decline in average selling prices of certain assays, a $24.7 million charge recorded in the fourth quarter to write-off inventory related to a certain product line discontinuance, unfavorable manufacturing variances at certain of our manufacturing facilities and higher field service costs for our expanded instrument installed base. Partially offsetting this increase was lower sales of instruments, which carry low margins, an increase in sales of our Aptima, Fusion, and Quant Viral assays, and lower freight costs internationally.Breast Health’s product costs as a percentage of revenue decreased in fiscal 2023 compared to fiscal 2022 primarily due to higher sales volumes of our higher margin products, primarily 3D Dimensions, and improved manufacturing utilization partially offset by a slight decline in average selling prices of our biopsy disposables due to competitive pressures, and higher prices of raw materials and components from supply chain constraints and inflation. Also partially offsetting the decrease in product costs as a percentage of revenue was an increase in inventory reserves and freight.GYN Surgical’s product costs as a percentage of revenue increased slightly in fiscal 2023 compared to fiscal 2022 primarily due to product mix of higher volumes of lower margin products, mostly attributable to sales of our Fluent Fluid Management systems, CoolSeal vessel sealers and scopes, partially offset by an increase in volume of higher margin products, primarily MyoSure and NovaSure, as procedure rates continue to recover from the impact of the COVID-19 pandemic and higher average selling prices of our NovaSure V5 device.Skeletal Health’s product costs as a percentage of revenue decreased in fiscal 2023 compared to fiscal 2022 primarily due to higher sales volumes of our Horizon DXA systems, upgrades and Insight FD systems as well as an increase in average selling prices of our Horizon DXA systems, partially offset by a decrease in average selling prices of our Insight FD systems and higher component costs from supply chain constraints and inflation.Amortization of Acquired Intangible Assets. Amortization of intangible assets included in cost of product revenues relates to acquired developed technology, which is generally amortized over its estimated useful life of between 5 and 15 years using a straight-line method or, if reliably determinable, based on the pattern in which the economic benefits of the assets are expected to be consumed. Amortization expense decreased in fiscal 2023 compared to fiscal 2022 primarily due to lower amortization of intangible assets acquired in the Cytyc acquisition which became fully amortized in the beginning of the first quarter of fiscal 2023 and to a lesser extent, lower amortization of intangible assets acquired in the Mobidiag and SSI acquisitions due to impairment charges recorded in the third quarter of fiscal 2023, and lower amortization of intangible assets acquired in the Focal and Faxitron acquisitions due to impairments in the prior year.39Table of ContentsImpairment of Intangible Assets and Equipment. During the third quarter of fiscal 2023, in connection with our company-wide annual budgeting and strategic planning process as well as evaluating the current operating performance of our Mobidiag business (included in the Diagnostics reportable segment), including product design and manufacturing requirements, we reassessed the short-term and long-term commercial plans for this business. We made certain operational and strategic decisions to invest and focus more on the long-term success of this business, which resulted in the significant reduction of forecasted revenues and operating results. As a result, we determined indicators of impairment existed and performed an undiscounted cash flow analysis pursuant to ASC 360, Property, Plant, and Equipment - Overall, to determine if the cash flows expected to be generated by the Mobidiag business over the estimated remaining useful life of its primary asset were sufficient to recover the carrying value of the asset group. Based on this analysis the undiscounted cash flows were not sufficient to recover the carrying value of the long-lived assets. Therefore, we were required to perform Step 3 of the impairment test and determine the fair value of the asset group. To estimate the fair value of the asset group, we utilized the income approach, which is based on a discounted cash flow (DCF) analysis and calculates the fair value by estimating the after-tax cash flows attributable to the asset group and then discounting the after-tax cash flows to present value using a risk-adjusted discount rate. Assumptions used in the DCF require significant judgment, including judgment about appropriate discount rates, growth rates, and the amount and timing of expected future cash flows. The forecasted cash flows were based on our most recent strategic plan and for periods beyond the strategic plan, our estimates were based on assumed growth rates expected as of the measurement date. We believe the assumptions were consistent with the plans and estimates that a market participant would use to manage the business. The discount rate used is intended to reflect the risks inherent in future cash flow projections and was based on an estimate of the weighted average cost of capital (WACC) of market participants relative to the asset group. We used a discount rate of 17.0%. As a result of this analysis, the fair value of the Mobidiag asset group was below its carrying value. To record the asset group to fair value, we recorded an impairment charge of $186.9 million during the third quarter of fiscal 2023. The impairment charge was allocated to the long-lived assets on a pro-rata basis and $153.7 million of developed technology assets and $9.1 million of equipment was written off to cost of product revenues. Prior to recording this impairment charge, we determined that the in-process research and development asset (“IPR&D”) recorded in connection with the Mobidiag acquisition was impaired and based on its fair value determined utilizing the DCF, we recorded an impairment charge of $10.5 million in the third quarter of fiscal 2023. We believe our assumptions used to determine the fair value of the asset group were reasonable. Actual operating results and the related cash flows of the asset group could differ from the estimated operating results and related cash flows. In the event the asset group does not meet its forecasted projections, additional impairment charges could be recorded in the future.In addition to the impairment charges discussed above, we also identified indicators of impairment related to our SSI ultrasound imaging business (included in the Breast Health reportable segment). We determined that the fair value of this asset group was approximately zero and the carrying value of the long-lived assets was fully impaired. As a result, we recorded an impairment charge of $26.4 million. The impairment charge was allocated to the long-lived assets and $16.7 million of developed technology assets were written off to cost of product revenues.In fiscal 2022, we determined that certain developed technology assets acquired in the Focal and Faxitron acquisitions were impaired as a result of the decision to cease selling certain low volume products. As a result, we recorded an impairment charge of $17.4 million to write-off these developed technology assets. Cost of Service and Other Revenues Years Ended September 30, 2023September 24, 2022Change Amount% of Serviceand OtherRevenuesAmount% of Serviceand OtherRevenuesAmount%Cost of Service and Other Revenues$389.4 51.9 %$386.2 57.5 %$3.2 0.8 %Service and other revenues gross margin was 48.1% in fiscal 2023 compared to 42.5% in fiscal 2022. The increase in gross margin was primarily due to an increase in lab testing revenue from our Biotheranostics business, which has higher margins than our legacy service business, and an increase in the average selling prices and attachment rates of our Breast Health service contracts and time and material billings.Operating Expenses40Table of Contents Years Ended September 30, 2023September 24, 2022Change Amount% of TotalRevenueAmount% of TotalRevenueAmount%Operating ExpensesResearch and development$294.3 7.3 %$283.4 5.8 %$10.9 3.8 %Selling and marketing595.2 14.8 %630.3 13.0 %(35.1)(5.6)%General and administrative392.4 9.7 %407.7 8.4 %(15.3)(3.8)%Amortization of acquired intangible assets28.1 0.7 %45.2 0.9 %(17.1)(37.8)%Impairment of intangible assets and equipment44.3 1.1 %27.7 0.6 %16.6 59.9 %Contingent consideration—fair value adjustments(14.9)(0.4)%(39.5)(0.8)%24.6 (62.3)%Loss on assets held-for-sale51.7 1.3 %— — %51.7 **Restructuring and divestiture charges12.0 0.3 %2.4 — %9.6 400.0 %$1,403.1 34.8 %$1,357.2 27.9 %$45.9 3.4 %** Percentage not meaningfulResearch and Development Expenses. Research and development expenses increased 3.8% in fiscal 2023 compared to fiscal 2022 primarily due to an increase in compensation and benefits primarily from our deferred compensation plan and an extra week of expenses in the current fiscal year and an increase in Breast Health as the prior year period included a $5.2 million credit for the release of a research and development tax credit reserve related to the SSI acquisition. This increase was partially offset by a reduction in expenses to implement the European Medical Device Regulation (MDR) and In Vitro Diagnostic Regulation (IVDR) requirements. At any point in time, we have a number of different research projects and clinical trials being conducted and the timing of these projects and related costs can vary from period to period.Selling and Marketing Expenses. Selling and marketing expenses decreased 5.6% in fiscal 2023 compared to fiscal 2022 primarily due to lower spending on advertising and marketing initiatives as the prior year included a significantly larger sponsorship amount in fiscal 2022 for the Women's Tennis Association, the airing of our Super Bowl commercial, and grants supporting women’s health initiatives. These decreases were partially offset by higher compensation and benefits primarily driven by higher commissions from the increase in Breast Health and GYN Surgical sales, an increase in headcount, higher expense from our deferred compensation plan and an extra week of expenses in the current fiscal year, and to a lesser extent higher travel and meeting expenses.General and Administrative Expenses. General and administrative expenses decreased 3.8% in fiscal 2023 compared to fiscal 2022 primarily due to a decrease in charitable donations of $23.0 million, a $7.4 million settlement awarded to Hologic in the Minerva litigation received in the first quarter of fiscal 2023, and lower tax consulting and legal expenses. These decreases were partially offset by an increase in compensation and benefits from higher expense from our deferred compensation plan due to stock market gains and an increase in stock compensation, an $8.9 million charge to settle a business dispute in connection with terminating the Mobidiag joint venture agreement in China, an increase in information systems infrastructure and facilities costs, an increase in reserves for sales and use tax matters, higher travel, and higher compensation and benefits from the extra week in the current fiscal year.Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets primarily results from customer relationships and trade names related to our acquisitions. These intangible assets are generally amortized over their estimated useful lives of between 5 and 30 years using a straight-line method or, if reliably determinable, based on the pattern in which the economic benefits of the assets are expected to be consumed utilizing expected undiscounted future cash flows. Amortization expense decreased 37.8% in fiscal 2023 compared to fiscal 2022 primarily due to assets from our Cytyc acquisition becoming fully amortized at the beginning of the first quarter of fiscal 2023.Impairment of Intangible Assets and Equipment. As discussed above, we recorded an aggregate impairment charge of $197.4 million in the third quarter of fiscal 2023 related to our Mobidiag acquisition and $26.4 million related to our SSI ultrasound imaging assets. The impairment charges were allocated to the long-lived assets and written off to operating expenses as follows: Mobidiag - $10.5 million to IPR&D, $10.4 million to customer relationships, $10.7 million to trade names, and $3.0 41Table of Contentsmillion to equipment; Ultrasound Imaging - $2.4 million to customer relationships, $1.7 million to trade names, and $5.6 million to equipment.Contingent Consideration Fair Value Adjustments. In connection with the acquisition of Acessa Health, Inc., or Acessa, we are obligated to make contingent earn-out payments. The payments are based on achieving incremental revenue growth over a three-year period ending annually in each of December 2021, 2022, and 2023. As of the acquisition date, we recorded a contingent consideration liability for the estimated fair value of the amount we expected to pay to the former shareholders of the acquired business. This liability is not contingent on future employment, and we recorded our estimate of the fair value of the contingent consideration liability utilizing the Monte Carlo simulation based on future revenue projections of Acessa, comparable company revenue growth rates, implied volatility and applying a risk adjusted discount rate. Increases or decreases in the fair value of contingent consideration liabilities can result from the passage of time, changes in discount rates, and changes in the timing, probabilities and amount of revenue estimates. In the current year, we recorded a gain of $14.9 million based on a decrease in forecasted revenues over the remaining earn-out period. In fiscal 2022, we recorded a gain of $39.5 million primarily due to a reduction in forecasted revenues over the measurement period and to a lesser extent an increase in the discount rate from higher market interest rates.Loss on Assets Held-For-Sale. As discussed above, we recorded a charge of $51.7 million in the fourth quarter of fiscal 2023 related to our SSI ultrasound imaging assets to record the asset group to fair value less the costs to sell.Restructuring Charges. We have implemented various cost reduction initiatives to align our cost structure with our operations and related to integration activities. These actions have primarily resulted in the termination of employees. As a result, we recorded charges of $12.0 million in fiscal 2023 and $2.4 million in fiscal 2022, primarily related to severance benefits. For additional information, please refer to Note 7 to our consolidated financial statements.Interest Income Years Ended September 30, 2023September 24, 2022Change AmountAmountAmount%Interest Income$120.5 $12.9 $107.6 834.1 %Interest income in fiscal 2023 increased significantly compared to fiscal 2022 due to the significant increase in market interest rates over the past eighteen months as the U.S. Federal Reserve began periodically raising its Federal Funds Rate starting in March 2022. To a lesser extent, the increase in interest income was due to higher average cash balances in the current year compared to the prior year. Interest Expense Years Ended September 30, 2023September 24, 2022Change AmountAmountAmount%Interest Expense$(111.1)$(95.1)$(16.0)16.8 %Interest expense in fiscal 2023 and 2022 primarily consisted of the cash interest costs and the related amortization of the debt discount and deferred issuance costs on our outstanding debt. Interest expense increased in fiscal 2023 compared to fiscal 2022 primarily due to an increase in the variable interest rate under our 2021 Credit Agreement based on SOFR, partially offset by $35.4 million received under an interest rate swap agreement, which hedges the benchmark interest rate, versus payments of $4.9 million under the interest rate swap in the prior year period. In addition, the prior year interest expense included debt refinancing costs for our 2021 Credit Agreement, and interest expense related to debt acquired in the Mobidiag acquisition which was paid off in the prior year. Other Income (Expense), net Years Ended September 30, 2023September 24, 2022Change AmountAmountAmount%Other Income (Expense), net$(1.7)$30.9 $(32.6)(105.5)%In fiscal 2023, this account primarily consisted of net foreign currency exchange losses of $7.9 million, primarily from the mark-to-market of foreign currency contracts used to hedge operating results, partially offset by a gain of $5.6 million from 42Table of Contentsthe change in cash surrender value of life insurance contracts related to our deferred compensation plan driven by stock market gains.In fiscal 2022, this account primarily consisted of net foreign currency exchange gains of $48.5 million, primarily from settling forward foreign currency hedging transactions and mark-to-market of outstanding foreign currency contracts, and a $2.4 million gain on life insurance proceeds as a result of the death of a former employee, partially offset by a loss of $12.2 million from the change in cash surrender value of life insurance contracts related to our deferred compensation plan primarily driven by stock market losses, a $4.0 million impairment charge of an equity investment and a charge of $4.3 million to write-off an equity method investment acquired in the Mobidiag acquisition.Provision for Income Taxes Years Ended September 30, 2023September 24, 2022Change AmountAmountAmount%Provision for Income Taxes$220.1 $286.2 $(66.1)(23.1)%Our effective tax rate for fiscal 2023 was a provision of 32.6%. The effective tax rate was higher than the U.S. statutory tax rate primarily due to the tax effect of the SSI ultrasound imaging assets-held-for-sale charge, income tax reserves, the global intangible low-taxed income inclusion, and state income taxes, partially offset by the impact of the U.S. deduction for foreign derived intangible income, and the geographic mix of income earned by our international subsidiaries, which are taxed at rates lower than the U.S. statutory tax rate.Our effective tax rate for fiscal 2022 was a provision of 18.0%. The effective tax rate was lower than the U.S. statutory tax rate primarily due to the impact of the U.S. deduction for foreign derived intangible income, reserve releases resulting from statute of limitations expirations and favorable audit settlements (net of reserve additions for uncertain tax positions), the geographic mix of income earned by the Company's international subsidiaries, which are taxed at rates lower than the U.S. statutory tax rate and a tax benefit related to an internal restructuring, partially offset by state income taxes and the global intangible low-taxed income inclusion.Segment Results of OperationsWe operate in four segments: Diagnostics, Breast Health, GYN Surgical, and Skeletal Health. The accounting policies of the segments are the same as those described in the footnotes to the accompanying consolidated financial statements contained in Item 15 of this Annual Report. We measure segment performance based on total revenues and operating income (loss). Revenues from product sales of each of these segments are described in further detail above. The discussion that follows is a summary analysis of total revenues and the primary changes in operating income or loss by segment. Diagnostics Years Ended September 30, 2023September 24, 2022Change AmountAmountAmount%Total Revenues$1,880.1 $3,018.5 $(1,138.4)(37.7)%Operating Income$193.9 $1,359.4 $(1,165.5)(85.7)%Operating Income as a % of Segment Revenue10.3 %45.0 %Diagnostics revenues decreased in fiscal 2023 compared to fiscal 2022 primarily due to the decrease in product revenues discussed above, partially offset by higher lab testing revenue from our Biotheranostics business.Operating income for this business segment decreased in fiscal 2023 compared to fiscal 2022 primarily due to a decrease in gross profit from lower SARS-CoV-2 assay sales and the Mobidiag impairment charges of $197.4 million recorded in the third quarter discussed above. Gross margin was 44.7% in the current year compared to 67.1% in the prior year. The decrease in gross margin was primarily due to decreased sales of our SARS-CoV-2 assays which have a higher margin, a slight decline in average selling prices of certain assays, the impairment charges discussed above of which $162.8 million was included in costs of revenues, a $24.7 million charge to write-off inventory related to a product line discontinuance, unfavorable manufacturing variances at certain of our manufacturing facilities and higher field service costs from our expanded instrument installed base, partially offset by increases in core Aptima assay and ThinPrep Pap Test volumes, higher lab testing revenue and a $41.4 million decrease in intangible asset amortization expense as assets acquired in the Cytyc acquisition became fully amortized in the current year. Also partially offsetting the decrease was an increase in Fusion respiratory and Quant Viral assay volumes in the current fiscal year and lower freight costs internationally.43Table of ContentsOperating expenses decreased in fiscal 2023 compared to fiscal 2022 primarily due to a decrease in marketing expenses and allocated advertising and charitable donations, a decrease in intangible asset amortization expense, and a decrease in commissions and bonus as well as lower consulting costs. Partially offsetting these decreases was the impairment charge discussed above of which $34.6 million was included in operating expenses, a settlement charge of $8.9 million related to the termination of the Mobidiag joint venture in China, an increase in compensation and benefits from the extra week in the current fiscal year, an increase in facilities cost and an increase in travel expenses.Breast Health Years Ended September 30, 2023September 24, 2022Change AmountAmountAmount%Total Revenues$1,432.7 $1,227.8 $204.9 16.7 %Operating Income$273.0 $183.2 $89.8 49.0 %Operating Income as a % of Segment Revenue19.1 %14.9 %Breast Health revenues increased in fiscal 2023 compared to fiscal 2022 primarily due to an increase in product and service revenue discussed above.Operating income for this business segment increased in fiscal 2023 compared to fiscal 2022 primarily due to an increase in gross profit from both product sales and services, partially offset by an increase in operating expenses. Gross margin was 54.8% in the current year compared to 51.9% in the prior year. The increase in gross margin is primarily due to higher volumes of our capital equipment and related software sales, and interventional breast solutions devices, an increase in service margin from the continued conversion of digital mammography systems to service contracts and to a lesser extent the extra week in the current fiscal year and an increase in the average selling prices and attachment rates of our service contracts. These increases were partially offset by the impairment charges related to our SSI ultrasound imaging business discussed above, of which $16.7 million was included in cost of revenues, and higher costs for raw materials and components from supply chain constraints and inflation, and a slight decline in average selling prices of our biopsy disposables. We also had an increase in inventory reserves and freight in the current year.Operating expenses increased in fiscal 2023 compared to fiscal 2022 primarily due to the loss on assets-held-for-sale of $51.7 million and impairment charges related to our SSI ultrasound imaging business discussed above, of which $9.7 million was included in operating expenses, an increase in commissions from higher sales, an increase in travel and meeting expense and higher restructuring costs, partially offset by a decrease due to the release of the research and development credit reserve related to the SSI acquisition and a decrease in marketing initiatives, allocated advertising and charitable contributions. In addition, there was an increase in compensation and benefits from the extra week in the current year.GYN Surgical Years Ended September 30, 2023September 24, 2022Change AmountAmountAmount%Total Revenues$604.2 $522.9 $81.3 15.5 %Operating Income$188.9 $104.9 $84.0 80.1 %Operating Income as a % of Segment Revenue31.3 %20.1 %GYN Surgical revenues increased in fiscal 2023 compared to fiscal 2022 due to the increase in product revenues discussed above. Operating income for this business segment increased in fiscal 2023 compared to fiscal 2022 primarily due to an increase in gross profit offset by an increase in operating expenses. Gross margin was 67.7% in the current year, compared to 59.2% in the prior year. The increase in gross margin was primarily due to a decrease in intangible asset amortization expense of $41.2 million in the current year as assets acquired in the Cytyc acquisition became fully amortized, an increase in volume of higher margin products, primarily MyoSure and NovaSure, as procedure rates continue to recover from the impact of the COVID-19 pandemic and higher average selling prices of our NovaSure V5 device. These increases were partially offset by higher volumes of lower margin products, mostly attributable to sales of our Fluent Fluid Management systems, CoolSeal vessel sealers and scopes.44Table of ContentsOperating expenses increased in fiscal 2023 compared to fiscal 2022 primarily due to a gain of $39.5 million recorded in the prior fiscal year compared to a gain of $14.9 million recorded in the current year to decrease the Acessa contingent consideration liability to fair value. In addition, we had an increase in compensation and benefits primarily due to an increase in commissions and higher salaries from an increase in headcount as well as an increase in travel expenses. Partially offsetting these increases was a gain of $7.4 million for infringement damages from the Minerva litigation, which was recorded as a credit to general and administrative expenses, a decrease in intangible asset amortization expense, lower R&D project spend, and lower marketing initiative spend and allocated advertising and charitable donations.Skeletal Health Years Ended September 30, 2023September 24, 2022Change AmountAmountAmount%Total Revenues$113.4 $93.6 $19.8 21.2 %Operating Income (Loss)$12.6 $(7.3)$19.9 272.6 %Operating Loss as a % of Segment Revenue11.1 %(7.8)%Skeletal Health revenues increased in fiscal 2023 compared to fiscal 2022 primarily due to the increase in product revenues as discussed above and to a lesser extent the increase in service contract revenue from the extra week in the current fiscal year.Operating income increased in fiscal 2023 compared to fiscal 2022 primarily due to an increase in gross profit and a decrease in operating expenses. Gross margin was 32.2% in the current year compared to 28.2% in the prior year. The increase in gross margin was primarily due to higher sales volumes of our Horizon DXA, Insight FD systems, and system upgrades and an increase in the average selling prices of our Horizon DXA systems, partially offset by increased costs from supply chain constraints and inflation.Operating expenses decreased in fiscal 2023 compared to fiscal 2022 primarily due to a decrease in marketing initiatives and research and development project spend.Fiscal Year Ended September 24, 2022 Compared to Fiscal Year Ended September 25, 2021Discussions of year-to-year comparisons between fiscal 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 24, 2022.LIQUIDITY AND CAPITAL RESOURCESAt September 30, 2023, we had working capital of $2,977.2 million, and our cash and cash equivalents totaled $2,722.5 million. Our cash and cash equivalents balance increased by $416.2 million during fiscal 2023 principally due to cash generated from operating activities partially offset by cash used in investing and financing activities primarily related to repurchases of our common stock and capital expenditures.In fiscal 2023, our operating activities provided cash of $1,051.2 million, primarily due to net income of $456.0 million, non-cash charges for depreciation and amortization aggregating $323.4 million, intangible asset equipment impairment charges of $223.8 million, stock-based compensation expense of $79.6 million, and a loss on assets held-for-sale related to the SSI ultrasound imaging business of $51.7 million. These adjustments to net income were partially offset by a decrease in net deferred taxes of $109.1 million primarily due to the capitalization of research expenditures under the tax rules and to a lesser extent the amortization and impairments of intangible assets. Cash provided by operations included a net cash inflow of $11.8 million from changes in our operating assets and liabilities. The net cash inflow was primarily driven by a decrease in prepaid expenses and other assets of $23.6 million primarily due to normal amortization related to the Women’s Tennis Association sponsorship and service and software subscriptions, a decrease in prepaid income taxes of $17.4 million primarily due to the timing of tax payments relative to the provision for income taxes, and an increase in deferred revenue of $14.4 million primarily due to billings for annual service contracts under our expanded installed base of digital mammography systems. These cash inflows were partially offset by a decrease in accounts payable of $23.0 million primarily due to timing of payments and a decrease in accrued expenses of $14.2 million primarily due to a decrease in accrued compensation and benefits for annual bonuses and timing of payroll versus the prior year, and a decrease in professional services partially offset by an increase of value-added tax payments primarily due to timing. In fiscal 2023, our investing activities used cash of $152.1 million primarily due to capital expenditures of $150.2 million, which primarily consisted of the placement of equipment under customer usage agreements and purchase of 45Table of Contentsmanufacturing equipment and building improvements primarily related to the build out of our Newark facility for the transfer of our Breast Health capital equipment manufacturing operations, and to a lesser extent the build out of our new innovation center and Biotheranostics CLIA laboratory at our San Diego facility, and $10.0 million for the purchase of an equity investment. These uses of cash were partially offset by a final reimbursement of $20.5 million received from the Department of Defense under a grant to increase production capacity of our two SARS-CoV-2 assays. In fiscal 2023, our financing activities used cash of $483.2 million, primarily due to $474.8 million for repurchases of our common stock, $24.0 million for the payment of employee taxes withheld for the net share settlement of vested restricted stock units, $15.0 million for debt principal payments under our 2021 Credit Agreement and a $7.6 million contingent consideration payment related to the Acessa Health acquisition. Partially offsetting these uses of cash was $43.0 million from our equity plans from the exercise of stock options and issuance of shares under our employee stock purchase plan.DebtWe had total recorded debt outstanding of $2.82 billion at September 30, 2023, which was comprised of amounts outstanding under our 2021 Credit Agreement of $1.48 billion (principal of $1.49 billion), 2029 Senior Notes of $938.8 million (principal of $950.0 million), and 2028 Senior Notes of $396.8 million (principal of $400.0 million). 2021 Credit Agreement On September 27, 2021, we refinanced our existing term loan and revolving credit facility with Bank of America, N.A. in its capacity as Administrative Agent, Swing Line Lender and L/C Issuer, and certain other lenders from time to time party thereto (the “2018 Credit Agreement”) by entering into Refinancing Amendment (the “2021 Credit Agreement”). Borrowings under the 2021 Credit Agreement are secured by first-priority liens on, and a first priority security interest in, substantially all of our and our Subsidiary Guarantors’ U.S. assets. The credit facilities (the “2021 Credit Facilities”) under the 2021 Credit Agreement consist of:•A $1.5 billion secured term loan (“2021 Term Loan”) with a stated maturity date of September 25, 2026; and•A secured revolving credit facility (the “2021 Revolver”) under which the Borrowers may borrow up to $2.0 billion, subject to certain sublimits, with a stated maturity date of September 25, 2026.As of September 30, 2023, there were no borrowings under the 2021 Revolver. On August 22, 2022, we further amended the 2021 Credit Agreement (the “Third Amendment”) related to the planned phase out of LIBOR by the UK Financial Conduct Authority. Under this amendment, the interest rate applicable to the loans under the 2021 Credit Agreement denominated in U.S. dollars were converted to a variant of the secured overnight financing rate (“SOFR”) plus an applicable spread.Borrowings under the 2021 Credit Agreement, other than Swing Line Loans, bear interest, at our option, at the Base Rate, at the Term SOFR Rate, at the Alternative Currency Daily Rate, or at the Daily SOFR Rate, in each case plus the Applicable Rate.The Applicable Rate in regard to the Base Rate, the Term SOFR Rate, the Alternative Currency Daily Rate, the Alternative Currency Term Rate and the Daily SOFR Rate is subject to change depending on the Total Net Leverage Ratio (as defined in the 2021 Credit Agreement). As of September 30, 2023, the interest rate under the 2021 Term Loan was 6.42% per annum.We are also required to pay a quarterly commitment fee calculated on a daily basis equal to the Applicable Rate as of such day multiplied by the undrawn committed amount available under the Revolver. As of September 30, 2023, this commitment fee was 0.15% per annum for the 2021 Revolver.We are required to make scheduled principal payments under the 2021 Term Loan in increasing amounts ranging from $3.75 million per three-month period commencing with the three-month period ending on December 29, 2022 to $18.75 million per three-month period commencing with the three-month period ending on December 26, 2025. The remaining scheduled balance of $1.335 billion (or such lesser aggregate principal amount of the Term Loans then outstanding) on the 2021 Term Loan and any amounts outstanding under the 2021 Revolver are due at their respective maturities. In addition, subject to the terms and conditions set forth in the 2021 Credit Agreement, we may be required to make certain mandatory prepayments from the net proceeds of specified types of asset sales (subject to certain reinvestment rights), debt issuances (excluding permitted debt) and insurance recoveries (subject to certain reinvestment rights). Certain of the mandatory prepayments are subject to reduction or elimination if certain financial covenants are met. Subject to certain limitations, we may voluntarily prepay any of the 2021 Credit Facilities without premium or penalty. As of September 30, 2023, the outstanding principal balance of the 2021 46Table of ContentsTerm Loan was $1.5 billion. On October 27, 2023 (in the first quarter of fiscal 2024), we made a $250.0 million voluntary prepayment on the 2021 Term Loan.The 2021 Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants restricting our ability subject to negotiated exceptions, to incur additional indebtedness and grant additional liens on our assets, engage in mergers or acquisitions or dispose of assets, enter into sale-leaseback transactions, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of our business. In addition, the 2021 Credit Agreement requires the Borrowers to maintain certain financial ratios. The 2021 Credit Agreement also contains customary representations and warranties and events of default, including payments defaults, breach of representations and warranties, covenant defaults, cross defaults and an event of default upon a change of control of the company. The 2021 Credit Agreement contains two financial covenants (a total net leverage ratio and an interest coverage ratio) measured as of the last day of each quarter for the previous twelve-month period. As of September 30, 2023, we were in compliance with these covenants.2028 Senior NotesThe total aggregate principal balance of the 2028 Senior Notes is $400.0 million. The 2028 Senior Notes are general senior unsecured obligations and are guaranteed on a senior unsecured basis by certain of our domestic subsidiaries. The 2028 Senior Notes mature on February 1, 2028 and bear interest at the rate of 4.625% per year, payable semi-annually on February 1 and August 1 of each year. We have the option to redeem the 2028 Senior Notes on or after: February 1, 2023 through February 1, 2024 at 102.312% of par; February 1, 2024 through February 1, 2025 at 101.541% of par; February 1, 2025 through February 1, 2026 at 100.770% of par; and February 1, 2026 and thereafter at 100% of par. In addition, if there is a change of control coupled with a decline in ratings, as provided in the indenture, we will be required to make an offer to purchase each holder’s 2028 Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.2029 Senior Notes The total aggregate principal balance of the 2029 Senior Notes is $950.0 million. The 2029 Senior Notes are general senior unsecured obligations and are guaranteed on a senior unsecured basis by certain domestic subsidiaries. The 2029 Senior Notes mature on February 15, 2029 and bear interest at the rate of 3.250% per year, payable semi-annually on February 15 and August 15 of each year. We have the option to redeem the 2029 Senior Notes on or after: September 28, 2023 through September 27, 2024 at 101.625% of par; September 28, 2024 through September 27, 2025 at 100.813% of par; and September 28, 2025 and thereafter at 100% of par. In addition, if there is a change of control coupled with a decline in ratings, as provided in the indenture, we will be required to make an offer to purchase each holder’s 2029 Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.Contingent Consideration Earn-Out PaymentsIn connection with certain of our acquisitions, we have incurred the obligation to make contingent earn-out payments tied to performance criteria, principally revenue growth of the acquired business over a specified period. In addition, contractual provisions relating to these contingent earn-out obligations may result in the risk of litigation relating to the calculation of the amount due or our operation of the acquired business. Such litigation could be expensive and divert management attention and resources. Our obligation to make contingent payments may also result in significant operating expenses.Contingent consideration arrangements are recorded as either additional purchase price or compensation expense if continuing employment is required to receive such payments. Pursuant to ASC 805, Business Combinations, contingent consideration that is deemed to be part of the purchase price is recorded as a liability based on the estimated fair value of the consideration we expect to pay to the former shareholders of the acquired business as of the acquisition date. This liability is re-measured each reporting period with the change in fair value recorded through a separate line item within our Consolidated Statements of Income. Increases or decreases in the fair value of contingent consideration liabilities can result from changes in discount rates, changes in the timing, probabilities and amount of revenue estimates, and accretion of the liability for the passage of time. 47Table of ContentsOur contingent consideration liability is primarily related to our Acessa acquisition. We have an obligation to the former Acessa shareholders to make contingent payments based on a multiple of annual incremental revenue growth over a three-year period ending annually in December. There is no maximum earnout. Pursuant to ASC 805, Business Combinations, the contingent consideration was deemed to be part of the purchase price, and we recorded our estimate of the fair value of the contingent consideration liability utilizing the Monte Carlo simulation based on future revenue projections of the business, comparable companies’ revenue growth rates, implied volatility and applying a risk adjusted discount rate. The first earn-out period was completed in December 2021, and we paid $12.2 million to the former shareholders in the second quarter of fiscal 2022. The second earn-out period was completed in December 2022, resulting in a payment amount of $7.6 million in the second quarter of fiscal 2023. During fiscal 2023, we updated our forecasted revenue and recorded a gain of $14.9 million to record the liability to fair value. The reduction in fair value was primarily due to a decrease in forecasted revenues. As of September 30, 2023 this liability was recorded at its fair value of $0.9 million.Stock Repurchase ProgramOn September 22, 2022, our Board of Directors authorized a new stock repurchase program, with a five-year term, to repurchase up to $1.0 billion of our outstanding common stock, effective as of the close of trading on September 23, 2022. During fiscal 2023, we repurchased 6.8 million shares of our common stock for a total consideration of $501.4 million. As of September 30, 2023, $498.6 million remained authorized for repurchase. Subsequent to September 30, 2023, we repurchased 2.2 million shares of our common stock for a total consideration of $150.0 million. On November 6, 2023, the Board of Directors authorized the Company to repurchase up to $500 million of our outstanding shares pursuant to an accelerated share repurchase (ASR) agreement. On November 15, 2023, we executed the ASR agreement with Goldman Sachs & Co. (“Goldman Sachs”) pursuant to which we agreed to repurchase $500 million of the Company’s common stock. In connection with the launch of the ASR, on November 17, 2023, we paid Goldman Sachs an aggregate of $500 million and received approximately 5.6 million shares of our common stock, representing 80% of the transaction value based on our closing share price on November 14, 2023. The final number of shares to be received under the ASR agreement will be determined upon completion of the transaction and will be based on the total transaction value and the volume-weighted average share price of our common stock during the term of the transaction. Final settlement of the transaction is expected to be completed in the second quarter of fiscal 2024.The timing of any future share repurchases will be based upon our continuing analysis of market, financial, and other factors. Repurchases under the authorized share repurchase program may be made using a variety of methods, which may include, but are not limited to, open market purchases, privately negotiated transactions, accelerated share repurchase agreements, or purchases pursuant to a Rule 10b5-1 plan under the Exchange Act. The authorized share repurchase program may be suspended, delayed or discontinued at any time.Future Liquidity ConsiderationsWe expect to continue to review and evaluate potential strategic transactions that we believe will complement our current or future business. Subject to the “Risk Factors” set forth in Part I, Item 1A of this Annual Report and the general disclaimers set forth in our Special Note Regarding Forward-Looking Statements at the outset of this Annual Report, we believe that our cash and cash equivalents, cash flows from operations, and the cash available under our 2021 Revolver will provide us with sufficient funds in order to fund our expected normal operations and debt payments over the next twelve months. Our longer-term liquidity is contingent upon future operating performance. We may also require additional capital in the future to fund capital expenditures, repayment of debt, acquisitions, strategic transactions or other investments. As described above, we have significant indebtedness outstanding under our 2021 Credit Agreement, 2028 Senior Notes, and 2029 Senior Notes. These capital requirements could be substantial. Our operating performance may also be affected by matters discussed under the above-referenced Risk Factors set forth elsewhere in this report. These risks, trends and uncertainties may also adversely affect our long-term liquidity.Legal ContingenciesWe are currently involved in certain legal proceedings and claims. In connection with these legal proceedings and claims, management periodically reviews estimates of potential costs to be incurred by us in connection with the adjudication or settlement, if any, of these proceedings. These estimates are developed, as applicable in consultation with outside counsel, and are based on an analysis of potential litigation outcomes and settlement strategies. In accordance with ASC 450, Contingencies, loss contingencies are accrued if, in the opinion of management, an adverse outcome is probable and such financial outcome can be reasonably estimated. It is possible that future results for any particular quarter or annual period may be materially affected by changes in our assumptions or the effectiveness of our strategies relating to these proceedings.Guarantees and Other Off-Balance Sheet Arrangements48Table of ContentsWe do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, of a magnitude that we believe could have a material impact on our financial condition or liquidity.CRITICAL ACCOUNTING POLICIES AND ESTIMATESThe discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition for multiple element arrangements, allowance for doubtful accounts, reserves for excess and obsolete inventories, valuations, purchase price allocations and contingent consideration related to business combinations, expected future cash flows including growth rates, discount rates, terminal values and other assumptions used to evaluate the recoverability of long-lived assets and goodwill, estimated fair values of intangible assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, restructuring and other related charges, stock-based compensation, contingent liabilities, tax reserves and recoverability of our net deferred tax assets and related valuation allowances. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates if past experience or other assumptions do not turn out to be substantially accurate. Any differences may have a material impact on our financial condition and results of operations.The following is a discussion of what we believe to be the more significant critical accounting policies and estimates used in the preparation of our consolidated financial statements.InventoryOur inventories include material, labor and overhead, and are stated at the lower of cost (first-in, first-out) or net realizable value. As a developer and manufacturer of high technology medical equipment, diagnostic test kits, and disposable surgical devices, we may be exposed to a number of economic and industry factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage. Our policy is to establish inventory reserves when conditions exist that suggest that our inventory may be in excess of anticipated demand or is obsolete based upon our assumptions about future demand for our products and market conditions. Although considerable effort is made to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or expected usage could have a significant negative impact on the value of our inventory and our operating results.Business CombinationsWe record tangible and intangible assets acquired and liabilities assumed in business combinations under the purchase method of accounting. Amounts paid for each acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the dates of acquisition. Contingent consideration, which is not deemed to be linked to continuing employment, is recorded at fair value measured on the date of acquisition using an appropriate valuation model, such as the Monte Carlo simulation model. The value recorded is based on estimates of future financial projections under various potential scenarios, in which the model runs many simulations based on comparable companies' growth rates and their implied volatility. These cash flow projections are discounted with a risk adjusted rate. Each quarter until such contingent amounts are earned, the fair value of the liability is remeasured at each reporting period and adjusted as a component of operating expenses based on changes to the underlying assumptions. The estimates used to determine the fair value of the contingent consideration liability are subject to significant judgment, specifically projected revenues, and given the inherent uncertainties in making these estimates, actual results are likely to differ from the amounts originally recorded and could be materially different.The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management, which consider management’s best estimate of inputs and assumptions that a market participant would use. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. We generally use the income approach in which cash flow projections on an after-tax basis are discounted using a risk adjusted rate to determine the estimated fair value of certain identifiable intangible assets including developed technology, in-process research and development projects, customer relationships, and trade names. The significant assumptions used to estimate the fair value of intangible assets include discount rates and certain assumptions that form the basis of the forecasted results, specifically revenue growth rates. These significant assumptions are forward looking and could be affected by future economic and market conditions.With respect to property, plant and equipment, we estimate the fair value of these assets using a combination of the cost and market approaches, depending on the component. Generally, we apply the cost or income approach as the primary methods 49Table of Contentsin estimating the fair value of land and buildings as the market approach is less reliable based on potential significant differences between the property being valued and the potentially comparable sales of similar properties.GoodwillWe test goodwill at the reporting unit level for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Events that could indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in market capitalization, a significant adverse change in legal factors, business climate, operational performance of the business or key personnel, and an adverse action or assessment by a regulator. Our annual impairment test date is the first day of our fiscal fourth quarter.In performing the test, we either use the qualitative assessment permitted by ASC 350, Intangibles—Goodwill and Other, or the single step quantitative approach prescribed under ASC 350 including amendments under ASU 2017-04. Under the qualitative approach we consider a number of factors, including the amount by which the previous quantitative test's fair value exceeded the carrying value of the reporting units, the forecasts in our then-current strategic plan compared to the forecasts in the previous quantitative test, an evaluation of discount rates, long-term growth rates including the terminal year rate, if tax rates would have significantly changed, an evaluation of current economic factors for both the worldwide economy and specifically the medical device industry, and any significant changes in customer and supplier relationships. We weigh these factors to determine if it is more likely than not that the fair value of the reporting unit exceeds its carrying value. If after performing a qualitative assessment, indicators are present, or we identify factors that cause us to believe it is appropriate to perform a more precise calculation of fair value, we would move beyond the qualitative assessment and perform a quantitative impairment test.Under the quantitative impairment test, we perform a comparison of the reporting unit’s carrying value to its fair value. We consider a number of factors to determine the fair value of a reporting unit, including an independent valuation to conduct this test. The valuation is based upon expected future discounted operating cash flows of the reporting unit as well as analysis of recent sales and ratio comparisons of similar companies. We base the discount rate on the weighted average cost of capital, or WACC, of market participants. If the carrying value of a reporting unit exceeds its estimated fair value, we apply the single step approach under ASU 2017-04. As a result of this simplified approach the goodwill impairment is calculated as the amount by which the carrying value of the reporting unit exceeds its fair value to the extent of the goodwill balance.We conducted our fiscal 2023 annual impairment test on the first day of the fourth quarter and utilized the quantitative approach. We used discounted cash flows, or DCF, and market approaches to estimate the fair value of our reporting units as of July 2, 2023 and ultimately used the fair value determined by the DCF in making our impairment test conclusions. We believe we used reasonable estimates and assumptions about future revenue, cost projections, cash flows, market multiples and discount rates as of the measurement date. As a result of completing this analysis, all of our reporting units had fair values exceeding their carrying values.At September 30, 2023, we believe that our reporting units, with goodwill aggregating $3.3 billion, were not at risk of failing the goodwill impairment test based on our current forecasts and qualitative assessment.Since the fair value of our reporting units was determined by use of the DCF, and the key assumptions that drive the fair value in this model are the WACC, terminal values, growth rates, and the amount and timing of expected future cash flows, significant judgment is applied in determining fair value. If the current economic environment were to deteriorate, this would likely result in a higher WACC because market participants would require a higher rate of return. In the DCF as the WACC increases, the fair value decreases. The other significant factor in the DCF is our projected financial information (i.e., amount and timing of expected future cash flows and growth rates) and if these assumptions were to be adversely impacted, this could result in a reduction of the fair value of a reporting unit.50Table of ContentsIntangible AssetsIntangible assets are initially recorded at fair value and stated net of accumulated amortization and impairments. We amortize intangible assets that have finite lives using either the straight-line method, or if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be utilized. We evaluate the recoverability of our definite lived intangible assets whenever events or changes in circumstances or business conditions indicate that the carrying value of these assets may not be recoverable based on expectations of future undiscounted cash flows for each asset group. If the carrying value of an asset or asset group exceeds its undiscounted cash flows, we estimate the fair value of the assets, generally utilizing a discounted cash flow analysis based on the present value of estimated future cash flows to be generated by the assets using a risk-adjusted discount rate. To estimate the fair value of the assets, the Company uses market participant assumptions pursuant to ASC 820, Fair Value Measurements.Indefinite lived intangible assets, such as IPR&D assets, are initially recorded at fair value and are required to be tested for impairment annually, or more frequently if indicators of impairment are present. The Company’s annual impairment test date is as of the first day of its fourth quarter. We estimate the fair value of IPR&D assets utilizing a discounted cash flow analysis and key assumptions are revenue growth rates, timing of completion of the project, costs to complete the project and discount rates. These estimates require significant judgment and adverse changes in assumptions could result in a lower fair value.Revenue RecognitionWe generate revenue from the sale of our products, primarily medical imaging systems and diagnostic and surgical disposable products, and related services, which are primarily support and maintenance services on our medical imaging systems. See Note 3 for further discussion of revenue recognition.We consider revenue to be earned when all of the following criteria are met: we have a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount that we expect to receive, including an estimate of uncertain amounts subject to a constraint to ensure revenue is not recognized in an amount that would result in a significant reversal upon resolution of the uncertainty, is determinable; and we have transferred control of the promised items to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the contract. The transaction price for the contract is measured as the amount of consideration we expect to receive in exchange for the goods and services expected to be transferred. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control of the distinct good or service is transferred. Transfer of control for our products is generally at shipment or delivery, depending on contractual terms, but occurs when title and risk of loss transfers to the customer which represents the point in time when the customer obtains the use of and substantially all of the remaining benefit of the product. As such, the performance obligation related to product sales is satisfied at a point in time. Revenue from support and maintenance contracts and extended warranties are recognized over time based on the contract term, which represents a faithful depiction of the transfer of goods and services given the stand-ready nature of the performance obligations. Service revenue related to professional services for installation, training and repairs is recognized as the services are performed based on the specific nature of the service.We recognize receivables when we have an unconditional right to payment, which represents the amount we expect to collect in a transaction and is most often equal to the transaction price in the contract. Payment terms are typically 30 days in the U.S. but may be longer in international markets. We treat shipping and handling costs performed after a customer obtains control of the good as a fulfillment cost and record these costs within costs of product revenue when the corresponding revenue is recognized.Generally the contracts for capital equipment include multiple performance obligations. For contracts with multiple performance obligations, we are required to allocate the transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. We determine the best estimate of standalone selling price using average selling prices over 3- to 12-month periods of data depending on the products or nature of the services coupled with current market considerations. If the product or service does not have a history of sales or if sales volume is not sufficient, we rely on prices set by our pricing committees or applicable marketing department adjusted for expected discounts. We exercise judgement in estimating variable consideration, which includes volume discounts, sales rebates, product returns and other adjustments. These amounts are recorded as a reduction to revenue and classified as a current liability. We base our estimates for volume discounts and sales rebates on historical information to the extent it is reasonable to be used as a predictive tool of expected future rebates. To the extent the transaction price includes variable consideration, we apply judgment in constraining the estimated variable consideration due to factors that may cause reversal of revenue recognized. We evaluate constraints based on our historical and projected experience with similar customer contracts. Our contracts for the sale 51Table of Contentsof capital equipment and related components, and assays and tests typically do not provide the right to return product, however, our contracts for the sale of our interventional breast and surgical handpieces provide for a right of return for a limited period of time. In general, estimates of variable consideration and constraints are not material to our financial statements. We also place instruments (or equipment) at customer sites but retain title to the instrument (for example, the ThinPrep Processor, ThinPrep Imaging System, and the Panther system). The customer has the right to use the instrument for a period of time, and then we recover the cost of providing the instrument through the sales of disposables, namely tests and assays in Diagnostics and handpieces in GYN Surgical. These types of agreements include an embedded operating lease for the right to use an instrument and no instrument revenue is recognized at the time of instrument delivery. We recognize a portion of the revenue allocated to the embedded lease concurrent with the sale of disposables over the term of the agreement.Income TaxesWe use the asset and liability method for accounting for income taxes in accordance with ASC 740, Income Taxes. Under this method, we recognize deferred income tax assets and liabilities for the future tax consequences of differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases, and also for operating loss and tax credit carryforwards at each reporting period. We measure deferred tax assets and liabilities using enacted tax rates and laws applicable to the period and jurisdiction in which we expect the differences to affect taxable income. We evaluate both the positive and negative evidence that affects the realizability of net deferred tax assets and assess the need for a valuation allowance. The future benefit to be derived from our deferred tax assets is dependent upon our ability to generate sufficient future taxable income in each jurisdiction of the right type to realize the assets. We establish a valuation allowance when necessary to reduce deferred tax assets to the amounts expected to be realized. To the extent we establish or release a valuation allowance, a tax charge or benefit will be recorded as a component of the income tax provision on the statement of operations in the reporting period that such determination is made.We have recognized $36.4 million in net deferred tax assets at September 30, 2023 and $74.6 million in net deferred tax liabilities at September 24, 2022. The change was primarily due to recording a deferred tax asset on capitalized research and development costs and intangible asset impairments in fiscal 2023. The tax liabilities primarily relate to deferred taxes associated with our acquisitions. The tax assets primarily relate to net operating and capital loss carryforwards, capitalized research and development costs, accruals and reserves, and stock-based compensation.Accounting for income taxes requires a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not that the position will be sustained upon audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.As of September 30, 2023, we had $256.5 million in gross unrecognized tax benefits excluding interest, of which $240.5 million, if recognized, would reduce our effective tax rate. As of September 24, 2022, we had $247.6 million in gross unrecognized tax benefits excluding interest, of which $231.6 million, if recognized, would have reduced our effective tax rate. In the ordinary course of business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Judgment is required in determining our worldwide income tax provision. In our opinion, we have made adequate provisions for income taxes for all years subject to audit. While we consider our estimates reasonable, no assurance can be given that the final tax outcome will not be different than amounts reflected in our historical income tax provisions and accruals. If our assumptions are incorrect, the differences could have a material impact on our income tax provision and operating results in the period in which such determination is made.Item 7A. Quantitative and Qualitative Disclosures About Market RiskFinancial Instruments, Other Financial Instruments, and Derivative Commodity Instruments. Financial instruments consist of cash and cash equivalents, accounts receivable, equity investments, foreign currency derivative contracts, interest rate swap agreements, insurance contracts, accounts payable and debt obligations. Except for our outstanding 2028 and 2029 Senior Notes, the fair value of these financial instruments approximate their carrying amount. The fair value of our 2028 and 2029 Senior Notes was approximately $368.0 million and $803.1 million, respectively, as of September 30, 2023. Amounts outstanding under our 2021 Credit Agreement of $1.5 billion aggregate principal as of September 30, 2023 are subject to variable rates of interest based on current market rates, and as such, we believe the carrying amount of these obligations approximates fair value.52Table of ContentsPrimary Market Risk Exposures. Our primary market risk exposure is in the areas of interest rate risk and foreign currency exchange rate risk. We incur interest expense on borrowings outstanding under our 2028 and 2029 Senior Notes, and 2021 Credit Agreement. The 2028 and 2029 Senior Notes have fixed interest rates. Effective September 25, 2022 (the first day of fiscal 2023), borrowings under our 2021 Credit Agreement bear interest at the SOFR Rate plus SOFR Adjustment of 0.10% plus the applicable margin of 1.00% per annum.As of September 30, 2023, there was $1.49 billion of aggregate principal outstanding under the 2021 Credit Agreement. Since this debt obligation is a variable rate instrument, our interest expense associated with the instrument is subject to change. A hypothetical 10% adverse movement (increase in the SOFR rate) would increase annual interest expense by approximately $5.2 million, which is net of the impact of our interest rate swap hedge. We previously entered into an interest rate swap agreement to help mitigate the interest rate volatility associated with the variable rate interest on the amounts outstanding under our credit facilities. The critical terms of the interest rate swap were designed to mirror the terms of our SOFR-based borrowings under the 2021 Credit Agreement, and therefore the interest rate swap is highly effective at offsetting the cash flows being hedged. We designated this derivative instrument as a cash flow hedge of the variability of the Term SOFR-based interest payments on $1.0 billion of principal. This interest rate swap contract expires on December 17, 2023. On March 23,2023, we entered into two new consecutive interest rate swap contracts with the first contract having an effective date of December 17, 2023 and terminating on December 27, 2024, and the second contract having an effective date of December 27, 2024 and terminating on September 25, 2026. The notional amount of these swaps is $500 million.The return from cash and cash equivalents will vary as short-term interest rates change. A hypothetical 10% increase in market rates would increase annual interest income by approximately $13.0 million based on our current cash balances.Foreign Currency Exchange Risk. Our international business is subject to risks, including, but not limited to: unique economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors.We conduct business worldwide and maintain sales and service offices outside the U.S. as well as manufacturing facilities in Costa Rica and the United Kingdom. Our international sales are denominated in a number of currencies, primarily the Euro, U.S. dollar, UK Pound, Australian dollar, Canadian dollar, Chinese Yuan and Japanese Yen. The majority of our foreign subsidiaries functional currency is the local currency, although certain foreign subsidiaries functional currency is the U.S. dollar based on the nature of their operations or functions. Our revenues denominated in foreign currencies are positively affected when the U.S. dollar weakens against them and adversely affected when the U.S. dollar strengthens. Fluctuations in foreign currency rates could affect our sales, cost of goods and operating margins and could result in exchange losses. In addition, currency devaluations can result in a loss if we hold deposits of that currency. We have executed forward foreign currency contracts to hedge a portion of results denominated in the Euro, UK Pound, Australian dollar, Japanese Yen, Canadian dollar and Chinese Yuan. These contracts do not qualify for hedge accounting. As a result, we may experience volatility in our Consolidated Statements of Income due to (i) the impact of unrealized gains and losses reported in other income, net on the mark-to-market of outstanding contracts and (ii) realized gains and losses recognized in other income, net, whereas the offsetting economic gains and losses are reported in the line item of the underlying cash flow, for example, revenue. We believe that the operating expenses of our international subsidiaries that are incurred in local currencies will not have a material adverse effect on our business, results of operations or financial condition. Our operating results and certain assets and liabilities that are denominated in foreign currencies are affected by changes in the relative strength of the U.S. dollar against those currencies. Our expenses, denominated in foreign currencies, are positively affected when the U.S. dollar strengthens against those currencies and adversely affected when the U.S. dollar weakens. However, we believe that the foreign currency exchange risk is not significant. We believe a hypothetical 10% increase or decrease in foreign currencies that we transact in would not have a material adverse impact on our financial condition or results of operations. During fiscal 2023, we incurred net foreign exchange losses of $7.9 million, net foreign exchange gains of $48.5 million in fiscal 2022 and net foreign exchange losses of $15.1 million in fiscal 2021. \ No newline at end of file diff --git a/HOME DEPOT, INC._10-Q_2023-11-21_354950-0000354950-23-000240.html b/HOME DEPOT, INC._10-Q_2023-11-21_354950-0000354950-23-000240.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/HOME DEPOT, INC._10-Q_2023-11-21_354950-0000354950-23-000240.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/HONEYWELL INTERNATIONAL INC_10-Q_2023-10-26_773840-0000773840-23-000085.html b/HONEYWELL INTERNATIONAL INC_10-Q_2023-10-26_773840-0000773840-23-000085.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/HONEYWELL INTERNATIONAL INC_10-Q_2023-10-26_773840-0000773840-23-000085.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/HORMEL FOODS CORP -DE-_10-K_2023-12-06_48465-0000048465-23-000083.html b/HORMEL FOODS CORP -DE-_10-K_2023-12-06_48465-0000048465-23-000083.html new file mode 100644 index 0000000000000000000000000000000000000000..b4846784477799ac0bbdacf6df7cfce04a224b2c --- /dev/null +++ b/HORMEL FOODS CORP -DE-_10-K_2023-12-06_48465-0000048465-23-000083.html @@ -0,0 +1 @@ +Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSExecutive OverviewFiscal 2023: The Company achieved its second consecutive year of net sales in excess of $12 billion in fiscal 2023. Net sales were $12.1 billion, declining 3 percent compared to the prior year, as the benefit from pricing actions to mitigate inflationary pressures was more than offset by the impact of lower volumes in the Retail and International segments and lower net pricing in certain categories, such as bacon, reflecting raw material commodity deflation. Volume declined for the full year, primarily due to declines in commodity pork availability as a result of the Company's new pork supply agreement and lower turkey supply in the first half of the year due to the impacts of HPAI. Segment profit declined 11 percent, as higher results in the Foodservice segment were more than offset by significantly lower results in the Retail and International segments. Net earnings declined 21 percent due to lower segment profit and the pre-tax impact of an adverse arbitration ruling of $68.3 million. Adjusted net earnings(1) — excluding the impact of the adverse arbitration ruling, non-cash impairment charges, and costs associated with the Company's transformation and modernization initiative — declined 12 percent. Diluted net earnings per share and adjusted diluted net earnings per share(1) for fiscal 2023 were $1.45 and $1.61, respectively, compared to $1.82 last year.Segment profit for the Foodservice segment increased due to improved mix across the portfolio. Retail segment profit declined significantly for the full year, driven primarily by lower volumes, unfavorable mix, and higher operating expenses, partially offset by the benefit from pricing actions across the portfolio and higher equity in earnings from MegaMex Foods, LLC (MegaMex Foods). International segment profit declined due to lower sales in China and lower turkey commodity sales. The Company again reinvested into the business through capital expenditures and returned a record amount of cash to shareholders in the form of dividends. Capital expenditures in fiscal 2023 were $270 million, including investments in new production capabilities for retail and foodservice pepperoni and an expansion for the SPAM® family of products. The Company continues to prioritize investments in growth, innovation, cost savings, automation, and maintenance. The annual dividend for 2024 will be $1.13 per share, representing an increase of 3 percent and marking the 58th consecutive year of dividend increases.During fiscal 2023, the Company purchased a 30% common stock interest in Garudafood, a food and beverage company in Indonesia. This investment expands the Company's presence in Southeast Asia and supports the global execution of the snacking and entertaining strategic priority. The Company obtained this minority interest in Garudafood for a purchase price of $426 million, including associated transaction costs. The Company funded this transaction with cash on hand.Fiscal 2024 Outlook(2): The Company continues to navigate through a dynamic operating environment characterized by slowing consumer demand, inflationary pressures, and headwinds in its turkey business. Net sales growth of 1 percent to 3 percent is expected and assumes volume growth in key categories, higher brand support and innovation, a benefit from incremental pricing actions, and the current assumptions for raw material input costs. From a bottom-line perspective, diluted net earnings per share are expected to be $1.43 to $1.57 and adjusted diluted net earnings per share(1) are expected to be $1.51 to $1.65. Earnings are expected to decline in the first half of the year due to the impact from lower turkey markets, lower volumes in the Retail segment, expenses associated with the transformation and modernization initiative, and softness in the Company's China business. Segment profit growth from all three segments is expected in the back half of the year as these pressures abate and as benefits from the transformation and modernization initiative are realized. Major risks to the outlook include incremental inflationary pressures, significantly lower turkey markets than expected, and the impact of deteriorating macroeconomic conditions on the Company's customers, consumers, and operators.The Company remains in a strong financial position due to its consistent cash flow, liquidity, and strong balance sheet. The Company plans to continue to support the business through increased marketing and advertising investments for its leading brands as well as investments into its production capabilities, including converting the Barron, Wisconsin, plant into a value-added facility to support growth across the portfolio. The Company is also expanding capacity for high-demand Planters® snack nuts items. Returning cash to shareholders in the form of dividends remains a top priority for the Company.Consistent with the plan outlined at its recent investor day, the Company expects fiscal 2024 to be a year of investment and remains focused on its strategic priorities, executing on its transformation and modernization initiative, fueling its innovation pipeline, and exiting the year with momentum in its business segments. For fiscal 2024, the Company expects a modest benefit to net earnings from its transformation and modernization initiative.15Table of ContentsA detailed review of the Company's fiscal 2023 performance compared to fiscal 2022 appears in the following section. A detailed review of fiscal 2022 performance compared to fiscal 2021 is also provided due to the change in reportable segments which occurred in the first quarter of fiscal 2023.(1) See the "Non-GAAP Financial Measures" section below for a description of the Company's use of measures not defined by U.S. generally accepted accounting principles (GAAP).(2) All forward-looking comparisons for fiscal 2024 are comparing fiscal 2023 GAAP figures to projected fiscal 2024 GAAP figures, unless otherwise noted.Results of OperationsOVERVIEWThe Company is a processor of branded and unbranded food products for retail, foodservice, deli, and commercial customers. The Company transitioned to a new operating model in the first quarter of fiscal 2023 and now reports its results in the following three reportable segments:The Retail segment consists primarily of the processing, marketing, and sale of food products sold predominantly in the retail market. This segment also includes the results from the Company’s MegaMex Foods, LLC joint venture.The Foodservice segment consists primarily of the processing, marketing, and sale of food and nutritional products for foodservice, convenience store, and commercial customers.The International segment processes, markets, and sells Company products internationally. This segment also includes the results from the Company’s international joint ventures, equity method investments, and royalty arrangements.Prior period segment results have been retrospectively recast to reflect the new reportable segments.The Company’s fiscal year consisted of 52 weeks in fiscal years 2023 and 2022 and 53 weeks in fiscal year 2021. Fiscal year 2024 will consist of 52 weeks.FISCAL YEARS 2023 AND 2022CONSOLIDATED RESULTSNet Earnings and Diluted Earnings Per Share Fourth Quarter EndedFiscal Year EndedIn thousands, except per share amountsOctober 29, 2023October 30, 2022% ChangeOctober 29, 2023October 30, 2022% ChangeNet Earnings$195,935 $279,883 (30.0)$793,572 $999,987 (20.6)Diluted Earnings Per Share0.36 0.51 (29.4)1.45 1.82 (20.3)Adjusted Diluted Earnings Per Share(1)0.42 0.51 (17.2)1.61 1.82 (11.4)(1) See the "Non-GAAP Financial Measures" section below for a description of the Company's use of measures not defined by U.S. generally accepted accounting principles (GAAP).Volume and Net Sales Fourth Quarter EndedFiscal Year EndedIn thousandsOctober 29, 2023October 30, 2022% ChangeOctober 29, 2023October 30, 2022% ChangeVolume (lbs.)1,155,445 1,160,490 (0.4)4,411,738 4,604,169 (4.2)Net Sales$3,198,079 $3,283,475 (2.6)$12,110,010 $12,458,806 (2.8)Volume for the fourth quarter of fiscal 2023 was comparable with last year, as higher turkey volumes in each segment were offset by lower Retail volumes in the convenient meals and proteins and the snacking and entertaining verticals. Net sales declined in the fourth quarter, as higher Foodservice segment sales and the benefit from higher turkey volumes were more than offset by lower volumes in the Retail segment and continued pressure in the International segment.Fiscal 2023 marked the second consecutive year of net sales in excess of $12 billion. Net sales declined for the full year, as the benefit from pricing actions to mitigate inflationary pressures was more than offset by the impact of lower volumes in the Retail and International segments and lower net pricing in certain categories, such as bacon, reflecting raw material commodity 16Table of Contentsdeflation. The primary drivers of lower volume in fiscal 2023 were declines in commodity pork availability as a result of the Company's new pork supply agreement and lower turkey supply in the first half of the year from the impacts of HPAI.In fiscal 2024, the Company expects sales growth, which assumes benefits from modestly higher volumes, growth in key categories, higher brand support and innovation, incremental pricing actions, and the current assumptions for raw material costs. Risks to this outlook include slowing consumer demand and greater-than-expected pricing headwinds in the turkey business.Cost of Products Sold Fourth Quarter EndedFiscal Year Ended October 29,October 30, October 29,October 30, In thousands20232022% Change20232022% ChangeCost of Products Sold$2,683,655 $2,717,058 (1.2)$10,110,169 $10,294,120 (1.8)Cost of products sold for the fourth quarter and full year of fiscal 2023 decreased due to lower sales. On a volume basis, cost of products sold increased 2 percent in fiscal 2023, driven primarily by inflationary pressures stemming from, among other inputs, packaging, logistics, and labor.In fiscal 2024, costs are expected to moderate relative to the high levels of inflation the business has absorbed since the beginning of fiscal 2021. Raw material input costs for pork, beef, and feed are anticipated to remain volatile and above historical levels. The Company expects its transformation and modernization initiative to begin delivering modest cost savings in fiscal 2024, targeting packaging, logistics, and production costs.Gross Profit Fourth Quarter EndedFiscal Year Ended October 29,October 30, October 29,October 30, In thousands20232022% Change20232022% ChangeGross Profit$514,425 $566,417 (9.2)$1,999,841 $2,164,686 (7.6)Percent of Net Sales16.1 %17.3 % 16.5 %17.4 % Consolidated gross profit as a percent of net sales for the fourth quarter and full year of fiscal 2023 decreased, driven primarily by unfavorable mix in the Retail and International segments and the persistent impact of inflationary pressures. Pricing actions helped mitigate some of the impact from inflationary pressures. Compared to fiscal 2022, gross profit as a percent of net sales for the fourth quarter and full year increased for the Foodservice segment but declined for the Retail and International segments. In fiscal 2024, the Company expects gross profit as a percent of net sales to be comparable to fiscal 2023. Incremental cost inflation and unfavorable sales mix pose the largest risks to this outlook.Selling, General, and Administrative (SG&A) Fourth Quarter EndedFiscal Year EndedIn thousandsOctober 29, 2023October 30, 2022% ChangeOctober 29, 2023October 30, 2022% ChangeSG&A$216,546 $206,487 4.9 $942,167 $879,265 7.2 Percent of Net Sales6.8 %6.3 %7.8 %7.1 %Adjusted Percent of Net Sales(1)6.6 %6.3 %7.1 %7.1 %(1) See the "Non-GAAP Financial Measures" section below for a description of the Company's use of measures not defined by U.S. generally accepted accounting principles (GAAP).SG&A expenses for the fourth quarter of fiscal 2023 increased as higher professional service expense related to the Company's transformation and modernization initiative and higher advertising expense were partially offset by lower employee-related expenses. For full year fiscal 2023, the increase in SG&A expenses and SG&A expenses as a percent of net sales is attributed to an adverse arbitration ruling totaling $68.3 million. Adjusted SG&A expenses as a percent of net sales(1) for fiscal 2023 were comparable to the prior year.Advertising investments in fiscal 2023 were $160 million, representing a 2% increase compared to fiscal 2022.In fiscal 2024, the Company intends to continue investing in its leading brands and for full year advertising expense to increase compared to the prior year.Research and development continues to be a vital part of the Company's strategy to grow existing brands and expand into new branded items. Research and development expenses were $33.7 million in fiscal 2023, compared to $34.7 million in fiscal 2022.17Table of ContentsEquity in Earnings of Affiliates Fourth Quarter EndedFiscal Year Ended October 29,October 30, October 29,October 30, In thousands20232022% Change20232022% ChangeEquity in Earnings of Affiliates$541 $7,234 (92.5)$42,754 $27,185 57.3 Equity in earnings of affiliates for the fourth quarter of fiscal 2023 decreased, resulting from the $7.0 million impairment of a corporate venturing investment. Equity in earnings of affiliates for the full year of fiscal 2023 increased due to significantly higher results for MegaMex Foods, reflecting a benefit from pricing actions and lower avocado input costs.The Company accounts for its majority-owned operations under the consolidation method. Investments in which the Company owns a minority interest, and for which there are no other indicators of control, are accounted for under the equity or cost method. These investments, including balances due to or from affiliates, are included on the Consolidated Statements of Financial Position as Investments in Affiliates. The composition of this line item as of October 29, 2023, was as follows:In thousandsInvestments in AffiliatesU.S.$214,019 Foreign511,103 Total$725,121 Goodwill and Intangible ImpairmentAn impairment charge related to the Justin's® trade name of $28.4 million was recorded in the fourth quarter of fiscal 2023. Interest and Investment Income and Interest Expense Fourth Quarter EndedFiscal Year Ended October 29,October 30, October 29,October 30, In thousands20232022% Change20232022% ChangeInterest and Investment Income$(5,872)$7,933 (174.0)$14,828 $28,012 (47.1)Interest Expense18,360 17,602 4.3 73,402 62,515 17.4 Interest and investment income decreased in the fourth quarter of fiscal 2023 primarily due to higher pension costs. Interest and investment income decreased for the full year of fiscal 2023 due to higher pension costs, partially offset by increased interest income and improved performance on the rabbi trust. Interest expense increased in fiscal 2023 due to the impact of an interest rate swap.Effective Tax Rate Fourth Quarter EndedFiscal Year Ended October 29,October 30,October 29,October 30, 2023202220232022Effective Tax Rate20.5 %21.7 %21.8 %21.7 %The effective tax rate for fiscal 2023 reflects a benefit related to the deduction for foreign-derived intangible income. The fiscal 2022 effective tax rate included a benefit for stock option exercises. For additional information, refer to Note N - Income Taxes of the Notes to the Consolidated Financial Statements.The Company expects the effective tax rate in fiscal 2024 to be between 21.0 and 23.0 percent.18Table of ContentsSEGMENT RESULTSNet sales and segment profit for each of the Company’s reportable segments are set forth below. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below. Additional segment financial information can be found in Note P - Segment Reporting of the Notes to the Consolidated Financial Statements. Fourth Quarter EndedFiscal Year Ended October 29,October 30, October 29,October 30, In thousands20232022% Change20232022% ChangeNet Sales Retail $1,983,253 $2,066,454 (4.0)$7,749,039 $7,987,598 (3.0)Foodservice 1,032,353 1,009,672 2.2 3,639,492 3,691,408 (1.4)International 182,474 207,350 (12.0)721,479 779,799 (7.5)Total Net Sales$3,198,079 $3,283,475 (2.6)$12,110,010 $12,458,806 (2.8)Segment ProfitRetail$118,660 $198,852 (40.3)$577,690 $721,832 (20.0)Foodservice167,571 148,203 13.1 595,682 547,686 8.8 International9,511 28,810 (67.0)55,234 107,642 (48.7)Total Segment Profit295,743 375,865 (21.3)1,228,606 1,377,161 (10.8) Net Unallocated Expense49,485 18,498 167.5 214,482 99,297 116.0 Noncontrolling Interest(452)128 (454.6)(653)239 (372.7)Earnings Before Income Taxes$245,805 $357,495 (31.2)$1,013,472 $1,278,103 (20.7)Volume for the full year of fiscal 2023 was negatively impacted by lower fresh pork availability resulting from the Company's new pork supply agreement (primarily impacting the first quarter) and lower turkey volumes due to the impacts of HPAI in the Company's vertically integrated turkey supply chain (primarily impacting the first half).Retail Fourth Quarter EndedFiscal Year Ended October 29,October 30, October 29,October 30, In thousands20232022% Change20232022% ChangeVolume (lbs.)788,030 810,044 (2.7)3,055,393 3,245,625 (5.9)Net Sales$1,983,253 $2,066,454 (4.0)$7,749,039 $7,987,598 (3.0)Segment Profit118,660 198,852 (40.3)577,690 721,832 (20.0)Adjusted Segment Profit(1)147,043 198,852 (26.1)606,073 721,832 (16.0)(1) See the "Non-GAAP Financial Measures" section below for a description of the Company's use of measures not defined by U.S. generally accepted accounting principles (GAAP).For the fourth quarter of fiscal 2023, volume and net sales growth from the value-added meats, emerging brands and bacon verticals was more than offset by declines in the convenient meals and proteins and the snacking and entertaining verticals. In addition to continued recovery across the Jennie-O® turkey portfolio, items such as Applegate® natural and organic meats, Hormel® Black Label® bacon, Chi-Chi's® and La Victoria® salsas, Corn Nuts® products and Hormel® Square Table™ entrees grew volume and net sales during the quarter. Net sales declines continued to be partially attributed to the difficult comparison from high levels of demand for Skippy® spreads last year. Full year fiscal 2023 net sales declined primarily due to lower volumes from the convenient meals and proteins and value-added meats verticals, declines in the snacking and entertaining vertical and lower market-driven pricing on raw bacon items.Segment profit declined for the fourth quarter due to lower sales, unfavorable mix and increased brand investments. Additionally, a non-cash impairment charge of $28.4 million was recorded in the fourth quarter associated with the Justin's® trade name. For fiscal 2023, segment profit declined due to lower volumes, unfavorable mix, and higher operating expenses, partially offset by the benefit from pricing actions across the portfolio, higher equity in earnings from MegaMex Foods, and improved bacon volumes.In fiscal 2024, the Company expects volume and net sales from its Retail segment to be comparable to the prior year. Volume growth in key categories, higher brand support and innovation, and a benefit from incremental pricing actions are expected to be positive catalysts for the business. Earnings are expected to decline compared to the prior year, driven primarily by commodity headwinds in the Company's turkey business. Risks to this outlook include a further slowing in consumer demand and greater-than-expected pricing headwinds in the turkey business.19Table of ContentsFoodservice Fourth Quarter EndedFiscal Year Ended October 29,October 30, October 29,October 30, In thousands20232022% Change20232022% ChangeVolume (lbs.)279,288 266,447 4.8 1,026,772 1,027,124 — Net Sales$1,032,353 $1,009,672 2.2 $3,639,492 $3,691,408 (1.4)Segment Profit167,571 148,203 13.1 595,682 547,686 8.8 Volume and net sales for the fourth quarter of fiscal 2023 increased, driven by a significant recovery across the Jennie-O® turkey portfolio and strong demand for premium bacon, pizza toppings and premium breakfast sausage. Additionally, volume and net sales increased for the Cafe H®, Austin Blues® and Hormel® Cure 81® brands. Net sales declined for full year fiscal 2023 primarily due to lower net pricing in certain categories, reflecting raw material commodity deflation and lower turkey and fresh pork volumes.For the fourth quarter, segment profit increased due to the contribution from higher volumes and improved mix. Segment profit increased during fiscal 2023 due to improved mix across the portfolio.In fiscal 2024, the Company anticipates higher volume, net sales and segment profit from its Foodservice segment compared to the prior year. Risks to this outlook include a softening of foodservice industry demand, lower-than-expected raw material input costs (negatively impacting net sales), and higher-than-expected operating costs.International Fourth Quarter EndedFiscal Year Ended October 29,October 30, October 29,October 30, In thousands20232022% Change20232022% ChangeVolume (lbs.)88,128 83,999 4.9 329,573 331,421 (0.6)Net Sales$182,474 $207,350 (12.0)$721,479 $779,799 (7.5)Segment Profit9,511 28,810 (67.0)55,234 107,642 (48.7)As anticipated, net sales declined for the fourth quarter of fiscal 2023 as a result of lower branded export volumes and lower sales in China, primarily related to the retail business. Volume growth was driven by low-margin turkey and commodity fresh pork. For the full year of fiscal 2023, net sales declined primarily due to lower SPAM® luncheon meat exports, lower sales in China, and lower commodity turkey prices. Segment profit for the fourth quarter declined significantly due to continued softness in China and lower branded export demand, partially offset by the contribution from the Company's minority investment in Garudafood. Segment profit for fiscal 2023 declined significantly due to lower sales in China, lower commodity turkey sales, and lower branded export margins.In fiscal 2024, the Company expects a rebound in its International segment, including higher net sales and segment profit. This recovery is expected to be driven by improvement across the business, including from its multinational businesses in China and Brazil, partnership in the Philippines, and branded exports. Risks to this outlook include continued softness in China and commodity headwinds impacting the export business.20Table of ContentsUnallocated Income and ExpenseThe Company does not allocate deferred compensation, investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at the corporate level. Equity in Earnings of Affiliates is included in segment profit; however, earnings attributable to the Company’s corporate venturing investments and noncontrolling interests are excluded. Fourth Quarter EndedFiscal Year Ended October 29,October 30,October 29,October 30,In thousands2023202220232022Net Unallocated Expense$49,485 $18,498 $214,482 $99,297 Noncontrolling Interest(452)128 (653)239 For the fourth quarter of fiscal 2023, net unallocated expense increased as a result of higher pension costs, higher professional service expenses related to the Company's transformation and modernization initiative, and from the impairment of a corporate venturing investment. In addition to these drivers, net unallocated expense for fiscal 2023 increased as a result of an adverse arbitration ruling totaling $68.3 million.(1)Non-GAAP Financial MeasuresThis filing includes measures of financial performance that are not defined by U.S. GAAP. The Company utilizes these non-GAAP measures to understand and evaluate operating performance on a consistent basis. These measures may also be used when making decisions regarding resource allocation and in determining incentive compensation. The Company believes these non-GAAP financial measures provide useful information to investors because they facilitate year-over-year comparison and provide additional information about trends in the Company’s operations. Non-GAAP measures are not intended to be a substitute for U.S. GAAP measures in analyzing financial performance. These non-GAAP measures are not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.Adjusted SG&A expenses as a percent of net sales excludes the impact of an adverse arbitration ruling and certain costs associated with the transformation and modernization initiative. Adjusted diluted net earnings per share excludes the impact of an adverse arbitration ruling, impairment charges associated with the Justin's® trade name and a corporate venturing investment, and costs associated with the transformation and modernization initiative. The tax impact was calculated using the effective tax rate for the quarter in which the expense was incurred. The non-GAAP financial measure of adjusted segment profit for the Retail segment excludes the impact of the impairment charge associated with the Justin's® trade name.The Company's fiscal 2024 outlook for adjusted diluted net earnings per share is a non-GAAP financial measure that excludes, or has otherwise been adjusted for, items impacting comparability, including estimated charges associated with the transformation and modernization initiative. The Company's strategic investments in the transformation and modernization initiative are expected to cease at the end of the investment period, are not expected to recur in the foreseeable future, and are not considered representative of the Company's underlying operating performance.The Company provides earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA) because these measures are useful to management and investors as indicators of operating strength relative to prior years and are commonly used to benchmark the Company’s performance.21Table of ContentsThe following tables show the calculations to reconcile from the GAAP measures to the non-GAAP financial measures.ADJUSTED SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES AS A PERCENT OF NET SALES (NON-GAAP) AND ADJUSTED DILUTED NET EARNINGS PER SHARE (NON-GAAP)Fourth Quarter EndedOctober 29, 2023October 30, 2022In thousands, except per share amountsGAAPNon-GAAP AdjustmentsNon-GAAPReportedGAAPNon-GAAP% ChangeNet Sales$3,198,079 $— $3,198,079 $3,283,475 (2.6)Cost of Products Sold2,683,655 (944)2,682,711 2,717,058 (1.3)Gross Profit514,425 944 515,368 566,417 (9.0)Selling, General, and Administrative216,546 (6,726)209,820 206,487 1.6 Equity in Earnings of Affiliates541 6,985 7,526 7,234 4.0 Goodwill and Intangible Impairment28,383 (28,383)— — — Operating Income270,037 43,038 313,074 367,164 (14.7)Interest and Investment Income(5,872)— (5,872)7,933 (174.0)Interest Expense18,360 — 18,360 17,602 4.3 Earnings Before Income Taxes245,805 43,038 288,843 357,495 (19.2)Provision for Income Taxes50,322 8,822 59,145 77,484 (23.7)Net Earnings195,483 34,216 229,698 280,011 (18.0)Less: Net Earnings (Loss) Attributable to Noncontrolling Interest(452)— (452)128 (454.6)Net Earnings Attributable to Hormel Foods Corporation$195,935 $34,216 $230,150 $279,883 (17.8)Diluted Net Earnings Per Share$0.36 $0.06 $0.42 $0.51 (17.2)Selling, General, and Administrative Expenses as a Percent of Net Sales6.8 %6.6 %6.3 %Fiscal Year EndedOctober 29, 2023October 30, 2022In thousands, except per share amountsGAAPNon-GAAP AdjustmentsNon-GAAPReportedGAAPNon-GAAP% ChangeNet Sales$12,110,010 $— $12,110,010 $12,458,806 (2.8)Cost of Products Sold10,110,169 (944)10,109,225 10,294,120 (1.8)Gross Profit1,999,841 944 2,000,785 2,164,686 (7.6)Selling, General, and Administrative942,167 (76,726)865,441 879,265 (1.6)Equity in Earnings of Affiliates42,754 6,985 49,739 27,185 83.0 Goodwill and Intangible Impairment28,383 (28,383)— — — Operating Income1,072,046 113,038 1,185,083 1,312,607 (9.7)Interest and Investment Income14,828 — 14,828 28,012 (47.1)Interest Expense73,402 — 73,402 62,515 17.4 Earnings Before Income Taxes1,013,472 113,038 1,126,509 1,278,103 (11.9)Provision for Income Taxes220,552 24,012 244,565 277,877 (12.0)Net Earnings792,920 89,026 881,945 1,000,226 (11.8)Less: Net Earnings (Loss) Attributable to Noncontrolling Interest(653)— (653)239 (372.7)Net Earnings Attributable to Hormel Foods Corporation$793,572 $89,026 $882,597 $999,987 (11.7)Diluted Net Earnings Per Share$1.45 $0.16 $1.61 $1.82 (11.4)Selling, General, and Administrative Expenses as a Percent of Net Sales7.8 %7.1 %7.1 %22Table of ContentsADJUSTED SEGMENT PROFIT (NON-GAAP)Fourth Quarter EndedOctober 29, 2023October 30, 2022In thousandsGAAPNon-GAAP AdjustmentsNon-GAAPReportedGAAPNon-GAAP% ChangeSegment ProfitRetail$118,660 $28,383 $147,043 $198,852 (26.1)Foodservice167,571 — 167,571 148,203 13.1 International9,511 — 9,511 28,810 (67.0)Total Segment Profit295,743 28,383 324,126 375,865 (13.8)Net Unallocated Expense49,485 (14,655)34,830 18,498 88.3 Noncontrolling Interest(452)— (452)128 (454.6)Earnings Before Income Taxes$245,805 $43,038 $288,843 $357,495 (19.2)Fiscal Year EndedOctober 29, 2023October 30, 2022In thousandsGAAPNon-GAAP AdjustmentsNon-GAAPReportedGAAPNon-GAAP% ChangeSegment ProfitRetail$577,690 $28,383 $606,073 $721,832 (16.0)Foodservice595,682 — 595,682 547,686 8.8 International55,234 — 55,234 107,642 (48.7)Total Segment Profit1,228,606 28,383 1,256,989 1,377,161 (8.7)Net Unallocated Expense214,482 (84,655)129,827 99,297 30.7 Noncontrolling Interest(653)— (653)239 (373.1)Earnings Before Income Taxes$1,013,472 $113,038 $1,126,510 $1,278,103 (11.9)ADJUSTED DILUTED NET EARNINGS PER SHARE OUTLOOK (NON-GAAP)Fiscal Year2024 Outlook2023 ResultsDiluted Net Earnings per Share$1.43 - $1.57$1.45Arbitration Ruling—$0.10Impairment Charges—$0.05Transformation and Modernization Initiative$0.08$0.01Adjusted Diluted Net Earnings per Share$1.51 - $1.65$1.61EBIT AND EBITDA (NON-GAAP) Fiscal Year EndedIn thousandsOctober 29, 2023October 30, 2022EBIT:Net Earnings Attributable to Hormel Foods Corporation$793,572 $999,987 Plus: Income Tax Expense220,552 277,877 Plus: Interest Expense73,402 62,515 Less: Interest and Investment Income14,828 28,012 EBIT$1,072,698 $1,312,367 EBITDA:EBIT per above1,072,698 1,312,367 Plus: Depreciation and Amortization253,311 235,885 EBITDA$1,326,009 $1,548,252 23Table of ContentsFISCAL YEARS 2022 AND 2021CONSOLIDATED RESULTSA detailed review of fiscal 2022 performance compared to fiscal 2021 is provided due to the change in reportable segments which occurred in the first quarter of fiscal 2023.Net Earnings and Diluted Earnings Per Share Fourth Quarter EndedFiscal Year EndedIn thousands, except per share amountsOctober 30, 2022October 31, 2021% ChangeOctober 30, 2022October 31, 2021% ChangeNet Earnings$279,883 $281,738 (0.7)$999,987 $908,839 10.0 Diluted Earnings Per Share0.51 0.51 — 1.82 1.66 9.6 Adjusted Diluted Earnings Per Share(1)0.51 0.51 — 1.82 1.73 5.2 Volume and Net Sales Fourth Quarter EndedFiscal Year EndedIn thousandsOctober 30, 2022October 31, 2021% ChangeOctober 30, 2022October 31, 2021% ChangeVolume (lbs.)1,160,490 1,379,848 (15.9)4,604,169 4,933,136 (6.7)Organic Volume(1) 1,160,490 1,281,287 (9.4)4,440,352 4,834,575 (8.2)Net Sales$3,283,475 $3,454,751 (5.0)$12,458,806 $11,386,189 9.4 Organic Net Sales(1)3,283,475 3,207,983 2.4 11,853,241 11,139,421 6.4 (1) See the "Non-GAAP Financial Measures" section below for a description of the Company's use of measures not defined by U.S. generally accepted accounting principles (GAAP).Consistent with the Company's long-term strategy to better align resources to value-added growth, the overall decline in volume for the fourth quarter and full year of fiscal 2022 was primarily due to lower commodity sales resulting from the Company's new pork supply agreement, which was effective January 1, 2022.Net sales decreased for the fourth quarter of fiscal 2022 due to reduced commodity sales and the impact from an additional week of sales last year. Organic net sales for the fourth quarter increased, led by growth from the Retail and Foodservice segments. The Retail segment benefited from pricing actions effective at the beginning of the fourth quarter. Fiscal 2022 marked the third consecutive year of record sales for the Company. Record net sales were primarily driven by the inclusion of the Planters® snack nuts business and growth from the Foodservice segment. All segments implemented pricing actions during the fiscal year to combat inflationary pressures. Cost of Products Sold Fourth Quarter EndedFiscal Year Ended October 30,October 31, October 30,October 31, In thousands20222021% Change20222021% ChangeCost of Products Sold$2,717,058 $2,876,669 (5.5)$10,294,120 $9,458,283 8.8 Cost of products sold for the fourth quarter decreased, resulting from lower sales due to the additional week in fiscal 2021. For fiscal 2022, cost of products sold increased due to inflationary pressures stemming from raw materials, packaging, freight, labor, and other inputs. The inclusion of the Planters® snack nuts business was also a driver of higher costs for the full year.Gross Profit Fourth Quarter EndedFiscal Year Ended October 30,October 31,October 30,October 31,In thousands20222021% Change20222021% ChangeGross Profit$566,417 $578,081 (2.0)$2,164,686 $1,927,906 12.3 Percent of Net Sales17.3 %16.7 %17.4 %16.9 %Consolidated gross profit as a percent of net sales for the fourth quarter of fiscal 2022 increased primarily due to improved profitability from the Retail segment. For fiscal 2022, gross profit as a percent of net sales increased primarily due to improved profitability from the Foodservice and International segments, the inclusion of the Planters® snack nuts business, and pricing actions to help mitigate inflationary pressures across all segments. Gross profit as a percent of net sales for fiscal 2022 also benefited from the reduction of lower margin commodity sales resulting from the Company's pork supply agreement that was new in fiscal 2022.24Table of ContentsCompared to the prior year, gross profit as a percent of net sales for the fourth quarter of fiscal 2022 increased for the Retail segment and declined for the other segments. For fiscal 2022, gross profit as a percent of net sales increased for Foodservice and International segments and decreased modestly for the Retail segment. All business segments were negatively impacted by broad-based inflationary pressures.Selling, General, and Administrative (SG&A) Fourth Quarter EndedFiscal Year Ended October 30,October 31,October 30,October 31,In thousands20222021% Change20222021% ChangeSG&A$206,487 $230,441 (10.4)$879,265 $853,071 3.1 Percent of Net Sales6.3 %6.7 %7.1 %7.5 %SG&A expenses for the fourth quarter of fiscal 2022 declined primarily due to the additional week in fiscal 2021. SG&A expenses for fiscal 2022 increased due to the inclusion of the Planters® snack nuts business and higher marketing and advertising investments. As a percent of net sales, SG&A expenses declined for the full year, driven by record sales and disciplined cost management.Advertising investments in fiscal 2022 were $157 million, representing a 14 percent increase compared to fiscal 2021.Research and development continued to be a vital part of the Company's strategy to grow existing brands and expand into new branded items. Research and development expenses were $34.7 million in fiscal 2022, compared to $33.6 million in fiscal 2021.Equity in Earnings of Affiliates Fourth Quarter EndedFiscal Year Ended October 30,October 31,October 30,October 31,In thousands20222021% Change20222021% ChangeEquity in Earnings of Affiliates$7,234 $10,041 (28.0)$27,185 $47,763 (43.1)Equity in earnings of affiliates for the fourth quarter and full year of fiscal 2022 decreased significantly due to lower results for MegaMex Foods. MegaMex Foods results were negatively impacted by inflationary pressures, including significantly higher costs for avocados.The Company accounts for its majority-owned operations under the consolidation method. Investments in which the Company owns a minority interest, and for which there are no other indicators of control, are accounted for under the equity or cost method. These investments, along with receivables from other affiliates, are included on the Consolidated Statements of Financial Position as Investments in Affiliates. The composition of this line item as of October 30, 2022, was as follows:In thousandsInvestments in AffiliatesU.S.$192,577 Foreign78,481 Total$271,058 Interest and Investment Income and Interest Expense Fourth Quarter EndedFiscal Year Ended October 30,October 31,October 30,October 31,In thousands20222021% Change20222021% ChangeInterest and Investment Income$7,933 $10,138 (21.7)$28,012 $46,878 (40.2)Interest Expense17,602 15,589 12.9 62,515 43,307 44.4 Interest and investment income decreased in the fourth quarter and full year of fiscal 2022 primarily due to losses on the rabbi trust. Interest expense in fiscal 2022 reflects the full year impact of debt issued in 2021.25Table of ContentsEffective Tax Rate Fourth Quarter EndedFiscal Year Ended October 30,October 31,October 30,October 31, 2022202120222021Effective Tax Rate21.7 %20.0 %21.7 %19.3 %The effective tax rate for fiscal 2021 included the benefit of one-time state tax discrete items. For additional information, refer to Note N - Income Taxes of the Notes to the Consolidated Financial Statements.SEGMENT RESULTSNet sales and segment profit for each of the Company’s reportable segments are set forth below. The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations, and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report the profit and other financial information shown below. Additional segment financial information can be found in Note P - Segment Reporting of the Notes to the Consolidated Financial Statements. Fourth Quarter EndedFiscal Year Ended October 30,October 31,October 30,October 31,In thousands20222021% Change20222021% ChangeNet SalesRetail $2,066,454 $2,181,048 (5.3)$7,987,598 $7,418,079 7.7 Foodservice 1,009,672 1,043,634 (3.3)3,691,408 3,130,174 17.9 International 207,350 230,068 (9.9)779,799 837,936 (6.9)Total Net Sales$3,283,475 $3,454,751 (5.0)$12,458,806 $11,386,189 9.4 Segment ProfitRetail$198,852 $167,551 18.7 $721,832 $690,127 4.6 Foodservice148,203 163,367 (9.3)547,686 431,992 26.8 International28,810 38,970 (26.1)107,642 116,585 (7.7)Total Segment Profit375,865 369,888 1.6 1,377,161 1,238,704 11.2 Net Unallocated Expense18,498 17,669 4.7 99,297 112,836 (12.0)Noncontrolling Interest128 12 994.1 239 301 (20.6)Earnings Before Income Taxes$357,495 $352,230 1.5 $1,278,103 $1,126,170 13.5 Retail Fourth Quarter EndedFiscal Year Ended October 30,October 31,October 30,October 31,In thousands20222021% Change20222021% ChangeVolume (lbs.)810,044 980,339 (17.4)3,245,625 3,546,324 (8.5)Net Sales$2,066,454 $2,181,048 (5.3)$7,987,598 $7,418,079 7.7 Segment Profit198,852 167,551 18.7 721,832 690,127 4.6 Net sales for the fourth quarter of fiscal 2022 decreased due to the impact from an additional week in the fourth quarter of last year and lower commodity sales. These declines more than offset strong demand for Skippy® peanut butter and the impact of pricing actions across the global flavors and convenient meals and proteins verticals. For fiscal 2022, net sales increased primarily due to the inclusion of the Planters® snack nuts business and the impact from strategic pricing actions. Consistent with the Company's long-term strategy to better align resources to value-added growth, the overall decline in volume for the fourth quarter and full year of fiscal 2022 was primarily due to lower commodity sales resulting from the Company's new pork supply agreement, in addition to supply impacts on the Company's vertically integrated supply chain as a result of HPAI.For the fourth quarter of fiscal 2022, segment profit increased due to higher commodity turkey prices, improved value-added mix, and pricing actions to offset the impact from continued inflationary pressures. Fiscal 2022 segment profit increased, as the contribution from the Planters® snack nuts business and higher commodity turkey prices more than offset the impact of inflationary pressures and lower results from MegaMex Foods.26Table of ContentsFoodservice Fourth Quarter EndedFiscal Year Ended October 30,October 31,October 30,October 31,In thousands20222021% Change20222021% ChangeVolume (lbs.)266,447 301,111 (11.5)1,027,124 1,007,667 1.9 Net Sales$1,009,672 $1,043,634 (3.3)$3,691,408 $3,130,174 17.9 Segment Profit148,203 163,367 (9.3)547,686 431,992 26.8 Volume and net sales declined in the fourth quarter of fiscal 2022 due to the impact from an additional week in the fourth quarter of fiscal 2021 and lower turkey sales. Partially offsetting these declines, products such as Hormel® Natural Choice® meats, Hormel® Bacon 1TM fully cooked bacon and Hormel® Fire BraisedTM flame-seared meats grew volume and sales for the fourth quarter of fiscal 2022. Fiscal 2022 volume and net sales increased due to strong results across the portfolio as the industry continued to recover from pandemic-related declines and from the inclusion of the Planters® snack nuts business in the convenience channel.The decline in segment profit for the fourth quarter of fiscal 2022 was driven by the impact from an additional week in the fourth quarter of fiscal 2021 and higher operational, logistics and raw material costs. Segment profit growth for fiscal 2022 was primarily due to significantly higher net sales as described above.International Fourth Quarter EndedFiscal Year Ended October 30,October 31,October 30,October 31,In thousands20222021% Change20222021% ChangeVolume (lbs.)83,999 98,399 (14.6)331,421 379,145 (12.6)Net Sales$207,350 $230,068 (9.9)$779,799 $837,936 (6.9)Segment Profit28,810 38,970 (26.1)107,642 116,585 (7.7)In the fourth quarter of fiscal 2022, volume and net sales growth from the SPAM® and Skippy® brands and the multinational businesses were more than offset by lower commodity turkey, fresh pork and refrigerated export sales. For fiscal 2022, volume and sales declined as a result of lower commodity sales due to the Company's new pork supply agreement, lower turkey sales as a result of the supply impacts on the Company's vertically integrated supply chain from HPAI, and ongoing export logistics challenges.Segment profit declined in the fourth quarter of fiscal 2022, as growth in China did not overcome the impact of lower commodity turkey sales, lower branded export margins, and higher logistics expenses for the export business. Segment profit for fiscal 2022 declined due in large part to lower results from the export business, which was negatively impacted by logistics challenges and meaningfully higher freight expenses.Unallocated Income and ExpenseThe Company does not allocate deferred compensation, investment income, interest expense, or interest income to its segments when measuring performance. The Company also retains various other income and unallocated expenses at the corporate level. Equity in Earnings of Affiliates is included in segment profit; however, earnings attributable to the Company’s corporate venturing investments and noncontrolling interests are excluded. Fourth Quarter EndedFiscal Year Ended October 30,October 31,October 30,October 31,In thousands2022202120222021Net Unallocated Expense$18,498 $17,669 $99,297 $112,836 Noncontrolling Interest128 12 239 301 For the fourth quarter of fiscal 2022, net unallocated expense increased slightly as unfavorable investment performance was mostly offset with lower corporate expense. For fiscal 2022, net unallocated expense decreased due to one-time acquisition costs and accounting adjustments of $43 million related to the acquisition of the Planters® snack nuts business in fiscal 2021. The overall decline was partially offset by higher interest expense and lower investment income net of deferred compensation.27Table of ContentsNon-GAAP Financial MeasuresThe non-GAAP financial measure of adjusted diluted earnings per share is presented to provide investors with additional information to facilitate the comparison of past and present operations. This measurement excludes the impact of the acquisition-related expenses and accounting adjustments related to the acquisition of the Planters® snack nuts business. The tax impact was calculated using the effective tax rate for the quarter in which the expenses and accounting adjustments were incurred.The non-GAAP financial measures of organic volume and organic net sales are presented to provide investors with additional information to facilitate the comparison of past and present operations. Organic volume and organic net sales exclude the impacts of the acquisition of the Planters® snack nuts business (June 2021) in the Retail, Foodservice, and International segments. Organic volume and organic net sales also exclude the impact of the 53rd week in fiscal 2021 as approximated based on average weekly sales for the fourth quarter (fourteen weeks) ended October 31, 2021.The Company provides earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA) because these measures are useful to management and investors as indicators of operating strength relative to prior years and are commonly used to benchmark the Company’s performance.The Company believes these non-GAAP financial measures provide useful information to investors because they are the measures used to evaluate performance on a comparable year-over-year basis. Non-GAAP measures are not intended to be a substitute for U.S. GAAP measures in analyzing financial performance. These non-GAAP measures are not in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies.The following tables show the calculations to reconcile from the GAAP measures to the non-GAAP adjusted measures.ADJUSTED DILUTED EARNINGS PER SHARE (NON-GAAP)Fiscal Year EndedOctober 30, 2022October 31, 2021In thousands, except per share amountsReportedGAAPReportedGAAPAcquisition Costs and AdjustmentsNon-GAAPNon-GAAP% ChangeNet Sales$12,458,806 $11,386,189 $— $11,386,189 9.4 Cost of Products Sold10,294,120 9,458,283 (12,900)9,445,383 9.0 Gross Profit2,164,686 1,927,906 12,900 1,940,806 11.5 Selling, General, and Administrative879,265 853,071 (30,303)822,768 6.9 Equity in Earnings of Affiliates27,185 47,763 — 47,763 (43.1)Operating Income1,312,607 1,122,599 43,203 1,165,802 12.6 Interest and Investment Income (Expense)28,012 46,878 — 46,878 (40.2)Interest Expense62,515 43,307 — 43,307 44.4 Earnings Before Income Taxes1,278,103 1,126,170 43,203 1,169,373 9.3 Provision for Income Taxes277,877 217,029 5,975 223,004 24.6 Net Earnings1,000,226 909,140 37,228 946,368 5.7 Less: Net Earnings Attributable to Noncontrolling Interest239 301 — 301 (20.5)Net Earnings Attributable to Hormel Foods Corporation$999,987 $908,839 $37,228 $946,067 5.7 Diluted Net Earnings Per Share$1.82 $1.66 $0.06 $1.73 5.2 ORGANIC VOLUME (NON-GAAP)Fourth Quarter Ended October 30, 2022October 31, 2021Lbs., in thousandsReported(GAAP)Reported(GAAP)53rd WeekOrganic(Non-GAAP)Organic% ChangeRetail 810,044 980,339 (70,024)910,315 (11.0)Foodservice 266,447 301,111 (21,508)279,603 (4.7)International83,999 98,399 (7,029)91,371 (8.1)Total Volume1,160,490 1,379,848 (98,561)1,281,287 (9.4)28Table of ContentsFiscal Year Ended October 30, 2022October 31, 2021Lbs., in thousandsReported(GAAP)AcquisitionsOrganic(Non-GAAP)Reported(GAAP)53rd WeekOrganic(Non-GAAP)Organic% ChangeRetail3,245,625 (138,186)3,107,439 3,546,324 (70,024)3,476,300 (10.6)Foodservice1,027,124 (22,127)1,004,997 1,007,667 (21,508)986,159 1.9 International331,421 (3,503)327,918 379,145 (7,029)372,117 (11.9)Total Volume4,604,169 (163,817)4,440,352 4,933,136 (98,561)4,834,575 (8.2)ORGANIC NET SALES (NON-GAAP)Fourth Quarter Ended October 30, 2022October 31, 2021In thousandsReported(GAAP)Reported(GAAP)53rd WeekOrganic(Non-GAAP)Organic% ChangeRetail$2,066,454 $2,181,048 $(155,789)$2,025,259 2.0 Foodservice1,009,672 1,043,634 (74,545)969,089 4.2 International207,350 230,068 (16,433)213,635 (2.9)Total Net Sales$3,283,475 $3,454,751 $(246,768)$3,207,983 2.4 Fiscal Year Ended October 30, 2022October 31, 2021In thousandsReported(GAAP)AcquisitionsOrganic(Non-GAAP)Reported(GAAP)53rd WeekOrganic(Non-GAAP)Organic% ChangeRetail$7,987,598 $(514,708)$7,472,890 $7,418,079 $(155,789)$7,262,290 2.9 Foodservice3,691,408 (80,979)3,610,429 3,130,174 (74,545)3,055,629 18.2 International779,799 (9,877)769,922 837,936 (16,433)821,503 (6.3)Total Net Sales$12,458,806 $(605,565)$11,853,241 $11,386,189 $(246,768)$11,139,421 6.4 EBIT AND EBITDA (NON-GAAP) Fiscal Year EndedIn thousandsOctober 30, 2022October 31, 2021EBIT:Net Earnings Attributable to Hormel Foods Corporation$999,987 $908,839 Plus: Income Tax Expense277,877 217,029 Plus: Interest Expense62,515 43,307 Less: Interest and Investment Income28,012 46,878 EBIT$1,312,367 $1,122,297 EBITDA:EBIT per above1,312,367 1,122,297 Plus: Depreciation and Amortization235,885 209,309 EBITDA$1,548,252 $1,331,606 LIQUIDITY AND CAPITAL RESOURCESWhen assessing liquidity and capital resources, the Company evaluates cash and cash equivalents, short-term and long-term investments, income from operations, and borrowing capacity. Cash Flow HighlightsFiscal Year EndedIn millionsOctober 29, 2023October 30, 2022Cash and Cash Equivalents$737 $982 Cash Provided By (Used in) Operating Activities1,048 1,135 Cash Provided by (Used in) Investing Activities(690)(258)Cash Provided by (Used in) Financing Activities(600)(487)Cash and cash equivalents decreased in fiscal 2023. The Company’s income from operations was sufficient to cover dividend payments and capital expenditures. Cash on hand was also used to fund an investment in Garudafood, a food and beverage company in Indonesia. Additional details related to significant drivers of cash flows are provided below.29Table of ContentsCash Provided by (Used in) Operating Activities▪Cash flows from operating activities were largely impacted by changes in operating assets and liabilities.–Accounts receivable decreased $49 million in fiscal 2023 primarily due to timing of sales and more efficient collections. The $28 million decrease in fiscal 2022 is largely due to timing of collections.–In fiscal 2023, inventory decreased $36 million as a result of strategic inventory management efforts implemented to address elevated inventory levels. The $352 million increase in fiscal 2022 is due to inflation in raw material and other input costs and maintaining higher inventory levels.–Prepaid expenses and other assets increased $69 million in fiscal 2023 primarily due to cash collateral requirements for the Company's hedging programs and timing of payments related to infrastructure improvement commitments. The increase in fiscal 2022 of $15 million is primarily due to the timing of payments.–Accounts payable and accrued expenses decreased $141 million in fiscal 2023 related to the timing of payments and lower promotional and incentive compensation expenses. In fiscal 2022, accounts payable and accrued expenses decreased $15 million related to the timing of payments.Cash Provided by (Used in) Investing Activities▪In fiscal 2023, the Company acquired a minority interest in Garudafood for $426 million, including associated transaction costs.▪Capital expenditures were $270 million and $279 million in fiscal 2023 and 2022, respectively. The largest projects for fiscal 2023 included a new production line for the SPAM® family of products in Dubuque, Iowa, initial phases of the transition from harvest to value-added capacity in Barron, Wisconsin, wastewater infrastructure in Austin, Minnesota, and pepperoni capacity in Omaha, Nebraska. The largest spend in fiscal 2022 also included the capacity expansion for SPAM® and pepperoni as well as for bacon in Austin, Minnesota.Cash Provided by (Used in) Financing Activities▪Cash dividends paid to the Company’s shareholders are an ongoing financing activity for the Company with payments totaling $593 million in fiscal 2023 and $558 million in fiscal 2022. The dividend rate was $1.10 per share in fiscal 2023 compared to $1.04 per share in fiscal 2022. ▪During fiscal 2023, the Company repurchased 310,000 shares for $12 million. Sources and Uses of CashThe Company's balanced business model, with diversification across raw material inputs, channels, and categories, provides stability in ever changing economic environments. The Company maintains a disciplined capital allocation strategy by applying a waterfall approach, which focuses first on required uses of cash such as capital expenditures to maintain facilities, dividend returns to investors, mandatory debt repayments, and pension obligations. Next, the Company looks to strategic items in support of growth initiatives such as capital projects, acquisitions, additional dividend increases, and working capital investments. Finally, the Company evaluates opportunistic uses including incremental debt repayment and share repurchases. The Company believes its anticipated income from operations, cash on hand, borrowing capacity under the current credit facility, and access to capital markets will be adequate to meet all short-term and long-term commitments. The Company continues to look for opportunities to make investments and acquisitions that align with its strategic priorities. The Company's ability to leverage its balance sheet through the issuance of debt provides the flexibility to pursue strategic opportunities which may require additional funding.Dividend PaymentsThe Company remains committed to providing returns to investors through cash dividends. The Company has paid 381 consecutive quarterly dividends since becoming a public company in 1928. The annual dividend rate for fiscal 2024 will increase to $1.13 per share, representing the 58th consecutive annual dividend increase. Capital ExpendituresCapital expenditures are first allocated to required maintenance and then growth opportunities based on the needs of the business. Capital expenditures supporting growth opportunities in fiscal 2024 are expected to focus on projects related to value-added capacity, infrastructure, and new technology. Capital expenditures for fiscal 2024 are estimated to be $280 million. DebtAs of October 29, 2023, the Company’s outstanding debt included $3.3 billion of fixed rate unsecured senior notes due in fiscal 2024, 2028, 2030, and 2051 with interest payable semi-annually. During fiscal 2023, the Company made $55 million of interest payments and expects to make $55 million of interest payments in fiscal 2024 on these notes. In fiscal 2023, $950 million of the notes was reclassified as Current Maturities of Long-term Debt on the Consolidated Statements of Financial Position. See Note L - Long-Term Debt and Other Borrowing Arrangements of the Notes to the Consolidated Financial Statements for additional information.Borrowing CapacityAs a source of short-term financing, the Company maintains a $750 million unsecured revolving credit facility. The maximum commitment under this credit facility may be further increased by $375 million, generally by mutual agreement of the lenders and 30Table of Contentsthe Company, subject to certain customary conditions. Funds drawn from this facility may be used by the Company to refinance existing debt, for working capital or other general corporate purposes, and for funding acquisitions. The lending commitments under the facility are scheduled to expire on May 6, 2026, at which time the Company will be required to pay in full all obligations then outstanding. As of October 29, 2023, the Company had no outstanding draws from this facility.Debt CovenantsThe Company’s debt and credit agreements contain customary terms and conditions including representations, warranties, and covenants. These debt covenants limit the ability of the Company to, among other things, incur debt for borrowed money secured by certain liens, engage in certain sale and leaseback transactions, and require maintenance of certain consolidated leverage ratios. As of October 29, 2023, the Company was in compliance with all covenants and expects to maintain compliance in the future.Cash Held by International SubsidiariesAs of October 29, 2023, the Company had $164 million of cash and cash equivalents held by international subsidiaries. The Company maintains all undistributed earnings as permanently reinvested. The Company evaluates the balance and uses of cash held internationally based on the needs of the business. Share RepurchasesThe Company is authorized to repurchase 3,677,494 shares of common stock as part of an existing plan approved by the Company’s Board of Directors. During fiscal 2023, the Company repurchased 310,000 shares for $12 million. The Company continues to evaluate share repurchases as part of its capital allocation strategy.CommitmentsThe following table shows a schedule of the Company's material cash commitments as of October 29, 2023:In millionsPayments Due by PeriodsTotalLess than 1 year1-3 years3-5 yearsMore than 5 yearsPurchase Commitments(1)$2,763 $1,229 $1,178 $298 $59 Debt Repayments(2)3,300 950 — 750 1,600 Interest Payments on Long-term Debt(2)708 55 98 98 457 Pension & Other Post-retirement Benefit Payments(3)1,138 104 217 227 590 Lease Obligations(4)194 41 69 47 36 Other Commitments(5)110 51 59 — — (1) The Company commits to purchase quantities of livestock, grain, and other raw materials to ensure a steady supply of production inputs. The Company uses hedging programs to manage price risk associated with a portion of the future grain and hog commitments. The purchase commitments listed above do not reflect the impact of the hedging instruments that manage the risk of fluctuating commodity markets. See Note F - Derivatives and Hedging and Note J - Commitments and Contingencies of the Notes to the Consolidated Financial Statements for additional information.(2) As of October 29, 2023, the Company’s outstanding debt included unsecured senior notes due in fiscal 2024, 2028, 2030, and 2051. The Company is required by certain covenants in its debt agreements to maintain specified levels of financial ratios and financial position. See Note L - Long-Term Debt and Other Borrowing Arrangements of the Notes to the Consolidated Financial Statements for additional information.(3) Represents pension and other post-retirement benefit payments related to the Company's unfunded defined benefit plans. Benefit payments reflect expectations for the next ten years as estimates are not readily available beyond that point. See Note G - Pension and Other Post-Retirement Benefits of the Notes to the Consolidated Financial Statements for additional information.(4) See Note K - Leases of the Notes to the Consolidated Financial Statements for additional detail. Lease payments exclude $31.2 million of legally binding minimum lease payments for leases signed but not yet commenced.(5) Includes obligations related to infrastructure improvements supporting various manufacturing facilities and a media advertising agreement.Off Balance Sheet ArrangementsAs of October 29, 2023, the Company had $48.6 million of standby letters of credit issued on its behalf. The standby letters of credit are primarily related to the Company’s self-insured workers compensation programs. This amount includes revocable standby letters of credit totaling $2.7 million for obligations of an affiliated party that may arise under workers compensation claims. Letters of credit are not reflected on the Consolidated Statements of Financial Position.CRITICAL ACCOUNTING ESTIMATESManagement's discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can 31Table of Contentshave a meaningful effect on the reporting of consolidated financial statements. See Note A - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for additional information.Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which may result in materially different results under different assumptions and conditions. The Company believes the following are its critical accounting estimates:Revenue RecognitionDescription: The Company recognizes sales at the point in time when the performance obligation has been satisfied and control of the product has transferred to the customer. Obligations for the Company are usually fulfilled once shipped product is received or picked up by the customer. Revenue is recorded net of applicable provisions for discounts, returns, and allowances. Judgments and Uncertainties: The Company offers various sales incentives to customers and consumers. Incentives offered off-invoice include prompt pay allowances, will call allowances, spoilage allowances, and temporary price reductions. These incentives are recognized as reductions of revenue at the time control is transferred. Coupons are used as an incentive for consumers to purchase various products. The coupons reduce revenue at the time they are offered, based on estimated redemption rates. Promotional contracts are performed by customers to promote the Company’s products to consumers. These incentives reduce revenue at the time of performance through direct payments and accrued promotional funds. Accrued promotional funds are unpaid liabilities for promotional contracts in process or completed at the end of a quarter or fiscal year. Accruals with customers are based on defined performance.Sensitivity of Estimate to Change: The liability relating to these agreements is based on a review of the outstanding contracts on which performance has taken place but which the promotional payments relating to such contracts remain unpaid as of the end of the fiscal year. The level of customer performance and the historical spend rate versus contracted rates are estimates used to determine these liabilities.Income TaxesDescription: The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. Changes in enacted tax rates are reflected in the tax provision as they occur.Judgments and Uncertainties: The Company computes its provision for income taxes based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it operates. Judgment is required in evaluating the Company’s tax positions and determining its annual tax provision.Sensitivity of Estimate to Change: While the Company considers all of its tax positions fully supportable, the Company is occasionally challenged by various tax authorities regarding the amount of taxes due. The Company recognizes a tax position in its financial statements when it is more likely than not the position will be sustained upon examination, based on its technical merits. The position is then measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. A change in judgment related to the expected ultimate resolution of uncertain tax positions will be recognized in earnings in the quarter of such change. As of October 29, 2023, the Company had $21.5 million of unrecognized tax benefits, including estimated interest and penalties, recorded in Other Long-term Liabilities.Business CombinationsDescription: The Company accounts for business combinations using the acquisition method of accounting. The Company allocates the purchase price of an acquired business to the assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date with the excess recorded as Goodwill.Judgments and Uncertainties: The acquisition method of accounting requires the Company to make significant estimates and assumptions regarding the fair value of the acquired assets. Fair value of the assets and liabilities acquired is determined through established valuation techniques, such as the income, cost or market approach. The Company may utilize third-party valuation experts to assist in the fair value determination. The fair value measurements of identifiable intangibles are based on available historical information and expectations and assumptions about the future. Significant assumptions used to value identifiable intangible assets may include projected revenue growth, estimated cash flows, discount rates, royalty rates, and other factors.Determining the useful life of an intangible asset also requires judgment. Certain acquired brands are expected to have indefinite lives based on their history and the Company’s intent to continue to support and build the brands. Other acquired assets, such as customer relationships, are expected to have determinable useful lives.Sensitivity of Estimate to Change: The Company did not have any business combinations in fiscal 2023 and 2022. On June 7, 2021, the Company acquired the Planters® snack nuts business for $3.4 billion and used a third-party valuation specialist to perform the valuation of the assets acquired. Refer to Note B - Acquisitions and Divestitures of the Notes to the Consolidated 32Table of ContentsFinancial Statements for additional information. The Company acquired trade names which were determined to have a fair value of $712.0 million. Key assumptions used to calculate the fair value of the trade names using a relief from royalty model included revenue projections, royalty rates, and discount rates. The Company also identified customer relationships which were assigned a fair value of $51.0 million using the distributor method under the income approach. Assumptions in valuing this asset included future earnings projections, customer attrition rate, and discount rate, among others. The Company believes the estimates applied are based on reasonable assumptions, but which are inherently uncertain. As a result, actual results may differ from the assumptions and judgments used to determine fair value of the assets acquired, which could result in material impairment losses in the future.Goodwill and Other Indefinite-Lived IntangiblesDescription: Other indefinite-lived intangible assets primarily include trade names obtained through business acquisitions which are originally recorded at their estimated fair values at the date of acquisition. Goodwill is the residual after allocating the purchase price to net assets acquired and is allocated across the Company’s reporting units: Retail, Foodservice, and International. Goodwill and indefinite-lived intangible assets are not amortized but tested annually for impairment, or more frequently if impairment indicators arise. If the carrying value of these assets exceeds the estimated fair value, the asset is considered impaired which requires a reduction to earnings. See Note A - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for additional details regarding the Company’s procedures.Judgments and Uncertainties: Determining whether impairment indicators exist and estimating the fair value of the Company’s goodwill reporting units and intangible assets for impairment testing requires significant judgment. Indefinite-lived trade names are evaluated for impairment using an income approach utilizing the relief from royalty method. Significant assumptions include royalty rate, annual projected revenue, discount rate, and estimated long-term growth rate. Estimating the fair value of goodwill reporting units using the discounted cash flow model requires management to make assumptions and projections of future cash flows, revenues, earnings, discount rates, long-term growth rates, and other factors.Sensitivity of Estimate to Change: The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with the Company’s operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.As a result of organizational changes in the first quarter of fiscal 2023, the Company conducted an assessment of its operating segments and reporting units. Based on this analysis, goodwill was reallocated using the relative fair value approach. Prior to the goodwill reallocation, an impairment assessment was performed which indicated no impairment to the Company's reporting units. Subsequent to the goodwill reallocation, the Company completed quantitative impairment testing on each new reporting unit. The estimated fair value of each goodwill reporting unit exceeded the calculated carrying value by more than 50 percent. During the fourth quarter of fiscal 2023, the Company performed a qualitative assessment of goodwill. No goodwill impairment charges were recorded as a result of the assessment. Based on the quantitative testing performed in the first quarter of fiscal 2023, a 10 percent decline in projected cash flows or 10 percent increase in the discount rate would not result in an impairment.The Company also performed a qualitative impairment assessment for indefinite-lived intangible assets in the fourth quarter of fiscal 2023. As a result of the qualitative assessment, it was determined that it was more likely than not the Justin's® trade name was impaired, and the Company performed a quantitative impairment test. As a result of the quantitative impairment test, a $28.4 million intangible asset impairment charge was recorded for the Justin's® trade name. No other impairment charges were recorded as a result of the qualitative assessment. The Company last completed quantitative testing for the other indefinite-lived intangible assets in fiscal 2021 and the estimated fair value of each indefinite-lived intangible asset exceeded the carrying value by more than 10 percent. Based on the fiscal 2021 testing, a 10 percent decline in forecasted revenue or 10 percent increase in the discount rate would not result in a material impairment. Based on the fiscal 2023 quantitative impairment test, a 10 percent decline in forecasted revenue or 10 percent increase in the discount rate used for the Justin's® trade name would not result in additional material impairment.Pension and Other Post-Retirement BenefitsDescription: The Company sponsors several defined benefit pension and post-retirement health care benefit plans and recognizes the associated expenses, assets, and liabilities.Judgments and Uncertainties: In accounting for these employment costs and the associated benefit obligations, management must make a variety of assumptions and estimates including mortality rates, discount rates, compensation increases, expected return on plan assets, health care cost trend rates, and interest crediting rates. The Company considers historical data as well as current facts and circumstances when determining these estimates. Expected long-term rate of return on plan assets is based on fair value, composition of the asset portfolio, historical long-term rates of return, and estimates of future performance. Mortality and discount rates used are based on actuarial tables elected at each fiscal year-end. The Company uses third-party specialists to assist in the determination of these estimates and the calculation of certain employee benefit expenses and the outstanding obligation.33Table of ContentsBenefit plan assets are stated at fair value. Due to the lack of readily available market prices, private equity investments are valued by models using a combination of available market data and unobservable inputs that consider earnings multiples, discounted cash flows, and other qualitative and quantitative factors. Other benefit plan investments are measured at Net Asset Value (NAV) per share of the fund's underlying investments as a practical expedient. Sensitivity of Estimate to Change: The assumed discount rate, expected long-term rate of return on plan assets, rate of future compensation increase, interest crediting rate, and the health care cost trend rate have a significant impact on the amounts reported for the benefit plans. For the year ended October 29, 2023, the Company had $1.2 billion and $186.2 million in pension benefit obligation and post-retirement benefit obligation, respectively. For fiscal 2024, the Company expects pension benefit costs of $44.3 million and post-retirement benefit costs of $10.5 million. A one-percentage-point change in these rates would have the following effects:One-Percentage-PointBenefit CostBenefit ObligationIn millionsIncreaseDecreaseIncreaseDecreasePension BenefitsDiscount Rate$(11.0)$13.0 $(108.5)$129.7 Expected Long-term Rate of Return on Plan Assets(11.5)11.5 — — Rate of Future Compensation Increase1.7 (1.5)1.0 (1.3) Interest Crediting Rate4.3 (3.6)11.6 (10.2)Post-retirement BenefitsDiscount Rate$(0.2)$0.3 $(12.4)$14.3 Health Care Cost Trend Rate1.0 (0.9)14.3 (12.6)As of October 29, 2023, the Company had $79.4 million and $638.4 million of private equity and NAV investments, respectively. These valuations are subject to judgments and assumptions of the funds which may prove to be incorrect, resulting in risks of incorrect valuation of these investments. The Company seeks to mitigate these risks by evaluating the appropriateness of the funds’ judgments and assumptions by reviewing the financial data included in the funds’ financial statements. The Company also holds quarterly meetings with the investment adviser to review fund performance, which include comparisons to the relevant indices. On an annual basis, the Company performs pricing tests on certain underlying investments to gain additional assurance of the reliability of values received from the fund manager. See Note G - Pension and Other Post-Retirement Benefits of the Notes to the Consolidated Financial Statements for additional information.Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe Company is exposed to various forms of market risk as a part of its ongoing business practices. The Company utilizes derivative instruments to mitigate earnings fluctuations due to market volatility.Commodity Price Risk: The Company is subject to commodity price risk primarily through grain, lean hog, and natural gas markets. To reduce these exposures and offset the fluctuations caused by changes in market conditions, the Company employs hedging programs. These programs utilize futures, swaps, and options contracts and are accounted for as cash flow hedges. The fair value of the Company’s cash flow commodity contracts as of October 29, 2023, was $17.1 million compared to $21.6 million as of October 30, 2022. The Company measures its market risk exposure on its cash flow commodity contracts using a sensitivity analysis, which considers a hypothetical 10 percent change in the market prices. A 10 percent decrease in the market price would have negatively impacted the fair value of the Company's cash flow commodity contracts as of October 29, 2023, by $26.3 million, which in turn would lower the Company's future cost on purchased commodities by a similar amount.Interest Rate Risk: The Company is subject to interest rate risk primarily from changes in fair value of long-term fixed rate debt. As of October 29, 2023, the Company’s long-term debt had a fair value of $2.7 billion compared to $2.7 billion as of October 30, 2022. The Company measures its market risk exposure of long-term fixed rate debt using a sensitivity analysis, which considers a 10 percent change in interest rates. A 10 percent decrease in interest rates would have positively impacted the fair value of the Company’s long-term debt as of October 29, 2023, by $83.6 million. A 10 percent increase would have negatively impacted the long-term debt by $77.5 million.Foreign Currency Exchange Rate Risk: The fair values of certain assets are subject to fluctuations in foreign currency exchange rates. The Company's net asset position in foreign currencies as of October 29, 2023, was $1.1 billion, compared to $652.4 million as of October 30, 2022, with most of the exposure existing in Indonesian rupiah, Chinese yuan, and Brazilian real. The Company currently does not use market risk sensitive instruments to manage this risk.Investment Risk: The Company has corporate-owned life insurance policies classified as trading securities as part of a rabbi trust to fund certain supplemental executive retirement plans and deferred income plans. As of October 29, 2023, the balance of 34Table of Contentsthese securities totaled $188.2 million compared to $186.2 million as of October 30, 2022. The rabbi trust is invested primarily in fixed income funds. The Company is subject to market risk due to fluctuations in the value of the remaining investments as unrealized gains and losses associated with these securities are included in the Company’s net earnings on a mark-to-market basis. 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0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/INTERNATIONAL BUSINESS MACHINES CORP_10-Q_2023-10-31_51143-0000051143-23-000032.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/INTERNATIONAL FLAVORS & FRAGRANCES INC_10-Q_2023-11-08_51253-0000051253-23-000036.html b/INTERNATIONAL FLAVORS & FRAGRANCES INC_10-Q_2023-11-08_51253-0000051253-23-000036.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/INTERNATIONAL FLAVORS & FRAGRANCES INC_10-Q_2023-11-08_51253-0000051253-23-000036.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/INTERNATIONAL PAPER CO -NEW-_10-Q_2023-10-27_51434-0000051434-23-000053.html b/INTERNATIONAL PAPER CO -NEW-_10-Q_2023-10-27_51434-0000051434-23-000053.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/INTERNATIONAL PAPER CO -NEW-_10-Q_2023-10-27_51434-0000051434-23-000053.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/JACK HENRY & ASSOCIATES INC_10-Q_2023-11-09_779152-0000779152-23-000099.html b/JACK HENRY & ASSOCIATES INC_10-Q_2023-11-09_779152-0000779152-23-000099.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/JACK HENRY & ASSOCIATES INC_10-Q_2023-11-09_779152-0000779152-23-000099.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/JACOBS SOLUTIONS INC._10-K_2023-11-21_52988-0000052988-23-000084.html b/JACOBS SOLUTIONS INC._10-K_2023-11-21_52988-0000052988-23-000084.html new file mode 100644 index 0000000000000000000000000000000000000000..53b9c701d3e59eda3f8d8833408191ac8dc50570 --- /dev/null +++ b/JACOBS SOLUTIONS INC._10-K_2023-11-21_52988-0000052988-23-000084.html @@ -0,0 +1 @@ +Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCritical Accounting Policies and EstimatesIn order to better understand the changes that occur to key elements of our financial condition, results of operations and cash flows, a reader of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be aware of the critical accounting policies we apply in preparing our consolidated financial statements.The consolidated financial statements contained in this report were prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and the financial statements of any business performing long-term professional services, engineering and construction-type contracts requires management to make certain estimates and judgments that affect both the entity’s results of operations and the carrying values of its assets and liabilities. Although our significant accounting policies are described in Note 2- Significant Accounting Policies of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K, the following discussion is intended to Page 48highlight and describe those accounting policies that are especially critical to the preparation of our consolidated financial statements.Revenue Accounting for ContractsThe Company recognizes engineering, procurement, and construction contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer in accordance with ASC 606, Revenue from Contracts with Customers. Contracts that include engineering, procurement and construction services are generally accounted for as a single deliverable (a single performance obligation). In some instances, the Company’s services associated with a construction activity are limited only to specific tasks such as customer support, consulting or supervisory services. In these instances, the services are typically identified as separate performance obligations.The Company recognizes revenue using the percentage-of-completion method, based primarily on contract costs incurred to date compared to total estimated contract costs. Estimated contract costs include the Company’s latest estimates using judgments with respect to labor hours and costs, materials, and subcontractor costs. The percentage-of-completion method (an input method) is the most representative depiction of the Company’s performance because it directly measures the value of the services transferred to the customer. Subcontractor materials, labor and equipment and, in certain cases, customer-furnished materials and labor and equipment are included in revenue and cost of revenue when management believes that the company is acting as a principal rather than as an agent (e.g., the company integrates the materials, labor and equipment into the deliverables promised to the customer or is otherwise primarily responsible for fulfillment and acceptability of the materials, labor and/or equipment). Under the typical payment terms of our engineering, procurement and construction contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms at periodic intervals (e.g., biweekly or monthly) and customer payments are typically due within 30 to 60 days of billing, depending on the contract.For service contracts, the Company recognizes revenue over time using the cost-to-cost percentage-of-completion method. In some instances where the Company is standing ready to provide services, the Company recognizes revenue ratably over the service period. Under the typical payment terms of our service contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, and customer payments are typically due within 30 to 60 days of billing, depending on the contract.Direct costs of contracts include all costs incurred in connection with and directly for the benefit of client contracts, including depreciation and amortization relating to assets used in providing the services required by the related projects. The level of direct costs of contracts may fluctuate between reporting periods due to a variety of factors, including the amount of pass-through costs we incur during a period. On those projects where we are acting as principal for subcontract labor or third-party materials and equipment, we reflect the amounts of such items in both revenues and costs (and we refer to such costs as “pass-through costs”).Accounting for Pension PlansThe accounting for pension plans requires the use of assumptions and estimates in order to calculate periodic pension cost and the value of the plans’ assets and liabilities. These assumptions include discount rates, investment returns, and projected salary increases, among others. The actuarial assumptions used in determining the funded statuses of the plans are provided in Note 13- Pension and Other Postretirement Benefit Plans of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.The expected rates of return on plan assets ranged from 3.3% to 7.5% for fiscal 2023 and range from 5.3% to 7.6% for fiscal 2024. We believe the range of rates selected for fiscal 2024 reflects the long-term returns expected on the plans’ assets, considering recent market conditions, projected rates of inflation, the diversification of the plans’ assets, and the expected real rates of market returns. The discount rates used to compute plan liabilities ranged from 2.4% to 7.4% in fiscal 2023 and range from 3.8% to 6.9% in fiscal 2024. These assumptions represent the Company’s best estimate of the rates at which its pension obligations could be effectively settled.Changes in the actuarial assumptions often have a material effect on the values assigned to plan assets and liabilities, and the associated pension expense. For example, if the discount rate used to value the net pension benefit obligation (“PBO”) at September 29, 2023 was lower or higher by 1.0%, the PBO would have been higher or lower, respectively, at that date by approximately $139.9 million for non-U.S. plans, and by approximately $19.8 million for U.S. plans. If the expected return on plan assets was lower or higher by 1.0%, the net periodic pension cost for fiscal 2023 would be higher or lower, respectively, by approximately $12.4 million for non-U.S. plans, and by approximately $3.2 Page 49million for U.S. plans. Differences between actuarial assumptions and actual performance (i.e., actuarial gains and losses) that are not recognized as a component of net periodic pension cost in the period in which such differences arise are recorded to accumulated other comprehensive income (loss) and are recognized as part of net periodic pension cost in future periods in accordance with U.S. GAAP. Management monitors trends in the marketplace within which our pension plans operate in an effort to assure the reasonableness of the actuarial assumptions used.Redeemable Noncontrolling InterestsIn connection with the PA Consulting investment in March 2021, the Company recorded redeemable noncontrolling interests, representing the interest holders' initial 35% equity interest in the form of preferred and common shares of PA Consulting. The preferred shares are entitled to a cumulative annual compounding 12% dividend based on the outstanding preferred share subscription price. These noncontrolling interest holders have certain option rights to put the preferred and common share interests back to the Company at a value based on the fair value of PA Consulting (the redemption values). The primary inputs and assumptions impacting the fair value of PA Consulting include projections of revenue and earnings before interest, taxes, depreciation and amortization and discount rates applied thereto. Additionally, the Company has an option to call the interests for certain individual shareholders in certain circumstances. Because the interests are redeemable at the option of the holders and not solely within the control of the Company, the Company classified the interests in redeemable noncontrolling interests within its Consolidated Balance Sheet at their redemption values. The optional redemption features may become exercisable no earlier than five years from the March 2, 2021 closing date, or upon the occurrence of certain other events.The Company has deemed these interests probable of becoming redeemable in the future and requiring their measurement at the greater of (i) the redemption amount that would be paid if settlement occurred at the balance sheet date, or (ii) the historical value resulting from the original acquisition date fair value plus the impact of any earnings or loss attribution amounts, including dividends. The fair value of the PA Consulting redeemable noncontrolling interest is determined using a combination of the income and market approaches. Under the income approach, fair value is determined by using the projected discounted cash flows of PA Consulting. Under the market approach, the fair value is determined by reference to guideline companies that are reasonably comparable to PA Consulting; the fair value is estimated based on the valuation multiples of earnings before interest, taxes, depreciation and amortization.Litigation, Investigations, and InsuranceIn the normal course of business, we make contractual commitments, and on occasion we are a party in litigation or arbitration proceedings. The litigation in which we are involved primarily includes personal injury claims, professional liability claims, and breach of contract claims. We are also routinely subject to investigations and audits. We maintain insurance coverage for most insurable aspects of our business and operations. Our insurance programs have varying coverage limits depending upon the type of insurance and include certain conditions and exclusions which insurance companies may raise in response to any claim that the Company brings. We have also elected to retain a portion of certain losses, claims and liabilities that occur through the use of various deductibles, limits, and retentions under our insurance programs and utilize a number of internal financing mechanisms for these self-insurance arrangements including the operation of certain captive insurance entities. As a result, we may be subject to a future liability for which we are only partially insured or completely uninsured. We intend to mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms and conditions of the contracts which the Company enters with its clients. Our insurers are also subject to business risk and, as a result, one or more of them may be unable to fulfill their insurance obligations due to insolvency or otherwise.Our Consolidated Balance Sheets include amounts representing our probable estimated liability relating to such claims, litigation, audits, and investigations. Our estimates of probable liabilities require us to make assumptions related to potential losses regarding our determination of amounts considered probable and estimable. The Company believes, after consultation with counsel, that such litigation, U.S. government contract-related audits, investigations and claims, and income tax audits and investigations should not have a material adverse effect on our consolidated financial statements, beyond amounts currently accrued.Goodwill and Intangible AssetsGoodwill represents the excess of the fair value of consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the Page 50acquisition date. We recognize purchased intangible assets in connection with our business acquisitions at fair value on the acquisition date.The goodwill carried on our Consolidated Balance Sheets is tested annually for possible impairment, and on an interim basis if indicators of possible impairment exist. For purposes of impairment testing, goodwill is assigned to the applicable reporting units based on the current reporting structure. In performing the annual impairment test, we evaluate our goodwill at the reporting unit level. The Company performs the annual goodwill impairment test for the reporting units at the beginning of the fourth quarter of its fiscal year.We evaluate impairment of goodwill either by assessing qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount, or by performing a quantitative assessment. Qualitative factors include industry and market considerations, overall financial performance, and other relevant events and circumstances affecting the reporting unit. If we choose to perform a qualitative assessment and after considering the totality of events or circumstances, we determine it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we would perform a quantitative fair value test. U.S. GAAP does not prescribe a specific valuation method for estimating the fair value of reporting units. Any valuation technique used to estimate the fair value of a reporting unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates and future market conditions, among others.We use income and market approaches to test our goodwill for possible impairment which requires us to make estimates and judgments. Under the income approach, fair value is determined by using the discounted cash flows of our reporting units. The Company’s discount rate reflects a weighted average cost of capital (“WACC”) for a peer group of companies representative of the Company’s respective reporting units. Under the market approach, the fair values of our reporting units are determined by reference to guideline companies that are reasonably comparable to our reporting units; the fair values are estimated based on the valuation multiples of the invested capital associated with the guideline companies. In assessing whether there is an indication that the carrying value of goodwill has been impaired, we utilize the results of both valuation techniques and consider the range of fair values indicated.It is possible that changes in facts and circumstances, judgments and assumptions used in estimating the fair value, including with respect to market conditions and the economy, could change, resulting in possible impairment of goodwill in the future. The fair values resulting from the valuation techniques used are not necessarily representative of the values we might obtain in a sale of the reporting units to willing third parties.For the 2023 fiscal year, in connection with the separation activities of the CMS business and part of our DVS business, we performed a quantitative impairment test of the CMS and DVS reporting units and determined that the fair value of these reporting units exceeded their respective carrying value. For the remaining reporting units, we determined that the fair values significantly exceeded their carrying values and an analysis beyond the qualitative level was not considered necessary. Intangible assets with finite lives that arise from business acquisitions are amortized based on the period over which the contractual or economic benefit of the intangible assets are expected to be realized or on a straight-line basis over the useful lives of the underlying assets. These primarily consist of customer relationships, contracts and backlog, developed technology and trade names. We assess the recoverability of the unamortized balance of our intangible assets when indicators of impairment are present based on expected future profitability and undiscounted expected cash flows and their contribution to overall operations. Should the review indicate that the carrying value is not fully recoverable, the excess of the carrying value over the fair value of the intangible assets would be recognized as an impairment loss.Page 51JACOBS SOLUTIONS INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF EARNINGSFor the Fiscal Years Ended September 29, 2023, September 30, 2022 and October 1, 2021 (In thousands, except per share information)September 29, 2023September 30, 2022October 1, 2021Revenues$16,352,414 $14,922,825 $14,092,632 Direct cost of contracts(12,879,099)(11,595,785)(11,048,860)Gross profit3,473,315 3,327,040 3,043,772 Selling, general and administrative expenses(2,398,078)(2,409,190)(2,355,683)Operating Profit1,075,237 917,850 688,089 Other Income (Expense):Interest income26,013 4,489 3,503 Interest expense(168,108)(100,246)(72,714)Miscellaneous (expense) income, net(16,463)54,254 76,724 Total other (expense) income, net (158,558)(41,503)7,513 Earnings from Continuing Operations Before Taxes916,679 876,347 695,602 Income Tax Expense for Continuing Operations(196,181)(160,903)(274,781)Net Earnings of the Group from Continuing Operations720,498 715,444 420,821 Net (Loss) Earnings of the Group from Discontinued Operations(842)(32)10,008 Net Earnings of the Group719,656 715,412 430,829 Net Earnings Attributable to Noncontrolling Interests from Continuing Operations(32,265)(36,788)(39,213)Net (Earnings) Loss Attributable to Redeemable Noncontrolling Interests(21,614)(34,585)85,414 Net Earnings Attributable to Jacobs from Continuing Operations666,619 644,071 467,022 Net Earnings Attributable to Jacobs$665,777 $644,039 $477,030 Net Earnings Per Share:Basic Net Earnings from Continuing Operations Per Share$5.33 $5.01 $3.15 Basic Net (Loss) Earnings from Discontinued Operations Per Share$(0.01)$— $0.08 Basic Earnings Per Share$5.32 $5.01 $3.22 Diluted Net Earnings from Continuing Operations Per Share$5.31 $4.98 $3.12 Diluted Net (Loss) Earnings from Discontinued Operations Per Share$(0.01)$— $0.08 Diluted Earnings Per Share$5.30 $4.98 $3.20 Page 522023 OverviewNet earnings attributable to the Company from continuing operations for fiscal 2023 were $666.6 million (or $5.31 per diluted share), an increase of $22.5 million, or 3.5%, from $644.1 million (or $4.98 per diluted share) for the prior year. The current year results reflected higher year-over-year operating profit of $157.4 million, which benefited from favorable year-over-year underlying operating results for Jacobs businesses, primarily P&PS, as discussed below in the Segment Financial Information section. These favorable operating profit impacts were partly offset by fiscal 2023 Restructuring and other charges and transaction costs relating to expenses incurred in conjunction with the CMS separation activities, real estate transformation rescaling initiatives and the PA Consulting restructuring program charges (primarily employee separation costs), which are discussed in Note 16- Restructuring and Other Charges. Fiscal 2022 was impacted by the final $91.3 million settlement of a legacy litigation matter involving a subsidiary of CH2M (the "Legacy CH2M Matter"), net of previously recorded reserves, which is further discussed in Note 17- Commitments and Contingencies and Derivative Financial Instruments. Additionally, the 2023 year-to-date period was impacted by approximately $15.0 million in net favorable impacts from cost reductions associated mainly with first quarter 2023 changes in employee benefit programs, which were partly offset by higher spend in company technology platforms and other personnel and corporate cost increases. Other expense, net was unfavorable by $117.1 million for the current year compared to corresponding fiscal 2022 amounts, due mainly to higher interest expense of $67.9 million in the current year compared to the prior year due to higher interest rates. Additionally, miscellaneous (expense) income was impacted year over year by an increase in pension costs associated with higher interest rate impacts in the current year along with comparatively unfavorable foreign exchange gains and losses in the current year. Also, fiscal 2022 included a $13.9 million pre-tax gain related to a cost method investment sold during the period and a $7.1 million gain related to a lease termination.Income taxes were higher in the current year by $35.3 million due primarily to reduced total tax benefits in fiscal 2023, consisting of $39.4 million mostly related to uncertain tax positions in the U.S. that were effectively settled, as well as $13.0 million for the release of previously valued foreign tax credits, as compared to prior year favorable impacts of $33.1 million for a change in the realizability of foreign tax credits due to a change in the U.S. foreign tax credit regulations, $26.0 million for a change in judgment on the realizability of domestic deferred tax assets which are capital in nature, and $9.1 million due to the reversal of a withholding tax accrual on certain intercompany loans. In addition, in fiscal 2023, the higher year-over-year pre-tax book income resulted in an additional $10.0 million of tax expense.Finally, year-over-year net earnings impacts associated with redeemable noncontrolling interests were lower by $(13.0) million and were attributable mainly to lower after-tax earnings results in our PA Consulting investment compared to the prior year which were impacted in fiscal 2023 by the PA severance charges discussed above.Backlog at September 29, 2023 was $29.1 billion, up $1.2 billion, from $27.9 billion for the prior year. New prospects and new sales remain strong, and the Company continues to have a positive outlook for many of the industry groups and sectors in which our clients operate.Results of OperationsFiscal 2023 Compared to Fiscal 2022Revenues for the year ended September 29, 2023 were $16.35 billion, an increase of $1.43 billion, or 9.6%, from $14.92 billion for the prior year. The increase in revenues was due mainly to improved performance of our P&PS and CMS businesses and in addition, to a smaller degree, other increases in our DVS and PA Consulting businesses. The P&PS business benefited primarily from stronger performance in its Advanced Facilities and U.S. business operations, while our CMS business showed improved performance resulting from increased spending in our U.S. government business sector, which was primarily attributable to fiscal 2022 contract awards for the U.S. Department of Energy, as well as growth from contracts in the United Kingdom. Additionally, the increase in revenues for fiscal 2023 were partially offset by an unfavorable impact of foreign currency translation of $222.3 million in our international businesses, as compared to an unfavorable impact of $346.3 million for the corresponding period last fiscal year. Gross profit for the year ended September 29, 2023 was $3.47 billion, up $146.3 million, or 4.4%, from $3.33 billion for the prior year. The current year gross profit was affected by net favorable impacts from cost reductions associated mainly with first quarter 2023 changes in employee benefit programs, which were partly offset by higher spend Page 53in company technology platforms and other personnel and corporate cost increases, as mentioned above, and unfavorable foreign currency translation impacts. Our gross profit margins were 21.2% and 22.3% for the years ended September 29, 2023 and September 30, 2022, respectively. Project mix impacts in our portfolios, higher personnel costs and lower utilization trends primarily in the PA Consulting business impacted our current year margins, partly offset by new program startups won in fiscal 2023. See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment level.Selling, general & administrative expenses for the year ended September 29, 2023 were $2.40 billion, a decrease of $11.1 million, or 0.5%, from $2.41 billion for the prior year. The current year's results were impacted by Restructuring and other charges of $63.4 million in separation activities (mainly professional services and employee separation costs) relating to the CMS separation transaction, approximately $14.3 million in costs associated with the Company's restructuring initiatives relating to its investment in PA Consulting (primarily employee separation costs) and $50.7 million in costs associated with the Company's transformation initiatives relating to real estate (compared to $78.3 million for fiscal 2022). Fiscal 2022 was impacted by the final pre-tax $91.3 million settlement of the Legacy CH2M Matter, net of previously recorded reserves, mentioned above and approximately $27 million in third party recoveries was recorded as receivables reducing SG&A, which is further discussed in Note 18 - Contractual Guarantees, Litigation, Investigations and Insurance. The current year results were also impacted by higher investments in company technology platforms, offset in part by decreases in real estate related costs, as well as other department spend decreases due in part to the Company's transformation initiatives. Lastly, SG&A expenses benefited from favorable foreign exchange impacts of $42.5 million for the year ended September 29, 2023 as compared to favorable impacts of $76.4 million for fiscal 2022.Net interest expense for the year ended September 29, 2023 was $142.1 million, an increase of $46.3 million from $95.8 million for the prior year. The increase in net interest expense year over year is primarily due to higher interest rates in the current year compared to the prior year periods. The increase was offset in part by $6.3 million net interest benefit during the current year period related to the release of interest accruals associated with the effective settlement of uncertain tax positions.Miscellaneous (expense) income, net for the year ended September 29, 2023 was expense of $16.5 million, unfavorable by $70.7 million as compared to $54.3 million in income for the prior year. The increase in expense from fiscal 2022 was due primarily to an increase in pension costs associated with higher interest rate impacts in the current year along with comparatively unfavorable foreign exchange gains and losses in the current year periods. Also, fiscal 2022 included a $13.9 million pre-tax gain related to a cost method investment sold during the period and a $7.1 million gain related to a lease termination.Fiscal 2022 Compared to Fiscal 2021Revenues for the year ended September 30, 2022 were $14.92 billion, an increase of $830.2 million, or 5.9%, from $14.09 billion from fiscal 2021. The increase in revenues was due mainly to fiscal 2022 incremental revenues from the PA Consulting investment completed in March 2021, the Buffalo Group acquisition in November 2020, and the StreetLight and BlackLynx acquisitions in fiscal 2022, as well as revenue benefits from increased spending in our U.S. government business sector client base. Additionally, fiscal 2022 was unfavorably impacted by (1) certain large contract wind downs in the U.S and (2) foreign currency translation of $346.3 million in our international businesses, as compared to favorable impacts of $238.6 million for the corresponding period in fiscal 2021. Gross profit for the year ended September 30, 2022 was $3.33 billion, up $283.3 million, or 9.3%, from $3.04 billion for fiscal 2021. Our gross profit margins were 22.3% and 21.6% for the years ended September 30, 2022 and October 1, 2021, respectively. The increase in our gross profit and gross profit margins were mainly attributable to the fiscal 2022 impacts of the recent business acquisitions mentioned above and favorable impacts from the business results of our PA Consulting investment on a year-to-date basis along with revenue benefits from increased spending in the U.S. government business sector noted above. The increases in gross profit during fiscal 2022 were partially offset by the impacts from the recent large contract wind downs in the U.S. mentioned above, as well as increases in labor costs associated with moderation of COVID-19 mitigation efforts and a competitive labor market along with inflation impacts and incremental investments to support projected top-line growth.See Segment Financial Information discussion for further information on the Company’s results of operations at the operating segment level.Page 54Selling, general & administrative expenses for the year ended September 30, 2022 were $2.41 billion, an increase of $53.5 million, or 2.3%, from $2.36 billion for fiscal 2021. Fiscal 2022's results were impacted by incremental SG&A expenses from the business acquisitions mentioned above (mainly PA Consulting) of $150.0 million (including $48.9 million in additional amortization expense for acquired intangibles and excluding the compensation related charge discussed below) due to fiscal 2021 including activity related to the acquired businesses and investment in PA Consulting only for the partial periods subsequent to the applicable acquisition date. Additionally, Restructuring and other charges for fiscal 2022 included $91.3 million pre-tax attributable to the final settlement of the Legacy CH2M Matter, approximately $27 million in third party recoveries was recorded as receivables reducing SG&A, which is further discussed in Note 18 - Contractual Guarantees, Litigation, Investigations and Insurance and in costs associated in part with the Company's transformation initiatives relating to real estate. Also, fiscal 2022 SG&A expenses were impacted by higher personnel costs associated with investments in advance of expected growth anticipated in late 2022 and 2023. Additionally, fiscal 2021 included Restructuring and other charges of $261 million for pre-tax costs incurred in connection with the investment in PA Consulting, in part classified as compensation costs reported in selling, general and administrative expenses. Lastly, SG&A expenses benefited from favorable foreign exchange impacts of $76.4 million for the year ended September 30, 2022 as compared to unfavorable impacts of $75.9 million for fiscal 2021.Net interest expense for the year ended September 30, 2022 was $95.8 million, an increase of $26.5 million from $69.2 million for fiscal 2021. The increase in net interest expense from fiscal 2021 to 2022 is primarily due to the higher levels of debt outstanding due to the funding of the StreetLight and BlackLynx acquisitions and increased borrowings associated with the payment of the Legacy CH2M Matter settlement in fiscal 2022, in addition to higher interest rates. Additionally, the increase was also impacted by higher levels of average debt outstanding related to the funding of the PA Consulting investment in March of fiscal 2021.Miscellaneous income (expense), net for the year ended September 30, 2022 was income of $54.3 million, a decrease of $22.5 million as compared to $76.7 million in income for fiscal 2021. The $22.5 million decrease from fiscal 2021 was due primarily to impacts in fiscal 2021 of pre-tax unrealized gains of $34.7 million associated with our former investment in Worley stock (including the Worley stock dividend) and certain foreign currency revaluations relating to the ECR sale, which was sold during fiscal 2021 and $49.6 million in the Company's investment holding in C3, as further discussed in Note 8 - Joint Ventures, VIEs and Other Investments. Offsetting these favorable items in fiscal 2021 was an other-than-temporary impairment charge on our investment in AWE ML of $38.6 million. Additionally, fiscal 2022 benefited primarily from a $13.9 million pre-tax gain related to a cost method investment sold during the period. On February 4, 2022, the Company acquired StreetLight Data, Inc. ("StreetLight") and on November 19, 2021, a subsidiary of Jacobs acquired BlackLynx ("BlackLynx"). For further discussion, see Note 15- Other Business Combinations.The following table reconciles total income tax expense on continuing operations using the statutory U.S. federal income tax rate to the consolidated income tax expense on continuing operations shown in the accompanying Consolidated Statements of Earnings for the years ended September 29, 2023, September 30, 2022 and October 1, 2021 Page 55(dollars in thousands): For the Years Ended September 29, 2023%September 30, 2022%October 1, 2021%Statutory amount$192,503 21.0 %$184,033 21.0 %$146,078 21.0 %State taxes, net of the federal benefit23,9012.6 %19,316 2.2 %14,564 2.1 %Exclusion of tax on non-controlling interests(6,578)(0.7)%(7,533)(0.9)%(7,999)(1.1)%Foreign: Difference in tax rates of foreign operations7,1660.8 %(2,516)(0.3)%3,684 0.5 %Expense/(benefit) from foreign valuation allowance change(1,305)(0.1)%2,982 0.3 %2,148 0.3 %Nondeductible compensation—— %— — %48,727 7.0 %U.S. tax cost (benefit) of foreign operations78,216 8.5 %48,843 5.6 %35,228 5.1 %Tax differential on foreign earnings84,077 9.2 %49,309 5.6 %89,787 12.9 %Foreign tax credits(46,530)(5.1)%(33,734)(3.8)%(25,230)(3.6)%Tax Rate Change(9,913)(1.1)%3,210 0.4 %25,588 3.7 %Valuation allowance(7,169)(0.8)%(59,121)(6.7)%38,928 5.6 %Uncertain tax positions(38,844)(4.2)%(1,439)(0.2)%978 0.1 %Other items:Energy efficient commercial buildings deduction7360.1 %(2,681)(0.3)%(3,760)(0.5)%Disallowed officer compensation7,0810.8 %6,034 0.7 %6,689 1.0 %Stock compensation(3,896)(0.4)%(2,168)(0.2)%(9,946)(1.4)%Other items – net8130.1 %5,677 0.6 %(896)(0.1)%Total other items4,7340.5 %6,8620.8 %(7,913)(1.1)%Taxes on income from continuing operations$196,181 21.4 %$160,903 18.4 %$274,781 39.5 %The Company’s consolidated effective income tax rate for the year ended September 29, 2023 increased to 21.4% from 18.4% for fiscal 2022. The year-over-year increase in the effective tax rate is due to reduced total tax benefits in fiscal 2023, consisting of $39.4 million mostly related to uncertain tax positions in the U.S. that were effectively settled, as well as $13.0 million for the release of previously valued foreign tax credits, as compared to prior year favorable impacts of $33.1 million for a change in the realizability of foreign tax credits due to a change in the U.S. foreign tax credit regulations, $26.0 million for a change in judgment on the realizability of domestic deferred tax assets which are capital in nature, and $9.1 million due to the reversal of a withholding tax accrual on certain intercompany loans. In addition, in fiscal 2023, the higher year-over-year pre-tax book income resulted in an additional $10 million of tax expense.The Company’s consolidated effective income tax rate for the year ended September 30, 2022 decreased to 18.4% from 39.5% for fiscal 2021. Key drivers for the year-over-year decrease in the effective tax rate include fiscal 2022 benefits of $33.1 million for a change in the realizability of foreign tax credits due to a change in the U.S. foreign tax credit regulations and $26.0 million for a change in judgment on the realizability of domestic deferred tax assets which are capital in nature, as compared to fiscal 2021 unfavorable impacts from valuation allowances of $38.9 million. The fiscal 2021 effective tax rate was also impacted by $261 million in nondeductible compensation relating to the PA investment post-completion compensation expense and $25.6 million related to tax rate changes in the United Kingdom.Restructuring and Other ChargesDuring fiscal 2023, the Company implemented restructuring initiatives relating to the formation of the reporting and operating segment, Divergent Solutions, which were substantially completed this year. The Company incurred approximately $7.5 million in pre-tax cash charges in connection with these initiatives during the year ended September 29, 2023. These actions are expected to result in estimated gross annualized pre-tax cash savings of approximately $20 million to $24 million.During fiscal 2023, the Company implemented restructuring initiatives relating to the announcement of its intention to separate its CMS business. The Company incurred approximately $19.8 million in pre-tax cash charges in Page 56connection with these initiatives during the year ended September 29, 2023. These actions, which are expected to be substantially completed before the end of fiscal 2024, are expected to result in estimated gross annualized pre-tax cash savings of approximately $43 million to $52 million. We will likely incur additional charges under this program during fiscal 2024, which are expected to result in additional savings.During fiscal 2020 and continuing into fiscal 2023, the Company implemented further real estate rescaling efforts that were associated with its fiscal 2020 transformation program relating to real estate. These activities were substantially completed before the end of fiscal 2023. In connection with these efforts, the Company has incurred $47.3 million, $72.4 million and $8.7 million for the years ended September 29, 2023, September 30, 2022 and October 1, 2021, respectively in pre-tax mainly non-cash charges. These actions resulted in non-cash savings related to the future amortization of lease right-of-use assets over the remaining lease terms. Additionally, the objective of these initiatives was to create a modern, flexible work platform tailored to employees’ needs due to globalization and digital advances and to create total emissions savings that will be realized as we continue to optimize our real estate footprint.During third quarter fiscal 2023, the Company approved a plan to improve business processes and cost structure of our PA Consulting investment by reorganizing senior management and reducing headcount. In connection with these initiatives, which are expected to be substantially complete before the end of fiscal 2024, the Company incurred approximately $14.3 million in pre-tax cash charges during the year ended September 29, 2023. These activities are expected to result in estimated gross annualized pre-tax cash savings of approximately $40 million to $45 million.During fiscal 2020, the Company implemented certain transformation initiatives. The Company incurred approximately $1.8 million and $11.9 million in pre-tax cash charges in connection with these initiatives during the years ended September 30, 2022 and October 1, 2021, respectively. These actions were substantially complete in fiscal 2022 and resulted in estimated gross annualized pre-tax (primarily cash) savings of approximately $45 million to $55 million.During fiscal 2020, the Company also implemented certain restructuring initiatives associated with the acquisition of John Wood Group's nuclear business. The Company incurred approximately $3.1 million in pre-tax cash charges in connection with these initiatives during the year ended October 1, 2021. These actions were substantially complete in fiscal 2021 and resulted in estimated gross annualized pre-tax cash savings of approximately $9 million to $10 million.Refer to Note 16– Restructuring and Other Charges for further information regarding restructuring and integration initiatives. Page 57Segment Financial InformationThe following tables present total revenues and segment operating profit for each reportable segment (in thousands) and includes a reconciliation of segment operating profit to total U.S. GAAP operating profit by including certain corporate-level expenses and expenses relating to the Restructuring other charges (as defined in Note 16 - Restructuring and Other Charges) and transaction costs (in thousands). For the Years EndedSeptember 29, 2023September 30, 2022October 1, 2021Revenues from External Customers:Critical Mission Solutions$4,693,499 $4,376,562 $4,251,690 People & Places Solutions9,553,857 8,534,650 8,364,640 Divergent Solutions946,914 892,317 848,901 PA Consulting1,158,144 1,119,296 627,401 Total$16,352,414 $14,922,825 $14,092,632 For the Years EndedSeptember 29, 2023September 30, 2022October 1, 2021Segment Operating Profit:Critical Mission Solutions$378,201 $355,563 $359,001 People & Places Solutions (1)957,714 824,834 780,514 Divergent Solutions81,768 67,552 88,026 PA Consulting237,003 232,225 151,071 Total Segment Operating Profit1,654,686 1,480,174 1,378,612 Other Corporate Expenses (2)(427,053)(364,440)(340,129)Restructuring, Transaction and Other Charges (3)(152,396)(197,884)(350,394)Total U.S. GAAP Operating Profit1,075,237 917,850 688,089 Total Other (Expense) Income, net (4)(158,558)(41,503)7,513 Earnings from Continuing Operations Before Taxes$916,679 $876,347 $695,602 (1)Includes $19.5 million, net, in charges related to a legal settlement for the year ended October 1, 2021.(2)Other corporate expenses include intangibles amortization of $203.9 million, $198.6 million and $149.8 million for the years ended September 29, 2023, September 30, 2022 and October 1, 2021, respectively, with the comparative increase from fiscal 2021 to fiscal 2022 mainly attributable to higher amortization from the PA Consulting investment. Additionally, fiscal 2023 included approximately $15.0 million in net favorable impacts from cost reductions compared to the prior year period, which was associated mainly with net favorable impacts during first quarter from changes in employee benefit programs of $41.0 million offset by approximately $26.0 million in higher spend in company technology platforms and other personnel and corporate cost increases.(3)Fiscal 2023 includes $63.4 million relating to the activities (mainly professional services and employee separation costs, spread across all segments) around the CMS separation and $14.3 million in restructuring and other charges relating to the Company's investment in PA Consulting (primarily employee separation costs). Included in the years ended September 29, 2023, September 30, 2022 and October 1, 2021 were $48.2 million, $78.3 million and $2.4 million, respectively, in charges associated mainly with real estate impairments. Included in the year ended September 30, 2022 is $91.3 million pre-tax related to the final settlement of the Legacy CH2M Matter and net of previously recorded reserves and approximately $27 million in third party recoveries that was recorded as receivables reducing SG&A. Included in the year ended October 1, 2021 is $297.8 million of costs incurred in connection with the investment in PA Consulting, in part classified as compensation costs. (4)The year ended September 30, 2022 included a $13.9 million gain related to a cost method investment sold during the period and a gain of $8.7 million related to lease terminations. The year ended October 1, 2021 included $34.7 million in fair value adjustments related to our investment in Worley stock (net of Worley stock dividends) and certain foreign currency revaluations relating to ECR sale proceeds, $(38.5) million related to impairment of our AWE Management Ltd. investment and $49.6 million in fair value adjustments related to our investment in C3 stock. The investments in Worley and C3 were sold in fiscal 2021 and therefore there are no comparable amounts in fiscal 2022 or 2023. Additionally, the increase in net interest expense from fiscal 2021 to fiscal 2022 is primarily due to the higher levels of debt outstanding due to the funding of the StreetLight and BlackLynx acquisitions and increased borrowings associated with the payment of the Legacy CH2M Matter settlement in fiscal 2022, in addition to higher interest rates. The increase in net interest expense from fiscal 2022 to fiscal 2023 is due primarily to higher interest rates.Page 58In evaluating the Company’s performance by operating segment, the CODM reviews various metrics and statistical data for each Line of Business ("LOB") and PA Consulting, but focuses primarily on revenues and operating profit. As discussed above, segment operating profit includes not only local SG&A expenses but the SG&A expenses of the Company’s support groups that have been allocated to the segments. In addition, the Company attributes each segment's specific incentive compensation plan costs to the segments. The methods for recognizing revenue, incentive fees, project losses and change orders are consistent among the segments. Critical Mission SolutionsFor the Years EndedSeptember 29, 2023September 30, 2022October 1, 2021Revenue$4,693,499 $4,376,562 $4,251,690 Operating Profit$378,201 $355,563 $359,001 Fiscal 2023 vs. 2022Critical Mission Solutions (CMS) segment revenues for the year ended September 29, 2023 were $4.69 billion, up $316.9 million, or 7.2%, from $4.38 billion for the prior year. Our increase in revenue was primarily attributable to growth from contracts in the nuclear remediation sector in the U.S. and United Kingdom. Impacts on revenues from unfavorable foreign currency translation were approximately $46.6 million for the year ended September 29, 2023, compared to $68.5 million in unfavorable impacts in the corresponding prior year.Operating profit for the segment was $378.2 million for the year ended September 29, 2023, up $22.6 million, or 6.4%, from $355.6 million for the prior year. Operating profit level trends year over year were favorably impacted by growth in our U.S. nuclear remediation, U.S. government space, U.K. nuclear power and U.K, defense markets, and were offset in part by a large contract wind down in early fiscal 2022 that carried a higher profit margin. Impacts on operating profit from unfavorable foreign currency translation were approximately $5.4 million for the year ended September 29, 2023, compared to $8.4 million in unfavorable impacts in the corresponding prior year. Fiscal 2022 vs. 2021Critical Mission Solutions segment revenues for the year ended September 30, 2022 were $4.38 billion, up $124.9 million, or 2.9%, from $4.25 billion from fiscal 2021. Our increase in revenue was primarily attributable to recent contract awards including the Department of Energy Nuclear remediation program, offset in part by a large contract winding down in the U.S. that carried a higher profit margin. Impacts on revenues from unfavorable foreign currency translation were approximately $68.5 million for the year ended September 30, 2022, compared to $66.2 million in favorable impacts in fiscal 2021.Operating profit for the segment was $355.6 million for the year ended September 30, 2022, relatively flat to fiscal 2021 operating profit of $359.0 million. The year-over-year change in operating profit was unfavorably impacted by the large contract wind down mentioned above, partly offset by new business and U.S. government contract awards during fiscal 2022. Impacts on operating profit from unfavorable foreign currency translation were approximately $8.4 million for the year ended September 30, 2022, compared to $10.8 million in favorable impacts in fiscal 2021. People & Places SolutionsFor the Years EndedSeptember 29, 2023September 30, 2022October 1, 2021Revenue$9,553,857 $8,534,650 $8,364,640 Operating Profit$957,714 $824,834 $780,514 Page 59Fiscal 2023 vs. 2022Revenues for the People & Places Solutions (P&PS) segment for the year ended September 29, 2023 were $9.55 billion, up $1.02 billion, or 11.9%, from $8.53 billion for the prior year. The increase in revenue was broad based across most P&PS businesses, particularly due to stronger performance in its Advanced Facilities and U.S. business operations as compared to the corresponding prior year period. Foreign currency translation had an unfavorable impact of $123.9 million on our international business for the year ended September 29, 2023, compared to $194.5 million in unfavorable impacts in the corresponding prior year. Operating profit for the segment for the year ended September 29, 2023 was $957.7 million, an increase of $132.9 million, or 16.1%, from $824.8 million for the comparative period in fiscal 2022. The year-over-year increase in operating profit was driven primarily by the revenue growth mentioned above while holding selling, general, and administrative expenses relatively flat. Impacts on operating profit from unfavorable foreign currency translation were approximately $26.9 million for the year ended September 29, 2023, compared to $33.9 million in unfavorable impacts in the corresponding prior year. Fiscal 2022 vs. 2021Revenues for the People & Places Solutions segment for the year ended September 30, 2022 were $8.53 billion, up $180.0 million, or 2.2%, from $8.36 billion for fiscal 2021. The increase in revenues from fiscal 2021 was primarily due to higher fee-based revenue from our Advanced Facilities and international businesses. Foreign currency translation had an unfavorable impact of $194.5 million on our international business for the year ended September 30, 2022, compared to $182.7 million in favorable impacts in fiscal 2021. Operating profit for the segment for the year ended September 30, 2022 was $824.8 million, an increase of $44.3 million, or 5.7%, from $780.5 million for fiscal 2021. The year-over-year increase was driven by the revenue growth mentioned above but partially offset by higher personnel costs associated with investments in advance of expected growth anticipated in 2023. In addition, fiscal 2021 operating profit was impacted by $19.5 million in net charges related to a legal settlement. Impacts on operating profit from unfavorable foreign currency translation were approximately $33.9 million for the year ended September 30, 2022, compared to $32.1 million in favorable impacts in fiscal 2021. Divergent SolutionsFor the Years EndedSeptember 29, 2023September 30, 2022October 1, 2021Revenue$946,914 $892,317 $848,901 Operating Profit$81,768 $67,552 $88,026 Fiscal 2023 vs. 2022Revenues for the Divergent Solutions segment for the year ended September 29, 2023 were $946.9 million, up $54.6 million, or 6.12%, from $892.3 million for the prior year. The increase in revenue was due mainly to favorable year-over-year software licensing revenue and the startup of new programs, along with incremental revenues from the StreetLight acquisition (owned for the full period in fiscal 2023). Foreign currency translation did not have a material impact on revenues in our Divergent Solutions segment for either period presented.Operating profit for the segment for the year ended September 29, 2023 was $81.8 million, an increase of $14.2 million, or 21.0%, from $67.6 million, for the prior year. The increase in operating profit was due mainly to the favorable year-over-year software licensing revenue and the startup of new programs mentioned above. Foreign currency translation did not have a material impact on operating profit in our Divergent Solutions segment for either period presented.Page 60Fiscal 2022 vs. 2021Revenues for the Divergent Solutions segment for the year ended September 30, 2022 were $892.3 million, up $43.4 million, or 5.1%, from $848.9 million for fiscal 2021. The increase in revenue benefited from incremental revenues from the StreetLight and BlackLynx acquisitions (acquired during fiscal 2022). Foreign currency translation did not have a material impact on revenues in our Divergent Solutions segment for either period presented.Operating profit for the segment for the year ended September 30, 2022 was $67.6 million, a decrease of $20.5 million, or 23.3%, from $88.0 million, for fiscal 2021. The decrease in operating profit was due mainly to investment into StreetLight to accelerate growth and the ramp down from programs coming to an end. Foreign currency translation did not have a material impact on operating profit in our Divergent Solutions segment for either period presented.PA ConsultingFor the Years EndedSeptember 29, 2023September 30, 2022October 1, 2021Revenue$1,158,144 $1,119,296 $627,401 Operating Profit$237,003 $232,225 $151,071 Fiscal 2023 vs. 2022Revenues for the PA Consulting segment for the year ended September 29, 2023 were $1.16 billion, up $38.8 million, or 3.5%, from $1.12 billion for the prior year. The increase in revenue was due primarily to growth in PA Consulting's Defence & Security, Public Services and Energy & Utilities businesses. Foreign currency translation had a $51.1 million unfavorable impact on revenues in our international businesses for the year ended September 29, 2023, compared to an unfavorable impact of $82.2 million for the corresponding prior year.Operating profit for the segment for the year ended September 29, 2023 was $237.0 million, an increase of $4.8 million, or 2.1%, from $232.2 million, for the prior year. The increase in operating profit from the prior year is mainly due to lower personnel related costs, partially offset by unfavorable foreign currency translation impacts. Foreign currency translation had a $7.9 million unfavorable impact on operating profit in our international businesses for the year ended September 29, 2023 and an unfavorable impact of $17.1 million for the corresponding prior year.Fiscal 2022 vs. 2021Revenues for the PA Consulting segment for the year ended September 30, 2022 were $1.12 billion, up $491.9 million, or 78.4%, from $627.4 million for fiscal 2021. The increase in revenue was due primarily to the full year-to-date impact of revenues from our March 2, 2021 investment in PA Consulting and was also due to growth in the U.K. business. Foreign currency translation had a $82.2 million unfavorable impact on revenues in our international businesses for the year ended September 30, 2022, compared to a favorable impact of $50.9 million for fiscal 2021.Operating profit for the segment for the year ended September 30, 2022 was $232.2 million, an increase of $81.2 million, or 53.7%, from $151.1 million, for fiscal 2021. The increase in operating profit from the prior year was due mainly to the full year-to-date impact of operating profit from our March 2, 2021 investment in PA Consulting, offset in part by PA Consulting normalization of utilization rates during the second half of fiscal 2022. Foreign currency translation had a $17.1 million unfavorable impact on operating profit in our international businesses for the year ended September 30, 2022 and a favorable impact of $11.8 million for fiscal 2021.Other Corporate Expenses Other corporate expenses were $427.1 million, $364.4 million and $340.1 million for the years ended September 29, 2023, September 30, 2022 and October 1, 2021, respectively. The increase from fiscal 2022 to fiscal 2023 was mainly attributable to continued year-to-date higher investments in company technology platforms and personnel related costs in fiscal 2023, while offset in part by approximate $15.0 million in net favorable impacts from cost reductions associated mainly with changes in employee benefit programs. The increase from fiscal 2021 to fiscal 2022 was due primarily to higher intangible amortization expense from the StreetLight and BlackLynx acquisitions and the PA Consulting investment, as well as impacts from higher Company benefit program costs, partially offset by lower legal costs and reduced employee related expenses in the fourth quarter.Included in other corporate expenses in the above table are costs and expenses that relate to general corporate activities as well as corporate-managed benefit and insurance programs. Such costs and expenses include: (i) those elements of SG&A expenses relating to the business as a whole; (ii) those elements of our incentive compensation plans relating to corporate personnel whose other compensation costs are not allocated to the LOBs; (iii) the amortization of intangible assets acquired as part of business combinations; (iv) the quarterly variances between the Company’s actual costs of certain of its self-insured integrated risk and employee benefit programs and amounts charged to the LOBs; and Page 61(v) certain adjustments relating to costs associated with the Company’s international defined benefit pension plans. In addition, other corporate expenses may also include from time-to-time certain adjustments to contract margins (both positive and negative) associated with projects, as well as other items, where it has been determined that such adjustments are not indicative of the performance of the related LOB.Backlog InformationBacklog represents revenue we expect to realize for work to be completed by our consolidated subsidiaries and our proportionate share of work to be performed by unconsolidated joint ventures. Because of variations in the nature, size, expected duration, funding commitments, and the scope of services required by our contracts, the amount and timing of when backlog will be recognized as revenues includes significant estimates and can vary greatly between individual contracts. Consistent with industry practice, substantially all of our contracts are subject to cancellation or termination at the option of the client, including our U.S. government work. While management uses all information available to determine backlog, at any given time our backlog is subject to changes in the scope of services to be provided as well as increases or decreases in costs relating to the contracts included therein. Backlog is not necessarily an indicator of future revenues.Because certain contracts (e.g., contracts relating to large Engineering, Procurement & Construction ("EPC") projects as well as national government programs) can cause large increases to backlog in the fiscal period in which we recognize the award, and because many of our contracts require us to provide services that span over several fiscal quarters (and sometimes over fiscal years), we have presented our backlog on a year-over-year basis, rather than on a sequential, quarter-over-quarter basis.Please refer to Item 1A- Risk Factors, above, for a discussion of other factors that may cause backlog to ultimately convert into revenues at different amounts.The following table summarizes our backlog for the years ended September 29, 2023, September 30, 2022 and October 1, 2021 (in millions):September 29, 2023September 30, 2022October 1, 2021Critical Mission Solutions$8,264 $7,622 $7,957 People & Places Solutions17,345 17,014 15,733 Divergent Solutions3,183 2,957 2,637 PA Consulting311 269 304 Total$29,103 $27,862 $26,631 Critical Mission Solutions backlog as of September 29, 2023 increased primarily from awards and funding increases in the U.S. aerospace and nuclear remediation sector in the U.S. and United Kingdom. The increase in backlog in People & Places Solutions for the years presented was primarily driven by new business awards in our Americas business. The increase in backlog in Divergent Solutions for the years presented was primarily driven by new business and recompete awards and contract extensions in the U.S. The PA Consulting backlog benefited from modest growth in the current year.Backlog relating to work to be performed either directly or indirectly for the U.S. federal government and its agencies totaled approximately $11.6 billion (or 39.8% of total backlog), $10.9 billion (or 39.1% of total backlog) and $10.8 billion (or 40.5% of total backlog) at September 29, 2023, September 30, 2022 and October 1, 2021, respectively. Most of our federal government contracts require that services be provided beyond one year. In general, these contracts must be funded annually (i.e., the amounts to be spent under the contract must be appropriated by the U.S. Congress to the procuring agency, and then the agency must allot these sums to the specific contracts).We estimate that approximately $9.80 billion, or 33.7%, of total backlog at September 29, 2023 will be realized as revenues within the next fiscal year.Page 62Consolidated backlog differs from the Company’s remaining performance obligations as defined by ASC 606 primarily because of contract change orders or new wins not yet processed and our national government contracts where our policy is to generally include in backlog the contract award, whether funded or unfunded excluding certain option periods while our remaining performance obligations represent a measure of the total dollar value of work to be performed on contracts awarded and in progress. Additionally, the Company does not include our proportionate share of backlog related to unconsolidated joint ventures in our remaining performance obligations.Liquidity and Capital ResourcesAt September 29, 2023, our principal sources of liquidity consisted of $926.6 million in cash and cash equivalents and $2.24 billion of available borrowing capacity under our $2.25 billion revolving credit agreement (the "Revolving Credit Facility"). We finance much of our operations and growth through cash generated by our operations.Cash and cash equivalents at September 29, 2023 represented a decrease of $213.9 million from $1.14 billion at September 30, 2022, the reasons for which are described below. Our net cash flow provided by operations of $974.8 million during fiscal 2023 was favorable by $500.1 million incomparison to the cash flow provided by operations of $474.7 million for the corresponding prior year. The year-over-year increase in cash from operations is primarily attributable to the payment of the Legacy CH2M Matter cash settlement in fiscal 2022 and other overall net favorable working capital performance during the 2023 period.Our net cash used for investing activities for fiscal 2023 was $145.7 million, compared to cash used for investing of $538.4 million in the prior year, with this change due primarily to the BlackLynx and StreetLight acquisitions in the prior year.Our net cash used for financing activities for the fiscal year ended 2023 of $1.09 billion resulted mainly from $616.6 million in net repayments of borrowings, cash used for share repurchases of $265.7 million, $128.4 million in dividends to shareholders and $58.9 million in net PA Consulting related redeemable noncontrolling interests purchase and issuance activity. Cash provided by financing activities in the prior year was $320.2 million, due primarily to net proceeds from borrowings of $719.0 million, offset by cash used for share repurchases of $281.9 million and $115.9 million in dividends to shareholders. At September 29, 2023, the Company had approximately $171.6 million in cash and cash equivalents held in the U.S. and $755.0 million held outside of the U.S. (primarily in the U.K., the Eurozone, India, Australia and the Middle East region), which is used primarily for funding operations in those regions. Other than the tax cost of repatriating funds to the U.S. (see Note 7- Income Taxes of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K), there are no material impediments to repatriating these funds to the U.S. The Company had $322.0 million in letters of credit outstanding at September 29, 2023. Of this amount, $0.9 million was issued under the Revolving Credit Facility and $321.1 million was issued under separate, committed and uncommitted letter-of-credit facilities.On May 9, 2023, the Company announced our intention to spin-off our Critical Mission Solutions business into an independent publicly traded company to Jacobs’ stockholders. On November 20, 2023, Jacobs entered into a definitive agreement to spin-off and combine our Critical Mission Solutions and Cyber and Intelligence government services businesses (part of Divergent Solutions) with Amentum, in a Reverse Morris Trust transaction intended to be tax-free to Jacobs’ shareholders for U.S. federal income tax purposes. The transaction, which is expected to close in fiscal 2024, is subject to regulatory approvals and other customary closing conditions. Jacobs and its shareholders will own up to 63% of the combined company’s common shares upon consummation of the transaction, consisting of 51% Jacobs’ shareholders ownership and Jacobs retaining 7.5-12%. The exact amount of the retained stake will be determined based on achievement of certain fiscal year 2024 operating profit targets. Jacobs is expected to receive cash proceeds of $1 billion at close, subject to customary adjustments. Jacobs is also expected to realize additional value after closing through the disposition of its retained equity stake in the combined company within 12 months. The Company expects to use the cash received at closing to repay outstanding indebtedness.On February 6, 2023, the Company refinanced its Revolving Credit Facility and Term Loan Facilities, and on February 16, 2023, the Company issued $500.0 million in bonds. On August 18, the Company issued $600.0 million in bonds. See Note 9 - Borrowings for further discussion relating to the terms of the 5.90% Bonds, the 6.35% Bonds, the Revolving Credit Facility and Term Loan Facilities following the issuances and refinancing.Page 63On April 12, 2022, the Company paid cash of AUD640 million, or approximately $475 million using mid-April 2022 exchange rates, which represented the final settlement of Legacy CH2M Matter. For more information, refer to Note 18 - Contractual Guarantees, Litigation, Investigations and Insurance.On February 4, 2022, the Company acquired StreetLight Data, Inc. ("StreetLight"). StreetLight is a pioneer of mobility analytics who uses its data and machine learning resources to shed light on mobility and enable users to solve complex transportation problems. The Company paid total base consideration of approximately $190.7 million in cash and issued $0.9 million in equity and $5.2 million in in-the-money stock options to the former owners of StreetLight. The Company also paid off StreetLight's debt of approximately $1.0 million simultaneously with the consummation of the acquisition.On November 19, 2021, Jacobs acquired BlackLynx, a provider of high-performance software, to complement Jacobs' portfolio of cyber, intelligence and digital solutions. The Company paid total base consideration of approximately $235.4 million in cash to the former owners of BlackLynx. In conjunction with the acquisition, the Company also paid off BlackLynx's debt of approximately $5.3 million simultaneously with the consummation of the acquisition. On March 2, 2021, Jacobs completed the strategic investment of a 65% interest in PA Consulting, a UK-based leading innovation and transformation consulting firm. The total consideration paid by the Company was $1.7 billion, funded through cash on hand, a new term loan and draws on the Company's existing revolver. The remaining 35% interest was held by PA Consulting employees. See Note 14- PA Consulting Business Combination for more discussion on the investment and Note 9- Borrowings for more discussion on the financing for the transaction.On January 20, 2021, the Company entered into an unsecured delayed draw term loan facility (the “2021 Term Loan Facility”) with a syndicate of financial institutions as lenders. Under the 2021 Term Loan Facility, the Company borrowed an aggregate principal amount of $200.0 million and £650.0 million. The proceeds of the term loans were used primarily to fund the investment in PA Consulting. The 2021 Term Loan Facility contains affirmative and negative covenants and events of default customary for financings of this type that are consistent with those included in the Revolving Credit Facility and the Company’s unsecured term loan facility dated March 25, 2020 (the “2020 Term Loan Facility”). The 2020 Term Loan Facility and the 2021 Term Loan Facility are together referred to as the "Term Loan Facilities". On November 24, 2020, a subsidiary of Jacobs completed the acquisition of Buffalo Group, a leader in advanced cyber and intelligence solutions which allows Jacobs to further expand its cyber and intelligence solutions offerings to government clients. The Company paid total consideration of $190.1 million, which was comprised of approximately $182.4 million in cash to the former owners of Buffalo Group and contingent consideration of $7.7 million which was subsequently recognized in fiscal 2021 as an offset to selling, general and administrative expense when it was determined no amounts would be paid. See Note 15- Other Business Combinations for further discussion.We believe we have adequate liquidity and capital resources to fund our projected cash requirements for the next twelve months based on the liquidity provided by our cash and cash equivalents on hand, our borrowing capacity and our continuing cash from operations.We were in compliance with all of our debt covenants at September 29, 2023.Supplemental Obligor Group Financial InformationOn February 16, 2023, Jacobs Engineering Group Inc., a wholly-owned subsidiary of Jacobs Solutions Inc. (together, the "Obligor Group"), completed an offering of $500 million aggregate principal amount of 5.90% Bonds, due 2033 and on August 18, 2023, completed an offering of $600 million aggregate principal amount of 6.35% Bonds, due 2028 (the “Bonds”). The Bonds are fully and unconditionally guaranteed by the Company (the “Guarantees”). The Bonds and the Guarantees were offered pursuant to prospectus supplements, dated February 13, 2023 and August 15, 2023, respectively, to the prospectus dated February 6, 2023, that forms a part of the Company and JEGI’s automatic shelf registration statement on Form S-3ASR (File Nos. 333-269605 and 333-269605-01) previously filed with the Securities and Exchange Commission.Page 64In accordance with SEC Regulation S-X Rule 13-01, set forth below is the summarized financial information for the Obligor Group on a combined basis after elimination of (i) intercompany transactions and balances between Jacobs and JEGI and (ii) equity in the earnings from and investments in all other subsidiaries of the Company that do not guarantee the registered securities of either Jacobs or JEG. This summarized financial information (in thousands) has been prepared and presented pursuant to Regulation S-X Rule 13-01, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” and is not intended to present the financial position or results of operations of the Obligor Group in accordance with U.S. GAAP.Year EndedYear Ended(in thousands)September 29, 2023September 30, 2022Summarized Statement of Earnings DataRevenue$3,427,751 $2,658,854 Direct Costs$2,841,572 $2,188,593 Selling, General and Administrative Expenses$314,055 $275,617 Net earnings attributable to Guarantor Subsidiaries from continuing operations$96,224 $77,671 Noncontrolling interests$(702)$1,148 (in thousands)September 29, 2023September 30, 2022Summarized Balance Sheet DataCurrent assets, less receivables from Non-Guarantor Subsidiaries$693,037 $641,281 Current receivables from Non-Guarantor Subsidiaries$— $144,564 Noncurrent assets, less noncurrent receivables from Non-Guarantor Subsidiaries$459,276 $494,185 Noncurrent receivables from Non-Guarantor Subsidiaries$610,900 $612,260 Current liabilities$616,140 $573,614 Current liabilities to Non-Guarantor Subsidiaries$387,461 $— Long-term Debt$2,561,590 $2,986,124 Other Noncurrent liabilities, less amounts payable to Non-Guarantor Subsidiaries$248,852 $289,452 Noncurrent liabilities to Non-Guarantor Subsidiaries$343,674 $434,092 Noncontrolling interests$577 $947 Accumulated deficit$(2,395,081)$(2,391,939)New Accounting PronouncementsASU 2020-04, Reference Rate Reform, (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting is intended to provide relief for entities impacted by reference rate reform and contains provisions and optional expedients designed to simplify requirements around designation of hedging relationships, probability assessments of hedged forecasted transactions and accounting for modifications of contracts that refer to LIBOR or other rates affected by reference rate reform. The guidance is elective and is effective on the date of issuance. ASU 2020-04 is applied prospectively to contract modifications and as of the effective date for existing and new eligible hedging relationships. The guidance was amended by ASU 2022-06, Reference Rate Reform, (Topic 848): Deferral of the Sunset Date of Topic 848 to defer the original sunset date of December 31, 2022 to December 31, 2024. The adoption of the new guidance in the first quarter of fiscal 2022 allowed the Company to continue its British pound denominated interest rate hedge relationships which previously defined LIBOR as the benchmark interest rate and were amended to replace LIBOR with the Sterling Overnight Index Average rate ("SONIA") in the first quarter of fiscal 2022 and its U.S. dollar denominated interest rate hedge relationships which previously defined LIBOR as the benchmark interest rate and were amended to replace LIBOR with the Secured Overnight Financing Rate ("SOFR") in the second quarter of fiscal 2023.Page 65Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe do not enter into derivative financial instruments for trading, speculation or other similar purposes that would expose the Company to market risk. In the normal course of business, our results of operations are exposed to risks associated with fluctuations in interest rates and currency exchange rates. Interest Rate RiskPlease see the Note 9- Borrowings in Notes to Consolidated Financial Statements beginning on Page F-1 of this Annual Report on Form 10-K, which is incorporated herein by reference, for a discussion of the Revolving Credit Facility and Term Loan Facilities. Our Revolving Credit Facility, Term Loan Facilities and certain other debt obligations are subject to variable rate interest which could be adversely affected by an increase in interest rates. As of September 29, 2023, we had an aggregate of $1.78 billion in outstanding borrowings under our Revolving Credit Facility and Term Loan Facilities. Interest on amounts borrowed under these agreements is subject to adjustment based on the Company’s Consolidated Leverage Ratio (as defined in the credit agreements governing the Revolving Credit Facility and the Term Loan Facilities). Depending on the Company’s Consolidated Leverage Ratio, borrowings denominated in U.S. dollars under the Revolving Credit Facility and the Term Loan Facilities bear interest at a SOFR rate plus a margin of between 0.975% and 1.725% or a base rate plus a margin of between 0% and 0.625% including applicable margins while borrowings denominated in British pounds under these respective facilities bear interest at an adjusted SONIA rate plus a margin of between 0.908% and 1.6580%. Additionally, our Revolving Credit Facility, Term Loan Facilities and 5.90% Bonds due 2033 have interest rates subject to potential increases relating to certain ESG metrics as stipulated in the related agreements and as discussed in Note 9 - Borrowings.However, as discussed in Note 17 - Commitments and Contingencies and Derivative Financial Instruments, we have swap agreements with an aggregate notional value of $769.1 million in place to convert the variable rate interest-based liabilities associated with a corresponding amount of our debt into fixed interest rate liabilities, leaving $1.01 billion in principal amount subject to variable interest rate risk. Additionally, during fiscal 2022, we entered into two treasury lock arrangements with an aggregate notional value of $500.0 million, which were settled in second quarter fiscal 2023. These are discussed in further detail in Note 17 - Commitments and Contingencies and Derivative Financial Instruments.For the year ended September 29, 2023, our weighted average floating rate borrowings that are subject to floating rate exposure were approximately $2.2 billion. If floating interest rates had increased by 1.00%, our interest expense for the year ended September 29, 2023 would have increased by approximately $22.4 million. Foreign Currency RiskIn situations where our operations incur contract costs in currencies other than their functional currency, we sometimes enter into foreign exchange contracts to limit our exposure to fluctuating foreign currencies. We follow the provisions of ASC No. 815, Derivatives and Hedging in accounting for our derivative contracts. The Company has $857.7 million in notional value of exchange rate sensitive instruments at September 29, 2023. See Note 17 - Commitments and Contingencies and Derivative Financial Instruments for discussion. \ No newline at end of file diff --git a/Johnson Controls International plc_10-K_2023-12-14_833444-0000833444-23-000048.html b/Johnson Controls International plc_10-K_2023-12-14_833444-0000833444-23-000048.html new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/KELLANOVA_10-Q_2023-11-08_55067-0001628280-23-037866.html b/KELLANOVA_10-Q_2023-11-08_55067-0001628280-23-037866.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/KELLANOVA_10-Q_2023-11-08_55067-0001628280-23-037866.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/KIMBERLY CLARK CORP_10-Q_2023-10-24_55785-0000055785-23-000064.html b/KIMBERLY CLARK CORP_10-Q_2023-10-24_55785-0000055785-23-000064.html new file mode 100644 index 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CORP_10-Q_2023-11-02_63908-0000063908-23-000101.html b/MCDONALDS CORP_10-Q_2023-11-02_63908-0000063908-23-000101.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/MCDONALDS CORP_10-Q_2023-11-02_63908-0000063908-23-000101.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/MGM Resorts International_10-Q_2023-11-08_789570-0000789570-23-000024.html b/MGM Resorts International_10-Q_2023-11-08_789570-0000789570-23-000024.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/MGM Resorts International_10-Q_2023-11-08_789570-0000789570-23-000024.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/MICROCHIP TECHNOLOGY INC_10-Q_2023-11-02_827054-0000827054-23-000185.html b/MICROCHIP TECHNOLOGY INC_10-Q_2023-11-02_827054-0000827054-23-000185.html new file mode 100644 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Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” of our Annual Report on Form 10-K for the year ended August 31, 2023. There have been no significant changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended August 31, 2023.Recently Adopted Accounting Standards No material items.Recently Issued Accounting StandardsNo material items.ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKFor further discussion about market risk and sensitivity analysis related to changes in interest rates and currency exchange rates, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended August 31, 2023. 32Table of ContentsITEM 4. CONTROLS AND PROCEDURESAn evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the principal executive officer and principal financial officer concluded that those disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decisions regarding disclosure.During the first quarter of 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.PART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSFor a discussion of legal proceedings, see “Part I – Item 3. Legal Proceedings” of our Annual Report on Form 10-K for the year ended August 31, 2023 and the sections titled “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies” and “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q.SEC regulations require disclosure of certain proceedings related to environmental matters unless we reasonably believe that the related monetary sanctions, if any, will be less than a specified threshold. We use a threshold of $1 million for this purpose.33 | 2024 Q1 10-QTable of ContentsITEM 1A. RISK FACTORSIn addition to the factors discussed elsewhere in this Form 10-Q, this section discusses important factors which could cause actual results or events to differ materially from those contained in any forward-looking statements made by us. The order of presentation is not necessarily indicative of the level of risk that each factor poses to us. Any of these factors could have a material adverse effect on our business, results of operations, financial condition, or stock price. Our operations could also be affected by other factors that are presently unknown to us or not considered significant.Risk Factor SummaryRisks Related to Our Business, Operations, and Industry•volatility in average selling prices of our products;•a range of factors that may adversely affect our gross margins;•our international operations, including geopolitical risks;•the highly competitive nature of our industry;•our ability to develop and produce new and competitive memory and storage technologies and products;•realizing expected returns from capacity expansions;•achieving or maintaining certain performance or other obligations associated with incentives from various governments;•availability and quality of materials, supplies, and capital equipment and dependency on third-party service providers;•a downturn in regional or worldwide economies;•disruptions to our manufacturing process from operational issues, natural disasters, or other events;•dependency on a select number of key customers, including international customers;•products that fail to meet specifications, are defective, or are incompatible with end uses;•breaches of our security systems or products, or those of our customers, suppliers, or business partners;•attracting, retaining, and motivating highly skilled employees;•responsible sourcing requirements and related regulations; •environmental, social, and governance considerations;•acquisitions and/or alliances; and•restructure plans may not realize expected savings or other benefits.Risks Related to Intellectual Property and Litigation•protecting our intellectual property and retaining key employees who are knowledgeable of and develop our intellectual property;•legal proceedings and claims; and•claims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others or failure to obtain or renew license agreements covering such intellectual property.Risks Related to Laws and Regulations•impacts of government actions and compliance with tariffs, trade restrictions, and/or trade regulations;•tax expense and tax laws in key jurisdictions; and•compliance with laws, regulations, or industry standards, including environmental considerations.Risks Related to Capitalization and Financial Markets•our ability to generate sufficient cash flows or obtain access to external financing;•our debt obligations;•changes in foreign currency exchange rates;•counterparty default risk;•volatility in the trading price of our common stock; and•fluctuations in the amount and frequency of our common stock repurchases and payment of cash dividends and resulting impacts. 34Table of ContentsRisks Related to Our Business, Operations, and IndustryVolatility in average selling prices for our semiconductor memory and storage products may adversely affect our business.We have experienced significant volatility in our average selling prices and may continue to experience such volatility in the future. For example, average selling prices for DRAM declined in the high-40s percent range and NAND declined in the low-50s percent range for 2023 as compared to 2022. Since 2017, annual percentage changes in DRAM average selling prices have ranged from plus mid-30s percent range to a minus high-40s percent range. Since 2017, annual percentage changes in NAND average selling prices have ranged from nearly flat to a minus low-50s percent range. In current and recent periods, average selling prices for our products have been below our manufacturing costs and we may experience such circumstances in the future. Average selling prices for our products that decline faster than our costs have recently had an adverse effect on our business and results of operations, and in future periods could have a material adverse effect on our business, results of operations, or financial condition.Our gross margins may be adversely affected by a range of factors.Our gross margins are dependent, in part, upon continuing decreases in per gigabit manufacturing costs achieved through improvements in our manufacturing processes and product designs. Factors that may limit our ability to reduce our per gigabit manufacturing costs at sufficient levels to prevent deterioration of or improve gross margins include, but are not limited to:•strategic product diversification decisions affecting product mix;•increasing complexity of manufacturing processes;•difficulties in transitioning to smaller line-width process technologies or additional 3D memory layers or NAND cell levels; •process complexity including number of mask layers and fabrication steps; •manufacturing yield; •technological barriers; •changes in process technologies; •new products that may require relatively larger die sizes; •start-up or other costs associated with capacity expansions; •higher costs of goods and services due to inflationary pressures or market conditions; and •higher manufacturing costs per gigabit due to fabrication facility underutilization, lower wafer output, and insufficient volume to run new technology nodes to achieve cost optimization.Many factors may result in a reduction of our output or a delay in ramping production, which could lead to underutilization of our production assets. These factors may include, among others, a weak demand environment, industry oversupply, inventory surpluses, difficulties in ramping emerging technologies, supply chain disruptions, and delays from equipment suppliers. See “Part I. Financial Information – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Industry Conditions” for information regarding our current underutilization. A significant portion of our manufacturing costs are fixed and do not vary proportionally with changes in production output. As a result, lower utilization, lower wafer output, and corresponding increases in our per gigabit manufacturing costs have resulted in higher inventory carrying costs, and have had, and may continue to have, an adverse effect on our gross margins, business, results of operations, or financial condition. 35 | 2024 Q1 10-QTable of ContentsWe have a broad portfolio of products to address our customers’ needs, which span multiple market segments and are subject to rapid technological changes. Our manufacturing costs on a per gigabit basis vary across our portfolio as they are largely influenced by the technology node in which the solution was developed. We strive to balance our demand and supply for each technology node, but the dynamics of our markets and our customers can create periods of imbalance, which can lead us to carry elevated inventory levels. Consequently, we may incur charges in connection with obsolete or excess inventories, or we may not fully recover our costs, which would reduce our gross margins. For example, in 2023, we recorded aggregate charges of $1.83 billion to write down the carrying value of our inventories to their estimated net realizable value. In addition, due to the customized nature of certain products we manufacture, we may be unable to sell certain finished goods inventories to alternative customers or manufacture in-process inventory to different specifications, which may result in excess and obsolescence charges in future periods.In addition, if we are unable to supply products that meet customer design and performance specifications, we may be required to sell such products at lower average selling prices, which may reduce our gross margins. Our gross margins may also be impacted by shifts in product mix, driven by our strategy to optimize our portfolio to best respond to changing market dynamics. Our inability to prevent deterioration of or improve gross margins could have a material adverse effect on our business, results of operations, or financial condition.We face geopolitical and other risks associated with our international operations that could materially adversely affect our business, results of operations, or financial condition.In addition to our U.S. operations, a substantial portion of our operations are conducted in Taiwan, Singapore, Japan, Malaysia, China, and India, and many of our customers, suppliers, and vendors also operate internationally. In 2023, nearly half of our revenue was from sales to customers who have headquarters located outside the United States, while over 80% of our revenue in 2023 was from products shipped to customer locations outside the United States.Our international operations are subject to a number of risks, including:•restrictions on sales of goods or services to one or more of our significant foreign customers;•export and import duties, changes to import and export regulations, customs regulations and processes, and restrictions on the transfer of funds, including currency controls in China, which could negatively affect the amount and timing of payments from certain of our customers and, as a result, our cash flows;•compliance with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act of 1977, as amended, sanctions and anti-corruption laws, export and import laws, and similar rules and regulations;•theft of intellectual property; •political and economic instability, including instability resulting from domestic and international conflicts;•government actions or civil unrest preventing the flow of products and materials, including delays in shipping and obtaining products and materials, cancellation of orders, or loss or damage of products;•problems with the transportation or delivery of products and materials;•issues arising from cultural or language differences and labor unrest;•longer payment cycles and greater difficulty in collecting accounts receivable;•compliance with trade, technical standards, and other laws in a variety of jurisdictions;•contractual and regulatory limitations on the ability to maintain flexibility with staffing levels;•disruptions to manufacturing or R&D activities as a result of actions imposed by foreign governments;•changes in economic policies of foreign governments;•difficulties in staffing and managing international operations; and•public health issues.If we or our customers, suppliers, or vendors are impacted by any of these risks, it could have a material adverse effect on our business, results of operations, or financial condition. 36Table of ContentsFollowing the May 21, 2023 decision of its cybersecurity review of our products sold in China, the CAC determined that critical information infrastructure operators in China may not purchase Micron products, impacting our revenue with companies headquartered in mainland China and Hong Kong, including direct sales as well as indirect sales through distributors. Some revenue with customers headquartered outside of China has also been impacted. As we try to mitigate possible impacts due to the CAC decision, revenue may come at lower prices or gross margins due to product or customer mix changes, which may impact our business results. Further actions by the Chinese government could impact additional revenue inside or outside China, or our operations in China, or our ability to ship products to our customers, any of which could have a material adverse effect on our business, results of operations, or financial condition.Political, economic, or other actions may adversely affect our operations in Taiwan. A majority of our DRAM production output in 2023 was from our fabrication facilities in Taiwan and any loss of output could have a material adverse effect on us. Any political, economic, or other actions may also adversely affect our customers and the technology industry supply chain, for which Taiwan is a central hub, and as a result, could have a material adverse impact on us. In addition, the U.S. government has in the past restricted American firms from selling products and software to certain of our customers and may in the future impose similar restrictions on one or more of our significant customers. These restrictions may not prohibit our competitors from selling similar products to our customers, which may result in our loss of sales and market share. Even as such restrictions are lifted, financial or other penalties or continuing export restrictions imposed with respect to our customers could have a continuing negative impact on our future revenue and results of operations, and we may not be able to recover any customers or market share we lose, or make such recoveries at acceptable average selling prices, while complying with such restrictions.The semiconductor memory and storage markets are highly competitive.We face intense competition in the semiconductor memory and storage markets from a number of companies, including Kioxia Holdings Corporation; Samsung Electronics Co., Ltd.; SK hynix Inc.; and Western Digital Corporation. Our competitors may use aggressive pricing to obtain market share. Some of our competitors are large corporations or conglomerates that may have a larger market share and greater resources to invest in technology, capitalize on growth opportunities, and withstand downturns in the semiconductor markets in which we compete. Consolidation of industry competitors could put us at a competitive disadvantage as our competitors may benefit from increased manufacturing scale and a stronger product portfolio. We operate in different jurisdictions than our competitors and may be impacted by unfavorable changes in currency exchange rates.In addition, some governments may provide, or have provided and may continue to provide, significant assistance, financial or otherwise, to some of our competitors or to new entrants and may intervene in support of national industries and/or competitors. In particular, we face the threat of increasing competition as a result of significant investment in the semiconductor industry by the Chinese government and various state-owned or affiliated entities, in companies such as Yangtze Memory Technologies Co., Ltd. (“YMTC”) and ChangXin Memory Technologies, Inc. (“CXMT”). In addition, the CAC’s decision that critical information infrastructure operators in China may not purchase Micron products had an impact on our ability to compete effectively in China and elsewhere.We and our competitors generally seek to increase wafer output, improve yields, and reduce die size, which could result in significant increases in worldwide supply and downward pressure on prices. Increases in worldwide supply of semiconductor memory and storage also result from fabrication capacity expansions, either by way of new facilities, increased capacity utilization, or reallocation of other semiconductor production to semiconductor memory and storage production. Our competitors may increase capital expenditures resulting in future increases in worldwide supply. We, and some of our competitors, have plans to ramp, or are constructing or ramping, production at new fabrication facilities. Increases in worldwide supply of semiconductor memory and storage, if not accompanied by commensurate increases in demand, could lead to declines in average selling prices for our products and could materially adversely affect our business, results of operations, or financial condition. If competitors are more successful at developing or implementing new product or process technology, their products could have cost or performance advantages.The competitive nature of our industry could have a material adverse effect on our business, results of operations, or financial condition.37 | 2024 Q1 10-QTable of ContentsOur future success depends on our ability to develop and produce new and competitive memory and storage technologies and products.Our key semiconductor memory and storage technologies face technological barriers to continue to meet long-term customer needs. These barriers include potential limitations on stacking additional 3D memory layers, increasing bits per cell (i.e., cell levels), meeting higher density requirements, developing advanced packaging solutions, improving power consumption and reliability, and delivering advanced features and higher performance. We may face technological barriers to continue to shrink our products at our current or historical rate, which has generally reduced per gigabit cost. We have invested and expect to continue to invest in R&D for new and existing products and process technologies, such as EUV lithography, to continue to deliver advanced product requirements. Such new technologies can add complexity and risk to our schedule and may affect our costs and production output. We may be unable to recover our investment in R&D or otherwise realize the economic benefits of reducing die size or increasing memory and storage densities. Our competitors are working to develop new memory and storage technologies that may offer performance and/or cost advantages to existing technologies and render existing technologies obsolete. Accordingly, our future success may depend on our ability to develop and produce viable and competitive new memory and storage technologies.We are developing new products, including system-level memory and storage products and solutions, which complement our traditional products or leverage their underlying design or process technology. We have invested and expect to continue to invest in new semiconductor product and system-level solution development. We are increasingly differentiating our products and solutions to meet the specific demands of our customers, which increases our reliance on our customers’ ability to accurately forecast the needs and preferences of their customers. As a result, our product demand forecasts may be impacted significantly by the strategic actions of our customers. In addition, our ability to successfully introduce new products often requires us to make product specification decisions multiple years in advance of when new products enter the market.It is important that we deliver products in a timely manner with increasingly advanced performance characteristics at the time our customers are designing and evaluating samples for their products. If we do not meet their product design schedules, our customers may exclude us from further consideration as a supplier for those products. The process to develop new products requires us to demonstrate advanced functionality, performance, and reliability, often well in advance of a planned ramp of production, in order to secure design wins with our customers. Many factors may negatively impact our ability to meet anticipated timelines and/or expected or required quality standards with respect to the development of certain of our products. In addition, some of our components have long lead-times, requiring us to place orders up to a year in advance of anticipated demand. Such long lead-times increase the risk of excess inventory or loss of sales in the event our forecasts vary substantially from actual demand.There can be no assurance of the following:•we will be successful in developing competitive new semiconductor memory and storage technologies and products;•we will be able to cost-effectively manufacture new products;•we will be able to successfully market these technologies;•margins generated from sales of these products will allow us to recover costs of development efforts;•we will be able to establish or maintain key relationships with customers, or that we will not be prohibited from working with certain customers, for specific chip set or design requirements;•we will accurately predict and design products that meet our customers' specifications; or•we will be able to introduce new products into the market and qualify them with our customers on a timely basis.Unsuccessful efforts to develop new memory and storage technologies and products could have a material adverse effect on our business, results of operations, or financial condition. 38Table of ContentsWe may not be able to achieve expected returns from capacity expansions.We have announced our intent to expand our production capacity and/or make capital investments in the United States and in other regions where we operate.These expansions involve several risks including the following:•capital expenditure requirements for capacity expansions during periods of relatively low free cash flow generation, resulting from challenging memory and storage industry conditions; •availability of necessary funding, which may include external sources;•ability to realize expected grants, investment tax credits, and other government incentives, including through the U.S. CHIPS and Science Act of 2022 (“CHIPS Act”) and other national, international, state, and local grants;•potential changes in laws or provisions of grants, investment tax credits, and other government incentives;•potential restrictions on expanding in certain geographies;•availability of equipment and construction materials;•ability to complete construction as scheduled and within budget;•availability of the necessary workforce;•ability to timely ramp production in a cost-effective manner; •increases to our cost structure until new production is ramped to adequate scale; and•sufficient customer demand to utilize our increased capacity.We invest our capital in areas that we believe best align with our business strategy and optimize future returns. Investments in capital expenditures may not generate expected returns or cash flows. Significant judgment is required to determine which capital investments will result in optimal returns, and we could invest in projects that are ultimately less profitable than those projects we do not select. Delays in completion and ramping of new production facilities, or failure to optimize our investment choices, could significantly impact our ability to realize expected returns on our capital expenditures.Any of the above factors could have a material adverse effect on our business, results of operations, or financial condition.Our incentives from various governments are conditional upon achieving or maintaining certain performance or other obligations and are subject to reduction, termination, clawback, or could impose certain limitations on our business.We have received, and may in the future continue to receive, benefits and incentives from national, state, and local governments in various regions of the world designed to encourage us to establish, maintain, or increase investment, workforce, or production in those regions. These incentives may take various forms, including grants, loan subsidies, and tax arrangements, and typically require us to achieve or maintain certain levels of investment, capital spending, employment, technology deployment, or research and development activities to qualify for such incentives or could restrict us from undertaking certain activities. We may be unable to obtain sufficient future incentives to continue to fund a portion of our capital expenditures and operating costs, without which our cost structure may be adversely impacted and planned capital expenditures may be affected. We also cannot guarantee that we will successfully achieve performance or other obligations required to qualify for these incentives or that the granting agencies will provide or continue to provide such funding. These incentive arrangements typically provide the granting agencies with rights to audit our compliance with their terms and obligations. Such audits could result in modifications to, or termination of, the applicable incentive program. The incentives we receive could be subject to reduction, termination, or clawback, and any decrease or clawback of government incentives could have a material adverse effect on our business, results of operations, or financial condition. 39 | 2024 Q1 10-QTable of ContentsOur business, results of operations, or financial condition could be adversely affected by the availability and quality of materials, supplies, and capital equipment, or dependency on third-party service providers.Our supply chain and operations are dependent on the availability of materials that meet exacting standards and the use of third parties to provide us with components and services. We generally have multiple sources of supply for our materials and services. However, only a limited number of suppliers are capable of delivering certain materials, components, and services that meet our standards and, in some cases, materials, components, or services are provided by a single or sole source, and we may be unable to qualify new suppliers on a timely basis. The availability of materials or components such as chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, targets, and reticle glass blanks is impacted by various factors. These factors could include a shortage of raw materials or a disruption in the processing or purification of those raw materials into finished goods. Shortages or increases in lead times have occurred in the past, are currently occurring with respect to some materials and components, and may occur from time to time in the future. Constraints within our supply chain for certain materials and integrated circuit components could limit our bit shipments, which could have a material adverse effect on our business, results of operations, or financial condition.Our manufacturing processes are also dependent on our relationships with third-party manufacturers of controllers, analog integrated circuits, and other components used in some of our products and with outsourced semiconductor foundries, assembly and test providers, contract manufacturers, logistics carriers, and other service providers, including providers of maintenance for our advanced semiconductor manufacturing equipment and providers of electricity and other utilities. Although we have certain long-term contracts with some of our suppliers, many of these contracts do not provide for long-term capacity or pricing commitments. To the extent we do not have firm commitments from our third-party suppliers over a specific time period or for any specific capacity, quantity, and/or pricing, our suppliers may allocate capacity to their other customers and capacity and/or materials may not be available when needed or at reasonable prices. Inflationary pressures have increased, and may continue to increase costs for materials, supplies, and services. Regardless of contract structure, large swings in demand may exceed our contracted supply and/or our suppliers’ capacity to meet those demand changes resulting in a shortage of parts, materials, or capacity needed to manufacture our products. In addition, if any of our suppliers was to cease operations or become insolvent, this could impact their ability to provide us with necessary supplies, and we may not be able to obtain the needed supply in a timely way or at all from other providers.Certain materials are primarily available in a limited number of countries, including rare earth elements, minerals, and metals. Trade disputes, geopolitical tensions, economic circumstances, political conditions, or public health issues may limit our ability to obtain such materials. Although these rare earth and other materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. If China were to restrict or stop exporting these materials, our suppliers’ ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost. Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory and storage manufacturers who are able to obtain sufficient quantities of these materials from China.We and/or our suppliers and service providers could be affected by regional conflicts, civil unrest, labor disruptions, sanctions, tariffs, embargoes, or other trade restrictions, as well as laws and regulations enacted in response to concerns regarding climate change, conflict minerals, responsible sourcing practices, public health crises, or other matters, which could limit the supply of our materials and/or increase the cost. Environmental regulations could limit our ability to procure or use certain chemicals or materials in our operations or products. In addition, disruptions in transportation lines could delay our receipt of materials. Our ability to procure components to repair equipment essential for our manufacturing processes could also be negatively impacted by various restrictions or disruptions in supply chains, among other items. The disruption of our supply of materials, components, or services, or the extension of our lead times could have a material adverse effect on our business, results of operations, or financial condition. 40Table of ContentsOur operations are dependent on our ability to procure advanced semiconductor manufacturing equipment that enables the transition to lower cost manufacturing processes. For certain key types of equipment, including photolithography tools, we are sometimes dependent on a single supplier. From time to time, we have experienced difficulties in obtaining some equipment on a timely basis due to suppliers’ limited capacity. Our inability to obtain equipment on a timely basis could adversely affect our ability to transition to next generation manufacturing processes and reduce our costs. Delays in obtaining equipment could also impede our ability to ramp production and could increase our overall costs of a ramp. Our inability to obtain advanced semiconductor manufacturing equipment in a timely manner could have a material adverse effect on our business, results of operations, or financial condition.Our construction projects to expand production and R&D capacity are highly dependent on available sources of labor, materials, equipment, and services. Increasing demand, supply constraints, inflation, and other market conditions could result in increasing shortages and higher costs for these items. Difficulties in obtaining these resources could result in significant delays in completion of our construction projects and cost increases, which could have a material adverse effect on our business, results of operations, or financial condition.Our inability to source materials, supplies, capital equipment, or third-party services could affect our overall production output and our ability to fulfill customer demand. Significant or prolonged shortages of our products could halt customer manufacturing and damage our relationships with these customers. Any damage to our customer relationships as a result of a shortage of our products could have a material adverse effect on our business, results of operations, or financial condition.Similarly, if our customers experience disruptions to their supplies, materials, components, or services, or the extension of their lead times, they may reduce, cancel, or alter the timing of their purchases with us, which could have a material adverse effect on our business, results of operations, or financial condition.Downturns in regional or worldwide economies may harm our business.Downturns in regional or worldwide economies, due to inflation, geopolitics, major central bank policy actions including interest rate increases, public health crises, or other factors, have harmed our business in the past and current and future downturns could also adversely affect our business. Adverse economic conditions affect demand for devices that incorporate our products, such as personal computers, smartphones, automobiles, and servers. Reduced demand for these or other products could result in significant decreases in our average selling prices and product sales. In addition, to the extent our customers or distributors have elevated inventory levels or are impacted by a deterioration in credit markets, we may experience a decrease in short-term and/or long-term demand resulting in industry oversupply and declines in pricing for our products.A deterioration of conditions in regional or worldwide credit markets could limit our ability to obtain external financing to fund our operations and capital expenditures. In addition, we may experience losses on our holdings of cash and investments due to failures of financial institutions and other parties. Difficult economic conditions may also result in a higher rate of losses on our accounts receivable due to credit defaults. As a result, downturns in regional or worldwide economies could have a material adverse effect on our business, results of operations, or financial condition.If our manufacturing process is disrupted by operational issues, natural disasters, or other events, our business, results of operations, or financial condition could be materially adversely affected.We and our subcontractors manufacture products using highly complex processes that require technologically advanced equipment and continuous modification to improve yields and performance. Difficulties in the manufacturing process or the effects from a shift in product mix can reduce yields or disrupt production and may increase our per gigabit manufacturing costs. We and our subcontractors maintain operations and continuously implement new product and process technology at manufacturing facilities, which are widely dispersed in multiple locations in several countries including the United States, Singapore, Taiwan, Japan, Malaysia, and China. As a result of the necessary interdependence within our network of manufacturing facilities, an operational disruption at one of our or a subcontractor’s facilities may have a disproportionate impact on our ability to produce many of our products.41 | 2024 Q1 10-QTable of ContentsFrom time to time, there have been disruptions in our manufacturing operations as a result of power outages, improperly functioning equipment, disruptions in supply of raw materials or components, or equipment failures. We have manufacturing and other operations in locations subject to natural occurrences and possible climate changes, such as severe and variable weather and geological events resulting in increased costs, or disruptions to our manufacturing operations or those of our suppliers or customers. In addition, climate change may pose physical risks to our manufacturing facilities or our suppliers’ facilities, including increased extreme weather events that could result in supply delays or disruptions. Other events, including political or public health crises, such as an outbreak of contagious diseases, may also affect our production capabilities or that of our suppliers, including as a result of quarantines, closures of production facilities, lack of supplies, or delays caused by restrictions on travel or shipping. Events of the types noted above have occurred from time to time and may occur in the future. As a result, in addition to disruptions to operations, our insurance premiums may increase or we may not be able to fully recover any sustained losses through insurance.If production is disrupted for any reason, manufacturing yields may be adversely affected, or we may be unable to meet our customers’ requirements and they may purchase products from other suppliers. This could result in a significant increase in manufacturing costs, loss of revenue, or damage to customer relationships, any of which could have a material adverse effect on our business, results of operations, or financial condition.A significant portion of our revenue is concentrated with a select number of customers.In each of the last three years, approximately one-half of our total revenue was from our top ten customers. A disruption in our relationship with any of these customers could adversely affect our business. We could experience fluctuations in our customer base or the mix of revenue by customer as markets and strategies evolve. Our customers’ demand for our products may fluctuate due to factors beyond our control. In addition, any consolidation of our customers could reduce the number of customers to whom our products may be sold. Our inability to meet our customers’ requirements or to qualify our products with them could adversely impact our revenue. A meaningful change in the inventory strategy of our customers could impact our industry bit demand growth outlook. The loss of, or restrictions on our ability to sell to, one or more of our major customers, or any significant reduction in orders from, or a shift in product mix by, customers could have a material adverse effect on our business, results of operations, or financial condition.Increases in sales of system solutions may increase our dependency upon specific customers and our costs to develop, qualify, and manufacture our system solutions.Our development of system-level memory and storage products is dependent, in part, upon successfully identifying and meeting our customers’ specifications for those products. Developing and manufacturing system-level products with specifications unique to a customer increases our reliance upon that customer for purchasing our products at sufficient volumes and prices in a timely manner. Even if our products meet customer specifications, our sales of system-level solutions are dependent upon our customers choosing our products over those of our competitors and purchasing our products at sufficient volumes and prices. Our competitors’ products may be less costly, provide better performance, or include additional features when compared to our products. Our long-term ability to sell system-level memory and storage products is reliant upon our customers’ ability to create, market, and sell their products containing our system-level solutions at sufficient volumes and prices in a timely manner. If we fail to successfully develop and market system-level products, our business, results of operations, or financial condition may be materially adversely affected. 42Table of ContentsManufacturing system-level solutions, such as SSDs, managed NAND, and HBM, typically results in higher per-unit manufacturing costs as compared to other products. Even if we are successful in selling system-level solutions to our customers in sufficient volume, we may be unable to generate sufficient profit if our per-unit manufacturing costs are not offset by higher per-unit selling prices. Manufacturing system-level solutions to customer specifications requires a longer development cycle, as compared to discrete products, to design, test, and qualify, which may increase our costs. Some of our system solutions are increasingly dependent on sophisticated firmware that may require significant customization to meet customer specifications, which increases our costs and time to market. Additionally, we may need to update our controller and hardware design as well as our firmware or develop new firmware as a result of new product introductions or changes in customer specifications and/or industry standards, which increases our costs. System complexities and extended warranties for system-level products could also increase our warranty costs. Our failure to cost-effectively manufacture system-level solutions and/or controller, hardware design, and firmware in a timely manner may result in reduced demand for our system-level products and could have a material adverse effect on our business, results of operations, or financial condition.Products that fail to meet specifications, are defective, or are otherwise incompatible with end uses could impose significant costs on us.Products that do not meet specifications or that contain, or are perceived by our customers to contain, defects or that are otherwise incompatible with end uses could impose significant costs on us or otherwise materially adversely affect our business, results of operations, or financial condition. From time to time, we experience problems with nonconforming, defective, or incompatible products after we have shipped such products. In recent periods, we have further diversified and expanded our product offerings, which could potentially increase the chance that one or more of our products could fail to meet specifications in a particular application. Our products and solutions may be deemed fully or partially responsible for functionality in our customers’ products and may result in sharing or shifting of product or financial liability from our customers to us for costs incurred by the end user as a result of our customers’ products failing to perform as specified. In addition, if our products and solutions perform critical functions in our customers’ products or are used in high-risk consumer end products, such as autonomous driver assistance programs, home and enterprise security, smoke and noxious gas detectors, medical monitoring equipment, or wearables for child and elderly safety, our potential liability may increase. We could be adversely affected in several ways, including the following:•we may be required or agree to compensate customers for costs incurred or damages caused by defective or incompatible products and to replace products;•we could incur a decrease in revenue or adjustment to pricing commensurate with the reimbursement of such costs or alleged damages; and•we may encounter adverse publicity, which could cause a decrease in sales of our products or harm our reputation or relationships with existing or potential customers.Any of the foregoing items could have a material adverse effect on our business, results of operations, or financial condition.43 | 2024 Q1 10-QTable of ContentsBreaches of our security systems or products, or those of our customers, suppliers, or business partners, could expose us to losses.We maintain a system of controls over the physical security of our facilities. We also manage and store various proprietary information and sensitive or confidential data relating to our operations. In addition, we process, store, and transmit large amounts of data relating to our customers and employees, including sensitive personal information. Unauthorized persons, employees, former employees, nation states, or other parties may gain access to our facilities or technology infrastructure and systems to steal trade secrets or other proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. This risk is exacerbated as competitors for talent, particularly engineering talent, attempt to hire our employees. Through cyberattacks on technology infrastructure and systems, unauthorized parties may obtain access to computer systems, networks, and data, including cloud-based platforms. The technology infrastructure and systems of our suppliers, vendors, service providers, cloud solution providers, and partners have in the past experienced, and may in the future experience, such attacks, which could impact our operations. Cyberattacks can include ransomware, computer denial-of-service attacks, worms, supply chain attacks, social engineering, open source vulnerabilities, and other malicious software programs or other attacks, including those using techniques that change frequently or may be disguised or difficult to detect, or designed to remain dormant until a triggering event, impersonation of authorized users, and efforts to discover and exploit any design flaws, “bugs,” security vulnerabilities, as well as intentional or unintentional acts by employees or other insiders with access privileges. Additionally, some actors are using artificial intelligence technology to launch more automated, targeted and coordinated attacks. Globally, cyberattacks are increasing in number and the attackers are increasingly organized and well-financed, or supported by state actors, and are developing increasingly sophisticated systems to not only attack, but also to evade detection. In addition, geopolitical tensions or conflicts may create a heightened risk of cyberattacks. Breaches of our physical security, attacks on our technology infrastructure and systems, or breaches or attacks on our customers, suppliers, or business partners who have confidential or sensitive information regarding us and our customers and suppliers, could result in significant losses and damage our reputation with customers and suppliers and may expose us to litigation if the confidential information of our customers, suppliers, or employees is compromised.Our products are also targets for cyberattacks, including those products utilized in cloud-based environments. While some of our products contain encryption or security algorithms to protect third-party content or user-generated data stored on our products, these products could still be hacked or the encryption schemes could be compromised, breached, or circumvented by motivated and sophisticated attackers. Further, our products contain sophisticated hardware and firmware and applications that may contain security vulnerabilities or defects in design or manufacture, including “bugs” and other problems that could interfere with the intended operation of our products. To the extent our products are hacked, or the encryption schemes are compromised or breached, this could harm our business by requiring us to employ additional resources to fix the errors or defects, exposing us to litigation, claims, and harm to our reputation.Any of the foregoing security risks could have a material adverse effect on our business, results of operations, or financial condition.We must attract, retain, and motivate highly skilled employees.To remain competitive, we must attract, retain, and motivate executives and other highly skilled, diverse employees, as well as effectively manage succession for key roles. Competition for experienced employees in our industry can be intense. Hiring and retaining qualified executives and other skilled talent is critical to our business. If our total compensation programs, employment benefits, and workplace culture are not viewed as competitive and inclusive, our ability to attract, retain, and motivate employees could be compromised.At times, we experience higher levels of attrition, increasing compensation costs, and more intense competition for talent across our industry. To the extent we experience significant attrition and are unable to timely replace employees, we could experience a loss of critical skills and reduced employee morale, potentially resulting in business disruptions or increased expenses to address any disruptions. Additionally, changes to immigration policies in the countries in which we operate, as well as restrictions on travel due to public health crises or other causes, may limit our ability to hire and/or retain talent in, or transfer talent to, specific locations. Our inability to attract, retain, and motivate executives and other employees or effectively manage succession of key roles may inhibit our ability to maintain or expand our business operations. 44Table of ContentsCompliance with responsible sourcing requirements and any related regulations could increase our operating costs, or limit the supply and increase the cost of certain materials, supplies, and services, and if we fail to comply, customers may reduce purchases from us or disqualify us as a supplier.We and many of our customers have adopted responsible sourcing programs that require us to meet certain environmental, social and governance criteria, and to periodically report on our performance against these requirements, including that we source the materials, supplies, and services we use and incorporate into the products we sell as prescribed by these programs. Many customer programs require us to remove a supplier within a prescribed period if such supplier ceases to comply with prescribed criteria, and our supply chain may at any time contain suppliers at risk of being removed due to non-compliance with responsible sourcing requirements. Some of our customers may elect to disqualify us as a supplier (resulting in a permanent or temporary loss of sales to such customer) or reduce purchases from us if we are unable to verify that our performance or products (including the underlying supply chain) meet the specifications of our customers’ responsible sourcing programs on a continuous basis. Meeting responsible sourcing requirements may increase operating requirements and costs or limit the sourcing and availability of some of the materials, supplies, and services we use, particularly when the availability of such materials, supplies, and services is concentrated to a limited number of suppliers. From time to time, we remove suppliers or require our suppliers to remove suppliers from their supply chains based on our responsible sourcing requirements or customer requirements, and we or our suppliers may be unable to replace such removed suppliers in a timely or cost-effective manner. Any inability to replace removed suppliers in a timely or cost effective manner may affect our ability and/or the cost to obtain sufficient quantities of materials, supplies, and services necessary for the manufacture of our products. Our inability to replace suppliers we have removed in a timely or cost-effective manner or comply with customers’ responsible sourcing requirements or with any related regulations could have a material adverse effect on our business, results of operations, or financial condition.Failure to meet environmental, social, and governance expectations or standards or achieve our related goals could adversely affect our business, results of operations, financial condition, or stock price.In recent years, there has been an increased focus from stakeholders on environmental, social, and governance matters, including greenhouse gas emissions and climate-related risks, sustainability, renewable energy, water stewardship, waste management, diversity, equality and inclusion, responsible sourcing and supply chain, human rights, and social responsibility. Given our commitment to social and environmental issues as it relates to our business, we actively manage these issues and have established and publicly announced certain goals, commitments, and targets which we may refine or even expand further in the future. These goals, commitments, and targets reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Achieving these goals may entail significant costs, for example we have entered into several virtual power purchase agreements to obtain renewable energy credits at a cost that will vary based on future prices for electrical power. Evolving stakeholder expectations and our efforts to manage these issues, report on them, and accomplish our goals present numerous operational, regulatory, reputational, financial, legal, and other risks, any of which could have a material adverse impact, including on our reputation and stock price.Such risks and uncertainties include:•reputational harm, including damage to our relationships with customers, suppliers, investors, governments, or other stakeholders; •adverse impacts on our ability to manufacture and sell products and maintain our market share;•the success of our collaborations with third parties;•increased risk of litigation, investigations, or regulatory enforcement action;•unfavorable environmental, social, and governance ratings or investor sentiment;•diversion of resources and increased costs to control, assess, and report on environmental, social, and governance metrics;•our ability to achieve our goals, commitments, and targets within timeframes announced;•increased costs to achieve our goals, commitments, and targets;•unforeseen operational and technological difficulties;•access to and increased cost of capital; and•adverse impacts on our stock price.45 | 2024 Q1 10-QTable of ContentsAny failure, or perceived failure, to meet evolving stakeholder expectations and industry standards or achieve our environmental, social, and governance goals, commitments, and targets could have an adverse effect on our business, results of operations, financial condition, or stock price.Acquisitions and/or alliances involve numerous risks.Acquisitions and the formation or operation of alliances, such as joint ventures and other partnering arrangements, involve numerous risks, including the following:•integrating the operations, technologies, and products of acquired or newly formed entities into our operations;•increasing capital expenditures to upgrade and maintain facilities;•increased debt levels;•the assumption of unknown or underestimated liabilities;•the use of cash to finance a transaction, which may reduce the availability of cash to fund working capital, capital expenditures, R&D expenditures, and other business activities;•diverting management’s attention from daily operations;•managing larger or more complex operations and facilities and employees in separate and diverse geographic areas;•hiring and retaining key employees;•requirements imposed by government authorities in connection with the regulatory review of a transaction, which may include, among other things, divestitures or restrictions on the conduct of our business or the acquired business;•underestimating the costs or overestimating the benefits, including product, revenue, cost and other synergies and growth opportunities that we expect to realize, and we may not achieve those benefits;•failure to maintain customer, vendor, and other relationships;•inadequacy or ineffectiveness of an acquired company’s internal financial controls, disclosure controls and procedures, compliance programs, and/or environmental, health and safety, anti-corruption, human resource, or other policies or practices; and•impairment of acquired intangible assets, goodwill, or other assets as a result of changing business conditions or technological advancements.The global memory and storage industry has experienced consolidation and may continue to consolidate. We engage, from time to time, in discussions regarding potential acquisitions and similar opportunities. To the extent we are successful in completing any such transactions, we could be subject to some or all of the risks described above. Acquisitions of, or alliances with, technology companies are inherently risky and may not be successful and could have a material adverse effect on our business, results of operations, or financial condition.We have incurred restructure charges and may incur restructure charges in future periods and may not realize expected savings or other benefits from restructure plans.In 2023, we initiated a restructure plan in response to challenging industry conditions (the “2023 Restructure Plan”). Under the plan, we reduced our headcount by approximately 15% through a combination of voluntary attrition and personnel reductions. The 2023 Restructure Plan was substantially completed in 2023. In addition, we may in the future enter into other restructure initiatives in order to, among other items, streamline our operations, respond to changes in business conditions, our markets, or product offerings, or to centralize certain key functions. We may not realize expected savings or other benefits from our current or future restructure activities and may incur additional restructure charges or other losses in future periods associated with other initiatives. In connection with any restructure initiatives, we could incur restructure charges, loss of production output, loss of key personnel, disruptions in our operations, and difficulties in the timely delivery of products, which could have a material adverse effect on our business, results of operations, or financial condition. 46Table of ContentsRisks Related to Intellectual Property and LitigationWe may be unable to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property.We maintain a system of controls over our intellectual property, including U.S. and foreign patents, trademarks, copyrights, trade secrets, licensing arrangements, confidentiality procedures, non-disclosure agreements with employees, consultants, and vendors, and a general system of internal controls. Despite our system of controls over our intellectual property, it may be possible for our current or future competitors to obtain, copy, use, or disclose, illegally or otherwise, our product and process technology or other proprietary information. The laws of some foreign countries may not protect our intellectual property to the same degree as do U.S. laws, and our confidentiality, non-disclosure, and non-compete agreements may be unenforceable or difficult and costly to enforce.Additionally, our ability to maintain and develop intellectual property is dependent upon our ability to attract, develop, and retain highly skilled employees. If our competitors or future entrants into our industry are successful in hiring our employees, they may directly benefit from the knowledge these employees gained while they were under our employment, and this may also negatively impact our ability to maintain and develop intellectual property.Our inability to protect our intellectual property or retain key employees who are knowledgeable of and develop our intellectual property could have a material adverse effect on our business, results of operations, or financial condition.Legal proceedings and claims could have a material adverse effect on our business, results of operations, or financial condition.From time to time, we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business or otherwise, both domestically and internationally. Such claims include, but are not limited to, allegations of anticompetitive conduct and infringement of intellectual property. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”Any claim, with or without merit, could result in significant legal fees that could negatively impact our financial results, disrupt our operations, and require significant attention from our management. We may be associated with and subject to litigation, claims, or arbitration disputes arising from, or as a result of:•our relationships with vendors or customers, supply agreements, or contractual obligations with our subcontractors or business partners;•the actions of our vendors, subcontractors, or business partners;•our indemnification obligations, including obligations to defend our customers against third-party claims asserting infringement of certain intellectual property rights, which may include patents, trademarks, copyrights, or trade secrets; and•the terms of our product warranties or from product liability claims.As we continue to focus on developing system solutions with manufacturers of consumer products, including autonomous driving, augmented reality, and others, we may be exposed to greater potential for personal liability claims against us as a result of consumers’ use of those products. We, our officers, or our directors could also be subject to claims of alleged violations of securities laws. There can be no assurance that we are adequately insured to protect against all claims and potential liabilities, and we may elect to self-insure with respect to certain matters. Exposures to various legal proceedings and claims could lead to significant costs and expenses as we defend claims, are required to pay damage awards, or enter into settlement agreements, any of which could have a material adverse effect on our business, results of operations, or financial condition.47 | 2024 Q1 10-QTable of ContentsClaims that our products or manufacturing processes infringe or otherwise violate the intellectual property rights of others, or failure to obtain or renew license agreements covering such intellectual property, could materially adversely affect our business, results of operations, or financial condition.As is typical in the semiconductor and other high technology industries, from time to time others have asserted, and may in the future assert, that our products or manufacturing processes infringe upon, misappropriate, misuse, or otherwise violate their intellectual property rights. We are unable to predict the outcome of these assertions made against us. Any of these types of claims, regardless of the merits, could subject us to significant costs to defend or resolve such claims and may consume a substantial portion of management’s time and attention. As a result of these claims, we may be required to:•pay significant monetary damages, fines, royalties, or penalties;•enter into license or settlement agreements covering such intellectual property rights;•make material changes to or redesign our products and/or manufacturing processes; and/or•cease manufacturing, having made, selling, offering for sale, importing, marketing, or using products and/or manufacturing processes in certain jurisdictions.We may not be able to take any of the actions described above on commercially reasonable terms and any of the foregoing results could have a material adverse effect on our business, results of operations, or financial condition. See “Part I. Financial Information – Item 1. Financial Statements – Notes to Consolidated Financial Statements – Contingencies.”We have a number of intellectual property license agreements. Some of these license agreements require us to make one-time or periodic payments. We may need to obtain additional licenses or renew existing license agreements in the future. We are unable to predict whether these license agreements can be obtained or renewed on terms acceptable to us. The failure to obtain or renew licenses as necessary could have a material adverse effect on our business, results of operations, or financial condition.Risks Related to Laws and RegulationsGovernment actions and regulations, such as export restrictions, tariffs, and trade protection measures, may limit our ability to sell our products to certain customers or markets, or could otherwise restrict our ability to conduct operations.International trade disputes, geopolitical tensions, and military conflicts have led, and continue to lead, to new and increasing export restrictions, trade barriers, tariffs, and other trade measures that can increase our manufacturing costs, make our products less competitive, reduce demand for our products, limit our ability to sell to certain customers or markets, limit our ability to procure, or increase our costs for, components or raw materials, impede or slow the movement of our goods across borders, impede our ability to perform R&D activities, or otherwise restrict our ability to conduct operations. Increasing protectionism, economic nationalism, and national security concerns may lead to further changes in trade policy, domestic sourcing initiatives, or other formal and informal measures that could make it more difficult to sell our products in, or restrict our access to, some markets and/or customers. For example, following the May 21, 2023 decision of its cybersecurity review of our products sold in China, the CAC determined that critical information infrastructure operators in China may not purchase Micron products, impacting our revenue with companies headquartered in mainland China and Hong Kong, including direct sales as well as indirect sales through distributors. Some revenue with customers headquartered outside of China has also been impacted. Further actions by the Chinese government could impact additional revenue inside or outside China, or our operations in China, or our ability to ship products to our customers, any of which could have a material adverse effect on our business, results of operations, or financial condition. 48Table of ContentsWe cannot predict what further actions may ultimately be taken with respect to export regulations, tariffs, or other trade regulations between the United States and other countries, what products or companies may be subject to such actions, or what actions may be taken by other countries in retaliation. Further changes in trade policy, tariffs, restrictions on exports or other trade barriers, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies. Such changes may also result in reputational harm to us, the development or adoption of technologies that compete with our products, long-term changes in global trade and technology supply chains, or negative impacts on our customers’ products which incorporate our solutions. Any of the effects described in this risk factor could have a material adverse effect on our business, results of operations, or financial condition.The technology industry is subject to intense media, political, and regulatory scrutiny, which can increase our exposure to government investigations, legal actions, and penalties. Although we have policies, controls, and procedures designed to help ensure compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers, or agents will not violate such laws or our policies. Violations of trade laws, restrictions, or regulations can result in fines; criminal sanctions against us or our officers, directors, or employees; prohibitions on the conduct of our business; and damage to our reputation.Tax-related matters could have a material adverse effect on our business, results of operations, or financial condition.We are subject to income taxes in the United States and many foreign jurisdictions. Our provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including changes in the geographic mix of our earnings among jurisdictions, challenges by tax authorities to our tax positions and intercompany transfer pricing arrangements, failure to meet performance obligations with respect to tax incentive agreements, expanding our operations in various countries, fluctuations in foreign currency exchange rates, adverse resolution of audits and examinations of previously filed tax returns, and changes in tax laws and regulations.Changes to income tax laws and regulations, or the interpretation of such laws, in any of the jurisdictions in which we operate could significantly increase our effective tax rate and ultimately reduce our cash flows from operating activities and otherwise have a material adverse effect on our financial condition. Beginning in 2024, the Inflation Reduction Act of 2022 imposes a 15% book minimum tax on corporations with three-year average annual adjusted financial statement income exceeding $1 billion. The impact of this tax will depend on our facts in each year, anticipated guidance from the U.S. Department of the Treasury, and other developing global tax legislation. Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development (“OECD”). In December 2022, the European Union (“EU”) member states reached an agreement to implement the minimum tax component (“Pillar Two”) of the OECD’s tax reform initiative. The directive is expected to be enacted into the national law of the EU member states by December 31, 2023. If similar directives under Pillar Two are adopted by taxing authorities in other countries where we do business, such changes could have a material adverse effect on our business, results of operations, or financial condition.We and others are subject to a variety of complex and evolving laws, regulations, or industry standards, including with respect to environmental, health, safety, and product considerations, which may have a material adverse effect on our business, results of operations, or financial condition.The manufacture of our products requires the use of facilities, equipment, chemicals, and materials that are subject to a broad array of laws and regulations in numerous jurisdictions in which we operate. Additionally, we are subject to a variety of other laws and regulations relative to the construction, maintenance, and operations of our facilities. Any changes in laws, regulations, or industry standards could cause us to incur additional direct costs, as well as increased indirect costs related to our relationships with our customers and suppliers, and otherwise harm our operations and financial condition. Any failure to comply with laws, regulations, or industry standards could adversely impact our reputation and our financial results. Additionally, we engage various third parties as sales channel partners or to represent us or otherwise act on our behalf who are also subject to a broad array of laws, regulations, and industry standards. Our engagement with these third parties may also expose us to risks associated with their respective compliance with laws and regulations.49 | 2024 Q1 10-QTable of ContentsNew and evolving environmental health, safety, and product considerations, including those related to greenhouse gas emissions and climate change, the purchase, use and disposal of regulated and/or hazardous chemicals, and the potential resulting environmental, health or safety impacts, may result in new laws, regulations, or industry standards that may affect us, our suppliers, and our customers. Such laws, regulations, or industry standards could cause us to incur additional direct costs for compliance, as well as increased indirect costs resulting from our customers, suppliers, or both incurring additional compliance costs that are passed on to us. These costs may adversely impact our results of operations and financial condition.New and evolving cybersecurity, data privacy, and artificial intelligence laws and regulations impose requirements for information confidentiality, integrity, availability, personal and proprietary data collection, storage, use, sharing, deletion, and artificial intelligence solutions that must be transparent, fair, secure, human-focused, and accountable. Such laws, standards, and market expectations could cause us to incur additional direct costs for compliance, as well as increased indirect costs resulting from our customers, suppliers, or partners reluctance to share information or solutions due to actual or perceived inadequate controls. These costs may adversely impact our operations and financial condition.As a result of the considerations detailed in this risk factor, we could experience the following:•suspension of production or sales of our products;•limited supplies of chemicals or materials used to make our products;•remediation costs;•increased compliance costs;•alteration of our manufacturing processes;•regulatory penalties, fines, civil or criminal sanctions, and other legal liabilities; and•reputational challenges.Compliance with, or our failure, or the failure of our third-party sales channel partners or agents, to comply with, laws, regulations, or industry standards could have a material adverse effect on our business, results of operations, or financial condition.Risks Related to Capitalization and Financial MarketsWe may be unable to generate sufficient cash flows or obtain access to external financing necessary to fund our operations, make scheduled debt payments, pay our dividend, and make adequate capital investments.Our cash flows from operations depend primarily on the volume of semiconductor memory and storage products sold, average selling prices, and manufacturing costs. To develop new product and process technology, support future growth, achieve operating efficiencies, and maintain product quality, we must make significant capital investments in manufacturing technology, capital equipment, facilities, R&D, and product and process technology. We estimate capital expenditures in 2024 for property, plant, and equipment, net of partner contributions, to be in the range of $7.5 billion to $8.0 billion.In the past, we have utilized external sources of financing when needed. As a result of our debt levels, expected debt amortization, prevailing interest rates, and general capital market and other economic conditions, it may be difficult for us to obtain financing on terms acceptable to us or at all. We have experienced volatility in our cash flows and operating results and we expect to continue to experience such volatility in the future, which may negatively affect our credit rating. Our credit rating may also be affected by our liquidity, financial results, economic risk, or other factors, which may increase the cost of borrowings and make it difficult for us to obtain financing on terms acceptable to us or at all. There can be no assurance that we will be able to generate sufficient cash flows, access capital or credit markets, or find other sources of financing to fund our operations, make debt payments, refinance our debt, pay our quarterly dividend, and make adequate capital investments to remain competitive in terms of technology development and cost efficiency. Our inability to do any of the foregoing could have a material adverse effect on our business, results of operations, or financial condition. 50Table of ContentsDebt obligations could adversely affect our financial condition.We have incurred in the past, and expect to incur in the future, debt to finance our capital investments, business acquisitions, and to realign our capital structure. As of November 30, 2023, we had debt with a carrying value of $13.51 billion and may incur additional debt, including under our $2.50 billion Revolving Credit Facility. Our debt obligations could adversely impact us as follows:•require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund our business activities;•adversely impact our credit rating, which could increase borrowing costs;•limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, R&D, and other general corporate requirements;•restrict our ability to incur specified indebtedness, create or incur certain liens, and enter into sale-leaseback financing transactions;•increase our vulnerability to adverse economic and industry conditions;•increase our exposure to rising interest rates from variable rate indebtedness; and•result in certain of our debt instruments becoming immediately due and payable or being deemed to be in default if applicable cross default, cross-acceleration and/or similar provisions are triggered.Our ability to meet our payment obligations under our debt instruments depends on our ability to generate significant cash flows or obtain external financing in the future. This, to some extent, is subject to market, economic, financial, competitive, legislative, and regulatory factors as well as other factors that are beyond our control. There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. Additionally, events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize our Revolving Credit Facility. In light of industry conditions, in 2023, we amended the financial covenants in our Revolving Credit Facility and term loan agreements. See “Part I. Financial Information – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview” and “Part I. Financial Information - Item 1. Financial Statements – Notes to Consolidated Financial Statements – Debt.” If we are unable to generate sufficient cash flows to service our debt payment obligations or satisfy our debt covenants, we may need to refinance, restructure, or amend the terms of our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.Changes in foreign currency exchange rates could materially adversely affect our business, results of operations, or financial condition.Across our global operations, significant transactions and balances are denominated in currencies other than the U.S. dollar (our reporting currency), primarily the Chinese yuan, euro, Indian rupee, Japanese yen, Malaysian ringgit, New Taiwan dollar, and Singapore dollar. In addition, a significant portion of our manufacturing costs are denominated in foreign currencies. Exchange rates for some of these currencies against the U.S. dollar have been volatile and may be volatile in future periods. If these currencies strengthen against the U.S. dollar, our manufacturing costs could significantly increase. Exchange rates for the U.S. dollar that adversely change against our foreign currency exposures could have a material adverse effect on our business, results of operations, or financial condition.51 | 2024 Q1 10-QTable of ContentsWe are subject to counterparty default risks.We have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash deposits, investments, and derivative instruments. Additionally, we are subject to counterparty default risk from our customers for amounts receivable from them. As a result, we are subject to the risk that the counterparty will default on its performance obligations. A counterparty may not comply with its contractual commitments which could then lead to its defaulting on its obligations with little or no notice to us, which could limit our ability to mitigate our exposure. Additionally, our ability to mitigate our exposures may be constrained by the terms of our contractual arrangements or because market conditions prevent us from taking effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty’s default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceedings. In the event of such default, we could incur significant losses, which could have a material adverse effect on our business, results of operations, or financial condition.The trading price of our common stock has been and may continue to be volatile.Our common stock has experienced substantial price volatility in the past and may continue to do so in the future. Additionally, we, the technology industry, and the stock market as a whole have on occasion experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to the specific operating performance of individual companies. The trading price of our common stock may fluctuate widely due to various factors, including, but not limited to, actual or anticipated fluctuations in our financial condition and operating results, changes in financial forecasts or estimates by us or financial or other market estimates and ratings by securities and other analysts, changes in our capital structure, including issuance of additional debt or equity to the public, interest rate changes, regulatory changes, news regarding our products or products of our competitors, and broad market and industry fluctuations. For these reasons, investors should not rely on recent or historical trends to predict future trading prices of our common stock, financial condition, results of operations, or cash flows. Investors in our common stock may not realize any return on their investment in us and may lose some or all of their investment. Volatility in the trading price of our common stock could also result in the filing of securities class action litigation matters, which could result in substantial costs and the diversion of management time and resources.The amount and frequency of our share repurchases may fluctuate, and we cannot guarantee that we will fully consummate our share repurchase authorization, or that it will enhance long-term shareholder value. Share repurchases could also increase the volatility of the trading price of our stock and will diminish our cash reserves.The amount, frequency, and execution of our share repurchases pursuant to our share repurchase authorization may fluctuate based on our operating results, cash flows, and priorities for the use of cash for other purposes. Our expenditures for share repurchases were $425 million in 2023, $2.43 billion in 2022, $1.20 billion in 2021, $176 million in 2020, and $2.66 billion in 2019. These other purposes include, but are not limited to, operational spending, capital spending, acquisitions, and repayment of debt. Other factors, including changes in tax laws, could also impact our share repurchases. Although our Board of Directors has authorized share repurchases of up to $10 billion of our outstanding common stock, the authorization does not obligate us to repurchase any common stock.We cannot guarantee that our share repurchase authorization will be fully consummated or that it will enhance long-term shareholder value. The repurchase authorization could affect the trading price of our stock and increase volatility, and any announcement of a pause in, or termination of, this program may result in a decrease in the trading price of our stock. In addition, this program will diminish our cash reserves.There can be no assurance that we will continue to declare cash dividends in any particular amounts or at all.Our Board of Directors has adopted a dividend policy pursuant to which we currently pay a cash dividend on our common shares on a quarterly basis. The declaration and payment of any dividend is subject to the approval of our Board of Directors and our dividend may be discontinued or reduced at any time. There can be no assurance that we will declare cash dividends in the future in any particular amounts, or at all. 52Table of ContentsFuture dividends, if any, and their timing and amount, may be affected by, among other factors: our financial condition, results of operations, capital requirements, business conditions, debt service obligations, contractual restrictions, industry practice, legal requirements, regulatory constraints, and other factors that our Board of Directors may deem relevant. A reduction in or elimination of our dividend payments could have a negative effect on the trading price of our stock.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSIn May 2018, we announced that our Board of Directors authorized the discretionary repurchase of up to $10 billion of our outstanding common stock through open-market purchases, block trades, privately-negotiated transactions, derivative transactions, and/or pursuant to Rule 10b5-1 trading plans. The repurchase authorization has no expiration date, does not obligate us to acquire any common stock, and is subject to market conditions and our ongoing determination of the best use of available cash. During the quarter ended November 30, 2023, we did not repurchase any common stock under the authorization and as of November 30, 2023, $3.11 billion of the authorization remained available for the repurchase of our common stock. Shares of common stock withheld as payment of withholding taxes upon the vesting of restricted stock are also treated as common stock repurchases. Shares withheld for the payment of withholding taxes or exercises prices for equity awards other than restricted stock are not considered repurchases for purposes of this Item and are not required to be reported. In the first quarter of 2024, shares withheld as payment upon the vesting of restricted stock consisted of the following:PeriodTotal number of shares purchasedAverage price paid per shareTotal number of shares purchased as part of publicly announced plans or programsApproximate dollar value of shares that may yet be purchased under publicly announced plans or programs (in millions)September 1, 2023— October 5, 2023— $— — October 6, 2023–November 2, 2023235,061 69.36 — November 3, 2023–November 30, 2023— — — 235,061 $69.36 — $3,10653 | 2024 Q1 10-QTable of ContentsITEM 5. OTHER INFORMATIONSecurities Trading Plans of Directors and Executive OfficersThe following officer, as defined in Rule 16a-1(f) of the Exchange Act, adopted a “Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K, as follows:On November 14, 2023, April Arnzen, our Executive Vice President and Chief People Officer, adopted a Rule 10b5-1 trading arrangement providing for the sale of an aggregate of up to 19,560 shares of our common stock acquired by Ms. Arnzen pursuant to our Restricted Stock Awards. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The first date that sales of any shares are permitted to be sold under the trading arrangement will be March 27, 2024, and subsequent sales under the trading arrangement may occur on a regular basis for the duration of the trading arrangement until December 31, 2024, or earlier if all transactions under the trading arrangement are completed. No other officers or directors, as defined in Rule 16a-1(f), adopted and/or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Item 408 of Regulation S-K, during the last fiscal quarter. 54Table of ContentsITEM 6. EXHIBITSExhibit NumberDescription of ExhibitFiled HerewithFormPeriod EndingExhibit/ AppendixFiling Date3.1Restated Certificate of Incorporation of the Registrant8-K99.21/26/153.2Bylaws of the Registrant, Amended and Restated8-K3.12/16/2110.1Executive Officer Cash Severance Policy X10.2*Severance Policy Acknowledgement Letter for Sanjay Mehrotra X10.3*Amended and Restated Severance Agreement by and between Micron Technology, Inc. and Scott J. DeBoerX10.4*Amended and Restated 2008 Director Compensation Plan X31.1Rule 13a-14(a) Certification of Chief Executive OfficerX31.2Rule 13a-14(a) Certification of Chief Financial OfficerX32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350X32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350X101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documentX101.SCHInline XBRL Taxonomy Extension Schema DocumentX101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentX101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentX101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentX101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentX104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)X* Indicates management contract or compensatory plan or arrangement.55 | 2024 Q1 10-QTable 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 undersigned thereunto duly authorized.Micron Technology, Inc.(Registrant)Date:December 21, 2023By:/s/ Mark Murphy Mark MurphyExecutive Vice President and Chief Financial Officer(Principal Financial Officer)/s/ Scott AllenScott AllenCorporate Vice President and Chief Accounting Officer(Principal Accounting Officer) 56 EX-10.1 2 a2024q1ex101cashseverancep.htm EX-10.1 CASH SEVERANCE POLICY DocumentExhibit 10.1Micron Technology, Inc.Executive Officer Cash Severance Policy (the “Policy”)Micron Technology, Inc. (the “Company”) will not enter into any new employment agreement, severance agreement or separation agreement with any officer as defined under Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended (“Executive Officer”) or establish any new severance plan or policy covering any Executive Officer that provides for Cash Severance Benefits exceeding 2.99 times the sum of the Executive Officer’s base salary plus target bonus opportunity without seeking shareholder ratification of such agreement, plan or policy. In addition, any cash payments that may be owed under any existing agreement, plan or policy entered into with an Executive Officer prior to the adoption of this Policy will be reduced to the extent necessary to not exceed 2.99 times the sum of the Executive Officer’s base salary plus target bonus opportunity, unless shareholder ratification is obtained. For purposes of this Policy:•“Cash Severance Benefits” means cash payments to an Executive Officer for the Executive Officer’s termination of employment, or to offset any tax liability relating to such termination payments. It does not include:oThe payment, vesting or acceleration of equity-based awards granted under Company equity plans,oThe payment or provision of perquisites (flights, security, car allowances, executive physicals, club dues, etc.) and other similar benefits generally available to similarly-situated employees,oAny earned but unpaid bonus under any Company plan or policy,oPayment of deferred compensation, 401(k) matching, health savings matching contributions, retirement benefits or other vested employee benefits provided under any Company benefit plan or policy, oroAccrued but unpaid base salary, or vacation pay or expense reimbursements as of the termination date.•The Compensation Committee of the Board is responsible for administering this Policy, including but not limited to, full authority to enforce and interpret this Policy.Adopted: October 12, 2023 EX-10.2 3 a2024q1ex102sanjaymehrotra.htm EX-10.2 SEVERANCE POLICY ACKNOWLEDGEMENT LETTER DocumentExhibit 10.2December 12, 2023Mr. Sanjay MehrotraRe: Change to your Amended and Restated Executive AgreementDear Sanjay:This letter confirms your agreement to a change in your Amended and Restated Executive Agreement dated January 1, 2022 with Micron Technology, Inc. (your “Agreement”). Micron recently adopted the Executive Officer Cash Severance Policy (the “Severance Policy”), which limits the cash severance benefits that Micron may pay to its executive officers. You and Micron agree that the Severance Policy, as in effect on the date of this letter, applies to your Agreement. Thus, if you terminate employment and qualify for severance benefits under your Agreement, your cash severance benefits will be reduced if and to the extent required by the Severance Policy as in effect on the date of this letter. Your Agreement otherwise remains in full force and effect and the terms of your Agreement are unchanged by this letter except as provided above. The Company thanks you for your willingness to accept this change to your Agreement.Sincerely,April ArnzenSenior Vice President and Chief People OfficerI agree to all of the terms described above.Dated: December 19, 2023/s/ Sanjay MehrotraSanjay Mehrotra EX-10.3 4 a2024q1ex103arseveranceagr.htm EX-10.3 SEVERANCE AGREEMENT DocumentExhibit 10.3AMENDED AND RESTATED SEVERANCE AGREEMENTThis Amended and Restated Severance Agreement (the “Agreement”) is made and entered into by and between Micron Technology, Inc., a Delaware corporation (the “Company”), and Scott J. DeBoer, an individual and Officer of the Company, (the “Officer”), and is effective as of the Effective Date (as defined below).WHEREAS, the Company and the Officer previously entered into a Severance Agreement effective as of November 27, 2007, which was amended by Amendment 1 thereto effective as of November 10, 2015 and by Amendment 2 thereto effective as of October 24, 2017 (as amended, the “Original Agreement”) and desire to amend and restate the Original Agreement in its entirety;WHEREAS, the Company desires to provide the Officer with benefits in consideration for his or her execution of this Agreement, the Release (as defined below) and the Agreement Not to Compete or Solicit entered into by and between the parties, effective as of November 27, 2007 (the “Noncompete Agreement”);NOW THEREFORE, the parties agree to amend and restate the Original Agreement in its entirety as follows:1(a). TERMINATION OF THE OFFICER. The Company or the Officer may at any time terminate the Officer’s active employment with the Company for any reason, voluntary or involuntary, with or without Cause, by providing notice to that effect in writing. Subject to the Officer signing and not revoking the release required in Section 7, upon the Officer’s Qualifying Termination of Employment, the Officer shall be entitled to the compensation and benefits described in Section 5(a). Except as provided in Section 5(a), upon the Officer’s Separation from Service, the Officer shall only be entitled to (i) those payments and benefits required by law, (ii) unpaid base salary, (iii) reimbursement of unreimbursed business expenses and (iv) such employee benefits (including equity compensation and paid time off), if any, to which the Officer may be entitled under the Company’s employee benefit plans (“Accrued Amounts”). To the extent there is any conflict between the terms and benefits provided under any bonus or incentive program of the Company and this Agreement, the terms of this Agreement shall prevail. The Accrued Amounts shall be paid in accordance with the applicable plan or reimbursement policy, provided that the Officer’s final pay check will be paid as soon as administratively practicable following the Officer’s termination of employment.1(b). QUALIFYING TERMINATION OF EMPLOYMENT. For purposes of this Agreement, Officer experiences a “Qualifying Termination of Employment” if the Officer’s employment is terminated by the Company for a reason other than for Cause, death or Disability or is terminated by the Officer with Good Reason. Further, for purposes of this Agreement, the Officer experiences a “Change of Control Qualifying Termination of Employment” if the Officer experiences a Qualifying Termination of Employment upon or within twelve (12) months following a Change of Control. For purposes of this Agreement, “Cause,” “Change of Control,” “Disability” and “Good Reason” shall have the meanings set forth on Exhibit 1(b), attached hereto and incorporated herein by this reference.1(c). QUALIFYING RETIREMENT. If the Officer’s employment is terminated by the Officer due to the Officer’s bona fide retirement from all business activity and service as an employee and consultant, without intent to return to service for the Officer’s remaining life (other than service on one or more boards of directors or other insubstantial business activities that are consistent with the Officer’s obligations under the Noncompete Agreement) (“Retirement”), and such termination does not amount to a Qualifying Termination of Employment, then the Company will offer Officer a consulting agreement for the duration of the Transition Period described below, providing for compensation consistent with the compensation set forth in Exhibit 5(a), subject to the Officer’s continued maintenance of such Retirement (and not engaging in any substantial business, consulting or employment without the written approval of the Company) for the duration of the Transition Period.2.LOSS OF OFFICER STATUS. Upon receipt by the Officer of a notice of termination from the Company, or at any other time upon the Company’s request, the Officer automatically shall be deemed to have resigned immediately from all positions the Officer then holds as an officer and/or director of the Company. The Officer will cooperate with the Company in documenting such resignation(s) and will promptly complete and return to the Company all documents reasonably specified by the Company for such purpose.3.SEPARATION FROM SERVICE. The date of the Officer’s “Separation from Service” shall be the earliest of: (i) the date of the Officer’s death; or (ii) the date after which the Company and the Officer reasonably anticipate that the level of bona fide services the Officer will perform, whether as an employee or consultant, will permanently decrease to 20 percent or less of the average level of bona fide services performed (whether as an employee or contractor) over the immediately preceding 36-month period (or the full period of services to the Company if the Officer provided services to the Company for less than 36 months).4.TRANSITION PERIOD. For purposes of this agreement, the “Transition Period” shall be a one year period immediately following the date of the Officer’s Separation from Service due to a Qualifying Termination of Employment.5(a).COMPENSATION DURING THE TRANSITION PERIOD. Upon the Officer’s Qualifying Termination of Employment, and provided the Officer complies with the terms of this Agreement (including the requirements of Section 7) and the terms of the Noncompete Agreement, the Officer, or the Officer’s estate in the event of the Officer’s death, will receive during the Transition Period compensation and cash in lieu of employee benefits as provided on Exhibit 5(a), attached hereto and incorporated herein by this reference.5(b).EXECUTIVE BONUS AFTER LOSS OF OFFICER STATUS. An Officer who ceases to be an Officer but does not cease to be an employee of the Company, and who has not yet incurred a Separation from Service (referred to herein as a “Non-Officer Employee”), shall receive, in lieu of an executive bonus pursuant to Section 5(a)(ii) of Exhibit 5(a), an executive bonus, if at all, subject to the following terms and conditions:If as of the date of the Officer’s loss of officer status the Non-Officer Employee was a designated participant for an executive bonus plan performance period but the Company’s board of directors (the “Board”) or a committee thereof has not yet taken action on any required goal achievement certification for such performance period, the Non-Officer Employee will be entitled to receive his or her executive bonus based on the performance so certified, at the same time and in the same manner as the continuing officers of the Company receive payment of their executive bonuses for such performance period, if and only if (A) the specified goals are achieved, as certified by the Board or a committee thereof, (B) payment is made for such achievement pursuant to the terms and conditions of the bonus program to the other participating officers, (C) the Non-Officer Employee is an employee of the Company at the time of payment and (D) the Non-Officer Employee complies with the terms of this Agreement and the terms of the Noncompete Agreement; provided that any bonus payable pursuant to this subsection shall be calculated by multiplying (x) the Officer’s annual bonus eligible salary for the Company’s fiscal 2023 determined without regard to the temporary SEVERANCE AGREEMENT - 2reduction of base salary for fiscal 2023 (“Unreduced 2023 Bonus Eligible Salary”) by (y) the Officer’s target percentage for the Company’s fiscal 2023 under the executive bonus plan by (z) the Company’s performance attainment for the applicable performance period as certified by the Board or a committee thereof.A Non-Officer Employee that receives a bonus pursuant to the terms of this Section 5(b) shall not be entitled to receive an additional bonus pursuant to Section 5(a)(ii) of Exhibit 5(a) during his or her Transition Period. Any amount payable under this Section 5(b) shall be payable at the time and form provided in the applicable bonus plan.5(c).FURTHER CLARIFICATIONS. It is understood that the Officer, during the period of time in which he or she is a Non-Officer Employee and at any time during the Transition Period, is not entitled pursuant to this Agreement to renew his or her participation in any executive bonus program, receive any new grants of stock options or restricted stock, or to the accrual of TOP time (however, Non-Officer Employees would participate in the Company’s Time Off Plan). It is further understood that the Officer is not entitled to payment of any compensation that is deferred past the Transition Period due to payment criteria of an incentive program, as those criteria existed as of the date of the Officer’s Separation from Service. For the avoidance of doubt, the Officer shall not be entitled to any payment which is earned and payable after the Transition Period pursuant to the terms of the applicable plan or program. No action by the Company or the Board may affect the Officer’s receipt of the benefits set forth above, other than as provided herein.6.CONFIDENTIALITY. The reasons for, and circumstances of, an Officer’s termination of employment or change in officer status shall be kept confidential and shall not be disclosed; provided that the Company may disclose such information as the Company determines, in its sole discretion, is either required by law to be disclosed or necessary to be disclosed to serve a valid business purpose.7.RELEASE. No amount shall be payable to the Officer under Section 5(a) until the Officer signs, and does not revoke within any applicable revocation period, a release of claims in favor of the Company, its affiliates and their respective officers and directors in substantially the form attached hereto as Appendix A (the “Release”) during the Release Execution Period; provided that the Company has the right at the time of Officer’s Separation from Service to modify the form of Release as may be necessary or appropriate for changes in applicable law; provided, further, that no such modifications will impose any new obligations on the Officer to which the Officer has not already agreed in writing. For purposes of this Agreement, the “Release Execution Period” shall be the 60-day period commencing on the date of the Officer’s Separation from Service.8.ENTIRE AGREEMENT. Except as otherwise specifically provided herein, this Agreement sets forth the entire agreement and understanding between the Company and the Officer relating to the subject matter hereof and supersedes all prior understandings and agreements with respect thereto, including, without limitation, the Original Agreement. No modification of or amendment to this Agreement, or any waiver of any rights under this Agreement, will be effective unless contained in a writing signed by both of the parties hereto in accordance with Section 11. Any subsequent change or changes in Officer’s duties, salary or compensation will not affect the validity or scope of this Agreement. This Agreement is in addition to, and does not supersede or modify in any fashion, the provisions of the Noncompete Agreement, or the provisions of any confidentiality and intellectual property agreements previously entered into by the parties hereto (collectively, “Additional Agreements”) (and all documents and forms referenced therein). The obligations contained in the Additional Agreements shall continue independent of the obligations of one another and of this Agreement. SEVERANCE AGREEMENT - 3For avoidance of doubt, the “Period of Restriction” as defined in the Noncompete Agreement shall continue in full force and effect in accordance with the terms of the Noncompete Agreement.9(a). SECTION 409A COMPLIANCE. This Agreement is intended to comply with Internal Revenue Code (“Code”) Section 409A and the applicable Treasury Regulations (together, “Section 409A”) or an exemption thereunder and shall be construed and administered in accordance with Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of employment shall only be made upon a “separation from service” under Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by the Officer on account of non-compliance with Section 409A. In the event an amount payable under this Agreement is contingent upon the Officer signing a Release during a Release Execution Period and such Release Execution Period begins in one tax year and ends in the next tax year, such amount shall be paid on the later of (i) the last day of the Release Execution Period, (ii) if applicable, the date specified in Section 9(b), or (iii) the payment date otherwise set forth in this Agreement.9(b). SPECIFIED EMPLOYEE PAYMENTS, TIMING: Notwithstanding anything in this Agreement to the contrary, if any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A would otherwise be payable or distributable under this Agreement by reason of the Officer’s Separation from Service during a period in which the Officer is a Specified Employee (as defined below), then, subject to any permissible acceleration of payment by the Company under Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):(i)if the payment or distribution is payable in a lump sum, the Officer’s right to receive payment or distribution of such non-exempt deferred compensation will be delayed until the earlier of the Officer’s death or the first day of the seventh month following the Officer’s Separation from Service; and(ii)if the payment or distribution is payable over time, the amount of such nonexempt deferred compensation that would otherwise be payable during the six-month period immediately following the Officer’s Separation from Service will be accumulated and the Officer’s right to receive payment or distribution of such accumulated amount will be delayed until the earlier of the Officer’s death or the first day of the seventh month following the Officer’s Separation from Service, whereupon the accumulated amount will be paid or distributed to the Officer and the normal payment or distribution schedule for any remaining payments or distributions will resume.SEVERANCE AGREEMENT - 4For purposes of this Agreement, the term “Specified Employee” has the meaning given such term in Section 409A, provided, however, that, as permitted in Treas. Reg. §1.409A-1(i), the Company’s Specified Employees and its application of the six-month delay rule of Code Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Compensation Committee of the Board, which shall be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Agreement.9(c). SECTION 280G. This section will be construed in accordance with Code Sections 280G and 4999, or any successor provisions thereto, and the guidance issued thereunder (collectively, “Section 280G”), and the terms “parachute payment” and “excess parachute payment” as used herein have the meanings ascribed to them under Section 280G.(i) If it is determined that the aggregate payments and benefits constituting parachute payments which, but for the operation of this provision, would become payable or distributable by the Company to or for the benefit of Officer, pursuant to this Agreement, any other agreement, or any benefit plan (collectively, the “Total Payments”), would result in any excess parachute payments becoming subject to the excise tax imposed by Code Section 4999, or any successor provision thereto, or any interest or penalties with respect to such excise tax (such excise tax, together with such interest and penalties, collectively, the “Excise Tax”), then the Total Payments shall be reduced to an amount equal to One Dollar ($1) less than the maximum amount that could be paid to Officer without giving rise to any Excise Tax (the “Safe Harbor Cap”); provided, however, that this reduction shall be applied only if the net after-tax benefit to Officer after such reduction would be greater than the net after-tax benefit to Officer without such reduction (notwithstanding the application of the Excise Tax on the unreduced Total Payments). For the avoidance of doubt, Officer shall be responsible for the payment of any Excise Tax arising from the Total Payments and there shall be no tax gross up on any amounts paid under this Agreement.(ii) Any reduction in Total Payments required by this provision shall be applied in the following order and, to the extent applicable, in accordance with the rules under Section 409A: (i) first, reduction of cash payments and benefits, in reverse order of the date of payment; (ii) second, cancellation of vesting acceleration of equity awards, in reverse order of the date of grant; and (iii) third, reduction of other non-cash payments and benefits, in reverse order of the date the payment or benefit is to be provided. If the same payment or award date applies to more than one payment or benefit within any of the foregoing categories, the reduction will apply to each such payment or benefit on a pro-rata basis. Subject to the foregoing, the Total Payments shall be reduced so that the reduction of compensation to be provided to Officer is otherwise minimized.(iii)Unless the Company and Officer otherwise agree in writing, all calculations and determinations necessary to effectuate this provision, including without limitation determinations as to whether a reduction in payments or benefits is required and the amount thereof, whether any item of compensation constitutes a parachute payment, the amount, if any, subject to the Excise Tax (including determinations as to whether any portion of the excess parachute payments constitutes reasonable compensation for services actually rendered, within the meaning of Code Section 280G(b)(4)(B)), and the present value of any parachute payment, shall be made, consistent with Section 280G, by a public SEVERANCE AGREEMENT - 5accounting firm and/or tax counsel selected by the Company (which may be the Company’s independent public accounting firm or outside tax counsel) (the “Advisors”). For this purpose, the Advisors may make reasonable assumptions and approximations; may rely on reasonable, good faith interpretations concerning the application of Section 280G; and may rely upon such other tax, legal, valuation or other specialists as they deem appropriate. Officer’s applicable federal, state, and local income taxes shall be computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes. The Company and Officer agree to furnish the Advisors with such information and documents as the Advisors reasonably request to make such calculations and determinations as soon as practicable upon such request. The Company shall direct the Advisors to provide Officer with a written statement of its conclusions, setting forth the basis therefor, including detailed supporting calculations and copies of any written opinions or advice upon which such conclusions rely (the “Report”), within ten (10) business days after their receipt of all required information and documents. Officer shall have five (5) business days thereafter to notify the Advisors and the Company in writing of any reasonable and substantive objections to the Report. The Company shall direct the Advisors to promptly consider in good faith and respond to such objections, and provide Officer a revised Report reflecting appropriate adjustments (unless the Advisors determine that no adjustments are necessary). The Advisors’ final calculations and determinations (as adjusted, if applicable) shall be conclusive and binding on all parties for all purposes. The Company shall bear all costs the Advisors may reasonably incur in connection with the process contemplated by this paragraph.10.COMPENSATION RECOUPMENT. All amounts payable to the Officer as described or referenced in this Agreement will be subject to recoupment pursuant to the Company’s current compensation clawback or recoupment policy (if any) and any additional compensation clawback or recoupment policy or amendments to the current policy adopted by the Board that applies on substantially the same terms to all other U.S. based officers of the Company or as required by law, regulation or an exchange listing requirement applicable to the Company.11.GOVERNING LAW. This Agreement, for all purposes, shall be construed in accordance with the laws of Idaho without regard to conflicts of law principles. Any action or proceeding by either of the parties to enforce this Agreement shall be brought only in a state or federal court located in the state of Idaho. The parties hereby irrevocably submit to the jurisdiction of such courts and waive the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.12.MODIFICATION. No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and signed by the Officer and by an authorized officer of the Company as directed by the Board. No waiver by either of the parties of any breach by the other party hereto of any condition or provision of this Agreement to be performed by the other party hereto shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either of the parties in exercising any right, power, or privilege hereunder operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power, or privilege.SEVERANCE AGREEMENT - 613.CAPTIONS. Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.14.SEVERABILITY. Should any provision of this Agreement be held by a court of competent jurisdiction to be enforceable only if modified, or if any portion of this Agreement shall be held as unenforceable and thus stricken, such holding shall not affect the validity of the remainder of this Agreement, the balance of which shall continue to be binding upon the parties with any such modification to become a part hereof and treated as though originally set forth in this Agreement.The parties further agree that any such court is expressly authorized to modify any such unenforceable provision of this Agreement in lieu of severing such unenforceable provision from this Agreement in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Agreement, or by making such other modifications as it deems warranted to carry out the intent and agreement of the parties as embodied herein to the maximum extent permitted by law.The parties expressly agree that this Agreement as so modified by the court shall be binding upon and enforceable against each of them. In any event, should one or more of the provisions of this Agreement be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions hereof, and if such provision or provisions are not modified as provided above, this Agreement shall be construed as if such invalid, illegal, or unenforceable provisions had not been set forth herein.15.REPRESENTATION BY COUNSEL. Officer acknowledges that he has been represented by independent counsel in the negotiation and execution of this Agreement, specifically including but not limited to its choice of law, jurisdiction, and venue provisions.(remainder of page intentionally left blank)SEVERANCE AGREEMENT - 7IN WITNESS WHEREOF, the parties have executed this Agreement, effective as of the date of later signature below (the “Effective Date”).MICRON TECHNOLOGY, INC.OFFICER/s/ Sanjay Mehrotra /s/ Scott J. DeBoer By: Sanjay Mehrotra President and CEOScott J. DeBoerNovember 30, 2023November 30, 2023DateDateSEVERANCE AGREEMENT - 8Exhibit 1(b)Special Defined TermsFor purposes of this Agreement, the following terms shall have the meaning set forth below:(a)“Cause” means any of the following acts by the Officer, as determined by the Board:(i)the commission by the Officer of, or the Officer’s pleading guilty or nolo contendere to, a felony or a crime involving moral turpitude (including pleading guilty or nolo contendere to a felony or lesser charge which results from plea bargaining), whether or not such felony, crime or lesser offense is connected with the business of the Company or any of its affiliates;(ii)the Officer’s engaging in any other act of dishonesty, fraud, intentional misrepresentation, moral turpitude, illegality or harassment, whether or not such act was committed in connection with the business of the Company or any of its affiliates;(iii)the willful and repeated failure by the Officer to follow the valid and lawful directives of the Board;(iv)any material violation of the Company’s written policies;(v)any intentional misconduct by the Officer in connection with the Company and any of its affiliates’ businesses or relating to the Officer’s duties, or any willful violation of any laws, rules or regulations; or(vi)the Officer’s material breach of any employment, severance, non- competition, non-solicitation, confidential information, or restrictive covenant agreement, or similar agreement, with the Company or an affiliate.The determination of the Board as to the existence of “Cause” shall be conclusive on the Officer and the Company.(b) “Change in Control” means and includes the occurrence of any one of the following events:(i) individuals who, as of the effective date of the Agreement (the “Effective Date”), constitute the Board of the Company (the “Incumbent Directors”) cease for any reason to constitute at least a majority of such Board, provided that any person becoming a director after the Effective Date and whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors then on the Board shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to the election or removal of directors (“Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board (“Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest, shall be deemed an Incumbent Director; or(ii)any person is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the “1934 Act”)), directly or indirectly, of either (A) 35% or more of the then-outstanding shares of common stock of the Company SEVERANCE AGREEMENT - 9(“Company Common Stock”) or (B) securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of directors (the “Company Voting Securities”); provided, however, that for purposes of this subsection (b), the following acquisitions shall not constitute a Change in Control: (w) an acquisition directly from the Company, (x) an acquisition by the Company or a Subsidiary of the Company, (y) an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary of the Company, or (z) an acquisition pursuant to a Non-Qualifying Transaction (as defined in subsection (ii) below); or(iii)the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or a Subsidiary (a “Reorganization”), or the sale or other disposition of all or substantially all of the Company’s assets (a “Sale”) or the acquisition of assets or stock of another corporation (an “Acquisition”), unless immediately following such Reorganization, Sale or Acquisition: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Reorganization, Sale or Acquisition beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Reorganization, Sale or Acquisition (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets or stock either directly or through one or more subsidiaries, the “Surviving Corporation”) in substantially the same proportions as their ownership, immediately prior to such Reorganization, Sale or Acquisition, of the outstanding Company Common Stock and the outstanding Company Voting Securities, as the case may be, and (B) no person (other than (x) the Company or any Subsidiary of the Company, (y) the Surviving Corporation or its ultimate parent corporation, or (z) any employee benefit plan or related trust) sponsored or maintained by any of the foregoing is the beneficial owner, directly or indirectly, of 35% or more of the total common stock or 35% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Surviving Corporation, and (C) at least a majority of the members of the board of directors of the Surviving Corporation were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Reorganization, Sale or Acquisition (any Reorganization, Sale or Acquisition which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or(iv)approval by the shareholders of the Company of a complete liquidation or dissolution of the CompanyFor purposes of the foregoing Change in Control definition, (i) “Subsidiary” means any corporation, limited liability company, partnership or other entity of which a majority of the outstanding voting stock or voting power is beneficially owned directly or indirectly by the Company and (ii) “Person” means any individual, entity or group, within the meaning of Section 3(a)(9) of the 1934 Act and as used in Section 13(d)(3) or 14(d)(2) of the 1934 Act.(c)“Disability” means the Separation from Service of the Officer after the applicable authorized party under the long-term disability plan (the “LTD Plan”) maintained by the Company or its affiliate has provided written notification to the Human Resources Department that the Officer qualifies for disability benefits under the LTD Plan (a “Disability Notice”). If the Officer is not eligible for disability benefits under any applicable LTD Plan, then the Officer SEVERANCE AGREEMENT - 10shall not be able to incur a Disability termination under this Agreement. For purposes of the foregoing, the Officer shall be treated as terminating for Disability under this Agreement only if the Human Resources Department has received a copy of the Disability Notice before processing the Officer’s termination.(d)“Good Reason” means any of the following, without the Officer’s consent: (i) a material diminution in Officer’s base salary (other than an across-the-board reduction in base salary that affects all peer employees); (ii) a material diminution in Officer’s authority, duties, or responsibilities; or Company’s failure to nominate the Officer for election to the Board and to use its best efforts to have him elected or re-elected to the Board, as applicable; (iii) the relocation of Officer’s principal office to a location that is more than twenty-five (25) miles from the location of Officer’s principal office on the effective date of the Agreement; provided, however, that Good Reason shall not include (A) any relocation of Officer’s principal office which is proposed or initiated by Officer, (B) any relocation that results in Officer’s principal place office being closer to Officer’s then-current principal residence, or (C) any relocation as may be required or recommended governmental authorities, such as a stay-at-home order) or (iv) a material breach by Company of this Agreement or other written material obligation of the Company to the Officer.A termination by Officer shall not constitute termination for Good Reason unless Officer shall first have delivered to the Company written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for Good Reason (which notice must be given no later than ninety (90) days after the initial occurrence of such event) (the “Good Reason Notice”), and the Company has not taken action to correct, rescind or otherwise substantially reverse the occurrence supporting termination for Good Reason as identified by Officer within thirty (30) days following its receipt of such Good Reason Notice. Officer’s date of termination for Good Reason must occur within a period of three hundred and sixty five (365) days after the initial occurrence of an event of Good Reason.SEVERANCE AGREEMENT - 11Exhibit 5(a)Compensation During the Transition Period(i)Base salary as of the date of the Officer’s Separation from Service paid bi-weekly on the Company’s normal payroll cycle as if the Officer had worked during the Transition Period, provided, however:(A) if the Officer or the Company terminated the Officer’s status as an officer of the Company but not as an employee prior to the date of the Officer’s Separation from Service, then the base salary payable pursuant to this subsection during the Transition Period shall be the greater of (1) the Officer’s base salary in effect immediately prior to the Officer’s loss of officer status or (2) the Officer’s base salary as of the date of the Officer’s Separation from Service; and(B) if as of the date of the Separation from Service the Officer’s base salary is subject to a temporary reduction in an effort to save costs, then the base salary payable pursuant to this subsection during the Transition Period shall be the Officer’s base salary immediately prior to such reduction.(C) notwithstanding the foregoing, for a Qualifying Termination of Employment after the Company’s fiscal 2023 that is not a Change of Control Qualifying Termination of Employment, the base salary payable pursuant to this subsection during the Transition Period will not be greater than the Officer’s base salary in effect for the Company’s fiscal, 2023 (determined without regard to the temporary reduction of base salary that occurred in fiscal 2023).(ii)an executive bonus, subject to the following terms and conditions:If as of the date of the Officer’s Separation from Service the Officer was a designated participant for an executive bonus plan performance period but the Board or a committee thereof has not yet taken action on any required goal achievement certification for such performance period, the Officer will be entitled to receive his or her executive bonus based on the performance so certified, at the same time and in the same manner as the continuing officers of the Company receive payment of their executive bonuses for such performance period, if and only if (A) any required certification thereof by the Board or a committee thereof occurs during the Transition Period, (B) the specified goals are achieved, as certified by the Board or a committee thereof, and (C) payment is made for such achievement pursuant to the terms and conditions of the bonus program to the other participating officers during the Transition Period; provided that, for a Qualifying Termination of Employment after the Company’s fiscal year 2023 that is not a Change of Control Qualifying Termination of Employment, any bonus payable pursuant to this subsection shall be calculated by multiplying (x) the Officer’s Unreduced 2023 Bonus Eligible Salary by (y) the Officer’s target percentage for the Company’s fiscal 2023 under the executive bonus plan by (z) the Company’s performance attainment for the applicable performance period as certified by the Board or a committee thereof.An Officer that receives a bonus pursuant to the terms of Section 5(b) shall not be entitled to receive an additional bonus pursuant to this Section 5(a)(ii).(iii)an additional executive bonus for the Transition Period, subject to the following terms and conditions:SEVERANCE AGREEMENT - 12If as of the date of the Officer’s Separation from Service the Officer was a designated participant for an executive bonus plan, and the Board or a committee thereof designates a new performance period under an executive bonus plan covering similarly situated officers of the Company that begins after the Officer’s Separation from Service and coincides (in whole or in part) with the Transition Period, then the Officer will be entitled to receive an executive bonus for such performance period based on performance certified by the Board or a committee thereof, with the resulting amount prorated, if applicable, to reflect the total number of days in the performance period that fall within the Transition Period (relative to total days in the performance period), at the same time and in the same manner as the continuing officers of the Company receive payment of their executive bonuses for such performance period, if and only if (A) the specified goals are achieved, as certified by the Board or a committee thereof, and (B) payment is made for such achievement pursuant to the terms and conditions of the bonus program to the other participating officers; provided that, for a Qualifying Termination of Employment after the Company’s fiscal year 2023 that is not a Change of Control Qualifying Termination of Employment, any bonus payable pursuant to this subsection shall be calculated by multiplying (w) the Officer’s Unreduced 2023 Bonus Eligible Salary by (x) the Officer’s target percentage for the Company’s fiscal 2023 under the executive bonus plan by (y) the Company’s performance attainment for the applicable performance period as certified by the Board or a committee thereof by (z) a fraction equal to the total number of days in the performance period that fall within the Transition Period, divided by total days in the performance period.(iv)With respect to “time-based” and/or “performance-based” options that have not previously become vested, the continued vesting and exercisability of any granted stock options in accordance with the terms of the applicable stock plan as if the Officer’s employment as an officer had continued during the Transition Period, provided, however, and for purposes of clarification, the parties agree that the Officer shall be entitled to vesting for the completion of “performance-based” goals hereunder if and only if the specified performance goal was achieved prior to or during the Transition Period and any required goal achievement certification for such performance goal has been made by the Board or a committee thereof, thereafter; provided that, if the Officer has experienced a Change of Control Qualifying Termination, all of such options will become fully vested (with any performance condition for which the performance period has not closed prior to such termination deemed achieved at target) effective upon the Release Date.(v)with respect to restricted stock awards, the lapse of any “time-based” and/or “performance-based” restrictions at the same time and in the same amounts such restrictions would have lapsed, if at all, in accordance with the terms of the applicable stock plan if the Officer’s employment as an officer had continued during the Transition Period, provided, however, and for purposes of clarification, the parties agree that the Officer shall be entitled to the lapse of “performance-based” restrictions hereunder if and only if the specified performance goal was achieved prior to or during the Transition Period and any required goal achievement certification for such performance goal has been made by the Board or a committee thereof, thereafter; provided that, if the Officer has experienced a Change of Control Qualifying Termination, all such time-based restrictions shall lapse (with any performance-based restrictions for which the performance period has not closed prior to such termination lapsing as if achieved at target) effective upon the Release Date.(vi)Participation and vesting in the Company’s RAM 401(k) Plan (or a successor or replacement plan) (the “401(k) Plan”) will cease pursuant to the terms of the 401(k) Plan SEVERANCE AGREEMENT - 13(generally, the date of the Officer’s termination of employment) and’ standard termination options under the 401(k) Plan will apply.If the Officer is contributing to the 401(k) Plan at the date of the Officer’s Separation from Service and has not reached the maximum matching contribution for the 401(k) Plan year(s) covered by the Transition Period, then an amount equal to the difference between the Officer’s actual matching contribution and the amount of matching that the Officer would have received if the Officer had continued to defer his or her income into the 401(k) Plan for the Transition Period at the same rate as was in effect on the date of the Officer’s Separation from Service will be paid to the Officer. The payment, if any, will be calculated as though the Officer were 100% vested in such contribution, and will be paid within 60 days after the date of the Officer’s Separation from Service (or such later date as may be required by Section 9 of the Agreement); and(vii)The Officer’s participation, if applicable, will cease in the Company’s non-cash benefit plans (medical, dental, life, etc.) pursuant to the terms of the applicable plan (generally, the end of the calendar month which includes the date of the Officer’s termination of employment) unless the Officer properly elects to continue participation pursuant to any applicable COBRA continuation or conversion rights. The Officer may also be able to secure individual coverage with similar terms and conditions. It is the Officer’s responsibility to make any timely elections required and for the payment of premiums.Regardless of the Officer’s election, to the extent the Officer was participating in the Company’s non-cash benefit plans on the date of the Officer’s Separation from Service, the Company will pay the Officer an amount equal to the difference in premiums between what the Officer would have paid as an employee during the Transition Period and what the Officer would have to pay during the Transition Period to continue coverage, based on rates in effect at the time of calculation for the region listed by the Company as the Officer’s work address. If COBRA rates are available, those rates will be used in the calculation, followed by any applicable conversion rate, and finally, in the absence of COBRA or conversion rates, by the cost of individual coverage with similar terms and conditions. The payment, if any, and will be paid within 60 days after the date of the Officer’s Separation from Service (or such later date as may be required by Section 9 of the Agreement).Notwithstanding anything herein to the contrary, no compensation will be paid for the loss of any applicable short-term disability coverage.SEVERANCE AGREEMENT - 14Appendix AFORM OF RELEASE AGREEMENT(attached)SEVERANCE AGREEMENT - 15RELEASEThis Release (the “Release”) is made and given by Scott J. DeBoer, an individual and Officer of the Company (the “Officer”), to Micron Technology, Inc., a Delaware corporation (the “Company”).WHEREAS, the Officer accepted that certain Amended and Restated Severance Agreement from the Company effective October 10, 2023 (“Severance Agreement”);WHEREAS, the Officer and the Company have agreed to severance benefits under certain terms of separation as set forth in the Severance Agreement;WHEREAS, this Release is prepared to effectuate the release contemplated in the Severance Agreement;NOW THEREFORE, the Officer agrees to the following Release:1.General Release of Claims. In consideration of the Officer’s receipt of the consideration set forth in the Severance Agreement, the Officer releases, waives and forever discharges the Company and its subsidiaries, affiliates, affiliated organizations, related companies, benefit plans and their fiduciaries and administrators, insurers, parent entities, predecessors, insurers, successors, assigns, directors, Board of Directors, managers, officers, employees, representatives, affiliates and agents (collectively “Releasees”) of and from all claims, demands, liabilities, suits, and causes of action Officer has or may have against any of the Releasees, on and before the date Officer signs this Release. This broad release of claims by the Officer includes, but is not limited to, any and all claims arising out of the Officer’s employment with and separation of employment from the Company as well as any and all allegations that the Company or any of the Releasees:a.have discriminated against, harassed, retaliated against, or otherwise violated any law with respect to the Officer on the basis of race, color, sex, gender, national origin, age (including any claim under the Age Discrimination in Employment Act, “ADEA”, the Older Workers’ Benefit Protection Act (“OWBPA”), 29 U.S.C. §§ 621 et. seq., and any state, country, local or other acts prohibiting discrimination), ancestry, disability, religion, pregnancy, sexual orientation, marital status, parental status, familial status, veteran status, source of income, entitlement to benefits, union activities, or any other status protected by local, state or federal laws, code sections, constitutions, regulations, ordinances, administrative determinations or rulings, or executive orders;b.have otherwise violated any local, state or federal law, code section, constitution, regulation, ordinance, administrative determination or ruling, or executive order, including but not limited to Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1866, 42 U.S.C. Section 1981, the Occupational Safety and Health Act, the Family and Medical Leave Act of 1993, the Americans with Disabilities Act, the Equal Pay Act, the False Claims Act, any waivable claims under the Fair Labor Standards Act, the Age Discrimination in Employment Act, the Older Worker Benefit Protection Act, the Employee Retirement Income Security Act of 1974, as amended, the Worker Adjustment and Retraining Notification Act (and any state law counterpart), Genetic Information Nondisclosure Act of 2008, 42 U.S.C. Sec. 2000ff et seq., any state, county, local or other acts prohibiting discrimination (including on the basis of race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, mental and physical disability, medical RELEASE – Page 1 of 6condition, age, pregnancy, denial of medical and family care leave, or pregnancy disability leave, any other category or status protected by law, and/or retaliation for protesting illegal discrimination related to one of these categories), the Idaho Equal Pay Law, the Idaho Jury Duty Law, the Idaho Drug Testing Act, the Idaho Human Rights Act, the Idaho Wage Claim Act, and all other similar provisions from any other applicable states;c.have violated or breached personnel policies, handbooks, codes of conduct, any covenant of good faith and fair dealing, any contracts of employment, and/or any contracts;d.have violated public policy or common law, including claims for personal injury; wrongful termination; invasion of privacy; constructive discharge; retaliatory discharge; negligent hiring, retention or supervision; defamation; intentional or negligent infliction of emotional distress and/or mental anguish or suffering; intentional interference with contract, negligence; detrimental reliance; loss of consortium to the Officer or to any member of the Officer’s family, and/or promissory estoppel; ande.are in any way obligated for any reason to pay the Officer damages, expenses, litigation costs, attorneys’ fees, wages, front pay, back pay, fringe benefits, compensation, bonuses, commissions, severance pay, disability or other benefits, vacation pay and sick pay, compensatory damages, punitive damages, and/or interest.This is a General Release and releases all claims of any kind, including claims the Officer may not know about. The Officer understands and agrees that the Officer is hereby releasing all claims the Officer has or may have against the Company or any of the Releasees on or before the date the Officer signs this Release. 2.Release of Unknown Claims. For the purpose of implementing a full and complete release, the Officer expressly acknowledges and agrees that this Release resolves all legal claims the Officer may have against the Company or any of the Releasees as of the date of this Release, including but not limited to claims that Officer did not know or suspect to exist in the Officer’s favor at the time of the effective date of this Release.The Officer further acknowledges that the Officer is aware facts may later be discovered which are in addition to, or different from, those which the Officer now knows or believes to be true with respect to the subject matter of this Release. However, the Officer understands and acknowledges that it is the Officer’s intention to fully, finally and forever to release all claims against the Company or any of the Releasees which now exist, or may have existed before, or may hereafter exist, regardless of whether such claims are known or unknown, or suspected or unsuspected, and without regard to the later discovery or existence of such different additional facts.Additionally, if any claim is not subject to release, to the extent permitted by law, the Officer waives any right or ability to bring or join a class or collective action, to serve as class or collective representative, or to otherwise participate in any putative or certified class, collective or multi-party action. In other words, this is intended to be a general release of all claims, which shall be read as broadly as permitted by law.3.Exclusions from General Release. Matters excluded from the General Release of Claims in Section 1 above are (i) any claims or rights which cannot be waived by law, (ii) any vested pension or retirement benefits or other benefits under employee benefit plans in which the RELEASE – Page 2 of 6Officer participated and has a right to benefit, (iii) rights to enforce the Company’s obligations under the Severance Agreement, (iv) rights as a shareholder of the Company, and (v) the Officer’s rights to indemnification and D&O insurance coverage. Also excluded from the General Release is the Officer’s right to file a charge with an administrative agency or participate in an agency investigation, and nothing in this Release limits the Officer’s right to receive money for providing information to a government agency as set forth in Section 4 below. However, except for any claim or charge filed with the Securities Exchange Commission, Federal Trade Commission, or as otherwise prohibited by law, the Officer is waiving the right to receive individual relief (including without limitation back pay, front pay, reinstatement or other legal or equitable relief) based on claims asserted in any such charge or complaint of employment discrimination, harassment, and/or retaliation filed by the Officer or any other individual with the Equal Employment Opportunity Commission, National Labor Relations Board, Department of Labor, Idaho Human Rights Commission, or other similar state agencies responsible for enforcement of employment laws, or by any of these agencies on Officer’s behalf involving the Company. Further, nothing in this Agreement prohibits the disclosure of factual information relating to claims of sexual assault, sexual harassment, harassment or discrimination based on sex, or retaliation for filing a claim of sexual harassment.4.Governmental Reporting/Testimony. The Officer understands that nothing in this Release is intended to interfere with or discourage Officer’s good faith disclosure to any governmental entity related to a suspected violation of the law. Further, nothing in this Agreement waives your right to testify in an administrative, legislative, or judicial proceeding concerning alleged criminal conduct or sexual harassment, when you have been required or requested to attend the proceeding pursuant to a court order, subpoena, or written request from an administrative agency or the legislature. The Officer understands that Officer cannot and will not be held criminally or civilly liable under any federal or state trade secret law for disclosing otherwise protected trade secrets and/or confidential or proprietary information so long as the disclosure is made in: (1) confidence to a federal, state, or local government official, directly or indirectly, or to an attorney and solely for the purpose of reporting or investigating a suspected violation of law; or (2) a complaint or other document filed in a lawsuit or other proceeding, so long as such filing is made under seal. The Officer further understands that the Company will not retaliate against Officer in any way for a disclosure made pursuant to this Section 4. Further, in the event the Office makes such a disclosure, and files a lawsuit against the Company alleging that the Company retaliated against Officer because of Officer’s disclosure, the Officer understands that Officer may disclose the relevant trade secret or confidential information to Officer’s attorney, and may use the same in the court proceeding only if: (1) Officer ensures that any court filing that includes the trade secret or confidential information at issue is made under seal; and (2) Officer does not otherwise disclose the trade secret or confidential information except as required by court order.5.Charges and Complaints. The Officer represents and warrants that the Officer has not filed any complaints or charges against the Company or any other Releasee with any local, state or federal agency or court and is currently unaware of any set of facts that would give rise to such a complaint or charge. The Officer agrees to indemnify and hold the Company harmless from any breach of the representation and warranty contained in this Section 5 of this Agreement. This Section 5 does not apply to any claim or charge filed with the Securities Exchange Commission, Federal Trade Commission, or as otherwise prohibited by law.6.Taxes. The Officer agrees to pay any local, state or federal taxes due in connection with the payments or compensation paid to Officer pursuant to the Severance Agreement, and agrees to indemnify and hold the Company and its subsidiaries and affiliates harmless from any tax, interest, penalty or other sum sought, imposed or assessed against the Company and its subsidiaries and affiliates by any taxing authority in connection with the payment of any amounts pursuant to the Severance Agreement.RELEASE – Page 3 of 67.Return of the Company Property. The Officer represents and warrants that Officer has delivered to the Company all devices, documents and data of any nature containing, or pertaining to, any confidential, proprietary information or trade secrets (including all of the Company’s confidential information, technical information, business information, customer lists, tax, financial or proprietary knowledge and any such information Officer obtained while employed by the Company) and that neither Officer nor any of Officer’s agents or representatives have taken or retained any such documents or data or any reproduction thereof. The Officer further agrees that Officer will not, at any time, disclose or use any such information, except as may be required by court order or subpoena. The Officer also acknowledges the Company’s right to enforce this Section 7 of this Release in any court of competent jurisdiction.8.Nondisparagement. The parties agree that the Officer, on the one hand, and the Company and its directors and executive officers, on the other, will not disparage, volunteer or provide information, make statements, or news or press releases about (i) any alleged improper or unlawful acts or omissions of either party or any of the Releasees concerning Officer’s employment, the end or termination of Officer’s employment, or other matters arising before, during or after Officer’s employment with the Company; nor (ii) will the Officer disparage the Company or its products, services, vendors, parents, subsidiaries, divisions, successors or assigns, or any person acting by, through, under or in concert with any of them, and any of their current and former shareholders, officers, directors, agents, attorneys or employees, with any written or oral statement. For avoidance of doubt, nothing in this Agreement shall be construed to deny Officer’s right to disclose information about unlawful acts in the workplace, including but not limited to sexual harassment. In addition, nothing contained herein shall be construed to prevent Officer from providing truthful testimony to any court or administrative agency pursuant to subpoena or other compulsory legal process (other than as part of a proceeding initiated by Officer in violation of this Agreement), or from notifying the proper law enforcement authorities if Officer reasonably and in good faith concludes that the Company is violating laws enacted for the protection of corporate shareholders, investors, employees, or the general public.9.Additional Acknowledgments by the Officer. The Officer also acknowledges and agrees that:a.Officer is entering into this Release knowingly and voluntarily;b.the Company is hereby advising the Officer in writing to consult with an attorney before signing this Release and has had a reasonable opportunity to do so prior to executing this Release;c.Officer understands Officer may take up to twenty-one (21) days (or up to forty-five (45) days, if the Release is executed in conjunction with a group termination or an exit incentive program) to consider this Release before signing it;d.this Release contains the entire understanding of the Officer and the Company concerning the subjects it covers and it supersedes all prior understandings and representations, provided, however, nothing in this Release affects any post-employment restrictive covenants (including, but not limited to, non-disclosure, non-solicitation, and non-compete) or intellectual property assignment agreements the Officer may have signed, which shall remain in full force and effect;e.this Release may not be modified or supplemented except by a subsequent written agreement signed by the Officer and the Company’s Senior Vice President of Human Resources and Chief People Officer (or other authorized officer of Micron);RELEASE – Page 4 of 6f.the Officer has not assigned any rights or claims being released by this Release to any other person or entity; andg.the Officer is giving up the right to file a claim for age discrimination under the Age Discrimination in Employment Act, “ADEA” and the Older Workers’ Benefit Protection Act (“OWBPA”), 29 U.S.C. §§ 621 et. seq., based on events and actions (or inactions) pre-dating the execution of this Agreement (claims arising after the execution of this Agreement are not waived).10.Expiration and Return. If the Officer fails to sign this Release within twenty-one (21) days after a separation of the Company contemplated under the Severance Agreement (the “Separation Date”) (or forty-five (45) days in the case of a group termination or an exit incentive program) or revokes the Release as set forth in Section 11, the Company reserves the right to cease all payments and benefits owed to the Officer under the Severance Agreement and to further seek recovery of the consideration, if any, previously paid to the Officer under the Severance Agreement. The Company will require that the Officer not sign or return this Release earlier than the Separation Date. If the Officer does so, the Company reserves the right to delay the effective date of this Release until on or after the Separation Date (as may be applicable), and may also require the Officer to sign a written reaffirmation of this Release in order to receive or retain any payments or benefits owing to the Officer under the Separation Agreement. If the Officer signs this Release, Officer may email a copy to the Company’s Employee Relations department at [***]@micron.com or return the signed original to the attention of the office of the Senior Vice President and Chief People Officer at Micron Technology, Inc., 8000 South Federal Way, Boise, Idaho 83716.11.Signature and Revocation Period. After the Officer signs this Release, Officer will have seven (7) days to revoke it if the Officer has a change of mind. If the Officer wants to revoke this Release, the Officer should either email the written revocation to the Company’s Employee Relations department at [***]@micron.com, or otherwise deliver a copy to the attention of the office of the Senior Vice President and Chief People Officer at Micron Technology, Inc., 8000 South Federal Way, Boise, Idaho 83716, within seven (7) calendar days after the Officer signed it. If the Officer does not revoke this Release within this seven (7) day revocation period, the Release will become effective immediately, subject to the requirements set forth in Section 10 above.12.Governing Law, and Venue. This Release shall be construed in accordance with the laws of Idaho without regard to conflicts of law principles. The Officer hereby irrevocably submits to the jurisdiction of the state courts of Ada County, State of Idaho or the United States District Court for the District of Idaho, for any action arising out of or in any way related to the interpretation and enforcement of this Agreement and waives the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.13.Severability. If for any reason any provision of this Release is determined to be invalid, unenforceable or contrary to any existing or future law to any extent, such provision shall be enforced to the extent permissible under the law and such invalidity, unenforceability or illegality shall not impair the operation of or otherwise affect those portions of this Release which are valid, enforceable and legal.14.Opportunity for Representation by Counsel. The Officer acknowledges that Officer has been advised to, and had an opportunity to be, or has actually been represented by, independent counsel in the negotiation and execution of this Release, specifically including but not limited to its choice of law, jurisdiction, and venue provisions.RELEASE – Page 5 of 6* THIS RELEASE CONTAINS A GENERAL RELEASE AND WAIVER OF IMPORTANT RIGHTS AND EXTENDS TO ALL KNOWN AND UNKNOWN CLAIMS.* DO NOT SIGN THIS RELEASE UNLESS YOU HAVE FIRST CAREFULLY READ IT AND YOU FULLY UNDERSTAND IT.* BY SIGNING THIS RELEASE, YOU REPRESENT YOU HAVE CAREFULLY READ IT, FULLY UNDERSTAND IT AND ACKNOWLEDGE THE RIGHTS YOU ARE GIVING UP.OfficerDate SignedRELEASE – Page 6 of 6 EX-10.4 5 a2024q1ex104directorcompen.htm EX-10.4 DIRECTOR COMPENSATION PLAN DocumentExhibit 10.4MICRON TECHNOLOGY, INC.2008 DIRECTOR COMPENSATION PLANAMENDED AND RESTATEDEFFECTIVE AS OF OCTOBER 12, 2023MICRON TECHNOLOGY, INC.2008 DIRECTOR COMPENSATION PLANTABLE OF CONTENTSARTICLE 1 PURPOSE11.1. Background11.2. Purpose11.3. Eligibility1ARTICLE 2 DEFINITIONS12.1. Definitions1ARTICLE 3 ADMINISTRATION33.1. Administration33.2. Reliance33.3. Indemnification3ARTICLE 4 SOURCE OF SHARES44.1. Source of Shares for the Plan4ARTICLE 5 ANNUAL RETAINER AND EXPENSE REIMBURSEMENT45.1. Basic Annual Retainer45.2. Supplemental Annual Retainer45.3. Travel Expense Reimbursement5ARTICLE 6 TIME AND FORM OF PAYMENT OF ANNUAL RETAINER56.1. Election to Receive Total Annual Retainer Currently in Cash or Stock56.2. Election to Defer Annual Retainer6ARTICLE 7 ANNUAL EQUITY COMPENSATION7- i -7.1. Equity Awards7ARTICLE 8 AMENDMENT, MODIFICATION AND TERMINATION98.1. Amendment, Modification and Termination9ARTICLE 9 GENERAL PROVISIONS99.1. Tax Matters99.2. Adjustments99.3. Duration of the Plan109.4. Expenses of the Plan10SCHEDULE I DIRECTOR COMPENSATION SCHEDULE11- ii -MICRON TECHNOLOGY, INC.2008 DIRECTOR COMPENSATION PLANArticle 1PURPOSE1.1.BACKGROUND. This Plan is adopted to formalize the compensation for non-employee directors of the Company. The Board adopted the Micron Technology, Inc. 2008 Director Compensation Plan effective as of January 14, 2009, amended and restated the Plan effective as of December 1, 2021, and hereby further amends and restates the Plan effective as of October 12, 2023. The Plan operates as a subplan of the Micron Technology, Inc. Amended and Restated 2007 Equity Incentive Plan, and any subsequent equity compensation plan approved by the Board and designated as the Equity Incentive Plan for purposes of this Plan.1.2.PURPOSE. The purpose of the Plan is to attract, retain and compensate highly-qualified individuals who are not employees of the Company or any of its Subsidiaries or Affiliates for service as members of the Board by providing them with competitive compensation and an equity interest in the Stock of the Company. The Company intends that the Plan will benefit the Company and its stockholders by allowing Non-Employee Directors to have a personal financial stake in the Company through an ownership interest in the Stock and will closely associate the interests of Non-Employee Directors with that of the Company’s stockholders.1.3.ELIGIBILITY. Non-Employee Directors of the Company who are Eligible Participants, as defined below, shall automatically be participants in the Plan.Article 2DEFINITIONS2.1.DEFINITIONS. Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Micron Technology, Inc. Amended and Restated 2007 Equity Incentive Plan. Unless the context clearly indicates otherwise, the following terms shall have the following meanings:“Annual Equity Award Amount” means with respect to all Non-Employee Directors for each Plan Year, the amount determined by the Board from time to time and set forth on Schedule I hereto.“Annual Grant Date” means (i) the date during each Plan Year in which annual Equity Awards are granted to directors of the Company, or (ii) such other date(s) as may be established by the Committee for the grant of Annual Equity Awards hereunder. The Committee may establish different Annual Grant Dates for different directors (for example, but not by way of limitation, for a Non-Employee Director for the Plan Year in which the Non-Employee Director first joins the Board).“Basic Annual Retainer” means the annual retainer (excluding expenses and perquisites) payable by the Company to a Non-Employee Director pursuant to Section 5.1 hereof for service as a director of the Company (i.e., excluding any Supplemental Annual Retainer), as such amount may be determined by the Board from time to time and set forth on Schedule I hereto.- 1 -“Committee” means the Governance and Sustainability Committee of the Board or any other duly authorized committee of the Board that the Board has designated to administer the Plan.“DSU Equivalent Amount” means the portion (in 25% increments) of an Eligible Participant’s Total Annual Retainer and Annual Equity Award Amount for a Plan Year that he or she has elected to receive in the form of Deferred Stock Units, pursuant to Section 6.2.“Effective Date” of the Plan means January 14, 2009.“Election Form” means the form by which an Eligible Participant elects the form and timing of payment of his or her Total Annual Retainer and/or elects the timing of payment of any Deferred Stock Units in lieu of his or her Annual Equity Award, as provided in Article 6.“Eligible Participant” means any person who is a Non-Employee Director on the Effective Date or becomes a Non-Employee Director while this Plan is in effect.“Equity Award” means an award of Options, Restricted Stock, Restricted Stock Units, Deferred Stock Units or any other type of Award based on or derived from the Stock and which is authorized under the Equity Incentive Plan for award to Non-Employee Directors.“Equity Incentive Plan” means the Micron Technology, Inc. Amended and Restated 2007 Equity Incentive Plan, and any subsequent equity compensation plan approved by the Board and designated as the Equity Incentive Plan for purposes of this Plan.“Non-Employee Director” means a director of the Company who is not an employee of the Company or any of its Subsidiaries or Affiliates.“Plan” means this Micron Technology, Inc. 2008 Director Compensation Plan, as amended from time to time.“Plan Year(s)” means the twelve-month period ending on December 31 of each year which, for purposes of the Plan, is the period for which the Annual Retainer is earned.“Quarterly Grant Date” has the meaning set forth in Section 6.1(a) of the Plan.“Quarterly Service Period” has the meaning set forth in Section 6.1(a) of the Plan.“Separation from Service” means separation from service from the Company and its Affiliates in all capacities, within the meaning of Section 409A of the Code.“Stock Equivalent Amount” means the portion (in 25% increments) of an Eligible Participant’s Total Annual Retainer for a Plan Year that he or she has elected to receive in the form of current Stock awards, pursuant to Section 6.1.“Supplemental Annual Retainer” means the annual retainer (excluding expenses and perquisites) payable by the Company to a Non-Employee Director pursuant to Section 5.2 hereof, as such amount may be determined by the Board from time to time.“Total Annual Retainer” for any given Non-Employee Director means the Basic Annual Retainer and any Supplemental Annual Retainer to which he or she is entitled under the Plan.- 2 -Article 3ADMINISTRATION3.1.ADMINISTRATION. The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall be authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan (for example, but not by way of limitation, the form, time and manner of elections under the Plan). The Committee’s interpretation of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding upon all parties concerned including the Company, its stockholders and persons granted awards under the Plan. The Committee may appoint a plan administrator to carry out the ministerial functions of the Plan, but the administrator shall have no other authority or powers of the Committee. Any powers that are reserved under the Plan to the Committee may be exercised by the Board to the extent determined in the discretion of the Board. 3.2.RELIANCE. In administering the Plan, the Committee may rely upon any information furnished by the Company, its public accountants and other experts. No individual will have personal liability by reason of anything done or omitted to be done by the Company or the Committee in connection with the Plan. This limitation of liability shall not be exclusive of any other limitation of liability to which any such person may be entitled under the Company’s certificate of incorporation or otherwise.3.3.INDEMNIFICATION. Each person who is or has been a member of the Committee or who otherwise participates in the administration or operation of the Plan shall be indemnified by the Company against, and held harmless from, any loss, cost, liability or expense that may be imposed upon or incurred by him or her in connection with or resulting from any claim, action, suit or proceeding in which such person may be involved by reason of any action taken or failure to act under the Plan and shall be fully reimbursed by the Company for any and all amounts paid by such person in satisfaction of judgment against him or her in any such action, suit or proceeding, provided he or she will give the Company an opportunity, by written notice to the Board, to defend the same at the Company’s own expense before he or she undertakes to defend it on his or her own behalf. This right of indemnification shall not be exclusive of any other rights of indemnification to which any such person may be entitled under the Company’s certificate of incorporation, bylaws, contract or Delaware law.Article 4SOURCE OF SHARES4.1.SOURCE OF SHARES FOR THE PLAN. Equity Awards that may be issued pursuant to the Plan shall be issued under the Equity Incentive Plan, subject to all of the terms and conditions of the Equity Incentive Plan. The terms contained in the Equity Incentive Plan are incorporated into and made a part of this Plan with respect to Equity Awards granted pursuant hereto, and any such awards shall be governed by and construed in accordance with the Equity Incentive Plan. In the event of any actual or alleged conflict between the provisions of the Equity Incentive Plan and the provisions of this Plan, the provisions of the Equity Incentive Plan shall be controlling and determinative. This Plan does not constitute a separate source of shares for the grant of the Equity Awards described herein.- 3 -Article 5ANNUAL RETAINER AND EXPENSE REIMBURSEMENT5.1.BASIC ANNUAL RETAINER. Each Eligible Participant shall be paid a Basic Annual Retainer for service as a director during each Plan Year, payable in monthly installments at the end of each month of service (unless a different payment date is elected in accordance with Article 6). The amount of the Basic Annual Retainer shall be established from time to time by the Board upon recommendation of the Committee, and shall be set forth in Schedule I hereto, as amended from time to time. Each person who first becomes an Eligible Participant shall be entitled to a retainer equal to the monthly installment of the Basic Annual Retainer for each full month served during such Plan Year and a pro rata amount to reflect the actual number of days served in a partial month of service, in both cases payable in monthly installments at the end of the applicable month of service (unless a different payment date is elected in accordance with Article 6). If an Eligible Participant ceases to be such during a month, that person shall be entitled to a pro rata portion of the installment of the Basic Annual Retainer otherwise payable for that month, which pro rata portion reflects the actual number of days served in such month of partial service, payable at the end of such month (unless a different payment date is elected in accordance with Article 6).5.2.SUPPLEMENTAL ANNUAL RETAINER. The chairs or members of the Audit, Compensation and Governance Committees of the Board may be entitled to a Supplemental Annual Retainer during a Plan Year, payable at the same times as installments of the Basic Annual Retainer are paid. The amount of the Supplemental Annual Retainers shall be established from time to time by the Board, upon recommendation of the Committee, and shall be set forth in Schedule I hereto, as amended from time to time. A pro rata Supplemental Annual Retainer will be payable to any Eligible Participant who is elected by the Board to a position eligible for a Supplemental Annual Retainer on a date other than the beginning of a Plan Year, for each full month served during such Plan Year in such position and a pro rata amount to reflect the actual number of days served in such month of partial service. If a person ceases to be a chair or member of the Audit, Compensation or Governance Committees of the Board on other than the las day of a month, that person shall be entitled to a pro rata portion of the installment of the Supplemental Annual Retainer otherwise payable for that month, which pro rata portion reflects the actual number of days served in the partial month of service, payable at the end of such month (unless a different payment date is elected in accordance with Article 6).5.3.TRAVEL EXPENSE REIMBURSEMENT. All Eligible Participants shall be reimbursed for reasonable travel expenses (including spouse’s expenses to attend events to which spouses are invited) in connection with attendance at meetings of the Board and its committees, or other Company functions at which the Chief Executive Officer or the Board requests the Director to participate.Article 6TIME AND FORM OF PAYMENT OF ANNUAL RETAINER6.1.ELECTION TO RECEIVE TOTAL ANNUAL RETAINER CURRENTLY IN CASH OR STOCK.(a)Each Non-Employee Director may elect to receive some or all (in 25% increments) of the Total Annual Retainer to be earned during a Plan Year by such Non-Employee Director either (i) in cash, payable on the dates on which the Total Annual Retainer are normally paid, or (ii) subject to share availability under the Equity Incentive Plan, in shares of Stock delivered on each of March 31, June 30, September 30 and December 31 of each Plan - 4 -Year (the “Quarterly Grant Date”). The number of shares of Stock to be granted on each Quarterly Grant Date shall be determined by dividing the Stock Equivalent Amount earned by the Non-Employee Director under Section 5 during the three-month period ending with (and inclusive of) the month in which the Quarterly Grant Date occurs (the “Quarterly Service Period”) by the Fair Market Value per share of Stock on the Quarterly Grant Date (rounded to the nearest whole share). Any Stock granted under this Section 6.1 will be 100% vested and nonforfeitable as of the Quarterly Grant Date, and the Non-Employee Director receiving such Stock (or his or her custodian, if any) will have immediate rights of ownership in the Stock, including the right to vote the Stock and the right to receive any dividends or other distributions thereon. If a Non-Employee Director ceases to be such on other than a Quarterly Grant Date, the grant date for any shares of Stock earned for that calendar quarter shall be the last day of the Non-Employee Director’s service as such.(b)Each Non-Employee Director shall elect the form of payment desired for his or her Total Annual Retainer for a Plan Year by delivering a valid Election Form in such form as the Board shall prescribe to the Board prior to the beginning of such Plan Year or within thirty (30) days after a Non-Employee Director first joins the Board (and subject in all cases to any earlier deadline established for purposes of regulatory compliance or administration). The Election Form will be effective as of the first day of the Plan Year beginning after the Board receives the Non-Employee Director’s Election Form (or as of the next Plan quarter in the case of a Non-Employee Director making such election after first joining the Board) and in all cases only with respect to compensation that has not been earned as of the date the election is made. The Election Form elected by the Non-Employee Director prior to the Plan Year will be irrevocable for the coming Plan Year (or coming Plan quarter, if applicable). However, prior to the commencement of the following Plan Year (and subject in all cases to any earlier deadline established for purposes of regulatory compliance or administration), a Non-Employee Director may change his or her election for future Plan Years by delivering a new Election Form indicating a different choice. If a Non-Employee Director fails to deliver a new Election Form prior to the commencement of the new Plan Year, his or her Election Form in effect during the previous Plan Year shall continue in effect during the new Plan Year. If no Election Form is filed or effective, or if there are insufficient shares of Stock in the Equity Incentive Plan, the Total Annual Retainer will be paid in cash.6.2.ELECTION TO DEFER ANNUAL RETAINER AND ANNUAL EQUITY AWARD AMOUNT.(a)Timing and Manner of Deferral Election. A Non-Employee Director may elect to defer some or all of his or her Total Annual Retainer and Annual Equity Award Amount (each in 25% increments) by conversion to Deferred Stock Units in accordance with this Section 6.2, subject to share availability under the Equity Incentive Plan. A Non-Employee Director who wishes to receive some or all of the Total Annual Retainer and/or Annual Equity Award Amount for a Plan Year in the form of Deferred Stock Units must irrevocably elect to do so by delivering a valid Election Form to the Board prior to the later of (i) the beginning of such Plan Year or (ii) thirty (30) days after he or she first joins the Board, subject in all cases to any earlier deadline established for purposes of regulatory compliance or administration. A Non-Employee Director’s participation in this Section 6.2 of the Plan will be effective as of the first day of the Plan Year beginning after the Board receives the Non-Employee Director’s Election Form (or as of the next Plan quarter in the case of a Non-Employee Director making such election within thirty (30) days after first joining the Board). The deferral Election Form delivered by the Non-Employee Director will be irrevocable for the coming Plan Year (or coming Plan quarter, if applicable). However, prior to the commencement of the following Plan Year (and subject in all cases to any earlier deadline established for purposes of regulatory compliance or - 5 -administration), a Non-Employee Director may change his or her election for future Plan Years by delivering a new Election Form indicating a different choice. If a Non-Employee Director fails to deliver a new Election Form prior to the commencement of the new Plan Year, his or her Election Form in effect during the previous Plan Year shall continue in effect during the new Plan Year.(b)Crediting and Settlement of Deferred Stock Units. The number of Deferred Stock Units to be granted to an Eligible Participant on each Quarterly Grant Date shall be determined by dividing (i) the DSU Equivalent Amount attributable to the Total Annual Retainer earned (but deferred) by the Non-Employee Director during the Quarterly Service Period by (ii) the Fair Market Value per share of Stock on the Quarterly Grant Date (rounded to the nearest whole share). If a Non-Employee Director ceases to be such on other than a Quarterly Grant Date, the grant date for any Deferred Stock Units attributable to the Non-Employee Director’s Total Annual Retainer earned for that calendar quarter shall be the last day of the Non-Employee Director’s service as such. The number of Deferred Stock Units to be granted to an Eligible Participant on the applicable Annual Grant Date shall be determined by dividing (i) the DSU Equivalent Amount attributable to the Annual Equity Award Amount that otherwise would have been granted (but for the valid deferral election) to the Non-Employee Director during the Plan Year by (ii) the Fair Market Value per share of Stock on the Annual Grant Date (rounded to the nearest whole share). Deferred Stock Units shall be credited to a bookkeeping account maintained by the Company on behalf of the Non-Employee Director. The Deferred Stock Units shall be settled in (converted to) shares of Stock in a single sum on the date of the Non-Employee Director’s Separation from Service (and in all events no later than fifteen (15) days thereafter, as determined by the Company for administrative convenience), provided that Deferred Stock Units in respect of the Annual Equity Award Amount will be settled only to the extent vested (and otherwise will be forfeited upon the Director’s Separation from Service). (For the avoidance of doubt, valid elections by Non-Employee Directors for the 2023 Plan Year and earlier to receive payment in up to five equal annual installments still shall be paid in accordance with such elections to the extent provided by the Plan as in effect prior to this amendment and restatement.) No shares of Stock will be issued under this Section 6.2(b) until the applicable settlement date, at which time shares of Stock will be registered on the books of the Company in the Non-Employee Director’s (at the conversion rate of one share of Stock for each Deferred Stock Unit). Such Shares of Stock will remain in uncertificated, book-entry form unless the Non-Employee Director requests a stock certificate or certificates for the Shares.(c)Restrictions on Transfer. Deferred Stock Units may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered to or in favor of any party other than the Company, or be subjected to any lien, obligation or liability of the grantee to any other party other than the Company.(d)Rights as a Stockholder. A Non-Employee Director shall not have voting, dividend or any other rights as a stockholder of the Company with respect to the Deferred Stock Units. Upon conversion of the Deferred Stock Units into shares of Stock, the Non-Employee Director will obtain full voting, dividend and other rights as a stockholder of the Company.(e)Award Certificates. All Deferred Stock Units shall be evidenced by a written Award Certificate between the Company and the Non-Employee Director, which shall include such provisions, not inconsistent with the Plan or the Equity Incentive Plan, as may be specified by the Board.- 6 -Article 7ANNUAL EQUITY COMPENSATION7.1.EQUITY AWARDS.(a)Annual Grant of Equity Awards. Subject to share availability under the Equity Incentive Plan, each Eligible Participant in service on the Annual Grant Date will receive an Equity Award, in the form of Restricted Stock, Restricted Stock Units, Options or any other type of Award based on or derived from the Stock and which is authorized under the Equity Incentive Plan for award to Non-Employee Directors unless the Eligible Participant has elected to receive Deferred Stock Units in lieu of such Equity Award (in which case such Eligible Participant will not receive an Equity Award under this Section 7.1(a) and instead will receive Deferred Stock Units to the extent provided in Section 6.2 of the Plan and the Eligible Participant’s valid election). The form of Equity Awards to be granted in any Plan Year shall be established from time to time by the Board upon recommendation of the Committee, and shall be set forth in Schedule I, as amended from time to time. Until otherwise determined by the Board, the annual Equity Awards shall be in the form of Restricted Stock for Eligible Participants who are U.S. taxpayers and Restricted Stock Units (“RSUs”) for Eligible Participants who are non-U.S. taxpayers.(b)Restricted Stock. Any Restricted Stock awards shall have the following terms and conditions:(i)Number of Shares. The number of Shares of Restricted Stock to be granted to an Eligible Participant shall be determined by (A) dividing the Annual Equity Award Amount for that Plan Year by the Fair Market Value of the Stock on the Annual Grant Date, and (B) rounding to the nearest whole number.(ii)Vesting. The Restricted Stock Awards shall vest on the date or dates specified in the Award Certificate. Any Shares subject to a Restricted Stock Award that fail to vest will be forfeited as of the Eligible Participant’s Separation from Service.(iii)Other Plan Conditions. To the extent not specified herein, the Restricted Stock Awards granted hereunder shall be subject to the terms and conditions of the Equity Incentive Plan.(c)Restricted Stock Units. If RSUs are to be granted to an Eligible Participant in lieu of an award of Restricted Stock, such RSUs shall have the following terms and conditions:(i)Number of RSUs. The number of RSUs to be granted to the Eligible Participant shall be determined by (A) dividing the Annual Equity Award Amount for that Plan Year by the Fair Market Value of the Stock on the Annual Grant Date, and (B) rounding to the nearest whole number.(ii)Vesting. The RSUs shall be credited to a bookkeeping account on behalf of the grantee and shall vest on the date or dates specified in the Award Certificate. Any RSUs that fail to vest will be forfeited as of the Eligible Participant’s Separation from Service.(iii)Conversion to Stock. Each Annual RSU represents the right to receive one share of Stock on the vesting date. Shares of Stock will be registered on the books of the Company in the Non-Employee Director’s name as of the vesting date. Such Shares of Stock - 7 -will remain in uncertificated, book-entry form unless the Non-Employee Director requests a stock certificate or certificates for the Shares.(iv)Other Plan Conditions. To the extent not specified herein, the RSUs granted hereunder shall be subject to the terms and conditions of the Equity Incentive Plan.Article 8AMENDMENT, MODIFICATION AND TERMINATION8.1.AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at any time and from time to time, amend, modify or terminate the Plan without stockholder approval; provided, however, that if an amendment to the Plan would, in the reasonable opinion of the Board, require stockholder approval under applicable laws, policies or regulations or the applicable listing or other requirements of a securities exchange on which the Stock is listed or traded, then such amendment shall be subject to stockholder approval; and provided further, that the Board may condition any other amendment or modification on the approval of stockholders of the Company for any reason. Modification of Equity Awards granted under this Plan shall be subject to the provisions of the Equity Incentive Plan.Article 9GENERAL PROVISIONS9.1.TAX MATTERS. An Eligible Participant shall have the status of a general unsecured creditor of the Company with respect to his or her right to receive Stock or other payment upon settlement of the Equity Award granted under the Plan. None of the benefits, payments, proceeds or distributions under Plan shall be subject to the claim of any creditor of any Eligible Participant or beneficiary, or to any legal process by any creditor of such Eligible Participant or beneficiary, and none of them shall have any right to alienate, commute, anticipate or assign any of the benefits, payments, proceeds or distributions under the Plan except to the extent expressly provided herein to the contrary.9.2.ADJUSTMENTS. The adjustment provisions of the Equity Incentive Plan shall apply with respect to awards of Equity Awards granted pursuant to this Plan.9.3.DURATION OF THE PLAN. The Plan shall remain in effect until terminated by the Board; provided, however, that the Plan shall terminate automatically upon termination of the Equity Incentive Plan, including any successor to the Micron Technology, Inc. Amended and Restated 2007 Equity Incentive Plan.9.4.EXPENSES OF THE PLAN. The expenses of administering the Plan shall be borne by the Company.- 8 -SCHEDULE IDIRECTOR COMPENSATION SCHEDULEBasic Annual Retainer (all Directors): $125,000Supplemental Annual Retainers:Board of Directors Chair: $150,000Audit Committee Chair: $35,000Compensation Committee Chair: $30,000Finance Committee Chair: $20,000Governance and Sustainability Committee Chair: $20,000Security Committee Chair: $20,000Annual Equity Award Amount: $250,000Form of Annual Equity Award: Restricted Stock and Restricted Stock Units (vesting in full 1 year after grant assuming continued service on the Board through the vesting date, with earlier vesting in full upon a qualified retirement from the Board after at least 3 years of service on the Board, or termination from the Board due to death or disability, all as provided in in the applicable award agreement)- 9 - EX-31.1 6 a2024q1ex311-ceocert.htm EX-31.1 CEO CERT DocumentEXHIBIT 31.1RULE 13a-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICERI, Sanjay Mehrotra, certify that: 1.I have reviewed this Quarterly Report on Form 10-Q of Micron Technology, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.Date:December 21, 2023/s/ Sanjay MehrotraSanjay Mehrotra President and Chief Executive Officer and Director EX-31.2 7 a2024q1ex312-cfocert.htm EX-31.2 CFO CERT DocumentEXHIBIT 31.2RULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Mark Murphy, certify that: 1.I have reviewed this Quarterly Report on Form 10-Q of Micron Technology, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.Date:December 21, 2023/s/ Mark MurphyMark MurphyExecutive Vice President and Chief Financial Officer EX-32.1 8 a2024q1ex321-906ceocert.htm EX-32.1 906 CEO CERT DocumentEXHIBIT 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350 I, Sanjay Mehrotra, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Micron Technology, Inc. on Form 10-Q for the period ended November 30, 2023, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Micron Technology, Inc. Date:December 21, 2023/s/ Sanjay MehrotraSanjay MehrotraPresident and Chief Executive Officer and Director EX-32.2 9 a2024q1ex322-906cfocert.htm EX-32.2 906 CFO CERT DocumentEXHIBIT 32.2CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350 I, Mark Murphy, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Micron Technology, Inc. on Form 10-Q for the period ended November 30, 2023, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Micron Technology, Inc.Date:December 21, 2023/s/ Mark MurphyMark MurphyExecutive Vice President and Chief Financial Officer EX-101.SCH 10 mu-20231130.xsd XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT 0000001 - Document - Cover Page link:presentationLink link:calculationLink link:definitionLink 0000002 - 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Besang, Inc. [Member] Besang, Inc. patent infringement complaint Level 1 Fair Value, Inputs, Level 1 [Member] Name Measure Name Name Forgone Recovery, Individual Name Carrying Value Reported Value Measurement [Member] United Microelectronics Corporation vs Micron-Complaint 1 United Microelectronics Corporation [Member] United Microelectronics Corporation filed a patent infringement suit against Micron Semiconductor (Xi'an) Co., Ltd. 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Complaint 2 [Member] Fujian Jinhua Integrated Circuit Co., Ltd. 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[Member] Fujian Jinhua Integrated Circuit Co., Ltd. filed a patent infringement suit against Micron Semiconductor (Xi'an) Co., Ltd. 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Complaint 3 [Member] Netlist Inc. 3rd patent infringement complaint Schedule of Inventories Schedule of Inventory, Current [Table Text Block] Interest rate swap Interest Rate Swap [Member] Debt Instrument Debt Instrument [Axis] Repurchase of stock - withholdings on employee equity awards Stock Repurchased and Retired During Period, Value Outstanding Aggregate Erroneous Compensation Amount Outstanding Aggregate Erroneous Compensation Amount Effective tax rate Effective Income Tax Rate Reconciliation, Percent Operating Lease Liability Operating Lease, Liability Remainder of 2024 Finance Lease, Liability, to be Paid, Remainder of Fiscal Year Schedule of Maturities of Notes Payable Schedule of Maturities of Long-Term Debt [Table Text Block] Total liabilities Liabilities Total Shareholder Return Vs Peer Group Total Shareholder Return Vs Peer Group [Text Block] Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] Accumulated Other Comprehensive Income (Loss) AOCI Attributable to Parent [Member] Aggregate Erroneous Compensation Amount Aggregate Erroneous Compensation Amount Debt Covenants Long-Term Debt, Other Disclosure [Abstract] Property, Plant, and Equipment Property, Plant and Equipment Disclosure [Text Block] All Executive Categories All Executive Categories [Member] Netlist Inc. vs Micron - Complaint 4 Netlist Inc. Complaint 4 [Member] Netlist Inc. 4th patent infringement complaint Non-Rule 10b5-1 Arrangement Adopted Non-Rule 10b5-1 Arrangement Adopted [Flag] Other (primarily NOR) Other Product Sales [Member] Net other product sales to external customers. Concentration Risk by Market Concentration Risk by Market [Axis] Concentration Risk by Market [Axis] Pension Liability Adjustments Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member] Accounts Payable and Accrued Expenses Accounts Payable and Accrued Liabilities Disclosure [Text Block] Debt Disclosure [Abstract] Debt Disclosure [Abstract] Long Lived Asset Type Long-Lived Tangible Asset [Domain] Number of reportable segments Number of Reportable Segments Earnings (loss) per share Earnings Per Share [Abstract] [Original and Temp Amendment] Debt Instrument, Covenant, Ratio of Total Debt To Adjusted EBITDA, Temporary Increase Debt Instrument, Covenant, Ratio of Total Debt To Adjusted EBITDA, Temporary Increase Ratio of total debt divided by adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) required to comply with debt covenants subsequent to a material acquisition. This temporary increase is allowed for four fiscal quarters. Common stock, $0.10 par value, 3,000 shares authorized, 1,245 shares issued and 1,104 outstanding (1,239 shares issued and 1,098 outstanding as of August 31, 2023) Common Stock, Value, Issued Organization, Consolidation and Presentation of Financial Statements [Abstract] Organization, Consolidation and Presentation of Financial Statements [Abstract] Loss Contingency [Abstract] Loss Contingency [Abstract] Awards Close in Time to MNPI Disclosures, Table Awards Close in Time to MNPI Disclosures [Table Text Block] Segment Reporting Policy Segment Reporting, Policy [Policy Text Block] Total current assets Assets, Current Interest income Investment Income, Net Estimated consideration payable to customers for pricing adjustments and returns Contract with Customer, Refund Liability, Current Cash flows used for financing activities – Finance leases Finance Lease, Principal Payments Number of patents allegedly infringed Loss Contingency, Patents Allegedly Infringed, Number Yangtze Memory Technologies Company, Ltd. Yangtze Memory Technologies Company, Ltd. [Member] Yangtze Memory Technologies Company, Ltd. patent infringement complaint Schedule of Finance Lease Maturities Finance Lease, Liability, to be Paid, Maturity [Table Text Block] Restricted cash Restricted Cash Schedule of Market Concentration Risk Schedules of Concentration of Risk, by Risk Factor [Table Text Block] Revenue from Contract with Customer [Abstract] Revenue from Contract with Customer [Abstract] All Individuals All Individuals [Member] Cash flows used for operating activities Cash Flow, Operating Activities, Lessee [Abstract] Litigation Case Type Litigation Case [Domain] 2028 Notes Unsecured Senior Corporate Debt Due April 2028 [Member] Unsecured senior corporate debt due April 2028, issued April 2023. Finance Lease Right-of-Use Asset, Balance Sheet Location Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration] Other non-operating income (expense), net Other Nonoperating Income (Expense) Entity Filer Category Entity Filer Category Non-PEO NEO Average Total Compensation Amount Non-PEO NEO Average Total Compensation Amount Statement [Table] Statement [Table] Current Fiscal Year End Date Current Fiscal Year End Date Common Stock Repurchase, Authorized Amount Stock Repurchase Program, Authorized Amount Accounts payable Accounts Payable, Trade, Current Cash and Investments Cash, Cash Equivalents, and Marketable Securities [Text Block] PEO Name PEO Name Concentration Risk, Percentage Concentration Risk, Percentage Fair and carrying value of debt instruments [Table] Fair Value, by Balance Sheet Grouping [Table] Schedule of Accumulated Other Comprehensive Income (Loss) Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block] Client and graphics Client and Graphics Market [Member] Products sold into the computing market including personal systems, notebooks, workstations and graphics. Weighted-average grant date fair value per share (in dollars per share) Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value 2029 and thereafter Lessee Operating Lease Liability, Payments, Due After Year Four Amount of lessee's undiscounted obligation for lease payment for operating lease due after fourth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach). 2028 Finance Lease, Liability, to be Paid, Year Four Asset-backed securities Asset-Backed Securities [Member] Net cash provided by operating activities Net Cash Provided by (Used in) Operating Activities Erroneously Awarded Compensation Recovery Erroneously Awarded Compensation Recovery [Table] Netlist Inc. vs Micron - Complaint 5 Netlist Inc. Complaint 5 [Member] Netlist Inc. 5th patent infringement complaint Short-term investments Short-term Investments Debt Securities, Available-for-Sale, Current Product Concentration Risk Product Concentration Risk [Member] Depreciation expense and amortization of intangible assets Depreciation, Depletion and Amortization Other operating (income) expense, net Other Operating Income (Expense), Net Stated Rate (exact percentage) Debt Instrument, Interest Rate, Stated Percentage Accounts payable and accrued expenses Total accounts payable and accrued expenses Accounts Payable and Accrued Liabilities, Current Award Timing, How MNPI Considered Award Timing, How MNPI Considered [Text Block] Statement of Financial Position [Abstract] Statement of Financial Position [Abstract] Total equity Balance of total equity Balance of total equity Equity, Attributable to Parent Consolidation Items Consolidation Items [Axis] Commercial paper Commercial Paper [Member] Schedule of Finite-Lived Intangible Assets [Table] Schedule of Finite-Lived Intangible Assets [Table] Schedule of Share-based Compensation Arrangements by Share-based Payment Award [Table] Schedule of Share-Based Compensation Arrangements by Share-Based Payment Award [Table] Finance Lease Maturities Finance Lease, Liability, to be Paid, Fiscal Year Maturity [Abstract] DRAM Purchasers Canada vs Micron DRAM Purchasers Canada [Member] DRAM Purchasers Canada [Member] Finite-Lived Intangible Assets, Major Class Name Finite-Lived Intangible Assets, Major Class Name [Domain] Foreign currency translation adjustments Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax Concentration Risk by Type Concentration Risk Type [Axis] Gains (Losses) on Derivative Instruments Accumulated Gain (Loss), Net, Cash Flow Hedge, Parent [Member] Long-term debt Long-term debt (including finance lease obligation) Long-Term Debt and Lease Obligation Variable Interest Entities Variable Interest Entity Disclosure [Text Block] Equity Securities without Readily Determinable Fair Value, Amount Equity Securities without Readily Determinable Fair Value, Amount Maturities of Notes Payable Long-Term Debt, Fiscal Year Maturity [Abstract] Spread on 2027 Variable Interest Rate Derivative, Basis Spread on Variable Rate Not designated hedging instruments Not Designated as Hedging Instrument [Member] Adjusted term SOFR Adjusted Term Secured Overnight Financing Rate SOFR [Member] The elected term secured overnight financing rate (SOFR) adjusted for market-determined or agreement-determined credit spread. 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Software Software and Software Development Costs [Member] Minimum Minimum [Member] Number of shares used in per share calculations Weighted Average Number of Shares Outstanding, Diluted [Abstract] Share Repurchase Program Share Repurchase Program [Domain] Receivables [Abstract] Receivables [Abstract] Patent Matters Patent Matters [Member] Loss contingencies related to assertions regarding infringement of other's intellectual property rights. Receivables Receivables Receivables, Net, Current Exercise Price Award Exercise Price Payments of Common Stock Dividends (per share) Common Stock, Dividends, Per Share, Cash Paid Finite-Lived Intangible Assets by Major Class Finite-Lived Intangible Assets by Major Class [Axis] Other comprehensive income (loss) Other comprehensive income (loss), net Other Comprehensive Income (Loss), Net of Tax Cash flow hedge (losses) expected to be reclassified into earnings within twelve months Cash Flow Hedge Gain (Loss) to be Reclassified within 12 Months Lessee, Finance Lease Description Lessee, Finance Lease, Description [Abstract] Statement of Cash Flows [Abstract] Statement of Cash Flows [Abstract] Equity, Class of Treasury Stock [Line Items] Equity, Class of Treasury Stock [Line Items] Revolving Credit Facility Line of Credit Facility [Abstract] Dividends and dividend equivalents declared Dividends, Common Stock, Cash Assets Assets [Abstract] Award Timing MNPI Disclosure Award Timing MNPI Disclosure [Text Block] Commodity hedges Commodity Contract [Member] 2024 Term Loan A 2024 Term Loan A [Member] 2024 Term Loan A issued May 14, 2021 Goodwill and Intangible Assets Disclosure [Abstract] Goodwill and Intangible Assets Disclosure [Abstract] Proceeds from issuance of debt Proceeds from Issuance of Long-Term Debt Long-term Debt by Current and Noncurrent Long-Term Debt, by Current and Noncurrent [Abstract] Fiscal Period Fiscal Period, Policy [Policy Text Block] [Temp Amendment] Debt Instrument, Covenant, Minimum Liquidity Debt Instrument, Covenant, Minimum Liquidity Minimum amount of cash, cash equivalents, and marketable securities plus available unused commitments required under debt covenants. Net cash provided by (used for) financing activities Net Cash Provided by (Used in) Financing Activities Deferred tax assets Deferred Income Tax Assets, Net Lessee, Lease, Description [Line Items] Lessee, Lease, Description [Line Items] Investments and Cash [Abstract] Other Payments for (Proceeds from) Other Investing Activities Retained Earnings Retained Earnings [Member] Current Portion of Long-term Debt Long-Term Debt, Current Maturities Stock-based Compensation Expense Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block] Adjustment to Non-PEO NEO Compensation Footnote Adjustment to Non-PEO NEO Compensation Footnote [Text Block] Cash Flow Hedges Summary of Cash Flow Hedge Activity [Abstract] Total liabilities and equity Liabilities and Equity EBU EBU [Member] Embedded Business Unit (EBU) includes memory and storage products and solutions sold into automotive, industrial, and consumer markets. Other noncurrent assets Other Assets, Noncurrent Peer Group Total Shareholder Return Amount Peer Group Total Shareholder Return Amount Operating lease right-of-use assets Operating Lease, Right-of-Use Asset Gains (losses) on derivative instruments Other Comprehensive Income (Loss), Cash Flow Hedge, Gain (Loss), after Reclassification and Tax Basic (in dollars per share) Earnings Per Share, Basic 2041 Notes Unsecured Senior Corporate Debt Due 2041 [Member] Unsecured Senior Corporate Debt Due 2041 issued November 1, 2021 Schedule of Long-term Debt Instruments [Table] Schedule of Long-Term Debt Instruments [Table] Accounting Policies [Abstract] Accounting Policies [Abstract] Class of Treasury Stock [Table] Class of Treasury Stock [Table] Equity Valuation Assumption Difference, Footnote Equity Valuation Assumption Difference, Footnote [Text Block] Erroneous Compensation Analysis Erroneous Compensation Analysis [Text Block] Accounts Payable and Accrued Liabilities, Current [Abstract] Accounts Payable and Accrued Liabilities, Current [Abstract] Long-term Debt and Lease Obligation Long-Term Debt and Lease Obligation [Abstract] Remainder of 2024 Lessee, Operating Lease, Liability, to be Paid, Remainder of Fiscal Year Current finance lease liability, statement of financial position Finance Lease, Liability, Current, Statement of Financial Position [Extensible Enumeration] Arrangement Duration Trading Arrangement Duration Entity Address, City or Town Entity Address, City or Town Award Timing MNPI Considered Award Timing MNPI Considered [Flag] Netlist Inc. vs Micron - Complaint 5 Amendment Netlist Inc. Complaint 5 Amended [Member] Netlist Inc. 5th patent infringement complaint amended Schedule of Results by Segment Schedule of Segment Reporting Information, by Segment [Table Text Block] Pending Litigation Pending Litigation [Member] Operating Lease Liability, Balance Sheet Location Operating Lease, Liability, Current, Statement of Financial Position [Extensible Enumeration] Equity Plans, Additional Disclosures Share-Based Payment Arrangement, Additional Disclosure [Abstract] Document Transition Report Document Transition Report Award Timing Predetermined Award Timing Predetermined [Flag] Product and process technology Technology-Based Intangible Assets [Member] Termination Date Trading Arrangement Termination Date Common Stock, authorized shares (in shares) Common Stock, Shares Authorized Other Accounts Payable, Other, Current Debt Securities, Available-for-sale, Term, Noncurrent Debt Securities, Available-for-sale, Term, Noncurrent Period between issuance and maturity of long term investment in debt security measured at fair value with change in fair value recognized in other comprehensive income (available-for-sale), in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents reported fact of one year, five months, and thirteen days. 2033 A Notes Unsecured Senior Corporate Debt Due Feb 2033 [Member] Unsecured senior corporate debt issued February 2023 and due February 2033. Property, Plant and Equipment [Abstract] Property, Plant and Equipment [Abstract] Derivative Instrument Derivative Instrument [Axis] Adjustments to reconcile net income (loss) to net cash provided by operating activities: Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities [Abstract] All Trading Arrangements All Trading Arrangements [Member] Accumulated depreciation Property, Plant, and Equipment and Finance Lease Right-of-Use Asset, Accumulated Depreciation and Amortization All Adjustments to Compensation All Adjustments to Compensation [Member] Derivative [Line Items] Derivative [Line Items] Award Timing Disclosures [Line Items] Compensation Amount Outstanding Recovery Compensation Amount Available borrowing capacity Debt Instrument, Unused Borrowing Capacity, Amount Subsequent Event Type Subsequent Event Type [Axis] Statement of Comprehensive Income [Abstract] Statement of Comprehensive Income [Abstract] 2029 A Notes Unsecured Senior Corporate Debt Due 2029 [Member] Unsecured senior corporate debt due 2029 issued February 2019. Netlist Inc. vs Micron Netlist Inc. Complaint [Member] Netlist Inc. patent infringement complaint Net sales Segment Reporting Information, Revenue for Reportable Segment [Abstract] Share-based Payment Arrangement, Expensed and Capitalized, Amount [Table] Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Table] Finance Lease Liability Total Finance Lease Obligations Total Finance Lease Obligations Finance Lease, Liability Current debt Current debt (including finance lease obligation) Debt, Current 2027 Finite-Lived Intangible Asset, Expected Amortization, Year Three Insider Trading Arrangements [Line Items] 2025 Long-Term Debt, Maturity, Year One Schedule of Segment Reporting Information, by Segment [Table] Schedule of Segment Reporting Information, by Segment [Table] Stock issued under stock plans (in shares) Shares Issued, Shares, Share-Based Payment Arrangement, after Forfeiture All Other Other Segments [Member] Entity Registrant Name Entity Registrant Name Material Terms of Trading Arrangement Material Terms of Trading Arrangement [Text Block] Award Timing Method Award Timing Method [Text Block] 2026 Finite-Lived Intangible Asset, Expected Amortization, Year Two Adjustment to Compensation, Amount Adjustment to Compensation Amount Equity Securities without Readily Determinable Fair Value [Table] Equity Securities without Readily Determinable Fair Value [Table] Other current liabilities Increase (Decrease) in Other Current Liabilities Cost of goods sold Cost of Sales [Member] Repayments of debt Repayment of Long-Term Debt, Long-Term Lease Obligation, and Capital Security Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] Document Period End Date Document Period End Date Compensation Actually Paid vs. Net Income Compensation Actually Paid vs. Net Income [Text Block] Adoption Date Trading Arrangement Adoption Date Peer Group Issuers, Footnote Peer Group Issuers, Footnote [Text Block] Revenue from Contract with Customer Revenue from Contract with Customer Benchmark [Member] Dividends Payable, Date of Record Dividends Payable, Date of Record Long-Term Finance Lease Obligations Finance Lease, Liability, Noncurrent Finance leases, Weighted-average discount rate Finance Lease Effective Rate (in ten thousandths) Finance Lease, Weighted Average Discount Rate, Percent Treasury Stock Treasury Stock, Common [Member] Entity Central Index Key Entity Central Index Key Schedule of Other Lease Information Schedule of Other Lease Information [Table Text Block] Schedule of Other Lease Information Segment Reporting Information [Line Items] Segment Reporting Information [Line Items] Certain Concentrations Concentration Risk Disclosure [Text Block] Dividends Payable, Date to be Paid Dividends Payable, Date to be Paid Significant Accounting Policies Basis of Presentation and Significant Accounting Policies [Text Block] Stock-based compensation expense Stock-based compensation Share-Based Payment Arrangement, Expense Non-Rule 10b5-1 Arrangement Terminated Non-Rule 10b5-1 Arrangement Terminated [Flag] Loss Contingencies by Nature of Contingency Loss Contingency Nature [Axis] Gross Amount Finite-Lived Intangible Assets, Gross Income tax (provision) benefit Income tax (provision) benefit Income Tax Expense (Benefit) Securities Matters Securities Matters [Member] Loss contingencies related to assertions regarding securities matters. 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Fair value hedges Fair Value Hedging [Member] Money market funds Money Market Funds [Member] Cash and equivalents Cash and Equivalents Cash and Cash Equivalents, at Carrying Value 2026 Notes Unsecured Senior Corporate Debt Due 2026_2 [Member] Unsecured senior corporate debt due 2026 issued February 2019. Operating leases, Weighted-average discount rate Operating Lease, Weighted Average Discount Rate, Percent Repurchase of stock - withholdings on employee equity awards (in shares) Stock Repurchased and Retired During Period, Shares Treasury Shares Repurchased (in shares) Treasury Stock, Shares, Acquired Debt Instrument, Basis Spread on Variable Rate Debt Instrument, Basis Spread on Variable Rate Compensation Actually Paid vs. Other Measure Compensation Actually Paid vs. Other Measure [Text Block] Damages sought on alleged patent infringement Loss Contingency, Damages Sought, Value Noncurrent Long-Term Debt Long-Term Debt, Excluding Current Maturities Noncurrent finance lease liability, statement of financial position Finance Lease, Liability, Noncurrent, Statement of Financial Position [Extensible Enumeration] Finance leases, Weighted-average remaining lease term (in years) Finance Lease, Weighted Average Remaining Lease Term Diluted (in shares) Weighted-average common shares outstanding - Diluted Weighted Average Number of Shares Outstanding, Diluted Forgone Recovery, Explanation of Impracticability Forgone Recovery, Explanation of Impracticability [Text Block] Finance leases, noncash acquisitions of right-of-use assets Right-of-Use Asset Obtained in Exchange for Finance Lease Liability 2027 Notes(1) Unsecured Senior Corporate Debt Due 2027 [Member] Unsecured senior corporate debt due 2027. 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Schedule of Derivative Instruments Schedule of Derivative Instruments [Table Text Block] Forgone Recovery due to Disqualification of Tax Benefits, Amount Forgone Recovery due to Disqualification of Tax Benefits, Amount Awards Close in Time to MNPI Disclosures Awards Close in Time to MNPI Disclosures [Table] NAND NAND Products [Member] NAND semiconductor products Cash and equivalents and the fair values of available-for-sale investments Debt Securities, Available-for-Sale [Table Text Block] 2029 and thereafter Long-Term Debt, Maturities, Repayments of Principal After Year Four Amount of long-term debt payable, sinking fund requirement, and other securities issued that are redeemable by holder at fixed or determinable price and date, maturing after fourth fiscal year following current fiscal year. Excludes interim and annual periods when interim periods are reported from current statement of financial position date (rolling approach). 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Cover Page - shares
 3 Months Ended
Nov. 30, 2023
Dec. 14, 2023
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Nov. 30, 2023  
Document Transition Report false  
Entity File Number 1-10658  
Entity Registrant Name Micron Technology, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 75-1618004  
Entity Address, Address Line One 8000 S. Federal Way  
Entity Address, City or Town Boise  
Entity Address, State or Province ID  
Entity Address, Postal Zip Code 83716  
City Area Code 208  
Local Phone Number 368-4000  
Title of 12(b) Security Common Stock, par value $0.10 per share  
Trading Symbol MU  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   1,103,908,880
Entity Central Index Key 0000723125  
Current Fiscal Year End Date --08-29  
Document Fiscal Year Focus 2024  
Document Fiscal Period Focus Q1  
Amendment Flag false  
XML 19 R2.htm IDEA: XBRL DOCUMENT v3.23.4
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Millions, $ in Millions
 3 Months Ended
Nov. 30, 2023
Dec. 01, 2022
Income Statement [Abstract]    
Revenue $ 4,726 $ 4,085
Cost of goods sold 4,761 3,192
Gross margin (35) 893
Research and development 845 849
Selling, general, and administrative 263 251
Restructure and asset impairments 0 13
Other operating (income) expense, net (15) (11)
Operating income (loss) (1,128) (209)
Interest income 132 88
Interest expense (132) (51)
Other non-operating income (expense), net (27) (4)
Income (loss) before income taxes and equity in net income (loss) of equity method investees (1,155) (176)
Income tax (provision) benefit (73) (8)
Equity in net income (loss) of equity method investees (6) (11)
Net income (loss) $ (1,234) $ (195)
Earnings (loss) per share    
Basic (in dollars per share) $ (1.12) $ (0.18)
Diluted (in dollars per share) $ (1.12) $ (0.18)
Number of shares used in per share calculations    
Basic (in shares) 1,100 1,090
Diluted (in shares) 1,100 1,090
XML 20 R3.htm IDEA: XBRL DOCUMENT v3.23.4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Millions
 3 Months Ended
Nov. 30, 2023
Dec. 01, 2022
Statement of Comprehensive Income [Abstract]    
Net income (loss) $ (1,234) $ (195)
Other comprehensive income (loss), net of tax    
Gains (losses) on derivative instruments 44 108
Unrealized gains (losses) on investments 7 (19)
Pension liability adjustments 2 1
Foreign currency translation adjustments (1) (3)
Other comprehensive income (loss) 52 87
Total comprehensive income (loss) $ (1,182) $ (108)
XML 21 R4.htm IDEA: XBRL DOCUMENT v3.23.4
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Nov. 30, 2023
Aug. 31, 2023
Assets    
Cash and equivalents $ 8,075 $ 8,577
Short-term investments 973 1,017
Receivables 2,943 2,443
Inventories 8,276 8,387
Other current assets 791 820
Total current assets 21,058 21,244
Long-term marketable investments [1] 720 844
Property, plant, and equipment 37,677 37,928
Operating lease right-of-use assets 648 666
Intangible assets 416 404
Deferred tax assets 781 756
Goodwill 1,150 1,150
Other noncurrent assets 1,326 1,262
Total assets 63,776 64,254
Liabilities and equity    
Accounts payable and accrued expenses 3,946 3,958
Current debt 908 278
Other current liabilities 1,108 529
Total current liabilities 5,962 4,765
Long-term debt 12,597 13,052
Noncurrent operating lease liabilities 601 603
Noncurrent unearned government incentives 705 727
Other noncurrent liabilities 1,026 987
Total liabilities 20,891 20,134
Commitments and contingencies
Shareholders’ equity    
Common stock, $0.10 par value, 3,000 shares authorized, 1,245 shares issued and 1,104 outstanding (1,239 shares issued and 1,098 outstanding as of August 31, 2023) 124 124
Additional capital 11,217 11,036
Retained earnings 39,356 40,824
Treasury stock, 141 shares held (141 shares as of August 31, 2023) (7,552) (7,552)
Accumulated other comprehensive income (loss) (260) (312)
Total equity 42,885 44,120
Total liabilities and equity $ 63,776 $ 64,254
[1] The maturities of long-term marketable investments primarily range from one to five years, except for asset-backed securities which are not due at a single maturity date.
XML 22 R5.htm IDEA: XBRL DOCUMENT v3.23.4
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
shares in Millions
Nov. 30, 2023
Aug. 31, 2023
Shareholders’ equity    
Common Stock, par value (in dollars per share) $ 0.10 $ 0.10
Common Stock, authorized shares (in shares) 3,000 3,000
Common Stock, issued (in shares) 1,245 1,239
Common Stock, outstanding (in shares) 1,104 1,098
Treasury Stock, held (in shares) 141 141
XML 23 R6.htm IDEA: XBRL DOCUMENT v3.23.4
STATEMENT OF CHANGES IN EQUITY - USD ($)
shares in Millions, $ in Millions
Total
Common Stock
Additional Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Income (Loss)
Balance (in shares) at Sep. 01, 2022   1,226        
Balance of total equity at Sep. 01, 2022 $ 49,907 $ 123 $ 10,197 $ 47,274 $ (7,127) $ (560)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income (loss) (195)     (195)    
Other comprehensive income (loss), net 87         87
Stock issued under stock plans (in shares)   8        
Stock issued under stock plans 7 $ 0 7      
Stock-based compensation expense 146   146      
Repurchase of stock - repurchase program (425)       (425)  
Repurchase of stock - withholdings on employee equity awards (in shares)   (2)        
Repurchase of stock - withholdings on employee equity awards $ (95) $ 0 (15) (80)    
Dividends and dividend equivalents declared (per share) $ 0.115          
Dividends and dividend equivalents declared $ (126)     (126)    
Balance (in shares) at Dec. 01, 2022   1,232        
Balance of total equity at Dec. 01, 2022 $ 49,306 $ 123 10,335 46,873 (7,552) (473)
Balance (in shares) at Aug. 31, 2023 1,239 1,239        
Balance of total equity at Aug. 31, 2023 $ 44,120 $ 124 11,036 40,824 (7,552) (312)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Net income (loss) (1,234)     (1,234)    
Other comprehensive income (loss), net 52         52
Stock issued under stock plans (in shares)   8        
Stock issued under stock plans 9 $ 0 9      
Stock-based compensation expense 188   188      
Repurchase of stock - withholdings on employee equity awards (in shares)   (2)        
Repurchase of stock - withholdings on employee equity awards $ (121) $ 0 (16) (105)    
Dividends and dividend equivalents declared (per share) $ 0.115          
Dividends and dividend equivalents declared $ (129)     (129)    
Balance (in shares) at Nov. 30, 2023 1,245 1,245        
Balance of total equity at Nov. 30, 2023 $ 42,885 $ 124 $ 11,217 $ 39,356 $ (7,552) $ (260)
XML 24 R7.htm IDEA: XBRL DOCUMENT v3.23.4
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
 3 Months Ended
Nov. 30, 2023
Dec. 01, 2022
Cash flows from operating activities    
Net income (loss) $ (1,234) $ (195)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation expense and amortization of intangible assets 1,915 1,921
Stock-based compensation 188 146
Change in operating assets and liabilities:    
Receivables (501) 1,842
Inventories 111 (1,697)
Accounts payable and accrued expenses 271 (630)
Other current liabilities 579 (430)
Other 72 (14)
Net cash provided by operating activities 1,401 943
Cash flows from investing activities    
Expenditures for property, plant, and equipment (1,796) (2,449)
Purchases of available-for-sale securities (199) (90)
Proceeds from maturities and sales of available-for-sale securities 374 362
Proceeds from government incentives 85 2
Other (22) (91)
Net cash provided by (used for) investing activities (1,558) (2,266)
Cash flows from financing activities    
Payments of dividends to shareholders (129) (126)
Payments on equipment purchase contracts (56) (47)
Repayments of debt (53) (20)
Repurchases of common stock - repurchase program 0 (425)
Proceeds from issuance of debt 0 3,349
Other (114) (99)
Net cash provided by (used for) financing activities (352) 2,632
Effect of changes in currency exchange rates on cash, cash equivalents, and restricted cash (1) (6)
Net increase (decrease) in cash, cash equivalents, and restricted cash (510) 1,303
Cash, cash equivalents, and restricted cash at beginning of period 8,656 8,339
Cash, cash equivalents, and restricted cash at end of period $ 8,146 $ 9,642
XML 25 R8.htm IDEA: XBRL DOCUMENT v3.23.4
Significant Accounting Policies
 3 Months Ended
Nov. 30, 2023
Accounting Policies [Abstract]  
Significant Accounting Policies
Significant Accounting Policies

For a discussion of our significant accounting policies, see “Part II – \ No newline at end of file diff --git a/MICROSOFT CORP_10-Q_2023-10-24_789019-0000950170-23-054855.html b/MICROSOFT CORP_10-Q_2023-10-24_789019-0000950170-23-054855.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/MICROSOFT CORP_10-Q_2023-10-24_789019-0000950170-23-054855.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/MOHAWK INDUSTRIES INC_10-Q_2023-10-27_851968-0000851968-23-000097.html b/MOHAWK INDUSTRIES INC_10-Q_2023-10-27_851968-0000851968-23-000097.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/MOHAWK INDUSTRIES INC_10-Q_2023-10-27_851968-0000851968-23-000097.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/Merck & Co., Inc._10-Q_2023-11-03_310158-0001628280-23-036717.html b/Merck & Co., Inc._10-Q_2023-11-03_310158-0001628280-23-036717.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/Merck & Co., Inc._10-Q_2023-11-03_310158-0001628280-23-036717.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/Monster Beverage Corp_10-Q_2023-11-06_865752-0001104659-23-114789.html b/Monster Beverage Corp_10-Q_2023-11-06_865752-0001104659-23-114789.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/Monster Beverage Corp_10-Q_2023-11-06_865752-0001104659-23-114789.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/Motorola Solutions, Inc._10-Q_2023-11-02_68505-0000068505-23-000045.html b/Motorola Solutions, Inc._10-Q_2023-11-02_68505-0000068505-23-000045.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/Motorola Solutions, Inc._10-Q_2023-11-02_68505-0000068505-23-000045.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/NEXTERA ENERGY INC_10-Q_2023-11-07_753308-0000753308-23-000058.html b/NEXTERA ENERGY INC_10-Q_2023-11-07_753308-0000753308-23-000058.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/NEXTERA ENERGY INC_10-Q_2023-11-07_753308-0000753308-23-000058.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/NIKE, Inc._10-Q_2023-10-06_320187-0000320187-23-000052.html b/NIKE, Inc._10-Q_2023-10-06_320187-0000320187-23-000052.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/NIKE, Inc._10-Q_2023-10-06_320187-0000320187-23-000052.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/NORDSON CORP_10-K_2023-12-20_72331-0000072331-23-000242.html b/NORDSON CORP_10-K_2023-12-20_72331-0000072331-23-000242.html new file mode 100644 index 0000000000000000000000000000000000000000..195c2ff851f50bedbd222102bbfa50e50a785c11 --- /dev/null +++ b/NORDSON CORP_10-K_2023-12-20_72331-0000072331-23-000242.html @@ -0,0 +1 @@ +Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsNOTE REGARDING AMOUNTS AND FISCAL YEAR REFERENCESIn this annual report, all amounts related to United States dollars and foreign currency and to the number of Nordson Corporation’s common shares, except for per share earnings and dividend amounts, are expressed in thousands. Unless the context otherwise indicates, all references to “we,” “us,” “our,” or the “Company” mean Nordson Corporation.Unless otherwise noted, all references to years relate to our fiscal year ending October 31.Critical Accounting Policies and EstimatesOur Consolidated Financial Statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate the accounting policies and estimates that are used to prepare financial statements. We base our estimates on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates used by management.Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed below. On a regular basis, critical accounting policies are reviewed with the Audit Committee of the board of directors.Revenue recognition - A contract exists when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable. Revenue is recognized when performance obligations under the terms of the contract with a customer are satisfied. Generally, our revenue results from short-term, fixed-price contracts and is recognized as of a point in time when the product is shipped or at a later point when the control of the product transfers to the customer. Refer to Note 1 to the Consolidated Financial Statements for further discussion regarding the Company's revenue recognition policy.Business combinations - The acquisitions of our businesses are accounted for under the acquisition method of accounting. The amounts assigned to the identifiable assets acquired and liabilities assumed in connection with acquisitions are based on estimated fair values as of the date of the acquisition, with the remainder, if any, recorded as goodwill. The fair values are determined by management, taking into consideration information supplied by the management of the acquired entities, and other relevant information. Such information typically includes valuations obtained from independent appraisal experts, which management reviews and considers in its estimates of fair values. The valuations are generally based upon future cash flow projections for the acquired assets, discounted to present value. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future revenue growth rates and EBITDA margins, discount rates, customer attrition rates, and asset lives, among other items. This judgment could result in either a higher or lower value assigned to amortizable or depreciable assets. The impact could result in either higher or lower amortization and/or depreciation expense.Goodwill - Goodwill is the excess of purchase price over the fair value of tangible and identifiable intangible net assets acquired in various business combinations. Goodwill is not amortized but is tested for impairment annually at the reporting unit level, or more often if indications of impairment exist. We test goodwill in accordance with Accounting Standards Codification ("ASC") 350. We did not record any goodwill impairment charges in 2023. We use an independent valuation specialist to assist with refining our assumptions and methods used to determine fair values. To test for goodwill impairment, we estimate the fair value of each of our reporting units using a combination of the Income Approach and the Market Approach. The discounted cash flow method ("Income Approach") uses assumptions for revenue growth, operating margin and working capital turnover that are based on management’s strategic plans tempered by performance trends and reasonable expectations about those trends. Terminal value calculations employ a published formula known as the Gordon Growth Model Method that essentially captures the present value of perpetual cash flows beyond the last projected period assuming a constant Weighted Average Cost of Capital ("WACC") methodology and growth rate. For each reporting unit, a sensitivity analysis is performed to vary the discount and terminal growth rates in order to provide a range of reasonableness for detecting impairment. Discount rates are developed using a WACC methodology. The WACC represents the blended average required rate of return for equity and debt capital based on observed market return data and company specific risk factors. For 2023, the WACC rates used ranged from 8.3 percent to 11.0 percent depending upon the reporting unit's size, end market volatility and projection risk. See Note 5 to the Consolidated Financial Statements for further details regarding the valuation methodologies used.Nordson Corporation 24Table of ContentsIn 2023, 2022 and 2021, the results of our annual impairment tests indicated no impairment.The fair value ("FV") was compared to the carrying value ("CV") for each reporting unit. Based on the results shown in the table below and based on our measurement date of August 1, 2023, our conclusion is that no goodwill was impaired in 2023. Potential events or circumstances, such as a sustained downturn in global economies, could have a negative effect on estimated fair values.WACCExcess ofFV over CVGoodwillIndustrial Precision Solutions Segment - Adhesives8.3%697%$511,799 Industrial Precision Solutions Segment - Industrial Coating Systems11.0%678%$24,084 Advanced Technology Solutions Segment - ElectronicsSystems9.0%387%$27,534 Advanced Technology Solutions Segment - Test & Inspection9.5%168%$371,425 Medical and Fluid Solutions Segment - FluidManagement9.0%186%$1,175,938 Pension plan in the United States - The measurement of the liabilities related to our domestic pension plan is based on management’s assumptions related to future factors, including interest rates, return on pension plan assets, compensation increases, mortality and turnover assumptions, and health care cost trend rates. The liabilities associated with the Company's international pension plans and OPEB are not as materially sensitive to changes in assumptions as the pension plan in the United States. The weighted-average discount rate used to determine the present value of our domestic pension plan obligations was 6.08 percent at October 31, 2023 and 5.70 percent at October 31, 2022. The discount rate used was determined by using quality fixed income investments with a duration period approximately equal to the period over which pension obligations are expected to be settled.In determining the expected return on plan assets, we consider both historical performance and an estimate of future long-term rates of return on assets similar to those in our plans. We consult with and consider the opinions of financial and actuarial experts in developing appropriate return assumptions. The expected rate of return (long-term investment rate) on domestic pension assets used to determine net benefit costs was 6.40 percent and 5.75 percent in 2023 and 2022, respectively.The assumed rate of compensation increases used to determine the present value of our domestic pension plan obligations was 3.92 percent and 4.30 percent at October 31, 2023 and October 31, 2022, respectively. Annual expense amounts are determined based on the discount rate used at the end of the prior year. Differences between actual and assumed investment returns on pension plan assets result in actuarial gains or losses that are amortized into expense over a period of years. Economic assumptions have a significant effect on the amounts reported. The effect of a one percent change in the discount rate, expected return on assets and compensation increase is shown in the table below. Bracketed numbers represent decreases in expense and obligation amounts.United States1% PointIncrease1% PointDecreaseDiscount rate:Effect on total net periodic pension cost in 2023$(1,698)$2,101 Effect on pension obligation as of October 31, 2023$(38,854)$47,913 Expected return on assets:Effect on total net periodic pension cost in 2023$(4,081)$4,081 Compensation increase:Effect on total net periodic pension cost in 2023$2,480 $(2,187)Effect on pension obligation as of October 31, 2023$15,052 $(13,644)Income taxes – Income taxes are estimated based on income for financial reporting purposes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain changes in valuation allowances. We provide valuation allowances Nordson Corporation 25Table of Contentsagainst deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.Management believes the valuation allowances are adequate after considering future taxable income, allowable carryforward periods and ongoing prudent and feasible tax planning strategies. In the event we were to determine that we would be able to realize the deferred tax assets in the future in excess of the net recorded amount (including the valuation allowance), an adjustment to the valuation allowance would increase income in the period such determination was made. Conversely, should we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an adjustment to the valuation allowance would be expensed in the period such determination was made.Further, at each interim reporting period, we estimate an effective income tax rate that is expected to be applicable for the full year. Significant judgment is involved regarding the application of global income tax laws and regulations and when projecting the jurisdictional mix of income. Additionally, interpretation of tax laws, court decisions or other guidance provided by taxing authorities influences our estimate of the effective income tax rates. As a result, our actual effective income tax rates and related income tax liabilities may differ materially from our estimated effective tax rates and related income tax liabilities. Any resulting differences are recorded in the period they become known.ARAG Group AcquisitionOn August 24, 2023, the Company completed the acquisition of the ARAG Group pursuant to the terms of the Sale and Purchase Agreement, dated as of June 25, 2023, by and among the Company and the Sellers. ARAG is a global market and innovation leader in the development, production and supply of precision control systems and smart fluid components for agricultural spraying. ARAG operates as a division of our Industrial Precision Solutions segment. In anticipation of the acquisition, the Company entered into a €760,000 senior unsecured term loan facility with a group of banks in August 2023 (the “364-Day Term Loan Facility”). The all-cash ARAG acquisition of approximately €957,000, net of the repayment of approximately €30,300 of debt of the acquired companies, was funded using borrowings under the 364-Day Term Loan Facility and the Company's revolving credit facility. The 364-Day Term Loan Facility was subsequentially paid off in September 2023 with the net proceeds of a senior notes offering (see Note 9 to the Consolidated Financial Statements for additional details). Based on the fair value of the assets acquired and the liabilities assumed, goodwill of $694,900 and identifiable intangible assets of $353,500 were recorded. The identifiable intangible assets consist primarily of $27,500 of tradenames (amortized over nine years), $31,000 of technology (amortized over five years), and $295,000 of customer relationships (amortized over twenty-two years). The financial results of the ARAG Group acquisition are not expected to have a material impact on our Consolidated Financial Statements.Results of OperationsBelow is a detailed discussion comparison of our results of operations for the fiscal years ended October 31, 2023 and October 31, 2022. For a discussion of other changes from the fiscal year ended October 31, 2022 to the fiscal year ended October 31, 2021, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.As used throughout this annual report, geographic regions include the Americas (United States, Canada, Mexico and Central and South America), Asia Pacific and Europe.2023 compared to 2022Worldwide sales for 2023 were $2,628,632, an increase of 1.5 percent from 2022 sales of $2,590,278. The increase consisted of a 3.8 percent increase from acquisitions, partially offset by a 1.4 percent decline in organic sales and unfavorable currency translation effects that decreased sales by 0.9 percent.Sales outside the United States accounted for 66.2 percent of total sales in 2023, as compared to 66.8 percent in 2022. On a geographic basis, sales in the Americas region were $1,149,760, an increase of 4.8 percent from 2022, with organic sales increasing 2.0 percent, a 2.4 percent increase from acquisitions, and favorable currency effects of 0.4 percent. Sales in the Asia Pacific region were $796,196, a decrease of 6.1 percent from 2022, with organic sales decreasing 8.2 percent and unfavorable currency effects of 3.1 percent, partially offset by a 5.2 percent increase from acquisitions. Sales in Europe were $682,676, an increase of 5.7 percent from 2022, with organic sales increasing 1.4 percent, a 4.2 percent increase from acquisitions, and favorable currency effects of 0.1 percent.Cost of sales were $1,203,227 in 2023, up 3.4 percent from $1,163,742 in 2022. Gross profit, expressed as a percentage of sales, decreased to 54.2 percent in 2023 from 55.1 percent in 2022. The 0.9 percentage point decrease in gross margin was primarily driven by incremental inventory step-up amortization related to acquisitions in 2023 of $8,862 and unfavorable foreign currency effects.Nordson Corporation 26Table of ContentsSelling and administrative expenses were $752,644 in 2023, up from $724,176 in 2022. The 3.9 percent increase was driven by a 8.3 percent increase due to the first-year effect of an acquisition, including acquisition costs, partially offset by lower base business costs and favorable currency translation effects which decreased costs by 5.3 percent. Selling and administrative expenses as a percentage of sales increased slightly to 28.6 percent in 2023 from 28.0 percent in 2022. The 0.6 percentage point increase was primarily due to cost structure simplification actions taken in 2023.Operating profit as a percentage of sales decreased to 25.6 percent in 2023 compared to 27.1 percent in 2022. The 1.5 percent decrease in operating margin was primarily driven by inventory step-up amortization and other costs related to the first-year effect of acquisitions.Interest expense in 2023 was $59,505, an increase of $37,092, or 165.5 percent, from 2022. The increase was due to higher average debt levels and higher average interest rates compared to the prior year primarily driven by acquisitions. During 2022, the Company recognized non-cash pension settlement charges of $41,221 related to the purchase of an annuity contract to relieve the Company of certain U.S. pension benefit obligations. Other expense in 2023 was $597 compared to other income of $8,527 in 2022. Included in other expense in 2023 were $7,742 in net foreign currency losses, which were largely offset by pension gains. Included in the prior year’s other income were $6,270 in foreign currency gains. Income tax expense in 2023 was $127,846, or 20.8 percent of pre-tax income, as compared to $136,176, or 21.0 percent of pre-tax income in 2022. The income tax provision for 2023 included a tax benefit of $4,286 due to our share-based payment transactions. Our income tax provision for 2022 included a tax benefit of $3,273 due to our share-based payment transactions.Net income was $487,493, or $8.46 per diluted share, in 2023, compared to net income of $513,103, or $8.81 per diluted share, in 2022. This represented a 5.0 percent decrease in net income and a 4.1 percent decrease in diluted earnings per share. The decrease of $0.35 per diluted share was primarily driven by higher interest expense and acquisition-related expenses in 2023 compared to non-cash pension settlement charges in 2022.Industrial Precision SolutionsSales of the Industrial Precision Solutions segment were $1,391,046 in 2023, an increase of 4.0 percent, from 2022 sales of $1,337,242. The increase was the result of an organic sales increase of 3.1 percent and an increase of 1.9 percent from acquisitions, partially offset by unfavorable currency effects of 1.0 percent. Organic sales growth was generally strong across most product lines and regions.Operating profit as a percentage of sales increased to 33.1 percent in 2023 compared to 32.5 percent in 2022. The 0.6 percentage point improvement in operating margin was primarily the result of improved selling and administrative expense leverage due to increased sales volumes.Medical and Fluid SolutionsSales of the Medical and Fluid Solutions segment were $660,316 in 2023, a decrease of 4.3 percent from 2022 sales of $690,177. The decrease was the result of an organic sales decrease of 3.7 percent and unfavorable currency effects that decreased sales by 0.6 percent. The organic sales decrease was driven by lower demand for the medical fluid components and fluid solutions product lines, materially offset by continued strength in medical interventional solutions product lines.Operating profit as a percentage of sales decreased to 28.7 percent in 2023 compared to 31.5 percent in 2022. The 2.8 percent percentage point decline in operating margin was principally driven by meaningful sales mix changes within medical product lines and related factory inefficiencies due to reduced volumes.Advanced Technology SolutionsSales of the Advanced Technology Solutions segment were $577,270 in 2023, an increase of 2.6 percent from 2022 sales of $562,859. The increase consisted of a volume increase of 3.7 percent, inclusive of an organic sales decrease of 9.2 percent and a 12.9 percent increase from acquisitions, partially offset by unfavorable currency effects that decreased sales by 1.1 percent. The organic sales decrease was driven by lower demand in electronics dispense product lines, partially offset by stronger demand in test and inspection product lines.Operating profit as a percentage of sales decreased to 17.6 percent in 2023 compared to 23.7 percent in 2022. The 6.1 percentage point decline in operating margin was primarily due to fees, severance, and non-cash inventory charges of $10,295 associated with the CyberOptics acquisition and factory inefficiencies due to reduced volumes.Liquidity and Capital ResourcesCash and cash equivalents decreased $47,778 in 2023 to $115,679 as of October 31, 2023 compared to $163,457 as of October 31, 2022. Approximately 81 percent of our consolidated cash and cash equivalents were held at various foreign subsidiaries as of October 31, 2023. Nordson Corporation 27Table of ContentsCash provided by operating activities was $641,282 in 2023, compared to $513,131 in 2022. The primary sources were net income adjusted for non-cash income and expenses (consisting of depreciation and amortization, non-cash stock compensation, provision for losses on receivables, deferred income taxes, other non-cash expense, gain/loss on sale of property, plant and equipment, and non-cash pension settlement charges), which were $615,496 in 2023, compared to $676,200 in 2022. Changes in working capital items used cash of $3,571 compared to $107,314 used in 2022 principally driven by decreases in receivables and inventory while cash provided by other operating items was $29,357 in 2023 compared to cash used of $55,755 in 2022.Cash used in investing activities was $1,436,879 in 2023, compared to $222,761 in 2022. In 2023, $1,422,780 in cash was used for acquisitions, utilizing borrowings and cash from operations, compared to $171,613 used in 2022. Capital expenditures were $34,583 in 2023 compared to $51,428 in 2022.Cash provided by financing activities was $750,512 in 2023, compared to $416,006 cash used in 2022. Proceeds and repayments of long-term debt provided $976,043 of cash in 2023, compared to $33,908 used in 2022. In 2023, cash of $89,708 was used for the purchase of treasury shares, down from $262,869 used in 2022. Dividend payments were $150,356 in 2023, up from $125,914 in 2022 due to an increase in dividends on our common shares, on an annual basis, to $2.63 per share from $2.18 per share. Issuance of common shares related to employee benefit plans generated $21,373 of cash in 2023, up from $12,124 in 2022.The following is a summary of significant changes by balance sheet caption from October 31, 2022 to October 31, 2023. Receivables-net and inventories-net combined increased $124,950, goodwill increased $979,508, and intangible assets-net increased $343,342 principally due to the acquisitions of the ARAG Group and CyberOptics. Long-term debt, including current maturities, increased $999,199, principally due to the acquisition of the ARAG Group.We have a $1,150,000 unsecured multi-currency credit facility with a group of banks which provides for a term loan facility in the aggregate principal amount of $300,000, maturing in June 2026, and a multicurrency revolving credit facility in the aggregate principal amount of $850,000, maturing in June 2028. In anticipation of the ARAG acquisition, the Company entered into the 364-Day Term Loan Facility in August 2023. On September 13, 2023, the Company completed an underwritten public offering of $350,000 aggregate principal amount of the Company’s 5.600% Notes due 2028 (the “2028 Notes”) and $500,000 aggregate principal amount of the Company’s 5.800% Notes due 2033 (together with the 2028 Notes, the “Notes"). The Company used the net proceeds from the sale of the Notes to repay its borrowings under the 364-Day Term Loan Facility. At October 31, 2023, we had $300,000 outstanding on the term loan facility and $248,000 outstanding on the revolving credit facility compared to no outstanding balance at October 31, 2022 under the old revolving credit facility. Our operating performance, balance sheet position and financial ratios for 2023 remained strong. Total debt increased $999,199 during 2023 primarily due to the acquisition of the ARAG Group. The Company is well-positioned to manage liquidity needs that arise from working capital requirements, capital expenditures, and contributions related to pension and postretirement obligations, as well as principal and interest payments on our outstanding debt. Primary sources of capital to meet these needs, as well as other opportunistic investments, are a combination of cash provided by operations and borrowings under our loan agreements. Cash from operations, which when combined with our available borrowing capacity and ready access to capital markets, is expected to be more than adequate to fund our liquidity needs over the twelve months and the foreseeable future thereafter. The Company believes it has the ability to generate and obtain adequate amounts of cash to meet its long-term needs for cash. Contractual and Other Material Cash ObligationsThe following table summarizes contractual and other material cash obligations as of October 31, 2023:Payments Due by PeriodTotalLess than1 Year1-3Years4-5YearsAfter 5YearsDebt (1)$1,749,305 $115,662 $435,643 $648,000 $550,000 Interest payments on long-term debt (1)416,926 58,526 160,695 81,884 115,821 Finance lease obligations (2)18,349 4,918 6,055 1,633 5,743 Operating leases (2)119,317 16,853 28,441 21,172 52,851 Contributions related to pension and postretirement benefits (3)6,770 6,770 — — — Purchase obligations (4)192,453 187,498 4,943 12 — Total obligations$2,503,120 $390,227 $635,777 $752,701 $724,415 (1)Refer to Note 9 to the Consolidated Financial Statements for further discussion.(2)Refer to Note 10 to the Consolidated Financial Statements for further discussion.Nordson Corporation 28Table of Contents(3)Pension and postretirement plan funding amounts will be determined based on the future funded status of the plans and therefore cannot be estimated at this time. Refer to Note 6 to the Consolidated Financial Statements for further discussion.(4)Purchase obligations primarily represent commitments for materials used in our manufacturing processes that are not recorded on our Consolidated Balance Sheet.We believe that the combination of present capital resources, cash from operations and unused financing sources such as our credit facilities, including our revolving credit facility, are more than adequate to meet cash requirements for the twelve months and the foreseeable future thereafter. There are no significant restrictions limiting the transfer of funds from international subsidiaries to the parent company.New Accounting StandardsThere have been no new accounting standards issued which would require either disclosure or adoption during the current period by the Company. Effects of Foreign CurrencyThe impact of changes in foreign currency exchange rates on sales and operating results cannot be precisely measured due to fluctuating selling prices, sales volume, product mix and cost structures in each country where we operate. As a general rule, a weakening of the United States dollar relative to foreign currencies has a favorable effect on sales and net income, while a strengthening of the dollar has a detrimental effect.In 2023, as compared with 2022, the United States dollar was generally stronger against foreign currencies. If 2022 exchange rates had been in effect during 2023, sales would have been approximately $23,153 higher and third-party costs would have been approximately $15,210 higher. In 2022, as compared with 2021, the United States dollar was generally stronger against foreign currencies. If 2021 exchange rates had been in effect during 2022, sales would have been approximately $103,829 higher and third-party costs would have been approximately $68,788 higher. These effects on reported sales do not include the impact of local price adjustments made in response to changes in currency exchange rates.TrendsOur solid historical performance is attributed to our diverse geographic and end market participation and our long-term commitment to develop and provide quality products and worldwide service to meet our customers’ changing needs.Safe Harbor Statements Under the Private Securities Litigation Reform Act of 1995This annual report, particularly “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies. Statements in this annual report that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” use of the future tense and similar words or phrases. These statements reflect management’s current expectations and involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, U.S. and international economic conditions; financial and market conditions; currency exchange rates and devaluations; possible acquisitions including the Company’s ability to complete and successfully integrate acquisitions, including the integration of the ARAG Group and CyberOptics; the Company’s ability to successfully divest or dispose of businesses that are deemed not to fit with its strategic plan; the effects of changes in U.S. trade policy and trade agreements; the effects of changes in tax law; and the possible effects of events beyond our control, such as political unrest, including the conflicts in Europe and the Middle East, acts of terror, natural disasters and pandemics.In light of these risks and uncertainties, actual events and results may vary significantly from those included in or contemplated or implied by such statements. Readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Factors that could cause our actual results to differ materially from the expected results are discussed in Part 1, Item 1A, Risk Factors of this annual report.Nordson Corporation 29Table of ContentsItem 7A. Quantitative and Qualitative Disclosures About Market RiskWe operate internationally and enter into intercompany transactions denominated in foreign currencies. Consequently, we are subject to market risk arising from exchange rate movements between the dates foreign currencies are recorded and the dates they are settled. We regularly use foreign exchange contracts to reduce our risks related to most of these transactions. These contracts, primarily associated with the euro, yen and pound sterling, typically have maturities of 90 days or less, and generally require the exchange of foreign currencies for United States dollars at rates stated in the contracts. Gains and losses from changes in the market value of these contracts offset foreign exchange losses and gains, respectively, on the underlying transactions. We use foreign exchange contracts on a routine basis to help mitigate the risks related to transactions denominated in foreign currencies.Refer to Note 12 to the Consolidated Financial Statements for further discussion about our foreign currency transactions and the methods and assumptions used to record these transactions.A portion of our operations is financed with short-term and long-term borrowings and is subject to market risk arising from changes in interest rates.The tables that follow present principal repayments and weighted-average interest rates on outstanding borrowings of fixed-rate debt.At October 31, 202320242025202620272028ThereafterTotalValueFairValueAnnual repayments of long-term debt$110,643$85,642$50,000$10,000$390,000$550,000$1,196,285$1,148,356Average interest rate on total borrowings outstanding during the year3.6%3.7%3.8%3.2%5.4%5.7%5.1%At October 31, 202220232024202520262027ThereafterTotalValueFairValueAnnual repayments of long-term debt$130,643$110,643$85,642$50,000$10,000$90,000$476,928$452,879Average interest rate on total borrowings outstanding during the year3.7%3.8%3.9%4.0%4.0%4.1%3.7%We also have variable-rate long-term debt. The weighted average interest rate of this variable-rate debt was 6.26 percent at October 31, 2023 and 1.74 percent at October 31, 2022. A one percent increase in interest rates would have resulted in additional interest expense of approximately $5,530 on the variable rate long-term debt in 2023. Nordson Corporation 30Table of Contents \ No newline at end of file diff --git a/NORFOLK SOUTHERN CORP_10-Q_2023-10-25_702165-0000702165-23-000037.html b/NORFOLK SOUTHERN CORP_10-Q_2023-10-25_702165-0000702165-23-000037.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/NORFOLK SOUTHERN CORP_10-Q_2023-10-25_702165-0000702165-23-000037.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/NORTHERN TRUST CORP_10-Q_2023-10-31_73124-0000073124-23-000196.html b/NORTHERN TRUST CORP_10-Q_2023-10-31_73124-0000073124-23-000196.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/NORTHERN TRUST CORP_10-Q_2023-10-31_73124-0000073124-23-000196.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/NUCOR CORP_10-Q_2023-11-08_73309-0000950170-23-060729.html b/NUCOR 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0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PACCAR INC_10-Q_2023-11-02_75362-0000950170-23-058179.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/PACKAGING CORP OF AMERICA_10-Q_2023-11-03_75677-0000950170-23-058590.html b/PACKAGING CORP OF AMERICA_10-Q_2023-11-03_75677-0000950170-23-058590.html new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/PARKER HANNIFIN CORP_10-Q_2023-11-07_76334-0000076334-23-000064.html b/PARKER HANNIFIN CORP_10-Q_2023-11-07_76334-0000076334-23-000064.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PARKER HANNIFIN CORP_10-Q_2023-11-07_76334-0000076334-23-000064.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/PAYCHEX INC_10-Q_2023-12-21_723531-0000950170-23-072195.html b/PAYCHEX INC_10-Q_2023-12-21_723531-0000950170-23-072195.html new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/PENTAIR plc_10-Q_2023-10-24_77360-0000077360-23-000038.html b/PENTAIR plc_10-Q_2023-10-24_77360-0000077360-23-000038.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PENTAIR plc_10-Q_2023-10-24_77360-0000077360-23-000038.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/PEPSICO INC_10-Q_2023-10-10_77476-0000077476-23-000058.html b/PEPSICO INC_10-Q_2023-10-10_77476-0000077476-23-000058.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PEPSICO INC_10-Q_2023-10-10_77476-0000077476-23-000058.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/PFIZER INC_10-Q_2023-11-08_78003-0000078003-23-000115.html b/PFIZER INC_10-Q_2023-11-08_78003-0000078003-23-000115.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PFIZER INC_10-Q_2023-11-08_78003-0000078003-23-000115.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/PINNACLE WEST CAPITAL CORP_10-Q_2023-11-02_764622-0000764622-23-000103.html b/PINNACLE WEST CAPITAL CORP_10-Q_2023-11-02_764622-0000764622-23-000103.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PINNACLE WEST CAPITAL CORP_10-Q_2023-11-02_764622-0000764622-23-000103.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/PNC FINANCIAL SERVICES GROUP, INC._10-Q_2023-11-02_713676-0000713676-23-000079.html b/PNC FINANCIAL SERVICES GROUP, INC._10-Q_2023-11-02_713676-0000713676-23-000079.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PNC FINANCIAL SERVICES GROUP, INC._10-Q_2023-11-02_713676-0000713676-23-000079.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/PPG INDUSTRIES INC_10-Q_2023-10-19_79879-0000079879-23-000065.html b/PPG INDUSTRIES INC_10-Q_2023-10-19_79879-0000079879-23-000065.html new file mode 100644 index 0000000000000000000000000000000000000000..e69de29bb2d1d6434b8b29ae775ad8c2e48c5391 diff --git a/PROCTER & GAMBLE Co_10-Q_2023-10-18_80424-0000080424-23-000103.html b/PROCTER & GAMBLE Co_10-Q_2023-10-18_80424-0000080424-23-000103.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PROCTER & GAMBLE Co_10-Q_2023-10-18_80424-0000080424-23-000103.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/PROGRESSIVE CORP-OH-_10-Q_2023-10-31_80661-0000080661-23-000049.html b/PROGRESSIVE CORP-OH-_10-Q_2023-10-31_80661-0000080661-23-000049.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PROGRESSIVE CORP-OH-_10-Q_2023-10-31_80661-0000080661-23-000049.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/PTC INC._10-K_2023-11-20_857005-0000950123-23-011049.html b/PTC INC._10-K_2023-11-20_857005-0000950123-23-011049.html new file mode 100644 index 0000000000000000000000000000000000000000..a7edc8ab10a7ae4d556113b9e3e9a7d9d5949f76 --- /dev/null +++ b/PTC INC._10-K_2023-11-20_857005-0000950123-23-011049.html @@ -0,0 +1 @@ +ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Operating and Non-GAAP Financial Measures Our discussion of results includes discussion of our ARR (Annual Run Rate) operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis. ARR and our non-GAAP financial measures, including the reasons we use those measures, are described below in Results of Operations - Operating Measure and Results of Operations - Non-GAAP Financial Measures, respectively. The methodology used to calculate constant currency disclosures is described in Results of Operations - Impact of Foreign Currency Exchange on Results of Operations. You should read those sections to understand our operating measure, non-GAAP financial measures, and constant currency disclosures. Executive Overview ARR grew 26% (23% constant currency) to $1.98 billion as of the end of FY'23 compared to FY’22. Organic ARR, which excludes contributions from the ServiceMax business we acquired in Q2'23, grew 15% (13% constant currency) year over year to $1.81 billion. Organic ARR growth was driven by double-digit growth across all product groups and geographies. We generated $611 million of cash from operations in FY’23 compared to $435 million in FY’22, an increase of 40%. Free cash flow of $587 million in FY'23 increased 41% from $416 million in FY'22. Our cash flow growth is attributable to strong collections driven by our solid top-line growth from our subscription business model and operational discipline. Interest payments were $41 million higher in FY'23 compared to FY'22, while restructuring payments decreased $39 million year-over-year. We ended FY’23 with cash and cash equivalents of $288 million and gross debt of $1.70 billion, with an aggregate weighted average interest rate of 5.2%. Revenue growth of 8% (12% constant currency) in FY'23 compared to FY'22 was primarily due to the contributions from ServiceMax and Codebeamer. The timing of revenue recognition for on-premises subscription revenue can vary significantly, impacting reported revenue and growth rates. Interest expense was $75 million higher in FY'23 compared to FY'22, which adversely affected our net income and earnings per share results. The increase was driven by debt and liabilities related to the ServiceMax acquisition. Results of Operations The following table shows the measures that we consider the most significant indicators of our business performance. In addition to providing operating income, operating margin, diluted earnings per share and cash from operations as calculated under GAAP, we provide our ARR operating measure and non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share, and free cash flow for the reported periods. We also provide a view of our actual results on a constant currency basis. Our non-GAAP financial measures exclude the items described in Non-GAAP Financial Measures below. Investors should use our non-GAAP financial measures only in conjunction with our GAAP results. 18 Table of Contents For discussion of our FY'22 results and comparison to our FY'21 results, refer to Management's Discussion and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2022. (Dollar amounts in millions, except per share data) Year ended September 30, Percent Change 2023 2022 Actual Constant Currency(1) ARR as of September 30 $ 1,978.6 $ 1,572.0 26 % 23 % Total recurring revenue(2) $ 1,907.9 $ 1,736.2 10 % 13 % Perpetual license 38.6 34.1 13 % 17 % Professional services 150.5 163.1 (8 )% (5 )% Total revenue 2,097.1 1,933.3 8 % 12 % Total cost of revenue 441.0 386.0 14 % 16 % Gross margin 1,656.0 1,547.4 7 % 11 % Operating expenses 1,197.6 1,100.0 9 % 11 % Operating income $ 458.5 $ 447.4 2 % 10 % Non-GAAP operating income(1) $ 758.9 $ 732.2 4 % 8 % Operating margin 21.9 % 23.1 % Non-GAAP operating margin(1) 36.2 % 37.9 % Diluted earnings per share $ 2.06 $ 2.65 Non-GAAP diluted earnings per share(1) $ 4.34 $ 4.58 Cash flow from operations(3) $ 610.9 $ 435.3 Capital expenditure (23.8 ) (19.5 ) Free cash flow $ 587.0 $ 415.8 (1)See Non-GAAP Financial Measures below for a reconciliation of our GAAP results to our non-GAAP measures and Impact of Foreign Currency Exchange on Results of Operations below for a description of how we calculate our results on a constant currency basis. (2)Recurring revenue is comprised of on-premises subscription, perpetual support, SaaS, and cloud revenue. (3)Cash flow from operations for FY'23 and FY'22 includes $1.5 million and $40.8 million of restructuring payments, respectively. Cash from operations for FY'23 and FY'22 includes $19.6 million and $11.8 million of acquisition and transaction-related payments, respectively. Impact of Foreign Currency Exchange on Results of Operations Approximately 50% of our revenue and 35% of our expenses are transacted in currencies other than the U.S. Dollar. Because we report our results of operations in U.S. Dollars, currency translation, particularly changes in the Euro, Yen, Shekel, and Rupee relative to the U.S. Dollar, affects our reported results. Changes in foreign currency exchange rates were a headwind to reported income statement results in FY’23. However, ARR was positively impacted by improvements in currency exchange rates, particularly the Euro to U.S. Dollar exchange rate, as of September 30, 2023 compared to September 30, 2022. The results of operations in the table above, and the tables and discussions below about revenue by line of business and product group present both actual percentage changes year over year and percentage changes on a constant currency basis. Our constant currency disclosures are calculated by multiplying the results in local currency for FY'23 and FY'22 by the exchange rates in effect on September 30, 2022. If FY'23 reported results were converted into U.S. Dollars using the rates in effect as of September 30, 2022, ARR would have been lower by $38 million, revenue would have been lower by $59 million, and expenses would have been lower by $26 million. If FY'22 reported results were converted into U.S. Dollars using the rates in effect as of September 30, 2022, ARR would have been the same, revenue would have been lower by $112 million, and expenses would have been lower by $50 million. 19 Table of Contents Revenue Under ASC 606, the volume, mix, and duration of contract types (support, SaaS, on-premises subscription) starting or renewing in any given period can have a material impact on revenue in the period, and as a result can impact the comparability of reported revenue period over period. We recognize revenue for the license portion of on-premises subscription contracts up front when we deliver the licenses to the customer, typically on the start date, and we recognize revenue on the support portion of on-premises subscription contracts and stand-alone support contracts ratably over the term. We continue to convert existing perpetual support contracts to on-premises subscriptions, resulting in a shift to up-front recognition of on-premises subscription license revenue in the period converted compared to ratable recognition for a perpetual support contract. Revenue from our cloud services (primarily SaaS) contracts is recognized ratably. We expect that over time a higher portion of our revenue will be recognized ratably as we continue to expand our SaaS offerings, release additional cloud functionality into our products, and migrate customers from on-premises subscriptions to SaaS. Given the different mix, duration and volume of new and renewing contracts in any period, year-over-year or sequential revenue can vary significantly. Revenue by Line of Business (Dollar amounts in millions) Year ended September 30, Percent Change 2023 2022 Actual ConstantCurrency License(1) $ 747.0 $ 782.7 (5 )% (1 )% Support and cloud services(2) 1,199.5 987.6 21 % 25 % Total software revenue 1,946.6 1,770.3 10 % 13 % Professional services 150.5 163.1 (8 )% (5 )% Total revenue $ 2,097.1 $ 1,933.3 8 % 12 % (1)Includes perpetual licenses and the license portion of on-premises subscription sales. (2)Includes support on perpetual licenses, the support portion of on-premises subscription sales, SaaS, and cloud services. Software revenue in FY'23 benefited from contributions from ServiceMax, acquired early in Q2'23, and Codebeamer, acquired in Q3'22. Changes in foreign currency exchange rates were a headwind to year-over-year revenue growth. Within software revenue, license revenue is impacted by the quantity and size of expiring and renewing multi-year on-premises subscription contracts, along with the duration of those contracts that start in the period. In FY'23, the weighted-average duration of contracts starting in the year decreased compared to FY'22 primarily due to a few high-value renewal contracts in FY'22 that had longer than typical durations. Because longer duration contracts typically have a higher total contract value, which drives the amount of upfront license revenue recognized for on-premises contracts, this year-over-year duration decrease represented a headwind to license revenue growth in FY'23. Professional services revenue decreased in FY'23 as we continue to execute on our strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves, including the Q3'22 sale of a portion of our PLM services business to ITC Infotech (which branded the business DxP Services). Changes in foreign currency exchange rates also contributed to the year-over-year revenue decline. These decreases were partially offset by ServiceMax professional services revenue. Our expectation is that professional services revenue will continue to trend down over time as we execute on our partner strategy and deliver products that require less consulting and training services. 20 Table of Contents Software Revenue by Product Group (Dollar amounts in millions) Year ended September 30, Percent Change 2023 2022 Actual ConstantCurrency Product lifecycle management (PLM) $ 1,186.0 $ 980.5 21 % 24 % Computer-aided design (CAD) 760.6 789.8 (4 )% 0 % Software revenue $ 1,946.6 $ 1,770.3 10 % 13 % PLM software revenue growth in FY'23 benefited from contributions from ServiceMax and Codebeamer. Changes in foreign currency exchange rates were a headwind to year-over-year revenue growth. Excluding contributions from ServiceMax and Codebeamer, constant currency revenue growth was driven by Windchill and IIoT in the Americas. PLM ARR grew 36% (34% constant currency) from Q4’22 to Q4'23, driven by ServiceMax, which contributed $171 million of ARR; Windchill; IIoT; and Codebeamer. CAD software revenue was negatively impacted by changes in foreign currency exchange rates. Constant currency revenue growth was flat due to decreases in Creo revenue in Europe due to shorter durations of on-premises subscription contracts, offset by Creo revenue growth in the Americas and Asia Pacific. CAD ARR grew 12% (10% constant currency) in FY'23 compared to FY'22, driven by Creo. Gross Margin (Dollar amounts in millions) Year ended September 30, 2023 2022 Percent Change License gross margin $ 693.8 $ 733.4 (5 )% License gross margin percentage 93 % 94 % Support and cloud services gross margin $ 954.5 $ 802.8 19 % Support and cloud services gross margin percentage 80 % 81 % Professional services gross margin $ 7.7 $ 11.1 (31 )% Professional services gross margin percentage 5 % 7 % Total gross margin $ 1,656.0 $ 1,547.4 7 % Total gross margin percentage 79 % 80 % Non-GAAP gross margin(1) $ 1,712.6 $ 1,595.7 7 % Non-GAAP gross margin percentage(1) 82 % 83 % (1) Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below. License gross margin decreased in FY’23 compared to FY’22 due to lower license revenue and higher royalty expense. Support and cloud services gross margin increased in FY’23 compared to FY’22 due to higher support and cloud services revenue, partially offset by increases in cost of support and cloud services, which were driven by higher royalty expenses, compensation costs, higher intangible amortization expense due to the ServiceMax acquisition, and cloud hosting costs. 21 Table of Contents Professional services gross margin decreased in FY’23 compared to FY’22 due to lower professional services revenue, offset by lower professional services costs. The decrease in professional services revenue is mainly due to the sale of a portion of our PLM services business in FY'22 and continued execution on our strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves. Operating Expenses (Dollar amounts in millions) Year ended September 30, 2023 2022 Percent Change Sales and marketing $ 530.1 $ 485.2 9 % % of total revenue 25 % 25 % Research and development 394.4 338.8 16 % % of total revenue 19 % 18 % General and administrative 233.5 204.7 14 % % of total revenue 11 % 11 % Amortization of acquired intangible assets 40.0 35.0 14 % % of total revenue 2 % 2 % Restructuring and other charges (credits), net (0.5 ) 36.2 (101 )% % of total revenue 0 % 2 % Total operating expenses $ 1,197.6 $ 1,100.0 9 % Total headcount increased by 11% between FY'22 and FY'23, primarily driven by our acquisition of ServiceMax. Operating expenses in FY'23 compared to FY'22 increased primarily due to the following: •a $90 million increase in compensation expense (including stock-based compensation and benefit costs), primarily due to our acquisition of ServiceMax; •a $12 million increase in marketing expense, primarily due to our Q3'23 LiveWorx event; •an $11 million increase in software subscriptions and internal hosting costs; •a $10 million increase in travel expenses; partially offset by: •a $38 million decrease in restructuring charges, primarily due to the restructuring plan initiated and substantially completed in FY'22. 22 Table of Contents Interest Expense (Dollar amounts in millions) Year ended September 30, 2023 2022 Percent Change Interest and debt premium expense $ (129.4 ) $ (54.3 ) 138 % Interest expense includes interest on our revolving credit facility and term loan, our Senior Notes due 2025 and 2028, and imputed interest on the deferred payment of a portion of the ServiceMax purchase price. The increase in interest expense was driven by higher total debt and higher interest rates in FY'23 compared to FY'22, as well as $30 million of imputed interest associated with the ServiceMax deferred acquisition payment. Other Income (Dollar amounts in millions) Year ended September 30, 2023 2022 Percent Change Interest income $ 5.4 $ 2.5 116 % Other income (expense), net (1.9 ) 1.5 (227 )% Other income, net $ 3.5 $ 4.0 (13 )% Other income (expense), net in FY'23 was related to foreign currency exchange losses. Other income (expense), net in FY’22 included $36 million of recognized gains from the sale of assets, primarily related to the sale of a portion of our PLM services business, offset by a $35 million loss associated with an equity investment in a publicly traded company. Income Taxes (Dollar amounts in millions) Year ended September 30, 2023 2022 Percent Change Income before income taxes $ 332.6 $ 397.1 (16 )% Provision for income taxes 87.0 84.0 4 % Effective income tax rate 26 % 21 % The effective tax rate for FY’23 was higher than the effective rate for FY’22, primarily due to tax expense of $21.8 million related to an uncertain tax position regarding transfer pricing in a foreign jurisdiction where we are currently under audit. Our rate was also impacted by tax expense of $6.3 million related to non-deductible imputed interest related to the deferred payment on the acquisition of ServiceMax Inc. Additionally, in FY'22, our rate included $8.1 million of tax expense arising from the basis difference on goodwill related to the sale of a portion of our PLM services business. In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the IRS in the United States. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions including Germany, Ireland, and Italy. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, transfer pricing, limitations on net operating losses, and tax credits. Liquidity and Capital Resources (in millions) September 30, 2023 2022 Cash and cash equivalents $ 288.1 $ 272.2 Restricted cash 0.7 0.7 Total $ 288.8 $ 272.9 23 Table of Contents (in millions) Year ended September 30, 2023 2022 Net cash provided by operating activities $ 610.9 $ 435.3 Net cash used in investing activities $ (866.1 ) $ (201.2 ) Net cash provided by (used in) financing activities $ 268.3 $ (264.1 ) Cash, Cash Equivalents and Restricted Cash We invest our cash with highly rated financial institutions. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. A significant portion of our cash is generated and held outside the U.S. As of September 30, 2023, we had cash and cash equivalents of $35 million in the U.S., $111 million in Europe, $121 million in Asia Pacific (including India), and $21 million in other non-U.S. countries. We have substantial cash requirements in the U.S., but believe that the combination of our existing U.S. cash and cash equivalents, our ability to repatriate cash to the U.S., future U.S. operating cash flows, and cash available under our revolving credit facility will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements. Cash Provided by Operating Activities Cash provided by operating activities increased by $175.6 million in FY'23 compared to FY'22. This increase was driven by higher collections, including contributions from ServiceMax, offset by higher vendor disbursements and higher interest payments due to a higher debt burden and higher interest rates. Cash from operations in FY'23 includes $1.5 million of restructuring payments and $19.6 million of acquisition and transaction-related payments compared to $40.8 million of restructuring payments and $11.8 million of acquisition and transaction-related payments in FY'22. Cash Used in Investing Activities Cash used in investing activities in FY'23 was driven by the acquisition of ServiceMax, with $828.2 million paid in Q2'23. Cash used in investing activities in FY'22 was driven by the acquisition of the Codebeamer business for $278.1 million, offset by $46.9 million of proceeds from the sale of an investment and $32.5 million of proceeds from the sale of a portion of our PLM services business. Cash Provided by (Used in) Financing Activities Cash provided by financing activities in FY’23 was primarily related to net new borrowings of $771.0 million (a $500.0 million term loan and a $271.0 million incremental revolving line) to fund the ServiceMax acquisition and net repayments of $428.0 million on the new revolving facility. Cash used in financing activities in FY’22 includes repayments of $355.0 million under our credit facility and repurchases of common stock of $125.0 million, offset by borrowings of $264.0 million to fund our acquisition of the Codebeamer business. Outstanding Debt (in millions) September 30, 2023 4.000% Senior Notes due 2028 $ 500.0 3.625% Senior Notes due 2025 500.0 Credit facility revolver line 202.0 Credit facility term loan 500.0 Total debt 1,702.0 Unamortized debt issuance costs for the Senior Notes (6.2 ) Total debt, net of issuance costs $ 1,695.8 Undrawn under credit facility revolver $ 1,048.0 Undrawn under credit facility revolver available for borrowing $ 384.6 24 Table of Contents In addition to the debt shown in the above table, as of September 30, 2023, we had a $620 million deferred acquisition payment liability related to the fair value of the $650 million installment paid in October 2023 for the ServiceMax acquisition. Of the $650 million paid, $620 million has been recorded as a financing outflow and the $30 million of imputed interest has been recorded as an operating cash outflow in our Q1'24 financials. To finance this payment and the payment for the acquisition of pure-systems in Q1'24, we borrowed $740 million under the revolving line of our credit facility. This is described in Note 18. Subsequent Events of Notes to the Consolidated Financial Statements in this Annual Report. As of September 30, 2023, we were in compliance with all financial and operating covenants of the credit facility and the Senior Note indentures. Any failure to comply with such covenants under the credit facility would prevent us from being able to borrow additional funds under the credit facility, and, as with any failure to comply with such covenants under the Senior Note indentures, could constitute a default that could cause all amounts outstanding to become due and payable immediately. Loans under the credit facility bear interest at variable rates which reset every 30 to 180 days. As of September 30, 2023, the annual rates for borrowings outstanding under the credit facility revolver line and term loan were both 7.2%. Our credit facility and our Senior Notes are described in Note 9. Debt of Notes to the Consolidated Financial Statements in this Annual Report. Expectations for 2024 We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under our credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which we expect to be approximately $20 million in FY’24) through at least the next twelve months and to meet our known long-term capital requirements. For the remainder of FY'24, we expect to use substantially all our cash generated from operating activities to repay debt outstanding under our credit facility revolving line. Our expected uses and sources of cash could change, our cash position could be reduced, and we could incur additional debt obligations if we decide to retire other debt, engage in strategic transactions, or repurchase shares, any of which could be commenced, suspended, or completed at any time. Any such repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material. Contractual Obligations At September 30, 2023, our future contractual obligations were related to debt, deferred acquisition payments, leases, pension liabilities, unrecognized tax benefits, and purchase obligations. See Note 6. Acquisitions and Disposition of Businesses, Note 9. Debt, Note 17. Leases, Note 14. Pension Plans, and Note 8. Income Taxes of Notes to Consolidated Financial Statements in this Annual Report for information about those obligations, which Notes are incorporated by reference into this section. Our purchase obligations were approximately $164.7 million, with $75.9 million expected to be paid in FY'24 and $88.8 million thereafter. Purchase obligations represent minimum commitments due to third parties, including royalty contracts, research and development contracts, telecommunication contracts, information technology maintenance contracts in support of internal-use software and hardware, financing leases, operating leases with original terms of less than 12 months, and other marketing and consulting contracts. Contracts for which our commitment is variable or based on volumes with no fixed minimum quantities and contracts that can be canceled without payment penalties are not included in the purchase obligation amounts above. The purchase obligations included above are in addition to amounts included in Current liabilities and Prepaid expenses recorded on our September 30, 2023 Consolidated Balance Sheet. As of September 30, 2023, we had letters of credit and bank guarantees outstanding of approximately $13.1 million (of which $0.5 million was collateralized). 25 Table of Contents Operating Measure ARR ARR (Annual Run Rate) represents the annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period. We calculate ARR as follows: •We consider a contract to be active when the product or service contractual term commences (the “start date”) until the right to use the product or service ends (the “expiration date”). Even if the contract with the customer is executed before the start date, the contract will not count toward ARR until the customer right to receive the benefit of the products or services has commenced. •For contracts that include annual values that increase over time, which we refer to as ramp contracts, we include in ARR only the annualized value of components of the contract that are considered active as of the date of the ARR calculation. We do not include any future committed increases in the contract value as of the date of the ARR calculation. •As ARR includes only contracts that are active at the end of the reporting period, ARR does not reflect assumptions or estimates regarding future customer renewals or non-renewals. •Active contracts are annualized by dividing the total active contract value by the contract duration in days (expiration date minus start date), then multiplying that by 365 days (or 366 days for leap years). We believe ARR is a valuable operating measure to assess the health of a subscription business because it is aligned with the amount that we invoice the customer on an annual basis. We generally invoice customers annually for the current year of the contract. A customer with a one-year contract will typically be invoiced for the total value of the contract at the beginning of the contractual term, while a customer with a multi-year contract will be invoiced for each annual period at the beginning of each year of the contract. ARR increases by the annualized value of active contracts that commence in a reporting period and decreases by the annualized value of contracts that expire in the reporting period. As ARR is not annualized recurring revenue, it is not calculated based on recognized or unearned revenue and is not affected by variability in the timing of revenue under ASC 606, particularly for on-premises license subscriptions where a substantial portion of the total value of the contract is recognized as revenue at a point in time upon the later of when the software is made available, or the subscription term commences. ARR should be viewed independently of recognized and unearned revenue and is not intended to be combined with, or to replace, either of those items. Investors should consider our ARR operating measure only in conjunction with our GAAP financial results. Non-GAAP Financial Measures The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are: •free cash flow—cash flow from operations •non-GAAP gross margin—GAAP gross margin •non-GAAP operating income—GAAP operating income •non-GAAP operating margin—GAAP operating margin 26 Table of Contents •non-GAAP net income—GAAP net income •non-GAAP diluted earnings per share—GAAP diluted earnings per share Free cash flow is cash flow from operations net of capital expenditures, which are expenditures for property and equipment and consist primarily of facility improvements, office equipment, computer equipment, and software. We believe that free cash flow, in conjunction with cash from operations, is a useful measure of liquidity since capital expenditures are a necessary component of ongoing operations. The non-GAAP financial measures other than free cash flow exclude, as applicable: stock-based compensation expense; amortization of acquired intangible assets; acquisition and transaction-related charges included in General and administrative expenses; restructuring and other charges (credits), net; non-operating charges (credits), net; and income tax adjustments. The items excluded from these non-GAAP financial measures are normally included in the comparable measures calculated and presented in accordance with GAAP. We do not include these items, which can vary significantly from period to period, when reviewing our operating results internally because we do not consider them to be part of our core operating results. Excluding them facilitates evaluation of our ongoing performance, our earnings trends, and comparisons to the performance of other companies in our industry. Management uses non-GAAP financial measures in conjunction with our GAAP results, as should investors. Stock-based compensation is a non-cash expense relating to stock-based awards issued to executive officers, employees and outside directors, consisting of restricted stock units. We exclude this expense as it is a non-cash expense and we assess our internal operations excluding this expense and believe it facilitates comparisons to the performance of other companies in our industry. Amortization of acquired intangible assets is a non-cash expense that is impacted by the timing and magnitude of our acquisitions. We believe the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry. Acquisition and transaction-related charges included in General and administrative expenses are direct costs of potential and completed acquisitions and expenses related to acquisition integration activities, including transaction fees, due diligence costs, severance and professional fees. Subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are also included within acquisition and transaction-related charges. Other transactional charges include third-party costs related to structuring merger and acquisition transactions outside of ordinary business operations. We do not include these costs when reviewing our operating results internally. The occurrence and amount of these costs will vary depending on the timing and size of acquisitions and transactions. Restructuring and other charges (credits), net includes excess facility restructuring charges (credits); impairment and accretion expense charges related to the lease assets of exited facilities; sublease income from previously impaired facilities; severance charges resulting from reductions of personnel; and third-party professional consulting fees related to modifications of our business strategy. These costs may vary in size based on our restructuring plan. Non-operating charges (credits), net are gains or losses associated with sales or changes in value of assets or liabilities that are generally investing or financing in nature and are not indicative of our ongoing ordinary operating activities. In FY'23, we recognized a financing charge for a debt commitment agreement associated with our acquisition of ServiceMax. In FY'22, we recorded gains associated with the sale of assets, including the sale of a portion of our PLM services business, and we recorded a loss associated with the reduction in value of an equity investment in a publicly-traded company. 27 Table of Contents Income tax adjustments include the tax impact of the items above. Additionally, we exclude other material tax items that we do not include when reviewing our operating results internally. For example, in FY’23, adjustments include a charge related to an uncertain tax position in a foreign jurisdiction. We use these non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP financial measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals (communicated internally and externally) for managing our business and evaluating our performance. We believe that providing non-GAAP financial measures also affords investors a view of our operating results that may be more easily compared to the results of other companies in our industry that use similar financial measures to supplement their GAAP results. The items excluded from the non-GAAP financial measures often have a material impact on our financial results and such items often recur. Accordingly, the non-GAAP financial measures included in this Annual Report should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure on our financial statements. (in millions, except per share amounts) Year ended September 30, 2023 2022 GAAP gross margin $ 1,656.0 $ 1,547.4 Stock-based compensation 20.9 22.8 Amortization of acquired intangible assets included in cost of revenue 35.7 25.6 Non-GAAP gross margin $ 1,712.6 $ 1,595.7 GAAP operating income $ 458.5 $ 447.4 Stock-based compensation 206.5 174.9 Amortization of acquired intangible assets 75.7 60.5 Acquisition and transaction-related charges 18.7 13.2 Restructuring and other charges (credits), net (0.5 ) 36.2 Non-GAAP operating income $ 758.9 $ 732.2 GAAP net income $ 245.5 $ 313.1 Stock-based compensation 206.5 174.9 Amortization of acquired intangible assets 75.7 60.5 Acquisition and transaction-related charges 18.7 13.2 Restructuring and other charges (credits), net (0.5 ) 36.2 Non-operating charges (credits), net(1) 5.1 (1.4 ) Income tax adjustments(2) (33.5 ) (55.1 ) Non-GAAP net income $ 517.6 $ 541.5 GAAP diluted earnings per share $ 2.06 $ 2.65 Stock-based compensation 1.73 1.48 Total amortization of acquired intangible assets 0.63 0.51 Acquisition and transaction-related charges 0.16 0.11 Restructuring and other charges (credits), net — 0.31 Non-operating charges (credits), net(1) 0.04 (0.01 ) Income tax adjustments(2) (0.28 ) (0.47 ) Non-GAAP diluted earnings per share $ 4.34 $ 4.58 Cash flow from operations $ 610.9 $ 435.3 Capital expenditure (23.8 ) (19.5 ) Free cash flow $ 587.0 $ 415.8 (1)In FY'23, we recognized $4.2 million of financing charges for a debt commitment agreement associated with our acquisition of ServiceMax. Net credits for FY'22 include a $29.8 million gain on the sale of a portion of our PLM services business, a $3.4 million gain on the sale of an asset, and a $3.0 million gain on the sale of an investment, offset by a $34.8 million charge from the reduction in value of an equity investment in a publicly-traded company. (2)Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. In FY'23, non-GAAP expense excludes $21.8 million related to uncertain tax positions in a foreign jurisdiction. 28 Table of Contents Operating margin impact of non-GAAP adjustments: Year ended September 30, 2023 2022 GAAP operating margin 21.9 % 23.1 % Stock-based compensation 9.8 % 9.0 % Total amortization of acquired intangible assets 3.6 % 3.1 % Acquisition and transaction-related charges 0.9 % 0.7 % Restructuring and other charges (credits), net (— )% 1.9 % Non-GAAP operating margin 36.2 % 37.9 % Critical Accounting Policies and Estimates We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our reported revenues, results of operations, and net income, as well as on the value of certain assets and liabilities on our balance sheet. These estimates, assumptions and judgments are made based on our historical experience and on other assumptions that we believe to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. The accounting policies, methods and estimates used to prepare our financial statements are described generally in Note 2. Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements in this Annual Report. The most important accounting judgments and estimates that we made in preparing the financial statements involved: •revenue recognition; •accounting for income taxes; and •valuation of assets and liabilities acquired in business combinations. A critical accounting policy is one that is both material to the presentation of our financial statements and requires us to make subjective or complex judgments that could have a material effect on our financial condition and results of operations. Critical accounting policies require us to make assumptions about matters that are uncertain at the time of the estimate, and different estimates that we could have used, or changes in the estimates that are reasonably likely to occur, may have a material impact on our financial condition or results of operations. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates. Accounting policies, guidelines and interpretations related to our critical accounting policies and estimates are generally subject to numerous sources of authoritative guidance and are often reexamined by accounting standards rule makers and regulators. These rule makers and/or regulators may promulgate interpretations, guidance or regulations that may result in changes to our accounting policies, which could have a material impact on our financial position and results of operations. 29 Table of Contents Revenue Recognition We record revenues in accordance with the guidance provided by ASC 606, Revenue from Contracts with Customers. For a full description of our revenue accounting policy, refer to Note 2. Summary of Significant Accounting Policies, included in the Notes to Consolidated Financial Statements in this Annual Report. Our sources of revenue include: (1) subscriptions, (2) perpetual licenses, (3) support for perpetual licenses, and (4) professional services. Subscriptions include term-based on-premises licenses and related support, Software-as-a-Service (SaaS), and hosting services. Judgments and Estimates Determination of performance obligations. Our subscriptions are frequently sold as a bundle of products and services, typically pairing on-premises term software licenses with support and, for certain offerings, cloud services over the same term. Significant judgment is used in determining the performance obligations related to these bundled products and services. On-premises software is typically determined to be a distinct performance obligation and is thus recognized separately from the support and cloud components. On-premises license software revenue is generally recognized at the point in time that the software is made available to the customer, while the support and cloud software revenue components are recognized ratably over the term of the contract. In cases where subscriptions include cloud functionality and on-premises software, an assessment has been performed to determine whether the cloud services are distinct from the on-premises software. In the substantial majority of instances, cloud services provide incremental functionality to customers and have been considered distinct and recognized separately from the on-premises software. This assessment could have a significant impact on the timing of revenue recognition and may change as our product offerings evolve. Allocation of transaction price. We estimate the standalone selling price of each identified performance obligation and use that estimate to allocate the transaction price among said performance obligations. The estimated standalone selling price is determined using all information reasonably available to us, including market conditions and other observable inputs. Significant judgment is used in determining the standalone selling prices of the on-premises license, support, and cloud components of our subscription products. These estimates are subject to change as our product offerings change and could have a significant impact due to the difference in the timing of revenue recognition for on-premises licenses versus support and cloud. Right to exchange. Our multi-year, non-cancellable subscription contracts provide customers with an annual right to exchange software within the original subscription with other software. When it applies to on-premises licenses, we account for this right as a liability. For most contracts, we use the expected value method to determine the liability associated with this right across a portfolio of contracts. Where contracts are outside of the standard portfolio of contracts due to contract size, longer contract duration, or other unique contractual terms, we use the most likely amount method to determine the liability for each individual contract. In both circumstances, the transaction price is constrained based on our estimates, which impacts the amount of revenue recognized. Changes in these estimates could significantly impact revenue for any given period. Accounting for Income Taxes As part of the process of preparing our consolidated financial statements, we are required to calculate our income tax expense based on taxable income by jurisdiction. There are many transactions and calculations about which the ultimate tax outcome is uncertain; as a result, our calculations involve estimates by management. Some of these uncertainties arise as a consequence of revenue-sharing, cost-reimbursement and transfer pricing arrangements among related entities and the differing tax treatment of revenue and cost items across various jurisdictions. If we were compelled to revise or to account differently for our arrangements, that revision could affect our recorded tax liabilities. 30 Table of Contents The income tax accounting process also involves estimating our actual current tax liability, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that it is more likely than not that all or a portion of our deferred tax assets will not be realized, we must establish a valuation allowance as a charge to income tax expense. We have unrecognized tax benefits as of September 30, 2023 of $50.7 million. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates. We believe it is reasonably possible that within the next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional tax positions could be reduced by up to $26 million as audits close and statutes of limitations expire. As of September 30, 2023, we have a valuation allowance of $17.4 million against net deferred tax assets in the U.S. and a valuation allowance of $4.3 million against net deferred tax assets in certain foreign jurisdictions. The valuation allowance recorded in the U.S. relates to Massachusetts tax credit carryforwards that we do not expect to realize a benefit from prior to expiration. The valuation allowance recorded against net deferred tax assets of certain foreign jurisdictions is established primarily for our capital loss carryforwards, the majority of which do not expire. However, there are limitations imposed on the utilization of such capital losses that could further restrict the recognition of any tax benefits. We will continue to reassess our valuation allowance requirements each financial reporting period. Prior to the passage of the U.S. Tax Act, we asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely invested and accordingly, no deferred taxes were provided. Pursuant to the provisions of the U.S. Tax Act, these earnings were subjected to a one-time transition tax and there is therefore no longer a material cumulative basis difference associated with the undistributed earnings. We maintain our assertion to permanently reinvest these earnings outside the U.S. unless repatriation can be done substantially tax-free, with the exception of a foreign holding company formed in 2018 and our Taiwan subsidiary. If we decide to repatriate any additional non-U.S. earnings in the future, we may be required to establish a deferred tax liability on such earnings. The amount of unrecognized deferred tax liability on the undistributed earnings would not be material. In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service (IRS) in the U.S. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, transfer pricing, limitations on net operating losses and tax credits. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in material changes in our estimates. Valuation of Assets and Liabilities Acquired in Business Combinations In accordance with business combination accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Determining these fair values requires management to make significant estimates and assumptions, especially with respect to intangible assets. Our identifiable intangible assets acquired consist of purchased software, tradenames, customer lists and contracts, and software support agreements and related relationships. Purchased software consists of products that have reached technological feasibility and the combination of processes, inventions and trade secrets related to the design and development of acquired products. Customer lists and contracts and software support agreements and related relationships represent the underlying relationships and agreements with customers of the acquired company’s installed base. We have 31 Table of Contents generally valued intangible assets using discounted cash flow models. Critical estimates in valuing certain of the intangible assets include but are not limited to: •future expected revenues and costs related to software license sales, customer support agreements, customer contracts and related customer relationships and acquired developed technologies and trademarks and trade names; and •discount rates used to determine the present value of estimated future cash flows. In addition, we estimate the useful lives of our intangible assets based upon the expected period over which we anticipate generating economic benefits from the related intangible asset. Net tangible assets consist of the fair values of tangible assets less the fair values of assumed liabilities and obligations. Except for deferred revenues, net tangible assets were generally valued by us at the respective carrying amounts recorded by the acquired company, if we believed that their carrying values approximated their fair values at the acquisition date. For acquisitions completed prior to FY'22, the values assigned to deferred revenue reflect an amount equivalent to the estimated cost plus an appropriate profit margin to perform the services related to the acquired company’s software support contracts. During FY'22, we adopted ASU 2021-08, whereby deferred revenue for acquisitions completed in FY'22 and thereafter reflect the amounts that would have been deferred as of the acquisition date in accordance with ASC 606. In addition, uncertain tax positions and tax-related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly with any adjustments to our preliminary estimates being recorded to goodwill provided that we are within the measurement period (up to one year from the acquisition date) and we continue to collect information in order to determine their estimated values. Subsequent to the measurement period or our final determination of the estimated value of uncertain tax positions or tax-related valuation allowances, whichever comes first, changes to these uncertain tax positions and tax-related valuation allowances will affect our provision for income taxes in our Consolidated Statements of Operations. Our estimates of fair value are based upon assumptions believed to be reasonable at that time, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or actual results. When events or changes in circumstances indicate that the carrying value of a finite-lived intangible asset may not be recoverable, we perform an assessment of the asset for potential impairment. This assessment is based on projected undiscounted future cash flows over the asset’s remaining life. If the carrying value of the asset exceeds its undiscounted cash flows, we record an impairment loss equal to the excess of the carrying value over the fair value of the asset, determined using projected discounted future cash flows of the asset. Recent Accounting Pronouncements In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations, none of which are expected to have a material impact on our consolidated financial statements. Off-Balance Sheet Arrangements We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated (to the extent of our ownership interest therein) into our financial statements. We have not entered into any transactions with unconsolidated entities whereby we have subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us. 32 Table of Contents ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk We face exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results. Foreign currency exchange risk Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Our most significant foreign currency exposures relate to Eurozone countries, Japan, Sweden, Switzerland, China and India. We enter into foreign currency forward contracts and options to manage our exposure to fluctuations in foreign exchange rates that arise from receivables and payables denominated in foreign currencies. We do not enter into or hold foreign currency derivative financial instruments for trading or speculative purposes. Our non-U.S. revenues generally are transacted through our non-U.S. subsidiaries and typically are denominated in their local currency. In addition, expenses that are incurred by our non-U.S. subsidiaries typically are denominated in their local currency. Approximately 50% of our revenue and 35% of our expenses were transacted in currencies other than the U.S. Dollar. Currency translation affects our reported results because we report our results of operations in U.S. Dollars. Historically, our most significant currency risk has been changes in the Euro and Japanese Yen relative to the U.S. Dollar. Based on current revenue and expense levels (excluding restructuring charges and stock-based compensation), a $0.10 change in the USD to EUR exchange rate and a 10 Yen change in the Yen to USD exchange rate would impact operating income by approximately $30 million and $6 million, respectively. Our exposure to foreign currency exchange rate fluctuations arises in part from intercompany transactions, with most intercompany transactions occurring between a U.S. Dollar functional currency entity and a foreign currency denominated entity. Intercompany transactions typically are denominated in the local currency of the non-U.S. Dollar functional currency subsidiary in order to centralize foreign currency risk. Also, both PTC (the parent company) and our non-U.S. subsidiaries may transact business with our customers and vendors in a currency other than their functional currency (transaction risk). In addition, we are exposed to foreign exchange rate fluctuations as the financial results and balances of our non-U.S. subsidiaries are translated into U.S. Dollars (translation risk). If sales to customers outside the United States increase, our exposure to fluctuations in foreign currency exchange rates will increase. Our foreign currency risk management strategy is principally designed to mitigate the future potential financial impact of changes in the U.S. Dollar value of balances denominated in foreign currency, resulting from changes in foreign currency exchange rates. Our foreign currency hedging program uses forward contracts and options to manage the foreign currency exposures that exist as part of our ongoing business operations. The contracts are primarily denominated in the Euro, Swedish Krona, and Swiss Franc currencies, and have maturities of less than four months. The majority of our foreign currency forward contracts and options are not designated as hedges for accounting purposes, and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into these derivative contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the derivative contract. Gains and losses on these derivatives and foreign currency denominated receivables and payables are included in Other income, net. 33 Table of Contents As of September 30, 2023 and 2022, we had outstanding forward contracts for derivatives not designated as hedging instruments with notional amounts equivalent to the following: September 30, Currency Hedged (in thousands) 2023 2022 Canadian Dollar / U.S. Dollar $ 5,135 $ 2,731 Euro / U.S. Dollar 383,227 316,869 British Pound / U.S. Dollar 6,058 7,368 Israeli Shekel / U.S. Dollar 11,852 12,052 Japanese Yen / U.S. Dollar 4,770 25,566 Swiss Franc / U.S. Dollar 32,766 25,559 Swedish Krona / U.S. Dollar 35,085 35,713 Singapore Dollar / U.S. Dollar — 3,637 Chinese Renminbi / U.S. Dollar 16,660 23,965 New Taiwan Dollar / U.S. Dollar 11,855 13,906 Korean Won / U.S. Dollar 6,157 4,919 Danish Krone / U.S. Dollar 6,731 3,192 Australian Dollar / U.S. Dollar 452 3,269 All other 2,888 4,432 Total $ 523,636 $ 483,178 Debt In addition to the $1 billion due under our 2025 and 2028 Senior Notes, as of September 30, 2023, we had $702 million outstanding under our credit facility. We also had a $620 million deferred acquisition payment liability related to the fair value of the $650 million installment for the ServiceMax acquisition, which we paid in October 2023 leveraging financing from our credit facility. Loans under the credit facility bear interest at variable rates which reset every 30 to 180 days depending on the rate and period selected by us. These loans are subject to interest rate risk as interest rates will be adjusted at each rollover date to the extent such amounts are not repaid. As of September 30, 2023, the annual rate on the credit facility loans was 7.18%. If there were a 100 basis point change in interest rates, the annual net impact to earnings and cash flows would be $7 million. This change in cash flows and earnings has been calculated based on the borrowings outstanding at September 30, 2023 and a 100 basis point per annum change in interest rate applied over a one-year period. Cash and cash equivalents As of September 30, 2023, cash equivalents were invested in highly liquid investments with maturities of three months or less when purchased. We invest our cash with highly rated financial institutions in North America, Europe and Asia Pacific and in diversified domestic and international money market mutual funds. At September 30, 2023, we had cash and cash equivalents of $35 million in the United States, $111 million in Europe, $121 million in Asia Pacific (including India), and $21 million in other non-U.S. countries. Given the short maturities and investment grade quality of the portfolio holdings at September 30, 2023, a hypothetical 10% change in interest rates would not materially affect the fair value of our cash and cash equivalents. Our invested cash is subject to interest rate fluctuations and, for non-U.S. operations, foreign currency exchange rate risk. In a declining interest rate environment, we would experience a decrease in interest income. The opposite holds true in a rising interest rate environment. Over the past several years, the U.S. Federal Reserve Board, European Central Bank and Bank of England have changed certain benchmark interest rates, which has led to declines and increases in market interest rates. These changes in market interest rates have resulted in fluctuations in interest income earned on our cash and cash equivalents. Interest income will continue to fluctuate based on changes in market interest rates and levels of cash available for investment. Changes in foreign currencies relative to the U.S. Dollar had a favorable impact of $2.9 million and an unfavorable impact of $24.2 million on our consolidated cash balances in FY'23 and FY'22, respectively. The impact in FY'23 was due in particular to changes in the Euro and the Korean Won. 34 Table of Contents \ No newline at end of file diff --git a/PUBLIC SERVICE ENTERPRISE GROUP INC_10-Q_2023-10-31_788784-0000788784-23-000008.html b/PUBLIC SERVICE ENTERPRISE GROUP INC_10-Q_2023-10-31_788784-0000788784-23-000008.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PUBLIC SERVICE ENTERPRISE GROUP INC_10-Q_2023-10-31_788784-0000788784-23-000008.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/PULTEGROUP INC-MI-_10-Q_2023-10-24_822416-0000822416-23-000042.html b/PULTEGROUP INC-MI-_10-Q_2023-10-24_822416-0000822416-23-000042.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/PULTEGROUP INC-MI-_10-Q_2023-10-24_822416-0000822416-23-000042.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/QUALCOMM INC-DE_10-K_2023-11-01_804328-0000804328-23-000055.html b/QUALCOMM INC-DE_10-K_2023-11-01_804328-0000804328-23-000055.html new file mode 100644 index 0000000000000000000000000000000000000000..1ea7e829703956ac4419b8ead58d0dd495a90ca2 --- /dev/null +++ b/QUALCOMM INC-DE_10-K_2023-11-01_804328-0000804328-23-000055.html @@ -0,0 +1 @@ +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the “Our Business and Operating Segments” section under the heading “Seasonality.”Corporate StructureWe operate our businesses through our parent company, QUALCOMM Incorporated, and multiple direct and indirect subsidiaries. We have developed our corporate structure in order to address various legal, regulatory, tax, contractual compliance, operational and other matters. Substantially all of our products and services businesses, including QCT, and substantially all of our engineering and research and development functions, are operated by Qualcomm Technologies, Inc. (QTI), a subsidiary of QUALCOMM Incorporated, and QTI’s subsidiaries. QTL is operated by QUALCOMM Incorporated, which owns the vast majority of our patent portfolio. Neither QTI nor any of its subsidiaries has any right, power or authority to grant any licenses or other rights under or to any patents owned by QUALCOMM Incorporated.Revenue Concentrations and Significant CustomersA small number of customers/licensees historically have accounted for a significant portion of our consolidated revenues. In fiscal 2023, revenues from Apple and Samsung each comprised 10% or more of our consolidated revenues. Additional information regarding revenue concentrations is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 2. Composition of Certain Financial Statement Items” and “Notes to Consolidated Financial Statements, Note 8. Segment Information.”Research and DevelopmentThe wireless communications industry is characterized by rapid technological change, evolving industry standards, frequent new product introductions and, with the use of 5G, the expansion into industries and applications beyond mobile handsets such as automotive and IoT, requiring a continuous effort to enhance existing products and technologies and to develop new products and technologies. We have significant engineering resources, including engineers with substantial expertise in modem, radio-frequency integrated circuit, RFFE, multimedia (camera, video, display and computer vision), sensor perception and drive policy, advanced SoC, which includes specialized engines such as CPU and GPU to enable high performance and low-power computing and other optimization techniques, AI, packaging and a broad range of other technologies. We expect to continue to invest in research and development in a variety of ways in an effort to extend the demand for our products and technologies and to utilize that research and development in industries and applications beyond mobile handsets (such as automotive and IoT), including continuing the development of new modem and multimedia technologies and other technologies (such as ADAS/AD and XR), developing alternative technologies for certain specialized applications, participating in the formulation of new voice and data communication standards and technologies and assisting in deploying digital voice and data communications networks around the world.We continue to invest significant resources towards advancements in OFDMA-based technologies and products (including LTE, 5G and 6G). We also engage in acquisitions and other transactions to meet certain technology needs, to obtain development resources or open or expand opportunities for our technologies and to support the design and introduction of new products and services (or enhance existing products and services) for voice and data communications and industries and applications beyond mobile handsets, such as ADAS/AD. We make investments to provide our integrated circuit customers with chipsets designed on leading-edge technology nodes that combine multiple technologies for use in consumer electronic devices (e.g., smartphones, tablets, laptops, voice and music devices, wearable devices and XR devices) and other products (e.g., access points and routers, data cards and infrastructure equipment). In addition to 3G, 4G and 5G technologies, our chipsets support other wireless and wired connectivity technologies, including Wi-Fi, Bluetooth, Ethernet, position location and Powerline communication. Our integrated chipsets often include multiple technologies, including advanced multimode modems, application processors and graphics engines, as well as the tools to connect these diverse technologies. We continue to support Android, Windows and other client software environments in our chipsets.We conduct broad, leading research and development across AI, including generative AI, from fundamental research to platform and applied research, with the goal of advancing its core capabilities (i.e., perception, reasoning and action), and scaling them across industries and use cases. With investments made in AI for over a decade, our research is diverse, and we are focused on power efficiency and personalization to make AI seamless across our everyday experiences. 14We develop innovations that are integrated into our product portfolio to expand the opportunity for wireless communications and enhance the value of our products and services. These innovations are expected to enable our customers to improve the performance or value of their existing services, offer these services more affordably and introduce revenue-generating broadband data services ahead of their competition. We are focused on making it easier for developers to design and deploy their applications on our platforms across multiple device categories and industries as a part of our diversification strategy.We have research and development centers in various locations throughout the world that support our global development activities and ongoing efforts to develop and/or advance 4G, 5G, 6G, and a broad range of other technologies, including RFFE. We continue to use our substantial engineering resources and expertise to develop new technologies, applications and services and make them available to licensees to help grow the wireless communications industry and generate new or expanded licensing opportunities.Environmental, Social and Governance (ESG) and Human CapitalWe believe that our innovations help transform industries, enhance people’s lives and address some of society’s biggest challenges. With the world becoming increasingly connected, we have an opportunity to shape a better future. We believe in the power of technology. As such, our corporate responsibility vision is to be a facilitator of innovation for a sustainable world, connected wirelessly.We have integrated corporate responsibility throughout our business, from our daily operations to our executive leadership and our Board of Directors (Board). The Governance Committee of our Board provides oversight on ESG matters not delegated to other Board committees, including ESG policies, programs and initiatives. The HR and Compensation Committee of our Board provides oversight on our human capital initiatives and our workforce diversity, equity and inclusion policies, programs and initiatives, while the Audit Committee of our Board provides oversight of our ESG disclosure controls and procedures. Our ESG Leadership Committee, composed of certain executives, provides guidance on global corporate responsibility issues. Our ESG Working Group implements directives from the ESG Leadership Committee, measures progress on achieving our goals and reports to management on accomplishments and challenges.ESGWe center our ESG efforts around purposeful innovation, focusing on three strategic areas where we believe we can have the biggest impact:•Empowering Digital Transformation. We believe technology can transform industries, businesses, communities and individual lives. We invent solutions that are foundational to the advancement of the global wireless ecosystem, improving how we work, live and, ultimately, thrive. •Acting Responsibly. We invest in our people, strive to always behave with integrity and implement governance standards that uphold Qualcomm’s values. We are committed to responsible business practices, from upholding diversity, equity and inclusion, to protecting privacy, to providing leading development programs and fostering an ethical culture.•Operating Sustainably. We aim to maintain safe, healthy and productive working conditions and conserve natural resources. Our environmental efforts center on reducing greenhouse gas (GHG) emissions, optimizing energy consumption, managing water usage and minimizing waste throughout our operations and the communities in which we work. 2025 Goals. Our 2025 Goals related to corporate responsibility include, among others:•Reducing our absolute Scope 1 and Scope 2 GHG emissions by 30% from global operations, from a 2014 base year.•Reducing power consumption by 10% every year in our flagship Snapdragon Mobile Platform products (given equivalent features).•Ensuring 100% of our primary semiconductor manufacturing suppliers are audited every 2-years for conformance to our Supplier Code of Conduct, from a 2020 base year.Net-Zero Global GHG Emissions Commitment. Qualcomm has approved near and long-term science-based emissions reduction targets with the Science Based Targets Initiative (SBTi), including: (1) reduce absolute Scope 1 and 2 GHG emissions by 50% by 2030 from a 2020 base year; (2) reduce absolute Scope 3 GHG emissions by 25% by 2030 from a 2020 base year; and (3) reach net-zero GHG emissions across the value chain by 2040.The foregoing discussion includes information regarding ESG matters that we believe may be of interest to our stockholders generally. We recognize that certain other stakeholders (such as customers, employees and non-governmental organizations), as well as certain of our stockholders, may be interested in more detailed information on these topics. We encourage you to review our most recent Qualcomm Corporate Responsibility Report (located on our website) for more detailed information regarding our Corporate Responsibility and ESG governance, goals, priorities, accomplishments and initiatives, as well as the Corporate Governance section of our most recent Proxy Statement, and our Corporate Governance Principles and Practices (located on our website), for additional information regarding governance matters, including Board 15and Committee leadership, oversight, roles and responsibilities, and Director independence, tenure, refreshment and diversity. Nothing on our website, including the aforementioned reports and documents, or sections thereof, shall be deemed incorporated by reference into this Annual Report.Human CapitalIn order to continue to produce innovative, breakthrough technologies, it is crucial that we continue to attract and retain top talent. To facilitate talent attraction and retention, we strive to make Qualcomm a diverse, inclusive, and safe workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits, and health and wellness programs and by programs that build connections between our employees and their communities.At September 24, 2023, we had approximately 50,000 full-time, part-time and temporary workers, the overwhelming majority of which were full-time employees. Our employees are represented by more than 100 (self-identified) nationalities working in over 150 locations in 36 different countries around the world. Collectively, we speak more than 90 different languages. Our global workforce is highly educated, with the substantial majority of our employees working in engineering or technical roles. During fiscal 2023, our voluntary turnover rate was less than 5%. During the second half of fiscal 2023, in order to promote and facilitate the type of collaboration and innovation that is foundational to Qualcomm, we adjusted our onsite work policy to require most of our employees to be in the office the majority of their working time.Diversity, Equity and Inclusion. We believe that a diverse workforce is important to our success, and we continue to focus on making Qualcomm a great place to work for women and underrepresented populations. Our recent efforts have been focused in three areas: inspiring innovation through an inclusive and diverse culture; expanding our efforts to recruit world-class diverse talent; and identifying strategic partners to accelerate our inclusion, equity and diversity programs. We have employee networks that enhance our inclusive and diverse culture, including global network groups focused on supporting women, LGBTQ+ employees and employees with disabilities, in addition to U.S.-based employee networks that focus on Black and African American employees, Hispanic and Latinx employees and U.S. military members and veterans. In 2023, we also added a new employee network to support Asian American and Pacific Islander employees.We continue to recruit technical talent in diverse communities, engaging as a high-level sponsor of professional conferences, such as the Society of Hispanic Professional Engineers National Convention and the National Society of Black Engineers National Convention. We also continue to recruit from a variety of colleges with diverse student populations, including Hispanic-Serving Institutions and Historically Black Colleges and Universities. Our continued engagement with organizations that work with diverse communities has been vital to our efforts. We joined the Global Catalyst Community that helps organizations build workplaces that work for women with thought leadership and actionable solutions to advance women into leadership. We are also endorsed as a great employer for women by Work180 and have been recognized by Avtar and Seramount as a Best Company for Women in India. We, alongside other top technology companies, helped form the Reboot Representation Tech Coalition, which aims to double the number of Black, Latinx and Native American women receiving computing degrees by 2025. Through our collaboration with Disability:IN’s Inclusion Works program, we have increased our ability to address the needs of individuals with disabilities. We publish our most recent Consolidated EEO-1 reports on our website to provide additional transparency into our workforce. Health, Safety and Wellness. The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness of our employees. Through our Live+Well, Work+Well program, we provide our employees and their families with access to a variety of innovative, flexible and convenient health and wellness programs, including benefits that provide protection and security related to events that may require time away from work or that impact their financial well-being; that support their physical and mental health by providing tools and resources to help them improve or maintain their health status and encourage engagement in healthy behaviors; and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families. Compensation and Benefits. We provide robust compensation and benefits programs to help meet the needs of our employees. In addition to salaries, these programs (which vary by country/region) include annual bonuses, stock awards, an employee stock purchase plan, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, adoption and surrogacy assistance, employee assistance programs, tuition assistance, and on-site services such as health centers and fitness centers, among others. In addition to our broad-based equity award programs, we have used targeted equity awards with vesting conditions to facilitate retention of personnel, particularly those with critical engineering skills and experience.Talent Development. We invest significant resources to develop the talent needed to remain a world-leading innovator in wireless technologies and high performance and low power computing, including AI. We deliver numerous training opportunities, provide rotational assignment opportunities, focus on continuous learning and development and have implemented what we believe are industry-leading methodologies to manage performance, provide feedback and develop talent.Our talent development programs are designed to provide employees with the resources they need to help achieve their career goals, build management skills and lead their organizations. We provide a series of employee workshops around the globe that support professional growth and development. Additionally, our manager and employee forum programs provide 16an ongoing opportunity for employees to practice and apply learning around conversations aligned with our annual review process. We also have an employee development website that provides quick access to learning resources that are personalized to the individual’s development needs.Building Connections - With Each Other and our Communities. We believe that building connections between our employees, their families and our communities creates a more meaningful, fulfilling and enjoyable workplace. Through our engagement programs, our employees can pursue their interests and hobbies, connect to volunteering and giving opportunities and enjoy unique recreational experiences with family members. Leveraging our partnerships with various local arts and culture organizations, we have created numerous unique experiences for employees and their families around the world. Since our employees are passionate about many causes, our corporate giving and volunteering programs support and encourage employees by engaging with those causes. In our offices around the world, our employee-led Giving Committees select local organizations to support, often in the form of grants that are primarily funded by the Qualcomm Foundation (which was established in 2011 to support charitable giving and volunteerism). We also frequently collaborate with these organizations on volunteer activities for our employees. Additionally, during fiscal 2023, thousands of our employees around the world utilized our charitable match program, benefiting more than 1,500 charitable organizations.Human Capital Advancements Linked to our Executive Compensation. The HR and Compensation Committee of our Board will consider human capital advancements in determining our executives’ fiscal 2023 bonus. For fiscal 2023, progress towards human capital advancements serves as a non-financial performance modifier that can adjust the executives’ bonus payout by a multiple of 0.9 to 1.1. The foregoing discussion includes information regarding Human Capital matters that we believe may be of interest to stockholders generally. We recognize that certain other stakeholders (such as customers, employees and non-governmental organizations), as well as certain of our stockholders, may be interested in more detailed information on these topics. We encourage you to review the “Workforce” section of our most recent Qualcomm Corporate Responsibility Report (located on our website) for more detailed information regarding our Human Capital programs and initiatives. Nothing on our website, including our Consolidated EEO-1 reports and our Qualcomm Corporate Responsibility Report or sections thereof, shall be deemed incorporated by reference into this Annual Report.Available InformationOur Internet address is www.qualcomm.com. There we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those reports (among others), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). We also make available on our website public financial information for which a report is not required to be filed with or furnished to the SEC. Our SEC reports and such other information can be accessed through the investor relations section of our website (https://investor.qualcomm.com/). The information found on our website is not part of this or any other report we file with or furnish to the SEC.Information about our Executive OfficersInformation about our executive officers (and their ages as of November 1, 2023) are as follows:Cristiano R. Amon, age 53, has served as President and Chief Executive Officer and as a member of the Board of Directors since June 2021. Mr. Amon served as President and Chief Executive Officer-elect from January 2021 to June 2021 and President from January 2018 to January 2021. He served as Executive Vice President, Qualcomm Technologies, Inc. (QTI), a subsidiary of Qualcomm Incorporated, and President, QCT, from November 2015 to January 2018. He served as Executive Vice President, QTI and Co-President, QCT from October 2012 to November 2015, Senior Vice President and Co-President, QCT from June 2012 to October 2012 and as Senior Vice President, QCT Product Management from October 2007 to June 2012, with responsibility for our product roadmap, including the Snapdragon platforms. Mr. Amon joined Qualcomm in 1995 as an engineer and throughout his tenure at Qualcomm has held several other technical and leadership positions. Mr. Amon has been a member of the board of directors of Adobe Inc. since October 2023. Mr. Amon holds a B.S. in Electrical Engineering and an honorary doctorate from UNICAMP, the State University of Campinas, Brazil.Heather Ace, age 53, has served as Chief Human Resources Officer since March 2020. Prior to joining Qualcomm, Ms. Ace was Senior Vice President, Human Resources at DexCom, Inc., a provider of continuous glucose monitoring, from July 2016 to March 2020. Prior to DexCom, she was Executive Vice President, Human Resources at Orexigen Therapeutics, Inc., a developer of treatments for obesity, from January 2016 to July 2016. Ms. Ace was Integration Leader for Royal Philips, leading the cross-functional integration of Philips Healthcare’s acquisition of Volcano Corporation, from January 2015 to January 2016. She was Executive Vice President, Human Resources at Volcano Corporation from May 2012 to January 2015. Prior to May 2012, Ms. Ace served in various senior executive roles in human resources, post-acquisition/merger integration and employment law at Life Technologies Corporation. She began her career at Gray, Cary, Ware & Freidenrich (now DLA Piper) as a litigation and transactional employment attorney, specializing in mergers and acquisitions. Ms. Ace holds a B.A. in Law & Society from the University of California, Santa Barbara and a J.D. from Santa Clara School of Law.James J. Cathey, age 59, has served as Chief Commercial Officer, QTI since April 2022. Mr. Cathey served as Senior Vice President, Global Business Operations, QTI from December 2018 to April 2022, Senior Vice President, QTI and 17President, APAC and India from May 2016 to December 2018, Vice President, QTI and President, APAC and India from December 2015 to May 2016 and Vice President, QTI and President, Qualcomm Japan from December 2014 to December 2015. He served in various other operational and leadership roles since joining Qualcomm in September 2006. Prior to joining Qualcomm, he was an executive at Micron Technology, Inc., MicroDisplay Corp. and PixTech Inc. Mr. Cathey holds a B.B.A. from Boise State University.Ann Chaplin, age 50, has served as General Counsel and Corporate Secretary since November 2021. Prior to joining Qualcomm, Ms. Chaplin served at General Motors Company as Corporate Secretary and Deputy General Counsel, U.S., Transformation Initiatives and Corporate Securities from February 2021 to November 2021, Deputy General Counsel and Chief Compliance Officer, North America, Transformation Projects and Compliance from April 2019 to February 2021, Deputy General Counsel, Commercial, Transportation as a Service, Litigation and Regulation from January 2018 to April 2019, Deputy General Counsel, Intellectual Property, Regulation and Litigation from June 2017 to January 2018 and Deputy General Counsel, Litigation from December 2015 to June 2017. Prior to General Motors, Ms. Chaplin was an attorney at Fish & Richardson P.C. from February 2001 to December 2015, last holding the position of Litigation Practice Group Leader/Litigation Equity Principal. She began her career as an intellectual property litigation attorney at the law firm of Robins, Kaplan, Miller & Ciresi LLP. Ms. Chaplin holds a B.A in Sociology of Law from the University of Minnesota and a J.D. from Harvard Law School. Akash Palkhiwala, age 48, has served as Chief Financial Officer since November 2019. Mr. Palkhiwala served as Senior Vice President and Interim Chief Financial Officer from August 2019 to November 2019. He served as Senior Vice President, QCT Finance, QTI from December 2015 to August 2019 and Senior Vice President and Treasurer from October 2014 to December 2015. Mr. Palkhiwala served in various other finance and leadership roles since joining Qualcomm in March 2001. Prior to joining Qualcomm, he was an Analyst at KeyBank. Mr. Palkhiwala holds an undergraduate degree in Mechanical Engineering from L.D. College of Engineering in India and an M.B.A from the University of Maryland.Alexander H. Rogers, age 66, has served as President, QTL and Global Affairs since June 2021. Mr. Rogers served as President, QTL from October 2016 to June 2021, Senior Vice President and President, QTL from September 2016 to October 2016, Senior Vice President, Deputy General Counsel and General Manager, QTL from March 2016 to September 2016, Senior Vice President and Deputy General Counsel from October 2015 to March 2016 and Senior Vice President and Legal Counsel from April 2007 to October 2015. Prior to QTL, he led Qualcomm’s litigation group. Mr. Rogers joined Qualcomm in January 2001 as an attorney. Prior to joining Qualcomm, he was a partner at the law firm of Gray, Cary, Ware & Freidenrich (now DLA Piper), specializing in intellectual property and commercial litigation. Mr. Rogers holds a B.A. and an M.A. in English Literature from Georgetown University and a J.D. from Georgetown University Law Center.James H. Thompson, age 59, has served as Chief Technology Officer, QTI since March 2017. Dr. Thompson served as Executive Vice President, Engineering, QTI from October 2012 to March 2017 and Senior Vice President, Engineering from July 1998 to October 2012. He joined Qualcomm in 1992 as a senior engineer and throughout his tenure at Qualcomm has held several other technical and leadership positions. Dr. Thompson holds a B.S., an M.S. and a Ph.D. in Electrical Engineering from the University of Wisconsin.Item 1A. Risk FactorsYou should consider each of the following factors in evaluating our business and our prospects, any of which could negatively impact our business, results of operations, cash flows and financial condition, and require significant management time and attention. Further, the risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also negatively impact our business, results of operations, cash flows and financial condition, and require significant management time and attention. In such cases, the trading price of our common stock could decline. You should also consider the other information set forth in this Annual Report in evaluating our business and our prospects, including but not limited to our financial statements and the related notes, and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” References to “and,” “or” and “and/or” should be read to include the others, as appropriate. RISKS RELATED TO OUR OPERATING BUSINESSESWe derive a significant portion of our revenues from a small number of customers and licensees, and particularly from their sale of premium tier handset devices. If revenues derived from these customers or licensees decrease or the timing of such revenues fluctuates, our business and results of operations could be negatively affected.We derive a significant portion of our revenues from a small number of customers and licensees, and particularly from their sale of premium tier handset devices, and we expect this trend to continue in the foreseeable future. The mobile industry is experiencing and may continue to experience concentration of device share among a few companies, particularly at the premium tier, contributing to this trend. Certain Chinese OEMs have increased and may continue to increase their device share in China and in certain regions outside of China, and we derive a significant portion of our revenues from a small number of these OEMs as well. See also “Notes to Consolidated Financial Statements, Note 2. Composition of Certain Financial Statement Items - Concentrations.” In addition, a number of our largest customers have developed, are developing or may develop their own integrated circuit products, or may choose our competitors’ integrated circuit products, which they have in the past utilized, currently 18utilize and may in the future utilize in some or all of their devices, rather than our products, which could significantly reduce the revenues we derive from these customers. See also the Risk Factor titled “Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own integrated circuit products).”Further, political actions, including trade and/or national security protection policies, or other actions by governments, particularly the U.S. and Chinese governments, have in the past, currently are and could in the future limit or prevent us from transacting business with certain of our customers, limit, prevent or discourage those customers from transacting business with us, or make it more expensive to do so, any of which could also significantly reduce the revenues we derive from these customers. See also the Risk Factor titled “A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.”In addition, we spend a significant amount of engineering and development time, funds and resources in understanding our key customers’ feedback and/or specifications and attempt to incorporate such input into our product launches and technologies. These efforts may not require or result in purchase commitments from such customers or we may have lower purchases from such customers than expected, and consequently, we may not achieve the anticipated revenues from these efforts, or these efforts may result in non-recoverable costs.The loss of any one of our significant customers, a reduction in the purchases of our products by any of these customers or the cancellation of significant purchases by any of these customers, whether due to the use of their own integrated circuit products or our competitors’ integrated circuit products, government restrictions, a decline in global, regional or local economic conditions, a decline in consumer demand (or a shift in consumer demand away from new devices in favor of refurbished or secondhand devices), elevated inventory levels at our customers or otherwise, would reduce our revenues and could harm our ability to achieve or sustain expected results of operations. A delay of significant purchases, even if only temporary, would reduce our revenues in the period of the delay. Any such reduction in revenues would also impact our cash resources available for other purposes, such as research and development. Further, the concentration of device share among a few companies, and the corresponding purchasing power of these companies, may result in lower prices for our products, which could have an adverse effect on our revenues and margins. In addition, the timing and size of purchases by our significant customers may be impacted by the timing of such customers’ new or next generation product introductions, over which we have no control, and the timing and success of such introductions may cause our revenues and results of operations to fluctuate. Apple purchases our MDM (or thin modem) products, which do not include our integrated application processor technology, and which have lower revenue and margin contributions than our combined modem and application processor products. Consequently, to the extent Apple takes device share from our customers who purchase our integrated modem and application processor products, our revenues and margins may be negatively impacted.The mobile industry has also experienced slowing growth in the premium-tier device segment due to, among other factors, a maturing premium-tier smartphone industry in which demand is increasingly driven by new product launches and innovation cycles. A reduction in sales of premium-tier devices, a reduction in sales of our premium-tier integrated circuit products (which have a higher revenue and margin contribution than our lower-tier integrated circuit products), a shift in share away from OEMs that utilize our premium-tier products, or a shift in consumer demand in favor of refurbished or secondhand devices, would reduce our revenues and margins and may harm our ability to achieve or sustain expected financial results. Any such reduction in revenues would also impact our cash resources available for other purposes, such as research and development. Further, while our product and revenue diversification strategies have resulted in an increasing portion of our revenues coming from outside of mobile handsets, e.g., from industries such as automotive and IoT, certain product categories within those industries may in themselves be subject to high levels of customer concentration. Although we have more than 300 licensees, we derive a significant portion of our licensing revenues from a limited number of licensees, which includes a number of Chinese OEMs. In the event that one or more of our significant licensees fail to meet their reporting and payment obligations, or we are unable to renew or modify one or more of their license agreements under similar terms as their existing agreements, our revenues, results of operations and cash flows would be adversely impacted. Moreover, the success of our core licensing business depends in part on the ability of our licensees to continue to develop, introduce and deliver high-volume products that achieve and sustain customer acceptance. We do not have control over the product development, sales efforts or pricing of products by our licensees, and our licensees might not be successful in these efforts. Reductions in sales of our licensees’ products, or reductions in the average selling prices of such products without a sufficient increase in the volumes sold, would generally have an adverse effect on our licensing revenues. Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own integrated circuit products).Certain of our largest customers (for example, Samsung) develop their own integrated circuit products, which they have in the past utilized, and currently utilize, in certain of their devices and we expect will in the future utilize in some or all of their devices, rather than our products (and they have and may continue to sell their integrated circuit products to third parties, discretely or together with certain of their other products, in competition with us).19Apple has utilized modem products of one of our competitors in some of its devices rather than our products, and solely utilized one of our competitors’ products in several of its prior device launches. In December 2019, Apple acquired Intel’s modem assets and is developing its own modem products using those assets. Accordingly, we expect Apple to use its own modem products, rather than our products, in some or all of its future devices. Similarly, we derive a significant portion of our revenues from Chinese OEMs. Certain of our customers in China have developed, and others may in the future develop, their own integrated circuit products and use such integrated circuit products in their devices rather than our integrated circuit products, including due to pressure from or policies of the Chinese government (whose Made in China 2025 campaign targets 70% semiconductor self-sufficiency by 2025), concerns over losing access to our integrated circuit products as a result of actual, threatened or potential U.S. or Chinese government actions or policies, including trade protection or national security policies, or other reasons. See also the Risk Factor titled “A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.”In addition, periodic supply/capacity constraints within the semiconductor industry may further incentivize our customers to vertically integrate in an effort to secure additional control over their supply chains.If our customers begin using their own integrated circuit products rather than our products in some or all of their devices, or increase their use of their own integrated circuit products from current levels, our business, revenues, results of operations, cash flows and financial position could be materially adversely impacted. See also the Risk Factor titled “We derive a significant portion of our revenues from a small number of customers and licensees, and particularly from their sale of premium tier handset devices. If revenues derived from these customers or licensees decrease or the timing of such revenues fluctuates, our business and results of operations could be negatively affected.”A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.We derive a significant portion of our revenues from Chinese OEMs, and from non-Chinese OEMs that utilize our integrated circuit products in devices they sell into China, which has the largest number of smartphone users in the world. We also source certain critical integrated circuit products from suppliers in China.Due to various factors, including pressure, encouragement or incentives from, or policies of, the Chinese government (including its Made in China 2025 campaign), concerns over losing access to our integrated circuit products as a result of actual, threatened or potential U.S. or Chinese government actions or policies, including trade protection or national security policies, or other reasons, some of our customers in China have developed, and others may in the future develop, their own integrated circuit products and use such integrated circuit products in their devices, or use our competitors’ integrated circuit products in their devices, rather than our products, which could materially harm our business, revenues, results of operations, cash flows and financial position. See also the Risk Factor titled “Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own integrated circuit products).”Political actions, including trade protection and national security policies of the U.S. and Chinese governments, such as tariffs, bans or placing companies on restricted entity lists, have in the past, currently are and could in the future limit or prevent us from transacting business with certain of our Chinese customers or suppliers, limit, prevent or discourage certain of our Chinese customers or suppliers from transacting business with us, or make it more expensive to do so. Given our revenue concentration in China, if, due to actual, threatened or potential U.S. or Chinese government actions or policies: we were further limited in, or prohibited from, selling our integrated circuit products to Chinese customers; our non-Chinese OEM customers were limited in, or prohibited from, selling devices that incorporate our integrated circuit products into China; Chinese OEMs develop and use their own integrated circuit products or use our competitors’ integrated circuit products in some or all of their devices rather than our integrated circuit products; Chinese tariffs on our integrated circuit products or on devices which incorporate our integrated circuit products made purchasing such products or devices more expensive to our Chinese customers or Chinese consumers; or our Chinese licensees delay or cease making payments of license fees they owe us, our business, revenues, results of operations, cash flows and financial position could be materially harmed. Similarly, if, due to U.S. or Chinese government actions or policies, we were limited in or prohibited from obtaining critical integrated circuit products from our suppliers in China, our business, revenues, results of operations, cash flows and financial position could be materially harmed. See also the Risk Factors titled “We derive a significant portion of our revenues from a small number of customers and licensees, and particularly from their sale of premium tier handset devices. If revenues derived from these customers or licensees decrease or the timing of such revenues fluctuates, our business and results of operations could be negatively affected” and “Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own integrated circuit products).”For example, we currently have export licenses from the U.S. Department of Commerce that allow us to sell 4G and other integrated circuit products, including Wi-Fi products, but excluding 5G products, to Huawei. Recent news reports have indicated that the Department of Commerce is considering not granting any new licenses for sales to Huawei and potentially revoking existing licenses. Further, we do not have a license to sell 5G products to Huawei, and Huawei has recently announced the launch of new 5G-capable devices using its own integrated circuit products. As a result, we do not expect to receive material product revenues from Huawei going forward. Additionally, to the extent that Huawei’s 5G devices take share from Chinese OEMs that utilize our 5G products or from non-Chinese OEMs that utilize our 5G products in devices they sell into China, our revenues, results of operations and cash flows could be further impacted. 20Finally, government policies in China that regulate the amount and timing of funds that may flow out of the country have impacted and may continue to impact the timing of our receipt of, and/or ability to receive, payments from our customers and licensees in China, which may negatively impact our cash flows.RISKS RELATED TO NEW INITIATIVESOur growth depends in part on our ability to extend our technologies and products into new and expanded product areas, and industries and applications beyond mobile handsets. Our research, development and other investments in these new and expanded product areas, industries and applications, and related technologies and products, as well as in our existing technologies and products, and new technologies, may not generate operating income or contribute to future results of operations that meet our expectations.While we continue to invest significant resources toward advancements primarily in support of 5G-based technologies, we also invest in new and expanded product areas, and industries and applications beyond mobile handsets, by utilizing our existing technical and business expertise and through acquisitions or other strategic transactions.In particular, our future growth depends in part on new and expanded product areas, and industries and applications beyond mobile handsets, such as automotive and IoT; our ability to develop leading and cost-effective technologies and products for these new and expanded product areas, industries and applications; and third parties incorporating our technologies and products into devices used in these product areas, industries and applications. Accordingly, we intend to continue to make substantial investments in these new and expanded product areas, industries and applications, and in developing related products and technologies. Our growth also depends significantly on our ability to develop and patent 5G and next-generation wireless technologies, and to develop and commercialize products using these technologies.However, our research, development and other investments in these new and expanded product areas, industries and applications, and corresponding technologies and products, as well as in our existing technologies and products and new technologies in mobile handsets, may not succeed because, among other reasons: we may not be issued patents on the technologies we develop; the technologies we develop may not be incorporated into relevant standards; new and expanded product areas, industries and applications beyond mobile handsets, and consumer demand therein, may not develop or grow as anticipated; we may be unable to attract or retain employees with the necessary skills in such new and expanded product areas, industries and applications; our strategies or the strategies of our customers, licensees or partners may not be successful; alternate technologies or products may be better or may reduce the advantages we anticipate from our investments; competitors’ technologies or products may be more cost effective, have more capabilities or fewer limitations or be brought to market faster than our new technologies or products; we may not be able to develop, or our competitors may have more established and/or stronger, customer, vendor, distributor or other channel relationships; and competitors may have longer operating histories in industries and applications that are new to us. We may also underestimate the costs of, or overestimate the future revenues or margins that could result from, these investments, and these investments may not, or may take many years to, generate material returns. For example, the automotive industry is subject to long design-in time frames, long product life cycles and a high degree of regulatory and safety requirements, necessitating suppliers to the industry to comply with stringent qualification processes, very low defect rates and high reliability standards, all of which results in significant barriers to entry and increased costs. Additionally, certain customers have adopted, and other customers may adopt, policies that require us to achieve certain sustainability, climate or other environmental, social and governance (ESG)-related targets, such as our 2040 net-zero global GHG emissions commitment and our interim GHG emissions reduction goals. If we fail to achieve ESG-related targets that meet our customers’ requirements or expectations, these customers may not purchase products or services from us. If our products fail to perform to specifications, compete with the product quality of our competitors or meet quality or regulatory standards (including product safety and information security standards, which may differ by region, geography and industry, and which are particularly stringent in the automotive industry) or other standards (including sustainability or other ESG-related standards) of a particular industry or application, we may be unable to successfully expand our business in that industry or application, and our growth could be limited.In addition, in order to successfully extend our technologies and products into new and expanded product areas, and industries and applications beyond mobile handsets, we may need to transition to new business models or transform aspects of our organization, and we may not be successful in doing so.If we are not successful in extending our technologies and products into new and expanded product areas, and industries and applications beyond mobile handsets, if our new technologies and products are not successful, or if we are not successful in the time frames we anticipate, we may incur significant costs and asset impairments, our business and revenues may not grow or grow as anticipated, our revenues and margins may be negatively impacted, our stock price may decline and our reputation may be harmed.We may engage in acquisitions and other strategic transactions or make investments, or be unable to consummate planned strategic acquisitions, which could adversely affect our results of operations or fail to enhance stockholder value.We engage in acquisitions and other strategic transactions, including joint ventures, and make investments, which we believe are important to the future of our business. We routinely acquire businesses and other assets, including patents, technology and other intangible assets, enter into joint ventures or other strategic transactions, and purchase minority equity 21interests in or make loans to companies, including those that may be private and early-stage. Our strategic activities are generally focused on opening or expanding opportunities for our products and technologies, supporting the design and introduction of new products (or enhancing existing products) for mobile handsets, and furthering our growth and diversification strategy in industries and applications beyond mobile handsets. Many of our strategic activities entail a high degree of risk and require the use of significant amounts of capital, and investments may not become liquid for several years after the date of the investment, if at all. Our strategic activities may not be successful, generate financial returns or result in increased adoption or continued use of our technologies or products. We may underestimate the costs or overestimate the benefits, including product, revenue, cost and other synergies and growth opportunities that we expect to realize, and we may not achieve those benefits. In some cases, we may be required to consolidate or record our share of the earnings or losses of companies in which we have acquired ownership or variable interests. In addition, we have in the past recorded, and may in the future record, impairment or other charges related to our strategic activities. Any losses or impairment charges that we incur related to strategic activities will have a negative impact on our results of operations and financial condition, and we may continue to incur new or additional losses related to strategic assets or investments that we have not fully impaired or exited.Achieving the anticipated benefits of business acquisitions depends in part upon our ability to integrate the businesses in an efficient and effective manner and achieve anticipated synergies, and we may not be successful in these efforts. Such integration is complex and time consuming and involves significant challenges, including, among others: retaining key employees; successfully integrating new employees, facilities, technology, products, processes, operations (including supply and manufacturing operations), sales and distribution channels, business models and business systems; retaining customers and suppliers of the businesses; consolidating research and development operations; minimizing the diversion of management’s attention from ongoing business matters; consolidating corporate and administrative infrastructures; and managing the increased scale, complexity and globalization of our business, operations and employee base. We may not derive any commercial value from acquired technologies or products or from future technologies or products based on these technologies, and we may become subject to liabilities, including liabilities arising as a result of litigation, that are not covered by any indemnification protection that we may obtain. Additionally, we may not be successful in entering or expanding into new sales or distribution channels, business or operational models, geographic regions, industries and applications served by or adjacent to the associated businesses or in addressing potential new opportunities that may arise out of our strategic acquisitions.Many of our acquisitions and other strategic investments require approval by the United States and/or foreign government agencies. Certain agencies in the past have, and may in the future, deny the transaction or fail to approve in a timely manner, resulting in us not realizing the anticipated benefits of the proposed transaction. Future acquisitions or other strategic investments may be more difficult, complex or expensive to the extent that our reputation for our ability to consummate acquisitions has been or is in the future harmed. Further, if U.S./China relations remain strained, our ability to consummate any transaction that would require approval from the relevant regulatory agency(ies) in China may be severely impacted. In addition, acquisitions that we have completed could subsequently be reviewed and/or challenged by government agencies, which could result in fines, penalties or other liability, or requirements to divest all or a portion of an acquired business.If we do not achieve the anticipated benefits of business acquisitions or other strategic activities, or if we are unable to consummate acquisitions or strategic investments that we consider important to the future of our business, our business and results of operations may be adversely affected, our growth and diversification strategy may not be successful, our stock price may decline and our reputation may be harmed.RISKS RELATED TO SUPPLY AND MANUFACTURING We depend on a limited number of third-party suppliers for the procurement, manufacture, assembly and testing of our products manufactured in a fabless production model. If we fail to execute supply strategies that provide supply assurance, technology leadership and reasonable margins, our business and results of operations may be harmed. We are also subject to order and shipment uncertainties that could negatively impact our results of operations.We primarily utilize a fabless production model, which means that we do not own or operate foundries for the production of silicon wafers from which our integrated circuits are made. Other than the facilities we own that manufacture certain of our RFFE modules and RF (radio frequency) filter products, we rely on third-party suppliers to perform the manufacturing and assembly, and most of the testing, of our integrated circuits. Our suppliers are also responsible for the procurement of most of the raw materials used in the production of our integrated circuits. There are a limited number of such third-party suppliers, and even fewer who are capable of manufacturing at the leading process technology nodes, or who are willing to operate at older process technology nodes necessary for certain of our integrated circuit products. The semiconductor manufacturing foundries that supply our products are primarily located in Asia, as are the primary warehouses where we store finished goods for fulfillment of customer orders.The following issues related to our third-party suppliers could have an adverse effect on our ability to meet customer demand and negatively impact our revenues, business operations, profitability and cash flows:•our suppliers’ failure or inability to react to shifts in product demand, including situations where demand for integrated circuits exceeds suppliers’ capacity to meet that demand;22•a failure or inability by our suppliers to procure raw materials or allocate adequate raw materials for our products, or an increase in prices for raw materials or components;•an inability to procure or utilize raw materials, components or products from our suppliers due to government prohibitions or restrictions on transactions with certain countries and/or companies, and alternative suppliers, raw material sources or raw materials are not available or not available in acceptable time frames or upon acceptable terms;•a failure by our suppliers to allocate adequate manufacturing, assembly or test capacity for our products;•our suppliers’ failure or inability to develop or maintain, or a delay in developing or building out, manufacturing capacity for leading process technologies, including transitions to smaller geometry process technologies;•the loss of a supplier or the failure or inability of a supplier to meet performance, quality or yield specifications or delivery schedules; •additional expense or production delays as a result of qualifying a new supplier and commencing volume production or testing in the event of a loss of, or a decision to add or change, a supplier;•natural disasters, the effects of climate change, acts of war or other geopolitical conflicts impacting the regions in which our suppliers and their manufacturing foundries or assembly, test or other facilities are located; •health crises, including epidemics or pandemics, such as the COVID-19 pandemic, and government and business responses thereto, which impact our suppliers, including as a result of quarantines or closures; •cyber-attacks on our suppliers’ information technology (IT) systems, including those related to their manufacturing foundries or assembly, test or other facilities;•trade or national security protection policies, particularly U.S. or Chinese government policies, that limit or prevent us from transacting business with suppliers of critical integrated circuit products, or that limit or prevent such suppliers from transacting business with us or from procuring materials, machinery or technology necessary to manufacture goods for us; and•any other reduction, interruption, delay or limitation in our product supply sources.We rely on sole- or limited-source suppliers for certain products, which may exacerbate the risks identified above, and subject us to other significant risks, including poor product performance and reduced control over delivery schedules, manufacturing capability and yields, quality assurance, quantity and costs. While we have established and may in the future establish alternate suppliers for certain products, these suppliers may require significant amounts of time and levels of support to bring such products to production, both of which may increase for complex or leading process technologies. As a result, we may invest a significant amount of effort and resources and incur higher costs to support and maintain such alternate suppliers. Further, the elimination or limitation of a foundry supplier’s ability to manufacture components or products for us due to trade or national security protection policies could increase our vulnerability to sole- or limited-source arrangements and limit or prevent us from procuring critical components or products from those suppliers. Future consolidation of foundry suppliers could also increase our vulnerability to sole- or limited-source arrangements and reduce our suppliers’ willingness to negotiate pricing, which could negatively impact our ability to achieve cost reductions, increase our manufacturing costs and limit the amount of capacity available to us. Our arrangements with our suppliers may obligate us to incur costs to manufacture, assemble and test our products that do not decrease at the same rate as decreases in pricing to our customers. Our ability, and that of our suppliers, to develop or maintain leading process technologies, including transitions to smaller geometry process technologies (which adds risk to manufacturing yields and reliability), and to effectively compete with the manufacturing processes and performance of our competitors, could impact our ability to introduce new products and meet customer demand, could increase our costs (possibly decreasing our margins) and could subject us to the risk of excess inventories. Any of the above could negatively impact our business, results of operations and cash flows.Although we have long-term contracts with our suppliers, some of these contracts do not provide for long-term capacity commitments. To the extent we do not have firm commitments from our suppliers over a specific time period or for any specific quantity, our suppliers may allocate, and in the past have allocated, capacity to the manufacture, assembly and testing of products for their other customers (including our competitors) while reducing or limiting capacity to manufacture, assemble or test our products, and such capacity may be limited based on our suppliers’ ability and willingness to invest in the capital required to manufacture in the leading process technologies. Our suppliers or potential alternate suppliers may also manufacture their own integrated circuits that compete with our products. Such suppliers have in the past allocated and may again allocate raw materials and manufacturing capacity to their own products and reduce or limit the production of our products. To the extent we do obtain long-term capacity commitments, we may incur additional costs related to those commitments or make non-refundable payments for capacity commitments that are not used. Further, certain of our suppliers have in the past attempted, and may in the future attempt, to unilaterally reduce their capacity commitments to us. Accordingly, capacity for our products may not be available when we need it. Finally, we may not receive reasonable pricing, manufacturing or delivery terms from our suppliers, and our ability to obtain favorable terms may be diminished during times of high demand and/or limited manufacturing capacity for integrated circuit products.23We cannot guarantee that the actions of our suppliers will not cause disruptions in our operations that could harm our ability to meet our delivery obligations to our customers or increase our cost of sales. To the extent we are unable to obtain adequate supply to meet our delivery obligations, we may be obligated to make payments to our customers for such shortfalls. From time to time, the global semiconductor industry experiences demand for integrated circuits that exceeds the industry’s capacity to meet that demand. Our ability to meet increased demand for our products has been in the past and may in the future be limited due to the inability to obtain the additional manufacturing, assembly and test capacity necessary to fully meet such demand. If we are unable to fully meet customer demand, this could result in lost sales opportunities, reduced revenue growth and harm to our customer relationships. These issues may be exacerbated if customers overstate their expected demand requirements in order to procure additional supply, which could negatively impact our ability to forecast and to allocate supply appropriately among our customers. The above issues may also be exacerbated with respect to our platform solutions, which already entail a great deal of complexity due to differing lead-times, technologies and suppliers for each integrated circuit product included in such solutions. Additionally, our suppliers have in the past and may in the future increase their prices during periods of capacity constraints, or for other reasons, thus increasing our costs.While capacity constraints have largely abated, we expect to continue to see product cost increases from certain of our key semiconductor wafer suppliers, which, without corresponding increases in the prices of our products, could negatively impact our margins.We place orders with our suppliers using our and our customers’ forecasts of demand for our products, which are based on a number of assumptions and estimates. As we move to smaller geometry process technologies, the manufacturing lead-time increases. As a result, the orders we place with our suppliers are generally only partially covered by commitments from our customers. If we, or our customers, overestimate demand, or if demand is impacted by factors outside of our or our customers’ control, and such demand is not covered by a binding commitment from our customers, we may experience increased excess or obsolete inventory or reserve charges, which would negatively impact our results of operations. Further, to the extent our customers procure supply of our integrated circuit products beyond their current needs (i.e., build up inventory of our integrated circuit products), whether due to concerns over supply, overestimating demand and/or a decline in macroeconomic conditions, or otherwise, they may not purchase expected quantities of our products in subsequent quarters, which may negatively impact our revenues, results of operations and cash flows in such quarters.See also the Risk Factor below titled “There are numerous risks associated with the operation and control of our manufacturing facilities, including a higher portion of fixed costs relative to a fabless model; environmental compliance and liability; impacts related to climate change; exposure to natural disasters, health crises, geopolitical conflicts and cyber-attacks; timely supply of equipment and materials; and various manufacturing issues” as similar risks, as well as additional risks, may be applicable to our third-party suppliers’ manufacturing facilities, which could result in disruptions to our business or additional costs to us, and negatively impact our results of operations.There are numerous risks associated with the operation and control of our manufacturing facilities, including a higher portion of fixed costs relative to a fabless model; environmental compliance and liability; impacts related to climate change; exposure to natural disasters, health crises, geopolitical conflicts and cyber-attacks; timely supply of equipment and materials; and various manufacturing issues.We operate various facilities that manufacture certain of our RFFE modules and RF filter products. Our manufacturing facilities are characterized by a higher portion of fixed costs relative to a fabless model. We may be faced with a decline in the utilization rates of our manufacturing facilities due to decreases in demand for our products, including in less favorable industry or macroeconomic environments, or due to our failure to win and/or retain designs with OEMs. As a result, from time to time our manufacturing facilities operate at lower capacity levels, while the fixed costs associated with such facilities continue to be incurred, resulting in lower gross profit. Due to the factors above, we are currently experiencing, and expect to continue to experience in the near term, such underutilization of capacity at our manufacturing facilities. We are subject to many complex environmental, health and safety laws, regulations and rules in each jurisdiction in which we operate our manufacturing (and research and development) facilities. The regulatory landscape in these areas continues to evolve, and we anticipate additional laws, regulations and rules in the future. In particular, new, or changes in, environmental and climate change laws, regulations or rules, including relating to greenhouse gas emissions, could lead to new or additional investments in production processes and could increase environmental compliance expenditures. In addition, certain environmental laws impose strict, and in certain circumstances joint and several, liability on current or previous owners or operators of real property, or parties who arranged for hazardous substances to be sent to disposal or treatment facilities, for the cost of investigation, removal or remediation of hazardous substances. As a result, we may incur clean-up costs in connection with any such removal or remediation efforts, as well as other third-party claims in connection with contaminated sites. In addition, we could be held liable for consequences arising out of human exposure to hazardous substances or other environmental damage. If we, or companies or facilities we acquire or have acquired, in the past failed or in the future fail to comply with any such laws and regulations, then we could incur regulatory penalties, fines and legal liabilities; suspension of production; significant compliance requirements; alteration of our manufacturing, assembly or test processes; restriction on our ability to modify or expand our facilities; damage to our reputation; and restrictions on our operations or sales. We are also required to obtain and maintain environmental permits from governmental authorities for certain of our operations. We cannot make assurances that we will at all times be in compliance with such laws, regulations, rules and permits. See also the risk factor titled “Our business may suffer due to the impact of, or our failure to comply with, the various existing, new or amended laws, regulations, policies or standards to which we are subject.”24Climate change concerns and the potential resulting environmental impact may result in new environmental, health and safety laws and regulations that may affect us, our suppliers and our customers. Such laws or regulations could cause us to incur additional direct costs for compliance, including costs associated with changes to manufacturing processes or the procurement of raw materials used in manufacturing processes, as well as increased indirect costs resulting from our customers, suppliers or both incurring additional compliance costs that are passed on to us. These costs may adversely impact our results of operations and financial condition. In addition, climate change could cause certain natural disasters, such as drought, wildfires, storms, flooding or rising sea levels, to occur more frequently or with greater intensity, which could pose physical risks to our manufacturing facilities or our suppliers’ facilities, could disrupt the availability of water necessary for the operation of such facilities, and could increase or decrease temperatures resulting in increased operating costs and/or business disruption.We have manufacturing facilities in Asia and Europe, and the primary warehouses where we store finished goods are located in Asia. If tsunamis, flooding, earthquakes, volcanic eruptions, drought or other natural disasters, effects of climate change, acts of war or other geopolitical conflicts were to damage, destroy or disrupt any of these facilities, it could disrupt our operations, cease or delay production and shipments of inventory and result in costly repairs, replacements or other costs and lost business. In addition, natural disasters, effects of climate change, acts of war or other geopolitical conflicts may result in disruptions in transportation, distribution channels and supply chains and significant increases in the prices of raw materials. Further, health crises, including epidemics or pandemics, such as the COVID-19 pandemic, and government and business responses thereto, could affect our manufacturing facilities, including by resulting in quarantines and/or closures, which could result in disruptions to and potential closures of our manufacturing operations. Our manufacturing operations could also be disrupted by cyber-attacks on our IT systems, as described in the Risk Factor below titled “Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.”Our manufacturing operations depend on securing raw materials, equipment and other supplies in adequate quality and quantity in a timely manner from multiple suppliers, and in some cases, we rely on a limited number of suppliers, including in some cases sole suppliers, particularly in Asia. There may be cases where supplies of raw materials, equipment and other products are interrupted or limited by natural disaster, geopolitical conflict, accident or some other event affecting a supplier or source of raw materials; supply is suspended due to quality or other issues; there is a shortage of supply due to a rapid increase in demand; and/or we or our suppliers are prohibited from utilizing certain raw materials, or products or components that incorporate such raw materials, due to government restrictions related to the countries from which such raw materials originate, and acceptable alternative suppliers, raw materials or raw materials sources are not available or not available in acceptable time frames or upon acceptable terms, among others, which could impact production and prevent us from supplying our products to our customers. If the supply-demand balance is disrupted, it may considerably increase costs of manufacturing due to increased prices we pay for raw materials. From time to time, suppliers may extend lead times, limit amounts supplied to us or increase prices due to capacity constraints or other factors. Additionally, supply and costs of raw materials, equipment and other products may be negatively impacted by trade and/or national security protection policies, such as tariffs, or actions by governments that limit or prevent us from transacting business with certain countries or companies or that limit or prevent certain companies from transacting business with us, or trade tensions, particularly with countries in Asia. Further, it may be difficult or impossible to substitute one piece of equipment for another or replace one type of material with another. A failure by our suppliers to deliver our requirements could result in disruptions to our manufacturing operations.Our manufacturing processes are highly complex, require advanced and costly equipment and must be continuously modified to improve yields and performance. Difficulties in the production process can reduce yields or interrupt production, and as a result, we may not be able to deliver our products or do so in a timely, cost-effective or competitive manner. Further, to remain competitive and meet customer demand, we may be required to improve our facilities and process technologies and carry out extensive research and development, each of which may require investment of significant amounts of capital and may have a material adverse effect on our results of operations, cash flows and financial condition. From time to time, we purchase equipment to meet expected customer demand in advance of any purchase orders or long-term purchase commitments. Further, we typically begin manufacturing our products using our or our customers’ forecasts of demand for our products, which are based on a number of assumptions and estimates and may not be covered by long-term purchase commitments. As a result, we may incur increased inventory and manufacturing costs and/or record impairment charges to the extent anticipated sales ultimately do not materialize or are lower than expected. If we or our customers overestimate demand, or if demand is impacted by factors outside of our or our customers’ control, and such demand is not covered by a binding commitment from our customers, we may experience higher inventory carrying and operating costs and/or increased excess or obsolete inventory or reserve charges, which would negatively impact our results of operations.25RISKS RELATED TO CYBERSECURITY OR MISAPPROPRIATION OF OUR CRITICAL INFORMATION Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.Third parties regularly attempt to gain unauthorized access to our IT systems, and many such attacks are increasingly more sophisticated. These attacks, which might be related to industrial, corporate or other espionage, criminal hackers or state-sponsored intrusions, include trying to covertly introduce malware to our computers and networks, including those in our manufacturing operations, exploiting vulnerabilities in hardware, software or other IT infrastructure and impersonating authorized users, among others. We are also subject to ransom-style cyber-attacks, which could expose our confidential or proprietary information, demand payment of money and/or impact our IT systems and cause widespread disruption to our business, including our manufacturing operations. Third parties that store and/or process our confidential information, or that provide products, software or services used in our IT infrastructure, may be subject to similar attacks, which could also result in malware being introduced into our IT infrastructure, e.g., through the third parties’ software and/or software updates. Such attacks could result in the misappropriation, theft, misuse, disclosure, loss or destruction of the technology, intellectual property, or the proprietary, confidential or personal information, of us or our employees, customers, licensees, suppliers or other third parties, as well as damage to or disruptions in our IT systems. We believe that we have a robust cybersecurity program that is aligned to international cybersecurity frameworks, and that we leverage industry best practices across people, processes and technologies in an attempt to mitigate cybersecurity threats. However, we cannot anticipate, detect, repel or implement fully effective preventative measures against all cybersecurity threats, particularly because the techniques used are increasingly sophisticated and constantly evolving. For example, as AI continues to evolve, cyber-attackers could also use AI to develop malicious code and sophisticated phishing attempts. As part of our cybersecurity program, we seek to identify and remediate vulnerabilities in our IT systems and software (including third party software used in our IT systems) that could be exploited by hackers or other malicious actors. However, we may not be aware of all such vulnerabilities, and we may fail to identify and/or remediate such vulnerabilities before they are exploited. Attempts to gain unauthorized access to our IT systems or other attacks have in the past, in certain instances and to certain degrees, been successful (but have not caused significant harm), and may in the future be successful, and in some cases, we might be unaware of an incident or its magnitude and effects. In addition, employees and former employees, in particular former employees who become employees of our competitors, customers, licensees or other third parties, including state actors, have in the past and may in the future misappropriate, wrongfully use, publish or provide to our competitors, customers, licensees or other third parties, including state actors, our technology, intellectual property or other proprietary or confidential information. This risk is exacerbated as competitors for talent, particularly engineering talent, increasingly attempt to hire our employees. See also the Risk Factor titled “We may not be able to attract or retain qualified employees.” Similarly, we provide access to certain of our technology, intellectual property and other proprietary or confidential information to our direct and indirect customers and licensees and certain of our consultants, who have in the past and may in the future wrongfully use such technology, intellectual property or information, or wrongfully disclose such technology, intellectual property or information to third parties, including our competitors or state actors. We also provide access to certain of our technology, intellectual property and other proprietary or confidential information to certain of our joint venture partners, including those affiliated with state actors and including in foreign jurisdictions where ownership restrictions may require us to take a minority ownership interest in the joint venture. Such joint venture partners may wrongfully use such technology, intellectual property or information, or wrongfully disclose such technology, intellectual property or information to third parties, including our competitors or state actors. Our technology, intellectual property and other proprietary or confidential information that we have provided to customers, licensees or other business partners could also be wrongfully obtained by third parties through cyber-attacks on such customers’, licensees’ or other business partners’ IT systems.The misappropriation, theft, misuse, disclosure, loss or destruction of the technology, intellectual property, or the proprietary, confidential or personal information, of us or our employees, customers, licensees, suppliers or other third parties, could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives, cause us to lose business, damage our reputation, subject us to legal or regulatory proceedings, cause us to incur other loss or liability and otherwise adversely affect our business. We expect to continue to devote significant resources to the security of our IT systems, and our technology, intellectual property and proprietary and confidential information.Further, certain countries in which we operate have implemented, and other countries or regions may implement, cybersecurity laws that require our overall IT security environment to meet certain standards and/or be certified. Such laws may be complex, ambiguous and subject to interpretation, which may create uncertainty regarding compliance. As a result, our efforts to comply with such laws may be expensive and may fail, which could adversely affect our business, results of operations and cash flows. In addition, our contracts with certain of our customers require us to obtain cybersecurity certifications for our IT systems. Failure to obtain or maintain the necessary cybersecurity certifications could result in loss of future revenues, damage to our customer relationships and reputation, and a shift of business to our competitors.26RISKS RELATED TO HUMAN CAPITAL MANAGEMENTWe may not be able to attract or retain qualified employees.Our future success depends upon the continued service of our executive officers and other key management and technical personnel, and on our ability to continue to identify, attract, retain and motivate them. Implementing our business strategy requires specialized engineering and other talent, as our revenues are highly dependent on technological and product innovations. In addition, in order to extend our business into certain new and expanded product areas and industries and applications beyond mobile handsets, we need to attract, retain and motivate engineering and other technical personnel with specialized skills in these areas, and these skills are in high demand among our competitors. The market for employees in our industry is extremely competitive, and competitors for talent, particularly engineering talent, increasingly attempt to hire, and to varying degrees have been successful in hiring, our employees or employment candidates, including by establishing or expanding local offices near our headquarters in San Diego, California. Further, the increased availability of remote working arrangements has expanded the pool of companies that can compete for our employees and employment candidates. A number of such competitors for talent are significantly larger than us and/or offer compensation in excess of what we offer or other benefits that we do not offer. Further, existing immigration laws make it more difficult for us to recruit and retain highly skilled foreign national graduates of universities in the United States, making the pool of available talent even smaller. The COVID-19 pandemic caused us to modify our workforce practices, including having the vast majority of our employees work from home. Upon the reopening of our offices, we initially operated under a hybrid work model, meaning that the majority of our employees had the flexibility to work remotely at least some of the time. In fiscal 2023, we implemented changes to our hybrid work model that require the majority of our employees to spend the majority of their working time in the office. This requirement for greater in-office attendance may not meet the needs or expectations of our employees and could negatively impact our ability to attract and retain employees, particularly if it is perceived as less favorable compared to other companies’ remote work policies. If we are unable to attract or retain qualified employees or fail to maintain employee productivity due to any of the factors described above or for other reasons, our business could be adversely impacted. RISKS SPECIFIC TO OUR LICENSING BUSINESSThe continued and future success of our licensing programs requires us to continue to evolve our patent portfolio and to renew or renegotiate license agreements that are expiring.We own a very strong portfolio of issued and pending patents related to 3G, 4G, 5G and other technologies. It is critical that we continue to evolve our patent portfolio, particularly in 5G. If we do not maintain a strong portfolio that is applicable to current and future standards, products and services, our future licensing revenues could be negatively impacted.Our patent license agreements in effect that generate a significant portion of our licensing revenues are effective for a specified term. To receive royalties after the expiration date of the specified term, we will need to extend or modify such license agreements or enter into new license agreements with such licensees. We might not be able to extend or modify license agreements, or enter into new license agreements, in the future without negatively affecting the material terms and conditions of our license agreements with such licensees, and such modifications or new agreements may negatively impact our revenues. In some circumstances, we may extend, modify or enter into new license agreements as a result of arbitration or litigation, and terms imposed by arbitrators or courts may be less favorable to us than existing terms, and may impact the financial or other terms of license agreements not subject to the litigation or arbitration. If there is a delay in extending, modifying or entering into a new license agreement with a licensee, there would be a delay in our ability to recognize revenues related to that licensee’s product sales. Further, if we are unable to reach agreement on such modifications or new agreements, it could result in patent infringement litigation with such licensees.Efforts by some original equipment manufacturers (OEMs) to avoid paying fair and reasonable royalties for the use of our intellectual property may require the investment of substantial management time and financial resources and may result in legal decisions or actions by governments, courts, regulators or agencies, Standards Development Organizations (SDOs) or other industry organizations that harm our business. From time to time, companies initiate various strategies to attempt to negotiate, renegotiate, reduce and/or eliminate their need to pay royalties to us for the use of our intellectual property. These strategies have included: (i) litigation, often alleging infringement of patents held by such companies, patent misuse, patent exhaustion, patent invalidity or unenforceability of our patents or licenses, alleging that we do not license our patents on fair, reasonable and nondiscriminatory (FRAND) terms, or alleging some form of unfair competition or competition law violation; (ii) taking positions contrary to our understanding (and/or the plain language) of their contracts with us; (iii) appeals to governmental authorities; (iv) collective action, including working with wireless operators, standards bodies, other like-minded companies and organizations, on both formal and informal bases, to adopt intellectual property policies and practices that could have the effect of limiting returns on intellectual property innovations; (v) lobbying governmental regulators and elected officials for the purpose of seeking the reduction of royalty rates or the base on which royalties are calculated, seeking to impose some form of compulsory licensing or weakening a patent holder’s ability to enforce its rights or obtain a fair return for such rights; and (vi) attempts by licensees to shift their royalty obligation to their suppliers in order to make royalty collection more difficult or reduce the amount of royalties collected.27In addition, certain licensees have disputed, underreported, underpaid, not reported or not paid royalties owed to us under their license agreements or reported to us in a manner that is not in compliance with their contractual obligations, and certain companies have yet to enter into or have delayed entering into or renewing license agreements with us for their use of our intellectual property, and they or others may engage in such behavior in the future. The fact that one or more licensees dispute, underreport, underpay, do not report or do not pay royalties owed to us may encourage other licensees to take similar actions or not renew their existing license agreements, and may encourage other licensees or unlicensed companies to delay entering into, or to not enter into, new license agreements. Further, to the extent such licensees and companies increase their device share, the negative impact of their underreporting, underpayment, non-payment or non-reporting on our business, revenues, results of operations, cash flows and financial condition will be exacerbated.We have been in the past and are currently subject to various litigation and/or governmental investigations and proceedings. Certain of these matters are described in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” We may become subject to other litigation or governmental investigations or proceedings in the future. Additionally, certain of our direct and indirect customers and licensees have pursued, and others may in the future pursue, litigation or arbitration against us related to our business. Unfavorable resolutions of one or more of these matters have had and could in the future have a material adverse effect on our business, revenues, results of operations, cash flows and financial condition. See also the Risk Factors below titled “Changes in our patent licensing practices, whether due to governmental investigations, legal challenges or otherwise, could adversely impact our business and results of operations” and “Our business may suffer as a result of adverse rulings in governmental investigations or proceedings or other legal proceedings.” In addition, in connection with our participation in SDOs, we, like other patent owners, generally have made contractual commitments to such organizations to license those of our patents that would necessarily be infringed by standard-compliant products as set forth in those commitments (referred to as standard-essential patents). Some manufacturers and users of standard-compliant products advance interpretations of these commitments that are adverse to our licensing business, including interpretations that would limit the amount of royalties that we could collect on the licensing of our standard-essential patent portfolio.Further, some third parties have proposed significant changes to existing intellectual property policies for implementation by SDOs and other industry organizations with the goal of significantly devaluing standard-essential patents. For example, some have put forth proposals which would require a maximum aggregate intellectual property royalty rate for the use of all standard-essential patents owned by all of the member companies to be applied to the selling price of any product implementing the relevant standard. They have further proposed that such maximum aggregate royalty rate be apportioned to each member company with standard-essential patents based upon the number of standard-essential patents held by such company. Others have proposed that injunctions should not be an available remedy for infringement of standard-essential patents and have made proposals that could severely limit damage awards and other remedies by courts for patent infringement (e.g., by limiting the base upon which the royalty rate may be applied). A number of these strategies are purportedly based on interpretations of the policies of certain SDOs concerning the licensing of patents that are or may be essential to industry standards and on our (or other companies’) alleged failure to abide by these policies. Some SDOs, courts and governmental agencies have adopted, and may in the future adopt, some or all of these interpretations or proposals in a manner adverse to our interests, including in litigation to which we may not be a party. Further, SDOs in certain countries may attempt to modify widely accepted standards and claim the resulting standard as their own. In addition, governments may enact policies concerning standard-essential patents, such as the European Commission’s recently proposed regulations which would create a new regulatory scheme for standard-essential patents, that may have various consequences, some of which may be detrimental, such as by devaluing standard-essential patents or disrupting worldwide technology standards. Other jurisdictions may adopt similar regulatory schemes, which could also have such effects. We expect that such proposals, interpretations and strategies will continue in the future, and if successful, our business model would be harmed, either by limiting or eliminating our ability to collect royalties (or by reducing the royalties we can collect) on all or a portion of our standard-essential patent portfolio, limiting our return on investment with respect to new technologies, limiting our ability to seek injunctions against infringers of our standard-essential patents, constraining our ability to make licensing commitments when submitting our technologies for inclusion in future standards (which could make our technologies less likely to be included in such standards) or forcing us to work outside of SDOs or other industry groups to promote our new technologies, and our revenues, results of operations and cash flows could be negatively impacted. In addition, the legal and other costs associated with asserting or defending our positions have been and may in the future be significant. We expect that such challenges, regardless of their merits, will continue into the foreseeable future and will require the investment of substantial management time and financial resources.Changes in our patent licensing practices, whether due to governmental investigations, legal challenges or otherwise, could adversely impact our business and results of operations.As described in the Risk Factor below titled “Our business may suffer as a result of adverse rulings in governmental investigations or proceedings or other legal proceedings,” we have been in the past, currently are and may in the future be subject to various governmental investigations and/or legal proceedings challenging our patent licensing practices. Certain of these matters are described in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and 28Contingencies.” We believe that one intent of certain of these governmental investigations and legal proceedings has been to reduce the amount of royalties that licensees are required to pay to us for their use of our intellectual property. If we were required to reduce the royalty rates in our patent license agreements, our revenues, earnings and cash flows would be negatively impacted absent a sufficient increase in the volume of sales of devices upon which royalties are paid. Similarly, if we were required to reduce the base on which our royalties are calculated (e.g., license at the chipset level rather than at the device level), our revenues, earnings and cash flows would be negatively impacted unless there was a sufficient increase in the volume of sales of devices upon which royalties are paid or we were able to increase our royalty rates to offset the decrease in revenues resulting from such lower royalty base.If we were required to grant patent licenses to chipset manufacturers or other component suppliers (which could lead to implementing a more complex, multi-level licensing structure in which we license certain portions of our patent portfolio to chipset manufacturers or other component suppliers and other portions to OEMs), we would incur additional transaction costs, which may be significant, and we could incur delays in recognizing revenues until license negotiations were completed. In addition, our licensing revenues and earnings would be negatively impacted if we were not able to obtain, in the aggregate, equivalent revenues under such a multi-level licensing structure.If we were required to sell chipsets to OEMs that do not have a license to our patents, our licensing programs could be negatively impacted by patent exhaustion claims raised by such unlicensed OEMs (i.e., claims that our sale of chipsets to such OEMs forecloses us from asserting any patents substantially embodied by the chipsets against such OEMs). Such sales could provide OEMs with a defense in the event we asserted our patents against them to obtain licensing revenue for those patents. Moreover, such a requirement could negatively impact our ability to maintain our licensing program for products that do not use our chipsets. This could have a material adverse effect on our licensing programs and our results of operations, cash flows and financial condition.To the extent that we were required to implement any of these licensing and/or business practices, including by modifying or renegotiating our existing license agreements or pursuing other commercial arrangements, we would incur additional transaction costs, which may be significant, we could incur delays in recognizing revenues until license negotiations were completed, and our business, revenues, results of operations, cash flows and financial condition could be harmed. The impact of any such changes to our licensing practices could vary widely and by jurisdiction, depending on the specific outcomes and the geographic scope of such outcomes. In addition, if we were required to make modifications to our licensing practices in one jurisdiction, licensees or governmental agencies in other jurisdictions may attempt to obtain similar outcomes for themselves or for such other jurisdictions, as applicable, which could result in increased legal costs and further harm to our business, revenues, results of operations, cash flows and financial condition.RISKS RELATED TO REGULATORY AND LEGAL CHALLENGESOur business may suffer as a result of adverse rulings in governmental investigations or proceedings or other legal proceedings.We have been in the past and currently are subject to various governmental investigations and/or legal proceedings. Certain of these matters are described in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” Key allegations or findings in those matters include or have in the past included, among others: that we violate FRAND licensing commitments by refusing to grant licenses to chipset manufacturers; that our royalty rates are too high; that the base on which our royalties are calculated should be something less than the wholesale (i.e., licensee’s) selling price of the applicable device (minus certain permitted deductions); that we unlawfully require customers to execute a patent license before we sell them cellular modem chipsets; that we have entered into exclusive agreements with chipset customers that foreclose competition; that we leverage our position in baseband chipsets in the RFFE space; and that we violate antitrust laws and engage in anticompetitive conduct and unfair methods of competition. We may become subject to other litigation or governmental investigations or proceedings in the future. Unfavorable resolutions of one or more of these matters have had and could in the future have a material adverse effect on our business, revenues, results of operations, cash flows and financial condition. Depending on the matter, various remedies that could result from an unfavorable resolution include, among others: the loss of our ability to enforce one or more of our patents; injunctions; monetary damages, fines or other orders to pay money; the issuance of orders to cease certain conduct or modify our business practices, such as requiring us to reduce our royalty rates, reduce the base on which our royalties are calculated, grant patent licenses to chipset manufacturers or other component suppliers, sell chipsets to unlicensed OEMs or modify or renegotiate some or all of our existing license agreements; and determinations that some or all of our license agreements are invalid or unenforceable. In addition, a governmental body in a particular country or region may successfully assert and impose remedies with effects that extend beyond the borders of that country or region. If some or all of our license agreements are declared invalid or unenforceable and/or we are required to renegotiate these license agreements, we may not receive, or may not be able to recognize, some or any licensing or royalty revenues under the impacted license agreements unless and until we enter into new license agreements; and even licensees whose license agreements are not impacted may demand to renegotiate their agreements or invoke the dispute resolution provision in their agreements, and we may not be able to recognize some or any revenues under such agreements. The renegotiation of license agreements could result in terms that are less favorable to us than existing terms, or lead to arbitration or litigation to resolve the licensing terms, which could also be less favorable to us than existing terms, and each of which could take months or years. Licensees may underreport, underpay, not report or not pay royalties owed to us pending the conclusion of such 29negotiations, arbitration or litigation. In addition, we may be sued for alleged overpayments of past royalties paid to us, including private antitrust actions seeking treble damages under U.S. antitrust laws. The occurrence of any of the above could have a material adverse effect on our business, revenues, results of operations, cash flows and financial condition, and our stock price could decline, possibly significantly, in which case we may have to significantly cut costs and other uses of cash, including in research and development, significantly impairing our ability to maintain product and technology leadership and invest in next generation technologies. Further, depending on the breadth and severity of the circumstances above, we may have to reduce, suspend or eliminate our capital return programs, and our ability to timely pay our indebtedness may be impacted.These challenges have required, and may in the future require, the investment of significant management time and attention and have resulted, and may in the future result, in significant legal costs.RISKS RELATED TO INDUSTRY DYNAMICS AND COMPETITIONOur revenues depend on our customers’ and licensees’ sales of products and services based on CDMA, OFDMA and other communications technologies, including 5G, and customer demand for our products based on these technologies.We develop, patent and commercialize technology and products based on CDMA, OFDMA and other communications technologies, which are primarily wireless. We depend on our customers and licensees to develop devices and services based on these technologies to drive consumer demand for such devices, and to establish the selling prices for such devices (which impact the amount of royalties we receive for certain devices). Further, the timing of our shipments of our products is dependent on the timing of our customers’ and licensees’ deployments of new devices and services based on these technologies. Increasingly, we also depend on operators of wireless networks, our customers and licensees and other third parties to incorporate these technologies into new device types and into industries and applications beyond mobile handsets, such as automotive and IoT, among others. Commercial deployments of 5G networks and devices have begun and are expected to continue for the foreseeable future. However, the timing and scale of certain such deployments were delayed due to the COVID-19 pandemic, and future deployments may similarly be delayed for reasons that are beyond our control.Our revenues and growth in revenues could be negatively impacted, our business may be harmed and our substantial investments in these technologies may not provide us an adequate return, if: our customers’ and licensees’ revenues and sales of products, particularly premium-tier handset products, and services using these technologies, or average selling prices of such products, decline due to, for example, the maturity of smartphone penetration in developed regions, including China; we do not continue to maintain our intellectual property and technical leadership in 5G, including in ongoing 5G standardization efforts; we are unable to drive the adoption of our products into networks and devices, including devices beyond mobile handsets; consumers’ rates of replacement of smartphones and other devices decline; or there is a shift in consumer demand away from new devices in favor of refurbished or secondhand devices. Our industry is subject to intense competition in an environment of rapid technological change. Our success depends in part on our ability to adapt to such change and compete effectively; and such change and competition could result in decreased demand for our products and technologies or declining average selling prices for our products or those of our customers or licensees.Our products and technologies face significant competition. Competition may intensify as our current competitors expand their product offerings, improve their products or reduce the prices of their products as part of a strategy to maintain existing business and customers or attract new business and customers, as new opportunities develop, and as new competitors enter the industry. Competition in wireless communications is affected by various factors that include, among others: OEM concentrations; vertical integration; competition in certain geographic regions; government intervention or support of national industries or competitors; the ability to maintain product differentiation in light of evolving industry standards and speed of technological change (including the transition to smaller geometry process technologies, the demand for always on, always connected capabilities, the increasing use of AI and machine learning technologies and the need to run complex AI-based applications on devices); access to capacity in the supply chain; and value-added features that drive selling prices and consumer demand for new devices.We anticipate that additional competitors will introduce products as a result of growth opportunities in wireless communications, the trend toward global expansion by foreign and domestic competitors, and technological and public policy changes. Additionally, the semiconductor industry has experienced and may continue to experience consolidation, which could result in significant changes to the competitive landscape. For example, if any key supplier of technologies and intellectual property to the semiconductor industry was sold to one of our competitors, it could negatively affect our ability to procure or license such technologies and intellectual property in the future, at all or upon acceptable terms, which could have wide-ranging impacts on our business and operations.We expect that our future success will depend on, among other factors, our ability to:•differentiate our integrated circuit products with innovative technologies across multiple products and features (e.g., modem, RFFE including millimeter wave (mmWave), graphics and other processors, camera, connectivity and on-device AI) and with smaller geometry process technologies that drive both performance and lower power consumption;30•develop and offer integrated circuit products at competitive cost and price points and to effectively cover all geographic regions and all device tiers;•continue to be a leader in mobile, and drive the adoption of our technologies and integrated circuit products into the most popular device models and across a broad spectrum of devices in mobile, such as smartphones, tablets, laptops and other mobile computing devices;•increase or accelerate adoption of our technologies and products in industries and applications outside of mobile handsets, including automotive and IoT;•maintain or accelerate demand for our integrated circuit products at the premium device tier, while also driving the adoption of our products into high, mid- and low-tier devices across all regions;•remain a leader in 5G technology development, standardization, intellectual property creation and licensing, and develop, commercialize and remain a leading supplier of 5G integrated circuit products, including RFFE products; •maintain access to sufficient capacity in the supply chain relative to our competitors to meet customer demand;•create standalone value and contribute to the success of our existing businesses through acquisitions, joint ventures and other strategic transactions, and by developing customer, licensee, vendor, distributor and other channel relationships in new industries and applications; •identify potential acquisition targets that will grow or sustain our business or address strategic needs, reach agreement on terms acceptable to us, close the transactions and effectively integrate these new businesses, products, technologies and employees; •provide leading products and technologies to OEMs, high level operating systems (HLOS) providers, operators, cloud providers and other industry participants as competitors, new industry entrants and other factors continue to affect the industry landscape;•be a preferred partner and sustain preferred relationships providing integrated circuit products that support multiple operating system and infrastructure platforms to industry participants that effectively commercialize new devices using these platforms; and•continue to develop brand recognition to effectively compete against better known companies in computing and other consumer driven segments and to deepen our presence in significant emerging regions.We compete with many different semiconductor companies, ranging from multinational companies with integrated research and development, manufacturing, sales and marketing organizations across a broad spectrum of product lines, to companies that are focused on a single application, industry or standard product, including those that produce products for mobile handsets, automotive or IoT, among others. Most of these competitors compete with us with respect to some, but not all, of our businesses or product lines. Companies that design integrated circuits based on CDMA, OFDMA, Wi-Fi or their derivatives are generally competitors or potential competitors. Examples (some of which are strategic partners of ours in other areas) include Apple, Broadcom, HiSilicon, MediaTek, Mobileye, Nvidia, NXP Semiconductors, Qorvo, Samsung, Skyworks, Texas Instruments and UNISOC. Some of these current and potential competitors may have advantages over us that include, among others: motivation by our customers in certain circumstances to use our competitors’ integrated circuit products, to utilize their own internally-developed integrated circuit products and/or sell such products to others, or to utilize alternative technologies; lower cost structures or a willingness and ability to accept lower prices or lower margins for their products, particularly in China; foreign government support of other technologies, competitors or OEMs that sell devices that do not contain our integrated circuit products; better known brand names; ownership and control of manufacturing facilities and greater expertise in manufacturing processes; the development and sale of infrastructure equipment for wireless networks, which may enable such competitors to better optimize their integrated circuit products for performance on those networks; more extensive relationships with local distribution companies and OEMs in certain geographic regions (such as China); more experience in industries and applications beyond mobile handsets (such as automotive and IoT); and a more established presence in certain regions. In addition, certain of our largest customers have in the past utilized, currently utilize and may in the future utilize our competitors’ integrated circuit products in some or all of their devices, rather than our products. Further, certain of those customers have developed, are developing or may develop their own integrated circuit products (effectively making them competitors), which they have in the past utilized, currently utilize and may in the future utilize in some or all of their devices, rather than our products. See also the Risk Factor titled “Our business, particularly our semiconductor business, may suffer as a result of our customers vertically integrating (i.e., developing their own integrated circuit products).” Further, political actions, including trade and/or national security protection policies, or other actions by governments, particularly the U.S. and Chinese governments, have in the past, currently are and could in the future limit or prevent us from transacting business with certain of our customers or suppliers; limit, prevent or discourage certain of our customers or suppliers from transacting business with us; or make it more expensive to do so. This could advantage our competitors by enabling them with increased sales, economies of scale, operating income and/or cash flows, and/or enabling critical technology transfer, allowing them to increase their investments in technology development, research and development, and 31commercialization of products. See also the Risk Factor titled “A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions.” Competition in any or all product areas or device tiers may result in the loss of business or customers, which would negatively impact our business, revenues, results of operations, cash flows and financial condition. Such competition may also reduce average selling prices for our chipset products or the products of our customers and licensees. Certain of these dynamics are particularly pronounced in emerging regions and China where competitors may have lower cost structures or may have a willingness and ability to accept lower prices or lower margins on their products. Reductions in the average selling prices of our chipset products, without a corresponding increase in volumes, would negatively impact our revenues, and without corresponding decreases in average unit costs, would negatively impact our margins. In addition, reductions in the average selling prices of our licensees’ products, unless offset by an increase in volumes, would generally decrease total royalties payable to us, negatively impacting our licensing revenues.RISKS RELATED TO PRODUCT DEFECTS OR SECURITY VULNERABILITIESFailures in our products, or in the products of our customers or licensees, including those resulting from security vulnerabilities, defects or errors, could harm our business.Our products are complex and may contain defects, errors or security vulnerabilities, or experience failures or unsatisfactory performance, due to any number of issues, including issues in materials, design, fabrication, packaging and/or use within a system. Development of products in new domains of technology, and the migration to integrated circuit technologies with smaller geometric feature sizes, increases complexity and adds risk to manufacturing yields and reliability, and increases the likelihood of product defects, errors or security vulnerabilities. Defects, errors, security vulnerabilities or other unintended functionality could also be introduced into our products by cyber-attacks or other actions by malicious actors, either directly or through third-party products or software used in our products or IT infrastructure. Further, because of the complexity of our products, defects, errors or security vulnerabilities might only be detected when the products are in use. Risks associated with product or technology defects, errors or security vulnerabilities are exacerbated by the fact that our customers typically integrate our products into consumer and other devices.The use of devices containing our products to interact with untrusted systems or otherwise access untrusted content creates a risk of exposing the system hardware and software in those devices to malicious attacks. Further, security vulnerabilities in our products or the technologies we use could expose our customers, or end users of our customers’ products, to hackers or other unscrupulous third parties who develop and deploy malware that could attack our products or our customers’ products or IT infrastructure. Such attacks could result in the disruption of our customers’ businesses or the misappropriation, theft, misuse, disclosure, loss or destruction of the technology or intellectual property, or the proprietary, confidential or personal information, of our customers, their employees or the end users of our customers’ devices. While we continue to focus on this issue and take measures to safeguard our products from cybersecurity threats, device capabilities continue to evolve, enabling more elaborate functionality and applications, and increasing the risk of security failures, and techniques used to perpetrate cybersecurity attacks are increasingly sophisticated and constantly evolving. See also the Risk Factor titled “Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.”Our products may be responsible for critical functions in our customers’ products and networks. Failure of our products to perform to specifications, meet certain regulatory or industry standards (including product safety and information security standards, which may differ by region, geography and industry, and which are particularly stringent in the automotive industry), or other product defects, errors or security vulnerabilities, could lead to substantial damage to the products we sell to our customers, the devices into which our products are integrated and the end users of such devices, and potentially to our customers’ IT infrastructure. Such defects, errors or security vulnerabilities could give rise to significant costs, including costs related to developing solutions, recalling products, repairing or replacing defective products, writing down defective inventory or indemnification obligations under our agreements, and could result in the loss of sales and divert the attention of our engineering personnel from our product development efforts. In addition, defects, errors or security vulnerabilities in our products could result in failure to achieve market acceptance, a loss of design wins, a shifting of business to our competitors, and litigation or regulatory action against us, and could harm our reputation, our relationships with customers and partners and our ability to attract new customers, as well as the perceptions of our brand. Other potential adverse impacts of product defects, errors or security vulnerabilities include shipment delays, write-offs of property, plant and equipment and intangible assets, and losses on unfavorable purchase commitments. In addition, defects, errors or security vulnerabilities in the products of our customers or licensees could cause a delay or decrease in demand for the products into which our products are integrated, and thus for our products.In addition, the occurrence of defects, errors or security vulnerabilities may give rise to product liability claims, particularly if such defects, errors or security vulnerabilities in our products or the technology we use, or the products into which they are integrated, result in personal injury or death, and could result in significant costs, expenses and losses. If a product liability claim is brought against us, the cost of defending the claim could be significant, and could divert the attention of our technical and management personnel and harm our business, even if we are successful. We may be named in product liability claims even if there is no evidence that our products caused the damage in question, and even though we may have indemnity from our customers, and such claims could result in significant costs and expenses. We may also be required to indemnify and/or defend our customers from product liability claims relating to our products. Further, our business liability insurance may be inadequate, may not cover the claims, and future coverage may be unavailable on 32acceptable terms, which could adversely impact our financial results. The above is exacerbated by the fact that our products may be used, and perform critical functions, in various high-risk applications such as: automobiles, including ADAS/AD functions; cameras and artificial intelligence, including home and enterprise security; home automation, including smoke and noxious gas detectors; medical condition monitoring; location and asset tracking and management, including wearables for child safety and elderly health; robotics, including public safety drones and autonomous municipality vehicles; and XR for treatment of phobias or PTSD, early detection of disorders or special needs, among others.Accordingly, defects, errors or security vulnerabilities in our products or the technologies we use could have an adverse impact on us, on our customers and the end users of our customers’ products. If any of these risks materialize, there could be a material adverse effect on our business, results of operations and financial condition.RISKS RELATED TO INTELLECTUAL PROPERTYThe enforcement and protection of our intellectual property may be expensive, could fail to prevent misappropriation or unauthorized use of our intellectual property, could result in the loss of our ability to enforce one or more patents, and could be adversely affected by changes in patent laws, by laws in certain foreign jurisdictions that may not effectively protect our intellectual property and by ineffective enforcement of laws in such jurisdictions.We rely primarily on patent, copyright, trademark and trade secret laws, as well as nondisclosure and confidentiality agreements, international treaties and other methods, to protect our intellectual property, including our patent portfolio. Policing unauthorized use of our products, technologies and intellectual property is difficult and time consuming. The steps we have taken have not always prevented, and we cannot be certain the steps we take in the future will prevent, the misappropriation or unauthorized use of our products, technologies or intellectual property, particularly in foreign countries where the laws may not protect our rights as fully or as readily as U.S. laws or where the enforcement of such laws may be lacking or ineffective. See also the Risk Factor titled “Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.”Some industry participants who have a vested interest in devaluing patents in general, or standard-essential patents in particular, have mounted attacks on certain patent systems, increasing the likelihood of changes to established patent laws. We cannot predict with certainty the long-term effects of any potential changes. In the United States, Europe (including the United Kingdom), India, China and elsewhere, there is continued discussion regarding potential patent law changes, and there is current and potential future litigation regarding patents, the outcomes of which could be detrimental to our licensing business. Some proposed changes would apply to only standard-essential patents, and such changes may substantially alter the incentives to participate in standardization or develop standards-compliant products. See also the Risk Factor entitled “Efforts by some original equipment manufacturers (OEMs) to avoid paying fair and reasonable royalties for the use of our intellectual property may require the investment of substantial management time and financial resources and may result in legal decisions or actions by governments, courts, regulators or agencies, Standards Development Organizations (SDOs) or other industry organizations that harm our business.”Further, the laws in certain foreign countries in which our patents are or may be licensed, or our products are or may be manufactured or sold, including certain countries in Asia, may not protect our intellectual property rights to the same extent as the laws in the United States. In addition, we cannot be certain that the laws and policies of any country or the practices of any standards bodies, foreign or domestic, with respect to intellectual property enforcement or licensing or the adoption of standards, will not be changed in the future in ways that are detrimental to our licensing programs or to the sale or use of our products or technologies.We have had and may in the future have difficulty in certain circumstances in protecting or enforcing our intellectual property and contracts, including collecting royalties for use of our patent portfolio due to, among others: refusal by certain licensees to report and pay all or a portion of the royalties they owe to us; policies or political actions of governments, including trade protection and national security policies; challenges to our licensing practices under competition laws; adoption of mandatory licensing provisions by foreign jurisdictions; failure of foreign courts to recognize and enforce judgments of contract breach and damages issued by courts in the United States; and challenges before competition agencies to our licensing business or the pricing and integration of additional features and functionality into our chipset products. See also the Risk Factors titled “Efforts by some original equipment manufacturers (OEMs) to avoid paying fair and reasonable royalties for the use of our intellectual property may require the investment of substantial management time and financial resources and may result in legal decisions or actions by governments, courts, regulators or agencies, Standards Development Organizations (SDOs) or other industry organizations that harm our business” and “Our business may suffer as a result of adverse rulings in governmental investigations or proceedings or other legal proceedings.”We have engaged in litigation and arbitration in the past and may need to further litigate or arbitrate in the future to enforce our contract and intellectual property rights, protect our trade secrets or determine the validity and scope of proprietary rights of others. As a result of any such litigation or arbitration, we could lose our ability to enforce one or more patents, portions of our license agreements could be determined to be invalid or unenforceable (which may in turn result in other licensees either not complying with their existing license agreements or initiating litigation or arbitration), license terms (including but not limited to royalty rates for the use of our intellectual property) could be imposed that are less favorable to us than existing terms, and we could incur substantial costs. Any action we take to enforce our contract or intellectual property rights could be costly and could absorb significant management time and attention, which, in turn, could negatively 33impact our results of operations and cash flows. Further, even a positive resolution to our enforcement efforts may take time to conclude, which may reduce our revenues and cash resources available for other purposes, such as research and development, in the periods prior to conclusion. Additionally, although our license agreements generally provide us with the right to audit the books and records of licensees, audits can be expensive, time consuming, incomplete and subject to dispute. Further, certain licensees may not comply with the obligation to provide full access to their books and records. To the extent we do not aggressively enforce our rights under our license agreements, licensees may not comply with their existing license agreements, and to the extent we do not aggressively pursue unlicensed companies to enter into license agreements with us for their use of our intellectual property, other unlicensed companies may not enter into license agreements.See also the Risk Factors titled “Efforts by some original equipment manufacturers (OEMs) to avoid paying fair and reasonable royalties for the use of our intellectual property may require the investment of substantial management time and financial resources and may result in legal decisions or actions by governments, courts, regulators or agencies, Standards Development Organizations (SDOs) or other industry organizations that harm our business” and “Our business and operations could suffer in the event of security breaches of our IT systems, or other misappropriation of our technology, intellectual property or other proprietary or confidential information.”Claims by other companies that we infringe their intellectual property could adversely affect our business.From time to time, companies have asserted, and may again assert, patent, copyright or other intellectual property claims against us relating to our technologies or products, including those we have acquired from other companies. These claims have resulted and may again result in our involvement in litigation, and we are currently involved in such litigation, including certain matters described in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” We may not prevail in such litigation given, among other factors, the complex technical issues and inherent uncertainties in intellectual property litigation. If any of our products were found to infringe another company’s intellectual property, we could be subject to an injunction or be required to redesign our products, or to license such intellectual property or pay damages or other compensation to such other company (any of which could be costly). If we are unable to redesign our products, license such intellectual property used in our products or otherwise distribute our products (e.g., through a licensed supplier), we could be prohibited from making and selling our products. Similarly, our suppliers could be found to infringe another company’s intellectual property, and such suppliers could then be enjoined from providing products or services to us.In any potential dispute involving us and another company’s patents or other intellectual property, our chipset foundries, semiconductor assembly and test providers and customers could also become the targets of litigation. We are contingently liable under certain product sales, services, license and other agreements to indemnify certain customers, chipset foundries and semiconductor assembly and test service providers against certain types of liability and damages arising from qualifying claims of patent infringement by products sold by us, or by intellectual property provided by us to our chipset foundries and semiconductor assembly and test service providers. Reimbursements under indemnification arrangements could have an adverse effect on our results of operations and cash flows. Furthermore, any such litigation could severely disrupt the supply of our products and the businesses of our chipset customers and their customers, which in turn could harm our relationships with them and could result in a decline in our chipset sales or a reduction in our licensees’ sales, causing a corresponding decline in our chipset or licensing revenues. Any claims, regardless of their merit, could be time consuming to address, result in costly litigation, divert the efforts of our technical and management personnel and/or cause product release or shipment delays, any of which could have an adverse effect on our results of operations and cash flows.We may continue to be involved in litigation and may have to appear in front of administrative bodies (such as the United States International Trade Commission) to defend against patent assertions against our products by companies, some of whom are attempting to gain competitive advantage or leverage in licensing negotiations. We may not be successful in such proceedings, and if we are not, the range of possible outcomes is very broad and may include, for example, monetary damages or fines or other orders to pay money, royalty payments, injunctions on the sale of certain of our integrated circuit products (or on the sale of our customers’ devices using such products) or the issuance of orders to cease certain conduct or modify our business practices. Further, a governmental body in a particular country or region may assert, and may be successful in imposing, remedies with effects that extend beyond the borders of that country or region. In addition, a negative outcome in any such proceeding could severely disrupt the business of our customers and their wireless operator customers, which in turn could harm our relationships with them and could result in a decline in our chipset sales or a reduction in our licensees’ sales, causing corresponding declines in our chipset or licensing revenues.Our use of open source software may harm our business.Certain of our software and our suppliers’ software may contain or may be derived from “open source” software, and we have seen, and believe that we will continue to see, customers request that we develop products, including software associated with our integrated circuit products, that incorporate open source software elements and operate in an open source environment, which, under certain open source licenses, may offer accessibility to a portion of our products’ source code and may expose our related intellectual property to adverse licensing conditions. Licensing of such open source software may impose certain obligations on us if we were to distribute derivative works of that software. For example, these obligations may require us to make source code for the derivative works available to our customers in a manner that allows them to make such source code available to their customers, or to license such derivative works under a particular type of license that is 34different than what we customarily use to license our software. Furthermore, in the course of product development, we may make contributions to third-party open source projects that could subject our intellectual property to adverse licensing conditions. For example, to encourage the growth of a software ecosystem that is interoperable with our products, we may need to contribute certain implementations under the open source licensing terms that govern such projects, which may adversely impact our associated intellectual property. Developing open source products, while adequately protecting the intellectual property upon which our licensing programs depend, may prove burdensome and time-consuming under certain circumstances, thereby placing us at a competitive disadvantage, and we may not adequately protect our intellectual property. Also, our use and our customers’ use of open source software may subject our products and our customers’ products to governmental and third-party scrutiny and delays in product certification, which could cause customers to view our products as less desirable than our competitors’ products. GENERAL RISK FACTORSWe operate in the highly cyclical semiconductor industry, which is subject to significant downturns. We are also susceptible to declines in global, regional and local economic conditions generally. Our stock price and financial results are subject to substantial quarterly and annual fluctuations due to these dynamics, among others.The semiconductor industry is highly cyclical, volatile, subject to downturns and characterized by constant and rapid technological change, price erosion, evolving technical standards, frequent new product introductions, short product life cycles and fluctuations in product supply and demand. Periods of downturns have been characterized by diminished demand for end-user products, high inventory levels, excess or obsolete inventory adjustments or reserves, underutilization of manufacturing capacity, changes in revenue mix and erosion of average selling prices. We expect our business to continue to be subject to such cyclical downturns. During such downturns, our revenues may decline, and our results of operations and financial condition may be adversely impacted. We are currently seeing and expect to continue to see weakness in the macroeconomic environment (negatively impacting consumer demand for smartphones and other devices that incorporate our products and technologies) and elevated inventory levels at certain of our customers (negatively impacting the volume of chipsets they purchase from us until such inventory is depleted). Until these conditions improve, we expect that both of these dynamics will have a negative impact on our revenues, results of operations and cash flows.A decline in global, regional or local economic conditions, such as we are currently seeing, or a slow-down in economic growth, particularly in geographic regions with high concentrations of wireless voice and data users or high concentrations of our customers or licensees, could also have adverse, wide-ranging effects on our business and financial results, including: a decrease in demand for our products and technologies; a decrease in demand for the products and services of our customers or licensees; the inability of our suppliers to deliver on their supply commitments to us, our inability to supply our products to our customers and/or the inability of our customers or licensees to supply their products to end users; the insolvency of key suppliers, customers or licensees; delays in reporting or payments from our customers or licensees; failures by counterparties; and/or negative effects on wireless device inventories. In addition, our customers’ and licensees’ ability to purchase or pay for our products and intellectual property and network operators’ ability to upgrade their wireless networks could be adversely affected, potentially leading to a reduction, cancellation or delay of orders for our products. Further, inflationary pressure may increase our costs, including employee compensation costs, reduce demand for our products or those of our customers or licensees due to increased prices of those products, or result in employee attrition to the extent our compensation does not keep up with inflation, particularly if our competitors’ compensation does.Our stock price and financial results have fluctuated in the past and are likely to fluctuate in the future. Factors that may have a significant impact on the market price of our stock and our financial results include those identified above and throughout this Risk Factors section, as well as: volatility of the stock market in general and technology and semiconductor companies in particular; announcements concerning us, our suppliers, our competitors or our customers or licensees, including any announcement concerning the initiation of, or any developments in, any lawsuit or governmental investigation or proceeding against us; and variations between our actual financial results or guidance and expectations of securities analysts or investors, among others. In the past, securities class action litigation has been brought against companies following periods of volatility in the market price of their securities, among other reasons. We are and may in the future be the target of securities litigation. Securities litigation could result in substantial uninsured costs and divert management’s attention and our resources. Certain legal matters, including certain securities litigation brought against us, are described in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.”Geopolitical conflicts, natural disasters, pandemics and other health crises, and other factors outside of our control, could significantly disrupt our business.We have operations and facilities in the United States and many other countries throughout the world. We derive a significant portion of our revenues from Chinese OEMs and from non-Chinese OEMs that utilize our integrated circuit products in devices they sell into China (which has the largest number of smartphone users in the world); our key suppliers and their manufacturing foundries and assembly, test and other facilities are primarily located in Taiwan and Korea; our manufacturing facilities for RFFE and RF products are located in China, Germany and Singapore; the primary warehouses where we store finished goods for fulfillment of customer orders are located in Singapore; and a significant portion of our workforce (including engineering and other technical personnel) is based in India. Acts of war, terrorism, geopolitical conflicts, political instability or tensions such as the current geopolitical tensions involving China and Taiwan, natural disasters, the effects of climate change, pandemics such as the COVID-19 pandemic, or other health crises affecting any of 35the regions in which we operate, and particularly those in which our customers, suppliers, manufacturing facilities and/or significant portions of our workforce are concentrated, could significantly disrupt our business by, among others: reducing demand for our products and services or end-user devices incorporating our products or intellectual property; impairing our customers’ or licensees’ ability to purchase or pay for our products, services or intellectual property; delaying or preventing our suppliers from providing us with critical components or raw materials; delaying or preventing our foundry or semiconductor assembly and test providers from manufacturing, assembling or testing our products; preventing us from manufacturing products or shipping finished products; damaging or destroying inventory; delaying or preventing network operators from upgrading their wireless networks to meet new technology standards; or preventing a significant number of our employees, or employees who perform critical functions, from performing their duties for us. For example, our business depends on our ability to receive consistent and reliable chipset supply from our foundry partners, particularly in Taiwan. Consequently, a significant or prolonged military or other geopolitical conflict involving China and Taiwan could severely limit or prevent us from receiving chipset supply from Taiwan, which would have a material adverse impact on our business (and likely on the semiconductor industry as a whole). In addition, acts of war, terrorism, geopolitical conflicts, political instability or tensions, natural disasters, the effects of climate change, pandemics or other health crises impacting any of these regions could also result in a decline in global, regional or local economic conditions generally, or increased volatility in financial markets, which could have adverse effects on our business and financial results. See also the Risk Factor titled “We operate in the highly cyclical semiconductor industry, which is subject to significant downturns. We are also susceptible to declines in global, regional and local economic conditions generally. Our stock price and financial results are subject to substantial quarterly and annual fluctuations due to these dynamics, among others.” Any such events may also have the effect of exacerbating the other risks discussed in this “Risk Factors” section.Our business may suffer due to the impact of, or our failure to comply with, the various existing, new or amended laws, regulations, policies or standards to which we are subject.Our business and products, and those of our customers and licensees, are subject to various laws, rules and regulations globally, as well as government policies and the specifications of international, national and regional communications standards bodies (collectively, Regulations). These include, among others, Regulations related to: patent licensing practices; antitrust, competition and competitive business practices; the flow of funds out of certain countries (e.g., China); cybersecurity; privacy and data protection; imports and exports, such as the U.S. Export Administration Regulations administered by the U.S. Department of Commerce; protection of intellectual property; trade and trade protection including tariffs; foreign policy and national security; environmental protection (including climate change), health and safety; supply chain, responsible sourcing, including the use of conflict minerals, and human rights; spectrum availability and license issuance; adoption of standards; taxation; labor, employment and human capital; corporate governance; public disclosure and reporting (including reporting of ESG-related data); automotive industry safety and quality standards; AI technologies; and business conduct. Compliance with, or changes in the interpretation of, existing Regulations, the adoption of new Regulations, changes in the oversight of our activities by governments or standards bodies, or rulings in court, regulatory, administrative or other proceedings relating to such Regulations, among others, could have an adverse effect on our business and results of operations. See also the Risk Factors titled “Our business may suffer as a result of adverse rulings in governmental investigations or proceedings or other legal proceedings,” “Changes in our patent licensing practices, whether due to governmental investigations, legal challenges or otherwise, could adversely impact our business and results of operations,” “A significant portion of our business is concentrated in China, and the risks of such concentration are exacerbated by U.S./China trade and national security tensions,” “There are numerous risks associated with the operation and control of our manufacturing facilities, including a higher portion of fixed costs relative to a fabless model; environmental compliance and liability; impacts related to climate change; exposure to natural disasters, health crises, geopolitical conflicts and cyber-attacks; timely supply of equipment and materials; and various manufacturing issues,” and “Tax liabilities could adversely affect our results of operations.”Regulations are complex and changing (which may create uncertainty regarding compliance), are subject to varying interpretations, and their application in practice may evolve over time. As a result, our efforts to comply with Regulations may fail, particularly if there is ambiguity as to how they should be applied in practice. Failure to comply with any Regulation may adversely affect our business, results of operations and cash flows. New Regulations, or evolving interpretations thereof, may cause us to incur higher costs as we revise current practices, policies or procedures; may divert management time and attention to compliance activities; and may negatively impact our ability to conduct business in certain jurisdictions.There are risks associated with our debt.Our outstanding debt and any additional debt we incur may have negative consequences on our business, including, among others: requiring us to use cash to pay the principal of and interest on our debt, thereby reducing the amount of cash available for other purposes; limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions, stock repurchases, dividends, general corporate or other purposes; and limiting our flexibility in planning for, or reacting to, changes in our business, industries or the market. Our ability to make payments of principal and interest on our debt depends upon our future performance, which is subject to economic and political conditions, industry cycles and financial, business and other factors, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations to service our debt, we may be required to, among others: refinance or restructure all or a portion of our debt; reduce or delay planned capital or operating expenditures; reduce, suspend or eliminate our dividend payments and/or our stock repurchase program; or sell selected assets. Such measures might not be sufficient to enable us to service our debt. In 36addition, any such refinancing, restructuring or sale of assets might not be available on economically favorable terms or at all, and if prevailing interest rates at the time of any such refinancing or restructuring are higher than our current rates, interest expense related to such refinancing or restructuring would increase. Further, if there are adverse changes in the ratings assigned to our debt securities by credit rating agencies, our borrowing costs, our ability to access debt financing in the future and the terms of such debt could be adversely affected.Tax liabilities could adversely affect our results of operations.We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our provision for income taxes. We regularly are subject to examination of our tax returns and reports by taxing authorities in the United States federal jurisdiction and various state and foreign jurisdictions, most notably in countries where we earn a routine return and the tax authorities believe substantial value-add activities are performed, as well as countries where we own intellectual property. The final determination of tax audits and any related legal proceedings could materially differ from amounts reflected in our income tax provisions and accruals. In such case, our income tax provision, results of operations and cash flows in the period or periods in which that determination is made could be negatively affected.Tax rules may change in a manner that adversely affects our future reported results of operations or the way we conduct our business. Most of our income is taxable in the United States with a significant portion qualifying for preferential treatment as FDII (foreign-derived intangible income). Beginning in fiscal 2027, the effective tax rate for FDII increases from 13% to 16%. Further, if U.S. tax rates increase and/or the FDII deduction is eliminated or reduced, both of which have been proposed by the current U.S. presidential administration, our provision for income taxes, results of operations and cash flows would be adversely (potentially materially) affected. Also, if our customers move manufacturing operations to the United States, our FDII deduction may be reduced. Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting (BEPS) project that was undertaken by the Organization for Economic Co-operation and Development (OECD). The OECD, which represents a coalition of member countries, recommended changes to numerous long-standing tax principles related to transfer pricing and continues to develop new proposals including allocating greater taxing rights to countries where customers are located and establishing a minimum tax on global income. These changes, if and as adopted by countries, may increase tax uncertainty and may adversely affect our provision for income taxes, results of operations and cash flows.Item 1B. Unresolved Staff CommentsNone.Item 1C. CybersecurityNot applicable.Item 2. PropertiesAt September 24, 2023, we occupied the following facilities (square footage in millions):United StatesOther CountriesTotalOwned facilities4.5 1.2 5.7 Leased facilities0.8 7.1 7.9 Total5.3 8.3 13.6 Our headquarters and certain of our research and development and network management hub operations are located in San Diego, California. We also operate owned and leased manufacturing facilities in China, Germany and Singapore, and we own and lease properties around the world for use as sales and administrative offices and research and development centers, primarily in the United States, India and China. Our facility leases expire at varying dates through 2038, not including renewals that are at our option. Several other owned and leased facilities are under construction totaling approximately 1.6 million additional square feet, primarily related to the construction of new facilities in India. We do not identify or allocate facilities by operating segment. Information related to our additional capital requirements is provided in this Annual Report in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the “Liquidity and Capital Resources” section under the heading “Additional Capital Requirements.” Additional information on net property, plant and equipment by geography is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 8. Segment Information.” 37Item 3. Legal and Regulatory ProceedingsInformation regarding legal and regulatory proceedings is provided in this Annual Report in “Notes to Consolidated Financial Statements, Note 7. Commitments and Contingencies.” We are also engaged in numerous other legal actions arising in the ordinary course of our business (for example, proceedings relating to employment matters or the initiation or defense of proceedings relating to intellectual property rights), and while there can be no assurance, we believe that the ultimate outcome of these other legal actions will not have a material adverse effect on our business, results of operations, financial condition or cash flows.Item 4. Mine Safety DisclosuresNot applicable.38PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket Information and DividendsOur common stock is traded on the NASDAQ Global Select Market (NASDAQ) under the symbol “QCOM.” At October 30, 2023, there were 6,124 holders of record of our common stock. We currently intend to continue to pay quarterly cash dividends, subject to capital availability and our view that cash dividends are in the best interests of our stockholders. Future dividends may be affected by, among other items, our views on potential future capital availability and requirements, including those relating to research and development, creation and expansion of sales and distribution channels, investments and acquisitions, legal and regulatory risks, withholding of payments by one or more of our significant licensees and/or customers, fines and/or adverse rulings by government agencies, courts or arbitrators in legal or regulatory matters, stock repurchase programs, debt issuances, changes in federal, state or foreign income tax law, trade and/or national security protection policies, volatility in economies and financial markets or other macroeconomic conditions, and changes to our business model.Issuer Purchases of Equity SecuritiesOur purchases of our common stock in the fourth quarter of fiscal 2023 were:Total Number ofShares PurchasedAverage Price Paid Per Share (1)Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet BePurchased Under the Plans or Programs (2)(In thousands)(In thousands)(In millions)June 26, 2023 to July 23, 2023— $— — $5,547 July 24, 2023 to August 20, 2023— — — 5,547 August 21, 2023 to September 24, 20233,538 113.04 3,538 5,147 Total3,538 3,538 (1) Average Price Paid Per Share excludes cash paid for commissions.(2) On October 12, 2021, we announced a $10.0 billion stock repurchase program. At September 24, 2023, $5.1 billion remained authorized for repurchase. The stock repurchase program has no expiration date. Shares withheld to satisfy statutory tax withholding requirements related to the vesting of share-based awards are not issued or considered stock repurchases under our stock repurchase program and, therefore, are excluded from the table above.Stock Performance GraphThe following graph compares the cumulative total stockholder return on our common stock, the Standard & Poor’s 500 Stock Index (S&P 500) and the NASDAQ-100 Index (NASDAQ-100) for the five years ended September 24, 2023. The S&P 500 tracks the aggregate price performance of the equity securities of 500 United States companies selected by Standard & Poor’s Index Committee to include companies in leading industries and to reflect the United States stock market. The NASDAQ-100 tracks the aggregate price performance of the 100 largest domestic and international non-financial securities listed on the NASDAQ Stock Market based on market capitalization. Our common stock is a component of each of the S&P 500 and the NASDAQ-100.The total return for our stock and for each index assumes that $100 was invested at the market close on the last trading day for our fiscal year ended September 30, 2018 and that all dividends were reinvested. All returns are reported as of our fiscal year end, which is the last Sunday in September. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.39Item 6. (Reserved)Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in “Part II, \ No newline at end of file diff --git a/RAYMOND JAMES FINANCIAL INC_10-K_2023-11-21_720005-0000720005-23-000079.html b/RAYMOND JAMES FINANCIAL INC_10-K_2023-11-21_720005-0000720005-23-000079.html new file mode 100644 index 0000000000000000000000000000000000000000..91190f53aeda2fe660c17a12525f318a8bddd7ca --- /dev/null +++ b/RAYMOND JAMES FINANCIAL INC_10-K_2023-11-21_720005-0000720005-23-000079.html @@ -0,0 +1 @@ +ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSINDEX PAGEIntroduction39Executive overview39Reconciliation of non-GAAP financial measures to GAAP financial measures41Net interest analysis44Results of OperationsPrivate Client Group47Capital Markets52Asset Management54Bank57Other58Statement of financial condition analysis59Liquidity and capital resources59Regulatory66Critical accounting estimates66Accounting standards update67Risk management6738RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexINTRODUCTIONThe following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the results of our operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and accompanying notes to consolidated financial statements. Where “NM” is used in various percentage change computations, the computed percentage change has been determined to be not meaningful.We operate as a financial holding company and bank holding company. Results in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of the U.S. equity and fixed income markets, changes in interest rates, market volatility, corporate and mortgage lending markets and commercial and residential credit trends. Overall market conditions, economic, political and regulatory trends, and industry competition are among the factors which could affect us and which are unpredictable and beyond our control. These factors affect the financial decisions made by market participants, including investors, borrowers, and competitors, impacting their level of participation in the financial markets. These factors also impact the level of investment banking activity and asset valuations, which ultimately affect our business results.EXECUTIVE OVERVIEWYear ended September 30, 2023 compared with the year ended September 30, 2022For the year ended September 30, 2023, we generated net revenues of $11.62 billion and pre-tax income of $2.28 billion, up 6% and 13% compared with the prior year. Our net income available to common shareholders of $1.73 billion was 15% higher than the prior year and our earnings per diluted share of $7.97 reflected a 14% increase. Our return on common equity (“ROCE”) was 17.7%, compared with 17.0% for the prior year, and our return on tangible common equity (“ROTCE”) was 21.7%(1), compared with 19.8%(1) for the prior year. The year ended September 30, 2023 included $98 million of net expenses related to acquisitions completed in prior years and the favorable impact of an insurance settlement received during the year related to a previously-settled legal matter. Excluding these items, our adjusted net income available to common shareholders was $1.81 billion(1), an increase of 12% compared with the prior year, and our adjusted earnings per diluted share were $8.30(1), an increase of 11%. Adjusted ROCE for the year was 18.4%(1), compared with 18.2%(1) in the prior year, and adjusted ROTCE was 22.5%(1), compared with 21.1%(1) in the prior year.The increase in net revenues compared with the prior year was driven by the benefit of significantly higher short-term interest rates in the current year on both net interest income and RJBDP fees from third-party banks, as well as incremental revenues arising from our prior-year acquisitions of Charles Stanley Group PLC (“Charles Stanley”), TriState Capital Holdings, Inc. (“TriState Capital”), and SumRidge Partners. These increases were offset by lower investment banking and brokerage revenues, primarily due to a more challenging market environment during the current year, and a decline in asset management and related administrative fees, primarily attributable to lower PCG client assets in fee-based accounts at the beginning of each of the current-year quarterly billing periods. Compensation, commissions and benefits expense was flat with the prior year, as the impact of the decrease in compensable revenues compared with the prior year was offset by incremental expenses arising from our prior-year acquisitions of Charles Stanley, TriState Capital, and SumRidge Partners, as well as an increase in compensation costs to support our growth and annual salary increases. Our compensation ratio was 62.8%, compared with 66.6% for the prior year. Excluding acquisition-related compensation expenses, our adjusted compensation ratio was 62.1%(1), compared with 66.1%(1) for the prior year. The decline in the compensation ratio from the prior year primarily resulted from changes in our revenue mix due to higher net interest income and RJBDP fees from third-party banks, which have little associated direct compensation.(1) ROTCE, adjusted net income available to common shareholders, adjusted earnings per diluted share, adjusted ROCE, adjusted ROTCE, and adjusted compensation ratio are non-GAAP financial measures. Please see the “Reconciliation of non-GAAP financial measures to GAAP financial measures” in this MD&A for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, and for other important disclosures.39RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexNon-compensation expenses increased $388 million, or 23%. This increase resulted from multiple items, including elevated provisions for legal and regulatory matters during the current year for a number of matters totaling approximately $175 million, a portion of which related to the SEC industry sweep on off-platform communications, as well as incremental expenses arising from our prior-year acquisitions of Charles Stanley, TriState Capital, and SumRidge Partners, and increases in communications and information processing expenses, business development expenses, and the bank loan provision for credit losses. Partially offsetting these increases was the aforementioned favorable insurance settlement received. The bank loan provision for credit losses was $132 million for the current year, compared with a provision of $100 million for the prior year, which included an initial provision for credit losses of $26 million on loans acquired as part of the TriState Capital acquisition. The bank loan provision for credit losses for the current year primarily reflected the impacts of a weakened macroeconomic outlook for certain loan portfolios, including a weakened outlook for commercial real estate prices compared with the prior year, charge-offs of certain loans, and loan downgrades during the year. These increases were partially offset by the favorable impact of loan repayments and sales, which had a larger impact on the current fiscal year expense than provisions on new loans. Our effective income tax rate was 23.7% for fiscal 2023, a decrease from 25.4% for the prior year. The decrease in the effective tax rate from the prior year was primarily due to the impact on our provision for income taxes of nontaxable valuation gains associated with our company-owned life insurance policies in the current year compared with nondeductible valuation losses in the prior year, partially offset by an increase in our effective income tax rate arising from nondeductible fines and penalties.In December 2022, the Board of Directors increased the quarterly cash dividend on common shares to $0.42 per share and authorized common stock repurchases of up to $1.5 billion. During the twelve months ended September 30, 2023, we repurchased 8.35 million shares of our common stock under the Board of Directors’ common stock repurchase authorization for $788 million at an average price of $94 per share. After the effect of those repurchases, $750 million remained under our Board of Directors’ common stock repurchase authorization. We currently expect to continue to repurchase our common stock in fiscal 2024 to offset the impact of shares issued with the acquisition of TriState Capital as well as to offset dilution from share-based compensation; however, we will continue to monitor market conditions and other capital needs as we consider these repurchases.As of September 30, 2023, our tier 1 leverage ratio of 11.9% and Total capital ratio of 22.8% were both more than double the regulatory requirement to be considered well-capitalized. We also continued to have substantial liquidity with $2.08 billion(1) of RJF corporate cash as of September 30, 2023, which includes parent cash loaned to RJ&A to invest on its behalf. We believe our capital and funding position provide us the opportunity to manage our balance sheet prudently and to continue to be opportunistic and invest in growth. We also have access to significant sources of funding for our business activities should the need arise, including borrowings against the $750 million balance available on our revolving credit facility, which was renewed and increased from $500 million in April 2023, as well as nearly $9.3 billion of FHLB borrowing capacity in the Bank segment.As we look ahead, in spite of our expectation for economic uncertainty in the near term, we believe we are well-positioned for long-term growth, with our strong capital position and total client assets under administration of $1.26 trillion. Our financial advisor recruiting activity increased in the latter half of fiscal 2023, and our recruiting pipeline remains strong across our affiliation options. We expect our fiscal first quarter of 2024 asset management and related administrative fee revenues to be negatively impacted by the 2% decrease in fee-based account balances from June 30, 2023 to September 30, 2023, as well as an estimated 5% decline in our combined net interest income and RJBDP fees from third-party banks, reflecting the impact from higher-cost diversified funding sources including our ESP, which was launched to PCG clients in March 2023. While we have a healthy investment banking pipeline and saw improvement in investment banking activity in our fiscal fourth quarter of 2023, we anticipate that market uncertainty may continue to adversely impact the pace and timing of closings early in fiscal 2024, impacting our investment banking revenues. We also expect to continue to experience headwinds for fixed income brokerage revenues due to the decline in cash balances at many of our depository institution clients. Finally, although we have proactively taken steps to manage our credit risk in our loan portfolio, including selling approximately $670 million of par value of corporate loans during fiscal 2023, future economic deterioration or changes in our macroeconomic outlook could result in increased bank loan provisions for credit losses in future periods. Year ended September 30, 2022 compared with the year ended September 30, 2021Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K for a discussion of our fiscal 2022 results compared to fiscal 2021.(1) For additional information, please see the “Liquidity and capital resources - Sources of liquidity” section in this MD&A.40RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexRECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP FINANCIAL MEASURESWe utilize certain non-GAAP financial measures as additional measures to aid in, and enhance, the understanding of our financial results and related measures. These non-GAAP financial measures have been separately identified in this document. We believe certain of these non-GAAP financial measures provide useful information to management and investors by excluding certain material items that may not be indicative of our core operating results. We utilize these non-GAAP financial measures in assessing the financial performance of the business, as they facilitate a comparison of current- and prior-period results. We believe that ROTCE is meaningful to investors as it facilitates comparisons of our results to the results of other companies. In the following tables, the tax effect of non-GAAP adjustments reflects the statutory rate associated with each non-GAAP item. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of other companies. The following tables provide a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures.Year ended September 30,$ in millions202320222021Net income available to common shareholders$1,733 $1,505 $1,403 Non-GAAP adjustments:Expenses directly related to acquisitions included in the following financial statement line items:Compensation, commissions and benefits:Acquisition-related retention 70 58 48 Other acquisition-related compensation 10 2 1 Total “Compensation, commissions and benefits” expense80 60 49 Communications and information processing2 — — Professional fees 3 12 10 Bank loan provision for credit losses — Initial provision for credit losses on acquired loans — 26 — Other:Amortization of identifiable intangible assets 45 33 21 Initial provision for credit losses on acquired lending commitments — 5 — All other acquisition-related expenses — 11 2 Total “Other” expense45 49 23 Total expenses related to acquisitions130 147 82 Losses on extinguishment of debt— — 98 Other — Insurance settlement received(32)— — Pre-tax impact of non-GAAP adjustments98 147 180 Tax effect of non-GAAP adjustments(25)(37)(43)Total non-GAAP adjustments, net of tax 73 110 137 Adjusted net income available to common shareholders $1,806 $1,615 $1,540 Compensation, commissions and benefits expense$7,299 $7,329 $6,584 Less: Total compensation-related acquisition expenses (as detailed above)80 60 49 Adjusted “Compensation, commissions and benefits” expense $7,219 $7,269 $6,535 Total compensation ratio62.8 %66.6 %67.5 %Less the impact of non-GAAP adjustments on compensation ratio:Acquisition-related retention0.6 %0.5 %0.5 %Other acquisition-related compensation0.1 %— %— %Total “Compensation, commissions and benefits” expenses related to acquisitions0.7 %0.5 %0.5 %Adjusted total compensation ratio62.1 %66.1 %67.0 % 41RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexYear ended September 30,202320222021Diluted earnings per common share$7.97 $6.98 $6.63 Impact of non-GAAP adjustments on diluted earnings per common share:Compensation, commissions and benefits:Acquisition-related retention0.32 0.27 0.23 Other acquisition-related compensation0.05 0.01 — Total “Compensation, commissions and benefits” expense0.37 0.28 0.23 Communications and information processing0.01 — — Professional fees0.01 0.06 0.05 Bank loan provision for credit losses — Initial provision for credit losses on acquired loans— 0.12 — Other:Amortization of identifiable intangible assets0.21 0.15 0.10 Initial provision for credit losses on acquired lending commitments— 0.02 — All other acquisition-related expenses— 0.05 0.01 Total “Other” expense0.21 0.22 0.11 Total expenses related to acquisitions0.60 0.68 0.39 Losses on extinguishment of debt— — 0.46 Other — Insurance settlement received(0.15)— — Tax effect of non-GAAP adjustments(0.12)(0.17)(0.20)Total non-GAAP adjustments, net of tax0.33 0.51 0.65 Adjusted diluted earnings per common share$8.30 $7.49 $7.28 As of$ in millionsSeptember 30,2023September 30,2022September 30,2021Total common equity attributable to Raymond James Financial, Inc.$10,135 $9,338 $8,245 Less non-GAAP adjustments:Goodwill and identifiable intangible assets, net1,907 1,931 882 Deferred tax liabilities related to goodwill and identifiable intangible assets, net(131)(126)(64)Tangible common equity attributable to Raymond James Financial, Inc.$8,359 $7,533 $7,427 Year ended September 30,$ in millions202320222021Average common equity$9,791 $8,836 $7,635 Impact of non-GAAP adjustments on average common equity:Compensation, commissions and benefits:Acquisition-related retention35 27 23 Other acquisition-related compensation4 1 — Total “Compensation, commissions and benefits” expense39 28 23 Communications and information processing1 — — Professional fees1 6 4 Bank loan provision for credit losses — Initial provision for credit losses on acquired loans— 10 — Other:Amortization of identifiable intangible assets22 16 9 Initial provision for credit losses on acquired lending commitments— 2 — All other acquisition-related expenses— 6 1 Total “Other” expense 22 24 10 Total expenses related to acquisitions63 68 37 Losses on extinguishment of debt— — 39 Other — Insurance settlement received(26)— — Tax effect of non-GAAP adjustments(9)(17)(18)Total non-GAAP adjustments, net of tax28 51 58 Adjusted average common equity$9,819 $8,887 $7,693 42RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexYear ended September 30,$ in millions202320222021Average common equity$9,791 $8,836 $7,635 Less:Average goodwill and identifiable intangible assets, net1,928 1,322 809 Average deferred tax liabilities related to goodwill and identifiable intangible assets, net(129)(94)(53)Average tangible common equity$7,992 $7,608 $6,879 Impact of non-GAAP adjustments on average tangible common equity:Compensation, commissions and benefits:Acquisition-related retention35 27 23 Other acquisition-related compensation4 1 — Total “Compensation, commissions and benefits” expense39 28 23 Communications and information processing1 — — Professional fees1 6 4 Bank loan provision for credit losses — Initial provision for credit losses on acquired loans— 10 — Other:Amortization of identifiable intangible assets22 16 9 Initial provision for credit losses on acquired lending commitments— 2 — All other acquisition-related expenses— 6 1 Total “Other” expense 22 24 10 Total expenses related to acquisitions63 68 37 Losses on extinguishment of debt— — 39 Other — Insurance settlement received(26)— — Tax effect of non-GAAP adjustments(9)(17)(18)Total non-GAAP adjustments, net of tax28 51 58 Adjusted average tangible common equity$8,020 $7,659 $6,937 Return on common equity17.7 %17.0 %18.4 %Adjusted return on common equity18.4 %18.2 %20.0 %Return on tangible common equity21.7 %19.8 %20.4 %Adjusted return on tangible common equity22.5 %21.1 %22.2 %Total compensation ratio is computed by dividing compensation, commissions and benefits expense by net revenues for each respective period. Adjusted total compensation ratio is computed by dividing adjusted compensation, commissions and benefits expense by net revenues for each respective period.Tangible common equity is computed by subtracting goodwill and identifiable intangible assets, net, along with the associated deferred tax liabilities, from total common equity attributable to RJF. Average common equity is computed by adding the total common equity attributable to RJF as of each quarter-end date during the indicated fiscal year to the beginning of the year total, and dividing by five, or in the case of average tangible common equity, computed by adding tangible common equity as of each quarter-end date during the indicated fiscal year to the beginning of the year total, and dividing by five. Adjusted average common equity is computed by adjusting for the impact on average common equity of the non-GAAP adjustments, as applicable for each respective period. Adjusted average tangible common equity is computed by adjusting for the impact on average tangible common equity of the non-GAAP adjustments, as applicable for each respective period.ROCE is computed by dividing net income available to common shareholders by average common equity for each respective period or, in the case of ROTCE, computed by dividing net income available to common shareholders by average tangible common equity for each respective period. Adjusted ROCE is computed by dividing adjusted net income available to common shareholders by adjusted average common equity for each respective period, or in the case of adjusted ROTCE, computed by dividing adjusted net income available to common shareholders by adjusted average tangible common equity for each respective period. 43RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexNET INTEREST ANALYSISLargely in response to inflationary pressures since the beginning of fiscal year 2022, the Fed rapidly and consistently increased its benchmark short-term interest rates commencing in March 2022 and continuing throughout our fiscal 2023. Over this period, the Fed has increased the federal funds target rate from a range of 0.25% to 0.50% at March 31, 2022 to a range of 5.25% to 5.50% at September 30, 2023. While the Fed has left its benchmark rate unchanged in its most recent meetings, it has indicated that it intends to closely monitor market conditions to determine whether they will increase short-term interest rates further in our fiscal 2024. The following table details the Fed’s short-term interest rate activity over our fiscal 2022 and 2023.Federal funds target rate scheduleRJF fiscal quarter endedEffective date of interest rate actionIncrease in interest rates (in basis points)Federal funds target rateMarch 31, 2022March 17, 2022250.25% - 0.50%June 30, 2022May 5, 2022500.75% - 1.00%June 30, 2022June 16, 2022751.50% - 1.75%September 30, 2022July 28, 2022752.25% - 2.50%September 30, 2022September 22, 2022753.00% - 3.25%December 31, 2022November 3, 2022753.75% - 4.00%December 31, 2022December 15, 2022504.25% - 4.50%March 31, 2023February 2, 2023254.50% - 4.75%March 31, 2023March 23, 2023254.75% - 5.00%June 30, 2023May 4, 2023255.00% - 5.25%September 30, 2023July 27, 2023255.25% - 5.50%Given the relationship between our interest-sensitive assets and liabilities (primarily held in our PCG, Bank, and Other segments) and the nature of fees we earn from third-party banks on client cash balances swept to such banks as part of the RJBDP (included in account and service fees), our financial results are sensitive to changes in interest rates. Increases in short-term interest rates generally result in an increase in our net earnings, although the magnitude of the impact to our net interest income and net interest margin depends on the yields on interest-earning assets relative to the cost of interest-bearing liabilities, including deposit rates paid to clients on their cash balances. Our domestic client cash sweep balances continue to represent a relatively low-cost funding source. In fiscal 2023, we introduced the Enhanced Savings Program to our clients and increased our certificates of deposit balances as part of our strategy to diversify our funding sources, albeit at a higher relative cost than other alternatives. As a result of our diverse funding sources and high concentration of floating-rate assets, we benefited from the increases in short-term interest rates during the second half of fiscal 2022 and continuing into our fiscal 2023, with combined net interest income and RJBDP fees from third-party banks increasing $1.47 billion, or 104%, compared with the prior year. However, despite recent increases in short-term interest rates, our net interest income and net interest margin decreased during the second half of our fiscal 2023 compared with the first half of our fiscal 2023 due to a more rapid increase in deposit costs than in recent periods primarily due to growth in the Enhanced Savings Program. Refer to the discussion of our net interest income within the “Management’s Discussion and Analysis - Results of Operations” of our PCG, Bank, and Other segments, where applicable. Also refer to “Management’s Discussion and Analysis - Results of Operations - Private Client Group - Clients’ domestic cash sweep balances” for further information on the RJBDP.44RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexThe following table presents our consolidated average interest-earning asset and interest-bearing liability balances, interest income and expense and the related rates. Year ended September 30, 202320222021$ in millionsAveragebalanceInterestAverage rateAveragebalanceInterestAverage rateAveragebalanceInterestAverage rateInterest-earning assets:Bank segment: Cash and cash equivalents$4,033$199 4.89 %$1,884 $18 0.98 %$1,612 $2 0.14 %Available-for-sale securities10,805219 2.02 %9,651 136 1.40 %7,950 85 1.07 %Loans held for sale and investment: (1) (2)Loans held for investment:SBL14,510 977 6.65 %9,561 324 3.34 %4,989 112 2.22 %C&I loans10,955 767 6.90 %9,493 313 3.25 %7,828 201 2.54 %CRE loans6,993 496 6.99 %4,205 158 3.70 %2,703 70 2.56 %REIT loans1,680 119 6.99 %1,339 44 3.28 %1,273 32 2.48 %Residential mortgage loans8,114 258 3.18 %6,170 170 2.76 %5,110 140 2.72 %Tax-exempt loans (3)1,596 41 3.14 %1,355 35 3.15 %1,270 34 3.31 %Loans held for sale173 13 7.61 %229 7 3.24 %163 4 2.55 %Total loans held for sale and investment44,021 2,671 6.02 %32,352 1,051 3.24 %23,336 593 2.55 %All other interest-earning assets156 9 5.67 %124 4 3.29 %182 4 1.50 %Interest-earning assets — Bank segment$59,015 $3,098 5.21 %$44,011 $1,209 2.74 %$33,080 $684 2.07 %All other segments:Cash and cash equivalents$3,125 $159 5.08 %$4,114 $30 0.73 %$3,949 $10 0.25 %Assets segregated for regulatory purposes and restricted cash4,722 197 4.17 %14,826 96 0.65 %8,735 15 0.17 %Trading assets — debt securities1,059 57 5.40 %621 27 4.38 %475 13 2.67 %Brokerage client receivables2,214 170 7.68 %2,529 100 3.94 %2,280 77 3.37 %All other interest-earning assets1,809 67 3.46 %1,944 46 2.33 %1,594 24 1.54 %Interest-earning assets — all other segments$12,929 $650 4.99 %$24,034 $299 1.24 %$17,033 $139 0.82 %Total interest-earning assets$71,944 $3,748 5.17 %$68,045 $1,508 2.22 %$50,113 $823 1.64 %Interest-bearing liabilities:Bank segment:Bank deposits:Money market and savings accounts$40,463 $547 1.35 %$36,693 $81 0.22 %$28,389 $3 0.01 %Interest-bearing checking accounts10,352 473 4.57 %2,061 39 1.88 %162 3 1.86 %Certificates of deposit2,163 84 3.88 %870 15 1.68 %904 17 1.90 %Total bank deposits (4)52,978 1,104 2.08 %39,624 135 0.34 %29,455 23 0.08 %FHLB advances and all other interest-bearing liabilities1,364 37 2.67 %1,001 21 2.15 %864 19 2.12 %Interest-bearing liabilities — Bank segment$54,342 $1,141 2.09 %$40,625 $156 0.38 %$30,319 $42 0.14 %All other segments:Trading liabilities — debt securities$727 $36 5.24 %$325 $12 3.64 %$150 $2 1.39 %Brokerage client payables5,877 78 1.33 %15,530 24 0.15 %10,180 3 0.03 %Senior notes payable2,038 92 4.53 %2,037 93 4.52 %2,078 96 4.62 %All other interest-bearing liabilities620 26 3.78 %328 20 2.48 %241 7 1.14 %Interest-bearing liabilities — all other segments$9,262 $232 2.51 %$18,220 $149 0.82 %$12,649 $108 0.85 %Total interest-bearing liabilities$63,604 $1,373 2.15 %$58,845 $305 0.52 %$42,968 $150 0.34 %Firmwide net interest income$2,375 $1,203 $673 Net interest margin (net yield on interest-earning assets)Bank segment3.28 %2.39 %1.95 %Firmwide3.30 %1.77 %1.35 % (1) Loans are presented net of unamortized purchase discounts or premiums, unearned income, deferred origination fees and costs, and charge-offs.(2) Nonaccrual loans are included in the average loan balances. Any payments received for corporate nonaccrual loans are applied entirely to principal. Interest income on residential mortgage nonaccrual loans is recognized on a cash basis.(3) The average rate on tax-exempt loans in the preceding table is presented on a taxable-equivalent basis utilizing the applicable federal statutory rates for each of the years presented.(4) The average balance, interest expense, and average rate for “Total bank deposits” included amounts associated with affiliate deposits. Such amounts are eliminated in consolidation and are offset in “All other interest-bearing liabilities” under “All other segments.”45RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexIncreases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous year’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous year’s volume. Changes attributable to both volume and rate have been allocated proportionately.Year ended September 30,2023 compared to 20222022 compared to 2021 Increase/(decrease) due toIncrease/(decrease) due to$ in millionsVolumeRateTotalVolumeRateTotalInterest-earning assets:Interest incomeBank segment:Cash and cash equivalents$40 $141 $181 $— $16 $16 Available-for-sale securities17 66 83 21 30 51 Loans held for sale and investment:Loans held for investment:SBL223 430 653 137 75 212 C&I loans55 399 454 48 64 112 CRE loans145 193 338 49 39 88 REIT loans14 61 75 2 10 12 Residential mortgage loans59 29 88 28 2 30 Tax-exempt loans6 — 6 3 (2)1 Loans held for sale(3)9 6 2 1 3 Total loans held for sale and investment499 1,121 1,620 269 189 458 All other interest-earning assets1 4 5 (2)2 — Interest-earning assets — Bank segment$557 $1,332 $1,889 $288 $237 $525 All other segments:Cash and cash equivalents$(9)$138 $129 $— $20 $20 Assets segregated for regulatory purposes and restricted cash(116)217 101 16 65 81 Trading assets — debt securities23 7 30 5 9 14 Brokerage client receivables(14)84 70 9 14 23 All other interest-earning assets(3)24 21 6 16 22 Interest-earning assets — all other segments$(119)$470 $351 $36 $124 $160 Total interest-earning assets$438 $1,802 $2,240 $324 $361 $685 Interest-bearing liabilities:Interest expenseBank segment:Bank deposits:Money market and savings accounts$9 $457 $466 $1 $77 $78 Interest-bearing checking accounts321 113 434 36 — 36 Certificates of deposit37 32 69 (1)(1)(2)Total bank deposits367 602 969 36 76 112 FHLB advances and all other interest-bearing liabilities10 6 16 2 — 2 Interest-bearing liabilities — Bank segment$377 $608 $985 $38 $76 $114 All other segments:Trading liabilities — debt securities18 6 24 5 5 10 Brokerage client payables(23)77 54 3 18 21 Senior notes payable— (1)(1)(1)(2)(3)All other interest-bearing liabilities4 2 6 3 10 13 Interest-bearing liabilities — all other segments$(1)$84 $83 $10 $31 $41 Total interest-bearing liabilities$376 $692 $1,068 $48 $107 $155 Change in firmwide net interest income$62 $1,110 $1,172 $276 $254 $530 46RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexRESULTS OF OPERATIONS – PRIVATE CLIENT GROUPThrough our PCG segment, we provide financial planning, investment advisory and securities transaction services for which we generally charge either asset-based fees (presented in “Asset management and related administrative fees”) or sales commissions (presented in “Brokerage revenues”). We also earn revenues for distribution and related support services performed primarily related to mutual and other funds, as well as fixed and variable annuities and insurance products. Asset management and related administrative fees and brokerage revenues in this segment are typically correlated with the level of PCG client AUA, including those in fee-based accounts, as well as the overall U.S. equity markets. In periods where equity markets improve, AUA and client activity generally increase, thereby having a favorable impact on net revenues. In periods of rising interest rates, we may also see increased interest in fixed income and fixed annuity products. We also earn servicing fees, such as omnibus and education and marketing support fees, from mutual fund, annuity, and exchange-traded product companies whose products we distribute. Servicing fees earned from mutual fund and annuity companies are based on the level of assets, a flat fee or number of positions in such programs. Our PCG segment also earns fees from banks to which we sweep clients’ cash in the RJBDP, including both third-party banks and our Bank segment. Such fees, which generally fluctuate based on average balances in the program and short-term interest rates, are included in “Account and service fees.” See “Clients’ domestic cash sweep balances” in the “Selected key metrics” section for further information about fees earned from the RJBDP.Net interest income in the PCG segment is primarily generated by interest earnings on assets segregated for regulatory purposes and on margin loans provided to clients, less interest paid on client cash balances in the CIP. Amounts are impacted by client cash balances in the CIP and short-term interest rates. Higher client cash balances generally lead to increased net interest income, depending on interest rate spreads realized in the CIP (i.e., between interest received on assets segregated for regulatory purposes and interest paid on CIP balances). For more information on client cash balances, see “Clients’ domestic cash sweep balances” in the “Selected key metrics” section.For an overview of our PCG segment operations, refer to the information presented in “Item 1 - Business” of this Form 10-K.47RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexOperating results Year ended September 30,% change$ in millions2023202220212023 vs. 20222022 vs. 2021Revenues: Asset management and related administrative fees$4,545 $4,710 $4,056 (4)%16 %Brokerage revenues:Mutual and other fund products540 620 670 (13)%(7)%Insurance and annuity products439 438 438 — %— %Equities, ETFs and fixed income products455 458 438 (1)%5 %Total brokerage revenues1,434 1,516 1,546 (5)%(2)%Account and service fees:Mutual fund and annuity service fees415 428 408 (3)%5 %RJBDP fees:Bank segment1,093 357 183 206 %95 %Third-party banks498 202 76 147 %166 %Client account and other fees231 220 157 5 %40 %Total account and service fees2,237 1,207 824 85 %46 %Investment banking35 38 47 (8)%(19)%Interest income455 249 123 83 %102 %All other48 32 25 50 %28 %Total revenues8,754 7,752 6,621 13 %17 %Interest expense(100)(42)(10)138 %320 %Net revenues8,654 7,710 6,611 12 %17 %Non-interest expenses: Financial advisor compensation and benefits4,537 4,696 4,204 (3)%12 %Administrative compensation and benefits1,390 1,199 1,015 16 %18 %Total compensation, commissions and benefits5,927 5,895 5,219 1 %13 %Non-compensation expenses:Communications and information processing388 332 275 17 %21 %Occupancy and equipment211 198 179 7 %11 %Business development155 126 71 23 %77 %Professional fees65 56 46 16 %22 %All other145 73 72 99 %1 %Total non-compensation expenses964 785 643 23 %22 %Total non-interest expenses6,891 6,680 5,862 3 %14 %Pre-tax income$1,763 $1,030 $749 71 %38 %48RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexSelected key metricsPCG client asset balances As of September 30,$ in billions202320222021AUA (1)$1,201.2 $1,039.0 $1,115.4 RCS AUA (2)$133.3 $108.5 $92.7 Assets in fee-based accounts (1) (3)$683.2 $586.0 $627.1 RCS assets in fee-based accounts (2)$111.7 $89.9 $77.2 Percent of AUA in fee-based accounts56.9 %56.4 %56.2 % (1)These metrics include the impact from the acquisition of Charles Stanley, which was completed on January 21, 2022.(2)Represents assets associated with firms affiliated with us through our RCS division which are included in AUA and assets in fee-based accounts. Based on the nature of the services provided to such firms, revenues related to these assets are included in “Account and service fees.”(3)A portion of our “Assets in fee-based accounts” is invested in “managed programs” overseen by our Asset Management segment, specifically our Asset Management Services division of RJ&A (“AMS”). These assets are included in our financial assets under management as disclosed in the “Selected key metrics” section of our “Management’s Discussion and Analysis - Results of Operations - Asset Management.”PCG net new assets As of September 30,$ in millions202320222021Domestic Private Client Group net new assets (1) (2)$73,254 $95,041 $83,275 Domestic Private Client Group net new assets growth (3)7.7 %8.5 %10.0 %(1) Domestic Private Client Group net new assets represents domestic Private Client Group client inflows, including dividends and interest, less domestic Private Client Group client outflows, including commissions, advisory fees and other fees.(2) This metric includes the impact of the departure of approximately $5 billion of assets under administration related to the portion of advisors previously associated through a single relationship in our independent contractors division whose affiliation with the firm ended in the fiscal third quarter of 2023.(3) The Domestic Private Client Group net new asset growth - annualized percentage is based on the beginning Domestic Private Client Group AUA balance for the indicated period. PCG AUA and PCG assets in fee-based accounts as of September 30, 2023 increased 16% and 17%, respectively, compared with September 30, 2022, due to net equity market appreciation and strong net inflows of client assets during the year, primarily due to the favorable impact of our recruiting. PCG assets in fee-based accounts continued to be a significant percentage of overall PCG AUA due to many clients’ preference for fee-based alternatives versus transaction-based accounts and, as a result, a significant portion of our PCG revenues is more directly impacted by market movements. Fee-based accounts within our PCG segment are comprised of a wide array of products and programs that we offer our clients. The majority of assets in fee-based accounts within our PCG segment are invested in programs for which our financial advisors provide investment advisory services, either on a discretionary or non-discretionary basis. Administrative services for such accounts (e.g., record-keeping) are generally performed by our Asset Management segment and, as a result, a portion of the related revenue is shared with the Asset Management segment.We also offer our clients fee-based accounts that are invested in “managed programs” overseen by AMS, which is part of our Asset Management segment. Fee-billable assets invested in managed programs are included in both “Assets in fee-based accounts” in the preceding table and “Financial assets under management” in the Asset Management segment. Revenues related to managed programs are shared by our PCG and Asset Management segments. The Asset Management segment receives a higher portion of the revenues related to accounts invested in managed programs, as compared to the portion received for non-managed programs, as it is performing portfolio management services in addition to administrative services. The vast majority of the revenues we earn from fee-based accounts is recorded in “Asset management and related administrative fees” on our Consolidated Statements of Income and Comprehensive Income. Fees received from such accounts are based on the value of client assets in fee-based accounts and vary based on the specific account types in which the client invests and the level of assets in the client relationship. As fees for the majority of such accounts are billed based on balances as of the beginning of the quarter, revenues from fee-based accounts may not be immediately affected by changes in asset values, but rather the impacts are seen in the following quarter.49RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexFinancial advisorsAs of September 30,202320222021Employees3,693 3,638 3,461 Independent contractors (1)5,019 5,043 5,021 Total advisors8,712 8,681 8,482 (1) Includes the impacts of the transfer of one firm with 166 financial advisors previously affiliated as independent contractors to our RCS division during our fiscal third quarter of 2022 and the departure of approximately 60 financial advisors, representing the portion of advisors previously associated through a single relationship in our independent contractors division whose affiliation with the firm ended in the fiscal third quarter of 2023.The number of financial advisors as of September 30, 2023 increased compared to the prior year, as the number of new recruits and trainees that were moved into production roles exceeded the number of financial advisors who left the firm, including planned retirements where assets are generally retained at the firm pursuant to advisor succession plans. We may experience transfers to our RCS division in fiscal 2024; however, consistent with our experience in fiscal 2023, we would not expect these financial advisor transfers to significantly impact our results of operations. Advisors in our RCS division are not included in our financial advisor metric although their client assets are included in PCG AUA.Clients’ domestic cash sweep balancesAs of September 30,$ in millions202320222021RJBDP:Bank segment$25,355 $38,705 $31,410 Third-party banks15,858 21,964 24,496 Subtotal RJBDP41,213 60,669 55,906 CIP1,620 6,445 10,762 Total clients’ domestic cash sweep balances42,833 67,114 66,668 ESP (1)13,592 — — Total clients’ domestic cash sweep and ESP balances$56,425 $67,114 $66,668 (1) In March 2023, we launched our ESP, in which Private Client Group clients may deposit cash in a high-yield Raymond James Bank account. These balances are reflected in Bank deposits on our Consolidated Statements of Financial Condition. Year ended September 30,202320222021Average yield on RJBDP - third-party banks3.20 %0.82 %0.30 %A significant portion of our domestic clients’ cash is included in the RJBDP, a multi-bank sweep program in which clients’ cash deposits in their accounts are swept into interest-bearing deposit accounts at either Raymond James Bank or TriState Capital Bank, which are included in our Bank segment, or various third-party banks. Such balances swept to third-party banks are not reflected on our Consolidated Statements of Financial Condition. Our PCG segment earns servicing fees for the administrative services we provide related to our clients’ deposits that are swept to such banks as part of the RJBDP. These servicing fees are variable in nature and fluctuate based on client cash balances in the program, as well as the level of short-term interest rates and the interest paid to clients on balances in the RJBDP. Under our intersegment policies, the PCG segment receives the greater of a base servicing fee or a net yield equivalent to the average yield that the firm would otherwise receive from third-party banks in the RJBDP. In the current interest-rate environment the PCG segment revenues throughout fiscal 2023 reflect RJBDP fee revenues derived from the yield from third-party banks in the program and the Bank segment RJBDP servicing costs reflect such market rate for the deposits. In fiscal 2022, the PCG segment revenues reflected the base servicing fee until May 2022, when the yield from third-party banks first exceeded such level. The fees that the PCG segment earns from the Bank segment, as well as the servicing costs incurred on the deposits in the Bank segment, are eliminated in consolidation. The “Average yield on RJBDP - third-party banks” in the preceding table is computed by dividing RJBDP fees from third-party banks, which are net of the interest expense paid to clients by the third-party banks, by the average daily RJBDP balance at third-party banks. The average yield on RJBDP - third-party banks increased from the prior year as a result of the significant increases in the Fed’s short-term benchmark interest rate, which began in March 2022.50RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexTotal clients’ domestic cash sweep and Enhanced Savings Program balances decreased 16% compared with September 30, 2022, as a result of client cash sorting activity, where clients deploy cash balances in their brokerage account to higher yielding alternatives, driven by the higher short-term interest rate environment throughout fiscal 2023, partially offset by the launch of the Enhanced Savings Program in March 2023, which resulted in $13.59 billion of client cash balances invested in the program as of September 30, 2023. PCG segment results can be impacted not only by changes in the level of client cash balances, but also by the allocation of client cash balances between RJBDP, CIP, and the Enhanced Savings Program, as the PCG segment may earn different amounts from each of these client cash destinations, depending on multiple factors.Year ended September 30, 2023 compared with the year ended September 30, 2022Net revenues of $8.65 billion increased 12% and pre-tax income of $1.76 billion increased 71%. Asset management and related administrative fees decreased $165 million, or 4%, primarily due to lower assets in fee-based accounts at the beginning of each of the current-year quarterly billing periods compared with the prior-year quarterly billing periods, partially offset by incremental revenues arising from the acquisition of Charles Stanley.Brokerage revenues decreased $82 million, or 5%, primarily due to lower trailing revenues from mutual fund and annuity products primarily resulting from market-driven declines in asset values for products for which we receive trails, as well as lower sales of equity products, mutual and other fund products, variable annuities, and insurance products. These decreases were partially offset by higher fixed annuity and fixed income product sales.Account and service fees increased $1.03 billion, or 85%, primarily due to an increase in RJBDP fees from both our Bank segment and third-party banks resulting from significantly higher short-term interest rates compared with the prior year, partially offset by a decline in average RJBDP balances.Net interest income increased $148 million, or 71%, primarily due to the significant increase in short-term interest rates applicable to our cash, segregated cash, and client margin account balances, partially offset by lower average balances.Other revenues increased $16 million, or 50%, primarily due to a favorable arbitration award during the fiscal third quarter of 2023. The benefit of this award was largely offset by associated compensation expenses and external legal fees incurred over the duration of the claim period, a portion of which was incurred during fiscal 2023.Compensation-related expenses increased $32 million, or 1%, primarily due to an increase in compensation costs to support our growth, annual salary increases, and incremental expenses resulting from our acquisition of Charles Stanley, partially offset by lower commission expense resulting from lower compensable revenues, including asset management and related administrative fees and brokerage revenues.Non-compensation expenses increased $179 million, or 23%, due to higher provisions for legal and regulatory matters, incremental expenses resulting from our acquisition of Charles Stanley, higher communications and information processing expenses primarily due to ongoing enhancements of our technology platforms, and increases in travel and event-related expenses compared with the low levels incurred in the prior year.Year ended September 30, 2022 compared with the year ended September 30, 2021Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K for a discussion of our fiscal 2022 results compared to fiscal 2021.51RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexRESULTS OF OPERATIONS – CAPITAL MARKETSOur Capital Markets segment conducts investment banking, institutional sales, securities trading, equity research, and the syndication and management of investments in low-income housing funds and funds of a similar nature, the majority of which qualify for tax credits.We provide various investment banking services, including merger & acquisition advisory, and other advisory services, underwriting of public and private equity and debt financing for corporate clients, and public financing activities. Revenues from investment banking activities are driven principally by our role in the transaction and the number and sizes of the transactions with which we are involved.We earn brokerage revenues for the sale of both equity and fixed income products to institutional clients, as well as from our market-making activities in fixed income debt securities. Client activity is influenced by a combination of general market activity and our Capital Markets group’s ability to find attractive investment opportunities for clients. In certain cases, we transact on a principal basis, which involves the purchase of securities from, and the sale of securities to, our clients as well as other dealers who may be purchasing or selling securities for their own account or acting on behalf of their clients. Profits and losses related to this activity are primarily derived from the spreads between bid and ask prices, as well as market trends for the individual securities during the period we hold them. To facilitate such transactions, we carry inventories of financial instruments. In our fixed income businesses, we also enter into interest rate swaps and futures contracts to facilitate client transactions or to actively manage risk exposures.For an overview of our Capital Markets segment operations, refer to the information presented in “Item 1 - Business” of this Form 10-K.Operating results Year ended September 30,% change$ in millions2023202220212023 vs. 20222022 vs. 2021Revenues: Brokerage revenues: Fixed income$345 $448 $515 (23)%(13)%Equity130 142 145 (8)%(2)%Total brokerage revenues475 590 660 (19)%(11)%Investment banking:Merger & acquisition and advisory418 709 639 (41)%11 %Equity underwriting85 210 285 (60)%(26)%Debt underwriting110 143 172 (23)%(17)%Total investment banking613 1,062 1,096 (42)%(3)%Interest income88 36 16 144 %125 %Affordable housing investments business revenues109 127 105 (14)%21 %All other14 21 18 (33)%17 %Total revenues1,299 1,836 1,895 (29)%(3)%Interest expense(85)(27)(10)215 %170 %Net revenues1,214 1,809 1,885 (33)%(4)%Non-interest expenses: Compensation, commissions and benefits902 1,065 1,055 (15)%1 %Non-compensation expenses:Communications and information processing102 89 83 15 %7 %Occupancy and equipment42 38 37 11 %3 %Business development61 45 34 36 %32 %Professional fees56 47 54 19 %(13)%All other142 110 90 29 %22 %Total non-compensation expenses403 329 298 22 %10 %Total non-interest expenses1,305 1,394 1,353 (6)%3 %Pre-tax income/(loss)$(91)$415 $532 NM(22)%52RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexYear ended September 30, 2023 compared with the year ended September 30, 2022Net revenues of $1.21 billion decreased 33% and we generated a pre-tax loss of $91 million compared with pre-tax income of $415 million in the prior year.Investment banking revenues decreased $449 million, or 42%, compared with a strong prior year, as activity levels were negatively impacted in the current year by macroeconomic uncertainties and significantly higher interest rates, which dampened capital markets activity across the industry. Investment banking revenues improved during our fiscal fourth quarter compared to the first three quarters of 2023.Brokerage revenues decreased $115 million, or 19%, primarily due to a decrease in fixed income brokerage revenues resulting from decreased activity from depository institution clients due to challenging market conditions, partially offset by incremental revenues from SumRidge Partners, which was acquired on July 1, 2022.Compensation-related expenses decreased $163 million, or 15%, primarily due to the decrease in revenues, partially offset by incremental expenses associated with growth investments, including our acquisition of SumRidge Partners, higher salaries, in part due to inflationary and market compensation pressures, and higher share-based compensation amortization resulting from production-related awards granted in prior years which are amortized over the vesting period. Non-compensation expenses increased $74 million, or 22%, primarily due to incremental expenses associated with SumRidge Partners, higher provisions for legal and regulatory matters in the current year, and increased travel and event-related expenses and professional fees. Year ended September 30, 2022 compared with the year ended September 30, 2021Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K for a discussion of our fiscal 2022 results compared to fiscal 2021.53RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexRESULTS OF OPERATIONS – ASSET MANAGEMENTOur Asset Management segment earns asset management and related administrative fees for providing asset management, portfolio management and related administrative services to retail and institutional clients. This segment oversees the portion of our fee-based AUA invested in “managed programs” for our PCG clients through AMS. This segment also provides asset management services through Raymond James Investment Management for certain retail accounts managed on behalf of third-party institutions, institutional accounts, and proprietary mutual funds that we manage, generally using active portfolio management strategies. Asset management fees are based on fee-billable assets under management, which are impacted by market fluctuations and net inflows or outflows of assets. Rising equity markets have historically had a positive impact on revenues as existing accounts increase in value. Conversely, declining markets typically have a negative impact on revenue levels.Our Asset Management segment also earns administrative fees on certain fee-based assets within PCG that are not overseen by our Asset Management segment, but for which the segment provides administrative support (e.g., record-keeping). These administrative fees are based on asset balances, which are impacted by market fluctuations and net inflows or outflows of assets. Our Asset Management segment also earns asset management and related administrative fees through services provided by RJ Trust and RJTCNH. For an overview of our Asset Management segment operations, refer to the information presented in “Item 1 - Business” of this Form 10-K.Operating results Year ended September 30,% change$ in millions2023202220212023 vs. 20222022 vs. 2021Revenues: Asset management and related administrative fees:Managed programs$573 $585 $570 (2)%3 %Administration and other273 297 267 (8)%11 %Total asset management and related administrative fees846 882 837 (4)%5 %Account and service fees21 22 18 (5)%22 %All other18 10 12 80 %(17)%Net revenues885 914 867 (3)%5 %Non-interest expenses: Compensation, commissions and benefits198 194 182 2 %7 %Non-compensation expenses:Communications and information processing57 53 47 8 %13 %Investment sub-advisory fees147 149 127 (1)%17 %All other132 132 122 — %8 %Total non-compensation expenses336 334 296 1 %13 %Total non-interest expenses534 528 478 1 %10 %Pre-tax income$351 $386 $389 (9)%(1)%Selected key metricsManaged programsManagement fees recorded in our Asset Management segment are generally calculated as a percentage of the value of our fee-billable AUM. These AUM include the portion of fee-based AUA in our PCG segment that is invested in programs overseen by our Asset Management segment (included in the “AMS” line of the following table), as well as retail accounts managed on behalf of third-party institutions, institutional accounts and proprietary mutual funds that we manage (collectively included in the “Raymond James Investment Management” line of the following table).54RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexRevenues related to fee-based AUA in our PCG segment are shared by the PCG and Asset Management segments, the amount of which depends on whether or not clients are invested in assets that are in managed programs overseen by our Asset Management segment and the administrative services provided (see our “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for more information). Our AUM in AMS are impacted by market fluctuations and net inflows or outflows of assets, including transfers between fee-based accounts and transaction-based accounts within our PCG segment.Revenues earned by Raymond James Investment Management for retail accounts managed on behalf of third-party institutions, institutional accounts and our proprietary mutual funds are recorded entirely in the Asset Management segment. Our AUM in Raymond James Investment Management are impacted by market and investment performance and net inflows or outflows of assets, including the impact of acquisitions.Fees for our managed programs are generally collected quarterly. Approximately 65% of these fees are based on balances as of the beginning of the quarter (primarily in AMS), approximately 15% are based on balances as of the end of the quarter, and approximately 20% are based on average daily balances throughout the quarter.Financial assets under managementAs of September 30,$ in billions202320222021AMS (1)$139.2 $119.8 $134.4 Raymond James Investment Management68.7 64.2 67.8 Subtotal financial assets under management207.9 184.0 202.2 Less: Assets managed for affiliated entities (2)(11.5)(10.2)(10.3)Total financial assets under management$196.4 $173.8 $191.9 (1)Represents the portion of our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and Analysis - Results of Operations - Private Client Group”) that is invested in managed programs overseen by the Asset Management segment.(2)Represents the portion of the AMS AUM that is managed by Raymond James Investment Management and, as a result, are included in both AMS and Raymond James Investment Management in the preceding table. This amount is removed in the calculation of “Total financial assets under management.” Activity (including activity in assets managed for affiliated entities)Year ended September 30,$ in billions202320222021Financial assets under management at beginning of year$184.0 $202.2 $161.7 Raymond James Investment Management:Acquisition of Chartwell Investment Partners (“Chartwell’) (1)— 9.8 — Raymond James Investment Management - net inflows/(outflows)2.2 (1.5)(0.5)AMS - net inflows6.0 9.7 13.5 Net market appreciation/(depreciation) in asset values15.7 (36.2)27.5 Financial assets under management at end of year$207.9 $184.0 $202.2 (1)Represents June 1, 2022 assets under management of Chartwell, a registered investment adviser acquired as part of the TriState Capital acquisition. See Note 3 of the Notes to Consolidated Financial Statements of this Form 10-K for further information about this acquisition.AMS See “Management’s Discussion and Analysis - Results of Operations - Private Client Group” for further information about our retail client assets, including those fee-based assets invested in programs managed by AMS.55RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexRaymond James Investment ManagementAssets managed by Raymond James Investment Management include assets managed by our subsidiaries: Eagle Asset Management, Scout Investments, Reams Asset Management (a division of Scout Investments), ClariVest Asset Management, Cougar Global Investments, and Chartwell, which was acquired on June 1, 2022 in connection with our acquisition of TriState Capital. The following table presents Raymond James Investment Management’s AUM by objective, excluding assets for which it does not exercise discretion, as well as the approximate average client fee rate earned on such assets.As of September 30, 2023$ in billionsAUMAverage fee rateEquity$23.0 0.56 %Fixed income37.8 0.20 %Balanced7.9 0.33 %Total financial assets under management$68.7 0.34 %Non-discretionary asset-based programsThe following table includes assets held in certain non-discretionary asset-based programs for which the Asset Management segment does not exercise discretion but provides administrative support (including for affiliated entities). The vast majority of these assets are also included in our PCG segment fee-based AUA (as disclosed in “Assets in fee-based accounts” in the “Selected key metrics - PCG client asset balances” section of our “Management’s Discussion and Analysis - Results of Operations - Private Client Group”).Year ended September 30,$ in billions202320222021Total assets$391.1 $329.2 $365.3 The increase in assets compared to the prior year was primarily due to equity market appreciation, successful financial advisor recruiting and retention, and the continued trend of clients moving to fee-based accounts from transaction-based accounts. Administrative fees associated with these programs are predominantly based on balances at the beginning of each quarterly billing period.RJ TrustThe following table includes assets held in asset-based programs in RJ Trust (including those managed for affiliated entities).Year ended September 30,$ in billions202320222021Total assets$8.5 $7.3 $8.1 Year ended September 30, 2023 compared with the year ended September 30, 2022Net revenues of $885 million decreased 3% and pre-tax income of $351 million decreased 9%.Asset management and related administrative fees decreased $36 million, or 4%, driven by lower assets in non-discretionary asset-based programs and financial assets under management at AMS at the beginning of each of the current-year quarterly billing periods compared with the prior-year quarterly billing periods, as well as lower average financial assets under management at Raymond James Investment Management (excluding Chartwell), in each case primarily due to market-driven depreciation in asset values. These declines were partially offset by incremental revenues of Chartwell.Compensation expenses increased $4 million, or 2%, and non-compensation expenses increased $2 million, or 1%, both primarily due to incremental expenses resulting from the Chartwell acquisition. Year ended September 30, 2022 compared to the year ended September 30, 2021Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K for a discussion of our fiscal 2022 results compared to fiscal 2021.56RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexRESULTS OF OPERATIONS – BANKThe Bank segment provides various types of loans, including SBL, corporate loans, residential mortgage loans, and tax-exempt loans. Our Bank segment is active in corporate loan syndications and participations and lending directly to clients. We also provide FDIC-insured deposit accounts, including to clients of our broker-dealer subsidiaries, as well as other retail and corporate deposit and liquidity management products and services. Our Bank segment generates net interest income principally through the interest income earned on loans and an investment portfolio of available-for-sale securities, which is offset by the interest expense it pays on client deposits and on its borrowings. Our Bank segment’s net interest income is affected by the levels of interest rates, interest-earning assets and interest-bearing liabilities. Higher interest-earning asset balances and higher interest rates generally lead to increased net interest income, depending upon spreads realized on interest-bearing liabilities. For more information on average interest-earning asset and interest-bearing liability balances and the related interest income and expense, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net interest analysis” of this Form 10-K. For an overview of our Bank segment operations, refer to the information presented in “Item 1 - Business” of this Form 10-K. Our Bank segment results include the results of TriState Capital Bank since the acquisition date of June 1, 2022. See Note 3 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding this acquisition.Operating results Year ended September 30,% change$ in millions2023202220212023 vs. 20222022 vs. 2021Revenues: Interest income$3,098 $1,209 $684 156 %77 %Interest expense(1,141)(156)(42)631 %271 %Net interest income1,957 1,053 642 86 %64 %All other56 31 30 81 %3 %Net revenues2,013 1,084 672 86 %61 %Non-interest expenses: Compensation and benefits177 84 51 111 %65 %Non-compensation expenses:Bank loan provision/(benefit) for credit losses132 100 (32)32 %NMRJBDP fees to PCG1,093 357 183 206 %95 %All other240 161 103 49 %56 %Total non-compensation expenses1,465 618 254 137 %143 %Total non-interest expenses1,642 702 305 134 %130 %Pre-tax income$371 $382 $367 (3)%4 %Year ended September 30, 2023 compared with the year ended September 30, 2022Net revenues of $2.01 billion increased 86%, while pre-tax income of $371 million decreased 3%.Net interest income increased $904 million, or 86%, due to the significant increase in short-term interest rates and higher average interest-earning assets at Raymond James Bank, primarily bank loans, as well as incremental net interest income from the acquisition of TriState Capital Bank. These increases were partially offset by an increase in interest expense as we pursue more diversified funding sources which have a higher relative cost, such as the Enhanced Savings Program launched to PCG clients in our second fiscal quarter of 2023 and additional offerings of certificates of deposit. The net interest margin increased to 3.28% from 2.39% for the prior year.All other revenues increased $25 million, or 81%, primarily due to incremental revenues from the TriState Capital Bank acquisition largely related to derivatives, valuation gains on certain company-owned life insurance policies compared with losses in the prior year, and higher foreign currency gains compared with the prior year. The bank loan provision for credit losses was $132 million for the current year, compared with $100 million for the prior year. The bank loan provision for credit losses for the current year primarily reflected the impacts of a weakened macroeconomic outlook for certain loan portfolios, including a weakened outlook for commercial real estate prices compared with the prior year, charge-offs of certain loans, and loan downgrades during the year. These increases were partially offset by the favorable impact of loan repayments and sales, which had a larger impact on the current fiscal year expense than provisions on new loans. The provision for credit losses for the prior year reflected the impact of loan growth at Raymond James Bank and a weaker 57RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexeconomic outlook at that time, as well as an initial provision for credit losses on loans acquired as part of the TriState Capital Bank acquisition. Compensation expenses increased $93 million, or 111%, primarily due to incremental expenses of TriState Capital Bank and, to a lesser extent, increased headcount and annual salary increases.Non-compensation expenses, excluding the bank loan provision for credit losses, increased $815 million, or 157%, primarily due to an increase in RJBDP and other fees paid to PCG, and incremental expenses associated with TriState Capital Bank. RJBDP fees paid to PCG increased $736 million, or 206%, primarily due to a significant increase in short-term interest rates. These Bank segment fees and the related revenues earned by the PCG segment are eliminated in consolidation (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Private Client Group” for further information about these servicing fees). Year ended September 30, 2022 compared to the year ended September 30, 2021Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K for a discussion of our fiscal 2022 results compared to fiscal 2021.RESULTS OF OPERATIONS – OTHERThis segment includes interest income on certain corporate cash balances, our private equity investments, which predominantly consist of investments in third-party funds, certain other corporate investing activity, and certain corporate overhead costs of RJF that are not allocated to other segments, including the interest costs on our public debt and any losses on extinguishment of such debt, certain provisions for legal and regulatory matters, and certain acquisition-related expenses. For an overview of our Other segment operations, refer to the information presented in “Item 1 - Business” of this Form 10-K.Operating results Year ended September 30,% change$ in millions2023202220212023 vs. 20222022 vs. 2021Revenues: Interest income$147 $25 $8 488 %213 %Net gains on private equity investments6 9 74 (33)%(88)%All other3 9 6 (67)%50 %Total revenues156 43 88 263 %(51)%Interest expense(97)(93)(96)4 %(3)%Net revenues59 (50)(8)NM(525)%Non-interest expenses:Compensation and benefits95 90 77 6 %17 %Insurance settlement received(32)— — NM— %Losses on extinguishment of debt— — 98 — %(100)%All other110 51 63 116 %(19)%Total non-interest expenses173 141 238 23 %(41)%Pre-tax loss$(114)$(191)$(246)40 %22 %Year ended September 30, 2023 compared to the year ended September 30, 2022The pre-tax loss of $114 million was $77 million lower than the loss in the prior year.Net revenues increased $109 million, primarily due to an increase in interest income earned as a result of higher short-term interest rates applicable to our corporate cash balances.Non-interest expenses increased $32 million, or 23%, primarily due to a provision in the current year related to the SEC industry sweep on off-platform communications. This increase was partially offset by a $32 million insurance settlement received during the current year related to a previously settled legal matter, which was reflected as an offset to Other expenses, and a $22 million decrease in acquisition-related expenses.58RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexYear ended September 30, 2022 compared to the year ended September 30, 2021Refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2022 Form 10-K for a discussion of our fiscal 2022 results compared to fiscal 2021.STATEMENT OF FINANCIAL CONDITION ANALYSISThe assets on our Consolidated Statements of Financial Condition consisted primarily of cash and cash equivalents, assets segregated for regulatory purposes and restricted cash (primarily segregated for the benefit of clients), receivables including bank loans, financial instruments held either for trading purposes or as investments, goodwill and identifiable intangible assets, and other assets. A significant portion of our assets were liquid in nature, providing us with flexibility in financing our business. Total assets of $78.36 billion as of September 30, 2023 were $2.59 billion, or 3%, less than our total assets as of September 30, 2022. Assets segregated for regulatory purposes and restricted cash decreased $5.25 billion, primarily due to a decrease in client cash sweep balances, which resulted in a decline in client cash held in our CIP and a corresponding decline in segregated assets. The available-for-sale securities portfolio decreased $704 million as a result of our intention to utilize the cash generated from maturities in this portfolio as a source of funding for our business activities. Partially offsetting these decreases was a $3.14 billion increase in cash and cash equivalents as we have increased the cash held in our Bank segment since September 30, 2022 as a result of market factors that have impacted the banking industry during fiscal 2023, providing us flexibility to meet the needs of our clients. Bank loans, net increased $536 million primarily driven by an increase in residential mortgage loans and CRE loans, partially offset by a decrease in C&I loans and SBL. As of September 30, 2023, our total liabilities of $68.17 billion were $3.35 billion, or 5%, less than our total liabilities as of September 30, 2022, primarily driven by a $6.0 billion decline in brokerage client payables, primarily related to the aforementioned decrease in CIP balances as of September 30, 2023. This decrease was partially offset by an increase in bank deposits of $2.84 billion, primarily due to the launch of the ESP to PCG clients in March 2023, which raised $13.59 billion of deposits during the year ended September 30, 2023, enabling us to shift a portion of our client cash sweep balances in the RJBDP from being held as bank deposits in our Bank segment to third-party banks in our RJBDP, which do not impact our Consolidated Statements of Financial Condition. The increase in deposits also allowed us to reduce our already modest level of borrowings from the FHLB by $190 million compared to September 30, 2022, despite the banking market conditions that arose during fiscal 2023. LIQUIDITY AND CAPITAL RESOURCESLiquidity and capital are essential to our business. The primary goal of our liquidity management activities is to ensure adequate funding and liquidity to conduct our business over a range of economic and market environments, including times of broader industry or market liquidity stress events, such as those which occurred in the banking industry during fiscal 2023. In times of market stress or uncertainty, we generally maintain higher levels of capital and liquidity, including increased cash levels in our Bank segment, to ensure we have adequate funding to support our business and meet our clients’ needs. We seek to manage capital levels to support execution of our business strategy, provide financial strength to our subsidiaries, and maintain sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and conservative internal management targets.Liquidity and capital resources are provided primarily through our business operations and financing activities. Our business operations generate substantially all of their own liquidity and funding needs. We have a contingency funding plan which would guide our actions if one or more of our businesses were to experience disruptions from normal funding and liquidity sources. These actions include reallocating client cash balances in the RJBDP from third-party banks to our bank subsidiaries thereby bringing those deposits onto our Consolidated Statements of Financial Condition, increasing our FHLB borrowings at our bank subsidiaries, accessing committed and uncommitted lines of credit at the parent or certain operating subsidiaries, accessing capital markets, or in certain circumstances accessing certain borrowings from the Federal Reserve. We also have the ability to create additional sources of funding by developing new products to meet the financial needs of our clients. In March 2023 we launched the ESP by which PCG clients can deposit cash in a FDIC-insured high-yield Raymond James Bank account. With each of our deposit offerings, we work to obtain sufficient liquidity to support our business operations while also maintaining a high level of FDIC insurance coverage for our clients. Our financing activities could also include bank borrowings, collateralized financing arrangements, or additional capital raising activities under our “universal” shelf registration statement. We believe our existing assets, most of which are liquid in nature, 59RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndextogether with funds generated from operations and available from committed and uncommitted financing facilities, provide adequate funds for continuing operations at current levels of activity in the short-term. We also believe that we will be able to continue to meet our long-term funding and liquidity requirements due to our strong financial position and ability to access capital from financial markets. Liquidity and capital managementSenior management establishes our liquidity and capital management frameworks. Our liquidity and capital management frameworks are overseen by the RJF Asset and Liability Committee, a senior management committee that develops and executes strategies and policies to manage our liquidity risk and interest rate risk, as well as provides oversight over the firm’s investments. Our liquidity management framework is designed to ensure we have a sufficient amount of funding, even when funding markets experience stress. We manage the maturities and diversity of our funding across products and seek to maintain a diversified funding profile with an appropriate tenor, taking into consideration the characteristics and liquidity profile of our assets (e.g., the maturities of our available-for-sale securities portfolio). The liquidity management framework includes senior management’s review of short- and long-term cash flow forecasts, review of necessary expenditures, monitoring of the availability of alternative sources of financing, and daily monitoring of liquidity in our significant subsidiaries. Our decisions on the allocation of resources to our business units consider, among other factors, projected profitability, cash flow, risk, future liquidity needs, and required capital levels. Our treasury department assists in evaluating, monitoring and controlling the impact that our business activities have on our financial condition and liquidity, and also maintains our relationships with various lenders. The objective of our liquidity management framework is to support the successful execution of our business strategies while ensuring ongoing and sufficient funding and liquidity. Our capital planning and capital risk management processes are governed by the Capital Planning Committee (“CPC”), a senior management committee that provides oversight on our capital planning and ensures that our strategic planning and risk management processes are integrated into the capital planning process. The CPC meets at least quarterly to review key metrics related to the firm’s capital, such as debt structure and capital ratios; to analyze potential and emerging risks to capital; to oversee our annual firmwide capital stress test; and to propose capital actions to the Board of Directors, such as declaring dividends, repurchasing securities, and raising capital. To ensure that we have sufficient capital to absorb unanticipated losses, the firm adheres to capital risk appetite statements and tolerances set in excess of regulatory minimums, which are established by the CPC and approved by the Board of Directors. We conduct enterprise-wide capital stress testing to ensure that we maintain adequate capital to adhere to our established tolerances under multiple scenarios, including a stressed scenario. Capital structureCommon equity (i.e., common stock, additional paid-in capital, and retained earnings) is the primary component of our capital structure. Common equity allows for the absorption of losses on an ongoing basis and for the conservation of resources during stress periods, as it provides us with discretion on the amount and timing of dividends and other capital actions. Information about our common equity is included in the Consolidated Statements of Financial Condition, the Consolidated Statements of Changes in Shareholders’ Equity, and Note 20 of the Notes to Consolidated Financial Statements of this Form 10-K.Under regulatory capital rules applicable to us as a bank holding company, we are required to maintain minimum leverage ratios (defined as tier 1 capital divided by adjusted average assets), as well as minimum ratios of tier 1 capital, common equity tier 1 (“CET1”), and total capital to risk-weighted assets. These capital ratios incorporate quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under the regulatory capital rules and are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. We calculate these ratios in order to assess compliance with both regulatory requirements and internal capital policies. In order to maintain our ability to take certain capital actions, including dividends and common equity repurchases, and to make bonus payments, we must hold a capital conservation buffer above our minimum risk-based capital requirements. See Note 24 of the Notes to Consolidated Financial Statements of this Form 10-K for further information about our regulatory capital and related capital ratios. We have classified all of our investments in debt securities as available-for-sale and have not classified any of our investments in debt securities as held-to-maturity. Accordingly, we account for our available-for-sale securities at fair value at each reporting date, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (“AOCI”). Current Basel III rules permit us to make an election to exclude most components of AOCI when calculating CET1, tier 1 capital, and total capital. We have elected the AOCI opt-out for regulatory capital purposes and therefore exclude certain elements of AOCI, including gains/losses on our available-for-sale portfolio, from our capital calculations.60RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexOn July 27, 2023, U.S. banking regulators issued proposed rules that, if enacted, would result in changes to regulations applicable to bank holding companies, including higher capital requirements and eliminating the AOCI opt-out election, which could reduce our regulatory capital ratios in the future. Under the proposed rule, if enacted, there would be a three-year transition period for the elimination of the AOCI opt-out election. We are evaluating these proposals, most of which would apply to us if our average total consolidated assets for four consecutive calendar quarters exceeded $100 billion, to assess their potential impact to our businesses and strategies. The following table presents the components of RJF’s regulatory capital used to calculate the aforementioned regulatory capital ratios.$ in millionsSeptember 30, 2023September 30, 2022Common equity tier 1 capital/Tier 1 capitalCommon stock and related additional paid-in capital$3,145 $2,989 Retained earnings10,213 8,843 Treasury stock(2,252)(1,512)Accumulated other comprehensive loss(971)(982)Less: Goodwill and identifiable intangible assets, net of related deferred tax liabilities(1,776)(1,805)Other adjustments886 847 Common equity tier 1 capital9,245 8,380 Preferred stock79 120 Less: Tier 1 capital deductions(3)(20)Tier 1 capital9,321 8,480 Tier 2 capitalQualifying subordinated debt100 100 Qualifying allowances for credit losses513 451 Tier 2 capital613 551 Total capital$9,934 $9,031 The following table presents RJF’s risk-weighted assets by exposure type used to calculate the aforementioned regulatory capital ratios.$ in millionsSeptember 30, 2023September 30, 2022On-balance sheet assets:Corporate exposures$19,262 $20,147 Exposures to sovereign and government-sponsored entities (1)1,844 2,002 Exposures to depository institutions, foreign banks, and credit unions1,878 3,003 Exposures to public-sector entities698 696 Residential mortgage exposures4,377 3,732 Statutory multifamily mortgage exposures118 71 High volatility commercial real estate exposures141 128 Past due loans203 110 Equity exposures538 445 Securitization exposures 134 129 Other assets8,665 7,325 Off-balance sheet:Standby letters of credit91 62 Commitments with original maturity of one year or less131 98 Commitments with original maturity greater than one year2,396 2,437 Over-the-counter derivatives311 305 Other off-balance sheet items275 423 Market risk-weighted assets2,485 3,063 Total standardized risk-weighted assets$43,547 $44,176 (1)RJF’s exposure is predominantly to the U.S. government and its agencies.61RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexCash flowsCash and cash equivalents (excluding amounts segregated for regulatory purposes and restricted cash) of $9.31 billion at September 30, 2023 increased $3.14 billion compared with September 30, 2022. The increase in cash and cash equivalents primarily resulted from net income earned during the year, proceeds from loan sales, cash resulting from maturities within our available-for-sale securities portfolio, and an increase in bank deposits, as additional deposits from the launch of our ESP to PCG clients in March 2023 and additional offerings of certificates of deposit during the year more than offset a decline in RJBDP balances swept to our Bank segment. These increases were partially offset by purchases of bank loans, cash used to fund common stock repurchases during the year of $788 million, as well as to pay dividends on our common and preferred stock, and purchases of available-for-sale securities.Sources of liquidityApproximately $2.08 billion of our total September 30, 2023 cash and cash equivalents was RJF corporate cash, which included the cash held at the parent company as well as cash it loaned to RJ&A. As of September 30, 2023, RJF had loaned $1.39 billion to RJ&A (such amount is included in the RJ&A cash balance in the following table), which RJ&A has invested on behalf of RJF in cash and cash equivalents or otherwise deployed in its normal business activities.The following table presents our holdings of cash and cash equivalents.$ in millionsSeptember 30, 2023RJF$717 Raymond James Bank2,536 TriState Capital Bank2,488 RJ&A2,124 RJ Ltd.528 RJFS165 Charles Stanley Group Limited159 Raymond James Capital Services, LLC106 RJTCNH97 Raymond James Investment Management97 Other subsidiaries296 Total cash and cash equivalents$9,313 RJF maintained depository accounts at Raymond James Bank and TriState Capital Bank totaling $282 million as of September 30, 2023. The portion of this total that was available on demand without restrictions, which amounted to $240 million as of September 30, 2023, is reflected in the RJF cash balance and excluded from Raymond James Bank’s cash balance in the preceding table.Due to market volatility in the banking industry during fiscal 2023, we maintained a higher level of cash balances at Raymond James Bank and TriState Capital Bank as of September 30, 2023, a combined increase of $3.3 billion compared with September 30, 2022, as part of our liquidity management strategies. As of September 30, 2023, a large portion of the cash and cash equivalents balances at our non-U.S subsidiaries, including RJ Ltd. and Charles Stanley Group Limited, was held to meet regulatory requirements and was not available for use by the parent.In addition to the cash balances described, we have various other potential sources of cash available to the parent company from subsidiaries, as described in the following section.Liquidity available from subsidiariesLiquidity is principally available to RJF from RJ&A and Raymond James Bank.Certain of our broker-dealer subsidiaries are subject to the requirements of the Uniform Net Capital Rule (Rule 15c3-1) under the Securities and Exchange Act of 1934. As a member firm of FINRA, RJ&A is subject to FINRA’s capital requirements, which are substantially the same as Rule 15c3-1. Rule 15c3-1 provides for an “alternative net capital requirement,” which RJ&A has elected. Regulations require that minimum net capital, as defined, be equal to the greater of $1.5 million or 2% of aggregate debit items arising from client balances. In addition, covenants in RJ&A’s committed financing facilities require its net capital to be a minimum of 10% of aggregate debit items. At September 30, 2023, RJ&A significantly exceeded the 62RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexminimum regulatory requirements, the covenants in its financing arrangements pertaining to net capital, as well as its internally-targeted net capital tolerances. FINRA may impose certain restrictions, such as restricting withdrawals of equity capital, if a member firm were to fall below a certain threshold or fail to meet minimum net capital requirements which may result in RJ&A limiting dividends it would otherwise remit to RJF. We evaluate regulatory requirements, loan covenants and certain internal tolerances when determining the amount of liquidity available to RJF from RJ&A.Raymond James Bank may pay dividends to RJF without prior approval of its regulator as long as the dividends do not exceed the sum of its current calendar year and the previous two calendar years’ retained net income, and it maintains its targeted regulatory capital ratios. Dividends may be limited to the extent that capital is needed to support balance sheet growth or as part of our liquidity and capital management activities. Although we have liquidity available to us from our other subsidiaries, the available amounts may not be as significant as those previously described and, in certain instances, may be subject to regulatory requirements.Borrowings and financing arrangementsFinancing arrangementsWe have various financing arrangements in place with third-party lenders that allow us the flexibility to borrow funds on a secured or unsecured basis to meet our liquidity needs. We generally utilize these financing arrangements to finance a portion of our fixed income trading instruments held by RJ&A or for cash management purposes. Our ability to borrow under these arrangements is dependent upon compliance with the conditions in our various loan agreements and, in the case of secured borrowings, collateral eligibility requirements.As of September 30, 2023, RJF and RJ&A had the ability to borrow under our $750 million Credit Facility, a committed unsecured line of credit; however, we had no such borrowings outstanding under this facility as of September 30, 2023. See our discussion of the Credit Facility in Note 16 of the Notes to Consolidated Financial Statements of this Form 10-K. In addition to our Credit Facility, we have various uncommitted financing arrangements with third-party lenders, which are in the form of secured lines of credit, secured bilateral repurchase agreements, or unsecured lines of credit. Our uncommitted secured financing arrangements generally require us to post collateral in excess of the amount borrowed and are generally collateralized by RJ&A-owned securities or by securities that we have received as collateral under reverse repurchase agreements (i.e., securities purchased under agreements to resell). As of September 30, 2023, we had outstanding borrowings under two uncommitted secured borrowing arrangements out of a total of 13 uncommitted financing arrangements (nine uncommitted secured and four uncommitted unsecured). However, lenders are under no contractual obligation to lend to us under uncommitted credit facilities.Our borrowings on uncommitted financing arrangements, which were in the form of repurchase agreements in RJ&A, were included in “Collateralized financings” on our Consolidated Statements of Financial Condition. The average daily balance outstanding during the five most recent quarters, the maximum month-end balance outstanding during the quarter and the period-end balances for repurchase agreements and reverse repurchase agreements are detailed in the following table. Repurchase transactionsReverse repurchase transactionsFor the quarter ended:($ in millions)Average daily balance outstandingMaximum month-end balance outstanding during the quarterEnd of period balance outstandingAverage daily balance outstandingMaximum month-end balance outstanding during the quarterEnd of period balance outstandingSeptember 30, 2023$153 $232 $157 $215 $279 $187 June 30, 2023$123 $128 $110 $179 $181 $181 March 31, 2023$174 $223 $150 $236 $310 $167 December 31, 2022$245 $257 $150 $288 $306 $156 September 30, 2022$196 $294 $294 $249 $367 $367 Other borrowings and collateralized financingsWe had $1.00 billion in FHLB borrowings outstanding at September 30, 2023, comprised of floating-rate and fixed-rate advances. The interest rates on our floating-rate advances are based on SOFR. We use interest rate swaps to manage the risk of increases in interest rates associated with the majority of our floating-rate FHLB advances by converting the balances subject to variable interest rates to a fixed interest rate. 63RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexWe pledge certain of our bank loans and available-for-sale securities with the FHLB as security for both the repayment of certain borrowings and to secure capacity for additional borrowings as needed. During the year ended September 30, 2023, we increased our borrowing capacity with the FHLB through the pledge of additional available-for-sale securities. At September 30, 2023, we had pledged with the FHLB bank loans and available-for-sale securities of $9.40 billion and $3.66 billion, respectively. As of September 30, 2023, we had an additional $9.25 billion in immediate credit available from the FHLB based on the collateral pledged. Further, with the pledge of incremental collateral, we could further increase credit available to us from the FHLB. See Notes 7 and 16 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding bank loans, net and available-for-sale securities pledged with the FHLB and for further information on our FHLB borrowings, including the related maturities and interest rates.A portion of our fixed income transactions are cleared through a third-party clearing organization, which provides financing for the purchase of trading instruments to support such transactions. The amount of financing is based on the amount of trading inventory financed, as well as any deposits held at the clearing organization. Amounts outstanding under this financing arrangement are collateralized by a portion of our trading inventory and accrue interest based on market rates. While we had borrowings outstanding as of September 30, 2023, the clearing organization is under no contractual obligation to lend to us under this arrangement.As member banks, Raymond James Bank and TriState Capital Bank have access to the Federal Reserve’s discount window and may have access to other lending programs that may be established by the Federal Reserve in unusual and exigent circumstances, including the Bank Term Funding Program that was created by the Federal Reserve on March 12, 2023; however, we do not view borrowings from the Federal Reserve as one of our primary sources of funding. See Note 7 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding bank loans, net pledged with the FRB.At September 30, 2023, we had subordinated notes due 2030 outstanding, with an aggregate principal amount of $98 million. See Note 16 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information regarding these borrowings. We may act as an intermediary between broker-dealers and other financial institutions whereby we borrow securities from one counterparty and then lend them to another counterparty. Where permitted, we have also loaned securities owned by clients or the firm to broker-dealers and other financial institutions. We account for each of these types of transactions as collateralized agreements and financings, with the outstanding balance of $180 million as of September 30, 2023 related to the securities loaned included in “Collateralized financings” on our Consolidated Statements of Financial Condition of this Form 10-K. See Notes 2 and 7 of the Notes to Consolidated Financial Statements of this Form 10-K for more information on our collateralized agreements and financings.Senior notes payableAt September 30, 2023, we had aggregate outstanding senior notes payable of $2.04 billion, which, exclusive of any unaccreted premiums or discounts and debt issuance costs, was comprised of $500 million par 4.65% senior notes due 2030, $800 million par 4.95% senior notes due 2046, and $750 million par 3.75% senior notes due 2051. See Note 17 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information on senior notes payable. At September 30, 2023, estimated future contractual interest payments on our senior notes were approximately $1.9 billion, of which $91 million is payable in fiscal 2024, with the remainder extending through 2051.64RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexCredit ratingsOur issuer, senior long-term debt, and preferred stock credit ratings as of the most current report are detailed in the following table. Credit Rating Fitch Ratings, Inc.Moody’sStandard & Poor’s Ratings ServicesIssuer and senior long term debt:RatingA-A3A-OutlookStableStableStableLast rating actionAffirmedUpgradeUpgradeDate of last rating actionMarch 2023February 2022February 2023Preferred stock:RatingBB+Baa3 (hyb)Not ratedLast rating actionAffirmedAssignedN/ADate of last rating actionMarch 2023August 2022N/A Our current credit ratings depend upon a number of factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trends and volatility, balance sheet composition, liquidity and liquidity management, capital structure, overall risk management, business diversification and market share, and competitive position in the markets in which we operate. Deterioration in any of these factors could impact our credit ratings. Any rating downgrades could increase our costs in the event we were to obtain additional financing.Should our credit rating be downgraded prior to a public debt offering, it is probable that we would have to offer a higher rate of interest to bond holders. A downgrade to below investment grade may make a public debt offering difficult to execute on terms we would consider to be favorable. A downgrade below investment grade could result in the termination of certain derivative contracts and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing overnight collateralization on our derivative instruments in liability positions. A credit downgrade could damage our reputation and result in certain counterparties limiting their business with us, result in negative comments by analysts, potentially negatively impact investors’ and/or clients’ perception of us, cause clients to withdraw bank deposits that exceed FDIC insurance limits from our bank subsidiaries, and cause a decline in our stock price. None of our borrowing arrangements contains a condition or event of default related to our credit ratings. However, a credit downgrade would result in the firm incurring a higher facility fee on the Credit Facility, in addition to triggering a higher interest rate applicable to any borrowings outstanding on that line as of and subsequent to such downgrade. Conversely, an improvement in RJF’s current credit rating could have a favorable impact on the facility fee, as well as the interest rate applicable to any borrowings on such line.Other sources and uses of liquidityWe have company-owned life insurance policies which are utilized to fund certain non-qualified deferred compensation plans and other employee benefit plans. Certain of our non-qualified deferred compensation plans and other employee benefit plans are employee-directed (i.e., the participant chooses investment portfolio benchmarks) while others are company-directed. Of the company-owned life insurance policies which fund these plans, certain policies could be used as a source of liquidity for the firm. Those policies against which we could readily borrow had a cash surrender value of $895 million as of September 30, 2023, comprised of $589 million related to employee-directed plans and $306 million related to company-directed plans, and we were able to borrow up to 90%, or $806 million, of the September 30, 2023 total without restriction. To effect any such borrowing, the underlying investments would be converted to money market investments, therefore requiring us to take market risk related to the employee-directed plans. There were no borrowings outstanding against any of these policies as of September 30, 2023.On May 12, 2021, we filed a “universal” shelf registration statement with the SEC pursuant to which we can issue debt, equity and other capital instruments if and when necessary or perceived by us to be opportune. Subject to certain conditions, this registration statement will be effective through May 12, 2024.65RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexAs part of our ongoing operations, we also enter into contractual arrangements that may require future cash payments, including certificates of deposit, lease obligations and other contractual arrangements, such as for software and various services. See Notes 14 and 15 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding our lease obligations and certificates of deposit, respectively. We have entered into investment commitments, lending commitments, and other commitments to extend credit for which we are unable to reasonably predict the timing of future payments. See Note 19 of the Notes to Consolidated Financial Statements of this Form 10-K for further information.REGULATORYRefer to the discussion of the regulatory environment in which we operate and the impact on our operations of certain rules and regulations in “Item 1 - Business - Regulation” of this Form 10-K.RJF and many of its subsidiaries are each subject to various regulatory capital requirements. As of September 30, 2023, all of our active regulated domestic and international subsidiaries had net capital in excess of minimum requirements. In addition, RJF, Raymond James Bank, and TriState Capital Bank were categorized as “well-capitalized” as of September 30, 2023. The maintenance of certain risk-based and other regulatory capital levels could influence various capital allocation decisions impacting one or more of our businesses. However, due to the current capital position of RJF and its regulated subsidiaries, we do not anticipate these capital requirements will have a negative impact on our future business activities. See Note 24 of the Notes to Consolidated Financial Statements of this Form 10-K for further information on regulatory capital requirements.In August 2023, Raymond James Investment Services Limited, one of our U.K. subsidiaries, agreed to a Voluntary Application for Imposition of Requirements (“VREQ”) with the FCA that prohibits the onboarding of new branches or financial advisors without the prior consent of the FCA. We do not expect this VREQ to have a material impact on our consolidated results of operations. CRITICAL ACCOUNTING ESTIMATESThe consolidated financial statements are prepared in accordance with GAAP, which require us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses for the reporting period. Management has established detailed policies and control procedures intended to ensure the appropriateness of such estimates and assumptions and their consistent application from period to period. For a description of our significant accounting policies, see Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K.Due to their nature, estimates involve judgment based upon available information. Actual results or amounts could differ from estimates and the difference could have a material impact on the consolidated financial statements. Therefore, understanding these critical accounting estimates is important in understanding our reported results of operations and financial position. We believe that of our accounting estimates and assumptions, those described in the following sections involve a high degree of judgment and complexity.Loss provisionsLoss provisions for legal and regulatory mattersThe recorded amount of liabilities related to legal and regulatory matters is subject to significant management judgment. For a description of the significant estimates and judgments associated with establishing such accruals, see the “Contingent liabilities” section of Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K. In addition, refer to Note 19 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding legal and regulatory matters contingencies as of September 30, 2023.Allowance for credit lossesWe evaluate certain of our financial assets, including bank loans, to estimate an allowance for credit losses based on expected credit losses over a financial asset’s lifetime. The remaining life of our financial assets is determined by considering contractual terms and expected prepayments, among other factors. We use multiple methodologies in estimating an allowance for credit losses and our approaches differ by type of financial asset and the risk characteristics within each financial asset type. Our estimates are based on ongoing evaluations of our financial assets, the related credit risk characteristics, and the overall economic and environmental conditions affecting the financial assets. Our process for determining the allowance for credit losses includes a complex analysis of several quantitative and qualitative factors requiring significant management judgment due to matters that are inherently uncertain. This uncertainty can produce volatility in our allowance for credit losses. In 66RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexaddition, the allowance for credit losses could be insufficient to cover actual losses. In such an event, any losses in excess of our allowance would result in a decrease in our net income, as well as a decrease in the level of regulatory capital. We generally estimate the allowance for credit losses on bank loans using credit risk models which incorporate relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable economic forecasts. After testing the reasonableness of a variety of economic forecast scenarios, each model is run using a single forecast scenario selected for each model. Our forecasts incorporate assumptions related to macroeconomic indicators including, but not limited to, U.S. gross domestic product, equity market indices, unemployment rates, and commercial real estate and residential home price indices. To demonstrate the sensitivity of credit loss estimates on our bank loan portfolio to macroeconomic forecasts, we compared our modeled estimates under the base case economic scenario used to estimate the allowance for credit losses as of September 30, 2023 to what our estimate would have been under a downside case scenario and an upside case scenario, without considering any offsetting effects in the qualitative component of our allowance for credit losses as of September 30, 2023. As of September 30, 2023, use of the downside case scenario would have resulted in an increase of approximately $235 million in the quantitative portion of our allowance for credit losses on bank loans, while the use of the upside case scenario would have resulted in a reduction of approximately $50 million in the quantitative portion of our allowance for credit losses on bank loans. These hypothetical outcomes reflect the relative sensitivity of the modeled portion of our allowance estimate to macroeconomic forecasted scenarios but do not consider any potential impact qualitative adjustments could have on the allowance for credit losses in such environments. Qualitative adjustments could either increase or decrease modeled loss estimates calculated using an alternative economic scenario assumption. Further, such sensitivity calculations do not necessarily reflect the nature and extent of future changes in the related allowance for a number of reasons including: (1) management’s predictions of future economic trends and relationships among the scenarios may differ from actual events; and (2) management’s application of subjective measures to modeled results through the qualitative portion of the allowance for credit losses when appropriate. The downside case scenario utilized in this hypothetical sensitivity analysis assumes a moderate recession. To the extent macroeconomic conditions worsen beyond those assumed in this downside case scenario, we could incur provisions for credit losses significantly in excess of those estimated in this analysis. See Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding our allowance for credit losses related to bank loans as of September 30, 2023.ACCOUNTING STANDARDS UPDATEIn March 2022, the Financial Accounting Standards Board issued new guidance related to troubled debt restructurings and disclosures regarding write-offs of financing receivables (ASU 2022-02), amending guidance related to the measurement of credit losses on financial instruments (ASU 2016-13). The amendment eliminates the accounting guidance for troubled debt restructurings for creditors, but requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty, and requires disclosure of current-period gross write-offs by year of origination for financing receivables. This guidance was adopted on a prospective basis on October 1, 2023 and did not have a material impact on our financial position and results of operations.See Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding accounting guidance adopted during the year ended September 30, 2023.RISK MANAGEMENTRisks are an inherent part of our business and activities. Management of risk is critical to our fiscal soundness and profitability. Our risk management processes are multi-faceted and require communication, judgment and knowledge of financial products and markets. We have a formal Enterprise Risk Management (“ERM”) program to assess and review aggregate risks across the firm. Our management takes an active role in the ERM process, which requires specific administrative and business functions to participate in the identification, assessment, monitoring and control of various risks.The principal risks related to our business activities are market, credit, liquidity, operational, model, and compliance.67RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexGovernanceOur Board of Directors, including its Risk Committee and Audit Committee, oversees the firm’s management and mitigation of risk, reinforcing a culture that encourages ethical conduct and risk management throughout the firm. Senior management communicates and reinforces this culture through three lines of risk management and a number of senior-level management committees. Our first line of risk management, which includes all of our businesses, owns its risks and is responsible for identifying, mitigating, and escalating risks arising from its day-to-day activities. The second line of risk management, which includes Compliance and Risk Management, advises our client-facing businesses and other first-line functions in identifying, assessing, and mitigating risk. The second line of risk management tests and monitors the effectiveness of controls, as deemed necessary, and escalates risks when appropriate to senior management and the Board of Directors. The third line of risk management, Internal Audit, independently reviews activities conducted by the previous lines of risk management to assess their management and mitigation of risk, providing additional assurance to the Board of Directors and senior management, with a view toward enhancing our oversight, management, and mitigation of risk. Our legal department provides legal advice and guidance to each of these three lines of risk management.Market riskMarket risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory, derivatives, and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations and our banking operations. Through our broker-dealer subsidiaries, we trade debt obligations and equity securities and maintain trading inventories to ensure availability of securities to facilitate client transactions. Inventory levels may fluctuate daily as a result of client demand. We also hold investments within our available-for-sale securities portfolio, and from time to time may hold Small Business Administration loan securitizations not yet sold. Our primary market risks relate to interest rates, equity prices, and foreign exchange rates. Interest rate risk results from changes in levels of interest rates, the volatility of interest rates, mortgage prepayment speeds, and credit spreads. Equity risk results from changes in prices of equity securities. Foreign exchange risk results from changes in spot prices, forward prices, and volatility of foreign exchange rates. See Notes 2, 4, 5 and 6 of the Notes to Consolidated Financial Statements of this Form 10-K for fair value and other information regarding our trading inventories, available-for-sale securities, and derivative instruments.We regularly enter into underwriting commitments and, as a result, we may be subject to market risk on any unsold securities issued in the offerings to which we are committed. Risk exposure is controlled by limiting our participation, the transaction size, or through the syndication process.The Market Risk Management department is responsible for measuring, monitoring, and reporting market risks associated with the firm’s trading and derivative portfolios. While Market Risk Management maintains ongoing communication with the revenue-generating business units, it is independent of such units. Interest rate riskTrading activitiesWe are exposed to interest rate risk as a result of our trading inventory (primarily comprised of fixed income instruments) in our Capital Markets segment. Changes in the value of our trading inventory may result from fluctuations in interest rates, credit spreads, equity prices, macroeconomic factors, investor expectations or risk appetites, liquidity, as well as dynamic relationships between these factors. We actively manage interest rate risk arising from our fixed income trading inventory through the use of hedging strategies utilizing U.S. Treasuries, exchange traded funds, futures contracts, liquid spread products, and derivatives.Our primary method for controlling risks within trading inventories is through the use of dollar-based and exposure-based limits. A hierarchy of limits exists at multiple levels, including firm, business unit, desk (e.g., for equities, corporate bonds, municipal bonds), product sub-type (e.g., below-investment-grade positions) and issuer concentration. For derivative positions, which are primarily comprised of interest rate swaps, we have established sensitivity-based and foreign exchange spot limits. Trading positions and derivatives are monitored against these limits through daily reports that are distributed to senior management. During volatile markets, we may temporarily reduce limits and/or choose to pare our trading inventories to reduce risk.68RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexWe monitor Value-at-Risk (“VaR”) for all of our trading portfolios on a daily basis for risk management purposes and as a result of applying the Fed’s Market Risk Rule (“MRR”) for the purpose of calculating our capital ratios. The MRR, also known as the “Risk-Based Capital Guidelines: Market Risk” rule released by the Fed, the OCC, and the FDIC, requires us to calculate VaR for all of our trading portfolios, including fixed income, equity, derivatives, and foreign exchange instruments. VaR is an appropriate statistical technique for estimating potential losses in trading portfolios due to typical adverse market movements over a specified time horizon with a suitable confidence level. However, there are inherent limitations to utilizing VaR including: historical movements in markets may not accurately predict future market movements; VaR does not take into account the liquidity of individual positions; VaR does not estimate losses over longer time horizons; and extended periods of one-directional markets potentially distort risks within the portfolio. In addition, should markets become more volatile, actual trading losses may exceed VaR results presented on a single day and might accumulate over a longer time horizon. As a result, management complements VaR with sensitivity analysis and stress testing and employs additional controls such as a daily review of trading results, review of aged inventory, independent review of pricing, monitoring of concentrations, and review of issuer ratings.To calculate VaR, we use models that incorporate historical simulation. This approach assumes that historical changes in market conditions, such as in interest rates and equity prices, are representative of future changes. Simulation is based on daily market data for the previous twelve months. VaR is reported at a 99% confidence level for a one-day time horizon. Assuming that future market conditions change as they have in the past twelve months, we would expect to incur losses greater than those predicted by our one-day VaR estimates about once every 100 trading days, or about three times per year on average. The VaR model is independently reviewed by our Model Risk Management function. See the “Model risk” section that follows for further information.The modeling of the risk characteristics of trading positions involves a number of assumptions and approximations that management believes to be reasonable. However, there is no uniform industry methodology for estimating VaR, and different assumptions or approximations could produce materially different VaR estimates. As a result, VaR results are more reliable when used as indicators of risk levels and trends within a firm than as a basis for inferring differences in risk-taking across firms. The following table sets forth the high, low, period-end and average daily one-day VaR for all of our trading portfolios, including fixed income and equity instruments, and for our derivatives for the periods and dates indicated. Year ended September 30, 2023Period-end VaRYear ended September 30,$ in millionsHighLowSeptember 30,2023September 30,2022$ in millions20232022Daily VaR$3 $1 $2 $3 Average daily VaR$2 $1 Average daily VaR was higher during the year ended September 30, 2023 compared with the year ended September 30, 2022 due to the impact of increased market volatility during the year, as well as the addition of the SumRidge Partners trading inventory beginning in July 2022. The Fed’s MRR requires us to perform daily back-testing procedures for our VaR model, whereby we compare each day’s projected VaR to its regulatory-defined daily trading losses, which exclude fees, commissions, reserves, net interest income, and intraday trading. Regulatory-defined daily trading losses are used to evaluate the performance of our VaR model and are not comparable to our actual daily net revenues. Based on these daily “ex ante” versus “ex post” comparisons, we determine whether the number of times that regulatory-defined daily trading losses exceed VaR is consistent with our expectations at a 99% confidence level. During the year ended September 30, 2023, our regulatory-defined daily losses in our trading portfolios exceeded our predicted VaR on three occasions in line with our previously described expectations.Separately, RJF provides additional market risk disclosures to comply with the MRR, including 10-day VaR and 10-day Stressed VaR, which are available on our website at https://www.raymondjames.com/investor-relations/financial-information/filings-and-reports within “Other Reports and Information.”69RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexBanking operationsOur Bank segment maintains an interest-earning asset portfolio that is comprised of cash, SBL, C&I loans, CRE loans, REIT loans, residential mortgage loans, and tax-exempt loans, as well as securities held in the available-for-sale securities portfolio. These interest-earning assets are primarily funded by client deposits. Based on the current asset portfolio, our banking operations are subject to interest rate risk. We analyze interest rate risk based on forecasted net interest income, which is the net amount of interest received and interest paid, and the net portfolio valuation, both across a range of interest rate scenarios. One of the objectives of our Asset and Liability Committee is to manage the sensitivity of net interest income to changes in market interest rates. This committee uses several measures to monitor and limit interest rate risk in our banking operations, including scenario analysis and economic value of equity (“EVE”). We utilize hedging strategies using interest rate swaps in our banking operations as a component of our asset and liability management process. For further information regarding this hedging strategy, see Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K. We also manage interest rate risk as part of our liquidity management framework. See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital resources” of this Form 10-K for further information.To ensure that we remain within the tolerances established for net interest income, a sensitivity analysis of net interest income to interest rate conditions is estimated under a variety of scenarios. We use simulation models and estimation techniques to assess the sensitivity of net interest income to movements in interest rates. The model estimates the sensitivity by calculating interest income and interest expense in a dynamic balance sheet environment using current repricing, prepayment, and reinvestment of cash flow assumptions over a 12-month time horizon. Assumptions used in the model include interest rate movement, the slope of the yield curve, and balance sheet composition and growth. The model also considers interest rate-related risks such as pricing spreads, pricing of client cash accounts, including deposit betas, and prepayments. Various interest rate scenarios are modeled in order to determine the effect those scenarios may have on net interest income. The following table is an analysis of our banking operations’ estimated net interest income over a 12-month period based on instantaneous shifts in interest rates (expressed in basis points) using our previously described asset/liability model, which assumes a dynamic balance sheet, a weighted average deposit beta on our interest-bearing deposit accounts without stated maturities of approximately 50% as interest rates rise and approximately 40% as interest rates fall, and that interest rates do not decline below zero. While not presented, additional rate scenarios are performed, including interest rate ramps and yield curve shifts that may more realistically mimic the speed of potential interest rate movements. We also perform simulations on time horizons of up to five years to assess longer-term impacts to various interest rate scenarios. On a quarterly basis, we test expected model results to actual performance. Additionally, any changes made to key assumptions in the model are documented and approved by the Asset and Liability Committee.Instantaneous changes in rate (1)Net interest income($ in millions)Projected change innet interest income+200$1,96113%+100$1,8506%0$1,741—%-100$1,644(6)%-200$1,556(11)%(1) Our 0-basis point scenario was based on interest rates as of September 30, 2023.The preceding table does not include the impacts of an instantaneous change in interest rates on net interest income on assets and liabilities outside of our banking operations or on our RJBDP fees from third-party banks, which are also sensitive to changes in interest rates and are included in “Account and service fees” on our Consolidated Statements of Income and Comprehensive Income. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net interest analysis” of this Form 10-K for a discussion of the impact changes in short-term interest rates could have on the consolidated firm’s operations.We have classified all of our investments in debt securities as available-for-sale and have not classified any of our investments in debt securities as held-to-maturity. In our available-for-sale securities portfolio, we hold primarily fixed-rate agency-backed MBS, agency-backed CMOs, and U.S. Treasuries, which are carried at fair value on our Consolidated Statements of Financial Condition, with changes in the fair value of the portfolio recorded through other comprehensive income (“OCI”) on our Consolidated Statements of Income and Comprehensive Income. As the majority of our available-for-sale securities portfolio is comprised of U.S. government and government agency-backed securities, changes in fair value are primarily driven by changes 70RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexin interest rates. At September 30, 2023, our available-for-sale securities portfolio had a fair value of $9.18 billion with a weighted-average yield of 2.11% and a weighted-average life, after factoring in estimated prepayments, of 4.2 years. To evaluate the interest rate sensitivity of our available-for-sale securities portfolio we also monitor, among other things, effective duration, defined as the approximate percentage change in price for a 100-basis point change in rates. As of September 30, 2023, the effective duration of our available-for-sale securities portfolio was approximately 3.56, which means that we would expect the market value of our available-for-sale securities portfolio to decline approximately 3.56% for every 100-basis point increase in interest rates and increase approximately 3.56% for every 100-basis point decline in interest rates. See Notes 2 and 5 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information on our available-for-sale securities portfolio.The Asset and Liability Committee also reviews EVE, which is a point-in-time analysis of current interest-earning assets and interest-bearing liabilities that incorporates all cash flows over their estimated remaining lives, discounted at current rates. The EVE approach is based on a static balance sheet and provides an indicator of future earnings and capital levels as the changes in EVE indicate the anticipated change in the value of future cash flows. We monitor sensitivity to changes in EVE utilizing Board of Directors-approved limits. These limits set a risk tolerance to changing interest rates and assist in determining strategies for mitigating this risk as EVE approaches these limits. As of September 30, 2023, our EVE analyses were within approved limits.The following table shows the maturities of our bank loan portfolio at September 30, 2023, including contractual principal repayments. Maturities are generally determined based upon contractual terms; however, rollovers or extensions that are included for the purposes of measuring the allowance for credit losses are reflected in maturities in the following table. This table does not include any estimates of prepayments, which could shorten the average loan lives and cause the actual timing of the loan repayments to differ significantly from those shown in the table. Due in$ in millionsOne year or less> One year – fiveyears> Five years – fifteen years> Fifteen yearsTotalSBL$14,068 $502 $35 $1 $14,606 C&I loans1,196 7,164 2,008 38 10,406 CRE loans636 4,618 1,950 17 7,221 REIT loans274 1,334 60 — 1,668 Residential mortgage loans5 38 180 8,439 8,662 Tax-exempt loans97 303 1,141 — 1,541 Total loans held for investment16,276 13,959 5,374 8,495 44,104 Held for sale loans— — 87 58 145 Total loans held for sale and investment$16,276 $13,959 $5,461 $8,553 $44,249 The following table shows the distribution of the recorded investment of those bank loans that mature in more than one year between fixed and adjustable interest rate loans at September 30, 2023. Interest rate type$ in millionsFixedAdjustableTotalSBL$15 $523 $538 C&I loans863 8,347 9,210 CRE loans447 6,138 6,585 REIT loans— 1,394 1,394 Residential mortgage loans225 8,432 8,657 Tax-exempt loans1,444 — 1,444 Total loans held for investment2,994 24,834 27,828 Held for sale loans6 139 145 Total loans held for sale and investment$3,000 $24,973 $27,973 Contractual loan terms for SBL, C&I loans, CRE loans, REIT loans, and residential mortgage loans may include an interest rate floor, cap and/or fixed interest rates for a certain period of time, which would impact the timing of the interest rate reset for the respective loan. See the discussion within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management - Credit risk - Risk monitoring process” section of this Form 10-K for additional information regarding our interest-only residential mortgage loan portfolio.71RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexEquity price riskWe are exposed to equity price risk as a result of our capital markets activities. Our broker-dealer activities are generally client-driven, and we carry equity securities as part of our trading inventory to facilitate such activities, although the amounts are not as significant as our fixed income trading inventory. We attempt to reduce the risk of loss inherent in our inventory of equity securities by monitoring those security positions each day and establishing position limits. Equity securities held in our trading inventory are generally included in VaR.In addition, we have a private equity portfolio, included in “Other investments” on our Consolidated Statements of Financial Condition, which is primarily comprised of investments in third-party funds. See Note 4 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information on this portfolio.Foreign exchange riskWe are subject to foreign exchange risk due to our investments in foreign subsidiaries as well as transactions and resulting balances denominated in a currency other than the USD. For example, our bank loan portfolio includes loans which are denominated in Canadian dollars, totaling $1.40 billion and $1.51 billion at September 30, 2023 and 2022, respectively, when converted to USD. A majority of such loans are held in a Canadian subsidiary of Raymond James Bank, which is discussed in the following sections.Investments in foreign subsidiariesRaymond James Bank has an investment in a Canadian subsidiary, resulting in foreign exchange risk. To mitigate its foreign exchange risk, Raymond James Bank utilizes short-term, forward foreign exchange contracts. These derivatives are primarily accounted for as net investment hedges in the consolidated financial statements. See Notes 2 and 6 of the Notes to Consolidated Financial Statements of this Form 10-K for further information regarding these derivatives.At September 30, 2023, we had foreign exchange risk in our investment in RJ Ltd. of CAD 418 million and in our investment in Charles Stanley of £290 million, which were not hedged. At September 30, 2023, we had other, less significant investments in foreign domiciled subsidiaries, primarily in Europe, which were not hedged; however, we do not believe we had material foreign exchange risk either individually, or in the aggregate, pertaining to these subsidiaries as of September 30, 2023. Foreign exchange gains/losses related to our foreign investments are primarily reflected in OCI on our Consolidated Statements of Income and Comprehensive Income. See Note 20 of the Notes to Consolidated Financial Statements of this Form 10-K for further information regarding our components of OCI. Transactions and resulting balances denominated in a currency other than the USDWe are subject to foreign exchange risk due to our holdings of cash and certain other assets and liabilities resulting from transactions denominated in a currency other than the USD. Any currency-related gains/losses arising from these foreign currency denominated balances are reflected in “Other” revenues in our Consolidated Statements of Income and Comprehensive Income. The foreign exchange risk associated with a portion of such transactions and balances denominated in foreign currency are mitigated utilizing short-term, forward foreign exchange contracts. Such derivatives are not designated hedges and therefore, the related gains/losses are included in “Other” revenues in our Consolidated Statements of Income and Comprehensive Income. See Note 6 of the Notes to Consolidated Financial Statements of this Form 10-K for information regarding our derivatives.Credit riskCredit risk is the risk of loss due to adverse changes in a borrower’s, issuer’s, or counterparty’s ability to meet its financial obligations under contractual or agreed-upon terms. The nature and amount of credit risk depends on the type of transaction, the structure and duration of that transaction, and the parties involved. Credit risk is an integral component of the profit assessment of lending and other financing activities.Corporate activitiesWe maintain cash balances with the Fed and with various financial institutions, primarily global systemically important financial institutions, in our normal course of business. A large portion of such balances are in excess of FDIC insurance limits. As a result, we may be exposed to the risk that these financial institutions may not return our cash to us in the event that the institution experiences financial distress or ceases its operations. In order to mitigate our credit risk to such financial 72RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexinstitutions, we monitor our exposure with each institution on a daily basis and subject each institution to limits based on various factors including but not limited to financial strength, capitalization levels, liquidity, credit ratings, and market factors to the extent applicable.Brokerage activitiesWe are engaged in various trading and brokerage activities in which our counterparties primarily include broker-dealers, banks, exchanges, clearing organizations, and other financial institutions. We are exposed to risk that these counterparties may not fulfill their obligations. In addition, certain commitments, including underwritings, may create exposure to individual issuers and businesses. The risk of default depends on the creditworthiness of the counterparty and/or the issuer of the instrument. In addition, we may be subject to concentration risk if we hold large positions in or have large commitments to a single counterparty, borrower, or group of similar counterparties or borrowers (e.g., in the same industry). We seek to mitigate these risks by imposing and monitoring individual and aggregate position limits within each business segment for each counterparty, conducting regular credit reviews of financial counterparties, reviewing security, derivative and loan concentrations, holding collateral as security for certain transactions and conducting business through clearing organizations, which may guarantee performance. See Notes 2, 6, and 7 of the Notes to Consolidated Financial Statements of this Form 10-K for further information about our credit risk mitigation related to derivatives and collateralized agreements.Our client activities involve the execution, settlement, and financing of various transactions on behalf of our clients. Client activities are transacted on either a cash or margin basis. Credit exposure results from client margin loans, which are monitored daily and are collateralized by the securities in the clients’ accounts. We monitor exposure to industry sectors and individual securities on a daily basis in connection with our margin lending activities. We adjust our margin requirements if we believe our risk exposure is not appropriate based on market conditions. In addition, when clients execute a purchase, we are at some risk that the client will default on their financial obligation associated with the trade. If this occurs, we may have to liquidate the position at a loss. See Note 2 of the Notes to Consolidated Financial Statements of this Form 10‑K for further information about our determination of the allowance for credit losses associated with certain of our brokerage lending activities. We offer loans to financial advisors for recruiting and retention purposes. We have credit risk and may incur a loss primarily in the event that such borrower is no longer affiliated with us. See Notes 2 and 9 of the Notes to Consolidated Financial Statements of this Form 10-K for further information about our loans to financial advisors.Banking activitiesOur Bank segment has a substantial loan portfolio. Our strategy for credit risk management related to bank loans includes well-defined credit policies, uniform underwriting criteria, and ongoing risk monitoring and review processes for all credit exposures. The strategy also includes diversification across loan types, geographic locations, industries and clients, regular credit examinations and management reviews of all corporate and tax-exempt loans as well as individual delinquent residential loans. The credit risk management process also includes independent reviews at least annually of the credit risk monitoring process that performs assessments of compliance with credit policies, risk ratings, and other critical credit information. We seek to identify potential problem loans early, record any necessary risk rating changes and charge-offs promptly, and maintain appropriate reserve levels for expected losses. We utilize a thorough credit risk rating system to measure the credit quality of individual corporate and tax-exempt loans and related unfunded lending commitments. For our residential mortgage loans and substantially all of our SBL, we utilize the credit risk rating system used by bank regulators in measuring the credit quality of each homogeneous class of loans. In evaluating credit risk, we consider trends in loan performance, historical experience through various economic cycles, industry or client concentrations, the loan portfolio composition and macroeconomic factors (both current and forecasted). These factors have a potentially negative impact on loan performance and net charge-offs.73RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexWhile our bank loan portfolio is diversified, a significant downturn in the overall economy, deterioration in real estate values or a significant issue within any sector or sectors where we have a concentration will generally result in large provisions for credit losses and/or charge-offs. We determine the allowance required for specific loan pools based on relative risk characteristics of the loan portfolio. On an ongoing basis, we evaluate our methods for determining the allowance for each class of loans and make enhancements we consider appropriate. Our allowance for credit losses methodology is described in Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K. As our bank loan portfolio is segregated into six portfolio segments, likewise, the allowance for credit losses is segregated by these same segments. The risk characteristics relevant to each portfolio segment are as follows.SBL: Loans in this segment are primarily collateralized by the borrower’s marketable securities at advance rates consistent with industry standards and, to a lesser extent, the cash surrender value of life insurance policies issued by an investment-grade insurance company. An insignificant portion of our SBL portfolio is collateralized by private securities or other financial instruments with a limited trading market. Substantially all SBL are monitored daily for adherence to loan-to-value (“LTV”) guidelines and when a loan exceeds the required LTV, a collateral call is issued. Past due loans are minimal as any past due amounts result in a notice to the client for payment or the potential sale of the collateral which will bring the loan to a current status. The vast majority of our SBL qualify for the practical expedient allowed under the CECL guidance whereby we estimate zero credit losses to the extent the fair value of the collateral securing the loan equals or exceeds the related carrying value of the loan. SBL also generally qualify for lower capital requirements under regulatory capital rules.C&I: Loans in this segment are made to businesses and are generally secured by all assets of the business. Repayment, including for owner-occupied properties, is expected from the cash flows of the respective business. Unfavorable economic and political conditions, including the resultant decrease in consumer or business spending, may have an adverse effect on the credit quality of loans in this segment. CRE: Loans in this segment are primarily secured by income-producing properties. The underlying cash flows generated by properties securing these loans may be adversely affected by increased vacancy and decreases in rental rates, which are monitored on an ongoing basis. This portfolio segment includes CRE construction loans which involve risks such as project budget overruns, performance variables related to the contractor and subcontractors, or the inability to sell the project or secure permanent financing once the project is completed. With respect to commercial construction of residential developments, there is also the risk that the builder has a geographical concentration of developments. Adverse information arising from any of these factors may have a negative effect on the credit quality of loans in this segment.REIT: Loans in this segment are made to businesses that own or finance income-producing real estate across various property sectors. This portfolio segment may include extensions of credit to companies that engage in real estate development. Repayment of these loans is dependent on income generated from real estate properties or the sale of real estate. A portion of this segment may consist of loans secured by residential product types (single-family residential, including condominiums and land held for residential development) within a range of markets. Deterioration in the financial condition of the operating business, reductions in the value of real estate, as well as increased vacancy and decreases in rental rates may all adversely affect the loans in this segment.Residential mortgage (includes home equity loans/lines): All of our residential mortgage loans adhere to stringent underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of the borrower, LTV, and combined LTV (including second mortgage/home equity loans). We do not originate or purchase adjustable rate mortgage (“ARM”) loans with negative amortization, reverse mortgages, or loans to subprime borrowers. Loans with deeply discounted teaser rates are also not originated or purchased. All loans in this segment are collateralized by residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. A decline in the strength of the economy, particularly unemployment rates and housing prices, among other factors, could have a significant effect on the credit quality of loans in this segment.Tax-exempt: Loans in this segment are made to governmental and non-profit entities and are generally secured by a pledge of revenue and, in some cases, by a security interest in or a mortgage on the asset being financed. For loans to governmental entities, repayment is expected from a pledge of certain revenues or taxes. For non-profit entities, repayment is expected from revenues which may include fundraising proceeds. These loans are subject to demographic risk, therefore much of the credit assessment of tax-exempt loans is driven by the entity’s revenue base and the general economic environment. Adverse developments in either of these areas may have a negative effect on the credit quality of loans in this segment.74RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexThe level of charge-off activity is a factor that is considered in evaluating the potential severity of future credit losses. The following table presents net loan (charge-offs)/recoveries and the percentage of net loan (charge-offs)/recoveries to the average outstanding loan balances by loan portfolio segment. Year ended September 30, 202320222021$ in millionsNet loan (charge-off)/recovery amount% of avg.outstandingloansNet loan (charge-off)/recoveryamount% of avg.outstandingloansNet loan (charge-off)/recoveryamount% of avg.outstandingloansC&I loans$(44)0.40 %$(28)0.29 %$(4)0.05 %CRE loans(10)0.14 %1 0.02 %(10)0.37 %Residential mortgage loans— — %1 0.02 %1 0.02 %Total loans held for sale and investment$(54)0.12 %$(26)0.08 %$(13)0.06 %The level of nonperforming assets is another indicator of potential future credit losses. Nonperforming assets are comprised of both nonperforming loans and other real estate owned. Nonperforming loans include those loans which have been placed on nonaccrual status and certain accruing loans which are 90 days or more past due and in the process of collection. The following table presents the balance of nonperforming loans, nonperforming assets, and related key credit ratios.September 30,$ in millions20232022Nonperforming loans (1)$128 $74 Nonperforming assets$128 $74 Nonperforming loans as a % of total loans held for sale and investment0.29 %0.17 %Allowance for credit losses as a % of nonperforming loans370 %535 %Nonperforming assets as a % of Bank segment total assets0.21 %0.13 % (1) Nonperforming loans at September 30, 2023 and September 30, 2022 included $96 million and $63 million of loans, respectively, which were current pursuant to their contractual terms. The nonperforming loan balances in the preceding table excluded $7 million as of both September 30, 2023 and 2022 of residential troubled debt restructurings which were returned to accrual status in accordance with our policy. Although our nonperforming assets as a percentage of our Bank segment’s assets remained low as of September 30, 2023, any prolonged period of market deterioration could result in an increase in our nonperforming assets, an increase in our allowance for credit losses and/or an increase in net charge-offs in future periods, although the extent would depend on future developments that are highly uncertain. See further explanation of our bank loan portfolio segments, allowance for credit losses, and the credit loss provision in Notes 2 and 8 of the Notes to Consolidated Financial Statements of this Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Bank” of this Form 10-K. Loan underwriting policiesA component of our Bank segment’s credit risk management strategy is conservative, well-defined policies and procedures. Our Bank segment’s underwriting policies for the major types of loans are described in the following sections.SBL portfolioOur SBL portfolio represented 33% of our total loans held for sale and investment as of September 30, 2023. This portfolio is primarily comprised of loans fully collateralized by a borrower’s marketable securities and, to a lesser extent, the cash surrender value of life insurance policies issued by an investment-grade insurance company. An insignificant portion of our SBL portfolio is collateralized by private securities or other financial instruments with a limited trading market. The underwriting policy for the SBL portfolio primarily includes a review of collateral, including LTV, and a review of repayment history.75RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexCorporate and tax-exempt loan portfoliosOur corporate and tax-exempt loan portfolios were comprised of approximately 1,600 borrowers as of September 30, 2023. Of these loan portfolios, approximately 80% was comprised of loans to larger companies with earnings before interest, taxes, depreciation, and amortization greater than $100 million, of which approximately 40% were loans to public companies. The remaining 20% was primarily focused on middle-market businesses located within the primary markets of Pennsylvania, Ohio, New Jersey, and New York. We have offices in each of these states led by experienced regional presidents to understand the unique borrowing needs and credit risk of the middle-market businesses in the area. They are supported by highly experienced relationship managers who target middle-market business customers with annual revenues of $10 million to $300 million. Our corporate loan portfolio is diversified by geography, by loan type, and among a number of industries in the U.S and Canada, and a large portion of these loans are to borrowers in industries in which we have expertise through coverage provided by our Capital Markets research analysts. Our corporate loans include project finance real estate loans, commercial lines of credit, and term loans, the majority of which are participations in Shared National Credit (“SNC”) or other large, syndicated loans. We are typically either involved in the syndication of the loans at inception or purchase loans in secondary trading markets. The remainder of the corporate loan portfolio is comprised of smaller participations and direct loans. There are no subordinated loans or mezzanine financings in the corporate loan portfolio. Our tax-exempt loans are long-term loans to governmental and non-profit entities. These loans generally have lower overall credit risk but are subject to other risks that are not usually present with corporate clients, including the risk associated with the constituency served by a local government and the risk in ensuring an obligation has appropriate tax treatment. The majority of our corporate and tax-exempt loan portfolios are underwritten, managed, and reviewed at one of our corporate locations while the remainder are approved by a committee of senior executives, both of which facilitates close monitoring of the portfolio by credit risk personnel, relationship officers, and senior bank executives. All corporate and tax-exempt loans are independently underwritten to our credit policies, are subject to approval by a loan committee, and credit quality is monitored on an ongoing basis by our lending staff. Our credit policies include criteria related to LTV limits based upon property type, single borrower loan limits, loan term and structure parameters (including guidance on leverage, debt service coverage ratios and debt repayment ability), industry concentration limits, secondary sources of repayment, municipality demographics, and other criteria. Our corporate loans are generally secured by all assets of the borrower and in some instances are secured by mortgages on specific real estate. Tax-exempt loans are generally secured by a pledge of revenue. In a limited number of transactions, loans in the portfolio are extended on an unsecured basis. In addition, corporate and tax-exempt loans are subject to regulatory review.Residential mortgage loan portfolio Our residential mortgage loan portfolio largely consists of first mortgage loans originated by us via referrals from our PCG financial advisors and the general public, as well as first mortgage loans purchased by us. Substantially all of our residential mortgage loans adhere to strict underwriting parameters pertaining to credit score and credit history, debt-to-income ratio of the borrower, LTV and combined LTV (including second mortgage/home equity loans). As of September 30, 2023, approximately 95% of the residential mortgage loan portfolio consisted of owner-occupant borrowers (approximately 74% for their primary residences and 21% for second home residences). Approximately 33% of the first lien residential mortgage loans were ARM loans, which receive interest-only payments based on a fixed rate for an initial period of the loan, ranging from the first five to fifteen years depending on the loan, and then become fully amortizing, subject to annual and lifetime interest rate caps. A significant portion of our originated 15 or 30-year fixed-rate residential mortgage loans are sold in the secondary market.Risk monitoring processAnother component of credit risk strategy for our bank loan portfolio is the ongoing risk monitoring and review processes, including our internal loan review process, as well as our rigorous processes to manage and limit credit losses arising from loan delinquencies. There are various other factors included in these processes, depending on the loan portfolio.SBL and residential mortgage loan portfoliosSubstantially all collateral securing our SBL portfolio is monitored on a daily basis. Collateral adjustments, as triggered by our monitoring procedures, are made by the borrower as necessary to ensure our loans are adequately secured, resulting in minimizing our credit risk. Collateral calls have been minimal relative to our SBL portfolio with insignificant losses incurred during the year ended September 30, 2023.We track and review many factors to monitor credit risk in our residential mortgage loan portfolio. The factors include, but are not limited to: loan performance trends, loan product parameters and qualification requirements, borrower credit scores, level of 76RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexdocumentation, loan purpose, geographic concentrations, average loan size, risk rating, and LTV ratios. See Note 8 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information. The following table presents a summary of delinquent residential mortgage loans, the vast majority of which are first mortgage loans, which are comprised of loans which are two or more payments past due as well as loans in the process of foreclosure. Amount of delinquent residential mortgage loansDelinquent residential mortgage loans as a percentage of outstanding residential mortgage loan balances$ in millions30-89 days90 days or moreTotal30-89 days90 days or moreTotalSeptember 30, 2023$3 $4 $7 0.03 %0.05 %0.08 %September 30, 2022$6 $6 $12 0.08 %0.08 %0.16 %Our September 30, 2023 percentage compares favorably to the national average for over 30 day delinquencies of 1.85%, as most recently reported by the Fed.To manage and limit credit losses, we maintain a rigorous process to manage our loan delinquencies. Substantially all of our residential first mortgages are serviced by a third party whereby the primary collection effort resides with the servicer. Our personnel direct and actively monitor the servicers’ efforts through extensive communications regarding individual loan status changes and through requirements of timely and appropriate collection of property management actions and reporting, including management of third parties used in the collection process (e.g., appraisers, attorneys, etc.). Residential mortgage loans over 60 days past due are generally reviewed by our personnel monthly and documented in a written report detailing delinquency information, balances, collection status, appraised value, and other data points. Our senior management meets quarterly to discuss the status, collection strategy and charge-off recommendations on substantially all residential mortgage loans over 60 days past due. Updated collateral valuations are generally obtained for loans over 90 days past due and charge-offs are typically taken on individual loans based on these valuations generally before the loan is 120 days past due.Credit risk is also managed by diversifying the residential mortgage portfolio. Most of the loans in our residential loan portfolio are to PCG clients across the U.S. The following table details the geographic concentrations (top five states) of our one-to-four family residential mortgage loans.September 30, 2023Loans outstanding as a % of total residential mortgage loans held for sale and investmentLoans outstanding as a % of total loans held for sale and investmentCalifornia24%5%Florida18%3%Texas8%2%New York8%2%Colorado4%1%The occurrence of a natural disaster or severe weather event in any of these states, for example wildfires in California and hurricanes in Florida, could result in additional credit loss provisions and/or charge-offs on our loans in such states and therefore negatively impact our net income and regulatory capital in any given period.Loans where borrowers may be subject to payment increases include ARM loans with terms that initially require payment of interest only. Payments may increase significantly when the interest-only period ends and the loan principal begins to amortize. At September 30, 2023 and 2022, these loans totaled $2.85 billion and $2.55 billion, respectively, or approximately 33% and 35% of the residential mortgage portfolio, respectively. The weighted-average number of years before the remainder of the loans, which were still in their interest-only period at September 30, 2023, begins amortizing is six years.Corporate and tax-exempt loansCredit risk in our corporate and tax-exempt loan portfolios is monitored on an individual loan basis for trends in borrower operating performance, payment history, credit ratings, collateral performance, loan covenant compliance, municipality demographics and other factors including industry performance and concentrations. As part of the credit review process, the loan rating is reviewed on an ongoing basis to confirm the appropriate risk rating for each credit. The individual loan ratings resulting from semi-annual SNC exams are incorporated in our internal loan ratings when the ratings are received. If the SNC rating is lower on an individual loan than our internal rating, the loan is downgraded. While we consider historical SNC exam results in our loan ratings methodology, differences between the SNC exam and internal ratings on individual loans typically arise due to subjectivity of the loan classification process. Downgrades resulting from these differences may result in additional 77RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexprovisions for credit losses in periods when SNC exam results are received. The majority of our tax-exempt loan portfolio is comprised of loans to investment-grade borrowers. See Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K for additional information on our allowance for credit losses policies.Credit risk is managed by diversifying the corporate bank loan portfolio. Our corporate bank loan portfolio does not contain a significant concentration in any single industry. The following table details the industry concentrations (top five categories) of our corporate bank loans.September 30, 2023Loans outstanding as a % oftotal corporate bank loans held for sale and investmentLoans outstanding as a % oftotal loans held for sale and investmentMulti-family12%5%Industrial warehouse9%4%Office real estate7%3%Loan fund6%3%Consumer products and services5%2%The Fed’s measures to control inflation, including through increases in short-term interest rates, have had a dampening effect on the economy and are likely to continue to do so in the near-term. These and related factors could negatively impact our borrowers, particularly those with heightened exposure to rising interest rates. In response to changing trends and industry-wide challenges, we continue to closely monitor each loan in our commercial real estate portfolio, particularly office real estate, utilizing LTV ratios and other metrics. We are also monitoring any impacts of inflation, higher interest rates, and a potential recession on our corporate loan portfolio. During the year ended September 30, 2023, we reduced our corporate loan exposure in certain sectors with increasing credit concerns and sold approximately $670 million of par value of corporate loans. We may sell additional corporate loans in fiscal 2024 as part of our credit risk mitigation strategies. In addition, while we are well-positioned to lend once activity increases, we expect to be prudent when growing our corporate loan portfolio. Liquidity riskSee “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and capital resources” of this Form 10-K for information regarding our liquidity and how we manage liquidity risk.Operational riskOperational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, business disruptions, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes, including cybersecurity incidents (see “Item 1A - Risk Factors” of this Form 10-K for a discussion of certain cybersecurity risks). These risks are less direct than credit and market risk, but managing them is critical, particularly in a rapidly changing environment with increasing transaction volumes and complexity. We operate different businesses in diverse markets and are reliant on the ability of our employees and systems to process a large number of transactions. In the event of a breakdown or improper operation of systems or improper action by employees, we could suffer financial loss, regulatory sanctions, and damage to our reputation. In order to mitigate and control operational risk, we have developed and continue to enhance specific policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization and within such departments as Finance, Operations, Information Technology, Legal, Compliance, Risk Management, and Internal Audit. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our various businesses are operating within established corporate policies and limits. In addition, we have created business continuity plans for critical systems, and redundancies are built into the systems as deemed appropriate.We have an Operational Risk Management Committee comprised of members of senior management, which reviews and addresses operational risks across our businesses. The committee establishes risk appetite levels for major operational risks, monitors operating unit performance for adherence to defined risk tolerances, and establishes policies for risk management at the enterprise level.78RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Management’s Discussion and AnalysisIndexPeriods of severe market volatility can result in a significantly higher level of transactions on specific days, which may present operational challenges from time to time that may result in losses. These losses can result from, but are not limited to, trade errors, failed transaction settlements, late collateral calls to borrowers and counterparties, or interruptions to our system processing. We did not incur any significant losses related to such operational challenges during the year ended September 30, 2023. As more fully described in the discussion of our business technology risks included in various risk factors presented in “Item 1A - Risk Factors” of this Form 10-K, despite our implementation of protective measures and endeavoring to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human error, natural disasters, power loss, cyber-attacks and other information security breaches, and other events that could have an impact on the security and stability of our operations.Model riskModel risk refers to the possibility of unintended business outcomes arising from the design, implementation or use of models. Models are used throughout the firm for a variety of purposes such as the valuation of financial instruments, the calculation of our allowance for credit losses, assessing risk, stress testing, and to assist in making certain business decisions. Model risk includes the potential risk that management makes incorrect decisions based upon either incorrect model results or incorrect understanding and use of model results. Model risk may also occur when model outputs differ from the expected result. Model errors or misuse could result in significant financial loss, inaccurate financial or regulatory reporting, or misaligned business strategies.Model Risk Management is a separate department within our Risk Management department and is independent of model owners, users, and developers. Our model risk management framework consists primarily of model governance, maintaining the firmwide model inventory, validating and approving models used across the firm, and ongoing monitoring. Results of validations and issues identified are reported to the Enterprise Risk Management Committee and Risk Committee of the Board of Directors. Model Risk Management assumes responsibility for the independent and effective challenge of model completeness, integrity and design based on intended use.Compliance riskCompliance risk is the risk of legal or regulatory sanctions, financial loss, or reputational damage that the firm may suffer from a failure to comply with applicable laws, external standards, or internal requirements.We have established a framework to oversee, manage, and mitigate compliance risk throughout the firm, both within and across businesses, functions, legal entities, and jurisdictions. The framework includes roles and responsibilities for the Board of Directors, senior management, and all three lines of risk management. This framework also includes programs and processes through which the firm identifies, assesses, controls, measures, monitors, and reports on compliance risk and provides compliance-related training throughout the firm. The Compliance department plays a key leadership role in the oversight, management, and mitigation of compliance risk throughout the firm. It does this by conducting an annual compliance risk assessment, carrying out compliance monitoring and testing activities, implementing compliance policies, training associates on compliance-related topics, and reporting compliance risk-related issues and metrics to the Board of Directors and senior management, among other activities.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKSee “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk management” of this Form 10-K for our quantitative and qualitative disclosures about market risk.79RAYMOND JAMES FINANCIAL, INC. AND SUBSIDIARIES Index \ No newline at end of file diff --git a/REALTY INCOME CORP_10-Q_2023-11-07_726728-0000726728-23-000115.html b/REALTY INCOME CORP_10-Q_2023-11-07_726728-0000726728-23-000115.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/REALTY INCOME CORP_10-Q_2023-11-07_726728-0000726728-23-000115.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/REGENERON PHARMACEUTICALS, INC._10-Q_2023-11-02_872589-0001804220-23-000031.html b/REGENERON PHARMACEUTICALS, INC._10-Q_2023-11-02_872589-0001804220-23-000031.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/REGENERON PHARMACEUTICALS, INC._10-Q_2023-11-02_872589-0001804220-23-000031.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/ROLLINS INC_10-Q_2023-10-26_84839-0000084839-23-000078.html b/ROLLINS INC_10-Q_2023-10-26_84839-0000084839-23-000078.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/ROLLINS INC_10-Q_2023-10-26_84839-0000084839-23-000078.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/ROSS STORES, INC._10-Q_2023-12-06_745732-0000745732-23-000072.html b/ROSS STORES, INC._10-Q_2023-12-06_745732-0000745732-23-000072.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/ROSS STORES, INC._10-Q_2023-12-06_745732-0000745732-23-000072.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/S&P Global Inc._10-Q_2023-11-02_64040-0000064040-23-000193.html b/S&P Global Inc._10-Q_2023-11-02_64040-0000064040-23-000193.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/S&P Global Inc._10-Q_2023-11-02_64040-0000064040-23-000193.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/SCHWAB CHARLES CORP_10-Q_2023-11-08_316709-0000316709-23-000062.html b/SCHWAB CHARLES CORP_10-Q_2023-11-08_316709-0000316709-23-000062.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/SCHWAB CHARLES CORP_10-Q_2023-11-08_316709-0000316709-23-000062.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/SKYWORKS SOLUTIONS, INC._10-K_2023-11-17_4127-0000004127-23-000030.html b/SKYWORKS SOLUTIONS, INC._10-K_2023-11-17_4127-0000004127-23-000030.html new file mode 100644 index 0000000000000000000000000000000000000000..440203492b77f4a3ead3c5dcd5bd355ff6788e88 --- /dev/null +++ b/SKYWORKS SOLUTIONS, INC._10-K_2023-11-17_4127-0000004127-23-000030.html @@ -0,0 +1 @@ +ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially and adversely from those referred to herein due to a number of factors, including, but not limited to, those described below and in Item 1A “Risk Factors” and elsewhere in this Annual Report on Form 10-K.OVERVIEWWe, together with our consolidated subsidiaries, are empowering the wireless networking revolution. Our highly innovative analog and mixed-signal semiconductors are connecting people, places, and things, spanning a number of new and previously unimagined applications within the aerospace, automotive, broadband, cellular infrastructure, connected home, defense, entertainment and gaming, industrial, medical, smartphone, tablet, and wearable markets. Impact of COVID-19The COVID-19 pandemic has affected business conditions in our industry. The duration, severity, and future impact of the pandemic, including as a result of more contagious variants of the virus that causes COVID-19, continue to be uncertain and could still result in significant disruptions to our business operations, as well as negative impacts to our financial condition.RESULTS OF OPERATIONSFiscal Years Ended September 29, 2023, September 30, 2022, and October 1, 2021.The following table sets forth the results of our operations expressed as a percentage of net revenue. See Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the SEC on November 23, 2022, as amended by Amendment No. 1 to such Annual Report on Form 10-K, filed with the SEC on January 27, 2023 (the “2022 10-K”), for Management’s Discussions and Analysis of Financial Condition and Results of Operations for the fiscal year ended October 1, 2021.Fiscal Years EndedSeptember 29,2023September 30,2022October 1,2021Net revenue100.0 %100.0 %100.0 %Cost of goods sold55.8 52.5 50.8 Gross profit44.2 47.5 49.2 Operating expenses:Research and development12.7 11.3 10.3 Selling, general, and administrative6.6 6.0 6.3 Amortization of intangibles0.7 1.8 0.7 Restructuring, impairment, and other charges0.6 0.6 0.2 Total operating expenses20.6 19.7 17.6 Operating income23.6 27.8 31.6 Interest expense(1.3)(0.9)(0.3)Other income (expense), net0.4 — — Income before income taxes22.6 26.9 31.3 Provision for income taxes2.0 3.7 2.0 Net income20.6 %23.2 %29.3 %30GeneralDuring the fiscal year ended September 29, 2023, the following key factors contributed to our overall results of operations, financial position, and cash flows:•Net revenue decreased 13.0% to $4,772.4 million in fiscal 2023, as compared to $5,485.5 million in fiscal 2022, driven primarily by a decrease in demand for our mobile products from smartphone customers in the Android ecosystem and for our connectivity solutions in consumer and enterprise markets. •Our ending cash, cash equivalents, and marketable securities balance increased 26% to $738.5 million in fiscal 2023, as compared to $586.8 million in fiscal 2022. The increase in cash, cash equivalents, and marketable securities during fiscal 2023 was primarily due to cash generated from operations of $1,856.4 million, partially offset byrepayments of debt of $900.0 million, dividend payments of $405.2 million, and capital expenditures of $210.3 million.Net RevenueFiscal Years EndedSeptember 29,2023ChangeSeptember 30,2022ChangeOctober 1,2021(dollars in millions)Net revenue$4,772.4 (13.0)%$5,485.5 7.4%$5,109.1 We market and sell our products directly to OEMs of communications and electronics products, third-party original design manufacturers and contract manufacturers, and indirectly through electronic components distributors. We generally experience seasonal peaks during our fourth and first fiscal quarters (which correspond to the second half of the calendar year), primarily as a result of increased worldwide production of consumer electronics in anticipation of increased holiday sales, whereas our second and third fiscal quarters are typically lower and in line with seasonal industry trends. The decrease in net revenue in fiscal 2023, as compared to fiscal 2022, was driven primarily by a decrease in demand for our mobile products from smartphone customers in the Android ecosystem and for our connectivity solutions in consumer and enterprise markets.For information regarding net revenue by geographic region and customer concentration, see Note 14 to Item 8 of this Annual Report on Form 10-K. Gross ProfitFiscal Years EndedSeptember 29,2023ChangeSeptember 30,2022ChangeOctober 1,2021(dollars in millions)Gross profit$2,107.3 (19.1)%$2,604.3 3.7%$2,512.4 % of net revenue44.2 %47.5 %49.2 %Gross profit represents net revenue less cost of goods sold. Our cost of goods sold consists primarily of purchased materials, labor, and overhead (including depreciation, share-based compensation, and amortization of acquisition intangibles, including inventory step-up expense) associated with product manufacturing. Erosion of average selling prices of established products is typical of the semiconductor industry. Consistent with trends in the industry, we anticipate that average selling prices for our established products will continue to decline over time. As part of our normal course of business, we intend to improve gross profit with efforts to increase unit volumes, reduce material costs, improve manufacturing efficiencies, lower manufacturing costs of existing products, and by introducing new and higher value-added products.The decrease in gross profit in fiscal 2023, as compared to fiscal 2022, was primarily the result of lower unit volumes, impairment charges on long-term supply capacity deposits, and lower average selling prices with a gross profit impact of $572.0 million, $47.5 million, and $41.8 million, respectively, partially offset by a favorable product mix with a gross profit impact of $261.2 million. 31Research and Development Fiscal Years EndedSeptember 29,2023ChangeSeptember 30,2022ChangeOctober 1,2021(dollars in millions)Research and development$606.8 (1.8)%$617.9 16.1%$532.3 % of net revenue12.7 %11.3 %10.4 %Research and development expenses consist primarily of direct personnel costs including share-based compensation expense, costs for pre-production evaluation and testing of new devices, non-production masks, engineering prototypes, and design tool costs.The decrease in research and development expense in fiscal 2023, as compared to fiscal 2022, was primarily related to a decrease in headcount-related expenses. Selling, General, and Administrative Fiscal Years EndedSeptember 29,2023ChangeSeptember 30,2022ChangeOctober 1,2021(dollars in millions)Selling, general, and administrative$314.0 (4.8)%$329.8 2.3%$322.5 % of net revenue6.6 %6.0 %6.3 %Selling, general, and administrative expenses include legal and related costs, accounting, treasury, human resources, information systems, customer service, bad debt expense, sales commissions, share-based compensation expense, advertising, marketing, costs associated with business combinations completed or contemplated during the period, and other costs.The decrease in selling, general, and administrative expenses in fiscal 2023, as compared to fiscal 2022, was primarily related to a decrease in headcount-related expenses, including share-based compensation.Amortization of IntangiblesFiscal Years EndedSeptember 29,2023ChangeSeptember 30,2022ChangeOctober 1,2021(dollars in millions)Amortization of intangibles$33.2 (66.4)%$98.9 174.7%$36.0 % of net revenue0.7 %1.8 %0.7 %The decrease in amortization expense for fiscal 2023, as compared to fiscal 2022, was primarily due to certain intangible assets that were acquired in prior fiscal years reaching the end of their useful lives.Restructuring, Impairment, and Other ChargesFiscal Years EndedSeptember 29,2023ChangeSeptember 30,2022ChangeOctober 1,2021(dollars in millions)Restructuring, impairment, and other charges$28.3 (7.8)%$30.7 244.9%$8.9 % of net revenue0.6 %0.6 %0.2 %Restructuring, impairment, and other charges incurred in fiscal 2023 were primarily due to employee severance costs and impairment charges on divested assets.Restructuring, impairment, and other charges incurred in fiscal 2022 were primarily related to the abandonment of previously capitalized in-process research and development projects.32Interest ExpenseFiscal Years EndedSeptember 29,2023ChangeSeptember 30,2022ChangeOctober 1,2021(dollars in millions)Interest expense$64.4 34.4%$47.9 100.0%$13.4 % of net revenue1.3 %0.9 %0.3 %The increase in interest expense for fiscal 2023, as compared to fiscal 2022, was due to an increase in the variable interest rate associated with the borrowing on the Term Loans, partially offset by a lower average balance of debt outstanding.Other Income (Expense), netFiscal Years EndedSeptember 29,2023ChangeSeptember 30,2022ChangeOctober 1,2021(dollars in millions)Other income (expense), net$18.2 828.0%$(2.5)316.7%$(0.6)% of net revenue0.4 %— %— %The increase in other income for fiscal 2023, as compared to fiscal 2022, was due to an increase in interest income as a result of higher interest rates. Provision for Income TaxesFiscal Years EndedSeptember 29,2023ChangeSeptember 30,2022ChangeOctober 1,2021(dollars in millions)Provision for income taxes$96.0 (52.3)%$201.4 100.6%$100.4 % of net revenue2.0 %3.7 %2.0 %We recorded a provision for income taxes of $96.0 million (which consisted of $62.0 million and $34.0 million related to United States and foreign income taxes, respectively) and $201.4 million (which consisted of $132.8 million and $68.6 million related to United States and foreign income taxes, respectively) for fiscal 2023 and fiscal 2022, respectively. The decrease in income tax expense for fiscal 2023, as compared with the corresponding period in fiscal 2022, was primarily due to lower income from operations, a decrease in tax on global intangible low-taxed income (“GILTI”), an increase in the benefit from foreign-derived intangible income deduction (“FDII”), partially offset by a current period shortfall in tax deductions for share-based compensation, compared to windfall deductions in the prior year.In August 2022, the U.S. government enacted the Inflation Reduction Act, which imposes a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income exceeding $1.0 billion, as well as a 1% excise tax on corporate stock repurchases made after December 31, 2022. We are currently evaluating the impact this law may have on our effective tax rate. CAMT is effective for the Company in fiscal year 2024.See Note 8 to Item 8 of this Annual Report on Form 10-K for additional information regarding income taxes. LIQUIDITY AND CAPITAL RESOURCESSet forth below is a summary of our cash flows for the periods indicated:33Fiscal Years Ended(in millions)September 29,2023September 30,2022October 1,2021Cash and cash equivalents at beginning of period$566.0 $882.9 $566.7 Net cash provided by operating activities1,856.4 1,424.6 1,772.0 Net cash used in investing activities(224.4)(378.9)(3,133.2)Net cash (used in) provided by financing activities(1,479.2)(1,362.6)1,677.4 Cash and cash equivalents at end of period$718.8 $566.0 $882.9 Cash provided by operating activities:Cash provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities. The $431.8 million increase in cash provided by operating activities for fiscal 2023, as compared to fiscal 2022, was primarily related to favorable changes in working capital of $988.5 million, due primarily to a decrease in accounts receivable and inventory, partially offset by lower net income.Cash used in investing activities:Cash used in investing activities consists primarily of capital expenditures and cash paid related to the purchase of marketable securities, offset by cash received related to the sale or maturity of marketable securities. The $154.5 million decrease in cash used in investing activities for fiscal 2023, as compared to fiscal 2022, was primarily related to a decrease of $279.1 million in cash used for capital expenditures, partially offset by a decrease of $117.9 million in the net sale of marketable securities. Cash used in financing activities:Cash used in financing activities consists primarily of proceeds and payments related to our long-term borrowings and cash transactions related to equity. The $116.6 million increase in cash used in financing activities for fiscal 2023, as compared to fiscal 2022, was primarily related to an increase of $850.0 million for the repayment of debt, an increase of $32.1 million in dividend payments, partially offset by a decrease of $711.5 million in stock repurchase activity, and a decrease of $52.6 million related to the minimum statutory payroll tax withholdings upon vesting of employee performance and restricted stock awards. Liquidity:Cash, cash equivalents, and marketable securities totaled $738.5 million as of September 29, 2023, representing an increase of $151.7 million from September 30, 2022. We have outstanding $500.0 million of Notes Due 2026 and $500.0 million of Notes Due 2031 (the “Notes”). We have a term credit agreement (the “Term Credit Agreement”) providing for a $1.0 billion term loan facility (the “Term Loan Facility”). On July 26, 2021, the Company borrowed $1.0 billion in aggregate principal amount of term loans (the “Term Loans”) under the Term Loan Facility to finance a portion of the purchase price for the acquisition of the Infrastructure and Automotive business of Silicon Laboratories Inc. and to pay fees and expenses incurred in connection therewith. During fiscal 2023, 2022, and 2021, we repaid $400.0 million, $50.0 million, and $250.0 million, of outstanding borrowings under the Term Loans, respectively. As of September 29, 2023, there were $300.0 million of borrowings outstanding under the Term Credit Agreement. We have a Revolving Credit Agreement (the “Revolving Credit Agreement”) under which we may borrow up to $750.0 million for general corporate purposes and working capital needs of the Company and its subsidiaries. As of September 29, 2023, there were no borrowings outstanding under the revolving credit facility (the “Revolver”). The Revolving Credit Agreement expires July 26, 2026.For a description of contractual obligations, such as taxes, leases, purchase commitments, and debt, see Note 8, Note 10, Note 11, and Note 16 to Item 8 of this Annual Report on Form 10-K, respectively. Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, the cash we expect to generate from operations, and funds from our Revolver, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from: research and development, capital expenditures, potential acquisitions, working capital, quarterly cash dividend payments (if such dividends are declared by the Board of Directors), outstanding commitments, and other liquidity requirements associated with existing operations. However, we cannot be certain that our cash on hand, cash generated from operations, and funds from our Revolver will be available in the future to fund all of our capital and operating requirements. In addition, any future strategic investments and significant acquisitions may require additional 34cash and capital resources. If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected.Our invested cash balances primarily consist of highly liquid marketable securities that are available to meet near-term cash requirements including: money market funds, U.S. Treasury securities, municipal bonds, and agency securities.CRITICAL ACCOUNTING ESTIMATESThe discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments in applying our most critical accounting policies that can have a significant impact on the results we report in our financial statements. The SEC has defined critical accounting estimates as those that are both most important to the portrayal of our financial condition and results and which require our most difficult, complex, or subjective judgments or estimates. Based on this definition, our most critical accounting estimates include revenue recognition, which impacts the recording of net revenue; inventory valuation, which impacts the cost of goods sold and gross margin; and income taxes, which impacts the income tax provision. These policies and significant judgments involved are discussed further below. We have other significant accounting policies that do not generally require subjective estimates or judgments or would not have a material impact on our results of operations. Our significant accounting policies are described in Note 2 to Item 8 of this Annual Report on Form 10-K.Revenue Recognition. We recognize revenue in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606 Revenue from Contracts with Customers net of estimated reserves. Our revenue reserves contain uncertainties because they require management to make assumptions and to apply judgment to estimate the value of future credits to customers for product returns, price protection, price adjustments, and stock rotation for products sold to certain electronic component distributors. We base these estimates on the expected value method considering all reasonably available information, including our historical experience and current expectations, and are reflected in the transaction price when sales are recorded. Changes in actual demand or market conditions could adversely or beneficially impact our reserve calculations. Inventory Valuation. We value our inventory at the lower of cost or net realizable value. Reserves for excess and obsolete inventory are established on a quarterly basis and are based on a detailed analysis of aged material, salability of our inventory, market conditions, and product life cycles. Once reserves are established, write-downs of inventory are considered permanent adjustments to the cost basis of inventory. Our reserves contain uncertainties because the calculation requires management to make assumptions and to apply judgment regarding historical experience, market conditions, and technological obsolescence. Changes in actual demand or market conditions could adversely impact our reserve calculations. Income Taxes. The application of tax laws and regulations to calculate our tax liabilities is subject to legal and factual interpretation, judgment, and uncertainty in a multitude of jurisdictions. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations, and court rulings. We recognize potential liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes and interest will be due. We record an amount as an estimate of probable additional income tax liability at the largest amount that we feel is more likely than not, based upon the technical merits of the position, to be sustained upon audit by the relevant tax authority.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are subject to overall financial market risks, such as changes in market liquidity, credit quality, investment risk, interest rate risk, and foreign exchange rate risk as described below.Investment and Interest Rate RiskOur exposure to interest rate and general market risks relates to our Term Credit Facility, which has variable interest rates, and our investment portfolio. As of September 29, 2023, there were $300.0 million of borrowings outstanding under the Term Credit Agreement, and a potential change in the associated interest rates would be immaterial to the results of our operations. Our investment portfolio consists of cash and cash equivalents (money market funds and marketable securities purchased with less than ninety days until maturity) that total approximately $718.8 million, and marketable securities (U.S. Treasury and government securities, and municipal bonds) that total approximately $15.6 million and $4.1 million within short-term and long-term marketable securities, respectively, as of September 29, 2023.35The main objectives of our investment activities are liquidity and preservation of capital. Our cash equivalent investments have short-term maturity periods that dampen the impact of market or interest rate risk. Our marketable securities consist of short-term and long-term maturity periods between 90 days and two years. Credit risk associated with our investments is not material because our investments are diversified across several types of securities with high credit ratings, which reduces the amount of credit exposure to any one investment.Based on our results of operations for the fiscal year ended September 29, 2023, a hypothetical reduction in the interest rates on our cash, cash equivalents, and other investments to zero would result in an immaterial reduction of interest income with a de minimis impact on income before taxes.We do not believe that investment or interest rate risks currently pose material exposures to our business or results of operations.Foreign Exchange Rate RiskSubstantially all sales to customers and arrangements with third-party manufacturers provide for pricing and payment in United States dollars, thereby reducing the impact of foreign exchange rate fluctuations on our results. A percentage of our international operational expenses are denominated in foreign currencies, and exchange rate volatility could positively or negatively impact those operating costs. For the fiscal years ended September 29, 2023, September 30, 2022, and October 1, 2021, we had foreign exchange gains of $1.7 million and foreign exchange losses of $1.4 million and $0.5 million, respectively. Increases in the value of the United States dollar relative to other currencies could make our products more expensive, which could negatively impact our ability to compete in international markets. Conversely, decreases in the value of the United States dollar relative to other currencies could result in our suppliers raising their prices to continue doing business with us. Given the relatively small number of customers and arrangements with third-party manufacturers denominated in foreign currencies, we do not believe that foreign exchange volatility has a material impact on our current business or results of operations. However, fluctuations in currency exchange rates could have a greater effect on our business or results of operations in the future to the extent our expenses increasingly become denominated in foreign currencies. We may enter into foreign currency forward and options contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows, and net investments in foreign subsidiaries. However, we may choose not to hedge certain foreign exchange exposures for a variety of reasons, including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. As of September 29, 2023, we had no outstanding foreign currency forward or options contracts with financial institutions. 36 \ No newline at end of file diff --git a/STARBUCKS CORP_10-K_2023-11-17_829224-0000829224-23-000058.html b/STARBUCKS CORP_10-K_2023-11-17_829224-0000829224-23-000058.html new file mode 100644 index 0000000000000000000000000000000000000000..be3e9cea8abc760d8b856b25678ca26f5a650bd3 --- /dev/null +++ b/STARBUCKS CORP_10-K_2023-11-17_829224-0000829224-23-000058.html @@ -0,0 +1 @@ +Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) can be found in the Annual Report on Form 10-K for the fiscal year ended October 2, 2022.OverviewWe have three reportable operating segments: 1) North America, which is inclusive of the U.S. and Canada; 2) International, which is inclusive of China, Japan, Asia Pacific, Europe, Middle East and Africa, Latin America and the Caribbean; and 3) Channel Development. Non-reportable operating segments and unallocated corporate expenses are reported within Corporate and Other.Our financial results and long-term growth model will continue to be driven by new store openings, comparable store sales and margin management. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies. Throughout this MD&A, we commonly discuss the following key operating metrics:•New store openings and store count•Comparable store sales•Operating marginStarbucks results for fiscal 2023 demonstrate the overall strength of our brand. Consolidated revenues increased 12% to $36.0 billion in fiscal 2023 compared to $32.3 billion in fiscal 2022, primarily driven by strength in our U.S. business and growth in our International segment, partially offset by the impact of unfavorable foreign currency translation.For both the North America segment and U.S. market, comparable store sales increased 9% for fiscal 2023 compared to an increase of 12% in fiscal 2022. Average ticket for both the North America segment and the U.S. market grew 6%, primarily driven by pricing in our U.S. market. The segment also experienced higher costs, primarily related to previously-committed investments in store partner wages and benefits and increased spend on partner training, as well as inflationary pressures on commodities and our supply chain. In fiscal 2022, we announced our Reinvention Plan in the U.S. market to increase efficiency while elevating the partner and customer experience. We believe the investments in partner wages and training have increased retention and in-store operational efficiencies while the acceleration of purpose-built store concepts and innovations in technologies have provided additional convenience and connection with our customers.For the International segment, despite COVID-19 pandemic-related headwinds in China in the first half of the year, revenue grew 8% in fiscal 2023 compared to fiscal 2022, primarily driven by net new company-operated store openings and higher product sales to and royalty revenues from our licensees. Also contributing to the increase was a 5% increase in comparable store sales, driven by customer transactions, compared to a decrease of 9% in fiscal 2022. These increases were partially offset by the impact of unfavorable foreign currency translation. Revenue for our Channel Development segment increased 3% in fiscal 2023 compared with fiscal 2022, primarily driven by higher Global Coffee Alliance product sales and royalty revenue and growth in our global ready-to-drink business. In fiscal 2023, we sold the assets associated with the Seattle's Best Coffee brand to Nestlé, which resulted in a pre-tax gain of $91.3 million. We have seen the strength and resilience of our brand as well as strong customer demand across our portfolio, with revenue and operating margin growth in fiscal 2023. We expect to continue our trend of global new store growth in fiscal 2024, driven by a dynamic portfolio of store formats in the U.S. and leveraging the strength of our brand internationally. We anticipate continued benefits from increased sales leverage and pricing decisions as well as in-store operational efficiencies driven by our Reinvention Plan. We expect the inflationary pressures on commodities and supply chain that impacted fiscal 2023 to moderate in fiscal 2024, relative to the impact on our business and financial metrics, including operating margin. Absent global economic disruptions, and based on the current trend of our business operations and our focused efforts on the Reinvention Plan, we are confident in the strength of our brand and strategy for sustainable, profitable growth over the long-term.28Table of ContentsFinancial Highlights•Total net revenues increased 12% to $36.0 billion in fiscal 2023 compared to $32.3 billion in fiscal 2022.•Consolidated operating income increased to $5.9 billion in fiscal 2023 compared to $4.6 billion in fiscal 2022. Fiscal 2023 operating margin was 16.3% compared to 14.3% in fiscal 2022. Operating margin expansion of 200 basis points was primarily due to pricing (approximately 250 basis points), sales leverage (approximately 240 basis points) and in-store operational efficiencies (approximately 160 basis points). These increases were partially offset by previously-committed investments in store partner wages (approximately 250 basis points) and higher general and administrative expenses, primarily in support of our Reinvention Plan (approximately 130 basis points).•Diluted earnings per share (“EPS”) for fiscal 2023 increased to $3.58, compared to EPS of $2.83 in fiscal 2022. The increase was primarily driven by sales growth and in-store operational efficiencies. This increase was partially offset by previously-committed investments in store partner wages and higher general and administrative expenses, primarily in support of our Reinvention Plan.•Capital expenditures were $2.3 billion in fiscal 2023 and $1.8 billion in fiscal 2022.•We returned $3.4 billion to our shareholders in fiscal 2023 through share repurchases and dividends. We returned $6.3 billion in fiscal 2022 through share repurchases and dividends.Acquisitions and DivestituresSee Note 2, Acquisitions, Divestitures and Strategic Alliance, to the consolidated financial statements included in Item 8 of Part II of this 10-K for information regarding acquisitions and divestitures.RESULTS OF OPERATIONS — FISCAL 2023 COMPARED TO FISCAL 2022 Consolidated results of operations (in millions):RevenuesFiscal Year EndedOct 1,2023Oct 2,2022%ChangeNet revenues:Company-operated stores$29,462.3 $26,576.1 10.9 %Licensed stores4,512.7 3,655.5 23.4 Other 2,000.6 2,018.7 (0.9)Total net revenues$35,975.6 $32,250.3 11.6 %Total net revenues increased $3.7 billion, or 12%, over fiscal 2022, primarily due to higher revenues from company-operated stores ($2.9 billion). The growth in company-operated store revenue was driven by an 8% increase in comparable store sales ($2.1 billion) attributed to a 5% increase in average ticket and 3% increase in comparable transactions. Also contributing were the incremental revenues from 1,339 net new Starbucks company-operated store openings, or a 7% increase, over the past 12 months ($1.2 billion). These increases were partially offset by the impact of unfavorable foreign currency translation ($555 million).Licensed stores revenue increased $857 million, primarily driven by higher product and equipment sales to and royalty revenues from our licensees ($898 million), largely due to revenue growth from existing stores and the opening of 988 net new Starbucks licensed stores over the past 12 months, partially offset by the impact of unfavorable foreign currency translation ($64 million).Other revenues decreased $18 million, primarily due to the absence of revenues from the Evolution Fresh business following its sale in the fourth quarter of fiscal 2022 ($60 million), partially offset by an increase in revenue in the Global Coffee Alliance ($37 million).29Table of ContentsOperating ExpensesFiscal Year EndedOct 1,2023Oct 2,2022Oct 1,2023Oct 2,2022As a % of TotalNet RevenuesProduct and distribution costs$11,409.1 $10,317.4 31.7 %32.0 %Store operating expenses 14,720.3 13,561.8 40.9 42.1 Other operating expenses539.4 461.5 1.5 1.4 Depreciation and amortization expenses1,362.6 1,447.9 3.8 4.5 General and administrative expenses2,441.3 2,032.0 6.8 6.3 Restructuring and impairments21.8 46.0 0.1 0.1 Total operating expenses30,494.5 27,866.6 84.8 86.4 Income from equity investees298.4 234.1 0.8 0.7 Gain from sale of assets91.3 — 0.3 — Operating income$5,870.8 $4,617.8 16.3 %14.3 %Store operating expenses as a % of related revenues50.0 %51.0 %Product and distribution costs as a percentage of total net revenues decreased 30 basis points, primarily due to pricing (approximately 120 basis points), partially offset by inflationary pressures on commodities and our supply chain (approximately 80 basis points).Store operating expenses as a percentage of total net revenues decreased 120 basis points. Store operating expenses as a percentage of company-operated store revenues decreased 100 basis points, primarily due to in-store operational efficiencies (approximately 160 basis points), sales leverage (approximately 160 basis points) and pricing (approximately 160 basis points). These were partially offset by previously-committed investments in store partner wages and benefits (approximately 290 basis points) and increased spend on partner training (approximately 30 basis points).Other operating expenses increased $78 million, primarily due to higher strategic investments in technology and other initiatives ($32 million) and support costs for our growing licensed markets ($25 million).Depreciation and amortization expenses as a percentage of total net revenues decreased 70 basis points, primarily due to lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized.General and administrative expenses increased $409.3 million, primarily due to incremental investments in technology ($140 million), increased support costs of strategic initiatives including the Reinvention Plan ($86 million), higher performance-based compensation ($74 million) and other labor and leadership support costs ($31 million).Income from equity investees increased $64 million, primarily due to higher income from our North American Coffee Partnership joint venture ($64 million).Gain from sale of assets includes the sale of our Seattle's Best Coffee brand to Nestlé in the second quarter of fiscal 2023.The combination of these changes resulted in an overall increase in operating margin of 200 basis points in fiscal 2023 when compared to fiscal 2022.30Table of ContentsOther Income and ExpensesFiscal Year EndedOct 1,2023Oct 2,2022Oct 1,2023Oct 2,2022 As a % of TotalNet RevenuesOperating income$5,870.8 $4,617.8 16.3 %14.3 %Interest income and other, net81.2 97.0 0.2 0.3 Interest expense(550.1)(482.9)(1.5)(1.5)Earnings before income taxes5,401.9 4,231.9 15.0 13.1 Income tax expense1,277.2 948.5 3.6 2.9 Net earnings including noncontrolling interests4,124.7 3,283.4 11.5 10.2 Net earnings/(loss) attributable to noncontrolling interests0.2 1.8 0.0 0.0 Net earnings attributable to Starbucks$4,124.5 $3,281.6 11.5 %10.2 %Effective tax rate including noncontrolling interests23.6 %22.4 %Interest income and other, net decreased $16 million, primarily due to lapping higher investment gains in the prior year.Interest expense increased $67 million primarily due to higher debt balances and higher interest rates.The effective tax rate for fiscal 2023 was 23.6% compared to 22.4% for fiscal 2022.The increase was due to lapping a beneficial return-to-provision adjustment related to the divestiture of certain joint venture operations (approximately 50 basis points) and a year-over-year decrease in beneficial valuation allowance activity related to international jurisdictions (approximately 40 basis points). See Note 14, Income Taxes, for further discussion.31Table of ContentsSegment InformationResults of operations by segment (in millions):North AmericaFiscal Year EndedOct 1,2023Oct 2,2022Oct 1,2023Oct 2,2022As a % of North AmericaTotal Net RevenuesNet revenues:Company-operated stores$23,905.4 $21,214.2 90.0 %90.8 %Licensed stores2,659.1 2,150.5 10.0 9.2 Other 5.1 6.1 0.0 0.0 Total net revenues26,569.6 23,370.8 100.0 100.0 Product and distribution costs7,530.4 6,677.2 28.3 28.6 Store operating expenses11,959.2 10,860.0 45.0 46.5 Other operating expenses263.8 202.1 1.0 0.9 Depreciation and amortization expenses910.1 808.4 3.4 3.5 General and administrative expenses389.7 303.3 1.5 1.3 Restructuring and impairments20.7 33.3 0.1 0.1 Total operating expenses21,073.9 18,884.3 79.3 80.8 Operating income$5,495.7 $4,486.5 20.7 %19.2 %Store operating expenses as a % of related revenues50.0 %51.2 %RevenuesNorth America total net revenues for fiscal 2023 increased $3.2 billion, or 14%, primarily due to a 9% increase in comparable store sales ($1.9 billion) driven by a 6% increase in average ticket and a 3% increase in comparable transactions. Also contributing to the increase were the performance of net new company-operated store openings over the past 12 months ($813 million) and higher product and equipment sales to and royalty revenues from our licensees ($487 million).Operating MarginNorth America operating income for fiscal 2023 increased 22% to $5.5 billion, compared to $4.5 billion in fiscal 2022. Operating margin expanded 150 basis points to 20.7%, primarily due to pricing (approximately 300 basis points), in-store operational efficiencies (approximately 230 basis points) and sales leverage. These were partially offset by previously-committed investments in store partner wages and benefits (approximately 300 basis points) and increased spend on partner training (approximately 40 basis points), as well as inflationary pressures on commodities and our supply chain (approximately 80 basis points).32Table of ContentsInternationalFiscal Year EndedOct 1,2023Oct 2,2022Oct 1,2023Oct 2,2022As a % of International Total Net RevenuesNet revenues:Company-operated stores$5,556.9 $5,361.9 74.2 %77.3 %Licensed stores1,853.6 1,505.0 24.8 21.7 Other77.1 73.2 1.0 1.1 Total net revenues7,487.6 6,940.1 100.0 100.0 Product and distribution costs2,608.4 2,357.7 34.8 34.0 Store operating expenses2,761.1 2,701.8 36.9 38.9 Other operating expenses219.0 191.4 2.9 2.8 Depreciation and amortization expenses335.1 513.0 4.5 7.4 General and administrative expenses335.8 345.3 4.5 5.0 Total operating expenses6,259.4 6,109.2 83.6 88.0 Income from equity investees2.7 2.3 0.0 0.0 Operating income$1,230.9 $833.2 16.4 %12.0 %Store operating expenses as a % of related revenues49.7 %50.4 %RevenuesInternational total net revenues for fiscal 2023 increased $548 million, or 7.9%, primarily due to 927 net new Starbucks company-operated stores, or a 12% increase over the past 12 months ($421 million), as well as higher product sales to and royalty revenues from our licensees ($411 million). Also contributing to the increase was a 5% increase in comparable store sales ($233 million), primarily driven by customer transactions. These were partially offset by the impact of unfavorable foreign currency translation ($543 million).Operating MarginInternational operating income for fiscal 2023 increased 48% to $1.2 billion, compared to $833.2 million in fiscal 2022. Operating margin increased 440 basis points to 16.4%, primarily due to sales leverage (approximately 270 basis points) and lapping amortization expenses of acquisition-related intangibles assets that are now fully amortized (approximately 240 basis points).33Table of ContentsChannel DevelopmentFiscal Year EndedOct 1,2023Oct 2,2022Oct 1,2023Oct 2,2022As a % of Channel Development Total Net RevenuesNet revenues$1,893.8 $1,843.6 Product and distribution costs1,250.1 1,194.2 66.0 %64.8 %Other operating expenses54.6 51.6 2.9 2.8 Depreciation and amortization expenses0.1 0.1 0.0 0.0 General and administrative expenses8.4 12.2 0.4 0.7 Total operating expenses1,313.2 1,258.1 69.3 68.2 Income from equity investees295.7 231.8 15.6 12.6 Gain from sale of assets91.3 — 4.8 — Operating income$967.6 $817.3 51.1 %44.3 %RevenuesChannel Development total net revenues for fiscal 2023 increased $50 million, or 3%, compared to fiscal 2022, primarily due to higher Global Coffee Alliance product sales and royalty revenue ($37 million) and growth in our ready-to-drink business ($22 million). Operating MarginChannel Development operating income for fiscal 2023 increased 18% to $968 million, compared to $817 million in fiscal 2022. Operating margin increased 680 basis points to 51.1%, primarily due to the gain from sale of our Seattle's Best Coffee brand (approximately 480 basis points) and growth in our North American Coffee Partnership joint venture income (approximately 300 basis points), partially offset by impairment charges against certain manufacturing assets (approximately 100 basis points).34Table of ContentsCorporate and OtherFiscal Year EndedOct 1,2023Oct 2,2022% ChangeNet revenues:Other $24.6 $95.8 (74.3)%Total net revenues24.6 95.8 (74.3)Product and distribution costs20.2 88.3 (77.1)Other operating expenses2.0 16.4 (87.8)Depreciation and amortization expenses117.3 126.4 (7.2)General and administrative expenses1,707.4 1,371.2 24.5 Restructuring and impairments1.1 12.7 (91.3)Total operating expenses1,848.0 1,615.0 14.4 Operating loss$(1,823.4)$(1,519.2)20.0 %Corporate and Other primarily consists of our unallocated corporate expenses and Evolution Fresh, prior to its sale in the fourth quarter of fiscal 2022. Unallocated corporate expenses include corporate administrative functions that support the operating segments but are not specifically attributable to or managed by any segment and are not included in the reported financial results of the operating segments.Corporate and Other operating loss increased to $1.8 billion for fiscal 2023, or 20%, compared to $1.5 billion in fiscal 2022. This increase was primarily driven by incremental investments in technology ($131 million), increased support costs of strategic initiatives including the Reinvention Plan ($86 million) and higher performance-based compensation ($56 million).FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCESCash and Investment OverviewOur cash and investments were $4.2 billion and $3.5 billion as of October 1, 2023 and October 2, 2022, respectively. We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, fund acquisitions and return cash to shareholders through common stock cash dividend payments and share repurchases. Our investment portfolio primarily includes highly liquid available-for-sale securities, including corporate debt securities, government treasury securities (domestic and foreign) and commercial paper as well as principal-protected structured deposits. As of October 1, 2023, approximately $2.5 billion of cash and short-term investments were held in foreign subsidiaries. Borrowing CapacityCredit Facilities and Commercial PaperRevolving Credit FacilityOur $3.0 billion unsecured five-year revolving credit facility (the “2021 credit facility”), of which $150.0 million may be used for issuances of letters of credit, is currently set to mature on September 16, 2026. The 2021 credit facility is available for working capital, capital expenditures and other corporate purposes, including acquisitions and share repurchases. We have the option, subject to negotiation and agreement with the related banks, to increase the maximum commitment amount by an additional $1.0 billion. Borrowings under the 2021 credit facility, which was most recently amended in April 2023, will bear interest at a variable rate based on Term SOFR, and, 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 Company’s long-term credit ratings assigned by the Moody’s and Standard & Poor’s 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 America’s prime rate, and (iii) Term SOFR plus 1.000%. Term SOFR means the forward-looking SOFR term rate administrated by the Chicago Mercantile Exchange plus a SOFR Adjustment of 0.100%.The 2021 credit facility contains provisions requiring us to maintain compliance with certain covenants, including a minimum fixed charge coverage ratio, which measures our ability to cover financing expenses. As of October 1, 2023, we were in compliance with all applicable covenants. No amounts were outstanding under our 2021 credit facility as of October 1, 2023 or October 2, 2022.35Table of ContentsOur total contractual borrowing capacity for general corporate purposes was $3.0 billion as of the end of fiscal 2023.Commercial PaperUnder our commercial paper program, we may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $3.0 billion, with individual maturities that may vary but not exceed 397 days from the date of issue. Amounts outstanding under the commercial paper program are required to be backstopped by available commitments under our 2021 credit facility. The proceeds from borrowings under our commercial paper 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 October 1, 2023, we had no amounts outstanding under our commercial paper program. As of October 2, 2022, we had $175.0 million in borrowings outstanding under this program.Credit Facilities in JapanAdditionally, we hold the following Japanese yen-denominated credit facilities that are are available for working capital needs and capital expenditures within our Japanese market:•A ¥5 billion, or $33.5 million, credit facility is currently set to mature on January 4, 2024. Borrowings under this credit facility are subject to terms defined 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 $67.0 million, credit facility is currently set to mature on March 27, 2024. Borrowings under this credit facility are subject to terms defined within the facility and will bear interest at a variable rate based on TIBOR plus an applicable margin of 0.300%.As of October 1, 2023 we had ¥5 billion, or $33.5 million, of borrowings outstanding under these credit facilities. As of October 2, 2022, we had no borrowings outstanding under these credit facilities.See Note 9, Debt, to the consolidated financial statements included in Item 8 of Part II of this 10-K 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 indentures under which the long-term notes were issued. As of October 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, commercial paper 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 our store partners, repaying maturing debts, as well as returning cash to shareholders through common stock cash dividend payments and discretionary share repurchases and investing in new business opportunities related to our core and developing businesses. Furthermore, we may use our available cash resources to make proportionate capital contributions to our investees. We may also seek strategic acquisitions to leverage existing capabilities and further build our business. Acquisitions may include increasing our ownership interests in our investees. Any decisions to increase such ownership interests will be driven by valuation 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 our ability to leverage our balance sheet through the issuance of debt, will be sufficient to finance capital requirements for our core businesses as well as shareholder distributions for at least the next 12 months. We are currently not aware of any trends or demands, commitments, events or uncertainties that will result 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 beyond the next 12 months. We have borrowed funds and continue to believe we have the ability to do so at reasonable interest rates; however, additional borrowings would 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 our capital programs, including cash returns to shareholders through future dividends and discretionary share repurchases, refinancing debt maturities, as well as investing in new business opportunities. 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 partial indefinite reinvestment of foreign earnings. In the event we determine that all or another portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes, which could be 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 not indefinitely reinvested may be repatriated at management’s discretion. See Note 14, Income Taxes, for further discussion.During each of the first three quarters of fiscal 2022, we declared a cash dividend to shareholders of $0.49 per share. During the fourth quarter of fiscal 2022, and for each of the first three quarters of fiscal 2023, we declared a cash dividend of $0.53 per 36Table of Contentsshare. Dividends are generally paid in the quarter following the declaration date. Cash returned to shareholders through dividends in fiscal 2023 and 2022 totaled $2.4 billion and $2.3 billion, respectively. During the fourth quarter of fiscal 2023, we declared a cash dividend of $0.57 per share to be paid on November 24, 2023, with an expected payout of approximately $651.2 million. During the fiscal year ended October 2, 2022, we repurchased 36.3 million shares of common stock for $4.0 billion on the open market. During the fiscal year ended October 1, 2023, we repurchased 10.0 million shares of common stock for $1.0 billion on the open market. On March 15, 2022, we announced that our Board authorized the repurchase of up to an additional 40 million shares under our ongoing share repurchase program. As of October 1, 2023, 42.6 million shares remained available for repurchase under current authorizations.Other than normal operating expenses, cash requirements for fiscal 2024 are expected to consist primarily of capital expenditures for investments in our new and existing stores, our supply chain and corporate facilities. Total capital expenditures for fiscal 2024 are expected to be approximately $3.0 billion.The following table summarizes current and long-term material cash requirements as of October 1, 2023, which we expect to fund primarily with operating cash flows (in millions): Material Cash RequirementsTotalLess than 1Year1 - 3Years3 - 5YearsMore than5 YearsOperating lease obligations(1)$10,594.2 $1,577.6 $2,931.1 $2,206.9 $3,878.6 Debt obligationsPrincipal payments15,519.3 1,819.3 2,750.0 1,100.0 9,850.0 Interest payments6,362.2 520.8 909.3 740.6 4,191.5 Purchase obligations(2)1,078.4 694.6 311.4 72.4 — Other obligations(3)391.4 114.4 145.6 33.4 98.0 Total$33,945.5 $4,726.7 $7,047.4 $4,153.3 $18,018.1 (1)Amounts include direct lease obligations, excluding any taxes, insurance and other related expenses.(2)Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on Starbucks and that specify all significant terms. Green coffee purchase commitments comprise 92% of total purchase obligations.(3)Other obligations include other long-term liabilities primarily consisting of long-term income taxes payable, asset retirement obligations, equity investment capital commitments and finance lease obligations.Cash FlowsCash provided by operating activities was $6.0 billion for fiscal 2023, compared to $4.4 billion for fiscal 2022. The change was primarily due to a decrease in net cash used by changes in operating assets and liabilities, including lower inventory purchases driven by reduced coffee commodity prices, and higher net earnings during the period.Cash used in investing activities was $2.3 billion for fiscal 2023, compared to $2.1 billion for fiscal 2022. The change was primarily due to an increase in spend on capital expenditures and increased purchases of investments in fiscal 2023, partially offset by increased maturities and calls of investments in fiscal 2023.Cash used in financing activities was $3.0 billion for fiscal 2023, compared to $5.6 billion for fiscal 2022. The change was primarily due to a decrease in share repurchase activities, partially offset by an increase in net payments of commercial paper.COMMODITY PRICES, AVAILABILITY AND GENERAL RISK CONDITIONSCommodity price risk represents our primary market risk, generated by our purchases of green coffee and dairy products, among other items. We purchase, roast and sell high-quality arabica coffee and related products and risk arises from the price volatility of green coffee. In addition to coffee, we also purchase significant amounts of dairy products to support the needs of our company-operated stores. The price and availability of these commodities directly impact our results of operations, and we expect commodity prices, particularly coffee, to impact future results of operations. For additional details see Product Supply in Item 1, as well as Risk Factors in Item 1A of this 10-K.FINANCIAL RISK MANAGEMENTMarket risk is defined as the risk of losses due to changes in commodity prices, foreign currency exchange rates, equity security prices and interest rates. We manage our exposure to various market-based risks according to a market price risk management policy. Under this policy, market-based risks are quantified and evaluated for potential mitigation strategies, such as entering into hedging transactions. The market price risk management policy governs how hedging instruments may be used to mitigate 37Table of Contentsrisk. Risk limits are set annually and speculative trading activities are prohibited. We also monitor and limit the amount of associated counterparty credit risk, which we consider to be low. We use interest rate swap agreements and treasury locks to primarily hedge against changes in benchmark interest rates related to anticipated debt issuances. We also use cross-currency swaps and foreign exchange debt instruments to hedge against changes in the fair value of our net investments in foreign operations. Excluding interest rate hedging instruments, cross currency swaps and foreign currency debt, hedging instruments generally do not have maturities in excess of three years. Refer to Note 1, Summary of Significant Accounting Policies and Estimates, and Note 3, Derivative Financial Instruments, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion of our hedging instruments.The sensitivity analyses disclosed below provide only a limited, point-in-time view of the market risk of the financial instruments discussed. The actual impact of the respective underlying rates and price changes on the financial instruments may differ significantly from those shown in the sensitivity analyses.Commodity Price RiskWe purchase commodity inputs, primarily coffee, dairy products, diesel, cocoa, sugar and other commodities, that are used in our operations and are subject to price fluctuations that impact our financial results. We use a combination of pricing features embedded within supply contracts, such as fixed-price and price-to-be-fixed contracts and financial derivatives to manage our commodity price risk exposure.The following table summarizes the potential impact as of October 1, 2023 to Starbucks future net earnings and other comprehensive income (“OCI”) from changes in commodity prices. The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items (in millions): Increase/(Decrease) to Net EarningsIncrease/(Decrease) to OCI 10% Increase inUnderlying Rate10% Decrease inUnderlying Rate10% Increase inUnderlying Rate10% Decrease inUnderlying RateCommodity hedges$1.2 $(1.2)$33 $(33)Foreign Currency Exchange RiskThe majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, because a portion of our operations consists of activities outside of the U.S., we have transactions in other currencies, primarily the Chinese renminbi, Japanese yen, Canadian dollar, British pound, South Korean won and euro. To reduce cash flow volatility from foreign currency fluctuations, we enter into derivative instruments to hedge portions of cash flows of anticipated intercompany royalty payments, inventory purchases, intercompany borrowing and lending activities and certain other transactions in currencies other than the functional currency of the entity that enters into the arrangements, as well as the translation risk of certain balance sheet items. The volatility in the foreign exchange market may lead to significant fluctuation in foreign currency exchange rates and adversely impact our financial results in the case of weakening foreign currencies relative to the U.S. dollar. The following table summarizes the potential impact as of October 1, 2023 to Starbucks future net earnings and other comprehensive income from changes in the fair value of these derivative financial instruments due to a change in the value of the U.S. dollar as compared to foreign exchange rates. The information provided below relates only to the hedging instruments and does not represent the corresponding changes in the underlying hedged items (in millions): Increase/(Decrease) to Net EarningsIncrease/(Decrease) to OCI 10% Increase inUnderlying Rate10% Decrease inUnderlying Rate10% Increase inUnderlying Rate10% Decrease inUnderlying RateForeign currency hedges$27 $(27)$197 $(197)Equity Security Price RiskWe have minimal exposure to price fluctuations on equity mutual funds and equity exchange-traded funds within our marketable equity securities portfolio. Marketable equity securities are recorded at fair value and approximates a portion of our liability under our Management Deferred Compensation Plan (“MDCP”). Gains and losses from the portfolio and the change in our MDCP liability are recorded in our consolidated statements of earnings.We performed a sensitivity analysis based on a 10% change in the underlying equity prices of our investments as of October 1, 2023 and determined that such a change would not have a significant impact on the fair value of these instruments.38Table of ContentsInterest Rate RiskLong-term DebtWe utilize short-term and long-term financing and may use interest rate hedges to manage our overall interest expense related to our existing fixed-rate debt, as well as to hedge the variability in cash flows due to changes in benchmark interest rates related to anticipated debt issuances. See Note 3, Derivative Financial Instruments and Note 9, Debt, to the consolidated financial statements included in Item 8 of Part II of this 10-K for further discussion of our interest rate hedge agreements and details of the components of our long-term debt, respectively, as of October 1, 2023.The following table summarizes the impact of a change in interest rates as of October 1, 2023 on the fair value of Starbucks debt (in millions): Fair ValueDecrease in Fair Value for a 100 Basis Point Increase in Underlying RateLong-term debt(1)(2)$13,426 $(820)(1)Amount disclosed is net of $16 million change in the fair value of our designated interest rate swaps. Refer to Note 3, Derivative Financial Instruments, for additional information on our interest rate swap designated as a fair value hedge.(2)Includes $750 million in Senior Notes that matured on October 1, 2023 but remained in current portion of long-term debt on the consolidated balance sheet as the debt repayment was not made until the first day of fiscal 2024.Available-for-Sale Debt SecuritiesOur available-for-sale securities comprise a diversified portfolio consisting mainly of investment-grade debt securities. The primary objective of these investments is to preserve capital and liquidity. Available-for-sale securities are recorded on the consolidated balance sheets at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income. We do not hedge the interest rate exposure on our investments. We performed a sensitivity analysis based on a 100 basis point change in the underlying interest rate of our available-for-sale securities as of October 1, 2023 and determined that such a change would not have a significant impact on the fair value of these instruments.CRITICAL ACCOUNTING ESTIMATESCritical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions.Our significant accounting estimates are discussed in additional detail in Note 1, Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 8 of Part II of this 10-K. We consider financial reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate and transparent information relative to the current economic and business environment. During the past five fiscal years, we have not made any material changes to the accounting methodologies used to assess the areas discussed below, unless noted otherwise. We believe that our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below:Income TaxesWe recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted tax rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized.In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of operations. In projecting future taxable income, we consider historical results and incorporate assumptions about the amount of future state, federal and foreign pre-tax operating income adjusted for items that do not have tax consequences. Our assumptions regarding future taxable income are consistent with the plans and estimates we use to manage our underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income/(loss). 39Table of ContentsIn addition, our income tax returns are periodically audited by domestic and foreign tax authorities. These audits include review of our tax filing positions, such as the timing and amount of deductions taken and the allocation of income between tax jurisdictions. We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of our position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. For uncertain tax positions that do not meet this threshold, we record a related liability. We adjust our unrecognized tax benefit liability and income tax expense in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available. As discussed in Note 14, Income Taxes, to the consolidated financial statements included in Item 8 of Part II of this 10-K, there is a reasonable possibility that our unrecognized tax benefit liability will be adjusted within 12 months due to the expiration of a statute of limitations and/or resolution of examinations with taxing authorities.We have generated income in certain foreign jurisdictions that may be subject to additional foreign withholding taxes and U.S. state income taxes. We regularly review our plans for reinvestment or repatriation of unremitted foreign earnings. The possibility exists that foreign earnings declared as indefinitely reinvested may be repatriated as our plans are based on our estimated working and other capital needs in jurisdictions where our earnings are generated. While we do not expect to repatriate cash to the U.S. to satisfy domestic liquidity needs, if these amounts were distributed to the U.S., in the form of dividends or otherwise, we may be subject to additional foreign withholding taxes and U.S. state income taxes, which could be material. Our income tax expense, deferred tax assets and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. Deferred tax asset valuation allowances and our liabilities for unrecognized tax benefits require significant management judgment regarding applicable statutes and their related interpretation, the status of various income tax audits and our particular facts and circumstances. Although we believe that the judgments and estimates discussed herein are reasonable, actual results, including forecasted business performance, could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which a liability has been established or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected.Property, Plant and Equipment and Other Finite-Lived AssetsWe evaluate property, plant and equipment, operating lease right-of-use (“ROU”) assets and other finite-lived assets for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. When evaluating for impairment, we first compare the carrying value of the asset to the asset’s estimated future undiscounted cash flows. If the estimated undiscounted future cash flows are less than the carrying value of the asset, we determine if we have an impairment loss by comparing the carrying value of the asset to the asset's estimated fair value and recognize an impairment charge when the asset’s carrying value exceeds its estimated fair value. The adjusted carrying amount of the asset becomes its new cost basis and is depreciated over the asset's remaining useful life. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For company-operated store assets, the impairment test is performed at the individual store asset group level, which is inclusive of property, plant and equipment and lease ROU assets. The fair value of a store’s assets is estimated using a discounted cash flow model. For other long-lived assets, fair value is determined using an approach that is appropriate based on the relevant facts and circumstances, which may include discounted cash flows, comparable transactions or comparable company analyses.Our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values. Key assumptions used in estimating future cash flows and asset fair values include projected revenue growth and operating expenses, as well as forecasting asset useful lives and selecting an appropriate discount rate. For company-operated stores, estimates of revenue growth and operating expenses are based on internal projections and consider the store’s historical performance, the local market economics and the business environment impacting the store’s performance. The discount rate is selected based on what we believe a buyer would assume when determining a purchase price for the store. The fair value of a store’s ROU asset is estimated considering what a market participant would pay to lease the asset for its highest and best use. These estimates are subjective and our ability to realize future cash flows and asset fair values is affected by factors such as ongoing maintenance and improvement of the assets, changes in economic conditions and changes in operating performance. 40Table of ContentsIn fiscal 2022, we announced our Reinvention Plan in the U.S. market to increase efficiency while elevating the partner and customer experience. As a result of the restructuring efforts in connection with the Reinvention Plan, we recorded immaterial impairment charges on our consolidated statements of earnings during the fiscal years ended October 1, 2023 and October 2, 2022. Future impairment charges attributed to our Reinvention Plan are not expected to be material.Asset impairment charges are discussed in Note 1, Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 8 of Part II of this 10-K. Goodwill and Indefinite-Lived Intangible AssetsWe evaluate goodwill and indefinite-lived intangible assets for impairment annually during our third fiscal quarter, or more frequently if an event occurs or circumstances change that would indicate impairment may exist. When evaluating these assets for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired. If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we calculate the estimated fair value of the reporting unit using discounted cash flows or a combination of discounted cash flow and market approaches.When assessing goodwill for impairment, our decision to perform a qualitative impairment assessment for an individual reporting unit is influenced by a number of factors, inclusive of the carrying value of the reporting unit’s goodwill, the significance of the excess of the reporting unit’s estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments and the date of acquisition. If we perform a quantitative assessment of an individual reporting unit’s goodwill, our impairment calculations contain uncertainties because they require management to make assumptions and to apply judgment when estimating future cash flows and asset fair values, including projected revenue growth and operating expenses related to existing businesses, product innovation and new store concepts, as well as utilizing valuation multiples of similar publicly traded companies and selecting an appropriate discount rate. Estimates of revenue growth and operating expenses are based on internal projections considering the reporting unit’s past performance and forecasted growth, strategic initiatives, local market economics and the local business environment impacting the reporting unit’s performance. The discount rate is selected based on the estimated cost of capital for a market participant to operate the reporting unit in the region. These estimates, as well as the selection of comparable companies and valuation multiples used in the market approaches are highly subjective, and our ability to realize the future cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies, including retail initiatives and international expansion. We continue to believe the fair value of each of our reporting units is significantly in excess of its carrying value, and absent a sustained multi-year global decline in our business in key markets such as the U.S. and China, we do not anticipate incurring significant goodwill impairment in the next 12 months. Our fiscal 2023 annual goodwill impairment testing was completed in the third fiscal quarter. Where a quantitative assessment was performed, the estimated fair value of our reporting units exceeded carrying value by approximately $101 billion.When assessing indefinite-lived intangible assets for impairment, where we perform a qualitative assessment, we evaluate if changes in events or circumstances have occurred that indicate that impairment may exist. If we do not perform a qualitative impairment assessment or if changes in events and circumstances indicate that a quantitative assessment should be performed, management is required to calculate the fair value of the intangible asset group. The fair value calculation includes estimates of revenue growth, which are based on past performance and internal projections for the intangible asset group’s forecasted growth, and royalty rates, which are adjusted for our particular facts and circumstances. The discount rate is selected based on the estimated cost of capital that reflects the risk profile of the related business. These estimates are highly subjective, and our ability to achieve the forecasted cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies, including retail initiatives and international expansion. We do not anticipate recording significant impairment charges in the next 12 months.Definite-lived intangible asset impairment charges are discussed in Note 8, Other Intangible Assets and Goodwill, to the consolidated financial statements included in Item 8 of Part II of this 10-K. RECENT ACCOUNTING PRONOUNCEMENTSSee Note 1, Summary of Significant Accounting Policies and Estimates, to the consolidated financial statements included in Item 8 of Part II of this 10-K for a detailed description of recent accounting pronouncements. Item 7A. Quantitative and Qualitative Disclosures About Market RiskThe information required by this item is incorporated by reference to the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Commodity Prices, Availability and General Risk Conditions” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Risk Management” in Item 7 of this Report.41Table of Contents \ No newline at end of file diff --git a/STRYKER CORP_10-Q_2023-11-03_310764-0000310764-23-000116.html b/STRYKER CORP_10-Q_2023-11-03_310764-0000310764-23-000116.html new file mode 100644 index 0000000000000000000000000000000000000000..e75420d85f7e5b32e57a3c1806c81ff514ff829d --- /dev/null +++ b/STRYKER CORP_10-Q_2023-11-03_310764-0000310764-23-000116.html @@ -0,0 +1 @@ +MD&A section not found. \ No newline at end of file diff --git a/TRAVELERS COMPANIES, INC._10-Q_2023-10-18_86312-0000086312-23-000063.html b/TRAVELERS COMPANIES, 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